Lemos v Lemos

The Court of Appeal considered whether a freezing injunction obtained to enforce a Jersey judgment could be maintained over property registered in the name of a third party. The claimant relied on (i) an arguable common intention that the property was held for the benefit of the judgment debtor and (ii) an arguable claim under section 423 of the Insolvency Act 1986 that a 1994 declaration of trust constituted a disposition at an undervalue to put assets beyond the reach of future creditors.

The judge at first instance had set aside the injunction, concluding there was no realistic prospect of enforcing the judgment against the property: the common-intention case required the trustees to have shared that intention (which would amount to a sham) and the section 423 case was not realistically arguable, the judge treating certain 1993 minutes as an aberration. The Court of Appeal allowed the appeal in part, admitting fresh evidence (including an interview with the judgment debtor, a registrar's judgment and contemporaneous Withers documents) and holding that, in the light of that evidence, there is a properly arguable case under section 423 that the 1994 disposition was intended to put assets beyond the reach of creditors. The common-intention route was rejected as requiring a sham by the trustees. The court remitted the contested issue (section 423) to the Chancery Division and continued the freezing injunction for a limited period pending the institution and disposal of proceedings.

This is an interlocutory family dispute concerning a freezing injunction in aid of enforcing a Jersey judgment obtained by Joanna Lemos against her brother, Christos Lemos. The property in issue, 27 and 27A Bracknell Gardens, is registered in the name of Church Bay Trust Company Limited, trustee of a trust (the KL Trust) said to benefit Mrs Kalliopi Lemos.

The procedural history is: Popplewell J granted a freezing injunction on 19 December 2014; King J continued it on 13 January 2015; Cooke J subsequently set the injunction aside on the ground that the claimant had no realistic prospect of enforcing the judgment against the property; permission to appeal was given by Lewison LJ and the appeal came to the Court of Appeal (Longmore LJ and Kitchin LJ).

The principal issues were:

• whether there was an arguable case that the property was held beneficially (common intention) for the judgment debtor so that the judgment could be enforced against it;
• whether the 22 June 1994 declaration of trust amounted to a transaction at an undervalue caught by section 423 of the Insolvency Act 1986 such that the disposition could be set aside; and
• whether late evidence should be admitted on interlocutory appeal.

The Court of Appeal accepted that the common-intention case required more than objective evidence of conduct if the trustees had acted in accordance with the trust documents; to succeed on that basis would involve showing the trustees were party to a sham, which was not pleaded and was unlikely. However, the court exercised its discretion to admit fresh evidence (an interview with the judgment debtor recorded by his trustees in bankruptcy, a registrar's judgment showing obstructive conduct in bankruptcy proceedings, and documents from the solicitors Withers). In the light of that evidence the court concluded there was good reason to suppose the judgment debtor had an asset in 1994 which he disposed of by the declaration of trust for the purpose of putting it beyond the reach of creditors. The court therefore remitted the section 423 issue to the Chancery Division for full investigation and ordered that the existing freezing injunction continue for four weeks, or longer if section 423 proceedings were promptly commenced and pending their disposal.

The court emphasised the need for prompt institution of any section 423 proceedings by the trustees in bankruptcy (or by the claimant with permission under section 424(1)(a) of the Insolvency Act 1986) and noted potential limitation issues but accepted arguability that any claim would not be time-barred.

Appeal allowed. The Court of Appeal admitted certain fresh evidence and held that, in light of that evidence, there was a properly arguable case under section 423 of the Insolvency Act 1986 that the 1994 declaration of trust might have been a disposition intended to put assets beyond the reach of creditors. The common-intention argument was rejected because it would require showing the trustees were party to a sham. The section 423 issue was remitted to the Chancery Division for full investigation and the freezing injunction was continued for a limited period pending the commencement and disposal of proceedings.

Popplewell J granted a freezing injunction 19 December 2014; King J continued the injunction 13 January 2015; Cooke J (Commercial Court) set the injunction aside; permission to appeal was granted by Lewison LJ and the appeal was heard in the Court of Appeal (Longmore LJ and Kitchin LJ) resulting in this judgment [2016] EWCA Civ 1181.