An offshore perspective: freezing injunctions in matrimonial cases

An original version of this article was first published by ThoughtLeaders4 HNW Divorce Magazine, November 2024

Divorce and financial remedy proceedings are frequently characterised by a lack of trust between parties. Warring spouses may try various tactics to put assets beyond their spouse's reach during proceedings or following judgment. This can include using existing offshore structures or accounts or setting these up specifically to move assets offshore. It is important to be aware that steps can be taken to stop illegitimate movement of assets by parties, including from offshore jurisdictions.

The offshore jurisdictions we work in – Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey and Jersey (which we will refer to in this article as the "Offshore Jurisdictions") – are self-governing, with their own governments, legal systems and laws. These offshore jurisdictions are highly regulated and guided by the principle of comity. Where there is concern that a party is improperly seeking to dispose of assets or put them beyond the reach of the parties' home courts via the use of an offshore structure or account, it is prudent to seek early advice in the relevant jurisdiction to understand what action can be taken to secure the relevant assets. Complex financial remedy proceedings can be lengthy and there can be significant value in ensuring that assets are preserved to meet a spouse's claims.

The purpose of this article is to give any onshore practitioners who are not already familiar with the procedure associated with seeking a freezing order in the Offshore Jurisdictions a practical insight into the approach taken by the courts to the granting of freezing injunctions in matrimonial cases.

When will a freezing injunction be granted?

Freezing orders can be granted in the Offshore Jurisdictions in relation to proceedings that have (or will be) commenced in the respective jurisdiction, or in support of proceedings in foreign jurisdictions. Freezing injunctions can have worldwide effect and prohibit the defendant from dealing with their assets in any jurisdiction. An application for a freezing order may be made before or at any stage after the commencement of proceedings (including after judgment).

The applicable test taken in the Offshore Jurisdictions mirrors that in England and Wales. The applicant must have a good arguable case in the substantive proceedings in support of which the order is sought, and it must be just and convenient to grant the injunction. It must be shown that a freezing injunction is needed to prevent asset dissipation, and the risk that assets will be dissipated must involve more than merely the fact that the defendant resides outside of the jurisdiction. The greater the delay in bringing the application, the more difficult it will be to satisfy the Court that there is a risk of dissipation. It is therefore important that advice is sought in the relevant foreign jurisdiction as quickly as possible.

Practical issues to consider

Where a freezing order is sought in respect of assets or monies held by the defendant in an offshore financial institution (such as a bank or trust company), it may be prudent to cite the relevant institution in the application. It is also usual to seek a disclosure order from the institution as part of the application. The Offshore Jurisdictions are international financial centres and financial institutions in these jurisdictions are well-versed in being cited in such applications. In our experience financial institutions understand that they are innocent parties caught up inadvertently in the proceedings and are bound to comply with the relevant court order. Once the financial institution has been served with an injunction, it will be bound by its terms and will be in contempt of court should it deal with the defendant's assets, or allow the defendant to deal with the assets, in a way that is inconsistent to the terms of the injunction. A bank's contractual duty to its client is overridden by the injunction.

Complexities can also arise if the freezing injunction concerns assets held through a trust, in which case it is necessary to consider which legal entities or individuals should be the respondents to the application.

A freezing injunction will ordinarily not prevent the defendant from using the relevant monies to pay their reasonable living or ordinary business expenses and legal fees, unless they have alternative funds available upon which to draw for this purpose.

The applicant must give an undertaking in damages as a condition of the injunction, whereby the applicant undertakes to pay damages to the defendant if the injunction is found to have been wrongly granted. This is often referred to as the ‘price’ of obtaining a freezing injunction and, given the large sums commonly involved, this undertaking can require fortification by the provision of some form of security, such as a payment into court or a bank guarantee.

Even if all of these requirements are satisfied, the court has a discretion whether or not to grant a freezing injunction and will only make the order if it considers it just and convenient to do so.

Due to the fear that, if they have notice of the application, the defendant will take steps to remove assets from the jurisdiction and put them beyond the reach of the court, it is usual for applications to be made on an ex parte without notice basis, to avoid any risk of the defendant being tipped off before the injunction has been granted. The applicant must make full and frank disclosure of all facts and matters which it is material for the judge to know.

If the injunction is granted, the defendant will have the opportunity to seek to overturn the injunction at a return date hearing, typically held a few weeks after the ex parte hearing. Common grounds for seeking to overturn the injunction include the defendant asserting that there is no risk of dissipation of the relevant assets, attacking the applicant for failing to disclose all material facts to the Court or questioning the applicant's ability to meet the cross-undertaking in damages.

Applications for freezing orders require careful and strategic consideration, whilst simultaneously moving forward with the requisite urgency to ensure that assets are not dissipated in the meantime. The importance of seeking sensible, expert legal advice as soon as possible cannot be overstated.