Hold it right there

Freezing orders generally prohibit 'dealing' with assets. Is it a contempt of court for a bank to take steps which protect an asset, and even enhance its value? In R (on the application of the Revenue and Customs Prosecution Office) v R and Lloyds TSB Plc [2007] EWHC 2393 (Admin), Mr Justice McCombe answered 'yes'.

Contempt of court

In Customs & Excise Commissioners v Barclays Bank Plc [2007] 1 AC 181, in which the nature of contempt was considered by the House of Lords in an action against a bank for negligence in its compliance with a freezing order, Lord Rodger, by reference to Attorney General v Leveller Magazine Ltd [1979] AC 440, characterised it as an act which knowingly 'frustrates, thwarts, or subverts the purpose of the court's order and thereby interferes with the due administration of justice in the particular action'.

Cases on 'dealing with' assets

Although some comments in the Court of Appeal in Z Ltd v AA-Z [1982] QB 558 encouraged very cautious advice on what constituted a breach of the no-dealing aspect of freezing orders, the Court of Appeal in the Law Society v Shanks [1988] 1 FLR 504 and Bank Mellat v Kazmi [1989] QB 541 decided that it would not be a breach for a person to hand assets to a person to whom a freezing order was directed, provided the person handing over the asset did not have notice of a probability that the asset would be disposed of or dealt with in breach of the order. Gee, in his book Commercial Injunctions concludes ( at para 3.014) :

'Accordingly, it appears that although a Mareva injunction is expressed as restraining any 'dealing with' an asset, the court will not interpret this as preventing any conduct of the defendant which merely results in the same asset, or in the case of a debt the financial proceeds of the debt, being held by the defendant himself'.

In the case of R (on the application of Revenue & Customs Prosecution Office) v R and Lloyds TSB PLC, the Revenue and Customs

Prosecution Office obtained a freezing order in materially the following terms.

'The defendant must not until further order of the court:

'1. In any way dispose of or deal with or diminish the value of any of his assets whether they are in or outside England and Wales;

'2. This prohibition in particular includes account No: 34353468, sort code 77 71 30, in the name of A R held at Lloyds Bank TSB Plc at 2 Silver Street, Halifax.'

Anxious to prevent excessive drawings by the defendant (limited expenses were allowed) and to police the defendant's accounts, the bank decided to transfer the balance from the current account into two higher-interest accounts.

They told the defendant, who consented, but not the prosecuting authority nor the court. The result was that interest accrued which would not have been earned, had the money remained in the current account contained in the order.

By the time the issue came before the court the only issue was one of costs. The court had to decide three questions: (a) had there been a breach of the freezing order; (b) had there been a contempt of court; and (c) should either the bank or the defendant be ordered to pay the costs of the proceedings.

In relation to the first question, counsel for the bank argued that there was no breach of the order because the nature of the defendant's asset with the bank was, before and after the transfer, simply a debt owed by the bank to him. The court rejected this submission. Mr Justice McCombe said: ' The restraint on dealing with an asset is a restraint on any action by the defendant which may have the effect of rendering [the] process [of securing the asset] more difficult.'

'To deal with' is to do anything in relation to the frozen assets, which is not otherwise expressly prohibited by the order. He added : 'It seems to me that there had in this case been manifestly a dealing with this asset insofar as it had removed the identifying characteristics of this debt owed by the bank to Mr R, by being a debt with a clearly identified location and identification with books of the bank to one that was not so readily ascertained.'

He concluded that the action of the bank was 'in clearest breach, both by Mr R and the bank, of the terms of the order' and expressed some surprise that the bank should take such a step without any reference either to the prosecutor or to the court.

On the second issue, that of contempt of court, the judge decided that there had been a contempt of court by the bank. The bank clearly did a deliberate act and it took the risk that what it did would interfere with the course of justice. He accepted that there was no actual interference since the bank ensured that the prosecutor or the Crown suffered no loss. He further acknowledged that the bank acted with the best possible intentions. Nevertheless, the bank took the risk and was in contempt.

The judge made no order as to costs.

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