What Is The Purpose Of A Freezing Order?
A freezing order is a Court order that prevents someone from dealing with their assets to ensure they are safeguarded so that they may not be dissipated.
Why Would A Freezing Order Be Helpful?
A freezing order might be required if an individual is being sued or subjected to legal action that sought financial compensation. When a person is subjected to legal proceedings that could result in an award of damages compensation they may have to sell some or perhaps in some cases all of their assets to pay the judgment creditor to whom they may owe money.
However, if the person being sued was free to deal with their assets then they might for example sell them, turn them into cash and attempt to make them untraceable or move them into the hands of other people. This could unfairly frustrate the judgment creditor from being able to obtain some or all of the monetary compensation to which they might be entitled through taking enforcement action.
If a person was free to deal with their assets in an unfair way then the judgment creditor owed money may be left with no option other than to put the debtor into bankruptcy from which they may still receive nothing.
However, the act of being sued does not normally prevent such a person from dealing with their assets. Notwithstanding that they are the subject of legal proceedings they might have a good defence and not be liable to the party that is pursuing them. In such an instance it would be unfair if the party being sued was unable to deal with their assets as they ordinarily saw fit.
Freezing Order Safeguards
So serious is the restriction on someone’s freedom to deal with their personal assets arising from a freezing order that in order for someone to obtain one they must satisfy the Court that it is fair, reasonable and just to do so. There are substantial tests that need to be satisfied before the Court will grant a freezing order.
Three Elements For A Freezing Order
In order to be in a position to apply to the Court for a freezing order there are three elements that apply which were highlighted for example in the case of Lakatamia Shipping Company Limited v Toshiko Morimoto [2019] EWCA Civ 2203:
- The person pursuing the legal claim needs to have a good case against the person they are suing.
- There is a real and justifiable concern that judgment would not be paid due to the dissipation of the assets.
- It is just and convenient for the Court to grant the freezing order.
Risk Of Dissipation Of Assets
In assessing the risk of dissipation of assets the Court will have regard to the following principles that were set out for example in the case of Fundo Soberano de Angola v Dos Santos [2018] EWHC 2199.
- The person initiating the claim (“the Claimant”) needs to show a real risk of a judgment going unpaid due to the disposal of assets out of the reach of the judgment creditor.
- The risk of asset dissipation must be evidenced solidly; it cannot be a matter of inference.
- Dishonesty in itself is not sufficient but it must highlight that this is linked to the dissipation of assets risk.
- A freezing order is not intended to provide security for a judgment creditor but to stop them from putting assets beyond the reach of creditors unjustifiably. It is not intended to fetter freedoms that people have to go about their normal business. It is intended to stop someone from changing their habits which might then prejudice the future potential judgment creditor.
- Each case is fact specific and the facts must be looked at cumulatively.
- Being able to show a good case of a danger of dissipation may be sufficient.
Full And Frank Disclosure
Where the risk of disposal of assets is real and not remote it might make more sense for the Claimant to apply for the freezing order without notice to the person against whom it is sought. The reasons for this might be obvious ie. to stop a person from dissipating their assets during the process of applying for the freezing order itself, particularly if there is any delay in obtaining a Court hearing of the application.
To ensure procedural fairness prevails a Claimant must provide full and frank disclosure to the Court of all material facts. The following principles were set out for example in the case of Tugushev v Orlov [2019] EWHC 2031 (Comm):
- Full and frank disclosure must be presented fairly and must not be misleading.
- The proposed legal action and facts relied upon need to be disclosed to the Court.
- The Claimant must make proper enquiries before making the freezing order application.
- It is very important if the Court has been misled in any major way.
