RBS Invoice Finance Ltd v Karia & Ors

For continuation of a freezing order, the claimant must show a case capable of serious argument and good evidence of a real risk that the defendants will dissipate assets outside the ordinary course of business or living, thereby frustrating a judgment. The jurisdiction protects the effectiveness of a possible judgment; it does not make the claimant a secured creditor. Alleged fraud may support an inference of dissipation, but the court must scrutinise the allegation carefully and assess the surrounding circumstances. Dishonesty alleged in evidence or an intended house sale will not, without more, establish the required risk. Where the risk is not proved, the order must be discharged.

RBS Invoice Finance Ltd obtained an interim freezing order without notice against Mayus Karia, RAM Recycling Ltd and Grittco Ltd. The order restrained dealings with assets up to £467,000 and required disclosure of assets. RBS alleged that funds advanced under a factoring agreement with RAM Tippers Ltd had been misappropriated and transferred to the defendants, and claimed fraud, conversion and dishonest assistance.

At the substantive hearing, RBS sought continuation of the order until trial. The defendants relied on explanations for the payments and transfers, disputed the alleged dishonesty, and sought discharge. The central issues were whether RBS had a good arguable claim and whether there was a real risk of dissipation sufficient to justify continuation of the order.

1. The application to continue the freezing order was dismissed and the order was discharged in its entirety.

2. For the good arguable case requirement, the court could not resolve disputed facts or determine the ultimate merits. It nevertheless had to consider the apparent strengths and weaknesses of the claim. Applying the approach in The Niedersachsen [1983] 2 Lloyds Reports 600, the claim met the threshold because substantial sums had moved from RAM Tippers to the defendants, RAM Tippers appeared to have been reduced to a shell, and remittances appeared to have been used contrary to the factoring agreement. The alleged oral agreement relied on to justify that use was undocumented and disputed.

3. A real risk of dissipation requires good evidence that assets will be dealt with outside the ordinary course of business or living so as to defeat a judgment. The purpose of the jurisdiction is protective, not to confer security for the claim. The alleged transfer of funds and the circumstances supporting the fraud allegation could constitute a factor pointing to dissipation, but the inference was weakened by the explanations and by the traceable transfer between two United Kingdom bank accounts.

4. Alleged dishonesty by witnesses in resisting the injunction, and allegations of threats, did not establish the same inference. The court applied the caution in Thane Investments Limited and others v. Tomlinson and Others [2003] EWCA Civ 1272 that allegations of dishonesty require careful scrutiny before they justify an inference of likely dissipation. The proposed sale of Mr Karia’s house also did not support the required risk, since it pre-dated his dealings with RBS and was credibly explained.

5. Although the court considered that continuation would have been just and convenient if a real risk had been established, that issue did not arise once the evidential requirement failed. The order was therefore discharged.