Case law update

IPA Insolvency Practitioner newsletter, January 2025



An insolvency case law update prepared by Brett Eeles, Associate Director at Manolete Partners PLC.

Brett joined Manolete in February 2022 and is based in the South West. Previously Brett trained and qualified at the international city firm Norton Rose Fulbright LLP where he worked in the dispute resolution team for six years on insolvency litigation, before moving to Foot Anstey LLP. Brett has a degree in Mandarin and Law and held a secondment in Beijing and also worked in-house at two major banks. Brett specialises in insolvency litigation, fraud and asset tracing and traditionally acts for insolvency practitioners and creditors. He has acted for clients on trials in the High Court, Court of Appeal and Supreme Court.

Freezing injunctions – good arguable case, serious issued to be tried or something else? Clarity from the Court of Appeal

Freezing injunctions have often been referred to as the nuclear weapon in a civil litigator’s arsenal. This is partly because of the draconian consequences they can have on a defendant in terms of interfering with their right to deal with what is ostensibly their own property. Furthermore, those consequences are usually imposed upon a defendant in circumstances where a claim has not even been issued, let alone proved. It is also because it seems to have been envisaged originally that applications for freezing injunctions would be rare, however, in practice they are now common where fraud is suspected.

At a high level, an applicant for a freezing injunction, such as an office-holder, will need to show (i) that they have a good arguable case on the merits (ii) that there is a real risk of dissipation of assets by the defendant and (iii) that it is just and convenient for the Court to make the Order.

Whilst the above rudiments are well known to litigators, in recent years there has been growing uncertainty as regards the first limb of this test as a result of various decisions which seemed to cast doubt upon it. In particular, is the standard actually a good arguable case or a serious issue to be tried or something else? Whatever formulation is used, what does it actually mean? For example, is it enough to show one has an arguable case or must an applicant actually show that it likely has the better of the arguments? The Court of Appeal has helpfully provided clarification in its recent unanimous decision in the case of Isobel Dos Santos v Unitel S.A. [2024] EWCA Civ 1109.

The appeal concerned the award of a freezing injunction against Ms Dos Santos, the daughter of the former president of Angola, Eduardo dos Santos. In particular, whether the Judge at first instance had applied the correct legal test in awarding the freezing injunction against her. One of the key issues in the case was whether Unitel had the right to bring a claim against Ms Dos Santos or whether it was statute barred from doing so under Angolan law. Both parties had served expert evidence on Angolan law about this issue.

At first instance Unitel had argued that the correct test as regards the first limb of the requirements of a freezing injunction is whether the Applicant has established a good arguable case and that that was “….one which is more than barely capable of serious argument, but not necessarily one which the Judge considers would have a better than 50% chance of success.”  By contrast, Ms Dos Santos argued that the test was a relative one under which the Court must form a view as to which party likely has the better of the arguments on the merits. In this context, Ms Dos Santos was submitting that the Judge had to be of the view that Unitel likely had the better of the arguments on the question of whether it was statute barred from pursuing her under Angolan law in order to establish that it had a good arguable case against her and that it had not done so.

The Judge held that Unitel’s arguments as to the correct test were to be preferred and that the test was not relative. However, he acknowledged that there was some confusion in the state of the law which was “crying out for a definitive answer from the Court of Appeal.”

The Cout of Appeal upheld the first instance decision. Whether the test is a “serious issue to be tried” or “a good arguable case”, in the context of freezing injunctions, these tests amount to the same thing. An applicant must show that its case is “more than barely capable of serious argument but not necessarily one which the judge considers would have a more than 50% chance of success.” The test is absolute and not relative. An applicant does not therefore need to demonstrate that it has the better of the arguments on the merits. It would be premature at what is usually a very early stage of proceedings for a judge to have to determine whose arguments are more likely to succeed – that can only properly be determined at the substantive hearing or trial. A judge would not have had the benefit of witness evidence tested by cross-examination, nor would it be proportionate or sensible to encourage effectively mini-trials of these issues. Furthermore in cases of fraud the facts are often unclear at an early stage and prior to disclosure and so it may be very difficult for an applicant to demonstrate that it has the better of the arguments through no fault of its own. The Court of Appeal stressed that Commercial Court judges are well used to freezing injunctions and the applicable test and are able to apply it on a case by case basis. Furthermore, there remain various significant protections for defendants including the cross-undertaking in damages, the duty of full and frank disclosure on the Applicant where the application is without notice and the fact that there will be various exceptions to the Order such as the ability to use monies or property in the ordinary course of business or for living expenses.

Embarking on a freezing injunction can be a frightening affair for an office-holder. As an outsider to the company an office-holder will have no first hand knowledge as to precisely what has occurred. This is amplified when dealing with a fraud as the facts will often be opaque and the books and records usually non-existent or permanently deleted. At the same time, the office-holder will have to provide a cross-undertaking in damages in support of the injunction to compensate the defendant if it later transpires that the injunction should not have been granted. If the injunction is overturned the office-holder will usually be met with claims that the Defendant has suffered various significant and serious damages as a result of the injunction. A freezing injunction therefore usually requires some bravery and a certain leap of faith on behalf of the applicant/office-holder. Clarity as to precisely what an applicant must show in order to obtain one is therefore very welcome.

Content courtesy of IPA corporate partner Manolete Partners PLC.

Manolete Partners PLC is an investment business focused on dispute finance. It is not a law firm and does not provide legal advice.

Please note that guest articles do not necessarily represent the views of the IPA.