Michael Wilson & Partners, Ltd v John Forster Emmott
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lady Justice Gloster,Lady Justice Black |
| Judgment Date | 14 October 2015 |
| Neutral Citation | [2015] EWCA Civ 1028 |
| Docket Number | Case No: A3/2015/2861 & 2888 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 October 2015 |
[2015] EWCA Civ 1028
Lady Justice Black
Lord Justice Lewison
and
Lady Justice Gloster
Case No: A3/2015/2861 & 2888
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Justice Andrew Smith
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Nicolas Lavender QC (instructed by Michael Wilson) for the Appellant (Michael Wilson & Partners, Ltd)
Mr Lance Ashworth QC & Mr Dan McCourt Fritz (instructed by Michael Wilson) for the Appellant (Michael Wilson)
Mr Philip Shepherd QC (instructed by Kerman & Co LLP) for the Respondent (Mr Emmott)
Hearing date: 30 September 2015
On 5 December 2014 HHJ Mackie QC granted a freezing injunction against Michael Wilson & Partners Ltd ("MWP"). The order contained an exception in standard terms which stated:
"This order does not prohibit the Respondent from dealing with or disposing of any of its assets in the ordinary and proper course of business."
The order also contained provision permitting the parties or anyone served with it to apply to discharge or vary it. The main issue raised on this appeal is whether two payments made by MWP, which would otherwise have been prohibited by the freezing order, were permitted as a result of the exception. By his judgment given on 17 July 2015 Andrew Smith J held that they were not.
It is not necessary to say much about the underlying dispute. MWP is a company incorporated in the BVI which provides legal and business consultancy services in Kazahkstan and Azerbaijan. Mr Michael Wilson is the sole director of MWP. Mr Emmott entered into a form of partnership agreement with MWP, but the relationship broke down. Following the breakdown the parties were engaged in an arbitration which resulted in an award made in favour of Mr Emmott. The freezing order was granted in aid of that award.
Among MWP's clients were the Assaubuyev family, their companies, bank and trusts. MWP had claimed more than US$4.2 million in fees from them, and success fees in addition. The claim was ultimately compromised on 2 March 2015 by a settlement agreement. On 17 March 2015 MWP received into its bank account in Kazakhstan the sum of US$4.6 million odd. MWP then made the two payments which are alleged to have been breaches of the freezing order:
i) A payment of US$1,856,500 to Kazholdings Inc, a BVI company ("the KHI payment") and
ii) A payment of US$1,232,515 to Kazholdings LLP, a subsidiary of KHI ("the LLP payment").
In his tenth witness statement dated 20 May 2015 Mr Wilson described the KHI payment as follows:
"Repayment of part of the principal of the Secured Loan, advanced to cover the costs incurred (in mediation, arbitration, the SCCO, the QBD and the Court of Appeal, paying costs orders and in providing for security for costs) in chasing and recovering the debt from the Assaubayevs/Hawkinson/Gold Lion, given their default from February 2011 until March 2015."
He described the LLP payment as follows:
"Office Rental, Service and Maintenance (including VAT at 12%)"
Mr Emmott's position, set out in his fourth witness statement dated 29 May 2015, is that Mr Wilson controls KHI and, since the LLP is a wholly owned subsidiary of KHI, controls that too. He alleges that the loan from KHI to MWP is "a fiction", and that Mr Wilson has produced no evidence to demonstrate its reality. Although there are documents associated with the alleged loan, Mr Emmott says that they are "bogus". He says that the rent allegedly due is "grossly inflated" and any agreement to pay it is a sham.
Mr Wilson replied to those allegations in his seventh witness statement dated 3 June 2015. He said that without KHI there would be no MWP because banks were not willing to lend. He said that the loan was secured at the outset by a fixed and floating charge over all MWP's assets; and that there were further advances made from time to time. The rate of interest was 5 per cent over US LIBOR which, he said, was a reasonable rate. Mr Wilson also denied that he controlled KHI. He accepted, however, that LLP was a wholly owned subsidiary of KHI. In his eleventh witness statement dated 15 July 2015 Mr Wilson said:
"Almost all foreign investors in Kazakhstan, including MWP… structure their affairs in an appropriate and tax-efficient manner, typically funding their operations not through injections of cash equity, but instead through financing and loans. …
Thus, indeed, KHI financing MWP was always, and still is, an appropriate, robust, compliant and tax efficient solution. This is especially the case because law firms and business consultants cannot borrow from local banks, who prefer to lend only against physical assets, and not to mere service providers, and even if they could … borrow from local banks, interest rates are penal…"
Mr Wilson also gave written evidence about how MWP came to take a lease of its offices in Almaty, Kazahkstan from LLP; and produced monthly invoices from LLP to MWP. In summary his account was that MWP had entered into an agreement for lease with a company called Bazis-A Corporation. Under the terms of the agreement MWP was required to fit out the offices. Bazis-A Corporation terminated the agreement just before MWP had finished the fit-out, but after it had terminated the lease on its former offices. It was in those circumstances that LLP decided to buy out Bazis-A Corporation, thus preventing MWP from becoming homeless. He denied that the rent was an inflated one; and went on to say that it had been reduced following the world financial crisis. He repeated much of this in his eleventh witness statement.
The judge decided that each of the disputed payments was a breach of the freezing order. At a subsequent hearing on 10 August 2015 he imposed a substantial fine on MWP and committed Mr Wilson to prison for contempt for a term of eight months in relation to each payment, the two terms to be served concurrently. Both MWP and Mr Wilson appeal against the judge's order: Mr Wilson as of right, and MWP with the judge's permission. No Respondent's Notice has been filed by Mr Emmott, so the question for us is whether the judge was right for the reasons that he gave. We are not concerned with the question whether his order might be upheld on different or additional grounds.
It is common ground that the burden of proof in an application for committal for contempt lies on the applicant and that the standard of proof is to the criminal standard. This applies also to the question whether a disputed transaction falls within the exception: Nokia Finance SA v Interstone Trading Ltd [2004] EWHC 272; JTC BTA Bank v A [2010] EWCA Civ 1141 at [79]. It was thus for Mr Emmott to prove that the disputed transactions were not covered by the exception; not for MWP to prove that they were. I reject the suggestion that the judge failed to apply the appropriate burden and standard of proof. He directed himself at [2] that the applicable standard was the criminal standard; and at [15] he rejected Mr Emmott's case on the genuineness of the KHI loan because Mr Emmott had not satisfied him to the requisite standard that the money had not been lent. Plainly he regarded the burden as lying on Mr Emmott and the requisite standard as being the criminal standard.
In any event, in his judgment on the substantive application the judge did not make factual findings on disputed evidence adverse to MWP or Mr Wilson. There were really only two aspects of the case that gave rise to disputed issues of fact:
i) Was the loan from KHI bogus as Mr Emmott alleged, or was it genuine as Mr Wilson alleged;
ii) Was the rent for the Almaty offices inflated as Mr Emmott alleged, or was it the market rate as Mr Wilson alleged?
Everything else was an evaluation of the facts.
On the first of those questions the judge said that Mr Emmott had not persuaded him to the required standard that KHI had not lent money to MWP. He must have proceeded, therefore, on the basis that there was a genuine secured loan. On the second of those questions the judge said that he was not in a position to reach a conclusion on the question whether the rent was inflated and said that he would ignore that suggestion. We, too, must proceed on that basis.
The KHI loan agreement was dated 23 July 1998. Under its terms KHI agreed to lend MWP those amounts that MWP might request that were necessary to finance its business and to maintain its branch in Almaty, and which were approved by KHI. Clause 4.1 of the agreement provided for the payment of interest. Clause 4.2 provided that MWP would repay the principal amount of the loan, together with all interest accrued due, on receipt of written notice from KHI. On 22 November 1998 MWP granted KHI a fixed and floating charge to secure repayment of the loan. Clause 9 of the charge defined the assets subject to the charge in wide terms and expressly included "present and future receivables".
A schedule of draw down and repayments shows a steadily increasing balance outstanding under the loan agreement. Repayments were infrequent: the first were not made until February 2005. Further repayments were made in May and June 2006; and four repayments (totalling $1.143 million) were made in fairly short order between September and November 2010. There were four more repayments in 2011, the last in October of that year; and thereafter no further repayment until the repayment in dispute. Both at the time when Mr Emmott's claim was quantified in the arbitration (30 October 2014) and at the time of the disputed payment the outstanding balance due to KHI was $27 million odd. On 25 April 2015 KHI made a written...
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