Khawaja v Popat & Anor

This is an appeal by Mr Mohammed Khawaja (“the appellant”) from the order of Mr Justice Peter Smith of 6 March 2015 whereby the judge found the appellant to be in contempt of court and ordered that he be committed to prison for a period of 3 months, suspended for 12 months, on condition that he complied with the order of Mr Justice David Richards (as he then was) of 17 October 2015 (sic: 2014) during that period of 12 months.

The judge found the appellant to be in breach of the order of 17 October 2014, which had continued a freezing order previously made on 2 October 2014 by Mr Justice Birss against three defendants, namely the appellant himself, Cleo Clinic Wimbledon Limited (“CCW”) and Singhar Beauty Salon Limited (“Singhar”).

The order of 2 October 2014 had restrained “the Respondent” from removing from England and Wales or in any way disposing of or dealing with any of his assets up to the value of £300,000. References to “the Respondent” were stated to mean “both or all of them” if there was more than one respondent. This was not particularly helpful as there were in fact three respondents, the defendants named above. However, it was entirely clear that the idea was that the term was to mean any respondent or all of them and in the circumstances it could not reasonably have been understood in any other sense. By paragraph 8 of the order, if the total value of the respondent’s assets in England and Wales exceeded £300,000, it was provided that such assets could be removed, disposed of or dealt with so long as unencumbered assets to a value in excess of £300,000 remained. In paragraph 11(2) there was the standard exception for dealings “in the ordinary and proper course of business”. By clause 11(4), the order was to cease to have effect if the respondent provided security by paying £300,000 into court or made provision for security in that sum by another method agreed with the applicants’ legal representatives.

The order of 17 October 2014 was a consent order, signed by the solicitors acting on each side of the record. By its terms the appellant undertook to the court not to dispose of, deal with or diminish in value two identified properties and to allow and give consent to the applicants to enter restrictions on the relevant titles to those properties registered at HM Land Registry. It recited that “the Respondent’s” (presumably the first respondent’s) undertaking would cease to have effect if he provided security as before. By paragraph 1(i) of the order, it was ordered that the freezing order against the first respondent (i.e. the appellant) was discharged, but that,

“(iii)

The Freezing Order shall remain in force as against the second respondent” (i.e. against CCW)

By paragraph 2(ii) of that order the first and second respondents (the appellant and CCW) were ordered to provide by 4 p.m. on 21 November 2014,

“Details of [CCW’s] transactions and receipts for the period from 1 August 2013 until the date of this order, including but not limited to, all printed and handwritten receipts, all calendars, diaries and appointment cards, all computer ledger cards, card machine print outs and receipts and invoices.”

The order was not personally served on the appellant until a date in January 2015, although (as noted above) the order was in fact a consent order signed by the appellant’s solicitors.

By Application Notice issued on 22 January 2015, the respondents applied for orders that the requirement of personal service of the consent order be dispensed with and that the appellant in his personal capacity or as director of CCW be committed to prison in respect of breaches of both the order of 2 October 2014 and that of 17 October 2014.

We were informed that at a hearing, which appears to have been on 27 February 2015, the judge dismissed the application in respect of the alleged breach of the first order. However, following a further hearing on 6 March 2015, the judge found that the appellant had breached the terms of the second order. The breaches found by the judge to have been proved were in respect of five transfers made from the bank account of CWL (Sort Code 20-58-51, Account No. 83505995) to two other accounts under the appellant’s control. The dates of the transfers, the amounts and the transferee accounts were as follows:

There was no dispute as to the fact that the appellant had caused these transfers to be made or that the accounts were accounts under the control of the appellant, either personally or through a company or companies in his control.

The judge also found the appellant to be in breach of the requirement in paragraph 2(ii) of the second order in failing to provide by 4 p.m. on 21 November 2014 details of the transactions of CCW from August 2013 to the date of that order.

There was no dispute that the information had not been provided in time (although subsequently remedied in February 2015). The argument centred on the reason for the omission and the fact that the appellant had not been personally served with the consent order, requiring him to do this positive act of providing information, before the date for compliance, as required by CPR 81.5(1)(a).

The judge dispensed with the service in so far as the order contained negative obligations. He decided that that was covered by the provisions of CPR 81.8 because the appellant clearly had notice of the terms of the consent order: see paragraph 4 and 5 of the judgment. In this respect, he must have had in mind CPR 81.8(a). He did not invoke CPR 81(8)(b) in respect of the positive obligations imposed by the order. Instead, he appears to have accepted the submission of Mr Roseman that the absence of service could be waived as a procedural defect under the Practice Direction to CPR 81, paragraph 16.2 which provides:

“The court may waive any procedural defect in the commencement or conduct of a committal application if satisfied that no injustice has been caused to the respondent by the defect.”

The appellant filed two affidavits in response to the application. The first was made on 26 February 2015 and the second on 3 March 2015. So far as the bank transfers were concerned, in the first affidavit, the appellant first dealt with the alleged breaches of the first order (which, in the end, were no longer in issue when the judge made the committal order) and he said this:

“4.

I do not consider these are breaches because paragraph 11(2) of the Order permits the Respondent from dealing with or disposing of any of his assets in ordinary and proper course of business. All of the above were under this category. Furthermore items A-H are transfers from amongst companies’ accounts to another one of the company’s accounts. Therefore there is no way there is any intent to diminish, remove from England and Wales or any other breach. As far as Cleo Clinic Wimbledon Limited’s bank account is concerned, there was a net input of £1,129.90 between 13 September 2014 to 14 November 2014, so again no funds have diminished.”

With regard to the transfers, alleged to have been in breach of the second order, the appellant said this in paragraph 7 of the same affidavit:

“In respect to the alleged breaches of a-d it once again falls under the above mentioned exclusion as these transfers were from amongst our companies’ accounts to another one of our company’s accounts. Therefore there is no way there is any intent to diminish, remove from England and Wales or any other breaches. As far as Cleo Clinic Wimbledon Limited bank account is concerned between 13 September 2014 to 14 November 2014 there was a net input of £1,129.90.”

As for the failure to provide the information as to dealings by CCW, the appellant said this in paragraphs 8 and 9 of the same affidavit:

“All transactions and receipts have now been provided to the Applicants’ solicitors. I accept there was an oversight on my part in initially providing these to the Applicants’ solicitors. My solicitors also overlooked this part and had not mentioned to me or reminded me. However it was not my intention not to comply with the court order. Indeed I have provided at least 5000 pages of bank statements from the date of the order to the current date. Where there was something not provided to the Applicants’ solicitors, as soon as they made a request for me to comply with something that might have been overlooked, I did so immediately.”

“My solicitor is in constant contact with the Applicants’ solicitors and they need only have asked me to comply with a part of an order that I had overlooked and I would have done so. I have for example provided to the Applicants’ solicitors on a fortnightly basis, all the Cleo Clinic Wimbledon Limited’s bank statements as required by the order. The order is very onerous but I have done my best to comply with it.”

In his second affidavit, the appellant gave further explanations of the four money transfers in issue. In each case, he said that each payment amounted to repayment of earlier loans made to CCW. He added that in the relevant period there was a total input into CCW’s account of £18,961.79 and that “the total repaid was £4893.63.”

The appellant gave the following further explanation of the circumstances in which, on his case, the various transactions had been undertaken. This is to be found in the second part of the first paragraph numbered 9 in the affidavit in these terms:

“My partnership or business agreement with the claimants fell apart when they breached the said verbal agreement partly by not putting any money in to the business. I have invested in excess of £150,000 thus far. Therefore I have to keep making loans to Cleo Wimbledon from my other accounts and companies. It is incredible that they notice the small amount going out of the accounts and turn a blind eye on larger amounts going in to the account. It is ironic that the claimants who left me high and dry by not investing the monies they agreed to invest in 2013 and this left me in the current business practice of moving monies from one account to the other. You will see on page 49 a payment of £13090 to Filron for rent. Filron are actually bailiffs who were collecting on behalf of the landlords KBCL ltd. The rent was over a month late and the landlords had instructed bailiffs. This is why I had to put this money in.”

He also repeated the point made in the first affidavit about his failure to provide the information relating to CWL as required by the second order, namely that he had overlooked the requirement and would have complied if the respondent’s solicitors had reminded him.

When it came to the hearing on 6 March 2015 (of which we have a full transcript), in exchanges between Mr Roseman for the respondents and the judge, the judge emphasised to counsel that it was for him to satisfy the court beyond reasonable doubt that the appellant’s explanations in the affidavits were untrue. Mr Roseman said that he would want to cross-examine the appellant. The judge pointed out that the appellant would be entitled to decline to go into the witness-box. When Mr Roseman concluded his submissions, the following passed between the judge and the appellant:

“MR JUSTICE PETER SMITH: Thank you. Your turn now, Mr Khawaja. The first question is that obviously in view of what Mr Roseman says there are matters that require an explanation from you aren’t there? There are inconsistencies and the like. Now, the question I have for you is whether or not you want to go and give evidence to tell on oath what you say is the true position. If you do that, Mr Roseman will cross-examine you and then I will decide on the basis of that evidence whether or not you are telling the truth or whether or not there is a doubt. Now, as I said earlier to Mr Roseman, there are two things. This is like a criminal case in the sense that like a criminal case Mr Roseman has to prove his case beyond reasonable doubt. That requires him to destroy any explanation that you have put up.”

“If this were a civil issue I could reject a matter on the basis that it was fanciful without having to be satisfied that that was beyond reasonable doubt. You cannot be compelled to go in the witness-box because you have a right of silence, that is to say you have a right to say, “I’m not going to go in the witness-box because I might incriminate myself”. Now, in criminal cases the ability of the judge to comment on that is restricted by statute. In civil cases there is no such restriction. Now, the reality is that if you don’t go in the witness-box it is likely that I will infer that you won’t go in the witness-box because you know you are lying. But it is entirely up to you what you want to do.”

“MR KHAWAJA: Your Honour, I would like to explain myself to you. I do not want to be cross-examined. If you take a few moments and read my second affidavit, which is in front of you, I have an explanation of every single transaction. Even within this period they are talking about £10,000 being taken out.”

The judge then heard short submissions from the appellant, first, as to the failure to comply with the order for production of information (punctuated by submissions as to the consequences of failure to effect personal service of the consent order) and, secondly, as to the payments in issue. There followed a reply from Mr Roseman.

In his judgment, the judge found the appellant to have failed to comply with the second order both with regard to the failure to provide information and in making the five transfers between the bank accounts. I have already covered the judge’s decision on the only aspect of dispute on the first matter (namely, the absence of service). On the second issue (the transfers), the judge said this:

“6.

As regards the five payments totalling £10,000 odd, his first affidavit just blandly says that they are intercompany payments. He was given an opportunity to clarify that and in his second affidavit he has set out that they were repayments of loans. There is a major difficulty with the first item because the money went into his private account, which does not seem to suggest that it is a payment in the ordinary course of the company’s business in respect if what he called an intercompany loan, an intercompany transaction, in his first affidavit.”

“7.

However, the difficulty the applicants face is the obligation to prove the case to the criminal standard. There was no application for a requirement that the deponents attend for cross-examination. I gave Mr Khawaja an opportunity to go into the witness-box and be crossed-examined, which he declined. I did warn him that whilst he has the right not to give evidence in the case which might incriminate himself, if he does not go into the witness-box I can draw an adverse inference.”

“8.

It seems to me that in this case I should draw an adverse inference. I am satisfied that if his affidavit was genuine, he would have been quite willing to go in the witness-box and to give evidence of that and permit himself to be cross-examined. The fact that he has not done so entitles me to infer, and I so infer, that he does not do that because he knows that what he says in his affidavit is not true, which means that the applicants have established beyond reasonable doubt, in my view, that all of the payments are not genuine payments in the course of the business and that he is re-writing matters to avoid the consequences of his inaccurate statements in his first affidavit, which did not go into this detail despite having an opportunity to do so.”

“9.

I am satisfied, therefore, beyond reasonable doubt, that the applicants have established five breaches in respect of payments out and one breach, which I think is significant, the failure to provide documents. I believe that is the most significant one.”

The judge then proceeded to impose the suspended committal order as mentioned above.

On the present appeal, the appellant initially advanced four grounds of appeal. The first two grounds were compendious: that the judge had been wrong to find the appellant to be in breach of the first order and that the finding of a breach of that order was contrary to the evidence. Thirdly, it was said that the order permitted disposal of and dealing with assets in excess of £300,000 and that the appellant’s assets exceeded that sum. Fourthly, it was submitted that the penalty imposed was too severe.

In his written and oral arguments Mr Hendron for the appellant sought to expand the issues and formulated three additional grounds for which he sought permission to argue. First, it was submitted that the freezing order contained in paragraph 5 of the first order, continued by the second order only applied to the appellant himself and not to CCW. Secondly, it was said that the judge had been wrong to dispense with the requirement of personal service of the second order, although made by consent. Thirdly, it was contended that, apart from the lack of clarity as to the person or persons to whom the freezing order applied, it was not clear what the effect on the order was if one or more of the respondents provided security to the value of £300,000 or having unencumbered assets in excess of that sum. Did that mean that the freezing order ceased to have effect against all respondents?

Without deciding during the hearing whether or not to grant permission to rely on these additional grounds, we heard argument from Mr Hendron on all his points. I will address the various points in turn.

On the first and second grounds, Mr Hendron submitted that, in the face of the appellant’s affidavit evidence, the respondents failed to discharge the burden of proving the alleged breaches (with regard to the bank transfers) to the criminal standard and that the judge had been wrong to draw an adverse inference against the appellant because of his failure to give oral evidence and to submit to cross-examination.

In my judgment, the judge was fully entitled to reach the conclusion that he did on the evidence advanced to him. On the one hand, he had the clear evidence from the respondents that the payments had been made out of the account of CCW to the recipients. It was not contested that the recipients were either the appellant or companies within his control. There was no obvious business purpose to which such payments were referable. Absent an explanation, therefore, the court would have been entitled (but not bound) to find the burden of proof on the respondents duly discharged. That was a matter for the judge’s own assessment, but, in my judgment, the judge was entitled to find that there was clearly a case for the appellant to answer.

As the proceedings led potentially to a criminal penalty, the appellant could not be compelled to give evidence. He could have remained completely silent and could have addressed submissions as to the strength or weakness of the evidence adduced by the respondent. However, he took a half-way course. He provided two affidavits in explanation, but he declined (as was his right) to have that evidence put to the test in cross-examination.

It might have been unwise for the judge to say to the appellant so bluntly that “...the reality is that if you don’t go in the witness-box it is likely that I will infer that you won’t go in the witness-box because you know you are lying…”. However, it seems to me that his overall remarks to the appellant, at the end of Mr Roseman’s opening of the case for the respondents, were correctly in accord with the law and practice as reflected in paragraph 81.28.4 of Civil Procedure 2015 Vol. 1 (p.2460) as follows:

“A person accused of contempt, like the defendant in a criminal trial, has the right to remain silent (Comet Products UK Ltd. v Hawkex Plastics Ltd. [1971] 2 QB 67, CA). It is the duty of the court to ensure that the accused person is made aware of that right and also of the risk that adverse inferences may be drawn from his silence (Interplayer Ltd. v Thorogood [2014] EWCA Civ 1511, CA…)…”

It is entirely clear from the transcript of the judge’s exchanges with Mr Roseman that he recognised fully the burden of proof that was upon the respondents and the standard of proof required to discharge that burden. The judge pressed Mr Roseman closely upon the evidence adduced in support of the application. I do not accept Mr Hendron’s submission that the judge concluded that the appellant’s silence on its own proved his guilt (contrary to the principles emerging from R v Cowan [1996] 1 Cr. App. R 1 at 7). The judge was conspicuously aware of the burden resting upon the respondents throughout. In my judgment, it seems clear that the judge recognised that the respondents’ evidence produced a case for the appellant to answer; he found the explanations given in the appellant’s affidavit evidence unsatisfactory and in the absence of oral evidence he drew the inference open to him that the appellant’s explanations were untrue.

It seems to me further that the law and practice as briefly stated in Civil Procedure (Loc. Cit. supra), and applied by the judge, is entirely consistent with the jurisprudence of the European Court of Human Rights, as reflected (for example) by the following passage from the judgment in Murray v UK [1996] ECHR 18731/91 at paragraph 47:

“On the one hand, it is self-evident that it is incompatible with the immunities under consideration to base a conviction solely or mainly on the accused’s silence or on a refusal to answer questions or to give evidence himself. On the other hand, the Court deems it equally obvious that these immunities cannot and should not prevent that the accused’s silence, in situations which clearly call for an explanation from him, be taken into account in assessing the persuasiveness of the evidence adduced by the prosecution.”

“Wherever the line between these two extremes is to be drawn, it follows from this understanding of “the right to silence” that the question whether the right is absolute must be answered in the negative.”

“It cannot be said therefore that an accused’s decision to remain silent throughout criminal proceedings should necessarily have no implications when the trial court seeks to evaluate the evidence against him. In particular, as the Government have pointed out, established international standards in this area, while providing for the right to silence and the privilege against self-incrimination, are silent on this point.”

“Whether the drawing of adverse inferences from an accused’s silence infringes Article 6 is a matter to be determined in the light of all the circumstances of the case, having particular regard to the situations where inferences may be drawn, the weight attached to them by the national courts in their assessment of the evidence and the degree of compulsion inherent in the situation.”

On the second ground of appeal (called ground 3 in the written argument) the appellant contends that he was not in breach of the orders because his assets exceeded £300,000 and that, in any event, he thought he was permitted to deal with assets because his own personal assets exceeded that sum.

To my mind both these submissions are misconceptions. First, the breach alleged was that the appellant had procured the breach by CCW of the freezing order imposed on it, to the extent that its assets did not exceed £300,000. It was never suggested that CWL had assets in excess of the relevant sum and the extent of the appellant’s own means was immaterial on this issue. Secondly, the appellant’s belief that he was entitled to act as he did does not excuse the breach. The law in this respect is usefully summarised in Civil Procedure 2015 Vol. 2 para. 3C-19, p. 1592 as follows:

“The effect of what is now r.81.4(1) fell for consideration at first instance in Stancomb v Trowbridge Urban and District Council [1910] 2 Ch.190, where Warrington J. stated (at 194):

“In my judgment, if a person or a corporation is restrained by injunction from doing a particular act, that person or corporation commits a breach of the injunction, and is liable for process for contempt, if he or it in fact does the act, and it is no answer to say that the act was not contumacious in the sense that, in doing it, there was no direct intention to disobey the order.”

“This dictum was applied by the House of Lords in Heatons Transport (St. Helens) Ltdv Transport and General Workers’ Union [1973] A.C. 15, HL (where the question was whether a trade union was vicariously liable for contempt for breach of an injunction through actions of its members), and was endorsed again by the House in the case of In re Supply of Ready Mixed Concrete (No. 2) [1995] 1 A.C. 456, HL (where the question was whether a company was vicariously liable for contempt for breach of an injunction through the actions of its employees). In the latter case, Lord Nolan explained (at p.479) that the dictum of Warrington J. was fully in accord with earlier authorities and had “acquired high authority”, being followed in subsequent decisions, down to Knight v Clifton [1971] Ch. 700, CA, and added:

“It is also the reasonable view, because the party in whose favour an order has been made is entitled to have it enforced, and also the effective administration of justice normally requires some penalty for disobedience to an order of a court if the disobedience is more than casual or accidental and unintentional.”

In this case, it was nothing to the point that when the appellant procured CCW’s breach of the order he did not intend to break the terms of the order.

It is convenient at this stage to address the first and third of Mr Hendron’s proposed additional grounds of appeal.

As to the first of these (the contention that paragraph 5 of the first order, as continued by the second order only applied to the appellant himself and not to CCW), I believe that what I have said in paragraph 3 explains sufficiently why I do not accept this point. It seems to me to be obvious that the meaning is clear, namely that the order applied to each of the defendants. Further, paragraphs 14 and 15 of the first order explained in the customary fashion how the order applied to individual and corporate respondents respectively.

Mr Hendron’s third additional ground was that security had been given by the appellant by having given an undertaking in the second order not to dispose of or deal with the two identified properties and to permit restrictions to be entered on the two Land Registry titles. He argued that it was not clear from the order that such “security” was not sufficient to prevent the freezing order continuing to apply to CCW.

It is clear to me that this point provides no answer for the appellant. The effect of the undertakings offered in the second order was that the freezing order against the appellant and Singhar was discharged (save in one limited respect concerning the latter’s shareholding/interest in CCW). The order expressly continued the freezing order against CCW: see paragraph 5(iii). If the self-same “security” was to be sufficient to discharge CWL also, paragraph 5(iii) would have been otiose and CWL would have been discharged from the freezing order also. Further, and in any event, the arrangement made through the appellant’s undertakings did not constitute either a payment into court of £300,000 or security for that sum by another method “agreed with the Applicant’s legal representatives” as was required to satisfy the exception in paragraph 11(4) of the freezing order.

The final point on the appeal against the contempt finding concerns the breach of the order to provide information as to the dealings of CWL in the period from 1 August 2013 by 21 November 2014. As already mentioned, there was no argument that the order had not in fact been complied with and the only point arising (on the second of the proposed additional grounds of appeal) was whether the judge was wrong to have dispensed with/waived the requirement of personal service of the order, requiring the appellant to perform this act.

I have already set out the manner in which the judge dealt with this. He appears to have accepted Mr Roseman’s submission that paragraph 16.2 of the Practice Direction gave him the necessary power.

In paragraphs 1.22 to 1.28 of his skeleton argument, Mr Hendron expanded on this point. He did not there or in oral argument challenge the judge’s jurisdiction to do as he did. However, Mr Hendron submitted that the judge erred in the exercise of the discretion. He submitted that the judge was required to look at each of the defects in procedure and to decide whether they caused prejudice or unfairness to the appellant. He relied upon Bell v Tuohy [2002] 3 All ER 975 (CA) in which Neuberger J (as he then was) (with whom Kennedy and Mantell LJJ agreed on this point) said at [49],

“It is always a cause for concern if there are any technical or procedural defects in a contempt application. In the present case, it is of particular concern that counsel on behalf of Mr Tuohy has been able to identify so many different defects, and it is not surprising that he advances the argument that the combination of defects in the present case are such that the judge should not have committed Mr Tuohy. However, at least for my part, I think it is wrong simply to conclude that, because there are so many defects in the application, it must have been unsafe to commit Mr Tuohy to prison. The proper approach is to consider each of the defects relied on by Mr Tuohy, and to describe whether they caused any prejudice or unfairness to him, taken separately or together.”

It is useful to note that the case was concerned with the power to waive procedural defects in committal applications then to be found in Order 29 r 1(7) of the old County Court Rules. That power was in identical terms to paragraph 16.2 of the Practice Direction upon which Mr Roseman successfully relied before the judge.

Mr Hendron submitted that, as this was a penal proceeding, the dispensing power should be exercised only in the most exceptional circumstances and that the knowledge of the appellant’s solicitors of the terms of the order were not sufficiently exceptional circumstances. I do not accept this submission. First, it is not what the Practice Direction says. The question is whether injustice has been caused, not whether the circumstances are exceptional. Secondly, it is clear that the appellant was well aware of the terms of this order: the authority of his solicitors to sign the order was not in question; the appellant did not say that he was unaware of the order’s terms and he said expressly in paragraph 8 of his first affidavit that the non-compliance was “an oversight”. For my part, I do not consider that the judge was wrong to exercise his discretion as he did.

Finally, it is argued that the penalty imposed for the breaches found was excessive. Mr Hendron submitted that justice would have been done by the imposition of a fine. In my judgment, it is impossible to say that the judge erred in the exercise of his broad discretion as to penalty. He was entitled to impose a custodial sentence in this case, particularly as (no doubt) he wished to ensure continuing compliance by the appellant with the order of David Richards J during the period of suspension imposed.

For these reasons, I do not consider that any of the grounds argued on the appellant’s behalf impugn the findings of the judge. In the circumstances, I would refuse permission to amend the grounds of appeal to include the additional grounds and I would dismiss the appeal.

I agree.

I also agree.