Hugh Norbury QC and Matthew Morrison of Serle Court take a closer look at freezing injunctions in the UK.
"This brief survey reveals that s.37 SCA has proved to be an effective and flexible resource for claimants wishing to enhance and police freezing relief."
In modern fraud litigation, obtaining a freezing injunction against the principal defendant to proceedings may not provide adequate protection to the claimant. Any rogue worth his salt will have appreciated the benefits of using nominees, companies and trust structures to distance himself from his assets. It is therefore important to ensure that appropriate non-parties are made the subject of freezing order relief. That, of course, assumes that such non-parties may be identified. To achieve this end, it will often be necessary to seek disclosure orders from a variety of third parties and, in appropriate cases, to cross-examine respondents to such orders. In cases with an international dimension it may also be necessary to keep respondents subject to freezing and disclosure orders within the jurisdiction pending compliance.
In this article we examine the manner in which the Court’s broad discretion to grant an injunction “in all cases in which it appears to the court to be just and convenient to do so” under s.37 of the Senior Courts Act 1981 (SCA) has been invoked by claimants to address these issues and prevent the thawing of their freezing relief.
In AJ Behkor & Co Ltd v Bilton  2 All ER 565 the Court of Appeal held that the power of the Court to grant a freezing injunction under s.37 SCA had, inherent within it, the power to make all further ancillary orders as the Court considered to be just and convenient to ensure that the freezing injunction is effective to achieve its purpose.
In Bekhor the ancillary order was to require the respondent to provide disclosure of his assets, a provision that now forms part of the standard form freezing order. When the Court of Appeal next came to consider the width and flexibility of s.37 SCA in Bayer v Winter  1 WLR 497, encouragement was given to claimants to seek more radical relief, Fox LJ rallying the other members of the court to bear in mind that because:
…we are exercising a jurisdiction which is statutory, and which is expressed in terms of considerable width, it seems to me that the court should not shrink if it is of the opinion that an injunction is necessary for the proper protection of a party to the action, from granting relief, notwithstanding it may, in its terms, be of a novel character. ( 1 WLR 497 at 502)
NON-PARTY FREEZING ORDERS
Fortified by these decisions, and alive to the potential for defendants to frustrate the claims of creditors by holding their assets through others, in TSB Private Bank International SA v Chabra  1 WLR 231 Mummery J used the Court’s power under s.37 SCA to make a freezing order against a third party in favour of a claimant who had shown there to be a good arguable case that the third party held assets on trust for the defendant.
Particular care needs to be taken to identify and pursue the relevant asset-holding company rather than relying on the standard freezing order against the defendant himself, in the light of the restrictive approach of the English court to wholly-owned companies in Group Seven Limited v Allied Investment Corporation Limited  EWHC 1509 Ch – although a more robust approach was taken by Mr Justice Burton on the very same day in Lakatamia Shipping v Nobu Su  EWHC 1814 Comm.
Since the Chabra decision, the asset ownership structures employed by defendants in fraud cases have grown in complexity. The Courts have kept pace with this evolution. Thus, rather than having to demonstrate that a formal trust relationship exists between a defendant and a third party, it will now suffice for a claimant to establish that there is good reason to suppose either that he would be able to compel a defendant to cause the assets held by the third party to be used to satisfy any judgment obtained by the claimant, or that there is some other process of enforcement by which the claimant can obtain recourse to the assets held by the third party (PJSC Vseukrainskyi Aktsionernyi Bank v Maksimov & Ors  EWHC 422 (Comm) approving the decision of the Cayman Islands Court of Appeal decision in Algosaibi v Saads Investments Company Limited (CICA 1 of 2010)).
Although the Court’s willingness to look beyond formal trust relationships is to be welcomed, it is regrettable that in Maksimov and Algosaibi the Commercial Court and Cayman Court of Appeal did not follow the suggestion of Aikens J in Yukos v Rosneft  EWHC 784 (Comm) that freezing relief ought to be granted whenever a claimant can show that a defendant has substantial control over assets held by a third party as a matter of fact rather than law.
The existence of substantial factual control means that if sufficient pressure can be brought to bear upon a defendant, he may be made to apply such assets to the claimant’s judgment debt. Given that such substantial factual control was acknowledged to give rise to a risk that such assets will be dissipated in the Maksimov case, it seems unduly (and uncharacteristically) formalistic of the English courts not to allow a claimant to prevent such dissipation with appropriate freezing relief.
Notwithstanding this, claimants can be comforted by the recognition in Maksimov that substantial factual control constitutes evidence from which it can be inferred that assets are held as nominee or trustee by the third party for the defendant. Given that the claimant need only show a good arguable case that such an inference can be drawn, it is likely that demonstrating substantial factual control over assets held by third parties by a defendant will prove to be sufficient to justify the granting of freezing relief against such third parties in their capacity as inferred nominees or trustees.
The decision of the Supreme Court in Prest v Petrodel  UKSC 34, in which the very limited scope of the doctrine of piercing the corporate veil in English law was authoritatively confirmed, also provides support for a no-nonsense approach to whether a company (or other entity) in reality holds its assets as nominee or in trust for a defendant.
For freezing relief to be effective it is also essential that the claimant identifies all of the assets of a defendant and the structures through which they are held. It will often be possible to obtain disclosure from third parties on Norwich Pharmacal principles where they have become mixed up in the wrongdoing of the defendant or of other relevant third parties in connection with the defendant’s assets. This is especially so where the wrongdoing they are mixed up in is the dissipation of assets subject to the freezing order.
However, it may be that no relevant wrongdoing can be identified. Alternatively, a respondent thought to have relevant information may not be mixed up in the wrongdoing. In these circumstances s.37 SCA provides a further means of obtaining information and documentation.
To obtain disclosure under s.37 SCA a claimant must show that the order for disclosure that he seeks is genuinely ancillary to the freezing relief obtained against the defendant and that it is just and convenient for it to be provided. As well as information about the existence and location of further assets, and the structures within which they are held, examples of the disclosure that may be requested pursuant to s.37 SCA include information and documentation concerning the use that is being made of assets if a claimant has valid concerns that their value is being diminished.
A claimant may also obtain an order that a non-party who is a respondent to a disclosure order be cross-examined pursuant to s.37 SCA. In Kensington International Ltd v Republic of Congo  EWHC 1848 Morison J recognised that such an order imposes a significant burden on a non-party and accordingly held that the power was not to be exercised lightly. However, he found that such an order was more than justified in circumstances where the disclosure provided had been “woefully inadequate”, the evidence given by affidavit cried out for further information to be obtained through cross-examination and the respondent was in a position to provide such information.
PREVENTING RESPONDENTS FROM FLEEING
No matter how extensive the relief obtained by a claimant in support of its claim, a court order will only have teeth against a respondent while he is subject to the jurisdiction of the Court. Inspired by the radicalism of Fox LJ, the Court of Appeal in Bayer v Winter held that where there is a real risk that the respondent may flee the jurisdiction the Court may use its powers under s.37 SCA to grant injunctive relief restraining him from so leaving and requiring him to deliver up all passports pending compliance with his obligations.
However, just as the standard form order freezing assets can be circumvented by sophisticated respondents, so too can travel restrictions be of limited practical value to a resourceful and unscrupulous respondent. Just how far is the Court prepared to go in ensuring that respondents to orders (whether or not also defendants) stay in the jurisdiction? A typical situation might be where a respondent has breached a Court order and committal proceedings are brought. Although a passport order has already been made, what if the claimant fears that the respondent will simply abscond?
In the first instance, the claimant can apply ex parte to the Court for the issue of a bench warrant to be executed at the same time as the service of the committal proceedings. The use of a bench warrant for the purpose of bringing a respondent to a committal application before the Court was countenanced by David Richards J in Lexi Holdings v Luqman & Ors  All ER (D) 217 and Norris J in The Law Society of England and Wales v McPhail (Case No. HC 10 C 01842, 11/2/2011 – unreported).
Having secured a bench warrant, the claimant needs to secure the respondent’s presence in the jurisdiction even though the actual trial of the contempt proceedings is, in a substantial matter, unlikely to take place for some time. Although a respondent can be remanded in custody in certain circumstances (per Butler Sloss LJ in the case of Re B  2 FLR 479), it is scarcely conceivable that this would apply over the period of a lengthy adjournment.
In an unreported decision from 2012 in the long-running JSC BTA Bank v Ablyazov litigation, the claimant faced a similar situation. Its novel response, in circumstances in which related parties in the same litigation had fled the jurisdiction even though travel restrictions were in place, lay in s.37 SCA. Praying in aid by analogy the curfew and tagging orders available under the Bail Act 1976 (as amended), the claimant successfully obtained an order under s.37 SCA requiring the respondent to remain at home for a considerable part of the day unless accompanied by a solicitor, not to travel beyond the M25 motorway and to permit Serco to attach a tag to monitor his compliance with these restrictions pending trial. It is not yet clear whether this novel and bold approach will become standard practice in suitable cases or, indeed, whether it will be approved should a future order of this nature fall to be considered at Court of Appeal level.
This brief survey reveals that s.37 SCA has proved to be an effective and flexible resource for claimants wishing to enhance and police freezing relief. Whether the imposition of a curfew and tagging upon an “innocent” mixed up in the wrongdoing of others represents the apotheosis of the jurisdiction remains to be seen. What is clear is that the courts have continued to heed the advice of Fox LJ and refused to shrink from novelty.