Companies

Cayman court refuses global freeze on Essar GF

PTI Cayman Islands/New Delhi | Updated on July 25, 2019 Published on July 25, 2019

file photo   -  AFP

Big setback for ArcelorMittal in attempts to enforce $1.5-b US arbitration award

In a setback for ArcelorMittal, the Grand Court of Cayman Island has declined its plea for a ‘Garnishee Order’ and a ‘Freezing Injunction’ against Essar Global Fund Ltd, the parent firm of Essar Group of companies, to recover a $1.5 billion arbitration award.

ArcelorMittal has mounted legal battles against the Ruia family in multiple countries in an effort to enforce the arbitration award it had won in December 2017 on an Essar Steel Minnesota terminated iron-ore pellet supply contract to ArcelorMittal USA LLC (AMUSA).

But Essar Steel Ltd, which had assumed the liabilities of the US contract, has said it could not pay. It now has less than USD 2.5 million in assets.

To seek enforcement of the award, ArcelorMittal moved courts in Britain, Mauritius, and the Cayman Islands seeking a ‘Garnishee Order Absolute’ and a ‘Freezing Injunction and Asset Disclosure Award’ against Essar Global Fund Ltd (EGFL).

Justice Ian RC Kawaley, in a 30-page order issued on July 2, declined the garnishee summons and the modified freezing order with the liberty to apply, according to the order copy reviewed by PTI.

“The application was not refused. The court merely adjourned the application for the garnishee order and the freezing injunction given a connection to ongoing proceedings in Mauritius relating to debts owed by Essar Global Fund Ltd to Essar Steel Ltd,” a spokesperson of ArcelorMittal said.

A garnishee order is a common form of enforcing a judgment debt against a creditor to recover money. Put simply, the court directs a third-party that owes money to the judgement debtor to instead pay the judgement creditor. The third-party is called a garnishee.

A Garnishee Order Absolute prevents the garnishee from making repayment of the debt owed to the judgement debtor.

The Cayman Island Court ruled that AMUSA’s case is far from straightforward and the existence of the alleged debt on the basis of which it had approached the Court is “sufficiently controversial“.

At the heart of the legal dispute is an arbitration award from an ICC Arbitration Tribunal in Minnesota that AMUSA obtained against Essar Steel Ltd, a subsidiary of EGFL, in December 2017. AMUSA has no direct claims against EGFL. But it claims that ESL has receivables from EGFL. ESL itself is under administration in Mauritius.

The arbitral award was granted ex-parte after ESL had withdrawn from the arbitration procedure on the basis of legal advice it had received.

A week before the court hearing in the Cayman Islands, AMUSA dropped its plea of seeking a substantive Garnishee order and instead sought a contested hearing on the question of whether or not it was entitled to relief. It also amended its plea of seeking a Freezing Injunction and amended the relief sought to a far less intrusive form of an injunction.

Russian hand

However, the Court declined to give the relief sought by AMUSA. Its applications for directions for the hearing of its Garnishee Summons and for a modified Freezing order were adjourned. The Court reached this conclusion after VTB, a Russian Bank which has lent credit to EGFL joined the proceedings and told the court that any attempts by AMUSA to execute a garnishee order against EGFL were debarred by a Subordination Deed inked in October 2016 by EGFL, ESL, and VTB.

According to VTB, the bank has a security interest over substantially all of the assets of the Essar Group. EGFL argued before the court in the Cayman Islands that the English Court was wrong to draw adverse inferences and AMUSA’s legal actions were driven by a fierce commercial rivalry.

VTB on its part argued the existence of the debt relied upon by AMUSA was doubtful. It said the operations of EGFL’s subsidiaries would be adversely affected by a worldwide freezing order against it.

The Cayman Court in its order observed that “AMUSA is seeking to attach by way of execution a subordinated debt allegedly owed by EGFL to ESL.”

“I accordingly find that assuming for present purposes the Subordination Deed to be valid, its legal effect is that (1) ESL cannot sue to recover any inter-company debt owed to it by EGFL, (2) AMUSA cannot stand in a better position than ESL, and (3) as a result a Garnishee Order is not legally available,” the order said.

The judge also refused a worldwide freezing order on ESL.

Published on July 25, 2019
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