QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| Banco Nacional de Comercio Exterior SNC
|- and -
Empresa de Telecomunicationes de Cuba SA
Daniel Toledano (instructed by Freshfields Breukhaus Deringer) for the Defendant
Crown Copyright ©
Mr Justice David Steel :
"One: The facilities and guarantees provided by [ETC]… as collateral for the obligations undertaken by the National Bank of Cuba with the Mexican Financial Institution [BNC] shall be deemed legally null and void… "
"I refer to our roaming agreement dated October 2000 (the "Agreement"), and your email regarding the purported "Official Notification of Credits Surrender" and attaching the letter dated 17th October 2006 from Mairmir Mesa Ramos.
ETECSA's purported transfer of its right to receive payments under the Agreement to Gran Kaiman SA is invalid and ineffective. Clause 19.1 of the Agreement does not permit transfer or assignment of the Agreement or any part of it in these circumstances without the prior written consent of the other party to the Agreement. As we stated in our email to you of 27th September 2006 we do not consent to the transfer of ETECSA's rights.
Secondly we dispute ETECSA's suggestion that it has the right to suspend supply of roaming services to T-Mobile on the basis of "Force Majeure" if T-Mobile does not make payments to Gran Kaiman rather than to ETECSA. Clause 15 of the Agreement allows ETECSA to suspend roaming services only where Force Majeure prevents ETECSA from supplying the services. This is not the case here, as ETECSA still has the ability to continue providing the services to T-Mobile."
The world-wide order
i) The underlying jurisdiction of the court was by way of registration of a foreign judgment: Article 38 (2).
ii) The purpose of that registration was to achieve enforcement.
iii) The only mode of enforcement had to be by way of execution on assets within the jurisdiction, i.e. the place of enforcement within the meaning of article 39 (2).
iv) It is well established that provisional or protective measure under Article 31 are conditional on the existence of a real connecting link between the relief sought and the territorial jurisdiction of the state of the court applied to: Van Uden BV v. KG Deco-Line  QB 1225
v) Thus the provisional or protective measures referred to in Article 47 must be confined to "domestic" measures.
"1. Whether judgment must be recognised in accordance with this regulation, nothing shall prevent the Applicant from availing himself with provisional, including protective, measures in accordance with the law of the member state requested without a declaration of enforceability under Article 41 being required.
2. The declaration of enforceability shall carry with it the power to proceed to any protective measures… "
Risk of dissipation
i) In a letter dated 28 February 2006 (and I should record that the Claimants do not accept the authenticity of the dates of some of the documents), the auditors of GKT recommended that "the required measures should be adopted to guarantee the payment of your debts, mainly the balances recorded for [ETC]".
ii) This was followed up in a letter from the President of GKT to the President of ETC dated 3 May: -
" Bearing in mind the recent recommendations by the auditing firm that certifies the financial statements of [GKT], a subsidiary company of [GDE], acting as attorney-in-fact for the latter in the commercial transactions included in the Financial Agreement, which our Group signed with [ETC] on 9 May 2001… we are obliged to request the company under your management to negotiate a modification in the terms of conditions of the Financial Agreement so that we are granted a collateral guarantee based on international flows that will ensure payment of the long term debts related to the performance of the Agreement in the case of a default in payment by [ETC]. "
iii) Shortly afterwards Amendment No.4 to the Financial Agreement between ETC and GDE was entered into. It is dated 31 May. This is an unusual agreement. The principal terms were as follows: -
a) ETC granted GDE a guarantee to protect GDE against default by ETC.
b) As support for the guarantee, ETC "irrevocably assigns" its creditor's rights in respect of the roaming operators named in "Annex A" – this document was not disclosed.
c) The list in Annex A was a "minimum" to which ETC had the discretion to add other creditors.
d) ETC was to instruct the roaming operators to deposit any monies owed to ETC in an account of GKT.
e) Absent default by ETC, GKT was to transfer the monies to ETC within 3 days. In the event of default, GKT was entitled to transfer the monies to GDE.
iv) A draft form of "Notification of Credits Surrender" was prepared in June.
v) By letter dated 4 August, ETC informed GKT and GDE that two operators had been added to Annex A, namely Wind Telecomununicazioni S.p.A and Telecom Italia Sp.A.
vi) By email dated 14 September, O2 Germany were informed by ETC: -
"We would like to evaluate the possibility of credits cesion, the reason of this cesion is only commercial. I am sending in attachment the proposal to notification of Credit Surrender. We would like to obtain your position about that as soon as possible…"
vii) By letter dated 19 September ETC wrote as follows to GKT and GDE:
"… we hereby notify you that, as of the date of this letter, [ETC] has assigned the credits it holds with other roaming operators to [GKT], these being added to the list of Roaming Operators included in Schedule A… The details of these operators are attached to this letter."
In fact, the details were not attached, although it was said to nominate "the English telecommunications".
viii) As recorded above, notice of the purported assignment was given to Swisscom and O2 Germany on 17 October.
ix) Vectone, one of the English telecommunications operators, was not notified of the assignment but by letter dated 17 October from ETC, was informed that ETC would "proceed immediately to suspend unilaterally the international telephone traffic services" by reason of the decree and the subsequent domestic freezing order.
x) In contrast, T-Mobile another English company were clearly informed of the assignment as appears from their letter dated 19 October refusing consent in response to an email of September and a letter dated 17 October.
i) The original decree was specifically directed at ETC's involvement in providing collateral for the obligations undertaken by the National Bank of Cuba. This in turn was said to be a response to the "malicious conduct" of the Secretary of State for Foreign Affairs of Mexico. Given that ETC is 70 per cent owned by the Cuban State, it was not surprising that it enthusiastically sought to respond to the decree without apparent regard to the fact that the loan agreement was governed by Mexican law and the Escrow Agreement by Italian law. (The extent of the Cuban state's control over ETC is exemplified by its entitlement to appoint its president and the apparent dismissal of the then president by the Cuban State in September 2006.)
ii) Having failed to establish an event of force majeure in the ICC Arbitration or before the Italian Courts, it would appear that every effort was made by ETC to avoid meeting the consequent judgments: indeed the letters to creditors threatening termination of the existing agreements make express reference to the decree. Indeed, as perceived by ETC the decision of the Council of Ministers still obliged ETC to take "any necessary action to achieve the strict enforcement" of the Decree.
iii) The apparent concern of GKT (and its auditors) about its exposure to ETC is somewhat surprising given that this arose from agreements entered into 5 years earlier in May 2001. BNC is legitimately sceptical about the timing of both the auditors' report to GKT in February 2006, shortly after the removal of the stay against enforcement, and the timing of amendment No.4, coming only shortly after BNC's initial recovery from the escrow agent in Italy in April 2006. It is of some further potential significance that the rash of activity vis-à-vis further assignments in mid-September coincided with the run up to BNC's further enforcement of proceedings in Italy and its preparation for registration of the Italian judgment in England.
iv) In any event, the terms of the Amendment No.4 are somewhat difficult to reconcile with the dictates of the ordinary course of business:
a) GDE were the "Funding Party" under the Financing Agreement. Whilst the position is not entirely clear, under amendment No. 4, GKT would appear merely to have become the "Agent" of GDE, with instructions to collect funds owed by telecoms to ETC and to pay them over to ETC within 3 days "as long as there is no default in payment" by ETC. There is no suggestion that ETC is or has been in default.
b) The auditor's recommendation was based on the premise that there was a substantial outstanding balance due to GKT from ETC. But the scheme of the Framework Agreement is that ETC should make all payments to GDE. The only apparent liability to GDE is a 15% deposit matched by "an advance return" in the same sum.
c) The precise relationship between GKT and GDE remains obscure. It would appear that GKT with majority-owned by GDE. The Funding Agreement allowed for substantial advances to ETC against Bills of Exchange. It seems highly likely that these advances would have been drawn down to meet GKT's invoices. Thus ETC's residual exposure to GKT remains unclear.
d) The terms of Amendment No.4 are unquestionably odd. It primarily records a guarantee by ETC of its own obligations to GDE. The amendment goes on to record the assignment of funds due from some roaming operators. But it is left to the discretion of ETC to extend the list. How that could be viewed as affording security to GDE remains obscure. Furthermore, it is common ground that at the material time ETC was not in default of its obligations to GDE. In that case, the funds were transferable from GKT to ETC within 3 days which demonstrates perhaps the lack of any (or any urgent) need for security.
e) The whole concept of the assignment of funds due from the roaming operators has to be viewed against the background of the standard GSM form of contract. Clause 19 contains a detailed non-assignment clause as referred to in T-Mobile's letter of the 19 October. Furthermore the contract is expressly subject to Swiss law. Recognition of the difficulties in the way of assignment is reflected in the threats on the part of ETC to terminate agreements where the roaming operators refused to recognise the assignment.
f) Although the material was available to BNC at the time of the original application for a domestic freezing order, the uncertainties regarding events in Italy in relation to payment due from Telecom Italia come into sharper focus in the light of the more recent disclosure. Once again, it is not possible to make any findings but two features of the apparent changes in payment arrangements may be significant:
i) After the ICC Award, payments for telecommunication services rendered by ETA were no longer channelled through Telecom Italia but through Telecom Italia Sparkle and Telecom Italia San Marino on a prepaid basis thus avoiding any accrual of funds.
ii) The 2006 first quarter accounts of Telecom Italia shows a dramatic reduction in the flow of monies from Telecom Italia to ESC after the issue of the award.
Other discretionary considerations.
37. (a) The judgment of the Italian Court as registered in England is for a substantial sum. The assets of ETC (even including those allegedly assigned to GKT) constitute only a small fraction.
(b) The roaming partners of ETC are numerous, both within and without the EU, as revealed by the GSM website. Whilst proceedings have been instituted by BNC in France, Germany, Luxemburg, Belgium and Switzerland, the need for a freezing order of wide scope is reasonably necessary particularly in the post judgment context.
(c) I do not accept ETC's submission that there is any unusual risk of confusion (let alone oppression) arising from the conflict between those orders made by the local courts and the English freezing orders. The only route for enforcement of the latter is through the local courts which will necessarily manage matters in an orderly and sensible fashion.
(d) It is true that the initial application was restricted to a domestic order. But in my judgment, the material that has emerged since fully justifies BNC's supplementary application for a worldwide order.
"The Applicant will pay the reasonable costs of anyone other than the Respondent which have been incurred as a result of this order including the costs of finding out whether that person holds any of the Respondents assets, and, if the court later finds that this Order has caused such personal loss, and decides that such person should be compensated for that loss, the Applicant will comply with any order the court may make."
a) it is part of the standard form;
b) it is limited to loss caused by the freezing order which the Court decides should lead to compensation;
c) the very same matter was raised before Langley J on 27 October: it was refused and no appeal was pursued.
"…provided that the Applicant shall not be liable to any third party for any loss caused by this Order insofar as it flows from the termination or non-performance of contractual arrangements between such third party on the one hand and the respondent or any related party on the other hand."
This was said to be necessary to eliminate the uncertainty that such termination or non-performance might later be held to have been caused by the freezing order. Whilst I have some sympathy with this concern, BNC will if necessary argue, no doubt, that such a response was not and could have not been caused by the freezing order rather than the Decree. The proposed proviso, however, proceeds on that very assumption. I do not regard it as appropriate.