Nori Holdings Ltd & Ors v Public Joint-Stock Company 'Bank Otkritie Financial Corporation', Court of Appeal - Commercial Court, June 06, 2018, [2018] EWHC 1343 (Comm),[2018] WLR(D) 343

Resolution Date:June 06, 2018
Issuing Organization:Commercial Court
Actores:Nori Holdings Ltd & Ors v Public Joint-Stock Company 'Bank Otkritie Financial Corporation'
 
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Case No: CL-2018-000132

Neutral Citation Number: [2018] EWHC 1343 (Comm)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS

OF ENGLAND AND WALES

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 06/06/2018

Before :

MR JUSTICE MALES

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Between :

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Stephen Midwinter QC (instructed by Simmons & Simmons LLP) for the Claimant

Stephen Houseman QC (instructed by Steptoe & Johnson LLP) for the Defendant

Hearing date: 22.5.18

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JudgmentMr Justice Males :

Introduction

  1. This is an application for a final anti-suit injunction to restrain the pursuit of court proceedings in Russia and Cyprus which are alleged to be brought in breach of an arbitration clause. It raises some interesting questions including: (1) how the court should proceed when an application for similar relief can be made to arbitrators; (2) whether such an injunction can or should be granted to restrain proceedings brought in accordance with the insolvency law of a foreign state to set aside transactions at an undervalue; and (3) whether the decision of the CJEU in West Tankers Inc v Allianz SpA (Case C-185/07) [2009] AC 1138 that a court in one European member state cannot grant an injunction to restrain proceedings brought in breach of an arbitration clause in another member state remains good law.

    The parties

  2. The first and second claimants ("Nori" and "Centimila") are companies incorporated in Cyprus. They are wholly-owned subsidiaries of O1 Group Limited ("O1GL"), an investment holding company also incorporated in Cyprus, which owns and manages assets, including in real estate and finance. The ultimate beneficial owner of the group is Boris Mints. I refer to O1GL and the companies controlled by it as the O1 Group.

  3. The third claimant ("Coniston") is a BVI-incorporated company, which has a minority shareholding in O1 Properties Limited ("O1 Properties"). O1 Properties is a company incorporated in Cyprus which owns valuable real estate in Moscow. Its majority shareholders are entities within the O1 Group.

  4. Lira LLC ("Lira"), Leblanc Investments LLC ("Leblanc") and Semela LLC ("Semela"), companies incorporated in Russia, are or were at various times companies in the O1 Group.

  5. O1 Group Finance LLC ("O1 Group Finance") is a company incorporated in Russia which raises money on the bond markets for companies within the O1 Group. According to the claimants it is not, despite its name, a company within the O1 Group but "a special-purpose orphan vehicle which attracts financing in Russia through the issue of bonds traded on the Moscow Exchange".

  6. The defendant ("the Bank") is a licensed bank incorporated and existing under the laws of the Russian Federation. I was told that Mr Mints was formerly one of its largest shareholders and its Executive Director. His precise role does not matter for present purposes

    The transactions

  7. As at August 2017 the Bank had advanced over US $500 million in loans to O1GL and Lira under three Loan Agreements. The Loan Agreements were governed by Russian law and provided for the jurisdiction of the Moscow Arbitrazh Court. The loans were repayable between 2017 and 2019 and in the meanwhile provided regular interest payments.

  8. The loans were secured by pledges of shares in O1 Properties. The pledges were given by the claimants in the form of five Pledge Agreements concluded in May and June 2017. Three of these were with Nori and one each was with Centimila and Coniston.

  9. The Pledge Agreements were governed by the law of Cyprus. Each contained an arbitration clause, clause 19, which provided for arbitration in London under the rules of the LCIA:

    "In the event of any dispute or disagreement arising under, or in connection with, this Agreement, such dispute or disagreement shall be resolved by binding arbitration held in London under the rules of the London Court of International Arbitration (which rules are deemed to be incorporated herein; hereinafter - the 'Rules'), save that no requirements of the Rules as to the nationality of arbitrators shall apply, with 3 (three) arbitrators appointed in accordance with the Rules (where each of the Pledgee and the Pledgor shall appoint one arbitrator; the two arbitrators so elected shall appoint the chairman). The London Court of International Arbitration shall be the appointing authority. The working language of the proceedings shall be English. The Parties' addresses for service of process shall be the addresses specified in this Agreement."

  10. One of the loans was also secured by a pledge of shares in Lira by Leblanc. This Pledge Agreement was expressly subject to the jurisdiction of the Moscow Arbitrazh Court.

  11. In August 2017 these arrangements were changed. The parties entered into a series of agreements (to adopt a neutral phrase I shall refer to these as "the August transactions") as follows:

    (1) The Bank purchased bonds with a face value of US $600 million issued by O1 Group Finance.

    (2) O1 Group Finance used the sale proceeds to lend money to the borrowers under the Loan Agreements which the borrowers then used to repay the loans to the Bank.

    (3) The Loan Agreements were then terminated.

    (4) By agreements dated 9 and 10 August 2017 ("the Pledge Termination Agreements") the claimants and the Bank agreed to terminate the Pledge Agreements.

    (5) The Pledge Termination Agreements were governed by the law of Cyprus. Each contained an arbitration clause, clause 8, as follows:

    "Any dispute, controversy or claim which may arise out of or in connection with this Deed, or the execution, breach, termination or invalidity thereof, shall be settled in accordance with provisions of clause 19 of the Share Pledge."

  12. At the same time, the Leblanc Pledge Agreement was also terminated.

  13. The net effect of these new arrangements was to replace the Bank's short-term loans secured by pledges of shares in a company which owned valuable Moscow real estate with long-term unsecured bonds. The claimants say that this was a commercial restructuring requested by the Bank which was negotiated at arms' length with a significant number of senior staff at the Bank, and which they understood to be intended to provide the Bank with bonds which would pay a higher interest rate and (as they could be used to raise funds through repo transactions) would provide the Bank with urgently needed liquidity. The Bank on the other hand alleges that it was the victim of a fraud which resulted in US $500 million worth of secured loans being replaced by worthless bonds which provided no regular coupon payments as (while interest accrued) interest payments were deferred until maturity of the bonds in 2032.

  14. It is common ground that it is not for this court to determine which of these rival contentions is correct.

  15. Since the August transactions, the claimants have transferred their shares in O1 Properties to other Cypriot companies within the O1 Group and the shares have been pledged as security to another Russian bank, Moscow Credit Bank, as security for other loans. The claimants say that, as the Pledge Agreements had been terminated, they were entitled to deal with these shares as they saw fit. The Bank relies on these transfers as evidence of the alleged fraud.

    The Bank's temporary administration

  16. On 29 August 2017, only three weeks after the conclusion of the August transactions, the Central Bank of Russia ("the CBR") appointed a temporary administrator to manage the Bank. The CBR is responsible for the regulation and supervision of Russian banks. The appointment of a temporary administrator was made pursuant to provisions of Federal Law No. 127-FZ dated 26 October 2002 as subsequently amended (the "Bankruptcy Law"). Such an appointment is a measure for the financial rehabilitation of Russian credit institutions. It is aimed at preventing bankruptcy rather than initiating the process of formal asset distribution to creditors and shareholders. The powers of a temporary administrator are extensive. They include, by Article 189.31 of the Bankruptcy Law, the power to present claims on behalf of the credit institution in courts and arbitration tribunals.

  17. On 12 December 2017 the CBR effectively nationalised the Bank after which, on 21 December 2017, it appointed new management and the Bank's temporary administration ceased. It returned to normal operation.

    The Russian proceedings

  18. On 31 October 2017, the Bank (acting by the temporary administrator) commenced proceedings in the Moscow Arbitrazh Court against ten defendants, including all three of the claimants as well as Lira, Semela and Leblanc. In these proceedings it seeks the invalidation and reversal of all of the August transactions, including but not limited to the Pledge Termination Agreements, so as to restore the Bank to the position in which it was prior to these transactions being concluded. Thus the proceedings, if successful, would result in reinstatement of the Loan Agreements and the Pledge Agreements, together with orders for the return of the pledged shares in O1 Properties. They would result also in reinstatement of the Leblanc Pledge Agreement.

  19. Two legal grounds are advanced for invalidating the August transactions, although they each rely on the same factual allegations. First, it is said that the August transactions were concluded with unequal consideration. This is a claim brought (and which can only be brought) by a temporary administrator pursuant to Article 189.40 of the Bankruptcy Law and which, under Russian law, is subject to the jurisdiction of the Moscow Arbitrazh Court. It requires proof that during a period of one year before the appointment of the temporary administrator the Bank entered into a transaction in which the counterparty provided "unequal consideration". Such a claim is broadly similar to a...

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