Eminent Energy Ltd v Krässik Oü (previously known as Daxin Baltic Oü) Berkeley Energy Services Ltd and Another (Third Parties)
| Jurisdiction | England & Wales |
| Judge | Mr Salter |
| Judgment Date | 20 October 2016 |
| Neutral Citation | [2016] EWHC 2585 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 20 October 2016 |
| Docket Number | Claim No CL-2016-000257 |
[2016] EWHC 2585 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice. Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Richard Salter QC
sitting as a Deputy Judge of the High Court
Claim No CL-2016-000257
and
Mr Max Mallin (instructed by Squire Patton Boggs (UK) LLP) appeared for the Claimant and the Third Parties
Mr Fionn Pilbrow (instructed by Reed Smith LLP) appeared for the Defendant
Hearing dates: 7, 12, 13 October 2016
Mr Salter QC:
Introduction
This is an application for security for costs. It is made by the Claimant ("Eminent") and the Third Parties ("Berkeley" and "Mr Contomichalos"), and seeks security for the costs of the counterclaim which the Defendant, Krässik OU (which I shall call by its former name, "Daxin Baltic"), has made in this action against Eminent, Berkeley and Mr Contomichalos.
The application is supported by witness statements dated 8 September and 5 October 2016 made by the Applicants' solicitor, Mr Holland, and is opposed by a witness statement dated 28 September 2016 made by the Defendant's solicitor, Mr Weller. Mr Max Mallin appeared for Eminent, Berkeley, and Mr Contomichalos. Mr Fionn Pilbrow appeared for Daxin Baltic. I am grateful to both counsel for their clear and helpful submissions.
Background
The details of the claims and counterclaims made in this action are set out in detail in the Statements of Case which the parties have exchanged, and in the helpful Case Memorandum that they have prepared. The following summary is sufficient for the purposes of this application:
3.1 Eminent is a company incorporated in Cyprus, and is engaged in the business of trading and transporting petroleum products around the world. Berkeley is a private limited company registered in England, which at all material times acted as a service provider to Eminent. Mr Contomichalos is a Greek national who resides in London, and who is the sole director and owner of Berkeley.
3.2 Daxin Baltic is a company incorporated in Estonia. Its immediate parent is Daxin Northern Europe Holdings Limited ("Daxin Northern"), a company incorporated in Bermuda. Daxin Northern has shareholders in common with Daxin Petroleum Pte Limited ("Daxin Petroleum") and all three companies are part of the Daxin Group. Daxin Petroleum is incorporated in Singapore, and is engaged (inter alia) in the trading of petroleum and other related products.
3.3 In May 2015 Eminent and Daxin Baltic entered into a written joint venture agreement ("the JVA"), and thereafter until about January 2016 entered into a series of written agreements ("the Supply Agreements"), all relating to the sale of naphtha by Daxin Baltic to Eminent. Each of these agreements was expressed to be subject to English law, and contained provisions conferring jurisdiction upon the courts of England and Wales.
3.4 Pursuant (Eminent alleges) to the JVA, Eminent entered into a written Supply Agreement dated 15 January 2016 with Daxin Baltic under which Eminent prepaid Daxin Baltic approximately USD 4.7m. Amongst other cargoes, a quantity of naphtha (the "Disputed Naphtha") was delivered and transferred by Daxin Baltic to Eminent and now remains in storage at a terminal in Riga in Latvia. Eminent asserts that title to the Disputed Naphtha passed to Eminent under the JVA and/or the Supply Agreements and/or under a number of tri-partite In-Tank Transfer Acts ("the ITTAs") executed by Eminent, Daxin Baltic and the terminal on 22 February 2016.
3.5 By letter dated 23 February 2016, Daxin Baltic denied that Eminent had acquired title to the Disputed Naphtha. Daxin Baltic asserted that the director who had executed the ITTAs on Daxin Baltic's behalf, Ms Olga Kozlovskaja ("Ms Kozlovskaja"), had been removed from office in the preceding week, on 19 February 2016, and so had no authority to act on behalf of Daxin Baltic. On 9 March 2016, without notice to Eminent (and in proceedings to which Eminent was not a party), Daxin Baltic sought and obtained an injunction from the Riga City Northern District Court preventing the terminal from acting upon Eminent's instructions to move or dispose of the Disputed Naphtha.
3.6 On 18 March 2016 Eminent began the present action in London, seeking a declaration that it had acquired title to the Disputed Naphtha, payment of various sums owed to it by Daxin Baltic, and damages for breach of the Supply Agreements. On the same date, Eminent was granted an injunction preventing Daxin Baltic from disposing of, dealing with or diminishing the value of the Disputed Naphtha. That injunction was continued by consent on 30 March 2016, and still remains in force.
3.7 On 9 June 2016 Daxin Baltic filed a Defence to Eminent's claim, and a Counterclaim against Eminent, Berkeley, and Mr Contomichalos. That Statement of Case not merely relies on the removal from office of Ms Kozlovskaja, but also alleges that she and another employee of Daxin Baltic (called Anton Shafrostin) were throughout the relevant period engaged with Eminent, Berkeley, and Mr Contomichalos in an extensive fraud on Daxin Baltic, so as to render void or voidable the JVA, the Supply Agreements and the ITTAs, and to found claims for damages and/or equitable compensation.
3.8 Daxin Baltic's claim for damages against Eminent, Berkeley and Mr Contomichalos is pleaded on alternative bases, under English law and alternatively under Estonian law. The claim under English law is put on the basis of unlawful means conspiracy and/or of dishonest assistance in Ms Kozlovskaja's breach of fiduciary duty and/or of inducing, procuring or assisting a breach of contract. The alternative claim against Eminent, Berkeley and Mr Contomichalos under Estonian law in tort seeks compensation for unlawfully caused damage pursuant to Article 1043 of the Estonian Law of Obligations Act. By way of relief, Daxin Baltic seeks against Eminent a declaration that it had validly and effectively rescinded the JVA and all subsequent agreements signed between Daxin Baltic and Eminent, and claims damages and/or equitable compensation against each of Eminent, Berkeley, and Mr Contomichalos.
3.9 Eminent, Berkeley, and Mr Contomichalos, in a joint Reply and Defence to Counterclaim served on 19 July 2016, deny all of these allegations. They assert that Eminent's dealings with Daxin Baltic were at all times at arm's length, and say that, in any event, Eminent and the Third Parties had no notice of any alleged fraud perpetrated on Daxin Baltic by its former officers or employees.
At the CMC, the parties agreed directions intended to lead to an 8-day trial sometime in the autumn of 2017. They also filed costs budgets amounting to approximately £1.5m for Eminent, Berkeley, and Mr Contomichalos, but to only approximately £0.5m for Daxin Baltic. Those costs budgets were not agreed, so the parties instead agreed a direction for a half-day costs management hearing. That hearing is likely to take place before the end of 2016.
Against that background, I now turn to the basis of the application and to the matters which I have to decide.
The basis of the application
This application is bought under CPR 25.12. It is common ground that the applicable test laid down in CPR 25.13(1) is a twofold one. First, one or more of the conditions in CPR 25.13(2) must be satisfied. Second, the Court must be "satisfied, having regard to all the circumstances of the case, that it is just to make such an order".
It is also common ground that the condition in CPR 25.13(2)(c) is satisfied in the present case. Daxin Baltic is a company, and it is conceded that there is reason to believe that Daxin Baltic would be unable to pay the costs of the defence by Eminent, Berkeley, and Mr Contomichalos of Daxin Baltic's counterclaim.
Turning to the second element of the test, CPR 25.13(1)(a) requires the court to take into account, in deciding whether it is satisfied that is just to make an order for security for costs, all the circumstances of the case. The judgment of Lord Denning MR in the well-known case of Sir Lindsay Parkinson & Co Ltd v Triplan Ltd1 sets out some of the matters which the court might, in an appropriate case, take into account in deciding whether, and if so, how, to exercise its discretion:
.. Such as whether the company's claim is bona fide and not a sham, and whether the company has a reasonably good prospect of success .. whether there is an admission by the defendants on the pleadings or elsewhere that money is due .. whether the application for security was being used oppressively — so as to try to stifle a genuine claim .. whether the company's want of means has been brought about by any conduct by the defendants, such as delay in payment or delay in doing their part of the work ..
Some other potentially relevant factors are conveniently set out in the notes at paragraphs 25.12.7, 25.13.1, 25.13.1.1 and 25.13.13 in the current (2016) edition of Civil Procedure.
It is also common ground, as stated by Sir Robert Megarry V-C in Pearson v Naydler2, that
.. the inability of the plaintiff company to pay the defendants' costs is a matter which not only opens the jurisdiction, but also provides a substantial factor in the decision whether to exercise it.
It is inherent in the whole concept of the section that the court is to have power to order the company to do what it is likely to find difficulty in doing, namely to provide security for the costs which ex hypothesi it is likely to be unable to pay. At the same time, the court must not allow the power to be used as an instrument of oppression, as by shutting out a small company from making a genuine claim against a...
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