The High Court in London has dismissed an application for a freezing injunction because of the potential impact on the business of its potential subjects, and because of a delay in the application being filed.
The court ruled that the application brought by steel company ArcelorMittal USA failed because the company had not shown a “good arguable case” and had delayed in bringing its application, as well as the serious detriment a freezing order would have on the business of the Essar Group and its main lender VTB.
ArcelorMittal is claiming over $1.5 billion in damages in respect of loss alleged to have been caused by a conspiracy to frustrate enforcement of liabilities under a 10-year iron ore supply contract entered into with three Essar Group companies, and in respect of an arbitral award in ArcelorMittal’s favour against Essar Steel in respect of those liabilities.
Essar Steel went into administration in March 2019 and was wound up in December 2019 without any payment being made to ArcelorMittal, which claims that Essar Steel’s inability to pay was a result of the unlawful means conspiracy. ArcelorMittal filed an application for a freezing injunction in late December 2019.
Mr Justice Henshaw said in his judgment that he was “not persuaded” that ArcelorMittal had a “good arguable case” on its claim, or for $1.5bn “or any other quantifiable sum”.
He said by March 2019 ArcelorMittal had known about most of the main facts of its conspiracy claim and had commenced proceedings in several jurisdictions. Accordingly he considered the nine month period between March and November 2019 to be a “material delay” in the context of applying for a worldwide freezing order, although it was not a determinative factor to refusing the application.
The judge went on to say that Essar Group and individuals connected to it had had plenty of time to divest themselves of their assets if they had wished, and therefore he was not persuaded that there was enough evidence of the risk that Essar’s assets would be dissipated to justify imposing a freezing order.
Justice Henshaw agreed with Essar Group and its lender VTB that a freezing order would have a significant detrimental impact on both firms and thousands of Essar employees and contractors.
Civil fraud expert Alan Sheeley of Pinsent Masons, the law firm behind Out-Law, said the delay factor was important and something that firms applying for freezing orders should take into account.
“One of the reasons why the court declined to grant the worldwide freezing injunction was the delay on the claimant’s part in bringing the application. This goes to show just how important it is to apply for freezing relief quickly – otherwise it is difficult to maintain credibility when contending that there is a real risk that the defendant will dissipate assets if an injunction is not granted,” Sheeley said.
“If a claimant wants to recover his losses through litigation or arbitration, a good enforcement strategy is just as important as a good claim. This decision shows that this holds true in all civil disputes, including commercial disputes,” Sheeley said.
“However it is especially true of fraud claims where finding and protecting the assets is essential. Instructing an enforcement and asset recovery specialist is important in every case, but especially in fraud claims,” Sheeley said.
Civil fraud expert Andrew Barns-Graham of Pinsent Masons said: “This judgment is a salutary reminder of the fact that a claim is never worth more than it can be enforced for.
“More specifically, it reminds us that the fact that a judgment debt may have become unenforceable because the judgment debtor has transferred or restructured its assets does not give rise to a good arguable conspiracy claim in the absence of solid evidence of a specific intention on the judgment debtor’s part to defraud or injure its creditors,” Barns-Graham said.
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