Integral Petroleum SA v Petrogat FZE & Anor

Factual and Procedural Background

This opinion concerns an application by the Claimant ("Integral") to commit the Second and Third Third Parties to prison for contempt of court arising from breaches of injunction orders related to an underlying commercial dispute involving the sale of oil. Integral entered into a contract with the First Defendant ("Petrogat") for the purchase of Medium Sulphur Fuel Oil ("MSFO") and Low Sulphur Fuel Oil ("LSFO"), with the Second Defendant ("San Trade") providing guarantees for Petrogat's obligations. Difficulties arose regarding the delivery and payment for cargo, leading to disputes over title and the diversion of cargo to Iran contrary to contractual and court orders.

The Defendants instructed the Railways Ministry in Turkmenistan to amend bills of lading to redirect cargo to Iran, allegedly without Integral's consent. Integral obtained an injunction ("the Morgan Injunction") prohibiting delivery of the cargo to Iran and requiring the Defendants to sign a letter (Schedule C Letter) acknowledging certain facts and confirming the cargo must not be sent to Iran. The Defendants failed to comply with the injunction and did not sign the letter within the deadline. The injunction was later varied by His Honour Judge Waksman QC ("the Waksman Injunction") with a renewed requirement to sign the letter forthwith, which was again delayed.

Integral applied for committal of certain Third Parties for contempt of court due to breaches of these injunctions. The application was issued on 30 April 2018, with subsequent procedural directions and delays in evidence service. The Third Parties sought to strike out the committal application on grounds of abuse of process and insufficient particularisation of alleged contempt acts. The court heard evidence from multiple witnesses, including cross-examinations, and considered the involvement and knowledge of the Third Parties as de facto directors of the Defendants.

Legal Issues Presented

1. Whether the Second and Third Third Parties committed contempt of court by breaching the Morgan and Waksman Injunctions, specifically by failing to sign the Schedule C Letter by the deadlines and by taking steps to divert cargo to Iran in breach of the injunctions.
2. Whether the committal application should be struck out as an abuse of process, on the basis that it was used improperly as leverage to obtain a settlement.
3. Whether the committal application sufficiently particularised the alleged acts of contempt as required by CPR 81.10(3).
4. Whether the mental element required for contempt was established against the Third Parties as de facto directors responsible for the Defendants' breaches.
5. The appropriate approach to assessing contempt allegations and the burden and standard of proof applicable in committal proceedings.

Arguments of the Parties

Appellant's (Integral's) Arguments

• Integral contended that the Second and Third Third Parties, as de facto directors, deliberately breached clear and unambiguous court orders by failing to sign the Schedule C Letter within the stipulated deadlines and by actively facilitating the diversion of cargo to Iran.
• Integral rejected the Defendants' explanation that the cargo diversion was the result of independent actions by Turkmen authorities, asserting that the Defendants took active steps after the injunctions were in place.
• Integral maintained that the committal application was properly brought to enforce compliance with court orders and not used as leverage for settlement.
• Integral argued that the application notice and attached draft order sufficiently particularised the alleged contempt acts, and that any defects did not cause prejudice to the Third Parties.

Respondents' (Third Parties') Arguments

• The Third Parties contended that the committal application was an abuse of process, improperly used as a threat to extract a more favourable settlement from them.
• They argued that the application notice failed to specify the full grounds of contempt with adequate particularity as required by CPR 81.10(3), rendering the application defective.
• They challenged Integral's evidence, including disputing the existence of a forged letter purportedly authorising diversion of cargo.
• They asserted that the Defendants' actions in relation to the cargo diversion occurred before the injunction and that no positive steps were taken after the Morgan Injunction to breach it.
• They relied on legal advice that questioned the validity of the Morgan Injunction due to alleged lack of authority of Integral's solicitor.
• They argued that the timing of when the injunction came to the attention of certain Third Parties precluded liability for breach.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by setting out the factual matrix, emphasizing the contractual background and the sequence of events leading to the injunctions and alleged breaches. It carefully reviewed the terms of the Morgan and Waksman Injunctions, noting their prohibitory nature and the requirement to sign the Schedule C Letter by specified deadlines.

The court applied established legal principles governing committal for contempt, including the burden of proof resting on the applicant, the criminal standard of proof, and the need for clear, unambiguous orders. It acknowledged the heightened caution needed when relying on circumstantial or secondary evidence.

On the abuse of process argument, the court examined the timing and context of settlement communications, finding that Integral’s conduct did not amount to an improper purpose or gross abuse. The settlement offers were made in the ordinary course of litigation, and the committal application was pursued for a proper purpose of enforcing compliance.

Regarding particularisation, the court found that while the application notice was somewhat general in alleging that the Third Parties "caused and/or enabled and/or permitted" shipment to Iran, the attached draft order provided sufficient particulars to avoid prejudice. The court exercised discretion to allow amendment to cure procedural defects.

In assessing the evidence, the court scrutinized witness testimonies, including inconsistencies in the evidence of Integral’s representative in Turkmenistan and the conduct and explanations of the Third Parties. It found Ms Sanchouli’s evidence required caution due to evasiveness and prepared answers, but found Mr Sonnenberg credible and not pursued for contempt.

The court accepted that Ms and Mr Sanchouli were de facto directors responsible for the Defendants and that they knew of the injunctions. It found that Ms Sanchouli was aware of the Morgan Injunction early on the day of compliance and deliberately chose not to sign the Schedule C Letter by the deadline, relying on disputed legal advice and objections to the letter’s content. The refusal to sign was deliberate and constituted contempt.

The court distinguished between prohibitory and mandatory injunctions, concluding that the Morgan Injunction’s prohibitory terms did not require positive steps to stop cargo already en route, and thus found no contempt in failing to take positive steps to interrupt shipment. However, it found that the instructions given by Ms Sanchouli to Ms Lobis to re-route part of the cargo after the injunction amounted to active breaches.

Ms Sanchouli’s delay in signing the amended Schedule C Letter after the Waksman Injunction was also found to be a deliberate breach, with excuses rejected as insufficient given the urgency and available means to comply.

Regarding Mr Sanchouli, the court accepted his evidence that he was unaware of the Morgan Injunction before the compliance deadline but found he was aware shortly thereafter and supported the breaches. It drew adverse inferences from his failure to attend cross-examination and found him liable for contempt on grounds similar to those of Ms Sanchouli.

Overall, the court concluded that the breaches were deliberate, occurred within a limited timeframe, and involved attempts to pre-judge the commercial dispute contrary to court orders. The court reserved sentencing for later submissions.

Holding and Implications

The court held that the application for committal for contempt against the Second and Third Third Parties was well-founded in respect of the following breaches:

• Failure to sign the Schedule C Letter required by the Morgan Injunction by the specified deadline.
• Taking steps to direct cargo to Iran in breach of the Morgan Injunction.
• Failure to sign the amended Schedule C Letter forthwith as required by the Waksman Injunction.

The committal application was not struck out on grounds of abuse of process or insufficient particularisation.

The court found no improper purpose in bringing the committal application and rejected the contention that it was used as leverage for settlement. The findings establish that de facto directors can be held liable for deliberate breaches of court orders made against their companies.

The direct effect is that the Second and Third Third Parties face committal proceedings for contempt, with sentencing to follow. No new legal precedent was established beyond affirming existing principles on contempt, directors’ liability, and procedural requirements.