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High Court ruling emphasises need to obtain specialist advice when seeking a freezing order

Legal Costmasters Ltd v (1) Insurance & Legal Services UK Ltd (2) Jennifer Evans (3) The Personal Representatives of Michael Evans, Deceased (2013): On 30 April 2013, Seymour J held that where a claimant sought a freezing order against a defendant, but had failed to show a real risk of dissipation of assets, the order would be refused. Further, in view of the fundamental weakness of the application, costs would be ordered against the applicant on the indemnity basis, the proceedings stayed pending payment and, if no application were made to lift the stay within 3 months, the proceedings against the second defendant would be dismissed.

The claimant was, amongst other things, a provider of personal injury claims referral services. In the course of its business, it had introduced a firm of solicitors to the first defendant, an insurance brokerage. Under an agreement, the first defendant paid commission to the claimant on referrals of work from the firm. The first defendant subsequently went into liquidation. The claimant alleged that the second and third defendant, who had passed away, were the “controlling minds” of the first defendant and sought to show that the commission owed to it should have been held on trust for it. The claimant alleged that the second defendant had caused the first, in breach of trust, not to hold the commission in a separate trust account and had then gone on to misapply the funds. On this basis, the claimant applied for a freezing order against the second defendant to secure the anticipated final judgment sum.

Seymour J, in deciding the application against the claimant, held that its case relied on the fact that the second defendant intended to sell her property which demonstrated, according to the claimant, a real risk of dissipation. However the claimant’s managing director had accepted in evidence that the second defendant’s reason for selling the property was that she wanted to downsize after her children had flown the nest, and that this had been her intention long before the claim against her was made known. There was no reason to conclude therefore that the second defendant had any desire to dissipate her assets, as she intended to acquire another property with the proceeds of sale.

The purpose of a court granting a freezing order was to prevent a judgment being thwarted by a defendant dissipating assets, not merely to secure assets.