Federal Bank of the Middle East Ltd v Hadkinson

The Three Appeals.

Three appeals arise out of a series of disputes with a long and complex factual and procedural history.

An appeal against a finding of contempt of court and a consequent order made by Arden J on 21 May 1999. This appeal raises a general point on the meaning and effect of the standard wording of freezing orders and on the proper procedure to be followed in cases of contempt of court. It is by far the most important and the most difficult of the three appeals. I would allow this appeal.

An appeal against summary judgment for $11.5m granted by HHJ

Hedley on 17 April 1998. I would dismiss this appeal.

A cross appeal against Arden J's order of 24 May 1999 allowing an appeal against the decision of Master Ungley to strike out a counterclaim. I would dismiss this appeal.

The Background to the Litigation.

A.The Parties.

The claimant is the Federal Bank of the Middle East Limited (the Bank), a private bank established in Cyprus and registered in the Cayman Islands. Mr Farid Saab is the Chairman of the Bank. He and his brother, Mr Fadi Saab, are the controlling shareholders and directors.

The first defendant is Mr Charles Hadkinson. He is an international entrepreneur dealing principally through the Worldwide Group of Companies based in Cyprus. Their customers are mainly in the Lebanon and Iraq. Mr Hadkinson is the driving force behind two groups of companies:-

(1) The Worldwide Group. (This includes the 2nd-5th Defendants: Worldwide Corporation Limited, Worldwide Countertrade Limited, Worldwide (Developments) Limited and CG Worldwide Co Limited).

(2) The H&R Group. (This includes the 6th-9th Defendants: H & R Holdings Limited, H &R (Europe) Limited, H & R (Middle East) Limited, and H &R Import and Export Limited).

The Bank claims that it is owed a total of $28m by Mr Hadkinson and his companies.

B.Others.

Mr Imad Al-Jibouri is an Iraqi national and businessman. He was the principal customer of the Worldwide companies in the early days. He also became a customer of the Bank.

Mr Asmar is a Lebanese national based in Romania. He was a business partner of Mr Hadkinson in the sale of cigarettes to Romania.

C.The Main Events in Outline.

In 1987 Mr Hadkinson approached the Bank for banking facilities, which were granted to him and to the Worldwide companies in the form of letters of credit and warehousing finance. Mr Hadkinson gave the Bank a number of guarantees, including an unlimited guarantee for the debts of Worldwide Corporation Limited.

Mr Hadkinson introduced Mr Al-Jibouri to the Bank. His overdraft with the Bank was guaranteed by Mr Hadkinson and the Worldwide companies. They also had overdrafts with the Bank.

The arrangement was that the Worldwide companies bought goods and supplied them to Mr Al-Jibouri. He sold the goods in Iraq. He then paid the Worldwide companies for the goods.

In August 1990 Iraq invaded Kuwait. The Gulf War broke out. This brought the business of Mr Al-Jibouri and the Worldwide companies with Iraq to an abrupt halt. The Worldwide companies became dormant. They owed $16m to the Bank and they were liable under a guarantee for another $2m. The banking relationship with Mr Al-Jibouri was also affected. He owed $3.5m to the Bank. Relations between Mr Hadkinson and the Saab brothers cooled.

On 12 March 1991 Mr Hadkinson and the Worldwide companies made a new agreement with Mr Al-Jibouri. They would supply him with goods in the Zarka Free Zone in Jordan. Profits were to be split 75% to Worldwide and 25% to Mr Al-Jibouri. Mr Fadi Saab refused Mr Hadkinson's request to give financial backing to this project on the ground that Mr Al-Jibouri had failed to honour commitments to the Bank in the past.

Late in 1991 Mr Hadkinson discovered that the Bank had taken up this trading opportunity, which had been disclosed by Mr Hadkinson to the Bank, and had exploited it through an associated Liberian trading company, Trade & Financial Services Ltd (TFS). This has given rise to a counterclaim by Mr Hadkinson and the Worldwide companies against the Bank, TFS and others for alleged misuse of confidential information imparted to the Bank.

Another part of the counterclaim arises out of alleged breaches of a joint venture agreement made between Mr Hadkinson and Mr Fadi Saab on 17 May 1991. It was for the sale of tobacco products in the Middle East and Romania via a company called Bridge Overseas Ltd (Bridge). Cigarettes were to be supplied to a company called Romas Impex owned by Mr Asmar. In late 1991 Mr Fadi Saab told Mr Hadkinson that the Bank was unwilling to continue to deal with Mr Asmar and Romas Impex because of their commercial unreliability and their failure to pay sums owed to the Bank. Mr Fadi Saab then told Mr Asmar that he had acquired Bridge from Mr Hadkinson and the Worldwide companies. He told him that he should not communicate with Worldwide. If he did the Bank would withdraw finance facilities from Romas Impex. Mr Hadkinson counterclaims on the basis that he only discovered in 1997 that business was diverted by Mr Fadi Saab from the joint venture to TFS.

On 10 November 1993 an agreement (the 1993 Agreement) was made with the Bank to resolve the financial difficulties of Mr Hadkinson and his companies by re-scheduling the existing indebtedness. It provided for a joint and several liability to repay in instalments the indebtedness of Mr Hadkinson and the Worldwide companies to the Bank out of 50% of the profits of Worldwide. Mr Hadkinson agreed to work only for the Worldwide companies. Minimum repayments of the global debt were spread over five years.

No repayments were made. The Bank's claims against Mr Hadkinson and the Worldwide companies are based on breach of the 1993 Agreement and a supplemental agreement made on 18 October 1995 (the 1995 Agreement).

In the 1995 Agreement Mr Hadkinson and the Worldwide companies undertook further obligations with regard to new companies in which Mr Hadkinson was or might become interested.

In January 1996 Mr Hadkinson became a major shareholder in H &R Middle East Limited. On 31 December 1996 H&R Holdings Limited was formed . In January 1997 further H & R companies were formed in the Isle of Man. This was done without the knowledge of the Bank .

D.The Proceedings in Outline.

-Freezing Order.

On 12 November 1997 Eady J granted a world-wide freezing order on a without notice application by the Bank against Mr Hadkinson, the Worldwide companies and the H&R companies. The order was in the standard form prohibiting them from disposing of or dealing with or diminishing the value of any of "their assets and/or funds", whether in their own name or not and whether solely or jointly owned, up to the value stated ($11.5m for each defendant), and in particular with a numbered bank account (No. 695254) and any other account of any of the defendants at Chase Manhattan Private Bank, Geneva; ordering disclosure of all of "their assets and/or funds"; advising those restrained to consult a solicitor as soon as possible; and warning them that they might be found guilty of contempt of court if they disobeyed the order.

The defendants were also ordered to make immediate disclosure in writing of "all their assets and/or funds", whether in their own name or not and whether solely or jointly owned, giving value, location and details of the assets and funds and information concerning the disposal and transfer since 10 November 1993 by the defendants of any and all of their assets or funds. The order was effective up to and including 3 December 1997 and contained the usual liberty to apply to the court at any time to vary or discharge the order.

On 18 November the writ was issued by the Bank. The main claim was for payment of $11.5m due under the 1993 Agreement in respect of the period 31 December 1994 to 31 December 1995. Other claims were made, and later amplified by amendment, for damages for breach of contract, breach of fiduciary duty, conspiracy and inducing breach of contract. The present appeals are not concerned with those claims.

On 2 December the freezing order was served on Mr Hadkinson.

On 22 November Mr Hadkinson disclosed in a letter certain assets,including bank accounts, said to be Mr Hadkinson's, in Cyprus, UK, Cairo and Switzerland. Putting on one side loans to his companies and future dividends and commissions, the assets disclosed had a net value of less than...