Jadewest 2024 Pty Ltd v BTFMS Pty Ltd

[2024] WASC 166

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   JADEWEST 2024 PTY LTD -v- BTFMS PTY LTD [2024] WASC 166

CORAM:   HILL J

HEARD:   1 MAY 2024

DELIVERED          :   1 MAY 2024

PUBLISHED           :   8 MAY 2024

FILE NO/S:   CIV 1487 of 2024

BETWEEN:   JADEWEST 2024 PTY LTD

First Plaintiff

SILVER FOX (WA) PTY LTD

Second Plaintiff

PINETTA NOMINEES PTY LTD

Third Plaintiff

AND

BTFMS PTY LTD

First Defendant

BENJAMIN-CHARLES WALTER VELLA

Second Defendant

Catchwords:

Practice and procedure - Application for freezing order - Ex parte application - Where first plaintiff claims to be trustee of accounting practice - Where second defendant located out of jurisdiction - Where second defendant operates accounting practice out of jurisdiction - Claim that second defendant diverted payment of invoices to first defendant - Whether there is a risk of dissipation of assets - Where assets are liquid - Turns on own facts

Practice and procedure - Application for interim injunction - Where first plaintiff claims to be trustee of accounting practice - Whether injunction should be granted to preserve value of accounting practice - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA) O 52A r 5

Result:

Application granted

Category:    B

Representation:

Counsel:

First Plaintiff	:	N Lucarelli KC & B J Tomasi
Second Plaintiff	:	N Lucarelli KC & B J Tomasi
Third Plaintiff	:	N Lucarelli KC & B J Tomasi
First Defendant	:	No appearance
Second Defendant	:	No appearance

Solicitors:

First Plaintiff	:	Forbes Kirby
Second Plaintiff	:	Forbes Kirby
Third Plaintiff	:	Forbes Kirby
First Defendant	:	No appearance
Second Defendant	:	No appearance

Case(s) referred to in decision(s):

Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57

Australian Receivables Ltd v Tekitu Pty Ltd [2008] NSWSC 433

Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014

Rimex Wheel Pty Ltd v Wulff [2018] WASC 180

HILL J:

(This judgment was delivered extemporaneously and has been edited from the transcript.)

1. On 1 May 2024, the plaintiffs filed a writ of summons.  The plaintiffs' claim arises in respect of three matters:

   (a)an accounting practice which is referred to in the writ and statement of claim as the BA Accounting Practice;

   (b)properties which were previously owned by the second plaintiff as trustee of the White Eagle Unit Trust in West Kalgoorlie; and

   (c)properties located at 53 Ida Street and 53A Ida Street in Bassendean.

2. At the same time, the plaintiffs filed a notice of motion for an injunction and for a freezing order in respect of one bank account as well as the properties at Bassendean.  The notice of motion came on for hearing before me on an urgent basis this afternoon.

3. In support of the application, the plaintiffs read two affidavits:

   (a)an affidavit of Christine Louise Vella, the sole director and shareholder of the first and third plaintiffs and a director and joint shareholder of the second plaintiff, filed 1 May 2024; and

   (b)an affidavit of Melissa Jane Oliver, a director, company secretary and joint shareholder of the second plaintiff, filed 1 May 2024.

Factual background

1. Christine Vella is the mother of Mrs Oliver as well as the second defendant.  She was married to Charles Vella who passed away on 1 February 2014. 

2. During his working life, Mr Vella was an accountant.  Mrs Vella's evidence is that Mr Vella handled the financial affairs for the family, which included the use of both companies and various trusts in respect of their various business interests and property interests the family held.

BA Accounting Practice 

1. In about 1988, Mr and Mrs Vella purchased an accounting practice in Midland, which was then trading as Beattie & Associates (BA Accounting Practice).  The practice moved to offices in Ascot, owned by the third plaintiff. 

2. Mrs Vella understood that the BA Accounting Practice was an asset of her and her husband through entities which Mr Vella had set up and operated for their benefit.  Mrs Oliver also understood this was the case.

3. Mrs Vella has now become aware that the BA Accounting Practice was operated by Jadewest Holdings Pty Ltd (Jadewest Holdings), the former trustee of the BA Trust.  The BA Trust is a unit trust that was established in May 2008.  The sole unitholder of this trust is Pinetta Nominees Pty Ltd (Pinetta Nominees), the third plaintiff.  On 18 April 2024, Jadewest Holdings was replaced as trustee of the BA Trust by the first plaintiff. 

4. In about July 2012, the second defendant became a registered tax agent and was the registered tax agent for the BA Accounting Practice through his company, the first defendant.  Although he was the registered tax agent, at that time,the second defendant did not work full‑time with the BA Accounting Practice but worked full‑time with a large accounting firm. 

5. Both Mr and Mrs Vella worked in the BA Accounting Practice.  Mr Vella was in charge of the practice and Mrs Vella worked as a general administrative assistant.  She did not receive a wage for this work, but received what is described in her evidence as a 'housekeeping allowance'.

6. For each of the financial years ending 30 June 2009 to 30 June 2014, the income received by the BA Trust from the BA Accounting Practice was in excess of $500,000 per annum.  For the subsequent financial years, the income received by the BA Trust dropped very significantly reducing to $0 for the financial year ending 30 June 2015 and to approximately $62,500 for the financial year ending 30 June 2016.

7. Mr Vella passed away on 1 February 2014.  Although probate has never been obtained, his will left his entire estate to Mrs Vella.

8. Following Mr Vella's death, the second defendant continued to attend the offices of the BA Accounting Practice and from about late September 2014, worked there on a full‑time basis.  In May 2014, the second defendant directed that client invoices of the BA Accounting Practice be paid into the first defendant's bank account.  Mrs Vella was not aware of this until after late August 2023.

9. Following Mr Vella's death, Mrs Vella continued to receive income from the BA Accounting Practice of $1,500 per week, which increased to $2,000 a week in 2017.  Mrs Vella continued to work in the accounting practice until April or May 2018.

10. In about May 2016, as a result of issues in the family, Mrs Vella decided to sell the BA Accounting Practice.  Her evidence that she rang a business broker to discuss the sale, who requested copies of the relevant documents demonstrating her ownership of the business.  Ultimately, as a result of discussions with the second defendant (as well as Mrs Oliver and another of her children), she decided not to sell the business at that time.  Her evidence is that during these discussions, the second defendant did not at any stage contend he owned the practice.  Rather, he said they should work together as a family in the practice.

11. In March 2019, the second defendant moved permanently to Canada to join his wife, who is a Canadian resident.  He has continued to run the BA Accounting Practice from Canada since that time.

12. In August 2023, there was a major falling out between Mrs Vella and the second defendant during a trip to Europe and Ireland.  During this trip, Mrs Vella says for the first time, the second defendant said that he owned the BA Accounting Practice and he would do whatever he liked with it. 

13. Following this argument, Mrs Vella initially did not receive payment of her weekly allowance.  When these payments commenced the following week, they were described as 'rent'.  However, payment of all other expenses of Mrs Vella by the BA Accounting Practice ceased from that point.  At about the same time, Mrs Oliver's access to the bank accounts of the BA Accounting Practice, where she had worked for some significant time, was removed.

14. On her return to Australia, Mrs Vella began to investigate matters, including the basis on which the second defendant considered he owned the BA Accounting Practice.  These investigations included engaging accountants, solicitors and counsel to provide her with advice.  Due to the complexity of the structures that were set up by Mr Vella, it has taken some time for the accountants to consider these matters and provide appropriate advice.

15. As a result of these investigations, Mrs Vella says that she became aware that the first defendant holds itself out as the owner of the BA Accounting Practice on its letterhead and website.  She also became aware that the second defendant had directed that the revenue of the BA Accounting Practice be paid into an account of the first defendant, and that the income of the BA Accounting Practice was reported to the Australian Taxation Office as income of the first defendant and not the BA Trust.

West Kalgoorlie properties

1. In May 2003, White Eagle Holdings as trustee for the White Eagle Unit Trust purchased a property in West Kalgoorlie.  All of the units in the White Eagle Unit Trust are held by Pinetta Nominees as trustee for the Charles Vella Property Trust. 

2. In October 2007, Pinetta Nominees became trustee of the White Eagle Unit Trust. 

3. In September 2017, Pinetta Nominees leased the West Kalgoorlie property to Nouchy Mining Services Pty Ltd.  At the time of entry into this lease, the second defendant was a director of Pinetta Nominees.  Between 1 September 2017 and 31 August 2023, the lessee of the West Kalgoorlie property was directed to pay the rent for this property to the first defendant.  The total of this rent was $343,200, inclusive of GST.  Mrs Vella, who has always been a director of Pinetta Nominees, deposes that she never authorised rent to be paid to the first defendant.  Senior counsel for the plaintiff says that an inference should be drawn that this occurred at the direction of the second defendant.

4. Mrs Vella was not aware this had occurred until July 2023.  On 5 September 2023, Silver Fox was appointed as trustee of the White Eagle Unit Trust. 

Bassendean properties

1. The final claim concerns the purchase of a property in Bassendean by the second defendant in May 2009. 

2. Mrs Vella's evidence is that in or around 2009, the second defendant and her late husband had discussed purchasing 53 Ida Street, Bassendean (Ida Street Property). 

3. On 8 May 2009, the second defendant entered into a contract to purchase the Ida Street Property.  The contract was subject to finance being obtained from the ANZ bank for $365,000. 

4. On 3 June 2009, Mr Vella (on the letterhead of his accounting practice) wrote to ANZ noting that the second defendant wished to borrow $410,000 to purchase the Ida Street Property and that Pinetta Nominees, as trustee for the Charles Vella Property Trust, Mrs Vella and he were prepared to act as guarantors.  The letter noted that monthly mortgage payments would be paid by Mr and Mrs Vella. 

5. Correspondence received from the ANZ Bank on 22 July 2009 indicates the loan was not provided to the second defendant but to Pinetta Nominees as trustee for the Charles Vella Property Trust.  The loan was secured by a mortgage over the Ida Street Property.

6. Interest and other charges were paid by Jadewest Holdings between July 2009 and January 2012.  Mrs Vella's evidence is that these amounts were paid in its capacity as trustee of the BA Trust. 

7. In November 2011, the third plaintiff (in its own right as as trustee for the Charles Vella Property Trust) borrowed $970,000 from the ANZ Bank.  The proceeds of this loan were used to repay the initial loan from the ANZ Bank and to construct two residential houses on the Ida Street Property.  The balance of the construction costs, as well as payment of interest and other charges on the property, were paid by Jadewest Holdings in its capacity as trustee of the BA Trust. 

8. Titles to the two properties (53 Ida Street and 53A Ida Street in Bassendean) (Ida Street Properties) were issued to the second defendant in June 2013.

9. On 17 June 2014, the second ANZ loan was repaid in its entirety.  Mrs Vella believes that this was done by the second defendant obtaining a loan with Westpac (as recorded in the title searches).

10. The total amount that was paid by Jadewest Holdings as trustee of the BA Trust, for which it had not been repaid, is approximately $190,000.

11. The current estimated value of the Ida Street Properties is $1.5 million.

12. Mrs Vella's evidence is that since September or October 2019, the second defendant and his wife have lived in Canada.  They have subsequently had a child.  The second defendant has no significant ties to Australia apart from the assets described above and his family.  However, the second defendant is not close to his mother or his sister, Mrs Oliver, nor do they believe to his other siblings.

13. Given the second defendant's long-term residency of Canada and the matters set out above, Mrs Vella deposes that she holds 'grave concerns' that the second defendant will try to liquidate his assets and the assets of the first defendant and transfer them overseas once they are made aware of these proceedings.  If this occurs, it may not be possible to recover any money owed to the plaintiffs.

Legal principles

1. In this case, the plaintiffs seek both an interim injunction as well as freezing orders against the defendants.

Interlocutory injunction

1. The principles to be applied on an application for an interlocutory injunction are well-known and are not in dispute.  The court must consider whether there is a serious question to be tried and whether the balance of convenience favours the grant of the injunction.[1] 

   [1] Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57.

2. In relation to the balance of convenience, the learned authors of Ford and Lee: Law of Trusts express the view that where an injunction is sought in equity's exclusive jurisdiction, the adequacy of damages is not a relevant aspect of the balance of convenience.[2]  Commentary has suggested that is not sufficient for a trustee to answer a claim by a beneficiary for an injunction to restrain a breach of trust by contending the beneficiary be left to a pecuniary remedy and for the breach of trust to continue.

Freezing order

[2] The Law of Trusts Ford & Lee [8.370].

1. Similarly, in relation to a freezing order, the principles that are to be applied by the court are well-known. The plaintiffs' application is made pursuant to O 52A r 5 of the Rules of the Supreme Court 1971 (WA) (Rules), which relevantly provides that:

   (1)this rule applies if an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in the Court; and

   (2)the Court may make a freezing order or an ancillary order or both against a prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a prospective judgment will be wholly or partly unsatisfied because the assets of the prospective judgment debtor are disposed of, dealt with or diminished in value.

2. The purpose of a freezing order is to prevent frustration or abuse of the process of the court, not to provide security in respect of a judgment or order, nor to substitute for the use and methods of execution.

3. Before the discretion to make a freezing order is enlivened, I must be satisfied that:

   (a)the plaintiffs have a good arguable case against the defendants on either an accrued or prospective cause of action that is justiciable in the court; and

   (b)there is a danger that the prospective judgment will be wholly or partly unsatisfied because assets of the defendants might be removed or otherwise disposed of, dealt with or diminished in value.

4. The danger of dissipation must be sufficiently substantial and not merely a suspicion.  It is necessary for the plaintiffs to establish by evidence and not assertion that the defendant is likely to remove assets from the Court's jurisdiction. 

5. The fact that assets within the jurisdiction are moveable and the defendants are located outside the jurisdiction is not sufficient to warrant an inferential finding that there is a danger of dissipation.  There must be evidence before the court from which a prudent, sensible, commercial person can properly infer a danger of default if assets are removed from the jurisdiction.[3]

   [3] Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014 [12].

6. The remedy is discretionary.  The strength of the plaintiff's case, the danger of frustration of a prospective judgment, the balance of convenience and any other relevant discretionary factors are all considered together in the exercise of the discretion whether to grant the orders sought.

Assets available to the defendant

1. Mrs Vella is not aware of the details of the second defendant's financial circumstances.  From searches she has undertaken from publicly available information, Mrs Vella believes that the second defendant is currently an employee and partner of Rain City Industrial and that he has also established a small accountancy firm in Canada.

Disposition

1. The orders sought by the plaintiffs in this case are two‑fold.  First, in relation to the BA Accounting Practice, the plaintiffs seek orders to either restrain the defendants from taking any steps to sell any assets of the company or to diminish its value or viability.  In the alternative, they seek orders enjoining the defendants from dealing with monies in a Westpac banking account except in the ordinary course of business.  Second, they seek orders to enjoin the defendants from dealing with the Ida Street Properties. 

2. The plaintiffs say that these orders seek to preserve the subject matter of a proprietary claim made in the proceedings and to preserve those matters which the plaintiffs claim they are beneficially entitled.[4]

   [4] Australian Receivables Ltd v Tekitu Pty Ltd [2008] NSWSC 433 [12].

3. In determining the application for a freezing order, I have accepted the version of facts set out in the supporting affidavit. In my view, this evidence meets the test set out in O 52A of the Rules. In reaching this view, it is important to stress that I am not making any findings of fact, nor is it necessary for me to do so. Nothing in these reasons can nor should be taken as amounting to any final or conclusive finding of fact.

4. On the evidence before me, for the following reasons, I am satisfied that the plaintiffs have demonstrated that each has a prima facie case (in relation to the injunction) and a good arguable case (in relation to the freezing order) against the defendants.

5. In relation to the BA Accounting Practice, I accept that on the evidence before me, in particular the financial statements and tax returns of Jadewest Holdings, there is a prima face case and good arguable case that this practice was an asset of the BA Trust and that since 2014, the defendants have not paid the income from the practice to the trustee of this trust, but have paid it to the first defendant. 

6. In respect of the West Kalgoorlie property, I accept that there is a prima face case and good arguable case the rental monies due to the second plaintiff were paid to the first defendant.

7. Finally, in respect of the Ida Street Properties, I consider there is a prima facie case and good arguable case that these properties (or at least part of them) are held on resulting trust for the first plaintiff and/or third plaintiff.  Senior counsel for the plaintiff quite properly raised before me the question as to whether the presumption of advancement might apply in respect of these properties.  The presumption of advancement applies to purchases by, relevantly, a parent in the name of a child.  While it is possible that this presumption may arise, the position is not clear nor straightforward.  This is because the funds were not provided by Mr and Mrs Vella in their personal capacities but by a corporate entity as trustee for a trust.  In my view, the question as to whether these funds are properly considered to fall within this presumption cannot and should not be decided on an ex parte application.  It is sufficient for the purposes of this application to note that I consider the position advanced by the plaintiffs to be arguable.

Balance of convenience

1. I also accept that the balance of convenience favours granting interim relief.  On the evidence before the court, I accept the plaintiffs have a strong prima facie case, particularly in respect of the first two claims.  In my view, it would not be a sufficient answer to the plaintiffs' claims, which are based on breaches of trust and fiduciary duties, to contend that the plaintiffs should be left to a claim for damages.

Danger that the prospective judgment will be wholly or partly unsatisfied

1. I note and draw specific attention to the fact that the plaintiffs accept that they have no direct evidence that the defendants will remove assets from the jurisdiction.  It is put quite plainly that the basis for their concern is one based on inference.  While there is no evidence that the defendants have removed assets from the jurisdiction and have continued to operate the BA Accounting Practice since March 2019 without an issue, senior counsel for the plaintiff emphasised the following matters:

   (a)the second defendant permanently resides in Canada and has no intention of returning;

   (b)he has very limited ties to Australia; and

   (c)the assets which are sought to be enjoined are liquid assets.

2. Significant emphasis was placed on the matters set out in the statement of claim (as evidenced by the affidavits of Mrs Vella and Mrs Oliver) that, for an extended period of time, the defendants have diverted trust property to themselves.

3. On the evidence before me, I am satisfied that there is a danger that a prospective judgment will be unsatisfied because assets of the defendants may be removed from Australia, disposed of, dealt with or diminished in value.  The factors which support an inference being drawn as to this finding are as follows:

   (a)the second defendant is a resident of Canada and has few remaining ties to Australia;

   (b)the assets of the defendants in Australia include cash and the Ida Street Properties.  These are liquid assets that, particularly given the present state of the property market in Perth, are easy to sell; and

   (c)the allegations made against the defendants raise allegations of serious dishonesty, including that the defendants have wrongfully diverted trust property to themselves.  In particular, these allegations are not isolated to one instance, but include the conduct in respect of the BA Accounting Practice and the diversion of the rental income from the West Kalgoorlie properties.

Discretionary considerations

1. In considering whether to grant the orders sought by the plaintiffs, it is also necessary to consider whether there are any discretionary considerations which mitigate against the granting of a freezing order, such as a delay in bringing an application, or a lack of candour in the materials placed before the court.

2. In this case, the plaintiffs accept that there are two aspects of delay that the court should have regard to.  The first is the delay in commencing the proceedings and whether there are any limitation issues that may arise.  The second is the delay in commencing these proceedings once Mrs Vella became aware of the matters.

3. At this stage, for two primary reasons, I do not consider that either of these delays should disentitle the plaintiffs from obtaining the orders they seek.  First, on the evidence before me, there is a question as to whether the defendants have concealed the position from the plaintiffs.  In any event, questions of limitation and laches are matters that are to be raised by the defendants and may not always be raised.  Second, I accept that significant work was required and has been done in order for the plaintiffs to understand their options and articulate their claims.

4. In this case, I am also mindful that the claim is advanced by a mother through corporate entities against her adult son.  I consider that the decision to commence these proceedings and the inevitable impact it will have on family relationships is a factor that the court should take into account in assessing any delay.  I also have regard to the age of Mrs Vella as a relevant factor in considering the actions that have been taken.

5. In respect of the question of candour, on the evidence before me, I am satisfied there has been appropriate candour in both the affidavit evidence and the submissions.  In my view, the submissions refer quite appropriately not only to matters that support the orders sought by the plaintiffs, but to the arguments that may be raised by the defendants in opposing any applications.

Undertaking as to damages

1. An undertaking as to damages has been given by each of the plaintiffs in this case. 

2. For the purposes of today's hearing, there is no information before me which would cast doubt on the ability of the plaintiffs to meet the undertaking from assets within Australia.

Value of assets covered by freezing order

1. The value of assets covered by a freezing order should not exceed the likely maximum value of the plaintiffs' claim, but may include interest and costs.[5]

   [5] Rimex Wheel Pty Ltd v Wulff [2018] WASC 180 [48], referring to Consolidated Practice Directions PD 9.6.1 [11].

2. In this case, the plaintiffs seek relatively limited orders in respect of assets to which they say they are entitled.

3. In my view, the orders sought by the plaintiffs in restricting the orders to the BA Accounting Practice and the Ida Street Properties appropriately limit the relief sought to the likely maximum amount of the plaintiffs' claim, including interest and costs.  While I accept, in respect of the Ida Street Properties, that relief is sought over the entirety of the property, on an interim basis, I consider this is appropriate.  In my view, this reflects the liability that may arise against the second defendant in respect of the other claims, including the West Kalgoorlie properties, as well as the costs of these proceedings.

Other orders

1. The plaintiffs also seek ancillary orders pursuant to O 52A r 3 of the Rules. The ancillary orders concern the provision of information about the defendants' assets and where income from the BA Accounting Practice has gone.

2. In the exercise of my discretion, I do not intend to make disclosure orders on an ex parte basis.  The question of whether the proposed disclosure orders are appropriate can be raised by the plaintiffs on the return date.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

JN

Associate to the Honourable Justice Hill

8 MAY 2024