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Freezing orders and asset recovery after litigation



Nicola Sharp of Rahman Ravelli outlines a case that demonstrates the extent to which courts will award freezing orders to assist in asset recovery after litigation

The case of McKeever v Northernreef Insurance Co S.A. [2020] 4WLUK 244 saw a freezing order successfully preserved post-judgment by the claimant. The claimant was also granted a freezing order on a ‘Chabra basis’ against a non-party entity who was thought to be holding some of the defendant’s company assets.

The claimant, Linda McKeever, was a yacht owner, whose yacht had been insured under a marine policy with the defendant, a Uruguayan company called Northernreef Insurance. The policy was against loss or damage caused by perils of the seas, piracy, malicious acts and theft. After becoming grounded on a submerged reef in the Philippines – and suffering significant damage - the yacht was abandoned for the night by the claimant. She returned to the vessel the following day to find that it had been ransacked by thieves.

The claimant notified the defendant the next day in respect of the damage and stolen equipment. The defendant denied liability under the policy. The claimant then commenced proceedings against the defendant. Her claim was successful. She was awarded an indemnity and thus was entitled to recover under the policy (see McKeever v Northernreef Co S.A. [2019] 2 Lloyd's Rep. 161) (the ‘Judgment’).

Freezing Orders

Subsequently, the claimant faced challenges in recovering the indemnity. Following the judgment, the claimant was granted a freezing order against the defendant, two directors of the defendant and persons unknown who had control of a bank account holding the defendant’s funds. ‘Persons unknown’ were later found to be three directors of the defendant company.

In addition to applying for the continuation of the freezing order post-judgment, the claimant also applied for a freezing order to be made against a non-party company linked with the defendant which held some of its assets, on a ‘Chabra basis’. The claimant argued that together the companies and directors had breached the freezing order by diverting the defendant's business.

The applications were granted, and the freezing order was preserved. There was clear evidence that the companies and directors had worked to manipulate the business to redirect and dissipate the defendant’s assets.

Chabra Jurisdiction

In some circumstances, the courts have jurisdiction to grant freezing orders against third parties that are not parties to a cause of action, also known as a Chabra freezing order. The case of TSB Private Bank International SA v Chabra [1992] 1 W.L.R. 231, [1991] 7 WLUK 69 sets out the principles that must be satisfied to obtain a Chabra freezing order.

In the case of Chabra and through subsequent case law, in order to secure freezing orders against non-party entities it has been deemed necessary to show that there is a good reason to think that the entity holds (or has in its control) assets that belong to the defendant.

In McKeever v Northernreef Insurance, evidence from bank statements and accounting material was sufficient to demonstrate to the court that non-party entities and directors held assets beneficially belonging to the defendant. As such, this case is also a reminder of the requirement for full and frank disclosure.  The court accepted through the evidence that there was a real risk of further dissipation of the defendant’s assets and so the Chabra freezing order was granted against the third-party company believed to be holding some of the defendant’s assets.

This case is useful in demonstrating the extent to which the court is both able and willing to award freezing orders in order to assist with asset recovery after litigation. Since Chabra, we have seen that injunctions can be readily granted where appropriate: not only against defendants but also against non-parties with no connection to the claim who appear to hold assets on behalf of the defendant.

This article was also featured on Lexology.com.

Nicola Sharp

Nicola Sharp

Legal Director

nicola.sharp@rahmanravelli.co.uk
+44 (0)203 910 4567 vCard

Specialist Areas of Practice: International Regulation and Corporate Crime, Fraud and Business Crime, Civil Fraud, Corporate Investigations

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