The Royal Bank of Scotland Plc v FAL Oil Company Ltd& Ors

On 16 October 2012 the following applications were before me:

The Bank’s applications for continuation of the injunctions and disclosure orders are brought pursuant to section 25 of the Civil Jurisdiction and Judgments Act 1982 (“the 1982 Act”), which was extended to non-Brussels Convention countries by the Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997 (S.I. 1997 No. 302). Although, before 1982, the court could not grant interlocutory relief when the substantive proceedings were taking place abroad, the Court now has such a power.

The Bank is a substantial bank with headquarters in Edinburgh and offices located around the world. According to the evidence, it has core bank operating profits of £6.1 billion as at the end of 2011, and is one of the two principal subsidiaries of RBS Group plc, whose total assets at the end of 2011 stood at £1.5 trillion.

The first defendant, FAL Oil, is a company incorporated under the laws of the United Arab Emirates (“UAE”). It has three directors: Abdalla Juma Al Sari (chairman) (“Mr. Abdalla Al Sari”); Majid Abdalla Juma Al Sari (director and 25% shareholder) (“Mr. Majid Al Sari”); and Mohamed Adballa Juma Al Sari (director and 25% shareholder) (“Mr. Mohamed Al Sari”). The two last-named are sons of Mr. Abdalla Al Sari. The remaining 50% of the shares of FAL Oil are held by a company called Investment Group (Pvt Ltd), which is understood to be a vehicle for the investments of the Al Sari family. Mohamed Osman Fadul Ali (“Mr. Mohamed Osman”) was at one time General Manager of FAL Oil but the Bank’s belief is that he has since been removed from that position.

The second defendant, FAL Shipping, is a company also incorporated under the laws of the UAE. It has three directors: Mr. Abdalla Al Sari (chairman); Mr. Majid Al Sari; and Mr. Mohamed Al Sari. 99.98% of the issued share capital of FAL Shipping, (4,999 shares) are held by FAL Oil, and the remaining one share is held by Mr. Abdalla Al Sari. Mr. Mohamed Osman was at one time General Manager, but the Bank’s belief is that he has been removed from that position.

The third defendant, Gulf Success, is a company incorporated under Liberian law. It has, or has had, three directors: Mr. Majid Al Sari (president and 50% shareholder); Mr. Mohamed Al Sari (treasurer and 50% shareholder) and Mr. Mohamed Osman (secretary). According to a voluntary filing made by Gulf Success, it would appear that Mr. Mohamed Osman’s office as director and secretary has been terminated. Gulf Success is the registered owner of the oil tanker “Sea Lion”.

The fourth defendant, Sea Victory, is a company incorporated under Liberian law. It has, or has had, three directors: Mr. Majid Al Sari (president and 50% shareholder); Mr. Mohamed Al Sari (treasurer and 50% shareholder) and Mr. Mohamed Osman (secretary). According to a voluntary filing made by Sea Victory, it would appear that Mr. Mohamed Osman’s office as director and secretary has been terminated. Sea Victory is the registered owner of the oil tanker “Sharjah Pride”.

The evidence before me (and in particular the relevant FAL Group website) showed that the Defendants are all part of a loose group of companies called “the FAL Group”, which have the same or similar shareholders and directors. According to the website, FAL Oil, is “… a oil major in the Middle East with marketing offices in London and Singapore”; it is said to be

“… the largest independent oil and bunker trader in the Gulf Region with total sales for the year 2009 close to 20,000,000 tonnes of fuel oil gasoil and various other petroleum products …. a major supplier of oil to the Red Sea, the Mediterranean, the Indian Subcontinent, East Africa and occasionally to some regions in the Far East.”

It is also said to have

“… enhanced its market presence with the opening of its offices in the UK and Singapore. This has helped FAL to venture in to new and prospective markets.”

FAL Shipping manages a fleet of over 30 tankers owned by the FAL Group; it also apparently arranges the chartering of both its own vessels and those of other owners, and carries cargoes being traded by FAL Oil, or bunkers being supplied by FAL Oil.

Two FAL Group companies are companies which have been incorporated in the UK: FAL Oil (UK) Limited (“FAL Oil (UK)”) and FAL Energy UK Limited (“FAL Energy UK”), and have offices in London. They are not defendants to the current proceedings. A Mr. Nicholas Colquhoun-Denvers (“Mr. Colquhoun-Denvers”), is the company secretary and General Manager of both FAL Oil (UK) and FAL Energy UK. The annual return of FAL Oil (UK) as at 19 May 2012 shows that Mr. Abdalla Al Sari, Mr. Majid Al Sari, and Mr. Mohamed Al Sari are directors of FAL Oil (UK) and that Mr. Majid Al Sari and Mr. Mohamed Al Sari each holds 45% of the issued share capital with the remaining 10% being held by women members of the family. The relevant filings at Companies House show that the directors of FAL Energy UK are Mr. Mohamed Al Sari and Mr. Majid Al Sari and that 999 shares in its issued share capital are owned by FAL Energy Ltd (another FAL Group company) and one is owned by Mr. Mohamed Al Sari. According to his business profile, Mr. Colquhoun-Denvers styles himself as “Head of the London representative office for a Middle East based, privately owned, Oil and Shipping Group”.

By a loan agreement dated 4 April 2006, the Bank granted a $28 million loan and revolving credit facility to Gulf Success (“the Sea Lion Facility”) to assist in the purchase of the Sea Lion. The facilities were secured by a First Preferred Liberian Mortgage over the vessel dated 10 April 2006, and guaranteed by both FAL Oil and FAL Shipping pursuant to guarantees dated 4 April 2006. According to the Bank’s evidence the Sea Lion Facility was granted “on the basis of the financial strength of FAL Oil and the fact that the Defendants are beneficially owned by the Al Sari family”.

By a loan agreement dated 26 October 2009, the Bank granted a $8 million loan facility to Sea Victory (“the Sharjah Pride Facility”) to assist in the purchase of the Sharjah Pride. The facilities were secured inter alia by a First Preferred Liberian Mortgage over the vessel dated 30 October 2009, a Second Preferred Liberian Mortgage over the Sea Lion also dated 30 October 2009, and guaranteed by both FAL Oil and FAL Shipping pursuant to guarantees dated 26 October 2009. According to the Bank’s evidence the Sharjah Pride Facility was also granted “on the basis of the financial strength of FAL Oil and the fact that the Defendants are beneficially owned by the Al Sari family”. At the same time the Sea Lion Facility was amended and restated pursuant to an agreement dated 26 October 2009 and the Bank obtained further security for that facility in the form of a Second Preferred Liberian Mortgage over the Sharjah Pride. Further security for both facilities was also obtained through Cross Guarantees issued by Sea Victory and Gulf Success respectively dated 26 October 2009.

The loan agreements and the guarantees in all cases were subject to English governing law and exclusive jurisdiction provisions; however the exclusive jurisdiction clauses expressly reserved the right to the Bank (but not to the other parties) to bring proceedings in the courts of any country other than England concurrently with or in addition to proceedings in England or without commencing proceedings in England. In addition to the exclusive jurisdiction clauses, the guarantees contained the following provisions:

“19.3

Waiver of objections

The Guarantor irrevocably agrees to waive any objection to any court specified in this Clause, whether on the grounds of venue, or on the grounds that the forum is not appropriate. The Guarantor further irrevocably agrees that a judgment of any court specified in this Clause shall be conclusive and binding upon it and may be enforced in the courts of any other jurisdiction.

19.4

Consent

The Guarantor consents generally to the giving of any relief and the issue of any process, in any proceedings brought under this Clause. This includes the grant of any judgment or order, and its enforcement against any asset.”

Additionally notice and service provisions provided for service of all relevant documents on the Defendants within the jurisdiction at Law Debenture Corporate Services Ltd in London. All the documentation relating to both facilities was executed on behalf of the relevant defendant by Mr. Colquhoun-Denvers in London pursuant to powers of attorney.

In January 2012 FAL Oil was made the subject of United States sanctions pursuant to the Comprehensive Iran Sanctions Accountability and Divestments Act 2010 (“CISADA”). It was not disputed as before me that the Bank’s rights and remedies as against FAL Oil were not prejudiced as a result of those sanctions.

In January 2012, Gulf Success and Sea Victory stopped making scheduled instalment payments and servicing the interest due in respect of the Sea Lion and the Sharjah Pride Facilities. This conduct constituted events of default under the relevant provisions of the facilities. The loan agreements required the borrowers not only to pay the earnings of the vessels into operating accounts with the Bank in England, but also at all times to maintain a minimum cash credit balance in the accounts of an aggregate amount of not less than $500,000. From January 2012 Gulf Success and Sea Victory were in breach of this provision. The Bank also discovered that neither company was in good standing with the Liberian Registry, although this appears to have been remedied as at September 2012.

The Bank’s Global Restructuring Group then entered into discussions with FAL Oil with a view to unwinding the Bank’s positions under both facilities and recovering the amounts owed to it. However these discussions were not productive and, by May 2012, the Bank discovered that Sharjah Pride had reportedly gone to Iran in January and was in Iranian waters, whilst Sea Lion had been lying idle within UAE waters since January 2012. In June 2012 the Bank discovered that Sharjah Pride had apparently switched off her automatic identification system (“AIS”) transponder, and her last AIS transmission was off the coast of Dubai on 26 June 2012. Since 26 June 2012, the Sharjah Pride had been reported as calling at Bandar Imam Khomeini, Iran, eight times.

Upon receipt of this information, the Bank made inquiries of the Defendants regarding the whereabouts of the Sharjah Pride. However, according to the Bank’s evidence, the Defendants consistently failed to provide any adequate explanation in answer to the Bank’s queries, initially stating that the Sharjah Pride was idle, and then stating that it had gone on a test run voyage needed to help sell the vessel.

On 4 July 2012, the Bank issued notices of demand to Gulf Success and Sea Victory, pursuant to clause 9.2 of the Loan Agreements, clause 2.1 of the Cross Guarantees, and the First and Second Preferred Mortgages. On 16 July 2012, the Bank issued notices of demand to FAL Oil and FAL Shipping, pursuant to clause 2.1 of the Guarantees.

The Bank further instructed Clyde & Co to write to the Defendants to demand that Sharjah Pride’s AIS be turned on and the position, current and future employment and engagements of the vessel be reported. The Bank was entitled to this information pursuant to the loan agreements and the mortgages.

In August 2012, following further correspondence, including complaints about apparent sailings to and from Iran, FAL Oil (apparently representing all the Defendants) stated to the Bank that it no longer had operational control of Sharjah Pride, and that Sea Lion was to be sold, pursuant to a Memorandum of Agreement, to PNC Maritime Shipping (with part of the consideration apparently being the supply of oil to FAL Oil). At a meeting on 23 August 2012, at the Bank’s offices in Dubai, between the Bank’s representatives and Mr. Majid Al Sari on behalf of the Defendants, Mr. Al Sari stated that Sharjah Pride was controlled by Golden Crown Shipping Co (“Golden Crown”), a company controlled by a Mr. Sayed Abbarali Marashi (“Mr. Marashi”), which had agreed to buy the vessel but had not paid for it. Mr. Majid Al Sari also claimed that Golden Crown had stolen oil from FAL Oil, following which, criminal proceedings had been commenced in the UAE. These alleged proceedings were also put forward as justification for the Defendants having admittedly misinformed the Bank in relation to Sharjah Pride over the preceding months, it being claimed that the provision of misinformation had been necessary to keep the criminal investigation secret.

On 2 September 2012 the Bank issued proceedings against all four defendants and the vessels in the Sharjah Court of First Instance and obtained an order for a preservatory arrest/precautionary attachment of the vessels and a precautionary attachment of monies held in the bank accounts of FAL Oil and FAL Shipping in the UAE to secure a total amount total outstanding amount of $11,946,975.63. This sum was made up as to $6,260,537.92 in relation to the Sea Lion Facility and a sum of $5,686,437.92 in relation to the Sharjah Pride Facility.

However neither of the arrest orders had been enforced at the time of the application for the September order. On the morning of 6 September 2012 the Sea Lion switched off her AIS and was unable to be located. Although she had been reported as having called at a port in Dubai, at the time of the application before Field J her location was unknown.

On 10 September 2012 the Bank issued a substantive claim against the Defendants and the vessels in the Sharjah Court of First Instance seeking to confirm the court’s previous interim orders and to obtain judgment in an amount of $11,975,362.32 together with interest and costs. The Bank had taken the decision that, because of difficulties arising under UAE law and procedure relating to the enforcement of an English judgment in the UAE, it should commence substantive proceedings in Sharjah rather than in England.

It was common ground that, as a matter of UAE law, there was no procedure for execution of a UAE attachment order outside the UAE, that only domestic freezing type orders can be sought from the UAE courts and that there was no procedure under UAE law equivalent to the English worldwide freezing order. It was also common ground that there was no provision for any type of disclosure order, as ancillary to an attachment or preservatory order.

On 10 September 2012, Kashwani Law Firm, lawyers acting for Golden Crown, wrote to Clyde & Co alleging that Golden Crown had bought the Sharjah Pride in November 2011, and had sold her in March 2012. On 12 September 2012, the Bank received notification from the North of England and Skuld P & I Clubs that the Vessels’ P & I cover had been cancelled. Furthermore, the brokers had been informed that the Sharjah Pride had been sold on 15 August 2012.

On 12 September 2012, FAL Shipping wrote a letter addressed to “All FAL Shipping Lenders” which was sent to the Bank. In that letter, FAL Shipping stated that the FAL Group as a whole was seeking to sell various vessels and asked for co-operation. The letter ended with the statement that: “… the co-operation from the group cannot be guaranteed if any lender commences arrest or attachment proceedings”.

On 12 August 2012 Reuters reported that:

“Middle East trader FAL Oil, in talks with creditors on $700 million in debt, on the cusp of hiring a chief restructuring officer to keep the faltering discussions on track ….

United Arab Emirates-based FAL, … has been forced to … shut its trading operations in Singapore and London ….

FAL Oil which has closed its office in Singapore and halved its staff in London.”

At a meeting between representatives of the Bank and Mr. Marashi, of Golden Crown, on 18 September 2012 Mr. Marashi stated that the FAL Group had agreed to deliver to Golden Crown two vessels to reduce liabilities: Sharjah Pride, and another vessel, Gulf Glory. Gulf Glory was, in fact, never delivered. According to Mr. Marashi, the shareholding in Sea Victory had been transferred to him, and arrangements had been made to sell the Sharjah Pride formally; because the FAL Group was not keeping up its side of the bargain, he had transferred ownership of the shares in Sea Victory to a third party because the situation had become difficult for Golden Crown; the third party also apparently wanted to assist Mr. Marashi by discharging the mortgage and the debt owed to the Bank.

Against that background the Bank applied for and obtained without notice relief in the terms of the September order from Field J. For various reasons the hearing before me on 4 October 2012 was ineffective and the matter was adjourned to 16 October 2012. Further affidavits were filed in the interim on behalf of both the Bank and the Defendants.

As at 16 October 2012 the evidence additionally showed:

Mr. Stephen Cogley QC, and Mr. Emmet Coldrick, counsel for the Defendants, invited the court: to dismiss the application for continuance of the 4 October Order, to set aside the September and 4 October Orders and to strike out the claim. They contended that:

In oral argument Mr. Cogley realistically did not press his application to discharge the September and 4 October Orders on the grounds of non-disclosure and accordingly I do not address that point further. He also accepted in both his written and oral submissions that the evidence demonstrated risk of dissipation and of the Defendants seeking to put assets beyond the reach of their creditors.

Mr. Cogley submitted that:

In summary, in support of the Bank’s case that the injunctions should be continued and the Defendants should be required to give information about their assets worldwide including assets in the UAE, which are not frozen, Miss Selvaratnam QC and Mr. Ravi Aswani submitted as follows:

The court has jurisdiction to grant interim relief, including worldwide asset freezing injunctions and disclosure orders, in aid of substantive foreign proceedings under section 25(1) of the 1982 Act. Section 25(2) provides that:

“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 it inexpedient for the court to grant it.”

As Neuberger J (as he then was) stated in Ryan v Friction Dynamics [2001] CP Rep 75 the section confers “a statutory jurisdiction which on its face appears to be intended to give a wide and flexible discretion.” However the authorities show that certain principles govern the exercise of the discretion.

Guidance as to the general approach to be adopted was given in Refco Inc v Eastern Trading Co (supra). In that case the proceedings were pending in the United States Federal Court in Illinois to which court an application for corresponding relief could not properly have been made. All three members of the Court Of Appeal (Millett, Morritt and Potter LJJ) agreed that the approach of the English courts to an application for interim relief under section 25 was:

I summarise, from the authorities which were cited to me, the following principles and guidelines relevant to the question as to what is expedient, or inexpedient, in the circumstances of the present case:

Would the facts warrant the relief sought, if the substantive proceedings had been brought in England?

It was common ground that the Bank had a good arguable case against all four defendants. Indeed the evidence did not suggest that the Defendants had any defence to the claims made by the Bank under the loan agreements or the guarantees; the most that the evidence suggested was a failure or inability to pay on the grounds of the FAL Group’s financial predicament. Even then, the evidence was extremely coy as to the Group’s financial position, let alone the individual financial position of the respective defendants, and as to whether the failure to pay was attributable to genuine financial inability as opposed to reluctance.

It was realistically conceded that the evidence demonstrated real risk of dissipation. The evidence showed that the Defendants had in recent months and weeks apparently taken deliberate steps to dispose of their assets or to put their assets out of the legitimate reach of their creditors. There was no evidence, at least so far as the Bank was concerned, that the Defendants had behaved responsibly or in an open handed and transparent fashion in an attempt to engage and reach an accommodation with their creditors in the Group’s current financial predicament. On the contrary, the Defendants’ attitude was exemplified by their failure to ensure that the vessels’ earnings were paid into the relevant bank accounts with the Bank in London, notwithstanding that the vessels were apparently continuing to trade, the fact that the responders had been switched off to avoid arrest of the vessels and their refusal to give any details of their financial position and assets. These, together with the fact that there is no apparent defence to the Bank’s claim, are all matters that I take into account in the exercise of my discretion.

Subject to the points made by Mr. Cogley about the alleged tenuous links, or absence of links, as between the Defendants and the jurisdiction of this court, and the alleged problems about enforcement of any orders against the Defendants (which are issues that might also have arisen in the contextof an application for worldwide freezing orders, in circumstances where the substantive proceedings had been brought in England), I have little doubt that the facts would have warranted the worldwide freezing orders and disclosure orders sought by the Bank. There is a strong inference that the FAL Group, given the geographical extent and nature of its business operations, is likely to have assets in jurisdictions other than England or the UAE.

Does the fact that the court has no jurisdiction apart from section 25 make it “inexpedient” to grant the relief?

None of the first four of the five considerations identified in paragraph 115 of the Court of Appeal’s judgment inMotorola v Uzan, presents a problem in the current case. An order requiring the Defendants to identify their worldwide assets and a worldwide asset-freezing injunction will aid, rather than interfere with, the Sharjah proceedings. Given the absence of any jurisdiction under the laws or procedural rules of the UAE to make such orders, there is little danger of disharmony or confusion or conflicting decisions and there is unlikely to be a potential conflict as to jurisdiction rendering it inappropriate or inexpedient to make a worldwide order. The identification and location of assets, and any subsequent attachment orders made in the relevant jurisdictions where such assets may be found, will necessarily assist the enforcement of any judgments of the Sharjah courts. The Bank is well within its contractual rights in bringing the substantive proceedings in the Sharjah courts.

Whilst it is clear from the authorities which I have cited above, that very careful consideration has to be given to the making of worldwide freezing orders, and that it may be inappropriate to do so in circumstances where there are only very tenuous links between the Defendants and the jurisdiction of the English court, and where there may be real problems about enforcement of the court’s orders, I am satisfied that, contrary to Mr. Cogley’s submissions, the necessary links with the jurisdiction are indeed established on the evidence before the court. I am also not persuaded by Mr. Majid Al Sari’s assertions that any orders made by this court will be effectively impossible to enforce because the directors will modify their previous conduct, cease to visit England and therefore will not be susceptible to arrest for breach of the orders. My reasons for these conclusions may be summarised as follows.

The substantial credit facilities which are the subject matter of the loan agreements and guarantees was finance raised from a United Kingdom bank, in London, subject to English law and English court exclusive jurisdiction clauses (at least so far as the Defendants were concerned). The agreements were signed in London and the Defendants agreed to accept service of process and all notices in London. The Defendants, as well as the Bank, not merely became subject to contractual obligations, but also acquired substantive English law rights, under those contracts. Had the Bank, for example, wrongly refused to make available the revolving credit facilities, or made unauthorised debits from the operating bank accounts, the Defendants would no doubt have sought the assistance of the English court to enforce their rights. Whilst I do not accept Ms Selvaratnam’s submission that the wording of the exclusive jurisdiction clauses and “consent” clauses quoted above amounts to a contractual agreement on the part of the Defendants effectively to submit to the making of worldwide freezing and disclosure orders, or indeed any other order against them, such clauses nonetheless clearly demonstrate a clear contractual intention, or recognition, on the part of the Defendants that they would indeed be subject to the enforcement powers and procedures of the English courts (and indeed other courts in which the Bank sought to take proceedings).

Although, in the absence of any funds in the operating accounts, it is perhaps difficult currently to characterise the Defendants’ choses of action in relation to such accounts as “assets”, nonetheless, they do in my judgment demonstrate a real link or connection with this jurisdiction; that is particularly so given the obligation to pay the vessels’ earnings into the accounts. In those circumstances it seems to me that, having chosen to obtain substantial credit facilities and operate bank accounts in this jurisdiction, under the auspices and structure of loan agreements subject to English law, and English exclusive jurisdiction clauses, it is not open to the Defendants, when it suits their purposes to do so, to deny that they have any relevant connection or link with this jurisdiction.

Whilst I accept Mr. Cogley’s submission that it is not legitimate, on the current state of evidence, to deem the shares in, and assets of, the English FAL subsidiaries as assets of the Defendants within the jurisdiction, or to treat the Messrs Al Sari as holding shares in the English subsidiaries on trust for the Defendants, the evidence nonetheless demonstrates that FAL Oil and FAL Shipping, and indeed other members of the group, held themselves out as having an operational presence in England. Again this emphasises the real connection between the Defendants and this jurisdiction.

Nor am I persuaded by Mr. Majid Al Sari’s self-serving assertion that the directors of the Defendants do not need to continue to come, or will not come, to England, if orders in the terms sought are made against the Defendants, and that accordingly any such order would be futile. It is clear in the past that they have come to this country, for the purposes of the FAL Group business and moreover that they and other female members of the family are shareholders in the English subsidiaries. Other than the bare assertion that the directors will not do so, the court has had no explanation, whether convincing or otherwise, as to why it was necessary in the past for them to visit England, but will cease to be so in the future. I also view with some scepticism Mr. Majid Al Sari’s implied assertion that any order of the English court would not be honoured by the Defendants. In his evidence he seeks at the same time to suggest that the directors of the Defendants are behaving responsibly, in the wider interests of the substantial FAL Group, in the Group’s attempts to restructure its finances with its worldwide creditors. Against that background, the court cannot, in my judgment, necessarily assume that the Defendants, engaged in such restructuring negotiations with their bankers, would necessarily wish to be seen as being in breach of an English court order, or to run the risk of depriving themselves, or the FAL group, of access to the London capital markets. On the contrary, the court is entitled to assume that there is every likelihood that its orders will be complied with.

For these reasons, in my judgment, it is clearly expedient and appropriate for the English Court to grant a worldwide asset freezing injunction and worldwide disclosure orders against the Defendants in aid of the Sharjah proceedings under section 25, notwithstanding the absence of assets within the jurisdiction. Accordingly, the answer to the second question posed above is “no”. It is not inexpedient to grant the relief sought.

I will hear argument from counsel as to the precise wording of the terms of the order.