STRATEGIES AND TACTICS IN FREEZING INJUNCTIONS: THE COLLATERAL USE UNDERTAKING
Authored by: Andrew Ayres KC (Barrister) - Twenty Essex & Andrew Barns-Graham (Barrister) - 3 Hare Court
This year marks the golden anniversary of Lord Denning’s seminal decision on freezing injunctions in Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213. (The case was reported in 1980, but the hearing took place on 23 June 1975.) To mark the occasion, Andrew Ayres KC of Twenty Essex and Andrew Barns-Graham of 3 Hare Court have published this series of articles, in which they explore the boundaries of freezing injunctions and provide their tactical and drafting recommendations. This is the second article in the series.
Introduction
The model freezing injunctions include the following undertaking:
“The Applicant will not without the permission of the Court use any information obtained as a result of this
1
order for the purpose of any civil or criminal proceedings, either in England and Wales or in any other jurisdiction, other than this claim.”1
In this article, we address the rationales for this undertaking, its scope, and the circumstances in which the court relaxes it. We then provide our analysis and practical suggestions.
information disclosed for the purpose of litigation in this jurisdiction.2
There are two rationales for this policy:3
(1) a disclosure order frequently involves interference with the confidentiality and privacy rights of the disclosing party and the extent of that interference should be confined to the purpose which it serves; and
(2) the existence of collateral use restrictions encourages parties to comply fully with their disclosure obligations on the footing that unhelpful, private or confidential material will not generally be deployed against them in other contexts.
Rationales
The undertaking forms part of a wider policy of English law which aims to prevent the misuse of documents and
Suppose, for example, that a claimant obtained a freezing injunction and then discontinued proceedings immediately following receipt of the defendant’s asset disclosure, because the claimant’s real objective in launching the proceedings was to obtain the asset disclosure and then deploy it in
foreign proceedings in which it was unobtainable. This would be an abuse of the English court’s procedure and an unjustified invasion of the defendant’s privacy and confidentiality rights.
Breach of the undertaking is a serious matter. It is a contempt of court and an action commenced in reliance on documents used in breach is liable to be struck out.4
(3) The courts have ascribed the widest possible meaning to the term “use”. It does not just encompass the active deployment of information; merely reading the information, copying it, or showing it to another person constitutes a “use”.5
(4) There is an implied permission to review documents to decide whether to seek a release, but doing anything further may constitute a breach.6 The implied permission does not extend to advising on other proceedings,7 and has been found only to be available to a party who somehow already knows, prior to commencing the review, which documents it wishes to use for a collateral purpose.8
Scope
The undertaking’s scope is wide in the following five respects:
(1) It applies not only to the initial asset disclosure letter and affidavit; it encompasses the information contained in these documents. In fraud cases, this information often infiltrates pleadings and other documents, e.g. where the claimant draws inferences if the value of the defendant’s disclosed assets exceeds what might be expected based on their known legitimate income, or if their asset-holding structures bear the hallmarks of money-laundering.
(2) It applies not only to information obtained pursuant to the defendant’s compliance with the injunction, but to all information obtained as a result of the injunction. This is a significant distinction, as parties often exchange voluminous correspondence concerning assets and funding which exceeds the limits of strict compliance.
4 Riddick v Thames Board Mills [1977] QB 881.
(5) Unlike the collateral use restrictions in the CPR, the undertaking remains effective even after information has been read or referred to in open court.9
Release
The court is “circumspect and protective” when it comes to collateral use.10 An applicant for a release therefore bears a heavy burden: they must satisfy the court, cogently and persuasively, that there are special circumstances justifying a release and that it will not occasion injustice to the disclosing party.11
However, in cases involving related criminal investigations/proceedings or cross-border litigation, the courts have often held that the public interest in the administration of justice and international judicial comity take
precedence over the prevention of collateral use.12
Occasionally, a recipient of disclosure contends that they are compelled to disclose documents in a foreign jurisdiction, but the disclosing party disputes this. The courts tend to give applicants the benefit of the doubt in such cases, to avoid forcing them to choose between risking being in contempt in the English proceedings or facing some sanction in the foreign jurisdiction.13
Disclosing parties occasionally protest that they will suffer injustice if the restriction is relaxed to permit use overseas, e.g. by being deprived of the ability to invoke privilege against selfincrimination, but the court’s general approach in such cases is to trust the foreign court to provide appropriate protection.14
As noted above, the undertaking remains effective in respect of asset disclosure provided pursuant to a freezing injunction even after information has entered the public domain in open court; however, this publicity is a powerful factor in favour of a release, and the burden shifts to the party resisting collateral use to justify the continuation of the undertaking.15
Other factors supporting a release include where the application concerns a limited number of documents and/ or a limited purpose;16 or where the documents are to be used for an action with related subject-matter;17 or where the same disclosure could be obtained by way of a third party disclosure order in the other proceedings.18
It is, however, generally necessary to seek the court’s permission ahead of the proposed collateral use. Whilst it is possible to obtain permission retrospectively, this is “rare”,19 and the court may punish even a successful late applicant with an indemnity costs order.20
5 IG Index Ltd v Cloete [2014] EWCA Civ 1128, at [40], per Christopher Clarke LJ.
6 Per Cockerill J at [59] of Lakatamia Shipping Company Ltd v Nobu Su [2020] EWHC 3201 (Comm).
7 Tchenguiz v Director of the Serious Fraud Office [2014] EWHC 1315 (Comm), at [12]-[14], per Eder J; Tchenguiz v Grant Thornton LLP [2017] EWHC 310 (Comm), at [31], per Knowles J.
8 Tchenguiz v Grant Thornton, at [29].
9 Per Lord Diplock and Lord Keith in Home Office v Harman [1983] 1 AC 280, at 305 and 307.
10 Per Hildyard J at [26] of ACL Netherlands BV v Lynch [2019] EWHC 249 (Ch).
11 Per Lord Oliver in Crest Homes Plc v Marks [1987] AC 829, at 859G-860C.
12 See, e.g., Marlwood Commercial v Kozeny [2005] 1 WLR 104, in which the Court of Appeal upheld an order for disclosure of documents to the SFO in accordance with notices issued by the SFO.
13 See Bank of Crete v Kosokotas No.2 [1992] 1 WLR 919, at 926C-E; PJSC National Bank Trust v Mints [2020] EWHC 3253 (Comm), at [18]; Privatbank, at [54]. However, contrast these cases with Sita UK Group Holdings Limited v Andre Paul Serruys [2009] EWHC 869 (QB) (the claimants wished to provide documents to HMRC about possible tax frauds, but permission was refused principally because HMRC did not support the application); and Lynch (the court refused permission because it was not persuaded that disclosure was compulsory under a US subpoena or that there was any other pressing need for disclosure in the US).
14 Kozeny (cit. sup.) at [33]; Attorney General for Gibraltar v May [1999] 1 WLR 998.
15 Per Bryan J at [153]-[154] of Mints; see also Privatbank.
16 Tchenguiz v SFO, at [19].
17 See Crest Homes (claimant permitted to use documents obtained via a search order for the purpose of committal proceedings against the defendant) and BDW Trading Ltd v Fitzpatrick [2015] EWHC 3490 (claimant permitted to use documents for the purpose of related proprietary claims against third parties and for a disciplinary investigation and potential disciplinary proceedings against the defendant, a former employee of the claimant); see also Sybron Corporation v Barclays Bank Plc [1985] Ch 299 and Bank of Crete.
18 Re France (A Bankrupt) [2014] EWHC 2123 (Ch).
19 Per Coulson J in Shlaimoun v Mining Technologies International LLC [2012] 1 WLR 1276, at [43]-[46].
20 Lakatamia, at [136]-[139].
“In
the
present case that is true, but that
is
because of the purpose of
Analysis
The policy rationales underpinning the collateral use undertaking are important, but in our view the courts’ strict approach results in surprising outcomes.
For example, once the defendant’s asset disclosure is referred to in open court, the claimant becomes the only person in the world who cannot use it freely. Journalists can report on it, and yet the claimant still needs permission before making any collateral use.
CPR 31.22 permits the collateral use of other disclosed documents in such circumstances unless the disclosing party obtains an order continuing the restriction. In our view, the undertakings in the model injunctions should provide likewise. The court confirmed in Mints that the evidential burden shifts in such circumstances; so too should the procedural burden.
We also disagree with the courts’ broad interpretation of “use”.21 Recipients of asset disclosure (and disclosure generally) should be free to review documents and seek advice on potential collateral uses; it is the only the active deployment of information which should be prohibited.
This narrower interpretation would achieve a fairer balance between the parties. The existing interpretation precludes international legal teams even from discussing the possibility of collateral use without prior permission. This has a significant chilling effect on cross-border asset recovery and is unduly prejudicial to the recipients of disclosure.
Conversely, disclosing parties would suffer no significant injustice if their counterparties were free to review and discuss disclosed documents and seek advice on them. This point was raised in Tchenguiz v Grant Thornton and Knowles J responded as follows (at [22]):
the review sought.22 The interference represented by the review in another case might be far greater. What, for example, of a review designed materially to inform the commercial conduct of the reviewer in a market in which reviewer and owner both participated? If review is not “use” then a review for that purpose would be outside the collateral use protections, and I do not think that can have been the intention.”
In our view, however, it was not the intention that a document reviewer would breach the collateral use rules – and, in the case of the undertaking, be in contempt of court – merely by reading a document with a non-permitted purpose in their mind. The real objection is not to thinking about whether to use documents for a non-permitted purpose, but to actually doing so.
Unfortunately, though, we expect it may be difficult to persuade a judge to modify the standard form undertaking in the model freezing injunctions in the ways suggested above. The courts’ position has become entrenched and is unlikely to change, absent new appellate authority or legislative change.
A possible exception may be if the applicant already knows at the time of a freezing injunction application that he will be obliged (or have some other pressing need) to use the defendant’s asset disclosure for a specific collateral purpose, such as disclosure in related proceedings. The court might permit an appropriate carve-out from the undertaking in such a case. We therefore recommend that practitioners actively consider, when applying for freezing injunctions, whether any collateral uses will need to be made of
the asset disclosure, in order to save the time and cost of having to make a further application at a later stage.
We also wish to offer our ‘top three’ practical suggestions for addressing collateral use issues.
First, collateral use is a trap for the unwary. It is essential to implement information firewalls and ensure they are understood by the whole legal team and the client. Strict discipline is needed, e.g. a system for identifying applicable restrictions and a routine of considering collateral use prior to any discussion with a foreign lawyer acting in related litigation.
Second, ask the court to adopt an efficient approach to release applications. This did not happen in Tchenguiz v SFO,23 but in Tchenguiz v Grant Thornton Knowles J encouraged litigants (at [26]) to be “vigilant” to the possibility of asking the court to resolve applications on the papers or at a case management conference.
Third, remember to make release applications preemptively, as it is “rare” for permission to be granted retrospectively and no party (or legal team) will wish to be made an example of by the court.
This article does not contain legal advice. Anyone seeking advice on English freezing injunctions may contact the authors at aayres@twentyessex.com and andrewbarnsgraham@3harecourt.com.
21 Charles Hollander KC also analyses this issue in chapter 28 of Documentary Evidence (15th edition).
22 The intended purpose in this case was to obtain legal advice.
23 Eder J adopted a procedure whereby documents were divided into categories, with separate in-person applications for deciding whether to permit review of the document and then whether to permit their subsequent deployment, in each case on a document-by-document basis.
ABOUT THE AUTHORS
Andrew Ayres KC Barrister
Twenty Essex
Andrew Ayres KC has been obtaining and defending freezing and search orders since 1997.
He advises on all aspects of civil fraud litigation, including early pre-emptive remedies through to enforcement, in frauds of all kinds, including trade finance, MTIC, employee, advance fee, Ponzi and crypto.
He has an established commercial disputes practice, with a core of advocacy before courts and tribunals across the globe.
He has been recommended in the legal directories in the following areas: commercial litigation, banking & finance, civil fraud, company & partnership and commercial chancery. He was also nominated for “Chancery Silk of the Year” at the 2024 Legal 500 UK Bar Awards.
Andrew has strong multi-jurisdictional connections, particularly in the Asia Pacific region, the Caribbean and within the offshore community closer to the UK. He is a leading Cayman and Eastern Caribbean advocate and adviser, focusing on all aspects of fraud, commercial, company, insolvency and trusts litigation.
Andrew has a breadth of expertise across a range of sectors and services, including aviation, banking and finance, construction and engineering, energy and natural resources, international trade, joint ventures and partnership, professional liability and risk, structured products and derivatives and TMT.
Andrew Ayres KC - Twenty Essex
Andrew Barns-Graham Barrister
3 Hare Court
Andrew Barns-Graham is a civil fraud specialist who has acted on some of the most high-profile civil fraud cases of the last decade.
The cases on his CV include National Trust Bank v Yurov, Privatbank v Kolomoisky, and Skatteforvaltningen v Sanjay Shah, all of which are have appeared in The Lawyer’s annual lists of the ‘Top 20 cases’ and have given rise to leading authorities on freezing injunctions and other civil fraud matters.
Andrew’s areas of expertise include the various causes of action associated with civil fraud, freezing injunctions (both personal and proprietary), search orders, disclosure orders (e.g. the Norwich Pharmacal and Bankers Trust jurisdictions), conflicts of laws, jurisdiction disputes, asset tracing, and enforcement remedies.
A large proportion of Andrew’s practice is international and he has worked with clients and lawyers from numerous jurisdictions around the world. He is well-versed in the challenges which arise in complex multi-jurisdictional cases involving foreign law issues or related/parallel overseas proceedings.
Andrew Barns-Graham - 3 Hare Court