Spring has arrived. Whilst the thought of freezing temperatures is behind us, freezing orders are never far from the minds of litigators seeking to prevent the dissipation of assets for their clients. This is never more apparent than in times of continued economic uncertainty when the risk of fraud is heightened. In this three-part series, we provide an overview of the availability of freezing order relief from the English courts to restrain recalcitrant respondents from engaging in activity which would render any judgment or award no more than a pyrrhic victory.
In this series we:
- provide a reminder of what freezing orders are and the recently clarified requirements for obtaining such relief from the English courts (Part 1);
- consider the availability of obtaining freezing orders in aid of arbitrations (Part 2); and
- look at the English court’s willingness to use the once nuclear remedy of freezing orders in novel ways (Part 3).
Scope of freezing orders
A freezing order is a form of interim in personam relief: it prevents the respondent from dealing with their assets up to a value threshold and prevents third parties on notice from aiding or abetting any breach of the order. A freezing order contains carve outs to allow for ordinary living or business expenses, payment of legal fees, or settling of other debts as they fall due, and so they do not prevent the legitimate disposal of money. Instead, it prevents unjustified disposal of assets. A freezing order can be granted in respect of assets located in the territorial jurisdiction of the English courts or can operate further afield. It is usually coupled with helpful disclosure orders which aid a claimant in identifying the location and value of unknown assets. As such, it is a powerful tool which helps maintain the status quo to allow for potential enforcement in due course.
Requirements for obtaining relief
The English court’s jurisdiction to grant freezing order relief is well established and regularly deployed. Nevertheless, the courts have described the draconian remedy as one of the law’s ‘nuclear’ weapons. The threshold requirements for obtaining such relief remain high and, until recently, there has been confusion as to the requirements to be satisfied.
To obtain an order, an applicant will need to show the court:
- “Grounds for belief” that the defendant holds assets either within the jurisdiction (for a domestic freezing order) or outside the jurisdiction (for a worldwide freezing order). This is a matter of practical utility: there needs to be assets on which the order can bite.
- That unless restrained, there is “a real risk that judgment would go unsatisfied by reason of the disposal by the defendant of his assets”. That is a fact sensitive enquiry: an applicant will need to demonstrate that “on the facts and circumstances of the particular case, the evidence adduced before the court objectively demonstrates a risk of unjustified dissipation.”
- That “it would be just and convenient in all the circumstances to grant the freezing order”. As an equitable remedy it will be for the court to decide whether to grant the order.
- That it has a “good arguable case” as to the merits of the underlying substantive claim that the freezing order seeks to support.
As an interim remedy, establishing the requirements is critical for ensuring that the applicant obtains the freezing order at the ex parte hearing and, most importantly, holds on to it at the return date.
Establishing a ‘good arguable case’
A conflicting line of case law in recent years has led to confusion regarding this requirement. Demonstrating that an applicant had a ‘good arguable case’ on its substantive claim was intended to be straightforward, however extensive case law has resulted in the test becoming “befuddled by ‘glosses’”. In recent years a schism has opened in the case law which, whilst not necessarily impacting the outcome of a party’s application, has made framing the application more challenging.
Since the 1980s, it was generally accepted that to demonstrate that an applicant had a good arguable case the court would need to satisfy the classic test formulated by Mr Justice Mustill in The Niedersachsen [1984] 1 All ER 398 (CA), that the substantive claim which the freezing order seeks to support is one “which is more than barely capable of serious argument, and yet not necessarily one which the judge believed to have a better than a 50% change of success”.
However, in Lakatamia Shipping Ltd v Morimoto [2019] EWCA Civ 2203, the Court of Appeal introduced confusion when referring to the Supreme Court’s decision in Brownlie v Four Seasons Holdings Incorporated [2017] UKSC 80. In Brownlie, the Supreme Court stated that to satisfy the court that there is a “good arguable case” that a claim is within a jurisdictional gateway for the purposes of serving out of the jurisdiction, the claimant must show that they had “the better argument” and formulated a three-limb test in relation to it, including a comparative assessment of the parties’ arguments. In Lakatamia Shipping, the Court of Appeal referred to Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV [2019] EXCA Civ 10, [2019] 1 WLR 3514, being a “comprehensive review” of the good arguable case test, which included the test in Brownlie, and so suggested implicitly that the reasoning of those cases applied to freezing orders in addition to jurisdiction.
Following Lakatamia Shipping, there was a split in decisions between those following the test established by The Niedersachsen, and those cases seeking to import the arguably higher comparative analysis developed in relation to jurisdiction challenges, into the test for freezing order relief. Following two High Court decisions handed down at the end of last year, a dominant view is emerging. In Magomedov v TGP Group Holdings (SBS), LP [2023] EWHC 3134 (Comm), Mr Justice Butcher held that to adopt Lord Sumption’s comparative approach for jurisdictional gateways and apply it to freezing orders would be akin to performing a mini trial. That (among other reasons) would not be appropriate or effective at the interlocutory phase, so the classic test from The Niedersachsen should be preferred. That decision was followed by Mr Justice Bright in Unitel SA v Unitel [2023] EWHC 3231 (Comm).
Whilst in Unitel v Unitel, Bright J recognised that the law in this area is in a “confused state which cries out for a definitive answer from the Court of Appeal”, the position seems more settled than in recent years. Indeed, in last month’s edition of the 2024 White Book, it notes that The Niedersachsen test has been habitually applied in freezing injunction cases. Whilst recognising the conflicting first instance judgments on this point, the White Book argues that the better view is that the case of Lakatamia Shipping did not change the approach to the identification of a good arguable case.
Practical considerations
An applicant will usually seek a freezing order on an ex parte basis. Therefore, in addition to satisfying the threshold requirements a party will also need to ensure that they discharge their obligation to provide full and frank disclosure. This requires a party to provide all the material facts and law to the court regardless of whether they are helpful to the claimant or not. A party failing to provide full and frank disclosure, or who fails to continue to comply with that duty up to the return date, faces having the order set aside or cost consequences imposed by the court.
In addition, the applicant will usually be required to provide an undertaking to pay damages in the event that the court finds at the return date hearing that the order should not have been granted in the first place.
Utility of obtaining freezing order relief
An application framed in the wrong terms can be disastrous for an applicant, resulting in the order being discharged at the return date hearing. At that point, there is no second bite of the cherry; the respondent will likely carry out the very act that the applicant was trying to prevent – dissipation. If successful, however, the consequences of failing to comply are severe and may result in contempt of court proceedings, resulting in a fine or, worse, imprisonment. As such, a freezing order remains a powerful tool and successfully securing one is sure to put a spring in the claimant’s step in the early stages of litigation.
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