Court of Appeal Clarifies the Test for Granting Freezing Injunctions

The Court of Appeal has dismissed an appeal by Isabel Dos Santos, and it has kept in place the worldwide freezing order over around £580 million of her assets. 

Importantly however, the decision in Isabel Dos Santos v Unitel S.A. [2024] EWCA Civ 1109 considers the law around freezing injunctions that has seen recent ‘divergence’ among High Court judges. In his first instance decision, Bright J said that “the law is in a confused state, which cries out for a definitive answer from the Court of Appeal.” Unitel SA v Unitel International Holdings BV & Anor [2023] EWHC 3231 (Comm)

The Court of Appeal has done just that, and provided clarity on the applicable test.

Issues to be decided on appeal

The appeal concerned two issues arising out of the Worldwide Freezing Order (WFO) granted on 20 December 2023 against Isabel Dos Santos:

1. The meaning of the “good and arguable” case element of the test, and whether the judge was right to find that Unitel had a good arguable case; and
2. Whether there is a general rule that costs of a WFO application should be reserved.

The Court of Appeal clarified that the test for a “good and arguable case” is one which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50% chance of success (confirming the test in The Niedersachsen). 

It added that the “good arguable case” test applied in freezing injunctions should be equated with the “serious issue to be tried” test applied in American Cyanamid injunctions.

On costs, the Court of Appeal upheld the first instance decision, saying that “it was appropriate that a defendant who had fought the granting of the freezing injunction tooth and nail and lost on every point should have to pay the claimant’s costs.”

Two possible tests for a “good and arguable case”

The two test for “good arguable case” are:

1. One which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50% chance of success - Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH (The Niedersachsen) [1983] 2 Lloyd’s Rep 600, and
2. The same test applied in the jurisdiction context; the three-limbed test which includes that the applicant has the better of the argument - Lakatamia Shipping Co. Ltd. v Morimoto [2019] EWCA Civ 2203 (Morimoto)

Ms dos Santos’ case was that Morimoto had changed the law and that The Niedersachsen approach was no longer appropriate.

Has Morimoto replaced The Neidersachen?

The Court of Appeal held that Morimoto has not replaced The Neidersachen and the correct test as to what constitutes a good arguable case for the purposes of the merits threshold for the grant of a freezing injunction is that formulated by Mustill J in The Niedersachsen.

The reasons being:

1. This test has been applied many times over the last forty years and has been endorsed by at least three more recent decisions of the Court of Appeal.
2. There have been developments in the law both as to jurisdictional gateways and as to freezing injunctions. Although “good arguable case” is used in both situations, there is no reason why they should have the same meaning in both situations. The concept is “inherently flexible.”
3. There is a relatively low threshold to satisfy the merits for granting freezing injunctions, because the court will determine the merits at trial. For jurisdictional gateways, the issue of whether the case falls within a gateway will not be revisited at trial.
4. It is invidious for the court, at the early stage at which a freezing injunction is usually sought, to have to determine which party has “the better of the argument,” particularly before disclosure has been given. The court would have to consider the strength of each of the party’s positions, which could lead to a mini-trial.
5. The Court of Appeal in Morimoto was not intending to alter the merits test of “good arguable case” in freezing injunction cases.

The ‘good arguable case’ test equates with the ‘serious issue to be tried’ test

The Court of Appeal decided that the ‘good arguable case’ test applied in freezing injunctions should be equated with the ‘serious issue to be tried’ test applied in American Cyanamid injunctions. 

Previously, it was that that the ‘good arguable case’ test imposed a higher threshold than that of ‘serious issue to be tried’.

Now, there is no distinction to be drawn between the ‘good arguable case’ test for freezing orders and the test of ‘serious issue to be tried’ for other forms of interim injunctions. 

A general rule as to costs of contested interlocutory applications

In relation to the second ground of appeal, the court was “very firmly of the view” that it should not interfere with the judge’s order that Ms dos Santos should pay the costs of the freezing injunction application.

In so far as there is a general rule as to the costs of contested interlocutory or procedural applications, it is that a party who contests an application and fights it tooth and nail on every point, thereby causing the successful party to incur costs which would not otherwise be incurred, should be ordered to pay the successful party’s costs at the conclusion of the application.

The appeal was dismissed, and the decision brings welcome clarity on this area of law.