The Court of Appeal has laid down new guidelines on how the court should exercise its discretion when considering whether to permit a party to enforce a worldwide freezing order (“WFO”) (formerly called a worldwide mareva order), or seek an order of a similar nature, in a foreign jurisdiction. The Dadourian guidelines (taking their name from the case: Dadourian Group Int. Inc. v Simms & Others [2006] EWCA Civ 399) are set out below, together with further observations from the court (Ward, Arden and Moore-Bick LJJ, Lady Justice Arden giving the judgment of the court) on how those guidelines are likely to apply in practice.

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.

Importantly, the court said that where there is an issue as to whether property held by third parties is in fact owned by the defendant, there is no preference that the third party should be joined in to the English proceedings wherever possible (which the appellants had argued for in this case): it may be that questions of ownership can be more easily determined and managed by the courts of the jurisdiction where that asset or third party is located.

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, as well as the form of any order.

In practice, this will mean:

  • The court may stipulate terms in granting permission, eg, the type of actions to be commenced, the number of actions that may be brought and require the claimant to report back to the court.
  • If a third party is not to be joined to the English proceedings, the court is likely to want to consider whether he should have the benefit of an extension of the costs undertaking (backed up by security if necessary) and be granted liberty to apply to revoke the permission. The court may, however, conclude that safeguards should be left to be dealt with by the foreign court.
  • Consideration should be given to refusing permission and leaving the claimant to litigate in England.
  • The benefit to be obtained by commencing proceedings abroad must be proportionate to the cost and inconvenience to the defendant of defending the foreign proceedings as well as the English proceedings.
  • The claimant might be asked to give undertakings, eg, to return to court if there is a material change in circumstance.

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.

In practice this will mean:

  • The claimants’ interest in preventing dissipation has to be weighed against the risk of oppression to a defendant from a multiplicity of suits and the associated costs.
  • In the case of a third party, the court should weigh up the inconvenience to him of being sued in England as against the inconvenience of being sued in the relevant foreign jurisdiction. Less weight, however, needs to be given to the interests of a third party who is not independent of the parties against whom the WFO was obtained.

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.

In practice this will mean:

  • The applicant should not be given permission to obtain superior forms of protection in the foreign court without good reason and if this is the only form of relief available, the court may be less willing to grant permission. In appropriate cases, however, the court may do so, eg, if the court has no power to grant a provisional measure equivalent to a freezing order but only power to grant for example a nantissement or saisie conservatoire.
  • It may be necessary to provide evidence of the range of orders available under the foreign law to assist the court in reaching its decision.

Guideline 5

The evidence in support of the application for permission should contain all the information (so far as it can reasonably be obtained in the time available) necessary to enable the judge to 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.

In practice this will mean:

  • The evidence as to the applicable law and practice in the foreign court should cover such issues as whether the foreign court would be likely to grant the order sought, on what basis it would allow proceedings against a third party who is holding assets alleged by the claimant to belong to the defendant, and whether its procedures would grant the defendant (and the third party) the right of access to court, and of a fair trial on any issue in dispute, guaranteed by the European Convention on Human Rights.
  • The evidence should also, where practicable, cover issues such as how long the proceedings are likely to take and if costs are sought, what they are likely to be.
  • The evidence should cover the extent to which the foreign court is likely to be familiar with a WFO. It would not necessarily be an objection to giving permission, however, that the evidence shows that the foreign court would grant interim relief against assets held by a third party whose ownership is disputed by the defendant on some lower threshold than an English court. This is merely one of the factors.
  • If the defendant is present within the jurisdiction of the foreign court, the court can more readily give permission for proceedings in that jurisdiction of a kind enabling the foreign court to exercise its personal jurisdiction over the defendant.
  • The court will need to consider and weigh in the balance the risk of inconsistent judgments and the evidence about the practice of the foreign court will be relevant to this.

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.

The court rejected the suggestion that the test should be “good arguable case”.

Guideline 7

There must be evidence of a risk of dissipation of the assets in question.

The court recognised, however, that if there is a real prospect that the assets are beneficially owned by the defendant, this burden is likely to be discharged by the evidence already filed in the English proceedings.

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.

The court also reminded parties that the order giving permission should be served immediately (ie, even if the hearing was without notice) unless the court gives permission otherwise. Such an order should only be made for good reason and for the shortest practicable period.

General Caveat

The court made clear that granting permission is a discretionary exercise, the court should have maximum flexibility, and the guidelines should not be treated as exclusive of any other matter which in the particular circumstances of an individual case needs to be considered.

Comment

In Derby & Co v Weldon [1990] Ch 48, the Court of Appeal held that a freezing order could be made in respect of assets which were outside the jurisdiction, not merely those within the jurisdiction. In that case, to meet the court’s concerns about the risk of oppression, the plaintiffs offered an undertaking not to seek to enforce the WFO abroad without the permission of the court. An undertaking to that effect is now part of the standard form undertakings provided for in the specimen form freezing order in the Practice Direction to CPR Part 25 (i.e. that “The Applicant will not without permission of the court seek to enforce this order in any country outside England and Wales [or seek an order of a similar nature including orders conferring a charge or other security against the respondent or the respondent’s assets]”).

There was, however, little discussion in Derby v Weldon about the circumstances in which the court would give its permission and the court in Dadourian had not been shown any other authority which decided how the jurisdiction should be exercised. The Dadourian guidelines are therefore useful in providing guidance to litigants as to what is required. That said, following the guidelines is inevitably going to require substantial evidence in many cases (including of foreign law) and this is likely to have an impact both in terms of the speed with which applications can be brought and the costs of making such applications (and indeed defending them if they are later challenged for alleged noncompliance with the guidelines).

In appropriate cases it may be that claimants, when seeking worldwide freezing orders, should give careful thought to whether permission to enforce in certain overseas jurisdictions is sought at the outset where there is a real prospect that assets will be located in those jurisdictions. That of course runs the risk of alerting defendants who may take steps to move/hide their assets in those jurisdictions. It may also be difficult to satisfy the “real prospect of assets” test before the disclosure provided pursuant to most freezing orders has been obtained and analysed. It may, however, ultimately save time and costs.

Aside from issues of speed and costs, the guideline most likely to give concern to claimants is guideline 4 – forming a view on whether the relief available in the foreign court is comparable to the WFO and, if not, whether the court is likely to give permission to enforce in that jurisdiction. If permission is doubtful, and substantial assets are/may be in the overseas jurisdiction, English proceedings may not be the best option.

Finally, it will be interesting to see what approach the courts take where there is a proprietary claim made to the assets in question (there was no proprietary claim on the facts of this case).