The recent decision of the London Commercial Court in PJSC Tatneft v Gennady Bogolyubov & Ors  EWHC 1314 (Comm) highlights the importance that the Court will attach to full asset disclosure by a respondent to ensure the effectiveness of a freezing order, even in circumstances where the value of a respondent’s assets exceeds the sum frozen by the order.
Freezing Orders: What Are They?
The availability of freezing orders in England provides a potent weapon in the hands of claimants. While it is beyond the scope of this update to explore in detail the law and practice relating to the granting of freezing orders, a brief reminder of some of the features is important in order to place this decision into context.
Where the Court can be satisfied that there is a real risk that a respondent’s assets will be hidden or dissipated in order to avoid the consequences of the claim, a freezing order may be granted in aid of English or indeed foreign proceedings. The purpose of a freezing order is normally to preserve the respondent’s assets so that, if the substantive claim succeeds at trial, there will be sufficient assets to satisfy the judgment. Sometimes though, a freezing order is deployed in order to assist in enforcement of a judgment that has already been obtained. Its effect is to "freeze" a respondent’s assets up to a specified amount, although no security interest is created in favour of the applicant over the frozen assets. The assets frozen can in suitable cases extend to all assets held by the respondent anywhere in the world, not just those held in England and Wales.
Freezing orders also typically require respondents to disclose a list of their assets to the applicant and to the Court in order to aid in policing the order and the subsequent enforcement of any judgment against the respondent. The standard form of freezing order provides for full asset disclosure by the respondent, not simply for disclosure of whatever assets the respondent may choose to disclose which attain the value of the sum frozen by the order.
The PJSC Tatneft Case
In the PJSC Tatneft case, a freezing order had been granted, after which one of the respondents applied to vary the terms of the order so that an asset list that he had provided would be acknowledged to constitute the only asset disclosure that he would be required to make. The basis for this application was that the value of the assets that the respondent had disclosed already exceeded the amount frozen by the order, and so (he argued) the claimant had all the protection to which he was entitled or which he needed in order to police the order.
The Court refused the application. Although variations of this nature were within the discretion of the Court and on this occasion the Court was not prepared to exercise its discretion to allow the variation, of greater significance was the Court’s emphasis on the importance of full asset disclosure so as to enable the effective policing of a freezing order. The Court:
- Paid regard to a trend towards the use of its powers and protections so as to ensure that freezing orders "adapt to the increasing complexity with which fraudsters hold and administer their assets."
- Decided that full asset disclosure was necessary in this case "to enable the injunction to have teeth," that being all the more important where the assets involved were diverse and held in complex or semi-complex structures.
- Recognised the risks associated with allowing defendants to choose which assets they wished to disclose up to the value of the frozen sum – which the court described as a "cherry-picker's charter" – as to do so would "enable a defendant to deliberately disclose only his most difficult assets to enforce against." The Court appreciated that allowing this to happen would subvert the purpose of freezing orders and frustrate policing of them.
- Was influenced in its decision by the fact that the standard form of freezing order provides for full asset disclosure. Full disclosure is therefore the default position – although there will be occasions when the Court may in its discretion depart from it. The Court suggested that such might happen where there was "a very considerable cushion" between the disclosed asset value and amount frozen and "robust evidence" that the value of the disclosed assets could not change.
This decision therefore serves as a helpful reminder both of the importance of asset disclosure in "giving teeth" to an English law freezing order and of the trend towards ever more robust interim remedies that are available to claimants in High Court litigation in England.