Linsen International Ltd & Ors v Humpuss Sea Transport PTE Ltd & Anor [2010] EWHC 303 (Comm)

Case No 2009 FOLIO 1652 and 1653[2010] EWHC 303 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
AND IN THE MATTER OF THE ARBITRATION ACT 1996
IN THE MATTER OF AN ARBITRATION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 19/02/2010
Before
MR JUSTICE CHRISTOPHER CLARKE
Between
LINSEN INTERNATIONAL LIMITEDClaimantsNELSON COVE SHIPHOLDING S.A.ClaimantELSPETH SHIPPING CORPORATIONClaimantROMFORD SERVICES S.A.ClaimantHUMPUSS SEA TRANSPORT PTE LTD1 st DefendantP.T. HUMPUSS INTERMODA TRANSPORTASI TBK LTD2 nd Defendant
M. N. Howard QC and Mr Turlough Stone (instructed by Brookes & Co) for ClaimantsMr Stuart Isaacs QC (instructed by Clyde and Co) for DefendantsHearing Hearing dates: 5 th and 12 th February 2010
JudgmentMr Justice Christopher Clarke :
[1]On 17th December 2009, on the application of the claimants, Gross J made a worldwide freezing order against Humpuss Sea Transport Pte Ltd (“HS”) and PT Humpuss Intermoda Transportasi TBK Ltd (“HIT”) (together “the Defendants”) in the sum of $ 89,569,290.79. The Defendants apply to set aside the order on the grounds of what they claim to have been a failure to make full and frank disclosure of all material facts and circumstances and the absence of any real risk of dissipation. Alternatively they seek to reduce the amount specified in the order. The claimants resist both applications and seek further disclosure from the Defendants. In order to address these issues it is necessary to set out the history as it appears from the evidence in a little detail. The Claimants[2]The four claimant companies (“the Owners”) are all companies within the group of companies of which Empire Chemical Tanker Holdings Inc (“Empire”) is head. In about May/June 2007 Empire entered into negotiations with a number of yards for the construction of 12 chemical tankers of either 17,000 or 25,000 DWT for delivery between December 2008 and early 2011. Thereafter an agreement was reached whereby what became in the end seven of those vessels would be chartered by companies in the HIT group. HS is a Singaporean company and a wholly owned subsidiary of HIT. HIT is an Indonesian company listed on the Indonesian stock exchange.[3]Between October 2007 and January 2008 each of the Owners chartered one of the tankers to HS for 5 years on more or less identical terms. The charters which, together with charters for three other vessels, were all executed at HIT’s offices in Jakarta on 24th October 2008, each have a London arbitration clause. The charterers’ liabilities were, at least in two cases, guaranteed by HIT. The guarantees have London jurisdiction clauses.[4]The details of the four charters in suit are as follows Owner Ship C/p date Delivery Daily hire Linsen EMPIRE MATARAM 9/10/07 20/2/09 U.S. $16,800 Nelson Cove EMPIRE MAJAPAHIT 9/10/07 20/3/09 U.S. $16,800 Elspeth EMPIRE PAJAJARAN 29/1/08 10/1/09 U.S. $16,700 Romford EMPIRE TULANG BAWANG 29/01/08 14/5/09 U.S. $16,700 The performance history[5]HS did not pay the hire due under the first three charters by the due dates and fell into arrears. In April 2009 the Owners reluctantly agreed, at the charterers’ insistence and against the threat of redelivery, to amendments to the charters to reduce the hire for any invoices issued from the monthly anniversary date in April in respect of the first three charters and the date of delivery in respect of the TULANG BAWANG until 31st December 2009. The hire was to be reduced to $ 15,300 per day in the case of MATARAM and MAJAPAHIT and $ 15,200 in the case of PAJAJARAN and TULANG BAWANG. The terms on which that was done, as reflected in Addenda Nos 3 or 4 to the charters, dated 9th April 2009, was that it was to be a condition of the charter that all hire was to be paid on time: clause 1. By clause 2 it was a condition of clause 3, which was the clause reducing the hire, that all outstanding hire withheld was to be paid immediately, failing which the “Addendum is null and void”. After 31st December 2009 the difference between the reduced and the original rate of hire was to be paid to the Owners over the remainder of the charter period. Clause 4 provided that, if HS failed to make proper and punctual payment at the new agreed rate, the Owners were to have the right to have the hire retrospectively adjusted so as to be payable at the original rate from the day when the rate was reduced until the default was rectified.[6]Thereafter immediate payment of the amounts outstanding at 9th April 2009 was not forthcoming. Nor was full payment of the reduced hire made under the four charters (the TULANG BAWANG was delivered to HS by Romford on 14th May 2009) when due, and HS incurred debt at a faster rate than it cleared it.

The meeting of 18th June

[7]On 18th June 2009, Mr Vasilis Koutroulis of Cass Technava Maritime Ltd (“Cass”), the Owners’ brokers, flew to Singapore and met Captain Thanabalasingam (“Captain Thana”), who had become a director of HS on 21st January 2009 and its Managing Director and Chief Executive Officer on 25th February 2009 (he resigned on 17th November 2009). Also present were Captain Manuhar Durgude, HS’ Deputy Director and its current CEO, and Mr Darin Wong of Clarkson Asia Pte Ltd, the defendants’ Singapore brokers. Captain Thana is said to have said that payments were in a mess due to non performance by the Chief Financial Officer, Mr Hari Soeroso, who had now been dismissed as part of a huge clean-up of most of the board members and the higher management due to corruption. The Group Financial Officer was helping out but the CFO post had not been filled. Income from the Empire vessels had been used to discharge other liabilities. He had instructed the CFO to send the whole amount to Empire and top up with whatever was necessary. The vessels were earning $ 11-13,000 per day (i.e. less than was necessary to pay even the reduced hire), which would change, and funds coming from the operation of the Empire vessels would be directed back to Empire. He promised to prepare a payment schedule for the then outstanding $ 2.5 million. He was not able to say how long it would take to repay the Owners but he estimated that it would be within about two months. He had given instructions that a payment of $ 400-500,000 be made within the day or early the following week (in the event only $ 300,000 was paid – the next day).[8]Captain Thana explained that HS was the Singaporean arm of HIT. Up to 18th June 2009, most of the decisions were taken in Jakarta but since most of the board of HIT Mr Tricks’ third witness statement records that the boards of directors of both defendants were removed in February 2009. had been dismissed, the power was passing to him in Singapore and he fully intended to have a complete operation out of Singapore. They did not intend to redeliver the vessels but to honour the contracts. He explained that Jakarta was now fully following his instructions.[9]In the course of the discussion he revealed the existence of a Rule B attachment A process of Maritime Attachment and Garnishment under Rule B of the Supplemental Rules for Certain Admiralty and Maritime Claims of the Federal Rules of Civil Procedure. in the sum of $ 400,000 against HS in New York obtained by Hanjin Overseas Bulk Ltd (“Hanjin”). He indicated that he was thinking of moving the Owners’ tankers into a separate company, so that the operations would not be affected by Rule B attachments. It was pointed out to him that there would be a problem with that, not least because of the guarantees, and he said he would discuss the matter if the question arose. He also explained that the Charterers had changed from having Sokana Chartering Inc (“Sokana”) as their commercial managers for two of the vessels because of their very high fees, a portion of which was diverted back to a company associated with the former board of HIT.[10]On 19th June 2009 June Captain Thana sent a payment schedule providing for 7 payments, 4 in June, 1 in July, and 2 in August. The first four were made, by Silverstone Development Inc (“Silverstone”), a Panamanian wholly owned subsidiary of HS; the next two payments were made in part by Silverstone; the last was not.[11]By 15th July 2009 some $ 4.14 million was outstanding. Thereafter requests for payment by Mr Leonidas Polemis (“Mr Polemis”), the Chief Executive Officer of Empire, and the Owners’ Club produced no payment, despite promises by Captain Thana that payment would be made shortly.[12]The Owners now considered making Rule B attachments in New York themselves. They discovered that two others had already done so:(i) Parbulk II AS (“Parbulk”) against HIT and one of its subsidiaries in the sum of about $ 2.24 million and(ii) Sandigan Ship Services Inc (“Sandigan”) and Seaquest Sandigan Pte Ltd against HS, HIT and two HIT subsidiaries in the sum of about $ 752,000; and that they could not do so because HS had registered itself as a foreign business corporation in the State of New York. A Rule B attachment is not available against a corporation with a presence within the jurisdiction of the US District Court of the Southern District of New York.[13]On 4th August 2009 two of the Owners, Linsen International Ltd and Nelson Cove Shipholding S.A., being companies which had HIT guarantees in their possession, obtained a Rule B attachment against HIT and Silverstone, which was sued as HIT’s alter ego and paying agent. In May, June and July 2009 Silverstone had made payments in discharge of HS liabilities under the charters. The 4th August meeting[14]On 4th August 2009 a meeting took place between Mr Polemis and Captain Thana in Athens. Captain Thana said that he wished to honour HS’ obligations under the charterparties and promised an immediate payment of U.S. $300,000. He said that payments to the Owners were being hindered by the Rule B attachment and asked that it be lifted whilst discussions between the parties for an amicable settlement took place. He promised to instruct HS commercial managers to pay net freight of U.S. $700,000 without any deductions directly to the Owners in the week beginning 17th August 2009. In the event only the U.S. $300,000 was sent, by two separate payments on 6th and 7th August 2009, and this sum came not from HS or HIT but from a third entity called Ery Setyo Cahyo G, which shared HIT’s address in Jakarta.[15]On 6th August 2009 the North of England P & I Association (“the Club”), on behalf of Owners, brought four separate arbitration claims against HS pursuant to the arbitration clauses in the charterparties and asked HS to consent to the appointment of an arbitrator. On the same day Captain Thana e-mailed Mr Polemis saying that they were experiencing difficulties in transmitting US dollars because of the HS/HIT Rule B attachment, asking that it be lifted “till our proposed amicable solutions works out”, and promising that HS would carry out the charter hire payments and honour the contract. He asked for the UK arbitrations and Rule B attachment to be lifted “for now to evaluate the situation in 5 weeks time”.[16]The Owners were persuaded to suspend the arbitrations they had begun against HS and their Rule B attachment for a fortnight. Mr Polemis so informed Captain Thana on 7th August. In August HS transferred ownership of a product tanker - the “SAPTA SAMUDRA” - from itself to PT Humpuss Transportasi Kimia (HTK) a subsidiary of HIT.[17]Thereafter some payments were made but not as promised. Continuing hire was not paid on time or in full and, when it was paid, it was not paid by HS or HIT. In most cases it was obtained by the Owners exercising a lien on sub freights or securing payment from sub-charterers. Nor did proposals for settlement come forward, despite a request on 29th August.[18]The sums outstanding steadily rose from about $ 4.7 million at the end of July to about $ 7.9 million in mid September. Inconclusive discussions took place. A concerned e-mail from Mr Polemis to Mr Suharto, HIT’s Chairman, of 14th September went unanswered. On 9th September Captain Thana said that Humpuss was selling two new cranes for $ 2.5 million to facilitate outstanding payment; but no such payment was made. He said that Sokana would make a further payment of $ 750,000 direct to the Owners (less PDA & Bunkers). This was not forthcoming.[19]On 18th September Mr Eric Ostbye of Sokana reported that MATARAM was available for spot chartering but had no bunkers and could not be fixed; PAJAJARAN was waiting to berth in Quebec to load a cargo for Haifa but might not be able to go there and in any event had no bunkers. He said that Humpuss were in complete denial. He also explained that the freight from a charter of PAJAJARAN to Alcoa Steamship Company (“Alcoa”) in the sum of about $ 536,000 had been garnisheed by Parbulk. (This appears to have been as a result of Parbulk’s Rule B attachment). It transpired that the vessel had been chartered by Alcoa from Silverstone; but that hire payments had been made to Lucky Vision Management Corporation (“Lucky Vision”), another subsidiary of HIT – in all probability the use of Silverstone and Lucky Vision was in order to evade the Rule B attachments. In the result the sum was remitted to Lucky Vision despite the Owners intervening in the Parbulk Rule B attachment.[20]Around the same time the Club, on behalf of the Owners, served a number of notices of lien over freight to amongst others Nova Shipping Co. Ltd (“Nova”), MAJAPAHIT's new commercial managers.[21]At a meeting in Singapore on 24th September Captain Thana explained that Humpuss had been through a legal battle for the past months with Hanjin, Parbulk and Sandigan, but this did not involve HS. He offered to place a floating crane project, in respect of which HS had paid some $ 2.34 million, as a guarantee. He said that they were in the process of lifting the Rule B attachments which would make about $ 1 million available and that $2.5 million was expected to come from a settlement of a claim against Golden Ocean. It transpired that that was the sum which HS had offered to accept in settlement. In the end no payment was made. Golden Ocean maintained that they had a claim against HS for $ 1.8 million..[22]The Owners then learnt that a company called Swiss Singapore Overseas Enterprises Pte Ltd had chartered the MAJAPAHIT from Nova. This appears to have been another device to avoid the operation of a Rule B attachment.[23]On 29th September HS wrote to Mr Polemis stating that Nova was having difficulties with US brokers and charterers, who were demanding performance guarantees in respect of all four vessels fixed by Nova and asking for a letter from Owners confirming what it described as the “Nova, Humpuss/Empire alliance” and that all voyages fixed through Nova would be performed. This was unacceptable to Owners and was refused.[24]The Owners sought to intercept freight payable to Nova. This led to fresh protestations that the exercise of liens was hampering the defendants from performing their obligations.[25]On 30th October HS wrote to shipbrokers involved with the charter of MAJAPAHIT to Reliance Industries Ltd to say that all freight was to be paid directly to Nova as HS had received advice from Head Owners allowing sub-charterers to do so. In fact no such permission had been given.[26]It is apparent that the vessels were all earning money (when not under arrest at the hands of third parties), and that the earnings must have been diverted to other places than the servicing of the debt owed to the Owners.[27]On 27th October Linsen and Nelson’s Rule B attachments were dismissed by the District Court, following the Second Circuit’s decision on 16th October 2009 in Shipping Corporation of India v Jaldhi Overseas Pte Ltd, overruling the Winter Storm case of 2002, that electronic transfers were not the proper subject matter of a Rule B attachment.[28]In October and November 2009 arrests took place of all four vessels by third parties for unpaid bunkers and the Owners were forced to effect payment to ensure their release.[29]In their Claim Submission of 12th November 2009, sent to the two arbitrators, the Owners put their claims at just under $ 9.4 million in respect of hire and other amounts. They reserved the right to plead further claims.

Termination

[30]On 13th November 2009 Nelson and Elspeth treated HS as in repudiatory breach of their respective charterparties, and on 16th November Linsen and Romford did the same, on account of HS cumulative behaviour in failing to pay hire and voyage expenses and in respect of two of the vessels failing to secure their release from arrest. Owners accepted those breaches as terminating the charters with immediate effect. Captain Thana’s resignation[31]On 6th December 2009 Captain Thana contacted Mr Polemis to tell him that he had resigned as a Director and CEO of HS (as he had on 17th November) because HIT was urging him to sign documents transferring assets from HS to other companies with a view to evading the Owners’ claims.[32]In addition to their claims for hire the Owners all have claims for damages for the repudiation of the charterparties of between $ 17,500,000 and $ 25,000,000 in each case. In aggregate the claims total over $ 80,000,000. Good arguable case[33]For the purpose of this application only HS and HIT accept that the Owners have a good arguable case. Full and frank disclosure and without prejudice communications[34]The duty to make full and frank disclosure, particularly when what is sought is a worldwide freezing order, is not in dispute. Such disclosure must be full, fair and accurate. The applicant must draw the court’s attention to all relevant material including points adverse or potentially adverse to his case.[35]What HS and HIT say should have been, but was not, disclosed was the fact and content of without prejudice discussions which took place on 15th December, two days before Gross J’s order. The Owners contend that they were neither bound nor entitled to refer to the without prejudice meeting or its contents. Mrs Brookes of Brookes & Co, the Owners’ solicitors, believed this to be the case.[36]The Owners submit, the defendants do not dispute, and I accept that there are three separate principles involved:(i) Those who make without notice applications must make full and frank disclosure to the Court of matters which they know which might have a material effect on the Judge’s mind;(ii) Parties are entitled and bound not to disclose or refer to without prejudice communications;(iii) Where there is a collision between principles (i) and (ii), the Court will make a judgment as to whether the public policy in favour of confidence is overridden by the possibility of the Court being misled.

The authorities

[37]The without prejudice rule – namely that what is said in without prejudice (or settlement) negotiations is not to be admitted in evidence - is a rule of public policy, although it is in part based on the implied agreement of the parties. The public interest is served by the settlement of disputes. The prospects of settlement are impeded if what is said in discussions towards settlement may be used in evidence as admissions or be the subject of cross examination designed to secure admissions, if the proposed settlement fails. Like all rules of public policy it is not absolute. The rule may not be used as a cloak for iniquity, such as perjury or blackmail; nor resorted to for a dishonest purpose. Nor may it be used in such a way as to mislead the court. It may not be applicable if the reason why evidence is sought to be given of a particular communication is not to establish an admission of fact but to show that a particular communication was made, or that an agreement was reached, or that an agreement apparently reached was the result of misrepresentation or the like, or to establish an estoppel: Unilever v Proctor & Gamble [2000] 1 WLR 660.[38]A litigant may not rely on the without prejudice rule to prevent material being deployed at trial if he has himself deployed it in court in support of his case on the merits at an earlier occasion. In Somatra Ltd v Sinclair Roche [2000] 1 WLR 2453 certain letters had been referred to by Sinclairs' solicitors in an affidavit sworn in support of Sinclair’s application for a Mareva injunction in support of its counterclaim. It was submitted to the Court of Appeal that such reference had been made as part of Sinclair’s obligation to make full and frank disclosure, since the letters evidenced that Sinclair’s managing partner had indicated at two meetings that the solicitor concerned was willing to apologise because he had something to apologise for in respect of the conduct of the case. Clarke LJ, as he then was, concluded that the letters had been written without prejudice and held, at para 16, that, in those circumstances, the solicitors were not under any duty to refer to the contents of the letters any more than they would have been under a duty to refer to what was said at the meetings or during telephone conversations to which the letters referred. Even if they had been under such a duty the affidavit went much further than was necessary to discharge the duty. He later held – para 38 - that the use of the material by Sinclair was a repudiatory breach of the agreement that the material would not be admissible and/or that they would not rely on it to advance their case on the merits. I do not accept that he was not in any way considering the potential tension between the first two principles to which I have referred.[39]In The Giovanna [1999] 1 Lloyd’s Rep 867 the applicants had failed to inform the judge (Mrs Justice Steele) that they could not assure him that they had title to the cargo for the loss of which they claimed against the defendant owners; or that an offer of full security had been made by the defendants and their club in the course of without prejudice negotiations. Further, the impression given by the evidence was that the owners had abandoned their responsibilities and were seeking to evade their liabilities, and Rix J presumed that such an impression was intended to be given. In fact the owners had instructed London solicitors, who had been in “constructive negotiations” for weeks, and they were being supported by their club, which was in principle prepared to provide security for more than the plaintiffs in fact obtained from the court. Not surprisingly he set aside the injunction, though he said that it was not often in his experience that a submission that a Mareva injunction should be discharged on account of non-disclosure succeeded.[40]In relation to without prejudice communications he said this:
“It may be that the correspondence itself could not have been unilaterally presented to the Court by the plaintiffs, but I do not accept that a Mareva injunction can be sought ex parte without at least some mention being made of the existence of an offer of security, an offer which was still current at the time when the plaintiffs went to Court. Such an offer, even though there may be strings attached, runs directly contrary to a Mareva applicant’s implicit invocation of the Court’s assistance in confronting a real risk of dissipation. It seems to me that the situation is somewhat analogous to one where there is an application to strike out an action for want of prosecution: the fact and even the content of without prejudice negotiations can be disclosed for the purpose of explaining the passage of time and the conduct of the parties in the context of an allegation of inordinate and inexcusable delay: see Family Housing Association (Manchester) Ltd v Michael Hyde & Partners [1993] 1 WLR 354.”
[41]In Pearson Education Ltd v Prentice Hall India Pte Ltd [2005] EWHC 636 (QB); [2006] FSR 8 Crane J held that the duty of full and fair disclosure might require a without prejudice document, or some indication of its existence, to be disclosed. On the facts he decided that the claimant, when applying for permission to serve out, should have revealed the fact that a without prejudice letter had been received in order to avoid the implication in the evidence that there had been no response to the claimant’s formal letter of complaint. But he decided that the contents of the letter should not have been revealed because it was the defendant’s choice to make the letter without prejudice rather than open. Non disclosure - the facts[42]I turn to consider whether or not, on the facts of this case, the duty of full and fair disclosure obliged the Owners to reveal the existence or content of the without prejudice meeting of 15th December 2009. The meeting of 15th December 2010[43]The meeting was attended by four representatives of the defendants: Mr Antonius Sumarlin, the President of HIT, Ms Indira Miranti, HIT’s legal manager, Captain Manuhar Durgude of HS and Mr Dedi Hudayana, also a director of HS. The Owners were represented by Mr Polemis of Empire, and Mr Spyros Polemis of Seacrest Shipping Co Ltd, the London agents of the Owners’ managers together with Mr Stephen Mills and Mrs Gillian Stanton of the Club.[44]There is before the court Mrs Stanton’s note of the meeting. It shows the following:(a) Mr Mills suggested that the meeting should be open. But Captain Durgude insisted that the meeting could only be conducted on a “without prejudice” basis;(b) No agreement was reached at the meeting; not even in principle. D’s representatives had no authority to make any such agreement In a letter of 6th January 2010 Mr Tricks of Clyde & Co, the defendants’ solicitors, asserted that “settlement was discussed on a bona fide basis and terms were agreed in principle subject to the approval of our client’s shareholders”. That was, he says, his understanding of the position at the time that he wrote the letter. It is not clear on what basis he reached that understanding, which was incorrect. .(c) Various reasons were given for the non-performance of the defendants’ obligations. Reference was made to Sokana refusing to account to HS and to pay freight to it (at which the Club’s representatives pointed out that HS failure to pay hire had started months before any of the matters that Captain Durgude was describing); and to cash flow problems for both defendants. Mr Sumarlin and Captain Durgude blamed Sokana for the fact that HS had failed to direct all earnings from all four vessels to the Owners as Captain Thana had promised.(d) HS/HIT’s representatives said that the granting of the guarantees was illegal and against SEC regulations, that the HIT directors had exceeded their authority by giving the guarantees without shareholder approval, and that the previous directors were being taken to court by the shareholders in Indonesia with criminal and civil charges,(e) Reference was made to the negotiation of a settlement with Hanjin involving a payment of 20% of what was owed to it and a future profit sharing agreement and to HS looking to do a similar deal with Empire. Mr Samarlin said that HS had no COAs to perform (contrary to what had been represented when the charters were negotiated) and had been working the vessels spot.(f) Mr Sumarlin said that he had shareholder authority to use HIT Treasury Stocks of US $ 14 million to pay the past debts of about $ 11 million and that they were, therefore, offering HIT Treasury stocks to pay the past debt: payment by way of HIT stock was not seen as paying under the guarantees. It is common ground that the figure of about $ 11 million was not disputed. Mr Sumarlin repeated that the guarantees were being challenged in the Indonesian courts (a process which he said would take 4 or 5 years). He said that the Parbulk claim, the Hanjin claim and the Empire claims together amounted to a larger amount than HIT’s assets. Only a week ago he had got the HIT shareholders to acknowledge the Empire claim.(g) The Owners insisted that the stocks would need to be liquidated and a cash payment made. The HS/HIT representatives said that it was Humpuss’ intention to settle the debt but insisted that they could not say how the mechanics of transferring or liquidating the stock might work.(h) Mr Sumarlin said that he would be leaving the UK on December 16th and spending a day in Singapore before returning to Indonesia, He would not be able to take things further until he had had a further opportunity to meet with the shareholders. 23rd December 2009 was the final working day before the Christmas break.(i) After a break in the meeting and further discussion about a payment for the Owners’ damages claims in respect of the four vessels and the three other undelivered vessels Owners demanded a payment of $ 11 million immediately without which no agreement in principle or otherwise could be made.(j) HS/HIT said they could make no commitment on an immediate payment.They did not know if the Treasury stocks could be easily liquidated and a payment made in cash or how long it might take even if it proved possible. There was discussion about what might be an acceptable figure for the damages element of any settlement.(k) As to damages Owners’ preference was for a clean break figure, being a write down on the proper damages figure. After being repeatedly asked what sort of figure they had in mind the Humpuss representatives floated the idea of paying $ 7 million, being 1 million per vessel (including the three not yet delivered) and said they would need more than a year to make that payment. Owners indicated that this was not acceptable.(l) Owners expressed the view that it was a shame Humpuss had come with no definite commitment and no authority to make one.[45]According to the third witness statement of Mr Tricks of Clyde & Co, for the defendants, the meeting was amicable and the Owners were informed that the mechanics for resolving the $ 11 million claim (and allowing the Empire Group to take the money from Indonesia) would have to be discussed in Jakarta but that Humpuss would revert by 23rd December. Humpuss understood Owners to be looking for $ 35 million for their damages claim ($ 20 million for the 4 vessels currently on time charter and $ 15 million for the 3 vessels yet to be delivered). Mrs Stanton’s e-mail of 22nd December (see para 48n below) confirms that the Owners put their claim for breach of charter at $ 35 million and said that they would accept $ 21 million. It was plain at and after the meeting of 15th December that payment of the outstanding hire alone, or that plus a small proportion of the sum claimed by way of damages, was not acceptable.[46]During the evening of 15th December Mrs Brookes discovered that HIT was proposing to carry out a restructuring of the HIT group at a shareholders’ meeting which was to take place on 28th December 2009. I refer to this in greater detail below.[47]On 17th December Gross J made the worldwide freezing order. It is apparent from the amount of work that went into the preparation of the application (including 120 hours of Mrs Brookes’ time) that preparations for an application for such an order had begun substantially before 15th December.[48]On Tuesday 22nd December Mrs Stanton of the Club sent an e-mail to the four individuals who had attended the 15th December meeting on the defendants’ side which included the following:
“During the without prejudice discussions last week, Tuesday December 15th, it was made quite clear to you, that in order to show good faith on the part of Humpuss, a payment of the approximate amount of $ 11M owed for unpaid hire was to be made by close of business on Friday December 18th. You did indicate that you would talk to your shareholders on Monday December 21st, but this was concerning settlement discussions regarding your future obligations concerning the four year T/C for the four Samho vessels, as well as the three DaeSun vessels which would be delivered to you next year. The past due unpaid hires were still to be remitted immediately. As we had no confirmation that such a remittance was being arranged, we had to apply to the court for a worldwide freezing order, which was served on you on Friday December 18th. In spite of the above we want you to be aware that we are still open to discussing a possible out-of-court settlement on the following basis, which was offered to you in similar terms this past Tuesday December 15th during the without prejudice discussions.”
The e-mail then indicated that the Club would be willing to recommend a settlement which involved a payment of $ 21 million for the damages claim and $ 11 million for the “undisputed unpaid hire”.[49]According to Mrs Brookes’ third affidavit this e-mail was sent because Mrs Stanton did not think that the defendants were negotiating in good faith. Since the e-mail referred to the Owners making clear that, in order to show good faith, a payment had to be made by 18th December, the application for a worldwide freezing order on the 17th December might be regarded as premature. However, Friday 18th December was a bank holiday in Indonesia. The Owners/Club therefore took the view that, absent any indication before the 18th that funds were on their way there was no prospect of the deadline being met. In the event no funds were remitted nor was any offer of security made by or on behalf of the defendants either on 18th December or thereafter. In addition the discovery of the proposed reconstruction on the evening of 15th December impelled the Owners to action. Humpuss’ submissions[50]Mr Stuart Isaacs, QC, for the defendants, submits that the fact that HS/HIT had sent a high level delegation to London for discussions in which a proposal to liquidate the Treasury Stock was put forward and after which the Owners had required $ 11 million to be paid by 18th December if matters were to progress should have been brought to Gross J’s attention because the meeting was a demonstration of good faith which went against any suggestion of a risk of dissipation of assets. The Court should have been told that there had been substantial progress on the claim, which Humpuss intended to settle if it could; that proposals had been put forward as to a means of securing alternative employment for the vessels; that Mr Samurlin needed to consult with HIT’s shareholders; that he was going back to Singapore the next day, and then to Indonesia, and had said that he would revert by 23rd December.

Application of the principles

[51]The basic rule is that the fact and content of without prejudice communications are not to be disclosed. A prime reason for that is to prevent admissions made in such discussions being used against those who made them. If it were otherwise, settlement, which it is in the public interest to promote, would be very much more difficult. In the present case the defendants were, on 15th December in effect admitting that hire and expenses were due and, although contending that the guarantees were unlawful, were not suggesting that only two of them had been given.[52]The basic rule must be the starting point for any consideration of what the Court needs to be told. The rule is not without exception. The obligation of a party seeking ex parte relief to ensure that the Court is not misled means that he cannot regard the basic rule as determinative on the question of disclosure. Further, as The Giovanna and Pearson illustrate, whether application of the basic rule would mislead the court may depend upon the manner in which the claimant advances his case. A claimant who makes a generalised or sweeping statement as to the evasiveness of his opponent (or allows an impression of evasiveness to be created) may find himself with a problem which he could readily have avoided by a less expansive statement; and compelled to make disclosure which otherwise would not have been necessary; or, if he does not, run the risk that any order he obtains is subsequently discharged.[53]At the same time, as it seems to me, considerable care needs to be taken in holding that a claimant is bound (and, therefore, entitled) to disclose without prejudice material. A decision whether or not to disclose may well have to be taken within a short timescale. More importantly there is a real danger of defendants being disadvantaged by the ex parte disclosure (which the defendant is powerless to prevent) of such material by claimants on the basis that they are only fulfilling a duty when the material consists of or amounts to admissions - the very risk that the first principle seeks to avoid. I cannot help thinking that, if disclosure of the content of the without prejudice meeting had been made in this case, the Judge would have wondered why the Owners felt able to do so, and the defendants would, in time, have fiercely objected.[54]Another reason for a relatively robust approach against holding disclosure to be necessary is to avert the prospect of disputes as to whether without prejudice material was properly put before the court by the claimant but only in fulfilment of a duty of disclosure (and ought, therefore, to be left out of consideration in any trial on the merits) or was put forward for the purpose of advancing the claimant’s case, and as to whether, if the latter, the defendant is entitled to have other without prejudice communications statements by the claimant put in evidence. In the present case it appeared at one stage that the question whether the without prejudice communications could be referred to at the application to discharge would have to be determined by Tomlinson, J on the footing that, if the answer was negative, another Judge would determine the present application. That question was resolved when the Owners put the note of the meeting in evidence. Thereafter, on the footing that any privilege had been waived, the defendants put in evidence the e-mail of 22nd December, which the Owners submitted should never have been done.[55]I do not, however, accept that the test as to whether reference should be made to without prejudice communications is that the need to do so was compellingly obvious. In Pearson Crane, J rejected a test of “manifest impropriety” and I would reject a test that comes close to that. It is sufficient to say that some disclosure of without prejudice communication will be necessary if it is clear that without it the court may be misled. Conclusion on non disclosure[56]I am not persuaded that, in the present case, the Owners ought, as part of their duty to the Court, to have drawn Gross J’s attention to the fact and content of the without prejudice meeting. No agreement was reached at the 15th December meeting nor was any offer capable of acceptance made. Mr Samarlin indicated that he had shareholder authority to use the Treasury Stock for the $ 11 million due but how and when that might become available to the Owners or Empire in cash was unexplained. No security was offered. The defendants made a deliberate choice for the meeting not to be open, no doubt with the intention that its content should not be put before a court.[57]Further as it seems to me neither the fact nor the content of the meeting casts any real light on whether there was a risk that the defendants would remove their assets from the effective grasp of the Owners. If anything, evidence of the meeting might (if taken with evidence of what was going on in Indonesia – with which I deal below) be regarded as beneficial to the Owners on that issue because it would indicate that, whilst negotiations were going on which did not involve any actual offer, arrangements were being made for a shift of tangible assets from HS to HTK.[58]Mr Isaacs submitted that both the fact and the content of the meeting should have been before the judge together with the fact that the defendants were due to revert. In the alternative the fact of the meeting should have been referred to.[59]In the light of the terms on which the meeting was held, and its content, I am satisfied that the content of the meeting should not have been disclosed. To have revealed only that there had been certain negotiations which at the insistence of the defendants had been without prejudice would not, I think, have added anything. In reaching this conclusion I have not ignored the fact that at paragraph 164 of her first affidavit, which deals with the Owners' grounds for believing that there was a real risk of any award or judgment going unsatisfied, Mrs Brookes had said that HS “conduct has been evasive from the moment PAJAJARAN was delivered to it on 10 January 2009”. It is clear from what follows that what she was referring to was a number of spurious excuses from January onwards for delays in payment, culminating in the demand for a reduction in hire.

Sanction

[60]Even if I am wrong on that, and both the fact and content of the meeting should have been disclosed, I do not regard this as an appropriate case in which to discharge the freezing order. Although it has been said that the court should be astute to deprive a non-disclosing defendant of any advantage gained by such non-disclosure and that the jurisdiction to continue an injunction thus obtained is to be exercised sparingly – see Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 - the question is one for the discretion of the court in all the circumstances of the case. Whether or not such a sanction should be imposed depends on the circumstances including(a) the seriousness of the breach;(b) whether it was intentional, or resulted from indifference, inadvertence, or a thought-out but erroneous decision;(c) whether disclosure would have made any material difference to the outcome of the application;(d) whether the material before the Court taken as a whole makes it inequitable to continue or renew the order (in which case any question as to the effect of non-disclosure is likely to merge with the question whether, in the light of all the material the injunction should be continued);(e) general considerations of equity.[61]It is not suggested that there was any conscious impropriety. Nor is this a case where the solicitor did not address her mind to the question of disclosure. At worst there was an innocent error of judgment. It was far from clear that any such disclosure should be made. Further it seems to me unlikely that Gross J would have reached any different view if he had had the without prejudice material. In any event I would not regard it as just or equitable, in this case, to refuse relief if on the totality of the material I am satisfied that the facts justify a freezing order.[62]Further, as it seems to me, if, contrary to my view, there was a failure of disclosure, it lay in the absence of reference to the fact of the without prejudice meeting, in which case the considerations to which I refer in the previous paragraph apply with even greater force.[63]The present case seems to me some way removed from others in which the Court has found it necessary to discharge an injunction. In Siporex v Comdel [1986] 2 Ll.Rep 428 the undisclosed material went to the heart of whether Comdel had a tenable claim. It is not surprising that Bingham, J discharged the injunction for non disclosure. In The Giovanna what was undisclosed were doubts about the claimants’ title to sue and, more importantly, the fact that the Club had offered security. In Brink’s Mat the Court of Appeal declined to discharge an injunction where the order would still have been made if the non-disclosed material had been made available and where discharging the injunction would have been disproportionate punishment: see also Memory Corp v Sidhu (No 2) [2000] 1 WLR 428, where the injunction was continued despite non-disclosure that the order sought was in a form partly disapproved by the Court of Appeal, counsel having represented that the order was in standard form.[64]Mr Isaacs submitted that what the Owners were really seeking to do was to obtain and use the freezing order improperly in order to put pressure on the defendants. Having withheld from the defendants during the negotiations their intention to seek a freezing order, they then used it as a way of carrying on the negotiations, to their advantage, by other means. However, as it seems to me, whilst the effect of the order sought would inevitably put pressure on the defendants, it was, in the light of my findings, including those as to risk of dissipation which I consider below, legitimate for the Owners to seek it. Breach of Owners’ undertaking[65]The Owners gave to the Court a number of undertakings of which number 8 was in the following terms: “The Applicants will not without the permission of the Court seek to enforce this Order in any country outside England and Wales or seek an order of a similar nature including orders conferring a charge or other security against the Defendants or the Defendants’ assets”.[66]On December 22nd 2009 the Owners petitioned the US District Court for the Southern District of New York under the Federal Rules of Civil Procedure asking for limited discovery as to the presence of assets belonging to or controlled by the defendants or either of them held by persons within the jurisdiction of the court. It did soon the basis that several named banks present within the jurisdiction of that Court might have accounts of the defendants. Disclosure was sought from those banks. The order gave the Owners liberty to seek production of documents and propound interrogatories against those banks to the extent that they were within the jurisdiction of the court and against such other parties as the Owners might reasonably believe to hold assets of the defendants.[67]The defendants contend that in seeking this relief the Owners were in breach of their undertaking and that that breach forms a further reason why the freezing order should be discharged. Mr Michael Howard, QC, for the Owners submitted that the order obtained was primarily an order restraining the defendants from disposing of funds but contained, as a secondary feature, ancillary provisions about disclosure and that “an order of a similar nature” should be construed as referring only to an order which had the primary characteristics of the order obtained. I am doubtful as to the validity of that distinction. But it seems to me that an order requiring a number of banks in New York to provide information about the defendants’ bank accounts is not, for present purposes, an order of a similar nature to that part of the order of Gross J that requires disclosure by the defendants of their assets. The undertaking must have been intended to preclude action outside the jurisdiction which imposed requirements on the defendants to make disclosure of their assets or affected their rights of ownership or disposition of their property.[68]If I am wrong on that, I would regard it as wholly inappropriate to discharge the freezing order on that account and I decline to do so. Risk of dissipation[69]I turn then to consider whether on the material before me the Owners have established that there is a sufficient risk of dissipation of assets to justify the continuance of the freezing order. Defences[70]As I have indicated, for the purposes of this application the defendants accept that the Owners have good arguable claims. They contend that they have good defences. Mr Isaacs submits that the fact that the defendants have such defences is something to be taken into account in deciding whether there is a sufficient risk of dissipation to justify a worldwide freezing order. Mr Howard submits that, once the Owners have established a good arguable case, the fact that there may be arguable defences to the claims has no bearing on the separate question of whether there is a risk of dissipation.[71]Although the existence of any defence and the risk of dissipation are two separate subjects I accept that the former may have some bearing on the Court’s approach to the latter. A Court may, depending on the circumstances, be disposed to regard a defendant with no defence at all as more likely to dispose of assets in order to defeat the claim than one who has a perfectly respectable defence. The former type of defendant will, ex hypothesi, have no valid reason for not paying and his refusal to do so may prompt the inference that he will do what he can to avoid having to do so more readily than is the case with someone who has some reason for not paying. Whether or not there is a real risk of dissipation is, however, likely to turn on matters other than the nature of the defendants’ putative defences. In those circumstances I shall refer to the putative defences quite shortly. The new defences No claim by Elspeth and Romford[72]After both the 15th December meeting and the original return date, the defendants sought to rely on a number of defences not previously raised. Firstly they said that in respect of two of the vessels – PAJAJARAN and TULANG BAWANG - Elspeth and Romford are not the proper claimants. The original charters specified two different companies as owners – Falda Maritime Inc and Starla Maritime Inc. Those charters contained, in additional clause 26, an option to substitute with vessels owned by Elspeth or Romford and such substitution was made. But, so it is said, although the substitution took place, there was no novation or assignment of the charter. So the owners of the vessels, and the proper claimants, remained Falda and Starla.[73]The Owners say that the parties agreed that the substitution of the relevant hull would lead to a substitution of the relevant owner as appears from(i) the guarantees appended to the charterparty which referred to Falda and Starla as owners and not as entities who might charter from owners; and(ii) the fact that all concerned carried on business on the basis that the claimants Elspeth and Romford were the owners of the relevant vessels: see (a) the original protocols of delivery in the name of Elspeth and Romford, (b) the fact that payment was made to the Owners, and (c) the Addenda to the charters made in the name of Elspeth and Romford.[74]In defence submissions filed in the arbitration HS challenged the jurisdiction of the arbitrators in respect of the claim by Elspeth and Romford on the footing that they were not the proper claimants; but on 12th February Asia Legal LLC, HS’ Singaporean solicitors, indicated that they no longer intended to make any such application. They also withdrew certain wholly unparticularised allegations of illegality and the like. In those circumstances, subject to what I say in the next paragraph, there is no defence proffered in relation to hire (subject to proper calculation of the amounts). Rate of hire[75]HS still contends, as I understand it, that the Owners are not entitled to claim the original full rate of hire because they continued to issue invoices at the reduced rates between April and October. On 14th October they re-issued all the previous hire invoices at the full rates. Even assuming that there was some waiver of the provision in clause 2 of the Addenda that it was a condition of clause 3 that all outstanding monies owed under the charterparties should be immediately paid, there seem to me considerable difficulties in HS getting round clause 4 which gave the Owners the right to claim the difference in hire as damages in default of proper and punctual payment at the lower rate. If there is such a defence it goes only as to quantum. Repudiation[76]Next there is said to be a good arguable defence to the claim for damages in respect of the alleged repudiation. It is said that the owners elected not to withdraw the vessels for non-payment of hire every time that they failed to exercise their right to withdraw when they could have done and that as at November 2009 nothing new had happened to justify withdrawal. That, however, begs the question as to whether the totality of HS conduct up to November 2009 was repudiatory. Mrs Brookes’ first affidavit sets out in detail HS’ continued failure to make prompt payment of hire even at the reduced rates, which may well amount to repudiation.[77]Further the charters gave a right of withdrawal for non-payment of hire and by Addendum no 3 or 4 payment of the hire in time was made a condition of the charter. If those matters stood alone it would be difficult to see what defence there was to the claim that, since the hire was unpaid, the Owners were entitled to proceed upon a breach of condition. However, clause 2 of the Addenda provides that the Addenda should be null and void on the failure of HS to pay all outstanding monies immediately and, if that is to be taken as meaning the whole of the Addenda, clause 1, which makes timely payment a condition, would itself become null and void. In her first affidavit Mrs Brookes submits that this is so. Quantum[78]There is also a dispute about the quantum of damages and whether or not the figure obtainable for the vessels in the current market is $ 5,000, which Owners put forward as a 2 year charter rate, or the $ 7,650 - $ 8,000 relied on by the defendants, as a 1-2 year rate. Defences under the guarantees[79]The following defences have been put forward:(i) it is doubtful whether or not HIT issued guarantees in favour of Elspeth and Romford;(ii) the giving of the guarantees was ultra vires HIT; and(iii) the guarantees were not properly executed.[80]As to (i) the evidence of Mr Bjarte Simonsen of Cass and Mr Polemis for the Owners is that signed guarantees in respect of all four vessels were handed over in Jakarta on 24th October 2008, although two can no longer be found. The guarantees are, however, referred to in HIT’s accounts. Discovery has not taken place – so it is not known whether a copy of the guarantees will appear when it does. I do not regard this putative defence as a ground for reducing the sum for which any freezing order, if made, should stand. There is a well arguable claim that all guarantees were executed – as one would expect. It was not suggested during negotiations that two of the guarantees were not in place.[81]As to (ii) and (iii) it is said that the guarantees were ultra vires because they required the written approval of the President Commissioner (or to be co-signed by him) and approval from HIT’s shareholders in general meeting. That may or may not be a valid defence. It raises questions of Indonesian law as to HIT’s ability to give a guarantee, and (using English law concepts) as to apparent authority and estoppel. It is not possible to make even tentative findings as to the strength of any defence.[82]In the light of these considerations I do not proceed on the basis that there is no possible defence. There might be a defence to the totality of the $ 11 million figure, although this seems to me doubtful. There might be a defence that the failure to pay hire was not repudiatory and there is a potential defence as to the quantum of the claim for damages for repudiation. It might be that only two guarantees were in place; and there may be a defence under the guarantees on the lines set out in the previous paragraph. But, as is conceded, the Owners’ claims are well arguable. In those circumstances the existence of these putative defences casts relatively little light on the question whether there is a real risk of dissipation. It is, however, plain that, in respect of a substantial portion of the hire there never was a defence, so that, in that respect at least, the defendants would have an incentive to dissipate assets. Risk of dissipation[83]It is for the Owners to show that there is a real risk that the defendants will dissipate their assets in the sense that, unless restrained by action, they will dispose of them otherwise than in the ordinary course of business so that any judgment or award will go unsatisfied; or will so deal with their assets as to make enforcement more difficult, unless such dealings can be justified for normal business purposes: see Condentra AG v Sixteen Thirteen Marine SA [2008] EWHC 1615, para 49 and the cases there cited. The basis upon which it was contended that there was a risk of any award or judgment going unsatisfied was set out in paragraph 164 of Mrs Brookes' first affidavit. A series of matters are relied on. The history of the contract Problems from the start[84]The first matter relied on s that there were persistent delays in the payment of hire from the moment PAJAJARAN was delivered in January 2009, together with the proffering of various different and, in some case, oft repeated excuses for delayed payment such as a bureaucratic system, organisational restructuring in the accounts department, and recent changes of management, followed by a demand for a reduction in hire against a threat of redelivery and non payment. Thereafter there were repeated failures on the part of the defendants to honour their obligations. Funds that should have been paid to HS were diverted away to other uses. In his third statement Mr Tricks points out that between Autumn 2007 and 2009 the freight market collapsed. He also records that the entire board of HIT was summarily dismissed in February 2009 for corruption and that HIT had problems with its vessel managers, Sokana, during that year. What Captain Thana said[85]The second matter relied on is what Captain Thana reported at the 18th June meeting. He described the payment mess up. He is, also, said to have said that HS CFO had to be dismissed because of corruption which extended to the entire board of HIT. In his third witness statement Mr Tricks says that Captain Thana did not say that and that it is not correct. The true position is that Mr Soeroso was appointed as CFO on 21st January 2009 and left on 5th June. He had not been implicated in the investigation into corruption which was completed in February 2009.[86]In this respect I note that Mr Koutroulis’ e-mail of 19th June reporting on the meeting reads:
“They mentioned that the CFO had his own business going on but did not clarify if [the mess up] was due to corruption or simple incompetence. When I insinuated that possible he might be corrupt and arranging for payment of the business he is involved with, they said they believe its just pure/total incompetence but of course one can never know for sure. They actually told me that they explained to the CFO numerous times how to do the payment schedule and that he was to match the receivables against the outgoings in order to produce the payment plan and still what he was producing was nothing like a payment schedule”
. This more nuanced contemporaneous account seems to me likely to be reliable. If so it is unclear whether Mr Soeroso was incompetent or corrupt. What has not been explained, however, is why he left.[87]At the same meeting, Mrs Brookes records, Captain Thana said that up to 18th June income generated from the vessels had been diverted in order to pay other liabilities unrelated to the chartered vessels, and that must indeed be so. In March 2009 Captain Thana had indicated that the vessels were earning $ 10,000 a day, in which case something like $ 9,000 per day ought to have been available to pay the charter hire. Hire of $ 536,000 under a charter by Silverstone of PAJAJARAN to Alcoa had gone to Lucky Vision and, despite Captain Thana’s promises that payment would reach the Owners, it had never done so.[88]Captain Thana is also said to have expressed on 19th June (Mrs Brookes’ first affidavit para 164 F) an intention to transfer the vessels to a new company to be established in Singapore with a view to evading the Rule B attachment. It is said in reply that it was Mr Polemis who was concerned about keeping the vessels out of the way of other creditors of Singapore and was looking at ways of doing that. Mr Koutroulis’ e-mail account of what was said on 18th June tends to support the former account.[89]Captain Thana is said (see para 31 above) to have resigned as Managing Director and CEO of HS because HIT was urging him to sign documents transferring assets from HS to other companies in order to evade the Owners’ claims. According to Mr Tricks Captain Thana is said to deny resigning for that reason or giving Mr Polemis that reason. There is, however, no witness statement from him to that effect, nor is there any explanation as to why he left when he did. Rule B attachments[90]Next reliance was placed on HS registration of itself in New York on 15th May 2009, after the Rule B attachments made on 11th May, as a foreign business corporation for the sole purpose of evading future Rule B attachments. According to the affidavit of Mr Neil Quartaro, an attorney with Watson, Farley & Williams (New York) LLP, HS has no real presence in New York – no office space, telephone, fax, or other indicia of presence - but the registration had the effect of precluding a Rule B attachment.[91]Mr Tricks makes clear in para 47 of his third witness statement that this registration was, indeed, effected for the purpose of evading future Rule B attachments. He describes this as a “sound business move” (and not a dissipation of assets) carried out following legal advice, which has been done by a large number of foreign companies, in order to avoid the problem that all electronic fund transfers in US dollars pass through New York banks and were thus liable to Rule B attachment. The threshold for obtaining such an attachment is not high. It acts as a mechanism whereby funds are seized, as opposed to their owners being enjoined, and it does not allow for the payment of debts in the ordinary course of business. The position only changed with the decisions to which I refer in paragraph 27 above.[92]Since 29th May the defendants had caused payments to be made to the Owners not by HS or HIT but by Silverstone, a Panamanian corporation trading from HIT’s premises, in what appeared to be an attempt to evade the Rule B attachments. Once the 1st and 2nd claimants had – on 4th August 2009 – obtained Rule B attachments against HIT and Silverstone, Ery Seto Cahyo G was used as a vehicle for effecting payments. Having someone other than HS sub-charter the vessels and receive the sub charter hire and causing that sub-hire to be used otherwise than for payment of hire to the Owners are indicia of dissipation.[93]Conduct in relation to Rule B may well have been common practice among some foreign corporations. It is not entirely clear from the evidence whether it is open to a corporation such as HS which does not carry on business in New York in any real sense simply to register as a foreign business corporation and thereby avoid a Rule B attachment. I infer from the evidence of Mr Quartaro “..a company should seek authority to conduct business in New York if it actually intends to do so, not as a sham filing to avoid the attachment of its assets” , that it is not; and, even if it is, it constitutes a wholly artificial means of preventing creditors from gaining security for claims.[94]Next, reliance is placed on HS transfer of its sole directly owned vessel the product tanker SAPTA SAMUDRA to HTK in August 2009 at a time when Captain Thana was seeking from the Owners a temporary stay of the arbitration and the Rule B attachment. The Owners suspect that the transfer was not at arm’s length or for value. Restructuring[95]According to Mr Tricks’ fourth witness statement, as at the date when the guarantees were given, Regulation IX.E.2 of the Indonesian Capital Markets Supervisory Agency required a publicly listed company to obtain approval from a Shareholders General Meeting for any “Material Transaction” which was defined as including “any purchase, sale or shares participation, and/or any purchase, sale, transfer, exchange of assets or business segment with a total value equal or greater than either(a) 10% of the company’s revenue or(b) 20% of the company’s equity”.[96]On 26th November 2009 a notice by HIT to its shareholders (“the November notice”), prepared in accordance with Regulation IX.E.2, was published in two Indonesian publications – Business Indonesia and Investor Daily - of an AGM to be held on 28th December 2009. HIT's shareholders were to be asked to approve a restructuring which involved a sale by HS to HTK of HS shares in 3 companies(i) Cometco Shipping Inc, (“Cometco”);(ii) Silverstone; and(iii) Humolco Trans Inc (“Humolco”); and the transfer of the vessel DASA SAMUDRA from Lucky Vision to HTK for an aggregate value of over $ 40 million. HIT’s direct stake in the three companies was 51%, 100% and 60% respectively. But Silverstone owned 44% of Cometco, so HS direct and indirect interest in Cometco was 95%. The price of the shares was to be $ 27,372,714.90, $ 8,907,170 and $ 600,000 respectively. The purchase price for Cometco is markedly less than the figure which appears in the November notice of $ 65,512,666 as the total equity of Cometco and its subsidiaries. The price for the vessel was to be $ 3,920,000. The date of the share sale agreements was 17th November 2009. The date of the agreement for the sale of the vessel was 7th October.[97]In fact, on 25th November 2009 a revised version of IX. E.2 came into effect. Under this Regulation HIT no longer needed to hold a General Meeting of its shareholders to approve the restructuring. Instead it was required to publicise the transaction in at least one nationally circulated newspaper after execution of the transaction.[98]As a result a new notice was published in Investor Daily on 16th December 2009 (“the December notice”). This notice announced that HIT had made the share sales together with the sale of the DASA SAMUDRA, and also a sale, by an agreement of 2nd December 2009, of the GRIYA ASMAT by New Century Maritime Inc, a subsidiary of HS to HTK for $ 11,856,000. The agreements for the sale of the shares provided that the sale/transfer was to be effective after internal approval of the sellers and buyers in accordance with their statutes and written notice from HIT to HTK and HS that shareholder approval was not required. According to Mr Tricks’ fifth witness statement all of the transfers of assets under the restructuring were effected before 17th December and the effective date of the transfer of the shares was 14th December.[99]In 2008 the Indonesian government had announced that it intended to implement cabotage rules coming into effect in 2010 providing (so it appears) that all activities in the domestic market should be carried out by national shipping companies with Indonesian flagged vessels.[100]There was some debate before me as to whether the relevant provision (Law No 17 of 2008 and, possibly, further Regulations, none of which are in evidence) would require vessels engaged in domestic carriage to be both Indonesian owned and Indonesian flagged. I infer that that is so from(a) the terms of the November and December notices;(b) what happened to the vessels SAPTA SAMUDRA, DASA SAMUDRA, and GRIYA ASMAT; and(c) what did not happen to a vessel called the EKA PUTRA.[101]As to(a) the November notice explains that Law No 17 requires that “all activities in the domestic sea transport [be] made by the national sea transport companies”. The December notice refers to the transfer of the assets as “enabling of cabotage principle for national shipping company …has shut the market for foreign flagged vessels”. The notice makes plain that DASA SAMUDRA and GRIYA ASMAT are to serve domestic transport routes. As to(b) the vessels other than the EKA PUTRA were all transferred to HTK, an Indonesian company. As to(c) the EKA PUTRA, a vessel worth over $ 54 million (according to HIT’s consolidated accounts for the 9 months to September 2009), was owned by Cometco, a Liberian corporation, whose shares were sold to HTK. I infer that at least part of the reason for transfer of the vessels which went to HTK was in order to comply with the cabotage law when it came into force; but that that was not (and was not stated to be – see below) the reason for the transfer of the shares in Cometco.[102]Owners suggest, with some force, that the transfers both of the shares and of the vessels are not at arm’s length for value but were a sham for two reasons.[103]Firstly, as at June 30th 2009 HTK’s reported assets were the rupiah equivalent of about $ 6.4 million and its liabilities the rupiah equivalent of about $ 12.4 million. It was also making a loss. It was, thus, balance sheet insolvent. No explanation has been given as to how it would fulfil the purchase it was to make.[104]Secondly, the reason put forward in the December notice for the transfer of the shares was as follows:
“In managing rental boats, both conducted by HST and HST subsidiaries, has resulted in several legal cases. For cases faced by HS and HST subsidiaries, the Company’s management considers necessary to restructure the organisation through the transfer of shares to HTK for [sic] HST can be more concentrated in facing the case and does not interfere whole Company’s operation. By doing organisational restructuring under HTK, it is expected to improve the performance that has positive impact on Company’s financial condition”
. The “Company” is defined in the notice as HIT.[105]The defendants point out that the assets of the Humpuss group of companies will remain within the group. That may be so. But it is possible to dissipate assets by an intragroup transfer. The immediate effect of the restructuring is that important assets of HS, in particular the shares in the company which owns the EKA PUTRA have left the ownership of HS, the primary obligor. As is apparent from the group structure charts [derived from group structure diagrams in the December notice] contained in a report by KPMG commissioned by the Owners, prior to the restructuring HS owned, in whole or in part:(i) Humolco, which is a ship management company;(ii) Cometco, which owned the EKA PUTRA(iii) Silverstone;(iv) Anadain Co Inc which owned the ASTA SAMUDRA;(v) Lucky Vision, which owned the DASA SAMUDRA;(vi) New Century Maritime Inc, which owned the GRIYA ASMAT;(vii) Genuine Maritime Ltd;(viii) Heritage Maritime Ltd, and(ix) First Topaz Inc. Companies (i), (ii) and (iv) are Liberian. The others are Panamanian.[106]According to HIT’s 30th June 2009 accounts Heritage and Genuine have very large claims outstanding against them ($ 30,777,566 and $ 25,300,000) and appear not to be going concerns. According to HIT’s 2008 accounts First Topaz’s assets at 31.12.08 were $ 5,913,769 (it is the registered owner of the “Nawa Samudra”, a small products tanker); Anadain had a claim against it by Hanjin for $ 25,300,000 (it owns the “Asta Samudra”, said to be worth about $ 7.4 million in June 2009); and Lucky Vision had total assets of $ 7,851,542. The DASA SAMUDRA appears to be its only substantial asset.[107]After the restructuring HS owns companies (iv) – (ix) but Lucky Vision and New Century no longer own the DASA SAMUDRA or the GRIYA ASMAT and the companies, with the possible exception of First Topaz, appear to be non-operational and subject to large claims. Companies (i) – (iii) and with them the EKA PUTRA have gone to HTK as have those two vessels. Valuable tangible assets have therefore, gone to an Indonesian as opposed to a Singaporean company. HS had a right to receive the sale proceeds of about $ 52.1 million, but for the most part not until November 2010 and from HTK a company which appears to have been balance sheet insolvent prior to the purchase.[108]The details of the restructuring are apparent from documents published in Indonesia in Indonesian in the November and December notices. No mention, however, was made of the restructuring at the meeting on 15th December. The defendants’ submissions[109]Mr Isaacs submits that none of this should lead to the conclusion that there is likely to be a dissipation of assets. Delayed payment at a time when the market has slumped is no sign of it. The crooked Board of Directors have long ago been removed. Registration as a foreign corporation was a sensible precaution. Captain Thana’s statements are disputed. There is nothing sinister in the restructuring. It was not kept secret since notice of it was published in the Indonesian Press. It had a legitimate purpose since it would enable the group to comply with the cabotage Law. The purpose of relieving HS of a burden was made patent. The words which, in translation, are somewhat obscurely quoted in para 104 above cannot be interpreted as a statement to the world that HIT or any member of the Group was about to dissipate its assets. The restructuring was carried out before the freezing order. There was no cause to mention it to the Owners in December since it had no material bearing on what was under discussion. Conclusion on risk of dissipation[110]I have come to the conclusion, on the totality of the material, that there is a real risk that both defendants will dissipate their assets in the sense that I have described. The history of the performance of the contracts shows an evasion by the defendants of their responsibilities under the contracts. Corruption and a problematic manager suggest a risk of dissipation. The defendants can pray in aid the dismissal of the previous directors and managers. If, after the dismissal of the boards, there was nothing to suggest that any risk remained, the dismissal would be a significant factor in the defendants’ favour. But events after February 2009 did not indicate that the risk had evaporated.[111]Captain Thana’s statements about the diversion of income from its proper recipients, of an intention to transfer assets in order to avoid the effect of a Rule B attachment and of his being urged to sign documents transferring HS assets to other companies in order to evade the Owners’ claims, and resigning on that account, provide solid ground for inferring a risk of dissipation. I do not accept that, because the evidence is given through Mrs Brookes and some of it is challenged, means that it can, for practical purposes be discounted. I regard it as significant that there is no direct evidence from Captain Thana as to these matters or any explanation of why he resigned. Nor is there any explanation as to why Mr Soeroso did so.[112]Had the fact that HS had registered itself in New York stood alone, I might have regarded it as of limited significance for present purposes. As it is, it seems to me part of a pattern of dealing (or wishing to be in a position to deal) with funds in a manner that prevents them from coming within the grasp of creditors and likely to have been designed to enable HS to move dollar funds around, otherwise than in the ordinary course of business, without their being subject to seizure. It is of a piece with the routing of hire coming in from sub-charterers of the vessels otherwise than to HS and thence to the Owners.[113]Last, but by no means least, the restructuring itself, whilst keeping assets within the group, appears, at least so far as the share sales are concerned, to have no real purpose other than to make it difficult for the Owners to enforce any judgement or award they may get against HS (or HIT) by removing from HS very significant assets otherwise than in the ordinary course of business. If the transaction was made in ordinary course I would expect it to have been referred to in the December negotiations. The stated explanation for the transfer of the shares is that it was made because of the cases against HS (and its subsidiaries) and in order that HS could deal with the cases against it without imperilling the whole operation of the HIT. Whilst that could mean no more than that the purpose was to leave HS staff free to concentrate on the defence of the claims against HS, it seems to me more likely to indicate that one of the purposes was to ensure that HS had little that could be seized in execution so that any attempt at enforcement would not interfere with HIT and its other subsidiaries.[114]The extraordinary nature of the transaction is indicated by the fact that, so far as is known, HTK is an insolvent corporation and the price is outstanding as a debt from it. It is also material that, although I have seen the November and December notices, no one from the defendants themselves has produced a witness statement dealing with the rationale of the transaction. The restructuring does not appear to have involved any breach of Gross J’s order and appears to be complete; but the fact that it was carried out confirms me in my view on the risk of dissipation of assets.[115]HS is a Singaporean corporation against whom an award or a judgment on an award could fairly readily be enforced if it had assets. By contrast enforcement against an Indonesian corporation is difficult. There is uncontradicted evidence that foreign court judgments are not enforceable in Indonesia. A claimant must re-litigate the issue in the Indonesian Courts, a process that may take many years. Whether or not a foreign judgment can be relied on as evidence is a matter of judicial discretion. The effect, and, as I infer, the object (or one of the objects) of the restructuring was to bring assets of HS upon which the Owners might seek to execute (either by virtue of an award against HS or a judgment against HIT, whose subsidiary HS is) into the scope of the Indonesian legal system. In the case of the DASA SAMUDRA and the GRIYA ASMAT the likelihood is that a prime reason for the transfer was because of the cabotage rules; but it seems to me likely that part of the reason for bringing those assets into an Indonesian corporation in December 2009 was to make them less easy to attach. The transfer of the SAPTA SAMUDRA during the suspension period in August seems to me to support that conclusion.[116]Accordingly I shall continue the freezing order of Gross, J in the amended form attached to the application notice of 2nd February 2010. The amount to be specified in the order[117]The defendants say that the amount specified in the order is too high. It is apparent from the e-mail of 22nd December that the Owners were putting their claim for repudiation at $ 35 million and willing to accept $ 21 million. At best the hire is about $ 11 million. Together they make a claim of $ 46 million. A figure of over $ 80 million is far too high.[118]The Owners resist this. They submit that it is illicit to use the content of the 22nd December e-mail (or what was said to similar effect at the 15th December meeting) when these were both without prejudice communications and have only been revealed because of the defendants' now unsuccessful challenge on the grounds of non disclosure. In any event it is necessary to see what was said in the e-mail which was:
“On the basis that one could obtain theoretically a T/C for $ 10,000 a day for the 17,000 ton DW vessels, which we are certain you will agree is not available in the market today, (the market figure is closer to $ 6,000 for four years which is the remaining period of the T/C) Humpuss would pay $ 6,000 per day x four ships x four years. This equates to $ 2.19M per year per ship, or $ 8.75 M per year for the four ships, which equates to $ 35 m for the four ships for the next four years. We can offer for Humpuss to pay approximately 58% of that or $ 21 M.”
[119]On the footing of a market figure of $ 6,000 one would reach a damages figure of ($ 16,700 - $ 6,000) x 365 x 4 x 4 = $ 62,488,000. When the hire figure is added the product is about $ 73,500,000.[120]I do not regard it as appropriate to ignore the without prejudice communications that have passed between the parties. They are in evidence as a result of a decision by the Owners to put in the note of the 15th December meeting. I do not, however, regard it as right to take as a figure the fraction of the claim which the Club was prepared to advise the Owners to accept. The figure included in a freezing order is intended to be an estimate of the highest figure for which the Owners have a good arguable case together, usually, with something to reflect costs likely to be incurred. In my judgment the figure should be reduced and the appropriate figure is $ 75,000,000. Disclosure of information[121]Gross J ordered the defendants by 1630 on 28th December to the best of their ability to inform the Owners’ solicitors of “all their assets worldwide exceeding $ 30,000 in value …giving the value, location and details of all such assets”. In purported compliance with that order Mr Deddy Sutrisno of HS swore two affidavits of 12th and 26th January 2010. The first affidavit specified about $ 6.425 million of assets in the form of bank accounts and motor cars belonging to both defendants, together with two vessels and certain bunkers belonging to HIT. He also, in para 14, appended a copy of HIT’s consolidated financial statements for the period ended 30th November 2009. In para 15 he said:
“Both HIT and HST have subsidiary companies which are not subject to the Order but whose assets and liabilities are reflected in the consolidated accounts referred to in para 15 [sic] above. Such companies will continue to trade in the ordinary way and their assets and liabilities may be subject to change.”
[122]In a letter from Clyde & Co of 19th January 2010 information was given about certain hire and freight receivables belonging to HIT and about an HIT time deposit at Bank Bumiputra, Cilandak Branch, Jakarta, which Mr Sutrisno confirmed in his second affidavit.[123]The Owners submit that that disclosure was not in compliance with Gross, J’s order; and that further information beyond that specified in the order should now be provided. As to non-compliance with the order they contend that supplying consolidated financial statements was inadequate. It was necessary to produce information which showed the assets of HIT and HS individually. They seek, inter alia, an order that the defendants should supply audited financial statements of HS, HIT, Silverstone, Cometco, Humolco and HTK.[124]The purpose of requiring information as to the assets of a company subject to a freezing order is to determine what assets are caught by it and to monitor compliance. Consolidated accounts by definition present all the assets and liabilities of a group of companies as if the group was a single entity. They will not, therefore, identify the individual assets of the parent (e.g. property and bank accounts which it owns or its shareholdings), or of any particular subsidiary or the value of those individual assets, although the total value of the assets of a group in the consolidated accounts will indicate the total book value of the assets of the companies owned by the parent.[125]I do not regard it as incumbent on a company ordered to give information as to its assets for the purposes of a Freeing Order to give details of the assets of its subsidiaries since they are not its assets - even though the value of the subsidiary’s assets will help to determine the value of the parent’s holding in the subsidiary. By the same token a subsidiary does not give information as to its assets by its parent producing a consolidated balance sheet.[126]Mr Howard submitted that it was necessary for a company such as HIT to provide accounts of its subsidiaries, and of its sub-subsidiaries in order to value its assets. I think that this goes too far. Prima facie the Owners are not entitled to the accounts of companies which are not defendants. In those circumstances I do not propose to order the defendants to produce financial statements of Silverstone, Cometco, Humolco or HTK.[127]It seems to me, however, that they must produce, if they exist, the latest(a) audited and(b) unaudited unconsolidated financial statements of (i) HS and (ii) HIT. In addition they must produce a list of the assets of HS and of HIT as at the date of the order with a value in excess of $ 30,000, including in particular any debts due to or receivables of either company, together with a statement or estimate of the true (and not merely the book) value of such assets and a brief explanation as to how that value has been arrived at. That does not mean that they are required to instruct valuers to carry out a formal valuation of any particular asset, or to go into exhaustive detail. But they are required to give information as to what the relevant assets are known or believed to be worth - a matter which they can realistically be expected to know – and how that value has been arrived at (which may involve estimation or a range of values).[128]One effect of producing only the consolidated accounts of HIT is that money due to HS from HIT group companies is not apparent. Since the restructuring transactions involved a transfer of assets to HTK at an apparent price of some $ 52 million of which the amount due in respect of the shares, of about $ 36.9 million, is, according to the December notice, not due for payment until November 2010, and the amount due in respect of the vessels is due in monthly instalments, there would appear to be a substantial body of assets of HS in respect of which no information has been given. Mr Sutrisno’s affidavits are silent on this topic.[129]Against that background it seems to me that the defendants should disclose the agreements between HS and HTK pursuant to which the shares in Cometco, Silverstone and Humolco were transferred to HTK, and any notices given by HIT to HS and/or HTK in relation to the restructuring, and any approvals given by HS and/or HTK in relation thereto. I do not think it appropriate to require disclosure, as sought, of all documents lodged by HIT with the Indonesian Stock Exchange relating to the restructuring. But the defendants should disclose all documents, including the relevant Memoranda of Agreement, evidencing the transfer of the DASA SAMUDRA from HIT or Lucky Vision to HTK and in respect of the transfer of SAPTA SAMUDRA from HS to HTK. As to the former the position is somewhat obscure. The DASA SAMUDRA is shown by Lloyd’s as owned by HIT in October 2009, having previously been owned by Lucky Vision. In the November notice the vessel is described as being purchased from Lucky Vision because approval had not been obtained from the HIT shareholders at an EGM for the sale by Lucky Vision to HTK.[130]In addition there should be disclosed(a) statements since 17th December in respect of HIT’s deposit of about $ 1.1. million held at Bank Bumiputra;(b) information as to the existence of any account of HS or HIT held at a bank in Connecticut (such an account being referred to in a judgment of the High Court of Singapore) together with details of the amount standing to the credit of such account and the latest available bank statement;(c) information as to whether any of the receivables listed by Clyde & Co in their letter dated 19th January 2010 have been received and copies of the underlying contracts pursuant to which Humolco, Asahi Marine Co Ltd and Mitsui OSK Ltd have made or are making payment.[131]In view of the fact that the disclosure so far given has not been sufficient to identify the individual assets of HS and HIT and their value it seems to me that the order should be in terms that the defendants do now make proper disclosure as ordered by Gross J (within a time period that I shall specify), including the matters to which I have specifically referred. Legal Costs[132]Exception 10 (1) to the Order reads: “This Order does not prohibit the Defendants from spending a reasonable sum on legal advice and representation. But before spending any money in excess of £ 50,000 the Defendants must tell the Applicants’ legal representatives where the money is to come from and the amount which it is intended to expend”.[133]The figure of £ 50,000 was increased to £ 100,000 at the hearing before Tomlinson, J on 13th January the defendants having asked that the figure be increased to £ 200,000. The Owners seek to have the £ 50,000 figure restored and to have the provider of the funds identified. It is said that, as this litigation and the arbitration proceeds, the sums involved in costs will escalate; it is unclear where the money is coming from to pay the costs; and there should be ampler information about it.[134]This application produced some debate as to what the order in its current form required and what it should require. The defendants interpret it to mean that before any individual payment in excess of £ 100,000 is made by them they must say where the money is to come from and the amount to be expended. Any payment which is less than £ 100,000 does not count; even if the aggregate of such payments exceeds £ 100,000. Payments made otherwise than by the defendants (e.g. payment by some HIT subsidiary other than HS) do not count either. The Owners say that the order either does or should provide that information must be given when the amount paid exceeds £ 100,000 (or, as they seek, £ 50,000) and each time the amount spent grows by another £ 100,000/£ 50,000. The defendants must also specify funds which are paid by others to satisfy their legal expenses.[135]The purpose of such an exception is to provide information as to the use being made by the party enjoined of monies which, but for the exception, might be regarded as a breach of the order. It does not apply to money expended by persons other than those enjoined. As it stands it applies to expenditure which is about to be made and not to sums that have been expended which at some stage reach the stipulated level. Expenditure by the defendants of £ 75,000 would not be caught, even if £ 75,000 had been expended before. There is, thus, a risk, which increases as the stipulated amount increases, that a series of payments will be made by the defendants none of which individually, is or exceeds £ 100,000 and none of which is revealed.[136]In those circumstances, it seems to me appropriate to retain the £ 100,000 figure but to add a provision to the effect that if and to the extent that any money spent by the defendants on legal advice and representation exceeds £ 100,000 or, thereafter, any whole number multiple of £ 100,000, the defendants must, to the extent that they have not already done so, tell the Owners’ legal representatives where the money has come from and the amount that has been expended.[137]I invite Counsel to draw up an order which gives effect to this judgment.

Cited in 7 later judgments