Aveng (Africa) Ltd v Gabonese Republic & Anor

On an application to vary a freezing order, the question is whether there is a good arguable case that the judgment debtor retains a proprietary interest in funds transferred to a paying agent. Under New York law, the issue depends on the parties’ intended rights and obligations, construed from the governing agreement as a whole. An express provision that funds are held in trust for payment to noteholders may establish a trust even where the agreement does not require full segregation. Segregation is an indicium of intention, not an essential precondition. The court should distinguish cases concerned with commingled funds and the interests of third-party creditors in bankruptcy.

Aveng, a judgment creditor of the Government of Gabon, obtained a freezing order against Gabon. The order applied to money and bank accounts held by Gabon with Citibank NA’s London branch. Citibank applied to vary the order so that it could pay interest due on Gabon’s notes from funds transferred to it under a fiscal agency agreement.

The agreement was governed by New York law. It stated that funds held by the paying agent for payment of principal and interest on the notes were to be held in trust and applied for that purpose. The central issue was whether Gabon retained a proprietary interest in the funds at the interlocutory stage.

1. Application granted. The freezing order was varied because there was no good arguable case that Gabon retained a proprietary interest in the funds transferred to Citibank for payment to noteholders.
2. The question whether a trust arose depended on the intention of Gabon and Citibank, assessed by reference to the rights and obligations created by the fiscal agency agreement as a whole.
3. Section 9(b) of the agreement was unambiguous. Its wording plainly provided that funds held for payment of principal and interest on the notes were to be held in trust and applied under the agreement and the notes. The surrounding provisions did not create an ambiguity.
4. The absence of a contractual obligation to segregate the funds was an indicium of intention, but was not a necessary precondition to the creation of a trust. The funds were in any event held separately from Citibank’s own funds in an omnibus ledger for note and bond payments.
5. Petrohawk Energy Corp v Law Debenture Trust Company of New York was materially relevant. The cases concerning commingled funds and bankruptcy, including In re Ames Department Store and In re Black & Geddes, were distinguishable because they involved the interests of third-party creditors and materially different arrangements.

The judgment records an earlier freezing order made by Teare J on 31 May 2012. This was a first-instance determination of Citibank’s application to vary that order.