Jurisdiction - Hong Kong
Hong Kong – Freezing Orders (Or Mareva Injunctions) In Private Wealth Litigation And The Risks For Parties To Such Applications.

27 November, 2014


Legal News & Analysis – Asia Pacific – Hong Kong – Dispute Resolution


At a recent breakfast briefing entitled Freezing Orders in Private Wealth Litigation: Risks and Rewards, Robert Hunter (Head of Trust, Asset Tracing and Fraud Group, London) and Richard Norridge (Head of Private Wealth, Asia) discussed freezing orders (or Mareva injunctions) in private wealth litigation and the risks for parties to such applications. In the same week, Robert and Richard also held a roundtable lunchtime discussion on decision-making, discussing the latest research on what decision-making involves and how to achieve “good” decision-making in organisations.


Using Freezing Orders Effectively

A freezing order is a court order prohibiting a party from disposing of or dealing with his assets until any judgment against that party can be enforced. Affected assets can include things like bank accounts, shares, motor vehicles and land. In the private wealth context, such orders might be necessary if, for example, trust beneficiaries discover that assets have been removed improperly from the trust fund. In this situation, there is the risk that those trust assets might be moved out of the jurisdiction in order to frustrate the attempts of aggrieved beneficiaries to find them.


Freezing orders are a particularly powerful means of protecting plaintiffs pre-judgment as breaching such orders is potentially punishable by imprisonment. Ways of maximising their effectiveness include the following:


  • Standard Form: The standard form used by the Commercial Courts in the UK goes further than the standard form used in Hong Kong by extending the prohibition to interests under trusts, including discretionary trusts. This may be particularly useful where the respondent has significant interests held on trusts and applicants in Hong Kong may wish to include this wording in their draft orders.
  • Ex parte: Alerting the respondent to the application is likely to frustrate the purpose of the injunction as it might prompt the respondent to start hiding or dissipating its assets. Therefore applications are usually made and heard without notice being given to the other side.
  • Chabra jurisdiction: The Court has jurisdiction to grant freezing orders against third parties who appear to hold assets on behalf of the respondent. Applicants should request the Court to do this if there is reason to believe that the assets belonging to a third party (such as a trustee company) are, in truth, those of the respondent.
  • Disclosure: An order requiring the respondent to disclose his assets usually accompanies the freezing order and is part of the standard form. This is potentially an invaluable part of the freezing order as it can help determine the existence, nature and locations of assets including those held by third parties.


Potential applicants should also consider the price of obtaining a freezing injunction, including the risk of having to compensate the respondent if it is subsequently determined that the freezing order should not have been granted. Applicants are normally required to give an undertaking to this effect, although this is generally not required in matrimonial proceedings. Similarly, applicants may also be required to indemnify any third parties affected by the order (such as banks and other financial institutions) against all expenses reasonably incurred in complying with the order.


There are additional orders that can be made where the applicant suspects that assets are being moved fraudulently from the trust fund. These include orders prohibiting departure from the jurisdiction and/or requiring delivery up of the respondent’s passport where there is a risk of the respondent disappearing. The applicant might also consider obtaining a search order where there is a risk that any records of any incriminating evidence or information about where the assets have gone might be destroyed.


Essential to all these orders is timing as delay might undermine the urgency of the relief sought and the effectiveness of relief obtained. Therefore applicants should seek advice as soon as possible if they suspect that any such relief might be necessary.


Decisions, Decisions, Decisions

Lieutenant Commander Riley saved the HMS Gloucester from a Silkworm missile attack by destroying it within seconds of its detection on the radar. Despite the fact that such enemy missiles were indistinguishable on the radar from allied US planes, Lieutenant Commander Riley’s account was that he just knew that the identified object was a Silkworm missile. How did Riley “know” this within the very few seconds he had to make a decision? And how can such effective decision-making be achieved within business organisations?


In considering how people make decisions, two systems of decision-making have been identified: the experiential system and the rational analytical system. The former involves following one’s intuition. It is decision-making that is fast, automatic and linked to the decision-maker’s subconscious emotions. The analytical system, on the other hand, involves a conscious thought process that is slower and more rational than the experiential system. Whilst careful and logical consideration of all options has been thought to be a feature of good decision-making, the experience of Lieutenant Commander Riley suggests that good decision-making is sometimes much more intuitive. The reality may be that good decision-making involves interaction between both the experiential and analytical systems.


To achieve good decision-making within organisations, a number of models have been proposed. For example, it has been suggested that only people who are not stressed are good decision-makers. However, an experiment conducted with chess players playing under time pressure suggests that stress makes no difference to the performance of experts. Therefore, it would appear that experience is key to good decision-making. That said, it seems that what makes us experienced is not necessarily detailed knowledge of the relevant rules, but rather the more practical experience acquired on the job. Experts with experience are more likely to instantly spot patterns and recognise negative and positive cues which might explain their intuitive decision-making ability.


Any model of decision-making must also be aware of the inherent biases at play in the decision-making process. In an experiment we ran at a recent breakfast briefing, people were asked to estimate the population of Russia. Some attendees were also told what an 11 year old child thought the population size was. The study found that this piece of information significantly influenced the range of values that people estimated. This suggests that answers can be manipulated by providing that person with an irrelevant piece of information which acts as an “anchor” in their decision-making process. Similarly, the desire to reach a decision may produce poor results in majority decision-making processes. Ways to reduce the impact of biases and encourage good decision-making include appointing somebody to play “Devil’s Advocate” or by maintaining a record of poor decisions, their outcomes and the lessons learnt from them.


However, if it is the case that good decision-making also requires a thought process that is more intuitive than logical, can we train people within our organisations to be good decision-makers, or is this an attribute that can only be acquired with years of experience? Research suggests that intuition can be trained. However, this training should come from those with the relevant experience who, ideally, should be the persons heading the organisation’s training programmes. The problem within many organisations is that those with this experience and ability are often the ones “on the job” who may not have the time to be involved in the training of their junior staff. However, those who are responsible for training should nevertheless seek to extract the relevant knowledge from these experts if they wish to achieve more effective decision-making within their organisations.


herbert smith Freehills


For further information, please contact:


Gareth Thomas, Partner, Herbert Smith Freehills

[email protected]


Dominic Geiser, Partner, Herbert Smith Freehills

[email protected]

Robert Hunter, Partner, Herbert Smith Freehills


Herbert Smith Freehills Dispute Resolution Practice Profile in Hong Kong

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