The Court of Appeal was recently asked to determine the meaning of the “good arguable case” test for the grant of a worldwide freezing injunction (WFO). Giving its judgment in Dos Santos v Unitel SA [2024] EWCA Civ 1109, the Court has said that the “good arguable case” test for granting a WFO is the same as for interim injunctions: the “serious issue to be tried” test set out in American Cyanamid Co v Ethicon Ltd [1975] AC 396.

The Court was also asked whether there is any general rule that the costs of a WFO application should be reserved. The judgment confirms that the approach to costs in the context of a freezing injunction application is distinct from that for interim injunctions. In a freezing injunction application, a costs order may well properly be made “there and then”; there is no presumption that costs will usually be reserved. 

Background

The substantive claim is brought by Unitel S.A. against a Dutch company, Unitel International Holdings B.V (“UIH”), owned by Ms dos Santos. The claim against UIH was for the non-payment of loans of over €300m. The claim against UIH was issued on 26 October 2020. Two years later, Unitel applied to join Ms dos Santos personally to the claim. Unitel also applied for a WFO against Ms dos Santos. 

At first instance, it was common ground between the parties that to obtain a WFO an applicant must show the following.

1. A good arguable case on the merits.
2. A real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets.
3. That it would be just and convenient in all the circumstances to grant the WFO.

The issue of whether Unitel has a “good arguable case” against Ms dos Santos turned on a piece of Angolan law that provides that a company may only file an action against a shareholder within six months of a shareholder resolution approving the same. The question for the court was whether the application to add Ms dos Santos as a defendant to the claim in this jurisdiction was equivalent to issuing proceedings in Angola. The Court heard expert evidence of Angolan law on this point. 

Good arguable case

Much of the argument at first instance (and subsequently on appeal) centred on the meaning of “good arguable case” in this context.

The classic formulation of the test in the context of a freezing injunction is found in The Niedersachsen [1983] 2 Lloyds Rep 600: 

“a case which is 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.” 

Unitel argued that this was and still is the correct test.

Ms dos Santos, by contrast, argued that the recent case of Lakatamia Shipping Co. Ltd v Morimoto [2019] EWCA Civ 223 had changed the legal test, which was now the same as that which is used for determining jurisdiction.

In the context of jurisdiction, having a “good arguable case” means having “the better of the argument”. This is a relative test, requiring the claimant to show that, on the evidence before the court, they have the better of the argument as against the respondent that a relevant jurisdictional gateway applies. 

Since Haddon-Cave JL’s comments in Lakatamia - which dealt with both jurisdiction and a WFO - conflicting High Court first instant decisions arose as to the correct test applicable to WFO applications. 

Bright J, at first instance, applied both tests, finding in favour of the Claimant in either case. But at the conclusion of his judgment, Bright J expressed some concerns. He said that “fragmenting the phrase “good arguable case” so as to give it two different meanings, depending on the context, seems tortuous. If that is going to be the ultimate outcome, it would seem preferable for different tests to be expressed by different words, not the same words.”

Ms dos Santos appealed to the Court of Appeal.

The decision of the Court of Appeal

The Court of Appeal was unanimous and unequivocal that the correct test to establish a good arguable case for the purpose of the merits threshold for the grant of a WFO is that found in The Neidersachsen. It was a misreading of Lakatamia to suggest it had changed the legal test.

The Court affirmed that the term “good arguable case” is an “inherently flexible concept”. There was no reason why it had to have the same meaning in the WFO context as the jurisdiction context. 

Dismissing the appeal, the Court considered that it would be invidious if it were required to determine, at an early stage when a WFO is sought, which party has “the better of the argument”. The court agreed with Bright J in his first instance judgment that a relative assessment test would be liable to draw the parties and court into the conduct of “mini-trials”. This was undesirable and would likely lead to more of the court’s resources being absorbed in interlocutory hearings. 

Having found that the test remained that from The Neidersachsen, the Court went on to conclude that it should now be recognised that the “gateway merits test for a freezing order is and should be the same as that for interim injunctions generally, namely whether there is a serious issue to be tried.” In the interests of clarity for the future, and endorsing what Bright J had said, the Court remarked that it was “obviously unsatisfactory for an expression used to define a merits test to mean something different in one context (freezing orders) from that in another (jurisdictional gateways)”. The Court said that it would be preferable to reserve the phrase “good arguable case” for jurisdiction gateway arguments only, and to now use “serious issue to be tried” for both WFOs and interim injunctions.

Addressing the suggestion that this test is too low a bar for grant of a WFO, which is undoubtedly an intrusive order, the Court said it did not consider this to be of concern. An applicant must still also meet the other limbs of the test, namely real risk of dissipation, and whether it is just and convenient to grant the WFO. That final requirement in particular is “ultimately the whole test”, which is to say that the Court will still decide the application in the round having regard to all relevant factors. There is also the protection of the cross-undertaking in damages if the injunction is granted.

Costs

Ms dos Santos had also appealed the order that she bear Unitel’s costs of the WFO application. She argued that there is a presumption that costs of a WFO application will be reserved for the substantive case.

Dismissing this ground of appeal as well, the Court confirmed that there was an important distinction between costs in the context of a WFO application as compared with an interim injunction application under American Cyanamid. 

In an application for an interim injunction under American Cyanamid, if the injunction is granted its purpose is to “hold the ring”. It may subsequently turn out at trial that the relevant right or obligation is not established. In those circumstances it can generally be said the interim injunction should not have been granted, so it is reasonable that costs should be deferred until that final determination. But this reasoning has no application in the case of a WFO. A WFO may have been correctly granted even if the substantive claim ultimately fails.

There is thus no need to presume costs should be reserved. In fact, if there is any general rule, “it is that a party who contests an application and fights it tooth and nail on every point, thereby causing the successful party to incur costs which would otherwise not be incurred, should be ordered to pay the successful party’s costs at the conclusion of the application.”

Comment

The merits threshold for WFO applications is now certain and clear. The test is whether there is a serious issue to be tried as formulated in The Niedersachsen. The phrase “good arguable case” will be consigned to history as regards WFOs and shall be reserved for jurisdiction gateway arguments only.

By resisting the higher threshold argued for by Ms dos Santos, the Court of Appeal has reinforced the well-established view that interim applications such as WFOs should not result in mini-trials. Had the Court of Appeal sided with Ms dos Santos, this would have caused applicants to incur far more time and cost producing evidence in support of a WFO application due to a need to demonstrate that they have a stronger case than their opponent. Whilst impacting the speed and practicality of preparing a WFO application, which will often concern underlying claims with highly detailed and multi-jurisdictional fact patterns, this would also, in turn, have created a more substantial window for respondents to challenge WFOs on merits-based grounds and attacks on the full and frank disclosure obligation. 

This decision will be welcome news to practitioners seeking clarity on the law, as well as prospective applicants who will be required to meet the existing threshold rather than a drastically higher one. This decision appears to indicate the importance of WFOs to the arsenal of weapons available in England by retaining a merits test which is realistic for applicants, often at the outset of a case, and manageable for Courts.