The case of the day is Sonic Finance Inc. v. Prima Pte. Ltd. (N.Y. Sup. Ct. 2017). Sonic Finance and Mirage Finace owned two ships, the Sunray and the moonray. They contracted with Prima Pte. Ltd., a special-purpose entity set up for the transaction, for the purchase and sale of the Sunray. They contracted with Star Bulkship Pte. Ltd., another special-purpose entity, for the purchase and sale of the Moonray. According to Sonic and Mirage, Halim Bin Mohamad, Hisham Bin Halim, two men domiciled in Malaysia, and Halim Mazmin Berhad, a Malaysia company, were the alter egos of Prima and Star. The contract price for the two ships was $34 million. If Prima and Star failed to pay the required deposits, Sonic and Mirage had the right to terminate the agreement and recover their losses. The contract contained an agreement for LCIA arbitration.
Prima and Star failed to pay the deposits, and Sonic and Mirage demanded arbitration in London. During the arbitration, Prima and Star voluntarily liquidated. The tribunal entered an award against Prima and Star in the amount of $34 million with interest. (The details of the arbitration are not given in the opinion, though I have to say I don’t understand how the the tribunal could award 100% of the purchase price as damages! Perhaps the judge made a mistake when she wrote that the purchase price was $34 million; perhaps instead it was $340 million).
Sonic and Mirage obtained an English judgment on the arbitration award, and they then sought recognition and enforcement of the English judgment in New York. They alleged that Mohamad, Halim, and HMB were liable on the judgment because they “operated as a single economic enterprise and controlled Prima and Star, which were undercapitalized, with no bank accounts, revenue or assets.”
The judgments were plainly entitled to recognition. The real question was whether the three defendants with money should be dismissed for want of personal jurisdiction. There was no case to be made for general jurisdiction, so the question, more specifically, was whether Sonic and Mirage could show specific jurisdiction under the New York long-arm statute, which required a showing that the defendants transacted business within the state and that the claims asserted arose from that transaction of business. Sonic and Mirage couldn’t come close to making this showing. Not only had the transaction not taken place in New York, but the three defendants weren’t even party to the transaction.
Sonic and Mirage made a veil-piercing argument, but the argument failed because they could not even show that Prima and Star were subject to jurisdiction in New York, and in any case they could not show a fraud, comingling, failure to observe corporate formalities, etc. (though there was a specific argument that the two special-purpose entities were undercapitalized).