Varying the terms of an interim injunction made without notice

Tom Pritchard

In Windrush Continental SA v Bitumen Invest A/S, the High Court discharged an interim freezing order in somewhat surprising and unusual circumstances.  The decision confirms the procedurally correct way to vary the terms of an interim freezing order (or other injunction) obtained without notice, while also providing a reminder of the need to use clear and unequivocal language when drafting injunctions.

Background

On 20 January 2014, the vessel MV Bitu Gulf sank off the coast of Vietnam after being battered by severe weather. In 2008, the claimant, Windrush Continental SA, had leased the boat from the defendant, Bitumen Invest A/S, for a seven and a half year term.

In agreeing the lease, the defendant borrowed $825,000 from the claimant and, at the time the vessel sank, the outstanding loan balance was $420,000 or $345,000 (depending on which party you asked). The parties entered into an arbitration over rights to the proceeds of the hull insurance, which was worth $8m.  On 4 August 2014, the arbitrators found that the claimant had no right to the proceeds of the insurance.  However, the insurance proceeds were ordered to be held in escrow by the defendant’s solicitors pending the settlement of the outstanding loan balance.  The arbitrators awarded the defendant its costs of the arbitration.

In order to protect to its right to the outstanding loan balance, the claimant then applied for a freezing order (as the defendant’s only asset was the insurance proceeds, which were due to be paid out imminently). The application was heard by Andrews J on a without notice basis on 18 August 2014.  She granted an interim freezing order until further full hearing on 21 August 2014.

The granting of the interim order on such a basis was unusual given that the claimant’s counsel explained the defendant’s likely defence to the freezing order over the phone and without the use of any supporting evidence. The judge also allowed the claimant’s counsel to draw up the order to reflect the indications given by the judge and then bring to his attention any deviations from the standard form.

The interim freezing order prevented the defendant from removing, disposing, dealing with or diminishing assets to the value of $561,000 (the $420,000 noted above plus a reasonable allowance for interests and costs). Paragraph 8.4 of the order stated that the order would cease to have effect if the defendant paid the $561,000 into court as security.  If the claimant was refused leave to appeal against the arbitration award, the order would cease to have effect over $412,275 of the $561,000 (the amount the defendant was claiming for the costs of the arbitration), leaving just $148,725 of the defendant’s assets frozen.

The defendant threatened to apply to have the freezing order set aside on the bases that: (1) it was not an appropriate case for a freezing order; and (2) the claimant had failed to give full and frank disclosure on the without notice application.  The parties subsequently agreed that the claimant would provide security of $561,000 in respect of its cross-undertaking in damages and an undertaking to pay the defendant’s arbitration costs.  This would take the form of a bank guarantee.  No return date was ever listed and the order was allowed to continue, but on varied terms.  The variation was not regularised by way of a consent order.

In November 2014, the claimant was refused leave to appeal against the arbitration award. On its face, this should have reduced the sum frozen to $148,725; however, the position was complicated by a series of events.  In particular:

  • the defendant claimed that the arbitration costs were £412,275, rather than $412,275, and under the exchange rate at the time, £412,275 was worth more than $561,000, so the whole freezing order should be discharged; and
  • it came to light that the claimant’s counsel, when drafting the order, had not brought to the judge’s attention paragraph 8.4, despite the fact that it deviated from the standard form.

It was not until April 2016, some 20 months later, that the defendant actually applied to have the original order set aside. The claimant sought a fresh appraisal of the situation, asking the court to continue the interim order or grant a new freezing order.

Judgment

Mr Andrew Baker QC (sitting as a High Court judge) was quick to remark that the granting of such a freezing order was highly unusual given that none of the papers were before the judge. Even if the order was only meant to “hold the ring” until the matter could fully come before the court inter partes in three days’ time, it was a mistake for the judge to proceed on such scant evidence.

That mistake was compounded when the parties’ negotiations meant that no return date was set. Those negotiations led to the “unsatisfactory” position where the freezing order was varied informally by agreement, rather than regularising the position via a consent order.

The judge accepted the defendant’s argument that the arbitration costs were in fact £412,275. In his view, the reference in the freezing order to $412,275 was an accidental slip or omission capable in principle of correction under the slip rule (CPR Rule 40.12(1)).  He concluded that if the parties had regularised the continuation of the order in a consent order, this would have provided for the correction, and the court should treat this as having been done.  This meant that the freezing order ceased to have any effect when permission to appeal was refused in November 2014 (because, under the prevailing interest rate at the time, the reduction of £412,275 exceeded the total sum frozen of $561,000).   Consequently, he thought it quite proper to discharge Andrews J’s order.

Andrew Baker QC then considered on its merits the claimant’s application to grant a fresh freezing order. He dismissed the defendant’s argument that the claimant could not seek a fresh order due to the passage of time on the ground that the defendant had also failed to apply to have the original order discharged for so long, although he commented, that in another case such a delay “might well be fatal to the granting of any fresh injunction”.  On the merits, however, he refused the claimant’s application because he was satisfied there was no real or substantial risk of any net award ultimately achieved by the claimant going unpaid in the absence of a freezing order.

The judge also made some interesting comments on the interpretation of freezing orders and other injunctions. The starting point was the principles set out by the Supreme Court in JSC BTA Bank v Ablyazov [2015] UKSC 64 in relation to determining whether a party was in contempt, i.e.:

  • injunctions must be clear and unequivocal;
  • injunctions must be construed strictly and in favour of the addressee; and
  • where there are two possible constructions, the court should adopt the construction most favourable to the putative contemnor.

He rejected the claimant’s argument that these principles should be restricted to questions of contempt of court, commenting that, in his judgment, “the meaning and effect of an injunction cannot change with the nature of the application before the court”. The essence of the rule was: “only that which is clearly and equivocally prohibited on the plain language of the order – without reference to other materials unless directed to them by the order – is, indeed, prohibited”.

Comment

While this decision clearly turns on its peculiar fact pattern, it confirms that variations made to interim freezing orders (and other injunctions) obtained without notice should be regularised by a consent order. They should not just be informally varied by agreement.  It also reinforces the importance of clear and unequivocal drafting and demonstrates that a delay in rectifying procedural irregularities may be may be fatal to a defence based on non-disclosure.

Windrush Continental SA v Bitumen Invest A/S [2016] EWHC 2077 (Comm)

The judgment in this case is available to Westlaw subscribers.

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