Lemos v Lemos & Anor

For a freezing injunction over property registered to a third party, the court need only have good reason to suppose that the judgment debtor has an interest capable of enforcement. Proof on the balance of probabilities is unnecessary at that stage. Where formal trust documents govern ownership, a common-intention case must account for the intention of the trustees, including replacement trustees. A disposition may engage section 423 of the Insolvency Act 1986 where the debtor arguably owned an asset, transferred it at an undervalue, and acted to put it beyond a present or future creditor’s reach. On an interlocutory appeal, credible new evidence unavailable earlier may justify revisiting the evaluation.

The appellant held a judgment against her brother obtained in Jersey and registered in England. A freezing injunction was granted over 27 and 27A Bracknell Gardens, registered to Church Bay Trust Company Ltd, on the basis that the properties might beneficially belong to the judgment debtor. Cooke J set the injunction aside. The appeal concerned whether enforcement could be pursued through a common-intention beneficial-interest case or a transaction-defrauding-creditors claim under section 423 of the Insolvency Act 1986, and whether new evidence should be admitted.

The appeal was allowed.

1. Where a third party asserts that property belongs to it rather than to a judgment debtor, the court need not accept that assertion without further inquiry. If there is good reason to suppose that the judgment debtor has an interest in the property, the issue may be ordered to trial with pleadings and disclosure. At this stage the court need not decide the matter on the balance of probabilities. The threshold was treated as closely comparable to the good arguable case test for imposing a freezing injunction, with reference to SCF v Masri [1985] 1 WLR 876 and JSC BTA Bank v Ablyazov (No. 11) [2015] 1 WLR 1287 [21].
2. The common-intention argument failed. Any relevant intention after 1994 had to be that of Mr and Mrs Lemos and the trustees of the trust, including any replacement trustee. It was insufficient to rely on objective conduct at the time the trusts were established where the trustees had acted for many years in accordance with the formal trust documents. A case based on a contrary beneficial ownership would therefore need to make the sham allegation genuinely arguable [22].
3. The Court of Appeal was reluctant to disturb Cooke J’s evaluation merely because it might have reached a different conclusion on the evidence then available. The position changed once admissible new evidence materially transformed the evidential picture [25]-[26].
4. Under section 423 of the Insolvency Act 1986, the relevant interlocutory question was whether there was good reason to suppose that the judgment debtor had a beneficial interest in 1994, disposed of it by gift or another transaction at an undervalue, and acted to put it beyond the reach of a person who might make a claim. The new evidence made that case well arguable, although the final position required proper investigation [23]-[27].
5. The Court exercised its more relaxed approach to new evidence on an interlocutory appeal. It admitted the Grant Thornton interview, evidence of the debtor’s obstructiveness for that limited purpose, and the Withers documentation. The British Virgin Islands judgment was excluded because it was available earlier and had little relevant probative value [19]-[20]. The issue was remitted to the Chancery Division. The freezing injunction was continued for four weeks from hand down, continuing thereafter only if section 423 proceedings were instituted promptly; otherwise it would be discharged [28]-[31].

1. Court of Appeal (Civil Division): In [2016] EWCA Civ 1181, the appeal was allowed. The section 423 issue was remitted to the Chancery Division and the freezing injunction was continued conditionally.
2. High Court, Queen’s Bench Division, Commercial Court: Cooke J set aside the freezing injunction, holding that there was no sufficient reason to suppose that the judgment could be enforced against the properties.
3. Earlier interlocutory orders: Popplewell J granted the freezing injunction on 19 December 2014. King J continued it on 13 January 2015 without prejudice to the respondents’ application to discharge it.