Arcelormittal USA LLC v Ruia & Ors [2020] EWHC 740 (Comm)

“98. The proposed future buy-back of shares, the assignment of the Promissory Notes in anticipation of that future buy-back, and the recording of the value of the Promissory Notes as a receivable in the financial statements (the “Scheme”), if effective, would have enabled Essar Steel: 98.1 To conceal or transfer its assets, in particular the value of the Promissory Notes, worth approximately US$1.5 billion; 98.2 To present itself, and be presented, as a company (i) the assets of which included the approximately US$1.5 billion of value extracted by the EGFL Assignments, and (ii) from which its sole shareholder had not stripped a substantial proportion of the value; and 98.3 At any time to “restate” the accounts, re-classify the EGFL Assignments as a reduction of equity, rather than a debt due, and thereby reduce Essar Steel’s apparent assets by US$1.5 billion at a time of its choosing.” 98.1 To conceal or transfer its assets, in particular the value of the Promissory Notes, worth approximately US$1.5 billion; 98.2 To present itself, and be presented, as a company (i) the assets of which included the approximately US$1.5 billion of value extracted by the EGFL Assignments, and (ii) from which its sole shareholder had not stripped a substantial proportion of the value; and 98.3 At any time to “restate” the accounts, re-classify the EGFL Assignments as a reduction of equity, rather than a debt due, and thereby reduce Essar Steel’s apparent assets by US$1.5 billion at a time of its choosing.”

“103. In implementing the Scheme, and failing to seek to recover from EGFL the sum of approximately US$1.5 billion paid out by Essar Steel for no return, the directors of Essar Steel have carried out a transaction which defrauds creditors of Essar Steel, and in particular AMUSA; and EGFL, Essar Capital and Essar Capital Services and their directors and controllers have assisted in and procured that transaction.”

“[123] … an exercise in self-dealing in that Algoma’s critical Port asset was transferred out of Algoma to a wholly owned subsidiary of [EGFL] with a change of control provision that benefitted [EGFL] at a time that a future insolvency was a possibility. That would not have been necessary had [EGFL] lived up to its cash injection commitment. Yet the board did not take any steps to call [EGFL] on its commitment, even in the face of legal advice that it should do so.” (Ernst & Young Inc. v. Essar Global Fund Ltd et al, 2017 ONSC 1366, Newbould J) 145.The Ontario court also made a number of other adverse findings: “[82] The entire Port Transaction and the GIP secured loan to Portco would not have been necessary had Essar Global lived up to its obligations under the Restructuring Support Agreement it made with Algoma and the accompanying Equity Commitment Letter dated July 24, 2014 pledging a cash investment of $250 to $300 million. However, it is quite clear from the evidence that, despite its obligations to Algoma under these agreements, Essar Global had no intention of living up to its promises. Essar Global acted in bad faith in this regard. [83] On March 28, 2014, the Ruias made it clear to Mr. Saraf of Essar Services India Ltd in Mumbai that they did not have $ 250 million for an equity investment in Algoma, that they did not want to tell any banks or investors that they would put in $ 250 million of equity and that they could only put in $ 120 million but would just take it out to reduce liabilities of Algoma owed to Essar companies. [84] Mr. Saraf was dealing with Goldman Sachs, who were advising on the Recapitalization that would pay out Algoma’s junior unsecured noteholders. Goldman Sachs advised that up to $300 million was needed as an equity contribution. On July 29, 2014, just five days after Essar Global signed the Equity Commitment Letter obliging it to provide equity of $250 to 300 million (less $50 million in potential third party inventory financing), Mr. Saraf advised Goldman Sachs that Essar Global wanted to limit its equity contribution to Algoma to $150-160 million and asked if it could be reduced to $100 million. On his cross-examination, Mr. Seifert referred to the equity commitment in the Restructuring Support Agreement as “a temporary agreement to an ultimate refinancing”

“Hi Joe, Just met PSR. He (and RNR) have made the following things clear: 1. They do not have $250 mn for equity. 2. Therefore they do not want to tell any of the banks or investors that we are looking to put a refinancing plan assuming we will put $250 mn of equity. 3. They can put in $120 mn of money in Algoma but this money will be taken out of Algoma and used to reduce liabilities (owned to Essar companies - though that will not be highlight of the external message) ... . . . PSR wants to speak with you and me today or tomorrow. Please call me so that we can sync up before speaking with him.”

“Notwithstanding anything to the contrary herein, in the event that this Agreement is terminated as a result of a breach of this Agreement or the EGFL Commitment Letter by EGFL and, at such time, no Consenting Noteholder is in breach of its obligations under this Agreement or the EGFL Commitment Letter, then (A) any amount of the Commitment contemplated in the EGFL Commitment Letter paid to the Company by EGFL pursuant to the terms of the EGFL Commitment Letter shall be retained by the Company and, if EGFL funded all or any portion of such Commitment pursuant to a Permitted Shareholder Loan (as such term is defined in the Unsecured Notes Indenture), such Permitted Shareholder Loan shall automatically convert into common equity of the Company (the “Company Payment”), and (B) EGFL shall pay to the Unsecured Noteholders (i) the amount of interest that was due and payable on the Unsecured Notes on June 16, 2014 at the non-default rate, and (ii) interest on such past due interest at the default rate, and (iii) all other unpaid interest accruing after June 16, 2014 through and including the date such interest amount is paid by EGFL to the Unsecured Noteholders at the default rate, which amounts in clause (B) shall be applied against the amount of such accrued and unpaid and past due interest on the Unsecured Notes (such interest payment, the “Noteholder Payment” and, together with the Company Payment, the “Termination Payment”). In the event that the Noteholder Payment becomes payable it shall be paid by EGFL in immediately available funds within ten (10) Business Days after the date of termination of this Agreement or the EGFL Commitment Letter, as applicable. Solely for purposes of establishing the basis for the amount thereof, and without in any way increasing the amount of the Termination Payment or expanding the circumstances in which the Termination Payment is to be paid, it is agreed that the Termination payment is liquidated damages, and not a penalty, and the payment of the Termination Payment in the circumstances specified herein is supported by due and sufficient consideration. The Parties acknowledge and agree that the agreements contained in this paragraph are an integral part of the transactions contemplated in this Agreement and the EGFL Commitment, and that without these agreements the parties would not have entered into this Agreement and the EGFL Commitment Letter. The parties agree that upon payment of the Termination Payment, EGFL shall have no further liability to the Company, the Unsecured Noteholders, or any of their affiliates or any other person, whether at law or equity, in contract, in tort, or otherwise arising from or in connection with any breach or default by EGFL of this Agreement or the EGFL Commitment Letter or arising from any claim or cause of action that the Company, the Unsecured Noteholders, or any of their affiliates may have relating to such breach or default, and no person will have any rights or claims against EGFL or any of its affiliates relating to such breach or default. The parties agree that the payment of damages in an amount not to exceed the Termination Payment by EGFL shall be the sole and exclusive remedy of the Company and the Unsecured Noteholders for any breach of, or default under, this Agreement or the EGFL Commitment Letter by EGFL.”

“I consider that this aspect of the arbitration proceedings provides solid and powerful evidence in support of AMUSA's case that documentation relating to ESML, and available on Mr. Vuppuluri's computer, was deliberately withheld from production, and that deliberately false information was given to the Tribunal in the 28 March 2017 letter as to the availability of that information. If, as Essar Steel now accepts, Mr. Vuppuluri did in fact have access via his computer and email, it is somewhat remarkable that the contrary should have been stated in the letter dated 28 March 2017, and then reiterated in the response to AMUSA's request for production of documentation. In saying this, I should emphasise that I am not making a definitive factfinding that documentation was deliberately withheld and that false information was deliberately given. It is theoretically possible that, if the matter were to be investigated in detail, with the benefit of cross-examination of Mr. Baid and Mr. Vuppuluri, a court might accept the innocent explanation put forward by Mr. Baid in his Affidavit in the Mauritian proceedings and repeated in substance in his first witness statement in these proceedings. However, I do agree with Mr. Peto's submission that the account given by Mr. Baid is a "very unlikely story". At its lowest, the episode indicates a cavalier attitude on the part of Essar Steel and Mr. Vuppuluri to the production of relevant documents, since it would not have been difficult – and indeed was incumbent on both of them – to check what the position actually was.”

“57. In addition, when Essar Steel withdrew, they made it clear that they were standing by their defence and counterclaim, and invited the Tribunal to "have due regard to the material that it has already submitted". That material included the 2015 accounts which Essar Steel knew to have been restated and which had been withheld from disclosure. It seems to me that AMUSA were entitled to submit, as it did, that Essar Steel thereby invited the Tribunal to proceed on a false basis, and that this is also relevant to risk of dissipation and the ancillary orders in the present proceedings.”

“In May 2014, the Company transferred its contributed interest of USD 305 Million in Essar Steel Minnesota LLC to ESML Holding USA INC, a Delaware company, ESML Holding USA INC contributed interest in Essar Steel Minnesota LLC to ESML Holding INC. Subsequently, the Company acquired Essar Steel Minnesota Cooperatief U.A. from Essar Steel Mauritius Limited and contributed capital of ESML Holding USA INC to Essar Steel Minnesota Cooperatief U.A.”

“Essar Steel Limited is co-guarantor along with other group companies for the USD 530 Million Facility availed by Essar Steel Minnesota LLC from ICICI bank. As Essar Steel Minnesota LLC has defaulted in payment of the loan and also has filed for bankruptcy, the Company has recognised impairment of its assets to the tune of USD370,156,685 invested.”

“In all the circumstances of the present case, I am satisfied that (a) there was a risk of documents being destroyed, (b) there was a need for an Information Preservation Order and (c) it is arguable that the Defendants have directed asset dissipation actions in the past. AMUSA’s belief that wilful attempts to evade enforcement of the ICC Award have been made and will likely continue to be made are sufficiently cogent to substantiate an arguable case of wrongdoing in the requisite legal sense.”

“65. The Indian Directorate of Revenue Intelligence (the "DRI") produced a report dated 11 March 2015 (the "DRI Report"). The report runs to some 247 pages, but only the summary (22 pages) was contained in the exhibits. The summary does not directly concern Essar Steel, and it does not directly implicate any of the individuals who are the focus of AMUSA's case. Nevertheless, the summary provides solid evidence of what appears to be serious fraudulent activity within the Essar Group. The DRI found that Essar Group entities had conspired to create a fraudulent invoicing customs duty scheme and participated in trade-based money laundering via a UAE-incorporated company called Global Supplies (UAE) FZE ("GSF"). The DRI found GSF to be a "front company of the Essar Group" created "to act as an intermediary invoicing agent for facilitating invoice inflation" and a "dummy agent … for enabling siphoning off of money abroad". 66. If the DRI Report had been the only evidence relied upon in this case, I do not think that it would justify the grant of any of the relief sought. However, I consider that it is relevant as an additional piece of evidence which shows a pattern of wrongdoing, in this case fraudulent activity, within the Essar Group. Mr. Baid's evidence that the report is being challenged by certain companies is not in my judgment an answer in the present context. Even if there is a challenge to the DRI report, that does not mean that the DRI report does not provide strong and solid evidence of the matters which it addresses and describes.”

“60. On 4 October 2018, the Indian Supreme Court issued a lengthy judgment in a case between ArcelorMittal India Private Ltd. (a subsidiary within the ArcelorMittal Group) and Satish Kumar Gupta and others. The case concerned the Indian insolvency of Essar India, and respective bids by an ArcelorMittal company and also a company called Numetal to bid for Essar India. The decision of the Supreme Court is relied upon by AMUSA because of the findings which the court made concerning Mr. Rewant Ruia, a member of the Ruia family who also featured in connection with the Algoma transaction. 61. One of the matters on which the Indian Supreme Court focused was a statutory provision (Section 29A (c) of the Insolvency and Bankruptcy Code 2016). This provision was aimed at ensuring that, as the court said, “persons who are in charge of the corporate debtor” for whom a resolution plan is made “do not come back in some other form to regain control of the company without first paying off its debts”

“The beneficiaries of such discretionary trust are general charities and Solis Enterprise Limited, a company incorporated in Bermuda, the share capital of which is held by Mr. Rewant Ruia. Mr. Rewant Ruia is the son of Ravi Ruia, who is one of the existing promoters of the Corporate Debtor.”

“63.1. On 2 August 2017, following an application by Standard Chartered Bank and the State Bank of India, the National Company Law Tribunal, Ahmedabad Bench (NCLT) ordered a commencement of a “Corporate Insolvency Resolution Process” in respect of ESIL (2017 NCLT Order) under India’s Insolvency and Bankruptcy Code 2016 (India Bankruptcy Code). This application was at the direction of the Reserve Bank of India. Proceedings filed by ESIL in the High Court of Gujarat to challenge the Reserve Bank’s direction were not successful. 63.2. On 10 October 2017, following this order and in accordance with the IBC, the “Resolution Professional” appointed by the NCLT to manage ESIL’s Corporate Insolvency Resolution Process (Mr Satish Gupta) invited public expressions of interest from all interested resolution applicants to present resolution plans for “rehabilitating”

“118. This e-mail contained a typo, but it was common ground that the reference to "andres pc" was a reference to the computer (a laptop) of Mr. Wright. The evidence was that this particular email was subsequently deleted both from Ms. Popat's computer and from Mr. Radia's computer, although in due course it was possible to recover it. In an Affidavit served by Ms. Popat subsequent to the hearing, in the context of committal proceedings which AMUSA had commenced against her, Ms. Popat said that she had deleted the email both from her computer and Mr. Radia's computer. 119. AMUSA attached considerable significance to these two emails, including the deletion of the second email by Ms. Popat with the active consent of Mr. Radia. They submitted that this showed that Butcher J. was quite right in his instinct that this was an appropriate case for a search order because there was a real possibility that documents would be destroyed. They also relied upon the fact that the emails were sent by an Essar Oil employee to an ECL employee, but relating to the need to hide the documents of a different UK company Essar Capital Services. This showed that the Essar Group did not in practice draw distinctions between the various Essar corporate entities. 120. Mr. Stanley on behalf of Essar Capital Services did not seek to minimise the seriousness of what had occurred. He recognised the "forensic embarrassment" created by these documents. But he submitted that Ms. Popat was a junior employee who had acted foolishly, and that there had been equally foolish concealment of that by a more senior employee who certainly should have known better. The second email was deleted by or with the agreement of Mr. Radia because, in effect, Ms. Popat begged him to do so, having realised that it was improper for her to have sent it and having appreciated that it might have very serious repercussions for her. Therefore these events told one very little. More significant was the fact that the suggestions of Ms. Popat had not in fact been acted upon: documents were produced, and Mr. Wright's laptop was not concealed but has been imaged and is being searched. 121. As with many aspects of this case, it is not appropriate or indeed possible for me to make definitive fact-findings relating to the state of mind of these two individuals, or why they acted as they did. This is reinforced by the consideration that AMUSA have commenced committal proceedings against Ms. Popat, and are likely to do so against Mr. Radia. Indeed, on Friday 15 March (i.e. after the conclusion of the hearing to discharge the orders) I gave directions in the committal proceedings which will lead to a hearing which is presently estimated to last one and half days (to include the proposed proceedings against Mr. Radia). 122. Ultimately, the question which I am considering in the present context is whether there is a real possibility that evidence will be destroyed if the relief is not given. I consider that the content of the two emails, and the subsequent destruction of one of those emails, provides very solid evidence of that real possibility. These emails were, after all, sent after a court order had been made and served, with a penal notice attached. If such emails could be sent after a court order, it is not difficult to imagine what might have happened if there had been no court order for preservation. The suggestion that the first email was a panicked immediate reaction by Ms. Popat to the search order is a matter that is likely to arise for consideration at the committal hearing, and again it is not appropriate for me to express any views about that. However, I note that by 09.53 that morning Ms. Popat was not the senior person dealing with the search order. By that time, Ms. Samantha Chambers, who was a qualified solicitor and legal counsel to and the company secretary of Essar Oil, had arrived and was engaged in discussions with Mr. Warburton who was one of the solicitors supervising the search order. It is therefore perhaps somewhat surprising that Ms. Popat should be panicking, since a qualified lawyer was dealing with the search order. But even if the first email was sent without sufficient thought and in a panic, it is difficult to see how that explanation could apply to the second email. That was sent some 3 hours later, after there must have been time for reflection. The deletion of that email occurred some time after that. 123. It seems to me that this episode does provide evidence which reflects adversely upon the culture within the Essar Group, and that it is therefore consistent with the other evidence (already described) as to bad faith, conduct prejudicial to creditors, and the deliberate withholding or concealment of documentation.”

“(a) The claimant must demonstrate a real risk that a judgment against the defendant may not be satisfied as a result of unjustified dealing with the defendant's assets. (b) That risk can only be demonstrated with solid evidence; mere inference or generalised assertion is not sufficient. (c) It is not enough to rely solely on allegations that a defendant has been dishonest; rather it is necessary to scrutinise the evidence to see whether the dishonesty in question does justify a conclusion that assets are likely to be dissipated. (d) The relevant inquiry is whether there is a current risk of dissipation; past events may be evidentially relevant, but only if they serve to demonstrate a current risk of dissipation of the assets now held. (e) The nature, location and liquidity of the defendant's assets are important considerations. (f) Whether or to what extent the assets are already secured or incapable of being dealt with is also relevant. (g) So too is the defendant's behaviour in response to the claim or anticipated claim.”

“(1) The claimant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets. In this context dissipation means putting the assets out of reach of a judgment whether by concealment or transfer. (2) The risk of dissipation must be established by solid evidence; mere inference or generalised assertion is not sufficient. (3) The risk of dissipation must be established separately against each respondent. (4) It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty; it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets [may] be dissipated. It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty. (5) The respondent's former use of offshore structures is relevant but does not itself equate to a risk of dissipation. Businesses and individuals often use offshore structures as part of the normal and legitimate way in which they deal with their assets. Such legitimate reasons may properly include tax planning, privacy and the use of limited liability structures. (6) What must be threatened is unjustified dissipation. The purpose of a freezing order is not to provide the claimant with security; it is to restrain a defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business in a way which will have the effect of making it judgment proof. A freezing order is not intended to stop a corporate defendant from dealing with its assets in the normal course of its business. Similarly, it is not intended to constrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate. If the defendant is not threatening to change the existing way of handling their assets, it will not be sufficient to show that such continued conduct would prejudice the claimant's ability to enforce a judgment. That would be contrary to the purpose of the freezing order jurisdiction because it would require defendants to change their legitimate behaviour in order to provide preferential security for the claim which the claimant would not otherwise enjoy. (7) Each case is fact specific and relevant factors must be looked at cumulatively.”

“(1) Where the court accepts that there is a good arguable case that a respondent engaged in wrongdoing against the applicant relevant to the issue of dissipation, that holding will point powerfully in favour of a risk of dissipation. (2) In such circumstances, it may not be necessary to adduce any significant further evidence in support of a real risk of dissipation; but each case will depend upon its own particular facts and evidence.”

“Lastly, may I say this. It is, I believe, now generally recognised that the Mareva jurisdiction has filled a gap in the court's powers which badly needed to be filled. In the Commercial Court, certainly, a very large number of these injunctions is granted each year. But care must be taken to ensure that such injunctions are only given for the purpose for which they are intended, viz. to prevent the possible abuse of a defendant removing assets in order to prevent the satisfaction of a judgment in pending proceedings: and likewise, care must be taken to ensure that such injunctions do not bear harshly upon innocent third parties. If these principles are not observed, a weapon which was forged to prevent abuse may become an instrument of oppression.” (at 897 per Goff J) ii) Galaxia Maritime SA v Mineralimportexport [1982] 1 WLR 539: “I regard it as absolutely intolerable that the fact that one person has a claim for a debt against another, that third parties should be inconvenienced in this way, not only to affect their freedom of trading but their freedom of action generally speaking.”

“… it is an essential aspect of the jurisdiction to grant Mareva types of injunction that the position of innocent third parties should be fully protected…”

“There is much authority for the proposition that Mareva injunctions should not be obtained so as to prejudice innocent third parties.”

“In the absence of authority it would seem to me to be clear that principle does not stand in the way of a secured creditor enforcing its security over charged assets caught by a freezing order. The whole point of a freezing order, as is now well established, is to prevent a defendant from dissipating its assets improperly in the face of a claim by the claimant. It is a remedy which operates personally against the defendant (or any other person identified as a respondent in the injunction and against whom the injunction is specifically directed). It does not operate so as to give security to the creditor; and it does not operate so as to affect the genuine rights of third parties over those assets.”

“(1) The mere fact of delay in bringing an application for a freezing injunction or that it has first been heard inter partes, does not, without more, mean there is no risk of dissipation. If the court is satisfied on other evidence that there is a risk of dissipation, the court should grant the order, despite the delay, even if only limited assets are ultimately frozen by it; (2) The rationale for a freezing injunction is the risk that a judgment will remain unsatisfied or be difficult to enforce by virtue of dissipation or disposal of assets……In that context, the order for disclosure of assets normally made as an adjunct to a freezing injunction is an important aspect of the relief sought, in determining whether assets have been dissipated, and, if so, what has become of them, aiding subsequent enforcement of any judgment; (3) Even if delay in bringing the application demonstrates that the claimant does not consider there is a risk of dissipation, that is only one factor to be weighed in the balance in considering whether or not to grant the injunction sought.”

“62. The Defendants also referred, on occasions, to the possibility of the Claimants bringing proceedings in Cyprus for a WFO against the present Defendants, and to the Claimants' delay in so doing. I did not consider that this argument advanced the case based on delay. When delay is put forward as a reason for the court not granting a WFO, the focus in my view should be on such delay as occurred in seeking relief from the English court. This is particularly so in the present case, where the evidence indicates that the Defendants are domiciled here and where there is no evidence that the Defendants are domiciled or have assets in Cyprus. Moreover, the whereabouts of the Defendants were not known at the time that the Cyprus proceedings were commenced in January 2018, and the various reasons given by Mr. Tseshinskiy for the delay in commencing proceedings in England applied, at least for the most part, to potential proceedings in Cyprus.”