High Court confirms that notifying third parties outside England and Wales of a worldwide freezing order is not improper

• United Kingdom

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

09-11-2020

YS GM Marfin II LLC & Ors v Lakhani & Ors [2020] EWHC 2629 (Comm) (5 October 2020)

Facts of the case

• The Claimants (the “Cs”) obtained a worldwide freezing order (the “WFO”) against the First and Second Defendants (the “Ds”) in a dispute relating to the financing of a ship recycling business. The WFO contained at paragraph 19 the standard wording that, except in specific circumstances, it did not affect parties outside of England and Wales.
• The Cs proceeded to notify third parties outside England and Wales of the WFO. That notification contained the following wording: “We direct your attention in particular to paragraphs 16-20 of the Injunction, which makes clear, inter alia, that it is a contempt of Court for any third party knowingly to assist in or to permit a breach of the injunction, subject to the terms of paragraph 19 regarding persons outside England and Wales. That is reinforced by the Penal Notice on the first page …”
• Following correspondence between the parties as to the notification of such parties, the Cs sent a further letter to some of them clarifying the scope of the WFO. This stated “Assuming that you are not resident within the jurisdictions of the courts of England and Wales, the Injunction, including the penal notice in the Injunction, will not apply to you”.

• The Ds applied inter alia to discharge the WFO on the basis that the manner in which notice was given was an abuse of process since it was an illegitimate and oppressive use of the WFO.

The decision

• Mr Justice Jacobs dismissed the application, finding it is not improper to notify third parties outside the jurisdiction as part of a legitimate aim of trying to make a WFO effective: “there is in my view nothing improper in a claimant seeking to notify a third party of a WFO, without seeking a further court order, albeit that in such circumstances the claimant will be relying on what might be termed the "soft power" of the court's order rather than its coercive effect” (a reference to third parties not wanting to assist a defendant breach a WFO granted by the English court).
• The Ds did not cite any authority for the proposition that notification outside the jurisdiction was improper, and on the facts Jacobs J found there was no reason to conclude that the Cs had some ulterior and improper purpose or that the notifications were deliberately misleading. Nevertheless, Jacobs J did consider that the original letters had gone “too far”, and ordered the Cs to send clarification letters to those third parties who had not already received them.

• In all the circumstances, Jacobs J found that it would be unjust to discharge the WFO, not least because the Cs had (i) established that there was a real risk of dissipation and (ii) also subsequently obtained summary judgment.

Analysis and practical advice

• The purpose of a freezing order is to prevent the unjustifiable dissipation by a defendant of its assets. Notifying third parties – particularly financial instructions – in other jurisdictions can be an effective means of achieving that purpose and there is nothing in the standard wording of a WFO to prevent such notification.
• However, this case is a salient reminder for practitioners of the need to ensure that in giving such notification they do not inadvertently misrepresent the proper effect of the freezing order. A stark reference to contempt and the penal notice in letters to third parties outside the jurisdiction, as was the case here, is therefore not appropriate. Instead, to the extent that contempt and the penal notice are referred to, a clear explanation of the effect of the order, and the circumstances in which a contempt of court might arise would need to be provided.
• Where there has been a deliberate misrepresentation of the terms of a freezing order, that may be grounds for discharge for abuse of the court’s process (Euroil v Cameroon Offshore Petroleum). The facts of this case, however, were a long way from that since (i) the third parties were specifically referred to paragraph 19 of the WFO (which stated that parties outside of England and Wales were not affected save in specific circumstances), (ii) the third parties were invited to raise any queries about the WFO and appropriate contact details were provided and (iii) some corrective letters were sent after the point had been raised by the Ds.
• The standard form freezing order contains an undertaking that a claimant will not without the permission of the court seek to enforce the freezing order outside of England and Wales, or seek an order of a similar nature. Accordingly, if a claimant did wish to give local force to a WFO, and thereby give it coercive effect against a third party who is outside of England and Wales, it would first need to seek such permission before applying for the relevant order from the local court.

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