Astra Resources Plc v Credit Veritas USA LLC

Astra Resources Plc (the company) applies for an injunction to restrain the presentation of a winding-up petition against it by Credit Veritas USA LLC (CV). CV served a statutory demand on the company in December 2014, claiming a total amount of US $1,535,000.

The company applied in early January 2015 for an injunction to restrain the presentation of a winding-up petition based on the statutory demand and at a hearing on 13 January 2015 CV gave an undertaking not to present a petition pending a full hearing of the company’s application. Directions were given for the service by CV of its evidence in answer to the evidence filed by the company by 20 January 2015 and for the service of evidence in reply by the company by 10 February 2015. CV served its evidence in accordance with the directions but the company’s evidence in reply was not served until 20 February 2015. At the start of the present hearing, I retrospectively extended time for service of the company’s evidence in reply, on an application made by the company. CV had earlier opposed any such extension and had filed evidence in response to the company’s application for the extension, but at the hearing CV was content that the company’s evidence should be admitted.

The company is incorporated in England as a public company, but it appears that in practice it is managed by directors in Australia. In her evidence on behalf of the company Silvana de Cianni, a director of the company, states that it was founded in 2009 by Dr Jaydeep Biswas and herself. It appears to be or to have been a holding company with indirect interests in commodities and “green” technologies, but it is difficult to say much about its present condition as it has not filed accounts since those for the year ended 30 June 2013. There is in evidence a press release from the Australian Securities & Investments Commission that it commenced legal proceedings against the company and its directors in May 2014, alleging that the company had illegally raised more than AUS $7.6 million from almost 300 Australian investors in 2011-2012. In these proceedings, the Commission sought declarations of contravention against the company and disqualification orders against Dr Biswas and Ms de Cianni. The press release states that the proceedings were tried in Adelaide in December 2014 and that judgment was reserved. It does not appear that judgment has yet been delivered.

CV is a limited liability company incorporated under the laws of New York, which carries on business in New York as the provider of investment and other services. It has been represented in these proceedings by Mr Uriel Rubinov, a director.

It is not in dispute that a Consulting Agreement was made between CV and the company as of 1 August 2013. The major part of the sums alleged by CV to be due to it from the company are said to arise under that agreement.

An earlier agreement was made between CV and an Australian subsidiary of the company, Astra Project Finance Pty Limited on 10 May 2012, whereby CV agreed to provide services in respect of litigation in the United States between the subsidiary and a US company called MidOil USA LLC and associated parties. A claim for US $75,000, included in the statutory demand, is said to arise in the context of that litigation and agreement.

The Consulting Agreement concerns the provision of a variety of services by CV to the company. By clause 1(a), the company agreed to engage CV to provide the services set out in schedule A to the agreement (the Services) and CV agreed to provide the Services, using reasonable business efforts to provide the Services in a diligent and timely manner. By clause 2, the company agreed to pay CV for the Services in accordance with the terms set out in schedule B to the agreement. As to the term of the agreement, clause 3(a) provided:

“The initial term of this Agreement (Initial Term) shall be for a period of twelve (12) calendar months beginning on August 1^st, 2013 and ending on July 31^st, 2014. This Agreement may not be terminated by the Company during the Initial Term for any reason other than Cause. The Initial Term shall be automatically renewed for successive one (1) – year periods (each Renewal Term and collectively with the Initial Term, the Term) unless a Party sends a written notice of non-renewal to the other Party no later than ninety (90) days prior to the expiry of the Initial Term, or of any Renewal Term, as the case may be.”

Clause 4 provided that it was understood and agreed that the agreement was for the performance of Services and that the relationship of the parties to each other was that of independent contractors, with no agency or partnership created by the agreement. It further provided that CV was not entitled to any remuneration, rights or benefits other than as set forth in the agreement and in schedule B, unless otherwise agreed in writing by both parties. Clause 12 contained an entire agreement clause in conventional form and further provided that the agreement was governed by the law of New York and that the company irrevocably submitted to the exclusive jurisdiction of the state and federal courts in New York.

Schedule A set out the Services to be provided in accordance with the terms of the agreement. They are in seven separate paragraphs, covering the private placement of equity and other securities, debt financing, the identification of projects, representation of the company, project and portfolio management, strategic advice and marketing, publicity and other activities.

Schedule B, containing the provisions for payment by the company to CV, sets out in paragraphs 1 to 4, payments in respect of the various types of Services. In each case the payments are expressed to be payable at the closing or consummation of relevant transactions. It is common ground that no events have occurred which would trigger payments under any of these paragraphs.

Paragraph 6 provides that the company shall reimburse CV, promptly upon request, for its reasonable expenses incurred in connection with the performance of its Services, regardless of whether any transactions are closed or consummated. However, paragraph 6 also provides that such expenses should be pre-approved by the company and no claim is made by CV in the statutory demand for payment under this paragraph.

Paragraph 7 provides for the issue or transfer by the company to CV of 2 million shares in the company as a signing fee upon the execution of the agreement. In September 2013, the company procured the transfer of 2 million shares to a trust in favour of Mr Rubinov’s children, although Ms de Cianni states in her third witness statement that this was in recognition of CV’s work on the MidOil litigation and not pursuant to paragraph 7 of schedule B.

The provisions of schedule B most directly in point on the present application are paragraphs 8 and 10 which provide as follows:

“8.

Retainer. The Company shall pay the Consultant a monthly retainer as follows:

a)

US$30,000 on the first day of each calendar month during the Initial Term;

b)

US$60,000 on the first day of each calendar month during the first Renewal Term;

c)

US$120,000 on the first day of each calendar month during the Second Renewal Term; and

d)

US$240,000 on the first day of each calendar month during the third Renewal Term and for each Renewal Term thereafter.

…

10.

Payment For Work Performed. The Company hereby acknowledges and agrees that the Consultant has been providing all or a portion of the Services beginning on April 1^st, 2012. As compensation for work previously performed by the Consultant, the Company shall pay, compensate & reimburse the Consultant an amount equal to US$30,000 per month from engagement of Consultant on April 1^st, 2012 to present, upon raising the necessary funds.”

It is common ground that there was no private placement or debt financing in which CV was involved, but the company accepts that CV brought projects to the company, one called the Stanley Meyer project and the other concerning copper isotopes, neither of which led to a transaction.

In mid-2014, CV claimed to be entitled to payments totalling approximately US $1.5 million. Mr Rubinov, Dr Biswas and Ms de Cianni met in Rome on 6 September 2014 and, according to Mr Rubinov’s evidence, an agreement was reached for a lump sum payment of US $500,000 in respect of the Stanley Meyer project, the issue or transfer of 5 million shares in the company and a continuation agreement. The company denies that any such agreement was reached at the meeting. Draft agreements were subsequently provided by CV to the company, with an invitation for the company’s lawyers to consider them and propose amendments if they thought it appropriate. No written agreements were concluded and I think it is common ground that no binding contract in the terms which were said to have been agreed in Rome on 6 September 2014 was finalised. Indeed, it was as a result of the failure to finalise any such agreement, that CV served the statutory demand.

As I earlier mentioned the sum claimed in the statutory demand was US $1,535,000. The particulars of that claim are set out in the demand in the following terms:

“Executed Consulting Agreement for Credit Veritas, USA, LLC and for numerous services performed under the contract agreement from April 1^st, 2012 through November 30^th, 2014, with total due being US$960,000.00.

Stanley Meyer research provided and agreed to purchase in November 2013, with a total due being US$500,000.00.

Advisor Fee for services performed relating to MidOil USA, LLC litigation, with a total due being US$75,000.00.”

The company submits that, on two grounds, CV should be restrained from presenting a petition based on this demand. First, it submits that the evidence shows a sufficient dispute concerning the amounts claimed as to preclude the presentation of a petition. Secondly, it submits that CV has a collateral purpose in seeking to present a winding-up petition which should disqualify it from doing so.

As regards the first ground there is no dispute as to the relevant law. Mr Pester, counsel for the company, cited paragraph 4 of the judgment of the Court of Appeal in Tallington Lakes Ltd v Ancasta International Boat Sales Ltd [2012] EWCA Civ 1712; [2014] BCC 327:

“There was no dispute before the judge, nor has there been in this court, on the applicable legal principle. It can be shortly stated. If the company can demonstrate that the alleged debt on which the petition is founded is genuinely disputed on substantial grounds, the court will strike out the petition. There are rare exceptions to this principle, none of which is relevant to this case.”

In applying this principle to the constituent elements of the statutory demand, it is necessary to look at the provisions of the agreement and the evidence in relation to each. For convenience, I shall take them in reverse order.

As to the claim for US $75,000 as “an advisor fee for services performed relating to MidOil USA LLC litigation”, Ms de Cianni says in her first witness statement that the company was asked by Mr Rubinov for a payment of US $75,000 in respect of the MidOil litigation but it was not paid because it “was not part of the understanding with the Directors of the company”. Mr Rubinov’s evidence gives no details of the basis of this alleged claim, save to refer to paragraph 6 of schedule B to the Consulting Agreement as entitling CV to the reimbursement of expenses. The Consulting Agreement would not seem to be in point to this claim, since the amount claimed is said to be due in respect of services provided by CV connected to the MidOil litigation, which does not form part of the Services to be provided under the Consulting Agreement. In her third witness statement, Ms de Cianni states that CV rendered invoices totalling over US $565,000, all of which were paid but the terminal invoice for US $75,000 was not paid because the litigation was not resolved by CV.

In the present state of the evidence, there is no clear basis for the claim for US $75,000 and I am satisfied that the liability of the company to pay this sum is genuinely disputed on substantial grounds.

The second element in the statutory demand is the claim for US $500,000 in respect of the Stanley Meyer project. On the evidence before the court, there is no basis for this claim. It cannot be a claim under the terms of schedule B to the Consulting Agreement, because any payment in respect of the project would be due only if a transaction was closed or consummated in respect of the project, and it is common ground that there was no such transaction. Mr Rubinov on behalf of CV said that its basis lay in the agreement reached in Rome on 6 September 2014, but that agreement never became a binding contract. I am satisfied that, at the very least, there is a genuine dispute on substantial grounds as to this claim.

The first, and largest, element in the statutory demand stands on a rather different footing. It is a claim for US $960,000 in respect of the period from 1 April 2012 to 30 November 2014. Although the statutory demand refers to the Consulting Agreement and to “numerous services performed under the contract agreement”, the invoice sent to the company by CV setting these amounts out stated only that it was a “Consulting Fee (as per the contracted [sic], April 1^st, 2012 through November 30^th, 2014)”.

Although the statutory demand does not state how the total figure of US $960,000 was calculated, Mr Rubinov in addressing the court confirmed that it represented US $30,000 for each of the 32 months between April 2012 and November 2014. Anyone reading the invoice and the statutory demand, and having knowledge of the terms of schedule B to the Consulting Agreement, would I think conclude that it was based on the fees for which provision was made in paragraphs 8 and 10 of schedule B.

Paragraph 10 of schedule B makes provision for the payment of US $30,000 per month “from engagement of Consultant on April 1^st, 2012 to present, upon raising the necessary funds.” This produces a figure of US $480,000, being US $30,000 for each of the 16 months between April 2012 and July 2013. The obligation to pay this sum is expressed to be conditional “upon raising the necessary funds” and, in the light of the evidence before the court which does not suggest that any funds were raised by the company after 1 August 2013, I am satisfied that as regards this element of the total claim of US $960,000, there is a genuine dispute on substantial grounds.

The balance represents sums claimed under paragraph 8 of schedule B. CV has, in fact, underestimated the amount which is arguably claimable under that paragraph because the Renewal Term commenced in August 2014, which gives rise to a claim of US $60,000 for each month from August to November 2014. On this basis, the total amount which may be claimed under paragraph 8 amounts to US $600,000, in respect of the period from August 2013 to the end of November 2014.

As a matter of construction of the terms of the agreement, and in particular paragraph 8 of Schedule B, there can be no doubt that the retainer for which provision is made by paragraph 8 is unconditionally payable. Unlike paragraphs 1 to 4 of schedule B, it is not expressed to be payable on the closing or consummation of any transaction and, unlike paragraph 10, it is not expressed to be payable upon the necessary funds becoming available.

In her first witness statement, Ms de Cianni stated that no sums were due to CV under the agreement because:

“there has been no consideration provided by Credit Veritas with respect to the amount that it is claiming and no amount is due and owing to Credit Veritas without a proper itemisation of work done as alleged by Credit Veritas.”

This suggested line of defence to the claim is in my judgment misconceived. Paragraph 8 of schedule B provides for a retainer fee, payable on a monthly basis during the term of the Consulting Agreement. Unlike the other provisions for payment, the obligation is not dependant upon the successful conclusion of a transaction or, as in the case of paragraph 10, the availability of funds. The suggestion that no Services were provided under the Consulting Agreement is clearly not correct as a matter of fact, given that the company accepts that CV brought two possible projects to it.

In her third witness statement, filed on 20 February 2015, Ms de Cianni put forward a different defence to the claim for payment of fees under paragraph 8. In paragraph 20 of her witness statement she stated:

“The only other payment provision – for ongoing retainer amounts as set out in Schedule B, paragraph 8 was also intended to be contingent upon the raising of funds. This paragraph, like paragraph 10, was supposed to be subject to the caveat “upon raising the necessary funds”. The exclusion of these words was a clear mistake. Patently the parties did not intend payment of the historic retainer amounts to be contingent on the raising of funds and the payment of future retainer amounts not to be so contingent. This error only came to light recently when we reviewed Schedule B in light of the Respondent’s claims and the discussions between Dr Biswas and Mr Rubinov in the lead up to the signature of the Consulting Agreement. As noted above, Dr Biswas specifically discussed the requirement that no sums would be payable under the Consulting Agreement prior to the raising of funds. When we signed the Consulting Agreement we did not notice that the wording “upon raising necessary funds” was included in paragraph 10 but not in paragraph 8. This was a mistake on our part. Had we noticed this, we would have insisted on the inclusion of this wording in paragraph 8.”

On the basis of this evidence, it is submitted on behalf of the company that it has a seriously arguable case for rectification (or reformulation, as Mr Pester suggested was the remedy under New York law) of paragraph 8 of schedule B to include a provision to equivalent effect to the words at the end of paragraph 10.

There is no other evidence before the court to suggest that paragraph 8 of schedule B did not properly reflect the common intention of the parties and in my judgment there are no substantial grounds on the evidence for a claim for rectification of paragraph 8. A claim for rectification depends critically on showing that the agreement does not reflect the true intention and agreement of both parties. Whatever the company may have thought about the circumstances in which the retainer fee would become payable, neither this paragraph of Ms de Cianni’s witness statement nor any other evidence suggests that CV had agreed or intended that payments under paragraph 8 should be conditional in any way.

Further, the evidence given by Ms de Cianni is surprising. She said that the alleged error only came to light recently when the company reviewed schedule B. However, as she states in the same witness statement, drafts of the Consulting Agreement were circulated among the parties and their lawyers between October 2012 and August 2013. There is in evidence a draft of the Consulting Agreement prepared and circulated in December 2012. It is clear that the terms of schedule B were considered in some detail. Paragraph 10 in that draft does not include the words at the end of the paragraph which appear in the executed version (“upon raising the necessary funds”) but instead provides that payments of US $30,000 per month should be made “for a period of nine months following consummation of a Private Placement or Debt Financing”, words which are not included in paragraph 10 as executed. In contrast, no changes have been made to paragraph 8. Given the length of time over which the terms of this agreement were negotiated and the apparent care with which its terms were addressed, it seems unlikely that an error in the drafting of paragraph 8 was overlooked. This is also an important factor, because, as has long been recognised, convincing proof is required in a claim for rectification to contradict the inherent probability that the written instrument truly represents the intention of the parties.

Mr Pester relied on the fact that during the currency of the Consulting Agreement, CV had not invoiced the company for the retainer fees due under paragraph 8. He submitted that, if it believed that it was entitled to the unconditional payment of the monthly retainer, it would have rendered monthly invoices or at least raised the issue when such monthly retainer fees were not paid. I do not think that this factor is sufficient to provide the company with a serious argument for rectification. It was common ground that the company was short of funds in the relevant period. In these circumstances, an absence of invoices or of complaints provides little support for the proposition that paragraph 8 did not state the common intention of the parties.

For these reasons, I conclude that the company has been unable to demonstrate a genuine dispute on substantial grounds as regards a claim for US $600,000.

As a second ground for an injunction restraining the presentation of a winding-up petition by CV, the company contends that such a petition would be an abuse of process because CV’s purpose would not be for the benefit of CV as a creditor of the company but would be for some purpose of its own. In this respect, Mr Pester referred me to and relied on the advice of the Privy Council given by Lord Wilson in Ebbvale Ltd v Hosking [2013] UKBC 1.

The allegation of an improper purpose on the part of CV is based on an email sent by Mr Rubinov to a director of the company who had invested considerable personal funds in it and was very concerned that he might lose his investment. In the email, Mr Rubinov stated that the Consulting Agreement had been terminated and that a statutory demand would be served leading to insolvency proceedings. Mr Rubinov continued:

“As you and I met in New York last year and as I have utmost respect for you, I wanted to pay you the courtesy and inform you of the aforementioned. Moreover, as I know you are heavily invested in Astra, I wanted to give you an opportunity to join Credit Veritas in it’s efforts as a creditor, affording us the opportunity to force the company into involuntary bankruptcy and take over the leadership, through submission of a reorganization plan in the London Courts. I already put all the pieces of the puzzle together, including proper legal team and a road map for listing in USA. This will potentially allow Astra shareholders to recoup their investment and profit. The reorganization will also make all Astra’s current problems go away, including ASIC. I’m not sure what your relationship with Astra Directors is, but I am sure you’re tired of current issues, delays and broken promises. Most importantly, I’m certain you want to recoup your investment. If you’re interested, I invite you to call me to discuss this further.”

On the basis of this email, it is submitted that the true purpose of CV in presenting a winding-up petition would not be to obtain payment of the amount due to it, to the extent that the assets of the company permitted it, but would be to obtain control of the company through the “submission of a reorganisation plan in the London Courts.” As Mr Pester observed, this language is more suggestive of proceedings under chapter 11 of the US Bankruptcy Code than insolvency proceedings under the Insolvency Act 1986. Nonetheless, it is possible to replicate in English proceedings the effect of a plan of reorganisation through the means of either a scheme of arrangement or a company voluntary arrangement. The critical point, though, is that any such reorganisation could be achieved only through the proper processes of the liquidation. It would require in practice the support of the liquidator and, on any footing, the support of a majority of the creditors and, if a scheme of arrangement were used, the approval of the court on the basis of the fairness of the proposals. In short, a scheme of arrangement or company voluntary arrangement would take effect only if it were beneficial to the unsecured creditors as a whole, of whom CV is one.

This is a far cry from the type of collateral purpose which arose in the authorities discussed by Lord Wilson in Ebbvale Ltd v Hosking. The collateral purpose of the petitioner in Re a Company (No 001573 of 1983) [1983] BCLC 492, to which Lord Wilson particularly referred, arose because, if a winding-up petition was presented before a particular date, the landlord would terminate the lease and grant a new lease to the petitioner.

Even if CV retains the purpose set out in the email quoted above, it is a purpose of a quite different kind from those discussed in the cases to which Lord Wilson referred. It is a purpose which could be achieved only as part of the liquidation process and only if the liquidator and the court were satisfied that it was in the interests of the unsecured creditors as a class. Similarly, in Ebbvale Ltd v Hosking, the petitioner’s purpose was in part to secure the independent conduct of the defence to proceedings brought against the company by the petitioner. Independent conduct of the defence would be in the interests of creditors generally and it was therefore a legitimate and proper purpose for a winding-up petition.

I therefore conclude that it would not be an abuse of process for CV to present a petition to wind-up the company in its capacity as a creditor for unpaid retainer fees amounting to US $600,000.

Accordingly, I dismiss the company’s application for an injunction to restrain the presentation of a winding-up petition by CV, and declare that CV is entitled to present a winding-up petition based on unpaid retainer fees amounting to US $600,000.

I should mention a further point raised by Mr Pester on behalf of the company. He said that the evidence demonstrated that the centre of main interest (COMI) of the company was in Australia. It was therefore, he submitted, appropriate that if winding-up proceedings were to be brought anywhere, they should be brought in Australia. He accepted that this was not a ground on which the court should enjoin the presentation of a petition but, he submitted, it might go to the exercise of the discretion of the court hearing the winding-up petition. The location of a company’s COMI is of particular relevance to the distribution of insolvency jurisdiction among EU member states, in accordance with the EC Regulation on Insolvency Proceedings. As the company is registered in England and is said to have its COMI in Australia, the Regulation is not of relevance in the present case. The location of a company’s COMI is also relevant for the application of the UNCITRAL Model Law on Cross-Border Insolvency, enacted in Great Britain by the Cross-Border Insolvency Regulations 2006, as regards the recognition of and the provision of assistance to foreign insolvency proceedings.

Mr Pester’s submission would have some force if insolvency proceedings had commenced or were pending in Australia. If the court were satisfied that the COMI of the company was located in Australia, that would be a highly relevant factor as to whether insolvency proceedings should also take place in this country. But, in the absence of such proceedings, CV is entitled to seek the winding-up of the company in its country of incorporation and the fact that its COMI may be located in Australia would not, I think, be a factor of significance in deciding whether to wind up the company.