Article in Family Law Journal
The recent case of Gorbunova v Berezovsky  EWHC 76 reminds practitioners that the use of freezing orders is a crucial interim remedy in ensuring ultimate fairness in financial settlements. In this judgment Mr Justice Mann gives us important procedural guidance and in particular on three main issues:-
- Meeting the test for without notice freezing order applications;
- The proper scope of such emergency applications;
- The Applicant’s Undertaking to serve as soon as practicable;
The case highlights to family lawyers that a without notice freezing order is a remedy of last resort to be most carefully applied. The judgment warns practitioners of the potential consequences of non-compliance. This is not a new warning by any means but it is a timely one.
The law in this area is well established, but this case is especially useful in examining the procedure to be followed and pitfalls to be avoided when seeking such interim relief. The guidance from the High Court is particularly helpful in a legal landscape when third party interests, offshore trusts and international assets are far from uncommon issues in family litigation and not the reserve of the oligarchy. Mann J comments on this in delivering his judgment;
“[… ]there is nothing more significantly intrusive about the order made against Mr Berezovsky when compared with the other freezing orders made in these courts with increasing frequency”.
Freezing Orders: An Icebreaker
Family lawyers already practising in this area will be familiar with the various types of freezing orders available to prevent the dissipation of assets. The law in this area is vast and has developed from a background of civil law. One or more of these orders may be appropriate to rely on in any given case. They include;
- The High Court’s very wide discretion to grant injunctions by way of section 37(1) of the Supreme Court Act 1981:
“the 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”
- “Mareva” Injunctions which have developed as a particular limb of a longstanding general civil remedy based on the case of the same name, Mareva Compania Naviera SA v International Bulk Carriers SA 
- And, on divorce further to section 37 Matrimonial Causes Act 1973 which gives the court power to restrain future dealings s.37(a) and set aside past ones s.37(b);
What can the Court do?
There must be a real risk of dissipation but the powers of the court are wide and include powers to;
- Freeze assets
- Surrender passports
- Restrain a party from leaving the jurisdiction
- Order a payment into court
- Freeze assets abroad (subject to mirror orders being achievable) Dadourian Group v Simms 
Without Notice Procedure
These are applications which require quick thinking and deft handling often under time pressure and with high stakes. Family Lawyers must demonstrate balanced judgment in protecting their client’s position whilst clearing the legal hurdles created to maintain this remedy as an exceptional one. The case law which has developed and is reviewed by the High Court in this case, shows such applications are not to be undertaken lightly. As Brooke LJ comments in Moat Housing Group-South Ltd v Harris  “No order should be made in family or civil proceedings without notice to the other side unless there is a very good reason for departing from the general rule that notice must be given. Needless to say the more intrusive the order, the stronger must be the reason for departure”.
Part 20 FPR 2010 and Part 25 CPR deal with applications for such interim orders without notice and reaffirm the same principle of “good reasons”;
20.4 FPR 2010 and 25.3 CPR 1998:-“the court may grant an interim remedy on an application made without notice if it appears to the court that there are good reasons for not giving notice”. Significantly the burden is on the Applicant and the Applicant will be required to give a number of undertakings as to costs, service and fact. These are the matters which came under scrutiny before the court in this case.
Gorbunova v Berezovsky:
The without notice application
Ms Gorbunova was the long term partner of Mr Boris Berezovsky, by now a well known Russian Oligarch. The parties have two young children together. Ms Gorbunova made an application for a without notice freezing order application against her former partner and 7 other third party Defendants on 18 December 2012 on the basis that:-
- She had been promised £5,000,000 from the parties’ home in Wentworth Park by Mr Berezovsky who had instead used the funds to pay debts.
- Mr Berezovsky had a beneficial interest in 2 French properties held under a ladder of companies and trusts. He had reassured Ms Gorbunova that she also had a beneficial interest in those properties. Ms Gorbunova was fearful that she would not recover the proceeds of sale because Mr Berezovsky needed the money himself.
- There was a settlement with a third party and Ms Gorbunova was again fearful that the proceeds would be dissipated before her claims were dealt with, particularly as Mr Berezovsky had also promised his former Wife some of these monies.
- She wished to pursue a claim under Schedule 1 Children Act 1989 on behalf of the parties’ 2 children. Ms Gorbunova in fact issued this application on 11 January 2013 and she sought interim relief to protect the children’s applications.
The District Judge was minded to make the application, although he first required reassurance that order could be served and enforced effectively in respect to the overseas element. On 20 December 2012 this information was provided and the order was granted. Ms Gorbunova gave the usual undertaking requiring the order to be served “as soon as reasonably practicable”.
The court made an order without notice to Mr Berezovsky that:
- Assets up to £200,000,000 were frozen
- The Defendants were restrained from dealing with the French properties without notice to Ms Gorbunova
- Mr Berezovsky was restrained from dealing with the proceeds of sale of
Wentworth Park or any property representing those proceeds
- Mr Mr Berezovsky was restrained from dealing with the proceeds of the settlement claim.
The Application to Dismiss
Clearly Mr Berezovsky was less than pleased.
He challenged the interim freezing order generally on the basis that there had been a lack of full and frank disclosure but more specifically seeking to discharge the interim order on 4 main procedural grounds;
- That there was insufficient material to apply without notice;
- That there was insufficient evidence to show a risk of dissipation;
- That the quantum of the order sought £200,000,000 was excessive;
- That Ms Gorbunova failed to comply with the undertaking given to serve the freezing order as soon as reasonably practicable.
Interestingly, a further ground relied upon was;
- If the freezing order remained the Directors of the company in the French property structures would resign. Mann J rejected this stating “I give this no weight whatsoever.” The corporate veil not reaching this far it seems.
- Without Notice: Good reason
The judgment emphasises to family lawyers that affidavits and statements in support must be clear. There does not always need to be an immediate risk and there may well be many other circumstances when a freezing order is justified without notice if properly explained.
Mr Berezovsky’s counsel relied heavily on the principle established in Thane v Thomlinson  that not all freezing orders should be without notice. The court agreed that a sanction for an improper application without notice could be its discharge [para 18]. This is the crux of the case for practitioners.
However, Mann J said that although Mr Berezovsky was unlikely to dispose of assets overnight the propensity to dispose and lack of honesty in previous proceedings were relevant to not giving notice and justified Ms Gorbunova’s application.
In making his determination the Judge considered two recent cases on this point, CEF Holdings v Mundey and Legal Services Commission v Lonsdales Solicitors  perhaps suggesting to practitioners that without notice applications are being closely monitored. He agreed with Silber J in CEF Holdings who stated that “a bland statement that the defendant might do something if warned is unlikely to satisfy this requirement without some particulars in support’.
Mann J asks 2 key questions in determining the matter and reviewing the evidence [para 40]
- Whether there is sufficient evidence of a relevant risk of dissipation to found an application for a freezing order
- If there is, whether its quality, together with any other relevant evidence is sufficient to justify a without notice application
He finds that there is good reason in Mr Berezovsky’s tendency to promise one thing in respect to assets and then do another when under financial pressure. He identifies that Mr Berezovsky is under financial pressure and that there is a sufficient risk commenting “one does not set up trust structures such as those affecting the French properties in the interests of transparency.” [para 43]
Clear, reasoned statements in support are required, failing which there is a risk the interim order will be discharged.
Mann J was satisfied that there was sufficient statement in the evidence though not justification for the full scope of the relief obtained”. [Para 46] He varied the order to protect only the assets which were “at risk”. It is highly likely this will be an area Judges are alive to and Applicant clients will need to pitch their application correctly. For Respondents it will be an area to consider on any application to vary or discharge. It is not a new consideration. In Ghoth v Ghoth  the principle has been long established that Applicants should seek to freeze only such assets and make any such orders as necessary to protect their claim.
The Judge also clarified that the Children Act Schedule 1 claim was not relevant to the application and should not have formed part of the claim [para 57].
Mann J therefore varied the order to freeze only £5,000,000 and The French properties.
The Order whilst obtained on 20th December was not served until 4th January. The 8 Defendants were not all within the jurisdiction and the Judge accepted this as good reason for the delay. He describes simultaneous service as a “legitimate and sensible objective”. The principle behind the Applicant’s undertaking was clearly set out by Hoffman J in the earlier case of Re First Express Ltd  holding that a without notice application can be justified if notice would cause injustice to the Applicant by delay or that the Respondent would take action before an order AND that the damage a Respondent may suffer is compensated by the cross undertaking given by the Applicant.
The burden on our Applicant clients is high and practitioners should warn their clients of the seriousness of undertakings given and the stringency with which they could be tested.
Worldwide Freezing Orders:
This is an interesting element of the case for practitioners who are faced with assets overseas. As a succinct practice point, the court should have evidence that service can be effected overseas and a mirror order obtained at the without notice hearing. The IAML can assist. In Gorbunova v Berezovsky the District Judge at first instance would not accept the application without reassurance on this. Ultimately, the court was prepared to allow additional time to deal with this complexity in effecting service without finding Ms Gorbunova to be in breach of her undertaking. However it is noteworthy that this came under particular scrutiny and it is a lesson when international families are on the rise.
Practice Points and Pitfalls to avoid: A summary
Most significantly, family lawyers should be aware that there is a risk of discharge unless the guidance from the High Court is adhered to.
For both Applicant and for Respondent clients these points will need to be given careful consideration;
- Bland statements about without notice will not suffice
- The assets to be frozen should be those at risk
- The need to pursue a worldwide freezing order can justify delay in service
- The interim application is not about the merits of the overall claim
All busy practitioners know that when it comes to emergency applications, the pressure can be on but as Mr Justice Mann sets out in his judgment then perhaps more than at any time, procedural accuracy in meeting the legal tests is crucial.
In an ever more sophisticated technological and international society the methods of disposing of assets are varied and this creates uncertainty and risk. The court’s recent decision in
Petrodel Resources Ltd & Ors v Prest & Ors  means that corporate veils are of heightened concern to lawyers seeking to protect their client’s claims and creative thinking is required to ensure long term fairness.
The means to ensure client’s financial claims are not defeated do exist and are wide reaching. Worldwide freezing orders are increasingly relied upon to protect international assets. That said and in keeping with the metaphorical theme, family lawyers may need to be mindful that this case is just the tip of the iceberg and that faced with such applications more regularly courts will be mindful of this guidance. Mann J gently warns family practitioners that the interim remedy of a freezing order remains to be used to good effect but also to be applied with good measure and good reason.