Worldwide asset freezing order by Federal Court – are they possible?

The recent High Court case of Deputy Commissioner v Huang [2021] HCA 43 (Huang) considered the power of the Federal Court of Australia (Federal Court) to make worldwide freezing orders pursuant to rule 7.32 of the Federal Court Rules 2011 (Cth) (Rules).  The decision confirms that worldwide asset freezing orders are open to be made by the Federal Court.   In this case the assets were allegedly in the People’s Republic of China and Hong Kong.

Freezing orders generally – Mareva orders

Freezing orders are more commonly known as ‘Mareva Orders”.  It has long been a feature of Australian common law that where there is a danger that the Court’s processes could be usurped or circumvented an order preventing such frustration via the freezing assets of a party within Australia may be made.  In Mareva Compania Naviera SA v International Bulkcarries SA [1975] 2 Lloyd’s Rep 509 it was held that at 510:

“If it appears that the debt is due and owing – and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment – the Court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets.”

A freezing order operates to preserve the status quo.^[1]  Such an order will not favour one party over another in the resolution of the real issues seeking to be resolved.  It is simply the case that the assets are frozen and will be subject to the orders of the Court to the extent required to ensure certainty of the Court’s final judgment.  The status quo which is preserved is, generally, the ability of a party to comply with a prospective final judgment of the Court.

Whilst it is established that Australian Court’s may make freezing orders over assets residing within Australia, it is a separate question whether the same can be said about international assets subject to judgments of Australian Courts.

Legislative framework

Rule 7.32 of the Rules titled ‘freezing order’ provides:

• The Court may make an order (a freezing order), with or without notice to a 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.
• A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.

This rule is said to supplement section 23 of the Federal Court of Australia Act 1976 (Cth),^[2] which provides:

“The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate.”

Section 23 has, in the case of Jackson v Sterling Industries Limited [1987] HCA 23, formed the basis from which the Court may make freezing orders against international assets even where rule 7.32 did not yet exist.^[3]

The legislative intent is clear.  Where the Court’s processes are sought to be frustrated or circumvented, an aggrieved party may seek an order of the Court freezing the assets of another attempting to thwart the Court’s determinations.  Such an order, by force of subsection (2), is capable of extending outside the jurisdiction of Australia.

The appeal in to the High Court in Huang

The High Court heard arguments of the respondent seeking to defend the Full Federal Court’s decision that an order under rule 7.32 could not be for the requisite purpose of preventing the frustration or inhibition of the Federal Court’s process unless there was a realistic possibility of the freezing order’s efficacy.  Such arguments were detailed and complex but were ultimately dismissed on the basis that no legislative requirement exists which would enliven the need to consider a freezing order’s efficacy.

It follows that factors speaking to an order’s efficacy, such as the impossibility of compliance with, or enforcement of, a worldwide freezing order, are merely relevant to the exercise of a discretion^[4] but will not deter a Court from making such an order.^[5]  With this said, a worldwide freezing order will not be made lightly,^[6] and may still be declined where a defendant resides outside the Court’s jurisdiction and is likely to ignore the order.^[7]

Takeaways

Ironically, it is the dissenting judgment of his Honour Edelman J (at [33]) which best encapsulates the effect of the High Courts ruling:

“The decision of the majority in this case has salutary commercial consequences.  It will deter fraud.  It will lessen the extent of evidence that an applicant might be required to lead, especially on an urgent application involving money that could be transferred overseas by click of a button.  It will enhance the efficacy of the ‘worldwide freezing order’ that has proved so valuable in ‘preventing the legal process being defeated by the ease and speed with which money and other assets can now be moved from country to country.”

There is no need for a Court to determine the realistic possibility that a prospective judgment could be enforced.  It is enough for the Court to be satisfied that a worldwide freezing order would seek to meet a danger that a prospective judgment would be wholly or partly unsatisfied.

Links and further references

Legislation

Federal Court of Australia Act 1976 (Cth)

Federal Court Rules 2011 (Cth)

Cases

Australian Competition and Consumer Commission v Chen [2003] FCA 897

BAS Capital Funding Corp v Medfinco Ltd [2003] EWHC 1798

Ballabil Holdings Pty Ltd v Hospital Products Ltd (1985) 1 NSWLR 155

Cardile v LED Builders Pty Ltd [1999] HCA 18

Deputy Commissioner v Huang [2021] HCA 43

Jackson v Sterling Industries Limited [1987] HCA 23

Further information about freezing orders

If you need advice on freezing orders in the context of civil litigation in Australia, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Cardile v LED Builders Pty Ltd [1999] HCA 18.

[2] Deputy Commissioner v Huang [2021] HCA 43 [16].

[3] Jackson v Sterling Industries Limited [1987] HCA 23 [3].

[4] Ballabil Holdings Pty Ltd v Hospital Products Ltd (1985) 1 NSWLR 155 at 165.

[5] Australian Competition and Consumer Commission v Chen [2003] FCA 897 [43].

[6] Jackson v Sterling Industries Limited [1987] HCA 23.

[7] BAS Capital Funding Corp v Medfinco Ltd [2003] EWHC 1798.

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