Cayman Island Court Rejects ArcelorMittal Plea For Worldwide Freeze On Essar Steel Parent
In a setback to Lakshmi Mittal’s ArcelorMittal SA, 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, for recovering a $1.5 billion arbitration award.
ArcelorMittal has mounted legal battles against the Ruia family in multiple countries in an effort to enforce a $1.5 billion U.S. arbitration award it had won in Dec. 2017 on an Essar Steel Minnesota’s terminated iron-ore pellets supply contract to ArcelorMittal USA LLC.
But Essar Steel, which had assumed the liabilities of the U.S. contract, has said it could not pay. It now has less than $ 2.5 million in assets. ArcelorMittal is in the process of acquiring Essar Steel to enter India’s steel market but, in a recent development, the Supreme Court of India put the acquisition on hold.
To seek enforcement of the award, ArcelorMittal moved courts in Britain, Mauritius, and the Cayman Island seeking a 'Garnishee Order Absolute' and a 'Freezing Injunction and Asset Disclosure Award' against Essar Global Fund Ltd.
In a 30-page order issued on July 2, Justice Ian RC Kawaley declined the Garnishee Summons and the modified Freezing Order with the liberty to apply, according to the order copy reviewed by PTI. ArcelorMittal did not reply to an email seeking comment.
A garnishee order is a common form of enforcing a judgment debt against a creditor to recover money. Simply put, 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 ArcelorMittal USA'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 sitting in Minnesota that ArcelorMittal USA obtained against Essar Steel, a subsidiary of Essar Global Fund Ltd., in Dec. 2017. ArcelorMittal USA has no direct claims against Essar Global Fund, but it claims that Essar Steel has certain receivables from Essar Global Fund. Essar Steel itself is under administration in Mauritius.
The arbitral award was granted ex-parte after Essar Steel 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, ArcelorMittal USA 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. However, the court declined to give the reliefs sought by ArcelorMittal USA. 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 Essar Global Fund joined the proceedings and told the court that any attempts by ArcelorMttal USA to execute a garnishee order against Essar Global Fund were debarred by a subordination deed entered into in October 2016 between Essar Global Fund, Essar Steel, and VTB.
According to VTB, the bank has a security interest over substantially all of the assets of the Essar Group.
Essar Global Fund argued before the court in the Cayman Islands that the English court was wrong to draw adverse inferences and ArcelorMittal USA's legal actions were driven by a fierce commercial rivalry.
VTB on its part argued the existence of the debt relied upon by ArcelorMittal USA was doubtful. It said the operations of Essar Global Fund's subsidiaries would be adversely affected by a worldwide freezing order against it.
The Cayman Court in its order observed that “ArcelorMittal USA is seeking to attach by way of execution a subordinated debt allegedly owed by Essar Global Fund to Essar Steel.”
“I accordingly find that assuming for present purposes the Subordination Deed to be valid, its legal effect is that (1) Essar Steel cannot sue to recover any inter-company debt owed to it by Essar Global Fund, (2) ArcelorMittal USA cannot stand in a better position than Essar Steel, and (3) as a result a Garnishee Order is not legally available,” the order said.
The judge also refused a worldwide freezing order on Essar Steel, on the basis that Essar Steel is already in administration and therefore the risk of dissipation of assets in the given circumstances seemed low and therefore a freezing order is simply disproportionate and unnecessary.
“It is essentially common ground that the existence of the debt (that ArcelorMittal USA claims Essar Global Fund owes to Essar Steel) is sufficiently controversial to make it impossible for ArcelorMittal USA to seek more than directions on its Garnishee Summons,” it said. “It seems clear that ArcelorMittal USA's case is far from straight forward.”
Corrects earlier version which incorrectly referred to VTB as VTB Mauritius.