Basra & Others v Poole & Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE WARREN |
| Judgment Date | 25 October 2007 |
| Neutral Citation | [2007] EWHC 3528 (Ch) |
| Court | Chancery Division |
| Docket Number | IHC 364/07 |
| Date | 25 October 2007 |
[2007] EWHC 3528 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
Mr Justice Warren
IHC 364/07
MR C SEPHTON QC appeared on behalf of the Claimant.
MR A ZAMAN appeared on behalf of the First Defendant.
MR A WYHILL appeared on behalf of the Second Defendant.
: This is an application for a freezing order by the claimants, Mr Basra and 213 other claimants, against the first defendant, Mr Colin Poole, and his ex wife, Michelle Poole, who is not a party to the proceedings but has been joined for the purpose of obtaining injunctive relief.
The underlying action is a claim by over 200 investors in Claims Direct Ltd (“Claims Direct”) principally under section 150 of the Financial Services Act 1986, subsection (1) of which reads:
“(1) Subject to section 151 below, the person or persons responsible for any listing particulars or supplementary listing particulars shall be liable to pay compensation to any person who has acquired any of the securities in question and suffered loss in respect of them as a result of any untrue or misleading statement in the particulars or the omission from them of any matter required to be included by section 146 or 147 above.”
Mr Poole was a director of Claims Direct and involved in the initial public offering in July 2000. The directors issued a prospectus in relation to that IPO which, according to the claimants, was untrue, misleading and inaccurate. They sued Mr Poole under the Section relying on section 152(1)(b), which reads:
“For the purposes of this Part of this Act the persons responsible for listing particulars or supplementary listing particulars are—
(b) where the issuer is a body corporate, each person who is a director of that body at the time when the particulars are submitted to the competent authority.”
They also sued Mrs Poole and Investek Bank (UK) Limited (“the Bank”) relying on section 152(e), which has the same introductory words that I have set out and reads:
“each person not falling within any of the foregoing paragraphs who has authorised the contents of, or any part of, the particulars.”
The cases against Mr Poole and the Bank are therefore different in the sense that, so far as the claim under the Act is concerned, there is a different hurdle to jump.
Freezing orders are sought against Mr Poole and Mrs Poole. Against Mr Poole a worldwide freezing order is sought; against Mrs Poole a freezing order is sought in relation to a property known as Netley Hall (about which I will say more in a moment). Netley Hall is now vested in Mrs Poole. The claimants say that it belongs beneficially to Mr Poole or, alternatively, that the transfer to Mrs Poole is vulnerable under section 329 of the Insolvency Act 1986.
The principles under which freezing orders are granted against defendants are not in dispute. The essentials are that the claimant must show a good arguable case and, if so, he must establish that there is a risk of dissipation of assets. This is really shorthand for what Mr Zaman, who appears for Mr Poole, sets out in paragraph 6(4) of his skeleton argument, and he sets out a passage from Ninemia Maritime Corporation v Trave GbmH [1983] 1 WLR 1412 in the Court of Appeal, citing a passage from the judgment of Kerr LJ at page1422H:
“In our view the test is whether, on the assumption that the plaintiffs have shown at least “a good arguable case,” the court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied.”
The grant of an injunction is always at the discretion of the court. The question is whether it is just and convenient to grant an injunction taking into account all of the relevant facts including the prejudice to the defendant if an injunction is granted, and it must be remembered that a claimant is not entitled to interfere with the defendant's ordinary business or his ordinary way of life, as was explained by Clarke LJ in Halifax plc v Chandler [2001] EWCA Civ 1750 at paragraphs 18 to 20.
The case against a defendant must be properly formulated, something which has recently been emphasised by the House of Lords in Fourie v Le Roux [2007] 1 WLR 320. The jurisdiction to grant injunctions against a non-party where there is no direct claim against her is, in certain circumstances, well established. Such orders are, however, ancillaryouse to the claims against the actual defendant. The most frequently cited example of the exercise of this jurisdiction is TSB v Chabra [1992] 1 WLR 231 where there was vested in the third party property in respect of which there was a good arguable case that it belonged to the defendant. More recently, Briggs J in Inland Revenue & Customs Commissioners v Egelton [2007] 1 All ER 606 has held that an injunction could be obtained against directors of a company which was, it is said, liable for very large amounts of outstanding VAT as the result of a carousel fraud. The basis of this relief was that the directors might well be liable to the company at the suit of the yet to be appointed liquidator. It was just and equitable to freeze their assets to prevent their dissipation before such a liquidator had been able to act. Even so, the applicant would need to show a good arguable case for one of the following: (a) assets being held by the third party belonging to the defendant; (b) a disposition of assets by the defendant to the third party liable to be set aside under section 423 of the Insolvency Act 1986, which concerns transactions defrauding creditors; or (c) an impending insolvency in the course of which the trustee in bankruptcy or liquidator would be able to recover for the benefit of creditors, for instance, where the transfer is at an undervalue or constitutes a preference.
As I have said, it is important that the case against the defendant is clearly formulated, but more so must the possible claim against a third party be clearly formulated. In that context, it will be seen that reliance is placed in effect on the third of the matters which I have just listed, whereas the first two matters are not asserted, at least in any pleading. Since the purpose of the injunction is to prevent the risk that the judgment against the defendant would remain unsatisfied, it seems to me that there must be a real risk that the third party will deal with her assets, in particular those which are said to belong to the defendant or which the third party holds as a result of a transaction at an undervalue or made in fraud of creditors in such a way as would prevent the defendant's own claim to the assets or the right of his trustee in bankruptcy to set aside a transaction at undervalue having any value. Mr Wyhill submits that there must be evidence of a real risk of dissipation by the defendant. In other words, an ancillary freezing order should really be made only where a freezing order is made against the defendant himself. No doubt in many if not most cases that is so, but it might not necessarily be the case where, for instance, the defendant has insufficient assets to meet any judgment and where there is no risk that the defendant himself will dissipate what assets he does have but where the holder of assets, which according to the claimant belong to the defendant, might well put them out of reach of creditors.
I do not think that I need go into the details of the alleged inadequacies in the prospectus, but I mention the headline complaints.
It did not disclose that some of the proceeds of the IPO were to be used to pay commitments already incurred. It failed to disclose the substance of the advice Claims Direct had obtained to the effect that its customers' costs might be recoverable. It set out the costs structure of individual transactions and stated that the gross profit of the claim was £660 even though Claims Direct knew that the costs structure was about to change. It failed to disclose that significant changes were being made in the business. It failed to disclose the fact that provision should be made for the potential claims by customers who had been unable to recover their costs from opponents. It failed to disclose a long list of significant features of which Claims Direct was aware, which is set out in the Particulars of Claim at paragraph 89.
The claimants have all bought at different times shares in Claims Direct. It is alleged that they have all suffered loss in that they have either sold their shares at a loss or they retained their shares which are now suspended and are effectively worthless.
The claimants' anticipated losses and costs are these. The claims amount to £2.9 million, interest £1.4 million, disbursements £1.3 million, generic costs £2.3 million, individual costs £230,000, and a success fee and VAT. The total is, accordingly, approximately £10 million.
As to costs, the amount of the freezing order sought includes a very substantial amount of costs to trial. Mr Wyhill submits that this claim is entirely unsupported by the evidence. It appears that the claimants' solicitors are acting on a conditional fee agreement, but the CFA has not been disclosed in whole or in part, including its date, which he says is critical to its validity. The definition of “success” is not disclosed, nor whether the claimants had any independent obligation to pay the claimants' solicitors' costs in the event of success or whether their rights are confined to...
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