Introduction
Following our most recent article on whether a bank can be in contempt of court for breaching the terms of a freezing order, this article considers some practical tips for banks to consider implementing to mitigate against the risk of failing to comply with freezing orders.
Freezing of assets generally
Freezing orders will often specify the assets which are caught by the orders. The assets can include property, funds in bank accounts and interests in shares.
However, the fact that an asset is not expressly mentioned in the freezing order does not mean that the asset is outside the scope of the order.
Consideration should be given to the definition of ‘assets’ in the freezing order. For instance, the standard form freezing order of the Supreme Court of Victoria, provides that:
For the purposes of this order, your assets include:
- All your assets, whether or not they are in your name and whether they are solely or co-owned; and
- Any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions)
If there is uncertainty as to which of the customer’s facilities the freezing order applies (if any), banks should consider writing to the Plaintiff’s and/or Defendant’s solicitors to request information which may help identify the Defendant and/or their assets in order to ascertain whether the order is operative against any facility operated with the bank.
Banks may also wish to inform the Plaintiff’s solicitors that even if the facilities fall within the scope of the freezing order, the bank does not, and cannot be deemed to know the total value of the Defendant’s assets in Australia and as such is not in a position to determine whether other assets are of sufficient value to render the order inoperative insofar as it relates to any or all of the bank held facilities.
Tip: Banks should ensure that they are aware of the assets which are subject to a freezing order and if they are not sure, they should write to the Plaintiff’s and/or Defendant’s solicitors and make enquiries.
Joint accounts
It is well accepted in Australia that joint accounts are ‘assets’ which are subject to freezing orders if the co-owner of the funds in the joint account is a person against whom the freezing order is made1. In determining this, consideration should be given to the intention of the parties of the joint account2.
In other words, if the person against whom the freezing order is made only or principally uses the joint account (which may be difficult to establish), that joint account is likely to be an ‘asset’ which is subject to the freezing order. Accordingly, banks should place a hold on such accounts.
Notwithstanding the above, there remains a possibility that Australian Courts would follow the UK position which is that joint accounts will not be subject to a freezing order unless the order clearly provides that the joint account is an asset which is subject to the order3.
Tip: If a joint account is potentially caught by a freezing order, and the bank is unsure as to whether the person the subject of the freezing order principally uses a joint account, it should write to the Plaintiff’s solicitors and request that the freezing order be amended to specifically name the joint account.
Secondary card holders and signatories
The secondary card holders and signatories’ authority to use the accounts ceases when a freezing order applies.
Banks should consider whether the accounts that are ‘assets’ that are the subject of a freezing order have any secondary card holder and/or other authorised signatory.
Once on notice of a freezing order, banks should suspend all secondary card holders (as well as primary card holders) and authorised signatories from having access to the relevant accounts.
Tip: Banks should suspend secondary card holders and signatories from having access to accounts that are the subject of a freezing order.
Automatic & electronic systems
Once a bank is on notice of a freezing order, it should review all its systems that relate to the accounts that are the subject of a freezing order to ensure their systems factor in any new holds or suspensions on the accounts.
Banks should also set up account alerts to ensure they monitor any suspicious activity on the accounts and respond quickly to such activity.
Tip: Banks should ensure that their automatic and electronic systems do not override holds and suspensions placed on accounts that are the subject of a freezing order.
Exceptions – living, legal & business expenses
Freezing orders often permit the person against whom the order is made to spend certain amounts:
- On their ordinary living expenses up to a stated amount per week;
- On their legal expenses up to a stated amount; and
- In the ordinary and proper course of their business.
This can make it almost impossible for banks to monitor the accounts the subject of the freezing order to ascertain whether the withdrawals are for living or legal expenses, or an impermissible purpose.
In relation to spending funds in the ordinary and proper course of their business, whether the asset is discharged for this purpose will depend on the intention of the party4.
By creating a separate account for permitted living, legal and business expenses into which the allowance can be deposited, banks can mitigate against the risk of an inadvertent breach of the freezing order.
Banks should also consider writing to the Plaintiff’s solicitors and put them on notice that the bank cannot monitor individual payments or assess whether they are permitted by the freezing order. If a Plaintiff wants a particular bank account or accounts frozen completely (for example a term deposit account), then the freezing order should be amended to specifically say so.
Tip: Create a separate account for living, legal & business expenses and consider writing to the Plaintiff’s solicitors to put them on notice of the difficulty for a bank in policing the freezing order.
This article was authored by Simon Crawford, Partner and Laura Limone, Solicitor.
P: +61 3 8644 3404
E: scrawford@hwle.com.au
1 [2012] NSWSC 660.
2 [2012] NSWSC 660, at [123]. See also [125]-[126].
3 [2012] NSWSC 660 at [119]-[124] – the Court did not expressly disapprove of the UK position.
4 Deputy Commissioner of Taxation v Gashi (2011) 84 ATR 175, [2011] VSC 351.