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Freezing orders can be an extremely effective tool to ensure that a defendant does not dispose of their assets before you obtain and enforce judgment. Non-compliance with a freezing order can be very serious, including imprisonment. We have recently advised a client on successfully resolving numerous litigation matters whilst maintaining compliance with the requirements of freezing orders made against them

  1. Background
    1. A freezing order (also known as a “Mareva Order”) is a form of injunction restraining a party from dealing with assets prior to judgment. A freezing order prevents the removal of any assets located in or outside of Australia, or from ‘disposing of, dealing with, or diminishing the value of’ any assets subject to the orders.[1]
    2. The purpose of a freezing order is to minimise risk that a judgment will be wholly or partially unsatisfied.[2] It is not to provide security in respect of the judgment or order.[3]
    3. Various actions of a person may be restrained should it have the effect of frustrating the process of the Court by preventing a prospective judgment, even where this was not the intention for the conduct.[4]
    4. The High Court has described freezing orders as a ‘dramatic remedy’ and will not grant them lightly.[5]
    5. Order 52A rule 2(1) of the Rules of the Supreme Court 1971 (WA) governs the circumstances in which the Court will grant an application for a ‘freezing order’:
      “The Court may make an order, upon or without notice to the respondent, for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.”
  2. Obtaining freezing orders
    1. Freezing orders will be available where a Court determines there is a danger that the respondent to the freezing order may abscond, remove assets from Australia, or ‘dispose of, deal with, or diminish in value’ any asset.[6]
    2. The test is whether a prudent, sensible person experienced in commerce could properly infer that there is a real and not fanciful danger that the defendant will abscond, remove assets from the jurisdiction, dispose of assets within the jurisdiction or otherwise deal with assets in a manner which may frustrate the satisfaction of a judgment.[7]
    3. It is not enough for the plaintiff to assert a risk that the assets will be dissipated. He must demonstrate this by solid evidence. This evidence may take a number of different forms. It may consist of direct evidence that the defendant has previously acted in a way which shows that his probity is not to be relied upon.[8]
    4. In applying for freezing orders against a party, the applicant must have a good arguable case to demonstrate a real risk that a potential judgment will be prejudiced or unsatisfied.[9]
    5. A ‘good arguable case’ has a fairly low threshold. A good arguable case is one that is more than barely capable of a serious argument, but not necessarily one a judge believes to have a better than 50% chance of success.[10] It is one that is not frivolous[11]
    6. Finally, an applicant must, like other interlocutory remedies, establish that the balance of convenience or interests of justice favour the making of the order. As the apparent strength of the applicant’s case diminishes, the balance of convenience moves against the making of an order.[12] The interests of justice may support a freezing order even though the risk of dissipation is less probable than not.[13]
  3. What does it mean to ‘deal with’ assets?
    1. Assets must not be dealt with in a way that creates danger that the prospective judgment would be wholly or partly unsatisfied because of the dealing.[14] This appears to also apply to the potential for benefit gained through the dealing.[15]
    2. Conduct of a respondent to a freezing order may be constrained even where there is no intention with the relevant conduct to prevent a prospective judgment from being satisfied.[16]
    3. A Mareva order may be refused if it would be likely to interfere substantially with the rights of an innocent third party.[17]
  4. Third parties
    1. Freezing orders may be made against a party even where they are not a party to the proceedings.[18] A third party generally may be affected by freezing orders in one of two ways:
      1. the order is made against the third party; or
      2. notice of the order is given to the third party.
    2. Where the order is made against the third party, they are bound by the order. Where the order is not against the third party, however they have notice of the order, they are not bound by it however will be guilty of contempt of court if anything is done to assist a breach of the freezing orders.
    3. The High Court has suggested the circumstances where freezing orders may be appropriate against a third party are rare. The Court may make an order against a third party where:
      1. the third party holds or has power of disposition over assets of the defendant; or
      2. some process may be available to the applicant as a consequence of a judgment against the defendant, pursuant to which the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the defendant to help satisfy the judgment against the judgment debtor (such as by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise).[19]
    4. There appears to be no duty of care from a bank to a third party to comply with a freezing order.[20]
  5. Form of order.
    1. Freezing orders are flexible and may be moulded by the Court to best fit the circumstances and intended outcome.[21] A Court will not express an order any wider than is absolutely necessary, and generally will specify assets to which it applies.[22]
    2. Freezing orders may be framed in a way allowing the defendant to go on meeting their outstanding living expenses, any legitimate debts, including legal expenses incurred in defending the action, and generally to deal with their assets in the ordinary course of business.
    3. Additionally, an order may be expressed to operate in such a way as to prevent the defendant from removing, diminishing, or disposing of assets except in so far as they exceed the amount at issue.[23]

 

[1] Rules of the Supreme Court 1971 (WA) O 52A r 2(2).
[2] Rules of the Supreme Court 1971 (WA) O 52A r 2(1).
[3] Anderson v Fiona Xie [2011] VSC 486
[4] Duro Felguera Australia Pty Ltd v Trans Global Projects Pty Ltd (in liq) [2018] WASCA at [52], [54], [56].

 

[5] Cardile v LED Builders Pty Ltd (1999) CLR 380.
[6] Ibid O 52A r 5(4).
[7] Barreau Peninsula Pty Ltd v Ambassador at Redcliffe Pty Ltd [2008] QSC 90
[8] Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH & Co (The Niedersachen) [1983] 1 WLR 1412, [1984] 1 All ER 398, Mustill J said (at 406)
[9] West Clothing Co Pty Ltd v Sail America Foundation for Int’l Understanding [1988] WAR 119.
[10] Parberry v QNI Metals Pty Ltd (2018) 358 ALR 88.
[11] Groeneveld Australia Pty Ltd v Nolten Vastgoed BV [2011] VSC 18; BC201100345 at [60].
[12] Baraka Energy & Resources Ltd v Statoil Australia Theta BV (2014) 100 ACSR 340
[13] Hitchcock v Goldspan Investments Pty Ltd [2014] WASC 464
[14] Duro at [113].
[15] Ibid at [109].
[16] Duro at [52], [54], [56].
[17] Bank of Queensland Ltd v Grant [1984] 1 NSWLR 409
[18] Rules of the Supreme Court 1971 (WA) O 52A r 4.

 

[19] Cardile v LED Builders Pty Ltd (1999) CLR 380.
[20] Customs and Excise Commissioners v Barclays Bank Plc [2007] 1 AC 181; Fitzsimons v Commonwealth Bank of Australia [2012] NSWCA 660.
[21] Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 331.
[22] Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49 at 55.
[23] Prince Abdul Rahman Bin Turki Al Sudairy v Abu-Taha [1980] 3 All ER 409; [1980] 1 WLR 1268.