Apricus Investments Limited and Ors v CIS Emerging [2004] JRC 031 (16 February 2004)

judgment the deputy bailiff: 1. This is an application by Apricus Investments Limited and three other companies (which we shall call the "Plaintiffs") for a finding that CIS Emerging Growth Limited - "CISEG" - is in contempt of Court.

2. The background is as follows. CISEG is a company incorporated in Jersey. We are informed that it is a subsidiary of Creditanstalt Investmentbank Holding AG, ("Creditanstalt"), which is apparently now part of the Bank Austria Group.

3. In 1997 CISEG sold shares in a Russian company called OAO AVISMA Titano-Magnesium Plant ("AVISMA") to the Plaintiffs for a total of some US$70,000,000. Subsequently the Plaintiffs alleged that CISEG, despite acting on behalf of the Plaintiffs and owing them fiduciary duties, had taken a secret profit or spread in relation to the sale of the AVISMA shares.

4. The matter went to arbitration in London and after a contested hearing the arbitration tribunal held on 28 th April, 2003, that CISEG had taken an illicit spread and ordered CISEG to pay the Plaintiffs US$ 5,968,409 plus interest.

5. As at 1 st July the interest totalled over $2.2 million. The total liability of CISEG to the Plaintiffs therefore exceeds $8 million. On the 11 th August, 2003, the Plaintiffs instituted proceedings by way of Order of Justice in this jurisdiction seeking judgment in respect of the arbitration award.

6. The Order of Justice contained an injunction freezing CISEG's assets and ordering CISEG to inform the Plaintiffs of all its assets whether in Jersey or elsewhere giving the value, location and detail of all such assets. The information was required to be confirmed in an affidavit and CISEG was also ordered to disclose all payments of over £50,000 by CISEG since 28 th April, 2003, i.e. the date of the arbitration award.

7. The Order of Justice also joined the Parties Cited who were the nominee registered shareholders of CISEG. They were ordered to disclose details of any of CISEG's assets held by them. The Order of Justice was served on both CISEG and the Parties Cited on 14 th August. On 20 th August, Mourant du Feu and Jeune acting for CISEG and the Parties Cited forwarded an affidavit by a Mr Kenneth Rayner in purported compliance with the Order of Justice. Mr Rayner is a director of the Parties Cited and had formerly been a director of CISEG but was no longer so at the time.

8. He stated that the assets of CISEG consisted of (a) a bank account with HSBC in Jersey with a balance of £1,307.58; (b) 999 ordinary shares in CIS Emerging Fund Limited a company incorporated in Cyprus ("CIS Cyprus"). He said that no payment of over £50,000 had been made since 28 th April, 2003.

9. This affidavit did not comply fully with the terms of the Order of Justice not least because it was sworn by a person who was not a director of CISEG. As a result the Plaintiffs issued a summons ("the first summons") seeking an order for fuller and wider disclosure by CISEG and the Parties Cited.

10. On 3 rd September, immediately before the hearing of the first summons the Plaintiffs received an affidavit from a Ms Talia Laoufer a director of CISEG. It did not, however, produce any additional information to that which had been given by Mr Rayner.

11. The Court sat to hear the first summons on 3 rd September, and in its judgment of that date, the Court, presided over by the Bailiff, noted this was a case of the Plaintiffs seeking post-award relief in order to enforce an arbitration award and, for the reasons set out in the judgment, the Court made the Order sought by the Plaintiffs. Because the contempt allegation relates to that Order we think it right to set out the relevant parts as follows: "1) That the Defendant shall within 5 working days of the date hereof provide the Plaintiffs' advocates: (a) true copies of its financial statements (whether audited or not) for each year from 1997 to 2003 inclusive; (b) true copies of all bank statements and all correspondence relating to all accounts which it has held or does hold (by itself or on its behalf, whether solely or jointly held, and irrespective of the name of the account) since 1997 to date; and (c) a list of all assets whether in its own name or not and whether solely or jointly owned, giving the market value, location and details of each such asset, from the beginning of 1997 to date, and if it no longer holds such assets it must state when such assets were disposed of and to whom." 12. CISEG was also ordered to swear an affidavit confirming that information within 7 working days. A similar Order was made against the Parties Cited.

13. On the 11 th September, Mr Rayner filed an affidavit on behalf of the Parties Cited exhibiting such material as was in the possession of the Parties Cited and related to the Order. This included financial accounts of CISEG for 1996 and 1997 only, as well as copies of bank statements and correspondence relating to the HSBC bank account.

14. On the same date the Plaintiffs received two pages of a three page second affidavit from Ms Laoufer. The first page was repeated twice and the second page was missing. The Plaintiffs immediately contacted Mourant du Feu and Jeune to ask for the second page but that firm informed them that it was no longer acting for CISEG, continuing to act only for the Parties Cited.

15. The Plaintiffs then wrote to the Jersey post box address which had been given by Ms Laoufer in both of her affidavits despite the fact that her second affidavit had been sworn before a notary in Tel Aviv, Israel.

16. On 19 th September, the letter was returned by the Jersey Post Office with the information that the P O Box address referred to in the affidavits had been cancelled.

17. The Plaintiffs served at the Registered Office of CISEG notice of intention to seek judgment in default and this was obtained on 26 th September, 2003, for the various sums awarded in the arbitration.

18. The missing second page of Ms Laoufer's affidavit was eventually produced by her on 6 th November. This disclosed that the papers in her possession suggested the existence of an account held by CISEG into which the Plaintiffs' purchase moneys had apparently been paid. This account was held with a member of the Creditanstalt Group in Austria. However, she said that the bank was not willing to give her details concerning that account without proof of her authority and a power of attorney.

19. It is to be noted that the account is held with a member of the Creditanstalt Group which is the ultimate parent of CISEG. Despite the lapse of time since then no further information has been forthcoming about this account. Ms Laoufer also stated in her affidavit that the Russian Tax Police had removed CISEG's books and financial records and that CISEG did not have the financial resources to retain Russian counsel to investigate the location of the books. She also said that she could not confirm the market value of the 999 ordinary shares in CIS Cyprus, as the sole director had died in August 2003. She had obtained the 1997 financial accounts of that company from its attorney in Cyprus and she exhibited these, but she said that CISEG could not afford to provide any further information.

20. On the 12 th September, the Plaintiffs' advocates wrote to Ms Laoufer at the address she had given in Israel requesting that she provide them with a copy of a letter to the Creditanstalt Bank in Austria authorising that bank to disclose information about CISEG's account to the Plaintiffs. However, no reply to that letter has ever been received by the Plaintiffs, nor have they ever received any information about the account with Creditanstalt Bank.

21. On 9 th October the Plaintiffs issued a second summons seeking an order that CISEG within 5 working days provide the full names and last known address of all persons who had acted as directors of CISEG at any time to the present date. CISEG was not represented at that hearing but on 30 th October, the Court made an Order to that effect. CISEG has failed to comply with it.

22. The Parties Cited, however, have voluntarily disclosed such information together with all other relevant information in their possession. A letter from Mourant du Feu and Jeune, the Parties Cited Advocate, stated that the management of CISEG was effectively carried on outside Jersey by personnel within the Creditanstalt Group. It was those Creditanstalt personnel who had operated the bank account in Austria with the relevant bank in the Creditanstalt Bank Austria Group. The letter also disclosed that the present directors were Ms Laoufer and Mr Yaron Ashkenazi. Both reside in Israel and had been appointed on 1 st May, 2003, a mere 3 days after the arbitration award in London which found CISEG to be liable to the Plaintiffs in the sum of US$ 6 million plus interest.

23. CISEG has been served with these proceedings but has not attended or been represented today nor have its directors. We are, however, quite satisfied that CISEG has failed to comply with the Order of the 3 rd September, 2003. In relation to paragraph 1 (a) of the Order it has disclosed the financial statements only of 1996 and 1997. It has failed to disclose any other financial statements. As to paragraph 1 (b) the Parties Cited have disclosed bank statements and correspondence in relation to the HSBC account, but no disclosure has been made in relation to any other account including, in particular, the account held in Austria with a member of the Creditanstalt Group.

24. As to 1(c) CISEG has mentioned the shares in CIS Cyprus but has given no details of the market value or any other details of that Company. Nor has it stated whether CISEG at any time held any other assets between the beginning of 1997 and the present date; or, if so, as to what has happened to those assets. In particular, it seems clear that the Company received the sum of US$70 million in respect of the sale of the AVISMA shares. Yet it has failed to explain what has happened to that money.

25. In addition CISEG has not complied with the order of the 30 th October, 2003, ordering it to disclose its directors, although the Court has received that information through the Parties Cited. We do not accept on the information before us that CISEG has taken reasonable steps to obtain and provide the information ordered and we are, therefore, satisfied to the criminal standard of proof that CISEG is in contempt of this Court in the respects which we have listed.

26. We have to say that we find this to be a highly unsatisfactory position. The information before us suggests that CISEG has at all times been a subsidiary of the Creditanstalt Group and now the Bank Austria Group. We accept, that by majority, the arbitration tribunal found that Creditanstalt Investment Bank Holding AG, the immediate parent of CISEG, was not itself liable for the sums claimed by the Plaintiffs. Nevertheless, the Plaintiffs are entitled to recover against the assets of CISEG. One would have thought that a reputable bank would have done all that it could to assist in ensuring compliance by its subsidiary with a court order that that subsidiary should disclose its assets, including previous assets, so as to enable the judgment creditors of that subsidiary to recover the amounts due to them.

27. In this case the Court is left with the impression that Bank Austria is putting every difficulty in the way of the creditors. Thus the directors were switched immediately after the arbitration award to two people in Israel who appear to have had nothing to do with CISEG until then, and to have had very little knowledge of its affairs.

28. According to the Parties Cited the persons who in fact ran the affairs at CISEG at all material times under powers of attorney were various Creditanstalt personnel in different jurisdictions. Those personnel operated the bank account in Austria into which the Plaintiffs' moneys were said to be paid, which account was held with a member of the Creditanstalt Group; yet that bank apparently places difficulties in the ways of CISEG obtaining details of that account by apparently asking for formal details concerning the authority of the directors of CISEG. It should be a straightforward matter for the relevant authority to be obtained and forthcoming, and we see no valid grounds for the failure to do so. Furthermore, no assistance appears to have been given by anyone in the Creditanstalt Group to ascertain the value of the shareholding in CIS Cyprus.

29. We bear I mind that this was a hard fought arbitration in London in which CISEG was represented by leading London lawyers and no doubt incurred very substantial fees. These were either paid by CISEG or were paid by a member of the Creditanstalt Group on its behalf. Yet now that CISEG has lost the arbitration we are told that CISEG cannot even afford to ascertain the location, value and history of its assets.

30. As we say, we regard it as highly unsatisfactory that a subsidiary of the Bank Austria Group is refusing to comply with the Orders of this Court which are aimed solely at seeking to ensure that the Plaintiffs recover anything which they are entitled to recover from CISEG pursuant to the arbitration award.

31. We emphasise that we are not seeking to look behind the limited liability of CISEG. The arbitration panel has held that no other member of the Creditanstalt Group is liable for the sum of some US$8 million, and the Bank Austria Group is therefore legally entitled, if it so wishes, to allow the creditors to recover only against the assets of CISEG even if these are insufficient to satisfy the Plaintiffs' claims.

32. However, we would expect a reputable bank to do all in its power to ensure that the assets of that subsidiary were identified, and made available to the subsidiary's creditors and that that subsidiary complied with any Court Orders aimed at achieving that limited objective. Furthermore, of course, if any sum out of the US$70 million turns out to have been wrongfully paid to any member of the Creditanstalt Group then that sum would be recoverable for the benefit of the creditors of CISEG.

33. We have not, of course, heard from any member of the Bank Austria Group, because CISEG has chosen not to be represented before us and therefore we make no definitive finding in respect of the conduct of the Bank Austria Group. However, the information before us raises sufficient concern to lead us to invite the Plaintiffs to send a copy of this judgment to the Jersey Financial Services Commission with a request that that Commission take the matter up with its Austrian regulatory counterparts.

34. Similarly, as this claim arises out of an arbitration award made in London, we invite the Plaintiffs to send a copy to the United Kingdom bank regulatory authority in order that it too may consider whether it ought to raise the matters referred to in this judgment with any branch of Bank Austria or Creditanstalt in London and whether it ought to take the matter up with the Austrian Bank regulator.

35. As to the punishment for contempt the Plaintiffs suggest a fine of £1,000. This would, of course, be wholly inadequate in normal circumstances and a very substantial fine would normally be called for. By way of example in Izodia plc v Lynch Talbot Ltd [2003]JRC094 for a rather less serious contempt, an aggregate fine of some £40,000 was imposed on the defendants. But Miss Rive submits that we should limit the fine to £1,000 for two reasons. First, she submits that the Court knows of no other asset of value other than the bank account with HSBC in Jersey. The Court has no knowledge of the value of CIS Cyprus. Secondly, any amount imposed by way of fine would go to reduce the amount available to the creditors. The Plaintiffs main concern is not the amount of the fine, but the finding of contempt against a company which is a wholly owned subsidiary of the Bank Austria Group.

36. For the reasons put forward by Ms Rive we impose a fine of £1,000, whilst emphasising that it in no way reflects the gravity of CISEG's conduct. We hope that Bank Austria will be prevailed upon by the regulators to behave in a way which would be expected of a reputable bank.

37. An order for costs on an indemnity basis made against CISEG. Authorities Izodia plc -v- Lynch Talbot Ltd & Ors [2003]JRC094. Skinner & Ors -v- Le Main (30 th April, 1990) Jersey Unreported; [1990/60]. Mayo Associates & Ors -v- Anagram (Bermuda) Ltd (18 th January, 1995) Jersey Unreported; [1995/13]. Page Last Updated: 29 Jun 2016 BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII