Freezing Injunctions

Disputes sometimes require a ‘freezing injunction.’ This is a court order which prevents a party from disposing of its assets. In special circumstances, a freezing injunction can be sought in England and Wales as part of proceedings abroad. Battens’ Dispute Resolution Department has recently secured a freezing injunction for an overseas client in proceedings involving alleged fraud and the disposal of monies abroad. Solicitor Peter Livingstone explains how freezing injunctions work and how they can be an important tool in dispute resolution.

What is a freezing injunction?

A freezing injunction is a court order which ‘freezes’ a party’s assets: they cannot use their bank accounts and they cannot sell or dispose of any of their possessions, including shares and land. The effect of a freezing injunction is therefore extremely serious. They can cause severe hardship and long-term financial problems. As a result, the court is very wary of granting them and will do so only where it is absolutely necessary.

Why might a freezing injunction be needed?

If you have been defrauded, you can pursue the fraudster for the money they have stolen. The court’s purpose is to ensure that justice is served, but it often takes a year or more for a claim to come to trial. In that time the fraudster can hide their ill-gotten gains. A freezing injunction is the legal tool to use to prevent the fraudster from moving any of their assets while the court process works itself through, allowing you to improve your chances of recovering the stolen money and your legal costs in the end. If the fraudster breaches the injunction, they can be imprisoned, fined or have their assets seized.

Does my case qualify for a freezing injunction?

In order to secure a freezing injunction, a party must prove to the Court that:

1. they have a good arguable case in the claim,
2. there is a risk that the stolen assets will be hidden,
3. there are assets in the jurisdiction of England and Wales to which the freezing injunction can apply, and
4. granting the freezing injunction will not be ‘inexpedient’ having regard to the balance of justice and convenience between the parties.

Secrecy

Secrecy is a key part of obtaining a freezing injunction - there is little point in applying for one if the fraudster has been tipped off. Your application to Court is therefore made in secret. Once the injunction is granted, the Order has to be served on the Respondent, and a second hearing is then held within a few days to allow them to say what they think about the freezing order.

Good conduct

Because the court will be making what may be a devastating order, and since it will initially do so without the alleged fraudster even being aware that their life and business are about to be turned upside down, the party applying for the injunction must give ‘full and frank disclosure’ at the initial hearing – if there is a reason why the injunction should perhaps not be granted, the court must be told. Consequently, it is essential that the applicant’s house is in order and that its behaviour is beyond reproach if it is to be successful in obtaining an injunction.

The amount stolen

Once the applicant has ticked all the boxes, the court will still need to weigh up whether on balance it is just and convenient for an injunction to be made. The amount of money which has been stolen is one of the relevant factors.

What is the risk to the applicant?

If the court is satisfied that the injunction should be granted, it will usually require the applying party to promise to pay the other party, the party whose assets are to be frozen, damages to cover any loss it may suffer as a result of the injunction. If after freezing the other party’s assets and suing them for recovery of the monies, it turns out they were innocent all along, the applicant will have to pay the other party damages to cover the losses it has incurred in the meantime. The applicant will need to show the Court that it has the financial means to do that if necessary.

What if the fraud took place overseas?

Often, fraudsters split their ill-gotten gains into smaller amounts and put them into a range of bank accounts in different countries, so as to make the trail harder to follow. However, it is possible to have the judgments of foreign courts recognised here and vice versa, so where the fraud takes place may not be a crucial question.

Speed

Speed is of the essence when applying for a freezing injunction, to ensure that the stolen monies are still in the court’s jurisdiction and can be frozen before the fraudster spirits them away.

You also must show the Court that you are ready at short notice to start the main proceedings for the recovery of the stolen monies.

If you have been affected by any of the issues covered above, do not hesitate to get in touch.