Hayden, Rodney James v Teplitzky, David Raymond

CATCHWORDS

INJUNCTIONS - Mareva injunction - application for discharge - failure of applicant to make full and frank disclosure in ex parte application - application for fresh Mareva injunction inter partes - applicant seeking to restrain respondent from paying alleged debt owed to related company - whether debt bona fide incurred - basis of jurisdiction to grant Mareva injunction - whether applicant required to show purpose or effect of intended payment is to frustrate prospective judgment - balance of convenience.

Ali & Fahd Shobokshi Group Limited v Moneim [1989] 1 WLR 710
Beach Petroleum NL v Johnson (1992) 9 ACSR 404

Biscen Pty Limited v Temsign Pty Limited, unreported, FCA/Carr J, 10 October 1995

Fitzgerald v Williams [1996] QB 657
Glenwood Management Group Pty Limited v Mayo [1991] 2 VR 49
Iraqui Ministry of Defence v Arcepey Shipping Co SA [1981] QB 65 (the "Angel Bell")
Jackson v Sterling Industries Limited (1987) 162 CLR 612
Mount Lyell Mining & Railway Co Limited v Roxon Companies Oy, unreported, FCA/Sackville J, 11 November 1994
Neat Holdings Pty Limited v Karajan Holdings Pty Ltd (1992) 8 WAR 183
Northcorp Limited v Allman Properties (Australia) Pty Limited [1994] 2 Qd R 405
Patterson v B T R Engineering (Aust) Limited (1989) 18 NSWLR 319
Perth Mint v Mickelberg (No 2) [1985] WAR 117
R & I Bank of Western Australia v Anchorage Investments Pty Limited (1993) 10 WAR 59
Riley McKay Pty Limited v McKay [1982] 1 NSWLR 264

T C N Channel 9 Pty Limited v Scotney, unreported, FCA/Tamberlin J, 17 November 1994

Thomas A Edison Ltd v Bullock (1912) 15 CLR 679

Town & Country Sport Resorts (Holdings) Pty Limited v Partnership Pacific Limited (1988) 97 ALR 315

Yenald Nominees Pty Limited v Lyford, unreported, FCA/Carr J, 10 June 1994

HAYDEN & ORS v TEPLITZKY & ORS

No NG 855 of 1996

Lindgren J
Sydney
9 April 1997

IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No NG 855 of 1996
GENERAL DIVISION )

BETWEEN:
RODNEY JAMES HAYDEN
  First Applicant
PETER SCHWEITZER
                   Second Applicant
DAJA JAYASINGHE
  Third Applicant
GORDON LEWIS THOMAS WRIGHT
                   Fourth Applicant

AND:
DAVID RAYMOND TEPLITZKY
                   First Respondent
RUSSELL JOHN HODGE
                  Second Respondent
JOHN JOHNSON
                   Third Respondent
ANTHONY STAVRIANOS
                  Fourth Respondent
TOP OF THE CROP NQ PTY LIMITED (ACN 001 518 645)
                   Fifth Respondent
LIVERPOOL GROWERS (AUSTRALASIA) PTY LIMITED (ACN 003 950 105)
                   Sixth Respondent

CORAM:Lindgren J
PLACE:Sydney
DATE:9 April 1997

MINUTE OF ORDERS
THE COURT ORDERS THAT:

Order 4 made on 17 January 1997 as varied by order made on 7 February 1997 be discharged.

The applicants pay the fifth respondent's costs of the fifth respondent's motion brought by notice of motion
filed on 31 January 1997.

Upon the applicants giving the usual undertaking as to damages, the fifth respondent shall not, pending the final hearing and determination of this proceeding or further order of the Court, pay, disburse or deal with the whole or any part of the balance of the proceeds of sale of the land of the fifth respondent being Lots 90 to 94 on registered plan 735491, Lots 95 and 96 on registered plan 735492, Lot 81 on registered plan 735493 and Lots 77 and 78 on registered plan 735494 contained in title references 21119114 to 21119120 (inclusive), 21126007, 21126013 and 21126014, standing in a trust account in the name of the solicitor for the fifth respondent.

The fifth respondent have liberty to apply on three days' notice for an order varying order 3 above.

The proceeding be listed on 24 April 1997 at 9.30 am for the purpose of the making of an order or orders in respect of the costs of the motion brought by notice of motion filed by the applicants on 21 February 1997.

By 5.00 pm on 23 April 1997, the parties supply to the Associate to Lindgren J, copy of agreed form of minute of order to be made in relation to the costs referred to in order 4 above, and failing agreement, the forms of
minutes of costs orders for which they will respectively contend, together with outlines of their submissions in support.

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 ) No NG 855 of 1996
GENERAL DIVISION )

BETWEEN:
RODNEY JAMES HAYDEN
  First Applicant
PETER SCHWEITZER
                   Second Applicant
DAJA JAYASINGHE
  Third Applicant
GORDON LEWIS THOMAS WRIGHT
                   Fourth Applicant

AND:
DAVID RAYMOND TEPLITZKY
                   First Respondent
RUSSELL JOHN HODGE
                  Second Respondent
JOHN JOHNSON
                   Third Respondent
ANTHONY STAVRIANOS
                  Fourth Respondent
TOP OF THE CROP NQ PTY LIMITED (ACN 001 518 645)
                   Fifth Respondent
LIVERPOOL GROWERS (AUSTRALASIA) PTY LIMITED (ACN 003 950 105)
                   Sixth Respondent

CORAM:Lindgren J
PLACE:Sydney
DATE:9 April 1997

REASONS FOR JUDGMENT
INTRODUCTION:
By notice of motion filed on 31 January 1997, the fifth respondent, Top of the Crop NQ Pty Limited ("TOCNQ"), has moved for the following orders:

"1.The Mareva injunction granted ex parte on 17 January 1997 and contained in Order 4 of the
orders of his Honour Mr Justice Davies dated that date be discharged.

In the alternative, the said order be varied so as to permit the fifth respondent to pay its debt of $747,633.99 to Charjon Holdings Pty Limited and its trade creditors.

Such further or other order as the Court thinks fit."

I will refer to Charjon Holdings Pty Ltd as "Charjon" and to the amount of $747,633.99 said to be owing to it by TOCNQ as "the Charjon debt".

On 17 January 1997, Davies J made, ex parte, an order which, as varied by me on 7 February 1997, is as follows (the variations are indicated by underlining):

"4.Upon the applicants giving the usual undertaking as to damages order that the purchase monies to be paid for the land of the Fifth Respondent being Lots 90 to 94 on registered plan 735491, Lots 95 and 96 on registered plan 735492, Lot 81 on registered plan 735493 and Lots 77 and 78 on registered plan 735494 contained in title references 21119114 to 21119120 (inclusive) 21126007, 21126013 and 21126014 respectively when paid be paid into a Trust account in the name of the solicitor for the fifth respondent and then retained, not to be disbursed or dealt with pending further orders of this Court save that this order will not preclude:

(a)payment of reasonable agents commission and other proper selling expenses in respect of the land;

(b)payment of proper legal costs associated with the sale;

(c)payment of any moneys currently owing to the Primary Industry Bank under Mortgage No 601009836 secured over the land;

(d)debts of the fifth respondent bona fide incurred;

(e)legal expenses in defending the present proceeding."

I will refer to TOCNQ's land referred to in Order 4 as "the Land". The sale of the Land was completed on 7 February 1997.

The debate has focused on payment of the Charjon debt out of the proceeds of sale of the Land. In the light of this, apparently TOCNQ has not paid the Charjon debt, notwithstanding its contention that the Charjon debt was "bona fide incurred".

The applicants filed a notice of motion on 21 February 1997 seeking an order that Order 4 of 17 January as varied by me on 7 February

"be varied by inserting after paragraph 4 (c) the following:

`(d)debts of the Fifth Respondent bona fide incurred, other than any alleged debt of the Fifth Respondent owing to Charjon Holdings Pty Limited;

(e)reasonable legal expenses in defending the present proceedings provided that for so long as the Fifth Respondent and the Third Respondent are jointly represented in the present proceedings the reasonable legal expenses of the Fifth Respondent shall be limited to half of the total legal expenses incurred in the joint defence of the present proceedings by the Third and Fifth Respondents.

(f)provided that there shall remain in the trust account the amount of $511,048.47 plus interest thereon from the date of this Order.'"

I need not stay to discuss the difficulties associated with the making of an order in these terms. What is important is that the matter was argued on the basis that the applicants were moving for a fresh Mareva injunction, against the possibility that I should discharge the one in place at present.

There was evidence that the Land was sold for $1,800,000; that the amount owing to the mortgagee, the Primary Industry Bank, was $1,175,000; and that the amounts owing to TOCNQ's other creditors, not taking into account the Charjon debt or the costs and disbursements incurred to date in connection with the present proceeding, totalled $26,465. If the latter were all "debts [of TOCNQ] bona fide incurred" they have no doubt been paid, leaving a balance in the trust account in the name of TOCNQ's solicitor of $598,535, less the amount of the selling agent's commission and other costs (including legal costs) of the sale.

Johnson says that TOCNQ has three other assets: an entitlement to receive a sum of the order of $125,000, representing the proceeds of the 1996-97 crop of mangoes grown on the Land; an anticipated distribution from a unit trust called the "Burdekin Packers Unit Trust" ("the Trust") of approximately $250,000; and damages from the applicants in respect of their management of the Trust and its mango packing business. The applicants say that the amount to be received from the Trust
may well be less than $250,000, and that they deny liability to pay damages to TOCNQ.

In this proceeding, the applicants seek to recover damages which are now quantified at $511,048.47. If one leaves out of account TOCNQ's claim for damages against the applicants, the moneys available to TOCNQ will not, even on TOCNQ's figures, be sufficient to permit payment of both that amount of damages and the amount of the Charjon debt (those two amounts, without interest, total $1,258,682.46). The moneys available to TOCNQ in the foreseeable future will not even reach the amount of the Charjon debt alone.

TOCNQ wishes to pay the Charjon debt. Charjon has the largest shareholding in TOCNQ. If TOCNQ pays Charjon, TOCNQ will not be in a position to pay to the applicants damages of the order of $511,048.47. But perhaps that is a plight which the applicants, as unsecured creditors of TOCNQ, are required to suffer.

BACKGROUND
Parties
The applicants filed their application seeking damages on 28 October 1996. Their solicitor was and is Mr James G Sloan of Albury. The four applicants are medical practitioners. They and three other persons were members of a syndicate which used the name "Delta Six Mangoes" ("Delta Six"). For a time, the first respondent, David Raymond Teplitzky ("Teplitzky"), whose solicitors are Gordon and Johnstone, managed the business of Delta Six. The second respondent, ("Hodge") is a solicitor. He is represented in the proceeding by Mallesons Stephen Jaques. The third respondent ("Johnson") and the fourth respondent ("Stavrianos") were, at relevant times, directors of TOCNQ and of the sixth respondent ("Liverpool Growers"). They became directors of TOCNQ on 1 November 1993, and of Liverpool Growers on 22 March 1990. Patrick Hargraves & Co, solicitors, act for Stavrianos. David Hand, solicitor, acts for Johnson, TOCNQ and Liverpool Growers.

Early steps in the proceeding
Accompanying the application was a statement of claim. The first directions hearing occurred on 14 November 1996 before Beaumont J. Notwithstanding O 9 r 2, only Teplitzky and Hodge had filed appearances by that date. Stavrianos filed an appearance on 22 November. Johnson and TOCNQ did not file an appearance until 21 January 1997. Liverpool Growers did not do so until 13 February 1997.

At the directions hearing on 14 November, legal practitioners appeared for the applicants and for Teplitzky, Hodge and Stavrianos. Mr Hatsatouris, solicitor, after announcing his appearance for Stavrianos, added that he had also been asked to mention the matter for TOCNQ and Liverpool Growers.

At that time, TOCNQ and Liverpool Growers had, but Johnson had not, been served.

Beaumont J stood the proceeding over to 16 December, but that fixture was vacated and his Honour fixed 7 February 1997 as the date for the next directions hearing. In the meanwhile, on 17 January, the applicants had moved for and obtained the Mareva injunction which TOCNQ seeks to have discharged or varied.

APPLICANTS' CASE AS PLEADED
It is necessary now to refer to the applicants' case as pleaded. The following account is of the first amended statement of claim which, having been filed on 9 December 1996, was on the Court file at the time when the applicants moved ex parte before Davies J on 17 January 1997. In some respects, I have added references to certain evidence.

The first amended statement of claim pleads the applicants' case as follows (numerals in bold print are references to paragraphs in the first amended statement of claim). Teplitzky was retained on and after 27 February 1992 by Delta Six to manage its business (5). Hodge was a solicitor and commercial adviser to Johnson and Stavrianos, and to companies controlled by them, including TOCNQ and Liverpool Growers (7). Johnson is and was a director of, and, either directly or indirectly, the majority shareholder in TOCNQ and Liverpool Growers (8). Stavrianos is and was, directly or indirectly, a shareholder in TOCNQ (9).

Delta Six comprised the applicants and three others (13).
Each member of Delta Six carried on the business of growing mangoes on a farm owned by him or her located near Giru near Townsville in Queensland (14). Teplitzky was retained by each member of Delta Six to manage his or her business, and, as well, the business of Delta Six (17). Teplitzky opened bank accounts on which he was a signatory, in the name of Delta Six and paid into them funds of the respective applicants (21). Between 28 February 1992 and January 1994, the shareholders of TOCNQ were Johnson (47%), Stavrianos (27.5%) and Joseph Anthony Prestier ("Prestier") (27.5%) [sic - a total of 102%], and during that time the directors of TOCNQ were Johnson and Prestier (23).

From at least February 1992, Johnson and Stavrianos retained Hodge to provide legal and commercial advice in relation to the activities of TOCNQ and Liverpool Growers (24). For about two years prior to February 1992, Teplitzky was retained by TOCNQ as its general manager (25). Part of TOCNQ's business managed by Teplitzky was the growing of mangoes on land owned by TOCNQ which was also at Giru (26).

Liverpool Growers carried on business as a farm produce agent licensed under the Farm Produce Act 1983 (NSW) (29). By s 22 of, and regulation 11 under, the Farm Produce Act, licensed farm produce agents (such as Liverpool Growers) during 1992, 1993 and January 1994 were permitted to charge, relevantly, a maximum of 10% commission on the sale of fruit on behalf of growers (30). Teplitzky engaged Liverpool Growers to act as
farm produce agent for the members of Delta Six in relation to the sale of their fruit through the Sydney Fruit Market (31). On and after 28 February 1992, the directors of Liverpool Growers were Johnson and Stavrianos, and its shareholders were Charjon, which was controlled by Johnson, Onade Pty Limited ("Onade"), which was controlled by Stavrianos, and L L Leonard Pty Limited which, according to the evidence, was also controlled by Johnson (33). During the period February 1992 to January 1994, Liverpool Growers charged Delta Six commissions of between 30% and 40%, contrary to the provisions noted earlier (34). As a result, Liverpool Growers overcharged Delta Six $229,481.93 for the 1992 season and $91,565.48 for the 1993 season - a total of $321,047.41 (35). Johnson knew, participated in, and directly caused, the overcharging (36).

During November and December 1992 Delta Six, on Teplitzky's advice, retained TOCNQ to pack and deliver to the Sydney markets mangoes grown by members of Delta Six, for which activity TOCNQ charged freight to Delta Six, yet the same amount was included in charges made to Delta Six by Liverpool Growers, the amount duplicated being $22,080.00 (38).

Teplitzky also caused creditors of TOCNQ to be paid from funds in various Delta Six bank accounts (39), (40), (41). When Teplitzky used funds of Delta Six to pay creditors of TOCNQ, he did so either on Johnson's instructions or with Johnson's knowledge (42). Teplitzky paid for work done for TOCNQ out of funds of Delta Six (43).

The part of the first amended statement of claim of which I have given an account to date relates to the overcharging of Delta Six by Liverpool Growers, through Teplitzky, and the misapplication by Teplitzky of Delta Six funds, in particular, for the benefit of TOCNQ.

The remainder of the first amended statement of claim addresses the investment of substantial moneys by the applicants in the Trust. Burdekin Packers Pty Limited ("Burdekin Packers") was formerly called "Top of the Crop (Packing) Pty Limited" and its shareholders and directors were originally Johnson and Stavrianos (45), (46), (47). I digress to note that the evidence shows that Burdekin Packers was incorporated on 10 May 1993 under its former name, that it changed that name to its present name on 18 March 1994, and that on 18 April 1994, Teplitzky and the first and second applicants, Drs Hayden and Schweitzer, were appointed as directors as additions to Johnson and Stavrianos. It is not necessary for me to give a detailed account of the pleaded claim in relation to the Trust. It suffices to say that it was proposed that a unit trust be established and that each applicant pay $645,000 to Burdekin Packers as trustee of the Trust for units in the Trust. TOCNQ was to transfer to Burdekin Packers a certain packing shed and equipment in it and land. Teplitzky opened a bank account used by Burdekin Packers through which the Trust conducted its operations (54). From about 6 May 1993, notwithstanding that the Burdekin Packers Unit Trust deed had not been settled, Teplitzky conducted himself as if he was managing the business to be conducted by the Trust (55).

During July 1993, the applicants, through their then solicitor, John Jeweller, advised Hodge, as solicitor retained to settle the Deed of Trust, that the applicants would advance money to Burdekin Packers in its capacity as proposed trustee, so that Burdekin Packers could expend money on a packing shed to enable it to be ready for the 1993-1994 season, provided Burdekin Packers had title to the land and security was provided for any advance to Burdekin Packers (63). The applicants paid moneys for units in the Trust. On 29 October 1993, a "Heads of Agreement" document was executed by the applicants and TOCNQ, Quando Pty Limited ("Quando" - a company controlled by Teplitzky), and Burdekin Packers (79, 80). Hodge drew up a Burdekin Packers Unit Trust Deed (82). Paragraph 83 of the first amended statement of claim is as follows:

"By the recitals to a document purporting to be the deed of the Burdekin Packers Unit Trust it is stated that the trust was established by a Trust Deed dated 25 October 1993, however, no such document existed on 25 October 1993."

Hodge delivered to the respective applicants unit certificates in respect of units purportedly issued to them in the Trust (84). The Burdekin Packers Unit Trust Deed has never been executed or stamped (86).

Representations were made by Teplitzky, Hodge, Johnson, Stavrianos and TOCNQ, and they engaged in other conduct, designed to induce the applicants to part with their money in favour of Burdekin Packers (99-104). The respective applicants were induced by the representations and conduct to pay money to Burdekin Packers for the acquisition of units in the Trust and to do other things to their disadvantage (105-109). The representations were false (110).

The respective applicants seek to recover damages from, relevantly, TOCNQ, on the basis that TOCNQ contravened s 52 of the Trade Practices Act 1974, ("the TP Act") alternatively, that it aided and abetted, or was knowingly concerned in, contraventions by Teplitzky, Hodge, Johnson and Stavrianos of s 42 of the Fair Trading Act 1987 (NSW) or of s 52 of the TP Act.

NON-DISCLOSURE OF MATERIAL FACTS TO DAVIES J
TOCNQ submits that when the applicants obtained the Mareva injunction ex parte from Davies J on 17 January, they did not make full and frank disclosure of material facts. The requirement that an applicant for ex parte injunctive relief make such disclosure is rigorous and is clearly established; cf Thomas A Edison Ltd v Bullock (1912) 15 CLR 679 ("Thomas A Edison") at 681-682; Third Chandris Shipping Corporation v Unimarine SA [1979] 1 QB 645 at 668; Bank Mellat v Nikpour
[1985] FSR 87 at 89; Town & Country Sport Resorts (Holdings) Pty Limited v Partnership Pacific Limited (1988) 97 ALR 315 (FCA/FC) ("Town & Country") at 317; Ali & Fahd Shobokshi Group Ltd v Moneim [1989] 1 WLR 710 ("Ali & Fahd"); Garrard v Email Furniture Pty Ltd (1993) 32 NSWLR 662 (CA) at 676-677 (Mahoney AP); Fitzgerald v Williams [1996] QB 657 (CA). In Thomas A Edison, Isaacs J described the obligation in these terms:

" ... it is the duty of a party asking for an injunction ex parte to bring under the notice of the Court all facts material to the determination of his right to that injunction, and it is no excuse for him to say that he was not aware of their importance. Uberrima fides is required, and the party inducing the Court to act in the absence of the other party, fails in its obligation unless he supplies the place of the absent party to the extent of bringing forward all the material facts which that party would presumably have brought forward in his defence to that application. Unless that is done, the implied condition upon which the Court acts in forming its judgment is unfulfilled and the order so obtained must almost invariably fall." (at 681-682)

In Town & Country, a Full Court of this Court said:

"A party who seeks the granting of an injunction on an ex parte basis has a duty to place before the court all relevant matters including such matters which would have been raised by the respondent in his defence if he had been present." (at 317)

The importance of the obligation to make full and frank disclosure can scarcely be overemphasised. Prima facie, breach of it entitles a defendant to an immediate discharge of the injunction and restoration of the position which obtained before it was granted. Why, it may be asked, should a plaintiff even be permitted to take advantage of the hearing of the defendant's application for discharge in order to "repair" the position by seeking an immediate re-grant of the injunction? Rather, prima facie, the parties should be restored to their pre-injunction positions pending the hearing and determination of any fresh application by the plaintiff, even though the defendant, being now aware of the plaintiff's intention, will have the opportunity of disposing of assets; see Ali & Fahd, but in Fitzgerald v Williams, supra, a less severe approach is suggested.

The obligation incumbent upon an applicant for ex parte relief does not extend to disclosure of material facts of which he or she has no knowledge. An applicant's obligation is to disclose that which, being known, is, objectively, material to the exercise of the discretion, whether the materiality is appreciated or not.

Although the obligation to disclose does not extend to facts unknown to the applicant, and so the absence of any reference to such facts will not, without more, lead to a discharge of the order, the revelation of those facts in evidence may lead to a discharge (or variation) of the injunction. This is not on the ground of initial non-disclosure, but because of the interlocutory nature of the order and the Court's undoubted power to vary the order in the light of such evidence and of changes in the underlying circumstances from time to time pending the final hearing and determination of the proceeding.

TOCNQ submits that there was a failure to make full and frank disclosure by the applicants of material facts in seven respects. It will be necessary to consider each instance in some detail. I will adopt the headings used by counsel for TOCNQ.

"Formation of the Burdekin Packers Unit Trust"

In his affidavit sworn 15 January 1997 in support of the motion for the Mareva injunction (Dr Hayden's "first affidavit"), Dr Hayden said (in para 2):

"Between 16th May 1993 and 1st January 1996 the applicants invested a total of $644,999.64 with a company known as Burdekin Packers Pty Ltd which was purportedly the Trustee of the Burdekin Packers Unit Trust (a Trust which has never been formed)." (underlining supplied)

Annexure "H" to an affidavit of Johnson of 31 January 1997 sworn in support of TOCNQ's motion for the discharge at variation is a photocopy of a deed dated 25 October 1993 between Hodge as settlor, Top of the Crop (Packing) Pty Limited (which, it will be recalled, later changed its name to "Burdekin Packers Pty Limited") as trustee, and TOCNQ as initial unit holder. The deed purports to establish the "Top of the Crop Packing Unit Trust", that is to say, the Trust, with an initial payment of $10.00 divided into ten units of $1.00 each.

The document bears no indication that the original was stamped. Apparently, the original is held by the liquidator of Burdekin Packers. The applicants submitted that the copy deed and para 25 (c) of Johnson's affidavit which referred to it should not be admitted into evidence on the ground that the Stamp Duties Act 1920 (NSW) had the effect of preventing its being given in evidence. The submission was not elaborated upon. Sub-sections 29 (1) and (4) of that Act provide, relevantly, as follows:

"29.(1) ... no instrument executed in New South Wales or relating (wheresoever executed) to any property situate or to any matter or thing done or to be done in any part of New South Wales, shall, except in criminal proceedings, be pleaded or given in evidence, or admitted to be good, useful, or available in law or equity for any purpose whatsoever, unless it is duly stamped in accordance with the law in force at the time when it was first executed: ...

(2)........ ........ ........ ........ ........ ..

(3)........ ........ ........ ........ ........ ..

(4)... this section [does] not apply to an instrument or a copy of an instrument tendered as evidence on behalf of a party (not being a person who is primarily liable to duty in respect of the instrument) if the Court is satisfied:

(a)that the party has informed, or will in accordance with arrangements approved by the Court inform, the Chief Commissioner of the name of the person primarily liable to duty in respect of the instrument; and

(b)that the party will, in accordance with arrangements approved by the Court, lodge the instrument or a copy of the instrument with the Chief Commissioner."

No attempt was made to show, or to persuade me to infer, that the unit trust deed was executed in New South Wales or related to property situated in New South Wales or to any matter or thing done or to be done in New South Wales. The addresses stated in the deed for all three parties are New South Wales addresses. Clause 17.1 provides that the Deed is to be governed by and construed in accordance with the law of or applicable in New South Wales and that the trustee submits to the jurisdiction of the Courts of New South Wales. I will assume, without deciding, that it is proper to infer that the deed was executed in the State.

It is necessary now to turn to sub-s 29 (4) quoted above. Senior counsel for TOCNQ has proffered an undertaking by his client to the Court. He did so in the form of the "party's usual undertaking as to stamp duty" referred to in sub-r 10A (2) of Part 36 of the Rules of the Supreme Court of New South Wales. That sub-rule is as follows:

"The `party's usual undertaking as to stamp duty', if given to the Court by a party in relation to an instrument referred to in section 29(4) of the Stamp Duties Act, 1920, is an undertaking that the party will within 28 days inform the Chief Commissioner of Stamp Duties of the name of the person primarily liable to duty in respect of the instrument and lodge the instrument or a copy of the instrument with the Chief Commissioner."

The unit trust deed appears to be liable as a "Declaration of Trust" and in respect of such a class of instrument, the party primarily liable is the party declaring the trust (see entry under the heading "Declaration of Trust" in the Second Schedule to the Stamp Duties Act 1920 (NSW)). In this case, that party was Burdekin Packers.

I accept the undertaking proffered and admit the photocopy unit trust deed into evidence. The period of 28 days referred to in the undertaking will run from the date of publication of these Reasons for Judgment. It appears that no "arrangements" need to be approved by the Court since neither the original deed nor an executed copy has been produced to the Court.

There is annexed to the same affidavit of Mr Johnson, a photocopy of a Deed Evidencing Heads of Agreement to which the parties are TOCNQ, the applicants, Burdekin Packers (under its former name "Top of the Crop (Packing) Pty Ltd") and Teplitzky's company, Quando. It is undated but a covering letter dated 1 November 1993 from Hodge to John Jeweller, the then solicitor for the applicants, and other evidence suggests that it had been executed by three of the four applicants on 29 October 1993. Paragraphs 79 and 80 of the first amended statement of claim outlined earlier refer to it as dated 29 October 1993. The copy shows that the original has been executed by all parties. Recital E of that Deed is to the effect that Burdekin Packers is trustee of a unit trust known as "Top of the Crop Packing Unit Trust" (it is not in dispute that this is a reference to the Trust). The recital is consistent with the existence of the unit trust deed dated four days earlier, 25 October. Recital H is to the effect that TOCNQ and the four applicants (the four applicants are called "the Investors" in the Deed) have agreed to subscribe for units in the Trust to enable Burdekin Packers to carry on its business as trustee. Accordingly, the applicants are apparently estopped, in favour of, inter alia, TOCNQ, from denying that the Trust at least existed. By cl 3, Burdekin Packers undertook, "upon execution" of the Deed, to issue 1340 units in the Trust to the persons and companies specified in Schedule 3. These were TOCNQ, Quando and the four applicants.
I note in passing, that the applicants also took the stamp duty objection to the admission into evidence of the photocopy Deed Evidencing Heads of Agreement and that TOCNQ proffered the same undertaking in relation to it. On the same basis, I accept that undertaking and admit the photocopy into evidence.

On 17 April 1994, Hodge forwarded unit certificates in the applicants' names together with forms of application for units which he asked that they sign and return. The letter dated 17 April 1994 from Hodge to the applicants' solicitor, John Jeweller, said this:

"Unit Trust
I enclose application forms for your clients to sign. I also enclose Unit certificates which are handed to you on the strict condition that they are only to be released to your clients after you have received the written application forms.

I advise that no units have been issued to Quando and that a total of 1,390,000 units have issued. The Unit Trust Deed will have to be amended to allow for the issue of non voting units. I also think
that there may be other amendments to the trust deed which ought to be made. I suggest that this be considered after you return from overseas.

I undertake to hand the Unit Trust Deed to Grant Arnold accountant from Pinker and Arnold to enable the Unit Register and all administrative matters in relation to the trust to be dealt with."

The forms of application were not signed and returned. On the other hand, so far as the evidence shows, the unit certificates were retained by Mr Jeweller.

It will be recalled, also that Drs Hayden and Schweitzer became directors of Burdekin Packers on 18 April 1994, the day following the date of the letter.

The unit certificates were apparently to be held by Mr Jeweller in escrow. The statement that a total of 1,390,000 units had been issued and the references to the unit trust deed suggest that the deed had been executed by the date of the letter at least.

The applicants point to paras 80-87 of the First Amended Statement of Claim that was on the Court file when their motion for the Mareva injunction was heard by Davies J, and which touch on some of the above matters. But his Honour's attention was not directed to those paragraphs. He was told no more on the subject than what was said in Dr Hayden's affidavit, namely that the Trust had "never been formed". I unhesitatingly reject the proposition that disclosure is made, for present purposes, by the mere existence of certain allegations in a pleading to which attention is not directed.

Annexure "J" to Mr Johnson's affidavit is a copy of the accounts of the Burdekin Packers Unit Trust for the year ended 30 June 1995. Drs Hayden and Schweitzer signed them as directors of Burdekin Packers. Annexure "K" to Johnson's affidavit is a copy of a two-page handwritten memo dated 27 December 1995 from Dr Hayden to Hodge which included the following:

"I gave you a letter appointing Rodney James Hayden as public officer authorised to sign the ASC return and ATO return for Burdekin Packers Unit Trust. You were to return the letter to me. As this is now required urgently could you please fax the above letter with whatever changes you may require as a matter of urgency." (underlining supplied)

Hodge's reply to Dr Hayden's request was dated 3 January 1996 and included the following:

"It is not possible for John Johnson or Tony Stavrianos to agree to the submission of a tax return that they have never sighted. I note from your letter that the tax return is for a unit trust. I have never seen the trust deed and as far as I know a trust has never been formed. Where are the documents evidencing the trust and when were they signed?" (underlining supplied)

This is an astounding statement, having regard to the fact that Hodge was named as settlor in the deed dated 25 October 1993 and, according to the copy of it annexed to Johnson's affidavit, signed it.

There is in evidence a letter dated 5 February 1996 from Dr Hayden to Hodge. It includes the following passages:

"I then [on 1 December 1995] gave you a letter at that time authorising me to sign the taxation return on behalf of Burdekin Packers. You took the letter and said you agreed with this in principle but you would send me a covering letter regarding this matter but that you would allow me to sign the taxation return on behalf of Burdekin Packers."
and
"With regard to the matter of Burdekin Packers operating through a trust, as you were the architect of the whole business you would be well aware that since its inception it has always been the intention of Burdekin Packers to operate through a trust. All correspondence including the Heads of Agreement refers to the Burdekin Packers Unit Trust. Grant Arnold also used Burdekin Packers Unit Trust when he copied Steve Houlihan's financial statements onto his computer. You have known for three years that there has been no Trust Deed as you were the one who was to prepare the Trust Deed." (underlining supplied)

TOCNQ relies on the unit trust deed, the signing by Drs Hayden and Schweitzer of the 1995 accounts, and the writing by Dr Hayden of the memo dated 27 December 1995 and letter dated 5 February 1996 to Hodge, to establish that the Burdekin Packers Unit Trust was "formed" and that Dr Hayden knew that fact when he swore his first affidavit.

Dr Hayden swore affidavits on 5 February and 6 February 1997 which, in part, reply. In the former, he says that so far as he was aware, the trust deed was to be drawn by Hodge but had never been settled or executed by Burdekin Packers as trustee; that he was never informed that the trust deed had been executed; that there had been numerous negotiations in respect of the formation of the trust since April 1993; that the applicants' solicitor, John Jeweller, had been negotiating various terms of the trust deed with Hodge but that the negotiations had never been completed; and that the first time he had seen the trust deed dated 25 October 1993 was on reading the copy of it annexed to Johnson's affidavit. He suggests that given that negotiations were taking place between the parties which culminated in the execution of the Heads of Agreement document on 29 October 1993, it is extraordinary that none of the applicants were shown a copy of the unit trust deed dated four days earlier. His affidavit of 5 February 1997 includes the following:

"Accounts were prepared by KPMG for Burdekin Packers. These accounts were prepared on the assumption that the trust did in fact exist because that was the original intention. However, as far as I am aware the trust was never properly settled or stamped."

In paras 3-11 of his affidavit sworn 6 February 1997, Dr Hayden again deals with the subject of the execution of the trust deed. He annexes a copy of a letter dated 29 July 1993 from John A Diacopoulos, a solicitor who was at the time assisting the applicants' then solicitor, John Jeweller, addressed to Hodge. The letter includes the following:

" ... I have perused the deed of unit trust made available and will shortly contact you with respect to some minor drafting changes. However, in the meantime I would ask that you might obtain instructions from your client to the deletion of the whole of covenant 7 of the deed of unit trust (redemption of units)."

In his reply dated 3 September 1993, Hodge advised Mr Diacopoulos that his client was prepared to delete the whole of covenant 7 of the executed unit trust deed. (I note, in passing, that cl 7 of the unit trust deed dated 25 October 1993 provides for redemption of units.) Dr Hayden claims in para 5 of his affidavit sworn 6 February that "it was always intended" that the applicants would have a role in the drafting of the deed of trust and that the unit holders would be the companies and persons listed in Schedule 3 to a Heads of Agreement document a copy of which is annexure "G" to his affidavit of 5 February. He also refers to a letter from the applicants' then solicitor, John Jeweller, to the then solicitors for TOCNQ dated 6 December 1994, more than a year after the date borne by the unit trust deed, in which Mr Jeweller said, among other things:

"There are certain matters outstanding under the Deed [a reference to the Heads of Agreement] which require formalisation, the outstanding matters being as follows:

Settlement of the final form of Unit Trust Deed;

Execution of the Unit Trust;

Issue of the Units ..."

Dr Hayden also refers to a letter dated as late as 13 June 1995 from the applicants' present solicitor, Mr Sloan, to Hodge, in which Mr Sloan states,

"I also note that the Trust contemplated by the Heads of Agreement has not been established."

to which, according to Dr Hayden's affidavit, there was no reply from Hodge asserting to the contrary.

Robert John Brooks, chartered accountant with KPMG chartered accountants at Albury, was requested in 1995 by Dr Hayden to prepare financial statements for Burdekin Packers. His evidence is that he had not prepared the previous year's statements and that he obtained them from Pinker & Arnold, the accountants who had prepared them. He says that he observed that they had been prepared on the basis that Burdekin Packers operated a unit trust. He says that it was by reason of this observation, that when he (Mr Brooks) prepared the accounts for 1995, he prepared them on the same basis. He says that he has never seen a unit trust deed for the Trust, unit certificates issued to any unit holders, or minutes of Burdekin Packers accepting applications for units and authorising the issue of units. Moreover, he says that working papers of his firm contain notes reading "Where is trust deed?" and "Are unit certificates issued?" He says that although he prepared the accounts on the basis that Burdekin Packers was the trustee of the Trust, he was never provided

with any documentation establishing that the Trust existed. He says that he simply assumed that the formal requirements for the creation of the Trust had been attended to, because the previous year's accounts had been prepared on the basis that the Trust existed.

Finally, Grant Brian Arnold of Pinker & Arnold has sworn an affidavit on behalf of TOCNQ. He says that in about February 1995 he was retained by "the board" of Burdekin Packers to settle and prepare its financial statements for the year ended 30 June 1994. He annexes to his affidavit a copy of the statements which he prepared. They are financial statements for "Burdekin Packers Unit Trust". Apart from Mr Arnold's own certificate, they do not bear signatures. Mr Arnold says that when he prepared the financial statements he had in his possession a copy of the unit trust deed dated 25 October 1993, which had been handed to him by Hodge. He explains the circumstances, not presently material, in which the deed went out of his possession in June or August 1996.

What material facts, if any, were known to the applicants and not placed before Davies J? Dr Hayden was not cross-examined. I accept Dr Hayden's evidence that he did not know of the existence of an executed unit trust deed until he saw the copy annexed to Johnson's affidavit. I also accept that there are several disturbing aspects of the evidence relating to the coming into existence of the unit trust deed. Dr Hayden did, however, know of recitals E and H and cl 3 of the Deed Evidencing Heads of Agreement; he knew that he and Dr Schweitzer became directors of Burdekin Packers on 18 April 1994 and that in that capacity they had signed the financial statements of the Burdekin Packers Unit Trust for the year ended 30 June 1995; he knew that business had been conducted by Burdekin Packers under the directorship of, inter alia, himself and Dr Schweitzer, as trustee of the Trust; he knew that there had been a purported issue of units; and he knew of the correspondence from 27 December 1995 to 5 February 1996 between himself and Hodge. Ironically, in the light of the current positions taken by the applicants and TOCNQ, that correspondence shows that Dr Hayden was asserting, in substance, that Hodge was relying on an unimportant technicality in protesting that the Trust had not been formally constituted, while Hodge, who had executed the unit trust deed as settlor, claimed that it would not be appropriate for Johnson and Stavrianos to consent to the filing of the returns on behalf of the Trust in the absence of an executed unit trust deed.

Paragraph 2 of Dr Hayden's first affidavit was intended to inform his Honour that notwithstanding their investment of $644,999.64, the applicants were not protected by a formal constitution of the Trust or the issue of units in it. Dr Hayden did not know facts which unequivocally falsified para 2 so understood. But, as the foregoing account of events shows, he did know many material facts which TOCNQ would have put before Davies J and which he therefore should have put before his Honour. The applicants did not "suppl[y] the place of [TOCNQ] to the extent of bringing forward all the material facts which [TOCNQ] would presumably have brought forward in [its] defence to [the Mareva] application": Thomas A Edison at 682. The very volume of affidavit material which now exists on the issue suggests as much.

It may be that Davies J would nonetheless have granted the injunction in the light of the evidence which the applicants would have led in order to discount the effect of the matters on which TOCNQ would have relied, but this is beside the point. His Honour might not have done so. It was the applicants' obligation to "supply the place" of TOCNQ. They failed to do so. They knew many material facts but chose to say only that the Trust had never been formed.

Prima facie, the Mareva injunction must be immediately discharged because of the applicants' failure to make full and frank disclosure of material facts.

"Avoidance of the proceeding"

In paras 8 and 9 of Dr Hayden's first affidavit, he said:

"8.The Application in this matter was returnable for a Directions Hearing before this Honourable Court at 9.30 am on 14th November 1996. I am informed by my solicitor and believe that the fifth and sixth respondents did not appear at that Directions Hearing. The Directions Hearing was stood over for mention to 16th December 1996 but was subsequently adjourned at the request of his Honour, Mr Justice Beaumont
to 7th February 1997.

9.I am informed and believe that the Fifth and Sixth respondents have not filed a Notice of Appearance in these proceedings." (underlining supplied)

Before Davies J on 17 January, Mr Bavin, solicitor, who appeared for the applicants, said:

"Top of the Crop have not to date taken any part in the proceedings. There is evidence of them being served with the application and the statement of claim and I think this morning an affidavit of service of the amended statement of claim was filed. They have not entered an appearance and they did not appear on the first directions hearing of the application." (underlining supplied)

As noted earlier, on 14 November Mr Hatsatouris "mentioned" the matter for TOCNQ and Liverpool Growers.

In a subsequent affidavit sworn 31 January 1997, Dr Hayden says that he was not aware that Mr Hatsatouris had mentioned the matter on 14 November, for, relevantly, TOCNQ. The applicants' solicitor, Mr Sloan, in an affidavit sworn 19 February 1997, said that counsel briefed by him who had appeared for the applicants before Beaumont J on 14 November had not reported to him that Mr Hatsatouris had mentioned the matter for TOCNQ on that date. In fact, TOCNQ did not file an appearance until 21 January 1997, apparently shortly after being served with a copy of the orders made by Davies J on 17 January 1997.

The purpose of para 8 of Dr Hayden's first affidavit was to give the impression that no-one had attended at the Court on 14 November on behalf of TOCNQ or Liverpool Growers, in spite of the fact that they had been served. That impression intended to be given, and in fact given, by Dr Hayden's first affidavit is not overcome by the fact that a documentary appearance had not been filed, notwithstanding the terms of O 9 r 2. Contrary to that impression, TOCNQ and Liverpool Growers had been responsive to the originating process, although Dr Hayden truthfully stated what he had been informed and believed.

Taking the applicants, their solicitor and counsel who appeared for them as a whole, they, because of counsel's knowledge, knew that Mr Hatsatouris had mentioned the matter on behalf of, relevantly, TOCNQ. Full and frank disclosure by "the applicants' camp" required the addition to the sentence quoted of words such as, "but the legal representative of the fourth respondent mentioned the matter on their behalf". Although there is no suggestion of deliberate non-disclosure by Dr Hayden or, of course, by Mr Sloan, the fact remains that the applicants, through their counsel, knew a fact which was inconsistent with the impression that the second sentence in para 8 was intended to create. The supposed unresponsiveness of TOCNQ was material to the exercise of the discretion. If TOCNQ had appeared before Davies J on 17 January, it would have drawn attention to the fact that it had taken steps to have Mr Hatsatouris mention the matter on its behalf on 14 November 1996 before Beaumont J. The applicants were also obliged to draw the attention of Davies J to that fact but did not do so.

Prima facie, the injunction must be immediately discharged because of the applicants' failure to make full and frank disclosure of that material fact.

"Sacking of Teplitzky"

In para 11 of Dr Hayden's first affidavit, Dr Hayden said:

"11.The First Respondent (Teplitzky) was formally [sic - formerly] the manager of the Fifth Respondent in addition to being manager of Mango farms of the Applicants until he was sacked for misappropriating our funds, including, inter alia, improperly paying $215,690.64 of our moneys to or on behalf of the Fifth Respondent."

Johnson's affidavit sworn 31 January 1997 annexes correspondence which makes it clear that Teplitzky "stood aside" while the allegation of mixing of funds of the Trust with the funds of others was investigated.

On 17 March 1995, Jeweller Peetz, solicitors, wrote to Teplitzky. They advised that they acted for Drs Hayden and Schweitzer who, they said, were co-directors of Teplitzky's in Burdekin Packers, of which, they said, he had also been acting as manager. They advised that they also acted for the other members of Delta Six. The letter contained the following:

"According to the accounting records that our clients have perused you have allowed the following to occur:-

payments from the bank account of Burdekin Packers Pty. Limited of expenditure properly associated with the Delta 6 Syndicate.

payments from the bank account of Delta Six syndicate of expenditure properly associated with Burdekin Packers Pty. Limited.

payments from the bank account of Delta 6 Syndicate of expenditure properly associated with Top of the Crop (NQ) Pty. Limited.

payments to yourself for amounts in excess of your entitlement under your arrangements with Burdekin Packers Pty. Limited.

There are also unexplained receipts into the Delta 6 bank account from Top of the Crop (NQ) Pty. Limited.

The result of these actions on your part is that there has been a misapplication of funds and therefore assets of Burdekin Packers pty. [sic] Limited and the Delta 6 Syndicate which our clients regard as conversion at the very least, and in the case of the overpayment to yourself, that is regarded by our client as an unauthorised payment of company funds at the very least.

........ ........ ........ ........ ........ ........ .

At the time of writing there has yet to be a full reconciliation of amounts that have been wrongly debited and wrongly credited to the various accounts under your control, ...

Our clients require that you immediately consent to standing aside from your position as an officer of Burdekin Packers Pty Limited and as Manager of Burdekin Packers Pty Limited and that you immediately provide them with full information sufficient to allow them to reconcile the accounts of the company to ascertain whether or not it is still solvent and whether or not it can continue to trade without the appointment of an administrator or a provisional liquidator.

........ ........ ........ ........ ........ ........ ...

If you do not agree to:-

(a)stand aside, and

(b)repay the sum of $10,087.43

our clients will without further notice be moving the Court to appoint a Provisional Liquidator to Burdekin Packers Pty. Limited who will then undertake the necessary investigation of the dealings which have eroded the assets ..." (underlining supplied)

On 21 March 1995, Gordon and Johnstone, solicitors for Teplitzky, replied at some length. The letter included the following:

"Our client will agree to stand aside as Manager of Burdekin Packers pending a final determination by Messrs KPMG Peat Marwick of amounts due and owing between the companies and possibly by our client and upon such a determination being made our client will reconsider his position (providing of course that the accounts can be reconciled by KPMG Peat Marwick within the next twenty-one (21) days). If the accounts can not be finalised within that period please advise the estimated time for finalisation of those accounts and particularly the basis upon any delay." (underlining supplied)

TOCNQ submits that it is clear that Teplitzky "stood aside" and was not "sacked".

In reply, the applicants submit that TOCNQ's submission misconceives para 11 of Dr Hayden's first affidavit. They submit that the sacking referred to was a sacking from the position of "manager" of the mango farms of the applicants. The applicants' submission in this respect is that para 11 of Dr Hayden's original affidavit is to be read in the following way:

"11.The First Respondent (Teplitzky) was:

(a)formally [sic - formerly] the manager of the Fifth Respondent; [and]

(b)manager of Mango farms of the Applicants until he was sacked for misappropriating our funds including, inter alia, improperly paying $215,690.64 of our moneys to or on behalf of the Fifth Respondent."

TOCNQ has not challenged the factual allegation that Teplitzky was sacked from the position of manager of the applicants' mango farms.

In my opinion, para 11 of Dr Hayden's original affidavit is ambiguous and the construction suggested by the applicants is a reasonable one. In these circumstances the evidence does not expose, in respect of para 11, a failure to make full and frank disclosure.

"Underpayment by Liverpool Growers to the applicants"

Paragraph 12 of Dr Hayden's first affidavit was as follows:

"The Sixth Respondent (Liverpool Growers) is an agent under the Farm Produce Act which sold fruit on behalf of the Applicants. During the 1992 and 1993 seasons it underpaid the Applicants for fruit by a total of $402,753.47. I believe the Sixth Respondent has been in Administration and may have no assets to satisfy any claim made against it." (underlining supplied)

In para 28 of his affidavit sworn 31 January 1997, Johnson says that Liverpool Growers disputes the alleged underpayment of $402,735.47. He says that under the Farm Produce Act 1983 (NSW) as administered by the Department of Agriculture, security bonds were lodged by C E Heath Casualty & General Insurance Limited ("Heath") and The AMP Society ("AMP") to guarantee payment of any moneys found to be underpaid by Liverpool Growers in the course of its market operations at the Flemington Markets. He annexes a copy of the Heath guarantee in a sum of $250,000. As well, he says that Stavrianos and he gave their personal guarantees, which do not involve TOCNQ in any way, to each of Heath and The AMP Society to support the securities. Annexed to his affidavit is a copy of a claim dated 17 July 1995 made against Stavrianos and himself on behalf of Heath which includes calculations of alleged underpayments totalling $191,626.90 which, again, he says, is disputed. Apparently, Dr Hayden has been paid $30,102.63, Dr Schweitzer $27,585.31, Dr Jayasinghe $12,949.00 and Dr Wright $12,835.98 - a total of $83,472.92.

There are in evidence certificates of "NSW Agriculture" dated 1 May and 3 May 1995 under the Farm Produce Act 1983. In the first, NSW Agriculture states that an investigation shows that $232,063.43 is owed by Liverpool Growers to "producers" of which $229,481.93 is owed to "Rodney J Hayden (Delta Six Mangoes)". In the second it is stated that $191,626.90 is owed to "producers" of which $30,102.63 is owed to "Rodney J Hayden (Delta Six Mangoes)". The total of the first two amounts mentioned is $423,690.33. According to an affidavit of Dr Hayden, $91,565.48 has already been paid. It is impossible, on the basis of the evidence before me, to calculate the amounts owed to the four applicants. In any event, this is only an interlocutory hearing.

In an affidavit sworn 5 February 1997, Dr Hayden says that Liverpool Growers underpaid "Delta Six" $402,753.47, and that "Delta Six" received $91,565.48 in August 1995, leaving a balance of $311,187.99 outstanding. Since the applicants are only four of the seven members of Delta Six, I presume that on Dr Hayden's own evidence, the amount owed to the applicants is somewhat less than $311,187.99.

Counsel for the applicants refers to the fact that at page 10 of the particulars to the first amended statement of claim filed in Court on 17 January, credit is given for the said amount of $91,565.48 as "amounts received under Liverpool Growers indemnity bond from NSW Agriculture". I reject without hesitation the suggestion that the fact that a figure appeared at page 10 of lengthy particulars to the first amended statement of claim amounts to a making by the applicants of full and frank disclosure to Davies J. The transcript of the proceeding before his Honour makes it clear that he was not taken to that entry. Dr Hayden's first affidavit said, simply and unequivocally, that:

"During the 1992 and 1993 seasons it [Liverpool Growers] underpaid the applicants for fruit by a total of $402,753.47." (underlining supplied)

The relevant sentence in para 12 of Dr Hayden's first affidavit and the above passage were clearly intended to convey to Davies J that the amount currently payable to Liverpool Growers was precisely $402,753.47.

That sentence was not a full and frank disclosure of all material facts known to the applicants which were objectively relevant to the fact and extent of the alleged underpayment. The applicants knew facts material to that question which TOCNQ would have put to Davies J on 17 January. The applicants knew, but did not inform his Honour, that the alleged indebtedness was denied and that, in any event, the amount of the current indebtedness, on their own case, was substantially less than $402,753.47.

The present case bears some similarity in the present respect to Ali v Fahd. The dealings between the parties were complex, extended over a lengthy period, and had led to accusations, counter accusations and denials. Yet Dr Hayden's first affidavit painted a simple one-sided picture. Again, it is beside the point that the applicants' position may, on a final hearing, be generally upheld.

Prima facie, the Mareva injunction must be immediately discharged by reason of a failure by the applicants to make full and frank disclosure of material facts in the present respect.

"Fraud investigation"

Paragraph 13 of Dr Hayden's first affidavit is as follows:

"I believe the Respondents are presently the subject of investigation by the Fraud Enforcement Agency of the New South Wales Police Service arising out of a variety of transactions connected with these proceedings including, amongst other things, the misapplication of substantial sums of moneys by a number of the Respondents, the underpayment of moneys due to the Applicants by the Sixth Respondent (as directed by the Third Respondent) and the misapplication and misappropriation of funds by all the Respondents."

Before Davies J on 17 January, Mr Bavin said:

"There is some evidence also that the other respondents, the individual respondents, are under some sort of investigation by the police in Queensland in relation to various business dealings."

In his affidavit sworn 31 January, Johnson says that the involvement of the Fraud Squad was initiated by a complaint made by Dr Hayden, that Teplitzky was interviewed by an officer of the Fraud Squad in July 1996, and that no contact has been made by the Fraud Squad with any of the other respondents.

In an affidavit sworn 19 February 1997, Dr Hayden replies:

"The initial report to the Police was not made by me. I am informed by officers of New South Wales Agriculture that they reported the matters relating to the various underpayments by Liverpool Growers to the Fraud Enforcement Agency. The first contact
that I had with the police was with Detective Miles Maxwell from the Fraud Enforcement Agency. Detective Maxwell informed me that the Liverpool Growers had been reported to the police by New South Wales Agriculture several months before my first contact with the police. In that first conversation Detective Maxwell informed me that he had a file on this matter and gave me a file number. Accordingly, the Police initiated the investigation at the instigation of New South Wales Agriculture."

Dr Hayden's later affidavit does not seek to support his belief stated in his first affidavit or the statement by Mr Bavin that, Hodge, for example, was the subject of investigation.

On the existing evidence the position seems to be that NSW Agriculture, rather than Dr Hayden, initiated the police investigation by reporting the underpayments, and that the only respondents who have been "the subject of investigation" are Teplitzky and Liverpool Growers. Johnson's evidence that only Teplitzky has been contacted stands uncontradicted. In his first affidavit, Dr Hayden said that he believed that "the respondents" were "presently" the subject of investigation. Clearly, the applicants were inviting Davies J to accept and act upon the assumption that all respondents were the subject of a current police investigation in respect of the matters referred to in para 13. Dr Hayden has not attempted to show that he had reasonable grounds for his belief in relation to any particular respondent other than Teplitzky and Liverpool Growers, and, perhaps by implication, the directors of Liverpool Growers, Johnson and Stavrianos.

Dr Hayden's first affidavit should have set out the facts on which his belief was based so that Davies J could have made an assessment of the basis of the inference which the applicants were asking his Honour to make. The affidavit should have disclosed such matters as the source of Dr Hayden's information, particulars of inquiries made of the police and the results of such inquiries, the identity of any person questioned by the police, and the position as to laying of charges or the progress of the investigation.

Dr Hayden was not cross examined. Although I consider para 13 of Dr Hayden's first affidavit unsatisfactory, it is clear that Dr Hayden knew of a police investigation which he had not initiated into at least the activities of Teplitzky and Liverpool Growers. Of course, Johnson and Stavrianos were directors of TOCNQ as well as of Liverpool Growers. There is no direct evidence that Dr Hayden knew any facts which were inconsistent with a continuing police investigation extending to all respondents. But in the absence of evidence from Dr Hayden on the point, I think it proper to infer that he did not believe that the solicitor, Hodge, was "the subject of investigation".

Paragraph 13 of Dr Hayden's first affidavit, in so far as it related to Hodge, is not borne out by the causes of action which were pleaded against him in the first amended statement of claim. That is to say, it is not pleaded that Hodge was in any way, directly or indirectly, involved in the "misapplication", "misappropriation" or "underpayment" of moneys. The causes of action pleaded against Hodge were found in paras 120 to 122 of the first amended statement of claim which referred back to paras 99 to 103 and 104. Paragraphs 99 to 103 and 104 related to alleged fraudulently misleading and deceptive conduct touching the applicants' investment in the Trust (although the causes of action against Hodge are pleaded in paras 124 to 127A of the second amended statement of claim, they also refer back to paras 99 to 103 and 104).

By making the sweeping allegation that he believed that all respondents, including Hodge, were the subject of investigation in the respects mentioned in para 13, Dr Hayden did not make full and frank disclosure. He did not draw to the attention of Davies J the material facts that Hodge, at least, may not have been the subject of investigation in those respects, and that in relation to TOCNQ, he relied only on the fact that it had the same directors as Liverpool Growers and had benefited from certain of the payments made by Liverpool Growers.

Prima facie, the Mareva injunction must be immediately discharged.

I will address later the fact that para 13 went to Dr Hayden's belief as distinct from the objective fact as to which the belief was held.

"Sale of the Queensland land"

Paragraph 21 of Dr Hayden's first affidavit was as follows:

"I believe TOCNQ has taken the steps of selling its land in the light of the proceedings in this Honourable Court. I am concerned that should the sale proceeds be paid to TOCNQ (or as it directs), the Applicants will be defeated in satisfying any judgment against TOCNQ as the net equity will be disbursed and the Applicants will have difficulty tracing the same."

As noted earlier, the present proceeding was commenced on 28 October 1996. The originating process was served on TOCNQ on 12 December 1996.

In his affidavit sworn 31 January 1997, Johnson says that negotiations for the sale by TOCNQ commenced in about July 1996. He annexes a memo dated 13 September 1996 from a representative of the purchasers to himself which commences:

"This fax will confirm our discussion today that our syndicate `Plantation 71' will offer and you have accepted the following:

1.Price $1,800,000.00 - 5% deposit on signing the contract with the balance paid on 31 January 1997. ..."

It is clear that TOCNQ had not "taken the steps of selling its land in the light of the proceedings". Paragraph 21 of Dr Hayden's first affidavit was intended to convey to his Honour that Dr Hayden had reasonable grounds for believing that it was awareness of this proceeding that prompted TOCNQ to sell the Land. Dr Hayden has not attempted to show that he had reasonable grounds for that particular belief, yet the applicants invited Davies J to grant a Mareva injunction on the assumption that there were reasonable grounds for it.

Paragraph 21 is unsatisfactory. It should have set out the basis for the belief expressed in it. Even in the light of the evidence subsequently filed on behalf of the applicants, no basis is shown for the particular belief expressed. I infer that Dr Hayden had none and that para 21 did not make full and frank disclosure.

Prima facie, the Mareva injunction must be immediately discharged.

I further address later the point that para 21 went to Dr Hayden's belief as distinct from the objective fact as to which the belief was held.

"Behaviour of the directors"

Paragraph 22 of Dr Hayden's first affidavit was as follows:

"My experience of the behaviour of the directors of TOCNQ leaves [sic- leads] me to believe that they may not comply with and [sic - an] Order of this Honourable Court restraining TOCNQ from dealing with the proceeds of any sale and hence I seek an order that the Purchasers and their Solicitor be required to hold the net proceeds of any sale after any payment due to Primary Industry Bank of Australia Limited pursuant to its Mortgage in relation to this land and the selling costs on the sale."

On the hearing before Davies J on 17 January, Mr Bavin who appeared for the applicants drew attention to this matter in the following passage:

"I am aware of a good deal of mistrust between the applicants and the respondents in the proceedings. There is reference is one of the affidavits to a suggestion that they feared that if Top of the Crop received the proceeds in any way, it is a bland statement being made but that they fear that they would not comply with an order. Obviously, that leaves remedies available but they specifically did not want Top of the Crop to actually get possession or get control of the net sale of proceeds in any way, shape or form - to take out that possibility, I suppose, your Honour ..."

The opening words of para 22 are: "My experience of the behaviour of the directors of TOCNQ [leads] me to believe ...". The experience to which Dr Hayden refers has still not been spelt out. In para 85 of his affidavit sworn 5 February 1997, Dr Hayden gives a lengthy account of a telephone conversation which he had with Hodge on 25 July 1996. The general thrust of it was that in relation to differences between Dr Hayden and Johnson, Hodge thought that Johnson had behaved unethically, that Johnson was not "morally right", and that he (Hodge) did not "like being on the wrong moral side of the fence". This does not show a basis for Dr Hayden's statement that his experience of the behaviour of the directors of TOCNQ provided a ground for the particular belief that they might not comply with an order of this Court.

Again, I think that the obligation of full and frank disclosure required Dr Hayden to make explicit in his first affidavit the basis for his belief that the directors of TOCNQ might, notwithstanding a court order restraining them from doing so, deal with the proceeds of sale of the Land. From the lack of evidence on the matter in his subsequent affidavits, I infer that he had no basis for making the statement. There was a lack of full and frank disclosure.

Prima facie, the Mareva injunction must be discharged.

I deal below with the fact that para 22 goes, in part, to a state of belief as distinct from the objective fact as to which the belief was held.

Materiality - belief
Paragraphs 8 (ground 2), 13 (ground 5), 21 (ground 6) and, in part, 22 (ground 7) of Dr Hayden's first affidavit contain statements of his belief on various matters. Davies J was aware of the shortcomings in Dr Hayden's first affidavit in this respect. His Honour said:

"Well it is not a very good affidavit, it is full of beliefs. Not stating ... where the information has come from, what the belief is founded on. ..."

His Honour also said:

" ... you obviously cannot get orders - you might get an order just holding the matter for a short time but you cannot get orders without giving the other side notice."

The order made by Davies J was expressed to be made until further order of the Court. In the light of the passage last quoted above, this seems to have been a slip. It is clear that his Honour contemplated that the order would be in place only until the respondents were before the Court and the application for Mareva relief could be determined inter partes.

The applicants submit that in so far as they obtained the Mareva injunction on the basis of statements of belief, it should not be discharged for failure to make full and frank disclosure unless the facts not disclosed show that Dr Hayden did not have one or more of the beliefs. I do not accept the submission. In so far as Dr Hayden's first affidavit stated beliefs, the applicants were inviting Davies J to accept, and exercise his discretion on the basis, not only that Dr Hayden had the beliefs, but also that he had reasonable grounds for having them, albeit reasonable grounds which, unfortunately, were not revealed in the affidavit. To the extent that Dr Hayden had no reasonable grounds for a belief, the discretion was exercised on a false assumption, or, to express the matter differently, the applicants failed to disclose a material fact known to them, namely, that there were no reasonable grounds to support the belief in question.

The order 4 made on 17 January should be discharged with costs.

APPLICANTS' MOTION
Introduction
The question arises whether alternative Mareva style relief should be granted on the applicants' motion. It has not been in issue that the applicants have established an arguable right to recover some amount of damages from TOCNQ. The amount claimed in a second amended statement of claim filed on 21 February 1997 is $511,048.47. An affidavit of Dr Hayden sworn 5 February 1997 deposes to many of the underlying facts. I think that an arguable case for recovery of damages from TOCNQ to that extent is established.

What remains for the applicants to prove in order for me to grant the discretionary remedy sought? The question has given rise to issues of interest and of some difficulty. The difficulty arises, at least in part, from the fact that the proposed payment of an alleged debt constitutes the evidence of threatened dissipation of assets on which the applicants rely.

In several cases, after a Mareva injunction has been granted, the defendant or an intervener-creditor has applied for a variation of the injunction to permit payment of a debt. In such cases it has been said that the defendant or intervener-creditor must prove that the debt is genuine, even if not enforceable and only a debt of honour, and that the payment proposed would have been made in the absence of the pending action against the defendant. The leading case is Iraqi Ministry of Defence v Arcepey Shipping Co SA [1981] QB 65 (the "Angel Bell") In that case, Robert Goff J said, in the course of dealing with an application by a creditor-intervener for a variation of the injunction:

"I find it difficult to see why, if a plaintiff has not yet proceeded to judgment against a defendant but is simply a claimant for an unliquidated sum, the defendant should not be free to use his assets to pay his debts. Of course, if the plaintiff should obtain a judgment against a defendant company, and the defendant company should be wound up, its previous payments may thereafter be attacked on the ground of fraudulent preference, but this is an entirely different matter which should be dealt with at the stage of the winding up. It is not to be forgotten that the plaintiff's claim may fail, or the damages which he claims may prove to be inflated. Is he in the meanwhile, merely by establishing a prima facie case, to preclude the bona fide payment of the defendant's debts?" (at 72)

The Iraqi Ministry of Defence case was a strong one because the plaintiffs claimed that the debt was illegal and void as arising from a money lending transaction. His Lordship thought, however, that a reputable businessman who had received a loan was likely to regard it as dishonourable, if not dishonest, not to repay, even if the enforcement of the contract of loan was technically illegal by virtue of the moneylenders legislation (at 72-73).

Other cases in which the question of payment to creditors has been considered include: Bakarim v Victoria P Shipping Co Ltd [1980] 2 Lloyd's Rep 193 (the "Tatiangela"); A v C [1981] QB 961 (Note); A v B [1983] 2 Lloyd's Rep 532; Campbell Mussels v Thompson, unreported, "The Times", 30 May 1984; K/S A/S Admiral Shipping v Portlink Ferries Ltd [1984] 2 Lloyd's Rep 166 (CA).

While the cases to which I have referred concerned applications by defendants or intervener-creditors for variation of a Mareva injunction rather than an application for the grant of one, they contain certain generalisations which are pertinent to the present case. For example, they recognise that it is not the purpose of a Mareva injunction to convert an unsecured creditor or claimant into a secured one, to permit a re-writing of the order of priorities as between creditors established by the law relating to bankruptcy or insolvency, or, in substance, to put a claimant for unliquidated damages in a position to bankrupt an individual or wind up a company.

Ground of jurisdiction
The first question, a fundamental one, which arises on the applicants' motion is: What is the ground of the Court's jurisdiction to grant Mareva relief? In particular, is it a threatened dissipation of assets as an objective fact, or is it a subjective purpose, objective or aim of the defendant to render irrecoverable any judgment which the plaintiff may obtain? If the former reflects the position, payment of a defendant's only funds to discharge a debt will give jurisdiction, albeit the creditor is unrelated to the defendant, the genuineness of the debt is unassailable, and the proposed payment would have been made in the absence of the pending proceeding. The defendant's purpose would, however, be relevant to the exercise of the discretion whether to grant relief. If, on the other hand, purpose is an essential element of the ground of jurisdiction, it is difficult to conceive of circumstances in which Mareva relief would be withheld in the exercise of discretion.

In Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264 (CA), the New South Wales Court of Appeal said this:

"Basis of jurisdiction:

We have come to the conclusion that jurisdiction does exist and that it derives from the Supreme Court Act, s 23, or from the Court's inherent power. The basis of jurisdiction is founded on the risk that the defendant will so deal with his assets that he will stultify and render ineffective any judgment given by the Court in the plaintiff's action, and thus impair the jurisdiction of the Court and render it impotent properly and effectively to administer justice in New South Wales. As has appeared, the jurisdiction to grant the injunction is not to be exercised simply to preclude a debtor from dealing with his assets, and in particular to prevent him from using them to pay his debts in the ordinary course of business. It is directed to dispositions which do not fall within this category and which are intended to frustrate, or have the necessary effect of frustrating, the plaintiff in his attempt to seek through the court a remedy for the obligation to which he claims the defendant is subject.

Assuming that the jurisdiction is exercised with due caution, it seems to us that it is necessary for the administration of justice in this State that the court should have power to prevent a defendant who would otherwise have assets to satisfy a judgment from setting the court and its procedures at naught by making sure that its judgment will be a mere brutum fulmen. The whole sense and purpose of the inherent powers, as well as the powers which s 23 confers, are to ensure the effective administration of justice. The analysis of the `Mareva' injunction which has occurred during the years of its growth show that it is designed to prevent conduct inimical to the administration of justice. The reported decisions show that a `Mareva' injunction will be granted where necessary to ensure that justice is effectively administered. ...

The scope of the jurisdiction
A number of matters must be established in order to entitle the plaintiff to obtain a `Mareva' injunction. As with other interlocutory injunctions, the court will be concerned to evaluate whether the plaintiff has made out a sufficiently strong case to justify the grant of the interlocutory remedy; the court will be concerned to evaluate the balance of convenience; and the court will ultimately be concerned with the general discretionary considerations. These three aspects are inter-related and overlap to a greater or lesser extent - particularly the first and the second." (at 276, underlining supplied)

It was subsequently established by the High Court in Jackson v Sterling Industries Ltd (1987) 162 CLR 612 that the basis of this Court's jurisdiction to grant a Mareva injunction is s 23 of the Federal Court of Australia Act 1976 and the "inherent or, more correctly, implied power" of the Court (at 618, per Wilson and Dawson JJ). All members of the Court considered that the basis of the jurisdiction lay in the Court's power to prevent an abuse of its process in the form of a frustration of its order.

Deane J, with whom Mason CJ, Brennan, Wilson and Dawson JJ expressed agreement, said:

"Orders preventing a defendant from disposing of his assets so as to create a situation in which any judgment obtained against him would not be satisfied may be of comparatively recent development. They have, however, become an accepted incident of the jurisdiction of superior courts throughout most of the common law world." (at 622, underlining supplied)

and:

"In due course, it was perceived that a general interlocutory power to make orders preventing a defendant from disposing of his assets so as to defeat any judgment obtained in an action was an incident of the substantive jurisdiction to entertain the action and was not confined to the case where the defendant was a non-resident." (also at 622, underlining supplied)

Later, his Honour expressed the purpose of Mareva relief in these terms:

"That purpose is not to create security for the plaintiff or to require a defendant to provide security as a condition of being allowed to defend the action against him. Nor is it to introduce, in effect, a new vulnerability to imprisonment for debt, or rather for alleged indebtedness, by requiring a defendant, under the duress of the threat of imprisonment for contempt of court, to find money, which he may or may not have (whether or not at some point of time it may have been available to him), to guarantee to a plaintiff that any judgment obtained will be satisfied. It is to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action." (at 625, underlining supplied)

The words "so as to" in these passages are equivocal: they may refer to the purpose or the effect of frustration.

Wilson and Dawson JJ, after noting that initially the Mareva injunction was of limited scope being available only against a foreign defendant with movable assets within the jurisdiction, continued:

"Some broader rationale was needed both to explain and fashion the eventual extension of the remedy to defendants resident within the jurisdiction and to the dissipation of assets within the jurisdiction for the purpose of defeating any judgment: ... It was to be found in the notion that the purpose of the Mareva injunction was to prevent the abuse of the process of the court by the frustration of its remedies: Iraqi Ministry of Defence v. Arcepey Shipping Co. S.A. (the `Angel Bell') [[1981] QB 65, at p 72]." (at 617, underlining supplied)

The judgments of Toohey and Gaudron JJ do not favour one view or the other.

In Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 (CA) ("Patterson"), Gleeson CJ said:

"The remedy is discretionary, but it has been held that, in addition to 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." (at 321-322)

This passage does not refer to the defendant's purpose. On the other hand, it is not inconsistent with an insistence upon the presence of a purpose of defeating the plaintiff. Indeed, the conjunctive reference to "absconding" arguably suggests that the Chief Justice contemplated that the other acts to which he referred would also be accompanied by a purpose of frustrating the plaintiff.

Be this as it may, the present question was subsequently addressed in Australia directly by Young CJ in Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49 ("Glenwood"), by von Doussa J in Beach Petroleum NL v Johnson (1992) 9 ACSR 404 ("Beach Petroleum"), and by the Queensland Court of Appeal in Northcorp Ltd v Allman Properties (Australia) Pty Ltd [1994] 2 Qd Rep 405 ("Northcorp"). In Glenwood, Young CJ said:

" ... in the only case, so far as I am aware, where the question has been asked, does the plaintiff have to show that the disposal of assets is intended to frustrate a judgment, the answer given was, `No'. The Court is concerned with effect rather than purpose: see The Niedersachsen [1983] 1 WLR 1412, especially at p 1422." (at 53)

In Beach Petroleum, after setting out the passage from the judgment of Gleeson CJ in Patterson quoted above, von Doussa J said:

"I propose to apply the test formulated by Gleeson CJ.

It will be noted that it is not necessary for the applicants to show an active intent on the part of the respondent to defeat the applicants from recovering the judgment. It is enough if the applicants establish that, in the absence of relief, there is a danger that assets will be dealt with in a way which will prevent the applicants recovering the judgment." (at 405-406)

In Northcorp, the Queensland Court of Appeal, after referring to the judgment of Gleeson CJ in Patterson and the judgment of Von Doussa J in Beach Petroleum, held that a plaintiff seeking Mareva relief does not have "to show that the purpose of the defendant's disposition, occurring or apprehended, is to prevent recovery of the amount of any judgment" (at 407).

Sackville J followed Beach Petroleum and Northcorp in the respect mentioned in Mount Lyell Mining and Railway Co Ltd v Roxon Companies Oy, unreported, 11 November 1994. Similarly, in Yenald Nominees Pty Ltd v Lyford, unreported, 10 June 1994, and Biscen Pty Ltd v Temsign Pty Ltd unreported, 10 October 1995, Carr J expressed the view that a "specific intent" of a respondent was not an essential element of the ground of jurisdiction.

There are, however, other recent cases which do not conform to this line of authority. I refer to Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 8 WAR 183 (Ipp J) at 185, R & I Bank of Western Australia v Anchorage Investments Pty Ltd (1993) 10 WAR 59 (FC) at 64-65 (Rowland J), and TCN Channel 9 Pty Ltd v Scotney & Cianta Nominees Pty Ltd, unreported, 17 November 1994, FCA/Tamberlin J, at 7.

In the two Western Australian cases, Ipp J and Rowland J respectively, followed a statement by Burt CJ in the earlier (pre-Patterson) case, Perth Mint v Mickelberg (No 2) [1985] WAR 117 (FC) at 118. In that case, as in the TCN Channel 9 case, the present issue does not appear to have been confronted or been the subject of argument.

Although I am not bound by the line of authority represented by Beach Petroleum, Northcorp and the Mount Lyell, Yenald Nominees and Biscen cases, I would depart from it only if I thought that it was plainly wrong. I do not think this and, accordingly, I propose to follow it.

The ground of jurisdiction in the present case is, therefore, whether TOCNQ intends to do acts which will have the effect of rendering a judgment for damages obtained against it by the applicants in the present proceeding wholly or partly ineffective.

It is appropriate to address this question next and, subsequently, the question of the balance of convenience.

Evidence of threat of dissipation of assets
As noted earlier, if not restrained, TOCNQ will pay the balance in hand (apparently, as noted earlier, some $598,535 less all costs of sale) to Charjon, the family company of Johnson. This will leave TOCNQ with no assets, at least for the time being.

I put to one side, as an asset of TOCNQ, its proposed claim for damages against the applicants. There is not yet any evidence before the Court establishing that TOCNQ has an arguable case in this respect.

Johnson placed a figure of $250,000 on TOCNQ's share in the anticipated distribution by Burdekin Packers as trustee of the Trust. In his affidavit sworn 5 February 1997, Dr Hayden says:

"From the information provided to me by the liquidator of Burdekin Packers, it is unlikely TOCNQ will receive anything like $250,000.00."

There is in evidence a letter dated 14 October 1996 from the official liquidator of Burdekin Packers, addressed, apparently, to that company's directors, advising that the liquidator had an offer of $650,000 for the company's property, plant and equipment. As well, the liquidator expressed the opinion in the letter that other items of property of Burdekin Packers had an estimated auction value of approximately $70,500. The total of these two amounts is $720,500. It is not clear, on the evidence, what proportion of this sum will be payable to TOCNQ or when it will be paid. A question will arise as to whether there is to be a distribution in proportion to the holdings, or intended holdings, of units in the Trust. In his submissions, senior counsel for TOCNQ, accepting that it was impossible to say precisely what the extent of his clients' entitlement was, referred to a division of the amount between the three "unit holder interests" in equal shares. On this basis, TOCNQ would
receive some $240,000.

In relation to the remaining asset of TOCNQ, namely the proceeds of the sale of the 1976-1977 mango crop, the only evidence before the Court is Mr Johnson's estimate of $125,000.

In the result, TOCNQ's financial position may well be as follows:

Proceeds of sale of the Land $1,800,000.00

Anticipated distribution from the Trust               $240,000.00
    Anticipated proceeds of 1996-1997 mango crop               $125,00
  $2,165,000.00

Less Primary Industry Bank $1,175,000.00

Other creditors                    $26,465.00
         Proposed payment of Charjon debt    $747,634.00
  $1,949,099.00
  _____________
  $215,901.00
  ============
From this figure must be deducted all the costs incidental to the sale of the Land. It is clear that there will not be adequate funds to satisfy the amount of $511,048.47 plus interest sought to be recovered by the applicants from TOCNQ in the present proceeding.

Accordingly, I conclude that there is a threat of dissipation of assets and that the Court has jurisdiction to grant Mareva relief.

Balance of convenience
Issued capital of TOCNQ
The issued share capital of TOCNQ is $1,560,150 divided into 150 ordinary shares of $1 each and 1,560,000 preference shares of $1 each. The shares are held as follows:

Ordinary shares
     Joseph Anthony Prestia            40
     Onade Holdings Pty Limited        40
     Charjon   70
  150

Preference shares
     Joseph Anthony Prestia             414,960
     Onade Holdings Pty Limited         414,960
     Charjon    730,080
  1,560,000
  ==========

Onade Holdings Pty Ltd is a company owned by interests associated with Stavrianos. In substance, the Charjon debt is owed by TOCNQ to its most substantial shareholder - the holder of a little less than one half of its issued capital.

Recoverability of amount of Charjon debt from Charjon
According to Johnson, Charjon's assets and liabilities are as follows:

Assets

House and land at 2
Wyndham Street, Leumah $130,000.00

Loan to the Moraitis Group
at Flemington Markets $450,000.00

Debt owed by TOCNQ $747,933.99

$1,327,933.99

Liabilities

Mortgage to ANZ
Bank over Leumah property $28,000.00

Debt owed to Johnson's
wife, Charlotte Johnson $595,357.00 $623,357.00

$704,576.99
===========

Johnson says that if, for any reason, Charjon ever becomes liable to repay to TOCNQ an amount equal to the Charjon debt, it has the financial capacity to do so. On the above figures, this is so only if Mrs Johnson, who is not before the Court, refrained from requiring payment of the debt of $595,357.00 which Charjon apparently owes to her.

If the applicants were to obtain judgment against TOCNQ and cause it to be wound up, its liquidator might be entitled to recover the whole or part of the payment made to Charjon. But the liquidator's right of recovery would depend upon the period between the date of the payment and the date of commencement of the winding up, as well as on the character, of the payment.

Although it is to be taken into account, I do not place great weight on the prospect that the amount of the Charjon debt
would in fact be able to be recovered from Charjon at any time in the future when the question of recovery might arise.

Undertakings
Charjon proffers, through Johnson, an undertaking, if it is required by the Court as a condition of discharge of the injunction. Paragraph 39 of Johnson's affidavit sworn 31 January is as follows:

"To any extent that may be necessary as a condition of the discharge at the ex parte Mareva injunction granted by order of this Honourable Court made on 17 January 1997, I hereby offer an undertaking to the Court on behalf of Charjon that it will not at any time during the continuation of the present proceedings and any appeal therefrom knowingly permit the net assets of Charjon to fall below the Charjon debt and if any event occurs which comes to the notice of Charjon and creates a risk that its net assets may fall below the Charjon debt, Charjon shall inform the solicitors for the applicants of the happening of that event in writing."

The undertaking would have some value if it were found finally that the whole or part of the Charjon debt was not owed or had not been bona fide incurred.

Disadvantage to TOCNQ
There is no evidence that there is any disadvantage to TOCNQ in not making payment to Charjon for the time being. There is no evidence, for example, that Charjon is charging TOCNQ such a high rate of interest that Prestia and Onade are anxious to see the Charjon debt paid out. Although there is no evidence that Charjon has been pressing TOCNQ for payment, Charjon would have known through Johnson, that TOCNQ lacked the means with which to make payment until the sale of the Land.

Genuineness of the Charjon debt
There was much evidence directed to showing that Johnson causes the various loan accounts of TOCNQ and Charjon to be dealt with from time to time in ways which are most convenient and financially expedient from the viewpoint of his various companies as a whole. In cross-examination Johnson conceded that he would need to refer to his accountants before answering certain questions as to the background to various entries in the accounts on which he was questioned. Of course, where there are several companies in the same beneficial ownership, one company may pay another's debt as a matter of convenience and "loan account" entries may be made in the financial records as a result. The practice may be innocent, but it can feed distrust. The applicants submit that I should not accept the Charjon debt as genuine. They submit that I should accept that it was brought into existence to provide a basis on which TOCNQ might divest itself of assets.

I am not persuaded that TOCNQ is not indebted to Charjon in some amount. As early as 1 July 1992, TOCNQ gave a crop lien to Charjon to secure an advance of $47,000 and TOCNQ's indebtedness to Charjon from time to time. It seems clear that TOCNQ has had difficulty in paying its way. On 14 October 1993, a summons was filed seeking an order that it be wound up. The proceeding was brought by a creditor described in the evidence as "Amcor Townsville Pty Ltd". Apparently TOCNQ had not paid it some $160,000 for fruit boxes. It is understandable that TOCNQ's most substantial shareholder might have seen fit to fund it from time to time, confidently expecting that the Land would ultimately provide the moneys out of which the advance would be repaid.

It may be that a taking of accounts as between TOCNQ and Charjon would reveal that TOCNQ does not owe Charjon as much as $747,633.69, or, indeed, anything. In fact, there are aspects of the evidence relating to the genuineness of the Charjon debt that give cause for concern. First, Robert John Brooks, chartered accountant of KPMG Chartered Accountants, Albury, has reviewed the accounts of TOCNQ and Charjon which were annexed to Mr Johnson's affidavit sworn 31 January 1997. Mr Brooks provided a report which points to many inconsistencies in the accounts. I do not find it necessary to specify these. Mr Brooks' report also includes the following:

"The loans accounts as indicated earlier seem to be interchanged at will and it is further noted that in the year ended June 30, 1995 an amount of $293,561 owing by Liverpool Growers (A'Asia) Pty. Ltd. to Top of the Crop NQ Pty. Ltd. was written off against profits as uncollectable.

It is noted that at July 1, 1994 Liverpool Growers (A'Asia) Pty. Ltd. apparently owed $151,207 to Top of the Crop NQ Pty. Ltd. and was then advanced a further $142,354 to reach the amount of $293,561 before deciding the debt was uncollectable.

In this same period loan monies owing to Charjon Pty. Ltd., of which Mr. John Johnson is both a director and shareholder, increased by $340,046.

In the Balance Sheet of Charjon Pty. Ltd. as at June 30, 1994 reference `E' Page 97 under Current Assets, Top of the Crop NQ Pty. Ltd. is shown as a debtor for $544,434, however, the opposite entry in the books of Top of the Crop NQ Pty. Ltd., Charjon Pty. Ltd. is shown as a Non Current Liability of $439,887. ...

The amount shown in both books should be identical where a discrepancy of $104,547 exists.

In view of the above, I believe that there is insufficient information available to me to confirm that the debt of $747,934 is due to Charjon Pty. Ltd. by Top of the Crop NQ Pty. Ltd."

Secondly, there is evidence which suggests that TOCNQ owes Charjon $500,000. This comes about as follows. Joseph Anthony Prestier and Julie Prestier owned shares in TOCNQ. They entered into a loan agreement with Charjon by which Charjon agreed to lend, and they agreed to borrow, $500,000. Repayment was secured by a mortgage over their shares. In addition to that security, Charjon was to have an option to acquire the shares at any time within 12 months after default. The loan was to be "non recourse", so that if Charjon acquired the shares pursuant to the mortgage or the option, it could no longer look to Mr or Mrs Prestier for payment.

In fact, the sum of $500,000 was paid to Mr and Mrs Prestier, not by Charjon, but by TOCNQ.

Apparently the transaction took place on 30 April 1994. On 3 February 1995, Charjon called upon Mr Prestier to pay interest. Apparently there was default, and on 13 October 1995 Charjon exercised its option to purchase the shares.

It appears from the foregoing that TOCNQ funded the loan by Charjon, and therefore, in substance, Charjon's acquisition of Mr and Mrs Prestier's shares. On this basis, Charjon owes TOCNQ $500,000, possibly with interest.

The third and final matter is that there have not been tendered by TOCNQ any underlying documents showing how the Charjon debt came into being. There are only the entry in the latest financial statements, the crop lien dated 1 July 1992, and para 21 of Johnson's affidavit sworn 31 January 1997 which reads as follows:

"The Charjon debt was incurred by Top of the Crop progressively, between 1992 and 1996, the first advance having been made on or about 10 June 1992, secured by the charge a true copy of which is annexed and marked with a letter `C'."

I am not satisfied that TOCNQ is or is not indebted to Charjon for $747,633.99 or for any particular part of it. There is, however, reason to think that it may not be and that Charjon may be indebted to it.

Hardship to Charjon
Johnson says that there is hardship in TOCNQ not having the freedom to use the net proceeds of sale. He says, in para 34 of his affidavit sworn 31 January 1997:

"In February 1995 I negotiated the purchase of a half interest in the Berrara Beach Caravan Park (`the Caravan Park') for $525,000 from Mr Hodge. Subsequently, Mr Hodge negotiated a re-finance of an existing ANZ mortgage over the Caravan Park with the Commonwealth Development Bank which approved a facility of $1,450,000. When the Queensland land is sold and the Charjon debt is repaid, Charjon intends to fulfil its obligation and pay $525,000 for its one half interest in the caravan park. In my opinion, the purchase of that interest is a sound investment opportunity for Charjon and I fear that the opportunity may be put at risk if Charjon is not able to fulfil its obligation to pay."

This paragraph makes it clear that Charjon intends to use the money, not to pay the debt of $595,357 to Mrs Johnson, but to pay $525,000 to Hodge. The hardship relied on is, therefore, hardship, not to TOCNQ, but to Charjon.

There is annexed to Johnson's affidavit a copy of an agreement dated 30 November 1995 between himself and Hodge concerning the purchase of the caravan park. It is called a "joint venture agreement". It recites that Hodge owns Berrara Beach Caravan Park and that Johnson and Hodge have agreed that Hodge "will sell to Johnson" a half share in the caravan park and that the two will operate the caravan park in partnership. It is also recited that Johnson has not determined which entity shall enter into the agreement and that he (Johnson) may nominate himself, Charjon or Kerlon Pty Limited as trustee of the Johnson Family Trust, to be the joint owner of the caravan park with Hodge. The recital continues by stating that a reference to Johnson in the agreement is to be a reference to "such entity as Johnson shall nominate before the 31st March 1996". The evidence does not show that Johnson nominated Charjon before that date or at all. It does not show that there is any pressure from Hodge. Another curiosity is that the date of the joint venture on the front page is 31 March 1995 whereas the date on the second page is 30 November 1995.

In my view, the suggestion that Charjon is at risk of losing the opportunity to acquire a half interest in the caravan park is not established by the existing evidence.

Result
Taking all of the foregoing considerations into account, in particular, the matters touching the genuineness of the Charjon debt, I think TOCNQ should be restrained from paying the Charjon debt, subject to a reservation of liberty to apply for a variation permitting payment in the light of evidence which may yet be presented. The applicants have secured the injunction by reason of affidavit evidence of Dr Hayden and Mr Brooks filed as late as 21 February. The hearing commenced on 6 February on the basis of TOCNQ's motion to discharge the Mareva injunction for lack of full and frank disclosure, and it was only on the third and final day of hearing, and after Johnson had left the witness box, that TOCNQ was faced with the further evidence to which I have referred. It is appropriate that TOCNQ's right to lead further evidence with a view to establishing the existence of the Charjon debt be recognised by the reservation of leave to apply.

CONCLUSION
There will be orders discharging the existing injunction with costs and an order by way of a fresh injunction. The proceeding will be listed for the purpose of the making of orders as to the costs of the latter. There will be a direction that the parties supply an agreed form of minute of costs order, or, failing agreement, the forms of minutes of costs orders for which they will respectively contend, together with outlines of their submissions in support.

I certify that this and the preceding 67 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

Associate:

Dated:9 April 1997

Heard: 6, 7, 21 February 1997

Place: Sydney

Decision: 9 April 1997

Appearances: Mr R E Dubler of counsel instructed by James G Sloan appeared for the applicants (respondents to the fifth respondent's motion).

Mr J C Kelly SC instructed by David Hand appeared for the fifth respondent, TOCNQ (applicant on the motion).

[1997] FCA 230

9 APRIL 1997