Argyle Building Services v Franek

IN THE SUPREME COURT OF VICTORIA AT MELBOURNE

COMMERCIAL COURT

COMMERCIAL LIST – DIGBY J

Not Restricted

S ECI 2020 0604

ARGYLE BUILDING SERVICES PTY LTD (ACN 151 322 520)	Plaintiff
v
MARK FRANEK & ORS	Defendants

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JUDGE:	Digby J
WHERE HELD:	Melbourne
DATE OF HEARING:	12 and 13 March 2020
DATE OF JUDGMENT:	17 April 2020
CASE MAY BE CITED AS:	Argyle Building Services v Franek
MEDIUM NEUTRAL CITATION:	[2020] VSC 166

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EQUITY – Conspiracy – Equitable fraud – Claim under Barnes v Addy principles - Liability for knowing receipt – Liability for knowing assistance – Whether defendant received trust property – Whether defendant knew of dishonest and fraudulent design – Whether funds transferred in breach of fiduciary duty – Whether loss suffered – Exercise of Mortgagees rights - Barnes v Addy (1874) LR 9 Ch App 244 - Property Law Act 1958 (Vic), s 172.

PRACTICE AND PROCEDURE – Freezing order – arguable case - Risk of dissipation of assets – Ex parte application – Requirements of proper disclosure - Allegations involving alleged dishonesty – Supreme Court (General Civil Procedure) Rules 2015 r 37A.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A Herskope with Mr S Freire	Kalus Kenny Intelex
For the First, Second and Fifth to Eighth Defendants	Mr M Clarke QC with Mr H Kirimov	NOH Legal Pty Ltd
For the Third and Fourth Defendants	Ms V Plain	Mark Halse
No appearance for the Ninth Defendant

HIS HONOUR:

General background

These reasons relate to the return of the plaintiff’s Summons dated 7 February 2020 where the plaintiff, Argyle Building Services Pty Ltd, sought interim asset preservation orders (freezing order) against the first to eighth defendants’ assets up to the value of $1,085,156.37.

The Summons was heard ex parte on 11 February 2020 and orders were made substantially in the terms sought by the plaintiff on this date. Ancillary orders were also made requiring the first to eighth defendants to provide information to the plaintiff relating to the assets held by each of those defendants at or before the first return date of the Summons on 17 February 2020.[1]
[1]By order of 17 February 2020 the time for the provision of information was extended to 12:00pm on 24 February 2020.

The return of the Summons was heard on 12 March 2020 and the plaintiff sought the continuation of the freezing order. The first, second, and fifth to eighth defendants (the first defendant group) opposed the continuation of the freezing order and sought the discharge of the freezing order currently in place. The third and fourth defendants (the second defendant group) also opposed the continuation of the freezing order and sought the discharge of the current order. One Three Wilson Pty Ltd (in Liq) (the ninth defendant) did not attend the hearing of the matter and notified the parties that it did not intend to make any submissions in relation to the applications on foot.[2]
[2]By email sent 27 February 2020 the solicitor for the ninth defendant advised the Court his client does not intend to make any submissions in relation to the applications and does not intend to appear at the hearing.

By Summons dated 18 February 2020 the first defendant group sought a security for costs order against the plaintiff in the amount of $150,000 pursuant to r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 (the Rules). Also by Summons dated 18 February 2020 the second defendant group sought security for costs against the plaintiff in the amount of $100,000, again in accordance with r 62.02 of the Rules. These applications were also heard on 12 March 2020.

For its part, the plaintiff opposed any order for security for costs at this point saying in substance that the Court is not presently in a position to assess the strength of the plaintiff’s claim and therefore such an order would be premature. In the alternative, the plaintiff submits that any costs ought to be secured up to the date of mediation only.

Factual background

The plaintiff in this matter is a registered commercial and residential building company.[3] The ninth defendant is an entity established for the purpose of purchasing and holding a development asset during the course of a single development project.[4]
[3]See Paritsi Affidavit, [5].
[4]Paritsi Affidavit, [7].

On or about 10 November 2017 the plaintiff entered into a Simple Works Contract with the ninth defendant for the construction of a six apartment residential development in Brighton in the State of Victoria.[5] The contract price was $4,100,000 exclusive of GST.[6]
[5]Paritsi Affidavit, [9].
[6]Plaintiff Submissions, 20 February 2020, [3].

Although the relevant circumstances surrounding the events are disputed, it is common ground that on 26 July 2019 the plaintiff issued the ninth defendant with a Suspension Notice suspending building works at the Brighton development pending payment of outstanding progress claims the plaintiff alleges were owing.[7]
[7]Paritsi Affidavit, [11].

On 26 August 2019 the ninth defendant sort to terminate the Simple Works Contract by serving a Termination Notice on the plaintiff.[8] The plaintiff disputes that this termination was valid.
[8]Paritsi Affidavit, [12].

The first defendant group says that prior to receiving the Suspension Notice, the ninth defendant served a Breach Notice on the plaintiff on 18 July 2019 for what it says was a failure to reach practical completion by 22 December 2018 in accordance with the written terms of the contract, among other matters.[9]
[9]See Second El-Hissi Affidavit, [7(c)].

As will become clear, since this time the plaintiff instituted proceedings in the Victorian Civil and Administrative Tribunal against the ninth defendant (VCAT Proceeding), and also obtained an adjudication determination in its favour under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SoP Act), for which it has since obtained judgment against the ninth defendant.[10]
[10]Paritsi Affidavit, [21].

On 17 January 2020 the ninth defendant was placed into voluntary liquidation.[11]
[11]Paritsi Affidavit, [28] and [29].

Broadly the plaintiff now claims damages and various other forms of declaratory and injunctive relief against the first to eighth defendants for what it says in substance was a conspiracy to divest the ninth defendant of its assets in an attempt to deprive the plaintiff of the opportunity of obtaining satisfaction of its claims against the ninth defendant, and to defraud creditors.

The parties

Mark Franek and Robert Natoli (the first and second defendants) are directors of One Three Wilson Pty Ltd (in Liq) (the ninth defendant). The first and second defendants are also shareholders of the ninth defendant through their corporate entities, as set out below.

The first defendant is the sole director and 50 per cent shareholder of Created by Mark Franek Pty Ltd (the sixth defendant). The sixth defendant holds a 50 per cent share of the ninth defendant. The first defendant is also the sole director and sole shareholder of Made Iconic Pty Ltd (the seventh defendant).

The second defendant is the sole director and sole shareholder of Natcorp Developments Pty Ltd (the eighth defendant). The eighth defendant is a 50 per cent shareholder of the ninth defendant. The second defendant is also the sole director and sole shareholder of Natcorp Property Holdings Pty Ltd (the fifth defendant).

Lucy Sossa (the third defendant) is the sole director and sole shareholder of Lightning Canon Pty Ltd (the fourth defendant). The plaintiff asserts she was the domestic partner of the second defendant at the relevant time.

VCAT Proceeding

On 9 September 2019 the plaintiff instituted the VCAT Proceeding seeking injunctive relief by way of a freezing order and outstanding payment for work it says it performed pursuant to the Simple Works Contract in the amount of $825,891 inclusive of GST.[12] The plaintiff’s claim at VCAT in the sum of $825,891.00 is made up as follows:

Contract sum   $4,100,000.00
Plus Net Variations   $638,065.00
Adjusted Contract Sum   $4,738,065.00
Less balance paid by Wilson to date            ($3,987,255.00)
TOTAL (ex GST)   $750,810.00
TOTAL (inc GST)   $825,891.00

[12]Paritsi Affidavit, [13] and [15].

In addition the plaintiff sought orders in respect of cash retention withheld by the ninth defendant under the Simple Works Contract which the plaintiff says the ninth defendant holds on trust for it. At the date of purported termination of the contract the plaintiff says that the ninth defendant held cash retention in the amount of $205,000.[13]
[13]Paritsi Affidavit, [16].

On 3 October 2019 VCAT made orders restraining the ninth defendant, whether by itself, its servants, agents or otherwise, until determination of the VCAT Proceeding or further order, from disposing of, transforming, encumbering, transferring, charging, dissipating, diminishing or in any way dealing with residential units in the Brighton development more particularly described in Certificates of Title Volume 12094 Folio 368 (Lot 1), Volume 12094 Folio 370 (Lot 3), Volume 12094 Folio 371 (Lot 4), Volume 12094 Folio 372 (Lot 5), and Volume 12094 Folio 373 (Lot 6) (VCAT freezing order).[14]
[14]Paritsi Affidavit, [17] and Exhibit ‘PP-8’.

The VCAT freezing order permitted the units to be sold to a bona fide arm’s length purchaser, subject to the proceeds of sale being applied in the first instance to repay the mortgage to National Australia Bank (NAB) and the costs of sale, and thereafter the balance to be held in trust pending determination of the VCAT Proceeding or further order.[15] The order expressly provides that the term ‘arm’s length purchaser’ does not include any person or entity related to the ninth defendant including the first, second, fifth and sixth defendants.[16]
[15]Paritsi Affidavit, [19] and Exhibit ‘PP-8’, [3].
[16]Paritsi Affidavit, [19] and Exhibit ‘PP-8’, [4].

Judgment debt

On 18 November 2019 the plaintiff obtained judgment against the ninth defendant in the Supreme Court of Victoria (proceeding S ECI 2019 5072) in the amount of $343,994.75 plus interests and costs for an adjudication determination made in its favour under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SoP Act).[17]
[17]Paritsi Affidavit, [20]-[21]. The first defendant group denies that the plaintiff was ‘largely successful’ in its adjudication application saying that the amount awarded to the plaintiff in the relevant adjudication determination was less than 50% what the plaintiff claimed to be owed to it ($691,732.80, including GST); Second El-Hissi Affidavit, [10].

The plaintiff says that the Security of Payment Judgment remains unpaid and $24,251.15 of this amount is costs and interest owed to it in addition to the plaintiff’s claims in the VCAT Proceeding.[18]
[18]Paritsi Affidavit, [21].

Alleged divestiture of the ninth defendant and alleged contravention of VCAT freezing order

On 17 December 2012 the fourth defendant was registered as a company, with the third defendant listed as the sole director and shareholder.[19] On 9 January 2020 the fourth defendant procured a transfer of mortgage AN384675L registered over Lots 1, 5 and 6 (collectively, the Lots) from the first mortgagee, NAB, for $796,426.[20]
[19]Paritsi Affidavit, [32(b)].
[20]Second El-Hissi Affidavit, [20] and Exhibit ‘OEH-13’.

Between 10 January 2020 and 13 January 2020 the fourth defendant by mortgagee power of sale, transferred Lots 1, 5 and 6 to the fifth, sixth and seventh defendants respectively, for a total sum of $5,304,000.[21] The plaintiff submits that this was in contravention of the VCAT freezing order and that the Lots were sold undervalue.
[21]Paritsi Affidavit, [32(d)–(f)].

The plaintiff also complains about the transfer of Lot 2 to the eighth defendant on 2 August 2019, shortly after the plaintiff had issued the Suspension Notice, however prior to the ninth defendant purporting to terminate the Simple Works Contract. The plaintiff asserts that it had no notice of this transfer.

The plaintiff concedes bona fide arm’s length sale of Lots 3 and 4, with the proceeds of sale being paid to the NAB.[22]
[22]Paritsi Affidavit, [24].

On 17 January 2020 the ninth defendant was placed into voluntary liquidation.

The plaintiff alleges in relation to the disputed transfers of the assets that ‘in about early 2020, the Conspiracy Parties conspired and combined amongst themselves to divest One Three Wilson of its then assets …’ in contravention of the VCAT freezing order.[23]
[23]Indorsement of Claim, [13].

This proceeding
The plaintiff’s ‘conspiracy’ claim

In this proceeding the plaintiff submits that between the 17 December 2019 and 17 January 2020 the first to eighth defendants engaged in a ‘calculated and deliberate conspiracy’ designed to strip the ninth defendant of its remaining assets in contravention of the VCAT freezing order.[24]
[24]Plaintiff Submissions, 10 February 2020, [5].

In its Indorsement of Claim the plaintiff pleads specifically that:

In or about early 2020, the Conspiracy Parties conspired and combined amongst themselves to divest One Three Wilson of its then assets, being Lots 1, 5 and 6, in breach of the Freezing Order with the sole or predominant purpose, and with the intention, of depriving the plaintiff of the opportunity of obtaining satisfaction in respect of judgment it obtained against One Three Wilson in Supreme Court Proceeding S ECI 2019 5072 (Supreme Court Proceeding) and its claims in the VCAT Proceeding (Conspiracy).[25]

[25]Plaintiff Indorsement of Writ, [13].

The plaintiff sets out what it says were the relevant steps in the above alleged conspiracy as follows:

(a) 17 December 2019 the fourth defendant was registered as a company.

(b) 9 January 2020 the fourth defendant procured a transfer of mortgage AN384675L registered over Lots 1, 5 and 6 from the then mortgagee, NAB.

(c) 10 January 2020 the fourth defendant transferred Lot 1 by mortgagee power of sale to the sixth defendant.

(d) 10 January 2020 the fourth defendant transferred Lot 6 by mortgagee power of sale to the seventh defendant.

(e) 13 January 2020 the fourth defendant transferred Lot 5 by mortgagee power of sale to the fifth defendant.

(f) 17 January 2020 the members of the ninth defendant, the eight defendant and the sixth defendant, resolved to wind up the ninth defendant in liquidation.[26]

[26]The plaintiff also alleges that there were further conspiratorial and sinister circumstances as set out in its submissions, 10 March 2020, [9]. See also Indorsement of Claim, [21].

By Writ dated 10 February 2020 and Indorsement of Claim on a Writ the plaintiff claims:

(a) Damages against the first to eighth defendants as a result of the conspiracy in an amount equal to its claims against the ninth respondent for the Security of Payment Judgment and in the VCAT Proceeding which will now go unsatisfied, or in the alternative the lost opportunity to pursue those claims. The plaintiff submits that the conspiracy was unlawful, or in the alternative that it was committed by lawful means with the intention to harm the economic interests of the plaintiff.

(b) Relief in equity against the first to eighth defendants as parties to the conspiracy: in an amount equal to the plaintiff’s claims against the ninth respondent for the Security of Payment Judgment and in the VCAT Proceeding which will now go unsatisfied; an accounting of profits; declaratory relief to the effect that Lots 1, 5 and 6 are held on constructive trust for the ninth defendant; and, or in the alternative, injunctive relief returning the title of Lots 1, 5 and 6 to the ninth defendant. In this regard the plaintiff submits that the intention or effect of the conspiracy was to secretly and wrongfully deprive the plaintiff of the opportunity to obtain satisfaction of the Security of Payment Judgment and its claim in the VCAT Proceeding, or alternatively the conspiracy had that effect. The plaintiff submits that the conspiracy contravened or sought to contravene the VCAT freezing order and thereby offended public policy. The plaintiff says the conspiracy was therefore unconscionable and constituted equitable fraud on the plaintiff.

(c) Equitable relief against any of the first to eighth defendants considered not to be parties to the conspiracy, for breach of trust for knowing assistance liability and knowing receipt liability for the receipt or transfer of trust property pursuant to the principles in Barnes v Addy (1874) LR 9 Ch App 24 (Barnes v Addy claim) subject to the same relief sought in sub paragraph (b) above.

(d) Declaratory orders that the transfers of Lots 1, 5 and 6, along with the transfer of mortgage from NAB to the fourth defendant, be rendered void and Lots 1, 5 and 6 be returned to the ninth defendant as each transfer were alienations of property made with a purpose of delaying, hindering or defrauding the plaintiff, or creditors generally, by divesting the ninth defendant of its assets. The plaintiff also complains of the transfer of Lot 2, and seeks that this be rendered void and title be returned to the ninth defendant.[27]

[27]The plaintiff relies on s 172 of the Property Law Act 1958 (Vic) (Property Law Act) with respect to ‘voluntary conveyances to defraud creditors’. Section 172 of the Property Law Act provides as follows:

172 Voluntary conveyances to defraud creditors

(1) Save as provided in this section, every alienation of property made, whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.

(2) This section shall not affect the operation of a disentailing assurance, or the law of bankruptcy or insolvency for the time being in force.

(3) This section shall not extend to any estate or interest in property alienated for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the alienation, notice of the intent to defraud creditors.

Plaintiff’s ex parte application for freezing orders

By Summons dated 7 February 2020 the plaintiff sought a freezing order on an ex parte basis over the defendants’ assets for up to $1,085,156.37, an amount equal to the amount claimed in the VCAT Proceeding, the amount of the Security of Payment Judgment that is not in common with the VCAT Proceeding, interest claimed for 12 months from the date of the Summons in the amount of $85,014.22 and costs in the amount of $150,000.[28] The freezing order was made on an ex parte basis on 11 February 2020, and extended on 17 February 2020, 28 February 2020 and 13 March 2020.
[28]Paritsi Affidavit, [13]-[16]; Plaintiff Submissions, 10 February 2020, [10].

The applications the subject of this hearing were the return of the freezing order application, and the first and the second defendant groups’ applications for security for costs.

Plaintiff’s submissions as to the continuation of the freezing order

The plaintiff seeks to have the freezing order made 11 February 2020, and extended on 17 February 2020, 28 February 2020 and 13 March 2020, continued pending determination of the proceedings in this Court, or further order. In this regard the plaintiff submits that:

(a) The Affidavit of Peter Paritsi sworn 7 February 2020 (Paritsi Affidavit) establishes the plaintiff’s claims against the ninth defendant in connection with the VCAT Proceeding and the Security of Payment Judgment. It submits that on the matters set out in the plaintiff’s Indorsement of Claim, the first to eighth defendant ought to be held liable for damages (whether equitable or common law) in the amount of the plaintiff’s lost opportunity to pursue those claims.

(b) Its apprehension that the assets of the ninth defendant would be dissipated which led it to seek and obtain the VCAT freezing order was ‘vindicated’ by what it submits was a ‘flagrant attempt’ to contravene the order.[29] It submits that evidence of serious or gross dishonestly by a prospective judgment debtor is a further relevant factor in favour of the imposition of a freezing order.[30]

(c) The balance of convenience in this case favours the continuation of the freezing order. The plaintiff submits that the test to be applied in weighing the balance of convenience requires that the Court take whichever course appears to carry the lower risk of injustice if it should turn out to have been wrong in granting or refusing to grant the injunction.[31]

(d) A further relevant consideration that weighs the balance of convenience in favour of the continuation of the freezing order arises from the fact that the allegations against the first to eighth defendants are serious and may give rise to criminal proceedings for contempt.[32]

[29]Plaintiff Submissions, 10 February 2020, [11].

[30]Patterson v BTR Engineering (Aust) Ltd and Others (1989) 18 NSWLR 319, 325 and 326.

[31]Tymbook Pty Ltd v State of Victoria; Bradto Pty Ltd v State of Victoria (2006) 15 VR 65 [33]-[35].

[32]Victorian University of Technology v Wilson & Ors [2003] VSC 299 [33]; Deputy Commissioner of Taxation v Gashi (2010) 27 VR 127 [34].

The plaintiff further submits that the total which should be secured by the continuing freezing order is $1,085,156.37 being an amount equal to the amount claimed in the VCAT Proceeding, the amount of the Security of Payment Judgment outstanding in relation to Supreme Court proceeding S ECI 2019 5072, interest claimed for 12 months from the date of the commencement of this proceeding in the amount of $85,014.22, and costs in the amount of $150,000.

First, second and fifth to eighth defendants’ (the first defendant group) submissions as to the discharge of the freezing order

The first defendant group seeks to have the freezing order made on an ex parte basis on 11 February 2020 discharged (or not extended). In substance, the first defendant group complains of what it says was material non-disclosure by the plaintiff in its ex parte application for freezing order, and submits that the plaintiff is unable to establish loss or a prima facie case for relief in order to maintain the freezing order.

The first defendant group submits that the orders sought by the plaintiff in its Indorsement of Claim, reveal that the purpose of the action in the substantive proceeding is to elevate the plaintiff’s interests, as an unsecured creditor, above the interests of secured creditors.[33]
[33]First defendant group’s submission to discharge freezing order, 26 February 2020, [26].

The first defendant group submits that the subsisting freezing orders ought to be discharged for reasons including that:

(a) the plaintiff’s material non-disclosures in it ex parte application, in particular non-disclosure of the ninth defendant’s potential defences and cross claims in the VCAT Proceeding;

(b) the plaintiff is not capable of demonstrating loss in the conspiracy claim;

(c) the plaintiff’s ‘equitable fraud’ and Barnes v Addy claims are misconceived;

(d) the plaintiff has failed to show a prima face case with respect to its claim that there was a conveyance to defraud creditors.

Non-disclosure by the plaintiff in its ex parte application

The first defendant group submits that the plaintiff failed to meet its obligations of full and frank disclosure in its ex parte application. The first defendant group submits that the principles relating to the requirement to give full and frank disclosure in an ex parte application, and consequences of a failure to do the same, can be summarised as follows:

(a) the applicant has an obligation to make full and frank disclosure of all material facts;[34]
[34]Redwin Industries Pty Ltd v Feetsafe Pty Ltd [2002] VSC 427, [8]; Brink’s-MAT Ltd v Elcombe & Ors [1988] 3 All ER 188 at 192 cited with approval in Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [23].

(b) the disclosure must include matters which would have been raised by the respondent in their defence if they had been present;[35]
[35]Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [20].

(c) it is for the Court and not the applicant to decide what is a material fact requiring disclosure;[36]
[36]Brink’s-MAT Ltd v Elcombe & Ors [1988] 3 All ER 188 at 192 cited with approval in Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [23].

(d) the applicant must make proper enquiries before the making of the application, the extent of which enquiries depends on the circumstances of the case;[37]
[37]Brink’s-MAT Ltd v Elcombe & Ors [1988] 3 All ER 188 at 192 cited with approval in Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [23].

(e) the applicant has a duty not only to disclose material facts that are known but material facts which the applicant would have known if they made appropriate enquiries;[38]

(f) if the applicant fails in its duty to disclose all material facts, the usual outcome will be to discharge the freezing order, regardless of whether the non-disclosure is deliberate or innocent;[39]

(g) if the freezing order is discharged due to the applicant’s failure to make full and frank disclosure, the applicant may still apply for a further freezing order.[40]

[38]Brink’s-MAT Ltd v Elcombe & Ors [1988] 3 All ER 188 at 192 cited with approval in Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [23].

[39]Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [21]; Brink’s-MAT Ltd v Elcombe & Ors [1988] 3 All ER 188 at 192-193 cited with approval in Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [23].

[40]Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [22].

The first defendant group submits that there is a heavy onus of disclosure on the applicant in an ex parte application, and the failure to comply may result in the discharge of the freezing order, the purpose being, on the one hand to deprive a wrongdoer of any advantage improperly obtained, and on the other hand, to act as a deterrent against a would be wrongdoer. The first defendant group concedes the Court has a residual discretion to continue the freezing order, or to grant a new freezing order, however submits that this does not obviate the duty of disclosure.

The first defendant group submits that the plaintiff failed to disclose the various defences open to the ninth defendant in the VCAT Proceeding, along with the counterclaim, and various other matters which are set out in the Affidavit of Omar El-Hissi sworn 25 February 2020 (Second El-Hissi Affidavit) and filed in this proceeding.[41] The first defendant group submits that although the ninth defendant was not subject of the ex parte application for a freezing order in this Court, the failure of the plaintiff to disclose these matters is critical as it affects the loss anticipated by the defendant which underpins the conspiracy claim.
[41]Second El-Hissi Affidavit, [5]-[17].

The first defendant group submits that the defences and counterclaim were not minor matters, and the non-disclosure of these cannot be considered innocent or immaterial.

Among the matters the first defendant group submits the plaintiff failed to disclose, the first defendant group says that in particular the plaintiff failed to disclose:

(a) That the amount the plaintiff claims owing to it pursuant to the Simply Works Contract in the VCAT Proceeding is predicated on the full contract sum of $4,100,000 excluding GST. The building works pursuant to the contract were ‘incomplete’ and ‘defective’ and therefore the full contract sum is not able to be claimed;[42]
[42]Second El-Hissi Affidavit, [7(a)].

(b) That three days prior to the ninth defendant being served with a Suspension Notice, the ninth defendant served a Breach Notice on the plaintiff alleging, among other things, failure to reach practical completion by 22 December 2018 in accordance with the written terms of the contract;[43]
[43]Second El-Hissi Affidavit, [7(c) and (e)].

(c) That the ninth defendant maintained that the purported Suspension Notice was in breach of the Simple Works Contract and the SoP Act as pleaded in the VCAT Proceeding;

(d) That the relevant adjudication determination was less than 50 per cent what the plaintiff claimed to be owed to it ($691,732.80, including GST).[44] The first defendant group says this is significant in circumstances where the adjudication determination does not take into consideration certain matters and is only interim;[45]

(e) The ninth defendant’s offsetting claim against the plaintiff in the amount of $296,400 for liquidated damages due to the plaintiff’s failure to seek extensions of time for the construction period in accordance with the Simple Works Contract;[46]

(f) The ninth defendant’s defences articulated in the Points of Defence and Counterclaim and affidavits filed in the VCAT Proceeding, including for incomplete works, defective works, liquidated damages, the invalidity of the ‘Net Variations’ claimed of $638,065, and misleading and deceptive conduct of Peter Paritsi (Paritsi).[47]

[44]Second El-Hissi Affidavit, [10].

[45]T6.22-24.

[46]Second El-Hissi Affidavit, [12] and [13].

[47]Second El-Hissi Affidavit, [7(f)].

The first defendant group further submits that the plaintiff did not disclose that there was no equity in the ninth defendant, and made no reference to the quantum of claims subject of the registered or equitable mortgages. In particular the first defendant group pointed to affidavit evidence of the first defendant filed in the VCAT Proceeding in response to evidence of the plaintiff in that same proceeding, where the first defendant deposes expressly to the existence and amount of the equitable mortgages.

The first defendant group submits that this failure to make proper disclosure is relevant to each cause of action under which the plaintiff claims relief as there was no equity in the ninth defendant that can be said to have been diminished.

No prima facie case in relation to the conspiracy claim

The first defendant group submits that the plaintiff has not established a prima facie or arguable case with respect to loss it sustained by virtue of the first to eighth defendants’ involvement in the alleged conspiracy.

The first defendant group point to the fact that title over Lots 1, 5 and 6 was at all material times secured by four General Security Deeds, and mortgagee’s claims, and submit that even if the plaintiff obtained judgment in its favour in the VCAT Proceeding, the sale of the Lots would not have yielded an amount sufficient for there to be any distribution to the unsecured creditors of the ninth defendant, including the plaintiff.

The first defendant group submits that the plaintiff’s alleged loss of opportunity is sought to be supported only by the evidence of Paritsi, Construction Manager of the plaintiff in relation to the fair market value of Lot 1, 5 and 6, and Paritsi’s assertions that the Lots were sold undervalue. The first defendant group argue that this evidence is inadmissible because there is no basis for finding that Paritsi has any relevant specialised knowledge in valuing property, and the first defendant group point out that the plaintiff has apparently taken no steps to obtain adequate valuation evidence, despite being on notice that the value of the relevant property was in issue and having ample time in which to do this.

The first defendant group further submits that, even were Paritsi’s evidence regarding fair market value accepted, the proceeds of sale would not have yielded returns sufficient for there to be a distribution to the unsecured creditors of the ninth defendant, and there would in fact be a shortfall of $2,580,747.84.[48] Consequently any loss suffered by the plaintiff cannot be said to have been caused by the alleged conspiracy.

Equitable fraud and Barnes v Addy claim

[48]Second El-Hissi Affidavit, [27].

The first defendant group submits that there is no general category of ‘equitable fraud’, and that the plaintiff has not provided any evidentiary basis to support a claim that:

(a) any of the defendants stood in the position of fiduciary with respect to the plaintiff;

(b) any of the defendants were third parties who knowingly assisted in the breach of a fiduciary or trust duty (owing to the plaintiff) or knowingly received trust property (pursuant to the principles in Barnes v Addy); and

(c) any cause of action based on the principles referred to in Barnes v Addy is arguably established by the plaintiff.

No arguable case of intention to defraud creditors

The first defendant group submits that there is no admissible evidence to support the plaintiff’s claim that Lots 1, 5 and 6 were sold undervalue, and further submits that in contrast to the plaintiff’s lay evidence relating to valuations of the land in issue, the first defendant relies on market appraisals by Licensed Real Estate witnesses in relation to the same land.[49]
[49]Second El-Hissi Affidavit, [28], Exhibit ‘OEH-16’.

In relation to the plaintiff’s reliance of s 172 of the Property Law Act 1958 (Vic) (Property Law Act), the first defendant group submits that tellingly in respect of any alleged intention to defraud creditors, the proceeds of sale of the Lots 1, 5 and 6 were used to pay secured creditors.

Third and fourth defendants’ (the second defendant group) submissions as to the discharge of the freezing order

The second defendant group also seek to have the subject freezing order obtained ex parte by the plaintiff, discharged (or not extended).

The second defendant group endorse the first defendant group’s submissions with respect to the discharge of the freezing order and submit that the freezing order should be discharged for the following reasons:

(a) the plaintiff’s material non-disclosures in its ex parte application;

(b) the plaintiff is not capable of demonstrating loss in the conspiracy claim;

(c) the plaintiff’s equitable fraud and Barnes v Addy claims are misconceived;

(d) the plaintiff has failed to show a prima facie case with respect to its claim that there was a conveyance to defraud creditors.

Non-disclosure by the plaintiff in its ex parte application

With respect to the allegations of non-disclosure, the second defendant group endorse the submissions of the first defendant group. In particular the second defendant group point to material non-disclosures it says are relevant to it, being the plaintiff’s failure to disclosure the following matters:

(a) that the transfer of NAB mortgage AN384675L registered over Lots 1, 5 and 6 to the fourth defendant that took place on 9 January 2020 occurred in circumstances where NAB received consideration of $796,426.[50] The second defendant group submit that this was evident on the face of the document and ought to have been brought to the Court’s attention;[51]

(b) that between 10 to 13 January 2020, the fourth defendant, transferred Lots 1, 5 and 6 by mortgagee power of sale to the fifth, sixth and seventh defendant for consideration in circumstances where it was entitled to do so as mortgagee in possession. The second defendant group submit that this entitlement arose pursuant to the Mortgage Memorandum of Common Provisions AA1791 lodged by the NAB pursuant to s 91 of the Transfer of Land Act (Vic) 1958[52] and as a result of the making of the VCAT freezing order. The second defendant group also submit that clause 19 of the Memorandum of Common Provisions entitled the NAB to assign its rights at mortgagee should it wish;[53]

(c) that there were, and the plaintiff knew there were, four equitable mortgagees whose interests were secured by charges contained in General Security Deed[54] and noted in caveats lodged on the titles of Lots 1, 5 and 6.

[50]Third and Fourth defendants submissions, 27 February 2020, [7(a)].

[51]T90.24-T91.21.

[52]Third and Fourth Defendants’ submissions, 27 February 2020, [7(b)]; Second El-Hissi Affidavit, [21]-[22], Exhibit ‘OEH-15’.

[53]T93.22-25.

[54]Third and Fourth Defendants’ submissions, 27 February 2020, [7(b)]; Second El-Hissi Affidavit, [19(h)–(i)], Exhibits ‘OEH-9’, ‘OEH-10’, ‘OEH-11’, ‘OEH-12’ and ‘OEH-14’.

The second defendant group submit that these non-disclosures are material as they affect the loss anticipated by the plaintiff which underpins its claim for conspiracy. It is further submitted in this regard that the plaintiff is an experienced litigant and as such the non-disclosures should not be regarded as innocent.

No prima facie case in relation to the conspiracy claim

With respect to the plaintiff’s conspiracy claim, the second defendant group submit the plaintiff has failed to establish a prima facie case for such claim and relies upon the first defendant group’s submissions in this regard.

The second defendant group submit that the plaintiff’s claims of equitable fraud and relief pursuant to the principles of Barnes v Addy are misconceived. They adopt the submissions of the first defendant group in this regard and further stress that the principles in Barnes v Addy relate to liability of third parties who knowingly assist a breach of trust or receive property knowing it to be impressed by a trust or that the receipt has arisen out of a breach of fiduciary duty. They submit that this claim is not demonstrated on the current evidence as the plaintiff has not established a primary fiduciary duty or trust relationship, nor has it established that even if such a relationship were said to have existed, there has been any breach.

No arguable case of intention to defraud creditors

The second defendant group submit that the plaintiff’s claim pursuant to s 172 of the Property Law Act is misconceived as the alienation of Lots 1, 5 and 6 occurred not by the registered proprietor but by the registered mortgagee exercising its rights of a power of sale. In this regard, the second defendant group submit that s 420A of the Corporations Act 2001 (Cth) (Corporations Act)[55] applies, and that the fourth defendant did not breach its duty in accordance with that section. The second defendant group submits that the fourth defendant had a legal entitlement to take possession and effect the transfer, and accordingly the plaintiff has no reasonable prospect of success of its claim under s 172 of the Property Law Act.[56]
[55]Corporations Act 2001 (Cth), s 420A provides as follows:
420A Controller's duty of care in exercising power of sale
(1)In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:
(a)if, when it is sold, it has a market value--not less than that market value; or
(b)otherwise--the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.
(2) Nothing in subsection (1) limits the generality of anything in section 180, 181, 182, 183 or 184.
[56]T104.22-31.

The second defendant group submit that it had the benefit of the market appraisals procured approximately two months before the transfer of the Lots, and that the plaintiff has not offered any admissible evidence that the Lots were sold at less than market value.

Plaintiff’s response to the submissions as to the discharge of the freezing order

The plaintiff submits that the defendants’ submissions in resisting the continuation of the freezing order are underpinned by an assertion that the value of the ninth defendant’s secured debt at the relevant time was $7,824,787.84. The plaintiff submits that this is unsubstantiated by evidence as to any money changing hands.[57] The plaintiff submits that the sworn evidence of the third defendant is that no ‘real money’ changed hands when the properties were transferred.[58] The plaintiff submits that the defendants’ submissions as to the efficacy of its claims are akin to seeking summary judgment on these claims and the Court must therefore be satisfied that there is no real question to be tried on any of the plaintiff’s claims.[59]
[57]Plaintiff submissions, 10 March 2020, [3].
[58]Plaintiff submissions, 10 March 2020, [2].
[59]Plaintiff submissions, 10 March 2020, [4].

Non-disclosure by the plaintiff in its ex parte application

The plaintiff submits that by reason of the conduct of the first to eighth defendants it has lost the opportunity to pursue its claims against the ninth defendant pursuant to its building contract with the ninth defendant and thereby the opportunity to recover the claimed sum of $850,142.15, plus interest ($85,014.22) plus costs ($150,000.00) a total sum of $1,085,156).

The plaintiff submits that the relative merits of the ninth defendant’s and the plaintiff’s respective positions in the VCAT Proceeding are no longer in issue and says that it follows that it was not required, in its ex parte application, to traverse the entirety of the ninth defendant’s defence and counterclaim in the VCAT Proceeding. The plaintiff also submits that the particular legal instruments relied upon by the first defendant group to divest the ninth defendant of its assets were not disclosed until the Affidavit of Omar El-Hissi sworn 26 February 2020 (Third El-Hissi Affidavit) was filed, and up until this point the plaintiff was only able to surmise how the transfers occurred from the information available on the public register.

The plaintiff submits that even if there was a non-disclosure of the relevant facts (which it denies) such non-disclosure was not sufficiently material to justify the discharge of the freezing order, or, in the alternative, in the circumstances which have transpired the Court should exercise its discretion to nevertheless continue the order or make an new order on the appropriate terms.[60]
[60]Plaintiff submissions, 10 March 2020, [6]; T41.24, T42.2.

The plaintiff submits that in its ex parte application it was appropriate that it put the high water mark of its case to the Court in circumstances where it had lost opportunity to satisfy its claim in the VCAT Proceeding. The plaintiff submits that, had it traversed the terms of the defence and counterclaim put on by the ninth defendant in the VCAT Proceeding, it would have had no impact on the Court’s decision to grant the order as the Court would not have been in a position to make a determination on an interlocutory basis of the relevant strength and weaknesses of the competing claims. In these circumstances plaintiff stresses that it was before the Court in response to what it says was clear contravention of VCAT freezing order.

Prima facie case in relation to the conspiracy claim

The plaintiff complains that save for ‘bare denial’, the submissions of the first defendant group are only responsive to the quantification of the plaintiff’s claim of conspiracy, not its underlying facts.[61]
[61]Plaintiff submissions, 27 February 2020, [8].

Regarding the first defendant group’s submission that the plaintiff’s evidence regarding the fair market value of Lots 1, 5 and 6 is inadmissible, the plaintiff submits that the Paritsi estimates in this regard were similar to that of the first defendant in the VCAT Proceeding. The plaintiff submits it is unclear, however, on what basis the first defendant’s estimates were given, and whether that evidence itself would be admissible. The plaintiff submits that the Court can take judicial notice of the improvement to the property market since these estimates were made. In any event the plaintiff submits that the estimates on which the first defendant group seeks to rely are ‘conservatively low’.[62]

Equitable fraud and Barnes v Addy claim

[62]Plaintiff submissions, 27 February 2020, [10].

As to the equitable mortgages relied on by the first defendant group, the plaintiff submits that the existence of such interests secured over Lots 1, 5 and 6 has not been established, and no evidence has been adduced to show that, even if the security instruments are bona fide, the principal amounts were in fact advanced under those instruments and that the interest component of 20 per cent per annum is far higher than that available on the market.

The plaintiff contends that if the alleged equitable mortgages are discounted, along with an ‘unexplained amount’ of $810,381.84[63] the ninth defendant’s total equity position prior to the alleged conspiracy would be $6,112,555.79, and the remaining creditors (not including the plaintiff) were for insignificant amounts.
[63]Plaintiff submissions, 27 February 2020, [10].

The plaintiff submits that the relevant facts of the conspiracy fall within the ‘4^th kind of fraud’ described by Lord Hardwicke in Earl of Chesterfield v Jassen (1751) 2 Ves Seb 125, and applied in Pilmer v Duke Group Lts (in liq) (2001) 207 CLR 165 at [37], where the circumstances of the transaction reveal it to be ‘an imposition and deceit on the other persons not parties to the fraudulent agreement’.[64]
[64]The plaintiff submits the relevant elements are described by Drummond AJA in Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1 [2601] as: ‘… first, there must be an agreement that works an imposition or deceit on persons not parties to the agreement but who are in such a relationship with one or other of the parties that they will be affected by the agreement. There being no need to prove an actual intention to deceive, it is the impact of the contract upon third parties who are in that kind of relationship with the contracting parties that constitutes transacting mala fide in respect of third parties. It follows from this, I think, that it is not necessary to show that the fraudulent agreement has been kept secret from the third parties affected by it. The second and additional element is that the agreement must infringe some head of public policy so as to require equitable intervention.’

The plaintiff contends that the relevant infringement of public policy in this regard is the contravention of the VCAT freezing order, and that success on this claim allows the imposition of a constructive trust over the Lots 1, 5 and 6 in favour of the ninth defendant.

The plaintiff further submits[65] that the fact that such a constructive trust is remedial in nature does not mean that there must be a court order before equity will recognise the existence of the trust, and that the trust attaches immediately once the circumstances exist in which equity would construe a trust. The plaintiff submits that in these circumstances a trust need not arise from pre-existing fiduciary obligation and in this case the recipients of the Lots received assets already impressed with a trust, and were bound thereby. Further, the plaintiff denies that it is required to identify a breach of duty owed by the mortgagee to the ninth defendant as a primary liability for the purpose of its claims founded on equitable fraud and Barnes v Addy.[66] The plaintiff says that upon becoming liable as constructive trustees, the recipients owed a fiduciary duty to the ninth defendant and became chargeable with trust property. The plaintiff says that in this regard the first defendant group and the second defendant group are liable for knowingly assistance in a dishonest and fraudulent design.[67]
[65]Plaintiff submissions, 10 March 2020, [8].
[66]The plaintiff relies on the decision of White J in Wambo Coal Pty Ltd v Ariff (2007) 63 ACSR 429 at [63]-[65] (Wambo) as an example of where a fiduciary obligations arose although where no pre-existing fiduciary relationship existed.
[67]Plaintiff’s Indorsement of Claim, [17], ‘Fraudulent Design’.

The plaintiff submits that there is a prima facie case that the third defendant had the requisite level of knowledge or notice for the purposes of the knowing assistance claim. The plaintiff says that the third defendant was the domestic partner of the second defendant, and is of modest means. The plaintiff submits that the third defendant became the sole director and shareholder of the fourth defendant upon its incorporation, and thereafter in this capacity caused the fourth defendant to participate in the impugned transfers.[68]
[68]Plaintiff submissions, 10 March 2020, [9].

The plaintiff submits the circumstances are apt to render the fourth defendant liable as a constructive trustee under the second limb of Barnes v Addy, for knowingly assisting in a breach of trust, and the recipients of the Lots liable under the first limb of Barnes v Addy, for receiving property in circumstances where the recipients were on notice that it was being received in breach of trust. The plaintiff also submits that in breach of the VCAT freezing order, transfers of properties were effected to parties expressly prohibited from taking the benefit of any transfer. The plaintiff submits that this circumstance provides a basis for the plaintiff’s Barnes v Addy claim of knowing receipt.[69]

Intention to defraud creditors for purposes of s 172 of Property Law Act

[69]T29.6-22.

The plaintiff maintains that the impugned transfers of Lots 1, 5 and 6 fall within the contemplation of s 172 of the Property Law Act as an alienation with the intent to defraud creditors, and are liable to be set aside.

The plaintiff submits[70] that the first defendant group has not provided any evidence that the transfers were for valuable consideration and made in good faith, which it says is an essential element of the defence that the first defendant group rely on under s 172(3) of the Property Law Act.[71]
[70]Plaintiff submissions, 10 March 2020, [11].
[71]Section 172(3) of the Property Law Act provides that s 172(1) does not extend to any estate or interest in property alienated for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the alienation, notice of the intent to defraud creditors.

The plaintiff submits that it is of no consequence that the alienation of assets was by the mortgagee exercising its power of sale, as opposed to the registered proprietor. In this regard it submits that established authority requires a broad approach to be adopted when contemplating the section, and that the terms of s 172(1) of the Property Law Act do not require the alienation to occur solely by reason of the acts of the fraudulent debtor.

In relation to the market appraisals obtained prior to the impugned transfers that the defendants seek to rely on for the purposes of s 420A of the Corporations Act, the plaintiff rejects the submission that the fourth defendant took reasonable steps to obtain a proper price for the Lots. The plaintiff complains that the market appraisals were obtained by ‘persons associated’ with the ninth defendant, and that they were obtained approximately two months before the impugned transferred were conducted. The plaintiff further complains that there is no evidence of what enquiries were made by the third defendant, if any, as to what price might be obtained for the Lots at public auction, in the circumstances where the evidence of the third defendant is the transfers were by way of private sale, and there is no evidence that she took steps to independently verify the market appraisals.

The plaintiff submits that the defendants submission that, as the proceeds of sale were used to pay the creditors of the ninth defendant (which the plaintiff denies) there can be no relevant intention to defeat creditors, is of no consequence in circumstances where the transfers were made to purported related party creditors in preference over other creditors in circumstances where the plaintiff submits that the intention was to defeat creditors.

In this regard the plaintiff submits the most probative valuation evidence is the estimates given by the first defendant and second defendant in the VCAT Proceeding and it was inappropriate for an independent mortgagee, being the fourth defendant, to rely on the market appraisals without taking steps to verify the same.[72]
[72]T31.18-27.

The plaintiff points to Jew v Holloway (2013) 43 VR 243 and says an intention to defraud need not be sole purpose, the real or actual intent to defraud, defeat or delay creditors could be inferred where the necessary result is to put the property beyond reach of creditors.[73] The plaintiff submits that the decision maker must look at all of the circumstances.
[73]Jew v Holloway (2013) 43 VR 243.

Prima facie breaches of the freezing order made 11 February 2020

The plaintiff further alleges that following service of the ex parte freezing order on the eighth defendant on 11 February 2020, the eighth defendant withdrew $500,035 from its bank account the following day in apparent breach of the order. The plaintiff further submits that the defendants’ disclosure affidavits made in compliance with orders of 11 February 2020 did not comply with the terms of the orders.

The first defendant group’s further submissions as to the discharge of the freezing order
No breach of VCAT Freezing Order

The first defendant group submits that the plaintiff has not established contravention of VCAT freezing order as the order could not and did not constrain the registered mortgagee from taking steps to dispose of its security and, in any event, there has been no diminution of assets as the sale proceeds were applied to meet secured creditors.

The first defendant group submits that the plaintiff’s allegation that the secured debt is unsubstantiated, is new and is disproved by evidence of relevant Certificate of Indebtedness[74] and calculations of loan account indebtedness statements.[75]
[74]The first defendant group relies on Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643, at 654, and Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279, as to conclusiveness of the certificate of indebtedness.
[75]Affidavit of Mark Franek, 11 March 2020, [5]-[10] and Exhibits ‘MF-3’-‘MF-6’.

Non-disclosure by the plaintiff in its ex parte application

The first defendant group maintains their claim of material non-disclosure and contends that the plaintiff’s submission that it was not required to disclose the defence or counterclaim of the ninth defendant in the VCAT Proceeding make it plain that such non-disclosure was deliberate, which is a relevant consideration.

The first defendant group submits that the strength of the plaintiff’s claim for prima facie relief depends on the likelihood that, but for the defendant’s actions, the opportunity to satisfy the VCAT claim in the specified sum of at least $1,085,156.37 would have crystallised. The strength of the prima facie case is therefore correlative with the strength of the plaintiff’s VCAT claim. This requires examination of the strength of ninth defendant’s defences, and existence of defences, in the VCAT Proceeding.

Equitable Fraud and Barnes v Addy claim

The first defendant group submits that the plaintiff makes no attempt to identify breach of fiduciary duty owed to ninth defendant as a primary liability. The first defendant group submits that there must be a breach of a duty owed by a fiduciary or a trustee and that breach must be a dishonest and fraudulent. Here the first defendant group submits the sale by the mortgagee was a legitimate step taken by the registered mortgagee in respect of which there is no fiduciary duty.

The first defendant group submits that the plaintiff has failed to identify the primary fiduciary relationship, the breach of duty, and what the accessorial liability is in this regard. It submits that this is simply an example of a mortgagee in possession exercising its power of sale, avoiding sales commission and auction costs, in accordance with the market appraisals. The first defendant group says that evidence of money changing hands is not required, and cross-consideration is proper and sufficient.[76]
[76]T81.22-27.

No arguable case of intention to defraud creditors

The first defendant group submits that essential to any claim under s 172 of the Property Law Act is that the relevant sale or disposal must be made at a marked undervalue and must result in a diminution of equity. The first defendant group submits that ‘subtraction of assets’ must refer to subtraction of equity[77] – there was no equity in the relevant Lots therefore equity was not diminished by the sales. The first defendant group maintains that there is no admissible evidence that Lots were sold undervalue, and evidence of Paritsi in this regard in inadmissible as opinion evidence.
[77]See Prior v Lakic [2017] VSC 255, per Digby J, adopting the principles articulated by Sloss J in Deputy Commission of Taxation v Haritos [2014] VSC 379.

The first defendant group says that the plaintiff seeks orders that the ‘alienation’ be rendered void and Lots returned to ninth defendant but no corresponding orders for mortgages to be reregistered, or that the mortgagee be restrained from exercising mortgagee’s power of sale upon default.

The first defendant group submits that in the circumstances the plaintiff is seeking to elevate its interests above those of secured creditors.

Prima facie case in relation to the conspiracy claim

The first defendant group submits that conspiracy is a tort, and accordingly the plaintiff must show pecuniary loss as a result of the defendant’s actions in furtherance of the agreement. In the present case, the plaintiff cannot show that there would have been any equity in the ninth defendant to which it could have recourse even it if had succeeded in the VCAT Proceeding.

Plaintiff’s additional oral submissions
Fraudulent scheme

The plaintiff submits that the first to eighth defendants took part in a ‘fraudulent scheme’ in order to circumvent the VCAT freezing order, and with the intention of depriving the plaintiff of the opportunity to satisfy its claim in the VCAT Proceeding. Counsel for the plaintiff submits:

A new company called Lightning Canon Pty Ltd was incorporated in December. Its sole director and shareholder was Ms Plain’s client, Ms Lucy Sossa. Ms Sossa is the partner or might I use the expression ‘girlfriend’ of Mr Natoli.[78]
Canon Pty Ltd received loan funds in or about $900,000. Those loan funds came from Mr Franek’s wife, Renee, and from a company associated with her partner, Mr Natoli. Those loan funds were used to procure and pay for a transfer of the existing first mortgage from the National Australia Bank.[79]
That occurred on 23 December 2019 and there is in evidence before you that's exhibited to Mr Kenny's affidavit as Exhibit MJK-6, the deed of assignment dated 23 December 2019… Those assignment documents are assignments between each of the director-related companies to Lightning Canon of various general security deeds by which the documents, amongst other things, assert an equitable mortgage.[80]
It's deposed to by Ms Sossa that she relied upon market appraisals for the purposes of establishing the amounts appropriate to be set out in the transfers… It’s not clear, as we’ve made clear in our outline, whether she read them, what steps she took to independently verify those amounts.[81]
The effect of the various assignments was that the liability previously allegedly owed by the company now in liquidation, One Three Wilson Pty Ltd, was shifted to Lightning Canon Pty Ltd and the consideration for the various assignments included the amount set out in the three transfers to the director-related companies.[82]
So the effect of these various transactions was as follows: Lightning Canon Pty Ltd, which on its own oath had a limited or no assets, has a liability it can’t repay to Mrs Franek or to the Natoli-related company and, according to these assignments, it now holds the debt alleged previously to have been owed to the director-related companies by One Three Wilson Pty Ltd, a company in liquidation, and for which Lightning Canon has no security.[83]
[78]T22.24-28; T24.12-15.
[79]T22.31-T23.6.
[80]T23.7-16.
[81]T23.27-T24.1.
[82]T23.20-26.
[83]T24.4-11.

Sold undervalue

The plaintiff complains that the three market appraisals, two dated 2 October 2019 and 10 October 2019 that the supposed independent mortgagee (fourth defendant) purportedly relied on were obtained by those in control of the ninth defendant and those in control of the director-related companies which received the properties, and that it was inappropriate for the independent mortgagee to rely upon these valuations when discharging its obligations.[84]
[84]T25.28-30; T31.19-21.

Regarding Lot 1, the market appraisal provides that the property ‘currently would appeal to buyers looking to spend in the vicinity of between $1.9 and $2 million and could potentially achieve well in excess of this value if your property were to be marketed, presented and taken to public action’.[85] In these circumstances the plaintiff complains that, according to the affidavit of the third defendant, the transfers were by way of private sale and each transaction was completed on an ‘in one line basis’.[86]
[85]T26.8-13.
[86]T26.14-21.

The plaintiff also complains that the third defendant did not have regard to the estimates of value of the Lots given by the first defendant in an affidavit sworn in the VCAT Proceeding, which provided for higher values.[87]
[87]T30.11-19.

The plaintiff submits that the best and most probative valuation evidence regarding the Lots is the higher valuations of the former director or directors of the director-relate companies, who were the directors of the company who developed the property.[88] The plaintiff submits that the Court should have regard to the market appraisals insofar as they provide that Lot 1 ‘could potentially achieve well in excess’ at public auction.[89] Conversely the plaintiff also submits that the market appraisals are not the sort of documents that an independent mortgagee properly discharging its obligations could or should have relied upon.[90]
[88]T31.10-11.
[89]T31.31-T32-28.
[90]T31.19-21.

Non-disclosure

The plaintiff submits that in the event that Court does find that there was material non-disclosure, the Court has a discretion to continue the freezing order, or make a new order, and it is appropriate for such discretion to be exercised in this case.[91]

Section 172 of the Property Law Act

[91]T41.2-23.

The plaintiff submits that there is no evidence that the Court is able rely on to support the defendants’ submission that there was no equity in the ninth defendant,[92] and submits that if that were the case there would have been no utility in the restructure as it would have been inevitable that the secured loans were paid out. The plaintiff submits that there has been no explanation given by the defendants as to the purposes of the restructure, and that at trial the Court will have appropriate evidence, including expert evidence, to assess the truth of this claim and to measure the value of the plaintiff’s lost opportunity.
[92]T46.22-31.

Breach of Harman principle

The plaintiff is also critical of the first and the second defendant group in referring to affidavit material in the VCAT Proceeding in material filed in these proceedings prior to receiving a release from VCAT, in breach of the principle established in Harman v Secretary of State for Home Department (Harman).[93] The plaintiff submits that this is an answer to allegations of non-disclosure made against it. The plaintiff submits that it brought the matters referred to in the VCAT Proceeding to the attention of the Court as soon as it was able to after obtaining a Harman release from VCAT. The plaintiff submits that in these circumstances the Court should not draw an inference that Paritsi was aware of the matters in the VCAT Proceeding when swearing his affidavit in support of the ex parte application on 7 February 2020.[94]
[93][1983] 1 AC 280.
[94]T122.25-T128.22.

Evidence of loan statements (Affidavit of Mark Franek, 11 March 2020)

The plaintiff submits that there is a real issue about the admissibility of evidence of loan statements, as it is unclear what the calculations are based on.[95] The plaintiff further complains that without any evidence as to why, it appears a penalty interest rate was applied to these loan amounts from the outset.
[95]T138.14-T110.30.

First defendant group’s additional oral submission
Non-disclosure

The first defendant group submits that even if it were true that it would not have made a difference to the Court’s decision to grant the ex parte freezing order (as submitted by the plaintiff), the plaintiff is nonetheless obliged to disclose to the Court what defences it knew to be available to the ninth defendant in the VCAT Proceeding, the existence and the quantum of the registered mortgage and equitable mortgages, and the fact that there was no equity in relation to these claims.[96]
[96]T59.19-T60.7.

No equity

The first defendant group further submits in oral submissions that the plaintiff’s claim is equal to the value of its claim against the ninth defendant in the VCAT Proceeding and for the Security of Payment Judgment and therefore it pre-supposes that there was equity in the ninth defendant available to it as an unsecured creditor.[97] The first defendant group argue that the fact of there being no equity in the ninth defendant is relevant to all the claims the plaintiff makes in these proceedings.[98]
[97]T56.17-24.
[98]T60.8-12.

The transfer of Lot 2

In relation to the plaintiff’s submission that the transfer of Lot 2 to the fifth defendant constituted an alienation to defraud creditors for the purposes of s 172 of the Property Law Act, the first defendant group complains that the plaintiff took no issue with the transfer of Lot 2 in the VCAT Proceeding.[99]
[99]T66.14-T67.19.

Valuation evidence

The first defendant group further submits that the plaintiff has provided no admissible evidence that the Lots were sold undervalue, notwithstanding the first defendant group first complaining about this lack of evidence in their Submissions dated 26 February 2020 at [24]. The first defendant group reiterates that even were the Lots to be sold at the valuations given by Paritsi there would have been a substantial shortfall in loans owed to secured creditors and accordingly no distribution to the unsecured creditors of the ninth defendant.[100] The first defendant group maintained their objection to the inadmissible opinion evidence of Paritsi regarding the fair market value of the Lots, relying on the principles in Dasreef Pty Ltd v Hawchar.[101]

Barnes v Addy Claim

[100]T67.20-73.17.

[101](2011) 243 CLR 588.

The first defendant group distinguished the decision in Wambo as a case where there was primary liability by way of constructive trust created by virtue of a mistaken payment.[102] The first defendant group submits that Wambo does not take the plaintiff’s position any further, the plaintiff still must identify what the primary trust relationship is, the breach of that relationship, and then what the accessorial liability happens to be. The first defendant group submits that in the matter at hand the mortgagee in possession was perfectly entitled, in circumstances where there is a default, to exercise its power of sale to sell the properties.[103]
[102]T76.24-26.
[103]T78.5-15.

Breach of Harman principle

The first defendant group submit that the plaintiff’s allegations with respect to breach of the Harman principle are misconceived as all affidavit material in the VCAT Proceeding was read into evidence and accordingly formed part of the transcript. The first defendant group further submits that the plaintiff itself referred to particular affidavit material in the VCAT Proceeding prior to receiving the release and in those circumstances cannot now hide behind the Harman principle.[104]
[104]T143.10-T145.24.

Breach of VCAT freezing order

Both the first and second defendant group submit that there was no breach of the VCAT freezing order as the freezing order did not apply to a mortgagee standing in the shoes of the NAB.

Evidence of loan statements

The first defendant group submits that the penalty interest rate was applied as there has been a default.[105]
[105]T147.4-15.

Second defendant group’s additional oral submission

In all circumstances the second defendant group submits that it is uncontentious that the second defendant group took the steps that the plaintiff alleges, however submits that they were legally entitled to take such steps and there was nothing improper in the impugned conduct.[106]
[106]T106.4-16.

The second defendant group submits it is immaterial that no money changed hands, and that a set off in liability owed to secured credits constituted sufficient valuable consideration in these particular transactions. The second defendant group submit that the material submitted by the plaintiff in relation to the conspiracy claim does not meet the Briginshaw standard.[107]
[107]T107.20-30.

Regarding the submission of the plaintiff that the market appraisal for Lot 1 establishes that the property could have achieved a price ‘well in excess’ of $1.9 million to $2 million if it were marketed and taken to public auction, the second defendant group submit that this is no more than an equivocal opinion that it could achieve more, however it might receive less. In this regard the second defendant group submits that in accordance with s 420A of the Corporations Act the duty incumbent upon a controller of a property is to take all reasonable steps when exercising its power of sale under guise of a mortgagee in possession, or receiver in possession, and the third defendant discharged this obligation with regard to the market appraisals available to her. In these circumstances the second defendant group submits that the transfer amounts fell within the values contemplated by the relevant market appraisals.[108]
[108]T110.10.T111.19.

Considerations

The relevant facts in this matter, including those in contention between the parties have been referred to above.

Legal Principles

Here, the plaintiff bears the onus both of satisfying the Court that an interim freezing order which it obtained ex parte should be continued, and, if that onus is satisfied, of also satisfying the Court to the financial scope of the continuing freezing order.

In Choice Planning Pty Ltd v Mider @ Franklin Street Pty Ltd,[109] (Choice Planning) Hargrave J elucidated the principles which ordinarily inform the Court’s exercise of discretion in relation to a freezing order, and in doing so his Honour referred to the decision of J Forrest J in Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd.[110] In Choice Planning, Hargrave J stated:
[109][2015] VSC 59, [9]-[10].
[110][2009] VSC 418, [20].

[9]While the court’s powers to make a freezing order or an ancillary order are not limited to the circumstances stated in r 37A.05, in the present case such powers can be determined by reference to the circumstances specified therein. Of course, an order will not follow as a matter of course if the elements for the existence of the court’s power are established. The court retains a discretion and must consider the balance of convenience.
[10]The legal principles to be applied in deciding whether or not to grant a freezing order were conveniently summarised by J Forrest J in Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd, in the following terms:
First, that a freezing order, by its very nature, is a drastic remedy and a court must exercise a high degree of caution before taking a step which will interfere with a party’s capacity to deal with his or her assets.
Second, the order is not designed to provide security for the applicant’s claim. It is solely directed to preserving assets from being dissipated, thereby frustrating the court process.
Third, the applicant bears the onus both in satisfying the court that the order should be continued and in satisfying the court as to the amount which is to be the subject of the order.
Fourth, that an order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no substitute for either the facts or inferences properly drawn from proved facts.
Fifth, that before such an order can be made it is necessary that the applicant establish —
(a)an arguable case against the defendant; and
(b)that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendant’s actions in either removing the assets or disposing or dealing with them so as to diminish their value.

Sixth, the balance of convenience must favour the granting of the freezing order.
Seventh, that there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case.
Eighth, the applicant must establish with some precision the value of prospective judgment. The order should not unnecessarily tie up a party’s assets and property.
Finally, there may be discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court.

Justice Hargrave observed in Choice Planning at [10], in relation to considering whether in the circumstances a freezing order is appropriate, that the Court should be mindful of the drastic nature of the remedy sought and exercise a higher degree of caution[111] in evaluating whether it should make an order which will interfere with a party’s capacity to deal with his or her assets for the purpose of seeking to preserve such assets so as to render them available to satisfy and ultimately vindicate the plaintiff.
[111]See also Rozenblit v Vainer [2019] VSCA 164, [14] and [19].

The making or the continuation of a freezing order requires that in relation to its alleged cause or causes of action the applicant is to establish an arguable case against the defendant. The alleged cause or causes of action must be reasonably arguable, although need not necessarily equate to a cause of action which will probably succeed on the law, facts and circumstances at the time of the relevant application.

In this regard, the Court recognises that usually the task of assessing the merits and strengths of the applicant’s case at the time of an application for a freezing order will be difficult and necessarily uncertain.

Considerations – reasonably arguable case
The plaintiff’s case concerning the alleged conspiracy

I am not satisfied that the plaintiff in this application has established a reasonably arguable case in relation to its asserted conspiracy claim against the first to eighth defendants (the Conspiracy Parties). The plaintiff alleges a ‘calculated and deliberate conspiracy’ designed to strip the ninth defendant of its remaining assets in contravention of the VCAT freezing order.

The plaintiff relies upon the steps[112] in the ‘relevant conspiracy’ it asserts to establish the ‘calculated and deliberate conspiracy’ it alleges. Those alleged steps are in substance: the registration of the fourth defendant as a company followed by the transfer of the first mortgage held by NAB over Lots 1, 5 and 6 to the fourth defendant; the subsequent transfer of Lots 1, 5 and 6 by the fourth defendant as mortgagee in possession to the fifth, sixth and seventh defendants respectively in January 2020; and the resolution of the sixth, eighth and ninth defendants to wind up the ninth defendant in liquidation.
[112]Reasons, [32] and [96].

I consider that the above steps do not inarguably establish or indicate a wrongful ‘calculated and deliberate conspiracy’ to divest the ninth defendant of its assets. On the contrary I consider that , considered in the context in which those steps were taken by the relevant defendants and bearing in mind the effect of those steps, they reflect a commercial and understandable series of transactions which have in any event resulted in no loss or damage to the plaintiff.

The facts and contextual factors of significance include:

(a) That from a point in time well before the ‘conspiracy’ of which the complaint complains, the NAB was a first mortgagee secured in respect of the sum of $7,179,500[113] over Lot 1, 5 and 6.
[113]Second El-Hissi Affidavit, [19(e)]; amount is also identified in Affidavit of Mark Franek, 24 September 2019, [16] filed in VCAT proceeding and is Exhibit ‘AW-3’ to the Affidavit of Anish Wilson, 27 February 2020.

(b) Further, Lots 1, 5 and 6 were the subject of four general security deeds in the nature of equitable mortgages and charges, entered into between the ninth defendant and the secured mortgagee and chargees, from about early 2016 to late 2017, which secured sums in excess of $5.8 million.[114]
[114]Second El-Hissi Affidavit, [19(h)]; Jew v Holloway (2013) 43 VR 243; The first defendant group relies on Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643, at 654, and Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279, as to conclusiveness of the certificate of indebtedness.

(c) The fourth defendant procured the transfer to itself of the NAB first mortgage over Lots 1, 5 and 6 in an arm’s length transaction with a major Australian Bank and for consideration in the sum of $796,426.00.[115]
[115]Second El-Hissi Affidavit, Exhibit ‘OEH-13’.

(d) The first mortgage transferred from the NAB to the fourth defendant included powers under NAB Memorandum of Common Provisions,[116] exercisable upon default by the Mortgagor, including a default arising in circumstances where the secured Lots are the subject of a freezing order (NAB Memorandum of Common Provisions cls 15(n), 16.1 and 16.3).
[116]Second El-Hissi Affidavit, Exhibit ‘OEH-15’.

(e) The VCAT orders obtained by the plaintiff constituted a freezing order of the type referred to in the preceding subparagraph and triggered a default under the Memorandum of Common Provisions.

(f) The fourth defendant’s transfer of Lots 1, 5 and 6 to the fifth, sixth and seventh defendants was for substantial consideration.[117]
[117]Third and Fourth Defendants’ submissions, 27 February 2020, [7(b)]; Second El-Hissi Affidavit, [19(h)–(i)], Exhibits ‘OEH-9’, ‘OEH-10’, ‘OEH-11’, ‘OEH-12’ and ‘OEH-14’.

(g) The fourth defendant sold Lots 1, 5 and 6 as Mortgagee under mortgage Power of Sale and the proceeds of sale of Lots 1, 5 and 6 were all applied to pay down secured debt. [118]
[118]Second El-Hissi Affidavit, [20].

(h) The fourth defendant’s sale of Lots 1, 5 and 6 was for consideration equating to market value as substantiated by Licensed Real Estate Agents’ appraisals of the value of those Lots based amongst other considerations, on comparative sales.

(i) The market value of Lots 1, 5 and 6 referred to in the last preceding paragraph, established that the sale of those Lots would not have yielded an amount[119] which, in any event, would exceed the fourth defendant’s security over the said Lots.
[119]Less expenses associated with sale; Lettieri Affidavit, 15 November 2019.

Accordingly, on the above bases no part of the fourth defendant’s net sale proceeds would have been distributed to any unsecured creditor including the ninth defendant.

At all material times, including in December 2019, the same position obtained in relation to the value of Lots 1, 5 and 6 because the extent to which those Lots were encumbered by the five securities referred to above.

(j) The Licensed Real Estate Agents’ appraisals of market value evidence[120] in relation to Lots 1, 5 and 6 relied upon by the first defendant group and the second defendant group in this application, constitute admissible persuasive evidence of market value, and provide appraisals of value of more persuasive weight than the plaintiff’s valuation related evidence in the form of Paritsi’s lay assertions as to the value of those Lots. Paritsi has no expert land valuation qualifications and for this reason no weight is ascribed to his valuation related evidence.
[120]Second El-Hissi Affidavit, Exhibit ‘OEH-16’.

Further, although the plaintiff criticised the Licensed Real Estate Agents’ land value appraisal evidence relied upon by the first defendant group notwithstanding that the plaintiff had ample time in which to do so, the plaintiff did not seek to put on any expert evidence, either as primary evidence in support of its application or by way of responsive evidence, establishing the value of Lots 1, 5 and 6 as at the end of 2019 and early 2020. This was the position notwithstanding, in this application before argument on the return of the plaintiff’s application, the first defendant group had put the plaintiff on notice that it challenged Paritsi’s land valuation evidence.

[143]Ibid 321–22.

13.Meagher JA explained the principles in a similar manner:
To obtain such an injunction a plaintiff must prove two ingredients: first, that he has a prima facie case against the defendant, and secondly, that there is some risk of a dispersal by the defendant of his assets so as to defeat the value of the plaintiff’s victory if he ultimately wins.[144]
[144]Ibid 326.

14.The plaintiffs further point out that, as the applicants, they bear the onus of establishing risk by evidence and not mere assertion that there is a sufficient likelihood of risk to justify an order preserving the assets.[145]
[145]Plaintiffs Submissions, [5].
15.In Frigo v Culhaci,[146] the New South Wales Court of Appeal observed:
[146][1998] NSWCA 88.
A plaintiff must establish, by evidence and not assertion, that there is a real danger that, by reason of the defendant absconding or removing assets out of the jurisdiction or disposing of assets within the jurisdiction, the plaintiff will not be able to have the judgment satisfied if successful in the proceedings. There has been much debate as to the precise degree of risk which must be shown: see generally Patterson. What is clear is that mere assertions that the defendant is likely to put assets beyond the plaintiffs reach will not be enough.[147]
[147]Ibid 8 (citations omitted).

16.These passages were approved by Warren CJ and Santamaria JA in Trkulja v Efron (t/as Efron & Associates).[148]
[148][2014] VSCA 76 [28]–[30].
17.In relation to the specific considerations related to the principles referred to above, although an interlocutory freezing order is functionally similar to an interlocutory injunction, the basis for these orders is distinct. The principal purpose of an interlocutory injunction is to preserve the status quo pending trial of the plaintiffs’ legal or equitable right. The foundation of such relief is in equity. In considering whether to grant an interlocutory injunction, the Court considers, inter alia, whether the balance of convenience weighs sufficiently in favour of an intrusion against the rights of the respondent.
18.However, the principal purpose of an interlocutory freezing order is to prevent a frustration of the Court’s processes by obviating the risk that a respondent who is a prospective judgment debtor may dispose of or dissipate, amongst other things, assets pending determination of the applicant’s claim at trial. Here, pertinent considerations addressed as part of the ‘balance of convenience’ in the setting of an interlocutory injunction application are assimilated into a more global enquiry as to whether the Court should make the interlocutory order sought so as to prevent the possibility of an eventual frustration of the subject judicial processes.
19.This point was made by Campbell J in Davis v Turning Properties Pty Ltd:[149]
[149](2005) 222 ALR 676.
One consequence of a Mareva order not being a species of injunction is that, in deciding whether a Mareva order should be granted, the court does not operate in the conceptual frame, appropriate to decisions about whether to grant an interlocutory injunction, of enquiring whether there is a serious question to be tried, and, if so, where the balance of convenience lies. Rather, the court adopts the conceptual frame used for other interlocutory decisions, of enquiring whether there is prima facie evidence of those facts which are the basis for the grant of the particular interlocutory relief in question and a reasonably arguable basis for any question of law involved.[150]
[150]Ibid 687 [37] (Campbell J).

20.Accordingly, there are two principal considerations for the Court in deciding whether to grant this discretionary relief in this matter:
(a)Whether the plaintiffs have established a prima facie case in respect of their identified cause(s) of action against the defendants with a sufficient likelihood of success at trial on the facts as currently presented to found the asserted basis for the relief sought, taking into account the balance of convenience like considerations referred to in (b) below, the risk of disposal or dissipation, and any other related factors which require consideration; and
(b)Whether there is a reasonable possibility, risk or danger, in contrast with an unreal or fanciful one, that the defendants’ assets will be removed from the jurisdiction or otherwise disposed of or dissipated, such that the plaintiffs, if successful in the proceeding, will be, or are, at risk of being unable to have their judgment satisfied.

21.In addition, the Court will not make a freezing order unless the applicant is prepared to offer an undertaking as to damages similar to the undertaking kind required in an application for an interlocutory injunction.[151]

[151]Third Chandris Shipping Corp v Unimarine SA [1979] QB 645 at 669 (Lord Denning MR).

Accordingly, on an ex parte application seeking a freezing order it is incumbent upon the applicant to make full and frank disclosure of all material matters known to that party or which would have been known to that party if it applied reasonable diligence. Those obligations include:

(a) the applicant has an obligation to make full and frank disclosure of all material facts;[152]
[152]Redwin Industries Pty Ltd v Feetsafe Pty Ltd [2002] VSC 427, [8]; Brink’s-MAT Ltd v Elcombe & Ors [1988] 3 All ER 188 at 192 cited with approval in Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [23].

(b) the disclosure must include matters which would have been raised by the respondent in their defence if they had been present;[153]
[153]Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [20].

(c) it is for the Court and not the applicant to decide what is a material fact requiring disclosure;[154]
[154]Brink’s-MAT Ltd v Elcombe & Ors [1988] 3 All ER 188 at 192 cited with approval in Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [23].

(d) the applicant must make proper enquiries before the making of the application, the extent of which enquiries depends on the circumstances of the case;[155]
[155]Brink’s-MAT Ltd v Elcombe & Ors [1988] 3 All ER 188 at 192 cited with approval in Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [23].

(e) the applicant has a duty not only to disclose material facts that are known but material facts which the applicant would have known if they made appropriate enquiries;[156]

(f) if the applicant fails in its duty to disclose all material facts, the usual outcome will be to discharge the freezing order, regardless of whether the non-disclosure is deliberate or innocent;[157]

(g) if the freezing order is discharged due to the applicant’s failure to make full and frank disclosure, the applicant may still apply for a further freezing order.[158]

[156]Brink’s-MAT Ltd v Elcombe & Ors [1988] 3 All ER 188 at 192 cited with approval in Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [23].

[157]Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [21]; Brink’s-MAT Ltd v Elcombe & Ors [1988] 3 All ER 188 at 192-193 cited with approval in Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [23].

[158]Westpac Banking Corporation v Hilliard and Ors [2001] VSC 187, [22].

The defendants submit that the plaintiff knowingly failed to disclose a number of material matters including:

(a) that the funds advanced by the NAB and the equitable mortgages referred to above were applied to purchase the three subject Lots of land and fund the construction of six apartments at 13 Wilson Street, Brighton;

(b) that a judgment obtained by the plaintiff led to the ninth defendant becoming insolvent;

(c) that the sum which the plaintiff asserts is owing to it under the construction contract, which is the basis of the plaintiff’s claims in the VCAT proceeding(namely $750,810),[159] is in the VCAT Proceeding, the subject of defences and counterclaims which raise extensive defences and cross-claims based upon incomplete contract works, defects, and delay giving rise to liquidated damages and damages claim arising from loss of profit flowing from a claim that the plaintiff wrongfully terminated the building contract;
[159]Affidavit of Paritsi, 7 February 2020, [15].

(d) that, in the context of the contested building claims at VCAT, there was a cross claim against it by the ninth defendant for liquidated damages in the sum of $296,400[160] and at no stage during the course of the construction contract had the plaintiff sought any extensions of time which would have entitled it to an extension of time for completion under construction contract;
[160]Second El-Hissi Affidavit, [60], Exhibit ‘OEH-2’.

(e) that the ninth defendant served a breach notice on the plaintiff including, relying upon alleged breaches including failure by the plaintiff to achieve practical completion by 22 December 2018 at which point the proprietor alleged that the plaintiff was approximately seven months late in completing the works under the building contract;

(f) that ninth defendant maintained that the plaintiff’s Suspension Notice issued in respect of the construction contract breached the provisions of both the Building and Construction Industry Security of Payment Act 2002 (Vic) and the construction contract itself;[161]
[161]VCAT proceeding: Ninth Defendant’s Defence and Counterclaim, [31(e)].

(g) that the ninth defendant asserted that under the construction contract ‘Net Variations’ claimed by the plaintiff, as builder, were invalid in the sum of $638,065;

(h) the ninth defendant’s defences and counterclaims against the plaintiff, which were clearly articulated and notified in the ninth defendant’s Points of Defence and Counterclaim in the VCAT proceedings;[162]
[162]Second El-Hiss Affidavit, Exhibit ‘OEH-2’.

(i) that the transfer of a NAB mortgage registration number AN384675L over Lots 1, 5 and 6 to the fourth defendant on 9 January 2020[163] was for consideration of $796,426.00 paid by NAB in consideration for the transfer of its mortgage;[164]
[163]Paritsi Affidavit, [32(a)].
[164]Paritsi Affidavit, Exhibit ‘PP-21’.

(j) that between 10 January 2020 and 13 January 2020, the fourth defendant, by mortgagee power of sale, transferred Lots 1, 5 and 6 for valuable consideration to the fifth, sixth and seventh defendants in circumstances where:[165]
[165]Paritsi Affidavit, [3(d)], [32(e) and (f)], Exhibit ‘PP-21’.

(i) it was entitled to sell Lots 1, 5 and 6 as mortgagee in possession (due to the default of the ninth defendant occasioned by the making of the VCAT freezing order), and this entitlement arose under the NAB Mortgage and Memorandum of Common Provisions AA1791;[166] and
[166]Second El-Hissi Affidavit, [21]-[22], Exhibit ‘OEH-15’.

(ii) the plaintiff knew, by reason of material filed in the VCAT Proceeding, that there were four equitable mortgagees in respect of the subject Lots whose interests were secured by charges contained in General Security Deeds and noted in caveats lodged on the titles of Lots 1, 5 and 6;[167] and

(k) the transfer of the NAB mortgage for valuable consideration and the existence of four equitable mortgagees whose interests were noted in caveats on the relevant titles.

[167]Second El-Hissi Affidavit, [19(h)-(j)], Exhibits ‘OEH-9-12 and 14’

Conclusion – material non-disclosure

The above non-disclosures, which were not squarely denied by the plaintiff in the filed materials or submissions on the return of its application to extend the freezing order, are material, including because their absence creates an incomplete and distorted picture of the strength of the plaintiff’s asserted claims for recovery of $1,085,156.37 (including interest and costs) which is the asserted subject and value of the alleged opportunity which the plaintiff argues it is entitled to protect under the construction contract. Put another way, it is this prospective recovery which the plaintiff claims underpins its loss of opportunity claim, which it seeks to secure by the freezing orders the plaintiff applies to extend.[168]
[168]Plaintiff Submissions, 10 February 2020, [10].

Further, the plaintiff as the moving party in the VCAT Proceeding, is therefore aware of the many matters of defence and cross-claim which were raised against the plaintiff’s claim in the sum of $850,142.15 (plus interest and costs) before that Tribunal.

In seeking to so traverse the defendants’ criticisms in relation to non-disclosure the plaintiff, in my view, in substance accepted that the matters identified by the defendants were known to the plaintiff at the time of its ex parte application for freezing orders but were not disclosed. That acceptance was I consider conveyed by the plaintiff not denying its knowledge of the non-disclosures relied on by the defendants, but instead seeking to deflect the defendants criticisms and attempting to answer the defendant’s non-disclosure allegations by arguing that the undisclosed matter relied on were not relevant.[169]
[169]The plaintiff objected to reliance by the first defendant group on affidavit material filed in the VCAT proceeding, on the basis that such reliance was a breach of the prohibition in Harman. However the plaintiff itself also relied on matters the subject of affidavit material filed in the VCAT proceeding, and further the plaintiff by its claims in this proceeding, rendered the claim and conduct of the parties in the VCAT proceeding relevant in this proceeding. The plaintiff’s Harman based objections were not upheld.

The plaintiff submits there was no need for it to bring to the Court’s attention at the time of the ex parte application for a freezing order on 11 February 2020 the matters the defendants argue were material yet undisclosed and the plaintiff also submits that I was not required to traverse the matters pleaded in the ninth defendant’s Points of Defence and Counterclaim in the VCAT proceeding.[170]
[170]Plaintiff Submissions, 10 March 2020, [5]-[6].

The plaintiff also submits that because the ninth defendant has been wound up, the plaintiff has been deprived of the opportunity to prosecute its claims at VCAT, and if successful in those claims attach the assets of the ninth defendant. As a result the plaintiff submits that the relative merits of the plaintiff and the ninth defendant’s respective cases at VCAT are no longer to the point. Therefore the plaintiff argues that there is no need for the plaintiff to bring the details of the ninth defendant’s defences and cross-claims at VCAT to the attention of the Court.

The plaintiff further submits that even if there was a non-disclosure of relevant facts, such non-disclosure is not sufficiently material to justify or require discharge of the freezing order, alternatively in the events which have occurred subsequent to the ex parte application, the Court should exercise its discretion to continue the freezing order.

Accepting that at this point in these proceedings there are many limitations upon the Court’s ability to evaluate the strength of the parties’ respective cases at VCAT, it is nevertheless possible, and relevant, to make an assessment, albeit necessarily superficial and unreliable, as to whether or not the plaintiff can identify viable causes of action and establish that those causes of action are at least reasonably arguable. In this matter, because of the way in which the plaintiff founds its claims in its Indorsement of Claim and on this application, the strength of the plaintiff’s claim at VCAT and the likely extent of its recovery, and therefore necessarily the strength of the defendant’s defences and counterclaims at VCAT are, in my view, relevant in this application. The non-disclosures referred to, in particular those pleaded by way of Points of Defence and Counterclaim at VCAT are capable of substantially impugning the plaintiff’s claims therein and substantially reducing the plaintiff’s claim in the sum of $850,142.15, and are clearly material, known to the plaintiff and of obvious materiality.

Accordingly, I reject the plaintiff’s assertions that it is not relevant for this Court to be informed in relation to not only the nature of the plaintiff’s claims at VCAT but also the defences and cross-claims in the VCAT Proceeding between the plaintiff and the ninth defendant.

At the ex parte stage of this application the plaintiff did not disclose material matters, referred to above at paragraph [160(a) to (j)] and [161], including matters such as the existence of the first mortgage security held by NAB and the registered equitable securities and associated caveats in relation to the Lots in issue, or the consideration which passed from the fourth defendant to NAB on the transfer of the NAB’s registered first mortgage. These matters would, I consider, have been easily ascertained by appropriate searches conducted by the plaintiff.

Neither did the plaintiff disclose at the time of its ex parte application for a freezing order, matters including the overall objective facts in relation to the dispute between it and the ninth defendant under the construction contract to construct the improvements on Lots 1, 5 and 6 or the whole picture in relation to its claims at VCAT, which involved substantial pleaded defences and counterclaims against the plaintiff.

The question then arises as to what consequence should attach to the plaintiff’s failure to comply with its duty to make full and frank disclosure at the time of the ex parte injunction in this matter. Ordinarily if material non-disclosure is established the Court will be astute to ensure that the successful ex parte applicant does not maintain any advantage which may have arisen as a result of non-disclosure at the time the interim orders in the matter were made.

Further, an evaluation is ordinarily required as to whether the level of materiality of the matter or matters not disclosed, require discharge of the order so obtained, possibly without the need for any further consideration of other aspects of the plaintiff’s application for continuation of the subsisting freezing order, or whether the non-disclosure is more appropriately taken into account as one of a number of factors informing the extension or the vacation of the order earlier made on an ex parte basis.

Although not decisive in this regard, if the material non-disclosure was not innocent, in that it was sufficiently clear that the material matter or matters not disclosed were known to the applicant at the time of the ex parte application, that is likely to be an important consideration. The Court however retains a discretion notwithstanding establishment of material disclosure which would be sufficient to justify discharge of the earlier ex parte order.[171]
[171]Brink’s-MAT Ltd v Elcombe & Ors [1988] 3 All ER 188 at 193.

In this particular matter I have earlier held that the plaintiff has not in any event sufficiently established a reasonably arguable case in relation to any of its asserted causes of action. The injunction which the plaintiff seeks to continue will therefore be discharged on that basis alone.

I consider that the plaintiff’s various established material non-disclosures referred to above, are not alone sufficient to justify immediate discharge of the earlier ex parte order on the basis of material non-disclosure.

In coming to this conclusion I have accepted and taken into account, in the plaintiff’s favour, the plaintiff’s belief and explanation that because the assets of the ninth defendant had been dealt with and the ninth defendant has been wound up and the plaintiff has been deprived of the opportunity to prosecute its claims at VCAT, the relative merits of the plaintiff and the ninth defendant’s case at VCAT were ‘no longer to the point’.

Further, I accept and have taken into account in the plaintiff’s favour, that until the filing and service of the first defendant group’s affidavit material detailing the underlying securities, the said assignments of the relevant securities for valuable consideration and the details of the amounts secured by the equitable mortgages and charges, the plaintiff was unaware of these matters or considered that it could not rely upon those matters because of the Harman rule.

Had it been required to do so, I would however have factored the above identified non-disclosures heavily against the plaintiff in the exercise of my discretion.

First defendant group’s submissions regarding security for costs

By Summons dated 18 February 2020 the first defendant group seeks security for costs in the amount of $150,000 in accordance with r 62.02 of the Rules.

The first defendant submits that it is uncontroversial that the plaintiff has insufficient assets in Victoria to pay the costs of the defendants if ordered to do so. The first defendant group points to an ASIC search of the plaintiff which reveals that it has share capital of $57,000 fully paid up, and does not own any real estate. Further, the first defendant puts forward a PPSR Search Certificate which shows that there are 28 registered security interests affecting the plaintiff’s chattels property.

The first defendant group submits that the power to make the order having been enlivened, the Court should exercise its discretion to make such order sought for security for costs as there is no evidence that the making of such an order would stifle the plaintiff’s claim. Conversely the first defendant group submits that the absence of an order securing its costs may be unjust to the first defendant group because it would create a real risk of the defendants’ prospective legal costs being unsatisfied.

The first defendant group further submits that the plaintiff has failed to establish a strong prima facie case, and relies in this regard on its submissions with respect to the discharge of the ex parte freezing order.

In the circumstances the first defendant group submits that there is no issue of stultification of the plaintiff’s claim, and the application for security for costs is not tainted by delay.

The first defendant group estimates its costs and expenses likely to be incurred by it up to and including trial in the sum of $195,960.[172] The first defendant group submits that this estimate is however conservative, is ‘largely prepared on the basis of an assessment of costs on a standard basis’ as opposed to an indemnity basis,[173] and could easily be exceeded given the number of defendants involved in the proceeding.[174]
[172]See First El-Hissi Affidavit, [23].
[173]First El-Hissi Affidavit, [23].
[174]First El-Hissi Affidavit, [25].

The first defendant group also submits that in the event security for costs was limited up to mediation, their estimated taxed costs and expenses up to and including mediation would be in the sum of $93,500.[175]
[175]T85.16-T86.30.

Second defendant group’s submissions regarding security for costs

By Summons dated 18 February 2020 the second defendant group sought security for costs against the plaintiff in the amount of $100,000.

In support of their security for costs application, the second defendant group submits that the plaintiff has failed to demonstrate a strong prima facie case and relies on the same matters in relation to continuation of the freezing orders. The second defendant group also adopt the submissions of the first defendant group in their application for security.

The second defendant group estimates its taxed costs and expenses in the proceeding to be in the sum of $127,629.30.[176]
[176]See Affidavit of Mark Halse sworn 24 February 2020 (Halse Affidavit), [19].

The second defendant group also submits that should costs be secured only up to mediation in this proceeding, their costs and expenses are estimated to be in the amount of $69,000.[177]
[177]T114.27-T115.8.

Plaintiff’s submissions regarding security for costs

The plaintiff submits that it is premature for the Court to consider an order for security for costs in circumstances where the parties have not exchanged pleadings, and further submits that if its submissions are accepted, neither the first or second defendant group have disclosed a defence to the plaintiff’s claims.

In the alternative the plaintiff submits that security for costs should be awarded only up to mediation in this proceeding and relies on the affidavit evidence of Mr Lettieri, sworn 27 February 2020 which estimates costs for the first defendant group up until the end of mediation at the amount of $39,912, plus GST, and cost for the second defendant group up until the same point at $16,516, plus GST.[178]
[178]See Affidavit of Pietro Lettieri sworn 27 February 2020 (Lettieri Affidavit), [4]-[5].

The plaintiff further submits that the costs sought by the first and second defendant group are based on full indemnity for all costs, and are therefore impermissible.[179]
[179]Trailer Trash Franchise Systems Pty Ltd v FM Fascia & Gutter Pty Ltd [2017] VSCA 293 [63]–[65].

Conclusion – Defendants’ Security for Costs Applications

On the defendants’ security for costs applications the plaintiff’s only submission in relation to liability is that at present, and in particular before the defendants have pleaded in these proceedings, the Court is not in a position to assess the plaintiff’s prospects of success.

I reject the plaintiff’s submission that at this point it is not possible to sufficiently assess the merits of the plaintiff’s case and be able to factor that evaluation into the considerations informing the Court’s exercise of discretion as to whether, in the circumstances, security for costs should be ordered against the plaintiff. An assessment, limited in the ways explained, has been made as outlined above in relation to the plaintiff’s application to have the present freezing orders continued.

On the basis of the matters referred to above, I consider that the plaintiff is liable to provide security for costs at this point in the proceedings, including because the plaintiff has not contested that prima facie it has insufficient assets to satisfy an order for costs made in favour of the defendants and because in my view the plaintiff has not demonstrated that it has a reasonable arguable case in these proceedings.

However I do not accept that it is just or appropriate at this early stage of this proceeding to order security for costs up to trial. The more appropriate allowance, in my view, is for security for costs to be provided by the plaintiff on each of the two defendant group’s applications, but only up to a mediation in this matter and only to the lower level of cost estimated in the detailed cost estimate put forward by the plaintiff in the Affidavit of Pietro Lettieri sworn 27 February 2020. Accordingly I shall order that the plaintiff provide security for the costs of the first defendant group up to and including mediation, in the sum of $39,000 and in respect of the costs of the second defendant group up to and including mediation, in the sum of $16,000.[180]
[180]Likely cost to mediation as assessed in Affidavit of Pietro Lettieri, 27 February 2020, reduced by rounding off and by not including any additional sum on account of Goods and Services Tax).

Decision
Plaintiff’s Application to further continue existing freezing order

For the above reasons I shall order that the freezing orders made against the first to eight defendants on 11 February 2020, and extended on 17 February 2020, 28 February 2020 and 13 March 2020 will be discharged.

Defendants’ applications for Security for Costs

For the above reasons I shall order that the plaintiff provide security for costs by way of payment into Court, or other form acceptable to the defendants, in the sum of $39,000 in relation to the costs of first defendant group, and in the sum of $16,000 in relation to the costs of the second defendant group. Both sums are in respect of the defendant parties’ costs up to and including mediation in these proceedings.

Orders

For the above reasons I shall order that:

(a) The plaintiff’s Summons dated 7 February 2020 is dismissed.

(b) The freezing orders made against the first to eight defendants on 11 February 2020, and extended on 17 February 2020, 28 February 2020 and 13 March 2020, be discharged.

(c) The plaintiff’s undertakings provided in relation to the orders made from time to time referred to in (b) above, are discharged.

(d) the plaintiff provide security for the costs of the first defendant group in the sum of $39,000 up to and including the time of the mediation in this proceeding;

(e) the plaintiff provide security for the costs of the second defendant group in the sum of $16,000 up to and including the time of mediation in this proceeding; and

(f) in default of compliance by the plaintiff with the orders in (c) and (d) above the plaintiff’s proceeding against the defendants concerned, be stayed.

I shall afford the parties the opportunity on or before 4:30pm on Tuesday 21 April 2020, to provide the proposed form of final orders and to make short written submissions, confined to no more than one page, in relation to the costs associated with the determination of the plaintiff’s application by Summons dated 7 February 2020 and the first to eighth defendants’ applications by Summons dated 18 February 2020, if necessary.

For the potential assistance of the parties I indicate that, as a preliminary position and subject to receiving any submissions as to costs the parties may wish to file by 4:30pm on Tuesday 21 April 2020, I am presently disposed to order that:

(a) the plaintiff pay the first to eighth defendants’ costs of and associated with its application brought by way of Summons dated 7 February 2020 together with any reserve costs, on a standard basis;

(b) the first defendant group’s costs of and associated with the its application for security for costs brought by way of Summons dated 18 February 2020 together with any reserve costs, on a standard basis; and

(c) the second defendant group’s costs of and associated with its application for security for costs brought by way of Summons dated 18 February 2020 together with any reserve costs, on a standard basis.

[2020] VSC 166

17 April 2020