A freezing order, also known as a Mareva injunction, is a legal tool that can prevent a person from moving, hiding, or selling assets during a legal dispute. The court typically grants the order when there’s a significant concern that the defendant might try to hide or dissipate their assets to avoid paying a future judgment.
These orders are crucial in ensuring that the claimant has a fair chance of receiving compensation or satisfaction from the defendant if they win the case. Without a freezing order, the defendant might hide or sell assets to make it harder to collect the awarded amount.
How Does a Freezing Order Work?
A freezing order prohibits the defendant from disposing of or dealing with their assets in any way. It places a legal restriction on the defendant, meaning they cannot transfer, sell, or hide assets without facing legal consequences. The aim is to preserve the assets if the claimant wins the case, ensuring funds are available to cover the judgment.
Freezing orders typically apply to assets both within the UK and abroad, depending on the scope of the order. For the freezing order to be effective, the defendant must be aware of the court’s decision and the terms of the order.
When Can You Apply for a Freezing Order?
You can apply for a freezing order when there’s a genuine concern that the defendant might hide or transfer assets to avoid paying the claimant. This situation often arises when the defendant seems likely to dissipate their wealth or if there are signs that they are preparing to move assets beyond the reach of the court.
For instance, if evidence suggests that the defendant intends to sell property or move money abroad, a freezing order may be requested. The court will consider whether enough evidence justifies the need for such an order.
The Process of Applying for a Freezing Order
To successfully obtain one, the claimant must follow a set of steps, provide compelling reasons, and be transparent with the court. Below is an overview of the key steps to applying for a freezing order.
Step 1: Prepare the Application
The claimant prepares an application to the court, outlining why a freezing order is needed. This includes details of the defendant’s assets, the reasons for the application, and evidence suggesting the defendant may hide or transfer assets.
Step 2: Full Disclosure
When applying for a freezing order in the UK, the applicant must provide full and frank disclosure of all relevant information to the court. This includes details of the cause of action, evidence of the risk of asset dissipation, the existence and location of assets, and any potential impact on the respondent. Failing to do so could lead to the order being overturned or sanctions.
Step 3: Submit the Application
Once prepared, the claimant submits the application. If urgent, they may request an immediate decision due to concerns about assets being hidden or sold.
Step 4: Attend the Hearing
The court will schedule a hearing to decide on the freezing order. If necessary, a temporary order may be granted until a detailed hearing can take place.
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Court’s Decision to Grant a Freezing Order
The court will decide whether to grant a freezing order by weighing a few key factors. The most important of these is the risk of asset dissipation. The claimant must show that there’s a real risk that the defendant will move or hide their assets if the order isn’t put in place.
Other factors the court will consider include the strength of the claimant’s case and the likelihood of success. If the claimant cannot demonstrate a reasonable chance of success in the case, the court is unlikely to grant a freezing order.
The court will also consider the impact on the defendant. If the freezing order causes undue hardship, the court may decide not to grant it or may modify its scope to ensure it’s fair to the defendant.
Types of Freezing Orders
Freezing orders come in different forms, depending on the scope and need of the claimant. These can include:
- Domestic Freezing Orders: These orders apply to assets within the UK. They can be particularly useful if the defendant has assets within the country that may be at risk of being hidden or transferred.
- Worldwide Freezing Orders: If the defendant has assets abroad, the court may grant a worldwide freezing order. This order prevents the defendant from moving assets beyond the reach of UK courts, even if they are located in foreign jurisdictions.
- Ex Parte Orders: Sometimes, the claimant may apply for a freezing order without the defendant’s knowledge, which is called an ex parte The court will decide on the order without the defendant being present. If the court grants the order, the defendant will be informed later, and they will have the opportunity to challenge it.
Defending Against a Freezing Order
Defendants can challenge freezing orders if they believe the order is unfair or unnecessary. Common defences include:
- No risk of asset dissipation: The defendant may argue that there is no real risk of them moving or hiding assets.
- Inadequate evidence: If the claimant cannot provide strong enough evidence to support the need for the freezing order, the defendant may challenge the order on this basis.
- Unnecessary hardship: The defendant may argue that the freezing order places undue hardship on them or their business, especially if the order affects assets that are necessary for day-to-day operations.
Defendants can also apply to the court to vary or discharge the freezing order if it is too broad or harsh.
Consequences of Violating a Freezing Order
A freezing order is a serious legal tool, and ignoring or violating its terms can have severe consequences. If the defendant fails to comply with the freezing order, they can be held in contempt of court. This can lead to, penalties, fines or even jail time, depending on the severity of the violation.
In addition, if the defendant moves or hides assets despite the freezing order, the court may take this into account in the final judgment. The claimant can use this as evidence of the defendant’s dishonesty or attempts to evade their financial obligations.
Final Thoughts
Freezing orders are a powerful tool for ensuring that defendants do not hide or dispose of assets during legal disputes. They can be essential for preserving the claimant’s ability to recover damages or enforcement of a judgment.
However, applying for a freezing order is not a step to be taken lightly. Claimants must demonstrate a strong case and provide full disclosure to the court. Moreover, freezing orders can have serious consequences for the defendant, including severe financial penalties or even imprisonment if they fail to comply.
While freezing orders can be powerful tools, they must be used with care to avoid causing unnecessary harm or hardship to the parties involved.
