QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| WALKER INTERNATIONAL HOLDINGS LIMITED
|- and -
|(1) REPUBLIQUE POPULAIRE DU CONGO (2) SOCIETE NATIONALE DES PRETOLES DU CONGO (3) FINANCIERE ET INVESTISSEMENT DU CONGO S.A.
|WALKER INTERNATIONAL HOLDINGS LIMITED
|- and -
|(1) REPUBLIQUE POPULAIRE DU CONGO (2) SOCIETE NATIONALE DES PRETOLES DU CONGO (3) JACKSON 31 LIMITED
Mr Julian Flaux QC and Mr Simon Kerr (instructed by Russell-Cooke) for the Fininco and Jackson 31 Limited
Hearing dates: 11, 13, 18-21/07/05, 25-28/07/5, 3-4/10/05
Crown Copyright ©
"There be a trial of the issue as to whether the judgment debtor [Congo] is "interested beneficially" within the meaning of section 2 of the Charging Orders Act 1979 in either the share capital of [Jackson] or the property at 31 Sackville Street, London W1S 3 DZ."
(1) Mr Ikama, who was appointed to the Board of Fininco in September 2002, having previously been the financial adviser to the Chairman of SNPC, then Mr Itoua. He told me that he is still such an adviser to the present Chairman, Mr Gokana.
(2) Mr Sheehan, a director of Walker.
(3) M. Manseau called on behalf of Walker. His brief was to set out the steps which Walker had taken in France to enforce its arbitration award and judgment; "provide the background to the decision of the Paris Court of Appeal which held that SNPC was an emanation of the State" [Congo] and "to provide a summary of the financial arrangements put in place by [Congo] which are structured so as to thwart the legitimate attempts of creditors to enforce against assets of [Congo]."
(4) Professor Issa Sayegh, an expert on French and Congolese Law was called on behalf of Fininco who also expressed opinions on the Ohada Treaty.
(5) Professor Geraud de Geouffre de la Pradelle, an emeritus professor at the University of Paris who gave evidence of French and Congolese law on behalf of Walker.
(6) Sanford Saunders a partner in a Washington Law Firm, Greenberg Traurig LLP, called on behalf of Walker
(7) Madame Perrier, an accountant with PwC, France, who gave evidence principally about the arrangements for a compte courant as between parent and subsidiary, called on behalf of Fininco.
(8) Professor Dossou, who gave evidence on 'geopolitical' matters on behalf of Fininco. He is a most distinguished man: an international lawyer, a politician in his home state of Benin [where he stood as an unsuccessful Presidential candidate in 1991] and a participant in many major international events, including being a founder member of the African Association of International Law and a member of the MacBride Consultation Group at the Teheran talks with the Iranian authorities for the liberation of American hostages.
(9) Maitre Brudey, a barrister, and a member of the Brazzaville Bar, called on behalf of Walker.
(10) M. Bernard Hinfray, a French chartered accountant, who gave expert evidence, on behalf of Walker, in response to that of Madame Perrier.
(11) Mr Gary Kleiman, who gave evidence on geo political matters on behalf of Walker, in response to the evidence of Professor Dossou. Mr Kleiman is a consultant in his firm based in Washington which gives independent analysis and advice on developing and emerging economies and financial markets in many countries including Africa. His breadth of knowledge about the Congo was impressive.
Summary of the parties' submissions
(1) Congo and SNPC are to be regarded as one and the same thing or that SNPC is to be regarded as Congo's agent, nominee and trustee in all, or some of its dealings (including, at the very least its dealings in respect of the Shares) and that SNPC's assets are available for execution in satisfaction of the debt owed by Congo to Walker. In any event, it is contended that Fininco and Jackson are estopped from arguing to the contrary by virtue of the declaration of the Appeal Court in Paris [judgment dated 3 July 2003] and/or the order of the Grand Court of the Cayman Islands [dated 17 July 2003]. The judgment of the Cayman Islands Court has now been registered in this jurisdiction by virtue of an Order of Master Miller dated 22 July 2005. Congo and SNPC have been kept fully informed about this hearing and have elected to take no part.
(2) Fininco itself (or at the very least, Fininco's ownership of the Shares) is a sham, pretence, device, cipher or façade giving the appearance of ownership of the Shares by an independent third party but in reality leaving ownership in the hands of Congo/SNPC.
"Fininco is nothing but another example of [Congo's] use of corporate (and other) ownership structures conceived to retain ownership and control of [Congo's] assets in [Congo's] hands whilst giving the impression of genuine third party ownership as a way of secreting assets and frustrating creditors. Fininco is, accordingly, a sham or pretence and is, to all intents and purposes, to be equated with and treated as [Congo/SNPC] by another name." paragraph 16 of Walker's closing submissions.
(3) Alternatively, Fininco holds the Shares as a mere agent, nominee or trustee for Congo/SNPC.
(4) To the extent that it is necessary to assert it, Fininco is an emanation d'Etat of Congo/SNPC.
(5) Walker has been and is the victim of transactions and/or arrangements entered into, or participated in, by Congo/SNPC with the intention of placing assets of Congo/SNPC beyond the reach of creditors such as Walker and prejudicing the interests of such creditors within the meaning of section 423 of the Insolvency Act 1986. In such circumstances, pursuant to its wide powers under section 423(2) of the Act, the Court should grant relief.
(1) There is no basis for concluding that Fininco is a sham entity. On the contrary it is a separate corporate entity established according to Congolese Law and OHADA [Organisation pour l'Harmonisation en Afrique du Droit des Affaires'] with its own assets and operations. Fininco is "recognised as a corporate entity within the SNPC group, distinct from its parent not only by its own external auditors, Ernst & Young, but by the external auditors appointed to audit SNPC at the behest of the IMF, KPMG."
(2) To establish agency or nomineeship requires an intention that the particular purchase will be as agent or nominee. An examination of the purchase files relating to the acquisition of the shares and the property are inconsistent with Fininco being a mere nominee as opposed to purchasing for itself.
(3) Only if the court concluded that Fininco was a sham and was to be equated with SNPC would the Court need to consider whether SNPC and Congo are to be equated. As a matter of English Law the language used is whether the entity is an alter ego or organ of the State; mere State control will not suffice.
(4) The alternative case under section 423 of the Insolvency Act does not add anything to Walker's case "and should be rejected". The transaction in question has to be one to which the debtor was a party and that begs the question whether SNCP and Congo are one and the same. In any event, there is no factual basis for the assertion that a "substantial purpose" of the transaction was to put assets out of the reach of creditors. The attack on the transaction under this head is solely on the basis that SNPC advanced the money to Fininco interest free. There is no evidence that the sale took place at an under value having regard to the potential increase in the value of the property which would redound to the benefit of SNPC as 80% shareholder.
The previous decisions
"defined as a public industrial and commercial establishment taking the form of a company with the status of a legal entity and with financial autonomy, all of its capital being owned by the state, according to its articles of association dated 9th April 1999, that company:
- has at its purpose to intervene on behalf of the state, directly, through its subsidiaries or in association with foreign partners, in all operations concerning the production, processing, transformation, development and transport of liquid and gaseous hydrocarbons on Congolese territory and abroad, and particularly to undertake or participate in all operations connected with the aforementioned mission, to conduct the necessary investment operations and market the products, on behalf of the state to hold and manage the assets and rights belonging to it, directly or through an interposed company and generally to undertake the public service mission of developing, operating and marketing Congolese hydrocarbons;
- has a capital of 900,000,000 CFA francs, mainly constituted by all the assets, rights and mining titles initially held by the state;
- the company is placed under the financial control of the state and the Audit Office;
Whereas it results from this strong guardianship that S.N.P.C does not have enough statutory operational independence as regards taking autonomous decisions, in its own interest, to enable it to be considered as having autonomy in law and in fact with respect to the Congolese State. It is not even in control of its own future through a personal investment policy, or of its organisational structure. The existence and extent of a commercial activity of its own distinct from its public service mission is not clearly apparent from its accounts. According to the annual report on its 2000 accounts, the company made a net theoretical book profit of $58.5 million, but it is specified that "the recording of the State's reimbursements of undertakings to certain operators by a deduction from production equivalent to the SNPC oil profit, representing a debt due from the company to the state, leads to an entirely absorbed result". Thus, having no real autonomy, the company can only invoke a debt due to it from the state without really building a development policy based on its financing of itself;
Whereas if as a rule the state's guardianship or even control of a legal entity, exercised through its directors, and the public service mission which is devolved to it, are not sufficient to enable it to be considered as an entity emanating from the state implying its assimilation with that state, in the cases in point with respect to S.N.P.C. the Congolese state has reserved to itself not a simple power of supervision but a veritable power of guidance and approval constituting true interference. This means that S.N.P.C has no real autonomy that could result from its status as a company recorded in the register of financial operators. It constitutes a legal entity which is clearly fictitious and, hence, is an emanation of the Republic of the Congo."
"The Banks first make the funds available to Olearius. These funds are used to buy oil from SNPC under the Forward Purchase Agreement. Some of the oil that Olearius purchases is for on sale to Vitol SA and other buyers. The oil sold by SNPC to Olearius is the property of [Congo]. Cash proceeds of the sales under the Forward Purchase Agreemennt are credited directly to the Collection Account from which payment on the loan facility is made to the Lenders by Olearius. Excess proceeds in that account are passed by Olearius on to or to the order of SNPC. SNPC is also responsible for the repayment of bridge financing, facility fees, expenses, hedge premise and the funding of the Debt Service Reserve Account. An additional element of the Scheme is that [Congo] has guaranteed the loan on behalf of Olearius and has also assigned rights to Olearius to receive oil. The entire arrangement is known as the Hedge Crude Oil Prepayment Facility."
(1) The entire capital of SNPC is held by ROC. It was responsible for the marketing of ROC's oil production.
(2) Members of the Board of Directors are chiefly representatives of the Government and are appointed by decree issued in Council of Ministers.
(3) The Company is under the economic and financial supervision of the Government Accounting Office.
(4) The Ministry has permanent power of orientation and supervision of the enterprise.
(5) The Company's mission is to undertake any necessary investment operation on behalf of the ROC and to hold and manage on behalf of the Government the assets and rights belonging to the Government.
The Paris Court of Appeal ultimately came to the conclusion that because the Congolese Government had reserved to itself "not a simple supervisory power but a rather genuine power of orientation" that had had nullified any realty that SNPC was an autonomous company.
What gives this Court pause is the need to take the leap from finding that SNPC is closely supervised to the conclusion that it therefore is an "emanation" of ROC to the extent as a matter of English common law; that that connotes a fiction, a mere shame or façade. Even if this Court accepts all five of the French Court's findings of fact, that does not lead ipso facto to the conclusion that SNPC is fictional. Again that conclusion may be a matter of French law, having no corresponding basis in English Law.
The approach taken by the French Court may be criticised as flawed, to the extent it implies a fiction or mere sham; in that every State is at liberty to set up Government bodies and agencies which lawful under their Governmental systems for perfectly legitimate purposes such as those expressly forming the raison d'etre of SNPC. Moreover, there are obvious and troubling concerns of international comity which arise from arriving too readily at such conclusions.
As to Olearius, the only allegation of a façade or sham in the Plaintiffs' pleadings was that the formation and use of Olearius in the alternative marketing arrangement was a device or sham to ostensibly retain the Congolese Defendants' assets by structuring their affairs in such a way as to prevent execution against them. The Plaintiffs point out that the Facility was so structured that there would be no collection account in the name of the producer of the commodity, that being SNPC. As a result of this that account would be unavailable for attachment by creditors of the producer.
I have already described from the Lenders point of view, the raison d'etre of Olearius; which by its name, conveys the metaphoric derivatives of its oil bearing purpose.
The same can be said for the use of the SPV Scheme. There is nothing inherently exceptionable in the use of the SPVs as financial vehicles. SPVs are used extensively throughout the world for the structuring of financial transactions for many different reasons. Olearius, as a Cayman Islands SPV, is by no means unique in that regard.
The Lenders contend that the Facility negotiated with SNPC was for the legitimate commercial purpose of the provision of a commercial loan to be repaid from and secured by the production of oil and the sale of oil.
I accept without reservation, that the transaction evidenced by the Facility Documents is a legitimate structured finance arrangement which enables the Mandated Arrangers to seek to obtain better security by lending to an SPV rather than lending to the producer of the oil.
Based on all the foregoing, this Court declines the Plaintiffs' invitation to declare SNPC the alter ego of ROC or a mere sham or façade. The Court also expresses reservations about the propriety of any such relief against Olearius.
Notwithstanding the foregoing, I am however satisfied that SNPC is a necessary and proper party whose assets because of the nature of its relationship with ROC, should be made available to satisfy ROC's judgment debts.
"Mr McQuater submits, and I accept, that the evidence overwhelmingly shows that SNPC is a Congolese public entity for the purposes of Clause 1 of the April 1984 Loan Agreement. As Mr McQuater points out, for the purposes of these claims, this is as far as the claimant needs to go. However, Mr McQuater submits, and I agree, that the evidence in the case does, in fact, go further and demonstrates that SNPC is simply part of the Congolese state and has no existence separate from the state. That is demonstrated by the Congolese legislation, which establishes SNPC and demonstrates that its purposes are to undertake the exploitation of Congo's oil reserves on behalf of Congo, to hold the state's related assets on its behalf and to represent the state in oil related matters. The by-laws of SNPC are to similar effect. It is financed by the state. Its function is to act on behalf of the state, it is under the financial and economic control of the state and its officers are government appointees.
In a recent decision of the French Court of Appeal, in the matter of SNPC v Walker International Holdings Limited on 23rd January 2003, that court found in contested proceedings that SNPC was simply the alter ego of Congo, thereby affirming the decision at first instance to the same effect. On 29th January 2002, the Tribunal de Grand Instance, Paris reached a similar conclusion in favour of another creditor, Connecticut Bank of Commerce".
The evidence in this case
"Q. Now, when you wanted to ask COSER for money as a shareholder, who did you write to?
A. Still within the framework?
Q. In 2002 and 2003, when you wanted money from a shareholder, COSER, who did you write to?
A. In 2002?
Q. In 2002, after you arrived in September 2002 and in 2003, when you wanted money from COSER as a shareholder, who did you write to?
A. Well, when I arrived, it was still the representative, Mrs Mbongo.
Q. So you wrote to Mrs Mbongo?
A. Under what circumstances?
Q. When you wanted money from the shareholder COSER, who did you write to?
A. I would write to a representative of the structure.
Q. And who was that; it was Mr Itoua, was it not?
Q. Who was it then?
A. It was Mrs Mbongo.
Q. Mr Ikama --
A. At that time, if I needed to write a letter I would address it to Mrs Mbongo.
Q. But there are no documents in the files where you have asked for money from COSER where you have written to Mrs Mbongo.
A. I did write to COSER because they owed me part of the money.
Q. So you did write to COSER. Where are those documents? They are not in the bundles. Where are those documents?
A. What I tell you is the following: COSER owes me money, it has nothing to do with that. So, when I write to Mrs Mbongo, I ask her for money because in fact they are in a building where we share services and they owe me money for the services we offer but it has nothing to do with this.
Q. Let me ask the question again. When you, wearing your Fininco hat, wanted to get money from the shareholder COSER, who did you write to? Or did you not write to COSER at all?
A. I sent a letter to be able to finance my activities and it was sent to SNPC.
Q. And you sent that to Mr Itoua.
A. I have not finished. With regard to this particular activity, I did not send a letter to COSER.
Q. So is this right: you never sent a letter seeking shareholder funds from COSER wearing your Fininco hat in 2002 or 2003?
A. For that particular activity, no.
Q. What do you mean, "for that particular activity"?
A. For what gathers us here today. Jackson.
Q. Jackson, or anything else in respect of Fininco; did you ask COSER for any other monies?
A. I think, your Honour, well for this particular matter, well, it does not relate to this matter. I cannot answer.
Q. Yes, it does, Mr Ikama. Did you, in 2002 and 2003, ever write to COSER, one of the shareholders, for funds in respect of the running of Fininco?
A. For funds with regard to this transaction, I have to say no.
Q. I appreciate that but in relation to anything else, Microfinance?
A. Yes, for other things.
A. Yes, I did write to COSER but it has nothing to do with this transaction.
Q. Who did you write to?
A. I am not held to talk about it here.
Q. Who did you write to?
A. I came here for something specific, so ask me questions on what I have come for.
Q. So are you telling the court that there are documents passing between Fininco and COSER which have not been disclosed to this court in relation to your requests for monies from COSER?
A. I think that I am disposed to disclose documents that relate to the matter. Or else, once again, are you trying to say that I do not understand anything about disclosure? Because I was only thinking about documents that had a direct relation to the case."
This extract shows a disposition to avoid answering what were simple and direct questions: I think he was playing for time to work out an acceptable answer. In reaching this conclusion, I have taken into account the fact that he gave evidence through an interpreter, which always makes the oral evidence less fluent. But he gave an overall impression of wanting to say as little as possible that revealed precisely what was happening and why. As an example of Mr Ikama's unreliability, he said that Fininco opened a bank account immediately after he had taken over the running of Fininco in early September 2002. I suggested that there must be documents relating to this. They should have been disclosed earlier but were not. When they were produced they showed that the bank account was opened on 27 November 2002. Further, I suspect that Mr Ikama could have told the court a great deal about SNPC and the way it is managed and run, but he chose not to do so. Whether at the urging of a number of banks or oil companies, as suggested by Mr Flaux QC, or not, the fact is that Congo wishes to trade their oil without creditors such as Walker getting their hands on the money, and for that purpose elaborate schemes are set up which are carefully documented. In that environment, it would not be surprising if documents were generated which had no substance, but were there in form only. In this context, not everything is quite what it seems to be: appearance and reality diverge.
"The experts agree to admit that FININCO did not have any financial autonomy in relation to SNPC during 2002 and 2003. The situation was due to both the financing method set up and the lack of any significant activity by FININCO during those two years ...".]
"is set up among other things for the carrying out of financial operations relating to the financing of projects, the management of group funds, the purchase, management, assignment of shareholdings both commercial or industrial and property companies;
SNPC and Fininco SA by virtue of their capital links, regularly carry out funding operations together; Fininco SA also contracts with SNPC for the provision of services [at normal market conditions] – my translation of "dans les conditions obeisant aux regles normales du marche").
"The credit account balances in favour of [SNPC] (described as "Partner") shall earn interest at the central bank rate increased by two points. The interest earned shall be payable and passed to the credit account half yearly. Interest shall be capitalised according to the trading rules. The definitive balance shall be fixed when all the current operations and all the undertakings of the Partner have passed to the current account."
"There is simply no basis for the suggestion that the agreement had not been signed or was in draft or that this was a reference to some other agreement than that signed on 9 September 2002, let alone that Ernst & Young were not aware of the existence of the agreement given that their representative was present during the board discussion of and approval of the agreement."
"the compte courant agreement was essentially "window dressing" initiated and imposed by SNPC on Fininco".
How did Fininco come to buy the shares in Jackson?
"I know you have already commenced procedures to obtain consent to proceed with this purchase and in this interim period I will, of course, keep closely in touch with you and the vendor's agent. If any other serious interest is received for the building during this period I am relying on him to tell me and I will, of course, inform you immediately."
"As requested, I have asked Eversheds to provide a letter confirming our client's bona fide intent in this connection, that they are instructed to progress legal formalities as soon as possible and that funds are available to effect the purchase, albeit an amount of this nature is most likely to be transferred from the head office in Congo."
"I have spoken to SNPC's representative this morning and he tells me that ... once lawyers have agreed the documentation, the funds will be made available to complete the purchase."
"I understand that you have agreed terms, subject to contract on behalf of our mutual client [SNPC] for the purchase of the special purpose vehicle that owns the ... property.
I confirm that this firm has acted for SNPC and its associated companies for several years.
I have spoken to SNPC's representative this morning. He tells me that the purchase will be in the name of Finaco [presumably a mistake for Fininco] and that once lawyers have been able to agree the documentation the funds will be made available to complete the purchase."
"Contrary to what is said in the heads of Terms, Paul [Ebelebe] tells me that the purchase will be in the name Finaco [sic] SA."
"As you know I spoke to Mr Elenga [SNPC's lawyer] in Paris yesterday to explain that I am coming under increasing pressure from the vendors to give them a date by which we will be ready to exchange contracts for the purchase. I explained to Mr Elenga that the normal procedure in the UK to legally commit two parties together in a transaction is at the point of exchange of contracts when 10% of the purchase price is payable with the balance due 28 days thereafter. Mr Elenga explained to me that a Board Meeting is due to be held in Paris in 10 days time after which he will be in a position to give me a date for exchange. I will pass this information on [to] the vendors and I hope that they will be patient with us as I know they have other interest in the property."
"However, M Bruno Itoua, SNPC's chairman wishes you to continue your investigation further in order to make a final decision."
"We have contacted financial institutions with a view to set up a financial arrangement allowing us to pay the sums remaining to be paid."
"the best way of reassuring the Vendors is for one of those financial institutions to confirm that, subject to the usual formalities being completed, they are prepared to set up the necessary financial arrangements to make the money available to Fininco."
"are requesting written confirmation that the funds will be in place to ensure completion of the acquisition of the above property on 18 December 2002".
"we have taken the relevant steps to make the balance of sums payable available to you in relation to 31 Sackville Street."
"he had been to see the bank this morning and that either later this evening or tomorrow morning we would be getting a fax from him confirming the bank instructions and giving full details of the transfer."
"the funds were available pre Xmas, but due to the Xmas close down could not be transferred."
"They look official but are not evidence of an actual transfer. They are internally generated instructions to the BGFI bank [in Libreville]. We are concerned at the delays and would like some verification that the Bank are in funds and confirmation that the funds were sent."
(1) At the time when the contract to purchase the shares was entered into Fininco had no bank account and no share capital and no employees on its payroll. The possibility that Fininco would be the nominal purchaser of the shares was first mentioned in March, which was before Mr Ikama had been appointed and when there was no board meeting of Fininco to approve the acquisition. The decision to buy in the name of Fininco was probably taken by SNPC at a Board Meeting in Paris and was communicated to Eversheds by Mr Ebelebe who never was an officer of Fininco but was acting on behalf of SNPC (UK) or SNPC itself. He did not give evidence, although he was available to be called. It is clear that the property was found by SNPC for occupation by SNPC UK. Mr Ikama made a significant slip when giving evidence as to his involvement with the transaction. He was explaining how he came into the picture on 3 September 2002.
"I came in on the 3rd, I was updated on what was going on, and I was told that there were pressures. The person who was there told me what Ebelebe had been doing; sorry, the manager director of Fininco who was there before me, what he had been doing. I know the banks and their agents, having worked a long time with them, and I can tell them: this is the problem that we have, can you help us?"
The files show that the managing director of Fininco, Mr Ovoundard, played no part in the transaction: Mr Ebelebe was the person with whom the agents and solicitors had had extensive dealings. The change in Mr Ikama's evidence was not a correction of an understandable slip of the tongue, it was, in my judgment a calculated alteration because Mr Ikama realized that if he (truthfully) admitted that he had been briefed by Mr Ebelebe, who was not an officer of Fininco but was an officer of SNPC (UK), it would damage Fininco's case that it was in charge of the purchase of the shares and was not acting as a mere conduit pipe for SNPC. In short, the change was a deliberate attempt to mislead the court.
(2) The funds for the purchase of the shares came from SNPC as was always contemplated. Mr Ikama's reference to having contacted "financial institutions" was not truthful and I am reinforced in this view by the fact that he failed to identify them when requested by Eversheds to do so, in order to buy time. At that time Fininco had no bank account and no share capital and the idea that he had contacted financial institutions with a view to raising the money is quite implausible. I am satisfied on the evidence that Mr Ikama knew that the money was always coming from SNPC. I also doubt whether the funds had been made available before Christmas: there are no documents which support that contention, other than an instruction by SNPC to one of its banks.
(3) Fininco had no decision making role to play in relation to the acquisition of the shares in Jackson. It was committed to buying them well before it had the capacity to do so. The truth of the position is that SNPC decided, through Mr Itoua and Mr Ebelebe, to make SNPC funds available to buy the shares and it then decided to put the purchase into the name of Fininco. Thus, although in legal terms Fininco and SNPC appear to be two separate corporations, at the time when the shares were bought, Fininco took no decisions to buy the shares: they were bought for them by SNPC as though Fininco had no separate role to play in the decision making process. The property was being bought for SNPC (UK) to occupy them. Whether SNPC (UK) did occupy them is unclear; they paid no rent for the property. Mr Ikama's evidence about this was evasive and unclear [see Day 4 pages 23 – 26].
(4) The whole transaction simply involved putting the shares and property into the name of a company ostensibly owned by SNPC so that the assets could be held by Fininco whilst remaining, in reality, under the ownership and control of SNPC. I reach this conclusion without having to resolve an argument between counsel as to whether there is what Mr Flaux QC describes as a halfway house between Fininco being considered a sham or a mere façade or the transaction itself being so described, on the one hand, and Fininco acting as nominee agent or trustee of Congo/SNPC whether generally or just in relation to this transaction, on the other. Fininco was not incorporated as a genuine subsidiary of SNPC with its own commercial purpose. On the contrary, it was set up so that it could be used as a tool for SNPC's purposes, in the hope that creditors would not be able to get their hands on Congo/SNPC money. Fininco is as much an organ of the State as SNPC.
Is SNPC an organ of the State and to be regarded as part of the State?
A. The geopolitical background:
B. What the documents show
"handling for the account of the state, directly through its subsidiaries all in association with foreign partners, all operations relating to the production, handling, refining and transport of liquid or gas hydrocarbons both in the CONGO territory or abroad.
Holding and managing for the account of the state all of the assets, direct and indirect rights, of any type whatsoever, held initially by the state, directly or through HydroCongo in all its business activities relating to the exploration, operation, handling and refining of hydrocarbons and derivative or related substances."
"since the SPV, being autonomous in relation to the SNPC and the Republic of Congo, could enforce its right of ownership of said oil in order to block their attempted seizure.
To ensure that the independence of the SPV in relation to the Lenders and the SNPC cannot be challenged by creditors of the SNPC or the Republic of Congo, the stock shares of the SPV are held by a Trustee that is fully independent of the Lenders and the SNPC."
"full mobilisation of oil revenues needs to remain an essential part of the government's efforts to strengthen its fiscal position. The system of oil revenue monitoring – up to the point of marketing of the State's share of oil by the SNPC and transfer of the proceeds to the treasury – needs to be strengthened. The Government also needs to explore ways of turning the SNPC into a net contributor to the budget. None of the SNPC's after tax income [US$43 million in 2001] has been transferred to the budget. The increases in the SNPC's stake in oil ventures and its expansion into non-oil sector activities, largely financed from retained earnings, deprive the treasury of potentially significant sources of revenue. One way to ensure a steady flow of at least part of the SNPC's profits would be by formalising a dividend policy.
While other state-owned enterprises are being privatised, the SNPC is expanding, with major investments not only in upstream but also in downstream oil operations, and even outside the oil sector – a trend that seems to run counter to the SNPC's stated mandate. The authorities explained that they used the SNPC to underwrite economic ventures in situations where domestic participation was desirable but other potential private investors were not sufficiently strong. They would use their upcoming in-depth evaluation of the experience with the June 2001 Convention between the government and the SNPC as an opportunity to reflect on the range of the company's operations."
"oil fiscal regime under which the government collects its revenue in kind – largely through ... [SNPC] – is prone to misuse of oil resources. For example the direct utilisation of oil fiscal revenues for a predetermined purpose undermines the principle of centralised cash management."
"urgent disclosure of the legal situation of the refinery [which the State made available to an entity called CORAF] particularly the ownership, the lease, the reciprocal accounts linking HydroCongo, SNPC and the Congolese State, the legal conditions for supplying CORAF with crude and the domestic market with finished products etc."
"Very high off-balance-sheet commitments are not explained in attached notes, with the result that the financial statements cannot give a true picture of the net-worth situation of the enterprise. In particular, legal actions, security deposits, and major guarantees covering the petroleum reserves must be described in detail and their potential effect must be estimated when possible."
"Concerning the consolidated accounts of the SNPC ... reciprocal accounts have not been reconciled: unexplained differences are outstanding ... Quality of the SNPC accounts for 2002 is comparable with 2001 and cannot therefore be certified, despite an improvement was noticed. A significant effort has to be made by the company to comply with our recommendations:
Various measures must be quickly taken: quality of the bank accounts followup, reconciliation of the accounts with the State, inter-company accounts ..."
"This gap related to a discrepancy between revenues recorded by treasury and tax liabilities of the oil companies as stipulated in the production-sharing contracts. Although the 1999 – 2001 external audit of [SNPC] was expected to shed light on this issue, the auditors [KPMG] were not granted access to the underlying documentation and were this unable to reach any conclusions."
"The terms of reference for the external audit included an examination of the fiscal agency role of the SNPC and an audit of expenditures carried out on behalf of the government. Because of concerns of national security, the auditors were not allowed access to the invoices and bank statements necessary for these evaluations."
|Explanation/Item||Percent of Shortfall|
"At odds with the government's privatisation strategy, the [SNPC] embarked in 2003 on a diversification strategy, including into non-oil activities such as finance, air transport, and services, financed out of a non-oil investment budget equivalent to 0.5% of GDP in 2003."
"Unlike the Government's privatisation strategy, [SNPC] started to diversify its activities in 2003, engaging notably in non-oil activities such as finance, air transport and the services [sic], on the basis of a non-oil capital budget equivalent to 0.5% of GDP in 2003. The Government should remedy this situation."
The Legal test
"Whatever [the] value [of the phrase 'emanation of the State'] may be in the context of Community Law, however, it would be neither safe nor helpful to use this concept as a shorthand way of describing the test that must be applied to determine whether a person or body is a non-governmental organisation for the purposes of article 34 of the Convention. There is no right of individual application to the European Court of Justice in EC law. The phrase 'non governmental organisation' has an autonomous meaning in Convention Law."
The arguments on behalf of Fininco
(1) Fininco was formally incorporated as a subsidiary of SNPC in compliance with OHADA principles governing the incorporation of companies.
(2) There is no evidence to suggest, as Walker does, that Fininco was set up to avoid the consequences of the saisie proceedings taken by Walker against SNPC in the French Courts. The first saisie was obtained on 24 October 2001 and was directed at two of the banks with which SNPC had pre-financing arrangements. "For an oil company such as SNPC to wish to set up a subsidiary specialising in financial and investment matters is neither surprising nor sinister, nor is the fact that the investments which such a company should make should include the purchase of commercial property in London."
(3) The absence of financial autonomy does not mean that Fininco is not a genuine and independent corporate entity.
(4) Fininco's accounts were audited by Ernst & Young of Brazzaville and if there had been any irregularity in the accounts they would have said so. The "increase in Fininco's share capital was financed by way of set-off against amounts loaned by SNPC and its treatment in the company's accounts were both approved by Ernst & Young ..."
(5) The court should reject M. Hinfray's contention that Fininco had "no managerial or administrative autonomy whatsoever from SNPC and essentially does what it is told to do by SNPC." But a company in a group set up to carry out finance and investment would make the investments in accordance with the financial objectives of the group; but that is different from simply acting on the parent's instructions. Thus, Mr Ikama prepared a business plan and a programme of activities setting out the activities of the company as he saw them. These were then discussed in the board. It is not a case of SNPC issuing diktats. Whilst Mr Hinfray referred to a number of items in Board Minutes for his thesis that Fininco had no administrative and managerial autonomy, on analysis they amounted to no more than a desire to standardise group procedures on matters such as taking advice from the parent's lawyers or sending the compte courant agreement to SNPC for their analysis and standardisation.
(6) Mr Ikama told the court that he was responsible for the way that the financial objectives were achieved; that he controlled day to day management and was responsible for the staff under his control.
Fininco since 2003
"The foundations of the launch of Fininco .. have been laid. Thanks to the assistance of the parent company, the company has constituted a reliable patrimony (property and financial assets). The capital increase and capital payment operations in the 2002 financial year supported the equity capital of Fininco .. giving it the means of affirming itself as a "group leader" financial company."
"the procedures relating to offices and interim responsibilities at subsidiary level: the requests relating to the offices of Managing Director of the subsidiaries must be sent to the Chairman of the Board. The interim memoranda stating the scope of powers must be initialled by the Chairman of the Board. The interim memoranda stating the scope of powers must be initialled by the Chairman of the Board."
The following items were discussed:
(1) The idea of Fininco issuing bonds "to obtain funds from the public to meet the State's and the SNPC Group's finance requirements."
(2) The design of "cover products to protect the State's petroleum revenue and the group's activity against the volatility of the US dollar exchange rate, the flow of oil and the level of the interest rates".
(3) The setting-up of a second category "micro-finance establishment the purpose of which would be to demonstrate to the Congolese more tangibly the use made of the national petroleum resources on behalf of the official banking sector." It was proposed that it would apply for the necessary approval "with the aim of becoming operational in March ".
(5) Fininco is looking into the possibility of setting up an entity for wholesale trading in the currency markets.
(6) Obtaining finance for the members of the group.
(7) Financial Consultancy
(8) Centralised management of the group's funds.
"progressive transformation of the SNPC's group oil assets into financial assets; Control of an insurance company by 2005-2006; Control or creation of an "investment bank" type of financial banking establishment by 2006-2007."
"I have analysed all the board meeting and the minutes of the shareholders' meeting which was submitted to me, in order to have an idea to what extent is there autonomy or not, of Fininco, toward SNPC. What I noted in, and what it is not usual in the board minute, that despite the board's power, which are mentioned in the company by-laws, they have full power, the board have full power, the managing director has a full power but, despite this full power, for every usual, every element of the company's life, they are requiring an authorisation, they are requiring to be the agreement of SNPC; they act as they had no autonomy" – Day 9 page 39.
A. It is a plan, it is what the company wants to do, but, when I had a look to the financial statement, 2003, and when I had a look on the bank -- company bank's statement up to November 2004, I have not noted any of those transaction in the command that I have seen.
Q. Those transactions are all ...
A. So that is a long-term business plan.
Q. Those transactions are all, as I suggested to you a moment ago, no doubt partly because things take a lot longer to take effect in Africa than they do in Europe, those supposed transactions are still in the course of being set up, and they include the last one: to assume that the function of financial consultant to the parent company and other group companies -- you have seen that before, have not you?
A. Perhaps, I saw that decision, I saw that minute.
Q. And then there is some congratulations to the management for their initiative in the business plan and in relation to staff training. Now there is nothing there, is there, M. Hinfray, to suggest that before the board decided that those were the matters that the company was going to move forward with, that it had to go back to SNPC to obtain SNPC's approval for all those?
A. That is right, I do agree with you.
Q. You see, why do you not refer to any of those items in your paragraph 88 and following?
A. I have not referred to those decisions, as I explained to you, because what I had was -- the document that I had, it was a year 2002, 2003, and bank statement up to 2004. And I have not noted any of those operations so, I am asked by the court what I have noted in the documents submitted to me, to me, by which I will consider that Fininco is, has an autonomy or not from SNPC. In what I saw in the financial document, I saw none of them, so, I wrote and for my point of view, in the documents submitted to me, the company has not yet implemented, up to November 2004, any independent activity from SNPC. It is provided but it is not gone up to November 2004." Day 9 page 44 - 46
A. That is right, that I have attached to my report a full copy of the minutes, of the board minutes, since the minute was presented to the court. But what I was explaining in my report, that I note many, too many decisions which were subject to the SNPC approval; SNPC decision; SNPC acceptance and so on, for instance; and some decisions which are usual recruitment procedure; salary scale; appointment of legal advisor; review ...
Q. Let us just focus, again please, on what you say in paragraph 88. You say that from reading, after reading the minutes of the board meeting, you were surprised to note that "the approval of decisions of the Board of Directors is almost systematically submitted to the analysis, opinion or agreement of the parent company." Now M. Hinfray, I would suggest that by the use of the word "almost" you may be able to say to his Lordship: it happened in nine cases out of ten; but the truth is, is it not, that that statement, that the decisions were almost systematically submitted to the analysis, opinion or agreement of the parent, is simply not correct and not borne out by an analyses of all the entries in all the board minutes?
A. I agree that I have not done count of what decision has been taken independently, and what decision, how many decisions, are subject to the SNPC decision or agreement. When I wrote those minutes, I was surprised by such a wording, it is not usual to have a lot of points which remain subject to the mother company agreement. Specifically, in that situation, since Mr Itoua, which is President of Fininco, is at the same time managing director of SNPC so, usually in such a case, if Mr Itoua is presenting something to the board of Fininco, of course he had the agreement of SNPC, that it is nonsense to present something to the board of a subsidiary if you are the managing director of the mother company, and you tell the board: I will ask myself if I will agree such a proposal, as managing director of the other company; that is a nonsense. Day 9 page 47.
To some extent, this evidence is confirmed by Mr Ikama's own evidence. Fininco purported to have shareholders' meetings but when asked about the voting of the different shareholders he appeared not to understand the idea that the voting rights of the shareholders did not all belong to SNPC [see the extract of evidence at paragraph 17 of this Judgment].
"I have not issued any report on other company, which is not normal in the present case, in not one independent situation. What I explain in my report, that there is many different situations and that is not one of them, in most cases one of them is normal, several of them are usual; but when you add all those situations, the addition of all those situations is not normal. They have no autonomy in bookkeeping. They have no autonomy in recruitment. They have no autonomy to fix the amount of the appointment and wages. They have no legal autonomy. It is the addition and how works the company which give me the impression, and on which I support my conclusion to say that from my point of view they have no managerial autonomy". Day 9 page 55.
The Insolvency Act
"423 Transactions defrauding creditors
(1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another if:
(a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to provide no consideration; or
(c) he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by himself.
(2) Where a person has entered into such a transaction, the court may, if satisfied under the next sub-section, make such order as it thinks fit:
(a) restoring the position to what it would have been if the transaction had not been entered into, and
(b) protecting the interests of persons who are victims of the transaction.
(3) In case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose:
(a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or
(b) of otherwise prejudicing the interests of such a person in relation to the claim which is making or may make."
"425 Provision which may be made by order under s.423
(1) Without prejudice to the generality of section 423, an order made under that section with respect to a transaction may (subject as follows) –
(a) require any property transferred as part of the transaction to be vested in any person, either absolutely or for the benefit of all the persons on whose behalf the application for the order is treated as made;
(b) require any property to be so vested if it represents, in any person's hands, the application either of the proceeds of sale of property so transferred or of money so transferred;
(d) require any person to pay to any other person in respect of benefits received from the debtor such sums as the court may direct;
(f) provide for security to be provided for the discharge of any obligation imposed by or arising under the order, for such an obligation to be charge on any property and for such security or charge to have the same priority as a security or charge released or discharged (in whole or in part) under the transaction.
(2) An order under section 423 may affect the property of, or impose an obligation on, any person whether or not he is person with whom the debtor entered into the transaction; but such an order –
(a) shall not prejudice any interest in property which was acquired from a person other than the debtor and which was acquired in good faith, for value and without notice of the relevant circumstances, or prejudice any interest deriving from such an interest, and
(b) shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction."
The Parties' submissions
(a) The jurisdiction proceeds on the assumption, as it was put in the Cork Report [The Report of the Review Committee on Insolvency Law & Practice – Cmnd.8558, June 1982] that "persons must be just before they are generous and that debts must be paid before gifts can be made."
(b) There are two basic elements that are required:
(i) that a transaction has been entered into for no consideration or at an undervalue and
(ii) that the purpose of the debtor in so doing was to defeat creditors' claims or in some other way prejudice their interests.
(c) In relation to the first element, the wording of section 423 should not be construed so as to frustrate the purpose of the section: see The Department for Environment Food and Rural Affairs v Feakins [26 November 2004] per Hart J. at paragraphs 44 and 45.
(d) As for the second element, the statutory purpose does not have to be the sole or the dominant purpose and dishonesty does not have to be proved. In IRC v Hashmi  2 BCLC the Court of Appeal confirmed that it must be established that it was a "real substantial purpose" of the transferor to put his assets beyond reach of creditors or otherwise prejudice the interests of such persons.
(e) Applying those principles, there are a number of arrangements or transactions which fall within the section:
(i) The arrangements of setting up Fininco so as to divert to it assets belonging to Congo/SNPC so as to avoid creditors – comparable to the insertion of Olearius into the chain of oil sale transactions. Since Fininco is never going to be able to repay the monies advanced to it and since there is no intention that it should, Fininco has given no consideration for the advances made to them.
(ii) Jackson's shares were put into Fininco's name rather than into the name of SNPC or SNPC (UK) and this amounts to a transaction for which there was no or no significant consideration. It was based on monies from SNPC and was 'covered' by a letter which purported to confirm a loan which was an empty paper trail.
(iii) At the very least, the business opportunity of buying Jackson and acquiring a commercial property was worth something and the benefit of that opportunity was transferred to Fininco for no consideration.
(f) The purpose of using Fininco to hold the assets was plainly for the statutory purpose, having regard to the way Fininco was incorporated, the fact that it was effectively managed and run by SNPC/Congo and that there is no valid reason why SNPC or SNPC (UK) should not own the shares themselves in their own name unless they were worried that their creditors would more readily be able to trace and get their hands on the assets.
(g) As for the defence raised that section 423 is incapable of having extra-territorial effect, as a matter of law that is wrong. In a decision in the Court of Appeal in Re Paramount Airways Ltd (in administration)  CH 223 at page 235, on section 238 of the Act, but in which section 423 was also considered, the Vice Chancellor [Sir Donald Nicholls] said:
"... on its face, the legislation is of unlimited territorial scope. To be within the sections a transaction must possess certain features. For instance, it must be at an undervalue .. If a transaction satisfies these requirements, the section applies, irrespective of the situation of the property, irrespective of the nationality or residence of the other party, and irrespective of the law which governs the transaction. In this respect, the sections purport to be of universal application. The expression "with any person" merely serves to underline this universality."
Thus, as the court made clear "siphoning money abroad .. is a typical case to which the new legislation must have been intended to apply." But in this case, the property is located here; Jackson is an English registered company; the acquisition of the shares was governed by English Law and Fininco was intended to be at least the nominal company which bought the shares. It was submitted to me that I should therefore be readily satisfied that Fininco is "sufficiently connected with England for it to be just and proper to make the order against him despite the foreign element." [per Sir Donald Nicholls at page 239-40].
(a) In order to succeed, Walker would have to establish that Congo/SNPC and Fininco are one and the same.
(b) Walker cannot establish that the substantial purpose of the transaction was to put assets beyond the reach of creditors. In Hashmi [paragraphs 39-40] Simon Brown LJ said that the court should ask
"Can the court be satisfied that a substantial purpose of the debtor's transaction was (putting it in shorthand) to escape his liabilities" but "if in fact the judge were to find in any given case that the transaction is one which the debtor might well have entered into in any event [for example, out of a wish to avoid inheritance tax], he should not then too readily infer that the debtor also had the substantial purpose of escaping his liabilities.
(c) The test of whether the debtor had that intention is subjective and he must be shown actually to have the intention. In this case there is "simply no basis whatsoever for Walker's suggestion that the purpose (let alone the substantial purpose) of the relevant transaction was to enable SNPC let alone [Congo] to put assets beyond the reach of its creditors." [Skeleton closing submission paragraph 89].
(d) The section only applies to transactions "at an undervalue". There must at least be some "gratuitous element". The court will take into account the reality of the benefit received and not merely what was expressed to be the consideration. The real transaction which Walker seeks to impugn is the acquisition of the shares in Jackson with monies advanced by SNPC without "interest". But the fact that a loan is provided interest free does not mean that it is a transaction at an undervalue. Thus, increases in commercial property values would enhance the value of the shares held by Fininco in Jackson. If SNPC had purchased the shares in their own name they would then have been responsible for the costs of managing and administering the property which are not inconsiderable. "It is difficult to see how it can be suggested that the consideration provided by SNPC was significantly less than that received, let alone involves a gift or a gratuitous element." – paragraph 92 of the Closing Submission.
Since writing my judgment and sending it to the parties for correction, I have had the chance to read the judgment of Cooke J in the matter of Kensington International Limited v Republic of Congo & as third parties Glencore Energy UK Limited, Sphynx UK Limited, Sphynx (BDA) Limited, Africa Oil & Gas Corporation and Cotrade SA [Folio 2002 Nos 1088, 1281, 1282 & 1357, judgment handed down on 28 November 2005.] In his judgment, as in mine, Cooke J. concluded that Congo had:
(a) put forward dishonest oral evidence;
(b) failed to disclose relevant documents;
(c) relied on documents which did not evidence the true situation and were backdated.
These are serious matters. Witnesses who deliberately lie in court may be prosecuted for perjury. The creation of false and misleading documents for use in court may expose those who participate in it to prosecution for forgery. Deliberately trying to mislead the court may also involve proceedings for contempt of court. I simply express the hope that those who advise Congo/SNPC will take note of this for the future.