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Fraud

Fraud Insights: Findings of fact in arbitration form basis of grant of freezing order

In Great Station Properties SA and another v UMS Holding Ltd and others [2017] EWHC 3330 (Comm) the Commercial Court granted a worldwide freezing order over the defendant’s assets in an attempt to secure enforcement of an arbitration award against the defendant exceeding US$305 million.

Endorsing the Court of Appeal’s pronouncement of the test in Holyoake v Candy [2017] EWCA Civ 92, the Court recognised that whilst there must be a real risk, judged objectively, that a future judgment would not be met because of an unjustifiable dissipation of assets, it is not every risk of a judgment being unsatisfied which can justify freezing order relief. Solid evidence will be required to support a conclusion that freezing order relief is justified and precisely what this entails in any given case will vary. In this case, the Commercial Court held that the findings of fact in the arbitration, regarding the existence of an “illicit scheme” constituted “solid evidence” of a real risk of dissipation of the defendant’s assets.

Teare J rejected the defendant’s submission that the “illicit scheme” was of historical interest only. The judge relied upon the strenuous efforts which the defendant made to challenge the Award in 2017, and the fact that, as the arbitrators found, he was prepared to manipulate his companies to deprive the claimants of the profits to which they were entitled, as evidence supporting a risk of dissipation. Whilst Teare J acknowledged that there was no suggestion that in the 18 months since the Award was published any dissipation of assets had taken place, it was not enough to show that a real risk of dissipation did not exist. Teare J was further persuaded that the defendant had demonstrated a lack of probity when he made false statements to the authorities as to the ultimate beneficial owner of his company.

Teare J held that it was impossible not to conclude from the tribunal’s findings that the Claimants had a good arguable case that the conduct of the defendant was dishonest and that his conduct demonstrated a real risk of dissipation of assets so as to avoid enforcement of the judgment against him.

Bethany Histed, an Associate in the Fraud Defence Group at Mishcon de Reya, says:

The decision highlights the importance the Court attaches to enforcement of judgments. Accordingly, it is likely to be easier to obtain a freezing order post rather than before judgment as the Court may be prepared to rely on findings of fact at trial or in an arbitration to establish a real risk of dissipation as a basis for a freezing order. There will be no need to establish a good arguable case where the claimants have the benefit of a judgment or arbitration award in their favour.  Accordingly, much will turn upon whether the balance of convenience weighs in favour of granting a freezing order, a matter of judicial discretion.

Annabel Thomas, a Partner in the Fraud Defence Group at Mishcon de Reya, says:

Freezing orders are an extremely powerful tool, especially when granted post-judgment where the order may be granted indefinitely until payment. As Teare J recognised, it is not every case where a defendant does not satisfy a judgment quickly enough that a freezing order will be granted, instead a freezing order application will necessitate a careful examination of the facts to establish some element of impropriety by the defendant. Nonetheless, in an appropriate case where the defendant’s dishonest behaviour demonstrates a real risk of dissipation, the freezing order can be the much needed shackle on the defendant’s assets to ensure the judgment or award is satisfied.

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