01 June 2006

Fraud and trust litigation news - summer: World freezing orders — new guidelines

Dadourian Group International Inc (Respondents) v. Simms & Others (Appellants) [2006] EWCA Civ. 399, Court of Appeal (Civil Division), (Ward, Arden and Moore-Bick LJJ)

The facts of the case

The case arose out of an international arbitration in which the Appellants had been ordered to pay $4.5 million to the Respondents.  The latter's claim had included allegations of breach of contract and fraudulent misrepresentation.  At the time of the hearing in the Court of Appeal, no part of the arbitral award had been paid to the Respondents.  In order to enforce this award, the Respondents had previously obtained a World Freezing Order (‘WFO') against the Appellants.  They had done so to prevent the Appellants from dissipating their assets so as to defeat any judgment that might be obtained in support of the arbitral award.  Where a WFO is obtained, it is usual in England for the parties obtaining the benefit of such an order to give an undertaking not to seek to enforce the order in another jurisdiction without first obtaining the permission of the English Court.  This is what happened here.  The Respondents applied to enforce the WFO in Switzerland.  However the Appellants sought in the lower court to discharge the order giving that permission.  The High Court held that the order ought not to be set aside if it could be shown that there was a reasonable prospect of assets in Switzerland.

The Appellants appealed to the Court of Appeal basing their appeal on the submission that a Court should not give permission to enforce a WFO overseas if the party alleged to hold the assets could be brought before the English Court. 

The decision

In dismissing the appeal and holding that the High Court had been right to make the order permitting the enforcement of the WFO in Switzerland, Arden LJ, giving the judgment of the Court, laid down eight guidelines for dealing with such applications which will be henceforth known as the “Dadourian” guidelines:

  • The principle applying to the grant of permission to enforce a WFO abroad is that the grant of that permission should be just and convenient for the purpose of ensuring the effectiveness of the WFO, and in addition that it is not oppressive to the parties to the English proceedings or to third parties who may be joined to the foreign proceedings. 
  • All the relevant circumstances and options need to be considered.  In particular, consideration should be given to granting relief on terms, for example, terms as to the extension to third parties of the undertaking to compensate for costs incurred as a result of the WFO and as to the type of proceedings that may be commenced abroad. Consideration should also be given to the proportionality of the steps proposed to be taken abroad, as well as the form of any order. 
  • The interests of the applicant should be balanced against the interests of the other parties to the proceedings and any new party likely to be joined to the foreign proceedings. 
  • Permission should not normally be given in terms that would enable the applicant to obtain relief in the foreign proceedings which is superior to the relief given by the WFO.
  • The evidence in support of the application for permission should contain all the information (so far as it can reasonably be obtained in the time available) necessary to enable the judge to reach an informed decision, including evidence as to the applicable law and practice in the foreign court, evidence as to the nature of the proposed proceedings to be commenced and evidence as to the assets believed to be located in the jurisdiction of the foreign court and the names of the parties by whom such assets are held. 
  • The standard of proof as to the existence of assets that are both within the WFO and within the jurisdiction of the foreign court is a real prospect, that is the applicant must show that there is a real prospect that the assets are located within the jurisdiction of the foreign court in question. 
  • There must be evidence of a risk of dissipation of the assets in question. 
  • Normally, the application should be made on notice to the respondent, but in cases of urgency, where it is just to do so, the permission may be given without notice to the party against whom relief will be sought in the foreign proceedings but that party should have the earliest practicable opportunity of having the matter reconsidered by the court at a hearing of which he is given notice. 

Points of interest

Ever since the Court of Appeal first held in Derby & Company v. Weldon (1990) Ch 48 that a freezing order could extend to assets outside the jurisdiction, it has been the practice for applicants seeking such orders to give an undertaking that they will not seek to enforce the order in another jurisdiction without first seeking the Court's permission.  This is the first time the Court has given guidance as to the principles applicable to the granting of permission to enforce overseas. 

It is important to remember however that these guidelines are subject to the Court's discretion and that flexibility remains the key.  The existence of the guidelines will not operate to exclude consideration of any other relevant fact or circumstance.  The guidelines will clearly impose additional costs on Claimants as in many cases expert evidence as to foreign law may be required.  One particular point to bear in mind is that the Claimants may wish to include in their initial application for a WFO, permission to enforce in particular countries so as to obviate the need for a subsequent application seeking such permission. 

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