Freezing orders are a familiar means of preventing a defendant from disposing of its assets prior to judgment. But, for the directors and officers of any company subject to a freezing order, they also represent the risk of criminal proceedings for contempt of court if breached.
Two recent cases review the risks to directors or officers of breaching a freezing order and offer some useful guidance on how the courts approach the issue.
What constitutes contempt of court?
In the recent cases of IPartner Pte Shipping Ltd -v- Panacore Resources DMCC1 and Public Joint Stock Company Vseukrainskyi Aktsionernyi Bank -v- Sergey Maksimov & Others2, the Commercial Court set out the ingredients of contempt of court in the context of freezing orders:
1. The order must contain a penal notice i.e. a warning that failure to comply with the order may result in criminal sanctions.
2. A person subject to the order must either have failed to do, within the time allowed, something which the order required him to do, or done something which he was specifically forbidden from doing.
3. The contempt must be proved beyond all reasonable doubt – i.e. to the criminal standard of proof.
4. It must be shown that each party charged with contempt knew of the terms of the order, that they acted in such a way as to breach the order, and that they knew of the facts which made that conduct a breach.
5. It is contempt if an intentional act amounts to a breach of the order – even if it cannot be shown that the relevant party knew or believed that the intentional act would amount to a breach.
6. Where a company is ordered not to do certain acts, and a director of that company is aware of the order, he is under a duty to take reasonable steps to ensure that the order is obeyed. If he wilfully fails to take those steps and the order is breached, he can be punished for contempt (the position may be different if the director reasonably believes some other director or officer is taking those steps).
Guidance from the court
Contempt of court carries serious criminal penalties, which can include a fine, seizure of the director’s personal assets – or up to two years’ imprisonment. That said, an order for committal contempt remains in the discretion of the court, and the recent cases provide useful guidance as to how the court will exercise that discretion, as follows:
- Where a freezing order requires that a company does something to, for example, the ’best of [its] ability‘, that necessarily means looking at the conduct of the people through whom the company acts e.g. its directors or officers. A committal order can be made against any director or officer of a company provided the injunction was served on them personally.
- An order requiring a party to do something to the ‘best of [its] ability’ will not generally be interpreted as an absolute obligation. Failure to perform an impossible task is not, of itself, contempt - although it may still amount to a breach of the order.
- If a party fears that he might be unable to comply with the terms of an order, he must apply to vary the terms as soon as possible – it will not generally be a defence to say later that he ran out of time.
- Given the very serious consequences of breaching a freezing order, any ambiguity in the order will be resolved in favour of the party alleged to be in breach.
Directors and officers of companies subject to a freezing order must be careful to ensure compliance with the terms of the order - or they personally could face a conviction for contempt of court. Allegations of contempt must be proved beyond reasonable doubt, and any ambiguity will be resolved in favour of the defendant. Nevertheless, if it becomes clear that an order cannot be complied with, it is vital that the affected parties make an application to vary or discharge the order without delay.