Guernsey freezing injunctions18 May 2017
The Royal Court of Guernsey has jurisdiction to grant freezing injunctions in support of domestic and international proceedings, both before and after judgment.
Traditionally the form of relief granted was an arrêt conservatoire, a customary law procedure for arresting goods which is now little-used but which nevertheless does retain some practical applications. For most purposes, particularly where the assets to be protected are intangible (cash balances, shares, financial instruments, etc.), freezing injunctions on the English Mareva model now represent the primary interim remedy in civil litigation.
Guernsey freezing injunctions operate in personam: i.e. as an order compelling the respondent to refrain from disposing of property which is punishable as contempt of court if it is disobeyed. They do not operate in rem so as to create any interests in the frozen property or to confer any priority on the applicant as a creditor.
Applications for Guernsey freezing injunctions are typically made in private in the first instance. In cases where there is an urgent need for relief, it is almost always possible to obtain a hearing before the appropriate judge within 24 hours. The paperwork which must be prepared in advance is an application notice with a draft form of the order sought; the evidence upon which the applicant relies (in affidavit form); and a skeleton argument.
The court will usually expect the order sought to follow the standard form for freezing injunctions prescribed by the English Civil Procedure Rules. Substantial deviations from this format must be brought to the attention of the judge and justified on the evidence.
Therefore, a Guernsey freezing injunction will typically:
- identify the parties and any specific property frozen;
- state whether it applies to property generally or just property within the jurisdiction;
- require written disclosure of the respondent’s assets (to be confirmed on affidavit);
- stipulate spending limits for the respondent while the injunction is in force; and
- provide exceptions for the rights of third parties (such as banks).
If it is necessary to serve the injunction on a respondent outside the jurisdiction, the order will also make provision for the appropriate mode of service. The injunction will also contain a "return date", or a date when there will be a further hearing to review the injunction and decide whether it should continue, which the respondent and any third parties who have been notified of the injunction have a right to attend. Finally, a Guernsey freezing injunction will contain a record of the undertakings provided to the court by the applicant, usually in a schedule to the order which must be signed by the applicant’s advocate. Important undertakings that the applicant will be expected to provide include:
- an undertaking to compensate the respondent if the court one day finds that the injunction should not have been granted;
- an undertaking to pay the costs incurred by any third parties in complying with the order; and
- an undertaking not to use any information acquired by virtue of the freezing injunction for any other proceedings without the specific permission of the court.
The court will often expect an applicant to fortify their undertakings by paying an appropriate sum of money into court by way of security.
The affidavits in support of the application will need to explain the background to the application and also deal with the legal tests for granting freezing injunctions in Guernsey. Those tests are that:
- the applicant must have a good arguable case against the respondent in substantive proceedings either in Guernsey or elsewhere;
- it must be likely that there are assets in the jurisdiction; and
- it must be "just and convenient" for a freezing order to be made.
Where the substantive proceedings to be protected by the freezing injunction are not to take place in Guernsey, there is an additional statutory test of "exceptional circumstances". The Guernsey Court of Appeal has interpreted this test to mean that the judge must exercise caution before making freezing injunctions in Guernsey in support of proceedings in other jurisdictions. Nevertheless, such injunctions are regularly obtained and indeed commonplace, as one would expect in an international financial services jurisdiction.
The court will expect to find the justifications for any deviation from the usual form of a freezing order to be set out in the affidavit evidence. The applicant also has a duty of full and frank disclosure, which means that all material information within the applicant’s knowledge must be put before the court, even if it is unhelpful or harmful to the applicant’s case. Failure to comply with this obligation is a potential ground of challenge to a freezing injunction and can lead to a freezing injunction being discharged.
After the freezing order is made, it must be served on the respondent. If the respondent is present in Guernsey, this will be carried out by H.M. Sergeant, an executive officer of the court. If the respondent is not within the jurisdiction, the order must be served in the manner authorized by the court. The respondent must also be given a copy of all the documents which have been placed before the court and a note of what was said at the hearing. All hearings are recorded and CD recordings can be obtained very quickly, subject to the judge’s permission and restrictions on disclosure to non-parties.
Similarly, the order should be notified immediately to any third parties who are believed to be holding assets, such as banks, so that they can take the necessary steps to prevent unauthorized dealings with those assets. This is typically done by hand delivery of a copy of the order, or by sending a copy by email or fax. These methods are commonly used for reasons of expediency but, as there are no specific rules which govern notification to third parties, other methods are possible too.
The freezing order will remain in force until it is discharged or varied by the court. In addition, although this is less frequent in practice, the freezing order will cease to have effect automatically if the respondent pays a stipulated sum of money (usually, the full value of the applicant’s claim) into court. For so long as the order is in force, however, the respondent will need to comply with any requirements for disclosure of assets and spending limits, as expressed in the order. Typically, the order will provide that the respondent is permitted to spend reasonable sums on legal advice and representation, and up to a stipulated amount (which should be discussed with the judge at the time of the original application) on living expenses, without the need for permission but subject to telling the applicant where the money is to come from. It is also usual for the order to provide that it does not prevent the respondent from dealing with their assets in the ordinary course of business. However, where the applicant is asserting a proprietary claim to specific assets (such as where there is an allegation that identified property has been misappropriated and actually belongs to the applicant), it is possible to obtain a "proprietary" freezing injunction which will freeze the identified property completely, pending the outcome of the legal claim as to its true ownership.