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Five company directors jailed for 'deliberate' breaches of freezing order

Out-Law News | 10 Feb 2017 | 11:57 am | 2 min. read

Five directors of an Indian manufacturer have been committed to prison for "deliberate" breaches of an English court's worldwide freezing order, while the assets of the company have been sequestrated by the court.

The High Court heard evidence that the company, Shivnath Rai Harnarain, had made shipments worth over $20,000 on at least three occasions since its commercial partner, Touton Far East, obtained a freezing order from the English courts in February 2016. Shivnath had failed to disclose these shipments to Touton, in breach of the terms of the order, according to a Lawtel summary of the case.

Asset recovery expert Alan Sheeley of Pinsent Masons, the law firm behind Out-Law.com, said that the ruling was "a powerful reminder of the consequences for litigants who fail to adhere to court rulings".

"The courts do not use their power for committal lightly, but they are fully prepared to do so where an individual deliberately breaches a court order," he said.

"The breaches in this instance were particularly egregious as they related to the terms of a worldwide freezing injunction. Freezing injunctions are not known as one of the law's 'nuclear weapons' for no reason: they are an extremely powerful tool for litigators which, if successfully obtained, can have a devastating impact on those affected. Unsurprisingly, therefore, the test for obtaining a freezing injunction is high and any application for a freezing injunction will be rigorously studied by the courts," he said.

"Individuals who disregard the seriousness of a freezing injunction should not be surprised if the courts' wrath descends," he said.

In 2010, Touton successfully obtained an arbitration award against Shivnath worth over $4 million under the Grain and Feed Trade Assocation (GAFTA) scheme. In February 2016, after attempts to enforce the award failed, Touton obtained a freezing order from the English courts which would apply indefinitely until payment was made or a further order took its place.

Shivnath was given until March 2016 to apply to vary or discharge the order. It asked for an extension of time to appeal, and also argued that the freezing order should not be indefinite. Last month, the High Court ruled that the order should remain in place, and refused to grant Shivnath's application for extra time.

The court was satisfied that there had been breaches of the freezing injunction in each case, but then had to go on to establish whether there had been contempt of court by each individual. In each case the individual had to have been aware of the freezing order, responsible for the breach and given due notice of committal proceedings. It was able to establish contempt in all but one case, that of the son of the company's managing director, who had been a director of the company until his resignation in 2015 and appeared to have relinquished control at the same time.

Although the company had no assets in the UK, the court found it was still "just and appropriate" to issue a writ of sequestration in the circumstances. The court "could not stand by and allow the deliberate breaches of its orders to go unmarked", according to the Lawtel summary.

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