A2/2004/2173 John Louis Carter Fourie (Appellant) Allan Le Roux and Others (Respondents) A2/2004/2602 Allan Le Roux and Another (Appellants) Herlan Edmunds Engineering (Pty) Ltd (Respondent)
| Jurisdiction | England & Wales |
| Judge | The Vice-Chancellor |
| Judgment Date | 07 March 2005 |
| Neutral Citation | [2005] EWCA Civ 204 |
| Docket Number | Case No: A2/2004/2173; A2/2004/2602; 2602(A) |
| Court | Court of Appeal (Civil Division) |
| Date | 07 March 2005 |
[2005] EWCA Civ 204
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
Mr. J. Jarvis QC [2004] EWHC 2260 (Ch)
Mr. Justice Blackburne – [2004] EWHC 2557 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
The Vice-Chancellor
Lord Justice Mance and
Lord Justice Jonathan Parker
Case No: A2/2004/2173; A2/2004/2602; 2602(A)
Mr. Selwyn Bloch QC and Mr. Leon Kuschke (instructed by Messrs CMS Cameron McKenna) for Mr. Fourie and Herlan Edmunds Engineering
Mr. Stuart Isaacs QC and Mr. Jeremy Goldring (instructed by Messrs Brachers) for Mr. Allan Le Roux and Fintrade Investments Limited
Introduction
Mr Allan Le Roux was and is the controlling shareholder of Herlan Edmunds Investment Ltd ("HEI"), a company incorporated in the Republic of South Africa and Fintrade Investments Ltd ("Fintrade"), a company incorporated in England. HEI was and is the holding company of Herlan Edmunds Engineering (Pty) Ltd ("HEE") which was also incorporated in the Republic of South Africa. In March 2001 HEE acquired the business and assets of Smith's Wheels (Pty) Ltd, now called Guestro Wheels (Pty) Ltd ("Guestro"). In addition it took a sub-lease from that company of factory premises at Germiston, South Africa, from which to carry it on.
The business so acquired was the manufacture of alloy wheels. A practice developed whereby alloy wheels supplied to buyers from overseas were invoiced to Fintrade and, at a higher price, by Fintrade to the overseas buyer. There is an issue whether this practice was regulated by a distribution agreement made in April 2001 but that is not directly relevant to these appeals. HEE obtained finance for the purposes of its business on terms which I shall describe later from three sources, namely Wesbank (a division of First Rand Bank Ltd), Cutfin and Bankfin (parts of ABSA Bank Ltd). In May 2002 HEE was put into provisional liquidation on the application of Guestro. The provisional liquidation was discharged in September 2002 on the ground that the debts of HEE had been paid in full, in the case of Wesbank, Cutfin and Bankfin by Mr Le Roux or a company associated with him.
But the business of HEE did not survive for long. In July 2003 it abandoned the factory premises at Germiston. In October 2003 Guestro and its parent company Dorbyl Ltd ("Dorbyl") commenced arbitration proceedings against HEE for the recovery of rent due under the sublease of the factory at Germiston which gave rise to an award made on 1st June 2004 for R19m. On 3rd and 4th November 2003 Mr Le Roux and Fintrade commenced proceedings against HEE in the Germiston Magistrates Court and obtained, on 7th November 2003, orders authorising them to seize the plant and machinery of HEE.
On 15th June 2004 Preller J sitting in the Transvaal Division of the High Court of South Africa made an order on the application of Guestro and Dorbyl based on the arbitration award for the compulsory winding up of HEE and HEI. He appointed Mr John Fourie to be the provisional liquidator. Mr Fourie considered that the assets of HEE had been illicitly 'stripped out' by Mr Le Roux, Fintrade and others. On 2nd July 2004 he obtained from Preller J various further orders including authority to institute proceedings in England for the recovery of property of HEE and HEI and interim orders with immediate effect authorising him to attach certain plant and equipment of HEE and setting aside the order of the Germiston Magistrates. In addition Preller J directed the issue of a letter of request to the appropriate division of the High Court in England to act in aid of the Transvaal Division of the High Court of South Africa.
Fortified by the order of Preller J, Mr Fourie applied ex parte to Park J on 9th July 2004 for freezing orders against, inter alia, Mr Le Roux and Fintrade. Park J granted the relief sought ("the First Order") until 23rd July or further order, but limited to assets to the value of £3.4m, on the undertaking of Mr Fourie to issue and serve an originating application seeking such relief pursuant to s.426 Insolvency Act 1986. Such an application was duly issued on 12th July 2004. The First Order was continued until 1st December 2004 or further order by HH Judge Norris QC sitting as a deputy judge of the High Court on 26th July 2004. An application to discharge the First Order for want of jurisdiction made by Mr Le Roux and Fintrade on 28th July 2004 came before Mr John Jarvis QC, sitting as a deputy judge of the Chancery Division on 28th and 29th September 2004. By his order made on the morning of 30th September 2004 he discharged the First Order and ordered Mr Fourie to pay the costs of the respondents, including Mr Le Roux and Fintrade, to be assessed on an indemnity basis. The first appeal with which this Court is concerned is brought by Mr Fourie with the permission of Jacob LJ. He seeks an order setting aside the order of Mr Jarvis QC.
In the afternoon of 30th September 2004 Mr Fourie and the two additional joint provisional liquidators who had by then been appointed ("the Joint Liquidators") issued a claim form seeking relief (a) under South African law pursuant to s.31 South African Insolvency Act and s.424 South African Companies Act, and (b) under English law for misappropriation of assets belonging to HEE and breach of contract. They applied to Mr John Jarvis QC on the same evidence as before for freezing orders in the same terms as the First Order. After hearing further argument Mr Jarvis QC granted such relief ("the Second Order") against Mr Le Roux and Fintrade, but limited to assets to a value of £1m, on their undertaking to serve particulars of claim within 7 days.
The application to continue the Second Order until trial or further order came before Blackburne J on 19th to 21st, 25th and 26th October 2004. He allowed the joinder of HEE as an additional claimant. On 12th November 2004 he handed down judgment. He concluded that the Letter of Request dated 2nd July 2004 was inadequate to engage the provisions of s.426(5) Insolvency Act 1986 so as to provide a jurisdictional basis for the relief sought under the two provisions of the law of South Africa to which I have referred. After further argument on 25th November 2004 he granted to HEE alone freezing orders ("the Third Order") in the same form as the Second Order but subject to a limit of £750,000, the giving by HEE of the usual cross-undertaking in damages and the undertakings of the Joint Liquidators to be responsible for costs and any damages under HEE's cross-undertaking. The effect, as Blackburne J recognised, was that the Second Order was superseded and expired. The second appeal with which this Court is concerned is brought, with the permission of Blackburne J, by Mr Le Roux and Fintrade. They contend that in setting the limit of £750,000 the judge failed to take account of certain cross-claims arising from the Wesbank, Cutfin and Bankfin transactions which would have extinguished or so reduced the limit as to make the grant of any freezing order inappropriate. In addition HEE has applied for permission to appeal from the order of Blackburne J seeking to increase the limit from £750,000 to £1,574,000.
Accordingly the issues are:
(1) in the first appeal
(a) whether the deputy judge was right to discharge the injunction granted by Park J on 9th July 2004 for want of jurisdiction;
(b) whether the deputy judge should have ordered the payment of costs by Mr Fourie on an indemnity basis; and
(c) whether the deputy judge should have made some special order in respect of costs in recognition of the fact that the same evidence was successfully used in the second set of proceeedings to obtain both the Second Order and the Third Order.
(2) In the second appeal
(a) whether the judge should have taken account of cross-claims arising from the
(i) Wesbank,
(ii) Cutfin, and
(iii) Bankfin transactions
so as to reduce the limit below £750,000; and if so
(b) whether in the light of such reduction it was appropriate to grant any freezing order against either Mr Le Roux or Fintrade.
(3) In the application for permission to appeal made by HEE whether the judge should have increased the financial limit in the Third Order by reference to (a) the value of the assets alleged to have been misappropriated, (b) the value of certain intellectual property rights and plant and equipment and (c) the anticipated costs of the proceedings.
The First Appeal
The jurisdiction issue
As his order shows the application before Park J on 9th July 2004 was supported by affidavits sworn on that day by Mr J.D.K Reitz, Mr F.W.Weideman and Mr H.E.Wainer, a draft Originating Application under s.426 Insolvency Act 1986 and a skeleton argument of Counsel for Mr Fourie. Exhibited to Mr Reitz's affidavit is the affidavit of Mr Fourie sworn on 2nd July 2004 in support of his application to Preller J, the order of Preller J and the Letter of Request issued by order of Preller J. It is convenient to start with the latter documents.
The respondents to the application to Preller J were Mr Le Roux, Mr Vermaak, Mr Van Der Grijp and Smith Wheels Sales & Marketing (Pty) Ltd. Mr Fourie described the history of HEE and HEI and the involvement of the respondents. In paragraph 8 Mr Fourie stated that
"The first to third respondents have engaged in unlawful collusive dealings over a protracted period of time with, inter alia, each other and the directors of [HEE and HEI] and have inter alia...
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