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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Sibir Energy Ltd & Ors v (1) Slocom Trading Ltd & Ors [2014] EWCA Civ 831 (17 June 2014) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2014/831.html Cite as: [2014] EWCA Civ 831 |
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ON APPEAL FROM THE CHANCERY DIVISION
The Honourable Mr Justice Roth
HC10C00139
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE TOMLINSON
and
LORD JUSTICE BRIGGS
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(1) SIBIR ENERGY LIMITED (2) MARITIME VILLA HOLDING SCI (a company incorporated under the laws of France) (3) TATIK INC (a company incorporated under the laws of Delaware) |
First and second Appellants / Second and Third Defendants Third Appellant / First Defendant |
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- and - |
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(1) SLOCOM TRADING LIMITED (a company incorporated in Cyprus) (2) DERBENT MANAGEMENT LIMITED (a company incorporated in Cyprus) |
Respondents/Claimants |
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Simon Birt (instructed by Russell-Cooke LLP) for the Third Appellant
Benjamin John (instructed by Reed Smith LLP) for the Respondents
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Crown Copyright ©
Lord Justice Briggs :
The Appeal
Summary of the material facts
Summary of the relevant events
"Nonetheless, I consider that this document evidenced an agreement between Mr. Tchigirinski and Derbent as to what would become the position when Mr. Tchigirinski received back the Tatik shares and once again became the owner of Tatik. Therefore it was at this time, and not earlier, that Mr. Tchigirinski expressed his agreement to substitute Tatik for himself as the borrower, supplemented by a personal guarantee from him."
As will appear, this paragraph is vigorously challenged by the appellants, on the ground that it was a finding neither pleaded, pursued in argument, nor supported by any evidence.
"WHEREAS:
(A) The Lender and other members of the Derbent Group (as defined below) (the "Original Lenders") have advanced the Original Loans (as defined below) to the Borrower and other members of the Tatik Group (as defined below) (the "Original Borrowers") for the purpose of financing outgoings incurred in relation to the residential property located at Avenue Winston Churchill, Roquebrune Cap Martin (Alpes Maritimes), France (the "Property").
(B) The Original Lenders (other than the Lender) and the Original Borrowers (other than the Borrower) have agreed to transfer all of their respective rights and obligation in respect of the Original Loans to the Lender (in case of such Original Lenders) or the Borrower (in the case of such Original Borrowers) with the result that as at the date hereof the Original Loans are owing solely by the Borrower to the Lender.
(C) The parties are entering into this Agreement to set out the terms and conditions that will apply to the Original Loans, certain of which are currently undocumented.
(D) It is intended that this Agreement shall supersede in its entirety any agreement currently in effect between the Borrower and the Lender governing the terms of the Original Loans including, without limitation, the loan agreement dated 2 May 2006 between the Borrower and the Lender (the "Original Loan Agreements")."
Pausing there, the reference in recital (D) to the loan agreement dated 2 May 2006 was, as is common ground, a reference to what I have called the August Agreement. The Lender is defined as Derbent, and the Borrower as Tatik. The Property is, of course, the Villa.
""Original Loans" means the loans in the total principal amount of € 30,857,724.50 (Thirty Million Eight Hundred Fifty Seven Thousand Seven Hundred Twenty Four Euros 50 Cents) which have been disbursed by the Original Lenders to the Original Borrowers before the date of this Agreement, a breakdown of which is provided for informational purposes in Schedule 1 hereto;"
Schedule 1 identified three constituent loans, the largest being of EUR28.125million advanced on 2nd May 2006. It is common ground (but not otherwise relevant) that the aggregate outstanding in Schedule 1 is slightly exaggerated by the mistaken inclusion of a supposedly outstanding interest payment, when in fact it had been paid.
"The Borrower acknowledges and agrees that as at the date of this Agreement it is indebted to the Lender in the principal amount of € 32,352,724.50 of which:
(a) € 30,857,724.50 represents the total principal amount owing in respect of the Original Loans; and
(b) € 1,500,000.00 represents a further advance made by the Lender to the Borrower on the date of this Agreement and applied in full by the Lender on behalf of the Borrower in making payment of the Arrangement Fee."
"263. Accordingly, by the Derbent-Tatik Loan Agreement, Tatik appeared to acknowledge and agree with Derbent that it was henceforth liable to Derbent, on the terms set out in the agreement, for payment of the principal and outstanding interest in respect of the monies which had been advanced by the "Original Lenders" to the "Original Borrowers" (and the relevant amounts are set out), this agreement being in place of those "Original Loans."
264. In my view, that is indeed the right in Derbent and the liability in Tatik which Mr Haener (for Derbent) and Mr Tchigirinski (for Tatik) intended to achieve. As regards the Second Mr Tchigirinski Loan, the transfer to Derbent had been agreed upon in March 2006. And on my further findings, the August 2008 "Agreement" represented the intention of Mr Haener and Mr Tchigirinski to transfer the debt to Tatik although they both realised that that document could not effectively do so and that this could only be achieved once Mr Tchigirinski received back his shares in Tatik."
The second half of paragraph 264 contains, of course, a reference back to the earlier passage in the judgment about the August Agreement which I have already quoted.
"2 ASSIGNMENT OF RIGHTS AND ASSUMPTION OF OBLIGATIONS
2.1 Assignment
With effect on and from the Effective Date and subject to the terms and conditions of this Agreement, the Assignor with full title guarantee hereby assigns and agrees to assign to the Assignee and the Assignee hereby accepts all of the Assignor's right, title, interest and benefit in and to the Loan under the Loan Agreement.
2.2 Assumption
With effect on and from the Effective Date and in consideration of the assignment contained herein, the Assignee undertakes with the Assignor to assume, perform and observe the Assignor's obligations in respect of the Loan made pursuant to and the security granted under the Finance Documents as if the Assignee had been a party thereto in place of the Assignor."
Pausing there, the Finance Documents are the December Loan Agreement and the Pledge. The Assignor's obligations consisted of some limited obligations of Derbent under the December Loan Agreement and Pledge, and had nothing to do with Derbent's obligation to account to Willow Tree (or to the Kruglov family) in respect of interest and principal repaid to it.
"With effect from Effective Date, the Assignor shall have no residual beneficial interest in the relevant rights and benefits assigned by this Agreement."
"This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes any previous expression of intent, undertaking or agreement with respect to this transaction."
"Here, I find that the purpose of the first limb of the statutory test is fulfilled. The hastily arranged assignments following the outcome of the Sibir general meeting were, in my judgment, clearly designed to place the benefit of the debt and related security over Tatik beyond the reach of Sibir in the claims it may make against Derbent. Indeed, Mr. Haener came close to admitting this. He accepted that he became worried and that his motivation was to "disassociate" Mr. Kruglov from Derbent, procuring the assignment "to protect Mr. Kruglov's position and interests.""
"… the reality is that Derbent, since it became the lender to Mr. Tchigirinski in place of Willow Tree, was under a liability to pay over the proceeds of the loan (repayments of principal and interest) either to Willow Tree or, if not, to the Kruglov family directly. The loan was never an asset of which Derbent could retain the benefit for itself."
And at J 301:
"I therefore find that there was indeed consideration for the Derbent-Slocom Assignment, being the assumption of liability for the full amount of the debt being assigned. It follows that there is no question of the assignment of the Derbent-Tatik Loan Agreement being at an undervalue. The assignment of the Second Tatik Stock Pledge (the Pledge) was obviously directly related to the assignment of Tatik's liability. The challenge under Section 423 to those two assignments fails."
"It is Sibir and Maritime's case that the Loan Agreement purports to memorialise a series of transactions that in fact never took place and, accordingly, it is a fraudulent document. … While it is not necessary for Sibir and/or Maritime to identify the purpose of the fraud, it is probable that it was part of a scheme to defraud CT's creditors (both future and present)."
"As pleaded by Sibir and Maritime (including at response 1 of their further information dated 9th November 2010), the Loan Agreement was a fraudulent document and constituted or was equivalent to a sham and is invalid and unenforceable."
Ground 1 – the December Loan Agreement was a Sham
"…acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities… that for acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating."
"Second, as the passage from Snook makes clear, the test of intention is subjective. The parties must have intended to create different rights and obligations from those appearing from (say) the relevant document, and in addition they must have intended to give a false impression of those rights and obligations to third parties."
"A transaction is no sham merely because it is carried out with a particular purpose or object. If what is done is genuinely done, it does not remain undone merely because there was an ulterior purpose in doing it."
Finally, and without needing any citation, the judge concluded with the observation that it is for the party who alleges that a document or transaction is a sham to prove it.
(i) What legal rights and obligations does the agreement appear to create?
(ii) What actual legal rights and obligations (if any) did the parties intend to create?
"…this reference in a recital to a previous purported contract cannot, on established principles, render the Derbent-Tatik Loan Agreement a sham, when, as I have found, the agreement sets out a statement of rights and obligations henceforth between the two parties that expresses the rights and obligations which those parties both intended to assume."
"I reach this conclusion without reliance upon the absence of evidence from Mr. Tchigirinski. However, I consider that the lack of testimony from him to the contrary effect only reinforces my findings regarding the explanation of and purpose of the parties entering into the Derbent-Tatik Loan Agreement and the related Second Tatik Stock Pledge."
Ground 2 – section 423
"This section relates to transactions entered into at an undervalue;"
The fact that it was a serious fraudulent preference readily explains why the invulnerability of a transaction designed to defraud Sibir might appear at first sight to be a surprising outcome. Fraudulent preferences can of course be re-opened in specified circumstances under other provisions of the insolvency legislation, but the defendants do not suggest that they are applicable in this case.
(a) That Derbent assumed a legal liability in May 2006 to "pay over the proceeds of the loan" to Mr Kruglov or his company Willow Tree;
(b) That Slocom assumed this legal liability at the time of the Assignment Agreement;
(c) That such assumption of liability formed part of the consideration for the assignment of the loan and security; and
(d) That such assumption of liability was of equal value to the loan and security assigned to Slocom.
(i) That Derbent was the beneficial owner without legal liability to anyone;
(ii) That Derbent was a trustee of the loans and their proceeds;
(iii) That Derbent was the borrower under a back-to-back lending structure with Willow Tree or the Kruglov family; or
(iv) That Derbent had a legal obligation to account, albeit not as a trustee.
Lord Justice Tomlinson:
The Chancellor of the High Court: