England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice The Rolls Building 7 Rolls Buildings Fetter Lane London, EC4A 1NL
		05/09/2016

Mr Justice Warren :

Introduction

1. This is an application by the claimant ("C") for committal of the third and fourth Defendants ("D3" and "D4"). D3 and D4 are the sole shareholders (each holding 50% of the shares) of the first Defendant ("D1", a Maltese registered company), which is the holding company of the second defendant ("D2", a UK domiciled company). They are the sole directors of both companies. They are the controlling minds of both companies. I heard the application in their absence. My reasons for proceeding in their absence are explained later in this judgment.

The facts and the procedural history

2. The evidence is contained in four affidavits of Jonathan Hadley-Piggin (dated 19 June, 24 June, 1 July and 20 July 2016) and four affidavits of Damian Anthony Crean (dated 22 June, 26 July, 24 August and 29 August 2016)
3. The underlying claim is for repayment of a bridging loan facility for which all of the Defendants are jointly and severally liable. The loan agreement founding C's cause of action is governed by English law and affords exclusive jurisdiction to the English court. D3 and D4 are Dutch nationals usually resident in Monaco.
4. The Defendants have never disputed liability under the loan agreement and have taken no formal steps to defend the claim. In light of this failure, default judgment was entered against them on 2 August 2016 by Master Clark for a liquidated sum of US$2,545,664.00 (£1,942,553.17) together with further damages to be assessed.
5. The matter had come before the Court on a number of occasions before the default judgment, resulting in a number of orders. On 21 June 2016, Mr Simon Monty QC (sitting as a deputy judge of this Division) made an order ("the June Order") for alternative service (by email), a freezing order and a disclosure order against all of the Defendants. The order was made on notice. Mr Monty gave a short judgment: see [2016] EWHC 1827 (Ch).
6. The freezing order is a proprietary order over three vessels, referred to as the Van Dutch boats, which is how I will refer to them in this judgment. It is to be found at paragraph 7. The order for alternative service provides for service by email at two addresses not only in respect of the June Order but also "in respect of all future Court documents to be served".
7. That part of the order dealing with disclosure ("the Disclosure Order") is to be found at paragraph 9. It provides as follows:

"Within 72 hours after being served with this Order, the Respondents must:

a. Swear and serve on the Applicant's solicitors an affidavit setting out the following information to which the Applicant is entitled namely:

i. details of all receipts of funds by any company in the Van Dutch Group of companies between 24 July 2015 and the date of this Order;

ii. details of all bank accounts belonging by name or in equity to each of the Respondents, whether or not in any of the Respondents' names;

iii. the current balance of all the above-referenced bank accounts;

iv. details of all assets held by each of the Respondents which exceed in value £5000.00 whether in each Respondent's own name or otherwise, whether solely or jointly owned, wherever located in the world, providing the value, location and details of all such assets;

v. up to date profit and loss accounts in relation to the First and Second Defendants between 24 July 2015 and the date of this Order;

vi. details of all payments out over £500.00 made by the First and Second Defendants between 24 July 2015 and the date of this Order;

vii. details of the current location of the funds transferred by the Applicant by way of loan on 24 July 2015 including as to: any assets purchased with those funds; monies or proceeds of those monies held in any bank account or deposit; the account numbers and names and addresses of the banks where such accounts or deposits are held;

b. Provide an undertaking that:

i. no payment out of either the First or Second Defendant will be made without the Claimant's prior written approval and any receipt be notified to his solicitors and be directed to repayment of the loan and interest;

ii. the information described in subparagraph 9(a)(iii), (iv) and (v) above will be brought up to date on a weekly basis by notification to the Applicant's solicitors."

8. The June Order contained a penal notice. It was served, in accordance with the directions for alternative service, on 21 June 2016. It is clear that it was received, since Mr Sullivan sent an email on that date stating that he was liaising with his clients "on the order and all outstanding matters and will revert accordingly".
9. It is convenient, before continuing with the narrative, so deal with one point which troubled me at the hearing since Mr Ramsden QC, appearing with Mr Abbas, rely on a breach of both limbs of paragraph 9.b of the Disclosure Order. It is not, unfortunately, clear whether the undertaking contemplated is one to be given to the Court or to C. In favour of the former, it is to be noted that the loan agreement already makes provision requiring prior approval of payments and for the provision of information broadly equivalent to that mentioned in paragraph 9.b.i. There would be little point in requiring the Defendants to give contractual undertakings to the same, or very similar, effect as the exiting contractual obligations under the loan agreement. Further, paragraph 9.a is concerned with compelling the Defendants to provide the information sought. That suggests that paragraph 9.b is not intended only to require the Defendants to provide a contractual undertaking but rather as a provision requiring the Defendants to comply with the substance of their existing contractual obligations. However, I confess to having no knowledge of any case where a Court has ordered a person to provide an undertaking to the Court of this sort (save, by way of specific performance, where there is a contractual obligation on a person to do so) and doubt that there is power to do so. I do not need to resolve this issue. The fact is that no undertaking of any sort has been provided by any of the Defendants. There is a clear breach of paragraph 9.b, an order which (i) has not been appealed and (ii) which was not challenged on the return date when the order was made or on the hearing of the application before me. If it had been challenged, there are strong grounds for thinking that the Court would, instead, have made a mandatory order to the same effect as the intended undertaking.
10. Returning to the narrative, there had been a failure by the Defendants to respond to the Disclosure Order making it necessary to bring the matter back to Court. It came before Norris J on 7 July 2016. He made an order ("the First July Order") under which he continued the June Order "subject to and augmented by" the orders contained in paragraphs 5 to 21 of the First July Order. The augmentation includes a world-wide freezing order in a sum slightly in excess of £2 million. The order was to run until the return date fixed in the order, namely 21 July 2016. It was expressly provided that paragraphs 9.a.i and 9.b.ii of the Disclosure Order were both continuing obligations. That was, I consider, by way of emphasis and did not cut down the Defendants' obligations under the Disclosure Order. Indeed, not only does the First July Order state at paragraph 2 that the June Order is continued, it recognises, at paragraph 16, that the Defendants had failed to provide any of the information ordered to be disclosed.
11. The First July Order granted permission to C to apply for contempt of Court against all four Defendants, although proceedings were not to be prosecuted without the leave of the Court: see paragraphs 15 to 17.
12. Norris J gave a short ex tempore judgment on that occasion: see [2016] EWHC 2037 (Ch). It contains a succinct explanation, in [1] to [11], of the background facts leading up to the issue of the Claim Form. I do not need to repeat them here. They reflect my understanding of what happened and form part of the factual background against which I make my decision.
13. Norris J listed a number of factors in favour of granting the worldwide freezing order which he did. It is worth summarising those (adding only that, on the evidence before the Judge reinforced by evidence of events since then) each of them was and remains of real force:

i) There is a flagrant breach, entirely unexplained at the time of the hearing before Norris J and entirely unexplained before me, of the clear order for disclosure of assets. The limited disclosure since made, to which I will come later, does not detract from the force of this point.

ii) Compliance with the Disclosure Order is likely to have been the subject of advice from Mr Sullivan. The breach therefore has an element of defiance about it. Insofar as disclosure remains inadequate in the light of the disclosure actually given, there remains an element of defiance.

iii) There has been an unwillingness from an early stage to engage with C in relation to repayment of the loan and an unwillingness to engage even with the court proceedings. Although there has now been some limited response from Mr Sullivan and some limited disclosure (in contrast the with the entire absence of any engagement by the time of the hearing before Norris J), the unwillingness to properly engage remains manifest.

iv) There was some evidence (which the Defendants have not challenged) of contact between D3 and D4 and Mr Thomas (who effected the original introduction): at a social gathering, the Defendants apparently expressed the view that it was the intention of the Defendants, as explained to Mr Thomas, to deal with or dispose of their assets.

v) There is a letter of intent which, as Norris J puts it, appears to show a willingness to deal with assets, whether or not subject to the freezing order, so as to transfer value to a company which is not a party to this action and whose promises to make payment to creditors are vague in the extreme and unsubstantiated by any hard financial background. From what I have seen, that is an entirely accurate assessment.

14. It is also worth setting out some additional words of Norris J which, it appears to me, were and remain wholly justified (and which none of the Defendants has sought to refute):

"… I am also satisfied that so blatant is the failure to comply with the disclosure order and so egregious the failure to make any proposals for compliance, that I should grant permission so far as that may be necessary for the commencement of contempt proceedings …."

15. I entirely agree with that assessment as at the time when Norris J gave his judgment.
16. On 15 July 2016, the application for committal of D3 and D4 was issued. It was supported by the first three of the four affidavits of Mr Hadley-Piggin and the first affidavit of Mr Crean, mentioned above. On 20 July 2016, Mr Hadley-Piggin swore his fourth affidavit to update the Court on events since the hearing on 7 July before Norris J. I will refer to the evidence, as necessary, later in this judgment.
17. The application sought an order for committal of D3 and D4 for their contempt of court (i) in deliberately and consciously breaching the Disclosure Order and (ii) by seeking deliberately and consciously to mislead the Court prior to making the Disclosure Order with the intention of interfering with the course of justice. Before me, Mr Ramsden did not pursue the second limb of that formulation as a separate contempt.
18. The alleged contempt is particularised in the Grounds of Committal appended to the application notice. Those grounds reveal, among other matters, the following, each of which is in my judgment, established by the evidence:

i) D3 and D4 were fully aware of the Disclosure Order. I agree with the assertion in the Grounds of Committal that the court is entitled to infer that they knew of their duty to comply with the June Order (and in particular, with the Disclosure Order) and of the consequences of not doing so since they were advised by Mr Sullivan, a qualified English lawyer. I am entitled, in making that inference, to take account of the fact that they have not sought to refute that allegation.

ii) On 6 July 2016, in other words at a very late stage indeed shortly prior the hearing before Norris J, Mr Sullivan emailed Keystone Law, conveying an assurance from his clients that "all is being done to have funds returned to your client". After explaining an assurance had been secured from a group company, Van Dutch Inc, to pay the debt, and after asserting the damage that would be done by further legal action, Mr Sullivan asked for an adjournment of the hearing for a month "to allow Van Dutch Inc the opportunity to get into contact with your client and arrange for his funds to be returned in full forthwith". Norris J was shown that email; he refused to adjourn the hearing and made the First July Order.

19. The Grounds of Committal assert failure to comply with the Disclosure Order prior to the First July Order. It also asserts a failure to comply after the date of the First July Order. The application could rely, of course, only on breaches of the Disclosure Order taking place prior to the issue of the application in order to establish contempt and not on any continuing breach thereafter (in the absence, as is the case, of any application to amend the application notice). That is not to say that continuing breach after the date of the application notice is to be ignored for the purpose of assisting in the characterisation of the behaviour of D3 and D4 prior to the issue of the application or for the purpose of determining the appropriate punishment for any contempt prior to that time which is established. I must, however, be careful, to the extent that I do take a continuing breach into account, that I do not thereby impose a punishment for the contempt which that continuing breach might give rise to.
20. The evidence of Mr Hadley-Piggin contained in his fourth affidavit establishes that the First July Order and the note of the hearing and judgment taken by junior counsel (a transcript not then being available) were served by email as permitted by the June Order.
21. That evidence also establishes that the committal application and accompanying documentation were served by email on the Defendants and Mr Sullivan but that no response was received. Attention was drawn to the hearing date for the application of 21 July 2016. In my judgment, the order for alternative service contained in the June Order extended to the service of an application for committal: accordingly, the application was properly served. If that is wrong, I would make an order under CPR 81.10(5) treating the service by email as effective.
22. I am satisfied from Mr Hadley-Piggin's evidence that, as at 20 July 2016, no response had been received from the Defendants or Mr Sullivan in relation to the First July Order. Taking all of the evidence together, apart from the communication on 6 July 2016 which took matters nowhere and were insufficient to persuade Norris J to adjourn the hearing before him, the Defendants and Mr Sullivan had ignored everything sent to them in relation to the Disclosure Order.
23. On the return date, 21 July 2016, the matter came before Mr Robin Hollington QC (sitting as a deputy judge of this Division). He made new orders ("the Second July Order") to substantially the same effect as the proprietary injunction contained in the June Order and the First July Order and the freezing order in the latter. He also made an order prohibiting any dealing with, or acting so as reduce the value of, shares in D1 over which C had (according to the terms of the loan agreement) rights or pre-emption and/or a charge. The order repeated the terms of the First July Order relating to disclosure in accordance with paragraphs 9.1.i and 9.b.ii of the Disclosure Order. Permission was given to prosecute an application for contempt of Court against each Defendant.
24. The Second July Order was served by email and, as in relation to the First July Order, I consider this to be a valid method of service. It is clear from an email dated 25 July 2016 sent by Mr Sullivan that the Second July Order was received by him and discussed by him with his clients. It was also sent by post as with the application itself.
25. It appears that the original hearing date, 21 July 2016, for the committal application was vacated and relisted for 27 July 2016. It is apparent from the correspondence that all concerned knew that this was the relevant date. Mr Sullivan's email of 25 July refers to the committal application listed for that week; and he was sent notification of the hearing date and time by Keystone Law in the late afternoon of 26 July following notification from Chancery Listing that the application would be heard by Newey J the very next day.
26. Mr Sullivan's email of 25 July 2016 is of some relevance. He states that Keystone Law had not heard from him in the past week or so as "we had been collating various information and documentation that you had requested and my clients had been focusing on putting the funds together for your clients". I remark, parenthetically, that no sign of funds has been seen even though it is now September. Mr Sullivan provides certain information and attaches documentation which

"has been requested as per the court orders. If you find anything unclear and/or incomplete, please let us know and we will endeavour to clarify for you."

27. He goes on to suggest that the application for committal is thereby rendered entirely unnecessary, adding that it is heavy-handed in any event. It is also clear from that email that he knew of the committal application listed for 27 July.
28. The email attached a number of documents in purported compliance with the Disclosure Order by D1 and D2s and D3 but not by D4. At about the same time, further communications were received from D4 or Mr Sullivan on his behalf. Mr Crean explains in his third affidavit between paragraphs 12 and 32, the course of events from 26 July to 29 July 2016. I do not need to go into those save to say that C and Keystone Law had concluded that the disclosure was far from complete, that when the matter came to court on 27 July 2016, the hearing was adjourned to be resumed on 12 August 2016 and that Keystone Law promised on 28 July to send to Mr Sullivan "a communication by email setting out the things which are required".
29. On 29 July 2016, Keystone Law provided that information to Mr Sullivan in a document running to some 8 pages ("the first review document"). It was stated, in the covering email, that the document was a non-exhaustive, but it sets out systematically what Keystone Law saw as important omissions and requirements. Mr Crean described the document as an accurate summary of important disclosure omissions and requirements by reference to the orders made. His assessment of the situation in his third affidavit was that the first review document had been completely ignored and that virtually none of the matters raised had been dealt with. Having reviewed the evidence before me, I agree with that assessment.
30. I note that the covering email describes the disclosure as "woefully inadequate" and "unexplained". Attention was drawn to the need for affidavits in relation to disclosure as required by the June Order. It was also emphasised that the Defendants were already in breach of the various orders requiring disclosure so that it was "imperative that you turn your attention to the attached, and thus engage with us directly and in good faith". I do not at this stage propose to go into the detailed criticisms set out in the first review document, although I do note the following points raised:

i) Attention is drawn to the fact that the Van Dutch boats fall within the scope of paragraph 9.a.iv of the Disclosure Order. A number of items of information (falling within the scope of the Disclosure Order) which had not been provided were sought.

ii) Attention is drawn to the fact that C holds pre-emption rights over certain shares owned by D3 and D4 in D1. Again, a number of items of information (falling within the scope of the Disclosure Order) which had not been provided were sought.

iii) Attention is drawn to the requirement for an affidavit in relation to receipts of funds by any company in the Van Dutch Group. The disclosure given was, in my view, clearly wholly inadequate in this regard as identified in paragraph 3 of the first review document. Similarly, paragraphs 4 to 9 identify inadequate (or a total absence of) responses to paragraphs 9.a.ii to vii of the Disclosure Order.

iv) Attention is also drawn, at paragraph 10, to the need for compliance with paragraph 9.b of the Disclosure Order. It is made clear that C requires the undertaking and on-going compliance with it. It is clear, and I find as a fact, that no undertaking has ever been given.

31. On 1 August 2016, Keystone Law received an email from Mr Thomas (who I have mentioned above) revealing certain shareholdings of D3 and D4 as of 13 October 2015 in a company called VanDutch Monaco SARL. Keystone Law and C were not previously aware of these shareholdings. Clearly they should have been, but were not, disclosed pursuant to the Disclosure Order.
32. At least until shortly before the hearing before me, it is C's case and Mr Ramsden's submission (with which I agree) that instead of treating the first review document as a helpful foundation to enable the Defendants to comply with the Disclosure Order, they have largely ignored its contents. Since the adjournment of the application by Newey J on 27 July 2016 and until very recently, the Defendants' purported compliance with the Disclosure Order has been limited to:

i) An email from D3 dated 8 August 2016 making various assertions and enclosing 3 documents: (i) an email and arbitration award in third party proceedings which C's representatives had previously sent to the Defendants; (ii) a narrative document responding to criticisms of the Defendants' previous disclosure made in Mr Crean's second affidavit of Damian Crean; and (iii) a 3-page schedule. This limited further disclosure provided was the subject of further detailed review by C as recorded in a further review document ("the second review document"). I have considered that document. Having done so, I agree with the submission that the further disclosure falls short of remedying the Defendants' breach of the Disclosure Order as extended by the First July Order.

ii) Two emails from Mr Sullivan dated 14 August 2016 timed at 1914 hrs and 1917 hrs stating, inter alia, that the Defendants "seriously question the necessity and relevance of many of the queries" and forwarding e-mails from D3. These emails really concern the matters relevant to the underlying dispute and not to the present application. Briefly, D3 made a number of factual assertions about the three Van Dutch boats. Mr Crean's evidence in his third affidavit is that these assertions are not grounded in fact and that they are, in any case, contradicted by D3's own assertions in July 2015. I am bound to say that what Mr Crean says appears to me to be correct. It is certainly the case that the contradictions identified by Mr Crean have been pointed out to the Defendants but have not been addressed. Information about the three Van Dutch boats, as required by the Disclosure Order, remains outstanding.

33. After Mr Ramsden and Mr Abbas had submitted their skeleton argument for this application to the Court on 26 August 2016, there has been a limited amount of further disclosure. As with material produced before earlier hearings, it came late in the day; it is clear that Mr Crean had an enormous amount of work to do to review the material provided to him and to deal with the number of emails sent to him by Mr Sullivan on 26 August 2016. Notwithstanding the pressure he was under, he confirms that his conclusions are firm and correct. D3 for his part has prepared a response which was sent to Keystone Law in the form of an (unsworn) attachment to an email dated 30 August 2016. If D3 feels that he has not had the opportunity to respond to Mr Crean's fourth affidavit, he has only himself to blame for the dilatory and inadequate way in which he and D4 have approached this serious application against them. He has neither appeared before me, nor sought an adjournment of the hearing before me. I therefore take the evidence as it is. Insofar as factual matters are concerned, rather than the conclusions to be drawn from them, I have no reason to doubt any of the evidence which Mr Crean has given in any of his affidavits insofar as it is relevant to the application.
34. I say insofar as it is relevant because there is a considerable volume of correspondence in the evidence before me much of which is irrelevant. Complaints are consistently made by Mr Sullivan and also by D3, particularly in the response to Mr Crean's fourth affidavit to which I have just referred, which relate not to the Defendants' failure properly to make disclosure, but relate rather to what Mr Sullivan, no doubt on instructions, perceives as oppressive conduct on the part of C and Keystone Law in bringing the proceedings in the first place and in pursuing the Defendants thereafter. Those complaints (which I am bound to say I see as entirely unjustified) are irrelevant to the application before me, which is concerned with a failure by D3 and D4 to comply with the clear orders of the Court concerning disclosure.
35. As for the substance of the latest disclosure, Mr Ramsden makes a number of submissions in a short supplemental skeleton argument. In particular, he submits that not only is this latest disclosure incomplete but also in substance it is regarded by C as unreliable and in places untrue. C notes that none of what has been disclosed over the last 2 months has been accompanied by a sworn affidavit, despite the Court's clear order that it should be so.
36. There is one further communication which I should mention. On 29 August 2016, Mr Sullivan emailed Keystone Law apologising that the Defendants would not be appearing at the hearing on 30 August "due to their severe financial restraints". As to that, I comment that I have no evidence at all that D3 and D4 did not have sufficient funds to travel to London and to fund a short stay to attend the hearing. He contents that his clients' attempts to get fund to C

"have been thwarted due to your client putting freezing orders on my clients' accounts. This has effectively caused my client' business to be put on held, which in turn means your client has been unable to be repaid. My clients have orders in process which would amount to several million Euros worth of profits, but cannot proceed to do to the freezing orders. In all likelihood, had the freezing orders not been in place, your client would have been repaid…

Therefore, on behalf of my clients, I would kindly but firmly request that at the hearing tomorrow you ask for the freezing orders to be lifted, so that my clients can resume their business and in a short space of time put the funds together to have your clients repaid and this matter resolved indefinitely."

37. It is difficult to imagine a more misconceived complaint or a more audacious and shameless request:

i) The complaint is misconceived because the freezing order does not prevent transactions by D1 and D2 (or indeed any other group companies) in the ordinary course of business. In any case, if the Defendants have been unable to effect ordinary business transactions because of the reaction of third parties, such as banks, to the freezing order, it has always been open to the Defendants to request confirmation from C that such transactions are not prohibited. So far as I am aware, there has been no such request.

ii) The request is audacious and shameless because it is made in the face of a continuing failure properly to comply with the Disclosure Order, in the face of evidence that two of the Van Dutch boats have been disposed of without C having been informed of the disposals and in the light of the failure to give any notice of the impending receipt of any proceeds of sale in breach of the terms of the loan agreement and of paragraph 9.b of the Disclosure Order.

Breaches of the Disclosure Order and the First July Order relied

38. Although it might be possible on the totality of the evidence to demonstrate a number of continuing breaches of the Disclosure Order, Mr Ramsden has focused on three areas where a breach has not been remedied. He would say in relation to each area that the original breach was a contempt and that, since the breach has not been remedied, the contempt has not been purged. I turn now to those three areas.
39. The first relates to the Van Dutch boats. Under the loan agreement, provision was made for security over the three Van Dutch boats alternatively there was an option to purchase or to have a share in the proceeds of any sale, as to which paragraph 5 of Master Clarke's judgment in default directed a hearing to assess further damages.
40. The Disclosure Order in effect requires the Defendants to disclose to whom any of the boats was sold, the price paid and what had become of the proceeds. This follows from the various subparagraphs of paragraph 9.a. and the terms of the First July Order. Thus, subparagraph i. requires provision of the details of all receipts by companies in the group from 24 July 2015 up to the date of the June Order (21 June 2016). The First July Order continued the Disclosure Order and expressly provided that paragraph i. was a continuing order. Further, the repetition of the Disclosure Order in the First July Order meant that subparagraphs iii. and iv. would require disclosure of current account balances and details of assets held up to the date of the First July Order (a date before the application was filed). If any of the Van Dutch boats had been sold in that period between the two Orders, that information should have been provided both under subparagraph i. as augmented and under subparagraphs iii. And iv. If a Van Dutch boat has been sold after the date of the First July Order, the proceeds of sale would be reflected in the current balance of D2 (the owner of the boats) so that receipt should have been disclosed under subparagraph iii. read with paragraph 9.b.i (the latter reflecting the Defendants' obligations under the loan agreement). In my view, the requirement to notify C of receipt and of the current balance is not satisfied simply by a statement that a particular sum of money has been received: C is entitled to know the source of the payment. Further, the sale of a Van Dutch boat would result in a change in the assets of the Defendants (or at least of the Defendant owning the boat). That change in assets will be reflected in the disclosure required under paragraph 9.a.iii. as at the date of the Disclosure Order and as at the date of the Second July Order.
41. Moreover, if the sums received on the sale of a Van Dutch boat are not retained in the receiving account, the Defendants are in breach of their information obligations under the loan agreement as reflected in paragraph 9.b.i of the Disclosure Order. Although it might be said that paragraph 9.b.i of the Disclosure Order does not directly prohibit payment out by D1 or D2 and does not directly oblige the Defendants to notify C's solicitors of any receipts, the absence of that prohibition and obligation makes it all the more important that the undertaking referred to in that paragraph should be given. Similarly, although it might be said that paragraph 9.b.ii of the Disclosure Order does not directly oblige the Defendants to keep the information in paragraph 9.a.iii. to v. up to date, the absence of that obligation (particularly under iii. in relation to the profit and loss account which would reflect any sale of a Van Dutch boat) makes it all the more important the undertaking should be given. If a Van Dutch boat has been disposed of since the date of the June Order without the proceeds of sale being received by the Defendants, then their assets will have been reduced. I use the word "might" because it is well arguable (and I think correct) that paragraph 13 of the First July Order (providing that paragraph 9.b.ii of the Disclosure Order is a continuing obligation) makes it clear that the obligations under paragraph 9.a.iii., iv. and v. are continuing obligations and not restricted to the position as at the date of the June Order or even the First July Order.
42. The evidence before me discloses that two of the Van Dutch boats have been sold. The sale price of one boat was in the order of €700,000 and there is reason to think that the sale price of the other was in the order of €600,000. The identity of the purchasers is not known. There has been no disclosure of where the sale proceeds have gone. It is not even known if they were originally received by D2, which, it is believed, was the owner of the boats.
43. In all these circumstances, it can be seen, in my judgment, that there has been a failure to make proper disclosure in relation to the Van Dutch boats. Alternatively, there has been a failure to verify the disclosure actually given by affidavit; had such an affidavit been provided, it would have had to give a great deal more information about the Van Dutch boats and any proceeds of sale than has been given.
44. The second area where it is alleged that breach has not been remedied relates to the disclosure of personal and corporate assets. So far as I am aware, there has been no proper disclosure in accordance with paragraph 9.a.iv of the assets of D1 and D2. As sole shareholders, sole directors and controlling minds, D3 and D4 were in a position, and obliged, to provide this disclosure. So far as concerns D3 and D4, they have disclosed the share register of D1, which shows them as shareholders. There has been no attempt (let alone a sworn affidavit) to place a value on the shares as required by paragraph 9.a.iv of the Disclosure Order nor any explanation of why (if it is the case) that it is impossible to place such a value on the shares.
45. Apart from the shares, each of D3 and D4 has disclosed that he owns a house. Neither of them has provided the address or value of such a house as is required by paragraph 9.a.iv.
46. There is no direct evidence that D3 and D4 do have other assets having a value in excess of £5,000. Mr Ramsden invites me to infer, however, that they do. I do not consider, applying the criminal standard applicable in contempt proceedings, that I should draw that inference so as to hold them in breach of the Disclosure Order. It does, however, appear to me that there are good grounds for suspecting that they do have such assets which have not been disclosed. This is another reason why the failure to provide an affidavit as required by the Disclosure Order is a serious breach of the order.
47. The third area on which Mr Ramsden focuses is, as he himself puts it, an adjunct to the first. It relates to the production of the boats which the Van Dutch group sells. To manufacture the boats, it is necessary for there to be moulds and tools. With the moulds and tools are linked important IP rights. There are two companies, a US manufacturer and subsidiary of D1, Rhino Overseas Inc, and a French manufacturer, Couach CNC (respectively "Rhino" and "Couach") which are involved in the manufacture of the boats. The evidence contains a copy of a manufacturing agreement dated 15 July 2015 between D2 and Couach. The recitals narrate that the moulds and tools "are the property of Rhino Overseas Inc. Under this agreement, the valuable moulds and tools are located at Couach's premises. D2 is stated as having exclusive rights to all rights, title and interests to "Moulds and Tools", which are currently located at COUACH manufacturing facilities". If the recitals are correct, D2 had a valuable interest in the moulds and tools at the date of the manufacturing agreement. No disclosure has been made about these valuable assets.
48. It has been said in correspondence by D3 that the moulds have, since 2014, been subject to seizure although it is not explained where or how this seizure took place. The implication is that, the assets having been seized, they were and are not available to companies within the Van Dutch group so that there has been no failure of disclosure in relation to them. The Defendants have not explained whether either of D1 or D2 still owns the moulds. This is another example, I consider, of the importance of the affidavit which is required under the Disclosure Order provision of which would, or ought to, demonstrate the ownership or otherwise by the Defendants of these moulds.
49. As well as the three areas of focus already discussed, Mr Ramsden also identifies one other failure to disclose, which he gives as examples of wider failures. I rely only on this alleged failure and not on any other alleged failures which he has not expressly dealt with.
50. The failure relates to bank statements and the provision of profit and loss accounts. The fact is that the Defendants have not provided C with proper profit and loss accounts but only a summary by email of the financial position of D1 and D2. No affidavit has been provided in relation even to that limited information and C has had no way of checking its accuracy. There has been no adequate identification of payments out of D1 and D2 in respect of either the period before or the period after the date of the June Order. Again, no affidavit has been provided and C has no way of establishing what payments have been made (or indeed received). I should add that C has been provided with an Excel spreadsheet (exhibited at pages 69 to 105 of Mr Crean's fourth affidavit) which appears to relate to transactions by D1 and/or D2. I am bound to say that this spreadsheet, without any explanation by the Defendants and in the absence of the affidavit required by the Disclosure Order, is hard to understand. I do not consider that it comes anywhere near remedying the deficiency in the provision of disclosure in relation to bank statement and profit and loss accounts. I repeat my previous observation that, to the extent that the Disclosure Order and subsequent iterations of it do not expressly require provision of this information, because paragraph 9.b. is concerned only with the giving of an undertaking, there is, nonetheless, a clear breach of that undertaking which is of central importance to the application.

Conclusions on breach

51. In my judgment, breaches of the Disclosure Order are clearly made out as identified above. Further, by continuing the Disclosure Order, the First and Second July Orders effectively continued paragraph 9.a.iv. so that the Defendants were under an obligation no only to disclose their assets at the time of the Disclosure Order, but also their assets at the time of each of the First and Second July Orders. Full disclosure would reveal any change in assets, including the sale of any of the Van Dutch boats. After the date of the Second July Order, it may be correct that the Disclosure Order does not directly order the Defendants to act in accordance with paragraph 9.b, but it does require them to give an undertaking to that effect. No such undertaking has been provided; nor has any of the Defendants sought to say that the orders requiring undertakings should be discharged, or is in any way invalid. As I have said, had paragraph 9.b. been challenged at the appropriate time – that is to say when the June Order was made following an application on notice or, failing that, at the very latest when the Second July Order was made – the Court might well have granted equivalent injunctive relief. In any case, there has been no affidavit as required by paragraph 9.a, a failure which, in the circumstances of the present case, I consider to be very serious. I am wholly unsatisfied that the contempt to which these serious breaches give rise has been purged by the provision, in a process of drip feed shortly before each hearing, of limited amounts of further disclosure.
52. As well as breaching their own disclosure obligations in relation to their own assets, as explained above, including the failure to provide the affidavit required by paragraph 9.a. of the Disclosure Order, D3 and D4 have failed to procure the full disclosure required by the Disclosure Order in relation to D1 and D2.
53. So far as concerns the exposure of a director or a company for contempt of court as a result of the company's breach of an injunction, I have recently considered the authorities in my decision in PPL v Nightclub (London) Ltd [2016] EWHC 892(Ch) at [25-26]. The authorities show that a wilful failure on the part of a director to take reasonable steps to prevent the breach of an order gives rise to liability for contempt. In this case, D3 and D4 are the sole shareholders of DI (in turn the sole shareholder of D2), the only directors of each company and the controlling minds of each company. They have been served with all relevant orders but have not taken adequate steps to ensure compliance with them. On the contrary, they have wilfully failed to comply with those orders. Neither of them can contend that he thought that the other was dealing with disclosure on the part of D1 and D2, or that he thought that some other director was taking the necessary steps because there was no other director. They are, in my judgment, plainly in contempt of court in relation to the failures of D1 and D2 to comply with the Disclosure Order and the First and Second July Orders.

Hearing the application in the absence of the Defendants

54. To deal with an application for contempt in the absence of the alleged contemnor is an exceptional course. Again, I considered some of the authorities in my judgment in PPL and do not repeat what I said there. I referred to the helpful checklist in Sanchez v Oboz [2015] EWHC 235 (Fam). The list, and it application on the facts of the present case, is as follows:

i) Whether the respondents have been served with the relevant documents, including the notice of this hearing. All of the Defendants have been served with the relevant documents, including notice of the hearing.

ii) Whether the respondents have had sufficient notice to enable them to prepare for the hearing. The Defendants have had more than sufficient notice and more than adequate opportunity to rectify their failures.

iii) Whether any reason has been advanced for their non-appearance. None has been advanced other than an alleged shortage of funds, as to which no evidence is given at all.

iv) Whether by reference to the nature and circumstances of the respondents' behaviour, they have waived their right to be present (ie is it reasonable to conclude that the respondents knew of, or were indifferent to, the consequences of the case proceeding in their absence). Any reasonable person in the position of the Defendants, advised by an English solicitor, would surely realise that if they fail to attend, the Court may hear the application in their absence. That is not, of course, conclusive, and it could be said in many cases where a respondent fails to attend. I do not attach any weight to this factor in the present case.

v) Whether an adjournment would be likely to secure the attendance of the respondents, or at least facilitate their representation. I consider that an adjournment would be highly unlikely to secure the attendance of D3 or D4.

vi) The extent of the disadvantage to the respondents in not being able to present their account of events. The Defendants have had ample opportunity to present their account of events. They have also had ample opportunity to comply with the orders against them. They have not taken advantage of those opportunities.

vii) Whether undue prejudice would be caused to the applicant by any delay. C will suffer prejudice so long as proper disclosure is not provided and an affidavit provided. Until then, he will not be able properly to police the freezing order.

viii) Whether undue prejudice would be caused to the forensic process if the application were to proceed in the absence of the respondents. I do not detect any such prejudice.

ix) The terms of the overriding objective to deal with cases justly, expeditiously and fairly. It is fair to proceed in the absence of the Defendants. They have deliberately decided not to attend and have generally failed properly to engage in this application. They must know that the Court would ultimately proceed in their absence.

55. In the light of those factors, I decided that I would hear the application.

Applicable principles

56. The burden is, of course, on C to satisfy me so that I am sure sure that D3 and D4 are guilty of the alleged contempt. The issue is therefore determined according to the criminal standard of proof: see JSC BTA Bank v. Mukhtar Ablyazov [2012] EWHC 237 at [7]. The decision of Christopher Clarke J in Masri v. Consolidated Contractors International Company SAL & Others [2011] EWHC 1024 (Comm) contains a review of the authorities and an explanation of the test to be applied at [144]- [157]. For present purposes, I need only state the conclusion that there is contempt if an act intentionally done amounts to a breach of the order so that it is not necessary to show contumaciousness: see at [150] to [155]. It is clear that, in the present case, the breaches which I have identified and which form the focus of Mr Ramsden's submissions do give rise to a contempt applying that test. It is not therefore strictly necessary for me to decide whether D3 and D4 have acted knowing that what they were doing was a breach of, and intending to breach, the Disclosure Order and the First July Order. It is, however, difficult to conclude other than they knew that they were breaching those Orders and intended to do so. And it is difficult to conclude other than that they knew that the further information which they have given does not amount to full compliance with those orders and the Second July Order. This is especially so given that the need for an affidavit as required by paragraph 9.a. of the Disclosure Order has been clearly explained to them by Keystone Law in correspondence.
57. The policy imperative to enforce interim mandatory orders of this court has been stressed by the Court of Appeal in JSC BTA Bank v. Solodchenko and others (No 2) [2011] EWCA Civ 1241; [2012] 1 WLR 350 (and approved in Templeton Insurance Ltd v. Thomas & Another [2013] EWCA Civ 35 per Rix LJ at [32]- [42]):

"51. I shall not attempt to catalogue all these first instance decisions. What they show collectively is that any deliberate and substantial breach of the restraint provisions or the disclosure provisions of a freezing order is a serious matter. Such a breach normally attracts an immediate custodial sentence which is measured in months rather than weeks and may well exceed a year ….

55. From this review of authority I derive the following propositions concerning sentence for civil contempt, when such contempt consists of non-compliance with the disclosure provisions of a freezing order:

(i) Freezing orders are made for good reason and in order to prevent the dissipation or spiriting away of assets. Any substantial breach of such an order is a serious matter, which merits condign punishment.

(ii) Condign punishment for such contempt normally means a prison sentence. However, there may be circumstances in which a substantial fine is sufficient: for example, if the contempt has been purged and the relevant assets recovered.

(iii) Where there is a continuing failure to disclose relevant information, the court should consider imposing a long sentence, possibly even the maximum of two years, in order to encourage future co-operation by the contemnor."

Sentence

58. I have considered whether I should proceed immediately to sentence. As Briggs J said in JSC BTA Bank v Solodchenko [2011] EWHC 1613 (Ch) at [13], it is appropriate, in a case where serious contempt has been proved in a respondent's absence, for the court to pause before proceeding immediately to sentence and to consider whether the matter should in the alternative be adjourned. Having paused, I consider that I should proceed to sentence. The purpose of adjourning would be to allow D3 and D4 the opportunity to comply with their obligations before sentence and for them to obtain legal representation to make any plea in mitigation. I see little point in taking this course since I think it unlikely that D3 and D4 would in fact avail themselves of that opportunity. As will be seen in a moment, I propose to impose a custodial sentence. But I will suspend that sentence for 1 month to give D3 and D4 that same opportunity but with the difference that the onus will be on them to apply to the Court to remit, in whole or in part, the sentence, although they should understand that they will almost certainly need to show compliance by that time with the orders which have been made against them.
59. The question of sentence for contempt is a matter for me. Mr Ramsden has helpfully referred me to relatively recent authority on this topic. I take account of, but do not cite passages from, JSC BTA Bank v. Ablyazov [2012] EWCA Civ 1411 and JSC BTA Bank v. Solodchenko and others (No 2) [2011] EWCA Civ 1241; [2012] 1 WLR 350 and the cases cited in those decisions.
60. Those cases were concerned principally with breach of disclosure obligations contained in freezing orders. In the present case, the Disclosure Order formed part of the June Order which, whilst it contained a proprietary freezing injunction, was not a conventional freezing order. The Disclosure Order may have been partly in support of the injunction, but it was also aimed at giving effect to the Defendants' obligations under the loan agreement. However, the disclosure obligations under the Disclosure Order were apposite to the freezing order contained in the First July Order. I consider that the principles applicable to punishment for beach of a disclosure order in relation to a freezing order should apply to the breaches by D3 and D4 of the Disclosure Order as augmented by the First July Order (which were the extant orders when the contempt application was issued). The appropriate punishment for such contempt normally means a prison sentence.
61. D3 and D4 are in contempt of court:

i) in failing to provide proper disclosure in accordance with the Disclosure Order and the First July Order;

ii) in failing to provide any affidavit in accordance with paragraph 9.a. of the Disclosure Order as augmented by the First July Order;

iii) in failing to provide any undertaking in accordance with paragraph 9.b of the Disclosure Order.

62. These breaches are, of course, very closely connected being, in reality, different facets of a single course of conduct. In those circumstances, it is appropriate, in my view, to impose a single sentence in relation to that course of conduct. In my judgment, it is appropriate to impose a term of imprisonment of 6 months in respect of the contempts. It is not appropriate to impose a greater sentence such as was done in the Ablyazov case mentioned above. In that case, the contempts were seriously aggravated by post-judgment events. Although D3 and D4 have not engaged, in the way that I would have hoped, with their disclosure obligations, their conduct has been nothing like as serious as that of Mr Ablyazov where a sentence of 22 months was imposed. Nonetheless, the failure to comply with the orders is far from trivial and is in reality serious, with significant prejudice being caused to C.
63. I do not doubt that I have power to impose a custodial sentence notwithstanding that D3 and D4 are not resident in, and have no presence in, the jurisdiction so that it would prove difficult, or even impossible, to enforce. Both Mr Ablyazov and Mr Kytreotis were out of the jurisdiction; that did not prevent the court from imposing a custodial sentence. The facts relating to those individuals were rather more extreme in that case; and their cases involved fraud, unlike the present case. Nonetheless, I consider that a custodial sentence is appropriate.
64. As indicated above, I will suspend the sentence for 1 month from today's date to allow D3 and D4 a final opportunity to make the disclosure required by the Disclosure Order, the First July Order and the Second July Order. They are to have liberty to apply to remit the whole or part of the sentence imposed on them.

Disposition

65. In summary, I find D3 and D4 in contempt of court:

i) in failing to provide proper disclosure in accordance with the Disclosure Order and the First July Order;

ii) in failing to provide any affidavit in accordance with paragraph 9.a. of the Disclosure Order as augmented by the First July Order;

iii) in failing to provide any undertaking in accordance with paragraph 9.b of the Disclosure Order.

66. I impose a sentence of 6 months' imprisonment in respect of those breaches taken globally.

Postscript

67. Since drafting this judgment, I have been shown an email dated 2 September 2016 from Mr Sullivan to Keystone Law apologising to the Court that D3 and D4 will not be attending the hearing at which this judgment is to be handed down, having no funds even to buy an air-fare. No further disclosure is given nor does it provide any indication that it will be given. It is said that every effort is being made to raise funds to pay C what is owing to him but the email is short on detail about how that is to be achieved. Nothing in the email causes me to alter the conclusions which I had previously reached.