Regalway Care Ltd v Shillingford & Ors

Variation of a freezing order to permit payment from frozen assets is governed by what is just and convenient. The applicant must establish that the proposed payment is bona fide and would ordinarily have been made from the assets absent the order. The court must refuse relief where credible evidence suggests collusion, an attempt to defeat the claimant’s claim, or other circumstances casting doubt on good faith. The jurisdiction cannot be used to secure the claimant’s debt or confer priority. Where the evidence raises substantial factual issues that cannot fairly be resolved summarily, the application should be directed to a separate trial or otherwise await determination after disclosure and cross-examination.

Regalway Care Ltd, acting through its liquidator, obtained worldwide freezing orders against the defendants in proceedings concerning alleged participation in missing trader intra-community fraud and the diversion of funds otherwise available to meet VAT liabilities. Three companies intervened and sought variations permitting the fourth defendant, EBST Ltd, to repay substantial sums paid for mobile phones, computer components and memory sticks.

The interveners contended that the transactions had failed because the goods were not released and that the payments should be returned. Regalway opposed the applications, relying on evidence that the goods may have been released and that the interveners may themselves have knowingly participated in MTIC fraud. The central issue was whether the applications could fairly be determined summarily.

1. Governing principles. The court should do what is just and convenient. Payment may be permitted only where the obligation is bona fide and the applicant establishes that relief is appropriate. The obligation need not arise in the ordinary course of business or be legally enforceable, provided the defendant reasonably wishes to discharge it. The burden remains on the applicant, even where the defendant leaves the application to the third party.
2. The court must refuse payment where credible evidence suggests collusion, an intention to defeat the claimant’s claim, or other circumstances calling the good faith of the payment into question. Good faith by the third party is insufficient by itself. The court must also be satisfied that the payment is no more than one which would normally have been made from the frozen assets had the order not been made. The freezing-order jurisdiction cannot create security or confer priority on the claimant.
3. Applying those principles, the evidence concerning the three transactions disclosed substantial and unresolved questions. These included the unexplained speed and structure of the supply chains, repeated small domestic mark-ups and larger export mark-ups, the parties’ willingness to pay large sums without security, uncertainty about the goods’ whereabouts, and evidence suggesting possible participation in MTIC fraud.
4. The court could not fairly resolve those issues from witness statements and submissions alone. It therefore refused to vary the freezing order to enable EBST to repay FTC, DC UK or Vita. The claims for repayment were to be tried separately from Regalway’s main action, with pleadings, disclosure and witness statements. Disclosure from Interken under CPR 31.17 might be appropriate.

First-instance decision. The judgment records no prior appellate decision.