Freezing orders: when will past conduct show a real risk of dissipation?
In Lakatamia Shipping Company Limited v Morimoto,(1) the Court of Appeal overturned a decision to discharge a worldwide freezing order. This case provides helpful guidance as to when a respondent's prior conduct may support a finding that a real risk of dissipation exists.
In 2008 Lakatamia and Mr Su entered into a freight forwarding agreement. Mr Su breached the agreement, causing substantial loss to Lakatamia. Lakatamia brought a claim for damages and obtained a worldwide freezing order (WFO) that prohibited Mr Su from dealing with or dissipating his assets up to the value of $48,842,440.24.
Lakatamia's claim was successful and in 2015 Mr Su was ordered to pay $47.7 million in damages. The judgment debt remained unpaid.
In 2018 the High Court ordered Mr Su to remain in the jurisdiction pending a hearing at which he would be cross-examined as to his assets. After being served with that order, Mr Su attempted to flee the United Kingdom by ferry and was arrested.
Lakatamia then served Mr Su with a committal application notice, alleging that he had sold properties that he owned and dissipated the net sale proceeds of €27,127,855.01, in breach of the WFO. At the hearing, Mr Su implicated his 86 year-old mother, Ms Su, in the alleged dissipation. He gave evidence that she had received the €27,127,855.01 while knowing about the WFO and that she performed a treasury function for the Su family.
Mr Su also gave evidence that his mother owned and ran a company called Great Vision Management Ltd. Lakatamia submitted that this was significant because before the €27,127,855.01 had been dissipated, Great Vision had funded court applications by Mr Su to deal with his assets subsequent to the WFO and had also written to the court in relation to his application for permission to appeal. Accordingly, if Ms Su owned Great Vision, it was likely that she had known about the WFO and judgment debt prior to the dissipation.
Further WFO against Ms Su
Following Mr Su's evidence, Lakatamia issued proceedings against Ms Su and also obtained a WFO against her without notice. Lakatamia claimed that Ms Su, having assisted Mr Su to dissipate €27,127,855.01, was liable in tort for unlawful means conspiracy and for intentionally facilitating the violation of Lakatamia's rights under the judgment debt.
At the inter partes hearing, the judge considered whether to continue the WFO against Ms Su.
Lakatamia argued that there was a real risk that Ms Su would frustrate any judgment against her. It presented evidence that Ms Su:
- had conspired to assist Mr Su to dissipate €27,127,855.01;
- held a web of offshore companies that could be used to place assets beyond reach;
- owned or controlled Great Vision, as well as a company called UP Shipping (which had received a substantial portion of the €27,127,855.01);
- performed a treasury function for the Su family and could facilitate large transfers between jurisdictions; and
- owned substantial liquid assets.
Ms Su denied these allegations and denied being aware of the first WFO at the time that the €27,127,855.01 was transferred.
The judge discharged the WFO against Ms Su. As Mr Su was a "proven liar" and "serial contemnor", the judge was cautious to accept a case that turned entirely on Mr Su's evidence (although, he appears to have considered at least some other evidence).
In relation to a separate jurisdiction issue, the judge found that there was a serious issue to be tried in respect of Lakatamia's claims against Ms Su, given her assistance in dissipating the €27,127,855.01 and her knowledge of the judgment debt and the WFO against Mr Su. Accordingly, there was a good arguable case against her on the merits. However, the judge held that Lakatamia had failed to demonstrate a real risk of dissipation for the purposes of a WFO.
Lakatamia appealed the judge's decision to discharge the WFO against Ms Su.
Arguments on appeal
Lakatamia argued that where the court accepts that there is a good arguable case that a respondent has engaged in wrongdoing against the applicant, and that wrongdoing is relevant to the issue of dissipation, that will "point powerfully in favour of a risk of dissipation" and, ordinarily, no further evidence of a risk of dissipation will be required. Here, the judge's finding that there was no real risk of dissipation was "fundamentally irreconcilable" with his prior finding that there was a good arguable case that Ms Su had engaged in wrongdoing.
Lakatamia also submitted that the judge had failed to consider evidence of Ms Su's ability to transfer large sums between accounts and jurisdictions, her significant liquid assets and her control of Great Vision.
Ms Su argued, among other things, that a finding of a good arguable case is not necessarily sufficient to show a real risk of dissipation, even in cases involving dishonesty or dissipation.
Court of Appeal decision
The Court of Appeal overturned the judge's decision and found that the WFO should have been maintained against Ms Su.
The Court of Appeal confirmed that an applicant need only establish a good, arguable case that unless the defendant is restrained by the court, there is a real risk that a judgment will go unsatisfied due to the defendant's disposal of assets.
The Court of Appeal largely agreed with Lakatamia's submissions and, in light of the relevant authorities, confirmed the correct approach to be as follows:
- Where the court accepts that there is a good arguable case that a respondent engaged in wrongdoing against the applicant, and that wrongdoing is relevant to the issue of dissipation, "that holding will point powerfully in favour of a risk of dissipation".
- In such circumstances, further significant evidence in support of a real risk of dissipation may not be necessary. However, "each case will depend upon its own particular facts and evidence".
Here, there was clear scope for an inference of dissipation. The judge had found that there was a good arguable case that Ms Su had helped Mr Su to hide or dissipate €27,127,855.01. This dishonest conduct pointed to the risk of dissipation. However, Ms Su's wrongdoing was not merely dishonest, but "went to the very heart of the question of the risk of dissipation" as it involved the act of dissipation itself. Accordingly, common sense would suggest that there was a risk that Ms Su "would do exactly the same in relation to her own assets" to avoid the enforcement of any judgment against her. The risk of dissipation was therefore plain and obvious.
The Court of Appeal also found that the judge had failed to consider properly Lakatamia's evidence that Ms Su controlled a web of offshore companies, could transfer substantial funds between jurisdictions and held significant liquid assets. The evidence on these points was not limited to the evidence of Mr Su, and the judge had failed to give it sufficient weight or to consider it in the context of the case as a whole.
Further, the Court of Appeal found that Mr Su's evidence regarding his mother's role deserved weight as potential admissions against interest and because it was supported by other evidence that had been put before the court.
The Court of Appeal is generally reluctant to interfere with the findings of experienced Commercial Court judges as to whether a real risk of dissipation exists, but this decision demonstrates that it will intervene where it is clearly appropriate to do so.
This case is perhaps a paradigm of a respondent engaging in wrongdoing that gives rise to an inference of dissipation given that the wrongdoing directly involved dissipation in breach of an existing WFO. Other cases may not be so clear cut and the Court of Appeal was careful to note that each set of facts must be "scrutinised with care" in order to determine whether an inference of dissipation should be made. However, for parties seeking freezing orders, this case provides helpful guidance as to when a respondent's prior conduct may support a finding that there is a real risk of dissipation and the factors that the courts should consider in this regard.
(1)  EWCA Civ 2203.