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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> The Royal Bank of Scotland Plc v FAL Oil Company Ltd& Ors [2012] EWHC 3628 (Comm) (20 November 2012) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2012/3628.html Cite as: [2012] EWHC 3628 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building, 7 Rolls Buildings London, WC2A 2LL |
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B e f o r e :
____________________
| The Royal Bank Of Scotland PLC |
Claimant |
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| - and - |
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| 1) FAL Oil Company Limited 2) FAL Shipping Company Limited 3) Gulf Success International Shipping Inc 4) Sea Victory International Shipping Inc |
Defendants |
____________________
(instructed by Clyde & Co LLP) for the Claimant
Stephen Cogley Esq, QC and Emmet Coldrick Esq
(instructed by DRG Solicitors LLP) for the Defendants
Hearing dates: 4th October 2012; 16th October 2012
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Crown Copyright ©
Mrs Justice Gloster:
Introduction
i) an application by the Claimants, The Royal Bank of Scotland plc ("the Bank") to continue until final judgment the domestic and worldwide freezing orders originally granted by Field J on 26 September 2012 ("the September Order"), and continued by me over an ineffective hearing on 4 October 2012 ("the 4 October Order"), as against the respondents/defendants, FAL Oil Company Ltd ("FAL Oil)", FAL Shipping Company Ltd ("FAL Shipping"), Gulf Success International Shipping Inc ("Gulf Success") and Sea Victory International Shipping ("Sea Victory") (collectively "the Defendants") in an increased sum of US $12.5 million; I shall refer to this application as "the continuation application";
ii) an application by the Bank for an order requiring the Defendants to provide information as to the nature and location of their assets worldwide as had already been ordered by paragraphs 9 and 10 of the September Order; I shall refer to this application as "the disclosure application";
iii) an application by the Defendants to set aside the September and October Orders; I shall refer to this application as "the discharge application"; and
iv) an application by the Defendants to strike out the claim as made by the Bank in its Part Eight claim; I shall refer to this application as "the strikeout application".
Factual and procedural background
The parties
"… the largest independent oil and bunker trader in the Gulf Region with total sales for the year 2009 close to 20,000,000 tonnes of fuel oil gasoil and various other petroleum products …. a major supplier of oil to the Red Sea, the Mediterranean, the Indian Subcontinent, East Africa and occasionally to some regions in the Far East."
It is also said to have
"… enhanced its market presence with the opening of its offices in the UK and Singapore. This has helped FAL to venture in to new and prospective markets."
FAL Shipping manages a fleet of over 30 tankers owned by the FAL Group; it also apparently arranges the chartering of both its own vessels and those of other owners, and carries cargoes being traded by FAL Oil, or bunkers being supplied by FAL Oil.
Events leading up to the application for an injunction
"19.3 Waiver of objections
The Guarantor irrevocably agrees to waive any objection to any court specified in this Clause, whether on the grounds of venue, or on the grounds that the forum is not appropriate. The Guarantor further irrevocably agrees that a judgment of any court specified in this Clause shall be conclusive and binding upon it and may be enforced in the courts of any other jurisdiction.
19.4 Consent
The Guarantor consents generally to the giving of any relief and the issue of any process, in any proceedings brought under this Clause. This includes the grant of any judgment or order, and its enforcement against any asset."
"Middle East trader FAL Oil, in talks with creditors on $700 million in debt, on the cusp of hiring a chief restructuring officer to keep the faltering discussions on track ….
United Arab Emirates-based FAL, … has been forced to … shut its trading operations in Singapore and London ….
FAL Oil which has closed its office in Singapore and halved its staff in London."
i) Contrary to Mr. Majid Al Sari's evidence, not all of the first and second defendants' assets were situated within the UAE. The Bank's further evidence showed that FAL Oil, perhaps not surprisingly in the light of the nature of its business, did have further assets outside the UAE. The evidence showed that it was in fact a 100% shareholder in FAL Oil Asia PTE Ltd, a Singapore company with a paid-up share capital of US$2,500,000, and whose directors include the two Al Sari sons and their father.
ii) There was evidence strongly suggesting that FAL Shipping had actively engaged shortly before the hearing in the transfer of ownership of three vessels previously within its registered ownership (i.e. since the two previous Orders of the Court).
iii) There was evidence from Mr. Majid Al Sari which admitted that, in the past, he, his brother and father had from time to time regularly visited the United Kingdom for business purposes. However, the evidence went on to state that, if the Order were continued, the officers of the Defendants would stop coming to this jurisdiction in order to avoid the risk of being arrested for a breach of the injunction. He stated that "… there are no reasons to believe that the officers of the Defendant companies would need to be within the UK jurisdiction to conduct business."
iv) The interim relief obtained from the Sharjah Court of First Instance had not proved effective:
a) No funds had been located at banks in the UAE in relation to which the attachment order could take effect.
b) There had been no arrest of the two vessels in the intervening period, as it had not been possible to locate the vessels and serve the arrest orders. It appeared that their AIS transponders remained switched off. According to Mr. Majid Al Sari, the Sea Lion had been engaged in business to and from the UAE in recent months and was expected to return there in the near future. However he did not identify where the vessel currently was.
v) Despite the fact that, at the hearing on 4 October 2012, the court had raised the possibility of the Defendants providing recent audited or management accounts, that invitation had not been taken up, and the only financial information produced by the Defendants was a one-page apparently unaudited "Consolidated statement" of FAL Oil and its subsidiaries as at 31 December 2010 which was of little assistance in relation to the current financial position of the Defendants, or the nature or location of their assets.
vi) The Defendants remained unwilling to give any details about their assets or their financial position. In his second affidavit dated 10 October 2012, Mr. Majid Al Sari stated as follows:
"Assets
2. I have been advised that the order to give disclosure in relation to assets has been suspended but that the matter will be discussed at the next hearing.
3. My strong suspicion is that the main purpose of the proceedings in England is to obtain information about the Defendants' assets. The Defendants have no assets in England and I believe that a freezing order against the Defendants would serve no real commercial purpose, aside from seeking to compel disclosure of confidential commercial information.
4. Indeed, I believe that RBS has brought its claims under the loan agreements and guarantees in the United Arab Emirates, as opposed to England, because it knows that the UAE is where the Defendants' assets are and that this is the only place where a judgment could be enforced against the Defendants.
5. While I have been advised that any disclosure of assets given in accordance with the English Court's order could not be used in other proceedings unless the Court's permission were obtained, I believe that once information is in a man's head it cannot be ignored or forgotten.
6. Clyde & Co are acting in relation to various disputes arising out of the current financial difficulties of the FAL companies. I believe that, even if Clyde & Co's lawyers try their best to forget about it, information about the Defendants' assets might well end up being used against FAL companies in relation to other disputes.
7. In any case, I am informed by George Dawson of the Defendants' solicitors that journalists, from Bloomberg and from a specialist financial publication, and lawyers representing unidentified third parties, attended the last hearing in London. I am advised that any affidavit I make may be referred to at a hearing in open court and become public information.
8. The Defendants are private companies and ordinarily not under any obligation to give a public list of their assets. It is my belief that I would not be acting in the bests [sic] interests of the Defendants if I put detailed information as to their assets into the public domain, particularly in circumstances in which difficult and sensitive negotiations with lenders are ongoing.
9. In these circumstances and as the underlying debt claim relating to the vessels is being litigated in the UAE, the Defendants would be very reluctant to provide information in relation to their assets beyond the following …"
and he then set out the information already summarised above, including the fact that the London office of the FAL Group was a property leased by FAL Energy (UK).
The arguments at the hearing on 16 October 2012
The Defendants' arguments
i) This was not a case in which it was or would be expedient and appropriate to make a freezing order in support of foreign proceedings. Accordingly the application for the continuance of the freezing injunctions should be dismissed and the September and 4 October Orders set aside.
ii) In any event, the September and 4 October Orders should be set aside on grounds of failure to give full and frank disclosure to Field J at the without notice hearing.
i) The court should be very cautious before exercising its exorbitant jurisdiction under section 25 of the 1982 Act.
ii) The evidence showed that the Defendants had no assets in England and Wales. The overdrawn accounts maintained with the Bank in England could not be regarded as assets since they had been overdrawn since early 2012, when the Gulf Success and Sea Victory had defaulted under the terms of the facilities and had failed to maintain the respective operating accounts in credit in a net amount of $500,000. There was no realistic prospect that future sums would be paid into the accounts. The Bank's attempt to treat all of the various companies within the FAL group (and indeed the individual shareholders of those companies) as a single entity was misconceived. None of the Defendants were shareholders in the English companies. It was common ground that the shareholders in the English companies were members of the Al Sari family. The beneficial owners of such assets as were owned by the English companies were the English companies, not their shareholders.
iii) The presence of assets overseas, whether in the UAE or otherwise, did not make it expedient to grant an in personam order against defendants not domiciled or resident in the jurisdiction. Any sort of proprietary attachment of such assets would of course be for the courts of the place where the assets are (and none of them are in England). The evidence demonstrated that the assets were substantially within the UAE, where the substantive proceedings were taking place and where the first and second defendants were domiciled. The fact there was evidence of FAL Oil being the 100% shareholder in a Singapore company, FAL Oil Asia PTE Ltd, took matters no further. That company was insolvent and was likely to be put into liquidation. But in any event the evidence that there may be some assets, not in England or the UAE, did not render it expedient to make an order for a worldwide freezing order or for worldwide disclosure orders.
iv) The Defendants' connections with England were non-existent or tenuous at very best. They were foreign companies. The substantive proceedings were being brought against them in the place of the domicile of the first and second defendants, Sharjah. It was clear that the decision to bring proceedings in Sharjah, as opposed to in England, was based on the difficulties of enforcing an English judgment against assets located in Sharjah. There was nothing in the evidence to suggest any real connection with England. Although the Bank attempted to suggest, based on the website information, that FAL Oil and/or FAL Shipping had a 'representative office' in London, the reality was that the London office was in fact the office of an English company within the FAL group. The Defendants' directors were not resident or domiciled here. There was no necessity for any of them to come to the jurisdiction and they had said that they would not do so if they would be exposed to enforcement measures.
v) The fact that the relevant loan and guarantee agreements included English proper law and exclusive jurisdiction clauses did not provide a sufficient connection with the English jurisdiction. The jurisdiction clauses were not relevant to the question as to whether it was "inexpedient" to grant ancillary relief for the purposes of section 25 (2) of the 1982 Act. As Millett LJ said in Crédit Suisse Fides Trust S.A. v Cuoghi [1998] QB 818 at 825-6:
"On an application for interim relief under subsection (1), the court is not bound to grant relief, but may decline to do so if in its opinion the fact that it is exercising an ancillary jurisdiction in support of substantive proceedings elsewhere makes it inexpedient to grant it. It is the ancillary or subordinate nature of the jurisdiction rather than its source which is material, and the test is one of expediency".
vi) The fact that the Bank could have brought its claims under the loan agreements and guarantees in England did not somehow make it expedient and appropriate to make an order under section 25 of the 1982 Act. The respondent in Cuoghi was resident and domiciled in England but the Court of Appeal did not place any emphasis on the fact that the substantive proceedings could have been brought in England.
vii) The Court would have no effective way of enforcing compliance with a freezing injunction against the Defendants. On the Bank's own evidence the English court's order, whether for full disclosure or in relation to the freezing of assets, would be unenforceable against the first and second defendants in the UAE – where the substantive proceedings were, where the first and second defendants were domiciled and where their substantial assets were situated. Although the evidence showed that the directors of the Defendants had in the past indeed visited England on a regular basis, it was clear that, if the orders were made, the directors would simply not come to England in the future to make themselves potentially amenable to action to enforce orders which the Defendants believed were not in their best interests. Thus there was no effective way of policing the injunctions. There would be no effective sanction if the orders were breached. Further guidance was given by the Court of Appeal in Motorola Credit Corporation v Uzan (No.2) [2004] 1 WLR 113. The Court of Appeal stressed, at the outset of its analysis, the practical consideration of whether any order made could be enforced; see in particular per Potter LJ at paragraphs 109, 114, 115 and 125 in relation to the position of the second and third defendants.
viii) Where (as in Cuoghi) the defendant was domiciled and resident in England, the necessary connection was there. But where the connection of the defendant is (to use the phrase used by Potter LJ in Motorola v Uzan at paragraph 125) "tenuous or non-existent", and in particular the defendant is not resident in the jurisdiction and there is reason to believe that the order sought would be disobeyed with no real sanction against the defendant, it is likely to be inexpedient to grant the order on those grounds alone (see Mobil Cerro Negro Ltd. v Petroleos de Venezuela SA [2008] 1 Lloyd's Rep 684 at paragraphs 105, 106 and 155).
ix) This was not an exceptional case. It was a case where a bank was bringing a claim in debt against creditors who were not being cooperative and who were not offering up assets as security pre-judgment. Despite the evidence of risk of dissipation and of attempts by the Defendants seeking to put their assets beyond the reach of creditors, this was not a fraud case. There was no justification such as had existed in cases such as Cuoghi to make such a far-reaching and extensive order. On the contrary, in circumstances where the Defendants were not resident in the jurisdiction and, in the absence of any real sanction, there was every reason to believe that the order sought would be disobeyed, it would, for the purposes 25(2) of the 1982 Act, be "inexpedient" to grant the order; see Mobil Cerro Negro Ltd. v Petroleos de Venezuela SA (supra) 684 at paragraphs 105, 106 & 155.
x) For all the above reasons, the September and 4 October Orders should be discharged.
The Bank's arguments
i) The approach under s25 was in essence a two fold one: first the Court should consider whether the facts would warrant relief if the substantive proceedings were within its jurisdiction; and if so then secondly whether the fact that the Court has no jurisdiction apart from s25 renders it inexpedient to grant the relief sought; this principle was set out by the Court of Appeal in Refco Inv v ETC [1999] 1 Lloyd's Rep 159 per Morritt LJ at pages 170-171.
ii) An additional point arose on the facts of this case in relation to the jurisdiction clauses contained in the underlying contracts. A further or alternative reason making it "not inexpedient" to grant relief under s25 was that, on the proper construction of those clauses, though the Bank had a contractual right to commence security only proceedings in England and/or that the Defendants had contractually waived any right to object to such jurisdiction.
iii) In relation to the key authorities of Motorola and Cuoghi:
a) There was no overlapping with the procedures of the Sharjah court. The Sharjah orders have been ineffective and in any event all UAE assets were now excluded from the assets frozen by this Court's order (although the Bank still sought disclosure of assets within the UAE other than those specifically frozen).
b) There was nothing in the UAE Code to suggest UAE courts would not welcome assistance.
c) There was no conflict as to jurisdiction.
d) It was well settled that the fact that the foreign court was unable to grant a worldwide freezing order was not a reason for the English court to decline to grant relief: see for example Cuoghi at page 827E.
iv) There were substantial links with the jurisdiction of the English court. Each of Messrs Abdalla, Majid and Mohamed Al Sari visit the UK from time to time. Messrs Majid and Mohamed Al Sari are common directors of all four defendants and of the English companies, FAL Oil (UK) and FAL Energy (UK). Mr. Abdalla Al Sari (their father) is a director of first and second defendants and FAL Oil (UK).
v) The Court should take a dim view of the Defendants' contrived attempts to render any order futile by asserting that their directors would modify their behaviour so as not to visit England and risk being arrested for breach of the injunction.
vi) Gulf Success and Sea Victory had bank accounts in the jurisdiction. These should be treated as assets in accordance with the decision of the Court of Appeal in Third Chandris Shipping Corporation v UniMarine SA [1979] 1 QB 645. As Lord Denning said, in a statement of general principle at page 668H about the exercise of the freezing order jurisdiction, the presence of a bank account in the jurisdiction, even if overdrawn, was relevant. The fact that the accounts were with the Bank and have not been kept current might well go to the weight to be accorded to them in the exercise of the Court's discretion, but they provided a relevant link to the jurisdiction. Moreover, although the vessels appeared to have been trading since January 2012, no earnings had been paid into the relevant accounts, in breach of contract.
vii) Accordingly it remained not inexpedient to grant relief. There was no dispute, at least at this stage, that the Bank had a very strong case on the merits against each of the Defendants. The developments in the week preceding the second hearing only served to fortify what was already a considerable case against each of the defendants as to risk of unjustified dissipation.
The law and the relevant principles applying to the exercise of the discretion under section 25 of the 1982 Act
"On an application for any interim relief under subsection (1) the court may refuse to grant that relief if, in the opinion of the court, the fact that the court has no jurisdiction apart from this section in relation to the subject-matter of the proceedings in question makes it inexpedient for the court to grant it."
As Neuberger J (as he then was) stated in Ryan v Friction Dynamics [2001] CP Rep 75 the section confers "a statutory jurisdiction which on its face appears to be intended to give a wide and flexible discretion." However the authorities show that certain principles govern the exercise of the discretion.
i) first, to consider if the facts would warrant the relief sought, if the substantive proceedings had been brought in England; in particular, whether the claimant had shown that there was a good arguable case, and a real risk of dissipation;
ii) second, if the answer to that question is in the affirmative, then, the Court goes on to consider whether, in the language of section 25(2), the fact that the court has no jurisdiction apart from the section (i.e. the fact that the substantive proceedings are abroad) makes it "inexpedient" for the purposes of section 25(2) to grant the relief.
i) As Millett LJ said in Cuoghi at 826:
The structure of subsections (1) and (2) [of section 25] and the way in which their scope has been progressively widened indicate to my mind an intention on the part of Parliament that the English Court should, in principle, be willing to grant appropriate interim relief in support of substantive proceedings abroad, and not be deterred by the fact that its role is only ancillary, unless the circumstances of the particular case make the grant of such relief inexpedient"
ii) Where a defendant and his assets are located outside the jurisdiction of the court seized of the substantive proceedings, it is most appropriate that protective measures should be granted by those courts best able to make their orders are effective. In relation to orders taking direct effect against the assets, this means the courts of the state where the assets are located; and, in relation to orders in personam, including orders for disclosure, this means the courts of the State where the person enjoined resides; see per Millett LJ in Cuoghi at page 827D.
iii) Where substantive proceedings have been commenced elsewhere, and application is made for ancillary worldwide freezing orders and an associated disclosure order on a worldwide basis, the court has to be extremely cautious in the exercise of its discretion whether to grant relief; see per Lord Bingham CJ ibid at page 831.
iv) It is a strong thing to restrain a defendant who is not resident within this jurisdiction, or does not have close ties here, from disposing of his assets outside the jurisdiction; but where the defendant is domiciled within the jurisdiction, such an order cannot be regarded as exorbitant or as going beyond what is internationally acceptable; see per Millett LJ in Cuoghi at page 827 B-C.
v) As is implicit in paragraph 114 of the judgment of the Court of Appeal in Motorola v Uzan (supra), even in a case, such as the present, where the substantive proceedings are not taking place in a Member State where jurisdiction is controlled by the provisions of the Brussels I, Judgments Regulation (44/2001), very careful consideration has to be given as to whether there is any real connecting link between the subject matter of the interim measures sought and the territorial jurisdiction of the court before which the measures are sought; this includes consideration as to the ability and power of the court acting in a "policing" role to enforce its orders, if disobeyed. The Court of Appeal said as follows:
"114. The issue in this case arises because, on the face of it, the only fetter placed upon the otherwise apparently unlimited powers which the court has as a result of the combination of s.37 of the Supreme Court Act, s.25 of the CJJA, and Rule 6.20 of the CPR is its power to refuse to grant relief if its absence of jurisdiction apart from s.25 makes such grant 'inexpedient'. It is plain that, in relation to the grant of worldwide relief, the jurisdiction is based on assumed personal jurisdiction; as such it has the potential for extra-territorial effect in the case of non-residents with assets abroad. Thus it is likely that the jurisdiction will prove extremely popular with claimants anxious to obtain security against defendants in disputes yet to be decided where they cannot obtain it in the court of primary jurisdiction or the court of the defendants' residence or domicile, which courts are the natural fora in which to make such applications. There is thus an inherent likelihood of resort to the English jurisdiction as an 'international policeman', to use the phrase employed by Moore-Bick J, in cases of international fraud. We would do nothing to gainsay, and indeed would endorse, the observations of Millett LJ in Cuoghi to the effect that international fraud requires courts, within the limits of comity, to render whatever assistance they properly can without the need for express provision by an international convention requiring it. However, even in the case of Article 24 of the Brussels Convention it has been made clear that:
'… the granting of provisional or protective measures on the basis of Article 24 is conditional on, inter alia, the existence of a real connecting link between the subject matter of the measures sought and the territorial jurisdiction of the contracting state of the court before which those measures are sought.' see (Van Uden Maritime B.V v Kommanditgesellschaft In Firma Deco-Line [1999] 2 WLR 1181 at 1210 para 40).'
Further, in so far as 'police' action is concerned, policing is only practicable and therefore expedient if the court acting in that role has power to enforce its powers if disobeyed. In that respect the principle in Derby v Weldon already quoted plainly has application and is apt to be applied in cases of this kind."
vi) Thus, where there is every reason to suppose that an order made against a foreign defendant, with tenuous links to the jurisdiction, will be disobeyed and that, if that should occur, no real sanction would exist to enforce compliance, then it likely to be inexpedient to make far-reaching worldwide freezing and disclosure orders against such a defendant under section 25; see paragraph 125 of Motorola v Uzan; see also Mobil Cerro Negro Ltd. v Petroleos de Venezuela SA (supra) at paragraphs 119 and 155.
vii) The fact that the court hearing the substantive proceedings has no jurisdiction or procedural power to make a worldwide freezing order or disclosure orders does not render it inexpedient for the English court, acting in its ancillary capacity, to do so; see per Millett LJ in Cuoghi at page 829 D-E; and per the Court of Appeal in Motorola v Uzan paragraph 119.
viii) As stated by the Court of Appeal in Motorola v Uzan, paragraph 115, there are five particular considerations which the court should bear in mind, when considering the question whether it is inexpedient to make an order under section 25:
"First, whether the making of the order will interfere with the management of the case in the primary court e.g. where the order is inconsistent with an order in the primary court or overlaps with it …. Second, whether it is the policy in the primary jurisdiction not itself to make worldwide freezing/disclosure orders. Third, whether there is a danger that the orders made will give rise to disharmony or confusion and/or risk of conflicting inconsistent or overlapping orders in other jurisdictions, in particular the courts of the state where the person enjoined resides or where the assets affected are located. If so, then respect for the territorial jurisdiction of that state should discourage the English court from using its unusually wide powers against a foreign defendant. Fourth, whether at the time the order is sought there is likely to be a potential conflict as to jurisdiction rendering it inappropriate and inexpedient to make a worldwide order. Fifth, whether, in a case where jurisdiction is resisted and disobedience to be expected, the court will be making an order which it cannot enforce."
Analysis - application of the principles to the facts of the case
(1) Would the facts warrant the relief sought, if the substantive proceedings had been brought in England?
(2) Does the fact that the court has no jurisdiction apart from section 25 make it "inexpedient" to grant the relief?
