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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> BNP Paribas SA & Ors v Yukos Oil Company  EWHC 1321 (Ch) (24 June 2005)
Cite as:  EWHC 1321 (Ch)
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Strand, London, WC2A 2LL
B e f o r e :
| BNP PARIBAS S.A. & ors
- and -
|YUKOS OIL COMPANY
John Brisby QC / Peter Griffiths (instructed by Reid Minty LLP) for the Defendant
Hearing date: 17th June 2005
Crown Copyright ©
The Hon. Mr. Justice Evans-Lombe :
"(1) That no member of the Core Group had taken any corporate action, nor had any other steps been taken or legal proceedings been started or (to the best of its knowledge and belief) threatened against any member of the Core Group, for or which might result in any Insolvency Proceedings (subject to one specified exception) or Russian Bankruptcy Proceedings (as defined in clause 1.1): Clause 15.18;
(2) That no litigation arbitration action or administrative proceedings of or before any court, arbitral tribunal or agency (including, but not limited to, investigation proceedings) had been started or (to the best of its knowledge and belief) threatened against it where this had a Material Adverse Effect or if adversely determined would or might reasonably be expected to have a Material Adverts Effect: Clause 15.20; and
(3) That since the date at which the original Financial Statements (as defined in clause 1.1) were started to be prepared, there had been no change in the business condition (financial or otherwise), prospects or operations of any member of the group which had or might have a Material Adverse Effect: Clause 15.22."
"Core Group means each of:
(a) Borrower [Yukos] (including in its capacity as the Exporter), Energotrade and the Core Production Subsidiaries;
(b) Each other member of the Group that owns (5)% or more of the assets of the Group…."
"Group means, at any time, each of the Borrower and each entity at that time included in the consolidated US GAAP financial statements of the Borrower (including at all times Energotrade, the Core Productions subsidiaries, the Trader and the Trader's Agent)."
"… in the opinion of an Instructing Group [the Banks] a Material Adverse Effect on:
(a) The business, condition or production or export capacity of the Group taken as a whole;
(b) The ability of any of the Offtakers, the Borrower (including in its capacity as the Exporter), Energotrade, the Trader and the Trader's Agent to perform its obligations under any of the Finance Documents; or
(c) The legality, validity or enforceability of any of the Finance Documents or the rights or remedies of any of the Finance Parties under any of the Finance Documents."
(1) If Yukos fail to pay any sum due from it under the Loan Agreement (with certain exceptions which provided for payment in any event within 30 days): Clause 19.1.
(2) If Yukos fail to perform or comply with any obligation under the Finance Documents: Clause 19.3.
(3) If any representation or statement made or deemed to be made in any Finance Document or in any notice or other document signed by an Authorised Signatory and in each case delivered by the relevant person pursuant to the Finance Documents or in connection therewith was or proved to be incorrect or misleading in any material respect when made or deemed to be made: Clause 19.4;
(4) If any member of the Core Group was unable, or admitted its inability, to pay its debts or suspended making payment on any of its debts and/or if the value of the assets of any member of the Core Group was less than the amount of its liabilities (taking into account its contingent and prospective liabilities): Clause 19.6;
(5) If any corporate action or any other steps were taken or legal proceedings started or threatened against any member of the Core Group for or which might (in the reasonable opinion of an Instructing Group) reasonably be expected to result in any Insolvency Proceedings (subject to one specified exception) or any Russian Bankruptcy Proceedings (as defined in Clause 1.1): Clause 19.7;
(6) If, at anytime, any of the Transaction Security (as defined in Clause 1.1) became subject to any prior ranking or pari passu ranking Encumbrance: Clause 19.25; and
(7) If any event or circumstance occurred which (in the reasonable opinion of an Instructing Group) had or might reasonably be expected to have a Material Adverse Effect: Clause 19.27.
"47. On 8 June 2004, the Facility Agent sent a letter by fax to Yukos stating, among other things as follows:
"As indicated in our letter to you of 28 May, the Lenders are extremely concerned about the implications of recent developments relating to the $3.3 bn tax claim and the Sibneft share purchase ... and the resultant deterioration in the financial condition and prospects of the Group.
The Lenders therefore request [Yukos] to explain why the Lenders should not consider such recent developments to amount to a material and adverse change in the position of [Yukos]. Additionally, the Lenders wish to understand [Yukos]'s plans for resolving matters if [Yukos] does not succeed with its appeal of the recent court decision on the $3.3 billion tax claim, and/or further claims or proceedings are brought against [Yukos] for other years, as anticipated by [Yukos] in its press release."
48. On 17 June 2004, Yukos sent a letter by fax to the Facility Agent in which, among other things, Yukos:
(1) stated that it appreciated that the Lenders were extremely concerned about the recent developments relating to the tax claim and the Sibneft share purchase; and
(2) acknowledged that the matters highlighted in the Facility Agent's letter could, "if adversely determined and in a worse case scenario", have a serious impact on Yukos."
"Event of Default
We write to you in our capacity as Facility Agent under the above loan agreement (the "Loan Agreement"). Terms defined in the Loan Agreement shall, unless otherwise defined in this letter, have the same meanings in this letter, and the principles of construction set out in the Loan Agreement shall have effect as if set out in this letter.
The Lenders have determined, by unanimous vote, that an Event of Default has occurred under Clause 19.27 (Material Adverse Change) of the Loan Agreement.
We hereby give you notice, at the instruction of an Instructing Group, that an Event of Default has occurred under Clause 19.27 (Material Adverse Change) of the Loan Agreement.
The Lenders also consider an Event of Default to have occurred under the following Clauses of the Loan Agreement (without limitation):
1. Clause 19.3 (Other Obligations) (with further reference to 18.5 (Negative Pledge) of the Loan Agreement, and to Clause 9.3 (Negative Pledge) of each of the Exporter Pledge of Rights to Rouble Accounts and the Exporter Pledge of Rights to Dollar Accounts);
2, Clause 19.4 (Misrepresentation) (with further reference to Clause 15.18 (No Insolvency Proceedings), Clause 15.20 (No Material Proceedings) and Clause 15.22 (No Material Adverse Change));
3. Clause 19.6 (Insolvency);
4. Clause 19.7 (Insolvency Proceedings); and
5. Clause 19.25 (Transaction Security).
We write on the instructions of an Instructing Group to notify you, pursuant to Clause 19.28 (Acceleration and Cancellation) of the Loan Agreement, that, on the basis of the above Events of Default, both Loans shall hereafter be due and payable on demand of the Facility Agent."
"However, please note that we do not as a matter of technical analysis agree that Events of Default have occurred as outlined in the Default Notice. Adopting the numbering used in the Default Notice:
1. Clause 19.3 (Other obligations) (referring to the various negative pledge clauses): the negative pledge clauses are not intended to cover a situation in which the assets of a company are frozen, but rather, to cover a situation in which a Group member voluntarily creates a security over its assets or allows such security to subsist. In our view, a freeze over the assets of the Borrower does not fall within the scope of the definition of "Encumbrance", each limb of which assumes some form of agreement or consent on the part of the entity granting or permitting that Encumbrance. Further, even if an Encumbrance were currently in existence over the relevant assets, no member of the Group has created it, granted it or permitted it to subsist. On the contrary, the Borrower is doing everything in its power to resist and remove the current freeze over its assets.
2. Clause 19.4 (Misrepresentation): at the time of the most recent repetition of the representations, there had not in our view been any steps taken or proceedings commenced or threatened against the Borrower or the Core Group which would amount to Insolvency Proceedings, or which would fall within the scope of Clause 15.20 (No Material Proceedings). In relation to clause 15.22 (Material Adverse Change), we do not accept that a material adverse change has occurred to date, and certainly do not accept that such a change had occurred at the time of repetition of the representation. We refer you to our previous correspondence and to paragraph 6 below in relation to this.
3. Clause 19.6 (Insolvency): we do not consider that any of the limbs of this clause currently apply to the Borrower. In particular, we do not believe the Borrower to be unable to pay its debts. The tax judgment against the Borrower is still subject to appeal, and is not therefore a valid debt. Further, should the Borrower be allowed to access its assets, those assets are more than sufficient to pay the full amount of the tax judgment.
4. Clause 19.7 (Insolvency Proceedings): again, we do not agree that any legal proceedings have been started or threatened that might reasonably be expected to result in any Insolvency Proceedings or Russian Bankruptcy Proceedings. The current tax claim proceedings remain subject to appeal, and, as outlined in our previous correspondence, our position is that the tax claim is legally without merit and that we have legitimate expectations (assuming that the law is correctly applied) of being successful in our appeals.
5. Clause 19.25 (Transaction Security): could you please explain the way in which you consider this clause to have been breached.
6. Clause 19.27 (Material Adverse Change): we do not agree that a Material Adverse Effect has occurred, The first limb of the definition of Material Adverse Effect relates to the Group taken as a whole. While we acknowledge that (as pointed out in your letter of 28 June) events having a serious impact on the Borrower may also have a serious impact on the Group, the fact remains that the current tax claim and asset freeze relates solely to the Borrower. As outlined in our previous correspondence, rather than having been adversely affected, the Group's business and financial condition are currently improving due to high oil prices.
The second limb of "Material Adverse Effect" relates to the ability of the Borrower to perform its obligations under the Finance Documents. Again, as discussed in our previous correspondence, the current difficulties of the Borrower are related only to the tax claim, against which we will continue to appeal and which appeals we can reasonably expect as a matter of law to win.
We accept that you have formed a view in relation to the above matters, but wish to note that we do not agree with that view."
"The plaintiff sold the share capital of the defendant company to L Co for £25,000 and it was agreed that the defendant company would enter into a ten year service agreement to employ the plaintiff as managing director at £3,000 plus commission and expenses, which agreement was executed on April 8th 1958. In August 1958 L Co having offered the plaintiff alternative employment to which he appeared agreeable, sold the share capital in the defendant company to M Co, who did not wish to retain the plaintiff's services. No concluded agreement as to the plaintiff's employment by L Co was ever reached and the plaintiff refused all subsequent offers of employment by them. At an extraordinary meeting of the defendant company … the plaintiff was removed from office as a director. L Co made further offers to employ the plaintiff … which he refused. The plaintiff claimed damages against the defendant company for wrongful dismissal;
(1) That although article 68 of table A of Sch. 1 was incorporated into the articles of the defendant company, nevertheless there was an implied term in the plaintiff's agreement that the defendant company would do nothing of its own motion to put an end to the state of circumstances which had enabled the plaintiff to continue as managing director and, accordingly, the defendant company was in breach of its contract with the plaintiff."
"It does however seem to me that all five of their Lordships in the Southern Foundries case were agreed upon one principle of law which is vital to the defendant's contention in this case. That principle of law is that laid down in the case of Stirling v Maitland where Cockburn LJ said: "if a party enters into an arrangement which can only take effect by the continuance of a certain existing set of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances under which alone the engagement can be operative."
Applying that respectable principle to this case, there is an implied engagement on the part of the company that it will do nothing of its own motion to put an end to the state of circumstances which enables the plaintiff to continue as managing director: "that is to say an undertaking that it will not revoke his appointment as a director and will not resolve that his tenure of office be determined."