Worldwide freezing order – notifying third parties
A recent High Court judgment has found that notifying third parties outside of England and Wales about the existence of a worldwide freezing order is not an abuse of process.
Freezing orders are intended to stop a defendant from dealing with or disposing of assets in order to put them beyond the reach of any other order for damages or costs. Once a claimant has obtained a worldwide freezing order, they may wish to notify third party asset holders of its existence, to discourage them from dealing with assets in breach of the order.
New case law examines the extent to which this notification is acceptable and what may be included in any notice that is sent to third parties.
Use of worldwide freezing orders
Where a claimant believes that there is a risk that a defendant will move assets to avoid paying monies due to it following a future claim, it can ask the court to grant a worldwide freezing order. This has the effect of stopping the defendant from moving or using its assets in any way.
An order issued by an English court may be honoured in some overseas jurisdictions, while in others it may need to be approved in a local court before it is effective. It can be difficult to enforce effectively where assets are widely spread and much of its power may be due to a defendant’s unwillingness to breach the order, rather than its inability to do so.
By notifying asset holders of the existence of the order, a claimant can discourage them from participating in a breach of the order.
Obtaining a worldwide freezing order
The court does not routinely issue worldwide freezing orders and requires a strong case before it will do so.
This includes a persuasive case for making the order as well as a strong underlying claim. The claimant will need to show that there is a real risk that the assets will be moved or disposed of.
Where the defendant has acted dishonestly, this may also carry weight in the claimant’s favour, for example, in GML International Ltd v Harfield  7 WLUK 362, the High Court granted a worldwide freezing order against a debtor who had fabricated his defence, holding that there was a significant risk that the defendant would try to dispose of his assets, given his dishonesty at trial.
The court will also take into account the effect on any third parties and the defendants’ wellbeing before granting an order.
Notifying third parties of a worldwide freezing order
Once an order has been issued, it is effective immediately. This is usually the first the defendant will know about the existence of the order.
The claimants may wish to serve notice on third parties that the assets that they hold on behalf of the defendant are subject to a worldwide freezing order and should not be dealt with in any way, however, this should be done with care.
The recent case of YS GM Marfin II LLC & Ors v Lakhani & Ors  EWHC 2629 (Comm)(5 October 2020) clarified the situation.
The claimants obtained a worldwide freezing order during a financing dispute. The order stated that except in specific circumstances it did not affect parties outside of England and Wales.
The claimants sent notifications to parties outside England and Wales stating that: “… it is a contempt of Court for any third party knowingly to assist in or to permit a breach of the injunction, subject to the terms of paragraph 19 regarding persons outside England and Wales. That is reinforced by the Penal Notice on the first page …”
They then sent a second communication to some asset holders advising them that if they were not resident within the jurisdictions of the courts of England and Wales the injunction and penal notice would not apply to them.
The defendants applied to the court to have the worldwide freezing order discharged, claiming that the way in which notice had been given was oppressive and an abuse of process.
The court held that it was not improper to notify third parties beyond the jurisdiction of England and Wales with the aim of trying to ensure the worldwide freezing order was effective.
Mr Justice Jacobs said: “there is in my view nothing improper in a claimant seeking to notify a third party of a WFO, without seeking a further court order, albeit that in such circumstances the claimant will be relying on what might be termed the “soft power” of the court’s order rather than its coercive effect”.
He did not consider that the claimants had any ulterior or improper purpose or that their notifications had been deliberately misleading, although he felt that the first notice had gone too far and ordered clarification letters to be sent to any of the third parties who had not yet received them.
Using a worldwide freezing order
The granting of a worldwide freezing order is at the discretion of the court and will not be issued lightly.
When this type of order is granted, third parties can legitimately be notified in an attempt to prevent assets from being disposed of. However, it is important that claimants do not misrepresent the effect of a worldwide freezing order. Furthermore, stark references to contempt and any penal notice may well go too far and be inappropriate.
This means that the wording of any notice sent to third parties must be carefully drafted and not exceed the terms of the order or misrepresent its contents.
If you are involved in a dispute and you believe that a freezing order would be appropriate, we can advise you as to the right procedure and how to safeguard your interests.
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