Templeton Insurance Ltd v Thomas & Anor [2013] EWCA Civ 35

Case No A3/2012/2051Case No A3/2012/2053[2013] EWCA Civ 35
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN’S BENCH DIVISION
MR JUSTICE EDER
2009/915
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 05/02/2013
Before
LORD JUSTICE RIXLADY JUSTICE BLACKLORD JUSTICE LEWISON
Between
Templeton Insurance LimitedRespondent / Claimant(1) Anthony ThomasAppellants / Defendants(2) Harbinder Singh PanesarAppellant
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Between
Mr B Quineyand Mr M Atkins (instructed by LG Williams & Prichard) for theAppellantMr M Gadsden (instructed by Vale Solicitors) for theAppellantMr Matthew Cook (instructed by Nelsons Solicitors Ltd) for RespondentHearing Hearing dates : Tuesday 25 th September 2012
JudgmentLord Justice Rix :
[1]These are the appeals of Anthony Thomas and Harbinder Singh Panesar against the findings of contempt of court made against them by Mr Justice Eder: see his judgment dated 28 March 2012, [2012] EWHC 795 (Comm), (the “contempt judgment”). There are alternative appeals against the judge’s sentences of committal to prison for 4 months in the case of Mr Thomas, and 9 months in the case of Mr Panesar: see the further judgment dated 19 July 2012, [2012] EWHC 2309 (QB), (the “sentence judgment”).[2]The committal proceedings were brought by Templeton Insurance Limited (“Templeton”), the claimant in an action against Mr Thomas and Mr Panesar and other defendants. The outcome of that action can be found in the judgment of Mr Justice Simon dated 3 December 2010, [2010] EWHC 3113 (Comm), where he found Mr Thomas and Mr Panesar to have been liable for fraudulent misrepresentation.

The essential background

[3]Mr Thomas is the father-in-law of Mr Panesar. Both of them were involved in a family business known as Motorcare Warranties Limited (“Motorcare”), established in the 1990s by Mr Thomas in order to sell mechanical breakdown insurance policies (“MBI”) through a network of several hundred appointed representatives, mainly car dealers. Motorcare was authorised by the FSA to conduct insurance business until authorisation was withdrawn on or about 25 May 2010. Its agents were all registered with the FSA as its appointed representatives.[4]In 2003 or 2004 Mr Thomas handed over the running of the business to his son-in-law, Mr Panesar, although he continued to play a major role in it. He and his wife between them owned 100% of Motorcare, in equal shares.[5]Beginning in about 2004, the policies were insured by the claimant (here the respondent), Templeton. Motorcare acted as Templeton’s agent in selling the policies. The relationship between Motorcare and Templeton was governed by annual contracts or “slips”. Motorcare was authorised to sell the policies, at a premium determined by it, to receive the premium, and to act as claims administrator. The premium for which Motorcare was responsible to Templeton, however, was fixed by their contracts. Each month Motorcare was supposed to remit to Templeton any excess of such premium over claims paid to the insureds.[6]The agents were employed or contracted and paid by a service company, A Thomas Associates Ltd (“ATA”). There were barely any documents to explain the precise role played by ATA, but Simon J found that Motorcare paid it the balance of funds not remitted to Templeton, in order to pay the costs of the administration which it provided. Thus wages and/or commission were paid to the agents by ATA rather than by Motorcare.[7]In 2007, not long after the renewal of their relationship for a further year, the emergence of substantial losses led Templeton to an investigation and to the conclusion that Motorcare was acting outside its authority, providing false information about losses, and not accounting properly for premium. In the course of meetings with Mr Thomas and Mr Panesar, Mr Thomas relied on a forged document to pretend that a departure from the terms of the slips had been authorised.[8]Templeton commenced proceedings and on 8 July 2008 obtained a freezing injunction against Motorcare. The injunction, which included the usual penal notice, prevented the disposal of “the property and assets of [Motorcare’s] business”. Para 22 of the order provided: “Effect of this[9]Following a three week trial Simon J concluded that Motorcare had underpaid Templeton by over £2.3 million; that Mr Thomas had continued to play a major role during the relevant period; and that Messrs Thomas and Panesar had obtained the 2007 renewal of the relationship by fraud.[10]Templeton’s application to commit Messrs Thomas and Panesar arose out of their alleged involvement in the creation of a “phoenix” company, Motorcare Elite 2008 Limited (“Motorcare Elite”), in order to siphon off the business of Motorcare and thus avoid the strictures of the freezing order. The judge, Eder J, had to consider Templeton’s complaints that Motorcare’s network of agents, office premises, staff, telephone number, website addresses, website text and product documentation were all moved over to Motorcare Elite. Templeton alleged that this was a dealing with or disposal of Motorcare’s assets inter alia in the form of its goodwill. The judge’s findings[11]Mr Thomas gave evidence before the judge, but Mr Panesar did not. They had both given evidence at the trial before Simon J, and his findings were treated as binding. Simon J held that both men were unreliable witnesses whose evidence was evasive, internally inconsistent and contrary to contemporaneous documents. They had relied on forged documents. He rejected Mr Thomas’s attempt to distance himself from relevant decision making. Eder J also found Mr Thomas to be a most unsatisfactory witness. Mr Panesar, who had made two affidavits for the committal hearing, sought to excuse his failure to attend the hearing to give evidence on the ground of ill-health: but Eder J concluded that this was unjustified, and that Mr Panesar had deliberately absented himself. Appropriate inferences could therefore be drawn against him.[12]Motorcare Elite had been incorporated within a few days of the injunction, ie as early as 14 July 2008. It was jointly owned in equal 25% holdings by Mr and Mrs Thomas and Mr Panesar and his wife, Mr Thomas’s daughter. Mr Panesar played a crucial role in setting it up, and was its sole director. His wife was the company secretary. Mr Thomas was also directly involved, contrary to his evidence that he was not. The judge rejected the evidence that Motorcare had been put out of business by the freezing order and that that was why Motorcare Elite had been set up. The judge also rejected the evidence that Motorcare’s name and brand had been destroyed: that was incoherent in the light of the adoption of its name within that of the new company. Thus a new insurer, AXA, had been found to replace Templeton within a very short time. There was no reason why Motorcare could not have continued to trade in the ordinary and proper course of business with AXA as its new insurer. As it was, AXA was obtained to act as the new insurer for Motorcare Elite’s new business.

The judge concluded:

“In my judgment, the only reason for setting up Motorcare Elite was to carry on the business previously carried on by Motorcare outside the purview of the freezing injunction; and that was done knowingly by both Mr Panesar and Mr Anthony Thomas with that deliberate intention in mind.”
[13]There was in fact a considerable pause before Motorcare Elite could lawfully commence selling insurance, because first it had to obtain FSA authorisation, and likewise its agents had to be registered with the FSA. This was not achieved until 1 April 2010. It was only thereafter, on 25 May 2010, that Motorcare’s FSA authorisation was withdrawn, at its own request. As of 1 April 2010 Motorcare Elite had 365 (or 293, the judge said that he did not have to resolve the dispute about numbers) FSA appointed representatives, all of whom had also been FSA appointed representatives for Motorcare immediately prior thereto.[14]The judge observed that lack of documentation caused uncertainty about Motorcare’s trading in the intervening period. He was prepared to assume that a reputable insurer such as AXA would not have been prepared to act in association with Motorcare Elite before the latter had been properly authorised by the FSA to sell insurance. It was however unnecessary to decide whether Motorcare had been the operator of the scheme in the meantime. What was nevertheless clear, and was clear from Mr Panesar’s own affidavit evidence, was that he and Mr Thomas had taken active steps to convince Motorcare’s agents to transfer to Motorcare Elite. The judge cited inter alia the following passage from Mr Panesar’s affidavit (which Mr Thomas in his affidavit, for his own part, confirmed):
“Fortunately, as we and particularly Anthony Thomas…established good relationships with many of the agents long before we did business through Motorcare Warranties, those agents indicated to us that they would be willing to sell policies for Motorcare Elite…Thereafter it took a considerable amount of time to register all of the agents as representatives of Elite with the FSA…it was only because we had established good relationships with many of our commission agents prior to incorporating Motorcare that we were able to convince them that the new company would be exactly that – new.”
[15]Mr Thomas again sought to distance himself from this process, an attempt that the judge rejected. Thus Mr Thomas’s own affidavit evidence referred to a meeting at a hotel in August 2008 with Mr Panesar and a number of the agents, at which the new relationship with AXA was discussed. The judge was satisfied that Mr Thomas had played an important role in persuading the agents to transfer to Motorcare Elite. In any event, the judge went on to hold that even if there was no evidence of further such meetings, Mr Thomas as a 50% shareholder in Motorcare could, if he had wanted to, have stopped the arrangements to transfer Motorcare’s business to Motorcare Elite. The judge was therefore sure that Mr Thomas had at least knowingly permitted such arrangements to be made, in breach of the wording of the injunction (“knowingly to assist in or permit”). The judge concluded this section of his judgment thus:
“The connections established with these agents formed an important – indeed crucial – part of the goodwill of Motorcare and an important link between Motorcare and the representatives who actually sold the policies. As I have stated, those connections and goodwill constituted part of the assets of Motorcare. In my judgment, the steps that were taken to convince these agents (and through them the dealers) to work for Motorcare Elite were in plain breach of the freezing injunction and, so far as Mr Panesar and Mr Anthony Thomas are concerned, a wilful interference with the freezing injunction. Moreover, I am sure that both Mr Panesar and Mr Anthony Thomas knew full well that what they were doing was a breach of the order with the intention of interfering with the freezing injunction.”
[16]The judge went on to deal with other aspects of the arrangements to transfer Motorcare’s business to the new company, such as those concerned with Motorcare’s website, premises, telephone number and email address. Motorcare and Motorcare Elite used different website addresses, but the Motorcare website took visitors automatically to the Motorcare Elite website. Moreover, with the exception of the logo, Motorcare Elite was using the same website text that Motorcare had been using, such as “an established family owned company that has built up an excellent reputation over the years”. The Motorcare website was “an important part of its assets and goodwill” and it was dealt with or even disposed of. Plainly at least Mr Panesar was involved and aware of this misuse. Moreover, Motorcare Elite traded from the same address as Motorcare, and used the same telephone number and email address as Motorcare had used prior to 1 April 2010, all part of Motorcare’s intangible goodwill.

The committal appeals

[17]A number of interlocking grounds were pursued by Mr Quiney on behalf of Mr Thomas, and by Mr Gadsden on behalf of Mr Panesar.[18]First, it was submitted that goodwill was not within the freezing order, or at any rate that, without it being explicitly mentioned in the order, there was insufficient particularity or certainty in this respect. Reference was made to Darashah v. UFAC (UK) Limited [1982] WL 222281, where “goodwill” was explicitly specified (“and in particular from disposing of the goodwill of the…company”). It was there submitted that “goodwill” was not an asset caught by the injunction, but this court disagreed: “Every businessman knows that goodwill is a valuable commodity” said Lord Denning MR. It seems obvious that goodwill is among the most important intangible assets of a business. The fact that goodwill is an intangible makes it no less an asset than other intangibles, such as choses in action. There is nothing in this point.[19]Secondly, it was submitted that the network of agents could not count as an asset amounting to goodwill. Goodwill was a more complex notion, including the “brand” and products of a company (Lindley & Banks, 19th ed, paras 10-93 to 10-198). I would agree that a company’s goodwill may obviously extend beyond any single element of it, as in this case it extended to the brand of “Motorcare” and to Motorcare’s physical, postal, telephone, email and website addresses. That does not mean, however, that each element of it does not amount to an asset of the business. Moreover, in Darashah itself, Lord Denning cited, as typical examples of goodwill assets, “a list of customers but also the established connections with them”. This plainly applied to the network of Motorcare’s representative agents with their established connections to Motorcare over the years, recognised by the FSA. This, together with the policy product, whether supplied by Templeton or subsequently by AXA, was the very foundation of Motorcare’s business.[20]Thirdly, it was submitted that the network of appointed representatives through which the policies were sold was an asset of ATA rather than of Motorcare. This was because the agents were contracted and paid by ATA. In the trial before Simon J, ATA was a defendant and Templeton claimed against it the monies remitted to it by Motorcare. The claim failed. In describing that claim, Simon J referred to Templeton’s submission that otherwise it would be “left with a claim against a company [Motorcare] without assets”. So it was suggested that Simon J had found that no goodwill attached to Motorcare. This is a hopeless submission. The agents were Motorcare’s FSA appointed representatives. Their sales were made for Motorcare, not for ATA. As often happens in group companies, however, employment and such like may be operated through a service associate. As for Simon J’s comment, he was merely referring to Templeton’s (unsuccessful) submission at a time when Motorcare’s business had been left denuded by the very matters which Eder J had to investigate. Simon J was in any event not considering the question of Motorcare’s business goodwill.[21]Fourthly, it was submitted that the goodwill in the agents belonged not to Motorcare, but to Mr Thomas personally. In this respect, reference was made to evidence regarding Mr Thomas’s personal connections with the agents. It was true that it had been Mr Thomas who had built up these relationships over many years, stretching back before the creation of Motorcare itself. However, he had done so in the latter years as the creator of Motorcare, and those connections had become those of the Motorcare business. I reject the point. It was taken on behalf of Mr Panesar rather than Mr Thomas himself, because it made for difficulties for Mr Thomas’s next point (see below), which was that he had played no real part in the transference of the agents from Motorcare to Motorcare Elite.[22]Fifthly, it was submitted on behalf of Mr Thomas that the judge had been wrong to find that Mr Thomas had been involved in orchestrating or facilitating the move from Motorcare to Motorcare Elite. The one positive matter upon which the judge fastened where Mr Thomas was concerned was his presence at the August 2008 meeting with some of the agents. However, Motorcare Elite had not begun to trade, as the judge was prepared to assume, until April 2010, nearly two years later. Mr Thomas was only a 25% shareholder in Motorcare Elite and there was no evidence of his continuing or day to day participation in that company. The judge was wrong to find in the mere fact of his shareholding in Motorcare that positive or wilful act which was necessary to found a contempt of court. Mere inactivity is not enough.[23]In my judgment, however, the judge was entitled and right to find both that “it was inconceivable that Mr Anthony Thomas would not have taken an important role in seeking to convince [the agents] to work with Motorcare Elite” and also that in any event he had wilfully and knowingly permitted the transfer arrangements from Motorcare to Motorcare Elite. The injunction embraced the concept of “knowingly to…permit”). Citation by Mr Quiney of Attorney General v. Punch Ltd [2003] 1 AC 1046 at [87] merely illustrates that the necessary mens rea of a third party has to be properly shown, although it can, as usual, be inferred from all the circumstances of the case. Similarly, citation of Attorney General for Tuvulu v. Philatelic Distribution Corporation Ltd [1990] 1 WLR 926 (CA) at 938B/C (“mere inactivity is not sufficient”...“not liable by virtue of his office and his mere knowledge”) is not to the point: that is again considering whether a third party has the necessary mens rea. As Woolf LJ continued (at 938D):
“That remark was however made in a case where there was no finding made against the director of culpable conduct and it should not be taken as meaning that it is only where a director has actively participated in the breach of an order or undertaking that Ord. 45, r.5 can apply. If there has been a failure to supervise or investigate or wilful blindness on the part of a director of a company his conduct can be regarded as being wilful and Ord. 45, r.5 can apply.”
Mr Thomas was not a director of Motorcare at the relevant time, but, together with his wife he was its 100% shareholder. He had to be concerned with the removal of Motorcare’s business and goodwill to Motorcare Elite. I accept the submission made on behalf of Templeton that “permit” denotes a party standing by while a breach of injunction takes place in circumstances where the relevant act can only take place with his wilful forbearance.[24]Sixthly, it was simply submitted that the judge should not have been satisfied to the necessary criminal standard of proof that the breaches found had been committed knowingly and wilfully. In the circumstances, with a family owned business, and the immediate move, following the freezing order, to put in train a wholesale transfer of the business to a phoenix company, this was an impossible submission.[25]These were the reasons for which, at the hearing of these appeals against the findings of contempt, I joined in the court’s decision to dismiss. I therefore turn to the question of sentence.

The sentence appeals

[26]It was submitted on behalf of both appellants that the judge had erred in principle in imposing sentences of immediate imprisonment. That was the most severe of sentencing options, which ought to have been reserved for only the most serious of cases, into which category this case did not fall. The matter should have been dealt with by a fine, or at any rate the suspension of any prison sentence. In any event, personal mitigation ought to have been recognised as leading to these lesser sentences.[27]Both Mr Quiney and Mr Gadsden made wide reference to the sentencing principles applicable to the standard range of criminal offences. Thus they referred to sections 142 and 143 of the Criminal Justice Act 2003, to the Sentencing Guidelines Council’s definitive guideline entitled Overarching Principles: Seriousness, and to well known jurisprudence in the criminal context regarding the desirability if at all possible of keeping offenders, and in particular first-time offenders, out of prison: see R v. Kefford [2002] 2 Cr App R (S) and R v. Seed and Stark [2007] 2 Cr App R (S) 69. They also referred to jurisprudence on the relevance of such principles to sentencing for contempt of court: see Hale v. Tanner [2000] 1 WLR 2377 and Murray v. Robinson [2006] 1 FLR 365. They submitted that the judge had been wrong to be diverted from these principles by this court’s decision in JSC BTA Bank v. Solodchenko (No 2) [2012] 1 WLR 350, a case concerned with contempt of a freezing order, but on a grand scale and in a case with large international ramifications, and where the contemnor was not represented. Such a case was “plainly inconsistent” with Kefford, Seed and Stark,and Hale v. Tanner. The present case was an “opportunity to re-align the various strands of jurisprudence” to ensure that the judge’s error was not repeated.[28]On a level more particularly referenced to the facts of this case, they also submitted that the judge had been wrong not to recognise that, in a situation where the wrong had been done, Motorcare was in liquidation, and it was no longer possible to purge the contempt, the utility of committal to prison as a means to achieve the court’s objectives no longer survived, making it unnecessary or less potent. For the same reason they submitted that the judge had been wrong to discount the possibility of a suspended sentence on the ground that its usefulness as a means of encouraging a contemnor to purge his contempt was not relevant in the present case. Finally, they relied on personal mitigation.[29]The judge conducted a careful examination of the material before him. He expressly referred to and accepted what was said in Kefford and Seed and Stark. He referred to guidance on sentencing for contempt in the context of freezing orders to be found in Gulf Azov Shipping Company Ltd v. Idisi [2001] EWCA Civ 21 and Solodchenko. He summarised the personal mitigation relied on in the case of each appellant. For Mr Thomas, it was submitted that he was 69 years old, retired, in less than good health (psychiatric and medical reports were referred to), faced the consequences of a first offence, constituted no risk of re-offending, and that it would cause devastating consequences to his family if he were sent to prison. For Mr Panesar, it was submitted that there had been no real harm to Motorcare, that there would be no repetition of his conduct, that his life was effectively ruined, that he was a middle-aged man of previous good character, and that his imprisonment would also have a devastating impact on his family.[30]The judge stated his conclusions in seven stages. First, breach of a freezing injunction was a particularly serious matter, and here the conduct involved acts and omissions over an extended period of time. Mr Thomas, however, played a lesser role. Secondly, there had been a wilful interference with the administration of justice, but he accepted that there had been no dissipation of actual physical assets. Thirdly, it was impossible to say what the specific monetary effect of the appellants’ breaches was on Templeton. That operated ultimately in their favour, for he had to proceed on the basis that the court was “ignorant of what harm, if any, was caused by these breaches”, even if the intention had been to obtain substantial financial benefit. Fourthly, both appellants had been unapologetic and had sought to defend their behaviour by unsatisfactory evidence. They had neither purged their contempt in the past nor were financially able to do so in the future. Fifthly, as to the possibility of suspending a prison sentence, if it was appropriate to impose one, that could not be justified on the ground of seeking compliance with the court’s order or a purging of contempt. Sixthly, he accepted that the effect of an immediate custodial sentence “would have a very serious, if not devastating effect on both families’ lives”. However, that would best be taken into account in considering the appropriate sentence. Finally, as to these being first time offences, that was both correct but also to be viewed against the background of previous frauds mentioned in Simon J’s judgment.[31]The judge then proceeded to his sentence. In the case of Mr Panesar, whom he regarded as the more serious offender, he considered that the appropriate sentence, subject to personal mitigation, would have been immediate imprisonment for 12 months. He accepted, however, that this would cause “considerable and possibly devastating” hardship to Mr Panesar’s family. Nevertheless, the public interest required that a sentence of immediate imprisonment be imposed, although he could reduce it by 3 months to 9 months. In the case of Mr Thomas, whom he regarded as playing the lesser role (for instance in knowing nothing about the website arrangements), he again considered that the public interest required a sentence of immediate imprisonment, although in his case a justified sentence of 6 months could be reduced by 2 months to 4 months, to take into account the personal mitigation of his medical condition and glowing testimonials in support of him.[32]It is necessary, in the light of the submission to the effect that sentencing in the context of breach of freezing orders is out of line with general principle, to refer to some jurisprudence.[33]In Hale v. Tanner [2000] 1 WLR 2377 at 2380D/2381G, Hale LJ sought to give guidance to the many circumstances in which busy county court judges are called upon to deal with contempt of court orders in the emotionally charged proceedings common to the family jurisdiction. She began by cautioning that she did not wish to suggest that there should be any general principle that the statutory provisions relating to sentencing in ordinary criminal cases should be applied to sentencing for contempt; and that she spoke only in the context of family cases. In that context she said that it was usually appropriate to avoid imprisonment on the first occasion. Although the full range of sentencing options available in a criminal context was not available in the civil context, nevertheless there were options which ranged over doing nothing, fining or sequestrating assets, mental health orders and suspending imprisonment. In the latter case, the length of sentence had to be set without regard to the possibility of suspension. She said “(6) Suspension is possible in a much wider range of circumstances than it is in criminal cases. It does not have to be the exceptional case.” She was speaking of a time when the requirement of exceptionality had been imposed for a prison sentence to be suspended in the criminal context. She spoke of “two objectives always in contempt of court proceedings. One is to mark the court’s disapproval…The other is to secure compliance…”.[34]Murray v. Robinson [2005] EWCA Civ 295 was another family case. Mr Murray was in contempt of a non-molestation and occupation order, imposed to protect his former partner. He had already spent a spell of three months in prison for an earlier contempt. He was now in breach of the order again. His appeal against a sentence of eight months’ imprisonment was dismissed. Lord Woolf CJ said that sentencing for contempt should take into account the approach to sentencing in the Criminal Division of this court. He referred to Hale v. Tanner, expressed his agreement with Hale LJ’s comments, and said that imprisonment “needs to be reserved for those cases where imprisonment is necessary”; but also that the court must be mindful of the need to protect the public, in respect of which the wrong message would be sent out if acts of contempt were ignored. He also said that there should be a reduction for the acceptance of responsibility, repentance and remorse, as there was for a guilty plea in criminal cases.[35]Gulf Azov Shipping Company v. Idisi [2001] EWCA Civ 21 concerned breach of a freezing order. A sentence of three months, suspended on condition that the contempt was purged, was upheld (at [72]).[36]In Crystal Mews Limited v. Metterick [2006] EWHC 3087 (Ch) Lawrence Collins J considered another case of breach of a freezing order, made in the context of a fraud against the Revenue. He imposed a sentence of eight weeks’ imprisonment on Mr Metterick, and a suspended sentence of an equal length on Mrs Metterick, in large part because of her medical condition. Lawrence Collins J accepted, by reference to cited authority, that where assets are dissipated in breach of a freezing order, an immediate prison sentence is likely to be necessary, even if it should be as short as possible consistent with the circumstances of the case.[37]In JSC BTA Bank v. Solodchenko (No 2) [2012] 1 WLR 350 the appellant was not, as so often occurs, the contemnor, but the applicant for committal, there the Bank. The respondent, Mr Kythreotis, was not represented at the appeal. The context was a huge alleged fraud on the Bank, although Mr Kythreotis was by no means a central figure in the overall litigation. It was alleged that he had dishonestly assisted others in the fraud. Proudman J had found him in contempt of a freezing order, but, on the ground that he had purged his contempt, made no order against him other than in costs. The Bank’s appeal was allowed and a sentence of 21 months’ imprisonment was imposed.[38]This court reviewed jurisprudence concerning breaches of freezing orders going back to Lightfoot v. Lightfoot [1989] 1 FLR 414 (CA). Jackson LJ, with whom Lord Neuberger of Abbotsbury MR and Carnwath LJ agreed, summarised the jurisprudence as follows: “51. I shall not attempt to catalogue all these 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… 55. From this review of authority I derive the following propositions concerning sentence for civil contempt, when such contempt consists of non-compliance with the disclosure provisions of a freezing[39]Subsequently to Eder J’s sentence judgment, this court revisited the question of sentencing for contempt of court in the context of freezing orders, in further proceedings that arose out of the alleged fraud against the JSC BTA Bank, viz JSC BTA Bank v. Ablyazov [2012] EWCA Civ 1411. Mr Ablyazov had been committed to prison for 22 months. In my judgment at [103] I referred to Solodchenko (No 2), although that authority was there referred to under the title of Kythreotis [2011] EWCA Civ 1241. This court upheld the sentence of 22 months by reference to “the logic of the principles discussed by this court in Kythreotis” (at [109]). It summarised the jurisprudence of earlier authorities thus:
“104. Mr Matthews submitted that the judge failed to have regard to previous authorities to which the judge had been referred. Mr Matthews referred to not only the Kythreotis case, but also JSC BTA Bank v. Shalabayev [2011] EWHC 2908 (Ch), where there was a sentence of 18 months; JSC BTA Bank v. Stepanov [2010] EWHC 794 (Ch), where a 2 year sentence was imposed; Daniel v. Makki [2006] 1 WLR 2704, where the sentence was 12 months; IFC v. DNSL Offshore [2005] EWHC 534, where the sentence was again 12 months; Shalson v. Russo (unreported, 9 July 2001), where a 2 year sentence was imposed; Lexi Holdings plc v. Shaid Luqman [2007] EWHC 1508 (Ch), [2007] EWHC 2355 (Ch), where the sentence was 2 years (after an initial indication of 18 months) because of post-judgment deception. Most of these authorities (and others) were considered in Jackson LJ’s judgment in Kythreotis, so it is wrong to say that the judge did not have proper regard to them.”
[40]Unlike the position in Solodchenko (No 2), this court in Ablyazov had the assistance of representation on behalf of the contemnor. Thus it can no longer be said that that its formulation of principles in this context was derived without the assistance of such representation. It can, nevertheless, be said that in neither case was this court addressed in terms of the range of submission that we have had here. Moreover, in Ablyazov the real issue was solely as to the length of sentence. In Solodchenko (No 2) the issue was whether there should be a prison sentence at all, and it was held both that there should be, and that it should be a substantial one, as the review of authority confirmed.[41]Moreover, perhaps equally as relevant is a later passage in the judgment in Ablyazov where the jurisprudence of sanctions for breaches of freezing orders was considered for the purpose of an issue as to whether a defence could be struck out for breach of the court’s orders. That jurisprudence again repeatedly emphasised the importance of the public interest in compliance with freezing orders. I said:
“183…[The judge] regarded a trial in which a successful claimant could be cheated out of success by the defendant’s dishonest failure to disclose allegedly stolen assets as being fundamentally unfair to the bank and inimical to the interests of justice. He was entitled to regard the matter in that way. Authority has established that that is so. Thus in Hadkinson Hadkinson v. Hadkinson [1952] P 285 (CA) , Denning LJ gave as an example of the impeding of justice which could justify a debarring order “making it more difficult to enforce the orders it may make” (see at [124] above). In Stolzenberg Stolzenberg v. CIBC Mellon Trust Co Ltd [2004] EWCA Civ 827 , the failure in question was, as in the present case, a failure to comply with freezing orders and their ancillary disclosure orders, and that was considered by this court to justify the making of a debarring order (see at [138-140] above. The same thing was done in Lexi Holdings v. Luqman Lexi Holdings v. Luqman [2007] EWCA Civ 1501 and in Tarn Insurance Tarn Insurance Services Limited v. Kirby [2009] EWCA Civ 19 , which are also cases in this court (see at [145] and [147] above), and in Ablyazov (No 3) JSC BTA Bank v. Ablyazov (No 3) [2011] 1 All ER 1093 and Shalabayev JSC BTA Bank v. Shalabayev [2011] EWHC 2163 (Ch) , which are decisions of Christopher Clarke J and Henderson J (see at [150] and [152] above). It was contemplated in Derby v. Weldon (Nos 3 and 4) Derby & Co Ltd v. Weldon (Nos 3 and 4) [1990] 1 Ch 65 (CA) and Blue Sky v. Mahan Blue Sky One Limited v. Mahan Air [2010] EWHC 128 (Comm) (see at [133] and [149] above) and by Moore-Bick LJ in this very case JSC BTA Bank v. Alblyazov [2012] EWCA Civ 639 (at [155] above). 184. In several of those cases, the courts emphasised how vital the freezing order and its ancillary disclosure orders, as well as the proper sanctioning of breaches of those orders, are to the fair conduct of modern litigation. In Tarn Insurance Sir John Chadwick cited Etherton J in Stolzenberg for his comment that “Freezing orders are critical weapons in the court’s armoury against fraud”, and went on to say that “a proper administration of justice requires that, save in very exceptional circumstances, sanctions imposed should take effect”… 188. The authorities demonstrate that it is vital for the court, in the interests of justice, to have effective powers, and effective sanctions. Without these, it would be possible for a defendant (or, in a different situation, a claimant) to flout the orders of the court, which are the court’s considered means by which to keep the scales of justice for the parties even. If once it became known that the court was unable or unwilling to maintain the effectiveness of its orders, then it would lose all control over litigation of this kind, with terrible consequences for the administration of justice. Those wrongly accused of fraud would be relieved of a certain amount of inconvenience, but fraudsters would rejoice and hitch a free ride to interminable litigation on the back of ill-gotten gains.”
[42]In my judgment, whereas it will always remain appropriate to consider in individual cases whether committal is necessary, and what is the shortest time necessary for such imprisonment, and whether a sentence of imprisonment can be suspended, or dispensed with altogether: nevertheless, it must now be accepted that the attack on the administration of justice which is made when a freezing order is breached usually merits an immediate sentence of imprisonment of some not insubstantial amount. Of course, courts will bear in mind that the maximum sentence which can be handed down on any one occasion is two years; and will make due allowance for the encouragement of, or rewarding of, better thoughts and the purging of contempt, and for the credit due in the ordinary way for an admission of responsibility and remorse. Nevertheless, it must be borne in mind that breaches of freezing orders, unlike many other contempts, are nearly always spawned in darkness, and therefore will be hard, and sometimes impossible, to detect, until it is too late.[43]In the present case, there have been no second thoughts, no acceptance of responsibility, no apologies, no remorse. Even after the judge’s careful contempt judgment, there have been appeals on every conceivable point: appeals which, if there had been no committal, would not have been as of right and for which in all probability permission would not have obtained in respect of all the points run, if any of them.[44]In these circumstances, subject to issues of personal mitigation and the absence of any finding of actual harm, I do not consider that there is anything wrong with the sentences of immediate imprisonment which the judge has handed down, or with their length. The breaches of the freezing order were committed in the context of serious commercial frauds: they were deliberately undertaken, almost immediately, in a brazen attempt to avoid the consequences of the potential discovery of those frauds; they were persisted in over a significant length of time; and they amounted to nothing less than an attempt to remove the impeached business of Motorcare from the restraint of the court’s freezing order into clear open country where the phoenix of Motorcare Elite could fly with impunity.[45]However, and despite the absence of remorse, there is considerable personal mitigation. It is not so much that the appellants are first time offenders who are unlikely to offend again. That must be true of many such defendants. Given the seriousness with which the courts view the breach of freezing orders, previous good character provides limited assistance. However, unlike businessmen on an international scale, the sources of whose assets can often never be entirely identified, Messrs Thomas and Panesar have been utterly ruined by this litigation. But of still greater importance is the presence of serious medical difficulties in the case of each appellant.[46]In the case of Mr Thomas, his difficulties have considerably worsened since the judge’s sentence judgment. The judge knew of a diagnosis of cognitive impairment through incipient dementia, and of his consultant’s opinion that prison would have a highly detrimental effect on his vulnerable mental state. What the judge did not know, because it only occurred after sentence, is that Mr Thomas has now suffered a stroke. He was admitted to hospital on 10 September 2012. He presented with a left sided headache and tingling to his face, left arm weakness, and speech disturbance. A week prior to admission he had had a fall. Brain scan confirmed evidence of cerebral vascular disease. The diagnosis was cerebral infarction (stroke). It would seem, fortunately, that this was a minor stroke, however his consultant physician recommends the avoidance of stressful situations, and undue mental or physical strain. He also records in his letter for the court that a custodial sentence is likely to have a detrimental effect on Mr Thomas’s physical and mental health. His general practitioner, and the stroke support team attending his recovery state their concern that stress will put him at risk of a further stroke.[47]In the case of Mr Panesar, he has become, since the end of his business career, the sole carer of his wife, Mr Thomas’s daughter, Caroline Thomas. She suffers from spina bifida, with many unfortunate and debilitating consequences to her health. In the past her mother, Mrs Christine Thomas, assisted in caring for her during the daytime while Mr Panesar did so at night, but Mrs Thomas has turned her attention to looking after her husband, so Mr Panesar is now his wife’s full time carer. As of 26 July 2007 Mr Panesar has been receiving a carer’s allowance from the DWP. The judge had detailed evidence of these problems and referred to them, obliquely, when he said in his sentence judgment that the hardship to his family “will be considerable and possibly devastating”. So the judge himself recognised that Mr Panesar’s imprisonment would have possibly devastating consequences for his family.[48]In the light of this personal mitigation, it seems to me right to revisit the question of what harm was actually caused by the contempts found. There can be no doubt that Messrs Thomas and Panesar intended a most serious breach of the freezing order, by transferring the whole of Motorcare’s business out of the grip of Templeton’s claim and the court’s freezing order and into the phoenix company of Motorcare Elite. In other circumstances, this might have enabled Motorcare Elite to continue where Motorcare had left off, to the defrauding of Templeton. However, on the judge’s findings, he was not able to say that that is what had happened. Because of the need for FSA authorisation and registration of the agents, Motorcare Elite was not able to commence business selling AXA policies until April 2010. A short time later it was in liquidation. Although clearly worried by the absence of clear documentation, the judge was not able to say, or even infer, that Motorcare Elite, or even Motorcare in the interim, had been able to profit from the continuation of business. He therefore sentenced on the basis that there was no actual loss to Templeton, or profit to Messrs Thomas and Panesar and their companies. Moreover, there has been no allegation of breach against Mr Thomas or Mr Panesar in respect of the freezing orders made against them personally.[49]In these circumstances, we concluded at the end of the hearing of these appeals that we should allow them to the extent of suspending the prison sentences imposed by the judge. We so announced to the parties. In my judgment, serious as these unregretted, unpurged, contempts have been, and meriting the sentences handed down by the judge, it is not necessary to require those sentences to be served in the form of immediate custody. It is not only for the purpose of encouraging or rewarding the purging or remedying of contempt that the option of suspending sentence exists, and if the judge thought it was, in my respectful opinion, he erred. As it is, the appellants’ prison terms were shortened by the judge because of his appreciation of their personal mitigation. They retain that benefit.[50]This is perhaps a merciful conclusion, especially in the light of the absence of any apology or public regret: nevertheless, in a matter which above all concerns the public interest of the courts in policing the due administration of civil justice, and where no private harm has been proved to have been actually inflicted on the complainant, Templeton, I was ultimately persuaded, by the possibly irremediable hardship which Mr Thomas or Mr Panesar’s family might suffer, that the proper course lay in mercy rather than justice. Perhaps they were fortunate in the day fixed for their appeals.

Conclusion

[51]It was for these reasons that I joined in the decisions announced at the end of the hearing, that the appeals against the findings of contempt were dismissed, but the appeals against sentence were allowed, to the extent of suspending for two years the sentences of imprisonment imposed by the judge.

Lady Justice Black :

[52]I agree.

Lord Justice Lewison :

[53]I also agree.

Order

It is a Contempt of Court for any person notified of this Order knowingly to assist in or permit a breach of this Order. Any person doing so may be sent to prison, fined or have his assets seized.” There is no dispute that the order was duly served on Messrs Thomas and Panesar (who were also made defendants and the subject of the order so far as their personal assets were concerned). 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.(iii) Where there is a continuing failure to disclose relevant information, the court should consider imposing a long sentence, possibly even the maximum of two years, in order to encourage future co-operation by the contemnor.” (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. (iii) Where there is a continuing failure to disclose relevant information, the court should consider imposing a long sentence, possibly even the maximum of two years, in order to encourage future co-operation by the contemnor.”

Cited in 46 later judgments

and 37 more of the most senior