Caution — Sale of land — Jewish court appointed as arbitrator in fraud claim — Direction prohibiting sale of first defendant’s home without court’s permission — Caution registered against title — First defendant selling property to second defendants — Whether direction creating lien or charge over property — Whether second defendants entitled to removal of caution
A Jewish Beth Din Court was appointed as the arbitrator in a dispute between the claimant and the first defendant, both of whom were strict Orthodox Jews. The court made a “freezing” direction (the direction) prohibiting the first defendant from dealing with, or disposing of, his home without the permission of the Beth Din, pending the determination and satisfaction of the final award in the arbitration. A caution was registered against the title to the first defendant’s home. Notwithstanding the direction, the first defendant sold the property to the second defendants. The Beth Din subsequently awarded the claimant £237,224.50 damages for fraud, and the claimant obtained an interim charging order against the property to secure this sum. The issue before the court below was whether the direction or the award created, in favour of the claimant, a lien or charge on the first defendant’s home securing the award of damages, and, if so, whether the second defendants were bound by that lien or charge. The second defendants also brought a separate action seeking a declaration that they were entitled to be registered as proprietors of the property free from any charge or lien.
Held: The claim in the first action was dismissed; the claim in the second action was allowed.
Neither a freezing order by the court nor a freezing direction by an arbitrator operated to create a charge. In order to give rise to a security interest, an order or direction had to vest in the creditor the right to impose upon the debtor the obligation to satisfy the debt from the assets. In this case, as a matter of English law, no basis existed for finding that a right had been created, or that an obligation had been imposed, by the direction.
An agreement to comply with the direction could not create a proprietary interest if the direction itself did not do so. Moreover, the registration of the caution, or the Beth Din’s grant of permission to do so, did not carry the matter further. A caution against dealings could be registered only to protect some form of interest in land, not to protect a freezing order or direction that was merely ancillary to the claimant’s pecuniary claims against the first defendant: Elias v Mitchell [1972] Ch 652 considered.
Under Jewish law, a freezing injunction or direction operated in personam and not in rem, and did not create a lien or other interest in favour of the party who obtained the order over, or in respect of, the assets of the party against whom it was made, and did not entitle it to priority over other creditors.
Accordingly, the second defendants were entitled to be registered as proprietors of the property free from any charge or lien in favour of the claimant and the caution was to be vacated. The interim charging order had no effect because, after the completion of the contract for sale and the payment of the full purchase price, the first defendant ceased to have any interest other than bare legal title to the property, which he held as trustee for the second defendants.
* Editor’s note: For clarity, the parties are referred to according to their status in the first action: Mr Kastner is therefore named as the claimant even though he was the defendant in the second action.
Jonathan Seitler QC (instructed by Dechert LLP) appeared for the claimant; David Lonsdale (instructed by Mills & Reeve, of Norwich) appeared for the second defendants; the first defendant did not appear and was not represented.
Eileen O’Grady, barrister
