Worldwide freezing orders: are the courts warming to them?

Worldwide freezing orders: are the courts warming to them?

Changes in the Rules on Witness Evidence - Watch This Space

In the recent case of GML International Ltd v Harfield [2020] 7 WLUK 362, the High Court granted an application for a post-judgment worldwide freezing order against a judgment debtor who had fabricated his defence in the underlying proceedings.

This decision is of particular interest because even though there was little evidence of an attempt by the debtor to dispose of his assets, the court found that there was a significant risk that the debtor would do so given the debtor’s dishonesty during the trial. We consider the High Court’s decision in further detail below.

Worldwide freezing orders

A freezing order acts to restrain a party from dealing with or disposing of its assets, and is typically sought to preserve the respondent’s assets until a judgment can be obtained and satisfied. While they can be a useful tool for parties who are concerned that the other party may try to avoid enforcement of a judgment, freezing orders are discretionary and, given their restrictive nature, not easily obtained. A court will only exercise its discretion where it is just and convenient to make the order. In addition, an applicant must demonstrate the respondent has assets and there is a real risk of dissipation of those assets so that a judgment will not be satisfied - strong evidence is required to show a risk the respondent will attempt to unjustifiably dispose of assets or move them out of reach.    

The court will typically consider a number of factors when deciding whether there is a real risk of dissipation. These factors include (i) whether the party has already taken any steps to dispose of their assets or (ii) has shown an intention to do so. Other relevant considerations include the party’s financial standing, credit history and the ease at which their assets may be moved or disposed of. Evidence of dishonesty will also have a bearing on the court’s decision and, as discussed further below, proved to be a significant factor in this case.

A worldwide freezing order (“WFO”), as the name suggests, extends to assets located anywhere in the world and is a particularly draconian measure. In the case of GML International v Harfield, a WFO was sought by the claimants after trial to preserve the defendant’s assets until the judgment could be enforced. 

Background

In the underlying proceedings, the claimants had sought to recover significant sums of money paid to the defendant pursuant to an undocumented loan agreement. The defendant argued that the sums of money were paid to him by the claimants to incentivise him to remain in his role as Chief Executive Director of a Bulgarian Bank, in which the claimants had an interest. The court did not accept this and found that the payments made to the defendant had been loans which the claimants were entitled to recover.

The defendant was ordered to repay the sums of money and, in addition, the claimants were awarded their costs on an “indemnity basis”. This costs award entitles the payee to a higher proportion of their costs and departs from the usual position of costs awarded on the “standard basis”, where the losing party is ordered to pay a lower proportion (typically around 60-70%) of the winner’s costs. The indemnity costs award was made as the defendant’s evidence at trial was considered unreliable, he had deliberately tried to avoid his debt and subjected the claimants to hostile and expensive litigation. For a more detailed look at the underlying proceedings, please see our banking and finance team’s previous article here.

Following this, the defendant failed to pay the judgment debt despite numerous attempts by the claimants to contact him.

The claimants applied for a WFO on the basis that the defendant had put forward an untruthful and largely fabricated defence at trial and had failed to disclose the existence of his UK assets.

Decision

Ordinarily, a party applying for a freezing order would need to show that they have a good, arguable case. In this case, the claimants’ application was made post-judgment and so there was a presumption that this requirement was fulfilled.

However, the claimants still had to persuade the court that, without the freezing order sought, there was a real risk that the defendant’s assets would be dissipated, preventing the judgment against him from being satisfied, or making it more difficult to enforce.

The court found that the defendant had behaved dishonestly throughout the underlying proceedings, having concocted a defence to the original claim, and had deliberately tried to avoid a debt which was clearly owed. The defendant had conducted the litigation aggressively and instructed expensive legal representation without explaining how he intended to pay for it. Finally, when judgment was eventually made against him, he failed to pay the judgment sum.

The combination of the defendant’s dishonesty and his failure to disclose the whereabouts of his assets, led the judge to conclude that there was a significant risk of dissipation. The court was satisfied that, in all the circumstances, it was just and convenient to grant the order and made a post-judgment WFO against him.

Conclusion

The decision demonstrates that, where a defendant’s conduct has been extremely poor during the proceedings, a court may be prepared to accept that a risk of dissipation of assets exists and grant a WFO even where it is not shown that the defendant has taken steps to dissipate his assets. 

This is an unusual decision given the draconian effect of WFOs and clearly reflects the court’s assessment of the defendant’s dishonest conduct in the proceedings. However, the decision is both a reminder for parties of the discretionary nature of WFOs and a warning that dishonesty demonstrated by parties in the conduct of litigation could have wider consequences.

 

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View profile for Elizabeth ButlerElizabeth Butler, View profile for Adam CreaseyAdam Creasey

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