Kea Investments Ltd v Eric John Watson

Hearing date: 19 October 2020

APPROVED JUDGMENT

( 4:04 pm)

Monday, 19 October 2020

Judgment and Ruling by Lord Justice Nugee

Sentencing Judgment

On 2 October 2020 I handed down judgment on this application, which is an application to commit the respondent, Mr Eric Watson, for contempt of court. The neutral citation of my judgment is [2020] EWHC 2599 (Ch).

This is no substitute for the full findings which I made in that judgment, but in short summary, I found Mr Watson to have been in breach of a number of provisions of the April Order, but none of them to have been contumacious. I did find him guilty of one contumacious breach of the November order, that is Count 4, in failing to disclose, and give bank statements for, a bank account in his mother's name which I found, in fact, to have been money that was at his disposal, either in total or, at any rate the vast bulk of it. I am now asked to deal with sentencing.

I am grateful to both counsel for the careful and thorough way in which they have addressed me, to Ms Jones for having quite properly brought to my attention the authorities on the legal principles applicable and such matters of fact as might be thought relevant to sentencing, and to Mr Grant for a most eloquent and thorough mitigation on behalf of Mr Watson.

I was taken by Ms Jones on a tour of the authorities. I do not propose in this short judgment to recite them all. I did not understand Mr Grant to dispute the principles that are applicable. I will, however, mention some of the principles to be drawn from the authorities.

I can start with the judgment of Jackson LJ in JSC BTA Bank v Solodchenko [2011] EWCA Civ 1241, where at [45] he said that the sentence for a civil contempt:

“… performs a number of functions. First, it upholds the authority of the court by punishing the contemnor and deterring others. Such punishment has nothing to do with the dignity of the court and everything to do with the public interest that court orders should be obeyed. Secondly, in some instances, it provides an incentive for belated compliance, because the contemnor may seek a reduction or discharge of sentence if he subsequently purges his contempt by complying with the court order in question.”

Both counsel accepted that this is an example of the first type of case. This is not a case where the purpose of sentencing is to provide an incentive for belated compliance.

The procedural framework for committals found in Part 81 of the Civil Procedure Rules has very recently, with effect from 1 October, been replaced by a new Part 81, and technically that applies to this hearing, but neither counsel suggested that there was anything in the new rules which affected the principles by which sentencing was to be carried out, and I was shown a very recent judgment of Nicklin J, Oliver v Shaikh [2020] EWHC 2658 (QB) in which he said precisely that: see at [14].

In the Court of Appeal's decision in Liverpool Victoria Insurance Co Ltd v Khan [2019] EWCA Civ 392 at [58] they gave the following guidance (this is the judgment of the Court):

“It is therefore appropriate for the court dealing with this form of contempt to consider (as a criminal court would do) the culpability of the contemnor and the harm caused, intended or likely to be caused by the contempt of court. Having in that way determined the seriousness of the case, the court must consider whether a fine would be a sufficient penalty. If it would, committal to prison cannot be justified, even if the contemnor's means are so limited that the amount of the fine must be modest.”

In a further decision of the Court of Appeal, Financial Conduct Authority v McKendrick [2019] EWCA Civ 524, having referred to the Liverpool Victoria case, which was a case of contempt of court involving a false statement verified by a statement of truth, the Court said at [39]:

“We consider that a similar approach should be adopted when — as in this case — a court is sentencing for contempt of court of the kind which involves one or more breaches of an order of the court. The court should first consider (as a criminal court would do) the culpability of the contemnor and the harm caused, intended or likely to be caused by the breach of the order. In this regard, aggravating or mitigating factors which are likely to arise for consideration will often include some of those identified by Popplewell J in the Asia Islamic Trade Finance Fund case. Having considered the seriousness of the case, the court must consider whether a fine would be a sufficient penalty. If it would, committal to prison cannot be justified, even if the contemnor's means are so limited that the amount of the fine must be modest.”

The first question, therefore, is the degree of culpability and the degree of harm, those being matters which go to the seriousness of the contempt. The Court of Appeal continue in FCA v McKendrick at [40]:

“Breach of a court order is always serious, because it undermines the administration of justice. We therefore agree with the observations of Jackson LJ in the Solodchenko case as to the inherent seriousness of a breach of a court order, and as to the likelihood that nothing other than a prison sentence will suffice to punish such a serious contempt of court.”

That is a reference to what Lord Justice Jackson had said in Solodchenko. At [51], having referred to there having been many cases involving breaches of freezing orders, he said:

“I shall not attempt to catalogue all those first instance decisions. What they show collectively is that any deliberate and substantial breach of the restraint provisions or the disclosure provisions of a freezing order is a serious matter. Such a breach normally attracts an immediate custodial sentence which is measured in months rather than weeks and may well exceed a year.”

In his submissions, Mr Grant submitted that the present contempt could not accurately be described as falling within Jackson LJ's words as being a breach of the disclosure provisions of a freezing order. Two points were made. The first is that the September Consent Order (and where I use terms defined in my committal judgment they have the same meaning as there), which contained undertakings by Mr Watson in the form of what has come to be called a notification undertaking, was not to be equated with a freezing order. That is a submission which at one stage I might have had some sympathy with, but since the Court of Appeal's decision in Holyoake v Candy [2017] EWCA Civ 92, it is impossible to regard a notification injunction or, as in this case, a notification undertaking, as anything other than a species of freezing order or freezing undertaking.

Secondly, Mr Grant said that the disclosure provisions in the September Order (and a fortiori, I suspect he would have said the disclosure provisions in the November Order) were deliberately divorced from the notification undertaking and therefore could not be said to be disclosure provisions of a freezing order. Technically, no doubt, he is right, but I do not think that that is a point of any substance. The purpose of the many disclosure obligations which have been imposed on Mr Watson since judgment was entered against him has been to enable Kea to have full visibility of his assets with a view to enforcing the judgment. I do not see any difference in principle between a disclosure order contained in a freezing injunction, whether before or after judgment, and the disclosure orders in this case, including the November order, breach of which I have found to be a contempt of court, which were made in support of Kea's attempts to enforce its judgment, a necessary first stage being for Kea to understand what Mr Watson's assets consisted of.

A question was also raised as to whether a breach of orders of this type is or is not more serious when made after judgment rather than before judgment. Ms Jones quite properly drew my attention to two cases in the same litigation, one in relation to a Mr Stepanov, JSC BTA Bank v Stepanov [2010] EWHC 794 (Ch), a decision of Roth J, and the other in relation to a Mr Shalabayev, JSC BTA Bank v Solodchenko [2011] EWHC 2908 (Ch), a decision of Briggs J, as he then was. Among the factors which Roth J took into account when sentencing Mr Stepanov for wholesale breaches of the orders in that case was this (at [23]):

“thirdly, this is a case where there has been judgment for very significant sums of money against this defendant, and the orders in question were in support of a claimant's rights resulting from that judgment.”

And one of the matters which Briggs J referred to when sentencing Mr Shalabayev was that he was going to impose a sentence of only 18 months as compared with 2 years imposed on Mr Stepanov for these reasons (see page 6 of the transcript):

“I have not imposed the full two year sentence available only because of the distinction which I have described between this case and that of Mr Stepanov, namely that there has yet to be a judgment against Mr Shalabayev in relation to which his continued flagrant non-compliance with the contempt order would provide the added prejudice to the claimants, namely an inability to find assets against which to enforce a judgment against him.”

I accept Mr Grant's submission that those were very different cases in which the respective contemnors...