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Practice and procedure – worldwide freezing order

In Deputy Commissioner v Huang [2021] HCA 43 (8 December 2021), the High Court was required to determine whether the Federal Court of Australia can only exercise its power to make a worldwide freezing order, if there is proof of a realistic possibility of enforcement of a judgment debt against the person’s assets – in each of the foreign jurisdictions to which the freezing order relates.

The ‘power’ referred to is under r7.32 of the Federal Court Rules 2011 (Cth). Rule 7.32 provides:

  1. The court may make an order (a freezing order), with 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 a 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.

The background facts in this case concerned the tax liability and shortfall penalty of the respondent (Huang) as assessed by the Commissioner of Taxation (Commissioner) of a whopping $141 million (assessments).

Prior to the Commissioner making the assessments, Huang, and his wife, left Australia for the People’s Republic of China (PRC). On 16 September 2019, the Commissioner commenced proceedings against Huang seeking judgment against Huang based on the assessments.

That same day Katzmann J made an ex parte interim worldwide freezing order against Huang. Later, the Commissioner applied for a summary judgment against Huang and a worldwide freezing order until further order.

Before the primary judge, Jagot J, Huang only objected to the making of a freezing order in respect of his assets outside Australia (and in particular his assets in Hong Kong and the PRC).

Huang argued that the worldwide freezing order did not serve the purpose of protecting or preventing the frustration of the Federal Court’s processes, because there was no process available for the enforcement of the judgment debt in the Deputy Commissioner’s favour in those jurisdictions.

Jagot J rejected Huang’s contention and made a worldwide freezing order until further order in the same terms as Katzmann J’s interim order. Huang successfully appealed Jagot J’s order in the Full Court of the Federal Court.

The Full Court considered that if the assets were beyond the court’s enforcement processes, then a freezing order did not meet the purpose identified in rule 7.32; being to prevent the frustration or inhibition of the court’s processes by meeting a danger that a judgment or a prospective judgment of the court will be wholly or partly unsatisfied.

In determining whether assets were beyond the court’s reach, the Full Court favoured a “realistic possibility” over a “not impossible” test in assessing the likelihood of enforcing a judgment.

The Deputy Commissioner appealed to the High Court. The High Court (Edelman J dissenting) allowed the Deputy Commissioner’s appeal. The majority (Gageler, Keane, Gordon and Gleeson JJ) rejected the limitations, contended for by Huang, on the court’s power to exercise a worldwide freezing order for broadly five reasons.

First, the majority rejected Huang’s contention that r7.35 qualified the operation of r7.32. The majority (at [21]) observed that r7.35 is not expressed to affect r7.32; nor does r7.35 “cover the field” with respect to ordering a freezing order where there is a judgment debt.

Second, the majority (at [24]) saw no reason to imply an “unexpressed limitation” on the power in r7.32 when the rule was a restatement of the court’s power under s23 of the Federal Court of Australia Act 1976 (Cth) and the court’s implied power, and there is no similar limitation on those powers.

Third, the majority noted (at [25]) the limitation is inconsistent with the in personam nature of a freezing order.

Fourth, the majority considered (at [26]) that the limitation was inconsistent with the “evident purpose” of r7.32 and restricted power under the rule “in a manner that would significantly impair its capacity to protect the Federal Court’s process, including granting urgent relief”.

Fifth, the majority considered (at [28]) that the limitation was inconsistent with the power to make a worldwide freezing order, similar to the power recognised in many forging jurisdictions, because it would necessarily require identification of the defendant’s foreign assets as well as potential means of enforcement in that jurisdiction.

Edelman J conceded (at [33]) that the majority’s decision would “enhance the efficacy of the ‘worldwide freezing order’” and (at [34]) expressed “some regret” in dissenting from the majority. But Edelman J considered that, construing the wording of r7.32, the court’s power to make a freezing order is restricted to meeting the purpose of preventing the frustration or inhibition of the court’s processes.

As for the personal nature of a freezing order, Edelman J argued (at [46]): “Merely because a court has personal jurisdiction … does not mean that it has unlimited jurisdiction to make orders against that person”.

Dr Michelle Sharpe is a Victorian barrister practicing in general commercial, real property, disciplinary and regulatory law, 03 9225 8722, email msharpe@vicbar.com.au. The full version of these judgments can be found at austlii.edu.au.

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