Integral Petroleum v Petrogat FZE

The claimants also contended, based on the decision of Mr Edwards in Integral that even if ordinarily it was necessary to establish that the defendant had received some benefits from the debtor or the transaction, the relief need not be precisely limited to the amount of those benefits. However as I read the decision, the judge decided that the relevant defendants had, between them, received the amount of the benefits received by the company of which they were the shareholders.

I keep in mind that in a section 423 claim it may not be necessary to prove the precise benefit received by a defendant (Integral Petroleum SA v Petrogat FZE & others [2023] EWHC 44 (Comm) ("Integral")). The absence of a clear or more fully particularised statement of benefit now is not fatal to the question of serious issue on its own...

The law on this was summarised in Integral Petroleum SA v Petrograt FZE [2023] BPIR 1122 by David Edwards KC (sitting as a Deputy Judge of the High Court) at [53]- [54], quoting from Re Dormco SICA Ltd [2021] EWHC 3209 (Ch) (per ICC Judge Jones):- [53] The principles applicable to s 423 cases were recently summarised by ICC Judge Jones, drawing on earlier appellate and other authority, in Re Dormco SICA Ltd (in liquidation) [2021] EWHC 3209 (Ch), [2022] BCC 360 at [116], a case which concerned the sale of the goodwill component of an accountancy business, SICA, to a related company, SBL, for a value of £1. [54] The summary is lengthy, and I will not set it out in full, but it included the following: 116. The following are the key legal tests/principles to be applied for the s. 423 case: ... (c) When deciding whether SICA, acting by Mr Munn and/or Mr Rees, entered into the Asset Sale Agreement for the Prohibited Purpose: (i) It is the purpose of SICA [the debtor] which is to be addressed not that of the person who received the benefit (see Moon v Franklin [1996] B.P.I.R. 196). (ii) The question of whether the transaction was entered into by SICA for the Prohibited Purpose must be judged as a decision of fact based on an evaluation of all relevant facts. There may be more than one purpose. It is sufficient to prove that the Prohibited Purpose was a (not the) purpose positively intended rather than a consequence (see Inland Revenue Commissioners v Hashmi [2002] EWCA Civ 981; [2002] B.C.C. 943 and JSC BTA Bank v Ablyazov [2018] EWCA Civ 1176; [2019] B.C.C. 96 at [8-16]). (iii) Insolvency is not a prerequisite, although the financial position may be evidence relevant to the decision of purpose and (depending on the facts) the absence of insolvency may make a Prohibited Purpose unlikely (see Moon v Franklin (same) at 198 and BTI 2014 LLC v Sequana SA [2016] EWHC 1686 (Ch); [2017] B.C.L.C. 453 at [494], upheld [2019] EWCA Civ 112; [2019] 1 B.C.L.C.347)." It will be seen that at [54], the fact that there may be more than one purpose was addressed. Historically, at least, issues have arisen as to whether the prohibited purpose must be the purpose, or a substantial purpose, or simply a purpose. It is now clear that it is sufficient to prove that the prohibited purpose was a(not the) purpose positively intended rather than a consequence.

The usual rule is that where an order debars a defendant from defending particular proceedings, this should mean what it says: at the trial of the relevant proceedings, the defendant should not be permitted to participate in the normal way, such as adducing evidence, cross-examining witnesses, or making submissions: Times Travel (UK) Ltd v Pakistan International Airlines Corp [2019] EWHC 3732 (Ch), per Edwin Johnson QC at [55]-[56]; and, see further, Financial Conduct Authority v London Property Investments [2022] EWHC 1041 (Ch), per Trower J at [38-[53], and Integral Petroleum SA v Petrogat FZE [2023] EWHC 44 (Comm), per David Edwards KC at [46]-[49].

I summarised the law, as I understood it, in relation to the Prohibited Purpose requirement in a judgment I gave earlier this year in Integral Petroleum S.A. v Petrogat FZW [2023] EWHC 44 (Comm). Referring to a passage in Gee, Commercial Injunctions (7th ed.), paragraph 13-031, and to recent Court of Appeal authority, at [63] I said this: "This, as Stephen Gee, KC says in Commercial Injunctions (7th ed.) at 13-031 requires proof of a subjective, positive intention on the part of the company entering into the transaction (the debtor) to achieve a Prohibited Purpose, which is a question of fact. However: (i) Whilst it is important to distinguish between the purpose of a transaction and what is simply a collateral effect, it is not necessary to show that a Prohibited Purpose was the only, or the dominant, or the predominant purpose. No adjective should be read in to the statutory language: see JSC BTA Bank v Ablyazov at [14] per Leggatt LJ; (ii) Nor is it necessarily fatal that, even absent a Prohibited Purpose, the debtor (here Petrogat) might have entered into the impugned transaction anyway: see JSC BTA Bank v Ablyazov at [11]-[12] per Leggatt LJ, citing the judgments of Laws and Simon Brown LJJ in Inland Revenue Commissioners v Hashmi at [33] and [38]; (iii) Proof that the consequence of the transaction was to put assets beyond the reach of creditors is not, in itself, enough; however, evidence that this was the foreseeable and foreseen result may, nonetheless, support an inference that the transaction was, in fact, entered into for a Prohibited Purpose, as may also evidence that this was something the actor desired".

I note that the UK/UAE Treaty was considered recently by Calver J in Integral Petroleum SA v Petrograt FZA & Ors [2021] EWHC 1365 (Comm). Calver J having considered the Treaty considered that in the case of the UAE, although it appeared on the face of the Treaty that service must take place through diplomatic channels, he was told that that process could take a substantial amount of time, he was still prepared to make orders for alternative service by post and courier on UAE domiciled persons.

Integral Petroleum v Petrogat FZA [2021] EWHC 1365 (Comm) was also a case under the UK/UAE Treaty where Calver J adopted the test of "special or exceptional circumstances", although (given that he found such circumstances existed in the case before him, which was one of service of a worldwide freezing order) the order would have been made under either test. In Cesfin Ventures LLC v Al Ghaith Al Qubaisi [2021] EWHC 3311 (Ch), Master Kaye concluded, having examined the provisions of the UK/UAE Treaty, that it did not make service through diplomatic channels exclusive such that the court did not need to find exceptional circumstances (it is clear that she had the decision Integral Petroleum in mind, because she referred to it at paragraphs 26 and 28, but she did not refer to The Libyan Investment Authority decision). In Caterpillar Financial Services (Dubai) Ltd v National Gulf Construction LLC [2022] EWHC 914 (Comm) Julia Dias QC (sitting as a deputy High Court Judge), as she then was, adopted that decision (at paragraph 18).

...the transfer to Kasem took place in 2016, long before these proceedings were commenced in 2018, under a contract (the Kasem SPA) governed by Thai law with a Thai non-exclusive jurisdiction clause. This is not a case concerned with an alleged attempt by defendants to frustrate a judgment of an English court or arbitral tribunal (cp. Dornoch Ltd v Westminster International BV [2009] 2 CLC 226 (Tomlinson J), considered by Lewison LJ in Orexim at [60], and Integral Petroleum SA v Petrogat FZA [2021] EWHC 1365 (Comm) at [30] (Calver J)). 913 Indeed, the Kasem transfer is already the subject of review by the Thai courts in proceedings brought by three of the same Claimants in Thailand.

It can never be proper to seek to use a committal application as a lever to bully a respondent into a settlement.

It is well-established that an application for civil contempt that is being used for an improper collateral purpose, such as a threat in order to secure a settlement, will be abusive (see Integral at [37] to [39], referring to Knox v D'Arcy Ltd Court of Appeal Transcript No. 1759 of 1995 (19 December 1995)). There was here no finding by the Judge that the Appellants were using the Contempt Application to secure any such advantage. Specifically, the revenge that he identified on the part of Mr Chernukhin was for Mr Deripaska's past failure to drop the criminal proceedings against him (see [109] and [157] of the Judgment). I do not consider that Integral is an example of subjective motive being relevant to the question of abuse. Thus, in [51] of Integral, the reference to "proper motive" is, again, in context a reference to the "legitimate ends" for which a civil committal application can be brought. An approach which takes subjective motive into account for the purpose of an abuse application is one fraught with difficulty and, in my judgment, wrong in principle. 122. There will nearly always be a degree of animus between applicant and respondent to a civil committal application. The temptation for respondents to counter an application by seeking to enquire into and test the subjective motive of the applicant would be strong, if not overwhelming. Moreover, the more blatant and serious the alleged contempt, the more likely it would be for the applicant to be (justifiably) antagonised by the respondent's acts or omissions, thus providing further ammunition for a respondent intent on diverting attention from the allegation of contempt... In short, if an application for civil contempt is i) justified as a matter of procedure and substance and ii) not being pursued for an illegitimate purpose, then iii) an applicant has the right to bring it, irrespective of any personal animus or other subjective motive.

...using contempt proceedings for an improper collateral purpose, such as leverage to obtain a favourable settlement in litigation, is a gross abuse of the process of the court - Knox v D'Arcy Ltd (CA (Millett LJ), unreported, 19 December 1995), cited in Integral Petroleum SA v Petrogat FZE [2020] EWHC 558 (Comm) at [37] - [39].

Committal applications are becoming an increasingly common feature of litigation in the Commercial Court (an observation which is even more true now than three years ago when I made a statement to similar effect in Integral Petroleum SA v Petrogat FZE [2020] EWHC 558 (Comm), [26]). This case demonstrates the complexities which invoking the committal jurisdiction can entail, and the risks of missteps. Clearly court orders are made to be complied with and the committal jurisdiction remains a very important tool in vindicating the public interest ensuring that they are. However, a litigant considering whether to embark on this complicated and onerous process may want to first consider whether there might be other means of giving effect to the court's order, or achieving the purpose which the order was intended to serve, and what the practical consequences of a successful committal application against any particular respondent are likely to be.

Does this court have power to cure the defects in the Claimant's approach to this application? Under the old CPR rule 81 Practice Direction para 16.2 the court had express power so to do. I consider that this court retains that power, see Deutsche Bank AG v Sebastian Holdings Inc and ors [2020] EWHC 3536 (Comm) per Cockerell J at para [148]: "148. Had it been necessary to do so I would have found that despite the abolition of the specific power under the PD, the Court has the power to cure such defects where there has been no prejudice. That certainly seems to have been the approach taken by Foxton J in the recent case of Integral Petroleum v Petrogat [2020] EWHC 558 (Comm) where he held that one allegation of breach was too generalised, but that this had not caused any prejudice and permitted the claimant to amend the Application Notice to add further particulars. A similar approach can be seen in the case of SK v HD [2013] EWHC 2436 (Fam)".

I do not accept that directors of a company who are out of the jurisdiction of the court cannot personally be named on an injunction (an issue raised in Mr Bor's skeleton argument). Such directors are susceptible to the contempt jurisdiction of the court (see for example Integral Petroleum SA v Petrogat FZE [2020] EWHC 558 (Comm)). In any event, I would not do the directors the discourtesy of assuming that their attitude to this court's order would be wholly conditioned by the practicality of their being sanctioned in the event of non-compliance. However, I am not persuaded that it is appropriate to name anyone other than a de jure or de factodirector of N in the penal notice. For that reason, only directors of N as the award/judgment debtor should be named in the penal notice, and not those of its parent company.

Had it been necessary to do so I would have found that despite the abolition of the specific power under the PD, the Court has the power to cure such defects where there has been no prejudice. That certainly seems to have been the approach taken by Foxton J in the recent case of Integral Petroleum v Petrogat [2020] EWHC 558 (Comm) where he held that one allegation of breach was too generalised, but that this had not caused any prejudice and permitted the claimant to amend the Application Notice to add further particulars.

The reference to " any director or other officer " in the in the Civil Procedure Rules ' ["CPR"] equivalent of FPR rule 37(4(3) [ CPR rule 81.4(3) ] includes de iure and de facto directors (see, for example, paragraph 5 of the decision of Leggatt J in Touton Far East v Shri Mahal Ltd [2017] EWHC 621 (Comm) ) but does not include shadow directors (see paragraphs 53-72 of the decision of Moulder J in Integral Petroleum SA v Petrogat FZE [2018] EWHC 2686 (Comm) and paragraph 68 in particular). I regard it as axiomatic that the same approach should be taken to the interpretation of the identical words in FPR rule 37.4(3) .