Worldwide Freezing Orders: Lessons for Claimants and Defendants
Our firm acted in this successful application to the Court of Appeal relating to a Worldwide Freezing Order (WFO). The case demonstrates that where a defendant wants a variation to be made of an existing undertaking of damages given by a claimant, evidence to support that application is key.
We act for a group of claimants who allege fraud against a group of defendants with losses of around £45 million. The subject matter of the underlaying claim relates to investments in student and holiday accommodation. At first instance we obtained a WFO against the defendants on the basis that (i) the claimants were held to have a good arguable case that fraudulent misrepresentations had been made (ii) the claimants had shown to the requisite standard that there would be a risk of dissipation of remaining assets and (iii) it was just and convenient to grant the relief sought.
The claimants were, as standard when seeking an injunction, required to provide an undertaking in damages. This means that the claimants undertake to pay compensation to the defendants should the injunction later be found to have been wrongly granted.
At the return date for the WFO two months after it had been granted, two of the defendant group applied for additional fortification (security) for the undertaking in damages given by the claimants. At first instance the claimants gave fortification of £500,000 which was provided via an insurance policy. The defendant applicants said that this would not be sufficient and that there was a substantial risk that one of the defendants, Mr Nicolas Spence, would suffer loss of (at least) £2 million as a result of the WFO. This was on the basis that Mr Spence had an existing loan from Coutts in USD, and a separate deposit account with them in GBP. He said that should Coutts decide to call in the loan (on the basis that the WFO is an act of default) he would be at the mercy of the prevailing exchange rate which was much lower than the pre-Brexit rate. Her was aiming to wait until the exchange rate recovered to $1.55 USD to GBP before he made the exchange.
The Court held that the test to get further fortification is whether the defendant could show that he has a good arguable case that he will suffer loss in consequence of the making of the Order (as set out in Energy Venture Partners Ltd v Malabu Oil and Gas Ltd  1 W.L.R. 2309). The judge found that as Coutts could decide to call in the loan at any time without notice, irrespective that they had not done so already, the defendant had met this test. The Court ordered fortification of an additional £800,000 rather than the £2 million sought, as the Court held that the lower figure (which was an earlier estimate set out in correspondence by Mr Spence's solicitors) was an informed and realistic estimate.
The claimants appealed the order for further fortification. The Court held that in looking at the potential loss the defendant would incur, there must be a proper analysis and assessment of the present damage which is incurred by the loss of the relevant protection. It was found that there was insufficient evidence about the potential replacement financing options the defendant could utilise to reduce or mitigate the potential losses claimed, there was also insufficient evidence to establish that there was a real risk that Coutts would call in the loan, and that Mr Spence's losses which were based on currently fluctuations were inherently speculative and incapable of intelligent estimation. As a result, the Court held that Mr Spence and the other respondents had not advanced a good arguable case that they would suffer loss as a result of the grant of the WFO, and so upheld the appeal against the additional £800,000 fortification.
This case demonstrates that when trying to show the losses you might incur as a result of a WFO (or other freezing order) it is critical to meet the tests set out above and clearly evidence the same. Focusing on a narrow, speculative outcome however punitive will not be enough for the Court to find in your favour.