CLAIMANT NOT ALLOWED TO PURSUE POINTLESS COMMITTAL PROCEEDINGS: “THE DISPROPORTIONATE PURSUIT OF POINTLESS LITIGATION IS AN ABUSE”

In Pharmagona Ltd v Taheri & Anor [2021] EWHC 2537 (Ch) Mr Justice Snowden refused an application by a claimant to issue an application for committal.  A breach, if established, would be of the most technical kind. Further the defendants were now bankrupt and it was the role of the trustee to protect any assets.

 

“The concept that the disproportionate pursuit of pointless litigation is an abuse takes on added force in connection with committal applications. Such proceedings are a typical form of satellite litigation, and not infrequently give rise to a risk of the application of the parties’ and the court’s time and resources otherwise than for the purpose of the fair, expeditious and economic determination of the underlying dispute, and therefore contrary to the overriding objective as set out in CPR 1”

THE CASE

The claimant sought to bring contempt proceedings against the defendants, alleging that money had been sent abroad in breach of the terms of a freezing order.   The judge struck out the claimant’s application.  Money had been borrowed and passed on by the defendants to relatives in Iran,  the moneys had not been repaid and charges had been registered against the defendant’s properties. The defendants were now bankrupt, there was nothing to be gained from the application.

The claimant made an application to set aside the order striking out the application.

THE JUDGMENT OF MR JUSTICE SNOWDEN

Mr Justice Snowden reviewed the test as to the pursuit of pointless litigation.
The relevant legal test
    1. In Sectorguard plc v Dienne plc [2009] EWHC 2693 (Ch) Briggs J stated as follows at [44] to [47]:
“44.  It is now well established, in the light of the new culture introduced by the CPR , and in particular with the requirements of proportionality referred to in CPR 1.1(2) as part of the overriding objective, that it is an abuse of process to pursue litigation where the value to the litigant of a successful outcome is so small as to make the exercise pointless, viewed against the expenditure of court time and the parties’ time and money engaged by the undertaking…
45.  The concept that the disproportionate pursuit of pointless litigation is an abuse takes on added force in connection with committal applications. Such proceedings are a typical form of satellite litigation, and not infrequently give rise to a risk of the application of the parties’ and the court’s time and resources otherwise than for the purpose of the fair, expeditious and economic determination of the underlying dispute, and therefore contrary to the overriding objective as set out in CPR 1.1 . The court’s case management powers are to be exercised so as to give effect to the overriding objective and, by CPR 1.4(2)(h) the court is required to consider whether the likely benefit of taking a particular step justifies the cost of taking it…
47.  Committal proceedings are an appropriate way, albeit as a last resort, of seeking to obtain the compliance by a party with the court’s order (including undertakings contained in orders), and they are also an appropriate means of bringing to the court’s attention serious rather than technical, still less involuntary, breaches of them. In my judgment the court should, in the exercise of its case management powers be astute to detect cases in which contempt proceedings are not being pursued for those legitimate ends. Indications that contempt proceedings are not so being pursued include applications relating to purely technical contempt, applications not directed at the obtaining of compliance with the order in question, and applications which, on the face of the documentary evidence, have no real prospect of success. Committal proceedings of that type are properly to be regarded as an abuse of process, and the court should lose no time in putting an end to them, so that the parties may concentrate their time and resources on the resolution of the underlying dispute between them.”
    1. That summary was approved by Hamblen J in PJSC VAB v Maksimov [2014] EWHC 4370 and by Marcus Smith J in Absolute Living v DS7 [2018] EWHC 1717. I also agree with it.
    1. In the course of argument, Mr Jones QC for the Claimant and Mr Gilmour for the Defendants each indicated that they accepted that the summary given by Briggs J accurately reflected the current state of the law. They also agreed that, conceptually, it followed that there were three bases upon which the current application could fail.
    1. First, the application could fail if there was no reasonable prospect of the Claimant proving its allegations of contempt if the matter is allowed to proceed, for example because there is no reasonable prospect of proving a breach of the freezing order. Second, even if there was a reasonable prospect of proving a breach, the application could fail if I concluded that any breach was of a purely technical (rather than a serious) nature. Third, even if there was a reasonable prospect of the Claimant proving a serious breach, the application could fail if I concluded that it had been brought for an improper purpose.
Discussion
    1. On behalf of the Defendants, Mr Gilmour first submitted that I had no evidential basis upon which to conclude that the loan monies ever passed into the hands of the Defendants, such that the Claimant’s allegations of contempt had no realistic prospect of success. In support of this argument, he referred to the recent evidence of the First Defendant to this effect, which comprised a single sentence of a witness statement unsupported by any contemporaneous (or, indeed, any) documents.
    1. Mr Gilmour also invited me to take judicial notice of the Hawala system, the existence and operation of which was not in evidence, but which Mr Gilmour submitted was common knowledge amongst Iranians living overseas. The thrust of this submission was that the way in which the Hawala system operates – which, as I have said, is through an informal system of mutual debits and credits – meant that it was inherently likely that no monies ever passed through the hands of the Defendants.
    1. I do not accept Mr Gilmour’s submission and I decline to take judicial notice of the matters to which he referred.
    1. For present purposes, it is not necessary for me to be satisfied that the monies did, in fact, pass through the hands of the Defendants. It is only necessary for me to be satisfied that there is a realistic prospect that the Claimant will be able to establish that the monies did so pass. As to this, the recital to each loan agreement, signed by the Defendants, states that the Defendants were borrowing monies from Mr. Orang and Dr. Aminaji. Nothing in those loan agreements (or in any other contemporaneous document to which I have been referred) suggests that this meant anything other than that the Defendants would, at some point, be paid the loan monies in the usual way. On that basis alone, there is, it seems to me, at least a realistic prospect that the Claimant could demonstrate that the Defendants had the monies in their hands at some point in time.
    1. In addition, the operation and ubiquity of the Hawala system is not, it seems to me, a fact which is so notorious that I should accept it without further inquiry, and I was not shown any evidence about it that would allow me to take judicial notice in the way Mr Gilmour invited me to do so.
    1. In any event, I do not consider that either of those matters are necessary to dispose of this case. That is because even if the monies lent did pass through the hands of the Defendants, I agree with HHJ Davies’ view that, on the evidence, the First Defendant was in essence merely a conduit for the monies to be passed from Mr. Orang and Dr. Aminnaji to the Defendants’ relatives in Iran, and that in these circumstances there was no intention on the part of the Defendants to dissipate monies that beneficially belonged to them.
    1. As I have indicated above, the Claimant does not appear to contend that the monies were borrowed for any purpose other than remission to Iran as the evidence of the Defendants states, and it was not suggested that the purpose was otherwise, or that the loan agreements were a sham. The loan agreements referred in terms to the need for monies to be sent to Iran, and the evidence is that Mr. Orang and Dr. Aminnaji lent money for that purpose. It is, I consider, an appropriate inference that, given the terms of the loan agreements, it was never intended that the monies advanced should be at the free disposal of the Defendants or could have been used by them for other purposes.
    1. But if that is so, then the facts either do not give rise to a breach of the order at all, or as HHJ Davies found, disclose only a breach of the most technical type. It is axiomatic that a freezing injunction only applies to assets owned by a defendant that would be available to satisfy a judgment against him. If the monies loaned to the Defendants were not at their free disposal but were loaned for the specific purpose of being remitted to Iran, it is perfectly arguable as a matter of law that they would not be caught by the freezing injunction at all. And even if conceptually at the free disposal of the Defendants because of the absence of express restrictions on use, there is no allegation or evidence to suggest that the Defendants ever thought or intended to use the monies that they had borrowed for their own benefit.
    1. I do not accept Mr Jones QC’s submission that, if I found that any breach was merely a technical breach, I should nonetheless permit the committal proceedings to continue as a way of demonstrating to the Defendants that court orders must be obeyed.
    1. It seems to me that this course of action would serve no real purpose. As Mr Jones QC accepted, the range of sanctions available to the court for what is, ex hypothesi, a merely technical breach is likely to be very limited indeed. Moreover, this is not a case in which there is said to be any ongoing breach of a court order such that committal proceedings would serve the practical purpose of encouraging a defaulting party to comply with its obligations: the alleged breach in the instant case has already happened. I therefore see no practical utility in, nor principled basis for, the course urged upon me by Mr Jones QC.
    1. During my exchanges with Mr Jones QC in oral argument, a further reason emerged which persuades me that the conclusion reached by HHJ Davies was correct, but which did not form (and, indeed, could not have formed) part of his reasoning. As I am considering the matter de novo, it is appropriate that I explain why this represents an independent basis upon which to reach the same conclusion, and in any event buttresses the conclusion HHJ Davies reached and with which I agree.
    1. As I have said, after the date on which the matter came before HHJ Davies, each Defendant was made bankrupt upon their own petition and a trustee in bankruptcy was appointed to administer their estates. Immediately upon the appointment of the trustee taking effect, the Defendants’ respective estates vested in the trustee: see section 306 of the Insolvency Act 1986. It appears to me that the bankruptcies of the Defendants have obvious relevance for the freezing order made against them.
    1. The purpose of a freezing order is, typically, to preserve the assets of a defendant to ensure that those assets can be used to satisfy any judgment obtained by a claimant. However, the effect of the bankruptcies was, prima facie, to take out of the Defendants’ hands all of the assets formerly belonging to them and to vest those assets in the hands of their trustee for the benefit of their creditors generally. Accordingly, from the date of the appointment of the trustee, there were no assets at the free disposal of the Defendants upon which the freezing order could any longer be said to bite. It therefore seems to me that it would not be appropriate for the Claimant to be permitted to pursue a contempt application for the purposes (as it would see it) of bringing home to the Defendants the continued importance of complying with the freezing order.
    1. In written submissions, Mr. Jones QC appeared to anticipate this issue. He submitted that, notwithstanding the appointment of a trustee in bankruptcy, it was important to the Claimant that there should be no dissipation of the Defendants’ assets. This was, he submitted, because the Claimant is by far the largest unsecured creditor in the Defendants’ respective estates, and therefore it has an interest in the trustee maximising the collecting in and realisation of the Defendants’ assets.
    1. I do not accept Mr Jones QC’s arguments. The purpose of the freezing order is, as I have said, to preserve the assets of a defendant to ensure that a claimant is able to enforce any judgment it obtains. However, since the appointment of the trustee in bankruptcy, the person with the real and proximate interest in the Defendants’ estates is not the Claimant, which is merely one creditor in the bankruptcy, but the trustee who is tasked with acting in the interests of creditors generally in what are collective bankruptcy proceedings. As I indicated in Re Maud [2016] 2175 (Ch) at [77),
“77. Bankruptcy has frequently been referred to as a “class remedy”. In modern parlance, it is a “collective insolvency proceeding” or a process for collective enforcement of debts. The purpose of the collective proceeding is for the property of an individual who is unable to pay his debts to be realised under the control of an independent trustee, and, after payment of any debts or liabilities having priority, for the remaining monies to be distributed pari passu to the debtor’s unsecured creditors. The ordinary rights of action of individual creditors against the debtor are curtailed accordingly.”
    1. Accordingly, if and to the extent that the trustee believes that some other application is necessary to preserve the value of the Defendants’ bankruptcy estates, it is a matter for the trustee to seek the appropriate relief on behalf of creditors. As a creditor, it is open to the Claimant to request that the trustee takes a particular course of action and to put the trustee in funds if it is deemed necessary, appropriate and in the interests of creditors generally. However, it is not, it seems to me, appropriate that the Claimant should be entitled to use contempt proceedings as a means of enforcement of a freezing order, the continued utility or appropriateness of which must be in some doubt given the intervention of the bankruptcy proceedings.
    1. Given that view, it is not necessary for me to reach any conclusions about the purpose for which the Claimant wishes to bring contempt proceedings against the Defendants. Nonetheless, I bear in mind the findings of HHJ Davies, who plainly had more immediate experience of the litigation between the parties, to the effect that the Claimant seeks to bring the application vindictively, without a legitimate aim, and solely with the intention of harassing the First Defendant. If that were right, it simply reinforces the view that after the intervention of the bankruptcy and the involvement of the trustee, as an independent insolvency officeholder, it is through that route that the assets of the Defendants should most appropriately be preserved for the benefit of their creditors generally.
    1. For the foregoing reasons, I agree with HHJ Davies that, on the basis of the limited allegations of contempt and the even more limited evidence adduced by the Claimant, any breach would, at most, amount to a technical breach of the freezing injunction and that it would not be appropriate for contempt proceedings to be brought on that basis.
Conclusion
    1. I therefore refuse permission for the Claimant’s contempt application to be sealed and issued.