DaySparkes has extensive experience of obtaining and defending all types of freezing injunctions.
A freezing injunction is an “interim remedy” of the court that prevents a defendant from disposing of or dealing with its assets to defeat a court judgment.
Often described as the “nuclear weapon” of litigation, a freezing injunction can be a potent and highly effective tool in the right circumstances. But it can also be highly risky and have the potential to backfire.
Obtaining a freezing injunction
Freezing injunctions can be obtained before the start of proceedings, during a case, or after a trial and can be domestic in nature (i.e. UK-only) or, in appropriate circumstances, “worldwide”. They will usually be obtained on an “ex parte” basis (without notice) to prevent a defendant from disposing of or hiding assets. As noted below, this gives rise to an enhanced legal and evidential burden which will often form the basis for a discharge application.
To obtain an ex parte freezing injunction, a claimant must demonstrate that:
- There are material assets over which the English court has jurisdiction.
- It has a “good arguable case” under English law.
- There is a real risk of disposal or “dissipation” of those assets.
- There has been no material delay (freezing injunctions are, by definition, urgent).
- It has made “full and frank” disclosure of facts and matters that are relevant to the exercise of the court’s discretion to grant the order and which the defendant would have made had it been present.
- It is “just and convenient” to grant the freezing injunction.
A claimant must also give a “cross-undertaking in damages” to the court, which amounts to a promise to compensate the defendant in damages in the event that the order is subsequently discharged. Sometimes, a claimant can be required to “fortify” the cross-undertaking by giving a suitable first-class banking guarantee or paying money into court.
A standard freezing order will contain provisions requiring the defendant to disclose the nature, value and location of assets up to the amount frozen. It will also contain a “penal notice” making clear that a breach of the order amounts to a contempt of court which is punishable by prison and/or the seizure of assets and/or a fine.
The value of a freezing injunction is easy to see. In addition to locking assets down it can enable a claimant to locate unknown assets (through the disclosure provisions) and put severe pressure on a defendant to settle.
But a freezing injunction is also risky:
- It is expensive to obtain and can be difficult to “hold”:
- The case has to be “front-loaded” from a costs perspective to persuade the court that the order should be granted and to minimise the risk of a discharge application.
- The underlying claim also has to be started in the usual way, with all of the attendant cost of the full court process (court fee, particulars of claim, defence, witness statements, expert evidence and main trial etc.).
- Once the freezing order has been served, there is then at least one “return date”, which gives the defendant(s) the chance to make representations.
- There is a risk at the return date of being dragged into a protracted and lengthy discharge application with multiple rounds of evidence and a lengthy interlocutory hearing before the main proceedings have been determined.
- If the freezing injunction is discharged, the claimant will have to pay costs and face a claim in damages under the cross-undertaking, which could be very substantial indeed.
- A defendant may make an application for fortification of the cross-undertaking and security for costs of the main claim which could put a real stress on the claimant’s working capital.
- A freezing injunction is not a proprietary remedy in the sense that it does not give a claimant a preference over other creditors in the event of an insolvency. There is therefore an inherent risk of a “pyrrhic victory” when dealing with impecunious defendants.
What to do when you have been served with a freezing injunction?
A respondent served with a freezing order should:
- Not do anything to directly or indirectly deal with or dispose of any assets without taking legal advice on the scope and meaning of the order (to avoid a finding of contempt).
- Act quickly and immediately and instruct a litigation team with genuine experience of freezing injunctions to advise on such matters as:
- The terms and effect of the order.
- Any urgent representations (for instance in relation to the adequacy of the allowance for legal and living expenses, or any urgent payments “in the ordinary course of business” (both of which are standard exceptions in freezing orders) or the need for fortification/security).
- The merits of an application to vary or discharge the order, for instance because of a failure to give full and frank disclosure or where a claimant did not have “clean hands” on the application (a freezing injunction is an equitable remedy and equitable maxims therefore apply).
- Whether to “live” with the order under protest/reservation and fight the main proceedings, possibly through an expedited trial.
- The use of third part funding.