On 19.11.19 the Court of Appeal delivered judgement in the case of Vneshprobank LLC v Georgy Ivanovich Bedzhamov and others [2019] EWCA Civ 1992 which has set out the key principles to be applied when an individual who is subject to a freezing order applies for reasonable living expenses to be granted as an exception to the order. In this case, the Defendant was originally entitled to spend £80,000 a month on living expenses, but on appeal sought to increase this to £310,000 a month and, in addition, sought a sum to pay an advice on the rent of a luxury flat in Mayfair. As the figures in this case show, the when assessing what ‘reasonable living expenses’ amount to, the Court will look at the circumstances of the individual affected rather than the population as a whole.
In the High Court, HHJ Jarman QC had assessed the Defendant’s reasonable living expenses based on what the Defendant had been accustomed to spending before the freezing order was imposed. The decision was appealed on the basis that the Court should have made the assessment on the basis of what the ordinary living expenses would be after the making of the order. The Court conducted a review of the relevant authorities, including P.C.W. (Underwriting Agencies) Ltd v Dixon [1983] 2 Lloyd's Rep 197, which was relevant in that it showed that the living expenses exception must be applied in the light of the purpose of the freezing order jurisdiction. The jurisdiction is not intended to prevent a defendant from living as he has always lived and paying bills such as he has always incurred, and reasonable living expenses do not require the court to make an assessment whether they are objectively reasonable. Further, it would be unjust to compel a defendant to reduce his standard of living when there is only a claim against him. The Court should also be alert to prevent abuse of the orders so as to put pressure on a defendant. In addition, in Travel Holidays v Hajj Charter [2013] EWHC 4334 (Comm) Hamblen J confirmed that the court is concerned with identifying what the standard of living was to which the freezing order defendant was reasonably accustomed prior to the grant of freezing order relief.
Two other principles were confirmed by the Court: that payments in the ordinary course of business should be permitted (Halifax Plc v Chandler [2001] EWCA Civ 1750) and also that where unsupported assertions were made by defendants, the Court should adopt a ‘very healthy scepticism’ (Campbell Mussels v Thompson (1985) 135 NLJ 1012).
On the question of the correct approach to take, the Court held that (emphasis added):
‘principle, authority and practicality point the same way. A defendant should be permitted to spend by way of ordinary living expenses in accordance with his actual past standard of living. It is unnecessary and undesirable to go further. Future changes in expenditure necessary to maintain that standard which result from the ordinary exigencies of family life can be dealt with by variation of the order as and when necessary.’
The Court confirmed that ‘nor is it the business of the court to tell a defendant who has funds available that he cannot spend them on his ordinary living expenses in same way as he has genuinely been accustomed to do before the making of the order.’
Further: ‘It may also be appropriate, particularly in a case where there are serious doubts about a defendant's ability to continue to spend money on his living expenses at the same rate as he has been doing in the past, to "ring fence" significant items of expenditure so as to ensure that, while the defendant is permitted to incur them if he wishes, he cannot spend the money on something else, at any rate without further permission from the court.’
Applying the correct approach, the Court of Appeal held that ‘the judge was in error in saying that it was necessary to consider what would have happened to Mr Bedzhamov's lifestyle in the absence of the freezing order. The correct approach would have been to allow a figure for ordinary living expenses which would enable Mr Bedzhamov to maintain his previous standard of living.’
Sir Geoffrey Vos added in a partially dissenting judgment that where the credibility of a Defendant is open to doubt, the court should be careful: ‘the expenditure that the defendant has sought to validate on this appeal is at such a level of extravagance that the greatest possible caution is required.’
This case will be of interest to those subject to Account Freezing Orders under the Proceeds of Crime Act 2002, where similar principles will apply.
It is essential that those bringing or defending charges of civil fraud, where freezing orders are common, are represented by those with expertise in this specialist area. The team at Scarmans with its background in criminal and civil litigation is well placed to advise and represent individuals and companies facing this increasingly complex area of law.
The full judgment can be found at: https://www.bailii.org/ew/cases/EWCA/Civ/2019/1992.html