Freezing Injunctions: A Comprehensive Overview

a freezing injunction (also known as a freezing order or Mareva injunction) is a powerful legal remedy used by courts to prevent a party from dissipating their assets, thereby undermining the enforcement of a potential or actual judgment. These orders are primarily used in civil cases to secure the financial position of the claimant and ensure that any judgment obtained is not rendered meaningless due to the defendant’s actions.

Here we will explore the nature, purpose, scope, and procedure for obtaining freezing injunctions. We will also look at the conditions under which they are granted, the responsibilities they impose on parties, and their impact on international litigation.

1. Nature and Purpose of Freezing Injunctions

Freezing injunctions originated from English common law and have become a critical tool in global litigation. The purpose of a freezing injunction is straightforward: to maintain the status quo by preventing a defendant from disposing of, hiding, or otherwise dealing with their assets in a way that would frustrate the enforcement of a future judgment.

These orders do not transfer ownership of the defendant’s assets to the claimant or allow the claimant to use those assets. Instead, they effectively place a “freeze” on the assets, ensuring they remain available for potential execution of a judgment. Freezing injunctions are generally sought in situations where there is a significant risk that the defendant may act to place their assets beyond the reach of the court.

2. Types of Freezing Injunctions

Freezing injunctions can vary in scope, depending on the specific needs of the case:

Domestic Freezing Injunctions: These apply to assets located within the jurisdiction of the court granting the order. For instance, an English court’s freezing injunction would cover assets within England and Wales.
Worldwide Freezing Injunctions (WFOs): As litigation has become more globalised, courts have developed broader orders that apply to assets located in multiple jurisdictions. A WFO is an injunction that freezes assets not just domestically, but also globally. These are particularly relevant in complex cases involving cross-border transactions, international fraud, or other multi-jurisdictional matters.

3. Conditions for Granting a Freezing Injunction

Obtaining a freezing injunction is not a straightforward process. Courts typically impose stringent requirements to ensure that such a powerful remedy is not misused. The primary conditions that must be satisfied for a court to grant a freezing injunction include:

A Good Arguable Case: The claimant must show that they have a good arguable case on the merits. This does not mean they must prove their case in full, but there must be sufficient evidence to establish a credible claim that has a reasonable prospect of success.
A Real Risk of Asset Dissipation: The claimant must demonstrate that there is a real risk that the defendant will dissipate or conceal their assets to frustrate any judgment that might be awarded. This risk is usually inferred from the defendant’s conduct, such as a history of fraudulent behaviour, evidence of asset transfers to foreign jurisdictions, or suspicious financial activities.
Adequacy of Damages as a Remedy: The court will consider whether damages would be an adequate remedy for the claimant if the injunction were not granted. If damages alone are deemed sufficient, a freezing injunction may not be necessary.
Just and Convenient to Grant the Injunction: The court must be satisfied that it is just and convenient in all the circumstances to grant the freezing injunction. This involves a balancing act between the interests of the claimant in securing their position and the interests of the defendant in retaining access to their assets.
Full and Frank Disclosure: The applicant must make full and frank disclosure of all material facts to the court, including facts that may be unfavourable to their case. Failure to do so can result in the order being set aside and may lead to sanctions against the claimant.

4. Procedure for Obtaining a Freezing Injunction

The procedure for obtaining a freezing injunction typically involves several key steps:

Preparation of Evidence: The claimant must gather comprehensive evidence to support their application, including affidavits, financial records, and other documents demonstrating the merits of their case and the risk of asset dissipation.
Ex Parte Application: Freezing injunctions are often sought on an ex parte basis, meaning without notice to the defendant. This is because giving notice could prompt the defendant to dissipate their assets before the injunction is granted. The claimant must provide compelling reasons for why an ex parte application is necessary.
Hearing Before the Court: The application will be heard by a judge, who will consider whether the claimant has met the necessary conditions. The court may grant an injunction immediately if it finds the application persuasive, often on an interim basis, pending a further hearing where the defendant can present their case.
Service of the Injunction: If the court grants the injunction, it must be served on the defendant as soon as possible. The order will outline the specific terms of the injunction, including which assets are covered, the duration of the order, and any other conditions that must be met.
Interim and Final Hearings: After the initial grant, a further hearing is usually scheduled where both parties can argue their positions. The court may then decide to extend, modify, or discharge the injunction.

5. Scope and Effect of a Freezing Injunction

Freezing injunctions are typically broad in scope, covering all assets owned or controlled by the defendant, up to a specified value. These assets can include bank accounts, properties, shares, vehicles, and even intangible assets like intellectual property rights. The defendant is usually prohibited from dealing with these assets in any way that would diminish their value, subject to certain exceptions for ordinary living expenses, legal fees, and other reasonable costs.

The effect of a freezing injunction is to place significant constraints on the defendant’s financial freedom. The defendant must disclose their assets and provide a sworn affidavit detailing their value, location, and ownership. This disclosure is a critical element of the injunction, as it allows the claimant and the court to monitor compliance.

Failure to comply with a freezing injunction can result in severe consequences, including contempt of court, which may lead to fines or imprisonment. The court also has the authority to appoint a receiver to manage the defendant’s assets if necessary.

6. International and Cross-Border Considerations

In an increasingly globalised world, freezing injunctions often involve assets spread across multiple jurisdictions. Worldwide Freezing Orders (WFOs) are designed to address this reality, but they come with their own set of challenges.

A WFO requires cooperation between courts in different jurisdictions, and its enforcement depends on local laws and international treaties. Some jurisdictions may not recognise or enforce a foreign freezing order, while others may impose additional requirements for its recognition. For instance, in the European Union, enforcement of a WFO may be governed by the Brussels Recast Regulation or the Lugano Convention, depending on the jurisdictions involved.

Additionally, claimants seeking WFOs must consider the risk of conflicting legal standards. Different countries may have varying rules on asset disclosure, the burden of proof, and other procedural matters. Therefore, claimants must carefully assess the legal landscape and often seek expert advice to navigate the complexities of international litigation.

7. Responsibilities and Risks for the Claimant

While freezing injunctions are a powerful tool, they come with significant responsibilities and risks for the claimant. One of the most important obligations is the duty of full and frank disclosure. Any material fact that could influence the court’s decision must be disclosed, even if it is adverse to the claimant’s case. Failure to comply with this duty can result in the injunction being set aside and possible liability for damages caused to the defendant.

Claimants must also provide an undertaking to the court to pay any damages that the defendant may suffer as a result of the injunction if it is later found to have been wrongly granted. This undertaking is not merely a formality; it is a substantial commitment, as the claimant may be required to compensate the defendant for losses incurred due to the injunction.

8. Defending Against a Freezing Injunction

Defendants faced with a freezing injunction have several potential defences. They may challenge the injunction on procedural grounds, such as arguing that the claimant failed to make full and frank disclosure or that the risk of asset dissipation has been overstated. The defendant may also provide evidence to demonstrate that their assets are not at risk of dissipation or that the claimant’s case lacks merit.

If a defendant successfully challenges a freezing injunction, the court may discharge or vary the order and potentially award damages against the claimant for any losses incurred.

Conclusion

Freezing injunctions are an essential remedy in modern civil litigation, providing a means to preserve the effectiveness of court judgments by preventing defendants from dissipating their assets. However, they are not granted lightly and involve significant obligations and risks for both parties. Claimants must meet stringent conditions, including proving a good arguable case and a real risk of asset dissipation, while defendants have several avenues to challenge these powerful orders.

Given the complexities involved, especially in cross-border cases, parties seeking or defending against freezing injunctions should approach the process with careful preparation, comprehensive evidence, and, when necessary, expert legal guidance. The strategic use of freezing injunctions can make the difference between a meaningful judgment and an empty victory, underscoring their importance in the arsenal of civil remedies.

For more information on Freezing Injunctions contact Blake-Turner LLP.