Thin Ice – Freezing assets across jurisdictions

By Sam Thyne, Associate, Fenwick Elliott

In international arbitration, winning your case is only half the battle. The harder part is often getting the money. Even if an unsuccessful party has assets, gaining access to them is no sure thing. Large companies, operating across multiple jurisdictions, will often have assets all over the world. Winning a case in one jurisdiction (where the losing party does not have the funds to satisfy a judgment debt) does not guarantee that its assets in other jurisdictions will be readily available to the victor.

Fortunately, it is generally straightforward to have an arbitral award recognised and enforced (provided that the jurisdictions are both signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958). However, parties need to turn to other remedies to ensure there are still assets there to recover.

A freezing order (alternatively called a Mareva injunction for the case which popularised its use1) is a form of injunctive relief that can be awarded by a court to prevent the disposal of assets. It has the dubious distinction of being described as a “nuclear weapon”2 of judicial remedies alongside the seizing order (or Anton Piller order3). A large focus of private law is the protection of private property, hence why court orders which sanction the restriction and re-appropriation of private property are viewed as weapons of mass destruction – and why courts are careful about granting them. 

As the name suggests, a freezing order can freeze almost any asset, including bank accounts and property, both real and intangible. The requirements for obtaining a freezing order vary depending on jurisdiction. However, in England (and other commonwealth jurisdictions), the position is broadly that:

• The applicant must have a cause of action (i.e. an underlying legal or equitable right).
• The applicant must have a good arguable case.
• There must be assets for the order to be applied to.
• There must be a real risk of assets dissipating if the order is not put into place.
• The applicant must provide an undertaking as to damages to compensate the respondent if it is decided that the freezing order should not have been awarded.

Another feature of a freezing order is that they are typically sought on an ex parte basis. This means that they can be issued without the party that the order is subject to being notified until after the order is granted. Accordingly, the applicant needs to consider and address any possible evidence that the defendant may claim against the freezing order and place an emphasis on the risk of asset dissipation.

A recent Australian case illustrates why, in the context of international arbitration, freezing orders are a useful tool, but also highlights the difficulties involved. 

Viterra BV v Shandong Ruyi Technology Co Ltd4 concerned the applicant Viterra BV (“Viterra”) seeking the continuation of various injunctions against Shandong Ruyi Technology Group Co Ltd (“Ruyi”) and related entities. 

In 2020, Viterra commenced arbitration proceedings (in Liverpool) against Ruyi in relation to Ruyi’s failure to perform aspects of several contracts. Viterra was successful in these proceedings and was awarded US$12.2 million along with interest. Ruyi did not pay, leaving Viterra to look for ways to recover.

Ruyi itself was a company registered in the People’s Republic of China. Viterra sought to enforce the arbitral award in the PRC; however, this did not appear as if it would be successful. Ruyi already had many outstanding judgments in the PRC so the prospect of recovery there was slim.

However, Ruyi had international assets. Ruyi was the owner of a Singaporean company called CSTT Co Holdings Pte Ltd (“CSTT Singapore”). Further, CSTT Singapore had international holdings including two Australian based companies CS Agriculture Pty Ltd (“CS Agriculture”) of which CSTT Singapore owned 80%, and CSTT Holdings Pty Ltd (“CSTT Australia”) which was wholly owned by CSTT Singapore.

Viterra had a plan. Viterra had commenced recognition and enforcement proceedings in Singapore. Once it had done this, it intended to execute on that judgment a process whereby it would either recover its judgment debt through the outcome of a share auction, or purchase all the shares itself and assume control over CSTT Singapore at the auction and recover the judgment debt through realising the company’s assets and paying itself a dividend. 

The second option would necessitate the sale of the Australian assets of CSTT Singapore, hence why Viterra had asked the Australian courts to grant a freezing order against Ruyi, CSTT Singapore, CS Agriculture and CSTT Australia. 

Unfortunately for Viterra, the Court declined to uphold the freezing orders. 

Viterra had not identified any process under Australian law which would allow the Australian Courts to grant the orders. They had applied for recognition and enforcement of the arbitral decision in the PRC and Singapore, but not Australia. There was no legal reason under Australian law for CSTT Singapore to pay Viterra anything; therefore, the Australian courts did not have a legal reason to prevent the disposal of assets. In effect, the request for a freezing order in Australia was outside of the court’s powers to grant. As noted by the Judge, if Viterra wanted to protect its processes of enforcement of a Singapore judgment in Singapore, then it could be expected to seek freezing orders in Singapore.

The court gave two alternative reasons for declining to uphold the freezing orders. 

First, Viterra’s proposed scheme of recovering its judgment debt through the forced auction of CSTT Singapore’s shares was not a process of enforcement under the Australian Courts or the High Court of Singapore. The Judge observed that it was necessary to keep the distinction between what a judgment creditor could do, and what the shareholder of a company could do. The proposed actions of a shareholder did not attract the protection of the court’s enforcement processes.

Second, the Judge gave several discretionary considerations against the continuation of the freezing orders: 

• The Judge noted it would be a rare case in which a freezing order will be granted against a third party which did not hold assets to which the debtor or prospective debtor is beneficially entitled.
• The orders would be too onerous in the circumstances.
• If the freezing order was made effective and maintained against Ruyi, then there would be no demonstrated need or warrant for the order against CSTT Singapore; if, on the other hand, the freezing order against Ruyi was not made effective or not maintained, then there would be no justification for an order against CSTT Singapore.
• The Judge was not convinced there was anything to suggest that Ruyi would dispose of the assets.
• Finally, the assets (held by CSTT Singapore) were beyond any relevant control by Ruyi.

The Viterra case is illustrative of the types of circumstances which make recovery of arbitral awards difficult. While Viterra knew that Ruyi had assets, it struggled to find an effective path to them. It is also a useful example of the difficulties in convincing courts to grant freezing orders. While the order can be a very effective tool, obtaining the nuclear codes is unsurprisingly no easy feat.

When considering bringing arbitral proceedings, enforcement should be considered from the outset. As part of the calculus of deciding to bring a claim, a claimant should understand where possible assets are and how these could be recovered as there would be nothing worse that reaching the end of a hard fought arbitration to wind up no better off than when you started.

Previous article

• 1. Mareva Compania Naviera SA v. International Bulkcarriers SA, [1975] 2 Lloyd's Rep 509
• 2. Bank Mellat v Nikpour [1985] FSR 87
• 3. Anton Piller KG v Manufacturing Processes Ltd & Ors [1975] EWCA Civ 12
• 4. [2022] FCA 215