Phoenix Group Foundation v Cochrane & Anor

The court continued a freezing order over £2,000,000 held in the defendant solicitor's general client account. The judge held that a freezing order against an innocent third party who holds non-proprietary assets can only be justified by the Chabra jurisdiction unless there is a personal cause of action against the third party. The claimant had demonstrated a good arguable case that the proceeds of the sale of the Prandoty Street property were not lawfully the funder LCL's money and that the Chabra conditions were therefore satisfied because the sum might be amenable to execution of a judgment against Dr Cochrane. On the balance of convenience there was a real risk of prejudice to Phoenix if the order were discharged and the prejudice to the solicitor was limited and compensatable; procedural criticisms and delay were not sufficient to defeat continuation of the order.

This was a first instance contested interlocutory hearing concerning whether a freezing order should be continued or discharged. Phoenix sought continuation of a freezing order over £2,000,000 received into Stewarts Law's general client account, said to be proceeds of sale of the Prandoty Street development and alleged part of assets connected to Dr Cochrane within the Arena Settlement structure.

Background and parties: Phoenix Group Foundation (claimant) relied on a loan note and other contractual undertakings said to protect Arena Settlement assets, including Prandoty Street. Dr Gail Cochrane was the primary defendant and had been declared bankrupt in Jersey; she was alleged to have been involved in transfers of Arena assets. Stewarts Law (second respondent) had received £2,000,000 on 14 September 2016 and treated part of it as payment for invoiced fees and disbursements. Other claimants with competing interests included the Arena Holdco liquidators, Harbour Fund II LLP and the SFO / enforcement receivers.

Nature of the application: Phoenix applied to continue a without-notice freezing order previously granted by Newey J and continued by Rose J; Stewarts Law applied for discharge of that freezing order.

Issues before the court:

• Whether Stewarts Law was bound by the Chanel/Woolworth principle from re-running arguments already addressed;
• What legal basis supported a freezing order over funds held by an innocent third party — in particular whether the Chabra jurisdiction applied or whether a mere breach of a freezing order by the cause of action defendant sufficed;
• Whether there was a good arguable case that the £2,000,000 was not properly LCL's and might be recollectable so as to be amenable to execution against Dr Cochrane;
• The balance of convenience and risk of dissipation, and whether procedural delays or lack of full and frank disclosure justified discharge.

Court's reasoning: The judge explained that the Chanel principle did not prevent Stewarts Law from repeating or expanding arguments in the fuller inter partes hearing because Rose J's earlier hearing was an "interim interim" hearing with limited time. The court rejected the proposition that any transfer by a defendant in breach of a freezing order automatically supports freezing of the asset in the hands of an innocent transferee; the Chabra jurisdiction is the proper basis for freezing non-proprietary assets in the hands of a third party. The judge found the history and documentary account of the transfer opaque and identified a good arguable case that the £2,000,000 did not belong to LCL and that its receipt by Stewarts Law might have been unauthorised by the true owner(s) (Polish Bridgehouse or Radix). That gave rise to a triable Chabra case that the money could be made available to satisfy a judgment against Dr Cochrane. On the balance of convenience there was a substantial risk of prejudice to Phoenix if the order were discharged because a proprietary claim to identifiable sale proceeds could be frustrated by the recipient spending the money; prejudice to Stewarts Law from continuation was modest and compensatable. Procedural failings and delay were criticised but not so serious as to require discharge of the freezing order. The court therefore continued the freezing order until further order and ordered the frozen sum to be paid to the enforcement receivers to hold to the order of the court.

The court ordered that the freezing order be continued until further order. The judge held that the Chabra jurisdiction provided the proper legal basis for freezing non-proprietary assets in the hands of an innocent third party and that Phoenix had shown a good arguable case that the £2,000,000 might be amenable to execution of any judgment against Dr Cochrane. On the balance of convenience continuation was justified; procedural criticisms and delay were insufficient to discharge the order.

The order under challenge was first granted without notice by Newey J on 30 September 2016 and continued by Rose J on 4 October 2016. The matter was transferred to the Commercial Court on 7 January 2017 and heard before Popplewell J on 22 February 2017, with judgment delivered on 6 March 2017.