Freezing assets of non-defendant companies of which a defendant is a shareholder/director

Lalor-Harbord

In Lakatamia Shipping Co Ltd v Nobu Su and others, a worldwide freezing order obtained by the claimant against the defendants stated:

  1. The defendants must not:
    1. Remove from England and Wales any of their assets which are in England and Wales up to the value of US$ 48,824,440.24; or
    2. In any way dispose of, deal with or diminish the value of any of their assets whether they are in or outside England and Wales up to the same value.
  2. Paragraph 2 applies to all of the defendants’ assets whether or not they are in their own names and whether they are solely or jointly owned. For the purpose of this Order, the defendants’ assets include any asset which they have the power, directly or indirectly, to dispose of or deal with as if it were their own.  The defendants are to be regarded as having such power if a third party holds or controls the asset in accordance with their direct or indirect instructions”.

At first instance, Burton J had to decide whether the injunction had the direct effect of freezing the assets of three non-defendant companies of which the first defendant was a direct or indirect 100% shareholder and a director.  He held that it did, stating:

I have no doubt whatever that the factual scenario which I have described, namely that the First Defendant effectively controls, and indirectly owns, the companies… which own the assets, the vessel and the shares which I have described, brings the position plainly, and intendedly, into the definition of paragraph 3 of the Order” (paragraph 16 of the judgment).

The first defendant appealed Burton J’s decision.

Dismissing the appeal, the Court of Appeal held that the freezing injunction did not apply directly to the non-defendant companies or their assets but, where the owner of a non-defendant company was subject to an injunction restraining any diminution in the value of his shareholding in that company, he was restrained from procuring the company to make a disposition likely to result in such a diminution.

The Court of Appeal did not support the reasoning of Burton J in paragraph 16 of his judgment, stating that it was not correct to say that the non-defendant companies’ assets were “plainly, and intendedly” within the definition of assets in paragraph 3 of the injunction.  Rather, they were “covered by” the injunction because dealing with them had the potential to diminish the first defendant’s shareholdings in them.

Sir Bernard Rix reminded us that “if a claimant wishes to freeze company assets of a non-defendant, he must either be prepared to make a sufficient case that the company concerned is just the money-box of the defendant and holds assets to which the defendant is beneficially entitled, and/or it has to make that company a defendant itself under the Chabra jurisdiction.  Where a defendant’s alleged liability is not merely that in the ordinary way of a party liable in debt or damages but is said to arise out of the misappropriation of funds or some such dishonesty, as in the Ablyazov litigation, it will often be possible to request the court to make orders in wider terms and/or to make the defendant’s corporate creatures defendants themselves.  But in the more ordinary case, even where a freezing order is justified under its standard rationale, that does not extend to freezing the assets of other parties or corporate non-defendants”.

Lakatamia Shipping Co Ltd v Nobu Su and others [2013] EWHC 1814 (Comm) and [2014] EWCA Civ 636

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