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England and Wales High Court (Family Division) Decisions
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Cite as:  EWHC 1301 (Fam)
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Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
| Magali Moutreuil
|- and -
Pier Investments Company Limited
Moutreuil v Andreewitch (Contempt: No.2)
Richard Thomas (instructed by Janes Solicitors) for the First Respondent
The Second Respondent was not separately represented
Hearing date: 18 May 2020
Crown Copyright ©
The Honourable Mr Justice Cobb:
"I have already indicated that it is not contended on behalf of Pan Petroleum that the appellants wilfully breached the Order, but that does not preclude a finding of contempt. Where the Court concludes that the party in contempt has acted on the basis of an interpretation of the Order which was not reasonably arguable, it is not necessary for an applicant to also show that the breach of the Order was committed with actual knowledge. Christopher Clarke J put this point clearly in Masri v Consolidated Contractors  EWHC 1024 (Comm) at :
"In my judgment the power of the court to ensure obedience to its orders for the benefit of those in whose favour they are made would be inappropriately curtailed if, in addition to having to show that a defendant had breached the order, it was also necessary to establish, and to the criminal standard, that he had done so in the belief that what he did was a breach of the order – particularly when a belief that it was not a breach may have rested on the slenderest of foundations or on convenient advice which was plainly wrong."
As that passage demonstrates, equally it is no defence for the party in breach to show that it acted on the basis of legal advice. That will only go to issues of mitigation, not to whether there was a contempt: see the judgment of the Restrictive Practices Court (Megaw J President) in The Tyre Manufacturers' Conference Ltd's Agreement  1 WLR 1137 at 1162D-H."
i) 'Welfare' proceedings under Part II of the Children Act 1989 ('CA 1989') concerning the living and contact arrangements for the younger four children;
ii) Schedule 1 CA 1989 proceedings in relation to financial provision for the children;
iii) 'Ownership proceedings' in relation to shares in Pier, a holding company which has as its main or sole asset the former family home.
A final hearing is listed before me in just under 4 weeks' time for me to resolve all the issues arising on these linked applications.
"The parties are in dispute, amongst other things, about the beneficial ownership of a valuable property in which they lived before their separation. The property is owned by a company of which PA is the sole director and MM the sole shareholder. On 22 March 2019, a freezing order was made, restraining the parties from disposing of or dealing with the company income or assets except to enable the company to meet its tax or other liabilities. In November 2019, a further order required PA to produce the company bank statements. These showed that he had used the company bank account to make payments amounting to over £25,000 in respect of his personal living expenses and legal fees, some £18,000 of which post-dated the freezing order. PA did not dispute that he had caused the company to make the payments but claimed that they were made in respect of the company's liabilities, namely in paying him a salary, in repaying loans he said he had made to it, and in discharging the company's alleged liability for legal fees."
Freezing Order: March 2019
"Until such time as the parties' respective claims in these proceedings and in case number FD19F00024 have been finally determined by the court, the applicant and the respondent must not in any way dispose of, deal with or diminish the value of the following assets whether they are in or outside England and Wales, namely:-
(i) The shares of Pier Investment;
(ii) [The property];
(iii) Any other income or assets of Pier Investments except insofar as is necessary for Pier Investment to meet its tax or other liabilities".
The order was adorned (in bold and capital font) with the relevant penal notice spelling out in the clearest terms the warning to PA of the consequences of disobedience to the order.
"The injunction allowed for proper payments to be made from the company account, so the mere making of payments did not establish the alleged breaches. MM had to prove that PA made the payments knowing that they were not proper liabilities of the company."
"… there is no conceivable legitimate or commercial purpose that would have been served by the transfer of the shares into the name of our … son."
The alleged breaches
i) MM accepts, through counsel, that £961.90 can be said to have been withdrawn properly to meet company liabilities;
ii) £2,041.72 paid into the account in this period reflected the payment of child benefit to PA, to which he was entitled as he cares for one of the children. MM contends that this sum should not then have been withdrawn from the account, given the terms of the order, but the depletion of the account in this sum (it is conceded by Mr Weale) is more in the nature of a technical breach;
iii) As soon as PA's former solicitors, namely Sinclair Gibson and Clyde & Co., were advised that their invoices had been satisfied by monies from a frozen account, they have returned these payments.
It is accepted by the parties that the account is still depleted by the sum of £13,015.94.
"… if [the freezing order] is to be maintained at all, the injunction should be varied to make clear that [PA] is entitled to spend sums legitimately earned by him as director of the Company in respect of his reasonable legal costs and living expenses, in circumstances where that is his primary source of income." (underlining added for emphasis).
It is not a coincidence, asserts MM, that very soon after I had ordered the disclosure of the Pier bank statements, PA made his first application "for clarification/variation" of the order (which was done without notice to MM, in an attempt – asserts MM – to "whitewash" his breaches). By that time, PA had substantially emptied the account.
"…a wide discretion … to the person operating the account… There is no restriction on the nature of those 'other liabilities', nor is there any requirement to obtain permission from the Court or any other party before those payments are made" (reference position statement).
i) He paid himself a director's salary of £8,500 per annum from the account, as he was entitled to do in accordance with the Memorandum of Association (he points to the 'objects' of the company: para.3(u)). He maintains that he worked hard on renovating and maintaining the property, and undertaking a degree of management of the property while tenanted, and that this work benefited the parties as it preserved value in, and obtained income from, the most significant asset in the ongoing litigation. He contends that the director's remuneration was modest, and was used for equally modest expenditure on food and accommodation;
ii) He repaid to himself sums which he had earlier loaned to the company; he points to sums of money being paid into the Pier account back in 2005 ("to be able to buy properties in Germany") which he maintains represent the loan(s). He says that he loaned "c.€75,000 of my own money". His case is that in 2019 he had the first opportunity to seek repayment of the debt since making the loan as the company had now made a profit;
iii) Sums totalling £12,580 were used to defray legal costs incurred by Pier and owed to two law firms, Sinclair Gibson and Clyde & Co. PA later suggested at the hearing before me that only £2,000 or £3,000 of the sums paid to these firms reflected the company's share of the legal costs.
i) I am satisfied that there was no legally recognised obligation or contractual basis for Pier to pay PA a director's salary; there is no written evidence of such obligation. Materially, a director's salary was not referred to in the 2018-2019 accounts, i.e. in the year immediately prior to the year under review;
ii) Thus, it is wholly unclear from PA's evidence when the obligation on Pier to pay the director's salary arose, or indeed how the figure of £8,500 was set. PA declared (in completing his Schedule of Deficiencies response: 5 January 2020) that there was no "formal agreement with myself about the dividend policy" adding (without offering any further clarity) "… and take only the minimum £8,500 per annum director's salary";
iii) He claimed in his evidence to have first drawn a salary of £8,500 in late-2018, but retreated under challenge in cross-examination in confirming that he had never drawn a salary as such, but had "used the [Pier] account up to that amount [£8,500] for food and rent" from that time. Quite apart from the fact that (as I have mentioned in (ii) above) there is no reference to the director's salary in the 2018-2019 accounts, it is equally notable that in a statement of account prepared by PA in March 2019 (i.e. after the time at which he said that he had started to draw a salary) setting out Pier's net income, PA made no reference to, or deduction for, the payment of any director's salary. PA's version of the same document for the period up to January 2020 (prepared 2.1.20) unsurprisingly does make reference to a salary, but by then he knew that contempt proceedings were signalled;
iv) PA accepted that the first time he has ever raised the existence of the director's salary was at the case management hearing before me on 9 December 2019;
v) In fact, of course, the sums which PA withdrew greatly exceeded the sum of £8,500; hence his need to invent the loan;
vi) As I have mentioned above, () PA has known and understood for some time that the freezing order did not allow him to draw down a salary from the Pier account: see his Defence document dated 24 May 2019.
i) PA purports to establish his original loan to Pier by reference to a collection of copy credit slips and bank statement summaries (all in German) which appear to show payments being made into the Pier account in 2005; these documents of themselves do not support the existence of a loan, or a liability to repay or on what terms;
ii) PA has produced no loan agreement; nor is there any contemporaneous document which verifies the existence of any loan; there is no document which sheds any light on, for instance, the interest rate payable on the loan, or the repayment term;
iii) Materially, PA did not mention the existence of this (apparently sizeable) loan (€75,000) when he:
a) Filed his apparently "comprehensive" 'Form E' on 25 November 2018; specifically, he did not mention the loan in answer to q.4.5 "Give details of any other assets. Include… any monies owed to you";
b) Filed his application for variation / clarification of the freezing order (16 December 2019);
c) Prepared the statement in support of the application for variation (December 2019).
The loan was first mentioned in January 2020 in a document prepared by PA to support his application for variation of the freezing order;
iv) The loan does not show up clearly or consistently in the company accounts for the years which follow the making of the purported loan; he implausibly explained this in oral evidence as a decision to keep the monies loaned "off the balance sheet";
v) When challenged about the earlier non-disclosure of the loan, he replied that he "had no need to" disclose it earlier; he said that he felt it was a "zero sum game", by which I understood him to mean that he did not feel that he needed to account for sums passing between his personal account and the account of the company of which he was a director. I do not accept that he truly believed this, or that (if he did) it absolves him from culpability in using the business account for personal expenditure after the account had been frozen;
vi) When questioned by Mr Weale, at one point he referred to the sums paid into the Pier account in 2005 as a "long-term investment", rather than a loan; I found this answer (which he later sought to correct) revealing. It was equally revealing that PA referred to benefiting from repayment of the loan in the relevant period in the sum of €20,000 (of the €75,000 apparently owed), but he made no attempt to particularise this.
i) I find that PA was in no doubt that he could not use the frozen account for his own personal legal costs; quite apart from it being obvious from the terms of the order, this point was reinforced in a letter to him from MM's solicitors dated 20 May 2019, which PA confirmed that he had received. Notwithstanding this clear position, it is remarkable (and this is evidenced by the disclosed bank statements) that PA withdrew £5,000 on the very next day after receiving the letter (21 May 2019) to the credit of Clyde & Co;
ii) In the same document, PA avers to the fact that he had repaid his partner £2,020 to reimburse her in respect of company legal costs; this would appear to be in addition to the £12,850 which were withdrawn from the frozen account, but there is no separate statement of this additional liability; this payment finds no corroboration in the (redacted) bank statements produced by PA;
iii) In the first application issued by PA for variation/clarification (January 2020) he wished to be able to allow Pier to "defend itself against (sic.) the claim number FD19F00024"; this was long after he had withdrawn sums from the account to pay legal costs;
iv) In a document which PA produced for the contempt hearing on 3 February 2020, he asserted that "the company is the second Defendant and should be allowed to pay for reasonable legal costs to ascertain its legal position. The solicitors' invoices to me and the company clearly state for Pier Investment / ToLATA / bare trust". In fact, the solicitors' invoices were not sent to PA "and the company" (see below), but just to PA. In that regard, I find that:
a) The three invoices (Sinclair Gibson) and the relevant correspondence (both firms) which have been produced by PA have all been addressed to PA personally;
b) PA has produced no invoices from Clyde & Co. to support his contention that the firm was acting at any time for Pier or were billing them;
c) The letter from Sinclair Gibson to PA dated 8 January 2020 makes clear that the "vast majority" of the work related to the welfare proceedings (which plainly has nothing to do with Pier), and the balance was on the 'ownership' and schedule 1 proceedings (though no reference to advising Pier let alone 'defending' Pier). The solicitors were clear that the bill was delivered to PA "personally", and that it was PA "personally" who signed the engagement letter;
d) The invoice from Sinclair Gibson, dated 1 December 2019 is marked in relation to "professional charges in relation to your personal family affairs and the ToLATA/bare trust and schedule 1 claim" (emphasis by underlining added);
v) PA has not disclosed the client care letters from either Sinclair Gibson or Clyde & Co; these letters would surely have assisted him in confirming the identity of the client, or clients, for whom the solicitors were acting. PA told me in oral evidence that he had not produced these letters as they were "so long"; given the volume of documentation he has produced, this explanation is ludicrous;
vi) There is no reason why Pier should incur, or have incurred, any legal costs in the substantive proceedings in any event; I would expect the company to be adopting a neutral stance in the proceedings. There is no evidence that the company sought any preliminary advice (a point tentatively volunteered by Mr Thomas) even to establish this position, and/or the potential conflict of interest with PA;
vii) As to that last point, on PA's own case (that the solicitors were working partly for him and partly for Pier), there was, as Mr Weale observed and I agree, a likely conflict of interest;
viii) In his recent witness statement, he deposed to the reasonableness of the company paying "certainly less than 50%" of the legal costs. In his oral evidence, he suggested that only £2,000 or £3,000 reflected the company's share of the legal costs, but he was unable to give any breakdown of these figures, or explain the apportionment;
ix) Sinclair Gibson and Clyde & Co have been plainly embarrassed to discover that their invoices have been settled using funds from a frozen account:
a) Sinclair Gibson wrote on 18 February 2020: "… we were not aware that the funds we had received from [PA] had come from the Pier Investment company account. [PA] had informed us that he would be meeting our fees from his personal funds and those of his girlfriend… Thank you for bringing this to our attention. We can confirm that we are no longer advising [PA] in any capacity";
b) Clyde & Co wrote on the following day (19.2.20): "… at the time that payment was received it was understood by the case handlers involved that the funds were being paid by [PA] from his personal account and not from Pier's bank account and our accounts department identified the payment as coming from [PA]".
i) PA breached the 'freezing order' of 22 March 2019 by making/procuring the transfers/payments set out in MM's amended Application Notice (27 April 2020);
ii) Such breaches were deliberate, that is to say that I am in fact satisfied that PA made/procured the payments knowing that they were in breach of the freezing order.
Sanction and next steps
Note 1 perrule 37.4 Family Procedure Rules 2010: enforcement of an order by committal/sanction. [Back] Note 2 It is well-recognised that if a committal/contempt application is heard at the same time as other issues about which the alleged contemnor needs to give evidence, he is placed in the position where he is effectively deprived of the right of silence. That is a serious procedural error: see Hammerton v Hammerton  EWCA Civ 248. HREF='#back2'>[Back] Note 3 Rule 37.27(2) of the Family Procedure Rules 2010, and CPR 81.28 provide that at a committal/contempt hearing the respondent is entitled to give oral evidence, whether or not s/he has filed or served written evidence and, if doing so, may be cross-examined:  EWCA Civ 382 at  and . [Back] Note 4 If authority is needed for this proposition, see Re L-W (Enforcement and Committal: Contact); CPL v CH-W and Others  EWCA Civ 1253. [Back] Note 5 The document was signed by PA on 24 May 2019, following a formal statement of truth. [Back] Note 6 Re-examination [Back] Note 7 i.e. after payment of expenses, including utilities, insurances, maintenance repairs etc. [Back] Note 8 It is likely that he will have received the letter from LSGA, MM’s solicitors, dated 23 December 2019 warning of the contempt proceedings. [Back] Note 9 Letter from Irwin Mitchell dated 17 October 2018 HREF='#back9'>[Back]
Note 1 perrule 37.4 Family Procedure Rules 2010: enforcement of an order by committal/sanction. [Back]
Note 2 It is well-recognised that if a committal/contempt application is heard at the same time as other issues about which the alleged contemnor needs to give evidence, he is placed in the position where he is effectively deprived of the right of silence. That is a serious procedural error: see Hammerton v Hammerton  EWCA Civ 248. HREF='#back2'>[Back]
Note 3 Rule 37.27(2) of the Family Procedure Rules 2010, and CPR 81.28 provide that at a committal/contempt hearing the respondent is entitled to give oral evidence, whether or not s/he has filed or served written evidence and, if doing so, may be cross-examined:  EWCA Civ 382 at  and . [Back]
Note 4 If authority is needed for this proposition, see Re L-W (Enforcement and Committal: Contact); CPL v CH-W and Others  EWCA Civ 1253. [Back]
Note 5 The document was signed by PA on 24 May 2019, following a formal statement of truth. [Back]
Note 6 Re-examination [Back]
Note 7 i.e. after payment of expenses, including utilities, insurances, maintenance repairs etc. [Back]
Note 8 It is likely that he will have received the letter from LSGA, MM’s solicitors, dated 23 December 2019 warning of the contempt proceedings. [Back]
Note 9 Letter from Irwin Mitchell dated 17 October 2018 HREF='#back9'>[Back]