Federal Bank of the Middle East Ltd v. Hadkinson & Ors

Factual and Procedural Background

This opinion concerns an application by the Defendant to lift a stay imposed by an earlier order dated 21 May 1999, which had been made due to the Defendant's contempt of court for transferring monies in breach of a freezing order. The Defendant also sought to have the basis of assessment of costs changed from the indemnity basis to the standard basis. The underlying action involves the Plaintiff's claim to recover advances made to certain defendants, secured by cross-guarantees from the Defendant. Summary judgment was obtained against the Defendant and others for $11.5 million, with permission granted to appeal. The Plaintiff claims that further monies are now owed, aggregating over $28 million.

A worldwide freezing order was made on 12 November 1997 against the First to Ninth Defendants, including the Defendant, restraining disposal or diminution of assets up to $11.5 million per defendant. The Defendant was found in contempt for non-disclosure of a bank account and for making transfers from that account in breach of the freezing order. The contempt resulted in a stay on the Defendant's further steps in the litigation and bankruptcy proceedings until compliance and purging of contempt.

The Defendant filed an affidavit in July 1999 disclosing previously unreported assets and addressing the transfers, asserting that some monies transferred belonged to third parties and that he had received legal advice that the freezing order did not apply to such third party assets. The Plaintiff opposed lifting the stay, arguing that the Defendant acted contumaciously and that the transfers were improper. The Defendant was cross-examined on limited issues relating to his belief about ownership of the monies and the legal advice received.

The court considered the Defendant's conduct, the nature of the contempt, the legal advice given, and the practicalities of repatriating the transferred assets, some of which are now subject to freezing orders in Switzerland. The Trustee in Bankruptcy also participated, supporting reversal of the transfers and requiring information on steps taken.

Legal Issues Presented

1. Whether the stay imposed due to the Defendant's contempt for breaching the freezing order should be lifted.
2. Whether the basis of assessment of costs related to the contempt application should be on the standard basis rather than the indemnity basis.
3. The extent to which the Defendant's belief and legal advice regarding ownership of the transferred monies affect the characterization of the contempt as contumacious or negligent.
4. The court's authority and conditions for ordering the return of assets transferred in breach of the freezing order, including assets now subject to foreign freezing orders.

Arguments of the Parties

Defendant's Arguments

• The monies transferred from his accounts, including the Jersey account, were held on behalf of third parties and thus not subject to the freezing order.
• He received legal advice from his English and Cypriot solicitors that the freezing order did not apply to assets held by him in trust or on behalf of others.
• He disclosed additional assets in his affidavit and expressed willingness to comply with court requirements.
• He contended that the breaches were not deliberate or contumacious but rather due to a broad interpretation of the legal advice and the freezing order.
• He sought the costs to be assessed on the standard basis rather than the indemnity basis.

Plaintiff's Arguments

• The Defendant breached the freezing order contumaciously by transferring substantial sums without proper disclosure or court permission.
• The Defendant's claim that the monies belonged to third parties was improbable and unsupported by sufficient evidence or documentation.
• The legal advice relied upon was unlikely and given without sufficient information, making the breaches culpable.
• The Plaintiff emphasized the importance of upholding court orders and the serious nature of the contempt, citing relevant case law.
• The Plaintiff sought the stay to remain until compliance and costs to be paid on the indemnity basis.
• The Plaintiff submitted that all assets transferred in breach should be returned or secured within the court's jurisdiction.

Trustee's Arguments

• The Jersey transfers should be reversed and information on progress to be provided to the Trustee.
• The costs of the transfer should be paid before lifting the stay.
• The Trustee did not accept the Defendant's representations of cooperation.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by identifying the key factual issues: the ownership of the monies transferred in breach of the freezing order and whether the Defendant acted deliberately or was properly advised. It acknowledged that the ownership question was the subject of separate proceedings and could not be resolved in this application. The court accepted, for the purposes of this application, the Defendant's assertion that the monies belonged to third parties.

Regarding the Defendant's conduct, the court found that although the Defendant obtained general legal advice that the freezing order did not apply to third party monies held in his name, he did not seek specific advice about the transfers and acted without due care. The Defendant personally travelled to Jersey to authorize substantial transfers to his wife's accounts without consulting his solicitors on the precise legality. This conduct was not deliberate contempt but was culpable negligence and cavalier disregard for the court's order.

The court gave weight to the Defendant's claim of belief in third party ownership but noted the absence of detailed evidence and the suspicious nature of some transactions and explanations. The Defendant's inconsistent statements and falsehoods to banks and authorities further undermined his credibility.

Balancing the paramount public interest in enforcing court orders with the Defendant's right to a fair trial and to pursue his Part 20 claim, the court concluded that the stay should be lifted on strict terms. Those terms include the Defendant undertaking to take all reasonable steps to repatriate assets transferred in breach of the freezing order, reporting progress bi-monthly to all parties, and paying the costs of the application on an indemnity basis before the stay is lifted (subject to limited exceptions).

The court reserved the question of imposing a fine pending the final determination of ownership. It also rejected the Defendant's application to have costs assessed on the standard basis, maintaining the indemnity basis due to the seriousness of the contempt.

The court emphasized that if the Defendant is ultimately found to have owned the monies transferred, the Plaintiff may seek re-imposition of the stay and other orders. The court also directed further case management and suggested consideration of alternative dispute resolution.

Holding and Implications

The court GRANTED IN PART the Defendant's application to lift the stay imposed due to contempt, subject to stringent conditions including:

• The Defendant must undertake to take all reasonable steps to repatriate all assets transferred in breach of the freezing order, not limited to the Jersey transfers.
• The Defendant must provide bi-monthly reports on progress to the Plaintiff, the Trustee, and other parties.
• The stay will be lifted 28 days after the first report is served, unless the court orders otherwise.
• The Defendant must pay the costs of the application on an indemnity basis before the stay is lifted, unless unable to do so with evidence provided.

The court DENIED the Defendant's application to have the costs assessed on the standard basis, maintaining the indemnity basis due to the nature of the breaches.

The court reserved the question of imposing a fine pending final determination of ownership of the monies. It also recognized that if it is ultimately found that the Defendant owned the monies transferred, the Plaintiff may apply for re-imposition of the stay and other appropriate orders.

No new precedent was established by this decision; rather, it applied established principles balancing the enforcement of court orders with fairness and proportionality in contempt proceedings and freezing order enforcement.