The Dog That Did Not Bark: When Silence Contributes to Winding-Up

The Dog That Did Not Bark: When Silence Contributes to Winding-Up

In our recent case, East-West Logistics LLP v Melars Group Ltd [2020] EWHC 2090 (Ch), Melars Group Ltd (“Melars)”, a Maltese company, was wound up by the Companies Court under English law. This judgment was a logical conclusion (but not the end) to an almost 10-year saga which included arbitration in London, BVI proceedings, a worldwide freezing order and a debt of more than US$650,000.

In this article we explain why and how the English court wound-up Melars, a non-English company, and what Sherlock Holmes has to do with it.

Background

The dispute between the parties arose back in 2011 over non-payment of freight and demurrage under a voyage charter, pursuant to which East-West Logistics (“EWL”) agreed to ship Melars’ cargo to Turkmenistan. EWL delivered the cargo to Turkmenistan, but Melars’ buyer there refused to take delivery. Subsequently, Melars instructed EWL to ship the cargo to Makhachkala in Russia, and tranship it onto another vessel. EWL delivered the cargo to Makhachkala, but the other vessel was blocked by the ice in the Volga river, and hence it was impossible to tranship the cargo onto it for many weeks. As a result, Melars became liable for a substantial amount in demurrage.

Neither the freight for the voyage to Makhachkala nor the incurred demurrage were paid, and EWL commenced arbitration in London to recover the debt. Melars denied jurisdiction on the basis that the charter and the arbitration clauses contained therein only covered the first part of the voyage (i.e. to Turkmenistan) and did not cover the second part of the voyage (i.e. from Turkmenistan to Makhachkala).

Given Melars’ jurisdictional objections, EWL commenced proceedings in the BVI, Melars’ jurisdiction of incorporation at the time, seeking the same relief.

Eventually, in March 2016 the BVI Court ordered Melars to pay EWL’s damages in the amount of US$631,955.81 and costs in the amount of US$25,000. Melars ignored the Court judgment and EWL’s demands for payment. Although Melars kept using its BVI address in further correspondence with EWL, it then turned out that it had secretly moved its seat to Malta, and thus became a Maltese company following a redomiciliation procedure. Consequently, the BVI Court no longer had jurisdiction to wind-up Melars, and EWL would therefore have had to commence yet another set of court proceedings in Malta in order to wind-up the company.

Bearing in mind that Melars could change its jurisdiction again to avoid liability, EWL commenced winding-up proceedings in the English Companies Court.

The petition

The winding-up petition against Melars was brought on the following grounds: (a) that the company had ceased to carry on business; (b) that the company was unable to pay its debts; and (c) that it was just and equitable to wind-up the company.

It was argued that the Court had jurisdiction to wind-up Melars on the basis of EC Regulation on Insolvency Proceedings 2000. In terms of Art. (3)1 of the Regulation, the Courts of the Member State within the territory of which the centre of a debtor’s main interests (“COMI”) is situated shall have jurisdiction to open insolvency proceedings.

EWL argued that Melars’ COMI was the United Kingdom because:

  • Melars’ Malta office was nothing more than a letter box.
  • All of Melars’ known contracts were in the English language and were governed by English law.
  • All of Melars’ known contracts contained arbitration clauses providing for a London seat.
  • Melars was represented for a substantial period of time by two firms of English solicitors.
  • Melars participated in several sets of English arbitration and court proceedings.

The judgment

The petition was opposed mainly on jurisdictional grounds. Melars submitted that it traded virtually and “in the ether”, and therefore it could not be established that its COMIs was in the United Kingdom. Therefore, a presumption that the company’s COMI is its registered office (i.e. Malta) had to apply. Melars did not provide evidence in favour of its COMI in Malta or in any other country. Rather, its position was that it was for EWL to prove its case. Thus, the evidence before the Judge on this point was limited. EWL could only rely on its previous correspondence and contracts with Melars. In this regard, Judge Baister commented:

“The evidence is also unsatisfactory because of what it omits to say. This is especially true of that given on behalf of the company. I agree with Mr Comiskey [Melars’ counsel] that it is for the petitioner to make out its case, but as Sherlock Holmes noted, sometimes it is the dog that does not bark that gives the clue: silence can sometimes be a powerful indicator of what is most likely to be true. In this case I do draw adverse inferences from the company’s failure to provide even the most basic information about what it does where.

….

Even though there is force in Mr Comiskey’s “trading in the ether” description of how the company operated it did in fact connect with planet earth.”

It was therefore established that Melars’ COMI was either in the BVI, Malta, Estonia, Switzerland or UK.

The BVI and Estonia were excluded since neither party pleaded that it was or had been Melars’s COMI. Malta was excluded likewise since it was not challenged that Melars was a shell company and it conducted its business elsewhere.

The Court rejected the arguments that use of English language in correspondence between EWL and Melars and nationality of Melars’ directors could indicate COMI, although the Judge noted that there may be cases where it may be an indicator. The Judge was also not persuaded that by the fact that Melars’ director used an address in England when the charterparties were signed.

However, the Judge accepted that the location of Melars’ legal advisors and the contracts between EWL and Melars governed by English law and providing for arbitration in London pointed to its COMI being deemed to be the UK, although in the Judge’s view, the reason for a contractual choice of law was irrelevant.

Melars also had bank accounts in Switzerland and three accounts with Revolut in England. In this regard the Judge commented:

“… one must ask why the company chose to set it up in the UK and not in Malta where the registered office had been located for about two years. An obvious answer would be that it chose England because that was the place where it regarded itself as administering its interests as it had been for some time.”

Lastly, the Judge gave some weight to the fact that the debt to the petitioner (EWL) is a judgment debt owed to an English entity.

In view of the above, Judge Baister concluded that Melars’ affairs were conducted in the UK more than in Switzerland, and thus the Court had jurisdiction under the Regulation. Since it was not disputed that Melars was insolvent, the company was wound-up by the Court.

The successful petitioner was represented by Edward Knight of XXIV Barrister’s Chambers. The Client was instructed by Danil Hristich, Senior Associate, Sergey Platonov, Associate, Erlan Moldoshev, Foreign Counsel, and Giles Xuereb, Of Counsel.

Fortior Law S.A. is an international dispute resolution firm with its headquarters in Geneva, Switzerland. For more information, please get in touch with [email protected] or your usual contact at Fortior.

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Team members
Danil Hristich
Sergey Platonov
Giles Xuereb
Erlan Moldoshev
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