Louis Dreyfus Company Suisse S.A. (A Company incorporated in Switzerland) v International Bank of St. Petersburg (Joint-Stock Company) (A Company (in Liquidation) in the Russian Federation)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Calver |
| Judgment Date | 23 April 2021 |
| Neutral Citation | [2021] EWHC 1039 (Comm) |
| Date | 23 April 2021 |
| Docket Number | Case No: CL-2021-000109 |
| Court | Queen's Bench Division (Commercial Court) |
[2021] EWHC 1039 (Comm)
THE HONORABLE Mr Justice Calver
Case No: CL-2021-000109
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Stephen Houseman QC (instructed by Orrick, Herrington & Sutcliffe LLP) for the Claimant
The Defendant did not appear and was not represented
Hearing dates: 23 April 2021
Approved Judgment
THE HONORABLE Mr Justice Calver
I. THE MATERIAL EVENTS
Louis Dreyfus Company Suisse S.A. (“LDCS”) is part of the Louis Dreyfus Company group of companies (“LDC”), a group established in 1851 that is a global merchandiser and processor of commodities, operating a significant network of assets around the world, including in agriculture, food processing and finance.
Between 2013 and 2017 LDCS, together with another LDC subsidiary, Louis Dreyfus Company Asia (“LDCA”), entered into at least 23 transactions involving the Defendant (“IBSP”) and a Cyprus-registered entity named Hervet Investments Limited (“Hervet”) involving the sale of goods against letters of credit. Hervet is amongst other things itself a shareholder of IBSP.
With regard to those sale transactions dated 26 September 2017 and 10 October 2017 (the “Sale Transactions”) which are related to the letter of credit reference No. L/771I dated 12 October 2017 (the “LOC”), this included the following steps:
i. LDCA sold to LDCS a quantity of Brazilian soyabeans (the “Goods”) in the amount of USD 10,998,519 under Contract No. B2-S01091 dated 26 September 2017. The soyabeans were to be delivered to a Chinese port by 19 October 2017. The terms of payment provided for the issuance of a documentary letter of credit to be issued by a Russian bank. Contract B2-S01091 is governed by English law and refers to arbitral proceedings in the English language (under the heading, “GOVERNING LAW / ARBITRATION”).
ii. LDCS in turn sold the Goods to Hervet for the amount of USD 10,998,519 under sale contract No. E6-S00439 dated 26 September 2017 (the “Hervet Sale Contract”). The payment terms for this sale provided that Hervet would make payment on 25 September 2018, namely 365 days after the sale of Goods, following delivery of an original commercial invoice and a copy of the bill of lading. The Hervet Sale Contract is governed by English law and provides for dispute resolution by arbitration seated in London under the LCIA rules.
iii. On 10 October 2017, LDCS entered into a letter of credit issuance agreement No. GF 10.17.01.11 with IBSP (“LOC Issuance Agreement”). The LOC Issuance Agreement provides for the issuance of the irrevocable letter of credit no. L/771I, namely the LOC, for an amount of USD 10,998,519 by IBSP in favour of LDCA as beneficiary. It provides by clause 4.2 as follows:
“ The Applicant undertakes to repay the Deferred Payment Amount to the Correspondent Account on the Maturity date, unless other conditions are satisfied as agreed between the Applicant and the Bank.”
And by clause 8.2:
“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Rules of the London Court of Arbitration (“LCIA”), which rules are deemed to be incorporated by reference into this clause … The governing law of the contract shall be the substantive laws of England.”
iv. By its clause 4 and the definition of Security, The LOC Issuance Agreement also provided for the issuance of a standby letter of credit by LDCS in favour of IBSP by KBC Bank NV in the amount USD 10,998,519 to ensure the performance of payment obligations by LDCS to IBSP under the LOC Issuance Agreement. The LOC Issuance Agreement is, as I have said, governed by English law and provides for the resolution of disputes by arbitration seated in London under the LCIA rules.
v. Also on 10 October 2017, LDCS and IBSP entered into a discharge of obligations agreement (“Discharge Agreement”) under which LDCS assigned its rights to receive payments from Hervet under the Hervet Sale Contract to IBSP. The Discharge Agreement provides that all amounts due from LDCS in connection with the LOC “have been repaid in full by [LDCS] to [IBSP]'s satisfaction”, and that IBSP will have no further recourse to LDCS. The Discharge Agreement is governed by English law and provides for the resolution of disputes by arbitration seated in London under the LCIA rules (see “Applicable Law”). The LOC was issued on 12 October 2017. It is expressly governed by English law and incorporates UCP 600.
vi. On 16 October 2017, LDCA received from IBSP USD 10,682,123.25, under a letter of credit in fulfilment of LDCS's payment obligation towards LDCA for the Goods.
vii. On 20 September 2018, LDCS notified IBSP of the termination of its collecting agent function under the Discharge Agreement.
Hervet did not pay the amount of USD 10,998,519 to IBSP as assignee of the debt which originally arose under the Hervet Sale Contract [AAK1/21].
II. RUSSIAN COURT PROCEEDINGS
On 15 October 2018, the Bank of Russia placed IBSP under provisional administration. Shortly afterwards, on 31 October 2018, the Bank of Russia revoked IBSP's banking licence.
On 24 September 2019, the Russian Court declared the bankruptcy of IBSP and the State Corporation Deposit Insurance Agency (“DIA”) was appointed as IBSP bankruptcy receiver (trustee).
A memorandum prepared by LDCS's Russian lawyers (“Alrud”) on 26 February 2021 outlines the proceedings before the Russian Court. This explains that IBSP — represented by the DIA — filed court proceedings against LDCS and four other parties, including Hervet, on 14 November 2019 (originally filed on 14 October 2019) (the “Russian Court Application”). The Russian Court Application requested inter alia that the court invalidate the Discharge Agreement dated 10 October 2017 and apply consequences of its invalidity.
LDCS's Russian counsel advises that the reasons cited in the Russian Court Application for the invalidation of the Discharge Agreement are due to grounds related to IBSP's bankruptcy, namely that the transaction is undervalued, and on the basis that the Discharge Agreement was entered into by IBSP's representative to the detriment of IBSP's interests. Pursuant to the Russian Bankruptcy Law, the jurisdiction of the Russian Court arises in relation to disputes relating to the invalidation of a debtor's transactions in connection with a bankruptcy case before that court.
Crucially, on 20 October 2020, after the invalidation proceedings before the Russian Court had been underway for almost a year, counsel for IBSP filed an application in which it sought to clarify to the Russian Court the outcome it seeks should the court decide to declare the Discharge Agreement invalid. IBSP sought to amend the wording of its claim as follows: “ To declare invalid the Discharge of Obligations Agreement as of 10 October 2017 […] and to apply consequences of transaction invalidity in the form of ordering LDCS to pay USD 10,998,519 to IBSP
In effect, this proposed clarification (the “New Debt Claim”) changes the nature of IBSP's consequential claim against LDCS from one which relates purely to a declaration invalidating and unwinding the Discharge Agreement itself, which is related to the bankruptcy proceedings before the Russian Court and which would have no direct enforceability against LDCS's assets, into a claim for payment of USD 10,998,519 arising from the underlying and distinct commercial transactions governed by English law and containing a mandatory LCIA arbitration agreement.
Furthermore, the New Debt Claim involves enforcement of the LOC Issuance Agreement and/or the LOC, both of which are separate agreements from the Discharge Agreement subject of IBSP's original application for invalidation. This is not restitution consequent upon invalidation of the Discharge Agreement. The New Debt Claim creates a risk for LDCS that a judgment issued by the Russian Court can be enforced and executed against LDCS's assets.
It follows that the New Debt Claim involves an alleged private law contractual debt, the existence of which is expressly contingent upon (and hence distinct from) the claim to invalidate the Discharge Agreement pursuant to Russian bankruptcy law. No arbitrability or public policy issues therefore arise in respect of the New Debt Claim; cf. RiverRock Securities Ltd v. International Bank of St. Petersburg (Joint Stock Co) [2020] EWHC 2483 (Comm); [2020] 2 Lloyd's Rep. 591 (Foxton J — interim relief); [2020] EWHC 3324 (Comm) (Sir Michael Burton — final relief) (“ RiverRock”).
As a matter of English law, which is the governing law, I am entirely satisfied that this claim for repayment in respect of the LOC is a dispute “in connection with” the LOC Issuance Agreement, given the express obligation “ to repay the Deferred Payment Amount … on the Maturity Date” pursuant to clause 4.2 thereof.
On 27 October 2020 LDCS filed its detailed objections to the New Debt Claim, arguing that this approach in seeking to advance this new claim is inadmissible, both as a matter of Russian procedural law — as the ‘clarification’ actually amounts to the belated filing of a new claim — and because the effect of this new claim would be that the Russian Court would decide on the payment of amounts which arise under agreements governed by...
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