Philippines
1. Are freezing orders (or their equivalent referred to below) available in civil legal proceedings in this jurisdiction and what is their effect?
Yes, in limited circumstances. An applicant may apply for a freezing order in civil proceedings (known also as a preliminary attachment) in respect of specific assets that are then treated as security in the proceedings until the outcome of the underlying substantive claim is decided. The assets, which are the subject of the freezing order, must be in the Philippines, and it should be noted that the respondent is not entirely prohibited from dealing with the assets that are subject to the freezing order. However, any third party to which the asset is transferred is also bound by the terms of the order.
The limited circumstances in which there are grounds to apply for a freezing order in civil proceedings are as follows:
(i) an action in either contract or negligence for the recovery of a specified amount of money or damages, (other than moral and exemplary damages), against a party who is about to depart from the Philippines with intent to defraud their creditors;
(ii) in an action for money or property that has been embezzled and/or fraudulently obtained for personal use by a public officer, or someone who has fiduciary duties such as a company officer/director, or regulated professional such as a solicitor;
(iii) in an action to recover property that has been unjustly or fraudulently taken, detained or converted, when the property, or any part thereof, has been concealed, removed, or disposed of to frustrate the claim;
(iv) in a fraud claim;
(v) in an action against a person who has removed or disposed of his property, or is about to do so, to defraud his creditors; and
(vi) in an action against a party who does not reside and is not found in the Philippines, or on whom summons may be served by publication.
Separately, there is a specific remedy known in the Philippines as a “freeze order” which prohibits a respondent from dealing with any monetary instrument or property that is related to specific unlawful activities such as money laundering or the financing of terrorism activities. This guide deals only with the “freezing orders” (known as preliminary attachments in the Philippines) referred to above.
2. Are other interim orders commonly made in conjunction with a freezing (or equivalent) order?
Yes. The Court may require the respondent to attend Court to give information by way of oral examination under oath in respect of their assets. The Court may also require third parties to give oral evidence in the same way where the third party is a debtor of the respondent or has control over any of the respondent’s assets to which the freezing order applies.
At the same time, the applicant may also seek an order for a preliminary injunction either prohibiting the respondent or third party from particular acts or requiring them to carry out certain acts in respect of the assets.
3. Briefly what is the relevant legal test?
The applicant must show:
(i) that a sufficient cause of action exists;
(ii) that there are grounds for the Court to make a freezing order;
(iii) that there is no other sufficient security; and
(iv) that the value of the claim is as much as the value of the assets to which the order will apply (including in that sum, the value of any counter-claims).
4. Briefly what is the process for obtaining a freezing (or equivalent) order?
The applicant makes an application to the Court, in particular setting out in an affidavit the reasons why the legal test set out above is met. The application may be made without notice. If the application is successful, the Court will issue the freezing order.
In order to take effect, the freezing order must then be served on the respondent. In circumstances where it has not been possible to serve the respondent, despite steps being taken by the applicant to do so (for example, the respondent has left the jurisdiction and there is no way of obtaining an address upon which to serve them), the requirement for service may be dispensed with.
5. Does the applicant have to provide any form of security or commit to compensation if its claim is ultimately unsuccessful and any freezing (or equivalent) order granted causes loss and damage to the respondent?
Yes. The applicant must file with the Court a bond which is owed to the respondent for the amount set by the Court in the freezing order. The bond acts as security for all of the costs and damages which the respondent may incur as a result of the freezing order, and which will be owed by the applicant to the respondent should the Court rule that the applicant was not entitled to the freezing order.
6. Can it be sought against third parties?
Yes. Third parties to the underlying litigation who have in their possession or control assets belonging to the respondent whose assets are the subject of the order may also be the subject of a freezing order. Therefore, a freezing order is binding on third parties who are not parties to the freezing order but hold the respondent’s assets (for example, a financial institution holding the defendant’s assets) upon the service of a notice, and those third parties may be made liable to the applicant for the amount of the property in its possession.
7. What assets are covered by a freezing (or equivalent) order?
A freezing order may apply to any tangible or intangible asset (including perishable goods) in the Philippines belonging to the respondent, unless that asset is exempt.
8. Can a freezing (or equivalent) order be made in support of substantive proceedings abroad?
No.
9. Can a freezing (or equivalent) order be made in support of arbitration proceedings or awards?
Yes.
10. At what stage of proceedings can a freezing (or equivalent) order be sought?
A freezing order may be applied for at the commencement of the underlying substantive claim or at any time before entry of judgment. The property of the respondent which becomes the subject of the order then serves as security for the satisfaction of the judgment.
11. Are there typically any exceptions to the general prohibition on the respondent’s use of assets subject to a freezing (or equivalent) order?
As set out above, there is no general prohibition against the use of the assets, but property that can be the subject of manual delivery is delivered to and remains in the custody of the sheriff. Real property may still be transferred to a third party, however the third party is then bound by the freezing order.
There are also assets that are exempt from being the subject of a freezing order, for example:
(i) the family home and its general contents not exceeding one hundred thousand pesos;
(ii) assets required for work by the respondent;
(iii) personal clothing and items (with the exception of jewelry);
(iv) provisions enough for the ordinary course of living for a period of four months;
(v) personal effects such as lettered gravestones;
(vi) monies, benefits, privileges, or annuities accruing or arising in any manner as a result of life insurance;
(vii) the right to receive legal support, or money or property obtained as such support, or any pension or gratuity from the Government.
12. What happens after a freezing (or equivalent) order is granted?
Once the order is granted it is then enforced as follows:
(i) for real property: a copy of the order is filed with the registry of deeds, together with a description of the property and notice that it is subject to the order;
(ii) for personal property capable of being delivered up: the Court will take possession of the personal property and keep it in its custody until the outcome of the proceedings;
(iii) for stocks or shares: notice is given via supply of a copy of the freezing order to either the president or managing agent;
(iv) for debts and credits, intangible assets and other personal property not capable of manual delivery: notice is given via supply of a copy of the order to any relevant third parties and the respondent;
(v) for interest in the estate of a deceased: the order is served on the executor, administrator or other personal representative of the deceased. Notice must also be filed in the office of the clerk of the Court in which the said estate is being settled and served upon the heir, legatee or devisee concerned;
(vii) if the property sought to be attached is already in the Court’s custody, a copy of the freezing order is supplied to the relevant custodian by way of notice.
After the order has been enforced, the respondent may apply for the freezing order to be discharged. The Court shall, after due notice and a hearing, order the freezing order be discharged if the respondent files a cash deposit or counter-bond in an amount fixed by the Court. This cash deposit or counter-bond shall secure the payment of any judgment that the applicant may recover in the action. Alternatively, the respondent may file an application to set aside the freezing order on the ground that it was improperly or irregularly issued or enforced, or that the bond supporting the application is insufficient. Upon the discharge of the freezing order, the property shall be delivered to the respondent.
13. Who pays the costs of the application for a freezing (or equivalent) order?
All costs relating to the application, including in securing the bond are incurred by the applicant.
14. What protections are there typically in a freezing (or equivalent) order for third parties to such orders?
(i) Set-off against the amounts owed to the third party by the respondent is allowed prior to the notification of the freezing order.
(ii) A third party does not need to inquire as to any withdrawal of property by the respondent if such property withdrawn is not covered by the freezing order.
(iii) A freezing order does not bind third parties abroad.
(iv) A freezing order also does not bind assets held abroad. It does not prevent a third party from complying with its obligations under the law or Court orders of the country where the assets are located or under any contract between itself and the respondent.
(v) The applicant pays the costs relating to freezing order.
15. What are the consequences of breach of a freezing (or equivalent) order?
As referred to at 11 above, there is no general prohibition against the use of the property which is the subject of the freezing order, except that in the case of personal property which can be the subject of physical/manual delivery, the property is delivered to and remains in the custody of the sheriff. However, if the respondent attempts to take possession of a property already under the custody of the sheriff, he or she may be punished for contempt punishable by imprisonment and/or fine. On the other hand, with regard to real property, the same may still be transferred by the owner, and such is not considered a breach of the freezing order. However, the transferee is bound to respect the encumbrance created by the attachment.
A third party (for example, a financial institution holding the defendant’s assets) may be made liable to account to the applicant for the amount of the property upon service of a notice. However, a third party is not restricted from dealing with the assets which are the subject of the freezing order and may not be held in contempt for doing so.
16. Does a third party notified of (but not a party to) a freezing (or equivalent) order owe a duty of care to the applicant (meaning it can be liable to the applicant for non-compliance)?
Yes.
17. Can a freezing (or equivalent) order be enforced abroad?
No. The freezing order would only apply to assets of the respondent that are located in the Philippines.
18. Can freezing (or equivalent) orders from overseas jurisdictions be enforced in this jurisdiction?
No.
Contacts
Ma. Patricia B. Paz-Jacoba Partner SyCip Salazar Hernandez & Gatmaitan Makati City, Philippines mpbpaz@syciplaw.com www.syciplaw.com Raymond Joseph S. Garcia Associate SyCip Salazar Hernandez & Gatmaitan Makati City, Philippines rjsgarcia@syciplaw.com www.syciplaw.com John Matthew D. Ruiz Associate SyCip Salazar Hernandez & Gatmaitan Makati City, Philippines jmdruiz@syciplaw.com www.syciplaw.com
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