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Freezing orders with bite: Commercial Court hands down two-year custodial sentence for contempt of court

  • United Kingdom
  • Commercial litigation
  • Litigation and dispute management

10-06-2021

1.   A freezing injunction is a powerful interim remedy that in the right cases can be deployed by victims of civil fraud to assist their efforts to recover their losses.  In a recent judgment, the Commercial Court has demonstrated that repeated and serious breaches of a freezing injunction (endorsed with a penal notice) can be punished with an immediate custodial sentence.

2.   Freezing injunctions are an important (and often critical) tool available to victims of civil fraud and can be sought in order to restrain an alleged fraudster from dealing with or disposing of some or all of its assets until a judgment has been obtained.

3.   An important feature of a freezing injunction is that it may be served on both the respondent (i.e. the alleged fraudster) and relevant third parties, for example a bank with which the respondent holds an account.  Once the bank is on notice of the freezing injunction, it will usually take steps to freeze any funds held in the respondent’s bank account in accordance with the terms of the injunction.  Furthermore, ancillary disclosure orders can (and usually are) sought alongside a freezing order, for example to require the respondent to disclose details of its assets or the way in which funds have been disbursed.  Such orders are often critical to unpicking the fraudulent activities.

4.   Although a claim for civil fraud is distinct from criminal proceedings, the standard form freezing order wording as set out at CPR PD25A (or, if the proceedings are brought in the Commercial Court, in the Commercial Court Guide) includes a penal notice endorsement.  If the Court endorses a freezing injunction with a penal notice, a respondent (or a third party) that breaches the order may be in contempt of court and could face a fine, seizure of assets, or imprisonment.  A recent decision of the Commercial Court has highlighted that this is not a theoretical outcome.

5.   The judgment in XL Insurance Company SE v IPORS Underwriting Ltd, Paul Alan Corcoran & Others [2021] EWHC 1407 (Comm) should act as a stark reminder of the effect of a freezing injunction.  In this decision, Mrs Justice Cockerill DBE confirmed that those in serious breach of a freezing or proprietary injunction may face the possibility of a custodial sentence.  The Court imposed an immediate maximum custodial sentence of two years against an individual defendant for contempt of court in relation to multiple and persistent breaches of a freezing/proprietary order, including (i) failure to provide disclosure of assets by way of an affidavit; and (ii) dissipating assets from two bank accounts in direct contravention of the freezing injunctions, one of which he had failed to disclose to the claimant and one of which he had opened after the injunctions had been imposed.  As the defendant was not present for the proceedings, could not be located, and had in fact not formally participated in the proceedings for around four years, the Judge sentenced the defendant in absentia and confirmed that the Court would issue a warrant for his arrest.

6.   This judgment makes clear that the Court is prepared to impose strict criminal sentences in respect of serious and continued breaches of freezing injunctions, and further confirms their status as an extremely powerful tool to assist victims of fraud to recover losses.