Kastner v Jason & Ors

Where an arbitration is governed by a chosen system of foreign law, and that law gives an interim freezing order only personal effect, English law does not convert the order into a proprietary interest enforceable against an innocent purchaser with constructive notice. A freezing order, even over identified land, gives no security unless the creditor is entitled to be paid from the identified fund. A bare undertaking to obey the order is insufficient. Proprietary estoppel or constructive trust cannot supply the missing proprietary interest where the relevant assurance, reliance, detriment and effect on the third party’s conscience are absent.

Mr Kastner obtained interim freezing orders from a Beth Din in an arbitration conducted under Jewish substantive and procedural law. The orders restrained Mr Jason from disposing of his home. Mr Jason nevertheless sold it to the Shermans, whose solicitor failed to notice a registered caution. A final arbitral award was later made in Mr Kastner’s favour.

Lightman J held that Jewish law gave the orders personal, rather than proprietary, effect and refused to admit late further evidence on Jewish law: [2004] EWHC 592 (Ch). Mr Kastner appealed, contending that Mr Jason’s promise to comply created an equity or security interest binding the Shermans through constructive notice of the caution.

Decision

The Court of Appeal unanimously dismissed the appeal. Lord Justice Rix gave the judgment, with which Lord Justice Clarke and the Lord Chief Justice agreed.

1. Chosen law and proprietary effect. The unchallenged findings of Jewish law established that the Beth Din’s freezing order, and Mr Jason’s agreement to obey it, operated only in personam. They created neither a charge nor other proprietary interest in the home. English law could not transform that limited Jewish-law remedy into an equitable proprietary or security interest binding the Shermans. That conclusion was sufficient to determine the appeal.
2. Late evidence. Lightman J’s refusal to admit a further witness statement on Jewish law was a case-management decision within his discretion. The late evidence would have required a further adjournment and investigation by the Shermans. There was no proper basis for appellate intervention.
3. Alternative English-law analysis. Even if English law had governed the issue, a freezing order creates no security interest merely because it concerns a specified asset or land. The decisive inquiry is whether the debtor is obliged to pay the debt from the identified fund. Mr Jason’s promise only repeated his existing obligation to obey the Beth Din’s order and did not impose such an obligation: see [2003] EWCA Civ 63.
4. Equitable remedies and priority. The facts did not establish proprietary estoppel or a constructive trust against the Shermans. There was no relevant promise by them, nor proved reliance or detriment by Mr Kastner affecting their conscience. Constructive notice arising from an invalid caution could not supply the missing proprietary interest. Further, any charge or quasi-charge would have required writing and registration, and could not take priority over purchasers merely because they had notice.

The court expressly left open any possible tort claim concerning the solicitor’s duty to Mr Kastner.

• Court of Appeal (Civil Division) — dismissed Mr Kastner’s appeal: [2004] EWCA Civ 1599.
• High Court, Chancery Division — Lightman J rejected the asserted proprietary effect of the Beth Din’s orders and refused late further evidence of Jewish law: [2004] EWHC 592 (Ch).