Freezing order defendants able to maintain standard of living, court rules

Out-Law News | 25 Nov 2019 | 2:02 pm | 2 min. read

The English and Welsh Court of Appeal (CoA) has decided that the subjects of a worldwide freezing order can still maintain their “lavish” pre-injunction standard of living.

The CoA said the High Court should not have considered what would have happened to the lifestyle of the subject of the freezing order in the absence of the injunction. Instead, the judge should have allowed a figure for “ordinary living expenses” which enabled the defendant to maintain his previous standard of living.

In its judgment, the CoA said the purpose of a freezing order was “not to provide a claimant with security but to prevent a defendant from taking steps outside the ordinary course which would have the effect of rendering any judgment unenforceable”.

The CoA noted that a defendant with limited funds would have to decide where to reduce spending, but that this was a decision for the subject of the injunction and not the court.

It warned that some defendants may seek to maximise the amount they are permitted to spend to keep as much money as possible out of the claimant’s hands if judgment is obtained in the claimant’s favour.

“That danger can be avoided, however, by the exercise of a healthy scepticism about a defendant's assertions as to the nature and amount of his pre-freezing order expenditure. When appropriate, the court will require convincing support for such assertions. The more extravagant the expenditure, particularly if it appears reckless when seen in the light of the resources available to a defendant, the more sceptical the court is entitled to be,” the CoA noted.

Although the CoA said the expenses claimed by former Russian Bobsleigh Federation president Georgy Bedzhamov were “quite extraordinary”, it said the living expenses of £80,000 per month granted by the High Court should be raised, to enable his family to continue living in their Monaco and London apartments, cover security costs and buy a new apartment.

Asset recovery expert Andrew Barns-Graham of Pinsent Masons, the law firm behind Out-Law, said that the decision meant that “respondents to freezing injunctions are entitled to maintain their normal lifestyles, even if those lifestyles are by normal standards very lavish."

"When determining the living expenses threshold, the courts look at the evidence of respondents’ past costs of living," he said. "They do not go on to determine whether those levels of expenditure are sustainable in the future. Doing so would be tantamount to ordering a respondent to modify their lifestyles and this is a line the courts do not cross."

Fraud and asset recovery expert Alan Sheeley of Pinsent Masons said claimants in fraud cases should take a different approach to those applying for freezing injunctions.

“It is often possible in fraud cases to obtain proprietary injunctions, which prohibit any dealings with specific assets and which do not contain the living expenses exception, or indeed the other exceptions which apply to freezing injunctions. This is a crucial point, but one which is often overlooked by claimants and therefore highlights the need to instruct specialist civil fraud lawyers,” Sheeley said.