Asset Freezing Can be Costly
Asset freezing injunctions can be a crucial tool in commercial litigation – but applying for them is not for the faint-hearted. If a freezing order is granted, it can be cataclysmic for the owner of the asset, as it prevents them (in effect) from using the asset until it is lifted. Freezing orders are granted only when it is the most reasonable way of protecting someone involved in litigation from the possibility that the assets will be dissipated, which would make winning their legal argument fruitless. If an asset is subsequently 'unfrozen', the owner may then claim damages for the losses occasioned by the original freezing order. In one case, a group of shipping companies that obtained such an order in support of a claim that was subsequently rejected by a judge was ordered to pay almost $60 million.
The group had sued the owners of another shipping fleet for more than $577 million in damages on the basis that assets had been dishonestly diverted and that various transactions had been infected by bribery and corruption. However, following a 76-day trial of the action in London, the group's claim was dismissed by a judge who made damning findings about the honesty and credibility of both sides.
Prior to the trial, the group had obtained an injunction that froze the owners' assets worldwide pending the resolution of its claim. The group gave the usual undertaking that it would pay damages if it subsequently turned out that the injunction had been wrongly granted. The injunction was only lifted when the owners agreed to put up very substantial financial security.
After the owners took action to hold the group to the terms of its undertaking, the group was ordered to pay $59.8 million in damages, plus interest of $11.04 million. The injunction had prevented the owners from investing in the purchase and sale of newly built ships and the award reflected their losses arising from the injunction and their provision of security. The facts of the case emerged as the Court of Appeal dismissed the group's challenge to the award.