Freezing orders: High Court ‘downgrades’ proprietary injunction in sanctions-linked dispute (England & Wales)

Key Takeaways

1.  Applicants should consider carefully whether an interim proprietary or non-proprietary injunction is most appropriate for their circumstances, as unnecessarily seeking a proprietary injunction (i.e. a more expansive form of relief) could result in the Court: (i) dismissing the application altogether; or (ii) granting an ex parte order which is challengeable on the return date (with adverse costs risk) – both of which might have been avoided.
2. In the present case, the Court at the ex parte stage ‘downgraded’ the proprietary injunction sought to a non-proprietary injunction, i.e. a narrower form of relief as it permits the respondent to deal with assets in certain circumstances, as the Court considered that such an injunction could achieve substantively the same effect with fewer restrictions.
3. Parties who are subject to sanctions should not be put off from applying for interim injunctions on the assumption that they will be unable to give an acceptable cross-undertaking in damages. In this case, the sanctioned applicant’s cross-undertaking in damages was given expressly subject to obtaining the relevant licence, which the Court found to be appropriate and acceptable.

Facts of the Case

The claimant bank (“C”) receives money from customers (“Customers”) to hold on trust and invest. C placed a large amount with the defendant (“D”) to hold and invest in turn. 

Two of C’s shareholders were sanctioned by the UK authorities. D suspended C’s accounts as required by sanctions laws and notified C and the Office of Financial Sanctions Implementation (“OFSI”). D later told C that it had:

• Deposited some of the money (the “Bank Funds”) with another bank (the “Bank”). D told C to deal with the Bank instead of D in respect of the Bank Funds. However, the Bank told C that it held the Bank Funds to D’s order; and
• Subjected the remainder of the money (the “Trust Deed Funds”) to a trust deed (the “Trust Deed”) by which D held it on trust for C.

C issued proceedings against D in which it sought, inter alia, a final non-proprietary injunction prohibiting D from instructing the Bank to dispose of, deal with, or diminish the value of the Bank Funds. C did not join the Bank to those proceedings, as C said it trusted the Bank to deal appropriately with the Bank Funds in the meantime given that it was a reputable financial institution which had no interest in the matter (subject to the issue of the Bank holding the Bank Funds to D’s order).

C also applied for an interim proprietary injunction prohibiting D from disposing of, dealing with, or diminishing in value any of the Bank Funds or Trust Deed Funds. In so doing, C offered a cross-undertaking in damages that was expressly subject to the prior granting of any necessary licence by OFSI, to reflect C’s status as a sanctioned person as a result of its two sanctioned shareholders.

The Decision

HHJ Pelling KC granted the interim proprietary injunction against D in respect of the Trust Deed Funds. However, in respect of the Bank Funds, the Judge found that the narrower, non-proprietary form of final relief sought by C against D in the proceedings was less invasive and achieved the same result (given the Bank’s position that it held the Bank Funds to D’s order, and C trusted the Bank to give effect to the order). He therefore made an interim non-proprietary injunction in the same terms in respect of the Bank Moneys.

The Judge also found that damages was not an adequate remedy for C, as it left the Customers vulnerable to insolvency risk throughout the chain leading to their money. Furthermore, he was content to accept C’s qualified cross-undertaking in damages, finding that (i) the need for an OFSI licence reflected the general law of England and Wales and was appropriate in the circumstances, and (ii) there was a low possibility of D suffering damage that would be recoverable by way of the undertaking given that the subject funds were not D’s money that it would otherwise use, but the Customers’ money.