FREEZING ORDERS – THE IMPORTANCE OF CAUTION

Rahman Ravelli | View firm profile

Nicola Sharp of Rahman Ravelli considers the impact of the dismissed appeal in the case of ArcelorMittal USA LLC v Mr Ravi Ruia and others [2020]

In ArcelorMittal USA LLC v Mr Ravi Ruiaand others [2020] EWHC 740 (Comm), Rt.Hon Lord Justice Newey dismissed an appeal in support of an attempt by theArcelormittal Group (“AMUSA”) to obtain a worldwide freezing order in the sumof $1.5 billion against the parent company of Essar Steel Ltd and members ofthe Essar group. In dismissing the appeal, he ruled there was no real prospectof success and that there was no other compelling reason for the appeal to beheard.

 

The case is a clear demonstration of the importance of adopting a cautiousapproach before seeking to deploy one of the court’s most draconian tools.

 

Background

 

AMUSA applied on notice for a worldwide freezing injunction andancillary disclosure orders against the first defendant Ravi Ruia, the seconddefendant Prashant Ruia and the eighth defendant EGFL. The worldwide freezingorder application and AMUSA’s underlying claim for conspiracy were the latestdevelopments in a long-running dispute between two of the world’s leading steeland mining group businesses, the AMUSA and the Essar Group.

 

The freezing order was sought in support of AMUSA’s claim for damages inexcess of US$1.5 billion. This was in respect of losses that were alleged tohave been caused by an unlawful means conspiracy between the defendants tofrustrate enforcement of liabilities under a 10-year iron ore supply contractentered into by AMUSA and three companies in the Essar group – which AMUSAterminated in May 2016 – and an ICC arbitral award in AMUSA’s favour againstEssar Steel Limited in respect of those liabilities.

 

If AMUSA was to be successful in obtaining the injunction relief sought,the onus was on it to satisfy the court that it was appropriate to grant therelief on the basis that:

(i)            it had a good arguable case on the merits

(ii)           there was a real risk that the respondents maydissipate assets before enforcement of any judgement in the underlyingconspiracy claim

(iii)          it was just and convenient in all the circumstancesto grant the relief sought.

 

But the judgement was highly critical of the arguments upon which theWFO application was based. In particular, Henshaw J ruled no coherent claim inconspiracy had been made out, and that the accounting restatement could not besaid to have been an act of dissipation. Henshaw J also found that AMUSA hadmaterially delayed making its application, and it would not be just andconvenient to grant a worldwide freezing order against any of the respondents.This was because the order sought would be gravely detrimental to the businessof the Essar group and because the freezing order was sought against personsout of the jurisdiction.

 

AMUSA sought to appeal this judgement. But on 20 April 2020, AMUSA’sapplication for permission to appeal was dismissed by the Rt.Hon. Lord JusticeNewey.

 

Considerations forWorldwide Freezing Orders

In light of the court’s findings, AMUSA is to serve amended particulars. AMUSAwill need to very carefully revisit each and every aspect of the allegedconspiracy. And it remains to be seen if AMUSA will continue topursue the proceedings in England given the extensive judicial criticism it hasgarnered over recent months.

In the meantime, the judgmentprovides helpful guidance on various topics which will be of interest topractitioners in the field of fraud, asset recovery and injunctive relief.

In particular:

·        The judgment serves asa helpful reminder of the importance of acting promptly in circumstances wherea freezing order may be sought in support of underlying proceedings. Incircumstances where it was known by both the applicant and the respondents formany months that the conspiracy proceedings would be brought before theproceedings were in fact brought – and there is no evidence of actualdissipation – it will be very difficult to establish that there is in fact anyrisk that assets will ever be dissipated.

·        Where relatedproceedings are brought in various jurisdictions, it is very important that allarguments made in each of those proceedings are made consistently, and with dueregard to the overall strategy of each of the multiple strands oflitigation.

·        Any court will takeinto account the current resourcing difficulties faced in processing appealsand other applications as a consequence of the Covid-19 pandemic. It will, inappropriate cases, grant interim relief so as to avoid prejudice to the partiesbut also to avoid practical difficulties for courts during this period whenresources are limited and the majority of court staff are working remotely.

 

 

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