||Neutral Citation Number:  EWHC 2226 (Comm)
||Case No: 2004 FOLIO 441
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
THE HONOURABLE COLMAN J.
|| LAEMTHONG INTERNATIONAL LINES
||- and -
||ARTIS AND OTHERS
Mr Stephen Males QC (instructed by Jackson Parton) for the Claimant
Ms Philippa Hopkins (instructed by Shaw and Croft) for the 2nd and 3rd Defendants
Hearing dates: 3, 5 and 6 August 2004
HTML VERSION OF JUDGMENT
Crown Copyright ©
The Hon Mr Justice Colman :
- This is an application by the second and third defendants to set aside a freezing injunction ordered by Morison J. on 12 July 2004. The circumstances in which it is made are distinctly unusual. However, they raise an issue of wider importance, namely, if an application is made without notice for a freezing injunction and the judge refuses it, are there any circumstances in which the claimant can mount a renewed application before another judge?
- The facts in outline are as follows.
- The claimant is the owner of the LAEMTHONG GLORY. That vessel was chartered to the first defendant (ARTIS) on an amended Sugar Charter Party 1999 Form dated 8 December 2003 for a voyage from Santos to Hodeidah or Aden carrying 14000 mt of bagged sugar.
- The value of the cargo was between US$3 million and US$4.2 million.
- Bills of lading were issued by the shipowners which named the second defendant as consignee. The sugar was sold by ARTIS, the first defendant, to the second defendant, on C & F terms.
- Under that contract the second defendant was obliged to pay for the sugar through its bank before being entitled to take delivery of the sugar by presentation of the bills of lading to the ship at the port of discharge.
- On 22 February 2004, four days before the expected arrival of the vessel at the nominated port of discharge (Aden), the second defendant asked ARTIS to issue a letter of indemnity to the shipowners and to request the shipowners to instruct the master/ship's agents to allow the vessel to commence discharge and deliver the cargo to the second defendant without production of the bills of lading which, it was stated, had not yet been received.
- On 25 February 2004 the second defendants repeated their request to ARTIS and also enclosed their letter of indemnity in favour of ARTIS, their servants and agents against the consequences of releasing the cargo without presentation of the bills of lading. By that letter of indemnity the second defendants also undertook to provide bail if the vessel were arrested.
- On 16 February the vessel arrived at Aden and commenced discharge of the sugar cargo. This was completed on 8 March. The second defendant thereby obtained possession of the entire cargo without producing the bills of lading. On 10 March 2004 the vessel was arrested at Aden by the Yemen and Kuwait Bank for Trade Investment of Sanaa ("the Bank") which claimed to be the indorsee of the bills of lading and which alleged wrongful delivery by the vessel. The third defendant effectively controls the second defendant in addition to being a substantial shareholder in it and to owning 17 per cent of the shares in the Bank.
- On 8 April 2004 the claimant shipowners applied to Cooke J. for a worldwide freezing injunction against the second and third defendants. The Claimants were represented by their solicitor Mr. Nicholas Parton. The basis of the claim against the defendants was an implied contract between the parties or for breach of an arbitration agreement. Cooke J. refused to grant an injunction because there was not a sufficiently good arguable case.
- On 29 April 2004 the Claimants, not having appealed the order of Cooke J., applied again for a worldwide freezing injunction, this time to David Steel J. They were again represented by Mr. Parton, but this time he relied on the argument that the shipowners were the agents of ARTIS within the meaning of the second defendants' letter of indemnity and that they were therefore within the class of those entitled to the benefit of the second defendant's letter of indemnity and by reason of the Contracts (Rights of Third Parties) Act 1999 were entitled to enforce it directly against the second defendants. An implied contract on the basis of Brandt v. Liverpool was also relied upon. David Steel J. refused the application, also on the grounds that there was no good arguable case. I shall refer to what passed at that hearing in more detail later in this judgment. However, according to a note of the hearing, David Steel J. did expressly warn the claimants against mounting yet a further renewed application unless they had fresh evidence to be relied upon.
- On 18 May 2004 a paper application was made to Gross J. for permission to serve the claim form on the second and third defendants out of the jurisdiction. The affidavit made no mention of the failed applications to Cooke J. and to David Steel J. for freezing injunctions. Gross J. granted the application against both defendants.
- Meanwhile, the vessel remained under arrest at Aden. No bail was put up by the shipowners or their Club. The Bank had not apparently been put in funds by the second defendants and therefore was asserting its security entitlement as holder of the bills of lading.
- On 12 July 2004 the claimants applied to Morrison J. for a worldwide freezing injunction on substantially the same grounds as had been put before David Steel J. This time they were represented by leading counsel, Mr. Timothy Young Q.C. I shall have to refer to what passed at that hearing in more detail later in this judgment. However, having been informed of the previous hearings before Cooke J. and David Steel J., Morison J. decided to hear the renewed application and, having done so, granted the injunctions against both defendants.
- The second and third defendants now apply to have these injunctions set aside on the following grounds in respect of both defendants:
"(a) the Claimants were not entitled to apply to Mr. Justice Morison for a freezing order in circumstances where their application had previously been refused by Mr. Justice David Steel on 29th April 2004 and by Mr. Justice Cooke on 8th April 2004;
(b) there is no good arguable case on the merits against either the Second Defendant or the Third Defendant;
(c) there was and is no evidence of a real risk that any judgment obtained by the Claimants will go unsatisfied;
(d) the Claimants and their legal advisers failed to disclose to Mr. Justice Morison on the application for a freezing order facts and matters that were material to be disclosed, principally;
(i) that Mr. Justice David Steel had expressly directed that the Claimants were not to apply to another Judge for a freezing order on the basis of the same material;
(ii) that, on the application to Mr. Justice Gross for permission to serve out, no disclosure had been given of the findings by Mr. Justice Cooke and Mr. Justice David Steel that there was no good arguable case against the Second and Third Defendants;
(iii) that the Second Defendant is a limited company and/or that there was little or no evidence to support the Claimant's assertion that the Second Defendant is a partnership;
(iv) the Second Defendant was founded in 1953 and is a very substantial organisation with a very large turnover and real assets in the Yemen;
(v) there was no unsatisfied arbitration award against the Second Defendant as alleged by the Claimants;
(e) the Claimants have failed to put up security in accordance with the undertaking required by Schedule B, para. (1) of Mr. Justice Morison's Order."
- Further grounds relied on in respect of the third defendant were:
"(a) there is no pleaded cause of action against the Third Defendant;
(b) the Second Defendant is a limited company and not a partnership as alleged by the Claimants, and that accordingly there is no basis for the allegation that the Third Defendant is jointly and severally liable with the other partners for the liabilities of the Second Defendant."
- The third defendant also applied for an order striking out the claim form and particulars of claim against him under CPR. 3.4 on the basis that they disclosed no reasonable grounds for bringing the claim against him. Both defendants have also applied to set aside the order of Gross J. giving permission to serve outside the jurisdiction.
- In view of the considerable pressure on judicial time in the first week of August it was agreed that the hearing should be confined to the application to set aside the order of Morison J. freezing the assets of the second and third defendants.
- The first question to be answered is whether Morison J. had jurisdiction to hear a renewed application following the refusal of a freezing order by David Steel J.
- In Woodhouse v. Consignia plc.  EWCA Civ.275 the Court of Appeal was concerned with the correct approach to be followed where a claimant whose claim had been automatically stayed following a failure to bring the proceedings before a judge throughout the period 26 April 1999 to 25 April 2000 applied for the automatic stay to be lifted. It held that the district judge could properly exercise his discretion to lift or refuse to lift the stay if he considered each of the matters specified in CPR. 3.9. In the second of the cases considered by the Court of Appeal the claimant's first application to lift the stay was refused, but he renewed his application to a district judge, the second time adducing highly relevant evidence which, although available, had not been placed before the district judge on the first occasion. The second district judge this time again refused the application mainly because it was a second application relying on evidence which could have been adduced on the first application. His judgment was upheld by the judge on appeal. The Court of Appeal held that on the second application the district judge and the circuit judge had failed to exercise the required discretion properly or at all because of their failure to consider the CPR 3.9 factors. Although the point was not raised as such, the Court of Appeal appears to have proceeded on the assumption that the district judge did have jurisdiction to hear the second application.
- At paragraphs 55 to 58 Brooke L.J., giving the judgment of the court said this:
"The application of 8 November 2000 was undoubtedly a 'second bite at the cherry'. It was supported by evidence that was available at the time of the first application. There was no good reason for the failure to place that evidence before the court on the first occasion. We accept that the fact that the evidence relied on in support of the application that was made on 8 November could and should have been put before the court in support of the earlier application is material to the exercise of the discretion conferred by CPR r. 3.9(1). There is a public interest in discouraging a party who makes an unsuccessful interlocutory application from making a subsequent application for the same relief, based on material which was not, but could have been, deployed in support of the first application. In some contexts, this is partly because, as Chadwick LJ said in Securum Finance Ltd v. Ashton  Ch 291, there is a need for the court to allot its limited resources to other cases. But, at least as important is the general need, in the interests of justice, to protect the respondents to successive applications in such circumstances from oppression. The rationale for the rule in Henderson v. Henderson (1843) 3 Hare 100 that, in the absence of special circumstances, parties should bring their whole case before the court so that all aspects of it may be decided (subject to appeal) once and for all is a rule of public policy based on the desirability, in the general interest as well as that of the parties themselves, that litigation should not drag on for ever, and that a defendant should not be oppressed by successive suits when one would do: see per Sir Thomas Bingham MR in Barrow v. Bankside Members Agency Ltd  1 WLR 257, 260A-D.
In our view, although the policy that underpins the rule in Henderson v. Henderson has relevance as regards successive pre-trial applications for the same relief, it should be applied less strictly than in relation to a final decision of the court, at any rate where the earlier pre-trial application has been dismissed.
To take an example: suppose that an application for summary judgment in a substantial multi-track case under CPR r 24 is dismissed, and the unsuccessful party then makes a second application based on material that was available at the time of the first application, but which through incompetence was not deployed at that time. The new material makes the case for summary judgment unanswerable on the merits. In so extreme a case, it could not be right to dismiss the second application solely because it was a second bite at the cherry. In those circumstances, the overriding objective of dealing with cases justly, having regard to the various factors mentioned in CPR r 1.1(2), would surely demand that the second application should succeed, and that the proceedings be disposed of summarily. In such a case, the failure to deploy the new material at the time of the first application can properly and proportionately be reflected by suitable orders for costs, and, if appropriate, interest. The judge would, of course, be perfectly entitled to dismiss the second application without ceremony unless it could be speedily and categorically demonstrated that the new material was indeed conclusive of the case.
In the present case, it is clear that both the district judge and the judge considered that the fact that the application of 8th November 2000 was a second bite at the cherry was decisive. In our view, they were wrong to do so. They failed to take into account the evidence of Mr. Collins, and to consider how cogent the case was for lifting the stay, having regard to the provisions of CPR r 3.9(1). In short, they failed to exercise their discretion at all. In these circumstances, it is necessary for us to exercise our discretion afresh."
- It is an implicit assumption in this reasoning that the district judge did have jurisdiction to hear the second application. The mere fact that it was a second application for the same relief did not preclude consideration of whether the stay should be lifted. However, in addition to the CPR 3.9 factors which would have to be considered were that a first application, there would also have to be taken into account in the discretionary equation the additional factor that this was a second application. It is clear from the judgment that such factor would ordinarily weigh against the discretion being exercised in favour of the applicant. However, where on the second application matters were brought to the attention of the Court which had not been put before it on the first application, such matters might when taken into account with the CPR 3.9 factors displace the adverse effect of the repetition of the application. In those circumstances the overriding objective under CPR 1.1 might "demand that the second application shall succeed".
- In the second case before the Court of Appeal (the Steliou case) the court was dealing with a situation where substantial available evidence had not been adduced on the first application and where that evidence pointed very strongly to the claimant having an unanswerable claim. The exercise of the discretion should therefore have been directed to that additional evidence which had not previously been before the court. The reference by Brooke LJ. the passage cited above to the judgment of Chadwick L.J. in Securum Finance Ltd.v. Ashton  Ch.291 was in relation to the following passage at p. 309:
"For my part, I think that the time has come for this court to hold that the 'change of culture' which has taken place in the last three years and, in particular, the advent of the Civil Procedure Rules has led to a position in which it is no longer open to a litigant whose action has been struck out on the grounds of inordinate and inexcusable delay to rely on the principle that a second action commenced within the limitation period will not be struck out save in exceptional cases. The position, now, is that the court must address the application to strike out the second action with the overriding objective of the Civil Procedure Rules in mind and must consider whether the claimant's wish to have a 'second bite at the cherry' outweighs the need to allot its own limited resources to other cases. The courts should now follow the guidance given by this court in Arbuthnot Latham Bank Ltd v. Trafalgar Holdings Ltd  1 WLR 1426, 1436-1437: 'The question whether a fresh action can be commenced will then be a matter for the discretion of the court when considering any application to strike out that action, and any excuse given for the misconduct of the previous action: see Janov v Morris  1 WLR 1389. The position is the same as it is under the first limb of Birkett v. James  AC 297. In exercising its discretion as to whether to strike out the second action, the court should start with the assumption that if a party has had one action struck out for abuse of process some special reason has to be identified to justify a second action being allowed to proceed'. "
- In my judgment, the result of the reasoning in these two decisions is as follows. In the field of without notice applications for a pre-trial discretionary remedy, such as a freezing order, if a claimant's first application is refused, he may if he chooses, appeal to the Court of Appeal. That, at least, is clear. If, however, he then issues a second application to a judge, the judge would have to take a threshold decision, namely whether the character of the second application made it appropriate that he should entertain it. That would be a discretionary exercise. Normally a factor of great, if not determinative, weight would be whether on that second application new evidence or other matters were to be brought to the court's attention which had not been before the court on the first application and which were substantially material to the exercise of the court's discretion in favour of the claimant. In such a case the judge might conclude that the interests of justice under the CPR overriding objective outweighed the public policy considerations of conservation of judicial resources in the interests of other court users under the overriding objective. Where, however, a second application introduced nothing that was not before the court on the first application it would normally be the case that the discretion to hear that application would not be exercised in favour of the claimant. He had made the identical application on the same materials. That had been rejected and he had not availed himself of the opportunity to appeal that decision. Any further hearing would therefore simply be in substance an appeal from the first decision. In as much as it would simply be a re-run of the previous hearing in the hope that another judge would arrive at a different conclusion, it would be using a commercial judge to provide a facility which was properly the function of the Court of Appeal. That, in my view, would be an abuse of process in the sense that it would be an impermissible use of the resources of the court.
- At the first directly relevant hearing on 29 April 2004 before David Steel J., according to a note made by the claimant's solicitor, he rejected the application because he did not consider that upon any of the grounds relied upon had the claimant established a good cause of action. He referred specifically to "the agents argument, the 1999 Act or the Brandt v. Liverpool approach". Then, in response to a request by Mr Nicholas Parton, the claimant's solicitor, whether there could be liberty to apply, the note records David Steel J. as saying this:
"DS: yes but there comes a stage and it becomes repetitious.
Thus if it is on the material now before
just appeal against me now.
If there is new material
then you can have another bite of the cherry.
But do not try another judge on the same material.
I find that there is not sufficiently arguable cause of action for freezing action."
- It is to be observed that this comment reflects in outline exactly the approach to repeat hearings which I have already explained.
- Following this rebuff, on 18 May 2004 the claimant applied on paper for permission to serve the proceedings outside the jurisdiction on both the second and third defendants. That application came before Gross J. and was granted. As appears from the witness statement of Mr Parton which was put before Gross J. in support of the application, it was based on the argument that there was a good cause of action by reason of the scope of letter of indemnity and the effect of the Contracts (Rights of Third Parties) Act 1999, s1(1) or alternatively by reason of the principle in Brandt v. Liverpool  1 KB 575 and The Captain Gregos (No.2)  2 Lloyd's Rep 395. The witness statement made no mention of the failed applications for a freezing order before Cooke J. or David Steel J. and in particular did not refer to the ground on which the latter had rejected the application, namely the lack of a good cause of action. Gross J., having considered that witness statement and the draft Particulars of Claim, obviously took the view that there was at least a triable issue as to the claimant's cause of action.
- The first thing that any commercial judge would wish to be satisfied about when considering such a paper application would be that very point and he would apply for that purpose the test of whether there was a serious issue to be tried which is the same test as the prospect of success needed to resist a strike-out application under CPR 24.2: see Seaconsar Far East Ltd v. Bank Markazi  1 AC 438 and De Molestina v. Ponton  1 Lloyd's Rep 271.
- Mr Parton, who is a solicitor of very considerable experience in the conduct of maritime litigation in the Commercial Court, was then clearly concerned to know what could be done on behalf of the claimant to pursue the claim for a freezing injunction. The imminent risk of the claimant's vessel being sold by the Yemen court at the instance of the 2nd defendant's bank was clearly a matter of great concern. He therefore very properly consulted leading counsel, Mr Timothy Young QC. In the result there was a fresh without notice application for a freezing order set up on 12 July 2004 before Morison J. Mr Young appeared for the claimant. The claimant's solicitor's note gives the following account of the hearing:
"The hearing commenced at just after 1200 and Mr Justice Morison began by saying that our clients had two problems namely first did they have a cause of action and secondly was he able to hear the case as the matter had twice been before the Court and should not the right course be for our clients to appeal Mr Justice Steel's judgment.
Mr Young responded to the second 'problem' first by saying that he had looked at the White Book and that under the old rules one had to appeal. He went on to say that the new CPR does not deal with the matter at all. He said that one had to see if the new application was abusive which this was not. He also said there was a slight change of circumstances in that Mr Justice Gross thought there was a sufficient cause of action for service out.
Mr Young then essentially followed his skeleton argument with the Judge being referred to the wording of LOI. A great deal of time was then spent going through the draft order and after this was done Mr Justice Morison gave a short judgment as follows:
'This is an ex parte application for a worldwide Mareva. It has been before two other judges. This application has been founded slightly differently and I have had the benefit of legal argument from Mr Young QC. I accept that the Claimants have a good arguable case that they are entitled to the benefit of the LOI and as a result of the 1999 Act the Claimants are entitled to enforce those rights under the agreement. I can understand that the other side may have arguments which go the other way and they can if they wish come and bring those before me.
I am satisfied the claimants have a good arguable case and therefore I am satisfied that I can grant the order. Signed order at 1241 London time."
- The skeleton argument put before the judge by Mr Young included the following passage:
"The Claimants have sought relief from the court before. Cooke J. and David Steel J. have refused Freezing Orders, albeit for different reasons:
Cooke J. declined one when the application was made by the Claimants' solicitor founded on a different primary cause of action to that now advanced, namely a Brandt v. Liverpool contract.
David Steel J. considered a renewed application by the same solicitor based upon a different cause of action, similar to that now advanced but without sustained argument thereon, and he concluded without giving reasons that the cause of action relied on was not strong enough for Freezer relief.
Since then, however, Gross J. has granted permission to serve the proceedings out of the jurisdiction; he was rightly satisfied that the strength of the cause of action was sufficient for that purpose. David Steel J. must have failed to understand the true strength of the case."
- In these circumstances, Morison J. clearly considered whether, in his discretion, he should entertain yet a further application. He obviously exercised his discretion to do so because he accepted the claimant's argument that there was sufficient substance in the LOI/1999 Act point to support a cause of action.
- It is now submitted on behalf of the second and third defendants that Morison J. should never have made that order because amongst other points, the hearing before him was an abuse of process. No additional evidence had been adduced. The only additional consideration was the decision of Gross J. giving permission to serve outside the jurisdiction on the basis of causes of action which included that which had failed before David Steel J.
- In Ninemia Maritime Corporation v. Trave Schiffalutsgesellschaft etc  2 Lloyd's Rep 600 Mustill J. observed in relation to the threshold test for a Mareva injunction, at p 605L:
"In these circumstances, I consider that the right course is to adopt the test of a good arguable case, in the sense of a case which is more than barely capable of serious argument, and yet not necessarily one which the Judge believes to have a better than 50 per cent chance of success."
- Thus although the relevant threshold was somewhat lower in the application before Gross J. than that before David Steel J., there was before Morison J. material which suggested that at least one commercial judge considered that the claimant's cause of action point was better than fanciful.
- Finally, I come to the crucial point for the purposes of the present application, namely the submission by Miss Philippa Hopkins on behalf of the 2nd and 3rd defendants that Morison J.'s order should be set aside because he should not have entertained the application.
- I have already held that he had jurisdiction to entertain the application but that whether or not he did so was a matter of discretion. Further, the normal response to a renewed application on the same material as that before the court on an earlier identical application would be to exercise that discretion against exercising such jurisdiction. Accordingly, the following matters must now be resolved.
- Should Morison J. have characterised the renewed application as an abuse of process and therefore exercised his discretion against entertaining it?
- Is it open to this court to hold that Morison J. wrongly exercised his discretion? And, if so, should it set aside his order on that ground alone?
- As to (i), I am bound to say that Morison J. having had the benefit of detailed argument by very experienced leading counsel, and knowing of the decision of Gross J. on the same facts, albeit by reference to a somewhat lower threshold, must have felt that the justice of the case sufficiently required his intervention. Moreover, he had, I believe, previously read Mr Young's skeleton argument and had therefore had the opportunity together with Mr Young's oral submissions of a somewhat more explicit analysis of what is a moderately complicated factual basis for the claim than that available to David Steel J. on the basis of the solicitor's submissions.
- Whereas many judges might well have declined to exercise their discretion so as to entertain this application because it was an abuse of process, I consider that it is impossible to say that Morison J. exercised his discretion in an untenable manner. He was confronted by a very awkward situation. There was a difference of opinion between commercial judges. He had formed a view which was contrary to that of David Steel J. in relation to the cause of action. If he declined to hear the application there would be decisions of different judges, David Steel J. and Gross J., on the same issue which if not necessarily inconsistent (because of the different applicable thresholds) were at least verging on the inconsistent. The alternative to intervention was to let the matter go to the Court of Appeal if the claimants proposed to attempt to obtain a very considerable extension of time for appealing and thereby to leave them unprotected for many weeks and in danger of losing their vessel in the period before a decision from the Court of Appeal was forthcoming.
- Accordingly, on the very exceptional facts of this case, I have come to the conclusion that abuse of process is not a basis for setting aside the order of Morison J. He obviously considered that the interests of justice component of the overriding objective outweighed the component of the public interest in conserving judicial resources. In my judgment that was not a conclusion on the exercise of his discretion which shows that the discretion was exercised on an erroneous basis.
- As to (ii) I have no doubt that a judge hearing an application to set aside a without notice freezing order is entitled to take the view that the court's discretion on any relevant factor should be exercised in a manner different from that of the judge who granted the order. The process involved is not one by way of appeal but of re-hearing of the application. As such, discretion is re-opened.
- I must now consider whether there is sufficient substance in the letter of indemnity/1999 Act basis for a cause of action to cross the appropriate threshold for a freezing order, namely a good arguable case as defined in Ninemia Maritime, supra.
- As regards the second defendant, the underlying issues are whether the letter of indemnity addressed by the second defendant to ARTIS is to be construed as providing an indemnity to the claimant shipowners because they fall within the words of clause 1 - "you, your servants and agents".
- The letter of indemnity provided as follows:
"The above cargo was shipped on the above vessel by CARGILL AGRICOLA SA and USINA CAETA SA and consigned to ABDULLAH MOHAMMED FAHEM AND CO, PO BOX 3637, HODEIDAH REPUBLIC OF YEMEN for delivery at the port of HODEIDAH OR ADEN PORT REP OF YEMEN but the bills of lading have not yet arrived we hereby request you to deliver the said cargo to ABDULLAH MOHAMMED FAHEM, PO BOX 3637, HODEIDAH REP OF YEMEN AT ADEN without production of the original bills of lading.
In consideration of your complying with our above-request, were hereby agree as follows:
1) To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability, loss, damage or expense of whatsoever nature which you may sustain by reason of delivering the cargo in accordance with our request.
2) In the event of any proceedings being commenced against you or any of your servants or agents in connection with the delivery of the cargo as aforesaid, to provide you or them on demand with sufficient funds to defend the same.
3) If, in connection with the delivery of the cargo, as aforesaid, the ship, or any other ship or property in the same or associated ownership management or control, should be arrested or detained or should the arrest or detention thereof be threatened, or should there be any interference in the use or trading of the vessel (whether by virtue of a caveat being entered on the ship's registry or otherwise howsoever), to provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such ship or property or to remove such interference and to indemnify you in respect of any liability, loss, damage or expense caused by such arrest or detention or threatened arrest or detention or such interference, whether or not such arrest or detention or threatened arrest or detention or interference may be justified.
5) As soon as all original bills of lading for the above cargo shall have come into our possession, to delivery same to you, or otherwise to cause all original bills of lading to be delivered to you, whereupon our liability hereunder shall cease.
7) The indemnity shall be governed by and construed in accordance with English Law and each and every person liable under this indemnity shall at your request submit to the jurisdiction of the High Court of Justice in England."
- It is submitted on behalf of the claimant shipowners that the shipowners were the agents of ARTIS for the purpose of delivery of the cargo to the receivers without production of the bills of lading. As the party having possession of the cargo who responded to the request for delivery they would be the party directly exposed to claims for damages for misdelivery and who would need to have the bills of lading delivered to them once they came into the possession of the second defendant as per clause 5 of the letter of indemnity.
- In this connection, it is submitted that, given that the goods were sold by ARTIS to the second defendant on C&F terms, ARTIS were responsible for procuring shipment by entering into a contract of carriage with carriers to effect delivery and they also reserved a right of disposal in as much as the second defendant was not entitled to receive and present the bills until it paid for the goods. Accordingly, at the time when the goods were misdelivered they were held by the shipowners as agents for the sellers (ARTIS). It follows that the wording of the indemnity was created against the background of the shipowners being ARTIS's agents having possession of the goods. Therefore, they came within the class of agents upon whom the letter of indemnity could be said to confer a benefit under section 1(1)(b) and (3) of the Contracts (Rights of Third Parties) Act 1999.
- ARTIS sent on to the shipowners a copy of the second defendant's letter of indemnity before the delivery of the cargo commenced.
- On behalf of the defendants it is submitted by Miss Hopkins that in construing the letter of indemnity between the second defendant and ARTIS, it is necessary to take into account the fact that ARTIS issued another letter of indemnity in similar words for the benefit of the shipowners. There were thus back-to-back indemnities, and, that being so, on its proper construction that indemnity given by the second defendant to ARTIS could not have been intended to incorporate an obligation for the direct benefit of the shipowners. Accordingly, the word "agents" should not be construed as including the shipowners who had already been protected by the indemnity issued by ARTIS. If that were correct, the Contracts (Rights of Third Parties) Act 1999 could not confer a benefit on the shipowners as ARTIS 's "agents".
- As regards the third defendant, the claim is advanced and could only succeed on the basis that he was a partner in the second defendant organisation. However, there is strong evidence contained in the third defendant's witness statements that the second defendant is a company set up by his father in 1953 and that it was formally registered in the Yemen in 1986 as a limited liability company, shortly after the concept of the limited liability of corporations was first introduced into the law of the Yemen.
- This evidence has not been effectively challenged. It indicates the third defendant is not a partner in the second defendant and accordingly could not be a party to the letter of indemnity sent to ARTIS. Various payments which the second defendant arranged to have remitted direct to the third defendant were made for the benefit of family members who were in England and were shareholders in the second defendant.
- Accordingly, on the evidence before me, the claimant shipowners have not crossed the threshold of a good arguable case against the third defendant.
- As to the second defendant, I am bound to say that on the evidence before this court I share the view of Morison J. that the claimant shipowners have made out at least a case of sufficient strength to amount to a good arguable case that they were entitled to sue on the second defendant's letter of indemnity in favour of ARTIS and their agents. This is a point which gives rise to some difficulty and upon which, as appears from the history of this matter, different judges could reach different conclusions. That is not to say that my present view is that the claim is more likely than not to succeed, but merely to evaluate its strength as crossing the threshold indicated by Mustill J. in Ninemia Maritime Corporation, supra.
- It is next necessary to consider whether there is any real risk of dissipation of the second defendant's assets so as to avoid execution of any judgment that might be given on the claim. In other words, is it shown that there is a real risk that the second defendant will dispose of its assets otherwise than in the ordinary course of business and thereby make them judgment proof? In this connection it is, however, essential to bear in mind that, as was made clear in Avant Petroleum Inc v. Gatoil Overseas  2 Lloyd's Rep 236 at p242, per Neill LJ., and in Normid Housing Association Ltd v. Ralphs  1 Lloyd's Rep 274, at 276 per Lloyd LJ. And 278 per Slade LJ., the freezing injunction jurisdiction, although based on what is just and convenient in all the circumstances of each case, is not to be exercised merely to provide the claimant with security for his claim. Its purpose is to protect him against the risk of the defendant making his assets proof against execution by deploying them in a manner otherwise than in the ordinary course of business. If the risk in question were merely that a claimant could not enforce a judgment because the assets were in a remote place or were likely to be illiquid or insufficient to meet a judgment, the "just and convenient" test would become a cloak for the provision of security for the claim.
- Against that background, is there a relevant risk of such conduct by the second defendant as to engage the exercise of the court's discretion so as to protect the claimant shipowners?
- The second defendant company has a long standing trading record and substantial resources. At paragraph 8 of his first witness statement the third defendant said this:
"So far as Fahem & Co is concerned, it has no assets in England. The company, as I explained earlier in this statement has been in existence for 51 years and I and the other shareholders have every intention of continuing to run this business for the indefinite future. By way of information, last year the Company imported into the Yemen 600,000 metric tonnes of wheat and 150,000 metric tonnes of sugar, making it the largest importer of those commodities into the Yemen. The CIF price for these two commodities into the Yemen today is about US$220/mt and US$300 mt respectively. From this it will be appreciated that the Company is a substantial trader with a large turnover. The Company is seeking to expand and at present is engaged in developing a new port in Yemen called Salif where it has built a 100,000 metric tonne grain storage facility, we intend to build a flour mill at the port and also a 100,000 metric tonne facility in Aden. Incidentally, these are projects that are well known to the first defendants. In consequence, the Company will continue to maintain bank accounts in the Yemen and elsewhere and to buy and sell various commodities, primarily wheat and sugar. "
- It is submitted on behalf of the claimant that the evidence of the facts of this case suggests that the defendants are capable of deceitful conduct. Either the second defendant has got hold of the cargo without first reimbursing its bank and the Bank has therefore been left with its claim against the ship. Alternatively, they have conspired with the Bank to obtain the cargo from the shipowners and therefore from ARTIS, the sellers, without paying the price.
- The circumstances in which the bank has not been paid have been described in the evidence of the third defendant, in particular in paragraphs 9-11 of his first witness statement. This evidence discloses that in consequence of a series of disputes between the second defendant and ARTIS, the second defendant decided to withhold payment from its bank and take delivery without producing the bills of lading, thereby enabling it to set-off against such claims as would be made against it the amount of US$200,000 which is claimed to be due from ARTIS.
- Having considered this evidence, I am not persuaded that it gives rise to an inference so adverse to the second defendant as to provide significant support to the allegation that there was a real risk of dissipation of assets otherwise than in the ordinary course of business. Moreover, it is clear from the third defendant's first witness statement that the second defendant is a very large trading organisation with valuable fixed assets in the Yemen and, significantly, with valuable fixed assets under construction. Its financial position therefore appears to be very strong compared with any possible claim that could be mounted under the letter of indemnity. The fact that its fixed assets are located in the Yemen has not been demonstrated to present an insuperable hurdle to enforcement. There is no evidence to suggest that they are likely to be made execution-proof by disposal otherwise than in the ordinary course of business.
- In these circumstances, I am not persuaded that there is made out a real risk of dissipation in the relevant sense. Of this there must be "solid evidence": see Thane Investments Ltd v. Tomlinson  EWCA Civ 1272. The Court of Appeal approved the following passage from the judgment of Neuberger J. in that case:
. the duty of a person seeking an order, and in particular in order which can have as substantial an effect as a freezing order, in the absence of the Defendant against whom it is sought, is strict and important. An order against a person in his absence, particularly when it is a freezing order, which is a very serious infringement of his rights and liberties, can only be justified on appropriately clear and strong facts and risks. It should only be granted in circumstances which provide maximum protection for the person against whom the order is to be made. The courts have frequently emphasised the importance of compliance with the various requirements of the Rules relating to the obtaining of without notice orders."
- The standard of proof of the risk of dissipation is thus relatively high.
- On this ground alone I would therefore set aside the order of Morison J. in this case.
- As to the other points relied on by the defendants I have the following comments.
- There was certainly a failure to disclose to Morison J. that there had been a failure to disclose to Gross J. on the application for leave to serve out of the jurisdiction that Cooke J. and David Steel J. had both considered there to be no good arguable case and that David Steel J. had directed that the claimants were not to apply again on the basis of the same material. I am, however, not persuaded that application of the disclosure principles laid down by the Court of Appeal in Brinks Mat Ltd v. Elcombe  1 WLR 1350 necessarily leads to the conclusion that this court should set aside the order of Morison J. on the ground of non-disclosure of material facts. It is clear from the account of what passed before Morison J. that he was well aware that the evidence placed before him was substantially the same as that before David Steel J. and was well aware of the problem to which multiple applications gave rise. The fact that David Steel J. had indicated his view that no further attempt should be made on the same evidence could not deprive the claimants of the opportunity of at least inviting another judge to consider whether in the exercise of his discretion the matter should be reconsidered in the light of significantly more comprehensive and more focussed submissions. Further, the conclusion as to the claimant's cause of action reached by Gross J. for the purpose of the application to serve out did not involve application of precisely the same threshold of substantiality as the applications for a freezing injunction before Cooke J. or David Steel J. which by reference to a good arguable case was higher than the claimants needed to establish before Gross J. The latter was thus hardly likely to be influenced by the decisions by reference to the higher standards in those other applications. Moreover, only the application to David Steel J. was on the same basis as that before Gross J.
- As to issue estoppel, I am not persuaded that a decision of a judge in the course of an ex parte application for ancillary relief such as a freezing injunction that there is no good arguable case on the existence of a cause of action is binding on a claimant when it comes to a subsequent renewed ex parte application where the judge decides that in the interests of justice he ought to re-examine the whole issue. If there were such an issue estoppel the court would have its hands tied and would not be able to exercise its discretion to hear the claimant so as to decide whether justice required that a different order ought to be made.
- For these reasons the Order of Morison J. against both the second and the third defendants will be set aside.
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