Sep 12, 2024

To embed, copy and paste the code into your website or blog: <iframe frameborder="1" height="620" scrolling="auto" src="//www.jdsupra.com/post/contentViewerEmbed.aspx?fid=7c98d025-c0c8-4a82-a35d-0620badd18bf" style="border: 2px solid #ccc; overflow-x:hidden !important; overflow:hidden;" width="100%"></iframe> Lakatamia Shipping Company Ltd v Su and others [2024] EWHC 1749 (Comm) illustrates how the Babanaft proviso typically included in a worldwide freezing order may serve to limit the liability of foreign third parties who facilitate a breach of that order. Factual Background This judgment is the latest in the long-running dispute between the Claimant, Lakatamia Shipping Company Limited, and the First Defendant, Mr Nobu Su, a former Taiwanese shipping magnate. Mr Su's assets were frozen by the English High Court in August 2011 in connection with a claim by Lakatamia Shipping for unpaid charter fees and damages (the "Freezing Order"). In November 2014 and January 2015, two judgments totalling $47.6 million were entered against Mr Su and his companies (the "Judgment Debt"), with the Freezing Order being continued. The present claim arose out the distribution of proceeds from the forced sale of two villas in Monaco. In 2010, Barclays Bank plc agreed to loan €25 million to Cresta Overseas Ltd ("Cresta"), of which Mr Su was the beneficial owner, for the purpose of purchasing those villas. After Cresta defaulted on the loan (which had been guaranteed by Mr Su personally), Barclays sought to enforce its security resulting in the villas being auctioned for €65.1 million in 2015. From the sale proceeds, €34.6 million was paid to Barclays while the remaining €27.1 million was paid to the client account of the Third Defendant, Maître Zabaldano – a Monégasque lawyer retained by Cresta in connection with the auction. In February 2017, acting on the instructions of the Second Defendant, Mr Chang, Maître Zabaldano transferred the remaining cash proceeds, save for a €200,000 retainer, to UP Shipping Corporation. The funds were then dissipated. Lakatamia alleged that Mr Su, Mr Chang and Maître Zabaldano were all aware of the Freezing Order and the Judgments at the time of the transfer, and by assisting with the transfer adancbreached the terms of the Freezing Order. Lakatamia brought a claim for unlawful means conspiracy against all three Defendants and a claim in Marex tort against Mr Chang and Maître Zabaldano on this basis.1 Legal Principles (a) A combination, arrangement or understanding between two or more people; (b) With an intention to injure another individual or separate legal entity; (c) Which results in concerted action from the conspirators, consequent upon the combination or understanding; (d) Use of unlawful means as part of the concerted action (i.e., conduct lacking just cause or excuse); and (e) Loss being caused to the target of the conspiracy. The elements of Marex tort are:3 (a) The entry of a judgment in the claimant's favor; (b) Breach of the rights existing under that judgment; (c) The procurement or inducement of that breach by the defendant; (d) Knowledge of the judgment on the part of the defendant; and (e) Realization on the part of the defendant that the conduct being induced or procured would breach the rights owed under the judgment. Decision The Court held, on the balance of probabilities, that Mr Chang was not aware of the Freezing Order and the Judgment Debt. In the circumstances, the elements of the unlawful means conspiracy claim or the Marex tort claim were not made out. As for Maître Zabaldano,4 the judge held that he did know that (i) Mr Su was bound by the Freezing Order, (ii) the Judgment Debt had not been discharged, (iii) Mr Su had ultimate beneficial ownership in Cresta and (iv) the transfer to UP Shipping would undermine Lakatamia's ability to enforce the judgment. As such, the intention element (i.e., (b) above) of unlawful means conspiracy was satisfied. This was notwithstanding that Maître Zabaldano was duty bound to follow his client's instructions and his genuine belief that until the Freezing Order and 2014 and 2015 judgments were registered in Monaco, they did not concern him.5 However, the Freezing Order contained the standard form Babanaft6 proviso which stated that "the terms of this Order do not affect or concern anyone outside the jurisdiction of this Court." The judge made the following observations in respect of this proviso: (a) As Maître Zabaldano was outside the jurisdiction of England and Wales when he transferred the funds to UPS Shipping, he had the benefit of the proviso. That the damage resulting from the Freezing Order's breach was felt within the jurisdiction was not sufficient to affect the meaning of the Babanaft proviso. (b) The language of the Babanaft proviso was expansive and did not limit itself to excluding only liability for contempt of court resulting from breach of the Freezing Order. It would therefore be inconsistent with the language of the proviso to hold Maître Zabaldano liable for tortious conduct that had been excluded. (c) The purpose and policy of the Babanaft proviso is to uphold the in personam nature of freezing injunctions. It is wrong for a court to make an order intended to restrain and control a person subject to the jurisdiction of the court, which then has a coercive effect over persons not subject to the court's jurisdiction. Finding liability for Maître Zabaldano would run contrary to this policy. As such, the judge held that the Babanaft proviso precluded Maître Zabaldano's liability for unlawful means conspiracy. The judge then considered whether Maître Zabaldano might nonetheless satisfy the requirements of the Marex tort. He accepted Maître Zabaldano's submission that he had contractual and professional obligations to comply with his client's instructions to make the transfer, and honestly believed that he was entitled to do so. Maître Zabaldano therefore benefited from the defence of justification, meaning the mental element of Marex tort could not be made out. Due to the judge's findings of non-liability in respect of Mr Chang and Maître Zabaldano, an unlawful means conspiracy claim could not be made out against Mr Su as the requirement of at least two conspirators was not satisfied. Key takeaways The decision in Lakatamia will no doubt be alarming for claimants who stand to benefit from a worldwide freezing order, particularly where the majority of the defendant's assets are located outside of the jurisdiction. While it may seem remiss that a third party with knowledge of an injunction could assist in its breach and escape liability by virtue of the Babanaft proviso, the judge made clear that the Court will be reluctant to deviate from a plain textual reading of the language of the injunction itself and will pay regard to the policy considerations behind Babanaft. In circumstances where there is a risk that a third party outside of this jurisdiction could facilitate the dissipation of assets, litigants should consider in advance what pre-emptive steps can be taken in that foreign jurisdiction to recognize an English Court order or judgment, with a view to restricting the actions of the third party. 1 In separate proceedings, the English Court previously held that several other individuals and companies had unlawfully conspired with each other to breach the Freezing Order by concealing the Cresta proceeds from Lakatamia. 2 Lakatamia Shipping Company Ltd v Su and others [2024] EWHC 1749 (Comm) at [21] to [22]: citing Foxton J in Lakatamia Shipping Co Ltd v Tseng Yu Hsia [2023] EWHC 3023 (Comm) at [18] and Bryan J in Lakatamia Shipping Co Ltd v Su [2023] EWHC 1874 (Comm) at [106]. 3 Su [2024] at [23] to [24] and Tseng at [20]. 4 Simon Colton KC. 5 It is only necessary to show that the defendant knew of the facts which rendered the means unlawful, but not that the defendants knew that the means were in fact unlawful (i.e., ignorance of the law is no defence). See Racing Partnership Ltd v Done Bros (Cash Betting) Ltd [2020] EWCA Civ 1300. 6 Babanaft International Co v Bassatne [1990] Ch 13.