Stocznia Gdanska SA v Latreefers Inc.

JurisdictionEngland & Wales
JudgeMorritt,May L JJ,Wall J.
Judgment Date09 February 2000
CourtCourt of Appeal (Civil Division)
Date09 February 2000
Stocznia Gdanska SA
and
Latreefers Inc.

Morritt and May L JJ and Wall J.

Court of Appeal (Civil Division).

Champerty — Stay of proceedings — Winding up — Costs — Whether proceedings should be stayed because they were being funded pursuant to champertous agreement — Whether court could wind up foreign company without assets in the jurisdiction — Whether fraudulent and wrongful trading claims provided potential benefit to creditors — Whether parent company properly ordered to pay costs of subsidiary's opposition to winding-up petition — Supreme Court Act 1981, s. 51 — Insolvency Act 1986, s. 221.

These were appeals from judgments of Lloyd J of 21 December 1998 and 27 May 1999 ordering the compulsory winding up of Latreefers Inc (“Latreefers”), a company incorporated in the republic of Liberia, and ordering Latreefers' ultimate holding company Latvian Shipping Co (“Latco”) to pay the costs incurred by the claimant Polish shipyard in the prosecution of the petition to wind up Latreefers in so far as they were increased by the opposition of Latreefers, and from a judgment of Toulson J of 10 June 1999 (see [1999] CLC 1451) refusing to stay related proceedings in the Commercial Court on the ground that the litigation by the yard was being funded by third parties in return for a share of recoveries and was accordingly champertous.

Latreefers (a subsidiary of “Latmar” which was a subsidiary of Latco) was formed in 1992 to be the purchaser under six contracts for reefer vessels to be built by the yard. Latreefers operated through directors in the Isle of Man and officers and employees of Latmar in London. Latreefers was put in funds by Latco to make the initial five per cent payments due in respect of the reefer vessels under the shipbuilding contracts, but no further payment was made because the market for such vessels had declined. The yard took proceedings and obtained summary judgment for $11m for keel laying instalments due in respect of the first two vessels (see [1998] CLC 540; [1998] 1 WLR 574). Claims by the yard against Latreefers for damages for breach of contract and against Latco and others for the tort of inducing breach of contract were remitted to the Commercial Court together with claims by Latreefers for return of the initial payments in respect of the other vessels and under the contracts in respect of the first two vessels.

In 1998, relying on the summary judgment which remained unpaid, the yard petitioned to wind up Latreefers as a foreign company under s. 221 of the Insolvency Act 1986. Lloyd J, on the basis that there was a sufficient connection with the jurisdiction and that Latreefers' cross-claims, which it said would exceed the yard's claim, were not made out, appointed provisional liquidators to determine whether there would be any benefit to creditors in having the company wound up. Latreefers then discovered that the yard's proceedings were being funded by a third party, shipping brokers who arranged the shipbuilding contracts and were entitled to commission under them. The funding agreement, made in 1994, provided for the brokers to receive 55 per cent of any recoveries. Latreefers applied for the Commercial Court and winding-up proceedings to be stayed on the ground that the funding agreement was champertous. Lloyd J refused to stay the winding-up proceedings and, on the basis of the provisional liquidators' report that there were potential claims against Latreefers' directors under s. 212–214 of the Insolvency Act 1986, made a winding-up order. He also made an order under s. 51 of the Supreme Court Act 1981 for Latco to pay the yard's costs of the petition in so far as they had been increased by the opposition of Latreefers. Toulson J refused to stay the Commercial Court proceedings on the basis that even if the funding agreement was champertous there was no abuse of process. Latreefers appealed against the winding-up order. Latco and Latmar appealed against Toulson J's order.

Held dismissing the appeals:

1. To wind up a foreign company it did not have to be shown that the company had assets within the jurisdiction only that there was a sufficient connection with the jurisdiction, that there was a potential benefit to creditors and that the creditors were subject to the jurisdiction. In this case the yard expressly submitted to the jurisdiction of the court in respect of the winding up of Latreefers. The liquidators had made misfeasance claims against directors of Latreefers and that constituted a sufficient potential benefit to creditors. There were also potential fraudulent and wrongful trading claims under s. 213 and 214 of the Insolvency Act 1986 which applied in the winding up of a foreign company. (Re Eloc Electro-Optiek and Communicatie BVELR[1982] Ch 43 and International Westminster Bank plc v Okeanos Maritime Corp; Re a company (No. 00359 of 1987)ELR[1988] Ch 210 approved.)

2. Although the funding agreement provided for the funder to receive 55 per cent of any recoveries, Lloyd J and Toulson J were right that that did not lead to the conclusion that there was in the circumstances any abuse of process. The funder had incurred substantial costs and had an obvious and substantial pre-existing interest in the subject matter of the litigation, since they were brokers who were entitled to commission on the payments for the vessels. There was no wanton and officious intermeddling with the disputes of others or trafficking in litigation. The agreement was probably not champertous, but it was not necessary to decide that issue. (Giles v ThompsonELR[1994] 1 AC 142 applied; Faryab v SmithUNK(unreported, 28 August 1998, CA) considered.)

3. The funding agreement did not constitute a breach of the indemnity principle of costs and even if it was champertous and unenforceable a costs order against Latco would not amount to enforcing it. As an exercise of discretion it was open to Lloyd J to make an order under s. 51 of the Supreme Court Act against Latco in all the circumstances of the case. In particular Latreefers was insolvent and the opposition to the winding up was in the interests of Latco and not of Latreefers or its creditors.

The following cases were referred to in the judgment of the court:

Abraham v Thompson [1997] CLC 1370.

Aiden Shipping Co Ltd v Interbulk LtdELR [1986] AC 965.

Banco National de Cuba v Cosmos TradingUNK (unreported, 9 November 1999, CA).

Banque des Marchands de Moscou (Koupetschesky) v KindersleyELR [1951] Ch 112.

Bellenden (formerly Satterthwaite) v BellendenUNK [1948] 1 All ER 343.

Eloc Electro-Optiek and Communicatie BV, ReELR [1982] Ch 43.

Faryab v SmithUNK (unreported, 28 August 1998, CA).

G v G (Minors: Custody Appeal)WLR [1985] 1 WLR 647.

Giles v ThompsonELR [1994] 1 AC 142.

Globe Equities Ltd v Globe Legal Services LtdUNK (unreported, 5 March 1999, CA).

Grovewood Holdings plc v James Capel & Co LtdELR [1995] Ch 80.

Hadmor Productions Ltd v HamiltonELR [1983] 1 AC 191.

Howard Holdings Inc, ReUNK [1998] BCC 549.

International Westminster Bank plc v Okeanos Maritime Corp; Re a company (No. 00359 of 1987)ELR [1988] Ch 210.

Kommunar, The (No. 3)UNK [1997] 1 Ll Rep 22.

Martell v Consett Iron Co LtdELR [1955] Ch 363.

Murphy v Young & Co's Brewery plc [1997] CLC 469; [1997] 1 WLR 1591.

New Brunswick Railway Co v British and French Trust CorpELR [1939] AC 1.

Paramount Airways Ltd, ReELR [1993] Ch 223.

Real Estate Development Co, ReUNK [1991] BCLC 210.

Symphony Group plc v HodgsonELR [1994] QB 179.

TGA Chapman Ltd v Christopher [1997] CLC 1306; [1998] 1 WLR 12.

Titan International, ReUNK [1998] 1 BCLC 102.

Gabriel Moss QC and Susan Prevezer (instructed by Ince & Co) for Stocznia Gdanska SA.

Angus Glennie QC and Martin Pascoe (instructed by Lawrence Graham) for Latreefers Inc.

JUDGMENT OF THE COURT
(Delivered by Morritt LJ)

This is the judgment of the court to which all members have made substantial contributions.

Introduction

1. In these appeals from the orders of Lloyd J made on 21 December 1998 and 27 May 1999 and from the order of Toulson J made on 10 June 1999 we are concerned with three questions:

  1. (1) whether Lloyd J should have ordered the compulsory winding up of Latreefers Inc (“Latreefers”), a company incorporated in the republic of Liberia;

  2. (2) whether an agreement dated 12 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 Co (“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. (3) whether Lloyd J was entitled, pursuant to s. 51 of the Supreme Court Act, 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.

2. 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 Corp (“Latmar”). Latco and Latmar procured the incorporation in Liberia of Latreefers on 9 September 1992 for the purpose of entering into the six contracts with the yard.

3. The issued share capital of Latreefers was 100 bearer shares of no par value. They have at all...

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