Freezing Injunction – Overview
Freezing Injunction – Overview
What is a freezing injunction?
A freezing injunction is a Court order which prevents a party from disposing or dealing with his assets. It is not granted to give the applicant security over the respondent’s assets or to give preference to the applicant over other creditors. It has the important but limited purpose of protecting assets to ensure they are available to satisfy a Court order. A freezing injunction can apply to assets held within England and Wales (a domestic freezing injunction) or to assets outside England and Wales (a worldwide freezing injunction).
The law on freezing injunctions is governed by Section 37 of the Senior Courts Act 1981. The procedural rules are governed by Part 25 of the Civil Procedure Rules supplemented by Practice Direction 25A.
Mareva Compania Naviera SA v International Bulkcarriers SA Procedure  1 All ER 213 developed a major exception to the traditional rule (it was long-established that you could not get an injunction before summary judgement) and allowed that where a claimant can show a good, arguable claim to be entitled to money from the defendant and that there is a real risk that the defendant will remove assets from the jurisdiction or deal with them in a way which to render them unavailable, the Court may grant an injunction to prevent the defendant from dealing with assets or removing them from the jurisdiction.
As a consequence of that judgement, the key factors the Court will now consider when granting a freezing order are as follows:
- The applicant must have a good cause of action
As with any other injunction, a freezing injunction will only be granted if it is ancillary to a substantive claim. A possible future cause of action will not be enough.
- “Good arguable case”
The Claimant does not have to show that their case is so strong to warrant summary judgement but a case that is no more than arguable will not be enough. This means a case which is more than barely capable of a serious argument, and yet not necessarily one which the judge believes to have more than a 50% chance of success.
- Sufficient assets within the jurisdiction to meet the amount of the claim
- Real risk of removal or dissipation of assets
The claimant must adduce good evidence to support his assertion that there is a real risk of dissipation (disposal of the assets). The sort of factors that are relevant when assessing whether there is a real risk of removal or dissipation are:
- the nature of the assets – the more easily disposed of, the easier it will be to show a real risk;
- the nature and financial standing of the defendant’s business;
- the defendant’s past and existing credit record;
- any intentions expressed by the defendant about future dealings; and
- the defendant’s behaviour in response to the claim.
The Court will apply the ‘balance of convenience’ test when deciding whether it is appropriate to grant a freezing injunction. The court will decide whether the likely inconvenience and/or damage suffered if the injunction is not granted outweighs the inconvenience/damage suffered by the defendant if it is.
It is important that the applicant acts quickly in bringing an application as any delay is likely to prejudice the applicant’s position as it will make it more difficult for the applicant to convince the Court that an injunction is necessary.
An application for a freezing order is most often made prior to proceedings being issued but it is possible for a freezing injunction to be granted once proceedings have commenced.
Generally, the initial application for a freezing injunction will be made without notice to the defendant, as providing notice may tip them off and assets could be removed and make the order pointless.
The application is made using Form N244, which should be accompanied with a draft order and evidence in support in the form of an affidavit. The affidavit must set out the applicant’s case and make full and frank disclosure including:
- the reason for making the application without notice;
- the relevant causes of action;
- proper identification of sources and belief, providing material upon which the Court can properly conclude that there is a real risk of dissipation; and
- full, fair and accurate disclosure of all the facts and arguments relevant;
- the case should be fairly presented to the Court, highlighting those issues that the defendant may wish to raise if it was aware of the application.
The Court puts a high onus on the requirement for the Claimant to disclose all material information to the Court and to draw the Court’s attention to any factual, legal and procedural arguments in the case due the fact that the hearing will be made without notice, as the defendant is unaware of it, and cannot put their side forward.
At the initial hearing, the Court is likely to grant the freezing injunction for a specific period of time and return date will be fixed for a full hearing. At the full hearing, the Court will determine whether the order can just continue, be varied or discharged, once it has heard any representations that the Defendant wishes to make. A failure by a claimant to disclose material facts to the Court will likely lead to the injunction being discharged and costs being ordered against the claimant.
A freezing order can be applied to a wide range of assets, including cash, goods and properties. The order may be limited to the value of the claim (‘maximum sum orders’), limited to a specific asset which has a value greater or equal to that of the value of the claim or unlimited, encompassing all of the respondent’s assets. To the extent that the assets are known or suspected to exist, these should be identified even if the value is unknown.
If it appears that the respondent has very limited assets, it is possible for the Court to grant an injunction against the respondent’s spouse or company controlled by the respondent if it appears either have substantial assets. In TSB Private Bank International SA v Chabra  1 WLR 231, a company was joined as a second defendant to the claim. It is also possible for a bank to be joined as a defendant in the claim for the same purpose. In SCF Finance Co Ltd v Masri  1 W.L.R. 876, the defendant’s wife was not joined as a second defendant but an injunction was granted against her in its own right as there was a good arguable case that she had assets in her own name which in truth were that of the defendants.
The claimant will be required to inform the defendant of the full terms of the interim order granting the freezing injunction and make an undertaking in damages, agreeing to compensate the defendant if it is found that the injunction was unjustified. When granting the order, the Court will not leave the defendant without access to funds to cover normal living expenses nor deprive the defendant from having access to legal representation. Accordingly, the injunction will contain ‘carve outs’ to permit reasonable spend on living expenses and legal representation.
For further information, please contact Craig Kelly at email@example.com.