The Court of Appeal has clarified the test of ‘good arguable case’ for the grant of a freezing injunction, confirming the threshold to be satisfied is that of a case which is “more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success” following Mustill J’s formulation in Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH (“The Niedersachsen”) [1983] 2 Lloyd’s Rep 600 at 605).

Background

The Appellant, Isabel dos Santos (“IDS”), had founded Unitel, Angola’s largest telecom company, in 1998. IDS was a director of Unitel and beneficially owned 25% of Unitel through a BVI company until late 2020.

In 2012, IDS incorporated Unitel International Holdings (“UIH”) in the Netherlands. Between 2012 and 2013, UIH borrowed around €323,000,000 from Unitel (and a further $43M secured by promissory security). By the end of 2020, UIH had stopped paying interest on the loans for some time and Unitel had given a notice of acceleration of the loans.

Eventually, Unitel issued proceedings against UIH in England and passed a further resolution to claim against IDS personally. In parallel, Unitel was nationalised by presidential decree with the effect that IDS’s ownership of Unitel was terminated. IDS was joined to the claim against UIH.

On 23 December 2023, Bright J granted a worldwide freezing order (“WFO”) against IDS and ordered IDS to pay the costs of the application. IDS was later granted permission to appeal.

The underlying dispute concerned the meaning of ‘filing’ under Article 80(1) of the Angolan Commercial Companies Law. IDS contended the claim against her was brought too late under Angolan Law and that ‘filing’ within 6 months of a shareholder resolution under Article 80(1) meant actually joining her to the proceedings. By contrast, Unitel contended that issuing and filing an application to join her was sufficient to satisfy this. Unitel could be granted a WFO if it had a ‘good arguable case’ on the merits.

Issues

1.     What is the test of ‘good arguable case’?

2.     Is there a general rule as to costs for WFOs?

Correct test for ‘good arguable case’

On the facts, the Court found that Unitel satisfied the merits threshold, such that, for the purposes of Article 80(1), ‘filing’ had occurred upon issuance of the application to join IDS.

The Court confirmed that to demonstrate a ‘good arguable case’, a party must demonstrate that they have a case which is ‘more than barely capable of serious argument’, even if it would not be considered to have a more than 50% chance of success. The test of ‘good arguable case’ should be equated with ‘serious issue to be tried’ for interlocutory injunctions (following the principles in American Cyanamid Co (No 1) v Ethicon Ltd [1975] UKHL 1 (“American Cyanamid”).

This is a welcome clarification for three reasons. First, there is now a much-needed distinction between 'good arguable case’ for freezing injunctions and the ‘good arguable case’ test in the context of jurisdictional gateways for serving out of the jurisdiction. The latter, following FS Cairo (Nile Plaza) LLC v Lady Brownlie [2022] AC 995, requires ‘a much better argument on the material available’. This distinction is all the more important where these threshold tests have different purposes. As the Court stated, while the merits threshold for the grant of a freezing injunction may be satisfied at first, the Court will still determine the merits later on at trial. By contrast, the question of whether a case falls within a jurisdictional gateway is not merits-based and is not re-evaluated at trial. As such, a threshold that is higher in the context of jurisdiction gateways than for freezing injunctions is justified.

Second, as parties do not need to prove they have the ‘better argument’, parties will no longer feel pressured to spend time and resources in preparing a ‘mini-trial’ and bringing all evidence available to them before the court when seeking a freezing injunction. Such an exercise may prove especially difficult at an early stage where facts and evidence disclose an urgent need for a WFO, but not a chance of success above 50% on the merits.

Third, this harmonises both the courts’ approach to the merits test for freezing injunctions within the UK legal system, and, more widely, the approach of UK courts with that of other Commonwealth jurisdictions. This creates more certainty for those dealing with parties operating cross-border.

No general rule as to costs for freezing injunctions

On the facts, IDS was still ordered to pay Unitel’s costs in the application. The Court confirmed there is no rule that costs should be reserved to the trial judge. CPR 44.2(b) gives the court a discretion to reserve costs. The Court stated that such an order would usually be made in the case of interim injunctions under American Cyanamid. By contrast, a freezing injunction is not an ‘interim’ measure in the same sense. For instance, failure at trial does not necessarily mean that a freezing injunction was wrongly granted.

Most relevantly, the Court stated that a party should be careful not to fight an application ‘tooth and nail on every point’ so as to cause the successful party to incur unnecessary costs, as, in general, such a party will be ordered to pay the successful party’s costs. Parties should prepare their case strategically while being mindful of party and court resources.

CANDEY is a boutique litigation law firm that has extensive experience in the enforcement of debts, judgments and arbitral awards and the preservation of assets, whether in a domestic or a cross-border context. We can guide our clients through the enforcement process, particularly assessing early on the difficult procedural challenges that such enforcement involves.

Note: This is a general summary of an evolving field of law, and is made available for general discussion purposes only between CANDEY and its clients and prospective clients. This memorandum does not constitute legal advice and must not be relied on as such. It should also not be cited as legal or academic authority.