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Freezing injunctions: Delays and the Duty of Full and Frank Disclosure

9-04-2024

Home / Insights / Freezing injunctions: Delays and the Duty of Full and Frank Disclosure

What is a Freezing Injunction?

Freezing injunctions serve as a powerful tool in safeguarding assets pending the resolution of disputes. They prevent respondents from dissipating or disposing of assets, thereby protecting the claimant’s ability to enforce any judgment that is ultimately obtained. This relief can be extremely disruptive for respondents and can potentially cause significant financial harm. The courts will not impose such restrictions on respondents without good reason and equally, where there is a good reason not to. 

Freezing Injunctions: Risk of Dissipation of Assets and Delays

One of the fundamental requirements is that there is a risk that there will be a dissipation of assets, or specifically, an unjustified disposition, which would put such assets out of the reach of the claimant and prevent a future judgment being satisfied. If an applicant is unable to evidence such a risk, a court is likely to dismiss an application for a freezing injunction.

One significant hurdle that applicants often face, is where there has been a delay in making the application. Delay undermines any argument there is a risk of dissipation, particularly if the defendant is already on notice of a potential claim, for example after pre-action correspondence has been exchanged. 

Delay can therefore be a significant stumbling block to these applications and if there has been a delay, it is important that the issue is dealt with and addressed properly. This is particularly important where an application is made (as is often the case) without notice and therefore where an applicant has a duty of full and frank disclosure.  

RFB’s Experience in Dealing with Freezing Injunctions

RFB was recently instructed in a case where our client, the claimant, was seeking to recover substantial sums against three defendants, following a sophisticated fraud.  

The defendants provided numerous assurances and promises to repay funds which never materialised and made several false and misleading statements designed to enable further funds to be taken unlawfully from the Claimant. 

RFB was instructed and sent pre-action letters to each of the defendants. The defendants were evasive and refused to meaningfully engage with the claim, instead making further spurious allegations against the claimant. 

The claimant issued proceedings and sought an application, without-notice, to freeze the defendants’ assets. By that time however, 2 years had passed since the fraud had occurred.

What Is The Issue With Delay?

When determining whether to grant a freezing injunction, the Court must satisfy itself of two points: 

  1. That the claimant has a “good arguable case”; and
  2. There is a risk that a judgment will not be satisfied because of an unjustified dealing with assets.

As to the first limb, “a good arguable case” is considered broadly. In Broad Idea International Ltd v Convoy Collateral Ltd [2021] UKPC 24, Lord Leggat described the requirement as: 

“…a good arguable case for being granted a judgment or order for the payment of a sum of money that is or will be enforceable through the process of the court”

It is not necessary that the claim be bound to succeed, or even more likely than not to succeed, however a case that is no more than arguable is not sufficient. 

As to the risk of dissipation of assets, the applicant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dealing with assets. The risk of dissipation must also be established by solid evidence. 

This is where delay can become problematic. It is well established that any evidence of a risk of dissipation is weakened where there is delay on the part of the applicant. 

As regards the effect of delay, case law has established the following points of principle:

  1. The mere fact of delay in bringing an application for a freezing order does not, without more, mean there is no risk of dissipation. If the court is satisfied on other evidence that there is a risk of dissipation, it should grant the order, despite the delay, even if only limited assets are ultimately frozen by it.
  2. The rationale for a freezing order is the risk that a judgment will remain unsatisfied or be difficult to enforce because of the dissipation or disposal of assets. In that context, the order for disclosure of assets, normally made as an adjunct to a freezing order, is an important aspect of the relief sought in determining whether assets have been dissipated and, if so, what has become of them, aiding subsequent enforcement of any judgment.
  3. Even if delay in bringing the application demonstrates that the claimant does not consider there is a risk of dissipation, that is only one factor to be weighed in the balance in considering whether to grant the injunction sought.

While delay may certainly undermine the claimant’s position, strategic considerations can mitigate its impact. 

Overcoming Delay: A Strategic Approach

In this case, the claimant’s application was tailored to prioritise freezing the assets of the first respondent. Furthermore, the claimant also sought a proprietary injunction, either additionally or as an alternative measure, against funds held in the first respondent’s bank account, preventing any dealings to ensure the balance of funds in the account was not reduced below the value of the sums taken from the Claimant.

Where an applicant seeks a proprietary injunction, the court will not require the applicant to establish a risk of dissipation. In cases where there has been a delay on the part of the applicant, seeking a proprietary injunction to preserve the claimant’s property is a useful alternative. 

In terms of the proprietary element of the claimant’s application, this also meant that the lower threshold established in American Cyanamid Co v Ethicon Ltd [1975] UKHL 1 — “a serious question to be tried” — applied to the first limb, rather than the higher threshold of a “good arguable case.”

In addition to tempering the application and limiting the scope of the relief, the claimant also highlighted the fraudulent and dishonest behaviour of the defendants. It is established case law that where there is a good arguable case in support of an allegation that the defendant has acted fraudulently or dishonestly, then it is often unnecessary for there to be any further evidence on the risk of dissipation for the court to be entitled to take the view that there is sufficient risk to justify the granting of the relief sought. 

No Notice? The Duty of Full and Frank Disclosure

Central to without-notice applications is the duty of full and frank disclosure. Where an application is made without notice, the applicant must disclose all matters that are material to the court in deciding whether to grant the order. This is because without notice, the respondent is denied the opportunity to respond to the application and to resist it at the hearing. The duty extends to relevant matters of fact and law, even if those matters are adverse to the applicant.

It was important in this case that RFB and Counsel for the applicant did not shy away from the issue of delay. That issue was flagged to the judge and representations were made in respect of delay and other defences or issues that the defendant might conceivably have sought to rely on to oppose the application. 

The duty of full and frank disclosure and of fair presentation is an important one. Failure to comply opens the door for the defendants to challenge the order and may lead to costs penalties. In National Bank Trust v Yurov and others [2016] EWHC 1991 (Comm) Mr Justice Males commented that where there has been an intentional omission or withholding of material information the general position is likely to be the immediate discharge of the order. Specifically at paragraph 9.

“…but if I had found that there was an intentional omission or withholding of such material, that would in itself have been a very strong reason to discharge the freezing order and I would have done so, despite the other factors which I held to amount to a strong case for a freezing order to be made. That in my view will generally be the position.”

In this case, the claimant properly outlined the facts and legal arguments, both in support of and against the application. 

The Outcome

In the event, the Court agreed that the defendants’ conduct was sufficient evidence of a risk of dissipation and, notwithstanding the delay, granted both the freezing injunction against the first defendant and the proprietary injunction against monies in the first defendant’s bank account. 

Upon receipt of bank statements, it was clear that second and third respondents had enriched themselves with the claimant’s monies and so a further application for worldwide freezing orders against those defendants was granted at the return date. 

This case highlights a common issue that applicants for freezing injunctions can face and one that can often prove fatal if not managed appropriately. It is important to consider the reasons for delay and to set out why, despite the delay, the court should still find there is a sufficient risk of dissipation. 

Alternatively, if the delay is likely to be fatal to the argument that there is a risk of dissipation, then consider whether a proprietary injunction might also offer the claimant adequate protection. 

RFB’s litigation team is well placed to advise on this nuanced area of law, and we have a proven record on getting results for our clients, whether that be obtaining this type of relief or opposing applications for the same. 

For expert guidance or enquiries, please contact Jack Bassett via email at j.bassett@rfblegal.co.uk or Rudi Ramdarshan on r.ramdarshan@rfblegal.co.uk or call 0207 467 5763.

Author

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Jack Bassett

Associate Solicitor

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