Where fraud is suspected and evidence of dissipation of assets is available, a UK freezing order can be a valuable tool in the claimant's litigation armoury, both in relation to domestic and in support of foreign proceedings.
Not only does such an injunction prohibit a defendant from dealing with its property, it also subjects it to stringent disclosure obligations enforceable by committal. However, where the substantive claim against a defendant is dismissed, the court will be reluctant to permit the injunction to continue on the basis that the position may be different in the future.
The court will require some persuading to maintain injunctions in those circumstances.
This was the position in Joint Stock Co Ukrsibbank v Polyakov. The claimant Ukrainian bank commenced proceedings in Ukraine against the defendant Ukrainian citizen in relation to a personal guarantee given to support lending to a group of companies. The group had a complicated corporate structure using offshore companies.
The loan was not repaid and proceedings were commenced in Ukraine to recover substantial sums. The claimant obtained a worldwide asset freezing injunction under s25(1) of the Civil Jurisdiction and Judgments Act 1982 (s25) from the High Court, having adduced evidence of dissipation of property. Such an injunction is granted in support of, but is subordinate to, the foreign proceedings.
Subsequent to obtaining the injunction, the claim in Ukraine was dismissed and the guarantee was held unenforceable. All avenues of appeal failed. Although the injunction was maintained through the appeal process, following the conclusion of that process, there were no extant proceedings against the defendant in Ukraine.
The issue to be determined by the High Court was whether, in the light of the appellate decisions in Ukraine, the injunction it had granted should also be dismissed or whether the status quo should be maintained and the injunction continued while the claimant pursued one last possible avenue. This somewhat circuitous avenue was via a co-surety (and third-party to the claim) appealing the earlier decision in the defendant's favour, which could then provide a basis for the claimant's claim against the defendant to be remitted back to the Ukrainian court for reconsideration.
One of the requirements for an injunction to be granted and maintained under s25 is that the claimant can show it has a good arguable case. This requires more than showing a serious issue has to be tried, but does not necessarily require a better than fifty per cent chance of success i.e. it need not meet the balance of probabilities standard.
The court held that the claimant had failed to demonstrate a good arguable case that it would succeed in obtaining a judgment against the defendant via this route:
- the co-surety was out of time in appealing the earlier decision and the court's permission to appeal out of time was required;
- there was a question over whether the liquidator of the co-surety had a genuine commercial interest in bringing the claim and was acting entirely independently of the claimant; and
- in essence it would be a matter of re-litigating the same issues in the hope that a different outcome would be reached when the court had already rejected the claimant's case on the same issues on two occasions.
The injunction was discharged.
Things to consider
If there is cogent evidence that an appeal is likely to succeed within a short time it would not necessarily be inexpedient within s25 for a court to continue a freezing injunction.
The court will, however, be cautious in exercising its discretion to continue an injunction where the underlying claim appears to have been dismissed, due to the prohibitive nature of the injunction and the stringent disclosure obligations imposed, which are enforceable by committal proceedings. Claimants should bear in mind that the court will need some persuading as to why injunctions should be maintained in those circumstances.
It is also worth reflecting that determining at an early stage the basis on which claims, and appeals, might be pursued and ensuring that happens within time is of paramount importance, especially in cases where ancillary relief (such as a freezing injunction) is dependent upon the underlying action.