Kensington International Ltd. & Anor v Republic of the Congo [2006] EWHC 1712 (Comm)

“The Third Parties and any of the Vitol Parties be free to purchase oil from any Congo Party (including on a prepayment basis if required by the relevant Congo Party) so long as the transaction is not at an undervalue as defined in section 423(1) of the Insolvency Act 1986.”

“Until further order of the Court, the Third Parties must not (unless the Claimant’s solicitors consent in advance in writing) whether by themselves, their servants or agents (including for the avoidance of doubt Mr Gilles Chautard and Mr Sam Lambroza) or otherwise howsoever: (a) pay, or cause to be paid, or assist any other person to pay to any of the Congolese Parties (as defined in Schedule A) any sum of money in payment for or in respect of any of the Transactions identified in paragraphs 2 to 3 of Schedule A. (b) enter into, or participate in any agreement or arrangement or act on any instructions by which any contract in respect of or pursuant to any of the Transactions identified in paragraphs 2 to 3 of Schedule A is varied, modified or assigned or the debt due in respect of or pursuant to any such Transaction is assigned or otherwise dealt with or by which there is any alteration in the terms or process or mechanism by which payment in respect of or pursuant to any such Transaction is to be made, including for the avoidance of doubt by means of any prepayment or pre-financing arrangement.”

“46. Furthermore, there is evidence before the Court, apparently publicly available also on the Internet, to the effect that the legal structure of the large hedged crude oil prepayment facility, to which I have already referred, was deliberately selected by Congo and by its legal advisors in an attempt to prevent Congo’s creditors from seizing oil in the hands of SNPC and to try to reduce the risk of action by Congo’s creditors. This information emerges from a memorandum prepared for Congo, or for SNPC, in May of 2002 by Messrs Cleary, Gottlieb, Steen & Hamilton. … 98. It remains to consider the declaratory relief. As I indicated during the hearing I am entirely satisfied on the basis of the evidence before me that the defendant has adopted in relation to its oil exports cumbersome and apparently commercially disadvantageous and inflexible pre-financing structures with the interposition of special purpose vehicles for the very purpose of preventing its creditors seizing its oil in execution of debts owed by it.” 6 May 2003: Kensington applied for a worldwide freezing order against Congo’s assets. Morison J decided that he would not hear the application unless notice of it was given to Congo. 13 May 2003: The Court of Appeal upheld Morison J’s decision. May 2003: Kensington issued proceedings against Congo in the United States District Court for the Southern District of New York in which it sought the following remedies: (i) recognition of the 2002 Judgment; (ii) alternatively a remedy for breach of the loan agreement; (iii) an injunction in respect of Congo’s breach of the pari passu and negative pledge causes; (iv) a declaration stating that SNPC and Olearius are alter egos of the Congo; and (v) an order for costs and expenses. 3 July 2003: The finding that SNPC is an emanation of Congo was upheld at a further hearing before the Paris Court of Appeals. 18 August 2004: Kensington filed a criminal complaint with the public prosecutor in Geneva against Mr Roland Favre, a senior executive of Vitol SA and the Vitol Group based on the allegation that Vitol SA and Congolese officials were conspiring to defraud Congo of profits or its resources and revenues, for their own benefit and that of Vitol SA. The Public Prosecutor considered that there was not enough prima facie evidence or material to issue charges against Mr Favre or Vitol SA. 30 September 2004: The US court granted summary judgment in respect of (i) above. Claims (iii), (iv) and (v) are still proceeding. SNPC has been added as a defendant to the action. November 2004 Kensington applied in the High Court of Justice in England and Wales for and obtained a charging order nisi over (i) the shares in an English company called Jackson 31 Ltd; and (ii) a property at 31 Sackville Street owned by Jackson 31 Ltd on the basis that the share capital of Jackson 31 Ltd was owned by a Congolese company called Fininco of which SNPC owned 90%. Kensington subsequently applied to have its charging order nisi discharged having discovered that Walker had already obtained a charging order nisi over the property. February 2005: Kensington sought to attach the proceeds of a cargo of oil delivered into the United States under consignment to BNP Paribas. The action remains in suspense while BNP refuses to comply with orders of the US Federal Court to disclose documents. March 2005: Kensington filed a tort action in the US based on the RICO statute, alleging money laundering and the transfer and receipt of stolen property by SNPC, Mr Itoua and BNP Paribas. 10 April 2005: Kensington successfully applied for Third Party Debt Orders against Glencore Energy UK Limited in respect of each of the four Commercial Court judgments together with injunctions preventing payment of monies due by Glencore to Congo in respect of two cargoes of Congolese oil (“the Nordic Hawk Cargoes”) shipped on board the Nordic Hawk. 19 April 2005: Kensington successfully applied to the Supreme Court of Bermuda for an interim attachment order against Sphynx Bermuda Limited and an injunction preventing payment of monies in respect of the Cargoes. July 2005: Kensington filed a garnishment action in the US Court in an attempt to attach the proceeds of a cargo of Congo’s oil aboard the Nikator being sold to Vitol SA. Kensington subsequently withdrew the action having established that Vitol SA had prepaid Congo for the oil. 28 November 2005: Judgment of Cooke J in the Nordic Hawk proceedings. The interim attachment orders obtained by Kensington on 10 April in respect of the Nordic Hawk Cargoes were made final after a 10-day trial in the Commercial Court. In his Judgment Cooke J said: “102. In addition to large scale pre-financing schemes, arrangements were made in respect of pre-payments for individual cargoes. Advances were made of a proportion of the purchase price before the due date for payment, which were repaid by deliveries of oil charged for that purpose with the repayment of the debt plus interest. I find that these arrangements, which were very expensive for SNPC, were also motivated by the desire to prevent seizure of assets. … 199. It is clear that the underlying reason for this was to avoid, so far as possible, attachment of the oil or of the proceeds of sale by creditors of the Congo in circumstances where it was known that such creditors were taking aggressive action with a view to enforcement of the Congo’s debts. The absence of any legitimate reason for the interposition of either of these companies, on the facts as I have found them to be, is irresistible. This was a deliberate scheme to create an appearance of contracts and independent oil trades and traders which was devised to enable SNPC and Cotrade to sell their assets (oil) against payment from international market buyers, without their assets (neither the oil nor the proceeds) becoming available to meet existing liabilities. 200. In such circumstances I answer the questions posed at the commencement of this section of the judgment in the following manner: (i) The sale from Sphynx Bermuda to Glencore was a genuine sale transaction but the others were not. Glencore was untroubled about the identity of its sellers, knowing that Dr Nwobodo and Mr Gokana had close connections with SNPC/Congo and, confident that the oil would be delivered, would have been prepared to adopt the practices suggested to them for payment by those two individuals. (ii) The sales of the cargo between Cotrade and AOGC and AOGC and Sphynx Bermuda were sham in the sense that they were not genuine sales transactions at all, with concomitant legal rights and obligations. They were devised to hide the reality of a sale by Cotrade, which part of the State of the Congo, to Glencore. (iii) Although AOGC is a corporate entity which carries on some business of its own, its use in the sale of the cargo was a sham. It and its BGFI bank account were used as a façade or mask to conceal the identity of the seller and true recipient of the proceeds of sale. Sphynx Bermuda was similarly used as a façade without regard for its corporate nature. Both were utilised in this manner by Mr Gokana in his capacity as President and DG of SNPC and were ciphers under the control of SNPC though him for this purpose. (iv) The structure of companies and sales was therefore put in place and employed by the Congo/SNPC/Cotrade with the object of evading enforcement of existing liabilities of the Congo by hiding its assets from view. (v) Those involved in creating and masterminding the use of the structure were dishonest in the relevant sense of the word because of this objective when creating and using the sham companies and transactions in question, to avoid enforcement of existing liabilities. 201. Where monies are owed by Glencore to Sphynx Bermuda in respect of the cargo therefore, the court is entitled to, and must in justice ‘pierce the corporate veil’ and recognise that debt as owed to the Congo and that any receipt by Sphynx Bermuda would be the receipt of Cotrade at the top end of the “sham” chain. The whole purpose was to use Cotrade, AOGC, Sphynx Bermuda and the chain of transactions as a device or façade to conceal the true facts of a sale by Cotrade to Glencore, thereby avoiding or concealing the liability of Cotrade to have its oil or proceeds attached in execution of existing judgments given in respect of the Congo’s debts. In my judgment, such conduct is dishonest within the meaning of the authorities and Mr Gokana, with the assistance of others, was thereby engaged in this scheme to use these companies and transactions in a manner calculated and intended to defeat the claims of the Congo’s creditors. 202. Kensington are therefore entitled to final Third Party Debt Orders in respect of the purchase price for the cargo. The effect of making the interim orders final will be to discharge Glencore from liability for the debt on payment to Kensington, the judgment creditor, in accordance with the orders and the provisions of the CPR 72.9.” 6 December 2005: Morison J gave judgment in Walker International Holdings v Congo in respect of Walker’s interim charging orders over the shares in Jackson 31 Limited and the property at 31 Sackville Street. In his judgment Morison J said: “76. On 16 May 2002 a law firm instructed on behalf of SNPC, Messrs Cleary, Gottlieb, Steen & Hamilton wrote a note for the attention of Messrs Itoua and Elenga identifying the structure for a financing package, backed by oil rights, by a pool of banks. The note explained that the structure involved the loan not being made to SNPC but rather Olearius, a SPV. The reason for the structure was to prevent the creditors of Congo and/or SNPC from seizing the oil in the hands of SNPC: ‘… since the SPV, being autonomous in relation to the SNPC and the Republic of Congo, could enforce its right of ownership of said oil in order to block their attempted seizure. To ensure that the independence of the SPV in relation to the Lenders and the SNPC cannot be challenged by creditors of the SNPC or the Republic of Congo, the stock share of the SPV are held by a Trustee that is fully independent of the Lenders and the SNPC.”

“Objects to be sequestered: Any property, debts, assets on account, checking account, which belong to, or which Vitol SA knows belong to, directly or indirectly, the Republic of Congo, the SNPC Société Nationale des Pétroles du Congo, AOGC Africa Oil & Gas Corporation, Cotrade SA, Sphynx Bermuda Ltd, Sphynx UK Ltd, Phenicia International SA, In the hands of Vitol SA which is headquartered in Geneva, 28 Bd. Du Pont d’Avre, 1205, Up to the amount of CHF 113,734,285 - plus interest at 8% per annum from 3 April 2006.”

“2. I will not recite all the evidence in relation to the background to the proceedings in view of the time and the need for me to give this judgment urgently. The Congo is a judgment debtor of Kensington in the sum of US $87 million which remains outstanding. As Cooke J found in his judgment dated 9 November, the Congo has been involved in a well recorded history of deliberately and dishonestly seeking to evade payment of debts it owes to creditors such as Kensington, and seeking to evade enforcement of this court’s judgment against it. In particular I refer to paras. 198 and 199 of Cooke J’s judgment where he concludes that the Congo deliberately adopted the course of interposing companies and pre-paying funds in order to create an appearance of contracts and independent oil trades and traders. This structure was devised to enable SNPC and Cotrade to sell their assets against payment from international market buyers without their assets (that is to say, neither the oil nor the proceeds of sale) becoming available to meet existing liabilities. 3. It is also apparent from the materials put before the court by Kensington on this application that there is evidence that Vitol Group (that is, Vitol Broking, Vitol Services, Vitol SA and other companies in the Vitol Group) have a long history of dealing with the Congo and with its various emanations, and that it has played a role and a significant role in the dishonest judgment-proofing scheme considered by Cooke J in the Nordic Hawk proceedings. There is also evidence in relation to its pre-payments of the Nikator cargo. I should emphasize that, although a witness statement signed by Mr Steven Fox, a partner in Inces, on behalf of the two US Vitol Companies was put before me, there has been no opportunity in real terms for there to be any full answer to the evidence filed on behalf of Kensington. Accordingly when I say there is a strong arguable case on the evidence before me, what I am looking at, in effect, is only the evidence of the claimant because there has been no opportunity on the part of third parties, i.e. the UK Vitol Companies to answer the allegations made against the Vitol Group in any real way. 4. The evidence of the claimants does show a strong arguable case. I refer in particular to the emails between Dr Nwobodo and Mr Chautard and Mr Lambrosa. These do, in my judgment show, at least prima facie, that the Vitol Group have participated actively in assisting the Congo to ensure that it remains judgment-proof. In particular, Mr Chautard sent or referred to Cooke J’s judgment in an email of 5 December 2005. He sent the judgment to Dr Nwobodo on that date saying: “Not sure you’ll enjoy reading this”

‘The exact details of the company selling the March 29-30 N’kossa to Global Oil Trader Mauritius [GOTM], as it is already very late for me and Othmar to enter the deal details in our internal deal churning factory here.’ 5. The inference can be drawn from that email that the various companies are simply used, both at the Congo end, and at the Vitol end, as vehicles for the purpose of structuring the deals for the purchases of oil. I am satisfied, at least on a prima facie basis, that the claimant has a reasonably strong case for asserting that, in so structuring the oil sales with the use of new companies to replace earlier entities, Mr Chautard and his colleague Mr Lambrosa, and thus the Vitol UK Companies and the Vitol Group, must have appreciated that the purpose of using these vehicles was in order to prevent detection by the Congo’s judgment creditors of the oil sales. … 18. I take as my starting point the fact that Vitol SA is already prevented by the interim attachment order of the Geneva court from making any payment in respect of this cargo. If the view of Kensington’s Swiss lawyer is correct, the order also prevents Vitol SA effecting any payment owed to the Congo by entities regarded as Vitol SA’s nominees or as ‘equivalent to’