In the recent decision of Vneshprombank v Bedzhamov the English Court of Appeal (EWCA) provided guidance on the test for the “ordinary living expenses” exception to freezing injunctions. Vneshprombank (VPB) obtained a pre-judgment freezing order against Mr Bedzhamov. VPB alleged it was the victim of a substantial fraud committed by Mr Bedzhamov and his sister, and claimed losses in excess of £1.34 billion.
The Commercial Court Judge allowed Mr Bedzhamov to spend £80,000 per month on living expenses. Mr Bedzhamov appealed and sought an increase in living expenses to £310,000 per month.
The EWCA substituted a new order substantially in excess of the initial order made (but not quite of the scale sought), including a rent deposit of up to £144,000 on a new London apartment, private security of £24,000 per month in London and €29,000 for his family in Monaco, private school fees for his children, and £40,000 per month on other living expenses. Males LJ set out the following general guidance:
- The purpose of the freezing order jurisdiction is not to provide a claimant with security but to prevent defendant from taking steps outside the ordinary course which have the effect of rendering any judgment unenforceable.
- A defendant who has only limited funds available may have some hard decisions to make; but spending decisions are theirs to make.
- A freezing order should not operate oppressively. An order which has the immediate effect of preventing a defendant from spending what they have been accustomed to spend creates a danger of oppression, particularly if it adversely affects their family.
- The Court must also be alert to the danger that a defendant may seek to maximise the amount they are permitted to spend (a form of asset dissipation).
- The danger can be avoided by a “healthy scepticism” about assertions as to pre-freezing order expenditure.
- It may be appropriate to ring fence certain sums of expenditure, so that the defendant cannot spend them on anything else than the purpose for which the defendants demonstrates they are needed.
Males LJ noted that permitting expenditure of the scale allowed might seem counter-intuitive but it was necessary to do so in light of established principles governing freezing orders.