Avanesov v Shymkentpivo
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr Justice Popplewell |
| Judgment Date | 25 February 2015 |
| Neutral Citation | [2015] EWHC 394 (Comm) |
| Docket Number | Claim No. 2012 Folio 1454 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 25 February 2015 |
[2015] EWHC 394 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
7 Rolls Building, Fetter Lane
London, EC4A 1NL
The Hon. Mr Justice Popplewell
Claim No. 2012 Folio 1454
Ms Elizabeth Weaver (instructed by Collyer Bristow LLP) for the Claimant
Ms Blair Leahy (instructed by Field Fisher LLP) for the Defendant
Hearing dates: 16 & 17 February 2015
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.
Introduction
This is an application by the Defendant (" SP") to set aside a judgment entered in default of acknowledgement of service dated 31 July 2013 and a further judgment on an assessment of damages dated 11 April 2014, which together total some US$14.5 million inclusive of interest.
The Claimant ("Mr Avanesov") is a Russian citizen now domiciled in Switzerland. SP is a Kazakh company and one of the largest beverage producers in Kazakhstan. It has at all material times been wholly owned by a Kazakh businessman, Mr Tokhtar Tuleshov ("Mr Tuleshov"). Mr Tuleshov was also the sole shareholder and sole director of another company registered in Kazakhstan, TOO Darhan Holding ("Darhan"). In April 2011 SP merged with Darhan, becoming its successor in title and assuming its rights and liabilities.
In July 2007 Darhan entered into two share purchase agreements with Mr Avanesov under which it agreed to purchase the shares in two BVI companies, J.A.Y. Resources Inc. ("JAY") and Nealet Industries Inc ("Nealet") for a total sum of US$32 million. JAY and Nealet were the beneficial owners, through intermediate companies, of shares in OJSCB Uzpromstroybank, a leading commercial bank in Uzbekistan ("the Bank").
Darhan paid instalments totalling approximately US$ 18.2 million but failed to pay the remaining instalments. The default judgments are for the balance of the price under the JAY share sale agreement, title in the shares having been transferred, and for damages for the non performance of the Nealet share sale agreement, title in the shares not having been transferred, totalling approximately US$11.3 million plus interest. SP's case in a nutshell is that the purchase agreements were for transfer of a controlling majority stake in the Bank whereas, as Mr Avanesov knew but concealed, the indirect shareholdings in the Bank had been, or were imminently to be, diluted such that what was acquired was a non controlling minority stake; and that accordingly SP is not liable for the sums claimed by Mr Avanesov but is entitled to rescission of the share sale agreements and repayment of the US$ 18.2 million paid and/or damages for breach of contract and/or misrepresentation and/or mistake.
The application is made pursuant to CPR Rule 13.3 which provides:
"(1) …the Court may set aside or vary a judgment entered [in default of acknowledgement of service] if
(a) the defendant has a real prospect of successfully defending the claim; or
(b) it appears to the court that there is some other good reason why –
(i) the judgement should be set aside or varied; or
(ii) the defendant should be allowed to defend the claim
(2) In considering whether to set aside or vary a judgment entered [in default of acknowledgement of service], the matters to which the court must have regard include whether the person seeking to set aside the judgment made an application to do so promptly.
(Rule 3.1(3) provides that the court may attach conditions when it makes an order.)"
Accordingly there are two principal issues on the current application. The first is whether SP can show that it has a defence with a real prospect of success. The second issue is whether, if so, the court should exercise its discretion to set aside the judgments, having regard amongst other things to whether the application was made promptly.
Chronology
The shareholdings
Prior to the share sales in question, JAY held 33.43% of the voting shares in the Bank. These were held through five English companies, Everard Ventures Limited, Agas Industries Limited, Solent Advisory Services Limited, Keswick Consulting Limited and Grozerin Financial Limited. Everard Ventures was the 100% owner of an Uzbekistan company, British Glass Group LLC which held 7.39% of the voting shares in the Bank. Agas Industries owned Shurat Dangara, an Uzbekistan company which owned 7.62% of the voting shares in the Bank. Solent Advisory Services was the owner of Brentwood & Co Ltd, an English company which held 6.37% of the voting shares in the Bank. Keswick Consulting was the owner of Addison Ventures Ltd, an English company which held 6.68% of the voting shares in the Bank. Grozerin Financial was the owner of Fortis Securities Ltd, an English company which held 5.38% of the voting shares in the Bank.
Nealet held 17.68% of the voting shares in the Bank through three subsidiaries, A & D Trade Ltd (an English company), Crawley Continental Ltd (an English company) and Deltora Group LLC (an American company). A & D Trade was the owner of an Uzbekistan company called Mirobid Dangara, which held 7.29% of the voting shares in the Bank. Crawley Continental was the owner of Asset Management Trust, an Uzbekistan company which held 7.36% of the shares in the Bank. Deltora Group held voting shares in the Bank directly.
The Bank was publicly listed on the Tashkent Stock Exchange, on which its shares were traded. Under Uzbekistan law there were four stages which the Bank needed to go through in order for new shares to be issued:
(1) The Bank was required to call an AGM of its current shareholders in order to obtain approval for the increase in share capital.
(2) Following such shareholder approval, the Bank's supervisory board of directors had then to pass a resolution for an increase in share capital.
(3) Following board approval, the Bank then had to register the proposed new issue of shares with the Centre of Coordination and Development of the Securities Market ("the Regulator").
(4) Following such registration, the Bank was required to publish a prospectus inviting offers to purchase the new shares.
In the present case, at an AGM on 11 May 2007, some 2 months before the share sale agreements were signed, the Bank's shareholders approved the issue of a further 4.5 million voting shares, the effect of which would be to increase the issued voting share capital from 10.8 million to 15.3 million. This would dilute JAY and Nealet's combined 51.12% voting stake to 36.08%.
At a meeting of the supervisory Board of Directors of the Bank on 29 June 2007, just under a month before the share sale agreements, the directors approved the issue of 4.5 million further voting shares, together with 500,000 non voting shares.
The bank registered the new share issue of 5 million new shares with the Regulator on 24 August 2007.
The Bank issued a prospectus dated 25 September 2007 inviting offers for the purchase of the new shares.
The 4.5 million new voting shares were taken up. As a result of subsequent further share issues over which Darhan and SP had no control, the indirect shareholdings of JAY and Nealet in the Bank have been diluted to 5.14%.
The agreements and addenda
There is much dispute in the evidence about the course of negotiations for the agreements and what followed. Mr Avanesov's evidence is that matters started in May 2007 when he was already negotiating for a sale of the shares in JAY and Nealet to Gazprombank. An enquiry came from Mr Farhad Tulyaganov, through an employee at the Bank, as to whether he was interested in selling to another purchaser. There was an initial meeting in Tashkent in May 2007 attended by, amongst others, Mr Artikov, an associate of Mr Avanesov, and Mr Tulyaganov, who according to Mr Avanesov's evidence represented that he was a friend of and acting for Mr Tuleshov. At that meeting Mr Artikov confirmed that Mr Avanesov was willing to sell his shareholding for US$ 36 million and that it was a controlling stake. Following that meeting Mr Artikov sent Mr Tulyaganov documents relating to the shareholders to enable the proposed purchasers to do due diligence.
The evidence on behalf of SP denies any knowledge of such a meeting. According to Mr Tuleshov, the first approach came in June 2007 from a Mr Muminov, whom he understood to be a deal broker acting on behalf of Mr Avanesov. Mr Muminov indicated that the latter was willing to sell his 51% controlling interest in the Bank. Mr Tuleshov's evidence is that Mr Muminov subsequently telephoned him and told him that the purchase price was US$30 million and made clear it was a "take it or leave it" offer. Mr Mukhatov's evidence refers to the total price under the two agreements as concluded as being US$30 million, although it was in fact US$32 million.
It is common ground that a figure of $30 million or $32 million represented a price per share which was over three times as much as the price quoted on the Tashkent Stock Exchange at the time (about US$ 1.57 per share). The evidence on behalf of SP is that this premium reflected the common understanding that what was being negotiated for was the purchase of a controlling voting stake. Mr Tuleshov's evidence is that he was only interested in acquiring a majority voting stake, because in Uzbekistan there is only a limited concept of minority shareholder rights or of directors being required to take into account the interests of minority shareholders, such that in practice there is no effective protection for the interests of minority shareholders. This was not disputed in the evidence advanced on behalf of Mr...
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