CKD Investors P/L & Commercial Negotiators P/L v Ceduna Keys Developments P/L & Bria
[2019] SADC 201
•23 December 2019
District Court of South Australia
(Civil: Interlocutory Application)
CKD INVESTORS P/L & COMMERCIAL NEGOTIATORS P/L v CEDUNA KEYS DEVELOPMENTS P/L & BRIA
[2019] SADC 201
Reasons for Ruling of Her Honour Judge Schammer
23 December 2019
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - DETENTION, INSPECTION AND PRESERVATION - SALE OF PROPERTY
The first plaintiff applied for a freezing order pursuant to r 247(2) of the District Court Civil Rules 2006.
The application was made in the context of the second defendant marketing a property he owns at Valley View for sale by public auction. The second defendant claims he did so in order to meet existing financial obligations to various creditors.
Any equity the second defendant has in the property may fund at least in part, any prospective judgment debt.
The auction was held on 5 December 2019 and no bids were made. The second defendant has offered to give an undertaking to the Court that he will not dispose of his interest in the Valley View property without giving at least 14 days’ notice to both the first plaintiff and to the Court.
In issue is whether the first plaintiff has established there is a real risk of any prospective judgment debt being wholly or partly unsatisfied because the second defendant’s assets are disposed of, dealt with, or diminished in value.
Findings:
The evidence does not establish that there is a real risk of any prospective judgment debt being wholly or partly unsatisfied because the second defendant’s assets are disposed of, dealt with, or diminished in value.
Neither the balance of convenience nor the interests of justice necessitate the making of the order as sought.
Orders:
1. Upon the second defendant having given an undertaking to the Court that he will not dispose of his interest in the Valley View property without giving at least 14 days’ notice to both the first plaintiff and to the Court, I decline to make the freezing order as sought by the first plaintiff.
2. Costs of and incidental to FDN 37 are reserved.
3. The first plaintiff has liberty to further apply on FDN 37 if so advised.
4. The parties have liberty to apply to the Court as to the reserved question of costs, if so advised.
District Court Civil Rules 2006 supplementary rr 211, 216, r 247, referred to.
Yadlamalka Land Pty Ltd v Ragless & Anor [2018] SASC 131; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194; Frigo v Calhaci [1998] NSWCA 88, considered.
CKD INVESTORS P/L & COMMERCIAL NEGOTIATORS P/L v CEDUNA KEYS DEVELOPMENTS P/L & BRIA
[2019] SADC 201
Introduction
By Interlocutory Application dated 21 November 2019 (FDN 37) the first plaintiff, CKD Investors Pty Ltd ACN 615233237 as trustee for the CKD Investors Unit Trust made application for a freezing order against the second defendant.
On 17 December 2019, I made the following orders:
1 Upon the second defendant having given an undertaking to the Court that he will not dispose of his interest in the Valley View property without giving at least 14 days’ notice to both the first plaintiff and to the Court, I decline to make the freezing order as sought by the first plaintiff.
2 Costs of and incidental to FDN 37 are reserved.
3 The first plaintiff has liberty to further apply on FDN 37 if so advised.
4 The parties have liberty to apply to the Court as to the reserved question of costs, if so advised.
These are my reasons.
The Application
The Application was supported by an Affidavit of David Balatti sworn on 19 November 2019.
Subsequently, additional affidavits were filed in support of the Application namely:
1 Fourth Affidavit of Mario Reshan Shavin Silva affirmed on 3 December 2019;
2 Fifth Affidavit of Mario Reshan Shavin Silva affirmed on 10 December 2019.
Further, the first plaintiff submitted various different drafts of a proposed Freezing Order, with the final version being that emailed to the court on 13 December 2019.
The Application was opposed by the second defendant, who filed four separate affidavits sworn by him on 25 November 2019 (the first affidavit), 29 November 2019 (the second affidavit), 3 December 2019 (the third affidavit) and 13 December 2019 (the fourth affidavit).
I heard argument from the parties on 26 November 2019, 3 December 2019 and 10 December 2019 and received a Written Outline of Submissions from both parties.
Rule 247
The Application is made pursuant to r 247 of the District Court Civil Rules 2006 (the Rules).
Pursuant to r 247(2):
(a) The Court may make an order (a freezing order), upon or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court may be wholly or partly unsatisfied.
(b) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of those assets.
Rule 247(5)(a)(ii)(A) provides that the power contained in r 247(2) may be exercised where an applicant has a good arguable case on a prospective cause of action that is justiciable in the Court.
Rule 247(5)(d) provides:
(d) The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur -
(i) judgment debtor, prospective judgment debtor or another person absconds; or
(ii) the assets of the judgment debtor, prospective judgment debtor or another person are:
(A) removed from Australia or from a place inside or outside Australia; or
(B) disposed of, dealt with or diminished in value.
Further, r 247(5)(f) provides that nothing in the rule affects the power of the Court to make a freezing order or ancillary order if the Court considers it is in the interests of justice to do so.
Relevantly, Supplementary r 211(4) also provides:
The order is an extraordinary interim remedy in that it can restrict the right to deal with assets even before judgment and is commonly granted without notice to the respondent.
Background
The first plaintiff claims that it invested a sum of $1,345,000 in a development conducted by Ceduna Keys Developments Pty Ltd (in liquidation) (the first defendant) in reliance upon the misrepresentations and misleading and deceptive conduct of the second defendant, and that as a result, it suffered loss and damage in excess of the sum invested.
Although the claim has several bases, the first plaintiff claims that on 18 October 2016, and therefore prior to it executing the relevant Agreement and providing any money with respect to the investment, David Balatti, a Director of the first plaintiff, sent an email to Richard Pace, the purported agent of the second defendant (Pace) (the Balatti email) wherein he enquired, inter alia:
1 If the information contained in an email on 23 August 2016 and the information from a presentation on 23 September 2016 was to be read in conjunction with and formed part of the Agreement; and
2 If he could confirm that the liabilities of the first defendant are nil.
The first plaintiff pleads that by email dated 19 October 2019 from the second defendant to Pace, the second defendant confirmed that the matters set out in the Balatti email were correct.
The first plaintiff alleges, inter alia, that in fact the first defendant had liabilities including a loan to the second defendant of $2,360,000.00 secured by caveat over land owned by the first defendant and, pursuant to a deed dated 29 October 2010, the second defendant had pledged the credit of the first defendant in respect of his own debts owed to a solicitor, Mr Minicozzi in a sum of $183,514.69 plus interest.
The second defendant denies paragraph 38 of the Second Statement of Claim ‘on the basis he has no knowledge of and does not possess the email communications referred to therein’. A copy of the purported email correspondence is annexed to the affidavit of David Balatti and marked ‘DB4’.
Basis for the Application
The second defendant is the sole registered proprietor of a property at 7 Ancell Court, Valley View SA 5093 (CT 6106/47) (the Valley View property).
He also holds a 20th interest in a property at 21-23 Cairns Street, Norwood (the Norwood property), with the other interests in that property held by members of the second defendant’s extended family.
In late October 2019, the solicitors representing the first plaintiff ascertained that a property interest report had been purchased with respect to the Valley View property, thus raising with the first plaintiff a concern that the second defendant intended to sell the Valley View property, with the intention of defeating any remedy that may have been available to them with respect to the proceedings.
Accordingly, the solicitors representing the first plaintiff wrote to the second defendant’s solicitors enquiring as to the second defendant’s intentions with respect to the Valley View property and requesting advice as to whether the second defendant would proffer an undertaking or assurance that he would not dispose of the proceeds of the sale of the property to defeat the plaintiff’s claim in the action.
By letter dated 7 November 2019, the solicitors representing the second defendant confirmed that the second defendant was intending to sell the Valley View property on the open market, with his intention being to use the proceeds to meet payment of outstanding debts, including those owed to his previous solicitors, and to fund his ongoing legal representation in the within action.
The solicitors for the second defendant indicated their client was unwilling to provide the undertaking as sought by the plaintiffs.
This prompted the filing of FDN 37.
Further Supporting Material/Change in Circumstances
The second defendant provided affidavit evidence of his various assets and liabilities for the purposes of opposing the Application. From those affidavits, it became apparent that the Valley View property was placed on the market through Scarce Real Estate on 11 November 2019, with the property scheduled for public auction on Thursday 5 December 2019.
In his first affidavit, the second defendant deposed that the Valuer General’s capital valuation for the property as at 1 January 2019 was $1,125,000.00. He further deposed that the Certificate of Title for the property had the following interests registered on it:
1 Mortgage to Bank (Perpetual Trustees Victoria Limited), with a balance on 12 November 2019 of $867,299.19;
2 Caveat to Minicozzi Legal Practice Pty Ltd to secure a personal obligation and guarantee made by the second defendant with respect to outstanding legal fees in the order of $235,965.69, with interest, fees, costs and charges continuing to accrue; and
3 Caveat to Lynch Meyer Lawyers, with whom he had a current liability in respect of unpaid billed and unbilled fees in the sum of approximately $95,000.00.
The second defendant deposed to other assets including the 1/20 share in the Norwood property, furniture and effects in the amount of $10,000.00, cash at bank of $450.79, a vehicle valued at approximately $12,500.00 and income from a bricklaying business he ran in partnership with his brother and brother-in-law, estimated at around $60,000.00 per annum.
He outlined credit card debts with Bank SA and the Commonwealth Bank, and noted that his wife had an equitable interest in the Valley View property.
As such, the second defendant maintained that the total value of his liabilities to the nearest $500.00 ($1,269,000.00) exceeded the total value of his assets to the nearest $500.00 ($1,190,500.00), meaning there was no purpose to be served by the making of the proposed order, as irrespective of whether the Valley View property was sold, there would be no net proceeds available from the sale to satisfy any prospective judgment debt.
The first plaintiff raised a number of concerns with respect to the adequacy and accuracy of the particulars of the second defendant’s assets and liabilities as deposed to by him in the first affidavit. It was submitted that the second defendant had undervalued the Valley View property, was receiving income into a Westpac Banking Account which was inconsistent with (and more than) his claimed income from a bricklaying business and did not properly disclose other interests held by him in a race horse and in the first defendant.
Pursuant to an order made by me on 26 November 2019, the second defendant provided a further affidavit (the second affidavit) containing more detailed (and new) information with respect to his assets and liabilities.
In the second affidavit, the second defendant deposed that his real estate agent, Mr Scarce, had originally estimated the sale price for the Valley View property at $2,000,000.00.
The Residential Sales Agency Agreement entered into between Scarce Real Estate and the second defendant on 25 October 2019, stipulates an agent’s estimated price at $2,000,000.00 and a vendor’s selling price of $2,250,000.00. As to the vendor’s selling price, the vendor by law is required to nominate a single price sought or acceptable for sale.
However, by letter dated 27 November 2019, Mr Scarce provided an update as to the level of interest in the property, suggesting that it was well below expectations, and that as such he thought the likely market value should be in the vicinity of $1,250,000.00. This letter was written only two weeks into the marketing campaign and demonstrated a significant reduction in price expectation, particularly having regard to the stipulated vendor’s selling price of $2,250,000.00.
Despite the contents of this letter, the second defendant maintained that the value of the Valley View property was $1,125,000.00 and claimed the basis for that was ‘appraisal by Mark Scarce, Real Estate Agent’.
The second affidavit also deposed to the second defendant’s ownership of three racehorses, said to have a market value in a range of between $14,250.00 and $24,250.00, and on which there were outstanding fees and expenses owed in a sum of $39,843.35. The second defendant maintained that his estimated liabilities exceeded estimated assets by a sum in the order of $98,940.06.
In the second affidavit, the second defendant deposed to income from the bricklaying business estimated at $2,500.00 per month, with monthly living expenses exceeding that sum, in the order of $4,000.00.
In response to several anomalies and inconsistencies identified in the second affidavit by the first plaintiff, the second defendant filed a third affidavit wherein he purported to provide clarification of his income from the bricklaying business and his racehorses, and acknowledged he had failed to depose to an interest he claimed in the first defendant.
The auction for the Valley View property proceeded on 5 December 2019. By his fourth affidavit, the second defendant deposed that:
1 Approximately 20 to 25 people attended the auction, only one of whom was a registered bidder;
2 Two other registered bidders were not in attendance;
3 The auctioneer opened the bidding at $1,400,000.00;
4 Nobody made any bids, nor was any vendor bid made; and
5 At the conclusion of the auction the auctioneer invited interested parties to speak with him.
The second defendant deposed that two interested parties then spoke with the auctioneer. One party only had a budget of $500,000.00 and the other party did not disclose his budget. Neither party made an offer. He deposed that he intends to take the Valley View property off the market and has decided not to sell the property.
As the term of the Residential Sales Agency Agreement does not end until 27 January 2020, with all advertising costs already paid, the property will remain listed online until that date. The second defendant deposed that he has instructed his agent not to actively market the Valley View property in any way.
Applicable Principles
In Yadlamalka Land Pty Ltd v Ragless & Anor, Hinton J set forth the principles to be applied by the Court when exercising its power under r 247, that power being to prevent the frustration of the court’s ‘prospective enforcement process’.
Hinton J noted the starting point was to observe that the remedy was an exceptional one. This is because the order proposed imposes a severe restriction on a respondent’s ability to deal with their assets, particularly in circumstances where there is no judgment against them.
He referred to what was said in Cardile v LED Builders Pty Ltd, namely that the purpose of such an order is to preserve the status quo, not to change it in favour of the plaintiff.
As to the first requirement, the applicant must demonstrate that it has ‘a good arguable case on legal as well as factual matters’.
As to the second requirement - can the court be satisfied that absent a freezing order being made, there is a danger that a prospective judgment will be wholly or partly unsatisfied?
There must be facts from which the Court can infer a real risk or danger that the second defendant will dispose of or otherwise deal with his assets in a way that the first plaintiff will not be able to satisfy any prospective judgment obtained against him. The danger must be established by the evidence and not merely asserted.
The Court may take into account the prior conduct of the second defendant, the value of the prospective judgment and the assets and income available to the second defendant to satisfy any judgment.
Finally, the court must consider whether, in any event an order should be made in the interests of justice.
Submissions
At the time the application was filed, the second defendant was intending to sell the Valley View property at auction. As is apparent from his various affidavits, any equity the second defendant has in the Valley View property comprises a large component of his available assets, and thus is potentially the primary source from which the second defendant could fund any prospective judgment against him in this action.
The first defendant submitted that the inadequate and conflicting information provided by the second defendant as to the nature and true value of his assets was sufficient for the court to have concerns as to his veracity and the accuracy of the evidence on this issue.
It was submitted that in the event the Valley View property was sold, absent any freezing order, it would be a relatively simple exercise for the proceeds to be dissipated and the first plaintiff’s claim to then be rendered nugatory, particularly in circumstances where it was submitted the second defendant had already received the benefit of the $1,345,000.00 investment made by the first plaintiff pursuant to the Agreement.
The second defendant maintained that at all times he had been upfront and transparent in terms of his intention to sell the Valley View property and with regard to the material he had presented to the court as to his assets and liabilities.
As such, it was submitted that the first plaintiff had not established that the second defendant by his actions, had in any way attempted to frustrate the court’s processes, and maintained that the proposed sale was intended only to meet the second defendant’s pressing financial obligations. It was submitted that in any event, if the Valley View property was sold, there was unlikely to be any available equity to meet any prospective judgment in any event, having regard to the estimated value of the second defendant’s assets and liabilities. Further, it was submitted that the making of the order would be contrary to the interests of justice and prejudice not only the second defendant but other innocent parties, and rather than preserving the status quo, it would tip that in favour of the first plaintiff.
As the matter progressed and circumstances changed, the first plaintiff proposed a revised draft freezing order which allowed for the sale of the Valley View property, but froze the net proceeds of sale over the sum of $1,300,000.00, with that sum paid into Court, thus enabling the second defendant to meet his immediate financial obligations, while at the same time preserving its interests.
The first plaintiff submitted that the second defendant had misled the Court as to his financial position, being sufficient for the Court to remain concerned that he may dispose of or dissipate assets, thus rendering any prospective judgment nugatory, even if he had no current intention to sell the Valley View property.
The second defendant maintained his opposition to the revised order sought, on the basis that the first plaintiff had not established there was a danger that any prospective judgment would be wholly or partly unsatisfied because of the disposal of, dealing with or disposition of the second defendant’s assets.
He offered to give an undertaking to the court that he would not dispose of his interest in the Valley View property without giving at least 14 days’ notice to both the first plaintiff and to the Court, in order to enable the first plaintiff to agitate this issue again, at that time, if so advised.
Consideration/Findings
Although counsel for the second defendant argued that the affidavit material was deficient in that it (mostly) sought to refer to matters contained in the pleadings, in its Outline, the second defendant conceded that the threshold for making out a ‘good arguable case’ was a low one, and was likely to have been met in this instance (albeit not conceding the plaintiffs’ case to be a particularly good one).
Having regard to the material before me I am satisfied that the first plaintiff has a ‘good arguable case’.
A careful analysis of the first, second and third affidavits filed by the second defendant reveals some inconsistencies in terms of his deposed assets and liabilities. I agree with the submission made by counsel for the first plaintiff that in deposing only to the capital valuation of the Valley View property, at a time when the second defendant had been informed by his agent the property may have a substantially greater value, the second defendant was being less than fully frank with the Court. When he swore his first affidavit, the second defendant must have known that the agent had estimated the property’s market value at $2,000.000.00 and in failing to disclose that information until expressly ordered by the Court, I consider the second defendant sought to minimise the equity he has in that property.
The source of all the income being deposited into the second defendant’s Westpac account remains unknown, with monies into that account exceeding the income deposed to by the second defendant. Further, the material provided pertaining to the mortgage with Perpetual Trustees Victoria Limited is less than satisfactory, it stipulating only the balance outstanding, and providing no information as to whether there have been funds drawn down from that facility, and if so, when.
I share the first plaintiff’s concerns as to the inconsistencies and omissions in various of the second defendant’s affidavits pertaining to the value of his assets and liabilities.
However, the application was prompted only by the first plaintiff learning of the second defendant’s intention to sell the Valley View property. The second defendant has deposed that he has now ‘decided not to sell the property’, having regard to his recent experience with the unsuccessful auction campaign.
Further, the second defendant, through his solicitor, informed the Court that he was prepared to give an undertaking not to dispose of his interest in the property without giving 14 days’ notice to the first plaintiff and to the Court.
If the value of the Valley View property is in the order of only $1,250,000.00, whether or not it is sold is unlikely to have any real impact (and possibly no impact at all) on the second defendant’s ability to meet payment of any prospective judgment debt.
The outcome of the auction indicates that at present, in any event, the market value of the property remains unknown. I am mindful of the liabilities disclosed by the second defendant, for which documentary evidence has been provided. While the true value of the Valley View property remains unknown, there remains a very real risk that even if sold, the proceeds may not be sufficient for the second defendant to otherwise meet his liabilities having regard to his other declared assets.
It is possible that the second defendant’s interest in the Valley View property will diminish over time, given his monthly living expenses are said to exceed his income. However, any freezing order, if made, would need to allow for the second defendant to pay his ordinary living expenses in any event, having regard to Supplementary r 216, which requires any such order to be modelled on Form 48.
Further, while I have outlined some concerns I have with respect to the second defendant’s affidavits, the action has been on foot since 16 November 2018. The steps the second defendant made in advertising the sale of the Valley View property online and by way of public auction indicate a level of transparency on his behalf.
It is for the first plaintiff to demonstrate that absent the making of the proposed freezing order, there is a real risk that any prospective judgment will be wholly or partly unsatisfied by way of the disposal of, dealing with or dissipation of assets. Despite the concerns outlined above, having regard to all of the available material, I cannot be so satisfied, particularly in light of the undertaking now offered by the second defendant.
I am not satisfied that the balance of convenience favours the granting of the order, or that the interests of justice necessitate the making of such an order.
Orders
1 Upon the second defendant having given an undertaking to the Court that he will not dispose of his interest in the Valley View property without giving at least 14 days’ notice to both the first plaintiff and to the Court, I decline to make the freezing order as sought by the first plaintiff.
2 Costs of and incidental to FDN 37 are reserved.
3 The first plaintiff has liberty to further apply on FDN 37 if so advised.
4 The parties have liberty to apply to the Court as to the reserved question of costs, if so advised.
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