Linsen International Ltd & Ors v Humpuss Sea Transport Pte Ltd & Ors

A subsequent abuse of a corporate structure may justify unwinding sham or improper asset transfers, but it does not ordinarily make companies or individuals liable under genuine contracts to which they were not parties. Control of a company, group commonality and the interests of justice are insufficient without connected impropriety. A Chabra freezing order against a non-cause-of-action defendant requires good reason to suppose that the defendant’s assets will become available to satisfy the judgment, together with a real risk of dissipation. Mere involvement in an attempt to make a judgment debtor proof is insufficient. Where the substantive claim will be determined by arbitration rather than by the English court, the necessary or proper party gateway in Practice Direction 6B is unavailable for ancillary Chabra relief.

The claimants sought continuation of worldwide freezing injunctions against the third to thirteenth defendants. The injunctions had been granted on the basis that the corporate veil could be pierced, making those defendants liable under charterparties and guarantees entered into by the first and second defendants.

The court accepted that the restructuring of the Humpuss group arguably involved sham transfers of assets from the first defendant to the third defendant to frustrate enforcement. It nevertheless had to decide whether that justified treating other companies or individuals as parties to the original contracts, and whether an alternative Chabra injunction was available. The jurisdictional issue included whether permission to serve out could be founded under paragraphs 3.1(3) or 3.1(10) of Practice Direction 6B.

1. Primary case. The claimants had a good arguable case that assets had been transferred from the first defendant to the third defendant through sham or façade transactions designed to make enforcement more difficult. The corporate structure had arguably been misused from July 2009 onwards. That did not establish any wrongdoing affecting the second defendant’s guarantee assets.
2. Control, common management, intra-group finance and ownership did not justify piercing the corporate veil. The claimant had to show both control and impropriety, involving misuse of the company or corporate structure to conceal wrongdoing. The single economic unit doctrine formed no part of English law.
3. The original charterparties and guarantees were genuine contracts made with the first and second defendants. Later asset transfers could justify unwinding the relevant transactions, but could not retrospectively make other group companies or individuals liable as parties to those contracts. Yukong Line Ltd v Rendsburg Investments Corporation was correctly decided. Creasey v Breachwood Motors Ltd was not authoritative to the extent that it suggested otherwise, having been disapproved in Ord v Belhaven Pubs Ltd.
4. Chabra jurisdiction. A freezing order against a non-cause-of-action defendant requires good reason to suppose that the assets would become available to satisfy a prospective judgment, and a real risk that they would otherwise be dissipated. Substantial control or involvement in an attempt to make a defendant judgment-proof was insufficient without an enforceable process by which the assets could be made available.
5. Only the third defendant arguably held assets formerly belonging to the first defendant. The other defendants could not be subjected to a Chabra order on the evidence. Paragraph 3.1(3) of Practice Direction 6B did not apply because the substantive claim against the first defendant would be determined in arbitration, not tried by the English court. Paragraph 3.1(10) did not apply because there was no claim to enforce the judgments or awards against assets of the third to thirteenth defendants within the jurisdiction.
6. The freezing injunctions were set aside.

The Court of Appeal refused permission to appeal and declined to renew the injunctions on 11 August 2011. Its reasons included that there were no sufficient grounds for piercing the corporate veil, that the third defendant could not thereby become liable under the charterparties, and that paragraph 3.1(10) of Practice Direction 6B was inapplicable.