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03 May 2010

Freezing orders in Australia to assist foreign proceedings - guidance for inhouse counsel

by Stuart Clark, Dugan Cunningham, Ben McGlade

There are four basic elements that must be satisfied to obtain a freezing order from an Australian court.

As a consequence of increasing globalisation, disputes can often arise involving foreign defendants that hold assets in Australia and elsewhere.

It may therefore sometimes be necessary to seek a freezing order (either against a defendant or a third party that holds assets on behalf of a defendant) from an Australian court in order to prevent assets being dissipated or diminished so as to frustrate a judgment or prospective judgment of a foreign court.

This article reviews the rules that apply when an application is made to an Australian court for a freezing order to assist foreign proceedings.

Nature and purpose of a freezing order

Broadly, a freezing order (also known as a “Mareva” [1] order or an “asset preservation” order) is an order which prevents a defendant, or a third party, from removing assets located in or outside Australia, or from dissipating those assets pending the determination of the substantive or principal proceedings.

The purpose of a freezing order is to prevent the defendant or third party from dealing with its assets in such a way so as to deprive the applicant of the benefit of the final judgment which the applicant has sought (or is seeking).

Rules of Court

From about 2006, all of the Australian courts of record promulgated rules setting out the basis on which a party can seek a freezing order to assist with foreign proceedings.[2]

Elements to be established

To obtain a freezing order against a judgment debtor (or a prospective judgment debtor) from an Australian court, the applicant’s evidence must establish four key elements.

1. The applicant has either obtained a judgment from a foreign court, or has a “good arguable case” on an accrued or prospective cause of action in a foreign court.

2. There is a sufficient prospect that:

  • the judgment of the foreign court will be registered in or enforced by the Australian court; or
  • the foreign court will grant a judgment and the judgment will be registered in or enforced by the Australian court.

3. There is danger that the judgment (or prospective judgment) of the foreign court will be wholly or partially unsatisfied because of: the removal of assets from inside or outside Australia; the disposal, dealing with or diminishing in value of assets; or someone absconding.

4. Discretionary factors do not weigh against the grant of the freezing order being made by the Australian court.

The onus of establishing these elements rests with the applicant for the freezing order. The applicant must also give the court an undertaking to pay any damages that may flow from the grant of the freezing order, if, eg. the applicant is ultimately unsuccessful in the foreign proceedings or the order is subsequently set aside. In some cases, the court may require the applicant to give security for that undertaking.

Where an application for a freezing order is made ex parte (that is, without notice to the respondent), the applicant has a duty to make full disclosure of all material facts relevant to the granting of the freezing order, including those that might be adverse to the applicant’s case. [3] A failure to comply with this duty will almost certainly result in the freezing order being discharged by the court.

1. “Good arguable case”

What constitutes a “good arguable case” was considered in Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH (The Niedersachen), a decision of the English Queen's Bench Division.[4]

In that decision, Mustill J observed that a good arguable case was:

"… one which is more than barely capable of serious argument, and yet not necessarily one which the judge considers would have a better than 50 per cent chance of success."

Where no judgment has yet been obtained from a foreign court against the defendant, the applicant’s evidence should ordinarily (particularly in jurisdictions where the law substantially differs from Australian law) include evidence from an expert in the law of the relevant foreign jurisdiction to the effect that the applicant’s cause of action in the foreign court is one that is more than barely capable of serious argument.

2.“Sufficient prospect” of registration or enforcement

The Foreign Judgments Act 1991 (Cth) (Act) provides a set of rules for the recognition of foreign judgments by Australian courts. However, the rules contained in the Act only apply to certain courts of the countries listed in the Foreign Judgments Regulations 1992 (Cth) (Regulations).

Broadly speaking, if a foreign judgment is to be recognised under the Act, it must be registered in the appropriate Australian court within six years of the date of the judgment (or relevant appeal). [5]

The appropriate court is generally the Supreme Court of a State or Territory, depending on the nature of the judgment. The Rules of the Court will normally prescribe the matters that must be addressed in order to register a foreign judgment under the Act. These include:

  • the evidence supporting the application;
  • the form of the registration order;
  • an application to set the order aside; and
  • the process for enforcing the judgment.

Because the United States of America is not listed in the Regulations an applicant must rely on the common law principles governing the recognition/enforcement of foreign judgments.

At common law, the elements that must be established are often described as follows: [6]

  • the foreign court has exercised a jurisdiction which Australian courts will recognise;
  • the foreign judgment is final and conclusive;
  • there is an identity of the parties;
  • if based on a judgment in personam, the judgment must be for a fixed debt.

If the foreign judgment satisfies these elements, it is prima facie enforceable in Australia unless the defendant can establish a recognised defence [7].

The applicant for a freezing order to assist US proceedings will need evidence establishing that, if the applicant obtains judgment on its cause of action in the US, there is a sufficient prospect that it can meet the criteria for enforcing that judgment in Australia. [8]

3. Danger that judgment may be unsatisfied

Broadly, the applicant must demonstrate a danger that a judgment or prospective judgment from the foreign court will be wholly or partly unsatisfied because:

  • someone (eg. the defendant) might abscond; or
  • their assets might be removed from inside or outside Australia or disposed of, dealt with or diminished in value.

The Australian court must be satisfied that this is a real danger. It will not be enough for the applicant to merely assert a risk or express a fear that, for example, a person might abscond or assets will be dissipated. [9]

The relevant danger can be established by inference. To maximise the prospects of successfully doing so, an applicant seeking to establish the danger by inference will need evidence from which the Australian court can “like a prudent, sensible, commercial man … properly infer a danger of default” if, for example, assets are removed or dissipated. [10]

Where there is a prima facie case of serious wrongdoing (eg. fraud), it supports an inference by the court that the respondent will not preserve its assets.

4. Discretionary matters

Even if all of these elements are satisfied, the decision to grant a freezing order to assist foreign proceedings will be at the discretion of the Australian court.

Relevant discretionary factors might include, for example:

  • the strength of any defence to the cause of action;
  • whether the freezing order would have a damaging effect on the respondent’s reputation or business;
  • the effect of the freezing order on innocent third parties; and
  • the diligence and expedience of the applicant in bringing the freezing order application. [11]

The Australian court will need to be satisfied that, in all the circumstances of the case, it is appropriate for it to grant a freezing order in to assist foreign proceedings.

Third parties

An Australian court will also grant a freezing order against a third party to assist foreign proceedings.

The elements that must be established are very similar to those outlined above, save that the focus of the danger of the foreign judgment going unsatisfied (element 4) shifts to the power, possession or control that the third party has over assets that might be used to satisfy such a judgment.

Summary for inhouse counsel

Subordinate legislation contains the elements that must be established to obtain a freezing order to assist with foreign proceedings.

The primary elements for obtaining an order from an Australian court are:

  • a foreign judgment or “good arguable case” in a foreign court;
  • a sufficient prospect of registration or enforcement of the foreign judgment or prospective judgment in the Australian court;
  • a danger that the foreign judgment will go unsatisfied; and
  • satisfaction of discretionary matters.

The applicant for a freezing order will have to provide an undertaking as to damages (including, if necessary, security for that undertaking).

In an ex parte application, the applicant should make full disclosure of all material facts, even if they are adverse to the applicant’s case.

This article was first published in Inhouse Counsel, Vol 13 No 7, May 2010

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[1] Named after Mareva Compania Naviera SA v International Bulk Carriers SA (The Mareva) [1980] 1 All ER 213; [1975] 2 Lloyd’s Rep 509. Back to article

[2] Federal Court of Australia Order 25A of the Federal Court Rules. Queensland — Ch 8, Pt 2, Div 2 of the Uniform Civil Procedure Rules 1999 (currently at rr 260–260G). New South Wales — Pt 25, Div 2 of the Uniform Civil Procedure Rules 2005 (currently at rr 25.10–25.17). Victoria — Order 37A of the Supreme Court (General Civil Procedure) Rules 2005 (currently at rr 37.A01–37A.09). Tasmania—Pt 36, Div 1A of the Supreme Court Rules 2000 (currently at rr 937A–937H). South Australia — Rule 247 of the Supreme Court Civil Rules 2006. Western Australia — Order 52A of the Rules of the Supreme Court 1971. Australian Capital Territory — Ch 2, subdiv 2.9.4.2 of the Court Procedure Rules 2006 (currently at rr 740–745). Northern Territory — Order 37A of the Supreme Court Rules. Back to article

[3] See paragraph 19 of the Federal Court of Australia Practice Note (CM9) and Memory Corp plc v Sidhu (No 2) [2000] 1 WLR 1443 at 1459 per Mummery LJ. Back to article

[4] Ninemia Maritime Corp v Trave GmbH & Co KG (The Niedersachsen) [1984] 1 All ER 398; [1983] 1 WLR 1412; [1983] 2 Lloyd’s Rep 600. Back to article

[5] Section 6(1) of the Act. Back to article

[6] Benefit Strategies Group Inc v Prider (2004) 237 LSJS 1; [2004] SASC 365 at [21] per Gray J. Back to article

[7] Nygh PE and Davies M, Conflict of Laws in Australia, 7th Edition, LexisNexis Butterworths, Australia at page 169. Back to article

[8] For a detailed discussion of those matters see S Stuart Clark, D Cunningham and R McEvoy “Enforcing US judgments in Australia — what are the rules?” (2007) 11(3) IHC 30. Back to article

[9] Ninemia Maritime Corp v Trave GmbH (The Niedersachsen) [1984] 1 All ER 398; [1983] 1 WLR 1412; [1983] 2 Lloyd’s Rep 600 at 406 per Mustill J. Back to article

[10] Third Chandis Shipping Corporation v Unimarine SA [1979] QB 645 at 671–672 per Lawton LJ. Back to article

[11] Galaxia Maritime SA v Mineralimportexport [1982] 1 All ER 796; [1982] 1 WLR 539; [1982] 1 Lloyd’s Rep 351 at 542 per Kerr LJ; Pearce v Waterhouse [1986] VR 603 at 607–8 per Vincent J; Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1; 27 ACSR 535; [1998] HCA 30 at [65]. Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.