Yukong Line Ltd Of Korea v Rendsburg Investments Corporation Of Liberia & Ors [1996] EWCA Civ 759

EWCA-Civ
Yukong Line Ltd Of Korea v Rendsburg Investments Corporation Of Liberia & Ors
[1996] EWCA Civ 759 · 1996-10-17
[1]Does the court have jurisdiction to order that a party who is subject to a Mareva injunction ("a Mareva Defendant") shall submit to cross-examination on an affidavit sworn by way of disclosure of assets? If so[2]Can the court properly so order in relation to substantive issues in the litigation? The facts : On 8 July 1995 the plaintiffs, Yukong, as disponent owners, chartered the "RIALTO" to the first defendants, Rendsburg, for a period of three years. On 23 January 1996 Rendsburg, through the agency of Marcan Shipping (London) Limited, informed Yukong that they were unable to perform the charterparty at the agreed rate because of a deterioration in their financial position. On 1 February Yukong purported to accept repudiation of the charterparty by Rendsburg. I assume that the market had fallen because in this action Yukong claim damages which exceed $2.7m. The claims against the second defendant, Ladidi, and the third defendant, Mr Yamvrias, were made by amendment as follows:
"6A. Further or alternatively, the Second and/or Third Defendants acted at all material times as the undisclosed principal(s) of the First Defendants under charterparty, alternatively are to be treated in law as parties to the charterparty. PARTICULARS Prior to discovery and/or interrogatories herein, the Plaintiffs rely upon the following facts and matters: (1) The Third Defendant is the holder of the bearer shares in the First Defendant and exercises complete control over that company. (2) The First Defendants had no separate financial or banking arrangements from the Third Defendant. (3) The First Defendant's bank account no 5922801 at Den Norske Bank AS, 20 St Dunstan's Hill, London has at all material times been controlled by the Second and/or Third Defendants for their own purposes. (4) On 23 January, on the instructions of the Second and/or Third Defendants, the sum of US$244,965.60 was transferred from that account to the Second Defendant. (5) On 29 January, the account was closed on the unilateral instruction of the Third Defendant and its balance of US$648.69 transferred to the Second Defendant. (6) On 29 January 1996, the Third Defendant ordered the only two directors of the First Defendant, Tatiana Nagovsky and Quentin Bogousslavsky, to resign their directorships. (7) In the premises, the First Defendant is a mere sham and the Second and Third Defendants are responsible for the legal obligations undertaken by it. (8) Further or alternatively, the steps taken at (4, (5) and (6) above were deliberately taken by the Second and/or Third Defendants in order to defeat any right of recovery by the Plaintiff from the First Defendant following the First Defendant's repudiatory breach of the charterparty on 23 January 1996. In the premises the Second and/or Third Defendants are to be treated as liable for the Plaintiff's claim against the First Defendant."
The writ in this action was issued on 2 February 1996. On the same day a Mareva injunction was issued against Rendsburg. Ladidi and Mr Yamvrias were joined on 6 June and the Mareva was then extended to bind them. The Mareva relates to assets within the jurisdiction. On 1 July 1996 Moore Bick J held, determining a preliminary issue, that Yukong validly accepted a repudiation of the charter by Rendsburg. Notice of appeal has been served in respect of this finding, but the solicitors acting for Rendsburg have since come off the record and it must be doubtful whether this appeal will proceed. The principal issues yet to be resolved are the questions of whether Ladidi and Mr Yamvrias fall to be treated as principals to the charter. Much of the energies of the parties and their lawyers appear to have been directed to interlocutory battles in relation to the Mareva relief. In the course of these Mr Yamvrias has sworn a total of seven affidavits, of which I think six have been in response to Court orders. In the first of these, sworn on 15 February 1996, at which time, of course, Rendsburg was impleaded as the sole defendant, Mr Yamvrias deposed as follows: "1. I am a director of Marcan Shipping (London) Limited ('Marcan'), a company incorporated in England on 6th March 1974 under registration number 1162181, and its wholly-owned subsidiary Marcan Shipbroking Limited, a company incorporated in England on 30th November 1993 under registration number[2876384]The only other director of either of the companies is my wife, Angelique Yamvrias, who is also the secretary of both companies.[2]Marcan has an authorised share capital of £100,000 divided into 100,000 ordinary shares of £1 each, of which 87,500 shares have been issued and are fully paid as follows: Mrs A Yamvrias 1,750 D N Yamvrias 15,750 Ladidi Investments Corporation 70,000 Ladidi Investments Corporation is a company incorporated in Liberia, the beneficial ownership of which is held on trust for family interests.[3]Marcan carries on business as shipbrokers from offices in The Baltic Exchange in London, with a total staff of five. The company's areas of activity include primarily charter broking for dry cargo vessels with some sale and purchase broking and broking in bunkers.[4]The shipbroking services are provided to a variety of owners and charterers around the world and, as an example, in 1995 these services were provided to an aggregate of approximately ten principals. In many cases, the principals are companies incorporated in low tax jurisdictions favoured by shipowners and charterers such as Panama, Liberia, Cyprus etc.[5]The Defendant is a customer to which such services have been provided. I believe that the Defendant company is incorporated in Liberia, with its registered office at 80 Broad Street, Monrovia, Liberia and that the last known directors of the Defendant company are the following: Tatiana Nagovsky Director/President Quentin Bogousslavsky Director/Vice President Both directors have their addresses at 24A rue Lamartine, 1203 Geneva, Switzerland.[6]The Defendant instructed Marcan to act on its behalf as broker in relation to the proposed time charter from the Plaintiff of the vessel 'Rialto'." The limited picture given by this affidavit was significantly amplified by a second affidavit sworn by Mr Yamvrias a week later. This disclosed the following facts:[1]He was the beneficial owner of Rendsburg and all the bearer shares in that company were held to his order.[2]Rendsburg's bank account in London had been closed by him on 29 January 1996 and Rendsburg had no assets within the jurisdiction.[3]the Directors of Rendsburg resigned on his instructions at the end of january. Mr Yamvrias also repeated that:
"Ladidi Investments Corporation is a Company incorporated in Liberia, the beneficial ownership of which is held on trust for my family interests."
On 22 April 1996 Mr Yamvrias swore a third affidavit. This disclosed that new directors of Rendsburg had been appointed on 21 February pursuant to instructions given by Mr Yamvrias. It also disclosed that on 23 January 1996 Rendsburg's London account was effectively closed upon transfer to a bank account held by Ladidi at Den Norske Bank ("DNB"). This led to the plaintiff's application on 6 June 1996 to add Ladidi Investments Corporation and Mr Yamvrias as second and third defendants respectively and for an extension of the Mareva. The order was granted by Waller J who made an ancillary order for the disclosure by Mr Yamvrias in an affidavit of the following information: (a) all his assets within the jurisdiction; (b) any other assets of which he had a direct or indirect beneficial interest; and (c) the terms and details of the trust under which the shares and assets of Ladidi were held on trust for his family. He was also ordered to provide bank statements relating to all Rendsburg's bank accounts and the two bank accounts held at DNB in the name of Ladidi for the period from 23 November 1995 to 7 June 1996, and to explain each and every payment made out of these accounts during the relevant period. On 17 June 1996 Clyde & Co, who were then acting for Mr Yamvrias, provided further information which was verified by Mr Yamvrias in a short affidavit (his fourth) three days later. This included a manuscript statement of Mr Yamvrias' assets. Clyde & Co went on to say:
"There are no assets worldwide in which Mr Yamvrias has a direct or indirect beneficial interest....The only relevant trust would appear to be one where Attendus Treuhand Gesellschaft are the trustees. Mr Yamvrias does not hold a copy of the Trust Deed (which we understand runs to some 24 pages) and is therefore unable to give you the terms and details. In his first affidavit, which appears to have been prepared by Evans Dodds, Mr Yamvrias stated in paragraph 2 that Ladidi Investments Corporation which holds 70,000 shares in Marcan was a Company incorporated in Liberia, the beneficial ownership of which ´is held on trust for family interests´. Mr Yamvrias repeated that in his second Affidavit of 22 February, 1996 (when we were acting for him). We understand from Attendus that this information is simply wrong. Although we do not act for either Ladidi or Attendus, we have asked Attendus i) whether they would be kind enough to send us a copy of a fax which we understand they will be sending to you and ii) whether we may have a copy of the Trust Deed."
On 18 July a summons was taken out by Yukong seeking specific disclosure. The disclosure asked for fell into four categories: Mr Yamvrias' employment contract with Marcan; the Ladidi Trust Deed; finance agreements relating to the hire-purchase of certain vehicles; and[4]incomplete bank statements. In a sixth affidavit sworn by Mr Yamvrias on 7 August, the following, among other, information was given:(a) there was no written contract of employment with Marcan;(b) payment received from Marcan was paid into the Lloyd's account disclosed in his fourth affidavit;(c) he had never been in possession of the Ladidi trust deed:(d) Attendus had refused to disclose the trust deed on the grounds that it would be contrary to Swiss confidentiality laws;(e) the reference to the trust being for the benefit of family interests was a misunderstanding;(f) his only account was the Lloyd's account already disclosed and that there was no other account in which he had an interest and/or was held in the name of a nominee/agent/trustee;(g) his financing of his hire-purchase arrangement was through this same account;(h) he had been given authority by the second defendant's directors to open and close the Ladidi account, but his authority relating to the account had terminated in February 1996. The letter from Attendus, which was exhibited, included the following explanation:
"The ´beneficial ownership´ of Ladidi is perhaps best described as ´in suspense´. Under the terms of the trust, the trustees have a discretion (to be exercised in accordance with the terms of the trust deed) as to how they will exercise their powers with regard to the trust assets. Whilst we are prohibited by our law here from giving the details of the potential beneficiaries of the trust we can confirm that neither Mr Yamvrias nor any members of his family are members of the class of potential beneficiaries (nor have been at any time) of that trust. We do not understand why he made the statement [Ladidi was held on trust for family interests]. However, in our experience, deeds of trust are complicated documents which are not easily comprehendible to the ´lay-man´. Our ´own´ deed is 26 pages long. In such circumstances we assume that Mr Yamvrias did not understand the documents and therefore was mistaken in his belief."
We were told that Mr Yamvrias hoped that the information he had provided would make it unnecessary for Yukong to pursue the disclosure summons of 18 July. In this he was optimistic and the summons came on before Clarke J on 8 August. Mr Joseph, who appeared for Yukong, submitted that Mr Yamvrias' sixth affidavit was not satisfactory. The alleged mistake about the beneficial ownership of Ladidi was startling and Mr Yamvrias had not disclosed the source of his living expenses. Mr Joseph submitted that the appropriate course was that an order should be made for the cross-examination of Mr Yamvrias. We are told that counsel for Mr Yamvrias, who was not Mr Allen who appears before us, did not object in principle to this course and that the only debate related to matters of discretion and the extent of the order for cross-examination. The conclusion of

the Judge was reflected in his Order that:

"Mr Yamvrias do attend the court on a date to be fixed in the week commencing 16 September 1996 to be cross-examined by Counsel for the Plaintiff on the contents of his Sixth Affidavit."
The first appeal before us is against that order. On 20 September Mr Yamvrias attended before Longmore J for cross-examination pursuant to Clarke J's order. At the outset there was some discussion as to the matters which could properly be covered by the cross-examination. Longmore J proceeded on the basis that its object was to enable a decision to be taken as to whether it was appropriate to order further discovery pursuant to Yukong's summons of 18 July. Early in the cross-examination, Mr Joseph began to question Mr Yamvrias about his relationship with Ladidi. At this Mr Allen, who had only recently come into the case, objected. His ground of objection was that Mr Joseph was asking about matters which were, or might be, relevant to the substantive issues between the parties and that the court should not permit such cross-examination. Mr Joseph conceded that the questions that he intended to put might well have some relevance to the issue of the capacity in which Mr Yamvrias was involved in the charter. The judge heard argument as to whether or not such cross-examination should be permitted. Longmore J's ruling in respect of this issue appears from this passage at the end of his judgment:
"It seems to me that Mr Allen's argument, attractively as it was presented, must fail because if the court is moved to order cross-examination because on material before it, it cannot decide whether a further order in respect of discovery can be made, then the cross-examination, if directed to the points for which discovery is necessary, has to be allowed even if it impinges on matters which are in issue in the action. Of course answers given which relate to issues in the action are not binding in the sense that when the action comes to be tried, the defendants are bound by their answers, but if it is necessary for justice to be done on an application of this kind for questions which relate to issues in the actions to be asked and answered, it is, in my view, necessary that they should be asked and answered."

The judge made a formal order in these terms:

"The Plaintiffs have leave pursuant to the leave already granted by Clarke J, to ask and the Third Defendant be required to answer questions which may relate to issues arising in the action, prior to trial, discovery and exchange of witness statements."
The second appeal is against that order. After the order was made and after some discussion, Longmore J agreed to adjourn the cross-examination pending consideration of an application for leave to appeal by this court. Does the court have jurisdiction? The first submission made by Mr Allen was a bold one. He submitted that the court has no jurisdiction to order a Mareva defendant to submit to cross-examination on a disclosure affidavit. He accepted that he was bound by the decision of this court in House of Spring Garden v Waite [1985] FSR 173 to acknowledge that such jurisdiction existed in theory, but submitted that it would inevitably be wrong in principle to exercise that jurisdiction. In so submitting, Mr Allen relied essentially on the decision of Scott J in Bayer v Winter [1986] 1 WLR 540. In that case an application had been made to cross-examine a defendant who was subject to an Anton Piller order. Mr Allen relied particularly on the passage in the judgment commencing at page 543H and continues on to page 544, in the course of which the learned judge expressed the view that it would never be appropriate to make such an order and compared such a proceeding to interrogation by the Star Chamber. In my judgment, this passage does not provide any foundation for submitting that there should never be cross-examination on a discovery affidavit in Mareva proceedings. The order that the plaintiffs were seeking in that case was very different from that made by Clarke J. In Bayer the plaintiffs were seeking to carry out an unrestricted examination to obtain primary information about alleged breaches of duty by the defendant. That was a quite different exercise from that with which the cross-examination in this case is concerned, the identification of assets covered by a Mareva injunction. No-one could suggest that the examination of a debtor that is commonplace pursuant to Order 48 of the Rules of the Supreme Court is to be compared with the activities of the Star Chamber. While certainly not on all fours, the identification of assets of a potential judgment debtor with a view to ensuring that any judgment will be satisfied, is a not dissimilar exercise. As Slade LJ said in House of Spring Gardens at page 181:
"....there is a world of difference between discovery granted for the purposes of making interlocutory Mareva relief effective and discovery granted in the ordinary course of an action, as a means of assisting the ultimate resolution of the issues in that action."
I am unable to accept that cross-examination of a Mareva defendant on a discovery affidavit is necessarily an abuse of the court's powers, as Mr Allen would contend. Quite apart from these considerations, it seems to me that this issue is covered by authority. A J Bekhor & Co Ltd v Bilton [1981] QB 923 was a decision of this court given at a time when the Mareva jurisdiction was much more circumscribed than it is today. In that case, the issue was whether the court had jurisdiction to make an order for discovery on affidavit in support of a Mareva injunction. The court held that such jurisdiction existed. Ackner LJ at page 940 said, in relation to the power to grant a Mareva injunction:
"There must be inherent in that power, the power to make all such ancillary orders as appear to the court to be just and convenient, to ensure that the exercise of the Mareva jurisdiction is effective to achieve its purpose."
At page 949, Griffiths LJ agreed:
"The court has the power to make such ancillary orders as are necessary to secure that the injunctive relief given to the plaintiff is effective."
Stephenson LJ put the matter thus at page 954:
"In my judgment a judge has the duty to prevent his court being misused as far as the law allows, but the means by which he can perform that duty are limited by the authority of Parliament, of the rules of this court and of decided cases. Those means do, however, include what is reasonably necessary to performing effectively a judge's duties and exercising his powers. In doing what appears to him just or convenient he cannot overstep their lawfully authorised limits, but he can do what makes their performance and exercise effective. He has a judicial discretion to implement a lawful order by ancillary orders obviously required for their efficacy, even though not previously made or expressly authorised. This implied jurisdiction, inherent because implicit in powers already recognised and exercised, and so different from any general or residual inherent jurisdiction is hard to define and is to be assumed with caution. But to deny this kind of inherent jurisdiction altogether would be to refuse to judges incidental powers recognised as inherent or implicit in statutory powers granted to public authorities, to shorten the arm of justice and to diminish the value of the courts."
In that case, the majority of the court held that the facts did not justify using the power to make an ancillary order that the defendant should swear a further affidavit. Each member of the court referred to the alternative possibility of cross-examining the defendant on his affidavit; see Ackner LJ at page 944; Griffiths LJ at page 950 and Stephenson LJ at page 955 where he said:
"In my judgment, they have gone far enough in aid of the Mareva injunction and should be pursued or completed, if desired, by cross-examination on the defendant's existing affidavits, not as the judge indicated, on a further affidavit."
The report at page 956 indicates that subsequently the judge made an order for cross-examination of the defendant on his affidavits and the Court of Appeal (Stephenson and Ackner LJJ) refused leave to appeal against that order. The Court of Appeal in Bekhor indicated that the power to order cross-examination existed pursuant to Order 38 rule 2(3). I doubt whether that rule applies to an affidavit ordered by way of discovery in Mareva proceedings (see the comment of Slade J in House of Spring Gardens at page 177). In the latter case, however, the court relied upon the general comments in Bekhor in relation to ancillary relief, to which I have referred, in support of the conclusion that there was jurisdiction to order cross-examination of a Mareva defendant on his discovery affidavit. I find it quite impossible to accept that this conclusion related simply to a theoretical jurisdiction which, as a matter of discretion, could never properly be exercised. It is true that in House of Spring Gardens no question of discretion arose for the order for cross-examination was made by consent. It is quite clear, however, from the terms of their judgments, that each member of the court envisaged circumstances where it would be proper for the court to exercise the power to make an order for cross-examination. For these reasons, I reject Mr Allen's first submission on jurisdiction. It follows that any attack on either of the orders which are under appeal can only succeed on the basis that the judge erred in principle in the exercise of his discretion when making the order. Mr Allen so submits on a number of different grounds. An alternative remedy : Mr Allen's first submission on discretion is that cross-examination should never be ordered unless it is the only means available of ensuring that the Mareva is effective. Once again Mr Allen relied upon the judgment of Scott J in Bayer, contending that this indicated that an order for specific discovery, or even for committal, should be sought rather than cross-examination. This is to misinterpret Scott J's judgment. He suggested these alternative courses simply as a means of creating the ´lis´ which he considered was a necessity before cross-examination could be ordered. In this case the ´lis´ exists in the form of the dispute as to whether a further discovery order should be made. Mr Allen further submitted that Slade LJ in House of Spring Gardens held that an order for cross-examination should only be made where it was "the only just and convenient way of ensuring that the exercise of [the Mareva] jurisdiction is effective". I think that it is plain that Slade LJ used those words only by way of illustrating one of the circumstances in which an order for cross-examination might be made, and not as defining the only circumstances in which it would be proper to make such an order. In my judgment, the test is simply whether, in all the circumstances, it is both just and convenient to make the order. In applying this test, the court will have regard to the fact that it is a very considerable imposition to subject a defendant to cross-examination and consider carefully whether there are not alternative means of achieving the same end that are less burdensome. The court has to weigh the various options in order to decide which best meet the dual requirements of justice and convenience. Thus in Bekhor the court decided that cross-examination was preferable to further affidavits. In House of Spring Gardens Stephenson LJ said at page 183:
"It may be that there are situations in which the circumstances demonstrate that it is more sensible, if only for reasons of speed and urgency, not to order further affidavits in order to fill the vacuum alleged to exist in the affidavits filed pursuant to the original order, but to proceed at once to order that the defendants attend for cross-examination upon their affidavits. The purpose of the cross-examination would be to elicit with greater particularity the extent and the whereabouts of the defendants' assets. The background of applications for Mareva injunctions is often a situation in which it is urgently necessary for the court to intervene in order to assist the plaintiff to prevent the defendant from frustrating the object of the proceedings. In such a situation an order to cross-examine upon an unsatisfactory affidavit already filed is one of the courses that the court has jurisdiction to take. When such cross-examination takes place it is entirely a matter for the judge presiding on cross-examination properly to control it."
I would endorse those comments, but emphasise that, as they indicate, an order for cross-examination is an exceptional measure. There can be no question of such orders becoming a routine feature of Mareva proceedings. Having said that, I reject Mr Allen's contention that cross-examination can only properly be ordered when there is no alternative form of relief available. Trespassing on the substantive issues : Mr Allen's most forceful submission was that it was wrong in principle to order cross-examination on a Mareva discovery affidavit in respect of matters which had relevance to the substantive issues in the action. He pointed out that the defendant has an option whether or not to give evidence and submit to cross-examination at the trial. Before the defendant takes that decision the plaintiff has to undertake the burden of adducing evidence to make out his case. It was, submitted Mr Allen, manifestly unjust that a plaintiff should be able to compel a defendant to submit to cross-examination which might provide the plaintiff with the material on which to advance his case on the merits. It was doubly unjust that this should occur before the close of pleadings and discovery. Here, with more justification, Mr Allen relied against upon Scott J's reference to the Star Chamber inquisition. In my judgment, it is undesirable that a plaintiff should be able in Mareva proceedings to extract, by cross-examination under order of the court, material upon which to build his case for the substantive hearing. I envisage circumstances where, if this were the price that had to be paid for an effective Mareva injunction, it would, nonetheless, be a price worth paying in the interests of justice. But the court must be astute to guard against abuse of the Mareva process by plaintiffs who are using it in an attempt to discover facts that will assist them in the action. The fact that cross-examination on a Mareva discovery affidavit will relate to matters which are relevant to the substantive issues, is a matter to which the judge should have regard when considering whether to permit this process. There is, however, a valuable safeguard against the abuse that Mr Allen suggests is threatened in this case. Order 29 rule 1A provides:
"(1) Where - (a) the Court has made an order restraining any party from removing from the jurisdiction of the High Court, or otherwise dealing with, any assets, (b) that party has in compliance with the order, or any order made in connection with it, filed affidavit evidence as to his or any other assets, and (c) the Court has ordered that that party shall be cross examined on his affidavit, the Court may order that the cross-examination shall be conducted otherwise than before a judge, in which case the cross-examination shall take place before a master or, if a master so orders, before an examiner of the Court. .... (3) A cross-examination of a kind referred to in paragraph (1)(c) shall take place in chambers and no transcript or other record of it may be used by any person other than the party being cross-examined for any purpose other than the purpose of the proceedings in which the order for the cross-examination was made, unless and to the extent that that party consents or the Court gives leave."
I must confess that I was unaware of this rule, and the note in the Supreme Court Practice gives no hint as to its purpose, recording simply that it was added in 1992. It would, however, seem to be tailor made, and perhaps it was, to deal with the very point which Mr Allen has advanced. If cross-examination on a Mareva discovery affidavit discloses facts which are relevant in the substantive action, the Court is given the jurisdiction it needs to prevent consequent injustice by dismissing an application to make use of it at the trial. I do not, of course, mean to suggest that such a reaction will always be appropriate. The rule does, however, make it impossible for Mr Allen to make good his contention that cross-examination should never be allowed if it risks trespassing on the substantive issues. General Discretion : In my judgment, in this case there has not been any error of principle demonstrated in the orders made. I do not believe that the cross-examination that will take place is likely to bear critically on the substantive issues, and Mr Allen has not suggested, nor could he properly have done, that Yukong's application to cross-examine was motivated by a desire to advance their substantive case, rather than to render the Mareva relief effective. Having regard to the history which I summarised at some length at the outset of this judgment, it cannot be suggested that there was not material upon which Clarke J could properly form the view in his discretion that it was just and convenient to order cross-examination. Mr Allen pointed out that the Mareva related only to assets within the jurisdiction. He suggested that it was not realistic to imagine that at this stage in the proceedings any assets of the Ladidi Trust are likely to remain in the jurisdiction. Mr Joseph told us that this was a point raised before on behalf of Mr Ladidi, but that it was dropped under the threat that it would lead to an application to extend the Mareva to a world wide application. Mr Joseph submitted, more forcefully in my view, that Ladidi may well have had assets in the jurisdiction when the Mareva was extended in June and Mr Yamvrias can hardly invite the court to proceed on the footing that its order may have been flouted. Finally, Mr Joseph re-emphasised the mystery of the source of Mr Yamvrias' living expenses. For all these reasons, I have concluded that Mr Yamvrias has failed to demonstrate that either Clarke J or Longmore J erred in assumption of jurisdiction or in the exercise of discretion. Accordingly, I would order that both appeals be dismissed. LORD JUSTICE KENNEDY: I agree.

Order

Appeals dismissed with costs. © 1996 Crown Copyright

Cited in 4 later judgments