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Court of Appeal serves reminder of the key principles behind risk of dissipation and the “ordinary and proper course of business” exception

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management - Freezing Orders

21-07-2020

Caroline Jill Crowther v Paul Anthony Crowther & others [2020] EWCA Civ 762

Facts of the case

  • Mrs Crowther, along with her husband (Mr Crowther), previously ran a shipping business together.
  • Following the couple’s divorce, Mr Crowther obtained a freezing order against a Mr Knight and the companies he controlled in order to prevent the disposal of four vessels operated within that shipping business on the basis that:
    • the couple were entitled to beneficial interests in the vessels; and
    • there was a fraudulent conspiracy between Mr Crowther and Mr Knight to claim that neither of the Crowthers had any interest in the vessels and thus reduce the value of the assets available for distribution in the divorce proceedings.
  • The freezing order was subsequently discharged by Holman J, on the basis that he was not satisfied that there was such a conspiracy.  It was later reinstated by Floyd LJ pending the outcome of Mrs Crowther’s appeal of Holman J’s decision.

The Decision

  • Males LJ overturned Holman J’s decision and reinstated the freezing order, on the basis that there was a good arguable case that Mr Knight had engaged in tax evasion and advanced spurious claims in order to assist Mr Crowther to conceal the true extent of the family assets.
  • However, Males LJ emphasised that the freezing order should not prevent Mr Knight from carrying on business in the ordinary course, including by disposing of or mortgaging the vessels in order to carry out necessary repairs, maintenance and upgrade work so as to render them suitable for chartering out.

Analysis and Practical Advice

  • The judgment contains a useful reminder of some of the key principles applicable to the question of a risk of dissipation, namely:
    • The risk relates to a future judgment not being met as a result of unjustified dissipation, i.e. the respondent putting assets out of reach of the judgment creditor whether by concealment or transfer.
    • The risk must be established by solid evidence.  Mere inference or generalised assertions will not be sufficient.
    • The risk must be separately established against each respondent.
    • Dishonesty is of itself not sufficient, unless it points to the conclusion that assets may be dissipated.
    • A respondent’s former use of offshore structures is relevant but does not of itself equate to a risk of dissipation, since such structures are often used for normal and legitimate purposes.
    • A freezing order is not intended to provide an applicant with security or restrain the respondent from dealing with their assets in the normal course of their business / personal affairs.  If the respondent is not threatening to change their existing, legitimate way of handling their assets, it will not be sufficient to show that such continued conduct would prejudice the applicant’s ability to enforce judgment.
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  • Accordingly, where it is necessary to deal with an asset (e.g. by selling or mortgaging it) in order to preserve its value or the value of other assets which are also the subject of the freezing order, including to prevent a forced sale, that in principle falls within the ordinary course of business exception.
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  • Clearly an applicant will be concerned to try to impose certain safeguards around such dealings in the assets.  Here, the Court of Appeal rejected a proposal from the applicant that any expenditure on the vessels be approved in advance, on the basis that this was likely to lead to dispute and paralysis.  Instead, the Court preferred a requirement that proper records of expenditure were kept and made available to Mrs Crowther’s solicitors.
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  • The case also serves as a reminder of the risk of raising new matters in submissions.  Here, it was contended on behalf of the respondents that there had been a lack of candour on the part of Mrs Crowther.  The Court of Appeal was not prepared to consider this submission on the basis it was not run below and there was no respondent’s notice raising the point.