Harley Street Capital Ltd v Tchigirinski and Others
| Jurisdiction | England & Wales |
| Judgment Date | 24 May 2005 |
| Neutral Citation | [2005] EWHC 2471 (Ch) |
| Docket Number | Case No: HC05C01110 |
| Court | Chancery Division |
| Date | 24 May 2005 |
[2005] EWHC 2471 (Ch)
Mr Briggs QC
Sitting as a Deputy Judge of the High Court
Case No: HC05C01110
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR T LOWE (Instructed by Messrs Class Law LLP) appeared on behalf of the Claimant
MR CARR QC and MR SAIAD HOSSAIN (Instructed by Messrs Ashursts) appeared on behalf of the Defendants
Approved Judgment
Tuesday, 24 May 2005
THE DEPUTY JUDGE:
I have before me two applications by the first, third and fourth defendants. The first is for fortification of a cross undertaking given by the claimant upon the obtaining of a without notice freezing order which continues at present, and the second is for the provision of further information under Part 18 of the CPR.
Background
The background to these applications is briefly as follows. The fourth defendant, Sibir Energy Plc is a public company, the shares of which are listed on the alternative investment market. Its market capitalisation on 13 May was approximately £393 million and it had in issue 203 million shares. It is incorporated in England, but its main business is in oil exploration and production in Russia.
The first defendant, Chalva Tchigiringski, is the indirect beneficial owner of 43 per cent of the share capital of the fourth, indirectly, that is, through the third defendant, Bennfield Limited. He is a prominent Russian businessman. The second defendant is the first defendant's brother and has so far played no part in these proceedings. The claimant, Harley Street Capital Limited, is a £2 company acquired from formation agents in December last year for the specific purpose of acquiring a nominal holding of 200 shares in the fourth defendant. It is owned by an organisation known as the Regional Public Movement in Defence of Civil Rights ("RPM"), which the claimant says is a not for profit Russian organisation dedicated to the pursuit of concerns as to the manner in which business is conducted in Russia. The claimant acquired its 200 shares on 21 December last year. Their value immediately before the start of these proceedings was a little less than £500.
Late in the year 2000, the fourth defendant, through a Russian subsidiary, Yugraneft, entered into a 50/50 joint venture with another major Russian oil company, Sibneft, controlled by a Mr Roman Abramovitch, for the exploitation of certain oil fields in relation to which the fourth defendant had previously obtained exploration and development rights. It is common ground between the parties before me that some time prior to April 2004, the fourth defendant was cheated by Sibneft out of its 50 per cent share of the joint venture so that is present share is only 1 per cent as the result of a capital increase in the joint venture company in which either the fourth defendant or Yugraneft failed to participate. The fact that this alleged fraud is common ground between the parties does not, of course, mean that it is necessarily true.
The claimant's main claim in this action is that the first and second defendants were party to that fraud and profited from it by way of a related agreement with another Abramovitch company connected with a very large property development in Moscow. It is said that they did so in breach of fiduciary duties owed to the fourth defendant. As a shareholder in the fourth defendant, the claimant brings a derivative action to require the first three defendants to account to the fourth defendant in respect of that breach of duty.
There is a second claim which alleges the wrongful misappropriation of some $36 million from another Sibir subsidiary, Magma Oil Company, into what the claimant claims was a dormant company controlled and partly owed by the first defendant.
On 28 April, the claimant obtained a without notice freezing order from Blackburne J over to 12 May. Its principal effect was to restrain the first, second and third defendants (defined as "the respondent") from selling, transferring, charging, assigning, disposing of or encumbering all or any of their shares in either the fourth defendant, or in the case of the first and/or second defendants the third defendant, provided that no such dealing was to be prohibited if the sum of £30 million was paid into court on behalf of any of the respondents. That freezing order was supported by the usual cross undertaking in damages given by the claimant which Blackburne J ordered to be fortified by the provision of a £25,000 bank guarantee. In due course, £25,000 was paid into court after the order was varied to permit payment in as opposed to the provision of a guarantee.
On the return date on 12 May before Pumfrey J, the effective hearing between the parties of the application for a freezing order until trial, was adjourned and is now listed to come before the court on or very soon after 13 June. Directions for evidence on the defendants' application for further information now before me were given on that day; the application for fortification was, I am told, briefly mentioned but no directions were given in relation to it. It was issued on 17 May. Pumfrey J made an unless order for the issue by the claimant of an application under Part 19 of the CPR to have determined as a preliminary issue the question whether the claimant should be permitted to bring a derivative action on behalf of the fourth defendant. That is also listed to come before the court on or shortly after 13 June and on the same occasion the first and third defendants intend to resist the continuation of any freezing relief thereafter, regardless of whether the derivative action proceeds to trial.
The Fortification Application
The defendants' case, in a nutshell, can be shortly stated. It is that the claimant is itself as a £2 company worthless on its cross-undertaking, and that £25,000 is a grave under-estimate of the loss likely to be caused by the freezing order. The defendants therefore seek an uplift by way of fortification of security for the cross undertaking in the sum of £10 million as, what they describe as, a modest proportion of a loss which they claim has already reached £30.5 million, mainly due to a fall in the share price of the fourth defendant which they attribute to the grant of the freezing order and the attendant publicity connected therewith.
An application for fortification put in that way gives rise to an immediate question for whose protection, other than the first, second and third defendants, was the cross-undertaking given and, alternatively, if for the protection only of the first, second and third defendants, the question whether it ought to be varied so as to give protection to a wider class of persons. The defendants' case is that the fall in the share price of the fourth defendant has caused loss, not just to the third defendant, Bennfield, as the direct shareholder, or to the first defendant as an indirect beneficial owner of those shares, but to every shareholder in the fourth defendant and to the fourth defendant itself.
Mr Trace QC, for the claimant, submitted that the undertakings given on 28 April related only to loss suffered by the "respondents" as defined by paragraph 1 of the order, that is the first, second and third defendants. Mr Trace is clearly correct so far as concerns the first paragraph of the undertakings given which is a cross-undertaking in damages in the following terms:
"If the court later finds that this order has caused loss to the Respondent and decides that the Respondent should be compensated for that loss, the Applicant will comply with any order the court may make."
Earlier in the order at paragraph 4, the "respondent" is defined by this formula:
"If there is more than one Respondent —
(a) unless otherwise stated, reference in this order to 'the Respondent' mean both or all of them…"
In this case the respondent is, as I have already stated, the first, second and third defendants but not the fourth defendant.
The parties are at odds, however, upon the true construction of the fifth of the undertakings recorded as given by the claimant in the order made in late April. That undertaking is in the following terms:
"The Applicant will pay the reasonable costs of anyone other than the Respondent which have been incurred as a result of this order including the costs of finding out whether that person holds any of the Respondent's assets and, if the court later finds that this order has caused such person loss, and decides that such person should be compensated for that loss, the Applicant will comply with any order the court may make."
Mr Trace's submission was that the reference to "compensation for loss" and the "suffering of loss" was no more than a loosely worded reference back to the incurring of costs as a result of the order referred to earlier in paragraph 5. By contrast, the defendants submit, by Mr Christopher Carr QC, that "such person" means anyone other than the respondent and that "loss" means loss in general terms rather than the incurring of cost earlier referred to. Alternatively, the defendants invite me to vary the order so as to make clear that it has that wider effect. Strictly speaking I could not compel the claimant to give a wider undertaking than it has already given, but would have to make the continuation of the freezing order conditional upon the giving of a wider undertaking if I was otherwise with Mr Carr on his submission.
The defendants' broader construction of paragraph 5 is supported by Mr Gee's book on commercial injunctions in its fifth edition, but if the effect of paragraphs 1 and 5 of the standard...
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