Freezing Orders
Mareva Injunctions and Other Orders Restricting Disposal of Assets

In Hong Kong, the Court of First Instance has the power to grant injunctions to restrict dealings in or the disposal of assets in all cases in which it appears to the court that it is “just or convenient to do so”. Though these injunctions, known colloquially as freezing orders, can be given to support a judgment, they are often interlocutory in nature, meaning that they are given before final judgment. Interlocutory injunctions include proprietary injunctions as well as Mareva injunctions. Such injunctions can restrict a party to any proceedings in Hong Kong from removing assets from Hong Kong or otherwise dealing with assets within Hong Kong or, in some cases, from dealing with assets outside Hong Kong. Such injunctions can affect a party whether or not domiciled, resident or present in Hong Kong.

For plaintiffs claiming against a defendant through the Hong Kong Court of First Instance, interlocutory injunctions are frequently deployed as proceedings commence to prevent the defendant from dealing with assets which either the plaintiffs claim belong to him or which the plaintiff claims must be protected from dissipation so that assets remain against which any judgment which the plaintiff may ultimately win can be successfully enforced.

Procedure

A plaintiff may apply on an interlocutory basis to the Court of First Instance in Hong Kong for a freezing order on either an inter partes (meaning between the parties) or ex parte (meaning without a party) basis. He must normally commence his proceedings (i.e. issue the writ) before his application but, in cases of urgency, he may commence his proceedings at the same time as his application or on the condition that he commence such proceedings forthwith after his application.

Inter Partes Application

An inter partes application is an application in which the plaintiff issues and serves a summons on the defendant so that the defendant can appear at the hearing of the application. The key feature of the inter partes application is that both the plaintiff and the defendant can be heard by the court before the court decides whether to grant the freezing order. The ability of both the plaintiff and defendant to have a reasonable opportunity to be heard is fundamental to justice. As a result, in the absence of urgency or secrecy, the courts will invariably prefer an application to be heard on an inter partes basis.

Ex Parte Application

An ex parte application is an application in which the plaintiff issues the summons but does not serve it on the defendant in the usual way. Despite the absence of service, a plaintiff making an ex parte application may nonetheless provide notice of the hearing of the summons to the defendant. This type of application is known as an opposed ex parte application and may happen where the freezing order is sought on such an urgent basis that there is insufficient time to serve the defendant in the usual way but there is no need to hide the application from the defendant.

Ex parte applications without notice to the defendant will typically take place where the plaintiff believes there is a need for secrecy. This may happen in the case of a freezing order where there is reason to believe that if the defendant knew about the application for the injunction, they would take steps to dissipate the assets which are intended to be the subject of the injunction.

An application made on an ex parte basis must be made on the basis of the plaintiff providing full and frank disclosure. The requirement for full and frank disclosure means the plaintiff must put all material facts before the court and draw to the court’s attention all arguments which the defendant would be reasonably be expected to make. This is so even if those facts are adverse the plaintiff.

The requirement for full and frank disclosure is intended to offset the defendant’s absence from the hearing. In effect, because the defendant is not present to make his own case and to protect his own interests, the court expects the plaintiff to make it for him to the extent reasonably possible.

Basis for Freezing Orders

Because freezing orders impact the defendant’s freedom to use what are ostensibly his own assets, the courts require the plaintiff to demonstrate first that there is a serious issue to be tried. Assuming there is, the plaintiff must then demonstrate that the balance of convenience favours the granting of the freezing order. The court retains a discretion to determine in each case whether it is just and convenient to grant a freezing order.

Serious Issue to be Tried

The plaintiff must establish on affidavit evidence that there is a serious issue to be determined at trial; his claim must not be frivolous or vexatious. In this regard, the court is not seeking to make a final determination of the plaintiff’s claim. Such a determination is to be made at trial. Instead, the court is seeking to satisfy itself that there is sufficient merit to the plaintiff's claim.

While it is often stated that it is no part of the court’s function at this stage to try and resolve difficult questions of law or conflicts in the evidence, undoubtedly, the court will have regard to the strength of each parties’ competing factual claims based on the totality of the evidence to establish whether there is enough merit to give a freezing order pending the determination of the claim.

It is unnecessary for the plaintiff to show that he is likely to succeed. He need only show that his odds of him succeeding are not so low that the chance of him succeeding is unrealistic.

Balance of Convenience

Once the plaintiff establishes that there is a serious issue to be tried, the court then seeks to determine whether it can fairly preserve the status quo. In this regard, it will first assess whether damages would be an adequate remedy for the plaintiff if he were to succeed at trial. If the plaintiff can be adequately compensated by money at the end of the trial and the defendant would be able to pay such monetary compensation, there is no need for a freezing order to preserve the status quo.

If, however, the plaintiff cannot be adequately compensated by money at the end of the trial, the court will consider the effect on the defendant of preserving the status quo by a freezing order. Not infrequently, the plaintiff will seek to demonstrate that his judgment will be an empty one without a freezing order as no money will be available to satisfy his judgment. If the defendant can be adequately compensated by money at the end of the trial for the inconvenience and prejudice he suffers by reason of a freezing order and the plaintiff would be able to pay such monetary compensation, the court will favour maintaining the status quo through a freezing order.

As the courts look to see whether the defendant can be adequately compensated by damages, a plaintiff will need to demonstrate that he has sufficient financial assets to compensate the defendant if the freezing orders turns out to have been unwarranted. The court in fact may require the plaintiff to give an undertaking to pay damages as the court may direct to compensate the defendant if it turns out that the freezing order was ultimately unjustified. The court may further require the plaintiff to fortify this undertaking by giving security for the undertaking.

Where there is doubt as to the adequacy of damages payable by either the defendant to the plaintiff or vice-versa or both, the court then has to weigh the balance of convenience. For this purpose, the court will have regard to the totality of the case, including the relative strength of the plaintiff and defendant’s respective cases, with a view to adopting the path forward that results in the lowest risk of injustice.

Mareva Injunctions

In broad terms, freezing orders include both Marvea injunctions and proprietary injunctions. Proprietary injunctions are freezing orders over the specific assets (and their proceeds) which a plaintiff claims belong to him.

A Mareva injunction differs from a proprietary injunction most significantly in that the freezing order applies not to specific assets which the plaintiff claims belong to him but to the defendant’s assets over which the plaintiff has no claim except that such assets might satisfy any judgment which the plaintiff may ultimately obtain. A Mareva injunction restricts the defendant from dealing with his own assets simply to keep them available for enforcement of any possible future judgment judgment the plaintiff may secure.

A Mareva injunction may be ordered against a defendant who is outside the jurisdiction of the Hong Kong Court of First Instance. It may apply to assets of the defendant within Hong Kong and, where assets within Hong Kong are insufficient to satisfy the plaintiff’s claim, assets outside Hong Kong.

Because a Mareva injunction has the draconian effect of restricting a defendant from dealing in assets which belong to him and over which the plaintiff has no proprietary claim, the test for a Mareva injunction is higher than for a proprietary injunction.

Good Arguable Case

First, in determining what is just and convenient, the courts require the plaintiffs to shower a higher degree of merit in their claim. Thus, a plaintiff applying for a Mareva injunction must not only show a serious issue to be tried but a good arguable case. To establish a good arguable case, the plaintiff must show a case which is more than barely capable of serious argument. However, the plaintiff need not persuade the court that it is likely to win. The court need not believe the plaintiff has more than a 50% chance of winning.

The existence of a good arguable defence does not necessarily negate a good arguable case.

Real Risk of Dissipation of Assets

Secondly, the plaintiff must show that there is a real risk of the defendant dissipating his assets. In this regard, the court must be satisfied that the refusal of the Mareva injunction would risk a possible future judgment in favour of the plaintiff being unsatisfied not because the defendant lacks creditworthiness but because the defendant will remove or hide his assets.

The plaintiff needs more than a bare assertion. He must instead provide objective evidence from which it can be inferred that the defendant will move assets out of the reach of the court. However, he need not show the defendant has a nefarious intent. An inference that a defendant will dissipate assets may arise where the plaintiff can establish on the evidence that the defendant has shown a very low standard of commercial morality in his dealings with the plaintiff.

The plaintiff must show that any dissipation of assets is for the purpose of evading judgment. He cannot however, rely upon the defendant’s use of the assets in the normal course of his business or lifestyle as evidence of risk of dissipation.

A delay in pursuing the Mareva injunction may tend to undermine the argument of a risk of dissipation of assets.

Balance of Convenience

Where a plaintiff establishes both a good arguable case and a risk of the defendant dissipating his assets, the court then goes on to consider the Mareva injunction applying the balance of convenience test normally applicable for interlocutory injunctions.

Challenging Freezing Orders

Where, as is often the case, a freezing order is given on an ex parte basis, the court will set a return date at which the defendant will have an opportunity to challenge the freezing order on an inter partes basis. After the plaintiff serves the freezing order on the defendant, the defendant can then attend court on the return date to seek a discharge of the freezing order.

The court may discharge a freezing order where the defendant satisfies the court that there is no serious issue to be tried (or, in the case of a Mareva injunction, there is no good arguable case), the balance of convenience does not favour the continuation of the order or the order was given on the basis of non-disclosure of material information.

In this final regard, as noted above, in making an ex parte application, the plaintiff has a duty to make full and frank disclosure. This requires that the plaintiff to disclose all facts which are necessary for the judge to know before exercising his discretion. The plaintiff has a duty to make proper inquiries before making the application and to bring to the court any facts which may result from such inquiries.

The plaintiff should bring to the court’s attention any arguments that the defendant may reasonably be expected to make and that cannot be dismissed as without substance or importance.

Where the defendant shows that the plaintiff has failed to make full and frank disclosure, the court will normally discharge the freezing order. This is so even if the order is otherwise justified so as to deter others from breaching the duty of full and frank disclosure. However, the court reserves a discretion as to whether or not to discharge on the basis of deficient disclosure and may take into account whether the non-disclosure was innocent.