The Honourable Mr Justice Henderson :
Introduction and Background
- The hearing before me in this matter, which took place on 11 and 12 September 2007, was originally intended to be the first effective return date of an application for freezing orders first made in a telephone hearing without notice before Morgan J on the evening of Friday, 20 July 2007. Morgan J made the orders sought until a return date on the following Wednesday, 25 July, when they were continued by Evans-Lombe J until a further return date in September at which applications by the first, second and third respondents to discharge the freezing orders, and the question whether the applicant was entitled to a continuation of the orders (and, if so, on what terms), would be determined. The order of 25 July gave directions for the service of evidence in the meantime, and expressly recited that the respondents reserved all arguments that would have been open to them on the first return date, including arguments as to jurisdiction and service.
- The principal subject matter of the freezing orders was a sum of £6.5 million forming part of the proceeds of sale of a property known as Witanhurst, 41 Highgate West Hill, London N6 ("Witanhurst"). The proceeds of sale were held in a client account of Lawrence Graham. The applicant had obtained information which indicated that they were due to be remitted overseas to the trustees of an offshore discretionary trust on Monday, 23 July.
- The applicant is Mr Ian Franses, the liquidator of Arab News Network Ltd, a UK company which was compulsorily wound up on 12 May 2004 with a deficiency to creditors of around £35 million. At the date of the winding up order the sole director of the company was the first respondent, Mr Somar Al Assad, a French national who lives in Paris. Mr Al Assad is a member of the Al Assad family that has ruled Syria for nearly forty years, and he is a cousin of the present President.
- In December 2005 the liquidator began wrongful trading proceedings against Mr Al Asssad, who was in due course debarred from defending after he had failed to comply with an unless order to file a defence. On 4 July 2006 Registrar Derrett gave judgment against him in the sum of £5,108,413 plus interest and costs, and also ordered that his claims as a creditor in the liquidation should rank behind all other debts owed by the company. This judgment remains wholly unsatisfied.
- It is important to emphasise at this early stage that the liquidator is a judgment creditor of Mr Al Assad, in a sum which (including interest and costs) now exceeds £6 million, in the context of an existing liquidation (No. 2235 of 2004) and the wrongful trading proceedings which he brought in the course of that liquidation.
- The liquidator subsequently sought and obtained an order under CPR Part 71 for the examination of Mr Al Assad as a judgment debtor. The examination took place on 19 December 2006 before Registrar Rawson. The liquidator was represented by Miss Marcia Shekerdemian of Counsel, and Mr Al Assad by his solicitor, Mr James Price, a partner in Farrer & Co LLP.
- In the course of the examination, Mr Al Assad said among other things that:
(a) he had "not a penny" with which to pay the judgment debt, and had no assets apart from personal clothing;
(b) he had not had a bank account anywhere in the world since 2004;
(c) legal title to Witanhurst was vested in a Panamanian company called Mounir Developments SA ("Mounir"), and Witanhurst had been "off and on the market for a long time", although he did not know whether it was still on the market;
(d) he last lived at Witanhurst himself in 1997, and had been managing director of a UK company called Sard International Ltd which managed the property on behalf of Mounir;
(e) Mounir was owned by a discretionary trust set up by his father and managed by Lawrence Graham, of which members of the family, including himself, were beneficiaries;
(f) he had never received any income from that trust;
(g) there were a number of other family discretionary trusts, some of which were managed by Lawrence Graham, of which he was also a beneficiary but from which he had received no income or other benefits in the last five years apart from one life insurance payment;
(h) he lived with his wife and family in his mother's apartment in Paris and was supported financially by her;
(i) his family had property interests in Spain, comprising about a dozen houses owned by offshore companies and a hotel owned by a Spanish company; the offshore companies were in turn owned by further trusts managed by Lawrence Graham; and
(j) the amount of his debts was currently in the region of £2.2 million.
- At the conclusion of the hearing Registrar Rawson gave the liquidator permission to apply to restore the examination if he had been unable to obtain satisfactory answers to questions concerning Mr Al Assad's family or discretionary trusts by 30 January 2007. On 19 January the liquidator's solicitors, DLA Piper UK LLP, wrote to Farrer & Co asking about the ownership of the various trusts mentioned in the course of the examination. On 26 January Farrer & Co replied, enclosing a letter from Lawrence Graham dated 22 January. Lawrence Graham's letter confirmed that they acted for the trustees of various Al Assad family trusts, and that Somar Al Assad was a discretionary beneficiary of nine trusts, the names of which were then given. They included "The Cayman Dolphin Trust (Mounir Developments SA)". In their covering letter Farrer & Co said:
"As you will see from Lawrence Graham's letter, the Cayman Dolphin Trust owns the shares in [Mounir]. Our client is a discretionary beneficiary of the Cayman Dolphin Trust."
- On 30 January DLA Piper wrote again to Farrer & Co requiring "further information and documentation" in relation to all of the trusts of which Mr Al Assad was a beneficiary, and asking whether he would provide a letter of authority for them to communicate with Lawrence Graham direct. On 1 February Farrer & Co replied:
"We are instructed that our client does not have documentation relating to the trusts, and that the information which he gave about the trusts at the hearing on 19 December 2006 is the extent of the information which he has. In fact the details which we have obtained for you from Lawrence Graham go further than our client's recollection (as is apparent from the transcript of the examination). The interest which our client has in the trusts is as a discretionary beneficiary only. He is not, for example, and never has been, a trustee.
As to the request for a letter of authority, you do not of course need such a letter of authority to approach Lawrence Graham, which you are free to do. It is in any event not proposed to provide you with a letter of authority because this is beyond the scope of CPR Part 71."
- DLA Piper then wrote to Lawrence Graham on 13 and 22 February 2007, but were met with the response on 27 February that all information in respect of the trusts listed in Lawrence Graham's letter to Farrers of 22 January was confidential, and the trustees were under no obligation to provide it to the liquidator. Further attempts to extract information about the trusts from Farrer & Co and Lawrence Graham proved fruitless, so in due course the liquidator applied to restore the examination. This application was opposed by Mr Al Assad, on two grounds. The first ground was that a bankruptcy petition had been served upon him in the meantime, with the result (so it was said) that the liquidator had elected to pursue his claim in bankruptcy proceedings and it would therefore be inappropriate for him to pursue the oral examination, which was part of the ordinary enforcement procedure for a judgment debt. The second ground was that Mr Al Assad could not be compelled to give information about trusts where the information was not directly within his knowledge. The hearing of the application took place before Deputy Registrar Christopher Brougham QC on 16 July 2007, when he reserved judgment. On 1 August 2007 he handed down a written judgment. By this date the liquidator had already made his successful application to Morgan J for freezing orders on 20 July. The Deputy Registrar declined to order restoration of the oral examination. He gave four reasons for his decision. First, on the evidence before him he saw no reason to suppose that further examination of Mr Al Assad would yield any further useful information concerning the trusts. Secondly, he was not satisfied that the Court, in exercise of its jurisdiction under CPR Part 71, had power to order Mr Al Assad to obtain information or documentation from Lawrence Graham, or to provide a letter of authority. Thirdly, on the basis that the trusts in question were discretionary trusts, the exercise of such a power, if it existed, would be likely to be of no effect, as the trustees would be entitled to refuse any request by Mr Al Assad for information or documentation, and to decline to act on his letter of authority. Finally, the examination had to be for the purpose of enabling the judgment creditor to enforce his judgment, and none of the available methods of enforcement was applicable to an interest in a discretionary trust.
- On the subject of discretionary trusts, the Deputy Registrar pointed out in paragraph 27 of his decision that a beneficiary of a discretionary trust has a non-assignable and non-transmissible interest in the trust, and that he has no entitlement as of right to any trust documents or other information relating to the trust in the possession or control of the trustees, citing as authority for these propositions the decision of the Privy Council in Schmidt v Rosewood Trust Ltd [2003] UKPC 26, [2003] 2 AC 709. By contrast, a beneficiary under a fixed trust has a current fixed entitlement to an ascertainable part of the net income of the trust fund, after deduction of sums paid by the trustees in the exercise of their administrative powers of management: see Underhill and Hayton, Law relating to Trusts and Trustees, 17th edition, at paragraph 5.1. There was no dispute before me about the correctness of these elementary propositions of trust law.
- The immediate background to the application made to Morgan J on 20 July begins with an article in the Hampstead & Highgate Express ("the Ham & High") on 13 July, which reported that "one of Britain's biggest residential property sales was set to be sealed in Highgate yesterday", and that "the £32 million Grade II-listed Witanhurst mansion … has finally found a new owner". This report came to the notice of Susan Dunn of I M Litigation Funding, a litigation funding organisation retained by the liquidator, and on 14 July she emailed it to Miss Shekerdemian and Ms Lorinda Peasland of DLA Piper, among others, saying "not sure sale yet completed but clearly has relevance to your plans, action required!" Lorinda Peasland is a partner in DLA Piper, and has conduct of the present proceedings on behalf of the liquidator. In an affidavit which she subsequently swore on 8 August 2007, her second, she says that she received the following further information from Susan Dunn of I M Litigation Funding:
(a) on 14 May 2007, that Mr Al Assad was the registered owner of certain properties in Spain, this information having been provided to her by David Sanmartin, a Spanish lawyer and enquiry agent based in Barcelona;
(b) on 17 July, that Mr Al Assad had a bank account in Spain, the information again having come to her from David Sanmartin;
(c) on 19 July, that Lawrence Graham were acting for Mounir on the sale of the property, and that the council tax bill for Witanhurst in May 2007 had been invoiced to Mr Al Assad personally, this information having been provided by Morris Chase International; and
(d) at approximately 4.00 pm on 20 July, that Witanhurst had been sold and the proceeds of sale were currently in the client account of Lawrence Graham. The source of this information was again Morris Chase, who also informed Susan Dunn at the same time that on the following Monday, 23 July, the proceeds of sale were to be transferred to the trustees of the Opus Trust and then transferred on to the trustees of the Cayman Dolphin Trust.
It was the receipt of these final pieces of information at about 4.00 pm on 20 July which prompted the liquidator to make the urgent without notice application to Morgan J later the same evening.
The hearing before Morgan J on 20 July
- Counsel who was instructed to make the application was Mr Max Mallin, who also appeared at the hearing before me in September. He was assisted by Miss Shekerdemian and also by Miss Sally Barber of Counsel, who had been involved on different aspects of the case, and they were present in the room when Mr Mallin made the application. However, Mr Mallin alone was responsible for the application and its presentation to the Judge. The course of the hearing is recorded in a typed note some eight pages long which was prepared shortly afterwards by DLA Piper on the basis of notes taken by those who were present. No transcript of the hearing is available, but the note is a full one and no challenge has been made to its accuracy. The hearing started at around 8.00 pm, and ended at about 10.12 pm. The only documents which had been prepared before the hearing were two draft orders and a chronology, which were sent to the Judge at his home by email. They had not yet arrived when the hearing began.
- After initial introductions, Mr Mallin opened the matter. He said that the liquidator was asking for a freezing order in relation to the assets of Mr Al Assad generally up to a limit of £6.5 million, and a specific order freezing the proceeds of sale of Witanhurst up to the same limit to be made against Mounir, the trustees of the Cayman Dolphin Trust and the trustees of the Opus Trust. He explained that the property had been sold, the proceeds of sale were currently in the client account of Lawrence Graham, and the matter was urgent because it was understood that the money would be transferred out of that account on the following Monday morning. Counsel went on to explain the background to the case, and who the respondents were. He said that the Opus Trust was believed to be resident in Guernsey, but no address for it had yet been obtained. He said that Mr Al Assad lived in Paris, but was subject to the jurisdiction of the English courts because of the judgment entered against him. Counsel also explained the current position in relation to the oral examination of Mr Al Assad, and referred to the two primary grounds of opposition upon which Mr Al Assad had relied at the hearing before the Deputy Registrar on 16 July.
- Mr Mallin next referred to Witanhurst and what was known about its ownership structure. Having pointed out that Mr Al Assad was a beneficiary of the discretionary trust which owned the shares in Mounir, he went on:
"I am not therefore in the simple position that [Mr Al Assad] owns the property outright and that we know that the proceeds are going to disappear. We did learn today that the proceeds are about to disappear but can't go as far as that. But for these purposes, knowing the proceeds are about to disappear out of the jurisdiction, if I can show that there is a good reason to suppose that the assets held in the name of others are assets susceptible to the judgment against [Mr Al Assad], then I am entitled, assuming all other criteria to be satisfied, to a freezing order pending the resolution of the issue as to whether [Mr Al Assad] has the benefit of the proceeds of the sale. There are other beneficiaries of the trust. The jurisdictional trigger has been the risk of the dissipation of the assets.
We do not know but [Mr Al Assad] may well have the power to call for a disposition of the assets in his favour."
I pause to observe that, at the hearing before me, Mr Matthew Collings QC, who appeared with Mr Richard Morgan of Counsel for Mr Al Assad, expressly accepted that the statement of the relevant test in the former of the two paragraphs which I have quoted is unimpeachable. In other words, he agreed that the liquidator needed to satisfy Morgan J that there was good reason to suppose that the assets of the Cayman Dolphin Trust were susceptible to execution at the suit of the liquidator in his capacity as a judgment creditor of Mr Al Assad.
- Mr Mallin then referred to the asset position of Mr Al Assad. He referred to the properties in Spain which he owned and were registered in his name, and said there was anecdotal evidence that he drove around in an expensive car. With regard to the Spanish properties, Counsel said it had been discovered on 14 May that Mr Al Assad was the registered owner of three properties and since that date the liquidator had been trying to obtain a restraining order against them. The relevant procedure was still ongoing, and for that reason Mr Al Assad had not been informed that the liquidator knew of these properties. Reliance was placed upon the information regarding the Spanish properties as evidence of Mr Al Assad's dishonesty and his readiness to take all available steps to avoid the judgment:
"The fact appears he does appear to use trust assets as his own – putting the picture together, there would appear to be good reason to justify a reason why these assets are available to satisfy a judgment … I will come back to that."
Counsel then pointed out that there was a slight difference in the spelling of Mr Al Assad's name on the documents available through the Land Registry in Spain, the spelling used being "Soumar" rather than "Somar", although the former spelling was also used in other corporate documents. He also referred to the receipt of information on 10 July (which appears to be a mistake for 17 July) that Mr Al Assad had a bank account in Spain with a balance of €3,000, despite having denied at his oral examination that he had any bank accounts anywhere in the world since 2004.
- Counsel went on to refer to the information which had been obtained over the course of the previous week about the sale of Witanhurst, and told the Judge what Mr Al Assad had said about the property and his involvement with it at his oral examination. Referring to the latest information about the council tax bill, Mr Mallin said:
"[Mr Al Assad] had stated that he had not lived in the property since about 1997. It indicates assets that indirectly belong to the trust are being used by him as his own.
The cottages in the grounds of the property had been occupied by the staff of Arab News Network Ltd at his permission.
[Mr Al Assad] was a director of Arab News Network Ltd and also of [Sard], which managed the property. [He] also gives his residential address at Companies House as that of the property. We believe he has not lived there for a number of years. At the oral examination, it was put to [him] that he treated the property as his own but this was denied.
In the initial interview on 10 November 2004 with the liquidator, [he] stated that the property was owned by his family.
There is at least a good prospect of showing the prospect of ownership and that [Mr Al Assad] can satisfy the judgment debt.
We say that it is far from clear that [he] is not able to direct the disposition of assets from the Trust. The other possibility is that the trust situation is a sham – but we cannot say we have facts to support this at the moment."
- Mr Mallin then submitted that if Witanhurst had been an asset of Mr Al Assad's, a clear case for a freezing order would have been made out. There had been no demonstrable risk of dissipation until 20 July, and no control could be exercised over the money once it had moved on the following Monday. Accordingly:
"We are faced with a judgment debtor who has not just failed to pay the judgment debt, he has been dishonest in avoiding that judgment debt; and a very valuable asset of which he is a potential beneficiary is about to be dissipated out of the jurisdiction."
- At this point Morgan J intervened to say that he now understood the structure of the application and the orders he was being asked to make. The note continues:
"He summarised it by saying that the proceeds of sale of the property represented assets which were potentially available to [Mr Al Assad] to satisfy the judgment against him and that we were asking that those assets be preserved pending resolution of the issue as to whether they were in fact available. The Judge pointed out that that was something that the applicant may not ultimately be able to prove depending on the true nature of the discretionary trust when that is disclosed."
- Counsel then referred Morgan J to Gee on Commercial Injunctions (5th edition) at paragraph 13.007, dealing with the position of non-parties, and read to him the statement at the head of that paragraph that the claimant must show "good reason to suppose" as against the non-party that the assets of or held by the non-party would be susceptible to a procedure which would lead to satisfaction of a judgment, and that the width of the injunction against the non-party depends upon what it is that there is "good reason to suppose". Counsel submitted that the second to fourth respondents were clearly affected by the freezing order, and also the underlying substantive issue of whether they were the owners of the assets or whether Mr Al Assad was the owner. He also drew the attention of Morgan J to the third type of case discussed in this paragraph of Gee, viz where it is shown that although the defendant to the substantive claim has no legal or equitable right to the assets in question, he nevertheless has some right in respect of, control over, or other right of access to the assets. In response to Morgan J's question whether there was authority for this proposition, counsel referred to footnote 32 which cites the case of Winter v Marac Australia (1986) 6 NSWLR 11.
- There then followed some discussion about the paragraph in the draft freezing order dealing with the disclosure of information, and the interaction between such an order and the pending judgment of the Deputy Registrar on the application to restore the oral examination. Morgan J took the view that there was no urgency about disclosure, and this was something the liquidator could seek on the return date. There was then some discussion about service on the respondents, and at approximately 9.50 pm Morgan J indicated that he was minded to grant a freezing order, but without the usual attendant disclosure order at that stage. He said that the relief sought was justified on the basis that it was for a short period of time only, and that if not granted a substantial asset potentially available to satisfy the judgment debt would be removed, and there was very little if any apparent prejudice to the respondents. He then ended the telephone call to enable him to review the draft orders which had been emailed to him earlier and had by now arrived. At 10.05 pm he called back, having reviewed the draft orders, and went through them paragraph by paragraph. He questioned Counsel about the scope of the liquidator's cross-undertaking in damages, which was limited to the net realisable value of the assets of Arab News Network Ltd in the hands of the liquidator, less the costs of the liquidation. The Judge said that he could understand the point of the limitation, and Counsel confirmed that there were no assets of any value in the estate other than the judgment debt.
- Finally, Mr Mallin checked whether there were any other points he should bring to the Court's attention, and informed Morgan J that Mr Al Assad had said at his oral examination that Witanhurst had been on and off the market for some time. He submitted that it was the fact of the sale that was critical, "and we only knew today of the risk of dissipation". Morgan J confirmed that this information did not cause him to change his mind that this was an appropriate case for the Court to intervene.
- The order made by Morgan J restrained Mr Al Assad from removing from England and Wales any of his assets within the jurisdiction up to £6.5 million, and from disposing of or dealing with or diminishing the value of any of his assets anywhere in the world up to the same value. Paragraph 9 of the order provided that the prohibition included, in particular, the proceeds of sale of Witanhurst up to £6.5 million. Paragraph 11 prohibited the second to fourth respondents from disposing of any part of the proceeds of sale (up to the same limit) which was or might come into their respective possession or control. The undertakings given to the Court by the liquidator were set out in schedule A to the order, and included an undertaking to cause an affidavit to be sworn and served on each of the respondents as soon as practicable "deposing to the substance of the information conveyed to the Judge by Counsel … at the telephone hearing and exhibiting any documents referred to."
- In a separate order also dated 20 July 2007, the liquidator was given permission to serve the proceedings on Mr Al Assad in France, on Mounir in Panama, and on the trustees of the Cayman Dolphin Trust in the Cayman Islands. In addition, the liquidator was given permission to effect service on Mr Al Assad through Farrer & Co, and on the other respondents through Lawrence Graham.
Events since 20 July 2007
- On the following Monday, 23 July, Lorinda Peasland swore her first affidavit in compliance, or purported compliance, with the undertaking given to Morgan J. After referring to the application, and to the two orders made on 20 July, she said that the information provided to the Judge by Counsel for the liquidator was as set out in the note of hearing, a copy of which she exhibited. She said that the note had been prepared from her own knowledge and that of Counsel. She then concluded by saying:
"Pursuant to the terms of the freezing order, copies of the documents referred to at the hearing are contained at pages 25 to 176 [of the exhibit]."
The documents included the transcript of Mr Al Assad's oral examination, Lawrence Graham's letter of 22 January 2007, the notes of an interview with Mr Al Assad at a creditors' meeting on 10 November 2004, Susan Dunn's email of 14 July 2007 to Lorinda Peasland and copy entries from the Marbella Land Registry showing Mr Al Assad as the owner of three properties.
- I have already referred at the beginning of this judgment to the orders which were made on the first return date, Wednesday, 25 July 2007. The freezing orders were continued until a further return date, which was defined as the first available date within the week commencing 10 September 2007. There was no substantive argument before Evans-Lombe J, and it was agreed that all questions should be reserved to the further hearing with the applications to come on as an application by order certified fit for vacation business and with a time estimate of two to two and a half days.
- The directions given on 25 July provided for the respondents to serve their evidence by 24 August. Meanwhile, on 8 August Lorinda Peasland swore her second affidavit giving a summary of the events which had led up to the hearing on 20 July and deposing to the sources of her information and belief. She exhibited the correspondence between DLA Piper, Farrer & Co and Lawrence Graham relating to the discretionary trusts, and she gave details of the information she had received from Susan Dunn on 14 May and 17, 19 and 20 July 2007. She did not, however, explain:
(a) the role of I M Litigation Funding in relation to the liquidation;
(b) how David Sanmartin had obtained a bank slip which she exhibited showing a deposit made into a Spanish bank account in Mr Al Assad's name;
(c) who Morris Chase International were; or
(d) how Morris Chase had obtained their information about the council tax bill for Witanhurst having been invoiced to Mr Al Assad in May 2007, or that the proceeds of sale of the property were in the client account of Lawrence Graham on 20 July, or that they were due to be transferred overseas on 23 July.
Apart from naming Susan Dunn as her immediate source of information, and naming Mr Sanmartin and Morris Chase as her secondary sources, she merely said in paragraph 25 of her affidavit:
"During the course of the hearing, as can be seen from the note of the hearing, it was made clear to the Judge expressly that the information relied on had been obtained through enquiry agents."
- Finally, under the heading "Urgency/without notice", she said this:
"27. Given the imminent movement of the proceeds of sale of the Property as explained to Morgan J, the urgency of the application dated 20 July 2007 was abundantly clear. The application was made without notice to the respondents because of its urgency and because notification of any of the respondents would plainly have risked defeating the purpose of the application by permitting the money to be moved before an order could be obtained."
- On 15 August the liquidator issued an application in the liquidation proceedings seeking orders that Mounir and the trustees of the Cayman Dolphin Trust be joined as second and third respondents to the action, and that the Court direct an issue to be tried as to whether Mr Al Assad had a right in respect of the sum of £6.5 million representing part of the proceeds of sale of Witanhurst, or control over or other access direct or indirect thereto, so that the said sum could be required to be applied in discharge of the judgment obtained by the liquidator against Mr Al Assad. This application was supported by the third affidavit of Lorinda Peasland sworn on 15 August. In this affidavit she explained that the application to Morgan J for a freezing order had been based on the premise that there was a good prospect of showing that the assets held in the Dolphin Trust were susceptible to the judgment against Mr Al Assad. She said that it would be desirable to add Mounir and the trustees of the Dolphin Trust as further respondents to the action so that the Court could resolve all of the matters in dispute in the proceedings, including in particular the question whether Mr Al Assad had a sufficient interest or right in the proceeds of sale of Witanhurst such that the proceeds could be required to be applied in discharge of his judgment debt. She said that this issue was connected to the matters already in issue in the proceedings, because it arose directly out of the liquidator's judgment and its enforcement. She went on to seek appropriate directions for trial of the issue, and for service of the application out of the jurisdiction or alternatively on Lawrence Graham.
- Although this application was obviously a matter of some urgency, no request for an expedited hearing appears to have been made and the return date initially given upon issue of the application was 1 November 2007, with a 15 minute appointment.
- I now turn to the evidence filed by the respondents.
- Between 23 and 28 August 2007, five affidavits were sworn on behalf of the second and third respondents. The deponents were as follows.
- Peter Borrie. Mr Borrie is a solicitor and was a partner of Lawrence Graham until his retirement in April 2004. He is still a part-time employee of the firm, based in the Tax and Private Capital Department. Between 1998 and April 2006 he acted extensively, and indeed almost exclusively, for the Al Assad family in relation to their financial and personal affairs. This included advising on a number of trust structures, of which the Cayman Dolphin Trust was one. Mr Borrie was personally involved in advising on the creation of that trust, which was established in September 1998. He was one of the original trustees, together with another partner of Lawrence Graham (Anthony Thompson) and Coutts (Cayman) Ltd. He retired as a trustee in August 2006. The Cayman Dolphin Trust is a discretionary trust. Mr Al Assad was not the settlor, nor has he settled any assets into the trust at any time. There is a class of more than 20 living potential family beneficiaries, of whom Mr Al Assad is one. In his capacity as a discretionary beneficiary, he has no fixed entitlement under the trust but merely a right to be considered. No distribution has ever been made to him, or to anybody else at his direction or suggestion. The governing law of the trust was initially Cayman law, but in 2003 was changed to the law of Gibraltar. The current trustees are an individual trustee in Gibraltar, appointed in August 2003, and Opus Trustees Ltd in Guernsey, appointed in February 2007. The only asset of the trust is the share capital of a Gibraltan company, Redcastle Ltd, which in turn owns the share capital of Mounir, which was the legal owner of Witanhurst until its sale on 20 July 2007. The share capital of Redcastle Ltd (carrying with it the ultimate beneficial ownership of Mounir and Witanhurst) had been settled into the trust in about April 2004.
- Mr Borrie goes on to deal with Mr Al Assad's links with Witanhurst. He says that it was bought by the Al Assad family in about 1985, as an unwanted adjunct to the purchase of two hotels in London. The Al Assads have never lived there as a family. For short periods various family members, beneficiaries of the Cayman Dolphin Trust and employees working in the family's London businesses have stayed there, including Mr Al Assad himself who stayed there for a few months in or about 1997. The property was not furnished and is largely dilapidated. It produced no income, apart from some filming receipts between 2002 and 2004 when the income was applied towards the vast maintenance and insurance costs. The reason why the council tax bill was addressed to Mr Al Assad personally is that this was the position when Mr Borrie took over the administration of Witanhurst in 2003. Mr Borrie's predecessor had arranged for the council tax to be in Mr Al Assad's name, because he thought that it needed to be in the name of an individual rather than a company. Since 2003 the council tax bills were addressed to Mr Al Assad care of Lawrence Graham, and Lawrence Graham would arrange payment on his behalf.
- Craig Wilson. Mr Wilson is a director of Opus Trustees Ltd, which is one of the two current trustees of the Cayman Dolphin Trust. He is also a director of three other Opus companies, which are the current officers of Mounir. There is no such entity as "the Opus Trust", which is named as the fourth respondent. Mr Wilson goes on to confirm the evidence of Mr Borrie about the Cayman Dolphin Trust, and says that it is run by professional trustees in an entirely proper manner. He confirms that to the best of his knowledge no one from Opus has ever met, spoken to or communicated with Mr Al Assad, either directly or indirectly, and he has certainly not done so himself, even though he is responsible for the Opus group's relationship with the Al Assad family and he is the family's principal point of contact at Opus.
- Andrew Hylton Young. Mr Young is the head of Lawrence Graham's Tax and Private Capital Department, and the "Client partner" responsible for the firm's relationship with the Al Assad family. He was also a personal trustee of the Cayman Dolphin Trust from August 2006 until February 2007. He confirms the evidence given by Mr Borrie.
- Andrea Da Silva Sequeira. Ms Sequeira is a client administrator employed by Lawrence Graham. Her evidence concerns what she believes to have been a pretext call made to the firm on 20 July. At approximately 3.00 pm on that day, Richard Rogers of the firm's accounts department received a call from a woman purporting to be from Barclays Bank Plc (who are Lawrence Graham's bankers) about some queries which she said she had in relation to the proceeds of sale of Witanhurst. As Richard Rogers did not know the details of the case, he transferred the call to Ms Sequeira who had emailed him earlier that day regarding the remittance of the sale proceeds. The caller then told Ms Sequeira that she was from Barclays and that she had a few questions to clarify for her records. She asked who "Mounir" was, and made similar enquiries about "Cayman" and "Opus". Ms Sequeira told her the identity of these parties. She does not specifically recall telling the caller that the proceeds of sale were due to be transferred out of the firm's client account on the following Monday, but says it is possible that she did so. Alternatively, it is possible that the caller mentioned the transfer on 23 July to her, and that she did not correct her. It was only on the following Tuesday, 24 July, after service of the freezing order, that Ms Sequeira realised the call made on the previous Friday may not have been genuine. She therefore asked Richard Rogers to contact Barclays, who after making appropriate enquiries confirmed to him that no one from Barclays had called Lawrence Graham on 20 July in relation to the matter.
- Andrew Witts. Mr Witts is another partner of Lawrence Graham. His affidavit mainly consists of legal argument and procedural complaints, which I will deal with later in this judgment. He also exhibits correspondence subsequent to Lorinda Peasland's second affidavit passing between Lawrence Graham, I M Litigation Funding and Morris Chase. In view of the limited information provided by Lorinda Peasland, Lawrence Graham wrote directly to I M Litigation Funding and Morris Chase in order to ascertain the circumstances in which the evidence deployed before Morgan J had been obtained. It appeared from this correspondence that I M Litigation Funding had obtained their information from Michael Morris of Morris Chase, and had not themselves made any enquiries of Morris Chase as to how it had been obtained. Subsequent correspondence with the solicitors for Morris Chase revealed that Morris Chase had received the information from Page Associates International Ltd, but had not instructed Page Associates to obtain it and did not know how they had done so. A further enquiry by Lawrence Graham of Page Associates elicited the perhaps predictable response from their solicitors, Stevenson Harwood, that Page Associates had obtained the information on an unsolicited basis from an investigator (not an employee) who had been engaged by them, and Page Associates had then passed it on to Morris Chase.
- In the light of this evidence, and the affidavit of Ms Sequeira, Mr Witts says he believes it to be clear that the evidence was obtained as a result of a fraudulent pretext call to Lawrence Graham. He goes on to say that even if the liquidator, DLA Piper or I M Litigation Funding did not instruct Morris Chase or Page Associates to obtain details of the location and onward transmission of the sale proceeds of Witanhurst, it must have been obvious to at least DLA Piper, I M Litigation Funding and Counsel that the evidence about these matters could only have been obtained illegally in breach of data protection legislation and/or through fraudulent pretext calls. However, even though the circumstances in which the information had been obtained were clearly relevant both to its weight and to the exercise of the Court's discretion in deciding whether to grant a freezing order, Morgan J had not been told about them. He accuses the liquidator and his legal team of breaching their duties to the Court by failing to disclose these matters.
- Mr Witts goes on to make similar points in relation to the evidence obtained about Mr Al Assad's Spanish bank account and his council tax payments. He says it should have been obvious that this evidence must have been obtained illegally or by fraudulent means, but no steps were taken to ensure that the enquiry agents subsequently acted honestly and within the law. He says that he finds it incredible that neither the liquidator nor DLA Piper nor I M Litigation Funding had instructed any enquiry agents to obtain the information about the proceeds of sale in Lawrence Graham's client account and their onward movement. He asks the pertinent question:
"Why would an enquiry agent (let alone a sub-contractor for the main enquiry agent) carry out specific enquiries as to the location and destination of funds unless they had been asked to do so?"
- The evidence filed on behalf of Mr Al Assad consists of a lengthy affidavit sworn by his solicitor, Mr Price, on 24 August. Much of this affidavit is again argumentative in content, but it does also contain some factual evidence which it is convenient to notice at this stage. In paragraph 84, Mr Price acknowledges that Mr Al Assad is shown as the publicly registered owner of certain flats in Marbella. He then puts forward Mr Al Assad's explanation for this. The flats were purchased by his father, and put into his name in 1987 when he was 15 years of age. In the late 1990s and the early years of the present century, Mr Al Assad's brother, Siwar, lent considerable sums of money to him which he then put into Arab News Network Ltd. In around 2003, "in consideration of these loans", Mr Al Assad gave the flats to Siwar, although Siwar "did not want a formal transfer registered as that would have incurred substantial fees and taxes". From 2003 onwards, the flats were dealt with by Siwar as his own, and in 2004 Siwar decided to mortgage them in order to raise money to pay a debt. Because the flats were in the name of Mr Al Assad, the mortgage was taken in his name and the mortgage account was therefore also in his name, although Siwar was and remains financially responsible for it. Mr Al Assad has had no involvement in running the mortgage account, and all statements are forwarded from the flats to Siwar. By way of confirmation of this story, Mr Price says that he has spoken to a Spanish lawyer instructed by Farrer & Co who has in turn spoken to the managing agent of the flats, who has informed him that he collects letters from the bank addressed to Mr Al Assad relating to the flats and forwards them directly to Siwar.
- Mr Price goes on to say that the existence of family properties in Marbella was disclosed in the course of Mr Al Assad's oral examination in December 2006. He omits to say, however, that Mr Al Assad said on that occasion that the residential properties were all owned by offshore companies, which were in turn owned by trusts managed by Lawrence Graham, and that he had no assets of his own. Mr Price also does not explain what Mr Al Assad meant by his assertion that he gave the flats to his brother in consideration of the loans which his brother had made to him. The consideration for a loan is normally the obligation to repay the borrowed money. It is wholly unclear to me what kind of transaction this was intended to be, quite apart from the fact that that the evidence is extremely vague (no figures are mentioned) and unsupported by any documents or corroboration from Siwar himself.
- In paragraph 91 of his affidavit, Mr Price says he has been informed by Mr Al Assad that the bank account identified by the liquidator is the mortgage account used by Siwar. Mr Al Assad claims to have no knowledge of its operation or balance, nor does he have any beneficial entitlement to the funds, if any, standing to its credit. For the reasons already given in relation to the properties, he does not regard the account as his own.
- In the light of the evidence served by the second and third respondents, it must have quickly become clear to the liquidator and his legal advisers that there was no prospect of maintaining the injunctions which had been granted by Morgan J and continued by Evans-Lombe J. The first-hand evidence of Mr Borrie, Mr Wilson and Mr Young shows that the Cayman Dolphin Trust is a genuine discretionary trust with professional trustees, in which Mr Al Assad has no interest except as a discretionary beneficiary. There is no basis for supposing that he has any control over the trust property, or that he could direct an appointment to be made in his favour. The contention that the liquidator might somehow be able to enforce the judgment debt against the proceeds of sale of Witanhurst was therefore a hopeless one, and there were no grounds for preventing payment of the proceeds of sale out of Lawrence Graham's client account. Equally, because there were no grounds for believing Mr Al Assad to have any control over the proceeds of sale, the basis for the freezing orders against him in their original form fell away. There was simply no evidence that he had any assets within the jurisdiction, let alone assets which he might be attempting to remove beyond the reach of the judgment.
- Accordingly, it is not surprising that on 31 August 2007 DLA Piper wrote to Lawrence Graham and Farrer & Co agreeing to the discharge of the original orders. So far as the second and third respondents are concerned, agreement on most outstanding matters was subsequently reached between them and the liquidator, and they did not attend the hearing before me on 11 and 12 September. The Court was informed that discussions were in progress which it was hoped would lead to resolution of the matters still in issue, and if agreement could not be reached it was proposed to re-list the matter for a short hearing in term time. Accordingly, Mounir and the trustees of the Cayman Dolphin Trust dropped out of the picture, and the hearing before me was a contest between the liquidator on the one hand and Mr Al Assad on the other hand. I should add, for completeness, that it is common ground that the fourth respondent is a non-existent entity, so it too can be disregarded.
- In their letter of 31 August to Farrer & Co, DLA Piper said the liquidator was very concerned that Mr Al Assad had failed to disclose the existence of the three Spanish properties and the bank account at his oral examination, and had now (through Mr Price) asserted that his brother was the beneficial owner, whereas at the oral examination he had stated that the Spanish properties were all owned by offshore companies. They continued:
"Our client does not accept your client's current version of events and intends to seek to enforce its judgment against these assets. In the circumstances our client must now seek from your client an undertaking to the Court not to dispose of or deal with or diminish in value the three Spanish properties and bank account. In the event that your client is not prepared to give this undertaking to the Court, we are instructed to apply for specific relief in respect of these assets against your client … "
- Farrer & Co replied on 3 September, asking that Mr Al Assad's costs of the proceedings to date should be paid by the liquidator on an indemnity basis and pointing out that the liquidator had apparently already sought protective relief in Spain. They continued:
"You will no doubt continue to pursue those steps but, as has been made clear in our client's evidence, that is not something that concerns him personally."
- On 4 September DLA Piper wrote again to Farrer & Co, saying that as Mr Al Assad was unwilling to provide the undertaking requested the liquidator would seek a variation to the original order. They attached a copy of the draft order that would be sought, and undertook to serve an application together with evidence in support as soon as possible. The letter went on to say that the liquidator was not prepared to pay Mr Al Assad's costs on an indemnity basis, and that any costs to which Mr Al Assad might ultimately be entitled should in any event be set off against the judgment debt. They pointed out that this was how the Deputy Registrar had dealt with the costs order against the liquidator at the application to restore the oral examination.
- On 5 September Farrer & Co replied, reserving all Mr Al Assad's rights in view of the facts that he is domiciled in France and the properties in question are in Spain and apparently subject to extant proceedings.
- On 7 September the liquidator issued an application notice asking the Court to grant an injunction in the terms of the draft order supplied on 4 September, either by way of amendment to the original application made on 23 July or on the basis of a fresh application. The principal relief sought in the draft order was an injunction restraining Mr Al Assad for a period of six months from disposing of, charging, dealing with or diminishing the value of the three Spanish properties and any credit balance on the Spanish bank account. The application was supported by a further affidavit of Lorinda Peasland, sworn on 6 September. In this affidavit she set out the history of the matter to date, and explained the steps that had been taken in Spain since 14 May 2007 with a view to obtaining "precautionary measures" against the three Spanish properties. With regard to the bank account, she said she had been informed by David Sanmartin that reference was made to the bank account in public documents at the Property Registry of Marbella, and that in order to verify the existence and ownership of the account by Mr Al Assad an employee of Mr Sanmartin had deposited €8.40 into the account. The receipt for this deposit showed Mr Al Assad's name as the account owner.
- On 7 September David Sanmartin signed a witness statement on behalf of the liquidator. He says that he is a licensed private detective and lawyer, and the managing director of a registered Spanish private investigation company. He records the steps which he took to establish that Mr Al Assad was the owner of the three properties, and that he had mortgaged them on 24 September 2004 as security for a loan of €450,000 from a Spanish bank, Cajasur. All of this information had been obtained from material that was available as a matter of public record. Mr Sanmartin also explained in detail how Mr Al Assad's ownership of the bank account had been verified, saying that he had instructed a member of his staff to bank €8.40 at the account shown in the Property Registry as the one to which the 2004 mortgage loan had been paid. He says that under Spanish law it is not illegal to bank money into another person's account, and explains how the making of the deposit, with no information apart from the account number shown in the Property Registry, generated a computer printed receipt showing the name of Mr Al Assad as owner of the account. He goes on to say that it is a normal banking practice in Spain to print the name of the account owner on a receipt.
- I should note, however, that Mr Sanmartin does not explain how it was discovered that the credit balance on the account in July 2007 was €3,000. That figure was mentioned to Morgan J by Mr Mallin, but neither Lorinda Peasland nor Mr Sanmartin says anything about its source.
- Finally, on 11 September the liquidator himself swore an affidavit in which he replied to some of the points made by Mr Price. He confirmed that it was he, not Susan Dunn of I M Litigation Funding, who had instructed DLA Piper and Counsel to make the application to Morgan J, and who took decisions on behalf of the creditors. He continued:
"As the funder of the enforcement and recovery exercise against [Mr Al Assad], I M Litigation Funding obviously has an interest in the progress of the case and likes to be regularly updated with the state of the enforcement process. Notwithstanding this, it is I as liquidator of the Company (acting in all respects as an officer of the court) who initiated the freezing injunction against [Mr Al Assad] and continues to lead the enforcement and recovery exercise against [him]."
He did not, however, explain the basis upon which I M Litigation Funding was funding the litigation, nor did he exhibit any relevant documents.
The Issues
- This was the state of the evidence when the matter came on for hearing before me on 11 September. The two main issues between the liquidator and Mr Al Assad were:
(a) whether the liquidator should be ordered to pay the costs of Mr Al Assad of the original injunction proceedings on the standard basis or the indemnity basis; and
(b) whether a more limited injunction should now be granted against Mr Al Assad in relation to the Spanish properties and bank account.
There was also the subsidiary question whether the costs ordered to be paid under (a) above should be set off against the judgment debt, or whether an immediate order should be made for their payment to Mr Al Assad.
- I shall begin with the question of costs, because the grounds upon which Mr Al Assad claims to be entitled to indemnity costs involve a comprehensive attack on the injunctions as originally granted; and if I find those grounds to be made out, they will be a highly material factor for the Court to consider in the exercise of its discretion whether or not to grant the more limited injunction now sought, assuming of course that the basic requirements for the grant of such an injunction are made out. For this reason too, it is necessary for me to deal with the question of costs in considerably more detail than would normally be appropriate.
The question of costs: standard or indemnity basis?
- Mr Al Assad's case, in a nutshell, is that the original application to Morgan J was fatally flawed, on both substantive and procedural grounds, and that the procedural failures have been compounded by further defaults since that date. It is submitted by Mr Collings QC on behalf of Mr Al Assad that the original application was:
(a) devoid of merit;
(b) improperly prosecuted without notice;
(c) procedurally flawed;
(d) reliant on improperly obtained evidence; and
(e) pursued on the instructions, and for the benefit, of a third party funder, (I M Litigation Funding) whose interests are very different from those of a normal liquidator.
- I will now consider these objections in turn.
(a) The alleged absence of merits
- This is the substantive objection, and it goes to the basic question whether Mr Al Assad was able to show Morgan J that he had a good arguable case, which is one of the well-established prerequisites for the grant of a freezing order. It is enough to refer to what Parker LJ said in Derby & Co Ltd v Weldon [1990] 1 Ch.48 (CA) at 57D:
"There are in essence only three issues: (i) has the plaintiff a good arguable case; (ii) has the plaintiff satisfied the Court that there are assets within and, where an extraterritorial order is sought, without the jurisdiction; and (iii) is there a real risk of dissipation or secretion of assets so as to render any judgment which the plaintiff may obtain nugatory. Such matters should be decided on comparatively brief evidence."
- The basic point made by Mr Collings QC is that, in order to obtain an order freezing £6.5 million of the proceeds of sale of Witanhurst, the liquidator had to show he arguably had some claim which would entitle him to execute the judgment against those proceeds. Mr Collings submits that the note of the hearing shows that the liquidator, through his Counsel, was unable to formulate any plausible basis upon which he could do this. The highest he could put his case was to say that Mr Al Assad might have some right of access to the proceeds, relying on footnote 31 to paragraph 13.007 of Gee on Commercial Injunctions and the case there cited, Winter v Marac, loc.cit.. However, both the headnote, and the judgment of Hope JA for the New South Wales Court of Appeal at 12G, make it clear that such a right of access must be one which enables the defendant to require the asset or its proceeds to be applied in discharge of the judgment debt (my emphasis). Mr Collings says that this crucial part of the reasoning of the Court in Winter v Marac is not represented in the text of Gee, and was not read to Morgan J by Mr Mallin. Indeed, as Mr Mallin confirmed in his oral submissions to me, he did not have a copy of Winter v Marac with him when he made the application, although he had read the case before and was familiar with it.
- In my judgment this submission goes too far, if it is meant to suggest that Mr Mallin misled Morgan J about the nature of the test to be applied, or that Morgan J himself may have been under any misapprehension. Mr Mallin had already submitted, in terms which Mr Collings agreed were unimpeachable, that he needed to show there was a good reason to suppose that the proceeds of sale were assets susceptible to the judgment against Mr Al Assad. Furthermore, the concept of a "right of access", in this context, seems to me to entail that the right must be one which would enable the defendant to require the asset in question to be applied in discharge of the judgment debt. If the situation is merely one where the defendant might hope to persuade the owner of the asset to help him by making it available for payment of the debt, it would not properly be described as a "right" of access. Accordingly, while it would no doubt have assisted Morgan J to be able to read the report of Winter v Marac, I do not accept that the text of Gee is misleading, or that the judge himself was misled. The question which he had to consider, simply stated, was whether there were reasonable grounds for supposing the proceeds of sale to be susceptible to execution by the liquidator as a judgment creditor of Mr Al Assad.
- Mr Mallin readily accepted that there was no direct evidence to which he could point which would establish the existence of a right of access by Mr Al Assad to the proceeds of sale. Furthermore, he rightly did not challenge the basic principle of trust law that a beneficiary under a discretionary trust has no right to require any part of the trust fund to be paid to him or applied for his benefit: his only right is a right to have his claim to benefit properly considered by the trustees. Nevertheless, Mr Mallin submitted that the facts have to be viewed as a whole, and that taken together the following matters in particular were sufficient to ground a reasonable inference that Mr Al Assad had control over the proceeds of sale of Witanhurst:
(a) Mr Al Assad was a judgment debtor for a sum in excess of £6 million;
(b) he had not satisfied any part of that debt;
(c) he admitted to being the discretionary beneficiary of family trusts, and those family trusts clearly owned substantial assets;
(d) the precise nature of those trusts and Mr Al Assad's relationship with them was unclear, given the very limited information that Lawrence Graham had agreed to disclose in correspondence;
(e) Mr Al Assad had been dishonest on oath in relation to his assets at his oral examination, in view of the subsequent discovery of the Spanish properties in his name and the Spanish bank account also in his name; and
(f) the fact that the council tax bill for Witanhurst was invoiced to him personally suggested that, despite his denials, he still had a substantial connection with that property.
- Mr Collings submitted that a case founded upon this material amounted to no more than surmise and Micawberism. At one stage I was inclined to agree with him, but on reflection I am persuaded that there was just sufficient material to justify a reasonable inference that Mr Al Assad might have control over the proceeds of sale of Witanhurst, notwithstanding the trust structure in which it was apparently held. My main reason for taking this view is that on Mr Al Assad's own evidence at the oral examination the family's Spanish residential properties were owned by offshore companies which were themselves owned by trusts managed by Lawrence Graham. Since it subsequently turned out that three of those properties were apparently registered in Mr Al Assad's own name, might it not also turn out that Witanhurst was in some way at his disposal, notwithstanding that it was held in a similar structure? Furthermore, the council tax bill did appear to provide a cogent link between Mr Al Assad and Witanhurst, unless and until evidence to the contrary was forthcoming. For these reasons I have come to the conclusion, by a narrow margin, that the liquidator did have a good arguable case on the merits. It was always a speculative case, in the sense that evidence to rebut the inference of a right of access to the proceeds of sale might well emerge, as Morgan J himself recognised: see paragraph 19 above. However, it was not in my judgment a speculative case in the sense that it lacked any rational foundation at all.
- On the footing that the liquidator might arguably be able to execute upon the proceeds of sale of Witanhurst, there were obviously assets within the jurisdiction in respect of which a freezing order could be made. The second of the three conditions referred to by Parker LJ in Derby v Weldon was therefore satisfied. However, it is also necessary to consider the third condition, namely the existence of a real risk of dissipation or secretion of assets. The importance of this condition has often been emphasised: see for example the observations of Mustill J in The "Niedersachsen" [1983] 2 Lloyds LR 600 at 606-7, and of Peter Gibson LJ in Thane Investments Ltd v Tomlinson [2003] EWCA Civ 1272 at paragraphs [21] ("It is important that there should be solid evidence adduced to the Court of the likelihood of dissipation") and [26]. Furthermore, in paragraph [28] Peter Gibson LJ said that it is not enough merely to point to some dishonesty on the part of the respondent to justify the making of a freezing order:
"I have to say that, if that has become the practice, then the practice should be reconsidered. It is appropriate in each case for the Court to scrutinise with care whether what is alleged to have been the dishonesty of the person against whom the order is sought in itself really justifies the inference that that person has assets which he is likely to dissipate unless restricted."
- Mr Collings QC submitted that the liquidator had led no evidence to suggest that the second or third respondents, or the persons in control of them, were likely to dissipate or secrete assets in an attempt to defeat any alleged claim against them by the liquidator. He submitted that any such case would be difficult for the liquidator to make where he had been in correspondence with Lawrence Graham since January 2007 in the knowledge that Witanhurst was on the market, yet had never once sought to suggest that there was any impediment to the second and third respondents dealing with Witanhurst or the proceeds of its sale in whatever manner they saw fit. Furthermore, no evidence had been led to suggest that Mr Al Assad had any involvement at all in the sale of Witanhurst, or any decision how the proceeds of sale were to be applied. Accordingly, there was nothing to link him with the dissipation which had to be established.
- Mr Mallin's riposte to these submissions began with the point that the freezing order was sought in support of an existing and unsatisfied judgment. In a situation where there was evidence that Mr Al Assad had lied about the existence of assets, and had not paid a penny of the more than £6 million which he owed, it was an obvious and fair inference to draw that he would take steps to secrete or otherwise dissipate any funds at his disposal, and would not use them to satisfy the judgment. The fact that the money was about to be transferred overseas was admittedly not in itself sufficient to establish a risk of dissipation, but when taken together with the evidence that Mr Al Assad had assets abroad which he had failed to disclose, and had tried to conceal from the liquidator, the inference was substantially strengthened. Finally, the test is in any event not a subjective one, of intention to deal with assets with the purpose of ensuring that a judgment will not be met, but rather an objective one of assessment of the risk that a judgment may not be satisfied: see the formulation of the relevant test by the Court of Appeal in The "Niedersachsen", loc.cit., at 617 and Gee on Commercial Injunctions, paragraphs 12.032 and 12.033.
- I accept the submissions of Mr Mallin on this point. On the assumption that the proceeds of sale were in some way at the disposal or under the control of Mr Al Assad, there was in my judgment a real risk that refusal of an injunction would lead to the judgment remaining unsatisfied. The evidence about the Spanish properties and bank account, and the apparent conflict between that evidence and what Mr Al Assad had said under oath at his oral examination, were in my view amply sufficient to ground the necessary inference.
(b) Should the application have been made without notice?
- I begin by emphasising the importance of the general principle that applications should only be made without notice, and a fortiori outside normal court hours, in cases of exceptional urgency. This principle is reflected in the relevant provisions of the CPR. The general rule, contained in CPR 23.7, is that an application should be made on at least three clear days' notice. The Court may of course abridge this period in a suitable case, but some good reason has to be shown for departing from the general rule. Furthermore, by virtue of paragraph 3 of the Practice Direction supplementing CPR Part 23, an application may be made without serving an application notice "only (1) where there is exceptional urgency …". Paragraph 4.2 of the Practice Direction goes on to provide that where an application notice should be served, but there is not sufficient time to do so, "informal notification of the application should be given unless the circumstances of the application require secrecy".
- Part 25 of the CPR deals specifically with interim remedies, and Rule 25.3 provides as follows:
"(1) The Court may grant an interim remedy on an application made without notice if it appears to the Court that there are good reasons for not giving notice.
(2) An application for an interim remedy must be supported by evidence, unless the Court orders otherwise.
(3) If the applicant makes an application without giving notice, the evidence in support of the application must state the reasons why notice has not been given."
Paragraph 4 of the associated Practice Direction deals with urgent applications and applications without notice. Paragraph 4.2 says that such applications are normally dealt with at a court hearing "but cases of extreme urgency may be dealt with by telephone". By virtue of paragraph 4.3(3), except in cases where secrecy is essential, the applicant should take steps to notify the respondent informally of the application.
- The importance of not making an order against a party without notice, save in exceptional circumstances, was emphasised by Hoffmann J in Re First Express Ltd [1992] BCLC 824 at 828, as follows:
"It is a basic principle of justice that an order should not be made against a party without giving him an opportunity to be heard. The only exception is when two conditions are satisfied. First, that giving him such an opportunity appears likely to cause injustice to the applicant, by reason either of the delay involved or the action which it appears likely that the respondent or others would take before the order can be made. Secondly, when the court is satisfied that any damage which the respondent may suffer through having to comply with the order is compensatable under the cross-undertaking or that the risk of uncompensatable loss is clearly outweighed by the risk of injustice to the applicant if the order is not made.
There is, I think, a tendency among applicants to think that a calculation of the balance of advantage and disadvantage in accordance with the second condition is sufficient to justify an ex parte order. In my view, this attitude should be discouraged. One does not reach any balancing of advantage and disadvantage unless the first condition has been satisfied. The principle audi alterem partem does not yield to a mere utilitarian calculation. It can be displaced only by invoking the overriding principle of justice which enables the court to act at once when it appears likely that otherwise injustice will be caused."
- In the light of these principles, Mr Collings QC mounted a powerful argument that the circumstances of the case came nowhere near justifying the making of the application out of hours on the Friday evening without any notice at all to any of the respondents. The liquidator had known that Witanhurst was on the market, and therefore at risk of being sold, from at least December 2006 onwards, yet he had made no attempt to commence any enforcement proceedings against the property. Furthermore, the liquidator and his lawyers had known since 14 July that a sale had either already been completed or was imminent, as a result of the report in the Ham & High forwarded to Miss Shekerdemian and Lorinda Peasland by Susan Dunn on that day. There was therefore no reason, submits Mr Collings, why the Court could not have been moved during normal hours during the week beginning Monday 16 July, if necessary on short notice. In the circumstances, any alleged urgency was brought about solely by the liquidator's inaction until it was discovered on the Friday afternoon that the proceeds of sale were about to be remitted abroad. And even at that late stage, submits Mr Collings, there was no justification for making the application by telephone, unsupported by any affidavit evidence or a skeleton argument, and without even informal notice having been given to Lawrence Graham or Farrer & Co, who were known to be acting for the respondents and whose contact details were readily ascertainable. No mechanism has ever been suggested by the liquidator whereby Lawrence Graham could have transferred £6.5 million out of the jurisdiction outside normal banking hours over the weekend. Accordingly, the application could have been made on the Saturday or Sunday with proper documentation, and after informal notification had been given. Had this been done, the latent deficiencies in the application would quickly have become apparent.
- In my judgment Mr Mallin had no satisfactory answer to most of these submissions. The liquidator and his team were on notice from at least Saturday 14 July that a sale of Witanhurst was imminent, if it had not already been completed; and the fact that the property was owned by a Panamanian company, and ultimately by an Al Assad offshore family trust, should have made it obvious that the proceeds of sale were likely to be remitted abroad. It is true that this likelihood would not in itself have justified an application for a freezing order; but most of the additional factors which could have been relied upon in order to make out a real risk of dissipation were already known, and apart from the council tax point they were not significantly reinforced or added to before the application was eventually made on the Friday evening. Furthermore, the fact that Witanhurst was known to be held in a trust structure ultimately managed by Lawrence Graham should in my view have reassured the liquidator and his advisers that there was no real risk of the proceeds of sale being spirited away if notice were given of the intended application. Similarly, there were no solid grounds for supposing that Mr Al Assad had the proceeds of sale at his immediate disposal.
- It is, I think, symptomatic of the weakness of this part of the liquidator's case that the question of notice does not seem to have been directly raised as a separate subject during the telephone hearing on 20 July, and the only real justification advanced to the Judge for proceeding without notice was the discovery that the proceeds of sale were about to be transferred abroad. In view of the importance of the principles to which I have referred, and the onerous duties owed to the court by an advocate making an application without notice (as to which see Memory Corporation Plc v Sidhu (No.2) [2000] 1 WLR 1443 at 1459-60 per Mummery LJ), it is in my view unfortunate that this aspect of the matter was not dealt with more fully by Mr Mallin in the course of his submissions. It is equally regrettable that Lorinda Peasland's first affidavit, sworn on 23 July, did not set out the reasons why the application had been made without notice, in breach of the mandatory requirement in CPR 25.3 (3). Furthermore, even in her second affidavit sworn more than two weeks later, on 8 August, she offered only the most perfunctory justification in a single paragraph at the end of the affidavit: see paragraph 28 above. In my judgment bare assertions of this nature are no substitute for a proper analysis of the issue and a reasoned explanation supported by references to the evidence.
- The view which I take is that the application should have been made, if at all, upon notice (if necessary abbreviated) and during the week beginning Monday 16 July. If this had been done, the probability is that Lawrence Graham would quickly have been able to satisfy the liquidator that the Cayman Dolphin Trust was a genuine discretionary trust and that Mr Al Assad had no right to any part of the proceeds of sale of Witanhurst. The application would then have been abandoned at an early stage, before substantial costs had been incurred. Furthermore, even in the light of the information obtained in the afternoon of 20 July, there was in my view insufficient justification for making the application without any notice at all. If Lawrence Graham had been contacted, and asked to give an undertaking not to dispose of £6.5 million of the proceeds of sale until an application to the court had been made on the following Monday morning, it seems to me unlikely in the extreme that such an undertaking would not have been given. If, however, the undertaking had been refused, the liquidator might then have been justified in applying for an injunction on the Friday evening, but Lawrence Graham would have had an opportunity to be heard, and even at such short notice it is possible that they might have been able to marshal sufficient material to persuade Morgan J that there was no solid basis for the grant of a freezing order.
- I am not, however, attracted by the suggestion that there should have been a hearing on the Saturday or Sunday. It seems to me that the realistic choices were between a hearing late on the Friday or early on the Monday, in each case after prior notice had been given and appropriate undertakings had been sought. Any risk that the money could, or would, be moved outside normal banking hours from the client account of Lawrence Graham was in my judgment an extremely remote one, and nowhere near sufficient to justify the making of the application out of hours, by telephone, and without notice of any kind to any of the respondents. I can readily understand how, in the heat of the moment, the decision was taken to proceed in this way, but I must nevertheless say that it was in my view a serious error of judgment.
(c) Alleged procedural deficiencies
- Apart from the basic point that the application should not have been without notice, which I have already discussed, the following further alleged procedural deficiencies are relied on by Mr Al Assad:
(i) Morgan J was not provided with appropriate documentary support for the application, including in particular an application notice, affidavit evidence in support, a skeleton argument and copies of relevant authorities;
(ii) the first affidavit of Lorinda Peasland, sworn on 23 July, only verified the note of the telephone hearing, and did not set out the evidence in support of the application;
(iii) furthermore, her second affidavit sworn on 8 August was still defective in some important respects;
(iv) no undertaking was given by the liquidator to commence substantive proceedings as soon as reasonably practicable in order to resolve the issues which arose;
(v) the cross-undertaking in damages given by the liquidator was unjustifiably limited, given that he had funding support from a substantial organisation with a commercial interest in the outcome of the litigation; and
(vi) the liquidator failed in his duty to make full and frank disclosure to the Court.
(i) Documentary support
- This question is very much tied up with the flawed decision to make the application by telephone and without notice. If there had indeed been circumstances which justified the taking of such an extreme step, the absence of most of the usual documentation might have been excusable, although even then I would have expected the liquidator and his team to be able to prepare at least an application notice, a draft affidavit and a brief skeleton argument in addition to the draft order and chronology which were emailed to Morgan J. As has often been pointed out, freezing orders are by their nature highly intrusive, and the court needs to take great care before granting them. That is one of the reasons for the procedural requirements to which I have referred, and it also explains why the documentary support which the Judge needs in order to discharge his difficult task should be dispensed with only in a truly exceptional case. The present case did not fall into that truly exceptional category, and the absence of nearly all of the necessary documentary support is in my view a most regrettable feature of the application. Had the application been made earlier in the week, there would of course have been no excuse for not following the normal procedure, and the judge hearing the application would have been correspondingly much better placed to deal with it. At the very least, he might have been led to question far more closely than Morgan J was able to do (a) what kind of right or interest, if any, Mr Al Assad might reasonably be supposed to have in or over the proceeds of sale of Witanhurst, (b) whether the evidence relating to the Spanish properties was really strong enough to support the liquidator's case on the merits and the risk of dissipation, and (c) whether the evidence which had been obtained through enquiry agents had been obtained illegally, and if so whether the court should take it into account, and how it should influence the exercise of the court's discretion.
(ii) Lorinda Peasland's affidavit of 23 July
- I have already referred in paragraph 23 above to the undertaking given by the liquidator in schedule A to the order of Morgan J. The wording of the undertaking is similar to the wording in a standard form of freezing injunction annexed as an example to the Practice Direction supplementing CPR Part 25 (which is in fact now to be found in the volume of Civil Procedure Forms rather than in volume 1 of the White Book). The form, so far as relevant, provides that the applicant will cause an affidavit to be sworn "confirming the substance of what was said to the court by the Applicant's Counsel". I agree with Mr Mallin that this wording does not differ materially from that of the undertaking given in the present case, although I am not clear why it was thought appropriate to vary the standard wording. In general, I think it is better to stick to the standard wording unless there is some particular reason for a departure from it. In any event, however, whichever form of words is used it has to be read with the requirement in CPR 25 PD 3.3 that "The evidence must set out the facts on which the applicant relies for the claim being made against the respondent, including all material facts of which the court should be made aware", and the requirement in paragraph 3.4 that where an application is made without notice the evidence must also set out why notice was not given. In the light of those requirements, it cannot in my judgment be sufficient compliance with the undertaking merely to swear an affidavit which verifies a note of the hearing. What is required is an affidavit which sets out the facts relied upon in the usual way, and complies with the general rules about affidavit evidence in CPR Part 32, including the requirement in CPR 32 PD paragraph 4.2 that an affidavit must indicate the source for any matters of information or belief to which the maker of the affidavit cannot depose directly. The purpose of the note of the hearing is to inform the respondent what transpired in his absence. It is not a substitute for proper affidavit evidence. It should also go without saying that the documents exhibited to the affidavit, even if for convenience they are all included in a single exhibit, should be accurately cross-referenced to the text, so that anybody reading it can identify them without difficulty.
- In my judgment Lorinda Peasland's first affidavit failed lamentably to meet these basic requirements. Apart from referring briefly to the orders made by Morgan J on 20 July, the affidavit did no more than verify the note of the hearing and exhibit copies of most (but not all) of the documents referred to at the hearing in an undigested bundle. No details were given of Ms Peasland's sources of information or belief for matters not within her personal knowledge, nor did she explain why the application had been made without notice.
(iii) The second affidavit of Lorinda Peasland
- Some, but by no means all, of these deficiencies were remedied in Lorinda Peasland's second affidavit, which was not sworn until 8 August. As I have pointed out in paragraph 27 above, the affidavit still left a number of important questions about her sources of information unanswered, and although she referred in general terms to the obtaining of information through enquiry agents, she did not say which particular agents had been instructed, what they had been retained to do, and what limitations (if any) had been placed upon the methods they were to employ. In addition, I have already criticised the inadequate explanation given by Ms Peasland for making the application without notice.
(iv) Undertaking to commence proceedings
- I am not satisfied that there is any substance in this complaint. Where a freezing order is sought before proceedings have been commenced, it is of course essential that that step be taken at the earliest opportunity. A freezing order cannot be made in a vacuum, and there must be some substantive cause of action to which the freezing order is ancillary. This basic requirement goes back to the earliest days in which the jurisdiction of the court to grant freezing injunctions was established (see The Siskina [1979] AC 210), and has recently been reaffirmed by the House of Lords in Fourie v Le Roux [2007] UKHL 1, [2007] 1WLR 320. However, the present case is not of that nature, because the liquidator has an existing judgment against Mr Al Assad and the order is sought in aid of execution of that judgment. Thus the proceedings to which the freezing order is ancillary are already in existence. It is true that there were no existing proceedings between the liquidator and the second and third respondents, but it is well established that a freezing order may be made in respect of assets in the name of a third party even if there is no substantive cause of action against that party: see TSB Bank International v Chabra [1992] 1WLR 231 and Mercantile Group A. G. v Aiyela [1994] QB 366 (CA). In cases of this nature, there is a considerable degree of procedural flexibility in determining how the issue between the claimant and the third party respondent is best to be resolved, and although it is clearly desirable that this question should be addressed at an early stage of the injunction proceedings, it is not in my judgment a prerequisite to the making of the freezing order, nor is is a matter in respect of which an immediate undertaking has to be given. In the present case, appropriate directions were sought by the liquidator's application notice dated 15 August 2007. The question had also been canvassed, albeit inconclusively, at the hearing before Evans-Lombe J on the first return date, 25 July.
(v) The cross undertaking in damages
- By contrast, I consider that there is some substance in this complaint. The justification for limiting the cross-undertaking in damages given by the liquidator to the net proceeds of the liquidation was that he had no significant assets under his control apart from the unsatisfied judgment debt. In a situation of that type, a limited cross-undertaking may properly be given and accepted by the Court: see In re D. P. R. Futures Ltd [1989] 1WLR 778 at 785-87 per Millett J. However, the matter takes on a different complexion if the liquidator is being funded by a third party which has a commercial interest in the recoveries to be made by the liquidator. In the present case there appears to be some kind of funding arrangement in place between the liquidator and I M Litigation Funding, the details of which have not been revealed but which appear to give I M Litigation Funding, through Susan Dunn, an influential role in deciding how the litigation is to be conducted. In these circumstances it was in my judgment the duty of the liquidator and his advisers to inform Morgan J of the existence and terms of the relationship between the liquidator and I M Litigation Funding, and in the light of that information the Judge might well have decided that the limited cross-undertaking should be buttressed in some way, for example by the provision of a bond or indemnity: compare In Re D. P. R Futures at 786D-F. Mr Mallin submitted that the unfortified cross-undertaking was sufficient for the purposes of the without notice application, and if the respondents wished it to be fortified it was always open to them to make an application for that purpose on the first return day. That may be true, but I nevertheless consider that the point should have been drawn to Morgan J's attention, and that the failure to do so constituted a breach of the duty of full and frank disclosure.
(vi) The duty of full and frank disclosure
- The duty of full and frank disclosure on a without notice application is so well known that citation of authority is unnecessary. I would, however, refer to what Mummery LJ said in Memory Corporation Plc v Sidhu, loc.cit., at 1459H:
"It cannot be emphasised too strongly that at an urgent without notice hearing for a freezing order … there is a high duty to make full, fair and accurate disclosure of material information to the Court and to draw the Court's attention to significant factual, legal and procedural aspects of the case."
- I have already mentioned one respect in which it seems to me that the liquidator and his team failed to discharge this duty: see paragraph 81 above. A number of further allegations of breach of this duty are made by Mr Price in his affidavit. For the most part, I am satisfied that there is no substance in them. However, there is one important matter which cannot be so easily dismissed, and on which I have already touched a number of times, that is to say the reliance placed upon evidence obtained from enquiry agents. In my judgment it should have been obvious to the liquidator and his advisers that the information provided by Susan Dunn on 19 and 20 July about the council tax bill for Witanhurst, the location of the proceeds of sale in the client account of Lawrence Graham, and their imminent transfer abroad on 23 July, had almost certainly been obtained by unlawful means, by which I mean fraudulent pretext calls and/ or breaches of data protection legislation. In particular, I find it hard to imagine how the information about the location and onward transmission of the proceeds of sale could have been obtained by lawful means. Furthermore, there must have been strong grounds for suspecting that the information provided by Susan Dunn on 17 July about Mr Al Assad's Spanish bank account, and the deposit made into it, was equally tainted, although in the event the evidence obtained from Mr Sanmartin indicates that most of this information was lawfully obtained. Since the liquidator's case was crucially dependent upon the information provided by Susan Dunn on these three occasions, it was in my view the duty of counsel making the application to draw the problem fairly and squarely to the attention of the Court. In my view Mr Mallin's occasional references to the fact that information had been obtained through enquiry agents were insufficient to discharge this duty, because it does not appear to have been drawn to the Judge's attention that there were grounds for supposing the evidence in question to have been unlawfully obtained.
- In reaching this conclusion I have had in mind the observations of Robert Walker LJ in Memory Corporation Plc v Sidhu, at 1456B-1458F, where he pointed out, among other things, that the gathering of evidence by illegal means has not in general led to its exclusion under the English law of evidence, and said it was far from obvious that concerns of this nature "should be added to the heavy responsibilities already undertaken by lawyers who are making a without notice application, except perhaps in circumstances where the evidence in question is of central importance to the application". He went on to say that even when the evidence is of central importance, for example evidence relating to the sale of contraband goods in a case of piracy of intellectual property rights, trap orders and other conduct involving impersonation or deception have been commonplace in the Chancery Division for a century or more, and do not seem to have attracted censure. I acknowledge the force of these observations, and I can understand that Mr Mallin may reasonably have taken the view that there was no need to draw the attention of the Court to the possibly tainted nature of this evidence. As I have indicated, however, I take a different view and consider that the matter should have been drawn to the attention of Morgan J, even though he might well have decided to make the order nonetheless, and to leave any objections about the obtaining of the evidence to be taken at a later stage. I must therefore conclude that there was in this respect a further breach of the duty of full and frank disclosure, although I do not in the circumstances regard it as a very grave one.
- I can now state my conclusion on the question of costs. I have found, by a narrow margin, that the application to Morgan J met the substantive requirements of a good arguable case and a real risk of dissipation of assets. However, I have also found that the application was improperly made without notice, that it suffered from severe procedural flaws, and that the duty of full and frank disclosure was breached in two respects. Looking at the matter in the round, I am satisfied that the cumulative effect of these deficiencies justifies an award of costs on the indemnity basis. In Fourie v Le Roux, loc.cit., Lord Hope said in paragraph [10] that the award of costs on the indemnity basis will not be justified unless the conduct of the paying party can be said in some respects to have been unreasonable. In my judgment the decision to make the application without notice was unreasonable, and at least some of the procedural deficiencies (such as the form and content of Lorinda Peasland's first affidavit, and the failure to inform the Judge of the role of I M Litigation Funding) are serious matters of which the Court should mark its disapproval. These features taken together are sufficient to remove the case from the ordinary run, or to take it "out of the norm" to use the phrase endorsed by the Court of Appeal in Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnson [2002] EWCA Civ 879.
The question of set-off
- I now turn to the question whether the costs which I order the liquidator to pay Mr Al Assad on the indemnity basis should be set-off against the judgment debt owed by Mr Al Assad to the liquidator. As I have already mentioned, an order to this effect was made by the Deputy Registrar when he dismissed the liquidator's application to restore the oral examination.
- There is no doubt that the court has jurisdiction, in an appropriate case, to order a set-off of costs payable by one party against damages or costs to which that party has become, or may become, entitled against the other party. In Lockley v National Blood Transfusion Service [1992] 1WLR 492 (CA), Scott LJ, with whom Sir John Megaw and Farquharson LJ agreed, stated the relevant principles as follows:
"(3) The broad criterion for the application of set-off is that the plaintiff's claim and the defendant's claim are so closely connected that it would be inequitable to allow the plaintiff's claim without taking into account the defendant's claim. As it has sometimes been put, the defendant's claim must, in equity, impeach the plaintiff's claim.
(4) Set-off of costs or damages to which one party is entitled against costs or damages to which another party is entitled depends upon the application of the equitable criterion I have endeavoured to express. It was treated by May J in Currie & Co v The Law Society [1977] QB 990, 1000, as a "question for the court's discretion". It is possible to regard all questions regarding costs as being subject to the statutory discretion conferred on the court by section 51 of the Supreme Court Act 1981. But I would not have thought that a set-off of damages against damages could properly be described as a discretionary matter, nor that a set-off of costs against damages could be so described."
- Scott LJ went on to say at 497D:
"A set-off of costs against costs, when all are incurred in the prosecution or defence of the same action, seems so natural and equitable as not to need any special justification. I would expect a party objecting to the set-off to give some special reason for the objection. It is, in my opinion, less obvious that a set-off of costs against damages would always be justified."
- In my judgment application of the above principles leads to the clear conclusion that I should order the costs to be set-off against the judgment debt. The costs were incurred in an unsuccessful attempt to recover the judgment debt, and in the same proceedings. Accordingly, the connection between the judgment debt and the application which has given rise to the costs could hardly be closer, and it seems to me that it would plainly be inequitable to order the costs to be paid to Mr Al Assad or his solicitors without taking into account the wholly unsatisfied judgment debt for more than £6 million owed by Mr Al Assad to the liquidator.
- The main ground advanced by Mr Collings QC for submitting that I should order the costs to be paid with immediate effect was that the injunction had been improperly obtained, and the costs order would have no deterrent effect if it were merely to be set-off against the judgment debt. He said that this constituted a "special reason" which was sufficient to take the present case outside the general rule. He also offered an undertaking by Farrer & Co that any monies paid under the award of costs would not be remitted to Mr Al Assad, but would be used solely for the purpose of meeting Farrer & Co's costs and disbursements relating to the injunction hearings before Morgan J and Evans-Lombe J. In this way, it could be ensured that Mr Al Assad would not receive the money personally, and it would be used for the legitimate purpose of relieving the third parties who are funding his legal costs.
- I am unable to accept these submissions. The principles stated by the Court of Appeal in Lockley make it clear that the question depends upon the equitable criterion of set-off, and is not subject to the general discretion of the Court regarding costs. The considerations upon which Mr Collings relies have persuaded me that it is appropriate to order the costs to be paid on the indemnity basis rather than the standard basis. However, the question of set-off turns on the much narrower point of the degree of connection between the relevant debts. For the reasons I have given, I consider that the connection in the present case could hardly be closer, and it therefore follows that a set-off should be directed.
Should a fresh injunction be granted over the Spanish properties and bank account?
- I turn finally to the much more limited application made by the liquidator on 7 September for an interim injunction restraining Mr Al Assad from disposing of or dealing with the three Spanish properties and the Spanish bank account in his name over a fairly short period. The purpose of the injunction is to prevent Mr Al Assad from disposing of or dealing with these assets before the protective measures which the liquidator has applied for in Spain are in place. It is not suggested that the injunction should conflict with, or go further than, those protective measures, once they have been obtained, but if an injunction is not granted there will be a hiatus between the discharge of the existing order (which freezes Mr Al Assad's worldwide assets up to the value of £6.5 million) and the date when the protective measures come into effect.
- I will consider the questions raised by this application under the following three headings:
(a) the general merits;
(b) jurisdiction; and
(c) discretion.
(a) The general merits
- In my judgment the general merits are strongly in favour of the grant of the proposed injunction. The judgment debt remains wholly unsatisfied. Although Mr Al Assad claimed at his oral examination to have no assets whatever, he has now been driven to admit that he is indeed the registered owner of the three Spanish properties, and that there is indeed a Spanish bank account in his name. Through his solicitor, he has advanced an explanation which, if true, might mean that he is not the beneficial owner of those assets; but the claim has not, so far, been put forward by the alleged beneficial owner himself, that is to say Mr Al Assad's brother Siwar, nor has it been supported by any documentary evidence. Moreover, the supposed arrangement between the two brothers is described by Mr Price in very general terms, and as I have already pointed out its precise nature is wholly unclear. In those circumstances, it seems to me that there is a good arguable case, on the material at present available to the Court, that Mr Al Assad himself is the beneficial owner of the properties and bank account. Furthermore, in his witness statement of 7 September Mr Sanmartin says that under Spanish law the registered owner of a property is presumed to be the owner, and any other person claiming to be the real owner must evidence his ownership and file a claim at a Spanish court. Mr Sanmartin is a Spanish lawyer, and although I have no evidence of his qualifications it seems to me that I can properly treat this as at least prima facie evidence of Spanish law. It reinforces the conclusion that I would anyway be prepared to draw as a matter of simple common sense, that Mr Al Assad should be presumptively treated as the beneficial owner of the Spanish assets in his name unless and until the contrary is established.
- I am also satisfied there is a real risk that Mr Al Assad will transfer or otherwise seek to dissipate these assets if he is left free to do. I am not impressed by Mr Collings' point that Mr Al Assad took no steps to dispose of the properties between December 2006 and the hearing before Morgan J. He did not know that the liquidator had found out about his ownership of the properties in May, so he had no particular reason to dispose of them. By contrast, once the liquidator's knowledge had been disclosed to Morgan J Mr Al Assad would have had every incentive to try to dispose of them, and his apparent dishonesty about his assets at the oral examination last December readily grounds the inference that he is likely to take steps to that end rather than pay the judgment debt. It is important to note in this connection that his apparent dishonesty last December related in part to the very assets which are now in issue. It is not a case where the Court is being asked to infer a risk of dissipation from some unconnected evidence of dishonesty. I agree with Mr Mallin's submission that the critical features of the present case are Mr Al Assad's initial concealment of the Spanish assets, followed by a shadowy and implausible attempt to deny beneficial ownership once their existence had come to light. If that is not sufficient evidence to establish a real risk of dissipation, I am tempted to ask what would be.
- Accordingly, I consider that the basic requirements for the grant of a limited injunction in the terms sought are made out, subject to some points of fine-tuning designed to ensure that the injunction does not entrench in any way upon the Spanish enforcement measures undertaken by the liquidator.
- To clear one further point out of the way, it was suggested by Mr Collings at one stage that the Spanish enforcement measures might themselves constitute a breach of the undertaking given to the Court by the liquidator in paragraph (8) of schedule A to the Order of Morgan J. That undertaking was in the following terms:
"The Applicants will not without the permission of the Court seek to enforce this Order in any country outside England and Wales or seek an Order of a similar nature including Orders conferring a charge or other security against the Respondent or the Respondent's assets."
The evidence filed by the liquidator about the nature of the protective measures being sought by him in Spain is not as full or clear as it should be. However, Mr Mallin informed me on instructions that the measures in question amount to no more than seeking registration in Spain of the judgment, and the entry of appropriate restrictions on the Spanish land register against the relevant properties. He told me it was his clear understanding that the measures do not go beyond this, and in particular that they do not involve the imposition of any charge or security. On the strength of those assurances, I am prepared to accept that there has been no breach of the undertaking.
(b) Jurisdiction
- The question of jurisdiction arises because Mr Al Assad is resident and apparently domiciled in France, while the assets in question are located in Spain. The connection with England and Wales is, of course, the liquidation proceedings and the judgment obtained by the liquidator against Mr Al Assad. Farrer & Co are the solicitors on the record acting for Mr Al Assad in those proceedings, and as the injunction is sought in aid of the execution of that judgment I have no doubt that Mr Al Assad is, through his solicitors, a party properly before the Court and amenable to the general equitable jurisdiction of the Court. However, the question still needs to be asked whether the Court may properly make an order against him in relation to the Spanish assets.
- Until 2002, the position would have been governed by the Brussels and Lugano Conventions and section 25 of the Civil Jurisdiction and Judgments Act 1982. However, as Mr Collings QC explained to me the jurisdictional code previously contained in the Brussels and Lugano Conventions has been largely superseded by Council Regulation (EC) No. 44/2001, as applied in the UK with effect from March 2002 by the Civil Jurisdiction and Judgments Order 2001, SI 2001 No. 3929. The Council Regulation is set out in schedule 1 to the Order. For present purposes, the most important provision is Article 22 which provides as follows:
"The following Courts shall have exclusive jurisdiction, regardless of domicile:
…
5. In proceedings concerned with the enforcement of judgments, the Courts of the Member State in which the judgment has been or is to be enforced."
Accordingly, when a party is seeking to enforce a judgment within a Member State, the Courts of that Member State have exclusive jurisdiction in relation to the enforcement. Article 32 provides a wide definition of "judgment", which is certainly wide enough to include the judgment obtained by the liquidator in the present case together with the associated order for costs. Article 33 provides that a judgment given in a Member State shall be recognised in other Member States without any special procedure being required. By Article 38, a judgment given in a Member State and enforceable in that State "shall be enforced in another Member State when, on the application of any interested party, it has been declared enforceable there". By Article 41, the judgment is to be declared enforceable immediately on completion of the formalities in Article 53, which in turn provides that a party seeking recognition, or applying for a declaration of enforceability, shall produce a copy of the judgment which satisfies the conditions necessary to establish its authenticity. Meanwhile, the Courts of the Member State in which it is sought to enforce the judgment may grant provisional or protective relief even before the judgment has been recognised or declared enforceable. This follows from Article 47, which provides that:
"1. When a judgment must be recognised in accordance with this Regulation, nothing shall prevent the applicant of availing himself of provisional, including protective, measures in accordance with the law of the Member State requested without a declaration of enforceability under Article 41 being required."
- Mr Collings submitted, and I accept, that it follows from these provisions that the Courts of Spain have exclusive jurisdiction in relation to the enforcement in Spain of the English judgment obtained by the liquidator, and that they also have jurisdiction to grant provisional or protective relief pending registration of that judgment in Spain. However, it does not in my judgment follow from this, and Mr Collings did not submit, that the English court is deprived of jurisdiction to make any order at all in relation to the Spanish assets. As I have already said, Mr Al Assad is subject to the equitable in personam jurisdiction of the English Court, and in my judgment it is open to the English Court to make an order against him, in exercise of that jurisdiction, provided that it is purely ancillary to, and does not impinge in any way upon, the enforcement of the judgment in Spain.
- I agree with Mr Collings that in practical terms the appropriate way to achieve this objective is to provide that any injunction granted by the English Court will lapse once the Spanish protective measures sought by the liquidator are in place, and to require an undertaking to the Court by the liquidator to continue to apply diligently for those protective measures. In this way, the order made by the English Court will be truly ancillary to the enforcement process in Spain, and there will be no danger of overlapping interim relief being granted in the two jurisdictions.
(c) Discretion
- I turn finally to the question whether I should exercise my discretion in favour of the grant of the proposed injunction. For the reasons I have already given, I feel no doubt that this is in principle a suitable case for the grant of a limited injunction in the terms sought, subject to the points made by Mr Collings on jurisdiction, which can be dealt with in the way I have indicated, and a few other minor drafting points which were not controversial. However, the question of substance remains whether it is appropriate for the Court to grant the injunction where it replaces, albeit on a much more limited basis, the freezing order made by Morgan J which I have found to be flawed in a number of significant respects.
- The relevant principles were stated by Balcombe LJ in Brink's Mat Ltd v Elcombe [1988] 1WLR 1350 at 1358C, as follows:
"The rule that an ex parte injunction will be discharged if it was obtained without full disclosure has a two-fold purpose. It will deprive the wrongdoer of an advantage improperly obtained … But it also serves as a deterrent to ensure that persons who make ex parte applications realise that they have this duty of disclosure and of the consequences (which may include a liability in costs) if they fail in that duty. Nevertheless, this judge-made rule cannot be allowed itself to become an instrument of injustice. It is for this reason that there must be a discretion in the court to continue the injunction, or to grant a fresh injunction in its place, notwithstanding that there may have been non-disclosure when the original ex parte injunction was obtained … I make two comments on the exercise of this discretion. (1) Whilst, having regard to the purpose of the rule, the discretion is one to be exercised sparingly, I would not wish to define or limit the circumstances in which it may be exercised. (2) I agree with the views of Dillon LJ in [another case] that, if there is jurisdiction to grant a fresh injunction, then there must also be a discretion to refuse, in an appropriate case, to discharge the original injunction."
- In Behbehani v Salem, reported as a note at [1989] 1WLR 723, the Court of Appeal reiterated that it was undesirable to apply hard and fast rules and that it was preferable for each case to be considered on its own merits. However, Woolf LJ went on to say at 729E:
"In deciding in a case where there has undoubtedly been non-disclosure whether or not there should be a discharge of an existing injunction and a re-grant of fresh injunctions, it is most important that the Court assesses the degree and extent of the culpability with regard to the non-disclosure, and the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the Court."
- In applying these principles, I begin by asking myself how serious and culpable the non-disclosure to Morgan J actually was. In my judgment it falls towards the lower end of the scale, both in extent and in culpability. Morgan J should have been told more than he was about the reasons for making the application without notice, the basis upon which the litigation was being funded, and the probability that illegal means had been employed by enquiry agents to obtain much of the information relied upon. However, I am satisfied that the failures to take these steps were no more than errors of judgment by Mr Mallin, and that there was no intention on his part, or that of anybody else, to omit or withhold information which was thought to be material (see Behbehani v Salem at 736E-F, where Nourse LJ said that this was the relevant test of innocent non-disclosure laid down by all three members of the Court in the Brink's Mat case). The cumulative effect of these errors of judgment was serious, but it caused no substantive injustice to Mr Al Assad. Furthermore, none of the defaults were in my view of central importance to the order made by Morgan J. It is quite possible that he, or another Judge, might still have been persuaded to make the order, even if the application had been made on notice. The application was a weak and speculative one, but not in my judgment so weak and speculative that it was bound to fail. Disclosure of the funding arrangement might have persuaded the Judge to exact a more stringent cross-undertaking in damages, but it is equally likely that he would have regarded the limited undertaking as sufficient to hold the position until the first return date. With regard to the probability that evidence had been obtained illegally, views may legitimately differ whether this should be treated as non-disclosure at all: see paragraph 84 above. Since it is not suggested that the effect of any illegality was to render the evidence in question inadmissible, and since I accept Counsel knew no more than that the evidence had been obtained through enquiry agents, I think it is unlikely that Morgan J would have declined to grant the injunction on this ground if the matter had been drawn specifically to his attention.
- In these circumstances I take the view that this is a case where the public policy requiring full disclosure on without notice applications, and the need for a suitable deterrent, can be sufficiently met by an award of indemnity costs, and that the deficiencies in the original application are not so grave that the Court should refuse to grant the more limited injunction now sought. I think it is also material for me to bear in mind that the relief now sought is much more closely focussed, and that the evidence before the Court about the Spanish properties, and the existence of the Spanish bank account, appears to have been legitimately obtained. Mr Al Assad is a judgment debtor in a very large sum indeed, and there are strong grounds for believing that he lied under oath about his assets last December. In my view the interests of justice now require that there should be no opportunity for him to dispose of the Spanish assets in his name before the question of beneficial title to those assets can be resolved in Spain. Accordingly, it is appropriate for the English court to grant an ancillary injunction pending the grant of effective protective relief by the Spanish court.
Conclusion
- For these reasons I will grant an injunction in substantially the terms sought by the liquidator, subject to the minor variations which were discussed during the hearing. I hope that the parties will be able to agree a form of order in the light of this judgment, but if not I will deal with any outstanding points when I hand it down.
