Freeze! What to be careful of when applying for a freezing order in NSW

In brief - A freezing order may restrain a party from disposing of assets that may otherwise satisfy a prospective judgment against the party. It is a discretionary remedy available under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). Here, we look at its helpfulness in the context of claims for historical child abuse where a plaintiff or an institution seeks to restrain an alleged perpetrator from disposing of assets. The recent case of Bennett (bht Jones) v State of New South Wales & Anor [2022] NSWSC 1406 (Bennett) reinforces that a Court will look to the conduct of the party in determining whether there is any real danger of the court process being frustrated or inhibited.

Main takeaways

• the purpose of a freezing order (also known as a Mareva injunction) is to prevent an abuse of the process of the Court, not to provide security to the applicant in respect of a judgment or order
• it is insufficient for an applicant seeking a freezing order to merely assert that the other party was likely to put assets beyond the applicant's reach, there needs to be a "real danger"
• the Court will look to the conduct of the respondent and not merely hypothetical scenarios in trying to draw an inference of "real danger"
• when considering whether to apply for a freezing order, thorough and documented searches and investigations into the other party's conduct (such as attempts to sell or transfer a property) will be essential.

Principles governing freezing orders 

The principles governing "freezing orders" are contained under rule 25.11 of the UCPR:

1. The court may make an order upon 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.
2. 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. 

In an application for a freezing order, it is important to consider three key principles.

1. First, the onus is upon the plaintiff to prove the requirements of the rule and the entitlement to the relief
2. Secondly, the purpose of the order is to prevent an abuse of the process of the Court, not to provide security to the plaintiff in respect of a judgment or order. The Mareva injunction exists not to create additional rights but to enable a court to protect its process from abuse in relation to the enforcement of its orders. It is neither a species of anticipatory execution nor does it give a form of security for any judgment which may ultimately be awarded.
3. Thirdly, having regard to the fact that the Mareva injunction is an exceptional interlocutory remedy that should not be granted lightly, the duty of the Court is to carefully scrutinise applications for such relief.

The Case of Bennett

The Plaintiff commenced proceedings in the Supreme Court of NSW claiming damages arising from allegations that, from May 1993 to August 1994 whilst enrolled as a primary school student, he was sexually abused by the Second Defendant on numerous occasions. The Plaintiff claimed he suffered psychiatric injuries as a consequence of the abuse and alleges that the school breached its non-delegable duty owed to him, or otherwise that it is vicariously liable for the conduct of the Second Defendant.

The Plaintiff filed an ex parte (without notice to the other parties) Notice of Motion with accompanying Affidavits in Support seeking a freezing order. The judge found no case (or substantial reason) for the application to proceed ex parte.

The Court stated that for the freezing order to be made there is a:

• need to demonstrate a good arguable case; an
• real danger of any prospective judgment being frustrated. 

Evidence was provided by way of Affidavit material that:

(a) established the Second Defendant is the joint owner of two unencumbered properties in NSW;

(b) the Plaintiff was "worried" the Second Defendant might try to sell the property;

(c) the Plaintiff's solicitor considered it "reasonable to assume" that the Second Defendant would seek to dispose of the property bearing in mind the "serious nature of the offences alleged, which go to his character" and that there was "a real danger that the Second Defendant will dispose of his assets” in light of the criminal charges in the current proceedings;

(d) the Second Defendant's ability to easily and quickly move and further, send funds electronically is aided by current technology available.

A freezing order is warranted only if there has been conduct on the part of the defendant that can be reasonably interpreted as potentially having the effect of frustrating the ordinary processes of the court and the enforcement of its judgments, of being intended to do so, or of being in any way evasive indicating dishonesty or otherwise indicating actually or potentially that the assets have been or will be dealt with irregularly.

The conduct of the Second Defendant was the focus. It was found that the Plaintiff had failed to demonstrate not only that there had been steps taken to dispose of the property, but he also failed to demonstrate that there was any real risk of this occurring. With this absence of evidence of any steps taken by the Second Defendant or any inference that could be drawn that the Second Defendant was seeking to frustrate the process of the Court, the application failed. The Court emphasised that it is insufficient for an applicant for such an order to merely assert that the other party was likely to put assets beyond the applicant's reach, there needs to be a "real danger" to warrant the granting of this exceptional discretionary remedy.