ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION, COMMERCIAL COURT
Mr Justice Burton
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE TOMLINSON
SIR BERNARD RIX
| Lakatamia Shipping Company Limited
|- and -
|Nobu Su & Ors
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
John Jarvis QC and Josephine Davies (instructed by Cooke, Young and Keidan LLP) for the Appellants
Hearing dates : 17/18 March 2014
Crown Copyright ©
Lord Justice Tomlinson :
"2. The Defendants must not –
(1) Remove from England and Wales any of their assets which are in England and Wales up to the value of US$48,824,440.24; or
(2) In any way dispose of, deal with or diminish the value of any of their assets whether they are in or outside England and Wales up to the same value.
3. Paragraph 2 applies to all of the Defendants' assets whether or not they are in their own names and whether they are solely or jointly owned. For the purpose of this Order, the Defendants' assets include any asset which they have the power, directly or indirectly, to dispose of or deal with as if it were their own. The Defendants are to be regarded as having such power if a third party holds or controls the asset in accordance with their direct or indirect instructions.
4. (1) If the total value free of charges or other securities ("total unencumbered value") of the Defendants' assets in England and Wales exceeds US$48,824,440.24, the Defendants may remove any of those assets from England and Wales or may dispose of or deal with them so long as the total unencumbered value of the Defendants' assets still in England and Wales remains above US$48,824,440.24.
(2) If the total unencumbered value of the Defendants' assets in England and Wales does not exceed US$48,824,440.24, the Defendants must not remove any of those assets from England and Wales and must not dispose of or deal with any of them. If the Defendants have other assets outside England and Wales, they may dispose of or deal with those assets outside England and Wales so long as the total unencumbered value of all their assets whether in or outside England and Wales remains above US$48,824,440.24.
. . . .
6. Exceptions to this Order:
(1) This Order does not prohibit the Defendants from spending a reasonable sum on living expenses and legal advice and representation. But before spending any money the Defendants must tell the Claimant's solicitors where the money is to come from.
(2) This Order does not prohibit the Defendants from dealing with or disposing of any of their assets in the ordinary and proper course of business.
(1) these paragraphs are identical, save for being rendered appropriate to more than one defendant, to the "narrow" form of paragraphs 5 and 6 of the standard form of freezing injunction set out in Appendix 5 to the Commercial Court Guide (White Book 2014 Vol 2 pp 513-518);
(2) this "narrow" form omits an additional qualification (referred to as the "Commercial Court words") of the definition of assets which is designed to catch assets of which the Defendants have legal but not beneficial ownership. If the words ". . . whether they are solely or jointly owned and whether the respondent is interested in them legally, beneficially or otherwise" had been included at the end of the first sentence of paragraph 3, the Injunction would have a wider scope to include assets of which the defendants were mere legal owners (JSC BTA Bank v Solodchenko ("Solodchenko")  1 WLR 888).
(3) the final two sentences of paragraph 3 of the Injunction (and of paragraph 6 of the Commercial Court standard form) are referred to as the "Extended Definition".
The expressions "the Commercial Court words" and "the Extended Definition" were aptly coined by Christopher Clarke J in JSC BTA Bank v Ablyazov and Others (5)  EWHC 1819 (Comm),  2 All ER (Comm) 1243.
"16. I have no doubt whatever that the factual scenario which I have described, namely that the First Defendant effectively controls, and indirectly owns, the companies F3, F5 and IM3, which own the assets, the vessel and the shares which I have described, brings the position plainly, and intendedly, into the definition of paragraph 3 of the Order. It does not cause any offence against Salomon v Salomon for two reasons. First of all, this is, of course, only an interlocutory order, but, in any case, it depends upon a perfectly traditional analysis of company law provisions, where the owner of a company can, by resolution at the general meeting or otherwise, particularly if he is also the sole or controlling director by reference to decisions at board meetings or otherwise, access and direct the fate of the assets of the companies which he thus owns or controls."
(1) 12,142,858 shares in NYSE AMEX listed Vantage Drilling Company ("Vantage") owned by F3.
(2) 200,000 shares in NASDAQ listed Star Bulk Carriers Corporation ("Star Bulk") and US$1.635 million in cash owned by F5.
(3) A ship, MV Iron Monger 3 ("the Vessel"), owned by IM3 Co.
(1) The assets of each company were not themselves frozen by the injunction.
(2) The only limitation on the use of their assets by F3, F5 and IM3 Co was that Mr Su is prevented by the Injunction from diminishing the value of his shareholdings in F3, F5 and (indirectly) in IM3 Co. However, this restriction was subject to Mr Su's right to do as he wished with any assets outside the jurisdiction and exceeding the maximum sum of US$48,824,440.24 which is frozen.
(3) Mr Su in fact had assets outside the jurisdiction in excess of the maximum sum frozen. (It should be noted, however, that at the judge's suggestion, this final point was not pursued at the hearing since it was open to each Defendant to make its own decision and take the risk as to whether a particular asset could be disposed of without breach of the Injunction).
Burton J's judgment of 6 June 2013
"17. In any event, there is a second and further way of looking at the position, namely that, if he, being subject to a freezing order, controlling or owning such company, participates in or allows the sale by that company of its assets, then he is in any event diminishing the value of his asset, namely his shareholding in the companies which have thus disposed of their assets.
18. There is a third approach to the appropriateness of the Order and of this paragraph, which has been discussed in authorities, to which again I was referred in part by Mr Jarvis. He referred me to "The Mahakam" Parbulk II AS v PT Humpuss  2 All ER (Comm) 513, a decision of Gloster J, in which she referred to and relied upon a persuasive judgment of Chadwick LJ (as he no longer was) sitting in the Court of Appeal of the Cayman Islands Algosaibi v Saad Investment Co Limited, 15 February 2011 (unreported). That dictum/decision of Sir John Chadwick, President of that Court, was not only followed in The Mahakam, but has also been referred to and relied upon by Christopher Clarke J in Ablyazov (No.5) to which I have already referred, and by me in JSB VTB Bank v Skurikhin  EWHC 3916 (Comm), 4 December 2012. The analysis is that, in the event that a claimant, who has the benefit of a freezing order, becomes a judgment creditor, then in execution of the judgment he will be able to appoint a receiver, legal or equitable, of the interests of the judgment debtor in the companies which the judgment debtor controls, as here F3, F5 and IM3, and thus be able to execute against the assets of those three companies, being the shares in question in Vantage and Starbulk and the vessel, a right which should be protected by the freezing order."
"19. For all those reasons I have no doubt whatever that the RBS Assets all fall within the terms of the Order of Beatson J and properly so. In those circumstances they are covered by the Order and I am not asked, as I have indicated, at any rate today, by Mr Jarvis to say that they can be used, either by reference to the alleged extra-jurisdictional non-limitation or the alleged right to use the assets, notwithstanding the Order, in the ordinary course of business.
. . .
21. The question then arises as to what should be done with these assets. As Mr Casey has submitted, I have no doubt that I should bear in mind, as he wishes me to, the fact that the declared purpose of the First Defendant in this case was to use these assets either completely untrammelled, or certainly in the course of the transactions and the use for transactions, (sic, possibly for the use of transactions) which, on Mr Casey's submission, would not be in the ordinary course of business, and he submits that there must be some added risk of a breach of the Order and of dissipation by virtue of the disappearance from the scene of RBS.
22. I agree that there should be some form of protection substituted for the involvement of RBS, but not the stringent protection for which Mr Casey was urging, not least because, as Mr Jarvis submitted, this might have sought to convert the Claimant into what they are not, namely secured creditors.
23. I conclude that the right course is to follow the course which in fact Mr Jarvis did not oppose, namely that the dividend to which I have referred, recently paid by Starbulk, should be paid over to CYK and held by CYK together with the 7.6 million which it presently holds and subject to the same undertakings.
24. So far as the Vantage shares are concerned, there are 3 million Vantage shares which would fall to be added to the very much larger quantity of shares which are already held by F3 in circumstances which I have described. The evidence by the First Defendant is that, at any rate at present, he has no wish or intention to sell any Vantage shares, because he wishes to retain the percentage interest in Vantage, which is a large international company, which he gains by having that percentage (I think 33 per cent) at the moment. It seems to me that to add the relatively small number of shares presently secured by RBS to the total of shares which F3 otherwise holds is not going to add in any way materially to the risk of dissipation on the one hand, or to the right of the First Defendant to act in the ordinary course of business in relation to them if he so chooses and if he chooses to take that risk.
25. It seems to me that the other two assets, the IM3 vessel, which it is proposed, it seems, to sell because it is languishing at the moment in poor condition in Dubai, and the shares in Starbulk, now freed from RBS, although of course subject to the Order, should be subject to some kind of replacement limitation on the freedom of the First Defendant, and I conclude that the right course is that neither the vessel nor the shares should be disposed of nor charged nor otherwise dealt with, without the First Defendant giving 14 days' notice to the solicitors for the Claimant."
"IT IS ORDERED AND DECLARED THAT
1. The Royal Bank of Scotland ("RBS") may release the securities listed in Ashurst's letter to Hill Dickinson LLP dated 20 February 2013 without infringement of the injunction granted by Beatson J in these proceedings on 6 October 2011 ("the Injunction").
2. MV Iron Monger 3 may not be disposed of, charged or otherwise dealt with by Iron Monger Three Co Ltd without 14 days' notice being given to the solicitors for the Claimant.
3. The 200,000 shares in Star Bulk Carriers Corporation owned by F5 Capital (and which were pledged to RBS) may not be disposed of, charged or otherwise dealt with by F5 Capital without 14 days' notice being given to the solicitors for the Claimant.
4. The sum of US$1,635,000 (and any interest due thereon) known as "the Star Bulk Dividend" must be paid to a Cooke, Young and Keidan LLP ("CYK") client account where it is to be held subject to CYK's undertaking that those funds will not be used other than with agreement of the Claimant or order of the court.
5. The Defendants' application for the declarations set out in paragraphs (a) to (c) below does not succeed and these declarations are not granted.
(a) Iron Monger Three Co Ltd may sell MV Iron Monger 3 and may use the proceeds of sale in any way that the directors of Iron Monger Three Co Ltd deem appropriate.
(b) F5 Capital may use its assets, particularly the Star Bulk Dividend and its 200,000 shares in Star Bulk Carriers Corporation in any way that the directors of F5 Capital deem appropriate.
(c) F3 Capital may use the 12,142,858 shares it holds in Vantage Drilling Company and which were pledged to RBS in any way that the directors of F3 Capital deem appropriate."
"64. Perhaps surprisingly, there appears to be no case directly on the point here: in particular, there appears to be no direct authority on what I consider to be at the nub, which is whether the last two sentences of paragraph 9 of the Freezing Order (paragraph 6 of the standard CPR form) apply to the exercise of power vested in the respondent in right of the company of which he is sole director and shareholder. Put another way: does a company which has a sole director, who also owns all its shares, hold or control its assets in accordance with that sole director and shareholder's "direct or indirect instructions" within the meaning of that paragraph?
65. In my judgment, settled principles of company law, as explained in the judgments of Rimer and Patten LJJ in the decision of the Court of Appeal in Prest v Prest and others  2 WLR 557 (Thorpe LJ dissenting on the true scope of section 24(1)(a) of the Matrimonial Causes Act 1973 and its interplay with those company law principles, which he did not doubt), mandate the answer: which is "No". This response may dilute the efficacy of the standard CPR form of freezing order, and surprise and unsettle not a few; but to my mind, there is no escape from it."
". . .
(1) As indicated above, and as is well known, a freezing order is "designed to prevent injustice to a successful claimant by preserving assets and funds and guarding so far as possible against the risk that they will be disposed of or dissipated before a judgment is satisfied so as to render ineffective the claimant's attempts to recover what is due to him": per Mummery LJ in Federal Bank of the Middle East Ltd v Hadkinson and Others  1 WLR 1695 at 1709G-H.
(2) Without more, and in everyday usage, the expression "his assets" refers "to assets belonging to that person, not to assets belonging to another person" (the Hadkinson case at 1709F): and assets belonging, or at the time of the freezing order assumed to belong, beneficially to someone other than the defendant, will not be assets available to satisfy a claim against that defendant, and without words clearly extending the scope of the phrase "his assets", such assets will not be subject to the freezing order: the Hadkinson case at 1709H.
(3) That said, a freezing order is a precautionary measure taken urgently to protect the claimant against the risk of dissipation, disposal, reduction in value, or loss of assets pending a fuller examination as to what assets would in reality be available to the claimant for the purposes of enforcing a judgment. Accordingly, it may be perfectly consistent with the objectives of such relief to extend the scope of the phrase "his assets" to assets which the defendant may not appear to own but which may in truth be available to him for the purposes of enforcement; however, words extending the ordinary meaning will be strictly construed, and so as not to invest a meaning that the words cannot reasonably bear: thus, the wording must be clear and free of ambiguity: the Hadkinson case, at 1710 A-B.
(4) If the words are ambiguous, or admit of a more restrictive interpretation, so that it is arguable whether or not the assets in question fall within their scope, the court is unlikely to treat a dealing with such assets as a contempt of court: ibid. at 1711 D-E; and see also per Neuberger J (as he then was) in Cantor Index Ltd v Lister  CP Rep 25.
(5) Since the Hadkinson case, words to extend the meaning of "his assets" have been introduced into the standard CPR form: these are the words in paragraph 6 of the standard CPR form and paragraph 9 of the Freezing Order. Those words extend the meaning of "his assets" to cover assets which are not in the legal ownership of the defendant but in respect of which the defendant "retains the power to direct how the assets should be dealt with": per Patten LJ in JSC BTA Bank v Solodchenko and others  1 WLR 888 898, paragraph 26, per Patten LJ.
(6) Thus, where that form is used, the phrase "his assets" is extended to include also "assets held by a foreign trust or a Liechtenstein Anstalt when the defendant retains beneficial ownership or effective control of the asset": the Solodchenko case  1 WLR 888, para 26.
(7) However, it is clear that those words in the standard form do not extend to assets of which the defendant remains the legal owner but holds for the benefit of someone else: the Solodchenko case paragraph 26.
(8) If it is desired and found appropriate to extend the scope of the injunction to assets held in trust (for example, in cases where a strong prima facie case is demonstrated that the trust is a façade or sham), additional wording must be included to make that clear: the Commercial Court now has a standard form including such wording, though the Court of Appeal made clear in the Solodchenko case that its use should be exceptional and sparing.
(9) As to piercing or lifting the corporate veil: ownership and control of a company are not themselves sufficient to provide justification for that course, even when no unconnected third party is involved and it might be perceived that the interests of justice would be served by it: see VTB Capital plc v Nutritek International Corp  EWCA Civ 808 at paragraph 78. It is always necessary to show impropriety in the sense of a misuse of the company as a device or façade to conceal wrongdoing: see the VTB Capital plc case, para 78.
(10) Even where the circumstances are such as to justify the exceptional step of piercing or lifting the corporate veil the effect is not to alter the beneficial ownership of the company's assets: it is simply to provide for such asset to be available in defined circumstances to the claimant: see per Eder J in Caterpillar Financial Services (UK) Limited v Saenz Corporation and Others  EWHC 2888 (Comm) per Eder J.
"25. Para 6 of the form is intended, as it says, to describe and explain which of the "respondent's assets" para 5 applies to. Those are "his assets" which this court construed in the Hadkinson case as meaning the assets belonging to him beneficially and the first sentence of para 6 repeats the formula which the Court of Appeal considered and ruled upon in that case."
Pausing there, that alone is sufficient to indicate that the Extended Definition of a defendant's assets was not intended to include the assets of another person, here relevantly of a company controlled by the defendant. The two added sentences had a different purpose, as Patten LJ went on to explain:-
"26. The two following sentences are still in terms concerned with "the Respondent's assets" but go on to include an asset which he has power, directly or indirectly, to dispose of or deal with as if it were his own. That would be both an odd and an inaccurate way in which to describe a trustee's power to deal with trust assets given his fiduciary obligations to the beneficiaries but it also ignores the last sentence of paragraph 6. This makes it clear that the power to deal with or dispose of the asset as if it were his own is a reference to a case where the legal owner is not the defendant but a third party yet it is the defendant who retains the power to direct how the asset should be dealt with. This is not, in my view, a partial definition of the preceding words. It is a comprehensive one. And it makes it clear that "the Respondent's assets" can include assets held by a foreign trust or a Liechtenstein Anstalt when the defendant retains beneficial ownership or effective control of the asset. It does not extend to assets of which the defendant remains the legal owner but holds for the benefit of someone else."
Patten LJ went on to deal with the Commercial Court words, which he concluded, at paragraph 46 of his judgment, were intended to expand the type of asset which paragraph 5 of the standard form freezing order would otherwise include to include also assets held by the defendant as trustee or nominee for a third party.
"As I indicated during the course of the hearing, I am not prepared to order the provision of the further disclosure sought from Perchwell, namely the nature and value of the assets held by its wholly-owned subsidiaries, Cegasa, Promanda and Tunnelson. The injunction made against Perchwell restrained it from disposing of its assets whether it was interested in them "legally, beneficially or otherwise" including any asset "which it has the power, directly or indirectly, to dispose of or deal with as if it were its own." The injunction also provided that Perchwell was to be regarded as having such power "if a third-party holds or controls the asset in accordance with its direct or indirect instructions". But the assets caught by the injunction were Perchwell's legal ownership of the shares in the three subsidiaries, not the underlying assets of those subsidiaries themselves. There was no evidence before me providing any justification for me to disregard the separate corporate legal personalities of the underlying subsidiaries, namely Cegasa, Promanda and Tunnelson, or to suggest that their assets were held or controlled in accordance with Perchwell's "direct or indirect instructions". On the contrary, the evidence showed that the shares in the subsidiaries were held pursuant to the nominee agreement to the account of Shawnee. Moreover there was no evidence to suggest that the three companies were not genuine holding or commercial companies in their own right. For example Tunnelson had been the holding company of the SAHO group companies since March 2009. In my judgment, to have made such an order would not only have extended beyond the legitimate jurisdictional ambit of this court's powers as articulated in Uden, supra, but would have also disregarded the principle enshrined in Salomon v A Salomon & Co Ltd  AC 22. "
"7. . . .
(1) The Chabra jurisdiction may be exercised where there is good reason to suppose that assets held in the name of a defendant against whom the claimant asserts no cause of action (the NCAD) would be amenable to some process, ultimately enforceable by the courts, by which the assets would be available to satisfy a judgment against a defendant whom the claimant asserts to be liable upon his substantive claim (the CAD).
(2) The test of "good reason to suppose" is to be equated with a good arguable case, that is to say one which is more than barely capable of serious argument, but yet not necessarily one which the Judge believes to have a better than 50% chance of success.
(3) In such cases the jurisdiction will be exercised where it is just and convenient to do so. The jurisdiction is exceptional and should be exercised with caution, taking care that it should not operate oppressively to innocent third parties who are not substantive defendants and have not acted to frustrate the administration of justice.
(4) A common example of assets falling within the Chabra jurisdiction is where there is good reason to suppose that the assets in the name of the NCAD are in truth the assets of the CAD. Such assets will be treated as in truth the assets of the CAD if they are held as nominee or trustee for the CAD as the ultimate beneficial owner.
(5) Substantial control by the CAD over the assets in the name of the NCAD is often a relevant consideration, but substantial control is not the test for the existence and exercise of the Chabra jurisdiction. Establishing such substantial control will not necessarily justify the freezing of the assets in the hands of the NCAD. Substantial control may be relevant in two ways. First, evidence that the CAD exercises substantial control over the assets may be evidence from which the Court will infer that the assets are held as nominee or trustee for the NCAD as the ultimate beneficial owner. Secondly, such evidence may establish that there is a real risk of dissipation of the assets in the absence of a freezing order, which the claimant will have to establish in order for it to be just and convenient to make the order. But the establishment of substantial control over the assets by the CAD will not necessarily be sufficient: a parent company may exercise substantial control over a wholly owned subsidiary, but the principles of separate corporate personality require the assets to be treated as those of the subsidiary not the parent. The ultimate test is always whether there is good reason to suppose that the assets would be amenable to execution of a judgment obtained against the CAD."
Of course Mr Jarvis is right to remind us that no attempt has here (yet) been made to invoke the Chabra jurisdiction.
"79. More generally, my conclusion that the standard form of freezing order does not, ordinarily and without more, extend to restrain dealings in the assets of a body corporate wholly owned and controlled by the respondent, invites consideration whether, and if so in what circumstances, a variation of the standard form (which is not, of course, a prescribed form, and is often modified to suit the particular case) may be appropriate. I appreciate (as was strongly urged on me by Counsel for the Claimant) that the use of wholly owned and controlled bodies corporate, not as a trading vehicle but in effect as a convenient wallet or pocket, is not uncommon.
80. In my view, it may well be that where there is, or emerges in the context of disclosure, strong evidence that the respondent has or is likely to have assets in a non-trading body corporate which he wholly owns and controls, which do not have any active business, and which are in truth no more than pockets or wallets of that respondent, an extension to the ordinary form of order may be justified. Since it may be that the assets held within those corporate pockets may ultimately be required to be made available for the purposes of enforcement, relief specifically designed to preserve (or more accurately, perhaps, prevent the dissipation of) such assets may be appropriate. Exceptional circumstances would still have to be demonstrated; in many cases, restraint on any transactions diminishing the value of the respondent's shares may well suffice.
81. In such exceptional circumstances, until at least the return date, and after disclosure of all shareholdings, the order might be crafted to restrain dealings in assets of bodies corporate having no or no substantial trading activities and which are wholly owned and controlled by the respondent. The claimant may then determine whether to seek relief directly against such bodies corporate under or by analogy with the so-called Chabra jurisdiction (see TSB Private Bank International S.A. v Chabra  1 WLR 231 (Mummery J, as he then was) and the commentary in Civil Procedure, vol. 2 (2013) para. 15-63), or the continuation of the original restriction, with any appropriate exceptions (in either case) to enable any trading in the ordinary course which is demonstrated."
"Of course, at the interlocutory stage of a freezing order, it may not be necessary (and in most cases is likely to be impossible) to demonstrate that the veil is certain to be pierced or lifted; a real likelihood may suffice. But that likelihood must be demonstrated; for it is (as it seems to me) only the likelihood of the Court at the end of the day piercing the veil so as to make the assets in a company available for the purposes of enforcement which can justify an extension of a freezing order to capture dealings in the assets of bodies corporate wholly owned and controlled by a respondent."
Sir Bernard Rix :
Lord Justice Rimer :