Dubai Islamic Bank PJSC v PSI Energy Holding Company Bsc and Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE HAMBLEN,Mr Justice Hamblen |
| Judgment Date | 24 October 2011 |
| Neutral Citation | [2011] EWHC 2718 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2010 FOLIO 1157 |
| Date | 24 October 2011 |
[2011] EWHC 2718 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Hamblen
Case No: 2010 FOLIO 1157
Stephen Phillips QC & Fred Hobson (instructed by Hogan Lovells) for the Claimant
Max Mallin (instructed by Archerfield Partners LLP) for the 2 nd Defendant
Jonathan Acton Davis QC, Rupert Reed and Jonathan Chew (instructed by Artis Legal) for 3 rd Defendant
Hearing dates: 27, 28 September 2011 & 10 October 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.
Introduction
This is an application by the Claimant ("the Bank") for summary judgment against the Second to Fourth Defendants. The claim against them is a debt claim for US$440 million arising under a Restructuring Agreement entered into on 19 August 2007 under which the Defendants assumed guarantee obligations.
The factual background
The RSA
The Bank's case is that it was the victim of a US$330 million receivables fraud perpetrated by the Second to Fifth Defendants (Mr Cornelius, Mr Ridley, Mr Nil and CCH Europe). From 2002 onwards, the Bank (which is 30% state owned) entered into trade financing arrangements with CCH Europe. If operated as intended, CCH Europe (acting as the Bank's agent) was to enter into trade finance contracts with third parties and the Bank was to provide funding. From around 2002 to 2007 the Bank advanced around US$500 million to CCH Europe (or its parent company). These funds, so the Bank thought, were being applied for the purpose of legitimate trade financing.
It turned out that a substantial proportion of the monies advanced were not used to fund trade finance transactions despite documentation to that effect being presented. The Bank discovered this in around the summer of 2007. Of the sums advanced by the Bank, only around US$160 million had been applied to fund trade finance transactions. The rest, some US$330 million, had been diverted to companies controlled by Mr Cornelius.
In the second witness statement of Mr David Mills made with the authority of Mr Ridley it is stated as follows:
"Mr Ridley, whose career has been predominately in trade finance in the Middle East, was party to a receivables fraud pursuant to trade financing arrangements made by the Bank with the Fifth Defendant, CCH (Europe) GmbH, and its parent company in 2002. That fraud involved the presentation to the Bank of false documentation.
The fraud was brought to the attention of the Bank in 2007 by Mr Ridley himself, who recognised the failure of the genuine business schemes in which the Bank's funds had been invested to generate the revenues necessary to repay the Bank. The fraud forms the background to the two agreements of the summer of 2007, but the Bank in comprehensive terms (cl. 12.4 of the RSA) waived and compromised all its claims against Mr Ridley and the other parties. The purpose of the RSA was to ensure that the Bank was repaid all that was owed."
The discovery of this deception and misuse of funds led to a Restructuring Agreement dated 19 August 2007 ("the RSA") between the Bank and (among others) the Second to Fifth Defendants. The agreement is governed by English law and subject to an English jurisdiction clause. Under that agreement, CCH Europe agreed to repay about US$501 million in accordance with a repayment schedule. Messrs Cornelius, Ridley and Nil guaranteed this repayment obligation, as well as agreeing to disclose their assets and provide security over and transfer to the Bank all proceeds derived from the advances. The RSA also gave the Bank certain security. In particular, it took security over a leasehold interest in Dubai known as Plantation. In return the Bank agreed to waive and compromise any and all claims it had against the Defendants which the Defendants contend includes claims in and complaints for the purpose of criminal proceedings.
In 2007, CCH Europe repaid around US$10 million and another party to the RSA (CCH Europe's parent company) repaid a further US$50 million. No other payments have been made.
Default in 2008
On 9 June 2008, the Bank served a notice of breach under the RSA arising out of a default in connection with Plantation. The breach alleged concerned the non payment by Plantation to the Bank of proceeds from the sale of Plantation villa plots. Under clauses 18.3 and 18.4 of the RSA if a breach occurred and remained unremedied after 15 business days, the Bank would then be entitled to demand immediate repayment of the full sum owing under the RSA. That period would have expired on 6 July 2008. On 9 July 2008, Mr Cornelius and Mr Ridley issued a claim in the Commercial Court seeking a declaration that there was no breach entitling the Bank to declare an Event of Default and an injunction to restrain from the Bank from taking enforcement steps. That was initially granted by Simon J but then discharged on the return date by Tomlinson J on 14 July 2008. Tomlinson J held that on the evidence before the court there was no serious issue to be tried on the question of whether a breach had occurred.
Following Tomlinson J's decision, on 21 July 2008 the Bank then served notice under clause 18.4(a)(i) on (among others) Messrs Ridley, Cornelius and Nil demanding immediate payment under the guarantee obligations of (i) the principal amount of US$440.8 million and (ii) a separate US$30 million "profit element" due under clause 8.4(a) of the RSA. The sum of US$440.8 million remains outstanding and the Bank's claim in these proceedings is for that sum less a credit given in respect of the sale of some polo ponies.
The Plantation development
The Bank also took enforcement action in respect of its Plantation security following the event of default. Plantation was a lease owned by a company called Plantation Holdings which wished to develop the site to build a luxury villa and polo complex. The person behind the project was a Mr Fitzwilliam, who was the majority shareholder in Plantation Holdings. He was a long-standing business associate of Mr Cornelius. Mr Fitzwilliam needed financing for his Plantation development, and he turned to Messrs Cornelius and Ridley who invested in the project. It turned out that they did so using money from the Bank that had been meant to be used for trade financing purposes. At the time that the RSA was entered into, Mr Fitzwilliam and Plantation Holdings were willing to grant the Plantation lease as security for the debt obligations in the RSA. At that time, Plantation was potentially a valuable property.
The RSA provided that the Bank was to be given security over the Plantation lease by way of a conditional assignment (clause 8.2). On 27 September 2007, about 5 weeks after the RSA was concluded, Plantation Holdings (and the lessor, Dubailand) consented to the conditional assignment that the RSA had contemplated ("the Conditional Assignment"). This was a condition subsequent of the RSA (clause 19.2). The RSA then took effect on 2 October 2007.
Following the unremedied event of default notified on 9 June 2008 the Bank claimed to be entitled to enforce its security rights over Plantation. It did so shortly after the judgment of Tomlinson J dismissing the injunction application by perfecting the Conditional Assignment on 20 July 2008. It is the Defendants' case and evidence that at that time the lease was worth in excess of US$1 billion, far more than the outstanding indebtedness.
In the event, however, the Bank did not sell the lease then or at any time prior to the collapse of the Dubai property market in the spring of 2009. Since then any sale has been problematical and the Bank continues to hold the Plantation lease. The current value of the lease is uncertain.
Proceedings in Bahrain
In May 2009, the Bank learned that Mr Cornelius was dealing with assets in Bahrain in apparent breach of his obligations under the RSA. This led the Bank to commence proceedings in Bahrain against Messrs Cornelius, Ridley and Nil. The primary purpose of these proceedings was to obtain freezing relief in respect of assets which may otherwise have been dissipated by Mr Cornelius. That claim was limited to US$30 million, being the profit element.
In February 2010, the Second to Fifth Defendants (and two additional parties) counter-claimed in Bahrain, seeking a declaration that the Plantation lease exceeded the value of the debt under the RSA and for repayment by the Bank of the difference which is said to be some US$650 million. The proceedings in Bahrain are continuing.
The present proceedings
The Bank began these proceedings in October 2010. The First Defendant (PSI) is a company controlled by Mr Cornelius. The Bank's claim against it is a proprietary claim in respect of certain shares which the Bank alleges are the proceeds of assets to which it has equitable title. PSI has recently filed a Defence and the claim against it continues. The Bank obtained default judgment against CCH Europe.
The claim against Messrs Cornelius, Ridley and Nil is a debt claim for US$440,468,428.10 million arising under the guarantee obligations in the RSA. This is set out at paragraphs 25 to 32 of the Particulars of Claim. The Bank's application is made prior to any of the Defendants filing Defences. In the case of Messrs Cornelius and Nil, this application is made prior to the filing of acknowledgments of service and the Bank obtained permission to make the application in these circumstances.
On the Bank's application, Gloster J...
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