Electric Mobility Company Pty Ltd v Whiz Enterprises Pty Ltd

[2006] NSWSC 580

CITATION:	Electric Mobility Company Pty Ltd v Whiz Enterprises Pty Ltd [2006] NSWSC 580
HEARING DATE(S):	11 and 12 May 2006
JUDGMENT DATE :	12 May 2006
JURISDICTION:	Equity
JUDGMENT OF:	Hamilton J
DECISION:	Mareva relief refused.
CATCHWORDS:	EQUITY [340] - Equitable remedies - Injunctions - Interlocutory injunctions - Injunctions to preserve property pending determination of rights - Mareva injunctions - Other matters - Nature of evidence required – Standard of proof.
CASES CITED:	Frigo v Culhaci [1998] NSWCA 17 Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft GmbH [1984] 1 All ER 398 Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319
PARTIES:	Electric Mobility Company Pty Limited (P) Whiz Enterprises Pty Limited (D1) Steven Reginald Grayson (D2)
FILE NUMBER(S):	SC 2290/06
COUNSEL:	M K Minehan (P) D R Pritchard & E C Muston (Ds)
SOLICITORS:	McCabe Terrill (P) McLaughlins Solicitors (Ds)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

FRIDAY, 12 MAY 2006

2290/06 ELECTRIC MOBILITY COMPANY PTY LTD v WHIZ ENTERPRISES PTY LTD & ANOR

JUDGMENT

1 HIS HONOUR: This is an application for Mareva relief. The proceedings arise from a failed dealership arrangement between the plaintiff and the defendant in respect of electric mobility carts imported from China by the plaintiff. The second defendant was the principal of the first defendant. The relationship has broken down. The plaintiff has sued the first defendant for damages for breach of contact and under the Trade Practices Act 1974 (Cth) (“the TPA”). The second defendant is sued in relation to the same matter by reason of an indemnity given by him in respect of the first defendant’s liability under the contract and by reason of his alleged involvement in the misconduct under the TPA.

2 This application is against the second defendant only. It has not been seriously argued that the plaintiff has not established a prima facie cause of action against the second defendant. Similarly it is not really controverted that the plaintiff has demonstrated that there is potential for the quantum of damages being in six figures.

3 However, there has been serious controversy as to whether or not the plaintiff has established in the requisite way a sufficient danger of the disposal of assets to support Mareva relief at this stage.

4 What is generally regarded as the locus classicus in relation to the requirements for Mareva relief is the statement of Gleeson CJ (when Chief Justice of this Court) in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321 - 322.

“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.”

5 The requirement as to evidence to establish the threat to dispose of the assets was further discussed in the Court of Appeal in Frigo v Culhaci [1998] NSWCA 17. The Court (Mason P, Sheller JA and Sheppard AJA) said:

“A plaintiff must establish, by evidence and not assertion, that there is a real danger that, by reason of the defendant absconding or removing assets out of the jurisdiction or disposing of assets within the jurisdiction, the plaintiff will not be able to have the judgment satisfied if successful in the proceedings. There has been much debate as to the precise degree of risk which must be shown: see generally Patterson . What is clear is that mere assertions that the defendant is likely to put assets beyond the plaintiffs reach will not be enough: Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [19 8411 All ER 398; Patterson .

The evidence relied upon at the contested hearing fell far short. The admissions in the ‘without prejudice’ correspondence should have been ignored. The sale of an encumbered home unit at a figure above market value does not, standing alone, imply disposal of assets in order to defeat a prospective judgment, even where the purchaser is a close relative. Even if, which is doubtful, the appellant’s suspension of work in the building contract could have been regarded as evidence of financial difficulties, it was not argued below that it had such effect. More importantly, that alone is not enough. A mareva injunction is not designed to stop a person from sliding into insolvency.”

6 The relevant passage in the judgment of Mustill J in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft GmbH [1984] 1 All ER 398 at 406 was as follows:

“It is not enough for the plaintiff to assert a risk that the assets will be dissipated. He must demonstrate this by solid evidence. This evidence may take a number of different forms. It may consist of direct evidence that the defendant has previously acted in a way which shows that his probity is not to be relied on. Or the plaintiff may show what type of company the defendant is (where it is incorporated, what are its corporate structure and assets, and so on) so as to raise an inference that the company is not to be relied on. Or, again, the plaintiff may be able to found his case on the fact that inquiries about the characteristics of the defendant have led to a blank wall. Precisely what form the evidence may take will depend on the particular circumstances of the case. But the evidence must always be there. Mere proof that the company is incorporated abroad, accompanied by the allegation that there are no reachable assets in the United Kingdom apart from those which it is sought to enjoin, will not be enough.”

7 In determining an application of this sort, one must bear in mind that the criteria stated by Gleeson CJ as cited above must be proved on the balance of probabilities in the way and to the extent that is usual in interlocutory applications for restraint generally. There is no need for the case to be made out in some special way. The reference by Mustill J to “solid evidence” is meant in my view only to emphasise that there must be actual evidence from which the appropriate inference may be drawn by the Court. On the other hand, the appellate courts have reminded primary judges that they must always be vigilant to ensure that parties’ assets are not frozen and their business lives impeded lightly and that Mareva relief is not to be used to give plaintiffs security for the satisfaction of their judgments.

8 The contest in this case has been a close one. The application has been brought on for a final interlocutory hearing in a very short time and the evidence has been fragmentary and unsatisfactory. However, there are a number of things to be observed. Some of the matters which the plaintiff initially relied on, such as removal from business premises and cancellation of telephone services, have in fact been explained satisfactorily. In essence, they have been caused by cessation of business activities by reason of other injunctive relief obtained by the plaintiff.

9 The evidence that is available for the plaintiff to rely on is essentially as follows. The second defendant and his wife have purchased a new house and have set about selling their existing residence. That has occurred this year after the plaintiff first notified the second defendant of a damages action. That is the single most important fact that the plaintiff has to rely on. The new house, which is smaller and less valuable than the old house, was bought, true it is, in the wife’s name alone, but without any reliance on proceeds of the sale of the old house. The purchase of the new house has already been completed. The sale of the old house has not even now having been effected.

10 An affidavit was sworn on information and belief by the defendant’s solicitor, to the effect that, when the old house, which is in joint names of husband and wife, sells, “the net proceeds of sale will be used to renovate the Noosa House and to re-establish Mr Grayson in business.”

11 Mr Minehan, of counsel for the plaintiff, submitted that the way in which this was framed was coy or disingenuous. He said that the statement would remain true if, of the equity received out of the old house (currently stated at $200,000), virtually the lot was spent upon renovating the new house in Mrs Grayson’s name, removing all the funds from Mr Grayson’s purview.

12 However, this morning an undertaking to the Court has been proffered on behalf of Mr Grayson that he will use at least 50 per cent of the net proceeds of sale of the old house “to re-establish the second defendant in business”.

13 It should be added that there is another piece of real property in Queensland in joint names, an investment unit, apparently which is said to be subject to three mortgages, but is not currently being sold.

14 Further evidence was led this morning on behalf of the plaintiff in an attempt to suggest that the business into which Mr Grayson has decided to put the funds when they became available is the business of Eagle Carts Pty Ltd, in which he has no interest as a shareholder and of which he is not a director. However, I could not infer, on the available material, that there is any intention for the money to go into that company in any form. Mr Minehan particularly emphasised that the nature of the danger was wide including disposal within the jurisdiction or dealing otherwise with the assets with the effect specified.

15 Whilst the undertaking proffered is in general terms, nonetheless the expenditure which must be undertaken while it is current, must be expenditure to re-establish the second defendant in business and the second defendant risks being in contempt of Court if he spends money in breach of the undertaking.

16 Mr Minehan has laboured mightily and said everything that could be said in support of the plaintiff’s application. However, in the end, I have come to the view that I cannot on the material available come to the conclusion that any or any such danger is shown of a dealing with assets by the second defendant that would found Mareva relief. The result is that the notice of motion be dismissed.

17 I have heard short but helpful submissions from both counsel on the costs of the application. In particular, both counsel have asked me not to reserve the costs of the application and I think that is a very sensible approach on both their parts.

18 It is true I have said that the contest was close. It is true that the undertaking brought forward this morning on the second defendant’s part played a part in the result which the second defendant has obtained. However, I have come to the conclusion that there is not sufficient reason to deflect the usual result in the case of an unsuccessful interlocutory application.

19 The orders I make are:

(1) I dismiss the plaintiff’s notice of motion filed on 9 May 2006.
(2) I order the plaintiff to pay the second defendant’s costs of the notice of motion.

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