Walker Intl Holdings Ltd v Olearius Ltd

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 14 October 2003
• Court: Grand Court (Cayman Islands)
• Date: 14 October 2003

Grand Court

(Smellie, C.J.)

WALKER INTERNATIONAL HOLDINGS LIMITED and AF-CAP INCORPORATED

and

OLEARIUS LIMITED, SOCIÉTÉ NATIONALE DES PETROLES DU CONGO, CAISSE CONGOLAISE D”AMORTISSEMENT and REPUBLIC OF CONGO

J.P. Walton for the plaintiffs;

M.W. Imrie for the first defendant;

M. Todd, Q.C. and D.T. McGrath for the intervener;

The second, third and fourth defendants did not appear.

Cases cited:

(1) Adams v. Cape Indus. PLC, [1990] Ch. 433; [1991] 1 All E.R. 929, dicta of Slade, L.J. applied.

(2) Jones v. Lipman, [1962] 1 W.L.R. 832; [1962] 1 All E.R. 442, referred to.

(3) S.C.F. Finance Ltd. v. Masri, [1985] 1 W.L.R. 876; [1985] 2 All E.R. 747; [1985] 2 Lloyd”s Rep. 206; (1985), 129 Sol. Jo. 450, dicta of Lloyd, L.J. applied.

(4) Siskina v. Distos Cia. Naviera S.A., The SiskinaELRUNK, [1979] A.C. 210; [1977] 3 All E.R. 803; sub nom. Shanker (Ibrahim) & Co. v. Distos Cia. Naviera S.A., [1978] 1 Lloyd”s Rep. 1, dicta of Lord Diplock distinguished.

(5) T.S.B. Private Bank Intl. S.A. v. Chabra, [1992] 1 W.L.R. 231; [1992] 2 All E.R. 245, dicta of Mummery J. applied.

(6) Woolfson v. Strathclyde Regional Council, [1978] SLT 59, dicta of Lord Keith applied.

(7) Yukong Line Ltd. v. Rendsburg Invs. Corp., [2001] 2 Lloyd”s Rep. 113, referred to.

Legislation construed:

Arbitration Law (2001 Revision) (Law 2 of 1974, revised 2001), s.22: The relevant terms of this section are set out at para. 21.

Foreign Arbitral Awards Enforcement Law (1997 Revision) (Law 30 of 1975, revised 1997), s.5: The relevant terms of this section are set out at para. 20.

Conflict of Laws-recognition of foreign proceedings-enforcement of judgment debt-final and conclusive judgment for definite sum enforceable at common law-arbitral award made in country party to Convention on Recognition and Enforcement of Foreign Arbitral Awards enforceable in Cayman Islands under Foreign Arbitration Awards Enforcement Law (1997 Revision), s.5 and Arbitration Law (2001 Revision), s.22

Companies-corporate identity-lifting corporate veil-close super-visory relationship between corporate defendants not necessarily sham or façade, allowing assets of one to be treated as assets of other-no lifting of veil if creation of separate company as special purpose vehicle for lenders” security not exceptionable

Civil Procedure-joinder of parties-necessary and proper parties-company beneficially owned and controlled by defendant properly joined in enforcement of defendant”s judgment debts-assets may be made available to satisfy defendant”s debts and may be safeguarded by Mareva injunction against joined party as ancillary to cause of action against defendant

The plaintiffs applied to enforce a French arbitral award and an English High Court judgment against the third and fourth defendants and sought declarations that the first and second defendants” assets were to be available to satisfy those judgment debts.

The plaintiffs were judgment creditors of the Republic of Congo and its debt management agency, respectively the fourth and third defendants. In separate proceedings, a French appeal court ruled that the first plaintiff was entitled to seize the assets of the second defendant, the Congolese state-owned oil company, in satisfaction of the debt on the grounds that the second defendant was an ‘emanation d”Etat’ of the Republic. The second defendant marketed oil on behalf of the Republic, which held its

entire capital. The French court found that it had no operational autonomy or activities separate from the Republic.

The plaintiffs became aware of a financial arrangement in the Cayman Islands involving the defendants and applied to enforce their judgments here. This arrangement was a structured finance arrangement for the sale of oil, facilitated by the first defendant-a special purpose vehicle incorporated in the Cayman Islands-to which a loan facility had been granted by a group of banks. The loan stipulated that the first defendant was to be the ‘vehicle through which funds were to be made available to the second defendant’ and it was repayable from oil sales. The account from which the lenders were repaid was thus not in the name of the producer of the oil, the Republic, to avoid attachment by other creditors. The loan was guaranteed by the Republic, which had also assigned its oil rights to the first defendant.

In 2002, the Grand Court granted an injunction against the first defendant, restraining it from passing to the second defendant any funds except those required to service the loan. This constituted an event of default under the terms of the loan and the lenders subsequently demanded payment from the first defendant of all proceeds and intended to do so until fully repaid.

The plaintiffs submitted that (a) they were entitled to enforce the foreign judgments in the Cayman Islands by statute and at common law; (b) the second defendant”s assets ought to be available in satisfaction of the debts, as held by the French court, as it was an alter ego of the Republic, a mere sham or façade, or because it held the Republic”s assets beneficially; (c) similarly, they were entitled to pursue the first defendant, as any distinction between it, the second defendant and the Republic was a sham; (d) the financial arrangement was merely a cloak to protect the Republic”s funds from its legitimate creditors and therefore the corporate veil ought to be lifted; and (e) an injunction should be granted against the second to fourth defendants and that existing against the first defendant continued, and furthermore, a receiver should be appointed over the first and second defendants” assets.

The first defendant submitted that the allegations of sham were unfounded and that in fact its incorporation as a Cayman special purpose vehicle was part of a bona fide, arm”s-length commercial transaction, inspired by the entirely legitimate concern of the lenders to maximize their security, rather than to defraud the Republic”s creditors.

The intervener submitted that (a) the proposed receivership order over the assets of the second to fourth defendants would not fulfil the plaintiff”s expectations, as the lenders had demanded full repayment of the loan and it was unlikely that any excess funds would pass to the defendants; (b) furthermore, a receivership order would prejudice the lenders as they were merely third parties and were unprotected; (c) nor should the current Mareva injunction against the first defendant be continued, as it froze the mechanisms by which the lenders were repaid; and (d) if the injunction against the first defendant were to be discharged,

it would not exercise its discretion to pass excess funds to the second defendant, and they would instead be available to satisfy the judgment debts.

Held, making the following rulings:

(1) The plaintiffs were entitled to enforce their judgments against the third defendant and the Republic at common law and by statute. They were enforceable at common law as they were for definite sums and were final and conclusive. In addition, the arbitral award was made pursuant to an arbitration agreement in France, a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and could therefore also be enforced under the Foreign Arbitral Awards Enforcement Law (1997 Revision), s.5 and the Arbitration Law (2001 Revision), s.22 (paras. 19–22).

(2) It did not necessarily follow, however, that the second defendant”s funds could be used to help satisfy those judgments. Although the second defendant was closely supervised by the Republic, it was not an ‘emanation’ of the Republic amounting to a sham or façade which justified lifting the corporate veil so as to treat its assets as those of the Republic. The motive behind the oil-financing arrangements in creating a separate company with assets distinct from those of the Republic was relevant, and the aim of enabling the lenders to obtain better security by lending to the first defendant rather than to the producer of the oil was also legitimate. There was nothing inherently exceptionable in the creation and use of the first defendant as a pre-payment facility (paras. 42–43; paras. 49–55).

(3) Nevertheless, as the second defendant was designed to hold assets which belonged beneficially to the Republic, it was a necessary and proper party to be joined to the proceedings. It was beneficially owned and controlled by the Republic and its assets were consequently to be regarded as the Republic”s and available to satisfy its debts. A Mareva injunction would therefore be granted against the second to fourth defendants, since it would be incidental or ancillary to the action against the Republic. Further, the appointment of a receiver over the second defendant”s assets would be denied, and instead an irrevocable designation of the account of the Grand Court would be required, the moneys to be received into that account to be held for the benefit of the plaintiffs (paras. 56–59; para. 66).

(4) The action against the first defendant would be discontinued and the Mareva injunction discharged, as it unjustifiably prevented the lenders under the oil-financing arrangement from recovering their investments. The court was guided by what was just and convenient and exercised caution in relation to injunctions, taking great care not to be oppressive to those affected, either in business or the conduct of everyday life. Furthermore, given the nature of the oil-financing arrangement, an injunction was inappropriate, as there would not have been any assets to

be restrained were the Republic to cut off the oil supply. The intervener”s representation not to exercise its discretion to make payments to the second defendant in excess of that required to service the loan would be accepted, so that surplus funds would become available to pay the plaintiffs (para. 59; paras. 73–76).

1 SMELLIE, C.J.: On July 17th, 2003, I granted...