Adjudication – Enforcement proceedings – Freezing order – Claimant obtaining interim freezing injunction in respect of ongoing adjudication enforcement proceedings – Claimant seeking to continue injunction until after determination of enforcement application – Whether claimant showing good arguable case – Whether claimant establishing risk of dissipation of defendant’s assets – Application granted
Between 2002 and 2020, the claimant and the respondent worked together on a number of projects, including the development of a care home, Beacon Hill Lodge, at Beacon Hill, Herne Bay, on which work started in about 2018.
A dispute arose between the parties concerning interim payments due to the defendant, and an adjudicator made an award in favour of the defendant. When the claimant failed to pay the sum awarded, the defendant commenced proceedings to enforce the adjudication award. Those proceedings were settled, pursuant to which the claimant paid the defendant the sum of £290,567.28.
The claimant subsequently issued a “true value” adjudication seeking repayment of £2,387,005 allegedly overpaid to the defendant. The adjudicator ordered the defendant to repay to the claimant £2,589,737.76, together with interest and the adjudicator’s fees.
The defendant failed to pay that sum and the claimant issued adjudication enforcement proceedings which were ongoing. The claimant discovered that there was evidence that many of the defendant’s assets had been removed from the company.
Accordingly, the claimant obtained an interim freezing injunction without notice in respect of the defendant’s assets in support of the enforcement proceedings: [2022] EWHC 1071 (TCC). On the return date, the claimant sought to continue the interim freezing injunction until after the determination of the adjudication enforcement application or further order.
Held: The application was granted.
(1) A court with equitable and/or statutory jurisdiction to grant injunctions, where it was just and convenient to do so, had power to grant a freezing injunction against a party over whom the court had personal jurisdiction provided that: (i) the applicant had already been granted or had a good arguable case for being granted a judgment or order for the payment of a sum of money that was enforceable through the process of the court; (ii) the respondent held assets (or was liable to take steps other than in the ordinary course of business which would reduce the value of assets) against which such a judgment could be enforced; and (iii) there was a real risk that, unless the injunction was granted, the respondent would deal with such assets (or take steps which made them less valuable) other than in the ordinary course of business with the result that the availability or value of those assets was impaired and the judgment was left unsatisfied: Broad Idea International Ltd v Convoy Collateral Ltd [2021] UKPC 24 applied.
(2) The claimant had to show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets by putting the assets out of reach of a judgment whether by concealment or transfer. The risk of dissipation had to be established by solid evidence, not mere inference or generalised assertion. The risk had to be established separately against each respondent. It was not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant had been guilty of dishonesty; it was necessary to scrutinise the evidence to see whether the dishonesty in question pointed to the conclusion that assets might be dissipated. It was also necessary to take account of whether there appeared at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.
The respondent’s former use of offshore structures was relevant but did not itself equate to a risk of dissipation. Businesses and individuals often used offshore structures as part of the normal and legitimate way in which they dealt with their assets. What had to be threatened was unjustified dissipation. The purpose of a freezing order was to restrain a defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business which would have the effect of making it judgment proof. If the defendant was not threatening to change the existing way of handling their assets, it would not be sufficient to show that such continued conduct would prejudice the claimant’s ability to enforce a judgment. That would be contrary to the purpose of the freezing order jurisdiction because it would require defendants to change their legitimate behaviour in order to provide preferential security for the claim which the claimant would not otherwise enjoy. Each case was fact specific and relevant factors had to be looked at cumulatively: Lakatamia Shipping Co Ltd v Toshiko Morimoto [2019] EWCA Civ 2203 applied.
(3) In the present case, the court was satisfied that the claimant had a good arguable case in relation to the substantive adjudication enforcement claim. The claimant had the benefit of a “true value” adjudication decision in its favour for a substantial sum. Generally, the court would enforce such adjudication decisions, even where it could be shown that there were errors of fact or procedure. The only defences that would usually succeed were a breach of the rules of natural justice or the absence of jurisdiction on the part of the adjudicator.
The court was not deciding the merits of the adjudication enforcement claim; it was defended and the court had not had the benefit of considering the evidence or hearing argument from both sides in respect of that claim. But the claimant did not have to satisfy the court that it would be entitled to summary judgment in order to show that it had a good arguable case. On the material and arguments before the court, the claimant had a good arguable case that it would succeed on its claim.
The test was an objective one of assessment of the risk that a judgment might not be satisfied because of a risk of an unjustified dealing with assets. The defendant had divested itself of a substantial value of assets, with the effect that there was a very real risk that it would be unable to satisfy any judgment against it. It had not sought to justify the dealings with its assets as part of an existing pattern of dealing or as part of its usual business. Therefore, such dissipation of assets was unjustified.
In all the circumstances, it was just and convenient to grant the relief sought and the freezing injunction would be continued until after the adjudication enforcement hearing.
Laurence Page (instructed by Thomson Snell & Passmore LLP) appeared for the claimant; Michael Levenstein (instructed by Furley Page LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Nicholas James Care Homes Ltd v Liberty Homes (Kent) Ltd
