Atlas Maritime Company S.A. v Avalon Maritime Ltd (No. 3) (Coral Rose)
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE NICHOLLS,LORD JUSTICE FARQUHARSON |
| Judgment Date | 14 June 1991 |
| Judgment citation (vLex) | [1991] EWCA Civ J0614-1 |
| Docket Number | 91/0575 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 June 1991 |
[1991] EWCA Civ J0614-1
The Master of the Rolls
(Lord Donaldson)
Lord Justice Nicholls
Lord Justice Farquharson
91/0575
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR JUSTICE PHILLIPS)
Royal Courts of Justice
MR JONATHAN GAISMAN, instructed by Messrs Stephenson Harwood, appeared for the Appellants (Plaintiffs).
MR IAIN MILLIGAN, instructed by Messrs Clyde & Co., appeared for the Respondents (Defendants).
This is an appeal by Atlas Maritime Co. S.A. ("Atlas"), claimants in an arbitration, who obtained a Mareva injunction against Avalon Maritime Limited ("Avalon"), the respondents. The injunction was originally limited to US $7.5m, but subsequently this was reduced to US $3m and then increased to US $4m. Nothing much turns on these changes. The increase from US $3m to US $4m stemmed from a realisation by Atlas that they had not taken full account of their potential entitlement to interest on any award which they might obtain in the arbitration or the need to include their claim for costs. There is always a delicate balance to be struck by applicants for Mareva injunctions. On the one hand they should ask for a sufficiently extensive injunction to cover the amount of any judgment or award which they may reasonably expect to obtain in respect of damages, interest and their own costs. On the other hand they must not forget that if they ask for and obtain an injunction for an excessive amount, they may find themselves liable to the other party in damages under the counter undertaking.
The appeal itself is against a variation of this injunction, Phillips J. on 20th December 1990 having added a proviso "that [Avalon] shall be entitled to draw from the funds held by their solicitors [the funds to which the injunction attached] sufficient to pay legal fees and expenses including those incurred in connection with these proceedings and the current arbitration between the plaintiffs and the defendants". The order further provided: "Leave to appeal refused. Defendants' costs. Any application for leave to appeal by 15th January". I would only add that on 1st May this court held that section 18(1)(h)(iii) applied to the grant or refusal of an application to vary an injunction, since the effect was to grant or refuse an injunction in the varied form. It followed that no leave to appeal was required.
The principle underlying the grant of Mareva injunctions which falls to be applied in the context of this appeal is not in dispute and was restated by this court in Derby & Co. Ltd. v. Weidon (Nos. 3 and 4) [1990] 1 Ch. 65, 76E-77E, 87D and 96A:
" The Mareva jurisdiction generally
The fundamental principle underlying this jurisdiction is that, within the limits of its powers, no court should permit a defendant to take action designed to ensure that subsequent orders of the court are rendered less effective than would otherwise be the case. On the other hand, it is not its purpose to prevent a defendant carrying on business in the ordinary way or, if an individual, living his life normally pending the determination of the dispute, nor to impede him in any way in defending himself against the claim. Nor is it its purpose to place the plaintiff in the position of a secured creditor. In a word, whilst one of the hazards facing a plaintiff in litigation is that, come the day of judgment, it may not be possible for him to obtain satisfaction of that judgment fully or at all, the court should not permit the defendant artificially to create such a situation.
The jurisdictional basis of the Mareva injunction is to be found in section 37(1) to (3) of the Supreme Court Act 1981 which, in subsection (1), is the lineal successor of section 45 of the Supreme Court of Judicature (Consolidation) Act 1925, and section 25(8) of the Judicature Act 1873. Those subsections provide:
'(1) The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so. (2) Any such order may be made either unconditionally or on such terms and conditions as the court thinks just. (3) The power of the High Court under subsection (1) to grant an interlocutory injunction restraining a party to any proceedings from removing from the jurisdiction of the High Court, or otherwise dealing with, assets located within that jurisdiction shall be exercisable in cases where that party is, as well as in cases where he is not, domiciled, resident or present within that jurisdiction.'
In Beddow v. Beddow (1878) 9 Ch.D. 89, Sir George Jessel M.R. said, at p. 93:
'…I have unlimited power to grant an injunction in any case where it would be right or just to do so: and what is right or just must be decided, not by the caprice of the judge, but according to sufficient legal reasons or on settled legal principles.'
That remains the position to this day, the only issue being whether in particular circumstances the grant is 'right or just.' What changes is not the power or the principles but the circumstances, both special and general, in which courts are asked to exercise this jurisdiction. This can and does call for changes in the practice of the courts. We live in a time of rapidly growing commercial and financial sophistication and it behoves the courts to adapt their practices to meet the current wiles of those defendants who are prepared to devote as much energy to making themselves immune to the courts' orders as to resisting the making of such orders on the merits of their case. Hence it comes about that, as was pointed out by Neill L.J. in Babanaft International Co. S.A. v. Bassatne [1990] Ch. 13, 37F, and by May L.J. in Derby v. Weldon (No. 1) [1990] Ch. 48, 54C—D, this is a developing branch of the law. To that I would add that a failure or refusal to grant an injunction in any particular case is an exercise of discretion which cannot, as such, provide a precedent binding upon another court concerned with another case, save in so far as that refusal is based upon basic principles applicable in both such cases."
Whilst it may well be unfair to apply the description "wiles" to the situation which has been revealed in this case, the regime under which Avalon lived, moved and had its being was and is undoubtedly one of very considerable commercial, financial and, I would add, legal sophistication.
Avalon is a Gibraltarian private company which was incorporated in 1986. It had a share capital of 100 £1 shares. The original shareholders were Mr Brown, a British subject and businessman resident in Gibraltar, Miss Shaw, a secretary similarly resident, and Mr Valbac, a Danish subject resident in Spain. The original directors were Messrs Brown and Valbac. Early in 1988 the original shareholders transferred their shares as to one share to Really Useful Nominees Limited, a Gibraltarian company which a year later changed its name to Sinac Nominees Limited, and as to 99 shares to another Gibraltarian company, Canis Nominees Limited, it being a feature of Gibraltarian company law that it is lawful, and in some circumstances no doubt useful, to have directors who are juridical rather than natural persons. They are less likely to think and may not need to be paid.
As their names imply, Sinac and Canis were nominees for others and declarations of trust executed in May 1988 revealed that the beneficial owners of the shares held by these companies were Nala Transport Incorporated of Monrovia, Liberia. Nala is a wholly owned subsidiary of Marc Rich & Co. A.G., a Swiss company in a very substantial way of business primarily, as I understand, in the commodity trades. Marc Rich also has a United Kingdom subsidiary Marc Rich & Co. Limited whose treasury manager, a Jennifer Freeman, is "responsible for supervising Marc Rich's accounting system insofar as it has a United Kingdom connection".
In 1987 a Mr Morrison, a London Shipbroker, learned that a vessel, the "Coral Rose", was for sale. She was in a damaged condition, but Mr Morrison thought that she could be repaired. He approached a Mr Cooper of Marc Rich A.G. and inquired whether his company would be interested in acquiring this vessel. The answer was that whilst Marc Rich were not prepared themselves to buy the vessel, they were prepared "to advance sufficient funds for the purchase to Avalon" provided that "the project" would be administered by Mr Morrison and a marine surveyor, a Mr Price. Whether "the project" involved trading the vessel or merely repairing and re-selling her does not appear, but in the light of subsequent events it may well have been the latter.
"Coral Rose" was bought by Avalon in October 1987 for US $7,925,000. According to Mr Morrison's second affidavit:
"The formation of Avalon, the purchase, repair and operation of the 'Coral Rose', were all funded by way of loan to Avalon from Marc Rich. No formal loan agreement was ever drawn up, but throughout the repair period I reported regularly to Mr. Cooper on the progress of repairs, accounts to be paid, and all other relevant matters. In effect, therefore, Mr. Price and I administered the 'Coral Rose' project on behalf of Avalon from its inception in 1987 until the vessel was sold in May 1989, since when I have been responsible for dealing with Avalon's remaining creditors. I hold a general Power of Attorney for Avalon,…".
It appears from Miss Freeman's affidavit and the computerised accounts which she produced that the financial machinery for this transaction and indeed for all expenditure in connection with the "Coral Rose"...
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