This article summarises the proceedings in relation an application made in the London High Court of Justice in the matter of Integral Petroleum S.A v Petrogat FZE, Mahdieh Sanchouli, Hosseinali Sanchouli, Kanybek Beisenov  EWHC 1365 (Comm).
The Claimant, Integral, made a without notice application for a worldwide freezing order (the “WFO”) accompanied by an associated disclosure order against Petrogat FZE and an order for service of the worldwide freezing order and the proceedings out of the jurisdiction and by alternative means. The aforesaid orders were sought in support of the substantive claim which Integral intended to bring under Section 423 of the Insolvency Act concerning fraudulent transactions and dissipation of assets.
On 16 September 2017, Integral (as buyer) and Petrogat (as seller) entered into a contract for the sale of medium and low sulphur fuel oil. Petrogat’s obligations under the contract were guaranteed by San Trade GmbH. Petrogat failed to deliver a significant part of the cargo and threatened to divert the same to Iran in breach of contract which is why Integral therefore on 12 January 2018 applied ex-parte on notice for urgent injunctive relief to prevent the conversion of its cargo.
The injunction was granted by order of Morgan J.
On 28 January 2018, Petrogat and San Trade breached the injunction and converted 37 rails cars loaded with Integral’s cargo, diverting the same to Iran.
On 30 April 2018, Integral applied to commit the Sancoulis (who owner and/or controlled both Petrogat and San Trade) for contempt of court for breach of the injunction. By judgement dated 12 March 2020, Foxton J found that the Sanchoulis, as de facto directors of Petrogat, had intentionally breached the injunction. Later that month, it was ruled that committal was appropriate and the Sanchoulis (as de facto directors) were sentenced to a term of imprisonment of 3 months, suspended for a period of 12 months on terms that they do not commit any further contempt.
On 15 January 2018, parallel to the interlocutory proceedings, Integral filed a request for arbitration with the LCIA, seeking to compel Petrogat and San Trade to deliver the cargo and to pay damages for conversion, breach of contract and failure to deliver the balance of cargo. The LCIA Tribunal found in favour of Integral and made 2 partial awards before decreeing a final award of a net amount of USD 439,000 plus costs and interest.
The Defendants refused to satisfy any of the LCIA rewards.
On 22 November 2019, the English Court gave Integral leave to enforce the awards pursuant to section 66 of the Arbitration Act 1996. The total outstanding amount was approximately 1.45 million USD. A receiver was also appointed by the way of equitable execution over Petrogat and San Trade’s assets, whose requests were nevertheless not fully complied with and the awards unsatisfied.
In May 2021 Integral filed a further claim pursuant to Section 423 of the Insolvency Act, submitting that the transfers (disclosed pursuant to the Receiver’s requests) of certain assets by Petrogat and San Trade were made for no adequate consideration and that the intention of these transfers was simply to place those assets out of Integral’s reach.
The timing of these transfers also supported the submission that they had been made solely for this purpose. In this regard, six main points were drawn to the Judge’s attention:
- In April 2018, Integral applied for security of costs in the LCIA arbitration in respect of Petrogat’s counterclaim for an alleged breach of contract on Integral’s part.
- On 1 May 2018, Integral made a committal application against the Sanchoulis for their breaches of the orders of Morgan J and HHJ Waksman.
- On 17 October 2018, Moulder J dismissed the Sanchoulis’ application for an order to set aside service of the committal application.
- On 20 November 2018, a partial award was issued by the LCIA, ruling that Petrogat and San Trade had converted the cargo.
- On 27 and 28 November 2018, first two transfers for the amounts of 500,000 USD each were made.
- On 5 December 2018, a response to the application for the security of costs was filed by Petrogat.
The relevant transfers were made between 6 December 2018 and 3 January 2019, pursuant to which millions of dollars in cash that were held in the Respondents’ bank accounts were dissipated. The Respondents refused to disclose information as to the nature and destination of those transfers, claiming that it was irrelevant to the case at hand.
Integral therefore sought a continuation of the freezing injunction for the amount of US$ 1.75 million.
We remind our readers that in order to succeed on this kind of application, the judge would need to be satisfied that:
- It has a good arguable case on the merits.
- There is a real risk of assets dissipation.
- That it is in all of the circumstances proper to grant the injunction.
In this case it was held by Judge that the de facto directors of Petrogat (the Sanchoulis) had previously breached court orders and were in contempt of court. In relation to Mr Beisenov, the Court held that he appeared to be both the owner of Petrogat and the person in whose favour the fraudulent bank transfers were made. The Court ruled that Integral had a good arguable case, thereby meeting the first limb of the test.
The Judge was also satisfied that there was solid evidence of a high risk of dissipation of assets. He also held that the delay in making this application was not a reason to refuse to grant the freezing order in this case, although disclosure of assets may be required to provide a basis to grant the injunction.
The final issue was related to service on the Respondents of the WFO application. In order to be able to serve out of the jurisdiction, Integral had to pass the following test:
- There is a serious matter to be tried on the merits;
- It had good arguable case against these persons; and
- That England and Wales are the most appropriate forum for the trial of the dispute in question.
The Court was satisfied that Integral had a real prospect to succeed in respect of its Section 423 claim against each of the Respondents. The only concern was whether the court ought to permit Integral to pursue a Section 423 claim in England and Wales, despite the fact the Respondents were based outside of the juirsdiction and that the fraudulent transfers took place abroad. This matter must be decided on case by case basis.
In order to ensure that Court does not seek to exercise unreasonably a wide jurisdiction in relation to Section 423 claims, all relevant circumstances of the case must be considered. The main question was to establish a relevant connection with England and Wales, as the proper place to make such an order. The Judge was so satisfied, given that the parties opted in the contract for English law as applicable law to their dispute, London as the place of their arbitration, the injunctions and English court orders’ breaches committed by the Respondent and unsatisfied London awards that the England and Wales was the most appropriate forum.