Court considers the test for a respondent to a freezing order being allowed to use frozen assets to fund its defence

http://www.bailii.org/ew/cases/EWHC/Comm/2015/2748.html

Clyde & Co (Mark Walsh and Harriet Defreyne Kelk) for claimant

The claimant obtained a worldwide freezing order against the respondents. It contained the usual provision permitting the respondents to spend a reasonable sum on legal advice and representation, but that before doing so, the respondents must tell the claimant where the money is to come from. The respondents subsequently wished to use funds in one of their accounts to fund their defence (funds in another account having become depleted), and when the claimant objected, permission was sought from the court.

Males J summarised the applicable legal principles as follows:

  1. Payments in the ordinary course of business are allowed following the grant of a freezing order, even if that results in the defendant's assets being completely depleted before judgment. As long as the payment is made in good faith, "the court does not enquire as to whether it is made in order to discharge a legal obligation or whether it represents good or bad business on the defendant's part".
  2. Where the respondent has no other assets with which to fund the litigation, "the ordinary rule" is that it should be allowed to use the frozen funds to finance its defence. However, it is possible to depart from that rule, in the interests of justice.
  3. The respondent has the burden of proving that there are no other assets which could be used to fund the litigation. Since the court will have already concluded that there was a risk of dissipation (which is why the freezing order was granted), judges are entitled to have a "very healthy scepticism" about unsupported assertions by the respondent.

Accordingly, the court will consider whether the respondent has other assets and also whether others may be willing to help fund the litigation. This can result in the wrong conclusion being reached by the court, but Males J held that this "should not deter the court from making the best assessment it can on the material available".

Here, the court was entitled to take into account the fact that the respondents had flouted court orders and were in contempt of court. The judge held that this case was exceptional, in that not only were the respondents in contempt, but it was only because of the contempt that the proceedings were continuing. Accordingly, the overall justice of the case required the court to deny the respondents access to the funds, even if that meant that the respondents would be left unrepresented. In any event, the respondents had also failed to persuade the court that they did not have access to any other funds.