1. This
is the Plaintiffs' application for an interlocutory injunction restraining the
Defendant, its servants or agents, from dealing with or charging or otherwise
alienating its assets in this jurisdiction or elsewhere so as to reduce the
value of the said assets below US$20 million. On 20th November, 1998 I granted
an interim order in the foregoing terms on foot of an ex-parte application made
on behalf of the Plaintiffs. On 25th November, 1998 I varied that order by
discharging it to the extent necessary to enable the Defendant to make a
payment of $2.1 million into the Savings Bank of the Russian Federation to the
account of Avisma.
2. Simultaneously
with the Interim Order obtained in this jurisdiction, the Plaintiffs obtained
an Order from the High Court of Justice of the Isle of Man on 20th November,
1998 against TMC (Holdings) Limited (Holding) and TMC Trading Limited (Trading)
restraining each by its directors, officers, servants or agents or in any other
manner howsoever from the moving or allowing to be removed from the
jurisdiction of the Court of the Isle of Man or disposing of or dealing with in
any manner howsoever any of its assets whatsoever within the jurisdiction of
the Court of the Isle of Man, save insofar as such assets exceed a sum of US$20
million and in any way disposing or dealing or diminishing the value of any of
its assets whether within or outside the jurisdiction of that Court up to the
same value. That Order was subject to certain exceptions including a saver for
dealing with or disposing of assets "in the ordinary and proper course of
business".
3. The
primary relief sought by the Plaintiffs in the Plenary Summons issued herein on
20th November, 1998 is a declaration that the assets of the Defendant in this
jurisdiction and elsewhere, subject to a maximum figure of US$20 million or
whichever sums this Court may determine, are the property of the Plaintiffs or
their nominees or a Russian company, JSC AVISMA Titano-Magnesium Combine
(Avisma) or, alternatively, are held in trust to the benefit of the Plaintiffs
or their nominees or Avisma. A further declaration is sought, without
prejudice to the primary relief, that the monies and assets of the Defendant
derived either directly or indirectly from dealings after 6th December, 1997 by
it or associated companies with Avisma are the property of the Plaintiffs or
their nominees or Avisma or, alternatively, are held by the Defendant in trust
for the Plaintiffs or their nominees or Avisma.
4. The
factual background to this application is one of considerable complexity and
the affidavits filed disclose an enormous degree of conflict.
5. In
broad outline, the evidence presented to the Court on 20th November, 1998, on
foot of which the interim order was granted, was that Avisma is a Russian
company which produces titanium sponge. In December 1987 the Plaintiffs
invested US£85,640,000 and acquired a 58% majority shareholding in Avisma
from two Russian companies, Rosprom and Bank Menatep. In the course of the
negotiations leading up to that acquisition, the Plaintiffs were told by their
agent, Creditanstalt Investment Bank, Moscow (Creditanstalt), that a
significant part of the profits which Avisma was able to earn on the sale of
its product were taken off-shore through a group of companies, which were
referred to collectively as TMC and which in these proceedings have been
identified as being the Defendant, Holding and Trading, that TMC was owned or
controlled by the majority shareholders in Avisma, namely, Rosprom and Bank
Menatep, and that this proportion of the profits of Avisma from the sale of its
product was available directly to Avisma's majority shareholders. In
particular, the Plaintiffs rely on the following statement in a circular issued
by Creditanstalt to prospective investors in Avisma:-
6. The
Plaintiffs contend that the acquisition by them of rights to the profits being
accrued through TMC was an integral part of the transaction under which they
acquired the 58% majority shareholding in Avisma from Rosprom and Bank Menatep.
7. The
acquisition of the interest of Rosprom and Bank Menatep was the first stage in
a two stage process which had as its objective the creation of the world's
largest fully integrated producer of titanium products. The second stage
involved the Plaintiffs' majority stake in Avisma being acquired by another
Russian company, which is also a substantial producer of titanium products,
VSMPO, in return for new shares in VSMPO to be allotted to the Plaintiffs.
That swop was effected and the Plaintiffs now hold 28% of the shares in VSMPO,
which is now Avisma's holding company.
8. In
essence, the Plaintiffs' complaint is that, although they acquired the profits
of Avisma which had been accruing through TMC to Rosprom and Bank Menatep prior
to their acquisition of the majority stake in Avisma, they have not received
those profits, which they estimate at $20 million on the basis of the statement
in the circular quoted above, since completion. There is also a dispute as to
the date of completion, whether it was 6th December, 1997 or 31st December,
1997, but that is peripheral to the issues on this application.
9. One
of the sources of evidence relied upon by the Plaintiffs in support of their
contention that they acquired the right to those profits is the transcript of a
telephone conversation between Bill Browder, acting on behalf of the Second and
Sixth Plaintiffs, and Peter Bond (Mr. Bond), acting on behalf of TMC, which
telephone conversation took place of 24th September, 1998.
10. Two
matters in particular were relied on by the Plaintiffs as evidencing that there
was a risk that the Defendant would dissipate its assets to the detriment of
the Plaintiffs. The first was a transfer by the Defendant of approximately
US$2.5 million to Bank Menatep, which has been insolvent since the commencement
of the Russian economic crisis in August 1998, which was perceived by the
Plaintiffs as being unauthorised and improper. The second was the creation by
Holding on 23rd September, 1998 of a composite debenture in favour of Barclays
Bank, Dublin to secure all sums and on the same day the creation by the
Defendant of several charges in favour of Barclays Bank, Dublin, including a
charge on a "security account" at the Dublin branch of Barclays Bank. The
Plaintiffs' position is that they gave no authority to create these charges and
that they indicate that TMC may not be holding the relevant assets to the order
of those who are beneficially entitled thereto. The Plaintiffs also suggested,
on the basis of a report commissioned by Creditanstalt from Ernst & Young,
Accountants, in Moscow and Douglas, Isle of Man with respect to the financial
records of the TMC companies, that "funds may be freely moved around among
them".
11. The
totality of the affidavits filed discloses certain uncontroverted facts in
relation to the TMC companies. The Defendant is a company registered in the
State under the Companies Acts, 1963-1990. It was incorporated on the 19th
June, 1995. The Defendant is a wholly owned subsidiary of Holding, which is a
company incorporated in the Isle of Man. Trading is a company incorporated in
the British Virgin Islands with an established and registered place of business
in the Isle of Man.
12. The
affidavits filed on behalf of the Defendant raise a fundamental conflict as to
the ultimate beneficial ownership of the Defendant and the nature of its
operations. The Defendant's position is that the ultimate beneficial owner of
the Defendant is LCM Trust, which is the family trust of Mr. Bond, a resident
of the Isle of Man. Mr. Bond, in an affidavit sworn by him has asserted that
the transcript of his telephone conversation with Mr. Browder, relied on by the
Plaintiffs, has been edited and, in any event, he has disputed the construction
put by the Plaintiffs on the exchanges between Mr. Browder and himself.
13. The
Defendant's position is that the Defendant is a trading company and acts as
agent for Trading. Its activities involve procuring raw material for Avisma
and the purchase of titanium and magnesium in Russia from Avisma and the sale
of these metals on the international market. The monies it receives are held
on behalf of Trading, its principal. The Defendant operates under a
Distribution Agreement with Avisma dated 10th January, 1996, which is subject
to renewal annually on 1st January in each year. The Defendant's position is
that the Defendant is a separate and independent legal entity from Avisma and
that Avisma has no right or control over its assets, contract or business. Its
relationship with Avisma is that of a distributor pursuant to the Distribution
Agreement. It is actively engaged in trade for profit on its own account and
it is not, as alleged by the Plaintiffs, a company which was set up as a device
to avoid anti-dumping legislation in the United States and is not engaged in
avoiding that legislation. It has made no distribution of profits since the
beginning of May 1998.
14. In
relation to the two matters which the Plaintiffs put forward as evidence of the
risk of dissipation of the Defendant's assets, the Defendant has advanced the
following explanations:-
15. At
the hearing of the application, Mr. Brady, on behalf of the Plaintiffs, and Mr.
Gallagher, on behalf of the Defendant, made detailed submissions on the issues
which arise on the application, namely, whether there is a serious issue to be
tried, where the balance of convenience lies, whether damages are an adequate
remedy for either party and, in particular, whether the Plaintiffs' undertaking
as to damages is adequate. Exigencies of time prevent me from outlining the
submissions here. Suffice it to say that controversy arose on each issue. I
find it unnecessary to determine any of the controversies because I have come
to the conclusion, to adopt a sporting metaphor used by Mr. Gallagher, that the
Plaintiffs do not "get to first base".
16. In
my view, in this case, the Plaintiffs have not adduced evidence to show or to
entitle me to infer that the Defendant is likely to dissipate its assets with
the intention of evading its obligations, if any, to the Plaintiffs. The
evidence adduced by the Defendant in relation to the two specific matters put
forward by the Plaintiffs as indicating a risk of dissipation, in my view,
sufficiently dispels the concerns expressed by the Plaintiffs. As regards the
payment to Menatep Bank in October 1998, the documentary evidence put before
the Court by the Defendant evidencing money transfers from the Defendant to
banks in Russia to the account of Avisma through the medium of the Dublin
branch of Barclays Bank between July 1998 and November 1998 is sufficiently
cogent to allow me conclude, for the purposes of this application, that the
transfer to Menatep Bank was made in error and that the Defendant is
endeavouring to retrieve the monies transferred and that, in any event, the
monies were destined for Avisma in which the Plaintiffs, through the medium of
VSMPO, have a stake. On the face of it there is nothing sinister about this
transaction. As regards the various securities given by the Defendant over its
assets to Barclays Bank on 23rd September, 1998, the evidence adduced by the
Defendant, in my view, is sufficiently cogent to allow me to conclude, for the
purposes of this application, that the charges were created in the ordinary
course of business to secure facilities afforded or to be afforded by Barclays
Bank to the Defendant. There was nothing covert about these transactions, and,
as was necessary to ensure their validity, particulars thereof were registered
in the Companies Office pursuant to the provisions of Section 99 of the
Companies Act, 1963.
17. On
behalf of the Plaintiffs, Mr. Brady attempted to characterise the Plaintiffs'
claim as a proprietary claim rather than a claim for a Mareva injunction. In
particular, he relied on the following passage from the judgment of Staughton
L.J. in
Republic
of Haiti -v- Duvalier
,
(1989) 1 All E.R. 456:-
18. The
question I have to consider is whether, on the evidence, the Plaintiffs have
shown that they have or have reasonable ground for claiming a proprietary
interest in assets of the Defendant. The primary relief they seek has some
semblance of proprietary claim, in that they seek a declaration that the assets
of the Defendant are first their property or held in trust for them. As so
formulated, the claim is not a derivative claim. However, the claim is limited
to a "maximum figure of US$20 million or whichever sums" the Court may
determine, so that in reality it is not formulated as a claim to a proprietary
interest in specific assets. More importantly, the evidence adduced by the
Plaintiffs supports a claim to the profits of Avisma which Rosprom and Menatep
Bank were accruing through TMC before the completion of the acquisition of the
stake in Avisma acquired by the Plaintiffs in December 1997. In my view, even
accepting the Plaintiffs' assertions as to the nature of the deal done with
Rosprom and Bank Menatep, which was completed in December 1997, at face value,
having regard to the evidence adduced by the Defendant as to the nature of the
trading activities of the Defendant, the Plaintiffs have not established that
their claim is in the nature of a proprietary claim in relation to the assets
of the Defendant.
19. The
Plaintiffs are not entitled to the interlocutory relief they have sought and
the interim order and the Plaintiffs' undertaking as to damages lapse. I
express no view whatsoever as to the effect of the order of the High Court of
Justice of the Isle of Man on the assets of the Defendant, the acknowledged
agent of Trading.