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In this episode, I am joined by Robert Heath KC, for a discussion about asset preservation orders.
Transcript
Johannes:
Welcome to Divorce is Schmidt: A Family Law Series.
In this episode, I’m joined by a special guest. Rob Heath KC is a leading commercial silk at the Victorian Bar. In addition to his busy, and broad, advocacy practice, Rob is a highly sought-after mediator and arbitrator, both in Australia and overseas.
I had the privilege of being led by Rob in a matter in the Major Complex Financial Proceedings list in 2023, Rob’s first foray into family law.
That included a two-day interlocutory stoush, primarily about our topic of discussion in this episode: asset preservation orders.
Rob, what is an asset preservation order, and what is it for?
Rob:
The purpose of granting an asset preservation order is to prevent the frustration or inhibition of the court’s process, by seeking to meet a danger that a prospective judgment of the court will be wholly or partly unsatisfied.
Johannes:
And how does an asset preservation order operate?
Rob:
Asset preservation orders operate to prevent the party against which they are made from divesting or dissipating assets.
They’re intended to prevent the abuse or frustration of the processes of the court by preventing the respondents from dissipating their assets, or disposing of their assets, so as to deprive applicants of the fruits of any judgment obtained in the proceedings.
Johannes:
Okay, so an asset preservation order is a species of interlocutory injunction. In the family law context, we’re looking at section 114(3) of the Family Law Act. Now, that section provides that the court may grant an injunction if it appears to the court to be just and convenient to do so.
How does the court work out whether it’s just and convenient to grant an injunction, generally?
Rob:
In ABC and O’Neill, the High Court explained the organising principles relating to interlocutory injunctions.
According to these principles, on such applications, the court must make two inquiries.
The first inquiry is whether the applicant has demonstrated a sufficient likelihood of success to justify in the circumstances the preservation of status quo pending trial.
And the second inquiry is whether the balance of convenience favours the granting of the injunction sought.
Johannes:
I’m guessing, Rob, that the first limb there is quite important in general civil litigation, where a plaintiff or applicant needs to make out a cause of action.
In the context of family law property proceedings, that will virtually always be satisfied, won’t it?
Rob:
Yes, I think so.
Johannes:
And how does the court determine the balance of convenience in the second limb of that test?
Rob:
In order to succeed in obtaining an asset preservation order, an applicant must demonstrate the following.
First, a sufficient probability that they will obtain a favourable judgment, which, as we’ve just touched, on is usually a given in a family law property case.
And, second, the risk that, if not restrained by order of the court, the respondent will do something that brings about an unjustifiable dissipation of assets under the respondent’s control, with the consequence, Johannes, that this will interfere with the due administration of justice.
And, third, as a matter of discretion, the order ought be made.
Johannes:
So the real meat is in the second limb there, isn’t it? A risk of unjustifiable dissipation of assets under the respondent’s control.
How does the applicant for the asset preservation order show that?
Rob:
The applicant will discharge that burden if they can show that there’s a real risk that a judgment will go unsatisfied, in the sense of a real risk that unless restrained by injunction the respondent will unjustifiably dissipate, or dispose of, their assets, other than in the ordinary course of business.
Second, unless the respondent is restrained by injunction, assets are likely to be dealt with in a way such as to make enforcement of any judgment more difficult, unless those dealings can be justified for normal and proper business purposes.
Johannes:
Okay, and what’s the level of evidence required to demonstrate a real danger of judgment frustration?
Rob:
The applicant must show by evidence, and not by assertion, that there’s a real danger of dissipation of assets such as to render the judgement wholly or partly ineffective.
The applicant must prove facts from which a “prudent, sensible commercial” person can “properly infer a danger of default if assets are removed from the jurisdiction” or dissipated.
Johannes:
So it can’t just be a fear or speculation on the part of the applicant that the respondent might do something dodgy, and a prudent person needs to be able to draw an inference of default from the evidence.
What if conflicting inferences are open on the evidence?
Rob:
In 1952, the High Court in Luxton and Vines held that courts cannot draw the “appropriate inference” if the admissible evidence gives rise to “conflicting inferences of equal degrees of probability so that the choice between them is mere matter of [speculation or] conjecture”.
Johannes:
And you said earlier that the third limb of the test is whether, in the court’s discretion, the order ought to be made. What does the court consider there?
Rob:
Courts must consider the customary discretionary calculus.
Johannes:
What does that involve?
Rob:
First and foremost, analysing the first and second considerations together and doing so with an appreciation of both the underlying purpose of the rule and the relative risks of granting or withholding relief.
Second, considering other matters, such as the breadth of the orders sought and the likely impact of those orders upon the person against whom it’s made, and also upon third parties.
Johannes:
Okay, and is there any remedy for the respondent, or third parties, if they suffer losses because of the asset preservation order being made?
Rob:
Yes. On the assumption that it should not have been made as things turn out, courts look back to an undertaking as to damages, which the applicant may have had to have provided. And the authorities make it clear that, ordinarily, an application for an asset preservation order should be coupled with the giving of an undertaking as to damages by the applicant.
In exercising the discretion at the final steps, courts have regard to the likely difficulties associated with the quantification and recovery of damages pursuant to the usual undertaking, if it should turn out that the order should not have been granted, and the likely problems for the identification of events which would trigger that entitlement to damages at the end of the whole process.
Johannes:
Thanks, Rob.
So what are the key takeaways for our listeners here?
Rob:
First, there needs to be a real risk of unjustifiable dissipation of assets – not justifiable dissipation; it has to be unjustifiable.
Second, there needs to be a risk that such dissipation will undermine the administration of justice.
And, third, there must be evidence of the risk. Not mere speculation or conjecture, and not assertion. That won’t cut it.
Johannes:
So, actual evidence.
Rob, a lot of the authorities on asset preservation orders come from outside the family law sphere. For the people listening to this who, like me, are mere family lawyers, where can they find all of the citations of the principles that you’ve spoken about today?
Rob:
Mercifully, Johannes, they’re all set out in our article in issue 1 of volume 33 of the Australian Family Lawyer, which is published by the Family Law Section of the Law Council of Australia.
Johannes:
Rob, thank you so much for joining me, and for your insights on asset preservation orders.
Rob:
My pleasure. Thanks for having me.
Johannes:
This is Robert Heath KC. I’m Johannes Schmidt. Thank you for listening.
