Freezing and Search Orders - Benjamin Fitzmaurice Barrister

The changing face of the two nuclear weapons of the law: the new Anton Piller order and Mareva injunction

By Benjamin Fitzmaurice[1]

It is proposed that the two nuclear weapons of the law, namely the Anton Piller[2] order and the Mareva[3] injunction will be renamed and the procedure for the seeking of relief will be set out in new amendment rules and practice directions, in both Federal and State jurisdictions. The Anton Piller order will be known as a ‘search order' and the Mareva injunction will be known as a ‘freezing order'.

The changes have been proposed by a committee appointed by the Council of the Chief Justices of Australia and New Zealand. It is hoped that the proposed rules which are to govern the application and execution of a freezing and search order will be adopted in each jurisdiction.

The purpose of this article is to explain the salient features of the proposed rules and practice directions for the making of a freezing and search orders.

Freezing orders

The purpose of the freezing order is to prevent the frustration of the Court's process by restraining a party from removing assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets. Further, ancillary orders may be made for the purpose of:

eliciting information relating to assets relevant to the freezing order or prospective freezing order; and
determining whether the freezing order should be made.

The freezing order can apply against a party or a non-party to the proceeding whether they are outside Australia or not, if any of the assets to which the order relates are within the jurisdiction of the Court.

The Court may make a freezing order or an ancillary order, or both, against:

a party to the proceeding where:

the party or another person absconds;
the assets of the party or another person are:

removed from Australia or from a place inside or outside of Australia; or
disposed of, dealt with or diminished in value;

a non-party to the proceeding where:

there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because:
the non-party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment of the judgment debtor or prospective judgment debtor; or
a process in the Court is or may ultimately be available to applicant as a result of a judgment or prospective judgment, under which process the non-party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.

When drafting the freezing order:

the value of assets covered by a freezing order should not exceed the likely maximum amount of the claim in the proceeding, including interest and costs (however this will be difficult in breach of confidence/fiduciary cases where the amount of the claim may not, at that stage, be quantified);
the order should exclude dealings by the respondents with its assets for legitimate purposes, in particular:
payment of ordinary living expenses;
payment of reasonable legal expenses;
dealings and dispositions in the ordinary and proper course of the respondent's business, including paying business expenses bona fide and properly incurred; and
dealings and dispositions in the discharge of obligations bona fide and properly incurred under a contract entered into before the order was made.

The assessment of the amount which should be excluded from the freezing order will depend on the circumstances of the respondent as best that can be ascertained prior to the application being made.

An applicant seeking a freezing order ex parte is under the usual duty to make full and frank disclosure of all material facts to the Court, including:

the disclosure of possible defences (so confess and avoid); and
any information which may cast doubt on the applicant's ability to meet the usual undertaking as to damages from assets within Australia.

For the purposes of providing an undertaking as to damages, if the applicant does not have sufficient assets within the jurisdiction to provide substance to the undertaking then such an undertaking can be supported by security. If cash is a problem then a bank guarantee may be sufficient.

The practice direction which is to accompany and compliment the new rules sets out an example freezing order for adaptation where appropriate. In most circumstances a freezing order will be obtained ex parte. In these circumstances the order should be limited to a period terminating on the first return date of the proceeding following the making of the order. At such time the applicant will then bear the onus of satisfying the Court that the order should be continued or renewed.

If the respondent to a freezing order exercises liberty to apply before the next return date in the proceeding, such an application will be treated by the Court as an urgent matter.

Search orders

A search order is the most invasive of all the relief that may be sought from the Court. The order is a nuclear weapon[4] in the lawyer's arsenal. The seeking of such an order should not be undertaken lightly and can be an extremely expensive process, not only in the direct legal costs to which the client will be exposed, but also by the usual undertaking as to damages for the purposes of an ex parte[5] application.

A Court may make a search order if the Court is satisfied that:

an applicant seeking the order has a strong prima facie case on an accrued cause of action; and
the potential or actual loss or damage to the applicant will be serious if the search order is not made; and
there is sufficient evidence in relation to a respondent that:
the respondent possesses important evidentiary material; and
there is a real possibility that the respondent might destroy such material or cause it to be unavailable for use in evidence in a proceeding or anticipated proceeding before the Court.[6]

The potentiality of the destruction of evidence is an important one. In Gianitsios v Karagiannis[7], Young J in citing the New Zealand Court of Appeal in Busby v Thorn EMI Video Programmes Ltd[8] stated:

"...ordinarily the feature of a case which will warrant an Anton Piller order will be that there is clear evidence of fraud, dishonesty or contumacy or that the defendant's business is of a transitory nature so that there is a real danger that property or evidence will be removed or destroyed..."

Evidence of destruction can be apparent in confidential information cases where a party emails sensitive material to a third party and attempts to cover his or her tracks by deleting the email records. In other cases involving breach of copyright it can be difficult to provide actual evidence of a threat to destroy materials or documents.[9] In the example of CD pirates who copy protected material for profit, an applicant may draw upon an inference of dishonest character and the disposable nature of the infringing material to satisfy the ‘real possibility' that material may be destroyed or disposed of if the infringer had notice of the impending action.

Any affidavit material in support of an application for a search order should include:

a description of the things or the categories of things, in relation to which the order is sought;
the address or location of any premises in relation to which the order is sought and whether they are private or business premises;
why the order is sought, including why there is a real possibility that the things to be searched for will be destroyed or otherwise made unavailable for use in evidence before the Court unless the order is made;
the prejudice, loss and damage likely to be suffered by the applicant if the order is not made;
the name, address, firm, and commercial litigation experience of an independent solicitor, who consents to being appointed to serve the order, supervise its execution, and do such other things as the Court considers appropriate; and
if the premises to be searched are or include residential premises, whether or not the applicant believes that the only occupant of the premises is likely to be:
a female; or
a child under the age of 18 years; or
any other person that a reasonable person would consider to be in a position of vulnerability because of that person's age, mental capacity, infirmity or English language ability; or
any combinations of the above.

A search order may direct each person named in the order:

to permit, or arrange to permit, such other persons as are described in the order:
to enter premises specified in the order; and
to take any steps that are in accordance with the terms of the order; and
to provide, or arrange to provide, such other persons named or described in the order with any information, thing or service described in the order; and
to allow such other persons named or described in the order to take and retain in their custody any thing described in the order;
not to disclose any information about the order, for up to 3 days after the date on which the order was served, except for the purposes of obtaining legal advice or legal representation; and
to do or refrain from doing any act as the Court considers appropriate.

The search order must include:

undertakings by the applicant as to damages;
the address of the premises to be searched;
the material to be removed or copied;
if you require material from a computer, desk, cabinet or cupboard that maybe locked then specify the persons at the premises who must provide access;
name each person authorized to carry out the search; and
specify the classes of material that may be copied.

The search order must also name an independent solicitor who will supervise the execution of the order. The supervising solicitor will act as an independent witness to the search and if items are required by the search order to be removed, the solicitor will take an inventory of all such items. Following the execution of the search order the supervising solicitor will make and provide an independent report of the process to the Court. This report can be used against an applicant in any subsequent application to set aside the search order if any member of the search party does an act outside the strict provisions of the order.

If the target information to be inspected, seized and/or copied concerns computer files or similar data, an independent computer expert should be named in the search order upon its execution. If computers are involved then it would be a good idea to know the likely computers used by the respondent (i.e. IBM, Apple, IBM compatible) and the likely software.

Any copying of a computer hard drive during the execution of the search order will need to copy the original data exactly. This includes all slack space and free space on the hard drive - every bit and byte.

Further, some programs will require the installation of additional software for various searches within the computer data to be conducted. This holds the inherent risk of damaging or changing the nature of the computer information held on the hard drive and must be approached with caution. If time permits have your computer expert practice the seizure of data on similar dummy systems.

Sophisticated search software such as Encase, ISYS or WinHex can be used to:

recover data from corrupt or damaged files;
revive deleted files; or
analyse and search data.

This type of software can allow the analyst to:

use an advanced binary editor to provide access to all files, clusters, sectors, bytes, nibbles and bits on a drive; and
analyse file slack, unused space and inter-partition space, as these spaces may contain traceable information.

When making the application for a search order the construction of the proposed search order is often of critical importance. Apart from the accrued cause of action and the facts supporting the possibility of destruction, which in most applications are a given, difficulties can arise about the scope of the order sought. An application for a search order is a technical application. It is technical in the sense that the written material must be clear, there must be absolute disclosure and candour by the applicant and the construction and scope of the terms of the search order must be explicit.

It seems logical that the search order should be clear, however, it is easy to get caught up in the process of getting the evidence down in an affidavit without giving the same level of consideration to the search order. The search order will guide your every move upon execution. If an act is not carried out within the terms of the search order, the applicant will be subject to an application to have the order set aside with costs. The magnitude of the effect of a successful application to set aside can be threefold:

the applicant will be ordered to pay the costs of the application to set aside the search order;
any material seized during the execution can be handed back to the respondent; and
there can be an order for the applicant to pay damages pursuant to the undertaking provided by the applicant at the ex parte hearing.

An order setting aside a search order can have a crippling effect on an action. Further, a failure to disclose something material during the making of an application for a search order can have the same, if not similar, effect to the matters referred to above. Unfortunately for the practitioner applications are normally made in haste which makes it difficult to perfect every part of the process. As a wise senior barrister once said: ‘Prepare in haste and repent at leisure'.

Further, given the invasive nature of the search order, it may be appropriate for the applicant to structure the order so that any material seized, copied or removed during execution is placed in the custody of the supervising solicitor. The supervising solicitor can then be charged with the responsibility of placing the material seized in the custody of the Court pending submissions regarding inspection at the first return date between the parties.

The practice direction which is to accompany and compliment the new rules sets out an example search order for adaptation where appropriate.

Every effort is taken to ensure that the information contained in this article is accurate at the time of publication. The content of this article is not legal advice and should not be relied upon as legal advice. The content is a guide only. If you require legal advice please contact a legal practitioner accordingly.

[1] Benjamin Fitzmaurice is a Barrister with Foley's List, Melbourne Chambers - fitzmaurice@melbchambers.com.au

[2] Named after Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55

[3] Named after Mareva Compania Naviera SA v International Bulkcarriers SA (The Mareva) [1975] 2 Lloyd's Rep 509

[4] Referred to as such by Donaldson LJ in Bank Mellat v Nikpour (1985) FSR 87(CA) at 92

[5] The seeking of a search order should always, if not then 99% of the time, be by ex parte application. Otherwise the making of an order inter partes would be akin to discovery being made on notice. Notice of the seeking of a search order would defeat the surprise the benefit of which should give the applicant a fighting chance of preserving the evidence which may be at risk if the application is on notice.

[6] See the decision of Lee J in Television Broadcasts Ltd v Nguyen (1988) 21 FCR 34 at 38

[7] (1986) 7 IPR 36 at 37

[8] (1984) 1 NZLR 461

[9] See Liberty Financial Pty Ltd v Scott [2002] FCA 345