Lord Chancellor v John Blavo & MSP Capital (2016)
A freezing order was continued against a solicitor who had been the managing director of a firm which had allegedly fraudulently claimed legal aid for thousands of cases. The firm had been liquidated, but the solicitor had signed a deed of guarantee and indemnity in respect of the firm's legal aid contracts and the court was satisfied that, based on the alleged dishonesty and a transfer of property, there was a real risk that assets would be dissipated in order to frustrate a future judgment.
The applicant Lord Chancellor applied for the continuation of a freezing order against the respondent solicitor in relation to a claim for breach of contract.
The solicitor had been the managing director of a firm which had entered into a contract with the applicant appointing it to provide legal services in the area of mental health. The solicitor had signed a deed by which he unconditionally and irrevocably guaranteed that the firm would perform its obligations under the contract and indemnified the applicant in respect of losses suffered as a result of the firm's failure to comply with its contractual obligations. The Legal Aid Agency (LAA) opened an investigation into the firm's representation of individuals at the Mental Health Tribunal on the basis that there had been a substantial discrepancy between the claims the firm reported and those the courts' service recorded. The firm was obliged to cooperate with the applicant and hand over copies of over 23,000 files, but it provided only four files. The applicant then terminated the contract and the firm was consequently assessed as owing over £22 million which represented payments the applicant had made to which the firm had not been entitled. The firm was compulsorily wound up and the applicant claimed that, in breach of the deeds of guarantee and indemnity, the solicitor had failed to pay the sum due. The applicant obtained an interim freezing order against the solicitor and sought its continuance. The solicitor disputed his liability, but conceded that the applicant had a good arguable case. The issue was whether there was a real risk that he would dissipate his assets.
The applicant submitted that
(1) the circumstances of the alleged breach of contract suggested that the firm and the solicitor had acted dishonestly;
(2) the solicitor had led an extravagant lifestyle;
(3) the solicitor had failed to disclose assets and had transferred property to his wife.
HELD: (1) The allegations of dishonesty went to the heart of the claim and were relevant to the risk of dissipation. If there was evidence that a firm of solicitors and its managing director had dishonestly made claims for payment from the LAA on the scale suggested it would be a short step to finding that there was a real risk they would dissipate their assets to avoid the consequences of a judgment against them. The court could not uncritically accept the applicant's case, but it could have regard to the evidence the investigation produced. It was extremely surprising that the firm could not provide the requested files. It was impossible to divorce the conduct of the firm from that of its managing director. He was closely involved with the work to which the action related, and was closely and immediately involved in the response to the LAA's demands. The firm's failure to provide the files to support the bulk of the claims reflected on the solicitor who was implicated in the apparent dishonesty. Nothing had been presented to enable the court to conclude that the firm had been dishonest , but not the solicitor. The applicant had shown real grounds for suspecting that the solicitor had been dishonest and that could be taken into account in determining whether there was a risk of dissipation, Jarvis Field Press Ltd v Chelton  EWHC 2674 (Ch) considered (see paras 24, 26, 30, 33-34 of judgment).
(2) The solicitor was entitled to spend his money as he chose and past purchases of expensive items did not go to the risk of future dissipation. The nature and extent of his spending might prove to be relevant to the argument in respect of fraud on the LAA, but the court could not reach a conclusion on that matter on the available evidence (para.36).
(3) The court was unconvinced by the solicitor's explanation of inaccuracies within his affidavit of assets. He was a solicitor and could be expected to be scrupulous in ascertaining the true position when completing such an affidavit. Any doubt in respect of any asset should have been explained fully in the affidavit. The transfer of property to his wife was suggestive of an attempt to put assets beyond the applicant's reach (paras 46, 49).
(4) There was a strongly arguable case that the solicitor had been party to an arrangement whereby false claims had been submitted to the LAA in thousands of cases, and evidence of a less that scrupulous approach to his duty of disclosure to the court in response to the instant application. There was a real risk that any judgment would go unsatisfied due to the disposal of assets unless the solicitor was restrained. Given the sum of money involved and his admitted financial difficulties, it was just and convenient to continue the freezing order (paras 50-51).
LTL 1/2/2016 :  2 P & CR DG4