In Vneshprombank v Bedzhamov and ors [2019] EWCA Civ 1992, the Court of Appeal has recently offered guidance on the level of spending a respondent will be allowed under a worldwide freezing order.
A freezing order was granted against Mr Bedzhamov in late March 2019. As is customary, Mr Bedzhamov was permitted to spend a sum on “ordinary living expenses”. Following several applications and subsequent orders, the cap for such ordinary living expenses was eventually set at a total of £99,000 per month.
Following an application by Mishcon de Reya on Mr Bedzhamov's behalf, to increase the cap on his living expenses, at first instance it was held that – while expenditure prior to a freezing order is a relevant consideration – several factors should also be considered when setting the cap on “ordinary living expenses”. In particular, it was held that the Court should estimate how the ordinary spending of a Defendant may be affected by intervening events, such as a sudden reduction in net worth or the onset of heavy litigation.
On appeal, the Court of Appeal held in favour of Mr Bedzhamov, in effect increasing the cap on expenditure to a level in excess of £230,800 per month. The Court of Appeal affirmed the following principles:
The term 'ordinary' does not mean "reasonable in some objective sense".
The Court must take care to ensure that a freezing order "does not operate oppressively".
Freezing orders should not seek to offer security for a Claimant for what is, "as yet, only a claim" against the Defendant.
As a result, the cap on living expenses should be set solely according to the spending by the Defendant prior to the grant of the freezing order, "even if the practical effect of permitting such expenditure is to render the freezing order of no practical value".
Martin Shobbrook, a Partner in the Fraud Defence and Business Disputes team says:
"The Court of Appeal has now made clear that the Court is not willing to engage in hypotheticals when determining an appropriate cap on ordinary living expenses. At the hearing, the Court of Appeal expressed a reluctance to engage in a 'double speculation' of what an individual's spending might have been if (i) a freezing order had never been made; but (ii) another independent change had occurred (such as the onset of heavy litigation). This would not only require an evaluation of the change's impact, but also require an evaluation of the characteristics, tendencies and influences of the defendant (in order to estimate what their response would be in such a scenario). Ultimately it is the choice of the Defendant if, and how, they wish to alter the way in which they spend their money, not the choice of the Court."
Claire Broadbelt, a Partner in the Fraud Defence and Business Disputes team says:
"This case is important for redressing the situation where defendants have been restrained in respect of their ordinary living expenses and are seeking to increase permitted expenditure under a worldwide freezing order. However, a few words of caution are also required. The court may seek to introduce mechanisms through which the policing of the worldwide freezing order can be assured, such as the production of receipts to the Claimant. In addition, as in this case, the Court may specify amounts of permitted expenditure in respect of each category such as rent, security and school fees. If future defendants subject to a worldwide freezing order seek the increase of such a cap, they must be prepared for the possibility that the court will seek to introduce mechanisms to police the order and must thoroughly evidence their spending before the Court, so as to overcome its scepticism regarding the defendant's arguments."
Zeno Agnew-Davies, a Paralegal in the Fraud Defence and Business Disputes team says:
"The Court of Appeal's decision provides a helpful survey of the court's reference points when dealing with expenditure permitted under a freezing order. The court cited authorities which made clear: that the funds subject to a non-proprietary freezing order still belong to the Defendant; that it would be unjust for a Defendant to be "compelled to reduce his standard of living, to give up his flat or to take his children away from school"; that Defendants are entitled to this maintenance of their standards of living, even where their lifestyle is "lavish rather than modest"; and that the court must be alert to Claimants "exerting illegitimate pressure" on Defendants, in particular by advocating for a cap on living expenses which will in turn force the Defendant to reduce his lifestyle and therefore encourages the Defendant to settle."