Dinglis Properties Ltd & Anor v Dinglis Management Litd & Ors

The Defendants have applied to discharge a freezing order on the grounds (i) that there i: no solid evidence of a risk that they will dissipate their assets and (ii) that it was obtained in breach of the Claimants’ duty of full and fair disclosure.

The underlying dispute is particularly unfortunate, since it arises out of a complete breakdown in relations between Mr Andreas Dinglis (“Andreas”) and two of his children. Without intending any disrespect, I shall refer to the members of the family by their first names. Although the facts axe complicated and the bundles prepared for this hearing amount to more than 1600 pages, the facts which are directly relevant to this application lie within a much narrower compass.

Andreas was formerly married to Iris. There are two children of that marriage, who are the Second and Third Defendants (“Paul” and “Cheryl”). There are ongoing proceedings for ancillary relief by Iris against Andreas.

It is common ground that the Dinglis family has built up a substantial business of owning and renting out properties, which is conducted through various companies. One of these companies is the First Claimant (“DPL”). Andreas currently holds 76% of the shares in DPL, with 12% held by Paul and the remaining 12% held by the Fourth Defendant (“Eagle”), a company wholly owned by Cheryl. Andreas is a director of DPL and effectively controls it. Proceedings under section 994 of the Companies Act 2006 have been intimated by Paul and Eagle but not yet commenced.

The Second Claimant (“Gatemark”) is another property-owning company. Gatemark is wholly owned by Andreas.

A third property-owning company, which is not a party to the proceedings, is Dinglis Estates Ltd (“DEL”). Andreas holds 52% of the shares in DEL, but subject to an order in the Family Division requiring him to transfer them to Iris. The remaining shares are held by Paul and Eagle equally.

The First Defendant (“DML”) is another company forming part of the Dinglis property business, but its role is hotly contested. The Claimants allege that it is a property management company which acts as their agent and has a duty to account for all rents received from tenants, subject to retaining a reasonable management fee which they say is 4% in acting for DPL and 5% in acting for Gatemark. I am told that DML has in fact granted tenancies in its own name, even though it does not in every case have the benefit of a head lease which is at least one day longer than the tenancy which it has granted or purported to grant. In contrast, the Defendants’ case is that there is a much looser arrangement within the family under which all expenses incurred by DPL or Gatemark are reimbursed by DML but any surplus profit is retained by DML as a source of income for Paul and Cheryl, who I was told are the only shareholders.

The Particulars of Claim contain the following claims:

On 10^th July 2015 the Claimants made a “without notice” application to Asplin J for a freezing order. The principal evidence was from Andreas, who verified the Particulars of Claim and added that the pleaded facts showed that the Defendants were acting dishonestly. He also referred to evidence which, he said, showed that that the Defendants had actually dissipated their assets by making certain payments in breach of duty (these are payments falling outside the ambit of the Particulars of Claim). Asplin J imposed a freezing order (“the Order”) in respect of dealings which reduced the Defendants’ assets below £4 million.

The Defendants issued their application to discharge the Order on 13^th November 2015. The Defendants have an explanation for the delay, which is not entirely accepted by the Claimants. However, after some persuasion from me, both counsel accepted that the delay in making the application and the reasons for that delay were unlikely to make a material difference to the outcome of this hearing; accordingly I say nothing further about these matters.

The Defendants accept, for the purpose of this application, that the Claimants have a good arguable claim as pleaded in their Particulars of Claim, i.e. one with a real prospect of success. One of the issues before me is as to the effect of that admission.

In Thane Investments v. Tomlinson [2003] EWCA Civ 1272 at [21] Peter Gibson LJ said:

“It is clear on the authorities that what the court must be satisfied about before making such an order is that the applicant for the order has a good, arguable case, that there is a real risk that judgment would go unsatisfied by reason of the disposal by the defendant of his assets, unless he is restrained by the court from disposing of them, and that it would be just and convenient in all the circumstances to grant the freezing order. It is important that there should be solid evidence adduced to the court of the likelihood of dissipation.”

It was agreed between the parties that the “likelihood” of dissipation means the risk, not the probability, and that the risk must be real, rather than fanciful, but if it is not much above the level of being fanciful, that will be relevant to the exercise of the court’s discretion.

Mr David Peters, who appeared with Ms Pia Dutton for the Defendants, submitted as follows:

This formulation was agreed on behalf of the Claimants, and I accept it. However, there was a dispute of law as to the consequence of the Defendants’ acceptance that the Claimants have a good arguable case. Mr Peters initially submitted that the pleadings were sovereign, that the Claimants should be confined to their pleaded case which did not allege fraud, and hence that they were precluded from deploying the allegations in the pleadings as evidence of a propensity to dissipate. However, he rightly withdrew this submission when his attention was drawn to The Lord Chancellor v. Blavo [2016] EWHC 126 (QB) at [34]. In that case Garnham J concluded that there was a real risk that the defendant would dissipate his assets, even though the pleaded allegation was simple breach of contract.

Conversely, Mr Mark Hubbard, who appeared for the Claimants, submitted that the Defendants, having accepted that there was a good arguable case on the allegations in the Particulars of Claim, must also be taken to have accepted that these allegations provided the necessary solid evidence of propensity to dissipate. I consider that there are two flaws in this approach:

At the hearing before Asplin J, the Claimants relied on evidence of actual dissipation. However, in his submissions at this hearing, Mr Hubbard conceded that there is in fact no evidence of actual dissipation. Accordingly, one of the major planks of the case as presented to Asplin J has fallen away, and I have to consider whether the remaining evidence is sufficient to show a propensity to dissipate. I shall return to the issue of actual dissipation when considering non-disclosure.

Secondly, Mr Peters relied on the Defendants’ conduct to date as rebutting any inference of dishonesty. The parties have been at war with each other since 2012, but he said that the Defendants have never taken any steps to dissipate their assets. The corporate structure remains as transparent as it was before 2012, and no steps have been taken to move assets offshore. The Claimants’ case before Asplin J was that the Defendants had actually dissipated their assets following receipt of the letter before action. Now that it can be seen that there was no actual dissipation, the point goes the other way: the Defendants did not dissipate their assets in response to the letter before action, and this is evidence that they have no such intention.

Mr Hubbard did not dispute the submission made by Mr Peters but instead submitted that the Defendants had refused to give disclosure of their assets at any time before the Order and hence that it was impossible to know whether the snapshot provided by their affidavits of disclosure represented a stable picture. I regard this as smacking of a fishing enquiry made in the hope that something might turn up; it does not answer the submission made by Mr Peters.

In my judgment the case for showing propensity to dissipate is very considerably weakened by the removal of any evidence of actual dissipation. I accept that there remains some basis in the pleadings for alleging a propensity, although I doubt whether it would have been sufficient if it had stood alone and not been rebutted. However, I do not need to decide that issue, since I am satisfied that any inference which might be drawn is rebutted by the evidence of the Defendants’ conduct since 2012. I therefore conclude that there is insufficient evidence of a propensity to dissipate assets.

The conclusion I have reached as regards propensity is sufficient to require the discharge of the Order, but for the sake of completeness I shall also address the question of ability to dissipate.

The Defendants’ assets include the 12% shareholdings in DPL held by each of Paul and Eagle. The last filed accounts of DPL show net assets exceeding £23 million. Mr Hubbard informed Asplin J that DPL’s financial position had not changed since those accounts. On this basis, the value of the shareholdings of each of Paul and Eagle is at least £2.8 million. This makes a total of £5.6 million, which is considerably above the limit of £4 million stated in the Order.

Mr Peters submitted that it was fanciful to suggest that these assets could be dissipated without the knowledge or consent of Andreas as the director and majority shareholder in DPL. Mr Hubbard accepted that no transfer of the shares could be completed without registration on DPL’s share register but he submitted that there was a real risk that the Defendants might enter into some equitable dealing falling short of a registered transfer.

As Mr Peters said in answer, the only cause for concern would be in the event of a dealing in good faith and at arms’ length. Although I regard it as fanciful to suggest that any third party acting bona fide would purchase this minority shareholding in a family company which is afflicted by internal strife, I can just about conceive that a bank or other lender might take the shares as a makeweight additional security for a loan, though not as principal security. However, that is not the end of the enquiry. The value of a share lies in the shareholder’s right (i) to receive dividends, (ii) to receive capital on a winding-up and/or (iii) to vote at general meetings. In practice, even if Paul were to encumber his shares with a charge to a third party, it is difficult to see how that third party could strip the economic value out of these shares, given that (i) DPL is most unlikely to declare a dividend from which Paul will receive any money, since it claims that he owes it substantial sums; (ii) the only likely route by which Paul will acquire capital is via the minority shareholders’ petition which he has not yet presented; if such petition is brought and succeeds, that will be the time (if at all) to consider whether there is a risk of dissipation of the capital value of DPL; and (iii) Andreas retains 76% of the shares which is sufficient to block a special resolution. I therefore conclude that in practice Paul does not have the ability to dissipate the economic value of his shareholding.

The same considerations largely apply to Eagle’s 12% shareholding in DPL. One difference in the case of Eagle is that, absent the Order, there would be no legal impediment to Cheryl completing a transfer of her 100% shareholding in Eagle to a third party. Nevertheless, for the reasons given above, I am satisfied that Cheryl docs not have the ability to dissipate the economic value of Eagle’s shareholding in DPL.

Additionally, Paul and Eagle each own 24% of the shares in DEL. Moor J, in the Family proceedings, recently valued DEL at over £13 million. The position in relation to DEI, is slightly different from that of DPL, both because Andreas’s shareholding is only 52% and because it is intended that his shares will be transferred to Iris. However, I do not need to consider the DEL shares in detail, nor the other properties and assets owned by the Defendants, since I have already concluded that their shareholdings in DPL are sufficient to satisfy me that there is no real risk of dissipation to a figure below the level of £4 million. I merely note that these further assets provide additional comfort.

I intend to deal with this issue with a broad brush for two reasons. Firstly, I have already decided that the Order should be discharged on the ground that there is no sufficient risk of dissipation. The issue of non-disclosure does not arise unless that conclusion is wrong. Secondly, I am directed by the Court of Appeal to deal with this issue concisely. In Kazakhstan Kagazy plc v. Arip [2014] EWCA Civ 381 at [36] the Court of Appeal approved the following statement by Toulson J in Crown Resources AG v. Vinogradsky (unreported, 15 ^th June 2001):

“...issues of non-disclosure or abuse of process in relation to the operation of a freezing order ought to be capable of being dealt with quite concisely. Speaking in general terms, it is inappropriate to seek to set aside a freezing order for nondisclosure where proof of non-disclosure depends on proof of facts which are themselves in issue in the action, unless the facts are truly so plain that they can be readily and summarily established, otherwise the application to set aside the freezing order is liable to become a form of preliminary trial in which the judge is asked to make findings (albeit provisionally) on issues which should be more properly reserved for the trial itself.

Secondly, where facts are material in the broad sense in which that expression is used, there are degrees of relevance and it is important to preserve a due sense of proportion. The overriding objectives apply here as in any matter in which the Court is required to exercise its discretion.

I would add that the more complex the case, the more fertile is the ground for A raising arguments about non-disclosure and the more important it is, in my view, that the judge should not lose sight of the wood for the trees.

In applying the broad test of materiality, sensible limits have to be drawn. Otherwise there would be no limit to the points of prejudice which could be advanced under the guise of discretion.”