Pre-trial or post judgment relief - Injunction - Loans remaining unpaid

Russian Commercial Bank (Cyprus) Ltd v Khoroshilov and others: Queen's Bench Division, Commercial Court (Mr Justice Blair): 5 July 2011

The respondent bank, RCB, was a subsidiary of a Russian bank, VTB. Both RCB and VTB lent substantial sums of money to two companies, Talon and ONG, pursuant to various loan agreements.

Talon and ONG were owned by K (together the applicants). Talon owned a 75% shareholding in a third company, TNI. Two of the loans were subject to English law and jurisdiction and, in August 2009, RCB sued Talon and K under those agreements. Proceedings were also brought against ONG (the arbitration proceedings).

In August 2010, judgments were entered in favour of RCB against Talon and K in the sums of US$136,008,564.76 and US$291,360,264.11 respectively. The arbitration proceedings were included in the agreement and an award was made by consent against ONG in the sum of US$291,360,264.11.

As agreed, the terms of the judgments and award provided for a stay of execution until 2 May 2011 to give K the opportunity to re-finance his indebtedness to the bank. Subsequently, K’s sister and P, the deputy chairman of VTB, signed a protocol which provided for the settlement by TNI of the debts owed to the VTB group not later than that date.

The protocol was not brought to the attention of the court. In April 2011, prior to the expiry of the stay, the applicants made a without notice application (the application) seeking injunctions restraining RCB from enforcing the judgments and award until a later date.

The injunctions were granted by the court on the basis of the applicants’ contention that the judgments and the award had been obtained by an alleged fraudulent misrepresentation on RCB’s part (the Pancia allegation). During this period, Russian judgments obtained by VTB, RCB and other creditors had led to the instigation of insolvency proceedings in Russia in respect of TNI and ONG. The applicants applied for the injunctions to be extended until the final resolution of the English claim at trial, to include any appeal.

Issues arose, inter alia, as to whether: (i) the value of the applicants’ security had been misrepresented to the court on the making of the application, and in particular whether the bank was in fact fully secured; (ii) there was a serious issue to be tried; (iii) there had been serious non-disclosure and/or misrepresentation in obtaining the injunctions; and (iv) the balance of convenience militated for, or against the renewal of the injunctions.

The application would be dismissed. (1) In the circumstances, whilst the applicants had shown that the bank had substantial security for the indebtedness, they had not demonstrated that it was fully secured. On the evidence, it appeared that it might well fall short. Further, the evidence showed that the realisation of the value of the assets was likely to be a complex and time consuming matter. The court could not proceed on the basis that the bank was fully secured and would not suffer any prejudice by continuation of the injunctions (see [72]-[73] of the judgment).

(2) It was established law that in order to maintain an injunction, an applicant had to show that there was a serious question to be tried (see [24] of the judgment). On the evidence, the applicants' underlying claim was not strong. However, it had not been possible to reach the conclusion that there was no serious question to be tried. Whether the claim was justified or not, could only be resolved at trial (see [34] of the judgment). American Cyanamid Co v Ethicon Ltd [1975] 1 All ER 504 considered.

(3) It was settled law that the scope of the duty of disclosure of a party applying for injunctive relief was, in broad terms agreed between the parties.

An applicant had to show the utmost faith and disclose his case fully and fairly. If the court found that there had been breaches of the duty of full and fair disclosure on an ex parte application, the general rule was that it should discharge the order obtained in breach and refuse to renew the order until trial. Notwithstanding that general rule, the court had jurisdiction to continue or re-grant the order. The court had a 'single discretion' to be exercised in accordance with all the circumstances of the case (see [35], [58]-[59] of the judgment).

In the instant case, there had been two misrepresentations/ material non-disclosures. First, the protocol should have been specifically drawn to the court's attention stating that it would be relied on by way of defence, and the failure to do so had amounted to a material non-disclosure.

Secondly, given the reliance placed on the Pancia allegation in the application for the injunctions and its inherent seriousness, it had been important that the issue was presented to the court with considerable accuracy. In the circumstances, there had been a significant non-disclosure in relation to that issue.

Both matters had been important and there had been a significant degree of culpability on the part of the applicants. It would not have been disproportionate to decline to renew the injunctions. However, consideration also had to be given to the balance of convenience (see [42], [55], [61] of the judgment).

Arena Corpn Ltd (in provisional liquidation) v Schroeder [2003] All ER (D) 199 (May) applied; Siporex Trade SA v Comdel Commodities Ltd [1986] NLJ Rep 538 considered.

(4) The balance of convenience militated against the renewal of the injunctions. On the evidence, there had been a clear risk that the imposition of the injunctions might disrupt the orderly resolution of the insolvency proceedings in Russia. If an order was made to wind up the judgment debtors, the prejudice to the bank would be severe. 

Further, the bank had been prejudiced because the injunctions prevented RCB from realising its security, which had caused it financial losses on a daily basis.

If the injunctions were not renewed the insolvency process in Russia would continue without the restrictions consequent upon a further stay on enforcing the English judgments and award. The effect of the applicants' non-disclosure had also been to militate against renewing the injunctions (see [79]-[81] of the judgment).

Catherine Otton-Goulder QC (instructed by Field Fisher Waterhouse LLP) for the applicants. Michael McLaren QC and John Taylor (instructed by Dewey & Le Bouef LPP) for the respondent.