Freezing Injunctions

In any fraudulent money transaction, 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.

It is often necessary to apply for a freezing injunction to prevent assets being dissipated to out of reach whilst the application to enforce the foreign judgment is being pursued in the UK

We explore how you go about obtaining a freezing order and the legal basis for doing so.

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Freezing Order

The power to make a freezing order was established in the case of Mareva compania Naviera SA v International Bulk carriers SA (1980).

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;

a). 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);

b). 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;

c). 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.

a). 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;

b). 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;

c). 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.

a). The court must be satisfied that it would be just and convenient to grant the freezing injunction. 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”.

a). 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;

b). 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 an interim injunction;

c). 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.

Breaching of a Freezing Injunction

If a respondent breaches a freezing injunction they run the risk of being found in contempt of court and an application for committal could be made against them. 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.

Summary

An injunction is a useful remedy to ensure someone does (or indeed stops doing) a specific act. However, they should not be taken lightly and we would advise that you seek legal advice before making any application. You can read more here about what injunctions are.

If you would like to discuss a potential freezing injunction or would like to find out about our services more generally, please contact our Dispute Resolution/Litigation team at TV Edwards Solicitors LLP.