Crowther v Crowther & Ors

Paul and Caroline Crowther used to run a shipping business together, but are now in the throes of a bitter divorce. In the course of the financial remedy proceedings Mrs Crowther obtained a freezing order from Lieven J to restrain the second to sixth respondents (Mr Steven Knight and companies controlled by him) from disposing of or charging four vessels operated within that shipping business. While it is common ground that legal title to the vessels is held by companies controlled by Mr Knight, Mrs Crowther’s case is that she and her husband are entitled to the beneficial interests in those vessels, or strictly speaking the beneficial interests in the shares in the companies which own the vessels, and that there is a fraudulent conspiracy between Mr Crowther and Mr Knight to claim that neither of the Crowthers have any interest in the vessels and thus to reduce the value of the assets available for distribution in the financial remedy proceedings.

Mr Knight, supported by Mr Crowther, denies these allegations. He says that his companies are not only legal but also beneficial owners of the vessels and that there is an urgent need to sell (or perhaps to charge) one of them in order to generate funds for the upkeep and running costs of the remaining vessels in the fleet.

At a hearing on 10^th March 2020 Holman J discharged the freezing order against the second to sixth respondents, leaving them free to dispose of the vessels, although there was no challenge to a freezing order also made against Mr Crowther preventing him from doing so, which remains in place. However, the freezing order against the second to sixth respondents was reinstated by Floyd LJ on 13^th March 2020 pending this appeal. Mrs Crowther now appeals, seeking to continue the injunction granted by Lieven J until the issue as to beneficial ownership of the vessels can be determined.

On this appeal Mrs Crowther and the second to sixth respondents have each been represented by leading and junior counsel. Mr Crowther, who supports the position of the second to sixth respondents, has represented himself.

At the conclusion of the hearing we informed the parties that the appeal would be allowed so as to continue the prohibition on disposal of the vessels by the second to sixth respondents, but on terms which would enable one of the vessels to be sold (or vessels to be charged as security for a loan up to the value of the most valuable vessel) and the proceeds to be used to pay running costs and to carry out any necessary repairs or maintenance work. The terms of our order are set out in the schedule to this judgment. I now give my reasons for joining in that decision.

The Crowthers were married on 28^th September 1996. They owned a shipping business, which operated vessels providing services in the construction of offshore wind farms and oil and gas subsea operations. Mr Crowther’s expertise was in shipping, so he was responsible for chartering out the vessels and for their management and operation. Mrs Crowther dealt primarily with the financial side of the business and also with property management, managing a serviced office centre called Maritime House until it was sold in 2018. Until 2012 the vessels were owned

It appears that the business was sufficiently successful to enable the Crowthers to enjoy an affluent lifestyle. They lived in a house in Sussex valued in excess of £4.5 million (but subject to a mortgage for £1 million), educated their three children privately, owned horses (for which purpose they employed a groom), a collection of expensive cars, and (until recently) an interest in a private aeroplane.

Mr Knight is a UK qualified chartered accountant who has specialised in international tax planning and asset management. In 1989 he was appointed to manage the Gibraltar office of Price Waterhouse but when that office was closed in 1992 he decided to stay in Gibraltar and to set up his own business, the Castle Trust Group, to take over Price Waterhouse’s private client and trust portfolio of clients. Castle has been operating in Gibraltar for over 27 years. According to Mr Knight, it manages a portfolio of assets worth in excess of several hundred million US dollars and is heavily regulated. Mr Knight emphasises that the Crowthers were just two out of hundreds of clients.

Mr Knight and Mr Crowther were introduced in early 2012 and first met each other on 8^th May 2012. According to Mr Knight, Mr Crowther explained that he and his wife owned three vessels through offshore companies and were currently acquiring a fourth, but the business was highly leveraged and they were struggling to finance their debts. Mr Knight says that he had some familiarity with the Crowthers’ business as Castle acted for some of those who had loaned them money. One of those creditors was Richard Morgan, a family friend to whom the Crowthers had agreed to pay interest at the remarkably high rate of 25% per annum. Mr Knight says that he considered that the business of operating offshore vessels was attractive and he saw an opportunity to invest in it. Various possibilities for collaboration were discussed.

The upshot was that two letters were sent to Mr Crowther, summarising two distinct structures. One of these letters was deliberately mis-dated 11^th May 2011 in order (according to Mr Knight) to distinguish it from the other which was correctly dated 11^th May 2012. This seems an odd way to distinguish the two letters, but it is clear that the 2011 letter was indeed written in May 2012 as it is common ground that the parties had not met before then. The 2011 letter proposed a transfer of the shares of the owning companies to a company within the Castle group in return for which Castle would take over the companies’ debts, together with a bareboat charter of the vessels to AMA, which would therefore continue to operate and manage them. The

At that stage neither of these proposals was taken further. However, discussions continued through the summer of 2012, while at the same time, according to Mr Knight, loan note holders were making clear that they wanted to get their money back. According to Mr Knight, by 1^st October 2012 AMA was in default of at least one outstanding loan and, on 12^th November 2012, Castle wrote on behalf of loan note holders to AMA giving notice that it was exercising the right to take over ownership of the vessels. In response, by an email dated 19^th November 2012, Mr Crowther apologised for his failure to respond earlier and for the fact “that the company is having difficulty in making the contractual payments at this time”, which he attributed to “cashflow issues”, and promised to make a proposal by the following afternoon at the latest.

After some further exchanges a meeting took place in Gibraltar on 21^st November 2012. Mr Knight and Mr Crowther both say (and Mrs Crowther does not deny) that Mrs Crowther attended this meeting together with her husband. It was agreed that there would be two agreements, one being an agreement whereby a newly formed Castle entity, Castle Ship Management Ltd (“CSM”), would take over the indebtedness under the loan notes together with ownership of five vessels (the Atlantic Guardian, Atlantic Surveyor, Atlantic Cougar, Atlantic Wind and Atlantic Carrier), which would then be bareboat chartered back to AMA. The second agreement was a Family Settlement which it was contemplated would protect Mrs Crowther and the children in the event of Mr Crowther’s early death. It was envisaged that part of the income which would come to AMA from sub-chartering the vessels would be paid into the Settlement in order to build up a fund. In the event, however, Mr Knight says that no money was ever transferred into the settlement.

As a result a formal agreement dated 22^nd November 2012 was concluded, governed by Gibraltar law and signed by Mr Crowther on behalf of Med Marine Charters Ltd and by Mr Knight on behalf of CSM. It recorded that Mr Knight and CSM represented the interests of loan note holders who had made a series of loans to Med Marine on which the latter had defaulted and that in full and final settlement of their claims it was agreed that the beneficial title to all five vessels was transferred to CSM by way of a transfer of 100% of the shares in each ship owning entity; and that the vessels would be bareboat chartered back to AMA. In addition the agreement stated that AMA had agreed to purchase a commercial charter yacht from a company called CD One Ltd but, because it was unable to complete the purchase, it nominated CSM as the buyer, as it was entitled to do under the terms of the Memorandum of Agreement for the purchase of the yacht. The yacht was subsequently renamed as the Atlantic Endeavour.

A bareboat charter, between CSM and AMA, was concluded on 24^th November 2012 and was also signed by Mr Knight and Mr Crowther. It covered the five vessels named above “and all other vessels beneficially owned by” CSM, so that any vessel acquired in the future would be subject to the charter. The charter was on the standard Barecon 89 form and was stated to be for a firm period of 10 years, extendable by mutual agreement, but with either party having a right to terminate it at any time. The hire rate varied for each vessel depending on its gross tonnage and “operational days” on sublet time charter. This was further explained in additional clause 27:

“Rates and payment of hire: Payment of hire shall be at the rate specified in box 19, on the basis of the ship being supplied by the owners to the charterers on a ‘bare boat’ basis whereby all crew, insurance, management, operational expenses and disbursements for consumables (i.e. bunkers and lubes) including maintenance and repairs costs shall be charterers’ responsibility and to charterers’ account. It is understood and agreed that charterers principal business is to sub charter the ship to third party charterers on a ‘time charter’ and managed basis, that charter rates and flexibility within these terms reflect this approach, and as such the parties are both accepting commercial market risk. Therefore, hire is only payable for ‘operational days’ where the vessel is on charter to a third party and earning revenue there from. It is further agreed that charter hire shall not be payable in respect of time laid up, on delivery voyages or when undertaking duties for the charterers but not sublet, nor during any time when the vessel is sublet but where hire payments to charterers have been suspended for whatever reason.”

Clause 28 further provided that:

“In the case where market forces and or currency variation have created a change to the demand and/or change to normal commercial rates being charged by similar vessels in the market and region, it is hereby agreed that charterers may, at their option, vary the charter rate according to market conditions, subject to the owners’ consent, which shall not be unreasonably withheld, and always within reasonable limits with regard to the market conditions prevailing.”

The combined effect of these two clauses was to protect the charterers against any risk that the vessels would be unable to find employment or that market rates would decline. Mr Knight says that the rationale for this was that the vessels were to be employed in the offshore market which typically has seasonal periods with increased demand in spring, summer and autumn, but with many such vessels having to be laid up during the winter when weather conditions are adverse. Thus a vessel might typically have only 120 to 180 days of revenue earning employment a year.

Mr Knight, supported by Mr Crowther, contends that these arrangements were what they appear on their face to be, that is to say an agreement whereby the legal and beneficial title to the vessels and the companies which owned them was transferred to CSM, which then bareboat chartered them to AMA on terms that hire would be payable when the vessels were earning hire on sub-charter. He says that pursuant to these agreements hire was paid until 2015 in the total sum of about £2.1 million but that hire payments ceased thereafter; that the information provided by AMA which was necessary in order to allocate hire to particular vessels was unsatisfactory; that in due course the vessels initially transferred to CSM were sold and replaced by different vessels which, pursuant to the terms of the charter, were also bareboat chartered to and managed by AMA; and that about £1.6 million was advanced to the Crowthers by way of loan to fund their lifestyle, including payment of school fees and equestrian equipment, which was partly secured by a charge (albeit unregistered) for £500,000 on the family home.

In addition, it appears that when Maritime House was sold in August 2018 the Crowthers needed to purchase an asset in order to obtain rollover relief from capital gains tax. CSM (on Mr Crowther’s advice) had recently purchased a vessel called the Atlantic Discovery which it agreed to sell to the Crowthers’ company, Maritime Atlantic Ltd, for £2.95 million. According to Mr Knight this purchase price was never paid although the bill of sale says that it was.

Overall, Mr Knight currently claims that CSM is owed some £5 million by the Crowthers or their companies, although in November 2019 he was contending that the sum owed was as high as £7 million (about £3 million outstanding in connection with the purchase of the Atlantic Discovery and about £4 million unpaid bareboat charter hire).

By 2019 the Crowthers’ marriage was in trouble and on 6^th September 2019 each of them issued a petition for divorce. Shortly afterwards Mr Crowther travelled to Gibraltar for a meeting with Mr Knight. That was followed on 19^th September 2019 by CSM giving notice of termination of the bareboat charter to AMA with immediate effect “following our continued requests for payment of our hire charter fees”. However, on the same day, CSM concluded a new bareboat charter with Atlantic

It is unnecessary to set out the depressing procedural history of the divorce proceedings so far, which demonstrates a high degree of acrimony and mistrust on both sides.

On 19^th December 2019 Mrs Crowther applied to Lieven J for an injunction to restrain the respondents, that is to say Mr Crowther on the one hand and the second to sixth respondents on the other, from disposing of, charging, or diminishing the value of any of the following:

She did so contending that the arrangements entered into in 2012 and described above were a sham. She acknowledged that “on paper it looks like Castle Ship Management have owned their ships since 2012”, but said that this was not the reality and was only done to “reduce our tax liabilities”, the reality being that “100% of the shareholding in

The five vessels the subject of the application were those operated by AMA as at November 2019, save that the Atlantic Explorer had been sold by CSM for scrap in November 2019, with Mr Crowther acting under a Power of Attorney. It can be seen that the total value attributed to these vessels was about £8.15 million, rather less than the figure of £10 million referred to in Mrs Crowther’s evidence (and also in an email from Mr Crowther to which I shall refer), although there is no independent or up-todate valuation evidence to support these figures. It should be noted also that although Mrs Crowther’s case in the divorce proceedings is that the Atlantic Discovery is worth £2.95 million, in the Admiralty proceedings referred to below she contends that this is a “gross overvaluation”, being a figure inserted into the Memorandum of Agreement for the purchase of the vessel in order to obtain rollover relief and thereby evade capital gains tax on the sale of Maritime House, and that it was never intended to pay £2.95 million when the true value of the vessel was only £320,000. Thus, on Mrs Crowther’s own case, the true value of the remaining vessels as at the date of the application to Lieven J appears to have been closer to £5 million than £10 million and, if she is right, a substantial part of that value will be owed to HMRC. The current value of the vessels is likely to be much lower, as I shall explain.

Lieven J granted the freezing order sought, with a return date of 10^th March 2012. Her order contained a proviso that it did not prevent the second to sixth respondents from operating business as usual. It also included an undertaking in damages by Mrs Crowther.

As I have said, a freezing order in similar terms was also made against Mr Crowther and that order remains in place.

Mr Knight served two affidavits, dated 16^th January and 18^th February 2020, giving his account of how CSM had come to acquire title to the vessels and providing information which he had been ordered to provide. As at the date of the freezing order and his first affidavit, Mr Knight and his companies had not claimed an interest in the Atlantic Discovery, but by the date of his second affidavit he was claiming that due to non-payment of the purchase price of £2.95 million, he was entitled to take over ownership of this vessel. He said also that as AMOSS had proved itself unable to subcharter the vessels, CSM was in the process of terminating its commercial relationship with AMOSS.

CSM did terminate the bareboat charter with AMOSS on 24^th February 2020, but agreed that Mr Crowther could continue as technical manager of the vessels for a

Finally, on 6^th March 2020 Mr Knight served a witness statement stating that, if the freezing order was not lifted, CSM would be forced out of business within two or three months (although at the hearing the court was told that this would happen in only two or three weeks). He explained that the vessels are ageing and in ever increasing need of maintenance, repair and upgrading if they are to be successfully sub-chartered; that running costs in respect of crewing, port fees, fuel costs and other expenses were accruing on a monthly basis; that classification society fees had to be paid to maintain one of the vessels in class, without which it would be unable to trade; that these matters had previously been the responsibility of AMA and AMOSS as bareboat charterers, who had failed to make the payments, but that CSM was now responsible for them as the bareboat charters had been terminated; that sub-chartering opportunities had been lost for lack of funds to carry out the necessary upgrade work; and that CSM had funds of only about £190,000 left, reduced from about £600,000 in November 2019. He explained also that a prospective buyer had been found for the Atlantic Enterprise who was willing to pay a total of US $2.7 million (US $700,000 upfront and the balance over a period of a year). This would enable investment in the remaining vessels, but was prevented by the terms of the freezing order. (We were told, however, that this sale is no longer a possibility).

Unfortunately, before coming into court on the return date, Holman J had had no proper opportunity to read any of the voluminous evidence served by the parties, although he had read the lengthy and very detailed position papers which had been served, including by Mrs Crowther. No pre-reading time had been allowed for and the judge had been dealing with other cases on the previous day when the documents were delivered to him. Moreover, the freezing order was merely one item on a crowded agenda for the hearing, which was also meant to be the first directions hearing of the financial remedy proceedings in the divorce.

Mr and Mrs Crowther were both present in court during the hearing before the judge, as was Mr Knight. The judge was therefore able to observe Mr Knight and Mr Crowther during the hearing and commented, based on their interaction, that there was obviously a friendly relationship between them, as well as a business relationship. The judgment

In his judgment, given extempore at the end of the day, Holman J outlined the nature of the dispute about ownership of the vessels and summarised the evidence of Mr Knight as to the situation now faced by CSM. He pointed out that an injunction against Mr Knight and his companies did not fall directly within section 37 of the Matrimonial Causes Act 1973 as Mr Knight was not a party to the marriage, but regarded it as providing some analogy.

The test which the judge applied was whether he was satisfied, at least to some threshold level, that there was a current intention on the part of Mr Knight or his companies to defeat Mrs Crowther’s claims to financial remedy orders. His conclusion was that he was not satisfied of that at all. Whatever the purpose of the arrangements entered into in 2012, that was long before there was any stress in the marriage between Mr and Mrs Crowther and those arrangements were not entered into with a view to defeating a claim for financial remedy orders. It was apparent that Mrs Crowther was well aware of whatever was arranged and negotiated at that time and had been content with it until the marriage began to fail. Moreover, the judge was not satisfied that there was any real evidence of deviousness on the part of Mr Knight or any intention to try to defeat Mrs Crowther’s claims. On the contrary, it was in her interests that the current structure remained solvent in the event that she had any claim to the beneficial interest in the vessels.

The judge stated his conclusion at [21]:

“So, although I have canvassed during the course of argument, in order to try and cut through this dispute, that there might be some modified form of injunction, or undertakings by Mr Knight, to the effect that if he sells a ship or ships the proceeds will be reinvested to meet the various expenditure commitments to which he refers in paragraphs 9 and 10 of his recent statement, in the end I have been forced to adjudicate. My adjudication is that there is no sufficient basis for an injunction whatsoever to remain in place against Steven Knight, who is the second respondent, nor any of the companies which are the third to sixth respondents. For those reasons the whole of any subsisting injunctions, insofar as they impact upon any of the second to sixth respondents, are now discharged.”

Mr Charles Howard QC for Mrs Crowther submitted, in outline, that the hearing before the judge was unfair and that the judge was wrong to discharge the injunction against the second to sixth respondents. He submitted that:

Mr Crowther, who appeared in person, told us that the position is now extremely urgent. The three offshore vessels are in Tilbury, unemployed and uninsured, and with no crew on board as there is no money to pay them. Prohibition Notices have just been served on the vessels by the Maritime & Coastguard Agency which (if nothing is done) are likely to lead to their arrest and forced sale, probably for scrap, in the very near future. The yacht is in Barcelona, also unemployed and uninsured.

Mr Charles Hale QC for the second to sixth respondents supported the reasoning of the judge. He submitted that:

To some extent both parties contended that they had not had a fair hearing before the judge because he had only read the parties’ position statements and there was very

In those circumstances what was the judge to do? There was only a day available, as the judge was committed to further hearings on the following day. We do not know whether it would have been a practical possibility to adjourn to a date in the near future when sufficient reading time in advance could have been allowed for (although with the benefit of hindsight we do know that the Covid-19 lockdown was about to intervene), but in any event neither party invited the judge to take this course. On the contrary, he was pressed with a submission that a decision was urgent which, on the face of things, appeared to have force. A decision to adjourn would therefore have been tantamount to a decision to leave the freezing order in place for the time being, potentially with catastrophic consequences for the second to sixth respondents, in circumstances where plainly Mrs Crowther’s undertaking in damages would be of little or no value.

So the judge did the only thing which he could, which was to seek the parties’ assistance to identify the most urgent matters on which a decision was needed, to identify the critical issues on which those matters would turn, and to deal with them as best he could in the time available.

That being so, I find it surprising that Mr Howard chose to spend most of the morning seeking to persuade the judge to transfer the Admiralty Court proceedings to the Family Division. By no stretch of the imagination was that the most urgent item for decision and the debate about whether the Admiralty Court constituted a “specialist list” within the meaning of CPR 30.5 strikes me as (to say the least) an unnecessary luxury when time was so limited. In the event the judge expressed no concluded view on whether he had power to transfer the Admiralty Court proceedings, but decided that, whether he did or not, this was an issue which the Admiralty Court should consider for itself. That decision is not challenged on this appeal and, in my judgment, is plainly right. If an application to transfer is to be made, the sooner that is done, the better.

Nevertheless, while fully acknowledging the difficult position in which the judge was placed and that in some respects he did not receive as much assistance from the parties as he might have, I am bound to conclude that the hearing was unsatisfactory and that as a result the judge’s decision was flawed. He never saw the material on which Mrs Crowther relied in support of her case that the 2012 arrangements constituted a sham and, in the event, did not reach even a provisional view as to whether she had established a good arguable case. As the judge had not read the evidence, his conclusion that there was “no real evidence of any deviousness” on the part of Mr Knight must carry little or no weight. Moreover, while the judge regarded himself as forced to adjudicate between maintaining the freezing order and discharging it against the second to sixth respondents altogether, I see no reason why he could not have made an order to the effect which he described, that is “to the effect that if [Mr Knight] sells a ship or ships the proceeds will be reinvested to meet the various expenditure commitments to which he refers". As the judge apparently did not regard that possibility as open to him, I consider that his exercise of discretion cannot stand.

We must therefore decide whether to send the case back to the Family Division for a fresh hearing or to determine for ourselves whether there should be a freezing order against the second to sixth respondents and, if so, on what terms. Whatever might be the preferable course if time and expense were not a consideration, I have no doubt that in the circumstances of the present case we should consider the position for ourselves. The current position is extremely urgent as demonstrated by the Prohibition Notices served by the Maritime & Coastguard Agency. Mr Howard asserted repeatedly that the vessels are currently employed, but that was not based on any evidence and is manifestly not so. It is not difficult to ascertain a vessel’s movements but Mrs Crowther has not taken the trouble to do so. Mr Howard even asserted, extraordinarily to my mind, that the Prohibition Notices are somehow the result of collusion between Mr Crowther and the Maritime & Coastguard Agency, but if he had a basis for that assertion he did not share it with us. The position, therefore, is that no money is being spent on these vessels even to insure them and there is a real danger that enforcement action against them will lead to their forced sale in the near future. Even now it may be too late.

Moreover, I consider that we are in a position to determine this issue fairly. Unlike the judge, we have read the evidence and are able to form the necessary views at this interlocutory stage. Further, although Mr Howard submitted that Mrs Crowther has had no opportunity to answer the witness statement of Mr Knight served very shortly before the hearing on 10^th March 2020 and other evidence relied on by him, I do not accept this. If she had relevant evidence to give, I see no reason why she could not have applied to adduce that evidence on this appeal. As Mr Hale pointed out, he would not have been in a position to resist such an application in view of the late stage at which Mr Knight’s evidence had been served. In the event many of the points which Mrs Crowther wished to make were in the nature of submissions, and were forcefully made by Mr Howard.

There was no dispute as to the relevant law.

Section 37(2) of the Matrimonial Causes Act 1973 provides:

“Where proceedings for financial relief are brought by one person against another, the court may, on the application of the first-mentioned person—

(a)

if it is satisfied that the other party to the proceedings is, with the intention of defeating the claim for financial relief, about to make any disposition or to transfer out of the jurisdiction or otherwise deal with any property, make such order as it thinks fit for restraining the other party from so doing or otherwise for protecting the claim; …”

As the judge said, this section is not directly relevant to Mrs Crowther’s application for a freezing order against Mr Knight. Of greater relevance are the principles governing the making of freezing orders generally, recently summarised by HaddonCave LJ in Lakatamia Shipping Company Limited v Morimoto [2019] EWCA Civ 2203:

“33.

The basic legal principles for the grant of a WFO are wellknown and uncontroversial and hardly need re-stating. It nevertheless is useful to remind oneself of the succinct summary of the test by Peter Gibson LJ in Thane Investments Ltd v Tomlinson (No 1) [2003] EWCA Civ 1272 at [21] where he stated that, before making a WFO, the court must be satisfied that:

‘… the applicant for the order has a good, arguable case, that there is a real risk that judgment would go unsatisfied by reason of the disposal by the defendant of his assets, unless he is restrained by the court from disposing of them, and that it would be just and convenient in all the circumstances to grant the freezing order."

34.

I also gratefully adopt (as the Judge did) the useful summary of some of the key principles applicable to the question of risk of dissipation by Mr Justice Popplewell (as he then was) in Fundo Soberano de Angola v dos Santos [2018] EWHC 2199 (Comm) (subject to one correction which I note below):

(1)

The claimant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets. In this context dissipation means putting the assets out of reach of a judgment whether by concealment or transfer.

(2)

The risk of dissipation must be established by solid evidence; mere inference or generalised assertion is not sufficient.

(3)

The risk of dissipation must be established separately against each respondent.

(4)

It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty; it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets [may be]^[*] dissipated. It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.

(5)

The respondent's former use of offshore structures is relevant but does not itself equate to a risk of dissipation. Businesses and individuals often use offshore structures as part of the normal and legitimate way in which they deal with their assets. Such legitimate reasons may properly include tax planning, privacy and the use of limited liability structures.

(6)

What must be threatened is unjustified dissipation. The purpose of a WFO is not to provide the claimant with security; it is to restrain a defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business in a way which will have the effect of making it judgment proof. A WFO is not intended to stop a corporate defendant from dealing with its assets in the normal course of its business. Similarly, it is not intended to constrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate. If the defendant is not threatening to change the existing way of handling their assets, it will not be sufficient to show that such continued conduct would prejudice the claimant's ability to enforce a judgment. That would be contrary to the purpose of the WFO jurisdiction because it would require defendants to change their legitimate behaviour in order to provide preferential security for the claim which the claimant would not otherwise enjoy.

(7)

Each case is fact specific and relevant factors must be looked at cumulatively.

([*] Note: I have replaced the words ‘are likely to be’ in subparagraph (4) with ‘may be’).”

The sixth of these principles is worth emphasising. As I said in Vneshprombank LLC v Bedzhamov [2019] EWCA Civ 1992:

“57.

… As is clear from numerous statements of principle, a freezing order is not intended to provide a claimant with security for its claim but only to prevent the dissipation of assets outside of the ordinary course of business in a way which would render any future judgment unenforceable. While the disposal of assets outside of the ordinary course of business is prohibited as being contrary to the interests of justice, payments in the ordinary course of business are permitted even if the consequence will be that the defendant’s assets are completely depleted before the claimant is able to obtain its judgment. This has been clear since the decision of Robert Goff J in The Angel Bell [1981] 1 QB 65. Moreover, so long as the payment is made in good faith, the court does not enquire as to whether it is made in order to discharge a legal obligation or whether it represents good or bad business on the defendant’s part.”

Plainly the judge was right to say that the arrangements concluded in 2012 had nothing to do with any attempt by Mr Crowther to put assets beyond his wife’s reach or to defeat any financial remedy claim in the event of their divorce. At that time their marriage was continuing to thrive and they were actively involved together in the conduct of the AMA business.

Only two possibilities have been suggested as the true nature of the 2012 arrangements. The first is that the arrangement reached was, as Mr Knight and Mr Crowther say, a commercial agreement to transfer both legal and beneficial title to the vessel owning companies to CSM in exchange for CSM taking responsibility for paying off the loan notes, combined with a bareboat charter to AMA which would enable it to continue in business and to earn a profit on sub-charters of the vessels. The suggested rationale for this arrangement was that the Crowthers were in default of their loan commitments due to cashflow difficulties and faced the vessels being taken over by Castle acting on behalf of their creditors. The second possibility is that it was a criminal conspiracy between Mr Knight and Mr Crowther, but also involving Mrs Crowther who attended at least one of the relevant meetings, to evade tax properly due on the Crowthers’ earnings.

The first of these possibilities has the support of some contemporary documents, by which I mean not only the agreements concluded themselves but also surrounding documents such as the letters and emails which say on their face that the Crowthers’ business was unable to meet loan payments due to “cashflow issues” and that they were faced with a real prospect of losing control of the vessels in any event. If that was so, it would not be a commercially implausible arrangement to make, albeit that it has what I would regard as some unusual features, such as the hire provisions to which I have referred.

I bear fully in mind that the second possibility is a very serious allegation, meaning that Mr Knight, who is apparently a respected professional man carrying on a substantial regulated business in Gibraltar, was prepared to put his career and professional reputation at risk in order to assist the Crowthers, whom at that stage he had only just met, to evade tax illegally, and that he was prepared to do all this for a relatively insignificant annual fee. Cogent evidence would be required to make good such a serious allegation at trial.

It would not be right on this interlocutory appeal, when there has been no cross examination of witnesses and no disclosure of documents, to attempt to reach anything more than a provisional view about these matters. Nevertheless, I am satisfied that Mrs Crowther has a good arguable case that the 2012 arrangements were indeed a sham. Some of the matters relied on by Mr Howard in support of this case appeared to me to miss their target by a considerable distance. For example, it is of no significance that AMA paid for the insurance of the vessels (which would ordinarily be the responsibility of a bareboat charterer) or that it was described in sub-charters as the owner of the vessel (which is standard usage). However, I set out below the principal matters which have weighed with me in reaching this conclusion in more or less chronological order.

First, there is reason to be sceptical about Mr Knight’s evidence that the Crowthers’ creditors were pressing for repayment and threatening to take over the vessels. In November 2012 Mr Crowther and Mr Knight set up new email accounts for what was described by Mr Crowther as an “offline info flow”. The emails exchanged on these offline accounts appear to show that the demand letters sent by CSM, purportedly acting on behalf of creditors and threatening to take over the vessels, were in fact carefully orchestrated between Mr Knight and Mr Crowther. If that is so, the supposed rationale for the arrangement falls away and the contemporary documents purporting to show pressure from creditors are no more than an artificial paper trail.

Further doubt as to the truth of this rationale appears from the witness statement of Mr Morgan, a statement served by Mr Crowther on which both he and Mr Knight strongly relied. Mr Morgan, together with his wife, appears to have been the single largest creditor of the Crowthers. But his evidence was not that Castle was acting for them to obtain payment or that the Crowthers were in default. Rather it was that he and his wife were merely notified that ownership of the vessels together with the loan notes had been transferred to Castle.

Second, the economics of the arrangement do not appear to make sense. A single page taken from CSM’s accounts for the year ending 31^st December 2013 appears to show that the total value of the loan notes taken over by CSM as at 31^st December 2013 was £346,980, although the opening figure for the year was only £297,086. Nevertheless it was the figure of £346,980 which was stated in what we were told was an attachment to the agreement dated 22^nd November 2012, more than a year before, as being the outstanding debt on loan notes as at that date. The attachment purports to show the gross value of the five vessels transferred to CSM as being £862,500, against a total liability of £1,039,929. But some of the items making up that total liability are difficult to understand. They include the value of the loan notes. But, for example, they also include a “forced sale devaluation 25%”, amounting to £194,062, which has not been explained. The document has the appearance of an attempt to manufacture liabilities showing the Crowthers in a worse position than was really the case.

Third, the agreement dated 22^nd November 2012 provided that AMA would nominate CSM as the buyer under the Memorandum of Agreement for the purchase of the yacht CD One. That would mean that CSM would be responsible for payment of the purchase price. However, an AMA bank statement shows a payment of €220,000 made to CSM on 23^rd November 2012 described as “CD1 Payment”. On its face, that suggests that it was AMA and not CSM which purchased and paid for the yacht. Mr Hale submitted that despite the reference to “CD1 Payment”, the figure of €220,000 can be explained as representing the difference between the value of the vessels taken over by CSM and total liabilities in the document attached to the agreement dated 22^nd November 2012. However, while that may prove to be a valid explanation, there is at present no evidence to support it and Mrs Crowther is entitled to rely on what is said in the bank statement.

Fourth, the “offline” emails provide some support for Mrs Crowther’s case that the true nature of the arrangement was that Mr Knight would be paid a fee for setting up and managing the new structure. It appears that his initial proposal of a setup fee of £25,000 and an ongoing fee based on a percentage was reduced as a result of negotiation to a setup fee of £10,000 and a fixed monthly fee of £3,000 thereafter. Nothing to this effect appears in the formal agreement.

Fifth, in an email dated 30^th December 2013, an AMA employee James Stenning asked Mrs Crowther:

“Would you like me to get another £100k over to Castle. Let’s build up that house fund!!!”

This appears to support Mrs Crowther’s case that the purpose of the arrangement was to transfer funds offshore and to contradict Mr Knight’s evidence that no money was ever paid into the Family Trust. Although we do not know how Mrs Crowther responded to this enquiry, the word “another” suggests that this was a procedure which had been employed in the past and with which Mrs Crowther and AMA staff were familiar.

Sixth, in an email to Mr Knight dated 2^nd May 2014 (incidentally using his “offline” email address), Mrs Crowther made a formal request to the trustees of an entity called the Mediterranean Sports, Art and Educational Foundation “to consider a grant to purchase a horse box” for one of the Crowthers’ children who had been offered an equestrian scholarship. That seems hard to reconcile with Mr Knight’s evidence that when funds were advanced to fund the Crothers’ lifestyle, it was done by way of loan.

Seventh, the circumstances in which the Atlantic Discovery was acquired appear to merit close scrutiny. It is odd that a vessel which appears to have been purchased by CSM for only £320,000 in June 2018 should only two months later be purchased by Mr and Mrs Crowthers’ company for £2.95 million. Contemporary emails show that Mr Crowther was advised by his accountant that in order to obtain rollover relief on the sale of Maritime House, thereby avoiding a substantial tax bill, he would need to reinvest a total sum of £3,192,276. These facts do at least give rise to a suspicion that £2.95 million was a fictional purchase price. Moreover, the bill of sale (signed by an employee of Mr Knight) includes a receipt for the price, but Mr Knight now says that the price was never paid, entitling him to take back ownership of the vessel.

Eighth, it seems odd that the same Mediterranean Sports, Art and Educational Foundation should have paid school fees for another of the Crowthers’ children in January 2018. That would make sense if the money was in reality the Crowther’s’ own money, but it is puzzling that Mr Knight’s entity was prepared to make such “charitable” donations at a time when, as will be seen, Mr Knight now says that he was owed a substantial amount.

Ninth, Mrs Crowther can point to an email dated 11^th February 2019 which directly contradicts Mr Knight’s case. Mr Crowther wrote (my italics):

“Who we are: Private family Ship owners with a small fleet of four large offshore ships involved in off shore wind farm construction and oil and gas subsea operations. (See www.atlantic-marine.co.uk)

The business has NO debt. (£300k asset loans on subsea equipment we own but nothing on trading accounts and nothing for the vessels). We are asset rich, owning the say >£10M fleet of ships outright (offshore) within the group, with bank against them. Last year we produced a net profit of £2.2M GBP on the 2018 accounts based on around 10M turnover. This year will be better still. We do not trade with an overdraft and have no bank trading facilities set up or available -- normally relying on regular cash payment for the charter of the fleet, so debt is not normally needed.”

The context for these claims was an attempt to raise a loan of £1 million to fund litigation against a sub-charterer which had failed to make hire payments. In his evidence and in his oral submissions to us Mr Crowther has sought to explain the claim to ownership by emphasising the words “within the group” which I have italicised, claiming that this included CSM as the owner of the vessels. I find that implausible, as is his assessment of the value of the vessels, while his optimistic claims in this email about the profitability of the business are hard to reconcile with his evidence in October 2019 that the last three years had “seen an offshore industry crisis worldwide” and “a severe downturn in business” in which it was difficult to generate income. Further, the statement that “The business has NO debt” is impossible to reconcile with Mr Knight’s claim, admitted and averred by Mr Crowther, that a substantial debt is owed to CSM.

Tenth, Mr Knight’s evidence is that CSM is currently owed some £5 million by the Crowthers or their companies, although in November 2019 he was contending that the sum owed was as high as £7 million. This includes, as I understand it, unpaid hire and the purchase price of the Atlantic Discovery in 2018. But there is no evidence of any payment being demanded by CSM before the breakdown of the Crowthers’ marriage in September 2019. If these sums or anything like them were really thought to be due, I find that inexplicable.

The claim for unpaid hire raises the question of how the vessels have been employed in the last few years. If they have been sub-chartered so as to be earning hire (and Mr Crowther’s evidence was that at any rate the Atlantic Voyager and Atlantic Discovery were employed as at 7^th October 2019), but hire has not been paid, the question arises why not. On the face of things, that would suggest either that Mr Crowther has been cheating Mr Knight (which Mr Knight has not suggested) or that AMA’s office has been remarkably inefficient in accounting for the hire due (a complaint which Mr Knight has made). But in either event, Mr Knight would have serious cause for dissatisfaction with the way Mr Crowther conducts his business. In either event it seems odd that Mr Knight should be so willing to continue to work with Mr Crowther, a man who on his case owes him a substantial sum which he has little prospect of recovering, and to remain on what the judge noted were obviously friendly terms with him.

Eleventh, although Mr Knight now says that he made a loan to the Crowthers secured by an unregistered charge on their family home, no documents in support of this allegation have been produced.

In these circumstances there is at least scope to question whether the substantial liability of the Crowthers and their business to Mr Knight has been exaggerated or even invented.

I repeat that I reach no final conclusion about any of these matters. All of them will require careful investigation, either in the course of the Family Court or Admiralty proceedings or perhaps by the tax authorities. There may be an explanation which is consistent with the case made by Mr Knight and Mr Crowther. But as matters stand at present, I am inclined to think that the court has not been provided with a full account of the parties’ relationship and have no doubt that Mrs Crowther meets the standard of demonstrating a good arguable case on the merits of her claim.

In these circumstances the risk that assets will be put beyond reach of any judgment speaks for itself. Significant aspects of Mrs Crowther’s case, as to which I have held that she meets the standard of showing a good arguable case, are that Mr Knight has been engaged in tax evasion and has also advanced spurious claims in order to assist Mr Crowther to conceal the true extent of the family assets. Once again, I emphasise that these are only allegations to which there may be valid answers. However, on the present state of the evidence, there is a sufficient risk that assets may be dissipated to justify the grant of a freezing order.

Mr Hale submitted that there had been a lack of candour on the part of Mrs Crowther in making the application for a freezing order to Lieven J. I am not prepared to consider this submission. It does not appear to have been contended below that the freezing order ought not to be continued because of a failure to make full and frank disclosure of material facts on the application to Lieven J and there is no respondents’ notice raising this point. If such an argument is to be run, it is essential that there is a clear statement identifying precisely the matters allegedly not drawn to a judge’s attention on a without notice application. Nothing of that kind exists here.

However, it is important to recall the limitations of a freezing order. As already noted, this is not to provide a claimant with security or to prevent a defendant from carrying on business in the ordinary course. The freezing order made by Lieven J in the present case restrains Mr Knight and his companies from disposing of the vessels, but expressly does not prevent them from operating business as usual. There is a tension between these two provisions of the order because a sale may be made in the ordinary course of business. Indeed all five of the vessels the subject of the 2012 agreement have since been sold in the ordinary course of business and the proceeds have been used either to purchase further vessels or to invest in the existing fleet. Thus a disposal of one vessel in order to pay running costs of the remaining vessels and to

I see no reason to doubt that running costs are being incurred. The crews need to be paid and, if they are not, will be able to enforce their rights with the benefit of a maritime lien; so too do port charges, insurance costs, classification fees and the like. Unless such payments are made, it is impossible for the vessels to operate. Moreover, these are ageing vessels. The Atlantic Tonjer was built in 1983 and is therefore 37 years old; the Atlantic Discovery is 29 years old; and the Atlantic Enterprise is 22 years old, although apparently it was rebuilt in 2015. It would not be surprising if at least some of these vessels are approaching the end of their useful life and it is entirely plausible that they will need maintenance and repair if they are to be gainfully employed in a competitive chartering market. Mr Knight suggests that monthly costs across the fleet are of the order of US $115,000 and, although this figure is not precisely documented, it seems to me to be plausible.

It is fair to say that there is very little evidence as to the absence of funds available to CSM to meet these costs from its own resources without a sale of a vessel. We are told, for example, but there is no evidence, that the proceeds of sale of the Atlantic Explorer have been consumed by running costs for the remaining vessels and that CSM’s funds have now been used up by a combination of running costs and legal expenses in this litigation. This lack of evidence is not satisfactory, but it does appear to be the fact that the vessels are currently uninsured so that basic costs are not being met.

A freezing order ought not in principle to prevent a defendant from selling one asset in order to invest in the remaining assets used in his business. That is what Mr Knight says that he wishes to do and he made the case before the judge that there was a degree of urgency in doing so. As I have explained, the position now is even more urgent. Accordingly, like the judge, we canvassed with the parties the possibility of an order which would enable a vessel to be sold or charged as security for a loan and for the proceeds to be used only for the purpose of paying such running costs together with repairs and maintenance. Mr Knight was prepared to offer an undertaking to this effect. Although very sceptical about the supposed impecuniosity of CSM, Mrs Crowther was prepared at any rate to contemplate such an order as a last resort, provided that various safeguards were included.

In my judgment an order to this effect is the just and convenient course. It accords with the principles applicable to the grant of freezing orders and (which in this case amounts to the same thing) is in accordance with the balance of convenience. It provides a prospect that the value of the vessels may be preserved for whomever is held to be their ultimate beneficial owner in circumstances where, if nothing is done, there is a very real risk that they will shortly be sold on a forced sale for no more than scrap value. As the judge said, that cannot be in Mrs Crowther’s interests if she is able to make good her case. Conversely, if she is unable to make good her case, she will potentially be exposed on her undertaking in damages to a significant liability which she is unlikely to be able to meet.

I have considered the parties’ submissions as to the safeguards which are appropriate. In my judgment it is not appropriate to require Mrs Crowther’s approval in advance when expenditure is incurred, which would be a recipe for dispute and paralysis, but it

Accordingly I would allow the appeal and continue the freezing order, but on the terms set out in the schedule to this judgment.

I agree.

I also agree.