George Stathopoulos v Welner Lawyers Pty Ltd
[2024] VSC 591
•20 September 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S CI 2024 04879
| George Stathopoulos | Plaintiff |
| v | |
| Welner Lawyers Pty Ltd (ACN 640 273 552) | First Defendant |
| David Jonathan Welner | Second Defendant |
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JUDGE: | Delany J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 19 September 2024 |
DATE OF RULING: | 20 September 2024 |
CASE MAY BE CITED AS: | George Stathopoulos v Welner Lawyers Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2024] VSC 591 |
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APPLICATION FOR FREEZING ORDER – Application based on asserted allegations of serious dishonesty – Conduct complained of not within that description – Requisite risk of dissipation of assets not established – Assertion that unless restrained defendants would not preserve assets intact – Zhen v Mo [2008] VSC 300; Distinctive FX Pty Ltd v Wright [2015] VSC 299; Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Daniel Clough | Kalus Kenny Intelex |
| For the Defendants | Jonathan Korman | Ultimate Business and Legal Solutions |
TABLE OF CONTENTS
Background......................................................................................................................................... 1
Principles............................................................................................................................................. 6
Consideration...................................................................................................................................... 8
HIS HONOUR:
This proceeding was listed for an urgent hearing on 19 September 2024 before me as the Duty Judge in the Commercial Court.
On 16 September 2024, the plaintiff’s solicitors contacted the Commercial Court Registry seeking a return date on an urgent basis for a summons seeking a freezing order against the defendants to the proceeding.
On 17 September 2024, the plaintiff filed a summons seeking an interim freezing order preventing the first and second defendants from removing from Australia or in any way disposing of, dealing with or diminishing the value of any of their assets which are in Australia, up to the unencumbered value of $938,100.
The application is on notice. The defendants appeared at the hearing.
The plaintiff, Mr Stathopoulos, relies on his affidavit dated 12 September 2024 and filed on 16 September 2024. He also relies on an affidavit of his solicitor, Mr Kenny, dated 18 September 2024.
The first defendant, Welner Lawyers Pty Ltd, and the second defendant, Mr Welner, rely on an affidavit of their solicitor, Mr Malhotra, dated 18 September 2024.
The Court has received a medical report in relation to Mr Welner that indicates that he is unable to work for a period of time commencing 11 September 2024.
Background
The proceeding concerns a loan agreement and general security agreement between Mr Stathopoulos as the lender, Welner Lawyers as the borrower and Mr Welner as the guarantor, each dated 26 June 2024 (‘loan agreement’ and ‘guarantee’ respectively).
On 18 May 2021, Mr Stathopoulos engaged Mr Welner to act as his solicitor in relation to a dispute in the Supreme Court. Mr Welner acted for Mr Stathopoulos up to and including at a mediation on 5 June 2024 at which the proceeding settled.
Pursuant to the settlement agreement entered into on that date Mr Stathopoulos was to receive $1,250,000 which was to be paid to Mr Welner’s trust account. After being requested by Mr Stathopoulos to do so, Mr Welner deposited $1,221,426.56 into Mr Stathopoulos’s bank account on 21 June 2024. Mr Stathopoulos has given evidence that he assumed the amount deducted from the settlement amount was for the payment of Mr Welner’s fees though he had not received an invoice or given instructions for that deduction.
Mr Stathopoulos’s evidence is that prior to depositing the settlement amount into his bank account, Mr Welner called him and asked Mr Stathopoulos to lend him $500,000 to be lent to a client of his that he did not want to identify, on terms that included Mr Stathopoulos paying a $25,000 establishment fee and $5,000 for Mr Welner’s legal fees.
The loan was to be for one month at a high interest rate, 20% per month and 30% per month if in default.
There was a factual dispute about this conversation. Mr Malhotra’s evidence, based on instructions received Mr Welner, is that Mr Stathopoulos had requested on a number of occasions that Mr Welner arrange for him to be party to such a high interest loan where he would be the lender.
On 25 June 2024, Mr Welner sent two emails to Mr Stathopoulos documenting the proposed terms of the loan. The first email stated:
Dear George
Please find our transaction summary below for a proposed facility through our Private Wealth office. We have already procured the agreement of our confidential borrower to these terms.
1. Borrower: Welner Lawyers Pty Ltd
2. Guarantor: David Welner
3. Facility Limit: $630,000.00
4. Lower Interest Rate: 20% PCM
5. Higher Interest Rate: 30% PCM
6. Brokerage Fee: 5% of the nett available proceeds (being $25,000.00)
7. Legal Fees: $5,000.00
8. Term: 2 months with one-month minimum term
9.Interest payment dates: Monthly in advance, with the first month's lower interest rate capitalised.
10.Security: General Security Agreement for Welner Lawyers Pty Ltd, and personal guarantee of David Welner.
11. Funding Table
Please review the above and advise if you are happy to proceed.
As compensation for our taking the risk on the loan as the white labelled borrower, our borrower has agreed for us to deduct the Brokerage Fee and Legal Fee from available funds at drawdown.
As such, if you would be willing to proceed, please confirm the availability of nett funds of $530,000.00 to be applied toward the loan facility. We will then prepare loan documentation and coordinate the facility for you.
Please contact me with any queries or comments."
The second email stated:
Hi George
Further to our discussion by phone just now, please find below the updated funding table, based on calculating interest against the gross.
Please approve this change which is a further $6,000.00 applied to the gross facility limit.
On 26 June 2024, Mr Stathopoulos met Mr Welner and a solicitor, Ms Renehan, apparently employed by Mr Welner’s legal practice, at which time the parties signed the loan agreement and guarantee in relation to the proposed transaction provided by Mr Welner.
The loan agreement and guarantee are exhibited to Mr Stathopoulos’s affidavit. Pursuant to those agreements, Welner Lawyers Pty Ltd is the borrower and Mr Welner is the guarantor.
Mr Stathopoulos’s evidence is that he did not receive legal advice regarding the agreements and neither Mr Welner nor Ms Renehan suggested Mr Stathopoulos obtain legal advice. Mr Malhotra’s evidence is that the plaintiff ‘elected not to take independent advice’.
The loan agreement recorded the following recitals and definitions:
Date
26 June 2024
…
Parties
Welner Lawyers Pty Ltd (ACN 640 273 552) ATF the Weiner Lawyers Trust (ABN 74 815 749 014) of 476 Toorak Road, Toorak 3142.
(Borrower)
David Weiner of 476 Toorak Road, Toorak 3142.
(Guarantor)
George Stathopoulos of 507 Centre Road, Bentleigh 3204.
(Lender and Beneficiary)
…
Loan Amount means $530,000.00.
Loan Date means 26 June 2024 or the date of drawdown under this facility pursuant to clause 3, whichever is later.
Lower Interest Rate means a rate of rate of 20% per calendar month.
Higher Interest Rate means 30% per calendar month.
Repayment Date means the second monthly anniversary of the Loan Date.
The loan agreement also contained a clause 8.1 titled ‘Borrower’s representations and warranties’, parts of which stated as follows:
The Borrower represents and warrants that:
(a) as at the Loan Date, the Property is not encumbered by more than $2,280,000.00.
…
(e) except as disclosed in writing to the Lender and dispensed with in writing by the Lender, the Borrower is not in default or difficulty under any deed, agreement or other document or obligation to which it is a party or by which it is bound, or in respect of any financial commitment or obligation, including obligations under Guarantees or other contingent liabilities, which default or difficulty is reasonably likely to adversely affect the ability of the Borrower to comply with its obligations under this Agreement or the Security;
…
(g) no event of default or event which, with the giving of notice or the lapse of time or both, would be an event of default and, having occurred, is continuing to subsist;
(h) except as disclosed in writing to the Lender and dispensed with in writing by the Lender, no litigation or administrative or other proceedings before, or of, any court or governmental authority, agency or other tribunal have, to the knowledge of the Borrower, been initiated or threatened against the Borrower or any of the Borrower's assets which would or might have a material adverse effect on the business, assets or financial condition of the Borrower;
…
After the meeting at which the agreements were signed, Mr Stathopoulos and Mr Welner attended the bank branch where Mr Stathopoulos maintains his bank accounts. It is not in dispute that Mr Stathopoulos transferred $530,000 to the account of Welner Lawyers Pty Ltd at Macquarie Bank.
Mr Stathopoulos has given evidence that Mr Welner ‘stood over [his] shoulder and watched’ as he transferred the money. Mr Malhotra, on instructions, has given different evidence. On his instructions Mr Stathopoulos insisted Mr Welner come into the bank to ensure the details for the transaction were correctly entered.
It is common ground that the loan has not been repaid. The defendants agree that the loan is, at the date of the hearing, 24 days in arrears.
Since the 26 August 2024 repayment date there have been various communications between Mr Stathopoulos and Mr Welner regarding the loan and repayment.
Principles
The principles to be applied on an application for a freezing order are well known. They were conveniently stated by Forrest J in Zhen v Mo:[1]
[1]Zhen v Mo [2008] VSC 300 [22]-[30] (‘Zhen v Mo’).
First, that a freezing order, by its very nature, is a drastic remedy and a court must exercise a high degree of caution before taking a step which will interfere with a party’s capacity to deal with his or her assets.
Second, the order is not designed to provide security for the applicant’s claim. It is solely directed to preserving assets from being dissipated, thereby frustrating the court process.
Third, the applicant bears the onus both in satisfying the Court that the order should be continued and in satisfying the Court as to the amount which is to be the subject of the order.
Fourth, that an order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no substitute for either the facts or inferences properly drawn from proved facts.
Fifth, that before such an order can be made it is necessary that the applicant establish
(a) an arguable case against the defendant; and
(b) that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendant’s actions in either removing the assets or disposing or dealing with them so as to diminish their value.
Sixth, the balance of convenience must favour the granting of the freezing order.
Seventh, that there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case.
Eighth, the applicant must establish with some precision the value of prospective judgment. The order should not unnecessarily tie up a party’s assets and property.
Finally, there may be discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court.
In Distinctive FX Pty Ltd v Wright,[2] Elliott J recited Forrest J’s statement in Zhen v Mo and further said:[3]
In addition to the matters set out above, a further proposition may be added. The evidence relied upon by a plaintiff in seeking to establish an arguable case against a defendant may also be relied upon to demonstrate that there is a danger a prospective judgment will be wholly or partly unsatisfied as a result of the removal, disposal or diminishing of assets. Where the allegations made against a defendant concern serious dishonesty, that evidence of itself may satisfy the court that the requisite danger exists.
[2]Distinctive FX Pty Ltd v Wright [2015] VSC 299 (‘Distinctive FX’).
[3]Distinctive FX Pty Ltd v Wright [2015] VSC 299 [39] (citations omitted).
In Patterson v BTR Engineering (Aust) Ltd Gleeson CJ said:[4]
It is far from clear that Giles J, in applying the test originally propounded by Young J, regarded himself as applying a test which was relevantly different from that established in the earlier authorities. In any event, for the reasons given by Giles J, I consider that the case was one in which the evidence fully justified the granting of a Mareva injunction. In particular, I consider that Giles J was correct in taking the view that the evidence as to the nature of the scheme in which the appellant was allegedly involved, which established a prima facie case against him, was such as to justify the conclusion that there was a danger that the appellant would dispose of assets in order to defeat any judgment that might be obtained against him and that such danger was sufficiently substantial to warrant the injunction. There is no reason in principle why the evidence which is relevant to the first of the issues earlier referred to might not also have a bearing on the second, and this will especially be so where the prima facie case that is made out against a defendant is one of serious dishonesty involving diversion of money from its proper channels. The present is not a case in which a plaintiff who claims simply to be an unsecured creditor seeks to prevent a dissipation of assets which have no particular connection with the claim in question. This is a case in which the plaintiff claims that the defendant, making use of a corporation controlled by him, fraudulently misappropriated a large sum of money which, if it is still under the control of the appellant, would be quite likely to constitute, directly or indirectly, the bulk of his assets. As Giles J held, the nature of the scheme in which, on the evidence to date, the appellant appears to have engaged, is such that it is reasonable to infer that he is not the sort of person who would, unless restrained, preserve his assets intact so that they might be available to his judgment creditor.
[4]Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, 325F–326A (‘Patterson’).
In Victoria University of Technology v Wilson Redlich J said:[5]
It is well established that, in determining whether there is a sufficiently substantial danger of defendants disposing of assets in order to defeat a judgment that might be obtained against them, the court is permitted to consider the evidence adduced by the plaintiff to establish its claim to the substantive relief sought. A risk of dissipation cannot be inferred merely from the fact that the plaintiff has a prima facie cause of action. One may in some cases, having regard to the nature of the plaintiff’s claim, infer the existence of a risk of dissipation partly or wholly from the fact that the plaintiff has a good, arguable case. Where the plaintiff’s prima facie case against a defendant involves proof of allegations of serious dishonesty, such an approach may be appropriate. The plaintiff, in this case, does rely upon allegations of dishonesty, though not gross in kind and not of the character which influenced White J in Uniflex (Australia) Pty Ltd v Hanneybel to grant a Mareva injunction or Beach J in Mort v Woolf to do so. For a similar approach, see Myer Stores Pty Ltd v Conforto and LED Builders Pty Ltd v Eagle Homes Pty Ltd.
[5]Victoria University of Technology v Wilson [2003] VSC 299, [33] (citations omitted).
Consideration
There is no contest that the plaintiff has an arguable case.
The plaintiff submits and the defendants do not contest that he has an arguable case against Welner Lawyers for:
(a) breach of the loan agreement; and
(b) misleading or deceptive conduct in contravention of the Australian Consumer Law (Vic) or the Australian Securities and Investments Commission Act 2001 (Cth).
The plaintiff submits and the defendants do not contest that he has an arguable case against Mr Welner:
(a) under the guarantee;
(b) for breach of an express or implied retainer, and/or breach of fiduciary duty, and/or breach of duty of care; and
(c) for misleading or deceptive conduct in contravention of the Australian Consumer Law (Vic) or the Australian Securities and Investments Commission Act.
The critical issue on the freezing order application is whether the plaintiff has discharged the burden of proving a risk of dissipation of assets by the defendants or either of them for the requisite purpose.
This is not a case where the plaintiff points to dealings with or evidence of dissipation of assets by the defendants against whom the order is sought. In this case, rather than seeking to show a defendant dealing with his, her or its assets, the evidence suggests Mr Welner is a person who does not have assets of substance.
The plaintiff submits the circumstances of this case fall within those described by Elliott J in Distinctive FX and that the allegations made against a defendant concern serious dishonesty. They also separately submit that the case falls within the observations made by the NSW Court of Appeal in Patterson and that the evidence establishes that the second defendant Mr Welner is the type of person who would not retain his assets unless restrained.
The defendants do not agree. They submit a very high onus must be satisfied where the application in support of the freezing order is based on asserted dishonesty rather than on evidence of dissipation of assets. They submit the present case is unlike the circumstances described by Elliott J in Distinctive FX, this case does not involve allegations of dishonest behaviour. They submit that if there were to be such a finding, it will be necessary for the plaintiff to satisfy the high standard of proof referred to in Briginshaw.[6] They point to the drastic nature of the remedy. They submit the evidence does not satisfy a finding concerning Mr Welner as was made by the NSW Court of Appeal in Patterson.
[6]Briginshaw v Briginshaw (1938) 60 CLR 336.
The first matter relied on by the plaintiff in support of the freezing order sought is that Mr Welner was the solicitor retained to act for the plaintiff pursuant to a continuing retainer at the time the loan was discussed, or alternatively, that there was an implied retainer in relation to the loan itself.
There is a factual contest about when discussion of the loan first occurred. The plaintiff says the first discussion occurred on 20 June 2024, the day before settlement sums from the matter in which Mr Welner had earlier acted on behalf of the plaintiff were deposited into his bank account. The first email setting out the terms of the proposed loan is dated 25 June 2024.
The loan agreement and guarantee documenting the transaction were signed on 26 June 2024. The loan funds were advanced on the same day when Mr Welner and the plaintiff travelled from Toorak to the plaintiff’s bank branch at Glen Waverley where the plaintiff authorised the transfer of $530,000 to Welner Lawyers Pty Ltd’s Macquarie Bank account.
It is not possible on this application to resolve whether or not the entry into the loan and guarantee took place during the currency of the earlier retainer of Mr Welner and his firm. If that were to be the case, the transaction would have been entered into by Mr Welner in contravention of the Legal Profession Uniform Law Australian Solicitors' Conduct Rules 2015 (‘Conduct Rules’).
It is also neither possible nor appropriate to make a finding on the hearing of this application about whether the entry into the loan transaction involved a fresh retainer by the plaintiff of Mr Welner.
In support of an implied retainer the plaintiff referred to the fact Mr Welner charged $5,000 for legal fees in relation to the loan and guarantee transaction. However, as submitted on behalf of the defendants, the loan principal was $530,000 and all of that amount needed to be repaid. There was an additional $5,000 to be paid as legal fees but the evidence does not establish that Mr Welner took any of his fees for documenting the transaction from the $530,000 or that the plaintiff bore the burden of those fees.
In fact the 25 June 2024 email sent by Mr Welner to Mr Stathopoulos said ‘our borrower has agreed for us to deduct the Brokerage Fee and Legal Fee from available funds at drawdown’.
The plaintiff submitted the evidence established that even if he was a former client of Mr Welner, what occurred involved a contravention of rule 12.3.2 of the Conduct Rules.
I am not satisfied that the evidence rises to the point of establishing that the plaintiff ’indicated a continuing reliance upon the advice of the solicitor… in relation to the investment of money’ as provided for in the Conduct Rules. The visit to the bank was on one view of the evidence merely to make sure the money went into the correct bank account when transferred. The evidence does not support a finding that the circumstances referred to in rule 12.3.2 were present at the time the transaction was entered into.
Separately, the plaintiff alleged that Mr Welner either knew or should have known that the plaintiff believed he was acting as his solicitor. I am not in a position to make a finding in respect of that matter based on the evidence.
While I accept the existence of a retainer on one or more of the bases alleged by the plaintiff is possible, because I am not able to make a finding about whether or not a retainer was in existence at the time of the transaction, I am not in a position to make a finding about whether Mr Welner acted in a conflict of interest when acting for himself in the transaction with the plaintiff, who on any view was his former client. That is the case albeit I treat the evidence on behalf of the defendants that the plaintiff ’elected’ not to obtain independent legal advice concerning the loan and the guarantee with some scepticism.
One separate matter of substance relied on by the plaintiff in support of the freezing order is clear. The 26 June 2024 loan agreement prepared by Mr Welner to which he and his company were signatories included express representations and warranties which, when made, were and must have been known by Mr Welner to have been false.
The representations and warranties by Welner Lawyers in the loan agreement included that the borrower was not in default or difficulty in respect of any financial commitment or obligation, that the borrower had not committed an event of default and that no litigation or other proceedings before any court had to the knowledge of the borrower had been initiated or threatened against it. Those representations were false.
Judgment was entered against Welner Lawyers Pty Ltd in the County Court on 13 March 2024 in the sum of $404,000. That judgment had not been satisfied by the time the loan and guarantee transaction was entered into. A statutory demand had been served and there was an application pending to wind up the company.
The guarantee signed by Mr Welner contained a representation and warranty that no litigation had been commenced or was pending in any court involving him which, if adversely determined would be likely to have a material adverse effect on his ability to observe and perform his obligations under the guarantee. That representation and warranty was also false. Mr Welner is the second defendant in a proceeding in the County Court.
It is common ground that Mr Welner did not inform the plaintiff of the existence of the legal proceeding to which I have referred involving Welner Lawyers and nor did he inform the plaintiff of the legal proceedings in the County Court in which he was personally a defendant.
It was submitted on behalf of the plaintiff that the giving of the warranties shows that Mr Welner is reckless as to the truth and that as a solicitor it cannot be said that such behaviour was merely careless or should be excused.
While I accept that Mr Welner should have told the plaintiff about these things, and that had he done so, the plaintiff may not have entered into the transaction, that aspect not having been directly addressed by Mr Stathopoulos in his affidavit, objectively the loan involved a very high rate of interest reflecting a very high risk. I do not consider that Mr Welner’s failure to disclose the matters that he should have, particularly when the transaction was intended on the plaintiff’s case to be backed by another loan to Mr Welner’s client, provides evidence that unless restrained the defendants may dissipate their assets in an endeavour to frustrate the court process. I also do not consider that the character of the conduct, the making of false representations, while serious, amounts to an allegation of or concerns serious dishonesty of the sort described by Elliott J in Distinctive FX.
The plaintiff submitted Mr Welner acting in breach of duty owed to him remained entirely silent in relation to the judgment that had been obtained against Welner Lawyers, the winding up application and his own litigation, and that he should have known that these matters would be relevant to the decision of the plaintiff about whether or not to enter into the loan.
It was submitted that representations were made that Welner Lawyers represented that it operated Mr Welner’s legal practice, had assets and was of substance, and that Mr Welner also represented that he was ‘good for the money’. Accepting those propositions, I do not accept that they support the making of a freezing order.
The plaintiff seeks to rely on communications that have occurred recently in relation to the failure of Welner Lawyers to repay the loan when due in support of their freezing order application. I proceed on the basis as presently advised, based on the evidence and submissions before the Court, that there is no defence to the claim against Welner Lawyers or against Mr Welner. However, the purpose of a freezing order is not to provide security in support of a prospective judgment.
The $530,000 loan was due to be repaid on 26 August 2024. It is now 24 days in arrears. The plaintiff’s evidence is that he was told the funds would be on lent to an unnamed third party, a client of the solicitor’s practice, in a ‘back to back‘ transaction. The high interest rate on the loan and the fact the loan has not been repaid means that the plaintiff contends $938,100 is now due to him pursuant to the loan and guarantee.
I do not consider that the recent communications assist the plaintiff’s claim for a freezing order.
On 4 September 2024 the plaintiff and Mr Welner had a discussion in which Mr Welner said that by the end of that week $500,000 would be paid to Welner Lawyers, provided by third parties, and that Mr Welner also had other sources of money.
On 11 September 2024 Mr Welner sent an email in which he said the source of the $500,000 is the other borrower. He said ‘I am reliably informed that the payment will be made as completion of a partial equity sale is funding the payment. Settlement is unfortunately slightly delayed’. This email was part of a string of communications in early September 2024 in relation to repayment. In the 11 September 2024 email Mr Welner offered to provide a copy of the back-to-back loan documents to the solicitors acting for the plaintiff on their undertaking those documents remain only with them and not be circulated to the plaintiff. That offer was not taken up by the solicitors acting for the plaintiff.
The defendants submit the offer of those of the loan documents concerning the back-to-back transaction provides evidence that Mr Welner has been acting with candour rather than in support of a finding of criminal or dishonest behaviour as alleged on behalf of the plaintiff in reliance on the same email.
To me, the recent communications evidence no more than the plaintiff trying to get its money back and Mr Welner in effect saying that as soon as the money was received from the unknown third party client, whose identity he was authorised and willing to disclose to the plaintiff’s solicitors, the plaintiff would be paid.
There is no evidence that if the money is received from the third party, the defendants or either of them have any intention to dissipate them. It is also important to note that the plaintiff does not contend that a Quistclose[7] trust exists in relation to the money apparently to be repaid by the back-to-back borrower which, in turn, on the evidence, Mr Welner is proposing to use to repay at least part of the money owed to the plaintiff.
[7]Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.
The plaintiff submits that the fact Welner Lawyers no longer has any bank accounts at Macquarie Bank and that its accounts have recently been closed supports their case for a freezing order. However the evidence shows that Mr Welner opposed Macquarie Bank taking those actions.
The plaintiff draws attention to the fact that although named as such, Welner Lawyers Pty Ltd is not the company or person that conducts the law practice ‘Welner Lawyers‘. A company search exhibited shows that business is owned by Mr Welner personally. Given that Mr Welner personally guaranteed the loan I do not regard these facts as significant on the freezing order application.
In response to a notice to produce seeking copies of the solicitor’s firm trust account recording the receipt of the $530,000 when transferred from HSBC on behalf of the plaintiff, no documents were produced. The explanation on behalf of the defendants is that the money was never intended to go to the solicitor’s trust account. The transfer of funds was to Welner Lawyers Pty Ltd, and that is what occurred.
I do not regard the fact that the money did not pass through the solicitor’s trust account as helpful in determining whether or not to grant the freezing order. I also do not regard the fact that the law firm is conducted by Mr Welner personally rather than by the first defendant as material concerning either dishonest or improper behaviour or a risk of dissipation of assets.
The plaintiff referred to the failure by Mr Welner to register a security interest on the PPSR and on the failure to disclose creditors with registered securities as matters in support of its application for a freezing order. I agree with the submission on behalf of the defendants that although failure to take such action might be negligent or otherwise the subject of legitimate complaint, it does not support a finding of risk of dissipation.
On behalf of the plaintiff it was submitted there was lack of candour in relation to the $500,000 in the recent emails and that as a solicitor Mr Welner should disclose what is occurring with the $500,000. It was submitted the conduct in question rises to a level of dishonesty, providing no assurance that Mr Welner would not do something with the $500,000 other than pay the plaintiff. I do not agree that the offer to provide details of the back-to-back loan to the plaintiff’s solicitors is not consistent with such a finding. It was submitted that Mr Welner does not have the wherewithal himself to cover the loan, that he is and was a ’paper tiger‘ and that he has not given any information concerning his financial position.
Assuming all of those matters to be the case, I do not consider them relevant to whether or not a freezing order should be made.
I approach the evidence and submissions on the basis that the purpose of a freezing order is to preserve assets from being dissipated thereby frustrating the court process. It is important to bear in mind that a freezing order is by its very nature a drastic remedy. The Court must exercise a high degree of caution before taking a step that will interfere with the parties capacity to deal with his, her or its assets irrespective of whether those assets are vast or otherwise.
The plaintiff submitted that the fact of false representations must have been known to Mr Welner and that, consistent with Patterson, unless restrained, Mr Welner will not ensure his assets remain intact. As an Australian legal practitioner who is prepared to make false representations, the Court should infer that unless restrained he will not keep his assets intact. I do not agree that such an inference is to be drawn from the making of false representations but in any case the plaintiff says Mr Welner has no assets to divest.
I do not consider the evidence supports a finding of a risk of dissipation of assets. It does support a finding of false representation by Mr Welner and extreme carelessness at a minimum in putting forward the loan agreement and guarantee and while I accept that Mr Welner and the first defendant may have no assets and that Mr Welner may be accurately described as a ‘paper tiger’, that does not mean that a freezing order should be made.
I am not satisfied that the plaintiff has discharged the onus of establishing there is a danger that the prospective judgement against the defendants will be wholly or partly unsatisfied as a result of either of the defendants’ actions in either removing assets or disposing or dealing with them so as to diminish their value. I am not satisfied there is a real risk of assets being disposed of.
As I indicated during the hearing would be the case because it appears there may be no defences to the claim, I will make orders for the prompt provision of pleadings and for a summary judgment application to be made. The statement of claim must be filed and served by 4 October 2024. The defence and counterclaim must be filed and served by 18 October 2024.
I will order that the plaintiff file and serve any application and evidence, including written submissions, in support of summary judgment against the defendant by 4 October 2024, and the defendants file and serve any evidence and written submissions in opposition by 18 October 2024. Any application for summary judgment will be listed before an Associate Justice on 8 November 2024 with a hearing time of no more than two hours’ duration.
I have determined it is appropriate to provide for a summary judgment application as although I am not satisfied circumstances exist such as would warrant the grant of a freezing order, I am not satisfied that either defendant has a defence to the substantive claims made against them.
In the circumstances I will make those orders for the future conduct of the proceeding but I will otherwise dismiss the plaintiff’s application of 17 September 2024 and I will order the plaintiff pay the defendants’ costs of that summons.
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