Phoenix Group Foundation v Cochrane & Anor

A freezing order may be granted against an innocent third party holding assets where the Chabra criteria are satisfied. The claimant must show a good arguable case that the assets would be amenable to a process enforceable by the court to satisfy a judgment against the substantive defendant, and that continuation of the order is just and convenient. A breach of a freezing order by itself gives the claimant no proprietary or preferential right to assets transferred to a third party. The court must consider the real risk of prejudice to enforcement, including the destruction of a possible proprietary claim, against the prejudice to the innocent third party. Procedural delay does not automatically require discharge; the court retains a discretion, particularly where the delay arose from a genuine misunderstanding and caused no significant prejudice.

Phoenix sought continuation of a freezing order over £2 million held by Stewarts Law. The order had originally been granted without notice by Newey J and continued by Rose J pending a full inter partes hearing in the Commercial Court. Stewarts Law had received the money as purported payment of fees and disbursements connected with earlier litigation.

Phoenix had no proprietary claim to the money and advanced no personal claim against Stewarts Law. It relied principally on the Chabra jurisdiction, contending that there was a good arguable case that the payment had not been authorised by the true owner and that the money could ultimately become available to satisfy a judgment against Dr Cochrane. Stewarts Law sought discharge on jurisdictional, evidential, procedural and delay grounds.

1. Disposition. The freezing order was continued until further order. The £2 million was directed to be paid to the Enforcement Receivers to be held to the order of the court.
2. Applicable jurisdiction. Where no proprietary interest or personal cause of action is asserted against an innocent third-party recipient, the relevant basis for relief is the Chabra jurisdiction. The claimant must establish a good arguable case that the assets would be amenable to a court process by which they could be made available to satisfy a judgment against the substantive defendant, and that it is just and convenient to grant relief. The jurisdiction is exceptional and must be exercised cautiously.
3. A defendant’s transfer of assets in breach of a freezing order does not, without more, confer rights over the asset on the claimant. The transfer may nevertheless satisfy the Chabra criteria if it is liable to be reversed or otherwise makes the asset amenable to execution. A completed transfer cannot be treated as merely threatened because the money remains in a solicitor’s client account. Under the Solicitors Accounts Rules, money paid for invoiced fees and disbursements is office money when received, even if temporarily held in the general client account.
4. The evidence gave rise to a good arguable case that the purported transfer to LCL was undocumented and that LCL had no title or authority to transfer the proceeds of sale. There was also a good arguable case that the money remained amenable to a judgment against Dr Cochrane, including through claims to reverse the transfer or obligations requiring her to procure recovery of the money. The Chabra threshold was therefore met.
5. The risk to Phoenix was not merely that Stewarts Law might later lack funds to satisfy a personal payment order. If the money were released and spent, a possible proprietary claim by its true owner could be destroyed, prejudicing Phoenix’s ability to enforce against Dr Cochrane’s assets. That risk was real and substantial. The prejudice to Stewarts Law from maintaining the order was comparatively minor and compensable under the fortified cross-undertaking in damages.
6. Phoenix was properly criticised for failing initially to identify the Chabra basis and for delay in progressing the transfer. The court nevertheless declined to discharge the order. The delay resulted from a mistaken understanding, Stewarts Law could itself have taken earlier steps, and no significant prejudice was shown. A claimant obtaining a freezing order must progress the proceedings expeditiously, but the sanction for breach of that duty is discretionary.