Freezing orders

Acknowledgement: the following material has been prepared by the Honourable Justice P Biscoe of the Land and Environment Court of New South Wales and updated by his Honour Judge M Dicker SC of the District Court of New South Wales.

Portions of this chapter are adapted with permission from Chapters 3–6 of P Biscoe, Freezing and Search Orders: Mareva and Anton Piller Orders, 2nd edn, LexisNexis Butterworths, Australia, 2008.

[2-4100] Introduction

Freezing orders are governed by detailed rules introduced in June 2006 and by a Supreme Court practice note dated 16 June 2010:

Freezing orders:

UCPR Pt 25 Div 2 (rr 25.10–25.17)
Practice Note SC Gen 14 (PN 14) (see Ritchie’s [55,129, Volume 3])

The practice note includes an example form of ex parte orders which are complex. They should not be significantly varied without good reason.

In the absence of court specific practice notes it would be appropriate for the procedure set out in Practice Note 14 to be followed.

An object of the rules, practice notes and forms is to strike a fair balance between the legitimate objects of these drastic orders and the reasonable protection of respondents and third parties. The models for them were drafted by a harmonisation committee of judges appointed by the Council of Chief Justices of Australia and New Zealand. They have been adopted in similar form in all Australian jurisdictions.

[2-4110] Freezing orders

The court is empowered to make a freezing order, with or without notice to the respondent, to prevent 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: r 25.11. This jurisdiction is concerned with money claims, as distinct from proprietary claims where the principles governing interlocutory injunctions are different. If the court has no jurisdiction to give a relevant money judgment, it has no power to make a freezing order under this rule: Newcastle City Council v Caverstock Group Pty Ltd [2008] NSWCA 249 at [45]–[46].

A freezing order is normally obtained ex parte without notice to the respondent, before service of the originating process, because notice or service may prompt the feared dissipation or dealing with assets. A freezing order is an exceptional remedy and one that should not be granted lightly: Severstal Export GmbH v Bhushan Steel Ltd (2013) 84 NSWLR 141; [2013] NSWCA 102 at [57].

Freezing orders are also known as Mareva orders or asset preservation orders. The title “freezing order” follows the title used in the English rules. The original title “Mareva order” derived from the seminal English Court of Appeal case of Mareva Compania Naviera SA v International Bulk Carriers SA (The Mareva) [1980] 1 All ER 213. The title “asset preservation order” was suggested in Cardile v LED Builders Pty Ltd [1999] 198 CLR 380 at [25].

An applicant for a freezing order should:

  • prove that judgment has been given in its favour or that it has a good arguable case on an accrued or prospective cause of action: r 25.14(1),

  • prove that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because the judgment debtor, prospective judgment debtor or another person might abscond, or the assets of the judgment debtor, prospective judgment debtor or another person might be removed from wherever they are, or might be disposed of, dealt with or diminished in value: r 25.14(4),

  • where an order is sought against a third party, prove that there is a danger that its judgment or prospective judgment will be wholly or partly unsatisfied because (a) the third party holds or is using, or is exercising a power of disposition over assets of the judgment debtor or prospective judgment debtor; or (b) the third party is in possession of, or in a position of control or influence concerning, assets of the judgment debtor or prospective judgment debtor; or (c) there is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, a process whereby the third party may be obliged to disgorge assets or contribute towards satisfying the judgment or prospective judgment: r 25.14(5),

  • address discretionary considerations,

  • address the form of the order, including the value of the frozen assets; exclusion of dealings with the assets for living, legal and business expenses and pre-order contractual obligations; the duration of the order; and liberty to apply,

  • provide an undertaking as to damages or indicate why no undertaking as to damages is proffered,

  • provide any other appropriate undertakings, and

  • on an ex parte application, make full disclosure of all material facts.

[2-4120] Strength of case

The threshold condition is that the applicant has a judgment or a good arguable case on an accrued or prospective cause of action. A good arguable cause is “one which is more than barely capable of serious argument, and yet not necessarily one which the judge believes would have a better than 50 per cent chance of success”: Ninemia Maritime Corp v Trave GmbH & Co KG (“The Niedersachsen”) [1984] 1 All ER 398 at 404 per Mustill J. It is a less stringent test than requiring proof on the balance of probabilities: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 325 per Gleeson CJ; Frigo v Culhaci [1998] NSWCA 88.

There are stronger reasons for assisting an applicant after judgment than before judgment: Babanaft International Co SA v Bassatne [1989] 2 WLR 232 at 243–244, 254.

Where the applicant has not yet obtained judgment in its favour the strength of the applicant’s case is relevant in two distinct respects — (1) the applicant must have a case of a certain strength, before the question of granting Mareva relief can arise at all. I will call this the “threshold”, (2) Even where the applicant shows that he has a case which reaches the threshold, the strength of his case is to be weighed in the balance with other factors relevant to the exercise of the discretion: per Mustill J in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft GmbH (“The Niedersachsen”) [1983] 2 Lloyd’s Rep 600 at 603.

[2-4130] Danger that a judgment may go unsatisfied

The heart and soul of the freezing order jurisdiction is that there is evidence on which a judge could conclude, consistent with principle, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied for a reason referred to in r 25.14(4) or (5): Severstal Export GmbH v Bhushan Steel Ltd, above, at [60]; cf Patterson v BTR Engineering (Aust) Ltd, above, at 321–322 per Gleeson CJ.

The existence of the danger may be a matter of inference. The type of evidence from which the court can infer the danger was addressed in Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645 at 671–672: there must be facts from which “a prudent, sensible commercial man, can properly infer a danger of default”. A prima facie case of fraudulent misappropriation of assets or serious wrongdoing readily supports the inference that the respondent would not preserve its assets: Patterson, above, at 321–322 per Gleeson CJ, approved by the NSW Court of Appeal in Frigo v Culhaci, above. Mere assertions that the defendant is likely to put assets beyond the plaintiff’s reach will not be enough: Patterson, above, at 325 per Gleeson CJ.

[2-4140] The form of order

The form of the order is vital if it is to achieve its permissible object, whilst protecting the respondent and third parties from oppression and prejudice so far as is possible, consistent with the attainment of that object. These considerations make the form of the order complex. The example ex parte order included in PN 14 provides an excellent model.

It has been held that a post-judgment freezing order made by the District Court may be made for such period as is appropriate for a judgment creditor to move promptly to utilise the provisions with respect to writs of execution previously in the District Court Act 1973 (see now UCPR Pt 39). Accordingly, such an order should not be made “until further order or payment of the verdict”: Pelechowski v Registrar, Court of Appeal (1999) 198 CLR 435 at [52]–[54].

[2-4150] Value of assets subject to the restraint

The value of the assets restrained should usually not exceed the maximum amount of the claimant’s likely claim including interest and costs: PN 14 [11]. Legally permissible set-offs may be taken into account.

[2-4160] Living, legal and business expenses are excluded

The order should exclude dealings by the respondent with its assets for legitimate purposes; in particular, payment of ordinary living expenses, reasonable legal expenses and business expenses bona fide and properly incurred and dealings and dispositions in the discharge of obligations bona fide and properly incurred under a contract entered into before the order was made: PN 14 [12]. However, where a freezing order does not relate to the whole of the respondent’s assets, at an inter partes hearing the respondent may have an evidentiary onus of showing that such expenses cannot be met from unfrozen assets.

[2-4170] Sample orders

(the following is sourced from PN 14 example form at [10])

[2-4180] Liberty to apply

Provision should be made for liberty to apply to the court on short notice to vary or discharge the order. An application by a respondent to discharge or vary a freezing or search order should be treated by the court as urgent: PN 14 [10] and example form [3].

[2-4190] Sample orders

(the following is sourced from PN 14 example form at [3])

[2-4200] Duration of the order

An ex parte order should only be for a very short duration, usually no more than a few days, when the application should be made returnable before the court: PN 14 [9].

[2-4210] Undertaking as to damages

The applicant is normally required to give the usual undertaking as to damages: PN 14 at [16]: Frigo v Culhaci, above; Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249 at 311. An undertaking as to damages is normally an incident of an interlocutory order of this nature because in its absence if the proceedings fail, the respondent will be left without remedy. The undertaking as to damages in the PN 14 example form Sch A [1] provides:

[2-4220] Sample orders

[2-4230] Other undertakings

Other undertakings by an applicant may be attached to a freezing order to prevent the order from causing injustice or being used oppressively. Such undertakings appear in the PN 14 example form Sch A [2]–[8].

[2-4240] Full disclosure on ex parte application

On an ex parte application, the applicant must make full and frank disclosure of all material facts to the court. This includes disclosure of possible defences known to the applicant and of any information which may cast doubt on the applicant’s ability to meet the usual undertaking as to damages from assets within Australia: PN 14 [19]. Failure to meet the duty of disclosure provides grounds for subsequently dissolving the order without a hearing on the merits, and may also provide grounds for not continuing an order originally obtained ex parte: Thomas A Edison Ltd v Bullock (1912) 15 CLR 679 at 681–682; Town and Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Ltd (1988) 20 FCR 540 at 543; Hayden v Teplitzky (1997) 74 FCR 7; Garrard t/as Arthur Anderson & Co v Email Furniture Ltd (1993) 32 NSWLR 662 (CA) at 676; Paramount Lawyers Pty Ltd v Haffar (No 2) [2016] NSWSC 906 at [119].

[2-4250] Defence of the application or dissolution or variation of the order

A respondent to an ex parte order who does not wish to submit to the order should oppose its continuance or apply to the judge to discharge it, and should not appeal to the Court of Appeal without first going before the court at first instance for reconsideration of the ex parte order: WEA Records Ltd v Visions Channel 4 Ltd [1983] 1 WLR 721; Commonwealth of Australia v Albany Port Authority [2006] WASCA 185 at [26].

As stated in PN 14 [15], the rules of court confirm that certain restrictions expressed in Siskina, Owners of the Cargo on board the v Distos Compania Naviera S A (The Siskina) [1979] AC 210 do not apply in this jurisdiction. First, the court may make a freezing order before a cause of action has accrued (a “prospective” cause of action): r 25.14(1)(b). Second, the court may make a free-standing freezing order in aid of foreign proceedings in certain circumstances: see Severstal Export GmbH v Bhushan Steel Ltd (2013) 84 NSWLR 141; [2013] NSWCA 102. Third, where there are assets in Australia, service out of Australia is permitted under a new long arm service rule: r 25.16.

[2-4260] Ancillary orders

Rules 25.12 and 25.13 deal with ancillary orders including orders ancillary to a “prospective” freezing order. Ackner LJ said in AJ Bekhor & Co Ltd v Bilton [1981] QB 923 (CA) at 940 that the court has “power to make all such ancillary orders as appear to the court to be just and convenient to ensure that the exercise of the Mareva jurisdiction is effective to achieve its purpose”.

The purpose of an ancillary order, like the purpose of the freezing order itself, is to prevent the frustration of a court’s process in relation to matters coming within its jurisdiction. Orders ancillary to a freezing order include the following:

  • a disclosure of assets order

  • an order for the cross-examination of a respondent about his or her assets disclosure

  • an order requiring the delivery of specified assets

  • an order that a respondent direct its bank to disclose information to the applicant

  • an order that a respondent restore or pay money to a designated account or into court

  • an order restraining the respondent from leaving the jurisdiction for a period

  • an order appointing a receiver to the respondent’s assets

  • an order for the transfer of assets from one foreign jurisdiction to another

  • a Norwich order (Norwich Pharmacal Co v Commissioners of Customs and Excise [1974] AC 133), or

  • a search order.

The most common form of order is that the respondent disclose the nature, location and details of its assets: PN 14[8]. The reasons why an assets disclosure order is important to the efficacy of a freezing order were stated in Universal Music Australia Pty Ltd v Sharman License Holdings Ltd (2005) 228 ALR 174 at [20], quoting P Biscoe, Mareva and Anton Piller Orders: Freezing and Search Orders, LexisNexis Butterworths, Australia, 2005:

… [F]irst, disclosure of the assets upon which the freezing order operates makes it more difficult for a respondent surreptitiously to disobey the freezing order. Secondly, disclosure identifies third parties such as banks who have custody of the assets and enables notice of the order to be given to them so as to bind them to the order, for third parties will be guilty of contempt of court if they knowingly assist a respondent to breach the order. Thirdly, disclosure may enable the freezing order to be framed by reference to specific assets rather than as a maximum sum order, thereby minimising oppression to the respondent, and unnecessary exposure of the applicant to risk under its undertaking as to damages. Fourthly, disclosure assists an applicant to make a rational decision whether to continue its undertaking as to damages.

[2-4270] Cross-examination

It has been said that the touchstone for determining whether leave should be given to cross-examine a deponent on an assets disclosure affidavit is if it would render the freezing order more efficacious and that a relevant consideration is whether there has been failure to disclose assets completely or promptly: Universal Music Pty Ltd v Sharman License Holdings, above, at [28]. This has been quoted with approval: Hathway (Liquidator) Re Tightrope Retail Pty Ltd (in Liq) v Tripolitis [2015] FCA 1003.

[2-4280] Third parties

The expression “third parties” is used here in the sense of persons against whom no final substantive relief is claimed. A freezing order may be made against or served on a third party who holds or controls a respondent’s assets beneficially owned by a respondent, such as a bank or warehouse. A freezing order may be made against a third party who might be liable to disgorge property or otherwise contribute to the assets of a substantive respondent.

If a substantive respondent disobeys a freezing order, its efficacy is dependent upon compliance by third parties. Unlike a money judgment, the effect of a freezing order is not confined to the parties but extends to a third party with notice of the order or against whom a freezing order is also made.

A third party is affected by a freezing order in two cases:

(a) 

the order is made against the third party, or

(b) 

although the order is not made against the third party, notice of the order is given to the third party.

In the first case the third party is bound by the order. In the second case the third party is not bound by the order but will be guilty of contempt of court, for which it may be penalised by committal, sequestration or fine, if it does anything to assist its breach because it would thereby be interfering with or obstructing the administration of justice.

The leading Australian case on freezing orders against third parties is Cardile v LED Builders Pty Ltd (1999) 198 CLR 380. The guiding principles for determining whether to make a freezing order against a third party are found in the joint judgment at [54], [57]. In Cardile, the third parties were not joined as parties to the proceedings. The Cardile principles are reflected in r 25.14(5) and PN 14.

Third parties affected by a freezing order are entitled to protection through the applicant’s undertaking as to damages and as to their costs incurred in complying with orders: r 25.17. Provisions for their protection have been developed in the example form of order.

Where a third party asserts that property under its control is its property, the court may order a trial of the preliminary issue of ownership.

[2-4290] Transnational freezing orders

A freezing order is transnational if it relates to (a) foreign assets where the order is to support enforcement of a domestic judgment or prospective judgment even before the commencement of substantive proceedings (commonly called a worldwide order); or (b) domestic assets where the order is to support enforcement of a foreign judgment or prospective judgment even before the commencement of substantive foreign proceedings: see Severstal Export GmbH v Bhushan Steel Ltd, above; PT Bayan Resources TBK v BCBC Singapore Pte Ltd (2015) 325 ALR 168; [2015] HCA 36. The transnational freezing order is significant because of transnational business activity, the multinational corporation and the ease with which persons and assets can move or be moved between nations.

In PT Bayan Resources, above, the High Court considered a challenge by a respondent to a freezing order. The issue was whether the freezing order made in relation to a prospective foreign judgment was within the inherent power of the Western Australian Supreme Court. The court held it was. It was accepted that the prospective judgment of the foreign court, if ordered, would be registerable in Australia under the Foreign Judgments Act 1991 (Cth).

The plurality in the High Court stated as follows at [43] and [46] in relation to the doctrinal basis of the inherent power of State superior courts in Australia:

[43] … It is well established by decisions of this Court that the inherent power of the Supreme Court of a State includes the power to make such orders as that Court may determine to be appropriate “to prevent the abuse or frustration of its process in relation to matters coming within its jurisdiction”. And it has been noted more than once in this Court that a freezing order is “the paradigm example of an order to prevent the frustration of a court’s process”.

[46] … Even where a court makes a freezing order in circumstances in which a substantive proceeding in that court has commenced or is imminent, the process which the order is designed to protect is “a prospective enforcement process”. That description is drawn from the explanation of the nature of a freezing order given by Lord Nicholls of Birkenhead in Mercedes Benz AG v Leiduck. That passage was cited with approval by five members of this Court in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia in a passage which (subject to presently immaterial qualifications) was itself adopted as a correct statement of principle by four members of this Court in Cardile v LED Builders Pty Ltd. Lord Nicholls explained:

Although normally granted in the proceedings in which the judgment is being sought, [a freezing order] is not granted in aid of the cause of action asserted in the proceedings, at any rate in any ordinary sense. It is not so much relief appurtenant to a money claim as relief appurtenant to a prospective money judgment. It is relief granted to facilitate the process of execution or enforcement which will arise when, but only when, the judgment for payment of an amount of money has been obtained.

The High Court held the State Supreme Court had inherent power to make the order as the making of the order was “to protect a process of registration and enforcement in the Supreme Court which is in prospect of being invoked”: at [50]. An application to a State Supreme Court for a freezing order in relation to a prospective judgment of a foreign court, which when made would be registrable by order of the Supreme Court under the Foreign Judgments Act or an application for registration of a foreign judgment under the Foreign Judgments Act was held to be a proceeding in a matter within the federal jurisdiction of the Supreme Court: PT Bayan Resources, above, at [51]–[55]; Firebird Global Master Fund II Ltd v Republic of Nauru (2015) 90 ALJR 228; [2015] HCA 43 at [185].

Where transnational elements are present in an application it is necessary to address three questions. First, whether the court has personal jurisdiction over the respondent. Second, if so, whether there is jurisdiction to make a freezing order. Third, if so, whether there are difficulties of conflict of laws, comity, enforceability or other relevant matters which affect the discretion whether to make the order or the form of the order.

In relation to the first question, an important long arm service rule provides: “An application for a freezing order or an ancillary order may be served on a person who is outside Australia (whether or not the person is domiciled or resident in Australia) if any of the assets to which the order relates are within the jurisdiction of the court”: r 25.16.

In relation to the second question, jurisdiction to make a freezing order is explained in r 25.14 which deals with specific circumstances, and in r 25.15 which makes clear that nothing in Div 2 diminishes the court’s implied, inherent or statutory jurisdiction. The court has freezing order jurisdiction in the case of a judgment of another court — which may be a foreign court — if there is “sufficient prospect” that the judgment will be registered in or enforced by the court: r 25.14(2). The court also has freezing order jurisdiction where the applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in the court or in another court — which may include a foreign court — if there is sufficient prospect that the other court will give judgment in favour of the applicant and sufficient prospect that the judgment will be registered in or enforced by the court: r 25.14(1)(b) and (3).

Even prior to introduction of the current rules, it had been held that the court has implied or inherent jurisdiction to make an order in aid of the enforcement of a foreign judgment, whether or not that judgment had yet been obtained: Davis v Turning Properties Pty Ltd (2005) 222 ALR 676, per Campbell J; Celtic Resources Holdings PLC v Arduina Holding BV (2006) 32 WAR 276, per Hasluck J.

The making of a freezing order in respect of foreign assets is a serious step which ordinarily requires an undertaking by the applicant not to enforce it without the permission of the court. Such an undertaking appears in the example form in PN 14 Sch A [7].

Provisions for worldwide freezing orders in the example form make it clear that they impose no liability on third parties, such as banks, outside Australia (except third parties who are directors, officers, employees and agents of the respondent to the application) and are not subject to the jurisdiction of the court: PN 14, example form [16].

The English Court of Appeal laid down the “Dadourian guidelines” for the exercise of the court’s discretion to grant permission to enforce a transnational freezing order abroad in Dadourian Group International Inc v Simms [2006] 1 WLR 2499 at 2502 [25]:

Guideline 1: The principle applying to the grant of permission to enforce a WFO [worldwide freezing order] abroad is that the grant of that permission should be just and convenient for the purpose of ensuring the effectiveness of the WFO, and in addition that it is not oppressive to the parties to the English proceedings or to third parties who may be joined to the foreign proceedings.

Guideline 2: All the relevant circumstances and options need to be considered. In particular consideration should be given to granting relief on terms, for example terms as to the extension to third parties of the undertaking to compensate for costs incurred as a result of the WFO and as to the type of proceedings that may be commenced abroad. Consideration should also be given to the proportionality of the steps proposed to be taken abroad, and in addition to the form of any order.

Guideline 3: The interests of the applicant should be balanced against the interests of the other parties to the proceedings and any new party likely to be joined to the foreign proceedings.

Guideline 4: Permission should not normally be given in terms that would enable the applicant to obtain relief in the foreign proceedings which is superior to the relief given by the WFO.

Guideline 5: The evidence in support of the application for permission should contain all the information (so far as it can reasonably be obtained in the time available) necessary to enable the judge to reach an informed decision, including evidence as to the applicable law and practice in the foreign court, evidence as to the nature of the proposed proceedings to be commenced and evidence as to the assets believed to be located in the jurisdiction of the foreign court and the names of the parties by whom such assets are held.

Guideline 6: The standard of proof as to the existence of assets that are both within the WFO and within the jurisdiction of the foreign court is a real prospect, that is the applicant must show that there is a real prospect that such assets are located within the jurisdiction of the foreign court in question.

Guideline 7: There must be evidence of a risk of dissipation of the assets in question.

Guideline 8: Normally the application should be made on notice to the respondent, but in cases of urgency, where it is just to do so, the permission may be given without notice to the party against whom relief will be sought in the foreign proceedings but that party should have the earliest practicable opportunity of having the matter reconsidered by the court at a hearing of which he is given notice.

These principles were followed in Luo v Zhai (No 3) [2015] FCA 5 at [12].

Rules

  • UCPR rr 25.10–25.17

Further references

  • P Biscoe, Freezing and Search Orders: Mareva and Anton Piller Orders, 2nd edn, LexisNexis Butterworths, Australia, 2008

Practice Note

  • Practice Note SC Gen 14 (16 June 2010 version).