Arcelormittal USA LLC v Ruia & Ors

This is an application by the Claimant (‘AMUSA’) for permission to amend its Particulars of Claim. In circumstances to which I will refer, AMUSA seeks to substitute its draft Amended Particulars of Claim (‘APOC’) for its original Particulars of Claim. The Defendants, other than the Fifth Defendant (‘Mr Seifert’) have consented to the APOC, save for certain categories of amendment which I will consider below. Mr Seifert does not consent to any of the amendments on the basis that he contends that there is no properly pleaded case which stands a realistic prospect of success that he was a party to the alleged conspiracy.

There is already a significant background to this dispute. I intend to summarise it as briefly as possible, bearing in mind that there are various aspects of it which are in contention between the parties, and that there have already been a number of judgments which consider parts of it.

AMUSA is a Delaware company and is part of the ArcelorMittal Group, a major steel and mining business. The 8^th – 10^th Defendants (collectively ‘the Corporate Defendants’) are companies in the Essar Group. The Essar Group is a conglomerate ultimately owned by the Ruia family. The 1^st Defendant founded the Essar Group with his brother, Shashi, who is the father of the 2^nd Defendant. The 8^th Defendant (‘EGFL’) is the holding company of the Essar Group.

The dispute arises out of an arbitral award obtained by AMUSA against Essar Steel Limited (‘ESL’), a company incorporated in Mauritius, for some US$1.5 billion. ESL is a wholly owned subsidiary of EGFL and was formerly an intermediate holding company of the Essar Group’s steel business, holding interests in Essar Steel Minnesota LLC (‘ESML’) and Essar Steel India Limited (‘ESIL’), amongst others.

AMUSA contended that ESML had defaulted on its obligations under the PSA. In May 2016 it terminated the amended PSA and in August 2016 commenced an ICC arbitration. By that time ESML was in Chapter 11 bankruptcy and the arbitration was begun against ESL only.

The arbitral tribunal issued its award on 19 December 2017. It has not been paid. AMUSA commenced enforcement proceedings in various jurisdictions. In support of those efforts, AMUSA obtained a Worldwide Freezing Order against ESL and Search Orders against the 2^nd and 10^th Defendants. An attempt to discharge these orders failed in front of Jacobs J, who gave judgment on 25 March 2019. On 26 March 2019 ESL was placed into administration in Mauritius.

On 30 December 2019 AMUSA commenced the present proceedings. In its original Particulars of Claim it alleged that the Defendants had conspired on a date or dates between January 2012 and the date of those original Particulars of Claim to cause loss

In support of that claim, AMUSA sought a Worldwide Freezing Order against the 1^st and 2^nd Defendants and EGFL. That application was dismissed by Henshaw J, his judgment being dated 30 March 2020. He found that AMUSA did not have a good arguable case, could not show a solid risk of dissipation, and considered that it would not be just and convenient to grant a Worldwide Freezing Order. Amongst the reasons why Henshaw J considered that the allegations in relation to the divestment of the shares in ESIL did not meet the standard of a good arguable case was that the chronology of the allegation was flawed, in that the restructuring of the Essar Group’s steel portfolio had been proposed in 2011, before the PSA was executed. Similarly in relation to the Algoma allegations, Henshaw J considered that there were difficulties with the chronology, in that the timing of the Algoma events in 2014 made it hard to detect any plausible link with the PSA or any wish to dissipate assets of ESL some 18 months before the termination of the PSA.

In consequence of this, AMUSA has reformulated its case in the APOC. The conspiracy is now alleged to have occurred over the period 29 September 2015 to 29 September 2016. The actions taken in pursuance of the conspiracy are alleged to have been threefold: (1) that the Defendants caused or procured ESL and its directors wrongfully to refrain from taking any steps to recover an intercompany debt of US$1.5 billion which EGFL owed to ESL as a result of the 2012/13 transactions to which I have referred; (2) that the Defendants caused or procured ESL to waive that intercompany debt (the ‘Waiver’), the restatement of ESL’s accounts in September 2016 evidencing the Waiver; and (3) that the Defendants caused or procured ESL to part with its shareholding in Essar UAE on terms which resulted in ESL receiving no or no adequate consideration (the ‘UAE Disbursements’).

With the exception of Mr Seifert, the Defendants have, as I say, consented to the amendments in the APOC, with three categories of exception. Those categories are:

I will consider each of these in turn. Before doing so, however, it is convenient to set out the broad principles on which the court should act in deciding whether to permit amendments in a case such as this.

I accept the Defendants’ submission that given the background to this application, the fact that the case now sought to be raised represents a significant recasting of the case which was found not to meet the standard of good arguability by Henshaw J, and the nature of the allegations, this is a case where it is particularly necessary to scrutinize whether the amendments proposed conform to those principles.

The first category of amendments which is objected to by the Defendants other than Mr Seifert are those related to Algoma, contained in paragraphs 50.3(f) and 50.6 of the draft. Paragraph 50.3(f) is one of a number of matters pleaded in support of an allegation that the knowledge and intentions of the 1^st and 2^nd Defendants are to be attributed to all companies in the Essar Group, or at least to the Corporate Defendants, where they were ‘directing minds and had control of those companies’. In subparagraph (f) it is proposed to be pleaded that the 1^st Defendant exercised a high degree of control over transactions relating to Algoma, which in 2013 was in financial trouble; and that as a result of such financial trouble the 1^st and 2^nd Defendants and EGFL ‘combined to oppress Algoma’s stakeholders by the conduct (including conduct in bad faith) found by the Ontario High Court and upheld by the Ontario Court of Appeal: Ernst & Young Inc. v Essar Global Fund Ltd et al. 2017 ONCA 1014’. The proposed amendment to paragraph 50.6 pleads that it is to be inferred that the 2^nd Defendant, EGFL and the 9^th Defendant (‘ECL’) exercised control even over the affairs of indirect subsidiaries of EGFL ‘from the transactions involving Algoma, as reported in the judgment of the High Court of Ontario’.

In support of the application to amend, and in answer to a contention by the Defendants that, if these paragraphs were allowed in there would need to be a ‘trial within a trial’ as to what happened in relation to Algoma, it has been said on

On behalf of the Defendants it was said that the amendments in question did not allege material facts. It was also vigorously denied that the findings of the Canadian courts had or could have any special status in these proceedings, and that there could be any question of an abuse of process of the sort suggested by Nouroozi 5.

In my judgment the Defendants’ arguments as to why there could be no relevant issue estoppel or preclusive effect of the judgments of the Canadian courts were correct. These include that the 1^st and 2^nd Defendants were not parties to or privy to those proceedings; that the issue of control of Algoma was irrelevant to the determination of the claim under s. 241 of the Canada Business Corporations Act and that any discussion of that issue amounted to obiter dicta; and that no issues of attribution of knowledge or intention to harm had arisen for decision.

More generally, I consider it apparent from the reference in the proposed paragraph

In his submissions Mr Peto QC emphasized that the only matter which it was intended that the plea should go to was the issue of control. He also said that AMUSA was prepared, if the court considered it appropriate, to omit references to the Canadian proceedings or judgments. Mr McGrath QC for the 1^st to 3^rd and 6^th Defendants made it clear, however, that he objected to any attempt by AMUSA, on this application, to rely on specific facts relating to Algoma said to establish the relevant control. He argued that that was not the basis on which the application had been made, and any newly formulated plea would have to be considered on its merits.

I do not intend to allow these amendments as currently formulated. I consider that pleas which are based upon any contention that the Canadian judgments have a relevant binding effect or might give rise to an abuse of process have no real prospect of success. On that basis, I consider that the references to the Canadian court proceedings are immaterial averments. I do not rule out the possibility that AMUSA may be able to identify certain specific facts relating to Algoma – whether its knowledge of them derives from the Canadian proceedings or otherwise – which are capable of being pleaded as giving rise to an inference of relevant control. I consider that if such further amendments were brought forward, the court would need to be satisfied that they were sufficiently precise as to what conduct of which Defendant was being relied upon, and why it gave rise to any relevant inference. As it is, this category of proposed amendments is refused.

The second category is the proposed amendment in paragraph 50.7(d). This refers back to the ‘steps taken in 2013’ pleaded in paragraphs 32 to 37 of the draft. Those include the restructuring plan in relation to the Essar Group’s steel portfolio under which there was to be the transfer of ESL’s shares in ESIL to another company in return for the issue of the Promissory Notes to ESL which were to be assigned to EGFL by way of dividend / capital reduction; the transfer of the ESIL shares and the issue of the Promissory Notes; and the alleged departure from the restructuring plan by a substitution as the consideration for the assignment of the Promissory Notes of an immediate dividend or capital reduction by a future buyback of shares; and the alleged existence of an obligation that EGFL should be liable to pay ESL on demand the face value of the Promissory Notes at least until the buyback of shares occurred. Paragraph 50.7(d) then continues that it is to be inferred that those steps:

The Defendants object to this proposed amendment. They emphasise that AMUSA’s recast case involves a conspiracy only in September 2015 – September 2016. What happened in 2013 was therefore not part of the now alleged conspiracy; and the matters pleaded were not aimed against AMUSA. Accordingly, the Defendants contended that these pleas are at best of similar fact evidence; and that it is highly unlikely that the court will be assisted by looking at whether there was a ‘general anticreditor animus’ in relation to the events of 2013, when it will conduct a detailed examination of whether there was a conspiracy in 2015 to 2016. Mr Stanley QC

In my judgment these proposed amendments should be allowed. I say that because the transactions of 2013 are in any event going to be the subject of intense scrutiny, in particular as to what their true nature and legal effects were. In terms of the APOC, there is no dispute that paragraphs 32 to 37 will be part of the case. AMUSA wishes to rely on those transactions as indicating a preparedness unfairly to prejudice creditors. I agree with Mr Peto that if it wishes to make that case, it should give proper notice of it in its pleadings, because it is an allegation of a type of misconduct or at least of a culpable state of mind. I do not consider that these pleas are likely to give rise to any very extensive new areas of disclosure or witness evidence, and of course those are matters which will be kept under review as part of case management. It may be that Mr Stanley will be proved right as to the value of any inference which could be drawn from an animus in 2013 – even if established – in relation to what happened in 2015/16, but I do not consider that the possibility that it may help is sufficiently low that the plea should be disallowed.

The third category of amendments to which the Defendants have objected relates to certain paragraphs where they say that it is unclear as to the nature of the case which AMUSA is making. The objection is to:

As to the first, AMUSA made it clear that the word ‘apparently’ was intended only to indicate that the relevant facts were outside its knowledge; and was prepared to substitute for it the phrase ‘It appears that’. I understood the Defendants not to object to that alternative wording.

As to the second, AMUSA clarified that what was being referred to was what was referred to in paragraph 33 of the draft APOC, namely that instead of an assignment in return for a reduction in capital there was an assignment in return for an obligation in debt. Mr Peto offered to clarify the position by adding the words ‘as referred to in the last sentence of paragraph 32 above’ after ‘for full consideration’ in paragraph 35 and after ‘an amount receivable’ in paragraph 42. I consider that that does resolve the difficulty as to lack of clarity as to the case which the Defendants have to meet. Accordingly, with those additions, I intend to allow these amendments.

Mr Seifert, as I have said, objects to all the amendments. It has been made clear in correspondence that, if the APOC, which allege that Mr Seifert was a party to the 2015/16 conspiracy, are not permitted no other case is made against Mr Seifert, and on that basis it is submitted on his behalf that the case against him would fall to be dismissed. Because of that, Mr Seifert has not issued an application to strike out the existing POC.

Mr Seifert’s case is that none of the amendments proposed is capable of supporting a claim against him of unlawful means conspiracy. Mr Valentin QC on his behalf emphasised the following points:

For AMUSA Mr Peto stressed in particular four matters:

In my judgment, the APOC does not plead an adequate factual basis for a case that Mr Seifert was party to the conspiracy alleged. Further, and to put the matter another way, I do not consider that a case that he is liable in conspiracy based only on the matters pleaded is one which stands a realistic prospect of success.

In this regard, the starting point is that: (i) no particulars are given as to when, with whom, or the means by which Mr Seifert entered the conspiracy; (ii) there are no particulars of any action which it is said that Mr Seifert took which was unlawful, nor is there an allegation that he was in a position in which he was able to procure anyone else to act unlawfully; (iii) the only pleading as to the actions which Mr Seifert took is that it is ‘reasonable to infer that Mr Seifert will have advised’ on the failure to call in the US$1.5 billion, the Waiver and the UAE Disbursements, without any allegations as to what advice Mr Seifert might have given; and (iv) there is no particularization as to how Mr Seifert could have procured ESL or its board to act unlawfully, or how, even if he knew of or acquiesced in the conspiracy that rendered him an active participant therein.

As to the specific matters which are relied upon in relation to Mr Seifert, AMUSA places considerable weight on Mr Seifert’s role and responsibilities in the Essar Group, and in particular his role at ECL. However, the fact that Mr Seifert held the roles pleaded does not of itself give rise to the inference that he advised on the transactions which are said to form part of the conspiracy or procured, knew of or acquiesced in the unlawful means alleged. Moreover, Mr Seifert has put in evidence denying any role in relation to those transactions, and, while that cannot itself be taken as conclusive, AMUSA has adduced no documentary or other evidence to contradict what Mr Seifert has said.

As to the allegation involving Algoma, I do not accept that the pleaded reference to Mr Seifert’s involvement in the recapitalization of that company in 2014 gives rise, in itself, to an inference that Mr Seifert advised on the transactions alleged to form part of the conspiracy now alleged.

The position is similarly in relation to the reference to Mr Seifert having been the board sponsor of the assignment of the Second Promissory Note. The assignment of the Second Promissory Note is no longer relied upon as part of a conspiracy against AMUSA. I do not consider that Mr Seifert’s having been the board sponsor in relation to this matter in 2013, of itself gives rise to the inference that Mr Seifert advised on a different transaction in late 2015 or 2016 or that he procured, knew of or acquiesced in any unlawful means in relation thereto.

I am mindful of Mr Peto’s exhortation that I should consider what evidence might reasonably be expected to be available at trial, and form some judgment about that. It is in this context that Mr Seifert has an apparently strong point that, given that he was planning to leave Essar and then left Essar during the period of the alleged

For these reasons I am not satisfied that there is a properly pleaded case against Mr Seifert, or that it has been demonstrated that the case which is sought to be made against him stands a real prospect of success. In those circumstances, I refuse the application to make the amendments insofar as they relate to him.

I trust that an order can be agreed reflecting these conclusions.