Australia: Assets put on ice as international arbitration heats up

Parties who find themselves in the midst of international arbitration should be aware that they can rely on the support of domestic courts. Freezing orders (also known as asset preservation orders or Mareva injunctions) may be available to preserve assets until the conclusion of arbitral proceedings. A timely reminder of this is the recent New South Wales injunction granted in relation to Donaco's Singapore arbitration.

Last year, Australia welcomed 8.8 million inbound tourists, who spent a record $41.3 billion. Visitor numbers have spiked in the last month, in the lead up to the Gold Coast Commonwealth Games. No doubt many of these visitors will take a punt at the Gold Coast's Star Casino, one of the 13 major casinos in Australia's growing gambling related tourism industry.

Arbitration is clearly an important consideration in the tourism industry, not only in the context of seeking enforceable arbitration awards, but also the for the benefit of interim injunctions in support of international arbitration proceedings.

Donaco prevents high rollers cashing out

Freezing orders have been described as one of the law's 'nuclear weapons', due to the fact that they prohibit a party from disposing of or dealing with its own assets. This interim injunction is most commonly used to preserve a defendant's resources until judgment can be enforced. However, such orders are also available to freeze foreign parties' assets in arbitration.

On 3 April 2018, the New South Wales Supreme Court granted a freezing order to ASX-listed Donaco International Limited (Donaco) to preserve the 148 million shares in Donaco held by the three Thai vendors of a Cambodian casino business. On 6 April 2018, the order was extended by consent until 1 June 2018.

Donaco purchased the Star Vegas, located in the city of Poipet, Banteay Meanchey, Cambodia, from the defendants (a Thai businessman and his two sons) in 2015 and took over management in June 2017. After that time, the defendants breached the non-compete clauses in the sale agreements by continuing to conduct gaming operations at the neighbouring Star Paradise casino, and a secret casino hidden behind a supermarket façade.

Despite obtaining a favourable judgment from the Banteay Meanchey Court of First Instance in Cambodia, Donaco announced in December 2017 that it would continue to enforce its legal rights through arbitration in Singapore. In those proceedings, Donaco is claiming USD$120 million in damages. Arbitration awards from Singapore can be enforced in both Cambodia and Thailand as both of these countries are parties to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

The company prudently sought, and was granted, a freezing order in the New South Wales Supreme Court. Justice Stevenson's order restrains the Thai nationals from selling, disposing of or otherwise alienating their shares in Donaco (which represent approximately 17.9% of the company's total share capital), until the final resolution of the Singapore arbitration and payment of any award of damages.

Many countries which are party to the New York Convention have incorporated the United Nations Commission on International Trade Law (UNCITRAL) Model Law into their domestic legislation (Model Law Countries). Australia is a Model Law Country and incorporates the Model Law (with some minor amendments) in the International Arbitration Act 1974 (Cth) (IAA). Article 17J of the Model Law, which is adopted in the IAA, provides that domestic courts have the same power to issues interim measures in relation to arbitration proceedings as court proceedings. A court must exercise the power in accordance with its own procedures, in consideration of the specific features of international arbitration.

Donaco obtained freezing orders in the Australian courts because the assets it sought to freeze are located in Australia (Australian shares). We have mentioned above that Cambodia and Thailand are parties to the New York Convention which means that it is open to Donaco to seek freezing orders in those jurisdictions if the Thai defendants had relevant assets there. In fact, a party wishing to obtain a freezing order against a foreign defendant, may seek in an order in any of the almost 160 countries that are a party to the New York Convention. The party seeking a freezing order must consider both the domestic law of the country, including whether it is a Model Law Country, and the procedures of the court to which it is applying.

If you find yourself in international arbitration proceedings, it is important to remember that freezing orders may be available to preserve the assets of the other side.

The Donaco injunction is a clear example of the usefulness of arbitration in the tourism industry. McCullough Robertson has a strong track record of tourism industry presence advising clients across Australia and abroad, regardless of their headquarters. We deliver the full spectrum of advice for tourism and leisure owners and operators. Our experience confirms that international arbitration provides a commercial and practical approach to dispute resolution in this growing industry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.