Court of Appeal orders disclosure in relation to freezing order and cross-undertaking from a liquidator

A liquidator of a bank obtained a freezing order against the Russian defendant, in aid of Russian  proceedings. One of   the assets frozen by the order was “any interest under any trust, including  any interest which may arise by virtue of  the exercise of any…discretion or otherwise”. The  defendant was subsequently ordered to disclose information about a discretionary trust in respect of which he was a member of a class of beneficiaries. He appealed  against that order, arguing that the trust’s assets were not his assets.

The Court of Appeal has now held that the judge did have a discretion to make this order, since the  freezing order was worded widely enough to encompass the defendant’s interest in the trust. Having  disclosed his interest in the trusts, should the defendant also be compelled to disclose details of  the trust assets themselves? The Court of Appeal held that he should. The jurisdiction to make a  freezing order also allows a court to make ancillary orders which are necessary to make the order  effective. The threshold test for ordering a defendant to provide information about assets which  are, or may be, the subject of the freezing order is not the same as the threshold test for  freezing assets: “An order for the provision of information is far  less intrusive than an order  which prevents someone from dealing with assets”. Furthermore, information was only being sought  from the defendant, and not a third party.

A further point in the case was whether the judge  was wrong to order the bank’s liquidator to  provide an unlimited cross-undertaking. It had been argued that there is an exception to the requirement to  give an unlimited cross-undertaking where the applicant for the freezing order has no personal  interest in the litigation and is bringing the action on behalf of others. Lewison LJ said   that  “I do not consider that the mere fact that litigation is being brought by a liquidator of an insolvent company compels the conclusion that the  cross-undertaking must be capped”. Although judges do have a discretion to accept limited  cross-undertakings, the judge in this case had been entitled to require an unlimited  cross-undertaking and so the appeal against that decision was also dismissed.

COMMENT: The decision that an unlimited cross-undertaking can be required from a liquidator can be  contrasted with the position established by the Supreme Court in FSA v Sinaloa Gold (see Weekly Update 08/13) that  an unlimited cross- undertaking cannot be required from law enforcement agencies enforcing the law in the public interest.