BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Strand, London, WC2A 2LL |
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B e f o r e :
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(1) NJORD PARTNERS SMA-SEAL LP (2) NPSSF DEBT CO SÀRL (3) AIE INVESTMENTS, LP (4) NORDIC TRUSTEE AS |
First to Third Claimants/ Respondents Fourth Claimant |
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- and - |
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(1) ASTIR MARITIME LIMITED (2) MUHAMMAD TAHIR LAKHANI (3) MUHAMMAD ALI LAKHANI |
First and Second Defendants Third Defendant/ Applicant |
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Matthew Cook (instructed by Greenberg Traurig LP) for the Third Defendant/Applicant
Hearing dates: 30 November - 1 December 2020
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Crown Copyright ©
DAVID EDWARDS, QC (sitting as a Judge of the High Court):
A. Introduction
B. The Applications
i) He alleged that there had been a failure by the Lenders, when making the application for a WWFO, to comply with their duty of full and frank disclosure; and
ii) He said that the Lenders could not (and cannot) demonstrate a real risk of dissipation and so, even if there had been no material non-disclosure, the court should not continue the WWFO in any event.
C. The Lenders' Application
D. Factual Background
(i) The Facility Agreement
i) Permitted As Is Transactions: these were transactions where an Additional Guarantor purchased and acquired title to a vessel pursuant to an Acquisition MOA and then sold the vessel on at a later date to an Approved Recycler pursuant to a Sale MOA; and
ii) Permitted Delivery Transactions: these were transactions where the Additional Guarantor effectively acted as a broker, arranging back-to-back sales between a shipowner, the Additional Guarantor and an Approved Recycler but never (other than notionally) acquiring ownership of the vessel itself.
"(a) no Default is continuing or would result from the proposed Funding Account Withdrawal;
(b) the Repeating Representations [which included a representation of no Default] are true and accurate as at that date with reference to the facts and circumstances then existing;
…
(g) the Agent, or its duly authorized representative, has received (or waived the requirement to receive) all of the documents and other evidence listed in Schedule 2, Part III (Conditions Precedent to Funding Account Withdrawals in form and substance satisfactory to the Agent …"
"1. To the extent not already provided certified copies of the Sale MOA and any addenda/amendments to the Acquisition MOA and/or Sale MOA relating to the Subject Transaction.
…
7. An original of the Approved Borrower Statement duly executed by chief financial officer of the Borrower."
"(d) I confirm that no breach of Clause 20.1 (Financial Covenants) of the Facility Agreement is continuing or would result from the proposed Funding Account Withdrawal and:
…
(iii) All transactions are Permitted Transactions; and
(iv) No Default is continuing."
"(a) Subject to paragraph (d) below, the Borrower shall procure that an amount equal to all Funding Account Withdrawals related to any Eligible Vessel is transferred to the Funding Account in full on or before the Refund Date in respect of those Funding Account Withdrawals".
i) A repetition by each Obligor, which included Astir and North Star, of the Repeating Representations, which included a representation of no Default (save that certain existing Defaults identified in Schedule 4 were excluded);
ii) Additional representations by each Obligor, including the following:
"5.1 Insolvency
No:
(a) corporate action, legal proceeding or other procedure or step described in paragraph (a) of clause 26.7 (Insolvency proceedings) of the Existing Facility Agreement; or
(b) creditors' process described in clause 26.8 (Creditors' process) of the Existing Facility Agreement,
has been taken or, to its knowledge, threatened in relation to it and none of the circumstances described in clause 26.6 (Insolvency) of the Existing Facility Agreement applies to it."
(ii) The Utilisation of the Facility
(iii) Default
"4. As a director of North Star I have been concerned in the matters giving rise to the Petition and have the requisite knowledge of the matters referred to in the Petition. The structure chart on North Star and its subsidiaries can be found at page 4 of 'MAL-2'. North Star is insolvent and unable to pay its debts. I refer to North Star's Provisional Balance Sheet as on 31 December 2019 (at pages 2 to 3 of 'MAL-2') which was prepared by its accountant. This unaudited financial statement shows Total Assets of US$3,029,973.55 against Current Liabilities of US$23,383,869.00 and a Total Net Liability position of US$20,353,895.45. There are also significant contingent liabilities.
…
7. Fleetscape NSMH has taken various enforcement steps under the loan Facility Agreement with Montrose Maritime Ltd (a direct subsidiary of North Star, which is the Guarantor. It declared an Event of Default on 3 December 2019 (at pages 22 to 26 of 'MAL-2') and presented (among other things) an Acceleration Notice on 13 January 2020 (at pages 27 to 29 of 'MAL-2') and a demand under the Guarantee on 13 January 2020 (at pages 30 to 31 of 'MAL-2'). The total sum sought under the Acceleration Notice and Guarantee was US$23,383,869.00 and North Star is unable to meet this obligation."
i) He pointed to Mr Ali's statements in paragraph 4 that he had been "concerned in" and had "the requisite knowledge" of the matters giving rise to the petition, statements, he said, that were at odds with Mr Ali's subsequent protestations that he had no significant knowledge of North Star's affairs;
ii) The timing: Mr Ali swore his 13 February affidavit only two weeks after signing the 2020 Amendment Deed in which the Obligors, which included Astir and North Star, made the representations identified in paragraph 24 above; the matters identified in Mr Ali's affidavit – the enforcement steps taken by Fleetscape – in fact preceded Mr Ali's signature of the deed.
E. The Proceedings
(i) The Claims
i) Claims were made by the Lenders against Astir for payment of the outstanding amounts under the Facility Agreement (paragraphs 62-4);
ii) A claim was made by the Trustee against Mr Tahir for payment of the same sums under his Personal Guarantee (paragraph 65); and
iii) Claims were made by the Lenders against both Mr Tahir and Mr Ali in deceit on the basis of false and deceitful statements alleged to have been made by them to the Lenders (see paragraphs 67-88).
"68. In outline, the deceit consisted of misrepresenting that the delivery of certain Vessels was delayed (the 'Relevant Vessels'). The true position was that the Relevant Vessels had already been delivered and broken up for scrap. This meant that the Refund Date had occurred in respect of the withdrawals associated with each Relevant Vessel and the Obligors were in breach of the Finance Documents in that no refunds to the Funding Account had been made.
69. The true position regarding the Relevant Vessels, as ascertained from port reports and online vessel tracking sources, is as set out in the following 'Breakup Table':
[Table setting out dates when vessels were alleged to have been beached or broken up]
70. Both Tahir and Ali were involved in the administration of the Facility Agreement and the funding thereunder on behalf of the Group and/or Astir. They knew and/or it is to be inferred that they would have known that the Relevant Vessels were not delayed but had in fact been beached and/or broken up. In any event they held themselves out as so knowing by making the representations below."
i) The Lenders alleged that representations were made in the ABSs signed by Mr Ali in respect of various vessels between 26 November 2018 (the "Spirit") and 3 July 2019 (the "NCC Jubail") to the effect that all transactions were Permitted Transactions and that no Default under the Facility Agreement was continuing;
ii) The Lenders said that those representations were false and had been made by Mr Ali without an honest belief in their truth: vessels the subject of previous transactions had been sold and broken up without refunds being made to the Funding Account with the effect that the relevant transactions were no longer Permitted Transactions and that there had indeed been Events of Default.
"(1) Permitting the withdrawals from the Funding Account and Transaction Account in respect of the Vessel to which each Approved Borrower Statement related and each subsequent withdrawal; and
(2) Not taking steps to enforce their rights under the Security Documents or accelerate the Loans under the Facility Agreement and demand immediate repayment from the Borrowers and Obligors."
i) $22,130,522.77, representing the amount of withdrawals from the Funding Account made after 17 December 2018 and permitted on the basis of Mr Ali's representations; plus
ii) An unspecified amount in respect of the diminution in value of the Lenders realizable interest under the Security Documents from 17 December 2018 to the date of Acceleration.[2]
(ii) The WWFO
"The Applicant will not without the permission of the Court seek to enforce this order in any country outside England and Wales [or seek an order of a similar nature including orders conferring a charge or other security against the Respondent or the Respondent's assets]."
inserting instead language referring to the possibility of the Lenders seeking an interim attachment of assets in the United Arab Emirates.
"2. Having been taken to the skeleton argument and witness statement and having heard Mr [Blakeley], it does not appear to me that there was here any attempt by the claimants to hide anything from the judge. On the contrary, they were anxious to inform the judge of what proceedings they intended to take in the UAE and to obtain permission from the judge to do so. However, the form of the undertaking which they provided the judge contained an amendment by way of deletion from the standard undertaking, It also contained an addition to the standard undertaking, namely to identify the proceedings in the UAE which they wished to have liberty to prosecute.
3. However, it is apparent from the skeleton argument and the witness statement and the oral submissions, which I have no doubt were carefully drafted and made, that no reference was made to the deletion of part of the standard form of undertaking. Looking at the amendment now with the benefit of hindsight, it can obviously be seen. Whether that particular deletion and its possible significance were apparent to Mr Justice Foxton, one cannot know. The court has, it seems to me, to be astute to ensure that the duty of full and frank disclosure is complied with when orders of this nature are sought from the court. That is particularly so where deletions are made from the standard form and therefore on the question of whether there has been a failure to make full and frank disclosure on this occasion, I must hold that there has been such a failure."
i) There had been no attempt to hide anything from Mr Justice Foxton;
ii) It was "obvious that this is a case where grounds existed for the grant of a freezing order"; and
iii) The omission did not appear to have caused any prejudice to the Defendants in the sense that nothing that had occurred would have occurred any differently.
(iii) The Defence and Reply
"7.
…
b. Although formally a director of North Star and Astir and in those capacities having signed the agreements which are the subject of the present claim [the Finance Documents] on behalf of North Star and Astir on instructions from his father, Tahir, Ali had:
i. No involvement in the day to day management of Astir;
ii. No involvement or detailed knowledge of the Astir Group's maritime recycling business, save that Ali would occasionally assist in finding ships to purchase for recycling;
iii. No detailed knowledge of the provisions of the Facility Agreement, including the conditions precedent for withdrawals and the documents to be submitted;
iv. No knowledge of the Astir Group's overall financial position or the status of the Loans; and
v. No contact with the Lenders or their agents, save for having participated in initial discussions prior to inception of the Facility Agreement.
c. In short, the Astir Group was controlled by Tahir, Ali's father, and Ali had no knowledge of or involvement in the Astir Group's relationship with the Lenders (other than having acted as formal signatory on the agreements). Ali was not in a position to question and did not question his father's management of the Astir Group.
d. As a result, Ali had little or no knowledge of the matters raised in the Particulars of Claim until service of the Claim and injunction documents. Consequently, both in his capacity as a director of Astir and in his personal capacity, Ali pleads to the issues raised in the Particulars of Claim based on the documents and information produced by the Claimants and the investigations he (and his lawyers) have subsequently carried out. For the avoidance of doubt, the fact that Ali is now able to plead to an issue does not constitute any admission that Ali had any contemporaneous knowledge of those matters"
(emphasis in original).
i) Mr Ali admitted that he participated in discussions with the Lenders prior to the inception of the Facility Agreement;
ii) Mr Ali admitted that he signed the Finance Documents under the terms of which the claim against Astir was made, although he denied having "detailed" knowledge of the provisions of the Facility Agreement;
iii) Mr Ali admitted that he would "occasionally assist in finding ships to purchase for recycling"; he thus admitted that he had at least some practical involvement in Astir's business.
"b. It is also admitted that some or all of those Approved Borrower Statements may have purported to have been signed by Ali acting as Chief Financial Officer of Astir.
c. However, Ali did not sign any of these Approved Borrower Statements and did not know they were being submitted. Furthermore and as the Claimants were at all times aware, Ali was not the Chief Financial Officer of Astir."
"33. As to paragraph 84: Ali did not sign any of these Approved Borrower Statements and did not know they were being submitted.
34. As to paragraph 85:
a. It is admitted that there was a Continuing Default from 30 November 2018 onwards (this being 5 working days after the Equator Peace had been broken up and the sale proceeds in respect of the Equator Peace had been received pursuant to the relevant Sale MOA) and the Equator Peace ceased to be a Permitted Transaction from that date.
b. It is also admitted that the same applies mutatis mutandis in relation to the other Relevant Vessels from the date 5 working days after the sale proceeds were received.
c. The Lenders are put to strict proof of when they discovered that the Equator Peace (and the other Relevant Vessels) had been broken up. As set out above, Hannaford acted as shipping advisors to the Lenders and were responsible for monitoring all aspects of the underlying transactions. They are, therefore, likely to have discovered from online tracking sources and/or port reports that these Vessels had been broken up shortly after this took place.
d. However, since Ali did not sign any of the relevant Approved Borrower Statements, he did not make any representations (including any false representations) to the Lenders in such Statements.
e. In any event, during the period 26 November 2018 to 3 July 2019, Ali did not know that any of the Relevant Vessels had already been delivered and/or broken up for scrap or that sums were still outstanding in relation to the Relevant Vessels. Ali would not, therefore, have known that the Approved Borrower Statements were false in any event."
Mr Ali thus admitted that the ABSs contained false representations; his position was simply that he had not signed them and, therefore, that he had not made those representations; or that, even if he had, he did not know at the time that the representations were false.
"… if the matters pleaded at paragraph 7(b) [of the Defence] are true, then this suffices to render Ali's representations by way of the Approved Borrower Statements fraudulent in the Derry v Peek sense … On his own pleading, if he made the representations in the Approved Borrower Statements, they were made without his having any regard to the truth of the matters he represented were true."
F. The Application to Discharge the WWFO
i) An alleged failure by the Lenders to comply with their obligation to make full and frank disclosure; and
ii) A claim that, even if there had been no material non-disclosure, the WWFO should not be continued because there was (and is) no real risk of dissipation.
"15. I had no involvement in the day to day management of North Star or the Astir Group and I had no involvement or detailed knowledge of the Astir Group's maritime recycling business, save that I would occasionally assist in finding ships to purchase for recycling.
16. As a result, although I signed the Facility Agreements on behalf of North Star acting on instructions from my father, I had no knowledge of the provisions of the Facility Agreements, including the conditions precedent for withdrawals and the documents to be submitted and no knowledge of the Astir Group's overall financial position or the status of the Loans.
17. Save for an initial introduction at the commencement of the relationship between North Star, Astir and Njord, so far as I can recall I had no direct contact with Njord, or its advisors. Instead, it was my father who was the main point of contact overseeing the relationship with Njord, and with Njord's advisors, Hannaford Turner LLP (Hannaford) and Njord's legal representative, Milbank LLP (Milbank).
…
24. In circumstances where the Claimants were alleging that I had engaged in deceit (i.e. made representations knowing them to be false with the intention of deceiving the Claimants), I consider that these are significant matters that ought to have been brought to the Court's attention by the Claimants.
…
26. The skeleton argument filed on behalf of the Claimants for the ex parte hearing makes no reference to:
(1) My father, Tahir, controlling the Astir Group, including being closely involved in the day to day management of Astir and being the main Astir Group point of contact for the Lenders;
(2) My total lack of involvement in the Astir Group's business or its relationship with Njord, Hannaford and Milbank.
27. Instead, it is simply asserted (at paragraph 83) that 'the Lenders' case is that Ali must have known what he was saying was false. It was his job to know. It is also implausible to think that he did not [know] that the Relevant Vessels had been broken up.'
28. I consider that was very misleading given my lack of involvement and the Claimant's knowledge of this."
In paragraph 20 of his witness statement, Mr Ali relied upon a number of passages in Mr Trolle's first affidavit in which Mr Trolle had referred to the Lenders' communications with Mr Tahir in support of his case that he had no relevant involvement in Astir.
i) Mr Ali's signatures on the ABSs for the relevant vessels were not handwritten (or "wet") signatures but electronic signatures – essentially a picture or image of Mr Ali's signature had been inserted into the document;
ii) That this was so, it was said, should have been drawn to the attention of Mr Justice Foxton since "at the very least, it raised serious doubt about whether Ali made the relevant representations at all".
This has been referred to by the parties as the "Electronic Signatures Point".
i) An application by the claimant lenders for summary judgment; and
ii) An application by Mr Ali and Mr Hassan to discharge the WWFO for non-disclosure.
As Mr Salzedo, QC pointed out, one of the non-disclosures alleged in the skeleton argument served (again by Mr Cook) in support of the application to discharge the WWFO in the Yield Street proceedings was Mr Ali's suggested non-involvement in North Star's business, i.e., the same No Involvement Point.
"126. The point that there had been a failure by the Claimants to 'explain that Ali and Hassan had little or no involvement in the ship re-cycling business' was not pursued, and in my view was wholly unsustainable. That case depends upon a disputed assertion by Ali and Hassan that they had no such involvement, That assertion is flatly contradicted by what was said to Njord in 2016 as to the active involvement of both brothers in the business. There is also other clear evidence, to which I have already referred, of Ali's participation. His witness statement admits involvement in the acquisition of vessels, and his signature of a number of MOAs provides further support. That is consistent with the Tradewinds articles, the industry award to Ali, and the presentation to the Claimants in 2019.
127. The second point, that the Claimants failed to disclose that Ali and Hasan had little or no involvement in 'the day to day operations of the borrowers', was also not pursued. Again, that involves essentially the same disputed assertion as the first point. Furthermore, as will become apparent, the Claimants did not present their case to the judge at the WFO application on the basis that there was an extensive documentary trail showing the involvement of Ali and Hasan in the day to day operations of the borrowers. Rather the Claimants' case identified those documents which showed some involvement, and relied upon inferences from other circumstances of the case; in particular, that the relevant frauds were for the benefit of the sons, who were closely connected with their father and who were the owners and sole directors of the relevant business.
128. The third point made in paragraph 11 was the argument that was pursued by Mr Cook. The substance of the case was that the Claimants had not fairly explained that Ali and Hasan had little or no involvement in the relationship with Yield Street.
129. In my view, this non-disclosure argument can be readily dismissed. …"
As paragraph 111 of Mr Justice Jacobs' judgment reflects, the application to discharge the WWFO in the Yield Street proceedings had also alleged that there was insufficient evidence of a risk of dissipation, but that point was also not pursued by Mr Cook at the hearing.
"… the Lenders made no attempt to explain the serious difficulties that existed in relation to the quantum of their claim, including evidence showing that the Lenders had not in fact suffered a loss."
G. The Allegations of Non-Disclosure
(i) Principles
"In considering whether there has been relevant non-disclosure and what consequence the court should attach to any failure to comply with the duty to make full and frank disclosure, the principles relevant to the issues in these appeals appear to me to include the following.
(1) The duty of the applicant is to make "a full and fair disclosure of all the material facts.
(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers.
(3) The applicant must make proper inquiries before making the application. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.
(4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant.
(5) If material non-disclosure is established the court will be 'astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure … is deprived of any advantage he may have derived by that breach of duty'.
(6) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented.
(7) Finally, it 'is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded'. The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms.
"when the whole of the facts, including that of the original non-disclosure, are before [the court, it] may well grant … a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed".
"Nevertheless, the nature of the principle, as I see it, is essentially penal and in its application the practical realities of any case before the court cannot be overlooked. By their very nature, ex parte applications usually necessitate the giving and taking of instructions and the preparation of the requisite drafts in some haste. Particularly, in heavy commercial cases, the borderline between material facts and non material facts may be a somewhat uncertain one. While in no way discounting the heavy duty of candour and care which falls on persons making ex parte applications, I do not think the application of the principle should be carried to extreme lengths. In one or two other recent cases coming before this court, I have suspected signs of a growing tendency on the part of some litigants against whom ex parte injunctions have been granted, or of their legal advisers, to rush to the Rex v. Kensington Income Tax Commissioners [1917] 1 K.B. 486 principle as a tabula in naufragio, alleging material non-disclosure on sometimes rather slender grounds, as representing substantially the only hope of obtaining the discharge of injunctions in cases where there is little hope of doing so on the substantial merits of the case or on the balance of convenience."
The present application, Mr Salzedo, QC submitted, was an example of what Slade LJ described: a party with nothing better than a barely arguable defence grasping at straws.
i) The test of materiality is objective and depends upon the nature of the application and the matters relevant to be known by the judge when hearing it: MRG (Japan) Ltd v Engelhard Metals Japan Ltd [2003] EWHC 3418 (Comm), [2004] 1 Lloyd's Rep 731 at [25] (Toulson J);
ii) A fact is material if it would be relevant to the exercise of the court's discretion in the sense that it is a fact which a judge would need or want to take into account when deciding whether to make the order sought: Alliance Bank JSC v Zhunus [2015] EWHC 714 (Comm) at [65] (Cooke J); National Bank Trust v Yurov [2016] EWHC 1913 at [18(a)] (Males J);
iii) Facts are not material only if their disclosure would have caused, or would have been likely to have caused, the judge to reach a different decision, although that may be a relevant matter when considering whether an injunction should be discharged and/or re-granted: Behbehani v Salem [1989] 1 WLR 723 at 729E-F (Woolfe LJ);
iv) The duty to make full and frank disclosure is not confined to material facts that the applicant actually knows but extends to material facts that the applicant would have known had it made proper enquiries: Brinks Mat (above); Konamaneni v Rolls Royce Industrial Power [2001] EWHC 470 (Ch), [2002] 1 WLR 1269 at [180] (Lawrence Collins J);
v) The court should be told of points that have been raised by the respondent, or that there is reason to anticipate the respondent would have raised if it had been present: Konamaneni (above) at [180] (Lawrence Collins J); Re Stanford International Bank Ltd [2010] EWCA Civ 137, [2011] Ch 33 at [191] (Hughes LJ);
vi) It is inappropriate to seek to set aside a freezing order for non-disclosure where proof of the non-disclosure depends upon proof of facts which are themselves in issue in the action, unless the facts are so plain that they can be readily and summarily established: Kazakhstan Kagazy Plc v Arip [2014] EWCA Civ 381 at [36] (Longmore LJ);
vii) Where facts are material in the broad sense, it should be recognised that there are degrees of relevance. It is important to preserve a due sense of proportion and not to lose sight of the wood for the trees: Kazakhstan Kagazy (above) at [36] (Longmore LJ) (adopting the approach taken by Toulson J in Crown Resources AG v Vinogradsky) (15 June 2001)); and
viii) The ultimate touchstone is whether the presentation to the judge was fair in all material respects: Fundo Soberano de Angola v Dos Santos [2018] EWHC 2199 (Comm) at [52] (Popplewell J); Federal Republic of Nigeria v Royal Dutch Shell Plc [2020] EWHC 1315 (Comm) at [90] (Butcher J).
"19. It is important also not to allow a dispute about full and frank disclosure to turn into what is sometimes euphemistically described as a "mini" trial of the merits. That danger has not been avoided in this case, where the defendants' evidence ran to some 130 pages of written evidence and over 1,500 pages of exhibited documents and the bank responded in kind, in addition to the substantial volume of material on which it had initially relied. In a case where the defendants accept that the bank has a good arguable case and where it is impossible for disputed allegations to be resolved on an application of this nature, much of this material was unnecessary. It is understandable that a defendant accused of misconduct will wish to give his account, not least to avoid any suggestion that he has failed to answer the accusations against him. However, unless both parties exercise restraint, there is a danger that applications for the grant or discharge of freezing orders may become unmanageable. Thus the claimant must disclose material facts, which will include making the court aware at the without notice stage of the issues which are likely to arise and the possible difficulties in its case, but need not extend to a detailed analysis of every possible point which may arise; and the defendant must identify with clarity (and if necessary restraint) the failures of which it complains, rather than adopting a scatter gun approach."
"(1) If the Court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial.
(2) Notwithstanding that general rule, the Court has jurisdiction to continue or re-grant the order.
(3) That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.
(4) The Court should assess the degree and extent of the culpability with regard to non-disclosure. It is relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order. Equally, there is no general rule that a deliberate breach will attract that sanction.
(5) The Court should assess the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the Court. In making this assessment, the fact that the judge might have made the order anyway is of little if any importance.
(6) The Court can weigh the merits of the plaintiff's claim, but should not conduct a simple balancing exercise in which the strength of the plaintiff's case is allowed to undermine the policy objective of the principle.
(7) The application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice.
(8) The jurisdiction is penal in nature and the Court should therefore have regard to the proportionality between the punishment and the offence.
(9) There are no hard and fast rules as to whether the discretion to continue or re-grant the order should be exercised, and the Court should take into account all relevant circumstances."
"Ultimately the question is one of the interests of justice. The court will take into account the importance of the matters which were not disclosed, the nature and degree of culpability, and the adverse consequences to a claimant of losing protection against a risk of dissipation of assets. It is not sufficient to justify regranting the order that it would be justified had the material matters been disclosed and a fair presentation made, because one important factor in weighing the interests of justice is the penal element of the sanction, which it is in the public interest to apply in order to promote the efficacy of the rule by encouraging others to comply."
(iii) Ground 1 – The No Involvement point
"… Ali had not had any involvement in the dealings with the Lenders during the relevant period and there was nothing in those dealings to indicate that he had any active role at all."
i) Mr Ali played a limited role during the negotiation for, and in the due diligence process leading to the conclusion of, the Facility Agreement in March 2017; and
ii) Mr Ali was copied on emails in relation to transactions under the Facility Agreement between April 2017 and April 2018 which attached a number of documents ostensibly signed by him, either by hand or electronically, concerning transactions during that period.
There was also, of course, the acceptance by Mr Ali in his own pleading – see paragraph 57 above – that he had had some involvement in Astir's affairs.
"a. First, that Ali had no active involvement at all in the dealings with the Lenders during the relevant period.
b. Second, that Ali was not copied in on any communications (other than one email in relation to the final vessel) during the period during which the Lenders contend that deceitful representations were being made, including the communications which the Lenders contend were deceitful,
c. Third, that there was nothing in the interactions between the Lenders and Astir during the relevant period to indicate that Ali had any active role at all (other than his electronic signature on documents)."
i) The only transaction specifically addressed by Mr Ali in his first witness statement (see paragraph 42) was the "Path Star", which had been dealt with in Mr Trolle's first affidavit by way of example. Mr Ali denied signing any documents relating to this vessel;
ii) Ms Vaswani explained in paragraphs 32-88 of her fifth witness statement, however, that Mr Ali had ostensibly signed documents in relation to a large number of other vessels, including a significant number of documents that appeared to have been signed by him by hand; and
iii) Mr Cook said, on instructions, that Mr Ali did not accept that he signed documents in relation to these other vessels either, but the absence of any evidence from Mr Ali in reply to Ms Vaswani on this point was striking. I was not persuaded by Mr Cook's suggestion that there was no need for Mr Ali to serve reply evidence to deal with this point.
"… he seems to have had overall control of the North Star group and was closely involved in its day to day management, including in relation to Astir".
Similarly, in paragraph 52-3, dealing with the delays in the completion of transactions after September 2018, Mr Trolle said that the contacts between the Lenders' representatives and the Astir group were principally with Mr Tahir or a junior employee.
"Tahir does not have a formal role within the 'Astir Group', being Astir, the Astir Subsidiaries and Astir's parent company North Star Maritime Holdings Limited ('North Star'). Nonetheless, Tahir is the Astir Group's patriarch and appears to the Claimants to have de facto control of it. Tahir was closely involved in the day-to-day management of Astir and was the (or a) main Astir point of contact for the Lenders and their shipping counsel Hannaford Turner LLP (Hannaford)."
In circumstances where Mr Tahir had no formal position in Astir, the fact that, in practice, he had played a significant role had to be explained.
"31. It is possible that Ali did not know the true circumstances. But if that is right, then he would be in serious dereliction of his duties as a director of Astir and he would have signed the Approved Borrower Statements without taking any steps to satisfy himself of the true position. If he was really ignorant of the breakup of the Vessels, then the only plausible reason that would be so is if he was misled by Tahir. At present, there is no evidence of that."
i) The claim against Mr Tahir (see paragraphs 47-74) was based on representations made in communications sent by him (or on his instructions) from March 2019 onwards. So far as his state of mind is concerned, Mr Tahir was identified in paragraph 57 as "the Lenders' point of contact";
ii) In contrast, the claim against Mr Ali (see paragraphs 75-94) was put squarely on the basis of his status as a director of Astir and the representations made in the ABSs that he was said to have signed on and after November 2018. There was no suggestion that Mr Ali had been involved in extensive correspondence with the Lenders over the relevant period;
iii) As for Mr Ali's state of mind, what was said in paragraph 83 was that:
"As with Tahir, the Lenders' case is that Ali must have known what he was saying was false. It was his job to know. It is also implausible to think that he did not know that the Relevant Vessels had been broken up."
In circumstances where Mr Ali was a director of Astir, the ultimate beneficial owner of 50% of its shares, and where he had ostensibly signed ABSs that referred to the need to undertake diligent review and consideration before making certain of the representations, the case that "it was his job to know" the position in relation to the vessels was an obvious one.
The position was, thus, that whilst the claim against Mr Tahir was presented to Mr Justice Foxton on the basis of his extensive involvement and communications with the Lenders, the claim against Mr Ali was not.
"It is obviously correct that an applicant cannot be liable for a material non-disclosure for failing to disclose as a fact something which is disputed. It is not suggested that the Court is in a position, on this application, to determine on a summary basis that Ali's evidence that he had no relevant involvement in Astir's maritime recycling business during the relevant period is correct."
i) Although the overall extent of Mr Ali's involvement may be in dispute, and although a complaint of non-disclosure cannot be made in that regard, certain specific facts, viz., Mr Ali's limited direct contact with the Lenders and the fact that he was not (generally) copied in on emails to the Lenders during the relevant period, cannot be disputed;
ii) Those specific facts were material to disclose because they indicated that there was reason to anticipate that Mr Ali might say that he did not sign (or authorize the application of his signature to) the ABSs, or that, if he did, Mr Ali did not know of the underlying facts that rendered the representations made in the ABSs false; and
iii) Even if, as Mr Cook accepted, the Lenders would still have been able to surmount the good arguable case threshold, the existence of these facts, and the evidential basis for a possible defence, bore on "the quality of the case in relation to fraud", which was relevant to the risk of dissipation and also to the broader question of whether the court should exercise its discretion in favour of granting a WWFO.
"… focus on the information that should have been given to the magistrate, not merely the information that it is alleged should have been given. What should be before the magistrate is a fair and accurate summary of what is known by the applicant. That includes any points that can properly be made against the grant of the warrant, but also any answers to those points which could properly have been deployed at the time. All this must be considered in the context of the whole of the information before the magistrate so that the salience of the omitted matters can be assessed"
(emphasis in original).
i) It is not right that Mr Ali had no active involvement at all in the dealings with the Lenders during the period relevant to the claim:
a) On 29 January 2020, for example, Mr Ali signed the 2020 Amendment Deed in which representations were made, amongst other things, that there were no defaults;
b) The proposition, in any event, depends upon what is meant by "active involvement". Even if Mr Ali did not communicate with the Lenders directly, he ostensibly signed a large number of documents that were, and that the Lenders were entitled to think that, as a director of Astir, he knew were, going to be supplied to the Lenders for the purposes of the Facility Agreement;
ii) The suggestion that Mr Ali was not copied in on any communications during the period in which the Lenders contend deceitful representations were made is gainsaid by the email in relation to the "NCC Jubail" on which Mr Ali accepts he was copied, but about which Mr Ali had little to say in his first witness statement. (It is unknown, of course, whether Mr Ali was sent or copied in on emails internally); and
iii) The suggestion, that "there was nothing in the interactions between the Lenders and Astir during the relevant period to indicate that [Mr] Ali had any active role at all (other than his electronic signature on documents)" is, in my judgment, plainly wrong.
"Save for an initial introduction at the commencement of the relationship between North Star, Astir and Njord, so far as I can recall I had no direct contact with Njord, or its advisors."
"Apart from the reason listed above, North Star was formed also with forward succession planning in mind with Tahir Lakhani's sons Ali Lahkani and Hasan Lakhani who are now fully active in the business."
(my emphasis).
Mr Ali accordingly represented to the Lenders in December 2016 that he (and his brother) were then "fully active in" North Star's business.
"… setting out what he understood would be the case going forward on what his father had told me was his plan for North Star".
That was not, however, what the email said, and there is, in my judgment (for the purposes of this application, at least) no reason why the Lenders should not have taken it at face value. Mr Ali does not suggest that he ever communicated to the Lenders that what had been said in the email was false or that, as things had turned out, he was not actively involved in North Star's business at all.
i) The ABSs for all 68 of the vessels submitted (save for one cancelled transaction); and
ii) Acquisition MOAs for all but 4 of the vessels submitted for financing and the Sale MOAs for 11 vessels.
Some 328 documents ostensibly signed by Mr Ali were submitted to the Lenders, some 87 of which (approximately 25%) appeared to have been signed by him by hand.
i) Mr Ali was not been copied in to the email on 11 April 2017 concerning the first proposed vessel "Trader";
ii) He was then copied in to emails in respect of the next 12 vessels from 18 April 2017 to 26 September 2017;
iii) There was then a period between 28 September 2017 to 21 February 2018 in which Mr Ali was not copied in on emails;
iv) Mr Ali was copied on emails on 10 April 2018 emails concerning the vessels "Riga", and the "Maya";
v) Mr Ali was not copied on emails in relation to transactions after 1 May 2018, save for the email on 3 July 2019 concerning the "NCC Jubail".
"I do not recall ever having been asked to provide an electronic signature to be used on documents."
He prayed in aid what he referred to orally as "the practical reality", that people rarely comb through documents attached to emails on which they are copied, although Mr Ali had given no evidence to this effect himself.
i) The proposition, that a forger would copy the forged document to the person whose signature had (unknown to him) been forged, here Mr Ali, is a somewhat surprising one; there is an obvious risk that the forgery would be discovered;
ii) This case, furthermore, does not just involve one email copied to Mr Ali attaching a copy of a document ostensibly signed by him but which he now claims he did not sign, but a whole series of such emails. Mr Ali's case must be that he did not open up the attachments to any of them;
iii) There is nothing in the material put by Mr Ali before the court evidencing the fact of Mr Ali's discovery of what, on his own case, was the widescale, unauthorised forging of his signature, any protestation or expression of concern by him when he found out about it, or what he did about it. Mr Ali has declined to say who he believes was forging his signature.
(iv) Ground 2 – The Electronic Signatures point
i) Mr Ali's evidence, that he did not know and approve of the application of his electronic signature to documents, was a lie;
ii) But, even if I were not prepared to go that far, given:
a) The fact (which was not disputed) that it was commonplace for documents to be signed electronically in this type of business;
b) The substantial number of documents that had been provided to the Lenders bearing Mr Ali's electronic signature, sometimes accompanied by documents ostensibly signed by Mr Ali by hand; and
c) The fact that, in many cases, documents bearing Mr Ali's electronic signature had been provided to the Lenders under cover of emails copied to Mr Ali himself without there ever having been any complaint by him
there was no reason for the Lenders to think that Mr Ali might deny that he had signed the ABSs and no reason, therefore, for them to turn their mind to the format of the signatures; and
iii) For essentially the same reasons, the fact that the signatures were electronic was not material: as Mr Salzedo, QC put it, against the full background, if it had been disclosed, it would have signified nothing; it was not something that could have influenced a judge in deciding the principal issue, which was whether the Lenders had a good arguable case against Mr Ali in deceit.
i) What the authorities in fact say – see paragraph 83 v) above – is that the court should be told both of points that have been raised by the respondent or that "there is reason to anticipate" would be raised;
ii) Mr Cook's skeleton argument was closer to the correct position in saying, in paragraph 38(a), that an applicant was under a duty to identify any defences that would be available to be taken by the respondent if the defence is one "which can reasonably be expected to be raised in due course" by the respondent.
(v) Ground 3 – The Repayments point
"The only information [the Lenders] have received is the very recent provision by the Liquidator of a spreadsheet that appears to show when funds were paid and to what use they might have been put. The Lenders however do not know whether this is accurate, how it was prepared, by whom and on the basis of what information. For all they know, it is a further example of deceit by Tahir and Ali."
i) The first limb of the Lenders' claim on quantum (see paragraph 45 above) was the $22,130,522.77 that the Lenders said they had allowed to be withdrawn from the Funding Account after 17 September 2018 on the basis of Mr Ali's representations;
ii) As some $2,769,835.06 of the proceeds from the transactions financed by those withdrawals had been returned to the Lenders, the claim in the $22,130,522.77 amount was unsustainable;
iii) If Mr Justice Foxton had known about this it is unlikely that he would have made a WWFO with a maximum sum of $30,000,000 – a figure that Mr Justice Foxton acknowledged was a rough-and-ready figure, but which assumed that the first limb of the Lenders' claim was worth more than $22 million.
i) They had not had the opportunity to interrogate or seek to verify the matters in the spreadsheet;
ii) There was no independent evidence for the matters underlying the spreadsheet, which, although provided by the liquidators had been prepared by North Star (and, therefore, by the Lakhanis) and which contained little more than assertions; and
iii) The Lenders would, in any event, have relied upon the second limb of their claim – the diminution in the value of their realizable interest under the Security Documents, which was unaffected by the content of the spreadsheet.
(vi) Sanction
i) I reject the No Involvement and Electronic Signature points; in my judgment, there was no material non-disclosure by the Lenders in those respects;
ii) I consider that there was a material non-disclosure by the Lenders of the fact that $2,769,835.06 of the proceeds of the vessels acquired as a result of the post-17 December 2018 drawdowns had in fact been returned to the Lenders. I reject the broader Repayments point.
i) The non-disclosure that occurred was culpable, in the sense that the fact that the spreadsheet suggested that $2,769,835.06 million had been returned to the Lenders was obvious, but it was certainly not deliberate. The spreadsheet as a whole was disclosed;
ii) It cannot seriously be suggested that the non-disclosure cast doubt on the appropriateness of granting a WWFO at all; the impact of the point, as I have indicated, was on the realistic quantum of the Lenders' claim, which was principally relevant to the maximum sum imposed on that order;
iii) That being so, and in circumstances where, as in my judgment was the case, this was an obvious case where grounds existed for the granting of a freezing order, for me to discharge the WWFO entirely on the basis of a failure to disclose a comparatively minor matter in relation to quantum would be disproportionate and extreme.
I recognise the importance of parties complying with their disclosure obligations. But I do not consider that the interests of justice would be served by discharging the WWFO in the present circumstances.
H. Risk of Dissipation
i) The Lenders have a good arguable case against Mr Ali in deceit. The conduct they allege involves dishonesty, and is of a type that is suggestive of a risk of dissipation;
ii) There is evidence that there has already been an attempt by Mr Ali to dispose of assets to defeat creditors. On 20 February 2020, at about the time North Star was put into liquidation, and in circumstances where claims by creditors were plainly being made or likely to be made, Mr Ali and Mr Tahir transferred their shares in DTI Maritime to Mr Tahir's wife;
iii) Mr Ali says that his shares in DTI Maritime were not of substantial value, and that the transfer was a legitimate transfer for value, but there is no independent evidence of those facts. Furthermore:
a) No explanation has been given as to why, if the shares were worthless, Mr Tahir's wife would agree to pay approximately $40,000 for both Mr Tahir's and Mr Ali's shares;
b) No explanation has been given about the commercial rationale for the transfer, and in particular as to why it was made at the time it was; the fact that it coincided with North Star's liquidation is striking;
c) If the transaction was a legitimate commercial transaction, I would expect to have been provided with evidence to show that the approximately $40,000 purchase price was paid. I have not. There is no evidence that this amount has been paid, or, if it has, what has happened to it;
iv) There is, in addition, the concerning fact that Mr Ali signed the 2020 Amendment Deed in which Astir and North Star made the representations identified above, including representations that there were no anticipated financial difficulties, yet only a few weeks later Mr Ali swore his 13 February affidavit explaining that North Star was insolvent and that it had received a demand on 13 January 2020 that it had been unable to meet;
v) Mr Ali, I note, disputes that he knew about matters disclosed in his 13 February 2020 affidavit at any earlier time. That is an issue for trial. But, on his own case, there is a good arguable case that Mr Ali was at least reckless in relation to the representations made in the 2020 Amendment Deed.
I. Disposition
Note 1 My use of initial capitals in relation to the Facility Agreement reflects defined terms. [Back] Note 2 There was also a third category concerning costs and expenses incurred as a result of Mr Ali’s deceit. [Back] Note 3 I was told by Mr Cook that time did not permit Mr Justice Teare to deal with the application to discharge the WWFO on the grounds presently before me. [Back] Note 4 As a result of a technical error, the application of final page numbers to the bundle for the without notice hearing appears to have had the effect of cropping the signatures from the ABSs. The versions that the Lenders had all bore Mr Ali’s signature, and the submissions made to Mr Justice Foxton, which described the ABSs as signed, were correct. [Back] Note 5 $540,000.00 from the proceeds of sale of the “Wan Hai”, $1,264,835.06 from the proceeds of sale of the “Puffin” and $965,000.00 from the proceeds of sale of the “NCC Jubail”. [Back]