[View without highlighting]
[Printable RTF version]
This judgment was delivered in private. The judge has given leave for this version of the judgment to be published on condition that (irrespective of what is contained in the judgment) in any published version of the judgment the anonymity of the children and members of their family must be strictly preserved. All persons, including representatives of the media, must ensure that this condition is strictly complied with. Failure to do so will be a contempt of court.
||Neutral Citation Number:  EWHC 2795 (Fam)
||Case No: ZC14D00753
IN THE HIGH COURT OF JUSTICE
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
MRS JUSTICE ROBERTS
||- and -
||C and anor
Martin Pointer QC and Michael Bradley (instructed by Farrer and Co) for the Applicant
Tim Amos QC (instructed by Charles Russell Speechleys) for the 1st Respondent
Daniel Lightman (instructed by Boyes Turner LLP) for the 2nd Respondent
Hearing dates: 19th and 24th June 2015
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mrs Justice Roberts :
- Before me are two applications which concern the continuation or, alternatively, discharge of freezing injunctions secured in the context of ongoing divorce proceedings. I propose to refer to the parties to those proceedings as 'the husband' (H) and 'the wife' (W). Their younger son, N, has become a party to his parents' divorce litigation because of the injunction proceedings. I intend no disrespect to any of them in adopting this shorthand which is intended to preserve anonymity for their personal affairs.
- In June 2014 W presented a petition seeking the dissolution of her marriage to H. It had then endured for some 34 years during the course of which two sons were born to this couple. N, the younger, is now 31 years old. His brother, A, is 34.
- H is a Cypriot national; W is, by birth, Lebanese. They are now in their early sixties. Throughout the marriage, H has been the driving force behind the establishment and operation of a successful property investment group which operated in both the commercial and residential sectors of the market. The onshore trading activities of the group were conducted through a London based trading company called C Ltd. Whilst the main family business was based in central London, there were corporate offshoots registered in various offshore locations around the world. H has non-domiciled status and is non-resident in the United Kingdom. He claims now to spend the majority of his time in Cyprus. Whilst she has made a full contribution as a wife and mother, W's involvement in the family business appears to have peripheral although she is both a director and shareholder of two of the underlying corporate entities with which I am concerned. It is clear that H has also taken advantage of her own non-domiciled status to issue various shares in the group entities in W's sole name and to conduct transactions in her name or on her behalf. That, he says, was his modus operandi throughout the course of the marriage although it seems that, until recently, W herself may not have been aware of these dealings.
- Until recently, N was actively involved with his father in the family business. He started working for his father in October 2006 when he was in his early twenties. He was appointed a director of C Ltd in 2009 and appears to have become increasingly involved in daily decision-making within the business, especially during periods when his father was abroad. It is N's case in these proceedings that, prior to the institution of the divorce proceedings, his father had trusted him for many years to manage substantial assets worth tens of millions of pounds through his directorships of three of the main family companies which are the subject of the present dispute. Before this litigation commenced, there appears to have been a succession plan of sorts in H's contemplation. In anticipation of his 65th birthday in May 2015, H is said to have given instructions to his accountants to transfer to N 50% of the shares in C Ltd. Whilst an annual return was filed at Companies House recording the proposed change, no stock transfer form was executed. Whatever may have been the intention (and I am not in a position to make any findings about that issue), the breakdown of the marriage has since intervened and, whether or not such a transfer of shares to N was intended to be a gift, the transaction was never perfected.
- The underlying portfolio held within the over-arching business structure accounts for a significant proportion of the family wealth which now falls to be divided at the end of this long marriage. In total, the assets are worth in the region of £60 million, and possibly more. In broad terms, H accepts that this is a sharing case where W will be entitled to leave the marriage with 50% of those assets which do not fall to be excluded as non-matrimonial in their character or provenance.
- In February 2015, and in circumstances to which I shall come, H secured on a without notice basis a freezing order which operated in its effect to restrain W and N (on their case) from carrying out their duties as directors of two companies called D Ltd and R Ltd. On 11 March 2015, that order was continued in a slightly modified form following a hearing at which H, W and N were represented. Because there were several matters before the court on that occasion, including the First Appointment in respect of W's application for financial remedy orders, there was insufficient time for the district judge to hear full argument in relation to the continuation, or alternatively, discharge of the freezing order. The matter was put off for a further full day before a judge of the Family Division. Because most of that day was spent in negotiation, when the matter came before Moor J on 19 April 2015, he was not able to resolve the continuing dispute. Instead, he made an order which reflected an interim holding agreement. It is that agreement which has regulated the commercial operation of D Ltd and R Ltd in the intervening months since April. Whilst negotiations continued, compromise proved impossible and the matter was listed before me on 19 June 2015.
- On that occasion, W was represented by Mr Martin Pointer QC; H by Mr Tim Amos QC; and N by Mr Daniel Lightman. I had lengthy skeleton arguments from all three counsel and a substantial bundle of authorities. The written evidence occupied two full bundles, and there was a dispute between the parties as to whether or not I should receive as evidence an additional statement which H had prepared but only recently served on the other parties. The case did not conclude on that day and I indicated that I was prepared to list it for a further short hearing early the following week. On 24 June 2015, the parties and their representatives were in court with Mr Michael Bradley holding the baton for Mr Pointer on behalf of W. At the conclusion of final submissions, Mr Lightman complained that the legal basis for the continuation of the injunction sought by H appeared to have changed as Mr Amos developed his argument. Since I was by then in the middle of a ten day case, I gave Mr Lightman permission to file a short written addendum to his skeleton which I would consider before handing down a reserved judgment. A further skeleton argument together with a bundle of authorities and transcripts of the two previous hearings were delivered whilst I was away from the Royal Courts of Justice on circuit at the end of last term. Although the parties have a Financial Dispute Resolution hearing on 9 October 2015, and despite some attempt at continuing negotiation, they have been unable to resolve these issues. On 20 August 2015, during the vacation, I dealt with a further hearing which concerned the production by N of a copy document sought by H in the context of parallel proceedings ongoing between H and N in the Queen's Bench Division.
- This is my reserved judgment in relation to the extant disputes over the freezing order. As matters now stand:-
(i) H seeks the continuation of the freezing order in a slightly modified form in accordance with a draft order which has been produced by Mr Amos. In the alternative he makes an open offer to maintain a moratorium in relation to all ongoing proceedings but only until 10 October 2015 which is the day after the FDR hearing. Thereafter he reserves the right to restore both the injunction proceedings and the ongoing litigation with N in the Queen's Bench Division;
(ii) W seeks the discharge of the freezing order on the basis that the commercial arrangements regarding the continuing operation of D Ltd and R Ltd can and should continue in accordance with the holding agreement sanctioned by Moor J. If H is unwilling to countenance that arrangement, she invites me to discharge the injunction because of its inherent procedural and legal defects. With N, she has made an open offer to give certain undertakings to which I shall come in due course;
(iii) N seeks the discharge of the injunction together with his costs. He is now working in a new business (Z CO) and contends that the terms of the freezing order currently sought by H not only inhibit the exercise of his fiduciary obligations as director of D Ltd and R Ltd; their reach is such that his new business is being adversely affected. He rejects the offer of a moratorium until 10 October 2015 not only because of these matters but because he has already incurred a very substantial liability in respect of legal costs and, if the issue cannot be resolved as between H and W now, he does not wish to incur a further round of costs.
- What is quite clear to me is that the failure of this marriage has resulted in a catastrophic breakdown in the wider familial relationships. What has developed, as the parties acknowledge, is a deeply entrenched internecine war between H on the one side and W and N on the other. It appears that N's younger brother is also involved in the ongoing proceedings in the Queen's Bench Division and it is against that unhappy background that I must now turn to deal with the competing submissions which I heard from the parties' advocates.
- Before doing so, I need to set these proceedings in their contextual matrix.
B. Background : precipitating events
- It is W's case that H has formed a relationship with another woman who lives in Cyprus. I mention that only because it is part of W's case that, with that knowledge, she and N took certain steps motivated in part by their wish to prevent the removal of funds from this jurisdiction and/or H's investment of them in commercial enterprises locally in that jurisdiction. Unbeknown to either W or N, at some point prior to September 2014, H executed a power of attorney in favour of this individual. It appears to have been signed on 19 July 2012 and confers upon her wide and exclusive powers of management over all his property [A:369, 371]. H's contention is that the description of this woman as his mistress is inaccurate. He describes her as "a part-time employee of [C Ltd] in Cyprus for 10 years and [we] are friends" [B:6]. He says that the Power of Attorney which she holds gives her limited and restricted powers pertaining to his affairs in Cyprus. He accuses N of having stolen a copy of the document from his office.
- According to W's presentation, the parties separated formally in October 2014. Whilst her petition seeking dissolution of the marriage was issued in June 2014, it was not served on H until four months later on 19 October 2014. Before serving the petition, she obtained on a without notice basis both non-molestation and occupation orders which excluded H from the former matrimonial home in north London.
Transfer by W of the Berenberg funds and the Declaration of Trust made on 13 October 2014
- Shortly before serving the petition on H, W gave instructions for the transfer of a sum of £12 million from a Swiss bank account held in her sole name. It is accepted that the overwhelming majority of those funds represented the proceeds of sale from a major property deal which had recently been completed by H in this jurisdiction. W was the sole shareholder of the company which had owned the property in question. H had placed those funds in her Swiss bank account in ignorance of the fact that she had issued divorce proceedings. The funds were transferred on W's instructions to another account which she maintained with Bank Audi in Beirut. She has since stated in her written evidence that her decision to transfer these funds was motivated only by a wish to protect her position temporarily and prevent H from hiding the money. She was about to serve him with the divorce proceedings and feared that the funds might be transferred by H to his mistress or otherwise invested offshore in a manner which would make tracing the funds difficult. She says that she never had any intention of using the funds for her own purposes and readily agreed to transfer them back to a joint account once he had been served and appropriate arrangements had been made by the lawyers in relation to their preservation [A:141]. However, when H became of the movement of these funds, there was an exchange of correspondence between his solicitors and W's (then) solicitors, Vardags, in which W sought to justify her removal of those funds on the basis that the monies belonged to her sister. That statement is relied on by H as a demonstration of her bad faith in relation to this transaction.
- On 13 October 2014, a matter of days before H became aware of the divorce proceedings, W executed a Declaration of Trust whereby her beneficial interest in a number of offshore entities which formed part of the family business structure was passed to N. The document appears to have been counter-signed by H and witnessed by an employee of C Ltd, Ms W (who is H's secretary of many years' standing). The circumstances in which that document came into existence are highly contentious and have yet to be determined by findings of fact. It is W's case, supported by N, that she signed the document as one of several which were put before her by H who had asked her to attend the company's offices for this specific purpose. She did not prepare the document, knew nothing of its purpose and did not read its contents at the time. It was H's document and not hers. She signed the document during a window of a few days which pre-dated the argument which was to precipitate the formal separation and service of the divorce proceedings on 19 October 2014. She says she was in no state to challenge H about its contents. N's belief is that his father prepared, or gave instructions for the preparation of, the Declaration of Trust which was designed to remove from the 'matrimonial pot' some £15 million of assets in the belief that his son would side with his father against his mother in the event of a divorce, "particularly with the temptation of the beneficial interest … being transferred over to my name" [A:328]. N has stated in his written evidence that, two days later after his father was served with the divorce petition, he had an hour long telephone conversation with his father during which N told him he wished to ensure a fair settlement without taking any "sides". At that point he says that H once again brought up the existence of the Declaration of Trust pursuant to which the beneficial interest in the offshore companies was (then) held for his benefit. H, on the other hand, asserts that his signature was forged. W has since provided letters to say that she was asked by N (and not by H) to sign the document and not on 13 October 2014 but on the following day. This issue has since been the subject of a direction for the appointment of an expert graphologist who will no doubt add his or her input to the conundrum of who is telling the truth about the circumstances in which this document came into existence. It is further demonstration, if more was required, of the depth and extent of the mutual mistrust which presently exists between the two sides of the family.
- H's case in relation to the Declaration of Trust as it appeared in his first statement in support of the without notice injunctive relief is restricted to exhibiting a copy of the document which "purports" to be a Declaration of Trust "apparently" signed by W on 13 October 2014 and by him. There is no further qualification or explanation. That comes later in his second witness statement dated 19 March 2015. In that document he sets out at some length his case in support of his contention that he is telling the truth about this document, whilst the account given by W and N is a lie [B:10].
- None of these matters is yet capable of resolution. The court has not heard any evidence and the parties' respective accounts have not yet been tested forensically. I set them out in this judgment merely to record the full background to the events which had occurred in the weeks and months leading up to the first without notice application for the freezing orders which are now the subject of challenge.
- On 23 October 2014, following service on H of the divorce proceedings, an agreement was reached by the parties with assistance from their respective lawyers. After certain payments out, the funds held by W in Lebanon would be transferred to a new joint account at Berenberg Bank in Switzerland. The funds would be preserved in that account and held to their joint order pending further developments in these proceedings ("the Berenberg funds"). It was agreed that each would be entitled to draw down sums to fund their future legal costs [A:79]. As part of that agreement, the Declaration of Trust which W had signed some ten days before in favour of N was set aside without prejudice to either party's future contentions as to which of them was the beneficial owner of the companies in question.
- Each of H and W gave undertakings that neither would in future initiate or cause any steps to be taken which might have the effect of disposing of, dissipating or diminishing the value of any property or other assets held by any of the companies other than in the ordinary course of business dealings. H agreed that he would not seek to rely upon any existing powers of attorney which might otherwise have entitled him to act in W's name.
- The purpose of that agreement was plainly to hold the ring as the matrimonial proceedings got underway. However, on 5 December 2014, some six weeks later, H sought against his two sons interim injunctive relief in proceedings which he had initiated in the Queen's Bench Division of the High Court. These were founded on allegations of harassment. A consent order was approved by HHJ Seymour QC exercising his jurisdiction as a deputy judge of the High Court on 12 December 2014. Under the terms of that agreement, previous allegations and counter-allegations of assault, harassment, malicious communication and interference with email as between H and his two sons were left unexplored on the basis of mutual undertakings offered to the court [A:37-42]. Those proceedings continue and are highly relevant in the matrimonial context because one of the issues which has prevented settlement of these satellite issues as between H and W in the matrimonial proceedings is H's wish to be free to continue to litigate against his sons in the Queen's Bench proceedings. W, for her part, sought a moratorium in respect of all further steps in those proceedings whilst she and H attempted to reach a financial settlement.
H's removal of W and N as directors of C Ltd
- In the meantime, it appears that the battle for control of the family business continued unabated. On 10 December 2014 H unilaterally removed W as a director of C Ltd. Five days later, he removed N as a director and suspended his employment with the company. N treated that step as constructive dismissal. On 6 January 2015, he incorporated Z CO, a new business which H contends is operating in direct competition with C Ltd.
- It is against that somewhat febrile background that W and N took the steps which H says were the precipitating event for his without notice application for injunctive relief in the Family Court.
D Ltd and R Ltd
- D Ltd and R Ltd are both property investment companies. They form part of the structure of the family business. H and W each own 50% of the shares. W and N are directors of both companies. H is a director of neither, although he contends that W holds her shares on trust for him, thereby making him the ultimate beneficial owner of each company. D Ltd owns fourteen or fifteen commercial properties which are rented out and produce a gross income yield of just under £1.3 million per annum. R Ltd owns two residential properties which generate a further gross income of just under £700,000 per annum. In the past, C Ltd has managed these properties and collected the rents on the basis of what appears to have been an informal arrangement put in place by H. He has estimated the underlying portfolios to be worth c. £32.2 million net of mortgages. He describes himself as the 'founder, manager, administrator and shining light' of D Ltd, which is the more valuable of the two entities [A:72].
- On 30 January 2015 W and N as directors of both companies formally agreed a number of corporate resolutions which, when implemented, would have had the effect of taking each of D Ltd and R Ltd away from the effective control of C Ltd. Each in future was to be independently managed by a commercial agent accountable to them as directors. The formal minutes of that meeting, held in Hanover Square, form part of the material which was put before the court [A:109-115]. The minutes record the "complete breakdown in the business and personal relationship between the shareholders and between that of [H] and [N]". The purpose of the meeting was "to examine what steps should be taken to ensure a commercial arm's length relationship with [C Ltd] and [H] …". It was noted that "any future dealings between [D Ltd] and [C Ltd] could only be in the interests of both shareholders if they could be demonstrably transparent and commercially justifiable in an objective manner". The minutes went on to record that "the mutual trust and confidence that had existed between the family members before have now completely disappeared as between [H] on the one hand and the other family members on the other hand, even to the extent of [H] refusing to speak directly to [N] and issuing court proceedings resulting in undertakings between [H] and [N] not to communicate directly with each other". In the circumstances, the directors (i.e. W and N) had decided that steps should be taken to formalise the relationship between the companies and C Ltd "in a manner that accords with [their] commercial interests … and [those] of its shareholders".
- The minutes conclude with a catalogue of points which, in terms, consist of specific allegations against H of recent examples of his having acted in bad faith.
- In essence, the steps which were approved by the boards on 30 January 2015 included the following corporate resolutions:-
i. the management and rent collection services previously provided to the two companies by C Ltd were to be terminated at the conclusion of four months' written notice;
ii. H's rent free occupation of a flat in north London (owned by one of the companies) was to be terminated at the conclusion of four months' notice but on the basis that he was to be able to continue to live there should he be willing to pay an open market rent;
iii. Four months' written notice would be served on C Ltd in respect of the business premises occupied by the company in north London. The company would be given the opportunity to enter into formal negotiations for a commercial lease which reflected the true market value of the property with priority being given to maximising value for the benefit of the shareholders;
iv. There were additional resolutions which sought to terminate the previous informal arrangements which had operated for the benefit of one of H's long-standing employees, Mr F, (the provision of a car leasing agreement and the withdrawal of an open mandate which allowed that individual to withdraw funds from the bank accounts operated by D Ltd and R Ltd); the companies were authorised to seek repayment of unauthorised loans to C Ltd including a sum of £20,000 which H had apparently withdrawn to pay his legal fees in the divorce proceedings.
- The justification for moving away from an informal and unregulated inter-company arrangement was expressed clearly in the minutes in these terms:-
'The principal reasons for all of the resolutions is a desire by the directors to run [D Ltd] in a manner that is commercially independent from [C Ltd] and to ensure that any future business relationship with [C Ltd] or [H] takes place on an arm's length basis, consistent with the wishes expressed by [H] in a Memorandum dated 7 November 2014 in which he requested that [N] "no longer mix the financial affairs of [C Ltd] with [D Ltd]" and commented that "[D Ltd] is a financially independent entity from [C Ltd]".'
- Pursuant to those resolutions, a series of letters was sent to H and C Ltd between 4 and 10 February 2015. H immediately instructed his matrimonial solicitors to write to W's solicitors. The letter which was sent on 10 February 2015 referred to "highly aggressive and destructive steps for your client to be taking and yet another clear breach of the signed agreement". It recorded H's instructions to seek injunctive relief during the course of that week unless W agreed to withdraw 'these proceedings'. It made clear that it was H's intention to seek to join N as a party to the matrimonial proceedings because of his 'heavy involvement throughout this matter'.
- In this way, the battle lines were drawn between H and N whom his father clearly felt to be siding with his mother and challenging his authority to run the family business as he had for the past twenty or more years. Neither trusted the other. H regarded N's actions to be motivated by a desire to secure an income from D Ltd ("a cash rich company") so as to finance the commercial litigation; N had no confidence in his father to deal fairly with his mother in their ongoing divorce proceedings.
- W's solicitors responded on 12 February 2015. They made it clear that she had no intention of altering any of the resolutions taken by the two companies. Those decisions had been taken so as to put the relationship between the three companies on a proper commercial footing in the context of their separation and H's estrangement from N. They reflected H's own wish to see a formal separation of the administration of the affairs of C Ltd and D Ltd as recorded in the memorandum of 7 November 2014. The letter went on to explain that the decisions had also been motivated in part by W's wish to have a measure of understanding of, and control over, the affairs of C Ltd having been deprived of that opportunity by H's 'deliberate strategy' in removing N as a director and shareholder and W as both director and company secretary. As to the threat of an early application for injunctive relief, W's solicitors stated that there was no immediate urgency for any application given that the proposed changes were not being introduced until the expiry of the four month notice period (in the case of the companies) and the one month notice period (in relation to H's occupation of the flat owned by D Ltd). That shortened notice period was given on the basis that H had alternative accommodation available to him. In relation to the third party interests of N, D Ltd and R Ltd, the letter set out clearly W's position that it would be wrong to seek to interfere in the proper course of the companies' business without a fully pleaded application made on notice with the opportunity for the companies to respond.
The application made without notice on 12 February 2015
- As soon as that letter was received, H's solicitors instructed junior counsel to make an application to District Judge Aitken who was sitting as a district judge of the High Court dealing with emergency applications. I have seen a copy of counsel's note which confirms that short informal notice had been given to W "and thereby, it is safe to say, to the parties' adult son, [N]" [A:116]. The note quoted an extract from W's recently exchanged Form E wherein she had acknowledged a lack of understanding about the "technical background, but understand that that the Respondent has arranged wealth-holding structures 'offshore' that were (often unbeknown to me) in my sole name". The note acknowledged that "H is and always has been the controlling force behind all the companies in his property empire". It sets the stage for the without notice application by stating that "throughout the proceedings so far, which have not yet even reached First Appointment stage, W and [N] have engaged in attempts to defeat H's financial claims". The removal of the Berenberg funds is given as an example, together with W's signature on the Declaration of Trust in favour of N. The note confirmed that both transactions had since been reversed with the return of the funds and the agreement that the Declaration had no effect. It recorded the fact that the day after the exchange of Forms E and without any notice at all, H had received nine letters, the effect of which were set out in a series of numbered points. Paragraph 8 of the note reads as follows :-
"W may be restrained, in her capacity as (i) wife and (ii) company director, under both s.37 MCA and s.37 SCA. [N], in his capacity as company director, may be restrained under s.37 SCA."
- Reliance was placed by junior counsel upon Poon v Poon  2 FLR 857. In particular, the following passage from Thorpe J's judgment was quoted :
"It seems to me that there are a number of obvious considerations or principles. The first is that although the company is of course a separate legal entity, it is not an entity in which any other individual or non-family member has had any interest. All the shareholders are related either by blood or marriage. Secondly, this story seems to demonstrate the lack of wisdom with which human beings can react when they are going through the emotional turmoil of marital breakdown and contested financial proceedings. I am in no doubt at all that it is possible to detect a clear thread of strategic manoeuvring in the various steps that have been taken by the wife and in their timing. On the other hand it seems to me equally clear that there is a manifest connection, unconscious if not conscious, between the wife's endeavour to take charge and the summary dismissal of Mr Michael Lee.
Mr Irwin on behalf of the wife submits that any dispute regarding the function or control of the company must be resolved in the Companies Court. He submits that the Family Division has no jurisdiction to invade the proper territory of that court. I reject that submission which I regard as unrealistic and contrived. This is a family business which the family chose to incorporate. All current disputes within the family should be litigated in this one court.
The principle that sensibly applies in this division is that pending the final hearing every effort is made to preserve the status quo and to discourage or prevent either spouse from pre-emptive strike."
- The application was said to be extremely urgent because the letters recording the steps which were proposed to be taken were prejudicial to H and included an attempt by W and N to obtain immediate access to, and control of, company bank accounts. This step, it was said, had to be viewed in the context of the earlier attempt to hide £12 million of matrimonial funds. The second basis of urgency was said to be a general fear that other (unidentified) steps might be taken "if W and [N] are left free to misbehave as they like".
- In terms of the reference to the immediate access to company bank accounts, the letter sent to H by D Ltd is at [A:91]. As with the other resolutions, it stipulated a four month notice period before the proposed change in the provision of property management services took effect. What was requested with immediate effect during the notice period was the following:-
i. the forwarding to D Ltd within 7 days of all monies currently held by C Ltd on behalf of D Ltd;
ii. an account to D Ltd for all further rental and other income received in relation to D Ltd commencing on 28 February 2015 together with an account of any monies expended on the properties;
iii. a request for particulars or an estimate of funds which may be required in future in respect of any particular property owned by D Ltd.
- For my part, I have some difficulty in interpreting (i) to (iii) above as an attempt to secure immediate access to company bank accounts. There was a period of at least 7 days during which an urgent 'on notice' application might have been made. In the letter written to H's employee, Mr F, there is a request for the immediate provision to the directors by email of the access code and passwords which had allowed him to conduct the management of the company's accounts on line. The letters to Mr F from both D Ltd and R Ltd make it quite clear that he was not prevented from continuing to manage the companies' affairs during the notice period but that he should seek the approval of the board either by writing, email or telephone prior to implementing any executive decisions.
- The without notice application was plainly couched in language suggesting the need for a shield to a pre-emptive strike by W and N. The court was properly shown a copy of the letter of 12 February 2015 from W's solicitors. Whilst that letter contained a passing reference to the steps which H himself had taken in the immediate aftermath of the separation to displace the pre-existing status quo, it does not refer to his removal of W a director of C Ltd. With the removal of N from the board on 15 December 2014, H was left in a position where he had unilaterally secured control of the business for himself without any check or balance from other family members whom he now perceived to be acting in concert against him against the backdrop of divorce proceedings instigated by W.
- I have had the benefit of a full transcript of the proceedings which took place before District Judge Aitken on 12 February 2015. In introducing the application, counsel for H said this :-
"My aspiration today, I hope you will agree, is actually quite modest. It is only to hold the ring. We at the very early stages of these financial proceedings. The first appointment is coming up in a month's time and all we want to do is to stop the pretty obvious and transparent shenanigans that have been going on so that no one is seeking to outwit or undermine the other and we can just get on with what ought to be quite a simple case…… You will have read about the attempt to move £12 million out of the matrimonial pot, to hide it and disguise the ownership. You will have read about the declaration of trust, which attempted to move shareholdings out of the matrimonial pot and into the hands of the son. Now we are confronted with these letters, all received this week, all immediately after Form E ….".
- Counsel then referred to the request for Mr F's access code and passwords which enabled C Ltd to manage the accounts of D Ltd and R Ltd online. He said,
"What this means is that the wife and [N] are immediately seeking access to the online accounts and we know what they did the last time they had access to matrimonial money, they shipped it to Lebanon and pretended it was the wife's sister's." [A:129]
- Having reassured the district judge that those funds had now been returned to the jurisdiction and made the subject of the October 2014 agreement, counsel continued thus :-
"There are obviously in this case controversial elements and two sides to the story. I am not asking you to decide those points today, not at all, in fact, the opposite. What I am asking is that the court simply parks those issues whilst preserving the status quo. In that respect, I made clear at the end of my note that my client is prepared to give an undertaking, if you think it appropriate and necessary, that he will take no steps to affect the status quo of any of these companies within this case without a further order of the court, so that you can be satisfied that you are not restraining one half of the parties to the litigation and giving the other free hand. Our case, of course, is that the undertaking is unnecessary because my client has not done anything that would warrant him giving it, but it but it is right to say that the wife would not agree with that. She would make allegations and in those circumstances, if you want my client to give an undertaking to preserve the status quo and order the wife, effectively and [N] to maintain the status quo, that undertaking is forthcoming….". [A:130]
- There was then an exchange between counsel and the judge in relation to her jurisdiction to make the orders sought. As that exchange demonstrates, she was satisfied, and counsel agreed, that her jurisdiction flowed from either or both of s 37 of the Senior Courts Act 1981 or s 37 of the Matrimonial Causes Act 1971. There was no reference at all to any exercise of the court's inherent jurisdiction.
- The transcript of the short judgment delivered on that occasion is in the bundles at [A:136]. It is clear from that extempore judgment that the judge was persuaded that she should take action on an emergency basis "to maintain the status quo and do nothing further than that". She said, "the injunctive relief which is requested really confirms what was agreed in a document signed by the parties on 23rd October 2014 which sets out the following"; the judge then proceeded to read the form of undertakings given in that document. She recognised that there might well be different arguments put before the court when the matter returned on an inter partes basis, but she felt it appropriate to enjoin both W and N from taking the actions reflected in the letters recording the resolutions made by them in their capacity as directors of D Ltd and R Ltd. H was required to give the undertaking offered but there was no reference at that stage to any potential damage which might be sustained to N's new business, nor was it mentioned during the course of that hearing.
- The order which emanated from that without notice hearing is in the bundles at [A:1-5]. Its operative provisions appear at paragraph 18. In broad terms, W and N were forbidden to take any steps to implement the board resolutions and, at sub-paragraph (e),
"to take any steps to obtain all or any of the data held by [C Ltd] in relation to any company including but not limited to [R Ltd] and [D Ltd]".
- Mr Pointer and Mr Lightman contend that this provision went beyond any attempt to 'hold the ring' since it effectively prevented W and N from carrying out the fiduciary duties which they owed to the two companies in their capacity as directors.
- On 4 March 2015, W and N applied to set aside the without notice order. The return date provided for in that order was 11 March 2015, a date which had already been secured as the First Appointment in W's application for financial remedy orders.
The inter partes hearing on 11 March 2015
- When the matter was restored before District Judge Aitken on 11 March 2015, Mr Pointer appeared to represent W, Mr Lightman appeared for N, and Mr Lewis Marks QC appeared with Mr Lazarides for H. There was insufficient time on that occasion to deal with matters and it was agreed that temporary orders would be made pending the next return date which was fixed for 21 April 2015. The without notice injunction ceased to have any further effect save to the extent that it was expressly continued by paragraphs 17 and 18 of the new order which provided as follows :-
'17. Until 16:00 on the Return Date or further order of the court the first respondent [W] and second respondent [N] are each forbidden to:
a. Take any steps to terminate the arrangement, or to give effect to any purported termination of the arrangement, whereby [C Ltd] provides property management services to any other company, including but not limited to [R Ltd] and [D Ltd];
b. Take any steps to alter in any way the working arrangements between [C Ltd] and any other company, including but not limited to [R Ltd] and [D Ltd];
c. Take any steps to remove the Joint Mandate, or to give effect to any purported removal of the Joint Mandate;
d. Use any of the online banking services or facilities in respect of the bank accounts of any company referred to in the schedule to include but not limited to [R Ltd] and [D Ltd] other than for the purposes of obtaining information as to the status and activity on the accounts and specifically not for executing any transactions in circumvention of the Joint Mandate;
e. Authorise or effect any transactions, including but not limited to withdrawals from bank accounts, by any company referred to in the schedule other than in the ordinary course of business.
18. Until further order of the court the respondent [W] is forbidden to:
a. Take any steps to change, or give effect to the purported change to, the company service providers of any company referred to in the schedule;
b. Take any steps, or to give effect to the purported change to, the identity of any directors of any company referred to in the schedule.'
The hearing before Moor J on 21 April 2015 : "the moratorium order"
- This was, of course, the second return date of H's application for the continuation of the injunction granted on 12 February 2015 and the application by W and N to set aside or vary the injunction (as varied on a temporary basis by the March order). By agreement between the parties, those applications were adjourned to 19 June 2015 with a time estimate of one day. It is those cross-applications with which I have been dealing. The purpose of the further adjournment was to allow H and W to consider the possibility of reconciliation and to negotiate and implement a post-nuptial agreement. By this stage, their elder son, A, had become involved in the family compromise.
- The "moratorium agreement" is recorded in paragraph 5 of the order :-
'5. The terms upon which the parties and [A] have agreed to adjourn this hearing, such terms having effect until the Return Date only, are as follows:-
a. [C Ltd] shall continue to manage the properties of [D Ltd] and [R Ltd] on behalf of each of them respectively as before;
b. The rents collected by [C Ltd] in respect of [D Ltd]'s properties shall be paid promptly to [D Ltd]'s bank account in its own name [account details provided];
c. [H] will be permitted to occupy [the residential flat owned by D Ltd] rent-free, and the Respondents shall not take steps to evict [him] therefrom;
d. [C Ltd] will be permitted to occupy [the commercial premises owned by D Ltd] rent-free, and the Respondents shall not take steps to evict [the company] therefrom;
e. The arrangements for the offshore companies shall continue as previously, except only that the ownership of [a specified company] shall be transferred back into the joint names of [H] and [W], or one of them if that be agreed;
f. [H] will provide regular monthly information to the Respondents as to the rents being collected for [D Ltd] and [R Ltd] and as to any payments which are other than previously regular; and [H] will provide such further information relating to [D Ltd] and [R Ltd] as may reasonably be requested by [N];
g. Each of the Respondents will sign the [D Ltd] accounts forthwith and in any event by 4pm on 5 May 2015, provided that they are provided promptly with any information and/or documentation they reasonably require to enable them to do so;
h. There shall be a moratorium in the divorce proceedings in order to set out the purpose in paragraph 4 above …..' (i.e. to enable consideration to be given to a reconciliation and post-nuptial settlement);
i. Similarly there shall be a moratorium, whether by way of court process or inter-solicitor/-client correspondence, in relation to all disputes between on the one hand [H] and/or [C Ltd] and on the other hand [N], [Z CO] and/or [A], including [A]'s claim for approximately £3,000.'
- On that basis the injunction as modified by the March order was discharged, together with the undertakings, without prejudice to any party's right to argue that the discharge of the injunction should be treated as having been prospective or retrospective.
The hearing on 19 June 2015
- By the time the matter came on for hearing before me on 19 June 2015, it was clear that all prospects of reconciliation had been abandoned. Despite lengthy negotiations in correspondence, neither side was prepared to compromise over the future management of the companies and/or the need for continuing injunctive relief.
C. Competing arguments of the parties in relation to the law and merits
- On behalf of H, Mr Amos sought the reinstatement of the order made on 11 March 2015 (the first return date). I have set out the operative terms of the injunction made on that date in paragraph 44 above. The only deviation in his draft order from the previous formulation is:-
(i) a modification of what was paragraph 17(c) to reflect the fact that 'the Joint Mandate' in respect of the banking arrangements for D Ltd and R Ltd is intended to reflect the existing status quo by which Mr F has sole control of the companies' bank accounts in terms of their day to day operation; and
(ii) a new sub-clause (f) which has the effect of forbidding W and N (or either of them) from 'altering the arrangements for the offshore companies as they have operated heretofore'.
- Mr Amos submits that this regime should govern the operation of the family business until the conclusion of the financial remedy proceedings and the implementation of any order flowing therefrom unless there is some further agreed or court-driven modification to its terms before then.
- Mr Pointer's open offer on behalf of W to agree to the continuation of the terms of Moor J's "moratorium" order of 21 April 2015 was rejected by H because of his wish to proceed with his commercial claims against N in the Queen's Bench litigation. In the absence of that compromise, W seeks the discharge of the injunction both in relation to its underlying merits and because of H's failure to overcome the fundamental jurisdictional hurdles which lie in his way.
- N supports his mother's position although he, too, would have been prepared to agree to a continuation of the "moratorium" order in order to avoid further costs and court time. Given the rejection of what has the superficial appearance of a sensible and practical way forward, I now have to determine these matters including the soundness of the jurisdictional basis for the earlier orders. By agreement, Mr Lightman took the lead in the development of the jurisdictional arguments on behalf of both respondents.
- The relevant part of the Family Procedure Rules 2010 (FPR) r 20.2 provides as follows :-
'20.2 Orders for interim remedies
(1) The court may grant the following interim remedies –
(a) an interim injunction;
(c) an order –
(i) for the detention, custody or preservation of relevant property;
(vi) for the payment of income from relevant property until an application is decided;
(f) an order (referred to as a 'freezing injunction') –
(i) restraining a party from removing from the jurisdiction assets located there; or
(ii) restraining a party from dealing with any assets whether located within the jurisdiction or not.
- Mr Amos relies on two statutory sources of jurisdiction for the orders which he seeks on behalf of H.
(a) The Matrimonial Causes Act 1973 ('MCA 1973')
'37 Avoidance of transactions intended to prevent or reduce financial relief
(1) For the purposes of this section 'financial relief' means relief under any of the provisions of sections 22, 23, 24, 24B, 27, 31(except subsection (6)) and 35 above, and any reference in this section to defeating a person's claim for financial relief is a reference to preventing financial relief from being granted to that person, or to that person for the benefit of a child of the family, or reducing the amount of any financial relief which might be so granted or frustrating or impeding the enforcement of any order which might be or has been made at his instance under any of those provisions.
(2) Where proceedings for financial relief are brought by one person against another, the court may, on the application of the first-mentioned person –
(a) if it is satisfied that the other party to the proceedings is, with the intention of defeating the claim for financial relief, about to make any disposition or to transfer out of the jurisdiction or otherwise deal with any property, make such order as it thinks fit for restraining the other party from so doing or otherwise for protecting the claim;
(b) if it is satisfied that the other party has, with that intention, made a reviewable disposition and if that disposition were set aside financial relief or different financial relief would be granted to the applicant, make an order setting aside the disposition;
(c) if it is satisfied, in a case where an order has been obtained under any of the provisions mentioned in subsection (1) above by the applicant against the other party, that the other party has, with that intention, made a reviewable disposition, make an order setting aside the disposition;
and an application for the purposes of paragraph (b) above shall be made in the proceedings for the financial relief in question.
(3) Where the court makes an order under subsection 2(b) or (c) above setting aside a disposition it shall give such consequential directions as it thinks fit for giving effect to the order (including directions requiring the making of any payments or the disposal of any property).
(4) Any disposition made by the other party to the proceedings for financial relief in question (whether before or after the commencement of those proceedings) is a reviewable disposition for the purposes of subsection (2)(b) and (c) above unless it was made for valuable consideration (other than marriage) to a person who, at the time of the disposition, acted in relation to it in good faith and without notice of any intention on the part of the other party to defeat the applicant's claim for financial relief.
(5) Where any application is made under this section with respect to a disposition which took place less than three years before the date of the application or with respect to a disposition or other dealing with property which is about to take place and the court is satisfied –
(a) in a case falling within subsection 2(a) or (b) above, that the disposition or other dealing would (apart from this section) have the consequence, or
(b) in a case falling within subsection 2(c) above, that the disposition has had the consequence,
of defeating the applicant's claim for financial relief, it shall be presumed, unless the contrary is shown, that the person who disposed of or is about to dispose of or deal with the property did so or, as the case may be, is about to do so, with the intention of defeating the applicant's claim for financial relief.
(6) In this section "disposition" does not include any provision contained in a will or codicil but, with that exception, includes any conveyance, assurance or gift of property of any description, whether made by an instrument or otherwise.
(b) The Senior Courts Act 1981 ('SCA 1981')
'37 Powers of High Court with respect to injunctions and receivers
(1) The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so.
(2) Any such order may be made either unconditionally or on such terms and conditions as the court thinks just.
(3) The power of the High Court under subsection (1) to grant an interlocutory injunction restraining a party to any proceedings from removing from the jurisdiction of the High Court, or otherwise dealing with, assets located within that jurisdiction shall be exercisable in cases where that party is, as well as in cases where he is not, domiciled, resident or present within that jurisdiction.
- In essence, the case advanced on behalf of H is that the shares in D Ltd and R Ltd are "property" for the purposes of s 37 MCA 1973 and/or "assets" for the purposes of s 37 SCA 1981. The proposed action by W and N has the potential to damage, or diminish the value, of H's shares in C Ltd and in D Ltd and R Ltd.
- In answer to N's case (to which I shall come) that the injunction was improperly granted because there was no evidence of a proven intention to defeat H's claim or of an impending disposition or other adverse dealing, Mr Amos invites me to look at W's and N's actions from the more grounded perspective of 'living in the real world'. He points to the fact that District Judge Aitken was faced with a situation in which there was evidence of W and N having conspired together to move the £12 million to Lebanon and then – twice, through solicitors – given an obviously dishonest answer about it. He points to the fact that she had sight of the letters sent to H in February 2015 giving notice of their intention to change the operating mandate in favour of C Ltd.
- In this context, he relies on the decisions in Roche v Roche (1981) 11 Fam Law 243, CA and Shipman v Shipman  11 FLR 250.
- Roche v Roche was a decision of the Court of Appeal handed down some 24 years ago. It was a short ex tempore judgment in a case where there had been no appearance by the respondent. The wife in that case had applied for an injunction in order to freeze a substantial sum which the husband had been awarded (but not yet received) in respect of a claim for damages for personal injury. Ormrod LJ delivered judgment in the following terms, at p 243 :
"Apart from section 37 [MCA 1973] and its predecessors the court has jurisdiction to preserve specific assets which are the subject matter of proceedings pending the determination of the issues involved, for example, an injunction restraining the other party from removing out of the jurisdiction liquid assets pending a hearing – for the obvious reasons that he or she could put the assets somewhere where they cannot be reached. Another example is in the Married Women's Property Act 1882 proceedings, where an interest is claimed in a house or chattels. It is common form to apply to the court for an order to preserve chattels or preserve the matrimonial home pending the hearing of proceedings. With respect to the learned judge, I think he was wrong in thinking that this was an application under section 37. It seems to me that it was an application under the general powers of the court to preserve specific assets which are the subject matter of proceedings pending the determination of those proceedings. Smith v Smith (1973) SJ 525 was also such a case. This is clearly a case where no hardship will be caused whatever to the husband by restraining him from disposing of part of the sum of damages, when he recovers them, provided the proceedings for ancillary relief are dealt with quickly. This court will take steps to see that that is done. I can see no reason why the court should not make such an order and the more the husband protests and refuses to give any assurance that he intends to leave some of this money in a liquid form, the more anxious the court is bound to be. One wonders why all this fuss is being made about such an order."
- In Shipman v Shipman the wife sought an injunction in divorce proceedings in order to preserve one half of a substantial severance payment due to her husband pending resolution of her financial claims. At the time she issued her application, both he and the assets were out of the jurisdiction. The court held that there was no statutory jurisdiction under s 37 MCA 1973 because there was no evidence in that case that the husband intended to dissipate the asset. However, relying expressly on Roche, the court did make a freezing order under its inherent jurisdiction. Counsel for the husband had argued that the restrictions and safeguards which were regularly applied in a commercial context in respect of the grant or refusal of Mareva injunctions should be assimilated into and adopted within the Family Division. Lincoln J declined to follow that course on the basis that "the matrimonial field calls for a different approach" (p 253). On the basis that the husband's intentions might change, his lordship granted the wife an injunction on the basis of the court's inherent jurisdiction to freeze assets which might be put beyond the reach of an applicant.
- Thus, says Mr Amos, an intention to defeat a financial claim is not an essential ingredient which I have to consider since, in a family context, the jurisdiction established by the decisions in Roche and Shipman is engaged. On his case, there is ample evidence of intention on the part of W and/or N to defeat H's claims, but he contends that I do not need to look that far.
- Mr Lightman's assault on H's case in relation to a reinstatement of the March order (which more or less mirrors the slightly revised draft which Mr Amos has put before the court) proceeds from the foot of the following submissions in relation to jurisdiction :-
S 37 MCA 1973
(i) there was no basis for the court to have made an order under s 37 MCA 1973 because the expression "any property" in s 37(2)(a) is specifically anchored to "any property in which either or both of the parties to the marriage has or had a beneficial interest, either in possession or reversion". Its reach does not extend to "any property generally, regardless of whomever it may belong to". Thus, the section cannot be engaged to prevent a mere dealing with property belonging to a company;
(ii) in any event, s 37 MCA 1973 enables the court to restrict or prevent dealings by parties to a financial remedy application. In the absence of a finding that either of D Ltd or R Ltd was the alter ego of H and/or W, the companies retain their separate legal personalities and are not susceptible to the s 37 jurisdiction;
(iii) there was no evidence before the court that which would justify an order under s 37 MCA 1973. The court would have been unable to reach a conclusion that W was, with the intention of defeating H's claims for financial relief, about to make any disposition or transfer out of the jurisdiction, or otherwise deal with any property. There was no evidence that the order was necessary to prevent either W and/or N from taking that course, or otherwise for protecting H's claims.
S 37 SCA 1981
(iv) An injunction under s 37 SCA 1981 could only have been granted if the circumstances were such that an injunction would be likely to have been available as a remedy in either the Chancery or Queen's Bench Divisions of the High Court. H must establish as a prerequisite that there existed a cause of action, whether legal or equitable. No such cause of action existed as against N, notwithstanding that he had been joined as a party to the matrimonial proceedings; and
(v) even had such a cause of action been established, there was no objective evidence before the court that there was a likelihood of the movement or dissipation or transfer of the assets with the intention of defeating H's claims.
Failure to pay sufficient regard to the separate legal personality of the corporate entities which, with W and N, were the target of the injunction obtained
(vi) The injunction secured on 11 March 2015 secured interim relief on behalf of C Ltd which was neither a party to the litigation nor the applicant for the relief sought; and
(vii) its terms placed restrictions on the ordinary trading activities of D Ltd and R Ltd, neither of which were parties to the litigation. Insofar as orders were made against N personally, they had the effect to prevent the operation of his new business entity, Z CO, to which no reference was ever made when the original without notice application was put before the court.
- As I have indicated, Mr Pointer, on behalf of W, joins common cause with Mr Lightman in relation to each of these submissions.
- The issue of the nature of "property" which could properly constitute a target for the engagement of s 37 MCA 1973 was considered by the Court of Appeal in Crittenden v Crittenden  2 FLR 361. In that case, H and W were shareholders in a company which carried on business providing mooring facilities at a boat station. By the time divorce proceedings had been initiated, the company was insolvent. The local authority was also challenging the company's right to carry on business on common land to which it had no title or licence to occupy. In the course of that litigation, the local authority made an offer to buy the mooring business and, for these purposes, it required the husband to sign a letter of intent. A first instance judge, exercising his jurisdiction in the family proceedings, made an order requiring the husband to sign such a letter both in his personal capacity and in his capacity as a director of the company. In the event of his refusal to do so, further orders were made which authorised a family judge to sign on his behalf pursuant to its powers under s 39 of the Supreme Court Act 1981. The husband objected to signing the letter of intent because it contained various restrictive covenants which would have the effect of preventing him from operating a similar business within a fixed radius of the boat station which was being acquired from the company by the local authority. In support of the court's jurisdiction to impose such a restriction on the husband, the wife's counsel relied upon ss 24A and 37 of the MCA 1973.
- Dillon LJ, delivering the leading judgment, held that the reference to "property" in s 24A(1) of the MCA 1973 could relate to the husband's shares in the company but not to the underlying assets of the company itself. In relation to the jurisdiction arising under s 37(2)(b) of the MCA 1973, his lordship said this at p 365 F to H:-
"It seems to me plain that any reference to property in s.37(2)(a) must be a reference to property which, as explained for instance in s. 24A, is property in which either or both of the parties to the marriage has or had a beneficial interest, either in possession or in reversion. It cannot mean any property generally, whomever it may belong to, because s.37 is concerned to supplement primary provisions in the earlier sections of the 1973 Act. Therefore, s.37 cannot itself attach to a mere dealing with the company's property.
Beyond that, however, the references in s. 37(2)(a) depend on the person concerned being about to make any disposition, or to transfer out of the jurisdiction or otherwise deal with any property. It is submitted that 'to deal with' ought to be construed widely so as to cover failure to deal with the property in a way which would be profitable to the other spouse or which would support and preserve the claim of the other spouse, but, in my judgment, the words 'deal with' refer to some positive dealing with the property and not to anything which is purely negative. In the present case Mr Crittenden does not appear at the moment to be dealing with the assets of the company, which anyhow are not, to my mind, property within this subsection, at all. He is objecting to the arrangement over the assets of the company which is proposed because of the obligation which it is sought to impose upon him personally."
- Thus, say Mr Pointer and Mr Lightman, an injunction which purports to flow from s 37 MCA 1973 cannot operate to prevent a mere dealing with a company's property or an underlying asset owned by that company. This principle, they submit, presents a fundamental obstacle to the court seising jurisdiction under s 37 MCA 1973 on the basis of H's argument that, since the shares in the two companies are 'property' owned by H and W, the court can take action to restrain dealings conducted in the ordinary course of the companies' business if such dealings with the underlying corporate assets result in damage to the value of H's shares in C Ltd.
- As to the basis of his assertion that damage may flow to the value of his shares in C Ltd as a result of the proposed actions of W and N in putting in place arm's length commercial arrangements for the management of corporate assets, H's evidence is unclear and inconsistent. In his first statement, he said that if his interest in D Ltd were to be affected by their actions, "I may be forced to commence proceedings to recover outstanding fees from [D Ltd] and [R Ltd] which are in excess of £1m which until now I have elected not to do" [A:74]. In his second statement, sworn only five weeks later, he stated that C Ltd "provides all professional services to [D Ltd] at no cost whatsoever" [B:4]. H has offered no particulars as to what these outstanding fees are, the basis on which he has calculated the sum of £1 million or how this alleged debt arises in circumstances where the consistent thread running through his evidence is that C Ltd has provided its services to the property owning entities at no cost. What is perfectly clear from the written evidence is that this business structure has been run by H (latterly with assistance from N as a main board director) on very fluid lines. It is an approach which Mr Amos refers to in his skeleton argument as one which "might appear autocratic or at least idiosyncratic". H himself describes the position in this way :-
"It is important for the court to grasp at the outset that it is a single business despite being operated through the mechanism of a number of limited companies. The vast majority of the assets in this case are made up of English commercial and residential properties which I, through the vehicles of limited companies, have purchased, developed and then let out or sold for profit. The manager of those properties is a separate English company called [C Ltd], of which I am sole shareholder and director. But when I refer to "the business" in this statement, I am actually referring to the arrangement as a whole. It is completely artificial to de-link [C Ltd] from the separate property owning companies; they have a symbiotic relationship and indicative of this is the fact that [C Ltd] has never charged the separate property-owning companies any fees for the vast amount of work the company undertakes on their behalf." [B:2] (The emphasis is H's own.)
- There was nothing in the board resolutions agreed by the directors of the two companies (W and N) to suggest any change in the composition of the underlying property portfolio; what was proposed was a commercially transparent means of managing the portfolio and collecting the rents in circumstances where there was a complete breakdown in trust between these parties. To the extent that there might have been an additional cost to the business attached to that proposed course, N has set out in his written evidence his understanding that the fees payable to an external third party were unlikely to exceed the sums (with benefits) currently paid to Mr F who is the employee of C Ltd responsible for operating the property companies' banking and other administrative arrangements.
Alter ego or separate legal personality ?
- Does the description given above by H of the business operation give rise to any legal basis for holding that the degree of control he was able to assert over the underlying corporate assets over the years was sufficient to make him the alter ego of the structure so as to pierce the corporate veil? That argument has now been laid to rest conclusively by the decisions of both the Court of Appeal and the Supreme Court in Prest v Petrodel Resources Ltd and Others  EWCA Civ 1395,  UKSC 34,  2 AC 415. There is nothing in this case which suggests that H set up the corporate structure in this manner so as to evade an existing legal obligation or liability or that he was seeking to frustrate the enforcement of such a liability. These companies were not in any sense sham entities; indeed they operated as separate and distinct legal entities as specific vehicles for the ownership of both commercial and residential portfolios throughout most of the years during which this marriage subsisted. It is not suggested from any quarter that the residential and commercial property portfolios are somehow held on trust for H and/or W. The argument that "power equals property" was firmly laid to rest by Rimer LJ in the Court of Appeal and confirmed by the Supreme Court. At paragraphs 104 and 105 at p 445 to 446 of the report, Rimer LJ said this :-
" With respect to the judge, his "power equals property" reasoning is wrong. It is heretical to suggest that the total control that a single individual is (and will always be) entitled to exercise over the affairs of his one-man company is a feature resulting in the company's assets becoming assets to which he is "entitled" and, therefore, to which the company is not entitled. "Entitled" within the meaning of section 24(1)(a) [of the Matrimonial Causes Act 1973] can, as I have said, only mean beneficially entitled (the paragraph cannot, for example, extend to property vested in a spouse on trust for a third party). The logic of the judge's reasoning appears, therefore, to be that a one-man company can never own assets beneficially but can only ever hold its assets as the nominee of its sole controller. That is what Lord Wrenbury said is not the law.
 The flaw in the "power equals property" approach is that it ignores the fundamental principle that the only entity with the power to deal with assets held by it is the company. Those who control its affairs – even if the control is in a single individual – act merely as the company's agents. Their agency will include the authority to procure an exercise by the company of its dispositive powers in respect of its property, but those powers are still exclusively the company's own: they are not the agents' powers. When and if the agents act as such, and procure a corporate disposition, the property which immediately before the disposition belonged to the company will become the property of the disponee. Until then, it remains the property of the company and belongs beneficially to no one else. The judge's point that the agent is automatically the owner of all the company's assets by the mere fact of his authority to procure the company to dispose of them to himself is astonishing and does not begin to pass muster. And why should it ? The proposition was simply the fruit of a judicial attempt to shoehorn into section 24(1)(a) assets which manifestly do not fit there. The judge's finding that the husband's mastery of the companies meant that they and their assets were his, and that they were the equivalent of mere nominees or agents for him (see, for example, his para 225) could have been lifted directly from the argument of counsel for the respondents that was rejected in Salomon v A Salomon & Co Ltd  AC 22, 28, 29."
- In the Supreme Court, Lord Sumption JSC dealt with the practical importance of the point in issue. At paragraph 7, page 475F to 476B, his lordship said this:-
"In the Court of Appeal, the three respondent companies challenged the orders made against them on the ground that there was no jurisdiction to order their property to be conveyed to the wife in satisfaction of the husband's judgment debt. This contention, which has been repeated before us, raises a question of some importance. For some years it has been the practice of the Family Division to treat the assets of companies substantially owned by one party to the marriage as available for distribution under section 24 of the Matrimonial Causes Act, provided that the remaining assets of the company are sufficient to satisfy its creditors. In the Court of Appeal, the practice was supported by Thorpe LJ, but the majority disagreed: ante, pp 421-467. Rimer LJ, delivering the leading judgment for the majority, held that the practice developed by the Family Division was beyond the jurisdiction of the court unless (i) the corporate personality of the company was being abused for a purpose which was in some relevant respect improper, or (ii) on the particular facts of the case it could be shown that an asset legally owned by the company was held in trust for the husband. He considered that the judge had rejected both of these possibilities on the facts, and that he ought not therefore to have made the order. In a short concurring judgment, Patten LJ, ante, p 467, para 161, said that the Family Division had developed "an approach to company owned assets in ancillary relief applications which amounts almost to a separate system of legal rules unaffected by the relevant principles of English property and company law". This practice, he concluded, "must now cease"."
- Any notion that s 24(1)(a) MCA 1973 is permissive in its effect and allows some further justification as a matter of general legal principle for piercing the corporate veil was roundly rejected by Lord Sumption (see para 37 at page 488 to 489) :-
"…. The language of [s 24(1)(a)] is clear. It empowers the court to order one party to the marriage to transfer to the other "property to which the first-mentioned party is entitled, either in possession or in reversion". An "entitlement" is a legal right in respect of the property in question. The words "in possession or reversion" show that the right in question is a proprietary right, legal or equitable. This section is invoking concepts with an established legal meaning and recognised legal incidents under the general law. Courts exercising family jurisdiction do not occupy a desert island in which general legal concepts are suspended or mean something different. If a right of property exists, it exists in every division of the High Court and in every jurisdiction of the county courts. If it does not exist, it does not exist anywhere. It is right to add that even where courts exercising family jurisdiction have claimed a wider jurisdiction to pierce the corporate veil than would be recognised under the general law, they have not usually suggested that this can be founded on section 24 of the Matrimonial Causes Act 1973. On the contrary, in Nicholas v Nicholas  FLR 285, 288, Cumming-Bruce LJ said that it could not."
- As the Supreme Court made abundantly clear in Prest v Petrodel, there is nothing in the 1973 Act and nothing in its purpose or broader social context to indicate that the legislature intended to authorise the transfer by one of the spouses to the other of property which was not his or hers to transfer. Whilst an order directing the transfer of shares held by one of the spouses will be uncontroversial, delivery of value pursuant to that transfer may well be impossible if, for example, the shareholder and the company are both resident abroad in jurisdictions which may not recognise and/or enforce English court orders. Section 24 of the 1973 Act is not be construed as providing a remedy to this problem by artificially enlarging or widening the definition of what constitutes "property to which the first-mentioned party is entitled, either in possession or in reversion". If and insofar as a party to matrimonial proceedings deliberately attempts to frustrate the exercise of the court's powers by disposing of assets, section 37 MCA 1973 enables such dispositions to be set aside if certain circumstances are met. However, as Lord Sumption pointed out at para 40, page 490G :-
"Section 37 is a limited provision which is very far from being a complete answer to the problem, but it is as far as the legislature has been prepared to go."
- The principle which emerges from the decision of the Court of Appeal in Crittenden (see paragraphs 63 and 64 above), whilst a free-standing statement of the law in 1990, has been significantly buttressed by the unanimous endorsement of the Supreme Court in Prest v Petrodel, some twenty-three years later. Their lordships' remarks can now be seen as the structural underpinning for the earlier authority of McGladdery v McGladdery  2 FLR 1102. In that case, a wife who owned an equal share with her husband in a family company persuaded him to appoint her as chairman of the company. As soon as he had done so, she left the family home and petitioned for divorce. Shortly thereafter, she removed the husband as a director and terminated his employment with the company. The court seised of the financial aspects of the divorce ordered the husband to transfer a percentage of his shares to the wife on receipt of a lump sum payable by her to him. The wife was also ordered to discharge a raft of debt due to the husband's family and thereafter make periodical payments to him. She paid the lump sum; he transferred the shares. She remained in default of her obligations to discharge the family debt and pay maintenance to the husband. When the court confirmed those obligations, the wife set up a BVI company and transferred to it all the assets formerly held by the family company. H sought remedies in the Family Division including an order under s 37 MCA 1973 setting aside the transfer out of the jurisdiction of the family company's assets. The Court of Appeal upheld the judge at first instance who ruled there was no jurisdiction to set aside the transfer since she had not divested herself of any assets but had merely enhanced her own assets at the expense of the other shareholders. In delivering the judgment of the Court of Appeal, Thorpe LJ made it plain that the material transfers in this case had been inter-company transfers. Since there was no suggestion that the English family company was an alter ego, the transferor was a private company. Section 37 only empowers the court to avoid dispositions made by a party to the financial proceedings : see page 1110 C. The fact that the husband still owned shares and was thereby adversely affected by her actions in emptying the corporate coffers did not give the court any jurisdiction under s 37.
- Thus, armed with the authority of McGladdery, Mr Pointer and Mr Lightman submit that the court cannot make an order to prevent dispositions or dealings by a company pursuant to its powers under s 37 MCA 1973 unless the company can be treated as the alter ego of one of the parties to the matrimonial litigation.
- In response to these submission, Mr Amos does not seek to challenge the principles established in Crittenden and McGladdery. Rather, he contends that these are arguments which should not deflect me from looking at the underlying reality of the remedy which H is seeking. What he wishes to achieve pending resolution of the financial claims in the matrimonial proceedings is the preservation of a status quo in relation to the manner in which the family business has been operated over a number of years. It is the parties (i.e. H and W) who are bringing those claims and it would be an extraordinary state of affairs if it were to be found that this court lacks jurisdiction to entertain H's claim for injunctive relief. N was made a party to the proceedings by paragraph 18 of the order of District Judge Aitken on 12 February 2015, but for the purposes of the injunction application only. He is not a party to the matrimonial proceedings and/or to W's application for financial remedy orders.
- In this context, I remind myself again of the precise nature of the injunctive relief which Mr Amos is seeking on behalf of H. I have already set out the full terms of the orders he seeks in paragraphs 44 and 49 of my judgment and do not repeat those terms verbatim here. However, in the context of the twin pillars of Crittenden and McGladdery buttressed by everything which was said on the subject in Prest v Petrodel, the essence of the relief sought is a prohibition against either or both of W and N :-
- terminating the pre-existing arrangement whereby C Ltd provides management services to any other company, including D Ltd and R Ltd;
- altering the pre-existing working arrangements between any other company, including D Ltd and R Ltd;
- altering the pre-existing banking arrangements or the current mandate which authorises Mr F to control the bank accounts of D Ltd and R Ltd;
- making any use of the companies' online banking services or facilities other than for the purposes of obtaining information about the status of and activity on the accounts;
- authorising or effecting any transactions by any company (including D Ltd and R Ltd) other than in the ordinary course of business ("transactions" for these purposes including any withdrawal of funds from company bank accounts);
- altering pre-existing arrangements in relation to the offshore entities.
The specific injunction targeted at W prohibits her from :-
- changing the companies' service providers; and
Specifically omitted from the 11 March 2015 order (and from the draft order which Mr Amos has put before the court) are sub-paragraphs 18 (d) and (e) of the without notice order made on 12 February 2015. Those injunctions prevented W and/or N from ('d') taking any steps to obtain the access code and passwords to allow online access to the bank accounts operated by D Ltd and R Ltd; and ('e') obtaining any data held by C Ltd in relation to D Ltd and R Ltd. What is now to be permitted (on H's case) is access to those bank accounts for the limited purposes of monitoring movements on the accounts. The intended prohibition on their ability to execute any transactions in circumvention of Mr F's mandate remains absolute. Thus, they can observe from the side lines but cannot participate in any of the day to day activities of running the two companies in accordance with their duties as directors. In my judgment, this corporate emasculation of its two directors is not rescued by the words appearing in the penultimate bullet point of paragraph 75 above. Whilst 'transactions in the ordinary course of business' appear to be exempt from the prohibition, those 'transactions' expressly include any and all withdrawal of funds from the companies' bank accounts. It is difficult to see how any business could be expected to carry on transacting its daily business affairs if cash flow is effectively frozen. Thus, the apparent concession – or 'nod' towards the companies' two directors – is nothing of the kind. McGladdery stands firmly in the way of any attempt to prevent dealings by a company if the jurisdiction which H seeks to engage is founded upon s 37 MCA 1973. Whilst such jurisdiction might be available if its reach was confined solely to W in her capacity as director and as a party to the financial remedy proceedings, N is not such a party save for the specific purposes of these satellite proceedings.
- taking any steps to change the identity of any of the directors of any company referred to in the schedule.
In my judgment, it is this latter restriction on their obligations as properly appointed directors of the two companies which offends the principles established in Crittenden and McGladdery. Further, if and so far as Mr Amos relies upon s 37 MCA 1973 to secure jurisdiction to achieve these ends, it seems to me that he is in some difficulties. His response to a question which I put to him in this context was that it was open to W and N to appoint new directors in their stead if that was deemed necessary to enable the companies to carry on their daily business. That, it seems to me, is no answer – even if it were practicable – since his draft order prevents W from effecting any change to the identity of any of the directors of any company referred to in the schedule, including D Ltd and R Ltd.
Further, even if it were possible to construe the s 37 MCA 1973 jurisdiction as available to enjoin W and N in their personal capacities as both directors and parties, Mr Pointer and Mr Lightman submit that there is no evidence before the court:
(i) that W was, with the intention of defeating H's claim for financial relief, about to make any disposition or transfer out of the jurisdiction or otherwise deal with any property; or
(ii) that the order was necessary to restrain W and/or N from so doing or otherwise for protecting H's claim.
That submission concerns the underlying merits of the application and I shall return to it in due course once I have dealt with arguments about jurisdiction.
I turn now to the alternative jurisdictional basis for these injunctions. S 37 of SCA 1981 would entitle the court to make the freezing order sought but only in circumstances where the Chancery or Queen's Bench Divisions would grant such relief. In other words, there must be a subsisting cause of action. There are parallel proceedings ongoing in the Queen's Bench Division between H and his two sons, N and A. I am told that there was a case management hearing in those proceedings on 17 July 2015. The basis for those proceedings is a claim in harassment. There may now be fresh proceedings against N on the basis of a passing off action in respect of his new business, Z CO. There is no evidence before me of any pending application for an injunction in those proceedings.
In R v R  EWHC 4244 (Fam) the President, Sir James Munby, was dealing with the return date of a freezing injunction. Whilst there was a measure of consensus between the parties as to the elements of the without notice order which should remain in place, there was disagreement about one aspect of its terms. That provision prevented the husband from directly or indirectly engaging in any business which was, or might be, in competition with the family company. In other words, it restrained the husband from acting in commercial competition with the company which had been the mechanism through which the husband and wife had carried on a successful business over a number of years. The basis for the wife's application was an allegation that the husband was deliberately setting up his rival business in competition with the family business so as to depreciate the value in one of the main matrimonial assets. Whilst that was an allegation which the husband vigorously denied, the President proceeded on the basis that there was, or might be, a sufficient factual foundation for the wife's concerns to justify in principle the continuation of the injunction but only on the basis that there was some appropriate legal basis for doing so. Having rejected s 37(2) of MCA 1973 as a basis for such relief, his lordship turned to consider s 37 of the 1981 Act :-
"7. The problem in the way of the wife is that there is, at least at present, no contractual or other basis arising out of express agreement in relation to which it is said that there is some cause of action against the husband. Of course, as a matter of general principle, an injunction, if it is to be granted under section 37 of the 1981 Act (in contrast to section 37 of the 1973 Act) can only be granted in this Division if the circumstances are such as would, in principle, enable an injunction to be granted in one of the other Divisions of the High Court; in other words, there has to be an appropriate cause of action in relation to which the injunctive relief is properly granted."
The solution in R v R, and the basis upon which the injunction was granted, flowed from the husband's admission in a different context that he had been acting as a "shadow director" of the family company. In these circumstances, the President found that he owed fiduciary duties to the family company, one of which was a duty to act in the interests of the company and not to act in his own separate interests. He therefore continued the 'non-compete' clause of the without notice freezing order which was made on the basis of the jurisdiction flowing from the 1981 Act but on the basis that if, as the husband alleged, he was not conducting business in competition with the family business, he would have nothing to fear since the injunction would not bite.
Similarly, in the earlier case of Re Premier Electronics GB Ltd  BCC 911, Pumfrey J sitting in the Chancery Division had to consider the reach of s 37 SCA 1981 against the background of a petition presented under s 459 of the Companies Act 1985. The issue was whether or not the court should continue a freezing order over the personal assets of two directors of a company who no longer wished to maintain a business relationship with one another. The company in question was insolvent and the administration petition was based upon the ground that the company's assets would be realised with greater financial benefit in the context of an administration order than on a winding up. It was accepted that there was no necessity to continue the freezing order in relation to the assets of the company but the applicant contended that the freezing order should continue in relation to the assets of the individual directors (which included their homes). The respondent directors resisted the continuation of the freezing order on the basis that there was no relevant cause of action against either of them. Pumfrey J agreed and discharged the freezing order. Whilst it might well be convenient to grant the injunction, a freezing order was a very serious order to make and had the potential to cause grave prejudice to those who were its object. Where jurisdiction was in issue, arguments as to convenience did not apply. In circumstances where the claimant could point to no subsisting cause of action against either of the directors, the court had no jurisdiction to consider the merits of arguments relating to whether or not it might be 'just and convenient' to make the order.
Mr Lightman submits that H has not been able to show any subsisting cause of action against either N or Z CO. Whilst there may be existing proceedings in the Queen's Bench Division, these have demonstrably failed to provide the basis for any form of ongoing injunctive relief against N. Mr Amos did not seek to persuade me that Mr Lightman was wrong in his submission to me that the passing off claim, which was now being asserted as the basis for a re-imposition of the March order, would entitle H to seek relief of this nature in either the Queen's Bench or Chancery Division. Whilst Mr Amos points to a potential cause of action involving computer hacking, the only evidence which I have in relation to that is a letter written by Lewis Silkin, H's solicitors in the Queen's Bench proceedings [B:362]. That letter refers to various allegations made against N but I have no evidence of an action having been commenced, still less the pleadings in that action (including any defence entered by N).
Even were H able to navigate his way around the significant jurisdictional hurdle which stands in his way in terms of reliance on s 37 SCA 1981, Mr Lightman argues that H would still need to put before the court an objective case, supported by the facts, to demonstrate a likelihood of the movement or dissipation of funds or the making of a disposition with the intention of defeating H's financial claims. He relies upon the clear guidance given by Mostyn J in ND v KP  2 FLR 662. Having stated that the test for granting a freezing order under s 37 MCA 1973 was not very different from the test that applied under the inherent jurisdiction, his lordship said at p 665:-
"So whilst the words used are different the language all points in the same direction, namely that there must be a good case put before the court, supported by objective facts, that there is a likelihood of the movement, or the dissipation, or the spiriting away, or the salting away, or the squirreling away, or the making of a disposition, or the transfer of assets, with the intention of defeating a claim. It all comes to the same thing." [my emphasis]
In this context, I shall return to the evidence before the court when I come to consider the merits of extending the freezing order if jurisdiction is established.
In terms of jurisdiction, there are two further issues which need to be addressed. First, does the decision in Poon v Poon relied on by counsel for the purposes of the without notice hearing come to H's assistance, and (ii) what is the status of the decisions in Roche and Shipman in the light of Mostyn J's observations in L v K (Freezing Orders: Principles and Safeguards)  EWHC 1735 (Fam),  2 WLR 914 (otherwise reported as UL v BK (Freezing Orders; Safeguards; Standard Examples)) ? This latter issue is important because Mr Amos's closing submissions to me were to the effect that I have the inherent jurisdiction to fall back upon if there are perceived lacunae in the statutory jurisdiction under either the 1973 or the 1981 Acts. In this context, he argues that submissions flowing from the decision of the Supreme Court in Prest v Petrodel are no more than a smokescreen which I should robustly ignore. In this context, his sights are fixed firmly upon the individuals (W and N) and not the companies concerned.
Poon v Poon
Dealing first with Poon, Mr Lightman submits that this authority, now more than twenty years old, is not a robust pillar upon which jurisdiction in this case to make the orders sought should rest. He reminds me that the case was not mentioned or cited in either McGladdery or Prest v Petrodel. Thorpe J in a short four page extempore judgment does not refer to any legal authority including Crittenden which was decided the previous year and which was binding upon him. For my part, I would only say that any judgment handed down by this particular judge (now retired) deserves the utmost respect.
Nevertheless, I remind myself that Thorpe LJ delivered the dissenting judgment in the Court of Appeal in Prest v Petrodel. At page 430, his lordship said this :-
"58 I would not complicate the approach that a Family Division judge can legitimately adopt either by reference to company law authority on "lifting or piercing the corporate veil" or by questioning whether judges have used an alternative expression of the same principle when they have referred to ownership by an alter ego. The simple question is whether the individual is entitled to the property within the meaning of section 24(1)(a). The Family Division judges with particular expertise in this field (such as, Bodey, Coleridge and Mostyn JJ) have on many occasions stressed the need to get to the reality in determining the assets to which the husband is entitled. Indeed Mostyn J in an obiter passage in his judgment in Hope v Krejci  EWHC 1780 (Fam), handed down on 29 June 2012, considered the impact of the decision in the VTB case. He concluded in para 22:
"I can easily see why these principles are critically necessary when the objective is that which was sought in the VTB case, namely to deem someone to be a party to a contract to which he is plainly not. But I have great difficulty in seeing why they must be satisfied for the form of piercing of the veil that is the telescoping order, which is almost invariably the situation confronted in financial remedy proceedings."
59. Moylan J, whose expertise in this area is no less, adopted that approach and thereby achieved justice for the applicant.
60 Mr Amos's submissions in this court are essentially the submissions advanced by Mr Wagstaff below [i.e. before Moylan J]. They were rightly rejected by the judge. Vital are the judge's findings as to the complete absence of boundaries between the husband and his companies observed by not only him, who is not an appellant, but also by the companies who are. On the exceptional facts of this case I conclude that the judge was entitled to order the husband to transfer or cause to be transferred the assets which he did."
And, later, in his closing remarks, Thorpe LJ said this:-
"65 Once the marriage broke down, the husband resorted to an array of strategies, of varying degrees of ingenuity and dishonesty, in order to deprive his wife of her accustomed affluence. Amongst them is his invocation of company law measures in an endeavour to achieve his irresponsible and selfish ends. If the law permits him to do so it defeats the Family Division judge's overriding duty to achieve a fair result."
That approach very much reflected the judge's over-arching approach in Poon where he took the view that although the company was a separate legal entity, it was not an entity in which any other individual or non-family member had any interest. All the shareholders were related either by blood or marriage. On this basis, his lordship rejected the submission that all disputes concerning the Poon family business should be litigated in the Family Division. In circumstances where fairness required the prevention of a pre-emptive strike, the Family Division judge should not shy away from granting the relief sought by an over-zealous application of principles applicable in the Companies Court.
Whilst I may not be technically bound by the decision in Poon, it seems to me that (whilst according the utmost respect to Thorpe J, as he then was) that decision must now be scrutinised carefully in the light of what has been said subsequently by the Supreme Court in Prest v Petrodel. None of the judgments delivered by members of the Supreme Court followed the reasoning or approach of Thorpe LJ's dissenting judgment in the Court of Appeal. Specifically, the practice of treating corporate assets as being available for distribution under s 24 MCA 1973 was deprecated. Lord Sumption has specifically confirmed (see above) that courts exercising a family jurisdiction do not occupy a desert island where general legal concepts are suspended or mean something different. Whilst I find myself unable to agree with Mr Lightman's description of the judgment in Poon as "an aberration", I accept that it may have to be scrutinised carefully before being considered as Prest-compliant in its wider sense.
Even if I am wrong about that, in my judgment the terms of the freezing order obtained by H in March 2015 represent a considerable extension of the so-called Poon jurisdiction in any event. Sub-paragraphs 17(d) and (e), which Mr Amos seeks to replicate in his new draft order, prevent W and N from using any of the online banking facilities operated by D Ltd and R Ltd in the course of the companies' day to day business affairs. Sub-paragraph (e) precludes them from authorising or effecting any transactions by either company. As the nominated directors of those separate corporate entities, they are thereby placed in a position of economic and managerial paralysis. Neither can exercise the fiduciary duties and responsibilities which each owes to D Ltd and R Ltd. H is a director of neither company. He holds shares in each but this gives him no beneficial entitlement to the underlying corporate assets. In reality, the relief which he seeks under paragraph 17(d) and (e) is the reinstatement of the control over the management of those companies which he has historically operated through C Ltd. Whilst it is true that he does not seek any legal remedy in this application which gives him any direct control of those companies through the operation of the bank accounts, as matters presently stand it is Mr F, his long-time employee, who fills those shoes, albeit with the bank's blessing. Whilst Mr Amos submits that the ambit of the order he seeks extends only to the individual personalities of W and N, it seems to me that that is to ignore the dual status each has in these proceedings. W is a party to the substantive application for financial remedy orders but she is also one of two directors of D Ltd and R Ltd. N has been joined as a party for these limited purposes but he, too, is the only other director who has a corporate mandate and a fiduciary responsibility to act in the best interests of both companies. It is difficult, if not impossible, to see how those functions can be discharged if the effect of any order of this court is the partial (if not complete) corporate emasculation of the companies' two principal officers. I am not persuaded that H would have any real prospects of success were he to seek an injunction in the Queen's Bench or Chancery Divisions preventing them from discharging their responsibilities to D Ltd and R Ltd. Neither of the companies is a party to these proceedings.
This is not to say that, absent the freezing order, either of W or N has any authority to instruct the companies how to deal with their assets. All that each has is the power, as agent of the company, to procure the company to make dispositions of its assets. Such dispositions, once made, are made in consequence of the decisions made by the officers of the company. They are not dispositions made by the company in compliance with instructions from either of W or N. Whilst that may seem a somewhat formal distinction, it is nevertheless a valid one. Only the companies have authority to deal with and dispose of their assets : see Rimer LJ in Lakatamia Shipping Co Ltd v Su  1 WLR 291 at p 310; Gloster J in JSC VTB Bank v Skurikhin  EWHC 3116 (Comm) at ; and Hildyard J in Group Seven Ltd v Allied Investment Corpn Ltd  1 WLR 735 at paras 64-70.
Mr Amos concedes that different considerations may apply as between W and N. He also accepts that these companies have a separate legal personality. He submits that whatever I decide on the basis of the jurisdictional arguments and on the merits, there is no impediment to my granting the freezing order against W. He meets the argument in relation to the potential for corporate paralysis by a submission that the company could appoint alternative directors and thus there is no 'straight jacket'. I have already referred to the inconsistency of that position with paragraph 19(b) of his proposed draft order.
So where does this leave me in terms of the inherent jurisdiction which Mr Amos submits I have and should exercise, regardless of any statutory jurisdiction, since this is where the merits of the case overwhelmingly lie ?
Roche v Roche; Shipman v Shipman
Whilst these are cases concerning the court's inherent jurisdiction, an issue not specifically addressed by either Mr Pointer or Mr Lightman in their written skeleton arguments, I must deal with them since Mr Amos now invites me to fall back on the inherent jurisdiction in the event that I find there are lacunae in the statutory jurisdiction under the 1973 and 1981 Acts. Much has been made by Mr Lightman in his Supplemental Written Note about the fact that this new argument has been raised extremely late in the day. He points to H's election throughout to proceed on the basis of the alternative statutory jurisdictions notwithstanding that N had made it clear from the outset that he would be contending that the court had no jurisdiction to make the without notice orders. The oral submissions made by H's leading counsel at the outset of the hearing before me on 19 June 2015 referred specifically to "two alternative sources of your ladyship's jurisdiction in approaching this task: firstly, Section 37 of the Matrimonial Causes Act; secondly, Section 37 of the Superior Courts Act". This much is clear from the transcripts with which I have now been provided. The submission was repeated during the course of the hearing. Mr Lightman points to the absence from Mr Amos's "Bullet Point Reply" document (which came to me immediately before the adjourned hearing on 24 June 2015) of any reference to the inherent jurisdiction. That is all as may be. However, it seems to me that it is an issue which must be addressed even if there are arguments for another day in relation to costs.
Is the inherent jurisdiction to grant an injunction now governed by s 37 SCA 1981 ?
Mr Lightman's primary submission is that there is no proper basis for maintaining that the court can, under its inherent jurisdiction, grant an injunction in circumstances where it could not (or would not) do so under s 37 SCA 1981. To that extent, the inherent jurisdiction is now regulated by statute.
In Siskina and Others v Distos Compania Naviera SA  AC 210, HL, Lord Diplock stated at p 256:
"Since the transfer to the Supreme Court of Judicature of all the jurisdiction previously exercised by the court of chancery and the courts of common law, the power of the High Court to grant interlocutory injunctions has been regulated by statute."
Three years later, in the Court of Appeal, Ackner LJ said in AJ Bekhor & Co Ltd v Bilton  QB 923, at 942-943:
"If I am wrong in concluding that section 45 [of the Supreme Court of Judicature (Consolidation) Act 1925] provides the basis for the jurisdiction to make the type of ancillary order referred to above, then the question arises as to whether the court has an inherent or residual jurisdiction to make such an ancillary order. Insofar as Mr Stamler contends that there is inherent jurisdiction in the court to make effective the remedies that it grants, this seems to me merely another way of submitting that, where the power exists to grant the remedy, there must also be inherent in that power the power to make ancillary orders to make that remedy effective. This I have accepted. However, if and insofar as he contends that the courts have a general residual discretion to make any order necessary to ensure that justice is done between the parties, then in my judgment that is too wide and sweeping a contention to be acceptable. Such a proposition would see to come well within the criticism made by Lord Hailsham of St Marylebone, in the Siskina case  A.C. 210, 262."
In the context of a family case, the issue was considered by Lord Hailsham of St Marylebone once again. In Richards v Richards  AC 174, he stated, at p 199 :
"Prior to 1967, the jurisdiction of the High Court to grant or withhold injunctions, final or interlocutory, was contained in what was then section 45 of the Supreme Court of Judicature (Consolidation) Act 1925. With the omission of the now inappropriate reference to mandamus, the section is now found in section 37 of the Supreme Court Act 1981 …. I do not consider it is necessary to proceed to consider whether, apart from the section, the court has any inherent jurisdiction. If it has, I believe it is indistinguishable in its application to the jurisdiction conferred by the section. I prefer to say that any inherent jurisdiction is to be absorbed by the section."
Lord Scarman took a similar view in Richards at p 212 :
"It has long been recognised that the divorce court has an inherent power to protect parties and their children by the grant of interlocutory injunctive relief and that the power extends to the granting of an order excluding, if necessary, the husband from the home pending suit…. Statute, however, governs the exercise of this power. Section 45 [of the 1925 Act] which, of course, consolidated existing law, provided that the High Court may grant an injunction by interlocutory order in all cases in which it appears to the court to be just or convenient to do so. This section has now been replaced in substantially the same terms by section 37 of the Supreme Court Act 1981. There is, however, an important limitation upon the power: it can be exercised only if there is a right recognised by law independently of the Act: North London Railway Co. v Great Northern Railway Co.  11 Q.B.D. 30, 40 …".
The status of Roche and Shipman was considered at some length most recently by Mostyn J in L v K  2 WLR 914 (referred to above). At pages 919 to 913, his lordship said this:
"14. It can therefore be seen that the power to grant an injunction, while placed on a statutory footing by section 37 [SCA 1981], does not derive solely from the legislature. Rather it is a hybrid creation of the old equitable power and 19th century statutory intervention. Therefore, I do not consider that it is a solecism to refer to the power deriving from the inherent jurisdiction of the court. That said, the power is clearly defined and regulated by section 37 of the 1981 Act alone, and therefore its exercise can only be effected under that section and the authorities decided under it. There is no scope for the use of some other wider protean inherent power (even if such exists, which I doubt) whether in the Family Division or the other divisions. And the principles concerning the exercise of the power must be identical in whichever division the relief is sought." [my emphasis]
In L v K, leading counsel for the wife, Mr Philip Marshall QC, had argued that the test to be applied under the statutory jurisdiction (whether relief was sought under the 1981 or the 1973 Acts) was not the same as the test when the inherent jurisdiction of the court was engaged (balance of convenience). In that submission, he relied upon Roche and Shipman. Having reviewed a number of authorities decided in the Queen's Bench and Chancery Divisions, Mostyn J said this at page 922:
"24 Having stated these general principles, I return to Roche v Roche 11 Fam Law 243, and Shipman v Shipman  1 FLR 250 and to the speech of Lord Mustill in Harrow London Borough Council v Johnstone  1 WLR 459. Roche v Roche was a short extempore judgment by the Court of Appeal in a case where only the appellant had appeared. It concerned an application by a wife to freeze a large sum of damages for personal injury which the husband was likely to receive. In his judgment Ormrod LJ, with whom Sir Stanley Rees agreed, stated, at p 243":
[Mostyn J then set out the paragraph which I have already quoted in para 58 of my judgment, above.] He continued:
"26 It is certainly true that there has always existed a power to preserve in family proceedings the subject matter of the proceedings where they relate to tangible property as opposed to the chose in action that is money. That power is now reflected in FPR r 20.1(c)(i) which empowers the court to make an order for the detention, custody or preservation of relevant property. Such an order preserving a thing in specie can equally be made under section 37(2)(a) of the Matrimonial Causes Act 1973. But that power is generally used only to preserve things like chattels, it being usually unnecessary to invoke it in relation to land where the unilateral notice procedure under the Land Registration Act 2002 is available. For an illuminating discussion of this type of order and its differences to a freezing order: see In re MCA: Customs and Excise Comrs v A; A v A (Long intervening)  2 FLR 274, paras 99-102, per Munby J. Plainly this general power is not the subject of the principles and safeguards applicable to freezing orders. An order preserving a picture or a car or a field does not cause the economic paralysis that is the case where an order is made which freezes unspecified assets including money up to a certain figure. If a bank receives an order which freezes, as here, £20m of assets then even if there are exceptions relating to living expenses, legal costs, and trading in the normal course of business, it will normally freeze all the accounts for the simple reason that it will not know if these exceptions are being met from another account with another bank. Where there are a number of banks it normally takes many days dealing with the various legal departments to put the exceptions into operation by which time great damage both economically, and reputationally, may have been caused. Problems of this kind do not arise where the order merely freezes a particular tangible asset in specie. But it is open to the court to apply the principles and safeguards if the facts justify this.
27 It is noteworthy that in Roche v Roche 11 Fam Law 243 none of the Mareva (see Mareva Navigation Co Ltd v Canaria Armadora SA  1 Lloyd's Rep 368) jurisprudence was referred to by the Court of Appeal in its judgments. With some trepidation I conclude that the judgment was per incuriam the many principles governing Mareva injunctions, which even by then had developed.
28 In Shipman v Shipman  1 FLR 250 the wife sought an order under section 37 of the Matrimonial Causes Act 1973 restraining the husband in divorce proceedings from disposing of or dealing with $300,000 or one half of his severance pay, whichever was the greater, pending determination of the ancillary relief proceedings. Lincoln J held that the terms of section 37 had not been satisfied. But he went on to hold, expressly relying on Roche v Roche, that it was wrong to believe that "there is no longer any inherent jurisdiction to freeze assets which may be put beyond the reach of the applicant". He further went on to hold, at p 253:
"Counsel for the husband urges me to have regard to the many restrictions and safeguards surrounding the use of worldwide Mareva injunctions, and to assimilate the use of, and procedure for, injunctions in the Family Division to those in commercial law. In my view the matrimonial field calls for a different approach. To my mind the circumstances here call for the injunction to continue. If it were discharged, the husband could well change his intentions, however genuine and well disposed to the wife his present state of mind may be. Both he and the assets are out of the jurisdiction. Left without a job and with new responsibilities, he will be faced with a temptation to eat into the whole of the fund."
29. I have to say, with great respect, that in as much as this decision follows Roche v Roche it too was per incuriam. Further, I do not shrink from saying that to the extent that it suggests that the restrictions and safeguards developed in the Mareva jurisdiction do not apply in family proceedings then the decision is wrong."
Mostyn J then considered Harrow London Borough Council v Johnstone  1 WLR 459. That case concerned a possession action which travelled up to the House of Lords. In delivering his judgment in the Harrow case, Lord Mustill considered what powers might have been available to the court when ordering a wife not to exclude her husband from a council tenancy. In passing, his lordship referred to the decisions in Roche and Shipman as examples of cases where an injunction had been granted even when s 37 MCA 1973 was not available because the prescribed conditions were not satisfied. In considering whether this amounted to judicial endorsement of those two authorities at the highest level, Mostyn J continued thus in L v K at pp 924 to 925:
"33 It can be seen that there was no discussion at all as to the scope of the "general statutory powers of granting injunctive relief to make orders protecting financial and proprietary remedies which may be awarded in the future", and that the decision in question was held not to have been made under them. It can also be seen that Lord Mustill expressed no view as to the correctness or otherwise of Shipman v Shipman  1 FLR 250 and Roche v Roche 11 Fam Law 243 inasmuch as they suggest that there exist general powers of the court to preserve specific assets (other than tangible assets such as chattels) which are the subject matter of proceedings pending the determination of those proceedings, which powers may be exercised in disregard of the principles and safeguards governing freezing order applications. As Lord Neuberger MR stated in Imerman v Tchenguiz  Fam 116, para 129:
The issue of jurisdiction was one of the considerations before the Court of Appeal in the recent case of JSC Mezhdunarodniy Promyshlenniy Bank and Another v Pugachev  EWCA Civ 139,  WLR(D) 94. That case concerned the powers exercisable in connection with the grant of a freezing order. In that case, a freezing order had been granted which prevented Mr Pugachev from removing from the jurisdiction any of his assets up to a value of £1.1 billion. The prohibition included any interest he had under any discretionary trusts, and an issue arose in relation to the court's power to order Mr Pugachev to make full disclosure of those interests and whether they could, in any event, be treated as "his assets" for the purposes of the freezing order. Lewison LJ gave the leading judgment. At paragraph 46, his lordship quoted with approval a passage from an earlier judgment delivered by Lord Scott in Fourie v Le Roux  UKHL 1,  1 WLR 320 at  :
"The applicable principles, and the requirements which a claimant has to satisfy, where the court is invited to grant [freezing or search] relief are no different in the Family Division from those in the other two divisions of the High Court, although, of course, in all three divisions, the application of the principles has to be made to the facts and features of the particular case before the court."
"… The power of a judge sitting in the High Court to grant an injunction against a party to proceedings properly served is confirmed by, but does not derive from, section 37 of the Supreme Court Act 1981 and its statutory predecessors. It derives from the pre Judicature Act 1873 powers of the Chancery courts, and other courts, to grant injunctions (see s.16 of the 1873 Act and s.19(2)(b) of the 1981 Act). The issue is, in my opinion, not whether Park J had jurisdiction, in the strict sense, to make the freezing order but whether it was proper, in the circumstances as they stood at the time he made the order, for him to make it. This question does not in the least involve a review of the area of discretion available to any judge who is asked to grant injunctive relief. It involves an examination of the restrictions and limitations which have been placed by a combination of judicial precedent and rules of court on the circumstances in which the injunctive relief in question can properly be granted." [my emphasis]
For my part, and for the reasons so cogently explained by Mostyn J in L v K, I respectfully agree with his conclusions in relation to the deficiencies of an application of Roche and/or Shipman simpliciter in circumstances where the freezing order sought has the potential reach to cause the economic and corporate paralysis to which Mostyn J referred. Given the manner in which the law has developed over recent years, including the decision in L v K, it cannot, so it seems to me, be sufficient for an applicant for this type of injunctive relief to secure that which he seeks merely by pointing to a simple 'balance of convenience' test which was the relatively low hurdle presented to an applicant who sought to invoke the court's inherent jurisdiction. Whilst I have expressed a view that Mostyn J was correct in his conclusions in relation to Roche and Shipman, I need say no more about whether or not they were decided per incuriam. What is abundantly clear from the highest judicial authority from Imerman v Tchenguiz to Prest v Petrodel is that judges sitting in the Family Division make their decisions by applying the same legal principles and procedures as the judges who sit in the other divisions of the High Court. For these reasons, I am extremely doubtful – if it be the thrust of Mr Amos's closing submissions to me – that there exists in the Family Division some species of inherent jurisdiction which is available to flow into, and make good, any perceived deficiencies or lacunae in a case brought under section 37 of the MCA 1973 or section 37 of the SCA 1981. So far as judicial precedent is concerned, Crittenden and McGladdery remain good authority, supported now by Prest v Petrodel, in relation to the statutory jurisdiction under the 1973 Act. Whilst it is clear from the Pugachev case that the court will always deploy the flexibility principle and exercise its discretion to make a freezing order in a flexible and adaptable manner so as to deal with new situations and new ways used by sophisticated and wily operators to make themselves immune from the courts' orders or deliberately to thwart the effective enforcement of those orders, those three cases represent a considerable impediment to any exercise of discretion in this case under section 37 MCA 1973. To that extent, I reject his submission that the arguments advanced by Mr Pointer and Mr Lightman are no more than "spoiling arguments"; in my view they are serious submissions which require proper consideration and analysis.
In terms of the underlying merits, Mr Amos's case on behalf of H is that he has been the victim of a conspiracy between M and N and their conspiracy to seize control of the business and/or defeat his financial claims in the matrimonial proceedings has been launched in two successive waves of attack. The first, he says, was their attempt to spirit away from the jurisdiction the £12 million which is now represented by the Berenberg funds. W's bad faith in relation to this transaction is self-evident, on his case, from the lies which she subsequently told through her solicitors about the beneficial ownership of these funds. The second was the volley of letters sent in February 2015 pursuant to the company resolutions agreed by W and N in their capacities as directors of D Ltd and R Ltd.
Mr Amos asks me to consider carefully in this context the following points :-
(i) H had been running this business and was its driving force for some 34 years and has been continuing to do so under the terms of the holding or moratorium agreement put in place in April 2015;
(ii) Mr F, a qualified chartered surveyor, has managed the property department for 27 of those 34 years;
(iii) N is now running Z CO, a company which he has set up in direct competition with C Ltd;
(iv) N and M together have taken active steps to expel H from running C Ltd;
(v) N was the intended beneficiary of the Declaration of Trust dated 13 October 2014 which both H and W have agreed should be set aside;
(vi) the FDR hearing has been listed for 9 October 2015. If agreement is reached on that occasion, the freezing order sought will represent a short-term expedient remedy which will maintain the status quo;
(vii) the holding order has worked well during the moratorium period;
(viii) I am not constrained by statute; only by considerations of justice and the merits of the case. Any defects or technical objections to the without notice order made in February this year are historic and have been cured by the April holding order;
(ix) the undertakings offered by W and N are little more than blackmail;
(x) the undertakings offered by H is sufficient protection for both W and N if they can demonstrate any impropriety on H's part.
Mr Amos also relies upon W's previous reluctance, with N, to disclose a copy of an agreement not to sue in relation to a debt owed by one of the companies to one of the offshore entities, WS Co. That issue has now fallen away. I dealt with it at the hearing on 20 August 2015. W did not have access to a copy of the document. She asked N to produce it; he agreed to do so provided that I authorised its production by order so as not to put him in breach of any confidentiality obligations owed to the other contracting parties.
On behalf of W, Mr Pointer contends that W's movement of the Berenberg funds has been used by H as a litigation platform from which he now seeks to construct a case that the service of the letters recording the company resolutions constituted a pre-emptive strike and an attempt to create a new status quo in terms of the operation of the family business. He points to the fact that the issue of the £12 million was resolved by agreement on 23 October 2014. He says that W has explained in her written evidence her reasons for removing those funds; her actions coincided with the service of her divorce petition and were a consequence of her fears that H would himself move funds offshore or take other steps to make himself judgment proof in the face of her financial claims.
Within a month of that agreement, H terminated all financial provision for W. In November 2014 he cancelled the sweep facility on the parties' joint bank account and refused to restore the facility when requested to do so. He cancelled her American Express card. With effect from the end of November 2014, W had no access to funds of her own; the banking and credit card facilities which she previously relied on to conduct her domestic economy had been withdrawn. She was left in a position where she was obliged to issue an application for maintenance pending suit.
H's next step, as Mr Pointer submits, was to put in train a series of steps which were designed to remove from W any degree of control over, or knowledge about, the various business interests in which she was either a shareholder or director.
In so doing, it is said by both Mr Pointer and Mr Lightman that H, by his own hostile actions, created an entirely new status quo in terms of the operation of the business. The company resolutions which were agreed by W and N as directors of D Ltd and R Ltd were reactive steps to that new situation, taken after seeking legal advice and being steps which were considered to be in the best interests of the two companies.
As I have already said, I have not heard evidence in relation to these matters and am not in a position to make any findings of fact. However, I do have before me in the bundles a wealth of written evidence including primary material exhibited to the written statements relied on by all three parties. In considering and weighing these matters, I take the view that I am entitled to proceed from the footing, as did the President in R v R (above), that this material provides a sufficient factual foundation for proceeding on the basis that what W and N assert in relation to the chronology I have set out above is an accurate representation of the facts. These matters have not been challenged by Mr Amos.
Thus it seems to me that the starting point for a proper analysis of the situation is the agreement which was reached on 23 October 2014. I do not doubt that H was significantly shaken by W's actions in serving her divorce petition and removing the very substantial funds from the account in which he had placed them (albeit an account in her sole name) to an offshore account in Beirut. He has explained, and I accept, that these funds were the product of one of the biggest property deals he had done over many years. The removal of those funds, in tandem with her presentation of a divorce petition, inevitably raised the stakes and caused the proceedings to start their course from a position of mutual hostility and mistrust. Nevertheless, the parties, with assistance from their first class legal teams, were able to achieve a consensus as to the way forward. That consensus was embodied in the October agreement. Each has formally undertaken to the other and to the court that neither will take any steps :-
(i) to cause, or take any steps to cause, any of the companies of which they were a director or shareholder to deal with, dispose of, dissipate or diminish the value of any property or any other asset held by any of the companies other than in the ordinary course of business;
(ii) or, in similar terms, in relation to any property owned by them personally in any jurisdiction;
(iii) or in any way so as to deal with their respective shareholdings in any company in which they had such an interest or do anything deliberately to diminish the value of their shareholdings. [A:4]
H gave an additional undertaking that he would not seek to rely on any powers of attorney in W's name or the name of any of her family members.
Thus, by 23 October 2014, there should have been in place a mechanism for 'holding the ring' whilst the matrimonial proceedings continued their journey through the courts in tandem with the efficient operation of the business. That status quo involved both W and N holding office as directors of C Ltd and as directors of D Ltd and R Ltd. N was fully involved in the day to day operation of the business both as a director and employee of C Ltd. I have already referred to the evidence he has exhibited which establishes at least a prima facie case that he had his father's authority to bind the company in terms of transactions and other arrangements during periods when his father was absent in Cyprus or elsewhere. W and N had every expectation that their executive and non-executive roles as officers of these companies would continue under the terms of the holding arrangement embodied in the October agreement. It gave each the status and capacity to monitor the business which was being conducted as well as any movement of funds into and out of the companies' various bank accounts. Insofar as N had his mother's confidence, I have no doubt that his continuing status as a director of C Ltd provided her with additional reassurance as to H's future conduct.
Yet just three weeks later, H had put in train steps which had the effect of significantly diluting the protection which was afforded to W under the terms of the October agreement. Within a month of the agreement, each of W and N had been unilaterally stripped of their directorships in C Ltd. I have seen a copy of H's letter removing N as a director [A:394]. It is dated 15 December 2014 and consists of a three-line sentence in the following terms:-
"Pursuant to Article 14.1 of the Company's Articles of Association, as 100% shareholder of the Company I hereby give notice to the Company that [N] is removed with immediate effect as a director of the Company."
His letter to N suspending his employment, written on the same day, contained a series of 19 separate allegations which were said to constitute reasons for his suspension [A:395]. As I say, N in his written evidence tells a very different version of events and I cannot resolve these disputes, nor is it appropriate for these purposes that I do so.
In terms of W's removal as a director of C Ltd, H claims that she was appointed a director without the authority of the company. That appears from a document sent by Companies House dated 10 December 2014 to C Ltd at its registered premises [A:393]. I have within the written material a letter from Mishcon de Reya, solicitors for C Ltd, addressed to W and dated 24 November 2014. That letter records her appointment as a director on 4 September 2013 but challenges the validity of such appointment. That was no doubt the opening salvo, but H's position is difficult to reconcile with an email sent over a year before by his accountants to H personally. That email appears to confirm that he had given specific instructions in 2013 to appoint W as a director of C Ltd. As a consequence, the necessary forms had been lodged with Companies House.
As submitted by Mr Pointer and Mr Lightman, it was as a direct result of these actions on H's part and in circumstances where the familial relationships had completely broken down that W and N took steps to regularise the position. Not only were they then effectively excluded from the management of C Ltd, they were prevented from obtaining any information about the substantial rents being collected by or on behalf of the two companies of which they were the only directors. It was in those circumstances that a formal board meeting was convened, resolutions were passed; and steps were taken to give notice to C Ltd that the management facility provided by that company in respect of the tenanted properties was to be terminated and replaced with an arm's length independent arrangement.
On their case, it is these reactive and defensive actions which H then used to secure the raft of injunctions embodied in the without notice freezing order. Thus, say Mr Pointer and Mr Lightman, whatever the perceived shortcomings of W in terms of the Berenberg funds, the October agreement had secured the future modus operandi and H's actions during November and December 2014 effectively put paid to that. It is a moot point as to whether or not H was technically in breach of his undertakings reflected in the October 2014 agreement. Certainly it seems to me that his subsequent actions offended the spirit or expectation of the agreement although I make no findings as to whether he was justified in taking the actions he did.
It is against that background that the basis of the without notice application has to be seen.
There is no reference whatsoever in H's first statement (12 February 2015) to any of these events. He sets out at some length the Berenberg débacle; he refers to the Declaration of Trust which W executed (dated 13 October 2014) but fails to say anything further about the circumstances in which it came into being, save that his signature was forged; he then launches into a description of the manner in which he received the seven letters giving him notice of the resolutions made by D Ltd and R Ltd. At paragraph 14, he refers to the prospect of N and W being allowed to take management control of D Ltd and R Ltd as "inconceivable, particularly in the context of their clear unwillingness to adhere to the terms of the agreement dated 23 October 2014" [A:73]. Yet he makes no reference whatsoever to his own actions in removing them as directors of C Ltd, nor of suspending N from his employment with the company. The only reference to the events which occurred in the month-long window between November and December 2014 appears in paragraph 18 where H states:
"18. I accept that I removed [W] as company secretary of [C Ltd] in December 2014, and of a company called [CC Ltd] (in which I own 99% of the shares, and [W] owns 1%, which I say she holds on trust for me) in November 2014. By the time I did this, I was aware that [W] had tried to siphon off the money in the Credit Agricole account, and had tried to give assets to [N] via a false Declaration of Trust. Removing her as company secretary did nothing to harm her financial position, and I simply could not trust her to remain in her post." [A:74]
He states that he cannot afford to wait even a short period in order to ask the court to preserve the status quo.
I look, again, at the note which was prepared by counsel for the purposes of the without notice hearing on 12 February 2014. There is no reference at all to the steps initiated by H at the end of 2014. I do not in any sense seek to criticise counsel for this omission. He was, no doubt, instructed on short notice and his Note for the court follows fairly faithfully the contents of H's written statement. Nevertheless, it is clear from the transcript of that hearing that he sought merely to 'hold the ring' for the month which would intervene before the First Appointment of W's claims for financial remedy orders. He said, "… all we wish to do is to stop the pretty obvious and transparent shenanigans that have been going on so that no one is seeking to outwit or undermine the other and we can just get on with what ought to be quite a simple case". Read with the benefit of hindsight and the evidence which is now before the court, I regard that statement as unrepresentative of the true picture, innocent though its intention may have been on counsel's part. To describe the company resolutions as "shenanigans" connoting secret or dishonest activity or manoeuvrings, without setting them in their proper context, does not do full justice to the true picture.
H made specific reference to his removal of W as company secretary. He sought to justify that step in his written evidence. Yet he remained silent about the fact W and N had been removed as directors of C Ltd and sought to present the situation as one where he was the innocent victim of an attempted corporate coup. That, in my judgment, was unacceptable. Whether or not he would have secured the relief he sought on a without notice basis had he put the full facts before the court, I know not. But I am entirely persuaded that telling one half of the story was a dereliction of his duty of candour given the effect of the relief which he secured.
In relation to the Declaration of Trust, he presented to the court a picture of this document having come into existence without his prior knowledge. He states that his signature on that document is forged. He portrays this document as W's "attempt to divest herself of assets purportedly owned by her" in favour of N. He refers to that transaction having been dealt with in the 23 October 2014 agreement. Yet he makes no reference in his statement to the fact (since admitted) that he had forged W's signature on a stock transfer form in April 2014. Had that transfer been implemented, W's 50% shareholding in D Ltd would have been lost and H would have been legally entitled to 100% of the shares in the company. (It is his case that he is beneficially entitled to W's 50% interest in any event.) Again, the parties have very different stories to tell about the circumstances in which this transaction came about. H now says that W knew perfectly well that he had signed her name on the form and that his intention at the time was to transfer the shares to N. W denies any such knowledge. However, in circumstances where he knew this to be a live issue between them and where he had admitted the forgery in solicitors' correspondence in December 2014 (some two months or more before his without notice application), I take the view that this fact should have been disclosed as part and parcel of the underlying narrative. His explanation did not come until 19 March 2015, some two weeks after the first return date, and then only in response to W's written evidence and at the court's direction.
I am also not persuaded that this application should have been made on a without notice basis.
Paragraph 5.1 of Practice Direction 18A which supplements FPR Part 18 provides as follows :-
Applications without service of application notice
"5.1 An application may be made without service of an application notice only –
(a) where there is exceptional urgency;
(b) where the overriding objective is best served by doing so;
(c) by consent of all parties;
(d) with the permission of the court;
(e) where paragraph 4.9 applies; or
Paragraph 6 of the same Practice Direction requires at least seven days' notice to be given unless permission is sought from the court to abridge time or para 5.1(a) applies.
(f) where a court order, rule or practice direction permits.
In considering the procedural requirements for without notice applications for freezing orders, Mostyn J stated in L v K (above) that the giving of notice was not only extremely important but (endorsing Tugendhat J in O'Farrell v O'Farrell  1 FLR 77) "an elementary requirement of justice". It is quite right that W's solicitors' letter dated 12 February 2015 was put before the court later that day when the matter came before District Judge Aitkens. It is also right that there was a reference in that letter to the removal of N "as a shareholder and director of [C Ltd]" and the removal of W as company secretary [A:106]. In her judgment, the district judge made reference to having read the letter, but no more. She appeared to be persuaded to grant the relief sought on an ex parte basis because all that was being sought was the maintenance of the status quo reflected in the undertakings given by the parties on 23 October 2014. She made no reference to what had happened in November and December 2014 because she did not know about it, other than the short oblique reference in the letter to which I have referred. She said,
"That seems to me to, on the face of it, cover the situation that I have been told about today. It may be there will be completely different arguments when the matter comes back for an inter partes hearing, but I am satisfied that on a short term emergency basis it is right for the court to take action to prevent [W] and [N] from taking the actions that they have attempted to do." [A:137]
I suspect that the district judge had taken the view that any future issues flowing from the without notice order she had made would be swiftly resolved, and certainly by 11 March 2015 which was the return date for which she had provided. She could not have foreseen that events would conspire to deprive the parties and the court of adequate time to deal with this matter, nor that the moratorium agreement would subsequently intervene. Thus, I am looking at the application to reinstate the order which she made in somewhat retrospective, if not slightly artificial, circumstances. That, nevertheless, is my task in the absence of agreement between the parties as to the way forward.
It does seem to me that there is considerable merit in the submission made on behalf of W and N that the matter could have been dealt with more appropriately on notice to the other parties. Under the terms of the notices sent to H in respect of the company resolutions, nothing was due to happen for at least a month and the proposed termination of C Ltd's provision of services to the companies was then some four months hence. There was adequate time for proper notice to be given and the matter listed on 19 February 2015 (i.e. one week later) or shortly thereafter even if that hearing was at risk as a fixture. Judges dealing with an urgent applications list are often asked to hear from respondents who have been given short notice of an application and that, at least, would have presented an opportunity for the court to have heard representations from W and/or N. I can see nothing in the letters which were sent to H which demonstrates "an appropriately strong case, supported by evidence of objective facts, rather than mere expressions of suspicion or anxiety, that the respondent(s) owned or had an interest in specified assets and that there was a real risk of dissipation" (per Mostyn J in L v K (above) at para 17). That was what H would have had to show if his application on a without notice basis was proceeding under s 37 MCA 1973.
Further, whilst W was given short notice through her solicitors, no notice whatsoever was given to N. Indeed, Mr Lightman tells me that the application notice which H's solicitors issued on 12 February 2015 has never been formally served on his client in breach of H's undertaking given to the court and recorded in paragraph 11 of the without notice order. (This breach by itself is reason, says Mr Lightman, for nor reinstating the order : see Bernard Gray v UVW  EWHC 2367 (QB) at paras 35 to 36.) Whether or not H was proceeding on the basis that N should be presumed to have known about the application from his mother, it was, in my view, a wholly inappropriate way to proceed. The order made on 12 February 2015 gave N party status as well as potentially preventing him from properly discharging his functions as a director of D Ltd and R Ltd. As Mostyn J said in L v K (above) :
"It is an absolutely elementary tenet of English law that save in an emergency a court should hear both sides before giving a ruling. The only recognised exception to this rule … is where there is a well founded belief that the giving of notice would lead to irretrievable prejudice being caused to the applicant for relief."
I do not regard the contents of H's first statement as establishing anything which comes close to an evidential foundation for a well founded belief in a risk of irretrievable prejudice. Rather, it was to my mind a swift move on H's part - driven in no small part by exasperation and annoyance - to secure from the court the relief which would ensure that the control he exercised in relation to the underlying corporate property portfolio was not disturbed by the actions of W and N which had been advertised in the letters recording the companies' resolutions.
On behalf of N, Mr Lightman submits that H's failure to make full and frank disclosure of all the relevant circumstances when he obtained his without notice order should lead to its discharge as a matter of principle. In this submission he relies upon ND v KP (Freezing Order: Ex Parte Application)  EWHC 457 (Fam),  2 FLR 662 at 666. In that case Mostyn J summarised the principles articulated by Mr Alan Boyle QC in Arena Corporation v Schroeder  EWHC 1089 (Ch),  All ER (D) 199 (May). These he set out in para  of his judgment :-
' On the basis of the foregoing review of the authorities, I would summarise the main principles which should guide the court in the exercise of its discretion as follows:
(1) If the court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial.
(2) Notwithstanding that general rule, the court has jurisdiction to continue or re-grant the order.
(3) That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.
(4) The court should assess the degree and extent of the culpability with regard to non-disclosure. It is relevant that the breach is innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order. Equally, there is no general rule that a deliberate breach will attract that sanction.
(5) The court should assess the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court. In making this assessment, the fact that the judge might have made the order anyway is of little if any importance.
(6) The court can weigh the merits of the plaintiff's claim, but should not conduct a simple balancing exercise in which the strength of the plaintiff's case is allowed to undermine the policy objective of the principle.
(7) The application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice.
(8) The jurisdiction is penal in nature and the court should therefore have regard to the proportionality between the punishment and the offence.
(9) There are no hard and fast rules as to whether the discretion to continue or re-grant the order should be exercised, and the court should take into account all relevant circumstances.'
Mostyn J described this list as a 'compendious' statement of the applicable legal principles which, following Re W (Ex Parte Orders)  2 FLR 927 (a decision of Munby J as he then was), applied equally to proceedings for financial relief in the Family Division.
Mr Lightman looks to these principles in support of his submission that there should be no reinstatement of any order against N. Not only did H fail to comply with his duty of full and fair disclosure; it is submitted that he also failed to draw to the attention of the district judge significant factual and legal aspects of the case. He failed to make any mention of the existence of Z CO (N's new business) and the potential impact which any freezing order against N might have on that business. No undertaking was offered to N or that company in respect of any financial loss which it might suffer as a result.
Speaking for myself, I found it difficult initially to see how the terms of paragraph 19 of the without notice injunction might have impacted upon Z CO unless that company had been incorporated with a view to transferring to it business emanating from existing client relationships which N had built up through his work with C Ltd. Its terms are specifically focussed upon the working arrangements which then existed between C Ltd, D Ltd and R Ltd and the companies' respective bank accounts. As far as I am aware, there are no working arrangements or informal agreements between C Ltd and Z CO, or between D Ltd/R Ltd and Z CO. On the contrary, H's complaint about N's new business is that it has been set up as a corporate competitor to C Ltd.
Mr Lightman deals with this aspect of his client's case in paragraph 67 of his written skeleton. He contends that the terms of the without notice order and the subsequent March 2015 order affected Z CO because N would be in breach of its terms if he took any steps which resulted in:
a. his new business taking over property management services which, as at 12 February 2015, C Ltd was providing to "any company" (para 19(a) and (b) of the without notice order; para 17(a) and (b) of the March 2015 order; para 18(a) and (b) of Mr Amos's proposed order);
b. the relationship between C Ltd and any company being altered in any way;
c. the mandate of C Ltd or any of its directors in respect of any company being terminated; or
d. any data held by C Ltd in relation to any such company being obtained from C Ltd.
It thereby became apparent that N does indeed wish to preserve his position in relation to contracting with any former clients of C Ltd. At the hearing on 11 March 2015, that much became explicit. I see from the transcript of that hearing that the district judge agreed with Mr Lightman that H's undertaking should be extended so as to include any losses sustained by D Ltd and R Ltd. However, when he raised the issue of a further extension of that undertaking to Z CO, H's leading counsel (then Mr Lewis Marks QC) told the judge that the express intention was to catch within the ambit of the injunction any attempt by N to suborn existing clients of C Ltd off to his new business [B:324]. The exchange unfolded as follows:-
'MR LIGHTMAN: Let us say there may be an existing customer of [C Ltd] who wants to transfer its property managing services to the new company; that would be covered by 19A in its current form.
THE DISTRICT JUDGE: Well, I think those are arguments for another day. I have said that I will list an urgent hearing. I am reserving the costs of today. This can go off to a day's hearing, and it is a matter for the judge at that hearing whether they choose to take what they have been told is the extraordinary step of hearing oral evidence or not. That leaves us with all the other matters, first appointment directions ….'
In a letter written by H's solicitors on 15 April 2015, they stated that the terms of the injunction should stand so as to bind N in relation to Z CO. It was said that these orders had been made by the district judge "having considered the facts of the case and the risks [H] and his business interests were exposed to" [B:328]. That, in fact, was not what had happened. The district judge had been made aware of the issue concerning Z CO and N's third party interests and had said she would list the matter for a further hearing in order that the issue could be considered properly, with or without the benefit of oral evidence.
In this way, submits Mr Lightman, H achieved through his application for a without notice injunction an effect which was never intended. He secured the collateral advantage of having effectively introduced non-compete clauses into the order whose original purpose was intended solely to regulate the inter-company dealings within the family business. This issue was squarely engaged by N's solicitors in a letter which was sent to H's solicitors the following day on 16 April 2015 [A:336]. At para 14.1 and 14.2, they pointed out that, had it been his intention to include within the reach of the freezing order business activities undertaken by N outside the "C family" companies, then it was incumbent upon H to ensure that the judge was aware of the existence of N's new business, Z CO, and the potential impact upon it of the freezing order which the court was being invited to make on a without notice basis. The letter concluded:
"14.5 Instead, you propose that, depending on the outcome of current without prejudice discussions between the divorcing parties (the nature of which, in view of their without prejudice nature, ought not to have been identified in your letter), the question whether ex parte injunctive relief which your client obtained against our client in the Family Division in the context of divorce proceedings should be set aside or continued should not now be determined by the Family Court next Tuesday but rather should be determined by another Court at some time in the future. That proposal is unacceptable. It seeks to perpetuate your client's abuse of the court process by obtaining a further continuation of an unwarranted restraint on our client's (and hence Z CO's) business activities imposed by an ex parte order made in the matrimonial proceedings between your client and his wife on inappropriately wide terms in the Family Court for the benefit of [C Ltd] and to the detriment of our client and Z CO."
It is equally clear to me that, by the time the matter came back to court on 11 March 2015, District Judge Aitken realised, with the benefit of the written statements from W and N, that her without notice injunction had created an unlevel playing field. As the transcript reveals, she said :
"My intention, in making this order, as I did, on 12th February, was to give effect to what the parties themselves appear to have agreed in October 2014, which was that they would not take any steps which would prejudice the other. It seems to me that both parties could have been said to have manoeuvred in ways which were intended to put the other at a disadvantage, and it is not unusual, unfortunately, in these sorts of cases.
This is a very difficult family situation, but it does seem to me that what should happen is that the position in relation to the companies should not be altered any further, but there should be no opportunity to either party to gain an undue advantage, and certainly [H] should not be able to conceal anything that he is doing in [C Ltd], because that would have the effect of potentially disadvantaging, not only [W] and the party's [sic] son, but also the two companies. So there must be absolute transparency, and the order, as it must, I think, continue in the short term, should make a provision for that, but paragraph 19 must go."
Mr Lightman submits that, by refusing to consent to the necessary amendments to the order which would have made it clear that Z CO and N's personal business dealings were to be excluded, H sought opportunistically to exploit the fact that he had obtained an order in a form in which it should not have been sought. This, he says, is a misuse of the court's process and I should exercise my discretion as a matter of public policy to refuse to reinstate it in the form contended for by H.
In my judgment, on this particular point there are arguments on both sides of the coin. If it had been H's genuine intention on 12 February 2015 to secure a freezing order which had the effect of preventing N from "poaching" clients from C Ltd (or even from legitimately transacting business with former clients of C Ltd), then it was incumbent upon him, in my view, to put the relevant facts and matters before the court. His evidence should have explained that this was one of the remedies sought; why that remedy was being sought in the context of the divorce proceedings; why it was necessary; and why the issue should be dealt with as a matter of extreme urgency on a without notice basis in circumstances when N had not even been given formal notice of the application. None of these steps was taken. My own view is that in all likelihood H had not foreseen that this would have been the consequence and effect of the without notice order as it was drawn. There is no reference whatsoever to this outcome in counsel's written note or in anything which he said during that hearing. I am therefore prepared to accept that, whatever instructions he was subsequently to give to his legal team, he was unaware of the potential impact on Z CO when he sought the order on 12 February 2015. If I am wrong and it had indeed been H's genuine intention to capture Z CO within the ambit of the without notice order, it was his duty to inform counsel that this was the case so that appropriate representations could have been made.
On the other hand, part of the exercise in 'holding the ring' must be to ensure that the family business is not damaged in such a way that the value of H's and W's shares in the three corporate entities with which I am primarily concerned is diminished. I have no evidence as to the nature of Z CO's current trading activities save for a narrative description of its general business. I can well see the potential for a business loss suffered by C Ltd to be reflected in its underlying share value. The shares held by H and W constitute 'property' for the purposes of section 37 of the MCA 1973 but it does not assist to resolve the jurisdictional basis for an injunction against N under that section (see Crittenden and McGladdery).
In his statement dated 15 April 2015, N deals with the effect of the injunction on his new business. In paragraph 41, he states :
"[H] states now that he wants to stop me using confidential information contained in the files of [C Ltd] to deprive it of its clients. This was never stated as a consideration or purpose for obtaining interim relief. Nor does he set out what the confidential information is said to be. I deny that I have taken any confidential information in any event. He also alleges that there is a danger of passing off. He exhibits in support an email from a longstanding client from [C Ltd] … apparently evidencing my misleading approach to winning business." [B:198]
He goes on to provide an explanation as to how that email came into existence and could not form the basis of any passing off action. He refers to his company's website and exhibits to his statement copies of the relevant web pages. I am satisfied from the correspondence I have seen that since the hearing on 11 March 2015 H, through his solicitors, has never addressed the issue of providing Z CO with an undertaking as to damages. None is offered now. I am not in a position to make any findings in relation to whether or not N's conduct in operating his new business is causing actual loss to C Ltd nor, if that be the case, whether his activities are such as to justify the grant of injunctive relief in a properly constituted action against N and/or Z CO. I bear in mind that Mr Amos's draft order includes at paragraphs 9 and 11 undertakings to compensate N or anyone other than W and N who has been served with the order if the court finds that loss has been suffered. However, I am not satisfied that N would be able to claim for such loss in a personal action against H since any such loss will have been suffered by Z CO. In circumstances where a wrong is done to a company and that company suffers loss, it will impact upon the value of the shares. If the company is unable or unwilling to claim for those losses, the individual shareholder will be prejudiced unless he can bring a claim of his own. However, there are substantial obstacles in the path of any individual shareholder seeking to make such a claim. These are based upon what is commonly referred to as the rule in Foss v Harbottle and has been explained in more recent cases such as Prudential Assurance v Newman  1 Ch 204 at 210 and Johnson v Gore Wood  2 AC 1, HL per Lord Bingham at 35F. The existence of the rule is justified by the need both to prevent double recovery and to provide protection for the company's creditors who might be prejudiced were the shareholder's claim to succeed. These losses are known as 'reflective loss' and the prohibition on recovery applies even where the facts preclude double recovery (for example, in circumstances where a company has compromised a claim or where there is a defence available : see Day v Cook  EWCA Civ 592).
This leads on to Mr Lightman's further submission that the reality of the situation is that the without notice order in effect secured interim relief on behalf of C Ltd which is not a party to the litigation (let alone an applicant for the relief sought). In this context I was referred to the decisions of Glidewell LJ in George Fischer (Great Britain) Ltd v Multi Construction Ltd  BCC 310 at 315; Lawrence Collins J in Konameneni v Rolls-Royce Industrial  1 WLR 1269, para 24; Prudential Assurance C Ltd v Newman Industries Ltd (No 2)  Ch 204, 210 (CA); and Howard Smith Ltd v Ampol Petroleum Ltd  AC 821 at 832. These concern the principles (i) that A (here, H) cannot, as a general rule, bring an action against B (here, N) to recover damages or secure other relief on behalf of C (here, C Ltd) for an injury or wrong done by B (i.e. N) to C (i.e. C Ltd); and (ii) that the courts are reluctant in principle to become involved in the internal management of business ventures and do not sit in some form of supervisory capacity over decisions which are within the power of management honestly arrived at.
Whilst I am satisfied that the court has jurisdiction to make a freezing order against a third party against whom there is no existing cause of action, it is a jurisdiction which should be used with caution : see Lakatamia Shipping Co Ltd v Su and Others (cited above). This is often referred to as 'the Chabra jurisdiction': see TSB Private Bank International SK v Chabra  1 WLR 231. It is engaged where there is no substantive cause of action against the third party in respect of whom relief is sought but there is good reason to suppose that their assets may in truth be the assets of the defendant against whom a cause of action is asserted. However, in these circumstances it must be established that (i) there is sufficient evidence showing that the defendant controls or has a power of disposition over the third party's assets; and (ii) there is or may be a process ultimately available to cause the beneficial owner to deliver up the assets held by the third party: see PJSC Vseukrainsky Aktsionernyl Bank v Maksimov  EWHC 422 (Comm).
Mr Lightman submits, and I agree, that there is no recourse to the Chabra jurisdiction on the facts of this case. Neither D Ltd nor R Ltd holds assets which are beneficially owned by W, H or N. Each is an actively trading entity with its own creditors and liabilities.
In response to these submissions, the essence of Mr Amos's case is that I should ignore the authorities relied on by N since "there is good reason for Family Division scepticism". He continues to rely upon the fact that H requires the court's protection and contends that I am not constrained by statute but only by the overall merits of the case.
In searching for a practical solution to this family's dilemma, W and N put forward in their written evidence a series of defined undertakings which they offered to give so as to deal with any concerns as to the use or application of the funds receivable by the two companies in respect of rent. In the event that the order of 11 March 2015 (now reflected in Mr Amos's proposed draft) is not reinstated, each is prepared to undertake to the court that, prior to the determination of the matrimonial proceedings :-
(i) neither will cause either D Ltd or R Ltd to enter into any transactions or withdraw any monies from those companies' respective bank accounts other than in the ordinary course of business;
(ii) neither will draw any director's remuneration from R Ltd and W will not receive any director's remuneration from D Ltd;
(iii) N will restrict his own director's remuneration from D Ltd to the lesser of £2,500 per month (being the remuneration he received from that company until the without notice injunction in February 2015) and a salary to be determined by an accountant with reference to what a typical director of an equivalent company would earn in the open market;
Mr Pointer submits on behalf of his client that her objective is not in any way to subvert the ordinary business activity of the companies but to ensure that their rents are properly collected and retained within the possession of the companies, rather than being diverted elsewhere at H's direction. As matters currently stand, I am told that H, through C Ltd, has retained rents which are properly due to D Ltd in the sum of c.£100,000 per month. This was demonstrated by Mr Lightman to the court at the hearing on 11 March 2015 by reference to bank statements. The undertakings offered will, he submits, provide ample protection for H. In the alternative, the agreement reflected in the order dated 21 April 2015 holds the ring adequately and can be continued as the framework for the management of the two businesses on an interlocutory basis.
(iv) neither will seek to implement the company resolutions requiring H to vacate the residential flat and/or C Ltd to vacate the premises it occupies, both properties being assets of the companies but, in the case of C Ltd, on the basis that a sum is paid in respect of a commercial rent, being either £10,000 per month or such sum as is determined by an independent estate agent.
D. My conclusions
I turn, first, to deal with procedure.
For reasons which I have already explained, this application should not have been made on a without notice basis. As is now clear from the manner in which this satellite litigation has unfolded and the issues which have been argued before me, the potential implications of the order which H secured on 12 February 2015 are far-reaching and not without complexity in terms of jurisdiction. There was no immediate threat in terms of the movement, or dissipation, or spiriting away, or the squirreling away, or the making of a disposition, or the transfer of assets with the intention of defeating H's claim for financial remedy orders.
Had notice been formally served, a hearing could have been listed after a short interval of probably no more than seven days (even if that hearing were on notice in an urgent applications list) when argument could have been heard on both sides. No steps were contemplated by either of the companies, or by W and N, until the expiry of one month. Nothing was to happen in relation to the management arrangements involving C Ltd until the expiry of four months.
Further, I take the view that in securing the relief which he sought at the February hearing, H did not discharge in full his obligation to make full, frank and fair disclosure of all the relevant circumstances and the full background to the recent chronology of events. There was no disclosure in his evidence about the steps which he had taken in November and December 2014 in relation to W's and N's status vis à vis C Ltd. Whilst he referred to the fact that he had removed W as company secretary, he said nothing about removing her and N as directors of C Ltd. In my view, that was a fundamental omission and an unfair presentation. Even if the circumstances surrounding her appointment were in issue, it was a misrepresentation of the position to present himself as a victim of a unilateral attempt by them to change the status quo. Their actions in notifying him of the company resolutions take on a very different complexion when seen against the background of the evidence as a whole even in circumstances where certain factual disputes remain untested by the forensic process. There is no challenge to the underlying fact that it was H who instigated the steps which resulted in their loss of those directorships and, with them, the check and balance which was one of the cornerstones of the October 2014 agreement. The oblique reference in W's solicitors' letter of 12 February 2015 to N no longer being a director does not, in my judgment, absolve H of his failure to disclose these matters. The district judge plainly thought on that occasion that she was holding the ring on the basis that it was W and N who were seeking to disrupt the arrangements agreed in October the previous year. She was not told that the steps which they were proposing to take were, on their case, a defensive reaction to H's own departure from the spirit of what had been agreed.
Further, had it genuinely been H's intention on that occasion to secure orders which operated so as to prevent N from carrying on his new business in (alleged) competition with C Ltd, which he says it was, H was duty bound to explain that to the court. He remained silent. I have already expressed my views as to whether that was his genuine intention at the time. But even if this was the intention and not some unexpected windfall, there was even more reason to ensure that these matters were dealt with in the context of an inter partes hearing.
In relation to jurisdiction, it is clear to me that the order made at the without notice hearing in February had the potential to interfere with the proper day to day operation of the companies. Whilst I have no doubt that the district judge thought that she was directing the freezing order towards W and N in their personal capacities, there was no proper consideration of how the terms of the proposed freezing order might impact upon that operation, nor the reach of the court's jurisdiction where the activity which was to be prevented was that of a properly constituted corporate entity of which H was not, and never had been, a director.
Whilst Mr Amos sought, with his customary eloquence, to persuade me that the orders he seeks are targeted squarely at W and N as individuals and not as organs of the companies, it has to be remembered that they "wear two hats" in these proceedings. W is both a party, as spouse, to the financial remedy application, and a director of two of the family companies. N has been made a party to the injunction proceedings; he, too, is a director of both companies. No one apart from W and N has any locus in relation to either D Ltd or R Ltd in terms of the proper management of their legitimate commercial activities. The companies are not the alter egos of H, W or N. No one suggests that they are, or that their underlying assets are being held on trust for either of H or W. The supposed "shortcut" which Poon might have offered in terms of jurisdiction must now be scrutinised quite carefully in the light of all that was said so recently by the Supreme Court in Prest v Petrodel. It will certainly not be in every case that a party to matrimonial litigation will be able to raise separate corporate legal personality as a shield to an application for an injunction just because he or she happens to be involved in running a family business in one capacity or another. It must surely all depend upon the circumstances and whether the actions or intended actions upon which the injunction is to bite relate to the actions of the individual per se or the actions of that individual in discharge of his or her corporate obligations and responsibilities.
In this case, paragraph 18 (a), (b), and (c) of the proposed draft order prepared by Mr Amos seek to prevent W and N, as directors of D Ltd and R Ltd, from implementing the company resolutions to "de-couple" the two companies from the management of C Ltd. On one view an injunction against W, as a party to matrimonial proceedings, might well be justified as an injunction in personam if there was cogent and reliable evidence of an intention to dissipate assets to the detriment of H's financial claims. But N's position is very different since (i) he is not a party to those proceedings; and (ii) McGladdery stands as a fundamental jurisdictional obstacle to any relief flowing from s 37 MCA 1973.
In terms of paragraph 18 (d) and (e) of the proposed order, these sub-paragraphs are intended to remove from the executive control of W and/or N the banking arrangements of the two companies other than for the purposes of monitoring the transactions being effected under the mandate which is to be operated by Mr F. They are not to be permitted to authorise or effect any transactions whatsoever in relation to D Ltd and R Ltd other than in the ordinary course of business. But who else can "authorise or effect any transactions other than in the ordinary course of business" if not the companies' executive officers or directors ? In undertaking this function, the directors act as the company's agents but they are nevertheless discharging their management functions as officers of the company. As I have already said, it is difficult, if not impossible, to imagine how normal commercial activity can be carried on in a situation of economic paralysis unless every decision in relation to the company's transactions is to be monitored by Mr F. That inevitably calls into play the relationship of many years' standing which exists between H and Mr F.
It seems to me that there are further difficulties with the manner in which sub-paragraphs (d) and (e) are drawn since their purpose is specifically to prevent W from dealing with the funds in the bank accounts belonging to D Ltd and R Ltd. These funds are not her assets; they are the companies' assets and Crittenden stands in the way of any application of s 37(2)(b) of the MCA 1973.
Whilst Mr Amos seeks to argue, in the alternative, that the 'property' in question was not the companies' funds but the shares held by each of H and W in the companies, there is no evidence before me that W was or is intending to deal with her own shares or that the actions which she and N were proposing pursuant to the company resolutions would have resulted in a diminution in the value of either her shares or H's shares. What she and N sought to do was to replace the very loose and informal management structure which had existed during a time when there was no family discord with a more structured approach which enabled them, as directors, to manage properly the companies' affairs. Had the parties still been operating under the terms of the October 2014 agreement, no doubt these steps would not have been seen to be necessary. But they were not, and the reason they were not had nothing to do with the removal of the Berenberg funds or the execution of the October 2014 Declaration of Trust: those matters had been the catalyst for the October 2014 agreement. In my view, W and N are justified in their assertion that H's actions during November and December 2014 and, in particular, his removal of their status as directors of C Ltd, led to the breakdown of that agreement. No doubt, as in all these situations when positions become polarised, there was an element of family members jockeying for position and control. But for my part I cannot see any evidence at present which would enable me to reach a conclusion that the proposed company resolutions would be more likely than not to lead to a diminution in the underlying value of the shares in either D Ltd or R Ltd. If what H says is true and he has never charged either company for any of the management services C Ltd provides, there would not appear to be any loss of its income stream from this source for C Ltd. Further, there is prima facie evidence from N that an independent property management arrangement can be put in place for no more than the cost of the financial benefits which are presently being made available to Mr F for discharging that function.
For these reasons, I can see no basis upon which I have jurisdiction under section 37 of the MCA 1973 to make the freezing order which is sought. In the circumstances, the presumption of intent under section 37(5) upon which Mr Amos also seeks to rely does not come into play.
As to my jurisdiction under section 37 SCA 1981, I turn now to consider what existing cause of action H might have against N such that he would be entitled to an injunction in either the Chancery or the Queen's Bench Division of the High Court. He has not yet secured an injunction in the context of the harassment proceedings. Whether or not one was sought I know not but in any event, even if it was, there has been an interim agreement in those proceedings, approved by a deputy High Court judge, under the terms of which there is no direct communication between H and N, a raft of mutual undertakings having been provided. I have the letter from Lewis Silkin which refers to various allegations against N which might found an action based upon computer-hacking but there is no evidence of an action having been commenced, far less of the availability of injunctive relief within those proceedings.
Even if I have jurisdiction to make the orders sought under section 37 of the SCA 1981, H still has to demonstrate a good case, supported by objective facts, that there is a likelihood of 'the movement, or the dissipation, or the spiriting away, or the salting away, or the squirreling away, or the making of a disposition, or the transfer of assets' with the intention of defeating his claims: see ND v KP (above).
Whilst I am entirely persuaded that, in an appropriate case, injunctive relief can be granted in order to 'hold the ring' and preserve a financial status quo, there must nevertheless be some objective evidence of a risk of the occurrence of all or any of the eventualities referred to by Mostyn J (above) before the court will consider it necessary so to 'hold the ring'. All that H can point to in order to make good his case are W's actions in relation to the events which led to the October 2014 agreement (and there are no new or fresh allegations in relation to further movement of the Berenberg or any other funds) and the intended actions advertised in the company resolutions. If and insofar as he is concerned that her removal of the Berenberg funds is evidence which suggests she may be inclined to remove or spirit away funds belonging to D Ltd or R Ltd, each of W and N have offered undertakings that neither will enter into any transactions or withdraw any monies from those companies' respective bank accounts other than in the ordinary course of business.
In relation to the overall merits of the case, Mr Amos lays particular emphasis upon the historic status quo and the manner in which H has run the business, latterly with N's assistance, but without external interference from either W or N. That may well have been a regime which was acceptable whilst family harmony reigned but the recent breakdown in his relationship with both his wife and sons in the current circumstances of the divorce is also a relevant factor which falls to be considered. In terms of the immediate status quo, I do not accept that his actions in removing them as directors had no effect upon the family or corporate dynamic. I do accept that there was a significant element of reaction to his own actions in their decision as directors to put matters on a more transparent and formal footing. In relation to Mr Amos' "collateral points" (see para 26 (iv) of his skeleton argument), these seem to me to be matters which have been largely litigated in correspondence and matters over which each side takes a very different view.
As to H's point that the arrangements which he seeks to put in place have been working well over the two months of their operation, that appears to ignore the fact that there was a significant difference between the continuation order made by the district judge on 11 March 2015 and the "moratorium agreement" embodied in the order made by Moor J on 21 April 2015. That latter order reflected what Mr Pointer described as "a bit of give and take on both sides". It seemed to me a very sensible resolution of matters, but H has rejected it as a continuing solution because he does not want to be bound by the moratorium in respect of his litigation against his sons in other proceedings ongoing in the Queen's Bench Division. By his proposed order, Mr Amos on H's behalf seeks to reintroduce the very injunctions about which W and N complain and which they contend will restrict their ability to discharge their duties as directors of the companies.
In terms of my jurisdiction under section 37 of the SCA 1981, even if H does have a subsisting cause of action against N which would entitle him to secure an injunction in the Queen's Bench or Chancery ivisions (of which I am not entirely persuaded), I decline to exercise my jurisdiction to make the order which H seeks. I do so both because I consider his application lacks merit when the circumstances are looked at in the round and because I consider he did not put before the court matters which he should have done in discharge of his obligation to make full, frank and fair presentation when he applied to the court on a without notice basis. Had the application been dealt with on notice, many of the legal arguments could have been canvassed. Even if the court had insufficient time on that occasion to hear full argument and deliver a judgment, a holding order could have been agreed or ordered by the court but on the basis of interim injunctive relief which was limited in its scope to cover any immediate concerns whilst still holding the balance as between the parties.
In relation to Mr Amos's fall-back position, even if I have some residual inherent jurisdiction which would enable me to grant injunctive relief on the basis of some lower test of simple convenience and justice (and, for reasons which I have explained in paragraphs 96 to 105, I am doubtful that this is the case), I decline to exercise that jurisdiction for the reasons I have explained above.
On the basis that W and N are prepared to give to the court the formal undertakings which I have set out in paragraph 154 of this judgment, H's application for a reinstatement of the freezing orders contained in Mr Amos's proposed draft order is dismissed. In my view, a much more sensible way forward would be the reinstatement of the "moratorium agreement" of 19 April 2015 and, if it were possible for the parties even at this late stage to agree to that course on the basis of an acceptable compromise as to the ongoing litigation in the Queen's Bench Division, I would not stand in the way of such an order in substitution for the order I am otherwise proposing to make. Absent such compromise, and on the basis of those undertakings from W and N, the application will be dismissed. I would hope that it would not be necessary for me to hear any argument in relation to costs but if any of the parties wishes to make submissions in relation to costs, these can be dealt with at the formal handing down of this judgment.
By way of a postscript, I would only say that in large measure I share Mr Amos's view of these proceedings as being, in the final analysis, "an unedifying family dispute, generational/successional as much as (if not more than) matrimonial". There may well be ongoing disputes between H and N (and/or A) but I do not regard the matrimonial proceedings in the Family Division as the appropriate forum for their ultimate resolution.
Note 1 I am aware that there has been subsequent correspondence between the parties’ solicitors in which further proposals have been made in an attempt to settle the case. On 14 July 2015 I received a letter from N’s solicitors which informed me that those negotiations had broken down and it would be necessary for me to rule on the applications which I heard on 19 and 24 June 2015. Whilst I have read the correspondence, I do not propose to comment upon the development of the negotiations since their failure means that the court is effectively dealing with the position as it was when the matter was before the court. [Back]
Note 2 Whilst the family business had been operating for over thirty years, it appears from H’s evidence that C Ltd had been managing the properties owned by D Ltd and R Ltd for in excess of 20 years [A:73]. [Back]
Note 3 formerly the Supreme Court Act 1981 [Back]
Note 4 The ‘Joint Mandate’ was defined as ‘the present bank mandates in respect of [D Ltd] [which] are being exercised only on the joint instructions of the second respondent and Mr F’. [A:12] [Back]
Note 5 N has produced several documents by way of an exhibit to his statement dated 15 April 2015 which demonstrate at least a prima facie case that he had H’s implied authority to conduct substantial property transactions in his father’s absence involving C Ltd and D Ltd, together with its corporate bankers and solicitors [B:249-262]. [Back]
Note 6 The process of ‘telescoping’ involves ordering an individual not to transfer the property but to transfer shares in the company or to vote himself dividends or loans as a route to the property. Thorpe LJ took the view in Prest (CA) that this was an unnecessarily cumbersome, expensive and uncertain means to achieve the desired end. “It is to import the discipline of company law in to a situation where at all material times the individual has not respected or utilised that discipline” at page 431, para 61. [Back]
Note 7 This was one of the three guiding principles formulated by Beatson LJ in JSC BTA Bank v Ablyazov  EWCA Civ 928,  1 WLR 1414. [Back]
Note 8 It is also worthy of note in this context that H now complains about having been given notice to vacate premises which he occupied but which were owned by D Ltd on the proviso that he could remain in occupation on payment of a commercial rent. That, he says, is part and parcel of W’s and N’s attempts to change the status quo. He omits to make any reference in his 12 February 2015 statement to the fact that he had taken the very same steps in relation to his elder son’s occupation over some three years of a residential property in north London. He appears to have had a 50% interest in that property and within the written material before the court is a letter written by solicitors serving formal notice to quit on A. That letter was written on 9 December 2014, the day before he removed W as a director of C Ltd. [Back]
Note 9 FPR r 4.9 is of no application here. It concerns a situation where the court has already fixed a date for a hearing and one of the parties, usually the respondent to that application, wishes to abridge time for service of his own application. [Back]
Note 10 The transcript at [B:312, line 20] refers to “Mr C” instead of “Mrs C”; this must be a transcribing error since the sentence would otherwise not make any sense. [Back]
Note 11 Again, this appears to be a transcription error since it is clear from the previous page of the transcript at [B311, lines 36-39] that the District Judge was referring to paragraph 19(e) as the offending clause. That was the provision which prevented W and N from obtaining any information held by C Ltd in relation to D Ltd, R Ltd and any other company named in the schedule. [Back]
Note 12 (1843) 2 Hare 461. [Back]
Copyright Policy |
Donate to BAILII