Badenport Constructions (WA) Pty Ltd v Ad Engineering Pty Ltd - [2009] WADC 142

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: BADENPORT CONSTRUCTIONS (WA) PTY LTD -v- AD ENGINEERING PTY LTD [2009] WADC 142

CORAM: GROVES DCJ

HEARD: 8 SEPTEMBER 2009

DELIVERED : Delivered Extemporaneously on 8 SEPTEMBER 2009 typed from tape and edited by his Honour Judge Groves

FILE NO/S: CIV 2650 of 2009

BETWEEN: BADENPORT CONSTRUCTIONS (WA) PTY LTD
Plaintiff
AND
AD ENGINEERING PTY LTD
Defendant

Catchwords:

Practice and Procedure - Order 52A freezing order - Whether a "good arguable case" - Risk that assets may be disposed of dealt with or diminished in value

Legislation:

Nil

Result:

Freezing Order granted

Representation:

Counsel:

Plaintiff: Mr C S Gough
Defendant: Mr A W Buchan

Solicitors:

Plaintiff: Minter Ellison
Defendant: Hotchkin Hanly

Case(s) referred to in judgment(s):

Abigroup Contractors Pty Ltd v River Street Developments Pty Ltd & Ors [2007] VSC 478
DRD Australasia APS v Stratton (No 2) [2008] WASC 76
Frigo v Culhaci [1998] NSWCA 17
Harlap v Rosepoint Nominees Pty Ltd [2009] WASC 241
Jackson v Sterling Industries Ltd (1987) HCA 23
Redville Holdings Pty Ltd v Four Fingers Pty Ltd [2007] WADC 25

GROVES DCJ: AD Engineering Pty Ltd ("the defendant") owns properties at 11 Cambridge Street and 32 Harrogate Street in West Leederville, being the properties described in Certificates of Title 2210, Folios 560 and 562 ("the properties"). Badenport Constructions (WA) Pty Ltd ("the plaintiff") is a building company.
On about 6 December 2007, following a series of discussions between representatives of the plaintiff and Mr David Watkins, a director of the defendant, the parties executed a contract for building works to be undertaken on the properties. Work subsequently commenced and the plaintiff completed works up to the second progress claim due under the contract.
On 19 February 2008 the defendant, by its building superintendent, gave notice to the plaintiff purporting to suspend the contract. Between February 2008 and October 2008 there were a number of communications between the parties, the general thrust being to the effect that the defendant wished to put alternative funding arrangements in place and would recommence work as soon as possible.
On 24 October 2008 the defendant's superintendent emailed the plaintiff requesting termination of the contract in terms of cl 45 giving the reason that:
"Due to the increasing stringent requirements by financial lending institutions, he has been unable to secure further funding for Cambridge Street. In view of the worsening global financial situation, he has decided not to develop the property until he knows what lies ahead for the Perth marketplace."
By letter dated 10 November 2008 the plaintiff responded, stating that:
"Badenport Construction does not accept that the principal's (the defendant's) inability to secure funding for the project constitutes 'frustration' for the purpose of clause 45 of the contract. We hereby request that the principal expressly confirm that it accepts that it is bound by the terms of the contract and is willing and able to proceed with the contract and fulfil all of its obligations under the contract. If the principal fails to confirm within seven days of the date of this letter that it is willing and able to fulfil all of its obligations under the contract, Badenport Construction will have no option than to accept the purported termination of the contract and to claim damages for breach of the contract, including loss of profit."
Since that date, so I am informed from the Bar table, without prejudice negotiations have been taking place. I am not informed as to the content or to the stage reached of those discussions.
By Writ of Summons filed in the District Court on 7 September 2009 the plaintiff, sues the defendant for damages, for breach of contract and/or damages for wrongful termination of contract.
At the same time, the plaintiff filed a chamber summons for a freezing order pursuant to O 52A of the Rules of the Supreme Court 1971. The application is supported by the affidavit of Ante Frank Jujnovich, a director of the plaintiff, with annexures. Also filed was an undertaking signed by Mr Jujnovich purporting to be on behalf of the plaintiff, a certificate of the plaintiff's solicitor on an urgent chambers application, and a minute of the orders sought, described as a Penal Notice.
The application came before me at 10.30 am today. Although often such an application would be ex parte, counsel did appear on behalf of the defendant (although its solicitors are yet to enter an Appearance). The application for a freezing order is opposed. After hearing argument, I indicated that I would reserve my decision until 2.30 pm this afternoon.
From the Bar table I was told that settlement on the sale of the properties was to take place at 12.15 pm today. Upon consideration I did, in those circumstances, make the orders sought by the plaintiff in terms contained in the Penal Notice. That was at 11.25 am. I indicated then that I would deliver ex tempore reasons at 2.30 pm. These then are my reasons for making the orders.

Jurisdiction

Defence counsel raised the jurisdiction of this Court to make the orders. The issue was not argued forcefully. Reference was made to Harlap v Rosepoint Nominees Pty Ltd [2009] WASC 241. That case is not on point and offers no assistance.
Section 55 of the District Court Act 1969 does prescribe that the District Court:
"… or a District Court judge has, as regards any action or matter within its or his jurisdiction for the time being, power -
(a)to grant, and shall grant, in the action or matter such relief, redress or remedy, or combination of remedies, either absolute or conditional; and
(b)to make any order that could be made in regard to any action or matter, and shall in each such action or matter give such and the like effect to every ground of defence or counterclaim equitable or legal,
in a full and ample manner as might and ought to be done in the like case by the Supreme Court or a judge thereof."
Further, the District Court Rules 2005, Pt 1, r 6 provides that the Rules of the Supreme Court apply to and in respect of any case in the District Court.
The proceedings were commenced by writ in this Court (which distinguishes the situation from that in Harlap). I am satisfied that this Court does have jurisdiction insofar as an application under O 52A of the Rules of the Supreme Court is concerned.

The issues

There are two issues to be addressed.
1.Does the plaintiff have a "good arguable case" on the action commenced such that there is a sufficient prospect that it may get judgment? In light of the defendant's counsel's admission from the Bar table that there is a "good arguable case" I do not need to address that issue.
(2)Is there a danger that the assets of the prospective judgment debtor (the defendant) may be disposed of, dealt with or diminished in value?

Principles applicable

In the commentary on O 52A in Seaman, "Civil Procedure of Western Australia" at par 52A.0.8 it is stated:
"There is no basis for the exercise of the jurisdiction unless the risk or likelihood of dispositions intended to frustrate, or having the necessary effect of frustrating the plaintiff is shown, whereupon the sufficiency and strength of the plaintiff's case falls to be considered in the context of that risk: Perth Mint v Mickelberg [No 2] [1985] WAR 117 at 118".
Further, at par 52A.0.11 it is stated:
"A freezing order should be viewed as an extraordinary interim remedy because it can restrict the right to deal with assets even before judgment and is commonly granted ex parte. … Because the granting of the freezing order before judgment has a significant impact on the property of the person against whom, it is made and carries the sanction of contempt, it requires a high degree of caution by the court and should not be granted lightly: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 403-4".
Further on:
"In exercising the discretion to make the order, the court should have regard to difficulties which may be associated with the quantification and recovery of damages, pursuant to the undertaking as to damages, should it turn out that the order should not have been made: see Cardile (supra)."
"The plaintiff must show that the refusal of relief would involve a real risk that a judgment or award in his or her favour would remain unsatisfied."
"It is not a fatal obstacle to the granting of a freezing order that the applicant has little or no knowledge of the financial circumstances of the respondent, or that, perhaps with more diligence, something more might have been discovered, because commercial reality often requires an application for this relief to be brought quickly and without notice and before detailed inquiries can be made, otherwise, its very purpose could be frustrated: Commissioner of State Taxation (WA) v Mechold Pty Ltd (1995) 30 ATR 69 at 74."

The defendant's position

In opposing the application the defendant argues that there is no evidence before the Court upon which it could conclude that there is a real risk that the defendant will either abscond with the funds from the sale of the properties, or that it will frustrate any judgment ultimately obtained, or that it will dissipate or dispose of the proceeds of sale. The defendant says it is no more than "a mere assertion" which is made that the defendant will dispose of assets.
I was referred by counsel for the defendant to a number of authorities. They were Jackson v Sterling Industries Ltd (1987) HCA 23, Frigo v Culhaci [1998] NSWCA 17, Redville Holdings Pty Ltd v Four Fingers Pty Ltd [2007] WADC 25. That was a decision of his Honour Judge Keen of this Court which preceded the introduction of O 52A into the Rules of the Supreme Court. Abigroup Contractors Pty Ltd v River Street Developments Pty Ltd & Ors [2007] VSC 478 and DRD Australasia APS v Stratton(No 2) [2008] WASC 76.
In the time available I have only had time to briefly peruse those authorities. Suffice to say that each case has to be judged on its own particular facts relevant to that case and that no two cases are ever exactly the same. But nevertheless, the principles generally enunciated in those cases reflect the commentary as I have indicated from Seaman's Civil Procedure.

The plaintiff's concern

What then is the basis for the plaintiff to be concerned that its prospective judgment in the action may be thwarted or frustrated by reason that the defendant may dispose of, or deal with its assets or that they may diminish in value? The affidavit in support of the application deals, as far as possible, with such matters.
"14.For the reasons stated below I believe that until about March 2009 the defendant had traded as a company by the name or style as A D Engineering which manufactured both fixed and transportable electronic traffic management signals.
15.From my discussions with Mr Watkins on or prior to August 2009 I believe that the defendant in these proceedings has sold all of the assets of the business of A D Engineering save and except the land that is otherwise referred to in this affidavit.
16.In support of the belief deposed to above I performed an internet search on A D Engineering and was directed to the website of A D Engineering International Pty Ltd which among other things states that A D Engineering was founded in 1979. Attached hereto and marked AFJ9 is a true and correct copy of the home page for the website for which I referred. I note that the address of the website of which I am referring is and on the website Peter Harris is listed as being the Managing Director of the company. In this regard I refer to the company search attached hereto in respect of A D Engineering International Pty Ltd and note that Peter Harris is stated to be a Director of that company.
17.I am instructed by my solicitors, Minter Ellison, that on or about 3 and 4 September 2009 they had discussions with Hotchkin Hanly solicitors who act for the defendant. During those discussions I am informed by Minter Ellison, and believe, that they were told by Hotchkin Hanly that either:
(a)Hotchkin Hanly did not have information that would enable them to discuss the financial position of the defendant; or
(b)Hotchkin Hanly did not have instructions to discuss those matters with Minter Ellison.
18.On that basis of the facts deposed to above I believe that Mr Watkins is in the process of finalising the commercial enterprises of the defendant and the only asset now remaining of the defendant is the land otherwise referred to in this affidavit.
19.I am informed by Minter Ellison and believe that on or about 1 September 2009 they were advised by Hotchkin Hanly that the defendant has sold the land otherwise referred to in this affidavit and was about to settle on that contract.
20.I believe that given the defendant is no longer trading and is otherwise, to the best of knowledge, not engaged in any other commercial enterprise, it is reasonable to assume that the defendant has no reason to retain the funds which are surplus upon the settlement of the land otherwise referred to in this affidavit.
VALUE OF PROPERTY AND SUPPLUS
21.I have accessed data relating to the properties and have ascertained that they were purchased in 2003 for $528,000.00 and $631,000.00. I have also accessed the current Valuer General valuations for the 2 properties which show that as at 22 June 2009 the Valuer General has valued each property at $2,970,000.00. I have been informed by Minter Ellison and believe that they were informed by Hotchkin Hanly that they do not have instructions to release the sale prices to Minter Ellison.
LOSS OF PROFITS
22.The Plaintiff's profit margins on different jobs vary but on average are about 15%.
23.On the job the subject of these proceedings the Plaintiff expects to have slightly lower profit margin than average. Although the precise profit margin can not now be calculated at short notice I believe $500,000.00 represents a fair estimate of that profit."
The Penal Notice does not seek to stall the settlement of the sale of the properties. It provides for payment on settlement of monies owed to the mortgagee, the National Australia Bank.
Nor does it prohibit payment of an amount for legal expenses and nor does it prohibit the defendant from dealing with, or disposing of any of its assets in the ordinary and proper course of its business, including paying business expenses bona fide and properly incurred.
At par 9 of the Penal Notice it is stated that:
"This order will cease to have effect if you the (defendant):
(i) pay the sum of $500,000.00 into court, or
(ii)pay that sum into a joint bank account in the name of its solicitor and the solicitor for the plaintiff, as agreed in writing between them, or
(iii)provide security in that sum by a method agreed in writing with the applicant, to be held subject to the order of the court.
In summary, as to its concerns the plaintiff says:
(i)the defendant is no longer trading;
(ii) the properties and net proceeds from the sale is, so far as the plaintiff is aware, the only known remaining asset of the defendant (I interpose here to say that it is a notorious fact that cash may be more easily disposed of than title to real estate)
(iii)the properties are being sold (and by now settlement may have been effected)
(iv)by the proposed orders the secured creditor is being protected;
(v)the plaintiff only seeks sufficient funds to meet a reasonable estimate of the prospective judgment amount to be retained;
(vi)there is no evidence as to what, if any, impact or adverse circumstances may arise as a consequence of the making of the order (it is suggested that funds will simply be in a holding pattern, subject to further order of the court)."
In my opinion and exercising the high degree of caution required, I am satisfied that those matters, items (i), (ii), and (iii) as I have enunciated them, are sufficient to enliven the court's jurisdiction to make the orders sought.
I am satisfied that in those circumstances that there is a danger that a prospective judgment in favour of the plaintiff will be wholly or partly unsatisfied because the assets of the defendant may be disposed of, dealt with, or diminished in value.
Given that the application has been brought on quickly, since it was ascertained on 1 September that the properties were being sold, it is understandable that the plaintiff would not have any more knowledge of the defendant's financial circumstances and thus, the necessity to preserve a sufficient amount from the sale proceeds to meet a prospective judgment.
Inquiries made by the plaintiff's solicitors of the solicitors acting for the defendant failed to indicate what, if any other assets the defendant has. The defendant was uncooperative insofar as that inquiry was made, but I accept that there may have been difficulties getting instructions from Mr Watkins, the director of the defendant.
I was informed, again from the Bar table, by the defendant's counsel that Mr Watkins is currently overseas and has been for some time, but that he is due to return to Perth next week. Detailed instructions might then be obtained from him.
They are my reasons for making the orders, sought by the chamber summons.
What I propose, subject to any observations which counsel may wish to make, is to bring the matter back before me on Friday 29 September 2009 at 9.30 am if it is thought that more information might be put before the Court, or the defendant might wish to put information before the Court, so that the terms of the Orders can be reviewed.