Concept Oil Services Ltd (a company incorporated in Hong Kong) v EN-GIN Group LLP (a Ltd liability partnership under the law of Kazakhstan) and Others
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Flaux,MR JUSTICE FLAUX |
| Judgment Date | 05 July 2013 |
| Neutral Citation | [2013] EWHC 1897 (Comm) |
| Docket Number | Case No: 2012 FOLIO 416 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 05 July 2013 |
[2013] EWHC 1897 (Comm)
The Honourable Mr Justice Flaux
Case No: 2012 FOLIO 416
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Paul Stanley QC (instructed by Watson, Farley & Williams LLP) for the Claimant
The defendants did not appear and were unrepresented
Hearing dates: 11 June 2013
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 and background
The claimant company (to which I will refer as "COS") is incorporated in Hong Kong and carries on business trading crude and refined oil products and conducting related activities, including transportation. Between October 2008 and November 2010 it purchased refined oil from the ninth defendant ("EG UK"), an English registered company, pursuant to a Framework Agreement and addenda under that Agreement, in circumstances described in more detail below. At the time that the Agreement was entered into, the directors and shareholders of EG UK were the third and fourth defendants, Mr Kontsevoy and Mr Buratov. EG UK in turn owned the first defendant ("EG Group") a Kazakh limited liability partnership, which in turn owned the second defendant, another Kazakh limited liability partnership which owned and operated an oil refinery in Kazakhstan.
COS has suffered losses in terms of monies paid pursuant to the addenda for refined oil which was never delivered and for other related matters and loss under a tax loan agreement pursuant to which COS lent the group money to meet tax liabilities. COS' case is that it was induced to enter these various agreements by representations made by Mr Kontsevoy which proved to be fraudulent. It claims damages against him, Mr Buratov and EG UK in deceit. It also claims damages against all the defendants except two (the tenth defendant which has not been served with the proceedings and the eleventh defendant which was not incorporated until February 2011) for conspiracy, the essence of the case being that the defendants conspired to change the corporate structure of the group with the consequence that EG UK became a hollow shell with no assets and EG Group was deprived of its assets for no consideration. COS also seeks a declaration that the various transactions by which this alteration of corporate structure were effected are void and of no effect and/or orders under sections 423 and 425 of the Insolvency Act 1986.
On 16 March 2012 on the without notice application of COS, Cooke J granted a freezing injunction against the first eight defendants and made a separate order for service of the proceedings on the first to fourth and sixth to eighth defendants outside the jurisdiction 1. All the defendants save the tenth were duly served with the proceedings. Some of the defendants (the first four defendants and the sixth to eighth defendants) originally instructed English solicitors (initially Norton Rose and subsequently Zaiwalla & Co) to make applications to set aside the freezing injunction and to set aside service of the proceedings, challenging the jurisdiction of the English Court. The defendants served evidence in support of that application, specifically affidavits of Mr Kontsevoy taking issue on the facts with a number of the points made in COS' evidence, specifically in the affidavit of Mr Michael Zeligmans, the principal shareholder in COS.
Those applications were set down for hearing on 10 October 2012, but the day before the hearing, Zaiwalla & Co came off the record and ceased to act for any of the defendants. Andrew Smith J dismissed the applications when no-one from the defendants attended, having given them a period of time before his order took effect to come to court if there had been some misunderstanding. Following the dismissal of the applications, none of the defendants filed fresh acknowledgments of service as required by the Civil Procedure Rules.
It would then have been open to COS to obtain default judgment pursuant to CPR Part 12 but the enforcement of such a judgment is notoriously difficult in international cases, because such a judgment is not a determination on the merits. Accordingly, at a case management conference before Gloster J (as she then was) on 8 March 2013, approval was given by the court to proceed with a trial on the merits. The court has inherent jurisdiction to order that there be a trial on the merits where the defendant has failed to acknowledge service, so that the claimant can seek to obtain a judgement that, if given, would be far more likely to be enforceable than a default judgement: see per Colman J in Berliner Bank AG v Karageorgis [1996] 1 Lloyd's Rep. 426 and per Field J in Habib Bank Ltd v Central Bank of Sudan [2006] EWHC 1767 (Comm), [2006] 2 Lloyd's Rep 412.
Directions for that trial were made by Gloster J which were complied with by COS. The defendants were given notice that the trial was taking place but chose not to attend. Mr Paul Stanley QC, who represented COS, called Mr Zeligmans to give evidence. Mr Zeligmans gave oral evidence about the various representations made to him by Mr Kontsevoy and the reliance on those representations by COS and Mr Zeligmans. I had an opportunity to ask Mr Zeligmans questions to clarify one or two points. He otherwise confirmed on oath the truth of his various affidavits and witness statements. He was a clear and straightforward witness of whom I formed a favourable impression and I am satisfied his evidence was truthful.
Although the defendants did not attend the trial, throughout the hearing Mr Stanley was careful to draw to my attention any points, factual or legal which might be of assistance to the defendants, following the practice commended by Field J in Habib Bank at [9], applied more recently in United Trust Bank v Dohil [2011] EWHC 3302 (QB), a decision of Mr Simon Picken QC, sitting as a Deputy High Court Judge.
Findings of fact
Mr Zeligmans is a Russian speaking Latvian, although he also speaks good English, having been educated in this country. He set up COS in 2003 to carry on the business of the purchase and transportation of crude oil and refined oil products throughout Europe, Russia and the CIS countries, including Kazakhstan, where he has built up a good network of business relationships. This includes a relationship with Lukoil, the Russian oil company. It was through Lukoil that in 2007 COS came across the refinery at Zhem in Kazakhstan which was owned by EG Production. EG Production was owned by EG Group, which in turn was owned by EG UK, incorporated in 2003. The challenges faced by EG at the time were the sourcing of crude oil for the purposes of refining and financing those purchases. This presented COS and Mr Zeligmans with an opportunity to provide the means of finance and onward supply to Lukoil which was interested in buying refined product from Zhem in substantial quantities. To receive sufficient crude oil at the Zhem refinery for those purposes, it would need to be exported from Russia to Kazakhstan. There were tax advantages at the time in exporting crude oil from Russia to Kazakhstan, refining it there and then exporting the refined product to third countries, rather than exporting it direct from Russia to other countries as crude oil or refining it in Russia.
Mr Zeligmans was introduced to Mr Kontsevoy of EG by Lukoil in early 2008 and attended a meeting with him at Aktobe in Kazakhstan. Lukoil was not interested in providing finance, so Mr Zeligmans was looking elsewhere but knew that, in what was becoming a difficult financial environment, he would only be able to provide finance for a reputable entity with substantial assets. He asked Mr Kontsevoy to explain the structure of the EG group. Mr Kontsevoy explained EG UK was the parent company and trading entity for the EG group and that EG UK owned EG Group, which in turn owned (i) EG Production which owned the Zhem refinery and (ii) another Kazakh limited liability partnership Ostyurk Munai, which had a licence to develop an oilfield in Kazakhstan. Mr Zeligmans explained in evidence that he was not particularly interested in the latter entity, since it is common enough to own licences to exploit oil in that part of the world and the assets of that entity were in any event pledged to the bank. From the outset, Mr Zeligmans' particular interest was in the fact that EG UK had through its subsidiary a 100% interest in the refinery and, because it was an English registered company, it would be subject to the strict corporate governance required of English companies and their directors by English company law.
The following day Mr Zeligmans had a tour of the refinery and of the related facilities, including the rail network by means of which refined product was loaded onto railcars for onward transport. Following these meetings, as Mr Zeligmans said in his witness statement, Mr Kontsevoy was keen to verify what he had told Mr Zeligmans about the EG group. Accordingly he provided Mr Zeligmans with...
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