Breaking News – Worldwide Asset Freezing Order (WFO) Application Successfully Resisted: THE New Legal Test

Our Insolvency Litigation specialists succeed in resisting a £6.3 million WFO application

The NDP Insolvency Litigation Team have during October 2021 successfully opposed an application for a £6.3 million WFO against our client, brought by a Litigation Funding Company (‘the Funder’).  The Funder had purchased the claims now pursued by it, against our client, from the Liquidator of the company of which our client had been the controlling Director. The Funder was very well resourced.

On the face of it, the Funder held all the cards.  In achieving this great outcome for our client, reliance was placed not only on a forensic and detailed analysis of the facts of the case, but also on the very recent and important changes to the applicable law in this specialist area of work.

Background to this Insolvency Litigation case

NDP’s route to the case was via another Solicitor, who recommended our Solicitors specialising in insolvency law claims from Liquidators and in dealing with WFO claims both for Claimants (such as the Funder) and also (as here) for Respondents to such applications.  The underlying High Court claim issued by the Funder against NDP’s client, sought repayment to the Funder of an eye-watering £6.3m. A life changing claim for our client to deal with.

WFO application against NDP’s Client

Having issued the High Court claim and by doing so, then further raising the stakes, the Funder then made an application to the High Court for a WFO, seeking an Order from the High Court that our client’s assets, worldwide, be frozen to the tune of £6.3m, such Order if made to last until Trial/final hearing in this case – probably 18 months away.

What to do?

That WFO application was whole-heartedly opposed by our client employing NDP and an experienced Insolvency Barrister.  The WFO application was heard and determined by the Court over 2 days in October 2021. We had to move fast as we had only 5 working days from receiving the WFO application, to prepare and respond by detailed written evidence to it.

The outcome – The Court dismissed the WFO application

The application for the WFO, after a day and a half of argument in Court, was dismissed by the Court.  The Funder was also ordered to pay our client’s legal costs incurred in successfully opposing the WFO application. An outstanding result for our client.

The WFO application was, unusually for a WFO application, heard ‘on notice’ to our client as the Respondent to the application.  The first that the Respondent usually hears about a WFO made against him/her, is when the WFO as granted, is served on him/her, together with 12 inches  of supporting paperwork.

On the facts of this case, NDP’s client had the opportunity to be heard on the WFO application, for reasons beyond the scope of this article.  We had pushed for that to happen. It proved crucial.

The effect and consequences of a WFO

Freezing Orders have historically been (accurately) described as the ‘nuclear weapon in the Claimant’s armoury’. If granted, a WFO can and does have a dramatic effect on the targeted person’s life, their ability to trade and may cause enormous reputational damage. Notice of the granting of a Freezing Order is invariably given by the Claimant to the target’s Bankers, for example.

In this case

The well-resourced Funder employed a national firm of Solicitors to pursue its case. They did so aggressively and persistently.  On NDP receiving notice of the WFO application by the Funder, there were only 5 working days for NDP to consider the detailed written evidence relied on by the Funder in support of the Application, to take detailed instructions on the Funder’s written evidence and discuss strategy and tactics with the client and his Counsel.

Written evidence in answer had to be prepared in response to the WFO application.  That proved a significant task.  Attention to detail is everything in such matters.  We and the client had to instruct and meet with Counsel ahead of the hearing and then attend the hearing itself.   It was a frantic week.   There was a huge amount to do.   There were lots of late nights and early mornings, to get the job done.

Four members of the NDP Team, led by Neil Davies and supported by Solicitor Thomas Riley, Solicitor Suky Mann and Paralegal Chloe Collins, represented the client.

Martin Budworth of Counsel was retained. He (as ever) morphed into and became a seamless part of the client’s Defence Legal Team.

Change in the Law

The Funder had to leap 2 legal hurdles if it was to persuade the High Court Judge to grant the WFO, as follows:

  1. It had to try and demonstrate a good legal case, ‘A stronger case must be shown than would justify relief of a less stringent kind’. On the facts of this case, the Claimant Funder was unable to satisfy the Court of that matter, on significant parts of its claim.
  2. Evidence had to be adduced by the Funder, that our client intended to ‘unjustly dissipate his assets’. Again, the Court decided that the Funder was unable to satisfy the Court that such a risk existed on the facts of this case.   The recent Court of Appeal decision in Les Ambassadeurs Club Ltd v Yu [2021] EWCA Civ 1310 has raised the evidential threshold that a Claimant such as this Funder must meet to satisfy this legal test.

The decision of the Court of Appeal in that case included the following statements, which are a timely reminder of some basic principles:

‘(a)     A freezing injunction “is not intended as a safeguard against insolvency, nor as a means of providing security for a claim, however strong that claim may be and however large a sum of money may be involved”.

(b)       In view of the drastic interference with a person’s right to do as they please with their own property that a freezing injunction entails, (quite apart from the reputational damage that it may cause), the courts must remain vigilant to ensure that such orders will only be granted in cases in which the evidence suffices to establish that there is a real risk of the judgment going unsatisfied by reason of what Gloster LJ in Holyoake v Candy [2017] EWCA Civ92, [2018] Ch.331 (“Holyoake”) elegantly termed “unjustified dissipation,” and where it is just and convenient to make the order.”

(c)      In order to avoid the undesirable situation in which, as Gloster LJ put it in Holyoake at [58] “the nuclear remedy of a freezing order would become a commonplace threat”, there must be cogent evidence from which it can at least be inferred that” the defendant falls into the category of those so determined not to pay that they would take active steps to frustrate the recovery of sums due. (The Funders) ruminations do not put (NDP’s client) in that category at all (and certainly not by cogent evidence).’

Outcome

The Funder failed (in part) to demonstrate point 1 (‘a strong legal case’) on the largest part of its overall claim and failed miserably on the second hurdle (evidence of ‘unjustified dissipation’).

The decision to oppose the WFO application

This decision was not made lightly by the client.  Factors influencing the decision included:

  • The significant legal cost of opposing the WFO application.
  • The adverse costs consequences for the client of failing in that opposition. He was likely to be ordered to pay the Funder’s legal costs, if his opposition to the WFO failed.
  • The evidential strength of the Funder’s application for a WFO and the prospects of successfully opposing it.
  • The wider legal strategy of the case.

The decision (to oppose or not to oppose) had to made quickly.  Time limits were short.

The Legal Team had to come together and we, Counsel and the client had to commit dozens of hours of time, in a short-time period, to prepare for the WFO hearing.  That was done.

NDP’s take on the case

NDP Solicitor, Director and Insolvency Litigation specialist, Neil Davies commented:

“This was a great outcome for the client. Had the WFO been granted with the above consequences, our client would likely have had to swear an Affidavit and disclose to the Court and the Funder all of his assets, their location and their values.  That would have been highly advantageous to the Funder as Claimant. It is long established by the Court, that such a potential benefit should not be used as the reason to bring such a WFO claim.”

Conclusion

Our Insolvency Litigation team is highly experienced and expert in this area of law. Understanding the facts of the case, working out a defence and a strategy and doing so quickly and thoroughly are the key to a successful outcome, as was the case here.

Contact us or call us on 0121 200 7040.

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