Snowstar Shipping Company Ltd v Graig Shipping Plc and Another

Hearing date : 6 th June 2003

Approved Judgment

This is an application for disclosure prior to the commencement of proceedings. The relevant procedural rule is 31.16 which gives the court a discretion to order pre-action disclosure when certain conditions are satisfied.

"Rule 31.16 Disclosure before proceedings start:

(1) This rule applies where an application is made to the court under any Act for disclosure before proceedings have started.

(2) The application must be supported by evidence.

(3) The court may make an order under this rule only where—

(a) The respondent is likely to be a party to subsequent proceedings;

(b) The applicant is also likely to be a party to those proceedings;

(c) If proceedings had started, the respondent's duty by way of standard disclosure, set out in rule 31.6, would extend to the documents or classes of documents of which the applicant seeks disclosure; and

(d) Disclosure before proceedings have started is desirable in order to—

(i) Dispose fairly of the anticipated proceedings;

(ii) Assist the dispute to be resolved without proceedings; or

(iii) Save costs."

The principles of law which I must apply are not in dispute and are conveniently set out in Ms Andrews QC's clear skeleton argument. The approach to the issues I have to determine is set out in Rix LJ's judgment in Black v Sumitomo Corporation [2001] 1 WLR 1562; [2001] EWCA Civ 1819. I summarise them thus:

(1) There is no longer a requirement that the Court should be satisfied that a claim is likely to be made; merely that the persons against whom the application are made are likely to be parties in such proceedings if issued.

(2) The court will act with particular care and caution when an allegation of fraud is made or hinted at: "..it cannot be right that an allegation of fraud should assist the potential claimant to obtain pre-action disclosure unless his allegations carry both some specificity and some conviction and his request for disclosure is appropriately formulated" and it will obviously be easier for a respondent to resist any pre-action disclosure if he has acted reasonably in exchanging information and documents relevant to the claim.

(3) The purpose of the rule is not just for the assistance of a prospective claimant to improve his prospective pleading but also of those who need disclosure as a vital step in deciding whether to litigate at all or as a vital ingredient of the pleading. It is relevant in the context of conditions (a) and (b) to take account of a number of matters including these:

(a) whether the injury or wrong in respect of which compensation is

claimed is clear and

(b) called for an examination of the documents in question and

(c) the disclosure requested was narrowly focussed and

(d) bore directly on the injury complained of and responsibility for it

and

(e) the documents would be decisive on the conduct or even the

existence of the litigation

(4) There is a clear distinction between a personal injury action on the one hand and speculative commercial actions [where the disclosure sought is broad or ill defined]. The more diffuse the allegations and the wider the disclosure sought the more sceptical the court is entitled to be.

(5) In order that the court can determine whether condition (c) has been fulfilled, there needs to be clarity as to the issues, which would arise once pleadings in the prospective litigation had been formulated. "The court must be clear what the issues in the litigation are likely to be, that is what case the claimant is likely to be making and what defence is likely to be being run so as to make sure the documents being asked for are ones which adversely affect the case of one side or the other or support the case of one side or the other." Per Waller LJ in Bermuda International Securities Ltd v KPMG [2001] Lloyd's Rep PN 392 at 397, cited with approval by Rix LJ.

The application is for disclosure of

"All documents passing between [Graig] and their representatives and/or the tax authorities in respect of the proposed UK tax lease scheme and confirmation of the date on which such documents were provided, where none is expressly indicated."

The prospective defendants whom I shall call Graig, are a company whose business includes the exploitation of potential investment opportunities in the shipping markets. The Applicant, whom I shall call Snowstar, owned two new builds for use in the container market. Negotiations between the parties in relation to the new builds commenced in March 2001. The sale to Graig of one of the two new builds did not come to fruition for reasons largely unconnected with the present dispute. Essentially, the sale fell through because of the delays, which were inherent in Graig's decision to fund the purchase partly through a tax scheme, which needed to be structured in a way which would meet with Revenue approval. Graig's brokers were Arrow; Snowstar's were Costa. The sequence of correspondence is as follows:

On 29 May 2001, under the heading "re : EF Shipping vessels – Graig Shipping or nominee" Arrow wrote by E mail to Costa indicating that Graig maintained an interest in these vessels:

"They appreciate that the Sellers preference is to work on a clean and outright basis however as the Graig shipping will be buying the vessels under a UK tax scheme, they will require a 30 day subject on the deal to clear UK tax authorities. Provided a deal can be structured then while awaiting for these subjects, documentation, sales agreement etc could proceed and agreed between Buyers/sellers. However they cannot get around this issue.

In order to encourage Sellers of their seriousness they have advised that they could pay in the region of US$34.4/34.5 million less 2% here per ship. This is for an en bloc deal for both Vessels.

Frankly we see little risk from the Sellers' side. The price is a premium over those which German buyers are prepared to pay and deals are going through under UK tonnage tax schemes.

Can you please discuss with Sellers and advise whether they could consider this type of scheme. If so, we will ask for a formal offer from the Buyers' side."

On the next day, Arrow sent another E-mail:

"On behalf of a company to be nominated by clients of Graig Shipping of Cardiff, Wales, we are authorised to present the following offer firm for reply here 1200 hrs London time 31 May 2001 as follows:" and there followed a list of 'terms'.

The Sellers were described as "nominated companies of EF Shipping" and the Buyers as "clients of Graig Shipping or nominee". There were six 'subjects' including agreement of full terms and conditions.

The E-mail continued:

"Please note our buyers are very serious and now have the necessary funding in place, but they require time to allow for this complex UK Tax lease transaction to be documented. Very privately, Graig is buying these vessels in conjunction with a LEADING European shipping Bank for placement into their shipping fund. All the cards are in place for this transaction to go through and the Buyers are geared up to do it.

…

They are now offering the Sellers US$ 500,000 per ship as a premium over your existing negotiations in order to secure their additional subject. We would strongly suggest Sellers postpone [negotiations] with your German Buyers and give Graig the chance to explain their position and offer."

On 31 May 2001, Arrow sent another E mail "re: EF Shipping / Graig"

"As discussed, Graig remain keen and serious. They appreciate that there is a subject but this is only so that the documentation clears with the tax people. Graig is ready to do the deal as are their finance partners."

"As discussed yesterday, the money is in place for this and Buyers believe that their premium of US$ 1 million over your current negotiations is more than clear indication of their seriousness."

"We would strongly suggest that Sellers slow down with the others so that they can satisfy themselves of Graig's interest and their willingness to conclude this deal."

Later the same day, Arrow sent another E mail in response to a communication, not in the papers, from Costa.

"Graig appreciate Sellers' position which they accept that given Sellers' have an outright buyer for the first vessel then they want to proceed with that buyer.

This being said, Graig are ready to negotiate on the second vessel delivery Jan 2002. They still require clearing the deal through the tax authorities. However, sellers are not negotiating that vessel at the moment and Graig are [clearly] willing to buy the ships.

Please discuss with the sellers and advise.

We appreciate that the Germans are saying that they may be able to come back for the second ship but they this [sic] could take time. The sellers have no reason not to run with Graig for time being."

On 4 June 2001 Arrow sent this E mail to Costa:

"As discussed, Graig still remain very seriously interested in the second

Vessel.

Appreciate your Sellers comments about not wanting to work on subjects but do they realise that this has to do with the UK tax authorities rather than a subject from Buyers board? In order to try to find a solution, please advise how we move forward. As brokers, can you please advise: -

If Buyers re-offer without a Buyers approval but still a subject to the tax authorities accepting the deal, will this satisfy the Sellers' concerns?

The...