OCM Maritime Nile LLC v Courage Shipping Company
| Jurisdiction | England & Wales |
| Judge | Sir Andrew Smith |
| Judgment Date | 26 October 2022 |
| Neutral Citation | [2022] EWHC 2696 (Comm) |
| Docket Number | Case No: CL-2021-000501 |
| Court | King's Bench Division (Commercial Court) |
Sir Andrew Smith
Case No: CL-2021-000501
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Charles Holroyd (instructed by Reed Smith LLP) for the Claimants
The Defendants were not represented and did not appear
Hearing date: 26 September 2022
Approved Judgment
On 4 March 2022, I delivered a judgment in these proceedings ( [2022] EWHC 452 (Comm)), (the “March judgment”). In this judgment, I adopt the same terms and abbreviations as in the March judgment.
OCM Nile and OCM Kama (together, the OCM companies) are special purpose vehicles incorporated in the Marshall Islands and ultimately owned by a Delaware limited liability company called Oaktree Capital Group LLC. On 12 July 2019, an associated company, Oaktree Maritime, made an agreement with Oryx to provide finance for the acquisition of bulk carriers to be chartered to companies controlled by Oryx. Pursuant to that agreement, OCM Nile chartered the bulk carrier “Courage” to CSC by a bareboat charterparty dated 5 November 2019, and OCM Kama chartered the bulk carrier “Amethyst” to AVC by a bareboat charterparty dated 18 February 2021.
It is not disputed that before June 2021 Mr Mallah was the legal and beneficial owner of the shares in CSC, AVC and Oryx, and was their sole director. It was contended by the companies that on 23 June 2021 Mr Mallah disposed of his interest in them, resigned as a director of them and ceased to have any “rights in and management authority” over them. In the March judgment, for reasons that I explained and shall not repeat, I rejected that contention: I concluded that Mr Mallah retained his beneficial interest in all the companies, and that he continued to order their affairs.
On 10 June 2021 the United States authorities had designated Mr Mallah a “Specially Designated Global Terrorist” (“SDGT”). That was an Event of Default under each of the charterparties. The OCM companies gave notices on 18 June 2021 to terminate them. saying that they would re-possess the vessels at their next ports of call, but CSC and AVC disputed their right to do so. In the event, OCM Kama took possession of the “Amethyst” on or about 1 September 2021 at Sharjah in the United Arab Emirates, but CSC caused the “Courage” to proceed into Syrian waters and she remains there.
The OCM companies brought these proceedings against CSC and AVC, and also Oryx. In the March judgment, I concluded that the notices of 18 June 2021 lawfully and effectively terminated the charterparties, and that the OCM companies were entitled to possession of the vessels. I did not determine claims for damages for breach of the charterparties and undertakings given by Oryx in support of them. I ordered that the costs of the action to 4 March 2022 be paid by the defendant companies on the indemnity basis, such costs to be subject to detailed assessment on the conclusion of the remaining issues in the action. I also ordered that the defendant companies should pay £1 million on account of those costs within 14 days.
CSC and AVC appealed against my judgment, but the Court of Appeal dismissed the appeal in a judgment of 29 July 2022 ( [2022] EWCA Civ 1091).
CSC, AVS and Oryx, which has been dissolved, have not made any payment in respect of the costs. By a notice dated 14 June 2022, the OCM companies applied for an order that Mr Mallah be joined as a party to the proceedings for the purpose of costs only, and for other relief, including permission to serve the amended claim form and other documents on Mr Mallah out of the jurisdiction and for a worldwide freezing order (“WFO”) against Mr Mallah. On 21 June 2022, I made an order the OCM companies to join Mr Mallah as a party in the proceedings and for service outside the jurisdiction, and I made a WFO.
The return date for the WFO was originally 1 July 2022. On 30 June 2022, AMZ Law came on the record as solicitors for Mr Mallah. They gave notice of an application to adjourn the hearing on 1 July 2022, disputing valid service of the proceedings, and said that Mr Mallah intended to apply to discharge the WFO and to contest disclosure ancillary to it. On 1 July 2022, Calver J permitted service of the amended claim form, the WFO and other documents by alternative means and continued the WFO. On 8 July 2022, Knowles J made an order in support of the WFO that by 29 July 2022 Mr Mallah serve an affidavit disclosing his assets. He has not done so, neither has he applied to discharge the WFO.
The adjourned return date hearing for the WFO came before Foxton J on 1 September 2022. AMZ Law had told Reed Smith, who act for the OCM companies, that they were no longer instructed by him (although they have not formally come off the record), and Mr Mallah did not appear before Foxton J either through representation or in person. Foxton J was satisfied that Mr Mallah had been served with the proceedings and the application for a WFO, and he made an order continuing the WFO. He directed that the claim for a costs order against Mr Mallah be listed for a final hearing.
Accordingly, I conducted a hearing on 26 September 2022. The OCM companies were represented by Mr Charles Holroyd. Again, Mr Mallah was not represented and did not appear. The OCM companies submitted that, reflecting my order upon the March judgment against the corporate defendants, Mr Mallah should be ordered to pay the costs of the proceedings to 4 March 2022 assessed on the indemnity basis, and that he should be ordered to pay £1 million on account. They also sought an order for the costs of the claim against Mr Mallah, and a payment on account of those costs.
Section 51 of the Senior Courts Act, 1981 makes provision for the Court to order that costs be paid by a “third party” or “non-party”, sc. a person not party to the substantive claim (such an order sometimes being referred to as a “section 51 order”, or “s.51 order”). It is in the following terms: “(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in … the High Court … shall be in the discretion of the court…. (3) The court shall have power to determine by whom and to what extent the costs are to be paid …”. In Aiden Shipping Co Ltd v Interbulk, [1986] AC 965, the House of Lords interpreted this section as conferring a discretionary power which is not limited to ordering that costs be paid only by persons who are party to the proceedings (or the substantive claims in the proceedings).
The Civil Procedure Rules provide at rule 46.2(1) that, “Where the court is considering whether to exercise its power under section 51 of the Senior Courts Act 1981 (costs are in the discretion of the court) to make a costs order in favour of or against a person who is not a party to proceedings, that person must – (a) be added as a party to the proceedings for the purposes of costs only; and (b) be given a reasonable opportunity to attend a hearing at which the court will consider the matter further”. These requirements are met in this case.
In Goknur v Aytacli, [2021] EWCA Civ 1037, Coulson LJ, whilst emphasising that he was not formulating “a sort of mandatory checklist applicable to a company director or shareholder against whom a s.51 order is sought”, provided this guidance (at para 40) about making a costs order against a third party, and in particular against a director or shareholder of an insolvent company:
(i) “An order against a non-party is exceptional and it will only be made if it is just to do so in all the circumstances of the case …”;
(ii) “The touchstone is whether, despite not being a party to the litigation, the director can fairly be described as ‘the real party to the litigation’…”;
(iii) “In the case of an insolvent company involved in litigation which has resulted in a costs liability that the company cannot pay, a director of that company may be made the subject of such an order. Although such instances will necessarily be rare …, s.51 orders may be made to avoid the injustice of an individual director hiding behind a corporate identity, so as to engage in risk-free litigation for his own purposes …”;
(iv) “In order to assess whether the director was the real party to the litigation, the court may look to see if the director controlled or funded the company's pursuit or defence of the litigation. But what will probably matter most in such a situation is whether it can be said that the individual director was seeking to benefit personally from the litigation. If the proceedings were pursued for the benefit of the company, then usually the company is the real party …. But if the company's stance was dictated by the real or perceived benefit to the individual director (whether financial, reputational or otherwise), then it might be said that the director, not the company, was the ‘real party’, and could justly be made the subject of a s.51 order …”;
(v) “In this way, matters such as the control and/or funding of the litigation, and particularly the alleged personal benefit to the director of so doing, are helpful in...
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