by Gordon Exall
“Commercial squatting” is becoming a widespread problem for property agents and landlords. In the period running up to Christmas in particular, there were numerous reports of squatters breaking into empty commercial premises and making vast profits by operating rent-free shops for several weeks. These operators benefited from delays in the legal system and were so wise to legal procedure that they would leave only at the eleventh hour — when the bailiff was at the door — to take up occupation of yet another empty property.
This article suggests that the only way to prevent the growth of this squatting is by the aggressive use of court procedures in addition to obtaining an order for possession. It suggests that property lawyers should consider the use of interlocutory injunctions which allow the freezing of the squatters’ stock, force the squatter to disclose the whereabouts of all his assets, and make the enforcement of money judgments economically worth while. It is only by this vigorous approach to squatting that it will be squashed — it should be made to become financially unviable. It could also lead to the landlord’s receiving some financial return during the period of occupation.
Obtaining possession — Order 113
Order 113 of the Rules of the Supreme Court is usually the favoured means of obtaining speedy possession when squatters move into commercial premises. It is a procedure with which most property lawyers and agents are familiar, and is specifically designed to allow for the summary trial and speedy possession in squatter and similar cases. In theory, possession can be obtained within three days of service on the squatter.
One of the advantages of Ord 113 is that the action can be brought against squatters whose names are unknown. If the landlord proves his case the court must make an order for possession, and this order can be enforced against all occupiers of the premises, even those who have entered possession after the action has commenced: R v Wandsworth County Court, ex parte Wandsworth London Borough Council [5] 1 WLR 1314. An additional advantage is that the order can be enforced without having to notify the occupants beforehand without leave of the court, provided that the plaintiff applies within three months of the making of the order.
The drawbacks of Order 113
The primary disadvantage of Ord 113 is that a financial claim for “rent” — more accurately mesne profits — cannot be made with the application for possession: the plaintiff has to apply for possession alone to ensure that he comes within the scope of Ord 113. The more experienced squatters merely move out when the bailiff arrives, taking their stock and illicitly earned profits with them. The owner is left to clear up the premises and pay the legal bill, with virtually no chance of recovering anything against the squatters.
Using injunctions
There is nothing to stop the owner from issuing a separate set of proceedings to claim damages and/or mesne profits. To do this the landlord must know the identity of the squatter — but this could be discovered, in many cases, by a competent inquiry agent. In order that the claim can be easily quantified and thus quickly enforced, it may be desirable to limit the claim to mesne profits alone. This claim could be substantial, since the owner is entitled to claim the commercial rent for the entire period when the squatter is in occupation, and he does not have to prove loss or that he could have leased the property to a tenant during the squatter’s period of occupation: Swordheath Properties v Tabet [9] 1 All ER 240; (1978) 249 EG 439 and 544.
Having issued proceedings for a money claim, it is possible to obtain an injunction which “freezes” the squatter’s assets and forces him to disclose, on oath, the whereabouts of all his property, including bank accounts. This injunction is known as the “Mareva” injunction after the case in which it was first used: Mareva Compania Naviera SA v International Bulkcarriers SA (The Mareva) [5] 2 Lloyd’s Rep 509, CA.
Normally, any judgment obtained against a squatter is a Pyrrhic victory, but the use of the Mareva could give the landlord some real return and act as a severe deterrent to future commercial squatters.
The Mareva is known as one of the law’s “nuclear weapons”, and as such should obviously be used with discretion. However, a knowledge of the basic principles of the Mareva and of its potential usefulness will benefit all those involved in property management and litigation.
The prime advantage of the Mareva is that it is available ex parte, that is the application is made and granted without the defendant’s knowing. The first time the squatter will know about it is when it is in force. The injunction is designed to prevent the defendant’s “… dissipating or concealing his assets so as to make a judgment against him worthless or difficult to enforce”. It “…may be granted to a plaintiff with a proper claim in any case where there are grounds for fearing that the defendant may defeat justice by transferring assets abroad or by concealing them in this country”. (The Supreme Court Practice — the “White Book” January 29 1920).
The Mareva is available to a plaintiff before judgment and, indeed, in cases of extreme urgency, before the issue of proceedings. It can also be used in the enforcement of a judgment debt: Orwell Steel (Erection and Fabrication) Ltd v Asphalt and Tarmac (UK) Ltd [5] 3 All ER 747.
The criteria for obtaining a Mareva are that there are grounds for fearing that the defendant may defeat justice by transferring assets abroad, by concealing them in the United Kingdom or by dissipating them (op cit January 29 1920). The plaintiff must be able to satisfy the court that there is a risk of the assets being removed before any judgment is enforced and that he has a genuine cause of action with a reasonable prospect of success. When dealing with a commercial squatter these criteria should not prove a great hurdle.
The application is made to a judge in chambers, supported by affidavit evidence. This affidavit should set out the case fully and fairly and include any points which are in the defendant’s favour. The plaintiff is under a duty to make full and frank disclosure to the court of all matters in his knowledge that are material to the application, and to the case as a whole. Failure to make full disclosure can lead to the injunction’s being set aside as of right, with an order for costs against the plaintiff.
At the hearing the advocate should stress the illicit profits being made by the squatters and the problems there would be in enforcement if the injunction were not granted. If the claim for mesne profits is made, the importance of Swordheath Properties should be emphasised, since it is not widely appreciated that an owner is entitled to the market rent for the property from squatters as of right, and does not have to prove any loss.
The draft order
It is the plaintiff’s task to provide a draft order for the court. Because the injunction is obtained ex parte and is so Draconian, the court will insist on a number of safeguards being built into the order to prevent a possible injustice to the defendant. These safeguards should always be incorporated into the draft. First, the plaintiff will be required to give an undertaking that he will pay damages to the defendant should the court later decide that the application was unjustified and that the defendant is entitled to compensation for loss or inconvenience occasioned by it. A further undertaking is required to protect the interests of any innocent third parties who may be affected by the Mareva and suffer loss. The importance of these undertakings should be stressed to the client and the affidavit in support should affirm that the client is aware of their significance. In a genuine commercial squatting case, however, it is difficult to see what complaint the squatter could legitimately make.
The second undertaking is given by the plaintiff’s solicitors, who should undertake to serve on the defendant the order, the affidavit in support together with the writ, and statement of claim if these have not already been served. If the injunction is granted before the issue of proceedings, an undertaking is required that the proceedings will be issued within at least 24 hours.
The plaintiff should seek to freeze assets only up to the amount sought in damages, plus an allowance for costs. The only identifiable assets are usually the stock in the premises, and that this is now frozen should be stated with absolute clarity in the order. Thus, the squatter is prevented from trading, since any continuance would be a contempt of court. To ensure flexibility, the plaintiff should incorporate into the order a proviso allowing the terms to be lifted or varied with the written consent of the plaintiff’s solicitor. Therefore, if the stock is worthless, or vacant possession is worth more, the defendant can speedily be informed that the order is lifted in part, and that the goods should be removed. In the absence of this proviso, the plaintiff could find that he has obtained possession against the defendant but will have to return to court to obtain a variation of the order to allow the goods to be moved.
It is possible to incorporate into the terms of the order a provision that the defendant deliver to the plaintiff an affidavit of means and assets (see, for example, A v C [1] 2 WLR 629). The usefulness of this part of an order is clear — the squatter is no longer anonymous and, as his entire personal assets are at risk, the deterrent potential of this order is enormous. In appropriate cases the court can also make an order for the discovery of documents in aid of the injunction.
The order may initially be granted for several days, giving the defendant an opportunity to appear at an inter partes application. Alternatively, it may be granted until the trial of the action or until further order, giving the defendant leave to apply to discharge at short notice. In the latter case, if the action continues to trial and is successful, advocates should remember to ask the trial judge for a further extension of time of the injunction — otherwise the injunction may lapse and the assets disappear before enforcement can take place. And, if judgment is entered by default, leave should be applied for to enter judgment by default with costs, and for an extension of the order.
A Mareva injunction operates from the moment it is made, and third parties with knowledge of the injunction are under an obligation to comply with its terms. A telephone call to the defendant and his solicitor and bank (if known) and any other relevant third party will suffice. This should immediately be followed up by the service of copies of the order upon them. The defendant must be served with a copy of the affidavit in support and any other documents relied upon at the hearing. Failure to comply with the order is a contempt of court and should be dealt with by way of committal proceedings.
After the injunction
It is essential that the plaintiff maintains the initiative by applying for committal if the order is breached, and by obtaining judgment at the first opportunity. In squatter cases it is unlikely that the case will proceed beyond the judgment in default, or summary judgment stage. So that an enforceable judgment can be obtained quickly, it is wise to consider issuing proceedings for an easily quantifiable amount rather than just claiming general damages, eg by claiming for mesne profits, using as the criteria the last rent at which the property was let. This enables judgment to be entered at once for a specific amount and prevents the need for a further court hearing, and the consequent delay, if the damages had to be assessed by the court.
Property owners should be discouraged from placing over-optimistic values on the rent that could be paid, since this could give the squatter a defence to part of the claim and lengthen the litigation unnecessarily: it could also amount to a breach of the duty of full disclosure owed to the court on the injunction application.
Conclusion
The Mareva has its limitations and disadvantages. It is an expensive process because of the time which needs to be spent in ensuring that the rigorous duty of full disclosure is met. It puts the plaintiff at risk of having to pay damages because of the extensive undertakings required. The Mareva does not give the plaintiff any priority as a creditor and cannot guarantee payment. Nevertheless, it has proved useful as a weapon, originally in international disputes which have developed in the present climate of debt collection. The use of the Mareva against such squatters could lead to a growing problem of the 1980s being successfully squashed in the early 1990s.
