Podcast S2E2 | Dispute Resolution: Freezing Orders and Anton Pillers

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Podcast S2E2 | Dispute Resolution: Freezing Orders and Anton Pillers

Podcast S2E2 | Dispute Resolution: Freezing Orders and Anton Pillers 1600 583 Jonathan Gray
Reading Time: 14 minutes

Jonathan Gray and Matthew Love discuss the topic of freezing orders and Anton Pillers in Hong Kong. They highlight key considerations and pitfalls when applying for such orders.

SHOW NOTES

00:53 Freezing Orders
03:53 Applying for a freezing order
09:10 Requirements
15:03 Chabra Injunctions
17:04 Anton Piller Orders
19:38 Requirements to obtain an Anton Piller


TRANSCRIPT

00:02 Welcome to a new series of The HIP Talks podcast: a collection of discussions on legal topics hosted by Hugill & Ip Solicitors. We provide high quality legal services with integrity, professionalism and respect for our clients and the community. Our solicitors have achieved outstanding results and recognitions in the areas of Dispute Resolution – Corporate & Commercial – Private Client, Probate and Trust – Family – Employment – Business Immigration and Data Privacy.

Matthew Love  00:32
Hi, everyone, thanks for joining us today. My name is Matthew love. I’m part of the team at Hugill & Ip Solicitors and joined today by one of our partners, Jonathan Gray. And on today’s episode, we’re going to be discussing injunctions, freezing orders and Anton Pillers. So let’s get started. Jonathan, how are you?

Jonathan Gray  00:51
Very well, thank you. Good morning, Matthew.

General  00:53
Morning. So let’s just get things going here. Let’s start with an easy one. What are freezing orders?

Jonathan Gray  01:01
Well, the Hong Kong Courts can grant an interim freezing order, which is often known as a Mareva injunction, which comes from the name of an early case in which a freezing order was made, which restrains the party from disposing of, or dissipating its assets before final judgment is determined. It’s a remedy. It’s not a cause of action. So among other things, the claimant must show that he has a good arguable claim against the defendant in order to obtain the relief.

Jonathan Gray  01:35
It’s a type of interim relief. However, given the very serious and draconian effect of the order, the requirements that the claimant has to satisfy in order to get the relief is slightly different from the requirements for the other types of interim relief proceedings and the threshold is significantly higher. The chief difference here is that are other interim injunctive relief proceedings, for example, to restrain the commission or the continuation of some wrongful act, or mission. The requirements include that there is a serious question to be tried, whereas for a refreezing order, a Mareva, the threshold is much higher, and the claimant needs to show a good arguable case, that is in the sense that it’s more than one which is capable of serious argument.

Jonathan Gray  02:31
The Court can also make what’s called a proprietary freezing order. Proprietary freezing orders are similar in effect to Mareva injunctions, they freeze assets to which the claimant or applicant has a proprietary claim. The threshold for obtaining them is slightly different and slightly lower. Today I’ll mainly be talking about Mareva injunctions, although in broad terms, most of the considerations which apply to Mareva injunctions apply equally to proprietary freezing orders.

Matthew Love  03:00
Okay, so what sort of assets we’re talking about that can be frozen?

Jonathan Gray  03:05
Essentially, any valuable asset can be subject to a freezing order. So for example, money and bank accounts, real properties, shares and companies. However, the freezing order will only operate to restrain the defendant from diminishing the value of the assets in question, to less than the amount specified in the order, which is usually the amount of the claim by the claimant or plaintiff.

Matthew Love  03:32
Okay, but what about assets that the applicant or the claimant is unaware of?

Jonathan Gray  03:37
Well, if you if you apply for an obtain your freezing order, that freezing order will typically come with what’s called an ancillary order, requiring the defendant to disclose his or her assets.

Matthew Love  03:49
Okay. But, you know, how do you go about applying for a freezing order?

Jonathan Gray  03:53
Well, the initial application for a freezing order can be made either to the High Court or the District Court. It’s usually heard on what is called an ex parte basis, meaning that it’s heard in the absence of the defendant and without the defendant’s knowledge. The application for freezing order is made by way of an affidavit, which sets out the facts and evidence relied on in support of the relief. Given the exceptional nature of the relief sought, the applicant is under a duty to give what’s called full and frank disclosure, that is disclosing all relevant facts and matters to the court, including those which are helpful or favorable to the defendant.

Matthew Love  04:35
You know, what sort of consequences are there if the applicant in their application doesn’t give full and frank disclosure?

Jonathan Gray  04:41
Any failure to do so will risk having the injunction set aside on the grounds of material non disclosure, and here materiality is judged not by whether the original court’s decision would have been affected by whether the fact or matter not disclosed was relevant to the Court’s overall discretion. So it really is important when you’re putting together your affidavit, that you do cover this because any failure in this regard will risk having it set aside.

Matthew Love  05:12
Okay. Yeah, good to know, definitely want to avoid that. But you know, what about situations where the applicant needs to apply for a freezing order, say, you know, before the proceedings have started or in situations where the initiation of proceedings might tip off the defendant?

Jonathan Gray  05:30
Exactly. And this is why in many cases, the application is, as already mentioned, ex parte in the absence of the defendant. So often, it’s also where the action has not yet commenced because the very commencement of the action might tip off the defendant. In these circumstances, the injunction is normally subject to a condition that the claimant issue a writ of summons immediately or as soon as reasonably practicable. And in practice, a draft writ will often be submitted together with the application for the injunction with an undertaking given to the Court to file and serve it as soon as reasonably practicable. So, first of all, you get your injunction order. And then you give an undertaking to issue the writ as soon as possible, effectively at the same time. An order granted ex parte will only operate for a limited period of time, until the matter can be heard at a hearing involving all of the parties, which is known as the intra partes hearing. And that hearing will usually take place within several days of the ex parte order having been made.

Matthew Love  06:45
Okay. You know, so as you’ve mentioned, you know, a freezing order can be made in the absence of the defendant and without his knowledge or really even an opportunity to present his side of the case. So given that are there any person protections for defendant in these scenarios?

Jonathan Gray  07:02
Yes, the Court views a freezing order as a very draconian measure, affecting the defendants rights before trial. Accordingly, freezing orders have built in certain protections for the defendant. And these include a cap on the assets which are frozen, which, as I’ve already mentioned, is usually the amount claimed by the claimant. The order must give notice of the defendant’s right to apply to discharge, or vary the injunction and mention and refer to the defendant’s right to obtain legal advice and general common law right not to self incriminate with respect to the disclosure orders. It must provide provision for the duration of the initial grant the freezing order until the further into parties hearing date, and they’ll also be provision for the defendant’s living and/or business expenses and all legal costs. The order must cover the right of the defendant to provide security in lieu of the injunction. So whatever amount you’re claiming in the injunction, if the defendant agrees to pay that entire summoned to Court, then that will satisfy the injunction, there’s then no longer any further need for the injunction. The plaintiff is also required to give an undertaking to compensate the defendant for any loss arising from the injunction, if ordered to do so by the Court. If, for example, it’s subsequently determined that the injunction should never have been granted. And may also be required to fortify such undertaking, if required to by the Court, by making a payment into Court, or providing, for example, a bank guarantee to back or fortify that undertaking and damages. Then also a further protection is the defendant has to be served with all of the relevant court papers relied upon by the by the plaintiff to obtain the injunction.

Matthew Love  09:10
Okay. Well, you know, as you said, given the draconian nature of freezing orders, you know, it’s good to know that there are some protections in place for the defendant to protect his rights. But shifting back to the, you know, the application itself, say I wanted to apply for a freezing order. What requirements must I first meet?

Jonathan Gray  09:32
The starting point is that the applicant must have what is called a good arguable case, on the substantive underlying claim against the defendant. As already mentioned, this threshold is much higher than the threshold for other interim injunctive relief proceedings, which is simply that there is a serious question to be tried. A further requirement is that the defendant must have assets in Hong Kong. If you’re seeking for an injunction or freezing order in Hong Kong, and there must be a real risk that the defendant will dissipate or dispose of those assets in question, unless restrained by the Court. And then finally, the balance of convenience must lie with granting the injunction. So it’s a weighing up exercise undertaken by the Court.

Matthew Love  10:22
Okay. Yeah. Let’s let’s go back to that part about the dissipation of assets. You know, you mentioned that the applicant has to show that there’s a real risk that the defendant will dissipate or, you know, otherwise dispose of the assets. But, what sort of evidence does the applicant need to submit related to the dissipation of assets?

Jonathan Gray  10:43
That’s a very good question. Suspicion is not enough. There must be solid and cogent evidence regarding a real risk of dissipation. And the standard of proof here is pretty high. The Court will not be too ready to infer a real risk of dissipation from the defendants conduct or commercial morality. Also the fact that the defendant may be short of money to pay its debts is not sufficient. The purpose of the relief is not to provide security for the plaintiff’s claims, or to put the claimant in a better position versus other creditors. So merely fearing that there won’t be any assets against which to enforce the judgment is not enough. The dissipation must be shown to be with an intention to defeat the claimant’s claim or otherwise to be improper. And the fact that the defendant has been unforthcoming about its financial position is irrelevant, and a failure by the defendant to give assurances of retention of assets to settle a debt when the claimant has no right or no legal rights such assurances, is also irrelevant. Ultimately, the test is an objective one: there’s no need to prove a subjective intention on the part of the defendant to dissipate the assets to defeat the claim. But there has to be, at the end of the day, some evidence of a real risk of dissipation.

Matthew Love  12:14
Okay. So yeah, as you said, mere suspicion isn’t enough, the applicant needs to show that there is a real risk, standard proof is pretty high and frankly, as it should be. So, okay, let’s move on. So, say I’ve applied for a freezing order, and I’ve obtained it from the Court. What happens next?

Jonathan Gray  12:34
When you apply for the freezing order, you must submit a draft order together with the application. And this is so that the order can be made and sealed as soon as possible. You would normally require several sealed copies, as it’s likely you’re going to be serving the order on several different people, including the defendants, the bank, and possibly other relevant third parties. The draft order must be in the standard form prescribed by the relevant practice direction and this includes the inbuilt protections that we’ve already discussed. Any amendments or deviations from the standard wording must be brought to the attention of the judge hearing the application. And this is very important. And in this regard, it’s good practice to submit what’s called a redline version of the draft order highlighting in red, any changes from the standard wording in the practice direction. Once the order is sealed, sealed copies of the order must be served on all relevant persons. If bank accounts have been frozen, the priority serving the order on the bank and this should be done by serving the order by hand at the banks head office in Hong Kong. And this is regardless of where the branch in question may located. Service is only affected at the time the order is physically received by the bank. But it does no harm to send it by fax as well to the bank, provided that the order, of course, is being served by hand at the earliest opportunity.

Matthew Love  14:17
Okay, it’s good to know the technical steps that the applicant should be aware of after that. But let me ask you this, what about in situations where the assets are being held by say a third party, which the defendant has no legal right to, but nonetheless has a substantial control over.

Jonathan Gray  14:38
A Court may make a freezing order, freezing the person’s assets, even if that person is not a defendant to the proceedings, and even if the applicant has no cause of action against that third person, provided that the injunctions are ancillary and incidental to good arguable claim against a defendant. In such case the injunction is called a Chabra injunction.

Matthew Love  15:03
The Chabra injunction.

Jonathan Gray  15:05
That’s right, from the name of the seminal English case in which such relief was granted. Chabra injunctions are now part of the law of Hong Kong. And Chabra injunctions may be exercised where, firstly, there’s good reason to suppose that the assets held in the names of a party against whom the claimant asserts no cause of action would be available to satisfy a judgment against the defendant against him, as the claimant does have a substantive claim. And it is just inconvenient to do so. Substantial control by the defendant over the assets in the name of the third party is a relevant consideration. But it is not the test for the exercise of the Chabra jurisdiction, but it may be relevant in two ways. Firstly, evidence of substantial control by the defendant may support an inference that the assets are held nominee or trustee for the defendant. And secondly, such evidence may establish that there is a real risk of dissipation in the absence of a freezing order. However, the Court will also consider the conduct of the third party, and whether there is any risk of dissipation by that third party. The establishment of substantial control by the defendant over the assets will not necessarily be sufficient. The jurisdiction to grant a Chabra injunction is exceptional, and should be exercised with great caution, taking care of that it should not operate oppressively to innocent third parties who are not substantive defendants and have not acted to frustrate the administration of justice. There have been a number of recent cases in Hong Kong, where Chabra injunctions have been set aside for lack of proper basis for invoking the Chabra jurisdiction.

Matthew Love  16:53
Interesting. Let me ask you this. So what steps if any, can a party take to preserve documents or other evidence in order to prevent their destruction?

Jonathan Gray  17:04
Here the Hong Kong Courts can grant a type of search and seizure order, typically referred to as an Anton Piller order in Hong Kong, following the name of one of the early English cases in which this type of relief was first granted. Such orders require an alleged wrongdoer, usually the defendant in legal proceedings, to permit the applicant to enter their premises, to search for documents and or other evidence, which is relevant to the case. And in many cases, to allow them to remove such documents and to detain and preserve them pending trial. The evidence in question might be documents, but can also include other items, for example, infringing items in passing off cases involving counterfeit goods or other goods that relate to violations of the applicant’s intellectual property rights.

Matthew Love  17:56
Hmm. So, it sounds like that an Anton Piller is the same as a search warrant. Is that right?

Jonathan Gray  18:02
Not exactly. While the Anton Piller order requires the respondent to permit the applicant to enter and search his premises, it is not a search warrant. In other words, the applicant cannot break open doors or sneak in through a back window, or otherwise forcibly enter the premises if the respondent refuses him entry. However, a respondent who refuses to comply with the Court’s order can be committed for contempt of court and may be liable for imprisonment for refusing to comply.

Matthew Love  18:36
Yeah, it’s good to know the differences between the two. So how does one go about actually applying for an Anton Piller order?

Jonathan Gray  18:44
In order to avoid tipping off the respondent and to prevent him from concealing, destroying or disposing of the documents or items in question, the application for an Anton Piller order is invariably made on what’s called the ex parte basis, that is in the respondent’s absence and without his knowledge. The Court therefore requires full and frank disclosure on the part of the applicant seeking to obtain the Anton Piller order. If it is later determined that the applicant did not provide full and frank disclosure to the Court, when seeking the order, it may be subsequently discharged or thrown out. The terms and contents of an Anton Piller order are in the standard form prescribed by a practice direction of the court dealing specifically with Mareva injunctions and Anton Piller orders. Standard wording should be followed and the applicant should submit a draft order together with the application.

Matthew Love  19:38
Okay. As far as the application itself, what requirements must be met to obtain the order?

Jonathan Gray  19:47
Since an Anton Piller order involves the violation of a respondent’s rights to his premises, whether residential or business premises, again, it’s regarded by the Court as a draconian measure. The Court will only grant Anton Piller order when it is necessary in the interests of justice, and even then the terms of the order should be no wider than necessary to achieve the legitimate objectives of the order, and the Court will be very mindful and wary of avoiding abuse or misuse of the procedure. Ultimately, whether to grant the order is a matter for the discretion of the judge hearing the application.

Jonathan Gray  20:25
Case law has established four main conditions that the applicant must satisfy before the judge will grant the order. Firstly, there must be a very strong prima facie case that the applicant’s claims or allegations against the respondent are likely to be justified or, put it another way, an applicant’s mere suspicion that he has a legitimate claim against the respondent is not enough. Further, the danger with actual or potential to the applicant to be avoided by the order must be very serious. If the order is sought to prevent the destruction of evidence, the evidence in question must be of major, if not critical importance to the applicant’s case. Thirdly, the respondent has relevant documents or other items in his possession, and that there’s a real possibility that he may destroy or dispose of them before an inter partes hearing. And fourthly, the harm likely to be caused to the respondent and or his business affairs, by the execution of the order must not be excessive or disproportionate to the legitimate objects of the order. If any four of these conditions is absent, case law suggests that an Anton Piller order should be refused. But even if all of the four conditions are met, the Court will still need to weigh and balance the applicant’s need for the order against the injustice to the respondent in making the order without having an opportunity for the respondent to be heard.

Matthew Love  21:57
Hmm. So it sounds like the same with the freezing orders we discussed: there’s a pretty high bar for obtaining an Anton Piller. The burden of proof on the applicant is quite strong and, as it should be, but distinguishing Anton Pillers from freezing orders, are there any special requirements when it comes to the service and execution of an Anton Piller order?

Jonathan Gray  22:25
Yes, the standard form of the order provides that the order is to be served by a supervising solicitor and carried out in his or her presence and under his or her supervision. The supervising solicitor should be an experienced solicitor who’s familiar with the operation of Anton Piller orders and who is not a member or employee that the applicant’s solicitors, so this is an independent solicitor. The evidence in support of the application should include the identity and the experience of the proposed supervising solicitor. While a bit old fashioned, the rules also state the where the premises are likely to be occupied by an unaccompanied woman and the supervising solicitor is a man. At least one of the persons attending on the surface of the order should be a woman. If any of the listed items subject to the Anton Piller order exists only in digital format, such as stored on a computer, or other digital device, the respondent is required to give the applicant solicitors access to the electronic device with passwords to access the device if necessary, to enable them to be searched. The respondent must also allow the applicant solicitors to print out or make copies of the item subject to the order.

Jonathan Gray  23:46
The applicant is required to take all reasonable steps to ensure that no damage is done to any of the respondents computers, electronic devices or data. The applicant and his representatives may not themselves, search the resources electronic devices unless they have sufficient expertise to do so without damaging the respondents devices. So it’s common for digital forensic experts to accompany the applicant and his solicitors when executing an Anton Piller order. Otherwise, the order must be executed with meticulous care. The respondent must be informed of his rights and the evidence on which the order was obtained so that he can consider whether he should consent or immediately apply to the Court for discharge or variation of the order. Once the applicant solicitors have had an opportunity to make copies of the items subject to the order, the original items should be returned. The detailed record of the items taken should be made by the solicitors executing the order before the items are removed. Nothing should be taken or removed from the respondents premises unless it is clearly covered by the terms of the order and finally, when the ownership of seized items are in dispute, it is inappropriate for the applicant solicitors to retain these items pending trial. If any items are to be kept from the respondent, they should be held by their solicitors upon their undertaking not to permit the respondent access to them.

Matthew Love  25:18
Okay. Well, thank you, Jonathan, for joining us today. I know I learned a few things and I hope everyone listening at home did as well. So thank you again, and we’ll see you next time.

Jonathan Gray  25:30
Thank you.

16:40 Make sure you tune into our other episodes of The HIP Talks podcast by checking the insights section at our website at www.hugillandip.com. You’re welcome to send your comments to our email address hello@hugillandip.com. If you found this episode to be insightful and helpful, please share it with friends, family and business associates along with other episodes of The HIP Talks podcast.

This podcast is for informational purposes only. Its contents do not constitute legal or professional advice.

Jonathan Gray

Jonathan Gray

Jonathan specialises in dispute resolution, acting for clients in a wide range of general commercial disputes covering both litigation and arbitration. He also advises on both contentious and non-contentious employment law matters.

All articles by : Jonathan Gray
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