(1) Cadogan Petroleum Plc (2) Cadogan Petroleum Holdings Ltd and Others v (1) Mark Tolley (2) Marksman International Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Newey |
| Judgment Date | 07 September 2011 |
| Neutral Citation | [2011] EWHC 2286 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC09C02105 |
| Date | 07 September 2011 |
[2011] EWHC 2286 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Newey
Case No: HC09C02105
Mr Richard Morgan QC and Mr Thomas Munby (instructed by Dewey & LeBoeuf LLP) for the Claimants
Mr Richard Millett QC, Mr David Davies and Mr Anton Dudnikov (instructed by Holman Fenwick Willan LLP) for the Fourth and Fifth Defendants
Hearing dates: 20–22 July 2011
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
A variety of applications came before me in July. Some of them have been adjourned or otherwise dealt with by agreement. The matters that remain to be decided at this stage can be summarised in broad terms as follows:
i) Should certain proprietary claims made by the Claimants be disposed of summarily and related parts of freezing injunctions deleted?
ii) Should the maximum sum specified in the freezing injunctions be altered?
iii) Should disclosure of records of certain interviews be ordered?
Background
The Claimants comprise a group of companies in the business of the exploration and exploitation of gas reserves, in particular in Ukraine. The First Claimant, Cadogan Petroleum plc, is now the ultimate holding company.
The Fourth Defendant, Mr Vasyl Vivcharyk, who is a Ukrainian national, was the chief operating officer of the Cadogan Group between 2007 and June 2009. The Fifth Defendant, VPV Oil Investments LLC ("VPV"), a Delaware company, is owned and controlled by Mr Vivcharyk.
The claims against Mr Vivcharyk and VPV ("the Vivcharyk Defendants") fall into four parts. First, there are claims ("the Smith Claims") relating to arrangements between the Cadogan Group and a group of companies referred to as "the Smith Companies" which supplied petroleum drilling equipment and services to the Cadogan Group. The Claimants allege that Mr Vivcharyk and Mr Mark Tolley, the First Defendant and the chief executive officer of the Cadogan Group between 2006 and March 2009, received secret commissions from the Smith Companies and that the contracts between the Cadogan Group and the Smith Companies were uncommercial and did not accord with normal industry practice. These claims are denied by the Vivcharyk Defendants.
Secondly, there are claims ("the GPS Claims") relating to the acquisition by the Cadogan Group of two gas plants for the sum of $54 million. It is said by the Claimants that Mr Tolley and Mr Vivcharyk accepted secret commissions in respect of the transaction and that the gas plants were worth much less than the purchase consideration. These claims are also denied by the Vivcharyk Defendants.
Thirdly, there are claims ("the Ribelant Claims") arising out of the Cadogan Group's acquisition of a company called Radley Investments Limited in late 2007 or early 2008 from the Seventeenth Defendant, Ribelant Limited ("Ribelant"). Here, the Claimants allege that some of the $32.6 million paid to Ribelant by way of purchase consideration was dishonestly diverted to Mr Tolley and Mr Vivcharyk and/or paid to them as bribes or secret commissions. Once again, the claims are denied by the Vivcharyk Defendants.
It is noteworthy that, in the case of the Ribelant Claims, the Claimants maintain that money they paid to Ribelant can be seen to have reached the Vivcharyk Defendants. In brief summary, it is said that some of the $32.6 million that the Claimants paid to Ribelant was paid on, purportedly pursuant to equipment sale contracts, to accounts in the names of the former Fourteenth and Nineteenth Defendants, respectively AOE Energy Inc ("AOE") and Bohai Energy Services Limited ("Bohai"), which, in turn, made payments of $423,000 and $970,000 to VPV. The Vivcharyk Defendants do not appear to dispute that the $423,000 and $970,000 sums were indirectly derived from payments made to AOE and Bohai by Ribelant, but they deny having known that that was the case.
Finally, the Claimants make complaints about expense claims made by Mr Vivcharyk and in relation to some properties in Ukraine which were owned by Mr Vivcharyk or persons associated with him and rented to members of the Cadogan Group. So far as the expenses are concerned, Mr Vivcharyk says that he made an honest mistake. As regards the properties, Mr Vivcharyk says that they were managed by others on his behalf and that he was unaware of the identities of the tenants.
Proceedings were issued on 19 June 2009. On the same day, Sir Andrew Park granted worldwide freezing injunctions against the Vivcharyk Defendants on a without-notice basis. The injunctions were continued by Peter Smith J, first, on the specified return date (viz. 29 June 2009) and, secondly, in respect of additional claims (notably, the Ribelant Claims), on 12 February 2010.
The freezing injunctions are subject to a limit of £15 million (so that, for example, they provide that a Defendant is not to "remove from England and Wales any of his assets which are in England and Wales up to the value of £15 million"). They also contain proprietary injunctions related to the Smith and GPS Claims. Mr Vivcharyk is required "not in any way [to] deal with, pledge, charge or dispose of any money, payment or other asset received by [Mr Vivcharyk] or VPV Oil Investments LLC between 1 st January 2006 and 1 st April 2009 from Smith Eurasia Limited or Global Process Systems LLC or Global Process Systems Inc or on their order, or any asset now representing the same", and there is a similar prohibition in relation to VPV. It is also noteworthy that the orders of 29 June 2009 provided for each of the Vivcharyk Defendants to have "the right to apply to set aside or vary the terms of this Order without showing change of circumstances and to take all arguments otherwise available to him on the first return day".
The Claimants' case is now conveniently to be found in an abridged version of the Re-Amended Particulars of Claim which was served pursuant to an order made by the Chancellor on 29 March 2011. The relief sought includes declarations that various sums of money or their traceable proceeds are held on trust for the Claimants. In respect, for example, of the Smith Claims, the Claimants ask, among other things, for:
"Declarations that such bribes and secret commissions or their traceable proceeds are held on constructive trust for the Claimants and orders for payment of the same to the Claimants".
The Vivcharyk Defendants are now the only Defendants actively defending the proceedings. The other Defendants either failed to acknowledge service or have now entered into settlements with the Claimants.
An eight-week trial is due to take place in May/June 2012.
The proprietary claims
It is the Vivcharyk Defendants' case that the recent decisions of Lewison J and the Court of Appeal in ( Sinclair Investments (UK) Ltd v Versailles Trade Finance Group plc [2010] EWHC 1614 (Ch) and [2011] EWCA Civ 347) render unsustainable the proprietary claims advanced by the Claimants in respect of the Smith Claims, the GPS Claims and the Ribelant Claims. As a result, the Vivcharyk Defendants say, they should be given summary judgment in respect of those claims or they should be struck out. On the same basis, the Vivcharyk Defendants ask that the proprietary elements of the freezing injunctions be deleted.
In Sinclair Investments (UK) Ltd v Versailles Trade Finance Group plc, a company referred to as "TPL" asserted a proprietary interest in sums a Mr Cushnie, a director of TPL, had received from selling shares in a company referred to as "VGP". The claim was advanced on the footing that the apparent value of VGP had been artificially inflated by the misuse, in breach of Mr Cushnie's fiduciary duties, of money entrusted to TPL. It was said that the proceeds of sale of the shares represented an unauthorised gain made by Mr Cushnie in the course of his fiduciary relationship with TPL and through the misuse of the TPL money.
While no bribes or secret commissions were alleged in Sinclair, the parties' arguments and the Courts' judgments alike "focussed on cases where the courts have had to consider whether, where an agent or employee accepts a bribe or secret commission or the like, his principal or employer beneficially owns the bribe" (paragraph 55 of Lord Neuberger MR's judgment). Lord Neuberger MR (with whom the other members of the Court agreed) said that he was prepared to proceed on the basis that, "if a claimant beneficially owns a bribe received by a fiduciary, it follows that TPL's proprietary claim to the proceeds of sale of the Shares [in VGP] must succeed" (paragraph 56).
It was argued on behalf of TPL that the decision of the Privy Council in Attorney-General for Hong Kong [1994] 1 AC 324 should be followed in preference to the approach taken by the Court of Appeal in Metropolitan Bank v Heiron (1880) 5 Ex D 319 and, in particular, Lister & Co...
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