Crescent Gas Corporation Ltd v National Iranian Oil Company

Hearing dates: 13–15,18–19 March 2024

Approved Judgment

This judgment was handed down remotely at 10.30am on Monday 15 April 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Introduction

This is a claim by a judgment creditor, CGC, for relief under s.423 of the Insolvency Act 1986 and/or ss.1–2 of the Charging Orders Act 1979 against: (i) NIOC, the Iranian state-owned oil and gas company, and Judgment Debtor, and (ii) the Retirement Fund, a closely related entity.

The Judgment Creditor, CGC, is a private limited company incorporated pursuant to the laws of the British Virgin Islands. CGC is a wholly owned subsidiary of Crescent Petroleum Company International Ltd (CPCIL). CPCIL is a privately owned exploration and production company in the Middle East headquartered in the DIFC, United Arab Emirates.

NIOC is responsible for Iran's crude oil and gas exploration, development and marketing operations. It has been found liable in arbitration to pay very large sums to CGC.

On 25 April 2001, CPCIL entered into a long term (25-year term) Gas Sales and Purchase Contract (the GSPC) with NIOC. CPCIL assigned its rights under the GSPC to CGC (its wholly owned subsidiary) on 26 July 2003. NIOC failed to supply any gas pursuant to the GSPC leading to CGC commencing arbitral proceedings pursuant to the GSPC by Notice of Arbitration of 15 July 2009.

CGC eventually secured an award of damages. There was, first, an Award on Jurisdiction and Liability of 31 July 2014 declaring NIOC to be in continuing, daily breach of its obligations under the GSPC since 1 December 2005 (the Liability Award). Challenges by NIOC under s.67 and s.68 of the Arbitration Act 1996 were dismissed by Burton J: NIOC v Crescent[2016] EWHC 510 (Comm) and [2016] EWHC 1900 (Comm). Secondly, there was a Partial Award on Remedies of 27 September 2021 (the Remedies Award) by which NIOC was ordered to pay to CGC, by no later than 27 December 2021, the total principal amount of USD 2,429.97 million (the Total Principal Amount) plus post-award interest at the rate of 12 months EIBOR plus 1 percentage point, compounding annually from 27 December 2021 (Post Award Interest). Post Award Interest is now accruing at approximately USD 15 million per month. The Total Principal Amount awarded comprised the following: (i) USD 1,344.70 million in respect of CGC's loss of profits (Lost Profits); and (ii) USD 1,085.27 million in respect of CGC's liability to a partly Crescent-owned subsidiary named Crescent National Gas Corporation Limited (CNGC) for CNGC's lost profits, pursuant to an on-sale agreement between CGC and CNGC (Liability Losses).

NIOC has failed to pay any part of the Total Principal Amount or Post Award Interest in breach of its obligations to honour the Remedies Award.

The relief sought by CGC is in respect of a property known as NIOC House, being prime commercial real estate located in the centre of London, with an estimated value of at least £80–£104 million which, at the date permission was given to enforce the Remedies Award as a Judgment, 15 August 2022, was registered as being in the sole ownership of NIOC (as it had been since its purchase in 1975). Although NIOC House is a significant asset against which CGC seeks to execute, the value of NIOC House represents a small fraction of the ever-increasing Judgment Debt.

However, when CGC sought to register an interim charging order on NIOC House at the Land Registry on 15 November 2022 CGC learnt that NIOC House was no longer registered in the name of NIOC. On 23 August 2022 NIOC House had been transferred into the name of the Second Defendant, the Retirement Fund (or “Fund”).

The Fund provides pensions for current and former employees of both private and public sector workers within the Iranian oil, gas and petrochemical industry. Its membership includes but is not limited to current and former employees of NIOC. The Fund has responsibility for receiving mandatory deductions from workers in the oil industry, managing the funds received and paying out pensions and other allowances. The Fund is one of Iran's largest pension funds, with over 170,000 members. The Fund did not have legal personality in 1975 but does now have legal personality. There is a dispute as to whether it acquired legal personality in 2001 or 2019. (From time to time reference will be made to the Funds as opposed to the Fund. No material distinction is intended. The plural is sometimes used in the contemporaneous documents rather than the singular.)

CGC seeks an order requiring the transfer of ownership of NIOC House to CGC, alternatively relief in the form of a final charging order in respect of NIOC House. Given that the Judgment Debt presently exceeds USD 2.6 billion (and is increasing), CGC submits that the appropriate relief is a transfer of ownership to avoid yet still further costs in execution.

Section 423 of the Insolvency Act 1986

This section, entitled “Transactions defrauding creditors” provides as follows:

“(1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if—

(a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration;

(b) he enters into a transaction with the other in consideration of marriage or the formation of a civil partnership; or

(c) he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by himself.

(2) Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for—

(a) restoring the position to what it would have been if the transaction had not been entered into, and

(b) protecting the interests of persons who are victims of the transaction.

(3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose—

(a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or

(b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.

(4) In this section “the court” means the High Court or—

(a) if the person entering into the transaction is an individual, any other court which would have jurisdiction in relation to a bankruptcy petition relating to him;

(b) if that person is a body capable of being wound up under Part IV or V of this Act, any other court having jurisdiction to wind it up.

(5) In relation to a transaction at an undervalue, references here and below to a victim of the transaction are to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as “the debtor”.

Thus, if a creditor seeks an order under sub-section (2) he must show that there is a transaction at an undervalue within sub-section (1) which was entered into with the purpose of putting assets beyond the reach of a creditor within sub-section (3).

The Charging Orders Act 1979

Section 2 provides as follows:

“(1) Subject to subsection (3) below, a charge may be imposed by a charging order only on—

(a) any interest held by the debtor beneficially—

(i) in any asset of a kind mentioned in subsection (2) below, or

(ii) under any trust; or

(b) any interest held by a person as trustee of a trust (“the trust”), if the interest is in such an asset or is an interest under another trust and—

(i) the judgment or order in respect of which a charge is to be imposed was made against that person as trustee of the trust, or

(ii) the whole beneficial interest under the trust is held by the debtor unencumbered and for his own benefit, or

(iii) in a case where there are two or more debtors all of whom are liable to the creditor for the same debt, they together hold the whole beneficial interest under the trust unencumbered and for their own benefit.

(2) The assets referred to in subsection (1) above are—

(a) land,

………………”

Thus, in order for a charging order to be made, the beneficial title to the property must rest with the judgment debtor. However, the primary order sought by CGC is an order pursuant to the Insolvency Act for the transfer of NIOC House to CGC.

The Issues in the case

The Parties have been able to agree that the “central” issues are the following:

Beneficial Ownership of NIOC House

Issue 1: At the time of the August Transfer, who was the beneficial owner of NIOC House?

The S.423 IA86 Claim

Issue 2: Was the August Transfer at an undervalue or is/was it justifiable on the basis that at the date of the August Transfer, Retirement Fund beneficially owned NIOC House?

...