Worldwide freezing injunctions - the powers of the English courts
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Worldwide freezing injunctions – the powers of the English courts
The Motorola and the Dadourian decision – key guidelines on the grant and enforcement of worldwide freezing orders
In Dadourian Group Int. Inc. v Simms & Others [2006] EWCA Civ 399, the Court of Appeal has introduced new guidelines on how the court should use its discretion when considering whether to allow a party to enforce a worldwide freezing order (WFO), or seek an order of a similar nature, in a foreign jurisdiction.
These are discussed in detail below, but first, it is necessary to step back in time a little and look at the decision in Motorola Credit Corporation v Uzan [2004] 1 WLR 113. This case examined the circumstances in which an English court would grant a WFO.
The background to the Motorola case was a complex mesh of multi-jurisdictional proceedings involving allegations of fraud to the tune of US$1 billion in the telecoms industry. In summary, the substantive claim was brought in the US by Motorola against the Uzan family, believed to originate from Turkey. Motorola alleged the Uzans fraudulently induced various financing agreements between Motorola and Telsim, a company owned and controlled by the defendants. Motorola sought the return of monies lent and alleged that the defendants acted without any intention of repaying and maintained they should be personally liable for the monies outstanding.
Motorola brought an action in the United Kingdom because of the English courts’ ability to grant in personam WFOs – a remedy not available in the US.
The Court of Appeal was asked – among other things – to consider the question of whether WFOs could be upheld against the second and third defendants in circumstances where there was no evidence to suggest that they had assets within, or any connection with, this jurisdiction.
Section 25 Civil Jurisdiction and Judgments Act 1982 (CJJA)
In his leading judgment, Potter LJ identified five considerations which the court should bear in mind, in relation to the question of whether it is inexpedient to make an order under Section 25 CJJA:
- Whether the making of the order will interfere with the management of the case in the primary court (ie inconsistency or overlap)
- Whether it is the policy in the primary jurisdiction not itself to make WFOs
- Whether there is a grave danger that the orders made will give rise to disharmony and confusion and/or risk or conflicting, inconsistent or overlapping orders in other jurisdictions
- Whether at the time the order is sought there is likely to be a potential conflict as to jurisdiction rendering it inappropriate and inexpedient to make a worldwide order
- Whether in a case where jurisdiction is resisted and disobedience is to be expected, the court will be making an order which it cannot enforce
Having listened to the arguments, and after considering the above factors, the Court of Appeal discharged the injunctions against the second and third defendants on the grounds that, first, the judge in the lower court had not attached enough weight to the fact that the worldwide order would create confusion in the light of orders made by the Turkish courts, and secondly, that in cases such as this (ie where there is no connection between the defendants and UK jurisdiction), and where there is reason to suppose that the order made against a foreign defendant will be disobeyed, and that if that should occur no real sanction would exist, then the court should refrain from making an order.
Gherson commentary
The Motorola case showed that granting a WFO remains a wholly exceptional remedy in the case of defendants who are neither domiciled nor resident here and have no substantial connection with this jurisdiction. The law has further developed in the Dadourian guidelines, set out below.
The Dadourian guidelines – on seeking permission to enforce worldwide freezing orders overseas
Guideline 1
The principle applying to the grant of permission to enforce a WFO abroad is that the grant of that permission should be just and convenient of the purpose of ensuring the effectiveness of the WFO, and in addition that it is not oppressive to the parties to the English proceedings or to third parties who may be joined in the foreign proceedings.
The court said that where there is an issue as to whether property held by third parties is in fact owned by the defendant, there is no preference that the third party should be joined in to the English proceedings wherever possible (which the appellants had argued for in this case). It may be that questions of ownership can be more easily determined and managed by the courts of the jurisdiction where that asset or third party is located.
Guideline 2
All the relevant circumstances and options need to be considered. In particular, consideration should be given to granting relief on terms. For example, terms as to the extension to third parties of the undertaking to compensate for costs incurred as a result of the WFO and as to the type of proceedings that may be commenced abroad. Consideration should also be given to the proportionality of the steps proposed abroad, as well as to the form of any order.
In practice this will mean:
a) The court may stipulate terms in granting permission – for example, the type of actions to be commenced, the number of actions that may be brought and require the claimant to report back to court
b) If a third party is not to be joined to the English proceedings, the court is likely to want to consider whether he should have the benefit of an extension of the costs undertaking and be given liberty to apply to revoke the permission. It may be though that the English court will conclude that safeguards should be left to the foreign court
c) Consideration should be given to refusing permission and leaving the claimant to litigate in England
d) The benefit to be obtained by commencing proceedings abroad must be proportionate to the cost and inconvenience to the defendant of defending the foreign proceedings as well as the English ones
e) The claimant might be asked to give undertakings
Guideline 3
The interests of the applicant should be balanced against the interests of the other parties to the proceedings and any new party likely to be joined to the foreign proceedings.
In practice this will mean:
a) The claimant’s interest in preventing dissipation must be weighed against the risk of oppression to the defendant from multiple law suits and the linked costs
b) In the case of a third party, the court should weigh up the inconvenience to him of being sued in England as against the inconvenience of being sued in the relevant foreign jurisdiction. Less weight needs to be given to the interests of a third party who is not independent of the parties against whom the WFO was obtained.
Guideline 4
Permission should not normally be given in terms that would allow the applicant to obtain relief in the foreign proceedings which is superior to the relief given by the WFO.
In practice this will mean:
a) The applicant should not be given permission to obtain superior forms of protection in the foreign court without good reason and if this is the only form of relief available, the court may be less willing to grant permission
b) Evidence of the range of orders available under the foreign law to assist the court in reaching its decision may be necessary
Guideline 5
The evidence in support of the application for permission should contain all the information (so far as it can reasonably be obtained in the time available) necessary to enable the judge to reach an informed decision, including evidence as to the applicable law and practice in the foreign court, evidence as to the nature of the proposed proceedings to be commenced and evidence of the assets believed to be located in the jurisdiction of the foreign court and the names of the parties by whom such assets are held.
In practice this will mean:
a) Evidence should include the basis on which the foreign court would be likely to grant the order sought, the basis on which it would allow proceedings against a third party and the prospect of a fair trial on any issue in dispute, guaranteed by the European Convention of Human Rights
b) Evidence should also, where practicable, state how long the proceedings are likely to take and if costs are sought, how much they are likely to be
c) The familiarity of the foreign court with WFOs should also be covered
d) If the defendant is present within the jurisdiction of the foreign court, the court can more readily give permission for proceedings in that jurisdiction of a kind enabling the foreign court to exercise its personal jurisdiction over the defendant
e) The court will need to consider and weigh in the balance the risk of inconsistent judgments and the evidence about the practice of the foreign court will be relevant here
Guideline 6
The standard of proof as to the existence of assets that are both within the WFO and within the jurisdiction of the foreign court is a real prospect, that is the applicant must show that there is a real prospect that such assets are located within the jurisdiction of the foreign court in question.
The court rejected the notion that the test should be “good arguable case.”
Guideline 7
There must be evidence of a risk of dissipation of the assets in question.
The court recognized that if there is a real prospect that the assets are beneficially owned by the defendant, this burden is likely to be discharged by the evidence already filed in the English proceedings.
Guideline 8
Normally, the application should be made on notice to the respondent, but in cases of urgency, where it is just to do so, the permission may be given without notice to the party against whom relief will be sought in the foreign proceedings but that party should have the earliest practicable opportunity of having the matter reconsidered by the court at a hearing of which he is given notice.
The court also reminded parties that the order giving permission should be served immediately (ie even if the hearing was without notice) unless the court gives permission otherwise. Such an order should only be made for good reason and for the shortest practicable duration.
Commentary
The court made it clear that granting permission is a discretionary exercise, with flexibility the watchword. Moreover, the guidelines should not be treated as exclusive of any other matter which in the particular circumstances of an individual case needs to be considered.
The Dadourian guidelines offer useful guidance, but they also mean that a fair weight of evidence will need to be gathered in order to show compliance with them, impacting on the speed and cost of such applications. However, where the relief available in the foreign court is not comparable to a WFO, and if such a foreign court is likely to give permission to enforce in that jurisdiction, English proceedings should offer the best option.
