Court of Appeal clarifies the merits threshold for the grant of freezing injunctions

The Niedersachsen test

What is a “good arguable case“?  This goes back to The Niedersachsen [1983] 2 Lloyd’s Rep 600 where Mustill J) interpreted it as amounting to quite a low threshold “more than barely capable of serious argument but not necessarily one which the judge considers would have a better than 50 per cent chance of success“.  That was the orthodoxy for many years until 2019.

The “better of the argument” test

The dial started to move when the courts considered whether the merits threshold in the context of freezing injunction ought to be assimilated with than in for a claim for permission to serve proceedings out of the jurisdiction, namely whether there is a “serious issue to be tried” which has been held to mean “the better of the argument“.  In  Lakatamia Shipping Co. Ltd v Morimoto [2019] EWCA Civ 2203, Haddon-Cave LJ noted, in a freezing injunction case, that the good arguable case test have been “the subject of a comprehensive review by the Court of Appeal recently in Kaefer v. AMS [2019] 3 All ER 979 in the context of jurisdictional gateways” and had concluded that the test “had become befuddled by ‘glosses’, glosses upon gloss, ‘explications’ and ‘reformulations'”. The central concept at the heart of the test was “a plausible evidential basis“”.

Different tests being applied on different cases

The result has been that in some cases the court has held that the test of “good arguable case” in freezing injunction cases remains the orthodox, lower Niedersachsen test, whilst other cases have held that, in light of Lakatamia Shipping Co. Ltd v Morimoto, the test should be the same as that as is applicable in the context of jurisdiction, namely “a serious issue to be tried” or “the better of the argument“.  Most notably Harrington & Charles Trading Co. Ltd. v Mehta [2022] EWHC 2960 (Ch) and Chowgule & Co Pte. Ltd. v Shire [2023] EWHC 2815 (Comm) held that the “good arguable case” test in the context of freezing orders was now the same as in the context of jurisdiction, but Magomedov v TGP Group Holdings (SBS) LP [2023] EWHC 3134 (Comm) and, as recently as 22 July 2024, Cancrie Investments Limited v Zulfiqur Al Tanveer Haider [2024] EWHC 1876 (Comm) held that the test in freezing injunction cases remained that in The Niedersachsen.  The judge at first instance in Unitel took the approach of applying both tests.

The decision in Unitel

In Unitel, the Court of Appeal decided that the correct test as to what constitutes a good arguable case for the purposes of the merits threshold for the grant of a freezing injunction is the Niedersachsen test.  The Court also noted that this test could be equated with the test for injunctions other than freezing injunctions.  In reaching its decision, the Court took into account decisions in other common law jurisdictions, namely Australia, New Zealand, Singapore, Hong Kong and a series of recent decisions in the British Virgin Islands, which approved the Niedersachen test.

No longer a nuclear weapon

Finally, Popplewell LJ stated that the famous description of a freezing injunction as being one of the law’s two “nuclear weapons” was now inapt in light of the number of freezing injunctions that the courts now make, and given that its jurisdiction is now firmly rooted in the “enforcement principle” namely the protection of protective rights and interests

Comment

This is an important decision which lays to rest (at least for now) the question of what is the appropriate test.  Practitioners can prepare for an application for a freezing injunction knowing which test they have to satisfy.  From the Cayman Islands perspective, particularly given the review of cases from other common law jurisdictions, this decision is likely to be regarded as welcome clarification of a confusing state of affairs.