Andris Linuzs and Others v Latmar Holdings Corporation
| Jurisdiction | England & Wales |
| Judge | Lord Justice Toulson:,Lord Justice Munby,Lord Justice Pill |
| Judgment Date | 17 January 2013 |
| Neutral Citation | [2013] EWCA Civ 4 |
| Docket Number | Case No: A3/2012/0528 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 January 2013 |
[2013] EWCA Civ 4
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COMMERCIAL COURT
Eder J
2011 Folio 793
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Pill
Lord Justice Toulson
and
Lord Justice Munby
Case No: A3/2012/0528
Mr Jawdat Khurshid (instructed by MFB Solicitors) for the Appellants
Mr Paul McGrath QC and Mr David Davies (instructed by Stephenson Harwood) for the Respondent
Hearing dates: 18 October 2012
Introduction
The claimant (Latmar) is a Liberian company and is a wholly owned subsidiary of the Latvian Shipping Company (LSC). LSC's controlling shareholder is Vitol, a well known oil and commodities trading group. The appellants are the 9th, 10th and 11th defendants. They are Latvian nationals and are domiciled in Latvia. Until 17 December 2010 they held senior positions in LSC. The 9th defendant, Mr Linuzs, and the 10th defendant, Mr Veckagans, were vice presidents of LSC. The 11th defendant, Mr Berzins, was the head of LSC's legal department. They were dismissed following an extraordinary shareholders' meeting which resulted in the replacement of LSC's management board.
The action was commenced by a claim form issued on 5 July 2011. Under the heading "Conspiracy, Deceit, Fraudulent Misrepresentations" it stated:
"The Claimant ("Latmar") claims against the Defendants damages for deceit and/or fraudulent misrepresentation and/or unlawful means conspiracy and/or lawful means conspiracy arising out of two agreements known as "the Media Focus Agreement" believed to have been signed on or about 16 December 2009 but backdated to 20 October 2009 and "the Arindal Agreement" believed to have been signed on or about 12 February 2010 but backdated to 20 October 2009…"
There were additional claims against the 9th to 11th defendants for breach of fiduciary duty in procuring Latmar to enter into the Media Focus and Arindal agreements.
Media Focus Limited ("Media Focus") is the first defendant. Arindal Beteiligungsverwaltungs GMBH ("Arindal") is the fourth defendant. Media Focus is a company incorporated in England. Arindal is incorporated in Austria. Media Focus and Arindal did not respond to the proceedings and judgment in default was obtained against them.
Judgment in default was initially also obtained against the 9th and 10th defendants, but on 3 October 2011 they applied to set aside the default judgments. At the same time the three appellants applied to challenge the court's jurisdiction to entertain the claim against themselves in so far as it relates to Arindal. They accepted, and continue to accept, that the court has jurisdiction to entertain Latmar's claim against them in so far as it relates to Media Focus.
The applications came before Eder J who gave a written judgment on 10 February 2012 under the title and neutral citation number Latmar Holdings Corporation v Media Focus Ltd [2012] EWHC 262 (Comm). With express reluctance, he set aside the default judgments. He did so not on the basis that the 9th or 10th defendants had reached the threshold of showing a real prospect of successfully defending the claim, but under CPR 13.3(1)(b) for other good reasons. There is no appeal by Latmar in respect of that part of his judgment.
The court's jurisdiction issue is governed by Council Regulation (EC) No 44/2001, commonly known as the Brussels 1 Regulation. Under article 2 a person domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State, subject to any special jurisdiction arising under any other article. Eder J held that the court had jurisdiction in respect of the whole of the claim made against the appellants under article 6.1. That provides that a person dominciled in Member State may also be sued:
"where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings."
Eder J further held that there was at least a good arguable case that the court had jurisdiction under article 23, which provides:
"If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either (a) in writing or evidenced in writing…"
Jurisdiction under article 23 was dependant on the appellants being treated as parties to the Arindal and Media Focus agreements by the process commonly described as lifting or piercing the corporate veil.
Eder J accordingly rejected the appellants' challenge to the jurisdiction. By their notice of appeal the appellants seek an order stating:
"The Court has no jurisdiction and/or declines to exercise any jurisdiction over the claims made against the 9th, 10th and 11th defendants in so far as they relate to the alleged Arindal Fraud…and to this extent the Claim Form and service of the Claim Form upon the 9th, 10th and 11th defendants is to be set aside and/or the proceedings stayed."
Nature of the alleged fraud
Latmar's case is that the appellants conspired between themselves and with others to siphon funds from Latmar under the cover of sham consultancy agreements.
The evidence before the judge setting out the basis of Latmar's claim consisted principally of a lengthy and detailed affidavit by Mr Paolo Ghirardani, a partner in the firm of solicitors who act for Latmar. The affidavit was made prior to the issue of the proceedings in support of an application for a worldwide freezing injunction, which was granted by David Steele J.
The story which emerges from that affidavit, and the appellants' response to it, was set out and considered by the judge with admirable clarity at [5] to [13] and [52] to [74] of his judgment. What follows is an abbreviated version of the matters set out in the judgment and Mr Ghirardani's affidavit. It is unnecessary for present purposes to go into as much detail as the judge, not least because a number of his conclusions are not challenged for present purposes.
By way of background, in 2007 Latmar entered into shipbuilding contracts with a Korean shipyard, Hyundai Mipo, for the construction of four medium range product tankers. Following the financial crisis in the autumn of 2008, Latmar sought to amend the contracts. In December 2008 a delegation from LSC visited Korea, but no further agreement was reached at that stage. After further visits by LSC delegations in 2009, amendment agreements to two of the original shipbuilding contracts were signed on 4 December 2009. Those shipbuilding contracts and amendment agreements were genuine. According to Mr Ghirardani's affidavit, the negotiations were conducted directly between LSC employees and Hyundai, without any third party intermediary (although LSC was assisted by its Korean ship broker and by an external financial adviser).
On 22 or 23 December 2008 Latmar entered into five written agreements with Arindal, by which Arindal purportedly agreed to provide services to Latmar in relation to "potential investments and/or the availability of shipyards for the purpose of making a strategic investment and/or placing order for ship newbuilding".
The contracts were signed by Mr Linuzs on behalf of Latmar and by the fifth defendant, Mr Efim Schabad, on behalf of Arindal. Mr Schabad had been appointed sole director of Arindal five days earlier. The agreements contained a Latvian governing law and exclusive jurisdiction clause.
On 23 December 2008 five payments of US$960,000 each, totalling US$4.8 million, were made by Latmar to Arindal.
Subsequently Latmar and Arindal entered into a further agreement, entitled an advisory services agreement, by which Latmar purportedly engaged Arindal to provide advice and assistance to Latmar in negotiations with Hyundai with regard to the shipbuilding contracts between Latmar and Hyundai. In return Latmar was to pay to Arindal an advance lump sum fee of US$4.8 million, as payment for the services rendered and to be rendered by Arindal, and any fees already paid by Latmar to Arindal under the contracts between them dated 22 December 2008 were to be counted towards payment of the fees under the advisory services agreement. In other words, it provided a contractual basis for Arindal to retain the sums which had already been paid to it. This agreement contained an exclusive English governing law and jurisdiction clause. The signatories were the same as for the previous contracts.
The advisory services agreement was expressed to be entered into on 20 October 2009, but Mr Ghirardani's affidavit catalogued a series of communications indicating that it was drafted at the instigation of Mr Berzins in January 2010 and that the final draft was executed in February 2010. The communications referred to by Mr Ghirardani suggested that Latmar was under pressure at the time from its auditors to explain Arindal's receipt and retention of the US$4.8 million which had been paid to it.
The ostensible date of the Arindal advisory services agreement, 20 October 2009, was also the ostensible date of an advisory services...
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