Latin American Investments Ltd v Maroil Trading Inc. (a company incorporated in Panama) and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Teare,Mr. Justice Teare |
| Judgment Date | 26 May 2017 |
| Neutral Citation | [2017] EWHC 1254 (Comm) |
| Docket Number | Case No: CL-2017-000130 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 26 May 2017 |
[2017] EWHC 1254 (Comm)
Mr. Justice Teare
Case No: CL-2017-000130
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Akhil Shah QC and Christopher Langley (instructed by Norton Rose Fulbright LLP) for the Part 20 Claimant/Additional party
David Foxton QC, Louise HuttonandStephen Donnelly (instructed by Quinn Emanuel Urquhart & Sullivan LLP) for the Defendants
Hearing date: 19 May 2017
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.
On 9 May 2017 I granted the Claimant, Oceanic Trans Shipping Est, a Freezing Order against the Defendants, Maroil Trading Inc. and Sea Pioneer Shipping Corporation. The return date was 19 May 2017 and on that date Mr. David Foxton QC, on behalf of the Defendants, submitted that the Freezing Order should not be continued, for three reasons. First, the Claimant had no legitimate claim against the Defendants because its claim breached the principle that prevents a shareholder in a company from recovering loss which is reflective of loss sustained by the company. As a result it was submitted that the Freezing Order was made on a basis which was fundamentally misconceived. Second, there was no reasonably arguable case in relation to a very substantial part of its claim. Third, there was no real risk of dissipation of assets. The first objection raises, it appears, an important question of law. The second and third objections require an assessment of the evidence relied upon by the Claimant.
The background
The background to this case is complex but may, without injustice to the parties, be shortly stated. Two VLCCs were owned by two companies, OOV and HMC ("the Joint Venture Companies"). There were three shareholders in the Joint Venture Companies, Latin American Investments Limited ("LAIL"), the First Defendant and the Claimant. The three shareholders were party to two Shareholder Agreements. Pursuant to the Shareholder Agreements the VLCCs were made available to the Second Defendant who entered into a COA with PDVSA, a company in the Petroleos de Venezuela Group of Companies. The rights of the Second Defendant under the COA were assigned to the Joint Venture Companies. Disputes arose between the Joint Venture Companies and PDVSA. It was alleged that PDVSA failed to perform its obligations under the COA. Those disputes were settled by the First and Second Defendants in alleged breach of the express and implied terms of the Shareholders Agreements and in breach of fiduciary duty. The claim of the Joint Venture Companies was settled for some $30m. whereas the Claimant contends that it ought not to have been settled for less than $89m. (which is the basis of the Claimant's claim for some $23m.) and the Claimant also says that it has not received its share of a sum paid under a Commission Agreement relating to the settlement in the sum of $10m.
There is no dispute that the Claimant has a reasonably arguable claim against the Defendants (though it is said that there is no reasonably arguable case supporting the quantum of the claim in the sum of $23m.) However, the Claimant's loss arises because "the value of its shareholding in the Joint Venture is diminished and it has not received, whether by dividend or otherwise: (a) its share of the settlement or of the Commission Sum paid by Commerzbank under the Commission Agreement and (b) pending an enquiry and account into the basis on which Maroil settled the Arbitration Claim any additional amounts for which the COA claims against PDVSA should have been settled" (see paragraph 62 of the Claimant's skeleton argument put before the court on 9 May 2017). Mr. Foxton submits that a claim for such loss by the Claimant is unsustainable in law because it falls foul of the "reflective loss" principle. The Freezing Order ought therefore not to have been granted.
Mr. Akhil Shah QC, when applying for the Freezing Order on 9 May, very properly referred me to this difficulty. But he submitted that the difficulty could be circumvented by the Claimants seeking an order for specific performance of the Defendants' obligations to pay the sums in question to the Joint Venture Companies. In making that submission he relied upon the observations of Birss J. in Peak Hotels and Resorts Ltd. v Tarek Investments Ltd. [2015] EWHC 3048 (Ch). I accepted (on the ex parte hearing) that that argument had sufficient strength to justify the grant of the Freezing Order. The question raised by Mr. Foxton's submission is whether that argument is sound. He submits that it is not. Mr. Shah submits that he only needs a good arguable case that it is correct. In that regard he referred me to Madoff Securities v Raven and others [2012] 2 AER (Comm) 634 at paragraph 145 where Flaux J. (as he then was) said:
"To justify obtaining a freezing injunction, a claimant has to show a good arguable case on the merits. In Ninemia Maritime Corp. v Trave Schiffahrtsgesellschaft mbH & Co KG, The Niedersachsen [1984] 1 AER 398 at 404 Mustill J (as he then was) described a good arguable case for these purposes as one "which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success". It can immediately be seen that this either is the same test as "serious issue to be tried" for the purposes of resisting a strike out application or, if there is any difference between the two tests, it is an imperceptible one."
This statement of the applicable test was not challenged but Mr. Foxton submitted that his "reflective loss" argument was a fundamental point which could and should be determined now because there would be no further factual matters arising at trial which would bear upon it.
Two preliminary matters
In the light of Mr. Shah's reliance upon the remedy of specific performance it is necessary to note, first, the precise obligations in the Shareholders' Agreements upon which reliance is placed and, second, the remedies relied upon in the Particulars of Claim.
Each of the shareholders, together with the Defendants, were party to the Shareholders' Agreements. Clause 5.2 provided that each shareholder shall use its reasonable endeavours to promote and develop the business of the Company (ie the Joint Venture) to the best advantage of the Company. Clause 5.4 provided that the Second Defendant "shall hold its rights, title, and interest in and to the PDVSA Contract on trust for the Company".
Reliance was also placed upon an alleged implied term of the Shareholders' Agreements that the three shareholders agreed not to do, or cause or suffer to be done, and not to cause or permit any company or other person under their control to do, any act, matter or thing likely to interfere with or harm the business of OOV/HMC or the other shareholders.
It was alleged that these terms had been breached by the Defendants when making the settlement and commission agreements without the consent of the Claimant and that the First Defendant failed to disclose that it had a conflict of interest when settling the claims of the Joint Venture Companies against PDVSA at the same time as settling a separate claims which the First Defendant had against PDVSA.
The remedies sought by the Claimant are set out in paragraphs 42 of the Particulars of Claim and include:
"42.4 An order that the Defendants do pay or procure payment of the Commission payment, its traceable proceeds and any profits made from the use of the same, together with interest thereon, to the Joint Ventures.
42.5 Further or in the alternative, an order that the Defendants do pay a sum equivalent in amount to the Commission Payment and any profits made from the use of the same and/or equitable compensation and/or damages, together with interest thereon, to the Joint Ventures Agreement."
The "reflective loss" principle
The principle is stated by Lord Bingham in Johnson v Gore Wood [2002] 2 AC 1 at pp.35–36 as follows:
"These authorities support the following propositions:
1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss. So much is clear from Prudential, particularly at pages 222–3, Heron International, particularly at pages 261–2, George Fischer, particularly at pages 266 and 270–271, Gerber and Stein v. Blake, particularly at pages 726–729.
2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding....
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