Introduction
On 30 August 2024, the English court handed down a judgment declaring Mr Sergiy Groza and Mr Voloymyr Naumenko (the "Defendants") to have committed Contempt of Court by failing to comply with a previous Order of the English court. The Contempt of Court judgment was obtained by Madison Pacific Trust Limited ("Madison Pacific"), represented by Hogan Lovells, and followed on from a Worldwide Freezing Order ("WFO") granted by the English court in January 2023 against the Defendants. The WFO supports ongoing LCIA arbitration proceedings brought by Madison Pacific against the Defendants to recover unpaid secured debt.
This judgment of the English court demonstrates that parties who choose to resolve disputes via arbitration seated in London may also engage the coercive powers of the English court to obtain effective interim relief against recalcitrant parties, whilst also enjoying the benefits of arbitration – such as confidentiality, neutrality and comparative ease of enforcement of arbitration awards – as the mechanism for resolving the underlying dispute.
Background
The Defendants are the founders of G.N. Terminal Enterprises Limited ("GNT"), the Cyprus-incorporated holding company of a Ukrainian import-export business. In 2019, GNT borrowed approximately USD 75 million from two investment funds managed by Argentem Creek Partners (the "Lenders") under the terms of a Facility Agreement, with Madison Pacific acting as Facility Agent and International Security Trustee. The debt is supported by a comprehensive package of security, including Suretyship Deeds pursuant to which each of the Defendants agreed to act as personal sureties in respect of GNT's borrowing. The Suretyship Deeds contain London-seated LCIA arbitration clauses.
After a series of defaults, including a failure to pay all sums outstanding under the Facility Agreement on the final maturity date, Madison Pacific and the Lenders commenced enforcement steps in December 2022.
Prior to commencing LCIA arbitration against the Defendants under the Suretyship Deeds to recover the outstanding principal and interest (which currently stands at approximately USD 150 million), in January 2023, Madison Pacific successfully obtained the WFO to prevent the Defendants from dissipating their assets. This was necessary to ensure that there would be assets available to satisfy any arbitration award issued in Madison Pacific's favour. The WFO was upheld (following an unsuccessful application by the Defendants to set it aside) by Mr Justice Jacobs in February 2024. Jacobs J held in his judgment dated 8 February 2024 that the evidence of a real risk of the Defendants dissipating their assets was "as strong as any that I have ever seen".
Under the WFO, as is typical, the Defendants were ordered to disclose information regarding their assets to Madison Pacific. The disclosure provided by the Defendants was deficient. As a result, Madison Pacific applied to the English court for, and in April 2024 was granted, a Disclosure Order to enforce compliance with the standard form disclosure obligations in the WFO. The Defendants were given until 13 May 2024 to comply with the Disclosure Order. When they failed to do so, Madison Pacific applied to the English court for an order that the Defendants were in contempt of court due to their deliberate non-compliance with and breach of the Disclosure Order (the "Contempt Application").
Hearing of the Contempt Application
The Contempt Application was heard by Mr Justice Bryan on 30 August 2024. In his detailed and comprehensive judgment, Mr Justice Bryan considered each of the requirements in relation to contempt, and concluded to the criminal standard (i.e. beyond all reasonable doubt) that (1) the Defendants were aware of the Disclosure Order and knew of its terms, (2) the Defendants acted, or failed to act, in a manner which involved breach of the Disclosure Order, and (3) the Defendants knew the facts which made their conduct a breach. He therefore declared that the Defendants have each committed a Contempt of Court by failing to obey the Disclosure Order. Sentencing of the Defendants will take place on 4 October 2024.
Meanwhile, the LCIA arbitration against the Defendants under the Suretyship Deeds has been continuing in parallel and the final award is expected in the coming weeks.
Key takeaways
This latest success for Madison Pacific again shows that the English courts are prepared to exercise their substantial coercive powers against recalcitrant parties in support of London-seated arbitrations.
This judgment provides comfort to Lenders and Security Trustees involved in complex financing transactions that London-seated arbitration remains an effective choice for resolving disputes with borrowers and/or security providers.
Providing for London-seated arbitration in their transaction documents allows Lenders and Security Trustees to take advantage of the benefits of arbitration. These benefits include relative ease of enforcement of arbitral awards (under the New York Convention), confidentiality, neutrality, and flexibility (such as party nomination of arbitrators and the ability to adapt the procedure to best suit the circumstances of the case). It also allows stakeholders to utilise the robust coercive powers of the English courts to freeze assets and – crucially – to police and sanction non-compliance. Those powers include the ability to apply for defendants to be cross-examined about their assets or to declare that they are in contempt of court (which may result in imprisonment).
The Hogan Lovells team representing Madison Pacific in the English court proceedings and the underlying arbitration includes: Kit Johnson, Axel Delaud, Isobel Bull and Brenda Rweyemamu (Corporate Trustee team), Oliver Humphrey, James Wise, Danny Knowles and Ingy Badawy (Corporate Litigation, Fraud and Investigations team), Ben Hornan, Annabel Maltby, Elvis Zhang and Dara Lipovac (International Arbitration team).
The Hogan Lovells team advising the Lenders on enforcement steps includes: Alex Kay, Jonathan Morris and Betty Yang (Restructuring and Special Situations team).
Authored by Ben Hornan, Annabel Maltby, and Elvis Zhang.
