Monies Paid Into Joint Account to Discharge Freezing Injunction Do Not Create Any Security Right

The recent Court of Appeal decision in Flightline Limited v Edwards & another [2003] EWCA Civ 63 has considered the status of monies paid by the defendants, Swissair Schweizerische Luftverkehr-Aktiengesellshaft ("Swissair"), into a joint account for the purposes of discharging a freezing injunction over its assets. The court concluded that these monies do not create any entitlement to payment as a matter of right in the event of a successful judgment in the action.

The standard form of freezing injunction contains an express provision that it will cease to have effect if the respondent provides security (in a sum to be specified in the order), either by means of a payment into court or by some other agreed method. Although the freezing injunction obtained by Flightline contained no such express provision the Court of Appeal did not, in the event, consider this to be a relevant factor. The judgment also therefore appears to apply equally to monies paid to discharge freezing injunctions which do contain the standard wording.

Background

Following the collapse of the Swissair Group in October 2001, Swissair repudiated its arrangements with Flightline. Flightline commenced proceedings on 16 January 2002 in which it claimed some £4.2 million. At the same time it obtained a freezing injunction to prevent Swissair from dealing with its assets in England and Wales up to a maximum of £4.2 million. Upon being given notice of the freezing injunction, Swissair indicated its intention to make an application to discharge the freezing injunction.

Flightline and Swissair then agreed that a sum in excess of £4.2 million, which Swissair was shortly to receive from a third party, should be paid into an account opened in the joint names of Flightline and Swissair's solicitors. It was agreed that, to the extent the balance exceeded £4.2 million, it could be paid out to Swissair and that thereafter the freezing injunction should cease to have effect.

Subsequently the parties agreed on the smaller sum of £3.335 million being held in the joint bank account. The terms of this agreement were incorporated in a Consent Order of 13 March 2002. This Order was made on Swissair's undertaking set out in a schedule to the order:

Not to withdraw or in any way dispose of or deal with or encumber its interest in the monies in the [joint account] up to a limit of £3,325,000 million pending further order of the Court or the written consent of [the two firms of solicitors].

...