England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE WARREN)

		Royal Courts of Justice Strand London, WC2
		19 November 2015

1. LORD JUSTICE BRIGGS: This is an appeal from the order of Warren J dated 23rd October 2015 sitting in the Chancery Division, made after a four day hearing last term discharging the freezing order that had previously been ordered by Birss J on 17th September 2014 and continued by Morgan J on 25th September 2014. Warren J also refused the claimant permission to appeal. Warren J did not discharge the freezing order with immediate effect but instead continued it for the very short period necessary to give the claimant an opportunity to apply for permission to appeal to this court against the discharge of the freezing order. On 10th November 2015 Patten LJ ordered that the freezing order should continue for a further short period to enable this matter to be dealt with on an inter partes oral basis, by which I have already made it clear that I understand Patten LJ to have been primarily concerned to ensure that there should be a proper inter partes hearing of the question whether, if there is to be permission to appeal, the claimant should have some interim relief pending the full appeal.
2. The freezing orders were made against the first defendant, Mr Taylor, and the second defendant, Mr Ladhur. The third defendant in the proceedings is a company, about which I need say no more because no freezing order was sought or obtained against it. The appeal by the claimant Metropolitan Housing Trust Limited concerns only the discharge of the freezing order as against Mr Ladhur, there having been no discharge application by the first defendant.
3. I can summarise the background facts very shortly. The claimant is a very large housing association. The first defendant was an employee of the claimant, having served as the claimant's Oracle Applications Manager. The third defendant company is a technology information management and business consultancy. The second defendant is a shareholder and director of the third defendant. At the time of the freezing order, he and another gentleman were the two directors and equal shareholders, although since the start of this litigation I understand that the other gentleman has resigned as a director, albeit he remains as a shareholder. The second defendant has been a director of the third defendant company for a long time.
4. The third defendant company provided the claimant with support and development services in relation to its Oracle systems and software. Its service to the claimant formed a very large part of its overall business. The claimant terminated its relationship with the third defendant in September 2014. By then the first defendant had been suspended from his duty in February 2014 and was subsequently dismissed. A large amount of business was transacted between the claimant and the third defendant. In May 2013, the claimant instigated an investigation into the amounts being obtained by the third defendant and one aspect of the proceedings which have subsequently ensued is a claim that the third defendant had been overcharging the claimant for the work they it carried out.
5. The claimant alleged that the investigation uncovered that there had been a long financial relationship between the first and second defendants which had not been disclosed to the claimant by either of them even though the claimant's anti-corruption policy required this disclosure by at least the first defendant. The claimants alleged that the investigation had uncovered that the first defendant had an off-shore company called Coronet which he used to submit invoices to the third defendant using the same reference numbers as those used by the claimant in its purchase orders to the third defendant. The net effect, so it was said, was that Coronet received a proportion of certain invoices paid by the claimant to the third defendant for its services. The claimant also alleged that the third defendant had made certain school fee payments on the first defendant's behalf, both directly and indirectly.
6. The claimant made a without notice application to Birss J heard on 17th September when the freezing order was made against the first and second defendants and it was continued, as I have said, by Morgan J on 25th September. By then a claim form had been issued and served. Subsequently pleadings had been exchanged and have closed but no further steps have been taken towards the trial of the underlying proceedings, there being apparently, by consent, an effective stay of the proceedings pending the outcome of the discharge application and now pending this appeal.
7. The application made in February 2015 by the second defendant for a discharge of the freezing order was on the grounds that firstly there was no good arguable case, secondly there was no real risk of dissipation, thirdly the order was not just and convenient, and fourthly that the claimant failed to comply with its obligation to make a full disclosure before Birss J.
8. I need not summarise the detail of the claims made in the main proceedings. The main issues before the judge related to two crucial matters, namely good arguable case and real risk of dissipation. Nonetheless, the judge did find that there had not been a full and frank disclosure before Birss J. He described the failures in that regard as serious, but not so serious as to require the refusal of interim relief going forward, at least as a self-standing ground for such a refusal.
9. The judge found that there was a good arguable case against the second defendant in respect of claims amounting in the aggregate to about £460,000, of which £51,000 (which is the aggregate amount represented by the Coronet invoices and the school fee payments) disclosed a good arguable case of dishonesty involving the first and second defendants but falling short of what the judge called a "clear case of dishonesty against the second defendant". The judge acknowledged that some of the payments to the first defendant by the third defendant might be said to amount to bribery, but that although bribery could be said to involve dishonesty it was not the sort of dishonesty that led necessarily to an inference that the briber, or person such as the second defendant controlling the briber, might dissipate his assets. The judge found that the claimant had not otherwise established a good arguable case in relation to a number of other matters which accounted for a significant part of the overall monetary claim against the defendants.
10. On the question of risk of dissipation, the judge concluded that the second defendant's family and business circumstances made it very unlikely that he would hide his assets to avoid judgment. At paragraph 380 he said this:

"Mr Ladhur's own family and business circumstances make it inconceivable to my mind that there is the slightest risk that he personally would leave the jurisdiction to avoid a judgment. Further, as he explains and must be accepted for present purposes the only assets of any value are his shares in his family home and his shares in the company through which he makes his living."

11. In that regard the judge set out in considerable detail the asset disclosure which had been made by the second defendant and it is not suggested by Mr Burton for the claimant, nor indeed was it suggested to Warren J, that the question as to the granting and scope of interim relief should proceed on any other basis than that those were the available assets available to the court by Mareva-type relief. They amount, as I understand it, to a share in the home worth about £300,000 and a share in the third defendant company and two other companies, that is interests in shares, amounting at least at the time of the hearing before Warren J to a further £200,000 approximately.
12. Having read the substantial papers in this matter as if it were a paper application for permission to appeal by way of pre-reading for this oral hearing, and also the helpful and full skeleton from Mr Grant for the respondent, opposing the granting of permission to appeal, I have concluded that permission to appeal should be given on the basis of a real prospect of success that the judge was wrong on the risk of dissipation. I did not consider it appropriate to hear oral submissions from the respondent in relation to that, it being sufficiently apparent in the usual way from a consideration of the papers that permission to appeal ought to be granted and there was nothing in Mr Grant's helpful skeleton argument that suggested, as is sometimes done on an oral application to set aside the grant of permission to appeal granted on the papers that some fundamental point had been missed in the court's assessment of the question.
13. Bearing in mind that I do propose to grant permission to appeal, the less I say about the merits of the appeal the better. Nonetheless, by way of a bare summary it seems to me that there is a good arguable case in relation to two main questions. The first is in seeking to equate the risk of dissipation with a clear case of dishonesty and in concluding that the good arguable case identified involving bribery was the wrong kind of dishonesty, there is a real prospect of success that the judge may have set the legal bar for the grant of relief of this kind too high. Secondly, that in equating the risk of dissipation with the risk that the second defendant would actually leave the jurisdiction to avoid the consequences of the judgment, there is at least a real prospect of success that the judge may have ignored other ways in which defendants can put assets beyond their reach without leaving the jurisdiction.
14. I turn now to the question whether any interim relief should be granted to the claimant pending a full appeal, it being my assumption for this purpose, indeed I have so directed by way of case management, that the full appeal would take a day and that this court would endeavour to give some element of expedition to it, the degree of expedition being not a matter with in my grant, but I am assuming that several months are likely to have to expire before the full appeal could be heard.
15. Mr Grant for the respondent says, quite rightly, that this is not a simple stay application and that it should be regarded as an application for interim relief pending appeal by the exercise of this court on an original jurisdiction. Be that as it may, it does not seem to me that the question of theoretical analysis whether this can be achieved by the continuation of a stay or the express grant of original relief really makes much difference so far as concerns the principles which this court should apply. Those principles have been addressed in two authorities to which my attention has been drawn. Earlier is Ketchum International v Group Public Relations Holdings Ltd [1997] 1 WLR 4, in which having failed at trial the plaintiff in that case sought interim relief pending appeal in the form of a restraint on the defendant dealing with part of the proceeds of shares which were the subject matter of the proceedings. He failed to get it from the judge and from the Court of Appeal. In giving judgment the Court of Appeal through Stuart Smith LJ, with whom Peter Gibson and Ward LJJ both agreed, said this at page 10:

"Moreover, I cannot see any reason in principle why the considerations which are applicable when the court is considering the grant of a Mareva injunction should not be applied in favour of a plaintiff even if he has lost in the court below, though the question will not be 'Does he have a good arguable case?' but 'Does he have a good arguable appeal?'"

He found that the judge in refusing interim relief pending appeal had applied the wrong test, in effect had set the bar too high on the question of whether there was disclosed a real risk of dissipation, but nonetheless considering the matter afresh the Court of Appeal nonetheless declined to grant interim relief pending appeal. At page 13 Stuart Smith LJ said:

"It is sufficient if there is a real risk that the judgment in favour of the plaintiff will remain unsatisfied if injunctive relief is refused ... "

Thereby broadly equating the test before the Court of Appeal with the real risk of dissipation test which would ordinarily be applied at first instance in considering whether to grant or refuse freezing relief. That was not a case in which the issue for the full court when the appeal came to be heard was the same as that question, namely whether there was indeed a real risk of dissipation. The other case is Novartis AG v Hospira UK Ltd, another decision of this court, [2014] 1 WLR 1264. That was a question whether an ordinary restraining injunction should be granted to the unsuccessful party at first instance pending that party's appeal to the Court of Appeal. Floyd LJ summarised the relevant principles at paragraph 41 as follows:

"I would summarise the principles which apply to the grant of an interim injunction pending appeal where the claimant has lost at first instance as follows:

I) The court must be satisfied that the appeal has a real prospect of success.

Ii) If the court is satisfied that there is a real prospect of success on appeal, it will not usually be useful to attempt to form a view as to how much stronger the prospects of appeal are, or to attempt to give weight to that view in assessing the balance of convenience.

Iii) It does not follow automatically from the fact that an interim injunction has or would have been granted pre-trial that an injunction pending appeal should be granted. The court must assess all the relevant circumstances following judgment, including the period of time before any appeal is likely to be heard and the balance of hardship to each party if an injunction is refused or granted.

Iv) The grant of an injunction is not limited to the case where its refusal would render an appeal nugatory. Such a case merely represents the extreme end of a spectrum of possible factual situations in which the injustice to one side is balanced against the injustice to the other.

V) As in the case of the stay of a permanent injunction which would otherwise be granted to a successful claimant, the court should endeavour to arrange matters so that the Court of Appeal is best able to do justice between the parties once the appeal has been heard."

16. Again, the issue for the full appeal in that case concerned the merits of the claimant's claim and did not concern the merits of the assertion that there was a risk of dissipation before a full appeal could be heard. Therefore, neither of those two authorities is directly in point and it seems to me that where, as here, the very issue for which permission to appeal is granted and therefore the very issue to decide on the full appeal concerns the reality of the asserted risk of dissipation, then the court cannot in the abbreviated time available on a permission to appeal hearing with an application for interim relief prejudge the outcome of that question in its determination whether or not to grant the interim relief. It is one of those uncertainties which requires the court to consider the balance of convenience as indicated in the Novartis case and to do so in the by now time-honoured way, namely to consider what order would cause the least risk of irremediable injustice to either side pending a full appeal.
17. Those being the principles I must now address the question how they should be applied in the present case and for that purpose I refer to two additional materials. The first is a witness statement by the second defendant which was deployed before Warren J, prepared shortly in advance of the handing down of his judgment in relation to the discharge application, in connection with the question whether any further interim relief should be granted. That witness statement concentrates on the personal and professional impact upon the second defendant of having to live with a freezing injunction hanging over his head. He refers to the personal emotional distress of himself, to the effect upon his family and to the daily complications involving having to check whether or not every small payment is one which is affected by a full freezing order.
18. I interpose that there is a common but most unfortunate misconception among some sections of the public that the grant of freezing relief implies some decision by the court that the person against whom it is granted has been proved to have been guilty of some impropriety in his business or other dealings. Of course, the truth is that that is by no means a prerequisite of the grant of freezing relief, which is granted at a time when the court has, generally speaking, been unable to form any clear or decided view of the matter.
19. I note also that this is a case against all defendants including the second defendant and his company in which serious allegations of bribery, fraud and conspiracy are made, which has also been hanging over his head for the duration of these proceedings and I bear in mind that in relation to certain of the claims, the judge has already concluded a good arguable case of dishonesty that has been disclosed against, among others, the second defendant.
20. The other matter to which I should refer is the observations of the judge himself during a hearing of the application following the handing down of judgment for the grant of further relief. He said this at paragraph 5 of the transcript:

"I will not order the discharge of the freezing order with immediate effect. My order will take effect only after 21 days from its date, giving the claimant the opportunity to protect his position by making such application to the Court of Appeal on notice to Mr Ladhur if he thinks fit. I do not think it appropriate over this period to restrict the freezing order to Mr Ladhur's interest in the family home and his shares in the company which Mr Grant as a secondary submission invites me to do. I would hope however that if it considers it right to make any sort of freezing order as an interim measure the Court of Appeal will consider adopting that approach in the light of what I said in paragraphs 382 and 383 of my judgment. In those paragraphs I said in effect that even if a risk of dissipation had been established, the appropriate order would have been to restrict the freezing order to dealings with Mr Ladhur's interest in the family home and his shares in the company given the quantum of the claims in relation to which a good arguable case has been shown."

I said earlier that the good arguable case identified by the judge was in the region of £460,000 and I have explained how the aggregate value of Mr Ladhur's share in his family home and in his companies appears to be approximately £500,000. It seems to me that there is real force in those observations of Warren J. A limited restraint in those terms would on the face of it not appear to prevent Mr Ladhur from doing anything with his assets which he currently wishes to do with them, in the sense that he has not sought up to now permission from the court in relation to any dealing with his share in the house or indeed with his shares in the third defendant company. On the contrary, his evidence has been very much the opposite, namely that there is no prospect that he would wish to deal with either of those assets because the house is his and his family's home and the company is his only source of income. Accordingly, on the face of it a restraint of that kind would not appear, even if wrongly granted now in the sense that in the future the full court of appeal upholds Warren J's judgment, would cause a substantial irremediable prejudice in so far as it would restrain Mr Ladhur from doing something which he would otherwise wish to do. Furthermore, a limited freezing order in those terms would, as it seems to me, relieve Mr Ladhur from the daily inconvenience, which I do not in any way underestimate, of having to deal with every payment which he wishes to make having regard to the question whether or not that particular payment does or does not infringe a general freezing order made against him.

21. Against that, it seems to me that restricting the order in that way below a full freezing order would cause no significant risk of irremediable prejudice to the claimant either subject to one matter to which I will return, that is because the current value of those two assets if it can be preserved appears to be equivalent to, if not slightly greater than, the value of the claims in respect of which the judge considered that the claimant had a good arguable case. Secondly, the asset disclosure made by Mr Ladhur does not suggest on the face of it that he has substantial other assets which would not be protected by a limited order of this kind.
22. The one matter however to which Mr Burton for the claimant drew my attention was what he describes as the possibility that some use might be made of Mr Ladhur's interest in the company's shares, for example in paying himself dividends or gaining other non-salary benefits from the company in the meantime. There is I think some force in that submission and I would propose that the order should restrain Mr Ladhur not merely in his dealings with the shares themselves but in relation to any proceeds derived from the ownership of those shares, other than his current salary from the third defendant company. I would also be disposed to accede to Mr Burton's submission that Mr Ladhur should make disclosure from time to time of the amounts of the salary and emoluments for working for the company which he is receiving. I do not propose to impose a requirement that he obtain permission for the receipt of those amounts in advance.
23. Subject to that minor adjustment, it seems to me that the order which ought to be made on the balance of convenience in this case is indeed a restraint on Mr Ladhur's dealings with those two types of asset. I bear in mind that there are apparently two other companies of which he owns relevant shares. I will leave it to counsel to frame the addendum to that restraint to which I have just referred and I propose that the restraint of that kind should continue until the hearing of this full appeal, but that any application for a variation which Mr Ladhur might wish to make should be made to the Interim Applications Court of the Chancery Division rather than to this court should it be necessary, as seems to me is probably unlikely, in the meantime.
24. I direct that the appeal should take one day. There need be no direction that a Chancery Judge has to form part of the constitution, but there should be at least one judge familiar with business and commercial litigation. I direct that this appeal can be heard if necessary by a two judge court, but they need both to be Lord Justices of appeal bearing in mind that this is an appeal from an experienced High Court Judge. To that extent I accede to the application made.