OBA Enterprises Limited, Cerasus Investments Limited, Pascani Holdings Limited, Gabriel Capital LP, IRR, Apricus Investments Limited, Andersen Group Inc, Greencastle Enterprises Limited (plaintiffs) v TMC Trading International Limited (defendant).
Mareva Injunction - Interlocutory relief - Whether the defendant was likely to dissipate assets with the intention of evading its obligations - Whether on the evidence the plaintiffs have shown that they have reasonable grounds for claiming a proprietary interest in assets of the defendant.
The High Court (before Miss Justice Laffoy); judgment delivered 27 November 1998.
For a Mareva injunction to be granted there must be an intention on the part to the defendant to dispose of the assets in question with a view to evading the obligation to the plaintiff and to frustrate the anticipated order of the court. The High Court so held in holding that the plaintiffs had not adduced evidence to show or entitle the court to infer that the defendant was likely to dissipate its assets with the intention of evading its obligations, if any, to the plaintiff.
Rory Brady SC and Brian Moore BL for the plaintiffs; Paul Gallagher SC and Michael Howard BL for the defendant.
Miss Justice Laffoy said that the plaintiffs' application was for an interlocutory injunction restraining the defendant, its servants or agents from dealing with or charging or otherwise alienating its assets in this jurisdiction or elsewhere so as to reduce the value of the said assets below US$20 million.
On 20 November 1998 an interim order had been granted on the foregoing terms on foot of an ex-parte application made on behalf of the plaintiffs, and that order had been varied by discharging it to the extent necessary to enable the defendant to make a payment of $2.1 million into the Savings Bank of the Russian Federation to the account of Avisma. Simultaneously with the interim order, the plaintiffs obtained an order from the High Court of Justice of the Isle of Man on 20 November 1998 against TMC (Holdings) Limited ("Holding") and TMC Trading Limited ("Trading") restraining each of their directors, officers, servants, or agents in any manner howsoever from moving or allowing to be removed from the jurisdiction of the court of the Isle of Man or disposing of or dealing with in any manner howsoever any of their assets whatsoever within the jurisdiction of the court of the Isle of Man, save insofar as such assets exceed a sum of US$20 million and in any way disposing or dealing or diminishing the value of any of their assets whether within or outside the jurisdiction of that court up to the same value. The order was subject to certain exceptions including a saver for dealing with or disposing of assets "in the ordinary and proper course of business".
Miss Justice Laffoy said the primary relief sought by the plaintiffs was a declaration that the assets of the defendant in this jurisdiction and elsewhere, subject to a maximum figure of $20 million dollars, were the property of the plaintiffs or their nominees or a Russian company, JSC Avisma TitanoMagnesium Combine ("Avisma") or, alternatively, are held in trust to the benefit of the plaintiffs or their nominees or Avisma. A further declaration was sought, without prejudice to the primary relief, that the moneys and assets of the defendant derived either directly or indirectly from dealings after 6 December 1997 by it or associated companies with Avisma were the property of the plaintiffs or their nominees or Avisma or, alternatively are held by the defendant in trust for the plaintiffs or their nominees or Avisma.
Miss Justice Laffoy said the evidence to the court was that Avisma is a Russian company which produces titanium sponge. In December 1987 the plaintiffs invested US$85,640,000 and acquired a 58 per cent majority shareholding in Avisma from two Russian companies, Rosprim and Bank Menatep. In the course of negotiations leading up to that acquisition, the plaintiffs were told by their agent, Creditanstalt Investment Bank, Moscow ("Creditanstalt"), that a significant part of the profits which Avisma was able to earn on the sale of its product were taken offshore through a group of companies, which were referred to collectively as TMC and which in these proceedings were identified as being the defendant, Holding and Trading; that TMC was owned or controlled by the majority shareholders in Avisma, namely, Rosprom and Bank Menatep; and that this proportion of the profits of Avisma from the sale of it product was available directly to Avisma's majority shareholders. In particular, the plaintiffs relied on the following statement in a circular issued by Creditanstalt to prospective investors in Avisma - "Much of Avisma's value lies outside the reach of its current minority shareholders. Rosprom, Bank Menatep's holding company, manages not only the production of Avisma but also the company's product distribution and financial operations. TMC (Titanium Metals Company), an associated company of Bank Menatep / Rosprom distributes titanium sponge for Avisma in Europe and the US with sales margins reaching $2 per kilogram. The dissolution of TMC would bring almost $20 million to Avisma's bottom line." The plaintiffs contended that the acquisition by them of rights to the profits being accrued through TMC was an integral part of the transaction under which they acquired the 58 per cent majority shareholding in Avisma from Rosprom and Bank Menatep.
Miss Justice Laffoy said the acquisition of the interest of Rosprom and Bank Menatep was the first stage in a two stage process which had as its objective the creation of the world's largest fully integrated producer of titanium products. The second stage involved the plaintiffs' majority stake in Avisma being acquired by another Russian company, which is also a substantial producer of titanium products, VSMPO, in return for new shares in VSMPO to be allotted to the plaintiffs. The swop was effected and the plaintiffs now hold 28 per cent of the shares in VSMPO, which is now Avisma's holding company. The essence of the plaintiffs' complaint was that although they acquired the profits of Avisma which had been accruing through TMC to Rosprom and Bank Menatep prior to their acquisition of the majority stake in Avisma, they did not receive the profits, which they estimate at $20 million on the basis of the statement in the circular quoted above, since completion. There was a dispute as to the date of completion, whether it was 6 December 1997 or 31 December 1997, but this was peripheral to the issues in this application. Miss Justice Laffoy said one of the sources of evidence relied upon by the plaintiffs in support of their contention that they acquired the right to those profits is the transcript of a telephone conversation on 24 September 1998 between Bill Browder, acting on behalf of the second and sixth plaintiffs, and Mr Peter Bond, acting on behalf of TMC.
The plaintiffs relied on two matters in particular as evidence that there was a risk that the defendant would dissipate its assets to the detriment of the plaintiffs. The first was a transfer by the defendant of approximately US$2.5 million to Bank Menatep, which had been insolvent since the commencement of the Russian economic crisis in August 1998, which was perceived by the plaintiffs as being unauthorised and improper. The second was the creation by Holding on 23 September 1998 of a composite debenture in favour of Barclays Bank, Dublin, to secure all sums and on the same day the creation by the defendant of several charges in favour of Barclays Bank, including a charge on a "security account". The plaintiffs' position is that they gave no authority to create the charges and they indicated that TMC may not be holding the relevant assets to the order of those who are beneficially entitled to them. The plaintiffs also suggested, on the basis of a report commissioned by Creditanstalt from Ernst & Young, accountants, in Moscow and Douglas, Isle of Man, with respect to the financial records of the TMC companies, that "funds may be freely moved around among them".
Miss Justice Laffoy said the defendant is a company registered in the State and was incorporated on the 19 June 1995. The defendant is a wholly owned subsidiary of Holding, which is a company registered in the Isle of Man. Trading is a company incorporated in the British Virgin Islands with an established and registered place of business in the Isle of Man. The affidavits filed on behalf of the defendant raised a fundamental conflict as to the ultimate beneficial ownership of the defendant and the nature of its operations. The defendant's position is that the ultimate beneficial owner of the defendant is LCM Trust, which is the family trust of Mr Bond, a resident of the Isle of Man. Mr Bond in an affidavit sworn by him asserted that the transcript of his telephone conversation with Mr Browder had been edited and he disputed the construction put by the plaintiffs on the exchanges between Mr Browder and himself.
The defendant's position was that the defendant is a trading company and acts as agent for Trading. Its activities involve procuring raw material for Avisma and the purchase of titanium and magnesium in Russia from Avisma and the sale of these metals on the international market. The moneys it receives are held on behalf of Trading, its principal. The defendant operates under a distribution agreement with Avisma dated 10 January 1996, which is subject to renewal annually on 1 January each year. The defendant's position was that the defendant is a separate and independent legal entity from Avisma and that Avisma has no right or control over its assets, contract or business. Its relationship with Avisma is that of a distributor pursuant to the distribution agreement. It is actively engaged in trade for profit on its own account and it is not, as alleged by the plaintiffs, a company which was set up as a device to avoid anti-dumping legislation in the United States and is not engaged in avoiding that legislation. It has made no distribution of profits since the beginning of May 1998.
Miss Justice Laffoy said that in relation to the matters relied on by the plaintiffs as evidence of the risk of dissipation of the defendant's assets, the defendant put forward the following explanations:
(1) In relation to the payment to Bank Menatep, it is acknowledged that a payment of in excess of US$2.6 million was made to the bank in October 1998. However, the payment was made to the account of Avisma. It was made in error and contrary to the instructions given to the defendant following the start of the Russian economic crisis, which were to make payments to the account of Avisma at the Savings Bank of the Russian Federation. The erroneous instruction to transfer to Menatep Bank was made through Barclays Bank, Dublin branch, and the instruction was subsequently countermanded. The Dublin branch of Barclays has indicated that it will explore all avenues in order to obtain a recall of the moneys but had been able to give no guarantee that it will be successful.
(2) The charges created on the 23 September 1998 by the defendant in favour of Barclays Bank were to secure loan and financial facilities from that bank. They were connected with a debt purchase agreement which was being negotiated between the defendant and Barclays, which was intended to be a genuine transaction for the purpose of financing the defendant's ongoing business operations. The debt purchase agreement had not yet been concluded. It was to be a replacement for a prior financial arrangement which the defendant had with a Swiss bank, which it was found was administratively difficult to operate. The defendant contended that the creation of the charges was for the purpose of improving the liquidity of the defendant and its trading partner, Avisma. Miss Justice Laffoy said that at the hearing of the application counsel on behalf of the parties made detailed submissions on the issues which arose, namely, whether there was a serious issue to be tried, where the balance of convenience lay, whether damages would be an adequate remedy for either party and in particular whether the plaintiffs' undertaking was adequate.
Miss Justice Laffoy said she found it unnecessary to determine any of the issues. In O'Mahony v Horgan [1995] 2 IR 411 the Supreme Court considered the circumstances in which a Mareva injunction would be granted. The Chief Justice, Mr Justice Hamilton, stated as follows:
" . . . there must be an intention on the part of the defendant to dispose of his assets with a view to evading his obligation to the plaintiff and to frustrate the anticipated order of the court. It is not sufficient to establish that the assets are likely to be dissipated in the ordinary course of business or in the payment of lawful debts." Miss Justice Laffoy said in this case the plaintiffs had not adduced evidence to show or entitle her to infer that the defendant is likely to dissipate its assets with the intention of evading its obligations, if any, to the plaintiffs. The evidence adduced by the defendant in relation to the two specific matters put forward by the plaintiffs as indicating a risk of dissipation sufficiently dispels the concerns expressed by the plaintiffs.
As regards the payments to Menatep Bank in October 1998, Miss Justice Laffoy said the documentary evidence put before the court by the defendant evidencing money transfers from the defendant to banks in Russia to the account of Avisma through the medium of the Dublin branch of Barclays Bank between July 1998 and November 1998 was sufficiently cogent to allow her to conclude, for the purposes of this application, that the transfer of Menatep Bank was made in error and that the defendant was endeavoring to retrieve the moneys transferred and that the moneys were destined for Avisma in which the plaintiffs, through the medium of VSMPO, have a stake. On the face of it there was nothing sinister about that transaction.
As regards the various securities given by the defendant over its assets to Barclays Bank on 23 September 1998, the evidence adduced by the defendant was sufficiently cogent to allow the conclusion, for the purposes of this application, that the charges were created in the ordinary course of business to secure facilities afforded by Barclays Bank to the defendant. There was nothing covert about these transactions, and as was necessary to ensure their validity, particulars of the charges were registered in the Companies Office pursuant to the provisions of section 99 of the Companies Act 1963.
Miss Justice Laffoy said that counsel on behalf of the plaintiffs attempted to characterise the plaintiffs' claim as a proprietary claim rather than a claim for a Mareva injunction. The following passage from the judgment in The Republic of Haiti v Duvalier [1989] 1 All ER was relied upon:
"A proprietary claim is one by which the plaintiff seeks the return of chattels or land which are his property or claims that a specific debt owed by a third party to him and not to the defendant . . A plaintiff who seeks to enforce a claim of that kind will more readily be afforded interim remedies in order to preserve the assets which he is seeking to recover, than one who merely seeks judgment for a debt or damages. But if the asset had been converted into some form of property, the question of tracing arises."
Miss Justice Laffoy said the question she had to consider was whether, on the evidence, the plaintiffs have shown that they have or have reasonable ground for claiming a proprietary interest in assets of the defendant. The primary relief sought had some semblance of a proprietary claim, in that they sought a declaration that the assets of the defendant are first their property or held in trust for them. Miss Justice Laffoy said as so formulated, the claim was not a derivative claim. However, the claim was limited to a maximum figure of US$20 million or whatever sums the court may determine. The claim was not formulated as a claim to a proprietary interest in specific assets. More importantly, the evidence adduced by the plaintiffs supported a claim to the profits of Avisma which Rosprom and Menatep Bank were accruing through TMC before the completion of the acquisition of the stake in Avisma acquired by the plaintiffs in December 1997. Miss Justice Laffoy said that even accepting the plaintiffs' assertions as to the nature of the deal done with Rosprom and Bank Menatep, which was completed in December 1997, at face value, having regard to the evidence adduced by the defendant as to the nature of the trading activities of the defendant, the plaintiffs had not established that their claim was in the nature of a proprietary claim in relation to the assets of the defendant.
Miss Justice Laffoy said the plaintiffs are not entitled to the interlocutory relief sought and the interim order and the plaintiffs undertaking as to damages lapse. Miss Justice Laffoy said she would express no view as to the effect of the order of the High Court of Justice of the Isle of Man on the assets of the defendant.
Solicitors: Beauchamps (Dublin) for the plaintiffs; A. & L. Goodbody (Dublin) for the defendant.
