Too cold?

Freezing (or Mareva) injunctions have long been an important tool in preserving assets to prevent an unscrupulous defendant from dissipation or disposal to prevent enforcement of a judgment.
By their very nature, however, they can have a severe effect on the person whose assets are frozen. Accordingly, over the years, a set of procedural requirements have been developed which an applicant claimant must satisfy if a freezing injunction is to be both obtained and upheld.
The recent House of Lords decision in Fourie v Le Roux [2007] UKHL 1 has reaffirmed the importance attached by the courts to strict adherence of the procedural requirements.

Facts of Fourie

Mr Fourie, the liquidator of two South African companies (SACos), applied to Park J on a 'without notice' for an injunction to freeze the assets of a Mr Le Roux (LR) and of a company owned and controlled by him, Fintrade Investments Ltd (Fintrade). LR was the majority shareholder of SACos of which he had been in control when they had gone into liquidation. Fourie had formed the view that LR and Fintrade had asset-stripped SACos, moving the assets to England.

Park J granted the freezing injunction against LR and Fintrade to the value of £3.4m on 9 July 2004. On 28 July 2004, LR and Fintrade applied for the injunction to be set aside on the grounds that, at the time when it was made, no substantive proceedings to which the freezing injunction could be ancillary had been issued and nor had Fourie given the usual undertaking to the court to commence such proceedings within a short space of time.

On 30 September 2004, Deputy Judge Jarvis QC discharged the freezing injunction for the reasons advanced byLRï'žµand Fintrade. He ordered Fourie to pay costs on an indemnity basis and gave directions for the immediate enforcement of the cross-undertaking in damages that Fourie had given. Fourie failed on appeal (on all three points) before the Court of Appeal on 7 March 2005 and the matter went before the House of Lords.

Before looking at the House of Lords' decision, two further factual points should be mentioned. Firstly, Fourie had commenced proceedings against LR in South Africa prior to his application for the English freezing injunction. During the course of those South African proceedings, one judge was moved to comment that the allegations made against LR were supported by irrefutable evidence of serious fraud. Secondly, after the discharge of the original freezing injunction on 30 September 2004, Fourie made a second application to Deputy Judge Jarvis QC later the same day, supported by a claim form and an undertaking to issue the same and serve particulars of claim within seven days. A second freezing injunction was duly granted, albeit for a lesser amount.

Discharge of the original freezing injunction

In giving the leading judgment in Fourie, Lord Scott reiterated the oft-recognised fact that a freezing injunction is a 'draconian remedy' and that 'the strict rules relating to full disclosure by the claimant are a recognition of the nature of the remedy and its potential for causing injustice to the defendant'. Indeed, every member of the panel expressly agreed that it was important for the developed procedural requirements to obtain a freezing injunction to be honoured as safeguards for the defendant.

After finding that no claim for substantive relief had been formulated and put before Park J, Lord Scott found 'it very difficult to visualise a case where the grant of a freezing order, made without notice, could be said to be properly made in the absence of any formulation of the case for substantive relief that the applicant for the order intended to institute'. Accordingly, he considered that 'the protection for the defendant that ought to be associated with the grant of a 'without notice' freezing order was absent. The protection ought to include directions about the institution of proceedings for substantive relief'.

The House of Lords therefore dismissed Fourie's appeal and upheld the decision to discharge the original injunction. It is noteworthy that the Lords reached this decision even though, within a matter of hours, a second freezing injunction had been granted against LR and Fintrade. Indeed, Lords Scott and Carswell both voiced their unease about the discharge of the original freezing injunction in circumstances where a second application was made shortly after, supported by a draft claim form. Carswell LJ referred to there being a 'considerable air of artificiality' about the situation and stated at one point that he was attracted to the idea that, in order to avoid injustice, it was desirable to decline to apply the requirement for subsisting proceedings to which a freezing injunction could be ancillary. It is a measure of the importance attached by their Lordships to the safeguards that, as Carswell LJ said, he was persuaded that the discharge of the freezing injunction was correct because it had, strictly speaking, been wrongly made in the circumstances. Scott LJ described it
as follows:

'At the time of the hearing before Park J, the nature of the proceedings in aid of the freezing order was being sought was unformulated and inchoate. The judge knew that the proceedings, whatever they might turn out to be, would result from and based on the alleged fraud and breach of fiduciary duty of Mr Le Roux. Everything else about the proceedings was in the air.'

Indemnity costs

The House of Lords also considered Fourie's appeal against an order for indemnity costs made by Deputy Judge Jarvis QC. Although the majority (Bingham LJ not commenting on the point) questioned the award of indemnity costs in that they could not readily discern that Fourie's conduct had, in some way, been unreasonable (Reid Minty v Taylor [2001] EWCA Civ 1723), they held (Lord Hope dissenting) that the indemnity costs order should stand as the matter was for the discretion of the first instance judge, with the Court of Appeal available to correct any obvious errors of discretion.

While Fourie's conduct may not have been seen as unreasonable, the point was noted by Deputy Judge Jarvis QC that 'when [a freezing] order is granted on a wrong basis which could have been avoided'¦ indemnity costs'. This judgment demonstrated his contemporaneous thinking in making the costs order. While Scott LJ found it difficult to identify why the procedural deficiencies of the application warranted an indemnity costs order, he declined to interfere with the first instance judge's discretion. In this regard, Bingham LJ referred to what he saw as the 'clear neglect of procedure'.

Cross-undertaking in damages

One final issue of significance that was addressed in the judgment concerned Deputy Judge Jarvis QC's direction as to the immediate enforcement of Fourie's cross-undertaking for damages. Scott LJ held that, where, as in this case, the freezing injunction related to assets
(or their monetary worth) allegedly acquired by fraudulent means and where such allegations were at least reasonably arguable (and being actively pursued), it was wrong for there to be an immediate enforcement of the cross-undertaking. Instead he found that a decision as to LR's losses caused by the injunction between the date when it was granted and the date of discharge should be postponed until the outcome of the ultimate litigation was known.

It is often said that it is easy to obtain injunctive relief but harder to hold onto it. Fourie v Le Roux is then a reminder to practitioners of the crucial importance of meeting all procedural requirements for an application for injunctive relief in advance of making the application. Their Lordships were evidently troubled to an extent by having to uphold the lower courts' findings in this instance where the shortcomings were swiftly corrected, but nonetheless concluded overall that the greater good was served by preserving the sanctity of the safeguards and were unable to interfere with the finding at first instance as to indemnity costs.