Our top five tips for discharging a freezing injunction

In anticipation of pursuing an arbitration claim against our client, the Claimant had secured a worldwide freezing injunction against our client in the English Commercial Court pursuant to section 44 of the Arbitration Act 1996.  One significant consequence of the freezing order was that our client’s sole operational business account, which was located in England, was immediately locked to any incoming or outgoing funds.  This created an existential threat to our client.

Ultimately, we needed to rebut at least one of the four limbs to the test for granting a freezing injunction:

• Does the Claimant have a good arguable claim;
• Do assets exist that can be subject to the freezing injunction;
• Is there a real objective risk of dissipation; and
• Is it just and convenient in all the circumstances to grant the freezing injunction?

Fortunately, we were quick and savvy enough to resolve the situation, so we thought we’d share our top five tips for Respondent companies in receipt of a freezing order.

1. Comply with the freezing injunction

Even if you think the freezing injunction was improperly obtained, for the period that it is in force you must comply with it, or risk the consequences.

The consequences of failing to comply with a freezing injunction can be severe, particularly when it contains a penal notice, and can extend from fines to custodial sentences.

In addition to a prohibition on dealing with assets, freezing injunctions usually require provision by the Respondent of a sworn affidavit detailing all of its bank accounts and other assets.  Freezing injunctions can often also contain ancillary disclosure orders, depending on the nature of the underlying claim.

It is crucial that a Respondent understands clearly what it is, and it is not, permitted to do; conveys to relevant employees and affected third parties the restrictions imposed by the order; and, calculates and diarises the relevant time limits, within the freezing order, and procedurally, for compliance and any application to discharge the injunction.

2. Balancing urgency with proper preparation

Freezing injunctions are always urgent because of the practical implications on the Respondent’s ability to deal with its assets.  Despite there usually being express carve outs for dealing with assets “in the ordinary and proper course of business” and for legal expenses, it is not always the case in practice that those carve outs are implemented by banks and other financial institutions.

In our recent case, the complete lock on our client’s sole operational business account, preventing any funds from being received or paid out, caused significant financial damage to its business: neither could it comply with existing contractual obligations, nor could it engage in any new business.  However, a Respondent only gets “one shot” at discharging an injunction, so it was necessary to agree a timescale with the Claimant’s legal representatives before the return date hearing that allowed for proper – albeit expedited – preparation.

3. Review the hearing note carefully

An application for a freezing injunction will almost always be made on an ex parte basis.  The only record immediately available to a Respondent as to what the Judge relied on, and the findings the Judge made, in granting the freezing injunction is a note of the hearing that an applicant is required to provide.

Establishing the key issues that need to be addressed, by reference to the four-limb test, is crucial to succeeding in discharging a freezing injunction, and these issues are not always obvious from the evidence alone.

In our case, the Judge was persuaded at the ex parte hearing that there was an objective risk of dissipation by our client on the basis of what he understood to be untruthful statements made by our client.  We worked with our client to produce evidence that would rebut the conclusion drawn by Judge which, in this case, included evidence that our client was in fact trying to pay substantial sums of money into the account that was known to the Claimant. This was despite the underlying claims having crystallised, the Claimant having appointed a leading London shipping firm (the relevant charterparties provided for English law and arbitration seated in London), and the account the Claimant had knowledge of also being in England (and therefore within the jurisdiction of the supervisory court for international arbitrations with a London seat).

4. Did the claimant comply with its duty of “full and frank” disclosure?

On an ex parte application, an applicant has a duty to give full and frank disclosure to the Court.  This includes providing to the Court all relevant and material facts and matters, including any points of law or defences that a Respondent could reasonably deploy in opposition to the freezing injunction or the underlying claim.

If there are holes in the evidence that an applicant produced to the Court, these should be raised in support of an application to discharge an injunction.  The obligation on the applicant extends to drawing these matters to the attention of the Court: it is not sufficient for an applicant simply to rely on the fact that documents a Respondent will later draw to the Court’s attention were before the Court at the ex parte hearing; instead, an applicant should include the points in its written evidence and, preferably, in its submissions, too.

5. Is it just and convenient for the order to be continued?

A freezing injunction is an equitable remedy, and the Court has discretion as to whether it should be granted, or continued, even if the other three limbs of the test have been satisfied.

The Court will require evidence of the prejudice a Respondent is suffering and the effects on its business so that this can be weighed against the benefit to an applicant of the freezing injunction being continued.   As mentioned above, in our recent case the freezing injunction was causing serious and potentially irremediable harm to our client as it was unable to trade.  This included our client being placed in breach of existing charterparties and losing new opportunities to charter vessels.

The Judge considered the evidence and found that the injunction was causing significant disruption to our client, and it was one of the reasons why the freezing injunction was discharged.

We were delighted to work with Chirag Karia KC at Quadrant Chambers on this discharge application. His careful, clear, and calm submissions to the Court navigated the Judge through significant amounts of evidence and ultimately persuaded the Judge to discharge the freezing injunction.

If you need help bringing or defending a similar injunction, please get in touch with our expert Disputes team.