Exclusion clauses can be found within freezing orders – but to what extent will the courts permit them? The expert commercial lawyers at top Bahamas law firm ParrisWhittaker have many years’ experience advising clients on freezing orders and asset protection.
In an important case1, the UK’s appeal court issued a ruling that involved an exclusion clause in the context of freezing orders. This ruling has important persuasive authority on the courts in The Bahamas.
What is a freezing order?
Freezing orders (also called freezing injunctions) are court orders preventing someone from disposing of assets. Most commonly, they are used as a tool used to preserve assets until a judgement debt is satisfied. Freezing orders can be secured in the course of commercial litigation, and other forms of litigation (including family proceedings, as in this case).
A freezing order can contain exclusion or exception clauses. For instance, the injunction may set out exceptions allowing the respondent to deal with certain assets or relating to expenditure necessary in the ordinary and proper course of business.
What’s the background?
This recent case involved exclusions within a freezing injunction imposed by the court. The court had discharged a freezing order which had the effect of prohibiting the husband (H) and others – including companies under H’s control – from disposing of or charging four vessels and the proceeds of sale in respect of a fifth vessel.
While the order was in force, H was still able to operate his business as usual. W asked the appeal court to reinstate the freezing order. Her case was that she had a beneficial interest in the vessels, even though H was their legal owner.
However, at the time of her appeal – H argued that he and his companies were the beneficial owners, and that there was an urgent need to sell a vessel to cover costs – otherwise his business was at risk.
Exclusion clause
The appeal court allowed the wife’s appeal and reinstated the freezing order. However, it allowed an exceptions clause to the effect that H could dispose of one of the vessels (or charge the vessels as security for a loan to the value of the most valuable ship) provided that the net proceeds were used to pay the running costs of the remaining vessels and to carry out necessary repairs and maintenance.
H was also ordered to keep proper records of expenditure – which should be made available to the wife’s solicitors.
What does this mean?
The court’s approach to exclusion or exception clauses in the context of freezing orders can be categorised as fair and equitable. This case illustrates the balancing act between protecting assets from disposal to defeat a judgement, and protecting the genuine business needs of a respondent.
Importantly, the court made clear that a freezing order is not a means of providing the applicant with security for their claim, but only to prevent the dissipation of assets outside of the ordinary course of business in a way which would render any future judgement unenforceable.
How we can help?
Our commercial dispute resolution lawyers at ParrisWhittaker are experts in freezing orders and other forms of injunctions. For specialist and robust advice and prompt action, get in touch!
