Kensington International Ltd. v Republic of the Congo

A court may look behind corporate structures and transactions where they are sham arrangements created dishonestly to conceal the true position and defeat existing creditors’ rights. Separate legal personality remains fundamental and cannot be disregarded merely because justice appears to require it. The relevant inquiry is whether the entities and documents have genuine legal substance, whether they were used as a façade or device, and whether the purpose was to evade existing liabilities. Entities controlled by a state and performing its functions may be treated as part of that state. On the facts, the intermediate companies and purported sales were sham transactions designed to conceal a sale by the Congolese state. The buyer’s debt was therefore treated as owed to the state and attached by third-party debt orders.

Kensington held four unsatisfied judgments against the Republic of the Congo. It sought final third-party debt orders over the purchase price payable by Glencore for Congolese oil sold through Cotrade, AOGC and Sphynx Bermuda. The central issue was whether the apparent contractual chain represented genuine transactions and whether the debt to Sphynx Bermuda was in reality owed to the Congo for the purposes of CPR 72.

Kensington also sought orders over bank accounts held by Sphynx Bermuda and Sphynx UK. The court considered the status of SNPC and Cotrade, the control exercised by Mr Gokana, the alleged sham transactions, and the provenance of the funds in the bank accounts.

1. Corporate personality and state entities. Separate corporate personality must be respected. However, whether an entity is part of a state depends on governmental control and governmental functions, assessed from all the evidence. SNPC was controlled by the Congo, performed governmental functions and had no separate existence from the State. Cotrade, its controlled subsidiary and trading arm, had the same character.
2. Sham and façade. Transactions or structures may be examined according to their legal substance where they are devices, masks or façades created with a common intention to give the appearance of rights and obligations which the parties did not genuinely intend to create. Dishonesty and impropriety were material to the analysis.
3. Application to the cargo. The sale from Sphynx Bermuda to Glencore was genuine. The purported sales between Cotrade and AOGC and between AOGC and Sphynx Bermuda were not genuine arm’s-length transactions. They were cosmetic documents designed to conceal a sale by Cotrade, part of the Congolese State, to Glencore. AOGC and Sphynx Bermuda were used as façades and ciphers for the Congo’s activities.
4. Existing liabilities. The structure was created and operated to prevent the Congo’s creditors attaching its oil or sale proceeds in enforcement of existing judgments. That purpose, together with the sham transactions and Mr Gokana’s control, justified looking behind the companies and recognising the debt as owed to the Congo.
5. Orders. The interim third-party debt orders over the Glencore debt were made final. Glencore would be discharged by paying Kensington under CPR 72.9. The application concerning the HSBC accounts was adjourned for further submissions and ultimately the interim orders were not made final, because Kensington had not established that the funds belonged to the Congo rather than representing authorised remuneration or funds available to the companies’ creditors.

First-instance decision. No appellate history is stated in the judgment.