Ardila Investments NV v ENRC NV & Anor

There are a number of applications before the Court relating to an action which is due to be tried in February next year.

In broad summary the claims and cross claims relate to payment obligations arising out of the sale to the Defendant (‘ENRC’) of a 50% interest in Bahia Minerals BV (a Dutch company) held by the Claimant (‘Ardila’). Bahia Minerals BV owns and controls a Brazilian company, Bamin Mineracao SA (‘Bamin’), which owns rights to develop and operate an iron ore mining project in the State of Bahia, Brazil. The payment obligations arise under a share purchase agreement dated 21 September 2010 and a number of amending documents (the ‘SPA’), in relation to which the Third Party (‘Zamin’) was the guarantor of Ardila’s obligations as seller.

In these proceedings, Ardila claims that a net sum of US$220 million is owed by ENRC under payment provisions which have been triggered by (a) the issuing of certain transport permits (clause 3.8 of the SPA) and/or (b) the issuing on 19 September 2014 of a port installation licence (clause 3.4 of the SPA). ENRC does not accept the legal effect of this port installation licence. Although ENRC referred to this document as the ‘purported PIL’ in its submissions, I shall refer to it as the ‘PIL’.

ENRC denies that any transport permits which have been issued satisfy the requirements of clause 3.8 of the SPA and contends the PIL was granted as a result of unlawful conduct or influence by, or on behalf of, Ardila and Zamin. It counterclaims for the repayment of a US$65 million loan, which fell due for repayment on 30 June 2014 (the ‘US$65 million loan’), and for the repayment of a US$50 million option fee known as the Greystone Initial Consideration (the ‘Greystone payment’) on the basis that the payment obligations contained in clauses 3.4 and 3.8 of the SPA have not been triggered.

I include an annexe to this judgment, largely taken from the Case Memorandum, which sets out the background and issues more fully.

The six applications before the Court were each hotly contested, with both sides levelling accusations of impecuniosity and pre-trial tactical manoeuvring against the other.

The last in time but logically the first to be considered was Ardila’s application under CPR Part 19.4 to amend the Claim Form and Particulars of Claim so as to bring Royal Bank of Canada (Channel Islands) Limited (‘RBC’) into the proceedings as an additional Claimant. RBC has agreed to this course in writing, and in a Consent Order filed with the Court, see CPR Part 19.4(4).

The second application is ENRC’s application to strike out the claim on the basis that Ardila assigned its right to bring the claim under an agreement dated 24 July 2013 between Ardila and RBC with the title, ‘Assignment of Receivables in Respect of Specific Contracts’ (the ‘Deed of Assignment’). It is ENRC’s case that the effect of the Deed of Assignment was to assign all of Ardila’s rights of action against ENRC under the SPA to RBC; and it was to meet this challenge that Ardila and RBC applied for RBC to be joined. The issue that arises on this application involves the proper categorisation of the assignment: whether (as ENRC argues) it is a legal assignment or (as Ardila argues) it is an equitable assignment.

The third application is ENRC’s application for summary judgment against Ardila and Zamin in respect of Ardila’s liability to repay the US$65 million loan and Zamin’s obligation as guarantor. This issue turns on the proper construction of the SPA and a decision as to whether Ardila agreed to repay the loan without the right of set-off.

In what seems to have been a response to ENRC’s summary judgment application Ardila issued proceedings in the courts of Curacao against ENRC. The proceedings sought to restrain Ardila’s obligation to pay ENRC and to secure this sum as security for Ardila’s claims in the action. The proceedings were successful and the sum was ordered to be ‘attached’ by the Curacao court. ENRC objects to this order on a number of grounds: first, because it subverts what it says are the terms of the SPA which require the repayment of the US$65 million loan without right of set-off; secondly, because of procedural impropriety in relation to what was an application to the Curacao court without notice to ENRC; and thirdly, because it was in any event an application that was designed to prevent the English Court, whose jurisdiction had been invoked by Ardila, from giving effect to what ENRC says is its right to be repaid without set-off. This gives rise to the fourth application which is ENRC’s application for an injunction requiring Ardila to procure the discharge of the Curacao attachment order.

The fifth application is ENRC’s application for security for costs. The determination of this application turns largely on whether there is such an overlap between the issues that arise on Ardila’s claim and on ENRC’s counterclaim that it would not be just or appropriate to order Ardila to give security. There are additional issues as to the time up to which any order for security should run and the amount of such security.

The sixth and final application is Ardila’s and Zamin’s application to strike out some parts of ENRC’s pleading as to the circumstances in which the PIL was issued. Ardila relies on the PIL as the trigger of ENRC’s obligation to make the payment of the US$285 million Incremental Purchase Payment provided for by the SPA. ENRC contends that it was procured by unlawful conduct or unlawful influence. This application involves consideration of the express terms of the SPA, various terms which ENRC contends should be implied into the SPA and whether such terms are obviously unsustainable as a matter of pleading.

It is plain that there is a considerable degree of overlap between these applications and it is common ground that the decision on one may impact the decision on another.

As noted above, this application was made by way of answer to ENRC’s strike out application. No substantial objection was made to the proposed amendment, although ENRC took exception to the fact that Ardila failed to arrange for it to be listed as an inter partes application. That is a legitimate complaint, but caused no harm since the application was in fact listed for hearing with the other applications.

The application falls within the provisions of CPR Part 19.2(2): (a) it is desirable to add RBC as a new party so that the Court can resolve all the matters in dispute in the proceedings, and (b) there is an issue involving RBC and ENRC, which is connected to the matters in dispute. I therefore grant leave to add RBC as a Claimant and leave to serve an Amended Claim Form and a Re-Amended Particulars of Claim on the usual terms.

The application was initially founded on the argument that, as a result of a legal assignment of the claim from Ardila to RBC, only RBC was entitled to bring the claim and RBC was not a party to the action. However, on the hypothesis that RBC would be joined as a party, Mr Smith QC developed an argument that the effect of the Deed of Assignment was that RBC took an absolute legal assignment of all Ardila’s rights under the SPA and that consequently Ardila had no standing to bring the claim. Alternatively, and if the assignment took effect as an equitable assignment, Ardila could only bring the claim in its own name if it did so as trustee for RBC, with RBC’s agreement and having disclosed its representative capacity. Furthermore, and in any event, it would not be sufficient for RBC to be joined simply as a passive co-claimant and on the basis that it expressly disavowed bringing any claim.

It might be thought that a strike out application is not an appropriate way of determining what is, in effect, ‘a title to sue’ issue. However, Mr Smith argued that the resolution of this issue was necessary for the proper and efficient determination of other issues. If ENRC’s application were successful, its summary judgment application (the third application) would also succeed since Ardila would have nothing to set off against its obligation to repay the US$65 million loan to ENRC; the Court would not have to consider Ardila’s strike out application (the sixth application) because Ardila would have no standing to make the application, and there would be no need to consider ENRC’s application for security for costs (the fifth application) because Ardila would no longer be a party to the proceedings.

The Deed of Assignment contained a preamble:

The interpretation clauses provided definitions of ‘Aggregate Limit’, being £12,500,000 or such lesser figure as the Lender determines, and ‘Controlled Proceeds’, being any monies received or receivable in respect of any ‘Specified Contracts’. By reference to Schedule 2 of the agreement, ‘Specified Contracts’ included the SPA.

The Deed of Assignment also contained the following provisions:

There was a discussion during the course of argument as to whether the word ‘Deed’ in the first line of the latter clause should have been ‘Security.’

Clause 9 was headed ‘Application of Proceeds following Enforcement’, and provided for the application of any monies realised by RBC after default and the enforcement of the Security. Any ultimate surplus was payable to Ardila.

Schedule 1 contained the summary of Lender’s Rights:

A Notice of Assignment was sent by Ardila to ENRC on 24 July 2013 (the same day as the date of the Deed of Assignment). It included the following:

The significance of this letter is that it was written in the terms of the draft letter in Schedule 3 of the Deed of Assignment, and therefore may be said to reflect the intentions of the party as expressed in the Deed of Assignment.

Mr Allen QC (for Ardila) pointed out that neither Ardila nor RBC viewed the Assignment as a Legal Assignment, and submitted that its intent was clear. Although Ardila was stated to have assigned to RBC all of its rights ‘absolutely’ (see Clause 2.3) the overall effect of the document was to assign receivables by way of security; and it therefore constituted an equitable and not a legal or statutory assignment. He relied in particular on clauses 3.6, 4.7, 7 and 8.7.

Mr Smith QC referred to a number of cases where the features of legal and equitable assignments were identified and distinguished, see for example, Deposit Protection Board v. Dalia [1994] 2 AC 367 and Raiffeisen Zentralbank Österreich AG v. Five Star Trading LLC and others [2001] QB 825, and submitted that the emphatic terms of Clause 2.3 made it clear that the Deed of Assignment constituted a legal assignment. Alternatively, he submitted that, if the assignment took effect as an equitable assignment, RBC had been joined in a ‘passive’ capacity and had expressly disavowed advancing any claim of its own.

The issue turns on whether the assignment falls within the provisions of s.136(1) of the Law of Property Act 1925:

The Deed of Assignment was not a well-drafted document, but there are a number of terms which indicate that it was not intended to take effect as an absolute assignment, and which (at the least) cast doubt on an intention to make an absolute assignment of the right to bring a claim under the SPA, see for example, Durham Brothers v. Robertson [1898] 1 QB 765, Chitty LJ at 773. Although Clause 2.3 uses the words of a legal assignment, other provisions indicate an intention that the assignment was to take effect by way of charge (the limited aggregate limit), that it was not an absolute assignment of the whole benefit of the SPA and did not take effect so as to pass the right to bring proceedings, see Clause 3.6.2 (with its general reservation of ‘absolute, legal and beneficial’ rights under the Specified Contracts) and Clause 4.7 (with its reference to Ardila being obliged to pursue ‘its rights’ under each Specified Contract). The effect of the assignment was that both Ardila (the assignor who retained the legal interest) and RBC (the assignee who acquired an equitable interest) were, as a matter of practice, required to be joined as co-claimants so as to avoid the possibility of an argument that no issue estoppel would arise from a judgment against one party to the assignment. That has now been done. It is also clear from the current form of pleadings that RBC is asserting rights as a co-claimant and is making claims as co-claimant for the substantive relief which was originally sought by Ardila alone, see for example §31 of the Re-Amended Particulars of Claim in relation to the claim for US$285 million said to be due under the SPA.

I have therefore concluded that ENRC’s application to strike out the claim fails.

Following the SPA the parties entered into further agreements. One of these was a second deed of variation, dated 8 March 2013 (the ‘Second Deed’). The need for the Second Deed arose in part from the parties’ agreement that ENRC would make a loan of US$65 million to Ardila in advance of the final Incremental Purchase Payment. There is a dispute as to whether this was at the request of Ardila or of ENRC. If it matters, it seems very much more likely that the request came from Ardila.

Clause 2 of the Second Deed provided for the way in which ENRC’s loan of US$65 million to Ardila should be treated:

The determination of the third application depends on the proper construction of this clause and, in particular, the phrases: ‘without right of set-off’ and ‘subject to the provisions of clause 3.4(E)’.

The Second Deed amended clause 3.4(E) of the SPA so that it read:

Clause 3.8 of the SPA remained unamended:

It is common ground that the Port Installation Licence was not issued before 30 June 2014; and it was for this reason that ENRC wrote, in letters dated 2 and 11 July 2014, claiming a right to re-payment of the US$65 million loan without set-off. By letters of response dated 4 and 22 July Ardila argued that it was entitled to set-off its very substantial claims against any obligation to repay the loan.

For ENRC, Mr Smith submitted that the meaning of the clause was clear: if either of the contingencies in (a) or (b) in the clause occurred, then Ardila was bound to repay the loan of US$65 million without the right to set-off in respect of any other claim it might have. Since the Port Installation Licence was not issued, the loan was repayable without set-off on 30 June 2014 (time having been extended from 1 June by reason of various agreed extensions).

It was on this basis that ENRC issued the third application for summary judgment on 15 December 2014.

For Ardila, Mr Allen argued that the exception to the exclusion of the right of set-off applied, not simply in the event that the Port Installation Licence had been issued before 31 May (in the event, 30 June) 2014, but also if ENRC’s liability to make an ‘Outstanding Incremental Purchase Payment’ had been triggered. He submitted that the Outstanding Incremental Purchase Payment of US$285 million became due and owing prior to 30 June 2014, since the permits specified in Clause 3.8 had been obtained and in these circumstances the terms of Clause 3.8 disapplied the operation of Clause 3.4, including the amended terms of Clause 3.4(E). It was for this reason that Ardila had given credit of US$65 million when making its claim for US$220 million. In any event, he submitted that if there were any ambiguity about the construction of the clause, it should be resolved in his client’s favour on the basis of the conventional approach to the construction of set-off clauses: that clear words are required if a party with the right to set-off is to be treated as forgoing that right.

Before turning to the merits of these arguments, I should record that there was little real issue as to how the Court should approach an application for summary judgment under CPR Part 24. The principles which apply have been set out in many cases, they are summarised in the editorial comment in the White Book Part 1 at 24.2.3, and they were re-stated by Lewison J in Easyair Limited v. Opal Telecom Limited [2009] EWHC 339 (Ch) at [15], approved subsequently (among others) by Etherton LJ in A C Ward & Son v. Caitlin (Five) Limited [2009] EWCA Civ 1098 at [24]. Nor was there significant dispute about how the Court should approach the construction of a clause which purports to exclude a right of set-off. In any event I propose to apply the approach described by Christopher Clarke J in Totsa Total Oil v Bhara Petroleum Corp [2005] EWHC 1641 (Comm) at [27]:

Clause 3 of the SPA provided for an initial payment by ENRC of US$167 million (the Bamin Initial Consideration) and further payment of US$50 million (the Greystone Initial Consideration) in respect of ‘the Greystone Option’.

Clause 3.4 provided for an Incremental Purchase Payment by ENRC on two different bases. The second of which was the possibility that ENRC did not exercise the Greystone Option. In these circumstances Clause 3.4(E) set out an obligation to pay Ardila US$335 million in cash on dates which would be calculated by reference to (among other things) the issue of the Project Implementation Licence and the Port Installation Licence, as defined in the SPA. This obligation was amended by the new Clause 3.4(E) in the Second Deed.

It seems to me that, before one gets to questions of construction, the commercial intent of the loan provision in the Second Deed was clear: ENRC was providing an interest-free loan for a maximum period of 15 months. There were good commercial reasons for ENRC wanting a form of words which would ensure repayment within the fixed time frame without the possibility of an argument about deductions or netting for cross-claims. The issue is whether that intent was achieved by the form of words which were used.

In my view it was. The only inhibition to the repayment obligation was the issuing of the Port Installation Licence before 30 June 2014. This was, or should have been an event which was easily identifiable. The Port Installation Licence was either issued before 30 June 2014 or it was not. It is clear that it was not; and the consequence must be that Ardila was bound to pay US$65m to ENRC without a right of set-off in relation to disputed claims. There is nothing in Clauses 3.8 and the amended Clause 3.4(E) which undermines that obligation.

It also seems to me that Mr Smith is also correct in his submission that if ENRC is right and Ardila is not entitled to assert a set-off in respect of the loan then it is in the overall interests of justice that judgment should be given now, rather than at trial; and that to allow a decision on this issue to await a trial on whether the Incremental Purchase Payment is due under clause 3.8 of the SPA is to allow Ardila in effect to achieve what the contract provided should not happen.

Ardila has submitted that ENRC’s application has been delayed, and that it is ‘tactical’ since it is being used in an attempt to stifle Ardila’s claims for very much larger sums. These arguments are not compelling reasons for not giving judgment on ENRC’s application. So far as the first point is concerned, I am satisfied that there has been no unreasonable delay in issuing the application; and so far as the second point is concerned, it is clear that both sides are engaged in tactical manoeuvring with a view to obtaining forensic and accounting advantage.

At the very least, there is nothing in ENRC’s conduct of the litigation as seen from a domestic point of view which should disentitle it to judgment.

There is, however, considerable merit in Ardila’s argument that, in the light of the evidence which suggests that ENRC may not be able to meet a judgment on the claim, in what are exceptional circumstances, a stay of execution should be ordered, see in this context: Continental Illinois National Bank & Trust Co of Chicago v. Papanicolaou [1986] 2 Lloyd’s Rep 441, Parker LJ at 445r. It was to meet the force of this argument, and without conceding that Ardila’s evidence did in fact establish ENRC’s financial fragility, that Mr Smith offered that in the event that the Court gave judgment on the application and a payment was made satisfying the judgment, ENRC would undertake that any monies would be held by its solicitors (Hogan Lovells) and not accounted to ENRC without further order of the Court (see transcript of the hearing: Day 2 p.96 and Day 3 p.36). I recognise that this will not secure Ardila’s claim against the interest of ENRC’s creditors, nevertheless I am satisfied that it is the appropriate order to make and one that gives due weight to the competing claims of the parties.

There is no dispute about the principal sum claimed. So far as interest is concerned, there was no specific provision for interest under the Second Deed. However it was a variation of the SPA; and Clause 6.4 of the SPA provided:

Clause 3.2 of the Second Deed defined ‘Interest Rate’ as 5% per annum. On this basis ENRC is entitled to interest from 30 June 2014 to the date of payment at 5% per annum.

Although ENRC also makes a claim for a higher rate of interest as representing its losses as a result of Ardila’s failure to repay the loan on 30 June 2014, I am not prepared to award any higher rate of interest as damages on this application. For present purposes it is sufficient to say that there is no plea or evidence that the losses claimed were within the contemplation of the parties at the date of the Second Deed.

ENRC point out that during the period of December 2014 and January 2015, while the parties were preparing for the hearing of ENRC’s applications, the solicitors of Ardila (initially Slaughter and May and from 14 January 2015, Clyde & Co) sought extensions of time for the service of evidence. On 20 January, Cooke J ordered that Ardila should have until close of business on 25 January in which to file their evidence in response to the applications for summary judgment and security for costs; and ordered that the applications be heard together after 20 February 2015. The Judge added:

What neither the Court nor ENRC were told was that Ardila intended to apply without notice to the First Instance Court of Curacao for leave to attach US$65 million as its own debt owed to ENRC as purported security for its claim against ENRC. This application was made on 22 January and granted on 23 January 2015.

It is common ground that the Curacao Code of Civil Procedure permits a party to apply to the court for a pre-judgment attachment, and that the Court has the power to grant leave to A to attach its own debt owed to B where B is A’s debtor in another context.

The intended effect of this order has been explained by Angus Macdonald (General Counsel of Zamin Advisors Limited, a company affiliated and under the common ultimate legal and beneficial ownership with Ardila and Zamin) at §48 of his witness statement of 30 January 2015:

ENRC submits that the Curacao attachment order was obtained by Ardila in order to frustrate the consequences of any order made by the English court on its application for summary judgment; and on 16 February 2015 issued its responsive application for an order that Ardila be required to procure the discharge of the Curacao Attachment. It adduced evidence about Curacao law and submitted that there was procedural impropriety in Ardila’s conduct, as a matter of Curacao law. This evidence and the arguments based on it were answered by Ardila. However, in my view, the issue on the application must be approached as a matter of English law: whether the Court should exercise its discretion to make an anti-suit injunction.

By clause 16 of the SPA the parties agreed that the agreement should be construed in accordance with English law and that:

Clause 17 was a jurisdiction clause:

The clause does not confer exclusive jurisdiction; but it constitutes an agreement whereby a party may elect to bring proceedings in the courts of England and Wales and, if it does so, the defendant is deemed to have submitted to that jurisdiction. That is what happened here.

Mr Smith submitted that, if the Court were to accede to ENRC’s summary judgment application, it would be on the basis that ENRC had a contractual right (governed by English law and subject to the jurisdiction of the English courts) to be paid without right of set-off. The Curacao Attachment order not only had the potential effect of frustrating the order of the English Court, it was plainly designed to do so. In such circumstances it was ‘a paradigm case’ for the granting of an injunction which would require Ardila to procure discharge of the attachment, prohibit it from taking further steps in relation to it and from seeking further or similar relief.

Mr Allen’s response was that the Curacao Attachment order was a conventional remedy by which a party could obtain an attachment against itself (in Dutch, eigen beslag) under the Curacao Procedural Code. The attachment was a type of prejudgment order which attached to a debt owed to the respondent by the applicant as security for a claim in order to prevent the creditor from enforcing its debt pending resolution of the applicant’s own claim. The Curacao Attachment order was obtained because there was felt to be a real need for security for Ardila’s very substantial claims, in view of the doubts about ENRC’s financial viability. ENRC could have, but has not in fact, applied to set aside the order. In the circumstances of this case ENRC had to show that the obtaining of the order in Curacao was vexatious and oppressive, and it was neither.

Although a number of authorities were referred to, the relevant principles are conveniently set out in the judgment of Rix LJ in Glencore International AG v Metro Trading International Inc (No.3) [2002] EWCA Civ 528; [2002] 2 All E.R. (Comm) 1, at [42]:

In the present case the Commercial Court was chosen by Ardila for the determination of its claim and (implicitly) any cross-claim and is the obvious forum for doing so. It is clear that the Curacao proceedings were brought because Ardila was concerned that ENRC’s Part 24 application might be successful. While apparently engaging in the resolution of this dispute in these proceedings it took steps which were intended to ensure that ENRC would not be paid under any judgment it might obtain. That conduct was, in my view, a vexatious interference with the due process of the Court, and the ends of justice require an order of the English Court to restrain the Curacao proceedings in order to protect the effectiveness of the domestic legal proceedings. The history of the litigation shows that the Curacao proceedings were not brought to secure Ardila’s claim, but specifically to prevent ENRC recovering on its cross claim if it succeeded in its application and a stay were refused. Having argued out the point, it would be unconscionable for the loser to engage in self-help and rely on a process whose effect is to prevent compliance with a judgment of an English Court in proceedings which it had itself brought. I note Mr Allen undertaking on behalf of Ardila to withdraw the Curacao proceedings if a stay of execution on ENRC’s Part 24 application were granted.

I recognise that the Court should exercise caution before enjoining a party from continuing foreign proceedings; but it is clear that the order takes effect against the party and not the foreign court, and this Court is not powerless to enforce its order: if Ardila declines to comply with the order on this application, its non-compliance can be met with a stay of its claim. I should also make clear that I do not accept Mr Allen’s tentative submission that this Court should not exercise its discretionary powers until an applicant has used every means to lift the order of a foreign court before that court; nor his submission that the Curacao proceedings were no more than an attempt to secure its claim in the present proceedings and was not, as such, objectionable.

On 9 January 2015 ENRC applied for an order pursuant to CPR 25.13(2)(c) that Ardila give security for ENRC’s costs of defending the claim in the sum of £4 million, alternatively that it give security for the additional costs of enforcing any costs award in overseas jurisdictions pursuant to CPR 25.13(2)(a).

The issue between the parties largely turned on what is commonly referred to as ‘the Crabtree principle’, see BJ Crabtree v GPT Communication Systems (1990) 59 BLR 43. As a general rule, the Court will not exercise its discretion to make an order for security of the costs of defending a claim if the same issues arise on both the claim and counterclaim and the costs incurred in defending the claim would also be incurred in prosecuting the counterclaim. In that case Bingham LJ (at p.52) set out the problem of not recognising an anomaly:

A similar point was made by Moore-Bick LJ in Anglo Irish Asset Finance Plc v Flood [2011] EWCA Civ 799 at [20]:

Mr Smith submitted that ENRC was entitled to security for its costs against Ardila in circumstances where (1) there was good reason to believe that ENRC would not otherwise be paid its costs if successful, (2) Ardila and Zamin had already obtained attachments over ENRC’s ‘key’ assets in foreign jurisdictions which constituted security for their costs of the present proceedings, and (3) Ardila and Zamin were proposing to litigate at ENRC’s risk as to costs in this jurisdiction whilst simultaneously threatening to petition for ENRC’s bankruptcy in the Netherlands. In answer to Ardila’s argument that the claim and counterclaim raised the same issues, he submitted that ENRC’s claim for payment of the US$50 million Greystone Initial Consideration under Clause 3.9 did not raise the same issues, nor did its claim for damages if Ardila were entitled to rely on the PIL.

He argued that the Court’s power to grant a defendant security for its costs existed to protect a defendant who was obliged to litigate at the election of another party against the adverse consequences of that litigation: see Autoweld Systems Ltd v. Kito Enterprisess [2010] EWCA Civ 1469 [55]-[59].

For Ardila, Mr Allen accepted that Ardila was resident out of the jurisdiction and that there was reason to believe that it would unable to pay ENRC’s costs if ordered to do so (and that therefore the conditions in CPR 25.13(2)(a) and (c) were satisfied), but submitted that an order for security for costs should be refused because such an order would not be fair having regard to all the circumstances of the case, see CPR 25.13(1)(a). In particular, it would be unjust to order security in circumstances where the issues that arise on ENRC’s counterclaim are precisely the same as those that arise on Ardila’s claim, and it was purely a matter of chance that it was Ardila rather than ENRC that was the claimant.

Mr Allen further submitted that in a number of respects ENRC’s counterclaim raised the same issues as Ardila’s claim. First, it repeats paragraphs 1 to 34A of the Defence; and to that extent there was a complete factual and contractual overlap with its defence to the claim. Secondly, its counterclaim for declaratory relief was based on the factual assertions in the Defence. Thirdly, ENRC counterclaimed for the return of US$50 million pursuant to Clause 3.9 of the SPA, which applies only if all of the conditions described in Sub-clause 3.4 have not be satisfied. It followed that in order to succeed on that counterclaim ENRC would have to establish that the conditions for the final Incremental Purchase Payment described in Clause 3.4 had not been satisfied. This clearly showed an overlap with Ardila’s claim. Fourthly, ENRC advanced materially identical counterclaims against Zamin. This highlighted the potential injustice of ordering Ardila to provide security for the costs ENRC incurred in prosecuting its counterclaim against Zamin. Fifthly, ENRC advanced a counterclaim that if, contrary to its defence, the PIL fulfilled the conditions in Clause 3.4(E), Ardila was liable for damages for breach of Clause 10 of the SPA and/or the implied terms which ENRC relied on by way of defence, in respect of which ENRC’s particulars merely repeat paragraphs 33A to 33U of its defence.

The starting point is that neither Ardila nor ENRC can rely on clear and uncontroversial evidence of its own sound financial position. Without going into the detail of the evidence, both ENRC and Ardila has adduced cogent evidence that, in the event of its success in the litigation, it might (at the very least) have difficulty in securing payment of its costs from the paying party. Zamin may be financially secure, but it has not offered joint and several liability for Ardila’s costs if an adverse award of costs were made.

The principles to be applied in the present circumstances are reasonably clear: the Court may in its discretion refuse to order security for costs in respect of a claim where there is an overlap with the issues which arise on a counterclaim. This is because, if security were ordered and not paid, the claim would be struck out, but the issues would still be litigated on the counterclaim, see the Crabtree case (above). The first question then is whether as a matter of substance, rather than the form of the pleadings, ENRC is simply defending itself or whether it is advancing a cross-claim with ‘an independent vitality of its own’, to use the words of Bingham LJ in Hutchinson Telephone (UK) Ltd v. Ultimate Response Ltd [1993] BCLC 308 at 317D. If the case falls within the Crabtree principle then this is a material consideration albeit not dispositive, see the Autoweld case (above) at [19].

The statements of case demonstrate that, although Ardila’s claim is the driving force of the litigation since it is claiming a very substantial sum, the counterclaim has a clear and independent vitality of its own; and I am very doubtful about ENRC’s evidence that it would not have advanced its counterclaim if Ardila had not brought the claim. Although the sums involved always made it more likely that Ardila would be the claimant, there was (at least to some extent), an element of chance as to which of the two might be the first to seek the assistance of the Court.

In circumstances where the claims overlap and both sides appear to be impecunious, the Court is faced with a choice: either to order that both sides should give security or to order that no order should be made for security against either side. In the present case I would have concluded that each side should give security; however, since only ENRC has sought the assistance of the Court, I will make an order for security for costs in ENRC’s favour.

On the basis that each side were liable to secure the costs of the other, I would have ordered a staged order covering the period up to 30 October 2015, the present date for the exchange of experts’ reports. Since only ENRC have applied for security it is only necessary to consider its figures. Having done so, I do not accept ENRC’s brief cost summary, with actual and estimated costs in the period up to the start of the trial, as a proper basis for the assessment of costs. Viewing the matter broadly, I consider that Ardila should provide security in the sum of £1 million to cover the costs incurred, and to be incurred, up to the point when experts’ reports are exchanged.

Although Ardila originally applied in the alternative for Part 24 judgment, by the time of the hearing its application was focussed on the Court’s powers to strike out statements of case under CPR Part 3.4(2)(a) and (b) on the basis that parts of ENRC’s pleadings disclosed no reasonable grounds for defending the claim or advancing the counterclaim, or were otherwise likely to obstruct the just disposal of the proceedings.

The application relates to a number of different areas of ENRC’s pleading.

Without intending to set out general principles which apply in this type of application, my approach to the present application is as follows. First, where an issue arises as to the proper construction of (or to the terms which should be implied in) a contract, it will not usually be just or convenient to decide the point prior to trial unless the material background is agreed, the decision does not involve the resolution of any further facts, and the determination is likely to dispose of the case or significant parts of it, with the consequent saving of costs. Secondly, this will be particularly so where, as here, the trial of the action is due to take place soon (within 9 months). This is partly because the hearing of this type of application may delay the proper preparation of the trial which will in any event resolve these issues; and partly because, if a party is dissatisfied with the result it may wish to appeal, with the potential for a further knock-on delay to the trial. Thirdly, while the result of a strike out application may lead to the amendment of a pleading so as to answer criticisms which have been made, the Court should not be drawn into a debate as to how the pleading could, or even should, have been better expressed. Applications which are intended to prune an opponent’s Statement of Case are not necessarily a sensible use of the parties’ resources or the Court’s time. Nevertheless, fourthly, it is crucial that parties to litigation in the Commercial Court abide by the principle, clearly set out in the Commercial Court Guide (C1.1) that pleadings must be as brief and concise as possible, and (Appendix 4) should normally be limited to 25 pages.

Friday 19 September 2014 was the last working day before the 4th anniversary of the date of the SPA and was the last day on which the Port Installation Licence could be issued if it were to trigger ENRC’s obligation to pay the sum of US$285 million. If the Port Installation Licence were not issued on or before 19 September then Ardila would not be entitled to payment and would have to repay to ENRC the US$50 million Greystone Initial Consideration. ENRC pleads a number of matters which it is not necessary to set out in this judgment, but which it says demonstrate that the PIL was ‘unlawfully’ procured by Ardila (see §§23-27 of the Appendix to this judgment). This is denied by Ardila which pleads that the PIL was a contractually compliant document issued by an independent government body, IBAMA, as required by the terms of the SPA.

It is convenient to start with the first part of Ardila’s strike-out application, and ENRC’s pleaded reliance on Clause 10 of the SPA:

Paragraphs 17B and C plead, either as a matter of construction of this clause, or by necessary implication, an obligation on Ardila to act honestly and reasonably in relation to the fulfilment of any condition which triggered payment and an obligation not to procure the fulfilment of any such condition by unlawful conduct or unlawful influence, or in a manner likely to render the Port Installation Licence invalid or voidable.

The further pleadings which Ardila seeks to strike out are elaborations of general contentions that Ardila was obliged to act honestly and reasonably, not to procure the issuance of licences by unlawful conduct and/or influence and not to claim payment where a licence had been obtained by a party’s unlawful conduct and/or influence.

Mr Allen submitted that, while Ardila accepted that it could not succeed in its claim if it had procured or accelerated the issue of the PIL by its own criminal or quasi-criminal conduct (the ex turpi cause defence), ENRC’s pleaded construction of the SPA, and the implied terms it relied on, were inconsistent with the express terms which provided for commercial certainty, and were incapable of meeting the test of necessity and reasonableness.

Mr Smith’s answer was that it was inappropriate to strike out ENRC’s pleadings so as to confine it to relying on the limited ex turpi causa defence, which would mean, for example, that Ardila would not commit a breach of obligation if it obtained a licence by ‘unlawful’ conduct. For similar reasons, when the SPA referred to the grant of the Port Installation Licence, he submitted that this must mean a valid licence and not one which has been procured by unlawful conduct.

I am not concerned with a determination of the facts relied on by ENRC which for present purposes must be assumed to be true. If they are established at trial, those facts are (at least) consistent with Ardila being involved in procuring the issue of the PIL by means which can properly be characterised as ‘improper’ and ‘unlawful’, in the sense that a Court might conclude that the PIL was issued by means of the abuse of powers in which Ardila was, at least, complicit. It may be that Mr Allen is correct in saying that some of the ways in which ENRC puts its case are unlikely to succeed, and that parts of the pleading require greater specificity; but that is not a sufficient reason for the Court to cut out parts of ENRC’s pleaded case at this stage. At the heart of ENRC’s case is an enquiry into the circumstances in which the PIL was issued during the late hours of the last possible date on which it could be issued if it were to trigger the payment obligations under the SPA, and this is a matter which will be investigated at trial.

I accept that parts of ENRC’s pleadings range too wide and, in some respects, can be characterised as too elaborate and diffuse, and, in other respects insufficiently precise: For example (a) its contention that a contractually compliant PIL would not be ‘invalid’ or ‘voidable’, without specifying a test for invalidity and voidability, (b) its contention that the PIL was procured by ‘unlawful influence’, without the particularisation which one would expect from such a plea, and (c) its plea that the PIL was procured by ‘duress’ without specifying who applied the duress, how and when, and who succumbed to it, invite the provision of further information. Nevertheless, the real question is whether the pleaded facts (which are those which are presently known to ENRC) and the inferences which are to be drawn from them are so deficient that they should be struck out. In my view they are not; and the legal consequences of such facts as can be pleaded should be left to the trial. I bear in mind in this context that the form of ENRC’s pleading has already been considered by Leggatt J earlier this year; and that he made orders for disclosure against Ardila and for both sides to call expert evidence on the basis of a pleading which cannot be characterised by Ardila as less objectionable and which he must have regarded as sufficient to raise issues to be tried.

To the extent that there is still ambiguity as to what is alleged it can be clarified by a request for further information under CPR Part 18; but before that becomes necessary, I propose to direct that ENRC should be required to set out in a brief and concise document, which complies with Appendix 4 of the Commercial Court Guide, (a) the basis on which it says its implied terms arise, (b) the facts on which it presently relies as showing a breach of the express or implied terms which are relied on, and in particular, (c) the basis on which it contends that the PIL was procured by the unlawful conduct of Ardila, or why that is be inferred, and why it was unlawful. Most of these points are pleaded, but it would be consonant with the overriding objective for these points to be set out clearly in a free-standing document.

It follows that I refuse Ardila’s strike out application.

For the reasons set out above:

I allow the application of Ardila, Zamin and RBC to join RBC as co-Claimant.

I will hear the parties on the detailed form of the order.

Annex to the Judgment

The proceedings relate to payment obligations arising from the sale to ENRC of Ardila’s share in BMBV, a Dutch company which owns and controls Bamin, a Brazilian incorporated company, which in turn owns certain rights in relation to the development and operation of an iron ore mining project in the State of Bahia, Brazil. The sale was by means of an SPA dated 21 September 2010.

The terms by which the consideration for Ardila’s shares in BMBV was to be paid were set out in clause 3 of the SPA. Clause 3 divides the consideration into the ‘Initial Consideration’ and the ‘Incremental Purchase Payments’.

The Initial Consideration consisted of US$167.5 million, the repayment of a loan facility by ENRC and a sum of US$50 million, referred to as ‘the Greystone Initial Consideration’, that was paid in respect of the Greystone Option on the basis that, if ENRC exercised it, the sum would constitute part payment of the full consideration payable and if the Greystone Option were not exercised, the Greystone Initial Consideration of US$50 million would be deducted from the Incremental Purchase Payments.

The Incremental Purchase Payments consisted of the sum of US$502.5 million which was to be paid in either (i) instalments of US$167.5 million and US$335 million if the Greystone Option were exercised, or (ii) two instalments of US$83.75 million and one of US$335 million, if the Greystone Option were not exercised.

The Initial Consideration was paid in full and ENRC elected not to exercise the Greystone Option, with the effect that the Incremental Purchase Payments were to be paid in two instalments of US$83.75 million and one of US$335 million. The first two instalments of US$83.75 million were paid in full and, due to the fact that the Greystone Option was not exercised, the final Incremental Purchase Payment was reduced to US$285 million. This sum has not been paid and is the subject of the claim.

Under clause 3.4(E) of the (unamended) SPA the sum of US$285 million was to be paid within five Business Days of the later of (a) the first anniversary of the Completion Date (i.e 21 September 2011) or (b) (i) the issuance of the Project Implementation Licence and the Port Installation Licence, (ii) the transfer of RDM Mineral Rights and (iii) the Commencement of the Construction Contract (a contract for the construction of the Railroad Segment, the segment of the FIOL railway running from the Project to the Port to be built by the relevant Brazilian governmental authority).

Clause 3.8 of the SPA provided that if BMBV obtained permits from a Governmental Authority to transport the iron ore products from the Project area other than by the Railway Segment and/or the Port, the conditions in clause 3.4 relating to the Railway Segment and/or the Port, which included the condition requiring the issuance of the Port Installation Licence, fell away so that payment of any Incremental Purchase Payments was only conditional on the issuing of the Project Implementation Licence.

The Railway Segment referred to in clause 3.8 is part of the FIOL railway line that is currently being constructed in Brazil which, once finished, could be used to transport iron ore from the Mine. The Port to which the SPA refers is the proposed port at Porto Sul near the City of Ilhéus which, when finished, would allow iron ore transported on the Railway Segment to be shipped to foreign markets.

The parties agree that all of the triggers in clause 3.4(E) for payment of the US$285 million have been met except for the issuing of the Port Installation Licence. It is Ardila’s case that the Port Installation Licence has been issued, or that its issuance has been rendered redundant by virtue of the triggering of clause 3.8. ENRC’s case is that (amongst other things) what purports to be a Port Installation Licence was obtained by unlawful conduct or unlawful influence, and it disputes that clause 3.8 has been triggered.

Clause 3.9 of the SPA provides that if all of the triggers for the payment of the Incremental Purchase Payments had not occurred by 21 September 2014 then either (i) the Greystone Initial Consideration of US$50 million was to be repaid and ENRC’s obligation to pay any outstanding Incremental Purchase Payments were to be waived, or (ii) Ardila was to exercise an option to repurchase its interest in BMBV which would involve the repayment of the consideration already paid to it by ENRC.

The SPA was amended by two Deeds of Variation: the first on 22 December 2011 and the second on 8 March 2013. The amendment with which this case is principally concerned is the Second Deed of Variation. In this agreement ENRC advanced a loan of US$65 million to Ardila. The parties dispute the nature of the repayment requirements set out in the Second Deed of Variation.

Ardila alleges that ENRC is in breach of its obligation to pay the final Incremental Purchase Payment under two alternative provisions of the SPA.

The Mine is approximately 41km by road from the city of Licinio de Almeida. The main road that connects the Mine and the city of Licinio de Almeida is highway BA-156. Located within the city of Licinio de Almeida is a railway goods stop (the ‘Railway Stop’) that is part of the Ferrovia Centro-Atlàntica railway line ( the ‘Railway Line’). Pedra Cinza Mineraçáo Ltda (‘Pedra Cinza’) which is owned and controlled by BMBV, owns and controls a warehouse which sits directly next to the Railway Stop (the ‘Railway Stop Warehouse’).

It is Ardila’s case that from at least April 2012 Bamin and Pedra Cinza obtained a series of permits that allowed Bamin to transport the iron ore products from the Mine to the Railway Stop Warehouse, via highway BA-156, for the purpose of loading the iron ore products onto railway wagons for onward transportation on the Railway Line. The permits of which Ardila are aware are set out at paragraph 27 of the Amended Particulars of Claim.

It claims that from at least January 2013, Bamin made use of the Transport Permits, and the transportation route permitted by them, in order to transport the iron ore products from the Mine; and ENRC admits that from around January 2013 Bamin has transported around 50,000 metric tons of iron ore per month along highway BA-156.

Ardila also claims that the permits that were issued, and which it alleges that Bamin is using to transport iron ore products from the Mine, constitute ‘permit or permits’ within the meaning of clause 3.8 of the SPA. As a result, clause 3.8 has been triggered with the effect that the ‘Railway Segment and/or Port Conditions’, which included the requirement to obtain the issuance of the Port Installation Licence, fell away. Ardila’s case is that, in the circumstances, the outstanding Incremental Purchase Payment of US$285 million became due and payable.

Ardila does not seek the full US$285 million because it is Ardila’s case that, pursuant to the terms of the Second Deed of Variation, it is entitled to, and indeed is required to, set off the Loan of US$65 million against the outstanding Incremental Purchase Payment. Ardila therefore claims US$220 million, plus interest.

ENRC denies that payment of the final Incremental Purchase Payment has been triggered by the issuance of any permits. Clause 3.8 commences with the words ‘if [BMBV] obtains a permit or permits from a Governmental Authority to transport the iron ore products from the Project area other than by the Railway Segment and/or the Port…’ It is ENRC’s case that the permits that have been issued do not constitute permits within the meaning of clause 3.8 because (i) they do not permit the transportation of iron ore from the Pedra de Ferro mine and (ii) they do not permit transportation of iron ore away from the Mine and processing plant ‘in a manner equivalent to, and in substitution of’ transportation via the Railway Segment and Private Port Terminal. Indeed, it is ENRC’s case that it would both be physically impossible and financially and commercially unviable to seek to transport the output of the fully operational Mine and processing plant by road to Licinio de Almeida along highway BA-156 and thence by way of the Railway Line.

Accordingly, ENRC contends that the permits that have been obtained do not trigger clause 3.8. Further, ENRC argues that, even if the permit or permits were in substance sufficient to trigger clause 3.8, they do not because clause 3.8 only refers to permits obtained by BMBV and none of the relevant licences are held by BMBV itself.

Ardila’s response is that ENRC’s construction of clause 3.8 involves reading words into the clause that are not present in the text and which do not need to be read in. It is also Ardila’s case that on its true construction the reference to ‘BMBV’ in clause 3.8 must be read as a reference to BMBV, its subsidiaries or agents or any person acting for BMBV’s benefit. Ardila says that this must be the case because, as a non-Brazilian company, BMBV could not hold any licences and so if ‘BMBV’ was construed literally clause 3.8 would be redundant.

Ardila’s case is that on 19 September 2014 a valid PIL was issued with the effect that, even if the outstanding Incremental Purchase Payment was not due prior to 19 September 2014, the payment became due as a result of the issuing of the Port Installation Licence.

Ardila therefore claims the sum of US$219,427,397.25, which is the sum of US$220 million less interest at 5% on the sum of US$65 million for the period from 1 July 2014 when, absent the triggering of clause 3.8, the Loan became repayable, to the date on which the sum of US$220 million became payable, i.e. five business days after the issuance of the PIL (27 September 2014).

It is ENRC’s case that, properly construed or alternatively by implication, the definition of ‘Port Installation Licence’ requires that the licence must not be void, voidable or otherwise liable to be set aside or suspended and/or have been obtained as a result of unlawful conduct or unlawful influence.

Further or alternatively, it is ENRC’s case that on a proper construction of clause 10 of the SPA or by the implication of a term in the SPA the parties were required to act honestly and reasonably in obtaining the Port Installation Licence and were required not to obtain the Port Installation Licence by unlawful conduct or unlawful influence. It is ENRC’s case that breach of these obligations entitles ENRC not to make the outstanding Incremental Purchase Payment.

ENRC alleges that the PIL was procured by unlawful conduct or unlawful influence and/or is void/voidable or otherwise liable to be set aside and/or is not a licence with the ‘usual and customary conditions’ within the meaning of the SPA. The matters relied upon by ENRC include:

ENRC alleges that Ardila, as the entity that would gain US$335 million from the issuance of the PIL on 19 September 2014 (as opposed to its issuance on the next working day), whether by itself or by its subsidiaries, servants or agents, procured or accelerated the issuance of the PIL by unlawful conduct or unlawful influence.

ENRC claims that, in the circumstances, the effect of the express or implied terms of the SPA, as well as the operation of the ex turpi causa principle, is that ENRC is not required to pay the outstanding Incremental Purchase Payment.

Further or alternatively, ENRC claims that Ardila has no right to bring the current claim, it having assigned all of its rights under the SPA by an agreement dated 24 July 2013.

Ardila’s and Zamin’s case is that there is no basis to imply the terms of the wording that ENRC seeks to imply into the SPA and that ENRC’s construction of clause 10 is incorrect. Further, all that is required to trigger ENRC’s obligation to pay the outstanding Incremental Purchase Payment is for the Port Installation Licence to have been issued, and that occurred on 19 September 2014.

Ardila and Zamin deny that they were involved in any wrongdoing in respect of the issuance of the PIL. It is Ardila’s and Zamin’s case that the serious accusations levelled against them are entirely without merit and are based on nothing more than incorrect and speculative inferences.