Vneshprombank LLC v Bedzhamov & Ors

Under a pre-judgment freezing order, an individual defendant may ordinarily spend enough to maintain the standard of living genuinely enjoyed before the order. Past expenditure is a question of fact, not merely evidence from which the court predicts future spending. The court does not impose its own view of reasonable or prudent expenditure.

The court may test extravagant or unsupported claims with healthy scepticism and require convincing evidence. Significant expenses may be ring-fenced. A defendant is generally free to pay genuine debts because a freezing order neither secures the claim nor gives the claimant priority over creditors.

A Russian bank in liquidation brought a non-proprietary claim alleging that the first defendant had participated in a substantial fraud. A worldwide freezing order permitted limited expenditure on rent and ordinary living expenses. The defendant maintained that the allowance prevented his family from preserving its established standard of living.

HHJ Jarman QC, sitting in the High Court, limited total living expenses, including rent, to £80,000 per month: [2019] EWHC 1906 (Ch). He considered both the defendant’s past lifestyle and whether that expenditure would have continued without the freezing order. The defendant appealed the living-expenses ruling and the refusal to permit payment of alleged debts. The bank also sought permission to appeal from Arnold J’s subsequent order permitting payment of Monaco rent.

The central issue was whether the ordinary-living-expenses exception depends on the defendant’s actual pre-order standard of living or a prediction of future expenditure in light of changed financial circumstances.

1. Appeal allowed in part. The High Court had adopted the wrong approach to ordinary living expenses. Under a pre-judgment freezing order, the court should determine the defendant’s actual past standard of living. It should not predict what the defendant would have spent without the order or what he will spend as litigation progresses. Males LJ gave the principal judgment; Newey LJ agreed. Sir Geoffrey Vos agreed with the governing principles and most of their application.

2. A freezing order prevents dealings outside the ordinary course that risk making a future judgment unenforceable. It does not provide security or entitle the claimant to priority. Subject to preventing dissipation, a defendant remains free to use his own money. Accordingly, ordinary living expenses are those genuinely incurred as part of the defendant’s established way of life. They need not satisfy an objective judicial standard of reasonableness or prudence.

3. The court must prevent oppression, including hardship imposed on dependent family members. Save possibly in very exceptional circumstances, an order should not prevent a defendant with available funds from meeting proven existing commitments where that would cause him or his family to lose their homes. The defendant was therefore permitted to pay the existing Monaco rent, obtain comparable London accommodation, and pay his children’s existing school fees.

4. The court may approach unsupported assertions with healthy scepticism. The more extravagant the claimed expenditure, and the greater the doubts about disclosure or credibility, the stronger the supporting evidence required. Significant expenses may be ring-fenced so that permission to incur them does not permit the money to be spent otherwise. On the limited reliable evidence, £40,000 per month was allowed for general living expenses.

5. By a majority, expenditure on private security was separately permitted and ring-fenced. Sir Geoffrey Vos dissented on that detail because security had not been employed during the year preceding the order. He also preferred a lower London rent and deposit, but Newey LJ’s agreement with Males LJ determined the order.

6. The appeal concerning alleged loans and golf-club debts was dismissed. Although a defendant may generally pay genuine debts, the judge was entitled to find the evidence insufficient. Permission to appeal Arnold J’s Monaco-rent order was refused as academic.

1. Court of Appeal (Civil Division): By [2019] EWCA Civ 1992, allowed the defendant’s appeal concerning living expenses, varied the operative allowance, dismissed his appeal concerning alleged debts, and refused the bank permission to appeal Arnold J’s Monaco-rent order.
2. High Court, HHJ Jarman QC: By [2019] EWHC 1906 (Ch), limited ordinary living expenses, including rent, to £80,000 per month and permitted only some alleged debts to be paid.
3. High Court, Arnold J: On 5 September 2019, permitted payment of quarterly rent on the Monaco apartment after evidence that non-payment would lead to the family’s eviction.