Disputes Quick Read: Freezing injunctions – maximum custodial sentence imposed for breach

Quick read

A freezing order is an order restricting the disposal of assets by a party in proceedings. Typically, a freezing injunction preserves the defendant's assets until judgment can be obtained or satisfied.

Breaching an order is serious and the sanctions can be severe – as illustrated by a recent case, XL Insurance Company SE v IPORS Underwriting Ltd, Paul Alan Corcoran & Others [2021] EWHC 1407 (Comm).

The penal notice

A freezing order must have a penal notice prominently displayed on the front. This is a warning that, if the person against whom the order is made disobeys the order, they may be held in contempt of court and punished by a fine, imprisonment, confiscation of assets or other punishment under the law.

So, if you receive a freezing order, you should be under no illusion about the potential seriousness of a breach: a prison sentence is a real possibility. This is what happened in XL Insurance Company. Here, the judge handed down an immediate two-year custodial sentence for breaches of an order – the maximum sentence available.

The contempt proceedings

In XL Insurance Company, the claimant made an application for contempt based on the defendant's disposal of assets in breach of the order's restrictions and their failure to comply with various disclosure obligations regarding their assets.

The judge summarised the key elements of contempt which need to be established as set out in a recent Court of Appeal decision, Varma v Atkinson & Another [2020] EWCA Civ 1602:

It is necessary to prove knowledge of the order and that the defendant knew what they were doing or was failing to do.
However, it is not necessary to show the defendant knew those actions were breaching the order in question.

In XL Insurance Company, both of these tests were satisfied.

To commit a person for breach of an injunction, a deliberate or wilful breach of the order must be established beyond reasonable doubt – the criminal standard of proof. The judge found that the defendant’s multiple and persistent breaches were serious and deliberate and met the criminal standard. Because of this, a committal order was made, and the defendant was sentenced to the maximum custodial term.

Key takeaway

XL Insurance Company confirms the serious consequences of breaching freezing injunctions. The judge looked at the disclosure breaches and asset dissipation breaches separately and gave guidance on sentencing in each case. In this case, the breaches were numerous and serious, and the decision is a reminder that the court won’t shy away from imposing custodial sentences where appropriate.