Jersey Unreported Judgments

Companies.

[2020]JRC160

Royal Court

(Samedi)

10 August 2020

Before     :

T. J. Le Cocq, Esq., Bailiff, sitting alone.

 

Advocate A. D. Hoy for the Plaintiff.

Advocate D. M. Cadin for the First and Second Defendants.

judgment

the bailiff:

1.        On the 12^th of June, 2020, I signed an Order of Justice granting interim injunctions.  In the Order of Justice the Plaintiff is described as AEL, the First Defendant is EIGL and the Second Defendant as HOL.  Amongst other orders, the Prayer of the Order of Justice contained the following interim injunction:-

"1.      Disposal of shares in HOL by EIGL and / or HOL

(1)       Service or notification of this Order of Justice upon the Defendants EIGL and HOL shall operate as an immediate interim injunction restraining them and jointly and severally from selling, transferring, dealing with, disposing of charging, pledging, diluting, cancelling, forfeiting, surrendering, consolidating, redeeming, repurchasing the Final Tranche Shares or to do or omit to do anything which would otherwise cause the loss of or loss to or diminish the value of the Final Tranche Shares......"

2.        On the 19^th of June 2020, I sat to deal with an urgent application brought by the Plaintiffs to vary that part of the Prayer which now reads as follows:-

"1.      Disposal of shares in HOL by EIGL and/or HOL

(1)        Service or notification of this Order of Justice upon the Defendants EIGL and HOL shall operate as an immediate interim injunction restraining them jointly and severally from: -

(a)        selling transferring dealing with disposing of charging pledging diluting cancelling forfeiting surrendering consolidating redeeming repurchasing the Final Tranche Shares; or

(b)        doing or omitting to do anything which would otherwise cause the loss of or loss to or diminish the value of the Final Tranche Shares;

(2)        For the avoidance of any doubt nothing in sub-paragraph 1(1)(b) above shall preclude Heritage from carrying out any activities or transactions in the ordinary course of its business; and

(3)        For the avoidance of doubt, the Final Tranche Shares referred to in paragraph 1 above shall mean those 19,249,664 Ordinary Shares of no par value in the Second Defendant designated by share certificate numbered 00001772 dated 31 January 2018 (being sequentially the third share certificate concerning shares in the Second Defendant in respect of which the First Defendant granted a security interest in favour of the Plaintiff under the terms of the SIA) which represent 6.67% of the share capital of the Second Defendant, howsoever now numbered or designated."

3.        By summons dated the 18^th June, 2020, the First and Second Defendants applied to discharge the interim injunctions and in the alternative to fortify the Plaintiff's undertaking in damages contained therein. 

4.        On the 22^nd June, I sat to deal with that application. 

5.        The First and Second Defendants ("the Defendants") contend that the injunction should never have been granted.  They point firstly to a failure on the part of the Plaintiff to comply with Practice Direction 15/04 ("The Practice Direction") and in essence assert that, other than in accordance with the requirements of the Practice Direction, the Plaintiff had:-

(i)        sought an order that varied from the standard form and did not identify for my consideration what the variations were when the application was made;

(ii)       did not provide a skeleton argument or similar document (see paragraph 3a (ii) of the Practice Direction);

(iii)      did not, in accordance with the standard form,

(a)       make reference to the maximum sum frozen;

(b)       make reference to dealing with assets in excess of the Plaintiff's claim;

(c)       include an ordinary course of business exception;

(d)       include an ability for the parties to agree written variations;

(e)       include the ability of the Defendants to cause the order to cease by payment into Court;

(f)        include various administrative provisions.

6.        In addition, the Defendants assert that there is no, and never was, any real fear of dissipation of the assets in question.  The argument relating to dissipation, so it was asserted, was not persuasive and did not take into account certain other matters in which, it is argued, were or should have been known by the Plaintiff at the time of the application.  It is asserted that the application for the injunction is little more than a campaign of pressure to get the First Defendant to release monies held in escrow. 

7.        Thirdly, the Defendants argue that the injunction that was granted was too wide because the Plaintiff, taking its case at its highest, has an interest in 19,249,664 shares in the Second Defendant, or for the sum of US$ 13,333,333 plus interest on costs which is the amount of a Judgment debt against them given in the High Court of England and Wales.  No specific block of shares was identified and, on the Defendant's interpretation, the injunctions would have bitten upon all of the shares potentially and, in effect, the Defendants were prevented from conducting ordinary business because of the potential effect that this would have on the value of the shares that were subject to the order.  The Defendants allege that the order as granted "hamstrung" the Second Defendant and hence, the Plaintiff having in effect accepted this, brought about the urgent application on the 19^th June to vary the Prayer in the manner set out above. 

8.        I pause in setting out the Defendants' case to observe that the points relating to the ambit of the order are no longer problematic because of the variation that I ordered on the 19^th June.  That being said, the Defendants rely upon the excessive ambit of the initial order as demonstrating how inappropriate the orders were. 

9.        I note that on 16^th June, 2020, the Defendants legal adviser wrote to the Plaintiff's legal adviser raising the point set out in the preceding paragraph.  The Plaintiff responded by suggesting that the Defendants had misinterpreted the Order of the Court, but inviting the proposed amendments in the light of their concerns.  The Defendants replied on 17^th June, 2020, in the following terms:-

"Contrary to the suggestion in your letter, it is not for EIGL and Heritage to negotiate a variation of your client's injunction outside of the Court process.  Indeed, there is no mechanism envisaging such a negotiation in the Order of Justice (unlike the wording in the standard order in Royal Court PD15/04).  EIGL and Heritage, quite correctly, will rely on your client's unlimited undertaking, particularly given it was described to the Court in such unequivocal terms".

10.      Lastly, the Defendants maintain that there was potential for significant loss to be caused by the injunctions and the Plaintiff knew, or ought to have known, what the risks were.  The Defendants point to the fact that before me, in Chambers, when the application was being made, the counsel for the Plaintiff asserted that his client was "good for the undertaking in damages".  There was, however, so it is alleged, no proper explanation of any potential adverse consequences, nor of the Plaintiff's financial resources.  In other words, the Court was not adequately informed by the Plaintiff.

11.      The Plaintiff meets many of these arguments by the simple assertion that the Practice Direction does not apply to the injunctions in this case. 

12.      This, so the Plaintiff asserts, is an asset/property preservation order and not a general freezing order of a Defendant's assets within the jurisdiction such as used to be called a "Mareva Injunction".  The Practice Direction, so the Plaintiff argues, is designed to deal with freeing orders of the Mareva type but property preservation orders are different because they are in effect given over specific assets in which the plaintiff has an alleged interest, and not over the general assets of a defendant which the plaintiff merely seeks to preserve in order to enforce a claim in damages. 

13.      In support of this analysis, the Plaintiff refers to the case of Matthews v Matthew and Others [2001/216], a Judgment of the Court of Appeal dealing with the assets in a matrimonial case. 

14.      The court, at paragraph 14 of the Judgment said:-

"14.    Although Thorpe LJ refers to the freezing order in that case as a 'Mareva injunction', it is to be noted that he does not cite as authority for the jurisdiction of the Family Court the very well-known line of case commencing with Mareva Compania Naviera SA v International Bulk Carriers SA [1975] 2 Lloyd's Rep 508; [1980] 1 All ER 213n. A consideration of the other cases Thorpe LJ does cite shows that this is because the jurisdiction of the Family Court was exercised before 1975, and so is independent of the Mareva jurisdiction strictly so called. It is a fact that the expression 'Mareva injunction' has commonly been used for any freezing order, including orders to restrain a breach of trust, which have nothing to do with the Mareva decision itself. So we attach little significance to the use of that expression by Thorpe LJ. For the same reason we attach no significance to the fact that, at para 1 of the judgment, the Royal Court also referred to the injunction in this case as a Mareva injunction."

15.      At paragraph 17 of the Judgment, the court quoted from the judgment in Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 769 where between pages 784c and 785c the court said:-

"First, I regard PPI's present case against the Central Bank as no more than speculative.  Second, it is, in my opinion, wrong in principle to grant a Mareva injunction so as, before any liability has been established, to interfere with the normal course of business of the defendant.  To impose a Mareva injunction that will have that effect in order to protect a cause of action that is no more than speculative is not simply wrong in principle but positively unfair.

I now come to the question whether a limited injunction preserving, pending trial, the £8.9m should be granted.  This would not be a Mareva injunction. It would not be subject to provisos enabling the use of the money for normal business purposes, or for the payment of legal fees, or the like.  There is, in general, no reason why a defendant should be permitted to use money belonging to another in order to pay his legal costs or other expenses.  The objection in principle to the grant of the Mareva injunction to which I have referred does not apply to an injunction to preserve a fund that, in the contention of PPI, belongs to PPI."

16.      At paragraph 19 the court said:-

"19.    One principle that obviously must be borne in mind in all cases is that the court will not make an injunctive order in any kind of proceedings merely on the basis that it will do no harm. It follows that there must be some threshold threat or risk of some dealing with, or loss of, the assets sought to be frozen.  The Appellant submits that there must be risk of dissipation. He submits that 'the test is whether the refusal of a Mareva injunction would involve a real risk that judgment in favour of the Plaintiff would remain unsatisfied', citing Ninemia Maritime Corporation -v- Treve Schiffahrtsgesellshaft GmbH (The Niedersachsen) [1984] 1 All ER 398, 419h. The test is formulated in that way because the claim in that case was for damages for breach of contract. In such claims the fact that a judgment will be unsatisfied will not dissuade the court from entering judgment.  But that test will not be applicable where the claim is for an order of a kind which the court will not make if to do so would be futile. For example, Courts will not grant injunctions which are incapable of being performed. So a judgment for injunctive relief is unlikely to 'remain unsatisfied'. Similarly, an order for the transfer or sale of property is unlikely to be made if, were it to be made, it would remain unsatisfied because the asset had been dissipated."

17.      Lastly, at paragraph 25 et seq of the Judgment, the court said:-

"25.    Since the jurisdiction here in question relates to the subject matter of these matrimonial proceedings, and it is not known what the ultimate determination of the rights of the parties will be, the parties in these proceedings stand on a much more equal footing than the parties to a claim for debt or damages for breach of contract, so far as interim relief is concerned. In a contract claim, where a freezing order is granted, it interferes with property of the defendant in which the claimant claims no rights. It is no concern of the claimant how the judgment he obtains is eventually satisfied, so long as it is satisfied. The Court will not readily interfere with undisputed property rights, unless the risk of dissipation is proportionate to such an invasive measure.  In a matrimonial case the court is often preserving assets which, if the claim succeeds, will be awarded to the claimant. There is therefore much less concern at the possibility of a wrongful interference with the Defendant's property rights. The risk is symmetrical. If the order ought to be, but is not, made, it is the claimant's property rights that will have been interfered with.

26.      It follows that in matrimonial cases the threshold test for the risk of dissipation or loss of the assets sought to be frozen can justifiably be lower than would be the case in the Mareva cases.

27.      From the matrimonial cases cited above, it appears that in matrimonial cases the English courts have not yet gone so far as to assimilate the test to the Cyanamid principle which was applied, in the case of Polly Peck, to a proprietary claim for knowing receipt.  The courts appear always to have found some risk that, unless the order was granted, the assets in question might not be preserved until the court had had an opportunity to determine what, if any, order to make in favour of the applicant spouse.  It seems to me that in matrimonial cases it is better to avoid the expression balance of convenience and speak instead of the balance of justice - compare Francome -v- Mirror Group [1984] 1 WLR 892,898, per Sir John Donaldson MR.  The plaintiff spouse must at least show a good arguable case to assets to be frozen, or to a sum or sums of money equivalent in value to the assets to be frozen (as may be appropriate).  If that test is satisfied, then the Court may make the order if it appears that there is a risk which is real (and not fanciful) that the assets may not be preserved until the final determination of the rights of the parties.  The order must be one that is just in all the circumstances.  The order must not be disproportionate to the object to be achieved.  In many cases there will be a limit specified - that is a value below which the assets must not be reduced by the defendant.  There may be other conditions to be satisfied, depending on the circumstances of the case."

18.      The Court makes it clear that there is a different approach for a Mareva type freezing injunction and an injunction designed to preserve specific assets in which the plaintiff has a specific claim.  I accept that distinction as applicable.  It is not limited to matrimonial cases. 

19.      The Defendants in this case say that the argument of the Plaintiff referred to above is designed simply to deal with the fact that the Plaintiff had failed to meet its obligations under the Practice Direction and that all that was sought within the Order of Justice, and the affidavits in support, were freezing orders.  There was no assertion of a direct proprietorial claim by the Plaintiff in the shares in question nor did Mr Hoy, when he appeared before me in Chambers, refer to such a claim nor indeed were the terms 'property preservation order' or similar used by him or in the documentation supporting the application.  It was clearly a freezing order and the provisions of the Practice Direction apply, so the Defendants argue. 

20.      I do not propose to go through the Order of Justice in detail, but it is helpful to consider the first paragraph.  Paragraph 1 is in these terms:-

"These proceedings seek a freezing order preventing the disposal of the Shares (as defined below) in the Second Defendant (HOL) that are subject to a Security Interest Agreement dated 31st January 2018 (SIA) granted by the First Defendant (EIGL) to the Plaintiff (AEL).  There are presently Representation proceedings (2020/062) before the Royal Court to be heard on 10th July 2020 by AEL against EIGL and HOL (Representation proceedings) seeking the perfection and enforcement of the Security or Collateral of the SIA, which was sent in error to EIGL by AEL and has not been returned.  HOL and EIGL are represented in those proceedings by Bedell Cristin."

21.      The Defendants rely on the first line of paragraph 1 to show that what is plain is that what was sought from me was a freezing order and accordingly the Practice Direction applied.  The Plaintiff, on the other hand, points to the paragraph as a whole as making it clear that specific shares were being frozen which were the subject of a Securities Interest Agreement, and this was not a simple application to freeze the assets of the Defendant within the jurisdiction to enforce a future, perhaps speculative, claim.  These were assets to which, so it is asserted, the Plaintiff has an entitlement under the Securities Interest Agreement. 

22.      It is appropriate to record that the Defendants do not accept that the Plaintiff's interest in the shares in question, and indeed in the Securities Interest Agreement, continues.  They assert that, because the Plaintiff has obtained a Judgment for a money sum from the Courts of England and Wales, that the claim has been "merged" as a result of which the security is now extinct and the Plaintiff can sue on the Judgment debt.  This is not a matter for me but is a matter to be argued before the Court next month. 

23.      The terms of the Practice Direction are well-known to practitioners.  In express terms it relates to freezing orders. 

24.      At paragraph 1 of the Practice Direction it says:-

"The granting of a freezing order is a matter for the discretion of the Bailiff or Deputy Bailiff when considering an application.  It is desirable, however, that a consistent approach should in general be adopted in relation to the form and carrying out of such orders, since they represent serious restrictions on the rights of those persons subjected to them....."

25.      There then are a number of provisions which provide, as set out above, that variations from the standard form should be brought to the attention of the judge and, amongst others, that a skeleton argument should be provided as support for cross undertakings in damages.  The standard wording for a freezing order is attached to the Practice Direction.  It is clear from its terms that it is of a form which is assuming a freeze of a Mareva type on all of the assets of the defendant within the jurisdiction.  For example, paragraph 1(1) of the standard form says:-

"Service of this Order of Justice upon the Defendant shall operate as an immediate interim order restraining him from removing from the Island of Jersey or in any way disposing of or dealing with or diminishing the value of any of his assets [in the island of Jersey] [or elsewhere]....."

26.      There are various qualifications and exceptions including the potential inclusion of an "ordinary course of business" provision, a "spending to meet needs" provision, and the ability to vary the terms of the order by consent in writing. 

27.      It is not disputed by the Plaintiff that if the Practice Direction applied the Plaintiff did not comply fully with its terms. 

28.      Did the Practice Direction apply in this case?  In my judgment, subject to what I say below, it did not.  The nature of the order sought before me was the preservation of specific shares which are, so the Plaintiff asserts, subject to a valid Securities Interest Agreement.  I think that I should look to the reality of what was being sought before me by the Plaintiff as disclosed by the documentation as a whole and not to specific use of terms such as "freezing order" or the like.  This was in essence the preservation of the value of specific shares in which the Plaintiff claimed a contractual interest. 

29.      Accordingly I do not accept that the Practice Direction, which to me seems entirely tailored to deal with a Mareva type freezing order, applied strictly to the instant proceedings. 

30.      That is not to say, however, that a plaintiff who applies for any form of freezing order should not consider what the appropriate safeguards are that should be built into such an order, and ensure that the order is no wider than it needs to be.  It may be that the Practice Direction offers assistance to a plaintiff seeking to preserve assets as to some of the things that might be properly considered on a case by case basis for inclusion.  The Practice Direction does not, however, apply in its terms to the order that was sought before me. 

31.      In terms of the fear of dissipation it was argued on behalf of the Defendants that there never was any fear that was tenable.  The evidence upon which it is based, to be found in the first affidavit in support of the application is described as thin and based on conjecture.  It is suggested that the injunction really is little more than a campaign of pressure put by the Plaintiff on the First Defendant.  It is further argued that the undertaking in damages should have been fortified and more information should have been provided by the Plaintiff to me at the time that the application was made for the order to be granted. 

32.      With regard to the risk of dissipation, I accept the point made in Matthews above that the threshold for the risk of dissipation is lower than in a Mareva type freezing order.  Many of the criticisms made of the Plaintiff is that it should have put before me information and that it should have known that was in effect set out in the affidavit of Ian Mackie filed in support of the Defendant's application.  I do not propose to go through this evidence in detail. 

33.      The Plaintiff points out that its legal advisers wrote to the Defendant's legal advisers on the 4^th June in the following terms:-

"Please confirm no later than 4pm tomorrow that you will undertake not to take any steps in relation to that share documentation which are inconsistent with or may prejudice our client's rights under the Share Security Agreement."

34.      Although the Defendant's legal advisers wrote on the 8^th June, 2020, there was no reference made to that request. 

35.      The Defendants in their argument state the breadth of the order and the impact on the shares was not brought to my attention.  As far as the Defendants were concerned the amendments that I agreed to on 15^th June, 2020, were essential.  As far as the Plaintiff was concerned, the amendments should be made for the avoidance of doubt but were not necessitated by any ambiguity in the original order itself. 

36.      In paragraph 10 of the Order of Justice it is stated:-

"The third instalment not having been paid in full, a security interest under the SIA remains over the third tranche of shares of 19,249,664 (the Final Tranche Shares)."

37.      It seems to me that the definition of "final tranche shares" in the Order of Justice is tolerably clear that had there been any serious concerns on the part of the Defendant then such may have been met by clarification sought from the Plaintiff.  It is clear, however, that the order was only intended to bite upon the final tranche shares which were, to my mind, referred to in paragraph 7 and defined adequately in paragraph 10 of the Order of Justice.  In paragraph 7 of the Order of Justice it is explained that the Securities Interest Agreement between the Plaintiff and the First Defendant is secured by 57,748,991 ordinary shares in the Second Defendant.  Those shares are divided into three tranches of 19,249,663 with each tranche being released from the Securities Interest Agreement on the payment of the instalment to which each tranche of shares relates. 

38.      It was suggested that those shares required further identification but whereas such identification might well have been desirable were it available it seems to me that the Defendants must have been fully aware of the tranche of shares to which the injunction was to apply.  I do not accept that those shares could not have been identified by the Defendants.  I do not accept that they must have assumed, as a result, that there must be some indeterminate amount of shares to which the order applied. 

39.      It is argued that the First Defendant is the sole member of the Second Defendant and that that should have been notified to me.  Mr Ian Mackie, in his affidavit, produced on behalf of the Defendants, produces company returns up to the beginning of 2020 but the Plaintiff argues that they cannot be evidence that those shares have not been dissipated since then or could not have been dissipated. 

40.      It was submitted to me that the offer of the share escrow arrangement should have been brought to my attention in detail.  Although it is clearly incumbent upon applicants for entering injunctions to be as thorough as possible I accept the argument that the escrow arrangements would not have been acceptable to the Plaintiff because:-

(i)        the securities under the Security Interest Agreement did not require the shares to be commensurate with any unpaid value.  The final tranche shares are the security and that is not linked to what is outstanding. 

(ii)       the escrow arrangement would not have created a perfected possession of the security under the Securities Interest Agreement. 

41.      Advocate Hoy referred me to the Defendant's arguments in their letter of the 5th February, 2019, to the effect that the Plaintiff could not hold both the consideration and the share documentation and therefore made the escrow suggestion.  The escrow of the shares would not, as I have indicated, appear to me to give the Plaintiff possession or control of the final tranche shares. 

42.      In his application before me, the Plaintiff's counsel described the risk of dissipation as, in effect, the cumulative product of a "perfect storm".  Amongst the factors that were before me when I considered the order was the fact that it was alleged:-

(i)        that the First Defendant retained the Final Tranche Share Certificates that came into its possession by error;

(ii)       the fact that the First Defendant failed to perfect control by returning the Final Tranche Shares to the possession of the secured party;

(iii)      that by that wrongful retention the First Defendant obtained the ability to sell the shares free of the Security Interest Agreement;

(iv)      by offering an escrow arrangement, the First Defendant sought to retain control of the shares;

(v)       the First Defendant had not paid the outstanding Judgment debt;

(vi)      the First Defendant did not agree payment from the escrow amount;

(vii)     the First Defendant had not paid the debt even when leave to appeal against the final Judgment had been refused;

(viii)    the Defendants were asserting that the Security Interest Agreement was no longer valid.

43.      The Plaintiff's legal adviser advised me that the cumulative effect of these things was to place the Plaintiff in real fear that steps would be taken to diminish the value of the shares. 

44.      In my judgment, these factors taken together, did amount to a justifiable fear of dissipation that was, in the words of Matthews above "real and not fanciful".

Conclusion

45.      In the circumstances I decline to raise the interim injunction.  Had I felt compelled to do so then I would have re-imposed it.  Accordingly the Defendant's summons is dismissed. 

46.      In this Judgment I have ruled that the Practice Direction was not applicable to the type of claim made in this case.  However, in my judgment, similar principles ought to apply and the Court would consider it incumbent upon counsel applying for a freezing order supporting a proprietorial interest in a specific asset to nonetheless have regard to the Practice Direction in identifying the appropriate safeguards.  In particular the Court would expect to see the nature of the claim clearly explained, the order expressly limited to the assets in respect of which a proprietorial claim is made, the inclusion of an ability for the parties to agree written variations, and the provision of a skeleton argument (and of course an accompanying affidavit).

Authorities

Matthews v Matthew and Others [2001/216].

Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 769