Court of Appeal upholds freezing order preventing party from making payments in the ordinary course of business

The Court of Appeal has dismissed an appeal against the removal of a so-called Angel Bell exception to a post-judgment freezing order, with the effect that the defendant was prevented from continuing to make payments in the ordinary course of business: Michael Wilson & "Partners" Ltd v John Forster Emmott [2019] EWCA Civ 219.

Whilst the court was mindful of the fact that the grant of a freezing injunction is a discretionary decision reached on a fact-specific basis, with which higher courts will be slow to interfere, it nevertheless sought to provide some clear guidance in its judgment.

First, the court held that there is no "presumption" that an Angel Bell exception should be excluded from a post-judgment freezing order, but noted that its inclusion "will sometimes and perhaps usually be inappropriate".

Second, the court found that the existence of an unsatisfied judgment debt "does make a difference" when considering the ambit of a freezing order. In short, it will be easier to justify the exclusion of a business expenditure exception when a party has refused to honour a judgment. The public policy in favour of ensuring that judgments are respected means that, where (as in this particular case) a party has persistently failed to pay what is due, a strict approach to exceptions is appropriate.

Kevin Kilgour, a senior associate in our disputes team, considers the decision further below.

Background

A post-judgment freezing order is granted to ensure assets are not dissipated between judgment and execution.

The Angel Bell exception, which derives from Iraqi Ministry of Defence v Arcepey Shipping Co SA (The Angel Bell) [1981] QB 65, permits a defendant subject to a freezing order to continue to make payments in the ordinary course of business.

In the present case, the parties were involved in "pathological litigation" across four countries which had arisen out of a partnership dispute between two solicitors. Michael Wilson & Partners Ltd ("MWP") was subject to a post-judgment freezing order following its refusal to honour an arbitral award of more than £4 million. The order restrained MWP from: (i) removing assets from the jurisdiction up to the award value; and (ii) disposing of or dealing with any assets within or outside of the jurisdiction up to the same value.

The High Court (Sir Jeremy Cooke) had taken as its starting point the proposition that it was "usually inappropriate to include an [Angel Bell exception] in post-judgment freezing injunctions". The question was whether there were circumstances which militated against that starting point.

The judge found a number of factors that strongly supported maintaining the starting point. First, MWP had the means to pay the arbitral award and so this was not a case of "can't pay" but a case of "won't pay". Second, MWP had attempted to delay enforcement by mounting increasingly "hopeless" appeals and would "stop at nothing" to prevent the respondent from receiving the sums to which he was entitled.

In light of this context, the judge concluded that there is no reason why, pending enforcement, the judgment debtor should simply be free to carry on business in the ordinary way. It was always open to MWP to pay the money into court and discharge the freezing injunction on that basis.

MWP appealed the decision to remove the Angel Bell exception on the basis that it was a draconian step that should only have been taken as a last resort.

Decision

The Court of Appeal (Lord Justice Gross giving the main judgment) found against MWP. It held that the "robust and principled" approach taken in the court below was "entirely appropriate".

After considering the authorities, the Court of Appeal set out several principles:

• Post-judgment freezing orders are granted to facilitate execution, by guarding against the risk of dissipation over the period between judgment and enforcement, where the judgment would otherwise remain unsatisfied if injunctive relief was refused.
• The fact that such injunctions will increase the pressure on defendants to honour their judgment debts does not render such injunctions illegitimate.
• It cannot be said that, without more, an Angel Bell exception within a post-judgment freezing order would be inappropriate and in that regard the observations in Masri v Consolidated Contractors International [2008] EWHC 2492 and Soinco SACI v Novokuznetsk Aluminium Plant [1998] QB 406 went too far.
• However, it can be said that "it will sometimes and perhaps usually be inappropriate" to include the exception in a post-judgment freezing injunction (Mobile Telesystems Finance SA v Nomihold Securities Inc [2011] EWCA Civ 1040).
• A refusal to include the Angel Bell exception should not be characterised as a "starting point" or presumption, or conversely as a remedy of last resort. The appropriateness of the exception in a freezing injunction will turn on the facts of the individual case and is a discretionary decision with which an appeal court will be slow to interfere.

On the facts, the court found that MWP's case presented no difficulty. It concluded not only that the judge was amply entitled to remove the exception, but that he had been right to do so. As a discretionary decision, to succeed in its appeal, MWP had to show some error of law or principle in the judgment, which it had singularly failed to do.

The court took into account the risks to MWP's business of removing the exception.  However, in this case, the court found that MWP's own conduct justified its removal. Its conduct in seeking to avoid paying the sums due under the award had been "deplorable" and gave rise to a continued risk of dissipation, saying that the exception had to be removed in this case "if there [was] to be any realistic chance of enforcement".  Further, the court said that MWP could itself mitigate the risks posed to its business by paying the sum awarded into court as security.

Note: The Supreme Court refused permission to appeal in this case on 9 January 2020.