Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
You have to ask yourself why it makes a difference that SN is fighting this issue so hard. The dispute seems to be carrying on quite nicely in the courts. But the revelations that are coming out in these court proceedings must be deeply embarrassing for the company, while finally shedding some light for long suffering shareholders on what has been happening in secret. That is exactly why he wants to put it in arbitration, so all can be hidden once again. We likely never would have found out the true results of the arbitration initiated by GOGC absent these proceedings, and many other matters. The company wasn't going to tell. So in spite of ZM apparently being a bad actor, he has done us all a favor by pursuing this action in court.
The sanctions document was the one from the California case where the judge sanctioned Frontera for not telling the court about the prior Caymans case dealing with the same issues.
Most of the new docs are the same that have been filed before. There's a sanctions document I can't open and a new declaration of ZM. Here's the intro to the main new 16 pager filed by ZM. Don't have time to post the rest right now.
TO THE HONORABLE JUDGE OF SAID COURT:
Frontera Resources Corporation (“FRC”) is not entitled to the injunctive relief it seeks for
the following reasons.
First, the covenant not to compete in Mr. Mamulaishvili’s Employment Agreement, upon
which FRC’s counterclaims is based, is unenforceable because it imposes a greater restraint than
is necessary to protect FRC’s business interests. FRC, the only entity covered by the non-compete
clause, does not have any business interest in Georgia to protect.
Second, performance by the plaintiff is a necessary element of a breach of contract claim.
Mr. Mamulaishvili entered into the Employment Agreement in December 2008, but FRC has not
paid Mr. Mamulaishvili his agreed upon compensation since 2009. Because FRC has failed to
perform its obligations under the Employment Agreement, it cannot enforce the non-compete
clause against Mr. Mamulaishvili.
Third, FRC does not own, and has never owned, any of the assets that are the basis of its
counterclaims. Instead, FRC affiliates owned those assets at one time.1
Conveniently, however, FRC fails to disclose the fact that, as a result of an award from an international arbitration tribunal
and the order of a Cayman Islands court (not as a result of anything Mr. Mamulaishvili did or
failed to do), the affiliates do not own them anymore. Although Mr. Mamulaishvili believes that
the fact that FRC does not own the assets on which it bases its claims deprives FRC of standing,
if the Court believes that FRC’s lack of ownership is a merits issue, the same evidence shows that
FRC has neither a probable right to relief nor an irreparable injury. Indeed, FRC’s assertion that
it has any interest in the assets on which it bases its counterclaim is a baseless sham and an
impermissible collateral attack on the arbitral award and the order of the Cayman Islands court.
There are also significant procedural barriers that will preclude FRC from prevailing on its
claims. For one, FRC has not joined, and cannot join, parties that are necessary to the just
adjudication of its counterclaims. In addition, FRC’s counterclaims should be dismissed on forum
non conveniens grounds because all of the property and conduct on which FRC’s counterclaims
are based is in the Republic of Georgia. Finally, FRC’s counterclaims should be dismissed on the
basis of international comity. Accordingly, FRC’s request for a temporary injunction should be
denied.
Interesting coincidence perhaps--$3 million from this financing plus the $2.8 million from the forward sale equals the $5.8 million debt amount to Green Capital. And payable out of production. Maybe this funding was also Green.
The Green oil sale contract is dated 25 April 2018. Two interesting things I've now noticed. The agreement calls for a payment of $2.8 million, not $5.8 million. There's no amendments attached or anything else around payment besides the $2.8 million. Second, the signature and handwriting for Green of a certain Sant[e]o Moviara looks incredibly similar to ZM.
Also the notarial writ of execution from Green against FRGC whereby Green got a secured claim against FRGC mentions the debt amount of $5.8 million but makes reference to a 19 September 2020 agreement and states that if FRGC due to technical or financial reasons can't conduct oil and gas operations to deliver the hydrocarbons to the buyer according to an attached schedule (not in evidence) then buyer has the right to finance operations and also in event of failure to deliver scheduled amounts to enforce against the "entire property of Debtor."
So we're still not being shown the entire picture. There must be a later agreement with Green that gave them the security interest mentioned in the writ of execution and also that resulted in additional amounts being advanced beyond the $2.8 million in the April 2018 agreement.
Pretty brutal read. A guy who was part of the founding and with the company for 20 years laying out the hard facts of what has resulted from the default and action of the Cayman courts.
Also, as mentioned a couple of days ago, calls out SN for making a false declaration about the assignment to FRUS saying he well knew the assignment was invalid due to the ruling of the arbitration panel.
The role and motivations of Outrider are a bit strange. You'd think they would have been advised by the insolvency professionals that Green would end with the asset being the largest creditor the closest to it if they put FRGC in liquidation. Maybe they tried to make a deal with Green and failed. If they knew all this and proceeded anyway, you'd think maybe it was just punitive against ZM and SN. But then we have word that the company and Outrider are in settlement discussions. It's difficult to fathom how the pieces can be put back together in the face of all the Cayman court orders and actions of the liquidators. Even if ZM and Green are related parties and the sale to Green is invalidated, it goes to Uniserve or turned back over to the GG. So Outrider gets nothing, Green get nothing. SH's get nothing.
Part 4
It is undisputed that FRC never directly owned an interest in FEG or the PSC. FRGC, a
separate entity, entered into the PSC with GOGC and owned 50% of FEG. See FRC’s 1st Am.
Countercl. ¶ 8. Even if the assignment of FRGC’s interest in FEG were valid (which it was not),
that assignment was to FRUS, another subsidiary, not FRC. See id. ¶ 10. FRC chose to conduct
its business through subsidiaries in the first instance and should not be allowed to disregard their
separate existence at its own whim. Accordingly, because FRC never had any direct interest in
FEG or the PSC, it lacks standing to complain about Mr. Mamulaishvili’s alleged efforts to
appropriate those assets. See, e.g., Gattenby, 2019 WL 457600, at *2-3; Grant, 470 S.W.2d at
202-03; Marburger, 957 S.W.2d at 89-90.
II. Neither FRGC Nor FRUS Has Any Interest in FEG or the PSC
FRUS has no interest in FEG or the PSC because an international arbitration tribunal has
already declared that the assignment of FRGC’s interest in FEG to FRUS “was made in breach of
Article 27.3 of the PSC and therefore is null and void pursuant to Article 27.1 of the PSC.” Final
Award ¶ 642 (Ex. E). FRGC has no interest in FEG or the PSC because the Cayman Islands court
ordered FRGC’s interest in FEG and the PSC assigned to Green Capital. See Order, In re FIC,
FSD Cause No. 292 (Grand Ct. Cayman Isl. Mar. 19, 2021) (Ex. B). ...
Because neither FRGC nor FRUS has any interest in FEG or the PSC, they lack standing to assert any claims based on Mr.
Mamulaishvili’s alleged misappropriation of those assets.
CONCLUSION
For the foregoing reasons, Mr. Mamulaishvili respectfully requests that the Court dismiss
FRC’s counterclaims for lack of jurisdiction.
Part 3
Mr. Nicandros, FRC’s CEO and Chairman of the Board and the declarant in support of
FRC’s TRO application, actively participated in the arbitration, frequently communicating with
the tribunal about scheduling issues and submitting a witness statement. See, e.g., id. ¶¶ 147-48,
150, 153, 157-58, 162, 164, 166, 168, 180, 303, 441. Mr. Nicandros was undoubtedly aware of 4
4160-7584-0557.4
the Final Award in the arbitration, and FRC’s claim that “[f]or reasons unbeknownst to FRC or
any of its subsidiaries . . . the assignment of shares in FEG was not properly reflected in the records
of the Public Registry by the Government of Georgia,” which is repeated in Mr. Nicandros’s
declaration, is completely false. ( Mr. Mamulaishvili reserves the right to seek sanctions against FRC and Mr. Nicandros for knowingly submitting a false declaration.) FRC’s 1st Am. Countercl. ¶ 12; 2d Am. Decl. of Steve Nicandros ¶ 7.
D. The Cayman Islands Liquidation of FRGC
Moreover, FRGC no longer has any interest in FEG or the PSC. In October 2018, Frontera
International Corporation (“FIC”), which is the indirect parent of FRGC, defaulted on a loan from
Outrider Master Fund, LP (“Outrider”). See Ltr. from MaplesFS Ltd. to FIC (Apr. 17, 2019) (Ex.
F); see also Final Award ¶ 3 (Ex. E) (describing FIC’s corporate structure). Following the default,
Outrider placed FIC and its subsidiaries (including FRGC) into voluntary liquidation in the
Cayman Islands, where FIC and FRGC were organized. See Winding Up Order, In re FIC, FSD
Cause No. 292 (Grand Ct. Cayman Isl. Dec. 21, 2020) (Ex. G). The Cayman court approved
Andrew Morrison and David Griffin of FTI Consulting (Cayman), Ltd. (“FTI”) as joint liquidators.
See id.; see also Final Award ¶ 324 (Ex. E) (describing the voluntary liquidation).
In the liquidation proceeding, the Cayman court ruled that FRGC’s interest in FEG and the
PSC should be assigned to Green Capital. See Order, In re FIC, FSD Cause No. 292 (Grand Ct.
Cayman Isl. Mar. 19, 2021) (Ex. B). Green Capital was FRGC’s largest creditor as a result of
FRGC’s $5.8 million default on an oil and gas supply contract with Green Capital. See Forward
Sale and Purchase Contract (Ex. H); see also Issuance of Writ of Execution (Ex. I); Mamulaishvili
Decl. ¶ 13 (Ex. 1).
ANALYSIS
I. FRC Lacks Standing to Assert Claims on Behalf of FRGC and FRUS
To establish standing, the plaintiff “must be personally injured—he must plead facts
demonstrating that he, himself, rather than a third party, suffered the injury.” Grant v. Espiritu,
470 S.W.3d 198, 202 (Tex. App.—El Paso 2015, no pet.) (plaintiff lacked standing to sue for
damage to and conversion of a car when the evidence showed that he did not have title to the
vehicle) ... .
Part 2
The assets on which FRC’s counterclaim is based are FRC’s supposed interest in a
Production Sharing Contract (“PSC”) with the Georgian government and in the operating company,
Frontera Eastern Georgia LLC (“FEG”), required by the PSC. See id. ¶¶ 4, 8. The PSC gave FEG
the exclusive right to conduct petroleum operations in a specified area in Georgia. See PSC § 3.1
(Ex. A). FEG was jointly owned by FRGC and JSC Georgian Oil & Gas Company (“GOGC”),
the Georgian state-owned oil company. See FRC’s 1st Am.Countercl. ¶ 9 FRC admits that its
indirect subsidiary, Frontera Resources Georgia Corporation (“FRGC”), not FRC, was the party
who entered into the PSC with the government of Georgia. See Id. ¶ 8 (“On June 25, 1997,
Frontera, through its wholly owned subsidiary, [FRGC] entered into a [PSC] with the Ministry of 3
4160-7584-0557.4
Fuel Oil and Energy of Georgia and the State Company Georgian Oil.” (emphasis added)). FRC
also admits that FRGC, not FRC, owned the 50% interest in FEG. See Id. ¶ 9 (“Frontera, through
its wholly owned subsidiary FRGG, and GOGC each held 50% of the ownership interest in FEG,
the Operating Company.” (emphasis added)). The counterclaim fails to mention that, as discussed
below, FRC lost control over FRGC’s assets in 2019.
C. The Invalid Assignment to FRUS
In 2019, FRGC attempted to assign its interest in FEG and its corresponding rights under
the PSC to “another of [FRC’s] wholly owned subsidiaries, Frontera Resources US, LLC
(“FRUS”).” Id. ¶ 10 (emphasis added). This assignment would only have given FRUS, not FRC,
an interest in FEG and the PSC. See id. In any event, FRC is well aware that an international
arbitral tribunal in Stockholm, Sweden, has already ruled that the assignment of FRGC’s interest
in FEG to FRUS was a nullity. See Final Award ¶ 642, GOGC et al. v. FRGC et al., PCA Case
No. 2018-02 (Apr. 17, 2020) (“Final Award”) (Ex. E).
On January 15, 2018, GOGC commenced an arbitration proceeding against FRGC,
alleging that FRGC had breached the PSC. See id. at ¶¶ 6, 11. Among other things, GOGC asked
the tribunal to: “DECLARE that the purported assignment of Respondent 1’s [FRGC] interest in
the PSC to Respondent 2 [FRUS] is null and void pursuant to Article 27.1 of the PSC.” Id. ¶ 210.
The tribunal concluded that FRGC did not “objectively prove that Respondent 2 [FRUS] has
financial and technical resources to perform any purportedly assigned obligations under the PSC,”
as required by art. 27.3 of the PSC. Id. ¶ 343. Accordingly, the tribunal granted GOGC’s request,
declaring that “the Purported Assignment was made in breach of Article 27.3 of the PSC and
therefore is null and void pursuant to Article 27.1 of the PSC.” Id. ¶ 642.
Part 1
TO THE HONORABLE JUDGE OF SAID COURT:
Counter-defendant Zaza Mamulaishvili moves to dismiss Counter-plaintiff Frontera
Resources Corporation’s (“FRC”) counterclaims because FRC lacks standing to assert them. FRC
admits that the assets that are the basis of its counterclaims were not owned by FRC, but by
subsidiaries. FRC does not have standing to assert claims for injuries to the property of
subsidiaries, especially subsidiaries whose assets it has lost control of in voluntary liquidation. A
prior international arbitration award and a judgment from a liquidation proceeding in the Cayman
Islands have already disposed of the assets on which FRC’s claims are based.
FACTUAL BACKGROUND
A. Background of the Dispute
FRC claims to be an international oil and gas exploration company, although it does not
have any employees, offices, or operations in the countries in which it claims to do business,
including the Republic of Georgia. See Supp. Decl. of Zaza Mamulaishvili ¶ 5 (Ex. 2); see also
FRC’s 1st Am. Countercl. ¶ 6. Mr. Mamulaishvili has been a shareholder in FRC since its
founding in 1996 and has held various positions at FRC since that time, including serving as FRC’s
President and CEO and on its Board. See Decl. of Zaza Mamulaishvili ¶ 5 (Ex. 1) (“Mamulaishvili
Decl.”).
Toward the end of his tenure as CEO of FRC, Mr. Mamulaishvili became aware of a pattern
of misconduct by the other members of FRC’s Board, Defendants Steven Nicandros, Luis Giusti,
and Tyler Nelson (collectively “Defendants”). Defendants’ misconduct exposed FRC to monetary
losses, reputational damage, and even potential criminal liability. Mr. Mamulaishvili brought this
suit as a shareholder in FRC to correct Defendants’ breaches of their fiduciary duties to FRC.
Following the normal procedure in shareholder derivative suits, Mr. Mamulaishvili named FRC as
a nominal defendant.
B. The Assets That Are the Basis of FRC’s Counterclaim
On April 29, 2021, Defendants retaliated by causing FRC to file a permissive counterclaim
and TRO against Mr. Mamulaishvili. In the TRO, FRC accuses Mr. Mamulaishvili of using a
Georgian company, Green Capital, LLC (“Green Capital”), to “hijack and steal all of Frontera’s
assets in Georgia.” FRC’s 1st Am. Countercl. ¶ 4. Although ostensibly brought under the rubric
of the non-compete provision in Mr. Mamulaishvili’s Employment Agreement with FRC, the only
misconduct FRC alleges and the only injury it claims arise from Mr. Mamulaishvili’s alleged
efforts to steal certain of FRC’s assets. See, e.g., id. ¶ 23.
Slowly, slowly, little by little, the truth will out.
August 28, 2020
Zaza Mamulaishvili
No. 12 Paliashvili str
Tbilisi, Georgia
Dear Zaza,
The Board of Directors has convened to make changes in our company's direction,
governance and management.
Pursuant to the constitutional documents of Frontera Resources Corporation, we
hereby notify you that you have been removed from Frontera's Board of Directors
and from the position of President and CEO in a meeting duly convened and held by
the board.
Going forward, transition in our company's financial work will be affected by Price
Waterhouse. Legal matters will be handled by the firm Dentons. Operational
matters will be handled by Schlumberger. Representatives of these firms will be in
touch with you shortly.
We will also be in touch in the days ahead to speak with you.
Sincerely,
Steve Nicandros Luis E. Giusti Tyler Nelson
ZZ, right, so they forfeit the claim plus pay another $125K, meaning about $6 million in total for an asset supposedly worth billions. They either got the bargain of the century or ...
I don't think the 5% ever was consummated; it was supposed to be consideration for transfer of the PSA and 50% interest in FEGL to FRUS. The Georgian govt objected to the transfer to FRUS, and their position was upheld by the arbitration panel. So the asset never transferred from FRGC to FRUS, hence the 5% was never left in FRGC. SN/Company are still asserting that the transfer to FRUS was not recognized due to an administrative oversight in the Georgian registry, but I think this position will not stand up. The arbitration ruling is pretty clear the transfer was invalid.
Unclear. FTI likely have an accounting. Probably for legal, arbitrator and professional fees in the arbitration, which approached $3MM, maybe some for the drilling program.
ZZ, that's an interesting point. Was it a strategic error on Hope's//FTI's part or was it inevitable once the whole structure started being unraveled? You always want to have your security closest to the asset and in this case Green maybe had a secured claim against FRGC.
Agree, Starrage, but maybe they need each other so a compromise is possible. Outrider needs the company’s connections and influence in the USA and Georgia, and the company needs Outrider to negotiate a settlement of the debt, perhaps for equity.
Looks like "Movants" is defined as SN plus Outrider. So they are jointly petitioning the court for the scheduling change and say they need adequate time to complete settlement talks. Wouldn't that be an unexpected turn of events. Company and Outrider settle and jointly go after ZM, who appears to have outfoxed them all and grabbed the asset via Green Capital (allegedly).
The loan notes were issued by Frontera International, the security was the shares of Frontera Resources Caucasus, which in turn owned Frontera Resources Georgia. I believe all three are in liquidation. Maybe Easbern can confirm. The mystery to me is how Green ended up with the asset, not Outrider. Maybe some of the $5.8 million was still laying around and went to Outrider and the asset went to Green, or maybe ZM outfoxed Outrider as well. If the latter, that could explain why according to the court documents posted by Easbern for the California case, there seems to be renewed interest in settling between Outrider and the company. A united front against ZM/Green.
Or they could be spinning the story in their direction, as every party in litigation does. The Cayman side can't be ignored. The chain of ownership between the asset (which is held by FEGL) and Frontera Resources Corporation (FRC) was broken when Outrider took the shares of Frontera Resources Caucasus Corporation in the default and put it into liquidation. If what the company is alleging is true, then Green Capital/ZM are dirty and shouldn't be awarded the asset, and the Georgian govt has stopped the transfer for the time being. But the Cayman court order specifies that it be awarded to Green if the government approves, otherwise to Uniserve or turned back over to the government. So I'm not sure there's any way to get the asset back in the hands of Frontera Resources without going through the Caymans. And it seems that would still have to involve some sort of deal with Outrider, who are now owed the full amount of the loan notes plus interest.
Appreciate that we are only seeing part of the picture, and subject to each party's spin, but the actual Cayman court orders and the arbitration award say what they say, so need to be countered by other equally authoritative evidence.