An anniversary that you perhaps did not know was relevant to celebrate may one day be crucial to your business. For the last 50 years, because of a case involving a shipping company called Mareva Compania Naviera SA, it has been possible to prevent the movement of assets, both within and out of the country, so that the person or company against whom you have a claim can pay if you win your case. This is not only for multi-million-pound matters or disputes involving high-net-worth individuals; in our globalised and digital world, the ‘Mareva injunction’ (or freezing order) can be indispensable in any commercial dispute.
How did freezing orders become part of our law?
It is 50 years since the first English freezing order was made. During May and June 1975, two different shipping cases came before the Court of Appeal asking for something that was then extraordinary: to prevent a party from moving funds out of the country before it had been proved that money was in fact owed. The courts in Europe had been granting this type of order for some time before our judges considered on the merits of these cases that it was right and just to grant such an injunction for the first time in our own country.
The second of these cases was brought by Mareva Company Naviera SA, which is why this type of order was initially known as a Mareva injunction. In time, as the area of law developed and such orders became more frequent, this type of injunction came to be called a ’freezing order’.
Why do assets need to be frozen?
Starting litigation is rarely worthwhile unless the person or company you are suing has the money to pay what is owed, including your costs if you win. If a commercial dispute arises, and you are concerned that the other party is or may be emptying their bank accounts, transferring property or taking steps to conceal or move assets, including out of the country, a freezing order is a safeguarding measure designed to ensure that there will be money or assets available if the dispute is resolved in your favour.
What assets can be frozen?
All types of assets can be frozen, including bank accounts, shares, vehicles and land, whether owned by a company or a person and whether they are solely or jointly owned. Freezing injunctions can be made over assets in England and Wales (domestic freezing orders) or elsewhere in the world (worldwide freezing orders).
As global commerce and technology has evolved, so have freezing orders. They may now also apply to non-financial assets and other forms of ‘property’. Additionally, it is now possible to obtain an injunction against ‘persons unknown’, which may be particularly useful in online defamation and privacy breach cases as well as crypto and cyberfraud and cases involving digital assets. The English model of freezing orders has been adopted internationally.
How do you get a freezing order?
A freezing order is a form of injunction obtained through a formal application to court, prepared by a solicitor and/or barrister, and supported by documentary evidence and sworn statements of truth. It may be brought in all phases of litigation, including before legal proceedings relating to the underlying claim have commenced, at any time during the litigation process or after the trial when seeking to enforce a judgment. Injunctions can be obtained very quickly - in the right circumstances even within a day or two of instructing a solicitor.
By its very nature, there is usually an urgency to obtaining a freezing order. Often the application needs to be made without the knowledge of the person controlling the assets to avoid them disposing of them. This means that most freezing orders are obtained at an interim hearing initially without the affected party being present. The order takes effect immediately, with the affected party notified afterwards. Both parties must then attend a further hearing for the Court to decide whether the freezing order should remain in place for the duration of the claim.
Is a freezing order worth the cost?
Preparing an application for a freezing order on an urgent basis involves intensive work by a team of legal professionals, navigating a complex area of the law often with large volumes of evidence in a very short period of time. This means that the costs of applying for an injunction are high. However, incurring such costs early in a dispute could help to reduce the risk of having to spend more in the longer term, by ensuring that there will be assets available to pay your claim and recover your costs. Put another way, the time and cost of pursuing a claim to trial may ultimately be significantly greater if you later discover that that there is no money to meet a judgment in your favour. Freezing orders can therefore ultimately minimise the losses to your business.
Obtaining a freezing order may also encourage an earlier settlement of the dispute and/or encourage the parties to consider out-of-court methods to resolve the dispute.
It is worth bearing in mind that freezing orders are highly restrictive and so are considered an exceptional legal measure. The court will only exercise its discretion to grant such an order where it is just and convenient to do so with additional, specific criteria needing to be satisfied. There are serious consequences for misuse by the party asking for such an order, and for any person or company failing to comply with such an order. So, before starting the process of obtaining a freezing order, you should always take legal advice about whether it is appropriate, the prospects of successfully obtaining the injunction, the estimated costs and the value of pursuing such a strategy.
What does this mean for your business?
- If you are involved in a commercial dispute and concerned that there is a serious risk that the other party will dispose of assets, particularly any assets that are the subject of the dispute, a freezing order can offer you protection and helps to minimise your risk and exposure.
- Obtaining a freezing order may promote settlement and help to resolve the dispute more quickly.
- Freezing orders also apply to third parties, such as banks, family members and business associates. Once notified of the order, these parties must comply, making this a highly effective way of immobilising funds - even if the party against whom you have a claim may have attempted to evade complying with the order.
Conclusion
Freezing orders come at a cost, but their value overall is usually significantly greater. A key consideration is timing: if you think there is a risk that assets against which you could enforce your claim may be dispersed or moved out of the country, do not delay; obtain legal advice as soon as possible
Our expert lawyers in our Commercial Litigation team have brought and defended many disputes involving freezing (and other) injunctions over the years. Our team combines deep legal knowledge with a wealth of practical experience, ensuring a robust and strategic approach to deal with these matters. Please get in touch to discuss your concerns.
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
Wright Hassall does not accept any responsibility for any loss which may arise from reliance on any information published here. Definitive advice can only be given with full knowledge of all relevant facts. If you need such advice please contact a member of our professional staff.
The information published across our Knowledge Base is correct at the time of going to press.
