Lakatamia Shipping Company Ltd v Morimoto

Mr Phillips said that the case was ‘bristling with simplicity’. His core submission on the law on behalf of Lakatamia was straightforward: Where the court accepts that there is a good arguable case that a respondent engaged in wrongdoing against the applicant relevant to the issue of dissipation, that holding will point powerfully in favour of a risk of dissipation. And where (as here) this is the case, no further evidence in support of a real risk of dissipation is ordinarily required.

Mr Phillips’s core submission on the merits was equally straightforward. He submitted that the Judge’s finding there was a good arguable case that Madam Su had engaged in wrongdoing, pointed powerfully in favour of a real risk of dissipation by her and left little or no room for any other conclusion. He submitted, in essence, that the Judge’s finding that there was no real risk of dissipation was fundamentally irreconcilable with his prior finding that there was a good arguable case on the merits. Mr Phillips reprised the same submissions that he had made before the Judge: namely, that the evidence demonstrating a serious issue to be tried as to conspiracy (Grounds

He submitted that the Judge’s decision was plainly wrong and, in these circumstances, this Court could and should interfere.

Mr Head submitted on behalf of Madam Su that it is wrong to suggest that the simple fact of a finding of a good arguable case, even in cases of dishonesty or in actions relating to the dissipation of assets (and regardless of the nature and quality of the evidence that underpins that finding), is necessarily sufficient to satisfy the test for a real risk of dissipation. It cannot be a mechanical exercise (the effect of which would essentially do away with any need to establish a real risk of dissipation). Rather, the first instance judge must apply his mind in evaluating the evidence on risk of dissipation as part of exercising his discretion as to whether it is ultimately just and convenient to grant a freezing injunction. Mr Head further submitted that nothing in the authorities supported an argument that a finding of good arguable case was of itself sufficient to establish a real risk of dissipation, i.e. necessarily and automatically established a risk of unjustified dissipation of her assets such as to justify the imposition of a US$27m freezing injunction. Whilst it was accepted that a good arguable case may be relevant to the risk of dissipation (most obviously in cases of dishonesty), it could not by itself establish the requisite risk.

Mr Head further submitted that the significance of a good arguable case will depend on the nature of the evidence adduced in establishing it. In circumstances where (i) as the Judge held (at paragraph [22]), this case “…depended upon both inference and a large series of unanswered questions as to the role and precise knowledge of [Madam Su]”, and (ii) having regard to the lack of evidence about Madam Su’s own actions or assets, the Judge properly concluded that there was no sufficient basis or ‘solid evidence’ to justify continuing the Second WFO. There is no proper basis on which this Court should interfere with the Judge’s decision to discharge the injunction. He relied, in particular, on the decision of this Court in Holyoake v. Candy [2017] EWCA Civ 92; [2018] Ch 297.

As regards the Respondent’s Notice, Mr Head also contended that it was right to discharge the Second WFO against Madam Su for the additional reasons set out in the Respondent’s Notice, namely that (contrary to the Judge’s view on service out) the evidence before the Court was, in any event, insufficient to establish a good arguable case that Madam Su was party to an unlawful means conspiracy to breach the First WFO, or that she induced or procured Mr Su to fail to discharge the Judgment Debt.

In summary, Mr Head described the evidence against Madam Su as ‘gossamer thin’ and the Appellant’s Grounds (3)-(5) as ‘makeweights’. He submitted that the evidence overall was wholly insufficient to justify the invasive and serious consequences of a freezing injunction in the sum of US$27m.

I have considered the relevant authorities in this area, in particular: Thane Investments Ltd v Tomlinson (No 1) [2003] EWCA Civ 1272 at [28]; Norwich Union Fire Insurance Ltd v Eden [2003] EWCA Civ 1272, at [21] per Phillips LJ; Jarvis Field Press v. Chelton [2003] EWHC 2674 (Ch) per Patten J; Grupo Torras SA v Al-Sabah,

There is perhaps less between the parties on the law than meets the eye. I did not understand Mr Phillips to be seeking to advocate some sort of automatic mechanism (as Mr Head suggested) by which an inference of dissipation should automatically be inferred; but merely to be submitting that a finding of good arguable case in wrongdoing relevant to the issue of dissipation was often likely in practice to justify a finding a risk of dissipation without more.

In my view, the first part of Mr Phillips’ submission on the law (see paragraph 42 above) is correct in principle and supported by the authorities (although for clarity emphasis should be given to the words “…relevant to the issue of dissipation”). His second sentence, however, goes a little too far: there can be no firm rule since every case depends upon its own facts.

In my view, in the light of the authorities which I consider in detail below, the correct approach in law should be formulated in the following two propositions:

In Thane Investments, Peter Gibson LJ issued what has sometimes been referred to as a ‘salutary warning’ as to how each case must be “scrutinised with care” in order to establish whether an inference of dissipation should be made. Peter Gibson LJ said (at [28]):

“28.

Mr Blackett-Ord submitted that it has now become the practice for parties to bring ex parte applications seeking a freezing order by pointing to some dishonesty, and that, he says, is sufficient to enable this court to make a freezing order. I have to say that, if that has become the practice, then the practice should be reconsidered. It is appropriate in each casefor the court to scrutinise with care whether what is alleged tohave been the dishonesty of the person against whom the orderis sought in itself really justifies the inference that that personhas assets which he is likely to dissipate unless restricted.” (emphasis added)

In Jarvis Field Press Ltd v Chelton [2003] EWHC 2674 (Ch), Patten J commented upon the import of Peter Gibson LJ’s observations as follows (at [10]):

“10.

… I have no difficulty in accepting the generalprinciple, emphasised by Peter Gibson LJ, that a mereunfocused finding of dishonesty is not, in itself, sufficient toground an application for a WFO. It is necessary to have regard to the particular respondents to the application and to ask oneself whether, in the light of the dishonest conduct which is asserted against them, there is a real risk of dissipation. As Peter Gibson LJ made clear in the passage I have already quoted, the court has to scrutinise with care whether what is alleged to have been dishonesty justifies the inference.That isnot, therefore, a judgment to the effect that a finding ofdishonesty (or, in this case, an allegation of dishonesty) isinsufficient to found the necessary inference. It is merely awelcome reminder that in order to draw that inference it isnecessary to have regard to the particular allegations ofdishonesty and to consider them with some care.” (emphasis added)

In Madoff,Flaux J carefully analysed the authorities such as Norwich Union, and Grupo Torras (at [163]-[167]) and cited the above prescient passage from Patten J’s judgment in Field Press. Flaux Jsaid (at [167]):

“167.

I agree with that analysis of the approach which the court should adopt when considering whether to grant a freezing injunction, in a case where there are allegations of fraud or deliberate misconduct against a defendant.”

In VTB Capital, Lloyd LJ summarised how the exhortation by Peter Gibson LJ in Thane Investments should be properly read and understood as follows (at [177]):

“177.

We agree with Peter Gibson LJ that the court should be careful in its treatment of evidence of dishonesty. However, where (as here) the dishonesty alleged is at the heart of theclaim against the relevant defendant, the court may well finditself able to draw the inference that the making out, to the necessary standard, of that case against the defendant also establishes sufficiently the risk of dissipation of assets.” (emphasis added)

(It should be noted that, when referring to the heart of “the claim” in the above passage, Lloyd LJ was, I believe, referring to the claim for an injunction in the instant case.)

Lloyd LJ then cited Flaux J’s observations in paragraphs [163]-[167] of Madoff in full and said (at [178]):

“178.

We agree with those observations by Flaux J. On that basis it seems to us that it would have been right for the judge to take into account a finding of a good arguable case that Mr Malofeev had been engaged in a major fraud, and that he operated a complex web of companies in a number of jurisdictions, which enabled him to commit the fraud and would make it difficult for any judgment to be enforced. Wewould regard such factors as capable of providing powerfulsupport for the case of a risk of dissipation.” (emphasis added)

In Holyoake v. Candy, the claimants obtained a ‘notification injunction’, i.e. an injunction restraining the defendants from dealing with assets without first notifying the claimants on the basis of proof of dissipation. Nugee J found a good arguable case that the claimants had engaged in an unlawful means conspiracy (the unlawful means comprising fraudulent misrepresentation, duress, actual undue influence, unlawful interference, extortion and blackmail) and held that there was a real risk of dissipation by the defendants in the light of the unlawful means conspiracy and other evidence relating to (i) unexplained transfers of property, (ii) lavish expenditure, (iii) complex and opaque offshore structures and (iv) “appalling conduct” by the defendants (see paragraph [20]). The Court of Appeal (Gloster LJ who gave the leading judgment, Jackson LJ concurring) reversed Nugee J’s decision. The Court held that the Judge did not apply the correct test when granting the notification injunction in that he held that a lesser degree of risk would suffice to obtain a notification injunction as opposed to a conventional freezing order on the basis that the former was less intrusive than the latter (at [43]). The Court held that the test was the same and the claimants had to show a real risk of dissipation. Gloster LJ went on to consider the evidence and the matters relied upon by the Judge and concluded as follows:

“61.

… I conclude that, although the claimants’ “good arguable case” in relation to the defendant’s alleged conduct could theoretically be taken into account in evaluating whether there was a risk of dissipation, the evidence relating to the substanceof those allegations was not sufficiently strong to support thenecessary real risk of dissipation. In coming to this conclusion I have applied the approach of this court in VTB Capital plc v Nutritek International Corp and in Thane Investments Ltd v Tomlinson (No 1) [2003] EWCA Civ 1272 at [28] namely that the court should scrutinise whether what is alleged in relation to a good arguable case really justifies the inference of a risk of dissipation.” (emphasis added)

Mr Head relied upon the above passage to support his submissions. However, I do not read Gloster LJ to be saying anything different from the authorities cited above. She expressly cited VTB in which, as noted above, Lloyd LJ explained Peter Gibson

Moreover, Gloster LJ’s conclusion must be understood against the background of the unusual facts of Holyoake v. Candy. The case was not about dishonesty but about coercion. This is clear from a careful reading of Nugee J’s judgment at first instance (see especially paragraphs [39]-[43]). Counsel for the claimants, Mr Trace, submitted that the claimant’s allegations amounted to “allegations that the claimants would do everything they could to make life difficult for Mr Holyoake” (paragraph [39]). Counsel for the Defendants, Mr McQuater, submitted that the threats amounted to a threat that the claimant would get nothing back from their investment in the property, but “they are not threats by the defendants to do anything with their own assets, still less a threat to dissipate those assets to avoid a claim by the claimants”. He submitted that the matters alleged against the defendants did not give rise to a real risk of dissipation (paragraph [40]). Nugee J accepted that “the thrust of the claimant’s complaints in this action are not of having been defrauded but of having been coerced by duress and illegitimate threats” (at paragraph [41]); but went on to hold that there was, nevertheless, a risk of dissipation (at paragraphs 42]-[43]).

In these circumstances, it is understandable why, having determined that Nugee J applied the wrong test in law and the decision should be remade, the Court of Appeal then declined to draw an inference and came to a different conclusion on the question of the risk of dissipation from the Judge below. Properly understood, therefore, Holyoake is distinguishable from the present case.

There was clear scope for an inference of dissipation in the present case. The wrongdoing here comprised not merely dishonest conduct (or what Patten J in Field Press called ‘an unfocussed allegation of dishonesty or fraud’), but wrongdoing which went to the very heart of the question of the risk of dissipation (in the words of Lloyd LJ in VTB Capital). It was the dishonesty which “pointed” to the risk of dissipation (in the words of Popplewell J in Fundo, supra at paragraph [86(4)]). In other words, both Lakatamia’s claims or causes of action against Madam Su bore directly on the question of dissipation itself: boththe unlawful means conspiracy and Marex causes of action themselves concerned her assisting in the act of dissipation, albeit of her son’s funds, but dissipation nevertheless. The Judge had found (at paragraph [25] of his judgment) that that there was a good arguable case that Madam Su had previously helped her son, Mr Su, to hide or dissipate €27,127,855.01 of his assets, i.e. the Net Sale Proceeds. In these circumstances, common sense would suggest that there was a strong inference that there was a risk that she would do exactly the same in relation to her own assets in order to frustrate the enforcement of any judgment against her.

The singular fact that the wrongdoing in this case involves a finding of a good arguable case that the defendant Madam Su participated in an actual breach (i.e. a contumacious breach) of an existing freezing injunction powerfully reinforces the inference that that defendant would breach another freezing injunction. Neither counsel is aware of any freezing injunction cases similar to the present, i.e. where wrongdoing which is the subject of the substantive cause of action comprises the act of dissipation itself.

For these reasons, in my view, the present case can properly be considered a paradigm case for the application of the propositions which I have set out at paragraph 52 above.

Lakatamia’s case was not simply dependent upon inferences from the Judge’s finding of a good arguable case on the merits. Nor was it solely dependent upon Mr Su’s evidence.

As explained above, in addition to Mr Su’s admissions (as to which see further below), Lakatamia put before the Court below evidence in the First and Second Affidavits of Mr Gardner which included (i) correspondence which suggested that, contrary to her denials, Madam Su owned or controlled UP Shipping; (ii) evidence which suggested that, contrary to her denials, Madam Su owned or controlled Great Vision; (iii) evidence that Madam Su held a substantial web of offshore companies that could be used to place assets beyond the reach of Lakatamia; (iv) evidence that Madam Su could facilitate the transfer of substantial funds between jurisdictions; and (v) evidence that Madam Su has substantial liquid assets.

As regards (i), Mr Gardner exhibited to his Second Affidavit an e-mail from W Legal Limited dated 12^th June 2015 in which they confirmed that their due diligence “KYC” (Know Your Client) checks confirmed that Mr Su did not own UP Shipping.

As regards (ii), Mr Gardner exhibited to his Second Affidavit, Affidavits of a director of Great Vision, Mr Tai Chou Chang, who gave evidence in 2013 that he held the sole shareholding as a nominee and whilst he could not disclose the identity of the beneficial owner of Great Vision “I can assure the Court it is not Mr Nobu Su”. Mr Gardner pointed out that the only other credible candidate as beneficial owner of Great Vision was Madam Su, given Madam Su’s own evidence that she was a widower and that none of her other children was involved in Mr Su’s business. Madam Su admitted controlling Great Vision until 2015.

The Judge referred to some of this evidence in his judgment (at paragraphs [14] and [15]) but concluded that Lakatamia had not established a risk of dissipation by ‘solid’ evidence (at paragraph [25]). In my view, he failed to give sufficient weight to this evidence or consider it in the context of the case as a whole.

Furthermore, whilst there was reason for regarding Mr Su’s evidence with a degree of circumspection, his admissions in cross-examination about his mother’s role in helping him dissipate the Net Sale Proceeds deserved weight as potential admissions against interest and because they were supported by other evidence (outlined above). It is noteworthy that the Judge had previously expressed himself in his judgment in the Committal Proceedings entirely satisfied that Mr Su admitting that his mother had given the money back to him “was a clear picture that he had given her the money to start with” (see paragraph 21 above).

The Respondent’s Notice sought to challenge the Judge’s decision on good arguable case on the merits, namely as regards the unlawful means conspiracy and the Marex claims. Mr Head argued that the evidence was insufficient even to justify the Judge’s finding on the merits of the causes of action.

In my view, it is doubtful whether an argument by way of Respondent’s Notice on this basis is properly open to Mr Head for the following reasons.

First, the Judge’s finding on the merits of the causes of action was parasitic upon his earlier finding on jurisdiction. The Judge stated at paragraph [19] that he was satisfied that the evidence established a ‘serious issue to be tried’ in respect of both torts alleged (his language “I am “entirelysatisfied” suggested that he considered the test to have been easily surmounted well above the minimum threshold). The Judge, having concluded that there was a serious issue to be tried for the purposes of jurisdiction, then went on to state that he saw no reason to reach a different conclusion on the facts of this case with regard to the question of whether there was a ‘good arguable case’ on merits for the purpose of the Second WFO (see paragraph [25]).

Second, by his order of 23^rd July 2019, Males J refused Madam Su permission to appeal the Judge’s finding (at paragraph [19]) that there was a serious issue to be tried for the purposes of jurisdiction on the grounds that (i) the appellate courts have repeatedly discouraged appeals on jurisdictional issues, particularly where they would involve detailed investigation of contested factual issues, and (ii) there was no clear error of principle by the Judge.

Third, if a separate appeal had been lodged in respect of the Judge’s findings (at paragraph [25]) as to the question of whether there was a good arguable case on merits for the purpose of the Second WFO, similar objections would have been raised and permission to appeal would in all probability have been refused for similar reasons.

Accordingly, it is difficult to see how the same points can now properly be raised objecting to the Judge’s findings (at paragraph [25]) on good arguable case on merits under the guise of a Respondent’s Notice.

In any event, I would dismiss the Respondent’s Notice or the similar reasons to those given by Males J, namely (i) the appellate courts have repeatedly discouraged appeals on jurisdictional issues, particularly where they would involve detailed investigation of contested factual issues, and (ii) there was no clear error of principle by the Judge.

The Judge commented (at paragraph [25]) that there was no evidence before him that there would be any difficulty in enforcing any judgment against Madam Su in Taiwan. This was not a factor which had been raised or relied upon by either party, nor was there any evidence before him on the question either way. Accordingly, it was not a matter which he ought to have taken into account and was, at best, neutral.

The Court will only interfere with a finding as to whether a good arguable case exists where it is plain that the judge below was wrong. As Longmore LJ said in Lakatamia Shipping Co Ltd v Su [2012] EWCA Civ 1195 at [27] (Lord Neuberger MR and Sullivan LJ concurring):

“[I]t must be remembered that applications for freezing injunctions made on the basis of a good arguable case come before the commercial judges all the time. Derived from their time in practice they have developed what is perhaps best described as an instinct as to what is well arguable and what is not. That instinct should be respected by those in this court without the everyday experience of granting and refusing freezing injunctions unless it is plain that the judge is wrong: see Stuart v Goldberg [2008] 1 WLR 823 paragraph 76 per Sedley LJ and paragraph 81, Sir Anthony Clarke, Master of the Rolls.” (emphasis added)

This Court is always reluctant to interfere with a finding of an experienced Commercial Judge on findings as to whether there is a real risk of dissipation. However, on this occasion, in my judgment, it is clearly appropriate to do so.

Firstly, because the Judge’s reasoning, which is contained in paragraphs [25]-[26] of his judgment, was deficient. He failed to address (or even mention) Lakatamia’s primary argument, that the evidence that Madam Su had received the Net Sale Proceeds despite knowing about the First WFO amply demonstrated that there was a real risk of dissipation by her if the Second WFO was not continued. If the Judge had had this key factor properly in mind, he would and should have come to a different conclusion.

Second, because in any event it is plain that the Judge’s decision was wrong. There was a clear inference to be drawn from the Judge’s earlier finding of a good arguable case on the merits of the causes of action. The wrongdoing of Madam Su went to the heart of the question of dissipation. This finding taken alone or together with the other evidence outlined above as a whole, meant that the existence of a risk of dissipation was plain and obvious, as correctly submitted by Mr Phillips below. Accordingly, the Second WFO should have been maintained against Madam Su.

Moreover, there were no counter-veiling factors militating against the exercise of discretion in favour of granting a WFO.

For these reasons, in my view, this appeal must be allowed.

I agree.

I am grateful to Haddon-Cave LJ for his careful recitation of the materials giving rise to the instant appeal. I have, however, entertained doubts as to whether we should disturb the decision of the judge on the issue of “risk of dissipation” on the part of Madam Su and whether overall, she should be subjected to a freezing order.

The foundation of the claim against Madam Su has been the evidence given by Mr Su in his cross-examination on the committal application. Without that evidence, there was no sign of any claim being brought by Lakatamia against her. As the judge noted (in paragraph 2 of his judgment) the claim is based upon Madam Su’s alleged complicity in the breach by her son of the order of Blair J of 22 August 2011 and the sale of the Villas in 2015. After a success at trial in November 2014 before Cooke J, understandably, Lakatamia has left no stone unturned in seeking to enforce the judgment it obtained against Mr Su. However, until Mr Su’s brief answers in crossexamination in February 2019, there was no claim intimated against Madam Su at all. Again, as the judge noted, the answers given were those of a man whom Lakatamia said (not without foundation) was a “proven liar” and a “serial contemnor” who was seeking to defend his liberty on a committal application. The case was one which the judge described as depending “both on inference and a large series of unanswered questions as to the role and precise knowledge of [Madam Su]”. The “inference” and “unanswered questions” arose from the other, relatively slender items of evidence summarised by Haddon-Cave LJ in paragraph 65 above.

Given the tenuous nature of this evidence and looking at the case in the round, I am far from sure that I would not have reached the same conclusion overall as the learned judge, if I had been hearing the application below.

However, given that the judge did reach the conclusion that there was a “good arguable case” on the merits of Lakatamia’s claim, I agree, on balance, that he did not “follow through” that finding sufficiently when addressing the issue of the risk of dissipation. Having reached the conclusion that he did on “good arguable case”, which I do not think we could be justified in disturbing on the basis of the arguments raised on Madam Su’s Respondent’s Notice, I think that it had to follow on the particular facts of this case, that the relevant risk of dissipation had been established against her.

Thus, echoing the words of Lewison LJ in Re B (Care Proceedings) [2012] EWCA 1475 in this court (affirmed on other grounds [2013] UKSC 33) at [148], “[a]lthough I still have doubts, I do not push those doubts to a dissent”. With some hesitation, therefore, I agree that the appeal should be allowed.

The appeal be allowed.

Paragraphs 1(a), 8 and 9 of the Order of Sir Michael Burton dated 2 May 2019 (“the Burton Order”) be set aside.

The world-wide freezing order made by Sir Michael Burton on 27 February 2019, as varied on 28 February 2019 and 4 March 2019 (“the Freezing Order”), be restored forthwith with respect to the Respondent/Second Defendant until further order (and, for the avoidance of doubt, continued with full force and effect in relation to the Third and Fourth Defendants until further order). The Freezing Order is attached to this Order as Schedule A.

Unless paragraph 4(b) of this Order applies, the Respondent must by 4.00pm GMT on 6 January 2020 and to the best of her ability swear an affidavit setting out all her assets worldwide exceeding US$10,000 in value whether in her own name or not and whether solely or jointly owned, giving the value, location and details of all such assets and serve that affidavit on the Appellant’s solicitors.

If the provision of any of this information is likely to incriminate the Respondent, she may be entitled to refuse to provide it, but is recommended to take legal advice before refusing to provide the information. Wrongful refusal to provide the information is contempt of Court and may render the Respondent liable to be imprisoned, fined or have her assets seized.

The Respondent bear on the standard basis the costs incurred by the Appellant in connection with the following:

The Appellant’s costs below and of the appeal to be subject to detailed assessment if not agreed.

Pursuant to paragraph 10 of the Burton Order, by way of a further interim payment in respect of the costs incurred by the Appellant below, the Appellant be entitled to a further £37,500.

The Respondent shall pay the Appellants an interim payment of £50,000 in respect of the costs of this appeal.

The Respondent shall pay to the Appellant the sums referred to in paragraphs 7 and 8 above by 4.00pm GMT on 6 January 2020.