AB and Ors v Cd and Ors
| Jurisdiction | England & Wales |
| Judge | Mr Justice Miles |
| Judgment Date | 03 October 2023 |
| Neutral Citation | [2023] EWHC 2419 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL-2020-0013xx |
[2023] EWHC 2419 (Ch)
Mr Justice Miles
Case No: BL-2020-0013xx
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD) AND INSOLVENCY AND COMPANIES LIST (ChD)
Royal Courts of Justice
Rolls Building
Fetter Lane,
London, EC4NA 1 NL
Richard Slade of Richard Slade & Company for the First Defendant
Stephen Robins KC and Daniel Judd (instructed by Mishcon de Reya) for the Claimants
Hearing date: 19 September 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on 3 October 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction
This judgment concerns the First Defendant's ( D1's) application issued on 22 August 2023 and listed to be heard in the interim applications list on 19 September 2023.
This judgment has been anonymised because of concurrent investigations by the SFO and previous orders made by the court. I do not consider that this reduces the intelligibility of the judgment or the grounds on which the court has reached its decisions. The issue whether it is appropriate to continue that order is a matter to be determined at the PTR to be heard in the Michaelmas term.
D1 asks the court to vary a proprietary freezing order made on 13 July 2021 ( the PFO) in order to permit D1 to realise the assets covered by it in order to pay those realisations to a firm of solicitors, Richard Slade and Company ( RS) as legal fees. He also seeks a like variation of a non-proprietary worldwide freezing order made against him ( the WFO). But this does not raise any separate issues so I shall concentrate on the PFO.
Facts
These proceedings concern a mini-bond investment scheme operated by C1, which sold bonds to thousands of bondholders, who collectively invested a total amount of £237m odd in the bonds.
The Cs allege that almost 60% of the sums raised by C1 by selling bonds were paid to D1 to D10. D1 received more than £5.2m such monies.
D1 denies the claims against him.
Some of the Cs (including C1) are now in administration.
The Cs' claims against D1 include proprietary claims to recover the traceable proceeds of £5.2m odd derived from bondholders. D1 has stated and the Cs have accepted that D1 does not have any property other than those traceable proceeds. This is recorded in the recitals to the PFO.
On 24 August 2020 Mr Edwin Johnson QC, sitting as a Deputy High Court Judge, granted the WFOs but declined to make PFOs against the same Ds at that time. He considered that the WFOs would sufficiently hold the ring until an inter partes hearing to consider the granting of PFOs.
On 7 September 2020 Meade J continued the WFOs. He adjourned the application for the PFOs whilst giving directions for the filing of evidence in that regard. Meade J's order contained an exception in standard terms:
“this order does not prohibit [D1] from spending £8,531.28 a month towards his ordinary living expenses and also a reasonable sum on legal advice and representation. But before spending any money [D1] must tell the [Cs'] solicitors where the money is to come from.”
The claim was issued on 27 August 2020. Particulars of Claim were served the next day.
On 8 December 2020 the deadlines for the filing of evidence in relation to the PFO were extended by consent. On the same date, the Cs served a draft PFO on D1.
On 14 December 2020 Mann J granted a further extension of the deadlines for the filing of evidence in relation to the PFO. The hearing of the PFO application against D1 was subsequently listed for 28 June 2021.
On 13 April 2021 Bivonas, the solicitors then acting for D1, wrote to the Cs' solicitors ( MdR) to propose certain changes to the draft PFO served on 8 December 2020. Among these changes were the inclusion of exceptions to the PFO in relation to living expenses and legal expenses. This mirrored the existing exception contained in the WFO.
On 15 April 2021 MdR wrote to Bivonas explaining that the exceptions to the PFO were not agreed by the Cs. MdR referred to case law and stated that the applicable test for determining whether funds caught by a PFO ought to be released was the four-stage test set out in the case of Marino v FM Capital Partners Ltd [2016] EWCA 1301. The letter quoted paragraph 23 as follows:
“Lewison J (as he then was) in Independent Trustee Services Ltd v GP Noble Trustees Ltd [2009] EWHC 161 (Ch) helpfully summarised the proper approach at para. 6 by setting out the four questions which should be addressed: (1) does the claimant have an arguable proprietary claim to the funds in issue? (2) if yes, does the defendant have arguable grounds for denying that claim? (3) if yes, has the defendant demonstrated that without the release of the funds in issue he cannot effectively defend the proceedings (or, it may be added, meet his legitimate living expenses)? (4) if yes, where does the balance of justice lie as between, on the one hand, permitting the defendant to expend funds which might belong to the claimant and, on the other hand, refusing to allow the defendant to expend funds which might belong to it?”
MdR's letter asserted that D1 had not satisfied the second or third stages.
By 25 May 2021 the Cs had accepted, on the basis of evidence served by D1, that stages two and three of Marino had been satisfied. MdR wrote to Bivonas stating that:
“these recent developments do now enable our clients to agree that the proprietary injunction include a carve out to allow for the living expenses and legal expenses which are allowed under the WFO. Our clients are accordingly now able to agree to the amended paragraph 5 and the inclusion of the new paragraph in your draft Consent Order.”
Paragraph 5 was the same, word-for-word, as the exception to Meade J's order quoted at [10] above.
There was a hearing before me on 28 June 2021. There was a dispute about the quantum of living expenses which I decided in the Cs' favour.
I then made the PFO on 13 July 2021 on the papers, in the terms agreed by the parties.
At the hearing on 28 June 2021 I also resolved another issue. D1 and Bivonas had sought an order that if it received fees under the PFO it would be immune from future liability as a constructive trustee. I declined to make that order. Shortly afterwards Bivonas ceased to act for D1.
Until recently D1 has represented himself in these proceedings. He has appeared at various CMCs.
The trial of the proceedings is fixed to start in January 2023 and is listed for 22 weeks.
The events leading to this application are set out in the first statement of Mr Slade.
D1 met Mr Slade in July 2023 and on 28 July entered a retainer agreement with RS.
Mr Slade sought to obtain an estimate from counsel's clerks for a 22 week trial. Counsel's clerk gave an estimate for a silk and two juniors or for three juniors of £3.3m plus VAT and £2.273m plus VAT respectively. He noted that he had little detail about the case.
Mr Slade has asked RS's professional costs draftsman to provide a budget for the work from now until the end of the trial of some £7m including VAT.
Mr Slade has reviewed D1's assets with D1. The main assets are a house in Sussex ( the House), two valuable watches ( the Watches), and two valuable shotguns ( the Guns) (together the Relevant Property).
There is a dispute about the value of these assets. D1 says that they are worth about £4m. Cs say they are worth less, perhaps £3.1m.
In addition to these assets D1 has other assets which may be worth around £500,000.
Mr Slade explains in his statement that the Relevant Property will take some time to realise. He also explains that it is unlikely that D1 will be able to raise money on the House while these proceedings are ongoing. As to a sale of the House there may be off-market buyers interested in it. As a backstop there could be a sale through Savills. At the hearing Mr Slade said that the first auction where this could take place was in November.
There was very little evidence before the court about the process by which a sale could take place, whether Savills would be the best auction house for the House and what marketing process would be expected to take place. Equally there was very little evidence about the best way of selling the Guns or Watches, were that to happen.
Mr Slade explains that, on D1's case, the realisable value of the Relevant Property is probably more than £3m but less than £4m. This is far less than the budgeted figure of £7m to the end of trial. Mr Slade has agreed with D1 the terms of a conditional fee agreement (the CFA) under which he and counsel would agree to take the case to the end of trial for a fixed fee of the lesser of £4m and the net realisations from the Relevant Property. There would be an uplift of 100% in the event of success on the claim based on RS's hourly rates and counsel's fees. Mr Slade accepted that RS would be entitled to the full amount of the fixed fee if the case settles before trial or its conclusion. But Mr Slade also explained that this arrangement involved RS and counsel taking the risk of representing D1 for the fixed fee and the case running to its full length even if that meant in effect that RS would be working for less than it would otherwise have charged (as per the budget). As I understood it the figure agreed in the CFA was partly justified between the parties by reference to the time estimates in the budget.
D1 also agreed with RS to give it a first-ranking mortgage over the House in respect of the liabilities under the CFA and one of the heads of relief sought in the application was that D1 should have liberty to do this.
Mr Slade explained that the arrangements with D1 were...
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