Yossifoff v Donnerstein [2015] EWHC 3357 (Ch)

Case No HC-2015-003399[2015] EWHC 3357 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Rolls Building, Fetter LaneDate 20 November 2015
London, EC4A 2NL
Before
MR JUSTICE SNOWDEN
Between
YORAM YOSSIFOFFApplicantSHMUEL DONNERSTEINRespondent
Oliver White (instructed by AAG Legal Services Limited) for ApplicantJamie Riley (instructed by Ingram Winter Green LLP) for RespondentHearing Hearing dates: 10-11 November 2015
Judgment
[1]This Application seeks interim injunctions pursuant to section 25 of the Civil Jurisdiction and Judgments Act 1982 (as extended by the CJJA (Interim Relief) Order 1997 SI 1997/302) (the “CJJA”) in support of foreign proceedings being conducted between two Israeli citizens in Israel.[2]The Applicant and the Respondent are respectively the claimant and defendant in litigation commenced in March 2015 before the District Court of Tel Aviv (Civil File No. 41771-03-15) (the “Israeli Proceedings”). In the Israeli Proceedings, the Applicant contends that the Respondent holds on trust - for himself and the Applicant as beneficial owners in equal measure – the two issued shares in a British Virgin Islands company named Perston Ltd (“Perston"). The Applicant seeks the provision of an account and information relating to the Respondent’s dealings with the shares in Perston, together with the business and affairs of Perston and its wholly owned subsidiary, a Cayman Islands company called West 2 Ltd ("West 2"). The Respondent denies the existence of any trust and denies the Applicant’s entitlement to any account or the requested information.[3]The only material connection of this dispute with England is that West 2 is the sole registered owner of a substantial property at Hyde Park Executive Apartments, 8-18 Inverness Terrace, London, W2 (the "Property"). As its name suggests, the Property is operated as an apartment hotel. At the instigation of the Respondent, contracts have recently been exchanged between West 2 and a company called Inverness Property Limited for the sale of the Property. The sale contract is subject to a confidentiality clause and has not been disclosed. It is, however, known that it is for a substantial sum of money in excess of £30 million. The precise date for completion of the sale in accordance with the contract has also not been disclosed, but the Respondent’s evidence is that completion is not due to take place until after 25 November 2015.[4]In essence, the Application seeks a freezing injunction against the Respondent together with an injunction to restrain dealings with the shares in Perston and West 2, and the Property.

Background

[5]The Applicant is a lawyer and businessman who divides his time between Israel and London. The Respondent is resident and domiciled in Israel, where he is the ultimate beneficial owner and Chief Executive Officer of Rav-Bariach (08) Ltd (“Rav-Bariach”). Rav-Bariach is a substantial company that trades as RB-Doors and is engaged in the development, manufacture and international distribution of high security products.[6]For a period of time before the litigation between them, the Respondent instructed the Applicant as his lawyer and over time the two became friends and business partners. They engaged together in various property deals in London. In about 2007 the Applicant and the Respondent agreed to set up Perston as an offshore company to acquire the shares in West 2 which owned the Property. Perston acquired the shares in West 2 for £1.575 million and West 2 refinanced its debt with a new loan from the Britannia Building Society in the sum of £31 million, secured on the Property. The Britannia Building Society later merged with the Co-operative Bank plc (“the Bank”).[7]At the time of the acquisition, Perston had one share and it was agreed that the Applicant would hold the share for both himself and the Respondent. In March 2009 an additional share was issued to the Respondent to equalise their shareholdings.[8]It soon became apparent that the Property had low occupancy rates and there was a shortfall between the rental income and the interest instalments payable to the Bank. By 2009 West 2 was in serious financial difficulty and it suspended interest payments to the Bank. Negotiations then took place with the Bank which concluded with a restatement agreement in relation to the loan from the Bank in 2012.[9]The Respondent alleges that during this time he was forced to make funds available to West 2 to support its business, but that the Applicant was unable to do so as a result of the losses that he had suffered following the economic crisis in 2008. The Respondent alleges that one of the conditions set out by the Bank when it agreed to permit West 2 to suspend payments of interest was that funds should be invested by the ultimate owners of the group. He also says that the Bank demanded that the Applicant, who was not able to make monies available and with whom the Bank had fallen out over some other property ventures, should cease to have any further interest or involvement in West 2. It is said by the Respondent that the Applicant agreed to give up his interest in the venture, and transferred his share in Perston to the Respondent on 14 October 2010.[10]For his part, the Applicant accepts that the Bank required him no longer to be a registered shareholder of Perston. However, he contends that he transferred his share to the Respondent in response to a suggestion by the Respondent so that he would appear to the Bank as having disposed of his interest. He contends that in spite of the financial problems of West 2, he would not have given up his share in Perston for no consideration, but transferred legal title to the Respondent in the expectation that the Respondent would hold the share upon trust for him.[11]The Applicant contends that the Respondent has wrongly since denied the existence of the trust and has refused to provide him with information about Perston and the business of West 2 conducted at the Property, which the Respondent controls. The Applicant says that this denial of the existence of the trust led to him issuing the Israeli Proceedings on 19 March 2015.

The Israeli Proceedings

[12]The essential basis and scope of the Applicant’s claim in the Israeli Proceedings appears from the following paragraphs extracted from the Statement of Claim:
"Introduction A1. This suit is concerned with serious violations of the Defendant's duty as the trustee of a share belonging to the Plaintiff, which is held and controlled by the Defendant by virtue of a trust for the benefit of the Plaintiff (the beneficiary) and which represents 50% of the issued and paid-up share capital of Perston … a company registered in the British Virgin Islands (hereinafter: the "
Trust Assets" or the "Trust", as applicable). The Trust D12. In view of the demand of the … Bank and the Company’s financial need to restructure the Loan, and since … relations of trust and friendship prevailed between the parties, the Plaintiff agreed to the Defendant’s proposal that the Plaintiff’s share be transferred to the Defendant in trust so that the Plaintiff would not be registered as a shareholder of Perston vis-à-vis the … Bank. D13. According to what had been agreed between them, the Plaintiff transferred the share owned by him to the Defendant and/or his designee, in trust, in accordance with the Trust Agreement that was concluded between them and the share was registered in the Defendant’s name. D16. …the Defendant is grossly violating his most basic duties as a trustee and refusing to provide the Plaintiff with any information in connection with the Trust Assets, and is even performing actions with them without receiving the Plaintiff’s consent… Grounds for the Suit E22. As detailed above, an oral trust agreement was concluded between the parties. Therefore, the Defendant, in his capacity as trustee of the Plaintiff, has a legal duty to render an accounting to the Plaintiff, periodically and/or upon request, in connection with Trust Assets.” The Trust

Grounds for the Suit

[13]The relief sought by the Applicant is for the District Court of Tel Aviv to order the Respondent to provide various documents to the Applicant that demonstrate how the “Trust Assets” have been managed including, in particular, reports as to the revenues and expenses of the Respondent, Perston and West 2 in connection with the Property. The Israeli Proceedings do not contain any express claim for a declaration to be made that a trust exists in favour of the Applicant over one of the shares that the Respondent holds in Perston, though it is clear that this is the underlying substance of what is alleged.[14]More importantly for present purposes, it should also be noted that the Israeli Proceedings do not contain any specific allegations of breach of trust beyond a failure to provide information or an account of dealings with the Trust Assets. Nor do they make any claim (still less any quantified claim) for compensation or damages for breach of trust.[15]In evidence in support of his application to this court, however, the Applicant has indicated that he believes, on the basis of information that he has obtained from a potential purchaser of the loan from the Bank, that the net income of West 2’s business at the Property between 2010 and 2015 could have been in the region of £3.85 million. He contends that this could have been distributed by West 2 and paid out by way of dividends on the shares in Perston. On that basis the Applicant indicated, through his counsel, Mr. Oliver White, that he might have a monetary claim against the Respondent in relation to past breaches of trust, amounting to about £1.925 million.[16]Since the filing of the Statement of Claim in the Israeli Proceedings, the situation has developed. On 6 May 2015 the Respondent, who denies the existence of any trust, issued an application to strike out the Applicant's claim on essentially three grounds,(i) that the Applicant had assigned any rights which he claimed to have in respect of the share in Perston to a Mr. Yaron Gazit in December 2013 and so had no right to claim an account in respect of the share;(ii) that the Applicant had failed to attach a copy of any alleged trust agreement to the Statement of Claim and had refused to confirm whether such a document existed; and(iii) that the Applicant had abused the process of the Israeli court by limiting his claim to an account and not including a monetary claim in order to avoid paying the appropriate court fees. Notwithstanding his application to strike out, the Respondent also filed a Defence in the main action on 19 May 2015 as required by Israeli law.[17]In a Response to the strike out application, the Applicant argued that the assignment of rights in favour of Mr. Gazit was by way of security only and that the rights would revert to him on repayment of his debt to Mr. Gazit. He also asserted that there was no reference to a written trust agreement in the Statement of Claim and reiterated paragraph 22 of the Statement of Claim in which it had been said that there was an oral trust agreement between the parties. In relation to the issue regarding the form of relief sought, the Applicant asserted that he had a right to seek the provision of the accounts as “an independent remedy” and that he had “legitimate consideration enabling him not to claim any operative remedy relating to the trusteeship”.[18]On 22 July 2015 the Applicant issued an application for dismissal of his own proceedings without prejudice. He cited his limited personal financial circumstances as the reason for doing so. The Respondent opposed that application and sought a dismissal with prejudice and costs.[19]However, after the Israeli court ordered the Applicant to file a Reply in the main action, the Applicant changed his position and made a further application to continue the proceedings notwithstanding his earlier application that they should be dismissed. The Reply was then filed on 26 July 2015. In it, for the first time the Applicant referred to a one-page handwritten document which he said had been signed by the Respondent at a meeting in Tel Aviv in 2010, and which (he contended) evidenced the existence of the trust.[20]On 27 July 2015 the Tel Aviv District Court directed a hearing to take place on 25 November 2015 to consider the Applicant’s application for permission to continue his claim notwithstanding his notice of withdrawal, together with the Respondent’s application to strike out the proceedings.

The Application

[21]The Application, as issued, and as advanced at the hearing before me, sought the following orders, "2. Until further order of the Court, the Respondent must not remove from England and Wales or in any way dispose of, deal with, or diminish the value of the assets listed in paragraph 3 whether they are in or outside England and Wales. 3. The assets referred to in paragraph 2 are:3.1 The shares in Perston…3.2 The shares in West 2… registered in the name of Perston3.3 The Property … of which West 2 … is the sole registered proprietor.3.4 If the Perston Shares, the West 2 Shares and/or the Property have been sold (whether before or after the date of this order, the net proceeds of sale. … 5. The Respondent is to procure the registration of a Restriction against the registered title to the Property … that no disposition of that title is to be registered unless a Solicitor of the Senior Court certifies that the conditions set out in paragraph 9.3 below have been satisfied. … 9. The Respondent is (notwithstanding paragraph 3 above) permitted to sell the Perston Shares, the West 2 Shares, and/or the Property provided that the following conditions are satisfied:9.1 Any sale of the Perston Shares or the West 2 Shares must be a sale of the entirety of those shares;9.2 No sale of the Property may take place until after registration of a Restriction in accordance with paragraph 5 above;9.3 The sale (whether of the Perston Shares, the West 2 Shares or the Property) is not to proceed unless and until,(i) The Applicant has confirmed in writing his acceptance that the sale is at full market value (provided that this condition will fall away if this written confirmation is unreasonably withheld);(ii) A firm of Solicitors appointed by the Respondent (which must be solicitors practising in England and Wales) has undertaken to hold the net proceeds of sale on the terms of this Order – ("the Undertaking");(iii) The sale is on terms that the entire proceeds of sale will be paid to the Firm of Solicitors bound by the Undertaking;(iv) On completion the entire proceeds of sale must be paid to the Firm of Solicitors bound by the Undertaking." 3.1 The shares in Perston… 3.2 The shares in West 2… registered in the name of Perston 3.3 The Property … of which West 2 … is the sole registered proprietor. 3.4 If the Perston Shares, the West 2 Shares and/or the Property have been sold (whether before or after the date of this order, the net proceeds of sale. … … 9.1 Any sale of the Perston Shares or the West 2 Shares must be a sale of the entirety of those shares; 9.2 No sale of the Property may take place until after registration of a Restriction in accordance with paragraph 5 above; 9.3 The sale (whether of the Perston Shares, the West 2 Shares or the Property) is not to proceed unless and until, (i) The Applicant has confirmed in writing his acceptance that the sale is at full market value (provided that this condition will fall away if this written confirmation is unreasonably withheld); (ii) A firm of Solicitors appointed by the Respondent (which must be solicitors practising in England and Wales) has undertaken to hold the net proceeds of sale on the terms of this Order – ("the Undertaking"); (iii) The sale is on terms that the entire proceeds of sale will be paid to the Firm of Solicitors bound by the Undertaking; (iv) On completion the entire proceeds of sale must be paid to the Firm of Solicitors bound by the Undertaking."

Applications under section 25 CJJA

[22]The Applicant relies upon section 25 CJJA. As extended by the Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997 SI 1997/302, section 25 provides (in material part), "(1) The High Court in England and Wales or Northern Ireland shall have power to grant interim relief where— (a) proceedings have been or are to be commenced in [a foreign state]…. (2) On an application for any interim relief under subsection (1) the court may refuse to grant that relief if, in the opinion of the court, the fact that the court has no jurisdiction apart from this section in relation to the subject-matter of the proceedings in question makes it inexpedient for the court to grant it. (a) proceedings have been or are to be commenced in [a foreign state]….[23]The approach of the court to the exercise of the jurisdiction conferred by section 25 was considered in Credit Suisse Fides Trust S.A. v Cuoghi [1998] QB 818. The case concerned an application of a freezing injunction against a defendant to proceedings in Switzerland who was resident in England. At pages 825H-826B, Millett LJ stated, "On an application for interim relief under subsection (1), the court is not bound to grant relief, but may decline to do so if in its opinion the fact that it is exercising an ancillary jurisdiction in support of substantive proceedings elsewhere makes it inexpedient to grant it. It is the ancillary or subordinate nature of the jurisdiction rather than its source which is material, and the test is one of expediency. The structure of subsections (1) and (2) and the way in which their scope has been progressively widened indicate to my mind an intention on the part of Parliament that the English court should in principle be willing to grant appropriate interim relief in support of substantive proceedings taking place elsewhere, and that it should not be deterred from doing so by the fact that its role is only an ancillary one unless the circumstances of the particular case make the grant of such relief inexpedient."[24]In Cuoghi, on the approach to the question of inexpediency, Millett LJ said, at page 827C-D:
"Where a defendant and his assets are located outside the jurisdiction of the court seised of the substantive proceedings, it is in my opinion most appropriate that protective measures should be granted by those courts best able to make their orders effective. In relation to orders taking direct effect against the assets, this means the courts of the state where the assets are located; and in relation to orders in personam, including orders for disclosure, this means the courts of the state where the person enjoined resides."
[25]Millett LJ then indicated, at page 829D-E, the type of factors that might be relevant in cases seeking in personam relief, “Where an application is made for in personam relief in ancillary proceedings, two considerations which are highly material are the place where the person sought to be enjoined is domiciled and the likely reaction of the court which is seised of the substantive dispute. Where a similar order has been applied for and has been refused by that court, it would generally be wrong for us to interfere. But where the other court lacks jurisdiction to make an effective order against a defendant because he is resident in England, it does not at all follow that it would find our order objectionable."[26]Lord Bingham CJ stated, at pages 831G-832B, "It would be unwise to attempt to list all the considerations which might be held to make the grant of relief under section 25 inexpedient or expedient, whether on a municipal or a worldwide basis. But it would obviously weigh heavily, probably conclusively, against the grant of interim relief if such grant would obstruct or hamper the management of the case by the court seized of the substantive proceedings ("the primary court"), or give rise to a risk of conflicting, inconsistent or overlapping orders in other courts. It may weigh against the grant of relief by this court that the primary court could have granted such relief and has not done so, particularly if the primary court has been asked to grant such relief and declined. On the other hand, it may be thought to weigh in favour of granting such relief that a defendant is present in this country and so liable to effective enforcement of an order made in personam, always provided that by granting such relief this court does not tread on the toes of the primary court or any other court involved in the case. On any application under section 25 this court must recognise that its role is subordinate to and must be supportive of that of the primary court."[27]In Refco Inc v Eastern Trading Co. [1999] 1 Lloyd’s Rep 159 at page 175, Millett LJ referred to this passage in the judgment of Lord Bingham in Cuoghi and added, “The jurisdiction of national courts is primarily territorial, being ordinarily dependent on the presence of persons or assets within their jurisdiction. Commercial necessity resulting from the increasing globalisation of trade has encouraged the adoption of measures to enable national courts to provide assistance to one another, thereby overcoming difficulties occasioned by the territorial limits of their respective jurisdictions. But judicial comity requires restraint, based on mutual respect not only for the integrity of one another's process, but also for one another's procedural and substantive laws. The test is an objective one. It does not depend upon the personal attitude of the judge of the foreign court or on whether the individual judge would find our assistance objectionable. Comity involves respect for the foreign court's jurisdiction and process, not respect for the foreign judge's feelings. A court which is invited to exercise its ancillary jurisdiction to provide assistance to the court seised of the substantive proceedings need feel no reluctance in supplying a want of territorial jurisdiction but for which the other court would have acted. But it should be very slow to grant relief which the primary court would not have granted even against persons present within its own jurisdiction and having assets there. Assisting a foreign court by supplying a want of territorial jurisdiction is plainly within the policy of the Act; assisting plaintiffs by offering them a lower standard of proof is not obviously within the legislative policy.”[28]These cases were considered and affirmed in Motorola Credit Corporation v Uzan (No.2) [2004] 1 WLR 113, in which, at paragraph 115, the Court of Appeal gave additional guidance, in the context of worldwide freezing orders, as to some of the particular considerations which the court should take into account on applications under section 25.

Would interim relief be granted if the substantive proceedings were in England?

[29]In Refco at pages 170-171, Morritt LJ indicated that a two-step analysis is required in relation to applications under section 25, "… the approach of the court in this country to an application for interim relief under s.25 is to consider first if the facts would warrant the relief sought if the substantive proceedings were brought in England. If the answer to that question is in the affirmative then the second question arises, whether, in the terms of s.25(2), the fact that the Court has no jurisdiction apart from the second makes it inexpedient to grant the interim relief sought."[30]I therefore turn to the first question posed by Morritt LJ in Refco. Would the facts of this case warrant the relief sought if the substantive proceedings were brought in England? The merits[31]The first issue in relation to the grant of interim relief would be the merits of the Applicant’s claim to be entitled under a trust of one of the shares in Perston. Conventionally this is said to require that there be a serious issue to be tried (as regards the proprietary elements of his claim) or that the claimant should have a good arguable case (to justify the grant of a freezing injunction). For present purposes I will proceed upon an assumption - entirely for the sake of argument - that these requirements could be satisfied. In deciding to proceed in this way I do not overlook that Mr. Jamie Riley, who appeared for the Respondent, strenuously denied that the Applicant’s case passes any such threshold, and of course reminded me that his client will be resisting the Applicant’s attempt to proceed with his case and/or will be applying for the Applicant’s case to be struck out in the Israeli Proceedings. But I am mindful that the Israeli court - which is the main court seized of the claim and to which the jurisdiction exercised by this court is merely ancillary - will have the opportunity to express its own view of the matter on 25 November 2015. If the Israeli court decides that the Applicant’s case is to continue, then in all likelihood I will have been right to have assumed that the Applicant’s case at least raises a serious issue to be tried: and if the Israeli court decides that the Applicant’s case is not to proceed and strikes it out, then any relief that I would grant must fall away in any event. I reiterate, however, that I make this assumption without in any way passing judgment on the actual strength of the Applicant’s case or seeking to usurp the primacy of the Israeli court in deciding whether it has any merit. The relief sought[32]The second issue that would be relevant to the issue of whether interim relief would be granted if the main claim were being pursued in England, would be to identify the nature of the relief sought and how it relates to the claims made.[33]I have set out the relief sought by the Applicant in paragraph 21 above. It was described in argument as “hybrid” relief, in that it contains(i) an injunction to restrain dealings by the Respondent affecting an asset which is alleged to belong in equity to the Applicant and over which the Applicant has asserted a proprietary claim (one of the Perston shares);(ii) an injunction to restrain dealings by the Respondent affecting his own assets over which the Applicant does not assert any proprietary claim (the other share in Perston); and(iii) injunctions to restrain dealings with assets which it is common ground belong to neither the Applicant nor the Respondent, but are assets over which it is said that the Respondent exercises some practical control (i.e. the shares in West 2 and the Property).[34]The reason that I have made this distinction is that very different considerations apply(i) to the grant of an interim injunction to restrain dealings by a defendant with assets which the claimant accepts belong to the defendant, and(ii) to the grant of an interim injunction to restrain dealings by a defendant with assets to which the claimant asserts a proprietary claim. The freezing injunction[35]A freezing injunction in relation to property which the claimant accepts belongs to the defendant is granted because the court is satisfied that there is a real risk that, if left to his own devices, a defendant will dissipate or secrete away his own assets in order to defeat a judgment that might thereafter be obtained against him. In Fourie v Le Roux [2007] 1 WLR 320 at paras 2-3, Lord Bingham clearly identified this purpose and hence the need for a claimant to identify the prospective judgment, the enforcement of which the defendant should not, by dissipating his assets, be allowed to frustrate:
“2. Mareva (or freezing) injunctions were from the beginning, and continue to be, granted for an important but limited purpose: to prevent a defendant dissipating his assets with the intention or effect of frustrating enforcement of a prospective judgment. They are not a proprietary remedy. They are not granted to give a claimant advance security for his claim, although they may have that effect. They are not an end in themselves. They are a supplementary remedy, granted to protect the efficacy of court proceedings, domestic or foreign: see Gee, Commercial Injunctions, 5th ed (2004), pp 77–83. 3. In recognition of the severe effect which such an injunction may have on a defendant, the procedure for seeking and making Mareva injunctions has over the last three decades become closely regulated. I regard that regulation as beneficial and would not wish to weaken it in any way. The procedure incorporates important safeguards for the defendant. One of those safeguards, by no means the least important, is that the claimant should identify the prospective judgment whose enforcement the defendant is not to be permitted, by dissipating his assets, to frustrate. The claimant cannot of course guarantee that he will recover judgment, nor what the terms of the judgment will be. But he must at least point to proceedings already brought, or proceedings about to be brought, so as to show where and on what basis he expects to recover judgment against the defendant.”
[36]It is also for these reasons that a freezing injunction will generally specify a monetary value of assets (corresponding to the amount of the claimant’s claim and costs), which are to be preserved by the defendant. The defendant is, however, permitted freely to deal with his assets to the extent that they exceed that value.[37]These points are highly relevant in the instant case because, as I have mentioned above, the Applicant does not actually make any claim for breach of trust against the Respondent in the Israeli Proceedings, other than a failure to provide an account of his dealings with the “Trust Assets”. As the Applicant’s own court documents make clear (see paragraph 17 above), he has quite deliberately made a decision not to bring any specific claim at this stage alleging a breach of duty that might result in a requirement for the Respondent to pay equitable compensation or damages for breach of trust. Accordingly, as matters stand, there is no claim in the main proceedings which could give rise to any monetary judgment in favour of the Applicant against the Respondent; and hence there is no basis upon which I could grant a freezing injunction to prevent the Respondent from dealing with his assets in order to ensure that assets remain to satisfy such a judgment.[38]In response to this point, Mr. White said that the Applicant would, if it were necessary, give an undertaking to this court to bring forward a particularised amendment to the Statement of Claim in the Israeli Proceedings to make the claim in relation to the non-receipt of dividends on the Perston shares between 2010 and 2015 which is trailed in the Applicant’s evidence in this court. However, no draft was produced to me during the hearing, and Mr. White accepted that he could not guarantee that the Israeli court would permit such amendment. Given the length of time that has elapsed since the commencement of the Israeli Proceedings, even were the case to be proceeding in this jurisdiction I would be very reluctant to grant a freezing injunction without a properly particularised pleading. I am certainly not inclined to do so in circumstances in which it is not within my control whether such a claim would be permitted at all.[39]There is also a fundamental issue over the scope of the freezing injunction sought by the Applicant over the shares in West 2 and the Property. In Lakatamia Shipping v Su [2015] 1 WLR 291 at para 46, Rimer LJ said, “46. The point of freezing orders is to restrain dealings by the defendant with assets which, if judgment is obtained, will be available to satisfy the judgment. It is obvious, therefore, that the assets targeted by such an order are assets that belong beneficially to the defendant, since only such assets will be so available. Thus assets held by the defendant as a trustee for others will not, in the absence of words expressly extending the order to them, be caught by the order. That was made clear by the Court of Appeal in Federal Bank of the Middle East v Hadkinson [2000] 1 WLR 1695. The mere fact that a defendant controls assets is not sufficient to bring them within the reach of a freezing order unless the order expressly so provides.”[40]In this case there is no suggestion that Perston or West 2 are anything other than genuine companies which operate as separate legal entities in their own right, owning their own assets and each having their own liabilities to external creditors. It was therefore common ground that the Property is legally and beneficially owned by West 2 and that the shares in West 2 are legally and beneficially owned by Perston. Accordingly, it must follow that neither the shares in West 2 nor the Property are themselves assets that would be available to satisfy a judgment against the Respondent. For that additional reason I would not have granted a freezing injunction which restricted dealings with the shares in West 2 or the Property as sought in the application.[41]In reaching that conclusion I do not overlook the fact that there are cases in which the courts have been prepared to grant freezing injunctions in extended terms that restrict dealings with assets that are not beneficially owned by the defendant. In such cases words are included in the order so that the normal meaning of the word “asset” in a freezing injunction is extended to include an asset in respect of which the defendant “has the power, directly or indirectly, to dispose of, or deal with as if it were [his] own”. The reasons for the use of such wording were considered by the Court of Appeal in JSC BTA Bank v Solodchenko [2011] 1 WLR 888 and by Beatson LJ in the Court of Appeal and by Lord Clarke in the Supreme Court in JSC BTA Bank v Ablyazov [2014] 1 WLR 1414 (CA), [2015] 1 WLR 4754 (SC). The reasons have been described as “pragmatic” and essentially boil down to the recognition that unscrupulous defendants can be adept at creating trusts or companies which they wholly own and control, with a view to transferring their assets to those trusts and companies so as to disguise the true ownership of the assets, but retaining the power to direct how those assets are dealt with by the trusts or companies. The expanded form of wording may well be appropriate in circumstances in which there is a concern that a defendant may adopt such tactics and contend that assets which are in truth his, are beneficially owned by such third party trusts or companies. The wider form of freezing injunction preserves the position by restraining the defendant from dealing with such assets as an interim measure until the true position as to ownership can be established. But in this case, as I have said, there is no such uncertainty as to who owns West 2 and the Property. The proprietary injunction[42]In contrast to a freezing injunction which is intended to bite on assets owned by the defendant, the purpose of an interim injunction in relation to property over which the claimant asserts a proprietary claim is to preserve the property which the claimant contends belongs to him. In such a case, the question of risk of dissipation of the defendant’s own assets does not arise, and the relevant test for the grant of an interim injunction to protect the claimant’s proprietary rights is the normal test for the grant of an interim injunction derived from American Cyanamid v Ethicon Limited [1975] AC 396: see Madoff Securities International v Raven [2011] EWHC 3102 (Comm) at paras 126-127.[43]In this case, as I have indicated above, the only asset to which the Applicant can and does make a proprietary claim is one of the two issued shares in Perston. I accept that, if the facts justified it, it would be permissible for the Applicant to seek to prevent threatened breaches of trust by the Respondent in relation to that share, either as a result of direct dealings with the share or as a result of other dealings that might indirectly diminish the value of that share.[44]But again, I note that there are no such allegations made in the Israeli Proceedings. Specifically, the Applicant does not allege that there is any threat to sell or dispose of the share in Perston. Nor does the Applicant make any allegations in the Israeli Proceedings as regards the proposed sale of the Property.[45]Further, although the Application in this court originally sought a variety of orders, the purpose and effect of which was to give the Applicant a right to review the terms of any proposed sale of the Property and to exercise a right of veto, at the hearing before me Mr. White made it clear that the Applicant was not contending that the proposed sale to Inverness Property Limited would be a sale at an undervalue, and he accepted that the Applicant had no basis to prevent completion of the sale as such.[46]Instead, Mr. White indicated that the Applicant is primarily concerned about the destination of the net proceeds of sale. The Applicant contends that, by reason of his beneficial ownership of one-half of the shares in Perston, he will be beneficially entitled to one-half of any distribution by Perston of what remains after West 2 and Perston have paid off all of their external creditors (including in particular the Bank). Mr. White submitted that I should be prepared to grant injunctive relief to protect that proprietary interest and to prevent the Respondent using those monies for his own purposes.[47]The Respondent’s evidence was that he intends to use all of the net proceeds of sale of the Property to satisfy a contractual obligation which he has personally to a number of Israeli funds which are investors in his company, Rav-Bariach, pursuant to an investment and loan agreement that was signed on 18 July 2011. Under that agreement, the investors were allotted 23,030 shares in Rav-Bariach and were given a put option to require the Respondent to acquire those shares. That put option was exercised on 29 September 2015, with the result that the Respondent will be obliged to pay NIS 40 million (about £6.71 million) on 25 March 2016 or such other date as might be agreed between the parties. The Respondent exhibited the relevant agreements and his evidence was, “Although I am a successful businessman, I do not have 40 million shekels in cash and I am entirely reliant on the proceeds of sale from the Property to fund the acquisition. In fact, to raise the money to pay the investors I will need all of the net proceeds of sale plus some of my own money, and there is no prospect of me raising the entire amount from other assets.”[48]The Respondent submitted that he would suffer substantial loss and damage if he were not able to use all of the net proceeds of sale in this way. He contended that if he were to default on his obligations under the option agreement, he would be liable to have his remaining shares in Rav-Bariach taken by way of enforcement by the investors. He also indicated that he has made arrangements to bring new funds into the company, and that those arrangements are dependent upon his buying out the existing investors pursuant to the put option. In his evidence in reply, the Applicant did not dispute the explanation given by the Respondent or his need for money to meet his obligations under the put option.[49]Mr. Riley submitted that this risk of serious harm to the Respondent meant that the balance of convenience favoured permitting the Respondent to apply all of the net proceeds in this way. Mr. Riley supported this argument by pointing to the fact that the Applicant does not have the financial standing to give an effective cross-undertaking in damages. That point stems from the candid acceptance by the Applicant in his evidence that, “I am still recovering from the financial consequences of the recession in 2008. I must therefore acknowledge that any cross-undertaking in damages that I give may be of limited value in practice.”[50]I accept Mr. Riley’s submissions on this point. It seems to me that the balance of convenience plainly lies against the grant of an injunction preventing the Respondent from applying the net proceeds of sale towards satisfaction of his obligations under the put option for the reasons that he gives. I accept that there might be exceptional cases in which a claimant could be granted an interim injunction without having the means to provide a credible cross-undertaking in damages (see e.g. Allen v Jambo Holdings Limited [1980] 1 WLR 1252), but the fact that a claimant will not be able to meet any order for payment of damages must always be a factor in the exercise of discretion. In this case, it is a very significant factor given the evidence of the potential substantial prejudice to the Respondent.[51]Mr. White’s response was to contend that the Respondent cannot be trusted to apply the net proceeds of sale of the Property in the manner in which his evidence has suggested. Mr. White submitted that if I were not prepared to prevent the Respondent from using the proceeds of sale to acquire the shares in Rav-Bariach, I nevertheless ought to grant an injunction to ensure that he did use the funds for that purpose rather than dissipating them in some other way.[52]The answer to this argument is that the explanation that the Respondent has given as to the use to which he intends to put the net proceeds the sale of the Property is credible, and I have no basis, on the material before me, to disbelieve him. That explanation has been given in a witness statement signed with a statement of truth and is supported by documents evidencing the existence and exercise of the put option. It has not been challenged by the Applicant. Accordingly, although the monies from the sale of the Property will initially be received in this jurisdiction by West 2, the clear evidence is that after discharging the liability to the Bank and other creditors, the net balance will be remitted to the Respondent and used by him to discharge his liabilities in respect of the completion of the sale of shares in Rav-Bariach which is (according to the put option agreement) to take place at a law firm in Israel. There is simply no evidence of a threat to use the monies in any other way.[53]Mr. White then advanced a further argument that even if the funds could be used by the Respondent to acquire shares in Rav-Bariach, the Applicant ought to be granted some protection against the intervention of third party rights that might frustrate any tracing claim that he would then have as regards such shares. I can see that it is at least arguable that, if the Respondent is not to be prevented from using monies that might turn out to belong to the Applicant to acquire shares in Rav-Bariach pursuant to the put option, a court might nevertheless wish to make interim orders to ensure that any tracing claim should not be defeated by the intervention of third party rights. It might be, for example, that the Respondent should be restrained from disposing of the shares to be acquired, or creating any interest in them in favour of a third party.[54]If, however, such relief would arguably be appropriate if the substantive proceedings were being pursued here, then it would be necessary to consider the second stage of the analysis described by Morritt LJ in Refco, namely whether it would be inexpedient for this court to grant such relief.

Would it be inexpedient to grant such relief?

[55]In the extract from the judgment of Millett LJ in Cuoghi, to which I have referred at paragraph 24 above, Millett LJ pointed out that protective measures should be granted by the court best able to make its orders effective, and he identified the courts of the place where the disputed assets are located or where the defendant resides as likely to be the appropriate court. So, for example, in Cuoghi, the English court acted because the defendant to the Swiss proceedings was domiciled in England and the English court could make an effective worldwide freezing order against him.[56]In contrast, in this case, once it is accepted that the sale of the Property can go ahead and that the balance of convenience means that the Respondent should not be prevented from using the net proceeds to acquire the Rav-Bariach shares, any remaining issues as to whether the Respondent should be restrained from further dealings with those shares would concern the actions of a person resident in Israel in relation to shares located in Israel, and would have to be determined with an understanding of the detailed requirements for the proposed refinancing of Rav-Bariach.[57]In my judgment, applying Millett LJ’s approach, it would obviously be appropriate for any interim relief in those respects to be sought from the court seized of the main proceedings in Israel. That is where the Respondent is resident and the assets in question are located. In my view it would be manifestly inexpedient for this court - which only exercises an ancillary jurisdiction - to grant any such relief.

The expert evidence of Israeli law

[58]My conclusions are supported by the expert evidence which I received as to the practice of the Israeli courts as regards the grant of interim injunctions. Expert evidence was provided by Mr. Moshe Merdler, a member of the Israeli Bar and an English solicitor, for the Applicant; and by Mr. Avi Zamir, a retired Judge of the Tel Aviv District Court, for the Respondent.[59]The experts agreed that the Israeli courts have a broad discretion to grant freezing injunctions (including worldwide freezing injunctions), if necessary on an urgent basis, in support of claims made in the Israeli courts against persons domiciled in Israel and subject to the jurisdiction of the Israeli courts. The experts also agreed that the Israeli court can grant injunctive relief against individuals designed to protect claims to property located within Israel.[60]However, Mr. Zamir’s unchallenged evidence was that the Israeli court would not grant a freezing injunction where the underling claim was for the provision of accounts only without a claim for a monetary remedy. He also indicated that the Israeli court would be likely to require the giving of a cross-undertaking in damages, supported by a third-party guarantee or the deposit of collateral, for the grant of an interim remedy.[61]Accordingly, the evidence is that the Israeli court can grant interim relief of exactly the same type as is sought against the Respondent in this court. But the evidence is also that it would not grant the relief by way of freezing injunction against the Respondent in the absence of a monetary claim, and would be unlikely to grant any injunction in the absence of an effective cross-undertaking in damages. So the Applicant would fail in Israel for the same reasons as I have held he would fail if the main proceedings were here.[62]It seems to me that this evidence precisely engages the points made by Lord Bingham CJ in Cuoghi and by Millett LJ in Refco to which I have referred in paragraphs 26 and 27 above. In Cuoghi, Lord Bingham observed that it may weigh against the grant of relief by the English court that the primary court could have granted such relief and had not done so. In Refco, Millett LJ commented that, “A court which is invited to exercise its ancillary jurisdiction to provide assistance to the court seized of the substantive proceedings need feel no reluctance in supplying a want of territorial jurisdiction but for which the other court would have acted. But it should be very slow to grant relief which the primary court would not have granted even against persons present within its own jurisdiction and having assets there. Assisting a foreign court by supplying a want of territorial jurisdiction is plainly within the policy of the Act; assisting plaintiffs by offering them a lower standard of proof is not obviously within the legislative policy.” (emphasis added) (emphasis added)[63]In addition, as I have indicated above, if the issues had been reduced to the question of whether the Respondent should be restrained from dealing with the shares which he is to acquire in Rav-Bariach in Israel, there is simply no want of territorial jurisdiction in the Israeli court to justify the intervention of the English court (see the same passage from Millett LJ’s judgment in paragraph 62 above).

Temporary relief until 25 November 2015

[64]The final point raised in argument by the Applicant was that if I was not minded to grant the primary relief sought in the Application but took the view that an application should be made to the Israeli court, then as a fall-back position, I should grant an injunction for a limited time to preserve the status quo until the Applicant could make such an application on 25 November 2015. The Applicant’s concern was said to be that the Respondent might accelerate the contractual date for completion of the sale of the Property so as to come into possession of the proceeds of sale of the Rav-Bariach shares before the Applicant could apply to the Israeli court.[65]At my request, Mr. White provided me after the hearing (and subject to written objection from Mr. Riley) with a draft of the order that he sought in that event. That draft order sought to restrain the Respondent from causing completion of the sale of the Property to take place until after the conclusion of the hearing of the applications in the Israeli court on 25 November 2015. However, it also sought to restrain the Respondent from applying any net proceeds of sale of the Property received by the Respondent other than in the purchase of the shares in Rav-Bariach pursuant to the put option; and it further sought to restrain the Respondent from transferring title or ownership, or diminishing the value, or charging the shares which he is to acquire in Rav-Bariach.[66]The key event that underlies all of the relief sought is the completion of the sale of the Property. If that first step were to be restrained, the remaining relief concerning the application of the proceeds of sale in Israel would be unnecessary. The relevant evidence in this regard was contained in a short second witness statement of the Respondent produced during the hearing. That statement verified what I had been told by Mr. Riley to the effect that the contractual date for completion of sale of the Property is not until after 25 November 2015. It also responded to a question from me as to whether the Respondent was prepared to offer an undertaking that such completion would not be advanced to a date prior to the hearing in the Israeli court.[67]The Respondent’s evidence was, “3. My position is that [the Applicant’s] application before the English court is without merit and should be dismissed. For that reason, I do not believe it would be appropriate for me to give any undertakings as to when the sale will complete. I am also extremely wary of doing so given the inaccurate account provided by [the Applicant] to the Israeli Court of the undertakings I gave to this Court in August. 4. However, I do wish to assist the English court and I therefore confirm, as previously disclosed, that the contractual completion date is not until after 25 November 2015. I confirm as well that Reynolds Porter Chamberlain, the solicitors acting for West 2 Limited on the sale, are working towards completion on the contractual date and not some earlier date. I do not know of any reason why the date for completion will or should be brought forward and it is not my intention to accelerate completion.”[68]In essence, Mr. White submitted that I should be suspicious of the fact that the Respondent was not prepared to give any undertaking as to the completion date for the sale contract, and this justified the grant of an injunction to protect the Applicant’s interests until then. Mr. White further submitted that if the contractual date for completion was not until after 25 November 2015, the Respondent would suffer no loss and damage if he was prevented from taking steps to accelerate the completion of the sale of the Property.[69]I do not think that it would be appropriate for me to grant such relief. I consider that the Applicant’s approach seeks to reverse the fundamental burden upon a party seeking an interim injunction to show that there is a threat by the defendant to violate his legal rights that necessitates the intervention of the court. The need to demonstrate the existence of a threat to infringe what the claimant alleges are his rights must logically precede any consideration of the balance of convenience. That appears clearly from the speech of Lord Diplock in American Cyanamid [1975] AC 396 at 406, “My Lords, when an application for an interlocutory injunction to restrain a defendant from doing acts alleged to be in violation of the plaintiff's legal right is made upon contested facts, the decision whether or not to grant an interlocutory injunction has to be taken at a time when ex hypothesi the existence of the right or the violation of it, or both, is uncertain and will remain uncertain until final judgment is given in the action. It was to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved that the practice arose of granting him relief by way of interlocutory injunction; but since the middle of the 19th century this has been made subject to his undertaking to pay damages to the defendant for any loss sustained by reason of the injunction if it should be held at the trial that the plaintiff had not been entitled to restrain the defendant from doing what he was threatening to do. The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial. The court must weigh one need against another and determine where 'the balance of convenience' lies.”[70]Although each case will turn on its own facts, as a general proposition, in the absence of some other credible evidence of a threat to infringe his rights, I do not think that a claimant can haul himself up by his bootstraps by claiming that the defendant’s refusal to give an undertaking not to do a specified act is evidence of a threat by the defendant to do the act in question. Put shortly, I do not think that the court grants an injunction to preserve the status quo without evidence of a real risk that the status quo is about to be disturbed.[71]In the instant case, the Respondent’s evidence was that he does not know of any reason why the contractual date for completion should be brought forward and it is not his intention to accelerate completion. I do not have any reason to disbelieve this evidence and the Applicant did not have any basis upon which to challenge it other than his professed distrust of the Respondent caused by the matters of which he complains in the Israeli Proceedings. I do not think that this is sufficient evidence of an imminent threat to the Applicant’s alleged rights which warrants the grant of an injunction by this court before an application can be made to the Israeli court.[72]I would add that the Respondent must be well aware that having given clear evidence as to his intentions to this court, it would risk serious damage to his credibility and harm to his prospects of persuading the Israeli court to strike out the Applicant’s case, if he were now to seek to accelerate the date for contractual completion.

Conclusion

[73]For the reasons set out above, I dismiss the Applicant’s Application for interim relief.

Cited in 3 later judgments