Following on from our previous article (The big freeze: Unitel SA v Unitel International Holdings BV & Anor) on the first instance decision in April this year, the Court of Appeal has unanimously confirmed that the “good arguable case” merits test for the granting of freezing orders is the test laid down in The Niedersachsen, which should better be expressed as a “serious issue to be tried”.

First instance decision

A fuller account of the factual background is set out in our earlier article, but in brief, Unitel issued an application seeking a worldwide freezing injunction (“WFO”) over the assets of Ms Isobel dos Santos (“Ms dos Santos”), in relation to unpaid loans totalling c. €323 million and US$43 million made by Unitel to an entity in the Netherlands owned and controlled by Ms dos Santos, Unitel International Holdings B.V.

At first instance, Mr Justice Bright granted a WFO in favour of Unitel over £580m of the assets of Ms dos Santos, applying the test laid down in the case of The Niedersachsen (Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH [1983] 2 Lloyd’s Rep 600) — (1) that there was a good arguable case on the merits, (2) that there was a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets, and (3) it would be just and convenient in all the circumstances to grant the freezing order. Ms dos Santos was also ordered to pay Unitel’s costs of the WFO.

Ms dos Santos appealed.

The Appeal

There were three key issues considered on appeal:

1. Whether the “good arguable case” merits test was the test as set out in The Niedersachsen (being more than barely capable of serious argument, but not more than a 50% chance of success), or the three-limb test as applied in the context of jurisdiction (requiring the better of the argument) as set out in Brownlie (Brownlie v Four Seasons Holdings Inc [2017] UKSC 80) and more recently in Kaefer (Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV [2019] EWCA Civ 2203).
2. Whether whichever test the Court of Appeal found to be correct, Unitel still met the relevant test.
3. Whether the Judge was right to order Ms dos Santos to pay Unitel’s costs of the WFO.

Issues 1 & 2

Unitel argued that the “good arguable case” merits test was set out in The Niedersachsen, which itself drew a distinction between freezing orders and orders made in the context of jurisdiction.

Ms dos Santos argued that “good arguable case” was intended to be the same test as in jurisdiction cases, and nothing in The Niedersachsen changed that (at [32]). Ms dos Santos also relied on the recent cases of Harrington (Harrington & Charles Trading Co. Ltd v Mehta [2022] EWHC 2960 (Ch)) and Chowgule (Chowgule & Co Pte. Ltd v Shire [2023] EWHC 2815 (Comm)) where the High Court found that in the context of freezing orders the test was now the same as in the context of jurisdiction.

The Court of Appeal unanimously found that the merits threshold for granting a freezing order was that in The Niedersachsen, and the recent decisions in Harrington and Chowgule were wrong to assess the merits by reference to the three-limb test derived from Brownlie (at [96]): to apply the test from Brownlie would require the court to determine which party had the better of the argument, which would risk turning hearings for freezing orders into mini-trials involving greater amounts of evidence and a greater burden on the court (approving Butcher J’s dicta in Magomedov (Magomedov & Ors v TPG Group & Ors [2023] EWHC 3134 (Comm)) at [27]).

Popplewell LJ also added that the “good arguable case” test should be the same as the American Cyanamid test applied in relation to interlocutory injunctions and should therefore be referred to as a “serious issue to be tried”, with “good arguable case” being confined to orders in the context of jurisdiction (at [131]).

The Court of Appeal also found that even if the correct test were the three-limb test in Brownlie, Unitel would still have satisfied the test as Unitel has the better of the argument (at [113]).

Issue 3

In relation to the costs order, the Court of Appeal found that the Judge was right to order Ms dos Santos to pay Unitel’s costs of the WFO. Sir Julian Flaux was “firmly of the view” that the Court of Appeal should not interfere with the Judge’s costs order, and the general rule is that the costs of a contested interlocutory or procedural application should be paid by the unsuccessful party at the conclusion of the application (at [116]).

Conclusion

The Court of Appeal has heard and answered Bright J’s request for clarity on the appropriate test in relation to freezing orders: the applicable test is that set out in The Niedersachsen. Practitioners and Judges will also welcome the clarity in language proffered by Popplewell LJ that the merits test in the context of freezing orders should better be expressed as a “serious issue to be tried”, with the use of “good arguable case” restricted to the context of jurisdictional gateways.

If you would like to discuss the contents of this article further, please contact Edward Allen, Andy McGregor or Oliver Rule.