Organic Grape Spirit Ltd v Nueva IQT, SL

The Court of Appeal allowed an appeal against a High Court freezing order provision that barred a respondent company from using loan funds to develop a new business. The court restated the established principles governing freezing (Mareva) injunctions: the jurisdiction is concerned with preventing unjustified dissipation rather than restricting lawful business activity; spending in the ordinary and proper course of business is normally permitted; and disallowing business activity requires either bad faith, an apparent purpose to put assets beyond reach, or that the proposed trading is so devoid of reasonable prospect or so improper that it would not be "proper" or comport with acceptable standards of commercial behaviour.

The court held that OGSL had not been shown to be acting in bad faith nor to be pursuing a business with the object of putting assets beyond the reach of creditors, and that the Judge was wrong to treat mere speculation, "question marks" or risk as sufficient to prevent the company developing its fledgling business. The court ordered deletion of the provisions of the freezing order that prohibited pursuit of the business described in the business plan and witness statement.

Background and parties: The respondent (Nueva) is a Spanish company which advanced €12m to a newly formed UK company, Organic Grape Spirit Limited (OGSL), under an alleged loan agreement. OGSL, controlled by a young director, had spent about €1.6m setting up plant and buying equipment to pursue a spirits-production business outlined in a business plan. Nueva commenced Spanish proceedings challenging the validity of the loan and applied in England for a worldwide freezing order under section 25 of the Civil Jurisdiction and Judgments Act 1982.

Procedural history: A without‑notice freezing order was initially granted by Nugee J on 16 March 2020 but expressly permitted expenditure in the ordinary and proper course of business. Morgan J continued the freezing order on 30 March 2020 but added express prohibitions preventing OGSL from using the remaining funds to develop the business described in the business plan. OGSL appealed to the Court of Appeal.

(i) Nature of the application: The respondent in the English proceedings sought continuation of a worldwide freezing order in aid of anticipated Spanish proceedings; the issue on appeal was whether the freezing order could lawfully prevent OGSL from spending money to develop a new trading enterprise.

(ii) Issues framed by the court: The Court of Appeal framed two main issues: whether the proposed expenditure would fall within the "ordinary and proper course of business" exception to a freezing order; and, if not, whether the judge should nonetheless have authorised the proposed dealings.

(iii) Reasoning and decision: The court concluded that OGSL had not yet established a pattern of trading sufficient to bring the proposed expenditure within the ordinary and proper course of business, so OGSL needed express court authorisation to undertake it. On the second issue, the court held that the judge had erred in treating speculative risk or "question marks" about prospects as sufficient to justify forbidding the business. Absent bad faith, an intention to put assets beyond reach, or that the enterprise lacked any reasonable prospect or was otherwise improper, the court should not prohibit a defendant from pursuing a business merely because it is risky. Applying those principles, the Court of Appeal allowed the appeal and ordered amendment of the freezing order to permit OGSL to pursue the business set out in the business plan and witness statement.

Appeal allowed. The Court held that the judge had erred in preventing OGSL from pursuing the fledgling business simply because it was speculative and carried risk. There was no finding of bad faith or an intention to put assets beyond reach, and mere risk or "question marks" did not justify prohibiting trading. The Court ordered deletion of the provisions of the freezing order that barred OGSL from using funds to develop the business described in the business plan and witness statement.

Appeal from Morgan J (Business and Property Courts (ChD)) whose order dated 30 March 2020 continued a worldwide freezing order; initial without‑notice injunction granted by Nugee J on 16 March 2020. (High Court judgment cited as [2020] EWHC 1837 (Ch)). Appeal decided in the Court of Appeal, [2020] EWCA Civ 999.