Federal Court of Australia clarifies that freezing orders are not always available to protect enforcement processes of arbitral awards in foreign courts

In a recent decision, Viterra BV v Shandong Ruyi Technology Group Co Ltd,¹ the Federal Court of Australia discharged freezing orders that had been granted against a third party with respect to Singapore enforcement proceedings of an arbitral award against the award debtor, Shandong Ruyi Technology (Ruyi). The third party, CSTT Co Holdings Pte Ltd (CSTT Singapore), is a wholly owned subsidiary of Ruyi. On urgent interlocutory application by Ruyi, CSTT Singapore and CSTT Singapore’s subsidiaries in Australia (CS Agriculture Pty Ltd (CS Agriculture) and CSTT Holdings Pty Ltd (CSTT Australia)), the Court examined two key issues:

1. whether Australian assets can be subject to freezing orders in aid of the enforcement processes of a foreign court; and
2. in what circumstances a wholly owned subsidiary of a judgment debtor (or prospective judgment debtor) may, by freezing order, be restrained from dealing with or otherwise dissipating its assets against which a prospective judgment may be enforced.

It is a well-established principle in Australia that freezing orders are critical to safeguarding assets against which prospective judgments arising out of arbitral awards may be enforced.² While recognising the inherent jurisdiction of superior Australian courts to grant such freezing orders, even in aid of foreign enforcement processes, the Federal Court found that insofar as those orders applied to CSTT Singapore, they did not come within the ambit of the applicable Federal Court Rules 2011 (Cth) (Rules)³ and therefore could not be maintained.

Background

Applicant, Viterra BV (Viterra) and first respondent, Ruyi, entered into contracts for the sale of cotton, which subsequently became the subject of arbitration proceedings. On 8 January 2021, the arbitral tribunal published an award in Viterra’s favour in the final amount of approximately AUD18.7 million including interest and costs. Viterra later commenced recognition and enforcement proceedings of the award in the High Court of Singapore.

Concerned that, without protection, the Australian held assets of Ruyi and CSTT Singapore could be divested, Viterra sought and was granted freezing orders by the Federal Court against Ruyi and CSTT Singapore and injunctions restraining CS Agriculture and CSTT Australia from transferring shares owned in them by CSTT Singapore without prior written notification to Viterra.

On urgent interlocutory application, the respondents sought to discharge the freezing orders against CSTT Singapore on the basis that the making of such orders did not satisfy the applicable rule 7.35(5)(b) of the Rules. Pursuant to this rule, a freezing order may be made against a third party if the Court is satisfied that there is a process of the Court that is ultimately available to the applicant as a result of the judgment or prospective judgement under which the third party may be obliged to disgorge assets or otherwise contribute toward satisfying the prospective judgment.

In contention, Viterra maintained that the processes it intended to pursue in Singapore against Ruyi’s shareholding in CSTT Singapore satisfied the types of process referred to in the Rules, such that a freezing order should be available. Alternatively, Viterra argued that the Court’s broader power to grant freezing orders contained in rule 7.32 was one founded in equity and therefore not constrained by the aforementioned requirements.

Decision

In favour of CSTT Singapore, the Court discharged the freezing orders on the basis that:

1. Viterra had failed to identify any processes of the Federal Court by which CSTT Singapore may be ordered to contribute its assets toward any prospective judgment of the Federal Court as required under the Rules;
2. alternatively, the judicial processes identified by Viterra in Singapore to execute the judgment against Ruyi’s shareholdings in CSTT Singapore were not enforcement processes available to it as judgment creditor, rather processes available to it in its capacity as shareholder of CSTT Singapore after the enforcement processes had come to an end. That is, it must be kept distinct what Viterra could do as a judgment creditor and as a shareholder;⁴ and
3. as a further alternative, the exercise of the Court’s powers on the basis of discretionary considerations was not available “on account of [the] drastic nature [of freezing orders] together with the fact that they are directed… at the assets of an independent third party over which the debtor has no relevant control”.⁵

In reaching its decision, the Court emphasised that foreign processes are insufficient to enliven the Federal Court’s “coercive powers” to make freezing orders against third parties and the Court “[should] not be expected to be available to enforce the judgments of foreign courts unless that…foreign judgment was to be recognised and thus form the basis of a judgment in Australia”.⁶

Concluding remarks

To date, Australian courts have limited their inquiry to the scope of judicial power to make freezing orders and declined to prescribe an exhaustive list of circumstances in which that power should be exercised, particularly with respect to parties other than the judgment debtor.⁷ Australian jurisprudence emphasises that the function of freezing orders as an interlocutory measure is to prevent the frustration or abuse of court processes, and not merely provide security in respect of judgments or arbitral awards arising from foreign jurisdictions.⁸

The Federal Court’s reasoning in this decision is consistent with the High Court’s findings in PT Bayan Resources TBK v BCBC Singapore Pte Ltd,⁹ and Cardile v LED Builders Pty Ltd,¹⁰  namely that freezing orders are available to be made against third parties. However, Stewart J’s judgment goes one step further in clarifying the circumstances in which such freezing orders would be available. The decision is therefore an important reminder that parties seeking recourse to freezing orders as an interim measure in aid of foreign enforcement processes of arbitral awards should consider whether the subject of said freezing order and their circumstances fall within the remit of Australian courts.