Although freezing orders are regularly granted by the English courts, an example often comes along which illustrates that they are not always straightforward or appropriate.
The latest was the English High Court’s decision in JLA 79 Limited v Jeffrey Ian Lermer [2025] EWHC 3599 (Comm).
Providing her decision in Birmingham’s regional Commercial Court, HHJ Watson held that the application in this matter “obviously” failed. In fact, it failed on every limb of the test for a freezing order.
The test for a freezing order
For a Mareva injunction to be granted, the applicant must demonstrate that:
- There is a good arguable case against the respondent
- There is a real risk that the respondent will dissipate assets to evade judgment
- The balance of convenience favours granting the application
In addition, the applicant:
- is under a duty to give full and frank disclosure of all material facts, including those that might harm their own case. This reflects that a respondent cannot raise points in response where the hearing is on an ex parte basis (or will have limited time if, as here, too short notice is given).
- must give a cross-undertaking in damages. This addresses any losses caused to the respondent if it later turns out that the freezing order ought not to have been made.
Good arguable case: the evidence was vague
In order to demonstrate a good arguable case, absent particular urgency, an applicant will usually annex draft particulars of claim to the application. As this case demonstrates, that is the safest course for an applicant.
In JLA 79 Ltd, it was left to the court to attempt to discern what exactly the claim was. This was compounded by (a) uncertainty about the remedy sought (rescission or damages); (b) what clause in the share sale agreement had been breached; and (c) the lack of supporting evidence to support what losses had been suffered or the likelihood of them crystallising.
HHJ Watson held that despite the low good arguable case threshold, there was insufficient evidence to get any “real feel” for whether there was anything in the claims. This left the court deciding that the applicant’s case was “extremely vague, unparticularised, unquantified and almost wholly lacking in any supporting evidence.”
Dissipation of assets: inconsistent behaviour from the applicant
The court was dissuaded that there was a real risk of dissipation of assets by the respondent, or indeed that the respondent was a fraudster. The numerous factors in play included two in particular:
- the fact that the proceeds of the respondent’s share sale were used to pay off personal mortgages (not seen as “particularly unusual”), and that this information came from respondent, were inconsistent with the risk of dissipation.
- the respondent was left in control as the sole director of JLA 79 Ltd. If the respondent was a fraudster, surely the applicant would dismiss them from this role. This “genuinely baffled” the Judge.
Going back to the inadequacies in the asserted legal case, the court found that it was “far from clear to me that there was any fraudulent conduct on behalf of the respondent”.
Overall, there was “simply no real evidence that there is a risk of dissipation”.
Is it just and convenient to grant the order?
In addressing this point, the court was concerned that the cross-undertaking offered by the claimant offered no “meaningful protection for the respondent”. This appeared to again stem from a lack of evidence, this time in respect of the applicant’s means to honour any such undertaking. It was considered that this factor alone would have caused the application to fail.
Analysis
Applicants must always give careful thought as to whether a freezing order is feasible on the facts. Perhaps the most important lesson from this decision was the need to provide the court with appropriate supporting evidence.
The applicant was already on the back foot as a result of the lack of appropriate notice given when making the application. Purporting to issue the application on notice (rather than on an ex parte basis), the application was made on the Friday before Christmas, and listed three working days later on a Wednesday. This was not the requisite three clear days.
It is unclear if the court was correct to find that applying on notice drew into question the risk of dissipation. There might be many reasons to do so, including that an applicant initially trusts the respondent to reach an amicable settlement. However, the Judge had little choice other than to refuse the application.
It remains to be seen whether the application would have succeeded with the aid of a draft particulars of claim. However, applicants take a risk in making such applications without making their legal case clear.
