Phoenix Group Foundation v Cochrane & Anor [2017] EWHC 418 (Comm)

[2017] EWHC 418 (Comm)Case No CL-2017-000013
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 06/03/2017
Before
THE HON. MR JUSTICE POPPLEWELL
Between
PHOENIX GROUP FOUNDATIONApplicantGAIL ALISON COCHRANERespondentSTEWARTS LAW LLPRespondentHARBOUR FUND II LPAdditional Applicant
Mr Edward Bartley Jones QC & Mr Adam Chichester-Clark (instructed by Richard Slade & Co plc) for ClaimantMr James Drake QC (instructed by Stewarts Law LLP) for Second RespondentMr Martin Evans QC (instructed by SFO) for SFOMs Blair Leahy (instructed by Holman Fenwick Willan) for Joint Liquidators of Unicorn Worldwide Holdings Limited, Glen Moar Properties Limited and Ballaugh Holdings LimitedMs Lexa Hilliard QC (instructed by MHS Sprecher Grier Ltd) for Harbour Fund II LLPMr Tony Beswetherick (instructed by Stephenson Harwood LLP) for Enforcement ReceiversAddleshaw Goddard LLP for Viscount of JerseyHearing Hearing dates: 22 February 2017
Judgment ApprovedThe Hon. Mr Justice Popplewell :
[1]On 22 February 2017 I heard applications in which the issue was whether a freezing order made by Newey J in the Chancery Division on 30 September 2016, and continued by Rose J on 4 October 2016, should be continued until trial or discharged. At the conclusion of the hearing I announced my decision that the freezing order should be continued until further order. These are my reasons.[2]The issue arose in two applications. By an application notice issued on 30 September 2016 the Claimant (“Phoenix”) sought the continuation of the freezing order granted without notice by Newey J at the return date. By paragraph 3 of Rose J’s order of 4 October 2016, she continued the freezing order until a further hearing of the application in the Commercial Court to which the proceedings were to be transferred. The proceedings were transferred to the Commercial Court on 7 January 2017 and the hearing on 22 February 2017 was that hearing. The hearing had been listed for that date, following an adjournment, because the Second Respondent (“Stewarts Law”) issued an application notice on 9 January 2017 for an order that Phoenix’s continuation application be relisted and dismissed and that the freezing order be discharged.[3]The background to these applications is the lengthy and hard fought litigation between the Orb parties and Mr Ruhan which is described in my judgment of 15 April 2016 ([2016] EWHC 850 (Comm)) and which settled shortly thereafter. Dr Cochrane is a GP practising in Jersey who was one of the Orb parties. She has been declared bankrupt in Jersey by “en désastre” proceedings and her interests are now represented by the Viscount of Jersey, who did not appear on this application. Dr Cochrane held assets within a complex structure of companies known as the Arena Settlement worth many millions of pounds, over which the Orb/Ruhan litigation was fought. The Arena Settlement assets were held indirectly by Dr Cochrane through her shareholding in SMA Investment Holdings Ltd (“SMA”), a Marshall Islands company, which was the holding company at the top of the corporate structure. Those assets are now the subject of a number of competing claims.[4]Phoenix is a Panamanian foundation, run by a BVI company of which Mr Anthony Stevens is the prime mover, and of which Mr Stevens and his family are the ultimate beneficiaries. Mr Stevens is or at least was a business associate of Mr Ruhan. Stewarts Law is a well known firm of solicitors who acted for the Orb parties from August 2013 until about the time of the settlement of the Orb/Ruhan proceedings in April 2016.[5]The freezing order granted by Newey J and continued by Rose J freezes a sum of £2 million which Stewarts Law received on 14 September 2016 into its general client account. It represents the proceeds, or part of the proceeds, of the sale of a development site at Prandoty Street, Krakow, Poland (“Prandoty Street”) which is said to have completed the previous day. According to Dr Cochrane, Prandoty Street was one of the assets held by her within the Arena Settlement structure in April 2016.[6]Stewarts Law contends as follows that:(1) The £2 million was paid by, or at the behest of, Litigation Capital Limited (“LCL”) who had agreed to fund the Orb/Ruhan proceedings in 2011 and had committed to paying Stewarts Law’s fees. LCL is a company beneficially owned by Mr Anthony Smith who is the brother of Dr Gerald Smith, the Second Defendant in the parallel claim (CL-2016-000392). Dr Gerald Smith was formerly Dr Cochrane’s husband, and was the main protagonist behind the pursuit of the Orb/Ruhan proceedings on behalf of the Orb parties, although not himself a claimant.(2) Stewarts Law received that sum in part payment of its invoiced fees and paid disbursements incurred in the Orb/Ruhan proceedings, which in total exceed £4.3m.(3) Prandoty Street was an asset which had been transferred by Dr Cochrane to LCL on 6 May 2016, at a time when she was not enjoined by any court order from disposing of that asset.(4) Under the Solicitors Accounts Rules published by the Solicitors Regulation Authority, sums received by a solicitor in payment of invoiced fees and paid disbursements are “office money”, that is to say money which belongs beneficially to the solicitor, not the client, at the moment of receipt. The solicitor may determine immediately that the sums received are office money and take the money into its office account; or it may receive it into its general client account whilst determining its status, in which case it must transfer it into the office account within 14 days if it is office money.[7]At the time when Newey J granted the freezing order, Stewarts Law had had the money in its general client account for almost 14 days, and was threatening to transfer it to its office account.[8]At the time of the receipt by Stewarts Law of the £2 million, and of the orders made by Newey J and Rose J, Phoenix’s claim in these proceedings was a claim in debt against Dr Cochrane for approximately £73m under the terms of a loan note dated 29 April 2016 (“the Loan Note”). The Loan Note was one of the documents by which the Orb/Ruhan litigation was settled. The Loan Note includes amongst other things a continuing warranty at clause 12.1 that Dr Cochrane was and would remain the owner of the property set out in the schedule which included Arena Settlement assets. There was a further contractual undertaking not to sell or dispose of those assets. The assets in question included the Prandoty Street property. Phoenix has a good arguable case, at the lowest, that if on 6 May 2016 Dr Cochrane transferred to LCL Arena Settlement assets, including Prandoty Street, she did so in breach of the terms of the Loan Note, although there is no such claim or relief based on it currently pleaded in the proceedings.[9]On 24 June 2016 I granted Phoenix a without notice freezing order over Dr Cochrane’s assets in support of Phoenix’s claim commenced the same day. The freezing order was continued at the return day by my further order of 6 July 2016. That was not a proprietary order, but it identified Prandoty Street specifically as one of Dr Cochrane’s assets which was frozen. At that time neither I nor Phoenix knew of any purported transfer of assets to LCL on 6 May 2016.[10]There are other claimants to Dr Cochrane’s assets or former assets including those in the Arena Settlement. In particular there are other claimants to the £2 million still standing in Stewarts Law’s general client account, who claim that this should be preserved for their benefit. They are:(1) The liquidators of various companies within the Arena Settlement structure, in particular those sitting immediately beneath SMA in the structure, which were the holding companies for different parts of most of the Arena Settlement company structure (“the Arena Holdcos”). One of the Arena Holdcos, in liquidation from before April 2016, is Unicorn Worldwide Holding Inc., a BVI company (“Unicorn”). Unicorn sits above a corporate structure within which the company which is said to have owned Prandoty Street is located. On 8 July 2016 I granted a proprietary freezing order against Dr Cochrane in favour of the liquidators over assets which included Prandoty Street.(2) The Additional Applicant (“Harbour”) funded or agreed to fund the Orb parties in the Orb/Ruhan litigation from 2013, subsequently to LCL. Harbour has asserted a proprietary claim over assets which include Prandoty Street. In February 2017 Harbour issued an application to freeze the £2 million already frozen in Stewarts Law’s hands, which was to be heard at the same time as Phoenix’s application to continue its freezing order and Stewarts Law’s application to discharge it. Prior to the 22 February hearing, Harbour’s application was compromised on terms that it would be withdrawn upon an undertaking by Stewarts Law not to deal with the £2 million.(3) The Serious Fraud Office obtained a confiscation order against Dr. Gerald Smith, who was convicted of fraud and sentenced to 8 years imprisonment. The confiscation order was supported by a restraint order, issued originally by Wilkie J and varied by my order of 20 May 2016, to cover Arena Settlement assets within Dr Cochrane’s apparent ownership or control as assets which would arguably be available to meet the confiscation order. The restraint order included Prandoty Street. The SFO has appointed enforcement receivers (“the Enforcement Receivers”) who have been liaising with Dr Cochrane’s advisors in relation to the preservation and liquidation of various Arena Settlement assets. The SFO claims an interest in the £2 million; it did not seek to restrict Stewarts Law from applying it to the discharge of its costs if Phoenix’s freezing order were discharged and not renewed; if however the freezing order were ordered to remain in place, the SFO contended, as did Phoenix and the Arena Holdco liquidators, that the convenient course would be to have the sum paid to the Enforcement Receivers to hold to the order of the Court pending the determination of the rival claims. When I announced my decision not to discharge the freezing order, Stewarts Law did not oppose such a course and I made such an order accordingly.[11]Although those other claims had a bearing on the freedom of Stewarts Law to deal with the £2 million, the main question for determination at the hearing was whether Phoenix was entitled to a freezing order over that sum in Stewarts Law’s hands.

Chanel v Woolworth

[12]On behalf of Phoenix, Mr Bartley Jones QC took a threshold point that it was not open to Stewarts Law to advance arguments as to why the freezing order should be discharged, because it had had such opportunity before Rose J, and had addressed a number of arguments at that stage as to why the freezing order should not be continued; and that accordingly any further attempt to rerun those arguments or run further arguments fell foul of the principle in Chanel Ltd v F. W. Woolworth & Co Ltd [1981] 1WLR 485.[13]In Orb v Ruhan I endeavoured to summarise the relevant principle at [82] in the following terms:
“…..if a point is open to a party on an interlocutory application and is not pursued, then the applicant cannot take the point at a subsequent interlocutory hearing in relation to the same or similar relief, absent a significant and material change of circumstances or his becoming aware of facts which he did not know and could not reasonably have discovered at the time of the first hearing. It is based on the principle that a party must bring forward in argument all points reasonably available to him at the first opportunity; and that to allow him to take them serially in subsequent applications would permit abuse and obstruct the efficacy of the judicial process by undermining the necessary finality of unappealed interlocutory decisions.”
[14]The scope of the principle in relation to interlocutory applications is controversial. In Hollyoake v Candy [2016] EWHC 3065 (Ch) Nugee J drew attention at paragraphs [14] to [18] to the apparent conflict between on the one hand the decision of the Chancellor, Sir Terence Etherton, at an earlier stage of those proceedings, to the same effect as my summary in Orb v Ruhan quoted above, and on the other hand the Court of Appeal judgment in Woodhouse v Consignia Plc [2002] EWCA Civ 275.[15]On these applications it is not necessary to explore that tension further or seek to resolve it. Even on the stricter view which I and the (then) Chancellor took, the principle is not engaged to shut out Stewarts Law from addressing any arguments which are appropriate on this application. The circumstances in which the issues previously arose in front of Rose J were very different. The without notice application had come before Newey J in the early hours of Friday morning 30 September 2016, as a result of an error on the part of the court staff in insisting that the matter had to be addressed to the duty Chancery Judge. As a result Newey J properly considered that fresh proceedings needed to be commenced in the Chancery Division in which he was sitting to support the grant of injunctive relief, with a view to their being transferred in due course to the Commercial Court. The return date of 4 October 2016, the following Tuesday, was fixed in anticipation that there would be only a 20 minute hearing. Phoenix had on 30 September 2016 issued an application notice seeking an order that the freezing order be continued until trial. The return date hearing in the Chancery Division was not intended to hear or dispose of that application; it was for the more limited purposes of addressing the question whether the freezing order would be continued until the full inter partes hearing of the application. It was not intended to be a final determination of the interlocutory relief sought in that application notice, which it was anticipated would only be determined at a later hearing with the parties having the opportunity to address evidence and full argument. In the event Rose J allowed Mr Charles Béar QC, who then appeared on behalf of Stewarts Law, to address her for a considerably longer period than 20 minutes as to why a freezing order should not be continued until the hearing of that application. However it was perfectly clear that the basis on which the submissions were being made was that there would be a further full blown inter partes hearing of the application in the Commercial Court once the proceedings had been transferred. The hearing was on very short notice, namely one clear day, and it could not reasonably have been expected that Stewarts Law would have marshalled all its evidence, or even necessarily all its arguments. Phoenix’s counsel submitted at the time that Rose J was dealing with a narrow application to continue relief on an “interim interim basis” until “a fuller hearing” in the Commercial Court. He opened by saying that Phoenix was content that the matter having been transferred to the Commercial Court there should if necessary be a contested hearing as to whether or not the freezing order continued. Accordingly the only question on that occasion was whether the order issued by Newey J in the early hours of the Friday morning should continue until a hearing in the Commercial Court.[16]In those circumstances it was open to Stewarts Law to deploy such arguments as it thought best in the limited time available in order to seek to persuade Rose J not to continue the freezing order on that interim interim basis. It was entitled to be selective, and was not bound to bring forward at that time all available arguments as to why the relief should not be continued until trial. Nothing in that course was intended to preclude Stewarts Law from repeating or expanding upon those arguments, with the benefit of filing evidence, at the anticipated full inter partes hearing in the Commercial Court; nor would it have been so understood by either Phoenix or Rose J. Paragraph 3 of Rose J’s order continued the freezing order specifically only until such a further hearing. She ordered that the proceedings should be transferred to the Commercial Court “as soon as practicable”. The fact that some of the argument has overlapped is no barrier to my considering it: Rose J had very limited preparation time and limited hearing time, whereas I have had the benefit of full argument, with evidence, following reading time, in a case in which I have considerable familiarity with the background.

Legal basis for relief

[17]On behalf of Stewarts Law, Mr Drake QC argued that Phoenix had not shown any legal basis for a freezing order. Phoenix claims no proprietary interest in the £2 million. Nor does Phoenix advance any personal claim against Stewarts Law for liability arising out of the latter’s receipt of the £2 million. Mr Drake argued that in those circumstances the only legitimate basis on which a freezing order could be made against Stewarts Law, as an innocent third party, was under the Chabra jurisdiction, named after TSB v Chabra [1992] 1WLR 231. Under that jurisdiction the Court may freeze non proprietary assets in the hands of a third party against whom no substantive claim is made where there is good reason to believe that those assets will be or can be made available to satisfy a judgment which the claimant may obtain against the defendant against whom he is advancing his substantive cause of action. In PJSC Vseukrainskyi Aktionsernyi Bank v Maksimov [2013] EWHC 422 (Comm) I endeavoured to summarise the applicable principles at paragraph 7 in a formulation cited with approval by Tomlinson LJ in Lakatamia v Nobu Su [2014] EWCA Civ 636 at [32]:
“The principles relevant to this application can be summarised as follows: (1) The Chabra jurisdiction may be exercised where there is good reason to suppose that assets held in the name of a defendant against whom the claimant asserts no cause of action (the NCAD) would be amenable to some process, ultimately enforceable by the courts, by which the assets would be available to satisfy a judgment against a defendant whom the claimant asserts to be liable upon his substantive claim (the CAD). (2) The test of “good reason to suppose” is to be equated with a good arguable case, that is to say one which is more than barely capable of serious argument, but yet not necessarily one which the Judge believes to have a better than 50% chance of success. (3) In such cases the jurisdiction will be exercised where it is just and convenient to do so. The jurisdiction is exceptional and should be exercised with caution, taking care that it should not operate oppressively to innocent third parties who are not substantive defendants and have not acted to frustrate the administration of justice. (4) A common example of assets falling within the Chabra jurisdiction is where there is good reason to suppose that the assets in the name of the NCAD are in truth the assets of the CAD. Such assets will be treated as in truth the assets of the CAD if they are held as nominee or trustee for the CAD as the ultimate beneficial owner. (5) Substantial control by the CAD over the assets in the name of the NCAD is often a relevant consideration, but substantial control is not the test for the existence and exercise of the Chabra jurisdiction. Establishing such substantial control will not necessarily justify the freezing of the assets in the hands of the NCAD. Substantial control may be relevant in two ways. First, evidence that the CAD exercises substantial control over the assets may be evidence from which the Court will infer that the assets are held as nominee or trustee for the NCAD as the ultimate beneficial owner. Secondly, such evidence may establish that there is a real risk of dissipation of the assets in the absence of a freezing order, which the claimant will have to establish in order for it to be just and convenient to make the order. But the establishment of substantial control over the assets by the CAD will not necessarily be sufficient: a parent company may exercise substantial control over a wholly owned subsidiary, but the principles of separate corporate personality require the assets to be treated as those of the subsidiary not the parent. The ultimate test is always whether there is good reason to suppose that the assets would be amenable to execution of a judgment obtained against the CAD.”
[18]In order to invoke the Chabra jurisdiction as a basis for an order against Stewarts Law, Phoenix would have to show good reason to believe, that is to say a good arguable case, that the £2 million would improve Phoenix’s position in executing a judgment obtained against Dr Cochrane.[19]In the skeleton argument before me, and in his initial submissions, Mr Bartley Jones asserted a different legal basis to support the relief. He argued that it was sufficient to show that there was a good arguable case that the sum had been transferred to Stewarts Law in breach of the freezing order which I granted against Dr Cochrane on 16 June 2016.[20]There were two variants of this submission. The first was that whenever a defendant who is subject to a freezing order transfers assets to a third party in breach of the order, the Court has jurisdiction to freeze the assets in the hands of the third party. I do not consider there to be any such legal principle. A freezing order creates no proprietary interest in the defendant’s assets, and confers on the claimant no preferential rights as a creditor. If the defendant chooses to breach the order by transferring away an asset, the mere fact that the defendant is in breach of a freezing order does not of itself confer rights on the claimant either over the asset itself or against the recipient. As against a recipient who is an innocent third party, and in the absence of a proprietary claim, the Chabra jurisdiction provides the only basis on which assets may be frozen in support of a claim against the cause of action defendant. If the recipient has knowledge of the order and is complicit in the breach, there may be a cause of action against him in unlawful means conspiracy: see JSC BTA Bank v Khrapunov [2017] EWCA Civ 40. That personal cause of action against the recipient may form the basis for freezing relief. In this case, however, Phoenix makes no claim of any wrongdoing against Stewarts Law in receiving the £2 million and does not rely on any cause of action against Stewarts Law to support the freezing order.[21]There may of course be circumstances in which a transfer in breach of a freezing order to an independent third party will fulfil the Chabra requirements. The transfer may be liable to be set aside so as to require retransfer to the cause of action defendant and hence provide amenability of the asset to execution of a judgment obtained against the cause of action defendant. That may more often be the case where the transferee is a volunteer than when he has given value. Nevertheless in the absence of fulfilment of the Chabra criteria it is not sufficient merely that the transfer has occurred through a breach of a freezing order.[22]I take this to be no more than an application of basic principles. It also accords with my experience of the application of the Chabra jurisdiction in the Commercial Court. One common circumstance in which the Chabra jurisdiction is invoked and applied is where a defendant transfers assets to a company or individual who is alleged to be a mere nominee for the defendant, not infrequently after and in breach of a freezing order against the defendant. The Court often has to determine whether the assets remain essentially within the control of the transferor so as to be amenable to a judgment against the transferor. That would be a superfluous inquiry were it sufficient simply to show a voluntary transfer in breach of the order.[23]The second variant of Mr Bartley Jones’ submission was that the Court has jurisdiction to restrain a third party from engaging in threatened conduct which would be a breach of a court order by a defendant. Mr Bartley Jones submitted that in this case the Court was concerned with an incomplete and threatened transfer to Stewarts Law, which was incomplete because the money was retained in the general client account.[24]Mr Bartley Jones’ formulation of the principle did not identify what the threatened conduct of the third party, as opposed to conduct of the defendant, would need to comprise in order to found the jurisdiction, conduct which ex hypothesi would fall short of founding a cause of action against him. If the recipient were complicit in the contempt it is likely there would be a conspiracy claim against him, but no such allegation is made against Stewarts Law in this case. I can readily accept that a Court may in appropriate circumstances make an order restraining a cause of action defendant from committing a threatened breach, and that such an order can be rendered effective by notice to a third party who may be innocently caught up in the threatened transfer; but that would be an order against the cause of action defendant based on threatened wrongful conduct by him, not an order against an innocent third party based on any threatened conduct by the third party.[25]However that may be, and assuming that there is a jurisdiction of the width for which Mr Barley Jones argued, there is no room for its application in the present case because there can be no scope for the application of any such principle where the transfer is not merely threatened but has taken place. I cannot see any basis on which an innocent transferee of a non-proprietary asset can properly be restrained from disposing of the product of a completed transfer if the Chabra criteria are not fulfilled. The property is that of the transferee to deal with as he sees fit.[26]The fallacy in this aspect of Mr Bartley Jones’ argument is to treat the payment of the money to the general client account of Stewarts Law as amounting to an incomplete transfer unless and until it were moved to the office account. Entitlement to the money as between solicitor and client is determined under the Solicitors Account Rules by reference to the purpose for which it is paid. If it is paid for invoiced fees and paid disbursements, the rules provide clearly that it is office money i.e. money which is received for the firm’s benefit and not held on behalf of a client. As between solicitor and client, the money would become Stewarts Law’s money as office money the moment it was received, notwithstanding that the internal location in which it was to be found was, in accordance with the rules, the general client account. Whilst in the general client account it is not held on behalf of the client but is the firm’s money awaiting onward transmission. This was not an incomplete transfer as between transferor and transferee merely because it had only got as far as the general client account.[27]Stewarts Law’s entitlement to the money also depends on the transferor’s title and ability to transfer ownership, which I address below. There is a separate question as to whether the transfer is capable of being challenged so as to make the money subsequently amenable to a potential judgment obtained by Phoenix against Dr Cochrane. That is a question which arises under the Chabra jurisdiction.

The Chabra basis for relief

[28]Mr Bartley Jones invoked the Chabra jurisdiction as a basis for the relief sought for the first time in the course of his oral submissions, and did not develop the argument fully until his reply submissions. It was not invoked in Phoenix’s written or oral argument before Newey J or Rose J, nor in its skeleton argument for this hearing. I infer that it was a response to the skeleton argument on behalf of Stewarts Law for this hearing which correctly argued that the only potential basis for relief was the Chabra jurisdiction, a jurisdiction which Phoenix had not invoked.[29]The thrust of the submission was that the circumstances in which the money came to be paid to Stewarts Law purportedly by, or at the direction of, LCL are opaque; that there is a good arguable case (at least) that whoever was entitled to the proceeds of Prandoty Street, it was not LCL or anyone from whom Stewarts Law received the money; and that the transfer could be reversed so as to make the money part of the pool of assets which would be amenable to execution of a judgment against Dr Cochrane.[30]The submission that the circumstances in which the money came to be paid to Stewarts Law are opaque is well made.[31]First, there is no satisfactory evidence about how, if at all, there was a transfer of the Arena Settlement assets to LCL, which according to Stewarts Law took place on 6 May 2016. The manner in which the transfer is said to have been made is not identified. No documents evidencing the transfer have been produced. Mr Upson’s evidence is simply that that was what he was told (on 19 May 2016) by Dr Cochrane and Andiamo, presumably Ms Stickler. As I have had cause to say in the past, they are both individuals who cannot be trusted and whose word cannot be taken at face value without corroborative evidence. The history of dealings by the Orb parties is such that an undocumented and uncorroborated assertion of a generically described “transfer” based on the word of Ms Stickler and Dr Cochrane gives rise to a real doubt as to whether any such transfer took place, and if so how.[32]Moreover, and even assuming such transfer to LCL, there is a real issue as to how the £2 million could ever validly have been transferred by the person entitled to it to Stewarts Law. The evidence before me about who was immediately entitled to the proceeds of sale of Prandoty Street is unclear. It included the following:(1) In the Schedule to the Loan Note which defined the Relevant Assets, the Prandoty Street development site was described as “unencumbered Polish real estate property” with an approximate value of £6.6m. No reliance can be placed on that valuation because it comes from Dr Cochrane whose word is not to be trusted and was unsupported by any documentary corroboration. The legal owner was said to be “Loan Interest … Radix Investments (UK) Limited”, and the ultimate beneficial owner was said to be Dr Cochrane. The evidence of Mr Upson, the relevant partner of Stewarts Law, is that the owner of Prandoty Street was Bridge House Developments (Krakow) Sp Zoo, a Polish company. According to a company structure chart at schedule 1 to the Loan Note, and to a company structure chart prepared by the Liquidators, the liquidators of the Arena Holdcos, Bridgehouse Developments (Krakow) Sp Zoo (“Polish Bridgehouse”) is 66.2% owned by NEPH Luxemburg S.A.R.L., a Luxemburg entity, which is in turn wholly owned by NEPH Limited (or perhaps New Europe Property Holdings Limited) a Guernsey company, which is in turn wholly owned by Bridge Properties (Central and Eastern Europe) Limited, an Isle of Man company which is in turn wholly owned by Unicorn, the BVI Arena Holdco which is in liquidation. Above Unicorn sat SMA, the Marshall Islands company wholly owned by Dr Cochrane.(2) Radix Investments (UK) Limited, an English company, is not shown on the company structure chart, although there is a company named Radix International Limited, a Marshall Islands company, identified as a company wholly owned by Dr Cochrane outside the Arena structure.(3) In my judgment of 15 April 2016, I recorded at paragraph 126 the evidence I had received in relation to Prandoty Street and two other Polish properties as follows:
“Ms Stickler explains that these properties were acquired by companies within the Arena structure before the Isle of Man settlement, who were in 2014 indebted to Unicredit. Unicredit had agreed to sell the debt to SMA for a discounted price of €5.5m. The vehicle which SMA used to acquire the debt and take ownership of the properties was Radix Investments UK Limited. The Stone Turn report records that between 30 September 2014 and 23 December 2014 payments totalling £4,632,964 were paid out of Dr Cochrane’s Coutts’ account …… and that these were for “Polish properties”
. It is a reasonable inference that this £4,632,964 represents the €5m used to acquire the Polish properties”.[33]Based on that evidence there seem to be two immediately realistic possibilities as to the ownership of the £2 million derived from the sale of the Prandoty Street property. It may have belonged to Polish Bridgehouse as the legal owner of the property and vendor. Alternatively it may have belonged to Radix Investment (UK) Limited (“Radix”) as mortgagee with a charge on the property or possibly as legal owner and vendor.[34]How then could it have been validly transferred from Polish Bridgehouse, or Radix, to Stewarts Law purportedly by or at the behest of LCL? The £2 million was not LCL’s money whatever transfer there may have been on 6 May 2016 of some aspect of the Arena corporate structure in which Polish Bridgehouse sat. Radix was not apparently within the Arena settlement structure which was allegedly transferred to LCL in some way on 6 May 2016. Nowhere in Mr Upson’s evidence on behalf of Stewarts Law is this issue addressed, nor indeed is there any information which would enable it to be addressed. In one paragraph he talks of the £2 million as being received “from LCL”; on other occasions he talks about LCL having “caused” the £2 million to be paid into the Stewarts Law client account.[35]There is, therefore, at least a good arguable case that the £2 million was never LCL’s money but the money of Bridgehouse or Radix. It is in theory possible that the money could have been treated as a dividend issued all the way up the chain by Polish Bridgehouse to LCL, assuming that LCL had in some way acquired the Arena assets, for example by a transfer of Dr Cochrane’s shareholding in SMA, but such an argument would face formidable difficulties. There is no evidence of any dividend having been expressly declared, there is no apparent justification for implying a dividend, let alone dividends up the chain between a completion date of 13 September and a receipt date of 14 September 2016, and whatever may have been the position under the applicable laws of the various companies in the chain, if English law applied there would be restrictions on declarations of dividends under sections 829 and 830 of the Companies Act 2006. Moreover, whilst there is no evidence as to how any transfer to LCL is said to have taken place, if it was a transfer of the shareholding in SMA, the dividends ought to have stopped when they reached Unicorn which was in liquidation.[36]In those circumstances there is clearly a triable issue as to(a) whether there was ever any transfer of assets on 6 May 2016 from Dr Cochrane to LCL; and(b) even if there were, whether LCL had any entitlement to, or to give directions in relation to, the proceeds of sale of the Prandoty Street property. There is a good arguable case that LCL had no property in the £2 million and no right or authority to transfer property in it to Stewarts Law.[37]So far as the evidence discloses, none of LCL, Bridgehouse or Radix were ever clients of Stewarts Law. LCL had funded the litigation but that was prior to Stewarts Law being engaged for the Orb parties in 2013. Mr Upson says that LCL “committed” to pay Stewarts Law’s fees but it is unclear how, when or on what basis. There is no suggestion of either Polish Bridgehouse or Radix agreeing with Stewarts Law that Stewarts Law could use their money to pay its fees. If the £2 million belonged to someone other than LCL, as to which there is a good arguable case, then Stewarts Law cannot claim beneficial ownership of it on receipt. The position would at least arguably be that Stewarts Law received the sums as a result of a breach of the duties of the directors of those companies in transferring the money to Stewarts Law, or in transferring it to someone else from whom Stewarts Law directly or indirectly received it. Stewarts Law would, at least arguably, be obliged to return the money to Polish Bridgehouse or Radix in circumstances where neither had lawfully authorised its payment to Stewarts Law.[38]There is moreover a good arguable case that should Phoenix’s claim against Dr Cochrane succeed, the £2 million sitting in the Stewarts Law client account would be amenable to execution of a judgment against Dr Cochrane because she was entitled to it when transferred to Stewarts Law or because it would be in her power to seek the return of it and the Court would have power to order her to do so. The allegation of a transfer to LCL on 6 May 2016 is no more than an unevidenced and unsubstantiated allegation whose source is testimony of witnesses who have proved untrustworthy in the past. If it occurred, the means of transfer is obscure. Moreover Phoenix’s claim, by reason of an amendment in December 2016, includes a claim to set aside any transfer of any of the Arena Settlement assets by Dr Cochrane to LCL on the grounds of a conspiracy to defraud by unlawful means, a claim which I have already held meets the merits threshold of a good arguable case when granting a freezing order against LCL. Further, as I have explained, the Loan Note contains promises by Dr Cochrane not to sell, amongst other things, the Prandoty Street development and a continuing warranty that it is and will remain in her beneficial ownership, which might realistically support an order that she seek retransfer of assets insofar as she were able to do so. There is therefore a good arguable case that Polish Bridgehouse and/or Radix either remain companies within a structure that is controlled by Dr Cochrane, or that they would do so following the conclusion of the proceedings; and that she may be amenable to an order that she fulfil her contractual obligations under the Loan Note by exercising her control over those parties by causing the true owner of the £2 million, i.e. Polish Bridgehouse or Radix, to claim from and recover the money from Stewarts Law, who received it from or at the direction of a person (LCL) who had no title to transfer it or authority on behalf of the title holder.[39]This analysis is necessarily somewhat speculative. That is so because the means by which the £2 million came from the Prandoty Street sale to Stewarts Law is itself opaque. What can be said, however, is that there is no obvious reason why the £2 million should have been applied by either Radix or Polish Bridgehouse, who are the two most obvious candidates for ownership of the sale proceeds, to pay to Stewarts Law in relation to Stewarts Law’s already incurred fees or paid disbursements. There is on any view a good arguable case that Stewarts Law was not entitled to receive it from the true owner for the stated purposes.[40]That is sufficient to satisfy the Chabra jurisdiction.

Balance of convenience/risk of dissipation

[41]The reality is that if the Phoenix freezing order is discharged, nevertheless Stewarts Law will not be able to use the £2 million as the firm’s money because of the claims by Harbour and the liquidators of the Arena Holdcos, so that the continuation of the freezing order is unlikely to cause any prejudice to Stewarts Law, at least in the absence of some compromise with those other parties. However the correct approach on this application is to consider the position vis a vis Phoenix in isolation.[42]Mr Drake argued that there was no risk of Stewarts Law, a well funded and established firm of solicitors, being unable to meet an order to repay £2 million to Phoenix in due course if it were now allowed to use the money in its general client account for the intended purposes. This argument ignores two potential difficulties. First it assumes that the firm’s cash flow and balance sheet position at a point which may be some time in the future will be sufficient to meet an order for payment of £2 million, which must be a matter of speculation. Secondly the relevant future circumstances are not an order that Stewarts Law pay Phoenix £2 million. Phoenix has no personal claim against Stewarts Law. The basis for the Chabra relief is that Stewarts Law may be ordered to pay money to an entity owned or controlled by (now) the Viscount and so amenable to assist in the execution of a judgment against Dr Cochrane. The relevant circumstances are an order that Stewarts Law repay the money to the true owner, which then becomes available as part of the pool of assets of Dr Cochrane. The true owner’s claim for return of the £2 million, which is likely to be a proprietary one, may very well be prejudiced by Stewarts Law now being permitted to move the money from its present location and spend it. A proprietary claim to what is now a sum which is identifiable and frozen as that received from the sale of Prandoty Street would be destroyed and some basis for a personal claim would need to be established against Stewarts Law. The risk of prejudice to Phoenix if the order is not maintained does not therefore lie in the ability or inability of Stewarts Law to meet an order that it should pay £2 million to Phoenix; it lies in the possibility that if the order is not maintained no order will be made against Stewarts Law to pay £2 million to someone else, with consequent prejudice to Phoenix’s ability to enforce a judgment against the assets of Dr Cochrane. This is a real and substantial risk of prejudice if the freezing order is not continued.[43]On the other hand, the adverse consequences to Stewarts Law of maintaining the freezing order in place until further order are relatively minor and easily compensated for by the cross undertaking in damages suitably fortified. If Stewarts Law were to have no difficulty in meeting an order for payment of £2 million in due course if they were now to appropriate the £2 million received on 14 September 2016, which is the hypothesis of Mr Drake’s argument on this point, it is difficult to see how Stewarts Law would be significantly prejudiced in the conduct of its business if it is forced to forego the use of that £2 million between now and trial. What is being said in either eventuality is that the firm is and will be sufficiently well funded to be able to absorb the loss of £2 million in respect of unpaid fees and paid disbursements. Loss of use of the money is readily quantifiable by an interest calculation which can be adequately secured under the cross undertaking.

Procedural irregularities and lack of full and frank disclosure

[44]Mr Drake advanced a number of procedural reasons why the freezing order should be discharged, which in the end boiled down to two main points. The first was that the Chabra jurisdiction basis for the orders was not advanced in front of Newey J or Rose J, or by way of skeleton argument prior to this hearing, but emerged only in the course of submissions, in part in reply submissions. This is a valid criticism. It is incumbent upon an applicant for freezing order relief on a without notice application, or on a short return date when seeking to hold the position pending a full inter partes application, to explain fully and clearly the legal basis on which the relief is sought. Phoenix is properly to be criticised for failing to do so in its skeleton arguments before Newey J and Rose J. Nevertheless the evidential basis upon which the jurisdiction was subsequently invoked was the same evidential basis that had been put before Newey J and Rose J, in substance, and I would not regard this failure as sufficiently serious as to justify discharging the order or refusing to continue it in circumstances where it is otherwise just to maintain it.[45]The second argument was that there was a serious failure to progress the proceedings after obtaining the orders from Newey J and Rose J. Following the order of Rose J of 4 October 2016 that “this action shall be transferred to the Commercial Court as soon as practicable” Phoenix took no immediate steps to do so. There was an interregnum between Chancellors, which may have delayed matters for a period had Phoenix sought to effect the transfer because such transfer requires the Chancellor’s permission. Nevertheless this is not what gave rise to the delay. What happened was that no steps were taken to effect the transfer by Phoenix, despite my enquiring at a hearing on 15 December 2016 as to what the position was. It was not until Stewarts Law took the initiative and in early January 2017 chased up the transfer that the matter was then transferred to the Commercial Court. It was only then, and upon Stewarts Law’s application, that the hearing was listed.[46]It is well established that where a party obtains the draconian remedy of a freezing order, there is a duty to progress the proceedings expeditiously unless the court sanctions delay: see for example Lloyds Bowmaker v Brittania Holdings plc [1988] 1 WLR 1337 per Glidewell LJ at 1347 and Dillon LJ at 1349 to 1350. Where a claimant fails to do so the court has a discretion as to whether to sanction the failure by discharging the injunction: see the principles discussed at Gee on Commercial Injunctions 6th edition paragraphs 24-028 to 24-031.[47]In my view it would not be right to impose such a sanction in this case. Mr Slade, who was the solicitor having the conduct of the proceedings on behalf of Phoenix, has explained that he thought that the transfer would be automatically undertaken by the Court rather than being something which Phoenix needed to arrange. The delay was therefore the result of a mistaken understanding as to the position. Moreover Stewarts Law knew that the freezing order was in place and could itself have taken steps earlier to effect the transfer had it thought that the delay was prejudicial, as it eventually did in early January. Importantly, it is not suggested that Stewarts Law has suffered any significant prejudice as a result of the delay.

Cited in 7 later judgments