International Assets Pty Ltd v Richard Rubin

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S ECI 2021 03184

INTERNATIONAL ASSETS PTY LTD (ACN 618 511 078) AS TRUSTEE FOR THE STAVROULA FAMILY TRUST	First Plaintiff
and
AMOSA PTY LTD (ACN 081 510 723) ATF THE DI GREGORIO TRUST NO.2	Second Plaintiff
v
RICHARD RUBIN	First Defendant
and
KELLY POLAND	Second Defendant
and
AIR SANZ HOLDINGS PTY LTD (ACN 142 136 392) IN ITS OWN CAPACITY AND AS TRUSTEE FOR THE AIR SANZ HOLDINGS TRUST	Third Defendant
and
IAM INTERNATIONAL PTY LTD (ACN 142 918 072)	Fourth Defendant
and
SCJBT PTY LTD (ACN 634 909 078) IN ITS OWN CAPACITY AND AS TRUSTEE FOR THE R H RUBIN CHILDREN’S TRUST	Fifth Defendant
and
PPMS (VIC) PTY LTD (ACN 633 937 185 IN ITS OWN CAPACITY AND AS TRUSTEE FOR THE PPMS TRUST	Sixth Defendant
and
PANACHE GROUP PTY LTD (ACN 061 718 803) IN ITS OWN CAPACITY AND AS TRUSTEE OF THE IT VENTURES TRUST	Seventh Defendant
and
IAM VENTURES PTY LTD (ACN 163 615 290)	Eighth Defendant
and
ASH GLOBAL PTY LTD (ACN 633 978 944) IN ITS CAPACITY AS TRUSTEE OF THE AIR SANZ HOLDINGS TRUST	Ninth Defendant

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JUDGE:	Stynes J
WHERE HELD:	Melbourne
DATE OF HEARING:	11 April 2022
DATE OF JUDGMENT:	18 May 2022
CASE MAY BE CITED AS:	International Assets Pty Ltd v Richard Rubin
MEDIUM NEUTRAL CITATION:	[2022] VSC 250

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PRACTICE AND PROCEDURE — Judgments and orders — Freezing order — Application to discharge or vary — Good arguable case — Danger of dissipation — Zhen v Mo [2008] VSC 300, applied — Distinctive FX Pty Ltd v Wright [2015] VSC 299, applied — Rozenblit v Vainer [2019] VSCA 164.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Jonathan Evans QC and Andrew Silver	Madgwicks
For the Defendants	Charles Shaw QC and William Newland	Russell Kennedy

HER HONOUR:

A Introduction

This proceeding relates to the plaintiffs’ investment in an air purifier and hand dryer business operating under the name ‘Air Sanz’ controlled by the first defendant, Richard Rubin. The plaintiffs allege that they were induced to invest in the Air Sanz business by the conduct of Mr Rubin and the second to fourth defendants. On 2 September 2021, following an ex parte application by the plaintiffs, I granted a freezing order against each of the defendants and an injunction over certain assets owned and controlled by them.
The defendants seek to have this freezing order discharged. Alternatively, they seek to vary the order so that it applies only to certain intellectual property assets of the Air Sanz business.
The plaintiffs seek to maintain the freezing order and provide the usual undertaking as to damages to the Court.
The evidence relied on by the parties was extensive.
The plaintiffs relied on:
(a)the affidavits and exhibits of:
(i)Angelo Bertuna filed on 2 September 2021 (Bertuna Affidavit);
(ii)Mario Di Gregorio filed on 2 September 2021 (Di Gregorio Affidavit);
(iii)Mark Penkethman filed on 2 September 2021 (Penkethman Affidavit);
(iv)David Campbell filed on 1 April 2022;
(v)Angelo Biviano filed on 4 April 2022 (Biviano Affidavit); and
(b)the expert report of Michael Smith filed on 5 April 2022 (Smith Expert Report).
The defendants relied on:
(a)the affidavits and exhibits of:
(i)Richard Rubin filed on 15 February 2022 (First Rubin Affidavit), 31 March 2022, and 8 April 2022;
(ii)Michael Kenny filed on 14 February 2022;
(iii)Robert Allan filed on 14 February 2022;
(iv)Kelly Poland filed on 15 February 2022;
(v)Leonard Warren filed on 21 March 2022; and
(b)the two expert reports of Jason Murphy filed on 14 February 2022 (Murphy Expert Report) and 8 April 2022.

B Parties and persons of relevance to this application

There are two plaintiff companies, International Assets Pty Ltd (International Assets) and Amosa Pty Ltd (Amosa). This proceeding concerns their investments in what I will describe as the ‘Air Sanz Business’. Those investments are described in further detail below.
Angelo Bertuna is the spouse of the sole director of International Assets. It is common ground that he was an agent of International Assets and was the decision-maker in relation to investments made by International Assets in the Air Sanz Business.
Mario Di Gregorio is the spouse of the sole director of Amosa. It is common ground that he was an agent of Amosa and was the decision-maker in relation to investments made by Amosa in the Air Sanz Business.
The relationship between the defendant companies and other entities related to the first and second defendants is complex. I have not attempted to set out the detail of it in these reasons, as it is not necessary to do so for this application. Instead, what follows is a brief description of the entities necessary to understand the key submissions of the parties.
The first and second defendants are Mr Rubin and his wife, Ms Poland.
Mr Rubin has been responsible for the invention and development of various products. Relevantly, between 2007 and 2021, he developed or had in development a range of new products comprising air purifiers and hand dryers (the Air Sanz Products).[1] The intellectual property associated with those products and the business of manufacturing and marketing them is controlled by a group of companies referred to as the ‘Air Sanz Group’. The current structure of the group is conveniently set out in the Murphy Expert Report and comprises the following companies:[2]
(a)Air Sanz Holdings Pty Ltd (the third defendant);
(b)Air Sanz Global Pty Ltd;
(c)Air Sanz Manufacturing Pty Ltd;
(d)Astech Pty Ltd;
(e)AirSanz Trading Pty Ltd; and
(f)IAM International Pty Ltd (the fourth defendant)
(together, the Air Sanz Group).
[1]A more detailed description of the relevant products can be found in the First Rubin Affidavit [7]–[28].
[2]Murphy Expert Report 26.
The structure of this corporate group is also helpfully illustrated in the Murphy Expert Report as follows:[3]
[3]Ibid 12.
Ms Poland:
(a)is a director and secretary of Air Sanz Holdings Pty Ltd (the third defendant); and
(b)a director of Panache Group Pty Ltd (the seventh defendant) and of Air Sanz Global Pty Ltd.
The other defendants in this proceeding are companies associated with Mr Rubin. He is a director of each of the third to ninth defendant companies.
Air Sanz Holdings Pty Ltd (Air Sanz Holdings) is the third defendant. Mr Rubin owns all of the shares in Air Sanz Holdings. It is the trustee of the Air Sanz Holdings Trust, which is a family trust. Air Sanz Holdings owns the goodwill, intellectual property, tools, dyes, trademarks and patent applications in relation to the Air Sanz Products.[4]
[4]First Rubin Affidavit (n 1) [35].
Air Sanz Holdings held shares in IAM International Pty Ltd (IAMI) as trustee for the Air Sanz Holdings Trust, and also held shares that beneficially belonged to a business partner, Eddie Hartanto. It is not necessary for the determination of this matter to explore the relationship between Mr Rubin and Mr Hartanto except to note that as a result of a dispute between Mr Rubin, Mr Hartanto and their related companies, it was resolved that sums owed by Mr Hartanto and his related entities to Air Sanz Holdings would be reduced by the sale of the IAMI shares held by Air Sanz Holdings on behalf of Mr Hartanto. It was these IAMI shares that were sold to the plaintiffs.
IAMI is the fourth defendant. IAMI was intended to hold the licence to market and sell a new range of Air Sanz Products which Air Sanz Holdings was developing, in return for a 20% royalty payment to Air Sanz Holdings on the sale of each product. Mr Rubin gave evidence that in around June 2017, Air Sanz Holdings (through himself and Ms Poland) agreed in principle that it would grant Air Sanz Global Pty Ltd such a licence, and it would then sub-licence those rights to IAMI.[5] Although Mr Rubin says a draft has been prepared, a licence agreement has not been formally documented.[6] Whether or not a licence has in fact been granted to IAMI is a matter in dispute between the parties. However, it is not necessary to finally determine the status of the licence for this application.
[5]Ibid [82].
[6]Ibid [103].
The fifth to seventh defendants are corporate trustees of the following trusts:
(a)SCJBT Pty Ltd (SCJBT), the fifth defendant, is the trustee of the R H Rubin Children’s Trust (Children’s Trust);
(b)PPMS (Vic) Pty Ltd (PPMS), the sixth defendant, is the trustee of the PPMS Property Trust; and
(c)Panache Group Pty Ltd (Panache), the seventh defendant, is the trustee of the IT Ventures Trust.[7]
[7]There is also a further entity named Panache Property Management Services Pty Ltd which is the trustee of the Panache Property Trust. In late 2019, it sold a property at 108 Mitcham Rd, Donvale to PPMS (Vic) Pty Ltd as trustee of the PPMS Property Trust: First Rubin Affidavit (n 1) [176].
The eighth defendant, IAM Ventures Pty Ltd (IAM Ventures), is an entity which primarily holds assets purchased by the Children’s Trust (specifically motor vehicles) which were then attributed as assets of IAM Ventures with a corresponding loan liability by IAM Ventures to the Children’s Trust.[8]
[8]Penkethman Affidavit [62]–[66].
The ninth defendant is ASH Global Pty Ltd (ASHG). Mr Penkethman deposes that from 7 June 2019 to 19 November 2020, ASHG changed its name to ‘Air Sanz Holdings Pty Ltd’. During that same period, Air Sanz Holdings changed its name to ‘ASH (AUS) Pty Ltd’. The reason for these temporary name changes is unclear.[9]
[9]Ibid [17].
AirSanz Trading Pty Ltd (AS Trading) is a relatively new entity in the Air Sanz Group. It was incorporated in May 2019 as a wholly owned subsidiary of Air Sanz Holdings. It was created as part of a ‘rollover’ of IAMI into AS Trading to make IAMI a wholly owned subsidiary of AS Trading. Following its incorporation, AS Trading’s shares were allocated to then shareholders of IAMI in the same proportion as their existing shareholdings in IAMI.[10] While the rollover occurred in May 2019, the formal rollover agreement was not executed by the relevant shareholders, including the plaintiffs, until sometime between November 2019 and February 2020.[11] It is the position of the plaintiffs that the rollover was not put to them before it occurred, and was effected by Mr Biviano and Mr Rubin without their knowledge.[12] As a result of the rollover, AS Trading is now the sole shareholder of IAMI.
[10]First Rubin Affidavit (n 1) [84].
[11]Ibid [86].
[12]Transcript of Proceedings, International Assets Pty Ltd as trustee for the Stavroula Family Trust v Rubin (Supreme Court of Victoria, Stynes J, 11 April 2022) 135.18–136.29 (Transcript).
Angelo Biviano was the former accountant for the Air Sanz Group. He was also a shareholder in IAMI through his family trust entity, Eildon Pty Ltd.[13] Mr Biviano has also been the accountant for Mr Bertuna and his related entities for the past 20 years.[14]
[13]Ibid 25.11–30; First Rubin Affidavit (n 1) [65].
[14]Bertuna Affidavit [4].

C Key meetings and the flow of funds between the parties

It is common ground that Mr Rubin met with Mr Bertuna (in around March 2017) and Mr Di Gregorio (between 2018 and mid-2019) and discussed with each of them the new Air Sanz Products he had in development. They made significant investments in the Air Sanz Business following these meetings, as set out in the following paragraphs. Details of what was said during the meetings are in dispute. A key issue in dispute in this proceeding, and of particular relevance to this application, is whether or not Mr Rubin represented to the plaintiffs that payments made by them would be wholly or substantially used in the development of the Air Sanz Products or the operation of the Air Sanz Business (the Alleged Product Development Representation).
The evidence of Mr Di Gregorio and Mr Bertuna have some similarities in relation to their dealings with Mr Rubin, significantly:
(a)Mr Rubin approached them to invest in the products then being developed by Mr Rubin;
(b)Mr Rubin told them that the products were nearly finished and that funding was needed to bring them to market;
(c)Mr Rubin told them of the plan to list the Air Sanz Business on the New York Stock Exchange;
(d)Mr Rubin told them that their investments would return a tenfold profit;
(e)neither Mr Di Gregorio nor Mr Bertuna seemed to understand the corporate structure of the Air Sanz Group;
(f)both Mr Di Gregorio and Mr Bertuna invested by paying money to Air Sanz Holdings or IAMI in return for shares in IAMI; and
(g)both Mr Di Gregorio and Mr Bertuna were approached by Mr Rubin for more money following their initial investments. They both made further investments, but have not yet received all the shares in IAMI to which they are entitled as a result of those further investments.
Both Mr Bertuna and Mr Di Gregorio gave evidence that Mr Biviano was in attendance at their meetings with Mr Rubin.
In relation to the meeting between Mr Rubin and Mr Bertuna in around March 2017, Mr Biviano deposed that:[15]
(a)Mr Rubin talked about the need for funding from investors to complete the hand sanitiser products he was working on;
(b)Mr Rubin said he needed $2,000,000 to develop the products, although Mr Bertuna negotiated him down to $1,200,000; and
(c)Mr Rubin did not provide a breakdown of the companies within the Air Sanz Group or discuss licencing, but instead discussed ‘the company’ or ‘Air Sanz’ more generally.
[15]Biviano Affidavit [12].
In relation to a meeting between Mr Rubin and Mr Di Gregorio in March 2019, Mr Biviano deposed that:[16]
(a)Mr Rubin said he needed $2,000,000 to finish the new products;
(b)he did not recall Mr Rubin referring to the New York Stock Exchange specifically, but did recall that he mentioned listing on a stock exchange; and
(c)he did not recall Mr Rubin making any delineation between Air Sanz Holdings and any other entity at that meeting. However, he did recall a discussion about Mr Di Gregorio taking an equity position in IAM Solutions Pty Ltd[17] and purchasing a 10% stake in IAMI for $2,000,000.
[16]Ibid [14].
[17]This is another entity Mr Rubin incorporated with the intention of granting it a licence to sell new consumable products Air Sanz was developing, including air filters, fragrances and antibacterial sprays, although the granting of this licence never eventuated: First Rubin Affidavit (n 1) [23], [124], [138].
Mr Biviano also gave evidence that he attended one or two meetings where Mr Di Gregorio introduced one or two people to Mr Rubin to potentially invest in the Air Sanz Business, and another meeting with several other prospective investors. Mr Biviano stated that in each case, Mr Rubin would give a similar pitch stating, amongst other things:[18]
(a)that the new product range he was developing was almost complete;
(b)he needed further funds to finish the tooling and the research and development of the products; and
(c)in initial pitches, he would talk about the business as ‘the group’ or the ‘Air Sanz Group’.
[18]Biviano Affidavit (n 15)[17].
Mr Rubin disputes the evidence of Mr Bertuna. In particular:[19]
(a)he recalls that it was Mr Bertuna who told him he was interested in investing in IAMI after being told about the Air Sanz Business by Mr Biviano;
(b)he denies saying that Air Sanz needed funding to complete a particular product;
(c)he denies giving an estimate of the cost of future development;
(d)he denies telling Mr Bertuna that he intended to list ‘the company’ or any entity within the Air Sanz Group on the New York Stock Exchange;
(e)he says he told Mr Bertuna that Air Sanz Holdings held shares in IAMI on behalf of Mr Hartanto, which it was prepared to sell to him to recover a debt that Mr Hartanto owed to Air Sanz Holdings;
(f)he says he drew a diagram of the corporate structure of the Air Sanz Group and explained what each entity did. He told Mr Bertuna that IAMI was the entity that was licenced by Air Sanz Holdings to market, distribute and sell the products, and in return, it had to pay a royalty of 20% on each sale to Air Sanz Holdings; and
(g)he said he was prepared to sell Mr Bertuna a 24% stake in IAMI for USD$2.4 million, but Mr Bertuna only offered to buy a 10% stake in IAMI for USD$1.2 million.
[19]First Rubin Affidavit (n 1) [198]–[201].
Mr Rubin disputes the evidence of Mr Di Gregorio. He says, amongst other things, that at a meeting in March 2019:[20]
(a)he and Mr Di Gregorio discussed Mr Di Gregorio purchasing ‘10% of [Air Sanz Holdings’] shares which it held on trust for Mr Hartanto in IAMI for AUD$2 million’. Mr Rubin denies telling Mr Di Gregorio that the money would be solely devoted to product development. Instead, he says he told Mr Di Gregorio that Mr Hartanto owed Air Sanz Holdings money, and that the sale of the shares would reduce his debt and allow Air Sanz Holdings to spend money for various purposes. Those purposes included maintaining patents, finishing tools and dies, finishing research and development, future costs associated with running the business, Mr Rubin’s own personal living expenses and the repayment of loans;
(b)he says they discussed and agreed that Mr Di Gregorio would be given 5% of IAM Solutions Pty Ltd without further payment in consideration for his commitment to assist with running both IAMI and IAM Solutions Pty Ltd;
(c)he denies saying that product improvement would be completed within a certain timeframe. He told Mr Di Gregorio that he expected it would be possible to commence production of certain (but not all) products within 12 to 18 months. He expected IAMI to commence sales within that timeframe. However, he does not recall whether they talked about this specifically on 18 March 2019 or at a later date; and
(d)he does not believe that he ever mentioned specifically listing the Air Sanz Business on the New York Stock Exchange.
[20]Ibid [238]–[255].
Mr Rubin concedes that from about late 2017, he made regular requests to Mr Biviano, as Mr Bertuna’s representative, for Mr Bertuna to buy more shares in IAMI or AS Trading. He says that when he spoke to Mr Biviano and Mr Bertuna about these requests, he made it clear that Air Sanz Holdings was selling shares for the following reasons:[21]
(a)Mr Hartanto was not repaying his debt to Air Sanz Holdings;
(b)Air Sanz Holdings had borrowed money from both the Children’s Trust and PPMS Property Trust, and needed the sale proceeds to repay those loans;
(c)he wanted to support himself and his family in the manner to which they had become accustomed;
(d)his family home and computers were all being used to operate the business;
(e)he was working full-time in the business and his wife, Ms Poland, was also working extensively in the business;
(f)because Mr Di Gregorio had failed to meet a promise that he would look after the marketing and management aspects of the business, Mr Rubin had been forced to take on additional responsibilities that he did not have time to fulfil whilst also managing the development of new products;
(g)it was the innovations in the development of the products that would likely make them market leaders. So if product development was not completed, IAMI would not have innovative new products to sell; and
(h)IAMI and AS Trading were not earning any income, and without shareholder support, if they did not pay their debts, they would become insolvent.
[21]Ibid [285].

Mr Rubin says he had similar discussions with Mr Di Gregorio.[22]
[22]Ibid [287].
It is the position of Mr Rubin, as expressed in his counsel’s submissions, that the plaintiffs had purchased shares and the vendor of those shares could spend the money however it liked.[23] It was further submitted that:[24]
A vendor of shares (or a person associated with the vendor) who makes remarks about what he or the vendor entity would do with the purchase funds is, absent any kind of legal basis requiring purchase funds to be spent in that specified way, meaningless.
Of course, Mr Rubin’s position must be understood in the context of his evidence that the Alleged Product Development Representation was not made.
[23]C Shaw QC and W Newland, ‘Defendants’ Outline of Submissions’, Submission in International Assets Pty Ltd as trustee for the Stavroula Family Trust v Rubin, S ECI 2021 03184, 7 April 2022, [19] (Defendants’ Written Submissions).
[24]Ibid [20].
The determination of what was said to whom and when will be a significant issue in the trial of this matter. However, it is common ground that following their various meetings with Mr Rubin, the plaintiffs invested a total of $6,479,000 in the Air Sanz Business:
(a)Mr Di Gregorio caused Amosa to pay Air Sanz Holdings a total of $3,995,000 as follows:
(i)$300,000 in April 2019;
(ii)$2,000,000 between July and November 2019. In return, Amosa received a 10% shareholding in IAMI; and
(iii)$1,695,000 between December 2019 and December 2020. Amosa has not received anything in return for this investment;
(b)Mr Bertuna caused International Assets to pay either Air Sanz Holdings or IAMI a total of $2,484,000 as follows:
(i)$1,200,000 between March and August 2017. In return, International Assets received a 10% shareholding in IAMI; and
(ii)a further $1,284,000 between September 2017 to February 2021. $600,000 of that sum was applied by Air Sanz Holdings as consideration for a further 5% shareholding in IAMI in around January 2018. However, in relation to the balance of the payments made (amounting to $684,000), International Assets has received nothing.
In relation to the amounts paid for which no shares have been transferred, the defendants’ position, as put by Mr Shaw QC of counsel, is that all payments were made for shares in IAMI and, following the rollover, for shares in AS Trading. As stated by counsel, ‘those shares either have been issued or are due to be issued’.[25]
[25]Transcript (n 12) 158.5–6.
The plaintiffs rely on the affidavit of Mr Penkethman to describe the complex corporate structure and dealings between the defendants. Of particular relevance to this application, Mr Penkethman also traces the flow of funds from the plaintiffs to the defendant companies.
His evidence is based on meetings with Mr Biviano, and documents provided by Mr Biviano, Mr Di Gregorio and the plaintiffs’ lawyer, including the general ledgers of:
(a)IAMI from 1 July 2018 to 4 July 2021;
(b)Air Sanz Holdings for the period 1 July 2017 to 30 June 2018;
(c)Air Sanz Holdings for the period 1 July 2018 to 4 July 2021;
(d)PPMS for the period 1 July 2019 to 4 July 2021; and
(e)the Children’s Trust for the period 1 July 2018 to July 2021;
(f)the financial statements for the year ending 30 June 2019 for the following companies and trusts:
(i)IAM Solutions Pty Ltd (labelled ‘draft’);
(ii)IT Ventures Trust;
(iii)IAM Ventures; and
(g)management accounts for IAMI in the years ending 30 June 2019 and 30 June 2020, and draft financial statements for the year ending 30 June 2018.
As a result of reviewing these documents, Mr Penkethman identified the flow of funds advanced by the plaintiffs and their associates to Air Sanz Holdings and IAMI. He prepared a diagram showing the flow of funds, as set out below.

The defendants do not dispute that flow of funds. The defendants’ position is that ‘in relation to the “flow of funds” identified by Penkethman, Mr Rubin’s evidence now demonstrates that formal and registered lending and banking arrangements have existed between defendant entities since 2013’.[26]
[26]Defendants’ Written Submissions (n 23) [28].
Amongst other matters, Mr Penkethman deposes that:[27]
(a)Mr Rubin and Ms Poland procured monetary payments of $7,487,000 from the plaintiffs, as well as Mr Biviano and Ivo Baldari;
(b)of that sum, $6,287,700 was transferred from the recipient entities (Air Sanz Holdings and IAMI) to the following entities, which appeared to Mr Penkethman to be asset holding entities controlled by Mr Rubin or Ms Poland:
(i)SCJBT (the fifth defendant) as the trustee of the Children’s Trust;
(ii)PPMS (the sixth defendant) as trustee of the PPMS Property Trust;
(iii)Panache Property Management Services Pty Ltd as trustee for the Panache Property Trust; and
(iv)Panache (the seventh defendant) as trustee for the IT Ventures Trust.
[27]Penkethman Affidavit (n 8) [9].
These asset holding entities that shared in the $6,287,700 are not part of the Air Sanz Group as described in the Murphy Expert Report (referred to in paragraph 12 above). That is, it is apparent from the flow of funds described by Mr Penkethman that the funds invested by the plaintiffs were directed to companies other than those involved in the Air Sanz Business.
Mr Penkethman gives evidence, which is not contradicted by the defendants, that:
(a)the general ledger for Air Sanz Holdings revealed the receipt of funds from the plaintiffs and associated entities, and the withdrawal of those funds largely on the same day of receipt;[28]
[28]Ibid [14].
(b)the financial statements of IAMI revealed operating losses in the financial years ending 30 June 2017, 2018 and 2020 as follows:
(i)FY17: a loss of $649,083;
(ii)FY18: a loss of $445,057;
(iii)FY19: a profit of $470,425, noting however that this was due to a debt of $661,000 that was forgiven; and
(iv)FY20: a loss of $483,481;[29]
(c)based on his review of the financial statements of IAMI, the solvency of that company depends on the receipt of funds from various lenders and investors rather than from the sale of goods and services;[30] and
(d)the plaintiffs’ funds were in the hands of the defendant entities at the relevant times when those entities completed the following transactions:
(i)the purchase of 9 Fort King Place, Paynesville;
(ii)the purchase of 7 Fort King Place, Paynesville;
(iii)payments from the offset account of PPMS to purchase the property at 108 Mitcham Rd, Donvale from Panache Property Management Services Pty Ltd; and
(iv)the purchase of multiple vehicles, including luxury cars and boats.
[29]Ibid [29].
[30]Ibid [31].

D The claims

The plaintiffs’ claims are set out in their statement of claim and I will not set out the detail of them here. For the purpose of this application, key aspects of the claim can be summarised as set out in the following paragraphs.
The plaintiffs allege that:
(a)by the conduct of Mr Rubin and Ms Poland themselves and on behalf of Air Sanz Holdings, IAMI and ASHG, the plaintiffs were induced to invest in IAMI;
(b)by their conduct they made numerous representations. The representation of significance for the purpose of this application is the Alleged Product Development Representation;
(c)contrary to that representation, payments made by International Assets and Amosa were not wholly or substantially used in the development of the Air Sanz Products or the operation of the Air Sanz Business;
(d)the conduct of Mr Rubin, Ms Poland, Air Sanz Holdings, IAMI and ASHG:
(i)was misleading or deceptive in contravention of section 18 of the Australian Consumer Law,[31] on the basis it was never their intention to use the plaintiff’s payments for the development of the Air Sanz Products or the operation of the Air Sanz Business;
(ii)further, they made that representation knowing it was false, or made it recklessly without caring whether it was true, as part of a dishonest and fraudulent scheme whereby they used the prospect of investing in the Air Sanz Business to obtain funds from prospective investors for their personal interests;
(e)consequently, Mr Rubin, Ms Poland, Air Sanz Holdings, IAMI and ASHG are liable to compensate the plaintiffs for loss and damage suffered;
(f)further or alternatively, the funds paid by the plaintiffs are monies had and received for the benefit of International Assets and Amosa and were held on trust for them;
(g)in fraudulent breach of trust, Air Sanz Holdings and IAMI caused those funds to be used for their own personal benefit, and otherwise paid the funds to entities other than the plaintiffs;
(h)each of the defendants knew that the funds were held on trust, and knew that the withdrawal of those funds was a breach of trust in furtherance of the fraudulent scheme. Specifically, each of the defendant companies had the knowledge of their respective directors, including Mr Rubin and Ms Poland; and
(i)each of the defendants assisted in or facilitated the fraudulent breach of trust. In particular, it is alleged that each of the defendant companies was a vehicle by which Mr Rubin, Ms Poland, Air Sanz Holdings, IAMI and ASHG conducted the fraudulent scheme, including causing those defendants to receive the plaintiff’s funds or otherwise be conduits for them. Consequently, each of the defendants is liable to compensate International Assets and Amosa for the fraudulent breach of trust.
[31]Competition and Consumer Act 2010 (Cth) sch 2.

E Earlier interlocutory steps

On 2 September 2021, the plaintiffs applied ex parte for a freezing order and interim injunctive relief of a proprietary kind against each defendant.
I granted the freezing order and injunction on an interim basis.
The matter was returned to me for further hearing on notice on 9 September 2021. Orders were made varying the freezing order to allow various payments to be made to the defendants, and otherwise timetabling the exchange of materials concerning the defendants’ application to discharge the freezing order.
Further orders were made on the following dates in relation to the timetable for the parties to exchange materials and/or providing for the release of funds to the defendants:
(a)17 September 2021;
(b)21 September 2021;
(c)7 October 2021;
(d)20 October 2021;
(e)9 December 2021; and
(f)21 March 2022.

F Relevant principles

The legal principles to be applied in the present application to discharge or vary a freezing order can be summarised as follows:[32]
[32]Subparagraphs (a) to (i) derive from the decision of Forrest J in Zhen v Mo [2008] VSC 300, [22]–[30] (citations omitted). This summary of principles has been applied subsequently in multiple decisions including Distinctive FX Pty Ltd v Wright [2015] VSC 299, [38] (Elliott J); Suzhou Haishun Investment Management Co Ltd v Zhao (No 2) [2018] VSC 176, [19] (John Dixon J); Arabic Assemblies of God Inc v Land of Refuge Arabic Church in Melbourne Inc [2020] VSC 24,[13] (Connock J); Victorian WorkCover Authority v Baldwin & Ors [2021] VSC 667, [57] (Sloss J).
(a)a freezing order, by its very nature, is a drastic remedy, and a court must exercise a high degree of caution before taking a step that will interfere with a party’s capacity to deal with their assets;
(b)the order is not designed to provide security for the applicant’s claim. It is solely directed to preserving assets from being dissipated, and thereby frustrating the court process;
(c)the applicant bears the onus both in satisfying the Court that the order should be continued, and in satisfying the Court as to the amount which is to be the subject of the order;
(d)an order can only be made on the basis of admissible evidence which supports the contentions made by the applicant seeking the order. Speculation and guesswork are no substitute for either the facts or inferences adequately drawn from proven facts;
(e)before such an order can be made, the applicant must establish:
(i)that it has an arguable case against the defendant; and
(ii)that there is a danger the prospective judgment will be wholly or partly unsatisfied as a result of the defendants’ actions in either removing the assets or disposing or dealing with them so as to diminish their value;
(f)the balance of convenience must favour the granting of the freezing order;
(g)there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case;
(h)the applicant must establish with some precision the value of the prospective judgment. The order should not unnecessarily tie up a party’s assets and property;
(i)there may be discretionary considerations that militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court;
(j)the evidence relied upon by an applicant in seeking to establish an arguable case against a defendant may also be relied upon to demonstrate that there is a danger that a prospective judgment will be wholly or partly unsatisfied as a result of the removal, disposal or diminishing of assets;[33]
(k)where the allegations made against a defendant concern serious dishonesty, that evidence of itself may satisfy the court that the requisite danger exists;[34]
(l)the value of assets covered by a freezing order should not exceed the likely maximum amount of the applicant’s claim, including interest and costs;[35] and
(m)as a condition of making a freezing order, it will normally be appropriate to require the applicant to give undertakings to the Court, including the usual undertaking as to damages, supported if necessary by the provision of security.[36]

G Good arguable case

[33]Distinctive FX Pty Ltd v Wright [2015] VSC 299, [39] (Elliott J) citing Victoria University of Technology v Wilson [2003] VSC 299, [33] (Redlich J); Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, 325F–326A (Gleeson CJ).

[34]Distinctive FX Pty Ltd v Wright [2015] VSC 299, [39] (Elliott J) citing Victoria University of Technology v Wilson [2003] VSC 299, [33] (Redlich J); Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, 325F–326A (Gleeson CJ).

[35]Rozenblit v Vainer [2019] VSCA 164, [19] (McLeish and Niall JJA).

[36]Rozenblit v Vainer [2019] VSCA 164, [19] (McLeish and Niall JJA).

G.1 Defendants’ submissions

The defendants do not dispute that the plaintiffs have an arguable case in relation to their claims based on alleged misleading and deceptive conduct.[37]
[37]Transcript (n 12) 10.21–23.
The defendants dispute the existence of an arguable case in relation to the plaintiffs’ claims based on fraud. Further, the defendants’ position is that even if there is an arguable case based on fraud, that is not enough to justify a freezing order[38] because, they say, the evidence before me does not support a finding of serious dishonesty.[39]
[38]Ibid 43.24.
[39]Ibid 148.14–17.
In relation to the claim based on fraud, the defendants focussed on two alleged representations which they assert are not supported by the evidence before me:
(a)the first is the alleged representation that the plaintiffs would be investing in a company of value; and
(b)the second is the Alleged Product Development Representation.
During oral submissions, Mr Evans QC for the plaintiffs clarified that, for the purpose of this application, the plaintiffs do not rely on a representation that the plaintiffs would be investing in a company of value. Instead, for the purpose of this application, the representation said to be critical is the Alleged Product Development Representation.[40] For this reason, I need not address the defendants’ submissions in relation to the representation identified in paragraph 53(a) above.
[40]Ibid 100.24–28.
In relation to the Alleged Product Development Representation, the defendants submitted the following:
(a)it beggars belief that the plaintiffs would be buying issued shares in IAMI on the understanding that their money was going to be used for a specific purpose;[41]
(b)Mr Rubin did not tell anyone that their investment would be used for a specific purpose;[42] and
(c)in any event, the money invested by the plaintiffs was spent on research and product development.[43]
[41]Ibid 40.16–18.
[42]Ibid 46.14–16; First Rubin Affidavit (n 1) [288].
[43]Transcript (n 12) 50.29–31, 70.28–29, 80.8–9.
In support of the last proposition, the defendants rely on a spreadsheet prepared by Ms Poland allegedly showing the amount spent by various Air Sanz entities between 2010 and 2021 on product development (the PD Spreadsheet).[44] Relying on this spreadsheet, the defendants submit that in the period since the plaintiffs became involved in the business, at least $7 million has been spent on product development. However, Mr Shaw QC for the defendants was unable to take me to any documentary evidence supporting the content in the PD Spreadsheet. Instead, I was asked to accept that it was uncontradicted evidence given on oath.[45] During the course of his submissions, Mr Evans QC for the plaintiff did contradict the PD Spreadsheet by reference to the general ledgers of the companies identified in it as having made the investments. I have summarised the plaintiffs’ submissions below.
[44]First Rubin Affidavit (n 1) [201(e)]; Rubin Exhibit RR-2, 834.
[45]Transcript (n 12) 50.11–26.

G.2 Plaintiffs’ submissions

To make good the proposition that there is an arguable claim of fraud and evidence of serious dishonesty, the plaintiffs focussed their attention on the Alleged Product Development Representation.
The plaintiffs submitted the following:
(a)the fact that Mr Rubin, by his conduct, conveyed such a representation is supported by the affidavit material of Mr Bertuna, Mr Di Grigorio and Mr Biviano;
(b)Mr Rubin and Ms Poland knew this representation was false and untrue, and that the funds would not be used in the development of the Air Sanz Products. In support of this submission, Mr Evans QC noted that the defendants frankly submitted that they were entitled to withdraw and apply those funds as they liked;[46]
[46]Ibid 111.23–27.
(c)as revealed by the flow chart prepared by Mr Penkethman, the funds invested were not used in product development. Rather, they were quickly (usually within a day) distributed to entities outside of the Air Sanz Group. This evidence is not disputed;
(d)Mr Rubin’s evidence that the Air Sanz entities have spent $7 million in product development does not withstand scrutiny. In support of that submission, and by reference to the PD Spreadsheet, the plaintiffs’ counsel drew my attention to the following matters:
(i)in the financial year 2018, the PD Spreadsheet records that Air Sanz Holdings contributed $352,259 to product development. A further contribution of $861,205 is also attributed to Air Sanz Holdings under the heading ‘ASH PP&E & Intang’. In that same year, a $491,456 contribution is attributed to AS Trading and a $2,006 contribution is attributed to AirSanz Global (HK) Ltd (ASG(HK)).[47] There is no documentary evidence in support of any of these asserted figures. I also note that Ms Poland did not take the opportunity in her affidavit to explain the steps taken by her to compile these figures;
[47]This is another company associated with the Air Sanz Group. It is incorporated in Hong Kong, and is owned partly by Air Sanz Holdings and partly by IAMI. It previously manufactured and sold certain products for the Air Sanz Business. However the company is no longer actively operating: First Rubin Affidavit (n 1) [45]–[59].
(ii)in the financial year 2019, the PD Spreadsheet records the following expenditure on product development:
(1)$129,907 by Air Sanz Holdings, plus a further $1,326,142 under the heading ‘ASH PP&E Intang’;
(2)$530,155 by AS Trading; and
(3)$3,733,919 by ASG(HK);
(iii)on the evidence of Mr Rubin:[48]
[48]Ibid [48], [57]–[59].
(1)ASG(HK) had a licence that was granted to it in November 2010 to manufacture hand dryers and air purifiers for the Air Sanz Business;
(2)that licence was assigned orally to IAMI in around January 2016, although it was not recorded in writing nor implemented at the time because ASG(HK) had some surplus stock that it needed to sell;
(3)ASG(HK)’s last sale to an independent third party was on 25 October 2018, and it then sold its surplus stock to IAMI on 30 June 2019; and
(4)ASG(HK) is no longer actively operating.
(iv)having regard to that evidence, it makes no sense that ASG(HK) would spend approximately $3.7 million on research and development for the new Air Sanz Products in the financial year 2019 when it had no interest in those products, it was never intended to have an interest in those products, and does not appear to have been remunerated for any research and development it allegedly undertook;
(v)the general ledger of Air Sanz Holdings, maintained by Mr Biviano as the company’s accountant for the period 1 July 2018 to 4 July 2021, does not support a contribution to research and development by Air Sanz Holdings in the sum of $129,907, nor the further $1,326,142 it allegedly spent according to the PD Spreadsheet. Rather, the general ledger records research and development undertaken over the 2018/2019 year in the sum of $111,450, $149,956 in the 2019/2020 year, and around $121,716 in the 2020/2021 year.[49] In short, there are no entries to support contributions to research and development of the quantum recorded in the PD Spreadsheet relied on by the defendants;
(vi)the PD Spreadsheet records that in the financial year 2019, AS Trading/IAMI expended $530,155 on product development. The general ledger for AS Trading, which was registered in May 2019, was not in evidence. The general ledger of IAMI does not support this figure;
(vii)the PD Spreadsheet records that in the financial year 2020, Air Sanz Holdings expended $228,850 on product development plus a further $1,479,734 under the heading ‘ASH PP&E Intang’, and AS Trading/IAMI expended $804,805. In the financial year 2021, the PD Spreadsheet records expenditure on product development by Air Sanz Holdings of $193,480 plus a further $1,491,030 under the heading ‘ASH PP&E Intang’, and expenditure of $446,265 by AS Trading/IAMI. The general ledgers in evidence before me do not support these figures;
(viii)there is no explanation offered for these figures, other than the assertion that they are the amounts Ms Poland has told Mr Rubin have been spent on product development;
(e)the plaintiffs have paid around $6.4 million in return for shares in IAMI or AS Trading, yet not all share transfers to them have been completed. Until the completion of those share transfers, Air Sanz Holdings has no entitlement to take and use the funds invested by the plaintiffs;
(f)it is no answer to the alleged fraud to say that Mr Rubin was entitled to apply invested money as he did pursuant to various loan agreements. Such conduct directly contradicts the representations he had made. Therefore, the conduct was dishonest and the consequence of deceit on his part in seeking to raise money from Mr Bertuna and Mr Di Gregorio and their related entities; and
(g)the allegations made against Mr Rubin are allegations of serious dishonesty.
[49]Penkethman Exhibit MP-1 (n 8) 86–7.

In reply to the plaintiffs’ analysis of the PD Spreadsheet, Mr Shaw QC submitted that the general ledgers do not have ‘an air of authority about them [because] they’re not things [Mr Rubin] has ever seen … they don’t have authority in the sense they haven’t come from us – they’re not our reflection of our accounts – they’re simply things that were provided by Mr Biviano to the plaintiffs’.[50] I reiterate that Mr Biviano was the accountant for the Air Sanz Group, and it was common ground that the general ledgers were prepared by him.
[50]Transcript (n 12) 150.29–151.6.

G.3 Consideration

It is common ground that the plaintiffs’ claims based on alleged misleading or deceptive conduct are arguable.
In my view, for the purpose of this application, the plaintiffs have also demonstrated a good arguable case based on fraud.
The evidence of Messrs Di Gregorio, Biviano and Bertuna is consistent with the allegation that Mr Rubin made the Alleged Product Development Representation. Further, the making of such a representation is consistent with elements of the defendants’ own evidence, including:
(a)the fact noted in the Murphy Expert Report that Air Sanz had paused production in recent years as it has focused its efforts on developing a new range of hand dryer and air purifier products. Mr Murphy stated: ‘Whilst ad hoc sales of existing products have been made over the past 7–8 years, the prime focus has been on product development’.[51] Further, it is readily apparent from the Murphy Expert Report that the value of the Air Sanz Business is dependent on sales following the completion of product development;
(b)the evidence of Mr Rubin that when he requested the plaintiffs buy more shares in IAMI and AS Trading, he informed them that funding was required, amongst other things, to finance innovations in the development of new products which would likely make them market leaders, and IAMI would not have these innovative new products to sell if product development was not completed.[52]
[51]Murphy Expert Report (n 12) 11.
[52]First Rubin Affidavit (n 1) [285]–[287].
There is also adequate evidence, for the purpose of this application, in support of the allegation that the defendants made the Alleged Product Development Representation without belief in its truth, or made it recklessly without caring whether it be true or false. Specifically:
(a)the defendants frankly admit it is their position that Air Sanz Holdings, as the vendor of the shares acquired by the plaintiffs, was entitled to apply the funds they invested however it liked;[53] and
(b)the funds invested were swiftly withdrawn from the recipient companies (largely on the same day of receipt) and distributed to companies other than those involved in the Air Sanz Business.
[53]Defendants’ Written Submissions (n 12) [19]; Transcript (n 12) 46.6–12.
Based on the material currently before me, I am not persuaded by the defendants that money in the order of $7 million has been contributed to product development since the plaintiffs became involved in the business. The only evidence offered in support was the PD Spreadsheet, and an assertion by Mr Rubin that Ms Poland prepared it and informed him that she had reviewed ‘our companies’ business records to ascertain the money spent on product development’. However, the business records relied on were not identified. Further, as demonstrated by the plaintiffs’ counsel during oral submissions, the figures in the spreadsheet were not supported by the general ledgers of the various Air Sanz companies named in the spreadsheet which had been prepared by Mr Biviano, the accountant for the Air Sanz Group.

H Danger of an unsatisfied judgement – the risk of dissipation of assets

H.1 Defendants’ submissions

The defendants submitted the following:
(a)even if there is an arguable case of fraud, the conduct alleged is not of a character that would justify maintaining the freezing order in the sense that it is not an allegation of serious dishonesty, and the evidence does not suggest there is a danger of the defendants dissipating assets. It was submitted that there has to be real dishonesty to establish a risk of dissipation, and that accounting irregularities are not enough to establish this risk;[54]
(b)the flow of funds described by Mr Penkethman is not evidence in support of such a risk. Rather, the flow of funds is explicable by reference to the formal and registered lending and banking arrangements that are in place between the defendant entities.[55] It was submitted that while these loans provide freedom for the movement of money, they also justify the legitimate movement of money.[56]
[54]Transcript (n 12) 83.13–22.
[55]Ibid 65.21–29.
[56]Ibid 71.3–11.
In support of the latter submission, the defendants rely on financial documents exhibited to the affidavit of Mr Rubin comprising:
(a)documents described as General Security Agreements between:
(i)Air Sanz Holdings and Panache (as trustee for the Children’s trust) dated 1 May 2013;
(ii)IAM Ventures and Panache (as trustee for the Children’s Trust) dated 6 May 2013;
(iii)AS Trading and Panache (as trustee for the Children’s Trust) dated 1 May 2013; and
(iv)AS Trading and Air Sanz Holdings (as trustee for the Air Sanz Holdings Trust).
By these agreements, the first-named company charged and granted a security interest over secured property to the second named company, to be held as security for payment of secured money, being money the first-named company became liable to pay under any agreement or security. The schedule to each document defined ‘agreement’ to mean an oral agreement between the parties on terms as agreed between them from time to time;
(b)a Loan Agreement between Panache (as trustee for the Children’s Trust) as the lender and IAM Ventures as the borrower dated 6 May 2013. This agreement documents a loan of ‘$775,000 or as otherwise agreed in one or more tranches at the discretion of [Panache]’ to IAM Ventures, said to be payable upon demand with interest repayments and the interest rate to be agreed between the parties from time to time; and
(c)a Deed of Acknowledgement dated 1 May 2013 between Air Sanz Holdings (in its own capacity and in its capacity as trustee for the Air Sanz Holdings Trust) and Panache (as trustee for the Children’s Trust). This is, in substance, a single page document. It records the parties’ acknowledgement that in the past, money payable by various third parties to the Children’s Trust has been put into Air Sanz Holdings’ bank account, that Air Sanz Holdings holds those past payments and will hold any future payments as bare trustee for the Children’s Trust, and it will transfer such moneys at the request of the Children’s Trust. No details of any past payments are provided. The deed further records that Air Sanz Holdings requested the Children’s Trust make various loans to it in the past, which the Children’s Trust has done. No details of any such loans are provided. It further states: ‘[Air Sanz Holdings] agrees that both it and [the Children’s Trust] had always intended and agree that the Past Loans be secured, but by oversight, no security agreements have yet been executed’. It does not record any specific details of the money said to be covered by this arrangement. It concludes: ‘To avoid any confusion, the parties agree to separately record the Past Payments, the Future Payments, the Past Loans and the Future Loans in their respective books and accounts. In the event of any discrepancy between the parties’ respective books and accounts, [the Children’s Trust’s] books and accounts shall prevail’.

H.2 Plaintiffs’ submissions

The plaintiffs submitted the following:
(a)the allegations made against the defendants concern serious dishonesty, which is sufficient to support a finding that the requisite danger of dissipation exists;
(b)the evidence raised in defence of the allegations does not withstand scrutiny. By this submission, I understand the plaintiffs to be referring to the evidence of Mr Rubin that money was allegedly spent on research and product development. It was submitted that Mr Rubin’s apparent willingness to rely upon such ‘flimsy’ evidence is a matter which can be taken into account in determining whether a real and substantial risk exists that he and the companies controlled by him will deal with assets in a way to frustrate a judgment;[57]
(c)even in the absence of any allegation of fraud, there is clear evidence in support of the claim based on misleading or deceptive conduct. Specifically, there is evidence supporting a representation that product development money was very important and that a $2 million injection was required for this purpose. Contrary to those representations, there is evidence that the money invested in reliance on the representations was diverted away from the Air Sanz Business into other assets of Mr Rubin and his related entities. Such evidence is not seriously rebutted by the defendants, and supports the existence of a risk of dissipation;[58] and
(d)further, there is evidence of very poor management practices by the defendants which supports a finding of a risk of dissipation,[59] such as:
(i)not properly recording any of the oral agreements, loans or transactions between entities subject to the general security and loan documentation referred to at paragraph 66 above;[60] and
(ii)not providing invoices or financial records to support any of the alleged investments in product research and development underlying the PD Spreadsheet.[61]
[57]Ibid 117.11–19.
[58]Ibid 132.27–133.10.
[59]Ibid 134.24–28.
[60]Ibid 134.31–135.11.
[61]Ibid 104.27–105.1.

H.3 Consideration

On the plaintiffs’ case, the defendants have, by their representations, induced the plaintiffs to invest millions of dollars in the development of the Air Sanz Products. The representations were made on the basis that the plaintiffs would benefit from the sale of those products, when in fact the invested funds were transferred immediately away from the Air Sanz Business. On the plaintiffs’ case, the defendants knew that their representations were false and were made to induce the plaintiffs to invest money for the personal interests of Mr Rubin, Ms Poland, Air Sanz Holdings, IAMI and ASHG. In my view, the conduct as alleged is properly characterised as being seriously dishonest.
Even if I am wrong, I infer from the following facts that there is a danger the prospective judgment will be wholly or partly unsatisfied as a result of the defendants’ actions in either removing assets or dealing with them so as to diminish their value:
(a)contrary to the Alleged Product Development Representation, the funds invested were withdrawn from the recipient companies, largely on the same day of receipt, and directed to other entities controlled by Mr Rubin which are unrelated to the Air Sanz Business. This conduct is of particular concern. My concern is not relieved by the defendants’ reference to the general security and loan documentation. While there may be a basis upon which Air Sanz Holdings could transfer money to another entity associated with Mr Rubin, it was inappropriate to do so in the context of the alleged representation and having regard to the defendant’s failure to transfer shares to the plaintiffs in return for their later investments. That conduct satisfies me that there is a risk the defendants will, if assets are not frozen, continue to deal with them so as to diminish their value;
(b)neither the money invested nor an equivalent sum from other sources was applied to product development. Based on the material currently before me, I do not accept the defendants’ submission that around $7 million has been invested in product development since the plaintiffs’ involvement in the Air Sanz Business. The evidence relied on was unsatisfactory, comprising an unsubstantiated spreadsheet, the contents of which were inconsistent with the various company ledgers that had been prepared by Mr Biviano, the accountant for the Air Sanz Group;
(c)there is an absence of any rigour in the management of the business of the defendant companies. This is demonstrated by:
(i)the preparation and submission to ASIC of corporate records in respect of company shareholdings without a proper basis. Specifically, the transfer of all shares in IAMI to AS Trading in May 2019 prior to the execution of the formal rollover agreement by IAMI shareholders sometime between November 2019 and February 2020;[62]
(ii)a history of oral transactions and intentions which are not properly recorded. Specifically, the defendants’ failure to complete the documentation granting a licence to IAMI to market and sell new Air Sanz Products, and the defendants’ failure to effect the transfer of all the shares in IAMI or AS Trading which the plaintiffs were entitled to; and
(iii)the terms of the Deed of Acknowledgement dated 1 May 2013 as set out in paragraph 66(c) above.
[62]First Rubin Affidavit (n 1) [84]–[88].

Balance of convenience

In light of the risk of the dissipation of assets, I consider that the balance of convenience favours keeping the freezing order in place.

J Discretionary considerations

The defendants submit that a range of discretionary considerations militate against the continuation of the freezing order. Specifically, they rely on the non-disclosure of certain materials by the plaintiffs at the ex parte hearing in September 2021 as set out in the following paragraphs.[63]
[63]Transcript (n 12) 86.19–24.
The defendants say there was a failure by the plaintiffs to disclose the materials describing the new Air Sanz Products that were provided to Mr Bertuna when he first became involved in the business. The defendants say the non-disclosure of such material strongly militates against a finding that there was a fraudulent scheme.[64] I disagree. Since the commencement of this proceeding by generally indorsed writ, the plaintiffs’ claim has been based on a representation that monies advanced would be used in the development of particular products and the operation of the Air Sanz Business. These materials have had no part to play in my determination in this application about whether or not there is an arguable case arising from that alleged representation. I am not persuaded that the non-disclosure of these materials at the hearing on September 2021 militates against the continuation of the freezing order.
[64]Ibid 87.21–28.
The defendants say there was non-disclosure of presentations Mr Di Gregorio made to Mr Rubin outlining his desire to market the Air Sanz Products, which they submit militates against the fraud allegation.[65] I disagree. Again, these materials have had no part to play in determining whether or not there is an arguable case arising from the alleged representation.
[65]Ibid 87.29–88.1.
The defendants say the plaintiffs relied on evidence of car purchases by the defendants, but failed to disclose or explain the associated car trade-ins to the Court.[66] Mr Rubin has given evidence of a series of purchases and sales of vehicles and vessels after 29 March 2017. He concluded that the net amount spent on cars and vessels between 29 March 2017 and 19 May 2021, less the amount received for sales of vehicles and vessels (including trade-ins), was approximately $732,562. He also stated: ‘These purchases were for the use of my wife, my five children (and where applicable, their partners) and me’.[67] The defendants submit that the non-disclosure of this material gave the Court an inaccurate picture of Mr Rubin’s lifestyle costs, and the consequence was that such lifestyle costs were greatly exaggerated.[68] I do not agree that the non-disclosure of this material at the September 2021 hearing militates against the continuation of the freezing order. The issue of significance is whether or not the funds invested were applied to product development or the operation of the Air Sanz Business. The evidence currently before me establishes, for the purpose of this application, that this was not done. The specific details of how the funds were applied are not so significant that I regard the non-disclosure of this material as a reason to remove the freezing order.
[66]Ibid 88.2–4; 143.18–20.
[67]First Rubin Affidavit (n 1) [350]–[352].
[68]Defendants’ Written Submissions (n 23) [30(b)].
The defendants say there was no disclosure of the general security and loan documentation referred to at paragraph 66 above, demonstrating that the transfer of funds between the various defendant companies and associated entities was ordinary and explicable.[69] As set out above, the disclosure of this material has been considered in this application and has not persuaded me against maintaining the freezing order.
[69]Ibid [30(c)].
The defendants say that the plaintiffs failed to disclose Mr Rubin’s cancer diagnosis, which they say would have been an important matter for the court to consider in relation to the imposition of a freezing order, and may to some extent explain the plaintiffs’ disillusionment with their investments in the Air Sanz Business.[70] However, it is unclear to me how it is said that this diagnosis, as unfortunate as it is, operates as a defence to the alleged conduct.
[70]Ibid [30(f)].
The defendants submit that the plaintiffs failed to disclose the fact that documents relied on by the plaintiffs had been left with Mr Di Gregorio for storage in his garage.[71] However, it was not clear which documents relied on at the September 2021 hearing are the subject of this complaint. In those circumstances, I am not persuaded that the non-disclosure of this fact is a matter that militates against the continuation of the freezing order.
[71]Transcript (n 12) 87.1–6.
Finally, it was submitted by the defendants that the plaintiffs had failed to disclose the fact that Mr Bertuna had offered to buy the Air Sanz Business for $6 million. This information was said to be relevant to his motive for obtaining the freezing order, and significant in terms of the value he was placing on the Air Sanz Group.[72] I am not persuaded that this non-disclosure militates against the continuation of the freezing order. For the purpose of this application, the issue to be determined is whether there is an arguable case based on an alleged misrepresentation about the use of funds invested, and whether there is a risk of dissipation. Whether or not Mr Bertuna believed there was value in the business is not relevant to determining those issues in this application.
[72]Ibid 87.7–16.

K The defendants’ alternative case for a varied order

The defendants submit that the value of Air Sanz Holdings is such that if the Court is persuaded to maintain the freezing order, the scope of that order should be limited only to securing the intellectual property assets of Air Sanz Holdings up to the maximum possible amount of the plaintiffs’ substantive claim.
In support of this submission, the defendants rely on the expert opinion of Mr Murphy of Pitcher Partners.
Mr Murphy provides two indicative valuations of the current business and equity in:
(a)AS Trading as a standalone entity, on the assumption its wholly owned subsidiary, IAMI, has a sub-licence to market the new Air Sanz Products in return for a 20% royalty paid to Air Sanz Holdings (being the arrangement Mr Rubin had intended to implement for IAMI as outlined in paragraph 18 above); and separately
(b)Air Sanz Holdings (the head holding company of the Air Sanz Group) including all of its subsidiaries.

The Murphy Expert Report concludes that the standalone value of AS Trading/IAMI is in the range of $44.1 to $64.1 million, whilst Air Sanz Holdings (the head holding company) is valued between $64.6 and $96.17 million.[73]
[73]Murphy Expert Report (n 2) 6.
Mr Murphy used a ‘discounted cashflow’ methodology to assess the value of the business.[74] He acknowledged that due to many risks and the absence of any track record of sales to date, there is significant risk and potential variability in the ultimate number of new Air Sanz Products sold and profits generated in comparison to current forecasts and expectations.[75] He rejected using the ‘asset based approach’ to value the business because, in his opinion, that methodology ignores any value for goodwill or other intangibles.[76]
[74]Ibid 34, 50.
[75]Ibid 37.
[76]Ibid 34, 51.
As part of his indicative valuations, Mr Murphy identified the following risks and limitations, amongst others:[77]
(a)the valuations are heavily reliant on the cash flow forecasts ‘prepared by Management’. Mr Rubin deposes that he instructed Mr Murphy on this matter insofar as the valuation report relies on management instructions.[78] Mr Murphy notes that any material changes to these forecasts, or an inability to achieve them in the near term, may result in a materially different valuation result.[79] The cash flow forecasts he relies on are set out on page 27 of the Expert Report. They forecast that cash flows from sales will be generated from June 2022 onwards, with a significant increase in sales in each financial year thereafter;
(b)given the absence of any track record of sales to date, Mr Murphy considered that there is a significant risk and potential variability in the ultimate number of new units sold and profit generated compared to current forecasts and expectations;
(c)as yet, there have been no sales or orders of the new Air Sanz Products which have been in development for the past few years;
(d)the forecasts reflect significant growth and revenue levels well above that historically achieved by the company in earlier years; and
(e)Mr Murphy could not identify any market benchmarks or comparable companies at a similar stage of their business cycle which the forecasts could be ‘sense-checked’ against.
[77]Ibid 6–8.
[78]First Rubin Affidavit (n 1) [337].
[79]Murphy Expert Report (n 2) 6.
The plaintiffs rely on the expert report of Mr Smith of CFAS Advisory, a forensic accounting firm. Mr Smith conducted a review of Mr Murphy’s Expert Report. Having reviewed the report, he concluded that he had not seen objective information supporting the ability to generate sales of the new Air Sanz Products, and by extension, the sales forecasts underlying the Murphy Expert Report.[80] He observed the following:[81]
(a)the management forecasts are based on, among other things, monthly revenue forecasts which assume that product sales will commence in June 2022. He then observed that while it appears from Mr Murphy’s Expert Report that Air Sanz was in discussions with several potential business partners, there were no formal customer or distribution agreements in place, no orders had been received, and the final products had not been certified. Further, there was no objective information about the future demand for the Air Sanz Products to support the revenue projections;
(b)no analysis had been provided on the reasonableness of the indicative unit sales price and how this compares to existing Air Sanz products;
(c)as a result, he considered that the sales forecasts are hypothetical and based on unreasonable assumptions, and are therefore not sufficient and reliable for the purpose of providing a valuation of the Air Sanz Business.
[80]Smith Expert Report 2.
[81]Ibid 8–10.
In Mr Smith’s opinion, the indicative value of the entities would be most accurately represented by the ‘net asset’ method, using the latest available management information. From the most recent financial information as of 30 June 2020, he calculated that the net asset value of IAMI was a deficit of approximately $1,044,026 (being a surplus of liabilities over assets). Accordingly, he considered that the current value of IAMI was nil. Based on the latest available financial information as of 30 June 2021, he calculated the net asset value of Air Sanz Holdings to be a deficit of around $610,952 (being a surplus of liabilities over assets). Accordingly, he considered the current value of Air Sanz Holdings to be nil.[82]
[82]Ibid 13–4.
Neither expert was called for cross-examination.
I am mindful that the freezing order should not unnecessarily tie up the defendants’ assets and property. If Mr Murphy’s valuation persuaded me, then there may be some basis for varying the freezing order as proposed by the defendants. However, for the purpose of this application, I am not persuaded by Mr Murphy’s valuation. It is heavily dependent on the forecasts prepared by Mr Rubin, which depend on product sales commencing in June 2022. There is no objective evidence before me supporting those forecasts, no evidence before me of any sales or orders for the new Air Sanz Products, and no evidence of their readiness for production and sale.
In the absence of any evidence in support of the forecasts underpinning the opinion of Mr Murphy, I prefer the valuation of Mr Smith, based as it is on the net asset method.
I therefore reject the defendants’ application to vary the freezing order so that it applies only to certain intellectual property assets.

L Orders

I propose to dismiss the defendants’ application to discharge or vary the freezing order in the manner proposed by them. I will hear from the parties as to the form of order and the requirement, if any, that the injunction ordered on 2 September 2021 be maintained.

[2022] VSC 250

18 May 2022