What is a Freezing Injunction?
A freezing order/injunction is an interim measure granted by a court to prevent a person from being able to dispose of or deal with their assets before a judgement has been enforced.
Nature of Freezing Order
Freezing injunctions are used in domestic cases, however, this form of remedy has a higher importance in international commercial litigation. The reason is that international parties are generally more interested and have the ability to move assets between jurisdictions.
The freezing injunction claim does not give any title to the frozen property, nor does it make the claimant entitled to any additional damages from the defendant if the order is breached. The frozen assets may or may not be directly involved in the proceedings. Nevertheless, the court does not have direct powers over such assets.
A standard freezing injunction is non-proprietary and restrains a proposed defendant from disposing of, dealing with, or diminishing his assets up to a certain value in the jurisdiction, or removing those assets from the jurisdiction.
What assets can be covered by a freezing order/injunction?
Many types of assets can be frozen using a freezing order, including bank, and building society accounts, shares, property, land, and investments.
The freezing order may set out specific assets that are subject to the order, such as properties or shares. However, an asset not included in the order may still fall within the scope of the order. A standard form order will cover, “all the respondent’s assets… the Respondent’s assets include any asset which he has the power, directly or indirectly, to dispose or deal with as if it were his own.”
Standard form freezing orders will place a cap on the value of assets that can be frozen. Additionally, freezing orders cannot be used to force a respondent to cease trading and the court will typically allow the respondent reasonable living expenses, reasonable legal costs, and the ability to deal with or dispose of assets in the ordinary and proper course of business.
Freezing orders may be made in respect of assets in England and Wales (referred to as domestic freezing orders) and worldwide (referred to as worldwide freezing orders). A freezing injunction can also be obtained in England & Wales in support of a foreign claim
When will the court grant a freezing order/injunction?
The court has discretion to grant a freezing order/injunction under section 37 of the Senior Courts Act 1981 and will do so only when it considers that it is just and convenient. The following conditions, established through case law, must be met:
- The applicant has sufficient cause of action.
- The applicant’s case is good and arguable (although, there is no requirement to establish that the case will definitely succeed).
- There are sufficient assets in existence to meet the claim.
- There is a real risk of the disposal or dissipation of assets prior to the court’s judgement.
- The applicant has made a full and frank disclosure to the court.
When making its decision, the court will also apply the ‘balance of convenience’ test, which means it will take all relevant factors into account and evaluate the likely disadvantage caused to the respondent against the benefit the injunction would provide to the applicant.
As the application is made on an ex parte basis, the applicant has a duty of full and frank disclosure, i.e., to inform the Court whether there is any evidence that on the face of it assists the applicant. A failure to provide full and frank disclosure may mean that the respondent can apply to set aside the freezing order.
What is the process for obtaining a freezing order?
Applications are made to the High Court or the County Court. If an order is granted without notifying the respondent first, which is often the case, it will be valid for a specific period of time and a full hearing will be scheduled. The applicant will usually be required to provide a cross undertaking in damages. This means the applicant undertakes to compensate the respondent if the court later finds there was no legitimate reason for the freezing order.
The respondent will usually have 48 hours to respond to the order with a full disclosure of all their assets, their value and location (supported by documentation). In some cases, they may be required to sign a document to permit third parties to disclose details about the assets they hold for the respondent.
In serious cases, the respondent could be ordered to hand in their passport to prevent them from leaving the UK, and a receiver may be appointed to monitor their assets. The respondent will usually be permitted to pay for their ordinary living expenses and reasonable legal fees, and in the case of a business, to pay staff and creditors.
At the full hearing, the respondent will have the opportunity to request that the order be varied or set aside, and the court will determine whether either should happen, or if the order should be continued.
Who is subject to a Freezing Injunction?
A freezing injunction may be made against a defendant (or a potential defendant). The assets may belong to the defendant alone, held in trust by a third party for the defendant’s benefit, or jointly owned with a third party. Therefore, a freezing order may be also obtained against a third party holding the assets on the defendant’s behalf.
When should an application for a Freezing Injunction be made?
An application for a freezing injunction is usually made prior to court proceedings being issued. The rationale behind making an application prior to proceedings is that the defendant can dispose of the assets before a judgement is obtained. Nevertheless, a freezing injunction can be sought during or after the proceedings in order to prevent the disposal of assets before the enforcement of the judgement.
An freezing injunction can also be given in support of arbitration proceedings, where the seat of the arbitration is in England. The English Courts are quite liberal in granting freezing orders to aid enforcement of arbitral awards, especially in international commercial arbitration.
How to apply for a freezing order/injunction in the UK
When applying for a freezing order/injunction, the relevant forms must be filled out fully and accurately with strong evidence to support the application.
The court will consider the applicant’s behaviour in its decision whether to grant an order or not. The applicant must act reasonably, diligently and without unnecessary delay. The court has previously considered delay to contradict the urgent risk of dissipation of the assets in question. Practically, delay also increases the risk that assets will already have been dissipated by the time any injunction is granted. It is also essential that the applicant has clean hands; they must not have acted improperly.
Where there appears to be a risk that assets may be dispersed or hidden, which would ultimately obstruct the enforcement of a possible successful claim, it is important to seek legal advice immediately regarding freezing injunctions.
Our freezing orders solicitors have the experience and specialist expertise to ensure applicants are in compliance with the application rules and meet the behaviour standards, so an application has the best possible chance of success.
How long does a freezing order last?
As freezing orders are often made ex parte – without notifying the respondent – they typically last around seven days, after which another hearing will be listed, giving the respondent an opportunity to respond to the order. At this hearing, the court will typically decide whether to extend the order, or to discharge it or vary it depending on the circumstances.
What happens if the respondent does not comply with the freezing order?
Failing to comply with a freezing order may amount to contempt of court and could result in the court instigating committal proceedings. The penalties include fines, asset seizure and up to two years’ imprisonment. In narrow circumstances, breaching an injunction could even result in criminal prosecution.
How Madison Legal can assist
Our commercial litigation team has considerable experience conducting your arbitration, litigation, and freezing orders. If you have a potential claim or are facing a potential dispute matter, please do not hesitate to contact us for advice, send us an e-mail. Alternative contact us via LinkedIn.