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
		19 July 2012

MR JUSTICE EDER:

1. These proceedings concern the operation of a company called Motorcare Warranties Limited ("Motorcare") which was established in the 1990s by Mr Anthony Thomas. During the relevant period Mr Anthony Thomas and his wife each owned 50 per cent of the shares in Motorcare. Mr Panesar was the managing director. Motorcare's business was primarily in the sale of the mechanical breakdown insurance policies, which were sold by a network of several hundred appointed representatives, mainly car dealers to their customers. In addition, Motorcare had agency arrangements with a number of self-employed sales agents who worked with the appointed representatives.
2. Between July 2004 and July 2008 Motorcare acted as agents on behalf of Templeton in selling mechanical breakdown insurance policies, which would either be sold to the customers by the dealer or given away "free" at the time the vehicle was sold.
3. Following a three-week trial in November 2010 Simon J concluded in summary that Motorcare had underpaid Templeton by £2.3 million and that misrepresentations which had induced Templeton to extend the relationship in July 2007 were false and were known to be false by both Mr Panesar and Mr Anthony Thomas, with the result that Motorcare, Mr Panesar and Mr Anthony Thomas were all liable in deceit.
4. Quantum in relation to that fraudulent misrepresentation claim was adjourned by Simon J, and following a hearing before me earlier this year I concluded that the quantum of that claim was £3,250,000 plus interest and costs.
5. The sums due under both those judgments remain unpaid. Motorcare is in liquidation. The money obtained by these defendants as a result of their activities appears to have disappeared but how, when or where is a mystery. I have seen no documents which might explain the position.
6. At the outset of these proceedings Templeton sought and obtain from this court on 8 July 2008 a freezing injunction against Motorcare and also against Mr Thomas and Mr Panesar. Thereafter, Templeton applied to the court for an order for committal for contempt of court against Mr Panesar and Mr Thomas. In essence, it was Templeton's case that within a week of the freezing injunction (that is on or about 14 July 2008) another company, that is Motorcare Elite 2008 Limited ("Motorcare Elite") was set up and registered by, amongst others, Mr Anthony Thomas and Mr Panesar, that thereafter the business and goodwill of Motorcare was in effect transferred to Motorcare Elite; and that this conduct constituted a serious breach of the freezing injunction.
7. I dealt with that application earlier this year and following a hearing I concluded that both Mr Panesar and Mr Anthony Thomas had been in contempt of court. The reasons for that conclusion are set out in my judgment dated 28 March 2012, and also my order dated 4 April 2012. At the request of counsel for both Mr Panesar and Mr Anthony Thomas I adjourned the question of sanction in relation to such contempt, in order to enable both those individuals to obtain a psychiatric report on their mental capacity, if so advised, and for the service of any other evidence.
8. Guidance on sentencing for civil contempt and specifically in the context of freezing orders may be found in the judgment of Lawrence Collins J in Crystalmews Ltd v Metterick [2006] EWHC 2653, although I accept that as indicated by Jacob LJ in a later case Shah v Patel & Ors [2008] EWCA Civ 979, each case is fact specific, and what was stated by Lawrence Collins J is not to be regarded as anything like "sentencing guidelines".
9. So far as penalties are concerned the court may impose an immediate custodial sentence, limited to a two-year maximum, pursuant to section 14(1) of the Contempt of Court Act 1981. A person committed to prison for contempt of court is entitled to unconditional release after serving half of that sentence. A committal order is appropriate where there is serious contumacious flouting of orders of the court; see Gulf Azov Shipping Company Ltd v Idisi [2001] EWCA Civ 21 at paragraph 72. This is in my judgment particularly so in relation to freezing injunctions, which have become an important part of modern litigation. As I said in my earlier judgment, a claimant's success on its substantive claims are generally worthless if there are no assets to meet their claim. It is for that reason that the jurisdiction in relation to freezing injunctions, which was developed in recent years, has become such an important part of the administration of justice.
10. In my view, again as I stated in my earlier judgment, the jurisdiction should be jealously guarded and in appropriate circumstances rigorously enforced. Breach of a freezing injunction is, in my judgment, a particularly serious matter, as was recognised, for example, in the recent decision of the Court of Appeal in JSC BTA Bank v Solodchenko & Ors [2011] EWCA Div 1241, in particular at paragraphs 45-58. As there stated in the context of non-compliance the disclosure of provisions of a freezing order:

"I shall not attempt to catalogue all those 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."

11. Then later on in the judgment there was stated the following:

"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."

12. It is important to note that any custodial sentence imposed should be as short as possible, consistent with the circumstances of the case, see Aqualina v Aqualina [2004] EWCA Civ 504 at paragraph 14.
13. On behalf of Mr Thomas, Mr Quiney submitted that a custodial sentence is only a matter of last resort and should be exercised with care. In that context Mr Quiney drew my attention to the guidance in R v Kefford [2002] 2 Cr App R (S) 106 and also
14. to the passage in the judgment of Phillips LCJ in R v Trigger Alan Mike Seed and Philip Stark [2007] 2 Cr App R (S) 69.
15. I accept of course what is stated in those cases. In addition, it is important to note that the execution of any custodial sentence may be suspended for such a period, or on such terms as the court deems fit. See CPR Schedule 1 order 52, rule 7(1). That is certainly a possible sanction that may be applied in a particular case. The suspension of a custodial sentence is particularly appropriate in, for example, circumstances where it is intended to encourage or to seek to achieve compliance with a court order going forward, or providing the contemnor with an opportunity to purge his or her contempt with regard to past contempts. However, it is important to note that that does not arise in these circumstances. I am presently concerned with breaches of the court order as I found in my earlier judgment. The case has finished, and to that extent a suspended sentence is not at least for those reasons, in my view, appropriate, although, of course, it may be appropriate to suspend a sentence for other reasons.
16. In addition to the powers that I have just mentioned the court may also impose a fine of an unlimited amount pursuant to section 14.2 of the Contempt of Court Act 1981 or order sequestration.
17. In approaching the question of the sanction in the present case it is important to note that it is no part of my function today to punish the defendant for the original frauds which were the subject matter of the judgment of Simon J. That is a matter for the prosecuting authorities and the criminal courts. The focus here is limited to the defendants' contempt of court, as I have found, in relation to the breach of the freezing injunctions, as I have already described.
18. On behalf of Mr Panesar, Mr Gadsden submitted in summary as follows:

(i) First whilst not seeking in any way to go behind the court's finding that assets found had been disposed of, such as a network of appointed representatives on the website have an intrinsic value they had no value in fact insofar as Templeton was concerned. Indeed it was clear from the evidence of Mr Wells, that Templeton could have done nothing to persuade representatives, whose loyalty lay with the second defendant [I think that must mean Motorcare] to transact business for Templeton, nor would Templeton have had any use for the website. Thus factually speaking this case is very far removed from those in which breaches of freezing injunction would deprive claimants of assets of value.

(ii) Second, there can be no repetition of this conduct by Mr Panesar whose life is now effectively ruined.

19. As to personal mitigation there was submitted on behalf of Mr Panesar three statements ie Mr Panesar, from his wife and from his daughter, and also a confidential letter. From those Mr Gadsen submitted as follows:

(i) Mr Panesar is a middle-aged man of good previous character, who has never previously committed any dishonest acts.

(ii) His immediate imprisonment will have a devastating effect on not only him but also, much more importantly, his immediate family.

(iii) The introduction of an immediate custodial sentence will also cause irreparable harm to his wife and family and that this can neither be just or consistent with either Mr Panesar's or his immediate family's right to family life under article 8 of the European Convention on Human Rights.

(iv) As a result of these proceedings Mr Panesar's mental health has deteriorated, moreover he has been financially ruined and is now bankrupt.

(v) As stated above [Mr Gadsden submitted] there can be no repetition of his conduct and, therefore, there is absolutely no risk of further offending.

20. On behalf of Mr Thomas, Mr Quiney submitted that a custodial sentence was inappropriate for the following reasons:

"(i) Mr Thomas has committed an economic offence that is not equivalent to the more grave offence involving harm to the person. Mr Quiney also submitted in that context that unlike Mr Panesar, he Mr Thomas did come to court to give evidence.

(ii) He, Mr Thomas, is 69 years old and retired. There is no risk that he might commit a similar offence, that is contempt by way of breaching a freezing injunction or any other offence for that matter.

(iii) This is not a case where the punishment is required to compel some action, such as future compliance of a court order. The case is finished; the defendants are either insolvent or bankrupt. A severe punishment would not serve any particular aim or facilitate the management of this claim.

(iv) This is a first offence and a lesser sanction is therefore more appropriate.

(v) The impact of a custodial sentence would be very serious and disproportionate to the wrong. A custodial sentence would again be devastating to Mr Thomas and his family.

21. In that context there was before the court a psychiatric report, as well as further medical reports, a witness statement from Mrs Thomas and a number of testimonials.
22. In considering these submissions my conclusions are as follows.
23. First, as I have said, the breach of a freezing injunction is a particularly serious matter. Here the conduct was not simply an isolated incident but involved acts and omissions which extended over a period of time, as I described in my earlier judgment, although I accept that Mr Thomas played a lesser role.
24. Second, such conduct was not insignificant. On the contrary, as I have stated in my earlier judgment, such conduct constituted a wilful interference with the administration of justice. In addition, insofar as may be necessary it was also my conclusion that Mr Panesar in his capacity as a Director of Motorcare was also in contempt of court in wilfully failing to take reasonable steps to ensure that the freezing injunction was obeyed.
25. As submitted by Mr Gadsden I accept that the circumstances of this present case are not of the usual kind of case where there is disposal or dissipation of actual physical assets. That is right and to that extent I accept Mr Gadsden's submission. Nevertheless, in my view, the contempt here was substantial and serious.
26. Third, I accept that on the evidence before me it is impossible to say what the specific monetary effect on Templeton was of the defendants' breaches. There is no doubt that as appears from the judgment of Simon J, and my own earlier judgment in relation to quantum, the defendants' fraudulent activities has produced very substantial benefits in the period prior to the freezing injunction. However, I have seen no accounts of Motorcare Elite nor for Mr Panesar or Mr Anthony Thomas, which might provide assistance in identifying what, if any, profits they made after the freezing injunction. Mr Quiney and indeed Mr Gadsden both submitted that it had never been alleged specifically what financial advantage had been gained.
27. I recognise and accept that this is a serious gap in the evidence and in considering the appropriate sanction, this is a fact which must operate in the defendants' favour, although it is true that the defendants could, if they had wished, assisted the court in filling this gap, at least to some extent and there has been no attempt whatsoever by Mr Panesar or Mr Anthony Thomas to do so, or to provide any explanation.
28. Mr Gadsden and Mr Quiney both submitted, therefore, that there is no evidence before the court as to the harm that might have been caused. That is a relevant and important consideration. For present purposes I am prepared to accept that submission and, therefore I proceed on the basis that the court is ignorant of what harm, if any, was caused by these breaches. However, I remain of the view that the breaches in question were serious and substantial and I have no doubt that such conduct was intended, by both Mr Panesar and Mr Anthony Thomas, to obtain for themselves substantial financial benefit and to divert funds that might otherwise have been available to satisfy Templeton's substantial claims, whether or not such conduct was or was not in fact in the event successful.
29. Four, both Mr Panesar and Mr Thomas did not admit there wrongdoing but sought to excuse it on the basis of evidence which in relation to Mr Thomas I found to be most unsatisfactory and in some respects not credible (see paragraph 25 of my judgment) and in relation to Mr Panesar, I rejected in a number of respects (see paragraph 29 of my judgment).
30. Having refused to admit any wrongdoing neither Mr Panesar nor Mr Thomas made any attempt to purge their contempt nor return any profits they may have made, and it is now out of their power to do so since Motorcare Elite has gone into liquidation and both Mr Panesar and Mr Thomas are bankrupt. In such circumstances I note that neither Mr Panesar or Mr Thomas would be in a position to pay any fine imposed. A fine would not, therefore, be an effective penalty. Be that as it may, the authorities make claim that that of itself provides no reason for the imposition of a custodial sentence, which is not otherwise appropriate.
31. Fifth, as to the possible suspension of any custodial sentence this does not seem to me to be an appropriate course to take in the present circumstances of the case. This is not a case where such suspension would be justifiable, for example, to seek to achieve compliance with a court order or to provide the defendants with an opportunity to purge their contempt. Of course, before deciding to impose an immediate custodial sentence I have to be satisfied that that is the appropriate sentence to be imposed.
32. Sixth, a question has arisen with regard to the European Convention on Human Rights and the impact on family life, both in Mr Thomas' and Mr Panesar's family life. I am prepared to accept, as it seems plain on the evidence before me that the effect of an immediate custodial sentence would have a very serious, if not devastating effect on both families' lives. However, it seems to me that that is at best something that I must take into account in considering the appropriate sentence. If I consider having regard to all the circumstances, including the probable impact on family life that a custodial sentence is appropriate, it seems to me that there is nothing in the Convention on Human Rights which would require me not to impose a custodial sentence if otherwise appropriate.
33. Seventh, as I have indicated above, it is said by both Mr Quiney and Mr Gadsden that this is a first offence by both defendants. That is in one sense correct. However, it seems to me important that the present breach of the order and the contempt that I have found has to be viewed against the background of the previous frauds that were the subject matter of Simon J's judgment.
34. I bear well in mind the observations of Woolf LJ and Phillips LJ in the cases to which I have referred. I also bear in mind the specific points made on behalf of both Mr Panesar and Mr Thomas. Nevertheless, given the particular circumstances of the present case and subject to the question of personal mitigation the custody threshold has, in my judgment, been passed with respect to both defendants.
35. As to Mr Panesar, although he gave evidence in the main trial before Simon J, he did not give oral evidence before me, with the result that as I noted in my judgment various assertions which he had made could not be properly tested and certain gaps and inconsistencies in the affidavit evidence remained unresolved. However, he was the managing director of Motorcare and the sole director of Motorcare Elite, and as I have stated in my judgment, I have no doubt whatsoever that he played a crucial role in setting up Motorcar Elite and the running of the Elite business, including in particular the creation and the use of the website arrangement referred to in paragraph 38 of my judgment.
36. Subject to the question of mitigation, the appropriate sanction is, in my judgment, imprisonment, immediate imprisonment for 12 months. As to personal mitigation of Mr Panesar, I have read the evidence adduced in his support. Any sentence of imprisonment will inevitably cause hardship to a defendant's family. I accept, as I have said, that the hardship here will be considerable and possibly devastating. However, given the public interest in ensuring compliance with the court's orders, and the particular circumstances of the present case, I remain of the view that an immediate custodial sentence is justified and appropriate in the present circumstances, although I am persuaded in the light of the evidence that the sentence should be reduced by three months to take this into account.
37. Accordingly, my conclusion is that the appropriate sanction in the case of Mr Panesar is immediate custodial imprisonment for nine months, although pursuant to the Contempt of Court Act he will be entitled to unconditional release after serving half that sentence.
38. As to Mr Anthony Thomas, as appears in my judgment, although I rejected his evidence that he had no knowledge of Motorcar being set up, I accept that he had a lesser role. For example, it was Mr Thomas' evidence that he knew nothing about the website, and indeed Mr Cook conceded that he could not rely on the website arrangements in support of the application for committal against him. In such circumstances, subject again to personal mitigation the appropriate sanction is, in my judgment, six months' imprisonment.
39. As to personal mitigation, I have read the medical evidence adduced on behalf of Mr Thomas, and I have also read the testimonials in support, which are in glowing terms. However, again, given the public interest in ensuring compliance with the court's orders and the particular circumstances to the present case, I remain of the view that an immediate custodial sentence is justified and appropriate, although I am persuaded in the light of that evidence that the sentence should be reduced by two months to take this into account.
40. Accordingly, in my judgment, the appropriate sanction for Mr Thomas is imprisonment for four months, although he will be entitled to unconditional release after serving half that sentence.
41. I should say finally that the sentences that I have imposed are, in my view, the shortest possible sentences consistent with the circumstances of the case.