Bord na Móna Horticulture Limited v Stephen Washington & Ors [2017] EWHC 2406 (Ch)

[2017] EWHC 2406 (Ch)

Case No D30BS683

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Date Thursday 7 th September 2017

LIVERPOOL DISTRICT REGISTRY

Liverpool Civil & Family Courts

35 Vernon Street

Liverpool, L2 2BX

Before

HIS HONOUR JUDGE HODGE QC

(Sitting as a Judge of the High Court)

B E T W E E N:

Between

Bord na Móna Horticulture LimitedClaimant

Stephen Washington & OrsDefendant

BORD NA MÓNA HORTICULTURE LTD.Claimant

- and -

(1) STEPHEN WASHINGTON

(2) GILLIAN MARY WASHINGTON

(3) SUSAN JOAN HARDEN

(4) CAROL MOORE

(5) SWW LAND LTD.Defendants

A P P E A R A N C E S

MR HUGH SIMS QC and MR JAMES WIBBERLEY (instructed by Burges Salmon LLP) appeared on behalf of the Claimant/Respondent.

MR HUW DAVIES QC and MR STEPHEN DONNELLY (instructed by Addleshaw Goddard LLP) appeared on behalf of the First Defendant/Applicant.

Venue APPROVED J U D G M E N T (Approved in Manchester on 9 October 2017 without reference to any papers and without checking citations)

[1]This is my extemporary judgment in the case of Bord Na Móna Horticulture Limited (as claimant) against Mr Stephen Washington and four others (as defendants), claim number D30BS683. This is the hearing of an application by the first defendant, Mr Stephen Washington, for his release from undertakings that were given in lieu of the grant of further relief by way of freezing injunction as long ago as the end of February this year. At that time the proceedings were pending in the Bristol District Registry of the Chancery Division.

[2]I can take the background to this litigation from the written skeleton argument of Mr Huw Davies QC, who appears for Mr Washington. He has produced a helpful and detailed written skeleton argument dated 4th September 2017 together with Mr Stephen Donnelly (of counsel). The claimant, and respondent to the application, is represented by Mr Hugh Sims QC, leading Mr James Wibberley, who has produced a similar detailed and helpful skeleton argument dated 6th September 2017. This application has been very well argued on both sides by counsel who have been put under considerable pressure of time to deal with this application within the course of the one day allotted to it. They have stood up to that challenge extremely well. I am conscious that they would have wished to expand upon their submissions; but I am satisfied that they have had the opportunity to say everything that was necessary to advance their respective clients’ cases. I am also conscious that delivering an extemporary judgment as I am, beginning at about quarter to four on the afternoon of the hearing, and immediately after the conclusion of Mr Davies’s reply, this extemporary judgment will be less full, and less polished, than I would have wished but considerations of pressure in the lists prevent me from taking time to deliver a fuller, and more polished, judgment.

[3]As Mr Davies explains in his skeleton argument, the defendants – who, in the case of defendants 2 to 4, are Mr Washington’s sisters and, in the case of defendant 5, is a company controlled by Mr Washington - are the former shareholders in White Moss Horticulture Limited. That company, to which I can refer as “White Moss”, produces compost from green waste at various sites, principally at Kirkby and Formby near Liverpool. Mr Washington is the former majority shareholder and managing director of White Moss. That company has been in the Washington family from 1973 until the completion of its sale to the claimant pursuant to a sale and purchase agreement completed on 23rd December 2016. After the sale was completed, the first defendant remained as managing director of White Moss, a role which he had held since around 1993. In or about May of this year, and following on from, and as a consequence of, this litigation Mr Washington has felt constrained to resign from his post as managing director; and he takes the view that he has been constructively dismissed from that position as a result of the claimant’s conduct. There are, as I understand it, proceedings on foot in that regard in the Employment Tribunal.

[4]On 14th February 2017, the claimant issued a without notice application for freezing relief against all five of the defendants. Its application was supported by two affidavits from Mr Andrew James Paul Burnette, a solicitor and member of the claimant’s solicitors, Burges Salmon, sworn on 14th and 15th February 2017, together with their respective exhibits, AJPB1 and 2. That application came on for hearing before His Honour Judge Paul Matthews sitting as a judge of the Chancery Division of the High Court in the Bristol District Registry. From observations made by that judge during the course of the hearing before him, it would appear that this was the first application he had had to deal with in which that form of relief had been sought since his recent appointment as Specialist Chancery Judge to the Bristol District Registry.

[5]The essence of the claimant’s allegations on its application for without notice freezing relief was that it had discovered that White Moss had allegedly been operating in breach of environmental regulations and a non-statutory quality protocol for compost, and that the first defendant - and, it was said, through him, the second to fifth defendants - had known about this and had deliberately concealed it from the claimant in the lead up to the sale and purchase agreement. The defendants deny those allegations and have counterclaimed for breach of the earn-out provisions within the sale and purchase agreement. The claimants say - and I take this from the skeleton argument of Mr Sims - that the company, acting principally through Mr Washington, was, in the period up to completion of the sale and purchase agreement, in regular and routine flouting of environmental regulations, particularly in relation to its composting activity at its Kirkby site. The claimant contends that Mr Washington caused or allowed a fraud to be committed on the relevant regulators, customers of the company and, ultimately, the claimant. The heart of that fraud complaint is said to be simple. The composting pad at Kirkby, it is said, can only handle so much green waste. From 2011, and in the run-up to completion at the end of 2016, it was required to handle greater and greater volumes which it could not process in accordance with approved standard PAS 1000, and thus the quality protocol for compost, or at least not without falsification of records, samples and test results. It is said by the claimant that the sale of White Moss to the claimant was dependent upon existing compliance with the quality protocol compost, the applicable standard PAS 100, and White Moss’s environmental management and quality management systems and, in particular, its standard operating procedure.

[6]The claimant contends that Mr Washington knew of, and participated in, the processing of grossly excessive volumes of waste on the Kirkby site which White Moss could not handle consistently with its own procedures and, in consequence, with the regulatory requirements. Putting the matter at its highest, the claimant contends that Mr Washington caused White Moss to accept volumes of green waste that he knew it could not handle, and he then instigated a culture of cover-up to hide the company’s non-compliance. At its lowest, it is said that Mr Washington turned a blind eye to what was going on.

[7]It is in those circumstances that the claimant advances a claim for fraudulent misrepresentation against Mr Washington as well as warranty claims for breaches of warranties under the sale and purchase agreement. It is said that both the increase in business before the proposed sale, and the sale to the claimant, were for the financial benefit and gain of Mr Washington. The claimant therefore contends that this is a case of someone who has been willing to engage in dishonest conduct for financial gain and, in particular, to sell White Moss to the claimant at a consideration in excess of £10 million when it was effectively worthless. The claimant says that whilst, in his particulars of defence, Mr Washington and the other defendants deny any wrongdoing, the defence obscures rather than clarifies the position.

[8]The without notice application for freezing relief is said to have been firmly - and it is also said fairly - placed on complaints in relation to there being knowing breaches of standard PAS 100 and, in particular, breaches of environmental regulations. That is said to comprise the focus of the case.

[9]Having reviewed the particulars of the defence, the claimant considers that Mr Washington has no sustainable defence to a number of the breach of warranty claims. It has indicated the intention to apply for summary judgment. The defendant points out that it has not yet done so.

[10]Mr Davies, in his reply, has pointed to the fact that the defence makes it clear that Mr Washington had been aware of the need to expand the composting availability at the Kirkby site by acquiring land for the purpose of constructing a second composting pad. The defence pleads that this was made known to the claimant, and was one of the bases upon which it proceeded with the purchase. It is said that difficulties have been experienced because of an unforeseen delay in the claimant’s completion of the purchase.

[11]The application for freezing relief came on for hearing before Judge Paul Matthews on 15th February 2017. On that occasion, Mr Sims appeared for the claimant/applicant. He had produced a detailed written skeleton in support of his application which gave an estimated pre-reading time of one hour and an estimated time in court of thirty minutes to one hour. At para.6 of that skeleton, Mr Sims pointed out that events had developed over the previous week such that not only had the site at Kirkby stopped processing, but a product recall - a consumer product recall, in fact - was said now to have commenced due to the claimant’s concerns in relation to public health. In fact - but it is said unknown to Mr Sims and to Mr Burnette - a consumer product recall had not commenced and, in fact, was never undertaken.

[12]The skeleton argument made it clear that the application was advanced on the footing that not only was there a good arguable claim against the respondents for fraudulent misrepresentation and/or for breach of warranty or indemnity claims, but also that there was a real and substantial risk that the respondents might dissipate their assets, and, in particular, what was left of the substantial cash, in excess of £7 million, which had been received from the claimant on completion of the sale and purchase agreement just over a month earlier, once the defendants were notified of the intended proceedings and of the likely scale of the claim. The skeleton argument addressed in terms what was said to be the real risk of dissipation of assets. Reference was made to a number of authorities, including the Court of Appeal’s decision in VTB Capital plc v Nutritek International Corporation

[2012] EWCA Civ 808

[2012] 2 Lloyd’s Rep 213

. Paragraph 23 of the skeleton identified what was said to be substantial and cogent evidence demonstrating a real risk of dissipation in relation to the respondents, including, in particular, Mr Washington.

[13]Paragraph 24 identified certain matters that the respondents might have sought to pray in aid in resisting any order. Amongst those was the fact that the respondents might say that they had no intention of moving anywhere although the point was made that assets, including, in particular, cash, could be dissipated without someone moving. At para.25 it was said that, on balance, the risk of dissipation was plain to see in the case and very substantial indeed. It was said that the respondents, and, in particular, Mr Washington, had ostensibly been involved in the concealment of non-compliance with important environmental standards, and had been willing to make dishonest representations and to cover that up when selling White Moss to the claimant, which was said to have enabled him, and the other respondents, to make a very substantial financial gain. The issue of full and frank disclosure, which was recognised by Mr Sims, was addressed at paras.27 to 29 of the skeleton. At para.37 the point was made that, so far as the claimant was aware, none of the respondents were operating any business or trading concern which would be adversely affected by the relief sought on the application.

[14]Judge Paul Matthews delivered a short extemporary judgment. The approved transcript runs to ten paragraphs and bears the neutral citation number

[2017] EWHC 380 (Ch)

. At para.5 the judge said that he was satisfied that there was a claim to a legal or equitable right in support of which the injunction was being sought. That was identified as the right to rescind the sale agreement. He was satisfied that there was a good arguable case for the relief claimed in respect of the right to rescind the transaction which was good against all five respondents. At para.6 the judge said that he was satisfied that there was a sufficient risk of dissipation in relation to Mr Washington. He referred in terms to the VTB Capital Plc case and, in particular, to para.177 where, speaking on behalf of the Court of Appeal, Lloyd LJ said that the court agreed with Peter Gibson LJ in an earlier case that the court should be careful in its treatment of evidence of dishonesty. However, where, as in that case, the dishonesty alleged was at the heart of the claim against the relevant defendant, the court might well find itself able to draw the inference that the making out, to the necessary standard, of that case against the defendant also established sufficiently the risk of dissipation of assets. The judge commented at para.7:

“In the present case there is considerable evidence that over a long period there has been systematic breaching of the various standards and rules that apply to the process of turning biodegradable waste into compost and, in particular, in relation to the testing of the product for the presence of harmful pathogens and other micro-organisms, but also in other respects. In those circumstances, it is open to the court to infer, and I do infer, that there is a risk therefore that the first respondent will take steps to dissipate his assets if he is warned before the making of this order.”

[15]The judge went on to say that the position was different in relation to the other four respondents, and he gave reasons for that view. He was, for those reasons, not prepared, at that stage, to grant a freezing injunction against them, although he recognised (at para.9) that that position might change, either because further evidence was discovered or because the nature of the claim to relief itself changed. For example, he said that when the applicant served a notice of rescission of the contract, and thereby claimed to vest the beneficial ownership of the monies in itself, then the considerations for a freezing injunction would be rather different. He then went on to address the cross-undertaking in damages.

[16]On that basis, Judge Paul Matthews granted a freezing injunction against the first defendant, Mr Washington, but not against his co-defendants. The order provided for a return date at 10.30 on 1st March, 2017. Mr Washington instructed Addleshaw Goddard to act on his behalf. In order to avoid an effective hearing on the return date [in the event, before Dingemans J], the matter was disposed of by way of a consent order, incorporating undertakings from Mr Washington. The freezing injunction was discharged and the return date vacated. Paragraph 4 of the order expressly provided that the first defendant should have liberty to be released from, and/or to apply for variation of, the undertakings set out in sch.1 to the order; and the costs were reserved. The undertakings in sch.1 related to the preservation, until judgment or further order, of funds held in a particular bank account. It also prevented any disposal of, or dealing with or diminution in the value of, funds held in a joint account with another bank, except for expenditure of up to £10,000 a calendar month towards living expenses, a payment in a specified amount under a finance agreement with a named financial services company, and £220,000 (together with reasonable legal fees) in respect of Mr Washington’s daughter’s purchase of a new home. Specific undertakings were also given in relation to dealings with Mr Washington’s interest in the family home in Liverpool, his interest in a holiday home on Anglesey, and the entire issued share capital of three companies.

[17]Those undertakings have subsequently been varied by consent by way of a consent order which I approved on 29th August 2017. That consent order itself expressly provides for Mr Washington to have liberty to be released from and/or to apply for variation of the undertakings given in that consent order. The costs of both orders have been reserved.

[18]The proceedings were transferred to the Liverpool District Registry by a further order of Judge Paul Matthews dated 17th August 2017. On 25th August Mr Washington issued the present application to be discharged from the undertakings contained in the schedule to Dingemans J’s order, and also the undertakings contained in sch.1 to the consent order which I was shortly thereafter to approve. He also seeks an order for the claimant to pay his costs of the application for a freezing injunction and of the instant application, to be assessed forthwith on an indemnity basis if not agreed. That application is supported by witness statements from Mr Washington dated 22nd August 2017 and from his solicitor, Victoria Frances Pool, a solicitor and managing associate with Addleshaw Goddard, dated 25th August 2017. The evidence in response is contained within the second witness statement of Mr Burnette dated 6th September, 2017 together with exhibit AJPB3. It is fair to the claimant to observe that Mr Burnette had been put under considerable pressure in assembling that evidence for today’s hearing. The claimant’s solicitors have objected to this hearing being held today, on an urgent basis for which they say there is no justification from the applicant’s point of view. I have heard detailed oral submissions from counsel for both parties which, because the matter was listed for only a day, I have had to limit in terms of time.

[19]The pleadings are now effectively closed in the matter. Since the claim form was issued it has been amended to seek an indemnity pursuant to the sale and purchase agreement, as well as damages for alleged breaches of warranties. The particulars of claim no longer include any claim for rescission of the sale and purchase agreement.

[20]At the outset of this hearing, I queried whether there was any objection to the application on the footing that undertakings had been given until trial, and whether a change of circumstance was needed before this application could be brought forward. For the claimant, Mr Sims does not dispute Mr Washington’s entitlement to advance the present application. Mr Washington’s reasons for agreeing to provide the undertakings have been pragmatic. He wanted to avoid spending considerable time and money preparing for a return date, and he had always made it clear that the provision of the undertakings was subject to the possibility of this application being made, and that he intended to seek his costs of the freezing order application on the basis that it had been improperly sought. He says that he had been prepared to live with the undertakings but he has found it impossible to do so because of what he says is the claimant’s unreasonable conduct in policing the undertakings.

[21]I am satisfied that this application can proceed without the need for proof of a change of circumstances since the undertakings were given. Those undertakings were expressly given on the basis that the giver of the undertakings, Mr Washington, would be allowed to apply to be discharged from them, and his solicitors had made it clear that that would be on the basis that the freezing injunction had been inappropriately applied for. In any event, I am satisfied that there has been a sufficient change of circumstances since the undertakings were given in that there is no longer any claim for rescission of the sale and purchase agreement which had been the basis upon which the judge had taken the view that there was an arguable case. I should also say that, contrary to the evidence before Judge Paul Matthews, there has been no consumer recall, and that was not known to Mr Washington at the time he gave the undertakings to Dingemans J.

[22]The application by Mr Washington to be discharged from his undertakings is advanced on three independent bases. The first is that there is not, and never was, any real risk of unjustified dissipation on the part of Mr Washington sufficient to justify a freezing injunction. The second is that the claimant materially failed in its duty of full and frank disclosure to Judge Paul Matthews. The third is that the claimant’s conduct in relation to the undertakings has been so oppressive and obstructive that it is not just and convenient for the first defendant to continue to be bound by them. In the course of his oral submissions, Mr Davies accepted that that third ground was not a free-standing basis for Mr Washington to be discharged from his undertakings. He recognised - in my judgment correctly - that he was unlikely to be able to succeed in securing such a discharge on the third ground if the other two failed; but he submitted that the claimant’s behaviour was a significant factor in the application coming before the court today. The way the claimant has sought to police the undertakings is said to have made life intolerable for the first defendant.

[23]The first basis of the application is that there is not, and never was, any real risk of unjustified dissipation of assets to justify a freezing injunction. There is no real dispute as to the applicable legal principles, although in one respect there is a dispute as to their practical application. The relevant test is whether there is solid evidence of a real risk, judged objectively, that a future judgment would not be met because of unjustifiable - and emphasis is placed by Mr Davies on the word “unjustifiable” - dissipation of assets, bearing in mind the need to maintain the close regulation of the availability of injunctions which have the nuclear effect of prohibiting the affected party from dealing with his assets.

[24]I have been taken to a number of authorities. The most significant seem to be the following: first, the decision of Haddon-Cave J in AH Baldwin and Sons Limited v Al-Thani

[2012] EWHC 3156 (QB)

. The relevant passage in the judgment is to be found at paras.30 and 31, which deal with the main principle, and useful guidance to be gleaned from the authorities, respectively:

“The relevant legal principle in determining whether, for the purposes of granting or maintaining a freezing order, a claimant has shown a sufficient ‘risk of dissipation’ is that the claimant will satisfy that burden if it can show that: (i) there is a real risk that a judgment or award will go unsatisfied, in the sense of a real risk that, unless restrained by injunction, the defendant will dissipate or dispose of his assets other than in the ordinary course of business... (ii) that unless the defendant is restrained by injunction, assets are likely to be dealt with in such a way as to make enforcement of any award or judgment more difficult, unless those dealings can be justified for normal and proper business purposes.” real risk that, unless restrained by injunction, the defendant will dissipate or with in such a way as to make enforcement of any award or judgment more difficult, unless those dealings can be justified for normal and proper business purposes.”

difficult, unless those dealings can be justified for normal and proper business

[25]Those observations were uttered in the context of commercial parties and therefore reference was made to the dissipation or disposal of assets other than in the ordinary course of business. In the case of an individual, it seems to me that the relevant qualification should be the dissipation or disposal of a defendant’s assets otherwise than in the ordinary course of the conduct of his personal and financial affairs, including his dealings with his family.

[26]Haddon-Cave J’s guidance is set out at para.31. Mr Sims placed particular reliance upon the fourth of the guidelines: “If there is a good arguable case in support of an allegation that the defendant has acted fraudulently or dishonestly, or with unacceptably low standards of morality giving rise to a feeling of uneasiness about the defendant... then it is often unnecessary for there to be any further specific evidence of dissipation for the court to be entitled to take the view that there is a sufficient risk to justify granting [freezing] relief.”

acted fraudulently or dishonestly, or with unacceptably low standards of morality

[27]Mr Davies places reliance upon the fifth of the guidelines:

“Although it is not necessary to establish that the defendant is likely to act with the object of putting his assets beyond reach, it is necessary to show e.g. the defendant dealing with assets in a manner other than in the usual or ordinary course of business or life, so as to render enforcement more difficult or impossible.” object of putting his assets beyond reach, it is necessary to show e.g. the defendant or life, so as to render enforcement more difficult or impossible.”

object of putting his assets beyond reach, it is necessary to show e.g. the defendant

[28]Those principles were effectively endorsed by the Court of Appeal, speaking through Gloster LJ, in the more recent case of Candy v Holyoake

[2017] EWCA Civ 92

. Mr Sims also places particular reliance upon what was said at para.51 of Gloster LJ’s judgment in that case:

“... unless an applicant has raised a prima facie case to support a freezing order, the respondent is not obliged to provide any explanation or answer any questions posed – and nor can a purported failure to do so be held against the respondent. It is only if the applicant has raised material from which a real risk of dissipation can be inferred that the respondent will be expected to provide an explanation. Then, in appropriate circumstances, the lack of a satisfactory explanation may give rise to an adverse inference.”

[29]Mr Sims submits that if the claimant in this case has raised material from which a real risk of dissipation can be inferred, then, in appropriate circumstances, the fact that Mr Washington is not prepared to continue his undertaking may give rise to an adverse inference against him. Mr Davies disputes that proposition.

[30]It seems to me that if the claimant has raised material from which a real risk of dissipation can be inferred, then the court may, in all the circumstances, draw an adverse inference from Mr Washington’s failure to continue his undertaking; but it is only if the claimant has raised material from which a real risk of dissipation can be inferred that such an inference can be drawn, and whether it is appropriate to do so will depend on all the circumstances of the case. In my judgment, what is necessary is for there to be solid evidence of a real risk, judged objectively, that a future judgment will not be met because of an unjustifiable disposition of assets, an unjustified disposition for this purpose being one other than in the usual or ordinary course of Mr Washington’s personal life. That is the test which I propose to apply in the present case.

[31]Mr Davies submits that the claimant had, and still has, no such solid evidence of a real risk, judged objectively, of such dissipation. He submits that all the evidence is to the contrary. He points to the fact that the claimant had told Mr Washington on 3rd February that he was being suspended from his role as managing director at White Moss. Mr Washington had written to the claimant on 10th February, some four days before the application for the freezing injunction was made, and five days before the matter came before the judge, to say that he wanted to assist the claimant and White Moss in resolving any immediate problems. It is said that Mr Washington had therefore had ample opportunity to dissipate his assets, having become aware of the claimant’s investigations on 3rd February, yet he had not done so. Nor was there any evidence to suggest that he intended to do so. Mr Davies submits that a defendant’s response to an anticipated claim is relevant to the court’s assessment of the risk of dissipation of assets. In that regard, it is also relevant to bear in mind that Mr Washington was on holiday in Antigua between 26th January and 7th February. Mr Davies points to the fact that almost all of the monies Mr Washington had received from the claimant pursuant to the sale and purchase agreement had remained in his two UK bank accounts. Those monies were untouched when the freezing injunction was made, save for some day-to-day living expenditure, payments to discharge his mortgage, his wife’s car finance and his daughter’s car finance. It is said that none of those payments amounted to unjustified dissipation of Mr Washington’s assets.

[32]Mr Davies points to the fact that this is not a case in which funds have been spirited away into international bank accounts. He emphasises that the allegations made against Mr Washington relate to non-disclosure of regulatory non-compliance regarding the handling of waste material, and do not relate to the misappropriation of monies. He emphasises that Mr Washington has lived and worked all his life in the Liverpool area. He has no international assets, business connections or bank accounts. He is said to have comprehensively denied the allegations of dishonesty against him, and he contends that the claimant’s allegations in that regard have relied on material mischaracterisation of the evidence. There is, Mr Davies submits, no risk of Mr Washington “upping sticks and running away”, any more than there was in the case of the second to fourth defendants, as was accepted by Judge Paul Matthews. As with those defendants, Mr Washington remains firmly bound to his home and family near Liverpool, where he lives with his wife. His son is at university in Manchester and lives at home during holidays. His eldest daughter lives at home with the first defendant, and his wife, and his youngest daughter lives close by. She is pregnant with Mr Washington’s first grandchild.

[33]Another powerful reason why Mr Washington was unlikely at the date of the hearing before Judge Paul Matthews to “up sticks”, as Mr Davies puts it, was that he remained employed by the claimant as a director of White Moss and, most importantly of all, had a serious financial interest in its success following the purchase because of the deferred consideration provisions of the sale and purchase agreement, which might have enabled him to earn up to a further £2.2 million depending upon the company’s performance up to August 2017. It is said that none of those facts was controversial, and all of them had put the lie to the contention that Mr Washington would engage in unjustifiable dissipation of his assets. He has subsequently resigned as director of White Moss on the footing that he has been constructively dismissed. Given Mr Washington’s known history and background, it is said that there was no proper basis for any inference that there was a risk of him dissipating his assets by any unjustified means.

[34]Mr Davies accepted that the court could consider the allegations made against Mr Washington, but it would need to scrutinise carefully those allegations to find whether they constituted solid evidence of an unjustified risk of dissipation when weighed against all the other countervailing factors. Mr Davies submitted that Mr Washington was not the type of individual who would unjustifiably dissipate his assets and there was no real evidence to suggest otherwise. He invited the court to bear in mind Mr Washington’s background and the type of person he is, with his roots and family firmly based in Liverpool. Mr Davies objected that Mr Burnette’s affidavit in support of the application had not drawn attention to the fact that the property in Liverpool was Mr Washington’s family home. He had no assets abroad and no adverse credit history. He and his father had built up the White Moss business as a family business over the previous 40 years. It was a business in which he took pride. The shares in the company had been his principal asset. He would not have sought to put those assets at risk by engaging in a blatant fraud. His decision to remain with White Moss after the sale, and continue to develop and expand it, remaining as managing director and full of optimism going forward, all militated against the inference that there was any risk of an unjustified dissipation of assets.

[35]Mr Washington’s continuing involvement in the business was said to put pay to the allegation that he would have involved himself in a systemic fraud leading up to the sale. Apart from anything else, any fraud was likely to be found out, either as part of the claimant’s due diligence process or after the completion of the sale. Mr Davies endorsed a point made by me that there was no question of Mr Washington having set up any offshore family trusts in any non-transparent overseas jurisdiction.

[36]Mr Davies pointed to Mr Washington’s response to his suspension at paras.21 through to 24 of his witness statement, and he laid emphasis upon what was said at para.24 in wanting to help to resolve the problems. That was said not to be the reaction of someone who was engaged in a deceitful cover-up, or who was minded to dissipate his assets. It would have been obvious to anyone, including the claimant, that Mr Washington was deeply concerned about something that it was being said that he had done. At that point, if Mr Washington had been engaged in any systemic fraud, then, surely, if minded to do so, Mr Washington would at that point have taken the opportunity to dissipate his assets and put them beyond the prospect of recovery by the claimant.

[37]Mr Davies emphasised the lack of any allegation of misappropriation of funds or the spiriting away of White Moss’s assets. He pointed out that Mr Washington would have known that the claimant would carry out a thorough due diligence process before completion of the sale and purchase agreement, and that that document would contain extensive warranties regarding compliance with the regulations governing the company’s business, and that those warranties would be required to be given also by his sisters as his co-sellers. In those circumstances, he would have been likely to know that any systemic fraud would be easily discovered. The misrepresentations alleged by the claimant were said not to establish any propensity to dissipate assets without justification.

[38]Mr Davies acknowledged that the court could not begin to form any view of the merits of the case, but it was entitled to conclude that Mr Washington would have known that the due diligence exercise would be carried out, and that in carrying out that due diligence the claimant would have discovered the height of the windrows. There had been no attempt to cover their height up. Mr Washington had given unfettered and unrestricted access to all of the company’s sites and company documents. The claimant could have asked for or inspected anything it wanted. Mr Washington had put no restrictions upon the claimant in any way.

[39]Mr Davies pointed to the fact that White Moss was producing some 7 to 8 million bags of compost each year but only 100 to 150 complaints had been received from recipients. It had been enjoying repeat customers year on year. That would not have happened if there had been systemic failures and the company’s product was not of a quality calculated to generate repeat customers year on year.

[40]Mr Davies submitted that, in fact, there had been a massive and unrealistic overreaction by the claimant to its discoveries. It had come nowhere near to establishing a risk of dissipation of assets on the part of Mr Washington. Mr Davies acknowledged that the substance of the present application was the lack of any real risk of dissipation.

[41]In his oral submissions, Mr Sims emphasised that the claimant’s case is that Mr Washington knew that the claimant was interested in purchasing White Moss because of the assurances he had given as to the company’s present and future capacity. He knew full well that far too much volume of green waste material was going through the Kirkby site in particular for the company to cope with properly. Mr Sims said that Mr Washington knew that if he told the claimant that, he would kill off the sale. Mr Sims emphasised that the test was not the likelihood, but rather the real risk, of a dissipation of assets. The claimant was making serious allegations of dishonesty and that Mr Washington had been involved in a deliberate cover-up extending over a long period of time. He emphasised that the claimant’s case is that it has paid £10 million for a business which is now worthless.

[42]Mr Sims submitted that the thrust of Mr Davies’s submission appears to be that simply because the claim is based on fraud, that factor alone is not actual evidence to support a risk of dissipation. If that was the building block upon which the application were based, then it was said to be an unstable and incorrect one. Where allegations of fraud are made, it was submitted that it is open to the court, from that fact alone, to infer that there is a real risk of dissipation. Mr Sims recognised that the court is not required to do so: it is a fact-sensitive exercise; but he says that that was emphasised at the without notice hearing.

[43]At the hearing before Judge Paul Matthews, the judge had made observations which showed that he had had well in mind that there was no international dimension to this case, and that that was a distinguishing factor from the VTB Capital case. By way of example, here the holiday home was in Anglesey, and not in Switzerland, a point that was rightly identified by the judge as being against the claimant. It was also emphasised to the judge that this case was not one concerning a web of international companies. In short, it was fully recognised that the facts of the present case were very different from those in the VTB Capital case.

[44]Mr Sims submitted that the reasons why it was identified before Judge Paul Matthews that there was a real risk of dissipation were three in number: first, the evidence pointed to endemic dishonesty on the part of Mr Washington over a long period of time; secondly, that dishonesty was used to make a financial gain, in particular from the claimant; and, thirdly, there was said to be a large volume of cash. Those three factors showed that there remained a real risk of dissipation. The fact that Mr Washington was, and had been, living in the United Kingdom for some time, and had a home and roots in the Liverpool area, was said not to remove that risk. There remained a real risk of steps being taken to dissipate, especially as Mr Washington would now be aware that the claimant would seek to take swift, and maximum, steps to enforce any judgment obtained against him and, indeed, to obtain such a judgment as soon as it reasonably could achieve, if necessary by way of an application for summary judgment. It was because of that real concern that the claimant maintained its opposition to the application.

[45]Such concern was strengthened, and not assuaged, by the factors which Mr Sims identified at para.22 of his skeleton argument, and which he reiterated in his oral submissions. The court was entitled to conclude that the jurisdictional threshold remained crossed, having regard to the totality of the evidence adduced by Mr Washington on the present application. At para.24 Mr Sims responded to a number of submissions made in support of the defendant’s submission that there was no actual evidence to support a risk of dissipation. It was said that Judge Paul Matthews had had the essential thrust and substance of those points drawn to his attention but had rightly concluded that they did not remove the real concern as to risk of dissipation, which was, and remains, principally focused upon Mr Washington’s knowledge and participation in serial wrongdoing and the presence in his hands of a large sum of money.

[46]In his oral submissions this afternoon, Mr Sims contended that the dishonesty which gives rise to an inference of a risk of dissipation does not require there to have been any transfer or movement of money. In any event, he submitted, in the present case the dishonesty relied on by the claimant was, indeed, linked to the movement of money, money that had moved from the claimant to the defendant as consideration for the sale and purchase of the shares in White Moss. Mr Sims submitted that the court could take account of the fact that Mr Washington was not willing to continue his undertakings. Mr Sims submitted that once he had shown a genuine and real risk of dissipation, that was a consideration that the court could take into account. In those circumstances, Mr Washington’s reluctance to continue his undertakings was said to be a relevant factor. Mr Washington’s longstanding ties, both himself and through his family, with Liverpool were said not to negate the risk of dissipation. Mr Sims submitted that the failure on the part of Mr Washington to stash away any money between completion of the sale and purchase and the discovery of this litigation may simply indicate that Mr Washington had not anticipated discovery or any legal proceedings. There was nothing to indicate that Mr Washington had felt at any risk that his wrongdoing would be discovered. The window of risk only arose after Mr Washington knew of the nature of the allegations that had been made against him, and by then the injunction was already in place.

[47]As for the letter of 10th February 2017, Mr Sims submitted that the offer to assist was in the context of an attempt to reduce any claim for damages against him. It was put forward in the context of an attempt to mitigate any loss, and thus any resulting claim in damages. Mr Sims also pointed out that when one looked at what action Mr Washington had actually taken after the letter of 10th February, he had failed to attend the disciplinary meeting which had been convened by the claimant to consider his alleged wrongdoing.

[48]The consumer recall which had been relied upon in the evidence before Judge Paul Matthews had not been cited in relation to any risk of dissipation, but rather in support of the urgency of the application, and the fact that it was being advanced on a without notice basis. There had been no intention to rely upon the consumer recall in the context of risk of dissipation.

[49]So far as Mr Davies might rely upon Mr Washington’s conduct since the making of the freezing order, and Mr Washington’s undertakings at the end of February, it was not surprising that there had been no dissipation of assets by Mr Washington because he had been bound, first by the order, and then by the undertakings. Mr Washington might wish to make substantial gifts to family members. He had already made a loan to one of his daughters to enable her to purchase a house. Mr Washington had been unjustified in seeking £10,000 to spend on a family holiday this summer because he was entitled to a monthly allowance of £10,000 for living expenses. When viewed against his £167,000 gross salary, including any bonuses, £10,000 a month for living expenses should be viewed as more than enough to cover the cost of any family holiday, particularly given that Mr Washington was no longer incurring any payments on the mortgage on his family home.

[50]Those essentially were the submissions. What I have to consider, as I have already indicated, is whether the claimant has adduced solid evidence capable of giving rise to the inference of a real risk, judged objectively, that a future judgment will not be met because of an unjustifiable dissipation by Mr Washington of his assets; that is to say a dissipation otherwise than in the ordinary course of his family life. On all the evidence in this case, I am not satisfied that such solid evidence has been made out by the claimant, and Mr Washington should be discharged from his undertaking on that basis. I accept the submissions of Mr Davies for Mr Washington in preference to those of Mr Sims for the claimant. This is not a case with any international or overseas connection. Mr Washington has not been engaged in any financial irregularity or misappropriation of money. I note the allegations of systemic fraud made against him. Those are allegations which I cannot determine on this application on paper; but given all the circumstances of the case, they do not, in my judgment, give rise to any real risk, judged objectively, that a future judgment will not be met because of an unjustifiable disposition by Mr Washington of his assets.

[51]As Mr Davies emphasised in opening, this is no longer a case in which there is any threatened claim for rescission. As a result, there is only a personal claim to damages. The assets presently the subject of Mr Washington’s undertakings are his assets, and not the claimant’s. Subject to any undertakings, he is entitled to do what he wants with them. I am not satisfied that there is any risk that he will dissipate those assets in any unjustified manner. There are mechanisms available under the Insolvency Act if a judgment is ultimately obtained against Mr Washington and he is made bankrupt. There are sections of the Insolvency Act directed to transactions at an undervalue, particularly to connected parties, and at transactions entered into with a view to defeating the interests of creditors. Mr Washington is presently on notice of the present claim. Nothing in his conduct before the application for an interim freezing injunction, and after completion of this transaction, gives me any cause for concern that Mr Washington will seek to put his assets beyond the reach of the claimant in a way that is otherwise than in the ordinary course of his family life, bearing in mind that he has now realised his principal asset in the form of his shares in White Moss. Even if he does so, I am not satisfied that he will be successful in putting them beyond the effective reach of the claimant; but I see no real risk of Mr Washington doing that. He has strong family ties with Liverpool, and there is no evidence of any involvement in overseas trusts.

[52]I find that this application succeeds on the first of the grounds advanced by Mr Davies. I can deal with the other grounds quite quickly therefore. There was no dispute as to the applicable legal principles, which were identified in the respective skeleton arguments. Mr Sims referred to a number of authorities at paras.26 through to 33. From them, he sought to distil a number of non-exhaustive points of principle at para.34. Subject to one qualification, I accept those points of principle. First, if the non-disclosure would have resulted in the order not being made initially, then the proper remedy is for the order to be discharged. Secondly, if an order could properly have been made even if the material facts or matters had been disclosed, the court may, nevertheless, continue the order, or make an order on new terms, particularly where the failure was innocent and not grave. That principle must be read in conjunction with principle 4. The third principle is that the court should be wary of conducting a mini-trial, but is entitled to have regard to the merits of the applicant’s case. The fourth principle is that a material non-disclosure which was intentional, or grave even if not intentional, will tend to tip the balance in favour of discharge. Fifthly, other factors may still be relevant, however, including the duration of the breach and the consequence of the breach. Finally, and sixthly, overall the court must have in mind the question of the overriding objective and proportionality.

[53]The second and fourth principles have to be read together. The court will lean towards discharge if the failure is grave, even if it is not intentional. The court will maintain an order only sparingly if a material fact or matter has not been disclosed, and will only do so if to set aside the order would work injustice to the parties. In the present case, despite all of the points made by Mr Davies at paras.35 through to 52 of his written skeleton argument as supplemented orally, albeit (due to constraints of time) only briefly, I am not satisfied that there was any failure of full and frank disclosure, still less any misrepresentation of the evidence. Even if there was, and in any event, I am not satisfied that, but for that material non-disclosure or misrepresentation, the order would not have been made, at least at the without notice stage. Given that my decision does not turn on the point, it seems unnecessary for me to elaborate upon those points.

[54]Mr Davies accepted that his submissions on unreasonable behaviour advanced at paras.53 through to 58 of his skeleton did not form a free-standing basis for discharge. I have already indicated that I will discharge the order on the grounds that no real risk of dissipation has been demonstrated and therefore I need say nothing more about them. I should, however, indicate this: that if I had accepted the submissions of Mr Sims, and had found that there was a real risk of dissipation of assets, I would not have left the existing undertakings in place. I would have been prepared to discharge those undertakings conditionally upon Mr Washington repeating the undertakings, but qualified in the sense that the undertakings would have included the facility of enabling him to deal with his assets with the prior written agreement of the claimant, not to be unreasonably withheld or delayed. I am concerned that requiring a court order every time there is to be a variation of the undertakings has proved to be unwieldy, and to have resulted in unnecessary legal expense and delay. Therefore, I would have allowed Mr Washington the opportunity to repeat the undertakings, but qualified by the facility of enabling dealings with the written agreement of the claimant, not to be unreasonably withheld or delayed.

[55]I would also have varied the undertakings as so repeated to have permitted the loan of £25,000 to be made to White Moss Nursery, and to have allowed Mr Washington to withdraw a further £10,000 for holidays every six months. I acknowledge Mr Sims’s point that the £10,000 living expenses properly reflect the salary that Mr Washington was receiving on a net basis; but now that he has realised his interest in the company, I do not see why he should not have been allowed to have the money to pay for family holidays in addition to his normal living expenses. As Mr Davies pointed out, the function of a freezing injunction is not to give security for a claim but to prevent a risk of unjustified dissipation of assets. It does seem to me to be unreasonable not to allow Mr Washington, particularly if he is now at leisure, to take holidays twice a year when he wants to; but in the event that does not arise. I am satisfied that no real risk of dissipation of assets of an unjustified nature has been demonstrated and, in those circumstances, I will allow the application. LATER

[56]Having delivered my substantive judgment in the matter, I now, inevitably, have to address the issue of costs. I first ask myself who has been the successful party and, undoubtedly, it is the first defendant, Mr Washington. He has succeeded in securing the discharge of himself from his undertakings on the footing that I am not satisfied that there is any real risk, objectively considered, of an unjustified dissipation of assets on his behalf.

[57]For the claimant, Mr Sims submits that that does not infect the original freezing injunction and the undertakings given thereafter by Mr Washington. He submits that I have not found that there was a lack of full and frank disclosure in making the original application for freezing relief. Thereafter, Mr Washington gave undertakings and he has thereafter applied to vary those undertakings and costs have been incurred in consequence. Those variations would have been unnecessary if Mr Washington had applied earlier for the undertakings to be discharged or had not given them in the first place.

[58]On the application to discharge, Mr Sims takes the point that the application has succeeded only on one of its limbs, and that I have rejected the application to discharge on the basis of a want of full and frank disclosure. On that basis, Mr Sims submits that the earlier costs should either be in the case or there should be no order for them; and, in relation to the discharge application, the claimant should only be entitled to recover a third of his costs.

[59]For the first defendant, Mr Davies submits that I have found that there was no real risk of dissipation of assets sufficient to justify the grant of any interim injunction in the first place. It follows that the claimant obtained a freezing injunction when it should not have done so, and it should have to bear the consequences, and all of the consequences, of having done so. As a result, the claimant should have to pay the first defendant’s costs flowing from the grant of the injunction, which include the costs of the various variations. He further submits that there should be no deduction from the costs to be awarded to the successful first defendant for the full and frank disclosure aspect of the discharge application. He submits that it was not unreasonable of the first defendant to have raised the issue of full and frank disclosure; and, in any event, the issues so raised infected the argument on the risk of dissipation. There should therefore be no discount from the costs to be awarded to Mr Washington against the claimant.

[60]As I say, I am satisfied that the first defendant is the successful party. So far as the costs of the original freezing injunction are concerned, the claimant should not, in my judgment, have applied for that freezing injunction because there was no objective reason for thinking that there would be a real risk of dissipation of assets. That does not depend upon any evidence that has come to light since then. That is a position that should have been apparent to the claimant back in February. I see no reason why the defendant should not recover the costs flowing from the original grant of the freezing injunction. That includes the costs of seeking a variation of it from time to time. So I will award the first defendant his costs of the original injunction and the various attempts to vary it.

[61]So far as the discharge application is concerned, the first defendant has been successful and should be entitled to his costs. I do have to bear in mind that he has not been successful on all of the issues that he has raised. I also bear in mind, however, that it is very difficult to disentangle the issues relevant to the risk of dissipation and those relevant to full and frank disclosure. There was a considerable intermingling of the evidence on those two issues. There was no fine line to be drawn between them. Having said that, had the application been more closely focused upon the risk of dissipation, I have no doubt that there would have been savings in terms of the costs of preparation for the hearing on both sides. I am not satisfied that it would have made any real difference to the length of the hearing because I am sure that even if the basis of the application had been more finely focused, it would have taken the full day available for it.

[62]Bearing all of those factors in mind, bearing in mind also that it is not simply a question of not allowing the claimant to recover all of his costs for the discharge application, but that some compensation has to be allowed to the claimant for the fact that it has incurred costs in addressing issues on which it has been successful, and in the exercise of my discretion, based upon my perception of the evidence and issues in the case, it seems to me that the appropriate order to make is to allow the first defendant, who had to make the discharge application because he had pragmatically given undertakings in response to the freezing injunction which should not have been granted in the first place (although I do not criticise the judge for having granted it on the material before him), to recover two-thirds of his costs of the discharge application. In other words, the claimant is to pay the first defendant’s costs of the original freezing injunction and of dealing with it, including dealing with the variations, and two-thirds of the costs of the discharge application.

[63]On that basis, the figure comes down to something in the order of £165,000 or thereabouts. It seems to me that the appropriate figure to allow as an interim payment on account is the figure of £85,000. I see no reason why the balance of those costs should not proceed to a detailed assessment forthwith. So I will order an interim payment on account of £85,000 and direct that the costs awarded to the first defendant be subject to a detailed assessment to take place forthwith. Transcribed by Opus 2 International Ltd. (Incorporating Beverley F. Nunnery & Co.) Official Court Reporters and Audio Transcribers 5 New Street Square, London EC4A 3BFTel: 020 7831 5627 Fax: 020 7831 7737 civil@opus2.digital __________ This transcript is subject to Judge’s approval