Discovery Land Company, LLC & Ors v Jirehouse & Ors [2019] EWHC 2264 (Ch) (16 August 2019)

Neutral Citation Number: [2019] EWHC 2264 (Ch) Claim No: BL-2019-000541 IN THE HIGH COURT OF JUSTICE BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES (ChD) BUSINESS LIST Royal Courts of Justice Strand, London, WC2A 2LL 16/08/2019 B e f o r e : THE HON. MR JUSTICE ZACAROLI ____________________ Between: DISCOVERY LAND COMPANY, LLC TAYMOUTH CASTLE DLC, LLC RIVER TAY CASTLE LLP Claimants -and- (1) JIREHOUSE (a body corporate) (2) JIREHOUSE PARTNERS LLP (3) JIREHOUSE TRUSTEES LIMITED (4) JIREHOUSE SECRETARIES LIMITED (5) ESQUILINE ASSET MANAGERS LIMITED (6) ESQUILINE FINANCE LIMITED (7) STEPHEN JONES (8) JOHN CLARK Defendants CONTEMPT HEARING ____________________ Edward Levey (Instructed by Davis Woolfe) appeared on behalf of the Claimants David Halpern QC (Instructed by Brown Rudnick) appeared on behalf of the First to Third Defendants Alexandra Felix (Instructed by Birds Solicitors) appeared on behalf of the Seventh Defendant [13/08/19-15/08/19] Sentencing ruling: 16 August 2019 ____________________ HTML VERSION OF SENTENCING RULING APPROVED ____________________ Crown Copyright © MR JUSTICE ZACAROLI: I now have to consider the question of penalty further to my judgment handed down this morning finding that Mr Jones, the 7th defendant, was in contempt of court. The penalties for contempt of court are set out in section 14 of the Contempt of Court Act 1981, which provides that a committal must be for a fixed term and the term shall not on any occasion exceed two years in the case of committal by a superior court. If the committal is ordered to take effect immediately, the contemnor is entitled to automatic release without conditions after serving half of the term of that committal. It is well established that the sentence for committal forms at least two important functions. First, it upholds the authority of the court and the public interest that court orders should be obeyed. Secondly, in some cases it provides an incentive for belated compliance because the contemnor may seek a reduction or discharge of sentence if he subsequently discharges his contempt by complying with the court order in question (see JSC BTA Bank v Solodchenko (No.2) [2012] 1WLR 350 , at paragraph 45 per Jackson LJ). The principles to be applied have been set out in a number of recent authorities. They were conveniently summarised by Popplewell J in Asia Islamic Trade Finance Fund Limited v Drum Risk Management Limited [2015] EWHC 3748 (Comm) at paragraph 7: "(1) In contempt cases the object of the penalty is to punish conduct in defiance of the court's order as well as serving a coercive function by holding out the threat of future punishment as a means of securing the protection which the injunction is primarily there to achieve. (2) In all cases it is necessary to consider (a) whether committal to prison is necessary; (b) what is the shortest time necessary for such imprisonment; (c) whether a sentence of imprisonment can be suspended; and (d) that the maximum sentence which can be imposed on any one occasion is two years. (3) A breach of a freezing order, and of the disclosure provisions which attach to a freezing order is an attack on the administration of justice which usually merits an immediate sentence of imprisonment of a not insubstantial amount. (4) Where there is a continuing breach the court should consider imposing a long sentence, possibly even a maximum of two years, in order to encourage future cooperation by the contemnors. (5) In the case of a continuing breach, the court may see fit to indicate (a) what portion of the sentence should be served in any event as punishment for past breaches; and (b) what portion of a sentence the court might consider remitting in the event of prompt and full compliance thereafter. Any such indication would be persuasive but not binding upon a future court. If it does so, the court will keep in mind that the shorter the punitive element of the sentence, the greater the incentive for the contemnor to comply by disclosing the information required. On the other hand, there is also a public interest in requiring contemnors to serve a proper sentence for past non-compliance with court orders, even if those contemnors are in continuing breach. The punitive element of the sentence both punishes the contemnors and deters others from disregarding court orders. (6) The factors which may make the contempt more or less serious include those identified by Lawrence Collins J as he then was, at para.13 of the Crystal Mews case, namely: (a) whether the claimant has been prejudiced by virtue of the contempt and whether the prejudice is capable of remedy; (b) the extent to which the contemnor has acted under pressure; (c) whether the breach of the order was deliberate or unintentional; (d) the degree of culpability; (e) whether the contemnor has been placed in breach of the order by reason of the conduct of others; (f) whether the contemnor appreciates the seriousness of the deliberate breach; (g) whether the contemnor has co-operated; to which I would add: (h) whether there has been any acceptance of responsibility, any apology, any remorse or any reasonable excuse put forward." That summary was recently cited with apparent approval by the Court of Appeal in Olga Olita Sellers v Artem Podstreshnyy [2019] EWCA Civ 613 at paragraph 27. In relation to the second point, namely that the court should first consider whether a prison sentence is necessary, I add that the Court of Appeal in McKendrick v FCA [2019] EWCA Civ 524 emphasised that a sentence of imprisonment should only be imposed if nothing other than a custodial sentence is justified. In relation to the final point made by Popplewell J, the Court of Appeal has recently reaffirmed that once it has been determined that a term of committal is inevitable and having decided the length of that term, including all aggravating and mitigating factors, the court must consider what reduction is appropriate, if any, to reflect any admissions of contempt. The earlier an admission is made, the greater the reduction that would be appropriate. By analogy with the Sentencing Council's guidelines, the maximum reduction of one-third is appropriate where the admission is made at the outset of the proceedings for contempt. Thereafter, there is a sliding scale down to about 10 per cent where admissions are made at trial. I turn then to consider the contempts that I have found here. I need to address the contempts individually, although Ms Felix who appears on behalf of Mr Jones contends, and I accept, that in reality the payment undertakings involved one and the same failure. The same is true for the disclosure undertakings and orders. Dealing first with the payment undertakings. The failure to comply with an undertaking to pay money into court is always a serious matter. Looking at the factors identified by Lawrence Collins J referred to earlier: first, I do not think that Mr Jones can claim mitigation because he was acting under pressure. Any pressure was of his own making. Secondly, while the breach was unavoidable the moment the undertaking was given, that was because of the circumstances in which it was given and is not something which in any way excuses Mr Jones, as I have found in the main judgment. That is because when he gave the undertaking, knowing it to be understood as relating to funds which he said were in an account held in trust for EAML, Mr Jones knew that to be false and so knew it was impossible to comply with. Moreover, on his case, the reason he hoped he would be able to comply was one which he did not disclose to the court in circumstances where he knew that if had disclosed it, the court would inevitably have granted the freezing order he hoped to avoid. Thirdly, Mr Jones was clearly directly culpable for the breach and there is no suggestion that he was placed in breach due to the conduct of others. I have no doubt that Mr Jones appreciated the seriousness of not complying with the court orders or undertakings. So far as co-operation is concerned, Mr Jones acknowledged within 48 hours that he could not comply. I consider that is an important mitigating factor. The advantage that he hoped to gain from the undertaking, namely avoiding a freezing injunction, lasted for an extremely short time. There is no suggestion that he took advantage of that time period for any nefarious purpose, for example by dissipating assets. Moreover, having regard to the first of the factors mentioned by Lawrence Collins J, there was no substantial prejudice caused to the claimants by the failure to comply with the undertaking. They attended court on 15 March intending to obtain a freezing order. They were in substance delayed from doing so until the next working day as a result of the undertaking given by Mr Jones and its breach. I should add I do not think this is to be equated with an admission of the contempt in the sense referred to in the Solodchenko case as justifying a reduction in sentence. Mr Jones has never admitted the contempt and maintained at trial that he genuinely believed he could comply with the undertaking when he gave it. I recognise that this contempt consists only of the failure to comply with the undertaking and I need to be very careful not to fall into the trap of punishing Mr Jones for the separate matter of misleading the court either when he gave the undertaking or when he sought to explain non-compliance (in the latter case it being misleading by omission). These are relevant matters which, as in the Citadel case, go to establishing the deliberate nature of the breach, but they are not matters with which he is charged in this application for committal. As I indicated in the main judgment, they would have to form the basis of a different form of contempt proceedings. It is nevertheless relevant when considering the extent to which credit should be given for Mr Jones' acceptance that he could not comply, that I have found he gave the undertaking knowing he could not do so and reckless as to whether he could otherwise come up with the funds. Given these circumstances, I am afraid I consider an order for committal is unavoidable. Had it not been for the speedy admission of inability to comply, the appropriate sentence would have been towards the top end of the scale. Giving undertakings to the court in order to try to gain the advantage of avoiding a freezing order knowing that it cannot be complied with but hoping that funds can be obtained from elsewhere is conduct which merits significant sanction, all the more so when that undertaking is given by a solicitor. The mitigating factor I have just referred to, however, does bring the appropriate sanction down substantially. I will deal with the precise period after taking into account the more general factors which are advanced on his behalf by Ms Felix, which relate to all the charges. Turning then to the disclosure obligations, I similarly consider that the failure to comply with these obligations necessitates an order for committal. Disclosure obligations in aid of a freezing injunction are of the greatest importance to enable a claimant and the court to police the injunction and enforce it against third parties. That is particularly so where the injunction is in aid of a proprietary claim and the claimant is seeking to discover what has happened to money which should have been held for it but has been dissipated. As noted by Popplewell J in the Asia Islamic Trade Finance Fund case, a breach of the disclosure obligations in a freezing order is an attack on the administration of justice which usually merits an immediate sentence of imprisonment of a not insubstantial amount. It is clearly an exacerbating factor that such an attack on the administration of justice is made by an officer of the court. Taking again the relevant factors referred to by Lawrence Collins J, a claimant is inevitably prejudiced by a failure to give disclosure. At least until 31 May 2019, the claimant was unaware of critical details that would have been relevant to its ability to trace and safeguards its funds. The fact that Mr Jones had already had two attempts to comply in his second and third affidavits but still failed to provide important details is an important aggravating factor. As with the payment undertakings, Mr Jones cannot reasonably say that he acted under pressure or the breach was unintentional or that he was not himself culpable or was placed in breach by the conduct of others. Finally, I am again satisfied that he understands the seriousness of non-compliance. It is said on Mr Jones' behalf that he believed, I take it on legal advice, that the legal position was that the claimant ought to have been seeking further information. It might be said he had co-operated by giving the further information he did in his third affidavit, and some further information on a without prejudice basis at the end of May. I have to say, however, that this is a very serious misunderstanding of the need to provide information to the best of his ability as to what has happened to funds which he held for the claimant. The reality is, and I believe that this is an appropriate characterisation too of the most recent attempt to provide full disclosure (to which I will turn next), that information has been provided on a drip-feed basis; Mr Jones has, on each occasion he has provided information, given the minimum he considered he could get away, when I am fully satisfied he knew and knows a lot more. After handing down judgment, I received an indication that Mr Jones wished to apply to purge his contempt by revealing openly what he had provided on a without prejudice basis (i.e. on a basis which did not permit the claimant to us it) on 31 May this year. This, it was said, would be everything necessary to comply with his disclosure obligations. By his 6th affidavit, Mr Jones has identified the names of borrower 1 and borrower 2. By reference to what he calls summary ledgers and detailed bank statement ledgers, I note prepared by him, he has purported to provide (1) the date of each loan made to each borrower; (2) the purpose of the loan which he said was normally the repayment of a prior loan; (3) the person to whom the payment was made; and (4) the beneficiary bank account to which the payment was made. In fact, he says there were no loan agreements between EFL and borrower 1 and borrower 2 and no payments were ever made to them. Instead, payments were made directly to third parties, calculated as 51 in total on an on demand basis on a variety of dates, said to be made to repay prior loans from those third parties. No details of such loans are provided. The claimant has produced evidence from public sources showing a connection between Mr Jones and what I make out to be over 30 of those recipients, whether because he is a director of them, they are Esquiline companies, they are companies registered at the same address as Jirehouse, or a Jirehouse company is the company secretary. Moreover, although Mr Jones disclosed that the general partner of borrower 1 was a company registered at the Jirehouse address, he had not disclosed that which the claimant has subsequently found in public information, namely that he was in fact a director of it. I agree with Mr Levey that the information in relation to the supposed loans to borrower 1 and borrower 2 raises a lot of further (unanswered) questions which alone mean I cannot be satisfied that Mr Jones has purged his contempt by this further information. One obvious point is that if, as is clearly shown to be the case, Mr Jones is connected with a recipient of funds, then he should know, or be able to find out, what that recipient has done with those funds. Accordingly, by merely identifying a payment to that recipient, he has not explained to the best of his ability what has happened to the money. I do not think it is sufficient for Mr Jones to hide behind the fact that the discussion in court during the hearing and the terms of my judgment referred to the need to identify particular matters, being bank account details and names of recipients, and limit his disclosure accordingly. If the information he provides creates further questions as to what has happened to the funds, which he is in a position to answer, then providing information to the best of his ability necessarily goes further. In any event, there is clear non-compliance still with the disclosure obligations, given that while he stated in his affidavit he has provided bank details of the recipients of the payments, in fact he has provided none. This is important information for the claimant in seeking to trace the funds. The claimant contends that Mr Jones has an interest in borrower 2 as well. On the basis of the information I have available, and without delving into the question whether without prejudice privilege has been waived or can otherwise be overridden, I cannot make any finding on this. Mr Jones, through Ms Felix, says he has a connection but only because an Esquiline company in which he has an interest holds shares in borrower 2 on trust for various clients of his firm. I reach no conclusion in relation to any further involvement of Mr Jones in borrower 2 and do not take this point into account in my sentencing. For the other reasons given, however, I am not satisfied on the evidence today that Mr Jones has not sufficiently purged his contempt. It clearly remains open to him to do so, and indeed Ms Felix urges this point on me as a reason for suspending any sentence as being the best way of ensuring compliance with the undertakings and order. Accordingly the position I am in today is that there has been serious and deliberate failure to give information to the best of his ability and that this is contempt which is continuing. As the authorities I have mentioned show, this warrants a significant period of imprisonment. I turn to deal with Ms Felix' more general submissions as to mitigating factors. Firstly, she says that Mr Jones appreciates the seriousness of non-compliance. He is genuinely sorry for his failure. So far as the payment undertaking is concerned, as I have accepted, that ceased in March and there was no real prejudice. She says I should take into account the legal position I mentioned that the claimant should have sought further information. I have dealt with that, however, and rejected it as a reason for leniency. In relation to the disclosure undertaking, Ms Felix accepts that of course there was prejudice but it is important to know that the claimants have begun the task of tracing the funds. I comment in that respect that such steps as they have taken will have been seriously hampered by the lack of details to which I have referred. She says that an important factor is whether the funds have been dissipated to the point of being irrecoverable. She relies on the existence of the projects being carried out by borrower 1 and borrower 2, expected to be finalised and to produce a surplus. Mr Jones' evidence, however, is that both EFL and EAML are insolvent without being able to recover funds from the borrowers. I have no information about those borrowers' financial state whatsoever. His initial evidence was that funds were anticipated from the successful completion of one or other of the projects as long ago as the middle of 2018, so promises about a surplus arising later this year or early next year, without any evidential basis, must be viewed with some scepticism. I have already indicated that I find a period of imprisonment is necessary in relation to both the payment and disclosure obligations. I remind myself that it must be the shortest commensurate with the twin purposes (punitive and coercive). I accept, as I have said, that there is no remaining coercive purpose in relation to the payment undertakings. More generally, Ms Felix says it is a sad day when an officer of court comes before the court, a man with a 30 years plus career and, to date, an unblemished character. That is indeed a tragedy on many levels. Secondly, she points out that he has lost his practice, although I have to note that the cause of that was the money being dissipated in the first place, which led to the freezing injunction against Jirehouse in March of this year. It is inevitable, Ms Felix says, that his name on the Roll of solicitors is at an end. I am asked to take into account his sorrow, contrition and remorse and to accept it as genuine. He accepts that the consequences fall also on the employees of Jirehouse and his wife and son. Finally, I should have in mind the effect, as she put it compellingly, of the clang of the prison gate. For a man like Mr Jones, that cannot be understated. This point, I am afraid, cuts both ways however, since the failure to comply with undertakings, as I have noted, is exacerbated when it comes from an officer of the court. The court places great store in being able to trust and expect the highest standards of conduct from an officer of the court, as was made clear by Nugee J in giving his short judgment at the hearing on 13 March this year. I do indeed sympathise greatly with Mr Jones' family. It gives me no pleasure at all to send a man of previously good character to prison. But I am bound to consider sentence in light of the established principles and I cannot avoid the conclusion that Mr Jones has brought these consequences on himself. It is to his credit to an extent that he accepts this and does not seek to blame any others. Taking all of the above into account, on the payment obligations, Mr Jones, I have concluded that the appropriate sentence (as I said, it is much lower than it would have been, because of the speed of acknowledgement you made that it was impossible and because it caused no prejudice to the claimant) is a period of five months' imprisonment. On disclosure, guided by the authorities, emphasising the seriousness of a failure to comply with disclosure obligations in a freezing order and its continuing nature, I conclude that a prison sentence of 14 months is appropriate. However, I make it clear that a period of seven months, that is half of that sentence, is intended by me to be punitive, such that, on any future application to purge the contempt of court, the court may, although it is not bound to, consider that the remaining seven months may be remitted. I have listened to Ms Felix's plea very carefully that I should suspend sentence so as to give effect in particular to the coercive purposes, but I do not think it is appropriate to do so. Given the seriousness of the charges as found, I consider it is not appropriate to suspend any part of the sentence. The coercive purpose is provided for with the opportunity of purging your contempt. Finally I need to consider whether the sentences should run concurrently or consecutively. I consider these contempts all arise out of the same underlying events and will run concurrently. Accordingly the overall sentence which I consider to be just and proportionate in all the circumstances is a period of 14 months. As I have indicated, Mr Jones, you will be released after serving one half of that sentence and there is at least the possibility of reduction on a future application to purge your contempt. You will therefore now be handed into the custody of the tipstaff to be taken to prison. 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