ON APPEAL FROM THE QUEEN'S BENCH DIVISION
Mr Justice David Steel
Insert Lower Court NC Number Here
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE TOMLINSON
| Mobile Telesystems Finance SA
|- and -
|Nomihold Securities Inc
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7404 1424
Official Shorthand Writers to the Court)
Simon Salzedo QC and Tony Singla (instructed by Simmons & Simmons Solicitors) for the Respondent
Hearing date : 26 July 2011
Crown Copyright ©
Lord Justice Tomlinson :
i) On 17 November 2005 MTSF and Nomihold entered into a sale and purchase agreement under which MTSF agreed to acquire a 51% interest in Tarino Limited from Nomihold for US$ 150 million in cash.
ii) At the time of the sale and purchase agreement it was apparently understood that Tarino was the indirect owner, through its wholly owned subsidiaries, of Bitel LLC, a Kyrgyz company holding a GSM 900/1800 mobile telecommunications licence for the entire territory of Kyrgyzstan.
iii) MTSF and Nomihold also entered into a put and call option agreement dated 22 November 2005 in respect of the remaining 49% of Tarino, providing for a put option exercisable by Nomihold at a price of US$ 170 million.
"Enforcement of the award.E+W+N.I.
(1) An award made by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.
(2) Where leave is so given, judgment may be entered in terms of the award.
(3) Leave to enforce an award shall not be given where, or to the extent that, the person against whom it is sought to be enforced shows that the tribunal lacked substantive jurisdiction to make the award.
The right to raise such an objection may have been lost (see section 73).
(4) Nothing in this section affects the recognition or enforcement of an award under any other enactment or rule of law, in particular under Part II of the Arbitration Act 1950 (enforcement of awards under Geneva Convention) or the provisions of Part III of this Act relating to the recognition and enforcement of awards under the New York Convention or by an action on the award."
"Enforcement of awards
62.18 – (1) An application for permission under –
(a) section 66 of the 1996 Act
. . .
to enforce an award in the same manner as a judgment or order may be made without notice in an arbitration claim form
. . .
(6) An application for permission must be supported by written evidence –
(a) exhibiting –
(i) where the application is made under section 66 of the 1996 Act or under section 26 of the 1950 Act, the arbitration agreement and the original award (or copies);
(ii) where the application is under section 101 of the 1996 Act, the documents required to be produced by section 102 of that Act; or
(iii) where the application is under section 3(1)(a) of the 1975 Act, the documents required to be produced by section 4 of that Act;
(b) stating the name and the usual or last known place of residence or business of the claimant and of the person against whom it is sought to enforce the award; and
(c) stating either –
(i) that the award has not been complied with; or
(ii) the extent to which it has not been complied with at the date of the application.
(7) An order giving permission must –
(a) be drawn up by the claimant; and
(b) be served on the defendant by –
(i) delivering a copy to him personally; or
(ii) sending a copy to him at his usual or last known place of residence or business.
. . .
(9) Within 14 days after service of the order or, if the order is to be served out of the jurisdiction, within such other period as the court may set –
(a) the defendant may apply to set aside the order; and
(b) the award must not be enforced until after –
(i) the end of that period; or
(ii) any application made by the defendant within that period has been finally disposed of.
(10) The order must contain a statement of –
(a) the right to make an application to set the order aside; and
(b) the restrictions on enforcement under rule 62.18(9)(b)."
"3. Judgment be entered in terms of the award dated 11 November 2010 (the "award") as set out in Schedule 2 pursuant to s.66(2) of the Arbitration Act 1996.
4. In default of the Respondent applying in accordance with paragraph 5 below, the Applicant be at liberty to enforce the award in the same manner as a judgment or order of the High Court to the same effect pursuant to s.66(1) of the Arbitration Act 1996.
5. Within 14 days after service of this Order the Respondent may apply to set aside paragraph 4 of this Order."
"Mr Salzedo, I accept your submission that it is appropriate for this court to continue the freezing order without the proviso as to 'ordinary course of business'. I am with you because this court, as you rightly point out, does take an adverse view of the proposition that a judgment debtor can continue in business paying one lot of creditors but not a judgment debtor or other unsecured creditors. That is something that this court regards with disfavour. It seems to me that, as a matter of my discretion, there is no reason why such an order is going to cause any prejudice, certainly not for the next two weeks. That is because, as Miss Bingham told me on instruction, there does not appear to be any need for any payment to be made in any event during the next two weeks. So I am going to continue the order, without the 'ordinary course of business' proviso, on the basis of the approach taken by Tomlinson J in the Masri case at para 35. It seems to me there is no justification, at least on the information presently available, why this court should permit payment of other creditors in preference to the claimant. I say 'judgment creditor': I should, more properly, say the beneficiary of an arbitration award, because of course the respondent has indicated that it is going to apply to set aside the actual judgment based on the award."
"10. It is declared that the purchase by MTS OJSC assisted by any relevant financial institutions involved, of 2012 Notes and the surrender by MTS OJSC of any such notes to the trustee for cancellation would not constitute a breach by the Respondent of this Order provided that the Respondent does not take any step in the process or incur any liability for fees relating to such purchase."
The judge explained his thinking in making this declaration in the following passage of his judgment:-
"45 . . . What is proposed is that . . . steps are to be taken which do not involve anything other than a reduction of the debt or potential debt of [MTSF] by independent steps taken by the parent. The result will be to eliminate simultaneously both purported asset and purported liability, but as a result of steps taken in which [MTSF] will play no part.
46. In my judgment, therefore, I can and should declare for the avoidance of doubt so far as third parties are concerned that any steps taken by the parent to buy in the loans or to tender in accordance with something similar to the present terms, would, provided there were no step taken by [MTSF] which I am satisfied at the moment are not intended, none of that would be in breach of [MTSF's] obligations to comply with the freezing order."
No appeal was brought against this decision.
1. Where a defendant is a judgment debtor, an exception in a freezing order to permit payments in the ordinary course of business is not generally appropriate.
2. Although strictly speaking MTSF is not a judgment debtor, Nomihold had in its favour an arbitration award which had not been challenged and the resistance to enforcement had already been characterised by Burton J as having "somewhat limited prospects of success".
3. Whilst the effect of not granting the variation would probably be to force MTS OJSC to hold its subsidiary harmless against exposure to the Noteholders, this did not amount to the parent being held to ransom and was not objectionable in the same manner as this court in Camdex International Ltd v Bank of Zambia (2)  1 All ER 728 characterised an attempt by a judgment creditor to restrain disposal by the judgment debtor of an asset of no value to the judgment creditor but of great value to the judgment debtor.
4. The judge was unpersuaded by the evidence that the consequences of non-payment of interest by MTSF would be catastrophic.
5. The judge thought it irrelevant either that MTSF was not insolvent or that, even if it were, the uncontradicted evidence as to the applicable insolvency law, that of Luxembourg, was that the payment of interest on the Notes would be unlikely to be regarded as an objectionable preference.
The judge was also plainly unimpressed by the failure of MTSF to apply for the variation until 4 July 2011 and he noted that no appeal had been brought against the decision of Gloster J to remove the ordinary course of business exception.
"Nomihold Securities Inc v Mobile Telesystems Finance SA, 2011 Folio 95
We refer to the Freezing Orders of Mrs Justice Gloster dated 26 January and 4 February, and the Freezing order of Mr Justice Burton of 18 February 2011. We enclose a copy of all these orders. We draw your attention in particular to the restrictions in paragraphs 2 to 5 of the most recent Order.
Paragraph 10 of the Freezing order made by Mr Justice Burton contains a declaration that the purchase by Mobile TeleSystems OJSC ("MTS OJSC"), assisted by any relevant financial institutions, of the US$400,000,000 8% notes due 2012 issued by the Respondent would not constitute a breach by the Respondent of the Freezing Order, provided that the Respondent does not take any step in the process or incur any liability for fees relating to such purchase.
We are not aware that any such purchase has been announced. However, we draw to your attention that the terms of the declaration relate solely to the Respondent. Our client considers that any further tender offer would constitute a breach of the Order by MTS OJSC and the relevant financial institutions which implement such offer. All our client's rights are reserved."
Finally, and as a matter of overarching principle, Mr Flynn argued that it was simply wrong that the removal of or failure to reinstate the ordinary course of business exception should be permitted successfully to exert commercial pressure upon MTS OJSC which would have the effect that it would be compelled to pay the interest due twice.
"A Mareva can properly be granted after judgment in circumstances, which must be rare, where this is necessary to prevent the removal or dissipation of an asset before the process of execution and realise the value of that asset for the benefit of the judgment creditor."
The availability of freezing orders in aid of execution is now so well-established that I doubt whether it can still be said that the circumstances in which such a freezing order can properly be granted must be rare. Even so, as Sir Thomas Bingham MR, as he then was, pointed out in the same case at page 732:-
"A Mareva injunction is granted to prevent the dissipation of assets by a prospective judgment debtor or a judgment debtor with the object or effect of denying a claimant or judgment creditor satisfaction of his claim or judgment debt."
Sir Thomas Bingham also observed at page 733 that the court is not at the stage of granting a freezing order, even one in aid of execution as the Mareva injunction in that case was, immediately concerned with any question of execution itself. Aldous LJ in the same case observed at page 734:-
"The purpose of Mareva relief is, and always has been, to prevent a defendant from removing from the jurisdiction his assets or dissipating them. It is not, and never has been, an aid to obtaining preference for repayment from an insolvent party."
"As to bringing the business of the judgment debtor to a standstill by cutting off payment otherwise available to it, I am not persuaded that this is a relevant consideration in the context of a remedy designed to effect execution and not designed merely to conserve assets pending determination of an unresolved claim. This is not the environment of a Mareva injunction prior to trial, but of execution of a pre-existing judgment. Whereas the effect of an injunction on the defendant's ability to conduct his business in the ordinary course may be relevant where his liability is yet to be determined, it cannot possibly be a relevant consideration where his liability has already been determined. Impact on the judgment debtor's business is not a consideration material to the availability of legal process of execution and there is no reason in principle why it should be introduced as material to the availability of equitable execution."
On further reflection, I am not sure that those observations do apply a fortiori to a post-judgment freezing injunction, as I said in paragraph 35 of my judgment in Masri. As I have already noted, a post-judgment freezing order is granted in aid of execution but it is not part of the process of execution itself. In that same paragraph I said:-
"In any event I am satisfied that in relation to assets such as balances in bank accounts an "ordinary course of business" exception is inappropriate in the post-judgment environment."
Again, on further reflection, it may be that that is too sweeping a statement, although I am sure that the ordinary course of business exception was inappropriate in relation to balances in bank accounts in the circumstances of that case. I am satisfied that it will sometimes and perhaps usually be inappropriate to include an ordinary course of business exception in a post-judgment asset freezing order. Of course, its omission would not preclude an application to vary or discharge.
"Once Bingham J had given DST leave to enforce the award as a judgment, as he did in the same order as that granting the injunction, DST became judgment creditors of Rakoil, albeit subject to a suspension of their right to levy execution and subject to the possibility that the order giving them this status might be set aside on the application of Rakoil. It was not the case that DST would become judgment creditors if and when Rakoil failed to set the order aside. Once the order was made, DST were in precisely the same position as any plaintiff who has obtained judgment, subject to a stay pending an application to the Court of Appeal to set the judgment aside."
However in that case no question arose of the "judgment debtor" Rakoil wishing to make a payment in the ordinary course of business. It was on the contrary, a case in which "if the injunction is set aside, any assets of Rakoil in this country will disappear overseas in the twinkling of a telex" – see per Sir John Donaldson MR at page 307F. Furthermore, the Master of the Rolls went on to say, at page 321G:-
"In administering the Mareva jurisdiction, the courts have rightly been mindful that the object of the exercise has been to prevent "cheating" by defendants – dissipating assets, causing them to "disappear" into the pockets of others, removing them from the jurisdiction and so on. It has not been to provide advance security for the satisfaction of a judgment debt which has not yet arisen. Accordingly, in appropriate cases injunctive orders have been drawn so as to permit ordinary trading debts to be incurred and discharged and the use of assets for living expenses. However it is for the defendant to apply for such exceptions to the generality of the injunctive order and Rakoil has made no such application."
It is apparent therefore that the problem which arises in this case did not there fall for consideration. Should a "judgment debtor" against whom the judgment debt is for the time being unenforceable be prevented from meeting an obligation falling due in the ordinary course of his business?
"The High Court shall have, for the purposes of and in relation to a reference, the same power of making orders in respect of - . . . (f) securing the amount in dispute in the reference . . . as it has for the purpose of and in relation to an action or matter in the High Court . . ."
At page 304 Colman J said this:-
"As recognised by Brandon J in The Rena K  QB 377, there is thus created a jurisdiction to grant Mareva injunctions in respect of pending or anticipated arbitrations. The court's jurisdiction in such cases is analogous to the jurisdiction which it has in relation to a pending or anticipated action: see The Rena K, at p 408. In view of the fact that, as is now firmly established, the court has jurisdiction to grant a Mareva injunction in aid of execution upon application after judgment has been obtained (see Orwell Steel (Erection and Fabrication) Ltd v Asphalt and Tarmac (UK) Ltd  1 WLR 1097), there is, in my judgment, no reason in princip[le] why the jurisdiction under section 12(6) of the Act of 1950 should not be exercised in aid of enforcement of English arbitration awards, provided that there are grounds for believing that there is a real risk that the party against whom the award has been made may dispose of his assets to avoid execution of the award."
It is plain from the report that the injunction originally granted in that case contained the usual exception in respect of disposal in the ordinary course of business. At page 303 Colman J said this:-
"The owners subsequently applied, ex parte, to extend the injunction so that it applied on a worldwide basis. That application failed since there was no evidence that, if the charterers had any assets abroad, they would dispose of them otherwise than in the ordinary course of their business in order to avoid enforcement of the arbitration awards against them."
"It seems to me that there may well be nothing whatsoever in the challenge to the s.66 application . . . There may be other matters which could be raised on a s.66 application but, particularly given that evidence has only very recently been served by the Defendant and the Claimant may well want to produce some evidence as to what has happened in the Seychelles, in relation to the share transfer, I conclude that there is just about enough for the challenge to go forward and, in any event, a s.66 application is one of discretion and should be considered by the court on the next occasion."
Nonetheless, the challenge having been allowed to go forward, the only principled approach on this application would in my view have been to assume that it had a worthwhile prospect of success.
Lord Justice Ward :