Saturday, 19 July 2008

Federal Magistrates Court case: principles of Mareva orders

The Federal Magistrates Court in Sheehan and Sheehan had to consider the question of whether a bank account, of the husband and his new wife, which the former wife had found out about in the course of the proceedings, could be frozen.

Federal Magistrate Neville did not draw any adverse inferences against the husband, even though there seemed to be over $200,000 in that account and he had not disclosed its existence despite being under an obligation to disclose the existence of the account, but ordered that half of the money in the account be frozen.

Part of the difficulty was that the account was held by the husband with his current wife, she had deposited susbstantial sums into it, and she wanted nothing to do with the property settlement dispute between the parties.

In ordering the freezing of half the monies in the account, Federal Magistrate Neville reviewed the laws dealing with asset preservation orders, commonly called Mareva orders.

His Honour especially cited two High Court judgments by Justice Kirby about the nature of asset preservation orders:

The particular reasons given in disposing of one claim for an asset preservation order should not be converted into universal principles with invariable application. The case law in this topic is a field of single instances cultivated in a garden of interlocutory orders, nurtured in a wilderness of broad discretions. Unlike many English gardens, this one has a measure of orders stamped upon it, brought by analogy from the equitable rules developed for general injunctive relief. But excessive order and rigid rules would endanger the relief in question and be alien to its essential character....

In framing asset preservation orders, certain features must be observed. They take effect in personam. They are thus distinguished from remedies such as tracing which affect proprietary rights. They are interlocutory orders subservient to the main proceedings, but potentially vital to their utility. The grant of such relief is discretionary. They must often be provided (or withheld) in urgent circumstances where a propensity to shift assets, apparently to defeat a judgment, has already been manifested. The plaintiff must establish a real risk of assets being disposed of. No such relief should be contemplated without the provision of an undertaking as to damages. This is protective both of the defendant and of non-parties made subject to such orders. It acts as a sanction against ill considered applications or unjustified orders. It is the duty of the lawyers of the parties to remind the judge of this prerequisite. Various qualifications to the operation of such preservation orders are now well settled. [Internal citations omitted.] ...

His Honour, in a note, refers specifically to various exceptions to asset preservation orders as including legal fees, living expenses, and the payment of debts.

He then concludes part of this discussion by saying ...:
... these considerations require that a very large measure of latitude be allowed to judges as to when they consider it "appropriate" to provide such relief, with the aim of protecting the position of an actual or potential judgment creditor and the process of the Court itself. Few judges, asked for such orders, have the luxury of the extended reflection availed of by appellate courts. In expressing the applicable principles, we should not overlook the practical exigencies in which orders of this kind are typically made.


This last statement is a reminder that while it might seem a good idea going to court to freeze everything, is that absolutely necessary? What really needs to be frozen (if anything) to minimise risk and to preserve property?

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