What is a “good arguable case” anyway? Court of Appeal sets the record straight for freezing injunctions

What is a “good arguable case” anyway? Court of Appeal sets the record straight for freezing injunctions 

Max Palmer looks at Isabel Dos Santos v Unitel S.A. [2024] EWCA Civ 1109

The Court of Appeal has handed down a judgment rejecting an appeal against the granting of a World Wide Freezing Order (“WFO”) over the assets of the appellant Ms Dos Santos. In doing so it has provided much needed clarity on meaning of the “good arguable case” test for granting of freezing injunctions. 

Background 

Angolan telecoms operator Unitel had brought a debt claim seeking repayment of hundreds of millions of Euros lent to Unitel Holdings BV – a Netherlands incorporated entity controlled by Ms dos Santos. Following a shareholder resolution in March 2022, Unitel made a High Court application in October 2022 to join Ms dos Santos as a defendant in that claim as well as seeking a WFO against Ms dos Santos. A key part of the long-established test for granting a freezing injunction is whether the applicant has a “good arguable case” against the respondent. Ms dos Santos argued that Unitel’s debt claim against her was time-barred under Angolan law so that it did not, in fact, have a “good arguable case” against her. The High Court rejected that argument and Ms dos Santos appealed to the Court of Appeal on the basis that the High Court had misapplied the “good arguable case” test.

What was the right “good arguable case” test? 

 The key question before the Court of Appeal was whether the correct formulation for the “good arguable case” test was either:

• the classic test originally set out in Musthill J’s 1983 judgment in “The Niedersachsen” as a case that: “is 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” (the “Niedersachsen Test”); or
• the three-stage test, typically applied on an application to serve a claim out of the jurisdiction, whether there is a “good arguable case” that the claim falls within one of the 26 factual scenarios known as the jurisdictional “gateways”: 

1. Has the claimant supplied a plausible evidential basis for the application? 
2. If there is an issue of fact or other reason for doubting the evidence, the court must take a view on the materially available if it can reliably do so; but 
3. If the court is not able to make a reliable assessment, there is a good arguable case if there is a plausible (albeit contested) evidential basis for it. (The “Three-Stage Test”)

The Court of Appeal explained that the confusion over which test applied when deciding a freezing injunction application had arisen following the 2019 Court of Appeal decision in Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV where the court appeared to favour the Three-Stage Test over the Niedersachsen Test. This had, in turn, resulted in a series of decisions between 2019 - 2023 where courts had applied the Three-Stage Test when deciding freezing injunction applications. 

Deciding the right test 

In the leading judgment Flaux J, put an end to the uncertainty by coming down decisively in favour of the classic Niedersachsen Test for the principal reasons set out below. 

• He found that there were “obvious” differences between whether the threshold of a jurisdictional gateway has been reached for the purposes of service out and whether the merits threshold for the grant of freezing relief has been reached, which meant it was not appropriate for the same test to apply in both situations. In particular,      for freezing injunctions the question of the merits of the case is revisited at trial, which is why the lower threshold of the Niedersachsen Test was appropriate. By contrast, the court will only decide whether a case falls within one of the jurisdictional “gateways” for the purpose of service out once and will not revisit that decision at trial, which is why the higher threshold of the Three Stage Test is appropriate.  
• A key problem with the Three Stage Test in the context of freezing injunctions is that it requires that court to determine which party has the better of the argument on the merits. This, inevitably, involves the court making relative assessments of the parties’ positions liable to draw the court into mini-trials at a very early  stage in the proceedings and often on an urgent basis, which was not welcome. The Three Stage Test would also put too high an evidential burden on applicants to serve the interests of justice as freezing injunctions are often sought in circumstances where it may be difficult for the applicant to demonstrate at an early stage, particularly before disclosure, that it has the better argument on the merits. 
• With the notable exception of Canada, other Commonwealth jurisdictions adopted a “good arguable case” test broadly equivalent to the Niedersachsen Test and it was desirable to support that consistency of approach. 
• The weight of the existing authorities favoured the Niedersachsen Test. 

Is “good arguable case” different from “serious issue to be tried”?

Having found that the NiedersachsenTest was the correct “good arguable case” approach. The court also considered what practical difference there was between this and the “serious issue to be tried” test, which is the first question the court asks when deciding whether to grant an interim injunction other than a freezing injunction. 

Flaux J found that there is no practical difference between these two tests and Popplewell LJ agreed,  finding  there is “no difference in substance” between them. Popplewell LJ then expanded this further  finding that there was also “no perceptible difference” between the meaning of “good arguable case” in the context of injunction applications and the “real prospects of success” test applied in summary judgment applications. 

Popplewell LJ finally concluded that the terminology used to describe the merits tests for injunctions should be simplified so that, in the future, both freezing and interim injunctions should simply be referred to as the “serious issue to be tried” test and that “good arguable case” should be reserved to the Three-Stage Test applied when deciding applications for permission to serve out.  

Analysis 

The judgment represents a welcome return to the orthodox position by definitively confirming that The Niedersachsen Test is the correct merits test for freezing injunctions. 

Many practitioners will also welcome the reform to the terminology applied to the various merits tests so that all injunction applications will now apply the same “serious issue to be tried” test, with the more demanding “good arguable case” Three-Stage Test reserved for applications to serve out. While it is helpful that the court has clarified that the “real prospects of success” test applied for summary judgment applications is no different to “serious issue to be tried”, the court stopped short of merging the terminology for these tests. It will be interesting to see if the process of consolidation is completed in the future so that all the tests applied to the merits of the underlying claim or defence on interim applications are consolidated into a single test with a single name.