Introduction

The freezing injunction is an exceptional remedy and must be considered to be the law’s nuclear weapon in the war on the fraudster.

Its effect is to freeze bank accounts and prevent the disposal of property, like houses etc. An order can be obtained within a day and paralyse the fraudster. In the high yield investment scam scenario (HYIP), this weapon is vital in preventing asset dissipation.

The stultifying and oppressive effect that an injunction can have on a person’s ability to carry on his normal business activities means that a court will not grant the order lightly and a claimant must show exceptional circumstances. Evidence of HYIP will usually satisfy this requirement.

Secrecy and speed

Secrecy and speed are the two essential elements in an application for a freezing order and the claimant must satisfy the court on two points:-

He must show a good arguable case. This is not usually a problem with fraud and HYIP.

It is necessary to show that if the injunction is not granted there is a real risk that the defendant will dispose of his property to avoid enforcement of any judgment subsequently obtained.
Since the application is made without giving notice to the defendant, the claimant is obliged to give full disclosure of all the relevant facts, both for and against his case. This includes facts discovered after the making of the freezing order. The claimant must show that the defendant has property in the jurisdiction and that he may take steps to deal with his property to hinder the enforcement of a judgment.

Dishonesty in dealings

Effectively it is necessary to show dishonesty in his dealings with the claimant, or other creditors, again not usually a problem with a fraudster and HYIP. Debt dodging and associated evidence of ‘underhanded’ practises will all go to satisfy this limb. In relation to foreign defendants, the difficulty in enforcing a judgment in that country, and evidence of a bad trading reputation, are factors the court will take into account when considering the application.

The freezing order will require the HYIP defendant to make a full and frank disclosure of his assets. If the allegations amount to what would be a criminal offence, it can be argued that under the privilege against self-incrimination he can refuse to disclose information about his assets. However, in cases involving fraud and conspiracy to defraud, it seems that current legal thinking is that the right is lost if the prosecuting authorities promise not to use the information in any subsequent prosecution.

Banks’ involvement

Once the freezing order is obtained, third parties, like banks, that have possession and control of the defendant’s property, are told that the order has been made. If they deal with the property in contravention of the order they could find themselves in contempt of court. The third parties are usually financial institutions and have dealt with freezing orders before. The asset is ‘frozen’ pending a further order of the court, often this will be the judgment order following a trial and occasionally the court will order judgment without trial if, for instance, the fraudster does not actively defend the action. A properly obtained freezing order is often dispositive of the case, as any fraudster is unlikely to relish defending himself at a trial.

The role of investigators

Early instructions to investigators to establish the amount and location of the defendant’s assets as well as a thorough investigation of the facts at an early stage are important. This is key to ensuring that the freezing order will bite on known assets and prevent dissipation.

Worldwide freezing orders

The fact that the defendant’s property, or the main action are outside the UK jurisdiction, does not prevent the court from acting and a ‘world-wide’ freezing injunction can be granted. Exceptionally, the court can grant an injunction in relation to a defendant’s property outside the UK jurisdiction.

In order to do so the court requires: -

that a large amount of money is involved; (usually millions in the case of HYIP is sufficient)

that there is insufficient property within the jurisdiction; and

that the risk that property might be concealed must be exceptionally high. (again involvement in HYIP and its reputation will usually fulfil this criteria. See the ICC’s “Preventing Financial Instrument Fraud”. We would refer to this publication and the many warnings provided by the authorities to establish “high risk” in relation to the facts.

Enforceability Worldwide

The enforceability of any order is a factor in relation to worldwide freezing injunctions. The English courts can grant an injunction where the main action is in another jurisdiction, subject to the foreign courts recognising the order made in the English court. The enforcement is easier in EU countries and signatories to the Lugano Convention.

Undertakings for damages

In addition to the relatively high burden of proof, the claimant must give various undertakings or promises to the court. The main ones are to pay damages to the defendant if the court decides that compensation must be paid to him and to provide a written bank guarantee for a fixed sum of money to satisfy any awards made. Again in the case of HYIP fraud the chances are very low that compensation will awarded but this is part of the Court’s balancing act for providing such a radical and powerful remedy. The requirements for undertakings reduce the possibility of abuse of this strong remedy by overzealous claimants.

Final remarks

The freezing order was almost designed for the protection of victims of HYIP. However, a claimant should not embark on the freezing order procedure without careful advice from their Solicitors. The effect of a freezing order can devastate the HYIP fraudster’s plans, secretly and rapidly, recovering otherwise lost funds and assets, and providing restitution for the victim.

Paul Roberts Solicitors is a law firm based in the heart of the City of London, specialising in civil litigation, specialist debt recovery including freezing/ seizure orders and high level insurance cases. This niche firm includes 2 judges, and lawyers qualified in Australia and New York as well as the UK. For confidential advice contact us at lawyer@prlaw.net .

We shall shortly be posting an article here on the other nuclear weapon of the Courts, Seizure orders, in relation to HYIP.

Disclaimer:

This Article is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here, please contact lawyer@prlaw.net.

© Paul Roberts Solicitors All Rights Reserved 2006