YUKONG LINE LTD. v. RENDSBURG INVESTMENTS CORPORATION AND OTHERS

A freezing order may be made against a co-defendant against whom the claimant has no direct cause of action. The order must be ancillary to a substantive claim against another defendant, and there must be grounds for believing that the co-defendant possesses or controls assets beneficially belonging to that defendant.

The order should identify those assets as closely as circumstances permit. Where their proceeds cannot readily be traced, it may extend to the co-defendant’s general assets up to their estimated value.

An inquiry under a cross-undertaking ordinarily requires credible evidence that the order arguably caused loss. The court retains an equitable discretion and may consider the injunctee’s conduct and the apparent viability of the proposed claim.

The claimant obtained freezing relief during proceedings arising from the repudiation of a time charter. Although the personal claims against the third defendant were dismissed, the trial judge found that he had controlled the contracting company and had caused its funds to be transferred beyond the claimant’s reach.

A subsequent order continued a freezing injunction over the third defendant’s assets up to US$245,000 as relief ancillary to the claim against the company. The injunction was later discharged by consent. The third defendant sought an inquiry under the claimant’s cross-undertaking in damages, alleging that the order had prevented him from investing in a contracts-of-affreightment venture.

Aikens J dismissed the application. The appeal concerned whether the freezing order had been wrongly granted and whether credible evidence showed that it had caused personal loss.

1. Appeal dismissed unanimously. Potter LJ delivered the judgment, with which Hale and Thorpe LJJ agreed. The freezing order had been made within the court’s jurisdiction, and the appellant had produced no credible evidence that it caused him personal loss.
2. The court may freeze assets held or controlled by a co-defendant against whom no direct cause of action lies. The jurisdiction depends on the order being ancillary and incidental to a substantive claim against a principal defendant. There must be grounds for believing that the co-defendant possesses or controls assets beneficially belonging to the principal defendant. The jurisdiction recognised in TSB Private Bank International SA v Chabra [1992] 1 WLR 231 and approved in Mercantile Group v Aiyela [1994] QB 366 therefore applied.
3. The form of a freezing order should be as specific as circumstances permit and no wider than necessary. Nevertheless, where a co-defendant has participated in making the principal defendant judgment-proof and the transferred assets or proceeds cannot readily be identified, the order may extend to the co-defendant’s general assets up to the value apparently possessed or controlled. The findings about the appellant’s control of the companies, his participation in the transfers and his failure to explain the destination of the money justified the order made.
4. The legal basis of an order is determined primarily from the judge’s reasons. Where the judge identifies the jurisdiction, the supporting facts and the legal basis, the order is ordinarily treated as regularly made unless successfully challenged. The wording here was not inconsistent with the identified jurisdiction.
5. Enforcement of a cross-undertaking is discretionary and governed by equitable principles. If an injunction was wrongly granted and may have caused loss, an inquiry will ordinarily follow. The applicant must, however, provide credible evidence of loss arguably caused by the order; an inquiry need not be ordered where the proposed claim is plainly unsustainable. Conduct may constitute a special circumstance affecting enforcement and may bear on the credibility of the evidence.
6. The contemporaneous documents did not show that the appellant possessed or could raise the proposed investment or that the injunction prevented it. He had neither pursued his application to vary the order nor sought permission to make the investment. The proposed additional evidence was refused under the flexible approach permitted by rule 52.11(2) of the Civil Procedure Rules 1998. It would have reinforced, rather than displaced, the conclusion that his evidence was unreliable.

1. Court of Appeal (Civil Division): The third defendant’s appeal was dismissed unanimously. Costs were ordered on the standard basis and permission to appeal was refused.
2. High Court, Queen’s Bench Division: Aikens J dismissed the third defendant’s application for an inquiry under the cross-undertaking in damages and ordered him to pay the claimant’s costs.
3. Court of Appeal: On 17 June 1999 the court allowed an earlier procedural appeal and restored the application for an inquiry for hearing in the Commercial Court.
4. High Court: Timothy Walker J had dismissed that application after refusing an adjournment.