Ras Al Khaimah Investment Authority & Ors v Bestfort Development Llp & Ors

Ever since the Pertamina ([1978] QB 644) and Ninemia ([1983] 1 WLR 1412) cases, an applicant for a freezing injunction must show a good arguable case that he has a good claim and a good arguable case that there is a risk that the defendant will dissipate his assets. The test for showing that a defendant in fact has assets that will be caught by the order is somewhat less certain. The main question of law raised by this appeal is whether an applicant for a worldwide freezing order has to show that (1) it is likely that a defendant has assets that will be caught by the order or (2) a good arguable case that a defendant has such assets or (3) grounds for believing that a defendant has (or is likely to have) such assets or (4) merely that the defendant is wealthy and must therefore have assets somewhere.

The six applicants for the freezing injunction in this case are entities forming part of the arrangements for investing the sovereign wealth of the state of Ras Al Khaimah, one of seven Emirates forming the United Arab Emirates (“the UAE”). The first three applicants are based in Ras Al Khaimah and the 4^th, 5^th and 6^th applicants were incorporated for the purpose of taking part in the various investments in the Republic of Georgia which give rise to this appeal. The applicants seek relief, ancillary to foreign proceedings, including the grant of freezing orders and the appointment of receivers over the assets of the 14 respondents which are all LLPs registered in England and Wales and said to be connected with a Mr Gela Mikadze. Mr Mikadze is a Georgian national, a lawyer and businessman, who was a director of the 4^th, 5^th and 6^th applicants between about 2008 and 2013. He also held senior management positions with those applicants.

The relief is sought pursuant to s25 of the Civil Jurisdiction and Judgments Act 1982 (“the CJJA”) in support of claims issued by the applicants in the Republic of Georgia and in the UAE. They ask the court to freeze each of the respondent’s assets up to a value of $42,561,555. No freezing order or relief is sought against Mr Mikadze because he is not present in this jurisdiction and, so far as the applicants are aware, he has no assets here apart from his interest in some or all of the respondent LLPs. The Part 8 claim in this jurisdiction was issued on 1^st May 2015 and served on 1^st June 2015. An order was made by Mr Richard Spearman QC, sitting as a Deputy High Court Judge of the Chancery Division, on 18^th June 2015 adjourning the application on the basis of certain undertakings given by some of the respondents and setting a timetable for serving evidence. The main evidence in support of the application was given in an affidavit and a witness statement of Caroline Black and in witness statements of David Hughes, both of them partners in Dechert LLP, the solicitors acting for the applicants. Evidence opposing the application was given in a witness statement from Mr Mikadze and also in statements from Mr Clayman an associate solicitor in Peters & Peters Solicitors LLP acting for Mr Mikadze. Mr Mikadze says he is authorised to give evidence on behalf of all the respondents except for the 7^th respondent (“Hornberg”) and the 9^th respondent (“Raystar”), but we understand that these respondents have been duly served and will, therefore, be bound by any order made by this court.

The respondents divide into 2 groups. One group comprises the 1^st, 3^rd, 5^th and 9^th respondents (Bestfort, Bellcrown, Tecberg and Raystar). They are defendants to some of the claims brought by the applicants in Georgia or the UAE. The other respondents are not parties to any claim. Injunctive relief is sought against them on the basis that they are beneficially owned by Mr Mikadze and that their assets would be available to satisfy any judgment awarded against Mr Mikadze in those countries. As regards those respondents, the applicants rely on the Chabra jurisdiction named after the decision of Mummery J in TSB Private Bank International v Chabra [1992] 1 WLR 231. The applicants also seek relief under the Chabra jurisdiction against the respondents which are also defendants in the foreign proceedings on the basis also that their assets are beneficially owned by Mr Mikadze. The sum proposed to be frozen is thus the totality of the sums claimed against Mr Mikadze regardless of whether the respondents are defendants to any proceedings or not.

I gratefully adopt (and summarise) the judge’s description of the background to the proceedings. In 2006 the rulers of Ras Al Khaimah decided to take up investment opportunities in Georgia when Georgia embarked on an ambitious programme of privatisation. The ruling family of Ras Al Khaimah put a Dr Khater Massaad in charge of these plans. Dr Massaad was a close friend and confidant of at least some of the members of the ruling family and had their full confidence and trust. He was Chief Executive Officer of the 1^st applicant (“RAKIA”), Chairman of the 3^rd applicant and Ras Al Khaimah’s most prominent economic representative. It is said that he was given the widest possible powers to pursue investments without apparently needing to have recourse to the ruling family for authorisation. He was also given the power to appoint whomever he considered fit to assist him to achieve the state’s objectives.

Dr Massaad made contact with Mr Mikadze and, after a period during which the two men got to know each other well, Mr Mikadze was invited by Dr Massaad to become Ras Al Khaimah’s partner in developing investment opportunities in Georgia. The applicants assert that thereafter both Dr Massaad and Mr Mikadze abused the trust that had been placed in them and acted in serious breach of the fiduciary duties that they owed to the Ras Al Khaimah entities of which they were in charge. The applicants allege that Mr Mikadze diverted monies to his personal bank accounts and caused the Ras Al Khaimah companies for which he was supposed to be working to enter into lucrative contracts with contractors which were in fact his creatures and which did not in fact provide services in return for the substantial remuneration paid.

The claim and all allegations of wrongdoing are vigorously disputed by Mr Mikadze. He says that there are entirely proper explanations for all the transactions which are impugned. In his witness statement he explains in some detail the work he has done in relation to various projects. His case is that he had every reason to think that Dr Massaad continued to have the confidence and trust of the ruling family and that he assumed that Dr Massaad was discussing with them such details of the projects as he thought they would want to know. Mr Mikadze describes the substantial amount of work he put into the various projects he undertook for the Ras Al Khaimah companies, the problems he encountered and his ingenuity and determination in overcoming those obstacles to make the projects successful. The remuneration he received was agreed between him and Dr Massaad and was commensurate with his efforts. Where the contractors used on the projects were his vehicles, then this was fully disclosed to Dr Massaad and the Ras Al Khaimah entities and those contractors did indeed provide the services that helped make the various projects successful.

Mr Mikadze describes how the situation changed in October 2010 when Sheikh Saud, who had been the member of the ruling family most in charge of the Georgian investment projects, became Emir. The new Emir was less interested in investing outside the UAE and there was a “new focus”, resulting in instructions to Dr Massaad to divest the sovereign wealth fund of its foreign holdings. Further, Mr Mikadze says that once the new Emir was in place, there was a political move to oust and discredit Dr Massaad. Mr Mikadze believes that the “ousting” of Dr Massaad was at the behest of Sheikh Saud’s son who became Crown Prince in December 2010 and wanted to take Dr Massaad’s place as the Emir’s right-hand man. Control of RAKIA was then taken over by members of the Emir’s family. As well as discrediting Dr Massaad, the Ras Al Khaimah ruling family attacked Mr Mikadze, in particular by instigating a criminal prosecution against him in Georgia. Mr Mikadze believes that both the civil claims against him and this application are politically motivated and are aimed at clawing back some of the money that he was properly paid for his work.

The judge described four projects which have given rise to particular claims. I will refer to two of them.

The Tbilisi Mall. Mr Mikadze’s evidence is that this was the first project he worked on with Dr Massaad. His initial role was as General Director of the 4^th applicant, Rakeen Development. The Tbilisi shopping mall (“the Mall”) was constructed from scratch on a greenfield site that Mr Mikadze identified. He negotiated the purchase of the site for $7.2 million in October 2006, a substantial discount from the initial asking price. The Mall opened to the public in April 2012 and is still open for business with a number of well-known European brand name shops whose business Mr Mikadze says he attracted to the Mall through his negotiating skills.

Development and operation of the Poti sea port and container terminal. The Poti Port on the west coast of Georgia occupies a strategic location on the Black Sea serving not only Georgia but also Azerbaijan and Armenia. The opportunity to acquire it arose at the start of 2008 when the port was put up for tender. RAKIA acquired 100 percent of the shares in the Poti Sea Port Corporation for about $155 million. Mr Mikadze says that the bid was successful because RAKIA promised to develop some 400 hectares of land adjacent to the port, to build an airport by 2012 and develop an industrial free zone on the site. Mr Mikadze says that the port project has been a huge success with net profits growing from about $7 million in 2008 to $27 million in 2012. However, according to Mr Mikadze, the rulers of Ras Al Khaimah “lost interest in pursuing available investment opportunities in Georgia” and he was asked to find new investors. A global port operator later acquired parts of the Port business on terms that have generated some controversy.

The judge correctly said that on an application for interim relief under section 25 of the CJJA, the court should first consider whether the facts would warrant the relief sought if the substantive proceedings had been brought in England. Secondly, she said the court might refuse to grant the relief if, in its opinion, the fact that the court has no independent jurisdiction in relation to the subject matter of the proceedings makes it inexpedient for the court to grant relief.

The judge then proceeded to consider whether the applicants had a good arguable claim against the respondents. There does not appear to have been much dispute about this and I will take, merely by way of example, the first and fourteenth claims.

The first claim is made in Georgia for $232,000 and is brought against Mr Mikadze alone. This sum is the amount of costs incurred by the Ras Al Khaimah claimants in taking proceedings against Mr Mikadze for the return of certain shareholdings in Ras Al Khaimah entities; Mr Mikadze says that when the time came in 2011 for him and Dr Massaad to wind down the Ras Al Khaimah investments, he was given a share in the equity of the different entities in which the Ras Al Khaimah investments in Georgia had been held. This was pursuant, he says, to an oral agreement which he made with Dr Massaad at the start of their relationship and in 2011 Dr Massaad determined what share he was entitled to receive.

The applicants contend that the acquisition by him of these shareholdings was fraudulent. He was paid “an extremely generous” salary for the work he did amounting to between $10,000 and $26,000 per month. They say that he could not be entitled to an equity stake in the Ras Al Khaimah entities which held the investments for the ruling family. Mr Mikadze contends that he was entitled to this equity share because, although he drew a salary from the entities as from 2008 once their business started to grow, he did not draw any moneys from them in 2006 and 2007 despite the very considerable work he undertook on these projects in those early years to get them up and running. The equity share was in part payment for this early work and was agreed by Dr Massaad with all appropriate authority.

In support of the first claim, the applicants also rely on the criminal proceedings brought in Georgia. Mr Mikadze was investigated over the first half of 2013 and then arrested on 9^th June 2013 and charged with misappropriating the shares. He says that the prosecution and his detention in custody pending trial were politically motivated and that throughout his time in prison he was held in solitary confinement and prevented from seeing his family. He describes the circumstances in which he agreed to a plea bargain as follows:-

“In December 2013, I learned that, in addition to my 73 year old father’s heart condition, he had been diagnosed with an aggressive form of cancer and that his doctors were not certain how much longer he would live. My mother beseeched me to give back my Shares so that I would be released from jail and could be with my father (this was communicated to me by Mr Gvaramadze). I have always been immensely close to my mother and father, in common with many Georgian families, we have a close knit relationship and we all live in the same house. In the hugely upsetting and challenging circumstances of my solitary incarceration, and for the benefit of my family, I made a human (and pragmatic) decision to suspend my resistance on the basis that I would fight to get my Shares back as soon as I was released. Accordingly, I sent a message through Mr Gvaramadze that I would agree to their ultimatum.”

Mr Mikadze pleaded guilty on 31^st December 2013 and handed back the shares. He was immediately released from prison. He has made an application to the European Court of Human Rights and the application has been accepted by the Court. He has also caused the 1^st and 2^nd Respondents, Bestfort and Manline, the recipients of the shares, to bring proceedings in Georgia for the recovery of the shares.

The 14^th claim is in the UAE and is the most substantial claim, for $17.2 million. It is brought by the 1^st applicant against Dr Massaad, Mr Mikadze, Mr Janashia (an associate of Mr Mikadze) and Raystar (the ninth respondent). This related to the operation of the Poti Port once it had been developed. The sum of $17.2 million was supposedly paid by RAKIA to Raystar in compensation for Raystar giving up rights under a partnership agreement dated 4^th November 2010 under which Raystar was supposed to provide container services and know-how to the value of $19 million to manage a container terminal at the Port. It seems to be common ground that the agreement for the provision of services had to be terminated because RAKIA decided to sell the Port. The applicants submit that the prospective purchasers of the Port considered that the Port was much less valuable, if it was bound by the agreement to allow Raystar to provide the services, than if the Port could get free of its obligations to Raystar. The $17.2 million was therefore paid in April 2011 to Raystar to release the service agreement so the Port could be sold. However, the applicants claim that these are sham transactions simply designed to cause RAKIA to make a very large payment in effect to Mr Mikadze and his associates. They point to the fact that the email referring to the desire of the potential purchasers to be free of the agreement with Raystar is dated 3^rd November 2010 whereas the partnership agreement apparently committing the Port to acquire services from Raystar is dated a day later, 4^th November 2010. The applicants assert that the supposed commitment to Raystar was not a genuine pre-existing commitment but was engineered by Mr Mikadze for the sole purpose of prompting a very substantial payment to release the supposed commitment.

Mr Mikadze says that the transactions were not sham but entirely bona fide. He has given a detailed defence the details of which it is not necessary to elaborate for the purposes of this appeal.

The judge concluded that all 14 claims constituted good arguable claims against Mr Mikadze and the four respondents which are also defendants. The judge then held further that there was a good arguable case that, if the respondents had assets, those assets were either the assets of (or assets under the control of) Mr Mikadze.

Existence of assets

The judge then asked herself whether the respondents had assets to be caught by the order.

She said (para 41) that she had to be satisfied of two things in relation to each of the respondents; first “that it has or is likely to have some assets somewhere in the world” and second “that those assets can be effectively frozen by the order sought - the court will not make an order which is futile”. She said the applicants’ case was very weak. There was no real evidence that any of the respondents currently had any assets at all. It was not suggested that they had any assets in this jurisdiction and the applicants could not point to any assets that they clearly currently had anywhere else in the world. What the applicants relied on was that in the past the LLPs had filed financial statements with the registrar of LLPs and that those statements recorded that the LLPs had cash balances. They also pointed to the fact that in the past payments have been made by Ras Al Khaimah entities into bank accounts in Latvia in the name of some of the respondents. They could not say that the cash shown in the financial statements was ever actually held in the Latvian bank accounts that they sought to freeze, but they submitted that the cash must have been held in a bank account somewhere.

The judge considered the evidence in detail and concluded that there was not sufficient evidence of any substantial assets held by these respondents on which the proposed order could bite. She added (para 46):-

“I say “substantial” because I accept the point made by Mr Marshall that it is important to bear in mind the proportionality of the relief sought. Enforcing it is likely to involve a substantial amount of work because of the nature of the relief set out in the draft orders, as I describe below. This is not a case where a simple letter to a London bank is going to result in a sum of money being frozen. It is only worth making an order if I am satisfied that there are assets, or at least that there are likely to be assets, of a greater value than the sums likely to be swallowed up very quickly in legal and other fees incurred in enforcing the order. There is no evidence before me that that is the case.”

Risk of dissipation

She then proceeded to hold that although there was a good arguable case that, if the respondents had assets, they might dissipate them, that risk was negatived by the fact that the respondents had complied with a previous costs order of the court and the considerable delay that had occurred between the defalcations complained of in 2012 and 2013 and the application for relief in June 2015. This formed part of her overall decision to refuse relief.

But the basis of her findings that there was a risk of dissipation have a bearing on the case as a whole and it is necessary to set them out:-

“56.

There is one particular transaction that the applicants point to as evidence of Mr Mikadze’s propensity to remove assets from the jurisdiction. This concerns the sale of the Georgian subsidiary companies of the 4^th, 8^th and 14^th respondents, Labbey, Worldfound and Luxtron. In her statement, Ms Black referred to the subsidiary companies of Labbey (called Labei LLC) and Worldfound (called Worldfound LLC) as being incorporated in Georgia and owning valuable land. In her second witness statement in October 2015, Ms Black states that it appears that on 9^th June 2015, a few days after being served with the application (but before the undertakings were given in the order of Mr Spearman QC), Mr Mikadze transferred Labei LLC and Worldfound LLC to an associate of his Mr Goguadze.

57.

In a witness statement in answer to this, Mr Clayman, from Peters & Peters said that he understood from Mr Mikadze that Mr Goguadze is the beneficial owner of Labbey, Worldfound and Luxtron having bought them in February 2015, before the proceedings in Georgia were commenced. He stated further that according to Mr Mikadze, the Georgian subsidiary companies of Labbey, Worldfound and Luxtron (called Luxtron LLC) had each acquired property and land in Georgia that was subject to substantial investment obligations imposed by the Georgian government and Mr Mikadze sold them because he no longer wanted to meet those obligations. He refers to the documents exhibited to Ms Black’s second statement appearing to show that Mr Goguadze personally acquired the three subsidiary companies on 10^th June 2015. In answer to the obvious question: why would Mr Goguadze acquire in June 2015 subsidiaries that he effectively already owned if he had really bought the parent companies from Mr Mikadze in February 2015, Mr Clayman says that Mr Goguadze was not able to obtain finance from Georgian banks for the Georgian subsidiaries because they were held by offshore entities and were therefore considered high risk. Mr Goguadze therefore acquired the subsidiaries into his direct ownership to obtain that finance.

58.

The applicants regard the transfer of the subsidiaries in June as clear evidence of dissipation of assets by Mr Mikadze since the subsidiaries held the only valuable assets (land and property) that have been identified as belonging to any of the respondents. They assert that the February 2015 transaction supposedly selling the parent LLPs to Mr Goguadze is a sham concocted recently once it became clear that the applicants had found out about the transfer of the subsidiaries and were likely to point to it as evidence of risk of dissipation. They reject Mr Mikadze’s explanation saying that if the transfer of the subsidiaries into Mr Goguadze’s name in June was really simply to acquire personal ownership, this does not explain why the share sale document obtained from the Georgian register shows a substantial payment being made by Mr Goguadze to the parent LLP. Further, they say that if Mr Mikadze had really divested himself of the three companies in February 2015, he would have dealt with that in his witness statement of 14^th August 2015 when responding to the detailed passages in Ms Black’s first statement setting out the links between him and the different respondents and asserting that they were all beneficially owned by him. These points have considerable force and I consider that the transfer of the parent LLP and the subsidiary LLC’s assets to Mr Goguadze may well be a move to put assets out of the reach of the court.”

The judge then concluded that if the substantive proceedings were being brought in England, she would not have granted a freezing injunction and that she would not, therefore, grant it by way of ancillary relief for the purpose of the proceedings in Georgia and the UAE. In case she was wrong about that she went on to consider the second limb of section 25 of the CJJA, that of expediency.

Expediency

There was debate whether the courts of Georgia had the power to grant a worldwide freezing order or would in practice not do so. The judge said the evidence was ambiguous but that the Georgian courts had considered what relief it was appropriate to grant and had frozen a defined list of assets but no others. She continued:-

“…The orders sought here cover all assets wherever they are in the world whether or not in the respondent’s name, whether owned solely or jointly and whether the respondent is interested in them legally beneficially or otherwise. The order would certainly freeze any Georgian assets of these respondents.

80.

My conclusion on the second limb is therefore that it is inexpedient to grant the relief sought. There is a serious risk here that any order I make will cut across the decisions of the Georgian courts about what is appropriate relief to grant in the substantive proceedings and will freeze assets over which the Georgian courts regard themselves as having exclusive jurisdiction.”

The claimants now appeal and submit:-

Test for existence of assets

It is well known that the origin of the court’s jurisdiction to grant freezing injunctions lies in the ingenuity of Lord Denning MR displayed in the Karageorgis [1975] 1 WLR 1013 and the Mareva [1975] 2 Lloyds Rep 509 cases and that the injunction was first known as a Mareva injunction. Initially the injunction was only applicable to assets in England and Wales but a series of later cases such as Republic of Haiti v Duvalier [1990] 1 QB 202 and Derby v Weldon (Nos. 3 & 4) [1990] Ch 65 established that an injunction could, in an appropriate case, be granted to cover the worldwide assets of the defendant. In the days when the injunction was in its infancy it was not surprising that case law stipulated that there should be some evidence of assets within the jurisdiction before it could be granted. It was part of Mr Richard Millett QC’s argument for the applicants that, if the case justified a worldwide injunction, the requirement that the claimant should give evidence about the likely existence of assets diminished, since in most such cases, if there was an apparently wealthy defendant, there would be assets somewhere. I do not accept that this is the law.

We were not shown the case of MBPXL, 28^th August 1975, in the Court of Appeal but, as will appear, that case did lay down a requirement that the existence of evidence of assets within the jurisdiction was a pre-condition of Mareva relief. It was referred to in the later case of Third Chandris Shipping Corporation v Unimarine S.A. [1979] QB 645 in which the then practice of the Commercial Court was said to have been that the existence of assets would be inferred from the existence of a bank account within the jurisdiction. There was, however, a question of the court’s approach if the bank account was empty at the time the injunction was sought.

It is relevant to cite a passage from the judgment of Mustill J at page 651:-

“The matters discussed in argument before me may be conveniently divided into two groups: those which deal with the jurisdiction to grant an injunction, and those which bear on the question whether the jurisdiction should in the present circumstances be granted. This division is made for the purposes of convenience alone. In reality the two categories overlap. As regards the first category, one must begin by asking whether there is sufficient evidence that there are assets available within the jurisdiction. That the existence of such evidence is a precondition for the exercise of the Mareva jurisdiction, is made plain by the judgments in the MBPXL August 28^th, 1975, Court of Appeal (Civil Division) Transcript No. 411 of 1975 case. I do not however believe that these judgments can be read as requiring the plaintiff to produce concrete proof of precisely what assets are present within the jurisdiction. Nor does the Pertamina case [1978] QB 644 support this view of the law. To require such a standard of proof would be to put Mareva relief out of reach in most cases. Since the defendant is ex hypothesi a somewhat elusive character it will usually be impracticable to establish exactly what assets he has available. All that can reasonably be asked, where moneys are the subject matter of the attachment, is that a prima facie case is made out inferring that such moneys point to the existence of a bank account. The reason for this inference is that the existence of a bank account denotes the existence of funds. This inference is in practice always drawn at this stage if ex parte relief is sought and I would in the ordinary course have been prepared to draw it in the present case.

The matter was however complicated by a rather surprising development. At a later stage of the argument Mr Howard (who argued the matter very forcefully for the defendants) asserted that the defendants’ bank account in fact contained no funds at the time the injunctions were granted, but was instead in a position of overdraft. It seemed to me that this assertion raised a serious issue which went to the heart of the present dispute. I therefore invited further argument upon it. The MBPXL case is authority binding on this court that the plaintiff must demonstrate the existence of assets within the jurisdiction if Mareva relief is to be granted. If the only assets whose existence is asserted by the plaintiffs consist of a credit balance; and if in fact it is shown that no such balance exists, the requirements of the MBPXL case are not satisfied. It is true that, as Buckley LJ pointed out in the Cretanor Maritime Co Ltd v Irish Marine Management Ltd (The Cretan Harmony) [1978] 1 W.L.R. 966, 973, a Mareva order in the form currently adopted gives the injunction an ambulatory effect, so that it attaches to whatever assets there may be or may hereafter come to be within the jurisdiction. Whether a Mareva order having this effect was within the contemplation of the Court of Appeal in the cases cited seems debatable, and it is possible that the bounds of the jurisdiction have been unintentionally enlarged. Be that as it may, I cannot see anything in those cases which would justify the grant of an injunction restraining removal of assets from the jurisdiction at a time where there is nothing to remove. The MBPXL case is strong authority for the contrary view, and the fact that assets may, in the ordinary course of business, be expected to come within the jurisdiction at a later date scarcely seems to justify the exercise of this power. Furthermore if the Mareva powers are to be assimilated to those of a foreign court in granting “saisie preventative” or similar relief I would require to see convincing evidence that a foreign could would grant relief at a time when there was no asset presently within the jurisdiction available for seizure. I can only say that no such evidence has come to my notice.

For these reasons I was at first inclined to hold that the injunctions should on this ground be discharged. I have however been persuaded that this course would be premature. Throughout all the affidavits filed on behalf of the defendants advancing reasons why the grant of Mareva relief is unsound or unfair, there is no mention of the fact that the account around which this dispute has revolved was in overdraft at the relevant time. Naturally Mr Howard has repeated his instructions as he received them. I do not however regard this as sufficient. I believe that on an issue of this nature a defendant who wishes to take the point that there is nothing in his bank account to which the injunction could attach ought to say so; and also, in a case such as the present, to explain why the facts to which he has referred were not brought to the attention of the court at an earlier date. Possibly such an affidavit will be forthcoming in the future. For the moment I propose to follow the existing practice by assuming that the presence of an account is sufficient proof of the existence of assets to satisfy the terms laid down in the MBPXL case.”

This shows that, at least when freezing injunctions only applied to assets within the jurisdiction, it was open to a defendant to show that there was no money in his bank accounts within the jurisdiction to which the injunction could attach and that an injunction should not therefore be granted.

If, of course, a substantial sum of money had been received into a particular identifiable bank account but had recently been removed from it, a claimant would have a legitimate interest in discovering where it had gone. It is not therefore surprising that provision was made in a standard injunction, which a court had decided to grant, for a defendant to state what assets he had and where they were but that could only be ancillary to a properly granted injunction in the first place. In A v C [1981] 1 QB 956 Robert Goff J held it was appropriate to require the defendant to disclose facts within his knowledge as to the present whereabouts of a sum which had vanished from the defendant’s account but he was anxious to ensure that this power was not used too widely. He said (960F):-

“I am not suggesting that it would be right to make general use of this power to enable the plaintiff to discover whether the defendant has assets here. In order to establish his right to relief at all, the plaintiff has at least to give grounds for believing that the defendant has assets here; but, having established that, it may be necessary for the proper exercise of the jurisdiction that the defendant should be required to give discovery, or provide information, about a particular asset – though, obviously, if the asset is worth more than the plaintiff’s claim, he need do no more than establish that fact. But, if the asset is a bank balance, the court, if it holds that the plaintiff is entitled to discovery in respect of that balance, may exercise its power under section 7 of the Bankers’ Books Evidence Act 1879 and order that the plaintiff be at liberty to inspect and take copies of any entries in the bankers’ books.”

Robert Goff J thus accepted that a claimant had a threshold to cross which required a claimant to give grounds “for believing that the defendant has assets here”. Mr Millett emphasised the word “here” to bolster his argument that the requirement should no longer apply, if a worldwide freezing order was sought.

Shortly after A v C, Robert Goff J in Searose Ltd v Seatrain UK Ltd [1981] 1 WLR 814 considered the effect of a restraining order on third parties, particularly banks, if the order was made in a form which identified a particular asset but also extended to “all assets” of a defendant which might include money in an unidentified bank account. A bank on whom an injunction was served might have to spend time and money in identifying money belonging to a defendant which was frozen but was in an account unknown to the claimant. He held that a claimant should in those circumstances be required to give an undertaking, in any order obtained, to meet the reasonable costs of a bank in ascertaining whether any money (or other asset) to which the order applied was indeed within the bank’s possession or control. He said (page 897A):-

“It is, I believe, now generally recognised that the Mareva jurisdiction has filled a gap in the court’s powers which badly needed to be filled. In the Commercial Court, certainly, a very large number of these injunctions is granted each year. But care must be taken to ensure that such injunctions are only given for the purpose for which they are intended, viz to prevent the possible abuse of a defendant removing assets in order to prevent the satisfaction of a judgment in pending proceedings: and likewise, care must be taken to ensure that such injunctions do not bear harshly upon innocent third parties. If these principles are not observed, a weapon which was forged to prevent abuse may become an instrument of oppression.

It follows that, first, an order for a Mareva injunction should not be sought in terms wider than are reasonably required in the circumstances of the case. Secondly, any asset in respect of which an order for a Mareva injunction is sought should be identified with as much precision as is reasonably practicable. Thirdly, as regards any asset to which the order applies but which has not been identified with precision in the form of order proposed, e.g. money held in an unidentified bank account, the plaintiff may be required to give an undertaking to pay reasonable costs incurred by any person (other than the defendant) to whom notice of the terms of the injunction is given, in ascertaining whether or not any asset to which the order applies, but has not been identified in it, is within his possession or control.

Of course in many cases (for example where, as is usually the case, the plaintiff is unable to identify assets of the defendant which are known to be greater in value than the sum in respect of which he seeks a Mareva injunction), it will be appropriate for the court to give the Mareva injunction in the now hallowed form, under which the defendant is restrained from removing from the jurisdiction or otherwise disposing of any of his assets within the jurisdiction, and in particular a specific asset or assets, save in so far as the value of such assets exceeds a certain sum. But if an injunction is given in such terms, the court may require – and indeed in my judgment should ordinarily require – that the plaintiff gives an undertaking in the form I have indicated.”

Mr Millett submitted that this authority showed there was no requirement that any particular asset be identified. On any view, however, the hallowed form encouraged the identification of an asset if it was possible to do so. I do not, moreover, read the Searose case as in any way diminishing the A v C requirement of establishing “grounds for believing” that there were assets which would be caught by any injunction.

I cannot discern any relaxation of this requirement in the cases which established that, in an appropriate case, it might be right to grant a worldwide injunction. In the first of those cases, Republic of Haiti v Duvalier [1990] 1 QB 202, there was extensive evidence of Mr Duvalier’s assets (see page 207 of the report); the question was the location of those assets. In Derby v Weldon (No 1) [1990] Ch. 48, Parker LJ at page 57D listed the issues for decision as being:-

“(i)

has the plaintiff a good arguable case; (ii) has the plaintiff satisfied the court that there are assets within and, where an extraterritorial order is sought, without the jurisdiction; and (iii) is there a real risk of dissipation or secretion of assets so as to render any judgment which the plaintiff may obtain nugatory. Such matters should be decided on comparatively brief evidence.”

In Derby v Weldon (Nos 3 and 4) [1990] Ch 65 Sir Nicolas Browne-Wilkinson had declined to grant an injunction against Milco Corporation of Panama but the Court of Appeal reversed him; Sir John Donaldson MR said (page 81F):-

“When it came to Milco, which is incorporated in Panama, but no doubt like most Panamanian companies has its base of operations elsewhere, the Vice Chancellor said that “there is no evidence before me that either a Mareva order or any eventual judgment can be enforced against Milco in Panama even if it has assets”. This involves two considerations – lack of assets and Panamanian enforcement.

So far as lack of assets is concerned, there was evidence that, until recently Milco had very considerable assets. Whether they have indeed gone elsewhere and how and why they have disappeared will be a matter of some interest to the plaintiffs if they become judgment creditors of Milco, and I do not think that any alleged and unproved lack of assets should be regarded as a bar to the making of the order.”

This has echoes of both A v C in which Robert Goff J had ordered disclosure of the present whereabouts of a sum previously in an account of the defendant and Third Chandris in which Mustill J had accepted that it would be open to a defendant to show that there was nothing in a particular account which it was sought to freeze. In a case in which there has recently been money in an account, there will often be grounds for believing that the defendant still has that asset and knows where it is. But I do not read the remarks of the Master of the Rolls as in any way diminishing Parker LJ’s requirement that a claimant satisfy the court of the existence of assets.

This requirement was regarded as axiomatic by Floyd J in HMRC v Cozens [2011] EWHC 2782 (Ch) in which the Revenue sought a freezing order against an alleged “inward diversion” fraudster. He said:-

“40.

One aspect of the basis for the grant of a freezing order which needs to be scrutinised with care is the question of whether the defendant in fact has assets on which the order will bite. That this is a principle which underlies the freezing order jurisdiction is reflected in a number of the cases, and was not the subject of challenge. Indeed, as Mr Moser submitted, it is inherent in the requirement to show that there is a risk of dissipation of assets that the cases in which freezing injunctions are granted are cases in which there is evidence that the defendant has some assets to dissipate. Thus in the Mareva case itself, Mareva Compania Naviera v International Bulk Carriers [1980] 1 All ER 213, Lord Denning MR said at 215:-

If it appears that the debt is due and owing, and there is a danger that the debtor will dispose of his assets so as to defeat it before judgment, the court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets. There is money in a bank in London which stands in the name of these charterers. The charterers have control of it. They may at any time dispose of it or move it out of the country.” (emphasis added)

41.

The evidence of the existence of assets need not be specific: indeed it may in some cases be unreasonable to expect a party seeking such an injunction to have evidence of precisely what assets his adversary in litigation has. But there must be some material from which it is reasonable to infer or deduce that there are assets on which the injunction will bite. Otherwise the court will run the risk of acting in vain.”

In the light of these authorities, I would therefore hold that it is not enough for a claimant to assert that a defendant is an apparently wealthy person who must have assets somewhere. Although Parker LJ said that a claimant must “satisfy” the court of the existence of assets he was not purporting to set out what the standard of proof should be. A test of “likelihood” on its own is inappropriate; the right test must be either a “good arguable case” or “grounds for belief”. There is, no doubt, not much difference between the two but I prefer “grounds for belief” which is how Robert Goff J expressed it in A v C. Since a claimant cannot invariably be expected to know of the existence of assets of a defendant, it should be sufficient that he can satisfy a court that there are grounds for so believing. That is not an excessive burden but if an order is sought against numerous companies or LLPs and those companies and LLPs can show that there is no money in their accounts and the claimant cannot show that the account has been recently active, it may well be right to refuse relief.

It is, with respect, somewhat unclear what test the judge applied. In para 41 she referred both to “grounds for belief” that the respondents had and to the respondents being “likely to have” assets that could be effectively frozen. Those tests are not the same. She was, however, entitled, on any view, to accept evidence that many of the respondents had closed their accounts or had only insubstantial sums in them, particularly since the transactions of which complaint is made took place largely in 2012 and 2013 but the injunction was not applied for until June 2015. These respondents were not in a similar position to Milco in Derby v Weldon (Nos 3 & 4). I would not therefore interfere with the judge’s findings that there was not sufficient evidence of any substantial assets held by the 2^nd, 5^th – 7^th and 9^th – 13^th respondents on which the order could bite. I also agree that in relation to these respondents proportionality is a relevant consideration. There cannot be any principle of law that it is not, see Pertamina at page 663 C per Lord Denning MR.

Mr Millett submitted, however, that not all the respondents could be treated alike and, somewhat reluctantly, we were induced by Mr Millett to examine the factual position of Labbey, Worldfound, Luxtron, Bestfort and Bellcrown (the 4^th, 8^th, 14^th, 1^st and 3^rd respondents) particularly in the light of the findings made by the judge later in her judgment as set out above, when she came to consider the risk of dissipation.

Existence of assets in fact?

The sale on 9^th June 2015 to Mr Goguadze by the 4^th respondent of the shares in Labei Development LLC was for the substantial sum of 1,320,000 Georgian Lari (said to be about US$500,000). That sum must therefore have been received by the 4^th respondent, Labbey Development LLP, round about that time. There is no satisfactory evidence of the whereabouts of that sum and to use the Master of the Rolls’ phrase in relation to Milco the applicants have an interest in discovering what has become of it.

The sale on 9^th June 2015 to Mr Goguadze by the 8^th respondent of the shares in Worldfound Universal LLC was for 200,000 Georgian Lari. That sum must similarly have been received by Worldfound Universal LLP and the whereabouts of that sum is also unknown.

These transactions were sufficient evidence of the risk of dissipation for the judge and she did not consider any other similar transactions. Mr Millett, however, relied further on two project management services agreements whereby the 8^th and 14^th respondents on 5^th March 2015 agreed to pay 4% of construction costs of separate hotel projects to Mr Mikadze personally. He invited the court to infer from this that not only Worldfound but also Luxtron (the 14^th respondent) must have had assets in 2015 from which Mr Mikadze’s fees could be paid.

Mr Millett then pointed to the fact that the first respondent Bestfort had received $5 million or so into its account in 2012. A financial statement (said to be unreliable by both sides) showed $500,000 in the account on 31^st January 2013 and the account was closed in October 2014. He submitted that it was wrong for the judge to hold that closure of the account concluded the matter.

Similarly the 3^rd respondent Bellcrown had received $500,000 for supposed consultancy services into its account the whereabouts of which was unknown. Neither of these sums could be legitimately regarded as insubstantial.

Mr Philip Marshall QC for the respondents did not have any convincing answer in relation to Labbey and Worldfound. As for Luxtron he submitted he was entitled to rely on the judge’s finding that there was no evidence of a bank account or assets currently held; there must, however, have been a bank account as recently as March 2015 and a freezing order would, in principle, be justified in relation to Luxtron. In the light of the facts set above, there are, in my judgment, grounds for believing that the 4^th, 8^th and 14^th respondents have (or have recently had) assets and no convincing evidence that any freezing order against those respondents would be futile.

Bestfort and Bellcrown are in a different position. Although Bestfort received large sums in 2012, there was only evidence of assets of $500,000 on January 2013 and its account had been closed in October 2014. The judge was, in my view, entitled to say that there was insufficient evidence of assets which could be caught by an injunction sought at the time of application in summer 2015. In relation to Bellcrown there was only evidence of about £31,500 in December 2014 and the same considerations apply.

Finally, Mr Millett submitted that Mr Mikadze had, in effect, accepted that all the respondents were his creatures and that it would be wrong to look at them individually. If it was decided that a freezing injunction should be made against any respondent, then it should be granted against them all because he could transfer money at will from one respondent to another.

I do not consider that a broad brush approach of that kind could be correct at any rate in a case in which the puppetmaster (here Mr Mikadze) is not a defendant. The essence of legal personality is that one must look at each personality when the question is whether there are grounds for believing that it has assets which will be caught by an injunction. The ability to transfer assets from one of Mr Mikadze’s LLPs to another may be highly relevant to risk of dissipation but is not, in my judgment, legally relevant to the prior question whether there are indeed grounds for believing that there are assets which can be caught by the injunction. If it is shown, in relation to any particular respondent, that there is no bank account or a bank account which has only a small sum in it, a judge’s refusal to grant an injunction, in relation to that respondent, should be respected.

Subject, therefore, to the remaining grounds on which the judge refused relief, I would be prepared to grant a freezing injunction against the 4^th, 8^th and 14^th respondents but not the other respondents.

Under the head of “discretion” the judge held that the breadth of the relief sought was, in any event, inappropriate because it was more apt for a tracing claim than for a personal claim and amounted to an attempt to discover whether the respondents had assets rather than what had become of them. Mr Marshall repeated that submission to us relying on A. J. Bekhor & Co Ltd v Bilton [1981] 1 QB 923 for the proposition that a respondent, at the stage when a freezing injunction is sought, must not be treated like a judgment debtor.

This submission has some force in relation to the application as made against all 14 respondents. If, as I consider, it is only to be made against the three respondents, in relation to whom there is evidence that they have recently had not insubstantial assets, the arguments against the width of the order lose most (if not all) of their force and, as against those 3 respondents, I would in principle grant the order in the terms that the appellants have asked.

Risk of dissipation

I agree with the judge that there is a risk of dissipation for the reasons she has given. The question then arises whether the countervailing factors on which she relied exclude that risk. I cannot accept that compliance with a court order for interim payment of costs can negative the risk of dissipation. A party who is at risk of an injunction freezing its assets may well wish to comply with interim orders of the court since its bona fides is already impugned. A failure to obey court orders may invite adverse inferences to be made; it does not follow that compliance with a court order will negative a risk of dissipation if that risk has already been found to exist.

Delay on the part of a party applying for a freezing injunction gives rise to rather more elusive considerations. It can be said that any serious delay means that an applicant does not genuinely believe there is any risk of dissipation or conversely (and more cynically) that, if a defendant is prone to dissipate his assets, such dissipation will have already occurred by the time a court is asked to intervene. This latter argument assumes that a defendant is already of dubious probity and it is a curious principle that would allow such a defendant to rely on his own dubious probity to avoid an order being made against him. The former argument is also open to the objection that it is the fact of the risk rather than a claimant’s apprehension of it that should govern the court’s decision.

Nevertheless relief is often denied to an applicant who pursues his rights in a dilatory fashion; it was denied by Roth J in Anglo-Financial S.A. v Goldberg [2014] EWHC 3192 (Ch) where there had been several years of negotiation about the matters in dispute before an injunction was applied for. The judge thought the same point arose in this case because in relation to the first claim the plea bargain had taken place in December 2013 and in the fourteenth claim the impugned payment to Raystar took place in April 2011. But the first claim only became important when Bestfort and Manline in about May 2015 sought the return of the shares that Mr Mikadze had surrendered and it is fair to state that the applicants did not know of the payment to Raystar until some time after it had been made. The delay is thus nothing like so long as in Anglo-Financial and, with respect to the judge, I do not think that the undoubted risk of dissipation which she found to exist can be said to be negatived by such delay as there has been. The matters deposed to by Ms Black in her affidavit of 5^th May 2015 would inevitably have taken time to discover, investigate and assess.

Normally this court would not interfere with a judge’s assessment of the risk of dissipation but I consider that in this case the judge was, with respect, illogical to find that such delay as there has been could or should “counter” (to use her word in para 59) the risk of dissipation which she had already found to exist.

Expediency

Lastly there is the question of expediency in the light of the on-going proceedings in Georgia and the UAE. Injunctive relief has not been sought in the UAE but it has been sought in Georgia. Not only is the evidence ambiguous on the question whether Georgian courts have power to (or will in practice) grant worldwide relief but the applicants have not, as the judge said, provided clear evidence of what has actually happened. On any view the Georgian court seems to have granted some injunctive relief.

In this somewhat unsatisfactory state of the evidence, I consider that it would be inexpedient to grant relief which extends to any assets of the relevant 3 respondents in Georgia since any order of this court is liable to cut across and, possibly, be inconsistent with decisions made in Georgia about assets in Georgia. But if the words “save to the extent that such assets exist in Georgia” were added in the relevant part of the order, I would not consider it inexpedient that the injunction should apply to assets of the relevant 3 respondents situated anywhere other than Georgia.

I would therefore set aside the judge’s refusal to grant any relief and order that a freezing injunction in the normal form should be issued against the fourth, eighth and fourteenth respondents in respect of their assets anywhere in the world save to the extent that such assets exist in Georgia. To that somewhat limited extent, therefore, I would allow this appeal.

Since the judge declined to grant injunctive relief, she also refused applications that receivers be appointed to administer the respondents’ assets. The applicants have sought permission to appeal against that refusal. I would grant that permission in relation to the fourth, eight and fourteenth respondents but remit the question whether any such further orders should be made against those respondents for reconsideration by the judge in the light of our judgments.

I agree.

I also agree.