Freezing injunctions – what is meant by a real risk of dissipation?
In the recent case of Les Ambassadeurs Club Limited v Mr Songbo Yu  EWCA Civ 1310, the Court of Appeal sided with the High Court in its refusal to grant a post-judgment freezing injunction. The case provides a useful overview of what is meant by “a real risk of dissipation” which is an element that must be established before a freezing order is made.
The appeal was brought by a company operating a casino in London against a billionaire member. In 2018, the member purchased £19 million worth of chips from the casino, using a series of subsequently dishonoured cheques. In November 2018, the parties entered into a settlement agreement under which the member agreed to pay £16.54 million in instalments. However, the member failed to meet the first instalment, and as a result the full amount became due and payable immediately. By December 2019, the member had made numerous payments to the casino, reducing the outstanding amount to £6.54 million. After obtaining summary judgment and without any effective communication for a significant period, the casino applied for a post-judgment worldwide freezing order.
High Court decision
The High Court refused to grant the freezing injunction. There were four key requirements which an applicant for a freezing order must show, which were: (1) a good arguable case on the merits; (2) a real risk of dissipation; (3) assets held by or on behalf of the respondent within the (geographical) scope of the proposed injunction; and (4) that in all the circumstances it is just and convenient to grant the order sought.
The High Court emphasised that the crux of the matter was whether there was a real risk of dissipation of the assets. Based on the evidence provided, when considering all the features cumulatively, the High Court was not convinced that a real risk of dissipation had been established. There merely existed a suspicion or fear that there was a risk that the member would dissipate assets.
The casino appealed, alleging that (1) the Judge had misinterpreted the term “real risk of dissipation” by raising the evidential threshold too high, with the term to be interpreted as meaning a risk which was “more than fanciful”; and (2) the term “real risk of dissipation” had been wrongly applied to the facts of the case.
Court of Appeal decision
The Court of Appeal unanimously agreed on both grounds with the views expressed in the High Court, emphasising that such a “nuclear remedy” should not become commonplace. As a result, a freezing injunction will only be available where a “defendant is so determined not to pay that he would take active steps to frustrate the recovery of sums due to his creditors by transferring or concealing assets or by some other form of unjustified dissipation.”
According to the Court of Appeal, the term “real risk of dissipation” should not be equated with “likely”, “more likely than not” or more than merely “fanciful”, as contended by the appellant. The test is a simple binary threshold to be applied by the court. The focus should be on whether, on the facts and circumstances of the particular case, the evidence before the court objectively demonstrates a risk of unjustified dissipation which is sufficient in all the circumstances to make it just and convenient to grant a freezing injunction. Plainly a risk which is theoretical, fanciful or insignificant will not meet that threshold; but the court must be satisfied that the alleged risk is real, and that does not require any comparative exercise to be carried out.
On the application of the test, there was a lack of cogent evidence to objectively demonstrate that the risk of dissipation was a real one, and that it would therefore be convenient to grant a freezing injunction.
The judgment in this case has stripped back the English court’s approach to risk of dissipation, refocussing more narrowly on the binary “real risk” test. Whilst this may appear to have nudged up the bar, the threshold for demonstrating real risk has always been set relatively high and this case is a useful reminder of how the courts will approach such applications. The applicant was not represented before either the High Court or Court of Appeal, who nevertheless both ruled in his favour, showing the scrutiny which the courts apply to applications for freezing injunctions. However, going forward, the English courts will remain willing to issue freezing injunctions to block parties who plan to frustrate enforcement of a court judgment or arbitral award, provided sufficient evidence is on the table in relation to risk of dissipation.