The freezing injunction has been described as a “nuclear weapon” of English law. A freezing injunction is an interim order that prohibits a party from dealing with or disposing of assets which he owns, or in which he has a beneficial interest, or which he otherwise controls. Freezing orders usually also require the party to make detailed disclosures about his asset position. In appropriate cases, it may be possible to obtain a worldwide freezing injunction, which is an order that applies to assets in countries outside the jurisdiction of the English Court.

There are a number of conditions that an applicant must meet in order to obtain a freezing injunction, including establishing that there is a substantive legal claim in support of which the injunction is sought; that the claim amounts to a good arguable case; that assets exist; and that there is a risk that (without an injunction) those assets will be dissipated. 

The English Courts have recently dealt with important questions regarding the proper test when assessing the existence of assets and also regarding the appropriate penalty for those in breach of a freezing injunction. 

The asset test 

In Ras Al Khaimah Investment Authority v Bestfort Development [2017] EWCA Civ 1014 the Court of Appeal was asked to reverse the lower Court’s refusal to grant a worldwide freezing injunction. The original application had been refused by the Judge at first instance on the basis that the applicant had failed to establish that any of the LLPs that were the target of the application were “likely to have” assets somewhere in the world. It was argued on appeal that the Judge had applied the wrong test, and should instead have asked whether there were “grounds for believing” that the LLPs held assets.

The Court of Appeal allowed the appeal in part, granting worldwide freezing injunctions against certain of the LLPs in question. The Court of Appeal held that the proper test was the test proposed by the appellant, i.e. whether there were grounds for believing that assets might exist. However, it would not be sufficient simply to demonstrate that the respondent to an application for a freezing injunction was wealthy and could therefore be presumed to own assets. It was necessary to look at the available facts and where (as in this case) one individual owned or controlled a number of different targeted entities, it was necessary to enquire into the financial position of each individual entity rather than simply forming an overall view based on the asset position of the owner or controller. 

The penalty for breach of a freezing injunction

In A v B (unreported, 2017) the High Court reviewed an order that had been made against a Chinese national committing him to prison for his breach of a freezing injunction. The injunction had been granted in support of an arbitral award against the individual. The individual had then failed to comply with provisions contained in the injunction requiring him to make disclosures in relation to his asset position and, as a result, he had been sentenced to 18 months in prison at a hearing which he did not attend. Following that hearing, the individual had made the disclosures required by the injunction, which revealed that, in fact, he held no assets. 

The Court found that, whilst the disclosure ought to have been provided when required, the failure to comply with the injunction was due to confusion on the part of the individual as opposed to any deliberate attempt to avoid compliance with his obligations. The individual did not have a good grasp of the English language. Important correspondence had not been read by the individual (either because it had not reached him, or because it had not been translated). He had not understood that a hearing was taking place at which he might receive a custodial sentence. Subsequently, he had incurred financial cost in relation to the arbitral award and suffered reputational harm. He had also apologised to the Court for his failures. The Court held that, although these failures had amounted to contempt of Court, that contempt had now been purged by the individual’s actions and the other consequences that he had suffered. The prison sentence was accordingly lifted by the Court.

In stark contrast, in the case of Julie Anne Palmer and another v Ji-Chuen Jason Tsai [2017] EWHC 1860 (Ch) Mrs Justice Rose sentenced a company director to 18 months imprisonment (the maximum available sentence for contempt of Court being 2 years) as a result of his failure to deliver up one of his passports and over 50 further violations of the disclosure requirements contained in a worldwide freezing injunction. As in the A v B case referenced above, the director was a foreign national; however, the similarities between the present case and the A v B case ended there. In a 90 page judgment, the Court found that the director was fluent in written and spoken English, and he had also had the benefit of an interpreter during his trial. The director had not failed to comply with the injunction because of any confusion or misunderstanding, but because he was “a dishonest and manipulative person who has no qualms about fabricating important documents [and] lying to the Court” who had sought to mislead the Court “in a most serious manner”. He had misrepresented the severity of various medical conditions from which he claimed to suffer; he had submitted wholly inconsistent and contradictory asset disclosure statements; he had made false allegations of professional negligence against his legal advisors in an effort to blame them for his breaches of the injunction; and he had forged correspondence.

Commentary

These recent cases highlight two features of the English Court’s jurisdiction to grant freezing injunctions. The Ras Al Khaimah Investment Authority decision illustrates the careful approach that the English Courts will take towards any application for such a potentially oppressive order, and the difficult balancing act that the Court has to perform when assessing whether an injunction is likely to be effective. By their very nature, the sorts of cases where a freezing order may be appropriate are often cases where the asset position is far from clear, and information about assets is limited; but on the other hand, the Court will not grant these powerful forms of injunction unless there is sufficient evidence regarding the asset position to satisfy the Court that its order is likely to have some utility. The cases of A v B and Julie Anne Palmer and another v Ji-Chuen Jason Tsai provide insight into how the Court can be expected to deal with respondents who fail to comply with a freezing injunction once it has been granted. These cases are at opposite ends of the spectrum. In the former case the breach was attributable to genuine misunderstandings and miscommunications; in the latter case, the respondent deliberately flouted numerous provisions of an order that he clearly understood. Whilst any breach of a Court order is technically a contempt of Court, these cases demonstrate that the consequences for the contemnor will depend very much on the reasons for the breach, the contemnor’s subsequent attempts (if any) to purge his contempt by rectifying the breach, and ultimately his regard for the authority of the Court.