Key points at a glance
- It is common for defendants to seek to delay compliance with the asset disclosure provisions of freezing and proprietary injunctions.
- It is not usually possible to delay compliance by challenging the jurisdiction of the court to grant the injunction.
- Even when a challenge to the jurisdiction is being made by the defendant the court may order that – unless the defendant complies with the asset disclosure provisions – the claimant may enter judgment against the defendant.
- The above principles illustrate the insistence of the court that its injunctions must be effective.
Few things are as challenging for a defendant as being served with a worldwide freezing order. Almost always it will contain asset disclosure provisions that require him to disclose within a matter of hours his assets whatever they are and to confirm this on affidavit. If the action also includes a proprietary claim, then the order is likely to require him to disclose what has become of assets that the claimant alleges to be his since the claimant parted with them.
Even with the help of experienced and well-resourced solicitors, providing this disclosure can often be a daunting task. Frequently the freezing order is made without notice and therefore comes “out of the blue” to the defendant. It is often undertaken against the backdrop of concerns the defendant will have regarding payment of legal fees, adverse publicity, the start of lengthy legal proceedings and a barrage of correspondence from the claimant’s solicitors who would not have obtained the freezing order unless they thought that it was against someone who could not be trusted and who therefore are not minded to be generous.
English style freezing orders usually require more extensive disclosure than asset disclosure procedures in other jurisdictions. Many defendants, particularly those from overseas, find the requirement objectionable. If the action or the grounds upon which the freezing order was obtained are unjustified, the defendant’s indignation is understandable. However, in our experience, even defendants who know perfectly well that they have committed a fraud are (whether unreasonably or not) genuinely outraged with what they see as an offensive intrusion to their privacy.
It is little wonder, therefore, that so many defendants seek to hold up the asset disclosure process whilst they challenge the jurisdiction of the court to grant the freezing order. In the 1980’s, it used to be common for defendants to seek to give the disclosure by putting it in a sealed envelope deposited in the court. This practice was soon abandoned. Rightly so: the purpose of disclosure is to ensure that the claimant can do what is necessary to “police” the injunction by serving it upon third parties who hold the defendant’s assets or (if they are outside the jurisdiction) taking steps in the countries in which the assets are located. Putting the information in a sealed envelope (so that the claimant does not learn of its contents) rather defeats the point of the exercise. The claimant will not know who these third parties are and will therefore not be able to “police” the injunction or take any steps in relation to any assets identified.
- The Grupo Torras decision: injunctions need teeth
The abandonment of the “sealed envelope” practice was followed by the decision in Grupo Torras1 in which a worldwide freezing order was granted whilst a challenge to the jurisdiction was afoot. Sheikh Fahad, the principal defendant, sought to persuade the court to delay disclosure that he was otherwise obliged to make pursuant to the freezing order until his challenge to jurisdiction was heard.
If Sheikh Fahad’s challenge succeeded, the freezing order would be set aside and so would his obligation to make disclosure. In the interim, Sheikh Fahad argued, nothing should be done, while that challenge was afoot, that could not be undone. The gross intrusion into his privacy constituted by a disclosure order was - Sheikh Fahad argued - just such a thing ie something that could not be undone. Once the claimants knew of his assets they could not be rendered ignorant of the information if his challenge to the jurisdiction succeeded and it turned out that they should never have learned it.
The Court of Appeal disagreed with Sheikh Fahad’s arguments, taking the opportunity to coin a now much quoted “legal cliché”. If disclosure can be held up by a simple challenge to jurisdiction, then the worldwide freezing order would be “a toothless remedy in the face of rampant international fraud”. Cliché aside, the Court of Appeal pointed out that freezing orders are granted on the basis of an assumption that there is jurisdiction so that disclosure can also be ordered on the assumption that the court has jurisdiction.
This then leads to the question of what happens if the defendant does not comply with the disclosure order? If the freezing order is granted to support proceedings in another jurisdiction, and the defendant cannot be the subject of any action for contempt in England (because he is abroad), then the want of a proper sanction against him can be a ground for not granting the freezing order in the first place: (see, for example, Motorola v Uzan)2. However, if the freezing order is to support proceedings in England and Wales, can the court make an order that unless the defendant gives the required disclosure, default judgment can be entered against him in those substantive proceedings (an “unless order”)?
- The decision in Ablyazov
This was the issue the came up in JSC BTA Bank v Ablyazov and Others.3 First, the defendants argued that no unless order should be made whilst a challenge to jurisdiction was pending. It would be wrong, they said, for judgment to be entered before the court had dealt with the question of whether it had jurisdiction and therefore whether it should be hearing the action at all. Christopher Clarke J dealt with this in a number of ways at various points in his judgment. First, he said that the court expects its order to be complied with and granted the order to secure compliance. Hence it was not open to the defendant to ask the court to weigh in the balance what would happen if the defendant disobeyed the order.
Secondly, he pointed out that the grant of the disclosure order by the Court of Appeal in Grupo Torras must have been with the prospect in mind that it could be enforced only by the sanction of a default judgment. (Indeed, he noted that an unless order had also previously been made whilst a jurisdictional challenge had been pending in CIBC Mellon Trust Co Ltd v Stolzenberg4). Thirdly, he pronounced that, were the court not in a position to make such an order, “fraudsters would flourish”. Finally, he noted that since freezing orders are granted on the assumption of certain facts, so can an unless order be made on the assumption that the court has jurisdiction.
The defendants, however, had another perhaps more substantial argument. Prior to the Ablyazov decision a number of cases had supported the notion that, where one litigant did not give disclosure, the court could strike-out his claim or defence. The basis for the court doing this was that, by failing to give disclosure, the defaulting party had made it impossible for the trial to be fair. As Millett J said in Logicrose Limited v Southend United Football Club Limited5:
“...where the litigant’s conduct puts the fairness of the trial in jeopardy, where it is such that any judgment in favour of the litigant would have to be regarded as unsafe, or where it amounts to such an abuse of the process of the court to render further proceedings unsatisfactory and to prevent the court from doing justice, the court is entitled – indeed, I would hold, bound – to refuse to allow the litigant to take further part in the proceedings and (where appropriate) to determine the proceedings against him.”
Raja v Van Hoogstraten6 appeared to be another example of this principle. In that case, the Court of Appeal set aside a default judgment against a party who had failed to give disclosure under a freezing order. The principal reason for this was that it had not been clear what, exactly, the defendant had been required to do to comply with the order. However, Chadwick LJ had added, for good measure, (citing the decision in Logicrose):
“There was, in the present case no risk that the failure to make disclosure in aid of the freezing order would put in jeopardy the fairness of a trial of the issues in action. The most that could be said was that failure to make disclosure in aid of the freezing order might lead to a position where the claimant’s success in the action would be rendered nugatory by the dissipation of assets which ought to have remained available to meet any judgment which he obtained.”
Some weeks afterwards the Court of Appeal had cited the above passage with approval in Stolzenberg v CIBC Mellon Trust Co. Ltd.7 The logic of this thinking is clear enough. It is one thing for a court to refuse to hold a trial because it will be unfair (ie the court will not be able to ‘do justice’). It is quite another to decide not to hold a trial because the outcome may not have the commercial benefit that the claimant wanted. Many judgments are unenforceable or of no practical benefit to the claimant: but that is not a good reason to refuse to hear the claim.
This was the distinction that some of the defendants in Ablyazov sought to deploy. They argued that a default judgment should not be granted against them for failing to give disclosure under a freezing order. Disclosure of the defendants’ assets will often have little or nothing to do with the question whether there can be a fair trial. On the authorities, it was an attractive proposition. For practitioners, it would have been a disaster (think back to the “toothless remedy in the force of rampant international fraud” cliché).
Christopher Clarke J distinguishing previous cases held that the question was not “…solely whether non-compliance will render further conduct of the proceedings unsatisfactory”. He pointed out that the Logicrose decision had not concerned disclosure under a freezing injunction but that the approach of the other two Lord Justices in that case had indicated a “more robust” approach to litigants whose conduct is liable to ….the overall fairness of the proceedings”. The observations of Chadwick LJ in Raja appear to have been regarded by Christopher Clarke J as obiter.
The judgment appears consistent with the court having a broad discretion with the emphasis being (prior to judgment being entered) upon the order in question and securing compliance with that order rather than punishing default. Indeed, Christopher Clarke J said that “…the court is entitled to take into account the effect of making, or not making, the order sought on the overall fairness of the proceedings and the wider interest of justice as reflect in the overriding objective”. Whether or not this sits entirely comfortably with previous authorities, for practical purposes, it is clearly the right one. As Christopher Clarke J pointed out, the consequences of a defendant being able to grant himself an extension of time for disclosure under a freezing order by making a challenge to the jurisdiction (however spurious) which might take months to resolve and could be done by almost any overseas defendants would have been disastrous: “Fraudsters would flourish”, as he put it.