Métodos

The nature of a freezing injunction and what it purports to achieve have already been discussed in Chapter 3, Vol 1, of this book.

To recapitulate in this context, the general requirements for obtaining a freezing order are: (a) existence of a legal or equitable right in support of which the

injunction is sought; (b) a good arguable case for an accrued - not a future - cause of action;¹⁶⁶ (c) the seller has assets within or outside the jurisdiction; (d) there is a real risk¹⁶⁷ that the seller will dissipate the assets or remove them from the jurisdiction;¹⁶⁸ (e) the buyer must make a full and frank disclosure of all material facts in his statement of truth;¹⁶⁹(f) it must be just and convenient¹⁷⁰ that the order should be granted; and (g) the buyer must provide cross-undertakings to court:

 (i) to pay damages to the seller for loss suffered by reason of the order, and

 (ii) to indemnify third parties in respect of liabilities and costs reasonably incurred by them in complying with the order.

The difficulty for buyers of second-hand ships in relation to obtaining a freezing injunction lies in the fact that suspected defects in the ship will not be discovered until delivery, when the balance of the money is passed on to the seller, who is usually one-ship company, and the ship would be its only asset. Once the money is in the bank of the seller, it would most probably be moved to a jurisdiction beyond the reach of the buyer.

Steel J held, in The Capaz Duckling ,¹⁷¹ that such factors would constitute a risk of dissipation of assets with regard to one-ship companies. Therefore, buyers are faced with a dilemma whether or not to part with their money when, before delivery of the ship, they believe there may be some defects that they will only be able to prove when delivery is made. Before that time, there would be no

actionable breach, but only anticipatory.¹⁷² 16.2.1 Limits to granting the injunction

The buyers cannot obtain the freezing order on the basis of an anticipatory breach by the seller, but only for an existing cause of action.¹⁷³ It must be an actual or threatened invasion of rights or breach.¹⁷⁴ For example, he cannot apply to the court in advance of the delivery of the ship in anticipation that the seller will be in breach of contract. He must make out an arguable case of breach by the seller when he makes the ex parte application. Until the ship is delivered, unless there is already a late delivery and therefore a breach, the buyer does not have an accrued cause of action for damages in case the ship is delivered in a defective condition.

16.2.1.1 Saville J’s conditional injunction

Considering these difficulties, Saville J, in the A v B ,¹⁷⁵ was in favour of a conditional injunction. The buyers, having paid the deposit in an joint account held in the names of the sellers and themselves, suspected, subsequently, that, on delivery, the vessel might not be in the order and condition stipulated in the contract. The sellers had no assets within the jurisdiction, and the buyers applied

for a Mareva relief to freeze the sums in the joint account. They intended to commence arbitration proceedings against the sellers, but, at the time of this application, they did not have an accrued cause of action.

It was held that, if the material produced to the court satisfied the court that it would be appropriate to grant a Mareva relief when the cause of action arose, there was no good reason why the court should not grant relief in advance, provided nothing in the order came into effect until the moment of delivery.

Thus, a conditional injunction was granted.

Although the English courts recognised that a freezing injunction against the seller might be appropriate and just in some cases, they have since this case imposed restrictions on the granting of this discretionary relief. First, there must be an accrued cause of action and, second, the buyer must notify the seller of the application, if the court has attached such a requirement in the order.

16.2.1.2 The first limit - the Veracruz I/Siskina barrier

The CA in The Verecruz ¹⁷⁶ rejected the notion of a conditional injunction for suspected defects, where there is not cause of action at the time of the

application, but approved the injunction for late delivery.

The ship bought by the plaintiff was under a bareboat charter. Repairs were necessary in the amount of $3 million, and a dispute arose between the owners (sellers) and charterers as to who would pay this sum; that dispute was referred to arbitration in Norway. The ship was not ready for delivery to the buyers on the agreed date. They referred this dispute to arbitration in London.

As the buyers were concerned that the purchase price, which would be paid to the sellers in London, would be their only asset within the jurisdiction, the buyers applied, ex parte, for a Mareva injunction to restrain the sellers from dealing with the purchase money when it was paid over, which was granted. The injunction was not to come into effect until after delivery and payment.

The buyers’ claim was for damages for late delivery and for damages in respect of defects, as they believed that the repairs had not been fully carried out. On handing over the purchase money, the buyers advised the sellers that it was subject to the injunction.

On appeal inter parties, Hobhouse J held that, although the buyers had no

accrued cause of action for damages for defects in the vessel at the time of the ex parte application, they had an accrued cause of action for damages fordelay in delivery; and, to the extent that they could show an arguable claim for defects that would be present on delivery, the court had jurisdiction to grant an anticipatory Mareva injunction. He also held that, despite the buyers’

misrepresentation of the factual position pertaining to communications between the charterers, the owners and the classification society, when applying for the ex parte injunction, which was culpable, this did not, in the circumstances, justify a total discharge of the injunction, but a reduction of the sum over which the injunction was originally granted.

On further appeal, although the CA agreed with the judge that the order should not be discharged completely, it felt bound by the decision of the House of Lords in The Siskina that the right to obtain an interlocutory injunction was not a cause of action in itself, but ancillary to a pre-existing cause of action.

Thus, on the issue of the feared defects, the CA held that the learned judge was wrong to grant so much of the relief as related to the buyers’ claim to damages for defects that they feared would be present when the vessel was delivered; the

buyers could not, before delivery, by means of a Mareva injunction, secure a retention, in whole or in part, of the purchase price against feared defects; on this issue, the sellers’ appeal was allowed. As regards delayed delivery, the CA confirmed the continuation of the injunction.

Beldam LJ rejected the approach of Saville J in the A v B case and said:

Though it may be convenient to the applicant to obtain an order which anticipates his cause of action, the court has to balance any such convenience against the obvious inconvenience to the other party. The defendant seller, obliged by the terms of the contract to carry out repairs to put the ship in a deliverable state, may depend upon the assurance of receiving the purchase price to secure finance to carry out the repairs. The prospect that they may be deprived of the whole or a substantial part of the price by a surreptitious

application to the court could impede or prevent them obtaining the means to do so.¹⁷⁷

16.2.1.3 Should there be an exception to the last Siskina barrier?

Prior to the Veracruz decision, commercial court judges were following the approach of Saville J, because it was expedient to grant the injunction in cases such as the sale of second-hand ships, where the accrual of the cause of action was both imminent and, in practical terms, inevitable. The approach by Saville J was a common-sense approach, in the interests of justice. Thus, in special cases, judges were prepared to introduce an exception to the general Siskinarule applicable to injunctions, if, in reality, there was a high probability that the seller had committed a breach, which would, inevitably, be effective on the day of delivery.

This problem was recognised by Sir John Megaw in The Veracruz, but, in

agreement with Nourse LJ, he said that the court’s difficulty was that it was not free to deal with the question of jurisdiction without the constraint of binding authority (The Siskina). He, nevertheless, regarded the approach of Saville J in A v B as being a sensible and desirable approach in commercial cases. He saw no valid reason, in logic or practical convenience in the interests of justice, why jurisdiction should not exist in such cases, provided the court order was made on the condition, which Saville J applied, that the injunction should not operate unless and until the anticipated cause of action arose. In the end, he felt precluded by authority from so deciding on the question of technical jurisdiction.¹⁷⁸

Perhaps the Supreme Court, or legislation, may, in due course, vary the third rule of The Siskina (the other two having been abolished; see Chapter 3, Vol 1) and make a distinction between the general rule applicable to the granting of injunctions and a possible exception to the rule that ought to apply in the cases of sale of ships for the interest of justice.

16.2.1.4 What is inferred from authorities for buyers to bear in mind?

If a buyer were able to show a threatened breach the day before the delivery of the ship by providing solid evidence of existing defects in the ship, such evidence should substantiate a potential action. The order could be granted to take effect on the day of delivery.¹⁷⁹

For example, in The Assios ,¹⁸⁰ the buyers knew from the dry-dock inspection that the ship’s bottom had a good deal of indentation that would require repairs;

although the injunction was granted at the time, it was discharged later for want of disclosure.¹⁸¹

Potentially, buyers could have the freezing injunction application ready and apply to the court on the same day as the day of the planned delivery of the vessel, provided they can show that the anticipated breach has indeed become actionable on that day.

In Ninemia Corp v Trave (The Niedersachsen) ,¹⁸² the buyer alleged defects in the boiler tubing and other defects on evidence from a surveyor. However, as the application for the injunction was made before delivery of the ship, and there was no cause of action yet, the application for an injunction was refused.

However, immediately after the delivery of the ship and payment of the price, the buyer was not deterred and applied again. In view of the change of the

circumstances, the injunction was granted. However, on the seller’s application, inter-parties, to discharge the injunction, the injunction was discharged, because there was no evidence of a real risk that the seller would dispose of his assets before an arbitration award could be enforced.

16.2.1.5 The second limit - notification of the application

The courts have also been uneasy, from the early days of such jurisdiction, about making the order ex parte, particularly, in cases of ship sales. Mr Justice Leggatt said, in The Great Marine (No 1) :¹⁸³

The sellers … have an understandable sense of disappointment if not of

grievance, that having been led to expect that they would receive an unfettered right to deal with the whole of the purchase monies as they saw fit, they found themselves deprived of the right to deal with … it … Provided that the court is told the facts, it can then decide whether to grant an injunction subject to an undertaking that notice of the intention to serve it will be given to the sellers before completion of the sale so that they may consider, before there are assets of theirs within the jurisdiction to which the injunction can apply, whether there are grounds open to them for not completing the sale.

Although such an order may be appropriate in some cases, in others it may seem more just to allow the trap to be laid so that a one-ship foreign company is not enabled to divest itself not only of the ship but also of the proceeds of sale before a bona fide claim advanced against it can be satisfied.¹⁸⁴

The buyer’s failure to make full and frank disclosure in the statement of truth, or failure to comply with his undertaking given to the court to notify the seller in advance, will result in the discharge of the injunction. In The P ,¹⁸⁵ the plaintiffs were not justified in making the application ex parte; having taken it upon themselves to make the application without notice to the defendants, the plaintiffs undertook a heavy duty of disclosure, which should be stringently enforced.

In The Assios , the injunction was discharged on the ground that the buyer had not made proper disclosure to the court that the injunction was intended as a trap for the seller to be presented with it at the closing meeting, particularly bearing in mind that the seller had, in any event, undertaken not to remove the deposit out of the jurisdiction, except upon giving the buyer 2 clear days’ notice.

Lord Denning MR thought that the defendants would be entitled, in such a case, at least to delay delivery to some extent, but he urged caution in the granting of an injunction in such circumstances.

In The P ,¹⁸⁶ Evans J said that, if the seller was not entitled to delay delivery, then the buyer had nothing to lose by giving advance notice.

The courts will object to granting such an injunction if the judge is not told of the plan to serve the order until after the closing. However, in Z Ltd v A-Z ,¹⁸⁷ Kerr LJ regarded the plan to serve the injunction once the sum is paid over to the seller as an abuse of the practice. In The Niedersachen ,¹⁸⁸ although the planned trap was revealed to the court, Mustill J found the plan unattractive. In The Great Marine No 1 ,¹⁸⁹ Leggatt J said that, provided the court is told of the facts, it can then decide whether to grant an injunction, subject to an undertaking that notice of the intention to serve it will be given to sellers before delivery, but he was concerned about one-ship companies, and he said that, perhaps in such cases, it may be appropriate to allow the trap to be laid. In A v B , Saville J required the buyers to give the sellers notice of the injunction immediately, and the buyers did give an advance notice.

It was recently held, in CEF Holdings Ltd v Mundey ,¹⁹⁰ that without-notice applications should only be granted in very limited circumstances, where to give notice would enable the defendant to take steps to defeat the purpose of the injunction, or where there was some exceptional urgency, which meant there was literally no time to give notice. An application for an injunction sought without any or proper notice had to include a statement supported by facts, explaining fully and honestly to the court why proper notice could not have been given.

Commercial judges are realistic about the risk involved for the buyer when notice of the injunction is given to the seller in advance of delivery, particularly with regard to one-ship companies. The notice, simply, will enable the seller to take steps to defeat the purpose of the injunction. The court has wide discretion as to whether or not to order the buyer to notify the seller in advance, which depends on the circumstances of a case.¹⁹¹

Buyers may negotiate with the seller to obtain an undertaking that the money will not be removed from the jurisdiction without prior notice to the buyer, as was done in The Assios. To a great extent, however, such co-operation will depend on the reputation of the seller. The court will exercise its discretion in accordance with the circumstances of a particular case.

SECTION C: POST-DELIVERY AND ISSUES OF DAMAGES 17 POST-DELIVERY MATTERS

If all goes smoothly at the closing meeting, the remaining matters for completion to be finalised are: the cancellation of insurance by the seller and the issue of a new insurance policy in the name of the buyer; the delivery to the buyer of the certificate of permanent deletion from the ship’s registry; the issue of a new class certificate by the classification society, which may have changed; and the

registration of the ship, or the conversion of a preliminary registration to a permanent one by the buyer. Finally, the new crew boards the ship.

18 MEASURE OF DAMAGES

In the event that disputes arise between the parties, the basic principles of measure of damages is explained here.

The victim of the breach should be placed, so far as damages can do it, in the position he would have been in had the contract been performed.¹⁹² The fundamental principle governing the assessment of damages for breach of contract is that damages should compensate the victim of the breach for the loss of his contractual bargain.¹⁹³

As a general rule in the law of damages under English law, damages for breach of contract are to be assessed as at the date of the breach. However, the rule, as the House of Lords decided in The Golden Victory ,¹⁹⁴ is subject to many exceptions and is not to be mechanistically applied in circumstances where assessment at another date might more accurately reflect the overriding compensatory rule.

In a recent purchase of property case, Hooper v Oates ,¹⁹⁵ the CA decided: Where a buyer had failed to complete the purchase of a property and had been ordered to pay damages, the correct valuation basis on which to assess the damages was the date on which the sellers took the property back for their own use and not the date of the breach of contract. The decline of the property market between those two dates was part of the loss for which the seller was entitled to be compensated.

It was further explained that the general rule did not require the court to disregard matters occurring after the breach of contract or after the commencement of the action, or even after a decision on liability, if those

matters would enable the court to fix the loss more accurately. The availability of

matters would enable the court to fix the loss more accurately. The availability of