Establishing a risk of dissipation in an essential requirement of a successful application for a freezing injunction but concrete evidence of actual or threatened dissipation is rarely to hand. In this extract from the notes of a recent lecture, Shantanu Majumdar of Radcliffe Chambers considers how else a sufficient risk of dissipation can be shown.
- In Congentra AG v Sixteen Thirteen Marine SA1 Flaux J said (at ) that there is a sufficient risk of dissipation if it can be shown that:
“(i) there is a real risk that a judgment or award will go unsatisfied, in the sense of a real risk that, unless restrained by injunction, the defendant will dissipate or dispose of his assets other than in the ordinary course of business: The Niedersachsen  1 WLR 1412 per Mustill J as interpreted by Christopher Clarke J in TTMI v ASM Shipping  1 Ll Rep 401 at 406 (paragraphs 24–27); or
(ii) that unless the defendant is restrained by injunction, assets are likely to be dealt with in such a way as to make enforcement of any award or judgment more difficult2, unless those dealings can be justified for normal and proper business purposes: Stronghold Insurance v Overseas Union  CLC 1268 at 1273 per Potter J and Motorola Credit Corp v Uzan (No. 2)  2 CLC 1026 at para. 142–146 where the Court of Appeal was applying the same principle in the context of disclosure of assets by the defendant.”
- The important difference between these alternative requirements is on the one hand between
- a judgment or award going unsatisfied because of dissipation and
- enforcement becoming more difficult because of likely dealings
in either case otherwise than in the normal course of business.
- That reference to the “course of business” is an important reminder of the limited purpose of a freezing injunction.3
3.1 Before judgment, there has not been a determination of the merits of the claimant’s claim (beyond the relatively low test of there being a good arguable case). In reality the existence of a freezing injunction will inevitably interfere with the Respondent’s (ordinary) conduct of its business but it is not intended to do so and payments made for that purpose are not restrained even if their likely result is that any future judgment will not be met in full or at all. See TTMI Ltd of England v ASM Shipping Ltd of India4
3.2 After judgment the position may be different. Soinco SACI v Novokuznetsk Aluminium Plant5 concerned the appointment of a receiver by way of equitable execution. Colman J said (at p 421):
“As to bringing the business of the judgment debtor to a standstill by cutting off payment otherwise available to it, I am not persuaded that this is a relevant consideration in the context of a remedy designed to effect execution and not designed merely to conserve assets pending determination of an unresolved claim. This is not the environment of a Mareva injunction prior to trial, but of execution of a pre-existing judgment. Whereas the effect of an injunction on the defendant's ability to conduct his business in the ordinary course may be relevant where his liability is yet to be determined, it cannot possibly be a relevant consideration where his liability has already been determined. Impact on the judgment debtor's business is not a consideration material to the availability of legal process of execution and there is no reason in principle why it should be introduced as material to the availability of equitable execution.”
Tomlinson LJ in Mobile Telesystems Finance SA v Nomihold Securities Inc6 has since said that this dictum of Colman J might be a little too sweeping (or at least not so strongly applicable to freezing relief) given that a post-judgment freezing injunction is granted in aid of execution but is not part of such execution7. Tomlinson LJ nonetheless expressed himself to be
“... satisfied that it will sometimes and perhaps usually be inappropriate to include an ordinary course of business exception in a post-judgment asset freezing order. Of course, its omission would not preclude an application to vary or discharge.”
- The beneficiary of an arbitration award is not for these purposes to be treated as being in the same position as a judgment creditor if the award is not yet enforceable because, say, the period prescribed by CPR 62.18(9) has not yet elapsed8 and the same reasoning would presumably apply where a judgment debt was subject to a stay of execution.
The Burden on the Claimant
- The burden on the claimant is to show that there is a real risk of dissipation and it has been said that this means a “good arguable case”.9 This – as has already been mentioned in the context of the merits of the underlying claim – is
“a case which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50 per cent chance of success”10
This is (at least theoretically) a more stringent requirement than the “serious issue to be tried” for American Cyanamid purposes11.
- The authorities suggest that the following factors are relevant
6.1. the nature of the assets – the more liquid and disposable the easier to dissipate;12
6.2. the nature and financial standing of the defendant’s business including its length of establishment;
6.3.what the defendant has said about dealing with its assets;
6.4.domicile/incorporation in a tax haven with slack or opaque company laws;
“We often see in this court a corporation which is registered in a country where the company law is so loose that nothing is known about it - where it does no work and has no officers and no assets. Nothing can be found out about the membership, or its control, or
its assets, or the charges on them. Judgment cannot be enforced against it. There is no reciprocal enforcement of judgments. It is nothing more than a name grasped from the air, as elusive as the Cheshire Cat. In such cases the very fact of incorporation there gives some ground for believing there is a risk that, if judgment or an award is obtained, it may go unsatisfied.” Per Lord Denning MR in Third Chandris Shipping Corporation v Unimarine SA  QB 645 at p 669.
6.5. the enforceability of English judgments in the place where the respondent has substantial assets;13 If this is the EU then for obvious reasons this is a factor tending against the grant of relief.
6.6. whether the underlying claim involves dishonesty even if fraud is not pleaded.14 See Guinness v Saunders (1987), The Independent, 15 April 1987
“In my judgment dishonest behaviour is relevant to Mareva relief not by reference to what is pleaded but by reference to the possibility or likelihood of it existing” – per Lord Browne- Wilkinson.
6.7.Repoetohe climan’s lam
6.7.2.slender or shady defence(s);
- An arguable case of perjury was highly significant in
Congentra AG v Sixteen Thirteen Marine SA16.
- But was considered to be insufficient in Irish Response Ltd v Direct Beauty Products Ltd17
and which serves to illustrate how all of the evidence needs to be considered (and possibly the difference between one judge and another ...).
6.8.Evidence of other dishonesty – ie beyond the immediate claim;
6.9.Past failure(s) to pay debts or association with companies with such a record.18
o But doubts about the defendant's creditworthiness are not enough on their own – see Mobil Cerro Negro Ltd v Petroleos de Venezuela SA19
6.10.Evidence of actual removal/dissipation of assets.
6.11. Past failures to comply with court orders.20 Although note that in Masri v Consolidated Contractors International Company  EWCA Civ 303 Lawrence Collins LJ said (at )
“... it is a necessary condition of a post-judgment freezing order being sought that the judgment will not have been paid. It does not follow from non-payment that a defendant intends to dissipate its assets.”
6.12.Failure to disclose assets.
- The test is to be satisfied “on the whole of the evidence” before the Court21 as was vividly illustrated by the judgment of Arnold J in UCB Home Loans Corporation Ltd v Grace  EWHC 851 (Ch) where the extensive evidence relied upon ranged from declined insurance cover to failure to comply with previous court orders. Even though the Defendants could but had not previously dissipated assets, the judge said (at ) that “overall”
“I consider there is a real risk of dissipation of assets, because the evidence suggests that, even if they were not positively dishonest, the first and second defendants have behaved in a manner which gives rise to that risk because they have consistently put their own interests before that of the legitimate interests of their creditors and, in particular, the claimant, which is a judgment creditor.
Evidence of dishonesty
- In Thane Investments v Tomlinson22 Peter Gibson LJ said:
‘In my judgment Neuberger J's reasons for finding Judge Thompson's order one which should not be discharged are insufficient to justify the order which he made. First, Neuberger J said that the matters which were relied on for the good and arguable case applied in demonstrating that there was a real danger of the defendants dissipating their assets to defeat the judgment. I regret that I do not see that the judgment does support a conclusion that in the particular circumstances of Mr Tomlinson and Reyall there was a real risk of assets being dissipated. Mr Blackett-Ord submitted that it has now become the practice for parties to bring ex parte applications seeking a freezing order by pointing to some dishonesty, and that, he says, is sufficient to enable this court to make a freezing order. I have to say that, if that has become the practice, then the practice should be reconsidered. It is appropriate in each case for the court to scrutinise with care whether what is alleged to have been the dishonesty of the person against whom the order is sought in itself really justifies the inference that that person has assets which he is likely to dissipate unless restricted.’
- Thane continues to be cited in support of the proposition that the mere fact of an allegation of fraud in the actual or intended claim is not sufficient without more to justify the grant or maintenance of a freezing injunction but it requires some significant qualification not least because, as Flaux J identified in Madoff Securities International Ltd v Raven23, two highly relevant decisions of the Court of Appeal were not cited in Thane.24
- The first was Norwich Union v Eden25 where Phillips LJ said:
“It seems to me that when the court considers whether there is a good arguable case it is at that stage that it considers whether the likelihood of a judgment in favour of the plaintiff is sufficient to justify the grant of Mareva relief. If it is so satisfied, the question then arises: if such a judgment is given, what is the risk that there will be no assets there to satisfy it? If the judgment in question being considered is a judgment in which allegations of fraud are made, then it seems to me that it is open to the court to conclude from that fact alone that there is sufficient risk of dissipation of assets to justify the grant of relief. For myself it does not seem to me that there would be any prospect of persuading this court that the learned Judge had erred in principle in so concluding.”
- The second was Grupo Torras SA v Al-Sabah26 where Saville LJ said:
“Mr Etherton also criticised the judge for failing, as he put it, properly to address himself to the question whether there was a real risk of dissipation of assets, and simply concluded that such a risk existed because this was a fraud case. ...
What is clear from the judgment is that the judge took the view that there was a good arguable case that Mr Dawson was knowingly implicated in the fraud; and that the nature of the allegations was such that there was a strong fear of dissipation. Since it is part of Mr Dawson's own case that he was expert in the sort of intricate, sophisticated and international financial transactions which feature in this case, and since the plaintiffs had established a good arguable case that Mr Dawson had used his expertise for dishonest purposes, I am not in the least surprised that the judge reached the conclusion he did. In short I remain wholly unpersuaded that the judge so erred in his assessment of the risk of dissipation that it would be right for this court to interfere.”
Both of these cases were referred to with approval by the Court of Appeal in VTB Capital Plc v Nutritek International27. They also illustrate the unwillingness of the Court of Appeal to interfere with the judge’s assessment that there is (or is not a good arguable case unless he is plainly wrong.28
- Although every case must of course be decided on all the evidence, in practice it usually is enough to obtain and by and large maintain such an injunction that the underlying claim discloses an arguable case of fraud.
- More historic or collateral evidence of dishonesty is more difficult but even then, it can frequently do rather more of the work to show a good arguable case of risk of dissipation than many authorities suggest; it all depends on the facts.
Attempts to reverse the burden of proof on dissipation
- Sometimes applicants for freezing injunctions seek to rely on unanswered or refused requests for undertakings about assets as evidence of the risk of dissipation.
- This can be useful but for obvious reasons it will be a relatively rare case in which that sort of dialogue even takes place before the application is made. Even then, there needs to be some evidential basis for making the request in the first place otherwise it is no more than an attempt to reverse the burden of proof. This is to be distinguished from a situation where a sufficient case of risk of dissipation is made out ex parte and is not then rebutted on the return date:
“The worst this amounts to is a prima facie case. That prima facie case could have been destroyed by evidence given on behalf of Corix Properties Ltd. No such evidence has been put before the Court. I have reminded myself that the absence of evidence proves nothing. On the other hand, the fact that there is no evidence from one side makes it easier to draw inferences from the evidence which is already before the Court; and the evidence before the Court as against Corix Properties Ltd. is that there has been a scheme to make access to the profits of this development difficult for the Inland Revenue.”
Per Lawton LJ in Dellborg v Corix Properties and Blissfield Corpn NV (Unreported) Court of Appeal, 26 June 1980.