Omniway Properties Ltd v Fairlamb & Ors

Permission to appeal an interim freezing order was appropriate where the order raised reasonably arguable questions about the fairness and control of a company’s payment of directors’ legal costs. A fixed contribution may require verification, monitoring or review where the claims against the directors and the company materially differ. The supporting indemnity must also be sufficiently clear about repayment and security. The court may examine whether such authorisation requires judicial control. The substantive validity of the arrangement remained undecided, including whether it constituted a quasi-loan or engaged section 232 of the Companies Act 2006.

The claimant alleged that the first defendant director and the second defendant senior employee had extracted funds in breach of duty. The third defendant company was potentially liable for part of a claim exceeding £6 million.

On 11 January 2008, Floyd J made freezing orders against the first to third defendants. The order allowed the third defendant to pay the legal expenses of the first and second defendants, subject to an indemnity requiring them to contribute one third each. Lloyd LJ refused permission to appeal on paper. The Court of Appeal considered whether the allocation was adequately controlled, whether the indemnity was sufficiently clear, and whether the court had a role in authorising such payments.

Application granted. Permission to appeal was given, the grounds were permitted to be amended, and a stay was granted in respect of paragraph 10.1(d), subject to payments authorised by a judge of the Chancery Division or agreed by the parties.

1. It was reasonably arguable that the freezing-order provision required appellate consideration. Claims were made against the first and second defendants which might not be made against the third defendant. In those circumstances, the assumption that one third would always be a fair contribution by each director was arguably unsupported by any means of verification or monitoring.
2. The absence of a provision for reviewing the proportion was arguably inadequate. If the proportion was excessive, the arrangement might result in a gift to the directors, notwithstanding the provision for recoupment by the company.
3. The indemnity raised a further arguable issue because it did not explain when the amounts were to be repaid or whether they were adequately secured meanwhile.
4. The court considered it appropriate to examine whether the court had a role in this sphere or whether the matter should be left to the defendants, particularly where serious wrongdoing was alleged.
5. The court expressly left aside whether the arrangement amounted to a quasi-loan and whether section 232 of the Companies Act 2006 applied. No final determination was made on the substantive validity of the costs provision.

The parties were encouraged to agree a variation and, if necessary, return to the judge. The matter was to be heard as soon as reasonably possible.

• Court of Appeal (Civil Division): Arden LJ granted permission to appeal, allowed amendment of the grounds and granted a limited stay. [2008] EWCA Civ 163.
• Court of Appeal (Civil Division), on paper: Lloyd LJ refused permission to appeal.
• High Court of Justice, Chancery Division: Floyd J made freezing orders on 11 January 2008, including the disputed legal-expenses provision.