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Freezing injunctions in relation to arbitral proceedings

It is always tempting for a party to a dispute to reach for a freezing injunction in order to protect assets, whether the matter is being arbitrated or is before the courts. However, as illustrated in Petrochemical v PSB Alpha, the risk of dissipation must be unjustified and there must be a sufficient link to the jurisdiction to warrant granting of the order. Petrochemical gives us an insight into what constitutes justifiable, as well as the standard for satisfying a sufficient connection to the jurisdiction when there is a contemporaneous trial in another jurisdiction.


The background is quite complicated but revolves around ownership of PSB Alpha and Alpha Terminals. The claimants stated that ownership of PSB Alpha was sold by Mr Ghertsos to Mr Krueger via a share purchase agreement (November SPA) governed by Swiss law. Additionally, PSB Alpha sold its ownership of Alpha Terminals to Petrochemical via a share purchase agreement (January SPA) governed by English law.

Mr Ghertsos did not deliver the bearer share certificates in PSB Alpha to Mr Krueger. Despite this, Mr Krueger purported to pass a shareholder resolution removing Mr Ghertsos as director of PSB Alpha and appointing himself as director.

The claimants argued that when Mr Ghertsos failed to deliver the shares in PSB Alpha, a deposit agreement was created such that the shares were held to the order of Mr Krueger. The defendants argued that Mr Krueger did not own the shares in PSB Alpha as they were bearer shares and were not in his possession. In light of this disposition, Mr Ghertos sold the shares to AT Holdings Ltd, a subsidiary company of Century Capital Management Ltd (Century).

When contacted by Mr Krueger over the ownership of the shares, Century wrote back asserting that they had an agreement for the purchase of the shares in Alpha Terminals and repeatedly asked Mr Krueger for proof of his authority to act for PSB Alpha. No such proof was provided by Mr Krueger. Instead, the claimants applied for a freezing injunction, which protected the shares and assets of Alpha Terminals and the bearer shares of PSB Alpha.

Should the freezing injunction continue?

Existence of assets and risk of dissipation: shares and assets in Alpha Terminals

Section 44 of the Arbitration Act 1996 (AA 1996) provides that the court has the same powers for arbitral proceedings as it does for legal proceedings, including the granting of an interim injunction (subsection 44(2)(e)). Section 37 of the Senior Courts Act 1981 states that “[t]he High Court may by order (whether interlocutory or final) grant an injunction… in all cases in which it appears to the court to be just and convenient to do so.”

In relation to the shares and assets of Alpha Terminals, it was demonstrated in HMRC v Cozens at paragraph 41 that “there must be some material from which it is reasonable to infer or deduce that there are assets on which the injunction will bite. Otherwise the court will run the risk of acting in vain.” As such, Moulder J stated in Petrochemical at paragraph 47 that:

“… it cannot be said that there are grounds for believing that the shares of Alpha Terminals which are registered in the name of AT Holdings are assets of the defendants and accordingly the injunction sought cannot bite.”

Moulder J subsequently stated that even if wrong, Century repeatedly asked for evidence of the authority of Mr Krueger in relation to the sale by PSB Alpha, which was not provided. Thus, the evidence did not establish that there was a risk that PSB Alpha or Mr Ghertsos would dissipate the shares or assets in Alpha Terminals, which had already been transferred to AT Holdings (paragraphs 48 to 49).

Moulder J mentioned the ratio of Haddon Cave LJ in Lakatamia Shipping Company Ltd v Toshiko Morimoto:

“An applicant for a freezing order does not need to establish the existence of a risk of dissipation on the balance of probabilities. It is sufficient for the applicant to prove a danger of dissipation to the ‘good arguable case’ standard.”

Therefore, the burden is lower to establish, and claimants need only show a case that is more than merely fanciful.

Despite this lower threshold, Moulder J nevertheless stated that there was no risk of dissipation because, as emphasised in Lakatamia Shipping, the risk of dissipation must be an unjustified dissipation. A freezing injunction is not intended to provide general security for a claim, nor to constrain a respondent from operating its business in a legitimate way, but rather to stop the illegitimate dissipation of assets.

Pending full arbitration over the share agreements, AT Holdings were conducting business in a legitimate way and a freezing injunction is not meant to hinder this. It was helpful to Century that they had acted reasonably by asking repeatedly for evidence of the authority of Mr Krueger in relation to the sale by PSB Alpha, as it indicated that they were being upfront. Thus, parties seeking to avoid freezing injunctions against them should be reminded to be open, correspondent and communicative, as it indicates a legitimacy in their endeavours, with nothing to hide.

Connection with England and Wales: the shares in PSB Alpha

In relation to the shares of PSB Alpha, Moulder J stated that it was sufficient to conclude, based on the conduct of Mr Ghertsos in failing to deliver the shares, that there was a risk of dissipation. However, the seat of arbitration for the dispute in relation to PSB Alpha’s shares was outside England and Wales. In Mobil Cerro Negro v Petroleos de Venezuela, Walker J said at paragraph 119:

“… this court will only be prepared to exercise discretion to grant an application in aid of foreign litigation for a freezing order affecting assets not located here if the respondent or the dispute has a sufficiently strong link here or… there is some other factor of sufficient strength to justify proceeding in the absence of such a link.”

Moulder J stated at paragraph 60 that:

“… [w]hilst an order of the English court may not interfere with the management of the Swiss arbitration, there must be a risk of overlapping orders being sought in the Swiss courts and there is no countervailing factor or sufficient connection which in my view tips the balance in favour of an order of the English court.”

Therefore, the application to continue the injunction was refused.

If there is a contemporaneous trial taking place in another jurisdiction, parties need to demonstrate that there is no risk to the management of cases between jurisdictions and no risk that orders from separate jurisdictions will overlap, or that there is a significant reason why an order from an English court is essential. These stipulations make for a remarkably high burden to establish, especially considering the likelihood of similar remedies resulting from any case and the relationship of factors. The rationale for the high burden lies with the pursuit of comity between international jurisdictions and the alleviation of disharmony. Therefore, it might be best for parties to reconsider applying for a freezing injunction or to take into account the costs of applying, unless there is a sufficiently strong and persuasive reason why the freezing injunction should be granted.

With thanks to Daniele Scanio for his contribution to this blog.

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