High Court decision 'strengthens reach' of freezing orders granted by English courts, says expert

Alan Sheeley, a civil fraud and asset recovery expert at Pinsent Masons, the law firm behind Out-Law.com, was commenting on a recent High Court decision (registration required)which he said showed the "proactive approach" to the enforcement of worldwide freezing orders (WFOs) taken by the English courts. In the case, the High Court allowed a corporate fraud victim to enforce a WFO in Switzerland and Lebanon, subject to certain safeguards.

Although the courts in England can grant a WFO allowing a victim of fraud to freeze assets located anywhere in the world, the applicant should as part of that order seek the permission of the English courts before taking any steps to enforce the order in another jurisdiction. Sheeley said that the latest decision showed how the courts would exercise their discretion in practice when faced with an application for permission, following the 'Dadourian guidelines' set out in a 2006 case by that name.

"The long arm reach of the English court has been strengthened by this case, which is great to see from a victim's point of view," said Sheeley.

"The broad reach of a WFO affords vital protection to anyone seeking to preserve assets in foreign jurisdictions. Following this judgment, with the English court taking a proactive and reasonable approach to granting permission to recognise and enforce a WFO overseas, a WFO is undoubtedly the essential tool for those seeking recovery of assets involved in a fraud," he said.

A WFO was a much more effective means of preserving assets and maximising the chances of recovery than relying on cross-border law enforcement processes, Sheeley said. Law enforcement agencies had to rely on legal co-operation between different departments in different countries, something that was "usually the stumbling block on cross-border investigations", he said.

The fraud victims in this case were various members of the Arcadia Petroleum group of companies (Arcadia), who were seeking damages of around $335 million based on allegations of "substantial fraud" against members of the former management team. The alleged fraud arose from the group's oil trading activities in West Africa, and involved the use of artificial corporate structures within the transaction chains between West African oil sellers and the ultimate purchasers of the oil.

In July 2015, Arcadia successfully obtained a WFO against the alleged perpetrators of the fraud, including two individuals who were domiciled in Switzerland and a Lebanese company owned and controlled by them. Arcadia then applied for permission to enforce the WFO in Switzerland and Lebanon. Separately, the individuals denied the allegations and had issued challenges of their own over the jurisdiction of the English courts. They argued that the permission sought was "premature, oppressive and unnecessary".

The Dadourian guidelines set out the circumstances in which English courts will grant permission for overseas recognition and enforcement of a WFO. Permission will be granted if it is just, convenient and not oppressive to do so, where there is evidence of assets abroad, where there is a real risk that the assets would be dissipated without the order in place, and where the steps to be taken abroad are proportionate and come with appropriate safeguards.

Considering the objections raised by the two individuals who would be subject to the WFOs, the judge said that he was "not persuaded that there would be any oppression in the circumstances of this case" if he granted the permission sought.

"[The Arcadia companies] seek to take limited steps ... to enforce [the WFO] and to put in place equivalent local protection," the judge said. "The [alleged fraudsters], so far as I can see, do not need to do anything. Whether they choose to resist the making of any local orders which [Arcadia] might seek is a matter for them. At present I can see no reason why they would need to do so if the steps to be taken are limited to those which [the Arcadia companies] propose to take."

Turning to the requirement for safeguards, the judge said that the order should "spell out the steps" that Arcadia was being given permission to take in Switzerland and Lebanon, so that "the scope of the permission is clear". Arcadia must also commit to undoing any enforcement steps in the event that the individuals were successful in their appeal, and must indemnify the individuals' legal costs, he said.