Freeze or I'll... make an application for a freezing order

Interim freezing injunctions are commonly used in Guernsey when an applicant wishes to prevent the respondent from disposing of or dealing with assets.  These injunctions operate in personam, meaning they compel the respondent (along with parties who are placed on notice) to refrain from taking steps that could serve to dissipate or transfer the assets in question.  

Interim Injunctions

The Royal Court of Guernsey has the power to grant an interim injunction at any time before it makes a final judgment under section 1(1) of the Law Reform (Miscellaneous Provisions) (Guernsey) Law, 1987 (the LRMP Law). Injunctions of this type are commonly sought to preserve assets during proceedings, ensuring that any future judgment is not frustrated by the dissipation of assets. 

Applications for freezing injunctions are generally made ex parte, due to the risk that the respondent may take steps to dissipate assets before the matter is heard.  The Guernsey Court of Appeal expressed the view in System Designs Limited and Logo Limited v President of Equatorial Guinea, Procureur of Equatorial Guinea and Royal Bank of Scotland International (2005-06 GLR 65)10 (a Norwich Pharmacal case) that the jurisdiction to make an order ex parte should only be exercised:

• Where the grounds for granting the order sought are sufficiently clear; and
  
  
• Where there is a clear and imperative need for the order to be made immediately and urgently so as to preserve the position between the disputing parties until such time as they can conveniently be brought before the court for the issues to be argued on the basis of whatever evidence each party wished to place before it.

This approach was more recently referred to in Carlyle Capital Corporation Limited and Four Others vs. Conway and Nine Others [2011-12] GLR 371.

Ex parte applications also carry the added requirement of full and frank disclosure resulting in the applicant having to disclose all relevant information to the Court, including, where applicable, possible arguments which the respondent may advance in opposition to the order being sought.

A key condition for granting an interim injunction in Guernsey is that the applicant must provide a cross-undertaking in damages. This undertaking serves as a safeguard for the respondent (and, where appropriate, third parties) against any loss caused by the injunction if it is later found to have been wrongly granted.  In practice, the applicant agrees to compensate affected parties for proven losses arising from the injunction in those circumstances. Where there is concern about the applicant’s ability to meet this obligation, the Court can order fortification of the undertaking, typically by requiring security or a payment into Court based on a reasonable estimate of potential losses.  In Carlyle, the Court reaffirmed the importance of the cross-undertaking in damages as an essential condition for interim relief. 

The Court's approach to Freezing Injunctions

The Court of Appeal in Seed International Limited v Tracey and Others [2003-04] GLR 98 (Seed) confirmed that the purpose of a freezing order is to prevent abuse.  The Court will, therefore, assess whether abuse is likely based on the evidence produced.  

To grant a freezing injunction, the Court generally requires that:

• the applicant has a good arguable case against the respondent on a substantive claim;
• the respondent has assets within the jurisdiction; and
• there is a real risk of dissipation of assets if the order is not granted.

The legal test for showing that the respondent has assets which would likely be caught by any order of the Court is whether the applicant has grounds for believing that such assets exist and not whether the respondent is likely to have such assets.  The Court of Appeal in Seed also confirmed that any order should be made with reference to what is required to prevent potential abuse.

The LRMP Law also provides for injunctions to be granted in support of non-Guernsey proceedings.  In order to obtain a freezing order, the applicant must (in addition to the measures set out above) demonstrate "exceptional circumstances".  

Even if these criteria are met, the Court retains discretion to grant the injunction only if it is deemed just and convenient to do so. 

The applicant will also need to provide undertakings, which typically include: 

• compensation to the respondent if the injunction is later found to have been unjustified; 
• payment of reasonable third-party costs incurred in complying with the order; 
• not using information acquired by virtue from the freezing order in unrelated proceedings without permission from the Court. 

In some cases, the applicant may be required to fortify their undertakings by providing security into Court. 

In order to obtain a freezing order, the applicant must (in addition to the measures set out above) demonstrate "exceptional circumstances".  

The Guernsey position is however flexible as highlighted by the Guernsey Court of Appeal in Garnet Investments (Limited v BNP Paribas (Suisse) SA and Government of the Republic of Indonesia [2009-10] GLR 1 which provided that 'The more difficult question is to define precisely what is required for "exceptional circumstances" to be shown. And I do not think this court should attempt to do so. It is clear that the requirement makes the position in Guernsey different from the position in England and that this further hurdle must be satisfied if an injunction in a case such as the present is to be granted. It would be unwise, however, to seek to lay down restricting guidelines as to when such circumstances will exist. Each case will turn on its own facts'. 

In relation to what comprises 'exceptional circumstances' in this context, an applicant must, however, demonstrate that there is a real risk that the respondent may dissipate or hide assets before the claim is resolved, which could render any judgment against the respondent ineffectual.  In legal terms, exceptional circumstances may then include circumstances where i) the respondent is likely to dispose of, hide, or move assets, or that they have already taken steps to do so; ii) one can show fraudulent actions or dishonest conduct on the part of the respondent; iii) a risk of irreparable harm or loss to the applicant unless the freezing order is granted immediately; or iv) that the respondent's financial situation suggests they are insolvent.  

Proprietary Interest Claims and Proprietary Injunctions 

A freezing order may be sought in relation to assets to which an applicant has a proprietary claim. Where an applicant seeks a proprietary injunction, the Court will typically have regard to the approach formulated by the English Court in American Cyanamid Co v Ethicon Ltd [1975] AC 39619 and which was confirmed and followed in Polly Peck International Plc v Nadir [1992] EWCA Civ 320 (Polly Peck). 

Polly Peck confirmed that in deciding whether or not an interlocutory injunction should be granted (where a property claim is concerned):

• The applicant must show an arguable case[AC1.1][KS1.2];
• If an arguable case is shown, then the balance of convenience should be applied; and
• If the scale appears very evenly balanced it is then legitimate to take into account, the strength or weakness of the applicant's case.

Notably, in the context of a proprietary claim, the Royal Court does not have to consider whether there was a risk of dissipation. 

The balance of convenience test can be considered in three stages:

• will damages be an adequate remedy for the applicants if they succeed at trial;
• if damages would not be an adequate remedy, will the applicant's cross-undertaking in damages provide adequate protection for the respondent if the court were to grant interim injunctive relief which, following trial, proves to have been wrongly granted; and
• If there is doubt as to the adequacy of damages in applying the above tests, the court will consider the balance of convenience more generally. It will consider the particular factual circumstances in which the injunction is sought.

Non-proprietary interest claims and non-proprietary injunctions 

The principles established in American Cyanamid, which outline the approach for granting interlocutory injunctions, are not limited to proprietary claims but also apply to non-proprietary injunctions.  In such cases, the court will follow a structured framework to determine whether an interim injunction should be granted, even where the claim is not based on a proprietary right.

In the case of non-proprietary injunctions, the court will typically consider the following stages in accordance with the American Cyanamid test:

• can the applicant demonstrate that they have an arguable case [AC2.1][KS2.2](i.e. in the context of non-proprietary claims, this could involve issues such as breach of contract, tort, or statutory violations);
  
  
• whether damages would provide an adequate remedy if the applicant succeeds at trial (i.e. cases involving the infringement of intellectual property rights, reputational damage, or violations of restrictive covenants, damages may not sufficiently address the harm caused);
  
  
• if damages would not be an adequate remedy, the court will then consider the balance of convenience;
  
  
• if there is doubt about the adequacy of damages, the court will consider whether the cross-undertaking in damages offered by the applicant provides adequate protection for the respondent.  In non-proprietary claims, this is an important consideration as the court seeks to balance the rights and interests of both parties.
  
  
• if the court is still uncertain, it will assess the broader factual circumstances of the case to make a decision.

While the test under American Cyanamid originally focused on proprietary claims, its principles have been extended to non-proprietary claims, where the aim remains to prevent harm to the applicant while ensuring fairness to the respondent. The central tenet of this approach is the protection of the applicant’s rights or interests during the course of litigation, without prematurely deciding the substantive issues in dispute.

Mirror injunctions

In some cases, a 'mirror order' or 'mirror injunction' is needed.  These may be granted when a freezing injunction has been obtained in another jurisdiction and where a Guernsey freezing order will be ancillary to the primary order made in non-Guernsey proceedings. The Royal Court has jurisdiction to grant a mirror injunction where it is not anticipated that substantive proceedings will be issued in Guernsey. 

Return date

Where a freezing order is granted ex parte, the Court will set a date for a return hearing, where the respondent has an opportunity to contest the order.  At the return date, a respondent can seek to have an interim freezing order set aside or varied (see below).   

Disclosure orders

As part of an interim freezing injunction, the Court may require the respondent to provide information (i.e. a disclosure order).  Orders of this nature serve to compel a respondent to disclose information in relation to assets that they hold.  In Seed, the Court confirmed the position that "it is the disclosure order which gives teeth to the freezing order" and that the Court has the power to make ancillary disclosure orders when justice requires it, and before any return hearing. 

Disclosure orders can therefore help ensure an injunction's effectiveness.

After the Freezing Order – what's next?

Once a freezing order is granted, it must be served on the respondent and any relevant third parties.  In Guernsey, service is typically effected by H.M. Sergeant, an executive officer of the court.  If the respondent is outside of the jurisdiction, the Court will specify the method of service (having been satisfied to allow service outside the jurisdiction).   

The applicant should promptly notify third parties (e.g. banks) believed to be holding the respondent's assets so that they can take action to prevent unauthorised dealings. 

If the order was granted ex parte, the Court will set a date for a further hearing, where the respondent can contest the order.  The applicant will need to demonstrate that the injunction was properly granted, and the Court will decide whether to continue, modify, or discharge the order. The freezing order remains in force until varied or discharged by the Court.  It may remain in place for an extended period; however, the Court will be mindful to ensure that the respondent is not unfairly denied access to their assets for living expenses and for legal expenses. The applicant is otherwise required to continue to provide full and frank disclosure of relevant information, even if it is unfavourable to their case.  Failure to do so could result in the injunction being discharged.

Conclusion

In Guernsey, freezing injunctions are a vital tool for preventing the frustration of judgments in both domestic and international proceedings.  They can also help uncover the extent of a respondent's assets, supporting enforcement actions.  The Royal Court is committed to upholding Guernsey's status as a reputable international financial centre by ensuring that judgment debtors cannot hide their assets within its jurisdiction. 

Given the flexibility of the Royal Court, freezing injunctions are a powerful tool that can help applicants safeguard their interests.

We have acted on numerous injunctions in support of both foreign and domestic proceedings.  If you require guidance or assistance in relation to freezing injunctions in Guernsey, please get in touch with your usual Walkers contact or any of the contacts listed below.