The recent case of Rogachev v Goryainov  EWHC 1529 (QB) illustrates the importance of full and frank disclosure by an applicant when applying for a freezing injunction without notice. In that case, the High Court discharged a freezing injunction as the Claimant’s conduct in relation to full and frank disclosure at the without notice hearing “fell well short of what was required”. This note looks at the procedure and conditions for obtaining a freezing injunction and the factors to be mindful of when applying for one.
What is a freezing injunction?
A freezing injunction is an interim remedy that prevents a respondent (usually a defendant) from disposing of or dealing with their assets prior to obtaining or enforcing a judgment or arbitration award. Effectively, the respondent’s assets are “frozen” until judgment or enforcement to ensure the assets are available to satisfy a court order in favour of the applicant.
You can apply to court for a freezing injunction before issuing a claim (particularly where there is high risk the defendant will dispose of their assets early on), during proceedings or after the trial, where the applicant wants to preserve the respondent’s assets until the judgment is enforced. Ultimately, you should make an application as soon as you become aware of the risk of dissipation of assets.
Most freezing injunction applications are made without notice to the respondent as giving notice would defeat the object of a freezing injunction and provide the respondent with the opportunity to dispose of their assets before the injunction is obtained.
It is important to note that a freezing injunction does not create a security over the frozen assets or provide the applicant with any proprietary right to them. This means the applicant will not have priority over any other creditors in the event that the respondent becomes insolvent and the freezing injunction will not prevent creditors enforcing their securities against the respondent’s assets which have been frozen.
Failure by the respondent to comply with a freezing order amounts to contempt of court and may result in a fine, imprisonment of up to two years and seizure of assets. Respondents should therefore urgently take legal advice to consider their options and obligations if they have been served with a freezing injunction.
What assets can be frozen?
A freezing injunction ordered by the English courts can cover assets in England and Wales only, or extend to assets outside the jurisdiction (a worldwide freezing order).
Most types of assets can be made subject to a freezing order but typical assets include bank accounts, motor vehicles, shares and land. The assets can either be held directly by the respondent or indirectly (e.g. by a bank) and can include assets which are jointly owned, and assets over which the respondent has control but does not legally or beneficially own. A freezing injunction may also be sought over assets the applicant has a proprietary or trust claim over.
Considerations before applying for a freezing injunction
Before applying for a freezing injunction, applicants should consider the following:
- Alternative remedies. Is a freezing injunction the most suitable remedy? Are there sufficient assets to make subject to the injunction? Could damages adequately compensate? If damages could adequately compensate then the court is unlikely to order a freezing injunction due to its draconian nature.
- Costs and time. Applying for, obtaining and enforcing a freezing order will incur additional costs and time. The applicant should weigh this up against the risk of the respondent disposing of assets. The applicant also runs the risk of paying the respondent’s damages as a result of the injunction and any third parties’ costs in complying with the terms of the order if the injunction is later found to be unfair or discharged.
- Duty of full and frank disclosure. The applicant should be conscious of the onerous obligation of disclosure required at the application stage and the effect non-disclosure can have on the injunction ordered. During the disclosure exercise, the applicant should be mindful of the likely defences to the application and consider the strength of its application.
Given the severe consequences of a freezing injunction, the courts will only award such an order where it is just and convenient to do so and the following conditions are met:
- The applicant has a real cause of action and a good arguable claim.
- The English court has jurisdiction.
- There is a real risk that the respondent will dissipate assets as to make them unavailable for future judgment or enforcement.
- The applicant provides certain undertakings to the court. These are likely to include: an undertaking to pay damages to the respondent in the event that the court finds the freezing injunction should not have been ordered; an undertaking to serve on the respondent the order, application notice and evidence as soon as possible (if made without notice); and an undertaking to pay damages sustained by third parties who may suffer loss as a consequence of the order.
Injunctions originate as an equitable remedy and so the applicant must act conscionably, reasonably and without undue delay when making its application.
The basic procedure for an application for a freezing injunction involves the following:
- Application notice
The applicant must complete the application notice, prepare an affidavit with evidence in support and provide the court with a draft order setting out the terms of the injunction it wishes the court to make. The affidavit should outline how the conditions for a freezing injunction are met, provide all relevant information and documents (taking into account the duty of full and frank disclosure) and give the required undertakings to the court.
- First hearing
When an application is made without notice, there will be a short initial hearing where the applicant must present his application to the court and provide full and frank disclosure in the absence of the respondent. If the court decides to award the injunction, this will be on a temporary basis until the return hearing where the respondent is able to put forward their case to the court explaining why the injunction should not be granted on a more permanent basis.
In order to be able to enforce the injunction, the court order, application notice, evidence and a full note of the hearing must then be served on the respondent. The court order should also be served on any relevant third parties (e.g. the respondent’s bank); this should be done before serving the respondent to avoid the respondent disposing or dealing with their assets beforehand.
- Return hearing
After the necessary documents have been served on the respondent and any third parties, a second (return) hearing is held. The respondent is then given the opportunity to oppose the injunction and debate the fairness of the injunction. At this hearing the court will decide whether to vary, discharge or continue the injunction and set out the consequences of the outcome.
Rogachev v Goryainov – a useful reminder on disclosure
In Rogachev, the applicant (Claimant) was granted a worldwide freezing injunction against the respondent (Defendant) at the initial without notice hearing which restrained the disposal of sale proceeds of a market site in the event that the respondent sold it.
At the return hearing, where the respondent was now represented and able to put his side of the story to the Court, the Court decided to discharge the injunction. This was on the basis that the applicant had failed to comply with his duty of full and frank disclosure, had not drawn the Court’s attention to important and central documents and issues, and failed to make a fair presentation of the facts at the without notice hearing.
Applying Alliance Bank v Zhunus  EWHC 714 (Comm), the Court held that the applicant had fallen short of the following principles and therefore failed to fulfil his duty of full and frank disclosure:
- The applicant should identify points of defence, even if these go against him.
- The applicant must show utmost good faith and identify the crucial points for and against the application and not rely on general statements and the mere exhibiting of numerous documents.
- The applicant must fully investigate the nature of the claim and the facts relied upon before applying and identify possible defences and disclose all facts which reasonably could or would be taken into account by the court.
- The applicant must fulfil his duty to investigate the facts and fairly present the evidence and draw the court’s attention to significant factual, legal and procedural aspects of the case.
- The applicant’s legal representative must draw to the judge’s attention the weaknesses in his case, even if these are contained in the court’s bundle.
This level of disclosure may seem onerous to the applicant but it is required to satisfy the equitable principles of an injunction remedy and compensate for the defendant’s absence at the without notice hearing.
Freezing injunctions are an extremely useful tool to prevent a defendant from disposing of assets before the enforcement of a judgment. However, applicants and their advisors should take care when applying for a freezing injunction and not overlook their duties to the court, to do so risks them having to pay costs and damages in the event an injunction is discharged at a return hearing. In particular, applicants should ensure they comply with their duty of full and frank disclosure at all times and observe the principles reiterated in Rogachev.
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