Lakatamia Shipping Company Ltd v Nobu Su and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Tomlinson,Sir Bernard Rix,Lord Justice Rimer |
| Judgment Date | 14 May 2014 |
| Neutral Citation | [2014] EWCA Civ 636 |
| Docket Number | Case No: A3/2013/1755 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 May 2014 |
Lord Justice Rimer
Lord Justice Tomlinson
and
Sir Bernard Rix
Case No: A3/2013/1755
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION, COMMERCIAL COURT
Mr Justice Burton
Royal Courts of Justice
Strand, London, WC2A 2LL
N G Casey and Elizabeth Lindesay (instructed by Hill Dickinson LLP) for the Respondent
John Jarvis QC and Josephine Davies (instructed by Cooke, Young and Keidan LLP) for the Appellants
Hearing dates: 17/18 March 2014
This is an appeal against an interlocutory order made by Burton J on 6 June 2013. It raises a question as to the appropriateness of modifying a freezing order in standard form so as to impose a notice requirement in respect of dealings with assets which cannot at the interlocutory stage be shown to be either legally or beneficially owned by the defendant but where however it is clear that such dealings could have the effect of diminishing the defendant's assets by diminishing the value of shareholdings of which he is the legal or beneficial owner.
The facts are uncontentious. I take them, gratefully, from the Appellants' skeleton argument prepared for the appeal.
Pursuant to a contract involving the sale and purchase of exchange traded freight derivatives (FFAs), the Respondent Claimant claims US$48,824,440.24 from the Defendants as damages or seeks restitution of this sum. The Appellant Defendants deny the Claimant's entitlement to this or any other sum and counterclaim restitution of approximately US$ 40 million alternatively approximately US$ 26 million.
On 6 October 2011 Beatson J continued a worldwide freezing injunction ("the Injunction") in support of the Claimant's claim. The key provisions of the injunction whose meaning and effect are the subject of this appeal are as follows:-
"2. The Defendants must not –
(1) Remove from England and Wales any of their assets which are in England and Wales up to the value of US$48,824,440.24; or
(2) In any way dispose of, deal with or diminish the value of any of their assets whether they are in or outside England and Wales up to the same value.
3. Paragraph 2 applies to all of the Defendants' assets whether or not they are in their own names and whether they are solely or jointly owned. For the purpose of this Order, the Defendants' assets include any asset which they have the power, directly or indirectly, to dispose of or deal with as if it were their own. The Defendants are to be regarded as having such power if a third party holds or controls the asset in accordance with their direct or indirect instructions.
4. (1) If the total value free of charges or other securities ("total unencumbered value") of the Defendants' assets in England and Wales exceeds US$48,824,440.24, the Defendants may remove any of those assets from England and Wales or may dispose of or deal with them so long as the total unencumbered value of the Defendants' assets still in England and Wales remains above US$48,824,440.24.
(2) If the total unencumbered value of the Defendants' assets in England and Wales does not exceed US$48,824,440.24, the Defendants must not remove any of those assets from England and Wales and must not dispose of or deal with any of them. If the Defendants have other assets outside England and Wales, they may dispose of or deal with those assets outside England and Wales so long as the total unencumbered value of all their assets whether in or outside England and Wales remains above US$48,824,440.24.
….
6. Exceptions to this Order:
(1) This Order does not prohibit the Defendants from spending a reasonable sum on living expenses and legal advice and representation. But before spending any money the Defendants must tell the Claimant's solicitors where the money is to come from.
(2) This Order does not prohibit the Defendants from dealing with or disposing of any of their assets in the ordinary and proper course of business.
Paragraphs 2 and 3 of the Injunction are the focus of this appeal. It is convenient to note that:-
(1) these paragraphs are identical, save for being rendered appropriate to more than one defendant, to the "narrow" form of paragraphs 5 and 6 of the standard form of freezing injunction set out in Appendix 5 to the Commercial Court Guide (White Book 2014 Vol 2 pp 513–518);
(2) this "narrow" form omits an additional qualification (referred to as the "Commercial Court words") of the definition of assets which is designed to catch assets of which the Defendants have legal but not beneficial ownership. If the words "… whether they are solely or jointly owned and whether the respondent is interested in them legally, beneficially or otherwise" had been included at the end of the first sentence of paragraph 3, the Injunction would have a wider scope to include assets of which the defendants were mere legal owners ( JSC BTA Bank v Solodchenko ("Solodchenko") [2011] 1 WLR 888).
(3) the final two sentences of paragraph 3 of the Injunction (and of paragraph 6 of the Commercial Court standard form) are referred to as the "Extended Definition".
The expressions "the Commercial Court words" and "the Extended Definition" were aptly coined by Christopher Clarke J in JSC BTA Bank v Ablyazov and Others (5) [2012] EWHC 1819 (Comm), [2012] 2 All ER (Comm) 1243.
The question which fell to be decided by Burton J and which is now the subject of this appeal is whether the Injunction had the direct effect of freezing the assets of three non-defendant companies or NDs ("F3", "F5" and "IM3 Co") of which the First Defendant ("Mr Su") is the direct or indirect 100% shareholder and a director. Mr Su is the sole director of at least F3 and F5.
On 6 June 2013, in an extempore judgment ("the Judgment") [2013] EWHC 1814) Comm) Burton J held that the assets of the NDs were directly affected by the Injunction.
The judge expressed this conclusion at paragraph 16 of his judgment in this way:-
"16. I have no doubt whatever that the factual scenario which I have described, namely that the First Defendant effectively controls, and indirectly owns, the companies F3, F5 and IM3, which own the assets, the vessel and the shares which I have described, brings the position plainly, and intendedly, into the definition of paragraph 3 of the Order. It does not cause any offence against Salomon v Salomon for two reasons. First of all, this is, of course, only an interlocutory order, but, in any case, it depends upon a perfectly traditional analysis of company law provisions, where the owner of a company can, by resolution at the general meeting or otherwise, particularly if he is also the sole or controlling director by reference to decisions at board meetings or otherwise, access and direct the fate of the assets of the companies which he thus owns or controls."
By coincidence on the very same day, 6 June 2013, handing down his reserved judgment in an unrelated case (Group Seven Ltd v Allied Investment Corporation Ltd (" Group Seven") [2014] 1 WLR 735), Hildyard J reached the opposite conclusion to that reached by Burton J on this issue. The Defendants (and apparently also the Claimant and the judge) were unaware of this at the hearing.
Mr John Jarvis QC for the Appellants suggests that paragraph 16 of the judgment of Burton J is heretical and that we should take this opportunity to say so. He also suggests that adoption of this reasoning led Burton J to make an inappropriate order which is incompatible with the important principles of corporate identity enshrined in Salomon v A Salomon and Co Limited, [1897] AC 22, recently reaffirmed in Prest v Petrodel Resources Limited [2013] UK SC 34; [2013] 3 WLR 1. A legally incorporated company must be treated like any other independent person with its rights and liabilities appropriate to itself, whatever may have been the ideas or schemes of those who brought it into existence – see per Lord Neuberger in Prest at paragraph 66. A company's property is not the property of its shareholders. If it were, there would be no need ever to consider piercing of the corporate veil, still less for the extensive jurisprudence on that subject.
By the end of the hearing of the appeal it seemed that Mr Jarvis was more concerned with establishing the error in Burton J's reasoning than in maintaining his challenge to the terms of the Order which he came close to accepting, if he did not actually accept, could be justified albeit in a different manner. However by a letter to us delivered the following morning he clarified his opposition to the parts of Burton J's Order imposing notice requirements in respect of dealings with the assets of the NDs, F3, F5 and IM3 Co.
Factual Background
For reasons not relevant to this appeal, the Royal Bank of Scotland Plc ("RBS") held (and currently still holds) security over assets belonging to F3 Capital ("F3"), F5 Capital ("F5") and Iron Monger 3 Co Ltd ("IM3 Co"). These assets are referred to as "the RBS Assets". The most significant assets concerned are:
(1) 12,142,858 shares in NYSE AMEX listed Vantage Drilling Company ("Vantage") owned by F3.
(2) 200,000 shares in NASDAQ listed Star Bulk Carriers Corporation (" Star Bulk") and US$1.635 million in cash owned by F5.
(3) A ship, MV Iron Monger 3 ("the Vessel"), owned by IM3 Co.
Save for the US$1.635 million which is in an English bank account, each asset is outside the jurisdiction.
Mr Su is the 100% legal and beneficial owner of F3 and F5. Both are Cayman Island companies and Mr Su's...
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