CIMC Raffles Offshore (Singapore) Pte Ltd v Schahin Holding SA (Rev 1)

This is the hearing of applications by Mr Salim Schahin and Mr Fernando Schahin for the setting aside of orders made against them under CPR Part 71 on 4 March 2014. The court has had the benefit of two very clearly presented and thorough skeleton arguments upon which this judgment will draw without further attribution.

The applicants are Brazilian citizens resident in Brazil. They are officers of Schahin Holding SA ("SHSA"), a Brazilian company. Fernando is the Chief Financial Officer of SHSA; Salim, who is older, has been an officer of the company for a longer period. The orders challenged require the applicants to attend at this court on 20 May 2014 to be examined before a Master and to disclose 14 days prior to that attendance all documents in their control evidencing SHSA's assets worldwide above £5,000 and full details of a bond refinancing referred to in letters from SHSA's solicitors.

The principal ground upon which both applications are made is that the court had no jurisdiction to make the orders because the applicants were not within the territorial jurisdiction at the time when the orders were applied for, and in the case of Salim, also when the order against him was made.

The applicants contend in the alternative that, in the exercise of its discretion, the court should set aside the orders or direct that their implementation should await developments in other steps being taken by the Claimants to enforce a judgment against SHSA.

The background is this. The Claimants operate a shipyard in China. In 2006 they agreed with Baerfield Drilling LLC ("BD") and Soratu Drilling LLC ("SD") to construct two semi-submersible drilling rigs. BD and SD, which are incorporated in Delaware, USA, agreed to purchase the rigs for the purpose of hiring them to Petrobras SA, the Brazilian state oil and gas company under long-term charters. The rigs were delivered late, which gave rise to various disputes between BD/SD on the one hand and the Claimants on the other. The disputes are subject to a London arbitration which is currently in progress.

SD and BD are ultimately owned and controlled by members of the Schahin family, who, like the applicants, are citizens of and resident in Brazil. SHSA is the holding company of other interests of the Schahin family, known as Grupo Schahin. SHSA issued a guarantee to the Claimants in respect of certain of SD and BD's obligations under the shipbuilding contracts. The guarantee is subject to English law and English jurisdiction. A claim was made by the Claimants under the guarantee, which led to a compromise incorporated into a Consent Order dated 11 December 2013, under which SHSA agreed to pay the Claimants approximately $67 million within 14 days, ie, by 25 December 2013.

SHSA did not pay any part of that sum by 25 December 2013 and the whole remains outstanding. SHSA's solicitors, Linklaters, informed the Claimants' solicitors on 23 January 2014 that they were instructed that SHSA intended to pay as soon as it was able to do so, but it did not currently have sufficient liquid assets. Linklaters stated that the Schahin Group was currently arranging a refinancing via a bond issue, which was expected to improve SHSA's financial position very significantly and SHSA would pay promptly thereafter.

The Claimants were dissatisfied with this response and issued applications under CPR Part 71 in respect of the applicants. Those applications were made on 25 February 2014. In the usual way they were made on paper ex parte. They were dealt with by Eder J who granted the orders sought on 4 March 2014. The order against Salim was served on Salim on 12 March 2014 and Fernando was served with order made against him on 13 March 2014. Both Salim and Fernanda were in this country to give evidence at the arbitration between the Claimants and SD/BD.

Mr Holroyd on behalf of the applicants submits that the decision of the House of Lords in Masri v Consolidated Contractors International (UK) Ltd (No.4) [2010] 1 AC 90 establishes that there is no power to make an order under CPR Part 71 unless the individuals intended to be made subject to the order are present in the jurisdiction.

Mr Holroyd analysed the leading judgment of Lord Mance in Masri in the following way. The issue before their Lordships was one of interpretation and construction of CPR Pt 71 and the principal argument of the appellant was whether the word "officer" in CPR r 71.2 (1) (b) meant an officer present within the jurisdiction. Lord Mance decided that the presumption against extraterritoriality applied in construing Part 71 and so the question was whether the wording of the rule was such as to rebut that presumption.

In paragraph 23 of his judgment, Lord Mance said that the present case stood between In re Tucker [1990] Ch 148 and In re Seagull [1993] Ch 345. In the former case, which involved an examination under s. 25 of the Bankruptcy 1914, the Court of Appeal held that the relevant provision had no extraterritorial effect, whereas in the latter case, which was concerned with provisions under the Insolvency Act 1986, it was held that those provisions did operate extraterritorially. In paragraph 24, having analysed those two decisions, and noted that CPR Pt 71 sprang from an amendment of the Rules in 1883, Lord Mance said:

In paragraph 25 Lord Mance expressed the view that Sir Anthony Clarke MR, who gave the lead judgment in the court below, had put matters substantially too high when he said that it would defeat its object if CPR r 71.2 were restricted to persons within the jurisdiction.

In paragraph 26 Lord Mance said:

It was these words that were the centrepiece of Mr Holroyd's submissions. He understandably laid emphasis on the last sentence. He submitted that it inevitably followed from the Masri decision and the reasons given for it that, unless the individual sought to be made subject to a CPR Pt 71 order was present within the jurisdiction at the time the application was made and at the time that the order thereon was made, then that individual was not an "officer" for the purposes of r 71.2 as that word stood to be construed in conformity with the presumption against territoriality.

Neither Salim nor Fernando was within the jurisdiction on 25 February 2014 when the application under CPR 71 was made. On the day the orders were made, 4 March 2014, it is accepted that Fernando was within the jurisdiction, but there is some doubt as to whether Salim was also within the jurisdiction. Salim, at least during the morning of 4 March, was on a flight into the United Kingdom. It would seem that he landed and disembarked from the aircraft at around 1.30 in the afternoon. Eder J had been asked if he can recall at what time during 4 March he made the orders. Quite understandably, he has no recollection of when that was. He was out of court reading for a forthcoming hearing and taking the opportunity to deal with a number of outstanding matters, including this paper application. Mr Holroyd submits that on an application such as this, the parties seeking to uphold the challenged order has the burden of demonstrating to the court that the order was lawfully made within the relevant provision of the CPR. Accordingly, it is for the Claimants to satisfy the court that Salim was in the jurisdiction when the order was made and they are unable to discharge that burden.

Opposing this application Mr Fletcher argues that the question as to the reach of Part 71 where the subject of the order has been served personally within the jurisdiction, was never addressed in Masri. He contends that the court should approach this matter on the basis of general common law principles under which a court will have jurisdiction against a party who has been lawfully served within the jurisdiction. Here, the applicants were both lawfully served with the orders made by Eder J. Accordingly, the court had jurisdiction in the making of the orders and the implementation thereof.

Mr Fletcher drew some support from what was said by the Court of Appeal in In re Tucker, as related by Lord Mance in paragraph 19 of his judgment. In that case Dillon LJ noted the limitations of RSC Ord.11 and of the power to subpoena witnesses and said that, against this background he "would not expect section 25(1) to have empowered the English court to haul before it persons who could not be served with the necessary summonses within the jurisdiction of the English court". Mr Fletcher also placed heavy reliance on the decision of the Court of Appeal in Kuwait Airways Corporation v Iraq Airways Corporation [2010] EWCA Civ 741. That was an ex parte appeal that arose out of the following circumstances. Kuwait Airways, the appellant, had obtained judgment against Iraq Airways and had found great difficulty in enforcing it. Kuwait Airways learned that the Captain Kifah, the Director General of Iraq Airways, was due to arrive within the jurisdiction, flights having been re-established via Sweden from Iraq to the United Kingdom. With this knowledge, they applied ex parte to Andrew Smith J for, inter alia, a disclosure order against Iraq Airways, together with an order that Captain Kifah should provide information as to Iraq Airways’ assets in an affidavit and to enforce that obligation Captain Kifah should relinquish his passport to the tipstaff and not be permitted to leave the jurisdiction until the affidavit had been provided.

Andrew Smith J made order sought on the Friday night, with the direction that it should not be enforced without further order. He made that direction to allow him to reflect further and to consider any subsequent developments before the orders were implemented. On the Sunday evening, Andrew Smith J concluded that his order should be limited, so far as Captain Kifah was concerned, to an obligation to provide disclosure as to assets on affidavit, without there being any restraint on him from leaving the jurisdiction or any obligation to hand his passport over to the tipstaff. It seems plain that the application before Andrew Smith J was made entirely under section 37 of the Senior Courts Act. The appeal heard by the Court of Appeal was against the judge's change of mind in respect of the restraining order and the passport order.

The Court of Appeal allowed the appeal. In the course of giving judgment, some reference was made to CPR Pt 71. In paragraphs 10 11 and 34 of his judgment, Rix LJ said:

In paragraph 44 Wilson LJ said:

In paragraph 59, Sir David Keene said:

In my judgment, it is clear that the House of Lords held in Masri that the court has no power to entertain an application or to make an order in respect of an individual who was outside the jurisdiction. In my view, that means that if the individual is not within the jurisdiction at the time the application was made and at the time the order is made, there is no power in the court to make an order against him.

The observations of the Court of Appeal in the Kuwait Airways case were made in an ex parte appeal which had come before the court in great haste. Mr Fletcher's reliance on the judgment must be weighed against that consideration. It also seems to me that those parts of the judgment that I have recited, do not necessarily support Mr Fletcher's contentions. Mr Holroyd concedes that, if there is even fleeting presence within the jurisdiction at the time of the application and the making of the order, then the court would have jurisdiction to make the order. In Masrithe individual subject to the order was not within the jurisdiction and was plainly resident outside the jurisdiction, and in addition he had not been served with the order within the jurisdiction. The conclusion that I reach is that Mr Holroyd's submissions are correct. No order can be made on an application at the time of which the individual is outside the jurisdiction, or at the time of which the order is made he is outside the jurisdiction.

It follows that this application must succeed: the orders made were not lawfully made, because they are not countenanced by CPR Pt 71 following the decision in Masri. Both applicants were outside the jurisdiction when the orders were applied for and Salim was outside the jurisdiction when the orders were made, the Claimants having failed to show that Salim was within the jurisdiction at this time.

Even if I had been in favour of Mr Fletcher's submissions, I would have held as a matter of discretion that the order made against Salim should be set aside. He is elderly, aged 74, and would have difficulty in travelling from Brazil to London unaccompanied. It is Fernando who is the Financial Officer of the company and who therefore clearly is more likely to be able to provide information as to the ability of the company to meet the judgment debt than is Salim. In my judgment, it is excessive and disproportionate, or it would be excessive and disproportionate, to require both of these officers of the company to attend.

As to Fernando, I would not have exercised my discretion to set aside the order, but I would have exercised my discretion to direct that his attendance be postponed over to June to take account of the parallel steps that are being taken to enforce the judgment against judgment debtor.

For these reasons these applications succeed.