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Can you Challenge a Freezing Order in the Context of a Part 20 Claim?

Author: Nicola Sharp  10 October 2023
3 min read

To successfully challenge a worldwide freezing order and have it discharged, the party subjected to the injunction can rely on the following:

  • The claimant has no good arguable case.
  • There is no real risk of dissipation.
  • The claimant failed to comply with the duty of full and frank disclosure.
  • It is unjust to continue the injunction. The defendant would suffer loss as a result of the order.
  • The court has no jurisdiction to issue the freezing order.

Occasionally it’s possible for the party subjected to the freezing order to make a payment into court or provide alternative security to the claim in return for the discharge of the order.

The claimant’s grounds for resisting the challenge and keeping the WFO in place include:

  • The merits of the defendant’s arguments.
  • Undue delay in making the application to discharge the order.

The hearing to decide whether or not to discharge a WFO should not be a mini trial. But it does take the form of a complete rehearing. That means that the judge should not be influenced by the outcome of earlier hearings.

The judge will always have in mind the intrusive nature of WFOs when deciding whether or not to keep them in place. The defendant cannot access their money freely and cannot deal with their assets as they might like. So in order to safeguard the defendant, a higher standard of a ‘good arguable case’ is applied in freezing order applications than would apply for other injunctive relief.

Discharging a WFO in a Part 20 Claim

In a recent hearing in Advanced Multi-Technology for Medical Industry (AMT) & Ors v Uniserve [2023] EWHC 2147 (Ch) the court was asked to discharge a WFO which was granted on 16 December 2022 and continued on 21 December 2022.

The applicants were the defendants in a Part 20 (contingent) claim. If the claim made by AMT against Uniserve failed, then Uniserve had no contingent claim against the third party (Maxitrac Ltd) and the fourth party (Dr Stead), who together were the applicants in hearing.

It was agreed  that a freezing order can be granted in respect of contingent claims, relying on the authority in Kazakhstan Kagazy plc v Zhunus [2016] EWCA Civ 1036.

But what was more difficult to establish was whether the underlying claim brought by AMT against Uniserve was relevant to the question of whether Uniserve had a good arguable case against Maxitrac and Dr Stead.

On the one hand, Uniserve’s claim against Maxitrac and Dr Stead was premised on AMT succeeding. So any weakness in the Claimants’ case meant that Uniserve’s Part 20 claim could not be a good arguable case. This was the position that the applicants took.

On the other hand, the judge could simply ignore AMT’s claim and focus only on the strength of Uniserve’s Part 20 claim. This was Uniserve’s position. They said that issues with AMT’s case are irrelevant to a ‘good arguable case’ on the contingent Part 20 claim.

The judge decided that the strength of the underlying claim from AMT against Uniserve must be relevant. The arguability of AMT’s claim against Uniserve is a critical aspect of the Part 20 claim. If AMT fails, the Part 20 claim inevitably also fails.

So Uniserve could not succeed by showing only that it has a good arguable case against Maxitrac and Dr Stead in the abstract. It needed to show that there is a good arguable case on the facts of its claim, which necessarily involves showing that it faces a potential exposure to AMT.

If AMT’s case is very weak against Uniserve, necessarily Uniserve’s case is weak against Maxitrac and Dr Stead and that in turn weakens the argument for so intrusive a remedy as a freezing order.

The Effect of Delay

The WFO granted in December permitted the applicants to apply to vary or discharge it without showing a material change in circumstances until 30 January 2023.

Unfortunately, the applicants delayed in making the application by almost six months after that window had closed. They tried to rely on a material change of circumstances to justify the delay, but the judge disagreed that any material change had taken place.

In terms of granting a retrospective extension of time, the judge found that there was no reason why the applicants did not apply to extend time for varying the order back in January 2023. Mr Stead was “plainly sufficiently resourced” to pay for legal advice but chose not to do so earlier. He chose to wait and see if he could fund his legal advice from another source.

The court found that the applicants were seriously out of time and had no good justification for it.

For these reasons, and others, the court found that it would be ‘wholly disproportionate’ to discharge the order and continued the WFO in its current terms.

Key Takeaways

This decision shows that:

  • WFOs can be granted in contingent claims.
  • The law is sympathetic to discharging a WFO because they are so intrusive in nature. The claimant must prove to a high standard that it has a good arguable case.
  • But judges will not discharge WFOs without good reason and if they are still concerned that there is a real risk of dissipation of the assets.
  • An applicant can rely on a material change in circumstances to discharge an order, but the material change must hamper the claimant’s position on having a good arguable case. If it does not, then there is no material change in circumstances.
  • A party subject to a WFO should act quickly to discharge it. Delays will only hinder their chances of lifting the injunction.
     
Nicola Sharp C 09983

Nicola Sharp

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nicola.sharp@rahmanravelli.co.uk
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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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