FM Capital Partners Ltd v Marino & Ors [2018] EWHC 2889 (Comm)

“That said, a freezing order is a precautionary measure taken urgently to protect the claimant against the risk of dissipation, disposal, reduction in value, or loss of assets pending a fuller examination as to what assets would in reality be available to the claimant for the purposes of enforcing a judgment. Accordingly, it may be perfectly consistent with the objectives of such relief to extend the scope of the phrase “his assets” to assets which the defendant may not appear to own but which may in truth be available to him for the purposes of enforcement; however, words extending the ordinary meaning will be strictly construed, and so as not to invest a meaning that the words cannot reasonably bear: thus, the wording must be clear and free of ambiguity”

“The flaw in the ‘power equals property’ approach is that it ignores the fundamental principle that the only entity with the power to deal with its assets is the company . Those who control its affairs—even if the control is in a single individual—act merely as the company’s agents. Their agency will include the authority to procure an exercise by the company of its dispositive powers in respect of its property, but those powers are still exclusively the company's own: they are not the agents’ powers. When and if the agents act as such, and procure a company disposition, the property which immediately before the disposition belonged to the company will become the property of the disponee. Until then, it remains the property of the company and belongs beneficially to no one else.”

“80 In my view, it may well be that where there is, or emerges in the context of disclosure, strong evidence that the respondent has or is likely to have assets in a non-trading body corporate which he wholly owns and controls, which do not have any active business, and which are in truth no more than pockets or wallets of that respondent, an extension to the ordinary form of order may be justified. Since it may be that the assets held within those corporate pockets may ultimately be required to be made available for the purposes of enforcement, relief specifically designed to preserve (or more accurately, perhaps, prevent the dissipation of) such assets may be appropriate. Exceptional circumstances would still have to be demonstrated; in many cases, restraint on any transactions diminishing the value of the respondent's sharers may well suffice. 81 In such exceptional circumstances, until at least the return date, and after disclosure of all shareholdings, the order might be crafted to restrain dealings in assets of bodies corporate having no or no substantial trading activities and which are wholly owned and controlled by the respondent. The claimant may then determine whether to seek relief directly against such bodies corporate under or by analogy with the so-called Chabra jurisdiction (see TSB Private Bank International SA v Chabra [1992] 1 WLR 231, per Mummery J and the commentary in Civil Procedure 2013, vol 2, para 15-63), or the continuation of the original restriction, with any appropriate exceptions (in either case) to enable any trading in the ordinary course which is demonstrated. 82 However, and as has often been emphasised, a freezing order is, even in its standard form, a substantial invasion of a respondent’s usual rights, to be made only to seek to ensure that the effective enforcement of orders of the court is not deliberately thwarted. Obviously, any extension in its application to legally separate third parties, which may be affected in ways that cannot necessarily or comprehensively be envisaged, can only be justified in exceptional circumstances.”

“… even under the order’s existing wording, a company owner will not be permitted to deplete the assets of his companies, thereby diminishing the value of his own assets in the form of his shareholdings, unless he can bring such dispositions within an order’s exception for the ordinary course of business. It is unlikely however to be within the ordinary course of business for a shareholder to act so as to diminish the value of his shareholdings. In case of doubt, the matter can of course be debated before the court.”

“Where, as here, the owner of a non-defendant company is subject to an injunction restraining any diminution in the value of this shareholding in that company, he is restrained from procuring the company to make a disposition likely to result in such a diminution. For practical purposes, as Sir Bernard points out, that is likely to mean that dispositions other than in the ordinary course of business are enjoined. That is not because the non-defendant companies are obliged to bring themselves within an exception to an order to which they are not subject. It is simply because transactions in the ordinary course of business of a company do not ordinarily result in a diminution in the value of shareholdings in that company.”

“41 … The order as a whole is directed to a defendant’s assets, that is to say to the assets in which a defendant is beneficially interested. Although the language of the second sentence may look as if it extends much more widely, because of the expression “as if it were their own”, I am satisfied that what that language is primarily concerned with is the situation described in the third sentence of that paragraph, namely a form of trust where a third party holds or controls assets in accordance with a defendant’s instructions. However, it does not extend to a company’s assets just because of the powers which a director or shareholder may be able to exercise over them as such. The language “holds or controls the asset in accordance with their direct or indirect instructions” does not well fit the relationship of a company director or shareholder, even a sole director or 100% shareholder, to a company’s assets. 42 Therefore, if a claimant wishes to freeze company assets of a non-defendant, he must either be prepared to make a sufficient case that the company concerned is just the money-box of the defendant and holds assets to which the defendant is beneficially entitled, and/or it has to make that company a defendant itself under the Chabra jurisdiction. Where a defendant’s alleged liability is not merely that in the ordinary way of a party liable in debt or damages but is said to arise out of the misappropriation of funds or some such dishonesty, as in the Ablyazov litigation, it will often be possible to request the court to make orders in wider terms and/or to make the defendant’s corporate creatures defendants themselves. But in the more ordinary case, even where a freezing order is justified under its standard rationale, that does not extend to freezing the assets of other parties or corporate non-defendants.”

“49 … I also interpret what Patten LJ said in para 26 as meaning that the third sentence of paragraph 3 will again extend only to assets held by a third party where the defendant is beneficially entitled to them and so can give instructions for them to be dealt with or disposed as he wishes. 50 The assets that Burton J was considering in para 16 were the assets of the companies. There is no suggestion that such assets belonged beneficially to anyone other than the companies; and it is trite law that a company’s assets so held do not belong beneficially to their shareholders, not even to a shareholder in the position of the first defendant who is, for all practical purposes, the sole owner of the companies … 51 … The owner is of course able to control the destiny of the company’s assets. But that does not make them his assets; and paragraph 3 is concerned only with assets which are his assets. Nor is any help the other way to be derived from the third sentence of paragraph 3 of the order. First, that is still only concerned with dispositions of assets belonging beneficially to the defendant, which these assets do not. Secondly, the first defendant has no authority to instruct the companies how to deal with their assets. All he has is the power, as an agent of the company, to procure the company to make dispositions of its assets. Such dispositions, when made, are made in consequence of decisions made by the organs of the company. They are not dispositions made by the company in compliance with instructions from the first defendant. That may seem to be a somewhat formal distinction. But it is a valid one: only the companies have authority to deal with and dispose of their assets …”

“48 … As stated in para 46 above, the whole point of the extended definition of “assets” is to catch rights which would not otherwise have been caught and, in particular, the “defendants’ assets include any asset which they have power, directly or indirectly, to dispose of, or deal with as if it were their own”

“Nothing in this judgment is intended to cast any doubt upon the established principles which underlie the grant of all freezing orders. I refer in particular to the fact that the only purpose of such an injunction is to prevent the dissipation of assets which would otherwise be available to meet a judgment. The inclusion of trust assets is therefore only justifiable if there are proper grounds for believing that assets ostensibly held by the defendant on trust or as a nominee for a third party in fact belong to him (or to another person whose assets are also frozen). Absent such circumstances, I can see no possible justification for including in the order assets which belong beneficially to a third party and are not therefore the property of the defendant.”

“90 … For Clunis’s case to be frankly inconsistent with the Supreme Court, Mr Bowen has to point to reasoning in Patel’s case which is based expressly on like or materially similar facts to Clunis’s case; and I consider that there is no such reasoning. The doctrine of precedent is about the identification and then the application of the explicit reasoning of a higher court upon actual or assumed facts; it is not about attempting to draw logical inferences from statements of general application, or anticipating how that higher court might decide the case at issue with the benefit of full argument upon it. Thus, the highest that Mr Bowen’s submission can realistically be put is that the application of Lord Toulson JSC’s multifactorial approach to these facts might lead to a different outcome. I cannot accept that it does, or must, lead to a different outcome. The distinction between “might” and “does” is critical. The former anticipates Mr Bowen’s prospects on appeal; the latter affirms that he has no prospect of success at this juncture. In this regard I am giving full weight to the whole of the Earl of Halsbury LC's dictum in Quinn v Leathem [1901] AC 495. 91 Mr Bowen has to bring this case within the second category in Young v Bristol Aeroplane Co Ltd [1944] KB 718 and persuade me that, although Clunis’s case has not been expressly overruled, it “cannot stand” with a decision of the Supreme Court. For the reasons I have given, he has failed to persuade me of that. In any event, I would hold that in this sort of case it is not open to a first instance judge to be so bold. Young’s case only addresses how the Court of Appeal should deal with a previous decision of its own.”

“The task of a judge of first instance faced with this situation is not an easy one. Our system of courts is hierarchical and he must on the one hand follow and apply those principles of law which have been clearly laid down by higher authority whilst, at the same time, avoiding the risk of arrogating to himself a function which properly belongs only to a higher tribunal and which he has no power to exercise even where reason might tempt him to do so. Even the principles which he should follow when confronted by apparently conflicting decisions of superior courts are not always clear and, where they are clear, they are not always easy to apply, for their application may itself depend upon a disputable interpretation of a decision of a superior court. The principles so far as relevant to the present case appear to me to be these and I adopt them in my approach to Mr. Harman’s submissions. (1) A decision of the House of Lords resting upon or establishing a general doctrine binds all inferior courts and represents the law of the land until it is altered by legislation or, nowadays, departed from by the House itself: see Great Western Railway Co. v. S.S. Mostyn (Owners) [1928] A.C. 57, 82 and Wilkinson v. Sibley [1932] 1 K.B. 194, 200. (2) A decision of an inferior court may be treated as having been overruled by a decision of a superior court with which it is shown to be inconsistent, although it has not been expressly so stated by those who concur in such a decision: Consett Industrial and Provident Society Ltd. v. Consett Iron Co. Ltd. [1922] 2 Ch. 135, 173, 174 … (4) Where there are conflicting decisions of the Court of Appeal, that court is free to choose which it will follow: Young v. Bristol Aeroplane Co. Ltd. [1946] A.C. 163. The position of a judge at first instance when faced with such a conflict is not clear. He must, I think, be equally free to choose unless it is to be suggested that he must follow that decision which is latest in point of time.”

“The Respondent is to be regarded as having such power if a third party (which shall include a body corporate) holds or controls the asset in accordance with his direct or indirect instructions”