Winter is coming

By Aarthi Sridharan and Rob Hirst

In one of the few decisions to consider the application of s 137F of the Competition and Consumer Act 2010 (Cth) (CCA), the Federal Court has granted freezing orders against Get Qualified Australia Pty Ltd along with its sole director, Mr Wadi, and his wife, Ms Al-Natour. The orders will remain in place until the ACCC’s case against them for misrepresentation, misleading or deceptive conduct, unconscionable conduct and unfair contract terms is heard. The full judgment can be read here.

Get Qualified assists its customers to obtain qualifications by gaining recognition for their skills and experience (known as “recognition of prior learning” in the vocational education sector). The ACCC has alleged that Get Qualified made misrepresentations regarding the eligibility of customers for certain qualifications and the conditions on which a refund was available, in breach of the Australian Consumer Law (ACL). The ACCC is seeking pecuniary penalties and compensation for affected customers.

Freezing orders: elements

Freezing orders are an exceptional remedy and are generally only granted where:

1. the applicant has “a good arguable case” (in actual or proposed proceedings);
2. there is “a danger or real risk” that assets will be dissipated to frustrate the court’s judgment; and
3. the interests of justice / the balance of convenience favours the granting of the order.

Under section 137F of the CCA, this final element of the test is expressed as it being “necessary or desirable” to make the order. Here, the Court was satisfied that:

• the ACCC had a good arguable case under the ACL against the prospective respondents;

• the evidence led by the ACCC that Get Qualified had destroyed business records, transferred large sums of money to Jordan and the United Arab Emirates and moved some of its operations overseas established that there was a danger or real risk that assets would be dissipated to frustrate the Court’s processes. The court also took note of the fact that Mr Wadi and Ms Al-Natour were born overseas and that Ms Al-Natour is not a citizen of Australia and had family and significant assets located in Jordan; and

• it was in the interests of justice for the Court to make the freezing orders. The court satisfied itself of this limb by including exceptions to the order allowing Get Qualified to continue to operate and Mr Wadi and Ms Al-Natour to access reasonable living expenses.

The extent and scope of s 137F

The Federal Court has a specific power to grant freezing orders for contraventions of the Australian Consumer Law under s 137F of the Competition and Consumer Act 2010 (Cth), as well as a general power to grant freezing orders under r 7.32 of the Federal Court Rules. Clarifying these powers and their interaction, the Court held:

• the respondent’s argument that s 137F impliedly excluded r 7.32 so that s 137F was the only power under which a freezing order could be made was not reasonably arguable given the express stipulation preserving other powers in s 137F(5)(b);

• the respondent’s argument that s 137F did not allow a freezing order to be made to preserve assets to meet a pecuniary penalty was correct but irrelevant because the ACCC was seeking compensation as well as pecuniary penalties, and because the orders were also supported by r 7.32; and

• while the Court is not precluded from requiring an undertaking as to damages from the ACCC under s 137F (despite the section being silent on the issue), no such undertaking would be required here. The Court did, however, consider that the absence of such an undertaking was relevant in assessing the balance of convenience and interests of justice limb of the freezing orders test, as any prejudice to the prospective respondents caused by the freezing orders would not be ameliorated by any undertaking.

The same result held in two cases earlier this year: ACCC v Unique International College Pty Ltd (No 4) [2016] FCA 628 and ACCC v Clinica Internationale Pty Ltd (in liq) (No 3) [2016] FCA 284, on the basis that the proceedings involved a statutory authority enforcing legislation to protect the public. In Get Qualified, the Court noted that “This case is not simply private litigation between private parties for their own private purposes.”.

Key takeaway

This decision provides important clarity around the application of s 137F of the CCA and the interaction of this section with the Federal Court’s powers under s 23 of the Federal Court of Australia Act 1976 (Cth), r 7.01 and Division 7.4, Part 7, Chapter 2 of the Federal Court Rules 2011 (Cth). Taken together, these provisions give the Federal Court broad powers to safeguard its processes and judgments from frustration.

A failure to comply with a freezing order under the CCA is an offence punishable by penalties of $162,000 for a corporation and $32,400 for an individual, as well as being a contempt of court.

Picture: Courtesy Wikimedia Commons / Harald Hoyer