England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
COMMERCIAL COURT
HHJ Waksman QC

		Royal Courts of Justice Strand, London, WC2A 2LL
		19 May 2017

Lord Justice Simon:

1. This is the judgment of the court to which all members have contributed.

Introduction

2. The appeal is from the order of HH Judge Waksman QC dated 3 February 2016 directing that a sum standing to the credit of the appellant ('MWP') and held by the Court Funds Office ('CFO') in the case of Assaubeyev v. MWP (Court of Appeal reference A2/2014/1245) be paid to the respondent (Mr Emmott) forthwith, with MWP to pay Mr Emmott's costs, summarily assessed at £24,031.50.

The background and chronology

3. The background to Mr Emmott's application is the long-running litigation pursued by MWP against Mr Emmott as a former director and quasi-partner of MWP. The underlying disputes are well-known to the parties and have absorbed the attention of this and other courts in many reported decisions: this is the 8th time the parties have appeared before the Court of Appeal during this protracted litigation. In these circumstances, it is unnecessary to burden this judgment with a lengthy recitation of the facts.
4. It is sufficient for present purposes to record that Mr Emmott is a judgment creditor of MWP by reason of an arbitration award in his favour in the sum of £3,209,613 and $841,213 with interest at 8% to run from December 2013; and that a judgment on the award was made on 26 June 2015 giving leave to Mr Emmott to enforce the award as if it were a judgment of the Court. MWP has not paid this sum, nor the costs of the arbitration which it has also been ordered to pay.
5. On 4 November 2015 Mr Emmott applied for an order under CPR Part 72.10 that the sum of £317,000 plus interest paid into court and standing to the credit of MWP be paid out to him in part satisfaction of his judgment against MWP.
6. This sum was the product of two payments into court in relation to separate litigation involving MWP. That litigation involved a claim, by what has been referred to as the Assaubeyev parties, as to the level of lawyers' fees charged by MWP. The Assaubeyev parties sought to tax those fees and were ultimately unsuccessful in their claim to do so. In the course of that litigation, two sums of money were paid into court. The first was a sum paid into court by MWP as security for the costs of appealing the Costs Master's decision. The second was a sum paid into court by the Assaubeyev parties as a condition of the grant of a stay of execution of MWP's judgment pending appeal.
7. On 20 November 2014, the Court of Appeal dismissed the Assaubeyev parties' appeal; and on 2 December made various consequential orders. These included orders for payment out forthwith to MWP of (i) the sum of £100,000 paid into court by the Assaubeyevs (§5.a) and (ii) all sums paid into court by MWP (§5.b).
8. On the same day (2 December), form CFO 200 was completed by MWP in relation to the funds in court. This identified the sum as being £316,000 plus interest, MWP as the payee and a bank reference to an account in MWP's name at a branch of HSBC in Covent Garden.
9. On 5 December 2014, HHJ Mackie QC (sitting as a judge of the Commercial Court) made a freezing order against MWP. This order superseded and discharged a number of prior freezing orders made by the Commercial Court. Materially for present purposes, the order covered sums standing to the credit of MWP in the account at HSBC identified in the 2 December CFO 200 form and the sum of £100,000 held to the order of MWP by the Courts Fund Office under Court of Appeal reference A2/2014/1245.
10. On 4 November 2015, following the judgment on the award of 26 June 2015, Messrs Kermans issued a notice under CPR Part 72.10 on behalf of Mr Emmott.
11. Part 72.10 provides:

(1) If money is standing to the credit of the judgment debtor in court -

(a) the judgment creditor may not apply for a third party debt order in respect of that money, but

(b) he may apply for an order that the money in court, or so much of it as is sufficient to satisfy the judgment or order and the costs of the application, be paid to him.

(2) An application notice seeking an order under this rule must be served on -

(a) the judgment debtor; and

(b) the Accountant General at the Court Funds Office.

(3) If an application notice has been issued under this rule, the money in court must not be paid out until the application has been disposed of.

12. As Judge Waksman noted, Part 72.10 is the penultimate provision in Part 72 which otherwise deals with third party debt orders (previously known as garnishee orders). There is a short editorial note in the White Book 2017 which reads:

Effect of rule

It is not appropriate for the court itself to be the subject of court proceedings and therefore it is not, and never has been, possible to obtain a third party debt order in respect of money in court. However, where there is money in court standing to the credit of the judgment debtor Part 72.10 provides a simple and alternative procedure which a judgment creditor can use. It has been held (unreported) that money paid into court in other pending proceedings is not 'money standing to the credit of the judgment debtor in court' as it remains subject to the direction of the court in those proceedings.

13. At the hearing before Judge Waksman each side had served written evidence: a witness statement in support of Mr Emmott's application under Part 72.10 from his solicitor, Mr Robinson of Kerman & Co; two witness statements of Michael Wilson (dated 19 November 2015 and 27 January 2016) on behalf of MWP; and two further witness statements from Mr Emmott (dated 20 and 30 January 2016) on his own behalf.
14. It was MWP's case before the Judge, as it was before this court, that the fund in court was not an asset of MWP because it was subject to a charge in favour of a company called Kazholdings Incorporated ('KHI') to which MWP was said to be indebted in a sum of either $27,804,201 or $33,162,968.
15. The origin and nature of this charge, as well as the character and extent of the indebtedness, was investigated in the court below and before us. The authenticity of the loan documentation has been in issue for some time both in this litigation and in the arbitration; and on this appeal Mr Emmott has questioned the authenticity and effect of the underlying documentation, including correspondence passing between MWP and KHI.
16. This documentation starts with a letter dated 13 November 2014, in which MWP wrote to KHI at its address in the British Virgin Islands giving notice that Mr Emmott had applied for the appointment of a liquidator of MWP and referring to clause 13(a) of a Fixed and Floating Charge dated 23 November 1998 (as amended) and schedule 6 paragraph 1(d) of a Debenture dated 9 January 2009.
17. KHI replied on 14 November 2014 in the following terms:

Thank you for your letter of 13 November 2014 giving notice in accordance with Clause 13 a) of the Fixed & Floating Charge of 23 November 1998, as amended and restated on 18 February 2009 (the 'Charge'), and pursuant to Schedule 6 paragraph 1 (d) of the Debenture dated 9 January 2009 (the 'Debenture'), of Mr Emmott's Application to appoint a liquidator of MWP.

As you know, as a result of this application, by Clause 13 a) of the Charge our security interest over the Charged Assets has now crystallised so that we are entitled to enforce our security and the entire balance outstanding under the Loan Agreement has become due and payable. Further, by Clause 14 the legal title in the Charged Assets vested in ourselves. Further, by Schedule 6 paragraphs 1 (d) and (h) of the Debenture, our powers of sale became exercisable and we are entitled to enforce all or any part of our security as we see fit. Please see Clauses 8.1 and 8.3 of the Debenture (without limitation) which entitles us to appropriate all or any of the Charged Property towards payment of our Secured Liabilities.

As discussed, and without prejudice to KHI's rights, we are willing to now agree, until further notice, that in order to allow MWP to carry on in business, MWP shall be entitled to continue to operate its current bank accounts, but not to deal with all monies on deposit or other assets. This entitlement may be revoked by KHI, at any time, at its discretion.

18. Further communications between MWP and KHI were exhibited in Mr Wilson's witness statements. This included a letter of 24 November 2014, from KHI which again referred to the Fixed and Floating Charge and to the Debenture, and continued:

… we hereby give notice … of the immediate and unconditional floating charge created by the Debenture, into a fixed charge of all of the monies held by the Courts Fund Office … and which at the date hereof totals approximately £316,000, plus interest accrued and accruing …

19. This letter is dated after the Court of Appeal handed down its judgment in the Assaubeyev case, but before the drawing up of the order.
20. In a letter dated a year later (on 24 November 2015) MWP wrote to KHI attaching a copy of Mr Emmott's application dated 4 November 2014 and inviting comment on his claim to monies in the CFO in relation to advances made under the Loan Agreement, and in the light of 'prior ranking security interests' as set out in the Fixed and Floating Charge and the Debenture.
21. KHI replied in a letter dated 26 November 2015, agreeing that the monies in the CFO were paid by MWP from monies advanced by KHI, referring back to the contents of KHI's letter of 24 November 2014 and asserting a fixed charge over all the sums held in the CFO on behalf of MWP. The reference to the monies in the CFO having been advanced by KHI was plainly inaccurate in relation to the £100,000 paid in by the Assaubeyev parties.

CPR Part 72.10

22. The first issue that arises on this appeal relates to the proper interpretation of CPR Part 72.10. MWP accepted that Part 72.10 prescribed the conditions for making the application; but submitted that it did not follow that the making of the application of itself entitled an applicant to execute its judgment against the funds in court. It would be for the Court to decide in its discretion whether to order the payment out to the judgment creditor.
23. The Judge did not accept that submission. He concluded that, whatever their prior status, once sums had been paid into court, they were sums available to a judgment creditor. In his view, Part 72.10 was a free-standing regime and there was 'no reason for it not to operate as simply as it suggests.'
24. In our view the Judge erred in this view. The scope of Part 72 is described in Part 72.1(1):

This Part contains rules which provide for a judgment creditor to obtain an order for the payment to him of money which a third party who is within the jurisdiction owes to the judgment debtor.

25. Part 72.2 provides:

(1) Upon the application of a judgment creditor, the court may make an order ('a final third party debt order') requiring a third party to pay to the judgment creditor debtor -

(a) the amount of any debt due or accruing due to the judgement debtor from the third party …

26. Such an order may result from the process which is described in the following provisions: for example, application for a third party debt order (Part 72.3); the making of an interim third party debt order (Part 72.4); service of interim orders and arrangements for debtors in hardship (Part 72.7)
27. Part 72.8 is headed, 'Further consideration of the application', and deals with a situation where the judgment debtor or third party objects to making a final third party debt order, see Part 72.8(1)-(5).
28. Although Part 72.2 uses the word 'may' which imports a general discretion, the circumstances in which the order is likely to be refused are limited, see for example, the editorial comment in relation to charging orders at §73.4.2 of the White Book 2017. However, where a judgment debtor, third party or some other claimant to the money (see Part 72.8(5)) raises a legal issue, such issue will be determined in accordance with the applicable legal principles. This may involve matters which cannot be resolved on the basis of witness statements.
29. In our view the prior provisions throw light on the proper interpretation of Part 72.10. This provision simply prescribes how an application is to be made where a judgment creditor seeks to obtain an order for payment of a sum owed by a judgment debtor from sums in court: in the words of the editorial comment it is 'the procedure which a judgment creditor can use'. If an issue in relation to the judgment creditor's right to an order under Part 72.10 is raised, the Court must decide whether to make the order on the basis set out above. Money in court is not some special fund which renders it immune from all other claims; and the Court is not bound to make an order in favour of the judgment creditor. Since we have reached this conclusion on the basis of our interpretation of part 72.10, it is unnecessary to refer at this point to the two unreported decisions of this Court relied on by Mr Samek QC: Harrods Ltd v. Banks (2 December 1998); and R v. The Common Professional Exam Board, ex p. Mealing-McCleod (19 April 2000). It is sufficient to say that our conclusion is not inconsistent with these cases, each decided on unusual facts under RSC Order 49, rule 9.
30. Having set out his views as to the proper approach to Part 72.10, the Judge held, at [22-25], that once money was paid into court it was the equivalent of unencumbered cash. It followed, in the Judge's view, that the right to receive the money did not constitute an asset of MWP and could not be the subject of a charge in favour of KHI. On this basis, even if the charges relied on by KHI were valid, there was nothing for them 'to bite on' unless and until the funds were credited to MWP's account; and that would not happen if Mr Emmott were able successfully to assert a claim under Part 72.10.
31. This conclusion gives rise to the second issue that arises on the appeal.
32. Mr Samek submitted that where money has been paid into court it is still the defendant's money although the claimant is entitled to treat it as security, see Halvanon Insurance Co. Lt v. Central Reinsurance Corporation [1988] 1 WLR 1122 at 1126H and 1127H, per Hobhouse J. Thus the sum of £150,000 paid into court by MWP was MWP's property, subject to the Assaubeyev parties' security interest, and the sum of £166,000 representing the sum paid into court by the Assaubeyev parties remained their property, subject to MWP's security interest. Once the Court of Appeal made the order for payment out, MWP retained the interest in the fund it had paid in and acquired an interest in the sum paid in by the Assaubeyevs.
33. We accept this submission. As at 2 December 2014 (the date of the Court of Appeal's order for payment out to MWP of the money in court), MWP became entitled to that money. It became an asset of MWP or, to use the words of Part 72.10, it became money 'standing to the credit of the judgment debtor in court.'

The Judge's alternative approach

34. Despite his conclusions on the points arising under Part 72.10, the Judge went on to consider MWP's claim to the money in court on the hypothesis that he was wrong in these conclusions.
35. The Judge noted MWP's argument that it did not have an interest in the money since it had been charged to KHI and observed that, if this were so, he would have expected KHI to have asserted its right to the money, not least because it had been notified of Mr Emmott's application and had asserted a right to the money in the exhibited correspondence. It was these observations which led to KHI's belated application to intervene in this appeal, to which we refer below.
36. The Judge also recorded MWP's submission that Mr Emmott's application should be dismissed and that the money should be paid out to MWP in accordance with the Court of Appeal order, notwithstanding the asserted rights of KHI.
37. KHI knew the position taken by MWP and, in our judgment, must be taken to have been content with it, since it took no steps by intervention or otherwise to obtain payment to itself. The Judge recorded that when he asked counsel for MWP how MWP could be entitled to the monies on its case, counsel replied that 'MWP would no doubt remit it to KHI and anyway the Court of Appeal says what it says about payment to MWP'. This was unsupported by any evidence and the Judge described it as 'wholly unreal'. He observed that if KHI had an immediate interest in the monies – or, it may be added, a desire to enforce such interests – 'it is a nonsense to suggest that they should go to MWP instead'.
38. The Judge rejected MWP's submission. In our view he was right to do so, although for slightly different reasons to the ones he gave.
39. Assuming in its favour that KHI had a fixed charge over the money in court, it was content for the money to be paid into MWP's current account with HSBC specified in the Form CFO 200.
40. In its letter dated 14 November 2014, quoted above, KHI confirmed that its security interest in the assets of MWP under the Charge and Debenture in its favour had crystallised, but went on to say that 'until further notice … in order to allow MWP to carry on its business, MWP shall be entitled to continue to operate its current bank accounts, but not to deal with all monies on deposit or other assets'. There is no evidence that any notice terminating this arrangement had been given at the time of the hearing below, or indeed since then. The legal effect of this permission to MWP to operate its current bank accounts was to render the charge over those accounts (or more strictly, credit balances on those accounts) a floating charge. Freedom on the part of MWP to operate its current bank accounts is inconsistent with a fixed charge over those accounts: see In re Spectrum Plus Ltd [2005] UHK 41, [2005] 2 AC 680.
41. By acquiescing in the payment of the monies in the CFO to MWP's current account with HSBC, which would be subject to no more than a floating charge, KHI was precluded from asserting any right or interest that could defeat Mr Emmott's claim as a judgment creditor.
42. In reaching this conclusion we have not overlooked the letters of 24 November 2015 and 26 November 2015 on which MWP relies.
43. The former refers to the dismissal of the Assaubeyev parties' appeal on 23 November and does not appear to have been a response to information from MWP. It purports to confirm the fixed charge 'over all of the monies held by the Court Funds Office' resulting from the crystallisation of its charge to which it had referred in its letter dated 14 November 2014. Quite apart from any issue about the authenticity of this document, it is entirely inconsistent with the subsequent CFO 200 payment instruction and the submission of Counsel before the Judge that the money in court should be paid out to MWP. Nor, and for similar reasons, does the letter of 26 November 2015 assist MWP.
44. In the course of argument, Mr Samek handed up a proposed amendment to §5 of the Grounds of Appeal relying on the order of 2 December 2014 to which we refer in [7] above. In our view this argument, even if raised promptly and in proper form, does not avail MWP in view of the subsequent events.
45. At [32]-[37] of his judgment the Judge went on to consider the underlying indebtedness to KHI which was relied on by MWP. He gave five reasons for finding that there was no underlying indebtedness. MWP submitted on the appeal that the Judge was not entitled to make that finding since it was a conclusion based only on consideration of the witness statements. In our view the Judge was fully entitled to rule on this issue if he were satisfied that there was no real prospect of establishing the validity of the charge and the state of the indebtedness at a trial. Such an approach would have been consistent with the overriding objective.
46. The question then becomes whether this conclusion was justified.
47. In the light of our conclusions above, it is unnecessary to form a final view as to the Judge's approach beyond observing that there are numerous features of MWP's evidence about the documentation and underlying indebtedness which are insufficiently explained. There is, however, one conclusion that the Judge was clearly entitled to draw. At [35] of the judgment he said:

… in the underlying arbitration which gave rise to this award, the whole question of the authenticity of the charge and loan documentation was raised. The arbitral tribunal expressed serious concerns in the light of evidence of handwriting experts. There were for example documents bearing postcodes which seemed not to have been applicable at the time when the documents were purportedly made, and matters of that kind. As it turned out the arbitral tribunal did not reach concluded findings on that, but it did make an important finding. This was that, over the period when Mr Emmott was in effective partnership with Mr Wilson in MWP, whose assets now had to be divided up … The arbitral tribunal simply found that the indebtedness did not exist.

48. This conclusion was based on the arbitration between the parties which gave rise to Mr Emmott's judgment debt. We have omitted from this quotation the particular figure given by the Judge because we understand it to be in issue. However, it is sufficient for present purposes to note that the arbitration tribunal found that the allegation of indebtedness relied on by MWP for the material part of the effective partnership was unfounded. That was part of the alleged indebtedness relied on in answer to Mr Emmott's Part 72.10 application.

KHI's application to intervene

49. KHI's right to intervene does not affect the appeal. If KHI has a valid and enforceable charge over the assets of MWP, this is a matter that MWP both could, and was bound to, raise in answer to Mr Emmott's application.
50. The Judge took a different view on the standing of MWP to raise the claims of a third party, such as KHI as the alleged holder of a fixed charge. At [27] of his judgment, he said that it was not for MWP to assert third party interests and the only party who could be heard was KHI. He held at [28] that, 'since no third party interest had been formally asserted in these proceedings, the fact that MWP refers to it is neither here nor there.'
51. The Judge cited no authority for this view and, in our judgment, it was wrong. We can see no principled basis for saying that the court can take no account of third party interests in exercising its judgment under Part 72.10, unless the third party itself intervenes to assert it; and the decision of this court in R v. Common Professional Examination Board, ex parte Mealing-McCleod (see above) is inconsistent with it. In that case, the judgment debtor held its entitlement to the money in court on trust for the bank that provided the funds. This court held that the debtor was entitled to and, as trustee, bound to raise the bank's rights as beneficiary and the court was bound to take account of those rights in deciding whether to make the garnishee order (the equivalent of a third party debt order) absolute. Moreover, Part 72.8(2) requires a judgment debtor who knows or believes that a third party has any claim to the money specified in an interim third party debt order to file and serve written evidence stating his knowledge of it. Notice of the applications and hearing must be given to the third party but their appearance is not made a pre-condition of taking account of their interest. While Part 72.8 does not directly apply to an application under Part 72.10, it informs the court's approach to such an application, for the reasons given earlier in this judgment.
52. In his judgment at [16] the Judge remarked that KHI was 'conspicuous by its absence at the hearing'. It remained conspicuous in that sense until shortly before the hearing of this appeal. On 17 March 2017 (10 days before the date fixed for the hearing) KHI applied to intervene. The application was supported by the witness statement of Stephen Johnson, a director of KHI. This contained evidence and advanced arguments in support of KHI's right to claim the monies in court.
53. No adequate explanation was given as to why KHI had left the application so late, no justification was offered for putting forward evidence which could have been deployed before the Judge and no sufficient reason was given as to why KHI was entitled 'to advance additional arguments, both in relation to MWP's obligations [to KHI] and in relation to KHI's security interest.' In a skeleton argument dated 24 March 2017 (lodged on 27 March) Mr Abraham advanced three reasons for the intervention: (i) KHI's direct interest, (ii) the adverse inferences drawn from its absence in the hearing below and (iii) the benefits to the Court of Appeal from its assistance. In his oral submissions in support of the application, Mr Abraham did not add to the contents of his skeleton argument but sought to deploy a legal argument which had not been advanced below and had not been foreshadowed in the skeleton argument. In these circumstances we refused to hear him on the point.
54. In our judgment, KHI's application to intervene and tender evidence was entirely without merit and should be refused. It is clear from MWP's evidence that KHI is a very closely associated company of MWP. It has been kept informed of the progress of the litigation by MWP as one would expect if it were owed over $25 million; and there has been no attempt to argue why this Court should hear evidence which, if relevant, could and should have been deployed before the Judge, see CPR Part 52.11(2)(b) and Ladd v. Marshall [1954] 1 WLR 1489.

Conclusion

55. As the Judge reached his decision by the application of what we consider to have been the wrong principles, it falls to this court to exercise its own judgment as to whether to make the order sought by Mr Emmott. As the only substantial basis on which MWP contended that the order should not be made was the alleged fixed charge in favour of KHI, which we have dealt with above, the Judge's order should stand.
56. Accordingly, the appeal is dismissed.