Application for a Post-Judgment Freezing Order: The Risk of Dissipation, written by Adam Knee
Freezing orders are sometimes described as the English Court’s “nuclear weapons”. They are often very effective in preserving assets that can then be used to satisfy a judgment debt. However, they are also onerous, invasive, can cause damage to reputation and massive disruption to a business or individual. The Court does not therefore grant them lightly.
In relation to post-judgment freezing orders, just because a defendant has not paid a judgment does not mean a claimant has an automatic right to get a freezing order against that defendant’s assets. This article will consider the circumstances in which a Court will grant a post-judgment freezing order with particular reference to the recent case of Great Station Properties S.A and others v UMS Holding Ltd and Others [2017] EWHC 3330 (Comm)
Criteria for a Freezing Order
To obtain a freezing order, a Claimant needs to establish three things:
- A good, arguable case;
- That there is a real risk of dissipation of assets; and
- That a freezing order would be just in all the circumstances.
In the case of a post-judgment freezing order, there is no need to prove you have a “good, arguable case”; you already have a judgment! The Court will instead focus on the latter two issues, particularly the risk of dissipation.
Risk of Dissipation
A risk of dissipation basically means that, if left unrestrained, a defendant is likely to either hide or transfer away his assets so that the applicant cannot enforce a judgment against those assets.
In the Great Station Properties case, the Court accepted there was such a risk and granted a freezing order. The factors the Court took into account in making this determination are summarised below but first it is useful to briefly recite the facts of that case.
Case Summary
The Claimants were two companies beneficially owned and controlled by Vladimir Lukyanenko (a Russian and Ukrainian citizen). The Defendants were three companies beneficially owned by billionaire Konstantin Grigorishin. A dispute arose over a joint venture in which Mr Lukyanenko’s companies held 49% of a Cypriot company called Stremvol Holdings Limited. The Defendants held the other 51%. The Claimants claimed that there had been “an illicit scheme” whereby the Defendants had covertly diverted profits and opportunities away from the joint venture to companies connected to the Defendants. Following an arbitration, the Claimants had been awarded over $300 million in damages.
The Freezing Order Application
The Claimants’ application for a freezing order relied heavily on the facts and issues arising out of the arbitration. In particular:
The arbitration tribunal had accepted that the Grigorishin Defendants had engaged in an “illicit scheme” to ensure that profits that ought to have been shared with the Claimants were instead paid to companies in Mr Grigorishin’s control. The Court accepted that, if Mr Grigorishin was prepared to manipulate his companies to deprive the Claimants of their money, there was a real risk he would also manipulate his companies to prevent the Claimants from recovering damages caused by his actions.
The Court added that Mr Grigorishin’s conduct in the “illicit scheme” had been dishonest, which further supported the conclusion that he might dissipate assets.
Furthermore, Mr Grigorishin’s evidence in the arbitration had been that he did not know who owned the companies that had received the profits and opportunities under the “illicit scheme”. The tribunal did not accept this and the Court inferred that Mr Grigorishin had in fact lied in his evidence.
Mr Grigorishin had transferred shares in several companies for free to an old school friend to make it look to the Ukrainian authorities that he did not control them, when in fact he did. He had done this to circumvent a Ukrainian law (enacted following hostilities between Ukraine and Russia) that required companies to disclose their ultimate beneficial owner. Any companies with Russian ownership had their business licences revoked. The court held that this was relevant to risk of dissipation because it showed that Mr Grigorishin was prepared to give misleading information about his assets.
For all of these reasons, the Court held that there was “solid evidence” of a real risk of dissipation and granted the freezing order.
It is quite unusual to get a post-judgment freezing order. The purpose of a freezing order is normally to preserve assets in the jurisdiction pending determination of the claim. However, it is interesting to note that, in this case, the Claimants were able to use the information that came to light during the course of the arbitration proceedings about the Grigorishin Defendants’ conduct to get a freezing order. None of the evidence they used demonstrated that the Grigorishin Defendants were in fact dissipating assets. However, the findings made in the arbitration (as highlighted above) strongly suggested that they would do if not restrained. For example, it is evident that Mr Grigorishin’s intention in transferring shares to his old school friend was not to dissipate assets so as to avoid judgment. However, the Court held that this conduct was still relevant to the issue of risk of dissipation by effectively reasoning that if Mr Grigorishin could transfer away assets for one reason, he could do it for other reasons, including to avoid paying the judgment.
Adam Russell-Knee
Adam Russell-Knee is a solicitor at law firm Byrne & Partners. He works in the firm’s commercial litigation department handling a range of High Court litigation and international arbitration cases. He has a particular specialism in jurisdictional issues and conflict of laws.
