The test for showing that a respondent to an application for a freezing injunction has assets caught by the order has been “somewhat less than certain”. It has now been clarified by the Court of Appeal, in Ras Al Khaimah Investment Authority v Bestfort Development LLP. I want to look at three practical tips on handling this issue, drawn from the appeal and first instance judgments: the aim being to obtain and maintain a nuclear weapon, and to avoid the nuclear winter a failed application or set-aside order can create.
The background to the applications
The applicants (A) applied for freezing orders ancillary to foreign proceedings. The fourteen respondents (R) were all LLPs registered in England and Wales, said to be beneficially owned by Mr Mikadze (M). Only some of R were defendants in the foreign proceedings. Against all, A relied on the Chabra jurisdiction.
No freezing order was sought against M. He was not in England and Wales. A could not show that he had any assets here, apart from his interest in R.
The applications, started in June 2015, were dismissed at first instance in November 2015. In July 2017, the Court of Appeal allowed the appeal to a limited extent, granting relief against Rs 4, 8 and 14. Its unanimous view was that the test for the existence of assets was “grounds for belief”: whether the applicant could establish grounds for believing that a respondent has assets that will be caught by the freezing order.
The evidence that R had any assets
A had not identified any assets R held in England and Wales. A had R’s financial statements, filed in the past, with the register of LLPs, showing cash balances. These financial statements were not contemporaneous to the application. The latest was dated January 2015, otherwise they bore dates in 2013 and 2014. For some of R, the cash recorded as held in the financial statements was well under £20,000. Two of R had been dissolved and only recently restored to the register at A’s request.
A had identified various Latvian bank accounts in the name of some of R. In the past, entities connected with A had made payments into these bank accounts. A could not say that the cash shown in the financial statements was ever held in these bank accounts. R had produced evidence to show that some of the Latvian bank accounts were closed in 2014. Overall the evidence was that many of R had closed their accounts or only had insubstantial sums in them.
The Court of Appeal allowed the appeal in relation to Rs 4, 8 and 14, having reviewed the evidence in relation to recent transactions. In June 2015, R4 and R8 received the proceeds from the sale of shares in related companies. There was no “satisfactory” evidence of the whereabouts of those sums. In March 2015, R8 and R14 agreed to pay M commission under service agreements. It could be inferred from this that R8 and 14 had assets in 2015 from which to pay these fees.
Three practical tips for dealing with the “grounds for belief” in future applications
First, “grounds for belief” are unlikely to be established by the following. Consider whether the facts of your applications are different so that the basis for failure of these submissions – set out below – does not apply.
- “… even if identified bank accounts had been closed, the money that had been in them must be somewhere in the Respondent’s ownership, in cash or other property.” This failed as there was no evidence in support and M’s use of vehicles for his business was equally consistent with R being empty shells.
- “… the fact that the Respondent was spending so much time and money opposing the application indicated there must be some money in it.” This failed as it was not a true or proper inference for the court to draw generally, and particularly given the wide, intrusive nature of the relief sought.
- “… money may have been left in a dissolved R.” This was “most unlikely”. Why leave money to go to the Crown as bona vacantia? Why put money in after restoration to the register in order to be R?
- “… if the case justified a worldwide injunction the requirement to give evidence about the existence of assets is diminished since in most such cases, the Respondent is an apparently wealthy person who must have assets somewhere.” This failed as it was not the law.
Second, consider the evidence against each respondent individually, particularly where the alleged puppet master is not a respondent.
- A submitted that M had accepted that R were his creatures. A decision to grant a freezing injunction against any R meant that it should be granted against all, as M could transfer money at will from one to another.
- But the Court of Appeal rejected this broad-brush approach, at any rate where the alleged puppet master was not a defendant.
- The Court of Appeal acknowledged that the ability to transfer assets may be highly relevant to risk of dissipation. But it is not relevant to the prior question: are there grounds for believing there are assets caught by the proposed order?
Third, proportionality matters. Balance the costs of implementing the order against the frozen assets’ value.
- The court may take the view that an order should only be made if there are assets of a greater value than the sums likely to be swallowed up very quickly in legal and other fees incurred in enforcing the order.
- This factor counted against granting A relief. Their case was not one where a simple letter to a London bank would freeze money. A wanted to freeze bank accounts in Latvia. Enforcement was likely to involve a substantial amount of work and therefore fees.
