Partner Bambos Tsiattalou highlights the important function civil freezing injunctions have in shaping the field of financial litigation.
Freezing injunctions are ideal where a commercial dispute has arisen, and you have good reason to believe that a party is about to dissipate their assets, or move them overseas. Bank accounts can be frozen and sales stopped overnight. A freezing injunction is an equitable remedy, which the court may impose in the interests of justice, or fairness, depending on all the circumstances of the case.
As an equitable remedy, freezing injunctions are granted at the court’s discretion. The rules of equity require that applications should not be delayed in a way that is prejudicial. An applicant must have behaved properly in the matter, since those seeking equitable remedies must do so “with clean hands.”
“The rules of equity require that applications should not be delayed in a way that is prejudicial. An applicant must have behaved properly in the matter, since those seeking equitable remedies must do so “with clean hands.”
An applicant must show the court that they have a good, arguable case as regards their cause of action. The risk of the assets being dissipated or moved out of the jurisdiction must be real. The applicant’s own suspicions or concerns are not sufficient.
Freezing orders are often sought before proceedings have been initiated. They can be applied to assets including land, shares and bank accounts. However, applicants must show the court good grounds for believing that particular assets exist. The mere likelihood that particular assets exist is insufficient.
Applicants must provide full and frank disclosure of all the relevant information regarding the case – including information which is not supportive of their application. The court will consider whether it is “just and convenient” to grant an injunction, in view of these factors and the impact on third parties.
Applicants must undertake to pay damages to the respondent if it is ultimately decided that the injunction was unwarranted. Applicants must also pay court fees for the initial hearing, the return hearing and the substantive claim. A freezing injunction therefore carries significant costs and risks for applicants.
Where a freezing order is granted, applicants often also seek a disclosure order requiring the respondent to disclose all assets.
“Where a freezing order is granted, applicants often also seek a disclosure order requiring the respondent to disclose all assets.”
A freezing order will usually be limited to the estimated value of the claim, together with an allowance for interest and costs. The terms of the order will usually allow the respondent to continue their ordinary trading. However, in certain cases, freezing injunctions can prevent respondents from using assets for living expenses or funding their legal representation.
Freezing orders can be made with worldwide effect. This is vital where a respondent has assets outside the jurisdiction. Where assets are overseas, different jurisdictions will take varying approaches to the enforcement of an English court order. Some jurisdictions will enforce the English order, but sometimes it will be necessary to obtain the local equivalent of a freezing order.
Once granted, freezing orders can be immediately served on banks or other third parties, to prevent assets being dissipated or transferred overseas. When a freezing order is made at the initial hearing, the court will fix another hearing date – known as a return hearing – so the respondent can make their case or seek to have the order overturned or varied.
Freezing injunctions can be rapidly obtained and have proven to be a remarkably effective tool in commercial litigation. However, before seeking a freezing injunction, it is wise to ensure that all the relevant criteria are comfortably met – and that an injunction is a practical necessity – since they also carry significant costs and financial risks for applicants.