How long should a Freezing Order last?

This is to ensure that those assets are not disposed of before a judgment is obtained, and steps taken to enforce it.

In the unusual saga of Electoral proceedings against the Ex-Mayor of Tower Hamlets, the High Court addressed the question of how long a Freezing Order should last, Erlam v Tahman [2015] EWHC 2370 (QB)[i]

Background

The defendant was elected as the Mayor of Tower Hamlets on the 22 May 2014. Soon after, the claimant began High Court proceedings under the Representation of the People Act 1983 to have the election set aside. There were allegations of corrupt and illegal practices, contrary to that Act.

Mr. Richard Mawrey QC was appointed as Election Commissioner to conduct the trial and to report to the High Court. On 23^rd April 2015 judgment was given against the defendant [2015] EWHC 1215 (QB). He was ordered to make a payment on account of costs in the sum of £250,000.

The defendant made an application for judicial review. The application for permission to continue the judicial review has not yet been heard. It is conceivable that, if permission is granted, the proceedings will not be concluded for a considerable period of time.

The claimant accepted that he shouldn’t enforce the order for costs whilst there was a chance that it may be overturned. The judicial review proceedings are not an appeal against the costs order, but may result in it being quashed or varied.

The claimant applied to extend for two years the Freezing Order that had already been granted.

Judgment

Edis J decided

“…I have concluded on the evidence before me that there is a risk that unless restrained by order of the court the defendant will dissipate his assets and will take steps to frustrate the enforcement of the judgment debt. I therefore propose to continue the freezing order in the same terms as before.

I will not grant that order for two years as asked. It seems to me that this is guesswork and that two years is a long time for an order of this kind. The continuation of the order should be further considered when the result of the trial of the charging order proceedings is known…”

The judge reasoned that the two year estimate was “rather rough and ready”. Two years would only be needed if the judicial review was allowed to continue. If it was, and it later progressed to an appeal to the Court of Appeal and then the Supreme Court, two years would be an underestimate. However, if judicial review permission is refused, two years is an overestimate.

“…I should attempt in exercising my discretion to manage the case in accordance with the overriding objective which means, in my judgment, avoiding repeated applications in these essentially ancillary proceedings as far as possible….”

Accordingly, the judge decided that two years was too long for a Freezing Order to remain in place. He extended the Freezing Order for 5 months, for its continuation to be considered again at the end of January 2016 when the results of various charging order proceedings would be known.

Principles

The court restated the law that it is a fundamental principle that a freezing order is not granted for the purpose of providing security for the claim. An order does not put a claimant in a better position than any other creditor. The mere fact that the defendant’s creditworthiness is in doubt does not justify the making of an order.

A claimant shows that there is sufficient risk of the defendant dissipating assets if he shows that

(1) there is a real risk that a judgment or award will go unsatisfied, in the sense of a real risk that, unless restrained by injunction, the defendant will dissipate or dispose of his assets other than in the ordinary course of business, or

(2) that unless the defendant is restrained, assets are likely to be dealt with in such a way as to make enforcement of any award or judgment more difficult, unless those dealings can be justified for normal and proper business purposes

Because of the harm that a Freezing Order can cause, a claimant has to give an undertaking to pay damages for loss if the claimant eventually loses or it is decided that the claimant was not entitled to the interim injunction.

Comment

• A Freezing Order (also known as a Mareva injunction), whilst an exceptionally powerful weapon, is not a free standing remedy itself. It has to be brought in conjunction with proceedings where a cause of action such as breach of contract or other claim is made out..
• The High Court has wide discretion to grant a freezing injunction. The claimant has to persuade the court that making the order is ‘just and convenient’ in the particular circumstances, as required by s.37(1) of the Senior Courts Act 1981.
• Freezing Orders can be obtained assets inside the jurisdiction where there is realistic concern that the assets may be dissipated; against assets outside of the jurisdiction; against third parties who are not the defendant in the underlying claim, but who own assets where the beneficial owner is the defendant.
• Although it is an interim remedy only, a Freezing Order can have a powerful impact on the progress and outcome of the wider litigation.

If you would like to raise any issues about this article please contact Hayden Glynn who is part of our dispute management team.

[i]

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2015/2370.html&query=erlam&method=boolean