Key takeaways
Enforcement of awards
Court has policy of recognising and enforcing arbitration awards.
Transactions at an undervalue
Where frustrates enforcement of award in English-seated arbitration, Court will assert jurisdiction.
Marex tort
Strict requirements must be satisfied for successful Marex claim.
In this case, the Commercial Court has asserted jurisdiction over claims by creditors under three arbitral awards that, through a series of restructurings, the defendants had sought to move assets away from the award debtors with the aim of frustrating enforcement of the awards.
The Court found that there was a serious issue to be tried under s.423 of the Insolvency Act 1986, which addresses transactions aimed at defrauding creditors, as well in respect of the unlawful means conspiracy claim.
Whilst the Court found that there was no serious issue to be tried in respect of the Marex tort claim, the decision sheds light on the circumstances in which liability may arise for procuring or inducing non-payment of a judgment debt or arbitral award. For details of another case dealing with the Marex tort, please see our article: Unlawful Asset Dissipation and Babanaft Proviso | Hill Dickinson.
The background facts
In 2007 and 2008, Palmali Holding Company Limited (PHCL) entered into two long-term transportation services agreements (TSAs) with the State Oil Company of the Republic of Azerbaijan (SOCAR). According to the TSAs, Palmali International Holding Company Limited (PIHCL) agreed to transport SOCAR’s crude oil internationally.
The loans
In 2009 and 2013, SOCAR and its subsidiaries (claimants) gave two loans to the Palmali Group of Companies (Palmali), whose founder was Mr Mansimov, an individual domiciled in Turkey.
The loans were as follows:
On 5 October 2009, the fourth claimant, Azerbaijan (ACG) Ltd, provided a loan to PIHCL in the ultimate principal amount of $120 million (AzACG loan). This loan was secured by a guarantee given by PHCL dated 7 October 2009 (PCG). Both the AzACG and the PCG were governed by English law and stipulated that disputes would be settled by arbitration under UNCITRAL Rules in London
On 13 August 2013, the third claimant, SOCAR Overseas Ltd, provided a loan to PIHCL in the principal amount of $30 million (SOS loan). This was also governed by English law, but with a dispute resolution clause for arbitration under LCIA Rules in Dubai.
In 2016, Palmali’s financial position worsened and in addition to the AzACG loan and the SOS loan, it accumulated debts to various banks.
Restructuring
As a result of Palmali’s worsening financial position, SOCAR and Palmali entered into a restructuring agreement in December 2016, by which the TSAs were terminated. This was referred as the Termination and Settlement Deed (T&SD). Mr Mansimov was a party to the T&SD, in which he gave a personal indemnity to SOCAR in the event of a failure or delay by a member of the Palmali Group in complying with obligations under the T&SD. The T&SD was governed by English law and contained an arbitration clause for LMAA arbitration in London.
Palmali’s financial situation did not improve and, in 2017, many of Palmali’s bank lenders issued default notices and sought to repossess vessels over which they held security.
In 2018, Palmali also entered into two restructurings:
In April 2018, PHCL's shareholding in approximately 47 fleet-owning subsidiaries incorporated in Malta was transferred to the third defendant, Gunesli Deniz Tasimaciligi Sanayi Ve Ticaret AS (April 2018 restructuring). The claimants contended that effected the stripping of a significant proportion of PHCL's assets.
In June 2018, the shareholding in the third defendant was transferred from Mr Mansimov and a Mr Victor Hüseyin (who the defendants say was the CEO of Palmali at that time) to the fourth defendant, Palmali Holding AS (June 2018 restructuring). The fourth defendant was, at that time, owned by Mr Mansimov.
Arbitration proceedings
In mid-2018, SOCAR and its subsidiaries commenced three arbitrations against Mr Mansimov, PHCL and PIHCL:
On 18 May 2018, SOCAR (with the second and third claimants) commenced a London-seated LMAA arbitration against PIHCL and Mr Mansimov alleging breaches of the T&SD (T&SD arbitration).
On 6 June 2018, the third claimant commenced a Dubai-seated LCIA arbitration against PIHCL, seeking repayment of the SOS loan (SOS arbitration).
On 20 June 2018, the fourth claimant commenced a London-seated UNCITRAL arbitration against PHCL, seeking repayment of the AzACG Loan by PHCL, pursuant to the PCG (PCG arbitration).
Further restructuring
In February 2020, there was a further restructuring in relation to Palmali by which Mr Mansimov's ownership of the fourth defendant was transferred as to 50% to the fifth defendant, Ms Gasimova, and 50% to the sixth defendant, GMM Investment Ventures Ltd. Mr Mansimov also transferred his shareholding in other Palmali companies to the sixth defendant (2020 restructuring).
It was not disputed that the restructurings took place, or that the transfers were made for no or nominal consideration. However, the defendants contended that that they were legitimate measures which took place in circumstances where Palmali continued to be subject to financial pressures, including bank enforcement actions.
The defendants further contended that criminal proceedings against Mr Mansimov in Turkey had made it necessary to transfer Palmali's legal ownership away from Mr Mansimov.
Arbitration awards
Awards were issued in the three arbitrations during the end of 2020 and early 2021, all in the claimants’ favour. A total amount of around US$240 million was awarded, plus interest and costs. Apart from a minimal amount of costs, no amounts were paid by the defendants under the awards.
SOCAR sought unsuccessfully to recognise and enforce the awards in Turkey, Malta and Azerbaijan. Therefore, in June 2025, SOCAR and its subsidiaries commenced proceedings in the English Court.
The English Court claims
The claimants brought:
A claim under s.423 of the Insolvency Act 1986
A claim for the Marex tort for knowingly inducing or procuring non-payment of the arbitration awards and
A claim in unlawful means conspiracy based on (i) and (ii) above.
At the same time, the claimants sought and obtained leave to enforce the three arbitration awards as though they were judgments. The claimants also obtained asset disclosure orders against Mr Mansimov, PHCL and PIHCL.
Proceedings were served on the defendants out of the jurisdiction, with the Court’s permission. The defendants sought to have service on them set aside.
In deciding whether to uphold or to set aside service on the defendants out of the jurisdiction, the Court had to consider whether there was a serious issue to be tried on the merits of the claims; and whether there was a good arguable case that the claims fell within one of the jurisdictional gateways set out in the Civil Procedure Rules.
The Commercial Court decision
S.423 claim
The Court found, on the evidence, that the claimants had a real prospect of arguing successfully that the transactions were at an undervalue.
There was also clearly at least a serious issue to be tried that the restructurings were made for the purpose of putting assets beyond the reach of the claimants or otherwise prejudicing the interests of the claimants in relation to a claim or potential claim.
The Court further found that the s.423 claim had sufficient connection with the jurisdiction because it was likely the restructurings had been made for the purpose of frustrating the enforcement of awards likely to be made in English-seated arbitrations.
The conspiracy claim based on the acts constituting the s.423 claim, therefore, also succeeded.
Marex tort
The Court agreed with the defendants that the essential ingredient for the Marex tort, namely a judgment or award pre-dating the restructuring, was missing.
Even assuming that the Marex tort applied to arbitration awards as much as it applied to judgments, it would require there to be an award in place (or imminent in terms the defendants were aware of) at the time of the conduct alleged to constitute the procurement or inducement of breach of the award. This was because other elements of the tort included that the defendants must know about the judgment and must realise that the conduct it is inducing or procuring would breach the rights owed under the judgment (or award).
Automatically, therefore, the conspiracy claim based on the acts said to constitute the Marex tort failed.
Appropriate forum
The Court found England was the most appropriate forum to bring the claim because:
The restructurings were aimed at frustrating the enforcement of English arbitration awards.
There were English court orders that the awards be enforced in the form of English judgments.
The underlying contracts were governed by English law.
The s.423 claim was a claim under an English statute and governed by English law.
These factors were given greater weight by the Court than the fact that the restructurings did not take place in England, that none of the parties were located in England and that Palmali was managed from Turkey. That was not unusual in this type of international litigation.
Comment
The decision highlights the English Court’s policy of supporting arbitration and recognising and enforcing arbitration awards. It also demonstrates that the parties’ choice of English law and English-seated arbitration will be key considerations when the Court is deciding jurisdiction and appropriate forum issues.
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