Linsen International Ltd & Ors v Humpuss Sea Transport PTE Ltd & Anor

On an application to continue a worldwide freezing order, the court must balance the duty of full and frank disclosure against the without-prejudice rule. Disclosure of without-prejudice communications is necessary only where, without it, the court may be misled. The content of settlement discussions will not ordinarily require disclosure where no agreement or security was offered and the discussions do not materially affect the risk of dissipation.

A real risk of dissipation may be established by the totality of the evidence, including diversion of income, use of intermediary companies, asset transfers, and restructuring which makes enforcement more difficult. The existence of arguable defences may bear on the assessment but is a separate issue. A freezing order should be continued where the risk is established, subject to a properly assessed monetary limit and adequate asset disclosure.

The claimants, shipowners, obtained a worldwide freezing order against two charterers following substantial non-payment under four charterparties and related guarantees. The defendants applied to set aside or reduce the order, alleging material non-disclosure of without-prejudice settlement discussions, breach of an undertaking, absence of a real risk of dissipation, and excessive valuation.

The court also considered the adequacy of the defendants’ asset disclosure and the operation of the exception permitting expenditure on legal costs. The central issues were whether the without-prejudice material should have been disclosed, whether the evidence established a real risk of dissipation, and what form and amount of relief was appropriate.

1. Without-prejudice material. The starting point was that the fact and content of without-prejudice communications should not be disclosed. That rule had to be reconciled with the duty on an applicant for ex parte relief not to mislead the court. Disclosure was necessary if it was clear that, without it, the court might be misled. The content of the 15 December meeting did not need to be disclosed because no agreement or offer capable of acceptance had been made, no security had been offered, and the meeting did not materially illuminate the risk of dissipation.
2. Sanction for non-disclosure. Even if the fact of the meeting should have been disclosed, discharge was not appropriate. Relevant considerations included the seriousness and character of the breach, whether disclosure would have affected the result, the material as a whole, and general equitable considerations. Any error was innocent and would probably not have affected the original order.
3. Undertaking. The claimants’ application in New York for information from banks was not an order of a similar nature to the part of the English order requiring the defendants themselves to disclose their assets. In any event, the alleged breach would not justify discharge.
4. Risk of dissipation. The applicable question was whether there was a real risk that the defendants would deal with assets otherwise than in the ordinary course of business so that enforcement would be defeated or made more difficult, unless the dealings were justified for normal business purposes. The risk was established by the cumulative evidence: persistent non-payment, diversion of vessel earnings, use of intermediary entities, attempts to avoid attachments, transfers of vessels, and a restructuring which removed valuable assets from the primary obligor and placed them within a less readily enforceable jurisdiction. Arguable defences could affect the assessment but cast relatively little light on the risk in this case.
5. Relief and disclosure. The freezing order was continued in amended form, with the secured amount reduced to $75 million. Consolidated accounts did not identify the individual assets of the defendants. The defendants were ordered to provide unconsolidated financial statements, details and true values of assets exceeding $30,000, and documents concerning specified restructuring transactions. The legal-cost exception was retained at £100,000, but disclosure was required when expenditure exceeded that sum or any subsequent whole multiple of it.

First-instance decision of the High Court (Commercial Court). The worldwide freezing order was continued in amended form, with the amount reduced and further disclosure ordered.