What is a Freezing Injunction?
If you are involved in a legal dispute before an English court and the other party is attempting to dispose of, sell, hide or move its assets abroad to avoid paying you damages and costs under a future judgment, you might be able to obtain a freezing injunction. This will prevent the respondent from dealing with its assets up to a specified value in order to preserve them for judgment.
This very powerful remedy was first developed by the English courts 51 years ago. One Court of Appeal judge accurately described it as the law’s “nuclear weapon”.
When can a Claimant obtain a Freezing Injunction?
Freezing injunctions are available before legal proceedings are commenced as well as during the litigation process, or once judgement has been secured after trial.
An urgent application without any notice to the other party can be made to the court if a respondent or prospective respondent might place their assets beyond the reach of the judgment holder and notification of the application would cause the respondent to take such steps.
In addition, post-judgment freezing injunctions can be applied for to assist a party to enforce its judgment against the other party’s frozen assets.
What must an Applicant for a Freezing Injunction Demonstrate to the Court?
A court will only consider granting a freezing injunction if the applicant has a good arguable case on its underlying claim. Whilst emergency injunction hearings are not intended to be trials of fact, the applicant must satisfy the court that its substantive main claim meets this standard.
The applicant must then convince the court that the respondent owns or controls assets to the requested value of the injunction. This can be difficult to establish.
When considering the amount of the assets to be frozen, the court will not wish to inflict the respondent with undue financial hardship, preventing the respondent from trading or paying for legal advice for its defence. Equally, an individual respondent will not be deprived of living expenses or sums to pay their lawyers.
The court usually assesses the amount of the respondent’s assets to be frozen by reference to the amount of the underlying claim including legal fees and interest.
The applicant must then prove that there is a real risk that the respondent will dissipate the assets to attempt to put them beyond the reach of the applicant if successful at trial.
In considering each of these factors the court must be satisfied that it would be just and convenient to grant the freezing injunction. The judge will also consider whether the order sought is proportionate to the need to protect potential enforcement or is simply being used to oppress the respondent in order to force it to settle the underlying claim. The judge will also consider the impact of the potential order on family members of individual respondents, and on other third parties where the respondent is a company.
Further Requirements for an Application for a Freezing Injunction.
Given the Draconian nature of an order for a freezing injunction, the English courts have developed procedural protections for respondents to freezing injunction applications where the respondent does not have notice of the initial application.
The first protection is that there will be an early “return date”, which is a hearing to review the order in the presence of the respondent. This enables the respondent to apply to cancel the freezing injunction or to vary its terms.
It is very common at return date hearings for the respondent to rely on the court’s second procedural protection. This is to submit that the applicant failed to make a “full and frank disclosure” when it made its initial application on a without notice basis. Full and frank disclosure means that the applicant must bring to the court’s attention any fact or argument which the respondent would have made (if it had been present at the hearing) to potentially undermine the applicant’s case.
Any applicant’s failure to meet this standard is likely to lead to the cancellation of the freezing injunction and an order to pay the respondent’s legal costs.
The final protection for respondents is that the applicant must give a cross-undertaking in damages. This is an enforceable promise to the court to compensate the respondent for any loss it has suffered from the freezing injunction, if the respondent ultimately defeats the claimant’s underlying action at trial. The court will also need to be convinced that the applicant has sufficient assets for this purpose. If in doubt it might well require a payment of the cross-undertaking amount into court pending the outcome of the trial.
The Difference between Freezing Injunctions and Proprietary Freezing Injunctions
A freezing injunction covers an unspecified range of assets up to a specific value, while a proprietary freezing injunction covers one or more specific assets which the applicant contends in its underlying claim that the respondent has unlawfully removed and so must return.
After a Freezing Injunction is Secured.
If the applicant is successful in obtaining a freezing injunction it will serve it on the respondent to restrain it from dealing with the assets, and on any holder of the frozen assets, such as a bank. The bank must then freeze the funds in the respondent’s bank account in order to comply with the court’s injunction order.
In the light of the ease with which financial assets can be transferred worldwide, the English courts have been prepared to grant worldwide freezing injunctions for many years. However, applicants for this relief must first check whether the English court’s order will require recognition or registration by a local court in the jurisdiction in which the bank holding the asset is situated. This is to ensure that the freezing injunction order will bind the bank in that jurisdiction.
How 3CS can help
Our expert dispute resolution solicitors can advise you of the options available to you and discuss whether a freezing injunction may be necessary.
For advice or guidance, please get in touch.
