Continental Transfert Technique Ltd v Government of Nigeria & Ors

The Fifth Defendant (“NNPC”) applies to discharge two interim charging orders and a third party debt order made ex parte on the application of the Claimant.

On 14 August 2008, a panel of arbitrators, consisting of Sarosh Zaiwalla, Chief Assam E. Assam and Bruce Harris, issued a Final Award in favour of 1st-3rd the Claimant against the Defendants in the sum of Naira 29,660,166,207.48 (equivalent to about £139,250,000) plus US$247,500 costs and the arbitrators’ fees. The hearings had taken place in London but the seat of the arbitration was in Nigeria. The dispute which led to this Award related to a contract made between the Claimant, a Nigerian company, and the 3rd Defendant for the provision of identity cards. It had nothing to do with NNPC.

The 1st-3rd Defendants did not honour the Award. On 9 December 2008, the Claimant applied under section 101 of the Arbitration Act 1996 for permission to enforce it in accordance with CPR 62.18. The Defendants to the application were the 1st-4th Defendants. On 10 December 2008, Paul Walker J granted the Claimant permission to enforce the award against the 1st to 4th Defendants and to enter judgment in the amounts of Naira 29,660,166,207.48 and US$247,000. No challenge having been made to that order, a subsequent order was made by Andrew Smith J on 24 June 2009 confirming that the judgment was absolute and that the Claimant was entitled to apply for enforcement of the judgment.

In September 2009, the Claimants applied for permission to join NNPC as 5th Defendant and for Interim Charging Orders against (1) NNPC’s property at 157/159 Hammersmith Road (“the Property”) estimated to be worth £10-12 million and (2) its shares in a wholly owned subsidiary, Duke Oil Services (UK) Limited (“the Shares”). NNPC was not given notice of these applications. They were supported by a witness statement made by Stuart Dutson, a partner in Eversheds, the Claimant’s solicitors. The witness statement alleged that NNPC was an integral part of the State of Nigeria and that it was an organ of the State, such that a judgment against the State could be enforced against the assets of NNPC. Mr Dutson set out a series of facts which, he contended, showed that NNPC was an organ of the State. These averments included that the Chairman of NNPC is a minister of the Nigerian Government, that the Managing Director is appointed by the National Council of Ministers and that NNPC appears to exercise governmental powers and regulatory functions.

The applications came before Christopher Clarke J. on 28 September 2009. I have seen a note of the hearing prepared by Eversheds at the request of the Judge. The Claimants were represented by Paul Key of counsel. NNPC were not represented. The Judge ordered that “upon it appearing that [NNPC] is the owner of the assets ...” NNPC be joined as 5th Defendants and that Interim Charging Order be made in respect of the Property and the Shares. The Orders recorded that the Court would consider at a further hearing whether the charges should continue or be discharged. Directions were given for service on all five Defendants in Nigeria.

On 19 October 2009, the Claimant applied for interim Third Party Debt Orders against HSBC Bank plc, Union Bank (UK) plc, FBN Bank UK) Ltd, Fortis Bank and Access Bank (UK) limited in respect of bank accounts held by NNPC. The application stated that the Judgment Debtor was NNPC and that the Banks owed money to NNPC. The application was supported by a witness statement made by Gregory Falkof, an assistant solicitor at Eversheds, which stated that the Court had already held that NNPC was an organ of the State of Nigeria. It also explained that the judgment had been entered against the 1st4th Defendants and that NNPC was liable to enforcement as an organ of the State. No notice of the application was given to NNPC. On 28 October 2009, Master Kay made an Interim Third Party Debt Order ordering that the Banks must not pay the Judgment Debtors, which included NNPC, any sum of money due or accruing due save to the extent that it exceeded £151,980,467.67 plus a Court fee of £500.

In returns made to the Court and to the Claimant, FBN Bank and HSBC disclosed that they held a number of accounts in London in the name of NNPC and that there were substantial sums standing to the credit of NNPC. I do not need to set out the figures in this judgment. It is enough to observe that the total credits in the accounts were nothing like sufficient to meet the amount of the judgment. The result is that the accounts are frozen. FBN Bank and HSBC are due to meet payments under a number of letters of credit in favour of third parties.

The first NNPC came to know of these orders was when Nuhu Shittu, its General Manager Group Treasury in Abuja, received a text message on 3 November 2009 from FBN Bank informing him that the accounts had been frozen

On 6 November 2009, NNPC applied to this Court to set aside the Interim Charging Orders and the Third Party Debt Order. The application came before Beatson J. on 6 November 2009, but it was impossible to complete the hearing that day, and the application was heard by me as an urgent matter on 10 November.

NNPC was established by section 1 of the Nigerian National Petroleum Corporation Act 1977 as a body corporate with perpetual succession. It is charged with a number of duties including exploring, prospecting for, refining and marketing petroleum and generally engaging in activities that would enhance the petroleum industry in the overall interest of Nigeria. By section 6(1), NNPC was granted the powers to hold, manage and alienate movable and immovable property and to enter into contracts. The Act prevents execution against NNPC and provides that judgments are to be paid from the general reserve fund of the corporation.

NNPC’s main business is Nigeria and it encompasses the oil and petrochemical industry in the country with exclusive responsibility for upstream and downstream development. The downstream plants include four refineries and three petro-chemical plants. NNPC has also had a London office for many years from which it conducts its overseas operations. In his witness statement, James Maton, a partner in Edwards Angell, NNPC’s solicitors, states that the Third Party Debt Order has had a draconian impact. It has crippled NNPC’s London operations and is causing significant damage. NNPC is prevented even from utilising its accounts for trading purposes. The accounts are used to pay contractors, staff wages, PAYE, utilities, rates and other business expenses. There are 17 outstanding letters of credit.

I should record that there is a great deal of dispute between the parties as to the status of NNPC. The Claimant contends that that it is a department of the Nigerian State. That is strongly disputed by NNPC. Although both parties rehearsed before me some of their arguments, it was agreed before Beatson J. and before me that this dispute cannot be resolved at this hearing.

Mr Davies QC, for NNPC, submitted that the Interim Charging Orders and the Interim Third Party Debt Orders should be discharged immediately. The procedures that had been adopted by the Claimant were illegitimate and wholly wrong. He complained that the Orders had been made without notice. NNPC had not been a party to the arbitration proceedings and had no prior involvement. It was not the judgment debtor. On the Claimant’s arguments, a third party’s bank accounts could be frozen totally, for as long as it took to resolve the issue, on the basis of an arguable case that the bank accounts belonged to someone else. The Order was made without any of the protections that would usually apply if a freezing injunction were granted, such as a cross-undertaking in damages and a saving for payments made in the ordinary course of business. Furthermore, the Claimant had gained access to confidential information as to the state of NNPC’s bank accounts without NNPC being given any opportunity to protest.

He made the following principal submissions:

In response, Mr Lockey QC for the Claimant submitted that NNPC had misunderstood the Claimants’ case. As an organ of the Nigerian State, NNPC’s assets were amenable to execution by way of enforcement of a judgment against the State. It was not necessary for the Claimant to enter judgment against NNPC because judgment against the 1st-4th Defendants sufficed. The Court has made an Order permitting the Claimant to enforce the Award against the 1st -4th Defendants, which has not been challenged. The basis on which the Claimant seeks to enforce against assets held in NNPC’s name is that those assets are the assets of the judgment debtor, the State of Nigeria, not because NNPC is named as judgment debtor (which it is not). The interim orders obtained by the Claimant are therefore made to enforce the Award in its favour and in terms of the Award.

I will have to refer to these submissions more fully later in this judgment.

A third party debt order is the modern replacement for a garnishee order. It is the means by which a judgment creditor can obtain an order for the payment of money which a third party within the jurisdiction owes to the judgment debtor (CPR r. 72.1). The scheme is that a judgment creditor first applies for an interim third party debt order requiring the third party to retain a specified amount of money pending a hearing whether to make a final order. The application is dealt with on paper without a hearing (rule 4(1)) and without notice to the debtor. The court has a discretion whether or not to make the interim order. If it is made, there will then be a hearing for the final order. The Court’s powers under CPR r. 72.2 are as follows:

Mr Davies submitted that, under CPR r. 72.2, a third party debt order can only be made in respect of a debt due from the third party to the judgment debtor. The bank accounts were in the name of NNPC which is not the judgment debtor.

He relied heavily of the judgment of Aikens J. (as he was) in AIG Capital Partners Inc v. Kazakhstan [2005] EWHC 2239 (Comm); [2006] 1 WLR 1420. There, the claimant had obtained an ICSID award against the State of Kazakhstan. The award was made a judgment of the Court. The claimant sought to enforce the judgment by obtaining a third party debt order in respect of cash and securities held by ABN AMRO Mellon Global Securities Ltd (“AAMGS”) to the order of National Bank of Kazakstan (“NBK”), the central bank of Kazakhstan. NBK is a distinct legal entity established under the Kazakh Law on Banks and Banking Activity. The funds were part of the assets of the national resources fund, the object of which was to help stabilise fiscal policy and save a portion of resources – a “kind of ‘rainy day’ fund, storing up wealth for future generations”. NBK applied to discharge the order on a number of grounds including the argument that the judgment debtor was Kazakhstan, not NBK.

The Judge recorded some of the arguments by counsel as follows:

The Judge upheld NBK’s arguments. He said at §§30-33:

Mr Davies submitted that the AIG decision is decisive. The Third Party Debt Order must be discharged.

In answer Mr Lockey sought to distinguish the AIG decision. In the alternative, he submitted that I should not follow it.

By way of distinction, he said that it had never been submitted to Aikens J. that NBK was an organ of the state and that its assets were the assets of the judgment debtor. The only finding in AIG was that Kazakhstan held the ultimate beneficial interest in the national fund and thereby had a beneficial interest in the cash accounts. His argument before me went further.

Mr Lockey also relied on the Congo cases and particularly Kensington International Limited v. Republic of Congo & ors [2005] EWHC 2684 (Comm). The facts of the case were complex, but in summary the judgment creditor had obtained two interim third party debt orders in execution of a judgment debt against the Congo. One was in respect of a debt due from Glencore to Sphinx Bermuda. Cooke J. held that a series of transactions between Sphinx Bermuda at one end of the chain and SNPC/Cotrade at the other were a dishonest sham and could be collapsed. As regards SNPC/Cotrade, they were both to be equated with the Congo. They had no separate existence and were part of the State (§193). So final third party debt orders were made in respect of the purchase price of the cargo ostensibly due from Glencore (which was entirely innocent in the matter) to Sphinx, and Glencore was ordered to pay the claimants as judgment creditor of Congo.

Mr Lockey submits that this decision is inconsistent in result with AIG and should be preferred. NNPC cannot show that “the debts from the Banks are due to NNPC” without establishing (1) the correctness of its propositions of fact and (2) the incorrectness of the Claimant’s case that NNPC is an organ of the State of Nigeria and that the assets held in the name of NNPC are assets against which the Claimant can enforce its judgment against the state of Nigeria as in Congo.

As to Mr Lockey’s first point, in my judgment the facts in AIG were very similar to the facts alleged here. It was conceded that Kazakstan had a beneficial interest in the funds held by the Bank. That is not substantially different from the Claimant’s case that the funds are assets of the State of Nigeria. Further, Aikens J.’s decision was not dependant on the precise nature of the State’s interest in the funds. His point was that NBK was not the judgment debtor and that CPR r. 72.2 only operated in respect of third party debts due to the judgment debtor. In my judgment, AIG is indistinguishable. Indeed if anything the facts in this case are a fortiori. Here there is no national fund held by NNPC, at least in London. The accounts appear to be ordinary business accounts. It is striking that in Congo, Cooke J. refused to make an order in respect of monies held in Sphinx UK’s accounts because the monies were there to cover its ordinary business expenses (§215).

I agree that the result in Congo appears to be inconsistent with the AIG decision. AIG was not cited in Congo – no doubt because, as it happens, AIG was decided only a month before Congo. Indeed, the point on CPR r. 72.2, which succeeded before Aikens J., was not even argued before Cooke J.

Therefore, I should follow AIG unless I am satisfied that it is clearly wrong. I respectfully think, on the contrary, that Aikens J was right. The wording of CPR r. 72.2 is plain. The procedure is paper based and fairly mechanistic. It allows for no automatic protection for third parties, other than the third party debtor. It may be that the Court could in theory require a cross-undertaking in damages or permit payments in the ordinary course of business, but it is certainly not normal practice to do so. The consequences for a third party, such as NNPC, served with a third party payment order without any opportunity to make submissions, are likely to be drastic, as indeed they have been in this case. In my judgment, CPR r. 72.2 was not intended to deal with debts other than those actually owed in the name of the judgment debtor. In more complex cases involving other parties, there are other means of protection such as the appointment of a receiver or, in the case of trusts, a charging order.

There is some support for this approach in pre-CPR cases. In Hirschorn v Evans [1938] 2 KB 801, it was held that a garnishee order could not be obtained against a joint account in respect of a judgment debt against one of the account-holders. At the end of his judgment, MacKinnon L.J. said as follows:

“The learned [County Court] judge's judgment ends with the words:

“So far as the question of principle is concerned, I see no more difficulty in this case than in a case where they have got the account in one name and it turns out that the money is the property of somebody else.”

That seems to be couched in popular language. There is, of course, never any question of property in the credit balance of a bank account. The relation of banker and customer is simply that of debtor and creditor. But if the popular language used by the county court judge means, as it appears to do, that when a garnishee order in regard to some named judgment debtor is served on a bank, the bank must at its peril hold up any account in any one’s name in which the judgment creditor can subsequently prove that the judgment debtor had an interest as principal, cestui que trust, or in any other way, I think that that proposition is utterly wrong and that its enforcement would impose an unjustified and intolerable burden on the bank. I think that the judgment for these reasons was wrong and this appeal should be allowed.”

The case is cited at §72.2.15 in the White Book as still relevant to CPR Part 72 and there is nothing in the new rules suggesting they intend to go further.

Mr Lockey submitted that in this case the Court could not determine now that the banks’ only contractual relationship is with NNPC and that it should not proceed as if this was a strike out. In my judgment, however, there is not the slightest evidence for suggesting that the banks’ contractual debtor/creditor relationship is other than with NNPC and, even if there was, Hirschorn suggests that it would not be appropriate to make a third party debt order. It is for the Claimant at least to establish a seriously arguable case and it has failed to do so.

In my judgment, therefore, the Interim Third Party Debt Order ought not to have been made in respect of NNPC’s bank accounts, and I will discharge it.

Under section 2 of the Charging Orders Act 1979, a charging order may be made in relation any interest held by the debtor beneficially in land, securities or funds in court or under any trust. Under CPR Part 73, the scheme is that the judgment creditor applies first, usually without notice, for an interim charging order. The Court has a discretion whether to make an order. If it does so, a charge is imposed over the judgment debtor’s interest in the asset to which the application is made and a hearing is fixed to consider whether to make a final charging order.

There is no knock-out point available to NNPC similar to that in CPR 72 r. 2. Mr Davies argued in his written argument, and more faintly in oral argument, that an arbitration award could only be enforced under section 101 of the 1996 Act against a named party in the award. He relied on the decision of Gross J. in Norsk Hydro v. State Property Fund of the Ukraine [2002] EWHC 2120 (Comm) where the Judge held that the order providing for enforcement must follow the Award. The procedure must be as “mechanistic” as possible. However, as Mr Lockey argued, that case was concerned with the procedure for permission to enforce an award. Here permission has been granted and what the Claimant is seeking to do is to enforce the judgment it has obtained against what it contends are the assets of the State of Nigeria. In my judgment s.101 is not a bar to this argument, if otherwise correct.

So the critical question is whether Mr Lockey is right that, if NNPC is an organ of the State of Nigeria, the Court can ignore its separate status and personality as a corporation and enforce the judgment obtained against the State by execution against NNPC’s assets.

Mr Lockey cited Mr Justice Cooke’s judgment in Congo (supra) as authority for his proposition. In that case, the Judge held at §55, in agreement with Tomlinson J in an earlier Congo case [2003] EWHC 2331 (Comm), that SNPC, the Congolese state owned oil company, was simply part of the Congolese state and had no separate existence from the State. The judgment against the Congo was enforced against SNPC’s assets.

He also cited the related case of Walker v. Congo [2005] EWHC 2813 (Comm), where Morison J. upheld charging orders made against shares held in the name of Fininco on the basis that those shares were beneficially owned by Congo. The basis of the judgment was that SNPC was an organ of the Congolese State as opposed to being a state owned commercial company. If it was an organ of the State, then its assets could be regarded as belonging to the State (§§91-94). SNPC, Fininco and the Congo were “one and the same” (§194).

He referred to the decision of the Paris Appeal Court (8th Chamber) in another Congo case, SNPC v. Walker (Arrêt of 23 January 2003), where the Court appears to have permitted execution of a judgment against the Congo against the assets of SNPC on the basis that SNPC was:.

“not from statutory standpoint in a position of sufficient operational independence to take independent decisions in its own interest, and to be considered as benefiting from a legal and de facto independence with regard to the Congolese state” (see pp 6-7).

The decisions of the Commercial Court in the Congo cases have been cited as authority for the proposition that, in English law, an award creditor may be able to enforce an award against a state against assets held in the name of a state entity: see Enforcement of Arbitral Awards against Sovereigns – Experience in the Courts of England & Wales, by Gill, Jagusch and Sinclair, (in Enforcement of Arbitral Awards against Sovereigns, ed Bishop, 2009), Part V of Chapter 12 in particular at pp. 289-292.

Professor Emmanuel Gaillard has commended the French Courts’ decisions (including the decree of 23 January 2003 referred to above) in State Entities in International Arbitration, 2008, at p. 190:

“… we cannot help but rejoice that the Paris Court of Appeals… has tempered its traditional position on “state instrumentalities” in order to allow the enforcement of awards or judicial decisions against a State through assets belonging to a national company tightly controlled by that State”.

However, I have to confess that I am distinctly sceptical about the validity of Mr Lockey’s arguments in English law. English rules on conflict of laws recognise the existence of foreign corporations duly created under the law of a foreign country: see Dicey Morris & Collins on The Conflict of Laws (14th ed.) Rule 161 on pp.1339 et seq. In the absence of a sham or fraud (which is not even suggested in this case), it is not obvious why the separate status of a foreign corporation should ignored just because it is an organ of a State. Mr Lockey was not able to produce any authority or academic commentary (apart from those cited above) which suggests that there is some special rule in international law. Indeed in J.H.Rayner (Mincing Lane) Ltd v. DTI [1990] 2 AC 418 at 482 (the International Tin Council litigation), the House of Lords applied the well established principles stated by Lord Halsbury L.C. in Salomon v. A. Salomon and Co. Ltd. [1897] AC 22, 30 that:

“once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself ...”

As Mr Davies submitted, there is no earlier authority or academic treatise cited for the principle stated by Cooke J and Morison J. in the Congo litigation and relied on by the Claimant. The judgments contain no real analysis of the issue. The point was not argued (as it presumably could have been) in Norsk Hydro. In Kazakhstan v. Istil [2006] EWHC 448 (Comm) at §66, David Steel J. thought there was no basis for disregarding the separate legal personality of Karmet on the basis that it was an organ of the State.

In Professor James Crawford’s article in the American Journal of International Law (75 AJIL 820) on Execution of Judgments and Foreign Sovereign Immunity, he says:

“ Other State Instrumentalities.

Both reason and practice support the suggestion that property or funds of separate state instrumentalities, engaged in non-immune transactions, should be more generally available for execution in

respect of transactions of the instrumentality. ...

Whether the assets of a separate state corporation should be available for execution pursuant to claims against the state itself or other instrumentalities, is a different question. In the first instance, it must depend upon the status and organization of the instrumentalities, and upon the extent to which the ordinary law of the forum allows recourse to assets in this way. It might be thought that the objection of non-opposability, raised by the 11 Libyan instrumentalities in the LIAMCO case (Footnote: ¹), was a cogent one.”

The International Law Commission’s draft Articles on State Responsibility provide:

Mr Davies submits that the Claimant’s case against NNPC is weak. There is force in this submission, but there are two recent judgments of this Court in the Congo litigation which support the Claimant’s argument. The point is of considerable general importance. I am not confident that, in the time available, counsel have been able to review the legal position fully in England and internationally, produce to the Court all relevant material and marshal the arguments properly. Further, in contrast with the application to discharge the Interim Third Party Payment Order, there is no immediate urgency in deciding the point - NNPC does not suggest that the interim charges on the Property and the Shares are anything other than an irritation at this point.

In my judgment, the applications to convert the Interim Charging Orders into final orders should take their usual course, and I should not, in effect, strike them out at this stage. I will be prepared, however, to consider whether a cross-undertaking in damages should be required from the Claimant. That also leaves open the question whether the legal point should be decided in principle, or whether there should be full disclosure and evidence, as the Claimant proposes, on the factual/legal issue as to whether NNPC is truly a department of the Nigerian State.