NSW ruling highlights risks for lawyers misapplying freezing orders and undertakings

In the case, money from a property sale was held in a trust account under undertakings that were put in place instead of a freezing order. When the party subject to the order applied to access those funds to pay reasonable legal costs and everyday living expenses, the other party opposed the application.

The court ultimately granted the request because the undertakings included a right to apply to the court to vary how they operated. Pinsent Masons acted for the successful party in the case.

Hannah Griffiths, an expert in commercial litigation at Pinsent Masons, said: “The judgment serves as a reminder to lawyers that undertakings and freezing‑order‑style restraints must be applied for their intended purpose only. Extending them beyond that purpose risks unfair outcomes and potential cost penalties.”

“The NSW Supreme Court made clear that a party does not need to show special or exceptional circumstances to be released from undertakings and it is enough to show a genuine need for funds that cannot be met without accessing the restrained property,” she said.

“The agreement should be read in a practical, common‑sense way, like a reasonable businessperson would. The court found that the undertakings did not prevent the party from asking to use the money when circumstances changed, including to pay legal defence costs, living expenses, or genuine debts.”

The court also rejected claims that only ‘special or exceptional’ situations justify release from undertakings, ruling it was enough to show there was a real need for funds and no other way to meet that need.

The court said that declining to grant the relief requested would be to give the undertakings “an even more draconian operation than any freezing order could legitimately have. It would be unjust and contrary to the well-established principles governing freezing order”.