Hadid v Lenfest Communications Inc

[1996] FCA 675

CATCHWORDS

Practice and Procedure - Mareva injunction - tests applicable

Jackson v Sterling Industries Ltd (1987) 162 CLR 612
Barclay-Johnson v Yuill [1980] 1 WLR 1259 at 1265
Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 325

ALBERT HADID v LENFEST COMMUNICATIONS INC & ORS
No. NG 36 of 1995

CORAM:Lehane J

PLACE:Sydney

DATE:26 June 1996

IN THE FEDERAL COURT OF AUSTRALIA  )
NEW SOUTH WALES DISTRICT REGISTRY  )
GENERAL DIVISION  )              No. NG 36 of 1995

BETWEEN:ALBERT HADID

Applicant

AND:LENFEST COMMUNICATIONS INC

First Respondent

GERRY LENFEST

Second Respondent

BAIN CAPITAL MARKETS LIMITED

Third Respondent

WAYNE BURT

Fourth Respondent

AUSTRALIS MEDIA LIMITED

Fifth Respondent

RODNEY PRICE

Sixth Respondent

LENFEST COMMUNICATIONS INC

Cross-Claimant

ALBERT HADID

Cross-Respondent

CORAM:     Lehane J

PLACE:Sydney

DATE:26 June 1996

MINUTE OF ORDERS

THE COURT ORDERS:

1. THAT the injunction granted on 21 June 1996, as varied by orders made on 25 June 1996, be discharged.

1. THAT the applicant's motion is dismissed.

1. THAT the applicant pay the costs of the motion of the first, second and fifth respondents.

NOTE:           Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA  )
NEW SOUTH WALES DISTRICT REGISTRY  )
GENERAL DIVISION  )              No. NG 36 of 1995

BETWEEN:ALBERT HADID

Applicant

AND:LENFEST COMMUNICATIONS INC

First Respondent

GERRY LENFEST

Second Respondent

BAIN CAPITAL MARKETS LIMITED

Third Respondent

WAYNE BURT

Fourth Respondent

AUSTRALIS MEDIA LIMITED

Fifth Respondent

RODNEY PRICE

Sixth Respondent

LENFEST COMMUNICATIONS INC

Cross-Claimant

ALBERT HADID

Cross-Respondent

CORAM:Lehane J

PLACE:Sydney

DATE:26 June 1996

EXTEMPORE REASONS FOR JUDGMENT

LEHANE J:     There is before me a motion for interim interlocutory relief in the form

of a Mareva injunction which would have the effect of preventing the first respondent from disposing of at least a large part of its holding of securities in the fifth respondent except on a basis which ensured the continued presence in Australia of the proceeds of disposition or their substantial equivalent.  The suggestion is that, on the applicant giving the usual undertaking as to damages, relief of that kind be granted pending a full hearing of the applicant's notice of motion filed in Court last Friday, 21 June. 

Although I will confess immediately that I have not found this a particularly easy matter, it is one that I can and should deal with now.  It is as well perhaps to start from the firmest ground one can select, and that is that it is established that there is jurisdiction in this Court to grant what is known as a Mareva injunction: Jackson v Sterling Industries Ltd (1987) 162 CLR 612. The much more difficult question relates to the circumstances in which the Court will exercise that jurisdiction and, particularly here, the circumstances in which the Court will do so where a respondent is a foreign corporation which has assets within the jurisdiction. It is of course precisely in cases of that sort that the jurisdiction to grant injunctions of this kind was first revealed and it is, I suppose, in cases of this kind where such injunctions are most commonly granted.

The difficulty is as to precisely what are the tests which are to guide the exercise of the discretion.  First, it seems to be clear that the purpose of interlocutory relief of this kind is to prevent a foreign respondent from doing what it is thought certain foreign defendants usually can and may well do - that is to remove assets from the jurisdiction so as to defeat the claim of an applicant. Accordingly, one element of the test which the Court
applies in deciding whether or not to grant such relief is to ask whether the applicant has a prima facie case in relation to the final relief which it claims.  For the purposes of this motion it is, as I understand it, conceded that the applicant here has such a case. Certainly, there has been no attempt this morning to dispute that proposition.  The next element in the test appears to relate to the degree of risk that assets of the respondent within the jurisdiction will be taken outside the jurisdiction or dissipated so as to defeat, in a practical sense, the ability of the applicant, if successful, to obtain the fruits of its success. So much appears from Jackson itself and from a number of other authorities to some of which I have been referred today. 

There is then a further matter. Having concluded, at least prima facie, that there is a sufficient degree of risk of removal of assets to justify the Court's intervention, it is then necessary to consider the likely consequences to the applicant of the removal.  It seems to me that the observations of Sir Robert Megarry VC in Barclay-Johnson v Yuill [1980] 1 WLR 1259 at 1265 must be correct: his Lordship says:

Even if the risk of removal is great, no Mareva injunction should be granted unless there is also a danger of default.  A reputable foreign company, accustomed to paying its debts, ought not to be prevented from removing its assets from the jurisdiction, especially if it has substantial assets in countries in which English judgments can be enforced.

I must turn then first to the question of risk.  The evidence as it stands as to that is within a reasonably small compass.  The evidence given by the applicant refers to a conversation between the applicant and an officer of the first respondent, Mr Heller.  The conversation included a question whether the first respondent was selling its stake in the fifth respondent which elicited the reply "I will not confirm or deny that".  A further question as to whether the first respondent was selling its shares to particular interests brought, according to the applicant, the reply "No comment". That was followed by what is described as a without prejudice conversation. 

The evidence given by Mr Heller in his affidavit of 25 June 1996 does not deny that words of the sort recounted by the applicant were said.  Mr Heller merely places them in a somewhat different context, including particularly the presence of a reporter.  Be that as it may, however, the evidence so far is simply of a conversation in which the question was asked and the answer was given that the first respondent would not say whether or not it proposed to dispose of its shares in the fifth respondent.

Additional evidence, however, was read on behalf of the first respondent this morning.  It is largely, again, in the affidavit of Mr Heller and it relates to certain other dealings between the applicant and the first respondent during the current month in relation to a possibility that the applicant might enter into an agreement whereby it would, as it was said, broker a sale or possible sale by the first respondent of its various interests in the fifth respondent.  That agreement, however, came to nothing.  The evidence is that it came to nothing for at least two reasons.  One was that the first respondent was simply
not interested in making such arrangements with the applicant while the current litigation remained on foot. The other was that any such agreement, because of disclosure requirements, might disrupt a current raising of funds by the fifth respondent in the US markets. 

That is the sum of the evidence as to risk, beyond the undoubted facts that the first applicant is a US corporation (incorporated in Pennsylvania), which, apart from its interests in the fifth respondent, has no assets in Australia and carries on no business here.

On that evidence, and on the footing that any asset is presumably for sale at an adequate price, no doubt I can and should infer that there is some risk that the first respondent will sell its interests in the fifth respondent and is likely, if it does so, either to receive the proceeds outside Australia or, having received them, to take them outside Australia: there is no apparent reason why it would elect to keep them here. The question which I must consider, on that evidence, is whether there is a sufficient risk that property within Australia will be taken outside the jurisdiction to suggest that in accordance with established principles I should exercise my discretion to grant the relief sought.

The courts have struggled with the question of what the requisite degree of risk is.  In particular, there is some useful discussion of the topic in the decision of the Court of Appeal of New South Wales in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, particularly in the judgment of the Chief Justice at 325. There is in that
judgment criticism of various tests which had been suggested including a "more than usual likelihood" test and a test invoking the concept of the balance of probabilities.

However, one of the conclusions one can hardly help drawing from the judgements in that case and others is that it is very much easier to state what the test is not than to state what it is beyond falling back on the phrase "real risk" or "real likelihood", phrases which counsel for the applicant suggested I should take as meaning not much more than something greater than a risk which might be described as de minimis.

In my view, whatever precisely a real risk may be in this context, it is something greater than a risk which is in turn greater merely than de minimis.  In a sense, of course, there is always a real risk that a corporation which owns an asset will sell it and, if the owner is a foreigner, there must in a sense always be a real risk that the proceeds will be taken out of the jurisdiction; but it is perfectly clear that it is not in every case where a foreign respondent has assets within the jurisdiction that there will be held to be a real risk of disposal, removal and, I suppose, dissipation so as to enliven the jurisdiction to grant Mareva relief.

Looking at the evidence before me today, I find myself irresistibly drawn to the conclusion that although certain transactions which have been described in evidence and which the applicant does not seek to prevent are likely to occur in relation to certain options which the first respondent holds over securities in the fifth respondent, there is in the present circumstances and for the immediate future - the evidence does not allow me
to go beyond that - a relatively slight risk that the bulk of the applicant's interests in the fifth respondent will be disposed of.

In any event, I am drawn also to the conclusion that the question whether, in any particular case, there is a sufficiently real risk of disposal and removal is at least to some extent to be answered by reference to what appears to be, theoretically, the separate question whether, if there is a disposal and removal, that is likely to occur in circumstances of what Sir Robert Megarry describes as default: for instance, in circumstances where the respondent is a foreign corporation about which not a great deal is known and against which there is reason to fear that no substantial recovery may be possible unless identifiable assets can be preserved within the jurisdiction.

In this case there has been no suggestion that the first respondent does not fall within Sir Robert Megarry's perhaps old fashioned description of the reputable foreign company accustomed to paying its debts. Sir Robert does not explain precisely what he means by the phrase "countries in which English judgments can be enforced", but I think it must include at least a jurisdiction the laws of which are recognisably comparable with our own and where an Australian judgment can be enforced, not necessarily by registration, but by suit on the judgment itself.  To an extent, to venture in this case into that field is to speculate because there is no material before me concerning the question of the enforcement in relevant US jurisdictions of a judgment of this Court.

I think the question of the respectability and likely default of the respondent appears to be, although theoretically separate, in practical terms part of the question relating to risk for the reason that the authorities seem to me to suggest two things. First, where there is indeed an apparently imminent risk that a respectable foreign corporation will remove from the jurisdiction substantially all of its assets there, Mareva relief may, in the absence of countervailing discretionary considerations, be thought appropriate. Where, however, the evidence as to immediate or imminent risk is not particularly strong then it seems to me that the likelihood of "default" weighs in the balance, so that Mareva relief is likely to be refused against a "respectable" foreign corporation unlikely to "default".

There is one further consideration. Despite the frequency with which, these days, Mareva injunctions are sought and granted, the reported authorities are unanimous in saying that Mareva relief is to be granted with caution and sparingly and having regard to its potential for oppression, not merely of the party whom it is sought to restrain but possibly other persons as well.

In my view this is not a proper case for Mareva relief. The orders that I propose to make are therefore that the injunction granted last Friday 21 June, as varied by the orders which I made yesterday, be discharged. I think it is appropriate to order that the applicant's motion be dismissed.

Having come to the view that I have, to which I would equally have come if Mr Hadid's evidence had stood alone - that follows from the reasons I have given - I think I must accede to Mr Hely's submission that the motion should be dismissed with costs. In the circumstances, I think the fifth respondent was justified in seeking representation here today.  Clearly, the relief as sought was of a kind which could affect its interests in a significant way.  It follows that the fifth respondent should have its costs also.

I certify that this and the preceding 8 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.

Associate:

Dated: 30 July 1996

Heard:  26 June 1996

Place:  Sydney

Decision:  26 June 1996

Appearances: Mr N A Cotman of counsel instructed by Corrs Chambers Westgarth appeared for the applicant.

Messrs P G Hely QC and G E Smith of counsel instructed by Clayton Utz appeared for the first and second respondent.

Messrs M J Slattery QC and T D Castle of counsel instructed by Atanaskovic Hartnell appeared for the fifth respondent.