Russell John Carman v v (1) the Cronos group SA (2) Cronos Containers NV (3) Cronos Containers (Cayman) Ltd
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr. Justice Evans-Lombe,MR JUSTICE PATTEN |
| Judgment Date | 12 June 2006 |
| Neutral Citation | [2006] EWHC 1390 (Ch),[2005] EWHC 2403 (Ch) |
| Docket Number | Case No: 4731 and 4732 of 2004,Case No: 4731/2 of 2004 |
| Court | Chancery Division |
| Date | 12 June 2006 |
[2005] EWHC 2403 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon. Mr. Justice Evans-Lombe
Case No: 4731/2 of 2004
J. Brisby QC, H. Boeddinghaus (instructed by Edwards Geldard) for the Applicant
P. Marshall QC, M. Gadd (instructed by Denton Wilde Sapte) for the Respondents
Hearing dates: 4/10/2005—10/10/2005
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.
By an order made on 14 th February 2005 Mr Registrar Simmonds on the application of Russell John Carman ("the Liquidator"), the claimant in these proceedings, acting as Liquidator of Transocean Equipment Manufacturing and Trading Limited (a Company registered in England) ("T1") together with a company of the same name but registered in the Isle of Man ("T2"), granted permission to the Liquidator to serve the application in these proceedings abroad on the Respondents, the Cronos Group SA (a company registered in Luxembourg) ("Cronos"), Cronos Containers NV (a company registered in the Netherlands Antilles) ("Cronos NV"), and Cronos Containers (Cayman) Ltd (a company registered in the Cayman Islands) ("Cronos Cayman"). The proceedings seek declarations and orders pursuant to section 213 of the Insolvency Act 1986, against the Respondents, in order to obtain compensation for their alleged participation in the carrying on of the business of T1 and T2 with intent to defraud the creditors of those companies.
I have to deal with an application by the Respondents dated the 3 rd May 2005 to set aside that order, alternatively, for an order that the proceedings be struck out, alternatively, that there may be summary judgment for the Respondents pursuant to CPR Parts 3 and 24 and Rule 7.51 of the Insolvency Rules 1986. The grounds upon which the Respondents seek such orders are that the Liquidators application and the evidence in support disclose no reasonable grounds for bringing the claim and/or the Liquidator has no real prospect of succeeding on the claim and there is no other compelling reason why it should be disposed of at a trial and/or that the proceedings amount to an abuse of the process of the court.
The matter first came before me on the 18 th July of this year when, having heard argument on a specific point of law, namely, whether it was possible for the business of a company to be conducted fraudulently within section 213 of the Insolvency Act 1986 where it had been dissolved under section 652 of the Companies Act 1985 but subsequently restored under section 653(2), on which I reserved judgment, I stood the application over in order to enable the Liquidator to fully plead out his case. Because the Respondents are challenging the jurisdiction of the court I did not require the service of a defence. The Liquidator's full particulars of claim have now been served and it is to that document that the submissions of the applicant Respondents have been directed.
The Background Facts
The business of T1 was, at all material times, the owning and hiring out of maritime containers. Cronos NV and Cronos Cayman are the wholly owned subsidiaries of Cronos. So far as material they carry on business as managers, on behalf of the owners of containers, being responsible to manage their hiring to ultimate users, and for collecting and passing to owners the hire charges having deducted commission. At all material times T1 and the Cronos companies were owned and controlled by a Dr Palatin and, save for Cronos Cayman, their businesses were managed from the same offices in this country initially in Windsor and later in Marlow. Whereas T1 is now in liquidation, the Cronos companies, in which Dr Palatin has now no control or interest, are part of one of the largest group of companies in their line of business, worldwide.
Between April 1985 and March 1990 T1 entered into a series of management agreements with Cronos NV ("the Container Management Agreements") for the hiring of its stock of containers. The agreements provided for Cronos NV to account to T1 for accumulated rental payments at prescribed intervals. The last set of audited accounts filed by T1 are those to 31 st December 1990 and they reveal a prosperous and successful company. Profit for the year to that date is shown as £1,507,000 (admittedly only half that of the previous year). Its balance sheet shows total assets less current liabilities as £70,120,000 including a container stock valued at £19,484,000 and debtors of £59,137,000. The accounts show total net assets of £9,301,000. T1 also held a significant shareholding in a Californian company, TOL Acquisition Corporation Inc. ("TOL") which was a competitor of the Cronos companies.
The events with which this case is concerned start in early 1991. It appears that at that date Dr Palatin had failed in an attempt to take-over TOL but wished to prepare the Cronos group of companies for flotation in order to facilitate a renewed bid for that company in which T1 held 23% of its issued shares. It is the Liquidator's contention that, at the beginning of 1991 Dr Palatin formed the intention of stripping T1 of its assets and either transferring those assets to Cronos or its subsidiaries or to applying them for his own personal benefit. T1 was to be made to appear to sell its principal assets to the Cronos group for a consideration which would not be fully paid or performed while Dr Palatin would make payments from monies held for it by Cronos directly for the benefit of Dr Palatin or his wife, debiting T1's account with Cronos, alternatively, causing Cronos to make payments to T1 which sums would be immediately withdrawn by Dr Palatin and similarly applied. It is the Liquidator's contention that it was Dr Palatin's plan to prevent any attempt by or on behalf of T1 to recover its assets by allowing T1 to be struck off for failure to file accounts and be subsequently dissolved and by incorporating a company in the Isle of Man with exactly the same name as T1 ("T2") which would be made to appear as if it was the transferee from T1 of its assets and obligations whereas, in reality it remained a dormant and inactive company. T1's shares were all held by Swiss professional nominees on behalf of Dr Palatin and similar professionals constituted its board of directors.
In due course on the 21 st November 1991 T2 was incorporated in the Isle of Man with similar shareholders and directors to those of T1. It is common ground that at all times up to its liquidation it has remained entirely dormant in the sense that it has never opened a bank account or acquired any income or assets.
At a meeting on the 21 st and 22 nd November 1991 of the Cronos board, with Dr Palatin in the chair and five other members present, approval was given for two transactions, the first, for the purchase from T1 of its shareholding in TOL for $16m to be provided by the issue to T1 of 5.5m bearer ordinary shares in Cronos valued at $11m and the payment of the balance of $5m. and, secondly, for the purchase of 780 marine containers from T1 for a purchase price of $16.53m to be paid by the assumption by Cronos of T1's indebtedness for loans from Creditanstalt Bankverein amounting to $7m and the issue to it of bearer preferred stock in Cronos with a value of $9m. It is of note that the issue of ordinary bearer shares pursuant to the first of these transactions, for which the board of Cronos gave its authorisation, would have conferred on T1 a controlling interest in Cronos.
On the 25 th November 1981, at an extraordinary general meeting held in Luxembourg the shareholders of Cronos appointed Dr Palatin managing director of Cronos and authorised the acquisition by Cronos of the TOL shares in exchange for the issue to T1 of 5,500,000 ordinary bearer shares of Cronos.
On the 6 th December 1991 the first of a series of cash withdrawals ("the Withdrawals"), in this case of $120,000, was made from the bank account of T1 and, it is the contention of the Liquidator, was misapplied, at the instance of Dr Palatin, for his own purposes as opposed to the proper purposes of T1. This withdrawal was followed over the succeeding years by a number of other withdrawals of significant sums of money from the bank accounts of T1 apparently at the instance either of Dr Palatin or his wife and of which the Liquidator contends the evidence demonstrates were misapplied for their purposes and not the purposes of T1, the final such withdrawal being made on the 10 th June 1999 after the date that a winding up order was made against T1. Many of these withdrawals appear to have been made shortly after T1's bank accounts were credited with payments by Cronos NV of amounts collected by it for T1 under the Container Management Agreements.
On the 31 st December 1991 Cronos Equipment, another subsidiary of Cronos entered into an agreement, the benefit of which was later assigned by Cronos Equipment to Cronos Containers Limited, for the purchase of 780 Reefer Containers substantially in accordance with the terms authorised by the Cronos board at the meetings on the 21 st and 22 nd November. I will refer hereafter to this agreement as the " Reefer Container transaction" and the agreement for the acquisition by Cronos of the shares in TOL as the "TOL Share Purchase transaction". On the same date at an extraordinary general meeting of Cronos in Luxembourg alterations to the capital structure of Cronos were authorised to accommodate these two transactions. The Reefer Container transaction required the issue of 90,000...
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