Berezovsky v Wah

Where a defendant has committed a flagrant contempt of a freezing order, the court may debar the defendant from defending, but only where that sanction is necessary and proportionate and no lesser measure will suffice. Conditional leave to defend may instead require payment into court. A party who claims that such a condition is stifling bears the burden of proving it with full and reliable financial detail. A bare assertion on oath, unsupported by proper information about assets, liabilities and available funding, will not establish that the condition cannot be met.

The claimants alleged that the defendant had caused them to part with $5 million by fraud. They claimed for deceit, fraudulent misrepresentation and a constructive trust. A freezing order had been made, which the defendant breached, including its disclosure requirements. Gray J refused to debar him from defending but granted conditional leave to defend on payment of $2.5 million into court. He later refused to reduce the condition to $1.2 million and required that sum as a condition of a stay pending appeal. The defendant renewed his application for permission to appeal, arguing that the condition was stifling because he could not raise more than $1.2 million. The central issue was whether Gray J had erred in refusing to vary the condition.

The renewed application for permission to appeal was refused unanimously. Jacob LJ gave the first judgment and Mummery LJ agreed.

1. The court accepted that a flagrant breach of a freezing order can justify debarring a defendant from defending. That power is exceptional: it may be exercised only when necessary and proportionate, and when no lesser measure will suffice.
2. Gray J had declined to impose the ultimate sanction. Although he regarded the defence as extremely weak, he granted conditional leave to defend. Requiring $2.5 million to be paid into court was, in substance, a lesser measure adopted after considering what would be appropriate if summary judgment had been sought.
3. The defendant argued that the condition was stifling because he could raise only $1.2 million. The burden was on him to establish that contention. A bare assertion on oath was inadequate. The evidence did not give a sufficiently complete account of his assets, the proposed borrowing, or the position of a person referred to in his disclosure affidavit. The proposed $1.2 million had not been paid into court or placed in his solicitors’ hands.
4. On that evidence, the condition had not been shown to be stifling. Gray J had made no error in refusing to vary the order of 20 January 2005. Permission to appeal against the orders of 20 January and 17 February 2005 was therefore refused. There was no order for costs.

1. Court of Appeal (Civil Division): The renewed application for permission to appeal was refused. [2005] EWCA Civ 428
2. High Court, Queen’s Bench Division: Gray J ordered payment of $2.5 million into court as a condition of defending the claim, later refused to vary that condition to $1.2 million, and imposed the latter sum as a condition of a stay pending appeal.