Court of Appeal finds the existence of an all-assets Criminal Restraint Order did not obviate the grant of a Worldwide Freezing Order (WFO)

In the recent case of?AA and others v BB and others?[2021] EWCA Civ 1017, the Appellants appealed against the continuation of a Worldwide Freezing Order (WFO) made on 7th?September 2020 on the basis that criminal restraint orders (CROs) were already in place covering all the relevant assets under the?Proceeds of Crime Act 2002?(as amended) (POCA).

Background?

The Respondents in the original case were two companies and their administrators who brought a claim against five Defendants, four of whom were alleged to have been directors or de facto directors of one or other of the claimant companies.??It was alleged that the Appellants had misappropriated ‘substantial sums’.??Such was the risk of the Appellants dissipating their assets, criminal restraint orders (CROs) were put in place on application to the Serious Fraud Office (SFO).?

On 20th?August 2020, the Respondents proceeded, without notice, to apply for a worldwide freezing order (WFO), which was granted at an ex parte (without notice) hearing.??A week later, on 27th?August 2020, the Respondents issued a claim form and notice of the application to continue the freezing orders to the Appellants.??In considering the application on 7th?September 2020, the judge found that there remained a strong risk of the assets being dissipated regardless of the CROs and that the freezing orders should remain in place.

The grounds for appeal

The appeal was brought by two of the original Defendants who argued that the Judge in allowing the freezing orders to continue had erred in four ways:

1.?????The CRO removed any real risk of dissipation of assets.?

2.?????There was no justification for the application to be heard without notice.

3.?????There was a failure to comply with the statutory obligation under section 58 of POCA to give notice of the application to the SFO.?

4.?????Had notice been given to the Appellants and the SFO, there would have been more time to properly present and consider the claimants’ case in the presence of the Appellants.

Lord Justice David Richard stated from the outset that he did not believe any of the grounds had substance.

The Court of Appeal’s findings

The Court of Appeal reiterated the point that a freezing order would only be granted if there was a real risk of dissipation of assets.??The Appellants cited the case?of Stanford International Bank Ltd (In Receivership), Re [2010] EWCA Civ 137, [2011] Ch. 33, [2010] 2 WLUK 712, however, the Court of Appeal concluded that this case does not establish that a Court should prima facie refuse to issue a restraint order where another restraint order is already in place.??The cases of?Faya Ltd (In Liquidation) v Butt?[2010] EWHC 3461 (Ch), [2010] 11 WLUK 435 and?Cancer Research UK Ltd v Morris?[2008] EWHC 2678 (QB), [2008] 5 WLUK 637 were referenced by the Court as these show the inherent problems with relying on previous orders and that CROs are not a proper substitute for a WFO (criminal restraint proceedings are brought in the public interest, while civil freezing orders protect private interests).

The Court of Appeal also addressed the concerns of procedural unfairness, including that there was no justification for an application for a freezing order without notice.??On this argument, the Judge reminded the Court that the appeal did not relate to the granting of the ex parte freezing orders but against the continuation of the order, for which proper notice had been given. There was an acknowledgement that the SFO should have been informed of the ex parte application for freezing orders, however, this would not have been for the benefit of the Appellants; therefore, the judge concluded, “The failure to give such notice is not, however, something about which the Appellants can complain”.

The appeal was dismissed.

In dismissing the appeal and summing up, Lord Justice David Richards added his comments on the joint management of CROs and freezing orders.??He stated,?

“The existence of two or more such orders against a single party is liable to increase substantially the burden of compliance, as regards both the provision of information and obtaining consent to any disposals. This may be to some extent unavoidable, but joint management is a way by which such burden can be kept within proportionate bounds. In Re Stanford International Bank Ltd, Hughes LJ discussed in some detail at [204]-[212] how this might be achieved. Serious consideration should be given to arranging joint management in cases such as the present, but in the present case, efforts to achieve it appear to have failed”.?

What are the implications of this case?

Any person or business who finds themselves on the receiving end of multiple restraint and/or freezing orders will need to ensure they understand the compliance requirements that apply, especially when considering the disposal of assets.??In such cases, it may be possible to present a robust case for joint management to keep these proportionate to the situation and the scope of the assets concerned.??

Tanveer Qureshi specialises in white-collar crime and regulatory investigations and prosecutions.??If you require legal representation, please contact Tanveer directly at?t[email protected]?or via his chambers, 4-5 Gray’s Inn Square. for more about Tanveer or to subscribe to his newsletters, please go to?www.tqlegal.co.uk?