Icon SE LLC v SE Shipping Lines PTE Ltd

Yesterday morning this court heard an urgent application for permission to appeal, with the appeal to follow if permission was given. The application was brought on at very short notice. The applicant, Icon SE, LLC ("Icon"), is the first claimant in proceedings in the Queen's Bench Division, in which Icon Agent MI, LLC (not an applicant) is the second claimant; SE Shipping Lines PTE Limited ("SE") is the defendant and respondent.

The application sought to challenge His Honour Judge Mitchell's refusal on 31 October 2012 to make an order for specific disclosure under CPR Part 31.12. The urgency both of the original application and yesterday's permission application is because the five-day trial window for the claim opens on Monday of next week, 12 November, and we were told that the trial has now been fixed to commence on Wednesday 14 November. That urgency is referable to the fact that Icon left it until the eleventh hour to make its disclosure application, although the judge, perhaps charitably, did not hold the lateness of the application against it.

Icon's appellant's notice was issued on 2 November, although the appeal bundle was not served on SE's solicitors, Chauncy & Co, until 11.20 am on Monday 5 November, and no prior notice of the making of the proposed appeal had been given to them. By then, yesterday's hearing date had been fixed. Chauncy & Co promptly responded to Icon's solicitors, S J Berwin LLP, with a request for security for SE's costs of the application and, if permitted, the appeal, the amount sought being £31,000. That request was refused by a response on 7 November making points that grounds for the giving of security were not made out, that the request was tactical, that the hearing would take place the following day (as it did), that costs orders would be made, and that, so it was said, the request for security was "academic". What was meant by the request being academic, I do not know, but there was nothing academic about the fact that yesterday's proceedings were opened by Mr Drake QC, for SE, duly making the promised application for security.

Both claimants are resident in the Marshall Islands and are, we have been told, shell companies with no assets, and there was no dispute as to the court's jurisdiction to order security (see CPR Part 25.13(2) and 25.15 and also the note in the last paragraph against 25.15.1). Security was sought in the revised sum of £14,648.50, being SE's estimate for its costs of the application for permission to appeal. Security in the sum £125,000 has already been ordered, and provided, in favour of SE for the purposes of its claim, although we were told by Mr Weisselberg, for Icon, that SE has spent twice that in costs to date. He also told us that, having recently failed on an application for permission to amend its defence and counterclaim, SE was ordered to pay costs of approximately £14,000 to Icon, a figure which coincidentally closely matches the figure for SE's claimed security.

Mr Weisselberg opposed the giving of security. He said that, given that SE had been willing to incur some £125,000 of unsecured costs in taking the case to trial, it cannot be just to give them security for, relatively speaking, a mere £14,000 for the proposed appeal. Further, a fair disposal of the security application would be to approach it on the basis that any costs that might be awarded to SE following Icon's application and, if permitted, appeal can fairly be regarded as matched by the costs order that has just been made against it on the amendment application and to regard its ability to set off costs against costs as dispensing with the need to make any order for security.

In the event, the court decided to, and did, make an order for security in favour of SE in the sum of £10,000. I concurred with the making of that order since, whatever the position in relation to the costs below that have been incurred in connection with the progress towards trial, I could see no good reason why SE should not be protected in relation to its costs of Icon's application in this court.

A question then arose as to the form our order for security should take. To stay the proposed application and appeal until the security was provided would be impracticable, since the trial is due to start next Wednesday and the whole point of Icon's proposed appeal is to obtain an order for disclosure that, if granted, will be met and complied with by the start date of the trial. In view of the timing, the court proposed that the solution was for Mr Weisselberg to obtain instructions to give an appropriate solicitor’s undertaking to pay the £10,000 in the court. Mr Weisselberg was not able to obtain instructions to that effect but was, however, able to obtain instructions to offer an undertaking by SJ Berwin LLP to pay to SE up to a limit of £10,000 any costs ordered by this court on Icon's application and appeal, if the latter was to be permitted, that are due, owing and unpaid. The court accepted that undertaking and regarded it as satisfying its order for the giving of security. That disposed of the security application.

I turn now to the substantive application and appeal. I say straight away that, having then heard Mr Weisselberg's clear and succinct submissions in support of Icon's application and proposed appeal, the court gave Icon permission to appeal and heard Mr Drake in answer to it.

The background is that by an agreement of 27 September 2010, Icon agreed to make available to SE a loan of up to US $18 million, being part of the finance that SE needed for the purchase for some US $46 million of a vessel to be built by Sainty Marine Shipyard. The agreement provided for the loan to be available to SE in six drawings and that SE would pay interest at 2 per cent per year on the undrawn amounts throughout the period defined by Clause 9.1 of the agreement, a liability described in that clause as a commitment fee. Icon's case is that the relevant period expired, or would expire, on 27 November 2012 or the delivery of the vessel, whichever was earlier. It is material to note that SE was not obliged to draw down on the offered loan, the agreement only providing that it "may" do so. Whilst therefore Icon was obliged to lend to SE if requested, Icon could not require SE to borrow. In fact, SE never did draw down the loan.

In the event, the loan came to a premature end in early 2011. Icon claims that SE repudiated it by the combined effect of an email of 24 January 2011 and a telephone conversation of 27 January 2011 and/or in correspondence in early 2011, and in either case it claims it accepted the repudiation. SE claims that Icon repudiated the agreement in the same correspondence and that such repudiation pre-dated the alternative epistolary repudiation upon which Icon relies. However, the contest over which side repudiated first in the correspondence will or may not arise if Icon is right that SE repudiated the agreement in the January telephone call.

Whilst the email of 24 January 2011 is also relied upon, the heart of Icon's case depends upon what was said during that telephone call. The parties are, however, disagreed as to that. Icon asserts broadly that Mr Bansal, the Chief Executive Officer of SE, told Mr Hardeep Saini of Icon, after indicating that SE would not be drawing down the loan, that it would not pay the commitment fee for the contract period. Mr Bansal's evidence is that he did not say that SE would not draw down and that, although he did discuss the commitment fee, he did not refuse to pay it or express an intention not to pay it when it became due. A crucial issue at the trial will be as to whose account is preferred.

In that connection, the background context in which the telephone call took place is said to be important and the documents of which disclosure is sought are said to be relevant to an understanding of their context. Mr Bansal's evidence is that the loan agreement "was expensive" and that its terms took into account that SE "might well be able to find cheaper alternative finance". He also said that, after the loan agreement had been placed:

He says that on 2 November 2010, just a month after the loan agreement, India Exim proposed a "non-binding" letter agreement for a loan of US $21.5 million towards the vessel; that by 27 January 2011 alternative financing had not been secured; and that, as regards India Exim, its loan "did not come to fruition until 30 March 2011". He said in paragraph 49 of his witness statement of 18 October 2010:

The immediate context in which the telephone conversation took place is explained in a witness statement of 18 October 2012 of Mr Beale, the partner in SJ Berwin LLP with the conduct of the case on behalf of Icon. His explanation is in part based on the evidence of Mr Saini made in a witness statement of 2 November 2011 and in part on documents that have been disclosed in the case. Mr Beale explains how the September 2010 loan agreement came to be made, with the first draw down scheduled for December 2010, but with no specific date being provided for it in order to allow SE flexibility. He explains how in October 2010 SE was proposing other potential finance deals and that Icon made its own new finance proposals to SE. By the end of October 2010, Mr Bansal had informed Icon that it was getting better offers from other lenders, which he wanted Icon to match. Icon sent Mr Bansal a term sheet on 14 December 2010 for new finance, and negotiations about it continued until 21 December 2010. By the end of December 2010, Mr Saini informed Mr Bansal that Icon could not negotiate forever on new deals and would not be proceeding with them. He wanted SE to move on with the September loan agreement and, I presume, to draw down on it although SE was not obliged to do so. Mr Beale explains Icon's concern that there had been no progress with that agreement since 1 November 2010.

No draw down took place in December 2010 and the story moved to January 2011. Emails were exchanged. On 4 January, Mr Saini asked Mr Bansal what the outcome was of an SE board meeting held that day. He was told in reply that it had been postponed for a week. On 11 January, Mr Bansal's email explained that the board wanted clarification about the existing loan agreement, in particular as to whether, if SE decided not to draw down the US $18 million, "what would be your understanding of cost as per relevant loan document?" Mr Beale does not explain whether Icon responded to that email, but does explain that on 21 January Mr Bansal made a repeat email request to like effect. The sense of that email was again that the SE board had not yet made any decision to draw down the loan facility.

Mr Saini replied on 25 January saying that the only facility on the table was the loan agreement and that, if SE chose not to draw down on it, a commitment fee of US $360,000 would be due to Icon, which he explained was 2 per cent of US $18 million. He added that if SE did not intend to draw down the loan, Icon would be happy to consider an alternative finance solution but he added that:

There followed the crucial telephone conversation on 27 January, as to which there is a dispute on the pleadings as to what Mr Saini and Mr Bansal respectively said. Mr Bansal's last written word appears, however, to have been that in the email of 24 January, in which he expressed willingness on SE's part to pay the commitment fee whilst expressing an understanding of the nature of that liability that is not easy to follow.

Turning to Icon's application before the judge, it was for specific disclosure in respect of four categories of documents, being documents which evidence SE's "intentions" between 1 November 2010 and 31 March 2011: (a) to draw down (or otherwise) under the loan agreement of 27 September 2010; (b) to pay a commitment fee provided for in the loan agreement; (c) to obtain alternative finance from another financier to build a vessel that was to be financed in part through funds that were to be lent under the loan agreement; (d) to proceed with the acquisition and construction of the vessel (or otherwise).

SE's position before the judge was that categories (a), (c) and (d) were irrelevant but that category (b) was relevant. Judge Mitchell disagreed, holding that categories (a), (b) and (d) were irrelevant and that category (c) was relevant. It followed from that holding that the only category in respect of which a disclosure order might be made was category (c). Some disclosure had already been given of documents in category (c), and the judge declined to order a search for further documents in that category. Icon claims that the judge was wrong in all respects and that he should have ordered a search in respect of all four categories. It says that, save for the limited disclosure in respect of category (c), SE has made no disclosure in any of the categories. Icon made requests in correspondence for such documents as long ago as September 2011, but although it claims that its requests yielded no fruit, it did nothing about it until it re-opened the request, or a like one, on 25 September 2012. We were told that the reason for the late re-opening of the request was the advice of leading counsel.

I deal first with relevance and shall take all four categories together. I understood Mr Weisselberg to accept that his case on relevance either succeeds in relation to all four categories or fails on all four: that is because the claimed justification for all four is the same. The purpose of the claimed disclosure is not directed to the remote possibility that documents created on or about the 27 January 2011 will confirm Mr Bansal's alleged repudiation of the loan agreement. If there were any such documents, they would have been disclosed already. It is with a view to ascertaining the background commercial circumstances in which Bansal engaged in the crucial telephone conversation; and, specifically, to ascertaining SE's intentions with regard to (i) the drawing down (or not) on the loan agreement; (ii) the payment (or not) of the commitment fee; (iii) the obtaining of alternative finance for the vessel from another source; and (iv) proceeding (or not) with the construction of the vessel. It is said that the picture as to SE's intentions in these various respects will collectively provide a relevant backdrop against which to assess the conflicting evidence about the crucial telephone conversation. Thus, if by way of perhaps an extreme example, documents emerged indicating SE's clear intention to be finally rid of the loan agreement, it is said that would be relevant to an assessment of what Mr Bansal actually said during the telephone call. Further, as regards category (d), whilst disclosure has been provided of documentation relating to the beginning of the India Exim proposal in November 2010 and to its fruition on 30 March 2011, no disclosure has been given of anything that passed between the parties between those dates. If the claimed disclosure were to reveal that at or about the end of January 2011 the India Exim deal was all but finally struck, that too, it is said, would be material background to an assessment of what was said in the telephone call.

The contrary argument, that I understand the judge to have favoured (save for category (c)), and advanced by Mr Drake, is that the claimed disclosure cannot be relevant to the resolution of the pleaded issue about the telephone call. A document from SE in December 2010 indicating an intention not to draw down on the loan or not to pay the commitment fee says nothing about whether Mr Bansal did or did not say what is attributed to him during the telephone call. It will at most provide material with which to cross-examine him as to credit and plausibility, whereas disclosure is not ordinarily ordered for such an end.

Mr Drake advanced that submission cogently and it has given me cause for thought, although the time for it has been limited by the pressure to rule on this application virtually immediately. I have, however, come to the view that Mr Weisselberg, who addressed us with like cogency, is correct, for the reasons he gave, that the four categories of documents are properly to be regarded as relevant to the crucial pleaded issue as to the telephone conversation and that they are categories in respect of which an order under CPR Part 31.12 can and should properly be made. That is because the four categories of documents will or may provide a relevant and helpful understanding of the commercial background in which CSE was operating at the material time and against which Mr Bansal engaged in the relevant conversation.

I conclude therefore that the judge was, with respect, wrong to hold that the documents in categories (a), (b) and (d) were not relevant. I also accept Mr Weisselberg's submission that the material before the court shows that no proper search for documents in these categories has been made by SE, although as to categories (a) and (d) that is not perhaps surprising, since SE’s stance has been that they are irrelevant.

That has not been their stance with regard to category (b), but even as to category (b) the material before the court indicates that Chauncy and Co, as SE's solicitors, have not, as they should have done, engaged personally in the disclosure exercise (as explained by Ward  LJ in Hedrich  v  Standard  Bank  London  Limited [2009] PNLR 3, at paragraph 14), but have instead simply delegated the task to Mr Bansal. In my judgment, therefore, it is appropriate for the court to make a search and disclosure order as asked by Icon in respect of categories (a), (b) and (d).

As regards category (c), the judge correctly held it to be relevant but declined in his discretion to order further disclosure over and above the limited disclosure that has been given. He appears to have been concerned by the consideration that further disclosure might touch on matters of commercial sensitivity, or might open up what he called a "fishing expedition". He was also concerned that he had to be "careful not to start being too investigative about the solicitor, because if I do, as a judge, it gets very close indeed to saying that a solicitor has not done his job properly”.

I well understand those considerations but Mr Chauncy's evidence does not provide me with any confidence that there has been a sufficient search for category (c) documents. First, he says in paragraph 77(b) of his witness statement of 22 October 2012 that the category (c) documents are irrelevant; and, secondly, he says in paragraph 78(c) that it would be futile to order a search of the category (c) documents "since [SE] have recently confirmed that all relevant documents have been disclosed”. Quite what that means, or how the latter statement squares with the former, is not entirely clear to me, but it is not a statement that provides any comfort that Chauncy & Co have themselves ensured that there are no further disclosable documents in category (c). In these circumstances, I consider that the judge was also wrong not to order a search for and disclosure of documents within category (c).

Finally, I have been concerned that, with the trial date but a mere two clear working days away, the making of these orders by this court will or may be burdensome on SE and, of course, on Chauncy & Co. I do not understand the potential burden of the task to have been a point taken before the judge and he specifically did not hold the lateness of the application against Icon. Of course, when the matter was before the judge, there was still a fortnight to go before the trial. Mr Drake did make something of the point before us, but I have come to the conclusion that it is not one that should deter this court from making the order sought. For the reasons I have given, the judge ought to have made the disclosure orders asked for; and, if so, I consider it would be unjust not to make them now.

I would therefore allow Icon's appeal and invite counsel’s submissions on the precise form of the order that the court should make.

I agree. The issue in the case is whether the defendants acted in anticipatory breach of the contract between them and the claimants (paragraph 11 of amended Particulars of Claim). It is claimed at paragraph 10 that on 27 January 2011 the defendants by Mr Bansal unequivocally refused to pay the commitment fee, which is claimed to be due under the contract. It is claimed that by virtue of rule 31.6 there may be documents which either support or adversely affect the cases put forward by the parties on that issue of fact.

The documents are claimed under four headings: a) to draw down or otherwise on the loan under the loan agreement; b) to pay the commitment fee; c) to obtain alternative finance to build the vessel from another financier; and d) to proceed with the acquisition and construction of the vessel or otherwise. Mr Weisselberg for the claimants contends that documents during the period from 1 November 2010 to 31 March 2011 may evidence the defendants' intentions during that period.

The judge found that only C of those headings was relevant to the issue. I do not agree. B is, in my judgment, plainly relevant. The defendant’s documents in relation to the commitment fee may well throw light on whether there was repudiation on 27 January. D is somewhat more remote than the others, as Mr Weisselberg accepted, but he submits that an order should be made to cover all four headings, because there may be documents under all headings which throw light on the central issue.

I agree with that submission for the reasons given by Rimer LJ. Mr Weisselberg has drawn attention to Mr Bansal's second witness statement which refers to a formal agreement with India EXIM, a separate entity, coming to fruition on 30 March 2011. There is no documentary explanation as to what had occurred between early November 2010 and the 30 March 2011. Mr Weisselberg contends that it can be assumed that the 30 March agreement then coming to fruition did not come out of thin air.

There is force in the submission that, applying CPR Rule 31.6, there may be documents during that period which throw light on the issue in this case. Disclosure so far has been based on assumptions about relevance which should not have been made. A further examination should be conducted. I agree with the conclusions of Rimer LJ and for the reasons he gives.