freezing injunctions

An order made by a court in respect of a defendant's assets, which may be made in respect of assets both in and outside England and Wales. Freezing injunctions are usually applied for without notice prior to commencement of court based legal proceedings. These court orders prevent a defendant (1)  removing assets out of the jurisdiction of the court, or (2) dealing with assets within the jurisdiction or out of the jurisdiction.  The defendant is allowed use of funds for ordinary business purposes, living expenses and legal fees to defend the proceedings.

Purpose of Freezing Orders

These court orders are obtained by claimants in litigation with the intention of preventing subsequent actions by defendants that would frustrate court orders in favour of the claimant, or render a final judgment less effective than what it might otherwise be.  Such orders are available because an English Court has no jurisdiction or power to restrain a person from dealing with their own property (that is, transporting it or disposing of it by sale) prior to judgment.

Nature of Freezing Orders

Freezing injunctions are interim injunctions and not final injunctions. They are a temporary remedy to prevent abuse of the process of the court. As such an award of an interim injunction is not a final determination of rights between the parties, but simply a means to preserve the status quo until the final hearing.  A freezing injunction  is awarded in the first instance upon proof that there is a real risk of disposal of assets or transfer of assets of the defendant out of the jurisdiction of the court if the injunction was not granted, and that the claimant has a good arguable case in a substantive claim on the merits.

A pre-existing cause of action is required before the court is seized with the required jurisdiction to make an order, and not a cause of action that may accrue in the future. An English court will not make an order simply because the defendant has assets in the jurisdiction; to do otherwise would mean that an English court would be making orders in respect to disputes over which there is an absence of power to adjudicate.  Limited exceptions exist where the court would be freezing assets subject to the determination of proceedings in another jurisdiction.

Freezing injunctions are made in personam orders and thus obtained against named individuals (the parties to the proceedings) and not property. Although it is the property that is the ultimate objective of the injunction, the court order is effective against the individuals that are party to the suit as such orders are made against the person (in personam) and not the property itself (in rem).   The form of relief is however available against persons that are not parties to the substantive litigation, where there is a fear that they would play a hand in disposing of relevant assets.

Purpose of Freezing Orders

Mareva injunctions are usually made in respect to assets located in the jurisdiction, however in an appropriate case, the Court may be inclined to make an order freezing the assets of the defendant worldwide. Orders may also be made (1) in assistance of legal proceedings commenced abroad, (2) to transfer assets from a foreign jurisdiction to England, (3) from England to a foreign jurisdiction, and/or (4) between foreign jurisdictions.  In any event, the court will balance the interests of the claimant and those of the defendant, and do no more than is necessary to maintain the status quo between the parties having regard for the interests of justice.

Jurisdiction of the Court

Jurisdiction is granted to the High Court to make such freezing orders by s 37 of the Senior Courts Act 1981. That section states:

(1) The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so.

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(3) The power of the High Court under subsection (1) to grant an interlocutory injunction restraining a party to any proceedings from removing from the jurisdiction of the High Court, or otherwise dealing with, assets located within that jurisdiction shall be exercisable in cases where that party is, as well as in cases where he is not, domiciled, resident or present within that jurisdiction.

These orders are usually accompanied by ancillary orders, requiring the addressee of the order to deliver information in respect to its assets and the location of the assets. Banks are also subject to comply with the terms of orders, and face a charge of contempt in the event that the defendant's customer is permitted to deal with its assets which are subject to the order. Also, the Court may order that the defendant is not to leave the jurisdiction and deliver up his passport in an appropriate case. The purpose of these orders is to ensure that the grant of relief will be effective in safeguarding the assets.  The court may exercise its extra-territorial jurisdiction in making such orders, so that they have effect worldwide.

Courts are cautious that its orders do not go further than what is necessary in the circumstances and will not allow freezing injunctions to prevent or hinder ordinary trading activity of the business in question or otherwise operate as an instrument of oppression. In the event that such a court order is found to have been wrongly made, the court may call on the usual undertaking given by the claimant to the court prior to the making of the order to pay damages to the defendant for its loss arising from the making of the order.

Worldwide Freezing Orders

In respect to worldwide freezing orders, the court the applicant for relief will be required to give undertakings that information disclosed by the respondent in respect to the assets of the defendant will not be used to in proceedings in foreign jurisdictions or for the purposes of enforcement without the leave of the court.  In addition, worldwide freezing orders made applying the exorbitant jurisdiction of the court, relieve those outside of the jurisdiction of the spectre of contempt proceedings in England for failures to comply with the order - the standard form of order specifically excludes any requirement for compliance by those outside the jurisdiction of English Courts.  To impose a threat of contempt proceedings on third parties would in all likelihood be futile as there is no expectation that contempt proceedings could be enforced against those not obeying the order who are outside the jurisdiction.