Nova Supply Chain Finance Pty Limited v Active Capital Reinsurance Limited

Further Observations 6 Applications to vary freezing orders because of difficulties in operating bank accounts are made relatively frequently, reflecting the increasingly common practice for freezing orders to be served on, or notified to, the bank of the person who (or the company which) is subject to the order. Order 15 of this Court's standard form of freezing order set out in the Freezing Orders Practice Note (GPN-FRZG) (in common with the standard orders used by other Australian courts and in the United Kingdom) was presumably intended to deal with that circumstance by providing that: No bank need inquire as to the application or proposed application of any money withdrawn by you if the withdrawal appears to be permitted by this order. 7 The condition expressed in the concluding phrase in that order arguably imposes a positive obligation on a bank which has been notified of the freezing order to be satisfied that withdrawals appear to be permitted by the exceptions to the freezing order. Westpac took the view that it did so in Rambaldi (Trustee) v Meletsis, in the matter of the bankrupt estate of Karas (No 3) [2022] FCA 807 at [41], and although O'Callaghan J was generally critical of Westpac's conduct in that case I do not think that his Honour found that Westpac had adopted an erroneous construction of Order 15. Indeed, his Honour referred at [95] to Westpac's proposal that it would remove the block on the accounts if the parties agreed that Westpac had no monitoring obligations, saying (perhaps controversially) that Westpac's obligations were not a matter for agreement between the parties but were for Westpac to identify and comply with. In the absence of argument on the point in the present matter, I do not express any view as to the proper construction of Order 15. 8 The issue which arises is that, in the modern world of automated and electronic banking transactions with minimal (or no) human involvement on the part of the bank, it is not easy for banks to ascertain whether a withdrawal is permitted by a freezing order. As a result, many banks which are served with a freezing order simply block their customer's account, perhaps subject to a protocol such as that adopted in Rambaldi v Meletsis requiring the customer to attend personally at a branch of the bank after having sent an email 1-2 business days beforehand enclosing sufficient supporting documents to establish to the satisfaction of the bank's staff that a proposed withdrawal falls within one of the exceptions to the freezing order. 9 I can well understand why banks take this approach. While the risk to a bank of being liable for contempt of court in relation to a freezing order against its customer may typically be a remote one, any risk that the bank's employees may be imprisoned, the bank fined and its assets sequestrated is not a risk to which anyone would wish to be exposed, as Lord Bingham said in Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28; [2007] 1 AC 181 at [13]. 10 The practice of serving banks with freezing orders has thus often had the unfortunate consequence of making it practically very difficult for those who are subject to freezing orders to engage in transactions within the exceptions to those orders, those exceptions being vitally important safeguards in the striking of a fair balance between the parties. As Laddie J observed in The Bank v A Ltd [2000] EWHC J0517-13; (2000) LLR 271 at [31]: Mareva orders have rightly been described as the nuclear weapons in the court's armoury and as being at the very extremity of the court's powers. To reduce the risk of abuse, stringent safeguards have been put in place to protect, as far as possible, the interests of the absent respondent. 11 The difficulties are starkly illustrated by the circumstances in Rambaldi v Meletsis. On one day, it took Mr Meletsis over two hours in his local branch to process 34 payments, and in the following weeks he spent about 25 hours ensuring that the payments had been received by the intended recipients: see [30]. Mr Meletsis was unable to use his credit cards and other forms of payment for living expenses (including ordering food online when members of his family were in isolation after contracting COVID-19, paying for nearby parking at an emergency department when his child fell ill, and booking school holiday activities for his children online: see [93]). I do not suggest in any way that parties who serve freezing orders on banks might intend to undermine the practical operation of the exceptions to the freezing order. However, experience teaches that the law of unintended consequences is not subject to desuetude or repeal. 12 What then is the solution? At present, the answer usually given is to wait for the problem to arise in the few days after making the freezing order, and then to deal with the problem on an ad hoc basis. That is time-consuming, expensive and frustrating, as the circumstances in Rambaldi v Meletsis amply demonstrate. In that case, the parties initially appeared before O'Callaghan J on three occasions in the space of two and a half weeks. The parties and Westpac then appeared four weeks later on just one day's notice, and over the course of the following month filed written submissions addressed to the question whether Westpac should pay the plaintiffs' and the first and second defendants' costs of the first and second defendants' applications to vary the freezing orders. That would have to be the only available solution for it to be consistent with the overarching purpose of the civil practice and procedure provisions of facilitating the just resolution of disputes according to law, and as quickly, inexpensively and efficiently as possible: s 37M of the Federal Court of Australia Act 1976 (Cth). 13 In my view, bearing in mind that the making and serving of the freezing order against a specified person (or company) should itself provide sufficient protection to a prospective judgment creditor, and that the service of the order on that person's (or company's) bank is typically supererogatory, the onus should be on the party seeking a freezing order to justify any proposal to give notice of the order to a bank or financial institution which is not itself a party to the order. Accordingly, in my view, consideration should be given in future cases to making an order to the effect that the freezing order is not to be served on, or notified to, any bank or financial institution which is not a party to the order without the leave of the Court. The applicant for leave would then have to justify the proposed course of action in the particular circumstances of the case, and demonstrate how the full scope of the order (particularly the exceptions pertaining to ordinary living and business expenses and reasonable legal expenses) would be likely to operate in practical terms. On reflection, that is the course which I should have taken when this matter first came before me on an urgent ex parte hearing. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.