Out-Law Guide | 05 Aug 2011 | 3:33 pm | 8 min. read
What is a freezing injunction?
A freezing injunction is a court order which prevents a party from disposing of or dealing with its assets. A freezing injunction is therefore an essential tool for those looking to protect assets to ensure those assets are available to satisfy a court order.
When will an application for a freezing injunction be made?
An application for a freezing injunction is most often made prior to court proceedings being issued. An application prior to proceedings can protect assets if the applicant fears that the other party will dispose of those assets before a judgment can be obtained.
However, a freezing injunction can be sought during the course of proceedings or even after judgment is given, to prevent the disposal of assets before the judgment is enforced.
A freezing injunction can also be sought in support of arbitration proceedings. Where the seat of the arbitration is in England, but assets are located abroad, an English court could order a freezing injunction over those assets to support enforcement of the award.
In special circumstances, a freezing injunction can be sought in respect of overseas proceedings. An applicant will have to show the presence of relevant assets in the English jurisdiction or a sufficient connection between the respondent and the UK.
Who is subject to a freezing injunction?
A freezing injunction will take effect personally against the party subject to it. A freezing injunction may be made against a potential defendant or a third party holding assets on behalf of the potential defendant. The third parties could include a bank or a trustee.
When will the court grant a freezing injunction?
The court has a wide discretion to grant a freezing injunction, and will do so only when it considers that it is just and convenient. The following conditions must be satisfied:
When making its decision the court will apply the 'balance of convenience' test. The court will take all relevant factors into account and will weigh the damage caused to the subject of the injunction against the benefit to be gained by the applicant. The applicant's behaviour will also be considered and it must act reasonably and diligently.
It is very important for the applicant to act quickly when brining an application for a freezing injunction. Any delay in applying for a freezing injunction will make it more difficult to convince the court that the injunction is necessary. Delay also increases the risk that the assets in question will already have been dissipated by the time any injunction is granted.
Cross-undertaking in damages
The applicant must undertake to the court that it will pay any damages that the respondent suffers under the freezing injunction if it is later determined that the injunction should not have been granted. As a freezing injunction is a remedy which places dramatic restrictions on a respondent's assets, the undertaking provides comfort to the court that the respondent's position is sufficiently protected.
The undertaking extends to damage suffered by any other party notified of the injunction. The court may require the applicant to give security or to identify the assets it will use in support of any undertaking. The duty of full and frank disclosure (see below) extends to facts which affect the value of the security given.
Depending on the financial position of the applicant, the court may request that the undertaking be fortified. This could involve paying a set sum into court to satisfy the court that the applicant can pay damages if required to do so. It should be noted that in certain circumstances, the court could require a cross-undertaking in damages unlimited in amount.
Assets affected by the freezing injunction
A freezing injunction can freeze only those assets over which a judgment can be attached, for example money held in bank accounts, land, vehicles, shares, bonds or other financial instruments. Assets can include those held beneficially for another party, for example assets held on trust. It is usually difficult however to obtain a freezing injunction over a beneficiary's entitlement under a discretionary trust.
A freezing injunction can apply to assets held within England and Wales (a domestic freezing injunction) or to assets outside England and Wales (a worldwide freezing injunction). Also, a court has the ability to grant a worldwide freezing order but limit its effect in certain jurisdictions.
The freezing injunction may be:
The freezing injunction normally requires the subject of it to disclose the value, location and details of all its assets exceeding a minimum value. This can include details of specific trusts and trust assets.
The freezing injunction will usually allow the respondent to spend a limited sum on ordinary living expenses or reasonable legal fees. If it is shown that the subject of the injunction has access to other funds in excess of the value of the freezing order sought, the court may grant an order without these exceptions.
An application for a freezing injunction will be decided on by a judge at a court hearing.
A freezing injunction application will often be made 'without notice' to the other party, that is, without the other party being present at or aware of the hearing. This prevents the respondent becoming aware that their assets might be frozen and dealing with the assets before a freezing injunction can be granted. The applicant should consider in each case whether the risks or urgency merit a 'without notice' application.
The application for the freezing injunction must be supported by evidence in the form of an affidavit sworn by the person or organisation seeking the order. The affidavit must address all the conditions for obtaining a freezing injunction. The affidavit must be accurate and provide all relevant documentation and information.
The affidavit must also explain the reasons for the urgency of the application and the risk that the assets will be dissipated. It must also give evidence of that organisation's ability to meet the cross-undertaking in damages.
Initially a freezing injunction sought 'without notice' will be granted on an interim basis, and it will last until the "return date". The return date is a date set for a further hearing at which the respondent(s) will be present and the parties present their arguments as to why the injunction should be continued, varied or set aside.
Duty of full and frank disclosure: applications without notice
As the respondent is not present at the first hearing, the applicant must disclose all relevant material to the court including material which may be unfavourable to it. This includes matters raised by the other party in correspondence and any relevant defences. The duty of full and frank disclosure is ongoing. Any incorrect information or omission which is subsequently discovered must be corrected immediately, even subsequent to the granting of freezing injunction.
Failing to comply with the obligation of full and frank disclosure may result in the court setting aside the freezing injunction. Even if the lack of disclosure does not change the court's decision to grant a freezing injunction, the applicant may be ordered to pay compensation for any loss suffered by the other party due to the lack of disclosure. Applicants must be aware that knowingly misleading the court could lead to a criminal charge of perjury.
Serving a freezing injunction
The injunction must be served promptly after the hearing, and served personally on its subject to make sure that it is acknowledged and can be enforced. The subject of the injunction should also be served with the application, supporting evidence and a note of any 'without notice' hearing.
In some cases where the injunction includes assets held by third parties, the order may be served on a third party before it is served on its subject. This may happen where, for example, a bank holds funds on behalf of the subject of the injunction, so that the funds can be frozen before any attempt is made to transfer them out of the bank account.
The mandatory aspects of the freezing order, including liability undertakings and the asset disclosure obligation, take effect only when the order is served personally. However the prohibitory aspects of the order, including the obligation not to dispose of assets, take effect following service by any means.
Breaching a freezing injunction
Freezing injunctions must contain a penal notice. If a party is validly served with the freezing injunction, they can be held in contempt of court if they breach the terms of the freezing injunction. This could result in the person in breach of the freezing injunction being imprisoned, fined or having their assets seized. A knowing and deliberate failure to comply with the terms of a freezing injunction, including any ancillary orders, will be ruled by an English Court as serious contempt.
It should be noted that the applicant has no right to damages against the other party arising from the breach of a freezing injunction.
Tactical advantages of freezing injunctions:
Limitations of freezing injunctions