ISLAMIC REPUBLIC OF IRAN SHIPPING LINES v. PHINIQIA INTERNATIONAL SHIPPING LLC AND OTHERS

HCA 2368/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 2368 OF 2012

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D E C I S I O N

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1.  The plaintiff (“IRISL”) has obtained a Mareva injunction ex parte against the defendants. It sought continuation of the injunction inter partes. The 1^st defendant (“Phiniqia”) the 2^nd defendant (“Tradeline”) refused to accept service; and together with the 3^rd defendant (“Ghurair”), they did not enter appearance. The 4^th defendant (“Lafir”), the 5^th defendant (“Frever”) and the 6^th defendant (“Corera”) contested and sought discharge of the injunction as far as it concerned them.

2.  On 21 July 2014, I handed down my decision (“the Decision”) dismissing the application and discharging the injunction against all the defendants. IRISL applies for leave to appeal.  Pending the present determination, I have given interim stay of my order.

3.  Leave to appeal shall not be granted unless the court is satisfied that the appeal has a reasonable prospect of success or there are other reasons in the interest of justice that the appeal should be heard: section 14AA(4) of the High Court Ordinance, Cap 4.

4.  In the case of the grant or refusal of an interlocutory injunction, which is the exercise of discretion, the appellate court will not lightly interfere unless the judge has misdirected himself on principles or evidence or has wrongly taken into account irrelevant matters or failed to take into account relevant matters or that his exercise of discretion is plainly wrong.  These principles are trite.

5.  The background of the case was set out in the Decision (§§1-24; 26-27).  For the present purpose, it is relevant to set out the following matters:

(1)   The documentary evidence showed that after obtaining the release of the cargo, Phiniqia and Tradeline (of which Lafir was involved) were still engaged in negotiation with GEG with a view to settling the dispute.  Some payment had also been made (see §§18; 57 of the Decision).

(2)   The negotiation eventually fell through, and IRISL through solicitors in England, threatened legal proceedings and even sent to the first 4 defendants its draft particulars of claim in 2009.  The action was commenced in the High Court of London in January 2010.  Default judgment was entered against the first 4 defendants in England in May 2012.

(3)   In December 2012, IRISL applied ex parte and obtained the mareva injunction from the court here.  The asset specifically identified for the purpose of injunction was the vessel Emerald Star registered in the name of DBL[1], which is a company wholly owned by Lafir.  The case of IRISL is that the vessel was held on trust for Phiniqia or Tradeline (see §61 of the Decision).

(4)   Considering all the evidence, I did not rule out that the first 4 defendants herein were parties to the alleged conspiracy to obtain release of the cargo by the issue or in any event the use of the Second B/L[2], knowing that the cargo was unpaid for, and thus causing loss and damage to the seller, GEG[3], and IRISL (see §§40-59 of the Decision).

(5)   Whilst I was satisfied that there is a good arguable case of breach of duties as agents on the parts of Frever and Corera, I was not so satisfied on the evidence that they were parties to the alleged conspiracy of the other defendants at the relevant time to issue or to use the Second B/L to obtain release of the cargo without payment (see §§62-65 of the Decision).

(6)   As far as Lafir is concerned, I was not satisfied that there was or is a real risk of dissipation of assets.  The relevant circumstances were common to all the first 4 defendants.  Hence my decision to discharge and to refuse to continue the injunction against them, notwithstanding the lack of appearance of the first 3 defendants (see §§66-71 of the Decision).

(7)   The case of risk of dissipation against Frever and Corera was based on inference from conduct of low commercial morality as parties to the alleged conspiracy.  As this part of the case failed for the purpose of the application, the basis for the inference fell away.  The other evidence failed to demonstrate the necessary real risk (see §§72-73 of the Decision).

6.  The intended appeal could really boil down to the complaint about the following alleged errors of this court:

(1)   giving no or insufficient consideration of the fact that there is an arguable case of conspiracy against Lafir (and the first 3 defendants) from which a real risk of dissipation should be inferred against him (and the first 3 defendants);

(2)   refusing to continue the injunction on the sole ground of delay on the part of IRISL in applying for the injunction;

(3)   failing to invoke the Chabra jurisdiction[4];

(4)   finding that the conspiracy claim against Frever and Corera is not good and arguable; and

(5)   in any event, finding that there was no real risk of dissipation of assets on the part of Frever and Corera.

7.  That the court is entitled to infer the risk of dissipation of assets from conduct of dishonesty or low commercial morality was not ignored (as alleged by Mr Chang for IRISL) but duly acknowledged (see §§68; 71 of the Decision).  However one should not lose sight of the starting point.  The plaintiff has the burden of satisfying the court with evidence that there is objectively a real risk of dissipation of assets.  Drawing inference from the circumstances is but an evidential means to that end.  I do not read the judgment in Pacific Concepts (HK) Ltd v Michel Brennion, HCA 2672/2008 (13 March 2009) at §25, per Andrew Cheung J (as he then was), cited by counsel to be suggesting otherwise.

8.  In an appropriate (and perhaps typical) case where the plaintiff acts promptly after discovery of the alleged dishonesty or conspiracy on the part of the defendant, such inference, without more, may perhaps warrant the grant of the injunctive relief against the defendant.  However it is in principle wrong to suggest that establishing a good arguable case of such nature and thus the entitlement to such an inference to be drawn would serve as a pass entitling the plaintiff to injunctive relief regardless of all the other circumstances of the case known to the court.  I do not see that the authorities suggested otherwise.

9.  In substance, it is also wrong to suggest that in the circumstances of the present case.  Amongst the relevant circumstances set out above, there was noted the documented negotiation between Phiniqia and Tradeline with GEG even after the release of the cargo as well as the making of some payment (§18 of the Decision).  The negotiation fell through, and the first 4 defendants were threatened with legal proceedings.  They were also provided with the particulars of claim detailing the conspiracy claim against them.  This happened back in 2009.  The basis for perceiving a real risk of dissipation of assets, if known to exist, would have developed then.  The application for the injunction was taken out in December 2012.

10.  Mr Chang argues that I have placed undue weight on the issue of delay, contrary to the line of authorities cited.  I do not agree.  The emphasis, as apparent from the Decision (§§67-71), was never merely delay per se.  It was at the same time the observation of what did and did not happen during the substantial lapse of time before the application.  That cast light on the requisite risk of dissipation of assets by the defendants and somehow how IRISL perceived the risk.  All played their parts in the objective assessment of the risk of dissipation (see Enercon GmbH v Enercon (2012) cited in Chau Cham Wong Patrick, HCB 529/2912 (20 June 2014) at §33, per Ng J).  It was not about whether it would be unjust to grant the injunctive relief in view of the prejudice as a result of the delay per se (as discussed in Re Wako Giken (HK) Co Ltd [2010] 4 HKLRD 121 at §§23-25 cited by counsel).

11.  IRISL has the burden of adducing cogent evidence to establish the real risk of dissipation.  But it was, and apparently still is, IRISL’s stance that mere inference from the nature of its claim against the defendants suffices.  Hence the lack of evidence to explain the entire period lapsed until the application was taken out.

12.  Both during the last hearing and the present application, Mr Chang acknowledged that it was really the discovery of the vessel Emerald Star that led his client to come to Hong Kong for the present application in order to safeguard the asset.  He suggested that his client had to take time to track down the assets of the defendants around the world.  I have difficulty in accepting that, bearing in mind his concession that his client did not even adduce evidence of when it came to discover the vessel traceable to Lafir and allegedly the other defendants (§70 of the Decision).  The case of Madoff Securities v Raven [2012] 2 All ER 634 cited by Mr Chang is distinguished from the present case in this respect.

13.  Also worth noting is IRISL’s case that Lafir owned DBL, which held the vessel, on trust for the first 3 defendants.  It is argued that the opaque manner in which such asset was held through nominee lends weight to the inference of real risk of dissipation.  However, DBL was formed back in 2007; and the vessel was registered in the name of DBL in January 2011.  In other words, the defendants proceeded with the registration of the substantial asset, which would on the record be beneficially owned by Lafir.  They did so, notwithstanding the threat of legal proceedings in 2009 and their actual commencement against Lafir in the English court in 2010.  That did not sit well with a real risk of dissipation of asset by some kind of opaque arrangement of assets in order to avoid exposure to enforcement of potential judgment.  The fact was there has been no change to the ownership of the vessel, legal or beneficial, since the registration and the litigation in England.

14.  From the above, it can be seen that IRISL is essentially challenging this court’s assessment of the risk of dissipation.  The complaint is not about error in principle but the exercise of the discretion, which the court was entitled to do upon weighing all the evidence.  I doubt that the appellate court would interfere lightly.

15.  As to the first 3 defendants, Mr Chang went no further than repeating the situation that his client’s inter partes application against them was strictly speaking unopposed.  But it remained his client’s burden from the outset to establish to the court’s satisfaction that the application should be allowed.  I was not satisfied that IRISL succeeded in discharging such burden.  I am still not moved that one could reconcile different decisions in the application against Lafir and that against the first 3 defendants in the circumstances common to all of them.  That the application against the non-appearing defendants was unopposed could not possibly be the answer (see §85 of the Decision).

16.  As to the Chabra jurisdiction, Mr Chang again confirmed that it was advanced as his client’s fallback contention against Lafir.  As discussed (§§60-61 of the Decision), a decision in respect of this argument was not called for.  Reference to this fallback argument also does not add anything material for the purpose of the present application.

17.  As to Frever and Corera, I accepted there is a good arguable case that Frever and Corera had failed their duties as agents of IRISL in allowing release of the cargo.  But unlike the position of Lafir vis-à-vis Tradeline and Phiniqia, there was an evidential gap to be filled before it could be said that Frever and Corera did not just fail their duties as agents but in fact did so with intent (or knowledge) as parties to the same conspiracy with the other defendants to issue or to use the Second B/L to release the cargo without payment to GEG.  On the evidence, I was not so satisfied.  That they acted upon the information and instruction from the other defendants, as evidenced by the documents, did not thereby render them parties to the alleged conspiracy.  Contrary to what Mr Chang suggested, the discussion in this respect was hardly a one liner in the Decision (see §§62-65 of the Decision).

18.  As to the assessment of risk of dissipation, the challenge is similarly one against the evaluation of the evidence in the exercise of the court’s discretion (see §§72-73 of the Decision).  I see no reasonable prospect that the appellate court would interfere with that lightly.

19.  In conclusion, I am not satisfied that leave to appeal should be granted.  The application for leave is dismissed with costs to the applying defendants.  Costs shall be taxed, if not agreed, with certificate for counsel.

20.  In such event, Mr Chang asks for further extension of the interim stay of the order of this court (dated 21 July 2014) until the determination of his client’s renewed application to the appellate court for leave to appeal.  As to this, Mr Chan for the opposing defendants expresses his agreement.  I so order.