Freezing Orders

What is a Freezing Order?

Freezing orders, sometimes known as ‘Mareva Injunctions’ or ‘asset preservation orders’, are an important tool in litigation. It is an order the Court may enforce in order to restrain a party from dealing with certain assets, e.g. disposing, hiding or removing assets. Freezing orders may be obtained by an interlocutory application and prevent the respondent from dealing with their assets.

Freezing Orders are becoming increasingly common and are routine in cases of international fraud. These orders arise for consideration in two situations where there is a danger that an existing or prospective judgement or order may be frustrated by the removal or disposal of assets.

What is the purpose of a Freezing Order?

Under the Uniform Civil Procedure Rules 1999 (Qld) (UCPR) rule 260A(1) it states that:

The court may make an order (a freezing order) for the purpose of preventing the frustration or inhibition of the court’s process by seeking to meet a danger that a judgement or prospective judgement of the court will be wholly or partly unsatisfied.

It is important to note that parties in Queensland need to be mindful of the UCPR rule 260A(1) and the Supreme and District Court Practice Direction 1 of 2007 as they will need to show that the freezing order is necessary to ‘prevent the frustration or inhibition of the court’s process by seeking to meet a danger that a judgement or prospective judgement of the court will be wholly and partially satisfied.’

A freezing order is invasive and does not give the Respondent prior notice before the order is made. This is obviously an attempt to avoid a situation where the affected party might dispose of or move assets before the application is dealt with by the courts. It is also often considered as a drastic remedy, which is reflected in the manner in which the Court exercises its discretion.

Like other interlocutory injunctions, the applicant for a Freezing Order must establish that there is a serious question to be tried and that the balance of convenience and general discretionary factors favour the grant of the injunction per the case of Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264.

What assets are covered by a Freezing Order?

Generally, all personal assets are frozen. This includes, but is not limited to:

  • Bank Accounts;
  • Real Property (property consisting of land or buildings);
  • Motor Vehicles;
  • Share Portfolios;
  • Term Deposits; and
  • Valuables.

These assets cannot be sold, leased, mortgaged or otherwise dealt with unless the orders specifically allow for it.  The orders are not limited to assets held or located within Australia: Babanaft International Co SA v Bassante [1990] 1 All ER 433; Republic of Haiti v Duvalier [1990] 1 QB 202.

Accessing Frozen Assets

A freezing order, at minimum, will allow a person to pay for reasonable living expenses. It is normally a set amount per week, meaning that a person can withdraw a certain amount from their account each week to pay for expenses e.g. groceries, electricity bills, loan repayments etc.

Reasonable legal expenses are usually permitted as well, as ordered by the court.

General Principles for Awarding a Freezing Order

In the case of Jackson v Sterling Industries Ltd, Deane J set out the general principles for awarding freezing orders:

As a general proposition, it should now be accepted in this country that “A Mareva injunction can be granted … if the circumstances are such that there is a danger of [the defendant] absconding, or a danger of the assets being removed out of the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgment, will not be able to get it satisfied”: per Lord Denning MR, Rahman (Prince Abdul) v Abu-Taha [1980] 1 WLR 1268 at 1273   quoted with approval by Street CJ in Ballabil Holdings v Hospital Products (1985) 1 NSWLR 155 at 160”.

The power to award a Mareva Injunction stems from the inherent jurisdiction of a court to ensure that effective administration of justice is not frustrated by the dissipation or removal of assets.

What needs to be satisfied for the Court to grant a Freezing Order?

To succeed on an application for a freezing order under the Uniform Civil Procedure Rules 1999 (Qld), the applicant must show:

  1. A good arguable case; and
  2. A risk that assets will be dissipated, or that the respondent will abscond.

Applications for freezing order may be ex-parte – that is, without notice to the respondent, and without any appearance by the respondent. The Court usually hears the application on the first return date, and if it grants the application for a freezing order, will order the applicant to serve the respondent, and the respondent may argue whether the freezing order should continue on the next return date. Sometimes, freezing orders are paired with ‘Anton Piller’ orders, more commonly known as ‘search and seizure’ orders:  Bayer AG v Winter [1986] 1 All ER 733. These orders may also be made ex-parte.

Requirements under the Common Law

To succeed on an application for a freezing order under the common law, five requirements must be satisfied, as applied in the case of Pankhurst v Damata (2008) QSC 28:

  1. Applicant must have a judgement enforceable within the jurisdiction or an existing cause of action within the jurisdiction;
  2. Applicant must have good arguable case (in case of interlocutory Mareva Orders);
  3. Respondent must have assets within or outside the jurisdiction;
  4. There must be real danger or risk that the Respondent will remove assets within the Court’s jurisdiction (i.e. dispose of, remove or render them unavailable to satisfy any judgement that might be in favour of the applicant); and
  5. If the order is not made, the Applicant would be subject to a risk that the judgement in its favour would not be satisfied.

Extending on the fifth requirement, it is important to note that the applicant does not have to prove that it was the intention of the Respondent to deprive the applicant of satisfaction of its judgement.

Who can I place a Freezing Order against?

Freezing Orders are not bound to a singular person, these orders are also capable of freezing assets that have been illegitimately obtained e.g. the order can freeze the assets of a person’s spouse or child, if it is alleged that the person has stolen money to buy the assets.

The case of Walter Rau Neusser Oel and Fett AG v Cross Pacific Trading Ltd [2005] FCA 399 (unreported, 11 April 2005, BC200502153) is an example of freezing orders being made against several Respondents.

One of the respondents in this case was an Australian bank operating a branch in Fiji. A complaint was made against the main Respondents for placing monies into bank accounts maintained by the Australian bank’s Fiji branch, making the Australian bank an additional Respondent to the complaint.

Can I place a Freezing Order against a third party?

Third Party Freezing Orders

Yes, you can place a freezing order against a third party. Pursuant to rule 260C of the UCPR a freezing order may be granted against a non-party, and rule 218 further provides that the order may be severed on a person outside of Australia. It is important to note that to obtain a Freezing Order against a third party, pursuant to rule 260D(4), an applicant must establish the general requirements mentioned above.

Disputes as to Ownership of Assets

In circumstances where there is a dispute as to the ownership of assets, the following principles may apply as per the case of SCF Finance Co Ltd v Masri [1985] 1 WLR 876 Ca:

  1. If the assets appear to belong to a third-party they should not be included in the scope of the freezing order without evidence that they are the respondent’s;
  2. The mere assertion by a respondent that a third party owns the assets need not be accepted without inquiry (the same principle applies to a third party who intervenes to vary a freezing order to exclude assets);
  3. The court must do its best to do what is just and convenient between all concerned; and
  4. In a proper case the court may direct an issue to be tried either before or after the main action as to the ownership of the assets.

What is the limitation of a Freezing Order?

Once a Freezing Order is granted, it does not give the Applicant/Plaintiff any proprietary rights over the assets or give an application of preference over the creditors of the respondent.

In accordance with Practice Direction 1 of 2007, a Freezing Order should preserve the liberty for the Respondent to apply on short notice to have the order varied or discharged.

The Practice Direction clearly states that the value of the assets covered by the order should not exceed the likely maximum amount of the applicant’s claim, including costs and interests, and should exclude dealings by the Respondent for legitimate purposes (e.g. ordinary living expenses, legal expenses etc).

When does a Freezing Order expire?

A Freezing Order expires when the Respondent pays the specified sum into an agreed bank account, or to the Court, or by providing security for that amount by another agreed way. As each expiration date approaches, the party seeking the order can request that the order be extended. Commonly, when the order is first served, the expiry date will usually be only a few days away. However, freezing orders can remain in place for several years before any resolution is reached.

Unless the person subject to the order can convince the court that the orders are inappropriate or excessive and should not be continued, the order will normally be continued until the legal dispute is finalised. This will usually occur when the legal proceedings are finalised by the court or if a settlement is reached.

Ancillary Orders and Undertaking as to Damages

The Court may, alongside with the Freezing Order, make Ancillary order, such as orders requiring the Respondent to provide the applicant with an affidavit setting our details of all its assets.

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