Article written by Simone Gavioli, Litigation Solicitor
A freezing order is an interim injunction that prevents a party from disposing of, or dealing with, assets.
The usual purpose of a freezing order is to preserve assets until judgment can be enforced.
A freezing order can be made in respect of assets both:
- Within England and Wales only (domestic freezing order);
- Situated outside the jurisdiction or worldwide (worldwide freezing order – “WFO”).
The court will exercise its discretion to grant a freezing order only where it considers it just and convenient to do so.
In addition, case law has established the following conditions for a freezing order:
- Freezing injunctions have, generally, only been granted where there is cause of action, that is, an underlying legal or equitable right;
- The applicant must have a good arguable case;
- The existence of assets;
- The risk of dissipation; and
- The applicant must provide an undertaking in damages.
Although the above tests might seem quite straightforward at a first glance, the court has often been called upon to define them and to provide guidance as to how they apply.
This article will analyse on how “good arguable case” is defined by the recent and relevant case Isabel Dos Santos v Unitel S.A. [2024] EWCA Civ. 1109 (“Dos Santos v Unitel”), which appealed against the decision issued on Unitel SA v Unitel International Holdings BV [2023] EWHC 3231 (Comm) (“Unitel SA v Unitel International Holding BV”).
1) Summary of Unitel SA v Unitel International Holding BV
Extracted from paragraphs 1 – 4 of the Dos Santos v Unitel judgment.
Ms dos Santos is an engineer and entrepreneur. She founded Unitel, Angola’s largest mobile telecoms company, in 1998. She was a director of Unitel from its inception until August 2020; and was also beneficial owner of 25% of the company via Vidatel Limited (a BVI company), until late 2020. Her stake has since been appropriated by the Angolan state.
The First Defendant in the first-instance proceedings, Unitel International Holdings B.V. (“UIH“) was incorporated in 2012 in the Netherlands and is owned and controlled by Ms dos Santos.
Between May 2012 and August 2013, Unitel made a series of loans to UIH (the “Facilities“) secured by promissory security. From late 2019 / early 2020, UIH stopped paying interest on the Facilities. On the basis of these and other alleged defaults, Unitel gave notice of acceleration on 1 September 2020 and demanded repayment.
On 26 October 2020, Unitel issued proceedings against UIH in England (the “UIH Claim“).
On 3 October 2022, Unitel applied to join Ms dos Santos to the UIH Claim and amend its statements of case and also applied on notice for a WFO against her. The claim against Ms dos Santos was then served on 1 June 2023.
The WFO application was heard by Bright J on 29 and 30 November 2023. On 20 December 2023, the judge handed down judgment granting the WFO application and ordered that the costs of the application be paid by Ms dos Santos with a payment on account.
Ms dos Santos appealed on two issues arising out of a WFO made by Bright J against her: (1) the meaning of the “good arguable case” element of the test required for the grant of a freezing injunction and whether (whatever the test) the judge was right to find that the respondent Unitel had a good arguable case; and (2) whether there is a general rule that the costs of a WFO application should be reserved.
Permission to appeal was granted by Arnold LJ on 12 March 2024 on the basis that both grounds of appeal raise important issues of law on which there has been divergence among High Court judges, and that Ms dos Santos had a real prospect of success. As mentioned at the previous paragraph, this article will focus only on the first point of appeal.
2) Legal considerations
The court considered two main approaches to the definition of “good arguable case:”
a) Ninemia Maritime Corp v Trave Schiffahrts GmbH & Co KG (The Niedersachsen) [1983] 1 W.L.R. 1412 (“Niedersachsen”) on one side; and
b) Brownlie v. Four Seasons Holdings Inc [2017] UKSC 80 (then by FS Cairo (Nile Plaza) LLC v Lady Brownlie [2021] UKSC 45 – “Brownlie”) followed by Lakatamia Shipping Co. Ltd. V Morimoto [2019] EWCA Civ. 2203; [2020] 2 All ER (Comm) 359 (“Morimoto”) on the other.
The Niedersachsen case described “good arguable case” as: “[…] one which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success.”
By the contrary, Ms dos Santos’ case was that Brownlie and Morimoto had since then changed the law by equating the “good arguable case” test as applied in freezing order context to that applied in the context of jurisdiction; namely (the “three-limb test”):
i. The claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway;
ii. If there is an issue of fact about it or some other reason for doubting whether it applies, the court must take a view on the material available if it can reliably do so; and
iii. The nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it.
Under the three-limb test, the court must not merely try to decide who has the better of the argument. If it can decide who has the better of the argument, it must also try to gauge the reliability of its conclusion on that point. This makes it difficult to apply the three-limb test satisfactorily to any question going to the merits of the claim, as opposed to a question that will not arise at trial (please refer to paragraph 13 of the Dos Santos v Unitel judgment).
In Dos Santos v Unitel, given the lack of clear guidelines on which test to apply, the judge attempted to apply both Niedersachsen and Brownlie, finding that Unitel satisfied both of them. However, he also stated that he had found difficult to apply Brownlie, due to the fact that such a test required him to have a knowledge of the case similar to that of a trial judge, which is not always possible at an interim hearing (please refer to paragraph 20 of the Dos Santos v Unitel judgment).
On this last point, the judge made the following observations:
a) If interim judges were to apply the Brownlie test, assessing whether the applicant’s case is more than 50% stronger than the respondent’s is something that must be left for the trial judge;
b) If interim judges were called to apply Brownlie, interlocutory hearing would become mini trials;
c) Having interlocutory hearings as “mini trial” would delay proceedings generally;
d) Interim judges might not be able to assess limb (ii) and would have to fall on limb (iii), which is not acceptable, as there is the risk of disregarding limb (ii).
e) It might be possible to use Brownlie only where the relevant points will not arise at trial, however this is not straightforward in practice.
f) It is generally wrong to fragment the phrase “good arguable case” so that it creates two different meanings (one for freezing injunctions and one for jurisdiction gateways).
Having considered the parties’ submissions, the court found that the correct test to apply to “good arguable case” for the purpose of freezing injunctions is the one set by the Niedersachsen. The appeal judge provided the following reasons behind his decision:
a) The phrase “good arguable case” has two different meanings, subject to the context (please refer to para 97 of the Dos Santos v Unitel judgment). Each meaning is to be applied to the correct context, as they are not interchangeable.
b) There are obvious differences between whether the threshold of a jurisdictional gateway has been reached for the purposes of serving out and whether the merits threshold for the grant of freezing relief has been reached. The Niedersachsen test is correct in applying a relatively lower threshold for freezing orders, as the issues examined at the interlocutory hearing will be dealt with at trial in more details.
Differently, issues considered to serve proceedings out of the jurisdiction will not be re-examined at trial, hence Brownlie is the right test to apply in applications to serve out (please refer to paragraph 99 in the Dos Santos v Unitel judgment).
c) It is insidious for the court, at the early stage at which a freezing injunction is usually sought, to have to determine which party has “the better of the argument; the judge referred to Magomedov v TPG Group Holdings (SBS) LP [2023] EWHC 3134 (Comm) (please refer to paragraph 100 in the Dos Santos v Unitel judgment).
The judge also observed that the Niedersachsen test has been applied consistently for years to freezing injunctions; the same test is being consistently applied in several courts throughout the Commonwealth. The appeal judge also specified that, in his opinion, the Niedersachsen definition of “good arguable case” is to be equated to the “serious issues to be tried” from the American Cyanamid case (please refer to paragraph 106 of the Dos Santos v. Unitel judgment).
3) Conclusions
Dos Santos v. Unitel is a highly academic decision, but it carries several practical consequences for parties and their legal practitioners.
Although the Niedersachsen threshold is still high, it remains less cumbersome than the Brownlie test. A party applying for a freezing order will have to show the court that they have “more than a serious argument,” but not that their chances of winning at trial are higher than 50%. This has a direct consequence on the amount and on the nature of evidence that parties have to supply at the hearing for a freezing order. On the basis of the judgment, evidence on facts that should be produced and examined at trial must be reserved for trial and are not appropriate to present to an interlocutory judge.
As the appeal judge correctly pointed out, having to prove chances of success of the entire case at an interlocutory hearing is not only too onerous on the parties it is even inappropriate.
By clearly distinguishing and defining the meanings of “good arguable case” in the context of freezing orders and in that of serving proceedings outside the jurisdiction, the Court of Appeal has eliminated areas of uncertainty and hopefully re-unified the case law and practice on this point. This has potential benefits on costs and hopefully will save the party soaring legal fees, although this depends on each case’s facts.
If you want to discuss this article further, or have any questions, please do not hesitate to email me or contact the team on 020 8858 6971.
Please note that this update (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice.