Cooke Anor v Venulum Property Investments Ltd & Ors

This is an application by the claimants, Mr and Mrs Cooke, to continue the freezing order that was made ex parte by His Honour Judge Barker QC on 24^th October 2013. Since late 2010, Mr and Mrs Cooke have been involved in county court proceedings concerning a disputed right of way. Those proceedings, for most of their life, have involved two defendants, the first being Venulum Property Investments Limited and the second being a Mr Cadman, who is, if I put it neutrally, the moving force behind the first defendant. The first defendant is a Cayman Islands company and Mr Cadman lives overseas, possibly in the Cayman Islands.

The first defendant was a relevant defendant because it was the freehold owner and the registered proprietor at the Land Registry of the land which Mr and Mrs Cooke said was subject to the claimed rights of way. Mr Cadman was said to be a relevant defendant because Mr and Mrs Cooke’s claim involved an allegation that he had acted inappropriately and, in particular, had harassed Mr and Mrs Cooke on an occasion or occasions in the past. The amended particulars of claim in the county court proceedings effectively sought declaratory relief against the first defendant, together with an injunction requiring the defendant to do work to restore the area over which the right of way was claimed, and also an injunction restraining the second defendant, Mr Cadman, from harassing the claimants. There was also a monetary claim for damages for harassment limited to £15,000. The prayer does not make this quite so clear but I am told that that claim was always intended to be a claim against the second defendant only.

The defendants, Venulum Property Investments Limited and Mr Cadman, have served a defence and counterclaim. In the counterclaim the first defendant claimed declaratory relief on certain bases and also an order that the register of the claimants’ title and the first defendant’s title be altered to bring the register into line with what the court declared the underlying legal position to be. That action in the county court had gone on for some time and it was due to come to trial, and did indeed come to trial, in the Birmingham County Court on 4^th November 2013. Before 4^th November 2013, it came to the notice of the claimants’ solicitors that the first defendant’s registered titled had been transferred, in around September 2013, to a company with a similar name, Venulum Manor Works Limited, a company registered in the United Kingdom. No one from the defendants’ side had told the claimants’ solicitors that this had happened, and indeed on enquiry it emerged that Venulum Manor Works Limited had not told the solicitors who were acting for the first defendant and the second defendant. An attempt was made by the claimants’ solicitors to find out what was happening and, shortly after that attempt began, the claimants’ solicitors made the application which led to the ex parte freezing order to which I have referred.

The application was in the High Court, effectively in support of the county court proceedings. The principal relief sought in the High Court was a freezing order, which had to be sought in the High Court. The application notice sought an order that Venulum Manor Works Limited be joined as a third defendant. I have not seen the order which did that – and perhaps it ought to have been an order in the county court rather than the High Court, but nothing turns upon that. The application notice then went on to seek a general freezing order restricted to England and Wales and it identified the amount to be frozen in the sum of £150,000. That matter came before His Honour Judge Barker, as I have said.

In support of the application was an affidavit of Mr Port, the solicitor acting for Mr and Mrs Cooke. He described the history of the county court litigation and he described his discovery of the transfer of title. He referred to the contact he had made with the solicitor acting for the first and second defendants. He commented upon the significance of the transfer to the company, that I will hereafter call the third defendant. He then referred to the fact that the claimants had incurred costs and would continue to incur costs in the county court litigation. He suggested in paragraph 26 of his affidavit that the total of the claimants’ costs would exceed £100,000. He did not distinguish between costs which had been incurred prior to the time when the third defendant became a party to the proceedings and the costs after the time that the third defendant became a party to the proceedings.

The claimants, through their solicitor and, I think, counsel, proffered a draft of a freezing order. The freezing order sought was a general one in relation to all of the assets of the third defendant in England and Wales. The draft referred to the amount frozen being £200,000. The draft did not have in it the exceptions to the order which are in the standard form of freezing order. In particular, the draft did not have a provision that the order was not to prohibit the respondent from dealing with or disposing of its assets in the ordinary and proper course of business, nor was there a provision entitling the respondent to make use of its assets to pay for the defence of the claim against it. The costs were to be reserved to the judge who heard the matter on a return date.

Judge Barker made the order essentially as sought, although he reduced the amount frozen to £110,000. It was a general freezing order of the third defendant’s assets in England and Wales, although the prohibition, as is common, identified specific assets which included the property registered at the Land Registry. Judge Barker directed that there be a further hearing on 8^th November 2013 or at the conclusion of the trial in the County Court, whichever should first occur. Jumping ahead a little, the trial in the county court ran for the best part of four days; I understand it finished on 7^th November. The judge hearing that matter reserved his judgment so the trial in one sense has not yet ended. That means that the return date under the order was to be 8^th November 2013.

On today’s hearing, which has become the effective return date, Mr Blackett-Ord has appeared on behalf of the claimants and Mr Stoner QC has appeared on behalf of the third defendant. Mr Blackett-Ord submits to me that I have power to continue this freezing order and that all the usual requirements for the grant of a freezing order are made out; that I should therefore make a freezing order. He accepts that I ought to modify that which was judged appropriate on the ex parte application. He suggests that I can reduce the figure of £110,000 to reflect the fact that there has been a subsequent arrangement under which the second defendant has made a payment in relation to costs, and I think also an agreement has been made about the disposal of the claim for harassment against the second defendant. Mr Blackett-Ord also accepts that there need not be a general freezing order but that what should be effectively frozen is the third defendant’s registered property. Indeed, going a little further, it seems to be accepted that there can be dealings with that registered property providing that the equity available does not dip below some £80,000.

Mr Stoner has prepared detailed skeleton arguments – a first one which was ready for the hearing on 8^th November was then supplemented by later ones. Mr Stoner makes a number of points. First he argues that this is not a case in which the court has jurisdiction to grant freezing relief. It is not a case in which the claimants have an existing cause of action for a sum of money against the third defendant. The best that the claimants can say they have or they might have is they have the prospect of there being, in due course, an order in their favour as regards their costs of the county court proceedings. Other points are made by Mr Stoner as to how the costs would be calculated, were they to apply to the period before 24^th October or only after 24^th October.

Mr Stoner also criticises the way in which the application was made to Judge Barker. He submits to me that it was not proper to make this on an ex parte basis and that the arguments which the third defendant had in opposition to the application were not drawn to the attention of Judge Barker, as they ought to have been. He submits that there is no sufficient evidence of risk of dissipation and that it is not just and convenient to grant a freezing order in this case. He also criticises the claimants and their solicitors for applying not just once on an ex parte basis but on a second occasion, on 7^th November, when they had the freezing order extended to a later date than 8^th November. He also criticises the claimants and their solicitors as to how they went about serving the order that had been made and serving other paperwork which they had undertaken to serve, but delayed in serving.

As I indicated in the course of argument, I will not extend this freezing order. Indeed, because the whole subject matter of the action in the High Court is to seek a freezing order, I will dismiss the action. I will also, as I will indicate in a moment, give the third defendant liberty to apply to enforce the undertaking in damages which the claimants gave as the price of obtaining the freezing order in the first place. I will also order the claimants to pay the third defendant’s costs of the High Court proceedings and I will order them to be on the indemnity basis. I think in a moment I will be asked to do a summary assessment and I am prepared in principle to attempt that, although that perhaps remains to be seen. I will now give brief reasons for reaching those conclusions.

Firstly, I accept Mr Stoner’s submission that the court never had, and today does not have, jurisdiction to make a freezing order to effectively secure or attempt to secure for the claimants the rights which they may in due course – but equally may not – acquire pursuant to an order for costs. The law on freezing injunctions generally is really quite clear. It is spelt out, for example, in chapter 12 of Gee on Commercial Injunctions (5^th Edition) and Mr Stoner has drawn my attention to another textbook, McGrath on Commercial Fraud in Civil Practice, where the authorities are referred to, which make the point that there must be an existing cause of action for the relief which is to be protected by the grant of a freezing order. A number of cases have established that. Two in particular were drawn to my attention. They were The Steamship Mutual Underwriting Association (Bermuda) Limited v Thakur Shipping Company Limited [1986] 2 Lloyd’s Rep 439 and Veracruz Transportation Inc. v VC Shipping Company Inc. [1992] 1 Lloyd’s Rep 353.

Of course, the position is different when an order for costs has been made. If a litigant obtains an order in its favour and even before the amount payable is determined it can be said that it is in the order of x then the court can protect the litigant’s rights under that order by granting a freezing injunction, provided always that the other criteria for freezing injunctions are made out. An example of that is the decision of the Court of Appeal in Jet West Limited v Haddican [1992] 1 WLR 487.

In the present case, the claimants do not have a relevant order for costs in their favour. They refer to the possibility that an order might be made in their favour. That seems to me to fall wholly within the rule which I have referred to, that freezing relief is not to be granted in relation to a claim which does not currently exist but might later come into existence. The only reason to pause in relation to that ruling is that, as Gee on Commercial Injunctions points out, in particular at paragraph 12004, when the court has jurisdiction to grant freezing relief and when it decides to do so to protect the amount of the money claim, the court is not restricted to the amount of the money claim itself but can add in a figure for interest and a figure for costs. Gee refers to authorities where that has been done. Notably, perhaps, that appears from a short but nonetheless helpful comment of Lord Donaldson MR in Atlas Maritime Company SAv Avalon Maritime Limited (No. 3) [1991] 1 WLR 917& 920 D-E.

I can see some scope for argument as to whether it is appropriate to add in a figure for costs, but it does appear to be the practice of the court, and, sitting at first instance, I would be content to follow that practice until a higher court indicated that it was no longer appropriate. Of course, when one does add in a figure for costs in that way, it is normally at a time before the costs are incurred. One cannot predict what form the litigation will take and how long it will be and what the costs will end up being so one usually takes a relatively modest prediction as to future costs when one exercises that power as I have described it. Whether that practice is well-founded or not well-founded, it seems to me that it cannot extend to a case like the present where there is no claim to monetary relief where freezing protection is sought as a support or protection. The only thing being sought here is security for the costs of litigation, where there has not been an order for costs and where the claimants cannot show that they have any present or past entitlement to those costs.

Mr Stoner very fairly drew my attention to one decision referred to in Gee where the point is considered in a little more detail than perhaps in other cases. It is the decision of Fenn Kar Bak Lily v Lay & Tung [1994] HKCFI 241, a decision of Mr Justice Woo in the Hong Kong Court of First Instance. That was a case in which the claimant was suing for a relatively small sum of damages and it was said that the claimant had incurred a very substantial bill for costs in the litigation up to that date and so the claimant wished to have a freezing order to protect the monetary claim and to protect the possibility that, in due course, the claimant might obtain an order for costs in its favour. The learned judge referred to the jurisdiction in Hong Kong, which is essentially in the same terms as section 37 of the Senior Courts Act 1981. The learned judge directed himself that the sole criterion was whether it was just and convenient to grant the relief sought. The judge noted that there was a danger that one might be doing, by way of a freezing jurisdiction, something that was more properly to be addressed as to security for costs where different criteria might apply and where it might or might not be appropriate to order security for costs.

I do not in the end find that a helpful authority and I do not certainly find it an authority that persuades me that I do have jurisdiction to make the order that is sought in this case. First of all, the judge in that case did not address the question of jurisdiction where the claim was for a freezing order by way of security for costs. The judge only had to deal with the case of the kind considered in Gee on Commercial Injunctions where the court had undoubted jurisdiction to grant freezing relief in relation to the monetary claim and the question was how it should approach the amount of costs to be added if they were to be added to the amount frozen.

Having regard to the legal principles I have attempted to identify, it follows inevitably that the court does not have jurisdiction to make this order. Judge Barker did not have jurisdiction in the first instance to do it and I therefore will not continue his order hereafter. As I have indicated, since the only substantive relief sought in these proceedings is freezing relief, the right course, it seems to me, is to dismiss the action. I do wish, however, to refer to some other features of the applications that have been made because they have a bearing on the question of the costs order I should make.

I consider that it was inappropriate for the claimants to have made their original application ex parte. Courts have said time and time again that there is something inherently unjust in hearing one party without the other party. Of course, sometimes a court is forced to act in that way and run the grave risk of an injustice being done, but the court should not be asked to do that save where it is fully justified. Mr Blackett-Ord says that it is common place with applications for freezing orders to go ex parte and indeed that is right, although it may happen more often than it should, but, looking at this case, I do not see there was any grave risk of disadvantage to the claimants by informing the defendants, including the intended third defendant, of the intended application. What is the worst that could have happened? The worst that could have happened is that the third defendant would transfer the property again and so the court would be faced at an inter partes hearing with another party, say a fourth defendant, owning the title rather than the third defendant. There was no particular magic in the third defendant owning the property. The claimant would have preferred the first defendant to have retained it so that the third defendant being substituted by the fourth defendant would hardly have been a disadvantage to the claimants. If the third defendant had been given an opportunity to appear before Judge Barker with the benefit of legal advice, it may very well be that this order would never have been made in the first place.

Secondly, I am also critical of the fact that Judge Barker was not told that there was a possible argument as to jurisdiction. I am prepared to assume that the claimants just did not think about it and so they are not personally at fault. However, that does not remove the sting of the criticism because it seems to me that it was obvious that they should have thought about it. They were essentially making an application for security for costs in circumstances where they did not address the criteria for security for costs and were seeking to turn an application for security for costs, wholly impermissibly and, in my experience, in a wholly novel way, into an application for a freezing order, so the matter ought to have been drawn to the attention of the judge by competent legal advisors.

I am also concerned that the risk of dissipation was not properly addressed by the claimants and, further, the order which they produced for Judge Barker’s consideration had quite wrongly removed from it appropriate safeguards and, contrary to the settled practice, the deletions from the standard form of order were not drawn to the attention of Judge Barker. The fact is that the claimants then did not read the order they had obtained, did not realise that there was a return date of 8^th November, did not serve an application notice for 8^th November, did not arrange for the court to deal with the matter on 8^th November and then, when they had that matter pointed out to them, went behind the back of the third defendant and made another ex parte application to get the order extended at a time when they knew that the continuation of the order was something which was opposed by the third defendant.

My attention has also been drawn to the fact that the claimants’ solicitors did not comply with the undertaking they gave to serve the order and the supporting material they had shown to Judge Barker. Some of the sting of that criticism is blunted by the fact that there was a communication of the fact that an order had been obtained, and that communication was relatively prompt. That did not relieve the claimants’ solicitors of the burden of complying with the undertaking to serve as they should have served. They should not have taken the view that they could unilaterally decide to postpone service to allow them to register the order at the land registry. I think, in view of those various criticisms, this case is outside the norm and it is appropriate, therefore, to order the claimants to pay the costs of the High Court proceedings on the indemnity basis. Those are my reasons for the orders I indicated earlier I would make.