Piercing The Corporate Veil And Chabra Injunctions -Clarification From The English High Court

Linsen International v Humpuss Sea Transport & others [2011] EWHC 2339 (Comm)

In this case, the Commercial Court (Flaux J.) has reviewed and examined the relevant English legal principles with regard to piercing the corporate veil, as well as the specific set of circumstances in which a Chabra injunction may be obtained. A Chabra injunction is, in essence, a freezing order directed to a party against whom the Claimant does not have a substantive cause of action ("NCAD") which is made in aid of enforcement of a judgment, or anticipated judgment, against a party against whom the Claimant does have a substantive cause of action ("CAD").

The background facts

The claimant shipowners ("Owners") were companies in a group of which Empire Chemical Holdings Inc was head ("the Empire Group"). In 2007, the Empire Group entered into negotiations with a number of shipyards for the construction of twelve chemical tankers, and also entered into an agreement where seven of those tankers would be chartered to the defendant charterers, who were companies in the Humpuss group of companies ("the Humpuss Group"). Various time charterparties were entered into between various companies in the Empire Group and the Humpuss Group in October 2007 and again in January 2008.

At the time the vessels were delivered to the charterers under the charterparties in early 2009, the freight market had collapsed. The charterers were unable to sub-charter the vessels at rates which covered the time charter hire and so did not pay hire to the Owners by the due dates. The Owners commenced arbitration, obtained arbitral awards against the charterers for repudiatory breach of the charterparties and also obtained summary judgment against the guarantor of the charterers' obligations under the charterparties. They also obtained freezing orders against both the First and Second Defendants (the charterers and guarantors) in these proceedings. However, neither the arbitral awards nor the summary judgment were honoured, and the Owners applied for and obtained world wide freezing orders against the Third to Thirteenth Defendants on an ex parte basis. Those defendants were principally other companies within the Humpuss Group, and the orders were granted on the basis that (i) there was a good arguable case that there had been abuse of the corporate structure of the Humpuss Group and (ii) thus that various corporate veils could be lifted so as to render the other companies within this group...