Mr Justice Jack:
Introduction
- This is a claim for sums totalling US$3,473,337.00, which are alleged to be due to the claimant from the defendant under an agreement dated 30 November 1999, referred to as 'the representation agreement'. The defendant denies that the agreement is an enforceable agreement and counterclaims for $9,424,836 being the total of sums previously paid by it under the agreement. There are further claims to which I will come in due course.
- The claim relates to an industrial complex at Fria in Guinea, West Africa. The complex comprises a bauxite mine and a refinery which processes the bauxite into alumina, and ancillary facilities. I will refer to it simply as 'the refinery'. Alumina from the refinery is exported from Guinea for conversion to aluminium in smelters elsewhere. This export provides a major contribution to the economy of Guinea and the refinery is an important employer. In 1958 a long term concession agreement was entered into between a company named Friguia, whereby for present purposes it is enough to say that Friguia became the long-term leaseholder and effectively the owner of the refinery. In 1997 Friguia was owned as to 49% by the Government of Guinea and as to 51% by Frialco, a joint venture made up of a number of substantial international companies involved in aluminium. There was a dispute between Frialco and the Government. The refinery was in poor condition and Frialco were unwilling to provide further investment. The consequence was that in about June 1998 Frialco gave up its interest to the Government for US$1. It was intended that Frialco cease to have any involvement in January 1999. The Government assumed the totality of Friguia's debts. A new entity was needed with the ability to manage the refinery and to invest in it. There was some urgency in the situation.
- In 1998 the Government instructed Warburg Dillon Reed ('Warburgs') to conduct a process leading to the privatisation of the refinery. By early 1999, if not earlier, it was clear the privatisation scheme was not going to succeed.
- Meanwhile an alternative scheme was under consideration. The originators of this scheme were three men, Mr Karim Karjian, Mr Safwat Safwat and Mr Jack Nounou. The claimant company, Tekron Resources was incorporated on 29 October 1998 in the British Virgin Islands as their vehicle in relation to this scheme. They had succeeded in interesting the American company, Reynolds Metal Company, in the refinery. Reynolds was then the third largest aluminium producer in the world. It has since been taken over. They developed the concept of a lease and management arrangement for a period of years, later agreed as 25. They acted as intermediaries between Reynolds and the Government of Guinea, representing Reynolds.
- The outcome was that on 30 November 1999 an agreement was entered into in New York between Friguia, Alumina Company of Guinea Limited, ('ACG'), the Republic of Guinea and Reynolds Metals Company. It was titled 'Lease-Management and Concession Agreement'. I will refer to it as 'the lease-management agreement'. Under it ACG took over the refinery for 25 years. The shareholders in ACG were as to 75%, the defendants, Guinea Investment Company, ('GIC'), as to 15% the Republic of Guinea, and as to 10%, Reynolds Metal Company. ACG was a company incorporated in the Marshall Islands for the purpose of the lease-management agreement. GIC was incorporated in the Cayman Islands. Its shareholders were individuals and companies. They included Mr Randolph Reynolds and Mr Charles Hardy, who were executives of Reynolds Metals, and also Greek shipping interests. The lease-management agreement is governed by French law and contains a provision for arbitration in Geneva.
- There was also a management agreement between ACG and GIC entered into on 1 March 2000 whereby GIC undertook defined off-shore management services for ACG in relation to the refinery. As consideration GIC were to receive 8% of the annual net sales of ACG.
- I should mention that an agreement had previously been entered into between Reynolds Metals Company and GIC on 16 July 1999, whereby Reynolds agreed to provide technical services at the refinery for 10 years. This agreement was required by the Government of Guinea because it wished to be assured that the expertise of Reynolds would be available.
- Lastly there was the representation agreement which is now sued on, made between Tekron and GIC on 30 November 1999, where GIC became obliged to pay substantial sums to Tekron for its services as I will set out in more detail subsequently.
- On the basis of the evidence that I have heard, the operation of the refinery under these various agreements was successful. Capital has been provided, the facilities have been improved, and the production has increased. In broad terms it has been good for the investors and for Guinea. GIC made the payments to Tekron, for which the representation agreement provided, and which are now counterclaimed.
- On 22 December 2002 the substantial Russian aluminium company, RusAl, purchased the shareholding in GIC and the shares were vested in a holding company for RusAl. At the same time the 10% held by Reynolds Metal Company in ACG was also transferred to GIC. This left RusAl in control of ACG subject to the Government's 15%. Following its purchase RusAl determined that it was not going to honour the representation agreement made between GIC and Tekron. The result was the commencement of this action by Tekron on 18 February 2003.
The terms of the representation agreement
- The preamble of the representation agreement refers to an earlier memorandum dated 17 September 1999 setting out terms agreed between GIC and Tekron, which is attached to the Agreement as schedule 2. Clause 1.1 defines 'services' as 'Those services provided by Tekron in return for consideration, more particularly detailed in Clauses 2 and 3'.
- Clause 2.1 provides:
2.1 In consideration of Tekron developing and procuring the execution and performance of the Lease-Management Agreement GIC shall pay to Tekron: -
2.1.1 upon signature of the Lease-Management Agreement, the Deposit [US$400,000];
2.1.2 within 30 days of the Closing of the Lease-Management Agreement...a sum equal to the Initial Fee [$4,000,000] less the Deposit;
2.1.3 the Carrying Fee in respect of each tonne of alumina produced by ACG ...
The Initial Fee is defined by clause 1.1 as 'a brokerage, financial facilitator and finders fee of US$4,000,000'. The Carrying Fee is to be calculated as set out in Schedule 2. It varies between 0% and 3% of 12% of an average London Metal Exchange price, depending on the level of the price.
- Clause 3 provides for Tekron to be paid a fee of 3 per cent of the total project budget contingent upon Tekron procuring all necessary approvals and arranging acceptable non-recourse financing to ACG in connection with the expansion of the capacity of Friguia foreseen by clause 6.11 of the lease-management agreement. This financing for expansion has not come about.
- Clause 4 is headed 'Duties of Tekron' and provides:
4.1 Tekron shall at all times during the term of this Agreement at its own expense:
4.1.1 assist GIC in maintaining good commercial and political relations with the government of Guinea and all regulatory authorities in Guinea;
4.1.2 generally promote the interests of GIC in Guinea;
4.1.3 in all matters act loyally and faithfully towards GIC;
4.1.4 not without the prior written consent of GIC
(a) bind GIC and/or ACG to any contract......
(b) ..........
(c) ...........
4.1.5 not act in any way which may bring GIC and/or ACG into disrepute
- Clause 5.1 provides that the agreement shall be deemed to have been executed on the Effective Date - 17 September 1999 and shall be effective from that date. Clause 5.2 provides that its duration shall be that of the lease-management agreement - 25 years together with any extension. Clause 5.3 provides that, if the lease-management agreement is validly determined earlier, the representation agreement shall also be determined. Clause 5 provides inter alia that the provisions and subject matter of the agreement shall be kept secret. Clause 13.1 provides that the agreement shall be governed by, and construed in accordance with, English law. Clause 13.2 gives exclusive jurisdiction to the courts of England.
- By an addendum to the representation agreement dated 27 January 2000 it was agreed:
During the term of the Representation Agreement, neither GIC nor Tekron nor any person acting for or on their behalf will offer, pay or agree to pay, directly or indirectly, any consideration of any nature whatsoever to any official, agent, or employee of any government or any department, agency or instrumentality of any government to influence the act, decision or omission of any such official, agent, employee, political party official or candidate in his or its official capacity in connection with the performance of the services or the directing of business to any person.
This was required by the American lawyers of Reynolds.
- The representation agreement itself was drawn up between two well-known firms of solicitors in London, Paisners for GIC and Lawrence Graham for Tekron.
- The sum claimed by Tekron as carrying fees under the representation agreement for the period of 6 months ending with the due date of 31 December 2002 is $1,895,217. That would give an annual figure of $3.78 million. It is said on behalf of GIC that the total fees contemplated by the agreement would at the present rate amount to about $90 million. In November 2002 Tekron obtained a valuation of its interest under the agreement with the possibility in mind that, if RusAl took over GIC, as part of that process Tekron might be bought out. The conclusion in the valuation was that there was a 90% probability that the value of the carrying fee was $29.2m or more, and an 80% probability that it was $40.3m or more.
- On any view the payments provided for by the representation agreement are very large. Some may find it objectionable on moral grounds that such large sums should be earned, effectively by three individuals, for services such as provided here, in particular in the context of the impoverished state of Guinea. That is not something with which this court is concerned. The size of the figures is, however, a reason for the court to look with especial care at the purpose of the agreement.
The defence
- I will set out the paragraphs in the amended defence and counterclaim which put forward the defence. I do so in part because it is a defence which, so far as citations during the hearing show, has not previously been considered in any reported case in either English or Guinean or French law (which Guinean law follows).
13. As particularised below, the Claimant asserts that through the exercise of the influence of Mr Safwat and Mr Karjian on Guinea government officials, the Guinea Government was persuaded to grant the [lease-management agreement] to ACG (for the benefit of the Defendant as 85% shareholder in ACG). ...
17. In the course of meetings between RusAl and Reynolds, and RusAl, Safwat and Karjian, RusAl has discovered that Messrs Safwat and Karjian have had in the past, and continue to have, considerable influence in Guinea and with the Government of Guinea. Prior to disclosure and further information the best particulars the defendant can give are as follows:
17.1 Messrs Safwat and Karjian and Tekron have had a very good relationship with the Ministry of Mines and other departments of the Guinean Government.
17.2 Messrs Safwat and Karjian had, at the time of negotiation and signing of the [lease-management agreement] very close links with the then Minister of Mines, Mr Fassine Fofana. Mr Fofana was dismissed from office in January 2000.
17.3 Messrs Safwat and Karjian also have or had links with Mr Fofana's successor at the Ministry of Mines, Mr Ibrahima Soumah, who has also been replaced.
17.4 Before the signing of the [lease-management agreement], Messrs Safwat and Karjian had explained to the Former Shareholders of GIC (before acquisition by RusAl) that they had a lot of influence in Guinea. The Former Shareholders understood from their discussions with Messrs Safwat and Karjian that if Messrs Safwat and Karjian were not engaged on a representation basis then their influence might just as likely to be used against GIC.
17.5 Messrs Safwat and Karjian did exercise that influence in order to persuade the Guinean government to deal with GIC
17.6 The extent of the influence appears from ... [letters dated 26 February and 14 March 2003 from Mr Karjian to the Minister of Mines, a letter from Tekron's Guinean lawyer dated 27 March 2003 to the Guinean national Committee charged with investigating matters of corruption, and the statement of Messrs Safwat and Karjian at a meeting with RusAl in London on 10 December 2002 that they had a special relationship with the Guinean Government].
20. [At the meeting on 10 December 2002] Messrs Safwat and Karjian explained that they had a "special relationship" with the Government of Guinea and were very well connected with members of the Government. They said that they had facilitated negotiations between GIC and the government in order to secure the [lease-management agreement].
25. [As amended] The Representation Agreement was an agreement whereby Tekron agreed to use its influence and/or relationship with officials and/or the government to procure a benefit in obtaining for GIC an interest in the long term bauxite concessions in the Republic of Guinea and to continue to exercise that influence and/or relationship in favour of GIC for the duration of the [lease-management agreement] in consideration of fees.
26. The Representation Agreement is unenforceable and void as being illegal and/or contrary to public policy under English law.
27. ... the Representation Agreement ... is also illegal by the law of Guinea and/or contrary to the public policy of Guinea and thereby void and unenforceable in the Courts of this country, in that:
27.1 The procuring of official and or governmental influence in exchange for payment is in contravention of Article 195 of the Guinean criminal law and contrary to the public policy of Guinea.
27.2,3 .....
- The first issue in the case set out in the opening written submissions prepared by Mr Joe Smouha Q.C. on behalf of GIC was whether the monies payable under the representation agreement were reward for Tekron for using the access it had through Messrs Karjian Safwat and Nounou to persons of influence to procure a benefit from the Government of Guinea, namely, I add, the benefit provided to GIC by the lease-management agreement. The extent to which this may be true, and the manner in which it may be true, is the primary issue of fact which I have to determine. When that task is performed, I have to determine whether the representation agreement is therefore unenforceable either as contrary to public policy under English law or as contrary to Guinean law, as those laws may be applicable.
- It is important to have in mind what is not alleged. It is not alleged that there was any corruption in the sense that any payment or any other form of benefit was offered to any government official. Although the alleged dismissal of Mr Fofana as Minister of Mines is pleaded, it is not alleged that this was connected to his dealings with Tekron. The position is the same with the replacement of Mr Ibrahima Soumah. Those allegations are irrelevant. Second, it is not alleged that this is a case of the use of influence to procure a contract by simply informing the Minister and his officials that ACG and GIC were Tekron's preferred candidates. The present case is wholly different from those where a person is able to obtain a benefit for his client simply by reason of his high position, or his friendship or blood relationship with a person having authority with regard to the benefit, and by indicating his preference It is accepted that there were long negotiations with the Government, which led to the lease-management agreement, in which Tekron represented first Reynolds and later Reynolds and others who became shareholders in GIC. What is alleged is that through Mr Karjian and Mr Safwat Tekron had 'influence' with the Government, which 'influence' arose from their earlier dealings with the Government. In his oral submissions Mr Smouha put it in this way:
'The relevant principle can be formulated ... as that a person should not agree with a third party that he will be paid ... by the third party to use the relationship which he has with a government official to try to obtain a benefit for that third party. ...it is not a question of corruption in the bribery sense. One is talking of influence and the payment for its exercise. By 'influence' ... I make it clear that I mean influence in a non-pejorative sense, ...that is the ability to affect the mind or action of someone because of a previous relationship, either personal or professional.' [Day 1, pages 63 and 64]
- It is alleged that, because of the existence of that 'influence', under English law it was contrary to public policy, and under Guinean law it was contrary to Article 195, for Tekron to take part in those negotiations. Tekron's activities on behalf of GIC and ACG after the signing of the lease-management agreement are alleged to be similarly tainted.
- It is not alleged that the 'influence' which Mr Karjian and Mr Safwat had was other than that which will commonly arise in commercial situations between people who deal with each other and which will often encompass degrees of trust, confidence and respect.
- In his cross-examination Mr Smouha spent some time trying to demonstrate that Tekron did not always act as it should have done as the agent of Reynolds in the negotiations. He suggested that on occasions Tekron had taken a position as adviser to the government and on occasions had been more concerned to advance the deal than to secure Reynolds' interests in the deal. If Tekron did not perform its duty as agent appropriately, then it was in breach of contract with its principals. Mr Smouha did not assert that any findings to that effect would provide a defence to the claim against his clients. He asserted that, in so far as this had occurred, it showed the dangers of the position taken up by Tekron, which, he submitted, supported the need for such conduct to be contrary to public policy.
The involvement of Mr Karjian, Mr Safwat and Mr Nounou in Guinea, and the negotiation of the lease-management agreement
- I heard evidence on behalf of Tekron from Mr Karjian, Mr Safwat and Mr Nounou. I heard evidence on behalf of GIC from Mr Andrei Raikov and Mr Pavel Ovchinnikov. They are senior executives of RusAl. Mr Ovchinnikov is finance director of ACG. They could not speak of their own knowledge of the role played by Tekron, because they had no involvement for most of the period. I did not hear any evidence from Reynolds Metals or from any of the initial shareholders in GIC, nor have any documents been obtained from them. I did not hear any evidence from Warburgs, nor had any documents been obtained from Warburgs. The position was the same as regards the Government of Guinea. Evidence was given by Mr Raikov as to what Mr Reynolds had said to him. This was done without objection although no Civil Evidence Act notice had been served.
- The documents in the case are dated between September 1997 and June 2003. They occupy 19 files and consist of 7587 pages. Those up to 26 January 2000 number 3266 pages. Of the 7587 pages, perhaps some 500 were referred to at the trial. By far the greater part of this documentation has come from the disclosure of Tekron. I mention these figures to give an idea of the volume of paper which was generated both before and after the lease-management agreement was entered into.
- I do not think that it is necessary for me to set out the history of negotiations in detail. What is necessary is for me to provide a sufficient description to show the role played by Tekron and its three principals.
- Mr Karjian has a degree in economics from the American University in Beirut and diplomas from the University of Geneva and from the Sorbonne. He has been involved in projects in West Africa for 10 years. Mr Safwat has a degree in commerce and economics from McGill University in Canada. He has worked intermittently in Africa throughout his career, and has worked there specifically with Mr Karjian over the last 10 years. Mr Nounou's statement is silent as to his university education save that it was in North America, but he gives his age, 58, and I would not say that Mr Karjian and Mr Safwat were far apart from him there. The first part of Mr Nounou's career was spent in Iran and his family is known to that of Mr Safwat. He has spent the last 30 years of his business career in developing projects in emerging countries. In 1993 he joined the Trans-World Group to undertake the development of project opportunities. This exposed him to most of the producers and technology providers in the world-wide aluminium industry, including their top personnel. In the last 10 years he has been involved in a number of large development projects in the aluminium industry. He had worked with Mr Randolph Reynolds and Mr Chuck Hardy of Reynolds Metals, two men who later were particularly involved in the lease -management agreement negotiations. It seems that in early 1997 he ceased to be a part of the Trans-World group, though a connection continued for a while.
- In June 1996 Mr Karjian was introduced by a director of the International Finance Corporation, the IFC, the private sector arm of the World Bank, to Mr Fassine Fofana, the Guinean Minister for Natural Resources and Energy ('the Minister'), at a meeting held for that purpose in London. Mr Fofana was interested by Mr Karjian's experience in West Africa. He said that he was keen to attract foreign investment to the Guinean mining sector - gold, diamonds, iron and bauxite. He said that Guinea had one alumina refinery which it wished to develop, and that it wished to develop further refineries. He also referred to Guinea's hydro-electric potential. Mr Fofana invited Mr Karjian to study such projects.
- Following this, sometimes through a company, Karalco Resources Limited owned by Mr Safwat and himself, Mr Karjian and Mr Safwat studied various possibilities. They were in touch with officials from the Ministry for Mines, geology and the Environment, ('the Ministry'). Mr. Karjian referred in this part of his evidence to three projects, none of which in fact proceeded. First, through another company he and Mr Safwat were granted a gold mining permit in May 1998. They discussed investment with a number of established mining companies, but nothing came of it. Second, in 1997 he worked on a project for the building of an aluminium smelter in Oman to be supplied with alumina from Guinea. To that end he made his first visit to Guinea in October 1997 with an Omani delegation. A Memorandum of Understanding was signed on about 31 October 1997. This project has not proceeded because of delays in building the smelter in Oman, and because of events concerning Friguia, the only source of alumina in Guinea. Third, in late 1997 and in early 1998 he and Mr Safwat organised meetings in London between the Minister and prospective investors in the refinery at Fria who included Kobe Steel, Marubeni, Woralco and Trans-World - the last two being London based aluminium traders. There were two objects: to interest the companies in long-term contracts for the purchase of production from Friguia, and to interest them in investment in Friguia.
- There was never any thought that Mr Karjian and Mr Safwat, or their companies would be paid by the Guinean Government for what they were doing. The Government knew that, in one manner or another, they would be rewarded from the project by the investors whom they brought in. Mr Karjian said in cross-examination: I used to tell the Guineans, 'We are not the Red Cross. We do not do things for free'." I accept that throughout their dealings with the Government it was understood by the Government that, if a project went ahead, they would be remunerated by arrangement with the investors they brought into the project. The Government was not concerned with form or amount of that remuneration. This was the position in respect of these projects which did not materialise. It was the position in respect of the project which resulted in the lease-management agreement."
- In relation to the three projects which came to nothing Mr Karjian and Mr Safwat dealt in part with the Minister, Mr Fofana. Their relationship was not social, but a business relationship. As a result they had 'a measure of access and credibility' - a quotation from Mr Karjian's statement. It is this which is asserted to make their involvement in the negotiation of the lease-management contrary to English public policy and contrary to Guinean law.
- GIC further relied on the facts that Mr Karjian in particular could speak to the Minister, and had his home telephone number and his mobile telephone number. Mr Karjian had said that he would always call the Minister's office first if it was open. He also stated that the Ministry was not like a British Ministry in that it was quite small. He said that the Minister had a close involvement with the future of the refinery. He said to the effect that in a West African state like Guinea, there was nothing unusual in this. I have no reason not to accept his evidence on these points.
- I have already mentioned the difficult situation in which the Government of Guinea found itself when it became the sole owner of Friguia in 1998. The refinery needed investment to rehabilitate the plant, there was outstanding debt of $80 million, and there was a shortfall of orders. The expression was used in evidence that the refinery was bleeding. There was a possibility that it would have to be shut down. I am satisfied that the Minister had a heavy responsibility to try and find a means where new investors could be found and the refinery kept in production and improved.
- In anticipation of becoming sole owner the Government decided in the summer of 1997 to privatise Friguia. In October 1997 Warburgs were instructed to commence the process in January 1998.
- Meanwhile Mr Karjian and Mr Safwat were organising the meetings in late 1997 and early 1998 which I have mentioned, relating to the third project. It is unclear how the investment possibility being considered at these meetings would have tied in with the privatisation. This was not investigated at the trial. Trans-World was interested both in the possibility of a long-term purchase agreement and in investment. According to Mr Karjian a meeting was organised between Trans-World and the Minister on 6 March 1998, and at a subsequent meeting on 14 May 1998 between Trans-World and Mr Karjian and Mr Safwat, Mr Karjian was introduced to Mr Nounou for the first time. Mr Safwat already knew Mr Nounou. According to Mr Nounou he first met Mr Karjian at a meeting in Paris attended by the Minister in April 1998. These differences were not investigated and, seem of no importance. Mr Nounou had been asked by Trans-World to prepare a technical and financial proposal for the expansion of production at the Fria refinery. This was confirmed by Trans-World in a letter to the Minister dated 22 May 1998. Karalco organised a meeting between Trans-World and Warburgs on 12 June. The subsequent outcome was that Trans-World decided that the figures involved in the privatisation together with the then low price of alumina meant that the proposal was not financially viable.
- Mr Nounou's statement is not clear as to the order of the next events. He refers to a meeting with the TFC in Paris at the beginning of August 1998, which was also attended by Mr Safwat, at which the potential involvement of Trans-World in the refinery was discussed. It appears that the IFC considered that, if they were to provide finance, Trans-World would require a partner in the investment who was a world class alumina producer as opposed to a trader. Travelling back from Paris with Mr Safwat, Mr Nounou came up with the idea of a Build Operate and Transfer structure (a BOT) for the refinery, as something which could work for the Government and for an operator. It appears that by this point the real interest of Trans-World in involvement with the refinery itself had gone for two reasons: first the figures involved in the privatisation were unfavourable; second, they would have needed a producer as a partner. On the other hand Trans-World continued to be interested in the refinery's production. In November 1998 a contract was entered into whereby Trans-World purchased 200,000mt alumina for delivery in 1999. This corresponded to 40% of the refinery's production. Mr Karjian, Mr Safwat and Mr Nounou acted as agents for Trans-world. This success raised their esteem in the eyes of the Guinean Government. They later brokered a similar transaction in July 1999 for 200,000mt of the production of the refinery in 2000.
- During August 1998 Mr Nounou had discussions with Reynolds Metals Company, in particular with Mr Randolph Reynolds, Mr Charles Hardy and Larry Hawkins. It was Mr Nounou's view that Reynolds, a leading producer with the highest technical qualifications, could operate and develop the refinery. On 18 September Mr Reynolds wrote to Mr Nounou setting out his interest and saying: 'If the results [of a due diligence operation] are positive, we will work closely with your group in organising a structure...'. He asked to be informed of the Government's response. On 30 September Mr Safwat wrote to the Minister referring to a dinner which Mr Karjian, Mr Safwat and Mr Nounou had had with him. On 2 October Mr Nounou and Mr Karjian wrote to Mr Ziad Hafez of the IFC referring to their meeting in the summer, apparently that at the beginning of August. In the letter they outlined the scheme on which they were working and enclosed a copy of Reynolds' letter of 18 September. They referred to a meeting the next week with Mr Hafez and the Minister. On 6 October Mr Nounou sent to the Minister a two page proposal from Reynolds, which stated that Reynolds would lead a consortium with Intec Engineering Corporation (Mr Nounou's company) and Karalco Resources. The proposal set out briefly what the consortium would do in connection with the refinery. The meeting with the Minister and Mr Hafez took place in the United States on 8 October. On 16 October the Minister wrote to Mr Nounou stating that the Ministry was in agreement with Reynolds' proposal. He wished to have conclusive discussions with the consortium including Karalco and Intec as quickly as possible - time was of the essence he said. Arrangements were then made for a team from Reynolds to visit Guinea to carry out a due diligence investigation. This occurred in November.
- This is a convenient point to set out a passage from the cross-examination of Mr Safwat. It goes directly to the issue in the case.
"Q. ..... you are absolutely and completely rejecting any suggestion that you did anything improper?
A. Yes.
Q. But you do say that you were paid to facilitate the bringing into force of the LMA?
A. Yes.
Q. And that involved using your relationship with Minister Fofana to persuade him of the benefits of the LMA?
A. No
Q. Did it involve persuading the Minister of the benefits of the LMA?
A. It involved explaining to the Government our concept and getting their point of view before we approached a foreign investor to implement this concept or look at it further.
Q. Did it involve persuading the Minister of the benefits of the LMA?
A. I did not need to persuade the Minister of the benefits of the LMA, The Government of Guinea was in a desperate situation. They needed an investor for Friguia. The Minister, the Government rather, I would not keep it to the Minister, were very happy that there was a concept that had a chance of success.
Q. So are you saying it did not in fact need anybody to explain to the Minister what the benefits of the agreement would be for Guinea?
A. I am not saying that I did not have to persuade him. I did say that I have to explain to him.
Q. And you did that explaining in the context of an existing relationship with him, and let me just explain what I mean by that, so there is no ambiguity. You had had dealings with him before in relation to other matters, you knew him personally through your professional work and in that sense you had an existing relationship with him?
A. Exactly, as is documented in the evidence and in the disclosure that we made.
Q. And the result of your previous dealings with him was that you had access to him and credibility with him?
A. I had access to him in a professional way and I did have credibility. My partner and I, we did have credibility, yes.
Q. And you had his trust?
A. I assumed so but I do not know for sure. I assume so.
Q. You understood that you had his trust?
A. We respected each other and treated each other accordingly.
Q. Your understanding was that he trusted you?
A. I said, so, yes. I said, I assume so, I do not know for sure, so I understood.
Q. Focussing on your understanding, and you understood you had his confidence?
A. In a professional way, yes.
Q. When you told him that you regarded some aspect of the deal as being in Guinea's interests, he would have understood you to be giving that honestly and as your genuinely held view?
A. The entire deal was in Guinea's interest, he understood that.
Q. If you said to him in relation to some aspect of the deal that you regarded it as being in Guinea's interest, he would have understood you to be giving that view, expressing that view honestly?
A. Yes, he knows me to be a honest person, true.
Q. And as a reflection of your genuinely held view?
A. Could be, yes. I do not know, you see - I do not understand the words, you are giving me the words. Yes I told you the man trusts me, he believes I am an honest person, respects me and I respect him, and so do a lot of members of the Government." [Day 4, pages 66 to 69]
I accept this evidence.
- Tekron's witnesses were cross-examined to the effect that the introduction of Reynolds was an improper attempt to sabotage the tender process of privatisation being conducted by Warburgs. The position is that it was not until 22 February 1999 that Warburgs announced that the privatisation was not proceeding. Until then the information reported in the Metal Bulletin had been that it was going ahead. The evidence I heard suggests that it was known from the autumn that privatisation was most unlikely to succeed. It was up to the Minister whether he chose to have discussions with Reynolds in parallel with the privatisation. If it was his view, and on the basis of Mr Karjian's and Mr. Safwat's evidence it was, that the privatisation was not going to succeed, it was not only sensible but essential for him to pursue any possible alternative. (I mention here that a note of Mr Safwat's of 3 December 1998 refers to the refinery as being on the verge of catastrophic failure.) This in effect put the Reynolds scheme in competition with Warburgs. I do not think that Mr Karjian, Mr Safwat and Mr Nounou are to be criticised by reason of that. I should mention that Mr Karjian stated in evidence that Warburgs mandate had been terminated in the autumn of 1998. That was shown to be wrong by the documents. He said that this is what he was told by the Minister. It was, however, clear from the problems that arose with Warburgs over the due diligence visit by Reynolds in November, that Warburgs were still involved. I am, however, satisfied that the probability is that by the autumn it was the general view, and the view of the Minister, that the privatisation was most unlikely to succeed. It is as well to record that Warburgs were quickly involved in the lease-management negotiations. Mr Safwat's note of a telephone conversation with the Minister on 1 March 1999 records that Warburgs were helping in negotiations with the banks. At a meeting in Paris on 8 April 1999 attended by representatives of the Government, the World Bank and other banks together with Reynolds, other investors and Mr Karjian, Warburgs were represented by Mr Wohrer. It was he who had been overseeing the privatisation.
- On 19 November Mr Safwat was in touch with the French lawyers in Paris acting for the Government, Sokolow, Dunaud, Mercadier & Carreras ('Sokolow') to obtain for Reynolds a translation of the Guinean Build Operate Transfer Law. In fact the lease-management agreement as it was entered into was outside this law: but that was a later development.
- Following the due diligence visit in November Reynolds produced a 90 page report, which was positive. On 3 December Reynolds sent Mr Safwat a draft memorandum of understanding to be entered into with the Government. This was submitted to the Minister by Mr Safwat by fax on 4 December, and a copy was sent to Sokolow. It appears that the reaction of the Minister to the draft was strongly adverse. I say 'appears' because there is nothing in writing from the Ministry to that effect. What there is is a letter from Mr Safwat to the Minister dated 16 December saying that Reynolds had decided to withdraw the draft. He enclosed a draft of a letter which Reynolds might send in the place of the memorandum. These were copied to Sokolow. In the letter Mr Safwat said that the Minister's concern was right. It put the blame on the Reynolds' legal department. Both Mr Karjian and Mr Safwat were cross-examined about this letter. I think that the reference to the legal department was a convenience to help explain Reynolds' change of position, and that it may well be correct that the suggestion to use it came from Reynolds. I am not satisfied that the letter was written in .a manner which. was contrary to Reynolds' interests. A difficult situation had arisen, and the skill of Mr Safwat was needed to resolve it.
- On 19 December Mr Safwat wrote to the Minister by fax with a copy of the Reynolds letter dated 18 December. Mr Safwat urged the Minister 'to allow us to deliberate with you with regard to the content and method of your reply, Sir, particularly as over the past week we have, with patient persistence, covered a lot of ground in respect of timings and commitments.' It was suggested that it was surprising that Mr Safwat and Mr Karjian were trying to get themselves involved in this way. Mr Karjian said at Day 2 page 117: "we were on the side of the fence of Reynold. We were always acting for Reynolds. ... But at times you have also to act as an honest broker, at times ... When both parties know exactly where everybody is, like the Government knew exactly where we were, where our interest is, we are part of the consortium and we are getting remunerated, so to speak, by the consortium, but when we are trying to act sometimes ... we are in the middle at times and trying to get both parties together and agree on something - the word 'honest broker' here applies as they both trust you ... And they think that you are trying to get a deal done between two parties ...'. I have set this out because it shows in Mr Karjian's own words - fluent but not in his first language, how he felt that in negotiation it is sometimes necessary to take a position in the middle in order to advance a deal which he regards as in the interests of his principal. He had said earlier at Day 1 page 113: 'Our role was to get the parties together to be able to make a deal which is good for both parties. Mr Reynolds used always to say the only way this deal is going to last for 25 years is if it is a good deal for both parties.' When an intermediary takes the role to which Mr Karjian refers he has to be careful that he respects his duties to his principal. On the other hand it may be a particularly valuable role.
- The Minister replied to Reynolds' letter on 23 December 1998 stating that Reynolds' proposal met in principle with the Government's approval. He set an operation target date of 1 March 1999. The next step was a further due diligence visit by Reynolds. The technical team were to arrive on 16 January 1999 and Mr Hardy and Mr Hawkins were to be in Guinea from 16 to 19 February with Reynolds' in-house lawyer, Mr Guyer. The 1 March date was a difficulty for Reynolds and Mr Nounou advised Reynolds that it must assist the Minister on this. On 15 January Mr Safwat wrote by fax to the Minister a letter which shows him endeavouring to deal with this difficulty and asking to be involved in the discussions which would take place before 15 February. This letter was criticised on the ground that it shows Mr Safwat 'working for the deal' rather than representing Reynolds. The two were not, I think, inconsistent. Mr Safwat wanted to ensure that when the senior management team arrived, the ground had been properly laid. On 3 February Mr Safwat sent to the Minister and to Sokolow 9 points of principle coming from Reynolds. On 12 February Sokolow sent to Mr Safwat a position paper setting out the Ministry's view as to the coming negotiations. The negotiations in Guinea were successful. They were attended by Mr Karjian and Mr Safwat in addition to the Reynolds team and on the Government side were a number of officials, Maitre Sokolow and on occasion the Minister. In the list of attendees Mr Karjian and Mr Nounou were stated to be representing Tekron.
- Following this, on about 25 February 1999 the Minister set up an inter-ministerial committee to negotiate terms of an agreement with Reynolds. There were representatives from the Ministry of Finance (the President of the Committee), the Ministry for Mines, Geology and the Environment, the Central Bank, the Ministry of Planning, the Prime Minister's Office, the Ministry of Transport and the President's Office. The Minister continued to be involved with points of principle and Tekron continued to communicate with him and the Ministry as necessary. After the appointment of the committee the Minister wished to supervise rather than negotiate.
- Progress was impeded by the introduction by Reynolds of other investors in addition to Reynolds in March 1999. There were meetings in Paris, London, Washington and New York between the Government and the investors, and their lawyers on each side. Tekron was present. On 8 April there was a meeting in Paris between the Government, the investors and banks who were owed approximately $80million by Friguia, which debt was to be taken over. Mr Karjian and Mr Nounou attended.
- On 17 April 1999 Mr. Karjian wrote a letter to the Minister which was relied on on behalf of GIC as showing that Tekron were in both camps, that is the investors' camp and the Government camp. The letter was directed to achieving an extension of standstill for a further month. That relates to the Government's agreement not to negotiate with other parties. It was something which the investors wanted. The letter refers in a number of places to "we" which in some places might meant the Guinean Government and Tekron. The most important is "I do not think we will gain any mileage by telling Reynolds that we will extend the standstill agreement only upon receipt of the draft agreement". Nonetheless the clear purpose of the letter was to persuade the Minister to do what the investors wanted - to extend the standstill. It is a letter which was plainly written by Mr Karjian as the representative of the investors.
- GIC also relied particularly on a letter from Mr Safwat to the Minister dated 23 April 2003. There Mr. Safwat attached a draft Memorandum of Understanding received from Reynolds. The letter ended "Karim and myself will be objectively studying this document and will provide you, Sir, with our input during the first few days of next week." Mr Safwat was asked if he did provide objective input, and he answered yes. He was not asked for details [Day 5 page 13]. Mr. Karjian stated:
"We would have told them how we think is the best way to get together to making a deal. The word 'objective' here is given in the sense that we could look at this and tell you how we feel about this MOU. This is the way we have negotiated this.
"Q. Would you have given him you objective input even if that had been adverse to Reynolds's interests?
A. No, we would not have, Mr Smouha. Sometimes we gave - you see, you must realise, your Lordship, in a lot of these negotiations also Reynolds were very happy to use us very often as the front firing line. Rather they wanted to do that, and very often we were used as the front firing line. This was part of the whole negotiation process." - Day 3 page 79.
Here, it seems to me, Mr. Karjian and Mr. Safwat were stepping outside the ordinary boundaries of agency or representation and became advocates of what was best for "the deal". I refer to paragraph 25 above and also to Mr. Karjian's evidence referred to in paragraph 44.
- In June 1999 differences of principle arose which were resolved with the help of Tekron in persuading the Minister to meet Mr Reynolds on a one-to-one basis. The Minister's attitude was otherwise that the Committee should conduct the negotiations. A further impasse occurred at the end of August in Paris when the negotiators were unable to agree the terms as to the rent to be paid to the Government. A solution was found by Tekron.
- The outcome was that on 22 September 1999 a lease-management agreement was signed in Washington by the Minister in the presence of the President of Guinea and other ministers. Final versions of various agreements were signed in New York on 30 November 1999 by two members of the inter-ministerial committee. The lease-management agreement and the associated agreements had meanwhile been the subject of debate in the Guinean National Assembly and had been approved by a vote in which the opposition voted in favour of arrangements as well as the Government.
The negotiation of the representation agreement
- It was always understood by Reynolds that Mr Karjian, Mr Safwat and Mr Nounou would require recompense in some form for the part they were playing. Although it was challenged by Mr Smouha I accept that the initial idea was that they should take a share in the equity. That is not confirmed by any contemporary document, but I cannot see why at the meeting with RusAl on 10 December 2002 it should have been said that this was so if it was not.
- The idea was, however, swiftly abandoned in favour of a fee arrangement because on 6 November 1998 Mr Safwat wrote to Reynolds setting out a basis on which the fees would be payable. Tekron had been incorporated on 29 October. The basis included a payment on the signing of a lease-management agreement and a percentage on sales thereafter. The letter stated:
'It is important for me to set out at this stage the structure of the fees we would wish Reynolds to pay Tekron Resources Limited for work in facilitating the Contract and assisting thereafter in providing a beneficial climate in which Reynolds can operate.'
If this was a case where impropriety was alleged, the ambiguity of the last twelve words might be relied on to that end. But it is not alleged and they have to be read in the context of what Tekron in fact did after the lease-management agreement was entered into.
- There were then telephone discussions. Reynolds wrote on 3 December 1998 setting out agreement as to fees which were as in the representation agreement save that the basis used for the carrying fee is different. The letter referred to the need for a written agreement drafted by lawyers. On 20 January 1999 Mr Safwat wrote saying the matter was becoming urgent. On 29 January Mr Nounou wrote using Tekron paper referring to an agreement which he had relating to Ghana, which might be used as a guide. On 16 April Mr Safwat wrote again. He wrote again in stronger terms on 16 April and 3 May. On 3 May Mr Reynolds replied that with the new investors the position was changed and they needed to reconsider it. Mr Safwat replied in strong terms on 6 May saying that Reynolds were now jeopardising the project. The heat was then taken out of the situation by a conciliatory letter from him dated 6 May. On 20 May Euro-African Investment Limited (which represented Greek shipping interests) wrote to Tekron affirming a finder's fee of $4 million. The letter suggested that Tekron should undertake additional services after the signing of a lease-management agreement in return for fees to be discussed. On 24 June Euro-African wrote to Tekron with terms broadly as previously agreed between Reynolds and Tekron. This letter was counter-signed on behalf of Tekron.
- There were further discussions in the United States between Reynolds and Mr Karjian and Mr Nounou in August 1999. In a letter to Mr Reynolds dated 6 September Mr Karjian wrote that Reynolds need not fear Government interference provided the commitment to lease payments and the commitments to Tekron were met. The last part was described by Mr Karjian as negotiating, taking a hard line. The memorandum of agreement which is schedule 2 to the representation agreement is dated 17 September 1999. Even the negotiation of the final terms between lawyers was not free from difficulty. I refer to Lawrence Graham's fax to Paisners of 19 November 1999 saying that unless their clients had a signed agreement by 5 p.m. that day, 'the entire deal was off'. The representation agreement is dated 30 November 1999. Given the uncertainty of Tekron's position as agreement with the Government approached, I do not find it surprising that Tekron wrote as on occasion it did. The first lease-management agreement was signed on 30 September 1999.
- I do not attach any significance to the addendum to the representation agreement concerning corrupt payments.
Tekron's conduct after the entering of the lease-management agreement
- This was covered by the witness statement of Mr Safwat. I can take it quite shortly. Mr Safwat had a continuous involvement and was in communication with Mr Hardy frequently, perhaps several times in a week. It was the function of Mr Karjian and Mr Safwat to seek a solution to problems brought to them by GIC and to know which official to talk to and when, on occasion, to approach the Minister (Mr Fofana ceased to be the Minister in January 2000). The problem was often not with the Ministry for Mines, Geology and the Environment, but with other Ministries. Then the Ministry for Mines, Geology and the Environment would often assist, for basically it wanted to help GIC and for GIC to succeed: so to suggest that 'influence' was required to this end is wrong. Considerable work was done towards the expansion of the refinery, including its financing. But as I have stated in connection with clause 3 of the representation agreement, nothing has yet come of this.
- One matter on which 'Mr Safwat was cross-examined was the request by GIC made in November 2001 to assist with the provision of warehouse space at the port. GIC referred to pressurising the people who owned the warehouses, either directly or behind the scenes. Mr Safwat first enquired what was meant by that: for, he said, he could simply have telephoned the head offices of the two companies concerned in Paris. He then ascertained that GIC's freightforwarders were prepared to handle their shipments. He then was able to ascertain that the problem was that the Port Authority had allocated the relevant warehouses to the storage of rice and that the solution was to request that the allocation be changed. This advice was then acted on with success.
Mr Reynolds' alleged statements to Mr Raikov
- In paragraphs 11 and 12 of Mr Raikov's first witness statement he asserts that in the course of RusAl's negotiations to acquire GIC Mr Reynolds told him that Mr Karjian, Mr Safwat and Mr Nounou had invited him to engage them to procure governmental influence in Guinea, and that as they had such influence it would be in his interest to do so; that if he did not do so, that influence might be used against him. Mr Reynolds is also alleged to have said that GIC had not been directly involved with any dealings with the Government and had essentially left the negotiation of the lease-management agreement to Tekron. The last is nonsense which must throw considerable doubt on the rest. For Reynolds and GIC were heavily involved in direct negotiation with the Government. The earlier allegations do not readily fit the facts. Mr Nounou had come up with an idea. He went to Reynolds with the idea. He, Mr Karjian and Mr Safwat needed Reynolds if the idea was to be taken forward. Mr Reynolds could hardly have taken the idea and commenced negotiations with the Government to the exclusion of the three. No doubt they did give assurances to Mr Reynolds to the effect that they had good relations with the government and could assist with negotiations with the government They would not have said that they would use their influence against him, because they needed him and he needed them for there to be any negotiations at all. It must be kept in mind that Mr Reynolds had reached a broad agreement in principle with Tekron in December 1998. Paragraphs 14 to 16 of Mr Raikov's second statement made on 1 August 2003, 4 months after his first, describes what he was told by Mr Reynolds somewhat differently but still emphasising that Mr Reynolds dealt with Tekron because of the influence its principals had with the Government of Guinea.
- Mr Ovchinnikov's statement deals briefly with the conversations with Mr Reynolds in paragraph 12.
- Mr Reynolds did not give evidence. Mr Raikov and Mr Ovchinnikov kept no notes of their conversations with Mr Reynolds. For these reasons, and the reasons I have set out, I should place little weight on the relevant passages in the statements. I should be guided by the documents and also the witnesses who were called and spoke directly to what occurred. The position is the same with the corresponding but differing paragraph 12 of Mr Ovchinnikov's statement, though that is more restrained in its content.
The meeting between Tekron and RusAl on 10 December 2002 and consequent events
- On 10 December 2002 there was a meeting in London between the three representatives of Tekron and Mr Raikov and Mr Ovchinnikov on behalf of RusAl. Mr Safwat kept rough notes of the meeting. Afterwards these were typed up into a fuller note. Mr Raikov took no note and Mr Ovchinnikov did not retain the note he made. The position on RusAl's side then was that they had bought GIC on the basis that they would deal with the representation agreement after they had completed the purchase. According to Mr Raikov they considered the agreement an odd one. Given the size of the payments for which it provides, it is readily understandable that they should enquire about it. It is also important that, as Mr Raikov said, RusAl have always intended to privatise the refinery, that is to become the owners of it, and that RusAl does not use agents. By the time RusAl bought GIC it had had an office in Guinea since 2000 and since March 2001 had run the bauxite mine at Kindia. Although he was to make a correction in his evidence in chief, Mr Raikov's first witness statement gives the clear impression that RusAl were new in Guinea when they purchased GIC.
- In view of the clear findings which I am able to make as to the role played by Tekron in the negotiation of the lease-management agreement and thereafter, I do not think that I am concerned with the precise words used at the meeting on 10 December. Thus it was alleged by GIC that Tekron had referred to its 'special relationship' with the Government. That was denied. In his cross-examination Mr Raikov accepted that it was possible that the talk was of a 'good relationship'. At the meeting the three principals undoubtedly stated the importance of the role they had played in those negotiations, and I accept that they referred to their good relations with the Government. I accept that the typed note prepared by Tekron is accurate as far as it goes - it is a note of 2 pages. In particular I accept that the meeting concluded as the note records. I accept that Tekron were to come back to RusAl on the problem of the unreconciled account between ACG and Friguia. This was denied by Mr Raikov: he said that he had made it plain at the meeting that Tekron had no authority to act for GIC. Two days after the meeting, that is, on 12 December, Mr Safwat did revert to Mr Raikov by e-mail on the subject of the unreconciled account. He referred to a meeting on 14 December to be attended by the Minister and, among others, by Ernst & Young and Price, Waterhouse, Coopers. On 16 December Mr Safwat reported that the meeting had decided to appoint a smaller committee to find an 'amicable solution'. On 28 January 2003 Mr Safwat reported to Mr Raikov on his recent discussions with Maitre Sokolow in Paris, and gave his views. On 30 January Mr Safwat informed Mr Raikov of his and Mr Karjian's meeting with the Minister in Conakry on 21 and 22 January. No response was received by Tekron to any of this. Yet Mr Raikov insisted in his evidence that Tekron had been acting without authority in involving itself in these matters.
- On 25 December 2002 GIC wrote to Tekron asking for a report of its activities under clause 4 of the representation agreement. Tekron replied on 7 January 2003. The letter emphasised that Tekron's remuneration under the agreement was in a large part in return for Tekron's bringing the concept of the lease-management agreement to GIC and the negotiation of it. It said that what Tekron had done since was fully documented in GIC's files: GIC should review its files and then raise any further questions. On 15 January GIC replied asking for a comprehensive report of Tekron's activities over the past two months to enable its performance to be verified, saying that in the meantime the carrying fee would be withheld. Tekron replied on 17 January asking that the payment due for November should be made. A report of 3 pages was enclosed with a list of relevant documents to be found in GIC's files. GIC wrote on 27 January saying that the report was inadequate and that until Tekron provided proof of the performance of its obligations the fee would be withheld. On 30 January on the instruction of Tekron Lawrence Graham wrote to GIC a letter before action. This correspondence shows RusAl seeking to achieve a position where the representation agreement could be terminated on the grounds, or purported grounds, of non -performance. This has formed no part of GIC's defence to the action.
Correspondence in Guinea in 2003
- Following a meeting with the new Minister (Mr Alpha Mady Soumah, who was appointed in December 2002) at which the Minister apparently said he did not know of Tekron and its principals, Mr Pantchenko, the head of RusAl's office in Guinea, wrote to the Minister on 1 February 2003 asking what tasks the Ministry had asked Tekron to perform concerning relations between ACG and the Government. The letter stated that Tekron's principals had said they had a special agreement and relations with the Government, granting them power to solve political and commercial problems with ACG in its relations with the Government. Mr Raikov agreed in cross-examination that Tekron had never said such things to him. The Minister replied on 13 February. He said that he (or perhaps his Ministry) knew of Tekron only through Gapco - which was a different venture. If the Minister was referring to the Ministry's knowledge, he had not been correctly briefed as to Tekron's involvement in the negotiation of the lease-management agreement and the continuing involvement of it through its principals thereafter. But the Minister said it appeared that Tekron had an agreement with GIC in connection with the lease-management agreement, the nature of which had not been disclosed. The last paragraph indicates that a special Commission had been appointed to enquire into Tekron.
- On 18 February 2003 the managing director of RusAl, Mr Boulygine, wrote to the President of Guinea. His letter asked for help with a problem, which was otherwise 'leading us into an impasse'. It then referred to Tekron and its requirement to be paid during the lease-management agreement. It stated that Mr Karjian and Mr Safwat had said that they contributed at a political level to the conclusion of the agreement by influence on the Cabinet of Ministers. The letter referred to Tekron's intention to involve RusAl in an improper relationship and asked for the President's assistance.
- On 19 February 2003 the Minister sent to Mr Karjian a copy of the letter to him of 1 February and asked to be informed as to Tekron's activities. Mr Karjian replied the same day that he was preparing a detailed response and hoped to discuss the matter with the Minister at a forthcoming bauxite and alumina conference in Florida. On 26 February Mr Karjian wrote a 4 page letter to the Minister setting out the activities of Tekron in relation to the lease-management agreement and GIC, referring to specific matters on which Tekron had assisted GIC. The letter is relied on in paragraphs 17.6.1, .2 and .3 of the amended defence and counterclaim. It is alleged in paragraph 17.6.2 that in the letter Mr Karjian stated that he and Mr Safwat had acted for the Ministry in matters relating to GIC. Mr Karjian wrote: 'Over the past three years, the [Ministry] have from time to time asked us to assist in matters relating to GIC and we have done so successfully.' Three examples are then given. These were not examined in evidence. The fact that Tekron became involved at the instance of the Government does not mean that its involvement was not as the agent of GIC. As the matters were not explored at the trial, I shall say no more.
- On 3 March 2003 Mr Karjian had a long meeting with the two members of the Commission set up by the Minister to investigate RusAl's allegation contained in Mr Pantchenko's letter of 1 February. They advised Mr Karjian that they were satisfied with Tekron' s explanations and would so advise the Minister. On 4 March Mr Karjian had a long meeting with the Minister. The Minister said that he understood Tekron's involvement and was satisfied with its explanations. He stated how he intended to reply to Mr Pantchenko - in summary that relations between Tekron and RusAl were no concern of the government. The meeting ended by the Minister thanking Mr Karjian for his efforts in promoting Guinea. No reply from the Minister or his Ministry to Mr Pantchenko's letter has been disclosed by RusAl.
- On 25 February 2003 a letter was apparently written by Mme Diao on behalf the Guinean National Committee for the Fight against Corruption ('the CNLC') to RusAl in Conakry. It said first that as GIC was the partner of the Republic under the agreement with ACG all approaches from GIC should be made without the involvement of intermediaries. It said next that an investigation was going on into the activity of Tekron and Mr Safwat and Mr Karjian. It then said that the improper nature of their actions was quite apparent and so no contacts or payments should be made until the results of an investigation. On 27 March Maitre Kabele Camara, a Guinean avocat instructed by Tekron, wrote to the Coordinator of the CNLC concerning in particular the letter from CNLC of 25 February. This letter is relied on in paragraph 17.6.5 of the amended defence and counterclaim. It stated, in translation that 'the role of Tekron consisted essentially of promoting the interests of GIC in Guinea by providing its experience to find partners and investors and assisting GIC in its relations with the Guinean Government in order to further the smooth running of ACG operations in Fria.' On 31 March the Coordinator replied that following a plenary meeting of the CNLC, the CNLC formally denied an exchange of correspondence between the CNLC and the Managing Director of RusAl Conakry. That is why I have said 'apparently written' at the start of this paragraph.
- On 14 March 2003 Mr Karjian wrote to the new Minister about the CNLC letter of 25 February to RusAl and the Minister's letter to RusAl of 13 February to RusAl. In it he stated that, in translation, 'We cannot confirm enough that Tekron Resources has never asserted that there is any special agreement with the Government of Guinea or [the Ministry].' 'Any special agreement' may not wholly convey the sense of the original French - 'une quelconque convention speciale'. The letter is relied on in paragraph 17.6.4 of the amended defence and counterclaim for this passage 'the good relations which have always existed between the Guinean Government and our company which spared no effort to keep the economic relations between the Government and GIC fruitful within the context of the Lease-Management Agreement.'
- It is apparent from these matters that under the threat of litigation in London RusAl have done what they can to blacken the names of Tekron and its principals in Guinea. On the evidence before me they have not only failed but have secured indirect evidence that the Government considers that Tekron have behaved properly in its relations with the Government.
The enforceability of the representation agreement
- The representation agreement is dated 30 November 1999. By this time Tekron had performed at least the greater part of its services in connection with the entering into of the lease-management agreement. Tekron had provided those services on the basis that it was to be remunerated. Had the representation agreement not been signed, it is likely that under English law Tekron could have claimed remuneration on the basis of the letters of 3 December 1998 and 24 June 1999 or in quasi-contract on a quantum meruit basis.
- Clause 2 of the representation agreement refers to "Tekron developing and procuring the execution and performance" of the lease-management agreement. Construing this in the context of what had occurred, "developing" is to be taken as referring to developing the concept of the agreement, and "procuring the execution" is to be taken as referring to Tekron's part in the negotiations with the Government, which led to the lease-management agreement. "Performance" must relate to the future performance of the lease-management. It is to be related to the services which are set out in clause 4. Those services are not otherwise remunerated. The drafting is not as clear as it might but this is the construction which fits the facts. Although clause 2 does not refer to Tekron having brought the opportunity to GIC there can be little doubt that the payments provided by the clause were in part for that, perhaps covered by "developing".
- While clause 2 of the agreement does not refer to Tekron acting as, or having acted as the agent of GIC (and the intended investors in GIC), it is clear from the evidence I have heard and the documentation that this was the capacity in which Tekron had acted in dealing with the Government of Guinea up to the making of the agreement. It is also clear that this was the capacity in which it was intended to act in the future and did act in the future. Hence the name, representation agreement, which the agreement bears. The history which I have set out shows that before and after the signing of the agreement Tekron was heavily involved in its capacity of agent. Tekron provided real and substantial services. This needs to be emphasised in the context of Article 195 of the Guinean Criminal Code.
- It is also clear that at the time that negotiations relating to what became the lease-management agreement began with the Guinean Government Mr Karjian and Mr Safwat already had what I may call a good relationship with the Minister and some of his officials, and so with the Guinean Government. That was known by Reynolds. It was anticipated and intended that this good relationship would work to the advantage of the intended investors in making the process of negotiation easier. I am satisfied that it did so. By that I mean that the negotiations were thereby easier than they would have been if the Ministry and Mr Karjian, Mr Safwat and Mr Nounou had never dealt with each other before. Negotiation is easier if the persons negotiating have a measure of confidence, trust and respect for each other. I am not satisfied that it was intended that by reason of this the investors would secure advantages which were unmerited in the sense of not being commercially justifiable. It has not been suggested that in fact the terms of the lease-management were in any way too advantageous to ACG by reason of Mr. Karjian's and Mr. Safwat's prior relations with the Government. I have avoided using the word "influence" in this paragraph because it has different meanings, or carries different over-tones, in different contexts and so I have preferred to avoid it.
- The representation agreement is governed by English law and this action is being tried in an English court. But the performance of the contract by Tekron was intended by both sides to, and necessarily has, largely taken place in Guinea. I can take the relevant law from the judgment of Robert Walker L.J. in Isphani v Bank Melli Iran [1998] Lloyds Rep. Bank. 133 at 136:
"There are two associated principles. One is that where a contract is to be performed in a country where its performance is unlawful by the law of that country (lex loci solutionis), it will not be enforced by the English court. This principle is often identified with the well-known decision of this court in Ralli Brothers v Companie Naviera [1920] 2 KB 287, which was a case of supervening illegality. But the same (or a closely similar) principle applies to existing illegality: see Robert Goff J in Toprak Mahsulleri v Finagrain [1979] 2 Lloyd's Rep 98, 107, approved by the Court of Appeal [1979] 2 Lloyd's rep 112, 117. In this context "performance" does not mean any activity required or contemplated by the contract; it has a relatively narrow and technical meaning (see Dicey & Morris, Conflict of Laws, 12th ed. pp 357-363).
The other principle was stated as follows by Sankey LJ in Foster v Driscoll [1929] 1 KB 470, 521:
"An English contract should and will be held invalid on account of illegality if the real object and intention of the parties necessitates them joining in an endeavour to perform in a foreign and friendly country some act which is illegal by the law of such country notwithstanding the fact that there may be, in a certain event, alternative modes or places of performing which permit the contract to be performed legally."
- On the basis of either of the principles, if the services which Tekron provided in Guinea were illegal under the law of Guinea, it follows that the representation agreement cannot be enforced in this action. This involves an enquiry as to the applicable law of Guinea.
- A further ground on which the representation agreement might be unenforceable in England is if the agreement offended English public policy. In Lemenda v African Middle East Co [1998] 1 Q B 448 it was agreed that the contract was governed by English law. It provided for services in Qatar. Philips J held that the contract was contrary to English public policy and to the public policy of Qatar. He declined to enforce the agreement. In his judgment he referred at pages 458 and following to the position where a contract is lawful in the country where it is to be performed but is contrary to English public policy. The relevant principle of public policy involved may be purely domestic or it may be based on a universal principle of morality. In the former case it may be no bar to the contract's enforcement, and it may be a bar in the latter. I refer to page 459A-D of the judgment. I will revert to this. For the agreement to be unenforceable on this ground, it must be established that it is contrary to English public policy. I must determine that question.
The representation agreement under the law of Guinea
- It is asserted on behalf of GIC that the performance of the representation agreement was and is illegal under the law of Guinea as it is contrary to Article 195 of the Guinean Criminal Code. I heard evidence in support of this proposition from Professor Jean Paillusseau, and to the contrary from M. Georges Berlioz. Professor Paillusseau is Emeritus Professor of Law at the University of Rennes and is a member of the Paris Bar. He describes himself as a specialist in French and African business law. He took a leading role in the drafting of the Guinean Code of Economic Activities. M. Berlioz is a practising lawyer and is a member of the Paris Bar and of the Brussels Bar. He has considerable experience of advising in countries in Africa whose legal systems are based on French law. There was initially some question over the qualification of M. Berlioz to speak as to the law of Guinea. This difficulty disappeared when it became clear that for his interpretation of Article 195 Professor Paillusseau like M. Berlioz relied solely on French law.
- The Guinean Criminal Code including Article 195 was passed on 31 December 1998. It was Professor Paillusseau's evidence that Article 195 came into effect in May 1999. He said he did not know what the position was prior to then. This was a point which was taken up with him only in cross-examination. It had not been remarked on by M. Berlioz. It was suggested by Mr Gruder that as Tekron's work in connection with the representation agreement had begun in the autumn of 1998 the position was uncertain. The agreement was entered into on 30 November 1999. I should not allow this point, raised only in cross-examination, to detract from the position otherwise accepted by both experts and on behalf of the parties, that, if the agreement is contrary to Article 195, it is contrary to Guinean law.
- Article 195 is part of Chapter 4 of the Code, which is headed 'Crimes et delits contre la paix publique'. Section 2 of Chapter 4 is headed 'Crimes et delits des fonctionnaires publics dans l'exercise de leurs fonctions et autres atteintes a la liberte'. Article 195 forms paragraph 6 of Section 2. 'Corruption' is covered in paragraph 5. Paragraph 5 is directed against public functionaries who receive offers, promises, gifts or presents. Article 195 is headed 'Trafic d'influence' - which may be translated as 'Trafficking of Influence' or 'influence peddling'. I will use the translation in exhibit 2 to M. Berlioz's report:
Article 195: Any person who has solicited or accepted offers or promises, solicited or received gifts or presents in order to obtain or attempt to obtain decorations, medals, honours or rewards, positions, offices or employment or any favours granted by a public authority, contracts, undertakings or other benefits arising from agreements made with the public authority or government agency under the control of the State, or, generally, a favourable decision from such an authority or government agency and has thus abused a real or perceived influence, shall be punished by imprisonment of one to five years and the fine specified in the first paragraph of Article 192.
However, when the offender is one of the persons referred to in the first paragraph of section 1 of Article 192 [holders of elected offices, public officials of the civil service or judiciary, ...] and has abused a real or perceived influence which gives him his authority or status, the penalty of imprisonment shall be a minimum of two years and a maximum of ten.
- If the Article applies to the activities with which the representation agreement is concerned, it is agreed that it would apply in the following way. Guinean law does not recognise the criminal liability of corporate entities, but the directors might be liable: Professor Paillusseau, second report of 13 August 2003, paragraph 40. The directors solicited offers or promises (of payment), that is from Reynolds and GIC, to the end that they should obtain the lease-management agreement from the Government. This would fall within the opening six lines of the Article as set out above. I initially had some difficulty with this, but it was not a matter of dispute that this is how the Article could work. It was submitted for GIC that was all that was necessary, and therefore Tekron's activities in Guinea were illegal. It was submitted for Tekron that the last two lines of the first paragraph of the Article as set out above required that there must be an actual abuse of a real or perceived influence.
- Although it at one time seemed that Professor Paillusseau and M. Berlioz were directly opposed over this question, I think that on analysis they were not so far apart. M. Berlioz started with an examination of the facts, which he concluded showed that there was here a genuine negotiation with the Government in good faith. Professor Paillusseau did not examine the facts but, I think, had the impression that Tekron had done very little to earn its huge fees except 'exercise influence'.
- In paragraph 7 of his first report dated 13 August 2003 Professor Paillusseau states:
'No great significance is to be attached to the precautions taken by the parties in the contract to disguise the true nature of the operation. Similarly, the expressions used, the language and the wording of the duties are effectively irrelevant, and it is only the real nature of the transaction envisaged that counts,
In order to know whether such a contract does or does not conceal "trafic d'influence", it is sufficient to examine the services which were actually performed by TEKRON in consideration for the amounts paid by GIC. As the amounts paid are very significant, the corresponding services must be equally significant.'
- In paragraph 15 of his second report (of the same date) he stated:
'The French judge (and also the Guinean judge) due to the importance of the case and of the possible concealment of a fraudulent activity under cover of an apparently valid contract, is going to try, by all means at his disposal, to establish: (a) the real nature of the consideration of the contract and (b) the real nature of the services performed by TEKRON.
Either it seems to the judge, in his innermost conviction, that TEKRON really did perform the services set out in the contract and these services are legal, and he will rule that the contract may be fulfilled (at least in this respect); or he believes ("the innermost conviction" in the French system) that there was no real consideration in the contract, and it is therefore a case of "Influence peddling" and he will declare the contract void,'
- In his cross-examination [Day 7, page 95] he was asked to consider the example of a merchant bank which is employed to negotiate a contract because it knows the ways of the other party. He responded 'As far as those services are real and do not ..., there is not a single element of influence peddling involved.' He was then referred to some one who is able to snap his fingers and make a civil servant or Government department do what he wants. It was suggested to him that that was what the French law is looking at when they are talking about influence peddling. He responded: 'Someone who is able to snap his fingers or say he is able to but cannot, yes, that is peddling of influence.'
- I was not taken to any decisions of the courts of Guinea on Article 195. I was referred to a number of decisions on Article 178 of the French Criminal Code. Article 195 of the Guinean Code follows Article 178 closely and it was not suggested that there were any material differences. Article 178 was replaced by Article 433-2 in the new French Code on 1 March 1994. It is not known why Guinea chose to follow the old provision. It is not suggested that Article 433-2 has changed the law. It was agreed that a Guinean court would consider the French cases as to the proper interpretation of the Guinean Article 195. It is striking that in all these cases there was clear evidence of corrupt conduct by the influence pedlar, in the form of the payment of money or the provision of benefits to the person in authority, or payments to a political party. In each case the influence pedlar provided no proper as opposed to improper services. Here I refer in particular to the passage cited by Professor Paillusseau from the decision of 16 December 1997, and set out in paragraph 11(a) of his second report of 11 August 2003. The charges of influence peddling were often combined with charges of forgery, in that the pedlar had produced invoices which purported to be for genuine services but were not. No case was produced in which the French court had had to consider facts which in any way approximated to those in this case. Nor did I find anything in the judgments which supported the proposition that, if an intermediary has 'influence' in the sense that he is known, respected and trusted by the party with whom he is to negotiate, he is guilty of the offence if he undertakes to negotiate.
- I conclude that it is the sale of influence in such a way that there will be an abuse of that influence, which Articles 178 and 195 seek to prevent. The court should look at the substance of the transaction. It should look to see what genuine and proper services the party was to perform. It should look to see whether the provision of those services was the real object of the contract. It should look to see if the payments to the party were in whole or part for the exercise of 'influence' and whether it was the intention that any such influence be abused. It seems to me probable that, if the intention was that influence should be used to secure that a contract should be awarded, or awarded on terms, contrary to the interests, economic, national or other, of the awarding party, or without proper consideration of those interests by the awarding party, then there would be an abuse of influence.
- On the basis of the facts I have found I hold that the representation agreement was not contrary to Article 195. It was a contract for genuine services. I summarise them as the concept brought by the Tekron principals to Reynolds, the negotiations with the Government leading to the lease-management agreement, and the assistance to be provided by Tekron subsequently as set out in clause 4. There was no abuse of 'influence'. It was not intended that the government should be persuaded by the use of 'influence' to do anything which was not in its best interests.
- I conclude that the representation agreement does not infringe the law of Guinea. It is not suggested that, if it does not infringe Article 195, it would infringe public policy under Guinean law.
- The sums provided for by the representation agreement are very large. They were agreed to at that level by Reynolds at an early stage and apparently with little debate. They were then adopted by the further shareholders who came in. Tekron met with difficulty in getting the final agreement signed, but the problem was not as to its terms. As I have said, the size of the sums is a reason for scrutinising most carefully the real intentions of the parties. I trust that I have done that.
The representation agreement under the law of England
- It is not suggested that the representation agreement is in breach of English criminal law. The relevant criminal law is to be found in the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906, the Prevention of Corruption Act 1916 and the Anti-terrorism, Crime and Security Act 2001. Section 1(1) of the 1889 Act makes it an offence to corruptly solicit, receive or to agree to receive any gift etc, reward, or advantage on account of any member, officer or servant of a public body (as defined) doing or forbearing to do anything in respect of a matter with which the public body is concerned. This is thus aimed at persons who take bribes. Section 1(2) is in similar terms save that it is aimed at those who give or offer bribes. There may here be some loose analogy between the division in French and Guinean law between 'corruption' and 'trafic d'influence'. The 1906 Act relates to the corruption of agents, that is the giving or receiving of bribes, to or by, agents. The 1916 Act provided by section 2 that money etc received as set out in the 1889 Act and as in the 1906 Act should be deemed to have been paid or given or received corruptly unless the contrary be proved. Section 4 widened the definition of public body to include local and public authorities of all descriptions. Part 12 of the 2001 Act gives extra-territorial effect to, inter alia, the Acts referred to. The Law Commission has considered the criminal law relating to corruption as item 11 of its programme of reform of the criminal in its report published on 2 March 1998.
- In support of his submission that the representation agreement was contrary to public policy under the law of England Mr Smouha relied on two cases and the further authorities cited in them. Those were Montefiore v Menday Components Company Limited [1918] 2 K.B. 241 and Lemenda.
- In Montefiore the plaintiff was a member of the Imperial Air Fleet Committee. He held out to the defendant that he could assist the defendant with getting finance from the Air Board. In return he was to obtain 10% of the amount received and some shares. The plaintiff was 'to put in a good word for' the defendant. In the course of his judgment Shearman J. stated (at pages 244 and 245):
'The true consideration for the giving of the note was that the plaintiff should use his alleged position, and the value of his good word, in favour of the defendants in getting Government assistance in the form of money or contracts.
...
A contract may be against public policy either from the nature of the acts to be performed or from the nature of the consideration. In my judgment it is contrary to public policy that a person should be hired for money or valuable consideration when he has access to persons of influence to use his position and interest to procure a benefit from the Government. This was expressly decided by Lord Eldon in Norman v Cole (1800) 3 Esp. 253 when he said:
"I cannot suffer this cause to proceed. I am of the opinion that this action is not maintainable; where a person interposes his interest and good offices to procure a pardon, it ought to be done gratuitously and not for money: the doing of an act of that description should proceed from pure motives, not pecuniary ones."
- Montefiore was a case in which the plaintiff simply sold his influence. He did not offer to provide any proper services. His influence was to be used improperly to obtain loans which otherwise might not have been made. Likewise in Norman v Cole, the pardon case cited by Shearman J.
- In Lemenda the plaintiff had signed a commission agreement whereby the defendants were to pay 30 cents per barrel on oil contracts obtained with the National Oil Corporation of Qatar. It was the official policy of the Government of Qatar to prohibit such commission agreements and the defendants had undertaken that there was no such contract. As to the plaintiff's duties under the commission agreement, Phillips J. stated at page 452:
'Mr Yassin's task was to use personal influence within Q.G.P.C. in an endeavour to procure the renewal of the supply contract. Mr Yassin's evidence was that his duties were restricted to "working on" or "lobbying" Mr Jaida, the managing director. Mr Abdelnour denied this and said that he expected Mr Yassin to use his influence with the minister himself. Which ever be correct the first question that it seems to me appropriate to consider is whether an agreement to pay commission for such services is one which the English courts will enforce.'
- Under the heading of English public policy Phillips J. considered three prior cases. They were Norman v Cole, Montefiore and Parkinson v College of Ambulance Ltd [1925] 2 K.B. 1. In the last case the secretary of the defendants had fraudulently told the plaintiff that, if he donated a large sum to the defendants, he would undertake to secure him a knighthood. The plaintiff got no knighthood and sought to recover his money. The contract was held to be illegal, and as the plaintiff knew that he was entering an illegal and improper contract he failed to recover his money. Phillips J then stated (at page 457H):
'From this somewhat sparse authority it is possible to deduce the following principles underlying this head of public policy: (i) it is generally undesirable that a person in a position to use personal influence to obtain a benefit for another should make a financial charge for using such influence, particularly if his pecuniary interest will not be apparent. (ii) It is undesirable for intermediaries to charge for using influence to obtain contracts or other benefits from persons in a public position.
...
In some cases it will be difficult to decide whether this head of public policy applies so as to render a contract unenforceable. In certain circumstances the employment of intermediaries to lobby for contracts or other benefits is a recognised and respectable practice. In the present case the significant facts are as follows: (i) the influence to be exerted by Mr Yassin was upon the controlling minister of a state-owned corporation. (ii) The influence was to be exerted in circumstances where it was essential that the person to be influenced should be unaware of Mr Yassin's pecuniary interest. (iii) The amounts at stake, both in terms of the value of the contract that it was hoped to obtain and the size of the commission to be earned by Mr Yassin, were enormous.
Had the agreement related to the procurement of a contract from a British Government department or a state-owned industry, I am in no doubt that it would have been unenforceable by reason of English public policy.'
- Phillips J. there referred to lobbying. Lobbying is often used to refer to the process of seeking to influence members of a legislature. Here Philips J. referred to "to lobby for contracts". That kind of activity is different from Tekron's activity here, which was to introduce the parties and to negotiate. If lobbying is on the lawful side of line, negotiating should be further on the right side.
- Mr Smouha submitted that there were three reasons of public policy why agreements such as the representation agreement should be considered to be contrary to public policy under English law. The first was that, where an intermediary has a special personal relationship with an official, there is a risk that the official's decision will be affected. The second was that, where there is such a relationship, transparency may be lost. The third was that such an intermediary will inevitably be in a position of conflict because his desire to preserve his relationship will conflict with his duty to his client. I accept that these are valid considerations. They are not the only considerations. The question is whether they require that an intermediary who deals with an official, a minister, a government department and successfully builds a relationship of respect, of confidence, of trust, is to be barred from further dealings by the very fact of the relationship once it has been sufficiently established. There are, of course, advantages in officials dealing with persons whom they respect and can trust and in whom they have confidence.
- I should mention that Mr Smouha submitted that the ambit of the principle of public policy which he advanced was limited to matters involving public bodies and their officials. The justification was that with public bodies the public interest is engaged. The distinction between public and private bodies seems to me to be today less clear than perhaps once it was. In addition there may well today be a considerable public interest in the activities of substantial private bodies which provide public services.
- In my view it would be a substantial extension of the ambit of public policy as established in the cases if I were to accept Mr Smouha's submission. It would prevent the use of intermediaries in numerous situations where their use is now well-established in commercial situations, whether or not a 'public' body is involved. It would also bring in a serious element of uncertainty as to where the line was to be drawn. At what point would an intermediary cease to be able to negotiate fresh transactions with a particular third party? What happens when a position of "influence" develops during a negotiation? The previous authorities which I have considered were concerned with what I may call the sale of influence and only influence, and in circumstances in which it could be considered that the use of the influence would involve some impropriety. I should not accept Mr Smouha's submission.
- I will not repeat what I have said already as to the nature and substance of the representation agreement. It is not by reason of that to be treated as contrary to public policy under English law.
- That conclusion avoids my having to consider whether by reason of the agreement being contrary to English public policy it should not be enforced although it was to be performed substantially in Guinea and although I have held it is not illegal under the law of Guinea. As I have indicated that question was touched on in Lemenda but did not call for a decision. I was not addressed on the point in any depth and I should not express any view on it.
The enforceability of the representation agreement
- I have concluded that the representation agreement involves no breach of Article 195 of the Guinean Criminal Code, and that the agreement is not contrary to English public policy. There is no bar to its enforcement in this action. Tekron's claim for monies due under it therefore succeeds.
Further claims by Tekron
- It is accepted on behalf of GIC that the representation agreement covers by variation by subsequent agreement the shipment of hydrate as well as alumina. It is also accepted that the agreement requires GIC to provide Tekron with information as to the shipments of alumina and hydrate being made. Mr Smouha stated that he would consider what the documentation to be provided should be, and would discuss the matter with Mr Gruder with the aim of reaching agreement.
The counterclaim
- I was addressed on this briefly. As I have held that the representation agreement is enforceable, the counterclaim fails. Had I held to the contrary, I would have been unpersuaded, that the general rule that monies paid under an illegal contract are irrecoverable did not apply. A major difficulty for GIC is that the agreement had been carried into substantial effect when the lease-management agreement was signed: it is too late, three years on, for GIC to seek to withdraw.
