Freezing orders under the ACL are to preserve assets to meet orders for compensation, but not to preserve assets to meet pecuniary penalties.

Freezing orders can be debilitating for business, stifling cash-flow and, when sought by the ACCC, often pulling directors and management into time-consuming investigations.

The recent decision of ACCC v Get Qualified Australia [2016] FCA 976 is thus significant for two reasons:

  • it's the first time a court has considered its power under section 137F of the Competition and Consumer Act to freeze the assets of a company (and its directors) alleged to have contravened the Australian Consumer Law; and
  • it highlights the importance for businesses dealing with consumers to maintain clear and verified accounts of moneys paid by consumers ‒ this ensures that any freezing orders are limited to the harm which is said to have been caused, in turn helping placing a cap on the business' assets that should be frozen.

ACCC continues to take aim at private education service providers

Get Qualified Australia Pty Ltd (GQA) (and its directors) operates a business involved in assisting and advising customers to obtain nationally recognised qualifications by the process of “Recognition of Prior Learning” (RPL) from registered training organisations.

The ACCC alleged that GQA had misled or deceived, engaged in unconscionable conduct and invoked unfair contract terms in contravention of the ACL, by reason of its failure to provide refunds to customers who were unsuccessful in obtaining qualifications through the RPL process.

The ACCC went on to argue that, without a freezing order, GQA's assets would be dissipated and any judgment, inclusive of pecuniary penalties and compensation orders, would go unsatisfied.

What's so important about section 137F of the Competition and Consumer Act?

Section 137F allows the Court to make orders (including on an ex parte basis) to preserve assets if:

  1. the ACCC has commenced consumer harm proceedings or may commence consumer harm proceedings and compensation orders are likely to be sought; and
  2. the order is necessary to preserve assets held by the prospective respondent to:
    1. pay the money by way of a fine, damages, compensation, refund or otherwise;
    2. transfer, sell or refund other property; and
  3. the order will not unduly prejudice the rights and interests of any other person.

The provision is contrasted with the Court's general power afforded under, for example, section 23 of the Federal Court Act, to grant interlocutory injunctions including freezing orders on a discretionary basis if there is a good arguable case for the order, there was a real risk that assets would be dissipated and that in all circumstances it was in the interest of justice for the Court to make the order.

Section 137F thus provides greater certainty then an application to be considered on a discretionary basis.

When can the ACCC use section 137F?

ACCC v Get Qualified Australia clarified that section 137F is not available for the purpose of preserving assets to meet pecuniary penalties, but is available to preserve assets to meet orders for compensation, and highlighted a view that the ACCC should not be required to give the usual undertaking as to damages with respect to an application under section 137F.

Arriving at this conclusion the Court granted the relief sought by the ACCC on a discretionary basis rather than by reason of section 137F (subject to certain allowances for GQA's business and legal expenses) observing that:

  • although section 137F cannot be used to freeze assets to meet a pecuniary penalty order it leaves open the possibility that section 23 of the Federal Court Act could be used, and exercising the Court's discretion in the current case should be used, for that purpose; and
  • as a Commonwealth regulator performing statutory functions in the public interest the ACCC should not be required to provide an undertaking for the price of a freezing order.

The value of record-keeping

The orders in ACCC v Get Qualified Australia were drafted broadly, in that they "did not positively preserve a quantified amount". Rather, the orders froze a number of GQA's bank accounts which may ultimately have had the practical effect of freezing assets capable of satisfying a judgment greater than both compensation orders and pecuniary penalties.

Avoiding a situation where freezing orders overreach is likely to be tricky exercise, as it was in ACCC v Get Qualified Australia. Real steps can however be taken if businesses are able to produce clear and verified records of the moneys paid by customers (and/or classes of customers) who on the ACCC's case are likely to be recipients of compensation. Doing so would make it difficult for the Court to justify freezing more than is it necessary, as far as compensation orders are concerned.

Freezing orders a recurring theme in consumer harm cases?

This is not the first time recently that the ACCC has applied for a freezing orders to preserve a potential judgment with respect to a consumer harm case, nor do we think it will be the last.

The decision follows ACCC v Clinica Internationale Pty Ltd, where, in August last year, the ACCC successfully applied for an order under section 23 of the Federal Court Act freezing the proceeds from the sale of a property, so that it could apply to the Court for those funds to be used to refund Clinica clients if the ACCC was ultimately successful in the proceeding (which it was).

Thus, while ACCC v Get Qualified Australia has not provided the ACCC with a neat recourse to orders preserving property to meet orders for compensation and pecuniary penalties under section 137F, the Courts seem willing ‒ as indicated in ACCC v Clinica Internationale Pty Ltd and ACCC v Get Qualified Australia ‒ to make similar orders by way of the Court's discretionary power.