OREANDA-NEWS. August 10, 2011. On 3rd and 4th August, 2011, a hearing took place before the Commercial Court in London in relation to claims being brought by companies within the Latvian Shipping group against Mr. Aivars Lembergs.

The claim brought against Mr. Lembergs relates to sums estimated to be in the region of USD 135million. These amounts were taken from Latvian Shipping by means of a fraudulent scheme involving primarily a series of undervalue charters between companies in the Latvian Shipping group (the “Claimants”) and intermediate companies (the “Corporate Defendants”), who subsequently re-chartered the vessels at market rates to third parties who were neither aware of, nor involved in, the fraudulent scheme.

Based on the evidence, it had already been held by the Commercial Court in London that there is a good arguable case that Aivars Lembergs was involved in and benefited from that fraudulent scheme, and that the Claimants will therefore, subject to a full hearing before the London Courts, have a reasonable prospect of being able to establish that Aivars Lembergs is liable to Latvian Shipping and its shareholders for the losses suffered as a consequence of the fraudulent scheme.

Latvian Shipping has already succeeded in obtaining judgment, for an amount still to be finally determined, against the Corporate Defendants, through whom the scheme was operated. However, those Corporate Defendants do not have sufficient assets to reimburse Latvian Shipping. Almost all of the proceeds of the fraudulent scheme appear to have already passed into other hands.

It is for this reason that Latvian Shipping has brought claims against Olegs Stepanovs and Aivars Lembergs. Notwithstanding the evidence before the London Court, both Mr. Lembergs and Mr. Stepanovs deny the claims against them. However, whilst Mr. Stepanovs has agreed to disclose details of his assets and to submit to the jurisdiction of the London Courts so that his defence can be judged on its merits, Aivars Lembergs has refused to do so.

On 13th April 2011, the London Commercial Court granted the Claimants a Worldwide Freezing Order against Aivars Lembergs. The Order was granted on the basis that there was sufficient evidence before the court for them to find that there was a real risk that Mr. Lembergs might seek to dissipate his assets in order to make them unavailable for the enforcement of any future judgment.

Pursuant to the Order of 13th April, Aivars Lembergs was obliged to disclose to the Claimants full details of his assets including those in which he has a beneficial interest (notwithstanding that they might be in the name of off-shore companies, other third parties or members of his family), and irrespective of where such property is located globally. Such disclosure should include, but is not limited to, full details of all bank accounts, company shares, real estate and interests under trusts.

This week, Mr. Lembergs’ legal team sought to have the Worldwide Freezing Order overturned. The hearing of their application commenced on 3rd August and was completed on 4th August. At the end of the hearing, Mr. Justice Cooke, a highly regarded judge with extensive experience in complex commercial matters, reviewed the evidence submitted by both parties, heard lengthy oral submissions made by lawyers retained by Mr. Lembergs, and found in favour of the Claimants, thereby dismissing Mr Lembergs’ application to overturn the Order. The judge further confirmed the earlier finding that there was extensive evidence before the court to indicate that there was a good arguable case against Mr. Lembergs.

The Worldwide Freezing Order over the assets of Mr. Lembergs therefore remains in force and Mr. Lembergs is prohibited, other than in the ordinary course of business, from seeking to dispose of any assets owned by him, or in which he holds a beneficial interest, without the express agreement of Latvian Shipping’s legal team.

At the same hearing, the Claimants applied to the court for an order that Mr. Lembergs produce further evidence under oath as to the extent and nature of his property interests. Whilst Mr Lembergs had previously provided evidence under oath on this issue, the lawyers representing Latvian Shipping were not persuaded that the information provided was a full and frank account of his true financial and property interests. The details of what information was provided at that time cannot be divulged, as Mr. Lembergs legal representatives insisted that such information could only be provided if the details were subject to a stringent undertaking of confidentiality, which was accepted by the court and by the Claimants.

In seeking to defend the application for further disclosure, Mr. Lembergs sought to argue that he ought not to be obliged to make further disclosure on the basis that he should not be obliged to disclose information which would be incriminating against him. This argument, together with the other arguments raised were rejected by Mr. Justice Cooke, who held that Mr. Lembergs was in clear breach of the Order dated 13th April, pursuant to which he was original obliged to make disclosure.

Aivars Lembergs has now been ordered to give further disclosure of his financial position to Latvian Shipping’s legal team in two stages. Mr. Lembergs must give full and complete disclosure under oath by no later than 12th August of all property owned by him, together with all property in which he has a beneficial interest, worldwide. Responses to detailed questions raised by Latvian Shipping’s lawyers in London, relating to specific assets thought to be owned by or on behalf of Mr. Lembergs, must be submitted, also under oath, by no later than 9th September.

The judge further ordered that should Latvian Shipping’s lawyers not be satisfied by any additional information provided by him over the coming weeks, Aivars Lembergs must attend in court in London to be questioned in person about the nature and extent of his assets. The judge has ordered that Mr. Lembergs’ attendance in court should be provisionally fixed to take place in London in the week commencing 3rd October.

The total costs of the hearing in London, including the costs of both parties, amounted to in excess of UK?400,000 (equivalent to approximately LVL325,000). Mr Justice Cooke ordered that Mr. Lembergs pay the sum of UK?125,000 (equivalent to approximately LVL 100,000) on account to Latvian Shipping within 28 days, with the Claimants' remaining costs to be assessed in the future.

The full text of the judgment is expected to become publicly available in the coming weeks.