England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Rolls Building, 7 Rolls Buildings Fetter Lane, London EC4A 1NL
		06/02/2018

Mr. Justice Teare :

1. This judgment concerns a stakeholder claim pursuant to CPR Part 86 by ST Shipping and Transport of Singapore who were the time charterers of the vessel CV STEALTH. They served their stakeholder claim on Psara Energy of the Marshall Islands, the registered owners of the vessel, and on Space Shipping of Malta, the disponent owners of the vessel. In addition to the charterers Glencore International of Switzerland and Glencore PLC of Jersey are also named as stakeholders. They are, respectively, the named guarantors of the charterers in the charterparty and the issuers of a letter of undertaking to the disponent owners by which they agreed to pay sums that are due to the disponent owners from the charterers. This stakeholder claim, which has arisen in the context of (i) awards made in two London arbitrations and (ii) a Rule B attachment order made in Connecticut, has given rise to questions concerning the circumstances in which stakeholder relief can properly be given.
2. The story leading up to the stakeholder claim is long and detailed. I shall attempt to summarise the most pertinent facts.
3. In 2010 the vessel was bareboat chartered by the registered or head owners to the disponent owners for a period of 5 years. In 2014 the disponent owners chartered the vessel to the time charterers for a period of about 8 months. The time charterers directed the vessel to Venezuela where she was detained whilst waiting to load cargo. She was only released from that detention in October 2017 but has not yet been given permission to sail by the harbour master. Whilst the vessel was redelivered to the disponent owners in 2015 the bareboat charter remains in force. Thus the disponent owners have remained liable to pay hire under the bareboat charter whilst being unable to trade the vessel.
4. The detention of the vessel has given rise to claims by the head owners against the disponent owners for unpaid hire and by the disponent owners against the charterers pursuant to the indemnity. Both sets of claims were referred under the respective charterparties to arbitration in London. Several awards have been issued in both references.
5. The head owners have obtained four arbitration awards against the disponent owners in respect of unpaid hire. The first award (which held that the bareboat charter had not been frustrated and that the disponent owners remained liable for hire) was dated 1 November 2016. Pursuant to that award the disponent owners were ordered to pay the head owners $5.2m.
6. The disponent owners have also obtained no less than seven arbitration awards against the charterers. The first award held that the time charter had not been frustrated and that the charterers were liable to the disponent owners for certain sums. The second award dealt with quantum of ongoing claims for damages. The third award was an award in respect of the charterers' costs of the second award. By a 4^th. Partial Final Award dated 25 May 2017 it was held that the charterers were liable to pay to the disponent owners some $4.3m. in respect of the disponent owners' liability to the registered owners and some $3.5m for operating expenses less certain sums and a credit in respect of saved costs. Permission to appeal from that 4^th. award was refused on 10 November 2017. A demand was then made on Glencore PLC by the disponent owners. There have since been further awards, the 5^th., 6^th. and 7^th Partial Final Awards, pursuant to which the charterers have been ordered to pay the disponent owners sums of $4.6m, $774,000 and $5.1m.
7. In recognition of the cashflow difficulties faced by the disponent owners, the head owners and the disponent owners entered into a Settlement Agreement dated 8 December 2016 pursuant to which the first $4m. paid by the charterers to the disponent owners was to be retained by the disponent owners, the next $1,787,375 reflecting 181 days' hire under the bareboat charter was assigned to the head owners and any further sums were to be paid to the disponent owners. On 5 July 2017 the head owners gave notice of the assignment to the charterers.
8. The disponent owners' demand on Glencore in November 2017 took no account of that assignment. As a result, stakeholder proceedings were issued by the charterers and Glencore on 20 November 2017. On the same day the disponent owners accepted that of the sum of US$6.4m. ("the stakeholder account") held by Clyde and Co. (the charterer's solicitors) to the order of the court, $1,787,375 representing 181 days of hire could be paid to the head owners. The disponent owners accepted that that sum, at least, had been assigned to the head owners. But there remained a dispute between the head owners and the disponent owners as to the scope of the assignment. That issue was determined against the head owners in the third award between head owners and the disponent owners and in consequence the head owners accept that they have no further claim pursuant to the assignment.
9. That however did not resolve the stakeholder claim because, on 1 November 2017, the head owners had obtained from the US District Court of Connecticut a Rule B attachment order which attached or garnished "the debts of [the charterers] to [the disponent owners]". This order was in support of claims by the head owners against the disponent owners totalling some US$19.6m. The greater part of that claim, some $15m., relates to a claim in respect of the alleged breach of the disponent owners' maintenance obligations under the bareboat charter. However, as held by the arbitration tribunal in the bareboat charter reference, it is not clear that there has been a breach and in any event any damages suffered would not crystallize unless and until the vessel was redelivered in an unrepaired condition.
10. The head owners gave notice of the Rule B attachment order on 2 November 2017 pursuant to which they said that the charterers were directed to "attach and freeze and all tangible or intangible property and/or assets held for the benefit of [the disponent owners]".
11. However, that order was vacated on the application of the charterers on 20 November 2017. The reason for that decision was that the court was unable to exercise personal jurisdiction over the charterers and accordingly property held by the charterers was outside the jurisdiction of the court. The head owners have appealed against that decision but their applications for a stay from the court at first instance and from the US Court of Appeals have been refused.
12. One might have thought that in those circumstances the basis for the stakeholder application had fallen away. The assignment point has been resolved against the registered owners and the Rule B attachment order has been vacated. Yet the charterers continue to fear that if they were to pay the sums due to the disponent owners under the arbitration awards they might be exposed to having to pay them again to the head owners.
13. The reason for that fear is that the head owners maintain that by reason of having served the Rule B attachment order on the charterers they have a proprietary claim on the debt owed by the charterers to the disponent owners which can be enforced in the event that their appeal against the vacation of that order succeeds. That argument is said to be supported by the advice of a lawyer from the US; Mr Miller is licensed to practise in the US Supreme Court and certain other courts..
14. Those are the circumstances in which the court must decide what order to make upon the charterers' stakeholder claim. The disponent owners ask the court to order that the sums held by Clyde and Co. to the order of the court should be paid to them. The head owners say that that should not happen and that the court should order a trial of the issue as to whether the head owners have a proprietary claim on the debt owed by the charterers to the disponent owners. The charterers say that there should be no order for payment to the disponent owners and no order for the trial of an issue because, were the court to decide that there was no proprietary claim and order payment to the disponent owners, the court in Connecticut may disagree with the decision of the English court thereby leaving the charterers exposed to having to pay a second time. These submissions have given rise to a number of questions.

Is this a stakeholder claim within the CPR?

15. CPR Part 86 provides as follows:

Scope of this Part and interpretation

Rule 86.1

(1) This Part contains rules which apply where—

a person is under a liability in respect of a debt or in respect of any money, goods or chattels; and

competing claims are made or expected to be made against that person in respect of that debt or money or for those goods or chattels by two or more persons.

(2) In this Part—

(a) 'stakeholder' means any person to whom paragraph (1) applies;

(b) 'stakeholder application' means an application made under rule 86.2(1).

Stakeholder Application

Rule 86.2

(1) A stakeholder may make an application to the court for a direction as to whom the stakeholder should—

pay a debt or money; or

give any goods or chattels.

(2) Such application must be made to the court in which an existing claim is pending against the stakeholder, or, if no claim is pending, to the court in which the stakeholder might be sued.

(3) A stakeholder application must be made by Part 8 claim form unless made in an existing claim, in which case it must be made by application notice in accordance with Part 23.

(4) A claim form or application notice under this rule must be supported by a witness statement stating that the stakeholder—

claims no interest in the subject-matter in dispute other than for charges or costs;

does not collude with any of the claimants to that subject-matter; and

is willing to pay or transfer that subject-matter into court or to dispose of it as the court may direct.

(5) The stakeholder must serve the claim form or application notice on all other persons who, so far as they are aware, asserts a claim to the subject matter of the stakeholder application.

(6) A respondent who is served with a claim form or application notice under this rule must within 14 days file at court and serve on the stakeholder a witness statement specifying any money and describing any goods and chattels claimed and setting out the grounds upon which such claim is based.

(7) The claim form or application notice will be referred to a Master or a District Judge.

Powers of court hearing a stakeholder application

86.3

(1) At any hearing in a stakeholder application, the court may—

order that any stakeholder or any claimant to the subject matter of the application be made a defendant in any claim pending with respect to the subject-matter in dispute;

order that an issue between all parties be stated and tried and may direct which of the parties is to be claimant and which defendant, and give all necessary directions for trial;

determine the stakeholder application summarily;

give directions for the determination of the application summarily or of any issue on the application; or

give directions for the retention, sale or disposal of the subject matter of the application, and for the payment of any proceeds of sale.

(2) Nothing in this rule limits the court's case management powers to make any other directions permissible under these Rules.

Trial of issue

86.4

(1) Part 39 will, with the necessary modifications, apply to the trial of a preliminary issue directed to be tried in a stakeholder application as it applies to the trial of a claim.

(2) The court by which an issue is tried may give such judgment or make such order as finally to dispose of all questions arising in the stakeholder application.

Costs

86.5

(1) The court may in or for the purposes of any stakeholder application make such order as to costs or any other matter as it thinks just.

(2) Where a respondent fails to appear at the hearing, the court may direct that the stakeholder's costs shall be summarily assessed.

16. Mr. Kulkarni, on behalf of the disponent owners, has submitted that this stakeholder claim is not within CPR Part 86 because there are no "competing claims". First, the disponent owners do not have a claim; they have an arbitration award. Second, Part 86 requires or envisages proceedings in the English court; the head owners have commenced proceedings in Connecticut, not in in England.
17. The relevance of this submission is that, if it is right, Mr. Kulkarni seeks an order that in circumstances where the charterers have, effectively, paid the amount of the award into court and lay no claim to it the sum in question should be ordered to be paid to the disponent owners. There is no need, he says, in the circumstances of this case for the disponent owners to register the award as a judgment and then to seek to enforce it.
18. Although there is no overarching definition of "claim" to be found in the CPR I accept that there must be many references to "claim" in the CPR which mean proceedings before the English court. The CPR is, after all, concerned with civil claims brought before the English court. In those circumstances I consider that "claim" means or envisages proceedings before the English court unless the context otherwise requires. But in my judgment the context of Part 86 does otherwise require. A warehouseman, whose contract refers disputes to arbitration, may face competing claims from two persons each of whom claims to have been the owner of goods deposited in the warehouse by an agent acting on his behalf. The warehouseman may in those circumstances issue a stakeholder claim within Part 86 because he faces competing claims notwithstanding that such claims will be made in arbitration, not in proceedings before the English court. There would be a lacuna in Part 86 were it to be construed as not extending to such a case. A charterer, who has a place of business both in England and in the United States, may face competing claims for the payment of hire from the disponent owner (who resides in England) and from the head owner who has exercised a lien over the sub-hire. The latter may have threatened to sue him for the hire in the United States. The charterer may in those circumstances issue a stakeholder claim within Part 86 because he faces competing claims notwithstanding that one of the claims will be made in the United States. Again, this would be a lacuna in Part 86 were it to be construed as not extending to such a case.
19. Thus the head owners in the present case are not to be excluded from those having a claim merely because they have commenced proceedings in Connecticut.
20. In support of his submission that the disponent owners are not to be regarded as having a claim because they have an award Mr. Kulkarni relied upon the decision in H. Stevenson & Son v Brownell [1912] 2 Ch 344 and the note in the White Book at 86.1.2 based upon that case to the effect that "claim" in interpleader or stakeholder actions does not extend to concluded claims where judgment has been obtained.
21. H. Stevenson & Son v Brownell concerned competing claims to royalties. In the United States litigation was commenced by a Mr. Healy who claimed to be interested in the royalties. On 7 December 1911, H. Stevenson & Son commenced an action in England against the two members of a syndicate in respect of the royalties. On 22 February 1912 an order was made, it appears by consent, that the syndicate pay the company £199 in respect of the royalties. On 28 February 2012 the syndicate then issued interpleader summons addressed to the company and Mr. Healy. The summons was dismissed by the district registrar but allowed by Eve. J. who discharged the earlier order, stayed the prior proceedings, ordered payment in and a trial to determine whether the company or Mr. Healy were entitled to the sum of £199.
22. It was held by the Court of Appeal that the interpleader procedure did not apply. Cozens-Hardy MR said at p.347 to 348:

"Is this a case to which interpleader procedure applies? The practice is now governed by the Rules of the Supreme Court, 1883, Order LVII., r. 1. The material matter in this r. 1 is sub-s. (a): "Where. the person seeking relief (in this Order called the applicant) is under liability for any debt, money, goods, or chattels, for or in respect of which he is, or expects to be, sued by two or more parties (in this Order called the claimants) making adverse claims thereto." The syndicate are not being sued by two persons; they were being sued by one and there was a threat that they might be sued by another. There are not two pending proceedings at all. One matter has ripened into a judgment, and there is nothing whatever to which this rule will apply. I do not see how we can hold that, because in the Act of 1881 the time within which interpleading procedure might be commenced was limited and that Act has been repealed, under the present practice it is possible to interplead at any time after judgment has been obtained by one claimant, and even after judgment has been given by consent. In my opinion to allow this interpleader would be altogether contrary to the language and spirit of the Rules; and without going into the other points I think the order should be discharged with the usual consequences without prejudice to any question of costs between the syndicate and the claimants."

23. I do not consider that the decision in that case assists the disponent owners in the present case. The claim appears to have concerned rival claims to royalties. But the company had obtained judgment against the syndicate (it appears by consent). Only thereafter were interpleaded proceedings issued. By that date it was too late for the syndicate to request the court to determine to whom the royalties should be paid because the syndicate had consented to judgment in favour of the company. The present case does not concern rival claims by two persons claiming to be entitled to be paid hire under the time charterparty. The head owners do not say that they were party to the time charterparty and therefore entitled to receive damages or an indemnity thereunder. Rather, they say that by reason of the Rule B attachment order in Connecticut they have a lien (which they describe as a proprietary right) on the chose in action represented by the disponent owners' right to payment of the award by the charterers. That does not appear comparable to the facts of H. Stevenson & Son v Brownell.
24. Further, in the present case the disponent owners are not judgment creditors. Although the disponent owners are the beneficiaries of a number of arbitration awards, judgment has not been entered in the terms of the arbitration awards. The consequence is that the disponent owners, whilst they have a contractual right to payment of the awards by the charterers, are not entitled to enforce a judgment in manner in which the company was in H. Stevenson & Son v Brownell.
25. I therefore consider that the decision in H. Stevenson & Son v Brownell does not prevent the present case being one of competing claims within the meaning of CPR Part 86.
26. A further point was taken in relation to Glencore PLC who issued the LOU in favour of the disponent owners. It was said that Glencore PLC had no entitlement to issue a claim for stakeholder relief because only one claim was brought against it under the LOU by the disponent owners. There was no competing claim by the head owners. However, I accept Mr. Southern's submission that the LOU is a contract of surety. In those circumstances it appears to me sensible that both the primary obligor and the surety were made party to the stakeholder claim. Were the surety not made party there would be a risk that if the sum in the stakeholder account were ordered to be paid out to the head owners or held in court pending further proceedings the surety would be at risk of having to make payment to the disponent owners.
27. It follows that the stakeholder claim was properly issued.

Should the court order, pursuant to CPR Part 86, that the sums in the stakeholder account be paid out to the disponent owners?

28. Mr. Kulkarni submitted that the Rule B attachment proceedings in Connecticut are merely a means by which security is provided for the future enforcement of claims still to be established by the head owners against the disponent owners. They are analogous to a claim for a freezing order in this jurisdiction. As such they ought not to be used by the head owners as a means of preventing the disponent owners from recovering from the charterers the sums which the arbitration tribunal has ordered the charterers to pay.
29. I accept that the Rule B attachment proceedings are a means by which assets are preserved so as to be available for future execution of a claim when that claim has been established. To that extent there is an analogy with a freezing order in this jurisdiction. However, the analogy cannot be taken too far. A freezing order operates in personam. By contrast there is evidence (in the reasoning of the Connecticut court when it discharged the Rule B attachment order) that the Rule B attachment order operates quasi in rem. The order purports to attach or garnish the debt due from the charterers to the disponent owners. It is described by Mr. Miller, who has provided a Report on behalf of the head owners, as an "attachment lien" which he says is a form of proprietary interest. This ought not to be a surprise because in English law a garnishee order (now known as a third party debt order) is a proprietary remedy which operates by way of attachment against the property of the judgment debtor (the property being the chose in action representing the third party's debt to the judgment debtor): see Société Eram Ltd v Cie Internationale de Navigation [2004] 1 AC 260 at [24] per Lord Bingham. A garnishee order is not a claim in personam made against a third party but is the enforcement of the judgment in rem against the debt: see Kuwait Oil Tanker Co SAK v Qabazard [2004] 1 AC 300 at [16] per Lord Hoffmann.
30. I therefore accept Mr. Southern's submission on behalf of the stakeholders that it is the nature and effect of the attachment which matters and which gives rise to the competing claim. A Rule B attachment can thus amount to a competing claim to the debt owed by the charterers notwithstanding that the order is intended to provide security for a claim by the head owners against the disponent owners.
31. However, in the present case the Rule B attachment order has been discharged or vacated. In those circumstances Mr. Kulkarni submitted that there was no reason why the sums in the stakeholder account should not be paid out to the disponent owners. Mr. Wright, on behalf of the head owners, submitted that there was good reason for not making such an order, namely, the opinion of Mr. Miller that the Rule B attachment proceedings provided the head owners with a proprietary claim to the debt owed by the charterers to the disponent owners. He accepted that this was disputed and that therefore there must be a trial of that issue. But pending that trial there could be no payment out.
32. In response Mr. Kulkarni said that no trial was necessary because it was clear that Mr. Miller was not suggesting that there was any present proprietary right. In the absence of any such right there was no reason why the sums in the stakeholder account should not be paid out to the disponent owners.
33. The relevant passage in Mr. Miller's opinion states as follows:

"A. Do Owners have a proprietary interest in the deposited funds?

Short Answer

Yes. Under American jurisprudence, Owners have a proprietary interest in the deposited funds that is contingent on the outcome of the pending appeal before the Second Circuit Court of Appeals. The funds deposited into escrow have been identified by ST, the time charterers, as funds it is required to pay to SPACE in satisfaction of the arbitration award against ST. That obligation to pay the arbitration award was attached in the Rule B proceedings in the District of Connecticut. When garnishment process was served on ST, Owners acquired a lien on the award and on any funds allotted to its payment. This type of lien is denominated an attachment lien. Though the order of attachment has been vacated by the Connecticut court that issued it, the court's jurisdiction over SPACE, the attached res and ST, as garnishee, remains during the pendency of the appeal. Jurisdiction was not extinguished by the order vacating the attachment. The attaching creditor's proprietary right is an attachment lien, which remains effective, albeit not enforceable, while Owners' right to seek appellate review has not been exhausted."

34. It seems to me, based upon Mr. Miller's opinion, that at the present time there is no enforceable attachment of the debt owed by the charterers to the disponent owners. The attachment is contingent upon the appeal succeeding. That is of course what one would expect in circumstances where the attachment order has been discharged and where a stay of the order discharging or vacating the attachment order has been refused. Were it otherwise there would have been no need for the head owners to seek a stay of the order discharging or vacating the attachment order. Mr. Miller says that the attachment remains "viable" pending appeal but it is, he accepts, unenforceable. In those circumstances there is only one person with an existing enforceable claim to the debt owed by the charterers to the disponent owners and that is the disponent owners. That would suggest that the court should order that the sums in the stakeholder account should be paid out to the disponent owners.
35. Mr. Southern submitted that the court should not do that because, were the appeal in Connecticut to succeed, the charterers may be ordered to pay the debt again to the head owners. If there is such a risk the court should proceed with caution because the purpose of a stakeholder claim is to protect the stakeholder; see De La Rue v Hernu, Peron & Stockwell Ltd [1936] 2 K.B. 164. at 168 per Greer L.J..
36. I do not consider that, if the court orders that the sum in the stakeholder account is paid out to the disponent owners, there is a risk that the charterers may be ordered at a later date to pay the head owners the same sum. The head owners are party to the stakeholder claim. They are bound by reason of the doctrine of res judicata by any order the court makes. In the event that the court ordered that the sum in the stakeholder account be paid out to the disponent owners in satisfaction of the debt owed by the charterers the head owners would be estopped from contending that they, rather than the disponent owners, were entitled to the debt owed by the charterers. In any stakeholder claim that estoppel is the reason why the stakeholder is protected by the court's order. The losing party is no longer free to advance a claim against the stakeholder. It would be unconscionable for the losing party to do so.
37. It was suggested by Mr. Wright, with some assistance from the opinion of Mr. Miller, that a question of comity has arisen and that the English court should defer to the US Court of Appeals. I am not persuaded that this is so in circumstances where there is at present no enforceable Rule B attachment order and the US Court of Appeals has refused to order a stay of the order vacating the Rule B attachment order. By refusing a stay the US Court of Appeals has in effect said that matters may take their course. By ordering that the sum in the stakeholder account be paid out to the disponent owners the English court is not thereby acting in conflict either with an existing order of the Connecticut court or with the wishes of the US Court of Appeals.
38. I have therefore reached the conclusion (subject to the next matter to be discussed, the Third Party Debt Order applications) that the sum in the stakeholder account should be paid out to the disponent owners.

Third Party Debt Orders

39. The head owners seek Third Party Debt Orders (the successor to the garnishee order) against the sum in the Stakeholder Account in respect of the awards to the head owners of $911,894.40 and £204,620 which have been registered as judgments by orders of Popplewell J. dated 15 and 25 January 2018. The making of such orders are not disputed by the disponent owners so long as, in accordance with the CPR Part 72.4, they are interim orders.
40. However, the disponent owners nevertheless claim that the entire sum in the Stakeholder Account should be paid out to them on the grounds that they obtained their award first and that that is an equitable solution; see Novoship v Mikhayluk [2014] EWCA Civ 252 per Gloster L.J. at paragraphs 57-68 and Midtown Acquisitions v Essar Global Fund (unreported, 16 January 2018). Mr. Kulkarni submitted that it would be equitable to allow payment out in full to the disponent owners because it is the head owners' attempts to stifle payment by the charterers to the disponent owners which have led to the head owners' awards against the disponent owners. Mr. Wright submitted that the court should be cautious in accepting the disponent owners' submission that they will pay hire if the sum in the Stakeholder Account is paid to them because "there have been problems in the past."
41. It seems to me that in circumstances where the disponent owners maintain that they will pay over sums that are indisputably due to the head owners then it must be fair and equitable to ensure that that is done in such a manner which saves the parties from incurring any further costs. That can be achieved by ordering that the sum indisputably due to the head owners be paid out to the head owners and that the balance be paid out to the disponent owners.
42. I shall ask the parties to draw up an order to give effect to my conclusions.