Crystal Mews Ltd v Metterick & Ors

MR JUSTICE LAWRENCE COLLINS: As I said in my main judgment, in this case the Revenue claims that the company has been the vehicle for missing trader intra-community VAT fraud and the Revenue disallowed the company's VAT input tax claims in relation to its purchases from a company called Vollitone Limited and assessed the company for VAT for the sum of about £31.7 million.

In February 2006 the Revenue issued a winding up petition against the company and applied before Peter Smith J for the appointment of a provisional liquidator. The order was made and immediately following it the provisional liquidator applied without notice for a freezing order which became the first freezing order against the company's de facto and de jure directors, including Mr Metterick but not Mrs Metterick. The order was limited to £200 million.

After reviewing the company's books and records the provisional liquidator found that substantial sums had been paid by the company to Mrs Metterick purportedly by way of dividend. £240,000 was paid to her between April and May 2005 and additionally more than 62,000 Euros was transferred by the company to a firm of Spanish lawyers in January 2006 in connection with the proposed acquisition of a property in Spain in her name. In the light of that evidence the provisional liquidator applied on 23 March 2006 before Etherton J without notice for what became the second freezing order in an amount limited to £600,000. The second freezing order applied in particular to Mrs Metterick's account at the Caja Rural Inter-Mediterranea Societa Co-operativa de Credita Mijas la Cala (“the Spanish account”). The order was continued at an inter partes hearing (at which Mrs Metterick was represented by counsel) by Lightman J on 4 April 2006. On that occasion Mrs Metterick was joined to the proceedings.

On 7 June 2006 the company applied for an order that Mr and Mrs Metterick be committed to prison for breaches of the first and second freezing orders. This is the hearing to determine the appropriate penalties and orders following admissions by Mr Metterick in relation to the withdrawal on 24 March 2006 and by Mrs Metterick of about 250,000 Euros from the Spanish account and my findings of contempt as regards Mrs Metterick in relation to that withdrawal set out in my judgment of 25 October 2006 and her admission in relation to the withdrawal of £20,000 from her account at Nationwide Building Society on 27 March, knowing of the existence of the second freezing order.

In relation to Mr Metterick the admitted contempts are as follows: firstly, breaching paragraph 5 of the first freezing order, as continued by the order of David Richards J, by encouraging Mrs Metterick on 24 March 2006 to withdraw 250,589 Euros from the Spanish account; secondly, breaching paragraph 5 of the first freezing order (as so continued) by failing to take all reasonable steps to prevent Mrs Metterick on 24 March 2006 from withdrawing the sum from the Spanish account; thirdly, breaching paragraph 4 of the second freezing order by knowingly assisting in and permitting a breach of the second freezing order by encouraging Mrs Metterick to withdraw the money from the Spanish account and complete the purchase of Apartment 13, Third Phase, La Alzambra, Puerto Banus, Marbella, Spain, the Spanish property; and, fourthly, breaching paragraph 4 of the second freezing order by intentionally frustrating the achievement of the primary purpose of the second freezing order.

In my judgment, in relation to Mrs Metterick, I said I was satisfied beyond reasonable doubt that she knew of both orders when she withdrew the money from the Spanish account on 24 March 2006. I also found that I was sure that I had not been given a true or full account by Mrs Metterick of what happened. She was well aware of what she was doing but she was acting on the instructions of Mr Metterick and her evidence was untruthful and designed to protect him at what I said was a considerable cost to herself. All of the requisite elements of contempt were made out.

On the day before the hearing Mrs Metterick formally admitted the alleged contempt at paragraph 4.2 of the notice of application that she withdrew £20,000 from her account at Nationwide Building Society on 27 March, knowing of the existence of the second freezing order.

In contempt cases the object of the penalty is both to punish conduct in defiance of the court's order as well as serving a coercive function by holding out the threat of future punishment as a means of securing the protection which the injunction is primarily there to do (see Lightfoot v Lightfoot [1989] 1FCR 305 at 308, Robinson v Robinson [2001] EWCA Civ 2098 at paragraph 11, Hale v Tanner [2000] 1WLR 2377 at 2381).

So far as the penalties are concerned, first, the court may impose an immediate custodial sentence limited to a two-year maximum (section 14(1) of the Contempt of Court Act 1981). A person committed to prison for contempt of court is entitled to unconditional release after serving half of the sentence (Criminal Justice Act 2003, section 258). A committal order is appropriate where there is serious contumacious flouting of orders of the court: Gulf Azov Shipping Company v Idisi [2001] EWCA Civ 21 at paragraph 72, which was a case of a breach of freezing injunctions where the sentence was three months suspended on condition that the contempt was purged.

In Pospischal v Phillips, The Times 20 January 1988, the Court of Appeal held that where property was sold, and assets dissipated in breach of a Mareva injunction, an immediate prison sentence was necessary to both protect the plaintiff and punish the defendant, per Taylor LJ at page 7 of the transcript. In that case the Court of Appeal substituted a sentence of six weeks' imprisonment for the ten weeks imposed by the judge because the defendant was able to raise a loan and the money could be placed in the names of solicitors which would enable the Mareva injunction to be discharged. In Hudson v Hudson [1996] 1FCR 19 where the defendant withdrew and spent £20,000 in breach of a Mareva injunction an immediate prison sentence of nine months was imposed. But any custodial sentence imposed should be as short as possible consistent with the circumstances of the case (see Aquilina v Aquilina [2004] EWCA Civ 504 at paragraph 14.

Second, the court may impose a custodial sentence, the execution of which may be suspended for such period or on such terms as the court thinks fit (CPR schedule 1, RSC order 52, rule 7(1)). In Hale v Tanner [2001] WLR 2377 at 2381 Hale LJ said that suspension was usually the first way of attempting to secure compliance and Gulf Azov Shipping Company is an example of such a case where the judge directed that Chief Idisi be committed for three months, suspended on condition that the contempt was purged.

Third, the court may impose a fine of unlimited amount (section 14.2 of the Contempt of Court Act 1981) or order sequestration. If a fine would be the appropriate punishment it is wrong to impose a custodial sentence because the contemnor is unable to pay a fine (see Re M (Contact Order) [2005] EWCA Civ 615, [2005] 2 FLR 1006 at paragraph 18). It will also, I accept, be wrong to impose a custodial sentence because of the difficulty inherent in fining a person subject to a freezing injunction where the assets of the person are clearly below the maximum sum in the injunction.

The matters which I may take into account include these. First, whether the claimant has been prejudiced by virtue of the contempt and whether the prejudice is capable of remedy. Second, the extent to which the contemnor has acted under pressure. Third, whether the breach of the order was deliberate or unintentional. Fourth, the degree of culpability. Fifth, whether the contemnor has been placed in breach of the order by reason of the conduct of others. Sixth, whether the contemnor appreciates the seriousness of the deliberate breach. Seventh, whether the contemnor has co-operated.

I accept that Mr Metterick should be punished for the substance of his contempt and not for the fact that his contempt has been formulated into four separate breaches of two orders. Nor should he be punished additionally because he has breached the order made against him and as a third party the order against Mrs Metterick. Therefore, in respect of all four admitted contempts punishment of Mr Metterick should be concurrent rather than consecutive because the contempts arise out of the same act.

The breaches of the freezing orders by both the defendants were deliberate and in the knowledge of both orders. The withdrawals were specifically intended to undermine the orders. Very little discount should be allowed for the defendants' admissions of contempt as both were made almost immediately before the hearing. I accept that Mrs Metterick did act on the instructions of Mr Metterick. There is very little prospect of the effect of the breaches being remedied. Subject to what I will say about the £20,000, there are no serious proposals for either defendant to make good the loss from any other sources.

The withdrawal from the Spanish account was applied towards the acquisition of the Spanish property. A valuation has been obtained which indicates that the acquisition is anticipated to give rise to a loss. The valuation report of the Spanish property prepared by Cluttons Surveyors dated 2 November 2006 is given on two bases; firstly: a market value and, secondly, a sale within a compressed marketing period of three months. The market value is stated to be 792,000 Euros. The forced sale value is stated to be 690,000 Euros. The mortgage statements from Deutsche Bank show that the outstanding capital amount of the loan is 517,400 Euros. The calculations show a net loss of between about 41,000 Euros and 126,000 Euros. The basic figures are not contested by the defendants, although they suggest that on a more optimistic basis there might be a rather modest loss only. There is also a possible reduction in the loss due to a reduced rate of CGT in Spain after 1 January 2007.

It was suggested that there were certain factors which were relevant mitigating factors, namely, that Mr and Mrs Metterick had entered into the contract in January 2006 before the freezing injunction and that their solicitor was away from his office on holiday between 14 March and 21 March 2006. I do not think that these are relevant mitigating factors.

Mr Metterick is 48 years old and has recently started work as a property sales consultant for Andalucian Dream Homes and is being paid on commission. Mrs Metterick is 41. She is of unblemished character. She worked for NatWest Bank for 17 years and recently for a firm of opticians and has had good references. Both defendants apologise for the breaches to the court.

In the light of those factors, the conclusions to which I have come, and I think Mr and Mrs Metterick should rise to hear me say this, are that Mr Metterick has been guilty of serious contumacious flouting of orders of the court and in his case I consider that he should be committed to prison for a period of eight weeks. In the case of Mrs Metterick, however, I do accept, having seen her in the witness box, that these proceedings have had a very serious effect on her health. I also take into account that she acted on the instructions of Mr Metterick and in her case, and in view of the offers which have been apparently made by members of her family to contribute to the repayment of the £20,000, I consider that she also should be committed for eight weeks but suspended, for a period on which I will hear argument, on the basis that £5,000 is reimbursed into her account subject to the freezing order within a period on which I will hear argument and that the sum of £400 per month is paid into that same account.