ICS Incorporation Ltd v Michael Wilson & Partners Ltd [2005] EWHC 404 (Ch)

No.6459 of 2003 and No.6460 of 2003[2005] EWHC 404 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Venue Royal Courts of Justice
Strand
London WC2A 2LL
Thursday, March 17, 2005
Before
MR JUSTICE LAWRENCE COLLINS6459 of 2003In the matter ofICS INCORPORATION LTDand in the matter ofTHE INSOLVENCY ACT 1986
Between
ICS INCORPORATION LIMITEDApplicantMICHAEL WILSON & PARTNERS LIMITEDRespondent6460 of 2003and in the matter ofICS, INSPECTION AND CONTROL SERVICES LIMITEDand in the matter ofTHE INSOLVENCY ACT 1986ICS, INSPECTION AND CONTROL SERVICES LIMITEDApplicantMICHAEL WILSON & PARTNERS LIMITEDRespondent
Mr Lloyd Tamlyn (instructed by Herbert Smith) for for the ApplicantsMiss Birgitta Meyer (instructed by Healys) for RespondentHearing: March 2, 3, and 4, 2005
JudgmentDate 2005-03-17

I. The applications

[1]Before the court are two originating applications issued by ICS Incorporation Ltd and ICS, Inspection and Control Services Ltd (“the UK ICS Companies”) against Michael Wilson & Partners Ltd (“MWP”), seeking to restrain the presentation of winding-up petitions against either of the UK ICS Companies.[2]The UK ICS Companies are part of a group of companies (“the ICS Group”). The directors of ICS, Inspection and Control Services Ltd are Mr Bassam Khoury, Mr Tarek Sultan and Mr Alan Robinson. The directors of its parent company ICS Incorporated Ltd are Mr Khoury, Mr Sultan and Mr Nasser Al-Rashed.[3]The ICS Group is in the business of providing government agencies with access to a database of information to verify the price, quality and quantity of goods at point of importation and exportation as against those matters as declared by importers and exporters, by use of the ICS Price Information and Customs Audit Programme (“PICAP”).[4]The latest accounts of the UK ICS Companies (to December 31, 2001) are heavily qualified and indicate a very substantial deficiency as a result of doubts about the recoverability of more than $20 million of trade debts. I was told by Mr Tamlyn, for the UK ICS Companies, that parent company debt accounts for much of the creditors, no doubt with the suggestion (but certainly no evidence) that there would be enough for ordinary creditors because the ICS Group would not let them go under.[5]In about early 2001, the ICS Group wished to tender for the provision of customs services, by PICAP, to the government of Kazakhstan. It decided that it was necessary to involve the services of Mr Raimbek Batalov, a businessman based in Kazakhstan, in this process, by way of a joint venture. He owns, or is ultimately interested in, a number of companies including, inter alia, McKellen Holdings Ltd, Raimbek JSC and (on the UK ICS Companies’ evidence) Transnational Capital Ltd (“the Batalov Companies”). The joint venture operating company was eventually incorporated as Inspection and Control Services Kazakhstan LLP (“ICS Kazakhstan LLP”).[6]MWP is a solicitors’ practice, the principal director of which is Mr Michael Wilson. It is incorporated in the British Virgin Islands, and is based in the city of Almaty in Kazakhstan, but practises in other countries. MWP performed substantial legal services in connection with the joint venture.[7]The relevant MWP invoices were originally addressed to Transnational Capital Ltd, and ICS Kazakhstan CJSC or ICS Kazakhstan LLP. The three largest invoices were addressed to Transnational Capital Ltd: US$405,386 in January 2002; US$126,361 in March 2002; and US$165,355 in May 2002. The first invoice to be addressed to either of the UK ICS Companies was in June 2003, when US$3,817 was billed. A further US$13,808 was billed in October 2003.[8]On September 19, 2003 MWP served statutory demands at the registered offices of each of the UK ICS Companies. In each of those demands, the amount alleged to be due and owing by the UK ICS Companies is US$1,133,044.18. The UK ICS Companies are alleged to be jointly and severally liable for the alleged debt, which represents the legal fees of MWP alleged to have been incurred between about January 23, 2001 and September 8, 2003 in respect of the joint venture in Kazakhstan.[9]The invoices originally addressed to Transnational Capital Limited and ICS Kazakhstan CJSC or ICS Kazakhstan LLP were re-issued and sent addressed to the UK ICS Companies on October 7, 2003.[10]The UK ICS Companies allege that neither of them is liable for the alleged debt, or any part of it. They claim that if the debt is owed by anyone, it is owed by its co-joint venturer Mr Batalov, or one or more of the Batalov Companies.[11]The originating applications were issued on October 9, 2003. Undertakings were given by MWP at a hearing on that day before Lightman J not to present petitions pending the final determination of the applications, and directions for the further determination of the applications were given. Those directions were in part varied by a number of orders. On 13 December 2004, after the filing of the evidence in support, answer and reply, Mr Registrar Baister, on the application of MWP, opposed by the UK ICS Companies, gave MWP permission to file further evidence in rejoinder, and the UK ICS Companies permission to file evidence in surrejoinder thereafter. As a result the evidence before the court for an application of this nature is now immense, and no doubt the costs are enormous.[12]The only issue on these applications is whether the UK ICS Companies can demonstrate that the alleged liability for the debt claimed in the demands is subject to a substantial or bona fide dispute. Even if the dispute is “shadowy”, an injunction should normally be granted. If however, any part of the alleged debt is due, even if the court is not in a position to determine the exact amount of the debt due to MWP, then an injunction should not normally be granted. II The joint venture[13]In setting out the background, I should make explicit what should in any event be plain, namely that I am making no findings of fact in this or any part of this judgment.[14]Mr Sultan says that he was first introduced to Mr Batalov in around April or May 2001 by the previous owner of the ICS Group who had been working with Mr Batalov on the proposed joint venture. He understood that Mr Batalov was a very successful and well connected businessman in Kazakhstan with lots of experience in dealing with the Kazakhstan government. The ICS Group was keen to join forces given Mr Batalov’s contacts and business acumen.[15]Mr Batalov’s task, as the Kazakhstan-based joint venture partner, was to procure the award of the contract for the provision of such services to the joint venture, and use his political and local knowledge of and expertise in relation to the Kazakhstani authorities to promote the interests of the joint venture. Tender for Service contract[16]On May 16, 2001, the Kazakhstan government announced a tender for submission of offers for the award of a service contract for the provision of customs services to the government (“the Service Contract”: sometimes referred to as “the TSA” or “the Price Contract” in the papers). MOU[17]The first formalisation of the joint venture was by a Binding Memorandum of Understanding dated June 6, 2001 (“the MOU”). That was entered into, on the one hand, by three companies in the ICS Group, namely Public Warehousing Corporation KSC (a Kuwaiti company, the ultimate parent of the ICS Group), Inspection and Control Services Ltd (Bermuda) and one of the two UK ICS Companies, ICS Incorporation Ltd. The other party to the MOU was a company called MWP Corporate Finance Ltd (“MWPCFL”). The three ICS companies which were parties to the MOU will be called “the three ICS MOU companies.”[18]MWPCFL is a company which is, according to Mr Wilson, “indirectly controlled” by Mr Wilson. Until Mr Wilson’s most recent statement, it was apparently common ground that MWPCFL entered into the MOU as nominee for Mr Batalov, or one of the Batalov Companies.[19]The MOU recorded that the parties had agreed to form an incorporated joint venture in order to obtain a contract with the Kazakhstan government for the operation of PICAP. The parties agreed that the MOU was to serve as the basis for the formation of the joint venture companies below ICS Kazakhstan LLP (which was the company intended to enter into and operate the PICAP contract) and for the negotiation of definitive joint venture documentation to be concluded within 30 days of June 6, 2001. The parties agreed that, although ICS Incorporation Ltd had already formed and was the sole shareholder of ICS Kazakhstan LLP, the shares in that company were held on trust as to 50% for MWPCFL (i.e. Batalov/the Batalov Companies). ICS Incorporation Ltd agreed to transfer that 50% to MWPCFL, and to appoint nominees of MWPCFL to management positions and the board of ICS Kazakhstan LLP, with equal rights to management and control.[20]ICS Kazakhstan LLP was ultimately to be owned 50% between the three ICS MOU companies and the nominee of MWPCFL through one or more offshore holding companies.[21]The three ICS MOU Companies, on the one hand, and the nominee of MWPCFL, on the other, were to have equal representation on all of these joint venture companies, with appropriate deadlock provisions (clause 4). Clause 4 provided:
“As a practical matter, however, it is envisaged that [the three ICS MOU companies] will take the lead in technical matters relating to the ICS PICAP Programme while [MWPCFL] will take the lead in matters relating to in-country and political issues.”
[22]Clause 5 provided, inter alia, that “[MWPCFL], with assistance from [the three ICS MOU companies], shall facilitate the entry into by ICS Kazakhstan LLP of a service contract (the ‘Service Contract’) with the Ministry of State Revenues of the Government of the Government of the Republic of Kazakhstan with the following desired terms…”, and those desired terms were(i) US$3 million in guaranteed licence fees for the three ICS MOU companies’ technology to be paid from the Government’s budget for fiscal years 2001 and 2002;(ii) a minimum 3 year contract term;(iii) a success fee equivalent to 0.5 – 0.7% of the assessed value of the faulty customs declaration uncovered by ICS Kazakhstan LLP; and(iv) a 20% share in the overall increase in the revenues collected by the government due to the direct results of the PICAP programme.[23]Clause 6 provided, inter alia, that “[The three ICS MOU companies] will be responsible for providing all necessary back-up and support to ICS Kazakhstan LLP to enable it to comply with the provisions of the Service Contract and, furthermore, [the three ICS MOU companies] shall be responsible for assisting ICS Kazakhstan LLP in the preparation, finalisation and submission of all necessary tender documents, in participating in the tender and in negotiating and concluding the Service Contract and in providing all necessary background data, documents, brochures and other information.”[24]By clause 18, the MOU was subject to English law.[25]Clause 19 provided that “Each party shall bear all of their own fees, costs or expenses, howsoever relating to this [MOU] and the detailed documentation envisaged in relation to the joint venture.”[26]Accordingly, in broad terms the ICS Group and Mr Batalov were 50/50 joint venture parties. ICS Kazakhstan LLP was to be the operating company, and was intended to enter into and perform a “Service Contract” for the provision of customs services to the Kazakhstan government. ICS Kazakhstan LLP was to be owned by a series of offshore companies and owned ultimately by the ICS Group and MWPCFL on a 50/50 basis. MWPCFL, with assistance from the three ICS MOU companies, was to procure the entry by ICS Kazakhstan LLP into the Service Contract with the government, and try to ensure that the terms of that Service Contract specified the desired fees for the joint venture. The three ICS MOU companies were to be responsible for assisting ICS Kazakhstan LLP in preparing for and participating in the tender for the Service Contract, and for providing all necessary back up support to enable ICS Kazakhstan LLP to actually perform the Service Contract if awarded.[27]Although the basic structure was a 50/50 joint venture between the ICS Group and Batalov, the profits from the joint venture were not to be split 50/50. The provisions dealing with profit splitting can be summarised as follows:(1) as a “success fee” for procuring the Service Contract for ICS Kazakhstan LLP, the three ICS MOU companieswere to procure that all information technology (i.e. licences, software, source codes, databases) relating to the PICAP programme were to be transferred to MWPCFL under a sole and exclusive licence agreement, called the Kazakhstan Licence. Under clause 8, within 10 days of signature of the Service Contract, the direct or indirect holding company of ICS Kazakhstan LLP was to purchase the Kazakhstan Licence from MWPCFL for US $500,000;(2) two loans of US$1.5 million were to be made to the joint venture by the three ICS MOU companies and MWPCFL. Those loans were to be repaid as soon as the US$3 million payable by the government under the Service Contract had been paid;(3) as another success fee or bonus for securing the award of the Service Contract on the desired terms, US$1.25 million was to be paid by the joint venture to MWPCFL within two months of the date of the Service Contract being entered into; and a third success fee was to be paid, of US$1.25 million, to MWPCFL, within 183 days of the date of the Service Contract;(4) the income of the Joint Venture was to be applied as follows. First, the US$3 million payable under the Service Contract was to be left out of account for distribution purposes, being used to repay the two US$1.5 million loans from the joint venture partners. Second, to meet the costs and expenses of ICS Kazakhstan LLP. Third, to repay any loans made by MWPCFL (under clause 16, within 5 working days of the MOU, each party was to pay US$200,000 to the bank account of MWPCFL to be used at MWPCFL’s discretion in connection with pre-operating expenses in relation to the proposed Service Contract and the business of ICS Kazakhstan LLP). Fourth, to repay any loans made by the three ICS MOU companies. Fifth, 12.5% of the income after tax was to be paid to MWPCFL. Sixth, 2.5% of the income after tax was to be paid to the three ICS MOU companies. Seventh, the remaining revenue was to be distributed to the parties in accordance with their respective shareholdings in the joint venture (i.e. 50/50).[28]Thus Mr Batalov was to receive US $0.5 million as a success fee very shortly after the signature of the Service Agreement in respect of the Kazakhstan Licence (clauses 7 and 8), despite the fact that the property subject to the licence belonged to the three ICS MOU companies. He was to receive a further US$2.5 million within 6 months of the Service Contract being signed as further success fees. He was entitled to have his loans repaid in preference to those made by the three ICS MOU companies. He was entitled to a 12.5% slice of the net revenues, in priority to their 2.5% slice. Service Contract[29]On June 22, 2001 the Ministry of State Revenues of the Government of Kazakhstan announced that ICS, Inspection and Control Services Ltd had won the tender for the provision of price information and customs audit services. Negotiations then ensued between the UK ICS Companies, with assistance from MWP and the Government, leading up to the final signature on September 21, 2001 of the Service Contract. An amended version was executed on April 18, 2003. The Service Contract was originally entered into with the Ministry of State Revenues of the Republic of Kazakhstan (“the MSR”).[30]As per the MOU, ICS, Inspection and Control Services Ltd entered into that contract with a view to assigning it to the joint venture operating company, ICS Kazakhstan LLP.[31]The term was three years (clause 10). The MSR was to pay US $5 million to ICS, Inspection and Control Services Ltd as a lump sum by no later than June 30, 2002 (clause 2.1(a)). 30% of any increase in state revenues resulting from PICAP was also to be paid (clause 2.1(b)), and a 0.75% fee of the customs value established by the customs authorities as a result of evaluation by ICS, Inspection and Control Services Ltd was further to be paid (clause 2.1(c)). Joint Venture and Shareholders’ Agreement[32]The Joint Venture and Shareholders Agreement (“the JVA”) was signed on April 11, 2002. The ICS Group’s lawyers, Shearman & Sterling, were involved in the negotiation of this document on behalf of the ICS Group, at least from September 2001. Shearman & Sterling have billed the ICS Group $669,401.00, and been paid, for work carried out on their behalf in respect of the joint venture.[33]The original parties to the JVA were ICS CIS Region Ltd (“ICS CIS”), a subsidiary of Public Warehousing Corporation KSC, and McKellen Holdings Ltd (“McKellen”), owned ultimately by Mr Batalov. They owned 50% each of the shares in a BVI company, Inspection & Control Services Ltd (BVI), referred to as “Master Newco”, which ultimately owned ICS Kazakhstan LLP through two more offshore companies.[34]The structure of the joint venture established by the JVA was similar to that established by the MOU. The US$5 million payable by the MSR under clause 2.1(a) of the Service Contract was dealt with under a separate agreement, called the “Procurement Services Agreement”. Otherwise, the revenue of the joint venture was to be applied, first, in paying the costs of the joint venture companies and otherwise as necessary for working capital; then a royalty of 12.5% to McKellen (or its nominee); then a royalty of 2.5% to ICS CIS (or its nominee); then to pay interest on loans made to the joint venture companies by third party banks or financiers; then to repay interest on loans made by McKellen and/or ICS CIS, or their nominees, to the joint venture companies; then to the partners in accordance with their shareholdings (i.e. 50/50).[35]The UK ICS Companies say that, under the JVA, there was a significant imbalance between the loans to be made by the parties to the joint venture: clauses 4.2.1 (loans by ICS CIS) and 4.2.3 (loans by McKellen), with ICS CIS being obliged to lend US$4 million to the joint venture. The “pre-operating costs”, which included professional fees and costs, and were essentially the costs incurred by the parties prior to the JVA relating to the joint venture, were to be deemed a loan by ICS CIS/McKellen, as appropriate, to the joint venture.[36]Other agreements were executed on April 11, 2002, in particular comprising an Assignment and Assumption Agreement (in effect for the transfer of the Service Contract from ICS, Inspection and Control Services Ltd to ICS Kazakhstan LLP), a Licence Agreement (relating to the intellectual property needed for ICS Kazakhstan LLP to operate the Service Contract), and loan agreements in relation to the pre-operating costs and working capital. Procurement Services Agreement[37]The Procurement Services Agreement provides that the US$5 million is to be used first to repay any loans made by McKellen to the joint venture companies, with the residue paid to McKellen: albeit that US$3 million of the US$5 million would, it appears, be retained by ICS Kazakhstan LLP and deemed an interest bearing loan of that amount from McKellen to ICS Kazakhstan LLP. III Powers of attorney and Engagement Letter[38]On June 6, 2001, three documents were signed, or are alleged to have been signed, relevant to the joint venture, namely:(a) two powers of attorney executed by Mr Sultan on behalf of ICS, Inspection and Control Services Limited, in favour of Mr Boris Sychev and(b) an Engagement Letter from MWP addressed to Mr Boris Sychev, ICS Incorporation Ltd, London, United Kingdom (“the Engagement Letter”).[39]The first power of attorney is executed by Mr Sultan and apparently stamped with an ICS, Inspection and Control Services Ltd stamp, and dated June 6, 2001, and is in favour of Mr Boris Sychev. Under it, Mr Sychev is empowered “to participate in Astana open bidding on the purchase of the Services of Independent Expert Valuation of the customs value of goods imported into Republic of Kazakhstan …” and “to present documents and take into consideration all necessary information, to sign and obtain references, to conclude agreements and all other relevant letters.”[40]The second power of attorney is similarly signed by Mr Sultan, also stamped, apparently, with an ICS, Inspection and Control Services Ltd stamp, and, inter alia, empowers Mr Sychev to “make bargains, sign treaties, contracts, agreements, to carry on negotiations on behalf of the Company on the subjects relevant to the activity of the Company in the Republic of Kazakhstan…To obtain prior consent of the Company in case of dealing with the issues of high importance, before entering into high-value contracts, closing major transactions that imply vast obligations and rights for the Company.”[41]The Engagement Letter is on MWP headed notepaper, bears the date June 6, 2001, and is addressed to “Mr Boris Sychev, ICS Incorporation Limited, London, United Kingdom.”[42]The Engagement Letter states:
“Dear Boris, Letter of Engagement We are pleased that ICS Incorporation Limited and its affiliates, such as ICS Kazakhstan LLP, Inspection and Control Services Limited of the BVI, ICS BVI, Inspection and Control Services BV, Inspection and Control Services NA and such other entities as we may decide to form for the purposes of our business from time to time (all in the process of formation) (“you”) have selected Michael Wilson & Partners, Ltd. (“MWP”) to assist with legal services in relation to your proposed participation in the forthcoming tender and subsequent negotiation and conclusion of all necessary documentation, including a Technical Services Agreement, Software License and Subscription Agreement, relevant government resolutions, norms, rules and regulations and also as to the structuring and formation of all necessary legal entities (whether onshore or offshore), tax planning and advisory work and the administration and maintenance of such entities through our correspondent firms, together with such other work and services as you may require from time to time. … This Letter sets out the terms and conditions of our engagement.”
Letter of Engagement This Letter sets out the terms and conditions of our engagement.”

Letter of Engagement

[43]Paragraph 3 of the Engagement Letter provides, inter alia, that “We have agreed that the provisions of this Letter of Engagement shall operate with retrospective effect from the 1st day of January 2001 being the date on which MWP actually first commenced providing its services in relation to the projects.”[44]Paragraph 4 of the Engagement Letter, headed “Conflicts”, states:
“As you know, we have been separately retained and instructed by Mr Raimbek A Batalov and the Raimbek Group of Companies to also advise and assist them in relation to the proposed Joint Venture and Shareholders Agreement and the various companies to be formed in the chosen offshore jurisdictions. ICS and the PWC Group of Companies for their part are aware of this and have retained Messrs Shearman & Sterling of New York and Abu-Dhabi to separately and independently advise ICS/PWC on such matters. Accordingly, ICS hereby agrees to waive any confidentiality or conflict of interest of MWP that may otherwise be considered to arise or to have arisen and agrees to MWP’s representation of Mr Batalov and the Raimbek Group of Companies in relation to such matters.”
[45]By clause 6, the Engagement Letter is governed by English law.[46]The Engagement Letter is signed by Mr Wilson on behalf of MWP and by Mr Boris Sychev purportedly on behalf of ICS Incorporation Ltd. By the side of his signature, a stamp has been affixed reciting the name “ICS, Inspection and Control Services, Ltd”, surrounded by a circle containing Russian writing. IV The claims[47]The invoices were until June 2003 sent only to Transnational Capital Ltd and the joint venture company. Mr Wilson says that is where he was asked to send them though he cannot recall whether the instruction came from Mr Batalov or Mr Sultan. There is a “Client report” (detailing outstanding bills up to May 2002) produced by MWP, where the client name is given as “Raimbek JSC”, and the client number RA 001 (which is also used on the later invoices).[48]By early 2002 Mr Wilson was pressing for payment of his fees. On January 17, 2002, McKellen and ICS CIS entered into a non-binding Protocol of Intent, in which the parties agreed:
“(i) [to] transfer US100,000 to MWP Limited by Monday 21 January 2002 to its account at Brown & Shipley in London; (ii) to review, comment on and agree on the balances of all outstanding bills by 25 January 2002; (iii) thereafter to promptly pay all outstanding mutually agreed amounts; (iv) to cause MWP Limited to be engaged by ICS Kazakhstan LLP to provide on-going services and assistance as to its business in Kazakhstan and to conclude a mutually acceptable engagement letter, pursuant to which any bills will be promptly reviewed and amounts properly owing paid with reasonably frequency…”
[49]It is signed by Mr Khoury for ICS CIS, Mr Batalov for McKellen and Michael Wilson.[50]The witness statement evidence on the background to this document is as follows. According to Mr Khoury, during a meeting in Almaty in January 2002, Mr Wilson demanded reimbursement for his fees. Mr Khoury stated that this was a topic for a private discussion between Mr Wilson and his client, Mr Batalov, alone; Mr Batalov told Mr Khoury that he had difficulties in paying MWP’s fees and was concerned by Mr Wilson’s threat to cease acting in the middle of negotiations with the MSR relating to the issue of the rules ratifying the Government’s execution of the Service Contract. Mr Khoury states that after explaining to Mr Batalov that ICS CIS was not responsible or under any obligation to make any such payment, he agreed that ICS CIS would consider making a partial payment to ease Mr Batalov's financial problems, subject to receipt and review of MWP's invoices. As a result, the Protocol of Intent was entered into. Mr Wilson states that he does not recall that Mr Batalov stated that he was having financial difficulties, and on the contrary says that he was an extremely successful businessman. He says that Mr Khoury did not make the payment on an ex gratia basis, but on account of substantial overdue fees.[51]On January 24, 2002 Mr Wael Attalla (ICS, Inspection & Control Services Ltd) wrote to Mr Wilson confirming that $100,000 had been despatched to his bank as agreed. Mr Attalla said:
“It must be understood that this payment is made without prejudice to our rights regarding the review and acceptance of any of your invoices… In the future we would have to mutually agree on the structure and billable services prior to our acceptance of [y]our charges.”
[52]No payments appear to have been made after the first US$100,000.[53]There was a board meeting of Inspection and Control Services Ltd (BVI) on December 9, 2002, at which were present Mr Batalov, Mr Wilson, Mr Khoury, and Mr Scholz. The notes of the meeting state:
“… the BOD made an offer of US$350,000, US$100,000 already paid, to discharge fully the invoices of Mr Wilson, including his out of pocket expenses as of November 30, 2002. Mr Wilson did not accept the offer and promised to give full detail of the expenses and ICS CIS promised to review and send a list of questions back to him for clarification.”
[54]On December 11, 2002, Irina Veselova (of MWP) sent an e-mail to Mr Sultan, Mr Scholz and Mr Khoury attaching an up-to-date Summary of Account with interest calculations, copies of all outstanding bills through October 31, 2002 and a copy of the Engagement Letter.[55]On December 12, 2002 Mr Sultan's wrote to Mr Wilson in relation to the Engagement Letter:
“1. This is the first time that myself, Bassam, Peter has seen this document. 2. The existence of the document flies in the face of all discussions that have taken place concerning the matter, and it is quite bizarre that a document that no one has ever seen before would miraculously materialized almost 2 years after it was supposedly signed. 3. The document is at best invalid, and at worst a forgery.”
[56]On December 20, 2002 Mr Wilson replied:
“Of course, you cannot be serious in accusing anyone of forging such a document, we have the original in our files. Our engagement letter is quite proper and is valid and binding, having been signed pursuant to a properly issued power of attorney. Of course, you would not have expected us to down tools and camp-out in Astana etc. as to to the proposed Heads, Tenders, Prioce [sic] Contract, Rules, JVA etc, without such a letter being signed and contract put in place, indeed it is quite normal practice and, further, you/Bassam/Peter have always been made fully aware of having been engaged and the work we did and were doing at all times. I have previously mentioned this letter before on innumerable occasions. …”
[57]On the same day Mr Sultan replied:
“We stand by our original comments and WERE FLABERGASTED [sic] TO SEE THE LETTER PRESENTED TO US AT THE BOARD MEETING. NO ONE IN OUR ORGANIZATION HAD EVER SEEN SUCH A LETTER AND ITS "EXISITENCE" [sic] IS INCONSISTENT WITH ALL THAT HAS TRANSPIRED OVER THE LAST 2 YEARS.”
[58]On May 7, 2003 Mr Wilson (and his colleague Mr Emmott) wrote to Mr Sultan requesting payment of US$1,003,417.47 under the terms of the Engagement Letter:
“We are surprised and concerned that you have not addressed the issue of our fees and disbursements. The Chairman has in the past made a number of undertakings concerning payment of our fees and costs and has assured us that a substantial payment would be made to us. No such payment has been forthcoming and we have heard nothing in respect of this for some time. You have been receiving regular invoices and have not queried these. … Accordingly, we now write to advise you that unless payment in full of the amount due and owing to this firm … is made… within 14 days of the date hereof, we reserve the right to take whatever action we deem necessary or appropriate, including the issuing of legal proceedings against you…”
[59]On July 15, 2003 Shearman & Sterling wrote to MWP, asking MWP for:
“a clear statement describing: 1. precisely what parties … you say Michael Wilson & Partners represents in the context of the joint venture in Kazakhstan between ICS CIS Region Limited and McKellen Holdings Limited; 2. in relation to each of the parties at (1) above, please state precisely what advice and assistance your firm has been providing and over what time frame…”
[60]On July 23, 2003 MWP wrote to Shearman & Sterling stating:
“As is clear from the Letter of Engagement this firm acted in the transaction on behalf of your client, ICS Incorporation Limited, ICS Kazakhstan LLP, ICS BVI, Inspection and Control Services BV, ICS CIS Region Limited, McKellen Holdings Limited, Mr Raimbek Batalov and the Raimbek Group of Companies.”
[61]On August 27, 2003 Shearman & Sterling wrote to MWP:
“…Until such time as we receive a substantive response to our letter of July 15, 2003 our client cannot assess your claim for sums in excess of $1 million. Certainly, your letter of July 23, 2003 does not afford our client a proper and fair basis upon which to assess that claim. … We have seen the invoices and it is not clear to us precisely what advice has been provided to which party and upon whose instruction such advice has been provided. Until we have a clear statement of the position our client cannot properly assess your invoices…”
[62]The auditors’ reports to the accounts of the UK ICS Companies for the year ended December 31, 2001 (prepared in August 2003) state that full provision should have been made for the claim, and the notes in the ICS, Inspection and Control Services Ltd accounts (and an equivalent statement is in the ICS Incorporation Ltd accounts) state under the contingent liability heading:
“Since the year end a claim has been made against this company and against ICS Incorporation Limited, the parent for an amount of US$1,133,054. Both ICS Inspection & Control Services and the parent are strongly defending this claim but expect to agree an out of court settlement for a maximum of US$450,000 which would be reflected in the post Balance Sheet accounts.”
V MWP’s case[63]MWP’s case is as follows. There are, inter alia, the following identifiable categories of work in respect of which MWP has rendered invoices to the UK ICS Companies:(1) assistance with regard to the MOU;(2) advice and consequent action concerning corporate structure and tax implications in respect of the JVA, including third party costs of establishing and maintaining various overseas companies including Inspection and Control Services Ltd (BVI), Inspection and Control Services NV, Inspection and Control Services BV and ICS Kazakhstan LLP;(3) negotiation and drafting of the Service Contract to its signing on September 21, 2001 and a related Software Licence and Subscription Agreement;(4) negotiation and drafting of the related Government Resolutions and Rules and other related documents to implement the Service Contract; (4) negotiation of the terms of the JVA to assume, manage and perform the rights and obligations under the Service Contract; (6) carrying out intellectual property searches and certain works as to the registration of relevant patents and trademarks, drafting and negotiation of a Licence Agreement between ICS CIS and Inspection and Control Services Ltd (BVI) and related side letter between ICS CIS, Inspection and Control Services Ltd (BVI) and ICS Kazakhstan LLP regarding use of reference prices; (7) drafting the Procurement Services Agreement, the Pre-Operating Cost Loan Agreements, and the Pre-Operating Cost Loan Agreement and the US$4.4m Loan Agreement between Inspection and Control Services Ltd (BVI) and Inspection and Control Services BV and the US$4.4m Loan Agreement between Inspection and Control Services BV and ICS Kazakhstan LLP, as well as the release of prior Loan Agreements; (8) drafting a new Charter of ICS Kazakhstan LLP and five agreements appointing Law Debenture Trust Corporation as agents for service of process; (9) drafting all necessary documents for the capitalisation of ICS CIS by its parent company; (10) drafting Assignment and Assumption Agreements between ICS Kazakhstan LLP and ICS, Inspection and Control Services Ltd, and Agreement for novation of the Service Contract to ICS Kazakhstan LLP; (11) amending and restating the Articles and Memorandum of Association of the joint venture companies.[64]The UK ICS Companies cannot with any credibility dispute that they are indebted to MWP in a sum of more than £750. The UK ICS Companies did not dispute the debt prior to these proceedings having received the demand letter of May 7, 2003, all invoices having been sent to Mr Scholz and specifically addressed to him from August 14, 2002, and having received the statutory demands on September 19, 2003.[65]Indeed, despite what is now said to be the alleged shock of both Mr Khoury and Mr Sultan at the receipt of the letter of May 7, 2003 demanding payment of US$1,133,054.18, it was not until more than 2 months later on July 15, 2003 that Shearman & Sterling sent a reply, which even then did not dispute liability. Their letter of August 27, 2003 did not dispute that a debt was due from the UK ICS Companies to MWP.[66]The UK ICS Companies, or at least ICS Incorporation Ltd, cannot dispute that they/it gave instructions to MWP to provide legal services, in particular with respect to the drafting, negotiation and finalisation of the documentation relating to the Service Contract. The instructions, if viewed objectively, were such as to induce MWP to believe that the UK ICS Companies intended to be bound legally to pay for those services and that MWP did so believe. MWP can prove the UK ICS Companies’ liability, or at least that of ICS Incorporation Ltd, without needing to rely upon the validity of the Engagement Letter.[67]The Engagement Letter is addressed to ICS Incorporation Ltd but also covers work done for its affiliates. There is a dispute between the parties as to whether or not the Engagement Letter was signed in front of Mr Sultan. There is no dispute between the parties that the Engagement Letter was signed by Mr Sychev and the seal of ICS, Inspection and Control Services Ltd affixed to it. The Engagement Letter is binding on the UK ICS Companies because it was signed and sealed by their duly authorised agent Mr Sychev, pursuant to the actual authority provided by his notarised power of attorney.[68]It was clearly ICS Incorporation Ltd’s responsibility pursuant to clause 6 of the MOU to assist its local partner with the provision of documentation. ICS Incorporation Ltd’s responsibility is to be contrasted with MWPCFL’s obligation to “facilitate the entry” into the Service Contract, pursuant to which the ICS Group achieved its “principal purpose” of “making use of Mr Batalov’s local knowledge of and contacts in Kazakhstan”. ICS Incorporation Ltd does not explain how, other than through the provision of services by MWP, it was able to fulfil its obligations in this regard. The final version of the Service Contract was signed on September 21, 2001. Despite Mr Khoury’s claim that Shearman & Sterling were retained in May 2001 by the UK ICS Companies in relation to the Service Contract, no evidence of this has been produced by the UK ICS Companies (including of any signed Engagement Letter), or that any work was carried out pursuant to the alleged retainer.[69]The UK ICS Companies claim to have instructed Shearman & Sterling to advise with respect to the JVA and Salans to re-draft the Service Contract in April 2002. They do not claim to have instructed anyone with respect to the Service Contract prior to September 2001 and yet clearly a lot of work had been done on this aspect of the documentation by that time. Mr Sultan expressly “…accept[s] that Michael Wilson did most of the drafting of the TSA.”[70]Mr Sultan agreed that MWP would take responsibility for negotiating the form of the Service Contract with the Government of Kazakhstan, and Mr Sultan had authority to commit ICS Incorporation Ltd to such an agreement. The UK ICS Companies have admitted effectively that ICS Incorporation Ltd instructed MWP to carry out work in order to enable it to fulfil its obligations pursuant to clause 6 of the MOU. Mr Sultan implicitly accepts that no other lawyers were involved in the tender leading up to and the negotiations concerning the Service Contract and the subsequent Government Rules, necessary in order to implement the same.[71]The fact at a much later date the JVA (to which MWP was not even a party) may have provided for the parties thereto to be responsible for the work already carried out by MWP cannot relieve ICS Incorporation Ltd of what by then was an existing liability to MWP. The UK ICS Companies do not suggest that there was any variation agreed to the terms of the MOU, which provided for ICS Incorporation Ltd to bear its own fees incurred in fulfiling its obligations thereunder.[72]Moreover, in addition the evidence of what occurred subsequently is consistent with the UK ICS Companies being indebted to MWP:(1) the UK ICS Companies accept that MWP demanded payment on January 17, 2001 and that ICS CIS agreed to make a partial payment of US$100,00 as a payment on account. The partial payment on account of US$100,000 was made by ICS, Inspection and Control Services Ltd;(2) the Protocol of Intent provided for ICS CIS to pay all outstanding amounts and to comment on bills by January 25, 2002. It was signed by Mr Khoury as a director of ICS CIS (he is also a Director of the UK ICS Companies), but that company did not exist at the time;(3) on December 9, 2002 Messrs Sultan, Khoury and Scholz offered to pay MWP a further US$350,000 on behalf of the UK ICS Companies in addition to the US$100,000 already paid;(4) the UK ICS Companies have made provision for the alleged debt to MWP in their accounts for the year ended December 31, 2001.[73]MWP can rely on clause 19 of the MOU (which is subject to English law) as against ICS Incorporation Ltd, which, in addition to Public Warehousing Corporation KSC and Inspection and Control Services Ltd (Bermuda), was expressly party to the same by virtue of the Contract (Rights of Third Parties) Act 1999 and, further, that MWP can equally rely on clause 4.3.9 of the JVA (also subject to English law), for the same reasons as against ICS CIS, Inspection and Control Services Ltd (BVI), Inspection and Control Services NV, Inspection and Control Services BV and ICS Kazakhstan LLP, as well as McKellen. VI The UK ICS Companies’ case[74]From its bills, MWP appears to have begun work on the proposed joint venture in late January 2001. The contemporaneous evidence shows that, at least prior to June 6, 2001, Mr Wilson and MWP were acting on behalf of Mr Batalov.[75]The UK ICS Companies’ case as to the Engagement Letter is that they did not consent to its being signed, and that, in effect, it was signed behind their backs so as to foist on them liabilities which were properly those of Mr Batalov/the Batalov Companies. They do not know when it was executed, and believe that it may have been back-dated. The Engagement Letter was entered into in breach of fiduciary duty to the UK ICS Companies, to the knowledge of Mr Wilson.[76]It is common ground that as at June 6, 2001, Mr Sultan was in Almaty, and that on that day he executed the two powers of attorney in favour of Mr Sychev, and also the MOU.[77]The position of the UK ICS Companies’ witnesses is that they knew nothing at all about the Engagement Letter until about December 9, 2002, when it was mentioned by Mr Wilson at the board meeting of Inspection and Control Services Ltd (BVI).[78]As to Mr Sychev, the UK ICS Companies’ evidence is that Mr Sychev was an employee of Mr Batalov or one of his companies, and was recommended by Mr Batalov as a trustworthy and reliable employee of his who could attend to joint venture matters. Mr Sultan says that he executed the powers of attorney in favour of Mr Sychev on the recommendation of both Messrs Batalov and Wilson. Mr Wilson’s evidence is that he believes that Mr Sychev was an employee of the ICS Group.[79]In relation to the recent witness statement of Mr Sychev, in which he claims to have been an employee of ICS, Inspection and Control Services Ltd, the UK ICS Companies say that Mr Wilson relies on the fact that in December 2001 (i.e. 6 months later), ICS Kazakhstan LLP employed him as administrative director, before he was dismissed. But the UK ICS Companies say that the employing company was the joint venture operating company, and his employment by it 6 months after the powers of attorney were executed proves nothing as to whether Mr Sychev was “a Batalov man” or “an ICS man”. More probative is the fact that a schedule of pre-operating costs submitted by McKellen for the period April to July 2001 includes a total of 16 payments to Mr Sychev by McKellen, including his June salary.[80]The UK ICS Companies further argue that, in any event, as a matter of construction of the Engagement Letter and the powers of attorney, they are not liable under the letter. The UK ICS Companies make these points on the construction of the Engagement Letter and the powers of attorney:(1) the Engagement Letter is addressed to Boris Sychev, ICS Incorporation Ltd. The letter is signed by Boris Sychev, for ICS Incorporation Ltd. Yet each of the powers of attorney empowers Mr Sychev only on behalf of ICS, Inspection and Control Services Ltd. Hence, simply on the face of the documents, Mr Sychev signed on behalf of a company in respect of which he had no authority to act;(2) the evidence of Mr Khoury is that the stamp of ICS, Inspection and Control Services Ltd is not the “proper company stamp” of either of the UK ICS Companies. This evidence is not challenged;(3) the only relevant power of attorney is the one empowering Mr Sychev to “make bargains”. The authority there given is subject to Mr Sychev obtaining prior consent for signing of contracts for large values. The Engagement Letter was, it is submitted, such a contract, as MWP’s claim for some US$1.2 million shows.[81]The position of Mr Wilson is that the need for an Engagement Letter was specifically discussed at the meeting of June 6, 2001 (i.e. the meeting for signing of the MOU), that the Engagement Letter had to be with “one or more” of the UK ICS Companies given the work carried out since early January 2001, that Mr Sultan thanked Mr Wilson enormously for his high quality, pro-active and expert advice and assistance and readily agreed to such an engagement letter, resulting in the signed Engagement Letter. Mr Wilson claims to have a clear recollection of giving a draft of the letter to Mr Sultan, who approved its terms, and instructed Boris Sychev to sign pursuant to his powers of attorney. Mr Wilson says that he did not at this time have sight of the powers of attorney, and in fact did not see them until he received Mr Khoury’s first statement in October 2003.[82]There are a variety of circumstances which cast very significant doubt on Mr Wilson’s version of events:(1) There is no contemporaneous evidence of the Engagement Letter ever being mentioned until December 9, 2002. This is surprising, given the volume of communication, and the fact that MWP had been paid little over that 18 month period.(2) There is no evidence of a copy of the Engagement Letter having been sent to the ICS Group until after December 9, 2002. In his first statement, the furthest Mr Wilson went was to say that he had shown the letter to Mr Sultan, or a draft of it, before it was signed. He now says that he believes all of Messrs Sultan, Khoury and Scholz had copies in their files. He does not explain how those copies are supposed to have got there.(3) Mr Wilson’s evidence is that he did not see the powers of attorney, pursuant to which the Engagement Letter was purportedly signed, until copies were exhibited to Mr Khoury’s statement in October 2003. Yet this was a contract of very great significance for MWP, as it realised the considerable amount of work that had already been done, and would be required, in respect of the joint venture.(4) On the date of the supposed signature of the Engagement Letter, Mr Sultan was in Mr Wilson’s office. There is no reason why he did not ask Mr Sultan to sign. Mr Wilson’s explanation is that “In my experience it is always better to finalise such matters in person and since our Engagement Letter is in standard form it was readily accepted by Mr Sultan who instructed Mr Sychov to sign it since, as Chairman, I believe, he regarded such matters as “beneath him.” ” Mr Wilson also claims that “…it was [Mr Sultan’s] policy never to sign anything personally”, and claims that the MOU was the only document signed by Mr Sultan in relation to this whole transaction. This explanation is contradicted by the fact that Mr Sultan signed the MOU, and (according to Mr Wilson) the tender documents, and the powers of attorney.(5) The UK ICS Companies’ case is further supported by the e-mail correspondence following the meeting on December 9, 2002 where, on their case, the Engagement Letter was first mentioned. On December 11, 2002, Mr Wilson’s secretary e-mailed a copy of the Engagement Letter to Messrs Sultan, Scholz and Khoury. The next day, Mr Sultan responded, stating that this was the first time that he, Mr Khoury or Mr Scholz had seen the document stating that “The existence of the document flies in the face of all discussions that have taken place concerning the matter, and it is quite bizarre that a document that no one has ever seen before would miraculously materialize almost 2 years after it was supposedly signed”, adding that “The document is at best invalid, and at worst a forgery.”(6) Mr Wilson’s response, on December 20, 2002, was:
“Thanks for the e-mail. Of course, you cannot be serious in accusing anyone of forging such a document, we have the original in our files. Our engagement letter is quite proper and is valid and binding, having been signed pursuant to a properly issued power of attorney. Of course, you would not have expected us to down tools and camp-out in Astana etc. as to the proposed Heads, Tenders, Prioce [sic] Contract, Rules, JVA etc, without such a letter being signed and contract put in place, indeed it is quite normal practice and, further, you/Bassam/Peter have always been made fully aware of our having been engaged and the work we did and were doing at all times. I have previously mentioned this letter to you on innumerable occasions.”
I have previously mentioned this letter to you on innumerable occasions.” (7) The e-mail is inconsistent with the account now given, that on June 6, 2001, Mr Sultan personally and expressly agreed to the letter, and told Mr Sychev to sign it. The e-mail is in fact consistent with the Engagement Letter having been signed by Mr Sychev without the knowledge or authority of Mr Sultan: the e-mail says that the letter was signed “pursuant to a properly issued power of attorney”. Mr Wilson’s answer would otherwise have been, “You read it and you told Mr Sychev to sign it”. (8) Since, on his own account, Mr Wilson had not even seen the powers of attorney, he could not have said that it was signed “pursuant to a properly issued power of attorney” He would know nothing about that. The fact of sending the letter at all on December 11, 2002 and his reference in the e-mail to merely having mentioned it on previous occasions, is also inconsistent with Mr Wilson’s new allegation in his third statement that he believes each of Messrs Sultan, Khoury and Scholz had a copy on their files.[83]The parties to the non-binding Protocol of Intent are McKellen and ICS CIS, the two joint venture partners under the JVA, which was then in the process of negotiation. It is not in dispute but that, ultimately, by reason of clause 4.3.9, the legal costs of the JVA etc. would be borne, in essence, equally as between McKellen and ICS CIS, whoever was liable as such to MWP. Hence the Protocol represented nothing more than a short-circuit of the precise legal arrangements. If this is not the explanation for the Protocol, then on Mr Wilson’s case (whereby McKellen was never liable to him for anything), it is impossible to see why McKellen jointly undertook to pay the US$100,000 with ICS CIS.[84]The reference in the Protocol to ICS Kazakhstan LLP entering into a mutually acceptable Engagement Letter, pursuant to which bills would be reviewed and paid with reasonable frequency, casts doubt on whether the Engagement Letter was in fact in existence at this time. ICS Kazakhstan LLP is one of the companies specifically referred to in the Engagement Letter, and as well as covering the joint venture type documentation, that letter applies to “such other work and services as you may require from time to time.”[85]There is a dispute as to what was said and not said, offered and not offered, at the December 9, 2002 meeting of Inspection and Control Services Ltd (BVI). Mr Wilson claims that the UK ICS Companies made an open offer of US$350,000 in respect of his fees. He also claims that the Engagement Letter was referred to, and its existence not questioned by Messrs Sultan, Khoury or Scholz. The UK ICS Companies’ witnesses claim that an offer was made at the meeting, but the offer was made by Inspection and Control Services Ltd (BVI), or in any event one or more of the joint venture companies, of US$350,000, with US$100,000 already paid, in full and final settlement of his fees, but Mr Wilson refused the offer. The contemporaneous e-mails suggest that the Engagement Letter was “presented” to the ICS representatives at the meeting.[86]It is plain that Mr Batalov was heavily involved in the talks. It is evident that any payment was to be made by the joint venture, not the UK ICS Companies as Mr Wilson claims. In circumstances where the joint venture and its partners would ultimately be liable for the costs between them, an offer was made by the joint venture of US$350,000. VII Conclusions[87]The principles I have to apply are not in doubt. Where there is a substantial dispute as to the whole of the debt (or, in other formulations, a bona fide dispute or a dispute on substantial grounds), the court will not normally make a winding-up order, and I ought to restrain presentation of a winding-up petition, even if (in the context of a summary judgment application) the defence could be regarded as “shadowy.” This is so even if it is otherwise shown that the company is insolvent.[88]The main issue is whether there is any substantial dispute as to whether the UK ICS Companies were the clients of MWP or otherwise bound to pay its fees, and in particular whether the Engagement Letter is binding on them, or (even if it is arguably not binding on them) whether they (or either of them) instructed MWP in relation to the Service Contract.[89]There are strong indications in the documents that MWP was acting for Mr Batalov/the Batalov Companies in relation to the joint venture, and in particular the JVA.[90]In his witness statement of August 6, 2004 (para 5) Mr Wilson says that throughout January to June 2001 MWP was instructed by both the UK ICS companies and Mr Batalovto advise and assist in relation to the proposed Protocol of Intent/Heads of Agreement/Memoranda of Understanding. and no other lawyers were involved. For the period after June 2001 he says (para 47):
“MWP was never at any time instructed by Raimbek, Mr Batalov or McKellen …”
In his witness statement of January 27, 2005 (paras 27 and 41) he says that in the history of MWP, it had never acted as legal counsel or advisers to Mr Batalov and his companies and he does not know how Mr Sultan and Mr Khoury can allege or infer that MWP was ever acting for Mr Batalov, the Batalov Companies, McKellen or any of his partners.[91]But there are e-mails sent by or on behalf of Mr Wilson to Mr Sultan, which strongly suggest that Mr Wilson was acting in the period up to June 2001 for Mr Batalov/the Batalov Companies: (1) On May 18, 2001, Mr Wilson wrote:
“On behalf of our clients, we enclose a revised version of the [MOU]…” and goes on “Our clients are not happy…”
It ends:
“As you will see, we will need details of your costs to include in Schedule 1. We assume they are minimal.” (2) On May 29, 2001 Mr Wilson sent an e-mail to Mr Sultan enclosing a revised draft MOU “at the request of our clients…” (3) But in Mr Wilson’s first witness statement (para 3) he says: “MWP first became involved in a proposed customs project involving the UK ICS Companies in or about January 2001, when MWP was approached by Raimbek Group JSC, a Kazakh company, to represent and advise the UK ICS Companies with regard to a draft Protocol of Intent/Heads of Agreement with the UK ICS Companies and other companies in the PWC/ICS Group concerning a proposed project.”; and (para 47): “MWP was never at any time instructed by Raimbek [JSC], Mr Batalov or McKellen Holdings Limited.”
Mr Wilson’s only response to these e-mails is to say, in paragraph 46 of his third witness statement, that the e-mails were sent “prior to clarification” of MWP’s engagement by the UK ICS Companies pursuant to the Engagement Letter, which on its face is less than convincing.[92]There is other material suggesting that MWP was acting for Mr Batalov/the Batalov Companies in relation to the joint venture, and some of Mr Wilson’s explanations of this material plainly leave considerable scope for cross-examination.[93]Thus Mr Sultan’s e-mail dated October 6, 2001 to Mr Wilson stated “You have done a good job negotiating for your client [i.e. Mr Batalov] and representing his interests, however …”[94]Mr Wilson’s answer is that this was a comment made by Mr Sultan in response to an e-mail to him dictated, drafted and instructed to be sent by Mr Khoury himself, albeit from Mr Wilson’s secretary’s computer. Accordingly, Mr Sultan is responding to Mr Khoury’s e-mail and not Mr Wilson’s. He does not know why Mr Sultan used his name in his response and clearly MWP were not acting for Mr Batalov since, given he does not read English, he could not even see the documents sent by Mr Khoury to Mr Sultan until later that day (a Saturday night) and then he never reads or uses e-mail, so it is doubtful if he ever saw it. I have some difficulty in understanding this explanation.[95]Mr Wilson’s e-mail to Chris Pittinger of Shearman & Sterlingdated February 4, 2002 stated “ … we will meet with our client,” and went on:
“our client will not accept enshrining such a view …”
Mr Wilson’s e-mail to Mr El-Jeaan of Shearman & Sterling dated February 6, 2002 stated “We have just been clearly and unequivocally instructed by [McKellen/Mr Batalov], in very strong terms indeed, that we may not even open, let alone begin to review or consider, the completely new drafts of the PSA or Assignment and Assumption Agreement. Equally, we are instructed by Mr [Batalov] (as he and we have mentioned many times) that we cannot even begin to review a revised draft JVA with the total deletion of Clauses 5, 6, and 7 and thus are instructed not to consider the amended JVA.”[96]These are plainly written on the basis that Mr Batalov was MWP’s client, and I have not been able to understand Mr Wilson’s answer in paragraphs 48 and 49 of his third witness statement.[97]The undated “Client report” prepared by Mr Wilson (which was produced not earlier the end of May 2002, since it refers to bills to that date)stated the client name as “Raimbek JSC”. Mr Wilson’s answer was that the comment simply reflected sloppiness by MWP’s Billing/Administration Department when they had had a copy of the Engagement Letter with the UK ICS Companies since June 6, 2001.[98]There are many e-mails from Mr Wilson to Mr Sultan which make it highly arguable that Mr Sultan was not the client. An e-mail dated November 2, 2001 from Mr Wilson to Mr Khoury was sent after discussions with Mr Batalov. The e-mail is very hostile, as is evident from the sentence “We regard any suggestion of arbitration or mediation as absurd”. Other e-mails to Mr Sultan include ones on December 18, 2001 (“the ridiculous nature of this suggestions”), February 6, 2002 (“We have just been clearly and unequivocally instructed by McKellen/Mr Raimbek, in very strong terms indeed, that we may not even open, let alone begin to review or consider, the completely new drafts of the PSA or assignment and assumption agreement”), February 16, 2002 (“We must inform you that certain of its contents are factually incorrect, inappropriate and not at all productive or helpful”), February 16, 2002 (“Have received many calls and so the bullshit about not communicating directly is just that … suggest that you quit this US law firm bullshit of no relevance to getting the deal done …”), February 17, 2002 (“lack of maturity and experience”).[99]Mr Wilson’s e-mail to Mr Sultan dated March 10, 2002 stated “More of the usual never-ending nonsense from your side, you just never known when to stop and are clearly lying”. Mr Wilson’s answer was that this e-mail followed a conference call between himself and Mr Sultan at which Mr Batalov was present, during which agreement on the wording of various clauses of the JVA was reached. However Mr Sultan’s subsequent e-mail attempted to change what had clearly been agreed, which made his job of representing his position in the negotiations almost impossible. This e-mail comment was written out of frustration at Mr Sultan’s back-tracking out of inexperience of how to close negotiations and resolve legal matters arising in complex commercial, multi-party and multi-jurisdictional joint ventures.[100]An e-mail from Mr Wilson to Mr Sultan dated February 16, 2002 includes statements such as “McKellen Holdings Ltd. reserves its rights in all respects …” and “For the record, please ensure that you address all and any further correspondence to McKellen Holdings Ltd. with a copy to ourselves since, as you are aware, it is the entity with which you are dealing and not Mr Raimbek personally.” Mr Wilson’s answer was that this was simply pointing out the fact that he had made a mistake, in that correspondence should have been addressed by Mr Sultan to McKellen, and not Mr Batalov personally.[101]It is not easy to imagine circumstances in which these e-mails could have been written by the UK ICS Companies’ own lawyers, and Mr Wilson’s explanations are not easy to follow.[102]The main body of the Engagement Letter refers to “legal services in relation to your proposed participation in the forthcoming tender and subsequent negotiation and conclusion of all necessary documentation, including a Technical Services Agreement, Software License and Subscription Agreement, relevant government resolutions, norms, rules and regulations and also as to the structuring and formation of all necessary legal entities (whether onshore or offshore), tax planning and advisory work and the administration and maintenance of such entities through our correspondent firms, together with such other work and services as you may require from time to time.”[103]Paragraph 4 of the Engagement Letter, headed “Conflicts”, states:
“As you know, we have been separately retained and instructed by Mr Raimbek A Batalov and the Raimbek Group of Companies to also advise and assist them in relation to the proposed Joint Venture and Shareholders Agreement and the various companies to be formed in the chosen offshore jurisdictions. ICS and the PWC Group of Companies for their part are aware of this and have retained Messrs Shearman & Sterling of New York and Abu-Dhabi to separately and independently advise ICS/PWC on such matters. Accordingly, ICS hereby agrees to waive any confidentiality or conflict of interest of MWP that may otherwise be considered to arise or to have arisen and agrees to MWP’s representation of Mr Batalov and the Raimbek Group of Companies in relation to such matters.”
[104]This appears to suggest that the main body of the letter is primarily concerned with legal services connected with implementation of the joint venture, and that MWP is acting for Mr Batalov/the Batalov Companies in connection with the establishment of the joint venture as between the joint venturers. Mr Wilson’s explanation is that he did not mention the JVA at that time, because MWP was only instructed in relation to the JVA in July 2001, and so, with an eye to the future, used very general terms.[105]I am satisfied that, even if the Engagement Letter is fully binding, there is a substantial dispute as to the fees in relation to joint venture matters.[106]As regards the validity of the Engagement Letter, I consider that there is a substantial dispute for the following reasons.[107]Mr Wilson’s case is that the Engagement Letter covered the whole of his work, and that Mr Batalov was not his client, and therefore not responsible for his fees. There must be a serious question whether it was a breach of fiduciary duty for Mr Sychev to have signed a document throwing all of the costs on to one of the joint venture parties.[108]There is a clear conflict of evidence between the parties, and there is no contemporaneous material which leads to the conclusion that there is no substantial dispute. Mr Wilson says that the need for an Engagement Letter was specifically discussed at the meeting of June 6, 2001, that the Engagement Letter had to be with “one or more” of the UK ICS Companies given the work carried out since early January 2001, and that Mr Sultan readily agreed to the execution of the Engagement Letter, which Mr Wilson gave him in draft. Mr Sultan denies that account, and says that he did not see the Engagement Letter until December 2002.[109]There is no contemporaneous evidence of the Engagement Letter ever being mentioned until December 9, 2002, nor of the ICS Group having been sent a copy. Mr Sultan was in Mr Wilson’s office on the day that the Engagment Letter is supposed to have been executed, and there is a question as to why Mr Sultan was not asked to sign it. Mr Wilson’s explanation is:
“In my experience it is always better to finalise such matters in person and since our Engagement Letter is in standard form it was readily accepted by Mr Sultan who instructed Mr Sychov to sign it since, as Chairman, I believe, he regarded such matters as ‘beneath him.’ ”
[110]I also accept that Mr Wilson’s response to the suggestion of forgery, on December 20, 2002 is not wholly consistent with his evidence that Mr Sultan specifically approved it in June 2001. He says that it was “quite normal practice” and “I have previously mentioned this letter to you on innumerable occasions.”[111]I also accept that there are some genuine issues raised about Mr Wilson’s credibility, although I say nothing more about them than that they will raise some serious matters for cross-examination if this matter should go to trial. The most striking one is what he says about his company MWPCFL. In his first witness statement he says that Mr Sultan and Mr Batalov had requested MWP to provide a company to enter into the MOU as Mr Batalov’s nominee, and MWP was happy to allow MWPCFL to be used for this purpose, but in his third witness statement (para 108) he says that MWPCFL was not contracting and did not agree to hold its rights on behalf of any other person.[112]I also consider that there are serious issues in relation to Mr Wilson’s answers to the allegation that his correspondence on the JVA with Mr Sultan shows he was acting for Mr Batalov/the Batalov Companies.[113]By the second day of the hearing Miss Meyer went a long way to accepting that there was a substantial dispute on the Engagement Letter and on those fees which were referable to the joint venture aspect. But she argued that there was no substantial dispute in relation to the work on the Service Contract, irrespective of the validity of the Engagement Letter, because the e-mail correspondence showed that Mr Sultan had specifically instructed Mr Wilson in relation thereto, and that was consistent with the ICS Group’s obligations under the MOU to assist ICS Kazakhstan LLP with regard to (inter alia) the Service Contract.[114]There are several e-mails which may be taken to show that Mr Sultan was giving instructions to MWP in relation to the drafting of the Service Contract:(1) on July 12, 2001 Mr Wilson sent an e-mail to Mr Sultan regarding revised drafts of the Service Contract and giving a summary of the “principle points of change”;(2) on July 18, 2001 Mr Sultan sent an e-mail to Mr Wilson commenting on Mr Wilson's comments on the draft Service Contract and asking him to get the joint venture agreements ready;(3) on July 21, 2001 Mr Wilson sent an e-mail to Mr Sultan attaching a “status report” and asking Mr Sultan for his “input comments and suggestions etc.” Mr Wilson also stated that he would “forward [Mr Sultan] a copy of the revised [draft] contract” when they had it;(4) on July 24, 2001 Mr Sultan sent an e-mail to Mr Wilson with comments on and amendments to be made to the Service Contract and asking to see a red line version of the final agreement;(5) on July 27, 2001 Mr Sultan sent to Mr Wilson and Mr Scholz detailed comments on the draft Service Contract;(6) on July 30, 2001, Mr Sultan sent an e-mail to Mr Wilson and Mr Scholz summarising the issues relating to the Service Contract which Mr Sultan considered essential and which were “deal breakers”;(7) on July 28, 2001 Mr Wilson sent an e-mail to Mr Sultan attaching a letter from Mr Radostovets (of MWP) giving comments on the Service Contract, and Mr Wilson said:
“I asked the guys in Astana to prepare this for you, although I have not yet reviewed it myself. I hope, nevertheless that it is helpful …” (8) on July 29 and August 20, 2001 Mr Sultan gave comments to Mr Wilson on the Service Contract, and in the latter e-mail said: “I need you to issue in writing an opinion that ensures that we will not be [sic] have to pay VAT or other taxes on the $US 5 Million payment or the 30% performance fee. If this cannot be stipulated in the text of the Agreement, it must be specified in the form of an opinion…”
[115]Most of the July e-mails were copied to Mr Batalov and/or his company Raimbek JSC. There is no correspondence between him and Mr Wilson in this period, but MWP’s bills show considerable telephone contact with Mr Batalov and his asscoiates in this period in relation to the Service Contract. The bills include many references to conversations with Mr Batalov, for example in the section on the Service Contract in the bill of January 15, 2002 addressed to Transnational Capital Ltd.[116]I do not consider that this correspondence points plainly to an implied retainer by the UK ICS Companies (or ICS Incorporation Ltd in particular) in relation to the Service Contract. Clause 5 of the MOU places on the local partner the obligation to procure a Service Contract. It is the local partner who has the responsibility for actually producing the contract. Clause 5 of the MOU provides:
“[MWPCFL], with assistance from ICS, shall facilitate the entry into by ICS Kazakhstan LLP of a service contract (‘the Service Contract’) with the Ministry of State Revenues of the Government of the Republic of Kazakhstan…”
I consider that it arguable that Mr Batalov continued to be liable for the fees in relation to the Service Contract because it was his responsibility under the MOU, that Shearman & Sterling were the UK ICS Companies’ lawyers in relation to this aspect, and that Mr Sultan was using his expertise to make comments on behalf of the joint venture.[117]The other matters raised are of less importance as indicators. The Protocol of Intent supports the UK ICS Companies, because it was made between McKellen and ICS CIS, and not by the UK ICS Companies, even if the payment under it was made by ICS, Inspection and Control Services Ltd.[118]I do not consider that the correspondence in 2002 and 2003 as a whole shows that the UK ICS Companies were simply until the last moment only disputing quantum. The fact that the invoices were originally sent to Transnational Capital Ltd and the joint venture company is an indicator that the UK ICS Companies were not regarded by Mr Wilson as his clients, but not a conclusive one, even though his explanation that his accounts department did not take proper notice of the Engagement Letter reads curiously. So also the recent provisions in the UK ICS Companies accounts are explicable on the basis of prudence.[119]Miss Meyer did not press hard the argument that MWP could use the Contracts (Rights of Third Parties) Act 1999 as against ICS Incorporation Ltd to rely on the provision in clause 19 of the MOU that each party would bear its own legal fees. It is not easy to see how this could be regarded as being intended by the parties to be enforceable by a third party, or how it could be said to be a term which identifies the third party by name, or as a member of a class, or as answering a particular description: section 1(2), (3).[120]For these reasons I consider that I should accede to the applications on the basis that there is a substantial dispute as to the whole of the claimed debt. I use the expression “substantial dispute” rather than “bona fide dispute” since whether it is the latter may turn on questions of the credibility of the witnesses for the UK ICS Companies to be resolved at trial. If this matter had not proceeded as applications to restrain presentation of a winding up petition but instead by action, the proceedings could have come to trial by now.[121]The UK ICS Companies were represented by Herbert Smith. In the course of his evidence Mr Wilson criticised their conduct of these proceedings, and as a result on the day prior to the hearing I drew to the attention of counsel the fact that I was a partner in that firm until my appointment to the Bench in September 2000. On the first day Miss Meyer was instructed to apply for an order in the exercise of my case management powers that the applications should be adjourned to another judge. I refused to accede to this application substantially for the same reasons as in my decision in Chellaram v Chellaram (No 2) [2002] 3 All ER 17, at 55-56.

Cited in 2 later judgments