An alternative to the freezing injunction?
Bill Dixon, a partner in FSP’s Dispute Resolution Team, considers whether a notification order presents an attractive cheaper alternative to the freezing injunction.
A number of risks apply if one is litigating against unscrupulous defendants. What if they hide, spend or move their assets so that any court judgment obtained against them at trial is ultimately meaningless? Traditionally the claimants’ best remedy for this situation has been the interim freezing order or injunction. This is an order that temporarily freezes the defendants’ assets pending trial. If necessary, such an order can be obtained without prior notice to the defendants (to prevent them taking steps to defeat the application before the order is made). The terms of the order can also be notified to banks and other third parties. Any breach of the court order by the defendant could potentially be contempt of court.
This draconian remedy is very effective. However it does have some drawbacks. Because it is obtained ahead of the trial, to get the order the claimant has to give what is called a cross-undertaking in damages. In other words, the claimant has to promise to give financial compensation to the defendant for any losses suffered as a result of the injunction if it turns out it was wrongly obtained. Sometimes the court orders the cross-undertaking to be backed up by financial security. Another disadvantage is that although the order temporarily freezes assets it does not give a claimant priority over other creditors. Potentially the most significant disadvantage is the enormous cost of obtaining a freezing injunction (which usually involves several court hearings).
In a recent case called Holyoake v Candy (2016) the court granted an alternative remedy. Rather than a full blown freezing order, it granted a “notification order”. The defendants were required to give written notice to the claimant of disposals of or dealings with their assets.
Clearly a notification order will not be as effective as a freezing order. However, it will be much less costly to obtain. It is therefore potentially a useful tool for claimants faced with unscrupulous defendants.
Bill Dixon has extensive experience of interim court orders in cases of fraud or a risk of asset dissipation and has acted on worldwide freezing orders and search orders.