30 Sept 2024 - worldwide freezing injunction against the assets of Ms Dos Santos remains.

In December 2023, Judge Robert Bright granted a worldwide freezing order against Former billionaire “Isabel dos Santos” assets, valued at approximately £580 million (€697 million). This order was issued to cover interest on arrears and compensation for damages related to loans made by Unitel-to-Unitel International Holdings, a company controlled by “Dos Santos”.

On 30 September 2024, the Court of Appeal handed down its judgment in Dos Santos v Unitel S.A.[1] , thereby upholding a worldwide freezing injunction against the assets of Ms Dos Santos, who has been described as Africa’s richest woman.

• https://www.judiciary.uk/wp-content/uploads/2024/09/Isabel-dos-Santos-v-Unitel-30.09.24.pdf

The judgment is significant for analysing English law's test required to grant a freezing injunction. It resolves longstanding ambiguities regarding the “good arguable case” test, which is crucial for such injunctions.

Background

The dispute between Unitel S.A., a major telecommunications company, and Isabel Dos Santos, a prominent businesswoman and daughter of the former President of Angola, revolved around allegations of financial misconduct and asset misappropriation.

Dos Santos founded Unitel, Angola’s largest mobile telecoms company, in 1998 and was its director and beneficial owner until 2020.

Between 2012 and 2013, Unitel made various loans to a company owned and controlled by Dos Santos (UIH), on which UIH defaulted. Unitel successfully applied for a worldwide freezing injunction against Dos Santos to prevent her from dissipating her assets, which they claimed were at risk of being moved out of the jurisdiction.

Dos Santos was ordered to pay the costs of the injunction application. Dos Santos sought to appeal the decision. 

Legal issues addressed.

It is common ground that an applicant for a freezing order has to show:

• A good arguable case on the merits;
• A real risk that a future judgment would not be met because of an unjustified dissipation of assets; and
• That it would be just and convenient in all circumstances to grant the freezing order.

The core issue in this case was the interpretation of the “good arguable case” test for granting freezing injunctions, and specifically:

• Whether it should align with the “three-limb” test for jurisdictional gateways, as established by Lord Sumption and the Supreme Court in Brownlie v Four Seasons Holdings Inc[2]; and
• The distinction (if any) between freezing orders and other interim injunctions.

“Good arguable case” for freezing orders vs for jurisdictional gateways

Historically, there has been inconsistency in how the “good arguable case” test was applied. The test, originating from Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH (the Niedersachsen)[3], required a claim to be "more than barely capable of serious argument but not necessarily one which the judge considers would have a better than 50 per cent chance of success". It was this test that Unitel’s case relied upon.

However, recent cases, such as Lakatamia Shipping Co. Ltd v Morimoto[4], suggested a higher threshold, aligning the test with the “serious issue to be tried” standard. Mr Justice Knowles, in the first instance, acknowledged that, although it wasn’t necessarily intended, the effect of the Court of Appeal decision in Morimoto was to treat the “good arguable case” test in the freezing injunction context, as the same as that applied in the context of jurisdictional gateways. This was seen in the case of Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV[5]. Unitel sought to argue that the test in the freezing order context should be different from that in the context of jurisdiction.[6]

Dos Santos’ case was that the Niedersachsen approach is not appropriate, and that the three-limb test in Brownlie (used for jurisdictional gateways) should be adopted. 

The three-limb test as explained by Lord Sumption in Brownlie was as follows:

"… (i) that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway;

(ii) that if there is an issue of fact about it, or some other reason for doubting whether it applies, the court must take a view on the material available if it can reliably do so; but

(iii) the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it.”[7]

The court’s decision

The Niedersachsen is the correct test for freezing injunctions, distinct from jurisdictional gateways.

In its judgment, the Court of Appeal, led by Sir Julian Flaux, clarified that the “good arguable case” test for freezing injunctions is that formulated in the Niedersachsen.[8] However, it held that a “good arguable case” in the context of a freezing injunction is not to be assessed by reference to the three-limbed test derived from Brownlie to determine whether a claim falls within a jurisdictional gateway for permission to serve out of the jurisdiction.

Sir Julian Flaux held that although the same phrase “good arguable case” is used in both the jurisdictional gateways and freezing injunction contexts, there is no reason why they should have the same meaning in both situations.[9] In the freezing injunction context, the test to be applied is a merits threshold, which is relatively low in the Niedersachsen, because the merits will be decided at trial. In contrast, the jurisdictional gateway test is more about whether the case can proceed in that jurisdiction, not about the merits of the case.

Sir Julian Flaux, also stated that “it is invidious for the Court, at the early stage at which a freezing injunction is usually sought, to have to determine which party has “the better of the argument””.[10] In other words, the court was concerned that the application of the three-limb Brownlie test in the context of freezing orders, would encourage the parties to conduct “mini-trials” at an early stage which would cause strain on the courts.

Same test as other interim injunctions: serious issue to be tried

The court also held that the test of “good arguable case” in the context of freezing injunctions, should be regarded as the same as the “serious issue to be tried” test in the context of other interlocutory injunctions. Lord Justice Popplewell noted that it would be preferable to use the terminology “serious issue to be tried” in the context of freezing orders, and to restrict the use of the expression “good arguable case” to the context of jurisdictional gateways.

Lord Justice Popplewell dismissed the view that it was appropriate for “good arguable case” to be a more stringent test than “serious issue to be tried” notwithstanding the invasive nature of freezing relief.

He noted that historically, freezing orders were seen as extreme measures, but their frequent use today in Business and Property Courts shows this view is outdated. The justification for freezing orders is based on protecting future rights and interests. Despite differences between freezing orders and other interim injunctions, both protect substantive legal rights that are expected to be confirmed at trial. Therefore, he was of the view that the merits threshold for granting both types of orders should be the same.

The appeal was ultimately dismissed, and the Court of Appeal upheld the decision that Dos Santos should pay the costs of the freezing injunction application, which she had fought and lost.  

Implications of the ruling

The ruling provides welcome clarity to practitioners on an area of law which was in a confused state.

It ensures that the freezing injunction remedy remains accessible to claimants without imposing an unduly high merits threshold. The decision highlights the importance of maintaining a balanced approach to the granting of freezing orders.

By affirming the interpretation of the “good arguable case” test in line with the Niedersachsen, the Court of Appeal ensures that applicants can secure necessary protections against asset dissipation without the need to prove their case to a higher standard prematurely.

Moreover, the decision on costs serves as a reminder of the financial implications of contesting freezing orders, and the significant resources often expended in these applications.

Practitioners should always advise their clients on the potential cost risks involved.

FOOTNOTES

• [1] [2024] EWCA Civ 1109
• [2] [2017] UKSC 80.
• [3] [1983] 2 Lloyd's Rep 600 at 605
• [4] [2019] EWCA Civ 2203; [2020] 2 All ER (Comm) 359
• [5] [2019] EWCA Civ 10
• [6] Relying upon the decision of the Court of Appeal in Kazakhstan Kagazy plc v Atrip [2014] EWCA Civ 381
• [7] [2017] UKSC 80, [7]
• [8] [2024] EWCA Civ 1109 [96]
• [9] Ibid [97]
• [10] [2024] EWCA Civ 1109 [100]

Source:

https://www.stevens-bolton.com/site/insights/articles/court-of-appeal-clarifies-the-correct-test