A freezing injunction is an interim order that prohibits a party from disposing of or dealing with his assets and, pre-action, is typically sought by a claimant to preserve the defendant's assets until a judgment or award can be obtained and/or satisfied. Similar forms of order can also be obtained post-judgment.
A freezing injunction does not give the claimant any proprietary rights over the assets of the defendant but, since it acts on the individual, it prevents the defendant from carrying out certain acts in relation to those assets. Any third party given notice of a freezing injunction must not aid or assist the defendant to breach the order and will run the risk of contempt if it does so. Effectively, by giving notice of the order to a bank, the account will be frozen, whatever attitude the defendant may take to complying with the order.
Before granting a freezing injunction the Court must be satisfied that:
- The claimant has a good arguable case against the defendant – This hurdle is easier to cross in an application in aid of execution of a judgment as the merits of the case have already been tried. With regard to pre-judgment applications, a claimant must show that there is an issue which is capable of serious argument but not necessarily one which the judge believes to have a better than 50% chance of success.
- There is a real risk that the defendant will either remove assets from the jurisdiction or dissipate them so as to frustrate the judgment – The test for the risk of dissipation is an objective one based on whether the judgment may not be satisfied. The court will not look at the person's subjective intent but will examine the effect of the defendant's conduct.
- It would be just and convenient in the circumstances to grant the order sought – A freezing order would not be just and convenient if, for example, it: interferes with third parties; destroys the defendant's business; results in preventing the defendant from finding employment; or, prevents him from continuing his business or trade.
A freezing injunction is generally granted without notice but with a hearing on notice fixed for a date soon thereafter. The without notice application is made by way of affidavit which must make full and frank disclosure of all matters which are material and should be taken into account by the Court in deciding whether or not to grant the order.
The claimant will also be required to give a “cross-undertaking” to abide by any order for damages which may be made if the defendant suffers loss as a result of the relief and the Court is of the opinion that the applicant should compensate him. The Court also has discretion to decide whether to require a claimant to put up security to support the undertaking, for example, by way of a bank guarantee.
The Court will also require the claimant to give an undertaking to pay the reasonable costs of any third parties incurred as a result of the order, including the costs of ascertaining whether that person holds any of the defendant’s assets and to compensate any third parties if the Court later finds that the order has caused loss.
The power of the English court to grant an injunction freezing a defendant's assets is a powerful tool, ensuring that a claimant does not pursue costly and time-consuming litigation only to find that it cannot enforce the final judgment because the defendant has dissipated its assets.
However, even where a claimant has a strong underlying claim, the English court will only be prepared to intervene if the defendant or the dispute has a sufficiently strong link to England and Wales or there is some other factor of sufficient strength (such as fraud) to justify proceeding in the absence of such a link. It must also be clear that the party against whom the freezing injunction is sought is likely to dissipate its assets with the intention of avoiding the effect of any judgment and/or award made against it and that the risk of such dissipation is imminent so that there is an urgent need for relief.
In taking these considerations into account, the English court retains an overarching discretion to refuse to grant relief if, in its view, such relief is not appropriate in the circumstances. Consequently, each case is very much judged on its own unique facts.
If you would like to receive further information on the above, or have any general queries with regard to the services Steptoe & Johnson offers, please feel free to contact either Adam Greaves or Patrick Gilfillan.