Discovery Land Company, LLC & Others v Jirehouse & Others [2019] EWHC 2249 (Ch)

Discovery Land Company, LLC & Others v Jirehouse & Others [2019] EWHC 2249 (Ch) concerned an application by Discovery Land Company, LLC to commit Mr Stephen Jones, a solicitor and the seventh defendant, to prison for contempt of court. Mr Justice Zacaroli found multiple allegations of contempt proved to the criminal standard.

The contempt comprised breaches of undertakings given to the court before Nugee J on 15 March 2019 and breaches of disclosure obligations in a freezing order granted by Nugee J on 18 March 2019. Mr Jones had given the undertakings personally and on behalf of Jirehouse, an unlimited company providing legal services which he controlled. Mr Halpern QC acknowledged that Mr Jones was synonymous with Jirehouse such that he was responsible for any breach by that entity.

The underlying facts concerned the purchase of Taymouth Castle in Scotland. The claimant, a property development company, fronted the purchase for Mr John Paul DeJoria, a wealthy US entrepreneur. In April 2018, approximately $14.05 million was wired to Jirehouse Trustees’ client account. Mr Jones advised the acquisition proceed through Esquiline Asset Managers Limited (EAML) as a special purpose vehicle. Immediately upon receipt, the funds were lent by EAML to Esquiline Finance Limited (EFL) and on-loaned by EFL to two undisclosed borrowers. Approximately £1.9 million which should have been held as a retention fund was also paid away. Shortly before the March 2019 hearings, the claimant discovered that Mr Jones had caused a charge to be placed on the Property in favour of Dragonfly as security for a loan facility, under which nearly £5 million had been drawn down.

When completion fell due in December 2018, Jirehouse did not have the funds. Mr Jones fabricated a series of excuses. First, he claimed compliance checks were required on Mr DeJoria, although Mr Jones had known since June 2018 that Mr DeJoria had provided the funds. Second, he blamed bank capacity issues over the holidays. Third, he blamed a random audit by Barclays. Fourth, between January and March 2019, he made suspicious activity reports alleging Mr DeJoria’s involvement in fraud and connections to Libya, and obtained a Leading Counsel’s opinion on a false premise that Jirehouse held the funds. Fifth, having obtained clearance from the National Crime Agency, he demanded an indemnity and release before releasing funds. In February 2019, Mr Jones procured a letter from auditors confirming funds were available in an account at Barclays. This was untrue; the funds had long been paid away.

On 13 March 2019, the claimant applied for relief after discovering the Dragonfly charge. Nugee J ordered Jirehouse to provide account details and evidence that the account held at least $9.3 million (the surplus funds), and information about the Dragonfly drawdown. Jirehouse’s purported compliance on 14 March 2019 referred to the auditors’ February letter and stated the Dragonfly funds remained pledged against a Jirehouse undertaking. Both statements were untrue.

On 15 March 2019, the claimant applied for a freezing order. Shortly before the hearing, Jirehouse stated the surplus funds were in an account with Hambros Private Bank. At the hearing, at which Mr Jones was present, Leading Counsel gave undertakings, having taken instructions from Mr Jones, to pay the surplus funds into court by 4pm on 19 March and to repay the £4.9 million drawn down under the Dragonfly facility. Counsel stated the money could be called within 48 hours and was held in accounts at Hambros. The undertakings were given on behalf of Mr Jones personally and on behalf of Jirehouse.

By Monday 18 March, Mr Jones sought to resile from the undertakings. He emailed the court stating he had offered an undertaking in terms to be finalised over the weekend (which was false), that the EAML funds were on a longer-term investment which could not be broken, and that funds previously described as held for EAML in fact belonged to an unrelated client. At the 18 March hearing, Leading Counsel accepted the undertaking had been given but that compliance was impossible. The court made a freezing order. The 18 March order repeated the disclosure obligations from 15 March, requiring details of bank accounts holding the surplus funds, evidence confirming the funds were held, an explanation of how the $9.3 million had been dealt with since 6 December 2018, and what had happened to the Dragonfly drawdown since 12 February 2019.

Mr Jones served a second affidavit on 20 March 2019 purporting to comply with the orders. He stated the initial funds had been transferred to EFL’s account at Barclays and that he now understood the liquidity resources were no longer available. He stated EFL had invested the funds on short-term liquid investments pending use by EAML. He was unable to provide evidence of funds or account details for the reasons stated. He stated the Dragonfly funds had been transferred to EFL and that EFL used them for short-term investments. The disclosure was incomplete and positively misleading.

On 3 April 2019, the claimant applied to commit Mr Jones. On 8 May 2019, Mr Jones served a third affidavit stating the surplus funds had been used by EFL to lend to borrower 1 and borrower 2 (described only in general terms), that urgent steps were being taken to sell assets to repay the loans, and that EFL and EAML were insolvent without repayment. He stated the Dragonfly drawdown had been applied to transaction costs, to provide liquidity for retention funds, and towards refinancing arrangements for the borrowers. He apologised for delay and hoped the court would understand he had done all he could to purge contempt. Material deficiencies remained, including failure to identify borrowers 1 and 2, dates of payments, bank accounts, and loan terms.

On 31 May 2019, Mr Jones supplied certain documents to the claimant through an intermediary on a without prejudice basis. The documents purported to disclose the identities of the borrowers. Mr Jones offered to provide the information on an open basis but subject to confidentiality restrictions. The claimant refused. At the hearing, counsel for Mr Jones indicated he wished the court to receive the documents confidentially, but accepted Mr Jones would need to apply to adduce further evidence by affidavit and to vary the terms of the undertakings to permit confidential disclosure. After an adjournment, counsel stated he was no longer proposing to adduce further evidence.

Mr Justice Zacaroli considered first the breaches by non-disclosure. He held it was common ground that to prove contempt the claimant must prove to the criminal standard that Mr Jones failed to do the act within the time set, intended to fail to do the act, and had knowledge of all facts which made the omission a breach. Mr Jones chose not to give evidence. Henry Carr J had determined Mr Jones could not be compelled to give oral evidence but warned that adverse inferences might be drawn. The critical question was whether Mr Jones was aware at the time he swore his affidavits of matters he failed to disclose.

The judge found compelling evidence that EAML and EFL were effectively controlled by Jirehouse. The Jirehouse retainer letter described EAML as affiliated to Jirehouse and stated Jirehouse had employed EAML on the claimant’s behalf. EAML’s registered office was at Jirehouse’s address. Mr Jones described EAML as effectively internally controlled with Jirehouse-appointed directors. Mr Clark’s witness statement on behalf of EAML stated all his information came from Mr Jones, including that EAML had no bank account and paid and received funds through EFL. Mr Jones designed the transaction by inserting EAML. It was inconceivable he did not know the purchase monies had been paid away; the surreptitious replacement of the retention fund using the Dragonfly facility could not have been done without his knowledge. The series of excuses between December 2018 and March 2019 showed he knew the funds had been removed. When Mr Jones did provide information about EFL and the borrowers, his failure to state when, how and from whom he acquired the information led to the inference he knew all along. It was inconceivable Mr Jones was unaware £180,000 had been used to pay Jirehouse’s own fees or that Dragonfly monies had funded the retention amount. Mr Jones’ failure to offer himself for cross-examination in the face of manifest gaps in his evidence, defects in his affidavits, and his history of false explanations, supported an adverse inference that he could not honestly resist these conclusions.

The judge rejected the contention that there was a threshold of seriousness before contempt proceedings could be brought. For the reasons given, he regarded breach of an undertaking given when the contemnor knew it could not be complied with as very serious. The judge was satisfied to the criminal standard that Mr Jones knew all along, and certainly by his second affidavit, of the loan to EFL and the loans to the borrowers, and the uses of the Dragonfly funds. His second affidavit was not only incomplete but positively misleading. The breach was deliberate.

The judge held Mr Jones had not fully cured the defects by his third affidavit. Glaring deficiencies remained, including failure to identify the borrowers, dates of payments, bank accounts, and loan terms. These fell within the parameters of explaining how the funds had been dealt with and were critical for policing a freezing order. For the reasons given, Mr Jones knew these details all along or at the very least had the means of finding them out given his relationship with EAML and EFL. There was continuing deliberate breach of the disclosure undertakings following the third affidavit. The information provided via Mr Anderson on 31 May 2019 was on a basis that the claimant could not use it, subject to restrictions that would prevent the claimant bringing actions against persons not already parties. Mr Jones refused to verify the information by affidavit. He had not purged his contempt, which therefore continued.

The judge then considered the payment breaches. Mr Halpern QC raised a preliminary point under the Debtors Act 1869, section 4, which prevents imprisonment for default in payment of a sum of money. The judge rejected the submission, holding that in light of Prosser v Prosser [2011] EWHC 2172 (Ch) and Bates v Bates (1888) 14 PD 17, the Debtors Act was not engaged where there was an order for payment of money but not of an ordinary debt and not directly to the claimant. The undertaking concerning the surplus funds clearly fell outside the Act. The undertaking concerning the Dragonfly facility, properly construed in context, was to procure that the funds described as sitting in a Hambros account would be transferred to Dragonfly, not to pay a debt owed by Mr Jones. The purpose of the Debtors Act was not engaged. In any event, the third exception in section 4 applied, as Mr Jones undertook to procure that funds in an account with EAML for the benefit of Jirehouse be paid into court, and Mr Jones as a director of Jirehouse was clearly in a fiduciary position.

Counsel for Mr Jones contended that at the time he gave the undertakings he believed he could comply and immediately informed the court when it became apparent he could not. The judge accepted the reality was that from 18 March 2019 Mr Jones’ failure had been established and continuing failure thereafter did not exacerbate matters. This was not a case of continuing breach. Counsel relied on Sectorguard Plc v Dienne Plc [2009] EWHC 2693 (Ch), in which Briggs J held that failure to perform an impossible undertaking is not a contempt because there is no choice. The judge held, however, there is a difference between subsequent impossibility and giving an undertaking when the contemnor knew compliance was impossible or was reckless as to whether compliance was possible.

The judge relied on Citadel v Thompson [1999] 1 FLR 21, in which the Court of Appeal held a solicitor could not be heard to assert impossibility as a reason for not suffering the penalty for breach of an order when he had assured the court he could perform. Buxton LJ stated the alleged impossibility sprang not from external events but from the contention the solicitor could not perform acts he assured the court he could perform. Judge LJ held a solicitor should not expect to be excused from non-compliance if he deliberately elected to conceal that performance was dependent wholly or in part on the activities of others. Although Mr Thompson maintained assurances over weeks and on two occasions, the distinction went to sanction, not to whether failure to comply was a contempt.

The judge rejected the contention that Mr Jones did not appreciate until the order was sealed on Monday that he had given any undertakings. The transcript demonstrated clearly that undertakings were given on Friday 15 March and the judge expressly acknowledged this. Mr Jones produced no evidence that he did not understand he had given the undertakings. His second affidavit referred to realising he could not fulfil the undertaking, not to being unaware of having given it. The transcript provided compelling evidence Mr Jones was aware he had given the undertakings. He was represented by experienced Leading Counsel who would have ensured he understood the seriousness. Mr Jones’ email of 18 March was self-serving and its first line was manifestly false. The judge was satisfied to the criminal standard that Mr Jones knew full well on Friday he was giving an undertaking and knew of the seriousness of doing so.

The judge construed the undertakings in context. In relation to the Dragonfly facility, the undertaking required transfer of the funds identified as held in a Hambros account. The same was true of the surplus funds undertaking, given in context that Mr Jones told the court through counsel the funds were held for EAML and could be called within 48 hours. Although Mr Jones’ evidence was that he hoped the client for whom the Hambros funds were held would agree to their use or that Mr Brown would agree to fund the payments, Mr Jones refused to disclose the other client or to explain how he believed on Friday the money was available. Mr Brown’s evidence was disregarded as he was not tendered for cross-examination. The claimant accepted Mr Jones had such a hope. The judge held the key to understanding Mr Jones’ intentions was that if he wanted to avoid a freezing order he had to tell the court the surplus funds were held for EAML, which he admitted on Monday was untrue. Had he revealed the truth that funds had been paid away, his excuses would have been exposed as lies and there would have been no way to avoid a freezing injunction. The very strong inference was that Mr Jones fully understood he was giving an undertaking to procure that surplus funds he had told the court were held for EAML would be paid into court within 48 hours. Mr Jones knew this was not possible at

Holdings Limited v Brooke [2016] EWHC 2421
VIS Trading v Nazarov [2015] EWHC 3327
Prosser v Prosser [2011] EWHC 2172
Sectorguard Plc v Dienne Plc [2009] EWHC 2693
Adam Phones v. Goldschmidt [1999] 4 All ER 486
Citadel v Thompson [1999] 1 FLR 21