Fourie (Appellant) v. Le Roux and others (Respondents)

A freezing injunction is a supplementary remedy which protects the enforcement of a prospective judgment. It is neither a proprietary remedy nor a means of giving advance security. A court possessing in personam jurisdiction may have power to grant the injunction before substantive proceedings begin, but proper exercise of that power requires the claimant to identify proceedings already brought or about to be brought and the claim on which judgment is expected.

The court must apply the requirement that relief be just and convenient with regard to both parties. A without-notice freezing order should be discharged where no substantive claim has been formulated and no directions secure its prompt commencement. Enforcement of the cross-undertaking may await determination of the merits where entitlement to the frozen assets or equivalent damages remains disputed.

The appellant was liquidator of two South African companies. He alleged that the first respondent and an English company under his control had fraudulently stripped one company of its assets and moved assets or their proceeds to England. Park J granted a without-notice freezing order for £3.4 million, although no substantive claim had been formulated and no undertaking to commence one was given.

A deputy High Court judge discharged that order, awarded indemnity costs and directed immediate enforcement of the cross-undertaking in damages. Later the same day, after a proposed claim form was produced and an undertaking was given, the deputy judge granted a replacement freezing order. The Court of Appeal dismissed the appeal from the discharge and costs orders: [2005] EWCA Civ 204.

The issues were whether the High Court lacked jurisdiction in the strict sense, whether the original order was nevertheless improper, and whether the indemnity costs and cross-undertaking directions should stand.

1. Disposition. The House dismissed the appeal against the discharge of the original freezing order. By a majority of four to one it also declined to disturb the indemnity costs order. It unanimously set aside the directions for immediate enforcement of the cross-undertaking in damages.

2. Jurisdiction. Per Lord Scott of Foscote, whose leading reasoning on the main issue was adopted by the other Law Lords, the deputy judge and Court of Appeal had used “jurisdiction” in an unduly strict sense. The High Court possessed in personam jurisdiction over the respondents and therefore had power to grant an injunction. Section 37 of the Supreme Court Act 1981 confirmed, but did not create, that power. The authorities culminating in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd showed that interim relief could be ancillary to final relief granted by another court or arbitral body. Section 25 of the Civil Jurisdiction and Judgments Act 1982, as extended to foreign proceedings, also established strict jurisdiction. No commencement of substantive proceedings was required to “activate” it.

3. Propriety and safeguards. Per Lord Bingham of Cornhill and Lord Scott, with the importance of the safeguards accepted throughout the House, a freezing order serves the limited purpose of preventing dissipation which would frustrate enforcement of a prospective judgment. It is neither proprietary relief nor advance security. Because the remedy is draconian, a claimant must identify the proceedings already brought or about to be brought, the legal basis of the expected judgment and the substantive relief to which the injunction will be ancillary. The interests of both claimant and defendant inform whether relief is just and convenient. No substantive claim had been formulated before Park J and no directions required prompt commencement. The necessary protection for the respondents was therefore absent, so the order had been improperly made and was rightly discharged.

4. Indemnity costs. Lord Scott considered costs primarily a matter for the first-instance judge, subject to correction by the Court of Appeal for an error of principle. Although Lord Scott, Lord Rodger of Earlsferry and Lord Carswell expressed reservations, they concluded with Lord Bingham that the House should not interfere after the Court of Appeal found no such error. Lord Hope of Craighead dissented on this issue. He considered that indemnity costs required unreasonable conduct and that obtaining an unsustainable without-notice order did not, without more, meet that standard.

5. Cross-undertaking. Per Lord Scott, with all Law Lords agreeing in the order, immediate enforcement was wrong in principle. The respondents faced reasonably arguable claims that they had fraudulently obtained the assets or owed equivalent damages. Whether compensation should be paid for loss caused by the freezing order should therefore await the outcome of the substantive litigation.

1. House of Lords — [2007] UKHL 1: Dismissed the appeal concerning discharge of the original freezing order and, by four to one, the indemnity costs order. Unanimously set aside the directions for immediate enforcement of the cross-undertaking.
2. Court of Appeal — [2005] EWCA Civ 204: Dismissed the appeal from the discharge and indemnity costs orders. It also upheld the later freezing order, subject to a £900,000 limit.
3. High Court, deputy judge: Discharged Park J’s freezing order, awarded indemnity costs and directed immediate enforcement of the cross-undertaking. Later the same day, after a proposed claim and undertaking were produced, he granted a replacement order.
4. High Court, Park J: Granted the original £3.4 million freezing order on a without-notice application despite the absence of a formulated substantive claim or undertaking to commence one.