Court of Appeal clarifies merits threshold in freezing injunctions
In a recent claimant-friendly decision, the Court of Appeal determined that the proper interpretation of a “good arguable case” under the merits threshold for a freezing injunction is “whether there is a serious issue to be tried”. This significant case, Dos Santos v Unitel SA [2024] EWCA Civ 1109, provides clarity for applicants going forward on the relevant threshold they are required to meet to satisfy that limb of the test, and seeks to align this with the threshold of other interim injunctions.
Background
The dispute determined in Dos Santos v Unitel SA arose out of a worldwide freezing order application. Unitel SA sought the freezing injunction in its underlying claim against Unitel International Holdings BV (the first defendant) and Ms Dos Santos (the second defendant, who owns and controls the first defendant). The underlying claim relates to a series of loans and interest payments which the defendants in those proceedings had allegedly stopped repaying.
High Court decision
In the High Court it was common ground between the parties that the test for granting a freezing order is:
- a good arguable case on the merits
- a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets; and
- that it would be just and convenient in all the circumstances to grant the freezing order
Much of the discussion in the High Court proceedings centred on the meaning of “good arguable case”. The Court ultimately then granted the freezing order, alongside an order that the costs of the application be paid by Ms Dos Santos with a payment on account. Ms Dos Santos then appealed to the Court of Appeal.
Court of Appeal decision
Good arguable case
In the Court of Appeal Ms Dos Santos sought to argue that “good arguable case” meant courts had to determine which party had the “better of the argument”, in line with the interpretation of “good arguable case” in jurisdictional gateway caselaw. However, the respondent (Unitel SA) argued that the correct threshold is proving the case is “one which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success”.
The Court of Appeal held unanimously in favour of the respondent. In reaching the decision, Sir Julian Flaux highlighted that the merits of the underlying claim will be determined at trial, which can be distinguished from the purpose of the merits test for the jurisdictional gateway cases (which is applied to determine whether there is a plausible evidential basis for whether the relevant gateway applies, and thus service out of the jurisdiction permitted, and which is not revisited at trial). It would accordingly be “invidious” for courts to have to determine at such an early stage which party had the better of the argument in such cases. He also noted that the weight of authority supports this approach.
Lord Justice Popplewell added that the merits test for a freezing order should be the same as an interim injunction: whether there is a serious issue to be tried.
He noted that ultimately, there is no perceptible distinction between “good arguable case” and “serious issue to be tried”. The expression “good arguable case” should now be restricted to cases concerning jurisdictional gateway issues.
In accepting that a freezing injunction is an invasive order to grant, the Court of Appeal reminded parties that the merits threshold limb does not operate in isolation, highlighting the requirement that the applicant satisfies the other two limbs of the test. The Court also highlighted the potential for safeguards to be built into the order alongside a cross-undertaking in damages.
Costs
In addition, Ms Dos Santos appealed the costs order made against her, arguing that the ordinary cost order for an interim injunction is costs reserved. The Court of Appeal dismissed this argument stating that: “a party who contests an application and fights it tooth and nail on every point, thereby causing the successful party to incur costs which would not otherwise be incurred, should be ordered to pay the successful party’s costs at the conclusion of the application”. The Court confirmed that it was not usual practice for judges to defer the costs of contested applications to trial.
Comment
This is an important decision, providing clarity on an area of law which has seen some divergence in recent years, as remarked upon in the judgment.
The decision is particularly welcome for claimants, because it ensures that parties are not distracted with preparing for “mini-trials” midway through a case, in order to prove they have a better case than the other. This in turn ensures costs for freezing order applications do not escalate and will prevent such cases being unduly burdensome in terms of court resources.
Going forward, applicants seeking a freezing order should now consider “whether there is a serious issue to be tried”. It is now clear that claimants applying for freezing injunctions are not required to show that they are more likely than not to succeed in their case at trial.