Group Seven Ltd v Allied Investment Corporation Ltd & Ors

The standard form of freezing order does not ordinarily restrain dealings with assets beneficially owned by a company merely because the respondent is its sole shareholder and director. When acting for the company, the respondent exercises the company’s dispositive powers rather than instructing a third party to deal with assets as if they were the respondent’s own.

A court order has an objective and uniform meaning ascertainable by everyone whom it affects. The parties’ private assumptions cannot enlarge that meaning. A freezing order may exceptionally be extended expressly to a wholly owned corporate vehicle where evidence demonstrates a real likelihood that it is a façade and its assets may ultimately be available for enforcement.

The claimant applied to commit the third defendant for contempt of court. It alleged that he breached a freezing order by settling, for US$200,000, a US$500,000 debt owed to Wealthstorm Limited, a Maltese company of which he was sole shareholder and director.

The third defendant sought summary dismissal. The court considered whether to dispense with personal service, whether the committal notice was sufficiently particularised, whether the third defendant’s earlier description of the debt as his asset affected the order, and whether paragraphs 8 and 9 of the freezing order treated the company’s debt as his asset.

1. Disposition. The committal application failed. The debt was beneficially owned by Wealthstorm Limited and was not an asset of the third defendant within paragraphs 8 and 9 of the freezing order. His execution of the settlement agreement on the company’s behalf therefore did not constitute a prohibited dealing with his assets.
2. The court dispensed retrospectively with personal service under rule 81.8 of the Civil Procedure Rules 1998. The third defendant and his advisers knew the freezing order’s terms and consequences. No injustice arose, and requiring formal service would have served no proportionate purpose. Such dispensation nevertheless remains exceptional because strict service of penal orders is ordinarily important.
3. A committal notice must give clear and fair notice both of the alleged breach and of its basis. Although the notice did not identify paragraph 9 or state every ground clearly, the third defendant and his advisers understood the case they had to meet. The defect was therefore not fatal in these exceptional circumstances. Ordinarily, defects cannot be cured by a supporting affidavit or later skeleton argument.
4. Applying Salomon v Salomon & Co [1897] AC 22 and Prest v Prest [2013] 2 WLR 557, a company beneficially owns its property even when one individual owns and controls it. Its dispositive powers remain the company’s. A sole director or shareholder acting for it does not give instructions to a third party within paragraph 9 merely because that individual is the company’s only human decision-maker.
5. A court order must bear the objective, uniform meaning naturally conveyed by its language and context. A freezing order can affect third parties who know nothing of the litigants’ communications or assumptions. The third defendant’s previous identification of the debt as his asset could not enlarge the order’s scope or convert the company’s property into his own.
6. Obiter: An express extension may be justified where strong evidence shows that a wholly owned and controlled non-trading company is merely a pocket, wallet or façade and there is a real likelihood that its assets will become available for enforcement. Such relief requires exceptional circumstances, careful drafting and any necessary ordinary-course trading exceptions. Direct relief against the company under the Chabra jurisdiction may instead be appropriate.

This was a first-instance determination within existing High Court proceedings. Earlier freezing orders had been made by Mann J on 3 and 10 February 2012. Floyd J made the freezing order alleged to have been breached on 24 February 2012.