Allianz v Vitale

[2015] NSWSC 352

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Allianz v Vitale & Ors [2015] NSWSC 352
Hearing dates:	19 March 2015
Date of orders:	01 April 2015
Decision date:	01 April 2015
Jurisdiction:	Equity Division - Duty List
Before:	Slattery J
Decision:	Existing Freezing Orders continued. Respondent ordered to pay into Court the balance of monies the judgment debtor paid to the respondent company on 30 January 2015.
Catchwords:	FREEZING ORDERS – application for interim preservation orders in support of claim over funds – where judgment debtor had filed a debtors petition and become bankrupt – where judgment debtor had caused funds to be transferred to respondent company controlled by judgment debtor – where respondent company's funds appear to have been used for personal expenditure of judgment debtor – company exercising a power of disposition over judgment debtor's assets – whether existing orders should be continued – whether subject funds should be paid into court.
Legislation Cited:	Bankruptcy Act 1966 (Cth) Conveyancing Act 1919, s 37A Uniform Civil Procedure Rules 2005, r 25.14(5)
Cases Cited:	Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 Clarke v Chadburn (1985) 1 WLR 78 Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd (1994) 13 WAR 407 Millennium Federation Pty Ltd v Bigjig Pty Ltd [2000] 1 Qd R 275 Slieman v Afeich [2005] NSWSC 1063
Category:	Consequential orders (other than Costs)
Parties:	Applicant: Allianz Australia Insurance Limited ACN 000 122 850 First defendant: Anthony Vitale Second defendant: Giuliana Vitale First Respondent: Avcon (NSW) Pty Ltd ACN 079 265 802 Second Respondent: Paul Vitale Third Respondent: AV Guardian Pty Ltd ACN 126 152 127 Fourth Respondent: Gary William Lee
Representation:	Counsel: Applicant: M. Ashhurst SC, A. Smith Respondent: D. Allen Solicitors: Applicant: James Collier, Moray & Agnew Lawyers Respondent: Alex Ronayne, Ronayne Owens Lawyers
File Number(s):	2010/93159
Publication restriction:	No

Judgment

1. Allianz Australia Insurance Limited (“Allianz”) seeks interim preservation orders in the Equity Duty list in support of its proprietary claim over a sum of $602,280.21 plus interest (“the subject funds”) that Avcon (NSW) Pty Limited (“Avcon”) holds in a bank account with the Commonwealth Bank of Australia (“CBA”). Allianz’s present application is to continue certain existing restraints against Avcon dealing with the subject funds and related relief, and in the alternative, a non-proprietary freezing order under Uniform Civil Procedure Rules (“UCPR”), r 25.11 over the funds. Avcon submits the Court should not place any restraint on its use of the subject funds.

2. The relevant procedural history may be briefly stated. Allianz commenced these proceedings in April 2010 claiming on an indemnity against the first and second named defendants Anthony and Giuliana Vitale. After a contested hearing Sackar J pronounced judgment on 1 April 2014 and on 14 April 2014 entered judgment against Mr and Mrs Vitale for $1,870,036.85 together with interest and costs.

3. Two months later, on 16 June 2014, Mr and Mrs Vitale, the judgment debtors, executed a mortgage over what was otherwise unencumbered property of Mrs Vitale. Three days after that, on 19 June 2014 Allianz successfully applied for freezing orders against Mr and Mrs Vitale on the basis of their entry into this mortgage (“Freezing Orders”). On 23 June 2014 Mr Vitale acknowledged in an email to Allianz’s solicitors that he was aware that these Freezing Orders had been made in respect of his and his wife’s assets and he consented to their continuance. The original Freezing Orders relevantly provided (orders 6 and 7):

“FREEZING OF ASSETS

6(a)   You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia ('Australian assets') up to the unencumbered value of AUD$1,870,036.85 (the Relevant Amount').

(b)   If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount.

7.   For the purposes of this order,

(1)   Your assets include:

(a)   all your assets, whether or not they are in your name and whether they are solely or co-owned;

(b)   any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and

(c)   the following assets in particular the property known as Lot B in Deposited Plan 359103, 6 Daphne Street, Caringbah, NSW 2229

(2)   the value of your assets is the value of the interest you have individually in your assets.”

4. On 16 July Darke J extended the Freezing Orders against the Vitale’s by consent to 14 October 2014. Since then the orders have been further extended by consent on a number of occasions: by Pembroke J (on 9 October 2014), and Sackar J (on 12 November 2014) and now operate until further order. The orders remained in force in January and February this year.

5. Allianz submits that Mr Vitale breached Order 6 on 30 January 2015 by transferring the subject funds from a CBA bank account in his own name to a CBA bank account in Avcon’s name, in circumstances that will be more fully described in these reasons.

6. Once Allianz became aware of the transfer of the subject funds it began to pursue the present interlocutory relief against Avcon. On 5 March 2015 on Allianz’s application Robb J made an ex parte order in the Equity Duty List restraining Avcon from dealing with the balance of the subject funds in its control until 12 March 2015. Then on 12 March 2015 the Duty Judge, White J, extended Robb J’s orders until 19 March 2015.

7. The applicant filed another interlocutory application in the Equity Duty list before me on Friday 13 March 2015 seeking wider orders. Argument took place on that application on Thursday, 19 March 2015, before White J’s orders were due to expire.

8. Mr Ashhurst SC and Mr A. Smith of counsel appeared for Allianz and Mr Allen of counsel for Avcon. The Court reserved judgment on 19 March 2015 and extended all existing orders in respect of the subject funds until the delivery of this judgment.

Vitale Family Transactions – November 2012 to February 2015

9. The background to Mr Vitale’s transfer of the subject funds from his CBA account to Avcon’s is complex and requires explanation before the parties’ more detailed contentions are examined. The narrative starts in November 2012.

10. Mr and Mrs Vitale sold a property they owned jointly in Cronulla (“the Cronulla property”) in November 2012 for $6,150,000. The net proceeds of this sale, in the sum of $1,865,821.22, were deposited into Mr and Mrs Vitale’s solicitor’s trust account pending the resolution of certain family law issues that had arisen between the couple.

11. The parties applied the proceeds of sale from the Cronulla property to a number of other purchases. In April 2013 Mrs Vitale applied $1,040,000 of the Cronulla property proceeds to the purchase in her name of a property in Daphne Street, Caringbah South (“the Daphne Street property”). This left approximately $800,000 of the Cronulla property sale proceeds remaining at the parties’ disposal.

12. Avcon is one of a number of companies Mr and Mrs Vitale controlled and used in recent years to conduct a family property development business. The Avcon Property Group Pty Limited (“APG”) is another. In October 2013 Avcon purchased a property in Crescent Road, Caringbah South (“the Crescent Road property”) for $840,000. Avcon funded the purchase of the Crescent Road property with a commercial mortgage for $480,000. The Cronulla property proceeds provided the balance of $360,000 ($840,000 less $480,000).

13. Mr Vitale owned all Avcon’s share capital. But in about 2002 he had made advances to Avcon to assist in Avcon’s working capital requirements. As a result Mr Vitale was a creditor of Avcon for $1,300,000, a debt still due to him, when he became bankrupt on his own petition in March of this year, as he declared in his Statement of Affairs.

14. Avcon developed the Crescent Road property in the course of its business, subdividing it into two units, Unit 8 and Unit 8A. In September 2014 Avcon sold Unit 8 for $1,350,000 and Unit 8A for $1,310,000. Avcon was entitled to these proceeds of sale. The sale of Unit 8A settled first. The proceeds of sale were applied partly to repay mortgage monies then outstanding from Avcon to the CBA on account of Avcon’s borrowing for the Crescent Road property development. Avcon paid some $1,236,000.14 to the CBA from the sale of Unit 8A on 19 September 2014. When Unit 8 settled about two weeks later, after repaying a further $325,000 to the CBA, Avcon’s remaining obligations on its mortgage to the CBA had been satisfied. Avcon was then entitled to receive and did receive on 23 September 2014 all the remaining net proceeds of $977,860.56 (“the Unit 8 proceeds”) on the settlement of Unit 8.

15. Approximately one week later on 29 September 2014 Mr Vitale caused part of Avcon’s Unit 8 proceeds to be paid into a higher interest bearing account. But instead of keeping them in an account in Avcon’s name Mr Vitale transferred $800,000 of the proceeds into a CBA interest bearing Netbank Saver account in his own name with an account number ending with the digits 883 (“Netbank Account 883”). The subject funds of $602,280.21, the subject of the present contest, were a further application of the funds being paid into Mr Vitale’s name in this $800,000 transfer.

16. Mr Vitale says this transfer was an error on his part. He says that he would never have asked the CBA for the $800,000 to be transferred into Netbank Account 883 had he realised that the account was in his name, rather than in Avcon’s name. He says that the sum of $800,000 so paid (into his name) actually always remained Avcon’s property and that it was a mistake for it ever to be put into any account in his name. Another explanation for the payment was that Avcon was repaying part of the $1.3 million that it owed to Mr Vitale.

17. But the account confirmation document that was sent to Mr Vitale for his signature to facilitate the opening of Netbank Account 883 clearly refers to the account holder in capital letters as “ANTHONY VITALE”. The CBA officer from the CBA’s Caringbah branch sent the account confirmation form to Mr Vitale for Netbank Account 883 on 30 September 2014, attached to an email that said:

“Hi Anthony,

Attached is account confirmation for the new netbankk [sic] saver that has been opened in your name and $800K deposited into. Could you please sign and return.

As you requested I paid $20K off your credit card and opened a business online saver with $100K deposited into.

Please let me know if you are having trouble viewing these 2 new accounts in CommBiz and I get someone to correct. [sic]

Regards,

Lisa”

18. Mr Vitale signed this account confirmation form. The account was opened. So I infer Mr Vitale returned it to the CBA, from where it was ultimately produced on subpoena to the Court. No contemporaneously created documentary evidence supports the inference that Avcon intended to retain any interest in these funds. All the Court has, about 6 months after the event, is Mr Vitale’s evidence that he made a mistake in allowing these funds to be transferred into his name.

19. The funds in Netbank Account 883 were applied between late October 2014 and mid February 2015 in various ways that will be further described. One of these payments became the central contest in these proceedings. On 30 January 2015 Mr Vitale caused $602,077.22 to be paid from Netbank Account 883 to another CBA bank account in his own name, with an account number ending with the digits 667 (“Personal Account 667”). At all relevant times Personal Account 667 was in Mr Vitale’s name.

20. The same day Mr Vitale caused the very slightly greater amount of $602,280.81 to be paid from Personal Account 667 into another CBA account. But this time the account was in Avcon’s name, and the account number ended with the three digits 675 (“Avcon Account 675”). Mr Vitale’s case is that the payment into Avcon Account 675 (described at times in these reasons as “the 30 January transaction”) was a payment made to correct the error that had originally been made on 29 September 2014, when the original $800,000 had been wrongly placed in his name in Netbank Account 883.

21. One would expect Avcon Account 675 to be an account Avcon used in the course of its business as a property developer. But as will be seen in more detail below, the bank statements for Avcon Account 675 show that it was frequently used for what would appear to be the personal and domestic expenditure of Mr and Mrs Vitale.

22. On 30 January 2015, the same day as the $602,077.22 was transferred from the Netbank Account 883 to Personal Account 667 and the slightly greater amount of $602,280.21 was then transferred to Avcon Account 675, Mr and Mrs Vitale signed authorities to place their affairs under Bankruptcy Act 1966 (Cth) Part X and to call a meeting of their creditors. Mr Paul Leroy was appointed the controlling trustee of their estates in bankruptcy. The same day Mr Vitale transferred all his shares in Avcon to one Gary William Lee for the consideration of $1.00. He also transferred that day to Mr Lee all his shares in three other proprietary companies he controlled, namely Vitale Future Generations Pty Limited, AV Guardian Pty Limited and Avcon Property Group Pty Limited. By the time of the hearing of this application, Mr Vitale’s trustee in bankruptcy had not sought to set aside any of these transactions.

23. The transactions and the operations on these various accounts are wider than even this brief outline. The parties’ submissions, to which these reason now turn, highlight the relevance of these wider facts.

Allianz’s Submissions

24. Allianz claims a proprietary interest in the subject funds. In the alternative it seeks a freezing order against Avcon, ancillary to which the subject funds should be paid into Court. Both these claims arise out of the circumstances of the payment of the subject funds from Netbank Account 883 in Mr Vitale’s name to Avcon Account 675.

25. Allianz puts its claim on two different bases. First it argues it is entitled pursuant to UCPR, r 25.3 to an interim order for the preservation of property, namely the subject funds. Allianz argues on its alternative case that it has remedies in respect of that property such that these proceedings are now “proceedings concerning property” or are proceedings “in which any question may arise as to property” within UCPR, r 25.3(1) and therefore the Court may make an order for preservation or custody of the property or the Court may order that the subject funds be paid into Court: see UCPR, r 25.3(3).

26. In the alternative, Allianz seeks a freezing order under UCPR, r 25.14. Allianz recognises in this case that the Court’s relevant jurisdiction to grant a freezing order arises under UCPR, r 25.14(5), as Allianz seeks the order against a person (Avcon) other than the judgment debtor (Mr Vitale). Allianz’s alternative UCPR, r 25.14(5) contentions are that (a) the third party (Avcon) is either holding or is exercising a power of disposition over, or is in a position of control or influence over, the subject funds, which are assets of the judgment debtor (UCPR, r 25.14(5)(a)), or that (b) as a result of the judgment Avcon may ultimately be obliged to disgorge the assets it holds or contribute towards satisfying the judgment (UCPR, r 25.14(5)(b)).

27. Were Allianz to be successful on its first argument for an interim order, the subject funds would be wholly preserved and would not be liable to deductions for the defendants’, business, living or legal expenses. These deductions would be available were a freezing order to be made. Were Allianz successful on its alternative argument for a Freezing Order, the subject funds may be used to meet Avcon’s expenses. Allianz submits that provided it establishes that Mr Vitale owns the subject funds, it is at least entitled to a third party freezing order against Avcon under UCPR, r 25.14(5). But the major dispute in these proceedings is whether the subject funds were Mr Vitale’s property at the time of the transfer to Avcon or whether they were Avcon’s property.

28. Avcon’s Submissions

29. Avcon seeks to answer Allianz’s arguments in several ways. First, it submits that Allianz cannot establish a prima facie case of a proprietary interest in the subject funds, and that Allianz is merely an unsecured creditor, not of Avcon, but of the bankrupt estate of Mr Vitale.

30. Secondly, Avcon concedes that Allianz may have standing to pursue an action invoking Conveyancing Act 1919, s 37A as a person claiming to be prejudiced by a transaction with intent to defraud creditors, namely the transfer of the subject funds to Avcon from Personal Account 667 to Avcon Account 675. But Avcon submits that Allianz has neither commenced nor given any indication that it intends to commence Conveyancing Act, s 37A proceedings to avoid the transaction.

31. Thirdly, Avcon submits that Bankruptcy Act (Cth), s 58(3) is an impediment to Allianz commencing such an action in any event. Given Mr Vitale’s bankruptcy, it is no longer competent for any creditor of Mr Vitale, such as Allianz, “except with the leave of the Court and on such terms as the Court thinks fit” to “commence any legal proceedings in respect of a provable debt”. Avcon submits that Allianz’s putative Conveyancing Act, s 37A proceedings are “in respect of” Allianz’s “provable debt”, namely the judgment debt on the principal judgment against Mr Vitale, who is now bankrupt.

32. Fourthly, Avcon submits that: even if Allianz were successful, that would not achieve a money judgment for Allianz but would only lead to avoidance of the transaction at the behest of Mr Vitale’s trustee in bankruptcy. The only person with standing to make a proprietary claim for Mr Vitale over the subject funds Avcon claims is the trustee in bankruptcy.

33. Finally and in the alternative, Avcon submits that if an order in the nature of a freezing order were to be made against it, that there should be an exclusion for dealings with its assets for legitimate purposes such as legal expenses, dealings and dispositions in the ordinary course of Avcon’s business, and dealings in the discharge of obligations made bona fide and properly incurred under contracts entered into before the orders were made: Practice Note SC Gen14, paras 12(b),(c),(d). This discretion should be invoked here, Avcon submits because Avcon continues to need to trade and will need funds to do so.

34. Resolution of these competing contentions requires closer analysis of Mr Vitale’s and Avcon’s financial affairs over the last 9 months.

Mr Vitale’s and Avcon’s Affairs – June 2014 to February 2015

35. Allianz’s case is that the 30 January transaction is a plain vanilla example of a judgment debtor disposing of his own assets to a creature company and then going into bankruptcy to avoid enforcement of a judgment. Analysis of the detailed facts shows Allianz’s case is well supported in the evidence although the overall picture is somewhat more nuanced.

36. Avcon’s case was that: Mr Vitale held Avcon’s funds temporarily and in error; and, the 30 January transaction rectified that error. The evidence partly supports Avcon’s contentions. To decide this motion it is not necessary to decide all the parties’ contests about the 30 January transaction. But appreciation of the nuances is important.

37. Payment into Netbank Account 883. The starting point is the payment of the $977,860.56 sale proceeds from the settlement of Unit 8 into an account in the name of the APG, ending in digits 105 (“APG Account 105”). Some of that $977,860.56 was applied to Avcon’s or APG’s business activities. The $800,000 transfer into Netbank Account 883 was part of a single withdrawal of a total sum of $920,000 on 29 September 2008 from APG Account 105. Of that $920,000, the sum of $100,000 was paid into a business transaction account also in APG’s name (“APG Account 939”). The $920,000 was withdrawn on 29 September 2014. A further $50,000 was paid from APG Account 105 on 30 September 2014. The bank statements for the account into which this $50,000 was paid are not available. But Ms Lisa Ashton from the Caringbah branch of the CBA confirmed by email to Mr Vitale that this payment was made. She said “I have today transferred the $50K to Avcon NSW as you requested – and I have linked this account to your credit card which will show as accessible tomorrow” [emphasis added]. Whilst this email shows the destination of this $50,000, it was also sent on the afternoon of the same day as Ms Ashton’s morning email about the opening of Netbank Account 883, set out earlier in these reasons. Lisa Ashton’s email to Mr Vitale on the afternoon of 30 September 2014, recording the transfer “to Avcon NSW as you requested” makes it all the more remarkable that Mr Vitale did not notice that the $800,000 referred to in the morning email was going into an account “that had been open in your [Mr Vitale’s] name”, not Avcon’s name. Ms Ashton’s two emails clearly distinguish funds in Mr Vitale’s name from funds in Avcon’s name.

35. Mr Vitale says the sole reason the $800,000 was transferred to Netbank Account 883 was to ensure that the funds earned a higher rate interest. It is not in contest that under the CBA Netbank account system Netbank savings accounts, such as Netbank Account 883, could only be used to deposit funds online for saving and earning interest in that account. Their higher interest yield comes at the price that such accounts may not be used for non CBA-related transactions. So Mr Vitale says he progressively transferred sums from the savings account, Netbank Account 883 into Personal Account 667, from which the funds could then be disbursed to third parties as required.

36. Mr Vitale’s evidence is that Avcon needed to disburse the funds in Netbank Account 883 for its business purposes. He explains that when he first tried to transfer the funds from Netbank Account 883 into an account in Avcon’s name, the CBA’s online Netbank service would not allow him to do that. This can probably be accepted. This is presumably because Netbank Account 883 is linked to another account in Mr Vitale’s name, Personal Account 667. The funds could not be taken out of the Netbank savings account, Netbank Account 883, other than by transfer through the linked account, the personal Account 667. Mr Vitale says that when he realised he could not make the first transfer from Netbank Account 883 into an account the name of Avcon he “accordingly made the first and subsequent transfers into [Personal Account 667]”, also an account in his own name. He says that it did not occur to him that the reason he could not make the transfers from Netbank Account 883 directly into Avcon’s account was because Netbank Account 883 was in his name and the proposed destination accounts were in a different name.

37. This is very difficult to accept. Although Mr Vitale has in his favour the benefit of inexperience with CBA internet banking. The email correspondence of 30 September makes clear that Mr Vitale had then only just been connected to CBA online banking through CBA’s Netbank electronic banking system. Some unfamiliarity with the system is perhaps to be expected.

38. Payments into Personal Account 667. The $800,000 paid into Netbank Account 883 was all disbursed into Personal Account 667 between late October 2014 and mid February 2015. The amounts transferred between these two accounts in late 2014 were the following: $50,000 (on 28 October 2014); $30,000 (on 7 November 2014); $20,000 (30 November 2014); $35,000 (on 9 December 2014) and $20,000 (on 23 December 2014). The balance was transferred in early 2015, including funds that were to fund the disputed payment: $50,000 (19 January 2015), $602,077.22 (30 January 2015) and $1,000 (20 February 2015). These bank account entries are mostly consistent with Mr Vitale’s description of his general business practices. But the 30 January payment was unusual for several reasons that will be examined.

39. Mr Vitale explained there were significant fluctuations in the income he received from Avcon and from APG from month to month. He was a director and an employee of those companies. He drew income out of the company when company revenue permitted him to do that, including for paying third parties for his personal expenses. His practice was, at his accountant’s suggestion, to code monies drawn in this way as loans and then at the end of the financial year his accountant would reconcile them as either salary payments or dividend payments, so that he could then pay any applicable tax on the dividends and fringe benefit tax on personal expenses. He says that these payments have continued since he ceased to be a director.

40. Mr Vitale did follow the practice he described, when he was making transfers out of Netbank Account 883. Each of the transactions out of that account into Personal Account 667 is described in the transaction description field as “ANSW loan” [presumably meaning a loan to Avcon NSW]. Mr Vitale then explains his use of Personal Account 667 in the following terms:

“The Personal Account is a second account which is held in my personal name, however that account was used by me in my capacity as director and/or manager of the Respondent to transfer the invested funds back to the Respondent and to the company Avcon Property Group Pty Ltd. I also used this account to pay expenses of the Respondent and Avcon Property Group Pty Ltd.”

44. Some of this can be accepted. Many of the expenses paid out of Personal Account 667 appear to be Avcon’s and APG’s business expenses. This can be seen by examining the late 2014 payments made from Netbank Account 883 into Personal Account 667. When the $50,000 28 October 2014 payment came into Personal Account 667 it was expended on a mixture of personal and business expenditure: $19,000 went to American Express, $9,500 to an account in Mr Vitale’s name ending in the digits 927, $9,845 to Ronayne Lawyers; $10,000 to the CBA itself and $1,900 described as “Avcon Waratah Street”, which corresponds with an address which Mr Vitale declares in his statement of affairs was his residential address at the time. His statement of affairs also declares that Avcon owes him $1.3 million from prior to 2007.

45. A further $30,000 was paid into Personal Account 667 on 7 November 2014, from which $19,760 was paid to the Office of State Revenue and about $7,383 in respect of a transaction described as a “Highway invoice”, together with other small amounts including a small payment of $1,685 to the tax office.

46. Payments into Avcon Account 675. Although some of the payments into and from Personal Account 667 can be identified as business expenses, the same cannot be said for the payments that can be traced from Personal Account 667 into Avcon Account 675 between 4 November 2014 and 29 January 2015. In that period the following payments were made between these two accounts: $10,000 (4 November); $20,000 (30 November); $35,000 (9 December); $21,000 (23 December); $10,500 (28 January) followed by the payment that left the subject funds in the Avcon Account 675 that are now sought to be frozen, $602,280.21 (29 January).

47. There is no doubt that Avcon Account 675 was principally used for Mr Vitale’s personal expenditure. Looking at the bank statements for the period between 4 November 2014 and 29 January 2015 the following classes of domestic expenditure were made out of the Avcon Account 675 for Mr Vitale’s benefit: general cash withdrawals, child support payments, convenience store purchases, shopping centre ATM cash withdrawals, motor vehicle service station purchases, restaurant meals, State Debt Recovery Office fine payments, liquor, telecommunications provider account payments, groceries, hardware, Queensland holiday and motel expenses, dry cleaning, takeaway food, legal expenses, and school fees. Expenditure from Avcon Account 675 before November 2014 and after January 2015, is of a similar character. And an examination of Avcon Account 675 explains that the money from Personal Account 667 was used to top up Account 675 as it became depleted from time to time from family domestic expenditure. At a general level of impression more than three quarters of the expenditure out of Avcon Account 675, if not more, was Mr Vitale’s personal or domestic expenditure and not obviously related to the property development business of either Avcon or APG.

48. Mr Vitale’s Bankruptcy and share transactions. Mr Vitale appointed a controlling trustee under the Bankruptcy Act to his estate on 30 January 2015. But he did not file a debtor’s petition under the Bankruptcy Act until 5 March 2015. His evidence is that on 29 January 2015 he appointed “a friend of mine”, Mr Gary William Lee, as director of both Avcon and APG on the basis that Mr Vitale would continue to provide project management consultancy services to each of those companies for reward to enable them to continue to trade. Mr Vitale’s plan at this time was for his father to become the sole director of both Avcon and APG, when his father returned from overseas. Shortly afterwards on 9 March 2015, Mr Vitale’s father returned from overseas and was appointed as sole director of both companies.

49. Mr Vitale also dealt with his shareholding in each of Avcon and APG on 30 January 2015. He says that when he appointed a controlling trustee to his estate on 29 January 2015 “I was advised by my accountant that the shares I held in both the respondent and APG were not worth anything”. Moreover, Mr Vitale says that as it was his wish “to facilitate the continued smooth running of” Avcon and APG, he firstly arranged the transfer of the single share that he held in each of the companies to Mr Lee whilst Mr Lee was a director. After Mr Vitale’s father became a director to a company upon his return to Australia on 9 March, Mr Vitale caused the transfer of these single shares to AV Guardian Pty Limited, a company of which Mr Vitale’s father is a director and non-beneficial shareholder. Mr Vitale explains that this share transfer “was simply to ensure, having regard to my understanding that the shares were of no value, that the companies could continue to trade without the involvement of my trustee in bankruptcy as a shareholder”.

50. These share transfers out of Mr Vitale’s name appear to have been a clear breach of clause 6 of the Freezing Orders. Mr Vitale’s opinion that the shares lack of value at that time is not consistent with the way he used Avcon thereafter.

51. Mr Vitale’s intentions and the character of the 30 January transaction

52. These proceedings were heard in a busy Equity Duty List. In accordance with the usual practice in the list there was no cross-examination of witnesses for either party. But much is open to be inferred from the objective circumstances. Neither party placed any impediment on the Court drawing such available findings as might be necessary to resolve the interlocutory contest between these parties. Nothing said here is a final determination of facts, as the contest is interlocutory only. So the Court here expresses its general conclusions here to found the determination of the claims for interlocutory relief merely as findings that are well open on the presently available evidence.

53. First, Mr Vitale’s conduct in refreshing Avcon Account 675 with funds from Personal Account 667 and then causing them to be used for his personal or domestic expenditure, tends to indicate that the funds so transferred were at all times funds under his personal control. Notwithstanding the change of the nominal share-ownership and the directorship of Avcon after Mr Vitale brought his affairs under the Bankruptcy Act, the high level of Mr Vitale’s personal expenditure out of Avcon Account 675 does not change between September 2014 and March 2015. This suggests that at trial it is clearly open to infer that at all times before and after his bankruptcy Mr Vitale controlled Avcon and used it for his own personal financial purposes.

54. Secondly, many factors point to the inference being open at trial that Mr Vitale was well aware he held both Netbank Account 883 and Personal Account 667 in his own name and had not made a mistake that they were in Avcon’s name. If he did not realise this, the failure strangely persisted right through the four months from 30 September 2014 until 29 January 2015. This is odd, not just because the CBA expressly warned him that the account was in his name on 30 September. But he must have received bank statements in his own name from both these two linked accounts between September 2014 and January 2015. It is clearly open to conclude that he should have recognised from this volume of communication from the CBA that these accounts were in his own name and that the funds would have to be restored to Avcon’s name at some stage prior to 29 January, because he claims that is what he did on 29 January.

55. But it is not clear when he realised this. Even so throughout the period he keeps transferring enough money out of Personal Account 667 in order to keep Avcon Account 675 in funds to permit his personal expenditure. This conduct is certainly consistent with his treating the subject funds always as his, not Avcon’s.

56. Thirdly, Mr Vitale’s initiating the 30 January transaction at the same time as he appointed a controlling trustee, shows a sudden consciousness at that time of a need to put these funds into Avcon’s name rather than his own name. His payment timing seems far more consistent with his quarantining his own money before his bankruptcy for use later rather than any recognition that Avcon’s monies should be placed into the account into which they truly had always belonged. This impression is further reinforced by the size of the 30 January transaction, which was quite different from the regular payments over some months that had been made out of Personal Account 667 merely to top up Avcon Account 675 as funds were required. This time funds were transferred which were well beyond anything that seem to have been immediately required. Mr Vitale’s account would really only become a candidate for acceptance if the transfer had been effected long before the 30 January transaction took place.

57. Fourthly, Mr Vitale’s conduct should all be assessed together. It is to be remembered when analysing the present transactions that freezing orders were first made against Mr Vitale and his wife in circumstances where a mortgage had been created over Mrs Vitale’s property within two months of the entry of judgment in these proceedings in June last year.

58. Fifthly, Mr Vitale’s explanation that he put the sale proceeds of the Crescent Road property into Netbank Account 883 so that these proceeds would earn higher interest does not really explain why the funds were invested for high interest in his own name, rather than in Avcon’s name. That would be a more credible explanation if the evidence went so far as to say that the CBA would not allow high interest-bearing accounts to be opened in a corporate name such as Avcon’s. But the evidence does not go that far.

59. Finally, it seems not to be in dispute that on 30 September 2014 when the proceeds of sale of the Crescent Road property were placed in Mr Vitale’s name in Netbank Account 883 that Avcon did owe Mr Vitale $1.3 million. A compelling explanation for the payment of $800,000 of the Crescent Road proceeds of sale into Mr Vitale’s name at that time was that it was in satisfaction of this unsecured obligation and that the funds became Mr Vitale’s from then on. In the main he certainly treated them that way. In my view, the extent to which he did later apply some of those funds for Avcon’s purposes, his conduct is quite likely to be characterised as reinvesting his own funds back into his family company, Avcon.

60. There is a substantial basis therefore to conclude, and I so conclude, that Mr Vitale transferred his own funds to Avcon on 30 January 2015 in breach of Order 6 of the Freezing Orders, and that Avcon holds such of the subject funds that it has not expanded in breach of Order 6. This is not a finding of contempt of Court as a contempt hearing has not taken place. But it is a finding on the balance of probabilities on the available interlocutory evidence to ground interim relief.

Consideration

61. Allianz did not propound a proprietary claim in the subject monies in the sense that it had an equitable interest in those funds. Plainly it did not. But Allianz sought to argue on the basis of the decision of McGarry VC in Clarke v Chadburn (1985) 1 WLR 78 (“Chadburn”) and the decision of Owen J in Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd (1994) 13 WAR 407 (“Ocean Trawlers”) that there was a principle that persons who defy prohibitions of the court ought not be able to claim the fruits of their defiance, and that the party in defiance of the Court’s orders cannot enjoy the fruits of that defiance free of the illegality that produced them. Chadburn is certainly authority for the proposition that conduct in breach of a Court order may be avoided in the suit of a person with a benefit of that court order.

62. But it seems to me that even if that principle is applied in this case it will not assist Allianz to assert that it has any proprietary interest in the funds. Apart from the operation of the Bankruptcy Act, Allianz would on the findings and facts discussed earlier in these reasons have a reasonable case for action against Avcon under Conveyancing Act, s 37A to set aside the 30 January 2015 transaction which seems to have been prejudicial to Mr Vitale’s creditors.

63. It does not seem to me to be productive to speak in terms of “proprietary interest” in this context. Both Chadburn and Ocean Trawlers were decided respectively in the 1980s and the 1990s before the modern form of UCPR, r 25.14(5), a provision which incorporates much of the logic of the High Court’s decision in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 (“LED Builders”). Situations such as the present are more appropriately dealt with now by the detailed mechanisms provided for under UCPR, r 25.14(5).

64. UCPR, r 25.14(5) provides as follows:

“The court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a "third party") if the court is satisfied, having regard to all the circumstances, that:

(a)   there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because:

(i)   the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor, or

(ii)   the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor, or

(b)   a process in the court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.

65. The Court’s findings in these reasons clearly bring Avcon within this rule. Avcon is exercising a power of disposition over assets of Mr Vitale, the judgment debtor and is in a position of control or influence concerning those assets. That influence and power of disposition seems to be exercised through Mr Vitale’s father. But the fact that Mr Vitale may himself have influence over his father does not diminish the application of the rule. Thus UCPR, r 25.14(5)(a) is satisfied. But so is UCPR, r 25.14(5)(b), with a qualification. Were the Bankruptcy Act not applicable in this case there would be little doubt in my view, as earlier indicated, that Conveyancing Act, s 37A process may ultimately be available to Allianz to disgorge the subject funds.

66. But Mr Allen on behalf of Mr Vitale counters by submitting that Allianz has no title now to bring any action under Conveyancing Act, s 37A because Mr Vitale has been bankrupt since 5 March 2015. He submits, correctly in my view, that the only person who could now bring an action to recover Mr Vitale’s funds is Mr Vitale’s trustee in bankruptcy. But Mr Vitale’s trustee in bankruptcy has not sought as yet to take any active role in the proceedings. This is reasonably understandable given that Mr Vitale only became bankrupt approximately a week before the motion was filed before me, and two weeks before it was argued.

67. Moreover, with equal force Mr Ashhurst SC points out that Mr Vitale’s share transfers to Mr Lee and his father are not only breaches of Freezing Order 6 but are also liable to be set aside by the trustee in bankruptcy once he is properly apprised of the situation outlined in this judgment. I accept that should he be minded to do so, given the facts analysed in this judgment, the trustee would indeed have considerable prospects in setting aside Mr Vitale’s disposition of his shares in Avcon and the other companies, relief that lies well beyond the present Freezing Orders.

65. Moreover, the trustee in bankruptcy would have stronger remedies against Avcon than Allianz. The Court has found that Allianz is entitled to a freezing order. But the trustee in bankruptcy would be entitled to claim that the subject funds and Avcon’s shares all belonged to the bankrupt. The trustee would have proprietary remedies against Avcon.

66. The trustee in bankruptcy needs time to consider what course he should take with respect to the subject funds. As Allianz is at least entitled to a freezing order and because the situation is in flux and the trustee seems not yet to be fully apprised of Avcon’s involvement in Mr Vitale’s affairs, the preferable course in my view now is to use the power to make ancillary orders under UCPR, r 25.12 in addition to the existing orders, and to order that Avcon pay the subject funds into court. Faced with a somewhat similar situation in Slieman v Afeich [2005] NSWSC 1063, Hamilton J ordered the payment of money into Court in orders ancillary to Mareva relief: see also Millennium Federation Pty Ltd v Bigjig Pty Ltd [2000] 1 Qd R 275.

67. I am mindful in taking this course that Avcon says that it will suffer hardship as the result of the making of such an order, and that some exception to allow its operations to continue. But that seems to the Court now to be a matter more efficiently discussed in the short term between the trustee in bankruptcy and Avcon.

Conclusions and Orders

71. In the result therefore, for the reasons given, the Court will continue all existing orders against Avcon and will order that such of the subject funds Mr Vitale paid from Personal Account 667 to Avcon Account 675 on 30 January 2015 shall be paid into Court. There may be argument about costs following this interlocutory contest. The operation of the Bankruptcy Act will need to be taken into account also in relation to the making of costs orders. If the parties cannot agree upon costs then the matter will need to be briefly argued. The parties should supply submissions on the issue by 4pm on 9 April 2015.

72. The formal orders of the Court will be:

1. All existing orders continued.

2. I direct the parties to bring in short minutes of order otherwise to give effect to these reasons, at a suitable time by arrangement with my Associate.

3. Adjourn the proceedings for further mention and possible argument about costs to Friday, 10 April 2015.

**********

Amendments

16 April 2015 - [2] - amended to read "... Sackar J pronounced judgment on 1 April 2014 and on 14 April 2014 entered judgment against Mr and Mrs Vitale...".

[3] Two months in lieu of two days.

[5] Avcon's in lieu of Avco's.

[6] Avcon's in lieu of Avco's.

[19] Insert "was" between "667" and "in Mr Vitale's".

[27] Insert "Avcon" in lieu of "Allianz" in the third last line.

[47] Insert "30 January 2015" in lieu of "20 January 2015".

[55] Insert "two months" in lieu of "days" in the penultimate line.

[56] Insert "883" in lieu of "8832" in the second line.

[63] insert "Allianz in lieu of "Avcon" in the last line.

[66] Insert "Avcon's" in lieu of "Allianz's" in the penultimate line.

[69] Insert "supply" in lieu of "apply" in the last line.

Decision last updated: 16 April 2015