How to Freeze Assets When the Dispute Goes to Arbitration

When a dispute escalates to arbitration, one of the most critical concerns for parties involved is the risk of asset dissipation. Freezing assets—also known as obtaining an injunction or precautionary measure—is a strategic tool designed to prevent a party from disposing of, transferring, or concealing assets before an arbitral award is enforced. At Dewey & LeBoeuf LLP, we guide clients through complex international and domestic arbitration processes to ensure asset protection and maximize the chances of recovering damages.

Freezing assets is not just a defensive mechanism; it is an essential step to secure your rights and protect the value of any future arbitral award. This article provides a detailed roadmap on how to freeze assets when the dispute goes to arbitration, covering legal frameworks, procedural requirements, and practical strategies.

Understanding Asset Freezing in Arbitration

Asset freezing in arbitration refers to the legal process of securing a party’s assets to ensure they remain available during and after the arbitration process. Unlike court litigation, arbitration typically requires specialized legal instruments, as arbitral tribunals do not automatically possess the same enforcement powers as courts.

Key features include:

• Preventing Asset Dissipation: Ensures the opposing party cannot move, hide, or sell assets.
• Securing Enforcement: Preserves assets that may be necessary to satisfy a final arbitral award.
• Cross-Border Applicability: Allows parties to request freezing measures in multiple jurisdictions when disputes involve international assets.

Freezing assets is particularly critical in international arbitration, where parties may hold assets across several countries with differing legal frameworks. Failure to act promptly may result in significant financial loss and undermine the enforceability of the final award.

Legal Basis for Freezing Assets in Arbitration

The ability to freeze assets during arbitration depends on the governing laws and institutional rules. The following are the main legal frameworks:

1. Arbitration Agreements and Institutional Rules

Most arbitration agreements, such as those under ICC, LCIA, SIAC, and UNCITRAL rules, provide mechanisms for interim measures. These rules empower tribunals to order asset preservation measures, including freezing orders, provided that:

• There is a risk that the opposing party may dissipate assets.
• The requesting party demonstrates urgency and necessity.
• Adequate security is provided to cover potential damages if the freezing order is unjustified.

2. National Courts

Even in arbitration, parties may approach national courts for interim measures. Courts in many jurisdictions, including Dubai, Singapore, the UK, and the US, can issue freezing orders or injunctions in support of arbitration, often under frameworks such as:

• England & Wales: Freezing injunctions under Part 25 of the Civil Procedure Rules.
• Dubai (UAE): Precautionary measures under the Dubai International Arbitration Centre (DIAC) or DIFC-LCIA rules.
• Singapore: Singapore International Arbitration Centre (SIAC) provides for court-backed interim relief.
• United States: Courts may issue temporary restraining orders or preliminary injunctions under federal or state law.

Courts will generally require evidence that the claimant has a legitimate claim, and the harm caused by not freezing assets is imminent.

Step-by-Step Process to Freeze Assets

Freezing assets during arbitration requires a methodical approach. Below is a step-by-step guide:

Step 1: Identify Vulnerable Assets

• Determine which assets the opposing party controls, including bank accounts, real estate, shares, and other investments.
• Consider international holdings, which may require cross-border legal intervention.

Step 2: Gather Evidence

• Provide documentation proving the likelihood of asset dissipation.
• Include contracts, account statements, property records, and evidence of previous attempts to transfer assets.

Step 3: File Request for Interim Measures

• Submit a request to the arbitral tribunal or supportive national courts.
• Ensure the request aligns with the arbitration rules governing the dispute.

Step 4: Demonstrate Urgency and Risk

• The tribunal or court must be convinced that immediate action is necessary to prevent irreparable harm.
• Highlight the probability that assets could be moved or hidden if no interim measure is granted.

Step 5: Provide Security

• Many jurisdictions require the requesting party to deposit security to compensate for potential damages if the freezing order is later found unjustified.
• Security could include a bank guarantee or bond.

Step 6: Enforcement and Monitoring

• Once granted, the freezing order must be monitored to ensure compliance.
• In cross-border disputes, this may involve coordinating with foreign courts or financial institutions.

Practical Considerations for Freezing Assets

• Jurisdiction Matters: Freezing orders are territorial. Assets in multiple countries may require separate applications in each jurisdiction.
• Timing Is Critical: Interim relief must be requested as early as possible to avoid asset dissipation.
• Legal Representation: Effective freezing orders require experienced legal counsel familiar with local and international arbitration laws.
• Risk of Counterclaims: Improper or overly broad freezing orders can trigger counterclaims for damages.

Strategies for Cross-Border Asset Freezing

When disputes involve parties with assets in multiple countries, freezing assets in arbitration becomes significantly more complex. Different jurisdictions have varied legal systems, procedural rules, and enforcement mechanisms. To protect assets internationally, companies must adopt a multi-pronged strategy:

1. Identify Jurisdictional Reach: Map out all possible locations of the counterparty’s assets—bank accounts, property, and business holdings. Knowing where assets are located allows precise targeting for freezing requests.
2. Understand Local Laws: Not all countries recognize foreign freezing orders, even if issued by an arbitral tribunal. For example, courts in Dubai may require separate precautionary requests under DIAC rules, while UK courts provide comprehensive freezing injunctions.
3. Leverage Arbitration Agreements: Many institutional rules, such as ICC, LCIA, SIAC, and UNCITRAL, allow tribunals to order interim measures enforceable in multiple jurisdictions. Legal counsel can tailor requests to meet both the tribunal’s and local courts’ requirements.
4. Secure Local Court Support: In high-risk cases, filing for a local court injunction in the asset’s jurisdiction enhances enforceability and prevents asset flight.
5. Monitor Compliance Continuously: Cross-border freezing demands ongoing surveillance. Financial institutions and local authorities may need to be engaged to ensure compliance.

At Dewey & LeBoeuf LLP, we combine local expertise with global insight to implement asset freezing measures across jurisdictions, ensuring our clients’ assets remain protected throughout arbitration.

Role of Evidence in Securing a Freezing Order

Evidence is the backbone of asset freezing in arbitration. Without strong, well-documented proof, tribunals and courts are unlikely to grant interim measures. The following elements are crucial:

1. Proof of Ownership or Control: Demonstrate that the assets belong to or are controlled by the counterparty. Bank statements, property deeds, and corporate filings are essential.
2. Demonstration of Risk: Show a clear risk of asset dissipation or concealment. Past behavior, unusual transfers, or lack of transparency can strengthen your case.
3. Documentation of the Arbitration Claim: A detailed claim showing merits of the dispute reassures courts that freezing is not an abuse of process.
4. Supporting Expert Reports: Financial analysts or forensic accountants can provide evidence of potential asset transfer or liquidation.
5. Legal Precedents: Cite previous cases where freezing orders were granted under similar circumstances.

Strong evidence not only increases the likelihood of obtaining a freezing order but also reduces the risk of the tribunal or court rejecting your request due to insufficient grounds.

Costs and Risks Associated with Freezing Assets

While freezing assets is critical, it is not without costs and risks. Understanding these elements ensures strategic decision-making:

• Financial Costs: Legal fees, court deposits, and security bonds can be substantial. Some jurisdictions require claimants to provide security against damages if the freezing order is unjustified.
• Reputational Risks: Aggressive freezing requests can attract negative attention, especially in sensitive international cases.
• Counterclaims: Improperly framed freezing orders can lead to counterclaims or litigation for damages. Overbroad requests risk rejection and potential penalties.
• Operational Complexity: Cross-border freezing requires careful coordination with banks, courts, and legal counsel across multiple jurisdictions, which can increase administrative complexity.

A measured, strategic approach, backed by expert guidance, mitigates these risks while ensuring effective asset protection.

Alternatives and Complementary Measures

Freezing assets is a powerful tool, but it may need to be complemented with additional measures to fully secure a claimant’s position:

1. Security for Costs: Request the opposing party to provide a bond or other financial guarantee to cover potential costs.
2. Third-Party Asset Tracing: Investigate assets held through subsidiaries, shell companies, or offshore accounts.
3. Injunctions Against Disposal: Beyond freezing, prevent the counterparty from selling, transferring, or encumbering assets.
4. Confidentiality Measures: In sensitive disputes, confidential injunctions prevent the counterparty from learning about asset preservation steps, reducing risk of evasive action.
5. Regular Tribunal Updates: Maintain continuous communication with the arbitral tribunal to adapt measures based on new developments.

Combined, these measures create a robust framework that secures the claimant’s interests until the final award.

Best Practices for Ensuring Long-Term Asset Protection

Freezing assets is only effective if followed by systematic monitoring and enforcement. Best practices include:

• Early Action: File requests as soon as there is a credible risk of asset dissipation. Delays can result in permanent loss of assets.
• Collaborate With Financial Institutions: Banks and other financial institutions must be formally notified and compliant with the freezing order.
• Continuous Monitoring: Track asset movements and respond quickly to any attempts at evasion.
• Legal and Regulatory Updates: Jurisdictions frequently update rules around asset freezing. Staying informed ensures compliance and enforceability.
• Expert Counsel: Retain experienced international arbitration lawyers to handle both procedural and strategic aspects, reducing errors and increasing the success rate.

Following these best practices ensures that freezing assets in arbitration not only preserves value but also strengthens your position in the eventual award enforcement stage.

Common Mistakes to Avoid

1. Waiting Too Long: Delayed action may render freezing ineffective.
2. Incomplete Evidence: Weak evidence often results in denial of freezing orders.
3. Ignoring Local Procedures: Each jurisdiction has specific requirements; ignoring them can nullify the measure.
4. Overreaching Requests: Excessive or vague orders may backfire legally and financially.

Role of Dewey & LeBoeuf LLP in Asset Freezing

At Dewey & LeBoeuf LLP, we specialize in cross-border arbitration and asset preservation strategies. Our experts:

• Analyze the client’s financial landscape to identify high-risk assets.
• Coordinate with international courts and financial institutions for enforceable freezing orders.
• Draft compelling requests for interim measures under arbitration rules.
• Provide ongoing monitoring and enforcement support to ensure compliance.

Our global presence, including offices in Dubai, the UK, Singapore, and the US, allows us to act swiftly and efficiently across borders. We understand the nuances of international asset freezing and safeguard our clients’ interests with precision and integrity.

FAQs: Freezing Assets in Arbitration

Conclusion

Freezing assets when a dispute goes to arbitration is a critical step to safeguard financial interests and ensure that arbitral awards are meaningful. Without proactive measures, parties risk losing access to crucial assets, undermining their legal remedies. By combining strategic legal advice, robust evidence, and prompt action, businesses and individuals can secure their assets and strengthen their position in arbitration.

At Dewey & LeBoeuf LLP, our global arbitration team leverages deep legal expertise and cross-border insights to protect client assets efficiently and effectively.

Take action now. Contact Dewey & LeBoeuf LLP to safeguard your assets before it’s too late. Book a consultation with our arbitration experts today.