Ministry of Defence and Support of the Armed Forces for the Islamic Republic of Iran v Faz Aviation Ltd and another
| Jurisdiction | England & Wales |
| Judgment Date | 09 May 2007 |
| Neutral Citation | [2007] EWHC 1042 (Comm) |
| Docket Number | Case No: 2006 FOLIO 731 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 09 May 2007 |
[2007] EWHC 1042 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN's BENCH DIVISION
COMMERCIAL COURT
The Honourable Mr Justice Langley
Case No: 2006 FOLIO 731
Mr David Quest and Mr Rajesh Pillai (instructed by Norton Rose) for the Claimant
Ms Barbara Dohmann QC and Mr Andrew George (instructed by Bingham McCutchen (London) LLP) for the First Defendant
Lord Dan Brennan QC and Ms Samantha Knights (instructed by H 20 Law LLP) for the Second Defendant
Hearing dates: 25 and 26 April 2007
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 HONORABLE MR JUSTICE LANGLEY
The Hon. Mr Justice Langley:
The Applications
The defendants (“Faz” and Mr Al-Zayat) challenge the jurisdiction of the English court to try this claim. The claimant (“MODSAF”) seeks worldwide freezing orders against Faz and Mr Al-Zayat. In the event, as I will explain, only the jurisdiction issues were addressed at the hearing and are the subject of this judgment.
MODSAF
MODSAF is part of the government of the Islamic Republic of Iran. It is part of the Iranian military executive and answerable to the Supreme Commander of the Iranian Armed Forces.
Faz
Faz was incorporated in Cyprus in February 2001. Its registered office is and has always been in Nicosia. Its principal business is said to be, or to have been, the brokering of aircraft sale and purchase transactions. Faz is beneficially owned by Mr Al-Zayat. Faz changed its name from FN Aviation Limited in August 2003.
Mr Al-Zayat
It is common ground that Mr Al-Zayat is domiciled in Cyprus and not in England. He is the managing director of Faz and, to quote the claim, “exercised effective control over it”.
Jurisdiction
MODSAF submits that this court has jurisdiction over Faz under Article 2 of EU Regulation No 44/2001 (“the Jurisdiction Regulation”) because Faz is said to be “domiciled” in England. Article 60 of the Jurisdiction Regulation provides that a company is domiciled at the place where it has its “statutory seat” or “central administration” or “principal place of business”. It is not in issue that the “statutory seat” of Faz is in Cyprus but MODSAF submits that the central administration and/or the principal place of business of the company is in England.
The date on which domicile must be established is the date on which the proceedings were issued: Canada Trust Co v Stolzenberg (No 2) [2002] 1 AC 1 (decided by reference to the materially identical provisions of the Lugano Convention). That date is 21 July 2006.
It is also not in dispute that if the Court has jurisdiction over Faz under Article 2, then it also has jurisdiction over Mr Al-Zayat under Article 6 of the Jurisdiction Regulation. That is because he would then be sued as a co-defendant in the court of domicile of Faz and the claims against them are so closely connected that it is clearly expedient for them to be heard and determined together. For this reason, the submissions on jurisdiction of Faz and Mr Al-Zayat were the same.
The Evidence
There was a vast amount of material before the Court. Faz and Mr Al-Zayat have both given standard disclosure in relation to the jurisdiction issues as ordered by Toulson J on 8 December 2006.
MODSAF served a detailed affidavit from General Morteza Zahraei, a qualified Iranian lawyer, and legal adviser to the Deputy Minister of Defence, and a short reply statement. MODSAF also served a statement from Alecos Markides, a distinguished Cypriot lawyer.
Mr Al-Zayat has served a statement in response to General Zahraei and a statement from Jason McCue, a partner in his solicitors' firm. Mr McCue served a further statement relating only to issues arising from sanctions against Iran which, as I shall also explain, were not addressed at this hearing.
Faz has served statements from:
i) Kyriacos Koushos, a Cyprus lawyer acting for Faz;
ii) Georgios Mavros, a Cyprus-based director of Faz;
iii) William Davies, an England-based director of Faz;
iv) Antonio Vitale, Mr Al-Zayat's son-in-law and a director of Samata Enterprises Limited “a Cypriot company connected with” Mr Al-Zayat (“Samata Cyprus”);
v) Neil Micklethwaite, the partner in Faz' solicitors with conduct of this matter, whose statement relates to sanctions issues;
vi) Andreas Ladas, a Cyprus lawyer, and the nominee shareholder in the parent company of Faz;
vii) Sami Zayat, a son of Mr Al-Zayat and a director of Samata Cyprus.
The Claim
The claim arises out of the proposed acquisition by MODSAF of an Airbus A340 aircraft for use as a VIP aircraft by senior members of the Iranian Government. The aircraft was to be acquired by Faz from “HM Sultan's Flight” (“HMSF”). It was located at Hamburg in Germany where it was to be fitted out. It was then to be delivered to Saffat Aviation Services (“Saffat”) an Iranian airline which would deliver it to MODSAF. “Saffat” was incorporated in Iran but had a subsidiary in Cyprus (“Safat Cyprus”).
The need for the involvement of Saffat and Faz as intermediaries, to quote Mr Quest's skeleton argument on behalf of MODSAF, was “the result of issues raised by the US trade embargo of Iran” albeit it is not suggested that the proposed acquisition was or would have been illegal under any law, including US law. A consequence was that the proposed purchase of the aircraft was in the event the subject of three contracts.
On 2 August 2001, Saffat (Iran), represented by a Mr Saied, referred to in correspondence as the Managing Director, and Faz, represented by Mr Davies, met in Iran and signed a Memorandum of Understanding in relation to the (and other) aircraft. On 20 December 2001 HMSF and Faz entered into a contract of sale of the aircraft for a price of US$ 85 million. The agreement was subject to English law and the exclusive jurisdiction of this Court. The address of Faz for “notice and requests” was given as Larnaca in Cyprus where the company had recently leased what seems to have been some small office premises.
On 6 May 2002 a contract was entered into between Saffat Iran and Faz, again giving Faz' Larnaca address. Saffat agreed to purchase the aircraft from Faz for US$ 135 million. Title was to be taken in the name of Safat Cyprus, and the aircraft was to be registered in Cyprus. Payment was to be made by Letter of Credit to a Cypriot bank. This contract was signed by Mr Saied for both Saffat Iran and Safat Cyprus and by Mr Davies for Faz. It was, at the insistence of Saffat, subject to Swiss law and the exclusive jurisdiction of the Swiss courts.
There is no need, in view of the restriction of the present hearing to jurisdiction issues, to give a detailed account of the subsequent progress of these contracts. Things did not go smoothly. Between August 2002 and March 2003 Saffat, funded by MODSAF, paid US$ 120 million (the finally agreed price for the aircraft) to Faz. But neither Saffat nor MODSAF ever got the aircraft; nor have they got their money back; nor did Faz ever acquire the aircraft. It is MODSAF's case, and a case which is supported by written and witness testimony, that Mr Saied and a General Argani (who had control of the project for MODSAF) had been paid substantial bribes by Faz to secure the release of the purchase monies. The present claim is brought against Faz and Mr Al-Zayat in fraud, conspiracy and dishonest assistance. Mr Al-Zayat denies the allegations.
Criminal Investigation in Iran
A criminal investigation was begun in Iran in 2003 and is proceeding under the control of Judge Dalili Didar. In 2006, Judge Dalili obtained the assistance of the SFO to execute a search warrant at office premises at 4 Stanhope Gate and 1 Duchess Street in London. The premises were used by various companies connected to Mr Al-Zayat. 4 Stanhope Gate was (until it was sold) owned by Coeurhope Property Investment Company Ltd, a company in which Mr Al-Zayat's daughter was the nominal shareholder.
On 22 June 2006, Judge Dalili, also with the assistance of the SFO, obtained on a without notice application to HHJ Elwen at Southwark Crown Court, a Restraint Order against (amongst others) Faz and Mr Al-Zayat. The effect of the Order may for present purposes be said to be the same as a civil worldwide Freezing Order. However, on 7 December 2006, HHJ Elwen discharged the Restraint Order on the basis that Judge Dalili had failed to disclose that the criminal investigation and proceedings in Iran against Mr Al-Zayat had been allocated to the Military Branch of the Judicial Organisation in Iran.
The SFO has, however, been granted permission by the Court of Appeal to appeal the discharge of the Order and the Order remains in force until the appeal has been finally determined. I was told the appeal is to be heard on 15 May.
On 8 December 2006 MODSAF's application for a Freezing Order and the jurisdiction applications of Faz and Mr Al-Zayat came before Toulson J. Toulson J ordered that the applications should be heard together. He did so because, as he put it:
“I have not received any hint from the defendants that if they fail on their jurisdiction application they are likely to concede the application for continuation of the freezing injunction. On the contrary, the indications are that the freezing order application will be resisted come what may.”
On 8 December, both FAZ and Mr Al-Zayat gave undertakings (in an amount of US$ 140 million) to the same effect as would have been required had a freezing order been made against them (save for the omission of...
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