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 British Virgin Islands, 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. A freezing order will restrain a respondent from dealing with the assets referred to within the freezing order until a specified time. Where the order is made without notice, that is typically to a return date, and if at that return date the Court decides to continue the order then it will remain in place until judgment or further order.
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 his, her or its assets.
3. BRIEFLY WHAT IS THE RELEVANT LEGAL TEST?
- The applicant has a good arguable case in the underlying substantive claim or prospective claim;
- the respondent has assets, which may be within or (in the case of a worldwide freezing order) outside of the British Virgin Islands (although the Court will generally exercise greater caution in granting relief in respect of assets overseas unless there is clear connection with the BVI);
- 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
- it is just and convenient to grant the freezing order.
4. BRIEFLY WHAT IS THE PROCESS FOR OBTAINING A FREEZING (OR EQUIVALENT) ORDER?
The applicant makes an application to the Court, in particular setting out in an affidavit the reasons for the application and the basis on which the relevant test is met. An application can be made on or without notice to the respondent. Where it is made without notice, the applicant has a duty of full and frank disclosure and there will be a later return hearing at which the respondent can challenge the order assuming it is made.
The Civil Procedure Rules of the Eastern Caribbean Supreme Court require the first return date to take place within 28 days. In practice, that hearing is generally fixed for directions.
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 provide a cross-undertaking in damages to the respondent (which can in certain circumstances be fortified, i.e. ordered to be backed by security).
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. Equally a third party which is not a party to the freezing order (for example, a financial institution holding the defendant's assets) which is notified of it is still required to ensure that it does not knowingly assist the respondent in breaching the terms of the freezing order. Notification may be by way of phone call.
7. WHAT ASSETS ARE COVERED BY A FREEZING (OR EQUIVALENT) ORDER?
Any tangible or intangible assets provided 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. There is specific legislation to this effect, in Section 24A of the Eastern Caribbean Supreme Court Act.
9. CAN A FREEZING (OR EQUIVALENT) ORDER BE MADE IN SUPPORT OF ARBITRATION PROCEEDINGS OR AWARDS?
Yes. Again, this is the subject of specific legislative provisions within the Arbitration Act 2013.
10. AT WHAT STAGE OF PROCEEDINGS CAN A FREEZING (OR EQUIVALENT) ORDER BE SOUGHT?
At any stage, including prior to commencing the claim (although the Court will expect the applicant to issue its claim promptly) or following judgment to assist with enforcement. If the applicant fails to bring the application at or before the time that proceedings are issued, there is a heightened risk that the Court will find that, in the absence of a change in circumstances, the applicant does not genuinely believe that there is a risk of the improper dissipation of the respondent's assets, and as such will not grant the freezing order.
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 applicant will typically notify third parties (such as banks) of the freezing order when they might hold the respondent's assets. Assuming the original order was obtained without notice (as it often will have been), there will be a return hearing, whose date is stated on the face of the order, at which the respondent may challenge the order. At this point (or, more commonly, on an adjourned return date) the original 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.
13. WHO PAYS THE COSTS OF THE APPLICATION FOR A FREEZING (OR EQUIVALENT) ORDER?
Either the applicant or the respondent may be ordered to pay for the costs of obtaining the freezing order, which 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.
- 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 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 knowingly help or permit the respondent to breach the terms of the order. In addition, where a respondent fails to comply with the order there is a likelihood that the Court will appoint receivers over the respondent's assets if the Court thinks that such an order is necessary in order to effectively police its order, and the applicant applies for this relief.
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)?
In general, no. However, a third party that is notified of a freezing order and assists the respondent in committing a breach of that injunction may be liable for contempt of Court.
17. CAN A FREEZING (OR EQUIVALENT) ORDER BE ENFORCED ABROAD?
Yes, in principle, although subject to the laws of the relevant jurisdiction. However, this can only be sought with the permission of the Court and enforcement itself will be a matter of local law.
18. CAN FREEZING (OR EQUIVALENT) ORDERS FROM OVERSEAS JURISDICTIONS BE ENFORCED IN THIS JURISDICTION?
Overseas freezing orders cannot be enforced, but the Court can make its own order in support of foreign proceedings where it considers it appropriate to do so.
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.