What must an Applicant show to obtain a Freezing Injunction Part 2?

That it can provide an undertaking in Damages

Any Applicant applying for a Freezing Injunction must undertake to the Court to pay any damages that a Respondent or any other party may suffer as a result of the Freezing Order if it later transpires that it should not have been granted. This undertaking can in certain circumstances be limited to a specific sum by the Applicant, subject to the Court agreeing.

Depending on the financial standing of the Applicant, the Court may direct that monies be paid into Court and held in an account until determination of the matter at trial. Alternatively, the Court may simply rely upon an undertaking from an Applicant to pay damages if, for example, the Applicant is of significant financial standing, such as a bank or other financial institution.

If an Applicant ultimately loses the underlying substantive claim or a Defendant successfully argues that the Freezing Injunction should be discharged, the Applicant could face a very significant claim in damages against it, either in terms of the legal costs of the main proceedings, the legal costs of the injunction application and the undertaking in damages arising from the injunction, both to the Respondent and third parties (subject to any limitation as described above). In any subsequent enquiry as to damages, the Defendant must prove that the losses he alleges would not have occurred but for the injunction, but not that the injunction was a sole cause of the loss.

It is open to a Respondent to ask the Court at the Return Date for the cross undertaking in damages to be increased and fortified (which refers to mechanisms to secure payment in the event the undertaking is called on). When considering the question, the Court will adopt the course which will involve the least risk of injustice. It is balancing act between having an undertaking which is of realistic value but ensuring that the fortification of it does not stifle the underlying litigation. A cross undertaking in damages is not required where the Applicant is the Crown or a law enforcement body.

What must an Applicant show to obtain a Freezing Injunction?

That it has met the requirement of Full and Frank disclosure

An Applicant has a duty of full and frank disclosure of all material facts. What this means is that an Applicant is required to provide full details of all information/documentation that is and/or may be relevant to the underlying claims, the timing of and/or the reasons for the application, including any such information/documentation which may be detrimental to the Applicant’s position. Should you require any further assistance at all in this area of the law, please contact one of our fraud specialists on 020 7841 0390 and we will be happy to have a consultation with you.

What must an Applicant show to obtain a Freezing Injunction? Part 1

It has a good or properly arguable case.

However, this is a relatively low threshold for the Applicant to get over. Recent judicial commentary states “the right course is to adopt the test of a good arguable case, in the sense of a case which is more than barely capable of serious argument, and yet not necessarily one which a Judge believes to have a better than 50% chance of success”.

It is not a requirement at the initial hearing that the Court has to form a provisional view that the Claimant will probably succeed at trial in its underlying substantive claim. However, the Court will take into account the apparent strengths and weaknesses of the case when deciding whether the Claimant’s case is sufficiently strong to reach the appropriate threshold. This will include assessing the apparent plausibility of statements in affidavits in support of the application. However, the test is not particularly an onerous one for the Claimant to pass.

That there must be a risk, or a real risk, of the Respondent dissipating or hiding his Assets

This is normally the most important factor the Court will look at when deciding whether to grant a Freezing Injunction. If the Applicant can satisfy the test, it is then for the Court to determine whether it is just and convenient to grant the injunction (as it is a discretionary remedy). There is a sufficient risk of dissipation if it can be shown that:-

- There is a real risk that a Judgement or award will go unsatisfied, in the sense of a real risk that, unless restrained by injunction, the Defendant will dissipate or dispose of his assets other than in the ordinary course of business.

- Unless the Respondent is restrained by injunction, assets are likely to be dealt with in such a way as to make enforcement of any award or judgement more difficult, unless those dealings can be justified for normal and proper business purposes.

The legal authorities suggest that the following factors are relevant when determining if an Applicant should be granted a Freezing Injunction:

(i) The nature of the Respondent’s assets. The more liquid and disposable the assets, the easier they are for the Respondent to dissipate and hence the greater the need for a Freezing Injunction to be granted.

(ii) The nature and financial standing of the Respondent’s business including its length of establishment. The less established and more precarious the business, the more likely the Court is to grant the Order.

(iii) What the Respondent has said about dealing with its/their assets in the past. This is often indicative of the Respondent’s likely intentions in respect of possible dissipation of assets.

(iv) Whether the Respondent is living or has a company incorporated in a jurisdiction known to be a tax haven with lax or difficult to follow company law.

(v) Whether English Judgements are actually enforceable in the place where the Respondent has substantial assets. The more enforceable the place of jurisdiction, the less likely the order will be granted – for example the EU compared to somewhere such as the Cayman Islands.

(vi) Whether the underlying claim involves dishonesty, even if fraud itself is not pleaded.

(vii) Whether the response to the Applicant has previously been evasive, or implausible reasons or explanations have been provided to information, or questions asked.

(viii) Whether there is any evidence of other dishonesty beyond the current claim.

(ix) Whether the Respondent has a past history of not paying debts or association with an insolvent company or other legal entities.

(x) Whether there is any evidence of actual or threatened removal of assets from the jurisdiction.

(xi) Whether there is a past history of failing to comply with court Orders.

(xii) Whether there is a past history of failing to disclose assets.

It is often thought that the mere fact of an allegation of fraud in the actual or intended claim is sufficient for the granting of a Freezing Injunction. This is not the formal position of the Courts, although in reality, it is often enough to obtain and maintain injunctions if the underlying claim discloses a good arguable case of fraud.

WHAT THE COURT REQUIRES TO GRANT A FREEZING INJUNCTION PART 1

In this series of posts, we look at what the court requires to grant a Freezing Injunction in England & Wales and consider the legal and evidential considerations in that process. In these posts, the person or company seeking the Freezing Injunction is referred to as the Applicant and the person or company subject to the injunction is referred to as the Respondent.

Introduction – the Court’s Approach

It is a rule of thumb that Courts will not grant Freezing Injunctions lightly. This is because they go against a fundamental principle that an individual should be able to deal freely with his or her own assets. Therefore, there are strict and onerous obligations on a party seeking to obtain an Order of this nature from the Court, particularly on a without notice basis.

Commonly, most Freezing Injunctions are sought without any prior notice to a Respondent (“without notice applications”) on the basis that the Applicant does not wish to notify and/or give the Respondent any advance warning of the proposed action in case the Respondent then takes steps to put any assets beyond the reach of the Applicant. However, in the absence of the Respondent being given the opportunity to make representations at the initial hearing, the evidential burden on the Applicant is very high. The Court has to be very satisfied that the Freezing Injunction is appropriate to grant and will look at the application very carefully.

The granting of a Freezing Injunction is entirely at the Court’s discretion. The Court will always consider whether it is just and convenient to grant a Freezing Order. Applications will be refused if the injustice and/or detriment that would be caused to a Respondent outweighs the benefit that is gained by the Applicant. Equally, the Court will take into consideration the Applicant’s conduct and how quickly they have acted in seeking an Order. Any delay in making the application will severely damage the chances of a successful application.

Is a Freezing Order the most appropriate remedy? Part 2

The appointment of a provisional liquidator.

This is probably the most unusual and dramatic remedy available to an Applicant. It is made pursuant to Section 135 of the Insolvency Act 1986 in respect of a company. It is an adjunct to winding up proceedings. An order appointing a provisional liquidator maybe made in circumstances in which pending the hearing of the winding up petition there is a significant risk that the Respondent’s assets will be dissipated and or that it will continue some fraudulent trading activity or that its books and records will be destroyed.

It is a very serious application indeed, as the appointment of a provisional liquidator over a company is very likely to have a terminal effect on the company’s trading life. A creditor in making an application must show that firstly he is likely to obtain a Winding-Up Order on the hearing of a Petition and secondly, in all circumstances it is right that a provisional liquidator be appointed.

A provisional liquidator must also be proposed to the Court, which is normally an accountant-qualified Insolvency Practitioner. This appointment serves only to protect the assets until the company is wound-up and does not always provide security for any assets in the short-term.

It is rare for creditors to seek such appointments, as the benefit of the appointment of a provisional liquidator lies with all creditors (and the Applicant’s claim will be treated equally against any assets recovered net of the fees of the subsequently appointed liquidator).

European Account Preservation Order

An Applicant may also consider the possibility of a European Account Preservation Order (“EAPO”). This is a new type of regime produced by the European Commission to enable a Court in one EU member state to make an Order freezing the bank account of a Defendant in a different EU member state.

Accordingly, this option only remains available between EU member states and may not apply to all European countries and is not available outside of Europe. There are also some limitations on the type of claim that may support an EAPO, it being only relevant to monetary claims.

The EAPO can only be used to freeze bank accounts and cannot be used against any other assets which the Applicant may be aware of. Equally, the rights of an overseas bank to set-off sums against account balances (for example where it operates more than one account in the Defendant’s name, it may set off an overdrawn account against the account subject to the EAPO).

Delivery up orders

These are Orders available under the Civil Procedure Rules 1998 (as amended) PD25A, which allows the Court to require that specified items are provided requiring delivery-up of such assets.

A Delivery-Up Order may be made where Orders are simultaneously being executed at the Defendant’s premises (for example Freezing Orders) and may be ancillary to the main order obtained. The Court must include all such ancillary orders as part of a Delivery-Up Order for the protection of third parties, including the Applicant. Such ancillary orders may relate to the manner of execution, the physical safeguard of assets and strict adherence to the terms of the order. Such an Order may also require a cross-undertaking by the Applicant.

Charging Orders

These are Orders normally sought against property of the Defendant once judgement has been obtained. They are very useful for circumstances where lengthy proceedings have led to obtaining judgement but the Defendant refuses to pay the judgement liability (often by reason of an inability to pay the debt).

A Charging Order will normally be relatively straightforward to obtain if judgement has been granted in your favour and no steps have been taken to appeal or revoke the judgement (an appeal must be filed within 21 days).

In such the Applicant should consider a Charging Order against any known property assets as soon as possible. The expediency of dealing with this is vital, as one common tactic often employed is to register a charge against a property to eliminate any equity (and thus make the effectiveness of a Charging Order pointless).

Is a Freezing Order the most appropriate remedy? Part 1

Alternative remedies considered

In this series of posts the person or company seeking the Freezing Order is referred to as the Applicant and the person or company subject to the Order is referred to as the Respondent.

It is always worth the Applicant considering whether there are other alternative remedies that could be sought from the court which are less time consuming, costly and potentially risky. Such remedies include for example;

1. An order preserving properties or securing a specific fund.

These orders are commonly granted in situations where there is a dispute as to a party’s entitlement to the property or fund in question. The Court will take into account in any such application whether (i) there is a serious issue to be tried; and (ii) the balance of convenience favours making an order. In the circumstances the grounds upon which such Orders are granted are slightly different to Freezing Order as there is no requirement to show a real risk of dissipation, although the balance of convenience will often be swayed by demonstrating that there is in fact such a risk.

If an Applicant considers that he can rely on the cooperation of the party currently holding funds, he can simply apply for an order as opposed to an Freezing Order relating to the funds. This type of application is probably the cheapest and most low key alternative to a Freezing Order and indeed, the order can be granted by a Master (a lower grade of High Court Judge) or even in the County Court.

One downside however, is that such a remedy does not give the Applicant the same level of protection as a Freezing Order, which carries a penal notice and puts the Respondent at risk of imprisonment for failure to comply with the order (a risk which makes the Freezing Order more effective).

2. Appointment of a Receiver to hold assets of the Respondent

An injured party can seek the appointment of a Receiver to hold assets of the wrongdoer. This is done so pursuant to Section 37 of the Senior Courts Act, although a Receiver will only be appointed in support of a Freezing Order where the Order is insufficient on its own and where there is a measurable risk that the Defendant will act in breach of the Order.

A Receiver can be appointed over both companies and individuals.

3. Proprietary Orders

An injured party can seek what is known as a Proprietary Order. This is a type of Order which attaches to a specific asset or assets rather than a Respondent’s assets in general. It will only be granted in circumstances in which the Applicant is able to make out an arguable claim that it has some beneficial interest in the asset in question. Whilst often described as Freezing Orders, they are not in fact Freezing Orders. The test applied by the Court is different to that which is required in Freezing Order scenarios. There is no requirement in a Proprietary Order to show that there is a real risk of dissipation of assets. Indeed, where a claim is purely proprietary (i.e. there is no monetary claim) the Applicant should always give careful consideration to seek a Proprietary Order as opposed to a general Freezing Order as the Court is actually likely to refuse an application for the latter.

Furthermore, a Proprietary Order can be granted by the County Court as opposed to only in the High Court.

VARYING THE TERMS OF A FREEZING ORDER PART 3

The procedure to vary the terms of a Freezing Order

If a Respondent wants to apply to vary a Freezing Order, this is done by way of the following:

1. Drafting an Application Notice.

2. Drafting a detailed Affidavit setting out specifically the grounds upon which the Respondent seeks to rely upon in terms of the proposed variation of the Freezing Order including the reasons for the proposed amended terms.

3. The Application Notice will need to be issued at Court and a date will be provided to all parties by the Court at which the Application will be heard. It is important when considering the extent of the variation to consider the time estimate appropriate, as this will ensure that the Respondent obtains sufficient time at Court to have the variation application heard. Bearing in mind it is likely that the Applicant, when served with an application to vary the terms of a Freezing Order, may itself serve evidence in response and as such, sufficient time must be set aside by the Court to hear both of the parties’ representations.

4. As part of the Application, a Respondent will require the services of a Barrister/Counsel to represent it at the hearing and prior to the hearing. Counsel will prepare what is called a Skeleton Argument which will need to be filed at Court, commonly the day before the hearing. The Applicant’s solicitors will need to select an appropriate barrister with the appropriate expertise, sufficient experience and who is able to work within the Applicant’s financial constraints. The solicitors will have to draft a comprehensive Brief/Instructions bringing the barrister up-to-speed on all background matters and providing copies of all statements made in the proceedings and any other documents which may be relevant to the barrister’s role. The barrister is generally referred to as “Counsel”.

5. A Skeleton Argument is a document prepared by Counsel setting out both the factual and legal aspects of the Application and it is provided for the benefit of the Judge hearing the Application to quickly get him/her up to speed with the documentation which has been served. It is vitally important that the Skeleton Argument is prepared properly, as a well prepared skeleton argument will be critical to the extent to which a Judge is brought fully up to speed prior to the application being heard.

Timings of the Application to Vary a Freezing Order

The Application is ordinarily made either:

1. Prior to the Return Date. The Return Date is the date which the Court will set, following the granting of a Without Notice Freezing Order, at which both parties will re-attend Court. This is commonly 7-14 days after the granting of the Without Notice Freezing Order. If the Respondent has sufficient time to prepare a detailed Affidavit seeking to vary the terms of the Freezing Order between service on it of the original Freezing Order and the Return Date, then the Return Date is the sensible time to have any variation application heard.

If however, further time is needed after service of the Freezing Order, it is possible, by consent, for an extension of the Return Date to be agreed between parties to enable the Respondent to prepare the Affidavit evidence required as part of the variation application. This will also enable the parties to list the matter for sufficient time to have that application to vary heard at the Return Date.

2. After the Return Date

Alternatively, even after the Return Date, the Respondent can at any time make an application to vary the terms of a Freezing Order if any of the above grounds arise, for example if the Respondent is unable to pay living, legal or business expenses pursuant to the terms of the original Freezing Order. If this matter cannot be dealt with by consent with the Applicant, then the Respondent is left with no choice but to make a formal application to Court to have the underlying Freezing Order amended.

Other examples leading to an application to vary may include,

Where a Respondent is subject to a Freezing Order but is unclear as to whether a payment from a business account would for any reason be in breach of the terms of a Freezing Order. On occasion, clarity is sought from the Courts on this particular point to avoid a Respondent being in breach of the Freezing Order accidentally and in potential contempt of Court.

Where the Respondents’ assets, for example his family home, are subject to the Freezing Order, but in order to afford or pay his legal representatives the Respondent either needs to sell his property and/or give a Charge in favour of his legal advisors over the property. A variation to the Freezing Order would therefore be required so that the Respondent does not fall foul of the requirements not to deal with or diminish his assets at Court under the terms of the Freezing Order.

Where the Respondent has been loaned money by a family member to pay legal expenses and the Respondent then needs to repay those loans (if substantiated) to the family member pursuant to the terms of the Loan Agreement from the assets which have been “frozen” by the Freezing Order. Again, unless this matter can be dealt with by consent, a formal application will need to be made to the Court for a variation of the underlying Freezing Order.

Other considerations to take in to account when varying a Freezing Order If a Respondent wishes to set-aside a Freezing Order which has been obtained without notice, the right route is that he must apply to the Judge and not, for example, attempt to appeal to the Court of Appeal without having first been to the Court in the first instance. The application must be made promptly if at all possible.

Should you require any further assistance at all in this area of the law, please contact one of our fraud specialists on 020 7841 0390 and we will be happy to have a free consultation with you.