Imagine the scenario. You think that you may have a legal claim against someone for a substantial sum of money. You know that, even if you are successful in that claim, it will take several months to obtain a judgment and, even then, the judgment will only be worthwhile if the other party has assets to meet it. You have serious concerns that, once they get wind of your claim, the other party may try to frustrate the process by moving assets out of the English jurisdiction. You don't want to invest significant sums of money suing someone only to find that they have successfully put their assets beyond your reach. Is there anything that you can do to prevent this?
The good news is that there is. But you will need to act quickly and will need to invest time and money upfront to ensure that you are protected.
In England and Wales, a potential claimant can obtain an injunction to freeze a potential defendant's assets to prevent it from disposing of them to evade a potential judgment. This is known as a "freezing order". It is a draconian remedy. It will substantially interfere with the respondent's business (or life if an individual) and is a significant imposition on civil liberty – it will prevent them from dealing with their own assets. As a result, the barriers to obtaining one are high. But, in the right case, they are a powerful, and sometimes necessary, tool in a litigant's armoury.
What assets can be frozen?
The starting point is that any assets can be frozen. This includes land, bank accounts, cryptocurrencies and assets acquired after the order is granted. In certain cases, it can include jointly held assets or assets in which the respondent has a beneficial interest. There will typically be a carve-out allowing the respondent to cover costs incurred in the ordinary course of business, living and legal expenses. The amount of assets frozen can be limited to a particular sum or assets or can, in extreme cases, extend to all of the respondent's assets.
Freezing orders can be both limited to England and Wales and granted on a worldwide basis.
What steps must be taken to obtain one?
You need to act quickly. The basis of obtaining a freezing order is that there is a real concern that the respondent will take steps to dispose of assets as soon as they become aware of the potential claim. Delay can therefore be fatal both from a practical point of view (it increases the period of time during which the respondent may actually dispose of assets) and from a legal point of view (you will need to justify any delay to the Court).
In essence, you must prove four things to the Court. First, that your underlying claim is a "good arguable case". Second, that the English Courts have jurisdiction to hear that claim or the power to grant the order (for example, in support of foreign proceedings or arbitration). Third, that the respondent actually has assets that can be frozen. Fourth, that there is a "real risk" of the respondent disposing of its assets. You will also need to be prepared to give an undertaking to the Court that you will compensate the respondent for any losses the respondent sustains if it subsequently transpires that the order ought not to have been granted. This is a potentially onerous undertaking to give.
If, having taken advice, you are happy that you can prove the above and can give the necessary undertakings, you must then file the application documents with the Court, which must include an affidavit setting out your evidence in support. The Court will then set an urgent hearing date at which you must argue your case.
Importantly, this will all be done without telling the respondent. Clearly, giving them advance warning of this application would defeat its whole purpose. Because the application is made "without notice" to the respondent, you will have an onerous duty of full and frank disclosure. That means that you need to set out in your evidence all the arguments that you think the respondent would make and any evidence that you are aware of that harms your case. This is an essential protection given the draconian nature of the remedy where the respondent does not have any opportunity (at least initially) to argue their case. Failure to comply will result in significant sanctions both for you and, potentially, your legal advisors.
Once, your application is filed, the Court will list a hearing as a matter of urgency, which could even be on the same day.
You get the order - what next?
You must first serve the order on the respondent. This must be done personally to ensure that it comes to their attention. The order will have immediate effect once served and the respondent will be prevented from dealing with assets from the moment they receive it. The order will also often contain a provision requiring the respondent to disclose to the Court any assets that could potentially be caught by the order, which can be another useful tool for a litigant.
When making the order, the Court will also fix a "return date" hearing, which the respondent, having now been served with the order, will attend to argue their case. This will be scheduled on an urgent basis. The Court will decide either to continue the injunction or bring it to an end.
If the order freezes assets up to a certain value, the respondent will have the option of making a payment into Court of the amount frozen to discharge the order, if it so chooses.
It will be contempt of court for a respondent to deal with any assets in breach of the freezing order. That is a criminal offence, carrying with it a possible prison sentence. Committal proceedings can be brought if a respondent fails to comply.
You can then proceed with your underlying claim safe in the knowledge that the respondent will not be able to dispose of its assets to evade judgment without serious consequences.
If you are faced with this situation, or have, or have been served with, any potential claim in England and Wales, our English Dispute Resolution Team will be well placed to advise on the appropriate strategy to best achieve your aims.