What is a freezing order?
Previously known as a Mareva order, a freezing order is an interlocutory order restraining a person or corporation from removing any assets located in or outside Australia or from disposing of, dealing with or diminishing the value of, those assets.
What is the purpose of a freezing order?
The purpose of a freezing order is to minimise the risk that a judgment will be wholly or partly unsatisfied. Although useful for creditors looking to protect assets, it is not an order for security and does not improve the position of the applicant creditor in the event of insolvency of the judgment debtor.
The order is usually made without notice to the respondent. This could be a defendant in other relevant proceedings or a third party who has possession, custody or control of relevant assets. Significantly, the order will be limited until the return date of the application which is usually set down as soon as practicable after the interim order is made. The applicant then bears the onus of satisfying the Court that the order should be continued or renewed.
It is considered a drastic remedy, which is reflected in the manner in which the Court exercises its discretion and what must be proven in order to successfully obtain the order.
Part 2 of Chapter 8 of the Uniform Civil Procedure Rules 1999 (the Rules) contains a number of rules relating specifically to freezing orders, which complement the general law.
Most relevantly, rule 260D sets out the minimum requirements that an applicant for a freezing order must demonstrate. These are:
From an evidential point of view, the risk of dissipation of assets is generally easier to prove if there is evidence of fraud. Interestingly, proof of dishonesty alone may be sufficient to give rise to an inference that assets may be diminished or disposed of.
An application for a freezing order must include at least the following information in a supporting affidavit:
Rule 430(2) of the Rules helpfully provides an exception such that the supporting affidavit may contain hearsay evidence.
What assets are covered by a freezing order?
The value of the assets covered by a freezing order should not exceed the likely maximum amount of the applicant’s claim. This includes interest and costs. The order must also exclude dealings by the respondent with its assets for legitimate purposes, such as the payment of ordinary living/business expenses and dealings in the discharge of contractual obligations incurred before the order was made.
Ancillary orders and undertaking as to damages
The Court may also make ancillary orders, such as orders requiring the respondent to provide the applicant with an affidavit setting out details of all of its assets. However, in accordance with the privilege against self-incrimination generally afforded to defendants in civil proceedings, a respondent may object to providing details of its assets if doing so would expose the respondent to the imposition of a civil penalty or conviction for a crime. Notably, this privilege is not available to corporations.
In addition, unless there is good reason, the Court must not grant a freezing order without the applicant giving the usual undertaking as to damages. The Court may require the applicant to make a payment into Court, or to give other security for the performance of the undertaking.
When does the freezing order cease?
Subject to an order of the Court, a freezing order ceases to have effect if the respondent pays a specified sum into the Court or an agreed bank account, or provides security in that amount by another agreed method.
In the right circumstances, a freezing order has the capacity to ensure your client’s judgment is never considered just an expensive piece of paper. However, a successful application requires:
An undertaking as to damages or a payment into Court of a suitable amount.
Scott Couper, Partner
Lisa Harden-Parnell, Associate