What do you do when someone owes you money, but refuses to pay it back?
Most would go to court and get an order forcing the debtor to pay back the money.
What if the debtor quietly gets rid of all the assets before the bailiff moves in?
Well, there is a mechanism to stop a debtor from dodging responsibility.
Known as Freezing Orders (Mareva Injunction in legal language), this remedy is available to prevent dissipation of assets by a debtor or third parties.
These orders are commonly made 'ex parte' (without notice) to avoid alerting the debtor of what is about to happen.
In order to obtain a Freezing Order, an applicant must:
- prove a judgment in favour or establish a good arguable case on an accrued or prospective cause of action;
- prove a danger that a judgment will be unsatisfied due to absconding, removal, disposal or diminishment of assets;
- if seeking an order against a third party, ensure that the third party hold, control or may be liable to contribute assets in satisfaction of the judgment.
"A good arguable case" is defined as one that is "more than barely capable of serious argument". This is a lower threshold than proof on the balance of probabilities.
The core issue is whether there is a real risk that a judgment may not be satisfied due to the debtor's conduct. The risk is to be inferred from facts that suggest the debtor may move or dissipate assets.
The Courts are quite strict in their approach to these applications. In the case of Bennett v State of NSW [2022] NSWSC 1406, the Plaintiff alleged abuse by a school teacher and sought a freezing order ex parte. However, the Court refused, finding:
- No clear evidence of asset disposal, only speculative assertions by the Plaintiff;
- No real risk that Court processes would be frustrated.
The judgment in that case emphasised that a freezing order is not to provide security for a claim but to prevent abuse of process. The Applicant must present evidence of conduct suggesting dishonesty or evasion.
The New South Wales Court of Appeal said in Frigo v Culhaci [1998] NSWCA 88: "A Mareva injunction is an exceptional interlocutory remedy. Its function is to minimise the possibility of an unscrupulous defendant seeking to render himself or herself 'judgment proof' by taking steps to ensure that no assets within the jurisdiction can be found on the day of judgment."
In the case MTH v Croft [2020]) NSWSC 986, the Applicant, in separate proceedings, had alleged severe sexual abuse by her foster father Geoffrey Croft (Defendant) when she was living with his family.
Croft had been found guilty by a jury and sentenced to a term of imprisonment.
The Freezing Order had been sought against the wife.
It was submitted on behalf of the Applicant that:
she had a prima facie cause of action against the Defendant; there was a danger, by reason of his assets already having been disposed of within the jurisdiction to this wife, that if the Plaintiff succeeds, she would not be able to have judgment satisfied; the Defendant's wife was in possession of assets of the Defendant; there was a process available to oblige her to disgorge his interest in that property.
His Honour exercised his discretion to make a freezing order.
It is clear that a Freezing Order is a discretionary, exceptional remedy to prevent abuse of court process, not to secure judgment; Applicants must show a real danger that a judgment would be frustrated; mere assertions or hypothetical risks are not sufficient.
The Respondent's conduct, past, present, or inferred, is central to whether relief is granted.
The onus is upon the Applicant to prove the requirements set out above, and his or her entitlement to relief.
The duration of the order must be carefully considered to avoid prejudice to the Respondent.
The Federal Court Practice Note 2.9 states that "the duration of a freezing order made without notice should be limited to a period terminating on the return date on the application, which should be as early as practicable (usually not more than a day or two) after the order is made, when the respondent will have the opportunity to be heard. The applicant will then bear the onus of satisfying the Court that the order should be continued or renewed."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
