Australia: Australian courts grant freezing orders to foreign party in support of Singapore proceedings

In this series of decisions between 2012 and late 2014 ¹, the Supreme Court of Western Australia has confirmed that Australian courts will grant freezing orders to foreign parties to support the enforcement of foreign judgments within Australia, even before any such judgment is delivered.

The proceedings arose out of high-value disputes under a commodities joint venture agreement. The judgments will be equally applicable in relation to disputes arising out of commodities sales agreements, charter parties and other maritime contracts.

These decisions provide commodities traders, vessel owners/operators and charterers and maritime services providers with a very valuable Australian weapon to preserve enforcement rights in respect of any claims arising from breach of commodities contracts, charterparties or any other maritime contracts.

The facts

BCBC Singapore (of Singapore) and PT Bayan Resources (of Indonesia) were joint owners of an Indonesian coal joint venture company. BCBC Singapore brought claims in Singapore for over US$138 million against PT Bayan Resources, primarily for alleged breaches of coal supply agreements to the joint venture.

BCBC conducted detailed asset searches on PT Bayan Resources. Apart from certain assets located in Indonesia, the only other asset of PT Bayan Resources was its ownership of 57% of the shares in an Australian coal company, which were worth between AU$55-AU$259 million.

It was common ground that any Singaporean money judgment would not be able to be registered and enforced against PT Bayan Resources' assets in Indonesia. The difficulties in registering and enforcing foreign money judgments in Indonesia are well documented. Accordingly, the only assets worldwide that would be available to satisfy any Singaporean judgment were the Australian shares.

BCBC Singapore therefore applied for freezing orders over the Australian shares, in order to prevent them from being dissipated pending any judgment.

The test

The test for BCBC Singapore to obtain the freezing orders was described by the Court as:

"[Australian courts will grant] a freezing order against a prospective judgment debtor where there is a sufficient prospect that a foreign court will give judgment in favour of the applicant and the judgment will be registered in or enforced by [an Australian court]."

Under Australian law, freezing orders may be granted where the claimant can show that it has a good arguable case with reasonable prospects of success. In this case, the Court accepted that BCBC Singapore's claim in the Singaporean proceedings was arguable.

In addition, BCBC Singapore had to show that if it obtained a judgment in Singapore, there was a reasonable prospect that it would be registered and enforced in Australia. The Court also accepted this argument, on the basis of the system of mutual recognition of judgments between Australia and Singapore.

Finally, BCBC Singapore had to establish that there was a "real risk" that, if the Australian shares were not frozen, any judgment would go unsatisfied as a result of PT Bayan Resources removing the shares from Australia or selling them. The Court accepted that there was a real risk of dissipation, having regard to:

• PT Bayan Resources referred to the fact that it "may also be difficult or impossible to enforce a judgment of a non Indonesian court against any of [PT Bayan Resources, its management or experts]" in its prospectus to investors;
• PT Bayan Resources was in the process of refinancing some US$700-$900 million of debt, using its assets (including the Australian shares) as collateral; and
• PT Bayan Resources' attempts to avoid its obligations under the joint venture agreement, including other creditor's claims, and prior conduct of PT Bayan Resources and its controlling shareholder in seeking to avoid the legal effect of an earlier unrelated court judgment.

Application to commodities and shipping sectors

A substantial portion of the world's hard and soft commodities are sold and shipped from Australia, often as part of a foreign transnational supply chain corporate structure. Many of the corporations involved are based in foreign jurisdictions in which enforcement of judgments may prove difficult, whether due to complex corporate asset-holding structures, problems with enforcement of judgments against partially State-owned entities or State laws against the recognition of foreign judgments against their nationals.

Many such corporations hold substantial assets in Australia, in the form of shares, mining licences or commodity stockpiles.

The ability to freeze these Australian assets as soon as a dispute arises, even before judgment is given, is an extremely valuable weapon in a claimant's armoury. Where assets are otherwise hard to find or attach, this could mean the difference between holding a paper judgment which is worthless and recovering the full value of a claim.

Footnote

¹ BCBC Singapore v PT Bayan Resources [2012] WASC 170; BCBC Singapore v PT Bayan Resources [2013] WASC 239; PT Bayan Resources v BCBC Singapore [2014] WASCA 178.

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