BUSINESS AND PROPERTIES COURT OF ENGLAND AND WALES
B e f o r e :
| VB Football Assets
- and -
| (1) Blackpool Football Club (Properties) Limited (formerly Segesta Limited)
(2) Owen Oyston
(3) Karl Oyston
(4) Blackpool Football Club Limited
Matthew Collings, Q.C. (instructed by HHB Solicitors Limited) appeared on behalf of the First and Second Respondents
Hearing date: 15 May 2018
Crown Copyright ©
Mr. Justice Marcus Smith
(1) The First to Third Respondents should pay £10,000,000 by 4pm on 4 December 2017 (paragraph 7).
(2) The First to Third Respondents should, by 4pm on 20 November 2017, apply for a further order specifying dates for the payment of the balance, that application to be reserved to me (paragraph 8).
(1) A requirement to provide information about the First, Second and Third Respondents' assets (including assets of companies under the direct or indirect control or ownership of the First, Second and Third Respondents (the "Oyston Group")) (paragraph 9).
(2) The First, Second and Third Respondents' assets were frozen on the terms set out in paragraphs 11 to 22 (the "Freezing Order"). Paragraphs 11 and 12 provide:"11. Until further order of the Court, and subject to paragraphs 13 to 16 below, each of the First to Third Respondents must not:(a) remove from England and Wales any of its or his assets which are in England and Wales; or(b) in any way dispose of, deal with or diminish the value of any of its or his assets whether they are in or outside England and Wales."12. Paragraph 11 above applies to each of the First to Third Respondents' assets, including assets owned or controlled by any company in the Oyston Group, whether or not they are in its or his own name and whether they are solely or jointly owned. For the purpose of this Order, each of the First to Third Respondents' assets include any asset which it or he has the power, directly or indirectly, to dispose of or deal with as if it were its or his own. Each of the First to Third Respondents are to be regarded as having such power if a third party holds or controls the asset in accordance with its or his direct or indirect instructions."
(1) A sum of £10,000,000 be paid before 4.00 pm on 31 January 2018;
(2) A sum of £7,500,000 be paid by 4.00 pm on 30 March 2018;
(3) A further tranche of £7,500,000 be paid by 31 May 2018; and
(4) There be a rump payment, which I did not seek to calculate, payable by the end of June 2018.
I shall refer to the order imposing this timetable as the "18 December Order".
(1) That there could be, in light of the deficiencies of the evidence adduced and subject to one concession described below, no question of rolling back the protections conferred on the Petitioner in the 6 November Order (paragraph 17).
(2) That a stringent plan of payment was necessary in order to concentrate the Respondents' minds (paragraph 18).
(3) That it was appropriate to incorporate a concession into the Freezing Order regime. This concession related to ensuring that the Respondents had sufficient money to carry on in business. My ruling noted:"26. I have in mind that a company such as the Oyston Group does require cash flow. My problem is that I do not know what that cash flow need is. What I have done is to impose a timetable for the payment of the Respondents' debts to the Petitioner, but I am going to make it clear that the money sitting in the bank accounts, the £3.1m as at 4 December (and no doubt it is less now, as Mr. Steinfeld [Q.C., then acting for the Respondents] submitted), that money can be used as working capital. I acknowledge I do not know what working capital the company requires with any precision, so I am minded to sweep up into the payments that can be made from this account any payments by way of living expenses and legal expenses, so that the Freezing Order can be tightened so that there can be no question of any charging or selling any asset, save in order to discharge the obligations that the Respondents owe to the Petitioner.27. I also make clear that there is an obligation on the Respondents, not to seek prior consent regarding the use of these monies, but to notify the Petitioner within 24 hours of any payment that is made out of any of these accounts. So the freezing order remains in place as regards this £3.1m, but with considerable liberty on the part of the Respondents to use those funds.28. Now, I fully acknowledge that this course involves a degree of risk to the Petitioner, in that those monies might be disposed of to the detriment of the Petitioner. I would only say this, that I have balanced that risk against the timeframe that I have imposed in terms of the payment of the balance of the £34m odd that is due. When, as I am sure it will, this matter comes back to me, if there is an application to vary the first date that I have made for £10m to be paid at the end of January 2018, I will certainly expect to see a very detailed schedule, objectively produced, as to how this cash flow money, this working capital, has been used."
(1) The Petitioner has recovered some £606,000 pursuant to various third party debt orders made pursuant to CPR 72.
(2) Charging orders over various properties and shares have been made pursuant to CPR 73. Some of these charging orders have been made final, some are still interim.
(3) The Petitioner, by various Part 8 Claims, seeks the sale of various properties the subject of charging orders. The Second Respondent has made clear that these claims will be opposed, but no evidence had been served by him in this regard at the date of the hearing.
(1) The requirements for the imposition of a post-judgment freezing order have not been met, in that there is no affidavit evidence deposing to objective facts from which it may be inferred that the Respondents are likely to move assets or dissipate them.
(2) In any event, there is no risk of dissipation because the Petitioner is fully protected by the charging orders obtained.
(3) Alternatively, the Freezing Order must be varied in order to:(a) Bring it into line with the standard form provided for by CPR PD 25A.(b) Incorporate the usual cross-undertaking in damages.(c) Remove from the ambit of the Freezing Order the Oyston Group.
(1) First, by way of an appeal to the Court of Appeal. Significantly, although this matter has now been before me four times (6 November 2017, 18 December 2017, 5 February 2018 and 15 May 2018), this is the first occasion on which it has been suggested that it was inappropriate to make the Freezing Order. I regard a submission along these lines as essentially misconceived. Any point regarding the propriety of granting of the Freezing Order should have been taken on 6 November 2017 or not at all. If the Respondents considered that I had made an appealable error on 6 November 2017 in terms of imposing the Freezing Order, that decision could have been appealed. (I note, as an aside, that the Respondents did seek to appeal the substance of my Judgment, but not the Freezing Order. That application for permission to appeal was refused.)
(2) Secondly, by way of an application to a Justice of the High Court to vary the Freezing Order. The Court's power to vary or discharge orders it has made is very well understood and has been described by Rix LJ in Tibbles v. SIG plc  EWCA Civ 518. In this case, as I have described, I am concerned with a freezing order, albeit one that was made post-judgment at an inter partes hearing. Even in such a case, however, the Court must be astute to police the continuing need for the freezing order and to discharge or vary it as appropriate.
(1) The Judgment was rendered after a 16-day trial, at which the Second Respondent gave evidence and where the corporate practices of the First Respondent and the Oyston Group came under the microscope. I shall not repeat the terms of the Judgment, but findings of fact made in Sections E (the general operation of Blackpool FC) and F (unfair prejudice: specific payments away and the failure to pay dividends) of the Judgment clearly demonstrate a real risk of dissipation.
(2) The conduct of the Respondents since the Judgment was handed down has only served to exacerbate my sense that the Respondents' financial affairs are opaque and that, unless restrained by the Freezing Order, assets will be disposed of in a manner that benefits the Respondents, with no regard to the interests of the Petitioner.
(3) The fact that there has been no real progress in realising assets underlines this. The fact that the Respondents choose, in breach of the 6 November 2017 Order, not to disclose the location of all of their assets, does so too.
(1) As I have noted (see paragraph 20 above), the Petitioner has obtained various charging orders over property and shares. Attempts are being made to sell some of this property, but these attempts are being resisted.
(2) Annex A to the fourth witness statement of Mr. Christopher Yates, a solicitor and partner in Clifford Chance LLP, the solicitors instructed by the Petitioner, provides details of the Second Respondents' assets over which Part 8 Claims (to sell the property) have been issued. The Respondents laid great stress on the fact that on the Petitioner's own estimated value the value of this property was put at £23,031,500, which is less, but not much less, than the judgment debt outstanding.
(3) I accept that a charging order over real property will confer on the Petitioner a substantial degree of protection in terms of the Respondents being (un)able to deal with such property. However, the estimated value of the real property being sold falls far short of the judgment debt owing, even assuming (which, as I shall describe, is not a safe assumption) that all of these assets are available to satisfy the judgment debt.
(4) The same, however, is not true of a charging order over shares. A charging order applies to the judgment debtor's beneficial interest in a share (and to dividends payable in relation to that share) but does not extend to the property of the company in which the share is held. Two companies in the Oyston Group, Segesta Limited (the First Respondent) and Closelink Limited, are substantially owned by the Second Respondent, whose shareholding is valued at £9.5m-£11m and £3m-£5m respectively. Were these companies to deal with their assets by transferring them away for insufficient value, then these estimates of value would collapse. A charging order cannot prevent such dealings: the Freezing Order can.
(5) I am very conscious that the values attributed to the assets listed in Annex A are estimates. In many cases, a substantial discount has been applied by the Petitioner to reflect the fact that the sale may be a "fire sale". Nevertheless, I am not confident particularly given the somewhat unsatisfactory evidence in relation to assets filed to date by the Respondents that these values are particularly reliable. That is particularly true of the shares in what are private companies. I note what Lewison LJ said in Versteegh v. Versteegh  EWCA Civ 1050 at :"The valuation of private companies is a matter of no little difficulty. In H v H  EWHC 935 (Fam),  2 FLR 2092 Moylan J said at  that "valuations of shares in private companies are among the most fragile valuations which can be obtained." The reasons for this are many. In the first place there is likely to be no obvious market for a private company. Second, even where valuers use the same method of valuation they are likely to produce widely differing results. Third, the profitability of private companies may be volatile, such that a snap shot valuation at a particular date may give an unfair picture. Fourth, the difference in quality between a value attributed to a private company on the basis of opinion evidence and a sum in hard cash is obvious. Fifth, the acid test of any valuation is exposure to the real market, which is simply not possible in the case of a private company where no one suggests that it should be sold "
(6) It is well established that the freezing order prevents dissipation but confers no priority. There may well be other claimants to the assets the subject of the Freezing Order. If so, then even if assets in excess of the judgment debt were frozen which I do not consider to be the case I would have to take account of the potential for rival claims in priority of the claims of the Petitioner to the same asset. In this case, there is at least one party who may have a substantial claim that may have priority over the Petitioner:(a) Mrs. Vicki Oyston is the Second Respondent's wife. She married Mr. Oyston in 1962 and in 1988, having been divorced from him in 1982. She again petitioned for divorce on 12 December 2017 and a decree nisi was granted on 14 February 2018.(b) Very shortly before this hearing, Mrs. Oyston's interest in the property the subject of the Freezing Order was drawn to my attention. This interest potentially arises in one or both of two ways:(i) Mrs. Oyston may, irrespective of what order the Family Court may make, have a beneficial interest in one or more of these properties. If she does, that would likely rank in priority to the interest of the Petitioner, although (of course) everything turns on the relevant facts.(ii) Mrs. Oyston may obtain an order for financial provision from Mr. Oyston. I have not been addressed on the effect that such an order, if made, would have on the Petitioner's claims, but I do not consider that I can properly leave this factor out of account.(c) To date, Mrs. Oyston has only been joined as a party to enforcement action relating to Claughton Hall. But the position is a fluid one. Clearly, I can make no findings one way or the other regarding Mrs. Oyston's interest. However, it does seem to me appropriate and necessary, for the purpose of assessing the proper scope and extent of the Freezing Order, to assume (for present purposes) that one half of the frozen assets can be claimed by Mrs. Oyston and the other half only be claimable by the Petitioner from Mr. Oyston.
(1) Bring the order into line with the standard form. Mr. Collings, Q.C. did not press this contention very hard, and he was right not to do so. Obviously, standard forms are extremely helpful, and should, where appropriate, be used. The Freezing Order arose out of the special circumstances that I have described, and the order was drawn by counsel and approved by me. The fact that it is not in standard form is not a reason for varying it now.
(2) Incorporate a cross-undertaking in damages. As to this:(a) Mr. Collings, Q.C. accepted that this is a matter for the discretion of the court, that discretion (obviously) to be exercised judicially. As Gee notes, "[w]hether to require an undertaking, from whom, and in what terms is a question of discretion which depends on the facts of the individual case and considerations of fairness".(b) In this case, I am concerned with the question of whether the Petitioner should provide a cross-undertaking to the Respondents and the Oyston Group.(c) I should say that I do not intend to treat the Oyston Group as a "third party" for these purposes, even if technically speaking that is what they are. For the reasons given in my Judgment (in particular in Section E) it is clear that the companies in the Oyston Group are controlled in all essential respects by the Second Respondent and (which is more important) that that control is exercised inconsistently with the duties that the directors owe to the individual companies comprising the Oyston Group.(d) In circumstances where the payment of the judgment debt to the Petitioner is an obligation on the Respondents that they have not complied with, and appear to be making no effort to comply with, where the Respondents have asserted the existence of assets sufficient to discharge that debt, the fact the Freezing Order exists and continues is a matter of the Respondents' own conduct. Any difficulties occasioned by the Freezing Order and I accept that these will exist are for the Respondents' own account.(e) What is more, the Respondents have as I have described in paragraph 13(3) above received a significant benefit from the Freezing Order regime, in the shape of the relatively free use of the funds described in paragraph 13(3). Before considering any kind of undertaking, I would require clear evidence (which, to be clear, I have not seen) as to why any difficulties in the Freezing Order regime are not resolved (i) by these funds and (ii) by the fact that the Petitioner's solicitors have been responsive in agreeing to appropriate dealings when the Respondents have approached them in this regard.
(3) Remove the Oyston Group from the ambit of the Freezing Order. It was suggested by Mr. Collings, Q.C. that the Freezing Order improperly extended to third parties that is, it enjoined those companies in the Oyston Group who were not party to the proceedings. The only corporation, it was contended, that could properly be the subject of the Freezing Order was the First Defendant. This, so contended Mr. Collings, Q.C., was an entirely illegitimate and unjustified piercing of the corporate veil. Mr. Collings, Q.C.'s submissions on this point were entirely misconceived. The relevant paragraphs of the Freezing Order set out in paragraph 5 above track closely the provisions of the freezing order in Lakatamia Shipping Co. Ltd v. Su  EWCA Civ 636. As is explained by the Court of Appeal in that case, the subject of the Freezing Order is not corporations not party to the proceedings, but the shares held by the Respondents in those corporations. It is the Respondents who are enjoined from using their controlling interests in the Oyston Group companies to cause the value of their shares to be diminished. That is the effect of the Freezing Order, and the corporate veil remains unpierced.