FREEZING ORDER—WITHOUT NOTICE APPLICATION—CIRCUMSTANCES WHERE ORDER APPROPRIATE

House of Lords

Lord Bingham, Lord Hope, Lord Scott, Lord Rodger and Lord Carswell24 January 2007

Without the issue of substantive proceedings or an undertaking to do so, it will be difficult to obtain an interlocutory injunction; an interlocutory injunction is dependent on the institution and progress of some proceedings for substantive relief.

Leon Kuschke and Sam Neaman (instructed by CMS Cameron McKenna LLP) for the appellant.
Stuart Isaacs QC and Tom Smith (instructed by Rawlison Butler LLP) for the respondents.

The proceedings arose out of the liquidation of two South African companies, HEE and its parent HEI. The first defendant was the majority shareholder of HEI and had controlled both companies. He also owned and controlled an English company, Fintrade. HEI and HEE went into liquidation in South Africa in June 2004. The claimant was appointed liquidator of both. He formed the view that the first defendant and Fintrade had by fraud and deception stripped HEE of its assets and removed them to England. He therefore applied without notice for a freezing order. The order froze the assets in England and Wales of each defendant up to a value of £3.4m.
The defendants applied for the freezing order to be set aside on the ground that there was no jurisdiction to make the order because, at the time the order was made, there had been no subsisting proceedings to which the freezing order could be ancillary, and no undertaking to commence any such proceedings had been offered by the claimant.

The High Court ruled that to support the grant of a freezing order, the applicant needed proceedings to enforce an existing cause of action that had either already been instituted or that would, pursuant to an undertaking given to the court, be instituted within a short time frame. In this case no such proceedings had even been formulated at the relevant time, and the freezing order was therefore discharged. The Court of Appeal dismissed the claimant’s appeal and he appealed to the House of Lords.

LORD SCOTT:

His Lordship considered Siskina (cargo owners) v Distos Cia Naviera SA [1977] 3 All ER 803; Castanho v Brown & Root (UK) Ltd [1981] 1 All ER 143; British Airways Board v Laker Airways Ltd [1984] 3 All ER 39; South Carolina Insurance Co v Assurantie Maatschappij ‘de Zeven Provincien’ NV [1986] 3 All ER 487; and Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1992] 2 All ER 609.

He concluded that the effect of s 25 of the Civil Jurisdiction and Judgments Act 1982, as extended by the Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997 (SI 1997/302), was to enable the High Court to grant interim relief in relation to proceedings that had been or were about to be commenced in a foreign state eg South Africa. The consequence of that, in relation to this case, was to settle the question of jurisdiction, in its strict sense. Whether the interlocutory freezing order made was to protect the ability of the claimant, or HEE, to recover money awards they might succeed in obtaining in proceedings in England, or to recover money awards they might succeed in recovering in proceedings in South Africa, there was jurisdiction, in the strict sense, for the order to be made.

His Lordship agreed with the Court of Appeal that, without the issue of substantive proceedings or an undertaking to do so, the propriety of the grant of an interlocutory injunction would be difficult to defend. An interlocutory injunction, like any other interim order, was intended to be of temporary duration, dependent on the institution and progress of some proceedings for substantive relief. But in suitable circumstances a freezing order might be, and often was, granted and served on the respondent before substantive proceedings had been instituted. Such an order was not a nullity. It was of immediate effect. If proceedings for substantive relief were not instituted, the freezing order might lapse in accordance with its own terms or, on an application by the respondent, might be discharged. But none of that indicated that the court had no jurisdiction to make the order. No activation of the jurisdiction was needed.

Whenever an interlocutory injunction was applied for, the judge, if otherwise minded to make the order, should, as a matter of good practice, pay careful attention to the substantive relief that was, or would be, sought. The interlocutory injunction in aid of the substantive relief should not place a greater burden on the respondent than was necessary. The yardstick in s 37(1) of the Supreme Court Act 1981, “just and convenient”, had to be applied having regard to the interests not only of the claimant but also of the defendant. That was particularly so in the case of freezing orders applied for without notice.

Assets of the defendant to which the claimant had no proprietary claim whatever were to be frozen to constitute a source from which the claimant could hope to satisfy the money judgment that, in the substantive proceedings, he hoped to obtain. The frozen assets were removed for the time being from any beneficial use by their owner, the defendant. That was a draconian remedy and the strict rules relating to full disclosure by the claimant were a recognition of the nature of the remedy and its potential for causing injustice to the defendant.

In this case no claim for substantive relief had been formulated and shown to the judge. His Lordship found it very difficult to visualise a case where the grant of a freezing order, made without notice, could be said to be properly made in the absence of any formulation of the case for substantive relief that the applicant for the order intended to institute. The protection for the defendant that ought to be associated with the grant of a without notice freezing order was absent. The protection ought to have included
directions about the institution of proceedings for substantive relief.
The appeal would therefore be dismissed.

Lord Bingham, Lord Hope, Lord Rodger and Lord Carswell delivered concurring opinions.