1281, 1282, & 1357
QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| Kensington International Limited
- and -
|Republic of the Congo (formerly the People's Republic of the Congo)
|1. Glencore Energy UK Limited
2. Sphynx UK Limited
3. Sphynx (BDA) Limited
4. Africa Oil & Gas Corporation
5. Cotrade SA
Huw Davies & Shane Doyle (instructed by Watson Farley & Williams) for the Third Parties
Hearing dates: 24-27, 31 October 2005
1, 2, 7, 9 November 2005
Crown Copyright ©
Mr Justice Cooke :
i) Cotrade, which is a wholly owned subsidiary of Société Nationale des Pétroles du Congo (SNPC), the Congo State owned Oil Company, concluded a contract with AOGC for the sale of cargo on an fob basis. The written contract produced is dated 20 March 2005 and, on its face, was signed for Cotrade in Brazzaville in the Congo by Denis Christel Sassou Nguesso (Mr Christel), the son of the Congolese President, and was signed by Mr Malonga for AOGC.
ii) AOGC in turn sold to Sphynx Bermuda under the terms of a contract in writing dated 10 March 2005. On its face this contract was signed in Brazzaville by Mr Malonga for AOGC and Dr Nwobodo for Sphynx Bermuda, both of whom said in their statements that it was actually signed sometime after 16 March 2005.
iii) There is a contract document under which Sphynx Bermuda contracted with Glencore on the general terms and conditions of SNPC which is undated. It was signed by Dr Nwobodo for Sphynx Bermuda and Mr Gibson on behalf of Glencore. It too was said to have been signed some time after 16 March 2005.
iv) Glencore in turn on-sold the cargo to BP on the terms of a contract which, it is not disputed, was a typical arm's length commercial transaction between entities involved in the conventional trading of oil.
i) The receipt of monies by Sphynx Bermuda in respect of the cargo would in reality be receipt by the Congo, the judgment debtor and;
ii) The monies apparently due from Glencore to Sphynx Bermuda are in reality due to and (if paid) will be paid to the Congo.
The Witnesses and the Documents
i) Lies and other false and misleading testimony.
ii) Wholesale and deliberate failures to make proper disclosure.
iii) Secrecy and concealment when not apparently necessary.
iv) Over-elaboration of transactions, with no commercial need or justification.
v) Deliberate and dishonest fabrication of documents.
vi) Deliberate attempts to circumvent and undermine orders of the court.
vii) Failing to call relevant witnesses.
viii) Failure of a witness to reappear to complete evidence when under cross-examination and under pressure to produce proper disclosure.
The Major characters and entities involved:
Mr Gokana and his connections with SNPC, AOGC, Sphynx Bermuda and Sphynx UK
"Since I was the only person at SNPC UK who had the knowledge and ability to provide sufficient information for the marketing of oil, Mr Itoua and I agreed that this service would be subcontracted to my new company for which SNPC would pay a fee".
"I decided that the only thing to do was to try and find ways to get round Mr Itoua. I decided to present my competence personally in Brazzaville in front of Ministers and also in Gabon and Angola. And I also decided to move my business back to London because costs were lower, but also to set up a trading operation offshore."
i) "to engage on behalf of the Congo directly, through subsidiaries or in connection with foreign partners, in all operations of production, treatment, transformation, value adding and transportation of liquid or gaseous oil, in Congo or abroad;
ii) to undertake or participate in all industrial, commercial, technical operations, whether on goods or real estate or related directly or indirectly to the above described operations;
iii) to undertake on behalf of the Congo all operations of investments or management and audit in the gas and oil sector;
iv) to trade in the extracted products originating from the oil fields or the industrial facilities of treatment or transformation;
v) to participate, pursuant to the oil agreements, in the fixing of oil prices;
vi) to hold and manage, on behalf of the Congo, all the assets, rights, direct and indirect, whatever their nature, held originally by Congo, directly or through Hydro-Congo [SNPC's predecessor] in all activities related to research, exploitation, treatment and transformation of oil and secondary or connected products;
vii) to represent the interests of the Congo in all contractual relations with third parties in connection with exploitation of liquid or gaseous oil, secondary or connected, including in connection with the control and verification mechanisms belonging to the State;
viii) to give opinions on the government policy regarding liquid or gaseous oil."
i) Article 7 of the Convention provides that: "SNPC shall carry out the missions which will have been entrusted to it according to the Law, the Decree and the present Convention under the control of the Ministry for Petroleum Affairs, who will assume a role of technical supervision, and of the Ministry of the Economy, Finance and the Budget, who will assume a mission of economic and financial control, every such time as required by the texts applicable to the SNPC, as well as by the rules of Public Accounts. The technical supervision by the Ministry for Petroleum Affairs will concern notably the application of the policy and orientations defined by the Government in the domain of petroleum, whilst that of the Ministry of the Economy, of Finance and of the Budget will concern the regularity of financial management by … SNPC as required by the texts applicable to it and by the policies of the Government".
ii) SNPC's website refers to the fact that its pre-financing transactions are approved as necessary by a Government representative, specifically the Finance Minister
iii) Under Article 35 of the byelaws, SNPC is specifically subject to the control of the State, as well as the supervisory authority and other controls whilst Article 37 provides that it is subject to the financial and economic control by the State.
i) "SNPC is governed by a Board of Directors and a general management. The Board of Directors is composed of various members who are Government officials and who are appointed by a Council of Ministers decree (article 8). The Chairman of the Board (who is also the Director General of SNPC) is the member who represents the President of the Republic.
ii) Pursuant to Article 16 of the byelaws, the Board can delegate all or part of its powers to the Chairman.
iii) SNPC is supervised by the Ministry of Petroleum and can only be dissolved by the Council of Ministers (on the proposal of the Board of Directors).
iv) The registered office of SNPC can only be transferred to any other location within the Republic on a resolution by the Board of Directors followed by a decree issue by the Council of Ministers (article 3).
v) Resolutions approving the financial statements of SNPC and about (inter alia) its general orientation, budgets and balance sheets, economic policy and agreements relating to the exploitation of oil, all require the approval of the Council of Ministers.
vi) The capital of SNPC is composed of all the assets rights and mining permits, held originally by the State, directly or through Hydro-Congo in all activities related to research, exploitation, treatment and transformation of oil and secondary or connected products. Article 5 of the byelaws provides that the initial registered capital of 900 millions CFA francs can be increased by State allowances, in cash or in kind or by any other legal or regulatory mean (sic) pursuant to the provisions of the byelaws.
vii) Resources of SNPC come from (inter alia) State subsidies."
Cotrade - (La Congolaise de Trading)
i) It recited law 1-98 of 23 April 1998 and the provision that SNPC should exercise its activities either directly or through subsidiaries. It also referred to the internal restructuring of SNPC and the formation of subsidiaries to specialise in different trades, Cotrade being formed to trade in oil and oil products.
ii) The contract gave Cotrade exclusive rights to sell for SNPC as its agent (commissionaire) and an option to purchase oil from SNPC in its own right and for its own profit. The contract was a framework agreement under which Cotrade could, by notice, exercise its option to purchase cargoes 45 days before the scheduled lifting date and a contract would then be negotiated, with a purchase price which was to be set, bearing in mind the market value. If Cotrade did not exercise its right to purchase in its own name, then it was to act as commissionaire and to trade the oil, in its own name but as agent for SNPC, in the international market, at prices to be agreed between SNPC and Cotrade. It was to receive a commission in respect of such sales.
iii) SNPC was entitled to request pre-payment prior to lifting the cargo and to seek pre-financing of projects on a priority basis from Cotrade, and only to look elsewhere if Cotrade did not agree within time limits to provide it.
iv) The Contract was to last for 2 years but would be cancelled automatically if SNPC should cease to hold the majority of Cotrade's capital or should lose control of it.
The History of Prior Trading of Congolese oil
"The head and shareholder, direct or indirect, of the parent company is a petroleum industry professional having the status of a private person. The fact is that nowadays links with the public function constitute an impediment to business and banking activities".
Although Mr Gokana would not accept it, this appears to me to be a clear reference to the desirability of avoiding any obvious connection of the companies to the Congo State, because of the possibility of seizure of assets which could be seen as belonging to the State, if held by persons or entities associated with it. The Memo, Mr Gokana accepted, referred to himself and it emphasised that any connection between himself as a "private person" and the State was unhelpful.
The later Transactions after the Nordic Hawk
The Transaction in issue
"The company was of no real importance to me - what mattered was my personal contact with Ike Nwobodo who, over many years, had proved to be a professional and trustworthy contract party. I knew that he had good contacts in the Congo and I had sufficient confidence in his ability to perform the contract to on-sell to BP."
Events following the Third Party Debt Orders on 10 April 2005.
i) On 10 April 2005 Kensington obtained interim Third Party Debt Orders in relation to the debt due from Glencore in respect of the purchase of the cargo.
ii) I find as a fact that Sphynx Bermuda and AOGC, in the persons of Mr Gokana, Mr Malonga and also Dr Nwobodo were made aware of these orders very shortly after they were made. Not only were copies of the orders couriered out to AOGC on 11 April but Glencore was notified immediately and Dr Nwobodo spoke to Mr Wakefield or someone at Glencore who informed him of it, whilst Mr Gokana spoke to Mr Destribas of Glencore also. Mr Malonga said he was told about it by Mr Gokana. There is no doubt in my mind, and I find as a fact, that Mr Gokana and the others knew of the existence of the order by, at the latest, 12 April.
iii) Knowing of this order, Mr Gokana sought to create an assignment of the debt due from Glencore which would take priority to any Third Party Debt Order. Mr Gokana, Mr Malonga and Dr Nwobodo gave conflicting evidence as to the initiation of this instrument, but I find, in accordance with Mr Malonga's evidence which accords with the inherent probabilities, that it was Mr Gokana, as the man in charge, who not only made the suggestion of such an assignment, but insisted on its implementation.
iv) A document in French entitled Accord de Garantie was executed by Dr Nwobodo for Sphynx Bermuda and by Mr Malonga for AOGC, which was conveniently dated 30 March 2005. Mr Malonga, in his first statement, maintained that this was the date of execution but in a second statement said it was 13 April. If it was 13 April, it would have been executed in immediate response to receipt of information about the 10 April orders made by this Court. It purported to be an irrevocable assignment to AOGC of Sphynx Bermuda's right to payment from Glencore.
v) Dr Nwobodo's evidence was that he signed this document in Brazzaville at the instance of AOGC's internal lawyers and that he thought it may well have been after 20 April when he sought by email from the Congo, and obtained, a copy of the Sphynx Bermuda/Glencore Agreement duly signed. He accepted that the details of this might well have been inserted in the Assignment at that stage. He said he was asked to sign the Assignment and the Sphynx Bermuda/AOGC contract (which contained the date of 20 March) at the same time in order to make for consistency between all the contractual documents relating to the cargo and he did so. I find that he was right in thinking that this took place after 20 April since the Assignment first surfaced in public on 25 April when it was sent to Glencore with a Sphynx Bermuda invoice, also signed by Dr Nwobodo, seeking payment to AOGC. According to his diary, Dr Nwobodo left Brazzaville for London on 25 April, having arrived from Paris on 11 April. Both the AOGC/Sphynx contract and the Accord de Garantie were backdated from an execution date after 20 April and I find that the latter was intended to defeat any rights Kensington might have.
vi) No such document exists in respect of any other deal and, given the now accepted position that Mr Gokana allocated profit between AOGC and Sphynx Bermuda as he saw fit, as both were his companies, any suggestion that the assignment was a precautionary security for AOGC, as all three of Sphynx's witnesses maintained at one time or another, is fatuous. They could offer no sensible reason for the assignment and the only reason there can be for it is the desire to evade the effect of this Court's orders of 10 April and later orders in relation to the cargo, by creating a backdated instrument with the intention that it should be thought that it had been executed on the date shown, namely 30 March.
vii) In fact the assignment could not be effective vis à vis Glencore because the SNPC terms and conditions, incorporated into the Glencore contract, required the consent of both parties to any assignment by Sphynx Bermuda Glencore, with knowledge of the Court order, did not comply with the demand to pay AOGC.
The Principles of Law
"I have not any doubt on the evidence I have had before me that the Defendant Company was the channel through which the Defendant Horne was carrying on his business. Of course, in law the Defendant Company is a separate entity from the Defendant Horne but I cannot help feeling quite convinced that at any rate one of the reasons for the creation of the company was the fear of Horne that he might commit breaches of covenant… and that he might possibly avoid that liability if he did it through the Defendant company… I am quite satisfied that this company was formed as a device, a stratagem, in order to mask the effective carrying on of the business of Horne. The purpose of it was to try to enable him under what is a cloak or a sham, to engage in business which, on consideration of the agreement which had been sent to him before the company was incorporated, was a business in respect of which he had a fear that plaintiffs might intervene and object."
In consequence, an injunction was issued to prevent Horne and his company from breaching the covenant given, but as has been pointed out, this may not really be a case of piercing the corporate veil, inasmuch as it merely prevented Mr Horne doing, through a company he controlled, what he could not legitimately do himself.
"If he disposes of an asset which would be available to his creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach, he is in the ordinary case acting in a fashion not honest in the context of the relationship of debtor and creditor"
The court insisted upon the need for dishonesty before a transaction could be avoided under statute (section 172 of the Law of Property Act 1925). Cairns LJ said that:-
"a conveyance for good consideration would be regarded as fraudulent if made with the deliberate intention of hindering creditors and for the benefit of the debtor himself rather than as a bona fide… arrangement"
"In my judgment the position is or may be different where a group arranges its affairs in such a way as to divest a company within the group of its assets with the purpose and effect of ensuring that they would not be available to meet its existing liabilities, at any rate where the transfer is made to another member of the group at an undervalue. Depending upon the facts, such an agreement is likely to be held to be sham or façade, as those expressions are used in the cases."
"In my judgment the court is entitled to pierce the corporate veil and recognise the receipt of the company as that of the individual in control of it if the company was used as a device or façade to conceal the true facts thereby avoiding or concealing any liability of those individuals."
i) Does the chain of "contracts" between Cotrade and Glencore in relation to the cargo, represent a series of "sham" transactions which are intended to conceal the reality of a sale from Cotrade to Glencore or are they real transactions which impose genuine rights and obligations on all the parties concerned?
ii) If not, are any of the transactions in the chain "sham" transactions within the meaning of the expression as used in the authorities?
iii) Are AOGC and Sphynx Bermuda merely devices, façades or masks concealing the identity of the real seller of the cargo which is the Congo, or are they genuine traders in oil?
iv) Has the structure of companies and sales been put in place with the object of evading enforcement of the indebtedness of the Congo, which is responsible for creating the sham companies and structures?
v) Are those responsible for the structure dishonest in the relevant sense of the word, so that the court can look behind the companies and transactions and treat the debt owing by Glencore as a debt owing to the Congo?
i) The sale from Sphynx Bermuda to Glencore was a genuine sale transaction but the others were not. Glencore was untroubled about the identity of its sellers, knowing that Dr Nwobodo and Mr Gokana had close connections with SNPC/Congo and, confident that the oil would be delivered, would have been prepared to adopt the practices suggested to them for payment by those two individuals.
ii) The sales of the cargo between Cotrade and AOGC and AOGC and Sphynx Bermuda were sham in the sense that they were not genuine sales transactions at all, with concomitant legal rights and obligations. They were devised to hide the reality of a sale by Cotrade, which is part of the State of the Congo, to Glencore.
iii) Although AOGC is a corporate entity which carries on some business of its own, its use in the sale of the cargo was a sham. It and its BGFI bank account were used as a façade or mask to conceal the identity of the seller and true recipient of the proceeds of sale. Sphynx Bermuda was similarly used as a façade without regard for its corporate nature. Both were utilised in this manner by Mr Gokana in his capacity as President and DG of SNPC and were ciphers under the control of SNPC through him for this purpose.
iv) The structure of companies and sales was therefore put in place and employed by the Congo/SNPC/Cotrade with the object of evading enforcement of existing liabilities of the Congo by hiding its assets from view.
v) Those involved in creating and masterminding the use of the structure were dishonest in the relevant sense of the word because of this objective when creating and using the sham companies and transactions in question, to avoid enforcement of existing liabilities.
Bank accounts at HSBC
i) The balance remaining in Sphynx Bermuda's Euro call deposit account is the residue of a payment of €600,000 made by AOGC on 27 April 2004, together with accrued interest payments. On the evidence, I am satisfied that the only sizeable sums which AOGC ever obtained were the result of the oil trading activities conducted in the manner outlined earlier in this judgment. The likely immediate source of funds was the receipt of $7,995,954 by AOGC from Trafigura on 8 April 2004 in respect of the March 2004 Djeno cargo.
ii) The balance remaining in Sphynx Bermuda's US dollar call deposit account is the residue of the Addax cargo payment, together with interest payments. The Addax cargo payment was the only example of a payment of the purchase price moving from the international market purchaser through Sphynx Bermuda to AOGC.
iii) The balance remaining in Sphynx UK's sterling account is the residue of a number of payments made by Sphynx Bermuda on 17 September 2003, 9 December 2003 and 12 May 2005, together with interest payments. Those payments from Sphynx Bermuda themselves derived from two payments received on 1 May 2003 and 2 July 2003 from an unidentified source, with the reference "BEI:DWCIBSNS", and a 12 May 2005 payment which is the product of the Addax cargo.