Everhard Industries Pty Ltd v. Ross
[2006] QSC 329
•31/10/2006
[2006] QSC 329
SUPREME COURT OF QUEENSLAND
CIVIL JURISDICTION
ROBIN A/J
No S4084 of 2006
| EVERHARD INDUSTRIES PTY LTD (ACN 009 960 859) | Plaintiff |
| and | |
| JOHN ROSS | First Defendant |
and
ELIZABETH ROSS Second Defendant
and
WASTE WATER EQUIPMENT SUPPLIES PTY LTD Third Defendant
(ACN 105 221 467)
and
SELWYN DAVIS Fourth Defendant
(added by counterclaim)
BRISBANE
..DATE 31/10/2006
ORDER
CATCHWORDS: Uniform Civil Procedure Rules r 260 Mareva order - whether court lacked jurisdiction in a contested application because supporting affidavits did not contain all of the "information" listed in r 260 (4).
HIS HONOUR: This is an application under rule 260 for a
Mareva order by a plaintiff. It is the all too familiar
scenario of former employees and the trading entity in which
they now carry out their income earning activities being
pursued.
The applicant sets considerable store by the contention that a
lack of frankness in the defendant's pleading, which it says
is damning, bespeaks dishonesty of a kind said to present an
analogy with the circumstances in Patterson v. BTR Engineering
(Aust) Ltd (1989) 18 NSWLR 319, with particular reference to a
passage commencing at 325E.
The third defendant is the entity for which, since late last
year, Mr and Mrs Ross have worked. It is perhaps unclear to
what extent they claim ownership of it now. Their contention
is that at all times before they resigned from the plaintiff's
employment in late 2005, it was the business of Mrs Ross 's
sister, who, for reasons of ill health, found herself marooned
in New Zealand. She gave her address as a house at St Lucia
owned or occupied by the Ross's son.
There was a manager controlling the business of the third
defendant. Circumstances which the plaintiff contends are
suspicious include Mr Ross's having engaged Mr McKenzie-Ross,
no relation, negotiating his terms of employment and the like.
Documentary material tends to show that Mrs Ross, too,
exercised influence, if not control, over the manager of the
third defendant, or sought to.
It was known to the plaintiff's manager that the Ross's owned
the building where the third defendant, active in the same or
an associated area of commerce, conducted its business in
Geebung. Also, that they knew the owner of that business.
Material in evidence indicates that the links were rather
greater. They include Mrs Ross's being a signatory on the
bank account. Against that background, it is concerning to
the plaintiffs that the Ross's, both of whom appear to have
signed at least 21 purchase orders directed to the third
defendant from the plaintiff, which are in evidence, put
business which the plaintiff had to offer the third
defendant's way. It might be the case, as the Ross's contend,
that the plaintiff got a good deal on those occasions and
could not have done any better.
The plaintiff prosecutes the matter, however, on the basis
that the individual defendants, as officers or employees of
it, breached the duties of good faith and the like which
were owed to it pursuant to "sections 182(1), 183(1), 184(2)
and 184(3) of the Corporations Act 2001."
The relief sought pursuant to section 1317H is an accounting
to the plaintiff for profits and compensation for loss and
damage suffered. Other relief sought in the proceeding
include returns of certain property of the plaintiffs,
alternatively damages for wrongful detention of that property.
On the basis of fiduciary or like duties being owed by the
Ross's and any breach of them in which the third defendant may
be seen as complicit, there can arise a duty to account for
those profits. Mr Formica of the plaintiff has quantified the
claim in that regard as up to $426,000 or thereabouts. The
plaintiff has not quantified in a similar way the loss
involved in the diversion elsewhere of business which it says
it should have had.
That can be a significant difficulty where a Mareva injunction
is sought, as the Court should be astute not to impound or
freeze assets well in excess of the value of a claim being
pursued. It is a radical enough thing to do to give a
plaintiff an indirect kind of security, imperfect as it is,
for a claim without doing so in respect of some
inappropriately high value of assets. That observation
provides an introduction to the technical deficiencies to
which Mr Wilson, in his able submissions, which merit a
tribute, drew attention, based on subrule (4)(b)(a)(ii)(c) and
(e)(i)(ii) of rule 260. This is not the common situation of
an order sought without notice to the persons who will be
affected, under rule 259, where the importance of
"information" listed is readily understandable.
There seems to be no fear in the present circumstances,
notwithstanding that Ms Rault must be presumed to have a New
Zealand domicile, that assets might be removed from Australia.
Mr Clothier for the applicant urged on the Court that it
should not construe subrule (4) as mandatory where it provides
that the supporting affidavits "should include" listed
information. In my opinion, it is appropriate to read that
subrule in connection with associated rules in the relevant
part of the UCPR, including rule 258 subrule (2), which
contemplates that such orders may be sought before a
proceeding starts. If an order is applied for at that stage,
then the necessity for affidavits to set out the basis of the
claim for principal relief is obvious.
It is not so clear that where there is a statement of claim
disclosing an intelligible cause of action the affidavit
must satisfy the same requirement. As appears elsewhere, I
think it is right for the Court to be concerned about the
amount of the claim and its troubling feature, that a large
component of the plaintiff's claim has not been quantified
here as yet, even in a pleading.
So far as paragraphs (b)(ii) and (c) are concerned, what is
pointed to is Mr Formica's affidavit in paragraph 38 where the
deponent refers to his concern that:
"The first defendant and the second defendant are
dealing with their assets in a manner which might defeat
the ability of the plaintiff to execute any judgment
which it obtains against them. I therefore believe that
the first defendant and the second defendant should be
restrained from dealing with their assets in such a
manner."
In the circumstances of this application where there is a
wealth of material before the Court, I think that the Court
should not accede to Mr Wilson's submission that there is no
jurisdictional basis upon which the Court may make an order.
The uncontested material shows that the Ross's have sold the
property at Geebung and have put on the market a residence at
28 Church Road, Zillmere and 32 Church Road, Zillmere.
Indeed, as I understand it, there is an unconditional contract
in existence for that property.
Mr Clothier indicates the plaintiff's attitude is that it
would not wish to prevent the completion of a genuine contract
of sale. That may be particularly the case to the extent that
the proceeds may be applied to the acquisition of further real
estate. While the plaintiff sees the disposal of a property
as sinister or concerning, Mr Ross explains it in terms of the
changed circumstances in which it is no longer convenient or
necessary for them to live close to their former employment
with the plaintiff.
Furthermore, there are associations with a son who resided
there with them who has recently, unfortunately, passed away.
That bereavement was the basis of some indulgence being
allowed by the plaintiff from the point of view of getting a
defence filed. It is also the basis of Mr Wilson's urging
that the Court take an understanding attitude about the
supposed lack of frankness of his clients in their pleading.
It is asking a lot, he submits, of bereaved people to expect a
completely punctilious pleading exercise. All sorts of things
get into pleadings in a system which does not require that
they be sworn to and the Court should take that into account.
There remain some difficulties for the Ross's in that regard,
including their bald denials that they played any part in the
affairs of the third defendant and, indeed, in specific
respects such as Mrs Ross's role as bank account signatory.
For present purposes, at least, the plaintiff has been able to
demonstrate the falsity of such stances in the pleading.
An important recent development reported in Mr Ross's very
recent affidavit is the establishment of a company called Eco
Water Pty Ltd. The Court lacks full details of it, such as an
ACN or the identities of its shareholders. The Ross's see
business opportunities in the area in which they have
expertise (including that acquired by working for the
plaintiff) in the area of commerce being pursued by Eco Water.
Mr Ross says, and in the circumstances this is uncontested,
that Eco Water is a commercial rival of a division of the
plaintiff called Aqua Nova. That is a troublesome aspect of
the application.
Mr Clothier made it clear that in contemplating that the
defendants might under the order sought dispose of or deal
with assets for the purpose of carrying on a business or
occupation currently carried on by them as contemplated in the
application, there would be no room for Eco Water Pty Ltd to
participate. The Ross's are concerned that it not be starved
of funds, as should the Court be.
Rule 264 subrule (5) makes it clear that the undertaking as to
damages, which would be a necessary part of any order, no good
reason otherwise appearing to satisfy rule 264(1), would
extend to protect Eco Water Pty Ltd and, indeed, all third
parties.
My approach in this application is, and I find myself
comfortably satisfied, that it is an appropriate case for
relief under rule 260. The circumstances established by
uncontested evidence, leaving aside the other evidence which
is contested, tend to show a disturbing involvement of the
Ross's with the third defendant at times when they remained in
the plaintiff's employ and owed it duties of good faith. I am
not inclined to act on the assertion in the defence not
verified in any way in the affidavit that Mr Formica or others
in the plaintiff knew more of the Ross's involvement with the
third defendant than Mr Formica concedes. I think there is a
promising case shown for an account of profits.
Although the defendants have deposed to innocent intentions
and motives in the sales of real property, I think there is a
proper concern that the plaintiff's claim might be defeated if
there is any dissipation or concealing of the proceeds of
sale. It is not incumbent on a plaintiff to show that a
defendant has an improper purpose. See Northcorp Limited v.
Allman Properties (Australia) Pty Ltd [1994] 2 QdR 405.
I understand that there is one further item of real property,
namely, a unit Mr Ross has at Taigum.
I have done considerable surgery upon and redrafting of the
terms of the application. It is probably convenient that I
read into these reasons the state it is currently in from the
point of view of constituting a draft order:
Upon the plaintiff, by its counsel, giving the usual
undertaking as to damages, which extends to nonparties,
including Eco Water Pty Ltd, the Court orders:
That until the determination of this proceeding or
further order the defendants, whether by themselves,
their servants or agents be restrained from:
A. Removing any of their assets from Australia;.
B. Disposing of, selling, transferring, mortgaging,
encumbering or otherwise dealing with any of their
assets except -
(i) For the purpose of carrying on any business or
occupation carried on by them, including Eco
Water Pty Ltd, so long as the defendants are
the only shareholders and nontrade
creditors of it, in the bona fide and ordinary
course of that business or occupation.
(ii) In the case of the first and second defendants,
for the purposes of paying their reasonable
living expenses.
(iii)For the purposes of paying their bona fide
debts and liabilities.
(iv) For the purposes of paying their reasonable
legal costs and outlays in connection with the
proceeding,
but not so as to prevent the completion of any genuine sale already entered into.
That the defendants keep and maintain accurate records of
any dealing with any of their assets having a value in
excess of $10,000.
That the defendants provide to the plaintiff's solicitors
within seven days of the date of this order an affidavit
or affidavits listing each of their assets having a value
in excess of $10,000, the locations of them and the
approximate values of them, except for assets already
disclosed to the plaintiff or its solicitors.
That the defendants provide to the plaintiff's solicitors
seven days advance notice in writing of any proposed
dealing with their assets which exceeds $10,000,
identifying reasonable particulars of the proposed
dealing. This provision not to apply to any transaction
in the ordinary course of business.
That costs of and incidental to the application to be
assessed on the standard basis be costs in the cause.
That after 14 days from today, the restraint in paragraph
1 be limited to assets having an aggregate realisable
value of $750,000 unless within that time the plaintiff
files an affidavit showing how its monetary claim in this
proceeding exceeds or probably exceeds $750,000.
Liberty to apply.
HIS HONOUR: Counsel might have questions about that.
MR CLOTHIER: I do. Only two, your Honour.
HIS HONOUR: Well, do you understand the idea, you've got-----
MR CLOTHIER: Yes.
HIS HONOUR: It's limited to $750,000 unless you file
something in the Court showing why it should be - why it
should apply to more.
MR CLOTHIER: I agree - I understand that, your Honour. Can I
submit that the reference to "aggregate realisable value"
really should be "net value"-----
HIS HONOUR: Well, that might be right, but-----
MR CLOTHIER: -----for the simple reason that one could sell,
probably subject to debts-----
HIS HONOUR: I'm just trying to make sure there's $750,000
left.
MR CLOTHIER: The reference to "net value" is appropriate in
those circumstances, in my submission, so that they can
sell-----
HIS HONOUR: So, you want "aggregate realisable net value"?
MR CLOTHIER: Yes, your Honour.
HIS HONOUR: All right. Well - all right.
MR CLOTHIER: So that they could sell-----
HIS HONOUR: Yes, all right.
MR CLOTHIER: -----assets which retain-----
HIS HONOUR: Yes.
MR CLOTHIER: So that that they have a net value of $750,000?
HIS HONOUR: Has net got one "T" or two?
MR CLOTHIER: Sorry, your Honour?
HIS HONOUR: Has net got one "T" or two?
MR CLOTHIER: One, I think, your Honour.
HIS HONOUR: Has it? Yes?
MR CLOTHIER: And, your Honour, given that this issue - we
have no issue with the completion of any bona fide
contract-----
MR CLOTHIER: Yes.
HIS HONOUR: -----but given it's an issue that's really raised
recently and without any production of the contract, can we
have a direction that the contract be produced so that we can
satisfy ourselves that it's-----
HIS HONOUR: Well, they've got seven days. I think that comes
within-----
MR CLOTHIER: Well, your Honour's order 1-----
HIS HONOUR: I have no idea when completion might be due.
MR CLOTHIER: No, but your Honour's order 1 contains a blanket
exception allowing them to complete any genuine contract.
Now, in order that we might satisfy ourselves as to the
genuineness of the contract-----
HIS HONOUR: Well, all right, I could add to that "any genuine
contract of sale already entered into to be advised forthwith
to the plaintiff's solicitors" you want something like that?
MR CLOTHIER: Plus a copy of which is to be produced
forthwith-----
HIS HONOUR: All right.
MR CLOTHIER: -----to the plaintiff's solicitors so we get a
copy of it so we can see what - if it in fact's genuine.
HIS HONOUR: Yes, all right. Well, you have persuaded me at
the moment, but I've still got to hear from your adversary.
MR CLOTHIER: Yes.
HIS HONOUR: A copy of - so, I have referred to any genuine
sale already entered into, a copy of which is to be provided
to the plaintiff's solicitors forthwith. All right. So,
that's your shopping list there?
MR CLOTHIER: Yes, your Honour.
HIS HONOUR: And you understand they don't have to tell you
about any assets that are worth less than $10,000?
MR CLOTHIER: And any that have already been disclosed.
HIS HONOUR: And if they want to order a quarter of a million
dollars worth of pipes or tanks or something and they think
that can be characterised as in the ordinary course of
business, then they can do it.
MR CLOTHIER: I understand, your Honour.
HIS HONOUR: All right. Now, have you got anything you want
to say about it, Mr Wilson?
MR WILSON: Just briefly, your Honour. On the last point,
first, there is no resistance to a copy of the contract. I'm
instructed that there is a copy available and can be
forwarded.
HIS HONOUR: All right, but those words went in.
MR WILSON: Yes. Just a point of clarification, is it the
effect of the order, and I would have to read it, is it the
effect of the order that at all times a minimum of $750,000
worth of assets must be maintained? For instance, if
$250,000-----
HIS HONOUR: Well, that's what I'm thinking about at the
moment, and it might be more than that. You've got to retain
everything for 14 days.
MR WILSON: Yes, your Honour.
HIS HONOUR: Then after 14 days-----
MR WILSON: Assume the number of 750?
HIS HONOUR: -----but after 14 days, you can do what you like
with your assets provided you've got 750,000 retained.
MR WILSON: So, that means you can only put that 250,000 into
Eco Water as long as it leaves 750,000 extra, is that your
Honour's order?
HIS HONOUR: No, no, Eco Water's part of the - sorry, it-----
MR WILSON: Okay, so part of the-----
HIS HONOUR: -----provided that the shareholders in Eco Water are the Ross's - you see, I've put liberty to apply in
there-----
MR WILSON: Yes, your Honour.
HIS HONOUR: -----because I'm guessing-----
MR WILSON: Certainly.
HIS HONOUR: -----about a lot of these things. If they come
along and say, "Look, this is how Eco Water is beneficially
held: the sister in New Zealand's got one share, we've got
five shares each," or something like that, then we look at it,
but provided that they own - that Mr and Mrs Ross have all the
shares in Eco Water and provided that they haven't - then I've
attempted to stop them giving a fixed and floating charge over
all the assets to someone else. So, in other words, they
can't crush it with debt. The only debts that I am
contemplating Eco Water incurring are ordinary trade debts and
I didn't put the rent of the premises, but it would seem
obvious that they're included. I'm attempting to permit Eco
Water to trade. Now-----
MR WILSON: Thank you, your Honour.
HIS HONOUR: -----do you think I need to put in anything else
to clarify-----
MR WILSON: No, your Honour.
HIS HONOUR: -----that?
MR WILSON: If it turns out to be oppressive, there is leave
to apply.
HIS HONOUR: That's right.
MR WILSON: Liberty to apply.
HIS HONOUR: Yes.
MR WILSON: And that would satisfy - that would satisfy it,
your Honour.
HIS HONOUR: Yes, all right.
I can say orders as per initialled draft, but it's highly illegible; I have read the full order into my reasons and there were two additions to it requested by Mr Clothier, which I made.
I hope this can be resolved in some other way. You don't want directions for the future conduct of this? I suppose people want to go away and have a good think.
MR CLOTHIER: I don't think we need any at the moment, thank
you, your Honour.
HIS HONOUR: All right.
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