Ardila v ENRC: equitable assignment; set-off; anti-suit injunctions and more


Reference:
Ardila Investments v ENRC [2015] EWHC 1667 (Comm); [2015] 2 BCLC 560

Date:
11th June 2015

Court:
Commercial Court

Comment:

Facts:

In 2010 ENRC purchased an iron ore mine in Brazil from Ardila pursuant to a Share Purchase Agreement. The SPA provided for ENRC to make payments to Ardila upon the grant of certain licences by the Brazilian federal environmental regulator which were required for the operation of the mine. Ardila brought proceedings in the Commercial Court seeking payment of US$220 million from ENRC on the basis that the relevant licences had been granted and the payment had been triggered under the SPA. ENRC defended the proceedings and alleged that the licences had been granted improperly.  

On 11 June 2015 Simon J handed down judgment on six interim applications brought by the parties.

 

Comment:

Four elements of Simon J’s judgment are particularly notable:

  • The Judge refused ENRC’s strike-out application which was brought on the basis that Ardila had assigned all of its rights under the SPA to Royal Bank of Canada (“RBC”) under a Deed of Assignment. A few days before the hearing of the application RBC had consented to be joined to the proceedings on the basis that it was the equitable assignee of the rights under the SPA. The Judge agreed that the effect of the Deed of Assignment was to assign Ardila’s rights under the SPA to RBC in equity; that the equitable assignee must be joined as co-claimant to any claim by the assignor; and that the equitable assignee cannot be a ‘passive’ party to the litigation. In doing so, the Judge followed the reasoning of the majority of the Court of Appeal in Three Rivers v Bank of England [1996] Q.B. 292.
  • The Judge granted ENRC’s summary judgment application on its counterclaim for repayment of a US$65 million loan. In doing so, the Judge held that the loan agreement excluded Ardila’s right to set off its claims under the SPA against ENRC’s entitlement to be repaid the US$65 million loan. The Judge did not address the point, canvassed extensively in argument, that Ardila could not rely on set-off because it did not have an equitable interest in the claims under the SPA and equitable set-off requires mutuality of beneficial interest in the claim and counterclaim.
  • Anticipating an order that it repay the US$65 million loan without a right of set off, Ardila had obtained an order from the courts of Curacao attaching its own debt owed to ENRC as purported security for its claim against ENRC. The judge described this as a “vexatious interference with the due process of the court”: the attachment order had been sought specifically to frustrate enforcement of any order ENRC might obtain on its summary judgment application. The Judge ordered Ardila to procure the release of the attachment in default of which its claim would be stayed. The decision is a useful example of the way in which the anti-suit injunction jurisdiction can be exercised to protect proceedings in England from parties seeking tactical advantage from collateral proceedings in foreign jurisdictions. There are obvious parallels with the decision of the Privy Council in Stichting Shell v Krys [2015] 2 W.L.R. 289 in which Shell was ordered to release attachment orders it had obtained over bank accounts of a company in liquidation in circumstances in which the attachment orders gave Shell an unfair advantage over other creditors in the liquidation.
  • The Judge granted ENRC’s security for costs application and in doing so examined the so-called ‘Crabtree’ principle as to whether security should be ordered where the same issues arise on both the claim and counterclaim (BJ Crabtree v GPT Communication Systems (1990) 59 BLR 43). The Judge found that he could either order both sides to pay security for costs or make no order against either side. The Judge decided to make an order, but as Ardila had not made an application for security he could only make an order in ENRC’s favour. The judgment is important for litigants who oppose a security for costs application on the basis of the Crabtree principle: failure to issue a cross-application for security may result in a one-sided order for security even if there is a substantial overlap between the claim and counterclaim.

 

Christopher Lloyd appeared as junior counsel to ENRC, led by Stephen Smith QC and Tim Akkouh.



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