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Worldwide freezing orders: Linsey Macdonald reports on the new guidance
For the first time, guidelines have been given for the granting of permission to enforce worldwide freezing orders (WFO) abroad. The guidelines, laid down by the Court of Appeal in Dadourian Group Int Inc v Simms [2006] EWCA Civ 399 should be welcomed by practitioners, they set out a clear framework, although full compliance may make applications for such permission somewhat more onerous than before.
The aim of a WFO is to prevent the respondent defeating justice by putting assets beyond the reach of a successful litigant. The effect of the WFO is to preserve the status quo, that is, to prevent a respondent removing, disposing or dealing with its assets up to a stated maximum value, for the duration of the period covered by the order. On any view, this is a draconian sanction. It clearly has the potential for far-reaching effects, both on the respondent and on third parties. The capacity of a WFO to cause damage to respondents is recognised in the requirement, now standard, for an undertaking in damages to be given by any applicant for a WFO, whereby the applicant agrees to compensate the respondent for any loss caused to the respondent by the WFO, if the court makes an order to that effect. Where a respondent has assets abroad, a further safeguard has, at least since Derby & Co Ltd v Weldon [1990] Ch 48, been incorporated into the standard procedure. An applicant obtaining a WFO must undertake not to seek to enforce the WFO in another jurisdiction without first returning to court to seek permission.
The new guidelines do not affect the existing procedure for the initial grant of a WFO, but relate only to the court's discretion, once a WFO has been granted, to allow its enforcement abroad. Guidelines already exist for the initial grant, based on Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645, which require the applicant to make full and frank disclosure of all material matters within its knowledge. This includes the grounds for believing that the respondent has assets in the relevant place and that there is a real risk of those assets being removed or dissipated before any judgment is satisfied. The applicant must establish a good arguable case. The WFO should specify a maximum value of assets, which is restrained from removal or dissipation, and should make reasonable provision for the protection of third parties. The key aim of the guidelines is to achieve a balance between the applicant's need to secure assets against any future judgment and the risk of damage to the respondent and/or third parties.
The judgment in Derby gave some limited guidance on the grant of permission to enforce a WFO abroad. Nicholls LJ contemplated certain matters to be considered by the English court on any application for leave to enforce a WFO abroad:
- the form of relief that might be obtained abroad (in particular, whether that relief would be similar to a freezing order or have a more far-reaching effect); and
- evidence of the law and practice in the foreign jurisdiction.
Dadourian
In Dadourian, the applicants (the respondents to the appeal), Dadourian Group, obtained an order for payment of $4.5m in a US arbitration by Charlton Court plc, a company of which one of the appellants was a director and two were said to be shareholders. A WFO was granted by Lindsay J and on application by Dadourian, Lewison J granted permission on 13 February 2004 to enforce the WFO in Switzerland (the Swiss Variation Order). This order was made without notice to the appellants, who were said to have been unaware of it until January 2005. On 16 February 2005, the appellants applied to discharge the Swiss Variation Order. Laddie J rejected this application, finding that the order ought not to be set aside when the party who sought permission to enforce the WFO could show a real prospect of assets in the foreign jurisdiction.
The Court of Appeal rejected the appellants' contention that Laddie J had misdirected himself in law, but found that Laddie J had not considered certain matters. These included the possible oppression of third parties, whom it was proposed to join to the proceedings in Switzerland, evidence of the relevant law and practice in Switzerland and the terms on which the Swiss Variation Order should have been made or continued. It therefore set aside Laddie J's refusal to discharge the Swiss Variation Order and exercised his discretion afresh on the basis of the guidelines, ultimately concluding that the Swiss Variation Order should not be set aside.
New guidelines
There is clearly some overlap between the guidelines and the provisions for the initial grant of a WFO.
Guideline 1: The principle applying to the grant of permission to enforce a WFO abroad is that the grant of that permission should be just and convenient for the purpose of ensuring the effectiveness of the WFO, and in addition that it is not oppressive to the parties to the English proceedings or to third parties who may be joined to the foreign proceedings.
Guideline 2: All the relevant circumstances and options need to be considered. In particular, consideration should be given to granting relief on terms, for example, terms as to the extension to third parties of the undertaking to compensate for costs incurred as a result of the WFO and as to the type of proceedings that may be commenced abroad. Consideration should also be given to the proportionality of the steps proposed to be taken abroad, and in addition to the form of any order.
Consideration should therefore be given to all the options that are feasible in light of the circumstances of the case. This would include, for example, stipulating the type and number of actions to be commenced abroad or requiring the claimant in appropriate circumstances to report back to the court. The court is likely to want to consider whether a third party who is affected by the order, but is not to be joined to the English proceedings, should have the benefit of an extension of the applicant's undertaking in damages (supported, in appropriate cases, by security). It may be that such third parties should also be given liberty to apply in the English proceedings for the purposes of an application to revoke the permission to enforce abroad. On the other hand, the court may conclude that the question of which safeguards should be put in place to protect the interests of a third party should be left to the normal practice of the foreign court.
The judgment also provides that the court 'must be astute to see that there is a real prospect that something will be gained by starting proceedings abroad'. Furthermore, that benefit must be proportionate to the cost and inconvenience to the respondent of defending proceedings abroad at the same time as the English proceedings.
Guideline 3: The interests of the applicant should be balanced against the interests of the other parties to the proceedings and any new party likely to be joined to the foreign proceedings.
Guideline 4: Permission should not normally be given in terms that would enable the applicant to obtain relief in the foreign proceedings which is superior to the relief given by the WFO.
Guideline 5: The evidence in support of the application for permission should contain all the information (as far as it can reasonably be obtained in the time available) necessary to make the judge reach an informed decision, including evidence as to the applicable law and practice in the foreign court, evidence as to the nature of the proposed proceedings to be commenced and evidence as to the assets believed to be located in the jurisdiction of the foreign court and the names of the parties by whom such assets are held.
This guideline emphasises the need for the court to be provided with all necessary information to enable the judge to reach an informed decision. The judgment points out that scrutiny of the issues set out in the guideline is a way in which the English court exercises control over the enforcement of the WFO. The relevant law and practice of the foreign court should be described, including:
- whether the foreign court would be likely to grant the order to be sought;
- on what basis the foreign court would allow proceedings against a third party; and
- whether its procedures would grant the respondent and the third party the right of access to court and a fair trial, as guaranteed by the ECHR.
Guideline 6: The standard of proof as to the existence of assets that are both within the WFO and within the jurisdiction of the foreign court is a real prospect, that is, the applicant must show that there is a real prospect that such assets are located within the jurisdiction of the foreign court in question.
Guideline 7: There must be evidence of a risk of dissipation of the assets in question.
Guideline 8: Normally the application should be made on notice to the respondent, but in cases of urgency, where it is just to do so, the permission may be given without notice to the party against whom relief will be sought in the foreign proceedings, but that party should have the earliest practicable opportunity of having the matter reconsidered by the court at a hearing of which he is given notice.
Conclusion
By their very nature, applications relating to freezing orders have always demanded a 'cards on the table' approach. The guidelines set out in Dadourian confirm and, to some extent, expand this requirement. The case emphasises the need for full disclosure to be made to the court on an application for permission to enforce a WFO abroad. Applications are likely to be rejected if such information is not provided. Even greater care is now likely to be needed in the preparation of such applications, with overseas counsel being involved at an early stage where appropriate.
Linsey Macdonald is a solicitor at Richards Butler LLP
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