Kyla Shipping Company Ltd v Freight Trading Ltd
| Jurisdiction | England & Wales |
| Judge | Charles Hollander |
| Judgment Date | 22 February 2022 |
| Neutral Citation | [2022] EWHC 376 (Comm) |
| Docket Number | Case No: CL-2019-000380 |
| Court | Queen's Bench Division (Commercial Court) |
[2022] EWHC 376 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Charles Hollander QC
SITTING AS A DEPUTY JUDGE OF THE HIGH COURT
Case No: CL-2019-000380
Luke Pearce (instructed by Schjodt) for the 1st 3rd and 4th Defendants
Adam Turner (instructed by Watson Farley & Williams) for the Claimants
Hearing date: 10 February 2022
Charles Hollander QC:
By this application the First, Third and Fourth Defendants:
a. challenge the Claimants' claim for litigation privilege and
b. contend that there has been a waiver of privilege which entitles them to disclosure of additional materials referred to in a witness statement.
The Second Defendants play no part in these applications. For convenience I refer however to “the Defendants”.
The claim arises out of 41 forward freight agreements (the FFAs) entered into in 2007 and 2008 between the First Claimant (Kyla) and the First Defendant (FTL), or in one case between Kyla and either FTL or the Second Defendant (CTP). The Claimants allege that the FFAs were entered into by the Third Defendant (CTM) through the Fourth Defendant (Mr Cafiero) at off market rates in order to enrich FTL or CTP who were at the time in the same corporate group as CTM, at the expense of Kyla. They say the FFAs are void as concluded by CTM without authority. This claim is referred to as the “mispricing claim” or “mispricing fraud”. When I use those terms, I should make clear that I express no view as to whether such a claim will be made out at trial.
The Defendants deny that CTM ever acted as agent for Kyla. They say the FFAs were concluded for Kyla by its own principal Nikolaos Livanos (NEL). They say the claims are also time barred. The Claimants respond by relying on s.32 of the Limitation Act 1980. The trial commences on 7 March 2022, for 12 days.
Kyla was 70% owned by NEL and 30% by YPA, which Peter Livanos (PGL) was interested in. There was in 2018 a dispute between Kyla and its shareholders as to whether a dividend should be declared in relation to the monies received from insurers as a result of the constructive total loss of the vessel Kyla. This led to a dispute (the YPA Dispute) which was potentially litigious. It is now accepted by the Defendants that by the end of October 2018 litigation was in reasonable contemplation in relation to the YPA Dispute and that litigation privilege may be claimed by the Claimants for documents created for the dominant purpose of that dispute.
On 29 October 2018 Mr Haramis wrote on behalf of YPA to NEL. The letter stated:
“ You will not need reminding that YPA's Principals have provided you personally with great support and consistent assistance over the years, starting from your very first steps as a young man in the shipping industry. … Further still, when you/Vega Carriers Limited ran up huge debts on the freight forwarding agreements entered into in 2008, we procured that our affiliated entities showed great flexibility and patience in circumstances where they could have simply demanded payment and accelerated enforcement against you/Vega Carriers Limited.
The resolution of the Kyla Shipping position therefore represents much more than simply the proper distribution/return of assets and interests belonging to YPA Associates. The considerable assistance provided to you personally over the years makes proper resolution of the Kyla Shipping position a question of integrity and trust.”
On 15 November 2018 NEL wrote to PGL. The letter includes the following passage:
“ FTL
Given our relation and trust, full authority was granted to your affiliated company to act on our behalf. From this venture losses amount to excess of $31 million, which were paid in full. As you very well know, the industry was settling unsecured FFA outstandings at a discount, but FTL elected to settle at par value, without giving us the option to negotiate a discount. Relevant documents were repeatedly requested, but were never disclosed. This case indicates without doubt a great level of mismanagement and abuse of the powers previously granted to you, as well as complete failure to safeguard our interests; thus now the entirety of transactions executed by FTL on our behalf is questioned.”
In support of the Claimants' application for service out at the outset of the proceedings on 8 October 2019 Kyla relied on a witness statement from Mr Charles Buss of Watson Farley Williams (WFW). Mr Buss said as follows anticipating a potential limitation defence:
164. By late 2018, the correspondence concerning a distribution to the minority shareholder had become highly antagonistic (and the situation has since then escalated, with YPA bringing proceedings in Norway to seek to force disclosures by Gard). I am limited in the reference I can make to this correspondence, because some of it was sent on a “without prejudice” basis. I can say, however, that NEL was upset by the tone of the correspondence, particularly given the family connections involved. The historical situation with the FFAs had some relevance to this reaction. NEL had paid the full $31 million FFA exposure from his own pocket, despite the more modest assets which existed within Kyla, and despite the fact that, in late 2008, the industry as a whole had been settling unsecured FFA undertakings at a discount, whereas CTM/FTL had never obtained any discount on Kyla's liabilities. On 15 November 2018 NEL wrote a letter to PGL in which he raised this grievance about the absence of any discount on FFA Settlements.
165. At about this time, having appointed a new firm of accountants to perform an analysis of Kyla's historical transactions, NEL decided it was appropriate to appoint an expert to audit the FFAs. This would allow him to make good any legitimate grievance that might exist, for the sake of providing ballast in the correspondence with YPA/PGL. In late 2018 an expert was appointed, and as part of the process, data on market rates from the relevant dates in 2007 and 2008 was obtained from SSY, in the form of the daily reports of estimated course-of-business prices on the relevant dates. This historic information is not publicly available or readily accessible.
166. The initial data set was obtained from only one broker, and therefore required caution to be exercised as to its reliability. It did, however, raise real questions about the Contract Rates in the FFAs. In early 2019, therefore, expert evidence was obtained on the pattern of trading conducted on behalf of Kyla, and particularly on the question of whether the apparent discrepancies between the Contract rates achieved and the historic market data was indicative of fraud. This led to further data being sought, particularly in the form of the daily BFA reports from the relevant dates, which, being an average of figures from the leading brokerages, were expected to be more reliable than the SSY figures. Once the BFA data was received, it was the subject of further expert evidence, and the bottom line of this analysis was a heightening of the concern raised by the original data. This analysis, and a parallel review by WFW and counsel, resulted in the summary of pricing deviations and suspicious trading patterns which is now set out in the draft Particulars of Claim. For NEL, the revelation that the FFAs were, or may have been, deliberately mispriced, has come out of nowhere. Self-evidently, he would not have funded the FFA losses out of his own pocket (ie without appealing to the limited liability of Kyla) if he had harboured any suspicion that the contracts had been arranged in an untoward manner.
The Claimants stated on their disclosure certificate that they withheld because of privilege “ documents relating to the investigations into the FFAs.”
Mr Buss, in his 9th witness statement, states that in 2018 Kyla became increasingly engaged in a dispute with its minority shareholder, YPA, in relation to the insurance proceeds following the constructive total loss of the Kyla. He states that by 31 October 2018 at latest, litigation between Kyla and YPA was believed to be in reasonable prospect by Kyla's inhouse lawyer Ms Iliopoulou and legal advice or litigation privilege is claimed in relation to the YPA Dispute from then onwards.
Mr Buss explains that on 15 November 2018 NEL wrote to PGL (see above) raising a grievance about the way the FFAs had been handled. PGL had been at the time of the FFAs the ultimate owner of FTL, CTM and CTP as well as having an interest in YPA. WFW were retained on 26 November 2018 and from November 2018 onwards litigation was, he says, in reasonable prospect between the Claimants and one or more of the Defendants in relation to the FFAs. Litigation privilege has been claimed between WFW and third parties and experts from then on for the dominant purpose of that litigation.
I do not understand there to be any dispute about claims for legal advice privilege.
Thus YPA (and therefore PGL), had referred to the conduct of YPA's principals in assisting NEL in settling debts from losses arising from the FFAs post 2008 and sought to contrast that with NEL's present stance (in relation to the dividend) claiming that it raised questions of integrity and trust. In response NEL countered that rather than provide assistance to NEL, YPA's associated company FTL had mismanaged the post 2008 position in relation to the FFAs by settling on NEL's behalf at par...
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High Court Finds No Litigation Privilege Where Expert Instructed To Try To Find Backing For Potential Counterclaim
...of the matter being investigated was not in reasonable prospect at the relevant time: Kyla Shipping Co Ltd v Freight Trading Ltd [2022] EWHC 376 (Comm). The decision is particularly noteworthy as the deputy judge, Charles Hollander QC, is the author of one of the leading textbooks on privil......
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High Court Finds No Litigation Privilege Where Expert Instructed To Try To Find Backing For Potential Counterclaim
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