The case of the Federal Bank of the Middle East v Hadkinson is illustrative of the pitfalls which the practitioner can fall into when wording a freezing order.
A freezing order is a precautionary measure taken to protect the claimant against a risk of dissipation and disposal of assets pending judgment. Where a proprietary claim exists, the freezing order protects the claimant's assets themselves. When coupled with disclosure obligations its effect can be devastating.
The case questioned the effectiveness of the standard wording used to prevent any dealing with the defendant's assets insofar as they are "his assets". In this case the defendant held money in bank accounts, opened in his name, which he alleged were beneficially owned by others.
The freezing order contained the standard wording preventing him from dealing with "his assets".
After service of the order he transferred assets out of these accounts claiming to be entitled to do so because the assets were not his. The claimant succeeded in arguing that there was a breach of the original order and the defendant was found to be in contempt of court.
This point of construction had not been raised before, which is perhaps surprising bearing in mind that this year marks the silver anniversary of the first freezing order (the mareva injunction). The Court of Appeal held that the words "his assets" mean assets belonging beneficially to the defendant. They considered that an order must be drafted so that the recipient knows exactly what he must do to comply with it. While there may be exceptional circumstances where it would be appropriate to freeze all funds, including those which are not beneficially owned by the defendant, the wording of the order needs to reflect this.
It is important for practitioners to ensure that the wording of any order they seek is drafted carefully and, if it is a freezing order, that it properly describes the assets they are seeking to preserve. This case demonstrates that the court will always interpret orders equitably and so we question what impact the Human Rights Act may have.
Christine Derrett is senior litigation partner, insolvency specialist and qualified mediator at DJ Freeman.
