26/11/2013

You have a judgment in the Local Court and the defendant puts their house on the market - are there grounds for a "freezing order"? Not necessarily!

In a recent Supreme Court decision the Court held there were insufficient grounds to make a freezing order to prevent the judgment debtor selling their house.

A freezing order (otherwise known as an asset preservation order or Mareva injunction) is an order that can be made by the Court where a judgment may be unsatisfied and the Court is satisfied of one or more of the following:

1.    the judgment debtor may abscond; or
2.    the assets of the judgment debtor may be removed from the jurisdiction; or
3.    the assets of the judgment debtor may be disposed of, or dealt with or diminished in value.

The Judge in this case restated the rule that it is incumbent on the plaintiff to establish:

"by evidence and not mere assertion, that there is a real danger that by reason of the respondent absconding or otherwise dealing with assets, the applicant will not be able to have its judgment satisfied."

The essential facts of this case are as follows:

•    The plaintiff commenced a claim in the Local Court for breach of copyright and royalties owed and obtained a judgment in the sum of $8,007 plus interest and costs.
•    Days after the judgment was obtained the plaintiff noticed the defendant had placed their house on the market for sale.
•    A contract for sale of the house was entered into by the defendant and the purchaser within 2 weeks.
•    The plaintiff then commenced a Supreme Court action seeking a freezing order to prevent the sale of the house.

The plaintiff relied on allegations about the defendant that he said he could not pay the debt but understood he could seek an instalment order, the defendant took an overseas trip and the defence in the Local Court proceedings sought to use a corporate structure to attempt a fraud against the plaintiff.

The Court held there was no evidence to suggest the sale was otherwise than an arm’s-length sale at a proper price.  The property was advertised and the defendant had engaged an agent to sell the property.  

As to the specific allegations raised by the plaintiff, the Court held that it could not be inferred from the mere fact of selling the property that the defendant was seeking to dissipate or conceal or otherwise deal with the property to deprive the plaintiff.  There was also no evidence from the plaintiff that the overseas trip was for an improper purpose or that there was any fraud by the defendant.

The Court therefore dismissed the plaintiff's application and refused to make a freezing order over the defendant's property.

In addition, the Court held that the Local Court had inherent jurisdiction to deal with any application for a freezing order that related to a Local Court judgment.

Even further, the Court held:

"the present application had no real prospects of success.  The delinquency in the plaintiff bringing the claim is exacerbated by the serious allegations of fraud …. which were unsubstantiated by any evidence .... it is appropriate that the plaintiff pay the defendant's costs on the indemnity basis."

So the plaintiff not only did not get a freezing order but had to pay its own costs and all the costs incurred by the defendant in bringing the application in the Supreme Court.  The final position for the plaintiff was possibly having to pay the defendant more than the plaintiff received in the original judgment of $8,007.

We'd have liked to have been a fly on the wall when the plaintiff sat down afterwards to discuss the judge's comments with their solicitor and barrister.

If you have any questions in relation to this article or need advice or assistance on seeking freezing orders please call Townsends Business & Corporate Lawyers on (02) 8296 6222.