In the recent case of State Bank of India & Others v Dr Vijay Mallya & Others [2018] EWHC 1084 (Comm), the court considered how various factors are to be assessed when considering whether to continue a freezing order, including the risk of dissipation of assets; delay on the part of the claimant in applying; and material non-disclosure. It also deals with issues regarding the registration and enforcement of foreign judgments, which we deal with in this separate insight.

TLT acted for the successful consortium of 13 Indian financial institutions (the Banks).

Background

The first defendant, Dr Mallya, is a prominent Indian businessman. He is the co-owner of the Force India Formula One team and former chairman of United Breweries Group. Dr Mallya is fighting extradition proceedings to India where he faces criminal charges (which he denies) including fraud and money laundering.

In January 2017, the Banks obtained judgment in the Debt Recovery Tribunal in India in respect of a personal guarantee for the debts of Kingfisher Airlines (the DRT Judgment). As of November 2017, the sums owed totalled c£1.145bn.

When registering the DRT Judgment in England and Wales in November 2017 (the Registration Order), the Banks also obtained a worldwide freezing order against Dr Mallya's assets (the WFO) on the grounds that, as a result of the Registration Order there was a real risk that, without a freezing order, the judgment would go unsatisfied because Dr Mallya would dissipate his assets or deal with them in such a way as to make enforcement harder.

Dr Mallya subsequently applied to have the Registration Order set aside, alternatively for enforcement to be stayed pending appeals in India. He also applied to discharge the WFO on the grounds that there was no serious risk of dissipation of assets, the claimants had delayed in making the application and there had been material non-disclosure.

Both of Dr Mallya's applications were dismissed following a hearing in April.

Risk of dissipation of assets

The principles as to the evidence required to show a risk of dissipation are well established. Each case turns on its particular facts and this judgment provides a number of illustrations of how a court may approach different scenarios.

Offers of settlement – where a claimant has reasonable grounds to consider offers are unsatisfactory, such offers will not provide evidence that a defendant genuinely intends to satisfy the judgment debt. This is particular so if a defendant is continuing to challenge the judgment or claim against his (in Dr Mallya's case, his attempts to appeal the DRT Judgment out of time in India).

Contempt findings – the court will place significant weight on any previous findings of contempt against a defendant, particularly where it relates to the dissipation of assets in breach of court orders. In this case, the Supreme Court of India had found Dr Mallya in contempt of an earlier Indian High Court order not to dispose of his assets. Further, the court will be reluctant to re-consider contempt findings by a foreign court, especially where the decision appears a reasonable one on the evidence.

Criminal allegations – where a defendant faces criminal proceedings relating to allegations of dishonesty, they can be taken into account even if those proceedings have not been concluded if there is sufficient evidence to justify a conclusion that there is a risk of dissipation. Dr Mallya argued that the allegations against him were untested and untried and so adverse inferences could not be drawn against. The court held that, as the charges brought against him followed a detailed criminal investigation and there had been at least two Indian court hearings in which provisional asset attachment orders were confirmed after a review of the evidence, it could not be said that the allegations were completely untried or tested even if a guilty verdict had yet to be given.

De minimis disposals – Even if a disposal of an asset is de minimis compared to the judgment sum, it can be taken into account when considering the overall risk, particular where it may have been in breach of a court order. Dr Mallya admitted disposing of an antique sword worth c£200,000 but had failed to clarify how he disposed of it. The value of the sword is a fraction of the overall judgment debt against him but the court viewed it as a clear breach of an Indian court order (i.e. a possible further contempt).

Complex ownership structures – On its own, the fact that a defendant holds assets through complex offshore structures is not evidence that there is a risk of dissipation; however, where there are other factors pointing to such a risk, a court can it into account. This is obvious often very difficult to prove and the court was unwilling to take into account unverified internet sources linking Dr Mallya to assets which were owned via offshore companies and trusts.

Delay

Delay on the part of a claimant in seeking a freezing order can be fatal to any application for a freezing order because it suggests a lack of genuine belief of a risk of dissipation. Delay is, however, merely another factor to be considered when deciding whether a freezing order is appropriate.

Dr Mallya argued there had been significant delays of at least 18 months by the claimants in bringing the application and that the Banks could have sought relief sooner under section 25 of the Civil Jurisdiction and Judgment Act 1982[1].

The court accepted the Banks' evidence that they did not realise section 25 was available to them and had reasonably thought they could not apply until they had the judgment from the DRT, holding that a genuine misunderstanding as to remedies available did not undermine the belief of a risk of dissipation. It was also relevant that the Banks had obtained asset restraint orders in the Indian proceedings, and that the Indian courts could do little to enforce such orders unless Dr Mallya returned to India.

Whilst acknowledging the Banks did not evidence any additional significant dissipation of assets during the 18 months alleged delay (save for the sword), the court held this point was significantly outweighed by the combination of other factors.

Material non-disclosure

Finally, the Court rejected Dr Mallya's contention that the WFO should be dismissed due to material non-disclosure on the part of the Banks.

Whilst agreeing with some of Dr Mallya's points of non-disclosure, the court held that these were not sufficiently culpable to merit the discharge of the WFO. In particular, the court noted that some of the alleged non-disclosure around the asset restraint orders in India would only have assisted Dr Mallya rather than cause him prejudice.

Conclusion

This case is a good example of how a number of factors, which might not be sufficient on their own, can be combined to establish sufficient evidence to show a real risk of dissipation of assets. It is also a useful illustration of the balancing exercise that the court will undertake when considering challenges to freezing orders.