Templeton Insurance Ltd v Thomas & Anor

Goodwill is an asset within a freezing order restraining dealings with a business’s property and assets. It can include established commercial connections, a network of representatives, and associated trading identifiers. A person who knowingly permits a breach may be liable where culpable knowledge and wilful forbearance are proved or inferred; mere office, knowledge, or inactivity is insufficient.

A deliberate and substantial breach of a freezing order will usually justify an immediate custodial sentence. Sentencing remains individual. Suspension is not confined to encouraging a contemnor to purge the contempt, and exceptional personal hardship may justify suspension despite the seriousness of an unpurged breach.

Templeton Insurance Ltd obtained a freezing injunction against Motorcare Warranties Ltd during fraud proceedings. The order restrained dealings with the business’s property and assets and prohibited persons notified of it from knowingly assisting or permitting a breach.

After the injunction, the appellants helped establish Motorcare Elite 2008 Ltd. The judge found that Motorcare’s established agent connections, website material, trading contact details and other goodwill were transferred to the new company. He held both appellants in contempt: [2012] EWHC 795 (Comm). He imposed immediate sentences of four and nine months’ imprisonment: [2012] EWHC 2309 (QB).

The appeals raised whether the transferred business connections were assets caught by the order, whether the appellants knowingly and wilfully participated in or permitted a breach, and whether immediate custody was necessary.

1. The appeals against the findings of contempt were dismissed. Goodwill was plainly among the intangible assets caught by an order restraining dealings with a company’s property and assets. It was unnecessary for the order separately to identify goodwill.

2. The company’s goodwill included its established connections with appointed representatives. Those connections were integral to the business which sold its insurance policies. Goodwill also extended beyond the agent network to the brand and the physical, postal, telephone, email and website identifiers. The deliberate steps taken to move those connections and identifiers to the phoenix company therefore breached the freezing order.

3. The judge was entitled to find that each appellant acted knowingly and wilfully. Culpable knowledge could be inferred from the circumstances. The prohibition on knowingly permitting a breach covered wilful forbearance by a person able to prevent the transfer. It did not impose liability merely because of office, knowledge or passive inactivity, but the evidence established substantially more than that.

4. A deliberate and substantial breach of a freezing order normally merits an immediate custodial sentence of a not insubstantial duration. The court must nevertheless consider the shortest necessary term, suspension, the maximum two-year limit, any purging of contempt, admissions, remorse and personal mitigation. Such breaches threaten the administration of justice and are often difficult to detect.

5. The sentence appeals were allowed. The original terms properly reflected the gravity of the deliberate and unpurged contempts, but suspension was not available only to secure future compliance or a purging of contempt. No actual loss to the claimant had been established. The appellants’ serious medical and family circumstances made immediate custody unnecessary. The terms of four and nine months were therefore suspended for two years.

• Court of Appeal (Civil Division) — In [2013] EWCA Civ 35, dismissed the appeals against the contempt findings but allowed the sentence appeals by suspending the prison terms for two years.

• Queen’s Bench Division — Eder J found the appellants in contempt for breach of the freezing injunction: [2012] EWHC 795 (Comm). He subsequently imposed immediate prison terms of four and nine months: [2012] EWHC 2309 (QB).

• Commercial Court — Simon J had found the appellants liable for fraudulent misrepresentation in the underlying action: [2010] EWHC 3113 (Comm).