World freezing orders: recent dissipations and reasonable delays
Delay is not fatal to the continuation of a world freezing order and an applicant need not adduce evidence of recent dissipations (1)
The High Court has held that an alleged 20-month delay in applying for a world freezing order was not fatal to its continuation at the return date in circumstances where:
- the nature, value and conduct of the underlying transactions provided solid evidence of a risk of dissipation; and
- the delay in seeking relief from the English courts was not material and did not evidence the absence of a genuine belief in that risk.
While the court may be reluctant to freeze assets on the basis of historic transactions, the ultimate question is whether solid evidence exists of a risk of dissipation "even if the trail goes somewhat cold thereafter".
Timeline of events
The claimant Russian banks held outstanding loans granted to a corporate group allegedly owned by Mr Boris Mints, the O1 Group. The banks claimed that the O1 Group had – with the assistance of various bank officials and a third-party entity – defrauded them to the value of $572 million by taking the following steps:
- August 2017: shortly before the first bank was placed into temporary administration by the Central Bank of Russia and at a time when the second bank was expected to follow suit, the O1 Group:
- terminated its existing secured (and largely performing) loan arrangements with the banks;
- replaced the banks' security with "illiquid and unmarketable" bonds issued by an O1 Group entity; and
- used the purchase monies to repay the group's debts.
- October 2017 to December 2017: the O1 Group divested assets returned to it and the third-party entity as a result of the repayment of its existing loans.
- December 2017 to June 2018: the O1 Group reduced the share capital of a group entity by approximately $202 million, with the monies to be paid back to the O1 Group.
The second bank had met with and written to Mr Mints in September 2017 to demand that the O1 Group reverse the transaction which replaced its security. It subsequently issued proceedings against O1 Group entities in Russia in October 2017 and in Cyprus in January 2018. In response, the entities involved in the alleged fraud issued arbitration proceedings in London in January and February 2018 to establish the propriety of the underlying transactions.
In June 2019, the banks applied for and were granted a world freezing order against Mr Mints and his sons in the English courts. The order was granted on the basis that the banks had:
- established that they had a good arguable case against the Mints; and
- provided solid evidence of a risk of an unjustified dissipation of assets.
The Mints accepted that the banks had a good arguable case against them but challenged the continuation of the world freezing order on two fronts:
- the banks had not established a sufficient risk that assets would be dissipated; and
- the banks had materially delayed in seeking relief from the English courts.
The court considered both grounds on the return date of 11 July 2019.
Risk of dissipation
On the basis that the material before the court was sufficient to establish a real risk of dissipation, the Mints bore the burden of providing:(2)
i) "satisfactory explanations of the transactions and facts upon which a case of dissipation is based"; or
ii) "positive evidence that, notwithstanding those matters, there is no real risk of dissipation".
The Mints served no evidence to challenge the continuance of the worldwide freezing order or to counter the banks' claim against them. Instead, the Mints relied on assertions made in their written and oral submissions in connected proceedings. The court gave those arguments short shrift.
In relation to the second point above, although the risk of dissipation had been established on the basis of transactions carried out between August 2017 and March 2018 (at the latest), the court's view was that:
If there are very large transactions carried out within a period of a year or two prior to the application for a [worldwide freezing order], this may well be (and is in this case) material evidence in support of a risk of dissipation, even if the trail goes somewhat cold thereafter".
The court may be reluctant to accept historic transactions as evidence of an existing risk of dissipation but an applicant need not identify recent transactions (which may be made more difficult due to a lack of dealings with the respondent or a lack of available information on recent activities). The evidence must be considered as a whole and the primary question to be considered is whether solid evidence of a risk of dissipation exists, not when it dates from.
The court rejected the Mints' argument that there had been a 20-month material delay in the banks' application (i.e, the period between proceedings being issued in Russia in October 2017 and the application being issued in England in June 2019). The court held that the only relevant delay ran from the date on which the banks obtained "reasonably reliable evidence" that the Mints were in its jurisdiction and that proceedings could be commenced in England "with any degree of confidence".
It was submitted that the banks ought to have been aware of Mr Mints' move to England on the basis of an article published in the Daily Mail in May 2018, but the court held that there was no evidence that the banks were aware of the article or appreciated its accuracy. If they were, at a maximum, the article would have warranted further investigation.
On the banks' own evidence before the arbitral tribunal, they were aware that the Mints had relocated to England in September 2018 (and of further press reports to that effect). They subsequently took positive steps to progress matters, including establishing a team to review possible claims and a team to search for and retrieve emails. However, proceedings were delayed by the fact that the banks were investigating other transactions with a view to bringing all claims at one time and had been exploring the possibility of a commercial settlement. Their investigations had also been hindered by limited access to emails and cooperation from staff.
The court accepted that there had been some delay between the investigation of the banks' claims (beginning in September 2018) and the instruction of solicitors (in March 2019). That six-month period was held to be the only delay relevant for the purposes of continuing the freezing order but was not considered to be evidence that "there was no genuine belief in a risk of dissipation by these Defendants, in circumstances where there was evidence of such a belief in relation to companies which they controlled". During that period, the banks had:
- taken steps to progress their claims in England; and
- advanced proceedings and obtained freezing orders against the O1 Group in other jurisdictions.
The banks had also provided explanations in evidence as to why the delay had occurred.
The further delay between the banks instructing solicitors (in March 2019) and issuing the application (in June 2019) was deemed not to be material "in view of the complexity of the transactions and the evidence, and the need to ensure that all relevant facts were fairly disclosed to the court".
Each freezing order is fact specific and the court emphasised the limited value of comparing the details of specific cases. It remains the case that any application for a world freezing ought to be brought promptly in order to maximise its prospects of success and recovery.
However, on the court's ruling, an application does not require evidence of recent dissipations in order to succeed. The ultimate question is whether, taken in the round, solid evidence of a future risk of dissipation exists or has existed. Further, a reasonable delay in bringing an application for a world freezing order may be permitted if the applicant can provide detailed, evidenced reasons for that delay which show that it continued to hold a genuine belief in the risk of dissipation.
(1) PJSC National Bank Trust v Boris Mints  EWHC 2061
(2) Holyoake v Candy  EWCA Civ 92