Testing times: how to determine if a Respondent has assets

In July 2017 the Court of Appeal considered what test should be applied to determine whether a Respondent has sufficient assets which would be caught by a freezing injunction to justify the granting of such an injunction.

Background

The case of Ras Al Khaimah Investment Authority & Others v Bestfort Development LLP & Others involves claims brought by six entities which were established at a time when the Republic of Georgia had commenced a widespread privatisation programme.  The Claimants were established for the purpose of investing the sovereign wealth of Ras Al Khaimah (a State in the UAE) in Georgia.  Claims were brought in Georgia and the UAE against numerous entities and two individuals, Mr Mikadze and Dr Massaad, who are accused of breaches of the fiduciary duties they owed to the Ras Al Khaimah entities.  In particular Mr Mikadze was alleged to have diverted the Claimants’ funds to his own bank accounts and given contracts to companies which effectively belonged to him.

Decision at First Instance

The English Court was asked to grant a freezing injunction over the assets of, and appoint receivers over 14 Limited Liability Partnerships registered in England and Wales which were said to be connected to Mr Mikadze.  The application was made in support of the proceedings issued in Georgia and the UAE. No claims are being pursued in England.  Some of the 14 Respondents are Defendants to the proceedings brought in Georgia and the UAE whereas others are included because they are beneficially owned by Mr Mikadze and the assets they hold may be required to satisfy judgments made against him elsewhere.

When the application came before the English Court the Judge considered whether the facts would warrant the relief sought if the claims had been brought in England.  She concluded that there was a good arguable case and that not only were all the claims arguable but also that any assets held by the Respondents were assets of or controlled by Mr Mikadze.

The Judge went on to consider whether the Respondents had any available assets which would make the grant of a freezing injunction worthwhile and whether those assets were of sufficient value to make such an injunction proportionate to the likely costs involved.  She found that there was insufficient evidence of any substantial assets which would be caught by a freezing injunction.

In respect of the risk of dissipation, the Judge found that whilst there was a risk, it was negated by the Respondents’ compliance with costs orders and the Applicants’ delay in bringing the application.

Finally, the Judge found that it was not expedient to grant the application as there was insufficient evidence of the decisions of the Georgian Court and whether a worldwide freezing injunction would encroach on the jurisdiction of the Georgian Court.

The Judge at first instance therefore declined to grant the relief sought.

Grounds of Appeal

The Applicants appealed, arguing that:

1. The Judge had applied the wrong test about the existence of assets: she should have asked whether there were grounds for believing there were assets which would be caught by an injunction;
2. There were assets which would be caught by an injunction;
3. Compliance with costs orders and a delay in bringing the application did not negate the risk of dissipation; and
4. There was no inexpediency.

Court of Appeal Decision

The Court of Appeal found that:

1. The test to be applied is that there must be grounds for belief in the existence of assets.  The Court of Appeal commented that a Claimant cannot always be expected to know of the existence of a Defendant’s assets and in such circumstances it should be enough to show that there are grounds for believing in their existence;
2. Based on the facts of the case, some of the Respondents had recently been in possession of assets, and those assets must be somewhere.  Whilst this did not apply to all the Respondents, there was evidence of at least some assets on which an injunction could bite;
3. Prior compliance with costs orders was not sufficient to negate a risk of dissipation and that whilst delay can be fatal to an application for an injunction which is pursued in a dilatory fashion, delay is not a factor which would necessarily negate the risk of dissipation; and
4. It was possible to avoid the risk of impinging on the Georgian Court’s jurisdiction, and therefore demonstrate the expediency of the injunction, by excluding assets in Georgia from the scope of any world-wide freezing injunction.

The Court of Appeal therefore granted the freezing injunction in respect of those Respondents for whom there was evidence of assets on which a freezing injunction could bite, and referred the application for receiverships back to the lower Court.

Points of Interest

This case offers a helpful clarification on the test for establishing the existence of assets sufficient to justify the granting of a freezing injunction.  It is also useful to have the Court of Appeal’s view of the effect of delay on such an application.

What the case leaves open is the issue of the availability of existing assets.  The question which remains to be answered is whether a parallel criminal action involving restraint orders over assets, or a freezing injunction granted in favour of a prior claimant, would be considered as rendering a freezing injunction futile in circumstances in which the Court will not make an order which is futile.