England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
BUSINESS LIST
CHANCERY DIVISION

		The Rolls Building 7 Rolls Buildings Fetter Lane London EC4A 1NL
		04/06/2018

MR. JUSTICE NORRIS:

1. Part of this judgment builds upon the judgment which I delivered last Wednesday when adjourning certain matters over for consideration.
2. In 2015, there were proceedings between a Mr. Mann and a Mr. Feeney about the beneficial ownership of shares in a company called SmartPay. In circumstances which are obscure, SmartPay seems to have had some sort of controlling interest in another company called Eupay. The proceedings decided that Mr. Feeney was, as a result of being the beneficial owner of the SmartPay shares, the sole director of Eupay. That left him with complete control over the assets of Eupay, including the moneys in its various bank accounts. Eupay appears to have been a provider of payment processing services whereby it would process special cheques, issued perhaps by SmartPay, which enabled payments to be made between payer and payee which bypassed more familiar payment channels, such as bank accounts and credit cards. These payment processing services facilitated online gambling in jurisdictions where the ordinary payment services would have prevented punters from placing bets. So, the moneys in the bank accounts of Eupay represented moneys which had been credited to Eupay's accounts and were in the process of being transferred to the payee's accounts; but it seems that these moneys were mixed with Eupay's own moneys.
3. When the dispute about the beneficial ownership of the SmartPay shares was determined and the consequential determination of who had control over the moneys in Eupay's accounts was decided, Mr. Richard Spearman QC, who had decided the dispute, decided that he would, in effect, grant an order freezing the money in the Eupay bank accounts.
4. Mr. Feeney had a counterclaim in the proceedings about the SmartPay shares. Mr. Spearman QC ordered that until the disposal of that counterclaim or further order in the meantime, Mr. Feeney should not, by himself or through others acting on his behalf, cause any payments to be made out of the Eupay moneys without the permission of the court. He directed that Mr. Feeney should give written instructions on behalf of Eupay to Eupay's associate bankers requiring them to pay into Eupay's principal bank accounts any moneys which they held in their system. Thus he provided for the collection of all of the Eupay moneys into English bank accounts. He then provided that if any third party claimed a right in Eupay's moneys, then they had to apply to the court for an order that they should receive such payment. That application had to be made on written notice to Mr. Feeney (and to another potential claimant to the Smart pay shares); but it did not have to be made on notice to any other potential claimant to moneys in the Eupay accounts. He slightly varied that order in June 2017.
5. One claimant to moneys in the Eupay accounts was a company called Alea Transactions Limited ("Alea"). It issued an application in May 2017, and accompanied it by Points of Claim in June 2017. The case advanced was that Eupay had provided payment processing services to Alea under a "Payment and Transaction Processes Servicing Agreement" under which Eupay received payments from Alea's customers for the specific and exclusive purpose of processing and paying on to Alea, less the deduction of a fee, the sums due to it. Alea said that by reason of that structure, Eupay received payments from Alea's customers on trust for the benefit of Alea. Alea alleged that between February 2015 and April 2015 Eupay had received some €2.122 million for the account of Alea but had not paid those sums over. It therefore claimed an account of all moneys received by Eupay on behalf of Alea and/or payment of the sum of €2.122 million and/or a declaration that Eupay held the sum of €1.22 million on trust for Alea, and an account and inquiry as to what had become of the sum of €1.22 million and as to what assets in the hands of Eupay now represented that sum. There was some other consequential relief sought.
6. Eupay defended that claim by saying that it had not collected the claimed sums on behalf of Alea, but that another company had done so, and challenging the assertion that Alea had any proprietary interest in the moneys to which the claim related. I need not refer in greater detail to Eupay's defence.
7. In August 2017, another claimant, Guy Enterprises Limited, made a claim to payment of moneys in the Eupay frozen funds. But this time Eupay consented to the payment out of the claimed sum. The sum claimed was about £5.8 million, and a consent order was prepared for £1.655 million (which was eventually sealed), and another consent order for £1.125 million was prepared (but which was not sealed). An application was made to Mr. Spearman QC to make the consent order. Guy Enterprises provided a witness statement plus exhibits running to three lever arch files. On the basis of that material, Mr. Spearman made the consent order on 23 August 2017 for the payment out of £1.655 million.
8. Further consent orders for the payment out of Eupay frozen funds to other applicants were made by other judges. But in January 2018 Marcus Smith J raised concerns over whether paying out moneys by the consent of Eupay, acting through Mr. Feeney, was in fact was consistent with Mr. Spearman QC's objective in requiring applicants for Eupay frozen funds to make an application to the court, Mr Spearman having put in place a regime to ensure that Mr. Feeney did not have effective sole control over the frozen funds.
9. Notwithstanding the concerns that had been expressed by Marcus Smith J, in fact, Guy Enterprises applied with the consent of Eupay to vary Mr. Spearman QC's order of 23rd August 2017. In a consent order made by Arnold J on 11 April 2018, Guy Enterprises acknowledged receipt of £500,000, described £1.55 million as remaining outstanding, and gave consent to an extension of six months for the payment of that remaining sum. The order identified where the remaining sum was to come from - part from the principal account and part from the subsidiary accounts, which had evidently not been consolidated with the principal account, as Mr. Spearman's original order had anticipated.
10. Alea became aware of this order; and it sought to set aside Arnold J's order. That set-aside application came before Mr. Rosen QC on 25th April 2018. He adjourned the application, but gave some directions. By paragraph 2 of his order, he directed that by close of business on 4th May 2018, Eupay had to provide to the court, initially on a confidential basis, a schedule of the payments that had been made out of the Eupay frozen funds, to whom and in what amounts, and setting out the amounts remaining in the Eupay frozen accounts and who still made claims against those funds. That order was complied with. I shall refer to the document so produced as "the Dass Schedule". I have already directed that the Dass Schedule" should be provided to all interested parties.
11. Paragraph 2 of his order went on to provide that Eupay could serve evidence in answer to the application, (i.e. that for the setting aside of the Arnold J order). He directed that Eupay must serve on anyone who is or has been a party to the action, by way of having made an application for payment,

i) a copy of his present order

ii) a copy of Alea's application notice for the setting aside of the Arnold J order and its supporting evidence, and

iii) any evidence served by Eupay in accordance with his earlier direction.

He also said that Eupay had to file and serve on Alea and Guy Enterprises a list of the names and contact details for each of the interested parties. He gave other directions relating to the hearing of Alea's set-aside application, and specifically directed that until the hearing of that application or further order in the meantime, neither Eupay nor Guy Enterprises should take any step pursuant to Mr. Spearman QC's order of 23rd August 2017 or Arnold J's order of 11th April 2018 and, in particular, should take no steps to pay "the remaining sum" as defined in those orders i.e the £1.15 million. He also provided that no further consent orders should be made. He thereby reinforced the freezing of the funds.

12. Eupay did not comply with the orders for the service of evidence. Indeed, solicitors on Eupay's behalf wrote to say that they had no intention of complying with the order. That led to an application by Alea, dated 10th May, seeking an order that unless by 4 p.m. on 16th May Eupay complied with paragraph 2 of the order of Mr. Rosen QC, dated 25th April 2018, the effect of which I have summarised, Eupay's Points of Defence should be struck out and judgment should be entered for Alea without the need for further order of the court.
13. On 10th May 2018, a copy of that application notice and of the e-mail in support of it was e-mailed to Guy Enterprises. Guy Enterprises is a Thai company which, by this stage, was acting without the benefit of English solicitors. The e-mail was sent after close of business on 10th May, and so would not have been received until 11th May, the next following working day. On 11th May, Guy Enterprises responded, expressing an understanding that Eupay was prepared to consent to Alea's application and that "therefore vacates Guy Enterprise obligation", despite which Guy Enterprises was nonetheless arranging to lodge with the court on a confidential basis the evidence that supported Guy Enterprises' application in July 2017. This material did not, I think, form part of the evidence which had to be served under paragraph 2 of the Rosen order, but the parties appear to have been under the apprehension that it was.
14. Guy Enterprises complained at what they described as the "highly unregular conduct and bad faith in making urgent applications", i.e. applications without the proper notice. Shortly before the hearing of Alea's application to enforce paragraph 2 of Mr. Rosen QC's order, Guy Enterprises sent an e-mail confirming its consent to the setting aside of the Arnold J order of 11th April 2018, saying that they were instructing solicitors. A consensual setting aside of the April 2018 order would have thrown into doubt the necessity for compliance with the directions given by Mr Rosen QC.
15. That was the state of the matter when it came before Birss J on 14 May 2018. Birss J took the view that the consent to the setting aside of Arnold J's order was potentially a procedural device to put an end to the inquiry into who had received moneys from the Eupay frozen accounts and to the disclosure of information relating to dealing with those funds. See paragraph 22 of the transcript of his judgment where he expressed an apprehension that:

"It would mean that the adjourned application", [that is Alea's application to set aside Arnold J's order] "does not have to be heard and so the ring fencing order" [the order that had been imposed by Mr. Murray Rosen QC pending the determination of that application] "would cease to have effect and it will presumably mean that the directions, whereby information was to be provided to the court, was also now no longer needed to be complied with. So, this, therefore, needs to be looked at very carefully, at least the effect of what is now being consented to needs to be looked at very carefully."

16. In the light of that concern, he made fresh orders relating to the disclosure of information. In particular, by paragraph 3 of his order, he directed that by Friday, 18th May 2018, Eupay was to file at court and to serve on Alea and on anyone who had been a party to the action (by way of having made an application for a payment from the funds which were the subject of Mr. Spearman QC's order), "all of the evidence in relation to Guy Enterprises' application which resulted in the consent order made by Richard Spearman QC dated 23rd August 2017". I will call this material "the Guy Enterprises' evidence". He also directed that by 4 p.m. on 28th May 2018, Eupay was to pay various sums in respect of costs, both in relation to the application before him and in relation to the application before Marcus Smith J and Mr. Rosen QC. I will refer to this as "the costs order". Guy Enterprises was named as a respondent to that application, but, as I have indicated, had only had short notice of it.
17. Birss J's order has not been complied with. Eupay says it has no intention of complying with it. Guy Enterprises objects to Eupay complying with it.
18. In these circumstances, yet another application has been made by Alea seeking this time to enforce the order of Birss J. This application is brought only against Eupay. It seeks an order (originally) that unless by 4 p.m. on 31st May 2018 Eupay complied with paragraphs 3 and 7 of the orders of Birss J, that is to say the paragraphs that relate to the service of the Guy Enterprises' evidence, and the costs order, then Eupay's Points of Defence should be struck out and stand dismissed. ( It also sought a specific direction that Eupay must serve on Alea a copy of the Dass Schedule, but I have dealt with that on an earlier occasion).
19. I have indicated that Guy Enterprises is not a party to this present application. They have nonetheless sought to intervene in it and to express objection to the form of the "unless" order which is being sought against Eupay. That is so, notwithstanding that on 1st June 2018 Eupay itself expressed its willingness to comply with Birss J's order on an "unless" basis by no later than 5 p.m. on Friday, 8th June; but that willingness to agree has not ripened into a formal agreement (because there were other terms set out in the letter of the 1st June which are not acceptable to Alea).
20. The matter therefore comes before me today on the basis that Eupay is willing to disclose the Guy Enterprises evidence which led to the original consent order, but Guy Enterprises opposes this on the basis that that material contains confidential information about its competitor business which it does not wish Alea to see.
21. Having identified the precise application before me, I should say that in the background there are other applications before the court. There is of course

i) the main application by Alea to set aside Arnold J's order of 11th April 2018.

But there is

ii) an application by Eupay to set aside the whole of Mr. Rosen QC's order.

There is also formally

iii) an application by Eupay to set aside paragraph 3 of Birss J's order, part of which appears to be disposed of by its new-found willingness to hand over the Guy Enterprises' evidence;

iv) an application for an "unless" order by Eupay arising out of defects, so it is said, in the disclosure by Alea; and

v) a potential application on the part of Guy Enterprises itself to set aside part of Birss J's order so far as it relates to the service of the evidence which it regards as confidential. Guy Enterprises seeks an adjournment to enable it to advance that application.

Before I address Alea's application for an "unless" order against Eupay and Guy Enterprises' application for an adjournment, I would make five points about what has happened.

22. First, the fundamental claim is a claim by Alea against Eupay for the payment of €2.122 million which Alea says Eupay holds on trust for it. The second observation is that Alea accordingly has a proprietary claim on the fund which, as a result of judicial initiative, has been frozen pending further order. Third, it appears from the Dass Schedule that there is a shortfall in the frozen Eupay fund, i.e. the claims against it, some of which may be good and some bad, exceed the amounts available for distribution. This is what drives Alea's desire to police the freezing order which Mr. Spearman QC originally imposed; but this policing of the freezing order has no direct bearing on Alea's fundamental claim against Eupay, and Alea's interest in policing the fund is contingent upon its establishing an interest in the fund, either as beneficiary of a trust or of a debtor/creditor relationship. The fourth observation I would make is that the progress of both Alea's and Guy Enterprises'claims appears to proceed by short notice applications, which put respondents in difficulty in dealing with them. The final observation I would make is that consent orders can occasion great difficulty if not made with the consent of all interested parties.
23. In dealing with the two applications before me, it is necessary to disentangle Alea's fundamental claim to ownership of part of the frozen fund and Alea's desire to police the fund (both by preventing any further payments out and also by examining the payments out that have been made to Guy Enterprises, which, so far as I can work out amount to £500,000).
24. The Dass attitude on behalf of Eupay is that it is willing to consent, as I have indicated, to an "unless order" in relation to the service of the Guy Enterprises' evidence by Friday, at 4 p.m. Alea says that there is no reason to wait for so long as Friday, that tomorrow would be good, because on 6th June some of the other applications to which I have referred are coming before the court, and an opportunity might arise to deal with any outstanding issues relating to the disclosure of the Guy Enterprises' evidence.
25. The first question that I must address is whether I should grant an adjournment of the present application, as sought by Guy Enterprises. I decline to grant an adjournment, notwithstanding that Guy Enterprises has only had a short opportunity to deal with what has turned out to be an order for the disclosure of its evidence relied on to secure the Spearman consent order, because I can do justice to Guy Enterprises' position in another way.
26. The second question I must address is whether it would be more appropriate to consolidate all of these various applications and to bring them all together before one judge, perhaps Marcus Smith J, who can take an overall view of what is going on, rather than to proceed by way of piecemeal steps. I have decided against that course, because I have heard this application in part on Wednesday and for the whole of this morning, and feel that some progress ought to be made if it can be fairly made.
27. So, I address the two applications. The first is for an unless order relating to the service of the Guy Enterprises' evidence. This was the subject of specific consideration by Birss J. There is at present no formal application to vary the order made by Birss J under the permission to apply which this order included, or to discharge that order under CPR 3.17.
28. I do not lose sight, however, of the fact that Guy Enterprises has had only a limited opportunity, since I think 17th May, when the terms of Birss J's order would have come to its attention, to consider its position. An "unless order", as is recognised on both sides, is a Draconian step to take in relation to Eupay: but it is plain that real concerns surround the making of the consent orders which undermined the policy which Mr. Spearman QC had in mind when putting in place the freezing of the Eupay funds. In circumstances where the Dass Schedule discloses a shortfall in the fund, it is important that the basis upon which moneys have been paid out of the fund should be made clear to those who have outstanding and at present unfunded claims against Eupay's accounts.
29. I therefore propose to make an "unless" order against Eupay compelling it to serve the Guy Enterprises evidence, but to provide for its suspension in the event that Guy Enterprises actually makes its application to revoke or vary Birss J's order and sets out the grounds for doing so. That is ultimately a preferable course to deciding without evidence from Guy Enterprises an inchoate application by Guy Enterprises for that relief and anticipating what its merits might or might not be. I will deal with the detail at the end of this judgment.
30. I propose also to make an "unless order" against Eupay in relation to the unpaid costs. It was suggested on Wednesday to me that such an order was almost unheard of. But my attention has been directed to the judgment of Sir Richard Field, sitting as a Deputy High Court Judge, in the matter of Michael Wilson & Partners v Sinclair [2017] 5 Costs LR 877, and in particular to the principles which he set out at paragraph [29] of that judgment. Without reciting at length the terms of that paragraph, given the hour, I would indicate that I have well in mind the considerations which he there articulated.
31. Eupay's defence of Alea's claim to a proprietary interest in the Eupay moneys or, alternatively, for an account, is being funded by Mr. Feeney, so it appears. An order compelling compliance with the costs order will not therefore stifle the defence. The policy lying behind the making of orders for costs during the course of litigation and the specifying of a time for payment and the making of "unless" orders to support such specific costs orders is to discourage resistance to plainly sensible interlocutory applications. Until Eupay's very recent indication of willingness to comply with the clear orders of the court as to the service of the Guy Enterprises' evidence, its attitude has been one of complete resistance to the disclosure of what has become of the frozen funds. It is, I think, an appropriate case to bring home to Eupay by means of an "unless" order that disclosure of who has received payments from frozen funds and in what amounts and on what basis is the entitlement of the claimants against those funds. An "unless" order in the form sought rams this home.
32. The first order I therefore propose to make is

(1) that, unless by 12th June 2018 Eupay complies with paragraphs 3 and 7 of the order of Birss J dated 14th May 2018, its Points of Defence dated 12th July 2017 do stand dismissed.

33. Second, the time limit in paragraph (1) for the service of the Guy Enterprises' evidence shall be suspended in the event that Guy Enterprises (a) applies by 4 p.m. on 11th June 2018 to vary or discharge paragraph 3 of the order of Birss J, dated 14th May 2018; and (b), accompanies that application:

i) with a copy of the Guy Enterprises' evidence, redacted to exclude any confidential information to the disclosure of which it objects;

ii) with a witness statement made by a responsible officer setting out in detailed terms the confidentiality objection which is taken to the redacted material, and in particular setting out the nature and extent of Guy Enterprises' business giving rise to the liabilities purportedly satisfied by the consent order of Mr. Spearman QC of 23rd August 2017;

iii) with a witness statement made by a responsible officer, clarifying whether Guy Enterprises consents to: (aa) the discharge of the Spearman consent order as regards the unpaid balance of £1.15 million and the outstanding claim for £1.1425 million in respect of its Singapore dollar claim (covered by the unsealed consent order); or, (bb), to the discharge of the Spearman consent order in its entirety (and if so, when and how the £500,000 paid to it will be restored to the frozen fund).

34. Finally, (3) in the event that Eupay's Points of Defence stand struck out, then Alea shall not be entitled to sign judgment for any sum, but shall apply for judgment in default, serving any such application on all other interested parties (as defined in the order of Birss J, including those identified as unsatisfied claimants on the Dass Schedule).
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