Pre-trial or post-judgment relief - Freezing order
Linsen International Ltd and others v Humpuss Sea Transport PTE Ltd and others: Queen's Bench Division, Commercial Court (Mr Justice Flaux): 14 September 2011
The claimants were all companies in the same group (group A). In 2007, group A entered into negotiations with shipyards for the construction of a number of tankers. Seven of those tankers were to be chartered to companies in the group of companies which included the majority of the defendants, group B.
The defendants were a group of connected individuals and companies, a number of whom were domiciled abroad. A dispute arose between the groups regarding the alleged failure of the first defendant to pay charter and hire charges. The parties commenced arbitration in August 2009, and awards were made against the defendants in October 2010.
The first and second defendants did not make any payments as required by the awards, and the first and second claimants subsequently obtained judgment against the second defendant. In June 2011, the claimants were granted a worldwide freezing injunction against the third to 13th defendants. In July 2011, they sought to have that injunction extended.
The injunction had been sought and obtained on the basis that there had been abuse of the corporate structure within a group of companies by the third to 13th defendants, so as to entitle the court to pierce the corporate veil and hold that the third to 13th defendants had become liable under the underlying charterparties and guarantees to which the first and second defendants were parties and pursuant to which the claimants' claims arose.
A further freezing injunction had been granted against the first and second defendants in December 2009. The claimants sought to continue the freezing injunction against the third to 13th defendants.
The issue arose of whether the claimants had provided a sufficiently arguable case on the merits to justify the continuation against the third to 13th defendants of the freezing injunction. It was for the court to decide whether the claimants had shown a sufficiently arguable case that there was a risk of dissipation of assets. It was further necessary to determine whether the claimants had an arguable case for joinder of those defendants who had been involved in colourable transactions and a freezing injunction after them.
The further issue arose of whether the court had a jurisdiction to grant an injunction under the case of TSB Bank International v Chabra  2 All ER 245 (Chabra). Consideration was given to paragraph 3.1 of Practice Direction 6B of the Civil Procedure Rules, which allowed for service out of the jurisdiction. The application would be dismissed.
(1) On the facts, it was arguable that the transfers of assets from the first to the third defendant amounted to an abuse of the corporate structure of the companies designed to make it more difficult to enforce any arbitration awards against the first defendant.
However, it was necessary to consider whether the effect of that abuse went beyond the unravelling of the transactions implicated in that abuse. It was especially necessary to determine whether that abuse of the corporate structure could in some way lead to the third to 13th defendants being held liable as if they were parties to the original charterparties and guarantees.
Whilst an abuse of the corporate structure by transferring assets within the group without good reason might well entitle the claimant to unravel the relevant transfers of assets, it would not be possible somehow to make the proposed third to 13th defendants liable under the original contracts.
None of the cases adduced by the claimants supported the proposition that the subsequent abuse of the corporate structure could lead to the third to 13th defendants being liable as though they had been parties to the original charterparties and guarantees (see -,  of the judgment).
The basis upon which the freezing injunction had been granted, namely that the corporate veil could be pierced and that the third to 13th defendants could be made liable under the original contacts, was not sustainable. On the evidence, the claimants had not established a good arguable case on the merits that would justify the continuation of the freezing injunction (see ,  of the judgment).
Creasey v Breachwood Motors Ltd  BCLC 480 not followed; Yukong Lines Ltd of Korea v Rendsburg Investments Corpn of Liberia, The Rialto (No 2)  4 All ER 82 not followed; Kensington International Ltd v Republic of Congo  All ER (D) 370 (Nov) not followed; Antonio Gramsci Shipping Corporation v Stepanovs  All ER (D) 19 (Mar) not followed; Tjaskemolen (now named Visvliet), The  2 Lloyd's Rep 465 considered; Algosaibi v Saad Investments Company Limited CICA 1 of 2010 adopted.
(2) Under the case of Chabra, the court would have the power to grant a freezing injunction against a third party (against whom no substantive claim lay), provided that it was necessary to enjure the effectiveness of a freezing injunction against another party to assist enforcement of the injunction against that party (see  of the judgment).
The critical point was that in the circumstances of the instant case, the substantive claim between the claimants and the first defendant would never be tried before the English court, and the fact that it ought to be was a pre-condition of the application of paragraph 3.1(3).
On the evidence, there was no suggestion that the second defendant had transferred its assets or that its asset base had diminished, nor that the third to 13th defendants had participated in any such transfer or diminution. There would therefore be no basis for the Chabra jurisdiction against them in relation to the second defendant's assets and thus no basis for ruling that they were necessary or proper parties to the claim under the guarantees.
Further, the fact that the claim against the second defendant was heard in the English court would be of no effect, since under paragraph 3.1(3) the third to 13th defendants would be said to be necessary or proper parties to the claim against the first defendant.
Although judgment had been given against the first and second defendants, it was not possible to found jurisdiction against the third to 13th defendants on the basis of paragraph 3.1(10) of the Practice Direction. Any claim against the third to 13th defendants would fall outside sub-paragraph (10).
Furthermore, that paragraph was concerned with the enforcement of a judgment or award against assets in the jurisdiction of a defendant who was out of the jurisdiction. As the third to 13th defendants had no such assets, sub-paragraph (10) would be inapplicable (see - of the judgment).
The Chabra jurisdiction would not be available against the third to 13th defendants, and a freezing injunction against them could not be justified. The existing freezing injunction would be set aside (see  of the judgment).
TSB Private Bank International SA v Chabra  2 All ER 245 considered.
Michael Howard QC, Thurlough Stone and Saira Paruk (instructed by Brookes & Co) for the claimants. Dominic Kendrick QC, Paul McGrath QC, James Willan and Tom Ford (instructed by Byrne & Partners) for the third to 10th and 13th defendants. David Quest (instructed by Stephenson Harwood) for the 11th and 12th defendants.