Allomak Ltd v Allan
[2010] VSC 187
•6 May 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST C
No. 8925 of 2009
| ALLOMAK LIMITED & ORS (according to the schedule attached) | Plaintiffs |
| v | |
| ROBERT ALLAN & ORS (according to the schedule attached) | Defendants |
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JUDGE: | DAVIES J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 – 24 March 2010 | |
DATE OF JUDGMENT: | 6 May 2010 | |
CASE MAY BE CITED AS: | Allomak Ltd v Robert Allan | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 187 | |
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INTERLOCUTORY INJUNCTIONS – Application for discharge of freezing orders made inter partes – Whether arguably good case – Whether risk of dissipation of assets – Freezing of non-party assets – Whether should be discharged for material non disclosure on ex parte application – Whether Defendants have access to sufficient funds for payment of reasonable legal expenses – Whether undertakings as to damages sufficient – Prejudice on the basis that related companies cannot meet business expenses other than through the use of frozen assets – Clout (Trustee) v Anscor Pty Ltd [2001] FCA 174 (Unreported, Drummond J, 26 February 2001) – Supreme Court (General Civil Procedure) Rules 2005 r 37A.05.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M D Wyles SC with Dr A Hanak | Foster Nicholson Legal |
| For the Second and Fourth Defendants | Mr T North SC with Mr C M Archibald | Mills Oakley Lawyers |
HER HONOUR:
The plaintiffs in this proceeding (“the Allomak proceeding”) obtained freezing orders against the second defendant (“Mr Rubin”) and the Australia and New Zealand Banking Corporation (“ANZ”) on 29 October 2009. The freezing orders related to two accounts held by the fourth defendant (“Panache”) at the ANZ and an account, also at the ANZ, held by the RH Rubin Children’s Trust (“the Rubin Trust”). Under the terms of the freezing orders, funds may not be withdrawn so that the combined balance of those accounts is less than $7 million. Mr Rubin and Panache have applied for the discharge of those freezing orders.
Those accounts are also the subject of freezing orders made against Mr Rubin and the ANZ on 29 October 2009 in other proceedings (the “E-Fulfillment proceeding”). Under the terms of those orders, funds may not be withdrawn so that the combined balance of those accounts is less than $5,680,000. Mr Rubin and Panache have also made application in the E-Fulfillment proceeding for discharge of those orders.
The Allomak and E-Fullfillment proceedings are not related but each proceeding arises out of business relationships that the plaintiffs in each proceeding had with Mr Rubin and Panache. Mr Rubin and Panache are defendants in both proceedings.
The plaintiffs in each proceeding were initially represented by the same solicitors, who instituted the proceedings on the same day and sought ex parte freezing orders in each proceeding, which were granted. The applications were heard together and the same affidavits were relied on in both proceedings.
In both matters the plaintiffs allowed those freezing orders to expire as there was an issue about whether the plaintiffs had disclosed all material facts to the Court in seeking the orders.
The plaintiffs made fresh applications for freezing orders on notice, which were heard together. Initially, the applications proceeded as unopposed applications because Mr Rubin and Panache were not then in a position to contest the applications. On day two of the hearing, counsel for Mr Rubin and Panache informed the Court that they wanted “to offer to consent to an order, to a new freezing order, on terms”. The Court was informed that the offer was “purely borne of pragmatism, to save time, the court’s time, until such time as [they were] ready to put all [their] arguments properly”.[1]
[1]Transcript in this proceeding on 27 October 2009, 218.
Although the form of the orders made were not expressed to be by way of consent, they were terms that were worked out as between the parties and handed to the Court as constituting the orders that each of the parties was prepared to have the Court make. At the time of the making of the orders, counsel for the defendants made it clear that the defendants would seek to have the orders discharged and included in the orders made that day was an order that the defendants file and serve any summons for the discharge of the freezing orders by 30 October 2009.
Summonses for discharge were duly issued in both proceedings and both came on for hearing on 23 March 2010. Although the summonses were heard separately, there was commonality in the grounds that were relied on. Those grounds included:
(a) that the material before the Court did not support the conclusion that:
- there was a danger of assets being removed from the jurisdiction or dissipated so that any judgment may be frustrated. It was submitted that the freezing orders effectively operated as security for the claims;[2]
[2]Supreme Court (General Civil Procedure) Rules 2005 r 37A.05(5)(a).
- that the plaintiffs in either case have a “good arguable case”[3] against the defendants; and
[3]Supreme Court (General Civil Procedure) Rules 2005 r 37A.05(1)(b).
- that there was justification for the orders effectively freezing the assets of the Rubin Trust; and
(b) that the orders should be discharged because of the plaintiffs’ failure to make full disclosure of all material facts in the ex parte applications.
It was argued for Allomak and E-Fulfillment that the Court had already been satisfied on full argument that freezing orders were appropriate and thus it was not open to the defendants to challenge the making of the orders. Rather, it was submitted, they must show a significant change of position in order for the Court to discharge the freezing orders.[4]
[4]Clout (Trustee) v Anscor Pty Ltd (2001) FCA 174 (Unreported, Drummond J, 26 February 2001).
I do not accept the submission that it is now not open for Mr Rubin and Panache to challenge whether there was a proper and sufficient basis for the making of the orders. That would have been the case if there had been full adjudication on the merits and determinations by the Court that Allomak and E-Fulfillment had made out their respective cases for the orders. Instead there was no adjudication by the Court on the merits when the orders were made because of the “agreement” of Mr Rubin and Panache to submit to orders as an interim measure, pending contest on the merits. In my view it is permissible for Mr Rubin and Panache, in their application to discharge, to challenge the orders on the basis that the requirements for the orders have not been made out.
A. Applicable Principles
The object of a freezing order is to prevent the frustration of a monetary judgment that the applicant for the order hopes to obtain or has obtained, by restraining the respondent from removing assets from the jurisdiction or dissipating them. It is not to create security for the claim for the applicant.[5] The two preconditions of a freezing order are:
[5]Jackson v Sterling Industries Limited (1987) 162 CLR 612.
(a) that the plaintiffs have an arguably good case; [6] and
(b) that there is a sufficient risk that, if the freezing orders were not made, the defendants will dissipate their assets and render any judgment wholly or partially ineffective. [7]
There was no controversy about the applicable principles. The controversy concerned whether the requirements were made out.
[6]Supreme Court (General Civil Procedure) Rules 2005 r 37A.05(1)(b).
[7]Supreme Court (General Civil Procedure) Rules 2005 r 37A.05(5)(a); Jackson v Sterling Industries Limited (1987) 162 CLR 612.
Nor was it in controversy that a freezing order can be granted against a third party who holds or controls assets of the defendant. In Cardile v LED Builders Pty Limited[8] the majority of the High Court set out the guiding principles for determining whether to make an order against a third party. The majority stated that:
In our opinion such an order may, and we emphasise the word “may” be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which: (i) the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including “claims and expectancies”, of the judgment debtor or potential judgment debtor; or (ii) some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to be able to satisfy the judgment against the judgment debtor.
It is that principle which we would apply to this case. Its application is a matter of law, although discretionary elements are involved.[9]
The principles stated by the High Court are now contained in r 37A.05(5) of the Supreme Court (General Civil Procedure) Rules 2005 (“SCR”).
[8](1999) 198 CLR 380.
[9]Ibid 405-406.
For Mr Rubin and Panache it was contended that there was no justification in this case for a freezing order over the account held by the Rubin Trust. It was contended that the trust does not control the assets of Mr Rubin or Panache, but holds assets for beneficiaries subject to the terms of a discretionary trust deed.
B. Good Arguable Case
Mr Rubin conducts his business interests through various entities (“the Rubin interests”), which include Panache as the holding company of some or all of the corporate entities. Mr Rubin is a director of Panache and, it would appear, the controller of that company. Mr Rubin’s business interests include the carrying on of a business manufacturing and distributing hand dryer and air sanitising products for which the Rubin interests developed the technology. The first plaintiff (“Allomak”) has claimed equitable relief in the form of compensation against Panache and equitable compensation and damages pursuant to s 1324(10) of the Corporations Act 2001 (Cth) as against Mr Rubin, arising out of various alleged breaches of duty claimed to be owed to Allomak by the first defendant (“Mr Allan”) as a fiduciary in relation to that business. The application for the freezing orders was supported by a number of affidavits including an affidavit from Mr McDonald, the joint company secretary and Chief Financial Officer of Allomak who deposed to facts and circumstances constituting the alleged breach of fiduciary duty by Mr Allan and the involvement of Mr Rubin and Panache in such breaches.
It was argued for Mr Rubin and Panache that there was no arguable case against Mr Rubin because, in the statement of claim as framed, “there is virtually nothing to connect Mr Rubin to the alleged breaches of duty by Mr Allan”.[10] There is some substance in the submission that the statement of claim was not well crafted, but it was not submitted that a cause of action was not disclosed as against Mr Rubin and there was, in my view, sufficient content in Mr McDonald’s affidavit to provide the evidentiary basis for the causes of action pleaded against Mr Rubin and Panache.
[10]Transcript in this proceeding on 24 March 2010, 139, 145-147.
Mr Rubin filed an affidavit in response to Mr McDonald’s affidavit. The response showed there is a clear dispute between the parties involving matters of fact which will need to be resolved at trial. For present purposes, I am satisfied that there was sufficient material before the Court to show that Allomak has a good arguable case, if the dispute of fact was resolved in its favour.
C. Risk of Dissipation of Assets
Allomak relied on the same matters relied on by the plaintiff in the E-Fulfillment proceeding. They are that:
(a) Mr Rubin is the effective controller of the Rubin interests, which include Panache and the Rubin Trust;
(b) the Rubin interests pool their funds in the Rubin Trust, which are disbursed according to the needs and requirements of the individual entities: this was confirmed by Mr Rubin’s own evidence;[11]
[11]See Affidavit of Richard Harold Rubin sworn 15 December 2009 [53]-[55].
(c) Mr Rubin directs the flow of funds;
(d) Mr Rubin regards himself as a “global player” and had told Mr Stewart that he has a cousin in Canada who was a front man for “many of his overseas accounts, including moving money around the world and using offshore accounts located in Hong Kong”;[12]
[12]Second Affidavit of Gavan Paul Stewart sworn 16 September 2009 [61]-[62].
(e) Mr Stewart had observed Mr Rubin travel overseas on at least seven or eight occasions since June 2008;
(f) Panache has associated companies in six other countries around the world;
(g) Mr Rubin has told Mr Stewart that he holds a South African, an Australian passport and an Irish passport.
It was submitted for Mr Rubin that his evidence established that there is no risk of dissipation. However, his evidence was not sufficient to rebut the matters relied on by the plaintiffs. Significantly, Mr Rubin did not refute Mr Stewart’s evidence that he is the effective controller of the Rubin interests and controls the funds in the Rubin Trust. Furthermore his evidence confirmed that the funds in the Rubin Trust are pooled from the Rubin interests, including Panache, and used to provide working capital to the various entities to fund their business operations and to pay expenses for the benefit of Mr Rubin’s family.
The fungible nature of the trust fund used for the benefit of the wider Rubin interests is sufficient reason for the Court to conclude that there is a real risk of dissipation of assets so that a judgment against the one or both of the defendants would be frustrated.
D. Freezing of Non-Party Assets
It was next contended for Mr Rubin and Panache that there was no basis for a freezing order over the account held by the Rubin Trust at the ANZ because the trustee of the trust was not a party to the proceeding nor named as a respondent to the interlocutory process. It was argued that the freezing orders should be discharged on that basis alone. That submission ignores that these orders were made with the agreement of Mr Rubin and Panache who, it may reasonably be inferred had the relevant authority to do so.
It was also argued that the requirements of r 37A.05(5) of the SCR were not satisfied. These submissions ignore the evidence before the Court that Mr Rubin controls the funds in the trust. Furthermore there was evidence before the Court that Mr Rubin and Zach Anthony (“Anthony”) are the only signatories for the trust’s bank account and that Anthony acts in accordance with Mr Rubin’s directions.[13] In the circumstances, there is sufficient evidence to warrant an order freezing the account in the name of the Rubin Trust.
[13]Second Affidavit of Gavan Paul Stewart sworn 16 September 2009 [46].
E. Prejudice
It was contended for Mr Rubin and Panache that the freezing order over the Rubin’s Trust account should be discharged, or at least varied, to permit the trust to provide working capital to companies associated with Mr Rubin and Panache. Mr Rubin deposed that:
The Trust is prevented by the freezing orders from transacting in the ordinary course of business for the benefit of the Trust. In particular, it is prevented from advancing funds to the entities which have been conducting or establishing businesses with funding from the Trust.[14]
[14]Affidavit of Richard Harold Rubin sworn 15 December 2009 [58].
Mr Rubin also put evidence before the Court that the businesses of three companies within the group would be detrimentally affected if they were not able to obtain working capital funds from the Trust “and from Panache (which in turn obtained funds from the Trust)”.[15]
[15]Affidavit of Richard Harold Rubin sworn 15 December 2009 [59]-[62].
I do not consider that the orders should be discharged or varied on that basis alone. In Clout (Trustee) v Anscor Pty Ltd[16] Drummond J stated:
[W]here, as here, a Mareva restraint is imposed only on part of the assets of a respondent in an action, the respondent who seeks a relaxation of the restraint has an evidentiary onus, if not a full persuasive onus to show that it has no other assets beyond those covered by the injunction to which it can resort to meet the expenses in question. In A v C (No 2) [1981] 2 All ER 126, Robert Goff J held that on an application to vary a Mareva injunction that had been granted over part only of a respondent's assets to permit the payment of legal costs of the action out of the assets the subject of the restraint, that it was not enough for the respondent to merely state that it owed money to someone but had instead, to show that it did not have any other assets available out of which the expenses could be paid. Rogers J took the same approach in Australian Iron & Steel Pty Ltd v Buck [1982] 2 NSWLR 889 at 890. See also Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd [1998] 14 NSWLR 552 at 568 to 569.[17]
[16](2001) FCA 174 (Unreported, Drummond J, 26 February 2001).
[17]Ibid [20].
The evidentiary onus is not satisfied here insofar as there is no evidence that the companies cannot meet their business expenses other than through the provision of working capital by the Trust. Accordingly I am not prepared to order the variation or discharge of the freezing orders based on the assertion that the funds are needed to meet the expenses of other entities. The defendants have not shown that those other entities have no access to funds other than those covered by the injunction to which they can resort to meet the expenses in question.
F. Undertaking as to damages
It was submitted that the undertaking as to damages was inadequate because there is doubt as to Allomak’s ability to meet its undertaking as to damages. Allomak is a listed company but it was submitted that it has encountered severe financial difficulties in the last 12 months and “no comfort” can be taken from it being a listed company. In particular, it was submitted that trading of its shares was halted for a time in 2009 and an extraordinary general meeting was required to restructure arrangements with creditors and its bank in order to rectify breaches of banking covenants. Its annual and half-yearly financial reports showed amongst other things:
(a) a $60 million loss in 2008/9 and only $600,000 profit in the half-yearly report;
(b) currently net tangible liabilities of $25 million.
Allomak put into evidence the half-yearly reports for the period ended 31 December 2009. Those half-yearly reports disclosed:
(a) net assets of $3.044 million, which included $2.9 million in cash or cash equivalents;
(b) a profit before income tax expense of $3.227 million; and
(c) a profit after income tax expense of $646,000. That income tax expense related to the deferred tax effect on the fair value of certain loans, which accounting standards require to be estimated and adjusted in the future once a future taxable event occurs.
These accounts have been audited.
These accounts sufficiently show, in my view, that the company has adequate capacity to meet the undertaking.
G. Non-disclosure and Unclean Hands
It was contended that the failure of the plaintiffs to make full and frank disclosure to the Court of all material facts on the ex parte application was a ground upon which the subsequent orders made in the inter partes hearing on the fresh application should be discharged. It is unnecessary to consider in this application whether there was material non-disclosure on the ex parte application. The orders which the defendants seek to discharge were made on a fresh application that was inter partes.
A failure in the duty of disclosure of material facts is a basis upon which an ex parte order may be set aside. Invariably that is the consequence. It does not mean that a party is barred from making a fresh application or, where a fresh application is made, that the Court should not grant the application because of the previous conduct. The consequence of a Court setting aside the original order because of material non disclosure means that a party on a fresh application does not have the benefit of the previous decision. It is necessary to satisfy the Court on the basis of the material in the fresh application that the injunctive relief that is sought should be granted.
For the reasons set out above, I have concluded that there is a proper basis for the freezing orders based on the material made in the fresh application.
H. Legal Costs
The defendants seek a variation of the freezing orders to enable the payment of their “reasonable legal expenses”.[18] The terms of the freezing orders give access to the defendants to the funds in the accounts that are frozen to pay their reasonable legal expenses up to and including a combined total of $400,000 for the E-Fulfillment and Allomak proceedings. The defendants have already incurred legal costs in excess of $400,000 and anticipate incurring a further $1 million in preparation for the trial of these proceedings.
[18]Supreme Court of Victoria, Practice Note No. 3 of 2006, [12(b)].
The terms of the freezing orders should be such as to ensure that the defendants have access to sufficient assets to be able to meet their reasonable legal expenses. The evidence before me however falls short of justifying the need for a variation, based as it is on general statements by Mr Rubin about the need to resort to the frozen accounts to meet legal costs. In the circumstances, it is appropriate that the defendants have the further opportunity to put more evidence before the Court to support the relaxation of this exception to the freezing orders.
Conclusion
Accordingly the summons for the discharge of the freezing orders is dismissed but the defendants will be afforded the further opportunity to justify a variation of the orders with respect to payment of their reasonable legal expenses.
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SCHEDULE OF PARTIES
ALLOMAK LIMITED (ACN 113 883 560) (“Allomak”)
Firstnamed Plaintiff
ALLOMAK TECHNOLOGY HOLDINGS PTY LTD (ACN 128 872 033)
(“ATH”)
Secondnamed Plaintiff
KT CABLE ACCESSORIES PTY LTD (ACN 059 087 704) (“KT Cables”)
Thirdnamed Plaintiff
ALLOAIR SYSTEMS PTY LTD (ACN 124 071 816) (“Alloair”)
Fourthnamed Plaintiff
AND
ROBERT ALLAN
Firstnamed Defendant
RICHARD HAROLD RUBIN (“Rubin”)
Secondnamed Defendant
GUIDING TECHNOLOGIES PTY LTD (ACN 111 067 415) (“Guiding”)
Thirdnamed Defendant
PANACHE GLOBAL HOLDINGS PTY LTD (ACN 110 933 585) (“Panache”)
Fourthnamed Defendant
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