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Court of Appeal confirms that there is no principle that a court must refuse to make a civil or criminal restraint order where another restraint order is already in force

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management - Freezing Orders

15-09-2021

AA and others v BB and others [2021] EWCA Civ 1017

Facts of the Case

  • The case was an appeal of the decision of Meade J to continue worldwide freezing orders (“WFOs”) against the directors of two companies on the grounds that there was a real risk of dissipation, in circumstances where the directors were already subject to criminal restraint orders (“CROs”). 
  • For further information on the background to the dispute and an analysis of Meade J’s first instance decision, please see our previous briefing here.
  • The principal argument of the directors on appeal was that the existence of the CROs was not only relevant to whether a freezing order should be granted in the first place, but also fatal to any submission that there was a real risk of dissipation. Moreover, a second restraint would likely impose significant additional legal costs on the defendants, thus strengthening the case against the grant of the freezing order.

The Decision

  • The Court of Appeal dismissed the appeal finding that:

1. There was no established principle that a court must refuse to make a freezing order (or CRO) where another restraint order was already in force, although (i) the existence of the prior restraint order may be relevant to the granting of the further one and (ii) courts must be mindful of the burdens that freezing orders place on defendants because of the costs in time and legal fees in complying with ancillary orders for disclosure and in seeking consents to any disposals; and

2. Meade J had adequately considered the existing CRO as a relevant factor, but had also correctly identified its shortcomings in guarding against the risk of dissipation.

Analysis and Practical Advice

  • The judgment confirms the difficulties that respondents will have in opposing freezing orders primarily on the basis that there is a CRO in place in the context of other proceedings.
  • This is because a CRO is not intended to protect the interests of the freezing order applicant. For example, the SFO and CPS are both public bodies whose primary duty is to act in the public interest and not any private interest. A CRO may therefore in due course be discharged or varied to the detriment of the freezing order applicant, potentially without notice to them.
  • The appellants in this case proposed that the issue in relation to notice be addressed by them giving undertakings to notify the claimants of any propose application to vary or discharge the CRO, or to obtain consent from the SFO (the CRO applicant) to a disposal. This however was dismissed by the Court of Appeal, given the allegations of fraud against the appellants and the lack of any challenge, except based on the CROs, to the making of the freezing orders.
  • As a point of practice, given the substantial increase in the burden of compliance on the respondent where there is a CRO and a freezing order in place, the Court of Appeal encouraged consideration in such circumstances to be given to arranging joint management so as to keep this burden proportionate (although efforts to achieve that in the present case appear to have failed).

 

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