Lord Donaldson, Master of Rolls (as he then was) in BANK MELLAT v NIKPOUR (1985) FSR 87 described freezing orders as one of two “ nuclear weapon” in English Law  (the other being an Anton Pillar order). This powers exercised by courts in most common law jurisdictions especially by English Courts in exercise its jurisdiction extraterritorially and to make freezing orders on a worldwide basis has attracted wide criticism, perhaps it could now be described as the “ intercontinental Ballistic Missile of English Court”, including its anti-suit injunction restraining foreign proceedings.

 The purpose of a freezing order is to preserve assets against which judgment in a substantive claim can ultimately be enforced; it does not give the claimant any security in the assets or priority over other creditors of the defendant. The ancillary disclosure orders which the court makes are designed to give teeth to the freezing order by compelling the respondent to say where his assets are and allowing the claimant to monitor compliance with the order.  The Courts however has powers to make ancillary orders in appropriate circumstances.

In order for a court to exercise its discretion to make a worldwide freezing order it must first have jurisdiction over the underlying cause of action or it must be satisfied that the order can be properly made as a protective measure in respect of a cause of action subsisting outside the jurisdiction and the respondent has a close connection with the territorial jurisdiction of the court. Once jurisdiction has been established it is necessary to satisfy the court that on the evidence there are grounds for granting a freezing order. This however was not the position in England ab nitio. The House of Lords in Siskina (Cargo Owners) v Distos Compania Naviera SA (1979) AC 210 held that the right to obtain an interlocutory injunction depended on being (a). a pre-existing substantive cause of action enforceable against a defendant amendable to the court’s jurisdiction and (b). personal jurisdiction of the court over the defendant (in other words, the location of the assets within the jurisdiction alone was not sufficient. Subsequently, legislations were made to deliberately overrule the SISKINA’s position. (See Section 25 of the Civil Jurisdiction and Judgment Act 1982 and Civil Jurisdiction and Judgment s Act 1982 (interim Relief Order) 1997). More so steps have been taken judicially to move away from Siskina.  However, the Privy Council in MERCEDES BENZ A.G v LEIDUCK (1996) A.C 284 still followed the SISIKA decision holding inter alia that Ord. 11 R. 1(1)(b) was not intended to assert an extraterritorial jurisdiction based solely on the presence of assets within the territory; that the claim for injunctive relief did not fall within Ord 11, r 1(1)(m) because there was no judgment in existence to enforce. The facts of this case involved fraud committed by one Mr Leiduck against the automobile giant Mercedes. Leiduck and a Monegasque company owned by him agreed to facilitate the sale in the Russian Federation of 10,000 vehicles manufactured by Mercedes. Mercedes advanced the Monegasque company $20 Million to finance the expenses of the operation on terms that it would be repaid with interest if the total price of the vehicles had not been remitted to Mercedes by an agreed date. As security, the company provided a promisory note for $20m plus interest. The transaction did not proceed, the advance was not repaid and the note was dishonoured. Mercedes commenced Civil proceedings in Monaco against Leiduck in connection with the alleged misappropriation of the funds and was able to freeze Leiduck’s assets in Monaco pending judgment. The Monegasque court, however, declined to extend the freezing order to cover Leiduck’s share in another company registered in Hong Kong, which it was alleged had received part of the misappropriated money. Mercedes thereupon applied ex parte to the Hong Kong court for a worldwide freezing injunction. The Judge granted the application on terms that Mercedes issues a writ of summons against Leiduck and his Monegasque company and gave leave for Leiduck to be served in Monaco, where he was in custody pending criminal investigations. Leiduck applied to the High Court of Hong Kong to have the ex parte order discharged, on the ground that the court had no jurisdiction over him. The judge held that none of the claims set out in the writ fell within the court’s power to permit service of proceedings out of the jurisdiction under Order 11 r 1(1) of the rules of the Supreme Court of Hong Kong. He accordingly quashed leave to serve and set aside the accompanying freezing injunction. The Court of Appeal of Hong Kong dismissed Mercedes Appeal against the judges order, holding that the court’s jurisdiction under Order 11, r 1(1)(b) and (m) would not have permitted service on Leiduck in Monaco, since an injunction sought under rule 1(1)(b) ‘ ordering the defendant to do or refrain from doing anything within the jurisdiction’ had to be part of a claim for substantive relief which could properly be tried in the courts of Hong Kong; and the provisions of rule 1(1)(m) permitting service of a writ to enforce any judgment could not be relied on before judgment had actually been obtained in Monaco. The privy council in dismissing the appeal contended that since Mercedes have not made any claim for substantive relief which could properly be tried in Hong Kong, it could not compel Leiduck to appear before the Hong Kong court to contest the application for injunctive relief and there had been no power in court to permit service of a writ claiming such relief. However, Lord Nicholls in his dissenting Opinion made an inroad in the jurisprudence of some offshore courts in his word “ the law took a wrong turning in the Siskina, and the sooner it returns to the proper path the better. It is lucid and goes to the heart of the problem….., the first defendant’s argument comes to this; his assets are in Hong Kong, so the Monaco court cannot reach them; he is in Monaco, so the Hong Kong Court cannot reach him. That cannot be right. That is not acceptable today. A person operating internationally cannot so easily defeat the judicial process. There is not a black hole into which a defendant can escape out a sight and become unreachable”.  Lord Nicholls gave a number of principled reasons for reaching his conclusion. More pragmatically, he thought the situations in which the courts may properly exercise their jurisdiction to grant injunctions must adapt to reflect changes in the circumstances around the world guided by the criterion of injustice; injustice is to be viewed and decided in the light of today’s conditions and standards, not those of yester years” and it is this pragmatism and emphasis on injustice that appears to have given the offshore courts that are willing to depart from SISKINA the necessary impetus to do so.

 

WAYS TO CHALLENGE A WFO

It is pertinent to state that like every other order of a court, the WFO enjoys same potency and compelling like an order of any National court’s pronouncement a defendant is naturally amendable to, hence immediate compliance is crucial. This is because the consequences of non-compliance attracts serious penalties up to imprisonment. A case in hand is the case of former trade Minister in Kazakhstan and CEO of BTA Bank, Mukhtar Abyazov was sentenced to prison for 22months for failing to disclose his assets and documents pursuant to an English Worldwide freezing Order.

The first opportunity to consider whether and how to challenge a WFO will come at the hearing on the return date, which take a few days sometimes weeks after service of the order on the affected person. By this time, you will have been provided with evidence relied upon by the claimants at the ex parte hearing and a record of proceedings, so you can evaluate whether there were proper grounds for making the order or if there are other ways in which you can lessen its impact. The applicant seeking for a WFO must avail the court with full disclosure of all material relevant to the facts of this case. This Principle was enunciated in by the English Court’s decision in BRINK’S –MAT LTD v ELCOMBE (1988) 3 ALL ER 188. In DEUTSCHE BANK SUISSE SA v KHAN (2013) EWCA, CIV 1149, the Court of Appeal considered whether the duty of full and frank disclosure had been complied with in an exparte  application. It re-affirmed the importance of complying with the duty to give full and frank disclosure of all material facts and law when making an ex parte application for WFO, no matter how urgent the application or how informal the mode of communication with the court may be.  Where the applicant fails to discharge the duty to give full and frank disclosure, then you may be able to apply successfully for the discharge of the WFO (See MILLHOUSE CAPITAL UK v SIBIR ENERGY PLC (2008) EWHC 2614 (ch). See also the case involving Nigeria National Corporation in ECONET WIRELESS LIMITED v VEE NETWORK LIMITED (2006) EWHC wherein a WFO was obtained by minority shareholder attempting to enforce his pre-emptive right to sale of the companies share was set aside for failure to render full and frank disclosure.  Arguably, applications to set aside an WFO for substantial non disclosure is best made at the interlocutory stage, although there some authorities (such as Dormeuil Freres SA 1988) have decided otherwise, however recent decisions have adopted the challenge at interlocutory stage before the hearing of inter party motions with huge complexities. The INTERCONTINENTAL BANK v AKINGBOLA (2011) EWHC 605 is a case in point.

Secondly, since the principle of interim injunction is granted before a determination of the substantive dispute on the merit, the applicant will be required to undertake to compensate the respondent if it turns out either at trial that the injunction ought not to have been granted. Therefore, if a respondent who has a reasonable believe that the applicant will be able to afford to pay such compensation to the respondent, then the respondent should immediately seek a fortification of the undertaking, such fortification could take the form of a payment of money into court or the provision of a bank guarantee or bond that would pay out in the event that compensation was ordered.  If the WFO is interfering with the respondent’ s business or day to day life, then it is necessary to consider whether he should provide security for the claim. And if the respondent can provide security, then the WFO will cease to have effect.  Albeit, compliance with the clear letters of the order upon service is the best initial approach to challenge same. Once that is done then you can evaluate whether the WFO was properly granted.

 

CONCLUSION.

The willingness on the part of at least some of the major offshore jurisdictions to seek to assist victims of fraud and corruption in the preservation of stolen funds and assets. There are clearly sound policy reasons for offshore states to have the discretion to grant interim freezing order in aid of disputes litigated elsewhere and this is recognized by the judiciary of those states.  Ironically, the readiness to assist “ outsiders” may in fact undermine the more attractive characteristics of the offshore countries will choose to strike the balance will continue to attract shortage of observers and commentators. The Civil law jurisdictions and also decisions from the ECJ has criticized this extraterritorial actions of National courts as it goes against the underlining principles of the EU regulations of comity and reciprocity.