By Jack Wass (Stout Street Chambers)
It is now established that the High Court has the power to grant interim relief without notice against foreign defendants. The High Court has recently considered a different question: does the fact that the defendant is outside New Zealand create a basis for ordering interim relief in advance of trial?
The court’s power to grant interim relief
The High Court may grant a wide range of orders to protect a plaintiff’s ability to enforce a judgment on the merits. Some of these orders are designed to preserve assets before trial, “in order to improve the prospect of the court being able to do justice between the parties after a determination of the merits at a trial” (Commerce Commission v Viagogo AG [2019] NZCA 472 at [7]). These include freezing orders and interim injunctions. Other orders are granted after judgment has been obtained to secure property for the discharge of the judgment debtor’s obligations. These include attachment orders, sale orders and possession orders.
Charging orders straddle this distinction, because they can be granted both before and after judgment. Although a charging order does not create a proprietary interest in the charged property, it has the effect converting the plaintiff’s in personam claim for a sum of money into a security interest by charging the property with payment of the judgment sum and preventing the debtor from disposing of the property without paying the plaintiff. It constitutes an “interest” in terms of the Land Transfer Act 2017 and a security interest in terms of the Insolvency Act 2007. By contrast, a freezing order operates strictly in personam (see McGechan on Procedure at [HR17.40.03]).
Pre- and post-judgment charging orders
Where a plaintiff has already obtained judgment and had it sealed, they may obtain a charging order as of right (r 17.42). In such a case, a judge has already determined that the defendant owes a liquidated sum to the plaintiff, and the plaintiff has a prima facie right to enforce that judgment which justifies granting them an interest in the defendant’s assets. While the court also has the power to grant pre-judgment charging orders, it must be satisfied that “the liable party, with intent to defeat either his or her creditors or the entitled party or both,– (a) is removing, concealing, or disposing of the liable party’s property; or (b) is absent from or about to leave New Zealand.”
This condition was recently considered by the High Court in ASI Global Investments Inc v Yousef [2020] NZHC 1983. The applicant had begun substantive proceedings against the respondent in Switzerland. He sought leave to obtain a pre-judgment charging order over a Northland forestry block to secure payment of the anticipated Swiss judgment.
Duffy J refused the order. The judge accepted evidence that the respondent had taken steps overseas which demonstrated an intent to defeat creditors, and apparently that unless interim relief were granted then the applicant’s ability to enforce any judgment against the Northland property might be defeated. But there was no evidence that the respondent’s presence outside New Zealand had anything to do with his intent to defeat creditors, particularly if he had never been here in the first place. The judge concluded:
Before I can draw the necessary linkage between the respondent’s absence from New Zealand and his intent in terms of r 17.41, I would need to be informed of the respondent’s movements to and from New Zealand and how they may be connected with the acquisition of the subject land as well as any potential alienation of that land. It must necessarily be the case in these days of global transactions that persons who reside overseas buy land in New Zealand as an investment [without residing here]. In such circumstances I do not consider it can readily be inferred that they remain absent from New Zealand because they intend to defeat creditors or other entitled persons who may otherwise seek to attach their New Zealand based assets.
The judge indicated that she was willing to reconsider the application if the applicant could produce specific evidence that demonstrated the necessary link between the limbs of r 17.41.
The judgment is consistent with earlier authority emphasising that even where the defendants had left New Zealand recently, the applicant must show that they did so with the necessary intent (Amplexus Ltd v Liao [2016] NZHC 924). By contrast, where Australian residents arranged for construction of a house platform in New Zealand but failed to pay, then apparently returned to Australia and put the property up for sale, the court was satisfied that they had left the country with the intention of defeating their creditors (AHS Construction Ltd v Andrews [2019] NZHC 1779).
The significance of the debtor leaving the country
The effect of these requirements is that the applicant must demonstrate that a purpose of the respondent in leaving the country was to make it more difficult for creditors to enforce their rights. That higher standard may be justified by the more extensive rights afforded to the holder of a charging order, by comparison with a freezing order which operates strictly in personam (although as I note below, the effect can be the same). Nevertheless, the requirement substantially narrows the scope for the application of pre-judgment charging orders, particularly where the respondent has never been in New Zealand. Where there is proof of an intention to defeat creditors (but not proof that the respondent is actually disposing of property sufficient to satisfy r 17.41(a)), and the respondent’s presence outside New Zealand may make it easier for them to evade their creditors, it is arguable whether Parliament intended to require proof of a conscious causative nexus between the two facts.
It is not only in the context of pre-judgment charging orders that the court may take into account the respondent’s departure from the country. Section 40 of the Senior Courts Act 2017 empowers the court to issue a warrant to arrest a defendant if they are satisfied that the plaintiff has a good cause of action against the defendant, and there are reasonable grounds to suspect that the defendant is about to leave the country with the intention of evading payment of the amount claimed. This replaced the old prerogative writ of ne exeat regno (most famously sought to restrain the All Blacks leaving New Zealand on a tour of South Africa in Parsons v Burk [1971] NZLR 244).
Section 40 was formerly found in s 55 of the Judicature Act 1908. That section did not require the plaintiff to show that the defendant was leaving the country to evade payment, but that their absence would “materially prejudice the plaintiff in the prosecution of those proceedings” (for example by making them unavailable as a witness). It is not clear whether Parliament intended that change (see Hook and Wass The Conflict of Laws in New Zealand at [3.205]).
Freezing order?
There remains a question whether the court’s broad jurisdiction to grant interim relief is capable of addressing the dilemma in which the applicant found itself. It appears from the judge’s summary of the evidence that the applicant was concerned that it would have no means of monitoring compliance with a freezing order, other than after the fact. It appears that the particular value of the property was in cutting rights, and the applicant was concerned that the respondent might exploit these rights and dispose of the proceeds without the applicant’s knowledge.
The court has a broad power to fashion interim relief to meet the requirements of justice. The freezing order is merely one – particularly famous, sophisticated and codified – instance of this inherent jurisdiction. Any third party on notice of an injunction who assists in its breach commits a contempt of court. A freezing order should be capable of preventing the transfer of title to the land itself out of the respondent’s name. While recognising the difficulties of monitoring activity on a remote forestry block, one would have hoped that it would be possible to fashion interim relief that is designed to put anyone who might be involved in a large-scale cutting operation on notice that to assist would be a breach of the High Court’s orders.
