Contempt of Court: De facto directors found in contempt of Court for their Companies’ failure to comply with Court injunctions

Contempt of Court: De facto directors found in contempt of Court for their Companies’ failure to comply with Court injunctions

This note addresses the recent decision of the High Court in the Integral Petroleum SA v Petrogat FZE and San Trade GMBH and (1) Mr Klaus Sonnenberg, (2) Ms Mahdieh Sanchouli, (3) Mr Hosseinali Sanchouli and (4) Mr Kanybek Beisenov [2020] EWHC 558 (Comm). In this case, the Claimant was represented by Mr Guy Blackwood QC and Fortior Law SA and the Defendants were represented by Chris Smith QC and Stephenson Harwood ME LLP.

The premise of this article is that there is a strong public interest in the enforcement of Court orders, the corollary of which is that those who breach court orders ought to be sanctioned promptly and properly for their contempt. It evidences that the English courts will not shy away from the piercing of the corporate veil in order to punish contemnors who attempt to flout the Court’s orders. The judgment is, therefore, a stark reminder of the considerable powers the English courts have at their disposal in order to ensure compliance with English judgments.

In the final decision of the long-fought case (Integral Petroleum SA v Petrogat FZE and San Trade GmbH and four other individuals) the High Court found Mr and Ms Sanchouli, the owners and de facto directors of Petrogat and San Trade, in contempt of court and ordered them to be committed to prison for a period of two months and three months respectively.

On 12 March 2020 Mr Justice Foxton handed down his judgment on the risks of non-compliance with court orders[1]. He found the Sanchoulis guilty of contempt arising out of the companies’ failure to comply with the terms of the injunction granted by Morgan J and continued by HHJ Waksman QC on Return Date hearing. The injunction restrained the companies from diverting the disputed oil cargo from its original destination to Iran and ordered them to sign a letter requesting the relevant authorities not to ship the cargo to Iran. The Sanchoulis failed to sign the letter by the deadline imposed by the Morgan J order before failing to sign “forthwith” the letter required by the HHJ Waksman order.

The decision is a strong reminder to commercial parties that the English courts have wide powers to grant injunctions in support of arbitration and to commit both de jure and de facto directors to prison for contempt of court in not obeying its interlocutory orders.

The background

Integral Petroleum SA (as the buyer) and the Defendants (Petrogat FZE and San Trade GmbH as seller and guarantor respectively) were parties to a contract for the supply of Medium Sulphur Fuel Oil (MSFO) from the Seyedi Oil Processing Complex in Turkmenistan. Between December 2017 and January 2018, MSFO was loaded into a number of rail cars at the Turkmenbashi Refinery Complex and a dispute arose over who owned it. Integral believed under the contract it owned the MFSO and that any diversion of the rail cars would, therefore, be a conversion of its property. The Defendants disagreed, believing that Integral owned only part of the cargo, with the rest belonging to the Defendants.

On 12 January 2018, Integral learned the rail cars were being diverted from the original delivery destination to Iran. Integral sought interim injunctive relief from the English Court (under s.44 Arbitration Act 1996) and obtained a freezing order from Morgan J dated 13 January 2018 (to the effect that the rail cars should not be sent to Iran in any case) and subsequently a continuation of the order from HHJ Waksman QC dated 26 January 2018 granting relief (“the Orders”). That relief was ultimately discharged following a hearing before Popplewell J on 2 February 2018 as discussed below.

At the same time, Integral instituted LCIA arbitration proceedings against the two Defendant companies pursuant to the contract’s dispute resolution clause.

In spite of the injunctions obtained, the Defendants deliberately took steps to ship the cargo to Iran. They did not sign the letter by the deadlines required by the Orders. They only signed the letter when all or most of the cargo was already in Iran, thereby ensuring that the letter could serve no useful purpose. It was for this reason, that there was nothing left for the injunction to bite upon, that Popplewell J discharged the injunction.

Contempt of court application

Integral claimed that prior to the discharge of the Orders, the Sanchoulis procured the breach of the same by the Defendants, and so the Sanchoulis should be committed to prison as a result. On 30 April 2018 Integral issued a Committal Application against the Sanchoulis and Mr Beisenov and Mr Sonnenberg, who were the respective de jure directors of the Defendants (together with the “Third Parties”), as well as an associated application for permission to dispense with the personal service of certain documents, to be granted alternative service and, if necessary, permission to serve the Committal Application out of the jurisdiction.

Integral’s position was that permission to serve out of the jurisdiction was not required by reason of Article 24 Brussels Recast Regulation, however in the event that the Claimant was wrong and permission was required, the Claimant sought permission as a matter of precaution. The Court was invited to find that:

  1. Petrogat and San Trade breached paragraph 2 of the Order of Morgan J dated 14 January 2018 by failing to provide the letter in the form of Schedule C thereto.
  2. Petrogat and San Trade breached paragraph 1 of the Order of Morgan J dated 14 January 2018 by providing bills of lading to the authorities in Turkmenistan so that the Cargo could be shipped to Iran.
  3. Petrogat and San Trade breached paragraph 1.3 of the Order of Waksman J dated 26 January 2018 by failing to sign the letter as amended in Schedule C forthwith.
  4. Ms Mahdieh Sanchooli and Mr Hosseinali Sanchooli caused, permitted and enabled the above breaches as de facto directors of Petrogat and San Trade.
  5. Mr Klaus Sonnenberg caused, permitted and enabled the above breaches as the sole de jure Director of San Trade.
  6. Mr Kanybek Beisenov caused, permitted and enabled the above breaches as the sole de jure Director of San Trade.

On 1 May 2018, Popplewell J granted permission for service by alternative means. The Claimant’s position was that the order also granted permission to serve out of the jurisdiction because it listed the Third Parties’ addresses outside of the jurisdiction.

The judgment of Popplewell J dated 6 February 2018, discharging the injunction, the majority of the cargo having been shipped to Iran by that time. By paragraph 3 of this judgment, Popplewell J held as follows:

I am also satisfied that there is a good arguable case that there have been breaches of the orders: first, in relation to not providing the letter in the form of letter C as required by Mr Justice Morgan; secondly, in relation to what Mr Lakin describes as having happened in paras 6, 4 and 8 of his second witness statement in relation to cooperating with the Turkmen Authorities to enable the cargo to go to Iran; and, thirdly, in failing forthwith to sign the letter C in its revised form as ordered by His Honour Judge Waksman.”

Having been served with the Committal and Service Applications, the Third Parties, acknowledged service indicating they would contest jurisdiction. Subsequently, the Third Parties applied that an order be made to set aside service of the Committal Application and a declaration from the Court that it had no jurisdiction to hear in view of the Recast Regulation.

By judgment dated 17 October 2018[2], Moulder J ruled that Article 24 Brussels Recast did not apply[3], however, the Claimant was entitled to serve out of the jurisdiction pursuant to CPR Part 6, PD3 paragraph 3.1(3), i.e. one of the gateways on the basis of which the Claimant sought permission to serve out by application dated 30 April 2018.

In brief, Moulder J held that (i) the English Court’s exclusive jurisdiction provided in Article 24(5) of the Recast Regulation applies because the definition of “judgment” in Article 2 of the Recast Regulation was wide enough to include interlocutory orders, and therefore committal proceedings, however, it would not apply to a defendant domiciled outside of the EU and that (ii) it was in the public interest that de facto directors, assuming the function and status of de jure directors, be held equally liable for making sure that their relevant companies comply with an order in the same way as de jure directors were bound to do.

In September and November 2019, Integral obtained two LCIA awards for damages and legal costs. Both awards were entered as a judgment on 22 November 2019. This judgment remains unsatisfied.

The contempt hearing was heard between 10 to 12 February 2020 before Foxton J. At the hearing, the Claimant chose not to pursue its applications for the committal of Mr Beisenov or Mr Sonnenberg. Mr Beisenov did not attend the hearing and did not give evidence, but his role in the breaches of the Orders was minimal and so the Claimant opted not to push for committal. Mr Sonnenberg gave evidence to the effect that i) he was informed by Ms Sanchouli that she would sign the letter as requested by the Orders, and so he believed the Orders would be complied with, and ii) the Sanchoulis effectively overruled his attempts to comply with the Orders. Upon hearing his evidence, Integral discontinued its case for his committal.

Foxton J therefore only had to decide whether the Sanchoulis were guilty of contempt, and if so the extent of the sentence. Mr Sanchouli did not attend the hearing and did not give evidence. Ms Sanchouli, however, did give evidence; she did not accept that she was in contempt of court and believed she was not breaching the orders because, in her view, the cargo sent to Iran belonged to San Trade and not to Integral. Ms Sanchouli informed the Court that she should shoulder full responsibility for any contempt of court because she had informed her father, Mr Sanchouli, that she would be dealing with the matter. She also apologised to the Court for her actions and stated that no disrespect was intended. The Court ultimately decided that Ms Sanchouli was guilty of a greater degree of contempt than Mr Sanchouli, but that nonetheless both of them had breached the Orders and order for committal was just and necessary in the circumstances.

At the Sentencing Hearing, having heard final submissions from Counsel for both the Claimant and the Sanchoulis, Foxton J ruled that Ms Sanchouli was to be committed to prison for a term of three months, while Mr Sanchouli was handed a two-month prison sentence. Both sentences were suspended for one year on condition that Mr and Ms Sanchouli do not commit any further breaches of Court orders. The Claimant was therefore successful in obtaining committal sentences against both of the individuals against which it had ultimately sought committal.

[1] Integral Petroleum SA v Petrogat FZE & Anor [2020] EWHC 558 (Comm) (12 March 2020)

[2] https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Comm/2018/2686.html&query=(petrogat)

[3] Moulder J held that she was bound by the decision in Choudhary v Battar [2009] EWCA Civ 1176, which held that Article 24 of Regulation (EU) 1215/2012, Brussels I (recast) only applies to defendants domiciled in EU Member States.

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