Lakatamia Shipping Company Ltd v Su & Ors

A standard-form freezing order restrains assets beneficially owned by the defendant. It does not directly freeze assets owned by a separate company merely because the defendant is its sole director or shareholder, or can influence its decisions.

However, a defendant restrained from diminishing the value of a shareholding cannot procure a controlled company to make a disposition likely to reduce that value. The court may fortify that personal restraint with proportionate notice requirements where dealings with the company’s assets create a real risk of dissipation. Such relief does not treat the company’s assets as the defendant’s property or convert the claimant into a secured creditor.

Lakatamia Shipping Company Limited claimed approximately US$48.8 million arising from freight-derivative transactions. A worldwide freezing injunction restrained Mr Su and the other defendants from dealing with their assets up to that value.

Mr Su was the direct or indirect sole owner and controller of three non-defendant companies. Those companies owned shares, cash and a vessel that had been subject to bank security. After the bank proposed to release its security, the defendants sought declarations that the companies could use their assets as their directors thought fit.

Burton J held that the companies’ assets were covered by the injunction and imposed notice requirements concerning specified dealings: [2013] EWHC 1814 (Comm). The defendants appealed. The central issue was whether the standard-form injunction directly affected the companies’ assets and, if not, whether the notice requirements were nevertheless justified.

Disposition

1. The appeal was dismissed. The notice requirements imposed by Burton J were upheld, but the Court rejected two aspects of his reasoning.

2. The narrow standard-form freezing order did not directly freeze the assets of the non-defendant companies. A company’s assets remain its own, even where one person is its sole shareholder and director. The extended definition in paragraph 3 concerns assets held by a third party which the defendant can direct as if they were his own; it does not equate the ordinary powers of a director or shareholder with beneficial ownership of company assets. This construction followed the separate-personality principle in Salomon v A Salomon and Co Limited [1897] AC 22 and was consistent with JSC BTA Bank v Solodchenko and Others [2010] EWCA Civ 1436.

3. That conclusion did not make the assets irrelevant to the injunction. Mr Su’s direct and indirect shareholdings were his assets. He was therefore personally restrained from procuring dispositions by the companies that were likely to diminish the value of those shareholdings. In practical terms, transactions outside the ordinary course of a company’s business were likely to engage that restraint. The companies themselves were not required to invoke an exception to an order to which they were not parties.

4. The judge was entitled to fortify the personal restraint by requiring 14 days’ notice before the vessel and specified shares were disposed of, charged or otherwise dealt with. The proposed dealings could reduce the value of Mr Su’s interests and there was an increased risk once the bank security was released. The measures were proportionate and did not confer secured-creditor status on the claimant.

5. If direct restraint of a non-defendant company’s assets is sought, the claimant must establish an appropriate factual basis, including where applicable the exceptional Chabra jurisdiction. Mere ownership and control of a company do not suffice. The existing restraints applied to the named defendants, so no rewording was required.

1. Court of Appeal (Civil Division) Dismissed the defendants’ appeal and upheld the notice requirements, while rejecting the conclusion that the non-defendant companies’ assets were directly frozen by the standard-form order: [2014] EWCA Civ 636.

2. High Court (Commercial Court) Burton J held that the relevant company assets were covered by the freezing order, refused the requested declarations, and imposed notice requirements: [2013] EWHC 1814 (Comm).

3. High Court Beatson J had continued the worldwide freezing injunction on 6 October 2011.