Cherney & Ors v Neuman & Ors

The First Claimant in this case (“Mr Cherney”) is a Russian businessman living in Israel. He has had a number of business interests in England and Spain among other places. The Second to Fifth Claimants are all offshore companies under Mr Cherney’s ultimate ownership and/or control. Mr Cherney does not speak English or at any rate not very well. In the business dealings here, the contact point for Mr Cherney was often a Mr Todor Batkov, a Bulgarian lawyer.

The First Defendant (“Mr Neuman”) is a retired businessman. He was born in Romania but subsequently moved to the USA in 1967 and he is a US national. He built up a substantial furniture business in Spain and later extended his operations to the USA, Italy and Eastern Europe.

Mr Neuman met Mr Cherney in 2001. From about 2002 to the end of 2007, Mr Neuman acted for him in various ways with regard to his personal and business affairs. On any view their ongoing business relationship had ceased by the beginning of 2008. Mr Neuman maintains that he had wanted to cease acting for Mr Cherney the previous year but Mr Cherney proved difficult about letting him go. According to Mr Neuman, he was also owed substantial amounts of money by Mr Cherney for work done on his behalf.

The Fourth and Fifth Defendants are English companies owned and/or controlled by Mr Neuman. The Second and Third Defendants are firms of solicitors who acted in relation to the dealings in which Mr Cherney and Mr Neuman were involved. For present purposes the Third Defendant may be regarded as the successor firm to the Second Defendant as from 1 December 2007. I shall refer to these Defendants collectively as “Pettman Smith”. The individual solicitor who dealt with Mr Cherney and Mr Neuman was Ms Marie-Garrard Newton, a solicitor employed by both firms.

On 15 August 2008, the Claimants commenced these proceedings. On 24 April 2009, some 8 months later, they made applications on notice for world-wide freezing (ie Mareva) and proprietary injunctions against Mr Neuman, together with related disclosure orders. These are the applications presently before me.

There are also applications to amend the Particulars of Claim, add a new Defendant, a Mr Singh, and consolidate or otherwise jointly manage this action with another action commenced by Mr Neuman here on 21 May 2008, making various claims against Pettman Smith. Mr Singh has not responded to the application to join him and the other parties do not object. Nor is there any objection to some form of consolidation or to the proposed amendments. Suitable directions will therefore be made or agreed following my determination of the applications in issue.

On these applications I have heard Mr Jones QC for the Claimants and Mr Beazley QC for Mr Neuman. I am indebted to them both for their helpful and thorough oral and written submissions. Mr Smith of Counsel also appeared, on behalf of Pettman Smith. He made no submissions on the substantive issues but was able to provide some important information in the course of the hearing.

There are three relevant claims for present purposes which are summarised below.

It is common ground that in 2006 a BVI company called Thornley Estates Ltd (“Thornley”) purchased another company called 11-15 Arlington Street Limited (“ASL”). ASL had an option to take a 150 year lease from London Underground Limited of property at 11-15 Arlington Street (“Arlington Street”) in Central London. The beneficial owner of Thornley was Mr Neuman. Once Thornley acquired ASL it exercised the option. The total cost of acquiring ASL and exercising the option was about £10.5m. The funding for this was supplied in part by a loan from Barclays Bank secured on property whose ultimate owner was Mr Cherney and otherwise from funds supplied by him or one of the other Claimants, save for £400,000 said to come from Mr Singh. Mr Cherney’s case is that he agreed with Mr Neuman that he, Mr Cherney, or the Third Claimant (“Vida”) should become the beneficial owner of Thornley or the property and on its resale he would pay a commission to Mr Neuman.

Mr Cherney was informed in late 2007 that a sale of Arlington Street had been agreed at around £18m. Pettman Smith had acted on the purchase by Thornley and acted on the subsequent sale. They were told that the eventual sale price was only £13.3m, the sum provided for in the contract of sale and they received that amount into their client account. In January 2008 Mr Neuman informed Mr Cherney that a further sum of £4m in some way associated with the sale or at least with the purchaser had been paid direct to him in Spain.

Later in 2008, Mr Neuman asserted formally that in fact he was the beneficial owner of the property and, after its sale, the proceeds of sale. He made that assertion in his claim against Pettman Smith, made on 21 May 2008, and sought to ensure that they did not part with the remaining sale proceeds in their client account. As Mr Cherney was asserting that he was the beneficial owner and thus entitled to those sale proceeds, and because Pettman Smith featured in both sets of proceedings in relation to the same issues, they interpleaded. These two sets of English proceedings are the subject matter of the proposed consolidation/joint management direction.

Mr Cherney alleges in the present action that subject to any right to commission on the part of Mr Neuman (which was no more than a personal claim against Mr Cherney) Mr Cherney is the beneficial owner of all the proceeds of sale including the £4m paid direct to Mr Neuman. In fact, Mr Cherney contends that on the arithmetic of the sale figures, Mr Neuman must have received more, probably £4.5m. Furthermore, the buyer agreed to make a reclaim for VAT of £1.16m previously paid by ASL and pass it over to Mr Neuman.

Mr Cherney therefore contends that Mr Neuman received these sums (including any VAT reclaim monies passed to him) as trustee for Mr Cherney and a proprietary claim is made in respect of them.

Mr Neuman effectively admits receipt of £4m, does not admit receipt of any further sums and denies the proprietary claims, alleging that all the proceeds belonged to him subject to a percentage of the profit to be paid to Mr Cherney. I have said that Mr Neuman effectively admits receipt of the £4m because he wrote and said that he had received such a sum in the letter referred to in paragraph 49 below and intimated receipt of a somewhat larger sum to Mr Batkov the previous day – see paragraph 53 below. Neither in his evidence nor in the course of the hearing was it suggested that Mr Neuman had not written that letter or that he had not received that sum. In fact no challenge was made in the evidence from Mr Neuman’s side, to the allegations contained in paragraphs 11.4, 11.6 and 108.1 of Mr Buckley’s first Affidavit in this regard. And in the context of risk of dissipation, Mr Beazley submitted that Mr Neuman had drawn attention to the receipt of the £4m (see further paragraph 80 below). Accordingly, for the purposes of the hearing before me and this judgment, I proceed on the basis that it is common ground that Mr Neuman received at least the sum of £4m.

This is the principal claim for present purposes and I refer to it as “the Thornley Claim”.

It is common ground that in 2005, the Claimants remitted about £7m to Pettman Smith to be held for the purpose of refurbishing two apartments in a development known as “The Knightsbridge” and a long stay hotel called Draycott House, such properties being located, again, in Central London. The corporate vehicles to be used for these works were the Fourth and Fifth Defendants (“EWBC” and “DPM” respectively).

There are in fact two claims here:

Accordingly a claim is made for the return of a total sum of £4m. As these were earmarked funds and as Mr Neuman was acting as Mr Cherney’s fiduciary, once more he held those funds on trust for Mr Cherney and a proprietary claim is made here, too.

Mr Neuman asserts in broad terms that all the funds remitted were used for the refurbishments which to date have been very extensive indeed. He accepts in principle that he should provide an account of what exactly the monies have been used for.

This is the second claim to which I shall refer as “the Draycott Claim”.

In April 2005 Mr Cherney purchased, or supplied the purchase monies for, a flat at 5 Park Mansions in London. It turns out that the legal, registered owner of this flat is Mr Singh who has been involved in some way in the business dealings of Mr Cherney and Mr Neuman. Accordingly, Mr Cherney claims that Mr Singh holds the flat upon trust for him. Hence the application to join Mr Singh as a party. But Mr Neuman contends that he acquired beneficial ownership to the flat. He says (through Mr Oliver’s WS at paragraph 40) that he purchased it through Mr Singh as an intermediary with monies lent by Mr Cherney which have now been repaid. On any view he seems to have paid over £300,000 to Pettman Smith in January 2008. The status of those monies is in dispute. It is not necessary to go further into this matter. The short point is that there are competing claims to the beneficial ownership of this flat.

There is no present risk to this flat as it is not held as a matter of legal title by Mr Neuman and Mr Singh is about to be joined in the action. The only monetary claim against Mr Neuman is made on the footing that he has somehow acquired the flat at an undervalue. But I do not see the relevance of that at present as Mr Singh is the legal owner. In those circumstances the need for any kind of injunctive relief as against Mr Neuman is obscure at best and Mr Jones did not press with any real force the present application in respect of this claim. I therefore disregard it for present purposes. That leaves the Thornley and the Draycott Claims.

Mr Cherney alleges as follows:

Mr Neuman denies that Mr Cherney is entitled to any relief at all. He denies that there is a good arguable case in respect of the Thornley Claim and while he accepts the obligation to provide an account in respect of the Draycott Claim, he denies that there is a good arguable case that £4m has effectively gone missing instead of being used for the refurbishments. He also denies that proprietary injunctions and related relief should be granted. Finally, he rejects the existence of any real risk of dissipation or secretion of assets generally and points in particular to the substantial delay on the part of the Claimants in making these applications.

On 21 May 2008, a company called Denise Overseas Limited (“DOL”) brought proceedings in Valencia, Spain against Mr Neuman and a BVI company called Rye Park Enterprises Limited (“Rye Park”). Rye Park had been involved in various Spanish property dealings. The essential claim made was that Rye Park was to have acquired a hotel in Spain called the Gema Hotel and Mr Cherney provided €4.25m to Rye Park, via DOL, for that purpose. However, that money was not used for that purpose and various forms of relief concerning this issue are claimed in these proceedings.

Mr Neuman alleges that Mr Cherney is the beneficial owner of DOL so that the Spanish Proceedings were in truth brought by Mr Cherney. Mr Cherney says that the beneficial owner of DOL was Mr Batkov but says that the ultimate beneficial owner of Rye Park was, or was intended to be, Mr Cherney and that he was to have been the ultimate beneficial owner of the Gema Hotel.

In July 2008, DOL obtained from the Court in Valencia precautionary measures by which various bank accounts and properties said to be owned by Mr Neuman were frozen. Mr Neuman subsequently sought, unsuccessfully, to have these set aside. The Spanish Court so ruled on 13 January 2009. He also sought, unsuccessfully, to mount as against DOL a counterclaim for commission said to be due to him from Mr Cherney. His contention that DOL was really Mr Cherney for these purposes, so that the counterclaim could be made against DOL, failed. The Spanish Court struck out the counterclaim on 24 February 2009. The Spanish Proceedings otherwise remain extant.

The original Particulars of Claim issued by the Claimants here also made a claim against Mr Neuman in respect of Rye Park and the Gema Hotel. There was an obvious overlap between that claim and the earlier Spanish Proceedings.

The only Defendant who is not domiciled in England is Mr Neuman. When the proceedings before me were issued, it was thought that he was domiciled in another EU member state ie Spain and so the Judgments Regulation applied. It was believed that various of the exceptions to the general rule that defendants who are domiciled in another member state should be sued in that other member state applied, so that the English Court nonetheless had jurisdiction over Mr Neuman. The Claim Form thus contained the usual certificate to this effect.

By a consent order made on 6 October 2008, Mr Neuman agreed that actual service upon him of the proceedings before me could be effected by service upon his then solicitors, Peters & Peters (“the Consent Order”). This was without prejudice to any jurisdictional challenge. That challenge came by Mr Neuman’s application dated 31 October 2008 (“the Jurisdiction Application”). Its essence was that because of the Spanish Proceedings, either the entirety of the claim made against the First, Fourth and Fifth Defendants here be stayed, or at least that part of it which dealt with Rye Park and the Gema Hotel, (together with a stay of his English proceedings against Pettman Smith and the interpleader application).

The Jurisdiction Application was originally listed for 13 January 2009 and then relisted for 13 May. Evidence in support consisted of a witness statement (“WS”) of Mr Oliver of Peters & Peters dated 31 October 2008. Evidence in opposition from the Claimants was in the form of an Affidavit of Mr John Buckley, a partner in the firm of Fladgate LLP (“Fladgate”), the Claimants’ solicitors, sworn on 24 April 2009. Importantly, Mr Buckley indicated in his Affidavit that the claim made here in respect of Rye Park would be withdrawn. So there was no longer any direct overlap with the Spanish Proceedings.

At the same time, the Claimants made the applications for injunctive and related relief now before me, together with the uncontroversial applications referred to in paragraph 6 above. The application for permission to amend the Particulars of Claim included the withdrawal by deletion of the claim in respect of Rye Park. Those applications were listed for hearing on 13 May also.

Following the withdrawal of the Rye Park claim here, Mr Neuman withdrew the Jurisdiction Application. The only substantial application left was therefore the one now before me having been adjourned from 13 May. On 10 June 2009 Mr Neuman made a WS opposing this application. It was supported by a WS dated 10 June from Mr Pinon, Mr Neuman’s Spanish lawyer. Rebuttal evidence for the Claimants consisted of a WS dated 23 June from Mr Pomares, the lawyer acting for DOL in the Spanish Proceedings and a second Affidavit from Mr Buckley. There was no Affidavit or WS from Mr Cherney.

At the hearing I admitted a second WS from Mr Neuman dated 6 July without objection. But in response to various criticisms made on behalf of Mr Neuman by Mr Beazley in his Skeleton Argument as to the lack of any Affidavit from Mr Cherney himself and what he said was a defective statement of truth by Mr Cherney on the Particulars of Claim (defective because he could not read English and the requirements of paragraph 3A of 22PD were not met), Mr Jones sought to introduce further evidence. This consisted of a brief Affirmation from Mr Cherney in Russian dated 3 July to the effect that a Mr Mazin had read out to him in Russian, the Particulars of Claim, the Amended Particulars of Claim and Mr Buckley’s two WSs and that their contents were correct. Obviously that Affirmation was itself translated into English. There was then an Affirmation from Mr Mazin also dated 3 July saying that he speaks fluent Russian and English and had read to Mr Cherney in Russian the documents referred to above. Mr Beazley submitted that there were a number of unsatisfactory features about this new evidence and that I should not admit it at all. For the reasons given in a short ruling delivered at the time, I declined to follow that course on the basis that the criticisms made were in truth matters directed to the weight which should be attached to these documents, not their admissibility. The final new piece of evidence came in the form of a third Affidavit from Mr Buckley clarifying exactly how he had obtained that information which was outside his personal knowledge for the purpose of his first and second Affidavits. This indicated that he received instructions in the course of meetings with Mr Cherney who was always accompanied by Mr Mazin as translator and sometimes by Mr Batkov too. There were also some separate meetings with Mr Batkov. Paragraphs 3 and 4 of that Affidavit deal specifically with information supplied to Mr Buckley by Mr Cherney in respect of the Thornley Claim, dealt with below. I admitted this Affidavit also.

As noted in paragraphs 9 - 15 above there is a direct conflict between Mr Cherney and Mr Neuman as to what the nature of the deal was, here. But the way in which the evidence has emerged from each of them, personally, is unsatisfactory. First there is no detailed evidence from Mr Cherney himself setting out the matters in dispute. Even allowing for the need for translations I have difficulty in seeing why this was not done. I accept that I have his evidence indirectly because he has now made an Affirmation confirming the content of the Particulars of Claim and Mr Buckley’s first and second Affidavits where his case is set out. Mr Buckley has also remedied defects in those Affidavits, in his third, whereby the route by which he received the information was properly explained.

Second, as far as Mr Neuman is concerned, it is correct that his case is set out in his Particulars of Claim made against Pettman Smith and Mr Oliver referred to this briefly in his WS. But Mr Neuman hardly addresses this claim at all in his own WSs.

Fortunately, the assertions made by both sides are not the only evidence here. I am much assisted on the issue of good arguable case by the contemporary documents and also by the Defence to the Claimants’ present claim already filed by Pettman Smith.

Before dealing with those matters, it is necessary to set out how the acquisition of ASL and 11-15 Arlington Street was funded. This is not essentially in dispute. The total acquisition cost of £10.5m paid by March 2006 was funded as follows:

Accordingly, on Mr Neuman’s own case the only monies which he may have provided himself were such part of the £2m from Rye Park which might conceivably be attributed to the €1m which he said he put into it, in addition to the €4m from Mr Cherney.

On 16 March 2006 Ms Newton wrote a long letter to Mr Batkov explaining the acquisition which had taken place “suddenly” but of which he was aware. The last page of the letter notes that Ms Newton would report to Mr Batkov on the “whole transaction” in due course but pointed out that the acquiring company was Thornley whose sole director and shareholder was “as with the other BVI companies” Mr Neuman. She said that she had prepared a deed of trust but did not know for which trust Mr Neuman would be holding Thornley as nominee and asked Mr Batkov to provide that information. She also asked for the entire completion funds to be sent to her as soon as possible as the Barclays Bank loan might not be ready in time for completion. The implication from that letter appears to be that Mr Cherney or one of his trusts was to be the ultimate owner.

I was told by Mr Beazley that Mr Neuman reserves his position as to the authenticity of this letter and possibly other documents said to emanate from Pettman Smith. He pointed to the fact that pages 2 and 3 of this letter were dated 16 March 2008 not 2006 although Mr Smith, for Pettman Smith, later produced a copy of the same letter where all dates were shown as 16 March 2006. Mr Neuman’s position is noted but as he makes no positive assertion at the moment that such documents are not genuine, I need not consider this aspect of the matter any further for present purposes.

On the same day Ms Newton also wrote to the trustees of one or more of Mr Cherney’s trusts enclosing a copy of the letter to Mr Batkov. This also asked for the remission of all of the completion funds. By an e-mail dated 22 March 2006 Ms Newton chased Mr Batkov for the funds.

By an e-mail sent by Mr Batkov to the trustees dated 29 March 2006, he explained the deal to them. It begins: “The principals of Vida Foundation decided to acquire new real estate in London.” He then explained the financing. He said that £1.5m was to come from Vida “as a loan on the grounds of a loan agreement” which was expected to be repaid by ASL once it was reimbursed VAT by the UK tax authorities. Mr Beazley points to the reference to a (mere) loan by Vida, consistent, he says with his client’s case that Mr Cherney’s involvement was limited to his role as lender or procurer of lent monies. Looked at by itself I see the force of that but it ignores the opening sentence of the e-mail.

By July 2007 a resale of the property was on the horizon. An attendance note of Ms Newton dated 19 July 2007 records that a price had been agreed at £18m. In August 2007 Mr Batkov sought information about what was happening on behalf of Mr Cherney. This followed a meeting between Mr Cherney, Mr Neuman and Ms Newton.

On 26 September there was another meeting with Ms Newton attended by Mr Cherney and Mr Batkov. It does not appear to me that Mr Neuman was at that meeting. Mr Batkov enquired about the deed of trust from Mr Neuman and was told there was none. He asked why not since all the acquisition funds had come from Mr Cherney’s money and it was “therefore” his property. Ms Newton’s attendance note records that she said that she had not received instructions at the time (ie 2006) to prepare one though she had enquired about it. She was instructed to ask him to sign one. Mr Beazley says that this suggests that Mr Cherney’s case is based simply upon the supply of money to acquire the property which is consistent with him being simply a lender. It could be but it is also consistent with him supplying the money because the whole idea was that he would end up as ultimate owner.

On any view there was to be some division of the profits and this is referred to in the last part of the attendance note. In that context Mr Batkov also stated, again, that the property belonged to Mr Cherney and not to Mr Neuman, as the latter had apparently informed Pettman Smith.

On 27 or 28 September 2007 there seems to have been a further meeting with Ms Newton this time involving Mr Cherney and Mr Neuman, and a document to be signed by them but no document was signed at the meeting.

On 11 October 2007, Mr Neuman wrote to Ms Newton stating that on completion of the sale of the property for the price of £13.3m the Barclays and Vida loans should be repaid as should her firm’s charges. He then said that “The balance of the sale monies should be paid to Mr Cherney or wherever he may direct.” He added that when any VAT was recovered from the Revenue it should be paid (after deducting accountant’s costs) to Mr Cherney. That very much suggests that the owner of the property was Mr Cherney, or at least that suggestion is strongly arguable.

On 22 January 2008, Mr Neuman wrote to Mr Cherney about the property. By now it had been sold by means of the acquisition of Thornley by the purchaser thereby gaining ownership of ASL and through it, Arlington Street. His letter reads as follows:

“For the sale Thornley Estates which was the company specially incorporated in British Virgin Islands to purchase the shares of 11-15 Arlington Street Limited the purchase price was £13,300,000. Totally separately we received a payment for other things not directly associated with that share sale of £4,000,000. The share sale as you know was handled by Marie-Garrard and she holds in her client account the sum of £13,300,000. From the sum of £4,000,000 which was paid in Spain, £500,000 was sent to Marie-Garrard so that she could pay that to the agent.

You will recall that some time ago Todor Batkov transferred to the account of Rye Park in Spain the sum of €4,250,000. Roughly €3,000,000 or the equivalent of £2,000,000 of that sum was transferred to Marie-Garrard in connection with the purchase of Arlington; in fact that some converted into Sterling as £1,999,994.00.

Also to assist with the purchase of Arlington there was a loan from Vida Foundation. The sum received by Marie-Garrard from Vida Foundation was £1,500,000 and she liaised with Todor on the terms of a loan Agreement.

I have prepared a statement showing the sums spent in connection with the purchase of Arlington and the sale.

The total sum expended to purchase Arlington was £10,805,615.22 whilst the sale price, including the sum paid in Spain, less expenses relating to the sale, totals £16,633,643.48, giving a net profit of £5,828,028.26. My proportion of that is 35%. In addition as the purchase expenses included the VAT paid which VAT amounts to about £1,168,000.00, I am also entitled to 35% of any VAT recovered. The additional interest on the Barclays loan has not been taken into account but once the total of this is known it can be deducted from the VAT refund before calculating the distribution of the refund.

Please confirm that you agree that the sums due to me are as stated.”

This letter was accompanied by a Completion Statement. It referred to the purchase price for the shares in Thornley said to be £13.3m and then the sum paid in Spain “by Buyer in respect of separate matters associated to the sale” of £4m. So here the £4m is said to be associated although in the letter it was said not to be directly associated. Nonetheless it came at the same time of the sale and from the buyer. The inference sought to be made by Mr Jones for Mr Cherney is that the true total purchase price was around £18m and certainly in this Completion Statement, Mr Neuman takes the £4m fully into account. The inference as to the true total sale price certainly cannot be rejected at this stage.

The statement then deducts from the total proceeds of sale (including the £4m) the total costs of sale. The net profit of £5,828,028.26 is then arrived at. 35% of this is £2m.

No claim to ownership is made by Mr Neuman in that letter, rather an entitlement to the share of the profits. And so far as the £4m is concerned, the impression given by the letter is that this is a sum which has been directed to Mr Neuman who is going to hold onto it until his claim for commission is dealt with properly (in his eyes) by Mr Cherney. Or at least that inference is for present purposes strongly arguable. By this stage the parties were clearly in disagreement and I note that in paragraphs 55 – 57 of his WS Mr Neuman says that he has done very substantial work for Mr Cherney and his family over the years and yet has received no payment.

I should add that on 21 January, Mr Batkov had e-mailed Ms Newton to say that Mr Cherney had called him to inform him that the sale had gone through and that Mr Neuman had received the sum of £5m and wanted to settle his dealings with Mr Cherney. Mr Neuman had apparently said that the £5m was his commission for both the Arlington and Draycott deals. On 22 January 2008, Ms Newton informed Mr Batkov that the sum of £13.3 remained in the client account and was unaware of any sum of £5m. This was all a precursor to the letter of 22 January which seems to have arrived on 23 January.

The sum of £13.3m was indeed retained by Pettman Smith save that in March 2008 the £2m said to have been advanced by Rye Park was remitted back to it.

Various allegations of breach of duty are levelled against Pettman Smith in the Particulars and Amended Particulars of Claim. In respect of the matter of Thornley and ASL Pettman Smith has contended in its Defence that:

This is in accordance with the impression created by the letter of 16 March 2006 that as far as Pettman Smith was concerned this was a deal for the ultimate benefit of Mr Cherney, acting through his representatives including Mr Neuman, as in other cases.

By the time these came to be issued, in May 2008, Mr Neuman was asserting that he had instructed Pettman Smith in relation to all these matters in his own right, as the client. See paragraphs 1 – 3 and 6 thereof. This does not seem to square with Pettman Smith’s view – see above. (It seems that Pettman Smith have not yet filed a Defence in that action). In paragraph 7 it is alleged that “The Claimant discussed the Transaction with one of his business associates, Michael Cherney. Mr Cherney said that he was not interested in participating in the Transaction as joint venturer, but he was willing to fund the Transaction by way of loans.” The purchase price was said to be £13.3m and Mr Neuman sought an account of what had happened to the proceeds and delivery up of the files, qua client.

Mr Beazley has contended that there has been no rebuttal in terms, certainly not from Mr Cherney himself, of the contents of paragraph 7. That is true although as noted above, its content was not set out in Mr Neuman’s own WS. And paragraphs 10 – 12 of Mr Buckley’s first Affidavit, supplemented in this regard admittedly belatedly by paragraphs 3 and 4 of his third Affidavit make clear that Mr Cherney’s case is that this was an acquisition which was always intended to be for his benefit.

Having considered the contemporaneous documents, including those emanating from Mr Neuman himself, the view which Pettman Smith took about the matter and the way that the two protagonists seemed generally to proceed, which was that Mr Neuman was Mr Cherney’s agent or manager as opposed to business partner or joint venturer, I am quite satisfied that there is a good arguable case in respect of the Thornley Claim. The absence of more direct and detailed evidence from Mr Cherney on this point does not alter my view.

If Mr Cherney is right that it was intended that the benefit of the acquisition of ASL and Arlington Street was for him, it must follow that there is a good arguable case that, apart from any liability to account personally, the sum of £4m received by Mr Neuman and which was on any view paid by the buyer in the context of the sale (and treated by Mr Neuman in the Completion Statement of 22 January 2008 as forming part of the overall proceeds) constituted trust monies held by Mr Neuman for Mr Cherney. There is thus a proprietary claim in respect of it and any proceeds of it. If in fact he received somewhat more than £4m (as Mr Cherney contends having regard to the original sale price and the £13.3m paid to Pettman Smith) he would hold that larger sum on trust also. Finally, if the VAT was reclaimed and paid to him, he would hold that on trust as well. Indeed, absent it being the case that Mr Neuman was the owner and beneficially entitled to all of the proceeds of sale, any monies that came to him (as opposed to the solicitors) in connection with the property would be held upon trust by him for Mr Cherney since he was acting for him in a fiduciary capacity or at least that must be strongly arguable, too.

The principal relief sought is an account. But the real question at this stage is whether I can be satisfied that there is a good arguable case that Mr Neuman has had (a) the “missing” £1m and (b) a further £3.3m for the purpose of the refurbishments but which was not used for them. I deal with the latter claim first.

The evidence from the Claimants’ side on this issue is slim. It is to the effect that very little progress has been made in terms of works to these properties. But Mr Neuman has given a detailed rebuttal of this charge in paragraphs 50 – 54 of his WS. He also seeks to back it up with a number of documents showing substantial payments made for the works, exhibited at “FN 1” in Bundle D. He does not claim to have a complete set of the documents because, among other things, he cannot access some of them due, he says, to his offices in Valencia being raided. But nonetheless much work has been done including the gutting and remodelling of the apartments and the replacement of air-conditioning, the elevator and the glazing along with the making a of a new six-storey extension.

Despite having put in evidence in reply on other matters, the Claimants have not sought to rebut these points in a further WS at all. This failure is surprising given their contention that injunctive relief for over £3m should be granted.

In those circumstances I am simply not satisfied that it can be said that in effect it is strongly arguable that none of the £3.3m complained of has been used for the purpose of the refurbishments. And there is no basis on which I could be satisfied that any particular sum less than the figure of £3.3m was not so used. This means that it is not appropriate to order any injunctive relief. This does not preclude the making of an appropriate order whereby Mr Neuman should give an account of what has been done with those monies. In principle I am prepared to make such an order subject to further submissions from Counsel.

The other claim here, for the “missing” £1m, is in a different category. Mr Neuman does not address it specifically at all in his WS. Mr Beazley suggested that an answer to it was encompassed within Mr Neuman’s general evidence about the refurbishment works done, but I did not find that satisfactory. A very specific claim is made about this in paragraph 40 of the original Particulars of Claim. At that time it was stated that of the £1m, £600,000 was authorised by Mr Cherney but that is omitted from the new paragraph 40 in the Amended Particulars of Claim. That in itself is slightly odd but the fact remains that there is no discrete answer to this point by Mr Neuman in evidence.

On that footing I take the view that there is a good arguable case that £1m has been received by Mr Neuman to which he was not entitled and/or which has not in fact been used for any purpose authorised by Mr Cherney. As these were funds originally earmarked for the purchase and/or refurbishment of the properties concerned and/or because of Mr Neuman’s role as Mr Cherney’s fiduciary, there is also a good arguable case for proprietary relief in respect of them.

On the basis of what I have said above, only two claims can form the basis for this relief:

So the total sum at stake is in the region of £5-6m.

It is trite law that the applicant for such relief must show that there is a real risk that any judgment in his favour which he may obtain at trial will remain unsatisfied if injunctive relief is refused. See Ketchum v Group Public Relations [1997] 1 WLR 4 per Stuart-Smith LJ at p 13A-B.

In order to consider that risk, the applicant is often said to have to show a risk of “dissipation” of the Defendant’s assets. But a risk that the assets will be hidden or otherwise dealt with so as to make any judgment nugatory will suffice as well. See Derby v Weldon [1990] Ch 48 per parker LJ at p 57. There needs to be “solid evidence” of this risk. See Thane v Tomlinson [2003] EWCA Civ 1272 per Gibson LJ at paragraph 21. The context there was a without notice application but there is no reason why the same stringency should not apply to a “with notice” application.

The ultimate “risk” to be guarded against is that of an unsatisfied judgment. The reason why emphasis is placed on the risk of dissipation is because what has to be shown is the risk of an unsatisfied judgment by reason of the dissipation or secretion of assets. Thus, the freezing injunction is not to be used simply to provide security for the claim. So if in truth the risk that the judgment may not be fruitful is because the Defendant happens to live in some remote location or because he does not have much by way of assets anyway, it is not appropriate to grant it. See the judgment of Colman J in Laemthong v Artis [2005] 1 Lloyds Rep 100 at paragraph 54. Hence the standard of proof of the risk of dissipation is “relatively high” see paragraph 61.

An injunction may only be granted where it is “just and convenient” to do so. See s37 (1) of the SCA 1981. In general terms, delay is relevant because it may affect the practical doing of justice on the application. In particular it may raise questions as to whether the injunction sought is really necessary, the quality of the claim or whether the Defendant is thereby affected. It can be taken into account as part of all the circumstances when the Court exercises its discretion. See Gee’s Commercial Injunctions Fifth Edition paragraph 2.019.

But delay is of particular significance in the context of an application for a freezing order.

In Dubai Bank v Galadari [1990] 1 Lloyds Rep 120, Staughton LJ said this at p 133:

“Turning to the substantive issues in these appeals, I observe first that in the view of Mr. Justice Morritt there was no doubt that the Dubai Bank had put forward a good arguable case. That conclusion was not challenged in these appeals. It follows almost inevitably, in my view, that there was initially a prima facie likelihood of dissipation or secretion of their assets by the Galadaris; those who have fraudulently misappropriated moneys to a very large extent are not normally disposed to leave the proceeds where they can readily be found. Furthermore quite elaborate efforts to find assets in the Galadari empire have not been very fruitful up to now. It is possible that the moneys have all been lost in unfortunate trading, or that some part of them has been given to others. But there must remain, on the Dubai Bank's case, a prima facie likelihood that all or part of the moneys have been secreted….

What persuaded the Judge not to continue the Mareva injunction was the lapse of time that had occurred since the Dubai Bank discovered in 1985 that the money had been diverted. It was not until 1989 that application was made for an injunction. Mr. Justice Morritt said (at p. 49 of the transcript): ‘It seems to me to be obvious that if Abdul Rahim and Abdul Latif were minded to dissipate or to secrete their assets so as to defeat any judgment DBL might obtain, whether in these or in the Dubai proceedings, they would have done so long before these proceedings were instituted in March 1989.’

In point of fact that seems to me an entirely sound conclusion. There is, I think, room for two views as to whether by itself it should lead to the refusal of any further injunction. One can argue that it was still appropriate to grant an injunction and to order disclosure, in the hope of following the trail before it became still colder. I can see force in that argument. But I do not feel able to say that the Judge, in the exercise of his discretion, was wrong to regard the probability that secretion, if any were intended, had already occurred as sufficient ground for refusing an injunction.”

The question of delay also arose in Fiona Trust v Privalov [2007] EWHC 1217. The proceedings here had been commenced in 2005 with a freezing order made at the outset against one of the Defendants, Mr Nikitin but not against another, Mr Skarga. In June 2006 the Claimants sought to add further claims by way of amendment. In July 2006 they sought further freezing orders to support those claims, this time against both Mr Nikitin and Mr Skarga. The hearing of those applications took place in October 2006 and April 2007. In paragraph 68 of his judgment Steel J recorded that Mr Skarga argued that as the application for the freezing order was made inter partes and some months after the allegations were first made there was no real risk of dissipation and in truth none was perceived by the Claimants. In that regard, Steel J observed as follows:

“Delay

69.

There is no doubt that the fact of the failure to make an earlier application against Mr. Skarga is a material consideration vis a vis the application against him. There are in this context two particular considerations:

a)

The delay clearly raises the question whether the Claimant really needs an injunction pending trial: in short the delay may give rise to the provisional conclusion that the risk of secretion had already accrued.

b)

Nonetheless, the applicant is entitled to take up time in making reasonable enquiries prior to launching an application, the more so where the nature of his case is based on fraudulent or dishonest activity (see Grupo Torras v Al-Sabah, C/A, 16 February 1994): the fact that thereafter the application is made inter partes is scarcely prejudicial to the respondent.

70.

Furthermore it has to be borne in mind that the rationale for a freezing order is not so much the risk of dissipation as such, but the risk that a judgment in favour of Claimants would remain unsatisfied either because of dissipation or secretion or dispersal: see Mercedes Benz AG v. Leiduck [1996] AC 284. I accept that delay is potentially a significant discretionary consideration but much depends on the individual facts of each case.

71.

Furthermore it strikes me that the Claimants are quite properly focusing on the requirements in the draft orders for disclosure by Mr Skarga and Mr Nikitin of their assets. In practical terms, the world-wide freezing order is ancillary to the disclosure order: see Grupo Torras v Al – Sabah, ante.”

On the facts of the case before him Steel J found substantial and serious misconduct, or alleged misconduct, on the part of Mr Skarga. This included a background of bribery, backdating of documents, forgery, false paper trails, failure to make proper disclosure and the destruction of documents. He also found that Mr Skarga had no substantial roots in this jurisdiction and that he was financially dependent on Mr Nikitin who operated through offshore companies and used offshore accounts. He concluded that all of this justified a finding of a real risk of dissipation. It must also be implicit in his finding that any delay was justified on the basis of the need of the Claimants to be sure of their ground when alleging dishonesty – see what he said in his paragraph 69 (b) quoted above.

It seems to me that the following general points may be made about delay in the context of applications for freezing orders:

The Claimants rely on a number of matters to show risk of dissipation. I consider them below.

First, it is said that there was a volte face on the part of Mr Neuman in having, on the face of the documents, accepted that Mr Cherney was the beneficial owner of Thornley and then issuing a claim in May 2008 which said the opposite. I accept that he may well be in difficulties on this for the reasons given above. But I do not think it follows without more that he is necessarily the sort of person who would shift assets to avoid judgment.

It is then said that the very fact that Mr Neuman procured a side-payment of £4m which did not go to Pettman Smith but went to him, as a lever for his claims against Mr Cherney, shows dishonourable dealing and thus a risk of dissipation. I accept that for a fiduciary to procure a payment in this way does raise some suspicions. On the other hand it could be said that if he really wanted to secure his position and obtain monies not due to him, without fear of recourse, he would not have announced the fact of the side-payment as he so conspicuously did in the letter of 22 January 2008.

It is also alleged that Mr Neuman gave an inconsistent account of his own domicile. The view taken by the Claimants when they issued these proceedings was that Mr Neuman was domiciled in Spain. Hence their reliance upon the Judgments Regulation to found jurisdiction. And when DOL issued its proceedings against him in the Valencia Court, they were served at premises at Calle Jesus 35 92 1B, Valencia, which consisted of an office and an apartment. Mr Neuman says that he occupied these until around November 2007 but not later. In the Spanish Proceedings, the Claimants nonetheless asserted that he had by 2008 no real connections with Spain any longer. This was relied upon to support the motion for precautionary measures. They said that they had attempted to serve them at Calle Jesus but without success. When the Court granted the protective measures, without notice it held that there had been difficulties in service and that the Defendants were “foreigners without rootage in Spain”.

When Mr Neuman sought to set aside these measures, in September 2008 he first complained that DOL had served an address which it knew he no longer occupied ie Calle Jesus. His lawyer also said that DOL had a power of attorney (“POA”) since February 2008 showing that Mr Neuman was represented by an attorney “particularly as Mr Neuman’s usual place of residence is either New York or London and only comes to Spain sporadically. In fact the time he spends in Spain has become gradually less frequent since the closure of his offices at Calle Jesus.” But he also denied that he had no “rootage” in Spain because he had always owned property in Spain and had incorporated many Spanish companies and had distributed furniture from Valencia for many years. On 15 June 2008 and in respect of the criminal investigation then being made of him and his offices, Mr Neuman wrote to Mr Pinon to say that he wanted to co-operate with the Spanish authorities and would attend a meeting in Madrid on 18 June “for which I will especially fly in to attend.”

But in Mr Oliver’s WS made on 31 October 2008 on Mr Neuman’s behalf for the purpose of the Jurisdiction Application, it was said that it was “common ground” that Mr Neuman was domiciled in Spain and that he had a home in Valencia. Mr Buckley in his WS said that the assertion of domicile in Spain by Mr Neuman was contradicted by the statements he made in his motion to set aside the precautionary measures and the findings by the Court in rejecting that motion in January 2009 to the effect that he had no properties in Spain since the house which he lives in Moraira belonged to his family and that his lawyers had said that he was not in Valencia and that he came to Spain very rarely hence the POA. Mr Buckley went on to say that he should in fact be regarded as domiciled in New York because he is a US national and gave a New York address when he issued his English Proceedings against Pettman Smith.

Mr Neuman in his WS of 10 June said that he spends now about 70% of his time in Spain at the family home at 27 Caba Negro, Moraira (the address given in his WS). Otherwise he spent time in New York and London. Though friends and family visit he is the only one permanently based there. The statement made about only visiting Spain sporadically, though made on his behalf, was not made on his instructions and was incorrect. The lawyer who apparently made this mistake has not provided a WS herself. And the reference in his letter dated 15 June 2008 to flying-in was not because he was not usually resident in Spain but because he was at the time in New York. He explained the New York address on his Claim Form issued here on 21 May 2008 on the basis that this was a property now owned by his ex-wife but one which he gave to his then solicitors “for billing purposes”. On any view that seems a strange thing to have done especially when according to him he was in fact resident much nearer to London, namely Spain.

I have to say that there does seem to me to be an inconsistency in the various accounts given by Mr Neuman although if he is to be believed now, he is in fact resident principally in Spain. And of course the view taken by the Claimants and their lawyers originally (which must have been based on some knowledge or belief as to where Mr Cherney thought Mr Neuman lived) was that Mr Neuman was indeed domiciled in Spain.

Next there is the matter of the “missing” £1m. See paragraphs 65-66 above. No specific response is made by Mr Neuman on this matter.

There is also the fact that in the Spanish proceedings, Mr Neuman said that the €4.25m paid by DOL to Rye Park was not for the purpose of buying the Gema Hotel whereas in his English Proceedings he said that it was. In his WS Mr Neuman now says that he accepts that the monies were “partly” intended for the purpose of investing in the Gema Hotel.

It is also said that Mr Neuman put forward inconsistent accounts as to whether Draycott House was or was not actually sold. In the Spanish proceedings he said that “it sold for 25,900,000 pounds sterling” (so as to found a claim for commission). Here, through the WS of Mr Oliver he said that a purchaser had been found for that sum and a deposit of £300,000 was paid but Mr Cherney decided not to proceed. So it otherwise would have sold at that price. Mr Neuman said the same thing later in his WS. This does appear to reveal another inconsistency, although there is no evidence from Mr Cherney as to whether he accepts that he somehow stopped the sale or not.

Finally it is said that Mr Neuman “manipulated” his claims in the Spanish proceedings so as to enhance any overlap with these proceedings. On any view I do not consider that I am in a position to make that finding since there was clearly an overlap which was recognised by the Claimants when they withdrew it from these proceedings. It is true that the counterclaim made in the Spanish proceedings was dismissed on the grounds that DOL was not the same as Mr Cherney but on any view there was a connection between Mr Cherney and DOL since Mr Cherney was to have the ultimate benefit of the Gema Hotel. I cannot be satisfied at this stage that the making of a counterclaim was a spurious attempt to widen the overlap between the two sets of proceedings.

The Claimants contend that all of these matters show that there is a very real risk that Mr Neuman will take whatever steps are necessary to ensure that any judgment against him will be rendered valueless. While it was recognised that “Mr Neuman has had plenty of opportunity to hide and secrete his assets and/or put them in the name of nominees since proceedings were commenced” that was no reason why he should not now be ordered to disclose where they are so that they can be properly secured and be ordered not to dispose of or deal with them up to the claimed amount. In my judgment, this issue cannot be determined without considering the question of delay.

The application for freezing relief was made 8 months after proceedings were issued. In my view no satisfactory explanation for that delay has been given.

It was said that the full extent of Mr Neuman’s duplicity or potential for or actual dishonesty was not realised until recently. There is nothing in that point. The Claimants were aware as from January 2008 that Mr Neuman had taken the side-payment about which complaint is now made. But they took no steps to bring proceedings at all immediately following that revelation. And insofar as Mr Neuman’s own English proceedings showed clearly his volte face over the issue of who owned 11-15 Arlington Street, the Claimants had copies of those proceedings in June or July. His inconsistent account over domicile was present at least to some extent by the end of September 2008 (ie when these proceedings were commenced) because that is when he made his assertions about only visiting Spain sporadically and Mr Oliver’s WS asserting Spanish domicile was made on 31 October 2008. And the inconsistencies about the purchase of the Gema Hotel and the sale of Draycott House were equally made manifest in September or October 2008. In my judgment there is no proper explanation as to why any concern as to dissipation or secretion of assets generally had not arisen much earlier than April 2009 or if it had, why it was not acted upon then.

The only specific explanation put forward concerns a slightly different matter, namely, information sought as to the whereabouts of various sums of money and why this was not pursued.

After draft Particulars of Claim were served on Peters & Peters, then acting for Mr Neuman, Fladgate wrote to them on 18 September asking where various monies and property were and if no longer with Mr Neuman what had happened to them. This included the £4m side payment. The request was confined to the particular assets referred to in the draft Particulars of Claim. It was not about Mr Neuman’s assets generally. A substantive reply was sought within 7 days. On 22 September Peters & Peters replied agreeing to address that letter once Mr Neuman had been properly served in Spain and after the entirety of Pettman Smith’s transaction files had been released to both parties. This required the consent of Mr Cherney. (In the course of the hearing, it transpired that some of the files had already been sent to the parties, on 8 July 2008. They included the files on Arlington and Draycott.) Fladgate replied on 24 September saying that it wanted answers to the questions irrespective of service but agreed to the release of the other Pettman Smith files. On 26 September Fladgate said that if the questions were not answered by 30 September “we will have to take appropriate steps to protect our clients’ proprietary claims.” It is common ground that this was a reference to the possible obtaining of proprietary injunctions. On 30 September, Peters & Peters wrote, with Fladgate’s consent, to Pettman Smith’s solicitors to obtain the other files. On 2 October Peters & Peters wrote to Fladgate offering an “appropriate” response to their questions within 10 business days after their receipt of the Pettman Smith files. On 3 October, Fladgate agreed, although making the fair point that as their request related to where the assets were now they did not need the Pettman Smith files to answer the questions. This obligation to respond to the letter dated 18 September was embodied in the Consent Order dated 6 October. When this hearing began there was nothing in the bundle of documents to indicate that the files sought from Pettman Smith had ever been released.

In paragraph 69 of his WS, Mr Neuman said that Fladgate appeared to have taken no steps to obtain the files from Pettman Smith. In response to that Mr Buckley stated in paragraph 18 of his Second Affidavit that Mr Neuman seemed to be suggesting that he had never received copies of the files which appeared to be, in part, an answer why he never responded to the questions posed by the letter of 18 September. Mr Buckley said that he did not know whether Mr Neuman had obtained copies of the Pettman Smith files but Mr Buckley had never sought to prevent him from doing so.

I was puzzled by all of this since it seemed that neither side had received the files and that Pettman Smith had simply ignored the request made on 30 September. I made enquiries of Mr Smith, for Pettman Smith, who then helpfully produced a letter dated 23 October 2008 from Pettman Smith to Fladgate. It was sent by courier and enclosed the remaining files save that there was some query still over Park Mansions. So Fladgate had the files within a month of the request being made of Pettman Smith and within 21 days of the making of the Consent Order. This was not referred to in paragraph 18 of Mr Buckley’s second Affidavit. Fladgate therefore had the means of giving the files to Peters & Peters (insofar as they did not have them) as from 23 October. It seems that Fladgate never reverted to Peters & Peters on the point at all. I find this remarkable. They had been pressing for this information and either, by 23 October, Peters & Peters also had the files in which case the 10 days started to run, or they did not, but Fladgate could make it run by copying the files to them. Instead, they did nothing.

I was told in general terms that the matter was not followed up by Fladgate because there was then Mr Neuman’s Jurisdiction Application but I do not see the relevance of this. Indeed, parties often obtain without notice injunctive relief long before any question of jurisdiction is decided, on notice, by the Court.

All of the above of course deals with proprietary relief only. There is no evidence of any concern being felt on Mr Cherney’s side (whether or not expressed to Mr Neuman’s side) about Mr Neuman disposing of or secreting his own assets as opposed to those said to belong, in law, to Mr Cherney. In this context I was told that any application for worldwide freezing relief could not be brought on otherwise than at the same time as the Jurisdiction Application. I do not accept this. The two were not bound together.

When this delay is factored into the equation I am bound to conclude, having regard to all the circumstances, as follows:

Even without delay and assuming that the Claimants sought this relief at the right time and in the usual way, I would have had misgivings about making a freezing order because the totality of the evidence as to risk of dissipation is, in my view, thin. But the very substantial delay without proper explanation puts the matter well beyond doubt in my judgment. I do not think that the fact that a world-wide freezing order here may in due course be superseded by local injunctions, if disclosure were to reveal assets in other jurisdictions, makes any difference. Accordingly I am not prepared to grant any form of general freezing order.

That is not the end of the matter, however, since proprietary relief is sought as well or in the alternative. The approach of the Court is different here. The jurisdiction is founded upon the Court’s equitable jurisdiction and its express powers under CPR 25.1 (1) (c) to preserve assets. The jurisdiction is broad and does not depend on it being shown that there is a real risk of dissipation of assets to avoid a judgment since this is relevant only to Mareva – type general freezing relief. Obviously, if the location of the claimed asset were known and it was fully secured pending a trial, the Court would be unlikely to grant relief absent grounds for immediate delivery-up etc.

That is not this case. The whereabouts of the £4m side-payment and the “missing” £1m are not known. Assuming that Mr Neuman never received the Pettman Smith files he was not obliged to inform Fladgate under the Consent Order. But it was always open to him to tell Mr Cherney and the Court within the present application. There has of course been delay in seeking this form of relief too. But here there is simply the broad question of whether it is just and convenient to grant the relief, consistent with the overriding objective. The threshold question of a general risk of dissipation of assets so as to defeat enforcement of a judgment does not apply as such. And in this context the claimant will, by definition, have satisfied the Court that the asset concerned is either his property or there is a good arguable case to that effect. I have found the latter here. Moreover the relief sought here is much more specific and limited than the general freezing relief sought.

Accordingly I will order the following relief:

I would define the “Side-Payment” so as to include

I am also prepared to grant some appropriate form of an account of the expenditure of the monies provided for the refurbishment works as noted in paragraph 64 above.

There will need to be a cross-undertaking as to damages. I note that the Claimants are in a position to fortify it by a bank guarantee in the sum of £250,000. Mr Beazley questioned whether this would be enough but no specific matters were put forward and of course I have granted only limited relief. Subject to any further points made hereafter, the sum of £250,000 seems more than sufficient.

Those are the principles of the relief I would grant. It will of course be necessary to hear Counsel on the details of the orders to be made, timing etc. I would be grateful if all parties could consider such matters now, together with proposed directions on the uncontroversial matters in the light of this judgment.