UK: Asset Tracing: Getting Evidence And Injunctive Relief

Last Updated: 8 August 2008

This article examines the wide-ranging powers of the English court (outside of the 1986 Act) to assist IPs seeking to trace and secure assets. Key among these are the ability to grant:

  • freezing orders on a domestic or worldwide basis
  • proprietary injunctions to preserve relevant property
  • search orders
  • third party disclosure orders.

In addition, the English court can grant orders requiring defendants to cooperate in obtaining information from banks and trusts; orders for the delivery up of passports pending compliance with a disclosure order; orders not to leave the country until disclosure obligations have been met; gagging orders; orders sealing the court file and any order that appears to the court to be just and convenient.

Freezing orders

A freezing order is directed to the defendant personally and does not operate as an attachment or security right over his assets. In its wide form, a worldwide freezing order prohibits a defendant from removing his assets from England or in any way dealing with or diminishing the value of his assets up to the amount stated in the order, subject to any exceptions set out in the order (for example, in relation to a defendant's living expenses, ordinary and proper business expenses and the cost of legal advice and representation).

A number of conditions must be satisfied for a freezing order to be granted:

  • the claimant must have a good arguable case for a certain or approximate sum - this has been defined as 'a case which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50 per cent chance of success';
  • the defendant must have assets in the jurisdiction (or outside the jurisdiction if those within the jurisdiction are insufficient to meet the claim);
  • there must be a real risk of dissipation of assets that would result in a judgment going unsatisfied;
  • the claimant must give a cross-undertaking in damages (although there may be scope for limiting this to an amount commensurate with the assets in the insolvent estate); and
  • it must be just and convenient to grant the order.

A freezing order will be drafted to ensure that all assets are caught. In order to assist both in policing compliance with the order and in tracing assets, associated disclosure orders will also be sought requiring disclosure of:

  • all of the defendant's assets (wherever located; whether in his own name or not; whether solely or jointly owned; and whether legally or beneficially owned);
  • the value, location and details of these assets; and
  • the whereabouts of all fraudulently acquired monies, identification of all assets acquired with these monies (and the whereabouts of the proceeds of sale of any such assets) and the disclosure of documents relating to these assets.

In the event of non-compliance by a defendant with the freezing order or the associated disclosure order, the defendant will be at risk of a fine and imprisonment.

A number of safeguards for defendants are built into the process by which a freezing order is sought and into the order itself. These include the claimant's obligation of full and frank disclosure; the cross-undertaking in damages; the potential to claim privilege against self-incrimination; a restriction on the claimant bringing proceedings abroad (without permission of the English court); and a restriction on the use by the claimant (without permission of the English court) of information obtained as a result of the order for proceedings in other jurisdictions.

The claimant's obligation of full and frank disclosure requires the claimant:

  • to disclose all material facts and law;
  • to state the nature of the case and the cause of action;
  • so far as he is able, to disclose any defence that the defendant has indicated in correspondence or elsewhere; and
  • to make proper inquiries before making the application - the duty of disclosure extends to facts which would have been known to the claimant had he made such enquiries.

In the event of non-disclosure, the court may exercise its discretion to deprive the claimant of any advantage he may have derived from the breach of duty. In deciding how to respond to a nondisclosure, the court will take account of the overriding objective (set out in Part 1 of the Civil Procedure Rules) and the need for proportionality.

Effect on third parties

Third parties in England must comply with the freezing order if they have notice of it. Third parties abroad will be affected by the order only if and to the extent that it is enforced by the courts of the relevant country unless the third party is subject to the English court's jurisdiction and is able to prevent acts or omissions outside the jurisdiction that are or assist in a breach of the order. Even then, a third party will be permitted to vary an order to enable it to comply with its obligations under the laws and obligations of the country in which the assets are situated or under the proper law of the contract pursuant to which the assets are held by the third party.

A claimant will be required to meet the reasonable compliance costs of a third party and to make good loss caused to the third party by the order.

Need for protection abroad?

An important issue to consider is whether there is a need to obtain similar protection abroad, whether such protection is available and, if it is, to co-ordinate applications in the various countries in which they are to be made.

Proprietary injunctions

An IP may assert a proprietary interest in a particular asset (eg property that is owned by the insolvent company, that has been vested in the trustee in bankruptcy or that has been acquired by a defendant with, or with the proceeds of, assets of the estate). In this event, an order for the detention, custody or preservation of the property could be sought (most likely in conjunction with a freezing order).

Search orders

A search order may be made to preserve evidence that is or may be relevant and to preserve property that is or may be the subject-matter of the proceedings or as to which any question arises or may arise in the proceedings.

A search order typically requires a defendant to allow specified persons to enter specified premises to search for, examine and remove or copy specified items (listed items); to hand the listed items to the claimant's solicitors; to give effective access to computers containing listed items; and to inform the claimant's solicitors of the whereabouts of all listed items.

A number of criteria must be met for a search order to be granted:

  • there must be an extremely strong prima facie civil case (suspicion is not enough);
  • the danger to the claimant to be avoided by the grant of the order must be very serious; and
  • there must be clear evidence that the defendant has incriminating material and that there is a real possibility that he will destroy such material.

If any of these criteria is not met, a search order should be refused. Even if each is present, an order will not be made unless it appears that without the order, the claimant will be likely to suffer a greater injustice than the order will inflict on the defendant. Improper behaviour by a defendant will not always justify the making of a search order. There must be a real reason to believe that the defendant will destroy incriminating documents or things in his possession. As with freezing orders, a number of safeguards for defendants are built into the process by which a search order is sought and into the order itself. These include:

  • the obligation of full and frank disclosure;
  • the cross-undertaking in damages;
  • the right to claim privilege against self-incrimination or legal professional privilege;
  • the right to seek legal advice at once;
  • the right to ask the court to vary or discharge the order; and
  • the requirement that an independent supervising solicitor is appointed to serve and explain the order; to advise the defendant of his rights to claim privilege, take legal advice and apply to vary or discharge the order; to supervise the search; and to report back to the court.

Typically, relevant evidence will be stored not only in hard copy form but also on computers and removable media such as floppy disks, CD ROMs, personal organisers, and mobile telephones. The search order will provide, in particular, that the claimant must take all reasonable steps to ensure that no damage is done to any computer or data; that the claimant and his representatives may not themselves search the defendant's computer unless they have sufficient expertise to do so without damaging the defendant's system; and for imaging (ie wholesale copying of computer hard drives and removable media).

Disclosure orders against third parties

A range of orders may be made to obtain evidence from third parties. For example:

  • Norwich Pharmacal orders directing a non-party to disclose the identity of a wrongdoer and provide information;
  • Bankers Trust v. Shapira orders directing a non-party to disclose documents assisting the claimant to trace funds; and
  • orders directing a non-party to disclose specified documents or classes of documents likely to support the claimant's case or adversely affect another party's case and the disclosure is necessary to dispose fairly of the claim or to save costs.

Avoid unnecessary delay

The initial investigation into a suspected fraud needs to be sufficiently thorough to enable the IP to comply with the duty of full and frank disclosure to the court. However, while evidence is being gathered to support a court application, there is a risk that a fraudster will abscond, destroy evidence and hide assets. The initial investigation should not therefore unnecessarily delay a court application for protective orders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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