Property preservation orders can be granted over money but deploy with care, court confirms

The decision highlights to victims of fraud that while this rule is a useful weapon in the court’s armoury in certain circumstances, it needs to be deployed with care, according to civil fraud experts at Pinsent Masons.

LLC Eurochem, a Russian projects company, had contracts with a company called Technimont SPA and another company to build a fertiliser plant in Russia. Technimont and the other firm took out bonds to support the contracts. Eurochem made written demands asking for sums of money to be paid to it under the bonds. Certain defendants –Société Générale and ING Bank – refused, saying it would violate the law because Eurochem was part of a group linked to a Russian billionaire facing EU and UK sanctions. At an interim stage of proceedings, Eurochem sought, among other things, a property preservation order over the sums of money claimed under the bonds. 

The English courts have a variety of tools that can be implemented at an interim stage of proceedings to prevent valid claims from being thwarted by dishonest defendants willing to disregard court orders, tamper with evidence, or seek to or dissipate assets. Some of the most well-known tools are freezing orders, search orders and imaging orders. One of the less common tools which can be used in a fraud context and in exceptional circumstances is an order for the “detention, custody or preservation of relevant property” under CPR 25.1(1)(c)(i). In English case law, except for in exceptional circumstances, the definition of “property” under this provision of the CPR has not tended to apply to money in issue in the litigation – or a sum of money claimed by way of a debt or damages. English judges have previously noted that “property”, in the ordinary meaning of the word, would not usually be used to describe a company’s investments or bank balance.

However, the rule has been deployed by courts in exceptional circumstances to ensure the effectiveness of freezing and proprietary freezing orders. The courts have been prepared to make these orders in cases where there was strong evidence that the claimant had been the victim of fraud and this property preservation order was granted in the context of an existing worldwide freezing order. In a case earlier this year, a property preservation order had been used to direct that digital currency held in a cryptocurrency account be converted to ‘fiat’, government-issued currency, and be transferred into the jurisdiction of England and Wales.

In this case, Eurochem took legal action against Société Générale and ING, seeking an order from the English court to make the banks pay as per the bonds, but the court refused on the basis that the funds in question did not constitute relevant “property” in this case. 

Jennifer Craven of Pinsent Masons said: “The Eurochem decision has confirmed the English court’s approach to this provision of the CPR in that money could only constitute property for the purpose of a property preservation order in exceptional cases. While property does not have to mean physical property, the court clarified that the definition of property means that the money must be capable of being segregated and/or the claimant must have a claim to beneficial ownership of it; property in this context cannot simply be a claim for debt or damages by one party against another.”

“The court also held that embracing a broader definition of money in this context would give the court jurisdiction which overlapped with other tools including freezing injunctions and granting interim payments. It suggested that given this, property preservation orders should only be granted in respect of money in exceptional cases and where the court could and would grant a freezing order or an order for an interim payment,” she said.

Rebecca Wilson of Pinsent Masons added: “The significance of this case for victims of fraud is that these types of orders could be appropriate in the right circumstances to be granted alongside freezing orders to make these more effective. From this decision it seems that property preservation orders will not necessarily be a tool that can be granted in the alternative to a freezing order but can, in specific circumstances, be granted alongside these types of orders to enable victims of fraud to prevent fraudulently obtained funds from being further dissipated, such as by requiring funds to be transferred into the jurisdiction, as has been ordered in previous caselaw.”