On 4 March, in Kea Investments Limited v Ivory Castle Ltd & Mr William Gibson  EWHC 472 (Ch), the High Court handed down an important decision on the extent to which a party can use frozen funds to pay their legal expenses in circumstances where a claimant asserts that it has a “quasi-proprietary” claim to the frozen assets. The case raised wide-ranging issues of “some difficulty”.
Richard Power (and Guy Olliff Cooper) appeared for Ivory Castle and New Zealand businessman, William Gibson, in the three day hearing before Mr Justice Nugee.
Kea had obtained a judgment for over £40 million against Eric Watson, formerly one of New Zealand’s wealthiest businessmen. That judgment remains unsatisfied. Kea claims that a ground rents business held by Ivory Castle as part of a trust for Mr Gibson’s ultimate benefit is actually beneficially owned by Mr Watson and that Kea is able to enforce its judgment against it. Ivory Castle and Mr Gibson deny this.
Kea obtained freezing injunctions against Ivory Castle and Mr Gibson which contained an exception for the payment of legal expenses, but also prevented Ivory Castle from accessing a sum of £3 million to which it was entitled (the Aegean Monies). At the time of the injunction, Ivory Castle was also owed money from a third party (the Cottian Monies), but Kea considered that Cottian was insolvent and Ivory Castle would not be paid.
Early this year, it became clear that Cottian would be able to pay Ivory Castle. Kea applied for an order restraining the payment of the Cottian Monies to Ivory Castle, and Ivory Castle sought an order permitting it to access the Aegean Monies for the purpose of paying legal expenses.
Mr Justice Nugee held that:
- Ivory Castle and Mr Gibson could access the Cottian Monies to pay their legal expenses. The Cottian Monies were caught by the original freezing injunction (which contained an exception for legal expenses) and Kea had failed to show a material change of circumstances as required by Chanel Ltd v F W Woolworth & Co Ltd  1 WLR 48, as applied in The Processing Centre v Pitney Bowes Ltd  EWHC 3903 (QB).
- Kea had a “quasi-proprietary” claim to the Aegean Monies (on the basis that, on its case, the relevant assets did not belong to Mr Gibson or Ivory Castle but Mr Watson, and if it was right in its claim it would be able to enforce against those assets now). In doing so the Judge followed the decision of the High Court in JSC BTA Bank v Ablyazov  EWHC 3871 and sought to distinguish the rejection of the concept of ‘quasi-proprietary’ claims in HMRC v Begum  EWHC 2186 (Ch). Accordingly, the Judge held that the correct test was that applied to proprietary injunctions, rather than non-proprietary injunctions. However, in applying that test, the Judge considered that the appropriate course would be for Ivory Castle to access the Aegean Monies on the basis that Mr Gibson undertake to repay those monies if he was unsuccessful at trial (backed by appropriate security).
The judgment is here