March 6, 2017

Freezing Orders - Phoenix Group Foundation v Cochrane & Anor (High Court)

Whether assets paid to solicitors to meet their fees should be frozen

In June 2016, a freezing order was granted over an individual's assets. That individual claimed that one of the assets frozen by the order had been transferred by her (prior to the freezing order) to LCL. When the asset was subsequently sold, LCL transferred £2 million to its solicitors in September 2016. The solicitors received the funds into their general client account and intended to use them to settle their outstanding invoiced fees. The claimant obtained a freezing order over the £2 million and the solicitors sought to discharge that order. Popplewell J has now held as follows:

(1) The claimant had been wrong to assert that whenever a defendant who is subject to a freezing order transfers assets to a third party in breach of the order, the court has jurisdiction to freeze the assets in the hands of the third party. If the recipient is innocent (as was the case here), then the Chabra jurisdiction is the only basis for freezing assets in support of the claim against the defendant.

(2) Nor did the court have jurisdiction to restrain the solicitors from engaging in threatened conduct which would breach the freezing order against the defendant. Here, the transfer was not merely threatened, but had taken place: "I cannot see any basis on which an innocent transferee of a non-proprietary asset can properly be restrained from disposing of the product of a completed transfer if the Chabra criteria are not fulfilled. The property is that of the transferee to deal with as he sees fit". The money had become the solicitors' money as soon as it was received by the solicitors. Whilst in the general client account, it was not held on behalf of the client, but was instead the firm's money awaiting onward transmission.

(3) However, the claimant was able to invoke the Chabra jurisdiction as a basis for relief here. Under that jurisdiction, the court may freeze assets in the hands of a third party against whom no substantive claim is made where there is good reason to believe that those assets will be or can be made available to satisfy a judgment which the claimant may obtain against the defendant against whom he is advancing his substantive cause of action.

The circumstances in which the money came to be paid to the solicitors had been "opaque" and it was a triable issue whether the asset had been transferred to LCL and whether LCL had any entitlement to the proceeds of sale. Accordingly, "there is on any view a good arguable case that [the solicitors were] not entitled to receive [the £2 million] from the true owner for the stated purpose". The transfer could therefore be reversed so as to make the money part of the pool of assets which would be amenable to execution of a judgment against the defendant.

(3) Although the Chabra jurisdiction was not pleaded when the claimant first obtained the freezing order against the solicitors, the evidential basis for the Chabra jurisdiction was the same as that originally put before the courts and so this failure did not justify discharging the freezing order. Nor did the judge exercise his discretion to discharge the jurisdiction because the claimant had failed to progress the proceedings expeditiously: the claimant had mistakenly believed that the court would automatically transfer the case to the Commercial Court and had not realised it had to arrange this.

Accordingly, the freezing order was continued.