ND v KP

On 21st December 2010 the petitioner wife applied ex parte to the High Court, (Roderic Wood J sitting as urgent applications judge) for a freezing order under the inherent jurisdiction of the court. She sought that the monies or funds within three bank accounts in Switzerland at UBS, Schroders and Clariden Leu should be frozen. The application was successful. The order was directed to run until 9th February 2011, or further order. The order in fact made went further than that which was sought in the notice of application inasmuch as certain properties were also frozen; that, I am told, was at the behest of Roderic Wood J. At that time the wife instructed Messrs Farrers, solicitors, Mr. Le Grice of leading counsel and Mr. Kenny of junior counsel. The application was made by Mr. Kenny and was supported by an affidavit that was professionally drawn.

On 29th December 2010 the wife obtained a mirror order from the court in Geneva blocking the accounts, or certainly blocking the UBS account and the Schroders account. At some point in the New Year the wife parted company with Messrs Farrers and she has appeared before me in person to seek the continuance of that injunction. She has produced a substantial volume of papers and it is apparent from that material that she relies on misdeeds by the husband that go far beyond the matters that were referred to in her affidavit of 21st December 2010.

The husband has made a cross application for discharge of the order; for a hearing to be appointed to enquire into losses and damage suffered by him; for an in personam order directed against the applicant wife to obtain the immediate discharge of the Swiss order; for consequential directions; and for costs.

I want to begin this judgment, which is being given ex tempore and which I hope will be comparatively short, with some statements of principle. In ancillary relief proceedings there are two routes available to obtain a freezing order. An application can either be made under section 37 of the Matrimonial Causes Act 1973 or it can be made under the inherent jurisdiction. It was submitted by Mr Turner QC in a case called Khreino v. Khreino [2000] FCR 80, CA that the effect of the decision of the House of Lords in Richards v. Richards [1984] AC 174, HL was that the only permissible route was the statutory one, but that submission was rejected.

That said, it would be a strange state of affairs if either the procedure or the test applicable under the statutory mechanism differed materially from that which applies under the inherent jurisdiction. Under the statutory test the court can restrain the transaction if it is satisfied that the other party to the proceedings is, with the intention of defeating the claim for financial relief, about to make any disposition, or to transfer out of the jurisdiction, or otherwise deal with, any property. So under the statutory test there has to be identified by evidence an impending transaction, or at least the risk of an impending transaction taking place.

It is really not very different from the test that applies under the inherent jurisdiction. I quote from Civil Procedure otherwise known as the White Book at paragraph 25.1.25.5 which states, citing a decision of Sir Peter Pain of O'Regan & Ors v Iambic Productions Ltd (1989) 139 NLJ 1378, that the applicant should depose to objective facts from which it may be inferred that the respondent is likely to move assets or to dissipate them; unsupported statements or expressions of fear have little weight. The notes go on to say that great care should be taken in the presentation of evidence to the court so that the court can see not only whether the applicant has a good arguable case but also whether there is a real risk of dissipation of assets. A freezing order should not be granted unless the applicant has established an appropriately strong case showing, amongst other things, that the respondent owns the assets concerned or has some interest in them. It is for the applicant to make out his case, and orders should not be granted simply because the respondent cannot show an immediate and obvious prejudice. That formulation is really not very different from the formulation in section 37 which I have recited above.

Indeed, it is mirrored by the comments in more vivid language of Thorpe LJ in the case of Khreino where he says this:

"Family Division judges day in day out exercise the inherent jurisdiction to grant injunctions to ensure that one spouse does not selfishly or irresponsibly salt away, squirrel away or spirit away family assets which may be in his name but which must be carefully preserved pending the ultimate judicial determination as to what proportion of that asset must be either transferred to or made available for the benefit of the applicant spouse."

So whilst the words used are different the language all points in the same direction, namely that there must be a good case put before the court, supported by objective facts, that there is a likelihood of the movement, or the dissipation, or the spiriting away, or the salting away , or the squirreling away, or the making of a disposition, or the transfer, of assets, with the intention of defeating a claim. It all comes to the same thing.

What is to be emphasised is that in this country, unlike some other countries on the continent, we do not have a system of general saisie conservatoire whereby assets are automatically frozen pending the determination of a divorce claim. Indeed, one must remind oneself that the basic rule in this country is of separate property, and that is bolstered by Article 1 of Protocol 1 of the European Convention on Human Rights which says that every natural person is entitled to the peaceful enjoyment of his possessions. So, in order to obtain a freezing order there must be before the court a demonstration of objective facts that evidence the likelihood of the movement or dissipation of assets with the intention of defeating the applicant's claim. That is the first principle.

The second principle is this. As stated in the White Book at paragraph 25.3.5, as a matter of principle no order should be made in civil proceedings without notice to the other side unless there is very good reason for departing from the general rule that notice must be given, for example, where to give notice might defeat the ends of justice. To grant an interim remedy in the form of an injunction without notice "is to grant an exceptional remedy": the authority for that is Moat Housing Group-South Limited v. Harris [2006] QB 606.

I myself recently in the decision of FZ v SZ and others [2011] 1 FLR 64 had cause to comment on the practice in the Family Division of moving the court ex parte for relief and I said this at paragraph 32:

"It is worth my expressing the view that in the short term that I have been sitting as a full time judge I have been shocked at the volume of spurious ex parte applications that are made in the urgent applications list. It is an absolutely elementary tenet of English law that save in an emergency a court should hear both sides before giving a ruling. The only recognised exception to this rule (apart from those instances where an ex parte procedure is specifically authorised by statute) is where there is a well founded belief that the giving of notice would lead to irretrievable prejudice being caused to the applicant for relief. I have the distinct impression that a sort of lazy, laissez-faire practice or syndrome has grown up which says that provided the return date is soon, and provided that the court is satisfied that no material prejudice will be caused to the respondent, then there is no harm in making the order ex parte. In my opinion this is absolutely wrong and turns principle on its head."

So there must be good reason, in my opinion, why a court should be moved ex parte and in reaffirming my own view, I am gratified to see that it is supported by the authority to which I have referred - Moat Housing, that an application for ex parte relief should only be made where there is positive evidence that to give notice would lead to irretrievable prejudice being caused to the applicant.

The third principle is this. If you do move the court ex parte then you are fixed with a high duty of candour. This is established in many cases. I cite, for example, R v. The Kensington Tax Commissioners ex parte Princess Edmond de Polignac [1917] 1 KB 486; Bank Mellat v. Nikpour [1985] FSR 87; Lloyds Bowmaker v. Britannia Arrow Holdings [1988] 1 WLR 1337; Brink's MatLtd v Elcombe [1988] 1 WLR 1350 and Behbehani and others v. Salem and others [1989] 1 WLR 723. I do not need to delve into the dicta in those cases as fortunately the entire jurisprudence in this field has been analysed and summarised by Mr. Alan Boyle QC in a magisterial judgment, Arena Corporation v. Schroeder [2003] EWHC 1089 (Ch). The deputy judge set out the principles on the law distilled from the cases to which I have referred in these terms:

"213.

On the basis of the foregoing review of the authorities, I would summarise the main principles which should guide the court in the exercise of its discretion as follows:

(1)

If the court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial.

(2)

Notwithstanding that general rule, the court has jurisdiction to continue or re-grant the order.

(3)

That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.

(4)

The court should assess the degree and extent of the culpability with regard to non-disclosure. It is relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order. Equally, there is no general rule that a deliberate breach will attract that sanction.

(5)

The court should assess the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court. In making this assessment, the fact that the judge might have made the order anyway is of little if any importance.

(6)

The court can weigh the merits of the plaintiff's claim, but should not conduct a simple balancing exercise in which the strength of the plaintiff's case is allowed to undermine the policy objective of the principle.

(7)

The application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice.

(8)

The jurisdiction is penal in nature and the court should therefore have regard to the proportionality between the punishment and the offence.

(9)

There are no hard and fast rules as to whether the discretion to continue or re-grant the order should be exercised, and the court should take into account all relevant circumstances.

214.

This summary is set out here as a convenient reminder of the main points set out in the authorities, and is not intended to be a definitive statement of the applicable legal principles. The court has a single discretion, which is to be exercised in accordance with all the circumstances of the case, taking account of and giving such weight to the various factors identified in the cases as it considers appropriate."

I am satisfied that while the deputy judge, with a degree of self-effacement, states that his list is not a definitive statement of the applicable legal principles, he has indeed in fact set out compendiously every relevant principle where the question of breach of the duty of candour has been raised. It is to be noted that the principles apply equally to proceedings for ancillary relief in the family division, see in Re W (Ex Parte Orders) [2000] 2 FLR 927 a decision of Munby J, as he then was.

Those are the relevant principles that guide me on these cross applications today. The background to this case can be shortly stated. The parties were married in November 2003 and there are two children of the marriage. This is not the first divorce petition. There was a divorce petition in 2005 in the course of which the wife in fact obtained ex parte orders which were later discharged for want of candour. At all events those proceedings were dismissed and the parties were reconciled and indeed the parties' younger child was born after the reconciliation.

The wife's second divorce petition, the current one, was issued in July 2009. The day before she issued her divorce petition she again obtained ex parte orders, both of a freezing nature and under the Family Law Act and under the Children Act. Those ex parte orders were discharged on compromise and cross undertakings were entered before Holman J on 10th September 2009. Meantime the wife had issued her Form A on 28th July 2009 and the ancillary relief has followed a tortuous course since then with hearings, questionnaires, further questionnaires and yet further questionnaires.

The ancillary relief proceedings came, in the usual way, before the court on 15th December 2010 for an FDR. That did not result in a compromise. The FDR was not in fact fully concluded, but I believe the privileged part was concluded leaving the open phase unconcluded. That was six days before the wife moved this court ex parte. Something happened in that six-day period to cause the wife anxiety of such a degree to warrant taking the exceptional step of moving the High Court ex parte to freeze the three bank accounts.

The wife's affidavit and the transcript of the submissions made by Mr. Kenny to Roderic Wood J identify the anxieties that she had, and I can say at this stage that the matters that she relied on were thin indeed. So quite apart from the question of whether she discharged the duty of candour, or whether this was a case that warranted moving the court ex parte, I intend first to analyse whether in fact the matters that she placed before the court did indeed amount to objective facts of a prospectivetransaction which is needed to obtain the relief in question.

It seems that there were five matters that she relied on. The first was put this way by Mr. Kenny and I quote from the transcript:

"My Lord, we have become very concerned since the FDR -- which failed -- that Mr. P [the husband] is in a position to very significantly deplete the assets that we have been able to identify in advance of the trial which is in June. There are very significant problems with Mr. P's disclosure and to answer questions in relation, particularly, to his disposal of assets in the Ukraine worth potentially many millions of dollars.

(MR. JUSTICE RODERIC WOOD): $16 million minimum?

(MR. KENNY): $16 million was an estimate one or two years ago. There is a Shareholders Agreement from last year estimating land disposed of at about $12½ million."

That submission was founded on a statement in the wife's affidavit in terms that this land is of particular interest in that there is evidence to suggest that a proportion of the land was at one stage considered to be worth $16 million. The problem with this is that the land in question had in fact been valued by a joint valuer at just under £500,000 and had been the subject of exhaustive enquiry which had been fully responded within the questionnaire and reply process.

Moreover, these transactions took place a long time ago. The affidavit itself refers to an agreement dated 16th March 2009, and it is a fact that following the compromise of the wife's initial ex parte application by cross undertakings the wife had been perfectly content to litigate right the way up to FDR on 15th December 2010 without any further protective measures being put in place in relation to that transaction. So I am at a complete loss to know why this transaction was being deployed to justify freezing these particular Swiss bank accounts. There is no logical nexus between those matters and the wife's wish to freeze those bank accounts. That particular matter relied on comes nowhere near satisfying the test of objective facts to demonstrate a likely future transaction.

The second matter that was relied on was put this way by Mr. Kenny. He said this:

"There is a history, my Lord, of Mr. P acting unilaterally to remove sums of money from the jurisdiction. There were previous freezing order proceedings in 2009."

Apart from the fact that that is unparticularised and falls foul of being a mere statement of fear (as referred to by Sir Peter Pain), there is also a problem that the wife failed to put the husband's affidavit before the court in which all of these transactions of which she complained had been explained. Again, there is the point that his previous unilateral acts in this regard were all extremely stale and had in effect been acquiesced in by her, for she had been content to litigate for over a year up to the FDR without taking any protective measures. So, again that matter does not come anywhere near demonstrating the objective facts that are necessary to obtain the relief in question.

The third matter that was relied on is in paragraph 14 of the wife's affidavit which says that:

"Since I received the respondent's Form E in May 2010, I have also realised that shortly after our separation on 3rd July 2009 the Respondent also removed £155,000 from his UK Natwest account and paid it to the Swiss bank Clariden Leu, leaving only around £7,000 in his account. In his replies to questionnaire he said that the money was paid to repay business debts in the Ukraine but the fact is I am unable to verify this and I remain suspicious about the timing of the transaction."

The husband had given a full explanation for this and had frankly answered the wife's questions posed in the questionnaire. Again, the transaction was extremely stale and did not in my view come anywhere near meeting the test that is set, whereby contemporaneous evidence is needed in order to obtain the relief sought.

The fourth matter that is referred to is the fact that in his evidence the husband had deposed that some monies were held for the benefit of a business associate, Mr. S. Mr. Kenny said this:

"Although we noted on receipt of replies to questionnaire that the balance on that account had fallen below that which was owed to the business associate. So that has rather confirmed our concerns that the moneys in fact are held for Mr. P's benefit not that of Mr. S"

That is an evidential issue which was long-standing and again was not a contemporaneous transaction giving rise to legitimate concern that a transaction was about to take place with the effect of moving or dissipating funds with the effect of defeating the wife's claim.

The final matter relied on was this. Mr. Kenny put it this way:

"With regards to the Schroders account, my Lord, that is an account in the name of the KP Trust. A reply to our questionnaire is awaited providing confirmation from the Trustees that the Trust is indeed blocked. We have the Schroders account and we have the value of the share portfolio. But we do not have confirmation from the Trustees yet that this Trust is indeed blocked because they were prevented from being disposed of to Mr. P"

There are at least two problems with this. First, it is hard for me to see why this particular matter could supply the relevant evidence of a prospective transaction. But what is also notable is that the questionnaire referred to here had only been served on the very morning of the FDR. So the husband's failure to reply six days later is hardly a matter about which the wife could complain given the propinquity of that date. But in any event the matters complained of do not seem to me to come anywhere near demonstrating a pending or future transaction which requires a freezing order to be made.

My conclusion is that on the material that was put before the court there was nothing that brought the case anywhere near the threshold that is needed to obtain freezing relief whether under the inherent jurisdiction or the statutory jurisdiction.

The real objective of the wife is exposed in the submissions made by Mr. Kenny in these terms:

"So we are concerned that the position, first of all, has not been confirmed but, secondly, that it might alter between now and trial such that Mr. P could withdraw the funds and make use of them. Essentially we do not know enough about that.

Finally, my Lord, there is the share portfolio from Clariden Leu Bank. It is in fact the Singapore branch of that Swiss Bank. It is a share portfolio. It has not been touched to date, but it is the third significant liquid fund that we can identify. We see no reason why it should not be preserved until trial and it would be easily disposed of should Mr. P wish to do so."

Those submissions, in my view, expose the real motive behind the wife's application which was to obtain a freeze over the husband's assets for no reason other than it would be desirable to keep them preserved until trial. But that, as I have explained, is not the law in this country. I have concluded that on the material that was put before the court there was nothing to justify the grant of that order. It follows that there was absolutely no reason for the wife to have moved the court ex parte. Moreover, I am satisfied that the wife did not comply with her duty of candour and explain everything that should have been explained to the court, and that there is no reason why the general rule of discharge should not apply. In a sense I do not have to make that third decision because the wife falls at the first fence.

There is, however, this important point. It may be said, from the material that is put before the court by the wife, that there are concerns about the husband's activities, although his counsel dismisses these as flights of fantasy. I have not been prepared to go into this fresh material that has been advanced by the wife in any detail because I am satisfied that the breach of the duty of candour is so grave that the general rule should be applied and that the court should not exercise its discretion to re-grant, even if it were satisfied (and I am by no means satisfied on a cursory examination) that this fresh material warranted the grant of an injunction. I am therefore intending to discharge the injunction ab initio.

It follows that the Swiss mirror order should not have been obtained. Under the law obtaining to anti-suit injunctions I can only make an order requiring the wife to obtain a discharge of that if I am satisfied that its obtainment and continued existence is both oppressive and vexatious. I am indeed so satisfied and so that order will be made as well.

The order that was made by Roderic Wood J did not contain an undertaking in damages in favour of the respondent; it contained an undertaking in damages in favour of third parties. That does not prevent the court from ordering an inquiry into damages. However, I intend to direct that any issue as to damages arising from the obtaining of this injunction should be heard at the trial of the ancillary relief fixed for ten days in June 2011.

Those are my orders.