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Worldwide freezing orders: Useful tool or just another expensive piece of paper?

  • Michael Redman
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Michael Redman

Michael Redman

Director

Former Director, Focus Intelligence Ltd.

Once described by the English Court as “one of the law’s […] nuclear weapons,”[1] a worldwide freezing order is an injunction granted by the English high courts that freezes a respondent’s assets globally. The order intends to prevent the disposal of a respondent’s assets before a judgment is satisfied by putting highly restrictive constraints on that respondent. Entities subject to worldwide freezing orders are often high-net-worth parties whose failure to abide by the sanctions can result in further ramifications including further court orders, negative press coverage and potentially criminal sanctions if the order is breached.

While a worldwide freezing order can serve as a useful tool for claimants, without proper diligence it can be dismissed and present adverse and costly consequences to the applicant.

Below is an overview of worldwide freezing orders, highlighting the responsibilities of the applicant and the challenges to a successful application.

How does an applicant secure a worldwide freezing order?

The applicant faces the burden of responsibility to provide full disclosure to the Court and to exercise extreme attention in the application process. The Court requires the applicant to:

  • Have a substantive cause of action against the respondent
  • Have a strong arguable underlying case
  • Establish a real risk of dissipation of assets
  • Ensure the freezing order is just, taking into consideration the rights of third parties affected as well as the subject’s well-being

A worldwide freezing order is most often granted without notice to the respondent and—once granted—takes effect immediately.

What are the challenges of a worldwide freezing order?

Claimants assume a high burden of cost and risk when securing a worldwide freezing order. First, claimants are responsible for the financial costs associated with identifying the respondent’s assets. Second, claimants must fully satisfy the court’s “full and frank” disclosure rule. This rule requires applicants to conduct thorough research of the facts, disclose any and all material matters to the court including any potential defenses and flag important details.

Once a worldwide freezing order is granted, is it effective?

An English Court ruling is often not sufficient to unlock the full power of a worldwide freezing order: If assets are located in remote safe havens around the world, then the ruling must either be honored by foreign courts or else foreign courts must approve the order in their own jurisdiction. Otherwise, claimants are replying only on voluntary compliance. The multi-jurisdictional nature of these orders can raise international complications for the applicant, since there is no shortage of creativity in how parties hide or move their assets. Additionally, a worldwide freezing order may be challenged by the respondent, most often on the grounds that the order fails the “full and frank” test.

Even under ideal circumstances when the order is granted and enforced in the necessary jurisdictions, a worldwide freezing order ultimately is still subject to the respondent’s voluntary compliance, in other words, a court granted worldwide freezing order does not guarantee successful enforcement and satisfaction of the judgment debt. In our experience, a worldwide freezing order is effective insofar as the respondent is fearful of the order and willing to comply with the court. It’s most effective as part of a wider coordinated campaign rather than on its own.

What role does asset recovery play in securing a worldwide freezing order?

During the preparatory process, input from Burford’s Asset Recovery team can help claimants satisfy the application’s factual threshold. Asset recovery experts can conduct research, identify a respondent’s assets, evaluate the risk of dissipation and provide valuable information to determine the costs and benefits before applying for an order, all of which are necessary to satisfy the “full and frank” test.

Claimants pursuing a worldwide freezing order typically turn to Burford for both capital and investigative expertise. Understanding that a worldwide freezing order does not guarantee observance, Burford is able to determine and help enforce compliance by highlighting the concealment of assets, ensuring that notice of the order to third parties is well directed, and verifying that any resulting asset disclosure is fulsome and accurate. Burford is unique in that it can finance both the order itself as well as provide the capital required to give the order teeth outside of England.

Conclusion: Proceed with caution  

A worldwide freezing order can be useful, but it’s not a perfect tool or all-powerful. Parties interested in pursuing a worldwide freezing order should do so with caution—and will be better served by seeing the order as a starting point rather than indicating the end of a case. Pursuing a worldwide freezing order comes with a significant burden to the claimant and partnering with experts can save claimants time, money and frustration. Burford’s industry-leading asset recovery team can help clients evaluate the risk and return of pursuing a worldwide freezing order and—if granted—assure its successful execution.

 

[1] Bank Mellat v. Nikpour [1985] F.S.R. 87.