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Varying the Terms of a Worldwide Freezing Order

Author: Nicola Sharp  23 June 2023
3 min read

Nicola Sharp of Rahman Ravelli details a recent case that illustrates the factors a court considers when hearing an application to vary a WFO.

A case recently concluded that has brought the issue of varying the terms of a worldwide freezing order (WFO) back under discussion.

Worldwide freezing orders (WFOs) are granted to protect a claimant from the risk that a defendant will dissipate their assets. The order prevents the respondent from dealing with their assets, preserving them until judgment can be obtained.

It is important to note that WFOs are protective measures, and not punitive. Which means that respondents should have access to sufficient funds to allow them to meet their reasonable living expenses and pay their legal costs. Each respondent will have different expectations of what is reasonable, so the judge has wide discretion to decide the level of funds granted to the respondent.

If the respondent finds the funds available to them too little, they can apply to vary the order, which may be granted subject to the court’s discretion. The claimant can oppose the application to amend the order if they are concerned that the assets that remain frozen would be insufficient to meet their claim.

Allowable living expenses

The case of Vneshprombank LLC v Bedzhamov & ors has generated discussion and brought further attention to scope of WFOs.

The underlying claim is an allegation by the bank that Mr Bedzhamov and his sister perpetrated a £1.34 billion fraud against it. In March 2019, the court granted a WFO against Mr Bedzhamov over assets up to the value of £1.34 billion. Under the terms of the WFO, Mr Bedzhamov was allowed to spend £80,000 per month on living expenses. Most people would consider £80,000 to be an excessive amount for monthly living expenses. But it demonstrates the point that WFOs should not be punitive. A respondent should have ‘ordinary’ expenses, whatever ‘ordinary’ looks like for the respondent.

Mr Bedzhamov considered the sum insufficient for his lavish lifestyle. In November 2019, the Court of Appeal allowed him to increase his living expenses to £310,000. The key point was that the purpose of freezing orders was to prevent defendants taking steps outside the ordinary course which would render any judgment unenforceable. Subject to this, defendants should be entitled to do as they wished with their own money.

The approach to varying WFOs

Mr Bedzhamov was in court again recently (in May 2023) to vary the terms of the order once more. In this application, Mr Bedzhamov sought permission to sell his interest in a property in Belgrave Square, one of the assets subject to the WFO that was made in March 2019. The purpose of the application (and sale) was to allow him to pay outstanding and future legal expenses, and some living expenses.

The court granted permission to vary the WFO and gave a helpful reminder of the approach to follow in making the decision. The approach is set out in Kea Investments Ltd v Watson [2020] EWHC 472 (Ch) and can be summarised as:

    1. The question is not whether the defendant should be able to use his own assets, but whether he should be permitted to use assets which may turn out to be the claimant’s. There is, therefore, no presumption in favour of his being able to do so.
    2. There are three questions which fall to be answered:
      1. Does the claimant have an arguable proprietary claim to the money?
      2. Does the defendant have arguable grounds for claiming the money himself?
      3. Has the defendant shown that he has no other funds available to him for this purpose?
    3. Even if the defendant gets over these hurdles then the Court has a discretion. The court has to make “careful and anxious judgment … as to whether the injustice of permitting the use of the funds held by the defendant is outweighed by the possible injustice to the defendant if he is denied the opportunity of advancing what may, in course, turn out to be a successful defence.”

Exercising discretion

The point on discretion is perhaps the most difficult to pin down.

In the May 2023 application, the claimant bank did not object to the variation sought by Mr Bedzhamov. Instead, it was the trustee in bankruptcy who opposed the application. It follows then that if Mr Bedzhamov were to claim under the cross-undertaking in damages (required to be given), the bank would say that it was not responsible for any loss, because it had not opposed the variation.

By contrast, the trustee had not sought an injunction of her own and she had not offered a cross-undertaking. The court considered that the trustee was effectively seeking to get the benefit of an injunction without paying the usual price. There was a real prospect that if the proposed sale were to be stymied and Mr Bedzhamov suffered a loss, he would have no effective recourse. That was considered potentially unjust.

In previous hearings the court had said that it had “concerns about aspects of the trustee's approach…Actions taken at least give the impression that she or those behind her might prefer to sabotage any disposal rather than allow it to proceed on terms approved by the court.”

All of these factors contributed to the court exercising its discretion in favour of Mr Bedzhamov’s application. The application was granted and he was permitted to sell the property.

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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