England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		11/07/2007

Mr Justice David Steel :

Introduction

1. In this application the Claimant seeks a worldwide freezing order in the amount of US$2 million in support of its claim in London arbitration proceedings arising out of the purchase of the vessel Capaz Duckling. This application has been made on notice and, for the purposes of section 44 of the Arbitration Act 1996, has been made with the consent of the Defendant.
2. The amount sought to be frozen has been held at a Singapore branch of Standard Chartered Bank ("SCB") since 9 March 2005. It was originally frozen pursuant to an injunction granted by the Singapore High Court. That injunction was subsequently discharged on jurisdictional grounds but the amount remains frozen pending the outcome of these proceedings by reason of an undertaking given by the Defendant through its solicitors.
3. The Claimant is a Liberian corporation that is one of five ship-owning companies within a group held by Granite Holding Company based in New York. The day to day management and operation of the ships is carried out from New York by Eastwind Management Group. The sole director of the Claimant is Mr Alexander Rutherford. The Claimant is now the owner of the vessel.
4. The Defendant is a Panamanian Corporation that was formerly the registered owner of the vessel. It is the Claimant's case that it was and is controlled by Taiwanese entities and was and is owned by Taiwan Maritime Transport Ltd. At all relevant times prior to the sale of the vessel, it was a one ship company. Following the sale it has no assets, other than the monies referred to above, and has ceased to trade.
5. The arbitration concerns a dispute which has arisen under a memorandum of agreement ("the MOA") dated 31 August 2004 under which the Claimant was the buyer and the Defendant was the seller of Capaz Duckling (the "vessel"). The purchase price was US$9.5million.
6. The MOA was on the NSF 1993 form. It required that the buyer should pay a deposit of 20% of the purchase price (amounting to US$1.9million) into an account held jointly by the parties at the Singapore Branch of Den Norske Bank ("DNB"). Clause 3 of the MOA then provided that the purchase price was to be paid into the United States dollar account of Messrs Clyde & Co with SCB in Singapore on delivery of the vessel.
7. Clause 5(b) of the MOA provided that "expected time of delivery: 1^st October 2004 – 6^th December 2004 in Sellers option" with a cancelling date at the buyer's option as at 6 December 2004. The MOA contained a term in Clause 14 obliging the seller to compensate the buyer for losses if it was not in a position to give notice of readiness ("NOR") by the cancelling date "due to proven negligence". The MOA also stipulated in Clause 13 that if the buyer did not pay the purchase price in accordance with Clause 3 (i.e. not later than 3 banking days after NOR) the seller would have the right to cancel in which case the deposit would be released to and retained by the seller.
8. The Defendant sought and the Claimant granted five extensions to the original cancelling date. The final request for an extension proposed a cancelling date of 9 March 2005. This was accepted and indeed the vessel was ultimately delivered on that date.
9. The Claimant acceded to each request for an extension expressly without prejudice to its rights under the MOA to compensation for late delivery. It is that compensation which forms the basis of the claim for in excess of US$2million in damages for delayed delivery pursued in the London arbitration. The Claimant also contends that on delivery the vessel was not in the condition required under Clause 11 of the MOA and thus is claiming as yet unquantified damages in respect of that.
10. There was a further dispute between the parties concerning damage to the vessel caused by an explosion which occurred during the period of delay but this was settled prior to delivery on the basis that the Claimant agreed to take delivery of the vessel with the damage caused by the explosion in exchange for a reduction in the purchase price to US$9.3million.
11. So far as the arbitration is concerned the Claimant served its submissions on 28 April 2006 to which the Defendant served responsive submissions on 30 June 2006. There has been no further significant progress in the arbitration since that time. The Claimant's position is that there was little point in progressing the arbitration if a freezing injunction was not maintained and the Defendant was allowed to dissipate the funds held within the SCB account.

Events in Singapore

12. It is clear that the timings were very tight for the closing of the sale:

a. Addendum No. 7 was agreed on Friday 4 March. In it the parties agreed that the delivery of the vessel to the buyer and payment of the purchase price to the seller was to take place on 8 March 2005 "otherwise latest Wednesday 9 March 2005".

b. The Claimant's lawyer Mr Cumming received a signed copy of Addendum No. 7 in New York late in the afternoon New York time on Friday 4 March.

c. On receipt of Addendum No. 7 Mr Cumming instructed the Claimant to remit the balance of the purchase monies to the account provided for in Clause 3 of the MOA. This was the account of the solicitors acting for the mortgagee of the vessel (Clyde & Co) at SCB.

d. Also on 4 March Mr Cumming emailed the Defendant's lawyer Mr Plotnek requesting a draft closing memorandum and suggesting that a dry run of the closing be carried out on the day before the actual closing.

e. Mr Cumming departed New York for Singapore in the evening of Friday 4 March. On the morning of Monday 7 March Mr Cumming was advised that DNB had not yet seen all of the documents which the Claimant was to provide at the closing.

f. In the afternoon the representatives of the Claimant and the Defendant carried out a dry run of the closing. At this stage the parties were intending to complete the sale on the morning of 8 March.

g. Having not heard from the Claimant about the balance of the purchase monies by about 16.00 on Monday 7 March Mr Cumming contacted Mr Plotnek to request that the closing be postponed to Wednesday 9 March. This was agreed.

h. At about 22.00 on Monday 7 March Mr Cumming discovered that the Claimant had in fact transferred the balance of the purchase monies not to SCB but to the joint account at DNB. Mr Cumming informed Mr Plotnek of what had happened on the morning of Tuesday 8 March and Mr Plotnek made arrangements for a joint letter to be sent to DNB authorising the transfer of the sums to SCB. The monies were duly transferred in the afternoon of Tuesday 8 March.

i. DNB received the Claimant's outstanding documents some time on Tuesday 8 March and the closing duly took place on the morning of Wednesday 9 March immediately after which the Claimant served the freezing order that it had obtained from the Singapore Court on both the Defendant and SCB.

13. It appears that the documents in support of this freezing order were filed at the Court at about 2.00pm on 8 March supported by a long affidavit by Mr Rutherfurd. The ex parte hearing took place at 5pm that day before Prakash J who granted the injunction. The Claimant did tell Prakash J of its intention to inform the Defendant of the order but only after completion of the sale. The eventual outcome was that US$2 million of the purchase price paid by the buyer for the vessel as paid into Clyde & Co's account at SCB was frozen.
14. The originating summons in support of the freezing injunction was eventually served on the Defendant on 14 March 2005. The Claimant entered an appearance on 30 March and on 7 April 2005 applied for the freezing injunction to be set aside. The Defendant's application focused on four issues:-

a. whether the Claimant had properly satisfied the requirements for service out of the jurisdiction;

b. whether the Claimant was guilty of bad faith or material non-disclosure or unfair presentation of law and facts;

c. whether the Claimant's motive in obtaining the injunction was to obtain security for its claim; and

d. if the freezing injunction was not set aside whether the sum frozen should be reduced.

15. In the event the focus of Prakash J's judgment was on whether the Singaporean Court had jurisdiction to issue a freezing injunction in support of a foreign arbitration. She decided it did not and on that basis set aside leave to serve the originating summons on the seller out of the jurisdiction. She did not go on to address the issues of bad faith, material non-disclosure or quantum. The judge stayed the discharge of the injunction pending an appeal. The Claimant did appeal but the appeal was dismissed by the Court of Appeal on 1 December 2006. The Court of Appeal affirmed Mrs Justice Prakash's decision that Singapore courts do not have jurisdiction to grant freezing orders over assets in Singapore in support of foreign arbitrations.
16. While the Singaporean appeal was still progressing the Claimant made the present application in England. The Defendant's position was that the application would in due course be opposed but they were reluctant to expend the costs of fighting on two fronts at the same time. The Defendant offered to give an undertaking in respect of the money in the Clyde & Co account until after the Claimant had a chance to make this application following any adverse decision of the Court of Appeal in Singapore. Matters duly proceeded on that basis and, in the wake of the decision of the Court of Appeal in Singapore, the Claimant opted to revive this application so as to ask this court to grant the relief that the Singaporean Court decided that it had no jurisdiction to grant.

Issues

17. It is not in issue that the court has jurisdiction to make the order sought and that the Claimant has a sufficiently good arguable case on the merits to support it. What is in issue is whether :

a) the Claimant has established a real risk of dissipation in the absence of the order

b) the Claimant can establish that it is just and convenient for the freezing order to be granted.

Real risk of dissipation

18. Notably the absence of a real risk of dissipation was not suggested in the Singapore proceedings. In my judgment realistically so given that the test is whether there is a real risk that a judgment will go unsatisfied in circumstances where:

a) the Defendant was a one-ship Panamanian company;

b) the Defendant has disposed of its ship: its only asset is the sum in the SCB account: it is no longer trading;

c) the Defendant has no connection with Singapore and, the monies being readily transferable, it is accepted that they will be remitted elsewhere.

d) the Defendant gives no indication as to where the monies will be transferred to or for what purpose other than to say that "ship-owners have more productive uses for their capital than leaving it in their mortgagees' lawyers' client account."

e) the fact of co-operation by the Defendant in the closing at a time when there was a rising market goes nowhere, all the more so when the sale appears to have been promoted by mortgagees.

Just and Convenient

19. The first point taken by the Defendant in this context is that the Claimant is forum shopping. In one sense that is obvious. Having failed in Singapore, the Claimant now embarks on a further attempt to get the same relief in England. But in my judgment this does no more than re-emphasise the dominant feature of this case. The Claimant pursued its application over a long period in a court which had no jurisdiction to make the order sought. It is only by reason of their success on the ex-parte application, and the undertakings obtained thereafter pending appeal, that the monies are still available to be subject to the new application.
20. It was the Claimant's position, as I understood it, that it was "logical" to start in Singapore. Save in the sense that, given the closing was taking place in Singapore and the purchase monies were to be paid into account in Singapore, it was obviously sensible to give consideration to invoking the jurisdiction of the Singapore courts, I do not understand the proposition. There cannot be anything logical in commencing proceedings where in fact there is no jurisdiction (let alone pursue the application and the subsequent appeal until December 2006).
21. It is true that this application had been issued in June 2006 but the reality is that the first time that any effective steps were undertaken to obtain relief in the jurisdiction which was able to grant it was nearly 2 years after the event. During that period precious little progress has been made in the arbitration. In my judgment this delay alone is an almost insuperable hurdle facing the Claimant.
22. The matter is put beyond doubt when the circumstances in which the freezing order was originally obtained are put in the scales. The primary point made here by the Defendant is to the effect that the ex-parte application was made without proper reference to the relevant and material legal principles. In particular:

a) the failure to draw the Court's attention to the potential difficulties in jurisdiction; and

b) the failure to make a full presentation of the English authorities relating to applications for freezing orders in the run up to a ship sale

23. In the final analysis this would be a matter for the Singapore Courts (indeed the Court of Appeal did not trespass on the issue) but in my judgment these points are both interlinked and well made.
24. Thus one approach is to view matters as if no application had been made until the institution and pursuit of the present application. This reflects the fact that the Singapore Court never had jurisdiction and no change in circumstances as to the identity of the appropriate jurisdiction has arisen since.
25. The alternative approach is to consider this fresh application as being in effect an application to continue the original injunction as if made in England and thus to measure the merits by the yardstick of good faith and proper disclosure. For this purpose it is necessary to consider the basis upon which the ex parte application was made.
26. In the papers there is a note of the hearing before Mrs. Justice Prakash on 8 March. The relevant passages read as follows:

"Injunction to retain US$2.5million in bank account.

Vera Cruz Transportation [1992] 1 W.L.R.

Accrued damages for delay.

Plaintiff there allowed to get an injunction

…………….

Notice of injunction to be given after closing."

………….. "

27. The proposal to serve notice of the injunction after closing was also spelt out in the long affidavit of Mr. Rutherford in support of the application. It was further explained that the reason for proceeding ex parte was that, if notified of the application, the Claimant would, in breach of the MOA, refuse to complete the sale.
28. The very fact that it was thought appropriate to make reference to The Vera Cruz demonstrates something of which I would in any event have taken judicial notice - namely that the Courts of Singapore regard decisions of the English Courts as very persuasive particularly on issues not covered by a decision of their own. Indeed this is manifest from the content of the judgment of Prakash J and the Court of Appeal in the present case.
29. As already revealed, Prakash J's attention was drawn to the decision of the English Court of Appeal in The Vera Cruz. No doubt the primary purpose was to give assurance to the court that, although service of the order was not to be made until after the closing, there was an accrued cause of action on which the freezing order could bite. It strikes me that a fair reading of the authorities in this field produces a much wider picture which needed to be brought to the attention of the court.
30. I take them in chronological order. Many concerned ship sale contracts in which the sellers were potentially trapped by freezing orders on the proceeds of sale reflecting a fashion which lasted about a decade:

(1) The Assios [1979] 1 Lloyd's Rep. 331

Here the judge was not told of the plan to serve the order until after the closing. Lord Denning M.R. urged caution in the granting of injunctions in such circumstances. He expressed particular concern about the fact that the plan was not revealed to the Court but also was troubled that the buyer did not tell the sellers before the closing so as to give them opportunity to consider their position.

(2) Z Ltd v A-Z [1982] 1 Q.B. 558

Kerr LJ categorised as a potential abuse the practice of seeking a freezing order ex parte in advance of payment under a contract which order is thereafter served to freeze the sums paid over. Having referred to The Assios he said this at p. 585:

"However in my view even the disclosure of the intention should not suffice to obtain the injunction in such cases. If a person is willing to make such a payment, appreciating the implications, the courts should not assist him to safeguard the payment in advance by means of a Mareva injunction. However, this is a special type of situation, and, like all others in this field, ultimately a matter for the discretion of the judge to whom the application is made. Accordingly, I say no more about it."

(3) The Niedersachsen [1983] 2 Lloyd's Rep. 600

Here an application was made prematurely in the sense that the relevant cause of action for damages could not arise until delivery. However the planned trap as such was revealed to the Court. When in due course the application was renewed, Mustill J made these general observations:

"While I see the logic of this, it is not compelling. There is something unattractive about the idea of a buyer, who is ostensibly paying the full price of a chattel, preparing himself behind the seller's back to deprive him of part of the price. This gives the buyer the best of both worlds. He is spared the awkward decision whether to reject the res vendita, with the possible commercial loss to himself from not having the chattel, coupled with the risk of an action by the seller for non-acceptance. Instead, he gets the res vendita, avoids an action, and can secure himself for a cross-claim in damages pursued in his own good time. I am very doubtful whether this is a proper use of the Mareva jurisdiction. On the other hand, how is the Judge to identify the cases where relief should refused? I believe that the answer may- and I emphasis "may"- be that it will normally be an abuse of procedure for a seller to restrain the disposal of the purchase price where - (a) the claim upon which the injunction is founded is itself based on the contract of sale and (b) the Court can infer that the seller knows of the facts upon which his claim is based before the sale is completed. In the event, however, it is not necessary to express a concluded view on this point, since I propose to set aside the injunction on other grounds. "

In the event the Court of Appeal, while expressing broad agreement with this critique, laid down no guidelines.

(4) A v B [1989] 2 Lloyd's Rep. 423

Whilst this was a further example of an application being made prior to the cause of action accruing, Saville J was disposed to grant a conditional freezing order - coming into effect when and if delivery took place. The decision was later not followed by the Court of Appeal (see below) but notably, in any event, the apparent ex parte application was in fact on notice to both the defendants and their mortgagees.

(5) Great Marine No. 1 [1990] 2 Lloyds Rep. 245

The issue here centred on whether, in circumstances when following payment a freezing order was obtained, the sellers would be entitled to cancel the contract. That specific submission failed. But Leggatt J made more general observations at p.250:

"The sellers in this case have an understandable sense of disappointment, if not of grievance, that having been led to believe that they would receive an unfettered right to deal with the whole of the purchase monies as they saw fit, they found themselves deprived of the right to deal with $400,000 of it. But if I am right, that occurred, not through breach of contract, but through the imposition of the Mareva injunction. If, when application is made for such an injunction, the Court is not told of the intention to use it to block payment of purchase money, any injunction granted will be discharged for non-disclosure. Provided that the Court is told the facts, it can then decide whether to grant an injunction subject to an undertaking that notice of the intention to serve it will be given to the sellers before completion of the sale so that they may consider, before there are assets of theirs within the jurisdiction to which the injunction can apply, whether there are grounds open to them for not completing the sale.

Though such an order may be appropriate in some cases, in others it may seem more just to allow the trap to be laid so that a one-ship foreign company is not enabled to divest itself not only of the ship but also of the proceeds of sale before a bona fide claim advanced it can be satisfied. "

(6) The Vera Cruz [1992] 1 Lloyd's Rep. 353

It was held that a claimant could not before delivery freeze part of purchase monies in respect of a claim for defects which it was feared would be present on delivery. In so doing the Court of Appeal expressly disapproved of the conditional order granted by Saville J in A v B. Further the Court expressed no disagreement on the view of the judge below that there had been no reason to proceed ex parte:

"That the plaintiff had shown no good reason for applying to the Court ex parte as opposed to proceeding on notice. He rejected the plaintiff's contention that, if notice had been given, the defendant would simply have declined to deliver the vessel altogether and "torn up the agreement". The Judge described this as an important and potentially fundamental point."

(7) The "P" [1992] 1 Lloyd's rep. 470

This was another example of a freezing order obtained prematurely. In addition, the application having been made ex parte, Evans J commented:

"Why then were the defendants' solicitors not informed? The plaintiff's solicitor gives the reason. There was concern lest the defendants might refuse delivery of the ship if they became aware of the injunction, although the plaintiffs were advised that the defendants were not entitled to refuse delivery on this ground. Thus, the defendants were deprived altogether of their right to delay or withhold delivery, if they had such a right and I would add, to question whether the Mareva order was appropriate in the present case, before the order took effect. Lord Denning, M.R. in The Assios thought that the defendants would be entitled in such a case at least to delay delivery to some extent: see [1979] 1 Lloyd's Rep. at p.333. Conversely, if the defendants were not entitled to delay delivery, then by definition the plaintiffs had nothing to lose by giving advance notice. It was even to their advantage to have this issue, if it was to be raised, decided before delivery took place.

I shall say no more in open Court about the facts of the present case, save that in my judgment the plaintiffs were not justified in making the application ex parte, for the reasons I have indicated above. Having taken it upon themselves to make the application without notice to the defendants, the plaintiffs' solicitors undertook a heavy duty of disclosure, one which in my judgment must be stringently enforced."

31. As I see it various principles emerge from these authorities which are not apparent from the decision in The Vera Cruz. Indeed the reference made to that case in the Singapore proceedings was more likely to conceal the principles than reveal them. It merely provides the entry point - the need for an accrued cause of action.
32. Whilst the planned trap was revealed to Prakash J, the Court was not given an opportunity to reflect on other material considerations:

a) whether the Court had jurisdiction to entertain the application;

b) whether it was appropriate for the application to be made ex parte;

c) whether it was appropriate to permit the creation of the "trap" in circumstances in which the co-operation of the sellers to ensure completion before the cancelling date had been duly forthcoming; and

d) whether it was appropriate to require notice to be given prior to completion.

33. For the sake of completeness I add this:

a) The authorities referred to are not obscure: they are of some antiquity and are referred to in the leading text books

b) The submission that there is no obligation to disclose relevant legal principles is not well founded: see Memory Corp v Sidhu (No. 2) 1 W.L.R. 1443.

34. In the skeleton argument, the Defendant submitted as follows:

"94. If the original application had been made to the English Court, with all the material facts and relevant authorities being put before the English judge, it is submitted that the application would either have been refused outright, on the basis that it was unjust for the Buyer to encourage the Seller to complete and take advantage of the Seller's co-operation to enable completion, while at the same time setting a 'trap', or (at the very least) the Buyer would have been obliged to notify the Seller immediately and before completion took place, in order that the Seller might properly consider the options available to it before walking into this 'trap'.

95. Equally, if the initial application had been made in England, and the non-` disclosures discussed above had been before an English judge, it is submitted that this alone would have justified any injunction which had been granted without notice being set aside once these non-disclosures came to light."

35. I agree with those submissions. I conclude that the Singapore order (if made within this jurisdiction or in Singapore) would have been set aside for non-disclosure. Standing back to look at the full picture, there is no basis for resurrecting the order now. Such would not, on this ground also, be just and convenient.