Cruz City 1 Mauritius Holdings v Unitech Ltd
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Males,Mr Justice Males |
| Judgment Date | 11 November 2014 |
| Neutral Citation | [2014] EWHC 3704 (Comm) |
| Docket Number | Case No: 2014 Folio 432 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 11 November 2014 |
[2014] EWHC 3704 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Males
Case No: 2014 Folio 432
Mr Alain Choo Choy QC & Miss Nehali Shah (instructed by White & Case LLP) for the Claimant
Mr Graham Dunning QC & Mr James Willan (instructed by Taylor Wessing LLP) for the 4 th, 6 th, 7 th & 8 th Defendants
Mr James Collins QC & Professor Dan Sarooshi (instructed by Hugh Cartwright & Amin) for the 5 th Defendant
Hearing dates: 29 th & 30 th October 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
The issue raised by this application is whether the English court has jurisdiction to make a freezing order in aid of enforcement of a London arbitration award against subsidiaries of the award debtor against whom no substantive claim is asserted and who have no presence or assets within the jurisdiction.
In summary, the claimant is seeking to enforce an award which it has obtained against the first defendant ("Unitech"), an Indian company. The sum due now exceeds US $350 million, but so far nothing has been paid. Unitech is the parent of a group of companies incorporated in a variety of jurisdictions including not only India, but also Cyprus and the Isle of Man. It appears that substantial assets of the group are held by subsidiaries outside India. The claimant has obtained various orders against Unitech, including a worldwide freezing order, a disclosure order and an order for the appointment of receivers over Unitech's shareholdings in four subsidiary companies. These subsidiaries are now the fourth, sixth, seventh and eighth defendants (respectively "URRL", "Nuwell", "Technosolid" and "UOL", referred to in this judgment together with the fifth defendant "Nectrus" as the " Chabra defendants"). The claimant seeks now to reinforce those orders by obtaining a freezing order against the Chabra defendants in accordance with the jurisdiction first established in TSB Private Bank International SA v Chabra [1992] 1 WLR 231 and since developed in other cases such as Revenue & Customs Commissioners v Egleton [2006] EWHC 2313 (Ch), [2007] 1 All ER 606 and The Mahakam [2011] EWHC 3143 (Comm), [2012] 2 All ER Comm 513.
However, the Chabra defendants are all incorporated outside England and Wales, have no assets, directors, officers or other presence within the jurisdiction and conduct no business here. In order to obtain relief against them, the claimant must first establish that the court has jurisdiction over them. On 26 August 2014 the claimant obtained permission on paper from Blair J to join the Chabra defendants to the existing proceedings against Unitech and to serve an amended claim form seeking a worldwide freezing order against them out of the jurisdiction. Jurisdiction was founded on three "gateways", namely:
a. CPR 62.5(1)(c) (service of "an arbitration claim form" seeking a "remedy … affecting an arbitration (whether started or not), an arbitration agreement or an arbitration award");
b. CPR PD 6B, para 3.1(3) ("necessary or proper party"); and
c. CPR PD 6B, para 3.10 ("claim … to enforce any judgment or arbitral award").
The claimant has since abandoned any reliance on CPR PD 6B, para 3.10, at any rate before me, although it seeks to reserve the right to rely on this paragraph in the event of an appeal.
The Chabra defendants now apply to set aside the order for service upon them. They have not served evidence dealing with the merits of the claim for Chabra relief because they accept that the claim against them raises a serious issue to be tried, that is to say a claim which would not be dismissed on an application for summary judgment. However, they contend that the claim does not fall within either of the two remaining gateways for service on which the claimant relies; that this court is not "the proper place in which to bring the claim" within the meaning of CPR 6.37(3) or equivalent discretionary principles applicable to CPR 62.5; and that in the case of the three Cypriot defendants there is no "real connecting link between the subject matter of the measures sought and the territorial jurisdiction" of the English court, as required by European case law concerning Article 31 of the Brussels Regulation.
Facts and procedural background
I set out in some detail the nature of the dispute and the procedural background leading to the making of the receivership order at [8] to [32] of my judgment dated 2 October 2014 ("the receivership judgment") and need not repeat that here. I should note, however, that as at 26 August 2014 when Blair J made the order for joinder of the Chabra defendants, it was known that the application for appointment of receivers would be heard, as it was, at the beginning of September. Thus it was not expected or thought to be necessary that the Chabra defendants would play any part in that application and they did not do so. In the event it was agreed that no argument would be addressed on the receivership application as to the availability of Chabra relief and that for the purpose of deciding that application I should ignore the possibility of such relief: see [27] of the receivership judgment.
It may also be useful to reproduce the following table which shows, in simplified form, the corporate structure of the Unitech group so far as relevant to the present application:
The Chabra jurisdiction
Although I am not concerned with the merits of the claim for Chabra relief, I summarise briefly, by way of background to the present jurisdiction challenge, the circumstances in which such relief is available. The principles are not disputed. Chabra itself was a case where there was a good arguable case that assets apparently owned by a third party were in fact beneficially owned by the defendant against whom there was a cause of action. If the assets were indeed beneficially owned by that defendant, they would in due course be available to satisfy any judgment against him, just as trust property would be available to satisfy a judgment against the beneficiary under a bare trust. On that basis a freezing order was made against the legal owner of the assets, even though there was no cause of action against it for any substantive relief, so as to preserve the assets pending any judgment. That left for later determination the question whether the assets held by the third party were in fact beneficially owned by the defendant against whom there was a cause of action.
However, the Chabra jurisdiction has since been extended to cases which are not limited to beneficial ownership of assets. Applying Australian authority ( Cardile v LED Builders Pty Ltd [1999] HCA 18 at [57]), it has been held that a freezing order may be granted to preserve assets which are or may be available to the judgment creditor, if necessary by the appointment of a liquidator or receiver, by exercising the rights of the judgment debtor to compel the third party to disgorge property or otherwise contribute to the funds or property of the judgment debtor.
This is, nevertheless, an unusual jurisdiction, involving as it does the exercise of the court's compulsive powers, backed by the sanction of contempt proceedings, against a party against whom no cause of action is asserted. In a case where the exercise of the jurisdiction is not based on beneficial ownership but on the possibility of the judgment creditor being able to exercise rights of the judgment debtor, its effect is to restrain a Chabra defendant from dealing with assets over which it has both legal and beneficial ownership. It is not surprising, therefore, that the cases emphasise the need for caution in the exercise of this jurisdiction: ETI Euro Telecom International NV v Republic of Bolivia [2008] EWCA Civ 880 at [124]–[126].
That need for caution applies with even greater force when the Chabra defendant is a foreigner with no presence or assets within the jurisdiction of this court, who has not agreed to come here. In view of the unusual nature of the Chabra jurisdiction and the need for caution which the cases emphasise, it would not necessarily be surprising to find that there is no applicable gateway permitting service out of the jurisdiction on a Chabra defendant against whom no substantive relief is sought.
In the present case, although the claimant's evidence (as yet unanswered on the merits) presents an apparently compelling case that the Chabra defendants are for all practical purposes controlled by Unitech and used to move value, investments and debt around the group at will, either for tax or other purposes, they remain separate corporate persons. So far as the law is concerned, there is nothing inherently wrong in such a group structure and no question of piercing the corporate veil. (Indeed the claimant is itself a special purpose vehicle established for the purpose of the transaction which gave rise to the parties' dispute). While Unitech has agreed to arbitrate in England and must therefore be taken to have submitted to the supervisory jurisdiction of the English court, there is no basis in English law for suggesting that its subsidiaries who are not parties to any arbitration agreement have done likewise. They cannot be treated as having done so merely by virtue of their status as subsidiaries, regardless of the degree of control...
To continue reading
Request your trial
-
Arcelormittal USA LLC (a company incorporated under the laws of the State of Delaware) v Essar Steel Ltd (a company incorporated under the laws of Mauritius)
...former cannot do so. 15 Mr. Toledano also relied on the decision of Males J. in Cruz City 1 Mauritius Holdings v Unitech Ltd and others [2014] EWHC 3704. He said that there was tension between the decisions in Cruz City and Eastern Engineering. I do not consider that the decision in Cruz Ci......
-
A and B v C, D and E (Taking evidence for a foreign seated arbitration)
...was particularly influenced by two decisions at first instance. The first was the decision of Males J, as he then was, in Cruz City Mauritius Holdings v Unitech Limited [2014] EWHC 3704 (Comm); [2015] 1 Lloyd's Rep 191 which concerned an attempt to serve out of the jurisdiction an applica......
-
Eli Lilly & Company and Others v Genentech Inc.
...no longer good law. I must say I see the force in Lilly's submission however in Cruz City 1 Mauritius Holdings v Unitech Ltd and Ors [2014] EWHC 3704 (Comm) Males J recently rejected that very same submission at paragraph 16 and since I am not convinced the point is central to the issues I ......
-
Dtek Trading S.A. v Mr Sergey Morozov and Another
...agreement, and hence that permission to serve out cannot be given against non-parties pursuant to CPR 62.5(1)(b): Cruz City 1 Mauritius Holdings v Unitech Ltd [2014] EWHC 3704 (Comm) [2015] 1 Lloyd's Rep. 191— to which I shall return below. 13 DTEK in this application has submitted that I s......
-
Frozen: Dont Let It Go
...SA v Chabra [1992] 1 WLR 231 which established that such orders could be granted. In Cruz City 1 Mauritius Holdings v Unitech Ltd [2014] EWHC 3704 (Comm), the Commercial Court recently considered the Chabra jurisdiction in the context of enforcement of an arbitration award for more than $33......
-
To Go Boldly Beyond the Arbitration Agreement
...non-parties was permissible. However, the post-Act view was subject to one exception — Cruz City 1 Mauritius Holdings v Unitech Ltd [2014] EWHC 3704 (Comm) [2015] 1 Lloyd’s Rep 191, which was the most recent authority on this question. In Cruz, the Court endorsed the pre-Act view and held t......
-
April 2020: International Litigation Update
...s.44; however, the Court felt compelled to follow the interpretation of s.44 in Cruz City I Mauritius Holdings v. Unitech Ltd., [2014] EWHC 3704 (Comm), and DTEK Trading SA v. Morozov, [2017] EWHC 1704 (Comm). [2020] EWHC 258 at [18]. Cruz City held that s.44(2)(e) “does not include any pow......
-
Compelled to Testify: Court of Appeal Confirms Power to Order Non Party Witness to Give Evidence in a New York-Seated Arbitration
...that he should follow the decisions of two English Commercial Court cases, Cruz City 1 Mauritius Holdings v Unitech Limited [2014] EWHC 3704 (Comm) and DTEK Trading SA v Morozov [2017] EWHC 1704 (Comm), in which it had been held that Section 44 of the Act did not include the power to make a......