Ironwill Earthmoving Pty Ltd v Allbut & Allbut - [2019] SADC 196

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Interlocutory Application)
IRONWILL EARTHMOVING PTY LTD v ALLBUT & ALLBUT
[2019] SADC 196
Reasons for Decision of Her Honour Judge McIntyre
19 December 2019
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - DETENTION, INSPECTION AND PRESERVATION
The plaintiff filed an interlocutory application seeking either a restraining order under s.31(1) of the District Court Act 1991 (SA) (DCA) or an order to summons the defendants for examination under s.31(5) of the DCA.
Held:
1. Plaintiff has failed to establish the preconditions for the grant of a restraining order under s.31(1)
2. There being no grounds for the granting of an order there is no basis for the making of an order under s.31(5)
3. Application dismissed
District Court Act 1991 s31(1), s31(5); Magistrates Court Act 1991 s26(1); District Court Rules 247, 247(4)(a)(ii), referred to.
Yay & Sim v Sarunn [2008] SADC 78; Dixon & Webster v Liddy (2002) 223 LSJS 234; Devlin v Collins 1984 37 SASR 98; Earlescroft University Ltd v Brown (2003) 226 LSJS 194; Frigo v Culhaci [1996] NSWCA 88; Cardile v LED Builders Pty Ltd [199] 198 CLR 380; PT Bayan Resources TBK v BCBC Singapore (2015) 258 CLR 1 at [46]; Yadlamalka Land Pty Ltd v Ragless & Anor [2018] SASC 131, considered.

IRONWILL EARTHMOVING PTY LTD v ALLBUT & ALLBUT
[2019] SADC 196

The plaintiff filed an interlocutory application on 21 October 2019 seeking either a restraining order under s.31(1) of the District Court Act 1991 (SA) (DCA) or an order to summons the defendants for examination under s.31(5) of the DCA.
In support of its application the plaintiff relies upon the affidavits of the first defendant, Carl Andrew Allbut, sworn on 8 and 22 May 2018 and the affidavits of the plaintiff’s solicitor, Bernadette Day, sworn on 3 May 2018, 21 October 2019 and 1 November 2019. Mr Allbut’s affidavit of 22 May 2018 does not appear to have been filed with the Court. I accept for present purposes the summary of its content outlined in the written submissions of the plaintiff filed on 18 December 2019. The plaintiff further sought to rely upon an affidavit of Ms Day sworn on 17 December 2019. I declined to receive that affidavit. It was only filed on the morning of the hearing causing prejudice to the defendants. It was, further, of limited utility given its content.
For the reasons that follow I dismiss the plaintiff’s application and decline to grant the orders sought.
Background
The plaintiff company contracts with third parties to clear land. The defendants are a husband and wife who, at the relevant time, operated a business in partnership which hired out excavation and earthmoving equipment and machinery. In March 2016, the defendants agreed to hire a Caterpillar D7H bulldozer to the plaintiff. The defendants purchased the bulldozer for the purpose of hiring it to the plaintiff. After delivery to the plaintiff it was discovered that the bulldozer was underpowered. There is dispute between the parties as to the terms of the contract and the circumstances in which the contract came to an end. There are significant issues both as to liability and quantum between the parties.
The plaintiff instituted proceedings in the Magistrates Court on 13 April 2017. On 23 May 2018, by consent, the matter was transferred to the District Court.
The plaintiff claims, inter alia, damages in the order of one million dollars for loss of profits. The defendants deny that they are in breach of the contract but, in the alternative, say that the contract operates to exclude a claim for loss of profits. Further the defendants say that the plaintiff has failed to mitigate its loss and that, if liability is established, the damage suffered by the plaintiff is for no more than two days lost production. The defendants counter-claim for damages of $61,981.12 in respect of the termination of the contract. The substantive matter has been set down for a 5-day trial commencing on 2 March 2020.
On 4 May 2018, the plaintiff made application for a restraining order under s.26 (1) of the Magistrates Court Act 1991 (SA) preventing the first defendant, Mr Carl Allbut, from dealing with the proceeds payable to him on settlement of the sale of his residential property situated in New South Wales. That application resolved based on Mr Allbut’s evidence in his two affidavits to the effect that he was selling the house to fund the purchase of a larger house for his growing family. The defendants entered into a contract for the purchase of their new home in joint names whereas the previous home had been in Mr Allbut’s name. It was said that the new home was of greater value than the first. The plaintiff’s written submissions indicate that Mr Allbut’s affidavit of 22 May 2018 deposes that the proceeds of the sale of the house would be apportioned to pay out an existing business loan “with regard to C A & T A Allbut trading as Matrix Agriculture ensuring the business assets are unencumbered” with the balance of the funds being allocated to the purchase of the new house. The plaintiff’s application for a restraining order was dismissed by consent on 23 May 2018.
Current Application
On 8 April 2019, the parties engaged in an unsuccessful mediation. On 30 April 2019, the defendants incorporated a company called Matrix Civil & Mining Pty Ltd (the company). The plaintiff filed this interlocutory application seeking a restraining order under s.31(1) of the DCA on the basis that it is concerned that the defendants are seeking to transfer the assets of the partnership to the company and to run the partnership business through the company to protect their unencumbered assets. It is said that this is a compelling inference having regard to the timing of the incorporation of the company shortly after the failed mediation, the defendants’ silence in response to questions asked by the plaintiff concerning the new company, internet searches showing that the company is conducting the same type of business as the partnership and the fact that the defendants’ shares in the company are held upon trust. It is said that the matters set out in the various affidavits are sufficient to satisfy the requirements of s.31 of the DCA but in the alternative the plaintiff seeks an order that the court summons the defendants for examination in order to identify property in relation to which an order could effectively be made s.31(5) DCA.
Legal Considerations
Section 31(1) of the DCA provides:
A Court may make an order (a "restraining order") preventing or restricting
dealing with property of a defendant to an action if
(a) the action appears to have been brought on reasonable grounds;
(b) the property may be required to satisfy a judgment that has been, or may be, given in the action;
(c) there is a substantial risk that the defendant will dispose of the property before judgment is given, or before it can be enforced.
The plaintiff submits that s.31 operates independently of DCR 247 which deals with freezing orders whereas the defendants say that the procedure for obtaining orders under section 31 is that laid down by DCR 247 as explained in a recent decision of the Supreme Court of South Australia: Yadlamalka Land Pty Ltd v Ragless & Another[1].
[1] [2018] SASC 131
The plaintiff argues that DCR 247 imposes a more stringent test than that in s.31 and contends that the rule cannot override the plain intention of Parliament. For example, it is said that s.31(1) requires the plaintiff to establish merely that “the action appears to have been brought on reasonable grounds” whereas DCR 247 (5)(a)(ii) requires the applicant to have “a good arguable case on an accrued or prospective cause of action”. I note also that DCR 247 appears to relate to any applicant for a freezing order where as DCA 31 permits the making of a restraining order restricting dealing with the property of a defendant to an action.
There is limited authority on point. The commentary in Civil Procedure South Australia provides support for the position urged by the defendants. The commentary proceeds on the basis that the procedure for obtaining orders under s.31 is that laid down by DCR 247 where they are called “freezing orders”. The commentary states “Section 31 is new. In substance it provides for what is currently known as a Mareva injunction”.[2] In fact s.31 is not “new”; it formed part of the DCA at the time of its enactment in 1991. The current DCR247 was introduced from 1 May 2007 to replace the earlier DCR 247 on Mareva orders. The new rule follows the uniform rule on freezing orders recommended by the Harmonisation Committee of the Council of Chief Justices of Australia. The commentary on DCR247 relating to freezing orders in the District Court states:
See s.31 of the District Court Act 1991, and its commentary. The District Court has an inherent jurisdiction apart from s.31 of the District Court Act to grant such injunctions; but quaere whether r247 has superseded such an inherent jurisdiction? (citations omitted)[3]
[2] DCA s31.1
[3] R.247.65
In Yay & Sim v Sarunn[4] His Honour Judge Tilmouth was dealing, inter alia, with an application to discharge an interim order under section 31. His Honour noted that section 31 “furnishes the court with an unfettered discretion to grant a restraining order, preventing or restricting dealing with any property of a defendant, provided the applicant satisfies three pre-conditions"[5] before setting out the three matters in sub-section 31(1). The order considered by His Honour was made on an interim basis with no enquiry into the substantive merits. His Honour resolved the matter on other grounds but noted that:
A submission was later advanced that because the property was beneficially owned by Mr Touch, it was not within the jurisdiction of the court vested by s.31, to make a restraining order against him because he was not a “defendant”, as the section requires. Alternatively, a similar order under the rubric of freezing orders within the meaning of Rule 247 of the District Court Rules 2006, might be made against a non-party, where that party was in possession of assets of the first defendant as a prospective judgment debtor: Rule 247(5)(e)(i)(B). It was submitted that insofar as the Rules permitted an order of that kind as against non-parties, it was invalid as going beyond the jurisdiction conferred by s31 of the District Court Act. For the reasons that follow, it has not become necessary to pursue that intriguing question any further.[6]
[4] [2008] SADC 78
[5] Para 3
[6] Para 12
The submission advanced was in line with the position put by the plaintiff in this matter namely that s.31 and DCR 247 operate independently.
In Dixon & Webster v Liddy[7] Judge Muecke (as he then was) dealt with an application to discharge an order “in the nature of a Mareva injunction”. Judge Muecke referred to section 31 and stated that this section empowered the Court to make what was (then) commonly referred to as a Mareva injunction. He went on to say:
Although it appears that the Mareva injunction was made in this case without there being full argument, the judge who made it considered that the circumstances required by section 31(1) were satisfied. In particular he was satisfied that there was a substantial risk that the defendant would dispose of the property the subject of the Mareva injunction before any judgement or enforcement of it. It was submitted that, in determining whether the Mareva injunction should now be revoked, I should consider and determine whether the circumstances in section 31(1) now exist.
[7] (2002) 223 LSJS 234
His Honour then went on to consider various authorities relating to Mareva injunctions summarising them as follows:
These authorities indicate the following about Mareva injunctions:
(1)    Being interlocutory in nature, they are subservient to the main proceedings but are potentially vital to their utility.
(2)    Whilst discretionary, they are to be exercised with a high degree of caution and not be granted lightly.
(3)    They should only be granted where there is a prima facie cause of action against the defendant.
(4)    They should only be granted where there is a danger that the defendant’s assets will be dealt with in a way which may result in the plaintiff not being able to have his judgment satisfied if he is successful in his action.
Applying these principles to the facts before him His Honour concluded that the pre-conditions set out in section 31(1) currently existed and he was satisfied that matters relevant to the exercise of his discretion favoured the plaintiffs. There was no reference to the procedure in DCR247 or its equivalent.
Discussion
The interaction between section 31 and DCR247 is not straightforward. The answer to the “intriguing’ question referred to by Judge Tilmouth may lie in the District Court’s inherent jurisdiction over and above s.31 to grant injunctive relief where it is necessary to protect the integrity and effectiveness of its processes including to restrain a plaintiff.[8] For present purposes it is unnecessary to resolve that issue. It seems likely, although I do not resolve this issue, that DCR247 is a separate and distinct remedy given the differences between that rule and s.31. Even if the procedure in DCR247 did apply to applications under s.31, if there is any inconsistency between the rule and the section, the section must prevail. The plaintiff has applied under s.31 of the DCA; the pre-conditions that the plaintiff must satisfy are those contained in section 31(1). The plaintiff bears the onus of establishing these matters. However, it is still necessary to bear in mind that the granting of a restraining order under s.31 is designed to protect a “prospective enforcement process”[9]. It is an exception to the general rule that a plaintiff must first obtain judgment then enforce it.[10] Such orders are not to be granted lightly[11]. Even if the preconditions are met the remedy is discretionary and involves a balancing of the interests of the parties.
[8] Devlin v Collins (1984) 37 SASR 98; Earlescroft University Ltd v Brown (2003) 226 LSJS 194
[9] PT Bayan Resources TBK v. BCBC Singapore (2015) 258 CLR 1 at [46}
[10] Frigo v Culhaci [1996] NSWCA 88; and Cardile v LED Builders Pty Ltd [1999] 198 CLR 380
[11] See note 1 above
On the face of the pleadings the plaintiff’s action appears to have been brought on reasonable grounds. I have no information beyond the pleadings as to the claim. In particular there is no evidence relating to the merits of the underlying case, the likelihood of the plaintiff obtaining a judgment against the defendants and the likely quantum of any such judgment. Notwithstanding this, I accept for present purposes that the plaintiff has established the first precondition.
I do not consider that the plaintiff has established that the property may be required to satisfy a judgment that may be given in this action. This is because there is no evidence as to the likely quantum of any judgment, the defendants’ means or assets or the nature, extent and value of the property sought to be restrained. I accept that it is difficult for the plaintiff to provide information about the partnership assets however the defendants apparently also own the recently purchased house property. Whilst this is not, apparently, the subject of the application the means of the defendants to satisfy any judgment is relevant to this issue. The value of the defendants’ interest in the house property is an easier matter to investigate by way of title searches and the like. There has been no evidence about this topic. I do not know, for example, the purchase price of the house, whether there is any encumbrance or mortgage on that property or its current valuation. Likewise the plaintiff has failed to provide any information concerning the prospects of the plaintiff obtaining a judgment and the likely quantum of such a judgment. In these circumstances, the plaintiff is inviting me to speculate that the partnership assets, whatever they may be, may be required to satisfy the judgment. I decline to do so.
Further I am not satisfied that the plaintiff has established that there is a substantial risk that the defendants will dispose of the property before judgment is given. There is no evidence of any transfer of partnership assets. The basis for the assertion that there is such a risk is that the defendants have set up a company and a trust; the timing of that and the lack of explanation from the defendants. It is said that this is a strong circumstantial case providing a compelling inference that the defendants’ actions are to protect their unencumbered assets. I do not agree. Whilst these circumstances give rise to a reasonable concern on the part of the plaintiff they do not establish, without more, a substantial risk.
It is my view that the plaintiff has failed to establish the requisite preconditions for the granting of a restraining order under s.31. Even if I was wrong about this I do not consider that it would be a proper exercise of my discretion to grant such an order given the lack of information that I have relating to the merits of the plaintiff’s claim and the quantum of any judgment it is likely to obtain as against the value of any property to be the subject of the restraining order. The order sought is exceptional and is a significant restriction on the defendants’ business and other activities. I do not consider that the material relied upon by the plaintiff is sufficient to warrant the exercise of the discretion to grant that order.
The plaintiff’s alternative position is that the court should make an order under section 31(5) which provides as follows:
If it appears to a Court that grounds for making a restraining order exist but the Court requires further evidence to identify property in relation to which the order could be effectively made, the Court may summons the defendant, or issue a warrant to have the defendant arrested and brought before the Court, for examination on that subject.
I decline to make that order as I do not consider that there are grounds for making a restraining order.
A jurisdictional issue arose during the course of argument concerning the Court’s power to issue restraining orders in circumstances where the defendants’ property is in New South Wales. The plaintiff says that it seeks orders to restrain the parties to the proceedings in their dealings with the property and that as such there is no jurisdictional issue. That may well be correct although section 31 appears to contemplate orders relating to the property of a defendant and it is challenging to see how these could be framed to avoid jurisdictional issues. In view of my finding on the primary issue I do not resolve this issue.