Out-Law News 3 min. read
30 Nov 2015, 10:07 am
Yoram Yossifoff, an Israeli businessman, had sought two injunctions against his former friend and business partner Shmuel Donnerstein preventing the latter from disposing of his interest in a British Virgin Islands company and its Cayman Islands subsidiary, as well as a London hotel owned by the Cayman Islands subsidiary. Yossifoff was pursuing Donnerstein in the courts in their native Israel, on the grounds that Donnerstein had been holding shares in the first company on behalf of both businessmen – something that Donnerstein denied.
Yossifoff had asked the Israeli courts to order that Donnerstein provide him with various documents setting out how the 'trust assets' he claimed Donnerstein was holding on his behalf had been managed since he was forced by a bank to give up his interest in the hotel in 2010. However, he had not asked for any declaration that such a trust existed in the first place or for any findings of breach of trust or any compensation or damages for that breach.
In his ruling, Mr Justice Snowden said it was not in his power to grant the freezing injunction that Yossifoff was seeking. This was because there was "no claim in the main proceedings which could give rise to any monetary judgment in favour of [Yossifoff] against [Donnerstein]; and hence there is no basis upon which I could grant a freezing injunction to prevent [Donnerstein] from dealing with his assets in order to ensure that assets remain to satisfy such a judgment", he said.
He also refused to grant a proprietary injunction sought by Yossifoff, again on the grounds that the businessman had not made any proprietary claim over the assets in dispute in the Israeli court.
The dispute had been prompted by the fact that Donnerstein was currently in negotiations to sell the stake in the London hotel owned by Perston, the British Virgin Islands-based company. Originally, Yossifoff and Donnerstein had owned one each of two shares issued by Perston, but Yossifoff transferred his share to Donnerstein in 2010 as a condition of support provided by the bank when the hotel owned by Perston got into financial difficulties. Donnerstein was now attempting to sell the hotel.
Mr Justice Snowden said that, on the facts before him, there was no reason why Donnerstein should not be allowed to do so. Any remaining issues on Yossifoff's part "would concern the actions of a person resident in Israel in relation to shares located in Israel, and would have to be determined with an understanding of the detailed requirements of [Israeli law]," he said.
"In my judgment … it would obviously be appropriate for any interim relief in those respects to be sought from the court seized of the main proceedings in Israel," he said. "That is where [Donnerstein] is resident and the assets in question are located. In my view this would be manifestly inexpedient for this court - which only exercises an ancillary jurisdiction - to grant any such relief."
Civil fraud and asset recovery expert Alan Sheeley of Pinsent Masons, the law firm behind Out-Law.com, said that the case had implications in fraud cases with an international element, where similar claims of breach of trust were often cited.
"The case demonstrates the need to have a clear strategy from the outset if the English court is going to be used to assist in foreign proceedings on an ancillary basis," he said. "Clearly, in this case Yossifoff had not thought about how to protect the asset in dispute and the need to seek a monetary sum in the substantive proceedings."
"The judgment demonstrates that parties in foreign proceedings should take advice from English experts before embarking on proceedings if they want to seek the English court's discretion to grant freezing orders. However, the case does not limit fraud practitioners. The judgment states that freezing orders can be granted over assets that are 'pragmatically' still controlled by unscrupulous defendants, even if not actually owned - for example, the assets are owned by a company controlled by the defendant. However, evidence will need to be put to the court about the unscrupulous behaviour," he said.