Midtown Acquisitions LP v Essar Global Fund Ltd
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 17 March 2017 |
| Neutral Citation | [2017] EWHC 519 (Comm) |
| Docket Number | Case No: CL-2016-000598 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 17 March 2017 |
[2017] EWHC 519 (Comm)
Mr. Justice Teare
Case No: CL-2016-000598
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Sonia Tolaney QC and Nehali Shah (instructed by Boies Schiller & Flexner (UK) LLP) for the Claimant
David Wolfson QC and Arshad Ghaffar (instructed by RPC LLP) for the Defendant
Hearing dates: 8 and 9 March 2017
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.
The Claimant has obtained a judgment of the New York court and seeks to enforce it in this jurisdiction by an action upon the judgment. This is the judgment of the court on (i) a challenge to the jurisdiction of the court by the Defendant, (ii) an application by the Claimant for summary judgment on its claim and (iii) an application by the Defendant that execution of any judgment of this court be stayed. The applications have been heard together because they raise related issues.
The background
On 30 September 2014 the Defendant ("EGFL") guaranteed the obligations of Essar Steel Minnesota LLC ("Essar Steel") under a credit and security agreement dated 30 September 2014 pursuant to a Guaranty dated 30 September 2014. In addition EGFL incurred other liabilities under an Equity Contribution Agreement ("the ECA") also dated 30 September 2014.
Essar Steel defaulted and the Claimant and EGFL sought to resolve their differences. On 18 March 2016 EGFL entered into a binding term sheet with the US Bank National Association as agent for the Claimant. It is necessary to summarise some of its provisions. Pursuant to clause 3, "Settlement of Claims", EGFL "stipulate(d) to liability and confesse(d) to judgment" under the Guaranty for US$201.6m and under the ECA for US$415.4m. In consideration of the same the Lenders (as defined in the term sheet) waived their rights against affiliates of EFGL and their shareholders and directors. Pursuant to clause 4, "Payment Plan", EGFL could pay either US$360m plus interest, fees and expenses on or before 30 September 2016 ("the early settlement payment") or US$415.4m plus interest, fees and expenses on or before 31 March 2017. If it did so all the Lenders' claims would be cancelled in full and the Confessions of Judgment would be null and void. Clause 12, "Events of Default" included as events of default failure to pay the Settlement Amount (as defined in the term sheet). Clause 13, "Consequences of Default", provided that the consequences of an event of default were a default rate of interest, the right to appoint an observer to EGFL's board and the right to petition for the winding up of EGFL.
Pursuant to the Term Sheet an Affidavit of Confession of Judgment and stipulation of liability under the Guaranty was signed by EGFL in the sum of US$201.575m dated 18 March 2016 and an Affidavit of Confession of Judgment and stipulation of liability under the ECA was signed by EGFL in the sum of US$415,378,356 dated 18 March 2016.
On 24 August 2016 the Claimant applied to the New York court for judgment on the basis of the Affidavit of Confession of Judgment in respect of the Guarantee. The affidavit of counsel filed with the court stated that the Confession of Judgment was not conditioned in any way upon any default. Credit was given in respect of US$40m which had been paid to the Claimant pursuant to the Payment Plan. The affidavit also stated that notice to EGFL of entry of Judgment by Confession was not required under any agreement.
On 25 August 2016 the New York court gave judgment in an amount of US$171,769,169 including interest and costs.
On 31 August 2016 the judgment was served on EGFL who had 30 days in which to appeal. No appeal was lodged.
On 3 October 2016 the Claimant issued its claim for enforcement of the New York judgment in England. (At about the same time it also issued claims to enforce the judgment in the Cayman Islands, the Dubai International Financial Centre, Mauritius, the British Virgin Islands and Delaware.)
On 6 October 2016 this court gave the Claimant permission to serve the claim form out of the jurisdiction. Two jurisdictional gateways were relied upon. First, the proceedings were to enforce a judgment; paragraph 3.1(10) of PD6B. Second, the proceedings were made in respect of a contract, the Guaranty, and section 4.9(a) of the Guaranty amounted to a term to the effect that the English court shall have jurisdiction to determine a claim in respect of the Guaranty; paragraph 3.1(6)(d) of PD6B. The latter gateway is no longer maintained.
On 9 November 2016 a Judgment by Confession was also entered with respect to the Affidavit of Confession relating to the ECA.
On 11 November 2016 EGFL acknowledged service of the proceedings before this court and indicated that it would contest the jurisdiction of the court. On the same day it issued an application before the New York court seeking to vacate the judgment by confession with regard to the Guaranty on the basis of "fraud, misrepresentation or other misconduct" pursuant to New York Civil Practice law and Rules ("CPLR)" 5015. The basis of this application is an allegation that the Claimant "falsely represent(ed) to the Court that entry of judgment was appropriate because the Confession of Judgment 'is not conditioned in any way upon any default'…. Furthermore, the Affirmation omitted any reference to the Term Sheet, which provides a settlement Payment Plan, secured by the Confessions of Judgment. They cannot be filed absent a default in the payment Plan, which did not occur."
On 17 November 2016 an appeal was entered against the judgment by confession relating to the ECA.
On 6 December 2016 a further application to vacate the judgment by confession with regard to the Guaranty was issued pursuant to CPLR 317 on the basis that notice of the application for judgment had not been given.
On 20 January 2017 EGFL issued a motion to stay execution of the judgment by confession with regard to the Guaranty.
The New York court is currently scheduled to hear argument on EGFL's applications on 29 March 2017. The motion to vacate pursuant to CPLR 5015 raises a point of construction of the Term Sheet. On behalf of EGFL it is said that so long as EGFL is making payments in accordance with the Payment Plan (which it says it was) a judgment by confession cannot be entered. A default in the Payment Plan was required before that could be done. The court was wrongly informed that no default was necessary. On behalf of the Claimant it is said that a judgment by confession can be entered without reference to the need for any breach in the Payment Plan. That is said to be apparent from the circumstance that the consequences of an event of default do not include the right to enter a judgment by confession. The resolution of this dispute depends upon the true construction of the Term Sheet which is governed by New York law.
Before considering the applications before this court it is necessary to refer to the procedure which governs the issue of judgments by confession. Rule 3218 of CPLR provides that they may be entered without an action upon an affidavit which states the sum for which judgment may be entered, the facts out of which the debt arose and showing that the sum confessed is justly due. The Affidavit of Confession and the affidavit of the Claimant are filed with the clerk of the court who enters judgment for the sum confessed. The judgment may then be enforced in the same manner as a judgment in an action.
The judgment by confession is based on what is known in the literature as a "cognovit" (he has confessed) clause. A form of the procedure was known in English law pursuant to the Debtors Act 1869 but the relevant section of that act was repealed by the Administration of Justice Act 1956. According to Jowitt's Dictionary of English law the procedure had long been superseded in practice by orders of the court made by consent. Dicey at paragraph 14–078 states that a judgment based upon a cognovit clause is enforceable at any rate where the clause gives the claimant power to enter judgment against a defendant in the event of a default of payment and where the clause is valid by the law applicable to the contract. There does not appear to be any reported case on the question whether a New York judgment by confession can be enforced as a judgment in English law.
The challenge to the jurisdiction
Mr. Wolfson QC accepted that in this context the Claimant had to have a good arguable case that the court had jurisdiction in the sense that the Claimant had the better of the argument; the " Canada Trust gloss". He submitted that the Claimant did not have such a case. With regard to the suggestion that the proceedings issued by the Claimant were to enforce a "judgment" he said that the New York judgment was not a "judgment" as that expression is used in English law because (i) there was no lis between the parties in New York, (ii) the New York judgment was not final and conclusive and (iii) the New York judgment was not on the merits.
The need for a lis
It seems clear that there was no lis between the parties in New York. Rule 3218 of the New York rules expressly provides that a judgment by confession may be entered "without an action". It also clear that before the judgment by confession was sought there was no lis or action. Nevertheless, Miss Tolaney QC submitted that there was a lis or action. She relied upon the fact that the document evidencing the judgment has a heading which describes the Plaintiffs and the...
To continue reading
Request your trial
-
Gol Linhas Aéreas Sa (Formerly Vrg Linhas Aéreas Sa) v Matlinpatterson Global Opportunities Partners (Cayman) Ii Lp, Matlinpatterson Global Opportunities Partners Ii Lp and Matlinpatterson Global Partners Ii Llc
...(Govt.), [2015] EWHC 361 (Comm); [2015] 1 Lloyd’s Rep. 423, considered. (18)Midtown Acquisitions L.P. v. Essar Global Fund Ltd., [2017] EWHC 519 (Comm); [2017] 1 W.L.R. 3083; [2017] 1 CLC 632, considered. (19)Ministry of Defense v. Gould Inc. (1992), 969 F 2d 764, 771 (9th Cir.), referred t......
- Midtown Acquisitions LP v Essar Global Fund Ltd
-
Gailor Hunt Davis Taylor Gibbs Pllc v Matthew Bolesky
...& W 628 4. The Overseas Judgments (Reciprocal Enforcement) Ordinance Chapter 4.07 5. Midtown Acquisitions LP v Essar Global Fund Ltd [2017] EWHC 519 (Comm), 6. The Sennar No 2 [1985] 1 WLR 490 7. Perry v Zissis [1977] 1 Lloyd's Rep 607 8. AK Investment CJSC v Kyrgyz Mobil Tel Ltd and Others......
-
VRG Linhas Aereas S.A. v Matlin Patterson Global et Al
...Pilkington (1862) 2 B&S 11, and Nouvian v Freeman (1889) 15 Ap Cas 1, and culminating with Midtown Acquisitions LP v Essar Global Ltd [2017] 1 W.L.R. 3083, where The Sennar (No, 2) was 88 In contrast, as the case of Nouvian explains and demonstrates, there is no issue estoppel where the fo......
-
On The Application Of Res Judicata (Or Disarming The ''Italian Torpedo'')
...(2005) EWHC 1453 (Comm); Mad Atelier v Manes (2020) QB 971; Drouot Assurances v CMI (1999) QB 497; Midtown Acquisitions v Essar (2017) 1 WLR 3083; Good challenger v Metalexportimport (2003) EWCA Civ 166 2 Drouot Assurances v CMI 3 South Somerset v Tonstate (2009) EWHC 3308 (Ch) This article......
-
On The Application Of Res Judicata (Or Disarming The ''Italian Torpedo'')
...(2005) EWHC 1453 (Comm); Mad Atelier v Manes (2020) QB 971; Drouot Assurances v CMI (1999) QB 497; Midtown Acquisitions v Essar (2017) 1 WLR 3083; Good challenger v Metalexportimport (2003) EWCA Civ 166 2 Drouot Assurances v CMI 3 South Somerset v Tonstate (2009) EWHC 3308 (Ch) This article......