In exceptional cases where a necessity can be shown, the court may make an order (usually) at the commencement of litigation, in order to freeze the assets (or some of the assets) of the defendant. The purpose is to ensure that the assets concerned are not removed from the jurisdiction (outside the control of the court) which may have the effect of frustrating enforcement of any judgment in manner.
The order is usually referred to as a Mareva injunction after the first case in which the English Court of Appeal granted such an injunction. The particular wording of the injunction will determine its scope and effect. Broadly speaking it will direct and oblige the defendant to preserve and not to dissipate or conceal his assets within the jurisdiction, at all or up to the value of the claim.
An Application for a Mareva Injunction may be made to the High Court or Circuit Court. It is most commonly granted in the High Court. The injunction is usually applied for in the first instance in an ex parte (unilateral) motion, so that the first the defendant or persons affected hear about the claim, is when they receive notice of the Mareva injunction itself. This pre-emptive aspect may be necessary so as not to frustrate the objective of preserving assets.
The Freezing Injunction may be granted on such terms as the Court determines. This may require various matters such as notifying parties affected of the Order, paying third-party costs, notifying third parties of the right to vary the Order, notifying third parties of the Order being discharged, not using evidence and documents obtained for any other reason.
A Freezing Injunction may be granted against the party personally preventing them disposing of assets outside the jurisdiction. This may even apply to worldwide assets. The Courts seek to find balance and proportionality between the requirements of the Order and its extent and impact upon the defendant.
A Mareva injunction may be directed against third parties, in particular banks which the defendant has an account. As with any other court order, failure to comply is contempt of Court, subject to attachment and committal.
Nature of Order
In the absence of a Mareva injunction, there is nothing to prevent a defendant from moving his assets or dealing with them as he sees fit. It is a fundamentalist principal that execution (i.e. enforcement) may take place only on foot of a final court order. The Mareva injunction, as a pre-trial freezing order is an exception to this principle.
The Mareva injunction may be granted against a defendant, obliging him personally not to dispose of assets or remove them outside the jurisdiction. The court will not have direct powers over such assets, but will have direct power over the defendant to compel by coercion or by the threat of coercion, to comply with its terms.
The injunction claim does not give any proprietary rights to the claimant. It obliges the person affected to refrain from disposing of assets so that they are available in the event that the ultimate legal action succeeds. The assets may or may not be directly involved in the legal proceedings. They may be the subject of the claim or more commonly, they are funds which would be available to enforce a judgment for debt or damages.
Criteria for Grant
A Mareva Injunction will not be readily granted. It will be granted only where strictly necessary. The court will be alive to the possibility of abuse. It will not be granted for tactical reasons, where there is no justification for the order.
In order to be granted a Mareva Injunction, the applicant must show that he has a good arguable case. This is a higher bar than that applicable in the case of other pre-trial injunctions, which require only that there is a fair case to be tried. It looks at the merits of the case, to a greater extent. This does not require the applicant to prove his case up front. However, in the affidavit in support of the application must meet a certain threshold of merit in the case.
The applicant must show that the defendant has assets within the jurisdiction and that the defendant intends to dispose of them, conceal them or dissipate them in order to frustrate the enforcement of the ultimate court order in the case. It is not enough that the assets may be reduced in the ordinary course of business. There must be something to show a risk of intentional dissipation or concealment.
The Courts will consider the entire circumstances including the nature of the assets and the nature of the claim. As with other injunctions, the court takes account of the so-called “balance of convenience”. This is a weighing of the relative burden against the benefit to the respective parties. Much will depend on the nature of the assets and circumstances.
The Court may take account of the defendant’s behaviour to date. If the defendant has taken steps to remove assets or has acted in an unconscionable or unfair manner, this will be a significant factor to which weight will be given.
Where assets may be moved only within the European Union, (subject to the Judgments Regulations) so that any ultimate order/judgment will be enforced in that other jurisdiction, this will militate against the grant of a Mareva injunction.
Terms of Order
A Freezing Injunction is generally prohibitory by negative. The party affected is restrained from disposing of assets. It will not usually be a mandatory Order obliging them to do anything.
Generally, the order will provide for a maximum sum. Typically the Order may restrain the defendant from reducing his assets within the jurisdiction below the amount stated.
The Applicant should not restrain the defendant from his ordinary living and normal expenses. Similarly, it should not prevent a company or business trading. Therefore the Order will normally provide for permitted dealing with assets to the extent required for living, business and trading expenses.
Generally the Order is granted until the further Court date or until the trial of the action.
Ancillary Discovery Orders
An applicant may seek the defendant to disclose his assets for the purpose of the Freezing Injunction. Courts have powers to grant such assets, both in respect of assets within the jurisdiction or outside it.
Orders may be made for discovery against the defendant in order to establish the extent of his assets. There are direct powers for Courts to order an applicant to be at liberty to inspect bank records under the Bankers Book Evidence Act. Generally, the party concerned and the bank must be notified of the Application under the legislation.
Third Party Addressees
The Order will be enforceable against the defendant personally. It will not be enforceable against third parties unless they can be made a party to the proceedings and there is a basis for doing so under conflicts of law rules.
Mareva injunctions are very commonly directed against financial institutions, with which are held, bank accounts or other investments belonging to the defendant. Once the order is made, notice is given to the relevant institution which is thereby bound by the order.
The institution has an obvious motivation to comply and may enforcement for failure to comply. Freezing orders will only be binding once they have been notified to the relevant person.o
As with other Injunctions their grant or refusal may be appealed from the Circuit Court to the High Court and High Court to the Supreme Court. However, the more appropriate course for a person affected may be simply to apply to the Court to vary the Order or discharge it at the earliest opportunity.
A third party affected by an Order may apply to have varied or limited insofar as it affects them.
There is now a legislative basis for proceedings similar to Freezing Order. These apply in the context of the proceeds of the Proceeds of Crime Act (see our criminal law section).
As with the other injunctions, Mareva injunctions is ancillary to the principal proceedings. Therefore, there must be a substantive claim in being. The actual claim may have issued simultaneously with the motion/application for the injunction.
A Mareva injunction may be applied for on notice (short notice) to the other party or more commonly, by way of an ex parte, unilateral application. The same broad principles which apply to interim injunctions, apply. An ex-parte application is usually necessary in order to pre-emptively avoid, the possible frustration of an order by removal or dissipation of the assets.
The application is based by motion and based on a written affidavit. The principal proceedings must have issued or must be issued simultaneously. Exceptionally, an undertaking to institute proceedings may be acceptable, if it is not possible to initiate proceedings because the court offices are unopened.
As with interim restraining injunctions, there is an onus on the applicant to make a full and frank disclosure of the relevant facts. He must disclose all matters known to him, whether or not they are adverse to his case. He must set out his claim and set out the claims likely fairly to be made against it by the defendant.
The affidavits and application must show there are assets within the jurisdiction and that there are grounds for apprehending that they may be removed from the jurisdiction or dissipated. The applicant must give an undertaking in damages. The undertaking is to compensate the defendant for the consequences of the order if he ultimately loses in the full trial of the action.
The obligation of full and frank disclosure is continuous. If the applicant becomes aware of circumstances which change the facts on which the order is based, and which would be material from the court’s perspective, then they must be brought to the court’s attention.
Although the undertaking to be given by the plaintiff may vary in value depending on the plaintiff’s means and the circumstances the Courts will not refuse an Injunction based on the limited value of the undertaking where this would defeat the essential justice of the case.
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