British Virgin Islands: Guiding You Through Fraud Investigation And Asset Tracing In The BVI - Mareva Injunctions

Last Updated: 25 July 2012
Article by Withers LLP

What is a freezing order?

A freezing order (or Mareva injunction) is a type of injunction which restrains a party from removing or dealing with his or her assets and monies to prevent dissipation, which would otherwise, defeat the purpose of a later judgment. The practical effect of a freezing injunction is to typically freeze a person's bank accounts and assets up to a prescribed financial amount.

In order to obtain a freezing injunction it must be shown to the Court that there is a real risk that the person will dissipate their assets by putting them beyond reach in an attempt to defeat a later judgment of the Court.

The purpose of an interim injunction is to preserve the status quo until the rights of the parties have been determined in the action. An injunction or freezing order does not decide the substantive issues between the parties to litigation. It simply seeks to preserve the position to enable the merits of the dispute to be decided at a later date.

The Court's ability to grant a freezing injunction is a draconian and powerful weapon, which can have a destructive effect. As a result, the Court will be concerned to ensure that it is granted with caution.

This guide provides an overview of the circumstances in which a party may be able to obtain a freezing injunction in the BVI. It does not provide definitive advice on the law. You are recommended to seek legal advice on your specific circumstances.

What is required to obtain a freezing order?

Some of the principle criteria that must be met in order to obtain a freezing order in the BVI are as follows:

1) A "good arguable case"

In order to succeed, you must be able to establish that you have an existing cause of action against the defendant and that you have a "good arguable case".

2) A "real risk" that the defendant will dissipate its assets

You must demonstrate that there is a "real risk" of the defendant's assets being removed or dissipated, which would render the claimant's relief nugatory. To satisfy this criteria, you will be required to provide "solid evidence" that there is a real risk that the judgment or award will go unsatisfied if the order were not made.

3) It must be "just and convenient" for the Court to make the order

This means that on the balance of convenience, it must be just to grant the freezing injunction. The Court will have regard to the interference of such an Order on third parties and if a corporate defendant, the impact of the Order on the defendant's business. For example, if the Order is likely to destroy the defendant's business, the Court may decide that it would be an inappropriate remedy in all the circumstances.

4) Cross Undertaking in Damages

If a party wishes to obtain an injunction, it is normally necessary to give an undertaking in damages. This is often called a "cross undertaking". The undertaking is a promise to the Court to pay damages to the party restrained by the Order if the Court subsequently finds that they have suffered any damage by reason of the Order.

The risk of a call under the cross undertaking in damages is something that a party should consider carefully prior to applying for an injunction. The grant of a freezing order risks causing significant disruption and potential damage to an individual or company's affairs.

If there is any factor which makes the undertaking in damages of doubtful value or worthless, that fact should be made known to the Court. The fact the undertaking is of limited value is not an absolute bar to obtaining an injunction, since questions of financial stability ought not to affect the position of what is the essential justice of the case.

5) General discretion

Even if a party can establish the above criteria, the Court retains a general discretion as to whether or not to grant the injunction. When exercising this discretion, the Court will consider the following factors:

a) Any delay on the applicant's part in terms of the speed with which he or she applied for the relief;

b) The applicant's conduct in the matter (they are required to behave properly – sometimes referred to as the doctrine of "clean hands"). They must show the utmost good faith;

c) Whether or not the defendant would comply with any injunction (i.e. whether an Order would be futile); and also

d) Whether or not the applicant has made "full and frank disclosure" of all the relevant facts where the application is without notice to the defendant (see below).

Without notice application: The duty of full and frank disclosure

The general rule is that all applications must be made on notice to the other parties to give them an opportunity to attend the hearing.

This rule should only be departed from in exceptional circumstances if there is extreme urgency or if providing notice to your opponent would defeat the purpose of the order. This is typically the case in a freezing injunction situation as the applicant has to argue that there is a real risk that the respondent may dissipate assets if he is put on notice of the application.

If the applicant applies without notice, he has a duty to the Court to make "full and frank" disclosure of all material facts. The respondent will not be at the hearing for the application and therefore the Court imposes a strict duty on the applicant to disclose all material facts relevant to the application, including facts adverse to his or her position. The Court should be informed of all facts that would affect its judgment. The duty extends not only to facts that the applicant knows about, it also means facts that he or she would have known about had proper enquiries been made.

The sanction imposed by the Court for failing to disclose all material facts is a serious one. The Court will generally deprive the applicant of any advantage derived from the failure to give full and frank disclosure of all material facts. This may mean that any order made would be discharged and a costs order made against the applicant.

The potential consequences of a freezing injunction being discharged at the return date hearing

As indicated, the applicant will be required to give what is called a "cross undertaking in damages" as a condition of obtaining the freezing order.

If the injunction is obtained and later maintained at the return date, the applicant will have gained the initiative in the proceedings. However, it follows that if the injunction is later discharged, the respondent would regain the initiative and the applicant may be responsible for any loss that the respondent suffered as a result of the freezing injunction, as well as the respondent's costs.

Other factors

If granted, a freezing order will normally specify the amount frozen, above which the respondent may deal with his assets. This amount will be subject to review, notably at the return date hearing.

It is important to note that a freezing order does not prevent a respondent from using his assets for a legitimate purpose which does not conflict with the purpose of the injunction. This is especially true if the respondent is a company, with the need to continue trading to avoid collapse of the business. The order will typically permit a corporate respondent to deal with and dispose of his assets 'in the ordinary and proper course of business'. Likewise if the respondent is an individual, the order will not be used to prevent the respondent from living as he has always lived, or from paying legal costs to defend the proceedings. The order will include wording permitting the respondent to meet these expenses.

Assets within the Jurisdiction

Any applicant should give thought to the other side's asset position and whether or not they have assets within the BVI that are capable of being secured or enforced against.

Why Withers?

If you have any questions regarding the information in this guide please contact us.

We have considerable fraud and asset tracing experience including obtaining and advising in connection with freezing injunctions in the BVI. We can guide you through the entire process, from deciding whether or not to apply for a freezing order in the BVI, to preparing all the necessary documentation and attending Court. We can also provide advice in seeking to discharge an injunction that has been granted.

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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