Eltech Services Pty Ltd v Corrie - [2017] WADC 161

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: ELTECH SERVICES PTY LTD -v- CORRIE [2017] WADC 161

CORAM: EATON DCJ

HEARD: 12 DECEMBER 2017

DELIVERED : 20 DECEMBER 2017

FILE NO/S: CIV 4365 of 2017

BETWEEN: ELTECH SERVICES PTY LTD
Plaintiff
AND
LYNETTE ALISON CORRIE
First defendant
MARCEL PAUL CORRIE
Second defendant

Catchwords:

Freezing orders - Application to discharge - Principles

Legislation:

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

Result:

Application dismissed

Representation:

Counsel:

Plaintiff:     Mr E W L Greaves
First defendant              :     Ms T McAulay
Second defendant          :     Ms P A Martino

Solicitors:

Plaintiff:     D'Angelo Legal
First defendant              :     McAulay Legal
Second defendant          :     P A Martino

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

Bell Group NV (in liq) v Aspinall (1998) 19 WAR 561
BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd [2010] WASC 25

EATON DCJ: The plaintiff commenced action by the filing of a writ of summons on 28 November 2017. It was accompanied by a statement of claim pleading that from 8 December 2014 to 30 June 2017 the plaintiff employed the first defendant as its office manager. The plaintiff claims that the first defendant, while so employed, caused the plaintiff to transfer $523,189.84 to a Westpac bank account jointly held by the defendants. These were funds, said the plaintiff, to which the defendants had no entitlement. The plaintiff pleads that it was later paid $30,000 in reduction of the amount taken from its accounts. It claims the balance, being the sum of $493,189.84.
Also on 28 November 2017, the plaintiff filed a chambers application for freezing orders with respect to certain property and assets of the defendants, the application to be heard urgently on an ex parte basis. It was supported by suitable written material including affidavits and an undertaking as to damages.
On 30 November 2017, having heard counsel for the plaintiff and considered the materials provided in support of the application for a freezing order, I made orders to that effect, including as to the service of documents on the defendants and various other entities. Those orders were made pursuant to O 52A r 2 of the Rules of the Supreme Court 1971 (WA) (RSC).
The writ, statement of claim, freezing order and associated documents were duly served on both defendants. On 7 and 8 December 2017, respectively, the defendants, Marcel Paul Corrie and Lynette Alison Corrie, filed memoranda of appearance.
On 7 December 2017 Marcel Paul Corrie filed an application seeking orders that:
1.the freezing order be discharged; and
2.the plaintiff pay the costs (including reserved costs) of both defendants of the application of 27 November 2017 and of their 'joint application'.
By a further chambers summons filed on 8 December 2017, the first defendant sought orders that:
1.the freezing order be discharged; and
2.the plaintiff pay the costs (including reserved costs) of the first and second defendants of the plaintiff's application dated 27 November 2017 and the costs of the first and second defendants' 'joint application dated 7 December 2017'.
The defendants are husband and wife.
On 7 December 2017 the first defendant, Lynette Alison Corrie, filed an affidavit in which she deposed to her having been an employee of the plaintiff, her employment being terminated in late June or early July 2017. At par 12 she said:
The circumstances of my employment being terminated created some difficult issues between Marcel and I, however, Marcel told me that he will support me in the issues raised by Eltech.
To that end, the first defendant says that her husband, the second defendant, had decided to re‑finance their family home by transferring it to his name alone 'to allow me to apply 50% of the equity to Eltech'. In consequence, on about 8 September 2017 the first defendant's interest in the family home was transferred to the second defendant and the first defendant received $115,000 which was deposited into her solicitor's trust account.
The second defendant has sworn an affidavit on 8 December 2017. He annexes a statement of assets and liabilities and income and expenditure. At par 33 he deposes as follows:
I have no liability whatsoever to Eltech Services Pty Ltd. The matters that I undertook as outlined in par 32 of this affidavit were to assist my wife.
The first part of that sentence is a statement of law. Ultimately, the question of liability will be decided, if the matter proceeds to trial, by a judgment. In the interim, the defendants are yet to plead to the plaintiff's statement of claim.
The plaintiff claims to have a strong case against the first defendant. The plaintiff concedes that, while it does have a claim against the second defendant, it may not be as strong as that against the first defendant. The appearance of the transaction concerning the family home was, contends the plaintiff, that the first defendant was divesting herself of her interest in a significant jointly owned asset.
Order 52A r 2 RSC provides that a court may make a freezing order with or without notice to the 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 will be wholly or partly unsatisfied. It further provides that 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.
In the matter before me the applicant was not concerned with the removal of assets from the jurisdiction but, rather, with the prospect that assets might be disposed of, dealt with or diminished in value.
In support of their applications to discharge the freezing order, both defendants filed joint submissions on 11 December 2017. They contend that the order should be discharged because:
(a)there was insufficient evidence before the court on 30 November 2017 to demonstrate a danger or risk of dissipation of assets; and
(b)there had been non-disclosure at the hearing of the application.

Dissipation of assets

I am satisfied that, so far as the plaintiff was concerned, the principal asset of the first and second defendants, being a married couple, was their family home. That property, as at 30 June 2017, was owned by the first and second defendants, being the registered proprietors, as joint tenants. On about 8 September 2017 the first defendant transferred her interest in that asset to the second defendant and received, in consideration of that transfer, an amount of $115,000 which was paid into her solicitor's trust account.
In simple terms, the principal asset of the first defendant had been transferred to the second defendant. On the material before me it was apparent that the plaintiff's claim against the first defendant was particularly strong, to the point where there may not be any defence to the claim at all.
The second defendant had never been an employee of the plaintiff. The second defendant had no involvement with the administration of the plaintiff's business. The claim against the second defendant is, therefore, based on the proposition that, firstly, the second defendant had materially benefited from funds taken by the first defendant from the plaintiff and, secondly, that he knew or ought to have known the source of the funds.
On the material before me, on 30 June 2017, the defendants appear to have had no asset which could be said to have been acquired by the first or second defendant, or both, derived from the funds taken from the plaintiff. The inference urged upon me by the plaintiff is that the funds taken have been spent by the first and/or second defendant or both.
As between the defendants, there would likely have been a realisation, following the termination of the first defendant's employment by the plaintiff, that the case against the first defendant for recovery was strong but that the case against the second defendant might be less so. In other words, the claim against the first defendant might be indefensible, but the claim against the second defendant might be defensible. In that context, the transfer of the principal asset, the family home, from the joint ownership of the defendants to the sole ownership of the second defendant was a disposing of a significant asset. That disposition was, in the context of the claim, a significant one, bearing in mind that the plaintiff was seeking to recover an amount more than four times greater than the amount deposited into the first defendant's solicitor's trust account.
The onus of proving the risk of a judgment being rendered fruitless is on the plaintiff. The standard of proof of the danger of non-satisfaction of a judgment is that the risk must be real and not fanciful. In that regard, the defendants cite Le Miere J in BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd [2010] WASC 25 [13] – [15].
At par 81 of his affidavit sworn on 24 November 2017, Matthew Jenkin, a director of the plaintiff, said:
Kealeigh Barker (solicitor at D'Angelo Legal) told me and I believe that on or about 8 September 2017 Lyn transferred her interest in a property at Landsdale to Marcel. I am extremely concerned that Lyn and Marcel may have tried to move assets around to avoid having to pay Eltech.
It is true that, from very early on in their post-employment dealings, all parties were represented by lawyers. In her affidavit sworn 7 December 2017 Tina McAulay, solicitor for the first defendant, deposed that between July and October 2017 she had been in negotiation with the plaintiff's solicitor. My expectation is that the plaintiff was hopeful of recovering, in full, its loss. Ms McAulay says that she was negotiating to achieve 'an amicable resolution' for her client. Draft documents were exchanged on a 'without prejudice basis without admission of liability'.
It may have been the attitude of the defendants that, in terms of negotiation, the plaintiff might be prevailed upon to accept a lesser amount in full satisfaction of the amount claimed. Alternatively, the plaintiff might be prevailed upon to accept payment of the full amount by instalments with interest accruing. Such matters may well have been the substance of negotiation in the absence of a liquidation of assets by the defendants.
The prospects for full recovery by the plaintiff were, it would seem, in the short term, negligible. My understanding is that the defendants were not offering to liquidate their assets, but rather to achieve a compromise. In that context, the transfer of the first defendant's interest in the principal asset of the defendants to the second defendant may be characterised by the defendants as an organisation of their assets for the benefit of the plaintiff. It might also be seen, from the plaintiff's perspective, as an attempt to remove an asset from its reach.
It is the risk which must be real and not fanciful. In my view, in terms of dissipation of assets, the plaintiff's concerns were justified and the facts warranted the imposition of a freezing order to maintain the status quo.

Material in non-disclosure

By letter of 28 November 2017 the plaintiff's solicitor wrote to the principal registrar of the court as to the filing of the plaintiff's writ, statement of claim, application for freezing orders and associated documents including the affidavit material relied upon. In particular, the affidavit material comprised:
1.an affidavit of Mathew Jenkin sworn 24 November 2017;
2.an affidavit of Paul Screaigh sworn 24 November 2017; and
3.an affidavit of John Budrovich sworn 24 November 2017.
The first two deponents are directors of the plaintiff. The third was, at the material time, the plaintiff's accountant.
It is the duty of a party asking for ex parte freezing orders to bring forward all the material facts known to the applicant, which the absent party would presumably have brought forward in its defence to the application. A freezing order, like any other order obtained without notice, is liable to be discharged for material non-disclosure. Material facts are facts which will be material for the judge to know in determining the application. The issue of materiality is to be decided by the court and not by the applicant or the applicant's legal representatives. In Bell Group NV (in liq) v Aspinall (1998) 19 WAR 561, 570 the court said:
It is very difficult to give a general definition of the extent of the disclosure required because each case depends so much on its own facts. It is sufficient to say that the applicant must make a full and fair disclosure of all matters within its knowledge which are material to the proceedings and which tend in favour of the other party.
It is the case that the directors of the plaintiff, in their respective affidavits, in some detail, put before the court their account of the discovery of the missing funds and their dealings with the first defendant in the days and weeks thereafter. In par 80 of his affidavit Paul John Screaigh deposes:
Kealeigh Barker (a solicitor at D'Angelo Legal) told me and I believe that on or about 8 September 2017 Lyn transferred her interest in a property at Landsdale to Marcel. I am extremely concerned that Lyn and Marcel are trying to secure their assets so Eltech have no claim over them or otherwise avoid any recovery.
The final paragraph of the affidavit of Mathew Jenkin, a co‑director of the plaintiff, as quoted above is in similar terms.
None of the three affidavits filed by the plaintiff in support of the application for freezing orders deposes to the negotiations (which had clearly been underway for some time) as at 8 September 2017 and, to some extent, continued thereafter. As mentioned, those negotiations were being conducted on a 'without prejudice and without admission of liability' basis with the intent that there be, according to the first defendant's solicitor, 'an amicable resolution'.
It is perhaps not surprising that negotiations were on foot. The plaintiff was concerned to recover its loss. Some small part of the loss had been recovered and there appeared to be a commitment, at least so far as the first defendant was concerned to attempt to make good the loss.
As to the particular non‑disclosure complained of, the defendants contend, in written submissions, that certain facts should have been brought to the court's attention.
The first is that though the first defendant had been employed by the plaintiff on 8 December 2014, the directors of the plaintiff took no steps until two years later (being late 2016) to change a Commonwealth Bank of Australia token from the former employee, Judy Scott, to the first defendant.
The suggestion that arises from the foregoing is that the plaintiff, in applying for the freezing order, should have disclosed that it had not diligently taken steps following the first defendant's employment to mitigate the possibility that she might misappropriate funds from it. I do not regard that circumstance as being a matter that should have been disclosed to the court in the context of an application for a freezing order on an ex parte basis. The plaintiff, upon employing the first defendant, was, surely, entitled to rely upon the first defendant's honestly.
The defendants complain that the plaintiff should have disclosed that on 24 August 2017 Paula Martino, solicitor for the second defendant, received, by email, from the solicitors for the plaintiff a draft acknowledgement of debt and a draft mortgage. The former apparently named the second defendant as a joint and several debtor with the first defendant, the debt said to have been owed to Eltech Services Plumbing and Electrical Contractors Pty Ltd and the plaintiff, Eltech Services Pty Ltd. There was, it seems, telephone conversations between the solicitor for the second defendant and the solicitor for the plaintiff as to the cause of action of Eltech Services Plumbing and Electrical Contractors Pty Ltd. That company is not a party to these proceedings. I am not aware of its relationship to the plaintiff or to the defendants, if any. It appears that no acknowledgment of debt or mortgage were settled or executed.
On the face of the material before me it seems that the relationship between the plaintiff and first defendant was, undoubtedly, one of employer and employee. The matter of the draft acknowledgment of debt and correspondence associated with it does not, in my view, constitute material which should, in all propriety, be disclosed by the plaintiff in the context of its application for an ex parte freezing order.
The defendants note that the plaintiff had made no written request of either defendant to produce documents despite 'an indication' that a discovery application was pending. There was no litigation on foot prior to 28 November 2017. The plaintiff may have been contemplating pre‑action discovery. Such matters are not, in my view, material. In any event, the absence of a written request for the provision of documents does not mean that no request was made.
The defendants refer to the absence of a 'request for any payments or return of the funds'. This contention is without merit. The continuing 'without prejudice' negotiations were clearly being conducted on the basis that the plaintiff was anxious to recover its funds and that the defendants were anxious to achieve 'an amicable resolution'.
The means by which the solicitor for the plaintiff became aware of the transfer of the Lansdale property on or about 8 September 2017 is a matter of factual detail of no moment. That awareness may have been the result of a conversation with the solicitor for the first defendant or in consequence of a Landgate search being carried out, or both. Clarification of that matter does not amount to material non‑disclosure.
The matter of the sum of $115,000, said to be in consequence of the re‑financing of the Landsdale property, being deposited into the trust account of the solicitor for the first defendant was disclosed to me at the hearing of the application. It is true that the first defendant's solicitor advised the plaintiff's solicitor by email of 13 September 2017 that she had received and was holding in her trust account the sum of $115,000 from her client 'in anticipation of our clients entering into a settlement deed in relation to the matter between them'. That did not amount to an offer of payment. The future of the funds deposited, although uncertain, was contingent upon the plaintiff and the first defendant reaching 'an amicable resolution'. As of 28 November 2017 no such resolution had been achieved. To that point, the first defendant had paid $30,000 in reduction of the debt.
The remainder of the defendants assertions as to non‑disclosure relate to the content of correspondence passing between the solicitors for the respective parties and the occasional telephone conversation as between those persons. In broad terms, it is fair to say that the affidavits of the directors of the plaintiff filed in support of the application for freezing orders make no reference to the negotiations being on foot as between about 13 September 2017 and 28 November 2017. It is material that the parties were in negotiation in that period but it is equally material that those negotiations, as at the application for freezing orders had proved fruitless.
At the hearing on 30 November 2017 Mr Greaves for the plaintiff said, referring to Kealeigh Barker, the following:
She's a solicitor at D'Angelo Legal. She has on behalf of the plaintiffs had some negotiations with Tina McAulay and Paula Martino. Ms Barker's affidavit attaches one very heavily redacted without prejudice letter and it's important that I draw that to your Honour's attention. We have not annexed without prejudice correspondence without giving the matter considerable thought. In our submission, the single paragraph of the letter that we have left exposed is not a without prejudice communication and in the alternative if it is, it is necessary as a matter of disclosure to the court on an ex parte application that we make your Honour aware of it.

It is sufficient disclosure, in my view, in circumstances where the parties have been in negotiation without success to disclose the fact of unsuccessful negotiation without the need to disclose the terms of offers and counter‑offers on a without prejudice basis, particularly so in circumstances where there is, at least on the part of the second defendant, if not both defendants, no admission as to liability.
Certainly, there was a delay between the revelation of the transfer of the first defendant's interest in the Landsdale property and the making of the application. That may, at least in part, if not entirely, be a consequence of ongoing negotiation along with a growing distrust of the motives of the defendants and the realisation that, from the plaintiff's perspective, the negotiations might prove fruitless.
On balance, I am not persuaded that there was material non‑disclosure on the part of the applicant to warrant a discharge of the freezing orders. The orders, however, having achieved a maintenance of the status quo, need not be maintained in their present form. If the parties are able to agree alternate measures such that the principal assets are left substantially intact and undiminished in value I am prepared to vary or discharge the freezing orders. I will hear the parties in that regard.