07/04/2020

High Court sentences directors to prison for breach of anti-suit injunctions

In Dell Emerging Markets (EMEA) Ltd v Systems Equipment Services SARL, Mr Justice Henshaw handed down sentences of between nine and 18 months to the directors of one of Dell’s Lebanese distributors for procuring breaches of anti-suit injunctions.

The Defendant (“SETS”) was a non-exclusive distributor of Dell products in Lebanon under an international distributorship agreement containing an exclusive jurisdiction clause in favour of the English courts. In response to Dell’s termination of that agreement in 2017, SETS commenced proceedings before the Lebanese courts for wrongful termination under a Lebanese statute granting rights to certain classes of distributors. Those proceedings were brought against an English Dell entity, which was a party to the distributorship agreement, as well as US, French and Dubai-domiciled Dell companies. Each of the Dell entities, including those that were not a party to the exclusive jurisdiction clause, applied for and obtain an interim anti-suit injunction restraining the Lebanese proceedings in 2018: [2018] EWHC 702 (Comm). The interim injunction was made final later in the year. Notwithstanding the anti-suit injunctions, SETS continued to prosecute the Lebanese proceedings.

The Dell entities applied for declarations that SETS and four of its current and former directors were in contempt of court, for orders committing the directors to prison, and for sequestration of SETS’ and the directors’ assets. SETS and the directors initially contested the application, but disinstructed their solicitors and indicated that they would not participate shortly before the committal hearing.

On 13 March 2020, Mr Justice Henshaw handed down judgment ([2020] EWHC 561 (Comm)) finding both SETS and each of the directors guilty of contempt and reserving the question of sentence and other relief.

Two of the directors had been in control of SETS’ day to day affairs and were found to have directly procured the breaches of the injunctions. They put forward a defence that they were compelled to breach the injunction because, had they not, they would have been exposed to personal liability under Lebanese law. The Judge rejected that defence: exposure to liability under a foreign system of law was not a defence to contempt (citing Masri v Consolidated Contractors [2011] EWHC 1024 (Comm)), and in any event he could be sure to the criminal standard that no such liability would arise.

The third and fourth directors defended themselves on the basis that they did not have day to day conduct of SETS’ affairs and therefore had no involvement in the decision to breach the anti-suit injunctions. Having reviewed the law on directors’ liability in contempt set out in Attorney General for Tuvalu v Philatetic Distribution Corporation [1990] 1 WLR 926 and subsequent cases, the Judge concluded that these two directors were nevertheless guilty of having wilfully failed to take reasonable steps to prevent breaches of the injunctions (and, in one case, “actively encouraging” the breaches).

On 2 April 2020, a further sentencing hearing took place before Henshaw J, at which he handed down 18-month sentences to the two directors who had had direct conduct of SETS’ affairs, and nine-month sentences to the two directors who had taken a more passive, but still culpable, role (digest provided by Westlaw under reference [2020] 4 WLUK 43). In doing so, Henshaw J held that the sentencing guidance developed in the context of breaches of freezing injunctions (including the factors set out by Popplewell J in Asia Islamic Trade Finance Fund v Drum Risk Management [2015] EWHC 3748 (Comm)) applied by analogy to breaches of anti-suit injunctions, where the number of reported cases is much more limited. Henshaw J also gave permission to sequester the assets of both SETS and the directors, in addition to their committal to prison. He did so on the basis that sequestration might be effective in procuring compliance with the injunctions where imprisonment would not, in circumstances where the directors, but not necessarily their assets, were out of the jurisdiction.

Sara Masters QC and Andrew Feld acted for Dell.