C Inc. Plc v L [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Aikens J. |
| Judgment Date | 16 March 2001 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 16 March 2001 |
Queen's Bench Division (Commercial Court).
Aikens J.
Julia Dias (instructed by Eversheds) for the claimant.
William Wood QC and Nigel Meeson (instructed by D J Freeman) for the defendants.
The following cases were referred to in the judgment:
A v CELR [1981] QB 256 (note).
A-G v Corp of BirminghamELR (1880) 15 Ch D 423.
Babanaft International Co SA v BassatneELR [1990] 1 Ch 13.
British Airways Board v Laker Airways LtdELR [1985] AC 58.
Bullus v Bullus (1910) 102 LT 399.
Cardile v LED Builders Pty LtdUNK [1999] HCA 18.
Castanho v Brown and Root (UK) LtdELR [1981] AC 557.
Channel Tunnel Group Ltd v Balfour Beatty Construction LtdELR [1993] AC 334.
Cross & Co v Matthews and Wallace (1904) 91 LT 500.
Department of Social Security v ButlerWLR [1995] 1 WLR 1528.
Federal Bank of the Middle East Ltd v HadkinsonUNK [2000] 2 All ER 394.
Firma C-Trade SA v Newcastle P & I AssociationELR [1991] 2 AC 1.
Hammond v SchofieldELR [1891] 1 QB 453.
Hardoon v BeliliosELR [1901] AC 118.
Jackson v Sterling Industries LtdUNK (1987) 162 CLR 612.
Khreino v Khreino (No. 2)UNK [2000] 1 FCR 80.
Lloyds Bank Ltd v Medway Upper Navigation CoELR [1905] 2 KB 359.
Maclaine Watson and Co Ltd v International Tin CouncilUNK [1987] 3 All ER 787.
Mareva Compania Naviera SA v International Bulk CarriersUNK [1975] 2 Ll Rep 509.
Maudslay, Sons & Field, ReELR [1900] 1 Ch 602.
Mercantile Group (Europe) AG v AiyelaELR [1994] QB 366.
Mercedes-Benz AG v Leiduck [1995] CLC 1090; [1996] AC 284.
Munster v CoxELR (1885) 10 App Cas 680.
National Justice Compania Naviera SA v Prudential Insurance Co Ltd (“The Ikarian Reefer”) (No. 2) [2000] CLC 22.
North London Railway Co v Great Northern Railway CoELR (1883) 11 QBD 30.
Parr v SnellELR [1923] 1 KB 1.
Partington v Hawthorne (1888) JP 807.
Patrick Stevedores Operations No. 2 Pty v Maritime Union of Australia (No. 3)UNK (1998) 153 ALR 643.
Peyman v LanjaniELR [1985] 1 Ch 457.
Qingdao Ocean Shipping Co v Grace Shipping Establishment (“The Xing Su Hai”)UNK [1995] 2 Ll Rep 15.
Rosseel NV v Oriental Commercial Shipping LtdWLR [1990] 1 WLR 1387.
SCF v MasriWLR [1985] 1 WLR 876.
Siskina v Distos Compania Naviera SAELR [1979] AC 210.
South Carolina Insurance Co v Assurantie Maatschappij “De Zeven Provincien” NVELR [1987] AC 24.
Stewart Chartering Ltd v C & O Managements SAWLR [1980] 1 WLR 460 (note).
TSB Private Bank International SA v ChabraWLR [1992] 1 WLR 231.
Veracruz Transportation Inc v VC Shipping Co Inc (“The Veracruz”)UNK [1992] 1 Ll Rep 353.
Yukong Line Ltd of Korea v Rendsburg Investments Corp of Liberia (“The Rialto”)UNK [2001] 2 Ll Rep 113.
Conflict of laws — Freezing order — Service out of the jurisdiction — Joinder — claimant obtained default judgment and freezing order against defendant in Guernsey — Defendant claimed to have acted as trustee or agent for husband — Claimant applied for appointment of receiver by way of equitable execution over wife's alleged right of indemnity against husband — Whether English court could make freezing order against husband against whom no substantive relief was claimed on basis of wife's alleged right of indemnity — Whether husband should be joined as necessary and proper party — Whether husband should be served out of jurisdiction — CPR, r. 19.2(2)(a), (b), 6.20(3), 6.30(2).
These were applications by the second defendant to set aside orders made by Moore-Bick J freezing the defendant's assets, joining him to the proceedings and for service on the defendant in Guernsey, and by the claimant to confirm the orders of Moore-Bick J; alternatively for permission to add the defendant as a defendant, to amend, and to serve the second defendant out of the jurisdiction and for a freezing order.
A company, “CPLC”, was incorporated in 1996 to enable members of Lloyd's to exchange their unlimited liability as names for a limited liability as share and stock holders of CPLC. The first defendant, Mrs L, was a name at Lloyd's with a premium income level of over £3m. Her underwriting at Lloyd's was secured by a bank guarantee which was itself secured on assets provided by her husband, Mr L. Mrs L applied for and was allocated shares and convertible loan stock in CPLC. The claimant, “C Inc”, was formed in 1997 to acquire the entire issued share and loan stock capital of CPLC and did so by agreement with the existing share and stock holders who were issued with shares and nil-paid loan stock in C Inc in exchange. In 1999 C Inc called on Mrs L to pay the full amount of her loan stock. Mrs L failed to pay. C Inc issued proceedings which were served on Mrs L in Guernsey. In 2000 C Inc obtained a default judgment against Mrs L for £386,973. C Inc obtained a freezing order against Mrs L who swore an affidavit with a schedule of assets which made clear that she had no assets of her own and was entirely dependent on her husband for funds. C Inc then sought to vary the freezing order, on the basis that Mrs L was acting as trustee or agent of her husband in relation to her underwriting and the share and stock purchase contract and that the freezing order should cover the assets that Mrs L held on trust for her husband. C Inc claimed that Mrs L would have a right of indemnity against her husband in relation to liability under the contract and sought a freezing order against him and the appointment of a receiver by way of equitable execution over Mrs L's assets including the right of indemnity in Guernsey. The judge varied the freezing order against Mrs L to include assets held on trust for Mr L and her alleged right of indemnity against him, granted a freezing order against Mr L including any assets in his wife's name to which he was beneficially entitled, and granted permission to join Mr L to the proceedings and serve the amended claim form and order on him in Guernsey. Mr L applied to set aside the orders and the proceedings against him on grounds that the court had no power to grant a freezing order against him or should not have done so, that the case did not fall within CPR, r. 6.20 so that the court had no jurisdiction since he was resident out of the jurisdiction, and that the court had no power to join him to the proceedings under CPR, Pt. 19. In response C Inc applied to set aside the default judgment against Mrs L, reformulate the contract claim with Mr L as the defendant, serve the claim form on him out of the jurisdiction in Guernsey and obtain a freezing order against him.
Held ruling accordingly:
1. The English court had held in a number of cases that a freezing order could be made over assets held in the name of a third party, against whom no claim for substantive relief was made, if satisfied that there was an arguable case that the assets were, in fact, those of the defendant to the claim. (SCF v MasriWLR[1985] 1 WLR 876, TSB Private Bank International SA v ChabraWLR[1992] 1 WLR 231, Mercantile Group (Europe) AG v AiyelaELR[1994] QB 366, and Yukong Line Ltd of Korea v Rendsburg Investments Corp of Liberia (“The Rialoto”)UNK[2001] 2 Ll Rep 113considered.)
2. This was the converse case where the defendant to the action (against whom there was a judgment) claimed to hold assets but only as trustee or agent of the third party. The High Court of Australia had decided that in Australia the assets of a third party could be frozen in aid of enforcing a pending or actual judgment even where those assets were not beneficially owned by the actual or potential judgment debtor so long as there was some causal link between the claimant's judgment and the third party funds. The English court should adopt the same approach. (Cardile v LED Builders Pty LtdUNK[1999] HCA 18followed.)
3. In the present case the claimant had an existing judgment against Mrs L and, on the assumption that Mrs L was acting as trustee or agent of her husband, as soon as she incurred a liability to the claimant she had an accrued right to an indemnity from Mr L. The English court could appoint a receiver who could enforce that right in Guernsey. The right to an indemnity supplied the necessary causal link.
4. The court did have the legal power to grant a freezing order against Mr L, even though there was no cause of action against him, because such an order was “incidental to and dependent on” the substantive right which the claimant had against Mrs L by virtue of the default judgment. (Siskina v Distos Compania Naviera SAELR[1979] AC 210, Channel Tunnel Group Ltd v Balfour Beatty Construction LtdELR[1993] AC 334, Mercantile Group (Europe) AG v AiyelaELR[1994] QB 366, Mercedes-Benz AG v Leiduck[1995] CLC 1090; [1996] AC 284applied.)
5. There was a risk of dissipation of the husband's assets and a freezing order over his assets in and outside the jurisdiction would prevent such dissipation.
6. The English court would not make any order affecting foreign assets unless it could make the owner of the assets amenable to the English court's jurisdiction.
7. The court had power to join Mr L to the proceedings under CPR, r. 19.2(2)(a). There were still “proceedings” on foot even though judgment had been obtained against Mrs L and there were still “matters in dispute”, the dispute being whether the claimant could obtain a freezing order over the assets of the husband in aid of execution of the unsatisfied judgment against Mrs L. That was also an issue involving a new party connected to the matter in dispute within r. 19.2(2)(b). Although there was no dispute about Mrs L's liability, there was still a dispute as to how the judgment against her was to be satisfied. The court should have power to add a new party after judgment in order to make a freezing order against that party in aid of execution.
8. As there was no claim for substantive relief against Mr L it was inappropriate to issue and serve a claim form against him. The proper procedure was to issue and serve an application notice in the existing action under CPR, r. 6.30(2). (...
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