Abigroup Contractors Pty Ltd v River Street Developments Pty Ltd & Ors

[2007] VSC 478

Do Not Send for Reporting
IN THE SUPREME COURT OF VICTORIA		Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 6578 of 2007

ABIGROUP CONTRACTORS PTY LTD (ACN 000 201 516)	Plaintiff
v
RIVER STREET DEVELOPMENTS (ACN 096 725 558) PTY LTD AND OTHERS	Defendant

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JUDGE:	CAVANOUGH J
WHERE HELD:	Melbourne
DATES OF HEARING:	3-6 September 2007
DATE OF JUDGMENT:	6 September 2007
CASE MAY BE CITED AS:	Abigroup Contractors Pty Ltd v River Street Developments Pty Ltd
MEDIUM NEUTRAL CITATION:	[2007] VSC 478

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PRACTICE AND PROCEDURE – Freezing orders – Building dispute – Builder seeking freezing orders against development company and related companies and individuals - Development company a single project vehicle within a corporate group – No security taken by builder in connection with building contract – Loss made by developer on project – Corporate group nevertheless unlikely to allow development company to default – Discretionary factors – Freezing orders refused. 

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Burnside QC Mr J Twigg	Clayton Utz Lawyers
For the Defendants	Mr J Delany SC Mr R Andrew	DLA Phillips Fox
For the Respondents	Mr M Sifris SC Mr P Crennan	Robert James Lawyers

HIS HONOUR:

1. In this matter, the application for freezing orders will be refused for two principal reasons. 

1. First, until at a very late stage in these proceedings the plaintiff's case for the grant of freezing orders had been anchored on the proposition that the River Street project made a substantial profit that was at risk of being diverted from the grasp of the plaintiff.

1. However, I am not satisfied that the River Street project has made, or will make, a profit at all.  In that regard I accept the affidavit of Ms Woolcock which provides a sufficient answer to the Kus report and to the other material on which the plaintiff relies.

1. Indeed, I am satisfied by Ms Woolcock's affidavit, together with Mr Smith's affidavits, that the project has incurred a substantial loss. 

1. It is true that in a credit submission prepared by a finance broker in about December 2006 in relation to a proposal for the extension of finance to Mrs Smith, who is the wife of the effective controller of the defendant, Mr Les Smith, there is an assertion that the River Street project produced a profit of $22 million.

1. The plaintiff asserts that this information must have come from persons associated with the defendant and the Smiths.

1. However, the credit submission was tendered by the plaintiff without verification by affidavit or otherwise. It is of course hearsay.  It was extracted from a large batch of subpoenaed material.  It was not identified prior to the commencement of the hearing as a document on which the plaintiff intended to rely.

1. Mr Delany, senior counsel for the defendant, tells me that he paid no attention to it in preparation for the hearing.  In any event, Mr Burnside QC for the plaintiff has not seriously attempted to make out a case that the figure of $22 million is accurate or indeed that the defendant has in fact made any profit from the River Street project.  Mr Burnside has done no more than refer to the credit submission and to certain other aspects of the defendant's accounts as indicating that some caution may be needed in accepting the accuracy of those accounts as a whole.

1. In any event, I am not persuaded that I should discount the sworn evidence of Ms Woolcock, who is a well qualified chartered accountant and whose affidavit indicates that she has examined the defendant's books and records with some care, and whose opinions are clearly set out and elaborately explained in her affidavit.  She was not required for cross-examination and there has been no responsive material from Mr Kus or otherwise put forward on behalf of the plaintiff.

1. The plaintiff itself describes the defendant, River Street Developments Pty Ltd, as a single purpose vehicle.  At all relevant times the defendant has been a net borrower of funds and, unsurprisingly, all of its relevant assets have been covered by securities belonging either to external lenders or to lenders from within the Smith group of companies.

1. The plaintiff took no security as part of its building contract with the  defendant.  As yet it has no judgment against the defendant. It is merely an unsecured potential creditor.  It has come up against a risk not significantly different from the risk it ran when it entered into the contract.  It has not moved for freezing orders with notable speed.  For the purposes of the Mareva jurisdiction, absent any surplus or profit being made by the defendant from the project, the plaintiff cannot, in my view, reasonably point to any assets or to any fund which ought to be preserved or protected for its benefit by freezing orders.

1. Second, even though the defendant appears to have made a substantial loss on the project and even accepting the plaintiff's description of the defendant as a single purpose vehicle, I am not satisfied that it is at all likely that any judgment which the plaintiff may obtain against the defendant in the underlying VCAT proceedings would remain unsatisfied.

1. Notwithstanding that the defendant holds no actual security against assets of other members of the Smith group, I do not think it at all likely that the Smith group would allow a situation to develop in which a petition for the winding-up of the defendant could be presented or in which process of execution could be issued against the assets of the defendant.

1. Either of those things would be an event of default in relation to major securities presently in place over the assets and undertakings of various other members of the Smith group.  The evidence indicates that the Smith group as a whole, including Mr and Mrs Smith personally, is in surplus to the tune of about $41 million.

1. A recent external credit report, tendered by the plaintiff itself, describes the credit history and stability of the group in glowing terms.  There is no recent history of any creditor of any corporate member of the Smith group going unpaid.  I would be surprised and disappointed if, in the end, any creditor of the defendant was left unpaid.

1. In my view, either of those two reasons alone would be sufficient to indicate that the freezing orders sought should not be granted.  In combination, they make the position very clear, in my opinion.

1. Although I need go no further, I note also that senior counsel for the plaintiff acknowledged that the plaintiff does not have a "killer point" in the underlying dispute at VCAT, albeit that he denied that the defendant had any killer point either. It is not necessary or feasible for me to go into the merits of the underlying dispute but I do note that it is common ground that the plaintiff's VCAT claims have been rejected by certificates issued by the independent supervisor, Mr Main, against whom the plaintiff makes no allegation of lack of integrity or lack of expertise, whereas the defendant's counterclaims have in general been supported by the supervisor.

1. Mr Delany did not submit that VCAT would be in any way bound or affected by the supervisor's opinion but he submitted, and I accept, that the very fact of the existence of the certificates is some indication that the plaintiff's prospects of success at VCAT are not particularly high.

1. I do not need to form a view on the debate as to whether, in the light of Cardile v Led Builders Pty Limited[1], it is necessary for a plaintiff to establish that relevant transactions had or would have an improper purpose, as distinct from merely having the effect of reducing the defendant's assets available for execution.

   [1](1999) 198 CLR 380.

1. However, I do bear in mind what the High Court said in Cardile's case about the need to exercise a high degree of caution before freezing orders are granted against defendants, and all the more so against third parties.  This caution is necessary because of the serious adverse impacts which can be caused by freezing orders, whether or not it turns out that the underlying cause of action is a good one.

1. In the present case I note the particular consequences said to be feared by the defendant, the respondents and the Smith group generally as set out in the affidavit of Mr Smith of 15 August 2007.

1. The plaintiff's amended summons is dismissed.