Varying a worldwide freezing order: timely collaboration and transparency is key – Lewis Silkin advises successful respondent

In May 2023 our client, Cancrie Investments Limited (“Cancrie”), obtained a worldwide freezing order over the assets of Zulfiqur Al Tanveer Haider ("WFO"). In his asset disclosure, Mr Haider noted he owned (in part with his wife) a London property valued at c.£1.6m.

In the August 2023, Cancrie discovered the property was listed for sale, and subsequently, that a sale had been agreed subject to contract. Cancrie wrote to Mr Haider in August, September and October warning that such a sale would amount to dissipation which, if not consented to, would constitute a breach of the WFO. In addition to asking questions about the sale, Cancrie invited Mr Haider to discuss the terms so that consent could be considered.

A complicating favour was that the property ("A") was subject to a mortgage of c.£1.7m secured on two properties. The second property ("B") was held on trust by Mr Haider and his wife for their son. The implications of the distribution of the proceeds of sale therefore needed consideration. Cancrie also queried the status of other assets referred to in the documentation relating to the £1.7m loan and whether they amounted to further security.

It was not until late October 2023 that Mr Haider substantively engaged on the terms of the sale and the issue of Cancrie's consent. His solution to the distribution puzzle was that the sale proceeds (c.£1.4m) would be paid as follows:

• £1.027m to discharge a significant proportion of the £1.7m loan;
• £350k to be distributed between Mr Haider and his wife, with Mr Haider's share to be held in a frozen account.

This was rejected by Cancrie who maintained that the entire proceeds of the sale should be held in a frozen account pursuant to the terms of the WFO. The parties could not agree and Mr Haider issued an application in December to vary the WFO to permit the sale on his proposed terms.

The application was listed in February 2024.

Matters were complicated by Mr Haider filing reply evidence late - 20 days after it was due and only four days before the hearing. No explanation was given for the lateness. In the late evidence, Mr Haider revealed the prospective buyer had pulled out on 10 January.

Grounds for opposition

There were several grounds for opposition. These can broadly be categorised into the following areas.

1. Issues with the proposed mechanics of the sale:

• There was no buyer.
• The hypothetical sale was to be “at a price recommended by the agent” - a vague and unworkable suggestion.
• Contrary to the content of the witness statements, there was no evidence that the bank had actually agreed that the proceeds could be used to discharge the loan as proposed.
• The discussions with the bank had been run by Mr Haider's son, who stood to benefit as the beneficial owner of property B.
• The proposal would see the lion’s share of the loan repaid from the sale proceeds of property A, rather than from other assets secured against the loan – the owners/beneficial owners of those other assets would benefit from the unequal repayment.

2. Issues arising from the conduct of Mr Haider:

• Mr and Mrs Haider had falsely represented to the bank that they were the legal and beneficial owners of property B.
• The bank loan documentation referred to other securities, including a £1.2m investment portfolio and £1m deposit fund. Mr Haider had failed to answer questions on these in correspondence.
• Despite the property being on the market since July 2023, Mr Haider had failed to engage with Cancrie's attempts to discuss the proposed sale and their consent to it. When he engaged late in the day, Cancrie was presented with a fait accompli.
• Mr Haider had given inconsistent evidence regarding the condition and value of the property.
• Mr Haider had not evidenced his motivations for the sale and his explanation was inconsistent with the refinancing that took place.

Minutes before the hearing was listed to commence Mr Haider filed a third witness statement in which it was asserted a new buyer had been found and that the bank had provided consent. In respect of the latter, evidence was still not provided.

Ruling

Foxton LJ dismissed the application. He agreed with Cancrie's counsel, George Hayman KC, that in order to take any steps that might prejudice Cancrie at the enforcement stage, Mr Haider would need to ensure the court fully understood what the full picture was. Mr Haider had failed to satisfy that requirement.

The judge considered there were "legitimate queries" in respect of a number of matters which would inform the court's view on how best to balance the competing interests but that:

"The way in which [Mr Haider] has approached the sale of the Property has not been conducive to persuading [Cancrie] of the arm’s length nature of the transactions proposed and of the security split agreed with the bank"

Only informing Cancrie of the sale after the event was conduct "seldom conducive to successful cooperation in a sale. On the contrary, it tends to build mistrust." Though a new purchaser had been proposed, it was only revealed in the very late evidence and there was no opportunity for Cancrie to investigate the arm's length nature of that transaction.

He agreed Cancrie had been presented with a fait accompli and queried the conduct of Mr Haider's son's discussion with the bank regarding the distribution of the proceeds.

Furthermore, he found there to be "legitimate questions as to what the overall security position is", in particular, the other assets referred to in the loan documentation which appeared to be "operating in some sense as security" for the loan.

Mr Haider had failed to answer Cancrie's questions regarding those assets in advance of the hearing. Although it was submitted at the hearing on instructions that there were no further assets, the court was unable to act on that basis alone. The judge commented that “a full explanation of the position evidenced by contemporaneous documents is going to carry a great deal more weight”.

Important implications

As is well known, freezing orders do not constitute security over assets. So, the beneficiary of an order should, as Cancrie did here, engage with requests to vary an order to permit the sale of assets. That will allow it to properly understand what is being proposed, identify concerns and establish what sort of formula can be agreed to protect its position. If no agreement can be reached and an application follows, the beneficiary of the freezing order can demonstrate that it has been fair in its dealings, reducing the risk of an adverse costs order.

That approach will also put pressure on the subject of the freezing order who will have to reasonably engage, be transparent and substantiate its position. If instead there is refusal or failure to engage in a transparent and timely manner, any following application will be set up for failure because, as Foxton LJ put it:

Mr Haider may have legitimate reasons for wanting to sell the property but if he did, it is going to require a collaborative process in which the queries raised by the claimant as to the overall security and asset position are answered, and answered in a way which provides documents which are always a greater source of assurance than the mere say so. The defendant is going to have to keep the claimant in the loop at a much earlier stage, rather than simply at the end point when the transaction is about to close.

The reality is that the competing interests mean that a collaborative and transparent approach is going to be more productive, not least because, if the defendant is transparent and does respond to the questions that have been raised, it will make it much more difficult indeed for Mr Hayman on any future occasion to point to the alleged murkiness of events as a reason why relief should be refused.

Quality collaboration and conduct is therefore key. Substantive, transparent and early engagement by the subject of an order will help minimise the grounds on which a proposed variation can be challenged. It may even avoid the need for an application altogether.

For a discussion of any issues arising from this judgment, please contact one of our Lewis Silkin team who acted for Cancrie - Fraser Mitchell, Benjamin Smith and Jane Daly.