Clarifying the merits threshold for worldwide freezing injunctions: A Dos Santos case reflection

The Court of Appeal was recently asked to clarify the merits threshold for the granting of worldwide freezing injunctions ("WFOs"). In Dos Santos v Unitel SA [2024] EWCA CIV 1109 the court determined that the threshold is the same as the "serious issue to be tried" test set out in American Cyanamid Co v Ethicon Ltd [1975] AC 396.

Facts

Angola's largest mobile telecoms company, Unitel S.A., brought a claim for €300 million in unpaid loans against Unitel International Holdings B.V. (“UIH”), a Dutch company owned by Ms dos Santos. Two years into the proceedings, Unitel applied to join Ms. dos Santos as a personal defendant and sought a WFO against her.

The facts of the substantive claims are complex, but the crux of Ms dos Santos' defence to the injunction application was that the claim had been brought too late under the law of Angola and so had no merits on that basis.

The issues in dispute

The injunction application was first heard in the English High Court in November 2023. It was common ground between the parties that the judge (Bright J) should apply the long-accepted test for securing a WFO, in which the applicant must show:

The existence of a good arguable case on the merits;

A real risk, assessed objectively, that a future judgment may not be fulfilled due to unjustified dissipation of assets; and

It is just and convenient under the circumstances to grant the WFO.

Despite agreement on the overall test, there was a dispute about the meaning of "good arguable case" in this context. Bright J recognised that there had been a series of cases reaching conflicting conclusions on this and described the law on this point as being in a "confused state".

Unitel's position was that "good arguable case" was a low threshold test, as set out by Mustill J in Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH ("The Niedersachsen") [1984] 1 All ER 398, with the court needing to be persuaded only that the claim was: " more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success."

In response, Ms dos Santos argued that the judgment of Haddon-Cave LJ in Lakatamia Shipping Co. Ltd v Morimoto [2019] EWCA Civ 223 had changed the law, so that the "good arguable case" requirement now has the same meaning for WFO applications as in the context of jurisdiction gateway cases. This would mean a higher bar, with the applicant having to show it has the "better of the argument" (i.e. a better than 50% chance of success) in order to obtain a WFO.

In the event, Bright J's judgment was that Unitel succeeded on either interpretation of the good arguable case test – including the higher 'better of the argument' bar - and the WFO was granted. Bright J refused permission to appeal, but he did acknowledge that “fragmenting the phrase ‘good arguable case’ to assign it two different meanings based on context appears convoluted. If this is the eventual outcome, it would be better to use different terms to express different tests, rather than the same phrase.”

An icy victory for Unitel?

Ms dos Santos then asked for permission to appeal again at Court of Appeal level. This time it was allowed on the basis that the grounds raised an important issue of law on which there has been divergence between High Court judges.

The Court of Appeal dismissed Ms dos Santos' appeal, upholding the WFO against her. It unanimously held that the correct test to be applied is the lower threshold of 'serious issue to be tried', as formulated by Mustill J in The Niedersachsen. The Court clarified that it was a misreading of Lakatamia to suggest that a higher bar applied. They agreed with Bright J's concern that determining which party had "the better of the argument" at an early stage could lead to unnecessary mini-trials and consume court resources.

The Court further clarified that "good arguable case" is an "inherently flexible term", which does not need to have the same meaning in an injunction context as it does in the context of jurisdictional gateways. That said, the Court recognised that it is unhelpful to ascribe the same language to different tests, and so recommended reserving the term "good arguable case" for jurisdictional gateway matters and using "serious issue to be tried" for both WFOs and interim injunctions to avoid confusion. 

Regarding concerns that this standard is too lenient for WFOs, the Court cited the other onerous requirements of WFO applications, including demonstrating a real risk of asset dissipation and that granting the WFO is just and convenient, together with providing cross-undertakings in damages..

Key takeaways

The decision is an important clarification for all those engaged in seeking and defending against WFOs, perhaps the most wide-ranging and draconian of remedies. The confusion as to whether the applicant must show it has a 'serious issue to be tried' or the higher test of having the 'better of the argument' is resolved in favour of the former.

Those, like Ms dos Santos, seeking to repel WFOs will have a more difficult time doing so and this improves the ground for litigants seeking to freeze assets.

But the decision could prove something of a double-edged sword for applicants. Although WFOs are arguably now easier to obtain given the lower threshold, the characterisation of the test as requiring a 'serious issue to be tried' brings it in line with the test used to assess summary judgment / strike out applications. As such, if the applicant tries, but fails, to obtain a WFO, this has the potential to be fatal to the underlying claim. Unsuccessful applicants may then find themselves on the wrong end of an application to strike out the whole claim.

The judgment also provided useful clarification on costs, holding for the court's approach in freezing injunction applications differs from that of interim injunctions. In the case of a freezing injunction application, a costs order can often be issued immediately, and there is no presumption (as with other types of interim relief) that costs will typically be deferred.

If you are faced with this situation or have been served with any potential claim in England and Wales, our English Dispute Resolution Team will be well placed to advise on the appropriate strategy to best achieve your aims.