Freezing Injunctions and Spending Limits: Court of Appeal confirms that “ordinary living expenses” may indeed be extraordinary

Freezing orders are among a claimant’s most powerful weapons and the court’s most draconian powers. They have sometimes been described as the “nuclear” option given their potential impact on a defendant’s daily life.  There are, however, measures in place to try to safeguard against their oppressive potential; to ensure they do not unduly disrupt or indeed cripple a defendant’s daily life.

One such measure is for a typical, non-proprietary, pre-judgment freezing injunction to contain a provision protecting an individual’s entitlement to spend a specified sum on “ordinary living expenses”.  Of course, what constitutes “ordinary living expenses” will be different in every case and, in some cases, wildly so.

While virtually every person has typical bills to pay, groceries to buy and rental or mortgages payments to make, the extent of such expenses can vary considerably depending on a person’s pre-injunction lifestyle.  Of great comfort, therefore, to defendants – especially ones used to leading extravagant lifestyles – is the Court of Appeal’s decision in Vneshprombank v Bedzhamov & Ors [2019] EWCA Civ 1992 wherein the court affirmed that a defendant is entitled to maintain his or her pre-injunction lifestyle, regardless of its excesses, as long as that lifestyle is properly evidenced.

In that case, the Russian bank Vneshprombank LLC (“the Bank”) obtained a Worldwide Freezing Order against George Bedzhamov, a Russian businessman who the Bank alleged participated in fraudulent activities that resulted in losses of £1.34 billion.  Prior to the making of the initial without notice freezing injunction on 27 March 2019 (“the Initial Order”), Mr Bedzhamov and his family were leading a supremely lavish lifestyle, which included maintaining luxury rental homes in both Mayfair and Monaco and the use of a private jet and yacht.

After the making of the Initial Order, disputes arose as to inter alia how much Mr Bedzhamov should be permitted to spend on “ordinary living expenses” whilst the injunction was in place. Several variations were made to the Initial Order  following a hearing on 9 July 2019 before HHJ Jarman QC.  However, these variations were not sufficient to meet the Defendant’s ongoing expenses and he appealed.

At the time of the appeal on 5 September 2019, Mr Bedzhamov was permitted to spend £80,000 per month on his living expenses.  On appeal, he asked inter alia that that spending limit be increased to £310,000.  In support of this position, he argued that the money Mr Bedzhamov was asking to spend was his own; there was no proprietary claim against him and thus, he should be able to spend his money as he wished; and if the limit was not increased, he would not be able to maintain the standard of living he enjoyed prior to the imposition of the injunction.

On the issue of whether the Court should consider the reasonableness of Mr Bedzhamov’s expenses in determining the spending limit, the Court held:-

“[51]…“reasonable” living expenses refer simply to the expenses which the defendant has in fact been incurring as part of his normal way of life and do not require the court to make an assessment whether they are “objectively” reasonable; that it is “unjust” for a defendant to be compelled to reduce his standard of living when there is, as yet, only a claim against him; and that the court must be alert to prevent the abuse of such orders as a means of exerting illegitimate pressure on a defendant.”

In other words, the court concluded that regardless of whether a defendant leads a lavish way of life - one in which “ordinary living expenses” take on an extraordinary meaning – s/he can continue to do so despite the injunction. An important pre-condition, of course, is that the defendant adduces clear and cogent evidence of those pre-injunction expenditures.

The Court of Appeal then went a step further to say that if that defendant later finds that s/he does not have sufficient funds available to meet all of the demands of his or her former lifestyle, the court still will not intervene:-

“[68(2)]…A defendant who has only limited funds available, such that he will or may be unable to sustain his previous level of expenditure on living expenses, will have some hard decisions to make as to how and when to reduce his spending.  But these are decisions for the defendant and not for the court.”

If in the course of proceedings evidence comes to light about a defendant’s inability to continue to spend money at the same rate, then a claimant could apply for a variation to the order, for example to “ring fence” certain items of expenditure. Indeed, the Court would be justified in applying a hefty degree of caution and scepticism when considering the risk of dissipation and/or the defendant’s motivation to spend what s/he has to prevent enforcement later.  On the whole, however, a prospective defendant will be comforted to know that the court will take steps to protect the pre-injunction lifestyle and further, will tread lightly even when the defendant can no longer afford that lifestyle.

If you have been made subject of a freezing injunction or restraint order then click here or call 020 7183 8950 to see how Brett Wilson LLP can assist you 

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