A freezing order (sometimes referred to as a freezing injunction) is an interim measure granted by a court to prevent a person from being able to dispose of or deal with their assets before a judgment has been enforced. Here, we take a closer look at the remedies available to protect assets in the Isle of Man, specifically around how a freezing order can be obtained, the protections involved and enforceability.
1. Are freezing orders (or their equivalent referred to below) available in civil legal proceedings in this jurisdiction and what is their effect?
Yes. The respondent is prohibited from dealing with the assets (either within the jurisdiction or worldwide) referred to in the freezing order until a specified time (for example, a further hearing, judgment or payment) or further order of the Court.
2. Are other interim orders commonly made in conjunction with a freezing (or equivalent) order?
Yes. The Court typically also requires the respondent to provide disclosure in an affidavit of the nature, value and location of their assets, and other information as may be ordered, within a specified timescale. The Court can also be asked to provide supporting interim relief, which would, for example, prevent the respondent from taking any corporate measures designed to interfere with the effectiveness of the injunction (such as updating a register of members, etc).
3. Briefly what is the relevant legal test?
To establish the test for a freezing injunction in the Isle of Man, the applicant must persuade the Court of its case, taking into account the following requirements:
- the Court has jurisdiction to grant a freezing order;
- the applicant has a good arguable case in the underlying substantive claim or prospective claim;
- the respondent has assets in the Isle of Man, or (in the case of a worldwide freezing order) outside the Isle of Man (although the Court will generally exercise greater caution in granting relief in respect of assets overseas unless there is clear connection with the Isle of Man);
- there is a real risk of unjustified dissipation (for example, for the purposes of frustrating or impeding the satisfaction of a judgment or award), and there is solid evidence of such a risk; and
- it is just and convenient to grant the freezing order and it is not inexpedient to do so. The applicant must also provide full and frank disclosure and proffer an undertaking in damages, which should be backed by security if and to the extent appropriate.
4. Briefly what is the process for obtaining a freezing (or equivalent) order?
The applicant must file an Application Notice and an affidavit which sets out the reasons for the application and the basis on which the relevant test is met, together with other necessary documentation required by the Court. The applicant should act promptly, as delay without good reason may defeat the application. An application can be made with or without notice to the respondent, although in order to be effective, it is usually made without notice to avoid the real risk of dissipation of assets. Where it is made without notice, the applicant has a duty of full and frank disclosure and if the freezing order is granted, there will be a later return hearing at which the respondent has opportunity to make representations and challenge the order.
5. Does the applicant have to provide any form of security or commit to compensation if its claim is ultimately unsuccessful and any freezing (or equivalent) order granted causes loss and damage to the respondent?
Yes. The applicant must proffer a cross-undertaking in damages to the respondent which the Court, at its discretion, may require to be secured by way of fortification.
6. Can it be sought against third parties?
Yes, a third party to the underlying proceedings or prospective proceedings may be made a party to a freezing order, where there is good reason to suppose that its assets are in fact the assets of the defendant in the underlying litigation or will be available to the defendant to meet a judgment or arbitral award. Additionally, a third party who is not a party to the freezing order (for example, a financial institution holding the defendant's assets) but who is notified of the freezing order may also be bound by the terms of a freezing order.
7. What assets are covered by a freezing (or equivalent) order?
Depending upon the terms of the order, any tangible or intangible assets provided that they are not perishable, whether within the jurisdiction (a domestic freezing order) or outside (a worldwide freezing order).
8. Can a freezing (or equivalent) order be made in support of substantive proceedings abroad?
Yes.
9. Can a freezing (or equivalent) order be made in support of arbitration proceedings or awards?
Yes.
10. At what stage of proceedings can a freezing (or equivalent) order be sought?
At any stage, including prior to commencing the underlying claim (although the Court will expect the applicant to issue its claim promptly) or following judgment to assist with enforcement.
11. Are there typically any exceptions to the general prohibition on the respondent's use of assets subject to a freezing (or equivalent) order?
Yes. The order will generally provide that the respondent may deal with their assets:
- above a specified value;
- in the ordinary and proper course of business;
- for ordinary living expenses; or
- for legal expenses.
12. What happens after a freezing (or equivalent) order is granted?
The freezing order is served upon the respondent as soon as possible in order to prevent dissipation, or any further dissipation, of the assets. The respondent will then be required to provide full disclosure of assets and other information as ordered by the Court, usually within 48 hours. Depending on the circumstances, the applicant may also give notice of the freezing order to any third parties (such as banks) known to hold the respondent's assets. Two to three weeks after the granting of the freezing order there will be a return hearing, the date of which is set at the time of granting the order. At the return hearing, the applicant will be required to update the Court and the respondent will have the opportunity to make representations and may challenge the granting of the order. At this point the freezing order will usually either be set aside, extended or replaced with a Court-sanctioned undertaking which has broadly the same effect as a freezing order until trial. The applicant's duty of full and frank disclosure to the Court continues whilst the freezing order remains in place.
13. Who pays the costs of the application for a freezing (or equivalent) order?
The applicant or the respondent may be ordered to pay for the costs of obtaining the freezing order and this is usually decided at the final determination of the underlying litigation.
14. What protections are there typically in a freezing (or equivalent) order for third parties to such orders?
- A third party is not prevented from exercising any rights of set-off arising prior to its notification of the freezing order.
- A third party does not need to enquire as to the application of any money withdrawn by the respondent if the withdrawal appears to be permitted by the freezing order.
- A freezing order only affects third parties outside of the jurisdiction in certain circumstances, that is if that party is (a) subject to the jurisdiction (b) has been given written notice at their residence or place of business within the jurisdiction or (c) is able to prevent acts or omissions outside the jurisdiction which constitute or assist in a breach of the order.
- As regards assets outside of the jurisdiction, a freezing order does not prevent a third party from complying with (a) what it reasonably believes to be its obligations under the law of the country where the assets are located or the law of any contract between itself and the respondent or (b) any orders of the Courts of the country where the assets are located.
- Applicants will usually be required to undertake to pay the reasonable costs of any third party which have been incurred as a result of the order, and to compensate them for any loss caused by it.
15. What are the consequences of breach of a freezing (or equivalent) order?
A respondent who disobeys a freezing order may be held in contempt of Court and may be imprisoned, fined or have their assets seized. A third party may only be in contempt of Court where they have notice of the freezing order and help or permit the respondent to breach the terms of the order.
16. Does a third party notified of (but not a party to) a freezing (or equivalent) order owe a duty of care to the applicant (meaning it can be liable to the applicant for non-compliance)?
No, however they are accountable to the Court for breach of the terms of the order.
17. Can a freezing (or equivalent) order be enforced abroad?
Yes, in principle, although subject to the laws of the relevant jurisdiction.
18. Can freezing (or equivalent) orders from overseas jurisdictions be enforced in this jurisdiction?
In short, no. The worldwide freezing order applicant will need to obtain a freezing order in the Isle of Man and seek to register for enforcement in the Isle of Man.
First published as part of Eversheds Sutherland's Global Guide to Freezing Orders, which features contributions from lawyers in 90 different jurisdictions, June 2024.
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.