What is a Freezing Order?
A freezing order is an interim injunction prohibiting a potential defendant in civil litigation proceedings from dissipating assets. Typically, such an injunction is sought to preserve a defendant’s assets until a judgment can be obtained. Freezing orders can be obtained to prevent the disposal of assets within the UK or worldwide (worldwide freezing order), making the English court system particularly attractive to international parties.
In any fraudulent money transaction, individuals and corporate entities must act quickly to protect their assets from being dissipated and knowing the fundamentals of how to bring a freezing injunction application against the wrongdoer, could be the difference between successfully recovering the money or losing it forever.
Most categories of assets are capable of being the subject of a freezing injunction whether held directly by the respondent (the party receiving the injunction/ the defendant), or by a third party (e.g. a bank) and can include shares, property, bank accounts and land.
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In order to make a successful application for a freezing order you will have to show that there was an underlying cause of action – for example, a fraud committed and that there is a real risk of dissipation of the assets. ‘Civil fraud’ can cover many different types of claims (’causes of action’), including, deceit, unlawful means conspiracy, money laundering, misrepresentation, breach of fiduciary duty, dishonest assistance, knowing receipt, breach of trust, unjust enrichment and breach of contract.
The power to make a freezing order was established in the case of Mareva compania Naviera SA v International Bulk carriers SA (1980) and the court has discretion to grant a freezing order/injunction under section 37 of the Senior Courts Act 1981.
A freezing order can be defined as, freezing respondents assets and restricting any use to those assets.
What does the applicant have to establish?
1) A good arguable case AFTER full and frank disclosure
- The applicant is subject to the usual obligations to make detailed investigations before seeking the order and to provide full disclosure of all relevant facts (both for and against his case).
- A failure to do so will inevitably result in the defendant applying to have the order set aside for failing to provide disclosure and will lead to a costs and substantial damages order under the claimant’s cross undertaking in damages that must be given to the court. A cross undertaking in damages is given by the applicant in the event that at the return hearing for the injunction to be continued, it is found by the court that the injunction should never have been made. This will settle any liability the applicant may have for wrongly bringing the injunction in the first place.
- The applicant’s obligation to make full disclosure extends to facts discovered after the making of the order. If there is any material change in the facts, the applicant must inform the court so that it may decide whether to continue the injunction.
2) The respondent has property in the jurisdiction and there is a risk of dissipation of those assets out of reach of the applicant
- Unless the applicant can show a real likelihood not just a possibility that the respondent is going to dispose of the assets in order to make it impossible for the applicant to enforce judgement, the court won’t grant the freezing injunction.
- There normally needs to be evidence that moving assets will be done with a corrupt or dishonest purpose. This might take the form of evidence of his dishonesty put forward by the claimant or other creditors.
- Other relevant factors will include the ease with which assets could be moved out of the applicant’s reach and any subsequent difficulties in enforcement.
3) It must be just and convenient for the court to grant the freezing injunction
- The court must be satisfied that it would be just and convenient to grant the freezing order. The court will only grant an interim injunction where doing so would maintain a fair balance between the rights of the parties, pending the trial.
4) The Court must consider the “balance of convenience”
- The Court will look at whether the payment of damages would be an adequate remedy for the applicant if he succeeds at trial. In some cases, the payment of money by the respondent will be enough to compensate the applicant for the problems that have been caused. If it would be, the Court will not normally order an interim injunction.
- If damages are not adequate (i.e. the only thing that will provide a sufficient remedy is if the injunction was granted), the Court will look at the cross-undertaking in damages. It will ask, will the cross-undertaking adequately protect the respondent if the Court subsequently finds at trial that the interim injunction had been wrongly granted? If not, the Court will not usually grant the freezing order.
- If the Court has doubts as to whether damages are adequate, it will consider the specific circumstances of the case. The Court will do what it can to preserve the status quo between the parties.
After the Ex Parte Application
After the application has been heard and granted by the court, the applicant is required to give an undertaking to issue and serve the claim form to the respondent as soon as reasonably practicable.
An order for a freezing injunction will contain a return date for a hearing – a hearing which the defendant can attend to give their version of events and seek to have the order set aside. This hearing will determine whether the order should be continued.
Grounds for Having a Freezing Order Set Aside
The subject of the order can apply to have it set aside on a number of grounds. These include:
- The applicant has failed to evidence the risk of dissipation of assets.
- The allegation that has been made is not arguable: This could be argued due to some of the evidence that relates to the case or on a matter of law.
- It would not be just to continue the injunction: The defendant may be able to evidence they have a good argument to show that they would suffer loss as a result of the order.
- The applicant has not provided full and frank disclosure and has failed to disclose all relevant facts to the court when applying for the freezing order.
- The court has no jurisdiction to issue the freezing order.
- The defendant could use the return date hearing to argue for the terms of the freezing order to be varied as its original terms are too wide or cannot be justified.
By their very nature, freezing injunctions are known to be a nuclear option in litigation as they inevitably raise tensions between the parties. Parties often become entrenched in their positions afterwards.
If the assets are overseas and the Applicant is considering an application for a Worldwide Freezing Order, consideration must be given to the enforceability and recognition of an English Freezing Order in the foreign jurisdiction. In other words, will the overseas jurisdiction co-operate with the terms of the English injunction.
Breaching a Freezing Order
Freezing injunctions include a penal notice, which means that any breach of the freezing injunction by the respondent, or any third party on whom it is served may amount to a contempt of court and result in criminal proceedings. Being found guilty of contempt of court renders the wrongdoer liable to a fine and/or imprisonment for up to 2 years, so the courts take enforcement of freezing injunctions very seriously indeed.
Adam Haffenden, Partner and Head of Commercial Litigation at TV Edwards Solicitors has significant expertise in successfully obtaining/defending worldwide and domestic freezing injunctions.
If you would like to discuss bringing or defending an application for a freezing injunction, please contact our Commercial Litigation team at TV Edwards Solicitors for a free, no obligation initial discussion on 020 3440 8000 or email email@example.com
Disclaimer: The information on the TV Edwards website is for general information only and reflects the position at the date of publication.