3PLR – GALAXIA MARITIME SA V. MINERAL IMPORT EXPORT THE ELEFTHERIOS
POLICY, PRACTICE AND PUBLISHING, LAW REPORTS 3PLR
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GALAXIA MARITIME SA
V.
MINERAL IMPORT EXPORT THE ELEFTHERIOS
COURT OF APPEAL, CIVIL DIVISION
18 DECEMBER 1981
3PLR/1981/15 (CA)
OTHER CITATIONS
[1982] 1 ALL ER 796
BEFORE THEIR LORDSHIPS:
LORDS EVELEIGH, KERR LJJ AND SIR GEORGE BAKER
REPRESENTATION
Bernard Eder for the third party.
Peregrin Simon for the plaintiffs.
Solicitors: Richards, Butler & Co (for the third party);
Middleton, Potts & Co (for the plaintiffs).
Diana Brahams Barrister.
MAIN ISSUES
SHIPPING AND ADMIRALTY LAW:- Shipowner – Cargo belonging to defendant loaded on board shipowner’s vessel pursuant to voyage charter between shipwner and defendant – Injunction preventing ship from sailing and therefore interfering with shipowner’s trading activities and with crew’s leave arrangements – Shipowner applying for discharge of injunction – Plaintiff offering shipowners indemnity against loss or damage resulting from grant of injunction – Whether shipowner entitled to have injunction discharged – Whether abuse of Mareva injunction to grant injunction if it interferes with innocent third party’s general or trading rights – Whether offer of indemnity to shipowner entitling plaintiff to continuance of injunction.
SHIPPING AND ADMIRALTY LAW:- Cargo carrying operations and Shipowner – Where Mareva Injunction is sought to be issued against shipowner contracted to carry cargo on voyage for a third party – Whether an abuse of the Mareva jurisdiction – Whether the fact that the plaintiff had undertaken to indemnify the shipowner against loss or damage suffered in consequence of the grant of the injunction is sufficient reason to allow the injunction to be served on the shipowner
COMMERCIAL LAW – CONTRACT:- Sanctity and privity of contract – Using Mareva injunction to interfere with performance of contract between shipowner and innocent third party – by way Held – Whether the third party’s right to freedom of action and freedom to trade should prevail over the plaintiff’s wish to secure the defendant’s assets for himself
PRACTICE AND PROCEDURE – CIVIL PROCEEDINGS:- Injunction – Interlocutory – Mareva Injunction – Justification – Danger that defendant may transfer assets out of jurisdiction – Injunction restraining removal of assets out of or disposal within jurisdiction – Protection of interests of innocent third parties – Relevant considerations
Cases referred to in judgments
Clipper Maritime Co Ltd v Mineralimportexport, The Marie Leonhardt [1981] 3 All ER 664, [1981] 1 WLR 1262.
Z Ltd v A [1982] 1 All ER 556, [1982] 2 WLR 288, CA.
EDITORS
[Sam Eleanya, Agboola Omolola Oluwafolakemi, Eleanya Kalu Vincent, Eleanya Ugochi Vine]
HISTORY AND SUMMARY OF FACTS
On 16 December 1981 the plaintiffs, who were shipowners who had a prima facie claim against the defendants for $US400,000 for demurrage due under a charterparty, obtained a Mareva injunction from a judge in the Commercial Court restraining the defendants, until trial of the plaintiffs’ claim or further order, from disposing of or dealing with their assets within the jurisdiction, in particular a cargo of coal loaded on a vessel belonging to another shipowner which was in port in South Wales, so as to reduce the assets below the value of the plaintiffs’ claim. The injunction incorporated an undertaking by the plaintiffs to pay income lost to the port authority, and the reasonable costs of other third parties in complying with the injunction. The vessel on which the cargo of coal was loaded was chartered under a voyage charter from the other shipowner to the defendants, and unless the vessel sailed from port by 17 December 1981 it would be unable to sail until just before Christmas. The injunction would thus interfere not only with the shipowner’s trading activities but also with the crew’s personal arrangements for Christmas. The shipowner applied to the judge to have the injunction discharged. At the hearing of that application the plaintiffs undertook to indemnify the shipowner against any loss or damage suffered by it resulting from the grant of the Mareva injunction. The judge refused to discharge the injunction. The shipowner applied for leave to appeal. The plaintiffs submitted on the hearing of the application that, because of the guarantee given by them, the injunction should continue, even though its effect would be to interfere with the shipowner’s trading activities.
Held – Where the effect of granting a Mareva injunction would be to interfere substantially with an innocent third party’s freedom of action generally or freedom to Page 797 trade (for example, by interfering with his performance of a contract made between him and the defendant relating to the assets in question), the third party’s right to freedom of action and freedom to trade should prevail over the plaintiff’s wish to secure the defendant’s assets for himself. Accordingly, it was an abuse of the Mareva jurisdiction to allow a plaintiff to serve a shipowner with a Mareva injunction relating to cargo owned, or alleged to be owned, by the defendant which was on board the shipowner’s vessel in order to prevent the vessel sailing out of the jurisdiction with the cargo. The fact that the plaintiff had undertaken to indemnify the shipowner against loss or damage suffered in consequence of the grant of the injunction was not a sufficient reason to allow the injunction to be served on the shipowner if he objected to the injunction, since the mere proffering of an indemnity did not entitle the plaintiff to interfere with the shipowner’s business activities and to obtain the advantage of a Mareva injunction at the shipowner’s expense. Since the effect of granting the injunction would be to prevent the shipowner sending its ship on a voyage out of the jurisdiction under a previously concluded contract with the defendants, it would be an abuse of the Mareva jurisdiction to allow the injunction to continue. Accordingly, the application would be granted, the appeal would be allowed and the injunction would be discharged (see p 799 c to j and p 800 a b and d to h, post).
Clipper Maritime Co Ltd v Mineralimportexport [1981] 3 All ER 664 distinguished.
Z Ltd v A [1982] 1 All ER 556 considered.
Per Kerr LJ. A plaintiff cannot, merely to secure a benefit for himself under a Mareva injunction, coerce a third party into serious risk of litigation or arbitration with the defendant, through compliance with the injunction, merely by offering the third party an indemnity against the risk (see p 800 c d, post).
MAIN JUDGMENT
At the conclusion of the argument the court announced that the injunction would be discharged and that the court would give its reasons on the following day. 18 December. The following judgments were read.
18 December 1981. The following judgments were delivered.
EVELEIGH LJ. This is an appeal by third parties in Mareva proceedings from a refusal by Neill J to lift an injunction.
The plaintiffs are a company incorporated in Switzerland; the defendants are a Romanian trading corporation. The plaintiffs claim against the defendants a sum of about $US400,000 for demurrage under a charterparty. They are the owners of a vessel, the Grecian Legend, which was on charter to the defendants, and it would appear that they have prima facie at any rate, a good claim against the defendants for that sum. They obtained from Neill J a Mareva injunction against the assets of the corporation in this country.
The third party are the owners of a vessel the m v Eleftherios which, at the relevant moment, has on board a cargo of 11,000 metric tons of coal at the port of Barry in South Wales. Again it would appear (at least for the purpose of this judgment I will assume) that the coal was the property of the defendants, having been loaded under the terms of an agreed contract with the sellers, the National Coal Board.
Neill J granted a Mareva injunction, as I have said, and an important term of that injunction for the purposes of this appeal is—
‘That the Defendants by themselves their employees or agents or otherwise howsoever be restrained and an Injunction is hereby granted restraining them from disposing of or dealing with their assets within the jurisdiction or from removing such assets from the jurisdiction and in particular the cargo loaded on board the m v “ELEFTHERIOS” so as to reduce the value of those assets below the sum of US$413,403·47 until trial or further Order.’
There was also, as one would expect, incorporated into that order undertakings by the plaintiffs—
‘(2) to abide by any Order which the Court may hereafter make as to damages should the Defendants suffer any by reason of this Order which in the opinion of the Court the Plaintiffs ought to pay [and, what is important] (3) to pay the actual income lost to the Port Authority controlling the Port of Barry in South Wales … and to pay the reasonable costs of other third parties in complying with this Order.’
That injunction having been made, the owners of the Eleftherios applied to this court, and at that hearing the plaintiffs gave a further undertaking that they would provide a guarantee in respect of any loss or damage suffered by the third parties as a result of the order. However that guarantee had not been forthcoming by the time we heard the appeal, but again for the purposes of my judgment I will assume that that guarantee had in fact been produced.
This matter was heard by this court yesterday, and at about 4.15 pm we lifted the injunction and stated that our reasons would be given today.
The vessel, the Eleftherios, was under a voyage charter and we were told that unless the vessel sailed by 2100 hours on 17 December it would not be able to sail until just before Christmas.
The judge was referred to Clipper Maritime Co Ltd v Mineralimportexport [1981] 3 All ER 664, [1981] 1 WLR 1262. That was a case of a vessel under time charter and a Mareva injunction was granted. In that case Robert Goff J obtained from the plaintiffs an undertaking to indemnify the port authority against any loss which they might sustain as a result of the injunction, which had the effect of preventing the movement of the vessel.
It does not appear that Neill J had his attention specifically drawn to the fact that that case involved a vessel on time charter. Furthermore it does not appear from the report that the owners of the vessel had made any application. Moreover, in so far as the order impeded the trading activities of the port authority it is very important to appreciate that the port authority was present, if not at the application initially, at least at the end of the proceedings, and was quite content with an undertaking being given. So that that case provides little guide, as it turns out, to the facts of this case.
Only yesterday this court, in a case which was called Z Ltd v A [1982] 1 All ER 556, [1982] 2 WLR 288, drew attention to the need to pay particular regard to the extent to which the freedom of action of third parties would be affected by a Mareva injunction.
The effect of this present injunction, in so far as the owners of the Eleftherios are concerned, is to interfere with their trading assets. Counsel for the plaintiffs has submitted to this court that that is a matter which should not affect the final outcome because, as he says, his clients have given a guarantee. For myself I do not believe that when the third party protests, the fact that a guarantee has been given should be decisive in the matter at all. A third party is entitled to freedom of action and he is entitled to trade freely. I do not think that a plaintiff has the right to a ‘compulsory purchase’ of the rights of a third party and that is what it amounts to in this case.
But not only is the trading activity of the third party interfered with in this case, but one does not know what arrangements could be made by the members of the crew, and perhaps others, for their own movements after this vessel completes its voyage. At this time of the year it is particularly relevant, it seems to me, that this order may have the effect of interfering with the Christmas of every single person on board and with all their private arrangements.
I regard it as absolutely intolerable that the fact that one person has a claim for a debt against another, that third parties should be inconvenienced in this way, not only to affect their freedom of trading but their freedom of action generally speaking.
I feel sure that these matters were not fully put before the judge to show the contrast with the facts of the Clipper Maritime case, and for those reasons I would allow this appeal and, as I say, we have in fact lifted the injunction.
KERR LJ. I agree. In Z Ltd v A [1982] 1 All ER 556, [1982] 2 WLR 228 this court laid down guidelines for the protection of third parties, and in particular of banks, on whom a Mareva injunction may be served in respect of assets of defendants. However, I then also drew attention to the danger that this important and useful jurisdiction must not be abused.
To allow a plaintiff to serve a Mareva injunction on a shipowner in relation to cargo, which is owned or alleged to be owned by the defendant and which is on board pursuant to a voyage charter concluded between the shipowner and the defendant, in order to seek to prevent the ship from sailing out of the jurisdiction with the cargo, appears to me to be a clear abuse of this jurisdiction, because it involves an unwarrantable act of interference with the business of the third party, the shipowner.
A plaintiff seeking to secure an alleged debt or damages due from the defendant, by an order preventing the disposal of assets of the defendant, cannot possibly be entitled to obtain the advantage of such an order for himself at the expense of the business rights of an innocent third party, merely by proffering him an indemnity in whatever form.
In this connection, it is crucial to bear in mind not only the balance of convenience and justice as between plaintiffs and defendants, but above all also as between plaintiffs and third parties. Where assets of a defendant are held by a third party incidentally to the general business of the third party (such as the accounts of the defendant held by a bank, or goods held by a bailee as custodian, for example in a warehouse) an effective indemnity in favour of the third party will adequately hold this balance, because service of the injunction will not lead to any major interference with the third party’s business. But where the effect of service must lead to interference with the performance of a contract between the third party and the defendant which relates specifically to the assets in question, the right of the third party in relation to his contract must clearly prevail over the plaintiff’s desire to secure the defendant’s assets for himself against the day of judgment.
In this case the effect of the service of the injunction prevents the third party from sending its ship on a voyage out of the jurisdiction under a previously concluded contract between the third party and the defendants. In my view, this is a clear case of an abuse of this jurisdiction. It is said that the jurisdiction was exercised in a similar manner in Clipper Maritime Co Ltd v Mineralimportexport [1981] 3 All ER 664, [1981] 1 WLR 1262. However, it is not clear whether the shipowners objected in that case. Furthermore, that was a case of a time charter (with these same defendants), so that the financial consequences of delay would be more likely to have fallen on the defendants and not on the shipowners, as here.
However, even in cases of time charters, disputes might well arise as to whether or not the vessel remained on hire during the consequent delay. A plaintiff is not entitled, in my judgment, to expose the third party to the risk of such disputes merely by the offer of an indemnity. He cannot, merely in order to secure a benefit for himself, coerce the third party into a serious risk of litigation or arbitration with the defendant, and thereafter possibly also with himself under the terms of the proffered indemnity.
Where the effect of service of the injunction on the third party substantially interferes with the third party’s business, the rights of the third party must in my view always prevail over the desire of the plaintiff to secure the ultimate recovery of debts or damages from the defendant with which the third party is in no way concerned.
Accordingly I agree, without hesitation, that leave to appeal should be granted in this case and that the injunction should be discharged. Whether the plaintiffs may be entitled to an injunction operating generally on the defendants’ assets, if any, within the jurisdiction (which would not substantially interfere with the business activities of third parties who have contractual relationships with the defendants) does not arise for consideration on the material before us today.
SIR GEORGE BAKER. I agree and would only draw attention to what Robert Goff J said in Clipper Maritime Co Ltd v Mineralimportexport [1981] 3 All ER 664 at 666, [1981] 1 WLR 1262 at 1264:
‘The Commercial Court is very anxious to provide a service to the commercial community which is sensitive to its needs; and in particular it is anxious that the Mareva jurisdiction, in the administration of which the Commercial Court plays so substantial a part, should be implemented in a manner which takes account of the interests of innocent third parties.’
For may part I am appalled by the possible ramifications of the granting of a Mareva injunction in the circumstances of this case on the innocent third party and the crew of the ship and others no doubt, as represented by the owners before us. I too agree that the appeal should be allowed.
Application granted. Appeal allowed. Leave to appeal to the House of Lords refused.
