The High Court considered an application for a worldwide freeze asset in the context of the Russian energy sector in a claim of conspiracy and coercion emanating from the Russian State. The Court made a freezing order finding the Claimant had passed (if only) the threshold of establishing a good arguable case and established a real risk of asset dissipation.
The case is of interest as it is a first instance decision arguing for the orthodox test for 'a good arguable case' requirement for a freezing injunction. The Court refused to follow a number of first instance decisions where the 3-stage test for 'a good arguable' in jurisdiction cases had been applied.
The tests used the same words but served different purposes with distinct underlying policy. Mini-trial as to merit were inappropriate to interim relief and could have a chilling effect on justice.
The Court also consider the correct approach to assessing a risk of dissipation of assets: taking a general impression of a respondent's morality or character was inappropriate but the allegations of dishonesty in the claim and appropriate inferences could and should be drawn.
What are the practical implications of this case?
The Court emphatic endorsed the traditional test for a freezing order that required a good arguable case but did not require a detailed assessment of the merits at the interim stage. The Court noted that although using the same words, the test in relation to jurisdiction served different ends to the test for freezing orders. Further the jurisdiction consideration of the merits was only in relation to establishing one of the gateways to jurisdiction rather than a full consideration of merits.
The Court also noted that applying the three-stage jurisdictional test to freezing injunctions would tend to involve the parties and the Court at the interim relief stage in mini-trials and also risked depriving claimants of the relief that they sought.
The Court also consider the correct approach to assessing a risk of dissipation of assets, opining that taking a general impression of the character, or even morality, of the respondent was not appropriate. However, it was appropriate to take note of matters averred to in the claim and in the right case draw inferences from allegations of primary fact even if not proven to the civil at the interim stage.
While, the Judge's conclusion that the good arguable case test for freezing orders should not be conflated with the jurisdictional test, it remains to be seen whether there will be an appeal to resolve the seemingly conflicting first instance decisions.
What was the background?
The Claimants alleged in effect either duress in the threat of continuing incarceration in a Russian prison of the First Claimant or alternatively a unlawful means conspiracy to defraud them of their interests in Russian energy assets partly owned by the Russian State.
The First Claimant and a business partner (both Russian oligarchs) had been imprisoned in what they alleged were fabricated charges due to their falling out of favour with Vladimir Putin. The First Claimant alleged that he was offered a deal to greatly reduce the sale price of energy assets owned by a group of companies under his control in return for his release from prison. In the alternative, the First Claimant attacked the eventual sale of those assets and the subsequent seizing of the proceeds of sale by the Russian state as being part of an unlawful means conspiracy that included the Defendants (and officers of the Claimant companies).
The Claimants sought freezing orders to ensure that enforcement of any English judgment could be made effect against the Defendant from assets owned by the Defendants but held outside of Russia.
The Defendants defended against the granting of an injunction by attacking the underlying claims as inherently implausible and lacking any proper evidential foundation.
Further, the Defendants noted their substantial asset base and put in issue whether there was any evidence to support a finding that there was a real risk of dissipation.
What did the court decide?
What is the correct approach to the good arguable case threshold for a freezing injunction?
The Judge noted a number of first instance decisions where the Court, considering freezing injunctions, had applied the same test of 'good arguable case' as applied when considering jurisdiction: see the decisions of Edwin Johnson J in Harrington v Mehta [2022] EWHC 2960 (Ch), and of Dias J in Chowgule v Shirke [2023] EWHC 2815 (Comm).
The jurisdictional approach to a good arguable case requires consideration by the Court of the merits in significant detail applying this three-stage approach (as first articulated by Lord Sumption in Brownlie v Four Seasons Holdings Inc [2017] UKSC 80; [2018] 1 WLR 192 at paragraph 7; and subsequently endorsed by the Supreme Court in Goldman Sachs International v Novo Banco SA [2018] UKSC 34; [2018] 1 WLR 3683):
"What is meant is (i) that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway; (ii) that if there is an issue of fact about it, or some other reason for doubting whether it applies, the court must take a view on the material available if it can reliably do so; but (iii) the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it."
The orthodox approach to a good arguable case when considering a freezing order is found in the decision of Mustill J in Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH (The 'Niedersachsen') [1983] 2 Lloyd's Rep 600.
The Judge had little hesitation in preferring the traditional approach to freezing injunctions (at paragraph 22):
"What may be called 'the Niedersachsen test', namely a case 'which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success' is a test which is long-established and has been applied very frequently. It was called 'the traditional test' by Elias LJ in Kazakhstan Kagazy v Zhunus, at [66], and by Newey J in Holyoake v Candy at [15]. It was cited with approval by Tomlinson LJ in Lakatamia Shipping Company v Su [2014] EWCA Civ 636 at [32]"
The Judge went on to consider and endorse the dicta by Elias LJ in Kazakhstan Kagazy (at paragraph 67) to the effect that the jurisdictional test is oriented to consideration of gateways to jurisdiction and does not require a broader merits assessment of the claim: see paragraphs 24.
However, applying the three-stage test in the freezing injunction context risked requiring precisely that full merits assessment of the underlying claim (paragraph 25) and thus risked burdening the Courts with mini-trials on the interim remedy list (paragraph 27).
The Judge also noted the chilling effect the three-stage test could have to the availability of relief and access to justice (paragraph 28):
"While I fully recognise that the gravity of a freezing order requires a merits test markedly higher than simple arguability, I consider that there is a danger that the adoption of the Brownlie test in relation of freezing orders may deny to victims of wrongdoing the interim protection which the freezing jurisdiction is designed to provide."
Concluding, the Judge considered and endorsed the similar approach that Mr Justice Jacobs had adopted by applying the orthodox test to an application for a freezing injunction in a recent first instance decision (paragraph 38):
Very recently, in Omni Bridgeway (Fund 5) Cayman Investment Ltd v Bugsby Property LLC [2023] EWHC 2755 (Comm), Jacobs J said, at [8]: 'The test of "good arguable case" is well-known in the context, for example, of freezing injunctions. The authorities in this area are summarised in Gee: Commercial Injunctions 7th edition, paragraphs 12-032 – 12-033 drawing on classic statements of Mustill J. It is not enough to show an arguable case, namely one which a competent advocate can get on its feet. Something markedly better than that is required, even if it cannot be said with confidence that the plaintiff is more likely to be right than wrong. It is therefore not necessary for the applicant to have a case with a better than 50 per cent chance of success.'
What is the correct approach to the real risk of a dissipation of assets requirement for a freezing order?
The Court also had to consider (paragraph 40):
"... the Claimants' argument that, in considering whether there is a risk of unjustified dissipation of assets, the court is concerned with whether the respondent is the 'type' of person who might engage in such activity."
The Claimants in argument relied on two decisions where they contended the Judges had endorsed such an approach: see paragraph 40.
The Judge was not convinced the principle went quite so far as to allow character or morality evidence to supplant the evidential burden on the Claimants. Rather the Judge noted that the true principle was that there may be allegations in the claim which if proven would support an inference of a real risk of dissipation (paragraph 41):
"These statements, in my judgment, are simply applications of the principle that, in certain cases, the allegations made in the substantive case against the respondent may be a basis for concluding that there is a risk of unjustified dissipation. They are not support for an approach whereby, other than by reference to such an inference or other solid evidence, the court can or should form a general impression of the respondent and if it is adverse conclude that there is a risk of dissipation, and still less that a 'feeling of uneasiness' about a respondent or its standards of morality would be sufficient for such a conclusion."
Was an order appropriate on the facts of the case?
The Judge decided that an order was appropriate in the case: see paragraph 62.
On the test of a good arguable case, the Judge noted (in paragraph 47):
"My conclusion, ... is that the Claimants have shown a case which, albeit with little to spare on the present material, passes the threshold of good arguability."
A key consideration was the significant and largely unexplained drop in the negotiated price for the sale of the Claimants' energy interests from approximately US$1.156 billion to a mere US$750 million: see paragraphs 8(1) and 44(4). The Defendant was uniquely in a position to advance probative evidence as to the further negotiations that produced such a significant revaluation of the Claimant's interests but had chosen not to advance any evidence at all: see paragraph 44(4).
On dissipation, the Judge was concerned about the difficulty of enforcing an English judgment in Russia and against Russian assets but also noted that in isolation that ordinarily would not suffice: see paragraph 52. However, more fundamentally, the Judge noted the Defendant's interference in a related insolvency process which appeared to be motived by a desire to place assets outside of the scope of English enforcement or at least repatriate them to Russia: see in particular paragraph 55.
In considering the balance of convenience, the Judge noted (at paragraph 59) the potentially draconian effect on the Defendant but noted that some of that effect could be obviated in the terms of the order imposed rather than refusing any order.
Case details
- Court: King's Bench Division (Commercial Court)
- Judge: The Hon Mr Justice Butcher
- Date of judgment: 6 December 2023
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
