Freezing injunctions: a practical guide

A freezing injunction (otherwise known as a freezing order or Mareva injunction) can prevent the risk of defendants dissipating assets during an ongoing case. In this guide, the team at Alston Asquith have broken down the key points to help you understand the benefits and implications.

What is a freezing injunction?

A freezing injunction is a type of court order which prevents the defendant from dissipating or disposing of their assets. The main purpose of a freezing injunction for a claimant is therefore to safeguard the defendant’s assets in anticipation of a court order that will need to be satisfied.

Cash assets held in bank accounts, shares in other companies, property or any other kind of investment are all assets that are covered by a freezing injunction. The injunction covers assets within the court’s jurisdiction of England and Wales but you can also have assets frozen elsewhere using a worldwide freezing order under special circumstances. The court can make the order for a maximum sum where a specific amount is frozen and any figure above this is free to be used as normal or the order can be made against a specific asset. It should also be noted that the order does not cover ordinary expenses or reasonable legal costs.

What are the advantages and limitations of a freezing injunction?

Advantages

Preservation of assets pending enforcement of court order
Freezing injunctions can help with asset tracing as the subject of the order is required to disclose details of assets
They can increase the urgency in which a claim is dealt with potentially avoiding the need for a trial

Limitations

Freezing injunction applications require careful planning as the court requires specific conditions to be met
They require a solicitor and barrister to work at short notice and are therefore expensive
As the applicant is required to give undertakings the process could backfire leaving them liable if it is later shown that the application should not have been granted
The injunction does not provide security over assets or even give priority over other creditors
There is no guarantee that foreign courts will recognise the injunction meaning it may be unenforceable overseas

When can you apply for a freezing injunction?

Such is the scope of a freezing order that careful consideration must be made before application. Due to the restrictive nature of this type of injunction that there is a high bar for the court granting the order with sufficient evidence and legal grounds presented required to meet the criteria. Orders are granted at the court’s discretion and therefore the applicant must overcome two key equitable bars before the other requirements for granting a freezing injunction will be considered:

Clean hands doctrine: The party seeking the injunction must be free of wrongdoing
Doctrine of laches: The party seeking the injunction must act with diligence and without delay

Who can you take out a freezing injunction against?

Freezing injunctions take effect against the individual or company that the claimant names in their application. The order may also apply to potential defendants and it is also possible for assets held by a third party to be covered by freezing orders thanks to previous case law making them criminally liable should they be in contravention of the order.

Also of particular note is the case of JSC BTA Bank v Ablyazov which was a case between a bank and their former chairman who where it was claimed Ablyazov misappropriated the bank’s funds. This was a highly complex case involving a series of applications where a multitude of case law was established. Part of this was that loan monies may be considered an asset that could be frozen by the injunction. Whilst the funds were a loan and not owned by the defendant, the claimant was entitled to direct the third party on how to manage the funds and were, therefore, assets covered by the order.

What are the requirements for the court to grant a freezing injunction?

The court has discretion to grant a freezing injunction in a broad range of circumstances but will only do so if it considers the application to be just with the following conditions met:

It must be within the jurisdiction of the English courts
There must a cause of action against the defendant which includes deceit, breach of trust or a counterclaim
A demonstration that there is an arguable case – The claim does not need to be infallible but there must be a reasonable chance of success with consideration given to any potential defence
There must be sufficient assets for the order to cover the claim
The risk of asset dissipation must be genuine
The rights and the impact upon the defendant and affected third parties must be considered – Any hardship caused by the order must be legitimate and proportionate
The applicant will also have to provide undertakings to cover any damages should it be later proven that the injunction was inappropriate

As previously mentioned the doctrines of clean hands and laches will also apply. The approach and behaviour of the applicant leading to the current situation will be considered. Has the applicant behaved honestly and reasonably? The applicant should also have acted within a reasonable time frame and any delays will need to have a valid explanation as some assets may already have been disposed of. The court will weigh up the effect of the injunction on the defendant against potential gains of the applicant in the ‘balance of convenience’ test.

Proving that the risk of asset dissipation is genuine must be more than a statement of alleged intent. The claimant may wish to consider the ease and speed at which the defendant could dispose of their assets. What is the financial standing of the defendant? Freezing injunctions should only be used where there is a real threat that the defendant may be incapable of fulfilling a court order if assets are disposed of. It is not reasonable to freeze assets of a large corporation for a claim that is small relative to the size of their assets. Likewise, if the business in question is reputable that has been trading for a lengthy period of time are they genuinely likely to dispose of their assets?

Another area of concern may be the location(s) of the defendant. Is it possible for the business to move assets abroad? If the defendant is based purely within the jurisdiction of the court it seems unlikely that they would have the ability to move assets out of reach of the courts. The court would also like to see evidence that the defendant has the capability to act in a way that could put the assets out of reach. Has the defendant made any threats to do so or acted immorally or deceitfully in the past?

There are certain situations where a freezing injunction are not permitted which are:

Any proceeding against the Crown
Proceedings against a foreign state, unless written consent is provided
By a defendant until after they have filed an Acknowledgement of Service or a Defence
To assist in enforcing a penal law of a foreign state

What are the applicants’ obligations?

Full and frank disclosure

In addition to the above requirements being met the applicant must make full and frank disclosure for all information relevant to the court for the case. The facts must be presented in their entirety and should not leave out facts that may have an impact on the judge’s decision. This includes the absence of any information which could actually work against the claimant as well as the duration that the dispute has been ongoing. If a reasonable period of time has elapsed in the dispute it is unlikely assets will be dissipated and therefore the order won’t be granted.

Applicants should be aware that if the disclosure of the information not full and frank there may be several consequences. Firstly, it may result in the freezing injunction being set aside (rejected). Further to this, if not all information is presented to the judge and there are losses to the defendant then compensation may be awarded. The most severe sanction would be a charge of perjury if the court considers that the were mislead to a sufficient level.

Provide undertakings to the court

When making the application, the claimant will need to provide undertakings to the court that should the defendant suffer any damages as a result of the injunction and it has been retrospectively been determined that it should not have been granted, the claimant will be liable to cover these damages. By doing so the court can be satisfied that the claimant understands the seriousness and implications of the injunction.

As part of this process, the claimant may be required to give security or identify any assets which could be used to support the undertaking. The court may request fortification of the undertakings which could require the claimant to pay a set amount to cover potential damages.

What assets are covered by a freezing injunction?

When a freezing injunction is granted the order will be made against specific assets. Only in very exceptional circumstances will the order be unlimited. The order will usually apply to assets in England and Wales (domestic) but can also apply internationally which is called a Worldwide Freezing Order which may cover all countries or specifically named jurisdictions.

The three types of freezing injunction are:

Maximum sum orders – This limits the order to the size of the claim and is the most common
Specific assets – Where the order applies to a specific asset which has a value equal or greater than the value of the claim
Unlimited – This would mean that all assets owned by the defendant are covered by the order

The defendant will usually be required to disclose information regarding the value and details of their assets as part of the freezing injunction. They will however usually be permitted reasonable expenses up to a limit as well as an amount to cover legal costs.

What is the process for applying for a freezing injunction?

Once the freezing injunction application is filed the claimant and their legal team will need to appear before the judge who will decide at this hearing whether to grant the order. In a large portion of cases, the application will be made ‘without notice’ meaning the defendant will be unaware that the hearing is taking place. The reason for this is logical, if they were aware that the hearing was due to take place, this may give them the chance to dissipate the assets.

The claimant will be required to submit an affidavit to support the injunction application. This will show that they have made due consideration of the requirements to approve the order and will provide full and frank disclosure of the facts along with relevant documentation to explain the urgency as well as the risk of dissipation. Evidence must be provided to show that the organisation has the ability to meet the cross-undertakings.

The judge will normally grant the freezing injunction on an interim basis. This protects the assets until the defendant has the opportunity to contest the order in a second hearing at which point the judge may decide to extend the order, set it aside or vary the terms.

Once the order is granted the injunction will need to be served to the subject to make them aware that they are required to comply with its conditions. This would normally be done with a dedicated process server who will perform this action on your behalf and ensure guidelines are followed. Depending on the scope of the order you may also be required to serve the injunction on third parties. Once this process is complete the order takes effect and failing to comply would be considered a breach.

What happens if the freezing injunction is breached?

Once the defendant has been validly served with the injunction they must comply with the requirements. The order should be taken very seriously as failure to comply will leave them in contempt of court leading to seizure of assets, fines or even imprisonment. Therefore should you be served with a freezing injunction you are strongly recommended to take legal advice to ensure compliance as knowingly breaching the terms is considered serious contempt.

What costs are there for a freezing injunction?

Applicant

There are court fees that need to be paid for the application of around £100 but it should be noted that separate fees will need to be paid for the claim. For claims over £200,000, this is £10,000. Due to the complexity of freezing injunctions, you will be required to have a specialist barrister present the argument to the court. Also there the costs of the solicitor who will need to dedicate significant time, usually at short notice to prepare the arguments. As mentioned above it is also required that the claimant provide undertakings to the court.

Defendant

There is no obligation to contest a freezing injunction and you can simply accept the order however should you wish to dispute this you will require a solicitor and barrister. The defendant has the option to either attempt to amend the terms or to seek a full discharge entirely.

Do you have a claim that you think may require a freezing injunction that you’d like to discuss with the team? We have offices in London and Hertfordshire and can arrange a call to provide some initial advice.

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