Lemos v Lemos & Anor

In this family dispute between the claimant and appellant, Joanna Lemos, and her brother Christos Lemos (“Mr Lemos”) the first defendant, the claimant has obtained a judgment against her brother in Jersey and registered it in this country. On 19^th December 2014, Popplewell J granted her a freezing injunction in respect of the house at 27 and 27A Bracknell Gardens, of which the second respondent Church Bay Trust Co Ltd (“Church Bay”) is the registered owner, on the basis that Church Bay arguably holds the property for the benefit of Mr Lemos and that, accordingly, the judgment can be enforced against the property. On 13^th January 2015 that injunction was continued by King J without prejudice to the respondents’ entitlement to apply to discharge it. Cooke J has set aside the injunction on the basis that there is no reason to suppose that the judgment can be enforced against the property. There is now an appeal with the permission of Lewison LJ.

Church Bay derives its title from a Liberian company (“Panagia”) incorporated on 22^nd June 1981. On 24^th June 1981 the stock of Panagia, consisting of one bearer share, was “sold, assigned and transferred” by the subscriber to Mr Lemos. Mr Lemos in 1972 had married Kalliopi, the daughter of Captain Nikolos and on 26^th June 1981 Panagia approved the acquisition in its name of 27 Bracknell Gardens as a matrimonial home. The purchase price is said to have been provided by Captain Nikolos.

Minutes of the first meeting of the company had been held at 1500 hours on 24^th June 1981 and record Mrs Kalliopi Lemos (“Mrs Lemos”) as the sole attendee. They refer to her as “Assignee of Incorporation and Subscriber to stock”. Mrs Lemos then appoints the first directors of the company namely herself, Captain Nikolos and Mr Lemos. Thus on the same date as that on which the stock of Panagia was assigned to Mr Lemos, Mrs Lemos was being treated as the sole shareholder of the company entitled to make the appointment.

At 1530 hours on the same day a board meeting was held at which Mrs Lemos was chosen to be chairman; she was appointed as president, her father as vice president and Mr Lemos as secretary and treasurer of Panagia. The purchase of 27 Bracknell Gardens for £392,085 then went ahead.

A subsequent letter bearing the date of 25^th March 1982 from Mrs Lemos and Mr Lemos to Captain Nikolos expresses their gratitude to Captain Nikolos for producing the purchase price and providing accommodation for the whole family. This letter which refers to Mrs Lemos as the owner is the subject of dispute both as to its provenance and, to a less important extent, its translation into English. Church Bay has declined to produce the original for inspection.

Ten years later in 1992, Panagia bought the property next door. This became known as 27A and was refurbished the following year, 1993, with the benefit of a loan from Royal Bank of Scotland (“RBS”) to Panagia. That loan was secured by way of a legal charge over the property granted by Panagia; it was a term of the loan that Mr Lemos should give a personal guarantee for it and an assignment of a life insurance policy as security. That loan was ultimately repaid in November 2001 without recourse to the guarantee or the insurance policy. It seems that the payments under the mortgage were made from funds alleged to derive from Mr Lemos.

In the context of obtaining the loan from RBS there is a record of minutes of a special meeting of the shareholders of Panagia held on 23^rd March 1993. These minutes refer to the holders of all the issued and outstanding shares of the company having a right to vote and two persons then appear, namely, Mr Christos Lemos and Mrs Kalliopi Lemos. There is reference to certificates representing all of the issued and outstanding shares of the company being tabled and voted. At that meeting the resolution passed at the meeting of the directors held the same day was approved, ratified and adopted as a resolution of the shareholders of the company.

The directors’ resolution of the same day relates to the approval of the loan facility agreement with RBS, to which I have just referred, to assist in the renovation of 27 and 27A Bracknell Gardens; it was a term of the letter, which sets out the basis upon which the loan would be given, that a legal opinion had to be obtained to ensure that the borrowing company was properly constituted and empowered to borrow money.

There is thus something of a conflict between the shareholders’ minutes of 23^rd March 1993 which show both Mr and Mrs Lemos as shareholders and the position as shown in the minutes of 24^th June 1981 which treated Mrs Lemos as being the sole shareholder.

In 1994 various important events occurred. On 17^th March 1994 Mrs Lemos executed a deed of settlement, drafted by Withers, with Global Fiduciary (Canada) Inc as trustees whereby the trustees were to hold what was described as the Trust Fund on discretionary trust for Mrs Lemos with power of appointment exercisable with the written consent of Mrs Lemos, (“the KL Trust”). Three months later on 22^nd June 1994 Mr Lemos executed a Declaration of Trust, also drafted by Withers, whereby he declared and confirmed that he had at all times since 24^th June 1981 held all his rights in the share transferred to him on that date on trust for Mrs Lemos absolutely. At the same time a bearer share certificate for 500 shares was issued by Panagia and a document dated 18^th August 1994 records that on 22^nd June the trustees of the KL Trust accepted from Mr Lemos, as nominee for Mrs Lemos, 500 fully paid shares of no par value in the capital stock of Panagia.

Thus, the original subscriber share was replaced by a certificate of 500 bearer shares which were then transferred into the KL Trust and held by the trustees of that trust. In May 1996 Mr Lemos, now calling himself President of Panagia, resigned his position as President and Director; Mrs Lemos, now calling herself Secretary and Treasurer, resigned her position also. On 26^th August 2004 Church Bay was appointed trustee of the KL Trust in place of the original trustee and on 28^th February 2005 the share certificate in Panagia was transferred to Church Bay. On 28^th March 2013 Panagia went into voluntary liquidation and later transferred 27 and 27A Bracknell Gardens to Church Bay which is currently the registered proprietor. On 11^th March 2015, shortly after King J continued the injunction in relation to the property, Mr Lemos petitioned for his own bankruptcy. Michael Leeds and Kevin Hellard of Grant Thornton have been appointed his trustees in bankruptcy.

Mr Dougherty QC for Joanna Lemos accepts that in order to maintain a freezing injunction against property which on its face belongs to someone other than a defendant (what is sometimes called a Chabra injunction, see [1992] 1 WLR 231), he must show arguable prospects of being able to enforce her judgment against that property. He says that he can do that in this case because, on the basis of the facts which I have outlined, it was always the common intention of the relevant parties (Mr and Mrs Lemos and the trustees of the KL settlement) that the property should be held beneficially (at least in part) for Mr Lemos. Alternatively he submits that, when Mr Lemos made the declaration of trust in 1994 in favour of Mrs Lemos that was a disposition of an interest which he then held in Panagia; that disposition can and should be avoided pursuant to section 423 of the Insolvency Act 1986, leaving his interest available for execution.

Cooke J rejected both these arguments holding that any common intention that both Mr and Mrs Lemos were the beneficial owners of the property had to be the common intention not merely of themselves but that of the trustees of the KL Trust. The terms of that settlement negatived any such intention on the part of the trustees unless it was to be said that the trust was itself a sham of which the trustees were dishonestly a part. That was so unlikely as not to be seriously arguable especially since no assertion that the arrangements were a sham was made. As for the section 423 argument, he accepted the submission of counsel for the trustees, Mr James Brightwell, that all the documentation, apart from the “aberration” of the minutes of 23^rd March 1993, made it clear that it was Mrs Lemos who was the beneficial owner of the only share that had been issued in Panagia and that there was never any question of Mr Lemos having any interest in the property. There was therefore no realistic chance of success on a section 423 application. The 1993 minutes could safely be ignored since they “were doubtless put together with a view to obtaining the loan from RBS”.

In this court Mr Dougherty, perhaps recognising the force of the judge’s conclusions about common intention, reversed the order of his submissions and placed most emphasis on the section 423 enforcement route. He submitted that the March 1993 minutes did not stand alone and could not be dismissed as an aberration since other factors, showing that Mr Lemos did indeed have a beneficial interest in the Panagia share in 1981 (whatever he may have later said in the declaration of trust of 1994), included:-

the undoubted fact that Mr Lemos was the sole transferee of the bearer share in Panagia at the beginning; at the first meeting of Panagia it was Mrs Lemos who was described as “assignee”;

the property was bought as the matrimonial home in 1981 with the intention that Mr and Mrs Lemos should live in it as a couple with their family as they have done ever since. So to the outside world, and particularly to the claimant, it seemed to be jointly owned;

in 1993 Mr Lemos was happy (or at least prepared) to guarantee personally repayment of the large loan (£1.7 million) made by RBS for refurbishment;

Mr Lemos was likely to have made the mortgage payments to RBS since there is no indication that Mrs Lemos had any income from which the payments could be made; and

no formal trust documentation came into existence until 1994.

Mr Dougherty by no means abandoned his arguments about common intention. He submitted that the intention had to be objectively derived from the conduct of the parties and that the original trustees of the KL Trust must have been aware in 1994 of the fact that in 1993 Mr Lemos was guaranteeing the RBS loan and making payments under the mortgage. That could only have been consistent with an intention that Mr Lemos should have (or continue to have) an interest in the property. That was consistent with the documentary evidence available to the trustees then and the same documentation would have been available in 2004 when Church Bay was appointed trustee in place of the original trustee. For this purpose it was not necessary to allege that the trust documentation was a sham.

Mr Stephen Smith QC (now leading Mr Brightwell) for Church Bay submitted that there was no reason not to take the trust documentation at face value including Mr Lemos’s assertion that he had always held his share in Panagia in trust for his wife since 1981. There was nothing to suggest that Mr Lemos had any interest in the assets of the KL Trust which expressly provided that any discretionary payments to Mr Lemos could only be made with the written consent of Mrs Lemos; the guarantee and naturally given and made by Mr Lemos because he was the person with an income. Any common intention had to be that not just of Mr and Mrs Lemos but also that of the trustees. That had to be an intention of the trustees in 1994 and continue to be the intention of the new trustees appointed in 2004 up to the date when an injunction was sought, see Alliance Bank JSC v Zhunus (unreported, 30^th January 2015) per Leggatt J.

Mr Dougherty also sought to rely on 4 items of new evidence which he submitted could not have been discovered with proper (or any) diligence at the time of the hearing before Cooke J:-

evidence of an interview between Grant Thornton and Mr Lemos, of which Grant Thornton informed Mr Strong of the claimant’s solicitors after judgment was given on 18^th May 2015. Mr Lemos is said to have said that the trust structure of 1994 was originally set up to protect his wife and the property from the risk of his bankruptcy. Mr Dougherty invites the court to infer that the property was also part of Mr Lemos’s assets before 1994 and that the purpose of the declaration of trust was to put those assets out of the reach of potential creditors. Mr Lemos denies he made that statement;

a judgment of Hariprashad - Charles J in the British Virgin Islands in 2008 in which a company, of which Mr Forrest (now a director of Church Bay) was a director, pleaded guilty to money laundering offences and had attempted to deceive the court through false evidence and manufactured documents;

a judgment of Mrs Registrar Derrett of 2^nd March 2016 which itemises Mr Lemos’s obstructive approach to his trustee in bankruptcy and indeed the lack of co-operation of his wife and the trustee of KL Trust. It also shows that documentation in the case is far from complete and that Mr Lemos made strenuous attempts to prevent or delay the trustee in bankruptcy from obtaining documents from Withers (para 23-26);

Withers’ documentation from between June 1994 and September 1997 which

apparently confirms that both interest and capital repayments of the mortgage were funded by moneys alleged to derive from Mr Lemos (fax to the accountants Moore Stephens of 24^th June 1994 and memo of 24^th September 1997);

suggests that the share(s) in Panagia may have been held by Captain Nikolos (letter of 7^th September 1994);

states that the total costs of refurbishment of the property was about US$4.5 million most of which came from the funds alleged to derive from Mr Lemos (letter of 17^th October 1994);

refers to (a) an entity called Establishment Chrikal (which sounds as if it could be an amalgamation of Christos and Kalliopi) which was the entity used by Captain Nikolos to fund Panagia but had bank accounts over which Mr Lemos had signing powers and (b) an entity called Nandina, involved in the purchase of 27A, whose instructions came from another company controlled by Mr Lemos called CPL Estates (attendance note of 6^th December 1994);

states that the property was put in trust to protect it from claims made against Mr Lemos coupled with a suggestion from Moore Stephens, in the context of a investigation by the Revenue, that the property should “now” be put into the names of Mr and Mrs Lemos (attendance note and memo of 29^th and 31^st January 1997 respectively);

states that the letter to Captain Nikolos (the original of which Church Bay have declined to show to the claimant or her lawyers) came to light in 1997, fifteen years after it was purportedly written (attendance note of 18^th April 1997 meeting); and

records apparent uncertainty about the ownership of Panagia and the need to be careful about the dates of gifts, from Captain Nikolos “even if the arrangement was not a sham” (previous attendance note and further memo of 24^th September 1997).

Mr Smith responded that this evidence did not meet the requirements of Ladd v Marshall[1954] 1 WLR 1489. The first piece of evidence could have been available if Grant Thornton had been asked for it. The second piece of evidence was always available and was, in any event, no evidence that Mr Forrest was in any way dishonest in relation to the current trust. None of the evidence, even if credible could have affected the result. The fact that Mr Lemos might have been evasive in his bankruptcy could not affect his credibility on facts and matters arising 20 years earlier. As far as the Withers’ documentation is concerned Mr Smith complained that it was served so late that it could not be properly dealt with, that it appeared to be privileged material without any explanation being given as to how that privilege came to be waived and that it showed no more than that, when Mr Lemos made the declaration of trust of 22^nd June 1994, he then had plenty of funds, having profitably settled litigation with his father.

This court is traditionally somewhat more relaxed about admitting new evidence on interlocutory appeals than on final appeals. This appeal is essentially an interlocutory appeal about the availability of a freezing injunction. The fact that it is an injunction in aid of enforcing a judgment rather than an injunction in aid of a cause of action which has not yet matured into a judgment makes no difference. As far as the complaint of privilege is concerned, any privilege is not that of the trustee respondent in this action. Any privilege would be that of Mr Lemos or Mrs Lemos which they could have invoked but have not. Mr Smith was in a position to make submissions about the contents of the documents and the trustees cannot be disadvantaged in any real sense by their somewhat late emergence.

I would not admit as evidence in this appeal the British Virgin Islands judgment which was available before Cooke J gave his judgment and has very little relevance, even as to credit, as to any relevant conduct of Mr Forrest in relation to the KL Trust. I would, however, exercise discretion to admit the evidence of Mr Lemos’ interview with Grant Thornton (described by Lewison LJ as cogent), the evidence of Mrs Registrar Derrett, not as evidence of the underlying facts of the dispute but as evidence of Mr Lemos’ defensive and obstructive approach to perfectly proper enquiries from his trustee in bankruptcy, and the Withers’ documentation. They were not available to Joanna Lemos or her advisers before the decision of Cooke J, they are credible statements in themselves and may well have influenced the result of the application to discharge the injunction.

In SCF v Masri[1985] 1 WLR 876 Lloyd LJ said that where a third party asserts that assets belong to him rather than to a defendant, the court is not obliged to accept the assertion without further inquiry. The court may decide to do so but may decide not to accept it if there is “good reason to suppose” that the defendant has an interest in the relevant asset. If there is such good reason, the court may order an issue to be tried (with pleadings and disclosure of all relevant documents) as to whether the defendant has an interest or not. This “good reason to suppose” test is very similar to the test of “good arguable case” for the imposition of the injunction in the first place, see JSC BTA Bank v Ablyazov (No. 11)[2015] 1 WLR 1287 at paragraph 68 per Christopher Clarke LJ. The court does not, at this stage, have to be satisfied on a balance of probabilities.

I agree with the judge that there is insufficient evidence, for the purpose of maintaining the injunction, to lead the court to suppose that it was the common intention at any relevant time after 1994, of Mr and Mrs Lemos and the trustees that Mr Lemos should have a beneficial interest in the property at 27 and 27A Bracknell Gardens. To come to that conclusion would mean that Mr Lemos’ declaration of trust and the KL Trust which followed shortly thereafter were both shams in which the trustees participated knowing that the truth was the opposite of what was provided for in the documents. I find it difficult to accept Mr Dougherty’s argument that he could succeed under this head without alleging that the documentation was a sham; it is not sufficient to say that intention is to be proved objectively by conduct at the time the trusts were set up, if the consequence is that for many years thereafter the trustee acted in accordance with the terms of the trust. Mr Smith is moreover probably correct to say that the relevant intention must be that of any new trustee who replaces the old trustee.

This argument stands on a different basis. It is worth setting out the terms of the section:-

This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if –

he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration …

Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for –

restoring the position to what it would have been if the transaction had not been entered into, and

protecting the interests of persons who are victims of the transaction.

In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose –

of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or

of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make ….”

The question here is whether there is good reason to suppose that Mr Lemos’s declaration of trust of 22^nd June 1994 constituted a disposition of his assets at an undervalue. If he had an asset at all, it was gifted to Mrs Lemos and there is therefore no question of saying it was a transaction for value. The only issue is whether he had any beneficial interest in the property at that time, despite his saying in the later declaration of trust that he did not. That can only be determined by examining the facts between the incorporation of Panagia in 1981 and the execution of the declaration of trust in 1994.

I have already set out the judge’s conclusion on this aspect of the case. He did not think the considerations advanced by Mr Dougherty amounted to good reason to suppose that Mr Lemos had any beneficial interest apart from the March 1993 minutes which he felt able to dismiss as what Mr Brightwell had called an aberration. Some judges might have thought that the further matters set out in para 14 above, combined with the March minutes, gave good reason to suppose that Mr Lemos did indeed have an interest. This judge did not. That was a matter of evaluation for the judge which I would be reluctant to disturb merely because I disagreed with it. The fact that I might well have come to a different conclusion from the judge is not enough on its own to justify setting aside the judgment.

To my mind, however, the picture is transformed once the new evidence is admitted, to the extent that I think it ought to be. The Withers documentation shows that the position of Mr Lemos in relation to the property between 1982 and 1994 was, to say the least, far from clear. Mr Smith had some arguable answers to the individual matters shown by the documentation but their cumulative effect, added to the matters on which Mr Dougherty placed reliance, is considerable. If one adds to this the subsequent obstructiveness of Mr Lemos to legitimate inquiry, the situation is not nearly so transparent as it appeared to the judge and there is the curious circumstance that Church Bay, even now, will not permit examination of the original document of thanks to Captain Nikolos which is on any view a central document in the case.

In the circumstances in which the case now stands, I do think it well arguable that Mr Lemos did have an asset in 1994 which he disposed of in 1994 and that he did so for the purpose of putting that asset beyond the reach of a future creditor. I am far from saying that will turn out to be the position but it is a position that calls for proper investigation. There may well be problems of limitation but it was accepted that any claim, if there is one, would arguably not be time-barred.

I would therefore make the order which the judge says he would have made if he had thought there was a realistic chance of success on the section 423 application namely that issue should be remitted to the Chancery Division for determination at an appropriate time.

Mr Smith complained that the freezing injunction had now been in place for nearly two years without any enforcement proceedings being in place. That is not altogether surprising if a defendant is arguably contending that the relevant asset is owned by someone other than the judgment debtor and all the more understandable once a judge had held that the contrary contention is not an arguable one.

Nevertheless Mr Smith’s complaint has some force. If a section 423 application is to be made (and the relevant persons to make it are the trustees in bankruptcy, anyone to whom they assign validly the cause of action) or the appellant, if she obtains the permission of the court under section 424(1)(a) of the Insolvency Act 1986) it must be made promptly.

I would therefore allow this appeal and maintain the freezing injunction currently in force for a period of 4 weeks from hand down of this judgment. If within that time section 423 proceedings are instituted, the injunction will continue until the disposal of those proceedings by judgment or agreement and thereafter until satisfaction of the judgment currently possessed by Joanna Lemos. If proceedings are not begun within those 4 weeks, the injunction will be discharged.

I agree.