Schmidt v Wong

These were, as the judge said, straightforward County Court proceedings of a very familiar type, but which in the event have taken this court into some difficult areas of procedure; however little those enquiries were in fact required for the determination of the actual appeal. I must first set out the way in which the case developed and was decided, before venturing into deeper waters.

Since about 1995 Ms Schmidt has been the tenant of Mr Wong in residential premises in Banbury, Oxfordshire. On 25 June 2004 Ms Schmidt fell through a cracked manhole cover in the front garden, injuring her left foot and (allegedly, though this is contested) exacerbating a pre-existing back condition. Solicitors wrote to Mr Wong alleging negligence on his part on 18 December 2004. That was met by a denial, and a claim form was issued in the Banbury County Court on 7 March 2005.

Meanwhile, however, Ms Schmidt had on 25 February 2005 issued an application notice in the Banbury County Court seeking a freezing injunction, requiring Mr Wong to retain such assets as he had within the jurisdiction to a limit of £150,000. Those assets were specifically stated to include the Banbury property or the proceeds of the sale thereof. The usual requirement was included of a statement within 72 hours of all of Mr Wong’s assets, worldwide. The application was supported by a witness statement by Ms Schmidt, which based the application on the facts that Mr Wong had given Ms Schmidt notice to quit, thus causing her to suspect that he intended to sell the property; and that he lived and worked in Hong Kong and had no assets in the jurisdiction apart from the Banbury property.

It appears that the claim form, accompanied by the notice of application and the supporting witness statement, was filed at the Oxford County Court on 25^th February. The notice of application was returnable before a district judge or a deputy district judge. The claimant sought not only a freezing order but also permission to serve Mr Wong out of the jurisdiction in Hong Kong. Because the application was out of the ordinary, it appears to have been placed before Judge Harris QC on 7 March 2005. There is no record that he granted permission to serve out of the jurisdiction, although this would not have raised any particular problems. He clearly decided that the question whether he had jurisdiction to make a freezing order was not entirely straightforward, but he did not successfully communicate his thought processes to the staff in the county court office, who issued this incomprehensible direction three days later:

The claimant’s solicitors appear to have mistakenly believed that this constituted the freezing order they were seeking. The county court office posted this order to Mr Wong in Hong Kong, without the supporting witness statement or the claim form. He contacted solicitors in Banbury on 24^th March, and after the hearing had been adjourned till 11^th April, he instructed them formally on 1^st April. They then set about finding out what this was all about. On 7^th April the claimant’s solicitors faxed to them copies of the documents they had filed with the court six weeks earlier. This did not afford Mr Wong’s advisers much time to consider the merits of this unusual application and to decide how best to respond to it.

Judge Harris had first to consider whether he had jurisdiction to make the order even if persuaded of its merits. He went carefully through the County Court Remedies Regulations 1991 [the Remedies Regulations] and concluded that a County Court had no such power. He also rejected a submission that because he, Judge Harris personally, was a “Section 9 judge” (an expression to which we will have to return) he could exercise the powers of the High Court although sitting in the County Court. He therefore dismissed the application for want of jurisdiction.

Judge Harris gave permission to appeal, in the following terms:

“The case includes the issue of whether, and in what, if any circumstances a Circuit Judge (or a Deputy Circuit Judge with section 9 authorisation) can make a freezing order in a County Court case. The position appears tolerably clear, though not pellucid. There is no authority and the Practice Direction to CPR 25 was argued to be in conflict with [the Remedies Regulations]”

That permission having been granted, the matter came into the hands of Mr Ullstein QC, who had not been previously instructed. He concluded, correctly, that the County Court indeed had no power to issue a freezing order, and that therefore the issue identified by Judge Harris in his grant of permission could not be properly pursued before this court.

That should have been the end of the matter, at least in the absence of an application to this court for permission to appeal on other grounds. The appellant did not take that course, but simply advanced other grounds within the envelope of Judge Harris’s permission. The new grounds read as follows:

“1.

The Learned Judge was wrong to dismiss the application on the ground that he, sitting as a County Court Judge, had no jurisdiction to hear or determine the application on its merits.

2.

The Learned Judge ought to have:-

(i)

Exercised his power to transfer the case and/or the application to the High Court; and

(ii)

Made immediate arrangements to sit, as he was entitled to do, as a Deputy Judge of the High Court of Justice, Queens Bench division; and

(iii)

Heard and determined the application on its merits.

We entertained these new grounds without requiring an application for permission to advance them, but will be forgiven for saying that they were doomed to failure, and that if permission to advance them had been sought it would not have been granted. That is for the simple reason that none of these applications had been made to, or even suggested in front of, Judge Harris, and he cannot have erred in law in not taking a step that was not asked of him. Mr Ullstein argued that, in an era of enhanced case management powers, it was for judges to be proactive and ensure that cases were decided justly: it would seem, whatever the parties put before them. While the Woolf reforms have in procedural matters brought a very welcome change from the former position when the judge was more or less a spectator of an agenda set by the parties, and have given the judge much more latitude to intervene, at the same time they have not so altered the English view of a judge’s role as to place on him responsibility for identifying the appropriate or possible form of relief when the claimant has not done so. Such an obligation may arise in a very limited category of cases, a possible example being where one party is unrepresented. And if Judge Harris had had in mind the somewhat complex provisions with regard to the distribution of jurisdiction between the High Court and the county court, and had been satisfied that they could be deployed in some way, though not in the way sought, to assist the claimant (a far from straightforward issue, to which we return below), then no doubt, as judges often do, he would have offered some free advice to the claimant’s then representatives. But it goes beyond all reason to say that Judge Harris erred in law when he did not take that step in this case.

That suffices to dispose of the appeal, and we so indicated at the close of argument. Nonetheless, as indicated above the court had occasion during the hearing of the appeal to give consideration to the relationship of the High Court and the county court in relation to freezing orders. We were told that this was an area attended by some uncertainty, at least in the eyes of the professions. We therefore offer some observations in the hope of achieving some clarification. We first deal with the relevant background to the jurisdiction rules, and then consider the specific issues of transfer of proceedings from the county court to the High Court; and of commencement of injunction proceedings in the High Court in support of a county court action.

The allocation of business between the High Court and the county court is governed by the radical scheme introduced by and under the Courts and Legal Services Act 1990. That Act implemented the main proposals of the Report of the Review Body on Civil Justice (Cm 394, 1988), which recommended the continuation of the High Court and the county court as separate courts, subject to increases in the county court jurisdiction and improved arrangements for transfer between the two courts. Sections 1-3 of the 1990 Act accordingly gave the Lord Chancellor rule making powers in relation to the respective jurisdictions of the High Court and the county court, which he has exercised in the High Court and County Courts Jurisdiction Order 1991 [the Jurisdiction Order]; amended sections 40 and 42 of the County Courts Act 1984 to provide for improved transfer between the two courts; and introduced a new section 38 into the 1984 Act, which in principle gave the county court the same powers as to remedies as the High Court, but subject to limitations that the Lord Chancellor could prescribe by order. The Lord Chancellor has exercised that power to impose limitations in the Remedies Regulations (see § 6 above).

As Judge Harris held, and as is agreed to be correct, the Remedies Regulations prevent a county court from issuing a freezing order except in specified circumstances. That restriction on the powers of the county court is quite deliberate. The Civil Justice Review, in its §188, had expressed concern that the original and unamended section 38 of the County Courts Act 1984 could be read as conferring on county courts power to issue Mareva and Anton Pillar injunctions, as they were then called. The Review said that it was desirable that the exercise of those powers should be closely circumscribed, and controlled by such of the judges of the High Court as had specialist knowledge of that jurisdiction. However, as Mr Ullstein urged, there may be cases in the county court where the support of a freezing order is justified or, even, essential. How is that to be achieved?

The grounds of appeal asserted an ability, and obligation, of the judge to transfer the proceedings to the High Court, and much of the debate before us focussed on that possibility. Section 42 of the County Courts Act 1984, as amended (see §11 above) contains the following provisions:

“(1)

Where a county court is satisfied that any proceedings before it are required by any provision of a kind mentioned in subsection (7) to be in the High Court it shall-

(a)

order the transfer of the proceedings to the High Court; or

(b)

if the court is satisfied that the person bringing the proceedings knew, or ought to have known, of that requirement, order that they be struck out.

(2)

Subject to any such provision, a county court may order the transfer of any proceedings before it to the High Court.”

“Provisions of a kind mentioned in subsection (7)” include provisions made under section 1 of the 1990 Act, and therefore extend to the Remedies Regulations.

Before proceeding further we must clear out of the way one matter that caused some difficulty at the hearing. It seemed to at least one member of the constitution that in the present case the claimant could not rely on these transfer provisions in any event, because of the terms of section 42(1)(b). The claimant, at least through her lawyers, ought to have known that the Remedies Regulations required the proceedings for the freezing order to be in the High Court; or, rather, prevented them from being in the county court; and the proceedings should therefore have been struck out. That view, that was formed only from consideration of the face of the statute, overlooked the guidance given by this court in Re NP Engineering and Security Products Ltd [1998] 1 BCLC 208 at p 216a where, citing with approval a previous case on the similar terms of section 40, but applying it to section 42(1)(b), this court said:

“provided proceedings are started within the time permitted by the statute of limitations, are not frivolous, vexatious or an abuse of the process of the court and disclose a cause of action, they will not as a rule be struck out because of some mistake in procedure on the part of the plaintiff or his advisers….No injustice is involved to the defendant in transferring an action which has been started in the wrong court to the correct court.”

Accordingly, section 42(1)(b) adds nothing to the normal and general grounds for striking out an action. Such grounds do not exist in the present case.

That leaves at least three issues in relation to section 42. Was the application for the freezing order “proceedings”, so as to engage the section in the first place? If so, was the county court obliged to transfer the application to the High Court? If it was not so obliged, should it have exercised its discretionary power to transfer under section 42(2)?

As to the question of whether the application for a freezing order is to be regarded as “proceedings”, it is important to recall that section 42, as amended, is part of a code introduced by the 1990 Act: see §11 above. That code makes a clear distinction between proceedings, addressed in the Jurisdiction Order, and remedies, addressed in the Remedies Regulations. That distinction is to be found not merely in the subordinate legislation, but in the primary legislation itself, sections 1 and 2 of the 1990 Act dealing with proceedings in the county court and section 3 with remedies in that court. It is the Remedies Regulations, made under the vires of section 3, that prevent the county court from issuing a freezing order. In the present case, although the application for the freezing order was issued separately from and before the claim form, the order sought was a remedy incidental to and in support of the claim. Not only was that the case but it had to be the case, since it is trite law that a freezing order has to be in support of an extant cause of action, and cannot be made “in the air”: see per Lord Mustill in Mercedes Benz AG v Leiduck [1996] 1 AC at p 297A; and generally The Siskina [1979] AC 210. And that is so also in respect of post-judgment injunctions, which have to be either in the action or in support of “proceedings” to enforce the judgment: see Gee, Commercial Injunctions (5^th edition), §§ 3.023-027 and 6.074-075.

Accordingly, the “proceedings” before Judge Harris were the negligence action. That was not required to be in the High Court. Nor could the remedy sought of a freezing order be extracted from the action and deemed (contrary to the authority mentioned in §16 above) to be free-standing proceedings so as to place the judge under an obligation to transfer it to the High Court.

We say that that would have been an obligation on the judge because section 42 (1)(a) provides that proceedings to which it applies “shall” be transferred to the High Court. That word does not always connote obligation, but in the present case it is to be contrasted with the deliberate use of the facultative “may” in section 42(2). And as to that latter power, even if the application was proceedings, and therefore fell under section 42, it could not possibly be said that the judge would err in law in not exercising his power to transfer.

We are further fortified in my view that section 42 simply does not apply to freezing injunctions by the fact that the code makes other provision for the issue of injunctions in support of county court actions, to which provision we now turn.

The procedure Ms Schmidt’s solicitors should have adopted was to make their client’s application for a freezing order in the High Court pursuant to para 3 of the Jurisdiction Order, which provides that;

“The High Court shall have jurisdiction to hear an a application for an injunction made in the course of or in anticipation of proceedings in a county court where a county court may not, by virtue of regulations under section 38(3)(b) of the County Courts ct 1984 or otherwise, grant an injunction.”

There would be no need to initiate originating proceedings in the High Court for this purpose pursuant to CPR Part 7 or Part 8. Part 7 would have been inappropriate, since the personal injuries claim form was issued in the county court, and an application for an injunction in the course of or in anticipation of proceedings in the county court is not the stuff for which the Part 8 procedure was designed. Instead, this should have been a Part 23 application, attracting a higher court fee because it was being issued in the High Court. Such an application should be issued in the Central Office at the Royal Courts of Justice or at the appropriate District Registry of the High Court, and it should be made returnable before a judge. In the body of the application there should appear an explanation along the following lines:

“This application is being made in the course of [in anticipation of] proceedings in the … County Court pursuant to paragraph 3 of the High Court and County Courts Jurisdiction Order 1991, The county court has no jurisdiction to grant the relief sought by reason of regulation 3(1) of the County Court Remedies Regulations 1991.”

These arrangements are similar to those that are followed when the High Court is requested to issue a commission, request or order to examine witnesses abroad for the purposes of proceedings in a county court pursuant to section 56 of the County Courts Act 1984. In that context CPR 34.13 (3) and para 5 of the Practice Direction to CPR Part 34 prescribe the procedure to be followed (which includes a Part 23 application: see para 5.2 of the Practice Direction). It is to be hoped that the Civil Procedure Rules Committee will consider what should be done to make the procedure for applications made under Article 3 of the High Court and County Courts Jurisdiction Order 1991 equally easy to understand.

The removal of any possibility of transfer means that it is not necessary to pursue further the issues ventilated before us, springing from the assertion in the Grounds that Judge Harris should have exercised powers of transfer, as to the status and powers of a “section 9 judge” sitting in the county court. That expression conveniently refers to a judge authorised by the Lord Chancellor to sit in the High Court. Such authorisation may be limited or may be general. What Judge Harris however rightly thought was that he could not use such authorisation as he had to transform his court ad hoc into the High Court. If the proper course had been followed, and an application issued in the High Court under paragraph 3 of the Jurisdiction Order, then it might or might not have been convenient for Judge Harris to hear it as a High Court judge. That however would have been a matter for the management of the business in the District Registry in which the application was issued, and not something to be determined by Judge Harris personally.

This appeal has caused the court to reflect on the use of freezing orders in the context of county court proceedings. We venture to offer some random observations.

The need to issue an application in the High Court involves more work and the payment of a higher court fee. That should have the valuable effect of causing parties and their advisers to reflect carefully before taking that step. They will have to have in mind repeated warnings since the development of the Mareva jurisdiction that such orders are not to be sought, and will not be granted, as a matter of course; that particular caution should be exercised in relation to a, comparatively, modest claim; and that thought must be given to the intrusion and inconvenience of such an order, not only for the defendant but also for third parties. Those considerations are likely to be particularly pressing in cases, like the present, that are very typical county court matters.

In the present case the freezing order is no longer sought and, as Mr Ullstein very frankly and properly told us, the appeal is pursued in the hope of protecting the claimant’s position as to costs. Had the claimant’s then advisers contemplated the correct route, which would have required them to consider the justification for an application to a judge in the High Court, the conclusion that a freezing order was inappropriate might have been reached at an earlier stage of the proceedings.