Recent cases considering Worldwide Freezing Orders

Earlier this month, our Commercial Litigation experts prepared a useful briefing on freezing orders and the importance of full and frank disclosure, by reference to the recent case of Rogachev v Goryainov [2019] EWHC 1529 (QB).

In this note, we look at two more recent decisions where the granting of a worldwide freezing order was challenged, Tugushev v Orlov [2019] EWHC 2031 (Comm) (“Tugushev“) and PJSC National Bank Trust v Mints [2019] EWHC 2061 (“PJSC“).

Tugushev v Orlov [2019] EWHC 2031

In Tugushev, a worldwide freezing order granted at a without notice application was challenged by the defendant on the basis that:

• the claimant had failed to comply with its duty to give full and frank disclosure; and
• the previous court had erred in finding a real risk of dissipation.

Full and Frank Disclosure

The case usefully summarised the general principles related to an applicant’s duty to provide full and frank disclosure in a without notice application as follows:

1. In an application without notice, the applicant has a duty is to make full and accurate disclosure of all material facts in a “fair and even-handed manner”. It is not sufficient to merely exhibit numerous documents.
2. The duty to disclose extends to matters of which the applicant would have been aware had reasonable enquiries been made. An applicant must therefore make proper enquiries before making the application.
3. The primary question is whether in all the circumstances the effect of any non-disclosure was such as to mislead the court in any material respect, rather than whether the evidence in support could have been improved.
4. A dispute about full and frank disclosure should not be allowed to turn into a mini-trial of the merits. It would therefore be inappropriate to seek to set aside a freezing order for non-disclosure where proof of the non-disclosure depends on proof of facts which are an issue in the action.
5. In cases of material non-disclosure, the courts will need to ensure that a claimant who obtained the injunctive relief is deprived of any advantage he may have derived through the non-disclosure.
6. Whether or not the non-disclosure was innocent is an important but not decisive consideration.
7. The court will discharge the order even if the order would still have been made had the relevant matter(s) been disclosed at the without notice hearing.
8. The court has a discretion to continue the injunction (or impose a fresh injunction), despite a failure to disclose, if it is considered to be in the interests of justice.
9. Where it is in the interest of justice for the freezing order be continued, the applicant’s failure to disclose could be marked in a different way, for example by a suitable costs order.

In considering these matters, the Court found that the claimant had failed in its duty of full and frank disclosure. As such, the discharge of the worldwide freezing order was justified. The Court then went on to consider whether it was in the interest of justice to re-grant the freezing order.

Dishonesty and Risk of Dissipation of Assets

On the question of dissipation of assets, the Court concluded that although there was a good arguable case that the defendant was involved in the creation and manipulation of fraudulent court proceedings, the evidence of dishonest activity was not on its own sufficient to lead to a conclusion that there was a real risk of dissipation of assets. What was required was a clear and compelling case as to the existence of a real risk of dissipation. The majority of the defendant’s wealth was in his corporate shareholdings and there was no real risk that the he would seek to devalue it in order to avoid liability to the claimant. In the absence of such risk, and particularly in light of the claimant’s non-disclosure, the Court did not consider that the re-granting of the freezing order was justified.

Delay

One additional factor considered by the Court was the applicant’s delay in making the application and its significance to exercising its discretion to re-grant the worldwide freezing order. The Court noted that mere existence of delay between the start of a dispute and the bringing of the application does not necessarily mean that there is no risk of dissipation. However, if a defendant was aware (for a substantial time) that they face legal proceedings and do not take steps to hide or otherwise dissipate their assets, this would be considered a “powerful factor militating against any conclusion of a real risk of dissipation”.

PJSC National Bank Trust v Mints [2019] EWHC 2061 (Comm)

In PJSC the worldwide freezing order granted at a without notice application was challenged by the defendant on the basis that:

• the claimant had failed to demonstrate satisfactorily that there was a real risk of dissipation; and
• there had been a material delay in the claimant applying for the order.

Dishonesty and Risk of Dissipation of Assets

Dealing with the first issue, the judge emphasised that it was not enough to assert and prove dishonesty on the part of the defendant, but any dishonestly must be related directly to the dissipation of assets. The judge considered a number of events across 2017 and 2018, which taken together left him in no doubt that the defendant had acted dishonestly and that there was a real risk of unjustifiable dissipation of assets.

Delay

The freezing order was continued notwithstanding the delay in the claimant’s application. In reaching his conclusion the judge confirmed that the delay had been neither substantial nor unreasonable given the intricacies of the case, and that in any event delays would be given less weight in the face of a real risk of an unjustifiable dissipation of assets.

Practical Implications

Although ultimately the above decisions turn on their facts, they provide useful guidance on how a court will exercise its discretion to either continue or dis-continue a (worldwide) freezing order.

In Tugushev, the freezing order was discharged due to the claimant’s failure to comply with its full and frank disclosure duties and it was not re-granted on the basis that the claimant had not established a real risk of dissipation of the defendant’s assets.

In PJSC National Bank Trust, the judge concluded that there was sufficiently solid evidence that there was a real risk of dissipation. The evidence was so strong that, despite the delay in the claimant’s application, it remained just and convenient to continue the worldwide freezing order, subject to the question of its replacement by undertakings.

Both cases ultimately boil down to the question of whether there was sufficient evidence pointing to a real risk of unjustified dissipation of assets and whether it was in the interest of justice to continue the order. In assessing the risk, the courts will consider the evidence as a whole, including the following matters:

1. The nature of the transactions alleged to constitute dissipation, including their complexity, value and the manner in which they were accomplished (for example through complex, multi-jurisdictional web of corporate entities).
2. Whether, in light of the evidence available, there was extensive and unjustifiable delay in making the application. Both cases confirm that a delay would not, of itself, mean that there is no risk of dissipation, and that the stronger the evidence of a real risk of dissipation, the less weight would be given to any delay.
3. Whether a substantial period of time has passed since the last transaction alleged to constitute dissipation of assets. On this point, the Court in PJSC held that very large transactions within a year or two prior to the application would likely be material evidence supporting a real risk of dissipation even if there weren’t any more recent transactions since then. If, however, the defendant was aware of the legal proceedings for a substantial period of time and did not take any steps to dissipate their assets, this will likely militate against any conclusion of a risk of dissipation (Tugushev).
4. Whether in making its without notice application, the claimant has provided full and frank disclosure in accordance with the principles outlined above. This is a very importance consideration intended to compensate for the defendant’s absence at a without notice hearing. Any non-disclosure which was likely to have given a false impression of a heightened risk of dissipation of assets would count against the continuance of a freezing order.
5. Whether there was dishonesty on the part of the defendant which was linked directly to the alleged dissipation of assets. Both cases emphasise that any dishonesty would not on its own be sufficient to conclude that there is a real risk of dissipation and that it needs to be dishonesty directly linked to the dissipating of assets.

This article has been co-written by Valya Georgieva and Sarah Rees.

Summary of the case in Russian

В этой статье наш oтдел по коммерческим тяжбам рассмотрит два недавних дела, в которых оспаривается выдача международного приказа о заморозке средств: Tugushev v Orlov [2019] EWHC 2031 (Comm) (“Tugushev”) и PJSC National Bank Trust v Mints [2019] EWHC 2061 ( “PJSC”). В деле Tugushev, приказ о заморозке не был выполнен в связи с несоблюдением истцом своих обязанностей по полному и откровенному раскрытию информации, и приказ не был повторно предоставлен на том основании, что истец не установил реальный риск неправомерной растраты активов ответчика.  В деле PJSC, судья пришел к выводу, что имелись достаточно веские доказательства того, что существует реальный риск растраты активов. Доказательства были настолько убедительны, что, несмотря на задержку в подаче заявления истцом, было справедливо и удобно продолжать международный приказ о заморозке. В конечном итоге oба случая сводятся к вопросу о том, было ли достаточно доказательств, указывающих на реальный риск неправомерной растраты активов, и было ли в интересах правосудия продолжать распоряжение. Поскольку ответчик якобы является бесчестным, суд не станет автоматически делать вывод о том, что ответчику нельзя доверять в том, что он не растратит свои активы.