A Freezing Order (or “Mareva” Order) is a legal mechanism that courts impose to prevent a party from removing or hiding certain assets. As a general rule, State and Federal Courts in Australia have the power to make orders to ensure that their processes will not be rendered useless.
A clear example demonstrating how courts exercise this power is where a plaintiff/party can show there is a real risk that a defendant/respondent (i.e. the party being sued) may alienate or remove its assets from the jurisdiction, which would frustrate any judgment made against it. It’s unnecessary to prove that the defendant/respondent intends to circumvent the court process, simply that its actions are likely to have that effect.
When is a Freezing Order Used?
Where it appears as if the defendant is or is intending to remove its assets from the jurisdiction, a plaintiff may apply to the court for a freezing order before, during or even after a proceeding has concluded.
In order to obtain a freezing order before a court proceeding begins, an applicant needs to show that they will commence shortly after a case with a proper basis and reasonable prospects of success. It is also necessary to show that in the absence of a freezing order, the upcoming proceedings may be of no practical benefit.
It’s easier to convince a court to make a freezing order after the matter has finished as the court would have already heard and determined the plaintiff’s substantive rights and entitlements (such as the payment of money). A court would then be less concerned about interfering with the rights of the other (‘frozen’) party to use/dispose of its property by making a freezing order. The purpose of a freezing order is to then enable the applicant to enforce a court’s judgment.
What is the Effect of a Freezing Order?
The effect of a freezing order is to prevent a party from transferring or blocking its assets (up the value of the claim against it) – pending a determination in a court proceeding regarding a claim made against it, or allow a successful party to enforce a judgment against those assets. Freezing orders can also bind third parties (such as banks) which may be holding assets belonging to the frozen party.
A party can apply to vary or discharge a freezing order on the basis that it’s too broad or not broad enough, relative to the value of the claim (which may have been increased/reduced since the commencement of the proceeding), or that it is no longer necessary.
It’s important to note that a freezing order does not require a party to provide its assets as security for any judgment that may be entered against it. The order merely operates so as to prevent a person or corporation from further obstructing or transferring those assets, particularly across borders. The frozen assets do not automatically become the property of a successful plaintiff/applicant upon the entry of judgment, they’re simply ‘frozen’. It will then be necessary for the successful party to commence an enforcement action to attach a judgment debt to the money or assets in question.
How Can a Freezing Order be Obtained?
To obtain a freezing order, an applicant will usually be required to provide an undertaking to pay any damages suffered by the frozen party (or any affected third parties) if the ultimate claim fails and the court orders damages. At the same time, if a party subject to a freezing order knowingly acts in violation of that order, its actions may constitute a contempt of court which is punishable by prison or fine or both.
If you believe you may require a freezing order or are the subject of one and require advice or assistance, please contact our specialist disputes lawyers on 1300 544 755.