Shearman And Sterling

News Sep 21, 2020

Luanda Leaks - Dos Santos Defeated in Shareholder Dispute in the Netherlands

The Amsterdam Court of Appeal’s Enterprise Chamber, a special chamber with exclusive jurisdiction in a number of corporate matters, has ruled in favor of Angolan national oil company Sonangol in a dispute against Exem Energy B.V., a Dutch company declaredly beneficially owned by Sindika Dokolo, husband and business partner of the former Angolan president’s daughter Isabel dos Santos.

The ruling, issued on  September 17, concerns the governance of Esperaza Holding BV, a Dutch holding company with significant shareholding in Portugal’s largest oil and gas company, Galp SGPS SA. It was issued shortly after the Dutch Public Prosecutor's order for the seizure of Exem’s shares in Esperaza became public on August 24, 2020. The seizure is part of a criminal investigation by the Dutch Public Prosecutor concerning the legality of Exem’s acquisition of Esperaza’s shares from Sonangol.

Sonangol, the second largest oil producer in Sub-Saharan Africa, filed an action on March 13, 2020 in the wake of the multiple criminal proceedings, regulatory investigations and lawsuits that followed the unveiling through what is known as “the Luanda leaks” of serious allegations that Isabel dos Santos and her husband acquired their fortune through the embezzlement and laundering of assets misappropriated from the Angolan State and its State-owned entities.

The Dutch court accepted Sonangol’s request to take steps to avoid the misuse of looted assets of the State company. The court accepted the three requests made by Sonangol and Esperaza and ordered: an inquiry into the policies and the state of affairs of Esperaza, provisional measures comprising the suspension of Mário Silva (the right hand of Isabel dos Santos) as director of the company with immediate effect, and the transfer of Exem’s shares under the title of trust to a person to be designated by the Enterprise Chamber.

The action before the Enterprise Chamber is related to several international arbitration proceedings commenced by Exem in Amsterdam, under the aegis of the Netherlands Arbitration Institute (NAI), concerning an illegal transaction that led Sonangol to transfer to Exem a 40 percent stake in Esperaza back in 2006, during Isabel dos Santos’ father’s presidency. That year, Sonangol bought an indirect shareholding in Portuguese oil and gas company Galp for 189 million. As a result of this investment, Sonangol held 100 percent of Esperaza, which held 45 percent of Amorim Energia B.V., which, in turn, held 33.34 percent in Galp. Later the same year and following the success of Galp’s IPO in October 2006, Exem secured the transfer of 40 percent of Sonangol’s holding in Esperaza to Exem, a company ultimately held by Exem Holding A.G., which is incorporated in the Swiss canton of Zug, a secrecy jurisdiction and one of the last to accept the holding of companies with bearer shares. Exem claims that its beneficial owner is Sindika Dokolo, Isabel dos Santos’ husband.

Recorded in a share purchase agreement concluded on  December 21, 2006 between Sonangol (as seller), Exem (as buyer), and Esperaza, Exem was only required to pay 15 percent of the purchase price of the Esperaza shares upfront, i.e. 11,261,382. The rest was financed through a sham loan. Over the course of 11 years, Sonangol would keep the Esperaza dividends generated by the 40 percent stake it transferred to Exem as payment of the remaining 85 percent of the purchase price. The deferred portion of the purchase price would have to be paid by December 31, 2017, otherwise Exem would default and would jeopardize its ownership over the shares.

By mid-2017, in an attempt to circumvent Exem’s repayment obligations, Isabel dos Santos, then Sonangol’s Chairwoman, purportedly amended the share purchase agreement through an exchange of letters with Exem. Exem wrote to Sonangol’s “President of the Board of Directors” (i.e., Isabel dos Santos) to ask Sonangol to accept payment of the outstanding amount in Angolan Kwanzas, a relatively weak and volatile currency, instead of the contractually agreed currency of Euros. By way of a letter dated August 31, 2017 from Isabel dos Santos’ office at Sonangol and signed on her behalf, she purported to grant Exem’s request. After Exem made a payment to Sonangol in Kwanzas, at a conversion rate that was much lower than what was commercially practiced in Angola, Isabel dos Santos (again acting as Chair of Sonangol) wrote to Exem stating that Exem’s obligations under the SPA had been discharged and its title over Esperaza’s shares had been secured.

A few days later, on November 14, 2017, the day prior to Isabel dos Santos’ dismissal as Sonangol Chair, Isabel dos Santos convened a meeting of the Esperaza shareholders consisting of only Exem’s nominee directors representing and, herself, purportedly representing Sonangol. Despite the obvious conflict of interest and lack of authority, Isabel dos Santos and her associates purported to enter into four resolutions at the shareholder and Esperaza board level, extracting Esperaza´s cash assets and dissolving Esperaza.

Upon learning of Isabel dos Santos’ actions, Sonangol’s following management promptly opposed what it considered as fraudulent dealings, returned the Kwanzas payment to Exem and insisted that Exem had not complied with its payment obligation under the SPA.

Following fruitless attempts at arguing with Sonangol for the legality of the Kwanzas payment and Exem’s compliance with the SPA, Exem resorted to arbitration, seemingly in an attempt to secure its ownership of Esperaza’s shares, otherwise understood by Sonangol as an attempt to perfect and launder Exem’s corruption and embezzlement of Sonangol’s property.

In late 2018, Exem initiated arbitration proceedings against Sonangol in the Netherlands, requesting the Tribunal (composed of Professor Arthur Hartkamp, Chair, Professor Filip de Ly and Professor Christiaan Schwartz) to declare that by making a payment of the remaining purchase price for the shares in Angolan Kwanzas, Exem had complied with all of its obligations under the share purchase agreement.

Sonangol has contested Exem’s claims and presented counterclaims for a declaratory judgment that the share purchase agreement in question and the underlying transactions are null and void on account of international, Angolan and Dutch public policy and bonos mores. According to Sonangol, the transfer of 40% of Sonangol’s stake in Esperaza on non-commercial terms, not at arm’s length, to an anonymously-held shell company belonging to the family of the then President of Angola was highly illegal and as a matter of law constituted embezzlement. Sonangol also argues that the amendment agreement according to which Exem could pay the remainder of the purchase price in Kwanzas was a blatant attempt of self-dealing by Isabel dos Santos, in breach of Angolan mandatory rules regarding conflict of interests by company directors, as well as contrary to international, Dutch and Angolan public policy and bonos mores. Sonangol thus requests to have its full shareholding in Esperaza restored to it together with all dividends and benefits received by Exem to date. An evidentiary hearing is scheduled for May 2021.

In parallel, Exem filed a second request for arbitration against Sonangol (before a Tribunal composed of Gary Born, Chair, Mélanie van Leeuwen and Professor Christiaan Schwartz), asking for performance of a Shareholders Agreement between Sonangol, Exem and Esperaza, dated December 21, 2006 and of an alleged Governance Agreement, a document unknown to Sonangol which Exem alleges amends the Shareholders Agreement.

Exem also commenced a third arbitration proceeding against Sonangol earlier this year, whereby it sought various categories of summary relief related to Esperaza.  Exem subsequently withdrew all but one of its eight claims for relief. The last claim was rejected by the decision issued on April 10, 2020 by the Sole Arbitrator appointed by NAI, Ms. Smaakman.

“There was no commercial justification for the transfer of the 40 percent stake in Esperaza to Exem,” comments Emmanuel Gaillard, Global Head of Shearman & Sterling’s International Arbitration Group. “So the present proceedings are about reclaiming that stake and showing how this constitutes looting of public assets. This dispute will be a test of the arbitral justice’s ability to effectively enforce compliance with international public policy.”

The team advising and representing Sonangol in the arbitrations is led by Professor Emmanuel Gaillard, Global Head of Disputes and International Arbitration at Shearman & Sterling, and Dr. Yas Banifatemi, Global head of International Arbitration at Shearman & Sterling. It also comprises senior associates James Herbert and Daniel Barbosa (Shearman & Sterling in Paris) and Anders Nilsson (Shearman & Sterling in Frankfurt), as well as Maarten Drop and Camiel Boersma (Cleber) and Robert Hein Broekhuijsen (Ivy Advocaten) acting as local counsel in the Netherlands.

The Team