Thursday, July 21, 2011

Zhen v Mo & Ors [2008] VSC 300 - freezing orders

I was recently involved in an application for a freezing order on behalf of an applicant. In that matter, the applicant was seeking to restrain some respondents from dissipating money that the respondents received from proceeds of a sale. The applicant did this because it formed the view that if it did not do so, then any judgment would be unsatisfied by reason of the likely dissipation of the money elsewhere.

I have included a discussion of freezing orders and the matter of Zhen v Mo & Ors [2008] VSC 300 below.
The purpose of a freezing order is set out in rule 37A.02(2) as follows:
The Court may make an order (a freezing order), upon or without notice to the 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.
Freezing orders are granted in the circumstances outlined in rule 37A.05 of the uniform court rules. The Considerations set out in rule 37A.05 include:
  • The plaintiff has a good arguable case (rule 37A.05(1)); and
  • The Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because any of the following might occur- (a) the judgment debtor, prospective judgment debtor or another person absconds; or (b) the assets of the judgment debtor, prospective judgment debtor or another person are- (i) removed from Australia or from a place inside or outside Australia; or (ii) disposed of, dealt with or diminished in value (rule 37A.05(4)).
Freezing orders are a powerful tool, as they can be made against third parties, such as banks and agents, who hold the assets of a prospective or current judgment debtor (see rule 37A.05(5)).

The matter of Zhen v Mo & Ors [2008] VSC 300 was an application for the extension of a freezing order before Forrest J of the Supreme Court of Victoria. The plaintiff was attempting to continue a freezing order over a defendant's assets in respect of which the plaintiff claimed an interest.

Forrest J set out the relevant considerations for an application for a freezing order at [21] to [30], which is a very helpful checklist for these matters. I have included an extract of this below together with references to authorities in brackets (which His Honour footnoted in the reasons):
21 In determining this application I have applied the following principles.
22 First, that a freezing order, by its very nature, is a drastic remedy and a court must exercise a high degree of caution before taking a step which will interfere with a party’s capacity to deal with his or her assets (Cardile v LED Builders Pty Limited [1999] HCA 18; (1998) 198 CLR 380, [51]; Practice Note 3 of 2006).
23 Second, the order is not designed to provide security for the applicant’s claim (Jackson v Sterling Industries [1987] HCA 23; (1987) 162 CLR 612, 621, 625). It is solely directed to preserving assets from being dissipated, thereby frustrating the court process (Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1, [73]).
24 Third, the applicant bears the onus both in satisfying the Court that the order should be continued and in satisfying the Court as to the amount which is to be the subject of the order.
25 Fourth, that an order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no substitute for either the facts or inferences properly drawn from proved facts (Hartwell Trent (Aust) Pty Ltd v Tefal Societe Anonyme [1968] VR 3, 13).
26 Fifth, that before such an order can be made it is necessary that the applicant establish –
(a) an arguable case against the defendant (Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49, 49) and
(b) that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendant’s actions in either removing the assets or disposing or dealing with them so as to diminish their value (R. 37A.02(1) Under the general law the plaintiff must establish that there is a real risk of assets being disposed of: Cardile [122]).
27 Sixth, the balance of convenience must favour the granting of the freezing order (Consolidated Constructions Pty Ltd v Bellenville Pty Ltd [2002] FCA 1513).
28 Seventh, that there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case (Jackson v Sterling Industries [1987] HCA 23; (1987) 162 CLR 612, 621).
29 Eighth, the applicant must establish with some precision the value of prospective judgment. The order should not unnecessarily tie up a party’s assets and property (Cardile [124]).
30 Finally, there may be discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court (Cardile [58]).
The uniform court rules, including the Magistrates' Court Civil Procedure Rules 2010, refer to the Supreme Court Practice Note (No 5 of 2010) in respect of freezing orders. I have included a hyperlink to the practice note here. The practice note is a critical reference document when applying for a freezing order because of the extent of detail in the practice note.

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