1.1 The Possible Reasons for Seeking a Freezing Injunction

There is a well-established general rule that a creditor cannot restrain their debtor from dealing with their property before judgment.Footnote ¹ The creditor should obtain their judgment first and then enforce it. A freezing injunction is an exception to this general rule.Footnote ² However, the justifications for curtailing a defendant’s activities by way of a freezing injunction are not entirely clear. The Commercial Court in London frequently deals with applications for a freezing injunction. The conduct of the defendant before the issue of proceedings may have given the claimant a negative indication about the defendant’s future ability or willingness to meet any judgment in favour of the claimant. In such circumstances, the claimant would be concerned to eliminate (or at least minimise) the risk of the defendant dealing with their assets in such a way as to create any difficulties (or even make it impossible) to enforce a potential judgment. The purpose of a freezing injunction is usually stated in broad terms as being to preserve any assets that might eventually be used to enforce a potential judgment against a defendant.Footnote ³ The actual reasons for an application for a freezing injunction may well go much further than ensuring the ability to enforce a future judgment. The claimant’s underlying motive, at least in the context of commercial litigation, may well be strategic in nature with the aim of achieving a settlement and avoiding litigation on the substantive claim. In addition to looking far ahead to enforcement, a tactically astute claimant may wish to put pressure on the defendant with the aim of negotiating a favourable settlement. The pressure is partly financial, in that the defendant’s cash flow may be restricted and the defendant might have to incur significant legal costs to lift the injunction.Footnote ⁴ In Cheltenham & Gloucester Building Society v. Ricketts,Footnote ⁵ the Court of Appeal recognised that a freezing injunction may have the effect of ruining a thriving business, and in that context it was described as one of the ‘nuclear weapons’ in the courts’ armoury. The pressure is also in the form of a risk of damage to the defendant’s commercial reputation.Footnote ⁶ Instead of settling a claim on an unfavourable basis, the defendant may choose to relieve some of the pressure by paying money into court to lift the injunction with the practical effect that the claimant gets security for their claim. In Energy Venture Partners v. Malabu,Footnote ⁷ the Court of Appeal highlighted the fact that ‘in many cases, of which the present is probably one, a Freezing Order has the practical if not theoretical effect of giving security to the Claimant for its claim’.Footnote ⁸ Indeed, apart from settlement, a claimant’s top priority (and the underlying reason for seeking a freezing injunction) would be to get security at least up to the amount of the claim. Without any security, the claimant may be in a position where it simply does not make financial sense to invest in costly litigation, regardless of the strength of the claimant’s case. As explained by Lord Bingham, freezing orders ‘are not granted to give a claimant advance security for his claim, although they may have that effect’.Footnote ⁹ A further possible reason for seeking a freezing injunction may be to enable the claimant to obtain information about the location and value of the defendant’s assets by means of an ancillary disclosure order.Footnote ¹⁰ This is particularly common in cases involving assets in multiple jurisdictions and foreign substantive proceedings.Footnote ¹¹

1.2 A Short Summary of the Key Requirements for Obtaining a Freezing Injunction

By way of a brief introduction, the key requirements for obtaining a freezing injunction can be briefly summarised in broad terms.Footnote ¹² The first requirement relates to the strength of the claimant’s case on the merits, and the threshold is that of a good arguable case.Footnote ¹³ The second requirement relates to the conduct of the defendant, and the threshold is a real risk of dissipation of the assets that would be amenable to execution.Footnote ¹⁴ In addition, the claimant is required to give a cross-undertaking in damages to the court so as to cater for certain losses that may arise as a result of the injunction. As a further safeguard, the claimant has a duty of full and frank disclosure to the court on an ex parte application for relief. If the preceding requirements are satisfied, the court may grant an injunction if, in the view of the court, it is ‘just and convenient’ to do so.Footnote ¹⁵ It can be seen from this brief summary that the requirements for obtaining a freezing injunction are materially different to the requirements applicable to other types of injunctive relief. The latter commonly involve balancing the prejudice that would be caused by the injunction in accordance with the approach prescribed by American Cyanamid Co. v. Ethicon Ltd.Footnote ¹⁶

1.3 The Key Elements of the Traditional View of Freezing Injunctions

The vast majority of academic literature and court decisions directly or indirectly adopt the view that freezing injunctions, whether domestic, worldwide, pre-judgment or post-judgment, have stood the test of time and are so frequently used in commercial litigation that there is no need for any serious concern about their scope, let alone to identify and question the legitimacy of the justifications for their existence. The term ‘scope’ is here being used to refer to what I would see as two aspects of the scope of freezing injunctions: first, the substantive circumstances in which a freezing injunction is available, such as its availability in support of both proprietary and non-proprietary claims (this will be referred to as the ‘substantive scope’ of freezing injunctions); and second, the availability of a freezing injunction in cases involving one or more foreign elements, such as the use of freezing injunctions to restrain a foreign defendant from dissipating any assets located abroad (hereinafter the ‘international scope’). Furthermore, according to the widely held view, the freezing injunction is and has been in perfectly good working order and therefore no serious questions should be asked about issues such as their fairness to defendants. Indeed, it is not difficult to understand that there is no need to fix something that, at least on the face of it, does not appear to cause any injustice to defendants and is clearly a popular weapon with claimants. The courts and the commentators have been keen to increase the options at the disposal of the claimant by expanding the substantive and international scope of injunctions – one of the examples being the development and gradual expansion of so-called Chabra injunctions, including their use in cases involving foreign elements.Footnote ¹⁷ One of the driving forces behind this desire to expand the scope of freezing injunctions is the excessive emphasis on a claimant-orientated view of the purpose of freezing injunctions. Part of this claimant-orientated view is the perception that a freezing injunction is simply a weapon against unscrupulous defendants and that the courts should assist claimants in removing any obstacles to the enforcement of judgments. Perhaps the only notable expressions of concern in the courts have related to the adequacy of protection for third parties from the effects of worldwide freezing injunctions.Footnote ¹⁸ Particularly noticeable is the low frequency of judicial assessments of the compatibility of worldwide freezing injunctions with the principle of comity, especially when compared to the volume of debate and criticism of anti-suit injunctions on the same ground.Footnote ¹⁹ The absence of concerns about comity is justified in simple terms: freezing injunctions are not regarded as extraterritorial because they operate in personam, and therefore, under the traditional view, there is no doubt whatsoever that English courts can grant freezing injunctions in respect of assets located abroad,Footnote ²⁰ including in cases involving injunctions collateral to foreign substantive proceedings.Footnote ²¹ The power to grant freezing injunctions in respect of assets located abroad is treated as ‘black-letter law’: its existence is accepted without questioning it at all. For the same reasons, worldwide freezing injunctions are not regarded as interfering with the sovereignty of foreign states.

1.4 Challenging the Existing Scope of Freezing Injunctions

I will challenge the current substantive and international scope of freezing injunctions by demonstrating that the key elements of the traditional view are theoretically flawed. I will seek to show that instead of focusing their energy on removing every possible obstacle to enforcement, the courts should take a different perspective by recognising that the principle of equipage equality is the underlying foundation of freezing injunctions.Footnote ²² The principle of equipage equality is concerned with ensuring a level playing field in litigation. My primary concern is that the existing scope of freezing injunctions is excessively claimant-friendly and inconsistent with the need for a level playing field in litigation (whether domestic or international). Through the use of freezing injunctions, claimants can easily take advantage of financially vulnerable defendants by inflating the costs of litigation at an early stage of the proceedings. For this reason, it is crucial to impose restrictions on the existing scope of this relief to prevent potential unfairness to defendants. I will argue that the current substantive preconditions are inconsistent with equipage equality for several reasons.Footnote ²³ For example, claimants can exploit the uncertainty in this field: the application of the preconditions to the facts of a given case is often difficult to predict and the preconditions are open to different interpretations. As for the international scope of freezing injunctions, I will argue that the current jurisdictional preconditions for freezing injunctions are incompatible with the functions of the rules of jurisdiction in private international law.Footnote ²⁴ The root of this problem is that the current jurisdictional preconditions are based on a narrow view that principles of public international law do not have any impact on the limits of jurisdiction in civil litigation. The courts need to reconsider the international scope of freezing injunctions by taking into account the international systemic perspective on the purpose of private international law rules. The latter perspective requires a multilateral and horizontal approach to the existence of jurisdiction as opposed to the unilateral and vertical approach under the current regime.Footnote ²⁵ Restrictions on the international scope of freezing injunctions are urgently required in order to ensure a level playing field in international litigation.Footnote ²⁶ Under the current jurisdictional preconditions, financially strong claimants are able to make multiple applications for freezing injunctions in respect of the same assets. Moreover, another aspect of potential unfairness to defendants is that the current jurisdictional preconditions lead to the increased risk of wrongfully granted injunctions.Footnote ²⁷

1.5 An Overview of Concerns about the Substantive Scope of the Current Regime

Due to the importance of the topic of this book for parties to international commercial transactions and their legal advisers, hypothetical examples will be used to highlight a number of elements of the current English legal framework for freezing injunctions that generate concerns. It should become apparent that this area of the law is worth exploring in more detail.

A concern common to all three of these examples is that it is not immediately apparent why the claimant should be allowed to apply for and obtain any asset preservation relief at all without a prior judgment against the defendant. Before the issue of proceedings, a claimant may have no more than mere allegations against a defendant. The strength of the allegations may not become apparent until a much later stage (e.g. after disclosure) or, in some cases, until the actual trial. In the light of these challenges facing the court in assessing the strength of the claimant’s case, it may be possible to argue that it is inappropriate for any court to grant a freezing injunction before judgment. These challenges are evident from Example 1, where the defendant was successful at trial even though the claimant managed to show a good arguable case at the time of the application for a freezing injunction. In other areas of the law involving questions of private international law, the standard of a good arguable case has proved problematic and subject to academic criticism.Footnote ²⁸ The uncertainty surrounding the application of the standard of a good arguable case is partly due to the constraints of the interlocutory process. As freezing order applications are most commonly dealt with at the interlocutory stage, similar uncertainties with the good arguable case test are possible. As explained by the Court of Appeal in Derby v. Weldon:

With regard to Example 2, should the legal basis of the substantive claim against the defendant matter for the purposes of a freezing injunction? It can be seen from Example 2 that the court had greater willingness to grant a freezing injunction in support of the proprietary claim. Where the substantive claim is for damages for breach of contract, one may feel that the claimant had made a bad bargain and that equity should not intervene by allowing the claimant to obtain a freezing injunction at all. One of the ways the claimant could have gained protection and avoided the need for an injunction would have been to negotiate a guarantee from a third party. It is very common to see references to guarantees in charterparty disputes before the Commercial Court.Footnote ³⁰ It should be noted that both MarevaFootnote ³¹ and Karageorgis,Footnote ³² the two cases credited with the creation of the modern-day freezing injunction, involved disputes between the shipowners and charterers about unpaid hire. Alternatively, one may take a modest view that the claimant should not be able to obtain a freezing injunction in support of a non-proprietary claim as easily as in support of a proprietary claim.

With regard to Example 3, what is the justification for the seemingly uncontroversial actions of the defendant being stigmatised as evidence of a real risk of dissipation of the assets? What was unjust about the defendant’s conduct? Does the requirement of a real risk of dissipation under English law strike the right balance between the interests of the parties? In my view, the term ‘dissipation’ has a negative connotation and it suggests that the defendant had an intention to make himself judgment proof by hiding or wasting the assets. Consequently, there is a concern that the courts are taking a claimant-friendly interpretation of the threshold relating to the conduct of the defendant.

All of these concerns relate to the substantive scope of freezing injunctions. These will be addressed in detail in Chapter 3. In order to assess whether the current rules strike a just balance between the interests of claimants and defendants, it will be necessary to examine the theoretical foundations of the rules, which requires an understanding of their historical foundations.

1.6 An Overview of Concerns about the International Scope of Freezing Injunctions

The other set of concerns are related to the international scope of freezing injunctions. These will be examined in detail in Chapter 5 of the book. Let us start with a hypothetical case. The context is an international sale of goods on cost, insurance, and freight (CIF) terms. A dispute has arisen between the Japanese seller and the Russian buyer. The buyer is refusing to pay for the goods on the basis that the bill of lading is allegedly inconsistent with the requirements stipulated in the sale contract. The buyer’s main asset is a bank account at the New York branch of an English bank. The bank account is governed by New York law. The buyer has no assets in England. Both the sale contract and the bill of lading are governed by English law. The seller is contemplating launching substantive proceedings in the Commercial Court in London. In the New York District Court, the seller’s application for pre-judgment attachment is unsuccessful because of the failure to demonstrate intention to defraud. Nevertheless, the seller subsequently obtains an ex parte, pre-judgment worldwide freezing injunction from the English court. The seller notifies the bank’s head office in London and its New York branch.

Several related concerns emerge from the hypothetical case. While thinking about the private international law aspects of the hypothetical example, we need to keep in mind the dangers associated with any freezing order: the claimant’s ability to obtain the ex parte order from the English court is a powerful tactical device which may force the defendant to give security or settle on an unfavourable basis. In Mobil Cerro Negro v. PDV,Footnote ³³ there was insufficient connection with England but the claimant was able to obtain an ex parte freezing order. While the order was later discharged, the article from Reuters about the freezing order,Footnote ³⁴ which preceded the inter parte hearing, could have caused damage to the reputation of the defendant. It could also have encouraged similar applications from third parties in a similar position to that of the claimant as a result of the expropriation of assets in Venezuela.

There is an issue as to whether the application of the English common law jurisdiction rules in the context of injunctive relief is unfair to defendants in that there is no mechanism to stop the claimant from the outset from relitigating an issue that had already been considered by a foreign court. Such relitigation could be regarded as abusive forum shopping.Footnote ³⁵ Should the claimant have the opportunity to make several applications for interim relief in relation to a single asset? There are different requirements for obtaining interim relief in England and New York. Should claimants be free to pick and choose whichever procedural rules offer them the most favourable substantive preconditions for obtaining a freezing injunction or equivalent form of protection? For these reasons, it may be possible to argue that the claimant’s ability to invoke the jurisdiction of the English court in relation to interim relief is in itself unfair to the defendant. While one may point out that there is an opportunity for the defendant to discharge the injunction at the inter parte hearing, it is not clear whether this opportunity provides adequate protection for the defendant. The defendant would inevitably incur legal costs in order to discharge the injunction and, if successful, might not be able to recover those costs on an indemnity basis.

Apart from unfairness to the defendant, there is a concern in the hypothetical example about the interests of foreign states. Is the English court illegitimately interfering with New York’s sovereignty? The question for the court in our hypothetical case is whether a Russian defendant should be restrained from exercising their contractual rights under a bank account governed by New York law. Is this a question which the English court should be adjudicating upon simply because the substantive dispute over the sale contract is governed by English law? The available ground of jurisdiction (or ‘gateway’) for service of the claim form out of the jurisdiction would be that English law is the governing law of the sale contract.Footnote ³⁶ If so, the consequence is concurrent jurisdiction and a possible conflict of procedural laws: under New York law, the defendant is lawfully and freely allowed to deal with their asset whereas under English law any such dealing would amount to contempt of court. Thus, by granting a worldwide freezing injunction, the English court could be seen as encroaching upon what should be New York law’s exclusive regulation of the defendant’s rights acquired under New York law. This brings us to a further concern that the English court is indirectly regulating the conduct of a third-party bank operating outside the court’s territorial jurisdiction. For this reason, in a number of cases, the English courts have introduced provisos to the standard form of freezing order to protect third parties. The concern, however, is whether the current provisos ensure sufficient protection.

As Rogerson has explained,

There is no doubt that the ability to obtain a worldwide freezing order from the English court is a substantial benefit to the claimant. As for anticipation, putting aside our legal spectacles for a moment, it is perhaps difficult to see how a commercial party (in our example the Russian buyer) would be able to anticipate that an application before the English court could have serious implications on its dealings with its assets located abroad. With regard to the issue of whether there is a real and substantial connection with the forum, the concerns noted arise from a failure of the courts to make a distinction between the following two questions. First, does the court have a real and substantial connection with the substantive claim? Second, does the court have a real and substantial connection with the application for injunctive relief?

1.7 The Link between the Substantive Scope and the International Scope

What is the link between the substantive scope of freezing injunctions and their international scope? It would not be possible to exercise a fully informed judgment on the international scope of freezing injunctions without first having a close look at the historical and theoretical foundations, including their functions. In private international law it is not unusual to have a close relationship between the policies and functions which underpin the rules of substantive or procedural law and their territorial scope in disputes with a foreign element. This is not surprising given the ‘private’ element of private international law. It will be seen from my analysis of the historical foundations of freezing injunctions that there are a number of different types or categories of such injunctions. Given that the international scope of freezing injunctions may be influenced by their functions,Footnote ³⁸ a complete understanding of the key characteristics of each category of these orders constitutes an essential foundation for determining their proper international boundaries. Furthermore, the need to explain and analyse the equitable characteristics of freezing injunctions arises from the fact that their equitable nature (in particular, what appears to be the in personam nature of such orders) has been used by the courts as a justification for extending their substantive and international scope because of the inherent flexibility of equity.

1.8 The Objectives of the Book and the Proposals for Reform

The primary objective of this book is to re-examine the current position and determine the appropriate international scope of freezing injunctions. The secondary objective is to lay down the foundations for assessing the legitimacy of the current international scope of freezing injunctions by gaining a deeper understanding of their theoretical foundations. The common denominator of assessing the scope of freezing injunctions (whether substantive or international) is to determine if the current balance of rights (and the distribution of freedom) between the claimant and the defendant is satisfactory. I will take the view that the current balance does not achieve a level playing field. Consequently, my objective will be to provide a range of possible solutions or proposals with the aim of strengthening the equality of the parties in this area of the law. All of the proposals will involve imposing restrictions on the current scope of freezing injunctions. The cornerstone of the proposals will be the argument that freezing injunctions are quasi-proprietary and indirectly interfere with property rights. Under my ‘bold’ proposal, there would be an international instrument stipulating that the courts of the country where the assets are located have exclusive jurisdiction to grant a freezing injunction.Footnote ³⁹ As an alternative to the bold proposal, two ‘modest’ solutions will be proposed. In a nutshell, the first modest proposal would involve recognising a mandatory requirement to establish jurisdiction over the assets (in addition to the current requirement for personal jurisdiction over the defendant). The second and alternative proposal would restrict the scope of freezing injunctions under the umbrella of the discretionary stage: the courts would have to consider the most appropriate forum and this would normally be the one where the assets are located. However, the English courts would have a limited discretion to grant an injunction in respect of assets located abroad in exceptional circumstances. The modest proposals rely on the courts broadly drawing upon several existing cases where concerns have been expressed about interference with the sovereignty of the foreign courts. These will include cases involving a wide variety of court orders (e.g. third-party debt orders) but also some freezing injunction cases. The principles of comity and expediency would be redundant under all of the proposals.