In a decision this week, the English High Court has clarified the extent of a third party secured creditor’s duties, when put on notice of a freezing order, and suggested a more limited duty than that previously articulated by the court. Notwithstanding this, the position remains that when a third party is put on notice of a freezing order of the English High Court, it is not something that it should take lightly.
Type: Client Alerts
The terms of the penal notice contained in a freezing order, explaining the possibility of being in contempt of court for breaching the terms of the freezing order, mean that the third party should act with caution and take legal advice, before taking any steps that may conflict with the terms of the freezing order.
Doing so is even more important when the third party is owed money by a respondent to a freezing order, and it may wish to take, or already be taking, its own bona fide independent enforcement action against that respondent. The importance of doing so was well summarised by Lord Denning in the case of Z Ltd v A-Z and AA-LL  QB 558, when he stated:
“Every person who has knowledge of [the injunction] must do what he reasonably can to preserve the asset. He must not assist in any way to the disposal of it. Otherwise he is guilty of a contempt of court.”
Mr Justice Mann in the Chancery Division has provided some helpful guidance and clarification to third parties who find themselves in such a position, in the case of Taylor v Van Dutch Marine Holding Ltd & Ors  EWHC 636 (Ch). Reed Smith’s Ben Summerfield (partner) and Simon Greer (senior associate) acted for the successful third party applicant in this case (Applicant).
The Applicant, a hedge fund, was party to a loan and debenture with the Second Defendant in the underlying claim. In the underlying claim, the Claimant had obtained a freezing order over certain of the assets of the Second Defendant, which the Applicant was put on notice of.
The Second Defendant had failed to pay sums owing to the Applicant under the terms of the loan, thereby entitling the Applicant to enforce a variety of security rights against the Second Defendant’s assets. However, before enforcing its security rights under the debenture against the Second Defendant, the Applicant, wary of the terms of the freezing order, wanted to ensure that there was no question that its exercise of its valid security rights against the Second Defendant could be considered to be a breach of the terms of the freezing order. Accordingly, it sought the Claimant’s consent to a variation of the freezing order, so as to recognise its rights under its debenture against the Second Defendant. The Claimant refused to provide this consent, leading to the Applicant applying to the court for an order granting a variation of the freezing order.