Court of Appeal Clarifies the Test for the “Existence of Assets” on an Application for a Worldwide Freezing Order

The recent English Court of Appeal decision in Ras Al Khaimah Investment Authority v Bestfort Development LLP and others [2017] EWCA Civ 1014 clarifies the test for the existence of assets on an application for a worldwide freezing order (“WFO”).  The main question of law raised by the appeal was whether an applicant for a WFO has to show that (1) it is likely that a defendant has assets that will be caught by the order or (2) a good arguable case that a defendant has such assets or (3) grounds for believing that a defendant has, or is likely to have, such assets or (4) merely that the defendant is wealthy and must therefore have assets somewhere.

The Current Test

The current test is taken from the Pertamina [1978] QB 644 and the Ninemia [1983] 1 WLR 1412 cases, which requires an applicant for a WFO to show that they have (a) a good arguable case that they have a good claim and (b) a good arguable case that there is a risk that a defendant will dissipate their assets.  However, until now, the test for showing whether a defendant in fact has assets that will be caught by the order has been somewhat less certain.

Following this case, it appears the current test is that an applicant must “satisfy” the court that a good arguable case exists, or that there are grounds for belief, as to the existence of assets (although Longmore LJ preferred “grounds for belief”).

Short Facts

The applicants (Ras Al Khaimah government entities) appealed against the first instance decision of the Honourable Mrs Justice Rose DBE in which she refused to grant WFOs against 14 limited liability partnerships (LLPs) all registered in England and Wales. The applicants were responsible for investing the sovereign wealth of Ras Al Khaimah in projects in Georgia.  When the government entities suspected one of their directors, a Mr Gela Mikadze (a Georgian national, lawyer and businessman), of breaching his fiduciary duties, they brought proceedings against him in Georgia and the UAE.  They applied to the English court under section 25 of the Civil Jurisdiction and Judgments Act 1982, seeking an interim WFO in respect of the assets of the 14 LLPs, who were controlled by Mr Mikadze.

First Instance Decision – Mrs Justice Rose DBE

At first instance, the judge held that the applicants had a good arguable claim against Mr Mikadze and a good arguable case that if the LLPs had assets, they were Mr Mikadze’s assets and he was likely to dissipate them. However, she went on to hold that the LLPs did not have assets that could be caught by a WFO, after finding that none of the LLPs were “likely to have” assets somewhere in the world.  She further held that the risk of dissipation was countered by the fact that the LLPs had complied with previous costs orders, and by the applicants’ two to three-year delay in applying for relief.

The applicants appealed.

The Court of Appeal’s Findings

The Court of Appeal allowed the appeal in part, holding as follows:

1. The test for the existence of assets – it was not enough for an applicant to assert that the respondent was apparently wealthy and must have assets somewhere.  The applicant had to “satisfy” the court of the existence of assets (Derby & Co Ltd v Weldon (No.1) [1990] Ch. 48).  As to the standard of proof, a test of likelihood on its own was inappropriate.  The right test had to be either a good arguable case or grounds for belief.  While there was little difference between the two, the latter was preferable (A v C (No.1) [1981] Q.B. 956).  Because an applicant could not invariably be expected to know of the existence of assets, it should be sufficient for him to satisfy the court that there were grounds for believing that assets existed.  If an injunction was sought against numerous companies who could show that there was no money in their accounts and no recent activity on those accounts, it might be appropriate to refuse relief.  Although it was unclear what test the judge had applied, she had been entitled to accept evidence that many of the LLPs had closed their accounts or had only insubstantial sums in them.  In respect of some of the LLPs, the Court of Appeal upheld her finding that there was insufficient evidence of assets on which the order could bite (see paras 29-41).
2. The existence of assets in fact – even though Mr Mikadze controlled all of the LLPs, the Court of Appeal felt that it was wrong to take a broad brush approach and not look at each legal personality individually.  While Mr Mikadze’s ability to transfer assets from one LLP to another might be highly relevant to the risk of dissipation, it was not relevant to the prior question of whether there were grounds for believing that each had assets which could be caught by an injunction.  The judge had been entitled to find that there was insufficient evidence that some of the LLPs had assets that could be caught by an injunction.  However, there were reasonable grounds for believing that some of the other LLPs had assets, and there was no convincing evidence that a freezing injunction would be futile (paras 46-51).
3. The risk of dissipation – there was a risk of dissipation and the countervailing factors relied on by the judge did not exclude that risk.  While a failure to obey court orders might invite the making of adverse inferences, it did not follow that compliance would negate a risk of dissipation (para 54).  Relief was often denied to an applicant who was dilatory in pursuing his rights (see Anglo-Financial SA v Goldberg [2014] EWHC 3192 (Ch)).  However, the delay in the instant case was much shorter than that in Anglo-Financial and could not negate the risk of dissipation (paras 56-57).
4. Expediency – injunctive relief had been sought in Georgia and it was not clear whether the Georgian courts could or would grant worldwide relief.  It would therefore be inexpedient to grant relief which extended to any assets in Georgia of the LLPs who appeared to have assets (paras 58-59).

However, the Court of Appeal ordered that a freezing injunction in the normal form should be issued against the LLPs who appeared to have assets in respect of their assets anywhere in the world save to the extent that such assets existed in Georgia (paras 60-61). The Court of Appeal also granted the government entities permission to request an Order appointing a Receiver over the same entities.

This is the third court decision, in three separate jurisdictions, against Mr Mikadze, following his high-profile criminal convictions for fraud in both Georgia and the UAE.