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Cite as: [2015] JRC 217

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Companies - disclosure of information which is subject to a freezing order sought by the plaintiff.

[2015]JRC217

Royal Court

(Samedi)

27 October 2015

Before     :

J. A. Clyde-Smith, Esq., Commissioner, and Jurats Kerley and Thomas

Between

ENRC NV

Plaintiff

 

And

Zamin Ferrous Limited

Defendant

 

Advocate J. M. P. Gleeson for the Plaintiff.

Advocate N. M. Sanders for the Defendant.

judgment

the commissioner:

1.        The plaintiff seeks disclosure of further information in relation to the assets of the defendant which are the subject of a worldwide freezing order granted by the Deputy Bailiff ex parte on 22nd July, 2015. 

Background

2.        The plaintiff ("ENRC") is part of the Eurasian Resources Group which holds mining and energy interests worldwide and which is ultimately owned by a consortium including the government of Kazakhstan.  According to the information provided to us the ENRC Group comprises a substantial undertaking with over 78,000 employees in 11 countries with a net asset value in 2013 of US$8.9 billion. 

3.        The defendant ("Zamin") forms part of the Devi group of companies which is ultimately owned by a trust of which Mr Pramod Agarwal is one of the beneficiaries.  It seems fair to say that he is the main force behind the group which is involved in similar activities to that of ENRC, although it now faces serious liquidity problems.  At the head of the group is Devi Limited, a Cayman incorporated company ("Devi").  It wholly owns Zamin, a Jersey incorporated company, which has four direct subsidiaries under which lie a number of further subsidiaries.  The group's main assets comprise greenfield iron ore mining concessions in Uruguay (known as "the Valentines project") and Brazil (known as "the Greystone Project").  The price for iron ore has recently fallen from US$130 per ton to US$50 a ton. 

4.        ENRC and a subsidiary of Zamin, namely Ardila Investments NV ("Ardila") had been co-owners in another Brazilian mining project held through a company known as Bahia Minerals BV ("Bahia") and by a share purchase agreement dated 1st September, 2010, Ardila sold its interest in Bahia to ENRC for an initial and thereafter staged payments by reference to various milestones.  Zamin was a party to that agreement by way of guarantor. 

5.        A final staged payment of US$335M was due on Sunday 21st September, 2014, if an installation licence (known as the "Port Installation Licence") had been issued for a port connected to the project, by which, in conjunction with a railroad, the output of the mine could be transported away for export. 

6.        The Port Installation Licence was issued late on Friday 19th September, 2014, the last working day before Sunday 21st September, 2014, in circumstances which ENRC claims were both unlawful and in breach of a Brazilian court order and environmental legislation.  Accordingly, it refused to pay the final staged payment. 

7.        On 30th June, 2014, Ardila commenced proceedings against ENRC in the English High Court, claiming the final staged payment in the now reduced sum of US$285M (reduced from US$335M for reasons not relevant to these proceedings).  ENRC is defending these proceedings on the grounds set out above and has counter claimed for the repayment of a loan it had made to Ardila on 14th March, 2013, in the sum of US$65M (made in connection with an amendment to the share purchase agreement) joining in Zamin as guarantor. 

8.        On 15th December, 2014, ENRC applied for summary judgment on its counter claim.  That application was heard (amongst other matters) before Simon J, at a hearing on 27th - 29th April, 2015.  The issue was whether Ardila was entitled to set off its admitted liability under this loan (guaranteed by Zamin) against the much greater sum that it was claiming from ENRC under the share purchase agreement. 

9.        Simon J issued his judgment in draft on 5th June, 2015.  He found that under the relevant provisions, there was no right of set off.  His judgment was handed down on 11th June, 2015, and by the terms of a consequential order made on 26th June, 2015, he ordered Ardila and Zamin jointly and severally to pay the sum of US$65M together with interest on 16th July, 2015, into the client account maintained by ENRC's London lawyers, under their undertaking to hold the same pending further order of the court.  That undertaking was given so that Ardila and Zamin had comfort that should they succeed in their claims against ENRC, the sums they had paid in respect of the judgment debt would remain available to satisfy any sum that may be awarded to them at the conclusion of the English proceedings.  The final hearing of the English proceedings is due to take place in February, 2016.  The judgment has not been satisfied. 

10.      Leave to appeal Simon J's judgment was refused by him on 26th June, 2015.  An application to the Court of Appeal for leave to appeal and for a stay of execution was filed by Ardila with the English Court of Appeal on 16th July, 2015, (apparently the last day for so doing) and remains pending. 

11.      On 22nd July, 2015, ENRC issued proceedings against Zamin in Jersey and obtained ex parte:-

(i)        An injunction freezing Zamin's assets worldwide up to US$70M. 

(ii)       An order for Zamin to disclose all of its assets worldwide over £10,000 in value. 

(iii)      An order that a director or duly authorised representative of Zamin answer a number of questions set out in a schedule. 

12.      The questions in the schedule sought to inform ENRC of the Devi group, its structure, place of incorporation of its constituent companies, names of directors and so on but it included the following questions in relation to the Valentines project:-

(i)        whether there has been any relevant Change of Control of any of the companies with an interest in the Valentines Project since it was acquired;

(ii)       if a sale of an interest in the Valentines Project has been or will be agreed, the nature, extent and/or amount of the proceeds of sale and how the defendant intends to use the proceeds of such sale;

(iii)      if a financing of the Valentines Project has been or will be agreed, how does the defendant intend to use the proceeds of such financing;

(iv)      whether the defendant's interest in the Valentines Project has been or will be charged, pledged, mortgaged, assigned or otherwise appropriated to the payment of any debt owned by the defendant since it was acquired; and

(v)       whether the defendant has entered into any loan arrangements in relation to the Valentines Project and, if so, the details of those loans, security in respect of the loans. 

13.      "Change of Control" in relation to a company ("the Target") was defined as meaning:-

(i)        the acquisition by a person of a legal or beneficial interest in more than 50% of the total issued share capital of the Target;

(ii)       the sale of, or grant of a right in respect of, the share capital of Target to a person who, as a result of that grant or sale, is entitled to obtain or acquire a legal or beneficial interest in more than 50% of the total issued share capital of the Target;

(iii)      the issue of new shares in the Target to any person not previously holding more than 50% of the shares in the Target; and/or

(iv)      any change to the Memorandum or Articles of Association of the Target so as to alter the voting rights of the members of the Target. 

14.      In his affidavit of 31st July, 2015, in support of the disclosure made by Zamin, Mr Agarwal provided this information in relation to the Valentines Project: -

(i)        In the context of a change of control of any of the companies within the Valentines Project, that "Aurum Mining" had been granted an option by way of an option and investment agreement dated 28th May, 2015, whereby it could elect to purchase 100% of the Valentines Project for a value of US$250M.  In his fifth witness statement dated 8th September, 2015, signed for the purposes of the English proceedings, he stated that the consideration payable by Aurum Mining was "up to" US$250M.  He also stated that an option payment of US$2.25M had been paid, allowing Aurum Mining to exercise the option now, although he said it was not anticipated that it would be exercised at any time in the immediate future. 

(ii)       In the context of a sale of an interest in the Valentines Project and how it intended to use the proceeds, a subscription and shareholders' agreement had been entered into with Gerald Metals SA ("Gerald") on the 9th June, 2015, under which 5% of the company that heads the Valentines Project had been transferred to Gerald with a potential of a total of 15% being transferred.  He said the transfer was part of a larger settlement arrangement, the terms of which were highly sensitive, whereby Gerald ceased its enforcement action with respect to certain amounts owed to it by members of the Devi group, including the ultimate parent, Devi. 

15.      By its summons of 20th August, 2015, ENRC now seeks disclosure of these two agreements together with:-

(i)        Contemporaneous correspondence demonstrating how the agreements came to be negotiated, drafted and executed; and

(ii)       Information as to the date on which the negotiations commenced, the date the agreements were finalised, and the date upon which the agreements were executed.  In relation to the Aurum agreement, it seeks information in relation to the precise nature of the consideration given by Aurum for the Aurum agreement and upon whose instructions the directors of Zamin entered into the Aurum agreement.  In relation to the Gerald agreement, it seeks information as to the date on which the transfer of the shares was formally registered and the precise nature of the consideration given for the transfer of the shares and upon whose instructions Zamin entered into the Gerald agreement.  

ENRC's submissions

16.      Advocate Gleeson submitted that Zamin had not answered the questions in the schedule in a full and frank manner.  It appeared already to have dissipated its assets to a certain extent and ENRC reasonably believed that there continues to be a real risk that it will further attempt to dissipate assets in order to put itself in a position that it cannot satisfy the judgment debt and/or costs order.  That was illustrated, he said, by the procedural history of the English proceedings giving rise to the judgment and the conduct of Zamin and related parties that had been characterised by failures to meet case management deadlines, procedural and tactical games, unreliability, prevarication, lack of openness and delaying tactics. 

17.      We would summarise the main grounds upon which he made those submissions as follows:-

(i)        On 23rd January, 2015, (after ENRC had issued its application for summary judgment) Ardila, which is a Curacao company, obtained an attachment (a form of security) from the Curacao court over its own debt of US$65M to ENRC without notice to ENRC and which would de facto give Ardila a right of set off whatever the outcome of the English application.  On 11th June, 2015, Simon J granted ENRC an anti-suit injunction, holding that:-

"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.  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."

Later, Simon J went on to award ENRC its costs on an indemnity basis, saying this:-

"It seems to me that Ardila's conduct was a deliberate and vexatious attempt to interfere with the process of the English proceedings which it had itself brought.  In these circumstances, costs should be on an indemnity basis."

(ii)       Ardila had pleaded in its amended reply that neither it nor Zamin had any interaction with the Brazilian licensing authority (IBAMA) in the issuing of the Port Installation Licence and only had a general understanding of how the licensing process worked.  It had obtained a copy of the Port Installation Licence, it said, from the office of the Governor of Bahia but did not know how that office had obtained a copy.  However, in response to an order for further information made by the English High Court, apparently after repeated failures to respond, Ardila and Zamin disclosed that they did interact with IBAMA by instructing an agent to liaise and meet with it and that Mr Agarwal himself was closely involved in the licensing process, visiting Brazil and meeting with the Governor, with whom he is said to have had a longstanding and occasional "personal" relationship.  They disclosed an email received at the time which shows that they did know the way in which the Port Installation Licence was provided to the Governor's office before being forwarded on to them.   

(iii)      At a hearing on 8th July, 2015, Leggatt J had expressed his disapproval of Ardila's and Zamin's conduct, describing the approach of their solicitors as "an approach which, whilst it certainly does not justify the description "dishonest", cannot be regarded as full and frank."  He went on to infer that the solicitors "wilfully stuck their heads in the sand" and to say how unreliable their statements had been. 

(iv)      The circumstances in which it is alleged by ENRC that the Port Installation Licence was granted, which we will not set out here, were described by Leggatt J at a hearing on 20th February, 2015, in the context of an application by ENRC for further disclosure, in this way:-

"Well, as far as I recall, they have got a starting point in that the licence was granted on the last possible date in what might be described as exceptional circumstances ... And a judgment which, according to them, was quite extraordinary in its lack of justification ... and in the speed with which it was rushed through, after the - it now appears from your particulars - the man in charge on your side had been making personal visits and phone calls to the governor.  That seems a good starting point."

(v)       The disclosure made by Mr Agarwal in relation to the Aurum agreement does not give Aurum Mining's full name, so that it cannot be identified, the identity of the party within the Devi group that entered into the agreement with Aurum Mining, the law governing the agreement (and therefore the situs of the chose in action it creates) and the payment mechanics.  The option fee of US$2.25M was not disclosed by Zamin in response to the freezing order and there is no information as to where these sums have gone. 

(vi)      In terms of the Gerald agreement, minimal details have been supplied beyond the fact that 5% had been transferred up to a potential of 15% for no financial consideration but forbearance to sue other entities in the Devi Group.  ENRC does not know the terms upon which the holding might increase from 5% to 15% beyond certain dates, what consideration might be payable for such an increase and if so, where and how the terms of the Gerald agreement sit with the apparently contradictory terms of the Aurum agreement. 

(vii)     The timing of the two agreements, coming as they did between the hearing and the draft judgment in the case of the Aurum agreement and between the draft judgment and the judgment being handed down in the case of the Gerald agreement, is suspicious, especially when considering that both agreements were concerned with the alienation of Zamin's major indirect asset. 

(viii)    In dismissing Ardila's application to strike out part of ENRC's pleaded case, the Port Installation Licence had been issued unlawfully, Simon J said this at paragraph 80:-

"80     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. ...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."

Zamin's submissions

18.      Advocate Sanders described the orders sought as invasive and draconian.  He resisted the same for the following reasons:-

(i)        Whilst ENRC has the benefit of the judgment in its favour:-

(a)       Ardila's claim in the English proceedings amounts to US$285M, some US$220M in excess of the judgment;

(b)       The judgment is subject to appeal and an application for a stay of execution both of which are currently pending before the English Court of Appeal;

(c)       The main action is set for trial in February 2016; and

(d)       ENRC's defence to the main action is weak. 

(ii)       No enforcement steps have been or are being taken by ENRC in Jersey or elsewhere and, accordingly, the injunction is merely stand-alone relief not in support of any substantive proceedings or relief being sought in Jersey or elsewhere;

(iii)      It is recognised in the English proceedings that any recovery following enforcement of the Judgment would be held by ENRC's English solicitors pending determination of Ardila's substantive claim;

(iv)      The documents that are sought in Jersey are not required for the purpose of policing the injunction - ENRC has already received disclosure of Zamin's assets as required by the terms of the injunction;

(v)       The Deputy Bailiff refused to grant an order for disclosure of documents (including in particular commercially sensitive ones) when signing the Order of Justice;

(vi)      The summons is a fishing expedition by ENRC - it is seeking disclosure of the agreements and the correspondence which are highly commercially sensitive by whatever means it can: it is also pursuing in the English proceedings unmeritorious specific disclosure requests for the agreement and the correspondence;

(vii)     ENRC cannot be trusted with regard to the use it might seek to put documents it receives - it is subject to applications for breach of confidence and committal within the English proceedings;

(viii)    The correspondence is entirely historic - correspondence as to how an agreement relating to assets of Zamin came about cannot assist in policing the injunction or in identifying assets and their location for the purposes of enforcement; and

(ix)      ENRC not only have had disclosure of the broad nature of the project to which the agreements and correspondence relate but were also provided with information concerning the project in 2011 and signed a non-disclosure agreement in respect of information ENRC received when considering whether to invest in the project - they are therefore already fully aware of its nature. 

Expanding on (vii) above, in essence it is alleged by Zamin that a former agent of it made a serious demand for money in return for not disclosing confidential documents to ENRC, which he claimed would cause Ardila to lose its claim in the English proceedings.  Those demands, it is said, amounted to blackmail. In parallel, ENRC threatened that unless Ardila paid US$50M in settlement of its US$220M claim, ENRC would approach Zamin's bankers and creditors at any time to buy Zamin's debts and bankrupt Zamin.  It also threatened to take over the Zamin Group.  It is asserted by Zamin that these threats went beyond what is legitimate in bona fide settlement discussions.  In addition, Zamin is seeking injunctive relief against the agent, ENRC and its solicitors, alleging breaches of confidentiality and/or misuse of private information and to seek delivery up of electronic recordings that the agent had secretly made of conversations with Mr Agarwal and a colleague of his without their knowledge or consent.  It is alleged this was a covert attempt to get Mr Agarwal to admit on tape that he was knowingly involved in bribery. 

19.      Zamin attribute the failure to meet case management deadlines to it being impecunious as a result of ENRC's failure to pay the US$285M due to it under the share purchase agreement.  There is nothing tactical about the extensions sought as on the contrary Ardila and Zamin want to get to trial as quickly as possible and it is ENRC that is seeking to stifle the claim by opposing a stay pending termination of appeal, seeking the imposition of conditions on any permission to appeal and applying for further security for costs before the claim can get to trial.  Advocate Sanders submitted that the context of ENRC's actions in the English proceedings must be taken into account. 

The law

20.      The approach of the Court to the granting of injunctions and disclosure orders post judgment is well established.  Quoting from the judgment of Birt, then Deputy Bailiff, in Goldtron Limited v Most Investment Limited [2002] JLR 424:-

"25     As Donaldson, M.R. stated in Deustche Schachtbau-und Tiefbohr GmbH v R'As Al Khaimah National Oil Co (2) [1987] 2 All E.R. at 780), it is "at least doubtful" whether a post-judgment injunction is correctly described as a Mareva injunction.  The Mareva injunction introduced into English law the concept of freezing assets of a defendant in advance of judgment.  The court had always assumed a jurisdiction to grant an injunction in aid of enforcement of a judgment.  Nowadays, the expression Mareva has come to include post-judgment as well as pre-trial relief.

26.      However, the fact that a particular Mareva injunction is made post-judgment in order to aid enforcement is clearly a material factor for the court when considering the exercise of its discretion.  In such cases, the plaintiff has established judicially that he is owed money by the defendant.  It is therefore comparatively straightforward for the court to make an order freezing assets and requiring accompanying disclosure so as to ensure that the court's order is given effect and is not rendered nugatory.  Conversely, in a pre-trial case, a plaintiff merely asserts a claim.  The court does not know whether the claim is well founded.  It may be that the defendant will show in due course that he does not owe the money claimed.  The threshold for obtaining a Mareva injunction in the latter case will clearly be much higher than in the case where the court has already held that the amount is due, and it is simply a question of enforcement."

21.      As is made clear in Motorola Credit Corp v Uzan [2002] CP Rep 69 and Grupo Torras S.A. v Al-Sabah, English C.A. February 16th 1994, unreported (cited with approval in Dalemont Limited v Senatorov [2012] 1 JLR 168), disclosure orders are part and parcel of worldwide freezing orders.  Without disclosure, the freezing orders would be rendered a relatively toothless procedure.  In Africa Edge S.a.r.l v Incat [2008] JRC 175 the Court adopted the principles set out in the judgment of Coleman J in Gidrxsime Shipping Co Ltd v Tantomar-Transportes Maritimos Lda [1994] 4 All ER 507.  Quoting from paragraph 8 of the Africa Edge judgment:-

"8       The remaining part of the application refers to an application for worldwide disclosure.  On this aspect I have been referred to a number of cases.  The first one is Apricus Investments and others v CIS Emerging Growth Limited [2002] JRC 151.  The significance of that case is that it made clear that this Court adopts the principles set out in the judgment of Coleman J in Gidrxsime Shipping Co Ltd v Tantomar-Transportes Maritimos Lda [1994] 4 All ER 507.  That judgment was also approved and applied by this Court in the case of Goldtron Limited v Most Investment Limited 1992/148.  It is clear that the approach of the Court is rather different post-judgment to pre-judgment.  Furthermore, Coleman J made it clear that, even in cases where a court was not minded to grant a worldwide Mareva injunction, it nevertheless had jurisdiction to order worldwide disclosure in aid of execution.  Two of the relevant passages quoted were as follows, first of all at page 519:-

'Where, by contrast, one has the position that a judgment has already been obtained or an award made and where a Mareva injunction in aid of execution is justified, the jurisdiction to make a disclosure order arises both as a power of ancillary to and in support of the injunction and, independently of the injunction, as a power in support of the execution of the judgment or award.  It follows that whereas it may on the facts of the case in question be inappropriate to extend the Mareva injunction to assets outside the jurisdiction - and it is clear from the two authorities cited that such extensions are likely to be rarely justified - very different considerations may apply to disclosure orders in aid of execution.  That being so, there is, in my judgment, a very firm jurisdictional basis for an order, made post-judgment or post-award, which includes both a Mareva injunction confined to assets within the jurisdiction and a disclosure order in respect of worldwide assets.

In my judgment, quite different considerations apply in the case of a post-judgment or post-award disclosure order.  In such cases it is just and convenient that the judgment or award creditor should normally have all the information he needs to execute the judgment or award anywhere in the world.'

In my judgment this is particularly applicable where the judgment debtor is a resident of Jersey, in other words this is the home jurisdiction so far as the debtor is concerned and it is therefore, in my judgement, very often the appropriate Court to make a worldwide disclosure order because it has in personam jurisdiction over that defendant.

9.        I consider that this case is akin to a post-judgment or post-award case.  It is true of course that there is no judgment in Jersey as yet, but there was a judgment in Belgium as long ago as 2002, to which both defendants submitted.  It is therefore a case where, applying normal principles of private international law, one would expect that judgment to be capable of enforcement in this jurisdiction without reinvestigation of the merits.  I am told that some application has been made in Belgium to set aside or challenge the judgment, but for the moment it seems to me that the Court must proceed on the basis there is a valid judgment.

10.      Accordingly I do consider that this is a case where the sort of principles that I have just described in the Gidrxsime case are applicable.  In my judgment, given the history of this matter, given the fact that the Belgian judgment has been outstanding so long but that payment has not been made, and given the inadequate disclosures initially made, it is proper to require the defendants to give disclosure of their worldwide assets, even in advance of any decision on whether a worldwide freezing order should be given.  It seems to me that in a post-judgment case it is right, as Coleman J said, that a creditor should normally have all the information he needs to execute the judgment or award anywhere in the world.  The disclosure of the information will then enable the plaintiff, if so advised, to institute proceedings where there are other assets."

22.      Those principles have been followed in a number of cases including Leeds United Association Football Club Limited v Phone-In Trading Post Limited [2011] JLR Note 36 and Dalemont and Jomair Leasing Ltd v Hourigan [2011] JRC 042.  

23.      There is no case law on the extent to which disclosure will be ordered, but there are a number of examples of the English court making orders for further detailed disclosure (see JSC BTA Bank v Mukhtar Ablyazov and 16 Other Defendants [2011] EWHC 2664 (Comm)) and even placing the assets of the defendant into receivership (see JSC BTA Bank v Ablyazov (No 3) [2010] EWCA Civ 1141).  As Clark J said in the former case at paragraph 95 "The essential basis for making the order is to ensure that the freezing order is effective and is not sidestepped."

24.      In JSC BTA Bank v Solodchenko and others (No 3) [2011] EWHC 2163 (Ch), the claimant bank, the alleged victim of a major international fraud, committed by a number of conspirators, including the defendant, who had been committed for contempt and had disappeared from the jurisdiction, sought disclosure from his solicitors.  Disclosure was ordered on the basis that it was just and convenient to do so in order to ensure the effectiveness of the earlier order (see paragraph 26). 

25.      As Advocate Sanders pointed out, the JSC BTA Bank decisions involved allegations of fraud or misappropriation of funds, proprietary tracing claims, breaches of existing orders and contempt which he says bear no similarity to the facts of the present case.  Even so, he did not question the power of the Court to make the orders sought by ENRC. 

26.      In our view, the Court has a wide discretion in a post judgement case to order further disclosure and ordinarily it is just and convenient to do so in order to effectively police the freezing order and so that the judgment creditor has all the information he needs to execute the judgment anywhere in the world; the whole for the purpose of ensuring that the judgment obtained is not rendered nugatory. 

Decision

27.      Whilst it is correct, as Advocate Sanders pointed out, that the injunction is limited to US$70M or its sterling equivalent, and that Zamin is free to deal with its assets over and above that sum as it wishes, that it is of little assistance to Zamin on the facts of this case.  Both Mr Agarwal and the financial controller, Mr Lalit Pratap, confirmed the impecuniosity of the group as a whole.  Ardila's only asset is the sums it is claiming from ENRC and Zamin, which sits at the head of the group (under Devi Limited) has two assets, namely the Valentines and Greystone projects which are illiquid.  There must be considerable doubt as to the value of these projects.  No value is attributed in the disclosure to the Greystone project (the subsidiary which sits above that project is described in the disclosure as having a net equity of US$2.09M).  The subsidiary which sits above the Valentines project is disclosed as having a net equity of US$173M, but this is on the basis of its accounts.  There is no valuation of the assets themselves and the statements of Mr Pratap and Agarwal show how the collapse in the iron ore price and the problems encountered with the Greystone project are such that no funding on the security of either of these assets is available. 

28.      Mr Agarwal in his third witness statement in the English proceedings dated 11th September, 2015, paints a very sombre picture of both his personal finances and the finances of the Devi Group as a whole:  "This was previously a valuable entity but now I do not think it is at all."  In paragraph 24(d) he says this:-

"Devi does not have any assets of significance other than (i) illiquid development assets, comprising of greenfield mining concessions which remain subject to the conducting of resource proving exercises (and therefore subject to the same liquidity issues as Valentines and Greystone none of which have been resource proven to the level of Valentines or Greystone and accordingly their worth is further impaired in the present market) or (ii) not otherwise unencumbered by a security package."

He places his net worth at minus US$16.5M. 

29.      In the light of this information, Zamin has not demonstrated that it has assets beyond US$70M which it is free to deal with.  Accordingly, we must proceed on the basis that all of its assets are potentially subject to the terms of the worldwide freezing order. 

30.      It is the case that the worldwide freezing order has been made against Zamin and its "assets" which, whilst including the shares of its four direct subsidiary companies, does not extend to the assets of those subsidiary companies.  In Lakatamia Shipping Co Ltd v Su and others [2014] EWCA Civ 636, the English Court of Appeal considered the interpretation of a restraint of a party's "assets" in the context of a freezing order (the standard provisions of which in England and Jersey are typically similar) holding that:-

"The assets of a company the shares in which were entirely owned by a defendant were not 'assets' of the defendant for the purpose of ... the freezing order ...; but that, since the freezing order restrained the first defendant from diminishing the value of any of his assets, which included his shareholding in such a company, it would restrain him from procuring the company to make a disposition of its assets which was likely to result in such a diminution."

31.      Thus, the worldwide freezing order affects the shares owned by Zamin in its four direct subsidiaries but not the assets of those subsidiaries or the subsidiaries below them.  However, Zamin is prevented from procuring that those subsidiaries make a disposition likely to result in such diminution. 

32.      The order requiring disclosure refers again to Zamin's "assets" which strictly speaking might entitle Zamin to simply list the shares it owns in its four direct subsidiaries but not the assets owned by those subsidiaries, to the extent that it has knowledge of those assets.  The questions posed in the schedule extended beyond the four direct subsidiaries to "any of the companies with an interest in the Valentines Project" which is owned by a sub-subsidiary.  The disclosure actually given by Zamin extended to all of the companies within the group below Zamin and thus to the real assets within that part of the group. 

33.      Advocate Sanders did not argue that for the purpose of the worldwide freezing order, disclosure should be limited to the shares in the four direct subsidiaries and not to the assets owned by them or their own subsidiaries.  It would not in any event be possible to police the obligation of Zamin under the worldwide freezing order not to diminish the value of the shares it owns in those four direct subsidiaries, without information as to the assets of those subsidiaries and in reality, it must be information as to the assets within a corporate structure beneath a judgment debtor that a judgment creditor needs in order to execute the judgment anywhere in the world. 

34.      ENRC may have a historic knowledge of the Valentines Project through an involvement in 2011, but the existence of a very recent option enabling an unidentified third party to acquire the whole of that project "up to" US$250M on terms which are presently unknown or any other similar rights over such an asset is, we think, relevant to the policing of the world wide freezing order and the execution of any judgment.  The same applies to a recent agreement, again on terms presently unknown, to transfer up to 15% of that asset to a third party.  Conscious of the words of Coleman J in the Tantomar case quoted above, namely that a judgment creditor "should normally have all the information he needs to execute the judgment or award anywhere in the world" (our emphasis), in our view, it is reasonable for ENRC to seek disclosure of the full terms of those two agreements, affecting as they do the main asset within the group beneath Zamin. 

35.      The timing of these two agreements and the lack of clarity as to their terms and import, whilst not necessarily suspicious, enforces the need for disclosure.  The Aurum agreement was entered into on 28th May, 2015, after the hearing before Simon J in respect of a debt which Ardila acknowledged was due under an agreement which expressly ruled out any right of set off.  The Gerald agreement was entered into after the draft judgment had been handed down. 

36.      The proximity of the main hearing in February 2016 has no bearing on the policing of the worldwide freezing order.  ENRC has a judgment which it is entitled to enforce and which the English court clearly assumed would be enforced.  The possibility of Ardila succeeding in its claim for what is a greater amount has been covered by the undertaking that any sums paid on the judgment will be held by ENRC's legal advisors. 

37.      We do not think it is relevant that ENRC has not yet taken any enforcement steps, other than the obtaining of the worldwide freezing and disclosure orders in this jurisdiction; a logical first step as this is where Zamin is incorporated.  There is no requirement of which we are aware that actual enforcement is a precursor to disclosure.  The principles enunciated by Coleman J in the Tantomar case pre-suppose the provision of information before execution. 

38.      The existence of an application for leave to appeal the judgment and for a stay does not mean that the disclosure order should be watered down in any way.  A similar argument was put forward and rejected by the English Court of Appeal in Grupo Torras, a pre-judgment case where jurisdiction was being challenged.  In that case, the link between a Mareva injunction and a disclosure order was considered by Steyn LJ at page 4:-

"The consequences of accepting Mr Smith's submission must be considered. If the discretion to make a disclosure Ord is as narrow as Mr Smith says, the worldwide Mareva injunction will be a relatively toothless procedure in the fight against rampant transnational fraud.  In many such cases, despite a cogent case of fraud, the connections of transactions with different countries will enable a defendant to raise jurisdictional challenges which may take months to resolve at first instance, many months to determine in the Court of Appeal and even longer to decide in the House of Lords.  And there may be a reference to the European Court.  During such a lengthy delay it would be impossible to "police" the Mareva injunction, and that is the purpose of the disclosure order.

The importance of this policy factor is underlined by a consideration of the link between a worldwide Mareva injunction and a mandatory disclosure order.  It is undoubtedly right that as a matter of legal principle a disclosure Ord is ancillary to the worldwide Mareva order.  That is so whether the making of the disclosure Ord is regarded as adjectival upon the court's statutory power under s 37(3) of the Supreme Court Act 1981 to issue a Mareva injunction or as falling within the court's inherent jurisdiction.  Mr Veeder submits that the discretion to order disclosure arises both from the statute and from the inherent jurisdiction of the court.  I agree.  Given the strict legal position it is of some relevance to consider the link in practice between the Mareva injunction and the disclosure order. In a seminal art Mr Lawrence Collins has explained that link: The Territorial Reach of Mareva Injunctions, 105 LQR [1989] 262. Mr Collins said at 297:

'In those cases where an effective order can be made, it is likely to be the disclosure order which will be the most useful in practical terms.  If proper disclosure is made of assets abroad, the plaintiff will be in a position to make an application in the relevant foreign court for an attachment.  If the foreign court is in a 1968 Convention Contracting State, it is likely that the courts of that State will exercise an Article 24 jurisdiction to make provisional orders in aid of proceedings in England.  If the State is not a Contracting State, then the same result will follow in those countries which would allow an attachment to be made in aid of proceedings pending in other jurisdictions; it may be that the number of such countries will be very small, and that in most countries it will be necessary to start fresh, parallel proceedings on the substance and obtain security in those proceedings.

The practical consequence is that it is really the Mareva injunction which is ancillary to the disclosure order, rather than the traditional relationship in which it was the disclosure order which was ancillary to the Mareva injunction.  For the disclosure order will be the main remedy in England, and the Mareva injunction will, in the words of Nicholls LJ in Babanaft, be a 'holding' injunction, to give the plaintiff time to apply to the relevant foreign court for appropriate orders of attachment or the like.  Then an undertaking in the form required in Derby & Co Ltd v Weldon (No 1), or a variant of it, will give the English court the power to control the plaintiff's exercise of its right to seek attachments in foreign countries, in order to prevent tactical harassment of a defendant and to limit the plaintiff's security.'

If this is right, as I believe it to be, the consequence of an acceptance of Mr Smith's argument would be a drastic emasculation of the utility of this exceptional but useful remedy."

39.      If a Mareva injunction is granted, a disclosure order will therefore follow, although Steyn LJ emphasised that:-

"Disclosure should only be made for the purpose for which the power exists, namely to 'police' the Mareva injunction."

40.      It is difficult for the Court to form a view as to the merits of the cases being put forward in English proceedings and particularly the assertion by Zamin that ENRC's defence is weak.  We can only note the comments of Leggatt J as to the apparently exceptional circumstances in which the Port Installation Licence was obtained and the words of Simon J on the strike-out application quoted above. 

41.      This is hard fought litigation in which both sides criticise the conduct of the other.  It is not appropriate for us to comment on the conduct of parties in litigation before another court but we feel we can take note of the comments made by the judges in that court, namely Leggatt J and Simon J referred to above, and in particular the obtaining by Ardila of an attachment order in Curacao which Simon J describes as a "vexatious interference with the due process of the court".

42.      Having taken into account all of the circumstances of this case and in particular the timing of the Aurum and Gerald agreements and the lack of information as to their true import, we are led to conclude that it is just and convenient to order disclosure of those two agreements in order to police the freezing order and to give ENRC all of the information it needs to execute the judgment anywhere in the world.  The reluctance of the Deputy Bailiff to order disclosure of documents was in our view simply because he was being asked to do so ex parte---this is an inter partes hearing. 

43.      As against that, we must take into account that the parties are commercial competitors, and the potential for commercially sensitive information to be misused.  We are not minded, certainly at this stage, to order the disclosure of correspondence or any other information beyond the agreements themselves, as we do not regard that information as necessary to police the world wide freezing order or to execute the judgment. 

44.      Advocate Sanders has asked that if we are minded to consider granting some of the relief sought, Zamin be given an opportunity to address the Court in private without ENRC's presence prior to any order being made "to explain the highly sensitive elements of the Agreements and potentially commercially damaging results that could ensue if ENRC were to obtain copies of them".  Advocated Gleeson had no objection initially to that being done but following the issuing of this judgment in draft, he did raise concerns as to the Court being addressed by Advocate Sanders alone, in that he might seek to reargue Zamin's submissions and/or make new submissions to which ENRC would have no right of reply.  Such a process could well give rise to an issue under Article 6 of the ECHR.   

45.       This was considered in "Documentary Evidence" 12th edition by Charles Hollander QC paragraph 8-31 in the context of disclosure under the Civil Procedure Rules: -

"8-31   But, more importantly inspection by the Court is usually effected in circumstances in which only one party has seen the documents in question.  It would be possible for the documents to be disclosed to the other side for the purpose of facilitating inspection by the court, and disclosed to the lawyers only, but this is rarely done for this purpose and will sometimes be impractical, such as where a claim for privilege is under consideration.  It is extremely unsatisfactory that the court should be asked to make a decision where the information available to the parties is different.  There is very little consideration of this point in the authorities.  In a confidential information case, Harman J observed, in refusing to look at the documents in issue:

'Matters before a judge must either be in evidence in the normal way, or, in a confidential information case, it may be that part of the proceedings when the confidential information is disclosed should be heard in camera, but the evidence must be open to the judge and available to both sides.  A judge cannot take into account secret information made available to him only by one side.  Judicial decisions must be made on material common to both sides.'

Unless both parties consent to inspection by the court, problems may therefore arise in the parties not having equal access to the court, which gives rise to ECHR art. 6 problems as well as under CPR r.1.1(2)(a) and thus makes the exercise less attractive to the Court."

46.      Whilst the Court will hear submissions in the absence of convened parties in administrative applications brought by trustees, in the context of civil litigation of this kind, we are concerned at allowing Zamin to make submissions in the absence of ENRC.  At the same time Zamin should be allowed to explain to the Court why disclosure would be so damaging commercially without ENRC seeing the agreements, by which time, as Advocate Sanders said, the genie will be out of the bottle. 

47.      Of the various options suggested by Advocate Sanders in discussion, Advocate Gleeson was content to agree to the following as being fair, namely that the two agreements will be disclosed to the members of the Court (and not ENRC) at an inter partes hearing at which Zamin can make submissions by reference to them in the presence of ENRC.  Whilst ENRC will not have the two agreements at that stage, it will be in a position to hear the submissions being made and have the ability to respond.  That is the procedure, therefore, that we will adopt when this judgement is handed down on the 27th October, 2015, at 10am. 

48.      If an order is subsequently made, we have in mind the imposition of restrictions on its use upon which we can hear further from both counsel namely that the agreements:-

(i)        Will be used only for the purpose of the English proceedings and enforcement proceedings brought in any other jurisdiction. 

(ii)       Will be delivered to the legal team of ENRC (to be identified) and to be seen but not copied to identified senior officers of ENRC. 

Authorities

Goldtron Limited v Most Investment Limited [2002] JLR 424.

Motorola Credit Corp v Uzan [2002] CP Rep 69.

Grupo Torras S.A. v Al-Sabah, English C.A. February 16th 1994, unreported.

Dalemont Limited v Senatorov [2012] 1 JLR 168.

Africa Edge S.a.r.l v Incat [2008] JRC 175.

Gidrxsime Shipping Co Ltd v Tantomar-Transportes Maritimos Lda [1994] 4 All ER 507.

Leeds United Association Football Club Limited v Phone-In Trading Post Limited [2011] JLR Note 36.

Dalemont and Jomair Leasing Ltd v Hourigan [2011] JRC 042.

JSC BTA Bank v Mukhtar Ablyazov and 16 Other Defendants [2011] EWHC 2664 (Comm).

JSC BTA Bank v Ablyazov (No 3) [2010] EWCA Civ 1141.

JSC BTA Bank v Solodchenko and others (No 3) [2011] EWHC 2163 (Ch).

Lakatamia Shipping Co Ltd v Su and others [2014] EWCA Civ 636.

"Documentary Evidence" 12th edition by Charles Hollander QC.


Page Last Updated: 27 Sep 2016


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