England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		27 May 2008

Tuesday, 27 May 2008

JUDGMENT

MR JUSTICE KING:

1. I have before me an application on notice to continue the freezing injunction granted without notice by Ousley J on Friday 2^nd May 2008 but with certain extensions.
2. First it is sought to extend the order on a world wide basis and secondly to continue it on a proprietary basis by which is meant that the claimant seeks a provision which excepts from the assets from which the respondents under paragraph 11 of the order can make payments in respect of ordinary living expenses, legal advice and representation, the assets defined as "the applicant's assets", unless the respondents have no other assets to call upon.
3. These "applicant's assets" are defined in paragraph 11.1(a) of the draft order. They are in effect all the monies and properties in the possession and control of the respondents or one or other of them against which the claimant in these civil proceedings is seeking to make a proprietary claim on the basis they are held by the respondents as constructive trustees. In particular they are defined as including monies held in a Barclays Bank student account which the first respondent has admitted contains that which remains of the £260,000 which the claimant asserts has been fraudently obtained from them by the respondents over a four year period. This account is in the name of the second respondent.
4. Further variations in the original order are sought. First it sought that the respondents should provide further information and disclosure as provided for in subparagraphs (a) (b) (c) of paragraph 10 of the draft order. Under (a) and (b) information and a verifying affidavit is sought in respect of the respective respondent's bank statements. (c) imposes an obligation upon each respondent to provide through affidavit seven categories of information or disclosure relating to invoices rendered to the applicant by the respondents; any written instructions for payment of each invoice; the date and amount of each invoice; a description of the services alleged to justify the invoices with supporting documentation ; the dates and amounts of all payments received by the respondents from the applicant excluding salary; what has become of each payment; full contact details of any third parties who have received the proceeds of the payments.
5. Finally the applicant seeks provision in the order under subparagraph 10 (d) for permission to use the information obtained as a result of the order or the without notice orders or otherwise in the course of these proceedings for two distinct purposes, namely (1) for supplying information to the police for the purpose of any criminal investigation or proceedings against either of the respondents; and (2) any disciplinary proceedings or legal proceedings that may arise out of the suspension or dismissal of the first respondent as an employee of the applicant.
6. The first respondent has been employed by the claimant charity as a project property manager since about four years ago. The second respondent is his wife.
7. Mr Lennon who appears on behalf of both respondents has not sought to raise any argument against the continuation of the freezing injunction in principle. On the evidence before me this is a proper approach. I am satisfied that the claimant charity has a good arguable case against each of the respondents on the basis of the claim issued in the proceedings. That is to say as against the first respondent for breach of fiduciary duty; as against each respondent in deceit and/or restitution of money paid under a mistake, and/or unjust enrichment. The applicant claimant further in my judgment has a good arguable case in its proprietary claim against each respondent whereby it seeks recovery of the monies and property on the basis of their being held by the respondents as constructive trustees. I accept as a sound proposition of law that circumstances whereby monies which have been paid away by mistake are held by a recipient who knows of the mistake, do give rise to a constructive trust by which the recipient is bound. His conscience will be affected so as to make him a trustee of the money. Authority if it be needed may be found in the observations of Lord Bingham in Westdeutschebank v. Islington LBC [1996] AC 660, 715 and by Aikens J in Bank of America v. Armell [1999] Lloyds Rep (Banking). Further the respondents have assets within and indeed as will become clear in a moment, outside the jurisdiction. On the respondents' own case they have already substantially dissipated the monies received from the claimant. There is in my judgment a clear risk that unless restrained they will continue to do so. For all these reasons the continuation of the freezing order as a matter of principle must follow.
8. Nor has any argument been raised against the extension of the order world wide. Again this is understandable since there is now evidence of property in California bought by the respondents with the monies obtained from the claimant. I will in these circumstances allow this extension.

Continuation on a proprietary basis

9. I turn to the application for continuation on a proprietary basis. I allow this application in the limited terms in which the continuation is sought for the following reasons. As a matter of principle where there are assets which may belong to the claimant the court will not allow those funds to be used for living expenses or legal costs until the defendant has shown by proper evidence that he has no other assets which can be used for these purposes. If there such other funds, the defendant must use these first before any question can arise of his having access to funds which are the subject of a proprietary claim. These are not in my judgment controversial propositions. They are helpfully summarised in Gee on Commercial Injunctions (5^th Ed) at paragraph 20.057 with supporting authority, in particular PCW (Graphics Underwriting Agency) Limited v. Dixon [1983] 2 All ER 158. Given there is a good arguable case against each of the respondents for a proprietary claim in respect of those assets defined in the draft order as "the applicant's assets" I see nothing in the objections put forward by Mr Lennon to this part of the proposed order which persuades not to follow the principles set out above and to allow the order to issue in the limited form proposed given it does no more than reflect these principles. I stress the limited form of the order sought. It does not seek to prevent the respondents from ever having access to "the applicant's assets". The proposed order states only that "subparagraph (c) below shall not apply to the applicant's assets unless the applicant's assets are the only assets in which the respondent or either of them could make such payment".
10. The point made very strongly by Mr Lennon is that the reality is that there are very little in assets available to the respondents, likely to be no more than £18,000, other than the "applicant's assets" and that it will not be long before one or other of the respondents seeks to use the applicant's assets for the permitted purposes under the very terms of the order which is sought. His objection to this order in its limited form is in effect an objection that the order sought is a stepping stone to an application yet to be made by the claimant for a further order to deny the respondents' access to the applicant's assets absolutely. Even if this be correct, this is no reason in my judgment for denying the claimant the limited order it seeks which as I have indicated is in accordance with principle.
11. If and when any such further application were to be made it will be considered by the court at that stage. Mr Lennon has placed before me authorities dealing with the principles to be applied where such an absolute restraint is sought in proceedings asserting a proprietary claim. The principle emerging from the judgment of Stanley Burnton J. in Director of the assets Recovery Agency v. Craven [2005] EWHC 2726 relying upon the judgment of Millett LJ in Ostrich Farming Corporation v. Ketchley (unreported) 10^th December 1997 (Court of Appeal) appears to be that in principle no access should be allowed to funds which the claimant asserts are its funds, unless the defendant has a good arguable case, one with a real prospect of success, that he rather than the claimant is entitled to those funds. I make no observations upon what the outcome of any such application were it to be made in this case, save that I do not consider that the respondents position in regard to that outcome could possibly be prejudiced by the making of the limited order currently sought. Indeed it is possible that a court in exercising its discretion on any such application may well take into account that the claimant has not sought in the application before me to seek an absolute restraint when it was obviously open to it to do so.
12. Mr Lennon has made a further submission that that on his instructions received over the short adjournment, the first respondent may well no longer have access to the accounts in the name of the second respondent who may soon decide to seek representation different from that of the first respondent. This however, even if it prove to be correct, cannot be a good reason for not making an order which is otherwise appropriate.

The provision of further information and disclosure

13. I grant the order sought for the disclosure of bank statements. No reasoned objection has been made to such order. Such an order will patently assist the claimant in the policing of this freezing injunction. As regards the more controversial part of the order sought under this head of further disclosure, namely that relating to the seven categories identified above, I have concluded I should make this order also. I am satisfied that there is a legitimate two fold purpose which will be achieved by this order. First it will aid the claimant to police the injunction in support of its proprietary claim. It will assist the claimant to identify precisely what monies have been obtained from it and for what alleged purpose and hence aid it to identify "the applicant's assets" for the purposes of the injunction. Secondly, it will enable the claimant to identify any third party who may now on the claimant's case be in possession of trust property, with a view to obtaining orders against third parties for the purpose of protecting the claimant's rights to the funds. I was referred to the propositions set out in Gee at paragraph 22.053 which I accept are applicable in this context. The court has an equitable jurisdiction to safeguard trust assets and to that end to find out what has happened to missing trust funds. I am satisfied it is this jurisdiction which should be exercised in this case so as to make the order sought. In this regard I refer to the citation from the Court of Appeal in Mediterreanea Raffinos Sicilliana Petrolie SpA v. Mabanaft GmbH (Civ Div) (Transcript no 816 of 1987), per Templeman J:

"a court of equity has never hesitated to use the strongest

powers to protect and preserve a trust fund in interlocutory

proceedings on the basis that if the trust fund disappears

by the time the action comes to trial, equity will have been

invoked in vain".

The use to which the information may be put

14. I turn to the application for permission to use the information for two defined purposes outside the ambit of these proceedings. I take these purposes in reverse order as they are set out in the proposed order.

Disciplinary proceedings etc

15. Under 10(d) permission is sought for the purposes of "any disciplinary proceedings or legal proceedings that may arise out of the suspension or dismissal of the first respondent as an employee of the applicant". I can see no proper objection to the grant of such permission and Mr Lennon has very properly not sought to raise any such objection. I make the grant.

Supply to the police

16. The application for the other purpose is more questionable. The application is to use the information for "supplying information to the police for the purpose of any criminal investigation or proceedings against the respondents or as otherwise requested by the police". My first reaction was that the objections raised to the making of the order, namely that the order would be by compulsion causing the respondents to give information to the police which they would have been entitled to refuse to divulge had it been sought from them in the course of a criminal investigation by reliance upon the right to silence, were premature and being made to the wrong court. On one analysis the only genuine prejudice to the respondents by the making of such order would lie in the potential use of such material obtained under compulsion in any subsequent criminal proceedings or trial and it would be for the criminal court not this court to decide whether to exclude such evidence having regard to the defendant's right to a fair trial under Article 6 of the European Convention, now incorporated into English domestic law ,and its power to exclude evidence under section 78 of the Police and Criminal Evidence Act 1984 .See the discussion in Gee at 22.019.
17. However ultimately in the exercise of my discretion I have decided I should not make this order for the following reasons.
18. First unlike the other parts of the order sought, this aspect of the order cannot be characterised as at all necessary to support and protect the claimant's claim against the respondents in these civil proceedings or to protect their claimed substantive proprietary rights to trust assets. The claimant is in effect seeking to be a good citizen in seeking to provide the police with information which may lead to a public prosecution of the respondents in the name of the state for alleged criminal conduct. However the police themselves are fully equipped to make investigations into that alleged conduct of their own accord. They have for example the ability themselves to seek an order of the court against any bank compelling disclosure of the respondents' bank statements. The Crown Prosecution Service has the right to seek criminal restraint orders and orders ancillary thereto in support of a criminal investigation. Moreover it is also open to the police themselves to make a third party application to this court in these proceedings for disclosure of the information when it would be for the police to make out that any public interest in disclosure outweighs any rights and interests of the respondents to the contrary.
19. As against the understandable wish of the claimant to assist the police, must be balanced the countervailing interests of the respondents. There must in any disclosure be the potential for a breach of their Article 6 rights to a fair trial .I had my attention drawn by Mr Lennon to the decision of the European Court in Saunders v.UK [1996] Reports 1996 V1 2044 where the court described the right to silence and the right not to incriminate oneself as the generally recognised standard at the heart of the notion of a fair procedure under article 6. The point strongly made by Mr Patten on behalf of the claimant is that since by virtue of the provisions in paragraph 9 of the proposed order a respondent may refuse to refuse to provide information likely to incriminate him, the proposed order cannot offend the privilege against self incrimination and hence cannot breach article 6. However this is only in respect of information which is self incriminating for the purposes of the privilege at common law. I have been reminded of the passages in Saunders which make clear that in reality the difference between that which may be properly characterised as self incriminating for the purposes of the privilege at common law and statements which appear more neutral pieces of information on questions of fact, may for the purposes of any criminal proceedings be a distinction without a difference. In particular my attention was drawn to paragraph 71 of the judgment of the European Court:

"In any event, bearing in mind the concept of fairness in Article 6, the right not to incriminate oneself cannot reasonably be confined to statements of admissions or remarks which are directly incriminating. Testimony obtained under compulsion which appears on its face to be of a non-incriminating nature, such as exculpatory remarks or information on questions of fact, may later be deployed in criminal proceedings in support of the prosecution case, for example, to contradict or cast doubt upon other statements of the accused or evidence given by him during the trial or to otherwise undermine his credibility. Where the credibility of an accused must be assessed by a jury, the use of such testimony may be especially harmful. It follows that what is of the essence in this context is the use to which evidence obtained at a compulsion is put in the course of the criminal trial."

20. Moreover in any criminal investigation the respondents are entitled to refuse to provide information in reliance upon their right to silence which goes beyond reliance upon the privilege against self incrimination and by its essence is a right to deny the police access to lines of enquiry which may ultimately provide the basis for a prosecution independent of the information. In the present case the respondents have already been made the subject of a criminal investigation following complaint from the claimant and I am told each has laid claim to his or her right to silence in the course of that investigation. Mr Lennon submitted that this right should not be circumvented by the "device" of the victim of an alleged crime using separate civil proceedings to overcome the 'problem' of a defendant remaining silent. Although I would not characterise the present proceedings as a device for this purpose, I can see force in the submission that the right to silence should not be circumvented at the behest not of the police but at that of the alleged victim of the crime in seeking to pass on to the police information obtained under compulsion in separate civil proceedings instigated by the victim.
21. Further there is some merit in Mr Lennon's further submission that notwithstanding orders made by the court, the respondents may well be inhibited fully to engage in the civil proceedings the support of which is the primary purpose of any injunction, if the position is that anything said or disclosed in its course may well be used to facilitate a criminal investigation by the police.
22. Balancing all these different considerations I have decided this part of the order should not be granted at this stage of the proceedings. For the reasons already given I see no necessity for this part of the order for the protection of the claimant's civil rights and I see much force in the counter claim put forward on behalf of the respondents to the need to protect their right of silence in any criminal investigation This is not to say that a further application may not succeed at a later stage when different circumstances may prevail, or that a third party application by the police may not find favour with the court if called upon to make a balancing exercise between the competing interests of the respondents and those of the public interest in the due administration of criminal justice. I make no observations on what the outcome of that exercise might be.
23. I should also say that I reject Mr Lennon's overall submission of principle against the making of the entire order based on the availability to the Crown Prosecution Service of commencing criminal restraint proceedings in support of the criminal investigation. It is said that such proceedings would achieve the same end as the present application while giving the respondents the protection of legal aid to defend such proceedings not available in the present proceedings. I accept that the instigation of criminal restraint proceedings is an option open to the CPS. However I see no reason why that availability should be a bar to the claimant seeking its own relief in separate civil proceedings, notwithstanding it may have instigated the initial police interest in the conduct of the respondents. There is a fundamental difference between the two sets of contemplated proceedings .Restraint proceedings instigated by the CPS will, subject to the overall control of the court, be under the control of the CPS, a public body whose primary duty is to act in the public interest and not in any private interest. In contrast, the claimant in these civil proceedings is seeking to protect its own private interests by the making of a proprietary claim in respect of funds said to have been wrongfully obtained from them. I see no reason why in these circumstances the claimant should be denied relief in private law proceedings in proper protection of those interests which would otherwise be appropriate.
24. Unless there is any other aspect of the application which I have omitted to consider, I shall grant the order to the extent indicated.