Linsen International Ltd & Ors v Humpuss Sea Transport Pte Ltd & Ors [2011] EWHC 2339 (Comm)

Case No 2009 FOLIOS 1652 & 1653; 2010 FOLIOS 1343-1346[2011] EWHC 2339 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
AND IN THE MATTER OF THE ARBITRATION ACT 1996
AND IN THE MATTER OF CERTAIN ARBITRATIONS
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 14/09/2011
Before
THE HON MR JUSTICE FLAUX
Between
(1) LINSEN INTERNATIONAL LIMITEDClaimants(2) NELSON COVE SHIOPHOLDING S.A.Claimant(3) ELSPETH SHIPPING CORPORATIONClaimant(4) ROFORD SERVICES S.AClaimant(1) HUMPUSS SEA TRANSPORT PTE LTDDefendants(2) P.T. HUMPUSS INTERMODA TRANSPORTASI TBK LTDDefendant(3) HUMPUSS TRANSPORTASI KIMIADefendant(4) SILVERSTONE DEVELOPMENT INC.Defendant(5) COMETCO SHIPPING INC.Defendant(6) LUCKY VISION MANAGEMENT CORPORATIONDefendant(7) FIRST TOPAZ INCORPORATIONDefendant(8) NEW CENTURY INC.Defendant(9) P.T. HUMPUSSDefendant(10) HUMPUSS INC.Defendant(11) GARNET INVESTMENTS LTDDefendant(12) HUTOMO MANDALA PUTRA (also known as TOMMY SUHARTO)Defendant(13) HUMOLCO TRANS INCDefendant
Mr Michael Howard QC, Mr Thurlough Stone and Ms Saira Paruk (instructed by Brookes & Co) for ClaimantsMr Dominic Kendrick QC, Mr Paul McGrath QC, Mr James Willan and Mr Tom Ford (instructed by Byrne & Partners) for 3rd-10th and 13 th DefendantsMr David Quest (instructed by Stephenson Harwood) for 11 th and 12 th DefendantsHearing Hearing dates: 5 th- 6 th and 19 th July 2011
JudgmentThe Hon Mr Justice:Flaux:Introduction
[1]The claimants applied at the return date of 5 July 2011 to continue the worldwide freezing injunction granted against the third to thirteenth defendants on an ex parte basis by HHJ Mackie QC on 9 June 2011. Any such continuation was resisted by the third to tenth and thirteenth defendants (for whom Byrne & Co act and who will therefore be referred to for convenience as “the Byrne defendants”) and by the eleventh and twelfth defendants, who were separately represented. At the outset of the hearing on 5 and 6 July 2011, it became clear that the Byrne defendants (and it would appear the eleventh and twelfth defendants) in particular had a number of challenges both to the freezing injunction (no good arguable case and failure to give full and frank disclosure), to joinder to the proceedings (no good arguable case) and to the permission to serve the claim form out of the jurisdiction also granted by the learned judge on 9 June 2011 (no good arguable case and England not the appropriate forum for the determination of the dispute).[2]However, none of third to thirteenth defendants had filed any evidence in support of any such applications and other materials had been served late, so that Mr Michael Howard QC for the claimants was not in a position to deal with all such matters, nor would a two day hearing have been sufficient to deal with all aspects in any event. It was agreed between counsel for the various parties that rather than adjourn the case, I should hear the parties’ submissions on the issue whether, for the purpose of continuing the freezing injunction beyond the return date, the claimants had shown a sufficiently arguable case against the third to thirteenth defendants.[3]The injunction had been sought and obtained on the basis that there had been abuse of the corporate structure of the Humpuss group of companies by the third to thirteenth defendants such as to entitle the court to pierce the corporate veil and to hold that the third to thirteenth defendants had become liable under the underlying charterparties and guarantees to which the first and second defendants respectively were parties and pursuant to which the claimants’ claims arise (in arbitration in the case of the charterparty claims and in this court in the case of the guarantee claims).[4]Thus, the question which the court had to decide at the return date hearing, was whether the claimants had shown a sufficiently arguable case on the merits to justify the continuation against the third to thirteenth defendants of the freezing injunction granted on that basis. I should add that the claimants had obtained a worldwide freezing injunction against the first and second defendants from Gross J (as he then was) on 17 December 2009. Those defendants applied to discharge the freezing injunction against them and that application was dismissed by Christopher Clarke J in a judgment dated 19 February 2010 ([2010] EWHC 303 (Comm)). I shall have to return to that judgment in detail later but simply note for the present that (essentially in the light of that judgment and despite the fact that his clients are not strictly bound by it) Mr Dominic Kendrick QC for the Byrne defendants accepts, for the purposes of the issue I have to decide as to whether the claimants show a sufficiently arguable case for continuation of the injunction, that there is a good arguable case against his clients of the risk of dissipation of assets.[5]To justify obtaining or continuing a freezing injunction, a claimant has to show a good arguable case on the merits. In Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft GmbH (“The Niedersachsen”) [1983] 2 Lloyd’s 600 at 605, Mustill J (as he then was) described a good arguable case for these purposes as “one which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success”. As the editors of the Civil Procedure 2011 volume 2 at paragraph 15-23 observe, this is the test of “good arguable case” which has been habitually applied subsequently in freezing injunction cases.[6]The threshold which the claimants have to demonstrate on the merits is thus a relatively low one and, where, as in the present case, the evidence put forward by the claimant in support of its application (here the detailed tenth affidavit of Marianne Brookes of the claimants’ solicitors and its voluminous exhibits) is unchallenged by evidence from the defendants, that is obviously a matter which the court has to have in mind in determining whether a good arguable case on the merits has been demonstrated. Both Mr Kendrick QC and Mr Quest submit that it has not.[7]At the end of the hearing on 6 July 2011, I indicated that my commitments were such that I would not be able to hand down a judgment on this matter until September. The parties urged me if at all possible to indicate before the end of the summer term what my conclusions were. This I did in a Ruling, which I handed down on 13 July 2011, a copy of which is appended hereto as Appendix 1. By that Ruling I stated that, whilst I considered that the claimants had shown a good arguable case that the various transfers of assets and shareholdings owned directly or indirectly by the first defendant to the third defendant in 2009 and 2010 were colourable transactions which amounted to an abuse of the corporate structure and whilst that conclusion might provide a basis for unravelling those transactions, I did not consider that that conclusion entitled the claimants to make the third to thirteenth defendants liable under the original charterparties or guarantees. The position was a fortiori one in relation to the guarantees since there was and is no evidence that any colourable transactions had diminished the asset base of the second defendant parent company which was the guarantor.[8]I concluded that, since the basis on which the freezing injunction had been obtained was that the claimants could show a good arguable case for piercing the corporate veil and making the third to thirteenth defendants liable under the original contracts and since I had concluded that the claimants did not have a good arguable case to that effect, in principle the injunctions should be set aside. However, exceptionally, I said that I would not set aside the injunctions until the claimants had had an opportunity to argue at a further hearing that they had an arguable case for joinder of those defendants who were involved in the colourable transactions and a freezing injunction against them, on the basis of the so-called Chabra jurisdiction (named after the decision of Mummery J in TSB Bank International v Chabra [1992] 1 WLR 231 although, as discussed below, the jurisdiction has developed somewhat since).[9]That further hearing took place on 19 July 2011. At the end of that hearing I indicated that, in the case of the third defendant alone, if it had been amenable to the jurisdiction of the English courts, the claimants would have had a good arguable case for a Chabra injunction against it. However, the insuperable problem which the claimants face is that the third defendant is resident in Indonesia and all the other proposed additional defendants are also resident outside the jurisdiction. To found jurisdiction against any of them before this court, the claimants would have to show a good arguable case for service out of the jurisdiction under one of the gateways in paragraph 3.1 of Practice Direction 6B to the Civil Procedure Rules. This the claimants simply cannot do.[10]It follows that the court has no jurisdiction to grant a Chabra injunction against any of the third to thirteenth defendants and that the freezing injunction granted by HHJ Mackie QC on 9 June 2011 must be discharged. This judgment now provides the detailed reasons for that conclusion.[11]Before setting out those detailed reasons, I should mention one development. At the hearing on 19 July 2011, I refused the claimants permission to appeal my rulings and also refused to continue the injunctions granted by HHJ Mackie QC. I indicated however that I would continue the injunction against the third defendant for 14 days to enable the claimants (if so minded) to make an application to the Court of Appeal to extend the injunction against that defendant pending the determination of any application to the Court of Appeal for permission to appeal.[12]On 2 August 2011, the claimants applied in writing to the Court of Appeal for permission to appeal my rulings and for renewal of the injunctions in the meantime. On the direction of Lord Neuberger MR those applications were heard by the Court of Appeal (Lord Neuberger MR and Stanley Burnton LJ) on 11 August 2011. The Court of Appeal refused permission to appeal and declined to renew the injunctions granted by HHJ Mackie QC.[13]As appears from their judgments, their reasons for reaching that decision were essentially:(1) That other than as between the first and third defendant, there were no grounds for piercing the corporate veil;(2) That even if there was a possible argument for piercing the corporate veil as between the first and third defendant, merely because the third defendant knowingly received assets of the first defendant for the purpose of avoiding liability under the charterparties which the first defendant had already entered and breached, there was no reason why that should render the third defendant liable under the charterparties;(3) That the only defendant who could possibly be held liable under the Chabra jurisdiction is again the third defendant, but there are no grounds for service out of the jurisdiction against the third defendant. Specifically, paragraph 3.1(10) of Practice Direction 6B of the Civil Procedure Rules (on which Mr Howard QC relied primarily before the Court of Appeal, in contrast to his submissions before me where the inapplicability of that sub-paragraph was conceded) is not applicable;(4) That whilst the Court of Appeal did not think it right to say they were completely satisfied the Chabra jurisdiction did not apply to the twelfth defendant, they considered that the case against him is remarkably weak, if susceptible to being successfully argued at all, so that it would be inappropriate for an injunction to be granted.

Piercing the corporate veil: the law

[14]Given that the basis upon which the claimants obtained the freezing injunction from HHJ Mackie QC was that they could pierce the corporate veil within the Humpuss group, so as to render the third to thirteenth defendants liable under the original charterparties and guarantees concluded with the first and second defendants respectively, it is probably sensible to begin the reasons for my decision with a consideration of the relevant legal principles on piercing the corporate veil.[15]The authorities on the circumstances in which the court will permit the corporate veil to be pierced were comprehensively reviewed recently by Munby J (as he then was) in Ben Hashem v Ali Shayif [2008] EWHC 2380 (Fam). He set out at paragraphs 159 to 166 of his judgment the principles to be derived from the cases, in these terms:
“159. In the first place, ownership and control of a company are not of themselves sufficient to justify piercing the veil. This is, of course, the very essence of the principle in Salomon v A Salomon & Co Ltd [1897] AC 22, but clear statements to this effect are to be found in Mubarak at page 682 per Bodey J and Dadourian at para [679] per Warren J. Control may be a necessary but it is not a sufficient condition (see below). As Bodey J said in Mubarak at page 682 (and, dare I say it, this reference requires emphasis, particularly, perhaps, in this Division): "it is quite certain that company law does not recognise any exception to the separate entity principle based simply on a spouse's having sole ownership and control." 160 Secondly, the court cannot pierce the corporate veil, even where there is no unconnected third party involved, merely because it is thought to be necessary in the interests of justice. In common with both Toulson J in Yukong Line Ltd of Korea v Rendsburg Investments Corporation of Liberia (No 2) [1998] 1 WLR 294 at page 305 and Sir Andrew Morritt VC in Trustor at para [21], I take the view that the dicta to that effect of Cumming-Bruce LJ in In re a Company [1985] BCLC 333 at pages 337-338, have not survived what the Court of Appeal said in Cape at page 536: "[Counsel for Adams] described the theme of all these cases as being that where legal technicalities would produce injustice in cases involving members of a group of companies, such technicalities should not be allowed to prevail. We do not think that the cases relied on go nearly so far as this. As [counsel for Cape] submitted, save in cases which turn on the wording of particular statutes or contracts, the court is not free to disregard the principle of Salomon v Salomon & Co Ltd [1897] AC 22 merely because it considers that justice so requires. Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities." 161 Thirdly, the corporate veil can be pierced only if there is some "impropriety": see Cape at page 544 and, more particularly, Ord at page 457 where Hobhouse LJ said: "it is clear … that there must be some impropriety before the corporate veil can be pierced." 162 Fourthly, the court cannot, on the other hand, pierce the corporate veil merely because the company is involved in some impropriety. The impropriety must be linked to the use of the company structure to avoid or conceal liability. As Sir Andrew Morritt VC said in Trustor at para [22]: "Companies are often involved in improprieties. Indeed there was some suggestion to that effect in Salomon v A Salomon & Co Ltd [1897] AC 22. But it would make undue inroads into the principle of Salomon's case if an impropriety not linked to the use of the company structure to avoid or conceal liability for that impropriety was enough." 163 Fifthly, it follows from all this that if the court is to pierce the veil it is necessary to show both control of the company by the wrongdoer(s) and impropriety, that is, (mis)use of the company by them as a device or façade to conceal their wrongdoing. As the Vice Chancellor said in Trustor at para [23]: "the court is entitled to "pierce the corporate veil" and recognise the receipt of the company as that of the individual(s) in control of it if the company was used as a device or facade to conceal the true facts thereby avoiding or concealing any liability of those individual(s)." And in this connection, as the Court of Appeal pointed out in Cape at page 542, the motive of the wrongdoer may be highly relevant. 164 Finally, and flowing from all this, a company can be a façade even though it was not originally incorporated with any deceptive intent. The question is whether it is being used as a façade at the time of the relevant transaction(s). And the court will pierce the veil only so far as is necessary to provide a remedy for the particular wrong which those controlling the company have done. In other words, the fact that the court pierces the veil for one purpose does not mean that it will necessarily be pierced for all purposes. 165 In Trustor, the defendant's plea (see para [16]) that Introcom had been formed in connection with an earlier scheme, having no connection with Trustor, and that it was a genuine company having its own separate existence, cut no ice with the Vice Chancellor, who nonetheless held that the corporate veil could be pierced. And as Warren J said in Dadourian at paras [682]-[683]: "[682] In all of the cases where the court has been willing to pierce the corporate veil, it has been necessary or convenient to do so to provide the claimant with an effective remedy to deal with the wrong which has been done to him and where the interposition of a company would, if effective, deprive him of that remedy against him. It seems to me that the veil, if it is to be lifted at all, is to be lifted for the purposes of the relevant transaction. It must surely be doubtful at least that the ex-employee in Gilford Motor Co v Horne would have been liable for the company's electricity bill simply because he was using the company as device and sham to avoid a covenant binding on him personally; and the same goes for the vendor of the property in Jones v Lipman. [683] It is not permissible to lift the veil simply because a company has been involved in wrong-doing, in particular simply because it is in breach of contract. And whilst it is clear that the veil can be lifted where the company is a sham or façade or, to use different language, where it is a mask to conceal the true facts, it is, in my judgement, correct to do so only in order to provide a remedy for the wrong which those controlling the company have done." 166 It is to be noted that, in the various cases to which I have referred, the attempt to pierce the veil succeeded only in Gilford, Jones v Lipman, Green, Gencor and Trustor. In all the other cases it failed. It is, I think, useful, to examine briefly why the claim succeeded in those cases where it did and why, in the other cases, it did not.”
[16]Munby J then examined those authorities before concluding, at paragraph 199 of his judgment:
“The common theme running through all the cases in which the court has been willing to pierce the veil is that the company was being used by its controller in an attempt to immunise himself from liability for some wrongdoing which existed entirely dehors the company. It is therefore necessary to identify the relevant wrongdoing – in Gilford and Jones v Lipman it was a breach of contract which, itself, had nothing to do with the company, in Gencor and Trustor it was a misappropriation of someone else's money which again, in itself, had nothing to do with the company – before proceeding to demonstrate the wrongful misuse or involvement of the corporate structure. But in the present case there is no anterior or independent wrongdoing. All that the husband is doing, in the circumstances with which he is now faced – the wife's claim for ancillary relief – is to take advantage, in my judgment legitimately to take advantage, of the existing corporate structure and, if one chooses to put it this way, to take advantage of the principle in Salomon.”
[17]The principle that the wrongdoing must exist dehors the company was applied by me, albeit obiter, in Lindsay v O’Loughnane [2010] EWHC 529 (QB) at paragraphs 134-140. The extent to which this limitation really emerges from the authorities was recently considered again by Burton J in Antonio Gramsci Shipping v Stepanovs [2011] 1 Lloyd’s Rep 647 where, at paragraph 15, the learned

judge said:

“The only apparent limitation that has been placed on the doctrine, given the necessary requirement that the trigger for it is not simply fraudulent dealing by a company but the fraudulent misuse of the company structure, as Morritt VC made clear, is that, using the gallicised words of Munby J in Ben Hashem at 199 (referred to by Flaux J in Lindsay v O'Laughnane[2010] EWHC 529 QB at 134) the wrong-doing must not be "dehors the company", i.e. something outside the ordinary business of the company. Whether the phrase "dehors the company" is ever a very helpful or meaningful expression, I do not know, but consideration of it is clearly inappropriate on the facts of this case, when the Corporate Defendants had, on the Claimants' case, no independent or non-fraudulent existence. The fraud was plainly "dedans" the company, but that was because the company was set up for that very purpose, in order to abuse the company's structure. ”
[18]It seems to me, on reflection that, at least in a case (of which Gramsci was an egregious example) where the whole purpose of the corporate structure is to perpetrate fraud, it cannot be correct that the ability to pierce the corporate veil is limited by the need that the wrongdoing is dehors the company. However the point does not matter in the present case since, on analysis, the relevant wrongdoing here (for reasons I will come to) was the transfer of assets from the first defendant to the third defendant with a view to frustrating enforcement against the first defendant. Thus the relevant wrongdoing was dehors the companies in respect of which the claimants seek to pierce the corporate veil.[19]For the purposes of the present case, the critical principle identified by Munby J (which is the one particularly recognised and applied in other cases to which my attention was drawn in submissions) is the fourth one that:
“if the court is to pierce the veil it is necessary to show both control of the company by the wrongdoer(s) and impropriety, that is, (mis)use of the company by them as a device or façade to conceal their wrongdoing.”
In other words it is not enough to show that a company or a group of companies is closely controlled by an individual or a family or by a holding company. If the element of control were sufficient in itself, the English courts would have accepted the concept of the “single economic unit” which, as I will demonstrate later in this judgment, has been consistently rejected by our courts. The claimant who wishes to pierce the corporate veil must show not only control but also impropriety, in the sense of misuse of the company or the corporate structure to conceal wrongdoing.

The parties and the underlying dispute

[20]The claimants are all companies in the group of which Empire Chemical Holdings Inc (“Empire”) is head. In the early summer of 2007 Empire entered negotiations with various shipyards for the construction of twelve chemical tankers for delivery between December 2008 and early 2011. An agreement was reached whereby seven of those tankers would be chartered to companies in the Humpuss group. The claimants are the owners of four of those vessels. On 9 October 2007 the first and second claimants entered time charterparties to charter their vessels, when built, to the first defendant and on 29 January 2008, the third and fourth claimants entered time charterparties to charter their vessels, when built, to the first defendant. In the case of at least two of the charterparties, the first defendant’s obligations were guaranteed by the second defendant, pursuant to guarantees which were subject to English law and jurisdiction.[21]It is necessary to describe the Humpuss group of companies in more detail. The first defendant is a Singapore registered company. It was set up in 1996 and is a wholly owned subsidiary of the second defendant which is an Indonesian registered company responsible for running the shipping interests of the Humpuss Group. The second defendant is publicly quoted on the Jakarta stock exchange. The ninth defendant, PT Humpuss is a major Indonesian trading company and the principal company in the Group. It is the majority shareholder of the second defendant with 68.55% of the shares and another company in the group, the tenth defendant (a Liberian company which is an investment holding company and in which the ninth defendant has a 45% shareholding) holds 10.1% of the shares in the second defendant. Of the balance of the shareholding, some 19% is owned by private investors in Indonesia. So far as the ninth defendant is concerned, 60% of the shares in that company are held by the twelfth defendant, Mr Putra, also known as Tommy Suharto, the son of the former president of Indonesia. The remaining 40% shareholding is held by the twelfth defendant’s nephew.[22]The third defendant is a company incorporated in Indonesia in which the second defendant holds a 99% shareholding. It is a shipping company which operates vessels within Indonesian waters. Pursuant to a restructuring of the group which took place from July 2009 to a date in 2010, it received assets previously owned by the first defendant or its subsidiaries which had a sale price of in the region of US$60 million. There is no evidence that it paid any part of that sale price or that it could have done, since as at 30 June 2009, it was balance sheet insolvent. It is this restructuring which the claimants contend was an abuse of the corporate structure entitling them to pierce the corporate veil.[23]The fourth defendant, Silverstone, is an investment company incorporated in Panama, but operated from the second defendant’s offices in Jakarta. Until December 2009, 100% of the shares in the fourth defendant were held by the first defendant. With the restructuring of the group of which the claimants complain, the entire shareholding was transferred to the third defendant.[24]The fifth defendant, Cometco and the thirteenth defendant, Humolco are companies incorporated in Liberia in 1986 which were co-owned by the ninth and/or tenth defendant and Mitsui OSK Lines and are the vehicles through which a joint venture between Humpuss and Mitsui for the building and operation of an LNG tanker was effected. The fifth defendant is the owner of the vessel EKAPUTRA. 95% of the shares in the fifth defendant are owned by the Humpuss group and 5% by Mitsui. The thirteenth defendant is the ship management company. 60% of the shares in the thirteenth defendant are owned by the Humpuss group and 40% by Mitsui. Again, with the restructuring of which the claimants complain, the Humpuss shareholdings were transferred from the first defendant to the third defendant.[25]Finally the eleventh defendant is not a company in the Humpuss Group. It is an investment company incorporated in the British Virgin Islands, the shares in which are wholly owned by the twelfth defendant. In circumstances which I will need to explain in more detail later, its operations have been effectively suspended since 2002.[26]The first vessel delivered to the first defendant was the EMPIRE PJAJARAN, owned by the third claimant delivered on 10 January 2009, followed by the EMPIRE MATARAM (owned by the first claimant) on 20 February 2009, the EMPIRE MAJAPAHIT (owned by the second claimant) on 20 March 2009 and finally the EMPIRE TULANG BAWANG (owned by the fourth claimant) on 14 May 2009. By the time the vessels were delivered to the first defendant under the charterparties, the freight market had collapsed, so that the first defendant would not have been able to sub-charter the vessels at rates which covered the time charter hire. The first defendant did not pay hire under the first three charters by the due dates and in April 2009, the claimants agreed reluctantly, on the first defendant’s threat of redelivery, to reduce the hire rates. Addenda to the charters were agreed accordingly.[27]Notwithstanding that agreement, the first defendant did not pay the amounts outstanding or the reduced hire. The details of the first defendant’s default and of the various meetings between the parties, leading to the claimants terminating the charters in November 2009 for the first defendant’s repudiatory breach are set out in paragraphs 7 to 32 of the judgment of Christopher Clarke J dismissing the first and second defendant’s applications to set aside the injunctions against them. For present purposes, I gratefully adopt what he says there, without setting it out again. The claimants’ claims for outstanding hire are just short of US$7 million. In addition each of the claimants has a claim for damages for repudiation of the charterparties of between US$17.5 million and US$25 million. The total claims in aggregate exceed US$80 million.[28]On 6 August 2009, the claimants had commenced arbitration under each of the charterparties and the same arbitrators were appointed in each case. In order to expedite the arbitration, the claimants initially applied for interim awards for outstanding hire only. Following a contested hearing before the arbitrators on 27 April 2010, the tribunal issued four First Final Awards dated 26 October 2010 awarding the claimants all the outstanding hire plus interest and costs. A hearing in relation to the other claims was scheduled for the end of July this year, soon after the hearings before me.[29]The first and second defendants have not honoured the Awards or paid anything pursuant to them. On 15 November 2010, the claimants applied to the court to convert the Awards into judgments and that application was granted by David Steel J on 17 November 2010. The claimants made similar applications to the Singapore and New York courts which have both entered judgments in the terms of the Awards. None of the judgments of this court or of those courts has been honoured.[30]The first and second claimants issued proceedings under the guarantees against the second defendant and, on 4 January 2011, issued an application for summary judgment under CPR 24.2. That application was heard by Christopher Clarke J on 24 February 2011. Although the second defendant had been served with the application, and had filed a defence it did not attend the hearing and took no part. On 28 February 2011, the learned judge entered judgment against the second defendants under the guarantees for the hire outstanding to those claimants plus interest and costs. Again, that judgment has not been honoured and notwithstanding the request of the Indonesian Stock Exchange for a full explanation, the second defendant appears to have told the Stock Exchange that it had filed a defence to those claims, which would have been untrue.

Piercing the corporate veil: the facts

[31]In their submissions before me, the claimants have focused their argument to the effect that the corporate veil should be pierced so as to render the third to thirteenth defendants liable under the original contracts, on the “restructuring” within the Humpuss Group which occurred after August 2009 and, in particular (ostensibly but somewhat conveniently) immediately before the first and second defendants received notice on 17 December 2009 of the freezing injunction against the first and second defendants granted by Gross J on 15 December 2009. In their application before Christopher Clarke J to discharge the injunction, those defendants argued that the reason for the restructuring (which involved, amongst other things, the transfer of beneficial ownership of the vessels owned by the sixth to eighth defendants from the first to the third defendants) was the introduction by the Indonesian government of “cabotage” rules coming into effect in 2010, whereby all activities in the domestic Indonesian market should be carried out by national shipping companies with Indonesian flagged vessels.[32]Although Christopher Clarke J was prepared to accept that this may have been a reason for the transfer of ownership of the one ship companies, it is obvious from paragraphs 113 to 115 of his judgment that he considered that this could not explain all the restructuring (specifically the sale of shares) and that one of the purposes of the restructuring was to ensure that the first defendant had little that could be seized in execution, assets having been transferred to the third defendant, an Indonesian company against which enforcement of any judgment would be difficult. On that basis, the learned judge concluded that there was a real risk of dissipation of assets. As I noted in paragraph 4 above, for the purposes of the present hearing, Mr Dominic Kendrick QC for the Byrne defendants (whilst reserving the right to adduce evidence in due course to demonstrate that the restructuring was for legitimate purposes) accepts that, on the basis of the restructuring which occurred, there is an arguable case against his clients of a risk of dissipation of assets.[33]I shall have to consider the restructuring in a little more detail later in the judgment in the context of the issue as to whether there was abuse of the corporate structure of the Humpuss group such as justify the piercing of the corporate veil and, if so, as against which defendants and with what effect. For the present, it should be noted that it is not sufficient for the claimants’ purposes to establish an arguable case that the corporate veil should be pierced as between the first and/or second defendants and one or more of the third to thirteenth defendants. The nature of the pleaded case against those defendants (and the basis upon which HHJ Mackie QC granted the freezing injunction against them) is that the effect of piercing the corporate veil against them is to render them liable under the underlying charterparties and guarantees, as if they had been parties to them.[34]It may well be an appreciation that this would be difficult to establish, in circumstances where any manipulation of the corporate structure which the restructuring involved occurred not when the original contracts were entered, but after they had been breached by the first and second defendants in 2009, which led the claimants to strive to demonstrate abuse of the corporate structure of the Humpuss group from a much earlier date. This is done at considerable length in Mrs Brookes’ tenth affidavit, setting out the history of the group from the 1980s onwards. This material is derived from a report by Yuri Sato, Deputy Director General of the Area Studies Centre of the Institute of Developing Economies, Japan External Trade Organisation entitled “Corporate Governance in Indonesia”, together with other materials such as the second defendant’s published accounts and the judgment of the Guernsey Court of Appeal in GarnetInvestments Limited v BNP Paribas (Suisse) SA and Government of Indonesia [2009-10] GLR 1.[35]On the basis of this material, Mrs Brookes seeks to build up a picture of corporate abuse within the group, with some fairly wide ranging and somewhat hyperbolic assertions and conclusions. I should say from the outset that I was unimpressed by any of this material, which seemed to me to fall considerably wide of the mark in establishing such abuse of the corporate structure at the time the original contracts were entered into in 2007 and 2008 as could give rise to an arguable case that, in effect, the true parties to the underlying contracts were not the first and second defendants or that the contracts or the parties to them were shams.[36]I will consider the effect of the authorities on piercing the corporate veil later in the judgment, but for the present I note that it would only be if the claimants could show an arguable case for wrongdoing in which the third to thirteenth defendants were implicated, such that the parties to the contracts or the contracts themselves could be regarded as shams that it would be possible to go on to establish an arguable case that one or more of the third to thirteenth defendants should be regarded as liable under the original contracts.[37]In the circumstances, I do not propose to deal in minute detail with all the wide ranging and somewhat amorphous allegations in Mrs Brookes’ affidavit. What I will do is to analyse the principal allegations, having sought to group them into topics in the same order as Mr Kendrick did in Appendix 1 to his Skeleton Argument.

Closeness of companies within the Group

[38]The claimants point to the closeness of the companies in the Group and the fact that, although the one ship companies which owned the vessels prior to the restructuring were incorporated in Panama, they carried on business in Indonesia, being operated by individuals who were also directors or officers of the second defendant, with a commonality of directors between the first and second defendants and the subsidiaries. However, I agree with Mr Kendrick that this is no more or less than the standard position in many shipping groups where, for fiscal or other reasons, the vessels are owned by one ship companies incorporated in Panama or Liberia or another “flag of convenience” state, but are centrally managed from the true place of business. Indeed, this appears to be precisely how the Empire group itself manages its shipping business.[39]Closeness of companies in a group in this fashion and control of management from the true place of business are not enough to justify the court disregarding the corporate structure. A contrary conclusion would involve giving effect to the “single economic unit” argument which, as I set out in more detail hereafter, English courts have consistently resisted.[40]There is certainly nothing in the evidence produced by the claimants which justifies Mrs Brookes’ allegation, in this context, that “the subsidiaries of the first defendant (and, it would appear the first defendant itself) had no independent existence” from the second defendant parent company. She relies upon the fact that the charterparty with another subsidiary of the first defendant, Heritage, was negotiated and signed by the second defendant. However, this was done pursuant to a ship management agreement between Heritage and the second defendant. I agree with Mr Kendrick that the fact that a one ship company is being managed by its ultimate parent is no evidence that it has no separate existence. Indeed the fact of such a management agreement indicates a recognition within the group of separate corporate existence.

Mixing of funds, transfer of funds and assets and circular loans

[41]The claimants make a number of allegations to the effect that companies within the group have received payments from other companies in the group or made payments on behalf of such companies. However, as Mr Kendrick points out, it is quite normal for companies in a group to use intra-group finance or even a central treasury. It is to be noted that the companies did not mix their funds; rather payments or receipts are recorded in the companies’ books and accounts as intra-group liabilities. Thus, in the case of the payment of charter hire on behalf of Heritage by the first defendant, when incoming sub-charter hire was received from Louis Dreyfus by the first defendant on behalf of Heritage, the first defendant’s ledgers show that this was used to reduce the intra-company debt of Heritage to the first defendant.[42]Although Mrs Brookes asserts that there was no logical reason for the first defendant to be advancing funds on behalf of Heritage, it emerges from the evidence that she sets out in her own affidavit that, by March 2009, the shortfall between the time charter hire payable by Heritage and the sub-charter hire it was receiving was some US$24,750 a day and this loss making position had subsisted since October 2008. There is nothing sinister in a parent company advancing funds to a subsidiary when the latter is loss-making.[43]As to why the first defendant was receiving the sub-charter hire on behalf of Heritage, in an affidavit in other proceedings in Singapore, Captain Thanabalasingham (“Captain Thana”), who until his resignation in December 2009 was a director and Chief Executive Officer of the first defendant, explains that, at the time, the authorised signatories on the bank account of Heritage were all directors of that company who had been removed, but the new directors had yet to be made authorised signatories. Mrs Brookes is critical of this explanation, contending that the first defendant’s ledger entries show payment out of the monies received to the second defendant, demonstrating that someone must have had signatory rights for Heritage. I agree with Mr Kendrick that the journal entries show nothing of the sort and that the credits and corresponding debits in the first defendant’s books are simply a function of double-entry accounting or book-keeping.[44]Mrs Brookes also refers to the fact that, in the first defendant’s accounts for various years, intra-group lending is shown, both as sums due from its subsidiaries to the first defendant and from the first defendant to the second defendant. She draws attention to the fact that such loans were unsecured and interest-free, but again there is nothing surprising, let alone sinister, in intra-group loans being on that basis. None of that is any basis for piercing the corporate veil. Equally there is nothing surprising or sinister in the accounting records of the various shipping companies in the group being maintained by the second defendant. That is merely indicative of central management and administration, common to many groups of companies, particularly those with a number of one ship companies.[45]Mrs Brookes alleges that there were circular loans, where funds were advanced by one company to another only to be subsequently repaid for no apparent commercial reason. She instances what she describes as “[the second defendant’s] so-called investment loan to Silverstone [the fourth defendant] to purchase Cometco’s [the fifth defendant’s] shares previously owned by [the second defendant].” I agree with Mr Kendrick that this allegation and a related one that “shares in [the fifth defendant] were passed from company to company in the Humpuss Group as and when it suited the commercial interests of [the ninth defendant] and those controlling the Humpuss Group” are thoroughly bad points.[46]As already stated above, the fifth defendant is the owning company for the LNG tanker EKATAPURA, operated pursuant to the joint venture with Mitsui. Mitsui has a 5% shareholding in the company and the directors are a mixture of Humpuss and Mitsui nominees. The company was transferred from the tenth defendant to the first defendant pursuant to two transactions:(i) an SPA for 51% of the fifth defendant’s shares between the first and the tenth defendants dated 30 June 1997 (as appears from the published accounts of the second defendant for 2001 and 2002, this was fully paid in cash in June 1997) and(ii) an SPA for 44% of the fifth defendant’s shares between the first and tenth defendants dated 2 November 1999 for payment by instalments between 1999 and 2009. The rights and obligations of the first defendant under the latter agreement were novated to the fourth defendant with effect from 30 June 2000. The instalments had been fully paid by 15 December 2009.[47]This transfer of shares took place after the first defendant was incorporated and the shipping arm of the Humpuss Group was set up and it is a fair assumption that the tenth defendant transferred the shareholding in order to consolidate the shipping interests of the group within the second defendant and its subsidiaries. The suggestion that the transfer was without a commercial purpose is belied by two matters, first that the transactions and specifically the novation to the fourth defendant (the investment company within the group) were approved by the minority shareholders of the fifth defendant, i.e. Mitsui and second that the transactions were for value, in total some US$125 million. Although the claimants contend that this was an overvalue, that contention is by reference to the book value prepared on a historic cost basis and not reflecting the true market value, and the fact that the minority shareholders approved the transaction is a further indication that the price represented the true market value of the fifth defendant’s asset, i.e. the LNG carrier.[48]There is a related series of allegations concerning the refinancing by the fifth defendant in 1996 of the loan used to build the LNG carrier through a bond issue of US$150 million first preferred mortgage notes by another company in the Group Humpuss Funding Corporation “HFC” (not a defendant). HFC is a Cayman Islands company wholly owned by the tenth defendant which at the time was a newly formed special purpose vehicle. I agree with Mr Kendrick that there is nothing sinister or surprising about this transaction which is properly recorded in the second defendant’s accounts.[49]In Mrs Brookes’ affidavit, the claimants invite the court to draw the inference that given the financial crisis at the time in Indonesia together with the increasingly perilous position of Mr Tommy Suharto as his father’s political power was failing, the real purpose for raising the US$150 million was to assist the tenth defendant or possibly other Humpuss Group companies with spiralling debt commitments. I decline to draw that inference, for which there is no justification in the evidence and (given that the refinancing is recorded in the second defendant’s accounts) which would involve concluding that the accounts had been falsified. To the extent that US$43 million of the finance raised was paid to the tenth defendant, this is properly treated in the accounts as a related-party loan.[50]Equally without foundation is the assertion by Mrs Brookes that the fifth defendant “has no independent existence” because it is operated from the offices of the second defendant and it is said that its accounts were controlled by the thirteenth defendant. So far as the former point is concerned that is no more than a consequence of common management of the group and the latter point is a consequence of the thirteenth defendant being the management company for the vessel. Neither point even begins to demonstrate an absence of independent existence, in any event a surprising assertion to say the least, in the context of a company owning and operating a LNG carrier as a joint venture with Mitsui in which Mitsui has a minority shareholding and of which some of the directors are Mitsui appointees.

Control by Tommy Suharto

[51]In her tenth affidavit, Mrs Brookes sets out a number of matters concerning the twelfth defendant and his history. I agree with Mr Kendrick that much of this can legitimately be described as “mud-slinging”. This includes reference, in the context of an allegation that the twelfth defendant “is not inexperienced in the diversion of funds”, to his conviction for corruption in 2000 and his subsequent conviction for planning the murder of the judge who had convicted him of corruption. The history of all this emerges from the judgment of Vos JA in the Guernsey Court of Appeal in GarnetInvestments Limited v BNP Paribas (Suisse) SA and Government of Indonesia [2009-10] GLR 1, which Mrs Brookes in fact quotes:
“On September 22nd, 2000, the Supreme Court of Indonesia found Mr. Putra guilty of corruption in what was known as the “Goro” case. It sentenced him to 18 months’ imprisonment and fined him IDR (Indonesian Rupiahs) 30.6bn. Mr. Putra went on the run, and was later convicted of planning the murder, on July 26th, 2001, of the Supreme Court Judge who had found him guilty. On November 20th, 2001, the Supreme Court verdict against Mr. Putra was quashed. On July 26th, 2002, the First Instance Court sentenced Mr. Putra to 15 years’ imprisonment for murder, fleeing justice, and illegal possession of firearms. That sentence was later reduced to 10 years. He was released from jail in October 2006...”
[52]Such behaviour is wholly reprehensible but it does not seem to me to establish a propensity on the twelfth defendant’s part to divert funds and manipulate the corporate structure to that end, as is being alleged. The claimants also rely upon various claims which had been advanced against the twelfth defendant by the Government of Indonesia in Indonesia (the prospective pursuit of which led to the granting of the freezing injunction in Guernsey which was under appeal in the Garnet Investments case) including the so-called TPN claim. To the extent that the claimants are relying on that claim as one involving diversion of company assets, I agree with Mr Kendrick that this mischaracterises the claim, which concerned an allegation of the acquisition by PT Vista Bella (with money allegedly supplied by Humpuss) of TPN’s debt to the Government of Indonesia: see paragraph 40 of Vos JA’s judgment.[53]Much is made by the claimants of control of the Humpuss Group by the twelfth defendant. As Mr Kendrick points out, given that, through the ninth defendant, he has a majority interest in the second defendant, he would be expected to exert significant influence, as is the case with many shipping groups ultimately controlled by one wealthy individual or family. That is no reason to conclude that the companies in the group are shams or facades or that it is appropriate to pierce the corporate veil.[54]The claimants rely upon the fact that, since his release from prison in November 2006, the twelfth defendant has instigated a number of successive changes of the management of the second defendant and its subsidiaries, apparently because of dissatisfaction with performance and corruption. Again there seems to me to be nothing surprising or sinister in the person who ultimately controls the group seeking to influence who is responsible for the management of the group. There is no evidence that the twelfth defendant himself was directing the day to day management or that those responsible were merely his puppets.[55]In that context, Mrs Brookes’ assertion, on the basis that the twelfth defendant chose the management, that “Mr Tommy Suharto was controlling and directing all of the companies and taking decisions on behalf of the companies” simply does not follow and is not supported by any evidence. As I have said there is no evidence that the new directors were merely the puppets of the twelfth defendant. Of those appointed as directors of the first and second defendants and subsidiary companies in 2006 and 2007, Mr Darjanto was a former director of Bank Negara Indonesia and Mr Andhika (who negotiated the charterparties with Empire) came from AP Moller-Maersk.[56]Those directors (including Mr Darjanto and Mr Andhika) were dismissed in January 2009. They were replaced by, amongst others, Captain Thana, who (according to a report made by Mr Koutroulis to Empire of a meeting with him) was instructed by the twelfth defendant to clean up the first defendant and who had convinced the twelfth defendant to “follow his lead and restructure Humpuss from top to bottom”. That is hardly a description of someone who was the twelfth defendant’s puppet. It is also the case, as recorded in paragraph 31 of Christopher Clarke J’s judgment, that when Captain Thana told Mr Polemis of Empire on 6 December 2009 that he had resigned as CEO of the first defendant in November 2009, he said it was because the second defendant was urging him to sign documents transferring assets from the first defendant to other companies with a view to evading the claimants’ claims. That also is scarcely consistent with Captain Thana simply being a puppet of the second defendant, let alone of the twelfth defendant.[57]The claimants seek to justify their allegation that the directors had little authority, by referring to fact that before the Indonesian courts, the second defendant is contending that Mr Darjanto and Mr Andhika had no authority to bind the second defendant to the guarantees. However, as Mr Kendrick points out this is a bad point, since the argument about absence of authority is that the guarantees were “material transactions” which required shareholder approval under Indonesian law. It is not being suggested that the directors were puppets or only had limited authority.

Over-inflation of assets

[58]It is contended by the claimants that the second defendant’s accounts, audited by Ernst & Young, overstate the value of the Humpuss Group. As Mr Kendrick points out there may be any number of reasons why this serious allegation is not correct, but for present purposes, it is not necessary to explore them. This is because, even if the accounts are overstated, there is no basis for treating all the companies in the group as a single economic unit, with each company being liable for the other’s debts, let alone that the substantial business of the ninth defendant should become liable for those debts, particularly given that the claimants have adduced no evidence that the ninth or tenth defendants are responsible for any misstatement of the second defendant’s accounts.

Alleged diversion of assets during the currency of the charterparties

[59]A substantial section of Mrs Brookes’ affidavit is devoted to an allegation that the inability of the first defendant to pay hire was not caused by the collapse of the freight market in the fourth quarter of 2008 and in 2009 but by the fact that, notwithstanding that the first defendant in fact made an operating profit of US$12 million from the claimants’ vessels in 2009, these monies were transferred by the first defendant to the second defendant or to the first defendant’s subsidiaries. As Mr Kendrick points out, even if the allegation were correct, it would not be a good reason for piercing the corporate veil between the companies in the Group, but in fact the allegation is misconceived.[60]To begin with, if notwithstanding time charter rates agreed before the freight market collapsed in the second quarter of 2008, the first defendant somehow made a profit on sub-charters entered after that collapse, the first defendant would indeed be exceptional in the market. If it had secured that level of profit, the idea that it would have thrown away such a golden opportunity by defaulting on its obligations to the claimants and paying away its profits to the second defendant instead is frankly ludicrous.[61]As the Byrne defendants point out, the reality is that 2009 was a difficult year for all shipping companies. The shipping group within Humpuss made an operating loss overall in that year of some US$6 million. The first defendant individually made an operating loss of some US$12 million. Accordingly, as Mr Kendrick points out, the short answer to the allegation of funds being diverted is that the first defendant’s business was loss-making overall, so that any profit made on the Empire vessels was eaten up by losses on other vessels. Without going further into the detail, I am quite satisfied that any suggestion that the second defendant (let alone the third to thirteenth defendants) was engaged in stripping assets out of the first defendant for some time before the first defendant was in breach under the charters with the claimants is simply not made out.[62]I have not dealt with every single allegation of corporate wrongdoing made by Mrs Brookes in her affidavit in this judgment but my overall conclusion is that despite some extravagant assertions of abuse of corporate structure in Mrs Brookes’ affidavit, on analysis the claimants cannot point to anything in the way in which the Humpuss group was being operated before or at the time the charterparties were made (or indeed when the vessels were delivered under the charters) which could justify the court disregarding the corporate structure and piercing the corporate veil.[63]In my judgment, the first evidence of anything which might be described as abuse of the corporate structure is when the so-called restructuring commenced in July 2009. It is to that which I now turn.

The restructuring

[64]In 2009, a restructuring of the companies within the shipping arm of the Humpuss Group occurred, which the Byrne defendants contend was in order to comply with the forthcoming cabotage rules being introduced by the Indonesian government in 2010. The claimants on the other hand contend that the transfer of assets which took place from the first defendant and its subsidiaries to the third defendant was carried out for the specific purpose of frustrating the claims of creditors of the first defendant, including the claimants.[65]The first transaction which is sought to be impugned is the purported sale of the vessel SAPTA SAMUDRA, owned by the first defendant, to the third defendant by a Memorandum of Agreement (“MOA”) and bill of sale dated 24 July 2009. On 1 July 2009, the third defendant had passed a resolution approving the purchase at a price to be agreed by an appraiser. There is no evidence that this vessel (or any of the other vessels subsequently transferred to the third defendant) was ever in fact valued by an appraiser or that an appraiser agreed the purchase price. On 24 July 2009, the directors of the first defendant (who included Captain Thana) passed a resolution to sell the vessel to the third defendant for US$4,020,000 and the MOA and bill of sale were dated the same day.[66]A number of aspects of the transaction are odd. Clause 2 of the MOA provides for the purchase price to be paid by telegraphic transfer to “the said bank within one year after the notice of readiness for delivery”. Though no bank or bank account is identified, this obviously contemplated that the purchase price would not be payable until a year after delivery. Clause 6 provides that in exchange for payment of the balance of the purchase money (although no deposit seems to have been payable), a legal bill of sale would be provided and thus contemplates that title in the vessel would not pass until the entire purchase price had been paid, which according to clause 2 would not be for a year.[67]However, according to Lloyd’s Register, title to the vessel was registered in the name of the third defendant in August 2009. Furthermore, on the same day as the MOA was signed, Captain Thana and Ms Ong Beng Hong, another director of the first defendant, executed a bill of sale which ostensibly acknowledged receipt of the purchase price, as did an undated commercial invoice signed by Captain Thana and issued to the third defendant. The protocol of delivery and acceptance shows that the vessel was delivered on 12 August 2009.[68]Although the vessel was transferred to the third defendant, it is extremely unlikely that any part of the purchase price was paid at the time or has been paid since. As Christopher Clarke J found at paragraph 103 of his judgment, as at 30 June 2009, the liabilities of the third defendant exceeded its assets by the equivalent of about US$6 million, so that it was balance sheet insolvent. As he says: “No explanation has been given as to how it would fulfil the purchase it was to make”.[69]By 14 September 2009, just short of US$8 million was outstanding in hire on the claimants’ vessels. The claimants’ P&I Club was demanding payment and, in late September 2009 exercised a lien on sub-freights. The first defendant was not even paying operating expenses by this stage, and on 2 October 2009, the EMPIRE MATARAM was arrested by bunker suppliers. On 1 October 2009, the third defendant passed a resolution to mortgage its vessel GRIYA DAYAK and to purchase the vessels DASA SAMUDRA from the sixth defendant, NAWA SAMUDRA from the seventh defendant and GRIYA ASMAT from the eighth defendant, all at prices to be agreed by an appraiser. On 2 October 2009, the third defendant passed further resolutions to purchase the first defendant’s 100% shareholding in the fourth defendant, 51% shareholding in the fifth defendant and 60% shareholding in the thirteenth defendant, all at prices to be determined by an independent appraiser.[70]On 6 October 2009, the second defendant as sole shareholder of the first defendant passed a resolution approving the sale of the three shareholdings to the third defendant and the sale of two of the vessels, the DASA SAMUDRA and the GRIYA ASMAT to the third defendant. The board of directors of the first defendant was given authority to determine the appropriate price for the anticipated transactions and to enter the relevant sale and purchase agreements (“SPAs”). This resolution does not seem to have been lodged with Companies House in Singapore, although a similar resolution to sell the SAPTA SAMUDRA was lodged.[71]On the following day, 7 October 2009, the sixth defendant entered into an MOA to sell the DASA SAMUDRA to the third defendant at a price of US$3,920,000. 10% of the purchase price was to be paid as a deposit or “down payment” with the balance payable in 11 monthly instalments after delivery. As with the SAPTA SAMUDRA MOA payments were to be made to the “said bank” but no bank was identified.[72]Similar oddities surround this transaction as did that involving the SAPTA SAMUDRA. Clause 6 again appears to contemplate that the legal bill of sale which would pass title would not be provided until the purchase price had been paid in full. As with the earlier vessel, there is then a bill of sale also dated 7 October 2009 which purports to record the payment by the third defendant of the entire purchase price, as does a commercial invoice bearing the same date. It appears from the bill of sale that title was transferred on 7 October 2009, although the protocol of delivery and acceptance records delivery and transfer of title on 12 October 2009. However, there is no evidence that any part of the purchase price (including the deposit) was ever paid by the third defendant, which was insolvent.[73]There is an odd “Amendment II” to this MOA dated 14 December 2009 one of the recitals to which records that the parties agreed that the execution of the transaction was subject to various laws and regulations applicable to the second defendant as holding company concerning affiliated transactions and material transactions, which regulations had been passed on 25 November 2009, the best part of two months after title to the vessel had ostensibly passed. Christopher Clarke J dealt with these Regulations and the fact that they removed the need for a General Meeting of Shareholders to effect a restructuring in paragraphs 95 to 98 of his judgment, which I gratefully adopt.[74]On 12 November 2009, the claimants served claim submissions in the arbitration and on 13 and 16 November 2009, the charterparties were terminated by the claimants for the first defendant’s repudiatory breach. On 17 November 2009, Captain Thana resigned, apparently because the second defendant was urging him to sign documents transferring the assets of the first defendant to other companies to evade the claimants’ claims. On the same day, the first defendant entered into three SPAs to sell and transfer its shareholdings in the fourth, fifth and thirteenth defendants to the third defendant. The purchase price was US$8.9 million for the 100% shareholding in the fourth defendant, US$27.3 million for the 51% shareholding in the fifth defendant and US$$600 for the 60% shareholding in the thirteenth defendant. Each SPA provided that the purchase price was to be paid at the latest by 5 November 2010 and that the date of the transfer of the shares was to be the date of payment of the purchase price.[75]The first and second defendants’ case before Christopher Clarke J as recorded in paragraph 98 of his judgment was that the effective date of all the transactions comprising the restructuring, including the transfers of shares under the SPAs was 14 December 2009, three days before the first and second defendants were put on notice of the freezing injunction against them. If it were correct that the effective date of the transfer of the shares was 14 December 2009, then, given the terms of each of the SPAs referred to in the previous paragraph, the purchase price under all the SPAs totalling some US$36 million should have been paid by that date.[76]However, it is clear that none of the purchase price under the SPAs had been paid by that date and, given that the third defendant was balance sheet insolvent, it is difficult to see how it would have had the wherewithal to make such payment. Furthermore, it is clear from the disclosure affidavits provided by Mr Sutrisno of the Corporate Finance and Accounting Department of the second defendant that, at least by the date of the fourth such affidavit, 7 May 2010, the purchase price of the shareholdings remained a debt due from the third defendant to the first defendant. Given the insolvent state of the third defendant, it seems to me inherently unlikely that any of the purchase price was paid by the final due date of 5 November 2010 or has been paid since.[77]According to the accounts of the second defendant to 31 December 2009, on 2 December 2009 the eighth defendant entered into an MOA to sell the GRIYA ASMAT to the third defendant for a purchase price of US$11,856,000. As before, the effective date of this transaction is said in the accounts to have been 14 December 2009. Although the claimants have not managed to obtain any of the contractual documentation relating to this ostensible transfer of the vessel, I agree that it is likely that the terms were similar to those relating to the other vessels. Furthermore, although the vessel has been transferred to the third defendant, it is inherently unlikely, given that the third defendant is insolvent, that any part of the purchase price for that vessel has been paid.[78]According to the second defendant’s accounts, the seventh defendant entered an MOA dated 16 December 2009 to sell its vessel NAWA SAMUDRA to the third defendant for US$2,100,000 and the effective date of the transaction was the same date. However, although the claimants have not managed to obtain any of the contractual documentation, Mrs Brookes ascertained that, presumably according to Lloyd’s Register, ownership of the vessel was not transferred until March 2010. The first and second defendants have maintained through their solicitors that the transfer was not in breach of the freezing injunction, on the basis that the vessel had been sold prior to service of the injunction, but there had been a delay in completion of its registration. Once again, it is inherently unlikely that any part of the purchase price has been paid.[79]In addition to the ostensible transfers of shares and vessels, according to the second defendants’ accounts the first defendant entered an agreement dated 16 December 2009 with the third defendant to sell its 45% shareholding in a company called MCGC II Inc for US$2,700,000. Again the effective date is said to be 16 December 2009. Once again it is unlikely that any part of the purchase price has been paid.

Conclusion on abuse of corporate structure

[80]The overall effect of these ostensible transfers from the first defendant to the third defendant is clear. As Christopher Clarke J noted in paragraph 107 of his judgment in relation to the transfers then known to have occurred, the transfer of the shareholdings in the fourth, fifth and thirteenth defendants means that the first defendant’s interest in the LNG carrier EKAPUTRA has passed to the third defendant. The vessels owned by the one ship subsidiaries have likewise gone to the third defendant, as has the shareholding in MCGC II. In effect, the Singaporean company has been “cleaned out” of assets worth some US$60 million which have been transferred to an Indonesian company which was balance sheet insolvent and which would appear not to have paid any part of the consideration for the ostensible transfers. So far as the first defendant is concerned, it would now appear to be no more than a shell. Indeed, according to the Affidavit of Mr Hinsa Oloan Lubis, a director of the first defendant, in answer to the first claimants’ questionnaire served pursuant to the order of the court in enforcement proceedings in Singapore, the company ceased trading in about the end of November 2009 and only has two skeleton staff.[81]Whilst the Byrne defendants, like the first and second defendants before Christopher Clarke J, wish to maintain that the transfers were legitimate in the light of the cabotage rules, I agree with him that part of the reason for the transfers of the vessels was to make it more difficult to enforce any judgment against the first defendant. Furthermore, the share transfers do not (as he said in paragraph 113 of his judgment) appear to have had any real purpose other than to make it difficult for the claimants to enforce any judgment or award. In addition, whilst Christopher Clarke J considered (at paragraph 114) that there was no evidence that the restructuring involved a breach of the freezing injunction, it seems to me at least arguable that the ostensible transfer of the NAWA SAMUDRA and of the shares in MCGC II were in breach of the injunction, although it is not necessary to decide that for present purposes.[82]It follows from the preceding analysis that, essentially for the same reasons as given by Christopher Clarke J, I am satisfied that the claimants can show a good arguable case(i) that the purported sales of vessels and transfers of assets to the third defendant were shams or facades designed to render enforcement against the first defendant more difficult and(ii) that the corporate structure of the Humpuss group was misused from July 2009 until some time in 2010 to that end.[83]In those circumstances, it seems to me that, at least as between the first defendant on the one hand and the third defendant on the other, there is an arguable case for piercing the corporate veil. Mr Kendrick sought to argue that, nonetheless, there was no basis for piercing the corporate veil because those individuals or entities who participated in that abuse or misuse of the corporate structure made no attempt to conceal what they were doing, so that the element recognised by Munby J of the corporate structure being misused to conceal the wrongdoing was lacking. I do not accept that submission.[84]However two difficult questions remain. First, whether there is any basis for extending any piercing of the corporate veil within the Humpuss Group beyond the third defendant. Second, even if the corporate veil is to be pierced as between the first defendant and some or all of the third to thirteenth defendants, what is the effect of doing so, specifically whether by piercing the corporate veil, any of those defendants can be made liable as if parties to the original charterparties and guarantees.

No basis for piercing corporate veil in relation to the guarantees

[85]Before considering those questions in turn, I should mention a caveat as regards any suggestion that the effect of piercing the corporate veil could be to make one or more of the third to thirteenth defendants liable under the guarantees of the first defendant’s liability by the second defendant. There is no suggestion by the claimants, let alone any evidence adduced by them, that the second defendant has sought to evade its liability under the guarantees by transferring its assets or by diminishing its asset base in Indonesia or that the restructuring has had that effect. In those circumstances, there is simply no basis for piercing the corporate veil in relation to the second defendant’s assets, there being no wrongdoing in relation to those assets.

Is there any basis for piercing the corporate veil against the other defendants?

[86]Although for the reasons I have given, there is an arguable case that in transferring the assets of the first defendant to the third defendant, there was abuse of the corporate structure by the first and third defendants, it is difficult to see how any other of the fourth to thirteenth defendants (with the possible exception of Mr Tommy Suharto, the twelfth defendant) can be said to have been implicated in that misuse of the structure. Equally, merely because the second defendant as holding company and 100% shareholder of the first defendant was implicated in the misuse, it does not seem to me to follow that there should be in effect “open sesame” on its assets, let alone the assets of its shareholders or its direct or indirect subsidiaries who were not implicated in the misuse.[87]So far as the fourth, fifth and thirteenth defendants are concerned, their shares were transferred and there is no evidence that they were separately or distinctly involved in any wrongdoing. Rather they assumed a passive role and I cannot see any basis for piercing the corporate veil as against them.[88]Equally, whilst the sixth seventh and eighth defendants entered the MOAs which transferred their vessels to the third defendant, so that, to that extent, they were implicated in the wrongdoing, it is fairly clear that the transfer was being orchestrated by the first and second defendants. It seems to me just arguable that the corporate veil should be pierced against them, although that serves no useful purpose in that having transferred their vessels they are no more than shell companies.[89]The ninth defendant (PT Humpuss) and the tenth defendant (Humpuss Inc) are two of the principal shareholders in the second defendant. Whilst no doubt their assets (particularly those of the ninth defendant) are such that the claimants would wish to make them liable under the underlying contracts, in my judgment, the claimants have not adduced any evidence to implicate those two corporate entities (which are distinct from the other defendants) in any manipulation of the corporate structure to put the first or second defendant’s assets out of reach or make enforcement more difficult. There is no basis for piercing the corporate veil against them.[90]Similarly, the eleventh defendant Garnet is an investment company incorporated in the British Virgin Islands. It is not in fact a member of the Humpuss group, but is wholly owned by the twelfth defendant. As described in more detail below, its assets and operations have been effectively frozen since 2002 and it neither had nor could have had any involvement in the manipulation of the corporate structure of the Humpuss group as regards the assets of the first defendant.[91]In argument both before HHJ Mackie QC on the ex parte application and before me, Mr Howard QC contended that Garnet and Mr Tommy Suharto were one and the same. He described Garnet as one of Mr Suharto’s “pockets”. It is contended by the claimants that before the Guernsey courts it has either been found or accepted on behalf of Garnet that there is no distinction between Garnet and Mr Suharto, such that Mr Suharto should be treated as the alter ego of Garnet.[92]This contention requires a closer examination of the history of Garnet and of the proceedings in Guernsey in which it has been involved, which are usefully set out in the judgment of Vos JA in GarnetInvestments Limited v BNP Paribas (Suisse) SA and Government of Indonesia [2009-10] GLR 1 at paragraphs 7 to 23. In brief summary, in 1998, Garnet opened an account with BNP in Guernsey. In 1998 and 1999 the proceeds of sale by Mr Tommy Suharto of his interest in the Lamborghini and Superbike International businesses were deposited into that account. A further £8 million was loaned by Mr Suharto to Garnet and appears to have been paid into that account. In 2002 and 2003, Garnet instructed BNP to pay the monies in the account (some €37 million) out of the account, which BNP refused to do because it was concerned that the Government of Indonesia might have a claim to the monies. It notified the Financial Intelligence Service (“FIS”) in Guernsey which has effectively imposed an informal freeze on the monies in the account since 2002.[93]In 2006, Garnet commenced proceedings against BNP in Guernsey, seeking a declaration that the bank should comply with its instruction to pay the monies out of the account. In January 2007, the Government of Indonesia applied successfully to be joined to the proceedings and obtained an interim injunction restraining disposal of the monies in the BNP account pending resolution of substantial claims it said that it intended to bring in Indonesia alleging corruption.[94]In 2008, Garnet applied to the Guernsey court to discharge the injunction, but that application was unsuccessful. It was that judgment which was the subject of the appeal to the Guernsey Court of Appeal. By its judgment in January 2009, the Court of Appeal allowed the appeal, essentially on the grounds that the claims against Mr Tommy Suharto had either failed in Indonesia or never materialised and that the Government had not been frank with the court.[95]I have already noted that the claimants rely upon the judgment of Vos JA to contend that Mr Suharto and his companies are familiar with the diversion of funds and in support of the criticisms which they level against him. It is also evident that they rely upon that judgment in support of their contention that before the Guernsey courts, it was held by the court or accepted on behalf of Garnet that Garnet and Mr Suharto were to be regarded as one and the same.[96]Mrs Brookes’ affidavit emphasises two passages in the judgment in this context: [30] The claims that the Government makes against Garnet or Mr. Putra, who owns Garnet, are obviously crucial to the court’s ability to grant a freezing order against Garnet. It has not been seriously suggested that the distinction between Mr. Putra and Garnet, a company he admits to owning and controlling, should affect the way we view these issues. [118] But if the pure question of dissipation were to be decided, I would agree that the risk of dissipation that the Lieutenant Bailiff found in 2007 persisted in 2008. The fact remains that, despite being given every opportunity to do so, Garnet has not identified the purpose of the transfer to Singapore. There is nothing in the point made under this head that Garnet and Mr. Putra are not the same. Mr. Putra controls Garnet. If anything, the risk is greater that a creature company would dissipate its assets.[97]I agree with Mr Quest that in those passages, Vos JA was not saying that Mr Suharto and Garnet should be regarded as one and the same and those citations themselves demonstrate that that proposition was not being accepted on behalf of Garnet. Vos JA was simply making the fairly obvious point that the question of whether freezing relief should be granted against Garnet had to be judged in the light of the fact that Mr Suharto was the sole shareholder of the company. There was no discussion of whether the corporate veil between Mr Suharto and the company should be pierced, which was not an issue which arose before the Guernsey Court of Appeal. Accordingly, in my judgment, there is no basis for the claimants’ assertion in the present case that Mr Suharto and Garnet are to be regarded as one and the same.[98]Equally, there is simply no evidential basis for the assertion made by Mr Howard QC before HHJ Mackie QC that:
“Garnet and Mr Suharto are interchangeable, and when we follow this through, the siphoning off of funds which has occurred, we say that the overwhelming probability is [Garnet is] one of the places they’ve ended up”
. Although the restructuring may have involved “repatriating” assets of the first defendant and its subsidiaries to the third defendant in Indonesia, making enforcement more difficult, it does not seem to me that such restructuring can properly be described as “siphoning off” of group funds. However, even if it could properly be described as “siphoning off” funds and even if Mr Suharto were to be regarded as the alter ego of Garnet, it is difficult to see what basis there could be for the assertion that it is overwhelmingly probable that such funds had ended up with Garnet.[99]Although the injunction obtained by the Government of Indonesia was discharged as a consequence of the judgment of the Guernsey Court of Appeal, the informal freeze imposed by the FIS since 2002 remains in place, from which it follows that the monies in the Garnet account with BNP have not been moved. Equally, in what would seem to me the extremely unlikely (as opposed to overwhelmingly probable) scenario that Humpuss group funds had been transferred to Garnet at some point over the last two to three years, any monies coming into the BNP account would have come to the immediate attention of the FIS. There is no evidence of any movement on the BNP account. Accordingly, in my judgment, there is no basis whatsoever for any claim that Garnet should be liable under the original contracts or for a freezing injunction against Garnet.[100]That leaves the twelfth defendant himself. In my judgment, the claimants’ case that the transfer of assets from the first to the third defendant was all engineered by the twelfth defendant depends upon an inference that this must be so because ultimately he controls the companies in the Humpuss Group. At present, there is no evidence of his direct participation in the transfers or any wrongdoing. Even if he were implicated, it seems to me that it does not follow that his assets and the assets of all the companies should be regarded as one and the same.[101]Ultimately however, it is not necessary to reach a final decision as regards the twelfth defendant because, for the reasons set out in the next section of the judgment, I do not consider that even if the corporate veil were to be pierced as against or between one or more of the third to thirteenth defendants, it is arguable that the effect of doing so should be to make those defendants liable under the underlying contracts.

The effect of piercing the corporate veil

[102]For the reasons already given, it is arguable that the transfers of assets from the first to the third defendant amounted to an abuse of the corporate structure of the companies in the Humpuss group designed to make it more difficult to enforce any arbitration awards against the first defendant. However, the court has to consider whether the effect of that abuse of the corporate structure (and the piercing of the corporate veil which may ensue as a consequence) goes beyond the unravelling of the transactions implicated in that abuse, namely the purported sale of the vessels and the transfer of shares in companies. In particular the critical question raised by the claimants’ case in these proceedings is whether that abuse of the corporate structure can in some way lead to the Byrne defendants (or some of them) or the eleventh or twelfth defendants being held liable as if they were parties to the original charterparties and guarantees.[103]As I have already indicated earlier in the judgment, at the time that those original contracts were entered into in 2007, there was no question of any abuse of the corporate structure. The charterparties were with the first defendant, the Singapore shipping arm of the Humpuss group, a distinct corporate entity both from the second defendant parent company and its shareholders or the twelfth defendant (even on the assumption that he was in ultimate control of the group). Equally, the guarantees were provided by the second defendant, a publicly listed company in Indonesia. To the extent that vessels or assets were held in one ship companies registered in “flag of convenience” jurisdictions such as Liberia or Panama or in other companies in the group, there was nothing to distinguish the shipping arm of the Humpuss group from the corporate structure of many shipowning groups or families, including that of the claimants themselves.[104]There is simply no basis for impugning the genuineness of the original charterparties or guarantees or for suggesting that those contracts were shams or that the true parties to those contracts from the outset were one or more of the third to thirteenth defendants. To that extent, there is a fundamental distinction between the present case and a number of cases where, in piercing the corporate veil the court has held the true party to the transaction liable. In those cases (of which the most recent example is the decision of Burton J in Gramsci) the rationale for holding the true party liable has been that the purported contract was a sham or facade from the outset.[105]In a case such as the present, where the original transactions were genuinely made with the first or second defendants, the issue is to what extent, if at all, a subsequent abuse of the corporate structure (designed on this hypothesis to make it more difficult to enforce any award or judgment against the existing first or second defendants) can lead to the parties in the group who have participated in that abuse becoming liable under the original transactions, as if they had been parties to them from the outset.[106]Untrammelled by authority, my very firm view would be that whilst an abuse of the corporate structure by transferring assets within the group without a legitimate reason may very well entitle the claimant to unravel the relevant transfers of assets, it would not be possible to somehow make the proposed third to thirteenth defendants liable under the original contracts. Accordingly, the question is to what extent authority leads to a different conclusion.[107]One case where the piercing of the corporate veil was held to make one company of a group liable under the other’s contract is the decision of Mr Richard Southwell QC sitting as a Deputy High Court Judge of the Chancery Division in Creasey v Breachwood Motors Ltd [1992] BCC 638. The claimant worked as general manager for a company called Welwyn. Another company called Motors carried on a similar business. Both companies were controlled by the same shareholders, Ford and Seaman. The claimant was summarily dismissed and issued proceedings for wrongful dismissal against Welwyn. Thereafter Welwyn ceased trading and the next day Motors took over its business and traded under the same trading name. Motors paid Welwyn’s creditors but made no allowance for the claimant’s claim.[108]Having cited the various authorities on lifting the corporate veil, including Adams v Cape Industries [1990] Ch 433, the judge held that the corporate veil should be lifted and that Motors was liable for the remaining liability of Welwyn to the claimant. He said this in the course of his judgment: ‘Nothing I have seen in the evidence could justify their conduct in deliberately shifting Welwyn's assets and business into Motors in total disregard of their duties as directors and shareholders, not least their duties created by Parliament as a protection to all creditors of a company.” Welwyn was not put into liquidation. As a subsisting company it was entitled to retain its business and assets, so that they might be available to pay a dividend, however small, to such of Welwyn's creditors as Motors decided not to pay. Mr Ford and Mr Seaman decided instead to remove the business and assets of Welwyn to Motors, and, realising that the business could not be carried on satisfactorily unless Welwyn's trade creditors were paid, paid all their then actual creditors, but left Mr Creasey facing a defendant without assets. They did so in the full knowledge of Mr Creasey's claim. On the state of evidence before me the inference could readily be drawn that one of the reasons why Mr Ford and Mr Seaman acted in the way they did was in order to ensure that Mr Creasey if he succeeded in his claim would not be able to recover anything. But I consider that it would be wrong to draw so strongly adverse an inference at this stage on only the affidavit evidence. In all the circumstances, however, this is a case in which the court would be justified in lifting the veil and treating Motors as liable for this remaining liability of Welwyn.”[109]In The Tjaskemolen (No. 1) [1997] 2 Lloyd’s Rep 465, Clarke J (as he then was) cited that passage and approved the reasoning in these terms (at 471 lhc):
“That case is thus an example of piercing the veil, where assets are deliberately, transferred from A to B in the knowledge that to do so, will defeat a creditor's claim or potential claim, even if that is not proved to be the purpose of doing so. The judge in that case would have regarded the case as even stronger if the purpose of the transaction was to defeat the creditor's claim. I agree with the reasoning in Creasey.”
[110]In that case, the claimant had chartered the vessel from Bayland as owners. Following the claimant’s inability to load the vessel due to the owners’ breach of charterparty, the dispute was referred to arbitration. The claimant arrested the vessel to provide security for its claim in the arbitration. The defendant, Golden International SA, applied to set aside the arrest on the grounds, inter alia, that at the time when the writ was issued, the vessel was not beneficially owned by Bayland, having been sold by Bayland to Golden International (another company in the same group) pursuant to a memorandum of agreement dated about a month before the issue of the writ. The claimant contended that the alleged sale agreement was a sham or façade intended to avoid the vessel being arrested and was not a genuine commercial transaction. The learned judge accepted that contention and concluded that the transaction did not have the effect of divesting Bayland of the beneficial ownership of the vessel.[111]Thus, it is important to note that, although Clarke J agreed with the reasoning in Creasey, the case before him was not one where the effect of piercing the corporate veil was to make the other company in the group to which the vessel had been transferred pursuant to the sham transaction liable under the original contract. Rather, he was only concerned with whether a sham transaction transferred the beneficial ownership. That is clear from the passage in his judgment immediately after the passage I cited above:
“The cases have not worked out what is meant by ‘piercing the corporate veil’. It may not always mean the same thing. But in the present context the cases seem to me to show that, where the alleged transfer is a sham or a facade, it will not have the effect of transferring the beneficial ownership of the transferor in the vessel concerned. What, if any, effect the alleged transfer of the legal title may have in the absence of an order under s. 423 of the Insolvency Act 1986 or its equivalent elsewhere, can be considered when it arises. It may be that, if the legal title is transferred, the transferee would hold the vessel as trustee for the transferor so that the beneficial interest in the sense described in The I Congreso del Partido [1978] QB 500 is retained by the transferor. However, it is not necessary to consider this point further in the instant case.”
[112]It follows that despite the approval of the reasoning in Creasey, The Tjaskemolen is only direct authority for the proposition that, where the corporate structure of a group has been abused by sham transactions designed to avoid existing liabilities (there Bayland’s liabilities for breach of the charterparty), the court will pierce the corporate veil to unravel the transaction and ensure that the relevant asset, there the vessel, stays with the company which has the liability. The case is not authority for the proposition that the company to which the asset was transferred, there Golden International, would or could become liable under the original contract; indeed, in one sense, it is authority for the complete opposite.[113]Nevertheless, The Tjaskemolen might be said to represent the high point of approval of Creasey as the latter case has not found much favour since. The case was considered next by Toulson J in Yukong Line v Rendsburg Investment Corporation [1998] 1 WLR 294. That was a case the facts of which bear some similarity (albeit on a more modest scale and on a less complicated basis) to the facts of the present case. The claimant shipowner claimed damages for wrongful repudiation of a charterparty with the third defendant Rendsburg, a Liberian company. The charterparty had been signed on Rendsburg’s behalf by Mr Yamvrias, a director of its brokers, Marcan. The market having fallen since the charterparty was made, Mr Yamvrias tried to renegotiate the hire rate and when that failed, he sent a fax on Marcan paper repudiating the charterparty. The claimant obtained a freezing injunction against Rendsburg, which included an order for disclosure of information. The information disclosed revealed that Mr Yamvrias was the beneficial owner of Rendsburg and, with his family, of another Liberian company, Ladidi. It was also disclosed that on the day the charterparty was repudiated, some $245,000 had been transferred from Rendsburg to Ladidi. Those funds were then disbursed in various ways, including a few days later the transfer on Mr Yamvrias’ instructions of some $164,000 to another company in which he was beneficially interested, VAL.[114]The claimant amended its claim to join Ladidi, Mr Yamvrias and VAL as defendants. Against Mr Yamvrias it claimed that he was the undisclosed principal of Rendsburg under the charterparty, alternatively that the corporate veil could be pierced so as to treat Mr Yamvrias in law as a party to the charterparty, essentially the same argument as the claimants seek to raise against the Byrne defendants in the present case. Toulson J tried those issues as between the claimant and Mr Yamvrias. He rejected the undisclosed principal argument, principally on the basis that Mr Yamvrias had signed the charterparty as agent and the charterparty was not a sham: see p305B-C.[115]In relation to the claim that, by piercing the corporate veil Mr Yamvrias could be made liable in law as a party to the original charterparty, counsel for the claimant (Mr Gross QC) relied upon a number of the cases where the corporate veil had been pierced which were also cited to me (specifically the decision of the Court of Appeal in Gilford Motor Co Ltd v Horne [1933] Ch 935 and of Russell J in Jones v Lipman [1962] 1 WLR 832) for the proposition that by piercing the corporate veil the claimant could make Mr Yamvrias liable under the original charterparty.[116]Toulson J roundly rejected that proposition in these terms (at 308C-G):
“So I return to the question whether there is a doctrine which entitles Yukong to say that Mr. Yamvrias should be treated as if he were a party to the charterparty because of his subsequent conduct in causing Rendsburg to pay moneys to Ladidi with a view to preventing such moneys from being available to meet Yukong's claim. If there is such a doctrine, there is no particular reason why it should be confined to cases involving limited companies. It not infrequently happens, for example, that a married man who owes substantial legal liabilities may transfer assets to his wife in order to shelter them from his creditor or creditors. The present case differs from Jones v. Lipman [1962] 1 W.L.R. 832 and Gilford Motor Co. Ltd. v. Horne [1933] Ch. 935, where equitable relief was granted against the company being used to perpetrate a continuing breach of contract by its controller, of which the company had full knowledge. If either Mr. Horne's wife or Mr. Lipman's wife (assuming their existence) had agreed to act in a similar role to that of company, no doubt similar equitable relief would have been granted against the lady concerned. Salomon's case [1897] A.C. 22 would have been irrelevant. In the same way, the fact that the company had separate legal personality was no bar to the court granting relief against it as well as the contract breaker. That is quite different from awarding damages against it for some antecedent breach of duty by the contracting party (for example, some breach by Mr. Horne of his employment contract prior to its termination or some misrepresentation by Mr. Lipman in answers to inquiries before contract) on the basis that the company was to be put in the shoes of the contract breaker. Mr. Gross submitted that this was the logical result of such cases and was sound in principle. I do not agree. I do not see why in logic or in principle the company should have been liable for damages in such a situation, any more than Mrs. Lipman, if the land had been conveyed to her, should thereby have become liable for any and every breach by Mr. Lipman of his contract with Mr. Jones. I do not therefore regard those cases as establishing a principle enabling Mr. Yamvrias to be treated as the charterer and so liable to Yukong for damages for wrongful repudiation of the charterparty.”
[117]He then went on to consider Creasey and The Tjaskemolen on both of which Mr Gross QC was relying in support of his proposition (as is Mr Howard QC in the present case). Although it is tolerably clear that Toulson J did not agree with the reasoning of Mr Southwell QC in Creasey he declined to attack that reasoning directly, as invited to do by counsel for Mr Yamvrias, Mr Adrian Hamilton QC. Instead, he made the point at 309G that the case could in fact have been decided on the basis that there had been a genuine intention on the part of the two shareholders that the entirety of Welwyn’s business (assets and liabilities) should be taken over by Motors. He then went on to distinguish Creasey from the case that he was considering on the grounds that in Yukong there was no purported transfer of undertaking.[118]On that point of distinction, he continued at 309H-310B:
“Mr. Hamilton attacked the judge's reasoning. I do not think it necessary to express a view on that, because it seems to me that the present case is clearly different. Here there was no such purported transfer of undertaking. Yukong's claim is for damages for breach of the charterparty amounting to $2,716,000. The amount transferred from Rendsburg to Ladidi was $245,000. It would seem strange that, without there being any purported general transfer of rights and liabilities under the charterparty, the payment of $245,000 by Rendsburg to Ladidi at the time of its repudiation should lead to the conclusion that Mr. Yamvrias should retrospectively be treated as having been a party to the charterparty, with a consequent liability according to Yukong of $2,716,000. Mr. Gross submitted that this point went only to the measure of relief and, by an amendment made at the trial, Yukong claimed in the alternative that Mr. Yamvrias should be treated as party to the charterparty to the extent of being held liable for the sums transferred from Rendsburg's account. But as Mr. Gross rightly submitted in argument, if Mr. Yamvrias is to be treated in law as a party to the charterparty entered into by Rendsburg, there is no logical basis for restricting the damages recoverable by Yukong from Mr. Yamvrias for its breach.”
[119]Toulson J then cited The Tjaskemolen and pointed out that in the case he had to decide the position was different, concluding at 310G-H:
“The present case is again different. It is one thing to hold a purported transfer to be ineffective, and another to hold the would-be transferee liable to the plaintiff in damages for the antecedent wrongs of the would-be transferor. I am not persuaded on the authorities or as a matter of principle that the transfer of funds by Rendsburg to Ladidi on the repudiation of the charterparty, for the purpose of putting them beyond the reach of Yukong, entitles the court to treat Mr. Yamvrias retrospectively as a party to the charterparty and therefore liable in damages for Rendsburg's repudiation of it.”
[120]Mr Howard QC recognised that the decision in Yukong was entirely contrary to the submissions he advanced in the present case and that he had to submit that the case was wrongly decided. I reject that submission. Even if Yukong were the last word, I find Toulson J’s reasoning compelling and I can see no reason not to follow it. Furthermore, in paragraph 13 of his judgment refusing Mr Howard QC permission to appeal, Lord Neuberger MR expressly approved Toulson J’s reasoning.[121]In any event, the relevant point does not rest with Yukong. In the subsequent decision of the Court of Appeal in Ord v Belhaven Pubs Ltd [1998] 2 BCLC 447 (albeit not an impropriety case) the Court of Appeal expressly disapproved the reasoning in Creasey. In that case, the Court of Appeal overturned the decision of the judge at first instance, which had been to the effect that the company in the group to which the assets had been transferred by the original defendant could be made liable under the original contract.[122]The principal judgment was given by Hobhouse LJ, who considered cases on piercing the corporate veil and concluded that the claimants could not bring themselves within the principle that the corporate veil would be pierced where special circumstances exist, indicating that the relevant transaction was a mere facade concealing the true facts: see 457g-i. Hobhouse LJ then went on to consider Creaseyand concluded that it could not be considered authoritative for these reasons at 458b-d: That leaves only the case of Creasey v. Breachwood, the decision of Mr Southwell QC. There may have been elements in that case of asset stripping. I do not so read the report of his judgment. But he appears to have followed a very similar train of thought to that which was followed by the judge in the present case. I do not consider it would be useful to analyse his reasoning in view of the comments that I have made about the reasoning of the judge in the present case. But it seems to me to be inescapable that the case in Creasey v. Breachwood as it appears to the Court cannot be sustained. It represents a wrong adoption of the principle of piercing the corporate veil and a misuse of the power granted by the rules to substitute one party for the other following death or succession. Therefore, in my judgment the case of Creasey v. Breachwoodshould no longer be treated as authoritative.[123]Although, as I have said, Ord is not a case of impropriety and therefore not a case where it would have been appropriate to pierce the corporate veil, I regard the reasoning of Hobhouse LJ in that case, taken with the reasoning of Toulson J in Yukong (not apparently cited to the Court of Appeal in Ord although Ord was decided about four months later) as strong support for the proposition that, to the extent that Creasey suggests that, where it is appropriate to pierce the corporate veil, the entity to which assets have been improperly transferred can be made liable under the original contract, even though that original contract was not procured pursuant to some device or sham, Creasey was wrongly decided.[124]In support of the case that the corporate veil could be pierced in the present case, so as to make the third to thirteenth defendants liable in law as parties to the original charterparties and guarantees, Mr Howard QC relied not only on Creasey, but in particular on three other authorities. The first was the decision of the Court of Appeal (Slade, Mustill and Ralph Gibson LJJ) in Adams v Cape Industries [1990] Ch 433 which might be regarded as something of a locus classicus in this area. In that case Cape Industries, an English registered company, had organised its affairs so that, in place of a pre-existing subsidiary in the United States whose business was terminated, a new company, CPC, was established, which was both legally and beneficially owned by the former chief executive of the United States subsidiary. Another company, AMC, had been interposed between Cape Industries and its subsidiaries the shares of which were held on trust for another Cape subsidiary. The issue arose whether Cape Industries was present in the United States for jurisdictional purposes in relation to claims against it in respect of asbestosis allegedly suffered by claimants.[125]The details of what was on any view a complicated case do not matter for present purposes. However, one of the arguments raised by the claimants was that the Cape companies were to be regarded as a “single economic unit” so that a Texas judgment could be enforced against Cape Industries. Having reviewed the authorities on this question, the Court of Appeal rejected the argument, emphasising the sanctity of the SalomoFn principle distinguishing between parent and subsidiary companies and between companies and the individuals who lie behind them, however close the control. They concluded this part of the judgment of the Court with what they described as the “apposite observations” of Robert Goff LJ in Bank of Tokyo v Karoon [1987] AC 45 at 64:
“[Counsel] suggested beguilingly that it would be technical for us to distinguish between parent and subsidiary company in this context; economically, he said, they were one. But we are concerned not with economics but with law. The distinction between the two is, in law, fundamental and cannot here be bridged.”
[126]Although the single economic unit argument has reared its head again in other cases, it has done so only to be firmly rejected (for example by Hobhouse LJ in Ordat 456i-457f) and it forms no part of English law. However, there were certainly echoes of the argument in some of Mr Howard’s submissions about the corporate set-up of the Humpuss group and the degree of control by Mr Tommy Suharto, the twelfth defendant. As I have said earlier in the judgment, save where there is evidence of misuse of the corporate structure after July 2009, there is no basis for treating the Humpuss group of companies as somehow to be regarded as one, let alone all liable under contracts clearly made with only one company in the group (as was the case with both the charterparties and the guarantees).[127]The Court of Appeal in Adams v Cape Industries went on to consider the argument in that case for piercing the corporate veil. They concluded that whilst AMC was a façade in the relevant sense, CPC, which was the critical company (because of its presence in the United States) was not, but was a separate corporate entity. They then considered whether the legal position was altered by the fact that it was Cape Industries’ intention, in setting up the relevant arrangements, to reduce by any lawful means available the risk of any subsidiary or of the parent company itself being subject to the jurisdiction of the United States courts. They concluded that it was not, in the following terms (at 544B-G):
“We think not. Mr. Morison submitted that the court will lift the corporate veil where a defendant by the device of a corporate structure attempts to evade (i) limitations imposed on his conduct by law; (ii) such rights of relief against him as third parties already possess; and (iii) such rights of relief as third parties may in the future acquire. Assuming that the first and second of these three conditions will suffice in law to justify such a course, neither of them apply in the present case. It is not suggested that the arrangements involved any actual or potential illegality or were intended to deprive anyone of their existing rights. Whether or not such a course deserves moral approval, there was nothing illegal as such in Cape arranging its affairs (whether by the use of subsidiaries or otherwise) so as to attract the minimum publicity to its involvement in the sale of Cape asbestos in the United States of America. As to condition (iii), we do not accept as a matter of law that the court is entitled to lift the corporate veil as against a defendant company which is the member of a corporate group merely because the corporate structure has been used so as to ensure that the legal liability (if any) in respect of particular future activities of the group (and correspondingly the risk of enforcement of that liability) will fall on another member of the group rather than the defendant company. Whether or not this is desirable, the right to use a corporate structure in this manner is inherent in our corporate law. Mr. Morison urged on us that the purpose of the operation was in substance that Cape would have the practical benefit of the group's asbestos trade in the United States of America without the risks of tortious liability. This may be so. However, in our judgment, Cape was in law entitled to organise the group's affairs in that manner and (save in the case of A.M.C. to which special considerations apply) to expect that the court would apply the principle of Salomon v.A. Salomon & Co. Ltd. [1897] A.C. 22 in the ordinary way.”
[128]Since the Court of Appeal were prepared to accept Mr Morison’s submission that the corporate veil could be pierced where a defendant, by the device of a corporate structure, attempts to evade the rights of relief against him which third parties already possess, that case may be taken as authority for the proposition that, in a case such as the present, where there has been an abuse of the corporate structure to make enforcement of existing causes of action against the relevant defendant (here the first defendant) more difficult, the corporate veil may be pierced.[129]However, that case is not authority for the proposition that the effect of piercing the corporate veil will be to make another company in the group (which has participated in the relevant wrongdoing) liable in contract or in tort where there would not otherwise have been any liability. Rather it is clear that, had the Court of Appeal been prepared in that case to pierce the corporate veil, the effect of doing so would have been to unravel the relevant arrangements in order to make Cape Industries (which on this hypothesis would have been the true defendant) liable.[130]That was clearly the effect of piercing the corporate veil in the second case which Mr Howard particularly relied upon, the decision of Cooke J in Kensington International v Republic of Congo [2005] EWHC 2684 (Comm). The claimant vulture fund had obtained four judgments against the Republic of Congo in relation to sums due under various loan and credit agreements of which the claimant had taken assignments. The claimant had then obtained interim third party debt orders relating to the moneys due in respect of two consignments of Congolese oil that had been bought by Glencore.[131]The claimant wanted to intercept the purchase price of approximately US$39 million payable by Glencore in order to enforce the judgments. The fifth third party, a company called Cotrade SA, was a wholly owned subsidiary of the state owned oil company SNPC (held before both the English and French courts to be an emanation of the Congolese state). Cotrade had sold the cargo to the fourth third party, Africa Oil and Gas Corporation which had sold it to the third third party, Sphynx UK Limited, which had sold it to Glencore. The third and fourth third parties were companies controlled by Mr Gokana, the president and director general of SNPC.[132]The claimant contended that the third and fourth third partieswere a mere device or facade designed to conceal the true facts, which were that the monies due from Glencore were in reality due to and (if paid) would be paid to the Congo. Accordingly, the claimant said that the court should pierce the corporate veil and hold that the debt due from Glencore that the claimant was seeking to attach was in reality owed to the Congo or should be treated as owed to the Congo for the purposes of the relevant third party debt orders.[133]Cooke J reviewed many of the previous decisions on piercing the corporate veil. At paragraph 187 of his judgment he said:
“Whilst decisions such as Creasey -v-Breachwood MotorsLimited [1992] BCC 638 have gone beyond the bounds of proper application of the principles, by ignoring the need for dishonesty where assets are disposed of which defeat the claims of creditors, there is, in my judgment, no doubt that transactions or structures, which have no legal substance, and which are set up with a view to defeating existing claims of creditors against the entity responsible for setting up those transactions or structures and lying behind them, can, if they are purely a sham and a façade, be treated by the court as lacking validity. This enables the court to deal with the underlying reality and not the mask or creature that is being put forward with the object of deceit or dishonest concealment.”
[134]Having cited the same passage from the decision of Sir Andrew Morritt V-C in Trustor [2001] 1 WLR 1177 paragraph 23 as was subsequently cited by Munby J in Ben Hashem, Cooke J stated the principle applicable to the case before him in these terms:
“It is not necessary in my judgment for there to be a divestment of assets at an undervalue to justify the court piercing the corporate veil in relation to particular transactions, as the Third Parties argued. Whilst the liability which was hidden in the Trustor case was clear, with a company being used by the managing director to conceal his theft, the principle is capable of application to a situation where the transactions in question are sham and the companies are utilised for the avoidance of existing liabilities. Unlike Adams, the liabilities of the Congo are not future potential liabilities but existing liabilities under extant judgments. Furthermore Mr Gokana exercised control over Sphynx Bermuda and AOGC whilst President and DG of SNPC and for and on behalf of the SNPC and the Congo, with the clear aim of avoiding the attachment of its assets by judgment creditors by the creation of an artificial scheme of sales and purchases between supposedly independent companies which were in fact controlled by him. Such behaviour is not honest as between debtor and creditor.”
[135]He then reached the conclusion that the various companies involved in the transaction were all shams or facades behind which the Congo, SNPC and Cotrade sought to hide in order to avoid the Congo’s assets being the subject of execution. At paragraphs 201 and 202 of the judgment, he said this:
“201 Where monies are owed by Glencore to Sphynx Bermuda in respect of the cargo therefore, the court is entitled to, and must in justice, “pierce the corporate veil” and recognise that debt as owed to the Congo and that any receipt by Sphynx Bermuda would be the receipt of Cotrade at the top end of the “sham” chain. The whole purpose was to use Cotrade, AOGC, Sphynx Bermuda and the chain of transactions as a device or façade to conceal the true facts of a sale by Cotrade to Glencore, thereby avoiding or concealing the liability of Cotrade to have its oil or proceeds attached in execution of existing judgments given in respect of the Congo's debts. In my judgment, such conduct is dishonest within the meaning of the authorities and Mr Gokana, with the assistance of others, was thereby engaged in this scheme to use these companies and transactions in a manner calculated and intended to defeat the claims of the Congo's creditors. 202 Kensington are therefore entitled to final Third Party Debt Orders in respect of the purchase price for the cargo. The effect of making the interim orders final will be to discharge Glencore from liability for the debt on payment to Kensington, the judgment creditor, in accordance with the orders and the provisions of CPR 72.9.”
[136]That case is clearly strong authority for the proposition that, where an elaborate series of corporate structures has been created, designed to evade existing liabilities of the “true” defendant, the court will pierce the corporate veil and in effect demolish the structures, in order to ensure that the “true” defendant is found liable. However, in my judgment there is nothing in the analysis or conclusions of Cooke J which supports the proposition that, where an existing and genuine corporate structure is abused, as was arguably the case here, the corporate veil can be pierced so as to make individuals or companies in the group liable under the underlying contracts to which they were not parties.[137]The third case upon which Mr Howard placed particular reliance was the recent decision of Burton J in Antonio Gramsci Shipping v Stepanovs [2011] 1 Lloyd’s Rep 647, to which I have already referred above. In that case, the claimants were one ship companies all in the ultimate beneficial ownership of the Latvian Shipping Company (“LSC”). Their claim against the defendant was that, in order to dishonestly siphon out substantial profits from the chartering business of LSC, instead of the claimants chartering their vessels to commercial charterers at arm’s length, the defendant and four other individuals, who were the ultimate beneficial owners of the corporate defendants (four registered in the British Virgin Islands and one in Gibraltar), masterminded a scheme whereby the corporate defendants were interposed as charterers. The vessels were then sub-chartered to commercial charterers at substantially higher rates than under the head charters.[138]Judgment had been entered against the corporate defendants following a summary judgment application heard by Gross J in May 2010 and, in the proceedings against the defendant, the claimants alleged that the corporate defendants were used by him and others as a device for the purpose of committing a fraud on the claimants, entitling the claimants to pierce the corporate veil and hold the defendant liable as a party to the charterparties which the claimants were caused to enter with the corporate defendants. Beatson J granted a freezing injunction on an ex parte basis and gave permission to serve the claim form on the defendant out of the jurisdiction, on the basis that there was a good arguable case that, the defendant being one of the alter egos of the corporate defendants, he should be regarded as stepping into their shoes under the charterparties, including the English jurisdiction clause they contained. The defendant applied to challenge the jurisdiction and set aside the freezing injunction. Burton J dismissed that application.[139]Superficially there is thus some similarity between the basis upon which the claimants put their case in Gramsci and the way in which the claimants here put their case against the third to thirteenth defendants. However, the fundamental difference is that that was a case where, (as will be clear from the summary of the facts set out above), the claimants had a good arguable case that the whole purpose of the corporate structure was to perpetrate the relevant fraud and both the chartering companies and the charterparties themselves were effectively a sham or façade from the outset: see paragraph 2 of the judgment where Burton J summarised the conclusions of Gross J and paragraphs 13 to 15 of Burton J’s judgment at the end of which he said:
“The fraud was plainly "dedans" the company, but that was because the company was set up for that very purpose, in order to abuse the company's structure.”
[140]That is the context in which Burton J reached the conclusion which he did at paragraph 26 of his judgment that the claimants had a good arguable case that the defendant as “puppeteer” could be made liable under the puppet company’s contract:
“I am satisfied that both Warren J in Dadourian and Flaux J in Lindsaywere only ruling out the course of finding the puppeteer liable for breach of contract because in neither case was it appropriate to do so in the event, since a remedy of finding the puppeteer personally liable (as tortfeasor) had already been granted which was, certainly in the case of Dadourian, inconsistent with taking the contractual route. None of the reasons which Warren J put forward argues against a conclusion, depending on how the facts fall out at trial, that in this case the puppeteer should be held party to the puppet company's contract. There is in my judgment no good reason of principle or jurisprudence why the victim cannot enforce the agreement against both the puppet company and the puppet[eer] who, all the time, was pulling the strings. The Claimants seek to enforce the contract against both puppeteer and the puppet company (as in Gilford and Jones).”
[141]Clearly the basis of that reasoning was that the contract (the charterparty) was in reality one made by the puppeteer using the puppet to disguise the fact that the contract was part of a fraud being perpetrated on the claimants. The critical difference in the present case is that, as I have already held above, there was nothing untoward about either the charterparties or the guarantees when they were made. The charterparties were all genuine contracts made with the first defendant, performance by which was guaranteed by the second defendant. There was and is no basis for piercing the corporate veil at the time the contracts were made. Nothing in Gramsci is dealing with such a case and there is nothing in Burton J’s reasoning to support the claimants’ proposition that abuse of the corporate structure, long after the relevant contracts were made, can lead to the corporate veil being pierced to make companies in the group or Mr Tommy Suharto liable as if they had been or had become parties to those charterparties and guarantees.[142]In conclusion on the issue of piercing the corporate veil, I consider that none of the cases on which Mr Howard specifically relied supports the proposition that the subsequent abuse of the corporate structure can lead to the third to thirteenth defendants being liable as if they were parties to the original charterparties and guarantees. The only case which arguably supports his proposition is Creasey, the reasoning of which has been disapproved in the Court of Appeal. I consider that the law is correctly stated by Toulson J in Yukong. It follows that in my judgment, the claimants do not establish a good arguable case on the merits such as would justify the continuation of the freezing injunction.

The alternative Chabra injunction

[143]As indicated earlier, after my initial ruling on 13 July 2011 that the claimants did not have a good arguable case for continuation of the freezing injunction on the basis upon which it had been granted by HHJ Mackie QC, exceptionally I maintained the injunction, so as to afford the parties the opportunity to make submissions on the question whether there was an alternative basis for a freezing injunction against some or all of the third to thirteenth defendants. This concerns the jurisdiction in certain circumstances to join a party as defendant and make a freezing injunction against that party, notwithstanding that there is no substantive cause of action against that party, where such steps are necessary to ensure the effectiveness of a freezing injunction in respect of the assets of the defendant against whom the claimant has the substantive cause of action and to assist enforcement of any judgment against that defendant. This is a jurisdiction first fully enunciated by Mummery J (as he then was) in TSB Bank International v Chabra [1992] 1 WLR 231.[144]The possibility of a Chabra injunction was debated briefly in argument at the return date hearing on 5 and 6 July 2011, although at that stage Mr Howard QC did not make any application to continue the injunction on that basis. Following my ruling on 13 July 2011, the claimants, the Byrne defendants and the eleventh and twelfth defendants respectively served further written submissions on the issues(i) as to whether the court had jurisdiction to grant a Chabra injunction and(ii) as to whether in the exercise of the court’s discretion the court should grant such an injunction.[145]Since the third to thirteenth defendants are all outside the jurisdiction and none of them has submitted to the jurisdiction of the English court for the purposes of challenging the granting or continuing of a freezing injunction against them (the issue of jurisdiction having been expressly reserved), it must follow that, logically, the critical (and potentially determinative) question for the court is whether there is jurisdiction under any of the gateways in Practice Direction 6B of the Civil Procedure Rules, for the court to grant permission to serve the claim form out of the jurisdiction upon any of the third to thirteenth defendants. However, in the circumstances it seems to me sensible that I should consider first whether, in principle (subject to the issue of jurisdiction), a Chabra injunction would be available against any of the third to thirteenth defendants if they were otherwise amenable to the English jurisdiction and, if so, on what basis, since that may have some bearing on whether the claimants can bring themselves within one or other of the gateways in Practice Direction 6B.[146]The circumstances in which the Chabra jurisdiction should be exercised were recently considered in detail and restated by Sir John Chadwick P in the Court of Appeal of the Cayman Islands in Algosaibi v Saad Investments Company Limited (CICA 1 of 2010) a judgment handed down in 15 February 2011. I propose to quote extensively from that judgment, both because it provides a convenient analysis and summary of the recent English authorities (and the Australian cases which the English cases have approved and followed) which obviates the need to set those authorities out in this judgment and because, in my judgment, although setting out the law in the Cayman Islands, Sir John Chadwick also accurately states the scope or and limitations on the Chabra jurisdiction as a matter of English law.[147]At paragraph 15 of his judgment, Sir John Chadwick set out the summary of the principles upon which the Chabra jurisdiction formed part of the law of the Cayman Islands set out by Henderson J in an earlier judgment in that case (not the decision of Anderson J under appeal), quoting from paragraph 51 of the judgment of Henderson J: “After a full and careful analysis of the authorities following the decision in Chabra, Justice Henderson concluded (at paragraph 51 of his judgment) that: "(i) The Chabra jurisdiction is part of the law of the Cayman Islands; (ii) The jurisdiction is most often exercised where there is a good arguable case that a cause-of-action defendant is the beneficial owner of assets in the possession of a non-cause-of-action defendant, but it is not confined to that situation; (iii) The jurisdiction is available against a non-cause-of-action defendant where a freezing order is ancillary and incidental to the effective enforcement of a prospective judgment because that defendant's assets may become available to satisfy the judgment; (iv) This may be so where the non-cause of action defendant has become mixed up in an attempt by the cause-of-action defendant to make himself judgment proof and the assets or their proceeds are not readily identifiable in his hands (Yukong, supra) [Yukong Line Ltd v Rendsburg Investments Corporation and others [2001] 2 Lloyd's Rep 113 (CA)]; (v) The important question is whether there is good reason to suppose that the cause-of-action defendant exercises substantive control over the assets in question of the non-cause-of-action defendant (Dadourian Group, supra) [Dadourian Group International and others v Azuri Limited [2005] EWHC 1768 (Ch)]; (vi) The law in this area is evolving significantly and it is undesirable to deprive it of the necessary flexibility to address complex corporate relationships whose purpose (in whole or in part) may be to put assets beyond the reach of legitimate creditors (see the remarks of Robert Walker J in International Credit and Investment Co (Overseas) Ltd v Another v Adham and Others [1998] BCC 134 (ChD); (vii) The limitation proposed in C Inc, supra [C Inc PLC v L and another [2001] 2 Lloyd's Rep 459] (that there must be a causal link between the cause of action and the subsequent right to claim against the non-cause-of-action defendant) has not found support in later decisions and does not represent the current state of the law; (viii) On an application of this sort, one question of importance is the degree to which those challenging the injunction have complied with their disclosure obligations under it; (ix) Uncertainty about the true ownership of assets or whether they might be available to satisfy a future judgment may count against an applicant where it could have, but did not, shed light upon the question of ownership by making appropriate and credible disclosure."[148]Sir John Chadwick P then goes on to consider, by reference to the various authorities, to what extent that is an accurate summary of the relevant principles of law. At paragraphs 22 to 25 of his judgment having recorded that the appellants did not challenge propositions(i) to (iii), he sets out why they were right not to do so, in these terms: “In particular, the appellants do not challenge the proposition that there is jurisdiction to grant a Mareva injunction against an NCAD in a case where such an injunction would be ancillary and incidental to the effective enforcement of a prospective judgment against a defendant against whom there is a pleaded cause of action (a "cause-of-action defendant" or "CAD") because the assets of the NCAD - that is to say, assets to which the NCAD is itself entitled beneficially (as well as assets in which the CAD has a beneficial interest) - may become available to satisfy a judgment against the cause-of-action defendant. 23. In my view the appellants are right to accept that proposition. It finds expression in the judgments of the majority (Justices Gauldron, McHugh, Gunmow and Callinan) in the High Court of Australia in Cardile v Led Builders Pty Ltd [1999] HCA 18; 198 CLR 380; 162 ALR 294; 73 ALJR 657 at paragraph 57 (cited by Justice Henderson at paragraph 44 of his judgment): "What then is the principle to guide the courts in determining whether to grant Mareva relief in a case such as the present where the activities of third parties are the object sought to be restrained? In our opinion such an order may, and we emphasise the word 'may', be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which: i. the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including 'claims and expectancies', of the judgment debtor or potential judgment debtor; or ii. some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor." 24. In HM Revenue and Customs v Egleton [2006] EWHC 2313 (Ch); [2007] BCC 78, Mr Justice Briggs, observed, at paragraph [29], that: "It will readily be apparent that the literal application of the second limb of the principle set out in paragraph 57(ii) of the judgment of the majority of the High Court [in Cardile] is potentially of extremely wide application. It appears to contemplate that jurisdiction exists to make a freezing order against any potential debtor of an individual or company against whom the claimant has a cause of action, upon the footing that since enforcement of a judgment against the defendant may lead to its liquidation or (if an individual) bankruptcy, and since a liquidator or trustee in bankruptcy may then be able to pursue claims against third parties, then jurisdiction exists to enable the plaintiff to seek a freezing order against any such third parties, always assuming that the other discretionary considerations, such as a risk of dissipation of assets, are satisfied." Nevertheless, it is clear that he accepted that the principle, with its second limb, should be recognised in England and Wales. At paragraphs [41] and [42] of his judgment he said this: "The conclusions to which I have come on the question of jurisdiction are as follows. First, that the time has come for the English Courts to recognise, consistently with the carefully considered conclusion of the High Court of Australia, that the jurisdiction to grant freezing orders against third parties is not rigidly restricted by the Chabra requirement to show that, at the time when the order is sought, the third party is already holding or in control of assets beneficially owned by the defendant. However attractive that test is as a bright and focused boundary-line, it does not seem to me to accord with the dictates of justice and commonsense...." "Secondly, it seems to me that once the relatively clear Chabra boundary line is breached, there is no wider boundary which has any sufficient clarity to serve as a workable condition to the existence of jurisdiction, than the broad confines of the second limb of the principle in paragraph 57 of the main judgment in Cardile..." 25. In reaching the conclusion that the Courts of England and Wales should follow the guidance given by the second limb of principle stated in Cardile, Mr Justice Briggs declined to follow the limitation which Mr Justice Aikens had suggested in C Inc PLC v L and another [2001] EWHC 550 (Comm); 2 Lloyd's Rep 459, [75]. In expressing his conclusions as to the court's power to grant freezing orders over the assets of a non-party against whom there was no claim for substantive relief, Mr Justice Aikens had said this (so far as material in the present context): "(1) The purpose of a freezing order is to ensure that the orders of the Court are effectively enforced. (2) A freezing order will usually be granted against a defendant against whom there is a claim for substantive relief. The order will cover assets of which he is the beneficial owner. But the Court has the power to grant freezing orders against third parties. ... (5) If there is a claim for substantive relief by A against B ... or A has obtained a judgment against B (in the English Court), then the English Court can grant a freezing order against the assets of C. But, generally, it must be arguable that those assets, even if in C's name, are, in fact, beneficially owned by B. (6) The crucial question is whether the Court can go one stage further. Does it have the power to grant a freezing order against the assets of C when: (i) A has a substantive right against B (eg. in the form of a judgment);(ii) the assets of C are not, even arguably, beneficially owned by B. The answer, to my mind, depends on how one interprets the phrases 'ancillary' and 'incidental to and dependent upon' used by Lords Browne-Wilkinson and Mustill in the Channel Tunnel case [Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334] In the Cardile case the High Court of Australia has, effectively, given those phrases a broad interpretation. But, critically, the High Court of Australia held that the right of A to a freezing order against C is dependent upon A having a right against B and that right itself giving rise to a right that B can exercise against C and its assets. Therefore the freezing order sought by A against C is 'incidental to' A's substantive right against B and it is also 'dependent upon' that right." In HMRC v Egleton (supra, [41], Mr Justice Briggs expressed the view that: "... a rigid causation test is too narrow and potentially unjust, in particular because it would protect third party fraudsters who had in reality caused the claimant's loss from exposure to a freezing order while exposing honest third parties such as Mr L in the C Inc. case because the claimant's claim was the cause of their exposure...." And he went on (ibid): ". . . By contrast, the supposed 'sufficient connection' test which [counsel] sought to extract from the minority judgment in Cardile, while having much to say for it in terms of justice and commonsense, and being similar to the test which identifies the circumstances in which a third party may, because he has become mixed up in the defendant's wrong doing, be obliged to assist the claimant with the provision of information, is by its nature so subjective and unfocused as to make it quite unsuitable as the boundary for the existence of jurisdiction. It may however be a valuable tool in the analysis of the question of discretion." Justice Henderson was, I think, correct to hold (at sub-paragraph (vii) of paragraph 51 of his judgment of 18 November 2009) that it was unnecessary that there should be a causal link between the cause of action against defendant 'B' (the cause-of-action defendant) and the subsequent right of 'B' to claim against 'C (the non-cause-of action defendant). "What then is the principle to guide the courts in determining whether to grant Mareva relief in a case such as the present where the activities of third parties are the object sought to be restrained? In our opinion such an order may, and we emphasise the word 'may', be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which: i. the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including 'claims and expectancies', of the judgment debtor or potential judgment debtor; or ii. some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor." 24. In HM Revenue and Customs v Egleton [2006] EWHC 2313 (Ch); [2007] BCC 78, Mr Justice Briggs, observed, at paragraph [29], that: "It will readily be apparent that the literal application of the second limb of the principle set out in paragraph 57(ii) of the judgment of the majority of the High Court [in Cardile] is potentially of extremely wide application. It appears to contemplate that jurisdiction exists to make a freezing order against any potential debtor of an individual or company against whom the claimant has a cause of action, upon the footing that since enforcement of a judgment against the defendant may lead to its liquidation or (if an individual) bankruptcy, and since a liquidator or trustee in bankruptcy may then be able to pursue claims against third parties, then jurisdiction exists to enable the plaintiff to seek a freezing order against any such third parties, always assuming that the other discretionary considerations, such as a risk of dissipation of assets, are satisfied." Nevertheless, it is clear that he accepted that the principle, with its second limb, should be recognised in England and Wales. At paragraphs [41] and [42] of his judgment he said this: "The conclusions to which I have come on the question of jurisdiction are as follows. First, that the time has come for the English Courts to recognise, consistently with the carefully considered conclusion of the High Court of Australia, that the jurisdiction to grant freezing orders against third parties is not rigidly restricted by the Chabra requirement to show that, at the time when the order is sought, the third party is already holding or in control of assets beneficially owned by the defendant. However attractive that test is as a bright and focused boundary-line, it does not seem to me to accord with the dictates of justice and commonsense...." "Secondly, it seems to me that once the relatively clear Chabra boundary line is breached, there is no wider boundary which has any sufficient clarity to serve as a workable condition to the existence of jurisdiction, than the broad confines of the second limb of the principle in paragraph 57 of the main judgment in Cardile..." 25. In reaching the conclusion that the Courts of England and Wales should follow the guidance given by the second limb of principle stated in Cardile, Mr Justice Briggs declined to follow the limitation which Mr Justice Aikens had suggested in C Inc PLC v L and another [2001] EWHC 550 (Comm); 2 Lloyd's Rep 459, [75]. In expressing his conclusions as to the court's power to grant freezing orders over the assets of a non-party against whom there was no claim for substantive relief, Mr Justice Aikens had said this (so far as material in the present context): "(1) The purpose of a freezing order is to ensure that the orders of the Court are effectively enforced. (2) A freezing order will usually be granted against a defendant against whom there is a claim for substantive relief. The order will cover assets of which he is the beneficial owner. But the Court has the power to grant freezing orders against third parties. ... (5) If there is a claim for substantive relief by A against B ... or A has obtained a judgment against B (in the English Court), then the English Court can grant a freezing order against the assets of C. But, generally, it must be arguable that those assets, even if in C's name, are, in fact, beneficially owned by B. (6) The crucial question is whether the Court can go one stage further. Does it have the power to grant a freezing order against the assets of C when: (i) A has a substantive right against B (eg. in the form of a judgment); (ii) the assets of C are not, even arguably, beneficially owned by B. The answer, to my mind, depends on how one interprets the phrases 'ancillary' and 'incidental to and dependent upon' used by Lords Browne-Wilkinson and Mustill in the Channel Tunnel case [Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334] In the Cardile case the High Court of Australia has, effectively, given those phrases a broad interpretation. But, critically, the High Court of Australia held that the right of A to a freezing order against C is dependent upon A having a right against B and that right itself giving rise to a right that B can exercise against C and its assets. Therefore the freezing order sought by A against C is 'incidental to' A's substantive right against B and it is also 'dependent upon' that right." In HMRC v Egleton (supra, [41], Mr Justice Briggs expressed the view that: "... a rigid causation test is too narrow and potentially unjust, in particular because it would protect third party fraudsters who had in reality caused the claimant's loss from exposure to a freezing order while exposing honest third parties such as Mr L in the C Inc. case because the claimant's claim was the cause of their exposure...." And he went on (ibid): ". . . By contrast, the supposed 'sufficient connection' test which [counsel] sought to extract from the minority judgment in Cardile, while having much to say for it in terms of justice and commonsense, and being similar to the test which identifies the circumstances in which a third party may, because he has become mixed up in the defendant's wrong doing, be obliged to assist the claimant with the provision of information, is by its nature so subjective and unfocused as to make it quite unsuitable as the boundary for the existence of jurisdiction. It may however be a valuable tool in the analysis of the question of discretion." Justice Henderson was, I think, correct to hold (at sub-paragraph (vii) of paragraph 51 of his judgment of 18 November 2009) that it was unnecessary that there should be a causal link between the cause of action against defendant 'B' (the cause-of-action defendant) and the subsequent right of 'B' to claim against 'C (the non-cause-of action defendant).[149]At paragraphs 26 to 33 of his judgment, Sir John Chadwick P concluded that Henderson J’s point (iv) had gone beyond the proper scope of Cardile in these terms: 26 But, as it seems to me, Justice Henderson went beyond the proper scope of the second limb of the principle in paragraph 57 of the majority judgment in Cardile if he intended to hold (at paragraph 51(iv) of his judgment) that the assets of the NCAD were, or might become, "available" to satisfy the judgment debt of the CAD - within the meaning of the second limb - simply because the NCAD "has become mixed up in an attempt by [the] cause-of-action defendant to make himself judgment proof. And, again as it seems to me, he went beyond the proper scope of the second limb in Cardile if he intended to hold (at paragraph 51(v) of his judgment) that the relevant test for "availability" was whether there was good reason to suppose that the CAD defendant exercises "substantive" – as distinct from legally enforceable — control over the assets in the possession of the NCAD. Justice Henderson found support for the proposition in sub-paragraph 51(iv) of his judgment in the passage which he cited (at paragraph 47 of his judgment) from the judgment of Lord Justice Potter in Yukong Line Limited v Rendsburg Investments Corporation and others [2000] EWCA Civ 358; [2001] 2 Lloyd's Rep. 113, [44]. But there is nothing to suggest that the Cardile case was considered by the Court of Appeal in Yukong; and it is clear from the passage cited that Lord Justice Potter (with whom the other members of the Court, Lord Justice Thorpe and Lady Justice Hale agreed) was not addressing his observations to a case where the assets held by the NCAD were not assets to which the CAD was beneficially entitled. He said this:
"Although it is plain that the court's Chabra-type of jurisdiction will only be exercised where there are grounds to believe that a co-defendant is in possession or control of assets to which the principal defendant is beneficially entitled, it does not seem to me that the jurisdiction is limited to cases where such assets can be specifically identified in the hands of the co-defendant."
And it was in that context that he went on to say:
"Once the court is satisfied that there are such assets in the possession or control of the co-defendant, the jurisdiction exists to make a freezing order as ancillary and incidental to the claim against the principal defendant, although there is no direct cause of action against the co-defendant. Since the purpose of granting such an injunction against the co-defendant is to preserve the assets of the principal defendant so as to be available to meet a judgment against him, the form of order made against the co-defendant should be as specific as the circumstances permit in respect of the principal defendant's assets of which he has possession or control. Thus, generally, the form of injunction will be tailored to that purpose and should be no wider than is necessary to achieve it." 28. The proposition in paragraph 51(iv) of Justice Henderson's judgment of 18 November 2009 seems to have its origin in the sentence which follows the passage just set out, in which Lord Justice Potter had said this: "
However, subject to that requirement, if a co-defendant is mixed up in an attempt to make the principal defendant judgment-proof and the assets or their proceeds are not readily identifiable in his hands it is open to the court, where it is just and convenient to do so, to make an order which catches the co-defendant's general assets up to the amount of the principal defendant's assets of which he appears to have possession and control." To treat that observation as authority for the proposition that it is enough - in order to found jurisdiction to grant Mareva relief over the assets of a NCAD - to assert that the NCAD "is mixed up in" an attempt by a CAD to make himself judgment proof is to take the observation out of context. The context - as Lord Justice Potter went on to make clear - was a case in which there were good reasons to think that assets (not capable of specific identification at the time of the application) held in the name of the NCAD were in fact beneficially the property of the CAD:
"That was in fact the position in TSB -v- Chabra itself. In that case, Mr Chabra, the original defendant was alleged to be the alter ego of the co-defendant company against which the plaintiff had no direct cause of action, but in respect of which there was a good arguable case that assets vested in its name were in fact beneficially the property of Mr Chabra, in particular the proceeds of sale of recently completed hotel and restaurant interests and the house in which Mr and Mrs Chabra lived. Because of the difficulty in ascertaining which assets of the company were in fact assets to which Mr Chabra was beneficially entitled, the Mareva Order made against the company was one which applied generally to prevent it from disposing or dealing with any of its assets within the jurisdiction, albeit it also covered 'in particular' the proceeds of sale from the hotel and restaurant businesses. Mummery LJ observed at p.242F: 'In brief, the most realistic and practical form of relief in this case is to restrain the company from disposing of, or dealing with, assets until it is established whether the plaintiff is entitled to a judgment against Mr Chabra and until it is established which, if any, of the assets apparently vested in the company are available to satisfy any judgment obtained against Mr Chabra.' 29. Justice Henderson cited the decision of Mr Edward Bartley Jones QC, sitting as a Deputy Judge of the Chancery Division in the High Court of England and Wales in Dadourian Group International Inc and others v Azuri Limited [2005] EWHC 1768 (Ch), as authority for the proposition in paragraph 51(v) of his judgment of 18 November 2009. Mr Bartley Jones had said this: "
For my part, I do not believe it is necessary to establish beneficial ownership in a strict trust law sense. Clearly, if assets are held on a bare trust then the Chabra jurisdiction can be exercised. But, in my judgment, even if the relevant defendant to the substantive claim has no legal or equitable right to the assets in question (in the strict trust law sense) the Chabra jurisdiction can still be exercised if the defendant has some right in respect of, or control over, or other rights of access to, the assets. The important issue, to my mind, is substantive control. ... What needs to be considered is the substantive reality of control, not a strict trust law analysis as to whether the third party is a bare trustee. Thus, in my judgment, placing assets in a discretionary trust would not prevent the Chabra jurisdiction being exercised against that discretionary trust if the substantive reality were that the relevant defendant controlled the exercise of the discretionary trust." 30. No criticism can be made of the first two sentences in that passage; and the appellants do not seek to do so. But, as it seems to me, the proposition in the third sentence is too widely stated. If the CAD has "some right in respect of, or control over, or other rights of access to", the assets held by the NCAD", the case will fall within the second limb of the principle expressed in Cardile if, but only if, there is "some process, ultimately enforceable by the courts, . . . available to the judgment creditor as a consequence of a judgment against [the CAD], pursuant to which, . . . , [the NCAD] may be obliged to disgorge property or otherwise contribute to the funds or property of [the CAD] to help satisfy the judgment against [the CAD]." In Cardile, the High Court of Australia suggested that the process by which the NCAD might be compelled to make its property available to satisfy the debts of the CAD might be "by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise". Plainly, the Court did not think that the enforcement process was confined to the appointment of a liquidator, trustee in bankruptcy or receiver: but that that Court had in mind that there must be some process, ultimately enforceable by the courts, is not in doubt. The point was emphasized by the New South Wales Court of Appeal in Taggett v Sexton [2009] NS WC A 91, at paragraph 131. 31. That, too, was the approach of Mr Justice Warren, sitting in the High Court of England and Wales in Basra and others v Poole and others [2007] EWHC 3528 (Ch). In commenting upon the decision of Mr Justice Briggs in Egleton (supra), he said this, at paragraph [9]:
"The basis for this relief [that is to say, the relief granted in Egleton] was that the directors might well be liable to the company at the suit of the yet to be appointed liquidator. It was just and equitable to freeze their assets to prevent their dissipation before such a liquidator had been able to act. Even so, the applicant would need to show a good arguable case for one of the following: (a) assets being held by the third party belonging to the defendant; (b) a disposition of assets by the defendant to the third party liable to be set aside under section 423 of the Insolvency Act 1986, which concerns transactions defrauding creditors; or (c) an impending insolvency in the course of which the trustee in bankruptcy or liquidator would be able to recover for the benefit of creditors, for instance, where the transfer is at an undervalue or constitutes a preference." 32. It is necessary to keep in mind the basis upon which a court exercises the Mareva jurisdiction. It is to ensure that the effective enforcement of its judgment (when obtained) is not frustrated by the dissipation of assets which would be available to the claimant in satisfaction of that judgment. It is trite law that the jurisdiction is not exercised in order to provide the claimant with a security for his claim which he may otherwise have. But, as it seems to me, it is equally plain, as a matter of principle, that the jurisdiction is not exercised in order to give the claimant recourse to assets which would not otherwise be available to satisfy the judgment which he may obtain. The court needs to be satisfied of two matters before granting Mareva relief. First, that there is good reason to suppose that the assets in relation to which a freezing order is imposed would become available to satisfy the judgment which the claimant seeks; and, second, that there is good reason to suppose that, absent such relief, there is a real risk that those assets will be dissipated or otherwise put beyond the reach of the claimant” "
Although it is plain that the court's Chabra-type of jurisdiction will only be exercised where there are grounds to believe that a co-defendant is in possession or control of assets to which the principal defendant is beneficially entitled, it does not seem to me that the jurisdiction is limited to cases where such assets can be specifically identified in the hands of the co-defendant." "Once the court is satisfied that there are such assets in the possession or control of the co-defendant, the jurisdiction exists to make a freezing order as ancillary and incidental to the claim against the principal defendant, although there is no direct cause of action against the co-defendant. Since the purpose of granting such an injunction against the co-defendant is to preserve the assets of the principal defendant so as to be available to meet a judgment against him, the form of order made against the co-defendant should be as specific as the circumstances permit in respect of the principal defendant's assets of which he has possession or control. Thus, generally, the form of injunction will be tailored to that purpose and should be no wider than is necessary to achieve it." "However, subject to that requirement, if a co-defendant is mixed up in an attempt to make the principal defendant judgment-proof and the assets or their proceeds are not readily identifiable in his hands it is open to the court, where it is just and convenient to do so, to make an order which catches the co-defendant's general assets up to the amount of the principal defendant's assets of which he appears to have possession and control." "That was in fact the position in TSB -v- Chabra itself. In that case, Mr Chabra, the original defendant was alleged to be the alter ego of the co-defendant company against which the plaintiff had no direct cause of action, but in respect of which there was a good arguable case that assets vested in its name were in fact beneficially the property of Mr Chabra, in particular the proceeds of sale of recently completed hotel and restaurant interests and the house in which Mr and Mrs Chabra lived. Because of the difficulty in ascertaining which assets of the company were in fact assets to which Mr Chabra was beneficially entitled, the Mareva Order made against the company was one which applied generally to prevent it from disposing or dealing with any of its assets within the jurisdiction, albeit it also covered 'in particular' the proceeds of sale from the hotel and restaurant businesses. Mummery LJ observed at p.242F: 'In brief, the most realistic and practical form of relief in this case is to restrain the company from disposing of, or dealing with, assets until it is established whether the plaintiff is entitled to a judgment against Mr Chabra and until it is established which, if any, of the assets apparently vested in the company are available to satisfy any judgment obtained against Mr Chabra.' "For my part, I do not believe it is necessary to establish beneficial ownership in a strict trust law sense. Clearly, if assets are held on a bare trust then the Chabra jurisdiction can be exercised. But, in my judgment, even if the relevant defendant to the substantive claim has no legal or equitable right to the assets in question (in the strict trust law sense) the Chabra jurisdiction can still be exercised if the defendant has some right in respect of, or control over, or other rights of access to, the assets. The important issue, to my mind, is substantive control. ... What needs to be considered is the substantive reality of control, not a strict trust law analysis as to whether the third party is a bare trustee. Thus, in my judgment, placing assets in a discretionary trust would not prevent the Chabra jurisdiction being exercised against that discretionary trust if the substantive reality were that the relevant defendant controlled the exercise of the discretionary trust." "The basis for this relief [that is to say, the relief granted in Egleton] was that the directors might well be liable to the company at the suit of the yet to be appointed liquidator. It was just and equitable to freeze their assets to prevent their dissipation before such a liquidator had been able to act. Even so, the applicant would need to show a good arguable case for one of the following: (a) assets being held by the third party belonging to the defendant; (b) a disposition of assets by the defendant to the third party liable to be set aside under section 423 of the Insolvency Act 1986, which concerns transactions defrauding creditors; or (c) an impending insolvency in the course of which the trustee in bankruptcy or liquidator would be able to recover for the benefit of creditors, for instance, where the transfer is at an undervalue or constitutes a preference."[150]At paragraph 33 of his judgment, Sir John Chadwick P stated the principles upon which the court would grant a freezing injunction against a non-cause of action defendant in these terms:
“The fact that the potential judgment debtor (the CAD) has substantial control over assets which are held by a party against whom no cause of action is alleged (the NCAD) - say, because the NCAD can be expected to act in accordance with the wishes or directions of the CAD (whether or not it could be compelled to do so) - is likely to be of critical importance in relation to the question whether there is a real risk that the assets will be dissipated or otherwise put beyond the reach of the claimant. But, as it seems to me, the existence of substantial control is not, of itself, enough to meet the first of the two requirements just mentioned. It is not enough that the CAD could, if it chose, cause the assets held by the NCAD to be used to satisfy the judgment. It is necessary that the court be satisfied that there is good reason to suppose either (i) that the CAD can be compelled (through some process of enforcement) to cause the assets held by the NCAD to be used for that purpose; or (ii) that there is some other process of enforcement by which the claimant can obtain recourse to the assets held by the NCAD.”
[151]In argument Mr Howard QC sought to contend that the judgment of Sir John Chadwick P did not represent English law as regards those limitations identified in paragraph 33, because that analysis was inconsistent with the decision of David Steel J in Yukos Capital v OJSC Rosneft Oil Company [2010] EWHC 784 (Comm) handed down on 30 March 2010, after the argument in Algosaibi in the Cayman Islands, but before judgment. I do not accept that submission. Whilst it is correct that David Steel J approved the passage in the judgment of Deputy Judge Edward Bartley Jones QC in Dadourian v Azuri [2005] EWHC 1768 (Ch) which stated that the important issue was substantive control, that was in the context of rejecting the proposition (as had the Deputy Judge) that it was necessary to have something akin to a trust structure before the Chabra jurisdiction could be exercised. On that point Sir John Chadwick P agreed with the Deputy Judge, as is apparent from the first sentence of paragraph 30 of his judgment.[152]However, to the extent that, as Sir John Chadwick P held, the judgment of the Deputy Judge went beyond the scope of the second limb of the principle in Cardile, I do not read the judgment of David Steel J as approving any such extension. On the contrary, given that David Steel J cites with approval both Cardile itself and the decision of Briggs J in Egleton approving Cardile, it seems to me that he was not intending to suggest that English law went beyond the scope of the principle enunciated by the High Court of Australia. Accordingly, to the extent that, as Sir John Chadwick P held, the Deputy Judge in Dadourian had gone beyond that principle in an impermissible way, nothing in the judgment of David Steel J supports that broader approach and the correct limitations as a matter of English law on the Chabra jurisdiction are those stated by Sir John Chadwick P in paragraph 33 of his judgment.[153]Applying those principles to the present case, the first matter to note is that, in relation to the claim against the second defendant under the guarantees, whilst it is correct that the second defendant is the parent company of both the first and third defendants, as I have already held in the context of claimants’ primary case on piercing the corporate veil, there is no evidence that the second defendant’s assets have been transferred or its asset base diminished to avoid enforcement of any judgment. In those circumstances, as I have held, there is no basis for piercing the corporate veil between the second defendant and other companies in the Humpuss group as regards the liabilities of the second defendant under the guarantees.[154]In those circumstances, applying the test set out in paragraph 33 of Sir John Chadwick’s judgment, there is no basis for any suggestion that the second defendant can be compelled, at the enforcement stage, to cause the assets of the third to thirteenth defendants to be used to enforce any judgment against the second defendant. Equally, it is difficult to see on what basis, in relation to the process of enforcement against the second defendant, the claimants could obtain recourse against any of the third to thirteenth defendants, in circumstances where there is a legitimate corporate structure in place which has not been abused by any of the third to thirteenth defendants vis-a-vis the second defendant.[155]The position in relation to the first defendant is different because, as I have held (and is essentially accepted, at least by the Byrne defendants), there is an arguable case of abuse of the corporate structure to divert assets from the first defendant and its subsidiaries to the third defendant in order to render enforcement more difficult. However, applying the test in paragraph 33 of Sir John Chadwick’s judgment, it is difficult to see on what basis the Chabra jurisdiction could be exercised against any of the third to thirteenth defendants, other than the third defendant which received the assets which are alleged to have been illegitimately transferred to avoid the first defendant’s liability.[156]It is only the third defendant which has or holds assets which are arguably the first defendant’s assets or in which the first defendant is arguably beneficially interested. So far as the remainder of the Byrne defendants or the eleventh and twelfth defendants are concerned, it is difficult to see on what basis any judgment obtained against the first defendant could be enforced against their assets. Whilst it may be said of the Byrne defendants (with the exception of the ninth and tenth defendants) that, albeit in a passive sense, they were mixed up in an attempt by the first defendant to make itself judgment proof, as the judgment of Sir John Chadwick shows, that alone is not enough to establish the Chabra jurisdiction. Furthermore, in relation to the ninth, tenth and eleventh defendants, as I have already found above, in the section of the judgment dealing with alleged wrongdoing, there is simply no evidence at all that any of them was involved in the abuse of the corporate structure to divert assets to the third defendant.[157]So far as the twelfth defendant is concerned, even if the claimants could show that he was implicated in and orchestrated the transfer of assets, that alone is not enough to establish the Chabra jurisdiction. It is difficult to see upon what basis, applying the principles set out in paragraph 33 of Sir John Chadwick’s judgment it could be said either that the first defendant could be compelled (through some process of enforcement) to cause assets held by the twelfth defendant to be used for the purpose of enforcement; or that there is some other process of enforcement by which the claimants could obtain recourse to the assets held by the twelfth defendant. In any event, however implicated he was in the wrongdoing, there is simply no evidence that the twelfth defendant is holding assets of the first defendant. It is only the third defendant which could arguably be said to be in that position.[158]In any event, even if there were a basis for exercising the Chabra jurisdiction against one or more of the third to thirteenth defendants in circumstances where they were amenable to the English jurisdiction, the fact remains that none of them is amenable to this jurisdiction, given that they are all resident or incorporated outside the jurisdiction. Although there is no formal application by the third to thirteenth defendants to set aside the permission to serve the proceedings on them outside the jurisdiction granted by HHJ Mackie QC, the fact remains that the basis upon which permission was granted was that the third to thirteenth defendants could be made liable as if they were parties to the original charterparties (which although subject to a London arbitration clause, were governed by English law) or the original guarantees (which contained an English jurisdiction clause). However, in the light of my findings that, even if the corporate veil could be pierced, it could not lead to those defendants being held liable as if parties to the original contracts, it must follow that the basis upon which permission to serve out was sought and obtained can no longer be justified and such service must be set aside.[159]It necessarily follows that, if the claimants wish to invoke the Chabra jurisdiction against one or more of the third to thirteenth defendants, they can only do so if they can show some basis upon which permission to serve out should be granted against the third to thirteenth defendants. At the hearing on 19 July 2011, I was left with the distinct impression that the claimants had not really considered or thought through the question on what, if any, basis permission to serve out could be obtained against the third to thirteenth defendants.[160]At that hearing, Mr Howard QC relied primarily on paragraph 3.1(3) of Practice Direction 6B of the Civil Procedure Rules, which allows for service out of the jurisdiction where: A claim is made against a person (‘the defendant’) on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and –(a) there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and(b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim.[161]However, the difficulty which the claimants face in relying on this “necessary or proper party” provision is that (in so far as they are seeking to found the Chabra jurisdiction against the third to thirteenth defendants in relation to assets held by them, which are arguably the first defendant’s assets or in which the first defendant is arguably beneficially interested), the application of paragraph 3.1(3) of the Practice Direction is limited to cases where the substantive dispute is before the English courts, because only in such a case will any “claim” ever be tried between the claimant and the defendant who has been or will be served with the proceedings. In the present case, the claims of the claimant against the first defendant for breach of the charterparties will all be determined in London arbitration rather than by the English court.[162]I considered this question of the limitation on the scope of paragraph 3.1(3) in Belletti v Morici [2009] EWHC 2316 (Comm); [2010] 1 All ER (Comm) 412. That was a case where the substantive dispute between the claimants and the first defendant was before the Italian courts and a worldwide freezing injunction against the first defendant had been granted by the English court, pursuant to section 25 of the Civil Jurisdiction and Judgments Act 1982, in support of those substantive Italian proceedings. At a later stage, the question arose as to whether the first defendant’s parents, who were resident in Italy, had, wittingly or unwittingly, assisted the first defendant to dissipate assets which were the subject of the injunction. An order was made ex parte joining them as defendants and granting an injunction against them on the basis of the Chabra jurisdiction.[163]An application was made by the parents to set aside the order against them on the grounds that the English court had no jurisdiction over them. I allowed that application inter alia on the ground that paragraph 3.1(3) of the Practice Direction was not applicable. At paragraphs 36 to 39 of my judgment I said: In my judgment Mr Samek is correct in his submission that the application of paragraph 3.1(3) of the Practice Direction is limited to cases where the substantive dispute is before the English courts, because only in such a case is any "claim" going to be tried between the claimant and the defendant who has been or will be served with the proceedings. Where, as in the present case the substantive issue will be tried in Italy, there never will be any real issue between the claimants and the first defendant which this court will try.37. To the extent that it is suggested that [the decision of Aikens J in] C Inc plc v L [[2001] EWHC 550 (Comm); 2 Lloyd's Rep 459] is authority for the proposition that jurisdiction under paragraph 3.1(3) of the Practice Direction can be founded against a party, even where the claim against that party is in interlocutory proceedings, it is important to have in mind that C Inc plc v L was a case where the substantive dispute against Mrs L was before the English court. It is one thing to say that, in such a case, where in the dispute concerning the freezing order in support of those proceedings, another party is a necessary or proper party to that dispute, permission to serve that party out of the jurisdiction can be obtained pursuant to paragraph 3.1(3). It is quite another to suggest that that provision can be invoked in a case where the substantive dispute is not before the English courts at all, but before a foreign court and the English jurisdiction has only been invoked in support of those foreign proceedings.38. In my judgment, paragraph 3.1(3) cannot be relied upon in a case such as the present, where the substantive dispute is before a foreign court and the jurisdiction of the English court against the principal defendant is only engaged by virtue of section 25 of the 1982 Act. Where the substantive dispute is before the Italian courts, the only basis for jurisdiction against the first defendant is section 25 and paragraph 3.1(5). Reliance on any of the other grounds of paragraph 3.1 would not have been possible, because the substantive dispute was to be litigated in Italy, not here. It would be bizarre in the extreme if there was jurisdiction to sue accessory parties such as the parents under the provisions of the remainder of paragraph 3.1, where there was no jurisdiction under those provisions against the primary defendant. 39 Even if that analysis is wrong and paragraph 3.1(3) is capable of applying to the parents in principle, there are a number of other reasons why the provision does not apply. In reality, as matters stand, there is no dispute between the claimants and the first defendant, let alone between the claimants and the parents (who have not raised any contention yet about the assets) as to the ownership of the assets. Any contrary argument is wholly artificial. If the first defendant (or the parents) were to contend that the relevant assets in Monaco were in truth their assets and not their son's, at that stage the court might order an issue to be tried but unless and until that happened, there would be no "claim" to be tried. Again, the position here is different from that in C Inc plc v L where there was a real dispute between the claimant and Mrs L as to the appointment of a receiver.[164]That was a case where the substantive dispute was before the Italian courts, whereas in the present case the substantive dispute between the claimants and the first defendant is before arbitrators in London. However, in my judgment that distinction is of no consequence, nor was Mr Howard QC able to suggest in his submissions that it was. The critical point, which is the same in the present case as in that case, is that the substantive claim between the claimants and the first defendant will never be tried by the English court and that it should be is a pre-condition of the application of paragraph 3.1(3).[165]The claimants rely upon the fact that, in contrast, the claims against the second defendant under the guarantees are before the English court. However, for the reasons I have already given, there is no suggestion that the second defendant has transferred its assets or that its asset base has been diminished, let alone that the third to thirteenth defendants have participated in any such transfer or diminution. Accordingly, there is no arguable basis for the Chabra jurisdiction against them in relation to the second defendant’s assets and thus no basis for saying that they are necessary or proper parties to the claim under the guarantees. Furthermore, the fact that the claim against the second defendant is before the English court is of no avail to the claimants in seeking to found Chabra jurisdiction under paragraph 3.1(3) of the Practice Direction, where the third to thirteenth defendants are said to be necessary or proper parties to the claim against the first defendant.[166]Mr Howard QC accepted during the course of argument on 19 July 2011 that, although the claimants have obtained judgments against the first and second defendants (in the former case where interim arbitration awards have been converted into judgments), it was not possible to found jurisdiction against the third to thirteenth defendants on the basis of paragraph 3.1(10) of the Practice Direction. As noted above, on the hearing of the claimants’ subsequent application for permission to appeal, Mr Howard placed far more reliance on sub-paragraph (10) which provides:
“A claim is made to enforce any judgment or arbitration award.”
[167]It seems to me that provision is not applicable for two reasons. First, by parity of reasoning with paragraph 42 of my judgment in Belletti, there is no claim against the third to thirteenth defendants to enforce those judgments. At most the claim against the third to thirteenth defendants would be for ancillary relief to assist the claimants to enforce the judgments against the first and second defendants, but any such claim falls outside sub-paragraph (10).[168]Second, even if that is wrong and the claimants are seeking to enforce against the third to thirteenth defendants, then although the arbitration awards against the first defendant have been converted into judgments of this court, the sub-paragraph is concerned with enforcement of a judgment or award against assets in this jurisdiction of a defendant who is out of the jurisdiction.[169]In this case the third to thirteenth defendants have no assets within the jurisdiction to which the claimants can point. To the extent that what the claimants are seeking to do is to “enforce” against those defendants (essentially by following the assets of the first defendant which had been transferred to the third defendant) that enforcement can only take place abroad and not in this jurisdiction, so sub-paragraph (10) is not applicable. This is the reason why the Court of Appeal held that the court had no jurisdiction to grant permission to serve out and I agree with their analysis.

Conclusion

[170]For all these reasons, the basis upon which the freezing injunction was granted by HHJ Mackie QC, namely that the corporate veil could be pierced and the third to thirteenth defendants made liable under the original contracts, is not sustainable. Equally, the Chabra jurisdiction is not available in the present case against any of the third to thirteenth defendants and a freezing injunction against them on that basis cannot be justified. It follows that the freezing injunction granted by HHJ Mackie QC on 9 June 2011 must be set aside.

Cited in 13 later judgments

and 4 more of the most senior