Crossman v Taylor
[2010] FCA 384
FEDERAL COURT OF AUSTRALIA
Crossman v Taylor [2010] FCA 384
Citation: Crossman v Taylor [2010] FCA 384 Parties: LYNETTE MARIE CROSSMAN v BRENDAN TAYLOR and WHITE MARINA PTY LTD File number: SAD 32 of 2010 Judge: BESANKO J Date of judgment: 22 April 2010 Catchwords: PRACTICE AND PROCEDURE – application for interim freezing order under O 25A of the Federal Court Rules – where dispute between plaintiff and first defendant as to operation of jointly owned business
Held: application allowed – good arguable case on basis of plaintiff’s evidence – danger that prospective judgment will be wholly or partly unsatisfied because of threats made by defendant, desperate financial position of business, breakdown of business relationship and evidence that defendant had disposed of assets – no prejudice by reason of any delay in seeking order
Legislation: Corporations Act 2001 (Cth) s 232
Fair Trading Act (1987) (SA) s 54
Federal Court Rules O 25ADates of hearing: 8 and 12 April 2010 Place: Adelaide Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 30 Counsel for the Plaintiff: Mr B J Doyle Solicitor for the Plaintiff: Sykes Bidstrup Counsel for the Defendants: Mr A Dal Cin Solicitor for the Defendants: Grope Hamilton Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
SAD 32 of 2010
BETWEEN: LYNETTE MARIE CROSSMAN
PlaintiffAND: BRENDAN TAYLOR
First DefendantWHITE MARINA PTY LTD
Second Defendant
JUDGE:
BESANKO J
DATE OF ORDER:
22 APRIL 2010
WHERE MADE:
ADELAIDE
THE COURT ORDERS THAT:
1.The plaintiff is to bring in minutes of order which reflect these reasons.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
SAD 32 of 2010
BETWEEN: LYNETTE MARIE CROSSMAN
PlaintiffAND: BRENDAN TAYLOR
First DefendantWHITE MARINA PTY LTD
Second Defendant
JUDGE:
BESANKO J
DATE:
22 APRIL 2010
PLACE:
ADELAIDE
REASONS FOR JUDGMENT
On 30 March 2010, I made a freezing order under O 25A of the Federal Court Rules. The application for the order was made ex parte. The order I made was expressed to expire on 6 April 2010. On that date, the first defendant appeared and he opposed any continuation of the order. I have now heard, on an inter partes basis, an application for an interim freezing order. For the reasons which follow I think that an interim freezing order should be made.
In order to qualify for a freezing order the plaintiff must prove that she has a good arguable case against the first defendant on a prospective cause of action that is justiciable in this Court, and that, having regard to all the circumstances, there is a danger that a prospective judgment will be wholly or partly unsatisfied because the assets of the first defendant, as the prospective judgment debtor, might be disposed of, dealt with, or diminished in value. Even if the plaintiff qualifies for a freezing order, there is a discretion to be exercised and, in this context, the Court may take into account all the relevant circumstances including any disentitling conduct by the plaintiff. In this case, the first defendant points to delay by the plaintiff.
The plaintiff’s case
The plaintiff and the first defendant were in a personal relationship which has now broken down.
The plaintiff is a director of White Marina Pty Ltd and that company is the second defendant in this proceeding. The plaintiff holds one-half of the shares in the second defendant. The first defendant is the other director, and he holds the other half of the shares in the second defendant. The plaintiff and the first defendant acquired their respective shareholdings in the second defendant on or about 4 April 2006. The second defendant acts as the trustee of the White Marina Trust (“the Trust”) pursuant to a trust deed dated 5 April 2006. That deed establishes a discretionary trust for the beneficiaries named in the deed, and those beneficiaries include the plaintiff and the first defendant.
The plaintiff and the first defendant acquired the second defendant and established the Trust for the purpose of acquiring and operating a marina business on the River Murray near Mannum in South Australia (“the business”) for the benefit of the beneficiaries of the Trust. The main assets of the business comprise the following: a lease over approximately three hectares of land; a lease over a registered track; improvements in the form of a house, an office, a shed and a marina facility; vehicles; plant and equipment; and a River Murray water allocation.
The plaintiff alleges that, prior to the acquisition of the shares in the second defendant and the business, the first defendant represented to the plaintiff that the acquisition of the business and the immediate working capital of the business would be financed by way of a loan of $500,000 from the ANZ Bank to the second defendant secured by an investment property personally owned by the first defendant and located at Moana in South Australia and guaranteed by the plaintiff and the first defendant, and any balance by way of an advance by the first defendant as required up to the amount of $200,000.
The plaintiff also alleges that, prior to the acquisition of the shares in the second defendant and the business, the first defendant made representations to her concerning the financial contributions the plaintiff and first defendant would make to the ongoing operations of the company and the business and concerning the role each would play in those operations. The plaintiff has now filed a statement of claim and in that document she alleges that the representations made to her were to the following effect:
“8.1The plaintiff and the first defendant would contribute equally to the funding of the business in the form of loans to the second defendant;
8.2The first defendant was willing and able to provide 50 per cent of the funding contributions required from time to time to operate and develop the business out of his own resources;
8.3The plaintiff and the first defendant would be entitled to play an equal part in the management and conduct of the business and the affairs of the second defendant.”
The plaintiff alleges that, to the extent that the alleged representations, or any of them, constituted representations as to any future matter, the first defendant did not have reasonable grounds for making such representations within the meaning of s 54 of the Fair Trading Act 1987 (SA).
On 23 August 2006, the purchase of the business by the second defendant in its capacity as trustee settled. The purchase price for the business was $660,000. The plaintiff claims that the relationship between her and the first defendant was in the nature of a quasi‑partnership and that she and the first defendant owed each other fiduciary duties in respect of the conduct of the affairs of the second defendant and the business.
The plaintiff claims that, since the acquisition of the shares in the second defendant and the business, the first defendant has acted wrongfully and in breach of her rights. It is not necessary for me to set out all of the allegations at this stage. They are set out in full in paragraph 13 of the plaintiff’s Statement of Claim. In summary, the plaintiff first alleges that the first defendant has failed or refused to provide his agreed share of the funds necessary to carry on the business. The plaintiff has contributed a total sum of $868,306.93 (as at April 2010) to the second defendant (in addition to some wages yet to be finally calculated) and has guaranteed an increase in the loan of $500,000 by the ANZ Bank to the second defendant in the sum of $425,000. By contrast, the first defendant has contributed $180,272.67 including drawings (as at 30 June 2009) and has incurred liabilities to the second defendant in respect of fees for berthing and services for his two houseboats which liabilities as at 8 April 2010 totalled approximately $34,000. Secondly, the plaintiff alleges that the first defendant has, by various acts, taken control of the business. Thirdly, the plaintiff alleges that the first defendant has, by various acts, obstructed attempts by the plaintiff to sell the business. The sale of the business is said to be in the second defendant’s best interests. Fourthly, the plaintiff alleges that the first defendant has acted in his own interests with respect to two houseboats which he owns, rather than in the interests of the business. Fifthly, the plaintiff alleges that the first defendant has charged various personal expenses to the business. The plaintiff also alleges that the first defendant has misappropriated funds of the second defendant in the business. Finally, the plaintiff alleges that the first defendant has “intentionally underperformed in relation to his tasks within the business”.
The plaintiff claims that the first defendant’s acts or omissions, either individually or in combination with any other or others of them, was, or were, contrary to the interests of the members as a whole in contravention of s 232(d) of the Corporations Act 2001 (Cth), or oppressive and/or unfairly prejudicial to and/or discriminatory against the plaintiff both in her capacity as a member of the second defendant and also as a creditor of the second defendant and a discretionary object of the Trust in contravention of s 232(e) of the Corporations Act 2001 (Cth). The plaintiff claims that, by reason of the first defendant’s conduct, the second defendant has been unable to maintain the business for the benefit of the Trust and its beneficiaries and the business has effectively fallen under the control of the first defendant for his own use and benefit.
The plaintiff alleges that, on or about 23 and 24 October 2009, the first defendant represented to the plaintiff that he would contribute $10,000 in funds to the second defendant on the fifteenth day of each month for six months to ensure that at least the second defendant’s obligations to the ANZ Bank could be met and that he would sell an investment property owned by him in Sydney, one of two houseboats owned by him, and a Porsche vehicle owned by him, and contribute the funds from these sales to the second defendant. The plaintiff alleges that the first defendant has not carried out the obligations which are the subject of these representations. Finally, the plaintiff alleges that the first defendant has acted in breach of fiduciary duties owed by him.
The orders sought by the plaintiff are as follows:
“(1)an order pursuant to s 87 of the Fair Trading Act that the first defendant pay the plaintiff the sum of $862,425.31 by way of damages;
(2)in the alternative, an order pursuant to s 233 of the Corporations Act that the first defendant pay the plaintiff the sum of $862,425.31;
(3)equitable compensation;
(4)interest;
(5)an order pursuant to s 233 of the Corporations Act that the assets of the Business and the Trust be sold;
(6)an order pursuant to s 233 of the Corporations Act that the first defendant pay and discharge the outstanding creditors of the second defendant;
(7)an order pursuant to s 233 of the Corporations Act restraining the first defendant from using the Business including its assets for his own benefit;
(8)an order pursuant to s 233 of the Corporations Act that the second defendant be wound up;
(9)costs on a full indemnity basis;
(10)such further or other orders as this Honourable Court deems fit.”
A good arguable case
The plaintiff must establish a good arguable case. The first defendant submits that the plaintiff’s two principal allegations of wrongdoing by the first defendant – the “dollar for dollar” representation and oppression in the conduct of the company’s affairs – are so weak as not to amount to a good arguable case.
With respect to the “dollar for dollar” representation, the first defendant submits that there is strong evidence that the plaintiff’s sworn evidence that such a representation was made should be rejected. He refers to a letter from the plaintiff’s solicitors to the first defendant dated 14 August 2008. In this letter, the plaintiff’s solicitors allege that the first defendant has acted wrongfully and in breach of the plaintiff’s rights in connection with the operation of the business and the management of the second defendant. For example, the plaintiff’s solicitors assert that the first defendant is “unscrupulous and incompetent” and that he has manipulated the White Marina business to fund his extravagant lifestyle. The plaintiff’s solicitors assert the following:
“The White Marina business has been largely funded by my client who has derived little benefit from it. She has committed in excess of $700,000 to the business and advanced to your client in excess of $70,000 for his own use and benefit. In order to do so she has undertaken credit commitments to lending institutions which have strained her resources. Your client on the other hand has contributed little to the business although he has drawn moneys from it on a weekly basis and he has assumed total control over it.”
The first defendant submits that there is no mention of the “dollar for dollar” representation in the letter and that that is a significant omission because it suggests that such a representation was never made. The first defendant makes a similar point in relation to a series of email messages involving a Mr Anson, the plaintiff and the first defendant in late 2009. Furthermore, the first defendant points to the accounting records of the second defendant and submits that the plaintiff’s loans to the company have exceeded the first defendant’s loans for many years and yet it is only now that the plaintiff has asserted the “dollar for dollar” representation.
As the evidence presently stands, there is force in the first defendant’s submissions. However, they are not so compelling that I should reject the plaintiff’s sworn evidence on a question of fact.
With respect to the oppression allegation, the first defendant points to the fact that the evidence establishes that the plaintiff has been able to control a number of aspects of the business. The first defendant submits that this is not a case where a “part owner” has been excluded from the business and is unable to protect her interest in the business. The first defendant points to the fact that, in the letter from the plaintiff’s solicitors dated 14 August 2008, the plaintiff’s solicitors refer to the plaintiff removing property so as to prevent the first defendant from dealing with it for his own purposes. The first defendant points to the fact that the plaintiff has had control over the books and accounts of the business and that she has been able to secure the repayment of $5,000 per month, said to be interest expenses incurred by the plaintiff on behalf of the second defendant. The first defendant also points to the fact that the plaintiff was able to arrange the sale of a jet ski in the latter half of 2009. The jet ski was sold to a Mr Guy Phillips. Finally, the first defendant also points to the plaintiff’s assertion in her first affidavit that she arranged for the business to cease trading on 18 February 2010.
Again, as the evidence presently stands, there appears to be force in these submissions. However, again, the submissions are not so compelling that I should reject the plaintiff’s sworn evidence.
In my opinion, the evidence put forward by the plaintiff establishes that she has a good arguable case on the causes of action alleged by her.
A danger that a prospective judgment will be wholly or partly unsatisfied
The first defendant submits that the plaintiff has failed to establish that there is a danger that a prospective judgment will be wholly or partly unsatisfied because his assets might be disposed of, dealt with or diminished in value. The first defendant again refers to the letter from the plaintiff’s solicitors dated 14 August 2008 and submits that there has been a dispute between the parties for some time, and that nothing has been put forward by the plaintiff to indicate that there is now a danger that he will dispose of, deal with or diminish in value his assets.
At this stage, I do not have full details of the course of the personal and business relationship between the plaintiff and the first defendant. I do note that some attempt at resolving the dispute between the parties was made in October 2009, when, on the plaintiff’s case, further representations were made.
On balance, I am satisfied that the plaintiff has shown a danger that a prospective judgment will be wholly or partly unsatisfied because the first defendant might dispose of, deal with or diminish in value his assets. In my opinion, the combined effect of three matters supports such a conclusion. First, the plaintiff states that, on 15 May 2008, 9 July 2008 and 21 July 2008, the first defendant said to her that, rather than proceed to an orderly sale of the business, he intended to see her ruined financially. He said that his aim was to see the company placed in receivership so that he could buy the business back at a low price. It is true that these statements were made almost two years ago. Secondly, the evidence suggests that the business and the company are now in a desperate financial situation. Furthermore, the relationship between the plaintiff and the first defendant has, the evidence suggests, broken down to the point where the dispute can only be resolved through legal process. That appears to be a relatively recent development, bearing in mind that, as late as October 2009, the parties were discussing how various problems might be resolved. Thirdly, the evidence is that the first defendant has recently disposed of, or attempted to dispose of, some of his substantial assets. It may transpire that that conduct does not amount to an attempt to frustrate the legal process. Nevertheless, the conduct is a matter to be taken into account.
In conclusion, it is the combined effect of these three matters which leads me to the conclusion that the plaintiff has shown a danger that a prospective judgment will be wholly or partly unsatisfied because the first defendant might dispose of, deal with, or diminish in value his assets.
Discretionary considerations
The first defendant submits that I should refuse the application for an interim freezing order because the plaintiff has delayed in seeking such an order. Again, the first defendant relies on the letter from the plaintiff’s solicitors dated 14 August 2008 and submits that there has been a dispute between the parties for some time.
I am not sure there has been delay in bringing the proceeding, bearing in mind the plaintiff’s allegations that the first defendant made further representations in October 2009 and the suggestion that there was an attempt to resolve the dispute or, at least part of it, at that time. In any event, delay in bringing the proceedings is not the same as delay in seeking a freezing order. Furthermore, even if there was delay by the plaintiff in seeking a freezing order, it is not delay which has caused any prejudice to the first defendant.
On the evidence and submissions made to me, I see no reason to refuse an interim freezing order by reference to discretionary considerations.
Non-disclosure
The first defendant submits that, on 30 March 2010, the plaintiff failed to disclose matters she ought to have disclosed. First, he submits that the plaintiff should have made disclosure of the fact that the parties have been in dispute about the matters which are the subject of the present proceeding since August 2008. Secondly, he submits that the plaintiff should have disclosed the circumstances surrounding the altercation on the property in February 2010. Thirdly, he claims that the plaintiff should have disclosed the fact that she was withdrawing $5,000 a month from the business. I do not need to determine whether there was non-disclosure with respect to these matters.
An application, ex parte, for an order may be refused or discharged because of non‑disclosure. However, that will not prevent a fresh application being made on notice. I have now heard from both parties, and I am satisfied that an interim freezing order should be made.
Conclusion
In all the circumstances, I consider it appropriate to make an interim freezing order.
I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. Associate:
Dated: 22 April 2010
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