Concept Oil Services Ltd v En-Gin Group L & Ors

Key legal principles and grounds for decision:

• The claimant's deceit claim succeeded: the judge found that continuing representations by Mr Kontsevoy that the English parent company (EG UK) owned the refinery and that the corporate structure would not change were relied upon by the claimant and became false when the group structure was altered; the defendant knowingly failed to correct those representations and made further positive false representations.
• The elements of deceit (representation, falsity, dishonest making and reliance) were established and damages were awarded for losses incurred after the representations became untrue.
• The defendants were also held liable for unlawful means conspiracy: the court concluded that the defendants acted pursuant to a common design to remove assets from the reach of the claimant.
• The purported continuation of the English company into Anguilla was ineffective as against English law (the law of incorporation), rendering the transfer a nullity; a resulting trust and declarations were awarded and the court exercised its powers under section 423 (and 425) of the Insolvency Act 1986 to unwind the transactions.
• Rescission of the Tax Loan Agreement was granted in respect of payments induced by misrepresentation, and interest was awarded on the damages.

Background and parties:

The claimant (Concept Oil Services Limited), a Hong Kong company, purchased refined oil from EG UK under a Framework Agreement and subsequent addenda. EG UK was said to be the English parent of a group owning a Kazakh refinery. The claimant advanced substantial prepayments and a tax loan relying on representations by Mr Kontsevoy about the corporate structure and the ownership of the refinery.

Nature of the claims and procedural posture:

• The claimant pleaded deceit against Mr Kontsevoy, Mr Buratov and EG Anguilla and conspiracy against most defendants, seeking damages, declarations that certain transfers were void, rescission of the Tax Loan Agreement and relief under sections 423 and 425 of the Insolvency Act 1986.
• Following defendants' failure to pursue jurisdictional challenges and their non-attendance at trial, the court proceeded to a full trial on the merits under its inherent jurisdiction.

Issues framed by the court:

1. Whether representations by Mr Kontsevoy were continuing and became false such as to ground deceit;
2. Whether Mr Kontsevoy (and Mr Buratov) acted dishonestly and whether others were party to a common design giving rise to conspiracy;
3. Whether the purported continuation of EG UK into an Anguillan entity was effective as a matter of English law;
4. Whether the impugned transfers constituted transactions defrauding creditors under section 423 and, if so, what relief should be granted; and
5. Whether the Tax Loan Agreement should be rescinded.

Court's reasoning and conclusions:

The judge found that representations about EG UK owning the refinery and the promise that the structure would not be changed were made and relied upon by the claimant. Those representations were continuing in nature and became untrue after the transfer and restructurings from September 2009 onwards. Mr Kontsevoy persisted in using EG UK's name and stamp, made further false statements (including at a meeting with BNP in October 2010), and deliberately failed to inform the claimant of structural changes; his conduct was dishonest and induced the claimant to advance further monies. Mr Buratov was found to have participated in a common design with Mr Kontsevoy and so was also liable.

On the point of the Anguillan "continuation", the court applied conflict of laws principles and held that the validity of the purported continuation is governed by the law of incorporation (English law) and that, as against English law, the continuation was ineffective; the purported transfer was therefore a nullity, giving rise to a presumed resulting trust back to EG UK and enabling declaratory and vesting relief.

The court exercised its discretion under section 423 (and related provisions) to set aside the undervalue transfers and granted declarations, vesting orders and consequential relief. The Tax Loan Agreement was rescinded and the payment under it ordered returned. Damages and interest were awarded in the total sums found to be lost.

Claim succeeded. The court found that (i) Mr Kontsevoy knowingly made and failed to correct continuing and later positive misrepresentations about the group structure, establishing deceit, (ii) Mr Buratov participated in a common design so as to be jointly liable for deceit, (iii) the defendants acted in unlawful means conspiracy to put assets beyond the claimant's reach, (iv) the purported continuation of EG UK into Anguilla was ineffective as against English law and the transfer was a nullity, and (v) the transactions were capable of being set aside under section 423 of the Insolvency Act 1986. The judge therefore awarded damages, interest, rescission of the Tax Loan Agreement, declarations and vesting/other orders under section 423 and 425.