3PLR – FEDERAL BANK OF THE MIDDLE EAST LTD V HADKINSON AND OTHERS

POLICY, PRACTICE AND PUBLISHING, 3PLR, LAW REPORTS

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FEDERAL BANK OF THE MIDDLE EAST LTD

V.

HADKINSON AND OTHERS

CIVIL PROCEDURE

COURT OF APPEAL, CIVIL DIVISION

15-18 NOVEMBER 1999, 9 MARCH 2000

3PLR/1999/40  (CA)

 

 

BEFORE THEIR LORDSHIPS:

NOURSE

PILL AND

MUMMERY LJJ

 

MAIN ISSUES

Practice – Pre-trial or post-judgment relief – Mareva injunction – Assets – Assets covered by injunction – Claimant obtaining freezing order prohibiting defendants from disposing or dealing with `their assets and/or funds’- Principal defendant transferring funds from accounts held in his name to accounts held in wife’s name – Whether transfers breaching order if defendant having no beneficial interest in accounts.

 

In the course of proceedings against H and various companies in which he was involved, the claimant bank obtained a worldwide freezing order. That order was in the standard form, prohibiting the defendants from disposing of or dealing with or diminishing the value of any of `their assets and/or funds’, whether in their own name or not and whether solely or jointly owned, and also ordered disclosure of all of `their assets and/or funds’. Without the bank’s knowledge or the court’s permission, H transferred funds from two accounts held in his name in a Jersey bank to accounts at the same bank held in his wife’s name. On a subsequent application by H to discharge the disclosure provisions against him, the bank contended that those transfers constituted a breach of the freezing order. In response, H contended that he had not been beneficially entitled to the relevant accounts, and that the freezing order did not extend to assets of which he was the bare legal owner. For the purposes of the application, it was assumed that H had no beneficial interest in the accounts, and the hearing was therefore confined to the construction of the freezing order, with H giving no evidence about the alleged contempts. The judge held that the order extended to assets of which H was the bare legal owner, and that accordingly he was in breach of the order and in contempt of court, even on the assumption that he had no beneficial interest in the accounts. She therefore prohibited H from taking any further step in the action without leave of the court until he had purged his contempt on an application brought on proper evidence. H appealed, challenging the judge’s construction of the freezing order.

 

Held – The words `his assets and/or funds’ in the standard form of freezing order were not apt to cover assets and funds which belonged, or were assumed to belong, beneficially to someone other than the person restrained. Rather, they were confined to assets and funds belonging to the defendant, and which were and should remain available to satisfy the claim against him. Such a construction was consistent both with everyday usage of the term `his assets’ and with the purpose of a freezing order. However, the court could make an appropriately worded order to cover assets and funds which might not belong beneficially to the defendant. For example, the order could refer to bank accounts `in the name of’ the person restrained or preferably to bank accounts identified by number and branch. Such accounts would then be caught by the order, even if it were discovered after fuller inquiry on notice that the assets belonged beneficially to a third party and that the order therefore had to be modified or discharged. In the 395 instant case, the order contained no words extending its effect to the bank accounts which were assumed not to be in H’s beneficial ownership, and it followed that, on the basis of that assumption, H had not breached the order. Furthermore, it had been premature to mete out punishment for contempt on an informal application made at short notice before all the relevant facts had been put before the court. Rather, the judge should have exercised her undoubted discretion to decline to deal with the matter in the informal manner raised by the bank, granted an adjournment of the contempt point to enable the bank to issue and serve a proper application for committal supported by evidence and given H an opportunity to serve evidence. Accordingly, the appeal would be allowed (see p 409 a to g, p 410 e to g, p 411 f to j, p 414 e j and p 415 j to p 416 d j to p 417 a c, post).

 

Notes

For freezing orders (formerly known as Mareva injunctions), see 24 Halsbury’s Laws (4th edn reissue) paras 866-871.

 

Cases referred to in judgments

A v C [1980] 2 All ER 347,[1981] QB 956,[1981] 2 WLR 629.

Hadkinson v Hadkinson [1952] 2 All ER 567,[1952] P 285, CA.

Iberian Trust Ltd v Founders Trust and Investment Co Ltd [1932] 2 KB 87,[1932] All ER Rep 176.

Jackson v Sterling Industries Ltd (1987) 162 CLR 612, Aust HC.

Mareva Cia Naviera SA v International Bulkcarriers SA, The Mareva (1975)[1980] 1 All ER 213, CA.

R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59, WA SC.

R v City of London Magistrates’ Court, ex p Green [1997] 3 All ER 551, DC.

SCF Finance Co Ltd v Masri [1985] 2 All ER 747,[1985] 1 WLR 876, CA.

Searose v Seatrain (UK) Ltd [1981] 1 All ER 806,[1981] 1 WLR 894.

Westpac Banking Corp v Gill (No 1)(1987) 2 PRNZ 52, NZ HC.

Z Ltd v A [1982] 1 All ER 556,[1982] QB 558,[1982] 2 WLR 288, CA.

 

Appeals

 

In three appeals in proceedings brought by the claimant, Federal Bank of the Middle East Ltd (the bank) against Charles Hadkinson, eight companies in which he was involved (Worldwide Corporation Ltd, Worldwide Countertrade Ltd, Worldwide (Developments) Ltd, CG Worldwide Co Ltd, H & R Holdings Ltd, H & R (Europe) Ltd, H & R (Middle East) Ltd and H & R Import and Export Ltd) and Edmund Clive Sutton,(i) Mr Hadkinson appealed with permission of Arden J from her decision on 21 May 1999 that he was in contempt of court through breach of a freezing order granted by Eady J on 12 November 1997 and continued by Holland J on 3 December 1997;(ii) Mr Hadkinson and three of the Worldwide companies appealed with permission of the Court of Appeal granted on 22 April 1999 from the decision of Judge Hedley, sitting as a judge of the High Court, on 17 April 1998 granting the bank summary judgment against them in the sum of $11·5m; and (iii) the bank’s controlling shareholders, Fadi Michel Saab and Ayoub Farid Michel Saab, the bank and an associated trading company, Trade & Financial Services Ltd, appealed from the decision of Arden J on 24 May 1999 allowing an appeal by Mr Hadkinson and two of the Worldwide companies from the decision of 396 Master Ungley on 13 October 1998 striking out their counterclaim in the proceedings. The facts are set out in the judgment of Mummery LJ.

 

Richard McCombe QC and Matthew Collings (instructed by D J Freeman) for Mr Hadkinson.

 

Lawrence Cohen QC and Stephen Smith (instructed by Lovells) for the bank.

Cur adv vult

 

9 March 2000. The following judgments were delivered.

 

MUMMERY LJ (giving the first judgment at the invitation of Nourse LJ).

 

THE THREE APPEALS

 

Three appeals arise out of a series of disputes with a long and complex factual and procedural history. 1. An appeal against a finding of contempt of court and a consequent order made by Arden J on 21 May 1999. This appeal raises a general point on the meaning and effect of the standard wording of freezing orders and on the proper procedure to be followed in cases of contempt of court. It is by far the most important and the most difficult of the three appeals. I would allow this appeal. 2. An appeal against summary judgment for $11·5m granted by Judge Hedley on 17 April 1998. I would dismiss this appeal. 3. A cross-appeal against Arden J’s order of 24 May 1999 allowing an appeal against the decision of Master Ungley to strike out a counterclaim. I would dismiss this appeal.

 

THE BACKGROUND TO THE LITIGATION

 

1. The parties

 

The claimant is the Federal Bank of the Middle East Ltd (the bank), a private bank established in Cyprus and registered in the Cayman Islands. Mr Farid Saab is the chairman of the bank. He and his brother, Mr Fadi Saab, are the controlling shareholders and directors.

 

The first defendant is Mr Charles Hadkinson. He is an international entrepreneur dealing principally through the Worldwide group of companies based in Cyprus. Their customers are mainly in the Lebanon and Iraq. Mr Hadkinson is the driving force behind two groups of companies.(1) The Worldwide group.(This includes the 2nd-5th defendants: Worldwide Corporation Ltd, Worldwide Countertrade Ltd, Worldwide (Developments) Ltd and CG Worldwide Co Ltd.) (2) The H & R group.(This includes the 6th-9th defendants: H & R Holdings Ltd, H & R (Europe) Ltd, H & R (Middle East) Ltd, and H & R Import and Export Ltd.)

 

The bank claims that it is owed a total of $28m by Mr Hadkinson and his companies.

 

1. Others

 

Mr Imad Al-Jibouri is an Iraqi national and businessman. He was the principal customer of the Worldwide companies in the early days. He also became a customer of the bank.

 

Mr Asmar is a Lebanese national based in Romania. He was a business partner of Mr Hadkinson in the sale of cigarettes to Romania.

 

1. The main events in outline

 

In 1987 Mr Hadkinson approached the bank for banking facilities, which were granted to him and to the Worldwide companies in the form of letters of credit and warehousing finance. Mr Hadkinson gave the bank a number of guarantees, including an unlimited guarantee for the debts of Worldwide Corporation Ltd.

 

Mr Hadkinson introduced Mr Al-Jibouri to the Bank. His overdraft with the bank was guaranteed by Mr Hadkinson and the Worldwide companies. They also had overdrafts with the bank.

 

The arrangement was that the Worldwide companies bought goods and supplied them to Mr Al-Jibouri. He sold the goods in Iraq. He then paid the Worldwide companies for the goods.

 

In August 1990 Iraq invaded Kuwait. The Gulf War broke out. This brought the business of Mr Al-Jibouri and the Worldwide companies with Iraq to an abrupt halt. The Worldwide companies became dormant. They owed $16m to the bank and they were liable under a guarantee for another $2m. The banking relationship with Mr Al-Jibouri was also affected. He owed $3·5m to the bank. Relations between Mr Hadkinson and the Saab brothers cooled.

 

On 12 March 1991 Mr Hadkinson and the Worldwide companies made a new agreement with Mr Al-Jibouri. They would supply him with goods in the Zarka Free Zone in Jordan. Profits were to be split 75% to Worldwide and 25% to Mr Al-Jibouri. Mr Fadi Saab refused Mr Hadkinson’s request to give financial backing to this project on the ground that Mr Al-Jibouri had failed to honour commitments to the bank in the past.

 

Late in 1991 Mr Hadkinson discovered that the bank had taken up this trading opportunity, which had been disclosed by Mr Hadkinson to the bank, and had exploited it through an associated Liberian trading company, Trade & Financial Services Ltd (TFS). This has given rise to a counterclaim by Mr Hadkinson and the Worldwide companies against the bank, TFS and others for alleged misuse of confidential information imparted to the bank.

 

Another part of the counterclaim arises out of alleged breaches of a joint venture agreement made between Mr Hadkinson and Mr Fadi Saab on 17 May 1991. It was for the sale of tobacco products in the Middle East and Romania via a company called Bridge Overseas Ltd (Bridge). Cigarettes were to be supplied to a company called Romas Impex owned by Mr Asmar. In late 1991 Mr Fadi Saab told Mr Hadkinson that the bank was unwilling to continue to deal with Mr Asmar and Romas Impex because of their commercial unreliability and their failure to pay sums owed to the bank. Mr Fadi Saab then told Mr Asmar that he had acquired Bridge from Mr Hadkinson and the Worldwide companies. He told him that he should not communicate with Worldwide. If he did the bank would withdraw finance facilities from Romas Impex. Mr Hadkinson counterclaims on the basis that he only discovered in 1997 that business was diverted by Mr Fadi Saab from the joint venture to TFS.

 

On 10 November 1993 an agreement (the 1993 agreement) was made with the bank to resolve the financial difficulties of Mr Hadkinson and his companies by re-scheduling the existing indebtedness. It provided for a joint and several liability to repay in instalments the indebtedness of Mr Hadkinson and the Worldwide companies to the bank out of 50% of the profits of Worldwide. Mr Hadkinson agreed to work only for the Worldwide companies. Minimum repayments of the global debt were spread over five years.

No repayments were made. The bank’s claims against Mr Hadkinson and the Worldwide companies are based on breach of the 1993 agreement and a supplemental agreement made on 18 October 1995 (the 1995 agreement).

 

In the 1995 agreement Mr Hadkinson and the Worldwide companies undertook further obligations with regard to new companies in which Mr Hadkinson was or might become interested.

 

In January 1996 Mr Hadkinson became a major shareholder in H & R Middle East Ltd. On 31 December 1996 H & R Holdings Ltd was formed. In January 1997 further H & R companies were formed in the Isle of Man. This was done without the knowledge of the bank.

 

1. The proceedings in outline

 

1997-Freezing order

 

On 12 November 1997 Eady J granted a worldwide freezing order on a without notice application by the bank against Mr Hadkinson, the Worldwide companies and the H & R companies. The order was in the standard form prohibiting them from disposing of or dealing with or diminishing the value of any of `their assets and/or funds’, whether in their own name or not and whether solely or jointly owned, up to the value stated ($11·5m for each defendant), and in particular with a numbered bank account (No 695254) and any other account of any of the defendants at Chase Manhattan Private Bank, Geneva; ordering disclosure of all of `their assets and/or funds’; advising those restrained to consult a solicitor as soon as possible; and warning them that they might be found guilty of contempt of court if they disobeyed the order.

 

The defendants were also ordered to make immediate disclosure in writing of `all their assets and/or funds’, whether in their own name or not and whether solely or jointly owned, giving value, location and details of the assets and funds and information concerning the disposal and transfer since 10 November 1993 by the defendants of any and all of their assets or funds. The order was effective up to and including 3 December 1997 and contained the usual liberty to apply to the court at any time to vary or discharge the order.

 

On 18 November the writ was issued by the bank. The main claim was for payment of $11·5m due under the 1993 agreement in respect of the period 31 December 1994 to 31 December 1995. Other claims were made, and later amplified by amendment, for damages for breach of contract, breach of fiduciary duty, conspiracy and inducing breach of contract. The present appeals are not concerned with those claims.

 

On 2 December the freezing order was served on Mr Hadkinson.

 

On 22 November Mr Hadkinson disclosed in a letter certain assets, including bank accounts, said to be Mr Hadkinson’s, in Cyprus, United Kingdom, Cairo and Switzerland. Putting on one side loans to his companies and future dividends and commissions, the assets disclosed had a net value of less than £250,000. No mention was made in the letter of very substantial sums in bank accounts held in the name of and under the control of Mr Hadkinson with Credit Lyonnais in Geneva, with Barclays Bank in Jersey, with Menatap Bank in Nicosia or with Credit Libanais in Beirut or of transfers from those accounts by Mr Hadkinson.

 

On 24 November Mr Hadkinson, without notice to and without the knowledge of the bank and without the permission of the court, transferred £4·325m from an account held in his name on deposit at Barclays Bank in Jersey into an account at 399 the same bank held in the name of Mrs Hadkinson, his wife, re his children (Tiffany, James and Poppy) whose names and dates of birth were provided. This transfer only came to light in October 1998 when Mr Hadkinson’s trustee in bankruptcy obtained disclosure of information from Barclays Bank plc (Jersey) and Barclays Bank Finance Co Ltd under an order of the Jersey Court. This information was made available, with the permission of the Jersey Court, for use in these proceedings.

 

It was later discovered that in March 1997 very substantial sums ($3·5 m) had been transferred from accounts of Mr Hadkinson with Chase Manhattan Bank in Geneva to an account opened by Mr Hadkinson in his sole name with Barclays Bank plc in Jersey and that on 15 March 1996 Mr Hadkinson had declared that he was the beneficial owner of assets deposited with the Chase Manhattan Bank in Geneva in two accounts, No 695254 and No 695163.

 

On 3 December Holland J continued the freezing orders. Mr Hadkinson was represented at that hearing. On 5 December Mr Hadkinson verified by affidavit the accuracy of the contents of his disclosure letter of 22 November.

 

On 8 December he transferred, again without notice to and without the knowledge of the bank and without the permission of the court,£35,117·68 from a Barclays Bank current account held in his name in Jersey to a current account opened in his wife’s name at the same bank. He gave instructions to close the account in his name. Mr Hadkinson’s trustee in bankruptcy has since obtained search orders and disclosure orders against Mrs Hadkinson and freezing orders against bank accounts held at various banks in her name.

 

1998-The summary judgment

 

On 11 February 1998 an Ord 14 summons was issued on behalf of the bank for final judgment against Mr Hadkinson and the Worldwide companies for $11·5m with interest.

 

On 27 February Mr Hadkinson was made bankrupt on his own petition. He cited in his statement of affairs debts of about £15·5m due to the bank. It was not stated that they were in dispute.

 

An application by Mr Hadkinson to set aside the freezing order was dismissed by Judge Hedley on 4 March. Leave to appeal was refused by the Court of Appeal on 2 April. On 17 April Judge Hedley granted summary judgment to the bank against Mr Hadkinson and three of the Worldwide companies for $11·5m with interest to be assessed and costs to be taxed. He refused leave to appeal.

 

On 25 June a defence and counterclaim was served by Mr Hadkinson and the Worldwide companies. The defence pleaded non-disclosure and misrepresentation as grounds for setting aside the 1993 agreement. On 13 October Master Ungley struck out the counterclaim by Mr Hadkinson and two of the Worldwide companies against Mr Fadi Saab, Mr Farid Saab and TFS. That order was appealed to Arden J who allowed the appeal. The appeal against that order is before this court.

 

Leave to appeal against the summary judgment was granted by the Court of Appeal on 22 April 1999. That appeal by Mr Hadkinson and the Worldwide companies is also before this court.

 

1999-The contempt hearing

 

Following an unsuccessful application before Jackson J on 12 February 1999 for further security in support of the freezing orders, Mr Hadkinson issued an 400 application on 12 March to discharge the disclosure provisions in the orders against him.

 

Mr Farid Saab had sworn an affidavit on 3 January 1999 complaining of breaches of the freezing orders made by Eady J and Holland J (see paras 53 and 58-61). But no committal application for contempt was made by the bank against Mr Hadkinson. This was not considered necessary in the light of the decision of the Court of Appeal in the (coincidentally named) case of Hadkinson v Hadkinson [1952] 2 All ER 567,[1952] P 285 that a court could refuse to hear an application (other than an application to purge contempt) by a party who was in continuing disobedience to a court order. Shortly before the hearing of the application by Mr Hadkinson to discharge the disclosure provisions, the bank’s solicitors wrote to Mr Hadkinson’s solicitors on 12 May about the hearing. The letter stated:

 

`We shall generally be taking the point that as your client, Mr Hadkinson, is in contempt of the Mareva that he should not be heard and it appears to us that this, in any event, is a point that should be dealt with at the outset of the hearing.’

 

At the request of Arden J a list of issues to be dealt with at the hearing before her the following week was prepared by counsel for the bank. The issues listed under the heading `Standing of D1 [Mr Hadkinson] with the Court/discharge of disclosure obligations’ included the following:

 

`(i) Did D1 breach the Order of 12.11.97 by making the two transfers on 24.11.97 and 8.12.97 to his wife? (ii) Did D1 breach the Order of 12.11.97 by failing to disclose bank accounts/assets in his solicitors’ letter dated 2.12.97? (iii) Did D1 breach the Orders of 12.11.97 and 3.12.97 by failing to disclose bank account/assets in Hadkinson 1 [Mr Hadkinson’s affidavit 5 December 1997]? (iv) Does Hadkinson 1 contain material untruths? (v) Is D1 in breach of paras. 2.1(b) of the Orders of 12.11.97, 3.12.97 and 16.10.98 (statement in writing plus confirmation by affidavit of past transactions)?’

 

Counsel for the bank prepared a more detailed list of complaints of Mr Hadkinson’s breaches of court orders. That was not available until after the first day in court on 18 May, though counsel had dealt with the breaches in his skeleton argument which was received by those representing Mr Hadkinson on 14 May.

 

At the hearing before Arden J, which started at 2 p m on 18 May, Mr Hadkinson was represented by leading and junior counsel. There was no affidavit or oral evidence from Mr Hadkinson about the alleged contempts. No reference was made to Mr Hadkinson’s affidavit evidence sworn in the bankruptcy proceedings on the issue of ownership of certain assets. No application was made by his counsel for an adjournment of the hearing in order to file evidence or on any other ground.

 

Mr Hadkinson’s position was that the alleged breaches of the freezing order related to transfers from bank accounts which, although held in his name, were assets beneficially owned by others. The contempt part of the hearing proceeded on the basis of an assumption in Mr Hadkinson’s favour that he was not beneficially entitled to the assets and funds transferred. The contempt case was argued on the basis that it turned on the construction of the freezing order.

 

After hearing argument on the construction question Arden J held that Mr Hadkinson had committed breaches of the freezing order. I shall refer later to the reasons for the findings. The judge went on to hold that, as Mr Hadkinson 401 was in contempt of court, the court had a discretion whether to allow Mr Hadkinson to make any application (other than the application for discharge of the disclosure obligations in the freezing order) before he had given the disclosure ordered. In exercising that discretion Arden J referred to the fact that Mr Hadkinson had made transfers from an account in his name at Barclays Bank in Jersey; that he had failed to disclose that account to the bank; and that there was no evidence from Mr Hadkinson as to why he had not disclosed the transfers. The judge stated the principle that orders of the court should be obeyed promptly and without question. Her view was that Mr Hadkinson should `as a general principle not be at liberty to take any further step in these proceedings without the leave of the court’ until he had complied with the disclosure provisions of the freezing order (and a further disclosure order made by Arden J) and purged his contempt on an application made on proper evidence. This stay would also apply to Mr Hadkinson’s application to stay or discharge his bankruptcy, though not to his appeal from the order of Master Ungley or an application by him for leave to amend.

 

The relevant parts of the order accordingly provided that Mr Hadkinson was not at liberty to take any further step in the action without the leave of the court until he had purged his contempt on an application brought on proper evidence and on notice to the bank in respect of the specified breaches. He was also ordered to pay 80% of the bank’s costs to be taxed on the indemnity basis, if not agreed, and paid forthwith. Mr Hadkinson was granted permission by Arden J to appeal against the order, but only on the question of construction of the freezing order.

 

Mr Hadkinson later made applications to Arden J to lift the stay. He filed affidavit evidence in support of his application and was cross examined on the affidavits on 28 and 29 July 1999. His applications were ruled on by Arden J on 20 October. It was ordered that the stay be lifted provided that Mr Hadkinson complied with conditions as to the payment of costs and the provision of information.

A further application by Mr Hadkinson to remove the condition as to payment and for a partial lifting of the stay was dismissed by Arden J on 2 November. Further conditions were imposed.

 

In the meantime these appeals attracted a flurry of last minute activity. An application was made by the bank to the Court of Appeal for security for the costs of the appeal. On 27 October Morritt LJ ordered security to be given. Mr Hadkinson then appealed to the full court on the ground that the effect of the order would be to stifle his appeals. On 5 November the security for costs appeal was dismissed. Despite Mr Hadkinson’s fear that the appeals would be stifled, security was in fact provided as ordered.

 

PRELIMINARY APPLICATIONS

 

At the outset of these appeals applications were made by Mr McCombe QC, on behalf of Mr Hadkinson, for leave to appeal notwithstanding the stay ordered by Arden J and to extend the grounds of appeal to include complaints about the procedure followed by the judge on the contempt issue.

 

It was clearly necessary to clarify the position on Mr Hadkinson’s ability to proceed with his appeals against the contempt order and the summary judgment. Mr Cohen QC took the point on behalf of the bank that Mr Hadkinson had been found by Arden J to be in contempt of court in this action; that he had not purged his contempt; that he was subject to an order staying his proceedings unless he 402 complied with conditions; that those conditions had not been satisfied; and that the court should not hear his appeals, even though he had been granted permission to appeal.

 

The court ruled that it should hear the appeals on the ground that, as the judge recognised, the crucial issue for determination by this court is the construction of the freezing order. If, contrary to the judge’s view, Mr Hadkinson is correct on the construction question, he has not committed breaches of the court orders and all the orders made in consequence of the finding of contempt are open to challenge.

 

The court accordingly held that, notwithstanding the stay, Mr Hadkinson should be allowed to pursue his appeals. It was also decided (a) to hear full argument on the additional procedural points before a ruling was given on whether to grant the application for permission to extend the grounds of appeal and (b) to give permission to the bank to adduce some additional evidence.

 

THE CONTEMPT APPEAL

 

1. The judgment

 

The judge dealt with the contempt issue on the basis that, as there were no proceedings for contempt, the bank could only rely on clear breaches of the freezing order which Mr Hadkinson could not contest. It is common ground that Arden J rightly declined to decide at that hearing the dispute whether the sum of £4·235m transferred by Mr Hadkinson from the Barclays Bank Jersey account after the freezing order belonged beneficially to Mr Hadkinson, as the bank contended, or on trust, as Mr Hadkinson contended. That is the principal issue for decision in the bankruptcy proceedings. It could not be resolved at the hearing on 18 May 1999.

 

As Mr Hadkinson made no admissions about the facts of the alleged breaches, the judge examined contemporaneous documentary evidence which he had not sought to meet. That showed that he had authorised transfers of £4·235m (on 24 November 1997) and £35,117·68 (on 8 December 1997) from accounts held in his name with Barclays Bank Jersey into the name of his wife after the date of the freezing order. Counsel informed the court that Mr Hadkinson contends in the bankruptcy proceedings that these assets are and were owned beneficially by third party investors who entrusted the money to Mr Hadkinson for investment. He had not disclosed in his letter or in his affidavit the existence of any account held in his name with Barclays Bank Jersey.

 

The legal submissions focused on the question whether the freezing order covers assets of which Mr Hadkinson claims that he has only the bare legal ownership. The bank contended that it does. Mr Hadkinson contended that it does not because that order affects only assets which Mr Hadkinson owns beneficially. It does not apply to assets held by him as a bare trustee. They are not `his assets’ within the meaning of the order. (I shall use the expression `his assets’ as if that expression was used in the order, although the freezing order, for obvious reasons, is in the plural.)

 

The judge rejected Mr Hadkinson’s contention and held that:

 

`… the order must extend to assets of which [Mr Hadkinson] is only the legal owner. Bare legal ownership is none the less a form of ownership. Accordingly, for [Mr Hadkinson] to authorise the transfer of monies in an account held in his name but owned by a third party amounts to a dealing with the account contrary to the freezing order. Likewise, non-disclosure of 403 that account is a breach of the order. [Mr Hadkinson] would need the court’s permission to authorise the transfer. However, the value of the asset for the purpose of calculating the minimum value of unencumbered assets to be retained would be nil, since on this basis [Mr Hadkinson] has no beneficial entitlement.’

 

In this court the construction issue has been argued in greater depth by reference to authorities not cited to the judge. Indeed, after judgment was reserved additional authorities and other legal materials came to the notice of the court. The court decided that it was necessary to invite the parties to consider whether they wished to make submissions on the additional materials. Both sides indicated that they wished to do so in writing. The Christmas vacation intervened. So this process was not completed until mid-January 2000.

 

1. The issues

 

The focus of submissions both here and below was on this question: if, as was assumed solely for the purpose of deciding the contempt issue, Mr Hadkinson held the accounts at Barclays Bank Jersey upon trust and had no beneficial interest in them himself, were they `his assets and/or funds’ within the meaning of the freezing order?

 

This restricted approach to the contempt issue, coupled with a more informal procedure than is normal in dealing with questions of contempt of court, may have led to compressed treatment of the various issues. There are, in my view, four aspects of the contempt question for consideration. (1) What is the scope of the freezing order? What assets and funds does it cover? This is a question of construction of the order of 12 November 1997. It raises a question of general interest because the relevant wording of the order is in a standard form which has been in use for nearly 25 years. (2) Did Mr Hadkinson commit acts which, in all the circumstances, constituted breaches of the freezing order? This is a question of fact which is usually determined on the evidence. No admissions were made by Mr Hadkinson. The unusual course taken in this case was that the crucial and most contentious fact (namely, the nature of Mr Hadkinson’s interest in the bank accounts held in his name at Barclays Bank Jersey) was not decided at all, but was assumed to be the fact in Mr Hadkinson’s favour. The principal issue on contempt was the construction of the freezing order. There was no evidence at all from Mr Hadkinson about the circumstances of his alleged contempts. It is doubtful whether all the ramifications of this approach and of the absence of evidence from Mr Hadkinson were fully appreciated when that assumption was made. (3) Even if Mr Hadkinson had committed breaches of the freezing order, was it correct in all the circumstances to treat him as in contempt of court? This is a question of mixed law and fact. The basic principle in the civil law of contempt is that, although there is an obligation to comply strictly with the terms of an order, the court will only punish a person for contempt of court upon adequate proof that the terms of the order are clear and unambiguous and that he has broken those terms: Iberian Trust Ltd v Founders Trust and Investment Co Ltd [1932] 2 KB 87 at 95,[1932] All ER Rep 176 at 179, recently applied in R v City of London Magistrates’ Court, ex p Green [1997] 3 All ER 551 at 558. (4) If it was correct to treat Mr Hadkinson as being in contempt of court, what should the court have done? This was a matter of discretion to be exercised judicially having regard to all the circumstances of the case. Very little evidence about the 404 circumstances of the alleged contempts was available to the court when it came to exercise its discretion.

 

1. Mr Hadkinson’s submissions

 

In his excellent submissions on behalf of Mr Hadkinson, Mr McCombe submitted that bank accounts in the name of Mr Hadkinson, but assumed to be beneficially owned by others, were not `his assets’. They were not caught by the freezing order. He argued by reference to law dictionary definitions that a person’s `assets’ are items belonging to him which are available for the payment of his debts or which can be converted into money for his benefit. This sense of `assets’ in a freezing order was consistent with the purpose of making such an order: to prevent dissipation of assets available to meet a potential judgment for the claimant against the person restrained. It was inconceivable that such an order should cover assets in fact held, or assumed to be held, by the person restrained upon trust for others.

 

If a claimant was in doubt as to the beneficial ownership of assets held in the name of a defendant or in the name of a third party, it was for the claimant to seek from the court, on the basis of adequate evidence, a specific and express extension of the standard form of order so as to cover the assets in question. Mr McCombe did not dispute the power of the court, in appropriate cases, to make a freezing order specifically covering assets held by a defendant or by a third party in cases where the ownership of those assets was unknown, uncertain or in dispute at the time of the application for the freezing order and where it might turn out, on a fuller inquiry by the court on notice, that they did not belong beneficially to the defendant. In such a case it would be advisable to identify the assets intended to be caught by the freezing order in a more specific way than by simple use of the possessive pronoun `his’ or `their’ e.g. by specific identification, such as the number of the bank account and the name and address of the branch of the bank at which it is held.

 

If any authority is needed for what is advanced as a self evident proposition support can be found in the decision of the Supreme Court of Western Australia in R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59. In that case a freezing order had been granted restraining the defendants from disposing of their interest in any of `their present or future assets’. It was argued on a committal motion that the order had been breached by a defendant who had exercised his power as appointor under a trust deed to vary the trust by removing himself as appointor and substituting his son, who then appointed a new trustee. The new trustee, with the consent of the defendant, declared that the defendant was excluded as a general beneficiary under the trust. The judge held that none of the defendant’s actions amounted to a contempt of court. His interest under the trust was simply a right to have the trust fund duly administered; it was not a legal or equitable estate in trust property or an asset for the purpose of a freezing order.

 

The appeal against that decision was dismissed by a majority on the ground that the terms of the freezing order did not make it clear to the defendant what he was prohibited from doing. The difficulties in construing the order and the inherent ambiguity of its terms precluded a finding of contempt. I shall return to that aspect of the case when I consider whether Arden J was correct in treating Mr Hadkinson as in contempt of court.

 

For the purpose of construing the ambit of the freezing order the value of this case, which was not cited to Arden J, is to be found in the observations of the 405 majority on the meaning of `assets’ in this context. Owen J, with whom Ipp J agreed, expressed the view (at 78) that it was implicit that `when applied in the context of a mareva injunction … an “asset” must be a thing of value and it must be capable of application to satisfy debts’.

 

He concluded (at 83) that it was equally arguable that the combination of powers under the trust might constitute some form of property interest in the underlying assets of the trust fund and that the powers were not `assets’ as that phrase was used in the order. Clarity of language was absent from an order where it was required. The order was ambiguous. Contempt was not therefore established.

 

Ipp J (at 69) agreed that there were two reasonably possible constructions of the word `assets’ in the court order. He added that:`Contempt of court is not established if, on the proper construction of an ambiguous court order, it is revealed that the order has been breached by the conduct of the defendant.’

 

1. The bank’s submissions

 

Mr Cohen submitted that the accounts held by Mr Hadkinson at Barclays Bank Jersey were `his assets or funds’ within the meaning of the freezing order. He contended that the order, based on the standard form order, covered assets and funds held in Mr Hadkinson’s name or under his control, even if he honestly believed that those assets or funds did not belong to him beneficially and even if he in fact had no beneficial interest in them.

 

He made the following points.

 

(1)     The specific reference in the freezing order to the account No 695254 with the Chase Manhattan Private Bank Geneva and any other accounts of any of the defendants at that bank made it clear to Mr Hadkinson that the order covered all bank accounts in his name or under his control and funds standing to their credit, regardless of what he may have believed to be the position regarding beneficial ownership of funds in the accounts. He was the legal owner of those funds. Emphasis was placed on the reference in the freezing order to `funds’ as well as to `assets’ in answer to the contention that `assets’ could not properly include property which was unavailable to satisfy the debts of the person restrained. In the case of an account holder he could sue the bank for the funds regardless of the position as to beneficial ownership. Indeed, freezing orders are commonly served on banks which may have no means of knowing who is the beneficial owner of monies held in the account holder’s name. In the case of foreign legal systems (which were a relevant factor in the case of a worldwide freezing order, such as this) there might not even be any recognised distinction between legal and beneficial ownership. The true position was that an honest person served with such an order would disclose all assets and funds, including those held in trust for the benefit of others. He would then disclaim any beneficial interest in the trust assets and funds and he would seek a variation of the freezing order from the court to enable continued dealings with the trust assets and funds.

 

(2)     If assets and funds legally held or controlled in this way were not caught by a freezing order in this form, an unscrupulous defendant of the kind against whom freezing orders are usually directed could undermine and nullify the object of the order by simply saying that he did not believe that he was the beneficial owner of the fund or asset in question. He could then withhold its existence from his disclosure affidavit and secretly deal with it. The defendant would in effect be given a licence to decide for himself whether or not an asset or 406 fund belonged to himself or to a third party. This was unrealistic, impractical and contrary to the rationale of the jurisdiction to make freezing orders.

 

(3)     If a defendant served with a freezing order believed that he was not the beneficial owner of the assets and funds held by him and caught by the order the proper course was for him or the third party to supply details of the third party interest or claim so that the court could decide whether or not to order an inquiry to be held in accordance with the procedure laid down by Lloyd LJ in SCF Finance Co Ltd v Masri [1985] 2 All ER 747 at 750, 753,[1985] 1 WLR 876 at 881, 884. In that case a freezing order was made which applied to all accounts held by the defendant at three named banks in London. The order was later extended to cover the accounts held by or on behalf of the defendant in the name of his wife, as it was believed that the defendant might be using those accounts to carry on his business. The wife applied to discharge the injunction as against her accounts. In dismissing the wife’s appeal against the refusal of the judge to discharge the order without further inquiry into her claim to ownership of the accounts Lloyd LJ ([1985] 2 All ER 747 at 750,[1985] 1 WLR 876 at 881) held that the court was not obliged to discharge the freezing order on-`the mere say-so of the third party. If the court were so obliged, then the Mareva jurisdiction would be in danger of being nullified at the whim of the unscrupulous.’

 

Lloyd LJ saw no difficulty in the court’s resolving any dispute which may arise between a plaintiff and a third party as to ownership of assets to which the Mareva injunction has been applied. He outlined the appropriate procedure:

 

`(i) Where a plaintiff invites the court to include within the scope of a Mareva injunction assets which appear on their face to belong to a third party, eg a bank account in the name of a third party, the court should not accede to the invitation without good reason for supposing that the assets are in truth the assets of the defendant. (ii) Where the defendant asserts that the assets belong to a third party, the court is not obliged to accept that assertion without inquiry, but may do so depending on the circumstances. The same applies where it is the third party who makes the assertion, on an application to intervene. (iii) In deciding whether to accept the assertion of a defendant or a third party, without further inquiry, the court will be guided by what is just and convenient, not only between the plaintiff and the defendant, but also between the plaintiff, the defendant and the third party. (iv) Where the court decides not to accept the assertion without further inquiry, it may order an issue to be tried between the plaintiff and the third party in advance of the main action, or it may order that the issue await the outcome of the main action, again depending in each case on what is just and convenient …’ (See [1985] 2 All ER 747 at 753,[1985] 1 WLR 876 at 884.)

1. Conclusion

 

1. Construction-scope of the order

 

It is surprising that this point of construction is not covered by any reported case in this country. This year is the silver anniversary of the Mareva decision (see Mareva Cia Naviera SA v International Bulkcarriers SA, The Mareva (1975)[1980] 1 All ER 213). Many thousands of orders must have been made in this form.

 

The decision in R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd does not clearly cover the point. That case turned principally on the ambiguity in the terms of the order. The decision in SCF Finance Co Ltd v Masri does not 407 assist on the issue of construction. The order in that case was specifically made against a bank account held in the name of the defendant’s wife. The case was concerned with the procedure for determining whether the monies in that account belonged to her or to her husband.

 

Both sides relied on a decision of the High Court of New Zealand uncovered in the article in the new material, `Mareva Injunctions and Third Parties: Exposing the Subtext’ by Mr Peter Devonshire of the University of Auckland,(1999) 62 MLR 539. In Westpac Banking Corp v Gill (No 1)(1987) 2 PRNZ 52 a Mareva order had been obtained ex parte by a bank against a defendant, who made an application to rescind it on the ground that the residential property affected by the order and of which he and his wife were registered proprietors was held by him as trustee of a trust established by him and his wife 12 years previously. The precise terms of the freezing order are not set out in the report, but it is reasonable to assume that it was in the standard form. Heron J discharged the order holding that the property belonged to the trustees and that it was not relevant property against which a Mareva order could be directed (see (1987) 2 PRNZ 52 at 56). He said (at 54) that assets appropriate for inclusion in a Mareva order are those-

 

`in which the defendant has some beneficial interest entitling him to deal with them as his own property. It goes without saying, it is against that property the plaintiffs are seeking recourse in the ultimate if judgment is obtained.’

 

That case shows that, on the one hand, a freezing order had been made in a form which, until it was discharged by the court, was assumed by the applicant and the court to cover the trust property. On the other hand, the order was subsequently discharged on the ground that property held by a defendant on trust was not an `asset’ caught by a freezing order in proceedings for a money judgment against a defendant personally.

 

It might be possible for the court to decide this case solely on the basis that the expression `his assets and/or funds’ is ambiguous. On the one hand, it could be confined, as Mr McCombe contends, to assets and funds owned by Mr Hadkinson beneficially. On the other hand, it could extend, as Mr Cohen contends, to assets and funds held in the name of and under the control of Mr Hadkinson, even though it might turn out on fuller investigation that they are not assets or funds beneficially owned by him and that the freezing order should be varied or discharged accordingly. If the court regarded the contentions on each side as reasonably arguable that conclusion would, for the reasons already explained, mean that the appeal should be allowed on the contempt issue.

 

The court has heard full argument on the construction point. In my judgment, the court should make a definite ruling on that point one way or the other. It is important for practitioners and for the courts exercising this exceptional jurisdiction to be aware of the potential difficulty in determining the precise scope of the standard form of order and of the need to draft this type of order with special care to meet the circumstances of each case.

 

I have not found this an easy point to decide. My views on it fluctuated during the course of the hearing. They have continued to fluctuate in the time for reflection and writing since. My main source of doubt has been not so much the actual language of the freezing order as the possible repercussions of the construction contended for on behalf of Mr Hadkinson on the effectiveness of freezing orders made in this form.

 

I start from the position that in everyday usage the expression `his assets’ refers to assets belonging to that person, not to assets belonging to another person. I recognise that everyday usage does not always reflect precisely the shades of meaning that an expression may have in the context of a legal document, such as a court order.

 

It is necessary to examine the context in which the expression is used and, in particular, to identify the purpose of making the freezing order. A freezing order is only available in cases where the claimant can show that there is a real risk that the defendant will dissipate his assets. The application and the order are often made on incomplete information about the nature, extent, location and value of the assets and funds which the defendant may have. The order is designed to prevent injustice to a successful claimant by preserving assets and funds and guarding so far as possible against the risk that they will be disposed of or dissipated before a judgment is satisfied so as to render ineffective the claimant’s attempts to recover what is due to him. Ancillary orders may be made in re-enforcement of the freezing order by requiring full disclosure of the nature, location and value of assets and funds and the dealings with them.

 

In my judgment, the language of the freezing order, read in context and with regard to the object of the order, naturally refers to assets and funds belonging to the defendant and which are and should remain available to satisfy the claim against him. Assets and funds which belong, or, as in this case, are assumed to belong, beneficially to someone else would not be available for that purpose.

 

I fully appreciate the force of the point that the meaning of `his assets’ may be coloured by the fact that a freezing order is a precautionary measure taken urgently to protect the claimant against a risk of dissipation and disposal of assets pending a fuller investigation by the claimant and the court to determine who is the beneficial owner of the assets. That is not, however, a sufficient reason for giving the expression a meaning which it cannot reasonably bear. The order should, when appropriate, be made in a different form.

 

As already indicated, it is accepted by Mr McCombe that the court can make an appropriately worded order to cover assets and funds which may not belong beneficially to the defendant. For example, if the order refers to bank accounts `in the name of’ the person restrained (rather than `his’ accounts or assets) or better still simply to bank accounts identified by number and branch, the freezing order will apply to them, even if the assets turn out after fuller inquiry on notice to belong beneficially to a third party, so that the freezing order has to be modified or discharged. (See A v C [1980] 2 All ER 347,[1981] QB 956 and Z Ltd v A [1982] 1 All ER 556,[1982] QB 558.)

 

Indeed earlier decisions have prudently emphasised the desirability of the claimant making every effort to indicate which banks hold the accounts in question, at which branches and, if possible, under what numbers: see Z Ltd v A [1982] 1 All ER 556 at 574,[1982] QB 558 at 588 per Kerr LJ. Orders in more specific terms than the standard form would not give rise to the present problem.

 

I would refer finally to the judgment of Robert Goff J in Searose v Seatrain (UK) Ltd [1981] 1 All ER 806 at 808,[1981] 1 WLR 894 at 897. After mentioning the value of and the need for this jurisdiction and the care to be taken to ensure that such orders are only made for the purpose for which they are intended (`to prevent the possible abuse of a defendant removing assets in order to prevent the satisfaction of a judgment in pending proceedings’) and do not bear harshly upon innocent third parties, he said:

 

`It follows that, first, an order for a Mareva injunction should not be sought in terms wider than are reasonably required in the circumstances of the case. Second, any asset in respect of which an order for Mareva injunction is sought should be identified with as much precision as is reasonably practicable. Third, as regards any asset to which the order applies but which has not been identified with precision in the form of order proposed (eg money held in an unidentified bank account), the plaintiff may be required to give an undertaking to pay reasonable costs incurred by any person (other than the defendant) to whom notice of the terms of the injunction is given in ascertaining whether or not any asset to which the order applies, but which has not been identified in it, is within his possession and control. Of course, in many cases (for example where, as is usually the case, the plaintiff is unable to identify assets of the defendant which are known to be greater in value than the sum in respect of which he seeks a Mareva injunction) it will be appropriate for the court to give the Mareva injunction in the now hallowed form, under which the defendant is restrained from removing from the jurisdiction or otherwise disposing of any of his assets … so far as the value of such assets exceeds a certain sum. But if an injunction is given in such terms the court may require, and indeed in my judgment should ordinarily require, that the plaintiff gives an undertaking in the form I have indicated.’

 

I conclude that the `hallowed’ or standard form of freezing order referring to `his assets or funds’ is not apt, without the addition of words clearly extending its effect, to cover an unidentified bank account held in the name of and under the control of Mr Hadkinson, but which is assumed not to be his beneficially. Even if the bank intended that the order should be effective to cover all bank accounts, such as the unknown Barclays Bank account in the name of Mr Hadkinson in Jersey, the language of the order does not achieve that result.

 

2. Breach of order

 

The judge was entitled to find that the evidence established the existence of the accounts, the payments out of them after the making of the order and the non-disclosure of these matters. But it also had to be proved that the accounts were caught by the terms of the order. There was no proof of breach of the order. An assumption was made by the judge and the parties for the purposes of the contempt point. The appeal has been argued on the same assumption. On that assumption there was no breach of the order on its proper construction.

 

3. Contempt of court

 

Even if the above conclusion on the construction issue is wrong, it has not been established that the terms of the freezing order were clear and unambiguous. Arden J was wrong to treat Mr Hadkinson as in contempt of court and to make orders consequent on that finding.

 

4. Consequences of contempt finding

 

The procedure adopted by the judge had the advantage of enabling a decision to be made at that hearing without the need for an adjournment of a case in which there was some urgency. But it had the disadvantage that, by acting on assumption about the nature of Mr Hadkinson’s interest in the bank accounts instead of acting on evidence, the court deprived itself of relevant evidence, which it was necessary for the court to have in order to decide how to deal with Mr Hadkinson on the finding of contempt.

 

5. Contempt of court procedure

 

The court normally adjudicates on a charge of civil contempt on an application for an order to commit the person alleged to be in breach of the order. The application is made by the person to whom the order was granted. The application is served on the respondent in accordance with the rules. It is supported by affidavit evidence. The defendant is entitled to answer by affidavit evidence denying the contempt or showing that, if there was a contempt, it was not wilful and setting out the circumstances of the alleged breach and any matters relevant to the exercise of the court’s discretion on punishment of any contempt which is established. If a wilful breach of the injunction is established beyond reasonable doubt the court has a very wide discretion in deciding how to treat the contempt. Like all judicial discretions it must be exercised fairly and reasonably in a principled way and having regard to all the relevant facts. The powers at the disposal of the court range from making orders as to costs to imprisonment and sequestration.

In the circumstances already described this procedure was not followed in this case. It can now be seen, with the benefit of hindsight, that it would have been better if the normal procedure had been followed. In one respect the procedure followed appeared to favour Mr Hadkinson. The court made an assumption that was favourable to him on the crucial issue whether the sums in the accounts in question were held by him on trust for his wife. But the procedure followed was unsatisfactory. There was no motion to commit with supporting affidavit evidence. There was no evidence for Mr Hadkinson to answer. There was no evidence from Mr Hadkinson. So the judge did not have the benefit of any evidence from either side about the circumstances of the alleged breach of the freezing order. The judge was deprived of material which might well have been relevant to the exercise of the court’s discretion on the treatment of the contempt. It was premature to mete out punishment for contempt on an informal application made at short notice and before all the relevant facts had been put before the court.

 

It would have been more appropriate for the court to exercise its undoubted discretion to decline to deal with the matter of continuing contempt in the informal manner raised by the bank; to grant an adjournment of the contempt point to enable the bank to issue and serve a proper application for committal supported by evidence; and, instead of criticising Mr Hadkinson for the absence of evidence, to give him an opportunity to serve evidence, even though no application for an adjournment for that purpose was made by counsel.

 

When the evidence was complete the judge would have been in a better position to decide how to deal with the contempt question; whether to deal with it substantively; or whether to direct an inquiry in accordance with the Masri procedure; or whether to adjourn the contempt application to await the outcome of the bankruptcy proceedings; and to proceed in the meantime to deal with the other applications without waiting for the outcome of the contempt application.

 

In these circumstances I would allow the appeal of Mr Hadkinson against the order of 21 May 1999. I would also grant leave to amend the notice of appeal to argue the additional points.

 

THE SUMMARY JUDGMENT APPEAL

 

Judge Hedley granted summary judgment to the bank against Mr Hadkinson for the following reasons. 1. Mr Hadkinson was liable as a principal debtor and not as a surety. 2. The 1993 agreement (a) was between the bank as creditor and the defendants (including Mr Hadkinson) as debtors;(b) contained re-scheduling arrangements for the payment of a simple debt for which the defendants were jointly and severally liable; and (c) was in respect of a debt no part of which had been paid to the bank. 3. The dealings involving the bank, the Saab brothers, Bridge, TFS and Romas Impex did not afford a real and substantial defence to the claim for payments under the 1993 agreement. 4. The fact that there was a clause in the 1993 agreement which was alleged by Mr Hadkinson to be in restraint of trade did not afford a defence to the claim for payment, even if it was assumed, contrary to the judge’s view, that the clause was in fact void.

 

On the appeal the main points taken on behalf of Mr Hadkinson were that (a) the bank failed to disclose to the defendants the trading activities between TFS, Romas Impex and Mr Asmar;(b) that was a material non-disclosure and a misrepresentation on the part of the bank in respect of those activities;(c) the defendants are therefore entitled to rescind the 1993 agreement and the 1995 agreement on which the bank’s claims for payment are based; and (d) those activities also give rise to arguable counterclaims against the bank for compensation and accounts of profits which, if successful at trial, would extinguish or significantly reduce the claims of the bank.

 

The essence of the argument is that the case ought to go to trial as there is evidence from Mr Hadkinson that Mr Fadi Saab represented to Mr Hadkinson in late 1991 that links with Romas Impex had been severed because he found Mr Asmar unreliable in paying what he owed to the bank; that this has since been discovered to be untrue; and that, if Mr Hadkinson had known the truth, he would not have been willing to enter into the re-scheduling arrangements in the 1993 agreement and the 1995 agreement. It is also argued that there was a fiduciary relationship between the bank and the defendant customers and that this gave rise to duties of loyalty and good faith which were breached by the bank in respect of the Romas Impex affair.

 

I am unpersuaded by these arguments that the judge was wrong to grant summary judgment for $11·5m. In my judgment, the legal position is as follows. 1. Putting the counterclaim on one side, there is no dispute that Mr Hadkinson and the Worldwide companies owed very substantial sums to the bank before the 1993 agreement was made. It is true, as pointed out by Mr McCombe, that the case is pleaded as a claim for payment due under the terms of the 1993 agreement, as amended, and not as a claim for the recovery of the pre-existing debt. But it is clear that the 1993 agreement was made substantially for the benefit of the defendants in respect of the discharge of their existing liabilities, including the guarantee liabilities of Mr Hadkinson, to the bank; they were given time to pay over several years so that they could try to trade their way out of their financial problems. Even if they entered into the 1993 agreement as a result of a misrepresentation or a material non-disclosure rescission of the 1993 agreement would not be granted by the court as it would not confer any benefit on them and would not serve any useful or sensible purpose. If the 1993 and 1995 agreements were set aside the defendants would be no better off as they would still owe to the bank the sums which they owed before they entered into those agreements. 2. There are also fatal evidential flaws in the defendants’ case. In particular there is no real prospect of establishing that an allegedly false statement 412 made by Mr Fadi Saab in 1991 was relied on by the defendants two years later so as to induce them to enter into the 1993 agreement. All the available evidence points to the conclusion that (a) the defendants would have entered into the 1993 agreement even if the alleged misrepresentation had never been made and (b) they knew in 1993 what they claim to have since discovered about the Romas Impex affair. 3. As to the allegation of material non-disclosure, even if the bank owed duties of loyalty and good faith to the defendants, there is nothing to suggest that those fiduciary duties were breached by the bank entering into the 1993 agreement and 1995 agreement.

 

As to the remaining points the position is as follows: (a) The argument advanced below that Mr Hadkinson was sued as a surety was not pursued on appeal. (b) The contention that provisions in the 1993 agreement were void as being in restraint of trade was not advanced on the appeal as a defence to the claim for payment but only to prevent the judge’s ruling on that point from constituting an issue estoppel on a claim by the bank to enforce those provisions. Leave to defend is not given on that point. (c) An issue of illegality under Cypriot law was not raised below and permission to appeal on that point was not obtained. In any case the point relates to only a small part of the total debt-about £895,000. (d) There has been no stay of the summary judgment pending the trial of the counterclaim. Clause 5.2 of the 1993 agreement provides that payments to the bank under it are to be made without set-off or counterclaim. The counterclaim does not amount to a defence to the claim. And, even assuming complete success of the counterclaim, there is nothing to indicate that the sum recoverable could approach the outstanding indebtedness.

 

I would dismiss the appeal of Mr Hadkinson and the Worldwide companies against the order of 17 April 1998 for summary judgment in the sum of $11·5m and interest to be assessed.

 

THE STRIKE OUT APPEAL

 

On 13 October 1998 Master Ungley struck out the counterclaim by Mr Hadkinson (as assignee of his trustee in bankruptcy) and the Worldwide companies against the bank, TFS and the Saab brothers.

 

Arden J allowed the appeal for reasons given in her judgment of 24 May 1999 with which I agree. The counterclaim relates to the following matters.

 

1. The Al-Jibouri claim

 

This cause of action is for breach of confidence in respect of information alleged to have been imparted by Mr Hadkinson to Mr Fadi Saab about a trading opportunity with Mr Al-Jibouri as evidenced by a letter of 12 March 1991. Financial backing was requested from the bank. It is claimed that Mr Fadi Saab, in breach of a duty of confidence, disclosed to Mr Farid Saab and TFS confidential information which was used so that TFS could trade with Mr Al-Jibouri.

 

The judge rightly rejected arguments that the claim should be struck out on the grounds that the claim is made by and against the wrong parties; that it was necessary to show detriment; and that the claim was statute barred.

 

The question for whom Mr Hadkinson was acting is matter of fact for determination at trial. The defendants are potentially liable, as the recipients of confidential information, in addition to Mr Fadi Saab as the person to whom the information was initially disclosed in confidence by Mr Hadkinson. Detriment is not an essential constituent in a claim for breach of confidence. Even if it was the diversion of business opportunities could amount to detriment to the person 413 imparting the confidential information. There is no obvious argument available that the claim is barred by the Limitation Act 1980.

 

2. The Romas Impex claim

 

The essence of the claim is that Mr Fadi Saab, in breach of duties in or arising out of the joint venture agreement with Mr Hadkinson to do business via Bridge, diverted business with Romas Impex from Bridge to TFS.

 

The objection taken to the pleading was that the proper plaintiff was Bridge, a Manx company which has since been dissolved, and that Mr Hadkinson, as a shareholder in Bridge, was not entitled to bring a direct action against Mr Fadi Saab and against the other Pt 20 defendants who were not parties to the joint venture agreement. Objections were also taken to the presence of the Worldwide companies as claimants on the counterclaim and the Bank, TFS and Mr Farid Saab as defendants to the counterclaim.

 

In my judgment, these arguments do not justify a strike out order. The capacities in which Mr Hadkinson and Mr Fadi Saab entered into the joint venture are matters for investigation at trial. Under the joint venture agreement Mr Hadkinson and his companies have a real prospect of establishing that they had a direct interest in the profits of the joint venture, not just a shareholder’s interest in the dividends or profits of Bridge. The claims against the defendants to the counterclaim are not for breach of contract but for diversion of business to TFS and for conspiracy with intent to injure the joint venture to which Mr Hadkinson and his companies were parties.

 

I would dismiss the appeal by the bank and the other defendants to the counterclaim.

 

PILL LJ. I agree on all issues. I too have experienced fluctuations of view on the issue as to the meaning of the expression `his assets and/or funds’.

 

In some cases there will be concern, in the light of the decision of this court, that a defendant may defeat the effect of a freezing order in the standard form by claiming that he holds assets as trustee for others, for example spouse or children or, as in this case, third party investors, and transfers the legal title. This is the converse of the situation considered by Lloyd LJ in SCF Finance Co Ltd v Masri [1985] 2 All ER 747,[1985] 1 WLR 876 cited by Mummery LJ. It is the `mere say-so’ of the defendant that he holds as trustee. (The course of the present case has been much influenced by the assumption made in Mr Hadkinson’s favour that he was not beneficially entitled to the assets and funds transferred.) If a court is persuaded that there is a real risk that this procedure will be followed merely as a device to avoid the effect of the freezing order, an extended form of order which covers the situation may be appropriate. Any resulting difficulties may be resolved by the procedures contemplated by Lloyd LJ in SCF Finance Co Ltd v Masri, as adapted.

 

NOURSE LJ. For the reasons given by Mummery LJ, I too would dismiss the appeal of Mr Hadkinson, Worldwide Corporation Ltd and Worldwide Countertrade Ltd against Judge Hedley’s order for summary judgment and also the appeal of the bank against Arden J’s refusal to strike out Mr Hadkinson’s counterclaim. I do not wish to add anything in regard to either of those appeals.

 

I too would allow Mr Hadkinson’s appeal against Arden J’s order of 21 May 1999, by which she held him to be in contempt of court. In this case, however, I wish to add some observations of my own. Whilst agreeing with Mummery LJ in the 414 result, I do not share his doubts as to the construction and effect of Eady J’s worldwide freezing order of 12 November 1997 (the 1997 order). In my view, on the assumption, favourable to Mr Hadkinson, that it is necessary for us to make, it is plain that he has committed no breach of it.

 

Mr Hadkinson is the first defendant in the action. Paragraph 1 of the 1997 order is headed `Disposal of assets’. So far as material, sub-para 1.1 provides:

 

`The First to Ninth Defendants must not (a) remove from England and Wales or in any way dispose of or deal with or diminish the value of any of their assets and/or funds which are in England and Wales whether in their own name or not and whether solely or jointly owned up to the value of US$11,500,000 for each Defendant … (b) in any way dispose of or deal with or diminish the value of any of their assets and/or funds whether they are in or outside England and Wales whether in their own name or not and whether solely or jointly owned up to the same value …’

 

Paragraph 2 of the 1997 order headed `Disclosure of information’ provides that the first to ninth defendants must inform the plaintiff in writing at once of `all their assets and/or funds’ and other matters. The order runs to ten pages in all and may be said to be in the now standard form of freezing order which has been developed since the decision in Mareva Cia Naviera SA v International Bulkcarriers SA, The Mareva (1975)[1980] 1 All ER 213. There are many other references in it to `assets and/or funds’ but none of them casts further light on the meaning of `their assets and/or funds’ in the operative provisions of paras 1.1(a) and (b) and 2. The question is whether that expression includes not only assets and funds to which the defendants are beneficially entitled but also assets and funds which are held by them for the benefit of others.

 

The essential facts against which the question of construction must be judged are these. On 18 November 1997 the 1997 order was served on Mr Hadkinson. On 24 November, six days later, he transferred £4·325m from an account in his name at Barclays Bank, Jersey to an account in the name of his wife at the same bank. On 8 December 1997 he transferred a further £35,117·68 from an account in his name at Barclays Bank, Jersey to an account in the name of his wife at the same bank. Mr Hadkinson claims that at the time they were respectively transferred the £4·325m and the £35,117·68 were held by him for the benefit of third party investors who had entrusted the money to him for investment. Both here and below it has been assumed in Mr Hadkinson’s favour that that claim is correct.

 

It follows that, in construing the 1997 order, we must proceed on the footing that, at the time that it was made, the £4·325m and the £35,117·68 were not moneys to which Mr Hadkinson was beneficially entitled but moneys which were held by him for the benefit of others. Since we are only concerned with alleged breaches by Mr Hadkinson, the convenient course is to construe the 1997 order as if it had been made against him alone and had referred throughout to `his assets and/or funds’. What does that expression mean? That question must be answered, first, by reference to the ordinary meaning of the words and then by reference to the context in which they are here found.

 

As a matter of ordinary language assets or funds, in reference to an individual, cannot be said to be `his’ unless they belong to him or, in legal parlance, are assets or funds to which he is beneficially entitled. When Iago, affecting to prize only his good name, says to Othello, ‘Who steals my purse, steals trash; `tis something, nothing; Twas mine, `tis his, and has been slave to thousands’, though a modern 415 restitution lawyer might conjecture that the thief becomes a constructive trustee of the purse, Iago himself will have none of it. `Tis his’. So far as he is concerned, the purse now belongs to the thief. Assets which are held by someone for the benefit of another do not belong to him and are not his. Arden J said that bare legal ownership is none the less a form of ownership. So indeed it is. But that does not make the assets `his’.

 

I turn to the expression `his assets/funds’ in the context of the 1997 order. Not only is there nothing in that context to deprive the words of their ordinary meaning; there is everything to confirm it. First and most significantly, the purpose of every freezing order is to prevent the person against whom it is made from disposing of assets which would otherwise be available to satisfy a judgment against him. Assets which he holds for the benefit of another are not assets which can be resorted to for that purpose. So, in the absence of a specific provision to that effect, the order cannot be taken to extend to such assets. Secondly, both (a) and (b) of para 1.1 of the 1997 order refer to [his] assets and/or funds `whether in [his] own name or not’. Those words recognise that assets or funds may be `his’ if they are held for the defendant’s benefit by another. That is a formidable confirmation of the view that, if the order had been intended to extend to assets and funds held by the defendant for the benefit of another, it would have said so. In my view there is no ambiguity in the order.

 

Such authority as has been found supports the view I have expressed. In R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59, a decision of the Supreme Court of Western Australia, one of the questions for decision was whether `a combination of powers, discretions, authorities or expectancies which, if used, would affect the administration and enjoyment of a trust fund’ was an `asset’ for the purposes of a freezing order in standard form. It was held that it was not. Having referred to the dictionary definition of `asset’ as `property available to meet debts’, Owen J, with whose reasons and conclusions Ipp J agreed, said of that definition: `There is implicit in this definition, when applied to the context of a mareva injunction, that an “asset” must be a thing of value and it must be capable of application to satisfy debts.’ (See (1993) 10 WAR 59 at 78) Earlier, building on some observations of Brennan J in the High Court of Australia in Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 620-621, Owen J had said of the mareva injunction: `Its purpose is to ensure, so far as is possible, that the pool of assets against which a court order might be enforced in due course is not diminished in a manner which would be an abuse of its process.'(See (1993) 10 WAR 59 at 77.)

 

The views expressed by Owen J afford valuable confirmation of the meaning of `assets’ in the standard form of freezing order. Further confirmation is to be found in the judgment of Heron J in the High Court of New Zealand in Westpac Banking Corp v Gill (No 1) (1987) 2 PRNZ 52 at 54 where, in dealing with the requirement that the defendant must hold appropriate assets within the jurisdiction, he said that `appropriate’ clearly referred to `assets in which the defendant had some beneficial interest entitling him to deal with them as his own property’. He added that it went without saying that it was against that property that the plaintiffs were seeking recourse in the ultimate if judgment was obtained. There appears to be no other authority which bears on the question we have to decide. That may be because, until now, it has not been seriously suggested that the standard form of freezing order can extend to assets held for the benefit of others.

 

For these reasons I am in no doubt that, on the true construction of the 1997 order and on the assumption it is necessary for us to make, Mr Hadkinson 416 committed no breaches of it when he transferred the £4·325m and the £35,117·68 to his wife. With all due respect to the submissions of Mr Cohen QC on behalf of the bank and the view of the judge, a commendable desire to ensure that a person against whom a freezing order is made shall not defeat its spirit cannot affect a fair construction of its letter. Nor is it helpful to say that such a person is free to apply for a variation of the order so as to exclude from its operation assets which he can demonstrate are held for the benefit of another. The boot, as it seems to me, is on the other foot. The question is whether the order applies to such assets in the first place. In answering that question, it must not be forgotten that in their infancy both freezing and search orders were regarded as intrusive and not to be enforced except according to their letter.

 

It may be that the standard form of freezing order is one of imperfect operation. But unless and until it includes the words `and whether held for his own benefit or for the benefit of others’ or the like, the imperfections will persist. For myself, I would think that such words could only be properly included in an exceptional case. But whether that be right or wrong, the imperfections cannot be cured by giving the standard form of order a meaning it will not bear.

Appeal from Arden J’s order of 21 May 1999 allowed but appeal from her order of 24 May 1999 dismissed. Appeal from Judge Hedley’s decision dismissed.

 

Kate O’Hanlon Barrister.