Midtown Acquisitions LP v Essar Global Fund Ltd & Ors [2017] EWHC 2206 (QB)

Case No CL-2016-000598[2017] EWHC 2206 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, The Rolls Building, 7 Rolls Buildings,, Fetter LaneDate Wednesday 30 th August, 2017
London, EC4A 1NL
Before
THE HON. MR JUSTICE BLAIR
Between
MIDTOWN ACQUISITIONS LPClaimant/
Transcript of the Shorthand Notes of Marten Walsh Cherer Ltd.,First Floor, Quality House, 6–9 Quality Court, Chancery Lane, London WC2A 1HP.DX 410 LDETelephone No: 020 7067 2900. Fax No: 020 7831 6864Email : info@martenwalshcherer.com
MR. MICHAEL BLOCH Q.C.(instructed by Boies Schiller Flexner (UK) LLP) for Claimant/Respondent.MR. JOHN ODGERS Q.C. and MR. SCOTT RALSTON (instructed by RPC LLP) for First Defendant, and for the Second and Third Defendants (instructed by CMS Cameron McKenna Navarro Olswang LLP).MR. SHAHRAM SHARGHY was present for Non-Party Respondent.
JUDGMENT
[1]The Claimants, Midtown Acquisitions LP (“Midtown”), are judgment creditors, and the First Defendants, Essar Global Fund Limited (“EGFL”), are judgment debtors in the sum of US$194,894,474.84. This debt is based on a New York judgment, and follows an order made by Teare J on 24 March 2017.[2]This aspect of the dispute concerns a Boeing 737-700 aircraft which has recently been fitted out as a private jet. It is a valuable asset, the evidence indicating a value of over US$60 million. However, as will be explained, Credit Suisse has a mortgage over the aircraft securing indebtedness to the bank of about US$101 million.[3]Ultimately, the main issue between the parties is whether the asset belongs to EGFL so as to be amenable to execution. The aircraft is, speaking broadly for the present, legally owned by the Third Defendant, White Springs Holdings Limited. This company is owned by the Second Defendant, Essar Global Assets Limited, which is in turn owned by EGFL. In short, Midtown asserts that the Third Defendant holds the aircraft on an express or resulting trust for EGFL, so that the aircraft constitutes “goods of the debtor” available to satisfy the judgment against EGFL, an assertion which EGFL and the other two defendants deny.[4]This aspect of the dispute began when Midtown instigated enforcement proceedings as regards the aircraft, which was then in the United Kingdom, on 27 and 28 July 2017. These enforcement proceedings are challenged by the defendants and various different points are raised. Following injunction proceedings issued by the defendants, on 31 July 2017 Knowles J ordered the matter to come on on an expedited hearing which was listed yesterday (29 August 2017) for a day.[5]Both counsel agreed (and indeed it was obvious) that a day was insufficient to resolve the many issues that have been raised and, with their concurrence, I am deciding some of the issues for which there was sufficient time. These go to the validity of the enforcement procedures which took place on 27 and 28 July 2017, together with the defendants’ contention that no order could have been made in any event since the bank’s mortgage made such an order futile and wrong in principle. If the defendants succeed on these points, it is common ground that the enforcement proceedings fall away and the defendants are entitled to have them set aside. If the defendants do not succeed, it is common ground that the remaining issues will require to be determined at a later date. These are the ownership issue, an issue as to whether Credit Suisse is a co-owner within the meaning of “goods of the debtor”, as used in Schedule 12 of the applicable legislation, which is the Tribunals, Courts and Enforcement Act 2007 (“the TCE Act 2007”), and whether the orders should in any event be discharged on non-disclosure grounds.[6]The factual background is as follows. Midtown ascertained that the aircraft was at Lasham Airfield near Alton, Hampshire. The enforcement process took place as follows. At the first hearing, which was without notice and which took place before Master Eastman on 27 July 2017, Midtown applied for, and obtained, a writ of control pursuant to CPR Part 83. The address given on the writ of control is Lasham Airfield, Lasham, Alton. A second application was made at the same time by Mr. David Asker, who is an authorised High Court Enforcement Officer (“HCEO”) and who, although a respondent, is not a party to these proceedings. He applied for, and obtained, a warrant of entry, pursuant to paragraph 15 of Schedule 12 to the TCE Act 2007, also for Lasham Airfield.[7]While he was on the way to Lasham Airfield, Mr. Asker learned that the aircraft was in fact at London Stansted Airport. In circumstances which are disputed, he went to Stansted Airport instead, the public part of which he could, of course, enter freely. He obtained access airside and then to the private part of the airport where the aircraft was. However, he had no warrant entitling him to enter it. He says that he was given a “licence” to enter by the relevant staff, and it is in contention between the parties whether this provides legal authority. He did, however, take various actions which Midtown says amounted to taking control of the aircraft. This happened, Midtown says, when Mr. Asker handed the pilot a copy of the writ of control at about 11 p.m. in the evening. I will come back to the precise facts in this regard.[8]On the following day, that is 28 July 2017, on becoming aware of these developments, the solicitors for the defendants wrote to the solicitors for Midtown and Mr. Asker objecting that the aircraft was not legally or beneficially owned by EGFL. As I indicated at the beginning of this judgment, that issue remains to be decided.[9]On 28 July 2017, at a second hearing before Master Cook which was also without notice, Mr. Asker applied for, and obtained, a second warrant of entry, this time specifying the address of London Stansted Airport, and including an order to enable access to be gained to the aircraft.[10]The defendants’ interlocutory attempts to restrain enforcement resolved themselves into the order made by Knowles J of 31 July 2017. In effect, the ring was held by the defendants giving undertakings not to remove the aircraft from its current location, and that the defendants’ solicitors would hold, pending further order, certain key documents without which the aircraft cannot fly. By the order, the Second and Third Defendants were joined as parties to the proceedings.[11]By the present applications, the defendants seek to set aside the relief obtained by Mr. Asker and Midtown in its entirety.[12]The issues for present purposes narrowed in the course of the hearing. One such issue is whether a writ of control is susceptible to being set aside under CPR rule 23.10. In written submissions, Midtown argued that CPR rule 23.10 does not apply to the issue of a writ of control under CPR 83.9. However, this was a case where the permission of the court was required under CPR 83.2(3)(e) and I am satisfied that the defendants are entitled to make this application under CPR 23.10 or, alternatively, under the inherent jurisdiction of the court. The contrary was not pursued in oral argument (though when this judgement was handed down counsel indicated that he wished to keep the point open.) There is, in any event, no dispute that CPR 23.10 applies to the two entry warrants.[13]On these facts, the first question is whether Mr. Asker could lawfully have taken control of the aircraft. The law is contained in the TCE Act 2007, section 62(2) of which provides that the power conferred by a writ of control is exercisable only by using the procedure in Schedule 12. For present purposes, the key paragraph of Schedule 12 is paragraph 9, which provides as follows:
“An enforcement agent may take control of goods only if they are — (a) on premises that he has power to enter under this Schedule, or (b) on a highway.”
[14]“Power to enter” is dealt with, so far as relevant, in paragraphs 14 and 15 of Schedule 12. Paragraph 14 deals with entry without warrant. It provides that an enforcement agent may enter premises to search for, and take control of, goods where the debtor (a) usually lives, or (b) carries on a trade or business. Neither of these applies here.[15]Paragraph 15 deals with entry under warrant. I will set that out in full:
“(1) If an enforcement agent applies to the court it may issue a warrant authorising him to enter specified premises to search for and take control of goods. (2) Before issuing the warrant the court must be satisfied that all these conditions are met — (a) an enforcement power has become exercisable; (b) there is reason to believe that there are goods on the premises that the enforcement power will be exercisable to take control of if the warrant is issued; (c) it is reasonable in all the circumstances to issue the warrant.”
[16]When Mr. Asker allegedly took control of the aircraft at 11.00 p.m. on 27 July 2017, there was indeed a warrant “specifying” premises, but the specified premises were Lasham Airfield and not Stansted Airport. There is also a warrant specifying Stansted Airport, as I have described, but that was not obtained until the following day. Midtown says that it does not rely on these warrants and that power to take control of the aircraft comes from the writ of control exercised in the private part of the airport because the staff gave Mr. Asker a licence to be there.[17]It is necessary to look at his evidence in this regard. Mr. Asker has made three witness statements. In the second, he says as follows:
“On arrival at Stansted Airport, I was advised that the Aircraft was parked on the north side of Stansted Airport at the jet centre terminal.”
I interpose to say that, as appears from the evidence, this is a private terminal used, for example, by corporate jets such as the aircraft at issue in the present case. “15. I met the Airport Duty Operations Manager and was driven to the Security Processing Centre to be given security clearance and permit documents to allow me to attend the airside section of the airport under escort. A copy of the writ was handed to the NATS Deputy Manager and the purpose of the attendance explained. I was informed by the Claimant/Respondent’s solicitor that NATS had indicated that the Aircraft had filed a flight plan to fly to Mumbai, via Lisbon, at 13:00 the following day (28 July 2017). This confirmed my view that the Aircraft was likely to leave the jurisdiction and that control should be taken pursuant to the writ. “16. When I arrived at the jet centre terminal at 22:00, I saw the Aircraft standing on the apron adjacent to the jet centre. I was conducted to the operations room of the jet centre and introduced to the Duty Manager. The jet centre was operated by Inflite Engineering Services Ltd (‘Inflite’) and after introduction I explained that I was attending to take control of the Aircraft.”[18]This evidence is unclear as to what Mr. Asker said, and did, to get airside and obtain what is described as the licence to go to the Inflite Jet Centre. As the defendants say, from his evidence it seems as though he used the writ of control for these purposes. However, the writ of control did not entitle him to obtain entry. These were not premises that he had power to enter under Schedule 12. He needed a warrant to do that, and had a warrant, but for a different airport.[19]Midtown and Mr. Asker himself have suggested that this is a common situation and that it is lawful to take control of goods in premises other than those identified in paragraph 14 of Schedule 12 if the High Court Enforcement Officer is allowed into the premises even if he has no warrant. A decision of Master Yoxall on 24 August 2017 about a car in a showroom was cited in support.[20]I recognise, of course, that fact situations vary, and that aircraft are uniquely mobile and apt to fly off if targeted by creditors. As against that, in the highly sensitive world of aviation, where observing the rules is of the utmost importance, I do not think that an HCEO can properly rely on a writ of control to obtain airside access where there is no warrant of entry entitling such access. Although Mr. Asker’s evidence seeks to describe the entry warrant that he did obtain for Lasham Airfield as having been obtained as a matter of convenience, I infer that he obtained it because he knew that he required it. Furthermore, the following day, he did obtain an entry warrant to the Inflite Jet Centre. Again, I infer that he obtained it because he knew he required it, or at least that what he had done by way of taking control was ambiguous without it.[21]In submissions made on his behalf, it was suggested that he was entitled to enter the premises without a warrant pursuant to paragraph 14 of Schedule 12 of the TCE Act 2007 because “premises” are defined in paragraph 3 as including aircraft. However, that contention is wrong, because to qualify for entry without warrant under paragraph 14, the debtor has to live or carry on business in the premises which, of course, is not the position in this case.[22]The second question is whether, if contrary to this conclusion, Mr. Asker did have power to act in this way, he did, in fact and in law, take control of the aircraft at about 11.00 pm on 27 July 2017 as he says he did. In this regard, his evidence is as follows:
“19. At approximately 23:05, the pilot arrived [that is to say in the Inflite Jet Centre] and identified himself as Captain Amit Sirohi. I formally identified myself and again explained the reason for my attendance and handing him a copy of the writ.”
To interpose, that is, of course, the writ of control. “I advised him that I had now taken control of the aircraft and that it was not to be removed. I asked for access to the Aircraft and that he hand over to me the certain Aircraft documentation without which the Aircraft would not be able to fly (as to do so would be in breach of Civil Aviation Regulations). I proffered a controlled goods agreement (‘CGA’) but Captain Sirohi was not prepared to sign it. He agreed to pass it to his manager. I again asked for the Aircraft’s documents, at which he hesitated and said he would have to obtain clearance, to which I replied that if it would make it easier, I would be prepared to remove the documents myself under his supervision, if he would accompany me on board and give me access to the flight deck. Captain Sirohi declined and said that he would have to ask his management. Captain Sirohi then left to return to his hotel.”[23]Whilst this evidence is clear so far as it goes, there are a number of observations to make about it. First, there is a statutory requirement for a notice to be given by the enforcement officer to the debtor. At some point, Mr. Asker filled in the form and signed it. The form has a choice of boxes to tick, one stating that the officer has not taken control of any goods, the other stating that the officer has taken control of goods. Neither box is ticked on the form, which Mr. Asker says was an oversight. I am sceptical of this explanation coming from such an experienced enforcement officer. It may reflect the fact that control was not taken in the ways he sought to do. I should add that there was a further notice, which it was apparently thought appropriate to backdate, filled in by one of his colleagues the following day. Nothing turns on this and I need say nothing more about it.[24]Second, Mr. Asker signed a witness statement dated 28 July 2017 in support of the application to Master Cook for the second entry warrant. In that witness statement, he states that he needs the order, which includes both an entry warrant and an order directing Inflite to enable access to the aircraft, so as to take control of the aircraft. The witness statement is to the effect that control has not been taken. This is inconsistent with both his and Midtown’s case that control was taken the night before.[25]In challenging the lawfulness of the action taken, the defendants also rely on the ways of taking control stipulated in paragraph 13 of Schedule 12, and submit that none of these apply. However, I am reluctant to read paragraph 13 in a limited way. It has to be flexible enough to apply to goods of very different kinds. I should say that the evidence is ambiguous as to whether Mr. Asker stayed in the Inflite Jet Centre after he met the pilot, but clearly he sought to do whatever he could to take control of the aircraft. I can well see that if everything possible is done to secure the goods (here an aircraft) the court should uphold the action. The policy of the court is to see that its judgments are enforced.[26]So I come back to what I consider to be the basic objection to the course that Mr. Asker took, which is that he obtained airside access and access to Inflite’s premises without a warrant or, to be precise, with a warrant, but one which specified a different airport. In my view, the steps he took to take control of the aircraft are not valid in such circumstances. The defendants are correct to submit that he did not have lawful authority to take control of the aircraft simply under the writ of control.[27]I come to the next question which I have to decide. The defendants submit that a further reason why the Masters’ orders for warrants to enter Lasham Airfield and London Stansted Airport should be set aside is that this is a clear case where, even if the “goods of the debtor” requirement was fulfilled, which they say it was not, it would be unreasonable to allow the goods to be taken into the control of the HCEO because their sale could not be expected to realise any money. This is because all the proceeds of sale would be taken by Credit Suisse. Accordingly, they submit that the third requirement for the court to issue an entry warrant under paragraph 15(2) of Schedule 12 of the TCE Act 2007, namely, that it is “reasonable in all the circumstances to issue the warrant”, is not satisfied.[28]It is not in dispute that the aircraft secures payment of the following debts: first, US$51.6 million outstanding from the Third Defendant to Credit Suisse; and, second, US$49.9 million outstanding from a company called Rose Gem Enterprise Limited to Credit Suisse. Rose Gem is also indirectly owned by EGFL. Together, this gives a total of US$101.5 million. The evidence is to the effect that Midtown has had the aircraft independently valued at US$60.62 million, and though it says that this is only a desktop valuation, it has recently relied on it in support of the demand that a sum calculated by reference to it be paid into court. The secured obligations therefore exceed the value of the aircraft even before sale costs are factored in by a very significant margin. In these circumstances, execution against the aircraft would result in all its proceeds after the costs of sale being paid to Credit Suisse.[29]There is some, but not much, evidence as to Credit Suisse’s attitude to these proceedings, at least so far as the court was referred to it. Credit Suisse’s solicitors sent an email on 18 August 2017 referring to the loan agreement with the Third Defendant and stating:
“We confirm that Credit Suisse has security over the aircraft and any proceeds of any sale of the aircraft and that such proceeds would be applied upon receipt towards satisfaction of the outstanding indebtedness, or held by Credit Suisse on suspense account pending any part of such indebtedness becoming due and payable.”
[30]However, it is not seriously in dispute that the indebtedness to Credit Suisse, which is secured on the aircraft, very comfortably exceeds its value. The secured debt, of course, takes priority to the judgment debt. It was submitted by Mr. Odgers Q.C., for the defendants, that the enforcement procedure is to be used for genuine enforcement purposes. It should not be used merely to put pressure on the judgment debtor to pay. I agree with this proposition. He goes on to submit that, in the present circumstances, it cannot be reasonable to issue a warrant. On the contrary, it would be futile to do so.[31]Mr. Bloch Q.C. submits that this is to take too narrow a view. He points to evidence about a substantial forthcoming transaction which may lead to EGFL’s credit lines being extended. He submits that it is not correct to see the purpose of taking control as necessarily leading to a sale. The purpose is to facilitate recovery of the judgment debt. Taking control of goods may enhance the position of the judgment creditor where it reduces secured debts which take priority over the judgment debt.[32]In the circumstances of the present case, I accept that submission. Generally, no doubt, a judgment creditor will not want to go to the expense of enforcing against an asset in which the debtor has no free equity, but this aircraft is a very substantial asset and the position as regards the secured creditors may change. It is not unreasonable, in my view, for the judgment creditor to seek to take control over the aircraft when, absent such control, it will very likely leave this jurisdiction and not return. On this point, therefore, I find for Midtown. ------------------------------------------------------

Cited in 1 later judgment