Aircraft frozen: when worldwide freezing orders bite

The English court has granted a ‘without notice’ application for a worldwide freezing order preventing the owner of an aircraft from dealing with its aircraft, save in the normal course of its charter business, following the owner’s failure to pay a judgment debt and comply with other court orders. The issues raised are a useful reminder of the steps that a judgment creditor can take to preserve and, importantly, identify assets to enforce against when confronted with a recalcitrant judgment debtor.

Background

In Olympic Council of Asia v Novans Jets LLP [2022] EWHC 633 (Comm), the High Court considered an application seeking a post-judgment worldwide freezing order (WFO). The claimant, Olympic Council for Asia (OCA), is an independent non-governmental not-for-profit organisation based in Kuwait. The defendant, Novans Jets LLP, is an English aircraft broking and consultancy company.

In September 2019, OCA commenced proceedings against Novans and claimed damages for wrongful termination by Novans of an aircraft lease to purchase agreement and the value of unused pre-paid block hours. In January 2022, judgment was given in OCA’s favour, and the resulting court order (the “Order”) directed Novans to:

• pay to OCA in the region of $8 million within 14 days;
• provide disclosure of its percentage share of profits; and
• provide disclosure of certain flight reports and parts of its aircraft logbook.

Novans failed to make that payment or comply with its other obligations under the Order. With the exception of its unsuccessful application for permission to appeal the earlier judgment, Novans subsequently walked away from the proceedings after the draft judgment was circulated on 11 January 2022.

OCA made its application for a WFO and an asset disclosure order against Novans on a ‘without notice’ basis. OCA argued that there was a real risk that notice of the WFO application would prompt Novans to take steps to deal with the aircraft and put it beyond OCA’s reach and/or hinder enforcement action.

The decision

The test for a worldwide freezing order

Before a WFO can be granted, the relevant requirements must be satisfied, including:

• there must be a good arguable case for the order;
• there must be a real risk of disposal or dissipation of the defendant’s assets, other than in the ordinary course of business, and solid evidence of the likelihood of dissipation; and
• it must be just and convenient to grant a freezing order.

Was there a good arguable case?

The court held that the requirement of a good arguable case had clearly been satisfied, because judgment had already been given in OCA’s favour and permission to appeal had been refused by the Court of Appeal.

Was there a real risk of disposal or dissipation of assets?

The judge dealing with OCA’s application was the same judge that had conducted the trial and heard first-hand the evidence of Novans’ Managing Director and ultimate beneficial owner, Mr Gringuz. She was accordingly well placed to assess the MD’s likely conduct and whether there was a real risk of dissipation. The judge recalled that the MD had tailored his evidence to fit Novans’ case, and while there had been no finding that the MD had been dishonest, his conduct at the trial was a factor to be considered when determining the WFO application and the likelihood that Novans’ assets would be disposed of so as to place them beyond OCA’s reach for enforcement purposes.

Additionally, the court gave weight to the following factors when assessing the risk of dissipation:

• Novans had failed to comply with the Order or to explain its non-compliance.
• Since the adverse judgment was entered against it, Novans and the MD had completely disregarded the court process and had walked away from the proceedings.
• Although Novans is an English limited partnership, it has a virtual office, and it appeared to have no assets or personnel in the UK.
• Novans’ available accounts evidenced that it had insufficient net assets to satisfy the judgment debt.
• The MD’s evidence at trial was given remotely from Ukraine. There was a possibility that Novans and the MD may have been adversely affected by the outbreak of war in Ukraine, which served to heighten concerns around the risk of dissipation.
• The aircraft was highly movable and could be moved between jurisdictions.

Was it just and convenient to grant a freezing order?

WFOs are a discretionary remedy, and the court will refuse an application which would cause an injustice to the respondent that would outweigh the benefit that would be gained by the applicant.

The court held in this case that OCA had not delayed seeking an injunction and had, appropriately, awaited the outcome of Novans’ appeal application before pursuing its application. The limited order sought would assist OCA and preserve the status quo until effective enforcement steps could be taken. The court therefore granted the WFO, and Novans was prohibited from dealing with the aircraft save for using it in the normal course of its charter business.

The continuation of the freezing order

As the WFO was originally granted without the opportunity for Novans to set out its own position in front of the judge, a ‘return date’ was set on which the parties were able to make further representations to the judge. By this time, there had been a number of significant developments. The disclosure provided by Novans indicated that the MD was not in fact a director of Novans and that Novans’ only asset exceeding £20,000 was a receivable due from another entity in the same group, pursuant to an asset purchase agreement which suggested that Novans may not own the aircraft in question. By the return date, Novans had also disclosed a copy of a winding up petition seeking voluntary winding up of the company and a bill of sale in relation to the aircraft.

The judge held that, although there was uncertainty as to precisely which assets were owned by Novans, it nevertheless had assets, either in the form of the receivable or the aircraft, over which the WFO could bite.

The court also concluded that as at the return date (and in the absence of a winding up order), there remained a real risk of dissipation. The court held that the recent disclosure by Novans that the MD was not a director of the company, despite having represented the contrary at the trial, together with the evidence of the asset purchase agreement, supported the conclusion that there remained a real risk of dissipation. As a result, the court ruled that there should be a continuation of the WFO in relation to the aircraft and the receivable.

Comment

It is always prudent to consider, before starting proceedings, how any order might be enforced if the proceedings are successful. This judgment is a useful reminder of the options available to identify and preserve a defendant’s assets to enable enforcement steps to be taken when there is a real risk of disposal or dissipation of assets by the defendant.

Aircraft are often the subject of freezing orders as an obvious and valuable asset. Freezing orders should be sought without delay, so as to avoid assets being placed beyond the claimant’s reach. As such orders are discretionary, an applicant should try to limit the freezing order sought to that which is likely to persuade the court it is just and convenient to grant. Any restrictions should be limited in duration and scope – in this instance, for example, the aircraft could still be used for the respondent’s charterparty business, until any winding up order was made.