Antonio Gramsci Shipping Corp & Ors v Stepanovs

On 24^th May 2010 Gross J gave a judgment in Claim No: 2008 Folio 1324 (“the Corporate Defendants’ action”) in favour of the Claimants, 30 “one ship” companies, incorporated in a number of off-shore jurisdictions, all in the ultimate beneficial ownership of the Latvian Shipping Company (“LSC”), after a four day summary judgment hearing against five companies (four of them registered in the British Virgin Islands (“BVI”) and one in Gibraltar) (“the Corporate Defendants”). It is, at least for the purposes of this hearing, common ground, that the Defendant and four others (Mr Berkis, Mr Skoks, Mr Sevcovs and Mr Lembergs) (“the Beneficial Owners”) are the ultimate beneficial owners of the Corporate Defendants. By that judgment Gross J granted leave to the Corporate Defendants to defend that action only upon terms of (in effect) a payment into court of $40 million, to be made by 17 June 2010. The Corporate Defendants failed to comply with that condition and judgment was entered against them.

The claim in this action is based, as was that against the Corporate Defendants, upon the Claimants’ case that in order dishonestly to siphon out substantial profits from the chartering business of LSC and the Claimants, instead of the Claimant companies chartering out their vessels to arms-length commercial charterers, the Corporate Defendants were interposed, so that in the case of 63 charterparties they became the charterers, and the arms-length third parties were caused to be sub-charterers at substantially higher rates than in the head charters. The Defendant and the four other Beneficial Owners are said (see paragraph 60 of the Judgment of Gross J) to have “master-minded the Scheme”, whereby he concluded that there was:

“(v)

… a real and prima facie cogent case to answer that the Claimants’ corporate opportunities were diverted …that the profits earned by the [Corporate] Defendants should have been earned by the Claimants and, hence, by LSC……

(vi)

…the secrecy of the Scheme is a powerful pointer to all not being well with it …

(vii)

…it is difficult to avoid the conclusion that the “masterminds” behind the Scheme … knew enough as to the transactions involved to expose them to a real and cogent case of dishonesty.”

The evidence filed on behalf of the Corporate Defendants in that action, both in response to disclosure orders and in the summary judgment application, by (among others) Mr Martins Kveps, the lawyer for the Defendant and for three of the four other Beneficial Owners, by Mr Paderov, the sole (nominee) shareholder of each of the Corporate Defendants and by Ms Nina Glebova, who held Power of Attorney for the Second to Fifth Corporate Defendants and was sole director of the First Corporate Defendant.

In the light of that evidence, and other evidence available to the Claimants, referred to in the first affidavit of Mr Lockwood dated 10^th December 2008 on their behalf (including a report from a Mr Kodols dated 1^st August 2007), the Claimants have commenced this action by which (paragraph 3 of the Particulars of Claim dated 7^th October 2010) “the Claimants seek to “pierce the corporate veil” and to hold the Defendant jointly and severally liable with each of the Corporate Defendants in respect of the Claimants’…losses”, including, but not limited to the estimated sum lost to the Claimants by virtue of the Scheme of $100 million.

The Claimants rely (primarily) in order to establish jurisdiction against the Defendant upon the jurisdiction clause (41) in the 63 charterparties to which the Corporate Defendants, and thus, on the Claimants’ case, by virtue of the piercing of the veil, the Defendant were parties, namely that, by way of a standard form SHELLTIME 4 Time Charterparty, “any dispute arising under this charter shall be decided by the English Courts to whose jurisdiction the parties hereby agree”.

Beatson J granted, on an ex parte application by the Claimants on 17^th November 2010, a freezing order, when he concluded that “although the evidence is that the Defendant was not the sole controlling mind, if on the evidence before me there is a good arguable case that he was one of the controlling minds, then that condition in the principles summarised in Ben Hashem v Ali Shayif [[2008] EWHC 2380 (Fam)] is satisfied” (paragraph 17 of the judgment) and (paragraph 19) “that the Corporate Defendants were used solely for pursuing the Scheme … there were no directors of the Corporate Defendants involved in their management or administration … the Defendant and the others used the Corporate Defendants as vehicles for these transactions”. He concluded in paragraph 36:-

“… where there is a good arguable case that the requirements for piercing the corporate veil have been satisfied and that the Defendant is the alter ego, or one of the alter egos of the Corporate Defendants, there is also a good arguable case that he should be regarded as stepping into their shoes so that the acts of those Corporate Defendants are seen as his acts. For this reason, there is a good arguable case that the Defendant is to be seen as agreeing to the jurisdiction of the court by reason of the jurisdiction agreement set out in Clause 41 of the Charters in a manner which satisfies the requirement of Article 23.”

By order of Beatson J on 24^th November 2010, being the return date of his original Order, it was agreed that there would be an inter partes hearing to determine the issue of the Court’s jurisdiction in the proceedings and the jurisdiction to make the continuing freezing order, which was continued until that date. This has been such hearing, at which I have been given very great assistance by counsel on both sides, and there has been no separate argument in relation to the continuation of the freezing order. If I conclude that this court has no jurisdiction to entertain these proceedings, then of course the freezing order falls away. If I accept the Claimants’ case as to jurisdiction then there is no material separate argument as to the existence or non-existence of a good arguable case (or risk of dissipation) in relation to the freezing order, which would accordingly continue until trial.

The issues appear to me to be as follows, on the Claimants’ case, and by reference to the evidence before me:-

In my judgment, the first question is whether, on the Claimants’ case, at English law the veil can be pierced against the Defendant:-

The second question in my judgment is then whether the Claimants can found jurisdiction by reference to Article 23. On the Claimants’ case:-

The third question then relates to Article 24, namely as to whether, on the Claimants’ case, the UK Courts have jurisdiction because the Defendant entered an appearance (“Entry of appearance”).

After considering those issues, I shall return later to the question as to what the relevant test is on a challenge to the jurisdiction, such as this has been, which the Claimants must satisfy, and whether the Claimants have satisfied such test.

Although there have not been many decided cases in which the veil of incorporation has been pierced so as to render those who control the company, whether shareholders, directors or beneficial owners, personally liable, since the seminal decision of Gilford Motor Company v Horne [1933] Ch. 935, there is now quite a catalogue of such decisions, many if not all of them put before me: nine in which the veil has been pierced and ten (including Ben Hashem) in which the adoption of such course has been considered but in the event rejected. It is clear that the seminal passage is that in the judgment of Sir Andrew Morritt VC in Trustor AB v Smallbone and others (No.2) [2001] WLR 1177 at 23:-

“In my judgment the court is entitled to “pierce the corporate veil” and recognise the receipt of the company as that of the individual(s) in control of it if the company was used as a device or façade to conceal the true facts, thereby avoiding or concealing any liability of those individual(s).”

It is quite clear that that is exactly what (on the Claimants’ case) occurred here: see also the passage in the judgment of Rimer J in Gencor ACP v Dalby [2000] 2 BCLC 734 at 744:-

“Burnstead is simply a creature company used for receiving profits for which equity holds Mr Dalby to be accountable to ACP. Its knowledge was in all respects the same as his knowledge. The introduction into the story of such a creature company, is, in my view, insufficient to prevent equity’s eye from identifying it with Mr Dalby: see generally, as to the readiness of the Courts in appropriate cases to pierce the corporate veil, re: H…[1996] 2 BCLC 500 at 511, per Rose L.J.”

The only apparent limitation that has been placed on the doctrine, given the necessary requirement that the trigger for it is not simply fraudulent dealing by a company but the fraudulent misuse of the company structure, as Morritt VC made clear, is that, using the gallicised words of Munby J in Ben Hashem at 199 (referred to by Flaux J in Lindsay v O’Laughnane [2010] EWHC 529 QB at 134) the wrong-doing must not be “dehors the company”, i.e. something outside the ordinary business of the company. Whether the phrase “dehors the company” is ever a very helpful or meaningful expression, I do not know, but consideration of it is clearly inappropriate on the facts of this case, when the Corporate Defendants had, on the Claimants’ case, no independent or non-fraudulent existence. The fraud was plainly “dedans” the company, but that was because the company was set up for that very purpose, in order to abuse the company’s structure.

In his skeleton Mr Millett did raise an issue by reference to the fact that the Defendant was not suggested to have been in sole control of the Corporate Defendants. Although there may have been cases (such as Dadourian Group International Inc v Simms [2006] EWHC 2973 (Ch) – see paragraph 690) in which the existence of some independent element may mean that, on the facts, no or no sufficient control is vested in the alleged wrongdoer for it to be possible to be said that the company was his or her alter ego, in the event, in the course of argument, Mr Millett did not pursue such contention on the facts of this case. He accepted, and rightly, that if there were a number of wrongdoers, with a common purpose, in control of the ‘creature’ company, then they could all be said to be in material control, so that the veil of incorporation could be lifted as against one or all of them: thus in the passage of the judgment in Trustor recited in paragraph 13 above, the reference to “individual(s) in control of the … company” and so too in Ben Hashem at paragraph 163, the reference by Munby J to “control of the company by the wrongdoer(s)”.

In this case it seems on the evidence that one of the Beneficial Owners, Mr Lembergs, was more dominant, and a point is made that neither he, nor in any event the other three Beneficial Owners who remain in association with the Defendant (unlike Mr Lembergs), have been joined in this action (though they plainly might be, by the Defendant or by the Claimants, if it continues) but there is no doubt at all on the evidence that the Defendant was one of those controlling, and in concert with the others: just as in Gilford Lawrence LJ was influenced (at 965) by the fact that although the “inference might have been displaced by evidence adduced on the part of the Defendants, …no such evidence was forthcoming”, so too here there is at present no counter-evidence from the Defendant. On the evidence before me, the Defendant was a member of the LSC Supervisory Council, was an influential member of the Table and according to Mr Kveps (paragraph 20 of his first affidavit) was the person who approached Mr Paderov to be nominee shareholder of the Corporate Defendants: according to the first affidavit of Mr Lockwood on the Claimants’ behalf (paragraph 153), the charterparties were entered into with the knowledge and assistance of the Defendant.

This is raised by Mr Millett by reference to the words of Lawrence Collins J (as he then was) in CMS Dolphin Ltd v Simonet and another [2002] BCC 600 at para. 103:-

“But I do not think that it is necessary to resort to piercing or lifting the corporate veil, since Cook v Deeks shows clearly … that the directors are equally liable with the corporate vehicle formed by them to take unlawful advantage of the business opportunities”

and to the words of Warren J in Dadourian at para. 682. Warren J there said:-

“In all of the cases where the court has been willing to pierce the corporate veil, it has been necessary or convenient to do so to provide the claimant with an effective remedy to deal with the wrong which has been done to him and where the interposition of a company would, if effective, deprive him of that remedy.”

What Warren J said seems to me plainly not to be the case. As will be seen, in Gilford Mr Horne was under a restrictive covenant preventing competition (clause 9) in his contract of employment, and he set up a company in order to disguise the existence of such competition. There would not have been any difficulty in putting the case, and seeking or granting a remedy, by reference to a claim against the company for knowing procurement of Mr Horne’s breach of contract, or simply relying upon agency, by granting an injunction against Mr Horne restraining breaches by himself his servants or agents, which would plainly have included his company: but this was neither done nor addressed. Similarly in Jones v Lipman [1962] 1 WLR 832 where Mr Lipman personally entered into a contract for sale of a property to the plaintiff, and then sold on to his puppet company (as found), there could have been relief and remedy, as Mr Millett himself pointed out by virtue of his researches in Snell’s Equity, by the grant of an order in equity for specific performance by reference to the estate contract, against the puppet company as being a third party purchaser with notice: but again this was not addressed or considered at all, and specific performance was granted only by reference to Gilford and the piercing of the veil. In Trustor too, it is plain that there could have been a claim against the puppeteer for equitable compensation for breach of fiduciary duty.

In any event it is clear in Dadourian that there was a significant context. Warren J had concluded that the Dadourians (“Jack and Helga”) were liable in deceit for fraudulent misrepresentation inducing the contract with the alleged puppet company. Once they had been found liable for such fraudulent misrepresentation, that would mean recovery for the claimants against the Dadourians for all the losses flowing from the misrepresentation, and their consequent entry into the contract – a measure of damage inconsistent with damages for loss of bargain under the contract – and it was unnecessary to pierce the veil in order to found the tort for deceit which in any event lay directly against the Dadourians as the tortfeasors:-

“684.…It seems to me …that whilst a person committing the tort of deceit should be liable for all the loss which flows from his misrepresentation, it would be unprincipled to impose a liability on him for the loss of bargain suffered by a misrepresentee in respect of a contract with a third party with whom he had been induced to contract by the misrepresentation”

685.

…there is no need and it would be inappropriate, to lift the veil in order to provide A with a contractual remedy against B; A recovers all his loss arising as a result of the misrepresentation by his tortious claim in deceit.

686.

If that is correct, the question arises whether it is necessary in the present case to lift the veil …in order to provide the Claimants with the remedy to which they are entitled. In my judgment, it is not. Charlton, if it was being used as a device at all, was being used to hide the involvement of Jack and Helga and, if that concealment had not taken place, the Option Agreement would not have been entered into. The Claimants have their remedy against Jack and Helga in the form of an action for fraudulent misrepresentation. There is simply no need, in order to give the Claimants redress for that misrepresentation, to lift the veil at all: indeed to do so would achieve nothing in relation to that wrong.”

It is in these circumstances that, at the end of a lengthy trial and a lengthy judgment, Warren J did not think it was necessary to consider piercing the veil. So too, in not dissimilar circumstances, Flaux J said in Lindsay:-

“130.

Given that I have found that the claim in deceit succeeds, it is not strictly necessary to decide whether this is an appropriate case in which to pierce the corporate veil and permit a claim which would otherwise be pursued against the company to be pursued against the defendant”:

and he refers to Warren J’s conclusion in paragraph 685 of Dadourian that the claimant “recovers all his loss arising as a result of the misrepresentation by his tortious claim in deceit”.

It is wholly clear to me that the fact that a trial judge may conclude in his judgment that it is not necessary on the facts of a particular case (particularly where the defendant sought to be made liable as alter ego has already been found personally liable, and by reference to an inconsistent measure of damages), to pierce the veil, in no way supports the proposition that a claim at the outset of proceedings is demurrable unless it is shown to be necessary. The concept of necessity is not a fetter upon such a claim. It does not need to be pleaded or proved in limine. Piercing the veil is an exceptional course, not a “routine adjunct to any claim brought against a company for dishonest assistance or knowing receipt” per Norris J in Law Society v Isaac [2010] EWHC 1670 (Ch) at para. 40); but it is not a requirement for such a claim, at a time when the outcome of the proceedings is unknown, for it to be shown to be necessary.

The Claimants’ case is that, as a result of the piercing of the veil, the Defendant is jointly and severally liable under the 63 charterparties into which the Corporate Defendants entered. As for evidence, there is, on the Claimants’ case, sufficient to show that he was responsible for what the puppet companies did, and, in addition, Mr Kodols’ report at page 19 states that the Defendant “not only knew but most likely also organised …the conclusion of the hire agreements unbeneficial to [LSC] and subsequent handing over of the vessel owned by the subsidiary companies …for sub-hire to other foreign companies for the rates that were much higher and corresponding to the market rates.” If he, with the others, was alter ego of the puppet companies then his knowledge was the companies’ knowledge, and vice versa (Rimer J in Gencor in paragraph 14 above) and his acts their acts and vice versa: “wherever I am, there’s always Pooh”.

Mr Rainey accepts that there is no reported case in which the veil has been pierced so as to place the puppeteer into the puppet’s contract, but he submits not only that there is nothing in the decided cases to cast doubt upon his proposition, but that support can be gained from them:-

None of the other reported cases includes a finding of contractual liability, but Flaux J in Lindsay said at paragraph 130, set out in paragraph 20 above, that he would not, as there appears, decide whether to pierce the veil. He continued by referring to Dadourian at paragraph 684-5 where:-

“Warren J held that where a claim in deceit succeeded against the person controlling the company, it would be inappropriate to permit the veil to be lifted to enable the claimant to pursue a contractual claim against that person. As he put it, the claimant “recovers all his loss arising as a result of the misrepresentation by his tortious claim in deceit” (paragraph 685). This point was not addressed in the Court of Appeal.”

Flaux J then proceeded to consider whether he would have pierced the corporate veil if for example fraudulent misrepresentations had been made but were for some reason unenforceable, such as to deprive the claimant of the remedy in deceit which he had just found was available to him. On the facts of that case, he concluded that the wrong-doing was not “dehors” the company, and that it was not a case in which the companies were being used by the defendant as a façade to disguise his wrong-doing, so that for that reason (paragraph 140) “this would not be an appropriate case in which to pierce the corporate veil … [but] the point is academic since the claimants’ claim in deceit succeeds.”

Mr Millett points out that Warren J at para. 688 of Dadourian, quoted above, referred to the veil being “lifted to provide the Claimants with the equivalent of the contractual remedy against Jack and Helga for loss of bargain”, but reference can also be made to paragraph 678, in which he refers to the fact that if the corporate veil were to be pierced “this would, of course, make Jack and Helga liable for the loss of bargain damages which were awarded against Charlton for breach of contract, although there could not be double counting: the Claimants could not recover the same damages twice, once for breach of contract and once for misrepresentation since any recovery of contractual damages would reduce the loss flowing from the misrepresentation” (my underlining throughout). Warren J also referred, in paragraph 685 (set out in paragraph 19 above), to there being “no need … to lift the veil in order to provide A with a contractual remedy against B”. He could have provided, but did not in the event, that contractual remedy by enforcing the contract against the Dadourians.

I am satisfied that both Warren J in Dadourian and Flaux J in Lindsay were only ruling out the course of finding the puppeteer liable for breach of contract because in neither case was it appropriate to do so in the event, since a remedy of finding the puppeteer personally liable (as tortfeasor) had already been granted which was, certainly in the case of Dadourian, inconsistent with taking the contractual route. None of the reasons which Warren J put forward argues against a conclusion, depending on how the facts fall out at trial, that in this case the puppeteer should be held party to the puppet company’s contract. There is in my judgment no good reason of principle or jurisprudence why the victim cannot enforce the agreement against both the puppet company and the puppet who, all the time, was pulling the strings. The Claimants seek to enforce the contract against both puppeteer and the puppet company (as in Gilford and Jones). Mr Millett’s reference to Shogun Finance Limited v Hudson [2004] 1 AC 919 does not seem to me to be apt. In that case the victim did not wish to enforce the contract against the fraudster, but to deny its existence.

Two matters remain to be dealt with:

Mr Millett submits that, by analogy with the agency cases, the Claimants have elected by taking judgment against the Corporate Defendants. He puts forward no alternative case of estoppel based upon any other facts. This of course can only succeed if (i) the claims against the puppeteer and the puppet are alternative; (ii) the decisions on election as between principal (including undisclosed principal) and agent are extended. As to the latter, it has always seemed to me that the 19^th century cases of election (e.g. Priestly v Fearney (1863) 3 H&C 977 – and see Bowstead and Reynolds on Agency (18^th Ed) at 8-117) constitute a wholly unfair historical anomaly, which I see no need or justification to extend. But as to the former, this is not the Claimants’ case, in principle or in fact. Mr Rainey’s case is that there is joint and several liability of the puppet and puppeteer, as in Gilford where (see paragraph 18 above) both are in breach, and the injunction is granted against both. The puppet company is not a sham, such as in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802, and does not simply disappear, and the concept of alter ego is not an agency concept. As I put it in the course of argument, it is not a question of a Russian, or Latvian, doll, with the company lifted off and disappearing once the alter ego is revealed, but of the curtains being pulled back to reveal the puppeteer and the puppet. There has been no election.

Mr Millett’s submissions in this regard in my judgement misfire. This concept draws its basis from Fiona Trust v Privalov [2008] 1 Lloyds Rep 254, and was examined in Deutsche Bank AG v Asia Pacific Communications Inc [2008] 2 Lloyds Rep 619. The jurisdiction clause has its own life, irrespective of whether the bulk of the contract is invalid, so that the court selected by the jurisdiction clause remains to judge, whether by its domestic law or its private international law, questions of validity/voidness/voidabililty/illegality of the contract of which the jurisdiction clause otherwise forms part. The jurisdiction clause is thus separable, and, as Professor Briggs put it in his Article in the British Yearbook of International Law (2003) at 540 “does not necessarily go down with the ship”. So much is common ground.

That does not however mean that there has to be separate consideration – in relation to a standard clause, numbered 41 – of whether the jurisdiction clause also was entered into by the alter ego. As Hamblen J stated in Polskie Ratownictwo Okretowe v Rallo Vito SNC [2010] 1 Lloyds Rep 384 at 37 “…it is sufficient for a party to agree to standard terms that contain a jurisdiction clause. It is not necessary for there to have been an agreement specifically as to the jurisdiction clause”. As it happens, however, in this case it is clear that (on the Claimants’ case) all the contracts entered into by the Corporate Defendants were in pursuance of the Scheme, and Mr Solomatins, who was a member of the Supervisory Council of LSC with the Defendant, in his affidavit on behalf of the Claimants considered (at paragraph 23) that the Defendant would have been influential in the setting up of the agreements, and Mr Lockwood refers (at paragraph 76.5) to an email from a Mr Markevics, to the effect that the terms of the charterparties were agreed at LSC management level.

It is common ground that English law (i.e. national law) governs the existence (i.e. scope and effect) and interpretation of a jurisdiction clause, and EU law governs formality and consensus (see e.g. Powell Duffryn PLC v Petereit [1992] ILPr 300 at paragraphs 33, 37, 13, Provimi Ltd v Aventis Animal Nutrition SA [2003] ECC 29 at 59, Benincasa v Dentalkit Srl [1997] ILPr 559 at 25, 31). Substantial validity of a contract – void/voidable/illegal – is governed by the law, including the private international law rules, of the chosen jurisdiction.

The issue before me is as to which law governs the identity of the parties to the contract, including the jurisdiction clause. Lewison J in Knorr-Bremse Systems for Commercial Vehicles Ltd v Haldex Brake Products GmbH [2008] ILPr 26 (“KBS”) at paragraph 32 stated:-

“Article 23 of the Judgments Regulation applies where “the parties” have agreed that a particular court is to have jurisdiction. The agreement must be in writing or evidenced in writing. The purpose of the formal requirements is that of legal certainty. One of the fundamental parts of any agreement is who is a party to it. In my judgment therefore, the formal requirements of Art. 23 require that there is a written record of who is party to the agreement.”

There is however no such provision in Article 23, which reads as follows:-

“1.

If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the Courts of a Member State are to have jurisdiction to settle any disputes …, that court or those Courts shall have jurisdiction … Such an agreement conferring jurisdiction shall be either:

(a)

in writing or evidenced in writing; or

(b)

in a form which accords with practices which the parties have established between themselves; or

(c)

in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.”

I consider that Lewison J was wrong in this regard, and Mr Millett did not actively seek to support the proposition, which is not itself supported by, nor founded upon, any European authority or any previous English authority. It is in fact, in my judgment, inconsistent with the authorities to which I shall refer, and it may have influenced his conclusions on other aspects of his judgment, to which I shall return.

Mr Rainey submits that English law decides the identity of the parties, and EU law then decides, in relation to the parties so identified, whether consensus between them can be established. Mr Millett however submits that EU law decides who the parties to the agreement are: there is no distinction between the question of who the parties are and whether there is consensus between them. Alternatively, he submits that if there are two different questions, then, even if English law governs the identity of the parties, and if at English law the Defendant was a party to the contract as alter ego, there was no consensus at EU law between the Claimants and the Defendant.

Counsel agree that the pivotal authority is Coreck Maritime GmbH v Handelsveem [2001] CLC 550. This is a case in which bills of lading conferred jurisdiction on the court of the country where the carrier had his principal place of business, and contained an 'identity of carrier clause' which provided that the shipowner was the carrier and the bills were signed as agents.

There were four questions put to the European court. The first is summarised at paragraph 10 of the judgment:-

“… the national court essentially asks whether the words 'have agreed' in the first sentence of the first paragraph of Article [23] of the Convention must be interpreted as meaning that the jurisdiction clause must be formulated in such a way that it is possible to identify the court having jurisdiction on its wording alone.”.

The Court then continues at paragraph 13:-

“The Court has held that, by making the validity of a jurisdiction clause subject to the existence of an ‘agreement between the parties’, [Article 23] imposes on the court before which the matter is brought the duty of examining first whether the clause conferring jurisdiction upon it was in fact the subject of consensus between the parties, which must be clearly and precisely demonstrated, and that the purpose of the requirements as to form imposed by [Article 23] is to ensure that consensus between the parties is in fact established.”

The answer is then given at paragraph 15 of the judgment:-

“It follows that the words 'have agreed' in the first sentence of the first paragraph of [Article 23] cannot be interpreted as meaning that it is necessary for a jurisdiction clause to be formulated in such a way that the competent court can be determined on its wording alone. It is sufficient that the clause states the objective factors on the basis of which the parties have agreed to choose a court or the courts to which they wish to submit disputes which have arisen or which may arise between them. Those factors, which must be sufficiently precise to enable the court seised to ascertain whether it has jurisdiction, may, where appropriate, be determined by the particular circumstances of the case.”

The second question was set out at paragraph 16 of the judgment:-

“…the national court asks about the conditions of application of the first paragraph of [Article 23]. It essentially asks whether that provision applies if the jurisdiction clause designates the court for the area where one of the parties to the original contract has its principal place of business but it is not proven that that place of business is situated in a contracting state.”

This was answered in paragraph 21 of the judgment:-

“… the reply to the second question must be that the first paragraph of [Article 23] only applies, if, first, at least one of the parties to the original contract is domiciled in a contracting state and, secondly, the parties agree to submit any disputes to a court or the Courts of a contracting state.”

The third question is contained in paragraph 22 of the judgment:-

“… the national court essentially asks whether a jurisdiction clause which has been agreed between a carrier and a shipper and appears in a bill of lading is valid as against any third party bearer of the bill of lading or whether it is only valid as against the third party bearer of the bill of lading who succeeded by virtue of the applicable national law to the shipper’s rights and obligations when he acquired the bill of lading.”

The fourth question is not directly relevant (and was held inadmissible in any event).

Mr Rainey submits that the structure of the judgment is clear:-

He submits as follows:-

Mr Millett submits that, whereas the European court in Coreck was recognising that it is for the national law (assuming that that was what was meant by “national court”) to resolve the identity of the parties to the contract, the only circumstance where that arises is where there is in the jurisdiction clause what he refers to as a ‘generic’ description of the party, as in Coreck itself, where the reference was to “carrier”, and the national court is then tasked with finding out who that is:-

Whether Mr Rainey is right can be examined by a discussion of three cases:-

I conclude that there is nothing in the European Court Judgment in Coreck, by reference to paragraph 20, which would limit its ambit to questions of identity of the parties to cases where there is a generic description of the party in the clause. I consider that the approach of Cooke J was correct, in referring the issue of the identity of the parties in that case – was the principal a party by virtue of the resolution of the contested issue of authority of the agent? – to English law.

It is in my judgment significant that the same would and ought to apply to a question involving what English law would describe as an “undisclosed principal”. Mr Millett had to concede that he had no answer as to how EU law would resolve this issue. I am satisfied that the question whether C, an alleged undisclosed principal, who was subsequently asserting that he was a party to a contract through his previously undisclosed agent, was a party to the contract would be answered, in accordance with Coreck, by English law: so too would be the question whether C in this case, the alleged undisclosed puppeteer/alter ego, was party to the contract. It is in those circumstances unnecessary and not in accordance with Coreck to look at EU law. As it happens, Mr Rainey points out that, like agency, the alter ego principle is, as recorded by Advocate General Trstenjak in her Opinion in Idrima Tipou AE v Ipourgos Tipou Case C-81/09 at paragraph 34 “recognised in all the Member States”.

It is common ground that the issue of consensus is decided by EU law. The European Court at paragraph 14 of its judgment in The Tilly Russ [1985] QB 931 stated that “the purpose of Article [23] is to ensure that the parties have actually consented to such a clause, which derogates from the ordinary jurisdiction rules laid down in Articles 2, 5 and 6 of the Convention, and that their consent is clearly and precisely demonstrated.”

The question thus is whether, once English law has identified the parties to this contract (including the jurisdiction clause) as being the Claimants, the puppet companies and the puppeteer, such test is established in relation to them. It has been said by Lawrence Collins J in Bank of Tokyo-Mitsubishi Ltd v Baskan Gida Sanayi Ve Pazarlama AS [2004] ILPr 26 at paragraph 192 that there are two questions under Article 23, first whether there has been an agreement or consensus and secondly whether the formal requirements have been fulfilled. However this two-stage test does not in fact appear to be reflected in the European authorities, but rather it appears to be acknowledged that the purpose of the formality is to establish the consensus: see Salotti at paragraph 7 (“the purpose of the formal requirements imposed by Article 23 is to ensure that the consensus between the parties is in fact established”), similarly in Galeries Segoura SPRL v Rahim Bonakdarian [1976] ECR 1851, and in Coreck at paragraph 13 (paragraph 37 above). Professor Briggs in Civil Jurisdiction and Judgments (5^th Ed 2009) at 2.115 says as follows:-

“For this reason it is necessary to reiterate that statements in the jurisprudence of the Court of Justice, which appear to require strict compliance with the formal rules, are meant and intended to underline the need for there to be consensus as to the jurisdiction of the nominated court: they are a means to an end, and are not the end in themselves… The only question, sight of which must not be lost, is that the formal requirements are there to ensure that there was consensus. If the consensus can be clearly and precisely established by other means, they serve no additional function, and there is no further need to consider them”.

There must be agreement, and although the concept, recognised in EU Law, of good faith, akin to estoppel, could be used to fill the gaps – for example agreement to a company’s Articles in Powell Duffryn (paragraphs 19, 28 (“every shareholder is deemed to be aware of the clause”) and 29 (“the formal requirements laid down in Article [23] must be deemed to be fulfilled in relation to each shareholder”)) or an oral agreement or agreement by conduct (Berghoefer v ASA [1986] 1 CMLR 13, Iveco Fiat Spa v Van Hool SA [1986] ECR 3337, MSG v Les Gravieres S.a.r.l. [1997] QB 731 and Kolmar Group Ag v Visen Industries Ltd [2010] ILPr 23) – such concept cannot create agreement if there is none.

The authorities refer to “consensus between the parties”: Benincasa at paragraph 29, Coreck at paragraph 13. However the consensus does not need to be simultaneous, as Professor Briggs makes clear in his work Agreements on Jurisdiction and Choice of Law (2008) under the general heading “UNILATERAL OR BILATERAL AGREEMENT?”:-

“7.36.

… No contract is required; none may even be involved. All that is called for is the agreement of the party to be bound or restricted in his choice of jurisdictional rules where a claim arises in connection with a particular legal relationship, and which is expressed in a form sufficient to ensure that it is fair and appropriate to confine him to the jurisdiction of that court and of only that court. It is not necessary to interpret the expression ‘if the parties … have agreed’ as meaning that the two parties to the litigation have made a contract to this effect. It is therefore time to challenge the proposition that there must be formal consensus, as opposed to a public willingness, by the party said to have done it, to waive the usual rules of jurisdiction and agree instead to the jurisdiction of a named court: waiver, or a unilateral agreement.

7.37.

The use of the plural form was inevitable because when the agreement is made it is not known who will be suing whom. But it does not mean that the agreement to accept the jurisdiction of a court is bilateral or contractual in nature, as distinct from indicating the unilateral acceptances of each of the parties, now to be given jurisdictional effect, sufficiently demonstrated and formalised to be fairly invoked. The language of consent and waiver, rather than agreement, may have been more useful than we realised. It is what the Court said in Estasis Salotti: the need was for a guarantee ‘that the other party has really consented to the clause waiving the normal rules of jurisdiction’.”

Consensus can be achieved by the consent being unilateral on one side and then subsequently accepted. Morison J allowed for this, though rejecting it on its facts in Andromeda Marine SA v OW Bunker AS [2006] 1 CLC 730 at paragraph 21:-

“In this case the question is whether it can be said that Andromeda has agreed by acceptance to be bound by the jurisdiction clause. It might, I suppose, be possible for an acceptance to be demonstrated by the issue of proceedings in the chosen jurisdiction; but it does not seem to me that Andromeda can be said to have accepted, let alone accepted clearly and precisely, the jurisdiction clause when the purpose of the proceedings is to deny that they are bound by the contract which contained the clause.”

Mr Millett’s case is that there was no consensus between the Claimant companies (A) and the Defendant (C). A did not know about C, and C, if indeed he was puppeteer, did not consent to his being sued in this jurisdiction, but only to the puppet B being sued in this jurisdiction.

Mr Rainey submits that, once the puppeteer has been found to be a party to the contract, he and the company thus both agreed to the jurisdiction clause, and so to be sued in this jurisdiction. Just as Cooke J rejected the submission recorded in paragraph 51 of his judgment in Steamship that he should consider consensus only on the part of the principal and not the agent, so too in this case, once it is concluded that both puppet and puppeteer are parties to the contract, the position of both of them must be considered.

Professor Briggs, in the passage set out in paragraph 50 above, emphasises the question, by reference to Salotti, as being whether “the other party has really consented”, and both he, in that same passage, and Cooke J, in paragraph 51, use the expression ‘consensus by’ or ‘consensus on the part of’ the party being sued. This is because the issue is always going to be whether the party, which is being sued in the jurisdiction has or has not consented/agreed to that course.

What is necessary is to show consensus between A and B and C. This can be established in two ways:-

Mr Rainey submits that, adopting a straightforward European test to the existence of consensus, once the parties to the contract have been identified, there is actual consensus between them as to the application of the jurisdiction clause to the contract. If there needs to be application of any super-added concept of bad faith (as per paragraph 49 above), that would not be misplaced, since in fact there was agreement by each of the three parties A, B through its puppeteer C and C, to the jurisdiction being incorporated into the charterparties.

Mr Rainey relies in the alternative on Article 24 of the Judgments Regulation, which reads:

“… a court of a Member State before which a defendant enters an appearance shall have jurisdiction. This rule shall not apply where appearance was entered to contest the jurisdiction, or where another court has exclusive jurisdiction by virtue of Article 22.”

He submits that when the Corporate Defendants entered an appearance in the Corporate Defendants’ action, so too did the Defendant as their alter ego. It seems to me that it could be argued that in such circumstances a defendant may have submitted to the jurisdiction in that way (cf The Ikarian Reefer (No 2) [2000] 1 WLR 603) but that is not the test for Article 24. The question is whether the Defendant entered an appearance, and he did not. In any event, even if he had, he has not entered an appearance in this action and, in my judgment, jurisdiction cannot arise because a party has entered an appearance in some earlier action at some point in time – which might be many years ago. Mr Rainey sought to submit that there would be some limitation, at least in terms of there needing to be an action between the same or similar parties, or in relation to the same or similar subject matter, but there is, in my judgment, no such limitation. Article 24 is, in my judgment, dedicated to a situation in which a defendant enters an appearance in the instant action, and thereby clothes that court with jurisdiction. This ground is not arguable.

It is common ground that the ordinary test applicable at the stage of challenge to the jurisdiction is whether the Claimants have a good arguable case. This has been clarified on a number of occasions recently, and particularly in the Privy Council in Bols Distilleries v Superior Yacht Services Ltd [2007] 1WLR 12 at 28, whereby Lord Rodger stated that “applying the “good arguable case” standard, the claimants must show that they have a much better argument than the defendants, that on the material available at present, the requirements of form in Article 23(1) are met and that it can be established, clearly and precisely, that the clause confirming jurisdiction on the court was the subject of consensus between the parties”. This does not make for an easy answer to such question in every case, because this must mean, as both counsel accepted, something different from resolution on the balance of probabilities. The party asserting jurisdiction does not therefore have to win the argument by 51% to 49%. He must simply be more likely to be right, more than a short head in front – Mr Millett submitted that there must be clear water between the parties.

But it is again accepted between counsel that this ordinary test only applies where the issues are of fact, or of mixed law and fact, and does not apply where the question is solely one of law when, as Aikens J states in Marubeni v Mongolian Government [2002] 2 AER (Comm) 873 at 882j-883a (by reference to the view of Kerr LJ in Hutton v Mofarrij [1989] 1 WLR 488 at 495) “when the English court has to decide issues involving only law … for the purposes of deciding whether it will accept jurisdiction, then it makes a decision on the point, rather than saying whether there is a good arguable case or not.” This distinction does not seem to me wholly logical, not least because there will be issues of fact to be resolved at the jurisdictional stage (such as for example where a contract was made) which may never fall to be resolved again at a substantive trial, and yet by virtue of the disapproval in Canada Trust Co. v Stolzenberg (No.2) [1998] 1WLR 547 CA at 555B of the views of Staughton LJ in Attock Cement Co. Ltd v Romanian Bank for Foreign Trade [1989] 1 WLR 1147, the test in such a case is still that of a good arguable case. Nevertheless I shall do my best to apply those tests to the questions before me, to which exercise I now turn.

I am satisfied by reference to what is set out in paragraphs 13 to 30 above that there is a good arguable case that the veil of incorporation should be pierced in order to permit the Claimants to seek to enforce the charterparties as against the Defendant as a party to them. My detailed consideration of Dadourian and Lindsay above satisfies me that by reference to both judgments such a course is available to be taken, and that in any event there is no authority, binding or otherwise, which prevents such a conclusion being reached, whereby a victim would be entitled to enforce a contract entered into by a puppet company against both puppet company and puppeteer. This is a mixed question of law and fact, and I am satisfied that the Claimants have a good arguable case, i.e. that they have much the better of the argument on the face of the evidence as it stands before me.

I then turn to the question as to whether English law or EU law decides the identity of the parties to a contract, which then falls to be tested under Article 23. This seems to me to be a question of pure law, which, in order to accord with the conclusions of Aikens J in Marubeni, with which Mr Rainey does not invite me to disagree, I need to resolve. I conclude that in the light of the European Court decision in Coreck, and in accord with the approach of Cooke J in Steamship, it is English law which falls to be applied to identify the parties to the contract, whose consensus must then be tested. I see no difficulty about the fact that at English law the puppeteer can be rendered liable under the contract but as a matter of public policy not entitled to enforce it. He is still party to the contract or (as described in paragraphs 20, 23 and 26 of the judgment in Coreck) privy to it, and agreed to its terms. In reaching this decision as to the applicability of English law and not EU law to the question of the identity of the parties referred to in Article 23, I am satisfied that nothing in the decision in KBS, even if it were otherwise binding upon me, stands in the way of such conclusion.

EU law then falls to be considered to consider the question as to whether there was consensus between the parties so identified. There are two formulations which I have found helpful. In Bank of Tokyo at paragraph 192 Lawrence Collins J stated:-

“Whether there has been a sufficient consensus so as to satisfy Article 23 as predominantly a question of fact for the court seised and it is to be answered without recourse to rules of national law.”

This was expanded by Hamblen J in Polskie, expressly by reference to Lawrence Collins J wearing his academic hat in the 14^th Edition of Dicey, Morris and Collins at 12-108, namely:-

“As to the need for agreement – the claimant must show that both the parties “clearly and precisely” consented to the alleged jurisdictional agreement. In a case, such as this, where a party alleges that it never accepted the clause, the task of the court is to determine if there was sufficient consensus between the parties as a question of fact, without recourse to any rules of national law.”

I am satisfied that this question is a mixed question of law and fact, and that there is a good arguable case, in the sense referred to above, that the Claimants will establish such consensus by and between the Claimants and the Defendant as puppeteer.

Hence after hearing full argument I reach the same conclusion as did Beatson J ex parte (as set out in paragraph 6 above). Accordingly I dismiss the Defendant’s application to set aside service of the claim form on the ground that the Courts of England and Wales do not have jurisdiction to hear this claim. As for the continuation of the freezing order, the only specific matter that Mr Millett mentioned related to the issue of election, and for the reasons set out in paragraph 28 above, I am entirely satisfied that the Claimants have at least an arguable case (for the purpose of continuation of the freezing order) that they have not elected. That apart, in the light of the Claimants’ case, as addressed by Gross J, and set out, where relevant to the issues on this application, above by me, I am satisfied that the freezing order should continue until trial.