Quarterly update on Freezing injunctions

Kazakhstan Kagazy Plc v Zhunus [2016] EWCA Civ 1036 – Court of Appeal

A group of companies brought proceedings against their former chairman (“Mr Zhunus”), CEO (Mr Arip”) and former director (“Mr Dikhanbayeva”) for misappropriation of their assets.

When serving his defence Mr Zhunus had also served a contribution notice against Mr Arip and Mr Dikhanbayeva. Mr Arip and Mr Dikhanbayeva served their defences but did not serve a contribution notice on Mr Zhunus. On hearing that the claim was likely to be settled against Mr Zhunus, Mr Arip and Mr Dikhanbayeva sought permission to serve a contribution notice on Mr Zhunus and also sought a freezing order against him.

At first instance, Leggatt J had refused permission to serve the contribution notice because it made no allegations of fraudulent conduct by Mr Zhunus but merely recited that allegations that had been made by the Claimants in their proceedings which had by then been stayed. He therefore declined to grant a freezing order. Mr Zhunus also alleged there was no cause of action for a contribution notice and that Mr Arip and Mr Dikhanbayeva would not have “clean hands” in the circumstances in which the freezing order would be justified and so relief should be denied.

Held:

(1) Mr Arip and Mr Dikhanbayeva were entitled to deny liability whilst asserting an alternative claim that if they were liable, Mr Zhunus was liable also. The Judge’s finding that Mr Arip and Mr Dikhanbayeva could not assert a positive case against Mr Zhunus while at the same time asserting their innocence sought to “cross too many bridges in advance” because it was not yet clear that all issues would be tried together nor whether Mr Zhunus would give evidence himself.

(2) The fact that a freezing order was sought on the basis of a contribution notice for a contingent case did not prevent there being a cause of action for the purpose of a freezing order. The thrust of the authorities was that there must be a right to initiate proceedings where relief in the form of a freezing order can be granted.

(3) The “clean hands” argument did not disentitle Mr Arip and Mr Dikhanbayeva to relief at this point. Whatever they could recover under their contribution notice would depend upon what was “just” (Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366) which could not be determined at this stage in the proceedings.

Accordingly, Mr Arip and Mr Dikhanbayeva’s appeal succeeded

 

Haederle v Thomas Chancery Division, 02 November 2016

In order to purge his contempt in failing to comply with a disclosure order in a freezing injunction, the Defendant submitted a number of documents including an affidavit which had been sworn but not signed by him. In a subsequent application by the Claimant for committal, on the basis that the documents contained a false statement, the Defendant contended that as the document had not been signed it therefore was not an affidavit.

Held:

The essential nature of an affidavit was that it has been sworn (i.e. that the deponent had appeared in person before a commissioner of oaths and declared it to be true). If it had been sworn (but not signed) the Defendant was liable for committal.

 

Lemos v Lemos [2016] EWCA Civ 1181

An injunction preserving property ostensibly owned by a trust was continued under the Chabra jurisdiction on the basis that a judgment debtor might have had an interest in it which could be set aside pursuant to s 423 Insolvency Act 1986.  The property had been owned by a Liberian company but formal documents conflicted as to whether the judgment debtor had held an interest in it. New evidence was admitted pursuant to the rule in Ladd v Marshall [1954] 1 WLR 1489 to suggest that such an interest existed.

Held:

The Court could decline to accept a third party’s assertion of ownership and discharge the injunction if there was “good reason to suppose” that the Defendant had no interest. The Court did not need to be satisfied on the balance of probabilities; JSC BTA Banazov v Ablyazov (No.11) [2015] 1 WLR 1287 followed.

 

PJ SC Tatneft v Bogolyubov and others [2016] EWHC 2816 (Comm)

A complex action based upon allegations of a dishonest scheme was dismissed on an interim basis and service against the Defendants set aside on the basis that there was no “serious issue to be tried”. Summary judgment was granted in favour of the Defendants on the footing that the claims against them had “no real prospect of success”. A freezing injunction was granted in support and the action was therefore discharged.

Obiter

(1) It was possible for both parties in a freezing injunction case to have a “good arguable case” (the required threshold for granting a freezing injunction not being a better than 50% prospect of success).

(2) An alleged complex and substantial dishonest scheme may in its own right provide “powerful support for the case of a risk of dissipation” and delay in bringing a freezing injunction is not of itself a basis for concluding that no such risk exists (following Flaux J in Madoff Securities v Raven [2011] EWHC 3102 (Comm).

(3) The fact that a claim might be summarily dismissed does not mean that there has been culpable non-disclosure on the part of the Claimant, still less a deliberate intention to misled the Court.

 

Gerald Metals v Timis & Ors [2016] EWHC 2327 (CH)

The Claimant obtained an Order for Disclosure of Assets against the Defendant. The application was on the basis that the Defendant had, in negotiations between the Claimant and companies owned by the Timis Trust (a discretionary trust of which the Defendant and his family were potential beneficiaries) said that the Timis Trust owned certain assets. It was said that he had unexpectedly revealed the position to be otherwise at a meeting the previous month. In fact, the Defendant had said that the assets were not owned by the trust at another meeting that had taken place months beforehand. The Claimant then applied for a worldwide Freezing Order.

Held

(1) A material misrepresentation had been made to the Judge, but it had not been deliberate:

(a) since the Order obtained had been made for information and not a Freezing Order;

(b) the misrepresentation had been corrected; and

(c) the Claimant’s application for a worldwide Freezing Order would not be rejected for want of “clean hands”.

(2) Nevertheless, the application would be rejected on the basis that the Claimant had shown no “good arguable case”. At the time of the Defendant’s representation, it had been true and there was no basis to interpret it as a continuing one. The other claims made were of insufficient merit or their prospects of success were too contingent or remote to satisfy the requirement for “a good arguable case”.

Obiter

Whilst a declaration had been sought that the Timis Trust was a sham, it was on the basis (inter alia) that the Defendant “sometimes acted or spoke as though the assets ostensibly held by the trust were his to deal with as he chose” and that he “generally gave or sought to give the impression that the trustees would do his bidding”, this did not begin to show that the trust was a sham under the tests set out in Shalson v Russo [2005] CH281 and A v A [2007] FSR 467.

 

P x P Property Limited v Own White & Caitlin [2016] EWHC 2276 (Ch)

A firm of solicitors and an estate agent were engaged by a vendor to represent him in the sale of a property. Unknown to both, their client was not the owner of the property and he defrauded the Claimant, a property developer who had sought to purchase the property, of the purchase monies.

Held:

(1) A solicitor who acts for someone impersonating the true owner of property is not necessarily liable for breach of warrant of authority. The basic representation was simply that he was acting for someone else; whilst attributes of the principal were warranted and which were not was a fact specific enquiry. Here, no warranty beyond the basic one identified had been given.

(2) The release of purchase money by a solicitor in the absence of a valid completion was not automatically a breach of trust but depended upon the terms upon which the money was held. Here, the terms were governed by the Law Society code for completion by post and according to those, there had been no breach of trust.

 

Ingram v Ahmed [put in full citation][29 June 2016]

Where a minority shareholding was transferred between the issue of a bankruptcy petition and the appointment of a trustee in bankruptcy, the effect of s284 of the Insolvency Act 1986 was not to render the transfer a nullity, but to pass the legal estate making the transferee a trustee. The value of the shares was to be assessed on the date of the transfer. The transferee was under an obligation to prove the value of the shares which was to be assessed (in a family company) on the basis of a fair rather than market value in light of what those members would have paid with inside knowledge of the company and as intent in value within the family.

 

Therium (UK) Ltd v Brook [2016] EWHC 2421 (Comm)

An application to omit for contempt for failure to comply with various ancillary provisions of a freezing order.

Held:

(1) The Respondent was in contempt of court for failing “to the best of his ability to cause or procure” that a Dutch company of which he was the sole shareholder and of which there was one professional director transferred funds into court. The inference was drawn that the director would have complied with the Respondent’s instructions had they been given.

(2) An order that the Respondent “…to the best of this ability cause or procure a payment “by a certain date gives rise to a continuing obligation to cause or procure payment after that date has passed.”

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