Stocznia Gdanska Sa v Latreefers Inc.
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MORRITT |
| Judgment Date | 09 February 2000 |
| Judgment citation (vLex) | [2000] EWCA Civ J0209-8 |
| Docket Number | Case No: CHANI 1999/0272/B3 CHANI 1999/0686/A3 |
| Court | Court of Appeal (Civil Division) |
| Date | 09 February 2000 |
[2000] EWCA Civ J0209-8
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
Lord Justice Morritt
Lord Justice May and
Mr Justice Wall
Case No: CHANI 1999/0272/B3 CHANI 1999/0686/A3
QBCMI1999/0718/A3 CHANF1999/0784/B3
And Other Actions
Mr A.Glennie QC and Mr M. Pascoe (instructed by Lawrence Graham for Latreefers Inc.) appeared on behalf of the Applicant.
Mr G.Moss QC and Miss S. Prevezer (instructed by Ince & Co for Stocznia Gdanska SA) appeared on behalf of the Respondent.
Wednesday, 9th February 2000
This is the judgment of the court to which all members have made substantial contributions.
Introduction
In these appeals from the orders of Lloyd J made on 21st December 1998 and 27th May 1999 and from the order of Toulson J made on 10th June 1999 we are concerned with three questions:
(1) whether Lloyd J should have ordered the compulsory winding up of Latreefers Inc ("Latreefers"), a company incorporated in the Republic of Liberia;
(2) whether an Agreement dated 12th October 1994 ("the Funding Agreement") between Stocznia Gdanska SA ("the Yard") and a third party ("the Funders") for the payment by the latter of the costs incurred by the former in the prosecution of the petition to wind up Latreefers and related proceedings in the Commercial Court to which Latreefers and its ultimate holding company Latvian Shipping Company ("Latco") are parties was and is champertous and, if so, whether the winding up petition and Commercial Court action should have been stayed by Lloyd J and Toulson J respectively;
(3) whether Lloyd J was entitled, pursuant to s.51 Supreme Court Act 1981, to order Latco to pay the costs incurred by the Yard in the prosecution of the petition to wind up Latreefers in so far as they were increased by the opposition of Latreefers.
Latco is a corporation established under the laws of the Republic of Latvia and is concerned with shipping. In 1992 Latco was engaged in negotiations with the Yard for the design, building, completion and delivery of six refrigerated vessels. The final negotiations took place in London. It was envisaged that each vessel would be the subject of an individual contract and that each contract would be made with a subsidiary of Latco and contain an English choice of law clause. Latco had a wholly owned subsidiary incorporated in Liberia called Latmar Holdings Corporation ("Latmar"). Latco and Latmar procured the incorporation in Liberia of Latreefers on 9th September 1992 for the purpose of entering into the six contracts with the Yard.
The issued share capital of Latreefers was 100 bearer shares of no par value. They have at all times been held by Latmar. Latreefers had three duly appointed directors, residents in the Isle of Man and associated with Capco Trust IoM Ltd, a company concerned in the formation and administration of offshore companies, namely Mr Hobson, Ms Potts and Mr Brickel. From time to time those directors appointed persons to act as attorneys for Latreefers for specific purposes. Such attorneys included partners or employees in Watson Farley & Williams, a firm of solicitors practising in London, officers or employees of Latmar Services Ltd, a company incorporated in England with offices in London and Mr Henriksen, a Norwegian ship broker operating through a Bermuda service company but with offices in England.
The contracts for the six vessels were entered into by the Yard and Latreefers on 11th September 1992. The total price was US$170m payable by Latreefers by instalments. The first payment of 5% was duly made in respect of vessels 1 to 3 in the sum of US$4.145m on 19th October 1992. Latreefers has made no further payments in regard to those vessels. The contracts for vessels 4 to 6 were conditional on Latreefers deciding to continue them. Latreefers so decided on 11th January 1993. Shortly thereafter, on 1st February 1993, Latreefers opened a US$ account with Hambros Bank in London. The first payment of 5% in respect of vessels 4 to 6 was made out of that account in the sum of US$4.325m on 4th March 1993. Latreefers has made no further payment in respect of those vessels either. The account of Latreefers with Hambros remained active until 30th November 1993. On the latter date there was a credit balance of US$13.4m which was deposited by Latreefers with CFM.
The evidence before us includes documents which suggest that on 2nd December 1993 Latreefers (a) acknowledged a loan from Latco of US$ 13.4m as of 30th November 1993, (b) repaid the same by assigning to Latco the benefit of Latreefers deposit with CFM and (c) lent US$218,132 to an associated company Tangent. On the following day a representative of Latreefers told a representative of the Yard that Latreefers could not pay for any of the vessels.
On 7th January 1994 the Yard issued proceedings in the Commercial Court against Latco, Latreefers, Mr Henriksen and CFM seeking payment of the further sums due under each of the six contracts, damages for their breach and damages for and injunctions to restrain procurement of such breaches of contract. On 5th December 1994 the Yard obtained summary judgment against Latreefers for US$11m. in respect of the second instalment due for the first and second vessels. Appeals on this and other issues between the parties were finally determined by the House of Lords on 26th February 1998. The position thereby established is, so far as relevant to the issues before us, that (1) the Yard has an indisputable judgment against Latreefers for US$11m. and interest thereon in respect of the second instalment due for vessels 1 and 2; (2) the Yard's claim for damages for breach of contract in respect of vessels 1 and 2 is subject to an express obligation to mitigate its loss and bring sums into account under Article 5.05 which Latreefers say, if established, would exceed the claim of the Yard and (3) in respect of vessels 3 to 6 Latreefers claim for the return of the initial payments of 5% on the basis of a total failure of consideration remains to be tried as does the Yard's claim for damages for repudiatory breach.
As we have already mentioned on 14th October 1994 the Yard entered into the Funding Agreement now alleged to be champertous. The need for such an agreement was underlined when on 8th August 1996 the Yard was declared to be bankrupt in Poland.
The petition with which we are concerned was presented to the Companies Court on 1st July 1998. It is based on the unpaid judgment debt of US$11m with interest thereon amounting, in all, to US$15.8m. In paragraph 5 it is averred that sufficient connection with this jurisdiction is to be found in the facts that the six contracts which constituted the only business of Latreefers were entered into in England and contained English choice of law clauses, the appointment as attorneys for Latreefers of eight persons resident in England and the operation of Latreefers' account with Hambros. In paragraph 10 it was averred that an order to wind up Latreefers would benefit the Yard as a creditor of Latreefers in enabling a liquidator to pursue claims available to Latreefers, to investigate its affairs and collect and realise its assets for the benefit of its creditors. The Yard expressly submitted to the jurisdiction of this court in respect of the winding up of Latreefers. In addition in paragraph 11 it was alleged that there is no more appropriate forum in which to wind up Latreefers.
The petition came before Lloyd J on 9th and 10th December 1998. Before Lloyd J gave judgment on 21st December 1998 Latreefers' solicitors had received an anonymous telephone call informing them of the existence of the Funding Agreement of which they had been previously unaware. Though, in due course, a full copy was put before the court the Yard is concerned at what appears to them to be a breach of confidence and have invited us to preserve their alleged right to confidentiality so far as we can. We will explain its terms, without identifying the Funders, at the later stage of this judgment when we come to deal with the issue of champerty.
In his judgment given on 21st December 1998 Lloyd J decided that he had jurisdiction to entertain the petition to wind up Latreefers. He considered that the position was not entirely clear and thought it better, rather than wind up Latreefers then and there, to appoint provisional liquidators under s.135 Insolvency Act 1986 and adjourn the petition. He required the provisional liquidators to investigate and obtain advice on possible claims of Latreefers against its former directors, including de facto and shadow directors and on the merits of its defence and counterclaim in the Commercial Court proceedings.
On 10th February 1999 the defendants to the Commercial Court proceedings, including Latreefers and Latco, applied for an order staying those proceedings and the execution of all judgments therein obtained by the Yard on the grounds that the Funding Agreement was champertous. In the alternative they sought an order for the disclosure of all documents relating to the Funding Agreement. This is the application which, in due course, came before Toulson J.
On 9th April 1999 the provisional liquidators appointed by Lloyd J on 21st December 1998 made their report to the court. They reported that the assets of Latreefers within the jurisdiction appeared to include US$363 in the Hambros Account and US$218,132 lent by Latreefers to Tangent. They concluded, amongst other things, that Latreefers was insolvent,...
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