Freezing and ancillary orders – key factors the Court considers

Following our July 2018 refresher article ‘Freezing orders – a refresher’, the recent decision of Parbery & Ors v QNI Metals Pty Ltd & Ors [2018] QSC 107 is a helpful reminder of the factors the Court will take into account and the threshold an applicant must meet when deciding whether to grant freezing and ancillary orders.

The facts

Queensland Nickel Pty Ltd (Queensland Nickel) was an entity that managed a nickel mining and refining joint venture on behalf of two companies, QNI Resources Pty Ltd and QNI Metals Pty Ltd, owned and controlled by Clive Palmer. The plaintiffs alleged that Mr Palmer had been the director of Queensland Nickel at all material times despite not being formally appointed. Between 30 June 2011 and 30 June 2015, Queensland Nickel made some 27 payments/transfers totalling $207,016,881.99 to entities controlled, associated with or owned by Mr Palmer. On 18 January 2016, Queensland Nickel went into voluntary administration and shortly after on 22 April 2016, was wound up by creditors.

On 30 June 2017, the plaintiffs, who are the liquidators of Queensland Nickel (In Liquidation) (the Liquidators) commenced proceedings against Queensland Nickel, Mr Palmer (as a shadow director) and other related entities controlled by Mr Palmer for the liabilities incurred by Queensland Nickel, including claims for debt, money had and received, insolvent trading, breach of duty and voidable transactions entered into on the eve of Queensland Nickel becoming insolvent.

The issue

The Liquidators were concerned assets owned by Mr Palmer and the other corporate defendants may be dealt with in a way that would frustrate any prospective judgment against the defendants.

The Liquidators applied to the Court for freezing and ancillary orders against the assets of Mr Palmer and the other corporate defendants to preserve and prevent any ‘colourable’ conduct with respect to the assets.

Application for freezing and ancillary orders

Freezing and ancillary orders can be granted either under the Court’s inherent jurisdiction or pursuant to Chapter 8, Part 2, Division 2 of the Uniform Civil Procedure Rules 1999 (Qld) (the Rules).

Justice Bond examined the requirements for granting freezing and ancillary orders pursuant to the Court’s inherent jurisdiction. Relevantly, his Honour summarised three broad factors that the Court will consider when deciding whether to grant such orders, being:

• The strength of the case;
• The risk to the integrity of the prospective Court processes of execution and enforcement; and
• The interests of justice.

His Honour also explained that the making of freezing and ancillary orders pursuant to the Rules also required a careful examination of the factors considered for orders sought under the Court’s inherent jurisdiction.

The Court’s decision

In considering the strength of the case, Justice Bond held that the Liquidators were required to prove there is a “good arguable case” that they would recover a significant judgment against the respondents. His Honour explained that a good arguable case required a “very low threshold” and there need not be more than a 50% chance of success. It was found that the Liquidators had a good arguable case in all the claims against Mr Palmer and the corporate defendants.

His Honour also explained that the test for the risk to the integrity of the Court processes is one of whether there is a real risk of steps being taken that would have the effect of frustrating the Court’s processes in respect of a prospective judgment against the defendants. Relevantly, Justice Bond set out a number of observations (non-exhaustive) that would demonstrate “relevant risk”:

• Firstly, the test of real risk is one of effect rather than purpose, meaning purpose or intention is not required. However, any evidence of purpose may strongly indicate and establish risk;
• Secondly, mere assertions of the existence of the risk are not sufficient; there must be solid evidence which justifies the conclusion; and
• Lastly, real risk is often a matter of inference, rather than direct proof. The test adopted by Justice Bond was whether a “prudent, sensible commercial person” would possibly infer the existence of the risk.

Interestingly, his Honour observed that:

‘there are particular aspects of Mr Palmer’s previous conduct and decision making which would lead a prudent, sensible, commercial person to infer that there is a real risk that he would take, or cause to be taken, steps outside court processes to attempt to frustrate or inhibit the prospects of enforcement or execution of any significant judgment against him or any of his companies’.[1]

The final consideration the Court must have regard to is whether it would be in the interests of justice for freezing and ancillary orders to be granted. His Honour emphasised that the Court must exercise a high degree of caution, with proper consideration of the nature of the impact on the persons affected, when determining whether orders should be granted. Key factors the Court considered in this case were:

• The prejudice caused by failing to make the freezing order;
• The delay for making the application;
• The availability of alternative remedies; and
• The impact of the freezing order on the defendants and innocent third parties.

Ultimately, his Honour granted the freezing orders, together with ancillary orders, with respect to the assets of Mr Palmer and the corporate defendants.

Key takeaway

The decision in Parbery & Ors v QNI Metals Pty Ltd & Ors illustrates, whether freezing and ancillary orders are sought under the Court’s inherent jurisdiction or pursuant to the Rules, that regard must be had to three broad considerations:

• There is a good arguable case;
• There is risk of frustration of the Court’s processes; and
• It is in the interest of justice to grant the orders.

Justice Bond’s decision demonstrates what thresholds must be met and factors that will be considered before the Court grants such relief.

[1] [2018] QSC 107 at [312].

Authored by:
Susan Forrest, Partner
Neil Nguyen, Graduate