TO FREEZE OR NOT TO FREEZE?

With the temperatures forecast to reach a yearly high next week, I thought it appropriate to discuss the guidance given by Mostyn J on freezing orders.

The Dilemma

It is not infrequent for a client to inform you in the initial meeting that they suspect there Husband (sorry chaps, it usually is!) may dispose of assets. Downloading official copies of the register of property titles at HM Land Registry is often the starting point. Unavoidable questions arise from this step: Is he taking steps to shift the asset? What are his intentions? Is this the principle asset of the marriage? What is the extent of the other assets available?

The client will be searching for advice as to how she can safeguard and preserve assets held by the Husband. Sometimes, in retaliation to the acrimony of the separation, there is a cynical and underlying reason to seek to freeze assets. A practitioner has to be alive to this. In addition the law in this area requires a matrimonial solicitor to often provide very robust advice.

Aside from the Former Matrimonial Home the Land Registry provides little security as, to register a notice against a property (other than the FMH), requires a ‘pending land action’. In the context of financial remedy proceedings a ‘pending land action’ will be satisfied by the filing of a formal application to the Court (although the prayer in the divorce may suffice in certain circumstances). Nowadays parties are discouraged from launching into proceedings and are generally required to attend mediation beforehand. But will this be too late? The client wants to act now what does one do? If the asset is shifted who is going to pick up the tab?

Any practitioner will tell you that such draconian steps as freezing assets should be exercised with extreme caution.

The Law

The law in this area is enshrined in s.37 of the Matrimonial Causes Act 1973. On a simplistic level the act gives the court the power to restrain or set aside a disposition where it is satisfied the intention is to defeat the claims of the other party and that it would have the effect of defeating that party’s claims for financial relief.

It is important, at a very early stage, to draw a distinction between an actual intention and whether the client is seeking an order as a precautionary measure. It has been made clear by case law that the act should be reserved for the most serious conduct. The Court has developed a concept of reserving the provisions in the act for cases with a “wanton” element. The client should also be made aware that should they seek an order to freeze assets that they will inevitably be required to give an undertaking to the Court to indemnify the other party for any loss arising from such an Order wrongfully obtained. The stakes are therefore very high. The true intentions, of not only the other party, but also the client, need to be investigated thoroughly.

It is sometimes tempting for a party to seek orders as they can usually be obtained relatively easily without notice to the other party. I almost alway, however, strongly counsel against this approach. One must avoid this temptation in cases which do not, on the face of it, give rise to a critical need for an Order under this part to be made. These principles have been encompassed into the guidance by Mostyn J in the case below.

UL v BK (Freezing Orders: Safeguards: Standard Examples

As an esteemed family law barrister Mostyn J has now provided useful guidance to family law practitioners on countless occasions since being elevated to the judiciary as a full time High Court Judge.

In this particular case the guidance given by Justice Mostyn has been approved by the President of the Family Division. During the course of his judgment Mostyn J stated:

·        "Freezing and search orders are almost invariably made ex parte and, as such, are a violation of the elementary rule of natural justice…” (emphasis added)

·        "The unilateral step taken at the beginning of case echoes down its history. Often the respondent is enraged by the step taken against him and looks to take counter-offensive measures. Every single subsequent step is coloured by that fateful first step. Costs tend to mount exponentially. And even after the lawyers close their files and render their final bills the personal relations of the spouses will likely remain forever soured. A nuclear winter often ensues.”

·        Whether the application is made under the 1981 Act or the 1973 Act the applicant must show, by reference to clear evidence, an unjustified dealing with assets (which would include threats) by the respondent giving rise to the conclusion that there is a solid risk of dissipation of assets to the applicant's prejudice. Such an unjustified dealing will normally give rise to the inference that it is done with the intention to defeat the applicant's claim (and such an intention is presumed in the case of an application under the 1973 Act) (emphasis added).

·        The evidence in support of the application must depose to clear facts. The sources of information and belief must be clearly set out.

·        Where the application for a freezing order is made ex parte the applicant has to show that the matter is one of exceptional urgency. Short informal notice must be given to the respondent unless it is essential that he is not made aware of the application. No notice at all would only be justified where there is powerful evidence that the giving of any notice would likely lead the respondent to take steps to defeat the purpose of the injunction, or where there is literally no time to give any notice before the order is required to prevent the threatened wrongful act. Cases where no notice at all can be justified are very rare indeed…(emphasis added).

·        Where no notice, or short informal notice, is given the safeguards assume critical importance. The safeguards are set out in the standard examples for freezing and search orders. If an applicant seeks to dis-apply any safeguard the court must be made unambiguously aware of this and the departure must be clearly justified. The giving of an undertaking in damages, whether to the respondent or to an affected third party, is an almost invariable requirement; release of this must be clearly justified." (emphasis added).

Conclusion

Some critics will say that Mr Justice Mostyn has always been a strong opponent of freezing orders (and even more averse to ex parte orders). However, the guidance has been endorsed by the President and, in my view, clarifies the trend in this area of law and properly amplifies the intentions of Parliament.

Proper instructions and clear advice need to be taken and given very early on to ensure that freeze orders are properly obtained. Otherwise the costs consequences can be very severe indeed.