Tajik Aluminium Plant v (1) Abdukadir Ganievich Ermatov (2) Ansol Limited (3) Avaz Saidovich Nazarov (4) Ashton Investments Limited (5) Alexander Vitalyevich Shushko (6) Anna Osadchaya (7) Cherzod Abdoukadirovich Ermatov (8) Ansol Resources Limited (9) Ansol Capital Limited [2006] EWHC 7 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
[2006] EWHC 7 (Ch)Case No Case No: HC05C01237Venue Royal Courts of Justice, Strand, London, WC2A 2LL
Between
Tajik Aluminium PlantClaimant(1) Abdukadir Ganievich Ermatov (2) Ansol Limited (3) Avaz Saidovich Nazarov (4) Ashton Investments Limited (5) Alexander Vitalyevich Shushko (6) Anna Osadchaya (7) Cherzod Abdoukadirovich Ermatov (8) Ansol Resources Limited (9) Ansol Capital LimitedDefendants
Before
Mr Justice Blackburne Proprietary Injunction ApplicationBrian Doctor QC and Rosalind Phelps (instructed by Clyde & Co) for the2nd and 3rd DefendantsHearing date: 9 December 2005Date 11 January 2006
[1]Mr Justice Blackburne : On 21 October I handed down judgment setting aside worldwide freezing and search orders made by Etherton J on 13 May 2005.[2]Three issues were left outstanding of which one was whether a so-called proprietary injunction should remain in place against the first, second and third defendants, respectively Mr Ermatov, Ansol and Mr Nazarov. In paragraph 195 of the judgment I said this concerning the matter:
"I am inclined, although I will hear argument on this if necessary, to leave the proprietary injunction in place as against Mr Ermatov, Ansol and Mr Nazarov. It is difficult to see, on the evidence, what the basis can be for continuing that relief against Ashton and Mr Shushko. I have already concluded that there is no basis for the continuation of any relief against Ms Osadchaya and the eighth and ninth defendants. There is no application by the seventh defendant, Cherzod Ermatov, to discharge the proprietary injunction so far as it affects him."
Ashton, Mr Shushko and Ms Osadchaya are respectively the fourth, fifth and sixth defendants.[3]There was indeed a dispute over whether the injunction should remain in place against Ansol and Mr Nazarov. I therefore gave directions, when the matter was before me on 26 October, to enable the issue to be heard. The matter came before me for argument on 9 December.[4]The basis of Tadaz's without notice application to Etherton J which resulted in the making of his order on 13 May 2005 ("the Etherton order") was, as it was described in paragraph 1 of the skeleton argument placed before the judge on that occasion, that Tadaz had "…claims arising from a major and long-running fraud against it perpetrated by its former trading partners and agents and necessarily involving its former Director". Its former trading partners and agents included, if they were not restricted to, Ansol and Mr Nazarov. The former Director was Mr Ermatov. At the forefront of the claim, as paragraph 21 of the same skeleton argument made clear, was that Mr Nazarov bribed Mr Ermatov to contract with Ansol for its alumina and other raw material requirements in return for which it supplied finished aluminium. As it is put in the particulars of claim which were subsequently served:
"16. From about mid-1996 to the end of 2004, TadAZ traded with various companies owned and controlled by or associated with Mr Nazarov (together "
Nazarov Companies"). As pleaded more fully below, whether through his corrupt relationship with Mr Ermatov or otherwise, Mr Nazarov (acting in concert with Mr Ermatov) managed to exert such control over TadAZ that he was able to procure that TadAZ trade with Nazarov Companies upon terms that were manifestly disadvantageous to TadAZ and manifestly excessively advantageous to Mr Nazarov and Nazarov Companies. The trading was not conducted at arms' length and/or was not conducted upon the terms that commercial parties at arms' length would have traded with each other. 17. Mr Nazarov was permitted by Mr Ermatov to take control of TadAZ and/or its trading operations and/or manipulate TadAZ and its contractual arrangements for the benefit of Mr Nazarov and Nazarov Companies' own benefit and/or to earn profits from dealings with TadAZ that were greater than they would have earned as ordinary commercial counterparties trading at arms' length and/or to earn profits from dealings with TadAZ that were greater than they would have earned if TadAZ had been operating exclusively for its own benefit. 18. TadAZ's primary case is that in their conduct as aforesaid, Mr Nazarov and Mr Ermatov were acting dishonestly in that: (a) their relationship was tainted with the corruption detailed below; and/or (b) they knew that the manner in which Mr Nazarov and Nazarov Companies were trading with TadAZ was made possible by breaches of Mr Ermatov's duties to TadAZ aforesaid; and/or (c) they knew that the manner in which Mr Nazarov and Nazarov Companies were trading with TadAZ was made possible by breaches of Mr Nazarov's duties to TadAZ as set out below; and/or (d) they led to Mr Nazarov and Nazarov Companies making grossly disproportionate profits at TadAZ's expense. … 26. Prior to disclosure, the best particulars TadAZ can presently give as to corrupt payments by Mr Nazarov or Nazarov Companies are as follows:- (a) from about 1996 to at least December 2004 Mr Nazarov, at Mr Ermatov's request, paid the university fees and living expenses of Mr Cherzod Ermatov in London. Those fees and living expenses in any given year greatly exceeded Mr Ermatov's legitimate annual income; (b) on or about 3 August 1999, Mr Nazarov purchased a property in London, known as 15 Charter Court ("the London Flat") for about £300,000, and gave it to Mr Cherzod Ermatov. 27. It is to be inferred that the gift of the London Flat by Mr Nazarov to Cherzod Ermatov was made at Mr Ermatov's request and/or for Mr Ermatov's benefit and/or as part of a corrupt relationship between Mr Nazarov and Mr Ermatov and/or in order corruptly to influence Mr Ermatov in his dealings with Mr Nazarov and Nazarov Companies on behalf of TadAZ and/or as part of a generally corrupt relationship between Mr Nazarov and Mr Ermatov. 28. All of the transactions between Nazarov Companies and TadAZ were procured by and/or are tainted by the corrupt relationship between Mr Nazarov and Nazarov Companies and Mr Ermatov referred to above."[5]The proprietary injunction granted by Etherton J which Ansol and Mr Nazarov contend should be set aside against them is in the following terms:
"4.1 Until the Return Date or further order of the court, the Defendants must not dispose of or deal with or diminish the value of any assets which are, or which are assets derived from, any secret profits, bribes, secret commissions or other unlawful payments received by any of the Defendants as a result of or in connection with any dealings with and/or the supply of alumina to and/or aluminium produced by the Claimant. 4.2 This part of the Order includes but is not limited to the following assets in particular, namely the property known as 15 Charter Court, 16A Harcourt Street, London W1H 4HE or its fruits or proceeds, including any interest earned or other income derived from the said property or proceeds. 5.1 …each Defendant must within 3 working days of service of a copy of this Order upon him and to the best of his ability and after making all reasonable enquiries, inform the Claimant's solicitors in writing of the location, nature and value of all assets which represent in whole or in part or are derived from the proceeds or fruits of, including any interest earned on, the assets referred to in paragraph 4 above. 5.2 [The order set out particular assets of which details were to be supplied] 5.3 The Defendants must confirm the information referred to in paragraphs 5.1 and 5.2 above in affidavits which must be served on the Claimant's solicitors within 7 days after this Order has been served on the Defendants."
[6]One of the issues that arises is the scope of paragraph 4.1. Mr Doctor, appearing with Mr Sinclair and Ms Phelps for Ansol and Mr Nazarov, submitted that the words "or other unlawful payments" were to be interpreted eiusdem generis with the words that precede them, namely "secret profits, bribes, secret commissions", ie that they must partake of the same quality. He submitted that on that understanding the injunction should not be permitted to continue against Ansol and Mr Nazarov for the simple reason that there was no evidence, and it was not alleged, that either of those two had received any such payments.[7]Mr Rosen appearing with Mr Kitchener and Mr Elliott for Tadaz, submitted that Etherton J intended by paragraph 4.1 to restrain any dealings with assets in which Tadaz enjoyed an enforceable proprietary interest. He pointed out that Tadaz's skeleton argument in support of its without notice application made clear that it claimed a proprietary interest in all the proceeds of the fraud and that part of the purpose of the application was to enjoin any dealings with assets so derived. He drew my attention to paragraphs 58 to 68 of that skeleton argument.[8]Whether the proprietary injunction should be continued was not the subject of any debate before me (at most, the matter was one of passing mention) during the five-day hearing in July of the applications by the defendants to discharge the Etherton order. It was only when I came to consider in more detail the terms of that order, in the course of preparing the judgment handed down on 21 October, that I gave any thought to whether and to what extent the proprietary injunction should remain in palace. I expressed myself tentatively in paragraph 195 and did so in the belief, in line with Mr Doctor's submission, that the injunction was only intended to affect payments in the nature of bribes or other secret payments. I did not give much thought to whether there was any suggestion in the evidence that either Ansol or Mr Nazarov had been the recipient of any such payment. Although I did not recall any such suggestion having been made and would have expected the matter to have been mentioned if there had been, I took the view, necessarily tentatively in the circumstances, that, in case there was, there was no reason why, given its limited scope, the injunction should not remain in place. Now that it is clear that there is no such evidence (or suggestion), it must follow, if the injunction is to be interpreted narrowly, that it should be discharged as against Mr Doctor's clients.[9]Not only did it not occur to me, until the point was taken by Mr Rosen, that the proprietary injunction should have the wider meaning for which Mr Rosen contended, but the fact that that was Tadaz's intention does not clearly emerge from the paragraphs in the skeleton argument to which Mr Rosen referred me. The paragraphs of the skeleton argument are in a section headed "Freezing (and Disclosure) Orders". They refer in terms to the requirements of "a Mareva injunction". It is only in the second sentence of paragraph 64(a) that the author of the skeleton argument states that "…to the extent that Ansol … received profits at the expense of TadAZ, the latter has proprietary claims". The skeleton argument does not refer to any authorities relevant to the claim and none was mentioned to Etherton J. Indeed, remarkably little was said about the claim during the course of the hearing before Etherton J. No particulars of claim had been prepared: they were only served in late June.[10]Moreover, the wording used in paragraph 4.1 was scarcely apt to convey the wider intention behind the injunction. This is because, as first became apparent when the matter was briefly before me on 10 November 2005, what Tadaz claims is that all payments received by Ansol and Mr Nazarov "as a result of or in connection with any dealings with and/or the supply of alumina to and/or aluminium produced by [Tadaz]" are caught. The inclusion therefore of the words "other unlawful" in paragraph 4.1 did not make this clear. Recognising this, Tadaz applied at the hearing on 10 November to have the injunction refashioned in order to reflect the true intention, as it was said to be, behind paragraph 4.1. The reformulated injunction sought to restrain Ansol and Mr Nazarov from disposing of or dealing with or diminishing "the value of any assets which are, or which are assets derived from, all income received by the Second and Third Defendants which is referable to, related to or derived from their dealings with TadAZ from 1999 to 2004 and/or assets derived from such income" (emphasis added).[11]If it was indeed intended that the injunction should potentially catch every "payment" received by Ansol or Mr Nazarov from Tadaz in connection with any dealings with alumina and/or aluminium extending over that five year period (and, on the evidence, involving countless transactions running in value to several hundreds of millions of US Dollars) paragraph 5.1 of the order was affording to the affected defendants an exceedingly short period - a mere three working days after service of the Etherton order - in which "to the best of their ability and after making all reasonable enquiries" to inform Tadaz's solicitors in writing of the "location, nature and value of all assets which represent in whole or in part or are derived from the proceeds or fruits of, including any interest earned on" the payments in question.[12]In my judgment, fairly understood, paragraph 4.1 has the narrow scope for which Mr Doctor contends. I am reinforced in this view by application of the principle that the court is entitled, in the case of any doubt as to its meaning and effect, to construe it favourably (and therefore narrowly) to the persons affected by it, not least when it is endorsed with a penal notice and contains a threat of imprisonment if anyone affected by it should disobey its terms.[13]There is a further objection to the proprietary injunction as ordered. That is its reference to "unlawful" payments. This requires the defendants to distinguish between payments which are lawful and those which are not. It is only the latter that are caught. It requires the defendants to reach a conclusion of law on a matter which, as the argument before me made abundantly apparent, is fraught with difficulty even assuming that the governing law is English law. Given the location of the impugned transactions and the nationality and base of operations of the parties involved, this is highly problematical. Scarcely less problematical is that the law of Tajikistan (which must be a strong candidate to be the governing law) is not the same as English law.[14]It is, of course, a general principle of injunction law and practice that the injunction must be expressed in unambiguous language so that the person against whom it is directed knows with precision what it is that he is required to do or not to do by the order. The injunction should not be granted in terms which necessitate an enquiry into what it requires if and when it comes to be enforced. In my judgment, paragraph 4.1 infringes this principle. It leaves for enquiry which payments are covered and which are not.[15]If necessary I would therefore have discharged the proprietary injunction in its existing form on this ground alone.[16]Rather than decide the matter simply on the interpretation of paragraph 4.1, I shall address the question whether, given Tadaz's claim to an enforceable proprietary interest in all of the payments received and profits made by Ansol from its dealings with Tadaz, an interim proprietary injunction on this wider footing is appropriate.[17]Tadaz makes its claim to such an interest on three alternative bases. The first is that the contracts entered into by Tadaz with Ansol (referred to in paragraph 93 of my earlier judgment), and later with Hamer when Hamer replaced Ansol in the chain of supply (as referred to in paragraphs 100 and 101 of the judgment), were void as having been concluded by Mr Ermatov in excess of his authority. The second is that if those contracts were not void they were voidable for fraud and have now been avoided. The third is that Ansol and Mr Nazarov are accountable as constructive trustees for all of the assets they obtained through and as a result of their dealings with Tadaz since those assets represent the profits gained by their fraudulent conduct. Tadaz recognises that, in a number of respects, its particulars of claim require amendment (a draft of which was before me) properly to reflect the way it makes its case and indicated that it intends in due course to seek permission to make and serve such amended particulars.[18]The first basis of claim asserts that Mr Ermatov, because he was acting pursuant to a corrupt scheme to enrich himself and Mr Nazarov at Tadaz's expense and was therefore acting contrary to his duties to Tadaz, had no actual authority to enter into the transactions and, given that Ansol procured the fraud, no ostensible authority to do so either. Accordingly, it was argued, from the moment Ansol and Hamer received aluminium or money from Tadaz or assets representing the traceable proceeds of that aluminium or money, the aluminium, money or other assets in question were impressed with a constructive or resulting trust in Tadaz's favour. Citations from various authorities were relied on, including Belmont Finance Corporation Ltd v Williams Furniture Ltd (No 2) [1980] 1 AER 393 at 405 (Buckley LJ), Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1986] Ch 246 at 297-298 (Slade LJ), Heinl v Jyske Bank (Gibraltar) Ltd [1999] Lloyd's Rep Banking 511 at 519-521 (Nourse LJ) and Criterion Properties plc v Stratford UK Properties LLC [2004] 1 WLR 1846 at paragraphs 4 (Lord Nicholls) and 31 (Lord Scott).[19]The second basis of claim asserted that, having rescinded those contracts, Tadaz retrospectively acquired beneficial interests in all of the money and aluminium paid to Mr Nazarov's companies under those contracts and in their traceable proceeds. Tadaz elected to rescind those contracts on service of its particulars of claim, the prayer for relief of which includes an order setting aside all transactions between Tadaz and Mr Nazarov's companies. For good measure and to put the matter beyond any doubt, it gave formal notification to Ansol, Hamer and others of that election by letters dated 11 November 2005. It argued that, following rescission of the contracts, beneficial title in all assets transferred by Tadaz to Ansol under those contracts revested in Tadaz entitling it as a result to follow and trace the assets in question. This basis of claim relied on citations from El Ajou v Dollar Land Holdings [1993] 3 AER 717 at 734 (Millett J) and Shalson v Russo [2005] Ch 281 paragraphs 122-127 (Rimer J). It contended that the fact that full restitution of the benefits it had received under those contracts was no longer possible was no bar to its claim since it was able to give credit for the value of the alumina it had received. It pointed out that(1) full restitution was not in law required (see Alati v Kruger (1955) 94 CLR 216 at 223-225 (High Court of Australia), Guinness plc v Saunders [1990] 2 AC 663 at 698 (Lord Goff) and Goff & Jones, The Law of Restitution (6th Edition, 2002) at paragraph 9.025),(2) there has never been any difficulty about rescinding fully executed contracts on grounds of fraud (see O'Sullivan v Management Agency & Music Ltd [1985] QB 428) and(3) it is well established that there is no need to tender restitution before bringing a claim for rescission.[20]The third basis of claim argued that the well-established duty to account for any benefit that a person has received as a result of his knowing (and dishonest) assistance in a breach of fiduciary duty ought to carry with it (and there is no reason in justice or in principle why it should not) an entitlement in the victim to a proprietary interest in the benefit so made. Just as the recipient (standing in a fiduciary capacity) of a bribe holds the bribe, or any property into which the bribe can be traced, on trust for his principal, so also should the recipient of any profits derived by the dishonest participation in a breach of duty. It was said that this view is consonant with the acceptance by the Court of Appeal in Sinclair Investment Holdings SA v Versailles Trade Finance Ltd [2005] EWCA Civ 722 at paragraphs 31-43 (Arden LJ) and paragraphs 53-56 (Buxton LJ) that it is at least arguable that a fraudulent recipient of property holds on trust for the victim of the fraud any profits he has made by reason of the fraud. It was also argued that, as a result of the control that they exercised over Tadaz's trading operations, Ansol and Mr Nazarov assumed in relation to Tadaz various fiduciary duties including, at the least, an obligation to account for any profits they gained through their dealings with Tadaz and through their dealings with third parties in relation to Tadaz. The profits in question are prima facie all of Ansol's assets on the basis that they are one way or another unauthorised profits gained through or as a result of its dealings with Tadaz, and likewise any assets that Mr Nazarov received from Ansol (and in both cases their traceable product), with the onus lying upon them to show that this was not so.[21]I incline to the view that a contract induced by a bribe paid to a fiduciary by the counterparty to the transaction is valid and enforceable unless and until it is avoided by the principal and is not simply void ab initio. See, for example, Logicrose Ltd v Southend United Football Club Ltd [1988] 1 WLR 1256, a case which involved the payment of a bribe. But whichever way the claim is put, the question is whether the principal, on avoiding the contract (if he has to), can claim an interest in any property that has passed under (or in reliance upon) the avoided contract.[22]I am not aware of any authority involving a contract induced by a bribe paid by the counterparty to the contract where the principal of the bribed agent has succeeded in claiming a proprietary interest in payments made to the counterparty in consideration of goods supplied to the principal by the counterparty. It is not difficult to see why this is so. At any rate in a relationship such as existed between Tadaz and Ansol, Ansol supplied Tadaz with alumina, other raw materials and finance to enable Tadaz to carry on its business of producing aluminium. The aluminium was given in payment for the raw materials and finance supplied. There can be no question of Tadaz treating the transactions between itself and Ansol (whereby the raw materials were supplied by Ansol and, in exchange, aluminium was supplied by Tadaz) as void ab initio or as avoided for the future. They have been fully performed. The contractual arrangements (referred to in the evidence as the TADANS contracts) were replaced by similar contractual arrangements (referred to in the evidence as the TADHAMER contracts) between Tadaz and Hamer in reliance on which further deliveries were made. These replacement arrangements were in turn repudiated by Tadaz, at any rate for the future, in or about December 2004 (or so Tadaz claims) shortly after they had been renewed for a further year. There can, I should have thought, be no question of Tadaz returning the alumina and other raw materials which it received: they have in all probability long since been used in producing aluminium. Equally, I should have thought that there can be no question of Tadaz claiming ownership in all of the aluminium delivered by it in payment for the alumina, other raw materials and funding which Ansol (and later Hamer) supplied to it. Mr Rosen accepted that Tadaz must give credit for the value of the raw materials it received and can at most have a claim to assets to the value of $160 million (the amount of its claim) which, as I understood it, was the difference between what it paid (in aluminium) for the alumina supplied and what it says was the true open market value of that alumina.[23]It is well recognised in cases such as Fyffes Group Ltd v Templeman [2000] 2 Lloyds Rep 643 at 668-672 (Toulson J) and in Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) at 1658-1659 (Lewison J) that there is an obligation to account for any profits made from a transaction induced by dishonest participation in a breach of trust. Together with an alternative remedy in damages that is the usual remedy of the principal against the other party to a transaction induced by the payment by that other party of a bribe or secret commission to the principal's agent. But the proposition that the principal is also entitled to assert a proprietary interest in those profits is, as Mr Rosen recognised, novel. Authority has thus far fallen short of so concluding. Since, ex hypothesi, the claim to a proprietary interest is confined to the profits made, this is perhaps not surprising.[24]There is, I think, a possible further difficulty if the TADANS and TADHAMER contracts were of no effect as being at all times void. This is that arguably Tadaz never purchased (because, ex hypothesi, the contracts under which it would otherwise have done so are of no effect) and therefore acquired no title to the raw materials which it used to produce the aluminium. If that is so, to whom does the aluminium so produced belong? To my mind, this is a far from straightforward question. On one view at least, ownership in the finished aluminium was shared between Tadaz and Ansol (and later Tadaz and Hamer) or between Tadaz and whoever the owner was of the raw materials supplied to Tadaz. Another possibility is that ownership in these items and in the finished aluminium produced as a result of the smelting process remained in Ansol or Hamer (or whoever the owner was of the raw materials supplied). A third is that, notwithstanding the void nature of the contractual arrangements, title in the raw materials passed to Tadaz (or the supplier's title to them was extinguished) when they were consumed and their identity irrevocably changed in the course of the smelting process such that property in the resulting product, the aluminium, belonged exclusively to Tadaz as its producer.[25]There is yet another possible difficulty. This arises from the fact that from May 2003 onwards Tadaz's dealings both as regards the supply to it of alumina and other raw materials and as regards the delivery by it of finished aluminium were with Hamer and not Ansol. Tadaz's dealings with Hamer were for valuable consideration. Hamer was a joint venture company established by Ansol and Elleray (itself a subsidiary of Rusal) the shares in which were held as to one-half by Ansol and the other half by Elleray. According to Tadaz's evidence on its without notice application to Etherton J, Hamer's administrative needs were met by staff employed by an organisation called Al Service which itself was owned 50% by an Ansol affiliate and 50% by a Rusal affiliate. Hamer's sole executive officer was, until late January 2005, a Rusal nominee called Petukhov. The evidence of Simon Bushell given on behalf of Tadaz was that, on the basis of information from persons instructing him at Rusal, Hamer was contending that its involvement with Tadaz was "the result of manipulation by Ansol", that "it never made any real profit" and that "all value was transferred from Hamer to Ansol through the arrangements made between them". (See paragraph 267 of Mr Bushell's first affidavit.) This sounds very much like a contention by Hamer (as reported on behalf of Tadaz) that, in contrast to Ansol, it was innocent of any wrongdoing. It is to be noted that Hamer is not a defendant to Tadaz's claims.[26]If Hamer dealt with Tadaz without notice of any fraudulent or other dishonest conduct on the part of Ansol or Mr Nazarov, it is difficult to see how any proprietary right Tadaz might otherwise have in the aluminium supplied by it can overcome Hamer's interposition in the chain of supply between Tadaz and Ansol as a purchaser of the aluminium for value.[27]None of this was raised, let alone argued, on the without notice application to Etherton J notwithstanding that, as I accept, Tadaz has throughout asserted a proprietary interest in the payments made by it to Ansol (both directly and via Hamer) resulting from its dealings with those two entities since 1999. The contentions of law are certainly arguable (some more so than others) but I am far from persuaded that they justify subjecting Ansol and Mr Nazarov to an interim injunction which, although grounded differently, would (as Mr Doctor argued and as Mr Rosen accepted) effectively extend to all of the assets of those persons (subject, as I understood it, to an overall limit of $160 million) just as much as if they had continued to be subject to a worldwide freezing order. Their only escape would be to demonstrate that any particular asset was not traceable to a "payment" by Tadaz from a dealing in alumina or aluminium, a task which would involve a mixed question of fact and law.[28]Given the very uncertain legal basis for Tadaz's proprietary claims and the uncertain position that an order made to reflect them would leave Ansol and Mr Nazarov, I am satisfied that it would not be right to grant to Tadaz the interim proprietary injunctive relief it seeks. I reach this conclusion without regard to the wider question of discretion to which Mr Doctor referred me.[29]In the result I shall vary paragraph 4.1 of the Etherton order by substituting a reference to the first and seventh defendant in place of the reference to the defendants.

Cited in 3 later judgments