Tribune Investment Trust Inc v Dalzavod Joint Stock Co

• Jurisdiction: Singapore
• Judge: Lee Seiu Kin JC
• Judgment Date: 27 November 1997
• Neutral Citation: [1997] SGHC 313
• Docket Number: Suit No 2178 of 1996 (Summons in
• Date: 27 November 1997
• Published date: 19 September 2003
• Year: 1997
• Plaintiff Counsel: Jude Benny (Joseph Tan Jude Benny & Scott)
• Citation: [1997] SGHC 313
• Defendant Counsel: Kenneth Tan SC (Kenneth Tan Kong & Tan)
• Court: High Court (Singapore)
• Subject Matter: Bona fide purpose for use of assets,Whether strict requirement that defendants to establish lack of other free assets for making payment to trade creditors,Mareva jurisdiction not to be used for preventing payment of trade creditors in ordinary course of business,Mareva injunctions,Varying injunction to allow payment -Circumstances when frozen assets may be used to make payments,Civil Procedure,Whether just or convenient to vary injunction to permit use of asset enjoined in Singapore to pay creditors in Russia

Judgment:

LEE SEIU KIN JC

Cur Adv Vult

This is an application by the defendants to vary a Mareva injunction restraining them from removing certain assets out of Singapore. The plaintiffs filed a writ of summons on 13 November 1996 claiming damages against the defendants. In their statement of claim the plaintiffs alleged that they entered into a contract with the defendants on 30 September 1996 for the sale of the defendants` floating dock, `Mossor`, moored in Singapore, for US$6.5m. It alleged that on 8 October 1996, the plaintiffs entered into an agreement to re-sell the dock to Soosan Trading Co Ltd for US$9.4m, and thereby stood to make a gross profit of US$2.9m. However, the defendants repudiated the contract and sold the dock directly to Soosan Trading Co. The plaintiffs therefore claimed the sum of US$2.9m in damages for breach of contract or inducing a breach of contract.

2.As the defendants were a Russian entity, the plaintiffs obtained an injunction on 14 November 1996 to restrain the defendants from removing the Mossor from Singapore unless they provided adequate security in the sum of US$3m. The defendants, wishing to proceed with the sale of the dock, obtained a variation of the injunction on 10 December 1996. US$3 million would be deposited by the defendants with their solicitors and the defendants were, by the varied injunction, restrained from removing `any of their assets which are in Singapore up to the value of US$3,000,000.00 pending trial or further order.`

3.On 25 March 1997, the plaintiffs took out an application, in SIC 2194/97, for summary judgment and this was heard on 4 July 1997. The learned assistant registrar dismissed the application and granted leave to defend. The plaintiffs appealed but this was dismissed by Choo Han Teck JC on 13 August 1997.

4.There are basically two planks to the defendants` defence. The first is that the person who entered into the agreement, one Kucherenko, did not have the authority to sell the Mossor, which under Russian law required the approval of the board of directors of the defendants as well as the representative of the State who held the `gold share`. The second plank of the defence is that even if the sale agreement was valid and enforceable, the plaintiffs did not notify the defendants of their acceptance of the dock within ten working days of inspection as stipulated in cl 4 of the agreement.

5.This application, SIC 1801/97, was taken out on 12 March 1997 but for a variety of reasons was not heard until 5 September 1997. The defendants seek to discharge the injunction on the ground that (i) the plaintiffs did not have a good arguable case against the defendants and (ii) the defendants should be allowed to use the frozen assets to pay their creditors in the ordinary course of the defendants` business. TS Sinnathuray J refused to discharge the injunction on the basis of the first ground but ordered the injunction to be varied so that exception (2) in the usual form for Mareva injunctions (which was not in the original injunction) would be incorporated, ie that:

This order does not prohibit the defendant from dealing with or disposing of any of his assets in the ordinary and proper course of business. The defendant shall account to the plaintiff [state interval] for the amount of money spent in this regard.

6.The learned judge also ordered that S$75,000 be withdrawn from the defendants` assets to pay for their solicitor`s costs and adjourned the hearing to an early special date for further arguments as to whether the injunction should be discharged on the basis of ground (ii). This is the matter now before me.

7. Basis for the application

The defendants are a Russian company and their main business is ship repairing. The defendants say that they had intended to sell the dock to alleviate the cash flow problems that they were facing in Russia at the time, ie in late 1996. The chairman of the defendants, Viktor Kalinitchenko (VK), filed an affidavit on 12 March 1997 in which he exhibited a copy of the defendants` balance sheet as on 1 October 1996 along with an English translation. VK deposed that the defendants: (a). had been in default of payment of its loans, in particular short term loans which carry interest at 80%pa Because of such defaults, the defendants had great difficulty in obtaining further loans;

(b). had to delay payments to their suppliers and had to pay interests on such delays as well as experienced difficulty with obtaining supplies from suppliers;

(c). had not paid their staff for six months;

(d). were in arrears of payment to the Russian government of social insurance and maintenance and had to pay a default penalty of 1% per day on the amount outstanding;

(e). were in arrears of state and federal taxes and had to pay a default penalty of 0.3% per day on the amount outstanding.

8.VK deposed that after the original injunction was varied on 10 December 1996, US$5m was remitted to the defendants in Vladivostok and the funds went towards paying their liabilities, ie salaries, short term loans, social insurance, maintenance and taxes. However this was insufficient and these liabilities continued to increase due to the penalties imposed by the state as well as accumulated bank interest. He said that the salaries of the staff had not been paid since January 1997. But I note that VK did not directly depose as to the amount of cash immediately required by the defendants.

9.Counsel for the defendants referred me to the translated copy of the balance sheet and explained the nature of the various items. He pointed out that from the item `V: Payables and Other Liabilities`, the defendants` total liabilities amounted to 295 billion roubles, which, at the exchange rate deposed by VK, is about US$53m. Under the item `VII: Expected Incomes from Customers`, there was a sum of 260 billion roubles, which converted to about US$47m. However, counsel claimed that in the defendants` experience, the collection rate was only about 60%. He said that even allowing an optimistic collection rate of 75%, the amount that could be collected would be only about US$35m. Hence, there would be a shortfall of US$18m. After the US$5m remitted in December, there was still a shortfall of US$13m. This appears to me to be rather unsatisfactory evidence of the defendants` net liabilities. On the face of the balance sheet, the defendants` `expected income` totalled 260 billion roubles and this would be 35 million roubles less than total liabilities of 295 billion. There is no evidence as to the nature of this item and in the absence of evidence, I find it difficult to accept learned counsel`s submission that only 75% of this is recoverable.

10.VK filed a further affidavit on 9 July 1997. In it he said, inter alia, that the defendants` financial condition remained very difficult with liabilities continuing to mount. In particular the problem of workers` salaries was pressing and he had to make them take a pay cut or take unpaid leave in order to reduce his wage bill. He reiterated that the defendants urgently needed the release of the US$3m to pay those liabilities and that the defendants would not be able to meet those liabilities without the release of the funds.

11.In opposition to this application, the plaintiffs filed the affidavit of Georgios Moundreas (GM) on 10 April 1997. GM was the president of George Moundreas & Co SA (GMC)...