Bennett & Fisher Ltd v Summers, A.G

[1994] FCA 102

BENNETT AND FISHER LIMITED and OTHERS v. ANTHONY GILBERT SUMMERS and OTHERS
No. SG3033 of 1993
FED No. 102/94
Number of pages - 8
Mareva Injunction

COURT

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIAN DISTRICT REGISTRY
GENERAL DIVISION
VON DOUSSA J

CATCHWORDS

Mareva Injunction - application to vary or discharge - proceeds of realisation of assets held in solicitors' trust accounts - respondents seeking to use the proceeds to pay various creditors and to fund their defence to serious allegations of fraud and breach of duty made in these proceedings - personal respondents overseas - failure by respondents to disclose financial transactions since 30 June 1992 - applications refused.

HEARING

ADELAIDE
#DATE 10:2:1994

Counsel for the Applicants: Mr B Lander QC and Mr G Muecke

Solicitor for the Applicants: Baker O'Loughlin

Counsel for the 1st and 3rd
Respondents: Mr J Mansfield QC

Solicitor for the 1st and 3rd Respondents: Johnson Winter and Slattery

Counsel for the 2nd Respondent: Mr J Sulan QC and Mr J Clarke

Solicitor for the 2nd Respondent: Cowell Clarke

ORDER

THE COURT ORDERS THAT:

1. Application to vary or discharge Mareva injunction and other orders made on 30 July 1993 dismissed.

2. Question of costs reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

Application to set aside or vary "Mareva" injunction.
VON DOUSSA J This is an urgent matter as the trial date has already been fixed. The parties need to know the outcome so that preparations for trial may move ahead. I have formed a firm view about the fate of the application. In the circumstances I think I should announce my decision now, and do my best to give reasons without reserving my decision.

1. The application is to discharge, or in the alternative, vary, orders that have been in place since 30 July 1993. The precise terms of the applications are to be found in correspondence rather than a notice of motion. The orders of 30 July 1993 confirmed earlier orders that had been made by O'Loughlin J on 2 July 1993. The orders constitute Mareva injunctions which, to use a colloquial expression, freeze assets of the respondents within Australia.

2. At an early point in time - in August 1993 I think it was - an application was made to vary the injunctive orders to permit certain outstanding debts to be paid. The application to vary was supported by affidavit material from Mr Ellis, among others, and there is a schedule numbered 1 to Mr Ellis's affidavit which sets out debts that were then outstanding.

3. Over the course of time those debts have increased in amount so that there is now a substantially greater sum owing to the Australian Tax Office and there are greater amounts owing to accountants. In addition over time the respondents have incurred legal fees particulars of which have been given in a hand-up document by Mr Lander QC this morning. These particulars may not be complete but they indicate figures which have been nominated by the solicitors for the respondents as the amounts due to them.

4. In August 1993, and at other directions hearings since, when the question of the Mareva injunction has arisen, arguments have been put by counsel for the respondents that cash deposits, presently frozen by the Mareva orders, are needed to meet these debts, and to fund the ongoing defences of the respondents to these proceedings. In particular, it has been the desire of counsel for the respondents to have the orders varied in a way that will release certain moneys that are in the trust accounts of the respondents' solicitors. Particulars both of moneys going into the trust accounts, and going out, are also set out in hand-up documents that have been produced to the Court by Mr Lander this morning.

5. I do not propose to give in these reasons the precise figures for those amounts or to go into detail about them. I refrain from doing so for the reason that most of the information that is now before the Court about the assets of the respondents has come in by way of confidential documents, and if isolated figures are bandied about there is a risk that the significance of them will be misinterpreted by others who have not read the full material.

6. The present application is the culmination of a number of oral intimations made at directions' hearings that an application to vary or discharge the injunction would be made by the respondents when the necessary material was available. Mr Mansfield QC, who has appeared for the first and third respondents on this application in a very clear argument has contended that the Court should address the whole question of the Mareva injunction de novo on the material that is before the Court on this hearing. It should put aside the fact that there are already injunctions in place, and should determine afresh whether it is appropriate to have a Mareva injunction against the respondents, in particular, against those respondents for whom he appears. If not, he contends that the existing orders should be discharged in their entirety. In the alternative he argues that if the principles upon which a Mareva injunction should be made have been fulfilled, nevertheless there should be a variation of the orders to permit the payment of the Ellis schedule of debts, and ongoing accounting and legal fees that will be incurred in the course of defending the proceedings.

7. Mr Lander colourfully, but nonetheless succinctly, argued that the course which Mr Mansfield urges requires the Court to sit in appeal on its earlier judgment which imposed the Mareva orders. Technically, I think, there is force in that argument. I propose, however, to put technicality aside and look afresh at the evidence that is now before the Court.

8. The principles upon which a Mareva injunction is to be granted are common ground between the parties, and for the present purposes are sufficiently stated in a summary of the law by Gleeson CJ in Patterson v BTR Engineering (Aust) Limited and Others (1989) 18 NSWLR 319 at 321. The Chief Justice there said:
   

"Whatever doubts there may previously have been about the matter, the High Court of Australia has now determined authoritatively, for this jurisdiction, that orders preventing a defendant from disposing of his assets so as to create a situation in which any judgment obtained against him would not be satisfied, commonly referred to as 'Mareva injunctions', are now 'accepted as an established part of the armoury of a court of law and equity to prevent the abuse or frustration of its process in relation to matters coming within its jurisdiction': Jackson v Sterling Industries Ltd (1987) 162 CLR 612 per Deane J at 623; see also Riley McKay Pty Ltd v McKay (1082) 1 NSWLR 264 and Ballabil Holdings Pty Ltd v Hospital Products Ltd (1985) 1 NSWLR 155. The remedy is discretionary, but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that, by reason of the defendant's absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied."

1. In July 1993 there was a detailed statement of claim which made serious allegations of breach of duty and fraud in a number of transactions against, in particular, the first respondent, and asserted that by reason of knowledge there was a liability carrying through to the second and third respondents. There was affidavit material before the Court from a number of people, including an affidavit from a solicitor, Mr Slattery, that recited hearsay information that he had gathered from a number of directors of the applicant companies. Against this material, there was no defence. There was no answering material at all from any of the respondents. In that situation the Court proceeded first to make an interim injunctive order and then to confirm the terms of that order by way of interlocutory injunction on 30 July 1993.

2. The position is now somewhat different. There have been more recent affidavits dealing with the asset position of the respondents at different times. There are now on file defences from each of the groups of respondents which deny the allegations made against them and, in particular, deny the breaches of duty and fraud alleged against the first respondent.

3. Some of the hearsay information in Mr Slattery's affidavit has not been admitted on this hearing, and there is an affidavit from a solicitor, Ms Johnston, from the firm acting on behalf of the first respondent annexing a number of documents primarily directed to the most serious of the transactions referred to in the statement of claim, namely, the purchase by the Bennett and Fisher group of a property in Gilbert Place from Mrs Summers.

4. Mr Mansfield has taken the Court to those documents and has demonstrated that in relation to the apparently serious allegations of fraud that were made in relation to the Gilbert Place property, the documents now available to the Court do not bear out a number of the allegations that were established prima facie through Mr Slattery's affidavit. Indeed, documents now available from the directors of Bennett and Fisher would appear to put a different complexion upon that transaction.

5. When the matter was before the Court in July 1993 there was a strong prima facie case of at least equitable fraud made out against the first respondent in the Gilbert Place transaction. That picture of prima facie fraud has now disappeared with the change in the evidence.

6. In my view it is simply not possible on the state of the information before the Court to form a view one way or the other about those serious allegations of fraud in relation to the Gilbert Place property. Nevertheless, without going into the detail I consider there still remains a prima facie case in the relevant sense of a breach of duty - a technical breach of fiduciary duty in relation to that transaction.

7. There are other transactions to be considered. There are the allegations about the Elder's share transaction made in one of the earlier affidavits from an officer of the applicant companies to the effect that he was asked to back-date certain transactions. These allegations are not answered by affidavit material, although it is to be noted that the allegations of impropriety are denied in the defence. Many of the allegations made in the statement of claim about transactions relating to Bendleby, and payments to Mr Summers whilst now denied in the defence, are not denied by evidentiary material. In my view there remains a prima facie case on the material about those transactions which could give rise to a liability. Whether at the end of the day a liability is established, of course, will depend on the trial.

8. On the material presently before the Court, not answered by evidentiary material except to the extent of Ms Johnston's affidavit, to which I have made reference, there are, in my view, prima facie causes of action against the respondents made out.

9. Mr Mansfield has very fairly acknowledged the difficulties on the material before the Court in establishing that there is no prima facie cause of action. Whilst putting the arguments to which I have already made reference, he has concentrated mainly upon the second of the requirements identified by Gleeson CJ, that is, on the need for the applicants to establish a danger that by reason of the respondents absconding or of assets being removed out of the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with in some fashion, the applicants, if they succeed, will not be able to have their judgment satisfied.

10. The evidence before O'Loughlin J when a Mareva injunction was first made has not really changed on this aspect of the inquiry. At that time the effect of the evidence was that the first respondent, upon ceasing to be managing director of Bennet and Fisher Limited and other companies in the group in May 1993, had left Australia. He had done so in about June 1993. He had moved to London with his family. There was evidence before O'Loughlin J of a realisation of certain South Australian assets. A beach house at Victor Harbor had been sold. A property at Thebarton owned by Bendleby Nominees had been sold in December 1992 for $350,000. The whereabouts of the proceeds of that sale had not been disclosed notwithstanding a request for disclosure by the applicants. The family home, the place of residence in South Australia of the first respondent and the second respondent, had been placed on the market. It had not been sold but it was up for sale. There was evidence that although there were many properties, apart from those which I have mentioned, owned by the respondents as a group, whether through trusts or companies, in South Australia, those properties were heavily encumbered to the National Australia Bank.

11. The picture at that time was that there were few assets unencumbered and readily realisable in South Australia, and that steps were being taken to realise those assets. It would have been apparent to the Court then, as it is now, that if the applicants were to succeed, the enforcement of the judgment, would be easy against unencumbered assets in Australia, but would be difficult against assets overseas, and even more difficult against assets held by trusts if those who controlled the trustees were not minded to exercise their discretions in favour of applying the assets of the trusts to the satisfaction of legal liabilities of the respondent beneficiaries.

12. O'Loughlin J was obviously satisfied that that picture led to the conclusion that if assets within Australia were not frozen, there was a danger that the applicants, if they succeeded, would not be able to have the fruits of their judgment satisfied, or at least satisfied as easily as they would be if the order were made.

13. That picture has not changed. It is a picture which compels the Court to form exactly the same view now as was formed in July 1993 about the second limb of the requirements identified by Gleeson CJ. One can add that the Court now has additional information which was not available in July 1993. There is now the evidence of Mr Ellis that at some unidentified time after 1989 Mrs Summers transferred some $150,000 overseas to London, and there is also his evidence that the proceeds of the Thebarton property, $350,000, were transferred overseas.

14. In my view, the requirements for the making of a Mareva injunction in respect of assets in Australia (indeed, perhaps further afield, but at the moment the order in place is in respect of assets in Australia) is made out. I think it would be inappropriate to discharge the order altogether.

15. The next question then is whether the order should be varied. There are few unencumbered assets within South Australia. There is a farming property, Bendleby. There are two motor cars; permission has been given to sell them provided the proceeds go into a solicitor's trust account and are held under the Mareva injunction. There is another block of land at Victor Harbor and there are moneys in the solicitor's trust account. Some $386,000 has gone into the solicitor's trust account from the realisation of assets since the Mareva injunctions and earlier undertakings were put in place. Some $219,000 of that sum remains after various expenditures.

16. Apart from those assets it would be difficult to execute a judgment in favour of the applicants on other assets within the jurisdiction. As I have mentioned, there are many other assets but there is also a very substantial secured liability. It is sufficient to say that it does not appear that there is any excess of assets over liabilities in relation to all those assets that are subject to mortgages or a charge. If the unencumbered assets do not remain available, the applicants, if successful, will suffer an obvious problem.

17. The respondents' argument, as I have earlier outlined, is that unless at least the cash in the solicitors' trust accounts is made available, and I infer also that the other unrealised assets are made available for realisation, they will not be able to meet the debts identified in Mr Ellis's schedule. They will not be able to pay additional debts to legal practitioners and accountants which have accrued since that list was prepared, and they will not be able to fund the ongoing defence of the proceedings. It is submitted that the respondents need this money to enable them to conduct their ordinary day to day affairs.

18. There is an underlying premise to this line of reasoning which has not been sufficiently articulated in the way in which the argument has been put, and that is that the respondents do not have available to them other assets that could be used to meet these expenses. If there are other assets available to the respondents anywhere outside Australia, in England or elsewhere for example, it is not right to assert that the respondents are unable to pay the identified debts or fund their ongoing legal representation.

19. It is for that very reason that the Court, since August 1993, has been inviting the respondents to put before the Court information about the present asset position of the family, that is, of the individuals and the trusts, and to demonstrate that there are no other assets available that could be used to fund these obligations. It was said in August 1993 that to provide that information would be expensive and there were no funds readily available to the respondents' solicitors and accountants to marshall together that information. The Mareva injunction was therefore varied on 19 August 1993, so as to permit in all $45,000 to be used by advisers to get that information compiled. There was $15,000 released to the first and third respondent's solicitors, $15,000 to the second respondent's solicitors and $15,000 to be used to pay the fees of Mr Ellis, the respondents' chartered accountant. The position today is that none of that information has been forthcoming.

20. Mr Ellis has been cross-examined on this application. His evidence discloses that on 14 January 1994 he resigned as a director of many of the respondent companies because the shareholders and directors were overseas and he was not in possession of information about day to day transactions.

21. His evidence also reveals that he has not prepared company accounts and taxation returns for the respondents beyond 30 June 1992 because he is not in possession of the information that would enable him to do so. His evidence reveals that whilst there was a very large cash deposit with Westpac in the name of one of the trustee companies at 30 June 1992, he is not presently aware whether that money is still on deposit, and if so, whether the deposit is within Australia or outside Australia. He is not aware what has happened to it.

22. The order of 30 July 1993 authorised the first and second respondents to use $1,000 per week for ordinary living expenses. No information has been put before the Court as to whether such sums have been used, and if so, what was the source of the funds. No information has been given to the Court about how the respondents have lived day to day in an expensive area of London.

23. The position remains, now, that the Court simply does not know what has happened to assets since 30 June 1992. Without going into figures, Appendix 12 to the affidavit of Mr Ellery filed in December 1993 shows there was in family trusts at 30 June 1992 a very large sum of money on deposit. True it is that that money is in the name of trustees of the trusts, but two things must be said about that. One is that there appear to be related loans from Mr or Mrs Summers to the trustee companies, and in turn to the trusts, in respect of at least a good deal of that money. So it would appear on the papers that one or other of them, if minded to do so, could call up a loan account and thereby get access to that money, or at least could have done so on 30 June 1992. I emphasise that we do not know what the present position is.

1. The other thing is that even if there were assets in the trusts which could not be got at by calling up loan accounts, the personal respondents are beneficiaries of the trusts. Mr and Mrs Summers are directors of most of the trustee companies. So in their capacities as directors of the trustee companies they would have a say, a decisive say in most instances, as to the exercise of the trustee's discretion. It is reasonable, in my view, to assume in the absence of any evidence to the contrary, that the trust deeds would permit the trustees to advance capital or income to any of the beneficiaries to meet the necessities of life, and for the beneficiaries' general advancement and maintenance, so that it would not amount to a breach of trust by the trustee should it decide to exercise its discretion so as to advance money to individual respondents to pay pressing debts which are due, or to fund a defence to the serious claims in these proceedings.

2. The position is that there are few assets in Australia that could be the subject of execution by the applicants if they were to succeed in this action. There is a need, therefore, to try and protect those assets. On the other hand the respondents have debts and they have both existing and potential obligations which they desire to meet. It is not suggested on their part they are insolvent. The picture, simply, is that at 30 June 1992 there were substantial assets from which these obligations could have been met, and there is no explanation why those assets are not still available for that purpose.

3. In these circumstances I consider the proper course which the Court should take is to freeze those unencumbered assets which can be identified within Australia, and to leave it to the respondents either to fund their present and potential liabilities from their other assets or to come back to the Court with a full and frank disclosure of what has happened to assets since 30 June 1992. Until the latter event occurs the occasion does not arise to vary the Mareva injunction.

4. For these reasons I think both the applications that are now made should be dismissed.