Introduction
The Court of Appeal has provided welcome clarification of the threshold test for obtaining freezing injunction relief, in Isabel dos Santos v Unitel SA [2024] EWCA Civ 1109. In doing so, the Court has also established that the test for freezing orders, being a 'good arguable case', is the same as the 'serious issue to be tried' test which applies to interim injunctions in general under American Cyanamid principles.
The Court's order on the issue of costs also gives pause for thought for those parties who seek to challenge the making of a freezing order, as the Court ordered costs to be paid at the interim stage, rather than reserving the issue to trial.
Background
The on-notice freezing order application was heard by Bright J in relation to underlying proceedings involving a series of loans through a company owned and controlled by Ms dos Santos. Judgment was handed down granting the freezing order and ordering that costs be paid by Ms dos Santos. Permission to appeal was granted by Arnold LJ on the basis that both grounds of appeal raised important issues of law on which there had been disagreement among High Court judges.
The 'good arguable case standard'
The first consideration was the 'good arguable case' requirement for freezing orders. The Court questioned whether it was that set out in The Niedersachsen (a case more than barely capable of serious argument, but not necessarily a better than 50% chance of success) or the (considered to be more onerous) three-limb test applied in jurisdictional gateways cases (which party has the better of the argument, as set out in Brownlie v Four Seasons Holdings Inc [2017] UKSC 80).
The Court of Appeal affirmed that it is The Niedersachsen test which should be applied and that recent cases which had applied the Brownlie test were wrong.
The Court then considered the interaction between the 'good arguable case' test in freezing order applications and the 'serious issue to be tried' test applied in interim injunctions generally under American Cyanamid principles. Although many considered that the good arguable case test imposed a more stringent threshold, the Court concluded that the two tests should be equated in this context.
The Court considered that there was no difference in substance between the two tests and that, as a matter of principle, no reason why a different test should apply. Although the Court recognised that freezing order relief was invasive, the same could be said of other types of interim injunctions. In any event, the invasive nature could be taken into account in the consideration of the other aspects of the test for relief, specifically whether it is just and convenient to grant the relief, and also in the safeguards included within the order.
The Court concluded that it would be preferable to use the 'serious issue to be tried' expression in the context of freezing orders and to restrict the expression 'good arguable case' to jurisdictional gateway cases, given the undesirability of the same expression ('good arguable case') having different meanings in different contexts.
Costs
As to costs, Ms dos Santos appealed the costs order that had been made against her on the basis that the ordinary costs order for an interim injunction should be to reserve costs to trial and there was no principled reason to adopt a different approach for freezing order relief.
The Court of Appeal disagreed with Ms dos Santos' arguments. The general rule in interim applications is that the loser pays the winner's costs, but the Court has a discretion to make a different order. In interim injunction applications, the Court will typically exercise that discretion and reserve the costs until determination of the merits and a final judgment at trial. The rationale is that in interim injunction cases generally, the injunction allows the party to rely upon a right or obligation which has not yet been finally established, and which won't be definitively established until trial. The 'success' is therefore only 'provisional'.
The same analysis does not apply however to freezing injunctions, where the injunction is not 'provisional' and will not be made 'final' at trial. The right to such relief has been established at the interim stage, and therefore costs can be determined at that point.
As with all exercises of discretion, the Court should take into account all the circumstances of the case, and the Dos Santos judgment does not establish a hard rule that all freezing order respondents who unsuccessfully contest the granting of the freezing order will always be ordered to pay the costs. However, in this case, the application had been made on notice and Ms dos Santos had had a very long time to evaluate the case against her and prepare her own case in response. The arguments she had made had also required the court to conduct a more searching enquiry into the merits of the case than would ordinarily be the case in an interim injunction application. It was therefore appropriate that she should be ordered to pay the costs of the application.
Implications
This judgment offers important clarifications for the law governing freezing orders, setting out a clear threshold for obtaining relief. The Court of Appeal's rejection of the more onerous 'better of the argument' test also ensures that applications for freezing orders do not become mini-trials, but remain available to claimants as a way to protect their position pending trial, whilst not trampling on issues that should (properly) be reserved to the trial judge, or taking up the court's resources at the expense of other court users.
On costs, the judgment provides a careful warning to parties contesting freezing orders that there is no certainty that costs will be reserved, particularly if the Court finds that a root and branch approach to contesting an application was flawed.