England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mr Justice Mitting)

		Royal Courts of Justice Strand London WC2 Tuesday, 13th November 2001

1. LORD JUSTICE CLARKE: The claimant in this action ("the Halifax",) lent the defendant a substantial sum of money. The loan was secured by a mortgage under which the Halifax was the mortgagee. The defendant did not comply with the repayment obligations under the mortgage, with the result that the Halifax repossessed and sold the mortgaged property. That occurred in 1992. However, the defendant remained indebted to the Halifax in an amount of over £500,000, with the result that the Halifax obtained judgment against him on 5th June 1995 for £586,008.42. But for the settlement agreement to which I now turn, that indebtedness would now be substantially greater.
2. By an agreement evidenced in an exchange of correspondence culminating in a letter from the Halifax's solicitors to the defendant dated 8th February 2000, the Halifax agreed to accept £17,500 in full and final settlement of its claims against the defendant. The defendant subsequently paid that sum to the Halifax. In this action the Halifax seeks, among other things, a declaration that it either has rescinded or is entitled to rescind the settlement agreement on the ground that it entered into it in reliance upon a fraudulent misrepresentation made by the defendant. In short, the Halifax submits that he falsely represented to it that he was impecunious and that it relied upon that representation and settled a very large claim for only £17,000 which it would not have done but for the representation. It further submits that the representation was false because, far from being impecunious, he had property and assets in the United Kingdom and Spain, with a total value of over £650,000. It is further alleged that the defendant knew that the representation that he was impecunious was untrue and that the representation was fraudulent.
3. On the face of it that appears, as the judge said, to be a compelling claim, but it is the defendant's case that he did not make a false representation knowing it to be false.
4. The claim form in this action was issued on 17th September 2001. In the meantime, the Halifax had obtained a worldwide freezing order against the defendant restraining him from disposing of his assets up to a value of £552,000. The order contains the following exception, among others:

"3. Exceptions to this order:

(1) This order does not prohibit the Respondent from spending £400 a week towards his ordinary living expenses and also £3,000 on legal advice and representation. But before spending any money the Respondent must tell the Applicant's legal representatives where the money is to come from."

5. The order did not contain any exception relating to business expenses. I note in passing that the standard form of worldwide freezing injunctions includes in paragraph 3, between the reference to living expenses and legal expenses, the following sentence in square bracket "and pounds blank a week towards his ordinary and proper business expenses".
6. On 26th October the defendant issued an application notice giving notice of an application, among other things: (1) to allow him to mortgage a property in Spain known as Villa 141, limited to 15 million pesetas (which is about £60,000) and to pay the amount borrowed on the security of such a mortgage to his solicitor's client account for the sole purpose of paying his legal expenses in this action and in action HC0002544, and (2) to enable him to incur a reasonable sum on legal advice and representation in the conduct of both actions. In action HC0002544 the defendant is the claimant and the defendants are a Miss Brown and a Mr. Nagadevakumar. I shall call it the Brown action.
7. In Mr Brown's action the defendant here, as claimant there, seeks an order that the defendants in that action transfer shares in a company called Chanton Group PLC to him. The shares are said to be worth over £2m. The defendants in that action sought summary judgment under CPR Part 24. The Master dismissed the application but ordered security for costs. Park J either refused the defendant's application for permission to appeal from the dismissal of the application for summary judgment or dismissed the appeal but allowed the claimant's appeal against the order for security for costs. Of the merits of the claim, he said that on Mr Chandler's own case the shares in the company were transferred out of his name "as part of a dishonest plan to get round a VAT problem". However that may be, the basis of the claim is that the defendant is entitled to the return of the shares in equity and that since he does not have to rely upon the illegal nature of the agreement between himself and the defendants, there is no bar to his right of recovery. He relies upon Tinsley v Milligan [1994] 1 AC 340.
8. The judge exercised his discretion in favour of the defendant. He expressed his reasons thus:

"In a nutshell, the question that I have to determine is whether, on a case which appears to me to be compelling on the part of Halifax, I should nonetheless permit the defendant to spend his money - for there is no proprietary claim against it - upon litigation in circumstances where his claim is due to be heard imminently and a court has already determined that it has a real prospect - that is to say a prospect that is more than fanciful - of success. This seems to me to raise a matter of discretion and not a matter of principle. It is not every piece of litigation in which a defendant, the subject of a freezing order, wishes to participate that he should be permitted to use funds, the subject of the order, to do so. The factors which seem to me to count most heavily here are these: first, that the trial of the action is due to occur imminently;secondly, that it plainly raises difficult questions of fact and law, upon which any litigant would wish to have the services of experienced solicitors and counsel;thirdly, the fact that the Deputy Master has already determined that it has a prospect of success; and fourthly, the fact that if it does not go ahead successfully as far as Mr Chandler is concerned, he is likely to be burdened with ever greater obligations to third parties, the defendants in that action, for costs. In such circumstances it seems to me that the interests of Halifax Plc and of Mr Chandler do, to a limited extent coincide. If he fails in his action Halifax Plc will have a very much smaller fund upon which to attempt to revive and enforce their claim to the mortgage debt.

Consequently, although I have not found this an easy balancing exercise to undertake, I think that the justice and convenience of the matter just falls on the side of allowing him to withdraw the money by way of mortgage on his Spanish villa.

I do so notwithstanding the cogent criticisms which Miss Brown on behalf of Halifax of his approach to obtaining the mortgage, which, unless he makes full and frank disclosure to the Spanish bank, is likely to result in him misleading them too.

For those reasons, on the undertaking given by SJ Berwin & Co., as solicitors, to receive the money into their client account and not to disperse it without giving seven days written notice to Halifax Plc, I grant the relaxation of the order sought by Mr Chandler."

9. The judge made an order, among others things, varying the freezing order to permit a mortgage of the Spanish property limited to 15 million pesetas and the payment of the amount raised by the loan to be paid to the defendant's solicitors, SJ Berwin, for the sole purpose of legal advice and representation in the two actions. I should add that, although the order relates to the two actions, the argument and judgment principally related to the Brown action. The order also varied paragraph 3(1) of the order, which I quoted earlier, to allow the appellant "a reasonable sum on legal advice and representation" and to allow the defendant's solicitors to "self certificate their reasonable costs". The judge ordered costs in the case. Neither party sought to appeal against the order.
10. Almost immediately after that decision was made, the defendant applied for an order permitting him to mortgage a bungalow in New Romney to secure a loan for the purposes of providing his solicitors, SJ Berwin, to cover their costs of defending both actions on his behalf. The judge heard the application on 2nd November. The judge refused to sanction the mortgage for the purpose of raising money to fund the costs of the Brown action.
11. He expressed his reasons as follows:

"As far as the second application is concerned, I reject the suggestion that I should permit Mr. Chandler to provide further security out of his assets, in particular his English assets, to secure the costs that will be incurred in the other action. I was presented on 29th October with an application to lift in part a freezing order to permit £60,000 to be paid to SJ Berwin & Co via a mortgage on a Spanish villa. It was obvious then that, even with the other monies on account and the sums recovered by orders for costs in those proceedings, there would be a shortfall. The shortfall is now said to be modestly higher than the figures represented to me at the time. I consider it unacceptable that I should be confronted only five days later with a second application to increase substantially the amount by which the assets frozen by the order should be depleted to fund the other action.

The judgment I reached on the application heard on 29th October was, as I indicated in it, a finely balanced one. I should have had all relevant facts and applications before me then. The fact that I was presented with an application for £60,000 was a material consideration, as was the fact that some risk was being taken by SJ Berwin over and above that. I am not willing at this very late stage to increase the amount by which Mr Chandler's assets may be depleted to fund that action."

12. It is thus clear that the underlying basis upon which the judge refused part of the application was that the defendant should have put all relevant material before the court on 29th October and that it was wrong to permit him two bites of the cherry. I should add that the shares action began last Thursday on 8th November. We have been told that it was adjourned to allow settlement discussions to take place and that such discussions were to take place yesterday. What their outcome has been I do not know.
13. The judge took a different view of the application so far as its purpose was to fund this action. He said this:

"The funding of this action is, however, a different matter. It is a matter of coincidence that SJ Berwin will act for Mr Chandler in this action at the same time as they are acting for him in the other. If Mr Chandler had retained Kosky Seal, his original solicitors, who have had to come off the record because of a supposed conflict of interest, or indeed instructed other solicitors altogether, it would have been inevitable that I would have allowed security to be offered for the costs of his taking the necessary steps to defend this action. Because the situation is fluid and evolving and because I do not wish to deplete the security provided to the Halifax by the freezing order more than is strictly necessary, I propose to impose a cap on the amount which may be offered by way of security to SJ Berwin & Co in respect of these proceedings. That cap for the time being will be £10,000.

I give permission to him to put a charge on the New Romney bungalow property in respect of SJ Berwin's costs, subject to that cap. There will be liberty to apply to raise that cap as and when it is exhausted."

14. Thus the judge permitted the defendant to mortgage the New Romney property but subject for the time being to a cap of £10,000. Importantly, however, he contemplated that the cap could be increased when the £10,000 had been spent. He plainly did so on the basis that it would be appropriate to allow the defendant to fund the reasonable costs of defending this action.
15. The defendant now seeks permission to appeal against the order made by the judge on 2nd November. The application was considered on paper by Henry LJ who adjourned it to be heard in open court, with the appeal to follow if permission was granted. The defendant was represented on this appeal by Mr H. Mervis of SJ Berwin who represented the defendant before the judge. We permitted him to represent the defendant before us, although we have some doubt as to whether that was entirely appropriate. The defendant does not seek to challenge the order with regard to the costs of this action but only with regard to the costs of the Brown action. We have reached the conclusion that we should grant permission to appeal. We shall therefore call Mr. Chandler the appellant. I now express the conclusions which I have reached on the appeal.
16. It is well settled that a freezing injunction is not granted in order to provide the claimant with security for its claim. It is, at least in part, for that reason that the standard form of order permits the defendant to spend monies on legal expenses and indeed on ordinary and proper business expenses. The order ordinarily either includes a specific weekly sum for legal or business expenses or permits a reasonable sum for such expenses.
17. These principles are not in dispute. Three examples may be given. (1) A defendant is entitled to pay his debts as they fall due even if the creditor could not recover them at law, as, for example, because of the provisions of the Moneylenders Act (see the decision of Robert Goff J in Iraqi Ministry of Defence and Others v Arcepey Shipping Co SA, The Angel Bell [1981] 1 QB 65, which has frequently been followed in the 20 years or so since it was decided. (2) A distinction is drawn between cases where the claimant has a proprietary claim and cases where he does not. Sir Thomas Bingham MR put the distinction in this way in Sundt Wrigley Co Ltd v Wrigley (unreported, 23rd June 1993):

"In the Mareva case, since the money is the defendant's subject to his demonstrating that he has no other assets with which to fund the litigation, the ordinary rule is that he should have resort to the frozen funds in order to finance his defence. In the proprietary case, however, the judgment is a more difficult one because in the plaintiff's contention the money on which the defendant wishes to rely to finance his litigation is not the defendant's money at all but represents money which is held on trust for the plaintiff. That, of course, gives rise to an obvious risk of injustice if the plaintiff, successful at the end of the day, finds that his own money has been used to finance an unsuccessful defence. As these authorities make plain, a careful and anxious judgment has to be made in a case where a proprietary claim is advanced by the plaintiff as to whether the injustice of permitting the use of the funds by the defendant is out-weighed by the possible injustice to the defendant if he is denied the opportunity of advancing what may of course turn out to be a successful defence."

(3) As that passage shows, in the Mareva case, in order to be allowed to spend frozen monies, the defendant must show that he has no other assets which he can use.

18. In cases of what may be called ordinary business expenses the court does not usually consider whether the business venture is reasonable, or indeed whether particular business expenses are reasonable. Nor does it balance the defendant's case that he should be permitted to spend such monies against the strength of the claimant's case, or indeed take into consideration the fact that any monies spent by the defendants will not be available to the claimant if it obtains judgment. As I see it, that is because the purpose of a freezing injunction is not to interfere with the defendant's ordinary business or his ordinary way of life.
19. In the fourth edition of Mareva Injunctions and Anton Pillar Relief, Gee says at page 318:

"The court will always be concerned to ensure that a Mareva injunction does not operate oppressively and that a defendant will not be hampered in his ordinary business dealings any more than is absolutely necessary to protect the plaintiff from the risk of improper dissipation of assets. Since the plaintiff is not in the position of a secured creditor, and has no proprietary claim to the assets subject to the injunction, there can be no objection in principle to the defendant's dealing in the ordinary way with his business and with his other creditors, even if the effect of such dealings is to render the injunction of no practical value."

20. In my judgment, the relevant principles are correctly stated in that passage.
21. Mr. Mervis submits that there is no distinction in principle between ordinary business expenses and the appellant's expenditure on legal expenses in connection with his claim in the Brown action. He draws attention in particular to these facts: (1) that the appellant had commenced the Brown action well before the Halifax action was begun; (2) that the court held that the appellant had a realistic prospect of success; (3) that in order to pursue the action the appellant had incurred and would have to incur substantial legal expenses; (4) the reasonableness of the figures relied upon, and (5) that there was no suggestion that either the Brown action or the expenses incurred or to be incurred were not bona fide. Mr. Mervis submits that in these circumstances the appellant was in principle entitled to incur reasonable legal expenses in connection with the Brown claim and that it was wrong in principle to balance those expenses against the prospects of the Halifax's success in this action.
22. Against that, Mr Ivory QC submits on behalf of the Halifax that those expenses were a far cry from ordinary business expenses and that it was appropriate to balance the appellant's claim to be permitted to pay the legal expenses against the fact that, if the claim in the Brown action failed, the appellant's assets would be reduced, with the result that there would be less for the Halifax to execute any judgment against.
23. I prefer Mr Mervis's submissions on this point. Although these were not ordinary business expenses in the usual form, I can see no reason why the defendant should not be permitted to incur them. The five considerations relied upon by Mr. Mervis seem to me to support that conclusion. In so far as the judge said in his judgment of 29th October that if the appellant failed in the Brown action the Halifax "will have a smaller fund upon which to attempt to revive and enforce their claim to the mortgage debt", and that that fact fell to be balanced against the considerations which mitigated in favour of the appellant's application, in my judgment he erred in principle. In my opinion, the correct approach would have been to hold that the appellant was in principle entitled to incur reasonable expenses in connection with the Brown action and that the freezing injunction should be varied accordingly. A freezing injunction should not in principle prevent such expenditure, given that it was bona fide legal expenditure in connection with an action which had a reasonable prospect of success and which was on foot when the injunction was granted.
24. However, on 29th October the judge granted the appellant's application to be permitted to mortgage his Spanish property in the sum of £60,000. The question is whether he erred in principle in refusing the appellant's subsequent application on 2nd November. Mr. Mervis submits that he did because he applied the same principles as those which he had applied in error on 29th October. There is some force in that submission, since it appears that part of his reasoning in his judgment of 2nd November involved a similar balancing exercise to that which, for the reasons I expressed earlier, seems to me to have involved an error of principle. In these circumstances, it is open to this court to reconsider the matter and exercise its own discretion.
25. As indicated earlier, the underlying basis upon which the judge refused the application was that, as he put it, "it was unacceptable that he should be confronted only five days later with a second application", and that he should have had "all relevant facts and applications before him then". The judge was entirely justified in reaching those conclusions. Mr. Mervis drew our attention to the following passage in Gee at page 319:

"There is no limit laid down as a matter of law or practice to the number of applications which can be made for variations to an injunction except that the court will not rehear an application which it has already heard and determined inter partes. A party aggrieved by such a determination will have to appeal."

26. Mr Mervis submits that it was open to the appellant to apply to vary the injunction, first by asking to be permitted to mortgage his Spanish villa for £60,000 and then, four days later, by asking to be permitted to mortgage his New Romney bungalow. I am unable to accept those submissions which are not, in my opinion, supported by the passage from Gee just quoted. In my judgment, where a defendant wishes to rely upon certain facts to permit him to pay, say, legal or business expenses, it is incumbent upon him to apply for appropriate relief based on those same facts once and once only. It is an abuse of the process to make two separate applications based on the same facts, yet that is what the appellant did here.
27. Moreover, I would add that it is incumbent on a defendant, like any applicant, to put the facts fully and fairly before the court. In the instant case it seems to me that the appellant should have explained to the court why he was asking for permission to mortgage his Spanish property for £60,000. Having chosen to ask the court for further relief, he should have explained what difference, if any, there was between the factual basis of the second application as compared with the first. Yet here the appellant failed to take those steps.

The first application.

28. The first application was supported by the first witness statement of Mr. Christopher Tayton, a solicitor with SJ Berwin. He explained that he had asked the solicitors for the Halifax to agree to the appellant raising £60,000 by way of mortgage on his Spanish property. He referred to their reply to the effect that they would agree to a mortgage of £260,000 provided that the appellant made an interim payment of £200,000 to the Halifax. That offer was refused. Mr. Tayton explained that his firm held the sum of about £41,000 in its client account, which included the proceeds of sale of a motor car which the Halifax's solicitors had agreed could be sold and the proceeds placed in the client account, provided that it was not applied to the firm's costs. Otherwise he simply said that SJ Berwin had unpaid outstanding costs in respect of the Brown action in the sum of £28,000 plus VAT and that leading counsel had rendered a fee note amounting to about £18,000 plus VAT. He added in paragraph 17:

"There are clearly insufficient funds in the client account to cover costs already incurred since the service of the freezing order and there are no further funds available in the client account to cover future costs, including funds to brief leading counsel."

29. He added in paragraph 20:

"Without the intended loan my firm would have the right to cease acting for Mr Chandler and leading counsel would not be briefed for the hearing. If the court refuses to exercise its discretion and grant the variation sought, this will clearly cause prejudice to the defendant."

30. The statement contains no further explanation as to how the £60,000 was made up or as to how it had been arrived at, but the clear inference was that, if £60,000 was made available, the applicant's claim in the Brown action would proceed and that the prejudice referred to in paragraph 20 would not occur. It appears that during the oral hearing before the judge on 29th October, he asked for more information, which was provided orally. I shall return to that information in a moment, but it is important to note that counsel for the appellant did not seek more than £60,000. The inference remained that, on the information available to SJ Berwin at that time, the order sought would meet the problem. The judge granted the application, no doubt partly on that basis. Yet, almost immediately after that decision on 29th October, a new application was made.

The second application

31. The application was again supported by the witness statement of Mr. Tayton, his second, dated 1st November. Speaking for myself, I would have expected him to explain either what had changed since the decision of the judge only three days earlier or why the application had previously been so limited. He did neither. He did, however, explain that during the hearing on 29th October he provided further information than he had set out in paragraph 17 of his first statement. He exhibited a schedule to which I shall refer in a moment. He added that the sum of £55,800 anticipated from the mortgagees of the Spanish villa had not been sent to his firm. He added in paragraph 8:

"The estimated schedule includes costs which my firm does not (at present) intend to seek from Mr Chandler until he is in a better position to pay. No further exposure can be allowed and all the money due from Banco Atlantico is needed to be applied towards costs which have already been incurred in acting on the recovery proceedings. My firm cannot undertake new obligations associated with coming on the record for Mr Chandler in connection with the claim brought by the Halifax without having, at the very least, a second charge over the New Romney bungalow. The trial window is scheduled to commence on Monday 5 November 2001."

32. I note in passing that the effect of the judge's order on 2nd November met the position so far as the costs of this action were concerned.
33. It is striking that Mr. Tayton did not explain how, if at all, circumstances had changed since the position as it was put before the judge on 29th October. Indeed, although the judge appears to have thought that the shortfall was said to be, as he put it, "modestly higher than the figures represented to him earlier", Mr Mervis expressly, and to my mind properly, accepted during the argument on this appeal that there was no material change of circumstances since the application a few days earlier.
34. The schedule showed a total of about £144,000 which included many future costs. Although neither the statement nor the schedule makes this clear, we were told that SJ Berwin had £50,000 on account. It thus appears that if the £60,000 was received as contemplated by the order of 29th October, a total of £110,000 would have been available to meet SJ Berwin's costs. In truth, as Mr Ivory correctly submits, the evidence did not make the position clear.
35. In all these circumstances, the judge was entirely justified in refusing to permit further payments beyond those which had apparently been regarded as sufficient only four days earlier. I would have exercised my discretion in the same way absent a much clearer explanation of the position. I note that there is no suggestion in the statement evidence before the judge on either occasion that if no further funds were released at that time the Brown action could not continue.
36. In these circumstances I would dismiss the appeal but would add what I regard as two important postscripts. The first is that the appellant is to my mind entirely protected so far as this action is concerned. The judge has in effect permitted £10,000 to be spent out of the value of the New Romney property to fund this action. He expressly allowed for a further application when that sum is exhausted. As I see it, subject to any argument to the effect that the appellant has other as yet unidentified assets, an application for further funds would be almost bound to succeed. I would therefore expect the Halifax to accede to it.
37. The second postscript relates to the Brown action. For the reasons given earlier, it is my view that, subject to the points just mentioned and subject to the Halifax obtaining judgment against the appellant and taking appropriate steps to enforce it, the appellant should be permitted to incur reasonable costs in advancing his claim in the Brown action. Thus, if and when the appellant's liability to SJ Berwin exceeds £110,000, the amount of the permitted mortgage of £60,000 and the available sum of £50,000, or perhaps £98,000, the sum of the monies which I understand were in fact received from the mortgagee, namely £48,000 plus the £50,000, I can see no reason why the appellant should not make a further application to the court to vary the freezing injunction.
38. I understood Mr Ivory to concede, in my judgment correctly, that once SJ Berwin had self- certified that sums exceeding those sums, or at any rate £110,000, were due to them, the circumstances would be different from those put before the judge, and it would be open to a judge to vary the freezing order appropriately so as to permit such payments. As I see it, the concept of self certification permits a solicitor to certify monies due whether in respect of work done or, subject to the client's agreement, to be done, and once a solicitor has self certified in good faith, then, other things being equal, there is no reason why the court should not permit the sum so certified to be paid out of assets which would otherwise have been frozen.
39. On the facts of this case, as I see it at present, such an application would protect the appellant consistently with the principles applicable to freezing orders which I set out earlier. I emphasize in this regard that on any such application it would not be appropriate for the court to carry out the kind of balancing exercise which the judge carried out on the first application on 29th October. It follows that, although for the reasons given earlier I would dismiss the appeal, I do not think that, subject perhaps to costs, the appellant will be prejudiced by the conclusions which I have reached.
40. LORD JUSTICE DYSON: I agree.
Order: Appeal dismissed; costs to be costs in the case; application for permission to appeal to the House of Lords refused.