This is a quick guide to when freezing injunctions can come in handy, what type of freezing injunctions are available and how to get them.
When is it helpful to get a freezing injunction?
You believe you have a strong claim against your opponent but are concerned that, once they learn of your claim against them, they will swiftly dissipate their assets out of your reach, meaning that when you eventually do secure a judgment, there might not be anything left to enforce it again.
Whether you have been the victim of fraud or, for example, simply have a claim against a business partner, supplier or a customer for breach of contract, it is always important to ensure at the outset that you are likely to be able to recover any damages award from your opponent at the end of the day. This will be less of a concern when you are bringing a claim against a major clearing bank, a large corporation or where the damages payment will ultimately be met by your opponent’s professional insurers. However, it can be a key consideration where your opponent is an individual or smaller company with means and opportunity to move their assets around quickly and out of your reach to unknown third parties and/or corporate entities in hard-to-reach jurisdictions.
That is where freezing injunctions come in! They provide a quick way to freeze your opponent’s assets, be that in the UK or anywhere around the world, until the conclusion of the claim against them.
There are a variety of different freezing injunctions, most common ones being domestic and worldwide freezing orders, which, as the names suggest, freeze the opponent’s assets either in England and Wales or around the world, as well as proprietary injunctions that can be used to freeze your assets that are in the opponent’s possession. Examples of the latter can be funds that you transferred to a bank account in the opponent’s control, your shares in a company, commercial or residential properties and luxury goods.
In certain crypto currency fraud cases, where you do not know the identity of the fraudster, it may also be possible to get an injunction against “persons unknown”.
In other cases, you may not know the location of your opponents’ assets, such as their bank accounts. There are ancillary disclosure orders that can then be used to require your opponent to disclose such details.
It is worth noting that there are also post-judgment freezing orders, but this article focuses on freezing injunctions that are applied for at the very start of the case.
So, how do you get a freezing injunction?
The short answer is that you need to apply to the court to get one.
When applying for a freezing injunction, you need to be able to satisfy the following conditions:
- Jurisdiction: English courts must have jurisdiction.
- Cause of action: you need to have an underlying claim against the opponent e.g. deceit, breach of trust or breach of contract.
- Good arguable case: while you do not need to show that you are bound to win your underlying claim or even that your prospects of success are over 50%, your claim, on merits, should be “more than barely capable of serious argument”.
- Existence of assets: you must be able to show that the opponent has either your specific assets in their possession or under their control (for a proprietary injunction) or that, more generally, the opponent has sufficient assets against which the ultimate judgment in your underlying claim could be executed.
- Risk of dissipation: there has to be a real risk of unjustified dissipation of assets that, without the freezing order, would prevent any future judgment being met. You need to be able to show evidence of a real risk of this happening, as mere suspicion or fear that the opponent may dissipate the assets is unlikely to be enough.
- Cross-undertaking in damages: you also have to give an undertaking to the court to pay any damages that the opponent suffers due to the freezing order if it later turns out that the order should not have been granted. You may be asked to provide security over some of your assets or a pay a sum into the court to fortify this undertaking.
When deciding whether to grant the freezing order, the court will apply the ‘balance of convenience’ test. This involves the court taking into consideration all the relevant factors in the case and weighing the likely damage caused to the opponent if the freezing order is granted against the likely loss suffered by you if it is not.
The court will also consider your behaviour, expecting you to have acted reasonably and diligently. You should act quickly when bringing a freezing injunction application, as a delay in doing so can result in the opponent dissipating the assets in the meantime or, on the flipside, it can undermine the claim that there is a real risk of the assets being dissipated.
Types of applications
You can bring the application both ‘on notice’ or ‘without notice’ to your opponent. Often applications for freezing injunctions are made without notice because there is a real risk that the opponent will seek to dissipate the assets in the time between the application being made and the freezing order being granted by the court. In those situations, the opponent will not learn of the freezing order until after it has been made.
When bringing a without notice application, you need to provide the court with full and frank disclosure of all relevant matters, including any unfavourable matters that may dissuade the court from granting the freezing order. This duty is ongoing, meaning that if you subsequently discover that some of the information you provided to the court was incorrect, then you must correct it.
As the opponent will not have an opportunity to oppose your without notice application at the time it is made, the court will initially only grant the freezing order on an interim basis and will fix a ‘return date’ hearing for a date usually a week or two later. At that hearing, your opponent will have an opportunity to tell the court why the freezing order should not remain in place before the court decides whether to continue it.
What happens after the freezing order is made?
You must serve the freezing order on the opponent together with the application documents and, in case of a without notice application, a note of the hearing where the order was made.
The freezing order will also need to be served on any third parties holding the opponent’s assets, such as banks or other financial institutions where the opponent holds funds. When there is a high risk of dissipation, it is sensible to serve the freezing order on such third parties before the opponent, to prevent the opponent (in breach of the order) moving the assents elsewhere before the third parties learn of the order.
Breaching the freezing order is a very serious matter. It could lead to a finding of contempt of court, which can be punishable by imprisonment, fine or both. That applies both for the opponent and anyone knowingly helping the opponent to breach the order.
For assets located outside England and Wales, the freezing order also needs to be registered or recognised by the foreign country’s court before it is enforceable abroad.
Key takeaways
It is important to remember that a freezing order does just that – it freezes your opponent’s assets. It does not provide you with a form of security over their assets or priority over other creditors that the opponent may have. It just ensures that the assets are still there when you come to enforce any ultimate award against your opponent.
It is also important to bear in mind that courts will not grant such draconian orders lightly and they can be quite expensive to obtain, especially if you need to secure the freezing order at short notice. The costs burden will be further increased by the need to provide a cross-undertaking in damages.
They are nevertheless a very useful tool to both preserve and trace assets in litigation and, in some cases, can also help to reach an early settlement, thereby saving considerable time and costs that would have otherwise been incurred on going to trial.
If you have any questions arising out of this article or would like to discuss the facts of your own case further, then please get in touch.
