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FSA's landmark legal victory over Barclays could see more assets being frozen
by Emma Dunkley on Feb 28, 2013 at 10:06
The Financial Services Authority’s (FSA) legal victory over Barclays Bank and other firms could see the regulator become more litigious, by making it ‘less risky’ for it to seek injunctions freezing assets.
The judgement today by the Supreme Court is ‘a clear victory’ for the FSA, but a potential issue for banks and other financial institutions.
Shane Gleghorn, head of commercial disputes at law firm Taylor Wessing, said: ‘As a result of the decision, the FSA will not always be required to give an undertaking that it will compensate for damages incurred by innocent third parties, such as banks, as a result of it obtaining a freezing injunction against a financial institution’s client.’
He added: ‘This important judgment will give the City regulator more confidence to pursue those suspected of wrongdoing because the FSA will be cushioned from potential legal claims by third parties for damages suffered as a consequence of complying with the freezing injunction.
‘The judgement enables the FSA to enforce the law uninhibited by a fear of open-ended claims for damages. It removes a concern that there is a potential blank cheque payable to innocent third parties who have suffered damage as a consequence of complying with the freezing injunction.’
Gleghorn explained that typically where one private party seeks a freezing injunction against another, it is required to give an undertaking to compensate any innocent third parties - such as banks obliged to freeze relevant accounts.
This undertaking covers expenses incurred by the third party in implementing the order, as well as, more importantly, any further damages the third party might suffer as a result.
For example, an innocent bank might be faced with the cost of defending proceedings brought against it by the account holder.
Gleghorn said the FSA generally concedes that when taking positive action to shut down what is alleged to be unlawful activity, it is liable for any expenses incurred, but maintains that, unlike a private party, it should not be required to compensate for damages incurred.
The Supreme Court rule in favour of the FSA, taking as a starting point the fact there is no general rule that the watchdog should be required to give an undertaking to compensate defendants for any damages as a result of a freezing injunction.
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