Court of Appeal clarifies test for showing existence of a respondent’s assets that could be subject to a worldwide freezing order (“WFO”)

• United Kingdom

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

16-08-2017

RAKIA & Ors v Bestfort Development LLP & Ors [2017] EWCA Civ 1014

Facts of the case

– The applicants brought claims in the Republic of Georgia and the UAE against a former director for breach of fiduciary duty and fraud. 

– The applicant applied to the High Court for inter alia WFOs in respect of various entities under the Chabra jurisdiction.

– The appeal of the decision at first instance chiefly concerned:

1 the test for establishing whether a respondent in fact has assets that will be caught by a freezing order (including a WFO); and 

2 whether a risk of dissipation was negated by (i) a respondent’s compliance with a previous costs order and/or (ii) the applicant’s delay in applying for a freezing order. 

The decision

The Court of Appeal (“CoA”) held that:

1 the correct test for showing that a respondent has assets that will be caught by a freezing order is whether there are “grounds for believing” that the respondent has or is likely to have such asset, as opposed to the higher test of whether it is “likely”; and

2 where there is a risk of dissipation, this is not negated by (i) compliance with a court order in circumstances where such a risk has already been found to exist (although the CoA noted that a previous failure to obey court orders could invite adverse inferences) or (ii) any delay in applying for the freezing order.

Analysis and practical advice

– The judgment clarifies that while it is not enough for an applicant simply to assert that a respondent must have assets somewhere on the basis that he is apparently wealthy, an applicant is equally not required to go as far as identifying a respondent’s assets since, prior to any disclosure, he will not always know of their existence. 

– The case is also of interest for the CoA’s approach to the issue of delay which appears to have been discounted in view of the “undoubted” risk of dissipation. This compares to the approach of Roth J in Anglo-Financial v Goldberg [2014] EWHC 3192 (Ch) in which he found an albeit much longer delay of four years to be “a significant factor in the balance when assessing whether there is a real risk [of dissipation]”. The CoA’s comments in the present case cast doubt on the weight to be attached to delay going-forward with the court observing that: 

– “it is the fact of the risk rather than a claimant’s apprehension of it that should govern the court’s decision”; and

– to argue that there is no risk because a respondent would otherwise have taken advantage of the delay to dissipate his assets, “assumes the [respondent] is already of dubious probity and it is a curious principle that would allow such a respondent to rely on his own dubious probity to avoid an order being made against him”.