Technocrats International Inc v Fredic Ltd

A freezing order is relief in personam. Its standard security provision protects a claimant against the defendant’s removal or dissipation of assets. It does not ordinarily create a proprietary interest, charge, or priority in an insolvency.

A payment into court, or into solicitors’ control, will create security over the fund only if the relevant order requires the defendant to satisfy any judgment from that fund, or otherwise clearly confers a security right. The words “as security” in a standard freezing-order provision do not, without more, impose that obligation.

Technocrats claimed damages from Fredic for failing to accept an offer to purchase Hampton Court House in accordance with a commission agreement. During the proceedings, freezing orders were made against Fredic and related defendants. By consent, £700,000 was paid to the defendants’ solicitors, who undertook to hold it as security, and the freezing order was discharged.

Fredic subsequently entered administration. Technocrats contended that the £700,000 was subject to an enforceable security interest ranking ahead of other creditors. The administrator accepted that the summary-judgment proceedings could continue and invited the court to determine the status of the money. The central issue was the meaning and effect of “security” in the standard freezing-order provision.

1. The security issue. The court held that Technocrats had no security interest in the £700,000. The consent order incorporated the standard wording of the freezing order, so the issue did not turn on any special contractual language.
2. A freezing order is relief in personam. It restrains removal or dissipation of assets but does not constitute a pre-trial attachment or give the claimant rights against the assets. The court followed the principle established in Cretanor Maritime Co Ltd v Irish Marine Management Ltd [1978] 1 WLR 966, and applied the reasoning in Iraqi Ministry of Defence v Arcepey [1980] 1 All ER 480.
3. The purpose of the standard security provision is to remove the risk that assets will be dissipated or removed from the jurisdiction. It does not improve the claimant’s position in an insolvency. A bank guarantee may provide a secure means of payment, depending on its wording, but that does not mean that a payment into court or solicitors’ control creates a charge.
4. The court adopted the approach of the Court of Appeal in Flightline Ltd v Edwards and Smith [2003] EWCA Civ 63, namely that an equitable charge requires more than restriction on disposal: there must be an obligation to pay the judgment debt out of the fund. Neither the consent order nor the freezing order contained such an obligation. The earlier decision of Neuberger J, Flightline Ltd v Edwards and Smith [2002] EWHC 1648, was not followed to the extent that it treated the fund as charged.
5. Further orders. GSC was released from its undertaking and the consent order was set aside on payment of the money, with interest, to the administrator. The administrator undertook to place it in a suitable interest-bearing account and to give Technocrats’ solicitors 10 days’ written notice before taking any other step concerning it. The action was transferred to the Chancery Division. No order was made against Alexander or Lady Eliana Houstoun-Boswall.

First-instance decision. The judgment itself does not state any prior appellate history.