Freezing orders: High court orders applicant to disclose its worldwide assets

Key Takeaways

• applicants for injunctions must generally adduce evidence of their ability to meet the cross-undertaking in damages, which they are required to give to the Court as the “price” of obtaining the injunction. If an applicant is unable to show sufficient assets within the Court’s jurisdiction to give substance to that undertaking, it might be ordered to give security to fortify its undertaking
• such security will be in an amount which is an “intelligent estimate” of the amount of loss the respondent might suffer from the granting of the injunction, provided there is a good arguable case of the loss occurring
• an ex parte applicant’s inability to meet its undertaking or, alternatively, to give security is, therefore, a matter which falls within its duty of full and frank disclosure and fair presentation of the evidence. In such cases, the Court might direct the applicant to disclose its assets to the respondent in order to provide parity of financial information, and as a condition for granting or continuing the injunction
• this is so even if, as in the instant case, the Court finds that there is not a good arguable case that the respondent might suffer loss in the medium term as a result of the injunction, nor can it reach an intelligent estimate of what loss the respondent might suffer, but can foresee the possibility of that changing as time passes
• it also unlikely that the Court will be willing or able, at the interlocutory stage, to determine an argument by the applicant that its impecuniosity has been caused by the respondent’s breach, if that argument would take a mini-trial to resolve

The Facts of the Case

The Claimant (“C”) obtained an ex parte freezing order (“FO”) against the Defendant (“D”) pursuant to s.44 Arbitration Act 1996. This was in support of arbitral proceedings under a drilling contract and associated charterparty. At the application hearing, C gave evidence that it did not have assets in England and Wales and was unable to fortify its undertaking in damages pending an ongoing restructuring exercise (which, C contended, was a result of D’s breach). The FO was continued on the return date.

In the light of C’s admitted financial position, D applied to vary the injunction to require C to fortify its cross-undertaking in damages. D said that there was a risk that it would suffer significant loss in relation to its involvement in a drilling project, providing various estimates of its loss ranging from a few million dollars to over USD 100 million.

The Decision

Mr Justice Foxton found that D had failed (as required) to (i) establish a good arguable case that it would suffer loss in the medium term as a result of the FO, and (ii) provide the Court with the material necessary to arrive at an intelligent estimate of what its loss caused by the FO might be. However, he did not rule out D making a further fortification application at some future date, as matters progressed and the position on both issues potentially changed.

Nonetheless, the Judge was concerned about information asymmetry between the parties, particularly in circumstances where C had obtained the FO whilst not obviously being able to meet a claim under its cross-undertaking, and it was not obvious that C’s impecuniosity had been caused by D. He therefore ordered C within around one month to disclose to D all of its assets worldwide exceeding USD 10,000 in value, up to a total unencumbered value of USD 1 million, in a schedule supported by a statement of truth giving a brief description, estimated value, and location (if real property, shareholdings or bank accounts), failing which the FO would lapse.