Yukos Capital S.a.r.l v OJSC Rosneft Oil Company & others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE DAVID STEEL,Mr Justice David Steel |
| Judgment Date | 16 April 2010 |
| Neutral Citation | [2010] EWHC 784 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 16 April 2010 |
| Docket Number | Case Numbers: 2010 Folio 315 & 2010 Folio 316 |
[2010] EWHC 784 (Comm)
IN THE HIGH COURT OF JUSTICE
Royal Courts of Justice
Strand, London, WC2A 2LL
Before: Mr Justice David Steel
Case Numbers: 2010 Folio 315 & 2010 Folio 316
MR GORDON POLLOCK QC, MR PAUL McGRATH & MR JAMES WILLAN (instructed by Byrne & Partners) for the Claimant and MR MICHAEL BLOCH QC & MR JAMES
WALMSLEY (instructed by Clifford Chance) for the 6 th to 12 th Respondents
Hearing date: 30TH MARCH 2010
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.
Mr Justice David Steel:
1. This was an application by the 6 th to 12 th Respondents to discharge or vary a freezing order granted to the Claimant on 11 March 2010 following an ex parte hearing. Since preparing this judgment I have been told that the parties have come to terms on the basis of the provision of security. The parties nonetheless invited me to give judgment which I agreed to do.
2. It was a domestic freezing order and was made, so far as these Respondents were concerned, on the basis that they transferred funds to bank accounts within the jurisdiction for onward transmission to the First Defendant. I shall refer to them as the “RT” companies. It is now common ground that RT 2 and RT 8 are dormant and that RT6 and 7 do not in fact have bank accounts within the jurisdiction. It is thus accepted that they should no longer be the subject of the freezing order and the application is therefore only concerned with RTs 3, 4 and 5.
3. It was not and is not suggested that the Claimant (“Yukos”) has any claim against the RT companies. The first and principal defendant is OJSC Rosneft Oil Company (“Rosneft”). There is no need to rehearse the background to the claim in any detail. It is sufficient to say that Yukos seeks to enforce four arbitration awards against Rosneft. That is resisted on the basis that the awards have been set aside by decisions of the Russian courts. The present application, however, proceeds on the admitted assumption for present purposes only, that Rosneft remains indebted to the claimants in the sum claimed (approximately £390 million) since in purporting to set aside the awards the Russian Courts were not acting impartially and independently but at the behest of the Russian Government. It is further to be assumed, again for present purposes only, that unless restrained Rosneft would take steps to frustrate any judgment by seeking to put its assets beyond the reach of Yukos.
4. The basis upon which the RT companies were joined as parties was summarised in the skeleton argument furnished at the ex parte hearing. It set out the following propositions:—
i) There was evidence to suggest that the RT companies (all incorporated in Jersey and owned by nominee shareholders) were controlled by Rosneft.
ii) They were used as vehicles for the purchase and on sale of oil. Yet for example Shell had produced documents in respect of a specific purchase from RT 5 where the shipping documents showed Rosneft as the shipper and Rosneft had written to record the need for payment under “our contract”.
iii) It followed that the RT companies were Rosneft's “puppets” and acted on Rosneft's behalf in conducting the oil trades.
iv) Thus payment to the RT companies’ London bank accounts would be available for enforcement:
a) because the assets were held as a nominee of Rosneft; or
b) Rosneft controlled, directly or indirectly, the RT companies.
Reference to this connection was made in Gee: Commercial Injunctions, 5th Ed at para. 13.007.
5. In support of the inter partes application to set aside the freezing order, the RT companies have now served a number of affidavits of a Miss Harris. She is a director of EQ Directors One Ltd and EQ Directors Two Ltd which are the “appointed corporate directors” of the RT companies. These corporate directors are beneficially owned by charitable trusts. Equity Trust (Jersey) Ltd. is the trustee, and Miss Harris is a director of that company as well.
6. She asserts that the assets of RT companies were not held as nominees for or under the control of Rosneft. The bank accounts were established at the request of Rosneft's bankers so as to ensure that payment obligations were settled into accounts controlled by the banks. Thus the RT companies were simply intermediary purchasers of oil from Rosneft thereafter selling on to an offtaker such as Shell.
7. In seeking to justify the continuation of the freezing order in the light of the evidence and of documentation that has now been made available, Yukos pursues a somewhat different line of attack. In particular it was no longer suggested that the RT companies are nominees of Rosneft. As regards the question of control, it is now accepted that the RT companies are not subsidiaries of Rosneft, that the receivables are not as such assets beneficially owned by Rosneft, and that security arrangements in favour of various banks are paramount. The case is now put on the basis that although the RT companies are third parties, they have no independent purpose of their own, and only exist for the purpose of passing oil sale money from the buyer to Rosneft and no one else.
The contractual arrangements
8. The contractual arrangements as they now appear are as follows:—
i) Rosneft has borrowed money from various lending banks. In the case of RT5 for example it is Calyon. At the same time Rosneft entered into a five year contract to sell oil to RT 5 and RT 5 entered into a five year contract with a number of buyers under which RT 5 could sell oil to them. The terms on which Rosneft sells to RT 5 are back to back with the terms upon which RT 5 sells to the buyers.
ii) At regular intervals there are auctions at which buyers such as Shell, BP, Gunvor and Vitol bid for individual cargo lots. Those are conducted by Rosneft but in the name of RT 5. Rosneft selects the successful buyer for each lot and arranges documentation and shipment to a consignee nominated by the buyer.
iii) There are two invoices, one between Rosneft and RT 5, and one between the latter and the buyer. The prices in each case are identical.
iv) Arrangements are in place so that it is agreed between Rosneft, RT 5 and buyer, that the buyer acts as RT 5's agent and agrees to perform all of RT 5's obligations (save for payment of the price) so that Rosneft is able to deliver the oil directly to the ultimate buyer. Any claims are to be dealt with directly between the buyer and Rosneft and there is no right of recourse against RT 5.
v) The RT companies have no business of their own. Their only function is to act as the buyer and seller of the cargoes as described. Further the obligation of an RT company to pay Rosneft for the oil which it has purchased only arises once the buyer has paid the RT company.
vi) The RT company's right to the purchase price from the buyer is assigned to the lending bank. The contractual arrangements between Rosneft, the RT company and the buyer, require that the price be paid into an account in the RT company's name designated by the lending bank. That account is charged to the lending bank as security for the performance of Rosneft's obligations under the relevant loan facility.
vii) If there were an event of default under the credit facility when the payment came into RT 5's account, the lending bank would have the right as assignee and chargee to take the money, although this has never happened.
viii) As a result of the contractual arrangements to which the bank, Rosneft and RT are parties, if Rosneft is not in breach when payment for the oil comes in, the money must be transferred to a “Passport” account of Rosneft with a Russian bank.
ix) At no stage does the RT company have any independent interest in the money which passes through its account. Its only purpose is to act as a conduit through which the proceeds of the sale of the oil pass from the ultimate buyer to Rosneft.
x) Thus the monies which the RT company receives can only be used for two purposes. Either they are used by the lending bank under the security arrangements or they are paid to Rosneft. Since Rosneft has not been in breach of its loan obligations, in practice the oil proceeds which pass through the RT company's account are destined for Rosneft and Rosneft only.
The law
9. There was a dispute between the parties as to the scope of any jurisdiction to freeze assets in the hands of a third party where the claimant has no cause of action against that third party and the third party does not hold the assets as a nominee of, or a trustee for, the primary defendant.
10. It was the submission of RT that no jurisdiction existed absent beneficial ownership (that is to say where the primary defendant was the beneficiary of the relevant money under a trust) and that there was binding Court of Appeal authority to that effect. Yukos submitted that there was no jurisdictional limit on the power to injunct assets of third parties, subject of course to any considerations relevant to the exercise of discretion.
11. Before turning to the authorities which are directly relevant, it is worth rehearsing some general principles:
a) Jurisdiction to grant an interlocutory injunction (of which a freezing order is but an example) is available under section 37(1) of the Senior Courts Act 1981...
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