High Court Clarifies Position on Worldwide Freezing Orders
24 Jan 2022
The High Court of Australia in Deputy Commissioner of Taxation v Huang [2021] HCA 43 allowed an appeal from the Full Court of the Federal Court of Australia (FCAFC) and provided clarity regarding worldwide freezing orders.
Mr Changran Huang was a tax resident in Australia who departed from Australia in 2018 to the People’s Republic of China (PRC) while the Australian Taxation Office (ATO) was conducting an audit into his tax affairs. The ATO issued tax assessments for penalties of almost $141 million.
The Deputy Commissioner of Taxation (DCT) sought and obtained summary judgment and a worldwide freezing order against Mr Huang (restraining the disposal, dealing with or diminishing in value of the assets frozen). This was varied on appeal by the Full Federal Court (by excluding non-Australian assets held by Mr Huang, primarily in the PRC and Hong Kong, from the ambit of the freezing order), having concluded that there was no realistic possibility of enforcing the prospective judgment debt against Mr Huang. The DCT appealed this decision to the High Court of Australia.
The primary question for determination by the High Court was whether there was a precondition that there must be reasonable prospects of enforcement of the freezing orders (in this case, in foreign jurisdictions) before a freezing order can be made following the Federal Court Rules 2011 (Cth) (FCR).
Although Edelman J was in dissent, the majority of the High Court held that the power in rule 7.32 of the FCR (to grant freezing orders) is not constrained by a precondition. There is proof of a realistic possibility of enforcing a judgment debt against the person’s assets in each foreign jurisdiction to which the proposed order relates.
The majority held that the Full Federal Court asked itself the wrong question in considering whether there was a realistic possibility that the prospective judgment could be enforced in any relevant foreign jurisdiction as a matter going to the existence of the power conferred by rule 7.32 of the FCR (Rule 7.32).
Accordingly, the appeal was successful.
In the course of its judgment, the majority confirmed the following:
- Rule 7.32 supplements section 23 of the Federal Court of Australia Act 1975 (Cth) (FCAA) and the implied power of the FCA as a superior court to make such orders as are appropriate for the proper exercise of its statutorily conferred jurisdiction and powers;
- Rule 7.32 is a broad and flexible power;
- there are two limitations on the granting of a freezing order under Rule 7.32:
- a purposive requirement, which is to prevent the frustration or inhibition of the Court’s process; and
- the order must address that purpose by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.
- Courts should still be astute to ensure that a worldwide freezing order is not an instrument of oppression, and any freezing order should not be granted lightly.
- the likely utility of a freezing order would be relevant to the exercise of the discretion to grant such an order.
As noted by Edelman J in the course of his Honour’s dissenting judgment, the decision also has the following commercial or practical effects:
- deterrence of fraud;
- lessening the extent of evidence that an applicant would be required to lead, especially on an urgent application where the click of a button could transfer money; and
- enhancement of the efficacy of a worldwide freezing order.
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