Frozen: Can you let the property go?

Need help with the strata law issue or a building in construction matter? Sax Girarchi Lawyers is a leading Sydney law firm that can help. With over 20 years experience, Sax Girarchi Lawyers focus on commercial litigation, building and construction, strata law and local government regulation issues. Now, here is your podcast. Have you ever heard the term "freezing order" and thought it sounded more like a dessert than a legal mechanism? Well, think again. Freezing orders can stop thousands from slipping through your fingers, literally. In this episode of the strata law podcast, I'm with Clement Lo from Sax Girarchi Lawyers and we're unpacking a landmark case. Aqualan North Sydney Lavender Development PTY, LTD and the owners strata plan #102081, originally decided by the New South Wales Court of Appeal. In the context of Aqualand, we'll break down what exactly a freezing order is and when courts use it, the key facts and findings at first instance in Aqualand, what changed and why at the Court of Appeal and crucially what this all means going forward for commercial disputes and asset protection in New South Wales. Clement at the outset, what actually years are freezing order? A freezing order is an order that a court may make where there is a danger that a judgement or prospective judgement that the court will be wholly or partly unsatisfied. So an order can be made restraining that party from removing assets which are located either in or outside Australia and preventing them from disposing or for dealing with or even diminishing the value of those assets. There are several mechanisms, I guess, in the broad term of freezing order, they're sometimes known by some other names, sometimes there's more raver injunctions and there's also a freezing order mechanism in the Conveyancing Act. But in this particular instance, we're going to be looking at freezing orders that are contained within the uniform civil procedure rules at part 25 in particular. Clement, what happened at first instance in the Aqualand matter? Yes, so this decision, the first instance decision was made in February of 2025. So just to give some background to this, the owner's corporation brought an application for a freezing order against the developer, who I'll call Aqualand, there's a specific entity that they claim against which was the Aqualand North Sydney Lavender Development PTY-LTD. But I'll just call the Aqualand for sure. So the owner's corporation is a mixed commercial and residential development in Milton's point, that comprises a hundred and twenty-five residential and two commercial lots. The owner's corporation brought a building defects claim in the Supreme Court of New South Wales and its evidence has closed and the quantum of its claim was in the order of $10.6 million. That is normally the case in these building defects proceedings. The builder was sued and the developer was as well, assuming to the statutory priorities provisions in the Home Building Act. The works were completed in about mid-2021 and since that time Aqualand, the developer, had been selling residential units in the ordinary course, Aqualand also retained the two commercial lots. They had long term leases on them and those two commercial lots were valued at about $5.3 million. Now that's obviously only about half the claimed amount. By about August of 2024, Aqualand had sold 121 of 125 residential units. The four remaining units, which remained in the name of the developer, were valued at about $23.8 million, so that would obviously cover the claim. So in November of 2024, the OCC made an application for a freezing order that the developer not disposed of its assets up to the unencumbered value of $10.6 million, which obviously the amount of its claim, the developer opposed that and the matter was brought before just Stevenson in February, where he found that it was reasonable to infer that absent restraints the developer will act in the same way in relation to the remaining four units that is to sell them. And the requisite danger that exists and made the freezing order. I refer to danger earlier in the answer to the first question, obviously, in the uniform civil procedure rules part 25 and rule 25.11, the words of the legislation require that any party seeking a freezing order has to prove that there is a danger that the judgment or prospective judgment the court will be wholly or partly unsatisfied, and also that there will be a danger that absence, that order, that those assets might be dissipated or disposed of so as not to be able to fulfil that judgment. Climate what actually happened at the Court of Appeal? It did go to the Court of Appeal, and that decision was handed down earlier this month in the 2nd of July, so the developer appealed the decision of Dr. Stevenson on the basis that the test that I've outlined in ECPR 25.11 had been misapplied. Ultimately, the Court of Appeal found that the primary judge didn't find that the developer dealt with the procedure as ordinary course transactions, which would be described as things like wages, utilities bills, tax, that would be protected from a freezing order, and particularly that the primary judge, Dr. Stevenson, found that the developer, the developer entity was actually a special purpose vehicle, whose only function was to develop size, and the fact that that was its sole function, it was sufficient to conclude that there was a danger that the prospective judgment would be wholly or partly unsatisfied if the special purpose vehicle was permitted to distribute through remaining profits, because as the only assets remaining in that entity, in that vehicle, having those profits distributed would deny that the OC of any remedy, if it's claims succeeded, so therefore two judges at the Court of Appeal found that the ECPR, at real 25.14 was satisfied, and in particular, that provision was that the Court may make a freezing order, where ancillary order will vote against the judgment there so it will prospective judgment there so it's the court is satisfied having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur, and particularly the one is, the relevant is, the assets of the judgment, sorry, the prospective judgment there so are, just by the start of dealt with, were diminished in value, and therefore it was found that the distribution of profits was sufficient to, in light of that part of the ECPR, so that the Court of Appeal dismissed the appeal, so the freezing order remained. What's the significance of all this? Yes, it's significant, because the Court of Appeal has essentially green-lice applications for freezing orders in certain circumstances where a developer using a special purpose vehicle which has got common, doesn't retain the proceeds as sale, but distributes them to shareholders or related entities. Freezing orders are normally, could be described as extraordinary remedies, they're not to be given lightly, and the authorities have made it clear that the purpose or, if the purpose of seeking a freezing order is to essentially seek security for judgment, it won't be allowed, so given the situation that we've seen here in this decision, it does raise interesting questions of how proceedings can run, or run by OCs, it does raise questions of how large development groups may wish to structure or restructure their affairs, the tickling view of the comments made by the Court of Appeal in relation to special purpose vehicles. It's also significant because it's not only OCs who may wish to avail themselves of this remedy, because as is often the case, if a builder or any other party in the litigation cross-claims against the developer or any other party for that matter, then they may wish to explore that, so it has ramifications for particularly the conductive of building defecaligation involving developers, and I guess it remains to be seen how developers will respond to this decision in terms of structuring their affairs. But how can Sector Archie Lawyers help in these types of matters? Sector Archie Lawyers acts for many owns, corporations, in building defecs claims, we also act for builders and developers as well in that sphere, so we can advise parties that they've best strategies and faced with a situation like this, and also in relation to the defecs claims itself, or we have brought experience in dealing with these from both sides of the fence, so we're more than happy to assist clients with those matters. Climate, thanks for joining me. Thanks for listening. If you have any questions or need more information, simply call Sector Archie on O2-9331-5127. [Music]