Hookey v Manthey

Case [2018] QSC 207

SUPREME COURT OF QUEENSLAND

CITATION:

Hookey  & Anor v Manthey & Ors [2018] QSC 207

PARTIES:

SCOTT GREGORY HOOKEY

(first applicant)

AND

MARETTI AUSTRALIA PTY LTD ACN 619 520 115

(second applicant)

V

STEVEN CHARLES MANTHEY

(first respondent)

AND

MICHAEL MANTHEY

(second respondent)

AND

MICHAEL JOHNSTON
(third respondent)

AND

BRENDA MANTHEY
(fourth respondent)

AND

SC MANTHEY PTY LTD
(fifth respondent)

FILE NO/S:

BS No 7639 of 2018

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

6 September 2018

DELIVERED AT:

Brisbane

HEARING DATE:

21 August 2018

JUDGE:

Brown J

ORDER:

The order of the Court is that upon the applicants providing undertakings in the form of paragraphs (1) to (6) of the order of 18 July 2018 that an order be made until trial or earlier order in the form of paragraph 7, 10 and 11 of his Honour’s orders.  I further order that there be liberty to apply.  The parties are to provide an order in the appropriate form.

CATCHWORDS:

PROCEDURE – STATE AND TERRITORY COURTS: JURISDICTION, POWERS AND GENERALLY – INHERENT AND GENERAL STATUTORY POWERS – TO PREVENT ABUSE OF PROCESS – GENERALLY – where the first applicant and the first respondent discussed a commercial arrangement in relation to a proposal to commercialise and develop a revolutionary type of combustion engine invented by the first and second respondents – where the exact nature of that arrangement is the subject of controversy – where on 18 July 2018, the Court made an order freezing the assets of the first, second, fourth and fifth respondents – where the applicants seek a continuation of the order until a trial or earlier order – whether the Court should order that the freezing order continue, having regard to: whether the applicant has a good arguable case, whether there is a real risk of steps being taken which would have the effect of frustrating the prospective Court processes of execution and enforcement; and, the interests of justice.

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – DETENTION, INSPECTION AND PRESERVATION – FREEZING ORDERS – whether the Court should exercise its discretion to order that the freezing order continue, having regard to: whether the applicant has a good arguable case, whether there is a real risk of steps being taken which would have the effect of frustrating the prospective Court processes of execution and enforcement; and, the interests of justice.

Uniform Civil Procedure Rules 1999 (Qld), r 260, r 260A, r 260B, r 260D

Brookes v Ralph & Ors [2009] QSC 416

Cardile v LED Builders Pty Ltd (1999) 198 CLR 380

Graham & Linda Huddy Nominees Pty Ltd v Byrne [2016] QSC 211
Parbery & Ors v QNI Metals Pty Ltd & Ors [2018] QSC 107
Palaris Mining Pty Ltd v Short & Anor [2012] QSC 224
United Dominions Corporations Limited v Brian Pty Ltd (1985) 157 CLR 1

Williams (as liquidator of Willahra Pty Ltd (in liq)) v Kim Management Pty Ltd [2012] QSC 143

COUNSEL:

M…

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AGLC
Hookey v Manthey [2018] QSC 207
Case
[2018] QSC 207
Decision Date

CaseChat Overview and Summary

The case of Hookey v Manthey involved an application by the applicants, Mr Scott Hookey and Mr Michael Johnston, to continue a freezing order made ex parte by Jackson J on 18 July 2018. The respondents, including Mr Steven Manthey and Mr Michael Manthey, opposed the application. The applicants sought to commercialise and develop a revolutionary type of combustion engine invented by the respondents. The exact nature of the commercial arrangement was in dispute. The applicants alleged a joint venture agreement had been formed, which was to involve the development and commercialisation of the engine in the United States.

The primary legal issue before the court was whether the freezing order should continue until the trial or earlier order. The court was required to consider whether the applicants had a good arguable case, whether there was a real risk of steps being taken which would frustrate the prospective court processes of execution and enforcement, and the interests of justice. The court also needed to determine whether the applicants had fully disclosed their position to the Court at the time the ex parte order was granted.

The court found that the applicants' case was not a strong one, and only the case that there was a breach of a joint venture agreement was sufficiently supported on the evidence to reach the threshold of a prima facie case required for such applications. However, the court was not satisfied that the loss resulting from the breach of contract reached the threshold of a prima facie case. While there was some evidence to support a potential loss of $1.2 million, the case was in its early stages. The court noted that the applicants had failed to fully disclose their position to Jackson J at the time the ex parte order was granted, which weakened their case. The court was not satisfied that there was a real risk that the respondents would dissipate their assets, except for the engine, which was the subject of the alleged joint venture agreement. The court considered it a real risk that the first respondent may seek to place the engine under the control of a third party, making it unavailable to meet any judgment.

The court decided that the freezing order should not be continued in its entirety but should be moulded to the exigencies of the case. The court ordered that paragraphs 7, 10, and 11 of the ex parte order should continue, subject to the applicants providing undertakings in the form of paragraphs 1 to 6 of the ex parte order. The court also ordered that there be liberty to apply and directed the parties to provide an order in the appropriate form.

Orders

Orders of the court

The order of the Court is that upon the applicants providing undertakings in the form of paragraphs (1) to (6) of the order of 18 July 2018 that an order be made until trial or earlier order in the form of paragraph 7, 10 and 11 of his Honour’s orders. I further order that there be liberty to apply. The parties are to provide an order in the appropriate form.

Background

Background to the litigation

On 18 July 2018, an urgent ex parte order was made by Jackson J, freezing assets of the first, second, fourth and fifth respondents. The order was extended until 21 August 2018 after the applicants were ordered to file a statement of claim by 16 August 2018. The applicants seek a continuation of the order until trial or earlier order. Background The first applicant, Mr Scott Hookey, and the first respondent, Mr Steven Manthey, met at an exotic car rally at the end of 2015. Mr Steven Manthey told Mr Hookey about a revolutionary type of combustion engine that he had invented with his son, Mr Michael Manthey, the second respondent. It is uncontroversial that Mr Steven Manthey and Mr Hookey subsequently met, including with Mr Michael Johnston, and discussed a potential commercial arrangement which was to involve an American company which would be used to commercialise and develop the engine. The exact nature of that arrangement is a matter which is the subject of controversy in the present proceeding. In very simple terms, the applicants claim that there is a joint venture between Mr Hookey and Mr Steven Manthey which is alleged to have arisen out of discussions which occurred in November 2015 and by the provision of a draft share option agreement, a voting agreement for shares and a purported executed assignment deed to Mr Hookey. It is alleged that under the joint venture Mr Steven Manthey and Mr Hookey would each hold a 40 percent interest which was to be represented by a shareholding in Advanced Engine Dynamics Corporation (“AEDC”), which would be used to commercialise and develop the engine in the United States.[1] Mr Hookey was to contribute funds as required to the joint venture for the purposes of developing and commercialising the engine. It is alleged in the alternative that the funds would be treated as an acquisition by Mr Hookey in the shares of AEDC. Under that agreement the joint venture was to own the engine and the commensurate intellectual property. It is alleged that the agreement subsequently changed to permit a corporate entity in Australia to develop and commercialise the engine and the second respondent would change the design of the engine. The applicants also allege that representations were made to Mr Hookey as to the intellectual property relating to the engine and that it was free of litigation and capable of development, which they contend were false. Those representations are the basis of a claim in misleading and deceptive conduct. [1] Other parties including the second and third respondents were also shareholders. 2% of the shareholding was to be sold to investors to raise funds. Mr Steven Manthey has the engine or at least control of the engine, which the applicants claim is an asset of the joint venture. The applicants contend that there is evidence that Mr Steven Manthey is intending to develop the engine using his own assets to the exclusion of the applicants, which may result in him dissipating his assets and not being able to meet any judgment in the applicants’ favour. Mr Hookey claims that as the engine has not been developed or commercialised in America or Australia, the money which he has invested has been lost either as a result of alleged breaches of the joint venture agreement said to exist or the misrepresentations made. Allegations are also made that money has been misappropriated in breach of fiduciary duties by a payment made to the fifth respondent for transfer of the engine to AEDC which never occurred or, if it did, the engine was of no value. Complaints are also made about some other payments to the fifth respondent.

Evidence

Evidence Before The Court

Having regard to the present state of the evidence, I consider that the case is barely arguable.Credibility of the applicants’ evidence The respondents also submit that the applicants’ evidence lacks overall credibility of the affidavit material, in particular as a result of inconsistencies in the evidence of Mr Hookey. First the respondents point to the fact that he states in his affidavit that he has never made loans to AEDC or the Marretti companies, but such a loan is evidenced in an unsigned memorandum of understanding which Mr Hookey described in his affidavit as containing the parties’ intentions.[61] The applicants’ counsel, however, submits that this is of little significance given it is evidence of a lay person and depends how the payment is classified and submits that there were separate loan payments to the joint venture. I do not regard the inconsistency as of significance. [61] Affidavit of S Hookey, CFI 2 at [145]-[146], cf 116; SGH-23, p 163. The respondents also point to the inconsistency between Mr Hookey’s affidavit evidence where on one hand he states that he was supposed to be a director of AEDC,[62] and on the other gave evidence in a public examination that he was not a director of AEDC.[63] While the former reference appears to have been critical of the respondents and the latter appears to suggest that he was distancing himself from responsibility, the fact appears to be that he was supposed to be a director but was not. Again I attach little weight to the inconsistency.[62] Affidavit of S Hookey, CFI 2 at [40]. [63] Affidavit of M Johnston, CFI 22, MJ-06, p 356, 33-44. Further, while Mr Hookey deposes to having ceased selling shares once he learned that the Redmond litigation involved the Redmond engine, in late 2016,[64] he made further payments in the sum of $1.45 million after that date.[65] While the applicants submit it is of little relevance, I consider that given it is apparent on the documents attached to Mr Hookey’s own affidavit that it was not true, it does raise an issue as to the credibility of his evidence. It is not a matter however which I can resolve in this forum.[64] Although there is evidence he was aware earlier than that date. [65] Affidavit of S Hookey, CFI 2 at [93]; CFI 3, p 88. The matter of greater significance is Mr Hookey’s denial in the public examination that he had any interest in AEDC, which is contrary to what is now pleaded, and his statements that he was helping out Mr Steven Manthey because they were friends. That evidence is inconsistent with the case now pleaded and does raise serious issues as to the credibility of the case pleaded. However, without explanation, in light of the discussion above, the inconsistency is not sufficient for me to conclude that the applicants have failed to establish a prima facie case that there is a joint venture agreement. It does however raise questions as to the disclosure made by the applicants on the ex parte application which I discuss below.

Decision

Reasons for decision

The fact that Mr Hookey’s lawyers were not aware of the evidence given by Mr Steven Manthey at the public examination does not matter as Mr Hookey knew of the evidence that he had given in the public examination. It was inconsistent with his affidavit and should have been disclosed. No satisfactory explanation has been provided as to why it was not disclosed at the time this matter was brought before his Honour. While I do not consider that the orders should be discharged on the basis of that alone, it is a factor which weighs against the continuation of the order, particularly given I regarded it as weakening the case relied upon by the applicants.Conclusion The applicants submit that this is a complex matter and that many of the matters raised by the respondents are matters for trial. They submit however that they meet the evidential threshold required to justify the continuation of a freezing order. The respondents contend that the applicants’ case does not satisfy the threshold requirements for the continuation of the freezing order nor does it make the disclosure required to obtain the ex parte orders. They contend that the orders should be discharged. Alternatively, they contend that in any balancing exercise the applicants’ case is weak, the pleaded agreement is so inconsistent with the affidavit evidence as to not be credible and the pleaded case is so different from that which was the subject of the affidavit evidence relied upon before his Honour on 18 July 2018 that it does not now address the matters in issue. As I have discussed above, on the present statement of claim and the present state of the evidence, the applicants’ case is not a strong case. I have found that only the case that there was a breach of a joint venture agreement is sufficiently supported on the evidence to reach the threshold of a prima facie case required for applications such as this one. I am not, however, satisfied that the loss which is said to result from the breach of contract reaches the threshold of being a prima facie case. I accept, however, there is some evidence to support a potential loss of $1.2 million. I accept that the litigation is at a very early stage. However the onus is on the applicants to provide evidence that can persuade the Court that a freezing order should in this case be continued. A freezing order is an order which places considerable burdens and restrictions upon a respondent and is not to be granted or maintained unless the Court is satisfied that the evidence supporting the three considerations is sufficient to justify such an order. In weighing up whether to continue such an order, I must exercise due caution and have regard to the onerous nature of such an order. The analysis of the risk of frustration to the Court’s processes in terms of the execution and enforcement of any judgment that may be granted in the applicants’ favour has been set out above. I am not satisfied on that evidence that there is a risk that the respondents, particularly the first respondent, will dispose of his assets or seek to remove them from the jurisdiction or otherwise deal with them in a manner that will have the effect that he would not be able to satisfy any potential judgment save in respect of the engine, which is the subject of the alleged joint venture undertaking. In considering the appropriate order to make, if any, I am conscious of the fact that the applicants may seek an account of profits if the engine is commercialised successfully and they are successful in proving their case. However, that does not protect the applicants against what I have found to be a real risk that the first respondent may seek to place the engine under the control of a third party such that it would not be an available asset to meet any judgment. Further, an account of profits may be unavailable if the engine is placed in the hands of a third party. Any freezing order must be moulded to the exigencies of a case. I must weigh what I regard as being the real risk of the dissipation of the engine against the weakness of the case that I have found to be the prima facie case and which takes account of the fact that the applicants failed to fully disclose their position to Jackson J at the time the ex parte order was granted. In particular, notwithstanding the time that has passed since the making of the original order, the case articulated is a weak one. I do not consider that a freezing order should be continued in terms of paragraph 6 of the ex parte order, particularly given the lack of evidence as to any loss suffered by the applicants and the weakness of the case as it is presently presented and that I have not found there is a real risk that the respondents would dissipate their assets, save in respect of the engine. I do consider that paragraph 7 of his Honour’s orders should be continued subject to the undertakings that the applicant provided in relation to those orders being given. I do not consider that paragraphs 8 and 9 should be maintained, and paragraph 10 and 11 of the order should be continued.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.