Freezing injunctions in the UK: recent trends

The last year delivered a number of judgments which have provided further clarification of the thresholds and criteria to be met in order to obtain freezing orders in England and Wales, as well as the wide-ranging orders that can be obtained against particular assets.

This article includes:

• a reminder of what freezing injunctions are;
• how they are obtained; and
• key points arising from recent decisions on freezing injunctions: Hunt v Ubhi [2023] EWCA Civ 417, Joseph Keen Shing Law v Persons Unknown & Huobi Global [2023] (unreported) and Unitel SA v Unitel International Holdings BV [2023] EWHC 3231 (Comm)

Overview and requirements

A freezing order is a form of interim injunction that prohibits a person or company from disposing of or dealing with particular assets prior to the enforcement of a judgment. It is generally sought in circumstances where there is a risk that those assets will be dissipated in an effort to avoid the enforcement of a judgment.

Section 37 of the Senior Courts Act 1981 confirms the jurisdiction of the High Court to grant a freezing injunction on an interim basis. CPR 25 sets out the general rules and principles for the granting of interim injunctions and PD 25A provides more specific guidance on the jurisdiction, application, evidence, and orders for injunctions.

To obtain an order, an applicant must show the court that:

1. The court has (i) jurisdiction to hear a substantive claim against the respondent in England and Wales, or (ii) a statutory power to grant the order (for example, the court has the power to grant interim relief in support of foreign court proceedings or arbitration proceedings);
2. They have proof that the respondent might try to hide or dissipate their assets;
3. The order is fair and appropriate in all the circumstances; and
4. They have a ‘good arguable case’ against the respondent.

A freezing injunction is predominantly sought on an ex parte basis in order to avoid tipping off the subject of the freezing order which, in turn, minimises the risk of dissipation of assets.

In terms of the timing of any application, the applicant must not delay in requesting a freezing order, or the court may refuse it. A prompt application will also further reduce the risk of dissipation of assets.

Where a without notice application is made to obtain a freezing order, an applicant has a duty to give full and frank disclosure of all material facts (as per Scrutton L.J. in R v Kensington Income Tax Commissioners). This duty extends to any relevant material which may be unfavourable to the applicant.

Recent case law updates

Hunt v Ubhi

Explored the requirement for an applicant to give a cross-undertaking in damages

When applying for a freezing order, the applicant will normally be required to give a cross-undertaking in damages to protect the respondent in the event that the applicant loses the case at trial, or if it is later found that the freezing order should not have been granted.

As noted by Lewison J in the Pugachev case, the leading case in this area,"[t]he default position is that an applicant for an interim injunction is required to give an unlimited cross-undertaking in damages". This being said, there is a possible exception where the applicant has no personal interest in the litigation and in such cases, the burden is on the applicant to show why they should not be required to give an unlimited cross-undertaking.

In Ubhi, the Court of Appeal affirmed that, for interim injunctions, the court’s default position is that the applicant must give an unlimited cross-undertaking in damages. The burden is on the applicant to demonstrate why that default position should not apply, even if the applicant is an insolvent company.

This decision also made it clear that insolvency practitioners cannot always offer a capped cross-undertaking. They must either provide specific evidence to justify seeking such a capped undertaking, or they must make sure that they have funding or insurance in place to cover any liability that exceeds the value of assets in the available estate.

Joseph Law v Persons Unknown

Expanded the types of assets which can be frozen by the courts

This case explored the ever-expanding power of the court to freeze and, in particular, to deliver up cryptocurrency. In this case, a specific and highly exceptional mandatory order was handed down to the effect that the subject of the order (a crypto exchange called Huobi) would:

1. Convert cryptocurrency held in a relevant account to fiat currency;
2. Require that the fiat currency be transferred to England and Wales; and
3. Require the relevant cryptocurrency exchange to pay said currency into the Court Funds Office or to the Claimant’s solicitors on the understanding that it will then be paid into the Court Funds Office.

In his judgment, HHJ Pelling KC made it clear that “[t]he circumstances in which a court will order the transfer of funds the subject of a worldwide freezing order into England and Wales are generally limited because the assumption which underlies the making of a worldwide freezing order is that the defendants concerned will comply with the order.” However, it is now clear that in exceptional circumstances, a more invasive order can be made. With the volume and sophistication of cyber-fraud continuing to increase, it is not surprising that the courts are adapting the tools to ensure they are effective in a modern context.

Unitel SA v Unitel International Holdings BV

Acknowledged the confused state of the law regarding the ‘good arguable case’ test

Following several recent High Court decisions, there are now two directly conflicting lines of authority on the applicable test for assessing whether an applicant for a freezing injunction has met the requirement to have a ‘good arguable case’ on its substantive claim. The first is that of the ‘Niedersachsen’, which requires a case of “more than barely capable of serious argument.” Alternatively, the ‘Brownlie’ approach requires a comparative assessment of the parties’ arguments, or consideration of whether there is a ‘plausible evidential basis’ if no reliable assessment can be formed.

In Unitel, Bright J acknowledged the confused state of the law and commented that the issue should be considered afresh from first principles by the Court of Appeal. However, on the particular facts, Bright J preferred the approach taken by Butcher J in Magomedov. He noted that Butcher J had reviewed the authorities and had concluded that the test for a ‘good arguable case’ in the context of a freezing order remains as set out in Niedersachsen.

Although it is clear that the law in this area needs further clarification, subsequent editions of the White Book have still continued to endorse Niedersachsen. It remains to be seen whether the Court of Appeal will re-examine this, but until then, practitioners will continue to follow the ‘more than barely capable of serious argument’ approach.

What do you need to do prior to seeking a freezing injunction?

Challenging economic conditions are giving rise to an increased risk of fraud. As the range of internal and external threats increases, business sensitivity to any potential wrongdoing is enhanced. If you do identify a fraud, acting swiftly is essential to the prospects of making a recovery, and it is important that businesses know how to respond if the worst should happen.

Act quickly: Sophisticated fraudsters move assets quickly across jurisdictions and acting without delay will maximise the prospects of preventing the fraudster from taking such steps.

Avoid tipping off: Avoid tipping off the fraudster. If they remain within your organisation, it is sensible to establish a limited core team who are aware of the issue.

Preserve evidence: It is of fundamental importance that businesses take positive steps to preserve evidence. Consideration should also be given to ensuring that a suspected fraudster within the organisation cannot destroy relevant documents and routine document destruction policies must be suspended.

For more information on our Civil Fraud Practice

If you would like to discuss freezing injunctions, access our Civil Fraud Toolkit or hear more about the work we do within our Civil Fraud practice at Eversheds Sutherland, please contact Tim Browning, Kate Henry or Michael Armstrong for further information.

If you are a third party notified of a freezing order please also contact David Flack or Mark Cooper who form part of our court order team and who regularly advise on the impact of freezing orders on third parties.