Jersey Unreported Judgments

Companies - application by Second and Fourth Defendant for leave to appeal.

[2012]JCA028

Court of Appeal

6 February 2012

Application for leave to appeal by the Second and Fourth Defendants.

Advocate S. M. Baker for the Plaintiff.

Advocate P. G. Nicholls for the Second and Fourth Defendants.

JUDGMENT

mcneill ja:

1.        There are before me, for determination as a single judge of the Court of Appeal, applications by the second and fourth defendants for leave to appeal against a decision of the learned Deputy Bailiff (W J Bailhache) on 12 January 2012 when he dismissed an application by them to discharge or vary disclosure orders.  In the event of leave being granted, an extension of a stay is also sought.  I have considered the papers put before me and have not required an oral hearing. 

Background

2.        The plaintiff is a corporation registered in Cyprus.  The first defendant is a national of the Russian Federation.  The second defendant is a foundation having its seat in Jersey.  The third defendant is incorporated in the British Virgin Islands and the fourth defendant is a company incorporated in Cyprus.

3.        The plaintiff's claim in its order of justice is for judgment against the first defendant for sums in excess of US$ 44m, for a declaration that the assets of the second defendant are the property of the first defendant and, in the alternative, that certain transactions are void and should be set aside to the effect that ownership of shares by the fourth defendant in certain subsidiary companies should be transferred back to the third defendant.  On 17 November 2011 the plaintiff obtained interim injunctions restraining the first and second defendant from removing from the island of Jersey, disposing of or dealing with or diminishing the value of any of their assets whether jointly or solely owned including the shares in the fourth defendant or any shares belonging to the fourth defendant.  The injunctions also include a requirement for each defendant to make disclosure of his or its worldwide assets and the plaintiff was given leave to serve the first, third and fourth defendants out of the jurisdiction. 

4.        No challenge to the order for service out of the jurisdiction had been made although it appears that the defendants asserted that they reserve all their rights in that respect.  There has been no challenge to the freezing order. 

Proposed Grounds of Appeal

5.        The contentions for the second and fourth applicants in support of their applications for leave to appeal and for a stay of disclosure orders pending determination of the appeal have been set out in fairly succinct compass as have the respondent's contentions opposing those applications.  The well known test for leave to appeal in this jurisdiction was set out in Glazebrook v Housing Committee [2002] JLR N 43 and requires either a clear case of something having gone wrong, a question of general principle being decided for the first time or an important question of law.  In my opinion, neither the second nor the third bases arise and the applicants must show a clear case of something having gone wrong.  I now deal with each applicant separately. 

The Second Defendant

6.        For the second defendant, two contentions were made.  The first was as to why the freezing order should not have been made.  The second was that the disclosure order should not have been made.  Under that second contention it would be argued, first, that the order was ancillary to the freezing order and there was no reason for it to extend beyond Helios's assets in Jersey.  Second, it would be argued that, the assets of a subsidiary not being the assets of the parent, a disclosure order against the parent should not require it to disclose the assets of subsidiaries.  Reference would be made to Linsen International Limited v Humpuss Sea Transport [2010] EWHC 303 (Comm), especially at paragraphs 125 - 126. 

7.        In my opinion, neither line of argument gives an indication of something having seriously gone wrong in the court below.  In the first place, I observe that the court below was not addressed the second defendant with any reasons why the orders should be discharged or varied as against it.  In the second place as the freezing order itself has not been appealed against, the first line of argument cannot succeed.  As regards the second line of argument, whilst the assets of a subsidiary are not the assets of the parent, the learned Deputy Bailiff gave his reasoning for rejecting the submission that the worldwide disclosure orders were not justifiable in order to police the freezing order.  As he indicated, the order prevented the disposal or dealing with or diminishing the value of the assets of the second defendant and those would include the shares in the fourth defendant and any companies owned by the fourth defendant directly or indirectly.  In order to ensure that the value remained intact the plaintiff would need to know what the underlying assets were and what their value was.  That knowledge was the substantial way of enforcing the interim orders: see paragraphs 17 and 18.  As the learned Deputy Bailiff further noted (at paragraph 20) no evidence had been put before him to suggest that the fourth defendant had an independent existence, nor was there any denial as to receipt by it of a substantial number of assets shortly after its incorporation and shortly after the entering of the Russian judgments.  The argument before Sir Christopher Clarke J in Linsen International appears to have turned on the question of whether accounts of subsidiaries were required in order to value the assets of the principal.  In the whole circumstances set out by the learned Deputy Bailiff, particularly without argument and without reference to Linsen International, it was open to him to take a different view.  In my opinion, therefore, the second defendant does not meet the Glazebrook test and leave is refused.

Fourth Defendant

8.        On behalf of the fourth defendant two lines of argument were presented.  The first was that, Jintalex being a Cyprus company, an injunction should not be made against an entity over which there was not even an arguable case that the Jersey court had jurisdiction.  Whilst numerous potential lines of argument were stated, in my opinion there is no clear case of something having gone wrong.  Rule 7(c) of the Service of Process (Jersey) Rules 1994 permits service out of the jurisdiction where the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto. The second defendant has its seat in Jersey. In the related judgment of 12 January 2012 the learned Deputy Bailiff had noted (at paragraph 6) that there was an affidavit in support of the order for service asserting a strong arguable case that the claim fell within Rule 7(b) and (c).  No challenge has been made to that order and it would be usual to require that to be done by way of summons: see James Capel (CI) Limited v Koppel and Fenchurch Trust Limited [1989] JLR 51.  No challenge had been made to that order (although a summons was issued on 13 January), but the fourth defendant raised the issue of jurisdiction in a few short paragraphs in its skeleton argument. 

9.        In paragraph 19 of the judgment below the learned Deputy Bailiff identifies the argument on behalf of the fourth defendant being that, as a distinct legal entity, and not resident in Jersey, it was not an entity in respect of which there was any jurisdiction to make the orders complained of.  His answer to that (in paragraph 20) was to point to the exceptionally close links - in organisation and in time - between the second and fourth defendants to which I have referred above.  Again, I reach the opinion that the fourth defendant has not shown that something has clearly gone wrong below.  There had been no challenge to the allowance of service out of the jurisdiction.  As there is jurisdiction against the second defendant, the potential for Rule 7(c) to be engaged is met.  As I have indicated above, the learned Deputy Bailiff was at pains to point out that no evidence had been put before the court to suggest that the fourth defendant had an independent existence, nor was there denial of having received from the second defendant a substantial number of assets.  As the alleged recipient of assets claimed by the plaintiff, it seems to me that the learned Deputy Bailiff was entitled to view the fourth defendant as a proper party to the claim in order it could raise such issues as to the property to which it has title as appears to it appropriate. 

10.      The second line of argument under this head was that, whilst accepting that courts had jurisdiction to make disclosure orders in aid of execution even where no freezing order had been sought or obtained against the defendant in question, such circumstances should lead the court to be particularly cautious as to whether or not to exercise its discretionary powers.  This is not a ground which can be remitted to an appellate court.  The circumstances in which an appellate court will be prepared to interfere with an exercise of discretion are well known and very limited.  In essence they are a clear case of failure to take into account relevant factors, a clear case of taking into account irrelevant factors and a clear case of a decision which no reasonable tribunal could have reached being properly instructed as to fact and law.  The reputation of Jersey as a financial centre was particularly a matter for a judge such as the learned Deputy Bailiff, and the fact of proceedings being in existence in Cyprus could hardly be an issue of importance where jurisdiction was properly established in Jersey.  Whilst it is correct to emphasise, as the fourth defendant has done, that the Royal Court is always concerned to ensure that it is able to enforce the orders which it makes (see paragraph 17 of the judgment of 12 January 2012), the admitted fact of 100% ownership of the fourth defendant by the second defendant would seem to provide, in the present case, an arguable basis for the decision below and, in consequence, an inability on the part of the fourth defendant to mount a persuasive argument that there was a clear case of something having gone wrong in the decision. 

11.      For all these reasons I refuse leave to appeal and the correlative argument in relation to the stay does not require to be dealt with.  

Authorities

Dalemont v Senatorov and Others [2012] JRC 014.

Glazebrook v Housing Committee [2002] JLR N 43.

Linsen International Limited v Humpuss Sea Transport [2010] EWHC 303 (Comm).

Service of Process (Jersey) Rules 1994.

James Capel (CI) Limited v Koppel and Fenchurch Trust Limited [1989] JLR 51.