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Sovereign debtor held accountable

A recent decision by the High Court of England and Wales has further strengthened the position of creditors seeking to recover moneys owed by defaulting sovereign debtors. In Kensington International Limited v Republic of the Congo [2005] EWHC 2684 (Comm), the Court held that private creditors of the Republic of Congo could enforce their judgments in England against assets of numerous entities that it held to be emanations of the Congolese state.

The plaintiff, Kensington, obtained four judgments against the Congo in 2002/2003 for sums due under loan and credit agreements. In April 2005, it obtained interim third-party debt orders in respect of each judgment, together with supporting injunctions relating to two consignments of Congolese oil that were bought by an English company, Glencore Energy UK Limited, from an entity called Sphynx Bermuda. Sphynx had, in turn, bought the oil from an entity called AOGC, which itself bought the oil from CoTrade (which was wholly owned by SNPC). Kensington sought to intercept the purchase price payable by Glencore (about $39 million) to satisfy its judgments against the Congo.

The issue was whether the debt due from Glencore is owed, or should be treated as owed, to the Congo for the purpose of CPR 72 and the enforcement of judgments by third-party debt orders. Kensington maintained that Sphynx Bermuda/AOGC were sham devices concealing the truth that the Congo would receive Glencore's money. It urged the Court to treat Glencore's debt to Sphynx Bermuda as owed to the Congo. Sphynx and AOGC argued that they were private oil trading companies.

The Court found in favour of Kensington, holding that SNPC and CoTrade were indeed part of the Congolese state, not existing separate from it. On the evidence, it found that the scheme was embarked upon to evade the effect of court seizures of SNPC's assets by passing the sale of oil through a series of sham companies. The structure deliberately sought to conceal any connection between the companies and the state. The only real transaction was found to be between Glencore and Sphynx. So the interim third-party debt orders against all third parties were made final. Glencore's invoice liability would be performed by making payment of the purchase price to Kensington, the judgment creditor, in accordance with the orders and provisions of CPR 72.9.

Peter Griffin and Devashish Krishan

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