Kea Investments Ltd v Eric John Watson
| Jurisdiction | England & Wales |
| Judge | Mr Justice Nugee |
| Judgment Date | 02 March 2020 |
| Neutral Citation | [2020] EWHC 472 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC-2015-001647 |
| Date | 02 March 2020 |
[2020] EWHC 472 (Ch)
Mr Justice Nugee
Case No: HC-2015-001647
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (CHD)
Rolls Building, Royal Courts of Justice
Fetter Lane, London, EC4A 1NL
Elizabeth Jones QC, Paul Adams and Oliver Jones (instructed by Farrers LLP) for the Claimant
Richard Power and Guy Olliff-Cooper (instructed by Clyde & Co LLP) for Ivory Castle and Mr Gibson
Hearing dates: 4, 5 and 6 February 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This judgment concerns the question whether a defendant can have resort to assets that are subject to an injunction to fund the costs of his defence. Over the course of 3 days I heard wide-ranging argument from Ms Elizabeth Jones QC for the Claimant, Kea Investments Ltd ( “Kea”), and from Mr Richard Power for the 8 th Defendant, Ivory Castle Ltd ( “Ivory Castle”), and the 9 th Defendant, Mr William Gibson ( “Mr Gibson”). The case was very well argued on both sides and gives rise to a number of points of some difficulty.
Background
The background is well known to the parties but for reasons that will become apparent it is necessary to set it out in some detail. In April 2015, Sir Owen Glenn and Kea brought proceedings for fraud and breach of fiduciary duty against the 1 st Defendant, Mr Eric Watson ( “Mr Watson”), and others. The proceedings were tried by me and after a lengthy trial, I handed down judgment on 31 July 2018 ( “the Main Judgment”) in Kea's favour, holding (among other things) that investments totalling £129m which Kea had made into a joint venture called Project Spartan had been procured by deceit on the part of Mr Watson and breach of fiduciary duty: see Glenn v Watson [2018] EWHC 2016 (Ch). I held that Kea was entitled to set the joint venture agreements aside and recover the monies paid over to the joint venture vehicle, together with interest, and that insofar as the joint venture vehicle was unable to pay, Kea was entitled to equitable compensation for the shortfall from Mr Watson. Kea was also entitled to trace into, and elect whether to claim, assets acquired by Mr Watson with some £12m of its money which had found its way into the hands of a company associated with Mr Watson.
After further argument on 10 and 13 September 2018 the Main Judgment was given effect to by an Order made by me and sealed on 14 September 2018. This did not quantify precisely the amount of equitable compensation that Mr Watson was liable to pay Kea, as that depended on the extent to which Kea was able to find, and elected to claim, traceable assets, but it set a maximum figure for equitable compensation of about £43.5m, and ordered Mr Watson to make an interim payment of slightly over £25m, together with over £3.8m on account of costs. Mr Watson did not appeal the findings in the Main Judgment or the Order of 14 September 2018, save in respect of the interest rate used in the calculation of the quantum of equitable compensation, which I had set at 6.5% pa and which he appealed with my permission. The appeal was dismissed by the Court of Appeal in October 2019: see Watson v Kea Investments Ltd [2019] EWCA Civ 1759. That means that there is no longer any doubt that Mr Watson is liable, at the very least, for the two sums which I ordered him to pay.
Mr Watson has not voluntarily paid a penny of either sum. Kea has managed to identify, and compel payment from, various assets, and has thereby obtained comparatively small sums towards the judgment debt but is still owed the vast majority of it, and has found it difficult to locate, let alone execute against, any substantial assets. This is particularly frustrating for Kea as Mr Watson formerly allowed himself to be represented as one of New Zealand's wealthiest men, but now claims to be impecunious. I am not directly concerned on the present applications with whether he is right about that, but it is clear that Kea and its legal team do not believe him, and there have been numerous post-judgment applications, all heard by me, in which Kea has sought to pursue its rights as judgment creditor against Mr Watson and in which Mr Watson has claimed not to have any assets.
By contrast however Mr Gibson, an accountant who has worked for Mr Watson for many years and whose own description of himself at trial was that he was Mr Watson's “right-hand man”, appeared to Kea to have access to valuable assets. In particular Mr Gibson was the settlor and (together with his father) one of the beneficiaries of a Hong Kong trust called the Heron Bay Trust. The Heron Bay Trust owns Ivory Castle, a BVI company which it uses as a corporate vehicle to hold assets; and among the assets which Ivory Castle holds are a shareholding in an English company called Long Harbour Residential Freeholds Ltd ( “LHRF”), which has a valuable ground rents business (as detailed in the Main Judgment), and interests in certain associated partnerships, including in particular a Guernsey limited partnership called Aegean LP ( “Aegean”), which is used as a means of distributing profits to its participants. It had in fact been the Claimants' case at trial that Mr Watson, who initially had the valuable right to take up the LHRF shares, had allowed them to be taken in the name of Ivory Castle as a nominee for him, but I did not find it necessary to resolve that issue in the Main Judgment: see at [441].
In November 2018 however Kea learned that Aegean was due to make a substantial cash payment of about £2m to Ivory Castle by way of a distribution in respect of its interest in Aegean. That prompted Kea to seek to restrain payment of the money, Kea's case being that assets held by Ivory Castle were in truth held by it for Mr Watson as bare trustee or nominee, or on terms that they could be made available to him, or were otherwise amenable to execution of Kea's judgment debt against Mr Watson. (I will refer to Kea's case as being that Ivory Castle “is a nominee for” Mr Watson, as a way of encompassing all the various ways Kea puts its contention without having to repeat all the variants on each occasion). Aegean agreed to hold the money for a short period pending Kea applying to the Court.
That ultimately led to Kea making applications (i) to join Ivory Castle and Mr Gibson into these proceedings; (ii) for permission to serve Ivory Castle out of the jurisdiction; (iii) to amend its pleadings to assert that Ivory Castle was a nominee of its assets for Mr Watson, and to claim not only declarations to that effect but also the appointment of a receiver over them by way of equitable execution of Kea's judgment debt; and (iv) for injunctive relief against Ivory Castle to restrain the payment to it of the money due from Aegean, and in relation to its other assets in the form of what has come to be known as a notification injunction (following my decision in Holyoake v Candy [2016] EWHC 970 (Ch) where this expression was used by me, and adopted by Gloster LJ on appeal [2017] EWCA Civ 92). Since there was no immediate risk to the Aegean moneys, the applications were made on notice to Ivory Castle and Mr Gibson.
They were argued before me over 2 days on (Friday) 25 January 2019 and (Monday) 28 January 2019 by Ms Jones for Kea, and Mr Charles Béar QC for Ivory Castle and Mr Gibson. At the conclusion of argument on the Monday, I was not in a position to give an immediate judgment, but I thought I ought to grant a short-term injunction until I could do so. That could not be until (Friday) 1 February 2019 as I was sitting in the Court of Appeal that week and fully occupied on Tuesday to Thursday. Mr Béar however took the point that I could not even grant a temporary injunction against Ivory Castle without being satisfied that it was an appropriate case to grant leave to serve out of the jurisdiction, so I gave a very short ruling concluding that it was an appropriate case for permission to serve out, but making it clear that that was a provisional view and that if after considering the very detailed arguments put before me I changed my mind I would discharge that order, and indicating that I would endeavour to give a definitive answer at 2 pm on 1 February. On that footing I granted an injunction against Ivory Castle, expressed to last until then; in relation to the Aegean moneys, it required Ivory Castle to instruct Aegean to retain the moneys and not pay them over to Ivory Castle; in relation to its other assets, Ivory Castle was restrained from dealing with, or disposing of, them without 14 days' notice to Kea's solicitors. It contained an exception to the order under which Ivory Castle could spend up to £150,000 on legal representation. There had been almost no discussion of this last point at the hearing. Kea's draft order, adapted from the standard Commercial Court form of freezing order, had provided for Ivory Castle to spend “up to [£]” on legal representation and there was a very brief discussion of the amount, Ms Jones not objecting to the figure that had been referred to in Mr Gibson's witness statement (thought to be £130,000, but in fact £150,000).
I was in the event able, as envisaged, to give an oral judgment at 2 pm on (Friday) 1 February 2019. In that judgment I upheld my provisional view that Kea should be permitted to join Ivory Castle and Mr Gibson, to amend its pleadings, and to serve Ivory Castle out of the jurisdiction; I also held that Kea had established a good arguable case on the merits and a real risk of dissipation such as to justify...
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