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Fraud Insights: Addressing the Risk of Dissipation in Freezing Injunctions

Posted on 18 June 2019

Fraud Insights: Addressing the Risk of Dissipation in Freezing Injunctions

In Vestey Foods UK Limited v Adam Cox & Others [2018] EWHC 3466 (Ch), the claimant, Vestey Foods, obtained a freezing injunction against its Deputy CEO who had (unbeknownst to Vestey) held shares in one of Vestey's supplier companies through a nominee. It was alleged that the supplier company had overcharged Vestey, with the Deputy CEO thereby profiting at Vestey's expense. Vestey sought to continue to injunction at the return date hearing.

At the return date hearing, the Court concluded that the injunction should not be continued because Vestey had failed to provide sufficient evidence to show that a real risk of dissipation existed. Although the judge inferred that the Deputy CEO's shares in the supplier company had been held by a nominee in order to hide his involvement in that company, he found that dishonesty alone was not enough to reach a conclusion that the assets were likely to be dissipated. Instead, he found that the evidence must be thoroughly scrutinised on a case-by-case basis. In this case, the Deputy CEO did not have assets outside England and Wales, he was aware to some degree about the matters being investigated and did not change his behaviour as a result, and there was no evidence that he had attempted to conceal or transfer assets or relevant material out of the jurisdiction. Therefore, the judge was not satisfied that there was solid evidence of a real risk of dissipation. 

The judge also explained that Vestey's failure to orally address the issue of the risk of dissipation at the initial hearing amounted to a breach of the fair presentation obligation, albeit an unintentional one. It was found that this obligation, which requires a claimant to a without notice application to draw the Court's attention to evidence and arguments which it can reasonable anticipate the absent party would wish to make, extends to submissions on the risk of dissipation. It is not sufficient to address the issue in written arguments / evidence alone. The risk of dissipation is often a central issue on applications for freezing injunctions and so it was found that evidence and contrary arguments on the subject must reasonably and fairly form a fundamental part of the fair presentation obligation, regardless of whether the claimant believes the argument is a good one or not.

Claire Broadbelt, a Partner in the Fraud Defence Group says:

This decision re-emphasises the importance of fully and properly addressing the issue of the risk of dissipation when seeking a freezing injunction. Freezing injunctions are described as one of the Court's two nuclear weapons and are always subject to close scrutiny. As this case makes clear, the Court will be slow to conclude that a respondent is likely to dissipate their assets without well-supported and credible evidence. Dishonesty alone is not sufficient. A claimant to a freezing injunction has a duty to put before the Court cogent evidence regarding the risk of dissipation so that the Court is able to come to a fair and reasonable conclusion on the facts of the case.

Trainee Solicitor Saskia Neuberger, says:

While the claimant must expressly draw the issue of the risk of dissipation to the judge's attention, this does not prevent the claimant saying that they believe the argument is a weak one, or indeed the judge indicating that no further submissions on the issue are necessary. The key take-away from this case is that the issue of dissipation cannot be left to written submissions or evidence alone. As the judge found at the return date hearing, judges are often juggling a significant workload with insufficient pre-reading time. Therefore, the obligation on claimants to orally address the central issues of an application (such as the risk of dissipation) at without notice hearings ensures that hearings of this nature are conducted in a fair and even-handed manner.

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