Case No: 2000 Folio 440

Neutral Citation Number: [2002] EWHC 774 (Comm)

IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 26th April 2002

B e f o r e :

THE HON MR JUSTICE MORISON
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INDOSUEZ INTERNATIONAL FINANCE BV
Claimants
-v-

NATIONAL RESERVE BANK
Defendants

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Mr P. Heslop Q.C. leading Mr C. Marquand (instructed by Messrs Ashurst Morris Crisp for the Claimants)
Mr A. Fletcher (instructed by Messrs Salans Hertzfeld & Heilbronn for the Defendants)

Hearing Dates: 22-23 April 2002.
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APPROVED JUDGMENT

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

The Hon. Mr Justice Morison

Morison J
1.	This is an application by the defendant, NRB, to discharge a Mareva Injunction granted against them by Steel J as long ago as 14 April 2000.

2.	The relevant background to the underlying dispute may be shortly summarised.  NRB is a commercial bank, incorporated under the laws of Russia, serving Governmental agencies of the Russian Federation and neighbouring states and related private enterprises. Its operations are concentrated in the primary and secondary markets for Russian and Ukrainian Government securities, Russian corporate equities and the external debt of the former Soviet Union.

3.	Between 24 September 1997 and 2 July 1998, the parties entered into 14 rouble/dollar non-deliverable forward currency exchange contracts under which the Claimant, IIF, who are a Netherlands company and a subsidiary of Crédit Agricole Indosuez, sought to protect themselves against a devaluation of the rouble against the dollar. IIF say that the parties’ contractual relationship was governed by the ISDA [International Swaps Dealers Association] Master Agreement; that the governing law is either the law of New York or, in some cases, of England. Those transactions which did not expressly provide for New York jurisdiction, provided for non-exclusive jurisdiction of the Courts of England & Wales.

4.	During the relevant period the rouble declined against the dollar and IIF contend that as a result, NRB became indebted to them for a sum just short of US$120 millions.  IIF filed a claim in the Supreme Court of New York in March 1999 and NRB filed an answer alleging that the New York Court lacked jurisdiction and that the agreements were invalid under the laws of Russia. On 18 October 1999, the New York Court gave a final judgment in favour of IIF, and quantum was adjourned to be determined by a Special Master.  Subsequently, but after the Mareva injunction was granted, the New York Court, on 31 May 2000, adjudged the quantum to be $119 millions odd, plus interest.  There is a dispute between the parties as to the proper calculation of interest: the rival figures are, in broad terms, $139 millions and $133 millions [Claimant and Defendant respectively]. I think that the dispute turns on whether interest is to be governed by the statutory rate which applies to judgments of the New York court or whether it is the rate prescribed by the Master Agreement.  But for present purposes this issue does not need to be resolved.

5.	The basis for the freezing order advanced by IIF before Steel J. can be found from the affidavit filed in support of IIF’s application.  The deponent, a Mr Simon, explained that an attachment order against the Defendant’s assets had been made by the New York Court prior to judgment, on 19 April 1999, and that “in the event ... only negligible assets were attached.”  A further attachment order had been granted by the District Court in Zurich, Switzerland, in the sum of US$11 millions and that at the time of the application IIF intended to apply for an attachment order in Belgium “to restrain [NRB] from dealing with such assets as it holds in its Euroclear Account.”

6.	As to assets within this jurisdiction, the deponent said he believed that NRB had a bank account at the London Branch of Moscow Narodny Ban.

	“It is still believed that this is still the case, but it is not thought that [NRB] had, or has, any significant assets in that account.  For the following reasons given in the paragraphs below, however, I now verily believe that [NRB] has, or will have, the following assets within the jurisdiction.”

7.	The deponent explained that in about 1995, NRB took up several tranches of bonds issued by the Ukranian Ministry of Finance to raise funds to pay debts owed to the State gas enterprise, Gazprom. These old bonds were in bearer form and were held by NRB’s custodian in the Ukraine. The deponent said, in reliance upon the NRB’s audited accounts for 1997, that the nominal value of the bonds was $280 millions, with a present value of $170 millions. The Ukranian Ministry of Finance were about to issue new bonds to be exchanged for the old ones and the London Branch of Deutsche Bank was to be acting as principal agent for the exchange. The terms of the exchange required that the New Bonds and cash were to be deposited in the Euroclear or Clearstream account of the allottee or its designee on 14 April 2000.  Mr Simon said that it was highly likely that NRB would exchange its old bonds for new and that the new bonds would have a nominal value of at least$200 millions with a market value of $120 millions. He explained that there was a risk that NRB might not receive the new bonds and cash in their own Euroclear/Clearstream account but might warehouse them through the lead or co-lead managers of the Exchange.  Mr Simon then gave grounds for his belief that there was a serious risk that NRB would dissipate their assets so as to defeat the judgment of the New York Court.

8.	There was the following exchange between Steel J. and counsel on behalf of IIF at the ex parte hearing of the application for a Mareva injunction:

	“Mr Justice Steel wanted to know why, if an order was obtained in Belgium, this would not be sufficient to freeze the Eurobonds and thus prevent NRB from dissipating them.  Counsel told the Judge that it was his understanding that the Belgium proceedings were only effective against NRB’s account in Euroclear and they were not operative against any nominee banks.  For that purpose, an English order needed to be obtained in the event that NRB had given instructions for the Eurobonds to be deposited in a nominee bank’s Euroclear account.”

9.	For present purposes it is to be observed that there is no suggestion that Mr Simon failed to make full and proper disclosure or that he had failed to establish a good arguable case for establishing a risk of dissipation.  The attempts by NRB to pursue claims in the Russian court (and the other matters referred to by IIF in their submissions) were clearly designed to frustrate IIF in their endeavours to enforce the New York judgment and made the concessions by NRB, for the purposes of these proceedings, inevitable. But what is said on NRB’s behalf is that the factual background upon which the Mareva was granted did not eventuate: delivery of the new bonds did not occur within this jurisdiction. It is further said that the New Bonds and cash are in Belgium where there is an attachment order, and enforcement proceedings afoot, and that the Mareva injunction here is unnecessary and damaging as NRB would wish to carry on business in London for the purposes of their business and cannot do so as long as the Mareva injunction is in force here. It is said that the amount of the protection in Belgium is sufficient to satisfy the New York judgment, which is subject to a final appeal and where judgment is expected soon. Further there have been satisfactory alternative offers made which should satisfy IIF.

The position in Belgium
10.	NRB say that the value of the Bonds which are the subject of attachment there is $223,692.485 which represents 189% of the amount which NRB identifies as the “current requirement” of $118,200,000. That figure is derived from their estimate of the judgment sum, plus interest, of $133,200,000 less the value of the assets frozen in Switzerland, which are now currently worth $15 millions. The bonds in question are 11% 2007 bonds which are amortised, giving the holder a quarterly return of interest [a coupon payment] and capital.  As at redemption in 2007, the bonds will have outstanding principal in about the sum of $22.8 millions. By this process of repayment, the capital value of the bonds diminishes as they are converted into cash (both principal and interest).  The market value of the bonds, as with any emerging market debt instruments are open to fluctuations through political and macro economic influences. Bonds such as these are susceptible to extreme fluctuations, and I accept that their value can only be that which a willing buyer is prepared to pay. On the basis of the evidence before me, and for the purpose of my decision, I am prepared to accept that their current price reflects a value of around the figure put forward on NRB’s behalf, but subject to the caution that their value might change very rapidly so as to make them less valuable or, in extreme circumstances, of no value.

11.	IIF also attached in Belgium the cash which stood in NRB’s Euroclear account.  As I understand it, this cash, approximately $60 millions, represents the principal and coupon payments which have been made under the bonds.  But the Belgian courts have ruled that such attachment is unlawful because of the provisions of Article 9 of the Law of April 1999.  That Article states that

	“Each settlement account concerning cash with an operating institution or a system settlement instance [sic] cannot be attached, sequestrated or blocked in any way by a participant (different from the operating institution or the settlement instance [sic]) a counterparty or third party.”

	Despite the translation, the purport of this law seems clear and I believe, on the basis of the judgment, that the word “instance” should read “account”.

12.	NRB had sought to argue that the attachment of both the bonds and the cash were covered by this Article and that the attachment should be lifted.  NRB said that the Security Clearance Account, where the bonds were deposited, and the cash accounts were both “settlement accounts” within the meaning of Article 9.  However, the court at first instance concluded that whilst the cash Euroclear account fell within the Article the Securities account, where the bonds were deposited, did not.  An appeal has been lodged against that decision and I understand that it is likely to be heard in about September of this year.  The present position is, therefore, that the bonds are lawfully attached but the cash in the Euroclear account is not, although the attachment continues until the appeal.

13.	The first instance Court also considered a proposal whereby a proportion of the bonds sufficient to satisfy NRB’s obligations under the New York judgment should be “consigned” to a separate account at the Morgan Guaranty Trust Company.  IIF contended that the attached securities did not offer sufficient security and that a further margin of 25% should be allowed for. The Court said:

	“This is a reasoning which our court can follow. Considering the possible fluctuation of the securities and in order to give sufficient guarantee to IIF, a market value of the securities of 61% of their nominal value should, on top of that, be withheld. Therefore, the amount to be consigned must be determined as follows: Ukranian State Bonds for a market value of $100 millions ie a nominal value of $163,934,426.2 (61% is 100 millions US$) to be increased with 25% of this amount calculated in the same way, ie a total package of Ukranian State Bonds with a market value of $125 millions or a nominal value of $204,918,032.8.”

14.	That was a decision in September 2000.  It was subsequently followed on 28 September 2000 by a decision of the appeal Court which applied the same formula to secure a further $19 millions and an additional small amount in Belgian francs owed to IIF.  The total face value of the bonds consigned at that time came to $245 millions odd.  NRB say that, with the $60 millions odd which continue to be frozen in the Euroclear account pending an appeal in the Belgian courts, the amounts of cash and bonds currently frozen amount to about 240% of the current requirement.

The offers
15.	I turn now to the two ‘offers’ which NRB are prepared to make or have made.  The first is this.  NRB offered to replace the Bonds with cash totalling $132,638,753.36 on the basis that the attachments in Switzerland and in England are lifted. Second, NRB made the proposal that if IIF were to lose their Article 9 appeal in Belgium a sum equivalent to the amount of assets caught by the Mareva injunction would be deposited under conditions similar to the consignment of the New Bonds.

16.	The response of IIF has been negative to these approaches.  The position as they see it, with justification, is that NRB have been intent on causing them and their parent as much obstruction to the enforcement process as they can, and to make a number of allegations of a criminal nature against their parent company and a named individual. IIF say that the various suggestions are all part of a ploy by NRB to avoid the consequences of the judgment in the New York Court and to put funds into a jurisdiction where they consider lie their best prospects of successfully resisting the enforcement process. Until NRB face up to their obligations, as IIF see them, then there is no prospect of a successful resolution of the attachment process.

The decision
17.	Against this background, I must now deal with the application.  The principles of law which I must apply are clear. Under section 25 of the Civil Jurisdiction and Judgments Act 1982, as extended by the Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997, the court has power to grant Mareva relief in aid of enforcement of a foreign judgment falling within paragraph 2 of the Order, as does the New York judgment even where that is the only relief sought in this court. Section 25(2) of the Act provides:

	“On an application for any interim relief under subsection (1) the court may refuse to grant that relief if, in the opinion of the court, the fact that the court has no jurisdiction apart from this section in relation to the subject-matter of the proceedings in question makes it inexpedient for the court to grant it.”

18.	There are two pertinent decisions of the Court of Appeal: Credit Suisse Fides Trust SA v Cuoghi [1998] QB 818 and Refco v Eastern Trading Co [1999] 1 Lloyd’s Rep. 159.  In the former, the court emphasised the need for caution when making an order for interim relief under section 25, and that the role of this court is subordinate to the role of the court which rendered the judgment.  The purport of the second decision is that this court should adopt a two stage process: first, as when exercising its primary jurisdiction in relation to proceedings in this country, whether the Claimants had a good arguable case and there was established a real risk of dissipation and, then, at the second stage whether there was anything in the proceedings which made it inexpedient to grant it.  There is a third decision to which my attention was drawn, namely Ryan & Another v Friction Dynamics Ltd & Others (Chd 14.6.00 unreported), a decision of Neuberger J. He referred to the two decisions of the Court of Appeal and purported to lay down 9 general principles which applied when the court’s jurisdiction under section 25 was invoked. Helpful though his analysis is, I have to say that there is a danger in a judge formulating general principles when its discretionary powers are being invoked. The danger is that in a subsequent cases the advocates will concentrate on looking at each of the principles as though each was a requirement that needed to be fulfilled. Further, some of the principles are couched in such wide terms as to amount to no discernible principle at all.  Thus, the 7th  numbered principle is that the court should expect to be given cogent reasons to justify making what was called an overlapping order, as here. Before exercising its discretion the court will always expect to be provided with cogent reasons for its exercise in whatever jurisdiction it is acting.

19.	I turn now to the application before the court, against the concession made that there were no circumstances here which would make the grant of a Mareva injunction ‘inexpedient’ within section 25, assuming that the initial hurdle had been surmounted.

20.	There are three grounds advanced for lifting the Mareva injunction:
(1)	circumstances have removed the basis upon which the Mareva was granted in the first place;
(2)	having regard to the size of the judgment and the protection obtained in Belgium, the continuation of the present order is unnecessary and damaging;
(3)	having regard to the reasonable offers made and either ignored or rejected, the injunction should be lifted.

Point 1
21.	I accept that the prime purpose of the application for the Mareva injunction was to achieve an objective which did not materialise.  The new Bonds never came here. On the other hand, it is clear that the reference to the Euroclear account, in the exchange with the Judge, was misguided, in the light of the Belgian court’s decision.  It is not possible to attach  monies held in a Euroclear settlement account, and, as NRB would argue, there must be a doubt whether the bonds are capable of attachment. But the application also related to a bank account here, which was not believed to contain much money but which was to be frozen up to the requisite limit.  It is that part of the order which is challenged before me.  Even if circumstances have changed, that would not, of itself be a good ground for setting the Mareva injunction aside if, to-day, in the light of the changed circumstances, a new application would, if made, be granted.

22.	It seems to me that NRB are seeking to eat their cake and have it. On the one hand they say that there is plenty of money in Belgium against which the judgment can be enforced; and on the other hand, that there are compelling reasons why, under Belgian private international law rules, the judgment is not enforceable there. If NRB successfully resist enforcement in Belgium and this court has lifted the Mareva here, the small sums here would be beyond the enforcement process. Unlike the normal rule where a party should litigate in one jurisdiction only, when it comes to enforcement, I can see no reason why enforcement action should not be taken wherever the assets are found to be.  The judgment creditor is entitled, I think, to seek to enforce the judgment in different jurisdictions which will or may apply different rules for its enforcement.  Thus, if IIF had asked for a new Mareva order I would have granted it, knowing what the court does about the relative position of the parties.

Point 2
23.	Given that NRB are strenuously resisting enforcement in Belgium it seems to me incorrect to characterise the amounts attached in Belgium as providing adequate protection.  But in any event, I can well understand the discomfort which IIF feel about the value of the bonds. Their value is susceptible to great change due to unforeseeable events.  The process of enforcement is likely to go on for another 18 months.  There is a significant risk of a default, but this would depend upon the stability of the Ukranian economy; to realise the bonds which represent a substantial part of the entire issue [12.9%] would have to be handled in a sensitive way to avoid depressing the value. If the judgment is enforceable then the Court in Belgium would appoint an official to make the sales by public auction.  Although the parties could otherwise agree a method of sale neither would rely on the other to be sensible or prudent.  There is also a legal risk involved: Gazprom and Vneshconombank made claims in April 2000 against the New Bonds and although NRB say that these claims have been settled, there is no exhibit to back this up and I accept that there is a risk, which is unquantifiable, that there might be claims against the New Bonds which would or might deprive IIF of the fruits of their judgment if the Belgian courts ruled in their favour.  Further, there is the possibility that rather than pay up NRB might choose to go into liquidation and that would threaten any security, bonds or cash.

24.	I suggested that if NRB had money which it was prepared to put into court it could do so here. Technically such an arrangement would require the co-operation of IIF who would have to release their grip on the assets and money in Belgium and Switzerland.  But this suggestion did not appeal to NRB, no doubt because its judges its opposition to the enforcement proceedings in Belgium to be more likely to succeed than in this jurisdiction.

25.	I do not consider that the position in Belgium warrants this court in concluding that the overlapping jurisdiction should not be granted. In other words, I regard IIF as having provided the court with cogent reasons for continuing the Mareva injunction, despite the ‘protection’ in Belgium.

Point 3
26.	The offers involve the lifting of the Mareva injunction and some kind of payment into a blocked account in Belgium of a substantial part, if not the whole of the judgment sum.  The suspicion with which these offers are viewed by IIF are manifest from their submissions.  They question to motives and the timing of the ‘offers’which have not been couched as offers capable of acceptance. They say that the sums offered are not enough in any event.

27.	The underlying reason for the hostility of IIF to these proposals stems from their dislike of the way they have been pursued by NRB in other jurisdictions with forgery allegations made against them and involving the Russian police. As a pre-requisite for considering any such offer, IIF want the allegations against them withdrawn.

28.	So far as the court is concerned, if the offers made should properly satisfy IIF in the sense that they render it inappropriate to continue the Mareva, then the Mareva should be lifted, whether or not IIF achieve the withdrawal of the allegations of forgery. I cannot and will not become involved in a dispute which is not before the court.  I suggested to the parties that if the offers were being made in good faith then the appointment of a mediator would be sensible to facilitate arrangements for the enforcement of the judgment in an orderly manner. I hope the parties will accede to this suggestion.  But I am not persuaded that the officers now make it unreasonable for IIF to hold onto the Mareva injunction.  The amount concerned is short of what is and may be required in future as interest accrues.  There is no way of knowing whether, when consigned to an account, the money will be subjected to a collateral attack from a third party, including the Russian State.  Money in Belgium is only of value to IIF if it remains in safe hands and not susceptible to third party challenge and if the Belgian court will enforce the judgment.  None of this is clear at the moment. As to the suggestion that the same amount of money which is attached here should be remitted to Belgium, that offer plainly does not remove the need for a Mareva for the reasons already given. In my view the offers made do not disentitle IIF to a continuation of the Mareva.

29.	As to the suggestion that the Mareva order here is damaging NRB’s business plans, I remain sceptical. In the first place, this order has been in existence for a very long time without challenge. Had there been business plans affected by it then I would have expected an immediate application to the court. There are no documents produced to support the suggestion that business might be done here or would have been but for the Mareva order.  An analysis of NRB’s business from its accounts suggest that in the past England has not been a place where any significant business has been done. It is most unlikely that NRB would be able to engage in profitable trade in the international field if it appears unwilling to honour its trading obligations. There would be no difficulty in asking the court to lift the Mareva on terms that the monies were paid into court, and no difficulty in NRB finding the money to do so.  I accept that a Mareva order can have damaging consequences for businesses, but in this case I am not persuaded that there is any credible evidence to support such a conclusion.

30.	At the end of the day, I regarded this application as part of a long process by which NRB seek to avoid the consequences of judgment of a court to whose jurisdiction it was found by that court to have submitted.  As it is without merit it must be dismissed.