Marlwood Commercial Inc. v (1) Viktor Kozeny (2) Charles Towers-clark and Others

JurisdictionEngland & Wales
JudgeJonathan Hirst QC
Judgment Date28 April 2006
Neutral Citation[2006] EWHC 872 (Comm)
CourtQueen's Bench Division (Commercial Court)
Docket NumberCase No: 1999 Folio. No. 1515
Date28 April 2006

[2006] EWHC 872 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Jonathan Hirst Qc

Sitting As A Deputy Judge Of The High Court

Case No: 1999 Folio. No. 1515

Case No: 2000 Folio No. 199

Between:
Marlwood Commercial Inc
Claimant
and
(1) Viktor Kozeny
Defendants
(2) Charles Towers-clark
(3) Oily Rock Group Limited
(4) The Minaret Group Limited
And Between:
(1) Omega Group Holdings Limited
(2) Pine Street Investments Limited
(3) Helendale Trading Corporation
(4) Pinford Portfolio Inc
(5) Telos Finance Limited
(6) Pharos Finance Limited
(7) Water Street Management Limited
Claimants
and
(1) Viktor Kozeny
(2) Charles Towers-clark
(3) Oily Rock Group Limited
(4) The Minaret Group Limited
Defendants

Richard Millett QC and Richard Slowe (solicitor advocate) (instructed by S J Berwin LLP) for the 1 st, 3 rd and 4 th Defendants

Dominic Dowley QC and Andrew Bruce (instructed by Macfarlanes) for the Claimants

Hearing dates: 6–10 March 2006

I direct that, pursuant to CPR PD 39A para 6.1, no official shorthand note shall be taken of the Judgment and that copies of this version as handed down may be treated as authentic.

Jonathan Hirst QC

Mr Hirst:

1

The 1 st, 3 rd and 4 th Defendants apply for an order that the stay of these actions be lifted, that the proceedings be dismissed and/or struck out pursuant to CPR Part 24 and/or that the worldwide freezing orders made by Longmore J. on 17 December 1999 and 17 February 2000 be discharged and for other relief. They contend that these massive actions have no real prospect of success and that the applications for the freezing injunctions were not made on the basis of full and frank disclosure. The 2 nd Defendant has played no part in these applications.

Background

2

The Republic of Azerbaijan is an independent (former Soviet) republic situated on the Caspian Sea to the north of Iran. The capital is Baku. The country possesses large oil reserves. In March 1997, the Azeri Government issued each of its citizens with a book of four privatisation vouchers which would entitle the citizen to subscribe for shares in forthcoming privatisations of state owned companies. The most significant by far was to be the State Oil Company of Azerbaijan ("SOCAR"). However, there was never any certainty that any privatisation would actually go ahead although it appears to have been widely believed that SOCAR would be privatised. The vouchers were freely tradeable within Azerbaijan and many citizens took the opportunity to sell their vouchers in return for some ready cash. There was a limit of 100,000 books of vouchers per person or entity but that limit could easily be evaded by setting up nominee corporate entities to hold the vouchers.

3

Foreigners were able to buy vouchers as well, but they also had to acquire so-called options issued by the State Property Committee ("SPC"). The President of the SPC was Mr Nadir Nasibov. The Deputy Chairman was Mr Barat Nuriyev, who had held a university professorship at an earlier stage of his career and appears to have been known to at least some of his acquaintances as "the Professor". Four options were required for each book of four vouchers. This enabled the Government to control the number of vouchers in foreign hands and to raise an additional premium from foreigners in international currency. Foreigners were also subject to a limit of 100,000 books/400,000 vouchers, but there was no limit on the number of options that could be held. By March 1998, 7.2 million of the 8 million books of vouchers available had been issued by the Government and some 18,236,000 options sold. Until October 1997, the SPC had charged approximately US$0.60 per option but this rose to about $1.00. In March 1999, it rose to about $25.00 per option

4

Mr Viktor Kozeny is a Czech national and an entrepreneurial businessman and speculator. He had had prior involvement in a similar Czech privatisation and gained a somewhat controversial reputation. He saw an opportunity to make very large profits from the purchase of Azeri vouchers and the eventual sale of SOCAR. Through the 3 rd Defendant, Oily Rock Group Limited ("Oily Rock"), a company incorporated in the British Virgin Islands ("BVI"), he set about buying huge quantities of vouchers and options. Oily Rock appears to have been substantially owned and controlled by Mr Kozeny through Daventree Ltd, NC Legal Services Ltd and Audia Investment Ltd.

5

In 1997 and 1998, Oily Rock and associated companies had acquired some 7,840,000 vouchers at a cost of some US$ 150 million. It had also acquired 15,727,000 options. These vouchers and options had been acquired for cash, literally – Mr Kozeny had flown millions of US$ banknotes packed in suitcases on private aeroplanes into Azerbaijan. Most, if not all, of the cash had come via Dr Hans Bodmer, a Swiss lawyer and a partner in von Meiss Blum & Partners of Zurich ("vMB").

6

Mr Kozeny decided to bring other foreign investors into the vouchers/options market, ostensibly so that together they would have a controlling interest in SOCAR once it was privatised. He had already largely cornered the market in options, but he wanted to go further.

Omega Advisors

7

His first (at least his first successful) approach was to Omega Advisors Inc. ("Omega Advisors"), a substantial investment company based in New York. Mr Kozeny's introduction was to Mr Leon Cooperman, the Chairman and Chief Executive Officer of Omega Advisors. Mr Cooperman assigned the project to Mr Clayton Lewis, head of emerging markets at Omega Advisors, who was assisted by Mr Paul Swigart. Mr Lewis was also interested in making a parallel investment through a company he controlled, Pharos Capital Management LP (Pharos Capital"). Mr Lewis's due diligence included a trip to Baku where he met Heydar Aliyev, the then President of Azerbaijan, and Mr Nasibov and Mr Nuriyev, respectively President and Deputy Chairman of the SPC. According to Mr Lewis's affidavit sworn on 9 January 2001, he wanted to verify what Mr Kozeny was saying, namely that the Azerbaijan Government was encouraging investment from abroad, that Mr Kozeny was on good terms with the Azeris and that they supported his involvement. Whilst in Baku he was shown the vouchers and options held by Oily Rock and Minaret (see below) in a strong room. Mr Lewis recommended that Omega Advisors undertake the investment.

8

On 24 March 1998, a Letter of Intent ("the Letter of Intent") was signed by Omega Advisors, Pharos Capital, Oily Rock and Minaret Group Ltd ("Minaret"), another BVI company controlled by Mr Kozeny. Mr Lewis signed for Omega Advisors. Essentially the parties agreed to use their best efforts to negotiate a co-investment agreement providing for the purchase of vouchers and options on behalf of Omega Advisors and Pharos Capital and to co-operate in relation to any Azeri privatisation auctions, and in the subsequent ownership and sale of privatised companies. The agreement envisaged that Omega Advisors would establish a number of BVI companies such as Omega Group Holdings Ltd ("Omega Group" also known as "Omega Baku") and that Oily Rock would be appointed agent to purchase vouchers and options for these companies. Minaret was to act as custodian. Clause 1 of the Letter of Intent provided, inter alia, as follows:

" Agreements between Omega and Oily Rock

1.1

Co-Investment Agreement Omega and Oily Rock shall use their best efforts to prepare and negotiate the definitive terms of a co-investment agreement between Omega Baku and Oily Rock. … Such Co-Investment Agreement shall contain provisions setting forth the relative rights and obligations of the parties including, but not limited to, the following:

(a) Omega Baku will appoint Oily Rock as its agent to purchase Vouchers [defined to include corresponding options] on behalf of the Voucher holding companies to be formed by [Omega Advisors and Pharos] for prices agreed by Omega Baku and Oily Rock in advance provided, however, that the price paid by Omega Baku for such Vouchers shall be the best price available to Oily Rock and shall in any event not exceed the price paid by Oily Rock for such Vouchers purchased for its own account or the accounts of its affiliates or other clients in similar transactions and at similar times … Oily Rock will not charge Omega Baku any mark-ups or commissions on the Vouchers purchased for Omega Baku's account, except for those fees, expenses and commissions expressly agreed to by the parties in their Co-Investment Agreement and Custodian Agreement … Vouchers for the Voucher Holding Companies will be delivered by Oily Rock to Minaret as custodian of the Vouchers for the Voucher Holding Companies pursuant to the terms of a custodian agreement to be negotiated by the parties hereto.None of the Vouchers to be purchased by Oily Rock on behalf of the Voucher Holding Companies will be Vouchers currently owned by Oily Rock or its affiliates or other clients without the prior written approval of Omega Baku."

(my emphasis)

9

By Clause 1.1 (i) (ii) Oily Rock agreed that it and its affiliates, directors, officers, employees and agents would, in matters relating to its performance of its obligations to Omega Baku, comply with all applicable laws and regulations of the United States, Azerbaijan and any other applicable jurisdiction:

"Without limiting the foregoing, all transactions, negotiations, discussions or dealings with any U.S., Azerbaijani or other person must be made in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, as well as any other applicable U.S., Azerbaijani or other anti-corruption law."

Clause 8 of the Letter of Intent stressed that it was a letter of intent only and not a binding agreement, apart from one sub-clause. It was governed by English Law.

10

Omega Advisors attached great...

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