BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd - [2010] WASC 25

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: BGC CONTRACTING PTY LTD -v- WA CONSTRUCTION HIRE PTY LTD [2010] WASC 25

CORAM: LE MIERE J

HEARD: 2 FEBRUARY 2010

DELIVERED : 17 FEBRUARY 2010

FILE NO/S: CIV 3055 of 2009

BETWEEN: BGC CONTRACTING PTY LTD (ACN 008 766 407)
Plaintiff
AND
WA CONSTRUCTION HIRE PTY LTD (ACN 126 288 079)
First Defendant
SEAN PHILLIP HAYWARD
Second Defendant
BRADLEY JOHN FLETCHER
Third Defendant
MICHAEL JOHN IBBOTSON
Fourth Defendant
STEVEN GRAHAM LIHOU
Fifth Defendant

Catchwords:

Application to discharge freezing order - Whether pre-conditions for freezing order met - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 52A r 5

Result:

Application to discharge freezing order dismissed

Category: B

Representation:

Counsel:

Plaintiff:     Mr J A Thomson
First Defendant             :     Mr S V Smith
Second Defendant         :     Mr J C Yeldon
Third Defendant           :     No appearance
Fourth Defendant          :     Mr S V Smith
Fifth Defendant            :     No appearance

Solicitors:

Plaintiff:     Mallesons Stephen Jaques
First Defendant             :     Simon V Smith
Second Defendant         :     Chan Galic
Third Defendant           :     No appearance
Fourth Defendant          :     Simon V Smith
Fifth Defendant            :     No appearance

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

Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380; (1999) 162 ALR 294
Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49
Goumas v MacIntosh [2002] NSWSC 713
Hayden v Teplitzky (1997) 154 ALR 497; (1997) FCR 7
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 8 WAR 183
Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319
Western Australian Real Estate Investments Ltd v Pontoon Holdings Pty Ltd [1999] WASC 162

LE MIERE J: The second defendant (Mr Hayward) has applied for an order discharging the freezing order I made on 4 December 2009 in so far as the order relates to Mr Hayward.

The freezing order

On 3 December 2009 the plaintiff company (BGC) commenced proceedings against the first defendant company (WACH), Mr Hayward, Mr Fletcher, Mr Ibbotson and Mr Lihou. On 4 December I made a freezing order restraining each of the defendants from removing from Australia or in any way disposing of, dealing with or diminishing the value of any of their assets in Australia up to the unencumbered value of $700,000. The order did not prohibit Mr Hayward from:
(a)paying up to $1,000 a week on his ordinary living expenses;
(b)paying his reasonable legal expenses;
(c)dealing with or disposing of any of his assets in the ordinary and proper course of his business, including paying business expenses bona fide and properly incurred; and
(d)in relation to matters not falling within (a), (b) or (c) dealing with or disposing of any of his assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so he gave BGC, if possible, at least two working days written notice of the particulars of the obligation.

Grounds of application to discharge freezing order

Mr Hayward applies to discharge the freezing order against him on the ground that the essential pre‑conditions for the exercise of the jurisdiction were not met by BGC against him.

Requirements for freezing order

The court must be satisfied that the plaintiff has a vested and accrued cause of action against the defendant that is sufficiently arguable to justify the granting of interlocutory relief. The court must also be satisfied that a danger exists by reason of the defendant removing assets from the jurisdiction or disposing of assets within the jurisdiction or otherwise dealing with them in some fashion whereby the plaintiff, if successful, will not be able to have judgment satisfied.

A good arguable case

The plaintiff must establish that it has a reasonably arguable case on legal as well as factual matters: Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380; (1999) 162 ALR 294 [68].
The basis of BGC's case is that:
(a)Mr Hayward, as plant asset manager for BGC, breached express and implied contractual duties of confidentiality, loyalty, good faith and not working for a person other than BGC, and breached fiduciary duties of confidentiality, loyalty and good faith;
(b)Mr Hayward advantaged himself by receiving secret commissions or receipt of profit from WACH;
(c)Mr Hayward also advantaged WACH through his breaches of contractual and fiduciary duty;
(d)Mr Hayward is accountable as a constructive trustee for the benefits he received.
Mr Hayward's written submissions in support of his application to discharge the freezing order did not submit that BGC had not made out a reasonably arguable case or that BGC had not made out a good arguable case or that there is not a sufficient prospect that the court will give judgment in favour of BGC against Mr Hayward. However, in the course of oral submissions counsel for Mr Hayward submitted that BGC does not have a good arguable case.
Mr Hayward denies that he did not disclose to BGC that he was a director or shareholder of WACH. Mr Hayward says that he told Frank Wightman, BGC's operations manager at Koolyanobbing, Chris Elves, the plaintiff's logistics manager, and Ken Mldenovich, the plaintiff's assets manager, that he was a part owner of WACH. There is some evidence to support those contentions. BGC has led evidence from Mr Tejchman, its executive manager, concerning those matters. Mr Tejchman says he has been informed by Mr Elves that Mr Elves was unaware that Mr Hayward was involved in any business outside his employment with BGC. Mr Tejchman has been informed by Mr Wightman that Mr Wightman became aware, through conversation with others, in about August 2007 that Mr Hayward had some interest in a rock breaker that was soon to be on hire at Koolan Island. Mr Tejchman has also been informed that Mr Wightman raised the issue with Mr Hayward and in response Mr Hayward said words to the effect that 'he was conned into being a partner in the machine however he now was aware that it was a mistake and was getting rid of it'. Mr Tejchman says that Mr Wightman told him he responded to Mr Hayward with words to the effect that 'I suggest that is a good idea, as you are a bloody idiot'. Mr Tejchman says Mr Wightman told him he was aware that Mr Hayward was involved in a particular machine, being the rock breaker, and was not aware that Mr Hayward was part of any particular company.
Mr Mldenovich is no longer employed by BGC. Mr Tejchman says that Mr Mldenovich is a good friend with the third defendant, Mr Fletcher and has been for some years.
It is not possible or appropriate to resolve the conflict in the affidavit evidence in this interlocutory hearing. I am satisfied that BGC has a good arguable case notwithstanding the affidavit evidence of Mr Hayward to which I have referred.

Risk of frustration of judgment

Mr Hayward's principal submission is that the evidence does not establish that there is a danger that a judgment obtained by BGC will be wholly or partly unsatisfied because the assets of Mr Hayward are removed from Australia or disposed of, dealt with or diminished in value.
Counsel for Mr Hayward submitted that BGC was required to establish an intention on the part of Mr Hayward to dispose of his assets so as to defeat the claims of creditors to ensure that any judgment obtained by BGC would be unsatisfied. Counsel for Mr Hayward cited Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 8 WAR 183, 185 (Ipp J) in support of that contention.
I do not accept that contention. The correct test is that set out in O 52A r 5(4) of the Rules of the Supreme Court 1971 (WA), that is, the court must be satisfied that there is a danger that a prospective judgment will be wholly or partly unsatisfied because the assets of the prospective judgment debtor are removed from Australia or from a place inside or outside Australia or disposed of, dealt with or diminished in value. I respectfully agree with the authors of the Laws of Australia where the authors state in footnote 20 to the text at [15.8.760]:
The occasional statements in the authorities referring only to the intention of placing assets beyond the reach of the plaintiff, if they are intended to state the test exhaustively, put the test too high and are contrary to authority: see Perth Mint v Mickelberg (No 2) [1985] WAR 117 (FC), Burt CJ at 118‑119. The higher and, arguably erroneous if stated as exclusive, test was applied by Ipp J in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 8 WAR 183. Contrast what is arguably the correct decision of the Queensland Court of Appeal in Northcorp Ltd v Allman Properties (Aust) Pty Ltd [1994] 2 QDR 405, that the applicant for a Mareva order is not required to show that the purpose of the defendant's conduct is to prevent recovery of any judgment which might be obtained, but rather that it is sufficient to show that there is a danger of dissipation of assets which is likely to prevent such recovery.
In Cardile (394) the High Court said:
In National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271 at 277, Mason CJ, Brennan and Deane JJ described as mistaken any proposition that Mareva relief could only be obtained against the defendant to an action if there were a positive intention to frustrate any judgment.
See also Western Australian Real Estate Investments Ltd v Pontoon Holdings Pty Ltd [1999] WASC 162 (Miller J) [12] ‑ [15] and Hayden v Teplitzky (1997) 154 ALR 497; (1997) FCR 7.
The onus of proving the risk of judgment being rendered fruitless is on the plaintiff. The standard of proof of danger of non‑satisfaction of judgment is that the risk must be real and not fanciful. While the inference of risk cannot usually be drawn from the fact that a plaintiff has a sufficiently arguable cause of action, evidence going to the plaintiff's cause of action can in some cases be relied upon in drawing the inference of danger. One example of this is where the case made out against the defendant is one of serious dishonesty involving diversion of money from its proper channels: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319.
In granting the freezing order on 4 December 2009 I said that I had to be satisfied that there is danger that the prospective judgment will be unsatisfied because the assets of the prospective judgment debtor are disposed of, dealt with or diminished in value. It seemed that that requirement was satisfied in relation to Mr Hayward by the evidence that he was in the process of selling his home in Western Australia and intended to move to Sydney together with the dishonest conduct deposed to by Mr Tejchman in his affidavits.
Counsel for Mr Hayward challenged both those matters. Counsel for Mr Hayward submitted that BGC is still to prove its case of dishonesty and it would be difficult for the court to infer the risk based on affidavit evidence. Further, counsel submitted Mr Hayward's evidence is that he told a number of the plaintiff's staff about his ownership of WACH.
There is evidence which, if it is accepted, is capable of establishing that Mr Hayward engaged in the scheme by which BGC hired equipment from WACH knowing that it was wrongful and concealed his part in the scheme from the relevant employees of BGC. Mr Tejchman has sworn in his affidavit of 1 February 2010 that Mr Elves informed him of a discussion between Mr Elves and Mr Hayward approximately two to three years ago. During this conversation Mr Hayward raised a query with Mr Elves as to the consequences which would occur if someone was working for BGC and bought some equipment and hired it back to BGC. In response Mr Elves said to Mr Hayward words to the effect that 'that would be a very dangerous game to play, without the right approvals it would at least cost that person their job'. There is no evidence that Mr Hayward sought the approval of any BGC employee with the authority to give such an approval or indeed sought any approval at all.
On 13 December 2007 Mr Lihou sent an email to Mr Hayward stating:
Listen here Warnie your efforts to get another piece of equipment onto the island are bigger than a Kiwi about to coach the Wallabies and are greatly appreciated. Only you know what risks are involved and how much you can get away with without exposing yourself with BGC. No deal is worth your position with the company and Mick has to realise that you don't win every deal in business and if it doesn't feel right don't do it. To have two pieces of equipment on hire since the inception of WACH has outweighed all expectations and I for one don't want to see you leave the business.
Mr Hayward is in the process of selling the property at 150 Ardross Street, Mount Pleasant, which is the home of himself and his wife. Counsel for Mr Hayward says that that gives rise to no inference of a risk that a prospective judgment will be wholly or partly unsatisfied because Mr Hayward has disposed of or otherwise dealt with his assets. Mr Hayward has sworn in his affidavit of 19 January 2010 that in January 2009 he and his wife decided to move back to Sydney and decided to purchase a vacant block in Sydney and to build a new house on the block. In his affidavit sworn 19 January 2010 Mr Hayward swore that he and his wife would be exchanging contracts to purchase a vacant block of land in Bolwarra Crescent, Castle Hill. Mr Hayward says that once the property is purchased he estimates he will require about $450,000 - $500,000 to pay a builder to build a new house on the property.
I find that there is a real risk or danger that a prospective judgment against Mr Hayward will be wholly or partially unsatisfied because his assets might be disposed of, dealt with or diminished in value. Mr Hayward is liquidating his principal asset and converting it into cash. The contract for the purchase of the land at Castle Hill has not been completed. It may not be completed. The land might be conveyed into the name of Mr Hayward's wife alone. In any event, a significant part of the proceeds from the sale of the land in Western Australia will remain in cash until applied for some other purpose. Those facts together with the evidence that Mr Hayward engaged in the scheme by which BGC hired equipment from WACH knowing that it was wrongful and concealed his part in the scheme from the relevant employees of BGC is sufficient.

Balance of convenience

The balance of convenience is relevant to the granting of a freezing order. Having regard to the nature of the remedy, once the other prerequisites are made out and subject to any other discretionary factors, the balance of convenience will almost inevitably lie in favour of the grant of the order, because the potential damage to the plaintiff of being unable to satisfy the judgment will outweigh the inconvenience to the defendant of being subjected to a properly drawn freezing order: see Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49, 54 (Young J); Goumas v MacIntosh [2002] NSWSC 713.
Mr Hayward did not rely upon arguments concerning the balance of convenience. Mr Hayward did not seek a variation of the terms of the freezing order. In particular, Mr Hayward did not seek a variation of the terms of the freezing order to enable him to sell the Mount Pleasant property, purchase the property at Castle Hill and enter into a contract to build a house on the Castle Hill property. The present freezing order does not prevent Mr Hayward from completing the sale of the Mount Pleasant property because he entered into the contract before the freezing order was made. Provided Mr Hayward gives at least two working days written notice of the particulars of the obligation under the contract he may complete the contract. If Mr Hayward wishes to use funds from the sale of the Mount Pleasant property to purchase the land at Castle Hill or to enter into a contract to build a house on that land or otherwise to acquire assets against which a judgment could be executed then Mr Hayward should confer with the plaintiff with a view to seeking a variation of the terms of the freezing order. However, no variation of the terms of the freezing order has been sought by Mr Hayward.

Conclusion

For the reasons stated Mr Hayward's application to discharge the freezing order will be dismissed.