Case law: Court clarifies required burden of proof when applying for a freezing injunction in litigation

Litigants will welcome clarification of the burden of proof to be satisfied when applying for a freezing injunction preventing the other side disposing of, or dealing with assets to avoid the financial consequences of losing the case. The applicant must either show a good arguable case that the other side has assets, or that there are grounds for believing they have (or are likely to have) such assets.

Six companies (the claimants) applied for a freezing injunction against 14 English Limited Liability Partnerships which they said were connected to a foreign businessman who had allegedly diverted investments they had made into his personal accounts.

A freezing injunction stops the other side in a dispute from disposing of, or dealing with some or all of its assets before the dispute ends. 'Assets' includes bank accounts, land, shares, bonds and other financial instruments or vehicles, even if the other side is holding them on trust for a third party. Without a freezing injunction, the other side could argue it has no assets to satisfy a judgment against it in the event it loses.

The Court of Appeal said that the tests to apply when deciding whether to grant a freezing injunction were either that the claimants could show a good arguable case that the LLPs had such assets; or could show there were grounds for believing they had (or were likely to have) such assets.

Requiring them merely to show that the LLPs were wealthy and must therefore have assets somewhere was too loose a test.

The two tests are alternatives, but one judge preferred the 'grounds for belief' test on the basis that "since a claimant cannot invariably be expected to know of the existence of assets of a defendant, it should be sufficient that he can satisfy a court that there are grounds for so believing. That is not an excessive burden but if an order is sought against numerous companies or LLPs and those companies and LLPs can show that there is no money in their accounts and the claimant cannot show that the account has been recently active, it may well be right to refuse relief".

Here, the claimants were able to show three of the LLPs had either received significant sums and/or entered into service agreements under which they were obliged to pay fees to the foreign businessman, which implied they had funds. There were, therefore, grounds for the belief that those LLPs had assets.

There was insufficient evidence to show grounds for belief that a further two LLPs had assets. The evidence showed receipt of funds, but too long ago to be grounds for belief they still held those funds.

There was no evidence any of the remaining nine LLPs held substantial assets.

The Court also found (as is required before an injunction will be granted) that there was a risk LLPs with assets would 'dissipate' them if the injunction was not made.

In making that finding, the Court made it clear that the fact an LLP may have complied with an interim order to pay some of the other side's costs is not of itself enough to negate the risk of dissipation of assets.

Operative date

  • Now

Recommendation

  • Litigants should consider whether they can satisfy the burden of proof required when applying for a freezing injunction against the other side -that they can show a good arguable case that the other side has assets, or that there are grounds for believing the other side has (or is likely to have) such assets - to stop them avoiding the financial consequences of losing the case by disposing of or dealing with those assets in some way

Case ref: Ras Al Khaimah Investment Authority & Ors v Bestfort Development LLP & Ors [2017] EWCA Civ 1014.

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