YS GM Marfin II LLC v Muhammad Ali Lakhani

Hearing dates: 22 nd and 23 rd September 2020.

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.

A: Introduction

This judgment concerns two applications which were heard on 22 and 23 September 2020.

The Claimants, whose case was argued by Mr. Richard Waller QC, seek summary judgment against three Defendants under a series of guarantees issued in order to support loans made for the purpose of financing a large-scale family-controlled business relating to the purchase and sale of ocean-going vessels for scrap.

This ship recycling business had been built up by the Third Defendant (“Tahir”) over many years. A presentation made to the Claimants in July 2019 described the background to this business. Tahir was an “internationally recognized visionary shipping executive” with more than 40 years' experience. The business was originally carried out by a company called Dubai Trading Agency, which was the first company based in the Middle East to start buying ships for recycling. By 2019, the business was carried out by North Star Maritime Holdings Ltd (“North Star”), which was “a market leading ship recycling company (top 3 in the world) with a stable financial track record”, enjoying “a respectable and trustworthy market reputation since the inception of the group in 1973”. North Star was one of a number of related companies engaged in different aspects of the shipping industry which were described in the presentation. The others were Dubai Navigation Corp. (on whose behalf the presentation was made), which owned a number of trading vessels; Gulfstar SA, described as the “Commercial arm” of the group, handling sale and purchase, chartering and projects via an extensive worldwide network including its own offices in New York, London and Monaco; and DTA Maritime LLC, a “market leading provider” of marine and logistic services to shipowners, ship managers and others.

Tahir is the father of the First Defendant (“Ali”) and the Second Defendant (“Hasan”). Each of them provided the guarantees which provided the basis for the summary judgment application. Although Tahir, Ali and Hasan are all represented in these proceedings by Greenberg Traurig (“GT”), who came on the record in May 2020, no defence to the claim has been intimated or advanced by Tahir. No submissions were made on his behalf at the hearing of the summary judgment application. Since there is a straightforward claim under the guarantee given by Tahir, and since it has not been and cannot be suggested that he has not been properly served with proceedings or with the application (GT remain on the record as far as he is concerned), summary judgment is clearly appropriate in his case.

Ali and Hasan were represented at the hearing by Mr. Matthew Cook. Only one defence is advanced by way of response to the summary judgment application: a defence of undue influence. The question is whether that defence has a real prospect of success.

Separately, Ali and Hasan apply to discharge a worldwide freezing order (“WFO”) which was originally granted by Butcher J. on 2 April 2020, and which was continued at the hearing of the return date on 22 April 2020. The principal argument is that the Claimants failed to disclose certain facts which were material to the application. A separate point is raised in relation to notices of the WFO which were given to third parties following its grant. It is said that the giving of these notices, and the manner in which notice was given, was an abuse of the court's process such as to warrant, independently of non-disclosure, the discharge of the WFO.

I shall deal separately with both applications.

B: Factual background .

This section addresses the factual background and evidence which is relevant, principally, to the summary judgment application. To a very large extent, these facts were not in dispute.

The Claimants are Delaware corporations established to advance commercial loans, financed by private equity funding. Their business is managed by Yield Street Management, LLC, which provides an online platform where qualified individuals can participate in investment opportunities. Yield Street Management LLC's parent company is YieldStreet Inc., a Delaware corporation headquartered in New York. The facilities provided by the Claimants were therefore referred to as the “YieldStreet facility” or by similar expressions.

Over a 15-month period, between 1 June 2018 and 11 September 2019, the Claimants agreed to advance, to various borrower counterparties (“the Borrowers”), a number of commercial loans. 4 out of the 5 loan agreements were signed by Ali. The terms of each loan made it clear that, as is usual in ship finance transactions, the security was to include personal guarantees. The Borrowers themselves were, as is common, special purpose vehicles. The total principal sum advanced by the Claimants to the Borrowers, between 1 June 2018 and 5 March 2020, was US$74.6 million.

Each of the Loans was secured by personal guarantees (“the guarantees” or “the personal guarantees”) given by each of the Defendants. The guarantees were expressly governed by English law and jurisdiction. It is not necessary to describe the detailed terms of the guarantees, because there is no dispute that, subject to the undue influence defence, Ali and Hasan are liable under those guarantees for the full amounts claimed: the guarantees contain comprehensive indemnity provisions. In addition to these personal guarantees, a “Corporate” guarantee was provided by North Star, the parent company of the Borrowers.

A feature of the documentation is that there was a separate guarantee issued by each of the Defendants in respect of each underlying loan. Each Defendant therefore executed 5 guarantees. Each guarantee had an initial cover page. This contained the following:

“ Warning to Guarantor

This is an important document. You should take independent legal advice before signing and sign only if you want to be legally bound. If you sign and the Lender is not paid you may have to pay instead of the Borrowers without any limit on your liability.”

Each guarantee was signed by Ali and Hasan as a deed before a witness. Beneath the signature block was text which repeated the warning set out above.

Subsequent to signing the guarantees, the Defendants also executed numerous deeds of confirmation, re-affirming their guarantee liabilities whenever the underlying loans were amended. Overall, Ali and Hasan executed between them 26 relevant contracts or deeds, at regular intervals, over a period of approximately 18 months.

There is no dispute that the loans were the subject of numerous non-payment “Events of Default”. In February 2020, further Events of Default occurred when the Borrowers' corporate parent company, North Star, was put into voluntary liquidation in Nevis. Before describing these events, I will say something about North Star and the relationship of Ali and Hasan with that company.

North Star was the holding company of a large number of other companies, including the Borrowers. Ali and Hasan each owned 50% of North Star, and they were its sole directors. The reason for their ownership was explained in a “Q and A” document sent by e-mail by Ali to another creditor group, Njord Partners (“Njord”), in December 2016. The covering e-mail said that “North Star/ DTA” was one of the oldest and leading companies in the ship recycling sector. Njord had asked two questions, to which answers were given in bold text:

“7. What were all of the reasons for the change of entity and name from DTA to North Star?

The Q4 2008 collapse in freight rates gave DTA further opportunity to expand its activities in the ship recycling market. 2012 was a record year for ship recycling volumes and in 2013 we decided to restructure our trade finance lines to cater for the increase in ship recycling volumes. At this juncture, the most interesting financing options at our disposal required us to set up North Star which has 100% beneficial ownership as oppose[d] to DTA's 49/51% (on paper) share split which has to exist in any onshore UAE based LLC Company. North Star's corporate structure provides an investor friendly transparent framework, devoid of Sharia Law governed corporate LLC requirements.

In addition to the above, DTA continues to operate as a service company in Dubai. The company continues to be in good standing, holding a valid commercial license (copies of which can be provided for reference & records), having assets and providing services to the shipping industry from its registered office in Dubai, UAE.

8. Why is Tahir Lakhani not a director of North Star?

Apart from the reason listed above, North Star was formed also with forward succession planning in mind, with Tahir Lakhani's sons Ali Lakhani and Hasan Lakhani who are now fully active in the business.”

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