UK: Freezing Injunctions

Last Updated: 8 January 2002
Article by Stephen Flaherty

In fraud cases, a principal objective is usually to safeguard the proceeds of the fraud until trial through the use of "freezing" (formerly "Mareva") injunctions which restrain a party from dealing with its assets. Lord Woolf’s reforms on civil procedure have had very little impact on the Court’s jurisdiction to make freezing injunctions. In this article we recap on the nature of freezing injunctions and we examine some of the recent developments in this area.

The English Court has jurisdiction (see Section 37 Supreme Court Act 1981) to make freezing injunctions not only for the purposes of English proceedings but also where there are assets within the English Court’s jurisdiction, in aid of substantive proceedings in other jurisdictions (see Section 25 Civil Jurisdiction and Judgments Act 1982).

Nature and characteristics of a freezing injunction

  • A freezing injunction can be granted before judgment in order to prevent the defendant from removing assets from the jurisdiction, or from disposing of or dealing with them within the jurisdiction in such a way as to leave the final judgment unsatisfied. Alternatively, a freezing injunction can be granted after judgment as an aid to execution of an English or a foreign judgment.

  • A freezing injunction does not give the claimant priority over any other creditors of the defendant or any proprietary rights over the assets of the defendant but, since it acts on the individual, it prevents the defendant from carrying out certain acts in relation to those assets. The order (which takes effect at the moment it is made) is addressed to the defendant in the action but it will attempt to control all assets to which the defendant is beneficially entitled. The standard wording is that the order will apply to the assets of the defendant "whether in his own name or not and whether solely or jointly owned". The Court of Appeal in Federal Bank of the Middle East v. Hadkinson and others [2000] 2 AII ER 395 held that this standard wording would not bite on assets held by the defendant as a bare trustee and in which he had no beneficial interest.

    One possible solution to the above scenario, if there is some uncertainty over whether assets (e.g. bank accounts) are owned beneficially by the defendant, is that the standard wording should be amended (to e.g. "bank accounts in the name of the defendant") to ensure that they are caught by the terms of the order.

  • Any third party given notice of a freezing injunction must not aid or assist the defendant to breach the order and will run the risk of contempt if it does so. Effectively, by giving notice of the order to a bank, the account will be frozen, whatever attitude the defendant may take to complying with the order.

Formalities

Before granting a freezing injunction the Court must be satisfied that:

  1. the claimant has a good arguable case against the defendant;

  2. there is a real risk that the defendant will either remove assets from the jurisdiction or dissipate them so as to frustrate the judgment; and

  3. it would be just and convenient in the circumstances to grant the order sought.

A freezing injunction is generally granted without notice, usually with a hearing on notice fixed for an early date. The without notice application is made on affidavit which must make full and frank disclosure of all matters which are material to be taken into account by the Court in deciding whether or not to grant the order. The full and frank disclosure obligation is an onerous one. It is an invariable requirement for the grant of a freezing injunction that the claimant gives a cross-undertaking in damages, i.e., an undertaking to abide by any order for damages which may be made if the defendant suffers loss as a result of the relief and the Court is of the opinion that the applicant should compensate him. The Court then has a discretion to decide whether to require a claimant to put up security to support the undertaking, for example, by way of a bank guarantee.

The Court will also require the claimant to give an undertaking to pay the reasonable costs of any third parties incurred as a result of the order, including the costs of ascertaining whether that person holds any of the defendant’s assets and to compensate any third parties if the Court later finds that the order has caused loss.

Recent developments

BOC Limited and another v. Barlow and another (The Times, 10 July 2001, CA)

In this case, the claimants had relied on information provided to them by the CPS for the purposes of obtaining a worldwide freezing injunction against the defendants in a claim for fraudulent misrepresentation. This information had originally been obtained by the police under the Criminal Justice (International Co-operation) Act 1990, pursuant to which Letters of Request had been issued to the Swiss authorities which had in turn provided information to the police relating to Swiss bank accounts. It was this information which had been relied on for the purposes of the claimants’ application for a worldwide freezing order.

The defendants contended that the evidence was inadmissible in circumstances where Section 3(7) of the 1990 Act provided:

"evidence obtained by virtue of a Letter of Request shall not without the consent of such an authority as mentioned in sub-section (4)(b) above be used for any purpose other than that specified in the Letter; and when any document or other article obtained pursuant to a Letter of Request is no longer required for that purpose (or for any other purpose for which such consent has been obtained), it shall be returned to such an authority unless that authority indicates that the document or article need not be returned."

The critical question in this case was whether there was any valid legal objection to the claimants tendering the evidence to the Court in civil proceedings brought for the protection of their legitimate interests, or to the Court admitting and acting on the evidence. The Court of Appeal held that the width of the prohibition in Section 3(7) was implicitly restricted to the use of information by the prosecuting authority or the defendants in the criminal investigations and proceedings and therefore it would be admissible in the civil proceedings.

St Merryn Meat Limited and others v. Hawkins and others (Daily Telegraph, 10 July 2001)

This decision of Mr Geoffrey Vos QC (sitting as Deputy Judge of the High Court) underlines the importance of the claimant’s duty to make full and frank disclosure on the without notice application for a freezing injunction.

This decision arose in response to the defendants’ application that the freezing injunction be discharged on the grounds of material non-disclosure by the claimants. In applying for freezing injunctions, the claimants had relied on transcripts of incriminating taped telephone conversations. The claimants had submitted to the Court that these conversations had been recorded by listening devices installed at the claimants’ premises. The defendants contended that in fact the recordings had been made at certain of the defendants’ home telephones. The defendants contended that this constituted a criminal offence under the Interception of Communications Act 1985 and was a breach of Article 8 of the European Convention on Human Rights. For the purposes of the application to discharge the freezing order, the claimants adduced further sworn evidence to the effect that the conversations had been taped at their premises rather than at the defendants’ home.

Following a detailed review of the evidence, the judge considered it was clear that certain conversations had been intercepted at home telephones of the defendants and that the claimants had compounded their material non-disclosure on the initial without notice application by relying on further false affidavits which had sought to conceal this fact from the Court. Interestingly, during the course of the application to discharge the injunction, the defendants had admitted involvement in fraudulent behaviour. Nevertheless, the judge held that it would not be unjust to deprive the claimants of the relief they had obtained in breach of their obligations of absolute good faith. In coming to this finding, the judge took into account that throughout the application, the claimants had sought to maintain and advance a deliberately false and dishonest case.

"© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us."

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