ASTIAN GROUP LIMITED ET AL v. TNK INDUSTRIAL HOLDINGS LIMITED ET ...

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New search | Revise Search | Back to search results | View Selections: 0 items | Permanent Link Record 1 of 1 records. First | Previous | Next | Last ASTIAN GROUP LIMITED ET AL v. TNK INDUSTRIAL HOLDINGS LIMITED ET AL Add to List Citation # VG 2004 HC 6 Country British Virgin Islands Court High Court Judge Rawlins, J. Subject Conflict of laws Date March 22, 2004 Suit No. BVIHCV 0072 of 2003 Subsubject Forum non conveniens - Freezing order - Application to discharge freezing order Challenge to the freezing orders - Material non-disclosure - Risk of dissipation of assets - Application to lift stay of the proceedings in this Territory - Article 247 of the Commercial Procedural Code - Order on the application to discharge the injunction and to lift the stay was granted. Full Text Appearances: Mr. Stephen Moverley-Smith, QC, with him Mr. Michael Fay, for the claimants. Mr. Alan Boyle, QC, with him Mr. Phillip Kite, for the defendants. [1] RAWLINS, J: This judgment considers 2 applications. The defendants, TNK, Alfa Petroleum and OGIP applied on 3rd July 2003 for a declaration that this Court should not exercise its jurisdiction in these proceedings on the ground of forum non conveniens. On 17th November 2003, this Court delivered a judgment that granted the application and ordered a stay of the action in this Territory. The stay was granted on the ground that the Russian Arbitrazh Court is the most convenient forum for the trial of this case. [2] The defendants application of 3rd July 2003 also sought an order to vary or discharge 2 freezing orders that this Court made on 26th May 2003 and 12th June 2003, respectively. The first order was made on an application, without notice. It froze assets of the defendants within this Territory of up to US$383,173,392.00. (end of page 1) [3] The second freezing order was made as an accommodation between the parties as a holding arrangement pending the inter partes hearing. It was intended to replace the first order, which should have been discharged by the second order. Inadvertently, the first order was not discharged. The second order enjoined the defendants, either

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collectively or individually, to retain assets of up to US$383,173,392.00 within this Territory. The application to discharge the freezing orders is one subject of this judgment. [4] The second subject of this judgment is an application that was made by the claimants on 31st December 2003 to lift the stay that was granted by the order of 17th November 2003. The claimants made this application on the ground that on 16th December 2003, they issued proceedings against the defendants in the Arbitration Court in the Irkutsk Region (the Irkutsk Court) of the Russian Federation. They stated that those proceedings mirrored the proceedings that were commenced in this Court. They also said that on 17th December 2003, a Judge of the Irkutsk Court rejected the proceedings on the ground that it did not have any jurisdiction to entertain the case. They stated, therefore, that the case could now only be tried in this Territory. [5] The defendants advanced 4 grounds to support their application to discharge the freezing orders. One ground is that the claimants cross-undertaking as to damages is inadequate. A second ground is that the claimants did not make full and frank disclosure on the ex parte hearing. A third ground is that this Court should not exercise its discretion to maintain the freezing orders since it held that Russia is clearly the more appropriate forum for the trial of the claim. A fourth ground that the claimants advanced was that there was no risk of dissipation of the assets of the defendants at the time that the first freezing order was made, and, in addition, the present circumstances show that there is now no such risk. [6] The application to discharge the freezing order is considered first, and then the application to lift the stay in the proceedings in this Territory. First, however, the factual background to the case will put the applications that are to be considered into proper perspective. (end of page 2) THE FACTUAL BACKGROUND [7] The substantive claim in this case was brought pursuant to Articles 6(2) and (3) of the Law on Joint Stock Companies of Russia, 1996, (the Russian Statute), and Articles 15(2) and 105(5) of the Russian Federation Civil Code. Astian claims damages and an account for the income that the defendants allegedly received or from which they allegedly benefited as a result of alleged guilty actions in relation to a Russian Joint Stock Company, OAO Saratovneftegaz (SNG). [8] SNG is involved in the exploration and production of oil in Russia. IOPS claims the same relief on the said grounds in relation to another Russian company, OAO Saratovsky Refinery (SR), which is involved in the refining of oil. [9] OAO Sidanco (Sidanco) is another Russian Joint Stock Company. It was at the material times a holding company and the parent of SNG, SR, and other Russian companies that are engaged in exploring, producing, refining, marketing and distributing oil. [10] The 3 defendants are registered in this Territory. TNK, the first named defendant, is a holding company within a group of companies referred to as the TNK Group. It is a majority shareholder in Sidanco. At the material times, Alfa Petroleum and OGIP, the second and third named defendants, wholly owned TNK. They established TNK as a joint venture. The claimants, Astian and IOPS, are minority shareholders in SNG and SR, respectively. IOPS is a Seychelles company. When the first freezing order was granted, TNK owned about 57% of the shares in Sidanco, while BP owned 25%. [11] In their claim, the claimants alleged that the defendants, either solely or in conjunction with others, had the opportunity to determine decisions that were adopted by SNG and SR, or they were able to impact those decisions, decisively. The claimants further alleged that the defendants used the opportunity of their decisions that were adopted by SNG and SR, or that impacted the decisions of these 2 companies. They further alleged that these decisions caused SNG and SR to

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undertake guilty actions within Article 6(3) of the (end of page 3) Russian Statute, which caused them (SNG and SR) damage. Interestingly, the guilty actions that are complained of in their claim were those of Sidanco, their parent company. [12] The gravamen of the claim that relates to SNG is that the decisions of Sidanco procured SNG to sell oil to it (Sidanco) at prices that were substantially below market prices. Further, that Sidanco procured SNG to sell oil to it (Sidanco) to be refined in Russia, rather than permit or enable SNG to contract to have oil refined and the resulting oil products sold at market prices on SNGs own behalf. [13] The crux of the claim on behalf of SR is that the defendants, in conjunction with others, procured SR to enter into contract(s) to refine oil supplied to it by Sidanco at prices substantially below market prices. In the alternative, they complained that Sidanco sold the refined oil products for its own benefit or for the benefit of others that are further up in the TNK group structure, rather than permit or enable SR itself to purchase crude oil, refine it and sell the products on its own behalf. THE APPLICATIONS TO DISCHARGE THE FREEZING ORDERS [14] The basic principles that arise on this application will first be outlined. The bases for the challenge by the defendants will then be considered. THE BASIC PRINCIPLES [15] It is trite principle that the Mareva injunction or freezing order is usually made in cases such as this, where there is a pecuniary claim for a debt or damages against a defendant. It is usually made where the defendant has no assets within the jurisdiction, or, if it has assets within the jurisdiction, there is a real risk that those assets will be dissipated or be removed from the jurisdiction. The claimant must have a good and arguable claim. [16] The purpose of a freezing order is to ensure that a fund will be available within the jurisdiction to meet any judgment obtained against a defendant. In nature, it is an interim interlocutory remedy that is designed to prevent a judgment against a defendant for a sum (end of page 4) of money from being a mere brutum fulmen. [See per Lord Diplock in Siskina (owners of cargo lately laden on board) v. Distos Compania Naviera SA [1977] 3 All E.R. 803, at page 822; accepted with approval in Coney Island Caribbean Amusement Inc. v. Good Times Shows Inc. and Others (1984) 37 W.I.R. 79]. [17] The authority of our Courts to grant a freezing order is provided by Part 17.1(1)(j) of the Eastern Caribbean Supreme Court Civil Procedure Rules (the Rules). It provides that the Court may grant interim remedies, including a freezing order, restraining a party from dealing with any of its assets whether located within the jurisdiction or not, or from removing from the jurisdiction assets located there. THE CHALLENGE TO THE FREEZING ORDERS [18] The defendants do not challenge the grant of the freezing order in this case on the ground that the claimants do not have a good and arguable case. It is not my intention to consider at any length the issue whether this Court should discharge the freezing order because it held that Russia is clearly the more appropriate forum for the trial of the claim. This is because this Court has discretion and jurisdiction to continue the freezing order, notwithstanding that the action was stayed on the ground of forum non conveniens. The authority for this is Channel Tunnel Group Ltd. and Another v. Balfour Beatty Construction Ltd. [1993] A.C. 334 and Walsh & Others v. Deloitte and Touche Inc. (Privy Council, 17:12:01). However, in these circumstances, this Court would not unusually continue the freezing order here, unless the claimants give good reasons. This is on the authority of Phonogram Ltd and Another v. Def American Inc (Times Law Reports, 7 October 1994). The onus is on the claimants to demonstrate that the circumstances make it appropriate for this Court to continue the order.

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[19] In the present circumstances, I would perhaps be minded to continue the last order, particularly because a Court in Russia has not yet taken jurisdiction of the claim. I would thereby exercise discretion on the basis of international judicial cooperation, because the defendants reside in this Territory where they have all of their assets and are amenable to the in personam jurisdiction of this Court. This could be done notwithstanding that the (end of page 5) reasons why the Irkutsk Court declined jurisdiction are unclear. The continuation of the order would however depend upon whether other relevant factors make it desirable. [20] Additionally, it is my view that the question of the adequacy or otherwise of the claimants cross-undertakings as to damages need not detain me unduly. The defendants stated that these proceedings, and, in particular, the imposition of the freezing orders, cast a commercial shadow over the joint venture between TNK International and British Petroleum (TNK-BP.). They said that these proceedings also cast a shadow over the value of their commercial undertakings. This, they said, is because the orders reflected on their (the defendants) commercial probity. I note, however, that the joint venture was successfully completed. [21] I was concerned that the claimants were untimely in providing evidence of the value of their cross-undertakings. They have now indicated that the value of their shares in SNG and SR is some US$1.5 million. These are their only assets. At this stage these appear to be adequate to meet any damages that the defendants may have sustained as a result of the grant of the freezing orders. The defendants do not think that they offer sufficient assurance but have not made this a live issue on this application. I shall, however, consider, first, whether the freezing orders should be discharged for material nondisclosure. Second, I shall consider whether they should be discharged on the ground that there is no risk of dissipation of the assets that the defendants hold in this Territory. MATERIAL NON-DISCLOSURE [22] First, the applicable legal principles, including guidelines and the consequences of nondisclosure will be outlined. Second, the case that the defendants advanced to urge this Court to discharge the freezing order on the ground of material nondisclosure will be considered. THE PRINCIPLES [23] It is trite principle that an applicant who seeks a freezing order, without notice, is under a duty to make full and frank disclose of all material facts that touch the case. The applicant (end of page 6) must disclose all such facts that are within its knowledge, as well as facts that would have come to its attention with reasonable diligence or upon reasonable inquiries. The duty is a continuing one. The result is that an applicant must bring any material changes in circumstances that occur after the grant of the freezing order to the attention of the Court. (See Blackstones Civil Practice 2000, at Para. 38.26). However, in considering this issue, the Court should not attempt to resolve complex issues of disputed facts or law. (See Blackstones Civil Practice 2000, under the rubric Interim Injunctions, Para 37.27). [24] The authors of Civil Procedure, Volume 1, Autumn 2002, stated the relevant principles quite succinctly in their commentary on Rule 25.3.5. They stated, at page 508: It is well-established that an applicant who applies for an interim remedy without notice to the respondent is under a duty to investigate the facts and fairly to present the evidence on which he relies. The applicant must disclosure fully to the Court all matters relevant to the application, including all matters, whether of fact or of law which are, or may be, adverse to it. In Memory Corporation Plc v. Sidhu [2000] 1 W.L.R. 1443, CA, Mummery, L.J. said (at page 1459) it is a high duty and requires the applicant to make full, fair and accurate disclosure of material information to the Court and to draw the Courts attention to significant factual, legal and procedural

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aspects of the case. The duty has always been important. [25] The authors also reminded us that the principles were reviewed by Ralph Gibson, L.J. in Brinks-MAT Ltd v. Elcombe [1988] 1 W.L.R. 1350 at 1356; [1988] 3 All E.R. 188 at 192, CA and in Marc Rich & Co. Holding GmbH v. Krasner, January 15, 1999, CA (unrep.). In the Marc Rich case, the English Court of Appeal said that the duty was clearly described by Bingham, J., who enunciated 5 basic principles in Siporex Trade SA v. Comdel Commodities [1986] 2 Lloyds Rep. 428 at 437. They bear repeating here. [26] The principles are, first, that the applicant must show utmost good faith and disclose his case fully and fairly. The second is that the applicant must, for the protection and information of the defendant, summarize his case and the evidence on which it is based in the affidavit that supports the application. The third is that the applicant must identify the crucial points for and against the application, and not rely on general statements and (end of page 7) merely exhibit numerous documents. The fourth is that he must investigate the nature of the claim asserted and the facts relied on and identify any likely defences. The fifth is that the applicant must disclose all facts, which reasonably could or would be taken into account by the judge in deciding whether to grant the application. [27] The duty to disclose is not restricted to matters of fact. In fact, there is no clear distinction between non-disclosure of facts, for which the litigant is responsible, and breaches of the advocates duty to the Court to disclose. These duties often overlap. HELPFUL PROCEDURAL GUIDELINES [28] Guidelines have been provided for proper procedure. They state that it is the particular duty of lawyers to see that the correct procedures and forms are used. Lawyers should also ensure that written skeleton arguments and a properly drafted order are prepared and lodged with the Court before the oral hearing. They should draw the Courts attention to unusual features of the evidence adduced, to the applicable law, and to the formalities that are to be observed. THE CONSEQUENCES OF NON-DISCLOSURE [29] The authors of Civil Procedure 2002 stated, at page 509, that if the duty to disclose is not observed the Court may discharge the injunction. It is no excuse for an applicant to say that he, she or it was not aware of the importance of the matters he omitted to state. The Court may discharge the order even if, after full inquiry, it finds that the order was just and convenient, and it would probably have made it had there been full disclosure. According to the authors, this rule has a two-fold purpose. First, it deprives a wrongdoer of an advantage improperly obtained. The second is that it serves as a deterrent to ensure that a person who makes an application, without notice, realises the importance of the duty to disclose fully. [30] A Court must take all the relevant circumstances into account when it is determining the consequences for the breach of the duty to make full and frank disclosure. The circumstances should include the gravity of the breach. It should also include the excuse or explanation offered, and the severity and duration of the prejudice occasioned to the (end of page 8) defendant. This latter should involve the consideration whether the consequences of the breach were remediable and were in fact remedied. The Court must also bear in mind the overriding objective and the need for proportionately in accordance with Part 1 of the Rules. [31] However, The authors of Civil Procedure, 2002 stated, further, that the discharge of the order is not automatic on a finding of any material non-disclosure. The Court has discretion to discharge the order or not to discharge it. It may also decide to grant fresh injunctive relief if it determines that justice requires it to protect the applicant. The Court should note that, by its very nature, an application without notice usually requires a lawyer to take instructions and prepare drafts and pleadings in some haste. The Court should weigh this against the need to uphold and enforce the duty to

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disclose as a deterrent to those who withhold material facts. In the end, an interim freezing order may be discharged for serious and culpable non-disclosure. THE DEFENDANTS CASE [32] The defendants contended that the claimants did not disclose material facts. They said if the claimants did, the Court would not have granted a freezing order at all. [33] To support this contention, the defendants asserted, first, that the claimants failed to disclose the circumstances in which they purchased their shares in SNG and SR. They said that the claimants must have known the bases on which the companies operated and chose to invest in them. They insisted, in the second place, that the claimants failed to state the price that they paid for the shares. I do not think that this last matter was material. [34] In the third place, the defendants stated that the claimants did not disclose that they purchased their shares through Renaissance Capital, the nominee shareholders. They said that, in fact, Renaissance Capital, the registered shareholder in SNG and SR, is a Russian Investment Bank. The defendants further submitted that the claimants should have disclosed that Renaissance Capital are investment analysts, who would have carried out their own researches before they recommended the shares as an investment. In the (end of page 9) fourth place, the defendants said that the claimants have not revealed who are the beneficial owners of the shares. [35] Fifth, the defendants contended that the claimants did not disclose that one or both of them previously brought proceedings in Russian Courts. In the sixth place, the defendants contended that the claimants did not set out their net financial position. They insisted that this would have informed the Court of the unworthiness or otherwise of the claimants cross-undertakings as to damages. [36] In the seventh place, the defendants asserted that the claimants did not inform the Court that in a letter of claim to British Petroleum (BP) in February 2003, the claimants asserted that BP, not TNK, exercised managerial control over Sidanco. The defendants stated that a fundamental ground for the claim was that TNK exercised control over the management of the companies, and influenced the decisions that occasioned the claimants damage and loss. They insisted that the Court would have realised the inconsistency had the claimants disclosed the letter of claim that they sent to BP. [37] In the eighth place, the defendants stated that inasmuch as the Russian Statute under which the claim was brought protects minority shareholders, the claimants should have disclosed that the proceedings had to be properly constituted. Mr. Boyle, QC, submitted that from this perspective, the defendants were required to join other Russian companies, including Sidanco, SNG and SR, as parties to the action. FINDINGS ON MATERIAL NON-DISCLOSURE [38] It is my view that the claimants could have given disclosure of some of the foregoing facts from the outset. I indicated in my judgment on the forum challenge that it appears that the Russian statutory provisions and the relevant Plenum Resolutions suggest that the claim in this case mimics the derivative action. From this perspective, the Russian companies referred to in the foregoing paragraph should be necessary parties. The claimants and the defendants proffered conflicting expert legal opinions on this issue. This case cannot, in my view, be fairly and properly determined unless Sidanco is joined as a defendant. (end of page 10) [39] I do not think, however, that the non-disclosure of the foregoing facts amounted to serious or culpable non-disclosure. The non-disclosure of the claimants net financial position goes to the question of the adequacy of their cross-undertakings. My views on this are set out above in paragraphs 20 and 21 in this judgment.

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[40] The assertion that BP exercised control over the management decisions, which allegedly caused loss to the claimants, could perhaps present a ground for serious consideration. I think, however, that this would have given rise to such considerations if it were contained in legal proceedings, rather than in a letter that is perhaps preliminary to Suit. In this regard, I note a letter that solicitors for the claimants wrote to the Directors of BP on 21st July 2003. It stated, inter alia, that if it becomes apparent that BP was responsible for the management decisions that caused the alleged loss, BP would be joined in the proceedings. [41] The defendants advanced a ninth ground for discharging the freezing order on the basis of non-disclosure. Mr. Boyle submitted that the claimants did not properly apprise the Court as to the asset structure of the defendants, particularly TNK. He said that this would have revealed the false and speculative nature of the main basis upon which they relied to obtain the freezing order. The main basis was that the assets of the defendants would have been dissipated upon the completion of the TNK-BP joint venture. This ninth ground properly takes us to consider whether the orders should be discharged because there was, or still is, no risk of dissipation of the assets of the defendants. THE RISK OF DISSIPATION OF ASSETS [42] In the first place, the basic principles will be outlined. Second, we consider the ground that the claimants advanced to support their case for the grant and continuation of the freezing order. THE BASIC PRINCIPLES ON RISK OF DISSIPATION [43] Injunctive relief in any form is onerous. It should be granted only where it is absolutely necessary, and on clear and cogent evidence. A Court should not otherwise put the assets (end of page 11) of companies beyond their use, particularly where the funds are substantial and their operations are capital intensive. However, the important watchwords are real risk. [44] Mr. Boyle insisted that an analysis of the reasons and evidence that the claimants advanced to obtain the freezing order did not establish that there was a risk of dissipation of the defendants assets. He adverted to the relevant basic principles that are neatly encapsulated in the judgment of the English Court of Appeal in Ninemia Maritime Corporation v. Trave Schiffahrtgesellschaft m.p.H. UND Co. K.G. (The Niedersachen) [1983] 2 Lloyds Rep. 600. He reminded us that the purpose of a freezing order is to give security for a claim, but not to interfere with the proper conduct of the business of a defendant. [45] In Ninemia Maritime, at page 605, the Court of Appeal re-iterated that a claimant who applies for a freezing order must give some ground for believing that there is a real risk that the assets would be removed before a possible judgment or award is satisfied. The Court said that it is not sufficient for the claimant to assert a risk. Rather, the risk must be demonstrated by solid evidence that shows that a defendant is a likely debt dodger. [46] In Ninemia Maritime, the Court also considered the required evidential standard. It stated, at pages 606607, that it is not necessary for an applicant for a freezing order to give proof of a defendants previous defaults or specific incidents of commercial malpractice. The Court said that an applicant must give sufficient particulars of its case, set out what enquiries were made about the defendants business and what information was revealed. This information should relate to the size of the defendant, its origins, its business domicile, the location of its known assets and the circumstances in which the dispute arose. [47] The Court further stated in Ninemia Maritime, that affidavits that assert belief in, or fear of, likely default have no probative value unless the sources and grounds are properly set out. The Court also said that default is most unlikely if the defendant is a long-established, well-known corporation, or one that has substantial assets in

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countries where judgments are enforceable. (end of page 12) [48] Now in our case, the proceedings were brought against defendants that are registered in this Territory. A freezing order could be granted against their assets here. It was granted. It could be sustained on the ground that there are circumstances that reveal a real risk that they will remove their assets from this Territory or deal with them in a manner that indicates the claimants would not have the fruits of their judgment if they prevail on their claims. [49] As far as the presentation of the evidence is concerned, the Court stated in Ninemia Maritime, at page 607: This evidence may take a number of different forms. It may consist of direct evidence that the defendant has previously acted in a way, which shows that his probity is not to be relied upon. Or the plaintiff may show what type of company the defendant is (where it is incorporated, what are its corporate structure and assets, and so on) so as to raise an inference that the company is not to be relied upon. Or, again, the plaintiff may be able to found his case on the fact that enquiries about the characteristics of the defendant have led to a blank wall. Precisely what form the evidence may take will depend upon the particular circumstances of the case. But the evidence must always be there. THE CLAIMANTS EVIDENCE [50] The claimants evidence raised 2 considerations. The first was their concern with the effect of the impending TNK-BP merger on the assets of the defendants. They said that they thought, and still think, that the merger was intended to denude the defendants of their assets. The second concern flows out of the first. They referred to TNKs actual and reputed past conduct. They alleged that the defendants structured their affairs in the past to defeat the interests of creditors and minority shareholders. I shall consider this last concern briefly. TNKS REPUTED PAST CONDUCT [51] The claimants premised this ground of challenge on allegations, first, that TNK openly admitted that it operated transfer-pricing schemes for the products of SNG and SR, which caused the loss complained of in these proceedings. In paragraph 3 of the 2nd affidavit of Mr. Ioannis Koukos, he suggested that it was implicit in the affidavits of Mr. Bigman that a transfer pricing structure was operational. He further noted a report in a Dow Jones (end of page 13) Newswire. Reportedly, a spokesperson for TNK, Ms. Dracheva, told a reporter for that Newswire that allegations regarding the transfer pricing were true, but that this activity is not illegal in Russia. The claimants said that their concerns were enhanced by convincing evidence that TNK defeated the legitimate interests of creditors and shareholders in the past. They insisted that TNK did this by way of ordered bankruptcies, corrupt practices, and intimidation. [52] The claimants alleged, further, that the involvement of BP in the joint venture affords them little comfort. This, they submitted, is because Solicitors for the claimants did not obtain undertakings that they sought from lawyers for BP concerning the future conduct of TNKBP regarding the scheme. In my view, this is an overly simplified statement of the terms of the letter dated 18 July 2003 that was addressed to Solicitors for the claimants by Linklaters. [53] Ninemia Maritime suggests that evidence of past conduct or reputation does not provide sufficient ground for the grant of a freezing order. It is my view, however, that there may be instances in which such evidence, coupled with other convincing circumstances, could suffice. Even so, the evidence that the claimants provided to support their application on the grounds of the defendants past reputed conduct is not as convincing as the claimants suggested. It is based on untested opinions, and, in many instances, repeated hearsay. It does, however, reflect a basic concern that the joint venture might have occasioned the dissipation of the assets of the defendants. This may be better considered by looking more closely at the joint venture initiative.

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THE JOINT VENTURE (TNKBP LTD.) [54] The claimants brought their application for the freezing order, without notice, out of their concern that the TNK-BP joint venture might denude the defendants of their assets here. The assets are shares that the defendants hold in subsidiaries that operate in Russia. In his affidavit in support of the application for the freezing order, Mr. Koukos provided information of their assets. He valued the TNK shareholding in Sidanco at about US$1.4 billion. He noted that BP was to pay some US$6.75 billion in the TNK-BP merger. He (end of page 14) concluded that, on any view, the assets of the defendant (TNK) are several orders of the magnitude greater than the claim in these proceedings. [55] However, in paragraph 86 of his affidavit, Mr. Koukos stated that on 22 May 2003, TNK International Limited, the wholly owned subsidiary of TNK, produced its consolidated financial results for 2002. The results showed a marked downturn in the sums that the minority shareholders in the TNK International subsidiaries received. He noted that a press release that was simultaneous with the release of the accounts stated that the sum paid to minority shareholders was down from US$288 million in 2001 to less than US$85 million in 2002. The press release stated that the reason for the decrease in the sums paid to minority shareholders was twofold. The first was that it was mostly due to a decrease in earning attributable to minority shareholders. The second reason was that TNK completed a share consolidation in December 2001 that reduced the number of subsidiaries with minority shareholders. [56] Mr. Koukos further stated that the first reason is not particularly clear. In his view, it suggested that the Defendants were operating the sort of transfer pricing in the TNK International subsidiaries that caused loss to SNG and SR. Interestingly, he concluded: Clearly any transfer pricing in TNK International does not give rise to any loss in the proceedings brought by the claimants in these proceedings, but it does suggest a course of conduct by the defendants. [57] In the paragraphs that followed, Mr. Koukos detailed the claimants misgivings concerning the possible effects of the TNK-BP merger on the assets of the defendants. Their misgivings and concerns flowed mainly from statements that were made in February 2003 by Lord Browne, the Chief Executive of BP. Lord Browne reportedly disclosed that BP had reached agreement with Alfa-Access/Remova (AAR) to merge its (BPs) interests in Sidanco and TNK. Alfa and Access are the parent companies of Sidanco and TNK. [58] Reportedly, the proposal was to create a new company, Newco, in which BP would own 50% of the shares. According to Mr. Koukos, Lord Browne said that the transaction was for BP and AAR to combine almost all Russian assets, including Sidanco, TNK and BP (end of page 15) retail in Moscow. Mr. Koukos further stated that the media reported that the deal created TNK-BP, which was apparently the same entity that was referred to prior as Newco. [59] In paragraph 92, Mr. Koukos expressed the claimants uncertainty as to whether the merger would have involved the transfer of the shares and/or the assets of the defendants to Newco. He also expressed their uncertainty as to the internal corporate restructuring of their assets and/or their shares once they were transferred. At the end of the paragraph he stated: I believe that there is a high risk that the Defendants will be left as shell companies with insufficient assets to meet the judgment to which I believe the claimants are entitled. [60] The same concerns were expressed in the paragraphs that followed. In paragraph 96, Mr. Koukos referred to allegations that the defendants and associated companies were involved in the past in practices that denuded subsidiary companies of their assets. In paragraph 97, he stated that these circumstances clearly necessitated the grant of a freezing order. In his view, it was necessary in order to prevent the transfer of the assets of the defendants to third parties as to leave the defendants with insufficient assets to meet the claim in these proceedings.

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ASTIAN GROUP LIMITED ET AL v. TNK INDUSTRIAL HOLDINGS LIMITED E... Page 10 of 15

ASSESSING THE CONTENDING VIEWS ON THE EVIDENCE [61] It is my view that the claimants used their best endeavours to find and put the evidence before the Court. They thought that their concerns were legitimate. They think that they still are. On the other hand, the defendants described the claimants concerns as fanciful. They noted that Lord Browne had also stated that BP and AAR were considering means to protect the assets of all parties to the joint venture without adversely shifting liabilities between them. [62] The defendants provided a clearer view of the structure of the merger in the first affidavit of Mr. Alan Bigman. This was filed in these proceedings on 12th June 2003 for the purposes of the hearing on that date. In that affidavit, Mr. Bigman explained the steps towards the eventual merger. He indicated that the new joint venture vehicle, TNK-BP, is registered in this Territory. It is apparent that Sidanco has now moved under the ownership of TNK (end of page 16) International through which the assets of the joint venture are held. In his submissions, Mr. Boyle echoed the statement by Mr. Bigman that the assets of TNK have in fact increased as a result of the joint venture, and this seems obvious. [63] In response, Mr. Moverely-Smith, QC, submitted that the merger table that Mr. Bigman produced with his third affidavit shows that Alfa is above TNK-BP. The result, he said, is that this does not prevent the dissipation of the assets of Alfa. He admitted that the removal of TNK, the first defendant from the structure, by the distribution of its shares in TNK International to its parent, TNK-BP, does not create a problem in relation to it (TNK), since the latter is a mere holding company. He was of the view, however, that there was nothing to preclude the operation of a transfer pricing scheme that could denude the defendants of their assets. [64] Mr. Moverley-Smith did not accept the submission that Mr. Boyle made, that TNK International had entered into several banking covenants that would restrict its ability to dispose of its assets. Mr. Moverley-Smith insisted that the covenants are ineffective for this purpose because they are readily negotiable. Additionally, he submitted that alternative security could be arranged, and there was nothing in the laws of this Territory to prevent the defendants from transferring their assets out of the Territory. FINDINGS ON THE RISK OF DISSIPATION [65] I agree with Mr. Moverely-Smiths submission that, in these cases, we are concerned with the risk of dissipation. The bases for the application for the freezing order are encapsulated in paragraph 34 of the first affidavit of Mr. Koukos. The claimants were, and still are, mainly concerned that the final TKN-BP merger could have denuded the defendants of their assets. Mere concerns and conjecture do not usually provide sufficient ground for the grant of a freezing order. There will, however, be circumstances in which real and serious concerns may point to a real risk that assets would be removed from a jurisdiction or be otherwise dissipated. [66] The evidence that the claimants provided prior to the grant of the first order seemed to suggest that information relating to the post-merger structure of TNK-BP was not easily (end of page 17) available. It was apparent that the claimants endeavoured to obtain the necessary information regarding the proposed merger of the TNK group and the possible effect on the defendants assets here. The information that they brought suggested that a freezing order was necessary at that stage of the proceedings. It was granted. [67] Mr. Bigmans affidavit that was filed on 12th June 2003 provided evidence that appeared to be sufficient to show that dissipation might not in fact materialise. After the TNK-BP merger, the assets of TNK within this Territory remain substantial. In fact, all indications are that they have increased. I was therefore minded to discharge the freezing orders when the claimants sought leave to adduce further evidence. The defendants consented.

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ASTIAN GROUP LIMITED ET AL v. TNK INDUSTRIAL HOLDINGS LIMITED E... Page 11 of 15

NEW EVIDENCE [68] The claimants disclosed, by way of the fourth affidavit of Ms. Kotesova, that an article (the Article) appeared in the Vedomosti newspaper in Russia on 28th January 2004. They said that it fueled their concerns that without the continued protection of the freezing order the assets that the defendants have in this Territory would be removed. [69] The Article related to an announcement that Mr. German Khan, Executive Director of TNKBP Management, made on 27th January 2004. The Article stated that TNK-BP is considering the transfer of their oil assets to a holding company that is registered in Russia. The claimants think that the Article suggested that restructuring would be done by the liquidation of companies that are within the TNK-BP group. The Article seems to suggest that the proposed restructuring is intended to avoid the threat of further de-privatisation and to avoid problems with tax officials. The underlying proposal is to transfer the profit center of TNK-BP from this Territory to Russia. [70] Mr. Moverley-Smith submitted that the Article confirmed the claimants fears that the structure of TNK-BP was not finalized as the defendants had led this Court to believe during the hearing to discharge the freezing order. He said that the defendants did not inform the Court that changes in the structure were imminent. He drew attention to the explanation that Mr. Khan provided in his affidavit. (end of page 18) [71] Mr. Khan did not deny the accuracy of the statements that were attributed to him in the Article. He took issue with Ms. Kotesovas interpretation of the report. He noted that she stated that his announcement suggested that the TNK-BP group was to be restructured so as to remove its corporate base from this Territory to Russia. He deposed in paragraph 6 of the affidavit, as follows: My statement was confined to the fact that TNK-BP is currently evaluating options for a possible restructuring of its Russian operating companies for corporate management and taxation purposes. These restructuring plans are, in any event, at the stage of very early analysis and have not yet been the subject of any corporate approvals. [72] Mr. Khan further stated that Mr. Bigmans chart of the corporate structure that was brought before the Court at the hearings accurately depicts the corporate structure of the TNK-BP group. He insisted that proposal for restructuring the Russian operating companies would not affect the shareholdings of the defendants TNK and Alfa Petroleum that are registered here. He stated that it would not affect TNK-BPs 100% shareholding in TNK nor TNKs shareholding in TNK International. [73] In paragraph 8, Mr. Khan deposed that all of the entities that are incorporated here would remain intact. He said that they would retain ultimate ownership of all of the assets that they currently own. He stated, further, that although an intermediate Russian holding company might be interposed into the current structure, TNK International would continue to be the holding company for the TNK-BPs Russian operating companies. The suggestion seems to be that even in this scenario all assets that are presently owned by the BVI companies will remain here. [74] The claimants have contended that Mr. Khans statements are wholly at odds. Mr. Moverley-Smith submitted that this Territory is currently the profit center of the TNKBP group because profits are received in the holding companies here by way of dividends on the shares of the companies that are lower in the corporate structure. He submitted that if the profit center is transferred to Russia, the shares that are held here must be transferred to the holding company that is interposed into the structure there. He insisted that the (end of page 19) Article simply confirms the claimants view that the TNK-BP group can readily be restructured, and more, that restructuring is under active consideration. [75] The defendants have insisted, however, that the Article reveals no changes that point to a risk of the removal of the assets of the defendants from the Territory. They

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ASTIAN GROUP LIMITED ET AL v. TNK INDUSTRIAL HOLDINGS LIMITED E... Page 12 of 15

contended that Mr. Khans statement was related only to proposals for the possible restructuring of the Russian companies. They have insisted that the announcement did not suggest that the defendants would cease to be the holding companies for the TNK-BP operating companies. The defendants said that even if the proposals come to fruition, the current structure of the BVI companies would not be affected. They submitted, further, that because of the financial covenants into which they entered with the various financial institutions, they could not practically remove their assets from this Territory. [76] The announcement that Mr. Khan made gives cause for real concern that the assets of the defendants will be removed from this Territory. I agree with Mr. Moverley-Smith that the statement does suggest that the structure of the group is not finally settled and can be changed. It is understandable that the statement holds no comfort for the claimants. It gives me no solace. It raises concerns that, in all of the circumstances of this case, blur the boundaries between concerns that are merely speculative and concerns that point to a risk of dissipation of assets. I do not think, however, that this has crossed into the latter. [77] The result is that I shall still formally discharge the first freezing order that was made, without notice, on 26th May 2003. The order that was made on 12th June 2003 is also discharged. I think, however, that the circumstances require me to exercise the discretion that is given by Part 64.6(2) of the Rules. I therefore make no order as to costs on the proceedings for the discharge of the freezing orders. THE APPLICATION TO LIFT THE STAY [78] It is important to note, first, that the order that granted the stay in the proceedings in this Territory contemplated that another order could be made at the behest of a party. It gave the parties liberty to apply. The claimants application to lift the stay falls within the terms (end of page 20) of that order. This Court could lift the stay if it is satisfied that there are changed circumstances that require that it should be lifted. [79] Mr. Moverley-Smith submitted that changed circumstances arose because the Irkutsk Court declined to take jurisdiction of the claim when the claimants filed it in that Court. He insisted that the decision of this Court to grant the stay was not a final determination on the issue whether Russia is an available forum for the trial of this case. He also submitted that the decision of the Irkutsk Court to decline jurisdiction is new material that shows that the Russian Arbitrazh Court is not an available forum. In his view, the judgment of the Irkutsk Court is definitive evidence that the claim in this case cannot be brought in Russia. [80] Learned counsel for the claimants further submitted that the burden of proof is now therefore on the defendants to satisfy this Court, on a balance of probabilities, that the Russian Arbitrazh Court is an available forum. He cited Spiliada Maritime Corporation v. Consulex Ltd [1987] A.C. 460 as authority for this proposition. He said that this means that the burden of proof of availability remains the same when a claimant applies to lift a stay, where a Court in the alternative forum declined jurisdiction. [81] Additionally, learned Counsel for the claimants submitted that the proceedings in the Irkutsk Court were properly issued and rejected. The result, he said, is that this Court cannot now be satisfied that the Russian Arbitrazh Court is in fact available to the claimants. He insisted that the burden is on the defendants to convince this Court otherwise. [82] Mr. Moverley-Smith also insisted that the defendants have not discharged their evidential burden. They have not produced sufficiently convincing evidence to show that the proceedings were defective or that Russia is an available forum. He noted the conflicts in the evidence that Ms. Kotesova and Mr. Rozenberg provided for the claimants and the defendants, respectively. The conflicts concern the nature of the proceedings in the Irkutsk Court, and the terms and effect of the judgment of that Court. The result, he said, is that the defendants have not satisfied their evidential

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ASTIAN GROUP LIMITED ET AL v. TNK INDUSTRIAL HOLDINGS LIMITED E... Page 13 of 15

burden to prove that the Russian Arbitrazh Court is available to the claimants. (end of page 21) [83] In response, Mr. Boyle submitted that Mr. Moverley-Smith framed his submissions in a manner that raised the notion of issue estoppel. This is on the issue whether the Russian Arbitrazh Court is an available forum. [84] During the course of the hearing I made an observation. It was this: I am not aware of an authority for a principle that after a Court of first instance grants a stay in proceedings on the ground of forum non conveniens, the non-assumption of jurisdiction by a Court of the proposed alternative forum merely requires the relitigation of the issue whether that forum is available, the defendants bearing the burden of proof. I am minded to recall that at the hearing on the forum challenge, the experts on Russian law that both sides presented stated that the Russian Arbitrazh Court was an available forum for the trial. They cited Article 247 of the Commercial Procedure Code of the Russian Federation (the Commercial Procedure Code.) as authority for this. [85] In my view, where claimants institute proceedings in an alternative forum that is available and more convenient for the trial of a claim, if the proposed alternative forum declines jurisdiction, this Court may lift the stay. However, the claimants must first satisfy this Court that they have taken reasonable and proper steps in their attempt to invoke the jurisdiction of the proposed alternative forum. The burden is on them. They must first satisfy this Court that when they filed their claim in the Irkutsk Court in December 2003, they sought properly to invoke the jurisdiction of the Russian Arbitrazh Court. WAS JURISDICTION PROPERLY INVOKED? [86] Mr. Boyle advanced 3 reasons for his assertion that the claimants did not properly invoke the jurisdiction of the Russian Arbitrazh Court. The first was that they did not commence the proceedings in the appropriate venue. The second was that the claimants improperly constituted the claim by not joining the essential parties. The third was that they did nothing to draw the attention of the Irkutsk Court to Article 247 of the Commercial Procedural Code. This Article provides the bases for the jurisdiction of the Russian Arbitrazh Court in claims that involve foreign companies. (end of page 22) [87] It is no mean task to determine whether the Irkutsk Court was the appropriate venue for the institution of the proceedings in Russia. Article 35 of the Commercial Procedure Code provides that a claim shall be filed with an Arbitrazh Court at the location or place of residence of the defendant. In this case, the named defendants are registered in this Territory. The claimants suggested, through a legal opinion that was given by Mr. Alexei Korovkin in January 2004, that since the defendants are holding companies, they do not carry on business in the Russian Federation. They stated, additionally, that they do not have a substantial presence there. However, Mr. Korovkin also said that the TNK Group has a substantial presence in the Irkutsk Region. He said that TNK and BP own and operate OAO Russia Petroleum (RP) in that region. [88] Interestingly, Mr. Korovkin reminded us that SNG and SR are incorporated in the Saratov Region and Sidanco in the Moscow Region. This is an apt juncture at which to consider the defendants contention that the claimants improperly constituted the claim in the Russian proceedings and did not join the necessary parties. THE NECESSARY PARTIES [89] The claimants contended that the Russian Statute and the Commercial Procedure Code do not require them to join SNG and SR in the proceedings. This, they said, is because, as shareholders of SNG and SR, they are permitted to institute proceedings for loss caused to these companies. They insisted that it is not mandatory that they join Sidanco as a defendant notwithstanding that the claim was

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ASTIAN GROUP LIMITED ET AL v. TNK INDUSTRIAL HOLDINGS LIMITED E... Page 14 of 15

bought because of allegedly guilty actions by Sidanco. I have restated my thoughts on the matter of joinder at paragraph 38 foregoing. It is unimaginable that the claims could be resolved satisfactorily without the joinder of these companies as necessary parties. [90] The claimants are aware that Sidanco must be joined as a defendant in this case because it is apparent on the face of the claim that Sidanco was a major actor. The guilty actions of Sidanco are at the fulcrum of the claim. I stated this in the judgment on the forum challenge. If the substantive proceedings continue in this Court I shall certainly join Sidanco as a defendant. I thought that the claimants would have joined that company in any new proceedings. The claimants suggest that it is for the Court to join Sidanco if the (end of page 23) Court thinks it necessary. With respect, I do not agree. Sidanco is a necessary defendant in this case. [91] Mr. Korovkin stated that the Irkutsk Court dismissed the proceedings because it had no jurisdiction. This, he said, was because the 3 Russian companies were not joined as parties. He said, further, that since the proceedings were rejected without mention of their joinder, it is reasonable to assume that the Court did not consider the non-joinder of these entities to be a relevant consideration when it declined jurisdiction. He therefore rejected Mr. Rozenbergs suggestion that the proceedings were rejected because of the nonjoinder. Both Mr. Korovkin and Mr. Rozenberg are in the realm of speculation and conjecture on this issue. It is clear, however, that the issue of joinder was not before the Irkutsk Court. Had the claimants joined Sidanco as a defendant in those proceedings, as I think they should have done, this could have provided a basis for the Arbitrazh Court for Moscow or the Saratov Region to assume jurisdiction in the matter. [92] There is another concern. The claimants filed their claim in the Irkutsk Court on 16th December 2003. A Judge rejected the proceedings on the following day for lack of jurisdiction. The affidavit of Ms. Kotesova that was filed on 31st December 2003 and the legal opinion of Mr. Korovkin attest to the correctness of the decision. However, they have not explained the procedure that led to that result with such dispatch, or at all. [93] It is clear from the decision of the Court, however, that the statement of claim was returned because none of the named defendants are registered in the Irkutsk region. Interestingly, the decision indicates that the order can be appealed. The claimants immediately applied to lift the stay. It is obvious that they will not appeal that decision. There is nothing to indicate whether the defendants have standing to institute an appeal. [94] In my view, the claimants have not satisfied this Court that they took all reasonable steps to invoke the jurisdiction of the Russian Arbitrazh Court. I shall consider briefly, however, the contention by the defendants that even as the claim was improperly constituted, the Arbitrazh Courts are empowered to assume jurisdiction under Article 247 of the (end of page 24) Commercial Procedure Code. They said that the claimants did not call this provision in aid in their proceedings in the Irkutsk Court. ARTICLE 247 OF THE COMMERCIAL PROCEDURE CODE [95] This Article is under the rubric Competence of Commercial Courts in the Russian Federation over Cases Involving Foreign Persons. Section 1 of Article 247 of the Commercial Procedure Code gives competence to a Russian Arbitrazh Court in cases that involve foreign persons in certain circumstances. These include, by virtue of section 1(4) of the Commercial Procedure Code, cases in which damage was caused on the territory of the Russian Federation. I doubt that this provision supports the defendants assertion, because it speaks to damage to property. The parties have not provided a definition for the word property in the Code. It is not clear whether the damage that is complained of in the claim affected the property of the claimants. [96] Section 1(5) of the Commercial Procedure Code provides for the assumption of

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ASTIAN GROUP LIMITED ET AL v. TNK INDUSTRIAL HOLDINGS LIMITED E... Page 15 of 15

jurisdiction, where a dispute arose out of unjust enrichment that takes place in Russia. At first blush, it appears that the claim falls within this provision. I am however mindful that the defendants did not make much of it. [97] Under section 1(10) of the Commercial Procedure Code, the Arbitrazh Court may assume jurisdiction in cases where there is a close connection between the disputed legal relationship and the territory of the Russian Federation. On its face, the claim should fall under this provision. I recall that, in the documents that were presented for the forum challenge, experts on both sides stated that an Arbitrazh Court could take jurisdiction under this provision. None of the parties has satisfactorily explained why the Irkutsk Court declined jurisdiction in the face of this provision. [98] As I stated in paragraph 94, however, the claimants have not satisfied this Court that they took reasonable steps to invoke the jurisdiction of the Russian Arbitrazh Court. The result is that their application to lift the stay in the proceedings here fail and is consequently dismissed. Again, pursuant to Part 64.6(2) of the Rules, I make no order as to costs on the proceedings on the application by the claimants to lift the stay in this Court. (end of page 25) ORDER [99] In summary, the order on the application to discharge the injunction and to lift the stay that was granted in these proceedings is as follows: 1. The freezing order that was granted to the claimants on their application, without notice, on the 26th day of May 2003 and the successor freezing order that was made on the 12th day of June 2003 are both hereby discharged. 2. The application that the claimants made on the 31st day of December 2003 to lift the stay in these proceedings that was issued on the 17th day of November 2003 is dismissed. 3. There is no order as to costs on either the application to discharge the freezing order or the application to lift the stay of the proceedings in this Court that was made on 17th November 2003. 4. The parties have liberty to apply, generally. Hugh A. Rawlins High Court Judge (end of page 26)

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