On the breakdown of a marriage or civil partnership, a freezing order can be made to prevent one party from disposing of assets before the financial issues have been resolved in order to reduce what the other party might receive as a settlement.
There are two ways in which the Court can prevent this and stop the spouse from dealing with assets until the other party’s claim for financial provision has been resolved.
Section 37 of the Matrimonial Causes Act 1973 gives the Court power to make an Order in matrimonial proceedings restraining a party to those proceedings from disposing of any assets which may be the subject of a claim in the proceedings. The Section is designed specifically to avoid transactions intended to prevent or reduce a proper financial settlement.
The Court will not, however, make an Order unless it is satisfied on balance that:
• The other spouse is about to deal with the asset concerned
• The effect of the proposed dealing would be to defeat or reduce the other spouse’s claim, or enforcement of an existing Order
• The purpose of the disposal is to defeat or reduce the financial provision for the other party.
The Court will consider each case on its own particular facts. No distinction is drawn between different types of assets, and a Section 37 Injunction can, therefore, be obtained in a variety of different circumstances, such as where a party is proposing to transfer monies from a bank account to a third party, or where one party is proposing to sell or transfer commercial or residential premises.
For the purposes of these Injunctions, it does not matter whether one or both parties have an interest in the asset concerned. The Court has very wide powers and can make an Order in respect of an asset wherever it is situated, whether in this country or abroad. However, if the asset is situated outside England and Wales, a Court might refuse to make an Order where the Order would be unenforceable. The power is also available to the Court where a spouse is about to transfer an asset out of the jurisdiction. Usually, Orders dealing with assets abroad are dealt with by the High Court rather than by the usual County Court.
Before an application can be made for an Injunction to restrain the dealing with an asset, an application for financial provision must be issued. This in itself means that there must be divorce proceedings. If a general financial application has not been made and the need for an Injunction is urgent, the general financial application can be issued at the same time as the application for the Injunction or the Court may accept an undertaking that the financial application will be issued within a specified period.
It is often necessary to make an application for an Injunction of this type ‘without notice’ to your spouse for obvious reasons.
The Court will grant an Injunction where notice has not been given to the other spouse, but will have regard to a number of guidelines and requirements.
• When an application is made without giving the other party notice, there is a high duty to disclose to the Court all of the relevant circumstances. If this is not done, or the position is misrepresented to the Court, the Court is unlikely to grant the Injunction even if the Applicant has a good case.
• If the Court grants an Injunction without the other party being given notice, there will always be a subsequent Hearing for the Respondent to put their case with their own evidence and representations. He/she will be entitled to see all the information and evidence which was put before the Court at the first Hearing.
• The Court will require the Applicant to serve the application, any sworn statements and Orders and notice of the subsequent hearing upon the Respondent within a set period of time. There will be an obligation to provide the Respondent with the information and documentation upon which the Without Notice Injunction was granted. The Respondent to an Injunction granted on a ‘without notice’ basis is entitled to be given information about what happened at the first hearing and to be told what evidence and documents were lodged with the Court before or during the hearing, and what legal authorities were given to the Court.
• An Injunction granted on a ‘without notice’ basis must contain a provision allowing the Respondent to apply to the Court for the Injunction to be discharged.
Setting Aside Asset Disposals
As well as granting Injunctions to prevent the disposal of assets, the Court also has the power to set aside a disposal which has been made by one party. An Order will however only be granted if the Court is satisfied that:
• the disposal was made with the intention of defeating the other party’s claim for financial provision;
• the disposal was made within three years prior to an application being made to the Court for the disposal to be set aside;
• If the disposal is not set aside, the other party’s claim for general financial relief would be defeated.
If all of the above can be shown, the Court will assume that the disposal was made with the intention of defeating the other party’s claim. The onus would then be on the party who made the disposal to satisfy the Court that the disposal was not made with that intention.
There are restrictions on the circumstances in which the Court can make an Order setting aside a disposal. In particular, if a party disposes of an asset for valuable consideration (e.g. a property is sold at market value) to someone who is acting in good faith and who is unaware of the intention of the person disposing of the asset to defeat the other party’s financial claim, then the Court will not make an Order.
General Power of the Court
Occasionally, the Court is prepared to consider making an Injunction to freeze assets, even if the precise requirements of Section 37 cannot be fulfilled, but by invoking the general jurisdiction of the Court.
Whilst Section 37 applications can be dealt with by a District Judge, an application under the inherent general jurisdiction of the Court can only be dealt with by a Circuit Judge or High Court Judge. These Orders are known as ‘Shipman’ Orders, after the leading case which decided that they were available – Shipman v Shipman, reported in 1991.
The test is whether the balance of convenience favours the freezing of assets. The legislative authorities are the Supreme Court Act 1981 Section 37 (1) and the Civil Procedure Act 1997 Rules 7 and 24. Such Orders are very similar to those which are available in civil proceedings for a similar purpose.
The Applicant for such an Injunction has to be aware that the Court may require an undertaking from him or her to compensate the person whose assets are frozen, if subsequently it transpires the freezing should not have taken place or there has been a knock-on effect which requires compensation.
If an application of this type is made without notice, then the Applicant has to give full disclosure of any facts which might indicate to the Court that an Order should not be made. If not, the person is not only at risk of failing to have the Order confirmed at the subsequent Hearing between the parties, but will also be at risk of paying the other party’s legal costs, and damages to redress their losses.
An application for an Order under Section 37 MCA is made as part of the application for ancillary relief and must usually be supported by an affidavit.
In most cases the application is made without notice to the other side for obvious reasons. As a consequence of the other side not having the opportunity to respond to the application before an Order is made, it is usual for the Court to require the Applicant to give undertakings as to service of the application and Order made on the Respondent as soon as practicable. Undertakings to pay any costs incurred should the application be found not justified are also likely to be required.
The supporting statement should contain the name and number of the case and set out in numbered paragraphs the facts relied upon to show the need for a Freezing Order. In particular it should:
• set out with clarity the particular asset which it is intended to protect;
• set out the evidence relied upon to prove that the other party is seeking to deal, dissipate or deplete the same or remove it from the jurisdiction;
• state to what extent the person making the application will be prejudiced by such dealings.