A recent English decision highlights the danger that even a well-intentioned financial institution may face if it fails to strictly obey a Mareva injunction order freezing the accounts of one of its clients: R. (Revenue & Customs Prosecution Office) v. Lloyds TSB Plc [2007] EWHC 2393 (Admin)1

The Plaintiff obtained an order freezing the accounts of a Lloyds Bank client. The order prohibited the client and all recipients from "dealing" in any way with the frozen funds, but the order permitted the client withdrawals for living expenses. The well-meaning bank manager, seeking to protect the bulk of the frozen funds from withdrawal by the client, and to avoid monitoring the accounts, proposed to the client that those funds, totalling some £2 million, be transferred to another Lloyds account. The client agreed. Neither the client nor the bank informed or obtained consent from the prosecutor or the court for this arrangement.

The Court condemned the bank's transfer of the funds as a "clear breach" of the order, and expressed surprise that the bank would do so without consultation with the crown prosecutor or the court. Despite the bank's good intentions, the transfer of the funds was a deliberate act, in knowing breach of the terms of the order. The court found the bank in contempt of court.

Given the bank's intentions, and given that no harm arose as a result of the transfer, the court declined to impose a costs sanction on the bank. The Court indicated, however, that future mishandling of frozen accounts by banks would likely attract severe sanctions, given the clarification provided in the Lloyds judgment.

Unfortunately, there is no standard Mareva injunction order wording throughout Canada, and so each order must be carefully reviewed to ensure compliance. Generally, where an order permits the client to withdraw living (or other stipulated) expenses, the prudent course is to:

  1. Confirm proper service and then freeze all accounts identified in the order, and consider whether the order impedes or affects the bank's lending status with the client and ability to access accounts to apply to client indebtedness to the bank;
  2. Have the client provide a summary of necessary living expenses, based on the wording of the order, and seek instructions and consent from the client to deal with the funds in such manner as most appropriate to manage the account during the term of the freeze, including obtaining written consent from the client to discuss such with counsel for the party as obtained the order;
  3. Propose to counsel for the party that obtained the order that funds be deposited on a monthly basis into a new account for the client's permitted use; and
  4. Do not move or release the funds until and unless the party that obtained the order provides written consent in accord with the order (if permitted by its terms), or the court approves such an arrangement.

The Lloyds decision makes clear that any institution receiving a freezing order must not just unilaterally implement what it believes to be a practical way of dealing with that order, but must ensure that the proposed mechanism is approved of by the party that acquired the order, or, if that party refuses, the court.

Footnote

1 http://www.bailii.org/ew/cases/EWHC/Admin/2007/2393.html.

For other recent BLG articles on Mareva freezing injunction orders, please see:
Recent Decision On Bank's Liability for Failure to Freeze Funds Offers Comfort to Financial Institutions: http://www.blgcanada.com/publications/disclaimeraccept.asp?PublicationKey=821&LanguageKey=1

Mareva Freezing Orders and Non-Party Financial Institutions: a Practical Guide:
http://www.blgcanada.com/publications/getpublication.asp?PublicationKey=780&LanguageKey=1

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.