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Purpose
The object of a Freezing injunction is to prevent the frustration of a monetary judgment by preventing the dissipation or removal of the judgment debtor’s assets (“judgment proofing”).
A Freezing injunction does not effect seizure of an asset. It restrains a judgment debtor from dealing with an asset in certain ways. Freezing injunctions act in personam against judgment debtors, not in rem against their assets. It does not confer any property rights.
In order to be effective, a Freezing injunction is normally sought on a without notice basis and is subject to the normal restrictions pertaining to without notice injunctions.
Jurisdiction
In New Zealand jurisdiction for the Freezing injunction comes from section 16 of the Judicature Act 1908 and High Court Rule 32.2, which expressly empowers the High Court to grant Freezing injunctions.
Requirements
There are two preconditions to the granting of a Freezing injunction, being:
- The applicant must prove that it has a strong arguable case; and
- There is a real risk that assets will be removed from the Court’s jurisdiction or dissipated.
Freezing injunctions can be harsh and oppressive. Therefore, the Courts have imposed safeguards to protect respondents. It has become accepted practice that a Freezing order will set a maximum sum above which respondent may not deal with their assets.
It is also established practice that any application for a Freezing injunction should leave the respondent with the ability to meet reasonable living expenses. When applying for an interlocutory injunction the applicant must give an undertaking in damages to the judgment debtor. High Court Rule 32.2(5) makes explicit the extension of this practice to a Freezing injunction. As with other interim injunction situations, the undertaking must be one with substance. It must represent a real protection to the other party in the event of the Freezing injunction being wrongly issued.
Assets
The term “assets” is not to be given a restricted meaning. The judgment creditor need not specifically identify particular assets. If, however, the judgment creditor is aware of the existence of specific assets they should be referred to with as much particularity as possible. This enables third parties to whom notice of the injunction is given to identify them and comply with the terms of the order.
If the judgment debtor is about to pay a genuine pre-existing debt which will leave insufficient assets to satisfy the judgment creditor’s claim, an injunction is unlikely, especially if the debt is a consequence of the relationship between the judgment debtor and the judgment creditor. Such an injunction would give preference over existing creditors to judgment creditors who had not yet established their own claim.
Dissipation or removal of assets
The judgment creditor must show the judgment debtor’s ability to dissipate assets or a refusal to undertake not to dissipate assets. Similarly, the judgment debtor’s refusal to disclose the extent of his or her New Zealand assets can be a vital consideration in the Court’s decision. The applicant’s affidavit must present evidence which in all the circumstances shows risk.
Duty of disclosure
When applying for a Freezing injunction the applicant has a duty to disclose all material facts and to act with absolute good faith. All possible defences must be given to the Court. The disclosure requirements may also include the need for counsel to file a memorandum in support of a without notice application where the issues which the Court must consider before it can properly grant an application are not clearly apparent.
Third parties
Another requirement of a Freezing injunction is that the application must identify any person who is not a party to the proceeding who would be adversely affected by the granting of the injunction. Third parties may include financial institutions or joint owners of a property.
A Freezing injunction can be granted against third parties’ assets if there is some established link between those assets and the judgment creditor. Third parties who are detrimentally affected have the right to apply to the Court to have the injunction varied so as to make it less onerous or in extreme cases to have the injunction itself discharged.
Breach of Order
A breach of a Freezing injunction is a contempt of Court. A third party who, knowing of the injunction, helps the judgment debtor to dispose of his or her assets is also guilty of a contempt of Court.
Chris has appeared in support of six freezing orders since 2005.
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