Court of Appeal upholds freezing order preventing party from making payments in the ordinary course of business

The Court of Appeal has dismissed an appeal against the removal of a so-called Angel Bell exception to a post-judgment freezing order, with the effect that the defendant was prevented from continuing to make payments in the ordinary course of business: Michael Wilson & “Partners” Ltd v John Forster Emmott [2019] EWCA Civ 219.

Whilst the court was mindful of the fact that the grant of a freezing injunction is a discretionary decision reached on a fact-specific basis, with which higher courts will be slow to interfere, it nevertheless sought to provide some clear guidance in its judgment.

First, the court held that there is no “presumption” that an Angel Bell exception should be excluded from a post-judgment freezing order, but noted that its inclusion “will sometimes and perhaps usually be inappropriate”.

Second, the court found that the existence of an unsatisfied judgment debt “does make a difference” when considering the ambit of a freezing order. In short, it will be easier to justify the exclusion of a business expenditure exception when a party has refused to honour a judgment. The public policy in favour of ensuring that judgments are respected means that, where (as in this particular case) a party has persistently failed to pay what is due, a strict approach to exceptions is appropriate.

Kevin Kilgour, a senior associate in our disputes team, considers the decision further below.
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High Court finds companies’ assets not subject to freezing order against shareholder

The High Court has varied a worldwide freezing order by removing language in the order which would have frozen the assets of companies owned by the respondent (directly or indirectly). The variation was granted on the grounds that the relevant assets belonged to, and were in the control of, those companies rather than the respondent: FM Capital Partners Ltd v Frederic Marino & Others [2018] EWHC 2889.

In doing so, the court clarified the extent to which the Supreme Court’s decision in JSC BTA Bank v Ablyazov [2015] UKSC 64 (considered here) impliedly overturned the decision of the Court of Appeal in Lakatamia Shipping Co Ltd v Nobu Su [2014] EWCA Civ 636 (considered here) in relation to the interpretation of the extended definition of assets in the standard form of freezing order – that is, to cover any asset which the respondent “has the power, directly or indirectly, to dispose of or deal with as if it were his own”, including where “a third party holds or controls the asset in accordance with his direct or indirect instructions”.

The court has sought to resolve the tension between Ablyazov and Lakatamia by holding that, if a respondent is the sole shareholder or director of a company, it does not automatically mean that the company’s assets are also subject to the freezing order. However, if the respondent also has such a degree of control over the company’s assets that the company is in truth the “wallet” of the respondent then, in an order which contains the extended definition, those assets will be subject to the order. In light of this decision, it seems likely that there will be an increased focus on what level of control a respondent does, in practice, have over the companies he owns and their assets.

Gareth Keillor and Kevin Kilgour, an Of Counsel and Senior Associate in our disputes team, consider the decision further below. Continue reading

Commercial Court clarifies scope of standard undertaking not to enforce worldwide freezing order abroad without court’s permission

The Commercial Court has recently considered the scope of the standard undertaking provided in connection with worldwide freezing orders, which requires the applicant to seek the court’s permission before seeking to enforce the order outside England and Wales, or seeking an order of a “similar nature”: Akcine Bendrove Bankas Snoras v Antonov [2018] EWHC 887 (Comm).

The court held that the claimant bank was not in breach of its undertaking by obtaining orders in Lithuania and Switzerland seizing certain of the respondent’s assets, as the foreign courts had independent jurisdiction to make the orders which did not derive from the making of the worldwide freezing order in England.

This decision provides welcome clarification as to the scope of the standard undertaking, and should provide some comfort to those seeking to secure assets abroad based on a separate and independent right or jurisdiction, where they have also obtained an English freezing order.

The decision also suggests that, where there has been a breach of the undertaking, the court may be inclined to grant retrospective permission and continue the freezing order unless the respondent can present clear evidence that the foreign order has had an oppressive or prejudicial impact.

Gareth Keillor and Rosanna Pinker in our disputes team consider the decision further below. Continue reading

Court of Appeal upholds order for payment of US$70 million under cross-undertaking in damages

The Court of Appeal has confirmed the court’s approach to issues of causation where a defendant applies to enforce a cross-undertaking in damages: SCF Tankers Ltd (formerly Fiona Trust & Holding Corp) v Privalov [2017] EWCA Civ 1877.

A party that obtains an interim injunction (including a freezing injunction) will typically be required to provide a cross-undertaking to the court to compensate the other party if the injunction is later found to have been wrongly granted. The present decision confirms that a party seeking to enforce a cross-undertaking in damages must establish a prima facie case that its loss would not have been suffered “but for”‘ the injunction. It is then for the party who gave the undertaking to rebut the case on causation. When considering such applications, the court should adopt a “common sense” approach to issues of causation, mitigation and remoteness.

The case shows that, in resisting an order to enforce a cross-undertaking, a claimant will not necessarily be able to rely on an argument that the defendant should have applied for a variation to permit transactions and avoid its losses. While each case will turn on its own facts, the decision recognises that there can often be real practical and commercial difficulties in applying for a variation to a freezing injunction.

The decision provides a stark reminder to claimants of the potential for very significant consequences if an injunction is later found to have been wrongly granted. In this case, claimants who were seeking damages of US$850 million ended up being ordered to pay over US$70 million to the parties they had sued.

Gareth Keillor, a senior associate in our disputes team, considers the decision below. Continue reading

Cross-Border Litigation – international perspectives

We are pleased to publish the second issue of our periodic publication “Cross-Border Litigation”, designed to highlight legal and practical issues specific to litigation with an international aspect.

Tapping into the expertise of the firm’s leading commercial litigators across the globe, the publication gives readers the benefit of their hands-on experience and flags key developments that should be on commercial parties’ radars.

The topics covered in this issue include:

  • Highlights of recent developments from across the globe
  • The Singapore International Commercial Court
    Has it lived up to the hype?
  • Cross-border litigation and Brexit
    What we know so far
  • Partner Spotlight on Helmut Görling
    His journey from a police detective to head of our corporate crime team in Frankfurt
  • Using disclosed documents for multiple proceedings
    Recent judgments suggesting a restrictive approach
  • Jurisdiction disputes
    When will the English courts take into account politics, corruption and other obstacles to justice in foreign jurisdictions?
  • India related commercial contracts
    Getting your dispute resolution and governing law clauses right

To download the publication, click here.

To read the previous Issue 1 (March 2017), click here

Court of Appeal clarifies test for establishing existence of assets for freezing injunctions

The Court of Appeal has held that, to obtain a freezing injunction, an applicant must establish either a “good arguable case” or “grounds for belief” that assets exist. It rejected the higher threshold of a “likelihood” that assets exist, but held that it is not enough for the applicant to assert that the respondent is apparently wealthy and must have assets somewhere: Ras Al Khaimah Investment Authority & Ors v Bestfort Development LLP & Ors [2017] EWCA Civ 1014.

This decision provides greater clarity as to the test for the existence of assets, though it is not helpful that the Court of Appeal referred to either a “good arguable case” or “grounds for belief”. Although Longmore LJ indicated a preference for “grounds for belief”, and commented that “there is, no doubt, not much difference between the two”, introducing two potentially different thresholds risks creating uncertainty.

The decision also suggests that the courts may be willing to be more lenient than had previously been thought in relation to delays in applying for a freezing injunction. However, an applicant would be wise to treat this with extreme caution and always to apply as soon as possible. Not only does delay risk allowing the respondent actually to dissipate the assets before an injunction has been obtained, but (notwithstanding the comments in this case) on different facts a lengthy delay may well be a basis for refusing an injunction.

Gareth Keillor and Tom Brown consider the decision further below. Continue reading

Court of Appeal clarifies test for risk of dissipation of assets for notification injunctions

The Court of Appeal has held that a notification injunction (an order requiring a respondent to give notice of any dealings with or disposal of assets or other transactions that fall within the scope of the order) drawn in wide terms is, in effect, a modified version of a conventional freezing order, rather than a distinct type of injunction, such that the same test in relation to the risk of dissipation of assets applies: Candy & Ors v Holyoake & Anor [2017] EWCA Civ 92.

This judgment provides clarity as to the proper classification of notification injunctions, and the risk of dissipation that applicants must demonstrate in order to succeed. A party seeking a notification injunction in wide terms must show a real risk, supported by solid evidence, that a future judgment would not be met because of unjustifiable dissipation.

The position may, however, be different in relation to notification injunctions which are not in wide terms. The judge suggested, albeit only obiter, that where the applicant seeks a simple order requiring notice to be given of a proposed disposition of a specific property, there may be a different test.

James Allsop, a senior associate, and James Leadill, an associate, in our dispute resolution team consider the Court of Appeal's decision further below.

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Supreme Court clarifies scope of “assets” covered by a freezing order

In a unanimous decision, the Supreme Court has confirmed that the right to draw down under loan agreements is caught by the expanded definition of "asset" contained in the current standard Commercial Court form of freezing order which includes "any asset which it (the respondent) has the power, directly or indirectly, to dispose of or deal with as if it were its own": JSC BTA Bank v Ablyazov [2015] UKSC 64. The decision helpfully clarifies that:

  • freezing orders will be construed strictly in accordance with what the words in fact mean;
  • in the absence of the expanded wording now contained in the standard form of order, the right to draw down loans will not be frozen; and
  • the expanded wording does widen the scope of the order meaningfully and can include assets not "owned" by the respondent.

From a practical perspective, great care needs to be taken when drafting freezing orders to ensure that assets which the respondent is suspected of having are clearly within the scope of the order. It will be dangerous to assume that the word "assets" will necessarily have its everyday meaning in the context of a freezing order. Gareth Keillor, a senior associate in the dispute resolution team, outlines the decision below.

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Upcoming webinars: freezing orders, class actions and contracts

Over the next few weeks we will be delivering a number of disputes-related webinars for Herbert Smith Freehills clients and contacts, including on: what to do when you’ve been given notice of a freezing order; the increasing risk of class actions in the UK; and how to know when you have a binding contract.

In relation to freezing orders, on Tuesday 9 June Robert Hunter will consider a string of decisions in recent years which have clarified much of the uncertainty as to what freezing orders actually prohibit, and will offer practical advice to those who want to know what they can do after being served with a freezing order.

In relation to class actions, on Thursday 18 June Kim Dietzel, Damian Grave, Kirsten MasseyMaura McIntosh, John Ogilvie and Gregg Rowan will look at a number of current developments which, taken together, increase the potential for large group actions to be brought in this jurisdiction, including competition law claims, securities claims, and claims arising out of human rights and environmental issues, and will consider what businesses can do to manage or mitigate the risks.

In relation to contracts, on Monday 22 June Tim Parkes, Chris Bushell and Robert Moore will look at the requirements for a binding contract and the problems that can arise when what appears to be an agreement is not in fact binding, or vice versa, and look at some practical steps that can be taken to minimise the risks.

All of the webinars are 12.45 – 1.45pm BST. They are part of our series of “Soundbite” webinars, which are designed to update clients and contacts on the latest developments without having to leave their desks. The webinars can be accessed “live”, with a facility to send in questions by e-mail, or can be downloaded as podcasts after the event. If you would like to register for a webinar, or to obtain a link to the archived version, please contact Jane Webber. The webinars, both live and archived, also qualify for one CPD point.

Court of Appeal clarifies jurisdiction to order disclosure in support of freezing injunctions

Very often, when seeking to obtain a freezing injunction, the true extent of the defendant’s assets is unclear. Complex and opaque offshore corporate or trust structures may mask the true ownership of assets. A mere connection between a defendant and assets held by third parties will not be sufficient to freeze those assets: the claimant will need to show a good reason to suppose those assets would be available to satisfy any judgment, which can be a difficult threshold to meet. The risk, however, is that by the time the position has been clarified, the assets may have been dissipated.  What can the court do in such situations?

A recent Court of Appeal decision clarifies the court’s jurisdiction to make wide-ranging ancillary disclosure orders in support of freezing injunctions: JSC Mezhdunarodniy Promyshlenniy Bank & Anor v Pugachev [2015] EWCA Civ 139. The appeal concerned a defendant’s interests in several discretionary trusts. The defendant’s interests in the trusts, but not the trust assets themselves, were subject to the freezing order. The Court of Appeal upheld the first instance decision ordering the defendant to provide detailed information about the trusts, including any trust documents within his control. The threshold for obtaining the disclosure order was lower than the threshold required to freeze the trust assets; all that was required was credible material showing that an application might in due course be made to freeze the trust assets.

The judgment provides welcome confirmation of the English court’s powers to enable the effective policing of freezing injunctions. Disclosure orders may enable claimants to clarify the status of assets which appear closely connected to a defendant and, if appropriate, consider taking further steps to safeguard those assets (e.g. by applying to extend the terms of a freezing order, or applying for Chabra relief against third parties, such as trustees). Tom Wood, an associate in our dispute resolution team, considers the decision below. Continue reading