Snowstar Shipping Company Ltd. v Graig Shipping Plc & Anor

Mr Justice Morison :

1. This is an application for disclosure prior to the commencement of proceedings. The relevant procedural rule is 31.16 which gives the court a discretion to order pre-action disclosure when certain conditions are satisfied.

“Rule 31.16 Disclosure before proceedings start:

(1) This rule applies where an application is made to the court under any Act for disclosure before proceedings have started.

(2) The application must be supported by evidence.

(3) The court may make an order under this rule only where—

(a) The respondent is likely to be a party to subsequent proceedings;

(b) The applicant is also likely to be a party to those proceedings;

(c) If proceedings had started, the respondent's duty by way of standard disclosure, set out in rule 31.6, would extend to the documents or classes of documents of which the applicant seeks disclosure; and

(d) Disclosure before proceedings have started is desirable in order to—

(i) Dispose fairly of the anticipated proceedings;

(ii) Assist the dispute to be resolved without proceedings; or

(iii) Save costs.”

2. The principles of law which I must apply are not in dispute and are conveniently set out in Ms Andrews QC’s clear skeleton argument. The approach to the issues I have to determine is set out in Rix LJ’s judgment in Black v Sumitomo Corporation [2001] 1 WLR 1562; [2001] EWCA Civ 1819. I summarise them thus:

(1) There is no longer a requirement that the Court should be satisfied that a claim is likely to be made; merely that the persons against whom the application are made are likely to be parties in such proceedings if issued.

(2) The court will act with particular care and caution when an allegation of fraud is made or hinted at: “..it cannot be right that an allegation of fraud should assist the potential claimant to obtain pre-action disclosure unless his allegations carry both some specificity and some conviction and his request for disclosure is appropriately formulated” and it will obviously be easier for a respondent to resist any pre-action disclosure if he has acted reasonably in exchanging information and documents relevant to the claim.

(3) The purpose of the rule is not just for the assistance of a prospective claimant to improve his prospective pleading but also of those who need disclosure as a vital step in deciding whether to litigate at all or as a vital ingredient of the pleading. It is relevant in the context of conditions (a) and (b) to take account of a number of matters including these:

(a) whether the injury or wrong in respect of which compensation is

claimed is clear and

(b) called for an examination of the documents in question and

(c) the disclosure requested was narrowly focussed and

(d) bore directly on the injury complained of and responsibility for it

and

(e) the documents would be decisive on the conduct or even the

existence of the litigation

(4) There is a clear distinction between a personal injury action on the one hand and speculative commercial actions [where the disclosure sought is broad or ill defined]. The more diffuse the allegations and the wider the disclosure sought the more sceptical the court is entitled to be.

(5) In order that the court can determine whether condition (c) has been fulfilled, there needs to be clarity as to the issues, which would arise once pleadings in the prospective litigation had been formulated. “The court must be clear what the issues in the litigation are likely to be, that is what case the claimant is likely to be making and what defence is likely to be being run so as to make sure the documents being asked for are ones which adversely affect the case of one side or the other or support the case of one side or the other.” Per Waller LJ in Bermuda International Securities Ltd v KPMG [2001] Lloyd’s Rep PN 392 at 397, cited with approval by Rix LJ.

3. The application is for disclosure of

“All documents passing between [Graig] and their representatives and/or the tax authorities in respect of the proposed UK tax lease scheme and confirmation of the date on which such documents were provided, where none is expressly indicated.”

4. The prospective defendants whom I shall call Graig, are a company whose business includes the exploitation of potential investment opportunities in the shipping markets. The Applicant, whom I shall call Snowstar, owned two new builds for use in the container market. Negotiations between the parties in relation to the new builds commenced in March 2001. The sale to Graig of one of the two new builds did not come to fruition for reasons largely unconnected with the present dispute. Essentially, the sale fell through because of the delays, which were inherent in Graig’s decision to fund the purchase partly through a tax scheme, which needed to be structured in a way which would meet with Revenue approval. Graig’s brokers were Arrow; Snowstar’s were Costa. The sequence of correspondence is as follows:

5. On 29 May 2001, under the heading “re : EF Shipping vessels – Graig Shipping or nominee” Arrow wrote by E mail to Costa indicating that Graig maintained an interest in these vessels:

“They appreciate that the Sellers preference is to work on a clean and outright basis however as the Graig shipping will be buying the vessels under a UK tax scheme, they will require a 30 day subject on the deal to clear UK tax authorities. Provided a deal can be structured then while awaiting for these subjects, documentation, sales agreement etc could proceed and agreed between Buyers/sellers. However they cannot get around this issue.

In order to encourage Sellers of their seriousness they have advised that they could pay in the region of US$34.4/34.5 million less 2% here per ship. This is for an en bloc deal for both Vessels.

Frankly we see little risk from the Sellers’ side. The price is a premium over those which German buyers are prepared to pay and deals are going through under UK tonnage tax schemes.

Can you please discuss with Sellers and advise whether they could consider this type of scheme. If so, we will ask for a formal offer from the Buyers’ side.”

6. On the next day, Arrow sent another E-mail:

“On behalf of a company to be nominated by clients of Graig Shipping of Cardiff, Wales, we are authorised to present the following offer firm for reply here 1200 hrs London time 31 May 2001 as follows:” and there followed a list of ‘terms’.

The Sellers were described as “nominated companies of EF Shipping” and the Buyers as “clients of Graig Shipping or nominee”. There were six ‘subjects’ including agreement of full terms and conditions.

The E-mail continued:

“Please note our buyers are very serious and now have the necessary funding in place, but they require time to allow for this complex UK Tax lease transaction to be documented. Very privately, Graig is buying these vessels in conjunction with a LEADING European shipping Bank for placement into their shipping fund. All the cards are in place for this transaction to go through and the Buyers are geared up to do it.

…

They are now offering the Sellers US$ 500,000 per ship as a premium over your existing negotiations in order to secure their additional subject. We would strongly suggest Sellers postpone [negotiations] with your German Buyers and give Graig the chance to explain their position and offer.”

7. On 31 May 2001, Arrow sent another E mail “re: EF Shipping / Graig”

“As discussed, Graig remain keen and serious. They appreciate that there is a subject but this is only so that the documentation clears with the tax people. Graig is ready to do the deal as are their finance partners.”

“As discussed yesterday, the money is in place for this and Buyers believe that their premium of US$ 1 million over your current negotiations is more than clear indication of their seriousness.”

“We would strongly suggest that Sellers slow down with the others so that they can satisfy themselves of Graig’s interest and their willingness to conclude this deal.”

8. Later the same day, Arrow sent another E mail in response to a communication, not in the papers, from Costa.

“Graig appreciate Sellers’ position which they accept that given Sellers’ have an outright buyer for the first vessel then they want to proceed with that buyer.

This being said, Graig are ready to negotiate on the second vessel delivery Jan 2002. They still require clearing the deal through the tax authorities. However, sellers are not negotiating that vessel at the moment and Graig are [clearly] willing to buy the ships.

Please discuss with the sellers and advise.

We appreciate that the Germans are saying that they may be able to come back for the second ship but they this [sic] could take time. The sellers have no reason not to run with Graig for time being.”

9. On 4 June 2001 Arrow sent this E mail to Costa:

“As discussed, Graig still remain very seriously interested in the second

Vessel.

Appreciate your Sellers comments about not wanting to work on subjects but do they realise that this has to do with the UK tax authorities rather than a subject from Buyers board? In order to try to find a solution, please advise how we move forward. As brokers, can you please advise: -

If Buyers re-offer without a Buyers approval but still a subject to the tax authorities accepting the deal, will this satisfy the Sellers’ concerns?

The permission from the UK tax people could take 10 days, 3 weeks or whatever. Graig are offering on the basis of a 30 days subject because they want to be sure that there is sufficient time to get these approvals and they know that 30 days will be sufficient. If we offered on a shorter subject, say 15 days, with a week-by-week rollover if the authorities haven’t approved, is this workable?

Alternatively if Buyers put up a deposit to hold the vsl for 1 month and which they would lose if they did not lift their subjects, would this work?

If buyers come down to have a face-to-face meeting with the Sellers and explain their situation, would this help?

It is clear that they want to do a deal but we really do not know how we move forward. As far as we know, EF are not negotiating on the 2nd ship and Graig are offering an attractive price – I really do not see what the Sellers have to lose. UK Tax Lease deals are going through and Graig have their finance in place. But Graig need the tax authorities stamp before a deal can be done….”

10. The following day, Arrow sent a further message to Costa:

On behalf of a company to be nominated by clients of Graig Shipping of Cardiff, Wales, we are authorised to present the following offer firm for reply here 1200 hours London time 6th June, 2001 as follows: -

1. Sellers : nominated companies of EF Shipping

2. Buyers : clients of Graig Shipping or nominee

3. Vessels : Hull No.1069 from (Daedong S.B South Korea) – delivery

Jan.2002

4. Price : usd 34,550,000 – less 2 percent here (incl 1pcnt address)

5. Payment terms – to be split as follows: -

To Sellers : usd 11.76 Mill (being 40 percent payment of the original usd 29.4 Mill contract price)

Plus usd 5.15 Mill contract price (being the premium paid to Sellers) To Shipyard : usd 17.64 Mill (being the balance of payments to Yard 10pcnt on launch and 50pcnt on delivery of the original contract price of usd 29.4 Mill)

6. The sale of the vessels/ newbuildings to be combined with a timecharter employment for account CMA-CGM for a period of minimum 5 years at usd 16,600/daily less 2.75 percent total commission, as per charterparty already agreed.

7. Subject to: -

a) The satisfactory completion of UK Tax Lease documentation within 30 days after agreeing main terms.

b) Subject to Shipyard’s consent to transfer of shipbuilding contracts to the Buyers

c) Subject to full terms and conditions to be mutually agreed

d) Subject to Sellers obtaining approval from Time Charterers for transfer of charterparties to the Buyers

e) Subject Buyers approval of the guarantors and the wording of the refund guarantees in place which please provide details

f) Subject to Buyers review of the N/B and charterparty novation agreements and refund guarantees

COMMENTS

Buyers understand that the first ship is sold and Buyers are happy to continue on the second ship only.

The Buyers are ready to conclude a deal and as we have discussed, the Buyer’s subject is solely to do with going through the UK Tax Lease documentation. Privately, Graig Shipping are the minority shareholders and as mentioned, they are doing this with a leading European ship-financing source. Therefore all the people are in place but the tax paperwork must be done. UK Tax Lease deals are now being done and Graig is confident that their standing with the UK authorities together with their name/weight of their partners will be able to push this through.

We frankly, do not see this subject a great barrier. As you know, resale deals take about 1 month to do regardless. Documentation, contract work, etc can start once an agreement is reached. Again, Graig are willing to meet and explain this further face to face with the sellers if needed.

As brokers, we are confident that there is more money there from Buyers side to act as a premium for this subject. However, Buyers have said that they do not want to put up a deposit as a means of holding the Vessel as believe that their Banking partners would not agree to same but a premium should meet Sellers comfort.

Please give us a counter to try to move this forward – otherwise fear Buyers will drop this and look for other tonnage.”

11. On 6 June Arrow sent the following E mail to Costa:

Re. 2520TEU Containership Hull No. S-1069 ex-Daedong/Graig

1. Extension until noon Tuesday 12 June agreed.

(Comments - if possible, Buyers would very much appreciate if sellers can give an initial counteroffer before they are travelling. As brokers would ideally suggest that Sllrs counter on the full terms they’ve just agreed in order that buyers can at least look at these).

2. Graig’s website is a full disclosure on Graig and its activities which includes links to our key partners web sites namely Clipper Group. There is detailed financial information including financial reports there together with CEO statements, which I would draw EF Shippings’ attention to. Please find attached a fleet list of vessels currently under Graig technical management (Graig has invested in the majority of the vessels). The vessels all trade in the Clipper Elite Carriers Pool (CEC) of vessels.

As I explained on the phone, we are working with a number of institutional and private investors, which typically allows us to speak from a much stronger financial position than is demonstrated on our balance sheet. In this project, the majority investor is a major European Financial Institution (AA Rated) with whom Graig has worked with for the last 6 years. However, on this occasion, Graig has been retained to act as overall project manager and for the financial institution and will also be taking a minority investment position. The financial backing is in place for this transaction and Buyers are ready to proceed.

Please advise what additional information the sellers may require and we would only be too pleased to try and assist.

3. The vessel will be purchased using a UK tax lease structure, following the agreement of main terms with the sellers. This process will take about 30 days to complete the necessary documents. Debt and equity funding is in place. However, these transactions take time to document. I would add the buying group has worked on over 20 successful transactions over the last 2 years and we are confident that this is merely a procedural matter, but nevertheless we will require 30 days to lift this subject.”

12. Negotiations continued. Arrow asked for an up-date of the position with regard to other buyers.

“EF Shipping

Can you please update the situation.

Separately, if Sellers have seen/read Tradewinds last week, they will see that the UK Tax Lease scheme is working and deals are getting done. Please keep pushing for some reply.”

Costa responded on 20 June:

“Still negotiating. It takes some more days. Presently only one vessel tied up. For the second one for delivery Jan 2002 still there. Presently only your offer has been submitted but other buyers (Germans) showing interest. Once again sellers will move once the first definitely sold.”

13. On 13 July 2001 Arrow sent to Costa what was described as a counter-offer:

“Ref your email of 12 July 2001, we counter offer as follows:

General comments:

We are only in receipt of the documentation for the first vessel. Therefore this counter offer is on the basis that the documentation for the second vessel is identical, save for logical amendments, as the first vessel documentation. Please forward ASAP copies of original documentation for the above vessel.

Counter offer:

- Firm for reply here by 12.00 Hrs Noon London Time Monday July 16th,

2001.

1. Sellers: Snowstar Shipping Company Limited, Limassol/Cyprus

2. Buyers: Clients of Graig Shipping plc, Cardiff/UK.

3. Vessel: Agreed, subject to the above comments under (A) on

documentation. Furthermore would Sellers confirm that the vessel

is on schedule.

……….

12. Subjects:

……….

e) The satisfactory completion of UK Tax Lease documentation within August 17th, 2001 by 12.00 Hrs London time. Comment – this can still be reduced. Please see comment below.

……

COMMENT

The buyers have today discussed with their finance partners and with the Tax Authority to get this going. They are there to do this as quickly as possible but Sellers must appreciate that we are now right in the middle of the holiday season and to get all the documentation passed (sic) the tax office will take longer than was the situation a couple of weeks ago. We trust that Sellers can appreciate this situation and trust that Graig are not using this as a ploy to delay the deal. In fact Graig is confident that they can trim this timing down and may still aim to do a delivery before the 16th August provided the Sellers can trim down the time needed to get approvals from Charterers and the shipyard.”

14. There were further negotiations and eventually on 16 July 2001, Arrow, appreciating that time was running against them, wrote asking for an extension of time to put forward a further offer, no doubt in the hope that the deal with the German company would not go through. That request was granted until the following morning 09.00 hrs London time. And on 17 July Arrow put forward a further counter offer:

Ref your email of 16 July 2001, buyers instructed us to counter offer as follows:

Firm for reply 16.30 hrs London time today 17th July 2001

Counter offer:

1. Buyers: A SPC to be nominated by Fortis Bank, The Netherlands.

Please kindly remind all parties that this transaction has a strict P+C clause and that the name of the Buyers should not be divulgated (sic) without our/their permission, if there is a need to release a name it should be that of “Client of Graig Shipping”.

2. Agreed

3. Price: Agreed 33.800.000 nett to Sellers.

Whereof the purchase price will be splitted as follows:

To Sellers 16.160.000 usd (i.e. 11.760.000 + 4.400.000)

To Shipyard 17.640.000 usd

4. Closing:

Closing to be held in London after all subjects have been lifted but

not later than August 23rd, 2001. Exact date to be mutually agreed between Sellers and Buyers.

…….

12. Subjects:

c) + d)

e) The satisfactory completion of UK Tax Lease documentation within

August 17th, 2001 by 12.00 Hrs London time.

Please note, that while every effort will be made to release the above subject in advance of that date, we are in a holiday period and we need to allow for sufficient time so that we can realistically achieve the above.

13. Payment and documentation:

Agreed except:

Novation deed amongst Charterers, Buyers and Sellers and Guarantors

(being a SPC owned by Fortis Bank The Netherlands)”

15. After further discussions Arrow sent the following Email to Costa:

“Ref Daedong S-1069

Buyers thank the Sellers very much for conclusion of this deal and they will now do their utmost to make for smooth discussions and delivery. Buyers appreciate the prompt forwarding of the documents yesterday but they would appreciate to have a full recap of terms and conditions agreed first – please kindly send this morning.

The Buyers would also need to see a copy of the original new building contract and charterparty – please kindly forward this fastest means possible.

After an initial look at the documents forwarded yesterday the Buyers can see that their form will not be acceptable to the UK Tax authorities. As Sellers may appreciate the UK Tax authorities have to have forms which are acceptable to them and they are not willing to deviate. The Buyers appreciate that this is something unknown to Sellers so they will ask their lawyers to draft same in the knowledge that it will be acceptable to the UK Tax authorities.

To this end the Buyers are willing to meet with Sellers to iron out these documents at the earliest opportunity.

In the meantime the Buyers would like to send their senior representative from their Shanghai office to Daedong. His name is John Coffin and we would appreciate contact details/person at Daedong for him to liase with.

We await your Full Recap.”

16. The full re-cap requested was sent to Arrow later that day.

“Herewith the full recap of terms and conditions so far agreed:

1. Sellers: Snowstar Shipping Company Limited, Limassol/Cyprus

2. Buyers: A single purpose company to be nominated by Fortis Bank, The Netherlands, who will also be the guarantor.”

This transaction has a strict P+C clause and that the name of the Buyer should not be divulged without our/their permission. If there is a need to release a name then it should be that of ‘Client of Graig Shipping’.

….

6. Closing:

Closing to be held in London after all subjects have been lifted but not later than August 23rd, 2001. Exact date to be mutually agreed between Sellers and Buyers.

….

8. Arbitration:

Arbitration in London with English law to apply in accordance with clause 16-a of NSF 93.

….

12. Subjects:

….

e) The satisfactory completion of UK Tax Lease documentation within

August 17th, 2001 by 12.00 Hrs London time.

17. An announcement of the sale was made by Costa to the time charterers seeking their consent to a transfer of the time charter to the buyers. Costa stated that the sale was “still on subjects from the buyers … The ship will be managed by [Graig] …”.

18. On the same day, 18 July 2001, Arrow wrote to Costa:

“I think we need to look closely at the situation. It is clear from my discussions with the Buyers that the draft documentation already supplied i.e. Agreement and both Novation deeds will not be acceptable to the UK Tax authorities. With greatest respect to Sellers and their lawyers the drafts will not work in this case. The Buyers lawyers, Stephenson Harwood, are prepared to draft their version within today to show the Sellers what is required to satisfy the UK tax people. I have been told it is not any more onerous in its context just written in a way that will satisfy and get approval from UK tax authorities.

It boils down simply to whether the Sellers are willing to entertain different drafts and work with the Buyers to find a solution or whether the Sellers will simply stick with the original drafts. In the latter case it may be best to just say that we tried but failed.

The sellers should be aware that Graig are known to CMA having recently had meetings to discuss mutual areas of cooperation, so they feel that this side of things will be ok.

If the Sellers are prepared to cooperate then we will send Buyers reworded drafts within today (latest tomorrow) with a view to meeting face-to-face next week.

Please advise”.

19. On 6 August Arrow sent a further letter to Costa asking for more time.

“As Sellers are well aware, we are in the middle of holiday season which is causing a number of delays for the buyers to deal with. As Sellers appreciate, there are a great number of lawyers and bankers working on this transaction from the Buyers side – not just on the SNP transaction between EF and Graig but also between Graig and various banks putting the tax structure in place. This week their tax lawyer handling the tax side of the deal has gone on holiday, as have the MIC at Fortis bank and the Lloyds’ banker. The person in charge at Stevenson Harwood has also gone on holiday and passed the file to a junior.

Given the above situation, the Buyers are quickly realising that the 17th August is approaching and fear that they will not be able to meet this deadline. In order not to surprise the Sellers just prior to that date, they feel that they should inform the Sellers at this stage and at the same time hereby ask for a formal extension until 31st August, i.e. exactly 2 weeks. This extra time is required simply because of the holiday season and the delays resulting from key people going on holiday.

The Sellers should clearly know that the Buyers are not stopping and will still be working to finalise the documents between EF Shipping and themselves as well as the tax documentation – but they know that the process is going to slow down for reasons beyond their control.

Can the Sellers kindly consider the Buyers position. The Buyers also state that following the 31st August, they can close at any stage thereafter and as soon as the Sellers are in position to do so themselves. Thus once the Buyers approvals are in place, this deal is ready to close from their side.

We trust that the Sellers can understand the Buyers predicament. The Buyers have spent a massive amount of time, energy and money (the lawyers fees spent so far are enormous) in order to progress this far. Their clear intention is to conclude this deal and hope that the Sellers can understand this position.”

20. This request was put to the Sellers but before they replied, Arrow wrote again about the time delay.

“As discussed, we are obviously now awaiting Sellers reply to Buyers last.

In the meantime – with respect to the Buyers last message on documentation. After reviewing this, our feeling is that we are almost there and should be able to wrap up the outstanding quickly.

Upon noting Buyers lawyers comments on the overall agreement, ‘Building Specification’, we see that the Sellers are correct to keep this wording within the contract and to delete this would be wrong. However, we may need to find some wording whereby reference to significant changes to the contract are made. We would think that Buyers’ man Mr. Coffin would be able to go through the minor changes during discussions with Helix or by some other means?

Anyway – I do not see this as a stumbling block which hope we can clean up once extensions are granted.”

21. Arrow wrote again that day about the timescale for regarding the closing date.

“Further to our telecon earlier today and your last message.

We have spoken again with the Buyers regarding closing date. They have again looked at the schedules and while they can make every effort to try to conclude as quickly as possible, they simply believe it would be misleading to encourage the Sellers that they could conclude any earlier. They asked us this morning to inform the Sellers of this position as they feel that it was the most professional way to deal with this problem and to continue the good spirit of cooperation that the Sellers have extended to the Buyers thus far.

When the Buyers went into these negotiations, they did not factor in how critical and disruptive the holiday schedule would be nor how much work they needed to get through for this deal. They have asked that we convey this to the Sellers as Buyers do not want the Sellers to think that they were intentionally mislead from the very beginning.

We await the Sellers reply.”

22. The reply from Costa on behalf of Snowstar was favourable.

“We refer to your message received yesterday 06-08-01.

Sellers hereby formally agree to the extension up to 31st August for satisfactory completion of UK Tax Lease documentation and Closing to be held after all subjects have been lifted but not later than 6th September.”

23. There then followed a letter from Arrow informing Costa that the Buyers were not able to proceed. It is Graig’s case that the reasons put forward in this document are not the true reasons. Graig’s case is that the true reasons are those set forth in the later communication of 20 August 2001.

“Further to our telecon, unfortunately Buyers have asked us to inform the Sellers that they unfortunately will not be able to proceed with this deal.

Yesterday, Fortis Bank had a credit committee meeting to cover this deal and given the state of the containership market and on the back of independent valuations they received, they could not proceed further under their current debt/equity financing structure of the UK tax lease scheme.

While Graig and other shareholders remain keen to conclude this deal, they cannot proceed without the backing of Fortis.

The Buyers are extremely sorry for this outcome and if they can find a way to move forward and will immediate come back to the Sellers.

They thank Sellers for their kind cooperation and professionalism throughout and are disappointed that the deal could not be concluded.”

The later communication said:

“We refer to the recent exchange of correspondence with reference to the …..message from Arrow dated 16 August to the Seller’s and a message from the Seller’s dated 16 August, (and following the return of Buyer’s representatives to their office today following a period of travel late last week), on behalf of the Buyer’s we confirm their position is as follows.

The Buyer’s are unable to complete the UK Tax Lease documentation. Therefore, the Buyer’s regret that the subject as set out under clause 12-(e) is unable to be fulfilled and the proposed transaction cannot be concluded. As a result of this situation the Buyer’s consider the arrangements between the parties to be terminated and the Seller’s are in a position to negotiate with another third party, if so elected.

This message serves to confirm the Buyer’s position regarding the UK Tax Lease documentation and the message forwarded by Arrow dated 16 August should be disregarded.”

24. After this last communication nothing further was heard from Snowstar for some nine months when, through their solicitors, Messrs Barlow Lyde & Gilbert, they indicated that they would like to look at documents within the possession of Graig, in order to understand better what had gone wrong with the deal and as a preamble to making this application should it be necessary. Without prejudice discussions took place with Graig’s solicitors, Messrs Eversheds. During the course of the discussions, and without waiving privilege, Barlows were shown a copy of a letter written to Graig by their then solicitors, Messrs Stephenson Harwood. That letter contained advice on the tax issue. But when asked for more, Eversheds declined and hence this application.

25. The arguments of the parties may be summarised in this way.

26. For Snowstar, Mr Eder QC showed me a draft claim for potential use in an arbitration. The Applicant’s primary claim is for damages for breach of contract. He submits that there was a binding agreement entered into between the parties on terms of the ‘re-cap’ dated 18 July 2001, and that in relation to the ‘subjects’ Graig were contractually obliged to use their best or reasonable endeavours to lift them, but they failed to do so. He points out that if the reason why the deal did not come to fruition was as stated in the communication of 16 August, then those reasons are not part of the ‘subjects’ and the communication amounts to a repudiation of the contract which was accepted by the Applicant. In any event there is a reasonably arguable case that Graig did not take all reasonable steps to lift the ‘subject’ in relation to the UK Tax Lease documentation.

He also submitted that there is an arguable case in relation to misrepresentation and/or negligent misstatement. He says that there were express or implied representations to Snowstar. He relies upon what is said in paragraph 16 of Mr Thorp’s witness statement filed in support of the application and paragraph 4 of the draft points of claim, namely, that the following express representations were made by Arrow:

(1) the funding was in place, or alternatively (according to the draft claim) the

finance for the purchase [of] the vessel had already been arranged;

(2) by 30 May 2001, “all of the cards were in place for the scheme to go

through” [paragraph 16(b) of the affidavit];

(3) “approval of the scheme by the tax authorities was simply procedural and

would take about 30 days” and “any other outstanding issues relating to

the financing of the vessel and thereby the tax requirements were merely

procedural and/or mere formalities;”

(4) [according to the witness statement] by 13 July 2001, “contact had already

been made with the UK Tax authority to seek their advice on the proposed

scheme”.

27. Mr Eder further submits that the cost benefit analysis of the pre-action disclosure “clearly falls in favour of granting Snowstar’s request [and reference was made to Lord Woolf’s Access to Justice Final Report at paragraph 50.] He further submits that the relevant factors set out by Rix LJ are satisfied:

(1) There can be no doubt that both Snowstar and Graig will be party to the

proposed litigation. Had Graig commenced a misrepresentation or

misstatement claim against Graig as envisaged under CPR 36.16(c) the

accuracy of Graig’s statements at the time that they were made would be a central issue and documents which proved or disproved their accuracy would be subject to disclosure either because they would be relied on by Graig to defeat the claim or by Snowstar to prove it.

(2) The documentation sought by Snowstar falls within a limited and specific

class and go to the heart of the misrepresentation/misstatement claim since

they will “establish beyond doubt whether tax advice had been taken as

early as Graig represented and whether the tax authorities had been advised

of the scheme at any point prior to August 2001. The costs of pre-action

disclosure will be relatively minimal and will potentially avoid the cost of

issuing the claim which would then be subject to revision after disclosure

had been made”.

28. For Graig, Ms Andrews QC submitted that the claim is speculative in nature; there is no basis for implying a claim in deceit against Graig. Graig were not to be a contracting party. Although Graig may have been described at the outset as a potential buyer, by the time of the re-cap which is said to be the contract, the buyer were to be a party nominated by Fortis Bank. When Snowstar first wrote seeking documents, their solicitors expressed their understanding that Graig were to be the managers of the vessel; the buyer was to be a company nominated by Fortis Bank. She further submitted that unless Graig were to be the purchasers, there can be no claim for misrepresentation under the Misrepresentation Act 1967, and no claim for negligent mis-statement since there was no duty of care: either the claim succeeded under the Act or it did not succeed at all. The only potential misrepresentation claim was in deceit. Such a claim would require the Court to be satisfied that what was said by Arrow in the course of pre-contractual negotiations was untrue, that both the untrue statements and the state of mind of Arrow could be attributed to Graig, and that Arrow had the necessary state of mind to be guilty of deceit. At most, the potential claim in fraud is speculative.

29. As to the misrepresentation claim itself, Miss Andrews submitted that none of the representations relied upon, whether in the draft claim or witness statement were supported by a proper reading of the various E-mails. The clear picture is that the funding of the project was both debt and equity. Funding by equity depended upon the acceptance by the UK tax authorities that the Scheme in question ‘worked’. There was no representation that the scheme had been given the provisional “all clear” by Graig’s advisors or the tax authorities, nor that the approval of the scheme was simply procedural. She also referred to the without prejudice interchange between the parties’ solicitors some nine months after the transaction came to an end and submitted that Graig had not behaved unreasonably.

30. The position which Snowstar now adopts is that it is not apparent that any tax advice had been sought or received by Graig prior to 1 August 2001, and that there had been no contact with the tax authorities prior to that date. Mr Eder relies, in particular, on the statement by Arrow in the E-mail of 13 July 2001 that the Buyers have “today” discussed with their finance partners and the tax authority “to get this going”. In his witness statement, Mr Thorp of Barlow Lyde & Gilbert said he was unable with any degree of certainty to say whether his belief that Graig had not contacted the tax authority prior to August 1 2001 was correct “without the disclosure sought in this application.” He went on to say that were Snowstar to be forced to plead its case without any reference to representations and their apparent falsity “the accuracy of the representations will not be in issue. As such, the documents which form the subject of this application will not be in issue.” Thus, Ms Andrews submits that on their own admission condition (c) is not fulfilled.

31. Further, she submits that the documents sought by the application will not assist Snowstar. Insofar as the application requests “confirmation of dates when documents were provided,” that is an application which falls outwith Part 31.16. The terms of the application refer to communications with the tax authorities by Graig’s representatives. The probabilities are that any such communications will have been through their solicitors and would be the subject of legal professional privilege. The evidence shows that the Tax Scheme is regarded by its authors as highly confidential and it is oppressive that communications with the makers of the Scheme should have to be disclosed in advance of proceedings.

The Decision

32. This was a well-argued application with no stone unturned. If satisfied that the potential claim overcomes a minimum threshold of credibility and that the qualifying conditions have been fulfilled then I must exercise my discretion. If the qualifying conditions are not satisfied, the application must be dismissed; if they are satisfied the application may be granted.

33. I start with the potential claims. It seems to me that the claim in contract against Graig is flimsy and fragile. Mr Eder must say that the re-cap letter constitutes a binding contract between Snowstar and Graig. There are two obvious difficulties with this: first, whether the re-cap evidences or constitutes a contract with Graig rather than an entity to be nominated by Fortis Bank; and secondly whether the ‘subjects’ are so extensive that it would be difficult to spell out any concluded deal. This is not the occasion to carry out a detailed analysis of the alleged contract. In The Blankenstein [1985] 1 Lloyd’s Reports page 93, at page 105, Robert Goff LJ accepted that a contract had been entered into by the ‘principals’, though the intention was that upon nomination by them there should be a novation of the contract with the nominee. A close analysis of the re-cap document and the relationship between the various entities, including the relationship between Graig and Fortis Bank, will be required before any concluded view could be reached. As to whether the terms of the contract were spelt out sufficiently, again this is not the occasion for a final view; but it will be apparent that there were many ‘subjects’ and in relation to some of them it might be difficult to regard them as subject to a contractual obligation of reasonable endeavours. But, for the purposes of this application I am prepared to accept that the claim in contract passes the ‘credibility’ test. However, the more speculative the claim, the less inclined the court is to grant the application, and its weakness is a factor which I take into account when considering whether a pre-action disclosure order should be made. As to the claim in misrepresentation, there is a whiff of fraud being raised by Snowstar. I think that Ms Andrews’ analysis of the nature of the claim and the difficulties in advancing it are entirely justified. There is the inevitable problem of attributing to Graig the knowledge and state of mind of their brokers. Furthermore, the effect of the representations in the draft points of claim and the witness statement are speculative. For example, the statement that the Buyers have today discussed with the tax authority “to get this going” does not bear the interpretation put on it by Mr Thorp.

34. Overall, my conclusion is that this is precisely the sort of “speculative commercial action[s]” referred to by Rix LJ at paragraph 83 of Black v Sumitomo Corporation. And the proceedings are not made more credible by the whiff of fraud in the air.

35. Furthermore, I regard the ambit of the disclosure sought as wide and woolly. Mr Eder suggested that if there were flaws in the application notice then they could be dealt with after this judgment. I do not regard that as satisfactory. It is, I think, important, if not essential, that every application for pre-action disclosure should be crafted with great care, so that it is properly limited to what is strictly necessary. In this case, as Ms Andrews submitted, the order asks for something which the court could not order [confirmation of the date of undated documents] and is fishing for disclosure of documents which will either be privileged or subject to considerable commercial sensitivity [the Financial plan]. Barlows would have been aware of these problems as a result of the without prejudice discussions they have had. I can foresee considerable scope for argument about the extent of Graig’s disclosure obligation were proceedings to be issued and the disclosure stage was reached. Graig’s ‘representatives’ will include their solicitors and accountants, presumably. How much of their communications are the subject of privilege will have to be determined; this is not the occasion for such a determination. Accordingly, I am not satisfied that condition (c) has been fulfilled. What Snowstar really want is correspondence or notes of telephone calls between the Revenue and their advisers, so that they can see if Arrow made any false representations. The probabilities are that Messrs Stephenson Harwood were handling the tax matters on Graig’s behalf and without those communications Snowstar would not be any further forward. Even were condition (c) satisfied I would not have ordered disclosure in the terms sought in the application because the issues likely to arise on it are best dealt with in the course of the normal disclosure process.

36. As to conditions (a) and (b) I think these conditions have been satisfied.

37. In summary, therefore, I refuse this application because I do not consider that condition (c) has been satisfied and because in the exercise of my discretion I do not consider it right to order pre-action disclosure: the claim is thin and fragile [speculative], and the application is too widely drawn.

38. I therefore dismiss the application and will hear the parties on the question of costs.