Kastner v Jason & Ors

A freezing order or direction restrains dealings with assets but does not itself create a proprietary charge or lien. A charge requires language vesting a right in the creditor or imposing an obligation to satisfy the debt from the asset. Where parties submit arbitration to Jewish law, that law may confer jurisdiction on a Beth Din to grant a freezing direction. However, under the Jewish law established by the evidence, a fraud-related charge arose only after liability had been determined and the damages quantified. A sale completed before that stage was therefore unaffected. Jewish-law rights could not bind purchasers who were not parties to the arbitration unless the award recognised or granted an equitable charge.

Mr Kastner and Mr Jason agreed to submit their disputes to a Beth Din under the Arbitration Agreement. The Beth Din issued a direction restraining Mr Jason from disposing of his home and permitted registration of a caution. Mr Jason nevertheless sold the property to Mr and Mrs Sherman, who completed the purchase before the Beth Din quantified the damages later awarded to Mr Kastner.

Mr Kastner sought to make an interim charging order absolute. Mr and Mrs Sherman sought vacation of the caution and registration as proprietors free from any charge or lien. The central questions were whether the Direction, the Agreement, the Caution or the Award created a proprietary interest binding the purchasers.

1. The Beth Din had jurisdiction to make the Direction. The parties could confer on arbitrators power to grant such relief under sections 39 and 49 of the Arbitration Act 1996. The Arbitration Agreement’s submission to Jewish procedural and substantive law implicitly conferred that jurisdiction. The relevant Jewish authorities established that a Beth Din could restrain disposal of assets where there was a risk that a debt would become irrecoverable.
2. Under English law, a freezing order or arbitral freezing direction does not create a charge or lien. It merely prevents misapplication of assets. A proprietary security requires the order or direction to vest a right in the creditor, or impose an obligation on the debtor to satisfy the debt from the asset. The Direction contained no such provision. Flightline v Edwards [2003] 1 WLR 1200 made the position clear.
3. The Agreement and Caution added nothing. An agreement to comply with a direction cannot create a proprietary interest where the direction itself does not do so. The Agreement was also not in writing as required by the Law of Property (Miscellaneous Provisions) Act 1989. A caution could protect only an existing interest in land; it could not protect a merely ancillary freezing direction. The principle in Elias v Mitchell [1972] Ch 652 was applied.
4. On the expert evidence, under Jewish law a fraud-related charge arose only after the Beth Din had found liability and the amount due was certain. The sale to Mr and Mrs Sherman had been completed before the damages were quantified. No Jewish-law charge binding them therefore arose.
5. Even if Jewish law had created such a charge, it could not affect purchasers who were not parties to the Arbitration Agreement unless the Award recognised or granted a charge. The Award did neither. On completion, Mr Jason retained only bare legal title as trustee for the purchasers. The interim charging order was discharged and the application for a final charging order refused. Mr and Mrs Sherman were entitled to registration as proprietors free from any charge or lien and to vacation of the Caution.