Case No: 2002 1357
Royal Courts of Justice
Strand
London WC2A 2LL
BEFORE:
MR JUSTICE CRESSWELL
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BETWEEN:
KENSINGTON INTERNATIONAL LIMITED & ANR
Claimant
- and -
REPUBLIC OF THE CONGO
Defendant
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Mr E McQuater, QC and Mr P Ratcliffe (instructed by Dechert LLP) appeared on behalf of the Claimant
Mr J Gruder, QC (instructed by Ince & Co.) appeared on behalf of the Defendant
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Judgment
MR JUSTICE CRESSWELL: The third parties apply for an order discharging the order of Gloster J dated 5 April (as varied by the order of 10 April) on the grounds that these orders were wrongly granted, and for an order that the claimant should pay damages pursuant to its undertaking in damages to any Vitol party which has suffered loss pursuant to the orders.
The third parties further seek a declaration that:
“The Third Parties and any of the Vitol Parties be free to purchase oil from any Congo Party (including on a prepayment basis if required by the relevant Congo Party) so long as the transaction is not at an undervalue as defined in section 423(1) of the Insolvency Act 1986.”
The parties to this litigation
Kensington International Limited is a corporation organised and existing under the laws of the Cayman Islands. Kensington is in the business of, among other things, purchasing and selling debt and equity instruments issued by domestic US and foreign entities. Kensington is managed by Elliot International Capital Advisers Inc, a Delaware corporation with its principal place of business in New York City.
The third parties, Vitol Services Limited and Vitol Broking Limited, are English companies which provide broking and other services to Vitol SA, a company organised under the laws of Switzerland, and to other companies in the Vitol Group of companies.
It is necessary to refer to a number of relevant Congo entities.
Société Nationale des Pétroles du Congo (“SNPC”) is the state oil company of Congo, incorporated in 1998. Mr Justice Cooke in the Nordic Hawk (see below) found that SNPC is part of the Congolese State, having no separate existence from the State.
SNPC UK is an English company, a subsidiary of SNPC, established in May 1998 as a commercial branch of SNPC in London. It ceased activity in November 2003. It was put into creditors’ liquidation in mid-2004.
Cotrade SA and Cotrade Asia are wholly owned subsidiaries of SNPC through which the Congo sells its oil. Cotrade is a contraction of “La Congolaise de Trading”. In the Nordic Hawk, Cooke J found that Cotrade, like SNPC, is an emanation of the Congolese State with no separate existence from the State.
Sphynx Bermuda Limited is a Bermuda company incorporated in February 2002. Cooke J found in the Nordic Hawk that Sphynx Bermuda Limited is a “sham” company, a “creature” of the Congo in a façade used by the Congo to sell its oil. Sphynx UK is an English company incorporated in February 2002. Cooke J found in the Nordic Hawk that this company is controlled by Mr Gokana (President and Director General of SNPC since January 2005) to act as contact/service company for Sphynx Bermuda.
The orders of Gloster J
On 5 April, Gloster J granted ex parte orders against the third parties. Disclosure orders were made as set out in paragraphs 1 to 7. An injunction was granted (paragraph 8) in the following terms:
“Until further order of the Court, the Third Parties must not (unless the Claimant’s solicitors consent in advance in writing) whether by themselves, their servants or agents or otherwise howsoever:
(a) pay, or cause to be paid, or assist any other person to pay to any of the Congolese Parties (as defined in Schedule A):
(i) any sum of money due or accruing due by or from any of the Vitol Parties (as defined in Schedule A) to any of the Congolese Parties.
(ii) any sum of money in payment for or in respect of any of the Transactions identified in paragraphs 2 to 4 of Schedule A.
(b) enter into, or participate in any agreement or arrangement or act on any instructions by which any contract in respect of or pursuant to any of the Transactions identified in paragraphs 2 to 4 of Schedule A is varied, modified or assigned or the debt due in respect of or pursuant to any such Transaction is assigned or otherwise dealt with or by which there is any alteration in the terms or process or mechanism by which payment in respect of or pursuant to any such Transaction is to be made, including for the avoidance of doubt by means of any prepayment or pre-financing arrangement.
An order was made as to the preservation of documents (paragraph 9) and the claimant was granted permission to use information obtained in these proceedings elsewhere (paragraph 12).
A hearing followed on 7 April at which Mr Gruder QC represented the third parties. I will refer later to the judgment of Gloster J on that occasion. There was a further order dated 10 April. Paragraph 8 of the order of 10 April was in these terms:
“Until further order of the Court, the Third Parties must not (unless the Claimant’s solicitors consent in advance in writing) whether by themselves, their servants or agents (including for the avoidance of doubt Mr Gilles Chautard and Mr Sam Lambroza) or otherwise howsoever:
(a) pay, or cause to be paid, or assist any other person to pay to any of the Congolese Parties (as defined in Schedule A) any sum of money in payment for or in respect of any of the Transactions identified in paragraphs 2 to 3 of Schedule A.
(b) enter into, or participate in any agreement or arrangement or act on any instructions by which any contract in respect of or pursuant to any of the Transactions identified in paragraphs 2 to 3 of Schedule A is varied, modified or assigned or the debt due in respect of or pursuant to any such Transaction is assigned or otherwise dealt with or by which there is any alteration in the terms or process or mechanism by which payment in respect of or pursuant to any such Transaction is to be made, including for the avoidance of doubt by means of any prepayment or pre-financing arrangement.”
The evidence before the court
There is a considerable amount of evidence before the court to which I refer. On behalf of the claimant, there are witness statements from Donald Schwarzkopf (1 to 3), Catherine Thomas (1), Iqbal Rajahbalee (1), Jean-Cedric Michel (1 and 2). On behalf of third parties, there are witness statements from Mr Stephen Fox (1 to 5) and Mr Rodolphe Gautier (1).
Chronology of relevant proceedings and hearings
I set out below a chronology of relevant proceedings and hearings.
October 2001:
Connecticut Bank of Commerce (“CBC”) obtained attachment orders against accounts of SNPC in Paris.
23 January 2002:
The first instance court in Paris refused to set aside the attachment order made in October 2001 on the basis that SNPC was an emanation of Congo.
13 August 2002:
Walker, another creditor of Congo successfully applied to Graham J in the Grand Court of the Cayman Islands for an interim injunction against Congo attaching certain sums flowing through the Olearius Facility.
20 December 2002:
Kensington obtained summary judgment (Cresswell J) against the Congo in the sum of US$56,911,991.47 plus interest (claim number Folio 2002 No 1088) relating to the breach by Congo of a Loan Agreement dated 18 April 1984.
January 2003:
The decision of the first instance court in Paris of 23 January 2002 was upheld on appeal.
21 January 2003:
Kensington obtained default judgment (Cresswell J) against the Congo in the sum of US$ 22,438,606.91 plus interest (claim number Folio 2002 No 1281) relating to the breach by Congo of a loan agreement dated 21 December 1983.
21 January 2003:
Kensington obtained default judgment (Cresswell J) against the Congo in the sum of US$ 19,745,970.89 plus interest (claim number Folio 2002 No 1282) relating to the breach by Congo of a credit agreement dated 8 March 1983.
23 January 2003:
Kensington obtained default judgment (Moore-Bick J) against the Congo in the sum of US$ 1,316,027.48 plus interest in respect of claim number Folio No 1357 relating to the breach by Congo of a loan agreement dated 12 May 1983.
16 April 2003:
In proceedings before Tomlinson J in the Commercial Court, Kensington sought unsuccessfully to enforce the negative pledge and pari passu provisions of the 18 April 1984 Loan Agreement. In his judgment, Tomlinson J said:
“46. Furthermore, there is evidence before the Court, apparently publicly available also on the Internet, to the effect that the legal structure of the large hedged crude oil prepayment facility, to which I have already referred, was deliberately selected by Congo and by its legal advisors in an attempt to prevent Congo’s creditors from seizing oil in the hands of SNPC and to try to reduce the risk of action by Congo’s creditors. This information emerges from a memorandum prepared for Congo, or for SNPC, in May of 2002 by Messrs Cleary, Gottlieb, Steen & Hamilton.
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98. It remains to consider the declaratory relief. As I indicated during the hearing I am entirely satisfied on the basis of the evidence before me that the defendant has adopted in relation to its oil exports cumbersome and apparently commercially disadvantageous and inflexible pre-financing structures with the interposition of special purpose vehicles for the very purpose of preventing its creditors seizing its oil in execution of debts owed by it.”
6 May 2003:
Kensington applied for a worldwide freezing order against Congo’s assets. Morison J decided that he would not hear the application unless notice of it was given to Congo.
13 May 2003:
The Court of Appeal upheld Morison J’s decision.
May 2003:
Kensington issued proceedings against Congo in the United States District Court for the Southern District of New York in which it sought the following remedies: (i) recognition of the 2002 Judgment; (ii) alternatively a remedy for breach of the loan agreement; (iii) an injunction in respect of Congo’s breach of the pari passu and negative pledge causes; (iv) a declaration stating that SNPC and Olearius are alter egos of the Congo; and (v) an order for costs and expenses.
3 July 2003:
The finding that SNPC is an emanation of Congo was upheld at a further hearing before the Paris Court of Appeals.
18 August 2004:
Kensington filed a criminal complaint with the public prosecutor in Geneva against Mr Roland Favre, a senior executive of Vitol SA and the Vitol Group based on the allegation that Vitol SA and Congolese officials were conspiring to defraud Congo of profits or its resources and revenues, for their own benefit and that of Vitol SA. The Public Prosecutor considered that there was not enough prima facie evidence or material to issue charges against Mr Favre or Vitol SA.
30 September 2004:
The US court granted summary judgment in respect of (i) above. Claims (iii), (iv) and (v) are still proceeding. SNPC has been added as a defendant to the action.
November 2004
Kensington applied in the High Court of Justice in England and Wales for and obtained a charging order nisi over (i) the shares in an English company called Jackson 31 Ltd; and (ii) a property at 31 Sackville Street owned by Jackson 31 Ltd on the basis that the share capital of Jackson 31 Ltd was owned by a Congolese company called Fininco of which SNPC owned 90%. Kensington subsequently applied to have its charging order nisi discharged having discovered that Walker had already obtained a charging order nisi over the property.
February 2005:
Kensington sought to attach the proceeds of a cargo of oil delivered into the United States under consignment to BNP Paribas. The action remains in suspense while BNP refuses to comply with orders of the US Federal Court to disclose documents.
March 2005:
Kensington filed a tort action in the US based on the RICO statute, alleging money laundering and the transfer and receipt of stolen property by SNPC, Mr Itoua and BNP Paribas.
10 April 2005:
Kensington successfully applied for Third Party Debt Orders against Glencore Energy UK Limited in respect of each of the four Commercial Court judgments together with injunctions preventing payment of monies due by Glencore to Congo in respect of two cargoes of Congolese oil (“the Nordic Hawk Cargoes”) shipped on board the Nordic Hawk.
19 April 2005:
Kensington successfully applied to the Supreme Court of Bermuda for an interim attachment order against Sphynx Bermuda Limited and an injunction preventing payment of monies in respect of the Cargoes.
July 2005:
Kensington filed a garnishment action in the US Court in an attempt to attach the proceeds of a cargo of Congo’s oil aboard the Nikator being sold to Vitol SA. Kensington subsequently withdrew the action having established that Vitol SA had prepaid Congo for the oil.
28 November 2005:
Judgment of Cooke J in the Nordic Hawk proceedings. The interim attachment orders obtained by Kensington on 10 April in respect of the Nordic Hawk Cargoes were made final after a 10-day trial in the Commercial Court. In his Judgment Cooke J said:
“102. In addition to large scale pre-financing schemes, arrangements were made in respect of pre-payments for individual cargoes. Advances were made of a proportion of the purchase price before the due date for payment, which were repaid by deliveries of oil charged for that purpose with the repayment of the debt plus interest. I find that these arrangements, which were very expensive for SNPC, were also motivated by the desire to prevent seizure of assets.
…
199. It is clear that the underlying reason for this was to avoid, so far as possible, attachment of the oil or of the proceeds of sale by creditors of the Congo in circumstances where it was known that such creditors were taking aggressive action with a view to enforcement of the Congo’s debts. The absence of any legitimate reason for the interposition of either of these companies, on the facts as I have found them to be, is irresistible. This was a deliberate scheme to create an appearance of contracts and independent oil trades and traders which was devised to enable SNPC and Cotrade to sell their assets (oil) against payment from international market buyers, without their assets (neither the oil nor the proceeds) becoming available to meet existing liabilities.
200. In such circumstances I answer the questions posed at the commencement of this section of the judgment in the following manner:
(i) The sale from Sphynx Bermuda to Glencore was a genuine sale transaction but the others were not. Glencore was untroubled about the identity of its sellers, knowing that Dr Nwobodo and Mr Gokana had close connections with SNPC/Congo and, confident that the oil would be delivered, would have been prepared to adopt the practices suggested to them for payment by those two individuals.
(ii) The sales of the cargo between Cotrade and AOGC and AOGC and Sphynx Bermuda were sham in the sense that they were not genuine sales transactions at all, with concomitant legal rights and obligations. They were devised to hide the reality of a sale by Cotrade, which part of the State of the Congo, to Glencore.
(iii) Although AOGC is a corporate entity which carries on some business of its own, its use in the sale of the cargo was a sham. It and its BGFI bank account were used as a façade or mask to conceal the identity of the seller and true recipient of the proceeds of sale. Sphynx Bermuda was similarly used as a façade without regard for its corporate nature. Both were utilised in this manner by Mr Gokana in his capacity as President and DG of SNPC and were ciphers under the control of SNPC though him for this purpose.
(iv) The structure of companies and sales was therefore put in place and employed by the Congo/SNPC/Cotrade with the object of evading enforcement of existing liabilities of the Congo by hiding its assets from view.
(v) Those involved in creating and masterminding the use of the structure were dishonest in the relevant sense of the word because of this objective when creating and using the sham companies and transactions in question, to avoid enforcement of existing liabilities.
201. Where monies are owed by Glencore to Sphynx Bermuda in respect of the cargo therefore, the court is entitled to, and must in justice ‘pierce the corporate veil’ and recognise that debt as owed to the Congo and that any receipt by Sphynx Bermuda would be the receipt of Cotrade at the top end of the “sham” chain. The whole purpose was to use Cotrade, AOGC, Sphynx Bermuda and the chain of transactions as a device or façade to conceal the true facts of a sale by Cotrade to Glencore, thereby avoiding or concealing the liability of Cotrade to have its oil or proceeds attached in execution of existing judgments given in respect of the Congo’s debts. In my judgment, such conduct is dishonest within the meaning of the authorities and Mr Gokana, with the assistance of others, was thereby engaged in this scheme to use these companies and transactions in a manner calculated and intended to defeat the claims of the Congo’s creditors.
202. Kensington are therefore entitled to final Third Party Debt Orders in respect of the purchase price for the cargo. The effect of making the interim orders final will be to discharge Glencore from liability for the debt on payment to Kensington, the judgment creditor, in accordance with the orders and the provisions of the CPR 72.9.”
6 December 2005:
Morison J gave judgment in Walker International Holdings v Congo in respect of Walker’s interim charging orders over the shares in Jackson 31 Limited and the property at 31 Sackville Street. In his judgment Morison J said:
“76. On 16 May 2002 a law firm instructed on behalf of SNPC, Messrs Cleary, Gottlieb, Steen & Hamilton wrote a note for the attention of Messrs Itoua and Elenga identifying the structure for a financing package, backed by oil rights, by a pool of banks. The note explained that the structure involved the loan not being made to SNPC but rather Olearius, a SPV. The reason for the structure was to prevent the creditors of Congo and/or SNPC from seizing the oil in the hands of SNPC:
‘… since the SPV, being autonomous in relation to the SNPC and the Republic of Congo, could enforce its right of ownership of said oil in order to block their attempted seizure.
To ensure that the independence of the SPV in relation to the Lenders and the SNPC cannot be challenged by creditors of the SNPC or the Republic of Congo, the stock share of the SPV are held by a Trustee that is fully independent of the Lenders and the SNPC.”
Having read the judgment of Cooke J in the Nordic Hawk proceedings, Morison J added an addendum to his judgment noting that in both actions Congo had put forward dishonest oral evidence, had failed to disclose relevant documents and had relied on documents which did not evidence the true situation and were backdated.
24 March 2006:
Kensington successfully applied to Gloster J on a without notice basis for a search order with ancillary relief including a gagging provision against Dr Ikechukwu Chinedu Nwobodo. Dr Nwobodo is a London-based Nigerian national. He is consultant to SNPC in connection with the marketing of oil.
29 March 2006:
Utilising material obtained from the search and questioning of Dr Nwobodo, Kensington sought and obtained an Interim Third Party Debt Order and ancillary orders from Gloster J against Tacoma Trading Limited (“Tacoma”) relating to a cargo of butane gas being purchased by Tacoma. A gagging order was also sought and obtained.
31 March 2006:
At an inter partes hearing between Kensington, Tacoma and Dr Nwobodo for the primary purpose of extending the gagging order against Tacoma and Dr Nwobodo, Tacoma opposed the extension of the 29 March 2006 order on the grounds that there was no basis for the existing order to be made or to continue. The argument failed and the gagging provisions in the 29 March 2006 order were extended by the court. Following the revelation by Tacoma that in addition to the butane cargo Tacoma was due to lift a cargo of Yombo fuel oil on 11-13 April 2006, Gloster J made an order extending the scope of the 29 March 2006 order to cover the Yombo cargo.
3 April 2006:
Kensington applied to the First Instance Court in Geneva for an interim attachment order against Vitol SA of, inter alia, debts due or accruing due directly or indirectly to Congo, SNPC and related entities, claiming that Vitol SA had purchased and continued to purchase Congo’s oil under the façade of Global Oil Trader Mauritius (“GOTM”). GOTM is a company incorporated in Mauritius as a Global Business Company in February 2006. It is part of the Vitol Group of companies being 100% owne by Abroil Holding BV which in turn is owned by Vitol Holding BV.
4 April 2006:
The Geneva Court granted an interim attachment order against Vitol SA in the Geneva Proceedings. That order reads in translation:
“Objects to be sequestered:
Any property, debts, assets on account, checking account, which belong to, or which Vitol SA knows belong to, directly or indirectly, the Republic of Congo, the SNPC Société Nationale des Pétroles du Congo, AOGC Africa Oil & Gas Corporation, Cotrade SA, Sphynx Bermuda Ltd, Sphynx UK Ltd, Phenicia International SA,
In the hands of Vitol SA which is headquartered in Geneva, 28 Bd. Du Pont d’Avre, 1205,
Up to the amount of CHF 113,734,285 - plus interest at 8% per annum from 3 April 2006.”
Observations:
1. Effects of sequestration
The Debtor is forbidden, under threat of the penalties provided for by law (art. 169 CP) to dispose of the assets being sequestered without the permission of the appointed [official] (art. 275 and 96 LP).
The office of the prosecutor can take the objects under his care or put them in care of a third party.
Nevertheless, he could leave them freely available to the debtor, if the latter furnishes guarantees by a deposit, a joint guarantee or another equivalent guarantee (art. 277 LP).”
4 April 2006:
Kensington issued a subpoena in the US requiring Vitol SA to provide documents.
5 April 2006:
Kensington successfully applied to Gloster J on an ex parte basis for orders restraining against the third parties (see above).
During the course of the hearing Gloster J also granted an order against Congo and its emanations preventing them from varying the terms of the sale agreement with Tacoma in respect of the Yombo cargo due to be lifted on 11-13 April 2006.
7 April 2006:
The third parties applied to discharge the order of Gloster J dated 5 April 2006 in so far as it applied to the New Vision and Elizabeth Angelikossi shipments. In the course of her judgment, Gloster J said:
“2. I will not recite all the evidence in relation to the background to the proceedings in view of the time and the need for me to give this judgment urgently. The Congo is a judgment debtor of Kensington in the sum of US $87 million which remains outstanding. As Cooke J found in his judgment dated 9 November, the Congo has been involved in a well recorded history of deliberately and dishonestly seeking to evade payment of debts it owes to creditors such as Kensington, and seeking to evade enforcement of this court’s judgment against it. In particular I refer to paras. 198 and 199 of Cooke J’s judgment where he concludes that the Congo deliberately adopted the course of interposing companies and pre-paying funds in order to create an appearance of contracts and independent oil trades and traders. This structure was devised to enable SNPC and Cotrade to sell their assets against payment from international market buyers without their assets (that is to say, neither the oil nor the proceeds of sale) becoming available to meet existing liabilities.
3. It is also apparent from the materials put before the court by Kensington on this application that there is evidence that Vitol Group (that is, Vitol Broking, Vitol Services, Vitol SA and other companies in the Vitol Group) have a long history of dealing with the Congo and with its various emanations, and that it has played a role and a significant role in the dishonest judgment-proofing scheme considered by Cooke J in the Nordic Hawk proceedings. There is also evidence in relation to its pre-payments of the Nikator cargo. I should emphasize that, although a witness statement signed by Mr Steven Fox, a partner in Inces, on behalf of the two US Vitol Companies was put before me, there has been no opportunity in real terms for there to be any full answer to the evidence filed on behalf of Kensington. Accordingly when I say there is a strong arguable case on the evidence before me, what I am looking at, in effect, is only the evidence of the claimant because there has been no opportunity on the part of third parties, i.e. the UK Vitol Companies to answer the allegations made against the Vitol Group in any real way.
4. The evidence of the claimants does show a strong arguable case. I refer in particular to the emails between Dr Nwobodo and Mr Chautard and Mr Lambrosa. These do, in my judgment show, at least prima facie, that the Vitol Group have participated actively in assisting the Congo to ensure that it remains judgment-proof. In particular, Mr Chautard sent or referred to Cooke J’s judgment in an email of 5 December 2005. He sent the judgment to Dr Nwobodo on that date saying: “Not sure you’ll enjoy reading this”. Other emails also refer to legal problems being experienced by the Congo, and when, in early 2006, the Congo introduced a new company, namely Phenicia International SA, to carry out its oil sales to the Vitol Group, this was discussed with, and agreed to by the Vitol Group. It agreed to deal with Phenicia without question and promptly changed its own practice by creating a new vehicle through which to buy the Congo’s oil, Global Oil Trader Mauritius (“GOTM”). This appears to be a new vehicle of the Vitol Group which is incorporated in Mauritius. In one particular email of 21 February 2006, Mr Chautard asks for:
‘The exact details of the company selling the March 29-30 N’kossa to Global Oil Trader Mauritius [GOTM], as it is already very late for me and Othmar to enter the deal details in our internal deal churning factory here.’
5. The inference can be drawn from that email that the various companies are simply used, both at the Congo end, and at the Vitol end, as vehicles for the purpose of structuring the deals for the purchases of oil. I am satisfied, at least on a prima facie basis, that the claimant has a reasonably strong case for asserting that, in so structuring the oil sales with the use of new companies to replace earlier entities, Mr Chautard and his colleague Mr Lambrosa, and thus the Vitol UK Companies and the Vitol Group, must have appreciated that the purpose of using these vehicles was in order to prevent detection by the Congo’s judgment creditors of the oil sales.
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18. I take as my starting point the fact that Vitol SA is already prevented by the interim attachment order of the Geneva court from making any payment in respect of this cargo. If the view of Kensington’s Swiss lawyer is correct, the order also prevents Vitol SA effecting any payment owed to the Congo by entities regarded as Vitol SA’s nominees or as ‘equivalent to’ Vitol SA. Therefore, as a result of that interim attachment order, Vitol SA, and its nominees are not entitled to make pre-payment in respect of this cargo as things stand at present, subject, of course, to any further order of the Geneva court. Second, the evidence in relation to the incorporation and use of GOTM as a vehicle to enable the Congo and Vitol, notwithstanding the findings of Cooke J, to continue to proceed with the Congo’s oil sales, strongly suggests that GOTM has been deliberately utilised by Vitol SA as a façade to conceal any connection between Vitol and the cargoes for the deliberate and express purpose of assisting Congo to evade enforcement of Kensington’s judgment.
19. That being so, I take the view that if this were to be a matter to be determined in accordance with English law (which it is not), the English court would be likely to adopt the stance indicated by Kensington’s Swiss lawyer in its letter to Vitol SA of 4 April, namely that GOTM would be regarded as being equivalent to, and/or a nominee of Vitol SA, and that in these circumstances the corporate veil would be pierced and any purported separate corporate identity of GOTM disregarded.
20. That being so, and approaching the matter on the basis that Swiss law (to the extent that I have evidence before me) appears to be the same as English law, the position is that Vitol SA and its nominees are already effectively prevented by the interim attachment order from making this pre-payment of US$ 50 million. It is against that critical fact that I have to consider the exercise of my discretion.
21. I can infer from the evidence of Mr Fox, seeking the release of Vitol Services and Vitol Broking from the injunction, that, if the UK Vitol Companies are released, monies will indeed be paid on GOTM’s behalf to the Congo. Thus, there is clearly a risk that, notwithstanding the interim attachment order in Switzerland, unless this court injuncts Vitol Services and Vitol Broking, those monies will be pre-paid.
22. The demand for pre-payment of the US$50 million was made after the search order had been enforced against Dr Nwobodo, one of the people who has been involved in acting on behalf of the Congo in relation to these and other shipments. The inference, Mr McQuater said, is that the request for pre-payment was yet another example of the Congo attempting to make itself judgment-proof by insisting on pre-payments in order to prevent effective attachment proceedings in the relevant jurisdiction, here Switzerland.
23. Accordingly, in my judgment, it is appropriate that, subject to an appropriate fortification of Kensington’s cross-undertakings in damages, and an extension of the ambit of that undertaking so as to include others in the definition of beneficiary of that cross-undertaking, I should maintain the injunctions against the UK Vitol Companies in order to prevent payment by them, or assistance of payment by them, in relation to this particular cargo. I should say that my decision to do so is without prejudice to any further arguments that Mr Gruder may raise on the effective hearing, or the continued hearing, of this application to discharge the injunctions in relation to other cargoes identified in the order or other cargoes or transactions referred to in the order, even though not specifically identified. This decision relates merely to this particular pre-payment based on the evidence currently before me. Although there is evidence that the effect of the order will place the contracting party, GOTM, into default, if the analysis that GOTM is to be equated with Vitol SA is correct, then it is the attachment order which the Geneva court has considered appropriate to issue that is responsible for that state of affairs. My order is, in effect, merely providing assistance to the interim attachment order that has already been made by the Geneva court.”
10 April 2006:
The third parties’ application to discharge was dismissed and permission to appeal was refused. Various amendments were made to Gloster J’s order of 5 April (see above).
Tacoma disclosed (for the first time) that on 31 March 2006 it had cancelled the Yombo transaction.
12 April 2006:
By the consent of the parties, Gloster J ordered that Tacoma should disclose various documents relating to the Yombo oil and swear an affidavit regarding the sale and cancellation of the sale of the Yombo oil.
14 April 2006:
Following receipt of information that the Yombo cargo was being purchased by a company in the Trafigura Group, an order was made by Lloyd Jones J preventing Trafigura Limited from paying or causing payment of the sums due in respect of the Yombo cargo as well as another cargo of N’kossa oil to be lifted on about 13-14 April 2006.
20 April 2006:
Following a declaration made by Vitol SA, the Recollection Office in Geneva issued a negative attachment enforcement report stating that the garnishment obtained by Kensington had failed.
A consent order was made lifting the gagging provisions contained in the order of 14 April 2006.
28 April 2006:
Kensington made an application to Langley J alleging that Trafigura had breached the disclosure provisions contained in the order of 14 April 2006 and initiated a Norwich Pharmacal application for further disclosure. Langley J adjourned the hearing and gave directions for the future hearing of the applications.
5 May 2006:
Kensington filed a Plainte with the Commission de Surveillance in Geneva challenging the decision of the Recollection Office to issue a negative attachment enforcement report. I refer to the Plainte for its full terms and effect.
Following a hearing before Morison J a series of directions were given regarding the butane cargo caught under the order of 29 March 2006. The order also provided for a further affidavit to be sworn by Tacoma relating to the sale of Yombo cargo.
16 May 2006:
A consent order was initialled by Langley J ordering Trafigura to carry our various searches and to provide information in relation to the Yombo cargo to be supplied by means of a letter or witness statement from a director or Mr Summers of Trafigura.
22 May 2006:
Hammonds, on behalf of Tacoma, wrote to the court agreeing to pay the sum outstanding for the butane cargo (US $261,000) and requested that a two-hour hearing be is listed to hear argument in relation to costs.
Chain of Contracts in the case of New Vision and Elizabeth Angelikossi
I was provided with an account prepared by the third parties of what is said to have been the chain of contracts in the case of the New Vision and Elizabeth Angelikossi Cargoes. That account prepared by the third parties, is emphatically disputed by the claimant. For reasons which will appear later in this judgment, in my opinion, the transactions which are said to have taken place in relation to the two cargoes cry out for full and careful investigation.
Submissions
Mr Gruder QC addressed the court for two days helpfully and fully. Any attempt to summarise his submissions will inevitably be incomplete, but his submissions included the following.
The third parties submit that Gloster J was wrong to prevent Vitol Services Limited making a prepayment in respect of the cargo intended to be loaded on the New Vision or Elizabeth Angelikossi when the inevitable consequence of the order was default by Vitol companies on both their purchase and sale contracts to the benefit of neither Kensington nor Vitol. The court has no power to prevent and should not prevent Vitol effecting and executing contracts for the sale and purchase of oil with Congo on terms which include prepayment provisions.
Paragraphs 8 of the orders (with the possible exception of 8(a)(i) of the order of 5 April) should be set aside completely and an inquiry as to damages should be ordered in respect of Kensington’s undertaking in damages. The court should also make it clear that it will not impose orders such as those in paragraphs 8(a) and (b) in relation to future transactions between Congo and Vitol companies, so long as the transaction is not at an undervalue as defined in section 423(1) of the Insolvency Act 1986.
The third parties submit that there is no basis whatsoever for the extensive disclosure obligations set out in paragraphs 2 to 6 and that the third parties and the Vitol parties as defined in the orders are entitled to trade with Congo without having to report to Kensington.
It is not wrongful for the Vitol parties to enter into a commercial transaction with Congo for the purchase of oil, even though Congo is structuring the transaction in such a way (for example by way of prepayments and such like) to make it more difficult for Kensington to enforce its judgment against the proceeds of that transaction. This submission is supported by the detailed provisions of sections 423 to 425 of the Insolvency Act 1986.
It was apparent at the hearing on 7 April before Gloster J that the maintenance of the injunction in paragraph 8(a)(ii) of the order of 5 April so as to prevent the payment of the prepayment in respect of the New Vision cargo would cause Congo to terminate the contracts of sale of both cargoes to GOTM, which would inevitably lead to default by Vitol Asia under its contract with CPC and Vitol Bahrain under its contract with Marathon. The threat of similar injunctions in the future would clearly deter Vitol companies from making any further contracts with Congo to purchase Congolese oil.
The termination of the contract by the Congo before loading the New Vision and Elizabeth Angelikossi precipitated by the order of the court inevitably meant that there would be no debt due or accruing due which could conceivably be attached by Kensington. There was no justification for the court forbidding the third parties to make a prepayment in respect of the New Vision or Elizabeth Angelikossi cargoes or any other cargo in the future. Vitol made these points at the hearing on 7 April.
Kensington’s objective was to use the court’s process to create an embargo of the Congo, to render it impossible for Vitol parties and other oil traders in a similar position to buy Congo oil, so that these sanctions would create irresistible pressure on the Congo to satisfy Kensington’s demands.
Embargo, sanctions or taking steps to ensure that third parties cannot trade with the debtor are not legitimate means available to enforce a judgment and it is an abuse of the court’s process for Kensington to seek to achieve this objective.
Gloster J was wrong to give as a reason that the Swiss attachment arguably prevented payments by GOTM to Congo. There is evidence from Vitol’s Swiss lawyer, Mr Gautier, that the Swiss attachment does not prevent prepayments, since prepayments are not debts due from Vitol SA but loans. Mr Michel disagrees, but his views are erroneous. Moreover, as Mr Gautier points out, the Geneva order only affected debts owing by Vitol SA to Congo entities where such debts were in existence on 4 April 2005, the date of the order.
As to Kensington’s suggestion that the Geneva order against Vitol SA also bound GOTM, the separate corporate personality of GOTM cannot be ignored.
Gloster J had no jurisdiction to prohibit GOTM, a Mauritius company, or Vitol SA, a Swiss company, from paying Congo, nor could this court grant third party debt orders in respect of debts whose situs was Mauritius or Switzerland.
Section 25 of the Civil Jurisdiction and Judgments Act 1982 permits the English courts to grant interim relief in support of substantive proceedings which have been commenced out of the jurisdiction. However, it is a prerequisite of the exercise of the court’s jurisdiction under section 25 that substantive proceedings had been commenced elsewhere. The Swiss proceedings which the disclosure orders allegedly support, are not substantive proceedings. They are merely attachment proceedings brought as ancillary to the English proceedings brought by Kensington against Congo. There is no jurisdiction under section 25 for the court to grant interim orders where there are no foreign substantive proceedings. Accordingly, the disclosure orders cannot be justified under section 25.
Further, the court cannot grant an order under section 25 which is wider than the order it would have granted in domestic proceedings, if the facts were the same. In domestic proceedings, the court would not grant an injunction to restrain the payment of anything other than debts due or accruing due. The Swiss order does not seek to restrain anything other than the payment of debts due or accruing due.
The third parties say that the orders of Gloster J should be discharged in whole or in part and that the cross-undertaking in damages should be enforced.
Kensington’s submissions
Mr McQuater QC for Kensington submitted as follows.
The Congo now has a well-recorded history of deliberately and dishonestly seeking to evade payment of the debts it owes to creditors like Kensington and seeking to evade enforcement of this court’s judgments against it. The Congo’s dishonest judgment-proofing schemes are being carried out with the active and knowing assistance and connivance of Vitol SA and other companies in the Vitol Group including the third parties, both English companies which carry on business in London. The principal judgment-proofing methods used (which are often combined) are (a) the interposition of layers of opaque, insubstantial, sham companies incorporated in a variety of low-regulation jurisdictions to disguise the Congo’s (and more recently the Vitol Group’s) involvement and (b) entering into what are often complex pre-payment or pre-financing agreements in relation to either single or multiple oil cargoes, with the intended effect that there appears to be no remaining debt or asset to be attached.
It is now evident that the Congo and the Vitol Group have together developed these judgment-proofing techniques, even since the judgment of Cooke J late last year and as a direct response to that judgment. There is mounting evidence of the Vitol Group’s knowing collusion with the Congo in seeking to evade enforcement of this court’s judgments.
Kensington intends to issue proceedings in the Commercial Court in London against the third parties and other persons in the near future, alleging tortious conspiracy. This statement was made by Mr McQuater on instructions following an assertion in the skeleton argument on behalf of the third parties to the effect that Kensington had not identified any available cause of action against the third parties.
The report in October 2005 of the Independent Inquiry Committee set up by the United Nations into the Oil-For-Food Programme operated by the Iraqi regime of Saddam Hussein made a series of damning findings about Vitol’s practices, including that it routinely paid illegal surcharges to Iraq to obtain oil contracts and used a variety of front or intermediary companies to disguise such payments and purchases. The methodology used by Vitol in relation to Iraq was not dissimilar to that used to help the Congo evade this court’s judgments. Mr Chautard and Vitol Bahrain were also involved in that scheme.
The emails obtained from Dr Nwobodo’s computer confirm that Vitol had a copy of Cooke J’s judgment from at least 5 December 2005 and had read it. Mr Chautard sent it to Dr Nwobodo on that date saying: “not sure you’ll enjoy reading this”.
Vitol itself changed its own practice by creating a new offshore vehicle of its own through which to buy the Congo’s oil, namely GOTM, incorporated in Mauritius. Vitol, principally through Mr Lambroza controls GOTM. GOTM was incorporated on 20 February 2006 as a “Global Business Company” in Mauritius. The characteristics of such companies are described by Mr Rajahbalee, a senior Mauritian lawyer. GOTM does not appear to have any place of business in Mauritius. Its address is care of a local management company. Transactions on behalf of GOTM have been handled by exactly the same Vitol personnel in London and Geneva who handled Vitol’s many previous transactions with the Congo.
In an email taken from Dr Nwobodo’s computer, Mr Chautard asked Dr Nwobodo for details of the company selling to GOTM and referred to Vitol’s own “internal deal-churning factory” (see the email of 21 February 2006). Transactions between Vitol and GOTM are, according to Kensington, just “internal deal-churning” to disguise Vitol’s involvement as part of what Vitol refers to as the “African project”. Vitol’s deal sheets for the Congo’s sale to GOTM and then GOTM’s on-sale to Vitol Bahrain for the New Vision were created minutes apart, without even having agreed a price between them. Such was Vitol’s lack of regard for the separate corporate personality of GOTM that it purported to enter into contracts with the Congo on behalf of GOTM, even before GOTM had been incorporated.
There is further evidence of active concealment by Vitol in relation to Congolese oil cargoes bound for the USA, including at least one GOTM cargo. Vitol sought in part to address this problem by selling into the United States using GOTM, which was nowhere publicly acknowledged to be a Vitol company. To conceal deliveries into the USA, Vitol instructed that a false destination of “Rotterdam for orders” be used on shipping documentation. This ruse has recently been employed with two cargoes, the Astro Polaris and the Regulus Voyager.
Cooke J found after trial that the Congo was engaged in dishonest schemes creating and using sham companies and transactions to evade enforcement of its existing liabilities, including its liabilities to Kensington under the judgments. He held that the sham structures and transactions were dishonest and were designed to deceive. From 5 December 2005 at the latest, Vitol was aware of these findings. It is strongly arguable that Vitol thereafter (and before as well) actively and knowingly participated in such dishonest schemes, with the object and intention that Congo should evade enforcement of the judgments and with the object of and intention of assisting the Congo to achieve that end.
The object of the Congo’s schemes has been to deceive and hide the truth. Cooke J has already found that they amount to a fraud on creditors like Kensington.
The orders made by Gloster J were properly made and should be continued. The basis for jurisdiction is Norwich Pharmacal/section 37 of the Supreme Court Act 1981 and/or section 25 of the Civil Jurisdiction and Judgments Act 1982. The orders made by Gloster J provided necessary and appropriate interim relief in support of the substantive proceedings in Switzerland, being the interim attachment order dated 4 April and now the Plainte filed by Kensington on 5 May.
Mr McQuater pointed out that a considerable portion of the skeleton argument served on behalf of the third parties was devoted to the contention that Kensington has no claim against the Congo and the third parties under section 423 of the Insolvency Act 1986 because, although they may have been conceived, structured and operated so as to defraud Kensington, the relevant transactions cannot be impugned under section 423 because they were not at an undervalue. Kensington does not accept that the transactions were at full value. Further investigation and evidence would be required in order to establish the extent to which the consideration paid by Vitol for the oil was less than the value of the consideration provided by the Congo. For present purposes Kensington says that it may, on further investigation and evidence, be able to make out a claim against Vitol Services and Vitol Broking under section 423. However, for the purposes of seeking to maintain the orders made by Gloster J, (as I understood him) Mr McQuater did not place reliance on section 423.
Analysis and conclusions
Kensington’s skeleton for the hearing before Gloster J on 5 April stated (at paragraph 16):
“The material obtained from Dr Nwobodo under the search order together with Kensington’s other accumulated knowledge of Vitol’s dealings with the Congo now show a strong prima facie case that the Vitol Group is colluding with the Congo as part of its deliberate scheme to evade enforcement of this Court’s judgments.”
Mr Gruder realistically accepted for the purposes of this hearing that the evidence arguably supports this contention. I refer to the totality of the evidence now before the court and would go further. In my view, the matters referred to in the evidence now before the court call for the closest examination and investigation, whether in this jurisdiction or in Switzerland.
It is convenient at this point to refer to the third parties’ application for a declaration (see paragraph 4 of the application notice dated 5 May). From the outset of the hearing I made it plain that in my view it would be quite inappropriate for this court to grant any such declaration, without first conducting a full trial preceded by full disclosure and involving cross-examination of all material witnesses. The circumstances in which this court will grant declarations in the course of an interlocutory hearing are limited. In my view, it is beyond question that this is not such a case.
I turn to consider the jurisdiction to grant injunctions and the jurisdiction to grant orders for disclosure. The parties helpfully provided, in the course of the hearing, their respective submissions which were as follows.
Jurisdiction to grant injunction: (a) actual or prospective proceedings in England and Wales.
According to Mr McQuater, (1) the court has jurisdiction under section 37 of the 1981 Act to grant an injunction against a third party in aid of enforcement in England and Wales of a judgment against the defendant; (2) in practice, this jurisdiction is only likely to be exercised where there are grounds to believe that there are assets of the defendant in the possession or control of the third party. According to Mr Gruder, the followings words should be added at the end of (1):
“to prevent the third party from disposing of assets of the defendant which are amenable to enforcement.”
According to Mr Gruder, the second paragraph should be amended to read:
“This jurisdiction is limited to cases where there are grounds to believe that there are assets of the defendant in the possession or control of the third party. The injunction would be limited to preventing the third party disposing of the assets of the defendant.”
(b) Actual prospective proceedings outside the jurisdiction.
According to Mr McQuater, the court has jurisdiction under section 37 of the 1981 Act and/or section 25 of the 1982 Act to grant an injunction against a third party in aid of enforcement outside the jurisdiction of a judgment against the defendant; (2) in practice this jurisdiction is only likely to be exercised where there are grounds to believe that there are assets of the defendant in the possession or control of the third party.
According to Mr Gruder, as to (1) there is no such jurisdiction, but if there is jurisdiction it is only by virtue of section 25. Mr Gruder says if there is such jurisdiction, this jurisdiction is limited to cases where there are grounds to believe that there are assets of the defendant in the possession or control of the third party. The injunction would be limited to preventing the third party disposing of the assets of the defendant.
(2) Jurisdiction to grant order for disclosure (a) actual prospective proceedings in England and Wales.
It was common ground between Mr McQuater and Mr Gruder that: (1) the court has jurisdiction under section 37 of the 1981 Act and/or Norwich Pharmacal principles to make a disclosure order against the third party in aid of enforcement in England and Wales of a judgment against the defendant where the third party has become mixed up (whether innocently or not) in the transactions concerning which disclosure is sought; (2) the court has such jurisdiction regardless of whether the disclosure order sought is ancillary to a freezing or other injunction or not.
(b) Actual prospective proceedings outside the jurisdiction.
According to Mr McQuater, (1) the court has jurisdiction under section 37 of the 1981 Act and/or Norwich Pharmacal principles and/or section 25 of the 1982 Act to make a disclosure order against a third party in aid of foreign enforcement proceedings against the defendant where the third party has become mixed up (whether innocently or not) in the transactions concerning which disclosure is sought; (2) the court has such jurisdiction regardless of whether the disclosure order sought is ancillary to a freezing or other injunction or not.
According to Mr Gruder, there is no such jurisdiction as in (1) but if there is, the jurisdiction is only by virtue of section 25.
I turn to consider these competing submissions. It is necessary to distinguish the legal principles that apply to (1) third party debt orders (and related ancillary relief) and (2) interim relief in support of substantive proceedings taking place elsewhere.
Third party debt orders (and related ancillary relief).
The Practice Direction - Enforcement of Judgments and Orders 70PD1 provides under the heading “Methods of enforcing money judgments - rule 70.2”:
“1.1 A judgment creditor may enforce a judgment or order for the payment of money by any of the following methods; … (2) a third party debt order (see Part 72) …”
(2) CPR 72.2 (Third party debt order) provides:
“(i) Upon the application of a judgment creditor, the court may make an order (a ‘final third party debt order’) requiring a third party to pay to the judgment creditor:
(a) the amount of any debt due or accruing due to the judgment debtor from the third party; or
(b) so much of that debt as is sufficient to satisfy the judgment debt and the judgment creditor’s costs of the application.
(ii) The court will not make an order under paragraph 1 without first making an order (an ‘interim third party debt order’) as provided by rule 72.4(2).”
(3) CPR 72.3 (Applications for third party debt orders) provides:
”(1) An application for a third party debt order -
may be made without notice; and
must be issued in the court which made the judgment or order which it is sought to enforce except that
if the proceedings have since been transferred to a different court, it must be issued in that court.
The application notice must -
be in the form; and
contain the information required by the relevant practice direction; and
be verified by a statement of truth.”
(4) CPR 72.4 (Interim third party debt order) provides:
“(i) An application for a third party debt order will initially be dealt with by a judge without a hearing.
(ii) The judge may make an interim third party debt order:
(a) fixing a hearing to consider whether to make a final third party debt order; and
(b) directing that until that hearing the third party must not make any payment which reduces the amount he owes the judgment debtor to less than the amount specified in the order.”
(5) The Interim third party debt order found in Civil Procedure forms R4 March 2003 is in these terms:
“On … [Master] [District Judge] … considered the application of the [claimant] [defendant] (‘the judgment creditor’), from which it appears:
(a) there is an amount owing by the [claimant] [defendant] (‘the judgment debtor’) under the judgment or order given on … by the … in claim no. … and …
(b) there is a debt due or accruing due by the third party to the judgment debtor …
and the court orders that:
(i)The application will be heard at … [a.m.][p.m.] on … at … when a judge will decide whether a final third party debt order should be made.
(ii) Until that hearing the third party must not, unless the court orders otherwise, pay to the judgment debtor, or to any other person, any sum of money due or accruing due by the third party to the judgment debtor, except for any part of that sum which exceeds the total shown below.”
(6) It is essential that the relationship of creditor and debtor should exist between the judgment debtor and the third party respectively. If the judgment debtor could sue the third party for the amount and recover it, it is plain that there is an attachable debt, but this is not an infallible test. There must be money “due” to the judgment debtor. A third party debt order cannot accelerate the time for payment of the debt. Where the debt is not due, there is nothing to be attached, Webb v Stenton (1883) 11 QBD 518; Re Greenwood [1901] 1 CH 887. A judgment creditor cannot, by means of a third party debt order, stand in a better position as regards a third party than did the judgment debtor: “he can only obtain what the judgment debtor could honestly give him,.” (Re General Horticultural Company Ex p Whitehouse (1886) 32 Ch D 512). See Civil Procedure volume 1, 72.2.1.
(7) The issue of double jeopardy and the circumstances in which a risk that the garnishee will be forced to pay the debt twice over will cause the court to exercise its discretion against making the order were reconsidered in Société Eram Shipping Company Limited v Hong Kong and Shanghai Banking Corporation Limited [2003] UKHL 30.
(8) In Kuwait Oil Tanker Company SAK v Qabazard [2003] UKHL 31, the House of Lords held that there was no jurisdiction to make a garnishee order in respect of a debt situated in Switzerland. This followed from its decision in Société Eram but was reinforced by article 16(5) of the Lugano Convention.
(9) In my opinion, the court has jurisdiction by virtue of section 37 of the 1981 Act to grant ancillary relief in respect of a prospective application for an interim third party debt order. (Mr Gruder accepted in the course of the hearing that the court had jurisdiction to make the order in paragraph 8(a)(i) of the order of 5 April by virtue of section 37 and having regard to the analogy provided by CPR 72.4. To the extent that any debt was situated overseas, section 25 would have to be employed. I consider that Mr Gruder’s concession was correctly made).
Interim relief in support of substantive proceedings taking place elsewhere.
Switzerland is a Lugarno contracting state.
Section 25 of the Civil Jurisdiction and Judgments Act 1982 provides so far as material:
“The High Court in England and Wales or Northern Ireland shall have power to grant interim relief where:
(a) proceedings have been or are to be commenced in a Brussels or Lugano Contracting State or a Regulation State other than the United Kingdom or in a part of the United Kingdom other than that in which the High Court in question exercises jurisdiction ; and
(b) they are or will be proceedings whose subject matter is within the scope of the Regulation as determined by Article 1of the Regulation (whether or not the Regulation has effect in relation to the proceedings).
(2) On an application for any interim relief under subsection (1) the court may refuse to grant that relief if, in the opinion of the court, the fact that the court has no jurisdiction apart from this section in relation to the subject matter of the proceedings in question makes finds it expedient for the court to grant it.
…
(7) In this section, ‘interim relief’, in relation to the High Court in England and Wales or Northern Ireland, means interim relief of any kind which that court has power to grant in proceedings relating to matters within its jurisdiction, other than:
(a) a warrant for the arrest of property; or
(b) provision for obtaining evidence.”
(2) The structure of subsections (1) and (2) of section 25 and the way in which their scope has been progressively widened, indicates an intention on the part of Parliament that the English court should in principle be willing to grant appropriate interim relief in support of substantive proceedings taking place elsewhere. The court should not be deterred from doing so by the fact that its role is only an ancillary one unless the circumstances of the particular case make the grant of such relief in expedient (Millett LJ in Crédit Suisse Fides Trust SA v Cuoghi [1998] QB 818 at 826A-B).
(3) In my opinion “substantive proceedings taking place elsewhere” include proceedings concerned with the enforcement of judgments (in this case the sequestration order of the Court of First Instance of Geneva of 4 April and the related Plainte/complaint of 5 May). I reject Mr Gruder’s submission that the Swiss proceedings are not substantive proceedings, but are merely attachment proceedings brought as ancillary to the English proceedings by Kensington against Congo. The Swiss proceedings are proceedings whose subject matter is within the scope of the Regulation (EC) No 44/2001 as determined by Article 1 of the Regulation (see section 25(1)(b)). Article 1 of the Regulation provides:
”1. This Re-examination shall apply in civil and commercial matters whatever the nature of the court or tribunal. It shall not extend, in particular, to revenue, customs or administrative matters.
The Regulation shall not apply to:
the status or legal capacity of natural persons, rights in property arising out of a matrimonial relationship, wills and succession;
bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal proceedings, judicial arrangements, compositions and analogous proceedings;
social security;
arbitration.”
Proceedings concerned with the enforcement of judgments are within the scope of Article 1, not excluded by Article 2 and are expressly referred to in Article 22.5 (Exclusive jurisdiction).
(4) As to section 25(2), the approach to an application for interim relief under section 25 is to consider (i) if the facts would warrant the relief sought if the substantive proceedings were brought in England; (ii) if the answer to that question is yes, then the second question arises, whether, in the terms of section 25(2), the fact that the court has no jurisdiction apart from the section makes it inexpedient to grant the interim relief sought (see Morritt LJ in Refco Inc & Anor v Eastern Trading Co & Ors [1999] 1 Lloyd’s Rep 159 at 171).
(5) Although section 25(7)(b) excludes measures directed to obtaining evidence, it does not exclude interim relief designed to give the applicant information, for example, about the location of assets (Republic of Haiti v Duvalier; Re an application by Mr Turner and Mr Matlin, Court of Appeal, 7 June 1988). While section 25(7)(b) precludes an application under section 25(1) for the purpose of obtaining evidence for the prosecution of the claim on the merits, it does not preclude the making of an order for the purpose of preserving assets, even if a consequence of compliance with the order may be to provide the applicant with information and material of assistance to him in the prosecution of the substantive claim. A purpose of interim relief may be to preserve evidence, see section 7(1)(a) of the Civil Procedure Act 1997 and section 44(2)(b) of the Arbitration Act 1996, both of which use the word “preserve” (See Gee Commercial Injunctions 5th Edition, paragraph 6.053).
(6) Where it is intended to bring proceedings abroad, there is no reason in principle to exclude Norwich Pharmacal relief. In Manufacturers Life Insurance Co. of Canada v Harvest Hero [2002] HKCA 83, the Court of Appeal of Hong Kong held that there is a common law power to make an order in aid of proposed foreign proceedings. A similar conclusion has been reached by the Supreme Court of Gibraltar and the High Court in the Isle of Man. In appropriate cases, an order may be made under section 25 of the 1982 Act. The evidence exception provided by section 25(7) will not exclude relief where what is sought is information. See further Smith Kline and French Laboratories Ltd v Global Pharmaceutics Ltd (1986) RPC 394 at 400 Browne-Wilkinson LJ and Matthews and Malek Disclosure 3rd Supplement 2004 paragraph 2.13.
(7) The jurisdiction under section 25 is one to be exercised with “caution, restraint and appropriate respect for the legitimate interests of third parties”, to borrow the words of Sir Thomas Bingham MR in Mercantile Group (Europe) AG v Aiyela and Others [1994] QB 366 at 377.
I turn to consider the applications by the third parties to set aside the orders of Gloster J and by Kensington to continue the order of 10 April. In my opinion, these applications are essentially concerned with interim relief in support of substantive proceedings taking place in Switzerland. Mr McQuater confirmed in the course of the hearing that Kensington are not pursuing proceedings for a third party debt order in this jurisdiction.
For the reasons set out above, this court has jurisdiction by virtue of section 25(1) of the 1982 Act to grant appropriate interim relief in support of the Swiss proceedings, but in considering whether it should do so, the court must have regard to and apply sub-sections (2) and (7). In particular, but without limitation: (i) the court should, in principle, be willing to grant appropriate interim relief in support of substantive proceedings taking place elsewhere and it should not be deterred from doing so by the fact that its role is only an ancillary one, unless the circumstances of the particular case make the grant of such relief inexpedient; and (ii) in considering for the purposes of section 25(7) whether the interim relief is “of any kind which that court has power to grant in proceedings relating to matters within [the] jurisdiction” other than the provision of evidence, regard should be had to the legal principles that apply to third party debt orders (and related ancillary relief) as set out above.
As to (i) in my opinion, in considering expediency, the court should have regard to the broad principles that underpin the Brussels and Lugano Conventions and the Regulation and in particular (but without limitation) to the following: (a) there is a strong international and domestic public interest in the recognition and enforcement of judgments by courts of competent jurisdiction; and (b) deliberate schemes to evade enforcement of judgments of courts of competent jurisdiction should be exposed and penetrated so as to uphold the public interest in (a) above.
The evidence of expert witnesses as to Swiss law
According to the evidence of Mr Michel:
In its application in the Swiss proceedings, Kensington alleges that Vitol SA has purchased and is purchasing Congo’s oil under the “faux nez” or façade of GOTM. Kensington alleges in its application which led to the order of 4 April, that GOTM is used by Vitol SA as a façade to conceal any connection between Vitol and the cargoes for the deliberate and express purpose of assisting Congo to evade enforcement of the judgments by Kensington.
Kensington alleges in the Swiss proceedings that the balance due in respect of the Utik Cargo is susceptible to attachment in the hands of Vitol SA, as are sums due in respect of the two cargoes that were due to be lifted in April. There might also be balances due in respect of the Savoie, Regulus Voyager and Ti Topaz cargoes even if substantial prepayments have been made. Kensington is only aware of a substantial prepayment in respect of the Utik cargo. Any such balances should be caught by the order of the Geneva Court which covers all debts of Vitol SA to the Congo. The interim attachment order made by the Geneva Court prohibits payment to Congo by Vitol SA and renders it a criminal offence to make payment.
The interim attachment order of the Geneva Court of 4 April prohibits Vitol SA from paying any debt due, or accruing due, to the Congo, and this would include Vitol SA making payment by or through Vitol Broking or Vitol Services. However, the order of the Geneva court does not prohibit Vitol Broking or Vitol Services per se from making payment to Congo, as the order is not against either of the third parties directly.
An injunction granted in this jurisdiction restraining Vitol Broking and Vitol Services from making any payment to Congo of sums due in respect of cargoes purchased by Vitol SA and/or associated entities will assist the enforcement proceedings in Switzerland. Such an order would not be considered by the Geneva Court to be an unacceptable intrusion on the Swiss proceedings, but is likely to be regarded as supportive of the Swiss attachment.
The materials and evidence obtained by Kensington through orders of the High Court in London, and in particular the evidence obtained from Dr Nwobodo, played a key role in obtaining the attachment order granted by the First Instance Court of Geneva on 4 April.
An interim attachment order (“sequestre”) is rendered by the First Instance Court on the basis of a written ex parte submission and under the conditions of the Swiss Federal Law on Recollection of Debts and Bankruptcy (“Recollection Law”). No hearing takes place and the order is granted on the basis of the written submission and documentary evidence produced. The judgment debtor and/or third party have the ability to file an opposition against the attachment order under the Recollection Law which is an inter-parties proceeding. If the attachment is granted, the First Instance Court signs the draft order submitted with the written request and transmits it without delay to the Recollection Office. It is the Recollection Office’s duty to notify the order to the debtor and/or third party. The Recollection Office, when notifying the order, indicates that the notified party has the obligation to report on whether it possesses assets as stipulated by the order, and the criminal penalties for false or incomplete declarations in that respect.
The interim attachment order of the First Instance Court was granted to Kensington on the basis of strong prima facie evidence, that GOTM was equivalent to Vitol SA under the principle of “piercing the corporate veil”, a principle recognised under Swiss law. Therefore, payment of any debt to Congo or any of its emanations by GOTM would constitute a violation of the order. The same would apply to any other entity which could be assimilated to Vitol SA under the “piercing the veil” principle. The payment of a debt due from Vitol SA to the Congo effected through some other legitimate Vitol entity (acting on its own behalf) would also be caught and would be a violation of the order.
The interim attachment order of 4 April also extends to the payment of sums not yet due, or accrued due, to Congo or its emanations. The order attaches all claims of the debtor in the hands of the third party. This extends not merely to debts currently due, but also to sums becoming due after the order was made.
As the Kensington’s Recollection Law appeal (“Plainte”) of 5 May 2006, the purpose of the appeal is that the Recollection Office, based on the circumstances and evidence produced, should use its abilities under the Recollection Law and (i) summon Vitol SA to report the claims of Congo against GOTM; (ii) order Vitol SA to disclose all material and evidence in relation thereto and in relation to all contractual elements, payments and financial transactions on the Utik and 8/9 and 20/21 April cargoes; and (iii) subsidiarily perform a search of Vitol SA’s premises and; (iv) eventually re-issue the attachment order enforcement report as being successful, based on the evidence produced by Kensington and possibly also obtained from Vitol SA, that GOTM’s debts towards Congo are attached in the hands of Vitol SA. In this latter case, Vitol SA would have to file a specific Recollection Law action/third party opposition to allege and demonstrate that GOTM should not be assimilated to Vitol SA. The appeal consists of a written submission with exhibits and the decision of the appellate jurisdiction is normally rendered within three to eight weeks. Vitol SA is not a party to the appellate procedure.
As to Mr Gautier’s assertions to the effect that the order of 4 April was granted against Vitol SA alone and does not attach debts due from GOTM to the Congo and its corporate emanations, this is precisely the issue at the heart of the Swiss attachment proceedings. In its submissions to the Geneva Court of First Instance, on the basis of which the order was granted, Kensington’s case was that GOTM is a mere “faux nez” or façade of Vitol SA and that its insertion in the sales chain is a sham, part of a conspiracy between Vitol SA and the Congo by which Vitol SA has assisted the Congo, and continues to assist it, to judgment-proof its assets. In light of these facts, Kensington says that notwithstanding that in form GOTM, rather than Vitol SA, is the Congo’s debtor, in substance Vitol SA is the debtor because, for all relevant purposes GOTM is to be assimilated to Vitol SA.
The principle of piercing the corporate veil is well known and established under Swiss law. There is ample jurisdiction to establish that Vitol SA and GOTM can be assimilated under this principle and that the attachment of assets etc in Vitol SA’s hands includes assets formerly held by GOTM.
As to Mr Gautier’s contention that the Geneva Court’s order does not attach future debts owed by Vitol SA (and its faux nez) to Congo (and its faux nez), it is correct that an attachment order must sufficiently identify the debts it covers. However, this does not preclude attachment orders from covering future debts, provided that they are adequately identified in the order.
As to Mr Gautier’s contention that under Swiss law a prepayment would be considered a loan and not an asset of the judgment debtor within the terms of the order of 4 April, this is wrong. Under Swiss law, a payment made in respect of the purchase of goods is no less a payment simply because it happens to be made before the goods are collected (or, indeed, before they are manufactured). The prepayments made by Vitol in the present case are no different and there is no question of a Swiss court treating such payments as loans (whatever term is used by Vitol and the Congo to describe them).
Under the Swiss Recollection Law (Article 69 LP) the status of an asset under an attachment order is that it is absolutely frozen. The debtor and third party have no right to dispose of it and to do so is unlawful and makes the debtor and/or the third party liable in the civil attachment proceedings and also potentially subject to criminal prosecution.
According to the evidence of Mr Gautier:
Pursuant to Swiss law the applicant for a freezing order is required to show to the court that (a) he has a claim; (b) there exists a ground for a freezing order; and (c) there are assets at hand belonging to the debtor.
The freezing order dated 4 April is intended to cover alleged existing debts from Vitol SA towards the Congo, or its related companies, and not an alleged debt from GOTM, which is a distinct and separate company from Vitol SA.
Pursuant to Swiss law, an injunction such as the freezing order served on Vitol SA on 4 April prohibits the transfer or disposal of the existing assets of the defendant, the Republic of Congo, and its related entities expressly named in the freezing order, should Vitol own such assets.
The sole effect of the freezing order is to prohibit payment of the outstanding balance amounts which are due by Vitol SA to the Congo and/or its related entities expressly named in the freezing order, as of 4 April, if any.
Contrary to Mr Michel’s evidence, the freezing order only attaches any and all claims of the debtor in the hands of the third party at the time when the order was made. This does not extend to sums becoming due after the order was made. Future credits of the debtor can only be frozen if (a) the legal cause of these credits is identified; (b) these credits are individualised; and (c) the moment of payability (“date d’exigibilité”) is known. The freezing order does not extend to sums becoming due after the order was made. The freezing order of 4 April does not prevent any payment by Vitol SA due after 4 April arising out of new contracts.
A prepayment does not fulfil the condition of “possession of assets belonging to the debtor” pursuant to Swiss law, as a prepayment would be considered as a loan granted by Vitol SA to the Congo or its related companies, with a view to being repaid with oil cargoes, at a later stage.
Vitol SA is not defendant to the injunction proceedings filed in Geneva by Kensington but merely a third party. Vitol SA is not identical to GOTM; they are separate corporate entities.
I cannot, on the material before me, determine in respect of the opinion differences identified above, whether Mr Michel or Mr Gautier is right in relation to the relevant principles as to Swiss law. The judgment of the Swiss court in relation to the Plainte, subject to any appeal in Switzerland, will or may determine this. For present purposes I proceed on the basis that there is a good arguable case that Mr Michel is right. If the judgment of the Swiss court shows that Mr Michel is wrong, it would be open to the third parties to return to this court and pray this in aid of an application to enforce the undertaking in damages.
In all the circumstances, in the exercise of my discretion, I propose to continue the injunctions granted by Gloster J in support of the Swiss proceedings subject to a number of amendments:
The orders will continue until 28 days after the judgment of the Swiss court in relation to Kensington’s Plainte (unless extended thereafter by further order).
As to paragraph 4 of the order of 5 April, Kensington says that paragraph 4 was justified as at 5 April but is no longer of practical utility. The third parties say that the order should never have been made. Paragraph 4 will be deleted from the order because it is common ground (albeit for very different reasons) that paragraph 4 should not be maintained.
All references to Antalor Group SA will be removed from the order because it is common ground that Antalor Group SA has no connection with any Vitol parties as defined.
(4) Paragraph 8 raises difficult questions. If and to the extent that I am required to consider as a matter of English law whether there was at any particular time “any debt due or accruing due” to any of the Vitol parties (and in particular but without limitation the true characterisation of any so-called “pre-payments”) I would only be prepared to do so at a trial after full disclosure and cross-examination of material witnesses. The history of this matter shows that purported transactions cannot be taken at face value. Such issues cry out for full and careful investigation. Even a cursory analysis of some of the documents put forward by the third parties raises questions that call for full investigation. The alleged request for a prepayment in respect to the New Vision cargo (bundle 1, page 245) is in respect of the Nkossa blend, whereas the documents said to reflect the chain of contracts appear to refer to a different blend. I was at first inclined to continue the injunction simply in the form of paragraph 8(a) of the order of 5 April but confined to transactions identified in paragraphs 2 to 3 of schedule A, but I am persuaded by Mr McQuater that the circumstances are such that an order in the terms set out below is appropriate. Mr McQuater is entitled to refer to the extraordinary history of transactions involving the Congo which have been considered in judgments of the Commercial Court. I propose to revise paragraph 8 of the order of 10 April to include after the word “howsoever” “(a) pay, or cause to be paid, or assist any other person to pay to any of the Congolese Parties (as defined in Schedule A), any sum of money due or accruing due by or from any of the Vitol Parties (as defined in Schedule A) to any of the Congolese parties in respect of any of the Transactions identified in paragraphs 2 to 3 of schedule A”. The new paragraph (a) will thus track the language of the original 8(a)(i) with the addition of the words “in respect of any of the Transactions identified in paragraphs 2 to 3 of schedule A”. Paragraphs (a) and (b) of paragraph 8 of the order of 10 April will be retained as (b) and (c). The purpose of (b) and (c) is to prevent the circumvention of the injunction in the new (a). The order in (a) t0 (c) is (I emphasise) in each case limited by the words “the Transactions identified in paragraphs 2 to 3 of Schedule A”. There will be an addition as follows. At the end of (c) there will be added: “For the avoidance of doubt, (a), (b) and (c) above are granted as interim relief in support of the substantive enforcement proceedings taking place in Switzerland”.
If it transpires that (b) and (c) of the revised form of order (or for that matter (a)), are wider than necessary to support the substantive proceedings taking place in Switzerland, it will be open to the third parties to return to this court and pray this in aid of an application to enforce the cross-undertaking in damages.
(5) I require that an undertaking be added by Kensington to pursue the Plainte with all reasonable expedition.
(6) Paragraph 12 will be amended as necessary to make specific reference to the Swiss proceedings, being the attachment order of 4 April and the related Plainte of 5 May.
(7) The sum in support of the cross-undertaking will be increased to $1 million, with a corresponding undertaking by the third parties to the effect that if the court later finds that the order for additional security has caused loss to the claimant and that the claimant should be compensated for such loss by the third party, the third party will pay the same.
A copy of this judgment should be provided to the Swiss Court. I will direct that a transcript be prepared as soon as practicable. I record that it will be open to the third parties to restore this matter after the Swiss court has given judgment in relation to the Plainte if the third parties seek to maintain, in the light of the judgment of the Swiss court, that the injunctions granted on 5 and/or 10 April and/or today were wrongly granted and that the cross-undertaking ought to be enforced.
Further, if the third parties wish to pursue their application for a declaration in its present form, or in any amended form, I will consider giving directions for the trial of an issue. For the reasons set out above, in my opinion this court would only consider granting a declaration after a full trial following disclosure and cross-examination of material witnesses.
In the result, the injunction in the amended form will continue. The matter will be considered by the Swiss courts. There will be at liberty to apply. For the avoidance of doubt, that liberty will extend to an application by the third parties to enforce the cross-undertaking. I order accordingly.