Freezing orders and corporate groups: recent decision
Viterra BV v Shandong Ruyi Technology Group Co Ltd [2022] FCA 215
Background
The case of Viterra BV v Shandong Ruyi Technology Group Co Ltd [2022] FCA 215 (Judgment) concerned a question of when a freezing order should be maintained against assets of a subsidiary to an arbitration judgment debtor.
Viterra had obtained an award of approximately US$12 million plus an additional $500,000 in interest in relation to failed cotton sale contracts against Shandong Ruyi Technology Group Pty Ltd (Ruyi). Ruyi in turn owned 100 percent of CSTT Co Holdings in Singapore, which in turn owned 80 percent and 100 percent respectively of two Australian entities, CS Agriculture Pty Ltd and CSTT Holdings Pty Ltd.
Viterra had commenced enforcement proceedings in both the People’s Republic of China and Singapore against Ruyi. Once enforcement of the award was granted in Singapore, it was going to seek to seize and sell the shares in CSTT Singapore. In doing so, it intended to bid at the auction of the shares up to the judgment debt amount. If a third party succeeded, its debt would be extinguished, if it succeeded, it would gain control of CSTT Singapore’s assets, including the two Australian subsidiaries, and would then seek to realise them.
Viterra sought a freezing order in the Federal Court to prevent the dissipation of assets in Australia by CSTT Singapore and Ruyi. The order was initially granted on 19 November 2021 and these proceedings were launched to seek the discharge of the freezing orders.
The primary questions that arose in this case were:
- was a freezing order under rule 7.35(5)(b) of the Federal Court Rules 2011 (Cth) (FCR) available when there was no process in the Federal Court under which CSTT Singapore may be obliged to disgorge assets or contribute to a judgment against Viterra (ultimately answered in the negative); and
- was the power conferred by rule 7.32 of the FCR and section 23 of the Federal Court of Australia Act 1976 (Cth) broader and, if so, did it support the order?
The relevant sections of the FCR provide (emphasis added):
7.32(1) “The Court may make an order (a freezing order) with or without notice to a respondent for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied…”
7.35(5) “The Court may make a freezing order…against a person other than a judgment debtor or prospective judgment debtor…if the Court is satisfied, having regard to all the circumstances, that:…(b) a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute towards satisfying the judgment or prospective judgment.”
Outcome
Justice Stewart discharged the freezing orders against CSTT Singapore on the basis that:
- rules32 and 7.35(5) of the FCR were to protect the processes of the Federal Court and a broader reading was not justified: Judgment at [35], [108]-[111];
- the process which Viterra sought to protect was not an enforcement process, but rather, process to be initiated subsequent to enforcement in Singapore (being the realisation of the assets of CSTT Singapore): Judgment at [35], [114]-[116]; and
- If either of his conclusions were incorrect, he would not grant / maintain the freezing order: Judgment at [35], [117]-[122].
Take away
If a freezing order is sought in aid of a foreign award/judgment, it is important that enforcement and recognition processes are (or will be) pursued here.
The decision also demonstrates that the Court will take a nuanced approach in considering the purpose for which the freezing order is sought.
In reaching this conclusion, the following should be noted:
First, as against a third party, a freezing order will usually only be appropriate where the third party holds or has received assets of the judgment debtor or where there is an enforceable legal right to seek contribution from them.[1]
Second, it is important to retain sight of corporate personality in considering who owns and controls the relevant assets (legally and beneficially).[2]
Third, with respect to freezing orders in aid of a foreign judgment, it is necessary the freezing order be to support the enforcement process in the Australian court granting the order, not the foreign court.
[1] Judgment at [48], citing Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [57]; see also the discussion of Broad Idea International Ltd v Convoy Collateral Ltd [2022] 1 ALL ER 289 as discussed at [90]-[92]
[2] See the discussion of PT Bayan Resources TBK v BCBC Singapore Pte Ltd (2015) 258 CLR 1 at [60]-[61]
