Overview
First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement. This month, we return to the final part of our series examining whether the English courts can issue a worldwide freezing order against a foreign state in support of efforts to enforce an arbitral award or foreign judgment.
In our previous updates, we covered the procedure in England to enforce arbitral awards and foreign judgments against foreign states (link), and whether the rules on state immunity from execution bar the grant of a freezing order against a state (link). Today’s update addresses the principles that otherwise govern the grant of such orders (proceeding on the assumption that state immunity can be overcome). Much of this discussion will also be relevant to those interested in freezing orders against non-state entities.
Introduction
To recall, a freezing order is a form of injunction by which an English court can restrain a debtor from disposing of or dealing with their assets until such time as the award/judgment is paid/enforced. This can apply to assets both within England and Wales and abroad. It is a powerful tool to support an enforcement strategy. However, the creditor must overcome various hurdles to obtain such an order. Below, we address the test applied by the courts, and how it may be satisfied in circumstances where the debtor is a foreign state.
The Test Applied by the Courts
In order to obtain a freezing order, the applicant must convince the court that it is "just and convenient" to grant the order.
Per the Privy Council’s judgment in Broad Idea, the applicant will need to show that:
"(i) the applicant has already been granted or has a good arguable case for being granted a judgment or order for the payment of a sum of money that is or will be enforceable through the process of the court;
(ii) the respondent holds assets … against which such a judgment could be enforced; and
(iii) there is a real risk that, unless the injunction is granted, the respondent will deal with such assets (or take steps which make them less valuable) other than in the ordinary course of business with the result that the availability or value of the assets is impaired and the judgment is left unsatisfied."1
Further Considerations
The courts have developed various further principles in applying this test, discussion of which falls beyond the scope of this note. However, for present purposes, the following points should be noted.
First, it is typical for a freezing order to freeze assets up to a specified value (i.e. the value of the award/award being enforced). However, in the context of an order against a state, diplomatic property is unlikely to be caught for reasons of immunity.
Second, as noted above, freezing orders can be made in respect of assets within England alone, assets abroad, or both. To obtain a freeze worldwide, the applicant will usually need to show either that there are no assets within England or that there are insufficient assets within England to satisfy the award/judgment; further, the order will typically require the applicant to obtain the English court’s permission before seeking to enforce the order abroad.
Third, the evidential standard for proving the existence of assets is not whether the respondent is "likely" to have assets. Rather, "[s]ince a claimant cannot invariably be expected to know of the existence of assets of a defendant, it should be sufficient that he can satisfy a court that there are grounds for so believing."2
Fourth, freezing orders can be made in aid of foreign proceedings or foreign awards/judgments. "There is no requirement that the judgment should be a judgment of the domestic [i.e. English] court—the principle applies equally to a foreign judgment or other award capable of enforcement in the same way as a judgment of the domestic court using the court’s enforcement powers."3
Fifth, where an application is made for a freezing order in aid of "foreign litigation" and in respect of assets worldwide, the applicant must show either (i) that the respondent or the dispute has "a sufficiently strong link" with England or (ii) that "there is some other factor of sufficient strength to justify proceeding in the absence of such a link."4 Where the respondent has assets located within England, this will generally create a sufficiently strong link.5
The question arises as to whether a worldwide freezing order can be obtained in aid of a foreign award/judgment in circumstances where the respondent does not have (provable) assets located within England. The following considerations arise with respect to foreign proceedings generally, and can be applied against a foreign state (assuming that any sovereign immunity defense has been overcome):
- Where the order is to support the enforcement of an arbitral award (non-ICSID): As explained in the first part of this series, for most arbitral awards, enforcement will be governed by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 and the Arbitration Act 1996. Importantly, there is a procedure to 'convert' such awards into an English judgment. The courts have highlighted that a benefit to doing so is that non-payment of the award (and thus the new English judgment) may be a contempt of court.6 In the present context, a further benefit is that it will enable the applicant to argue that the freezing order is being sought in support of the new English judgment, rather than the original foreign arbitral award, so that the requirement for a "sufficiently strong link" is not applicable.7
- Where the order is to support the enforcement of an ICSID arbitral award: A similar argument may be advanced in the context of an arbitral award rendered in proceedings under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 (ICSID Convention). When such an award has been registered in England under the Arbitration (International Investment Disputes) Act 1966, it "shall, as respects the pecuniary obligations which it imposes, be of the same force and effect for the purposes of execution as if it had been a judgment of the High Court" (see Section 2(1)). In other words, for practical purposes, the award is given the status of an English court judgment. Thus, here too, it might be said that a freezing order is not in respect of foreign proceedings, so that the requirement for a "sufficiently strong link" is not applicable.
- Where the order is to support the enforcement of a foreign judgment: To recall, foreign judgments against foreign states can be "recognised and enforced" in England pursuant to the Civil Jurisdiction and Judgments Act 1982, Section 31. Again, an applicant may wish to argue that the requirement for a "sufficiently strong link" is rendered inapplicable upon the foreign judgment being "recognised" in England, on the basis that the freezing order is no longer merely in support the foreign
- The preceding paragraphs suggest arguments to circumvent the requirement for a "sufficiently strong link" entirely, by 'anglicising' the award/judgment. The same arguments could also be used (in the alternative) to argue that such requirement has been met, or (in the further alternative) to prove that there exists "some other factor of sufficient strength to justify proceeding in the absence of such a link" (per the principle stated above).
- Similar arguments could potentially be advanced in the pre-award/judgment context too.8 Here, the argument would be that even though the award/judgment has not yet been rendered, the mere existence of statutory procedures to anglicise the eventual award/judgment itself creates a "sufficiently strong link" with England, or (in the alternative) amounts to "some other factor of sufficient strength to justify proceeding in the absence of such a link."
Sixth, as to the requirement that there be a "real risk" of asset dissipation, the applicant should present objective facts from which such risk may be inferred. Factors likely to be relevant include the ease with which the assets could be moved out of the applicant’s reach, the ease of enforcement against overseas assets, any previous defaults by the respondent, and the respondent’s behaviour with respect to the claim that gave rise to the award/judgment (e.g. where a state has steadfastly sought to evade its duty to compensate for an expropriation).
Seventh, there has been a long-held view that the courts may be more willing to grant a freezing order in the post-judgment context. However, in 2021, the Court of Appeal9 noted that whilst there may be more incentive to dissipate assets in that context, the evidential threshold remains the same: i.e. the evidence must nevertheless show that there is a real risk of dissipation.
Eighth, since applications for freezing orders are usually made on a without notice basis (to avoid the debtor frustrating the order before it is made), the applicant must give full and frank disclosure by setting out in its evidence all material facts, including those that go against its case or those that the respondent may raise in resistance to the application. In the present context, one such issue is likely to be the state immunity matters addressed in our previous update.
Ninth, even where it is "just and convenient" to grant a freezing order, in order to obtain such an order, the applicant will need to provide an undertaking to pay any damages that the respondent sustains as a result of the order and which the court considers the applicant should pay. In some cases, for example where an applicant has insufficient assets within England to give substance to its undertaking, the court can require the applicant to fortify its undertaking, often by payment of a specified sum into court or onto its solicitors' client account; a bond might also suffice.
Conclusion
As this series has shown, there are various mechanisms available in England to enable the enforcement against foreign states of arbitral awards and foreign judgments. In circumstances where an award/judgment has been obtained, the debtor state has assets against which such judgment can be enforced, and there is a real risk it will dissipate those assets in a manner that will leave the award/judgment unsatisfied, the creditor can seek the assistance of the English courts to prevent this. However, the creditor will have to overcome the state’s immunity from execution; the second part of this series set out strategies for doing so.
We hope that this series has been useful to our readers. Please do not hesitate to contact us if there is anything you wish to discuss.
Endnotes
1 Broad Idea International Ltd v. Convoy Collateral Ltd [2021] UKPC 24, at [101].
2 Ras Al Khaimah Investment Authority v. Bestfort Development LLP [2017] EWCA Civ 1014, at [39] (emphasis added).
3 Broad Idea International Ltd v. Convoy Collateral Ltd [2021] UKPC 24, at [102].
4 Mobil Cerro Negro Ltd v. Petroleos de Venezuela SA [2008] EWHC 532 (Comm), at [119], [136] and [155].
5 Ibid.
6 ASM Shipping Ltd of India v. TTMI Ltd of England [2007] EWHC 927 (Comm), at [26].
7 Cf Rosseel NV v. Oriental Commercial & Shipping Co (UK) Ltd [1990] 1 WLR 1387. See also Taurus Petroleum Ltd v. State Oil Marketing Co of the Ministry of Oil, Iraq [2017] UKSC 64, at [54] recognising the collective international interest "to ensure the efficient recognition and enforcement of arbitration awards".
8 In the pre-award/judgment context, the applicant will also need to consider whether the rules of the foreign jurisdiction in which the substantive action is being litigated (or any agreement selecting that forum) bar the parties from seeking injunctive relief in a different forum prior to the issuance of an award/judgment.
9 Les Ambassadeurs Club Ltd v. Yu [2021] EWCA Civ 1310, at [18].
