Independent Trustee Services Ltd v GP Noble Trustees Ltd. & Ors

On an application to vary a freezing order, the court should ask whether the claimant has an arguable proprietary claim, whether the respondent has arguable grounds to deny it, whether release is necessary for an effective defence, and where the balance of justice lies. Article 6 of the European Convention on Human Rights and Fundamental Freedoms sets a high threshold for releasing funds for legal costs. Criminal restraint-order provisions may guide the exercise of the freezing-order jurisdiction where the same property is affected. A strong tracing claim, serious doubts about bona fide purchase without notice, and the speculative nature of proposed business expenditure justified refusing release. A trustee claimant need not give a personal cross-undertaking where adequate protection exists from trust assets and set-off.

Independent Trustee Services Ltd, trustee of occupational pension schemes, alleged that former trustees had transferred pension monies beyond their investment powers and that the defendant companies and individuals were liable in connection with those transfers. It sought to trace approximately £28 million held in a Swiss bank account.

Multiple and Unilateral Financial Futures Ltd applied to vary a freezing order made by Blackburne J without notice. It sought funds for legal expenses, payment of business debts and a more extensive cross-undertaking in damages. Separate restraint orders made by the Central Criminal Court under the Proceeds of Crime Act 2002 also covered the relevant property. The central issues were the applicable variation test, the effect of Article 6, the interaction between freezing and restraint orders, and the adequacy of the claimant’s undertaking.

The application to vary the freezing order was dismissed.

1. Applicable approach. The court applied the four-question approach in Ostrich Farming Corporation Limited v Ketchell (unreported, 10 December 1997): whether the proprietary claim was arguable; whether the respondent had arguable grounds to deny it; whether release was necessary for an effective defence; and where the balance of justice lay. The first two questions were closely linked.
2. Arguable claims and notice. The pension trustees’ transfers appeared to exceed statutory investment constraints, making the proprietary claim well arguable. A bona fide purchase required honesty and absence of notice. Notice was distinct from knowledge and included knowledge that prudent inquiries would have revealed. The court also relied on BCCI v Akindele [2001] Ch 437 for the principle that knowing receipt required a lower threshold than dishonesty. The failure to investigate UK pensions legislation, together with the unusual bond terms and lack of security, provided a strong case that MUFF had notice.
3. Legal expenses. Article 6 was engaged because MUFF would otherwise be unable to retain lawyers, but the threshold was high. Following the test described in Perotti v Collyer-Bristow (6 October 2003), release was required only if the court could not otherwise do justice. MUFF had already presented its factual case with legal assistance, other defendants were likely to be represented, and case-management measures could mitigate difficulties. The position could be reviewed if disclosure problems later arose. The court distinguished the procedural response noted in Regina v P, where a stay rather than release of frozen funds had been suggested.
4. Restraint-order legislation and business debts. Section 41 of the Proceeds of Crime Act 2002 concerned restraint orders, not freezing orders. However, sections 58(5) and 69 applied. The court could permit proceedings to continue on terms, but had to seek to prevent diminution in the value of realisable property. MUFF’s use as a vehicle for fraud justified piercing the corporate veil and applying that legislative steer. Releasing funds for a speculative Thai development would effectively require ITS to fund it, particularly given the strength of ITS’s claim. Those payments were refused.
5. Cross-undertaking. Although a trustee claimant not claiming a personal benefit might have a limited undertaking, ITS’s undertaking extended to the pension funds’ assets. MUFF would also have a set-off against its bond liability if it succeeded. There was therefore no warrant to amend the undertaking.

This was a first-instance application. The freezing order had been made by Blackburne J on a without-notice application. Separate restraint orders had been made by the Central Criminal Court under the Proceeds of Crime Act 2002. No appeal was determined in this judgment.