Concept Oil Services Ltd v En-Gin Group L & Ors [2013] EWHC 1897 (Comm)

Case No 2012 FOLIO 416[2013] EWHC 1897 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 05/07/2013
Before
THE HONOURABLE MR JUSTICE FLAUX
Between
CONCEPT OIL SERVICES LIMITEDClaimantEN-GIN GROUP LLPDefendant(2) EN-GIN PRODUCTION LLPDefendant(3) MR ALEXANDER KONTSEVOYDefendant(4) MR YERLAN BURATOVDefendant(5) SKYAGRA DEVELOPMENT LLPDefendant(6) EN-GIN LIMITEDDefendant(7) AKKERT SADefendantakkert Kazakhstan llpDefendant(9) EN-GIN LTDDefendant(10) NKCES-TRADE LLCDefendant(11) LARSON COMPLEX LTD.Defendant
Paul Stanley QC (instructed by Watson, Farley & Williams LLP) for Claimant for The defendants did not appear and were unrepresentedHearing Hearing dates: 11 June 2013
Judgment

Introduction and background

[1]The claimant company (to which I will refer as “COS”) is incorporated in Hong Kong and carries on business trading crude and refined oil products and conducting related activities, including transportation. Between October 2008 and November 2010 it purchased refined oil from the ninth defendant (“EG UK”), an English registered company, pursuant to a Framework Agreement and addenda under that Agreement, in circumstances described in more detail below. At the time that the Agreement was entered into, the directors and shareholders of EG UK were the third and fourth defendants, Mr Kontsevoy and Mr Buratov. EG UK in turn owned the first defendant (“EG Group”) a Kazakh limited liability partnership, which in turn owned the second defendant, another Kazakh limited liability partnership which owned and operated an oil refinery in Kazakhstan.[2]COS has suffered losses in terms of monies paid pursuant to the addenda for refined oil which was never delivered and for other related matters and loss under a tax loan agreement pursuant to which COS lent the group money to meet tax liabilities. COS’ case is that it was induced to enter these various agreements by representations made by Mr Kontsevoy which proved to be fraudulent. It claims damages against him, Mr Buratov and EG UK in deceit. It also claims damages against all the defendants except two (the tenth defendant which has not been served with the proceedings and the eleventh defendant which was not incorporated until February 2011) for conspiracy, the essence of the case being that the defendants conspired to change the corporate structure of the group with the consequence that EG UK became a hollow shell with no assets and EG Group was deprived of its assets for no consideration. COS also seeks a declaration that the various transactions by which this alteration of corporate structure were effected are void and of no effect and/or orders under sections 423 and 425 of the Insolvency Act 1986.[3]On 16 March 2012 on the without notice application of COS, Cooke J granted a freezing injunction against the first eight defendants and made a separate order for service of the proceedings on the first to fourth and sixth to eighth defendants outside the jurisdiction A subsequent order was made by Hamblen J on 1 May 2012 for service out of the jurisdiction on the tenth and eleventh defendants. . All the defendants save the tenth were duly served with the proceedings. Some of the defendants (the first four defendants and the sixth to eighth defendants) originally instructed English solicitors (initially Norton Rose and subsequently Zaiwalla & Co) to make applications to set aside the freezing injunction and to set aside service of the proceedings, challenging the jurisdiction of the English Court. The defendants served evidence in support of that application, specifically affidavits of Mr Kontsevoy taking issue on the facts with a number of the points made in COS’ evidence, specifically in the affidavit of Mr Michael Zeligmans, the principal shareholder in COS.[4]Those applications were set down for hearing on 10 October 2012, but the day before the hearing, Zaiwalla & Co came off the record and ceased to act for any of the defendants. Andrew Smith J dismissed the applications when no-one from the defendants attended, having given them a period of time before his order took effect to come to court if there had been some misunderstanding. Following the dismissal of the applications, none of the defendants filed fresh acknowledgments of service as required by the Civil Procedure Rules.[5]It would then have been open to COS to obtain default judgment pursuant to CPR Part 12 but the enforcement of such a judgment is notoriously difficult in international cases, because such a judgment is not a determination on the merits. Accordingly, at a case management conference before Gloster J (as she then was) on 8 March 2013, approval was given by the court to proceed with a trial on the merits. The court has inherent jurisdiction to order that there be a trial on the merits where the defendant has failed to acknowledge service, so that the claimant can seek to obtain a judgement that, if given, would be far more likely to be enforceable than a default judgement: see per Colman J in Berliner Bank AG v Karageorgis[1996] 1 Lloyd’s Rep. 426 and per Field J in Habib Bank Ltd v Central Bank of Sudan[2006] EWHC 1767 (Comm), [2006] 2 Lloyd's Rep 412.[6]Directions for that trial were made by Gloster J which were complied with by COS. The defendants were given notice that the trial was taking place but chose not to attend. Mr Paul Stanley QC, who represented COS, called Mr Zeligmans to give evidence. Mr Zeligmans gave oral evidence about the various representations made to him by Mr Kontsevoy and the reliance on those representations by COS and Mr Zeligmans. I had an opportunity to ask Mr Zeligmans questions to clarify one or two points. He otherwise confirmed on oath the truth of his various affidavits and witness statements. He was a clear and straightforward witness of whom I formed a favourable impression and I am satisfied his evidence was truthful.[7]Although the defendants did not attend the trial, throughout the hearing Mr Stanley was careful to draw to my attention any points, factual or legal which might be of assistance to the defendants, following the practice commended by Field J in Habib Bank at [9], applied more recently in United Trust Bank v Dohil[2011] EWHC 3302 (QB), a decision of Mr Simon Picken QC, sitting as a Deputy High Court Judge.

Findings of fact

[8]Mr Zeligmans is a Russian speaking Latvian, although he also speaks good English, having been educated in this country. He set up COS in 2003 to carry on the business of the purchase and transportation of crude oil and refined oil products throughout Europe, Russia and the CIS countries, including Kazakhstan, where he has built up a good network of business relationships. This includes a relationship with Lukoil, the Russian oil company. It was through Lukoil that in 2007 COS came across the refinery at Zhem in Kazakhstan which was owned by EG Production. EG Production was owned by EG Group, which in turn was owned by EG UK, incorporated in 2003. The challenges faced by EG at the time were the sourcing of crude oil for the purposes of refining and financing those purchases. This presented COS and Mr Zeligmans with an opportunity to provide the means of finance and onward supply to Lukoil which was interested in buying refined product from Zhem in substantial quantities. To receive sufficient crude oil at the Zhem refinery for those purposes, it would need to be exported from Russia to Kazakhstan. There were tax advantages at the time in exporting crude oil from Russia to Kazakhstan, refining it there and then exporting the refined product to third countries, rather than exporting it direct from Russia to other countries as crude oil or refining it in Russia.[9]Mr Zeligmans was introduced to Mr Kontsevoy of EG by Lukoil in early 2008 and attended a meeting with him at Aktobe in Kazakhstan. Lukoil was not interested in providing finance, so Mr Zeligmans was looking elsewhere but knew that, in what was becoming a difficult financial environment, he would only be able to provide finance for a reputable entity with substantial assets. He asked Mr Kontsevoy to explain the structure of the EG group. Mr Kontsevoy explained EG UK was the parent company and trading entity for the EG group and that EG UK owned EG Group, which in turn owned(i) EG Production which owned the Zhem refinery and(ii) another Kazakh limited liability partnership Ostyurk Munai, which had a licence to develop an oilfield in Kazakhstan. Mr Zeligmans explained in evidence that he was not particularly interested in the latter entity, since it is common enough to own licences to exploit oil in that part of the world and the assets of that entity were in any event pledged to the bank. From the outset, Mr Zeligmans’ particular interest was in the fact that EG UK had through its subsidiary a 100% interest in the refinery and, because it was an English registered company, it would be subject to the strict corporate governance required of English companies and their directors by English company law.[10]The following day Mr Zeligmans had a tour of the refinery and of the related facilities, including the rail network by means of which refined product was loaded onto railcars for onward transport. Following these meetings, as Mr Zeligmans said in his witness statement, Mr Kontsevoy was keen to verify what he had told Mr Zeligmans about the EG group. Accordingly he provided Mr Zeligmans with a valuation report on EG UK and its subsidiaries from KPMG dated 5 October 2007. This report, which Mr Zeligmans read, confirmed what he had been told by Mr Kontsevoy, that EG UK was the ultimate owner of EG Production which owned the refinery. Mr Zeligmans confirmed the significance of this in oral evidence, saying that COS would only do business with a company that owned the refinery, not with a trading company with no assets. He also confirmed that this was something that he made clear to Mr Kontsevoy in his discussions with him. Because the essence of what was being proposed was financing an operation to bring in crude oil from Russia and refine it into refined products at the refinery, the importance of the fact that the company with which COS was dealing, EG UK, owned the refinery through its 100% owned subsidiaries, was emphasised to Mr Kontsevoy.[11]In about August 2008, negotiations began with TNK-BP (which owned the nearest group of Russian oilfields to the Zhem refinery and with which Mr Zeligmans had a good trading relationship) for it to supply crude oil to the refinery. The EG group had no previous relationship with TNK-BP and, accordingly, gave Mr Zeligmans a power of attorney to negotiate with TNK-BP, with which a deal in principle was agreed by mid August. However, it was still necessary to obtain finance. Because Mr Zeligmans had a pre-existing relationship with BNP Geneva, it was agreed with Mr Kontsevoy that Mr Zeligmans would approach BNP with a proposal for it to provide trade finance.[12]During the discussions Mr Zeligmans had with BNP, it emerged that one of their biggest concerns was to understand the substance and structure of the EG group. Mr Zeligmans conveyed those concerns to Mr Kontsevoy on the telephone and Mr Kontsevoy confirmed that the corporate structure remained as he had told Mr Zeligmans, that EG UK was 100% owner of EG Group which, in turn, wholly owned EG Production that owned the refinery. Mr Kontsevoy also told Mr Zeligmans on the telephone that this structure would not change unless, at some point in the future EG UK decided to sell its interest, which would only occur if it could procure a substantial price. Having asked Mr Zeligmans during his oral evidence to clarify when those assurances and representations were made over the telephone by Mr Kontsevoy, I am quite satisfied that it was during the negotiations Mr Zeligmans had with BNP and so before the Framework Agreement was entered on 6 October 2008. Furthermore, I am quite satisfied that, because the request for this information was passing backwards and forwards as information and documents were supplied to BNP, Mr Kontsevoy was well aware of the importance which Mr Zeligmans attached to the assurances as to the corporate structure and that it would not change unless EG UK decided to sell its interest.[13]Ultimately, BNP was not prepared to provide finance to the EG group, in part no doubt because these negotiations coincided with the turmoil in the financial markets following the collapse of Lehman Brothers in September 2008. However, Mr Zeligmans had been considering whether COS itself might not finance EG. A structure was set up pursuant to the Framework Agreement dated 6 October 2008 (which was expressly subject to English law and London arbitration) under which EG UK would sell and COS would buy refined oil products in quantities and at prices determined by subsequent addenda. As explained in his witness statement by Mr Zeligmans, the way in which the Agreement was intended to operate and did operate was that COS would pay in advance for the refined product. Such advance payments would finance the purchase of crude oil by EG UK and its subsidiaries from TNK-BP and the refining of that oil at the refinery, although COS only acquired title to the refined oil upon delivery onto railcars at Zhem station. COS then sold the refined oil to Litasco, a wholly owned trading subsidiary of Lukoil.[14]Mr Zeligmans made it quite clear in his evidence that, in entering the Framework Agreement, he relied upon the assurances and representations from Mr Kontsevoy as to the EG corporate structure and that it would not change unless EG UK decided to sell its interest in the refinery. He understood that in practical terms, as he put it in his witness statement, the real value of EG (i.e. the refinery) was locked away in EG UK which, as an English company could not give away its assets or dispose of them other than at market value, and that directors of an English company were under a duty to act in the best interests of the company. It is quite clear that it was on the basis of those representations that COS entered into the Framework Agreement and the subsequent addenda. Mr Zeligmans’ evidence was that the representation by Mr Kontsevoy that the corporate structure would not be changed unless EG UK sold its interest in the refinery was repeated by Mr Kontsevoy at a restaurant in Moscow, possibly after the Framework Agreement was signed.[15]On dates from 6 October 2008 onwards a series of addenda were entered into between COS and EG UK, under which COS purchased the refined oil products, making prepayments which financed the purchase of the crude oil by the EG group. Until about November 2009, the arrangements ran smoothly. However, unbeknownst to COS and Mr Zeligmans, changes were made in that period to the structure of the EG group. First, in April 2009 EG Production was moved within the group so that it became a direct subsidiary of EG UK. Although this was a change in the structure of which COS should have been informed, it does not make any specific complaint about this change.[16]Far more significant is the filing in Anguilla on 18 September 2009 of a certificate of continuation and articles of continuation under the Anguillan International Business Companies Act 2000 in respect of EG UK. This procedure purported to have the effect of “continuing” EG UK as an Anguillan company, EG Anguilla, the sixth defendant. As Mr Stanley rightly submitted, this is a remarkable piece of legislation, the effect of which purports to be that the company continues as an international Anguillan company and ceases to be incorporated under the law of its place of incorporation, namely England. Clearly, as I elaborate in more detail at [70-74] below, under English law, which is the relevant applicable law as the law of the place of incorporation of EG UK, this purported continuation is void and of no effect.[17]In his first affidavit Mr Kontsevoy said that this “transfer” to Anguilla was for tax reasons. He claimed that there had been advice previously given that EG UK would not need to pay UK tax so long as it did not trade in the UK, but that this advice was subsequently changed and the decision taken to go to Anguilla. He produced no documents to support that contention and so far as the limited material available about the affairs of EG UK demonstrates, no attempt was ever made by the directors of EG UK (Mr Kontsevoy and Mr Buratov) to declare or pay any tax due on EG UK’s profits. Instead dormant company accounts were filed and Mr Kontsevoy and Mr Buratov simply disregarded their obligations to file tax returns. Moreover, if such advice had been given, that does not explain why, at a later stage of the restructuring of the group, they went back to using English registered companies to hold assets (see below). I agree with Mr Stanley that the tax explanation, whilst not impossible, is vague and inconsistent with other aspects of the restructuring. It seems to me that the real explanation for this “transfer” is that it was the first step in an overall restructuring the effect of which was to remove the refinery from the ownership of EG UK, ultimately to the detriment of creditors of the group. I deal with the “transfer” to Anguilla in more detail at [59-62] below.[18]At all events, whatever the real reason for the “transfer” to Anguilla, what is of critical significance is that, as Mr Kontsevoy accepted in his affidavit, he did not tell COS about what he describes as the “redomicile”, he said because he did not think it was relevant to COS. I reject that explanation. He knew very well that he had represented to Mr Zeligmans, before the Framework Agreement was entered, that the refinery was ultimately owned by the English company and that he had said the corporate structure would not be changed unless EG UK sold its interest. Yet he and Mr Buratov were divesting the English company of its assets and purporting to “continue” it in a foreign jurisdiction whose corporate governance, if any, was an unknown, without informing Mr Zeligmans, as an honest person would have done, that the representations made before the Framework Agreement was entered were no longer true. As I set out later in the judgment, the representations made at the outset were continuing representations for so long as they were being acted upon by COS and, at this point of transfer to the sixth defendant, they became false and thus misrepresentations.[19]Matters did not end there, because far from telling Mr Zeligmans about the “transfer” to the sixth defendant, Mr Kontsevoy continued to sign all the addenda and the Tax Loan Agreement as a director of EG UK, on the basis the other contracting party remained EG UK and using the same stamp, which was marked “En-Gin Ltd United Kingdom”, as he had on the Framework Agreement and the addenda signed before the purported transfer to the sixth defendant. In those circumstances, Mr Kontsevoy positively misled Mr Zeligmans and continued to do so, knowing that he was doing so. In fact, Mr Zeligmans and COS did not find out about the existence of the Anguillan company until receipt of a letter dated 10 May 2011, after the monies with which this claim is concerned had been expended.[20]In November 2009, the Kazakh and Russian tax authorities began an investigation alleging that the oil had not been refined to the extent required for export from Kazakhstan. They detained a total of 126 railcars of refined product at the Kazakh border, some of which were later returned to Zhem. In about June 2010, COS discovered that EG was attempting to sell to a third party a large amount of refined product financed by COS which was already on railcars at Zhem. COS was able to contact the third party and block the sale. Eventually, in August 2010, the tax authorities concluded that there had been no contravention of the export rules and shipments resumed.[21]Whilst the investigations were being carried out, and again unbeknownst to COS and Mr Zeligmans, further corporate changes were made by Mr Kontsevoy and Mr Buratov. In June 2010, the shares in EG Production which owned the refinery, were transferred to Akkert SA, the seventh defendant (“Akkert”), a British Virgin Islands company owned by Mr Kontsevoy and Mr Buratov. No consideration was paid by Akkert. This is said to have been done to simplify investment in the refinery. This is an implausible explanation which I reject for the reasons given at [62-63] below.[22]Then, in July 2010, a 49% interest in EG Production was transferred to Orion Global LLP (“Orion”), apparently a genuine third party investor. Mr Zeligmans accepts that, in the summer of 2010 in Almaty, he was introduced to Mr Hamitov as the representative of an outside investor, but says (and I accept) that he had no idea about the corporate changes. Specifically, he did not know about the transfer to Akkert , as a consequence of which, of course, EG Production was no longer part of the EG group at all.[23]Mr Zeligmans dealt with the impact of outside investment by Orion in his oral evidence, which I accept:
“I was, starting from midsummer, aware that there was an investor, but investor to me meant somebody that is coming into the company and not somebody who has been involved in taking the assets out of the company…who was investing into the company as opposed to being involved in the scheme to take the assets out of the company. MR STANLEY: Did the fact that there was an investor lead you to believe that the company with which you were dealing, the UK company, was no longer a UK company? A. Not at all. Q. Did it lead you to believe that it no longer owned the refinery? A. Not at all. I was actually -- we were quite positive about the fact that there was a new investor into the company. We were quite pleased with it. MR JUSTICE FLAUX: I think the point you are making is that if Orion had taken shares in the English parent or any of the subsidiaries, there is nothing to concern you in the slightest, indeed quite the reverse? A. Exactly, yes.”

Q. Did it lead you to believe that it no longer owned the refinery?

[24]The revenue investigation led to complaints on both sides about the expenses that had been incurred, including demurrage on the railcars and agreement was reached on the basis of a 50/50 split, as recorded in Addendum 35 dated 29 July 2010. A little later on 1 October 2010 a Reconciliation Agreement was made setting out the agreed position as at the end of September 2010, that there was a net balance in favour of COS of US$7,624,010.13. Again, both documents were signed by Mr Kontsevoy using the same stamp of EG UK.[25]Mr Zeligmans described in his affidavit evidence how EG UK would need further working capital to enable them to buy more crude oil and produce more refined product. He wanted to re-engage trade finance banks to provide some of that working capital. Accordingly, he arranged a meeting with BNP in Geneva on 11 October 2010, attended by BNP representatives, himself, Mr Kontsevoy and Mr Hamitov representing Orion. The meeting was conducted in English, of which Mr Kontsevoy speaks very little, so Mr Zeligmans translated for him.[26]As on the previous occasion when Mr Zeligmans had approached BNP for finance, the bank was interested in whether the refinery was within the structure of the group. Their representatives asked whether the structure of the group was the same as it had been at the time of the earlier discussions in August and September 2008. Mr Zeligmans translated that question into Russian for Mr Kontsevoy, who confirmed that the structure was the same, that the group owned the refinery. In view of the transfers which had taken place, of which Mr Kontsevoy was well aware, that confirmation was a lie on his part. As he knew, EG UK was in fact an empty shell, the assets of which had purportedly been moved to Anguilla and the refinery had been taken out of EG Anguilla and given to Akkert which was in fact outside the corporate structure altogether. In his affidavit, Mr Kontsevoy denies that he gave this confirmation at the meeting with BNP, but I am quite satisfied that he did.[27]BNP remained unwilling to finance EG, so it became clear to Mr Zeligmans that COS would have to continue financing EG in order to enable it to work off the outstanding balance. He did so believing, as he said in his evidence, that he was dealing with a UK registered company which held substantial assets, in particular (through EG Production) the refinery, as had been represented by Mr Kontsevoy at the outset and as he had represented again at the meeting with BNP. In fact, as Mr Zeligmans did not know, but Mr Kontsevoy did, that was very far from the truth. Three addenda, 36, 37 and 38 were made in November 2010 and, in reliance on those representations, COS advanced monies to EG. Once again these addenda were signed by Mr Kontsevoy as a director of EG UK, using the same EG UK stamp.[28]At around the same time, COS agreed to make a loan to EG UK to enable the group to meet its tax liabilities. On 2 November 2010, Mr Kontsevoy emailed to Mr Zeligmans a draft of the proposed agreement, which contained at Article 5 a provision that the agreement was governed by English law and that, “in case an agreement is not reached by the parties”, in other words, in the event of a dispute, such a dispute would be subject to the exclusive jurisdiction of the English High Court. The draft also stated expressly in the recital that an affiliate of EG UK owned the refinery, which was untrue. The agreement (containing that recital and jurisdiction provision) was made and dated 1 December 2010. Although that was not signed, an addendum no. 1 to that agreement dated 2 December 2010 and said to constitute an integral part of that agreement dated 1 December 2010 was signed by both parties, Mr Kontsevoy once again signing on behalf of EG UK and using the same stamp as before. Under that agreement COS advanced US$682,944.[29]In his affidavit Mr Kontsevoy says, untruthfully, that it was Mr Zeligmans who sent him the draft tax loan agreement. In fact the truth is the opposite. Mr Kontsevoy also asserts that they discussed the jurisdiction clause, that he, Mr Kontsevoy, wanted an arbitration clause as in the Framework Agreement and that Mr Zeligmans assured him that they could treat the arbitration clause in the Framework Agreement as applying to the tax loan agreement. Given that it was Mr Kontsevoy who sent a draft agreement containing the English jurisdiction clause, this version of events is inherently implausible. I accept Mr Zeligmans’ evidence that it is preposterous because they never discussed jurisdictional points. I am quite satisfied that the jurisdiction clause did form part of the tax loan agreement and was agreed by the parties.[30]Shortly after this, later in December 2010, a second customs investigation began which resulted in the supply of refined oil products to COS drying up again. In the event supply was never restored. Mr Zeligmans pressed for supplies to resume and in that context received a letter dated 19 May 2011 from Mr Kontsevoy putting forward a claim for sums said to be due to EG. That letter was signed by Mr Kontsevoy over the stamp, as usual, of EG UK although at the bottom of the letter an address in Anguilla was given. This was the first Mr Zeligmans was aware of the involvement of the sixth defendant.[31]In fact, unbeknownst to COS or Mr Zeligmans at the time, the refined oil which was for supply to COS pursuant to the outstanding addenda was sold by EG to third parties. That was carried out using two further corporate vehicles controlled by Mr Kontsevoy and Mr Buratov. First the fifth defendant (“Skyagra”), an English registered company incorporated in June 2009. Although the shareholders are two Belize companies, it is clear that it is controlled by Mr Kontsevoy and Mr Buratov, as to which see [53-56] below. Between May and July 2011, Skyagra purchased refined products from the refinery, which it presumably sold on to third parties. In fact Skyagra purchased the products from a Kazakh limited liability partnership, Akkert Kazakhstan, the eighth defendant. That entity was incorporated in September 2009 and its sole member was Akkert SA, to which of course the refinery had been ostensibly transferred for no consideration and of which the founders and directors are Mr Kontsevoy and Mr Buratov. In other words these two entities were used by Mr Kontsevoy and Mr Buratov as a conduit to divert product from the refinery destined for COS and for which COS had prepaid.[32]The final change to the corporate structure of the EG group involved the use of the eleventh defendant, Larson. This is another English registered company incorporated on 14 February 2011, of which the directors and shareholders are Mr Kontsevoy and Mr Buratov. At some point between February 2011 and February 2012 (Mr Kontsevoy asserts in February 2012) EG Group was transferred to Larson for no consideration. The effect of this transfer was that the oilfield was now an asset of Larson. It is striking that Mr Kontsevoy and Mr Buratov used a new English company to hold that asset, rather than using their existing English company, EG UK.[33]There is no doubt that these various changes in the corporate structure of the EG group were engineered and organised by Mr Kontsevoy and Mr Buratov; indeed, Mr Kontsevoy admits as much in his affidavit, although he seeks to justify their actions. The effect of the changes was to leave the English company EG UK, which Mr Zeligmans understood (as a consequence of the representations made to him) to be the ultimate owner of the refinery through its subsidiaries, as an empty shell with no assets. In February 2010, it was nearly struck off the record for failure to file accounts, but was reprieved following an objection from an unknown source. It was in fact struck off the register in February 2011. It was restored to the register on COS’ application under section 1029 of the Companies Act 2006 by order of Mr Registrar Jones dated 5 April 2012.

Deceit

[34]The claim in deceit is advanced against the third, fourth and sixth defendants, Mr Kontsevoy, Mr Buratov and EG Anguilla. If Mr Kontsevoy is liable in deceit, given that, at least from September 2009, he asserts he was acting on behalf of EG Anguilla rather than EG UK, the vicarious liability of EG Anguilla for his tort must inevitably follow. I should add that COS has also claimed in deceit against EG UK on the same basis of vicarious liability, but in arbitration because of the London arbitration clauses in all the contracts save for the Tax Loan Agreement. That arbitration has not been progressed far given that EG UK has been stripped of its assets. The position of Mr Buratov is more complex and I will return to it below, when I have considered the position of Mr Kontsevoy.[35]The elements of the tort of deceit require(i) a representation which is(ii) false(iii) dishonestly made and(iv) intended to be relied upon and in fact relied upon: see per Rix LJ in The Kriti Palm [2007] EWCA Civ 1601; [2007] 1 Lloyd’s Rep 555 at [251]. As I have found, Mr Kontsevoy made representations to Mr Zeligmans, before and after the Framework Agreement was entered in October 2008, that the refinery was ultimately owned by the English company EG UK and that the corporate structure would not be changed unless EG UK sold its interest. Those representations may have been true when made, but they were continuing representations. The general principle is that a representation will be regarded as continuing until fully acted upon. The classic example of that principle in the commercial context is that of a misrepresentation made to an insurer on a proposal form for marine insurance which was accepted and the insurance was then renewed the following year without a fresh proposal form. The original misrepresentation was held to have continuing effect in the second year so as to entitle the insurer to avoid the policy: see The Moonacre [1992] 2 Lloyd’s Rep 501 at 521 per Mr Anthony Colman QC (as he then was) sitting as a Deputy High Court Judge; Spencer Bower, Turner & Handley: Actionable Misrepresentation 4th edition [75].[36]In the present case, COS and Mr Zeligmans continued to act upon the representations made, on each occasion that an addendum to the Framework Agreement was entered under which COS prepaid for refined oil in order to finance purchases of crude oil by the EG group and when the Reconciliation Agreement and the Tax Loan Agreement were entered into in October and December 2010 respectively. COS’ case, confirmed by Mr Zeligmans’ evidence, which I accept, is that if COS had been informed by Mr Kontsevoy in September 2009 of the “transfer” of EG UK and its assets to EG Anguilla, it would not have advanced any further sums. In fact all the outstanding sums which comprise COS’ loss relate to the period after September 2009: see [74 and 75] of the Amended Particulars of Claim and the section of the judgment on loss and damage at [67-68] below.[37]In their evidence filed in support of their application to challenge the jurisdiction and set aside the freezing injunction, the defendants sought to answer the point about the representations made before the Framework agreement was entered being continuing representations, in two ways. First, they sought to rely upon clause 11.4 of the Framework Agreement which provides: “After signing of this Contract all previous negotiations and correspondence between the parties in such connection will be considered as null and void” as negativing any prior representations. As Mr Stanley submitted, this is a lawyer’s point, and a bad one. That provision is an “entire agreement” clause focusing on the fact that any previous agreement or contractual negotiations will be superseded by the Framework Agreement. It says nothing about whether the Framework Agreement has been induced by a representation let alone about whether the representation continues to have effect after the Framework Agreement, as each addendum is entered.[38]The second purported answer was that, even if the representation was made, there could be no guarantee the corporate structure would not change, there was no obligation to maintain the structure. This is not disputed by COS but it misses the point. Having made the original representations, intending that Mr Zeligmans would rely upon them and knowing that he would do so, it was incumbent upon Mr Kontsevoy, when he knew that the representations previously made were no longer true (because, for example EG UK had been “continued” into EG Anguilla or because the refinery had been transferred to Akkert) to inform COS and Mr Zeligmans about the changes to the corporate structure.[39]Mr Kontsevoy did not inform Mr Zeligmans about the changes in the corporate structure and I find that his failure to do so was quite deliberate. He was well aware, from the earlier conversations that he had had with Mr Zeligmans, of the importance the latter attached to the fact that COS was dealing with an English registered company which was the ultimate owner of the oil refinery and that Mr Zeligmans, and thus COS, were relying upon what had been represented about the corporate structure, in continuing to advance monies to the EG group. I find that Mr Kontsevoy also knew that, if he informed Mr Zeligmans of these changes to the corporate structure, the chances were that COS would not advance any further prepayments. In the circumstances, the elements of the tort of deceit are made out against Mr Kontsevoy, in respect of his dishonest failure to correct what had become misrepresentations with the changes in the corporate structure.[40]In fact the deceit did not consist just of the failure to correct the continuing representations. Mr Kontsevoy made a series of additional positive misrepresentations which he knew were false. First, at the meeting with BNP on 11 October 2010, he represented expressly to BNP and Mr Zeligmans that the structure of the EG group was the same as at the time of the previous negotiations with BNP in August and September 2008, that the group owned the refinery, whereas the truth was, as he well knew, that EG UK was an empty shell, the assets of which had purportedly been moved to Anguilla and the refinery had been taken out of EG Anguilla and given for no consideration to Akkert, which was in fact outside the corporate structure altogether.[41]Second, he continued to sign all the addenda after the purported “transfer” to EG Anguilla and, thereafter, the Reconciliation Agreement and the Tax Loan Agreement on behalf of EG UK, using the same stamp marked “En-Gin Limited United Kingdom” as had been used prior to the “transfer”. Mr Kontsevoy claims in his affidavit that this was an oversight. That might be an explanation if the wrong stamp had been used on only one document, but addenda 31 to 38 were all signed with that stamp after the “transfer”, quite apart from the other contractual documentation. This is hardly explicable as an oversight and I agree with Mr Stanley that, if Mr Kontsevoy had been an honest director, when he came sign and stamp the first of these addenda he would surely have said to his staff, this is the wrong stamp, we need a stamp for EG Anguilla.[42]That this was not an oversight but deliberate misleading of COS and Mr Zeligmans, is demonstrated by the third positive and dishonest misrepresentation, that contained in the first recital to the Tax Loan Agreement, which, as I have held above, was drafted by EG not COS. That stated expressly:
“Whereas the Company [EG UK] and the group of companies is engaged in the crude oil business, and its affiliate owns oil refinery located at …Zhem”
. As Mr Kontsevoy well knew, that statement was untrue: the company EG UK was by that time in December 2010 an empty shell with no assets, the parent company was now an Anguillan company and the refinery was no longer owned by any affiliate within the group but by Akkert and Orion.[43]As with the original representations which he failed to correct when the corporate structure changed, so with these subsequent positive and fraudulent misrepresentations, Mr Kontsevoy made them intending that they would be acted upon and knowing that Mr Zeligmans and COS were acting upon them. Mr Zeligmans was asked in oral evidence about the fact that the Framework Agreement was signed by Mr Kontsevoy, as a director of EG UK, with a stamp stating “En-Gin Ltd United Kingdom” and that the same stamp was subsequently used for all the addenda, the Reconciliation Agreement and the Tax Loan Agreement. He confirmed that if he had been told before entering the addenda or the other agreements that the company with which he was dealing was now an empty shell and that the refinery was no longer owned by the group, he would have been very concerned and would not have advanced further monies. I see no reason not to accept that evidence of reliance on the fraudulent misrepresentations and I conclude that the tort of deceit is amply made out against Mr Kontsevoy. The loss suffered by COS in consequence of the deceit is dealt with below.[44]So far as Mr Buratov is concerned, he did not personally make any of the misrepresentations made by Mr Kontsevoy. However, I agree with Mr Stanley that he was engaged in a common design with Mr Kontsevoy to deceive COS and Mr Zeligmans. He said and did nothing at the time to correct the deliberately misleading impression about the corporate structure which Mr Kontsevoy was giving Mr Zeligmans. His affidavit simply confirmed Mr Kontsevoy’s evidence. He therefore essentially adopted and repeated the evidence of Mr Kontsevoy, which I have already held was untruthful. It is clear that he was making common cause with Mr Kontsevoy and that they were engaged in a common design to deceive COS and Mr Zeligmans, albeit that Mr Kontsevoy was the principal active participant in the deceit.[45]As Mr Stanley pointed out, there is a surprising dearth of authority on liability for joint participation in a tort, as opposed to joint participation in a criminal enterprise. Nonetheless, there are two decisions of the Court of Appeal concerned with infringements of patent or copyright, but which establish principles applicable to joint participation in torts generally. The first is the judgment of Mustill LJ in Unilever Plc v Gillette (UK) Limited [1989] RPC 583 at 602:
“In a case such as the present, where the infringement alleged includes (for example) the sale of the patented product made up into marketable form, and the importation of the product, a literal interpretation of the section might lead to the conclusion that only the person who has actually sold the product and imported it can be an infringer – apart, perhaps, from the exceptional case, contemplated by Sir George Jessel MR in Townsend v Haworth (1875) 48 LJ Ch 770 at 772 where the direct infringer is the ‘mere cat's-paw’ of someone else. This is not however the way the law has developed. It has gone further than this, in two stages. The first stage concerned a general question in the law of tort, arising where two persons were acknowledged or found to have committed tortious acts which led to the same damage. The question was whether these persons had committed individual wrongs for which they were individually liable, or whether they had joined together in committing the same wrong. This was formerly of great importance, for there could only be one action in relation to one tort, so that judgment against one tortfeasor A would release any claim against the other tortfeasor B; and so also with any accord and satisfaction of the liability of A. The severity of this rule was mitigated by statute in 1935, but by then a jurisprudence had grown up concerning the distinction between joint and several tortfeasors. The most celebrated example of this is to found in the judgment of Scrutton LJ in The Koursk [1924] P 140 at 156 where three situations are identified where A might be jointly liable with B: i.e., where A was master and B servant; where A was principal and B agent; and where the two were concerned in a joint act done in pursuance of a common purpose. This list may not be exhaustive, but it forms the basis for all subsequent statements of the law. Thus far, the cases were concerned with the question whether A and B, acknowledged or found to be joint tortfeasors, were responsible individually or jointly for what had been done: The Koursk being a particularly acute case of such a dispute. In Brooke v Bool [1928] 2 KB 578 however a bold step was taken, by applying the gist of The Koursk to determine, not whether the two acknowledged tortfeasors A and B were responsible for the same tort, but whether in a case where B was undeniably liable, A could be held liable as well. In that case A and B had set out together to investigate the source of a gas leak which was B's direct concern alone. A had come with him to help. Because B was too old to carry out a particular task, A carried it out instead. The means of investigation were ill-chosen, and an explosion ensued. A was plainly liable. The Divisional Court held that B was liable too, as a joint tortfeasor engaged in a common venture with A. Brook v Bool has engendered curiously little in the way of subsequent reported authority, but no doubt has been cast in the intervening 60 years on the proposition that participation in a common venture may cause someone to become directly liable asa tortfeasor, together with the person who actually did the damage.”
[46]Having analysed earlier cases on whether there was a tort of procuring breach of copyright which are not relevant for present purposes, Mustill LJ continued at 608:
“I have set out these cases in some detail in deference to the care with which they were analysed during the argument on this appeal. In truth, however, I believe that they do little more than illustrate how in various factual situations the courts have applied principles which are no longer in doubt, save perhaps as regards the relationships between indirect infringements by procuring and by participation in a common design. There may still be a question whether these are distinct ways of infringing, or different aspects of a single way. I prefer the former view, although of course a procurement may lead to a common design, and hence qualify under both heads. We need not however explore this question . . . . . . . . . I use the words ‘common design’ because they are readily to hand, but there are other expressions in the cases, such as ‘concerted action’ or ‘agreed on common action’ which will serve just as well. The words are not to be construed as if they formed part of a statute. They all convey the same idea. The idea does not, as it seems to me, call for any finding that the secondary party has explicitly mapped out a plan with the primary offender. Their tacit agreement will be sufficient. Nor, as it seems to me, is there any need for a common design to infringe. It is enough that the parties combine to secure the doing of acts which in the event prove to be infringements.”
[47]That judgment was applied and approved by Chadwick LJ (with whom Simon Brown and Tuckey LJJ agreed) in MCA Records Inc v Charly Records Ltd [2001] EWCA Civ 1441; [2002] FSR 26 at [31-36]. The principle which emerges from these cases is not dissimilar to that applicable in the criminal law: parties will be liable in tort as joint tortfeasors if they are “in it together” pursuant to a common design.[48]In the present case, Mr Stanley relies upon three matters as demonstrating that Mr Kontsevoy and Mr Buratov were acting together, were “in it together”, so as to make Mr Buratov liable in deceit even though the misrepresentations were made by Mr Kontsevoy:(i) that wherever you find Mr Kontsevoy in the various entities you find Mr Buratov, they are directors or shareholders or ultimate beneficial owners or controllers together;(ii) the deceit is being committed for the benefit not just of Mr Kontsevoy, but of both of them and(iii) the adoption by Mr Buratov of Mr Kontsevoy’s evidence leads to the inference that Mr Kontsevoy is not acting alone but with at least the tacit agreement of Mr Buratov. I agree with Mr Stanley that the material before the court, and those three matters in particular, does demonstrate that Mr Kontsevoy and Mr Buratov were acting together pursuant to a common design and that that is sufficient to make Mr Buratov liable in deceit as well.

Conspiracy

[49]As Mr Stanley readily admits, the purpose of the additional claim in conspiracy is essentially to widen the net of defendants who are liable to COS and thus to improve the prospect of enforcement of this judgment against the assets of one or more of the defendants. This is said to be a conspiracy to cause loss to COS by unlawful means. That is a tort which is committed where two or more persons agree to perform unlawful acts, which need not be torts, with the intention, whether or not it is the sole or dominant intention, of causing loss to the claimant: see Revenue and Customs Commissioners v Total Network SL [2008] 1 AC 1174 at [44] per Lord Hope of Craighead; [56] per Lord Scott of Foscote; [91] per Lord Walker, [116] per Lord Mance and [226] per Lord Neuberger.[50]In the present case, Mr Stanley submits that all the defendants (with the exception of the tenth defendant who has not been served and the twelfth defendant Larson against whom no allegation of conspiracy is made) are liable for this unlawful means conspiracy. I accept that submission in relation to all the defendants and that, on analysis, all the defendants, including Skyagra, (to whose position I will return in more detail below) were involved in the conspiracy at all material times. In terms of the unlawful means, the deceit itself is sufficient unlawful means and it is not therefore strictly necessary to decide whether entering a transaction defrauding creditors within the meaning of section 423 of the Insolvency Act 1986 is sufficient unlawful means as well, although I see no reason in principle why it should not be.[51]Furthermore, it is well established that, as in criminal conspiracy, it is not necessary to show that there is anything akin to an express agreement to constitute the tort of conspiracy. That point was made by Nourse LJ in Kuwait Oil Tanker Co SAK v Al Bader and others [2000] 2 All ER (Comm) 271 at [111] giving the judgment of the Court of Appeal:
“A further feature of the tort of conspiracy, which is also found in criminal conspiracies, is that, as the judge pointed out at page 124, it is not necessary to show that there is anything in the nature of an express agreement, whether formal or informal. It is sufficient if two or more persons combine with a common intention, or, in other words, that they deliberately combine, albeit tacitly, to achieve a common end.”
[52]That case also demonstrates, from a consideration of one of the conspirators, Captain Stafford, that a party can be party to a combination or conspiracy to use unlawful means even if he does not himself commit some or all of the relevant unlawful acts: see [133] of the judgment of the Court of Appeal quoting with approval the judgment of Moore-Bick J at first instance.[53]It is also well established that a director can conspire with his company: see Clerk & Lindsell on Torts 20th edition [24-93] and Barclay Pharmaceuticals Limited v Waypharm AP [2012] EWHC 306 (Comm) at [220-229]. As Mr Stanley correctly submitted, applying the analysis of Chadwick LJ in MCA Records at [49-52] there is no impediment to the liability of a director unless he is acting strictly and solely via the constitutional organs of the company concerned, which Mr Kontsevoy and Mr Buratov were not doing here, so their liability for conspiracy is not affected by the fact that they were directors of the various companies.[54]So far as Skyagra is concerned, it was incorporated in June 2009 but was not ostensibly used actively by Mr Kontsevoy and Mr Buratov until it was used as a conduit for the disposal of the refined oil products in the period May to July 2011, which is right at the end of the conspiracy period. Initially, I had some concern that it was difficult to say that it should be party for all the losses suffered by COS throughout the conspiracy period. However, there is material before the court which demonstrates that, although the shareholders in Skyagra are two Belize companies, it is controlled by Mr Kontsevoy and Mr Buratov and is their creature so that the Court can and should draw the inference that Skyagra was involved in the conspiracy throughout.[55]Of particular significance in this context is the breach of the freezing orders which occurred in about May 2012 when Skyagra divested itself of one of its assets Projector Kazakhstan LLP, another trading vehicle of Mr Kontsevoy and Mr Buratov. Watson Farley & Williams sought an explanation in correspondence with Zaiwalla & Co acting then for the defendants as to how this breach had come about, pointing out that Mr Kontsevoy and Mr Buratov were the ultimate beneficial owners or at least controlling minds of Skyagra. That elicited the reply from Zaiwalla & Co in their letter of 26 June 2012 on instructions, that Mr Kontsevoy and Mr Buratov had no control or interest in Skyagra. That was simply untrue.[56]The charter of Projector Kazakhstan LLP dated 25 June 2011 was signed by Mr Kontsevoy on behalf of Skyagra and in the notarisation on it, the notary describes Mr Kontsevoy as director of Skyagra. Furthermore, in a letter to Watson, Farley & Williams dated 20 April 2012 from B2B Company secretary Limited which supplied secretarial and administrative services to Skyagra, it is stated:
“Please further note that according to our records [Skyagra] is managed by Mr Alexander Kontsevoy… We have contacted Mr Kontsevoy who has confirmed that he is aware about this matter and has already undertaken necessary steps on behalf of [Skyagra] as well”
. Yet, two months later Zaiwalla were saying on instructions that Mr Kontsevoy and Mr Buratov had no control or interest in Skyagra. It is also striking that Mr Kontsevoy says nothing about Skyagra at all in his affidavit evidence.[57]In the circumstances and given the absence of any explanation about Skyagra, which clearly is one of the corporate creatures of Mr Kontsevoy and Mr Buratov, I accept Mr Stanley’s submission that the court can and should draw the inference that Skyagra was involved in the conspiracy at all material times from its incorporation in June 2009.[58]The question then is what was it that the defendants agreed to do and whether the intention of the conspiracy was to cause damage to COS. Mr Stanley submits that he does not have to show (and is not alleging) that, at some point in 2009, Mr Kontsevoy and Mr Buratov sat down and planned meticulously every step they were going to take. There was, as he puts it, an element of improvisation, as there often is in such cases, but he submits that, if one looks at the pattern, from 2009 onwards, steps are being consistently taken to put these companies in the position they have achieved, of putting their assets out of the reach of COS and that, in the absence of any reasonable explanation to the contrary, it is perfectly legitimate for the court to infer that all this did not happen by accident, but by design, pursuant to the conspiracy. I accept those submissions.[59]The first of the transactions which COS seeks to impugn and says occurred pursuant to the conspiracy is the “transfer” or “continuation” of EG UK to EG Anguilla. In his affidavit, Mr Kontsevoy explained that the original decision to have the holding company incorporated in the United Kingdom was taken on the advice of Parex Bank, the advice being that providing that no trading took place in the United Kingdom and that company money did not pass through bank accounts here, there would be no liability to UK tax. He then said that Parex bank was dissolved in 2008. Mr Zeligmans said it was acquired by a state bank. Mr Kontsevoy said that he became concerned that the advice was incorrect, he thought during due diligence carried out by CITIC, a Chinese conglomerate which had some interest in buying an oilfield. A memorandum of understanding was signed with CITIC in June 2008, so presumably the concern of which he speaks must have manifested itself by then and yet it was not until September 2009 that the transfer to Anguilla took place. He fails to explain that delay at all and I agree with Mr Stanley that, if the real explanation for the transfer was a concern about the tax position with a UK holding company, something would have been done to move the holding company offshore in June 2008 and Mr Kontsevoy and Mr Buratov would not have waited until September 2009.[60]The implausibility of the “tax” explanation for the “transfer” is further demonstrated by the explanation Mr Kontsevoy gave for deciding to choose Anguilla, itself said to be a decision based on advice from a representative from Parex Bank, which is odd, given that it was their advice to have a holding company in the United Kingdom. The explanation is said to be that, under Anguillan law, the company could be transferred in a way which would result in a continuation of the same legal entity. That explanation makes no sense whatsoever. If the concern really was that, if the holding company remained English, there would be a liability to UK tax, the obvious thing to do would be to incorporate a wholly new holding company in a tax haven, not to do something which purports to continue the same legal entity.[61]As Mr Stanley submitted, the real significance of using Anguilla is that it is a trap for the unwary dealing with EG UK such as Mr Zeligmans and COS, who think they are dealing with the same contracting party, but unbeknownst to them, it has transformed itself into an Anguillan entity. The defendants have produced not one piece of paper to evidence the alleged tax advice. Furthermore, there seems to have been no attempt to ascertain what tax liabilities had been incurred in the United Kingdom given the alleged concern. No accounts were filed and no tax return was made. This omission is hardly consistent with the actions of honest businessmen. Equally, if the real explanation for the transfer was a fiscal one, why did Mr Kontsevoy not explain all that to Mr Zeligmans? The answer is obvious, he knew what Mr Zeligmans’ reaction would be, that he would be reluctant to provide financing for an offshore entity, in much the same way as, a little later in the story, Allianz was not prepared to refinance the group with EG Anguilla in the structure and required its replacement by an “onshore” entity, in the event, Larson, another English registered company.[62]In my judgment the real reason for the “transfer” to Anguilla was nothing to do with fiscal concerns, legitimate or otherwise, but was an attempt to disguise from COS and Mr Zeligmans that the holding company was being moved offshore, as a first step to divesting it of its assets, which was the next stage of the corporate changes, in June 2010. The overall purpose of these corporate changes was to put those assets beyond the reach of the creditors of the EG group, specifically COS. Before leaving the transfer to Anguilla, I should note that, in a number of places in his affidavit evidence, Mr Kontsevoy seeks to suggest that COS’ case, that the steps taken in 2009 were pursuant to some common design to put the assets of the group beyond the reach of COS, cannot be right because the tax investigation in Russia and Kazakhstan did not start until later in 2009, so that the parties had yet to fall out with one another. As Mr Stanley rightly submitted, that is a complete non-sequitur. What went on was not motivated by a breakdown in the relationship but was opportunistic.[63]In June 2010, again unbeknownst to COS and Mr Zeligmans, 100% of the shares in EG Production, owner of the refinery, were transferred for no consideration to Akkert a company of which Mr Kontsevoy and Mr Buratov were the directors and shareholders. The explanation provided by Mr Kontsevoy for this transfer in his affidavit evidence is that they wanted to obtain new investment in the refinery but not the oilfield, that it is harder to arrange outside investment in an oilfield because of restrictions under Kazakh law as to who can own an oilfield and that the transfer to Akkert was simply to separate the ownership of the oilfield and the refinery, to simplify investment in the latter.[64]As Mr Stanley rightly pointed out, this is no explanation at all, since the oilfield and the refinery were already owned by separate companies, as a consequence of the previous change in the structure in 2009, of which COS does not complain, whereby EG Production became a direct subsidiary of EG UK, whereas Ostyurk Munai which owned the oilfield remained a subsidiary of EG Group. Furthermore, when Orion did invest in the refinery, it did so not by investing in Akkert, the separate company allegedly set up to simplify such investment, but by investing directly in EG Production. In my judgment, the real reason for the transfer to Akkert was to remove the refinery from the group and further alienate EG UK (with whom all COS’ contractual arrangements were) from this valuable asset formerly owned by the group.[65]The final change in the corporate structure was one made at some stage between February 2011 and February 2012 and thus after the loss which COS suffered, but it sheds some light on the plausibility or otherwise of Mr Kontsevoy’s explanation for the changes in the corporate structure. This is the transfer of EG Group which owned Ostyurk Munai, the owner of the oilfield, to Larson, another English registered company of which Mr Kontsevoy and Mr Buratov were the directors and shareholders. Mr Kontsevoy says that this was required by Allianz who were financing the oilfield, as a condition of restructuring loans. They in fact required EG Anguilla to be removed from the structure, because it was an “offshore” company and they wanted an “onshore” English, Russian or Kazakh company as the holding company instead. The obvious question, if that is correct, is why it was necessary to use Larson and why Mr Kontsevoy and Mr Buratov did not simply revert to EG UK for that purpose, but rather allowed it to be struck off. The real explanation in my judgment, is that they did not want to clothe EG UK with assets in circumstances where a dispute had already arisen with COS which would then be able to enforce any judgment against the assets.[66]The fact that, at the behest of the financing institutions, the oilfield was ultimately returned to an English registered company albeit not EG UK, demonstrates in my judgment the falsity of the attempts by Mr Kontsevoy to characterise the earlier corporate changes involving EG Anguilla and Akkert as having a legitimate fiscal or investment purpose. The true purpose of those changes was to put the assets of the group, specifically the refinery, out of reach of COS. I consider that COS’ claim in conspiracy is made out against the first to ninth defendants.

Loss and damage

[67]The losses suffered by COS as a consequence of the deceit and of the conspiracy are the same. The principal loss is the US$7,624,010.13 agreed to be due to COS under the Reconciliation Agreement dated 1 October 2010, but still unpaid. I accept Mr Zeligmans’ evidence that that sum comprises advances made by COS after 18 September 2009 when the transfer to EG Anguilla was made and the representations made became untrue. COS made subsequent advance payments in November 2010 for refined product which EG has never supplied, consisting of US$4.5 million under Addendum 37 and US$249,549 under Addendum 38. However, in November 2010 COS did receive refined product under Addendum 33 with a value of US$1,454,315.31, for which COS gives credit against the outstanding sums under Addenda 37 and 38 leaving a balance due of US$3,295,233.69.[68]In addition to those losses suffered in respect of advance payments, COS has suffered a loss of US$682,944 paid out to EG under the Tax Loan Agreement and a small sum of US$55,000 paid out under Addendum 39 on 13 December 2010 in respect of ancillary costs of the refinery. The total loss suffered by COS is thus US$11,657,187.82 and COS is entitled to judgment for damages in that amount. COS is also entitled to interest on that sum from 31 January 2011 at 1% over LIBOR.

Rescission of the Tax Loan Agreement

[69]As I have already stated in accepting Mr Zeligmans’ evidence as to the misrepresentations made, that the Tax Loan Agreement was induced by misrepresentation, quite apart from any other misrepresentation, by that set out in the recital, that an affiliate of EG UK owned the refinery. In those circumstances, COS is entitled to rescind the Tax Loan Agreement. Furthermore, despite the “transfer” to EG Anguilla (which was in any event ineffective as a matter of English law for the reasons set out in the next section of the judgment), on its objective construction that Agreement was with EG UK so that it is against EG UK that COS is entitled to rescind the Tax Loan Agreement and recover the US$682,944 paid under it.

Ineffective transfer

[70]Albeit that as I have recorded earlier, the relevant Anguillan statute is extraordinary, at least from an English lawyer’s perspective, Mr Stanley accepts that, under Anguillan law, the effect of what was done on 18 September 2009 was to transfer the assets and liabilities of EG UK into EG Anguilla. However as a matter of English conflicts of laws rules, the validity of this purported amalgamation or continuation of the one company in the other is governed by the law of the place of incorporation. The relevant part of Rule 174 in Dicey, Morris and Collins on the Conflict of Laws 15th edition at [30-011] provides as follows:
“Whether a corporation has been amalgamated with another corporation must also be determined by the law of its place of incorporation. If that law provides for a successio in universum jus then the amalgamated company will be recognised in England as succeeding to the assets and liabilities of its predecessors. The law of the place of incorporation must, however, provide for a true universal succession and, further, it is possible that the successor corporation may be so radically different from its predecessor that it cannot be properly described as the same legal entity.”
[71]Footnote 50 to this passage provides as follows:
“If companies incorporated in different countries are amalgamated it would seem that the law of the place of incorporation of each company must permit or recognise the amalgamation with the other: Global Container Lines Ltd v Bonyad Shipping Co [1999] 1 Lloyd’s Rep 287 although in this case the capacity of the predecessor corporation to continue to proceed with litigation after the amalgamation was recognised since it was found to exist under the law of the place of incorporation of that corporation.”
[72]It seems to me that this view must be right as a matter of first principle, since the critical question here must be whether the transfer is valid under the law of incorporation of the first company, EG UK, in other words English law, otherwise Anguillan law could trump and render effective a transfer which English law would not recognise. English law knows nothing of this Anguillan concept of “continuation” and, so far as English law is concerned, EG UK the English registered company continued in existence unless and until dissolved and has returned to existence following its restoration to the register under section 1029 of the Companies Act 2006. Clearly, as a matter of English law, the party with whom COS was contracted remained EG UK throughout and what occurred was a purported transfer of assets and liabilities from the English company to another entity for no consideration, which is not recognised by English law. I agree with Mr Stanley that the transfer was simply a nullity.[73]At an earlier stage of the proceedings, when the defendants were legally represented, they were seeking to argue that the flaw in this analysis was that English law did not apply, but that the validity of the transfer of EG UK’s shareholding was governed by the law with which the right transferred had its most significant connection, which is Kazakh law. Quite apart from the fact that the defendants have never adduced any evidence to show that Kazakh law is different from English law, this approach is simply wrong as a matter of conflicts of laws rules. The correct approach is that cited from Dicey, Morris & Collins above.[74]I also agree with Mr Stanley that, as a matter of first principle, if the transfer to EG Anguilla was a nullity, made for no consideration, then there is a presumed resulting trust back in favour of EG UK. For the present, COS limits itself to seeking a declaration in these terms: that(i) the purported substitution or succession of EG Anguilla for EG UK under the Framework Agreement is void and of no effect;(ii) the purported transfer to EG Anguilla of EG UK’s property and/or the succession of EG Anguilla to that property is void and of no effect and(iii) that property so transferred and its fruits and proceeds was held on trust by EG Anguilla for EG UK. I will grant a declaration in those terms.

Relief under section 423 of the Insolvency Act 1986

[75]Strictly speaking the claim for relief under section 423 only arises if the court determines that the transfer of assets to EG Anguilla did take effect, whereas I have held that transfer was a nullity. Nonetheless, given the importance to COS of as fully reasoned a judgment as possible to assist enforcement, I propose to consider the claim for relief under the section and to grant such relief as appropriate.[76]The section which is headed “Transactions defrauding creditors” provides as follows:(1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if— (a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration; … (c) he enters into a transaction with the other for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by himself.(2) Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for— (a) restoring the position to what it would have been if the transaction had not been entered into, and (b) protecting the interests of persons who are victims of the transaction.(3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose— (a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or (b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.(4) In this section “the court” means the High Court…(5) In relation to a transaction at an undervalue, references here and below to a victim of the transaction are to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as “the debtor”. …[77]The provision is a quite general one, not linked only to transactions which take place in this jurisdiction. It is well-established that section 423 can have extra-territorial effect: see most recently on this, my own judgment in Fortress Value Recovery Fund 1 LLC v Blue Skye Special Opportunities Fund LP [2013] EWHC 14 (Comm); [2013] 1 All ER (Comm) 973at [113-114] citing the principle laid down by Sir Donald Nicholls V-C in Re Paramount Airways(No 2) [1993] Ch 223 at 239-240. As I said at [114] the question whether there is sufficient connection with England to justify relief undersection 423 is a matter which depends upon all the circumstances of the case. This is not a threshold question of jurisdiction, but a question of discretion. In the present case, there can be no doubt that there is a sufficient connection with England to justify the exercise of the discretion, since the starting point for the transactions said to be at an undervalue which are sought to be impugned is the transfer of assets out of EG UK an English registered company and the other impugned transactions all flow from that.[78]The three transfers which COS seeks to impugn are(i) the transfer of the assets and liabilities of EG UK to EG Anguilla in September 2009;(ii) the transfer of the interest in EG Production to Akkert in June 2010 and(iii) the transfer of the interest in EG Group to Larson at some point after 14 February 2011 when Larson was incorporated. In support of his submission that the first of these, the “continuation” in Anguilla was a “transaction” within the meaning of section 423, Mr Stanley referred me Feakins v DEFRA [2005] EWCA Civ 1513; [2007] BCC 54. That case is extremely complex, but for present purposes, only a brief summary of the relevant transaction is necessary. Mr Feakins’ farm was mortgaged to the bank. He persuaded the bank to sell the farm to his girlfriend at a price which took account of the subsisting agricultural tenancy. That tenancy was then promptly terminated. The judge at first instance, Hart J, held that the tenancy had been maintained by Mr Feakins purely as a device to depress the value of the farm and induce the bank to sell it to his girlfriend at an undervalue. He held that was a relevant transaction for the purposes of section 423. His decision was upheld on appeal.[79]At [7] Jonathan Parker LJ refers to the definition of “transaction” in section 436 of the Act:
“[it] includes a gift, agreement or arrangement”
. Later in his judgment at [76] he gives a wide meaning to the word “arrangement” in these terms:
“However that may be, the question remains whether the 'arrangement' which the judge found is a 'transaction' for the purposes of section 423. I agree with the judge that it clearly is. As the judge pointed out, 'transaction' includes an 'arrangement' (see section 436); and 'arrangement' is, on its natural meaning and in the context of section 423, apt to include an agreement or understanding between parties, whether formal or informal, oral or in writing. In my judgment the wide definition of 'transaction' in the context of section 423 is entirely consistent with the statutory objective of remedying the avoidance of debts…”
[80]Even without the assistance of that judgment, it seems to me unarguable that the transfer to EG Anguilla is not an arrangement which falls fairly and squarely within the definition of “transaction”. Once one has reached that conclusion, given that there was no consideration for the transfer, the next question is whether the transaction was made by the person for the purpose of putting assets beyond the reach of a person who is making, or may at some time make a claim against him or otherwise to prejudice the interests of such a person. The better view is that it is only necessary to show that was a substantial purpose of the transaction, not the dominant purpose: see most recently the decision of Sales J in 4Eng Ltd v Harper [2009] EWHC 2633 (Ch); [2010] BCC 746 at [5-8] citing the decision of the Court of Appeal in Inland Revenue Commissioners v Hashmi [2002] EWCA Civ 981; [2002] BCC 943.[81]In the light of my conclusion at [62] above in the context of the conspiracy case that the “continuation” in Anguilla was the first step of a series of changes to the corporate structure, the overall purpose of which was to put those assets beyond the reach of the creditors of the EG group, specifically COS, I am quite satisfied that the transaction had as a substantial purpose (and probably, in actual fact, its dominant purpose), putting the assets outside the reach of the creditors or otherwise prejudicing the creditors, including COS. COS was therefore a fortiori a “victim” of that transaction within the meaning of section 423(5) since, as David Richards J stated in Clydesdale Financial Services Ltd v Robert Smailes [2009] EWHC 3190 (Ch); [2010] Lloyd’s Rep IR 577 at [73]:
“Section 423(5) defines a victim of a transaction as a person ‘who is, or is capable of being, prejudiced by it’. In choosing the term ‘victim’ and this definition, it is I think clear that it was intended to be a wider category than simply creditors. The words used are ordinary English words with no technical meaning and the correct approach in any given case is to ask whether, on the facts of the case, the claimant is a person who is, or is capable of being, prejudiced by the transaction. The fact therefore that Focus is not a creditor does not decide the case against it.”
[82]In the circumstances, COS is plainly entitled to relief under section 423 in respect of the first impugned transaction, the “transfer” to Anguilla. Once that conclusion is reached, the other two transactions which are sought to be impugned which were equally for no consideration, follow on from that first transaction as part of the same change of corporate structure with the dominant or at least a substantial purpose of putting the assets of the group beyond the reach of the creditors or otherwise prejudicing the creditors, including COS and must also be unravelled under the section. Once the first transaction goes, the others follow like a house of cards.[83]In the circumstances, COS is entitled to the relief it seeks under section 423 and 425 of the Insolvency Act 1986 in the following terms. First, I will grant a declaration in the same terms as in [74] above. COS is also entitled to an order(i) requiring EG Anguilla to take steps to revest in EG UK all the property acquired by it pursuant to the purported transfer; and/or(ii) requiring the shares and/or interest in EG Production held by Akkert SA to be revested in EG UK (alternatively in EG Group) absolutely or for the benefit of COS; and/or(iii) requiring the shares and/or interest in EG Group held by Larson to be vested in EG UK absolutely or for the benefit of COS; and/or(iv) requiring Mr Kontsevoy and/or Mr Buratov and/or EG Anguilla to revest in EG UK any property representing the proceeds of sale of the property transferred and/or to make payment to EG UK in respect of any benefits received from EG UK in such sum as directed hereafter by the Court.

Conclusion

[84]In all the circumstances, COS is entitled to judgment as follows:(1) Against the third, fourth and sixth defendants, damages for deceit in the sum of US$11,657,187.82 and interest on that sum from 31 January 2011 at 1% over LIBOR.(2) Against the first to eighth defendants, damages for conspiracy in the sum of US$11,657,187.82 and interest on that sum from 31 January 2011 at 1% over LIBOR.(3) Against the ninth defendant, US$682,944 consequent upon rescission of the Tax Loan Agreement.(4) Against the first to ninth and eleventh defendants, a declaration in the terms set out at [74] above.(5) Against the first to ninth and eleventh defendants, orders under section 423 of the Insolvency Act 1986 in the terms set out at [83] above.[85]COS is also entitled to an order that the first to ninth and eleventh defendants do pay COS’ costs of the action, to be assessed if not agreed. Subject to any submission I may receive from the defendants by 9 July 2013, I shall order that those defendants make an interim payment to COS on account of those costs in the sum of £225,000 within 21 days of the date of this judgment.[86]As a consequence of this judgment in favour of COS, it is also appropriate that I make an order extending and continuing the freezing injunction ordered by Cooke J on 16 March 2012 and extended and continued by Hamblen J on 1 May 2012, until further order of the Court in aid of execution.

Cited in 10 later judgments

and 1 more case