Chacos v Dijan

[2003] NSWSC 821

CITATION:	Chacos v Dijan & Ors [2003] NSWSC 821
HEARING DATE(S):	29 August 2003
JUDGMENT DATE:	29 August 2003
JUDGMENT OF:	McDougall J at 1
DECISION:	Please see para 37 of judgment
CATCHWORDS:	PROCEDURE - Mareva type orders - defective notice of motion - assets held in lawyer's trust account - test to determine whether prima facie case has been made out - injunctive relief to be granted on limited basis
CASES CITED:	Patterson v BTR Engineering (Australia ) Limited (1989) 18 NSWLR 319 Cardile v LED Builders Pty Limited (1999) 199 CLR 380
PARTIES :	Marcus Chacos (Plaintiff) Dijan Pty Ltd (Defendant 1) Forest Deveopments Pty Limited (Defendant 2) Bradley Development Pty Limited (Defendant 3)
FILE NUMBER(S):	SC 2885/03
COUNSEL:	Plaintiff - M Spry Defendants - A Radojev
SOLICITORS:	Plaintiff - Bradley Allen by their Agents Cutler Hughes & Harris Defendants - CC Law by their Agents Kemp Strang

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

McDougall J

29 August 2003

2885/03 MARCUS CHACOS v DIJAN PTY LTD & ORS

On application for Mareva orders

1 HIS HONOUR: This is an application brought by notice of motion filed on behalf of the plaintiff for what are described as Mareva orders. The notice of motion was filed in court on 25 August 2003. Paragraph 1 of the notice of motion seeks an order that the respondents, that is to say the defendants, or any of them, be restrained, and I will abbreviate, from removing from the State of New South Wales or disposing of any asset within the State of New South Wales.

2 Paragraph 2 likewise seeks relief relating to assets within the State of New South Wales. Paragraph 3 indicates that the operation of any orders made pursuant to pars 1 and 2 should not apply to the extent that the assets within the State of New South Wales exceed in value $1,100,000. Other relief is sought by the notice of motion.

3 The proceedings were commenced by summons filed on 20 May 2003. The claim as propounded in the summons was a declaration as to the rights of the parties as to a property call and put option agreement dated 3 December 2001, made between the plaintiff and the defendant in respect of lot 47 deposited plan 1027180, situated at 11 Doeberl Place, Queanbeyan. What were the rights that were sought to be declared is not specified. Prayer 5 of the same summons sought an order extending a caveat apparently lodged by the plaintiff against the title of the property referred to in prayer 4.

4 There have been a number of interlocutory hearings. The effective result is that the caveat was withdrawn, the attempt to lodge a further caveat failed, and the properties have been sold. The parties are now arguing in this application over the proceeds of sale of the properties.

5 I say that notwithstanding the form of the notice of motion, because the affidavit of the plaintiff sworn 24 May 2003 annexes correspondence between the parties’ legal advisers. Annexure G to that affidavit is a letter from the plaintiff’s lawyers to the defendants’ lawyers which referred to the fact that in the plaintiff’s view the only assets available for the defendants’ companies are the funds held in the defendants’ lawyer’s trust account.

6 The plaintiff’s lawyers sought a continuation of “the undertaking that the net proceeds will be held in your trust account pending the injunctive application”. It referred to the fact that this was to be brought on 25 August - that, as I have said, is the date on which the notice of motion was filed in court - but sought that the undertaking be given up until 1 September 2003.

7 In the event the undertaking was given until 5 pm on 25 August 2003 as is indicated in a letter from the defendant’s lawyers to the plaintiff’s lawyers dated 22 August 2003, annexure H to the plaintiff’s affidavit. That letter makes it plain that the lawyers proposed to distribute the funds in accordance with the defendants’ instructions on 26 August 2003, unless ordered otherwise. It would appear that the undertaking was subsequently extended up until 5 pm today.

8 The plaintiff’s case is founded upon a document described as a “property call and put option agreement” dated 3 December 2001. That document does not identify the property that is its subject. This is because the property is defined to have “the same meaning as in the contract” and the contract is defined to mean “the contracts for sale of land attached and marked ‘schedule A.1’ and ‘schedule A.2’”. There is no schedule A.1 or schedule A.2 attached to the document that is proved.

9 Notwithstanding this drafting deficiency in the option agreement - not, I would add, the only drafting deficiency - there is some basis for identifying the property as being something located at 11 Doeberl Place, Queanbeyan. That appears from par 4 of the plaintiff’s affidavit. Further, there is some evidence identifying the property as lot 47 in deposited plan 1027180. That appears in a letter of 6 January 2003 from the defendants’ lawyers to the plaintiff’s former lawyers, annexure B to the plaintiff’s affidavit. That letter, having referred to the land I just described, and referring to the option agreement, notes that the option agreement concerned the land described.

10 To the extent that it is legitimate to do so I note that a cross-claim filed by the defendants on 31 July 2003 sought by prayer 1 a declaration that the option agreement “in respect of lot 47 in DP 1027190 situated in 11 Doeberl Place, Queanbeyan is not operative”.

11 I am satisfied on the basis of that material that notwithstanding the deficiency in the option agreement to which I have referred, the plaintiff has at least a prima facie case that the option agreement relates to the land 11 Doeberl Place, Queanbeyan, having the title reference lot 47 DP 1027180. Indeed, the point that it might not have that application appears to have been raised for the first time only in a draft defence that was handed up in Court today.

12 That arose because the plaintiff sought leave to file in Court a statement of claim setting out its present claim. I gave the plaintiff leave to file that document by Tuesday next. The defendants handed up a draft defence to that statement of claim, and it is in that draft defence that it is made clear that the defendants dispute that the option agreement relates to the land that I have several times described.

13 The evidence of the plaintiff demonstrates a prima facie case that the defendants sought to escape from whatever obligations they may have had under the option agreement because, as things progressed through 2002, they perceived that the contract would be unprofitable to them. This I interpose appears to have been the case because the costs of carrying out the development exceeded the amount payable by the plaintiff under the option agreement if the option were exercised.

14 I should add that the plaintiff was cross-examined relatively briefly on this affidavit, and although there was some difficulty in his evidence, for the purposes of this application and bearing in mind that there is no contrary evidence from the defendants, I accept it.

15 There is also evidence from a construction manager, Mr Michael Scott, by way of affidavit sworn 25 August 2003. Mr Scott’s evidence corroborates the proposition that the defendants became concerned about the lack of profitability of the development. His evidence, which on this point was substantially unchallenged, was that representatives of the defendants said to him in December 2002 that they were going to get out of the contract because they would be losing a lot of money if the option were exercised, and that one of the defendant’s representative, Mr Bradley, said he would not go down for anybody and would get out of the agreement with Marcus, i.e. the plaintiff, any way he could.

16 There is no evidence from the defendants to contradict that and again, only for the purposes of this application, I accept it. I should add that Mr Scott was also cross-examined but that nothing in his cross-examination raised any real issue as to his credibility.

17 There is no doubt that the defendants have refused to perform the option agreement. They have assigned a number of reasons for doing so. Whether those reasons are good or bad are matters for adjudication in due course.

18 I have already referred to the question of the problem of identification of the land. Another issue related to the plaintiff’s obligation to pay an option fee under the agreement. By schedule D to the option agreement that was payable in two instalments, one of $50,000 or execution of the deed and one of $86,500 on 31 January 2002. By clause 2 the first instalment could be paid by cheque or bank guarantee.

19 The plaintiff was cross-examined as to payment of the option fee, and in passing I should observe that time was of the essence in relation to his obligations to pay it. His evidence on this point, which related also to two deposit protect bonds issued by St George Bank, was difficult to follow. However, if a breach occurred it occurred either on execution of the option agreement in relation to the $50,000, or on 31 January 2002 in relation to the $86,500.

20 The plaintiff’s evidence, if accepted, shows that considerably later thereafter, in October 2002, the defendants negotiated with him to release the $50,000 for the purpose of paying subcontractors.

21 Although the evidence on that point is less than clear, if accepted it is capable of supporting a proposition that the defendants, who by then must have known of the alleged deficiencies in relation to the payment of the option fee, elected to proceed with the option agreement or waived any right to exercise rights arising out of late payment.

22 Again that is something that the defendants may in due course explain so that may be decided differently by the Judge who hears this matter on a final basis. For the present purpose all I need to do is say it appears to be reasonably arguable on the material before me.

23 The parties have agreed that the appropriate test is laid down in Patterson v BTR Engineering (Australia) Limited reported in (1989) 18 NSWLR at 319. The parties referred to the statement by Gleeson CJ at 321-2 as follows:

“The remedy is discretionary but it has been held that in addition to any other consideration 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 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”.

24 The limited and protective nature of the remedy has been emphasised by the High Court in a recent case, Cardile vLED Builders Pty Limited (1999) 199 CLR at 380.

25 Those cases make clear the need to take care in framing any relief so as to make sure that the defendant is not unduly or excessively prejudiced, having regard to what are undoubtedly the potentially disastrous consequences of having assets frozen.

26 For the reasons that I have indicated I have come to the view that the plaintiff has made out a prima facie case, or a prima facie cause of action, against the defendants.

27 Whether there is a risk that the money will be removed is perhaps slightly easier to deal with. As I have said, the defendants’ solicitors have made it clear that the money would be paid away in accordance with the defendants’ instructions after the expiry of the undertaking that was given and that initially was limited to 5 pm on 25 August 2003. Although the undertaking has been extended there is no evidence that the position in relation to distribution of the funds is any different.

28 Further, the evidence includes company searches relating to each of the defendant companies. It demonstrates that each company is recently incorporated, is a one dollar company, and has given a charge over its assets to an entity known as CRK Holdings Pty Limited. There is no evidence of any asset other than the balance, whatever it may be, in the trust account.

29 Further, the evidence of the conversations deposed to by both Mr Chacos and Mr Scott would suggest that the defendants do not have available to them assets other than the balance in the trust account. If they did then presumably they would not have been put in the situation that led to the negotiations deposed to in those conversations.

30 I am therefore satisfied that there is a risk that if the injunctive relief is not continued the money in question will be taken and the plaintiff, if he succeeds, will not be able to have his judgment satisfied.

31 The evidence indicated that there might be a balance of approximately $275,000 after the properties were sold, and the expenses of the sale and goods and service tax were paid. I was informed from the bar table without objection that the balance in the trust account was about $580,000 but that there was an outstanding GST liability.

32 If the matter is otherwise one for the grant of injunctive relief, I would not be prepared to countenance a situation whereby the defendants could not have access to the money in trust for the purpose of satisfying any proper liability for GST.

33 There are many unsatisfactory features of this case, and Mr Radojev of Counsel has adverted to them in his submissions. They include the deficiencies in the evidence, and I accept that it is not for the defendant to prove a case, and the delays on the part of a plaintiff not moving the court. They also include the defective nature of the notice of motion.

34 When pressed with this Mr Spry of Counsel for the plaintiff indicated that he would seek leave to amend it. Mr Radojev opposed that but very fairly said he could not point to any specific prejudice. I offered Mr Radojev the prospect of a short adjournment, by which I meant a couple of days, so that he could consider his position in detail but, and I do not criticise him at all for this, he declined that offer and took his stand on the document as filed and his submissions in respect of it.

35 In all the circumstances it seems to me on balance that it is appropriate that injunctive relief should be given. However, it is clearly appropriate that, firstly, that injunctive relief should be limited and, secondly, that the defendants should be given the opportunity to vary it if for any reason, including expenses of litigation or indeed living expenses for their principals, it is necessary to do so.

36 The arguments on the balance of convenience seem to me to fall in favour of the plaintiff, and that of course is implicit in the conclusion that I have just expressed. I say this because, having regard to the little that is known of the defendants, there is no basis for thinking that any judgment could be satisfied otherwise than from the net proceeds of sale. There is no evidence from the defendants to counter balance this, that is to say there is no evidence of any prejudice over and above the obvious prejudice of having assets frozen that would flow if injunctive relief were granted. Specifically there is no evidence of the defendants’ particular need in relation to the money in trust.

37 In those circumstances what I propose to do is as follows:

(1) Grant the plaintiff leave to amend his notice of motion so as to claim relief in respect of the balance held on trust for the defendants in the trust account of their lawyers, CC Law of 30 Bougainville Street, Manuka in the Australian Capital Territory;

(2) I order that the defendants and each of them be restrained from, by themselves, their servants, their agents or otherwise, disbursing or disposing of or creating any right or interest over the proceeds now standing to their credit in the said trust account, except for the purpose of paying any goods and services tax in respect of the completion and sale of the strata title property constructed upon the land known as lot 47 deposited plan 1027180 situated at 11 Doeberl Place, Queanbeyan;

(3) Order 2 is made until the further order of the Court, but I grant the defendants leave to apply on 24 hours’ notice to vary the said order 2 so as to permit payment out of the said trust account of moneys reasonably required for the payment of legal expenses in relation to these proceedings, or living expenses for the principals of the defendant companies or their families;

(4) I order that the proceedings stand over to the Registrar’s list on Friday next, 5 September 2003;

(5) I order that the costs of today and of the notice of motion filed on 25 August 2003 be reserved.

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Last Modified: 09/05/2003