BCS Corporate Acceptances Ltd & Ors v Terry [2018] EWHC 2349 (QB)

[2018] EWHC 2349 (QB)Case No HQ12X05102
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 7 September 2018
Before
MR JUSTICE MORRIS
Between
BCS Corporate Acceptances LimitedClaimantsBCS Offshore Funding LimitedClaimantMr John TaylorClaimantDaniel TerryDefendant
Mark Watson Gandy (instructed by Akin Palmer Solicitors) for ClaimantsSimon Stafford-Michael and Sam Jarman (instructed by Martin Cray & Co) for DefendantHearing Hearing dates: 9 & 10 May 2018
Judgment Approved

Introduction

[1]By application notice issued on 19 April 2018, Daniel Terry, the defendant in this action (“the Defendant”) makes applications arising out of a freezing order in varied form dated 30 June 2017 (“the Freezing Injunction”) and an interim third party debt order made against him and his solicitor, Martin Cray & Co (“the Solicitors”) dated 5 June 2017 (“the Interim Order”). The application concerns funds currently held in the Solicitors’ client account (“the Client Account”). As at the date of the application these funds stood in total at £137,804.40. The application concerns principally £89,353.20 of that sum.[2]By the application, the Defendant originally applied as follows:(1) For directions permitting the payment to the Solicitors of outstanding legal fees, under the terms of paragraph 12 of the Freezing Injunction.(2) To set aside the Interim Order on grounds of non-disclosure and/or abuse of process, alternatively to amend the Interim Order by inserting a provision to permit the payment of legal costs.(3) To stay the order for payment of £90,000 on account of costs, made by Elisabeth Laing J dated 30 June 2017.(4) Alternatively for directions, pursuant to CPR 3, in relation to the Defendant’s ability to pay his legal representatives and their ability to be paid.[3]By the close of the hearing, the Defendant indicated that he did not pursue the application for a stay referred to in (3) above. Indeed following the hearing, by order dated 21 May 2018 Longmore LJ has stayed the order for payment of the £90,000 costs.[4]The application is made in the name of the Defendant. Whilst in principle it might be that the interests of Defendant and of the Solicitors on this application are not necessarily aligned, the Defendant in his witness statement dated 16 April 2018, and Mr Stafford-Michael in the course of argument, have confirmed that no such conflict arises on the part of the Defendant and that the Defendant in principle consents to the funds held in the Client Account being used to pay outstanding legal fees and disbursements.[5]The Defendant’s essential case is that the funds in the Client Account do not belong to him personally. He submitted that the evidence shows that his legal representation in this case has been the subject of non-commercial funding and that monies held in the Client Account have been provided by members of the Prodani family, for that exclusive purpose. Therefore, first, the Freezing Injunction does not bite on those funds and, secondly, the Interim Order should be set aside and/or amended to permit his legal team to be paid out of those funds. Alternatively, sums held in the Client Account should be directed to be paid to the Solicitors as the Solicitors have self certified that the legal fees have been reasonably incurred.[6]The original basis upon which the application was been made was that if directions are not made, the Solicitors will have no option but to come off the record and the Defendant will as a result be without legal representation to continue his pursuit of redress in the current action. However by the close of oral argument, it was no longer maintained that funding for his legal representation could only be sourced from existing funds in the Client Account; those funding him remained willing to provide other funds. This was an important concession by the Defendant.[7]Following the hearing of oral argument, and further directions dated 18 May 2018, the parties put in further material by way of written submissions. The effect of these submissions has been first, to narrow the issues between the parties: the sum in the Client Account in issue is now limited £89,353.20; and secondly materially to alter the Defendant’s position: despite the terms of the revised order below, the Defendant said that he wished to use that sum, principally, in order to satisfy the order for security for costs now made by Longmore LJ (as explained below) – and not to fund his own legal representation. Subsequently, it now appears that that security for costs has in fact been paid from another source.[8]The order which the Defendant now seeks is in rather different terms. In addition to the setting aside of the Interim Order the Defendant now seeks:(1) An order granting permission for the Solicitors to pay £89,353.20 from the Client Account in respect of the Defendant’s legal costs, subject to the Claimants’ right to challenge the reasonableness of those costs at a later day.(2) A declaration, that as at the date of the Interim Order, there was no “debt due or accruing due” from the Solicitors to any other person and therefore there was no debt to which the Interim Order could attach.(3) A declaration that the Claimant be barred from issuing a fresh application for a third party debt order without first establishing that the retainer of the Solicitors has been terminated or all proceedings have been concluded.(4) A direction that the Solicitors should inform the Claimants’ solicitors of the amount of legal costs incurred on a monthly basis, of amounts received into their client account and the source of those funds.

The factual background

[9]The current proceedings arise out of a claim and, now a counterclaim, of fraud in connection with financial guarantee bonds and a credit facility said to have been arranged by the Defendant for the Claimants. The Claimants commenced the proceedings on 30 November 2012 against the Defendant claiming damages for fraud. Since then the proceedings have had a complex procedural history and a substantial number of orders have been made. Judgments have been given, amongst others, by May J on 11 March 2016 in relation to a freezing injunction and more recently by Elisabeth Laing J on 30 June 2017. The latter (“the Laing Judgment”) provides an important part of the backdrop, and I refer to paragraphs 3 to 11 of the Laing Judgment for a more detailed description of the background.[10]In short, on 21 February 2013, Master Kay QC gave judgment in default of defence. After unsuccessful attempts to set aside that judgment, on 29 July 2015 the Claimants obtained a judgment (“the Judgment”) against the Defendant for damages in the sum of £1,686,874.92 and €578,801 (“the Judgment Debt”). Significantly, the Judgment remains in force and enforcement of it has not been stayed. On 19 December 2015 Sweeney J granted a worldwide freezing order against the Defendant and his wife, in aid of enforcement of the Judgment. In response, the Defendant stated that the funding of litigation came from his employer, ISS and ultimately from members of the Prodani family. On 11 March 2016 May J set aside the freezing injunction as against the wife but continued it against the Defendant. A number of substantial costs orders had been made against the Defendant in the course of the proceedings, totalling, by November 2016, £267,450.

The “Main Application”

[11]The Defendant then sought effectively to overturn the Judgment on the basis that the Claimants’ claim had itself been wholly fraudulent and made to deceive the French courts. On 18 November 2016 the Defendant applied to strike out the claim in the action for abuse of process and to set aside the Judgment on the basis of fraud and perjury. This application is referred to by the Defendant as “the Main Application”. The Claimants then applied for orders that the Main Application be stayed until the Defendant discharged the costs orders already made and had given security for costs. On 23 February 2017 Green J ordered the Defendant to pay into court a sum reflecting the total costs, namely £267,450 as a condition of pursuing the Main Application (and to pay over to the Claimants an interim payment on account of costs of £10,000). He did not require payment of these sums over to the Claimants.[12]On 20 February 2017 the Claimant issued an application to commit the Defendant for contempt for failure to say where funds for the Main Application had come from, in breach of the order of May J.[13]On 17 March 2017, according to the Defendant, he arranged with his employers for funds to be advanced so he could continue with the litigation. The source of these funds (and the basis upon which they are held) are disputed. As a result the sum of almost £475,000 was received by the Solicitors into the Client Account. Out of that sum, £276,450 was paid into court pursuant to the order of Green J. On 24 March 2017 the Solicitors wrote to the Claimants stating that the funds did not belong to the Defendant and were not subject to the Freezing Injunction. Further sums in respect of outstanding legal fees (both of the Solicitors and of counsel) were paid out, leaving, by the end of April 2017, the sum of £89,348.21 in the Client Account.

The Laing Judgment and order of 30 June 2017

[14]The Defendant applied for directions in relation to the Main Application. Each party made a number of further applications, including an application by the Defendant to set aside May J’s freezing injunction; the Claimants cross-applied for security for costs and for committal for contempt and made further applications. In a witness statement dated 2 May 2017, the Defendant stated that he had already paid over £1 million in legal fees. Those applications were heard by Elisabeth Laing J on 8 and 9 May 2017. In the course of the hearing, Mr Stafford-Michael for the Defendant stated that he and his junior had already been paid for the substantive hearing in the Main Application (estimated at 6 to 12 days) and that his instructing solicitors had “largely been paid” to cover that application (although there might be a shortfall of costs as a result of sums incurred in relation to the injunction and committal proceedings).[15]A draft judgment was circulated to the parties on 12 May 2017. Then, between 19 May 2017 and 9 June 2017 the parties made further written submissions.[16]On 30 June 2017, the Laing Judgment was handed down. In the course of her judgment, Elisabeth Laing J made certain findings, based on a detailed analysis of the evidence before her, about the source of funds being used to pay the Defendant’s legal fees: see paragraphs 20 to 34. She did not accept that the funds in the Client Account came from a source other than the Defendant himself. The Defendant had argued that the Claimants’ committal application for breach of the Freezing Injunction should be struck out because the money the Defendant had used to pay living expenses including his legal expenses, was not his own money but had been lent to him by his employer, Mr Prodani. He relied upon a letter from Alen Vodanovic dated 15 January 2016 referred to in paragraph 39 below.[17]At paragraph 34, Elisabeth Laing J concluded as follows:
“I am not satisfied that these documents show that Mr Prodani is the source of the money which the Defendant has so far spent on these proceedings. Most significantly, there is no witness statement from the Defendant, or from anyone else, attested by a statement of truth which explains these matters.”
She then set out eight detailed matters which led her to that conclusion. At paragraph 52 she stated “I have rejected the Defendant’s evidence that his employer has lent him the money”.[18]By orders of the same date, and pursuant to the Laing Judgment, Elisabeth Laing J dismissed the Defendant’s applications, including the Main Application (i.e. the Defendant’s “counterclaim” in relation to fraud was effectively struck out). The Defendant was ordered to pay the costs of the application to be assessed, with an interim payment of £90,000 to be made within 14 days. She also dismissed the Defendant’s applications to set aside the Freezing Injunction of May J and ordered it to be continued in amended form. She dismissed the Defendant’s application to strike out the Claimants’ application to commit the Defendant for contempt of court and ordered service of the application on the Defendant’s solicitor. She made no order on an application by the Claimants for security for costs of the Main Application, since the Application itself was struck out. Finally she refused permission to appeal.

The Interim Third Party Debt Order

[19]In the period between the circulation of the draft judgment on 12 May 2017 and the handing down of the Laing Judgment, on 31 May 2017 the Claimants applied for an interim third party debt in respect of funds in the Client Account. The application was made ex parte and on paper by use of standard form N349. In section 5 “sources and grounds of information” the following was stated:
“the judgment creditor knows or believes that the information in section 3 and 4 is correct because: in his witness statement dated 22 May 2017, Mr Terry has deposed that he has paid in the region of £1 million on account of costs in the present litigation. At a hearing before Mrs Justice Laing on 8-9 May 2017, Mr Terry’s counsel indicated to the court that Mr Terry’s 8 day strike out application has been pre-paid by their client and provided extracts from the client account (s) held by the Third Party into which funding for Mr Terry’s litigation has been deposited from time to time.”
[20]On 5 June 2017, Master Eastman made the Interim Order. It is in standard form N84. The Claimants are identified as the judgment creditor. The Defendant is identified as the judgment debtor. The third party is the Solicitors, identified as “Martin Cray t/a Martin Cray & Co”. It identifies the amount owing by the Defendant as being that owed under the Judgment and states that there is a debt due or accruing due by the third party to the judgment debtor. The order made was that the application would be heard on 13 July 2017 “when Master Eastman will decide whether a final third party debt order should be made” and further provided as follows:
“until that hearing the third party must not, unless the court orders otherwise, pay to the judgment debtor, or to any other person, any sum of money due or accruing due by the third party to the judgment debtor except for any part of that sum which exceeds the total shown below.”
The “total shown below” is identified as the sums of the Judgment together with the court fee. The Interim Order continues that it does “does not authorise the third party to pay any money to the judgment creditor at this stage”.[21]The Interim Order further notified the third party that if it claims to owe the judgment debtor no money or less money than the total shown above, it must tell the court and the judgment creditor within 7 days of receipt of the Order.[22]The Interim Order was sealed on 14 June 2017. On 16 June 2017 the Interim Order was sent by email to the Solicitors. On the same date the Defendant served two witness statements (from the Defendant himself and Mr Pullen), which, inter alia, responded to the criticisms in the, then draft, Laing Judgment as to the source of funding. The Interim Order was served on the Solicitors by post on 19 June 2017. On 20 June 2017 the Solicitors informed the Claimants that there had been no change in the amount held in the Client Account since the hearing before Elisabeth Laing J – and thereby implicitly indicated that no further bill had been rendered, at least up to 14 days before that date.[23]On 23 June 2017, the Solicitors sent the requisite “7 day” letter in response to service of the Interim Order, stating that they did not owe the Defendant any money nor held any money to his credit. The funds had been provided by Mr Prodani “to be used for the purpose of advancing Mr Terry’s litigation against your clients” and not by the Defendant. The Solicitors indicated that monies in the Client Account were needed to meet both “past costs” (billed and work in progress – amounting approximately to the £64,000 referred to above) and also future legal costs. (The Claimants maintain that this was the first time that the Defendant had referred to future legal costs).As the funds did not belong to the Defendant, they could not be the subject of any enforcement.[24]On 11 July 2017 the Solicitors indicated in correspondence that the Defendant would apply for directions concerning payment out of the Client Account, to be heard at the same time as other outstanding applications (i.e. the final Third Party Debt order, the committal and the freezing injunction).[25]Whilst the Interim Order provided for the usual inter partes hearing (“the Full Hearing”) to take place on 13 July, subsequently on that date, Master Eastman adjourned that hearing to be heard by a judge on 3 October 2017 along with other applications. At the end of September 2017, that hearing was itself adjourned by agreement and refixed to be heard along with other applications on 16 March 2018.[26]On 4 September 2017 the Defendant filed and served a witness statement from Mr Vodanovic (“Vodanovic 1”) addressing the issue of the source of the funds: see paragraph 42 below. On 17 October 2017 the Defendant informed the Claimants that the Solicitors required payment and would apply for directions. In December 2017 the Claimants applied to debar reliance on Vodanovic 1 on the ground that copies of the exhibits relating to funding had not been properly provided.

The Main Application: permission to appeal to the Court of Appeal

[27]In the meantime, on 21 July 2017, the Defendant had sought permission to appeal against the order of Elisabeth Laing J. On 28 December 2017 Gloster LJ granted permission to appeal against the order striking out the Main Application, indicating that it was arguable that the approach of Elisabeth Laing J had been over technical and suggesting there might be some merit in the Defendant’s case that the Judgment had been obtained by fraud. Thereafter, all other matters were stayed except for the order of Elisabeth Laing J for payment of interim costs in the sum of £90,000.[28]On 15 January 2018 (and again on 28 February 2018) the Solicitors wrote to the Claimant raising the matters which it now raises concerning directions for payment out from the Client Account in respect of legal fees. Despite threatening to apply to the court in both those letters, no application was issued until 19 April 2018.[29]On 18 January 2018, the Claimants applied to the Court of Appeal for security for costs of the appeal and for an order that the Judgment be paid before the appeal could proceed. Since January 2018, further funds have been received into the Client Account.[30]On 8 March 2018 the Defendant filed and served a second statement from Mr Vodanovic (“Vodanovic 2”): see paragraph 43 below.[31]On 16 March 2018 Master Thornett made an order adjourning generally the Full Hearing (and the application to debar Vodanovic 1) pending notification by 30 March 2018 as to whether it needed to be relisted. In correspondence dated 27 March 2018, the Claimants proposed a consent order that the Defendant’s application for directions should be heard at the same time as the Full Hearing. On 29 March 2018 the Defendant declined this suggestion, since by then the Full Hearing had been adjourned until after the disposal of the Defendant’s appeal to the Court of Appeal and there was greater urgency in the directions for payment out of the Client Account.[32]On 10 April 2018 Master Meacher in the Court of Appeal ordered the Defendant provide security for the costs of his appeal in the sum of £200,000. On 16 April 2018 the Defendants requested a review of that order. On 19 April 2018, the Defendant issued the present application for directions.[33]On 21 May 2018, on review of Master Meacher’s order, Longmore LJ ordered that the Defendant provide security for the costs of the appeal in the sum of £75,000 plus VAT and ordered a stay of the order of Elisabeth Laing J for payment of the £90,000 interim costs. Security was ordered to be provided by 20 June 2018. Longmore LJ observed that, whilst the Defendant asserted he had no money and that security for costs would stifle the appeal, (relying on paragraph 14 of the Laing Judgment) the Defendant is able to obtain funds to progress his claim and indeed to pay adverse costs orders, when he considers it to be in his interest to do so.[34]Following a hearing on 8 and 9 May 2018 and further directions on 18 May 2018, the parties made further written submissions in May and June 2018. As a result the issues have somewhat changed. Subsequently, the Defendant sought a decision on this application in order that the security of costs in the Court of Appeal could be provided. In the event it appears from a letter dated 6 July 2018 from the Solicitors that the security for costs may have been met from further, other funding, received by the Solicitors. In that letter, the Solicitors indicated that temporarily they were willing to proceed with their bills outstanding, rather than being paid.

The funds in the Client Account and work done and fees incurred

[35]Whilst the evidence in support of the Defendant’s applications refers to a total of £137,804.40 held in the Client Account, this is broken down into three “funds”. It is common ground that what is in dispute now are the sums in “Fund 1”, being £89,353.20.[36]According to the Solicitors, as at 19 June 2017, costs billed by the Solicitors were £33,332.03, pursuant to a bill dated 31 May 2017, and counsel’s fees incurred were £13,200. Further unbilled fees of the Solicitors were £15,295 plus VAT. This gives a total of £64,866.03 which the Defendant contends was owing as at the date of service of the Interim Order.[37]As at 29 March 2018, the Solicitors asserted that unpaid bills were in excess of £360,169.05. In his witness statement dated 17 April 2018 in support of the application, at Exhibit 04, Mr Pullen of the Solicitors has exhibited a 54 page schedule of all work done between 28 April 2017 and 15 March 2018 totalling that sum. However no invoices or fee notes have been produced in evidence.

The evidence as to the source of funds in the Client Account

[38]The source and purpose of the moneys in the Client Account has been the subject of much debate and dispute. The Defendant claims that these moneys have been provided ultimately by, and are ultimately the assets of, the Prodani family, in whose business interests the Defendant is employed. He asserts that the moneys are not payable to him. Thus, he submits, the sums in the Client Account cannot on any view be a debt due to the Defendant and thus made the subject of the Interim Order[39]By letter dated 15 January 2016 addressed to the Solicitors, (“the Vodanovic Letter”) Mr Vodanovic stated that:
“Mr Prodani has agreed to assist him by lending him money to be used for any purpose Mr Terry should choose. This is done by way of a loan paid by Intacapital Swiss SA, which is immediately repayable on demand by Mr Prodani but which, unless and until any such demand is made, is to be repaid from commissions earned by Mr Terry in the course of his future work for IntaCapital. Subject to any prior demand, repayment will be by way of deduction from commission payments.”
This, say the Claimants, indicates that there was no restriction at all as to the use to which the Defendant could put the money loaned.[40]In a further letter dated 24 March 2017, Mr Vodanovic stated that Mr Prodani had made available a further sum by way of loan to the Defendant; that that loan was the full amount which Mr Prodani was prepared to make available and that all of the loans were repayable on demand.[41]These letters were before Elisabeth Laing J and formed part of the basis for her conclusion, set out in paragraph 17 above, that she was not satisfied that Prodani family was the source of the moneys.[42]Since then, Mr Vodanovic has provided further witness statement evidence in Vodanovic 1 and Vodanovic 2, seeking to explain the position and to answer the points made in the Laing Judgment. In Vodanovic 1, in his capacity as a director of HKM and a personal friend of the Defendant, he explained the basis of the funding of the Defendant’s litigation by the Prodani family. The sums had been loaned to the Defendant and were repayable, regardless of the outcome of the litigation and were to be repaid by way of future earnings from the work that he does for the Prodani family. In Vodanovic 2, Mr Vodanovic confirmed, for the avoidance of doubt, that the funds advanced to the Solicitors are funds that are not owned by the Defendant in any way. The funds are indirectly owned by the Prodani family and “are only to be used for the specific purpose of funding [the defendant’s] legal expenses. The Defendant is expected to repay those funds from future earnings, regardless of the outcome of the litigation. Any sums not used for the purpose of the litigation must be returned to the Prodani companies”. In short, Mr Vodanovic now says that the sums loaned by the Prodani family are restricted as to their use and are repayable on demand. The Parties’ contentions The Defendant’s case

The Parties’ contentions

[43]In the course of this application, the Defendant has sought an array of different orders, and in doing so, has relied upon a wide variety of different arguments. This has presented an ever changing picture. I do not recite all of the points made. (I note for example that initially the Defendant submitted that I could and should decide now the issue as to the source of the funds in the Client Account; by close of argument, the Defendant says that I need not make that decision)[44]By the close of the argument, both oral and written, the Defendant now makes the following points:(1) The Freezing Injunction contains an express provision permitting the disbursement of funds for the purposes of meeting legal expenses.(2) The Interim Order should be discharged on grounds of non-disclosure and, further, that it had been pursued for an improper collateral purpose. The Claimants misled the Court and failed to disclose that the funds were exclusively for the purpose of funding the Defendant’s legal costs.(3) In general, it is an abuse of process to obtain a third party debt order in respect of funds sitting in a solicitor’s client account, where such funds have been, or are intended to be, used for the purpose of meeting continuing legal expenses. Because of the public interest in access to justice, reasonably incurred legal expenses have preference over satisfaction of any damages award. The Interim Order should be set aside on grounds of abuse, or at least, amended to permit payment of such costs. Further the Interim Order is an abuse of process on the basis that no such order should be made in respect of a solicitor’s client account in circumstances where there is at the same time a freezing injunction which included the standard exception for payment of reasonable legal fees.(4) Of the £89,353.20 in the Client Account as at the date of service of the Interim Order (19 June 2017), £64,886.03 were sums due to the Solicitors from the Defendant in respect of fees incurred and due. It is clear that, to that extent, the sums in the Client Account did not amount to a debt due to the Defendant.(5) As to the remaining £24,467.17, those were sums held in the Client Account under the Solicitor’s continuing retainer and were earmarked as sums paid “on account”. They cannot be released to, or demanded by, the Defendant in any event, unless and until the Solicitor’s retainer is terminated. Thus, that sum, too, as at the date of service of the Interim Order did not represent a debt due from the Solicitors to the Defendant. The Claimants knew that the Defendant would incur future legal costs and these funds “were to be used for ongoing legal expenses”, funding the ongoing outstanding applications (including, for example, the committal application and the Main Application). The Solicitors must be allowed to hold money on account for the Defendant’s future legal costs.(6) It is unnecessary to determine at this stage the source of the funds in the Client Account. Alternatively, and in any event, the source of the sums in the Client Account was not the Defendant, but rather a third party funding the Defendant’s legal expenses, namely the Prodani family. Accordingly those sums are not, and could never be, a debt due to the Defendant, because the Defendant had no claim upon them. Nor are those sums subject to the Freezing Injunction.

The Claimants’ case

[45]The Claimants’ case is as follows:(1) The liberty to pay legal costs in the Freezing Injunction is irrelevant.(2) There is no basis to set aside the Interim Order on grounds of non-disclosure and improper collateral purpose.(3) An interim third party debt order is different in nature from a freezing injunction and is an equitable charge on the debt to which it relates. It cannot be an abuse of process to seek to enforce a judgment by a third party debt order directed towards sums held in a judgment debtor’s solicitor’s client account.(4) It is accepted that such an interim order does not apply to a debt created as between third party and judgment debtor after service of the interim order. Accordingly funds 2 and 3 held in the Client Account are not affected by the Interim Order.(5) It is further accepted that, at the time of service of the Interim Order, to the extent that there is a debt due from the judgment debtor to the third party which can be set off against the debt due from the third party to the judgment debtor, the latter debt to which the interim order applies is reduced or extinguished pro tanto.(6) However, unless and until a bill has been rendered by the Solicitors to the Defendant, sums in a Client Account which might at a future date be used to pay for work done or to be done, but which has not been billed, cannot be set off and remain a debt due from the Solicitors to the Defendant.(7) As regards the source of the funds in the Client Account, the judgment of Elisabeth Laing J at paragraphs 20 to 34 and 56 created an issue estoppel and so this had been resolved decisively against the Defendant. Alternatively, it cannot suitably be resolved on this application and is a matter for the Full Hearing.

The relevant legal background

[46]I address, first, freezing injunctions, then third party debt orders and finally the nature of a solicitor’s client account.

Freezing Injunctions

[47]As regards freezing injunctions, I refer to Anglo Eastern Trust v Kermanshahchi [2002] EWHC 3152 (Ch) at §§7-9 Compagnie Noga d’Importation et d’Exportation SA v Australian and New Zealand Banking Group [2006] EWHC 602 (Comm) at §9; HMRC v Begum [2010] EWHC 2186 (Ch) at §§39-41; and Taylor v Van Dutch Marine Holding ltd [2017] EWHC 636 (Ch) at §§10-11. From those cases, the following principles can be stated:(1) A freezing injunction operates “in personam” – it is an order directed to a defendant not to dissipate assets, for the purpose of preserving assets in aid of enforcement. It does not give the claimant any proprietary security rights over the defendant’s assets or any special status as a preferred creditor of the defendant.(2) However, as expressly pointed out at §9 of Anglo-Eastern Trust, the claimant may be able to achieve that status as a preferred creditor, once judgment is given, by which a proprietary method of enforcement such as obtaining a charging order absolute.(3) In the normal course, a freezing injunction will grant permission to the defendant allowing him to pay reasonable legal expenses. In that regard, and save in exceptional circumstances, it is not for the claimant nor the court to question the defendant’s choice of solicitor nor the nature or amount of work done by the solicitor. Subject to the giving of notice, the defendant’s solicitor may “self-certify” that sums have been spent in connection with the case and that such expenditure was reasonable.

Third party debt orders

[48]Third party debt orders are governed by CPR Part 72 and Practice Direction 72. They replaced the former method of enforcement known as “garnishee proceedings”. A judgment creditor may enforce against a debt owed by a third party to the judgment debtor. The effect of the final third party order is that the third party is ordered to pay over the amount of the debt owed by the judgment debtor to the third party to the judgment creditor, rather than to the judgment debtor.[49]There is a two stage procedure: first the making of an interim order obtained without notice which has the effect of holding the position pending an inter partes hearing; then a full inter partes hearing involving the judgment creditor, the judgment debtor and the third party to decide whether a final third party order should be made or rather whether the interim order should be discharged.[50]CPR 72.3 to 72.5 address the first, interim, stage. The application for the order must be in standard form N349 and must contain prescribed information. It will initially be dealt with by a judge “without a hearing” (unlike the position concerning urgent injunction applications without notice): CPR 72.4(1). Such applications are treated as urgent business and placed, as “box work”, before the Master on the same day as received and as soon as possible. The interim order itself is also made in standard form N84. The interim order will fix a hearing for consideration of whether to make a final order and direct that until that hearing the third party must not make any payment which which reduces the amount he owes to the judgment debtor to less than the amount specified in the order. The interim order must be served on the third party and the judgment debtor; it becomes binding upon the party when served. Where the third party is not a bank or building society, it must notify the court and the judgment creditor within 7 days of service if it claims not to owe any money to the judgment debtor or to owe less than the amount specified in the[51]There must be a “debt due or accruing due” to the judgment debtor from the third party: see CPR 72.2 and The White Book Service 2018 §72.2.1. Where the debt is not due, there is nothing to be attached by the order. An interim order cannot attach future debts.[52]An interim order only restricts the amount in the relevant third party account at the time of service of the order. Money paid into an account after the date of an interim order is not caught by that interim[53]If at the time of service, there is also money due from the judgment debtor to the third party which amounts to a set-off against the money due from the third party, then to that extent, there is no debt due from third party.[54]Significantly, the effect of an interim order is to create a defeasible charge in favour of the judgment creditor in respect of the debt the subject of that order. It operates not just “in personam” – unlike a freezing injunction. That charge might be discharged on the application for the final order (so that in that sense the charge is “defeasible”) or it could be made final. If and when the interim order is made final, it has priority to payment from the fund over any other judgment creditor who had not yet obtained any interim third party debt[55]CPR 72.8 addresses the second stage, the inter partes hearing. It is for the judgment debtor or third party to raise objections to the making of a final third party order, by the service of written evidence. At the hearing the court may make a final order, discharge the interim order and dismiss the application, decide any issues in dispute or “direct a trial of any such issues…”: CPR 72.8(6).[56]The making of a final order is discretionary. In this regard there is no material difference between third party debt orders and charging orders under CPR 73 (The White Book Service 2018 §73.4.5(2)). A final order will be refused where it would be inequitable: Roberts Petroleum Ltd v Kenny [1983] 2 AC 192. In considering whether or not to exercise its discretion to make a final order the court must bear in mind not only the position of the judgment creditor, the judgment debtor and the third party, but also the position of other creditors. It may be inequitable to prefer one creditor (the judgment creditor) over another.

Solicitor and client – funds and payment

[57]In the normal course money held in a solicitor’s client account (rather than in the solicitor’s own fund account) is money owing by the solicitor to the client.[58]Rules 12 to 14 of the SRA Accounts Rules deal with client accounts. Rule 14.1 provides that client money must be paid into, and held in, a client account. “Client money” is defined as money held or received for a client and includes money received for payment of unpaid professional disbursements or as a payment on account of costs: see rule 12.1 and 12.2. Subject to limited exceptions, only client money may be paid into or held in a client account: rule 14.2. Rule 14.3 provides:
“Client money must be returned to the client (or other person on whose behalf the money is held) promptly, as soon as there is no longer any proper reason to retain those funds.”
The solicitor must promptly inform the client (or other person on whose behalf the money is held) of the amount of any client money retained at the end of a matter (or the substantial conclusion of a matter) and the reason for that retention: rule 14.4.[59]Guidance note (vi) to rule 14 provides that ““promptly” in rule 14.3 and 14.4 is not defined but should be given is natural meaning in the particular circumstances. Accounting to a client for any surplus funds will often fall naturally at the end of a matter. Other retainers may be more protracted and, even when the principal work has been completed, funds may still be needed, for example, to cover outstanding work in a conveyancing transaction or to meet a tax liability.”[60]Rule 14.5 provides that the solicitor “must not provide banking facilities through a client account. Payment into, and transfers or withdrawals from, a client account must be in respect of instructions relating to an underlying transaction (and the funds arising therefrom) or to a service forming part of the solicitor’s normal regulated activities”. The guidance notes go on to provide that it is not a proper part of a solicitor’s everyday business or practice to operate a banking facility for third parties, whether they are clients of the firm or not. The notes go on to warn that there are criminal sanctions against assisting money-laundering.[61]By contrast “office money” means money belonging to the firm of solicitors. Money becomes “office money” when it is for fees due to the firm “against a bill or written notification of costs incurred, which has been given or sent in accordance with rule 17.2” or monies received for “disbursements incurred but not yet paid by the firm, but excluding unpaid professional disbursements”: see rules 12.1 and 12.7(c). Once a bill is raised, the money must be transferred out of the client account within 14 days: see rule 17.3.[62]There are exceptions to the requirement to retain client money for fees in the client account. Those include where money is received for unpaid professional disbursements in settlement of a rendered bill: rules 16.1(e) and 17.1. Thus money can be transferred to the office account to pay for a bill which has been rendered, even if it is for professional disbursements which have not been paid.[63]Rule 11 provides thatnothing in the rules deprives a solicitor of any recourse or right, whether by way of lien, set off, counterclaim, charge or otherwise, against money standing to the credit of a client account.[64]A solicitor has a lien (and a right of set-off) over money in a client account in respect of services rendered, and for which it has delivered a bill, to a client. Such a lien, once established, gives priority over a final third party debt order. (See, for example, Prekookeanska Plovidba v LNT Lines SrL [1989] 1 WLR 753 at 754G, 756A-E and 757E-F, cited at Gee on Commercial Injunctions (6th ed.) §21 – 071). Such issues of the existence of a lien and priority are properly matters for the court’s discretion at the full hearing of the third party debt order. Analysis of the Issues The Freezing Injunction

Analysis of the Issues

[65]The Defendant seeks a direction from the Court to the effect that, under the provisions of paragraph 12 of the Freezing Injunction, he is at liberty to authorise payment out of the Client Account of sums in respect of the fees of the Solicitors and counsel. He has sought that direction out of an abundance of caution. Paragraph 12 provides, in somewhat standard form,:
“this order does not prohibit the Respondent from spending… A reasonable sum on legal advice and representation. But before spending any money the Respondent must tell the Applicants’ legal representatives where the money is to come from…”
[66]As indicated in paragraph 47(3) above, this exception from the ambit of a Freezing Injunction permits spending on legal fees without any requirement for the Court or the Claimants to supervise the amounts so spent, (save where the fees incurred are out of the ordinary and extravagant). The respondent’s solicitors are entitled to self-certify the amounts so spent.[67]In the course of oral argument, the Claimants made clear that they take no objection under the terms of the Freezing Injunction to the payment out to the Solicitors and counsel of the amounts now sought to be paid and raise no objection, either under the terms of the Freezing Injunction or the relevant case law, that such payment is not permitted. They do of course object to such payment by dint of the Interim Order, (which I address in the following paragraphs). I further record that the Claimants have reserved their position as to the propriety, under the terms of the exception in the Freezing Injunction, of earlier sums paid by way of legal fees on the grounds those sums were extravagant. That is not a matter for this application.[68]Accordingly, no further issue falls for determination in relation to the impact of the Freezing Injunction itself upon the ability of the Solicitors and counsel to be paid out of the Client Account

Non-disclosure

[69]The Defendant makes three points: First, the Claimants at the time of making the without notice application on 31 May 2017, were in breach of their duty of full and frank disclosure. Secondly, subsequently and by 24 June 2017, the Claimants were in breach of their ongoing duty of disclosure. Thirdly, the Claimants’ improperly used the interim order procedure after 23 June 2017 for a collateral purpose. I deal with each in turn. (1). Duty of disclosure at the time of the application[70]Two questions arise. First, at the interim stage of the third party debt order procedure is there a duty of disclosure akin to the duty upon a party seeking a without notice injunction? Secondly, did the Claimants breach any such duty?[71]As to the first question, the existence, and extent, of a duty of disclosure in the context of a without notice application for an interim third party debt order was considered in Merchant International, supra,at §§68-71. Blair J held, on the one hand, that there is no reason to import the case-law applying to disclosure in the case of freezing orders, since the latter is “exceptional relief” whilst a third party debt order is long established and routine. On the other hand, the importance of accurate evidence and the duty of disclosure on a without notice application is undoubted. The extent of the duty and the gravity of the lack of frankness depends on the character of the application. Where, as in that case, the consequences of an interim third party debt order are potentially serious and the grounds for making an order debateable, the duty of full and frank disclosure will be commensurately higher. It is to be noted however that in that case Blair J was considering the question in the course of the inter partes hearing to decide whether the interim order should be made final. He concluded on the facts there that the claimants’ failings were not such as to warrant discharge for non-disclosure. Rather he would in any event have declined, in the exercise of the final hearing discretion, to make the final third party debt order. For the reasons given by Blair J, I consider that there is a duty upon the applicant for an interim third party debt order to provide accurate evidence and that there is a duty of disclosure.[72]As regards the position at the time of the application for an interim order on 31 May 2017, the Defendants contend that the Claimants’ application for the Interim Order was false, misleading or incomplete in the following respects:(1) The statement that “the third party is within England and Wales and owes money to (or holds money to the credit of) the judgment debtor” was false; in fact the debt was due to the Solicitors and/or to the Prodani family.(2) The statement that there were no other persons who have a claim to the money owed by the third party was materially misleading; in fact the Prodani family and the Solicitors both had a claim to the money(3) The passage at section 5 (set out in paragraph 19 above) referring to what had been said about costs paid to date was “not the case” and “not relevant to the application”.(4) The Claimants failed to make clear in the application that the sums the subject of the application were funds in a solicitor’s client account and represented sums due in respect of legal fees in ongoing litigation.[73]First, it is obvious from the application form as a whole, and in particular the terms of section 5 that the third party, “Martin Cray & Co” is a solicitor, that the debt in question is moneys in a client account, and that the relevant client account being referred to, and to which the interim order was directed, was a solicitor’s client account used for the funding of ongoing litigation.[74]Secondly, as to the contention that that there was a third party – the Prodani family and/or the Solicitors - interested in the sums, in my judgment this was not known to the Claimants. At the time of the application being made, the material available to the Claimants was the Vodanovic Letter, what had been said in the course of the hearing before Elisabeth Laing J and a draft of the Laing Judgment. As at that time, the Claimants reasonably believed that the funds had been provided by the Defendant and in any event were a debt due to the Defendant. The relevant question is whether the sums in the account represented a debt due from the Solicitors to the Defendant and not whether the source of the moneys paid in was ultimately the Defendant or the Prodani family. In the normal course, money in a solicitor’s client account represents a debt due from the solicitor to the client. The Defendant submits that that is not the case here, because it was the Prodani family who provided the funds. He now specifically relies upon the witness statement evidence in Vodanovic 1 and Vodanovic 2. However as at 31 May 2017 that evidence was not available. Rather the evidence at that time was that contained in the Vodanovic Letter; that letter made it clear that the moneys had been loaned to the Defendant on an unrestricted basis. The other matter which was known to the Claimants at the time of the application were the findings in the Laing Judgment (set out above). In reaching those conclusions, Elisabeth Laing J relied specifically on the Vodanovic Letter. As a matter of analysis, the provision of sums by the Prodani family as a loan to the Defendant and on an unrestricted basis, meant that whilst as between Prodani and the Defendant, the Defendant owed or might have owed at some stage in the future moneys to the Prodani family, the Defendant had been free to deal with the monies lent to him in such way as he thought fit and the payment of those monies into the Client Account created a debtor/creditor relationship between the Solicitors and the Defendant. There was nothing to suggest, at that time, that the Solicitors owed moneys to the Prodani family or that they could call for payment out of the sums in the Client Account. The only evidence of such a debtor/creditor relationship between the Solicitors and the Prodani family directly is found in the subsequent, and contradictory, evidence now provided subsequently in Vodanovic 1 and Vodanovic 2.[75]As regards any interest on the part of the Solicitors in the funds, the Claimants were entitled to rely upon the statements made at the hearing on 8 May 2017 that fees had been largely paid up to date and that the balance in the Client Account was free from any claim by the Solicitors.[76]I conclude that, at the time of the application, the Claimants were entitled to rely upon the Vodanovic Letter and the findings in the Laing Judgment. There was no relevant non-disclosure relating to the source of the funds or the interest of any other party in the moneys in the Client Account. (2). Continuing duty of disclosure[77]The Defendant further contends that, at a later date, the Claimants were further in breach of their continuing duty of disclosure by failing to correct matters and/or failing to apply to withdraw or discharge the Interim Order. He contends that upon receipt of the “7 day letter” dated 23 June 2017, the Claimants knew that the sums in the Client Account were for the purpose of past and/or future legal fees.[78]I do not accept this. First, the applicant’s continuing duty continues “whilst the proceedings remain on an ex parte basis” per Saville J in Commercial Bank of the Near East plc v A [1989] 2 Lloyds Rep 319 as cited in Gee on Commercial Injunctions (6th edn) at §9-026. By the time of receipt of the “7 day” letter, the proceedings were no longer on an “ex parte” basis; the Defendant and the Solicitors were “no longer under a continuing disability to protect [their] own interests”. Indeed the very purpose of CPR 72.6(4) is to enable the judgment debtor and third party to respond to the interim order. Secondly, and in any event the matters raised in the 7 day letter were disputed and, as provided for by the two-stage procedure, would be the very sort of issues falling for consideration at the Full Hearing. The Defendant now accepts that the “source” issue should be addressed at that hearing. Thirdly, I note that as at that stage, there had been no further evidence from Mr Vodanovic himself on the issue of the source. (3). Collateral purpose[79]The Defendant contends that, by proceeding with the third party debt procedure after 23 June 2017, the Claimants were improperly seeking to deprive him of the very funds he had borrowed in order to pursues his own appeal and to defend himself against the Claimants’ applications. He relies upon the principles set out at The White Book Service 2018 §3.4.3.4.1 and Goldsmith v Sperrings Ltd [1977] 1 WLR 478 at 503F-G. This was a fresh point made only in the post-hearing written submissions.[80]I do not accept this submission. The Claimants, by seeking to enforce the judgment through a third party debt order are not “pursuing an ulterior purpose unrelated to the subject matter of the litigation”. There is no evidence to support the proposition that “but for the ulterior purpose” – an alleged desire to deprive the Defendant of funds with which to continue the litigation - the Claimants would not have made the third party debt order application at all and that the Claimants were not interested in enforcing the Judgment. Rather the evidence shows that over time the Claimants have sought to enforce the Judgment by variety of means.[81]For these reasons, I reject the Defendant’s case on non-disclosure and collateral purpose.

Abuse

[82]As regards the Defendant’s contentions set out in paragraph 44(3) above, the critical point is that a freezing injunction and a third party debt order are different in nature. As pointed out at paragraphs 47(1) and 54 above, the former operates in personam to prevent dissipation pending a judgment and, if obtained, pending its subsequent enforcement; the latter is a means of enforcement of an existing judgment and operates upon a particular asset (a debt). What is more an interim third party debt order, as made in the present case, also gives a property right in the nature of an equitable charge over the debt in question and prevents use of that asset otherwise. In particular it prevents use of that debt to pay legal fees, which would otherwise be permitted under the exception in the freezing injunction. Thus, in principle, there is no conflict between the liberty under a freezing injunction to spend sums on legal fees and an interim third party debt order which has the effect of hindering the ability to pay legal fees.[83]Secondly, the fact that there are sums in a solicitor’s client account which belong to a defendant does not, without more, mean that those sums will be used to discharge the client’s legal expenses of litigation. Sums in a solicitor client account may be there for a wide range of reasons and not just because they are earmarked to pay for litigation expenses; for example they might be the proceeds of sale of a property transaction. Indeed in the present case, the Defendant has, from time to time, indicated that he wished to use the funds in the Client Account for a purpose other than funding his own legal representation in the ongoing litigation, namely to provide the security for the Claimants’ costs of the appeal which he has been ordered to pay.[84]If the Defendant’s submission here were correct, then a third party debt order could never be made where there is a freezing injunction with the standard permission. A freezing injunction does not stop or prevent enforcement of a judgment; it is there as an aid to enforcement. Regardless of the terms of a freezing injunction, once a judgment has been entered, the judgment creditor is entitled to take steps to enforce that judgment. If that enforcement threatens to deprive the judgment debtor to fund an appeal or more generally to continue litigation, then an appropriate remedy is to seek a stay of the execution of the judgment or to obtain third party funding. As to the former, no such stay has been ordered in the present case. As to the latter, the issue of whether the funds in the Client Account truly represent “third party funding” falls to be resolved at the Full Hearing.[85]Finally and in any event, I do not accept that without access to the sums in the Client Account, the Defendant will be unable to secure legal representation and that the Defendant’s Main Application and, more generally, his participation in the ongoing litigation will be stifled. On the evidence before me, he has, in the past, been able to secure funding and, has also indicated that further, other, funding will be available. Elisabeth Laing J (at paragraph 46), Master Meacher (in his reasons) and Longmore LJ (at paragraph 2)) have each reached such a conclusion. Moreover, the subsequent indication of a desire to use the funds in the Client Account to pay the security for costs, rather than the fees of the Solicitors and counsel indicate to me that it is not the case that, without release of the funds in the Client Account, legal representation cannot continue.[86]Accordingly I find that the obtaining and maintaining of the Interim Order was not an abuse of process.

£64,866.03 is due from the Defendant

[87]The Defendant maintains that, as at the date of service of the Interim Order (on 19 June), of the £89,353.20, the sum of £64,866.03 was due from the Defendant to the Solicitor. That sum is said to be made up as follows: £46,532.03 billed and due (comprising £33,378.03 Solicitors’ fees and £13,200 counsel’s fees); and £18,354 for the Solicitors’ unbilled work in progress. The Defendant submits that that sum can be set off against sums in the Client Account prima facie due to the Defendant from the Solicitors and to that extent does not represent a debt due to the Defendant. Accordingly, the Interim Order cannot apply to that part of the £89,353.20. The Solicitors are free to withdraw that amount to satisfy that debt due to him.[88]In principle I accept that if bills for those sums had been rendered and had fallen due by the date of the service of the Interim Order, then those sums do not amount to a debt due to the Defendant and are therefore not caught by the Interim Order. However two points arise.[89]First, subject to the issue of principle concerning sums held “on account” in a solicitor’s client account, which I address below, I do not consider that fees which, as at the date of service of the Interim Order, were unbilled work in progress constitute a debt due to the Solicitors which can be set off against sums in the Client Account. Thus and in any event the £18,354 cannot be paid out to the Solicitors.[90]Secondly, in respect of the £46,532.02 which has fallen due, I am not satisfied that this is established as a matter of fact on the state of the evidence. The Solicitors and the Defendant have not produced any relevant invoices and fee notes (claiming that, for some reason, they are privileged). Nor is there evidence that the Claimants have accepted that these sums had already fallen due by the date of the service of the Interim Order. At this stage therefore I make no order allowing the payment out of these sums to the Solicitors. However, if as a matter of fact, the Defendant can demonstrate by good evidence to the Claimants that in fact those bills had been rendered and had fallen due by the relevant day, I would expect the Claimants to allow those sums to be paid out to the Solicitors. If any dispute arises on this matter the matter can be referred to the Court simply to consider the relevant evidence.

The “balance” of £24,467.17

[91]The Defendant contends that the Claimants knew all along that the balance of £24,467.17 was to be used for future legal fees; although I note that, at one stage, the Defendant also stated that he wanted to use this sum for providing the security for costs order by Longmore LJ.[92]The question is whether a sum held “on account” in a solicitor’s client account, under the rules in the SRA Account Rules, in the course of an ongoing retainer with the client remains nevertheless a debt due to the client or rather it is “a debt due to the solicitor” and can be set off against the debt due to the client. If by dint of those rules and the general law, such sums are not a debt due to the client, then they cannot be made the subject of an interim third party debt order.[93]The Defendant contends that, until the end of the solicitor’s retainer and as long as sums paid in have been genuinely paid in to that account for the purpose of payment of fees in a matter, the client has no right to demand payment of the sums held in the client account. It follows that there is no immediately payable debt due to the client. See rule 14.3 and guidance note set out in paragraphs 58 and 59 above. The Defendant, further argues that, if the Claimants are correct, it would mean that any sums received by the Solicitors and held on account of future legal costs will be susceptible to being “grabbed” by a further interim order. The Solicitors must be allowed to hold money on account for future legal expenses of the Defendant in relation to this ongoing litigation. The Claimants’ objection that such a conclusion could encourage a judgment debtor to put all assets into a solicitor’s client account and thereby avoid his creditors is met by rule 14.5; a solicitor cannot act as a bank and requiring a solicitor to establish that amounts held in the client account are genuinely for work done under the existing retainer.[94]I do not accept the Defendant’s argument here. Unless and until a bill is rendered and allowing 14 days thereafter, there is no debt due from the client to the solicitor. Accordingly the money standing in the solicitor’s client account, even if held “on account”, and even if there are unbilled fees, is and remains a debt due from the solicitor to the client; it is still “the client’s money”. See the relevant SRA rules, set out at paragraph 58 above. Whilst it may be that under the Rules the solicitor is not bound immediately to return the funds and can hold those sums held “on account” until the retainer ends, that does not make such a sum “a debt due to the solicitor” which can be set off against the prima facie debt due to the client which sums in the client account represent. Unless and until fees fall due under the provisions of the Rules by virtue of a bill which has been rendered, the client can at any moment in time demand payment out of the sums held “on account” and the solicitor would have no defence to a claim for repayment by the client. Further, absent a rendered bill, the solicitor has no lien over such sums: see paragraph 64 above.[95]On any view, as at the date of service of the Interim Order, the sum of £24,467.17 was not a debt due from the Defendant to the Solicitors which could be set off against the debt in that amount due from the Solicitors to the Defendant. Indeed the same analysis also applies to the £18,354 referred to in paragraph 89 above.[96]I conclude therefore that the sums held on account in respect of future fees remain a debt due to the client, and so capable of being the subject of an interim third party debt order. Whether, in due course, a final order should be made in favour of the judgment creditor, in the face of competing claim by Solicitors is a matter for the Court’s discretion at the Full Hearing. The alternative conclusion that the sums held “on account” cannot form the subject of the interim order would mean that, by subsequently delivering a bill, the solicitor would automatically gain preference, prior to the Full Hearing.[97]I therefore conclude that the £24,467.17 remains subject to the Interim Order and cannot be released at this stage.

Source of funds

[98]As to the Defendant’s fallback submission that, in any event, the source of the sums in the Client Account, and in particular, of sums received subsequently is a non-commerical third party funder, that is not a question which I am prepared to determine on an application to discharge the Interim Order.[99]Under the procedure envisaged by CPR 72 and in general if the judgment debtor and/or the third party seek to dispute the asserted debt said to be owed by the third party to the judgment debtor, that is a matter for determination at the Full Hearing: see CPR 72.8.[100]The issue, I remind myself, is not ultimately the source of the funds but rather who is the creditor in respect of the sums in the Client Account. Unless it is clear, on the balance of probabilities, on the evidence before the Court that the creditor is not the Defendant, but rather Mr Prodani or one of his companies, no such determination can be made.[101]I accept that there is no countervailing evidence from the Claimants to dispute what is now in Vodanovic 1 and 2. However, there is the fact that there is a conflict of written evidence (as to who owns HKM and as to the terms upon which the moneys have been provided to the Defendant). This raises at least an arguable issue and one which might ultimately be a question for cross-examination of the Defendant and Mr Vodanovic. Given the changes of account, there are issues of credibility.[102]On the evidence before me, it is not clear that the Defendant has no claim at all to the moneys in the Client Account. I decline to make an order in the terms of paragraph (2) of the revised draft order. This is a matter properly for the Full Hearing.[103]As regards the Claimants’ reliance on an issue estoppel arising from the findings at paragraphs 20 to 34 and 52 of the Laing Judgment, since I do not make a determination as to the source of funds, this is a point which can be raised if and when that issue is heard at the Full Hearing. It is not necessary to make a decision on the point. Whilst the Claimants understandably rely upon those findings as precluding further debate on the issue, questions will arise as to whether, given the particular context of that finding, the Laing Judgment on this issue is “a decision on a particular issue forming a necessary ingredient in the cause of action being litigated” and further whether, in view of Vodanovic 1 and 2, “there has become available further material relevant to the correct determination of the point”: see Phipson on Evidence 19th edn §43-15, (4).

Conclusions

[104]In the light of my conclusions paragraphs 68, 81, 86, 89, 97 and 102 above, and subject to my observations at paragraph 90 above concerning the £46,532.03, the Defendant’s application to set aside and/or vary the Interim Order and for further directions fails and is dismissed.[105]Some of the issues raised are properly matters for the Full Hearing, where the court can determine contested issues of fact and can exercise its discretion. That hearing currently stands adjourned. Whether it is appropriate or feasible for that hearing to be brought on sooner than currently scheduled is a matter for the Defendant to consider.[106]I will hear submissions on any consequential matters.

order

CPR 72.6 (4). See paragraph 23 above order: FG Hemisphere Associates LLC v. Republic of Congo [2005] EWHC 3103 (QB) and Heppenstall v Jackson & Barclay’s Bank Limited (Garnishee) [1939] 1 KB 585. Thus an interim order does not bite on funds paid into a solicitor’s client account after the order was served on the solicitors: see Merchant International Company v. Natsionalna Aktsionerna Naftogaz Ukrainy [2014] EWHC 391 (Comm). order: see FG Hemisphere Associates LLC, supra,citing Société Eram Shipping Co-Limited v. Cie Internationale de Navigation [2004] 1 AC 260.

Cited in 5 later judgments