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FREEZING ORDERS
The recent Western Australian Supreme Court decision of Sayed v Hemat [2011] WASC 183 has provided some welcome clarity to the circumstances in which the Court will grant an Interim Freezing Order.
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What is an Interim Freezing Order?
Order 52A of the Rules of Supreme 1971 (WA) governs the circumstances in which the Court will grant an application for a ‘freezing order’. A freezing order is an order that restrains a defendant from removing, disposing, or dealing with assets in a way which would prevent a judgment made in favour of the plaintiff from being fulfilled.
The Court can make such an order against a ‘judgment debtor’, which is a party that is obligated to satisfy a court decision made in favour of the applicant. The Court can also make a freezing order against a respondent who is not a party to the proceedings in which the plaintiff is seeking relief, and as such is considered a ‘third party’.
The grounds on which an applicant can seek a freezing order as a means of relief against a third party, pursuant to Order 52A rule 5(5), are as follows:
1) Where there is a danger that the third party is using or exercising a power over the assets, or is in possession or control over the assets of the applicant; or
2) Where there is, or may be, a Court process available to the applicant, as part of a judgment made in his or her favour, that obliges the third party to allow the applicant to receive the assets.
Background to the Sayed v Hemat case
The case essentially concerned an application made by the plaintiff, Mr Sayed, for a freezing order to prevent the first and second defendants from causing the third defendant, being the company, from dissipating its assets without giving an account to him.
Mr Sayed had agreed with the first and second defendants to form a company to carry out a property development business. All three parties were directors and it was agreed that each of them would hold a one-third share in the company. The first and second defendants later removed Mr Sayed as director and shareholder and there was speculation that they intended to have the company pay the money held in the joint account to themselves, to the exclusion of Mr Sayed.
Mr Sayed made an application to the Court seeking a freezing order against the first and second defendants, being third parties, in order to protect the assets of the prospective judgment debtor, being the company.
The Supreme Court’s Decision
The Court decided that a freezing order should be made. In making its decision, the Court reasoned that, given the history of the matter, there appeared to be evidence that Mr Sayed was entitled to a one-third share of the assets. Based on this evidence, the Court inferred that there was a danger that a judgment against the third defendant, the company, would be partly or wholly unsatisfied if the first and second defendants disposed of the assets without allowing Mr Sayed to receive his share.
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