Klein v Botsman
[2003] TASSC 106
•20 October 2003
[2003] TASSC 106
CITATION: Klein v Botsman [2003] TASSC 106
PARTIES: KLEIN, Stephen Roger
v
BOTSMAN, Anthony Edwin
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: LDR 5/2003
DELIVERED ON: 20 October 2003
DELIVERED AT: Launceston
HEARING DATE/S: 10 October 2003
JUDGMENT OF: Blow J
CATCHWORDS:
Equity – Equitable remedies – Injunctions – Interlocutory injunctions – Injunctions to preserve status quo and property pending determination of rights – Mareva injunction – Other matters – Strength of plaintiff's case – Restraint of defendant from leaving jurisdiction.
Glenwood Management Group Pty Limited v Mayo [1991] 2 VR 49, followed.
Bayer A G v Winter [1986] 1 All ER 733, referred to.
Aust Dig Equity [340]
REPRESENTATION:
Counsel:
Applicant/Defendant: C W R Harrison
Respondent/Plaintiff: D G Grey
Solicitors:
Applicant/Defendant: Douglas & Collins
Respondent/Plaintiff: Zeeman Kable & Page
Judgment ID Number: [2003] TASSC 106
Number of paragraphs: 25
Serial No 106/2003
File No LDR 5/2003
STEPHEN ROGER KLEIN v ANTHONY EDWIN BOTSMAN
REASONS FOR JUDGMENT BLOW J
20 October 2003
On 10 October 2003 I made a Mareva order restraining the defendant from dealing with funds in a bank account, other than funds in excess of $27,000, and discharging an earlier order whereby the defendant was restrained from leaving Tasmania, and was required to surrender his passport to the Court. These are my reasons for the orders that I made on 10 October.
In late 2002 the defendant was the owner of a property at Lilydale. The parties signed a contract dated 25 November 2002 for the sale of that property by the defendant to the plaintiff for $600,000. The contract contained a clause requiring the payment of a deposit of $60,000 "to the Vendor as stakeholder". Another clause provided that the contract was to be completed on 19 December 2002. In that respect, time was not of the essence. It is common ground that the defendant received from the plaintiff not only the sum of $60,000, but also a further $14,188. I have evidence of e-mails passing between the parties which suggest that that figure represents a payment of $15,000, less $812 that was appropriated in relation to a tractor.
The plaintiff did not proceed with his purchase. On 6 January 2003 the defendant's then solicitors served a notice to complete, requiring the plaintiff to complete his purchase at 3pm on 28 January. On the morning of 28 January the plaintiff's solicitors wrote to the defendant's solicitors advising that the plaintiff elected to avoid the contract pursuant to the Housing Indemnity Act 1992, s17. It is admitted on the pleadings that the defendant carried out substantial building works to the residential building on the Lilydale property in 2002, and did not obtain insurance pursuant to the Housing Indemnity Act.
On the afternoon of 28 January 2003, the plaintiff's solicitors commenced this action, seeking the recovery of $74,188, and filed an interlocutory application seeking, amongst other orders, an order that the defendant be restrained from leaving the State of Tasmania and that he deliver up his passport to the District Registrar. That application came before Crawford J later that afternoon. Mr Grey appeared for the plaintiff. Mr Jones appeared for the defendant. His Honour made an order, apparently not by consent but without great opposition. The formal order records the substantive order made that afternoon to have been as follows:
"Upon the usual undertaking as to damages, until further Order the Defendant shall not leave the State of Tasmania and should [sic] by 5.00p.m. on Wednesday 29th January 2003 deliver up to the District Registrar of this Court his Passport."
The defendant surrendered his passport to the District Registrar. While the order remained in force, he left Tasmania and took up residence in the Sydney suburb of Killara. He found another purchaser for the Lilydale property, and sold it for $525,000. That sale has been completed.
By an interlocutory application filed on 8 October 2003, the defendant sought the discharge of the order of 28 January, or alternatively the discharge of that part of the order restraining him from leaving Tasmania and the return of his passport until 31 October 2003. His application was supported by an affidavit in which he stated that he had about $35,000 left from the proceeds of the sale of the Lilydale property, that he was unemployed, that he owned a 20 per cent interest in a chateau in France, and that he considered that the only viable option for his future employment was to go to France for meetings commencing on 15 October in relation to the chateau. The chateau is being developed using capital from Australian investors. The defendant was optimistic about obtaining employment in connection with that development.
The defendant used the money he received from the plaintiff in purchasing his interest in the chateau. Although the contract dated 25 November 2002 provided for him to hold the $60,000 deposit as stakeholder, he contends that he and the plaintiff had orally agreed that he would be free to spend that money on the chateau project, that the written contract document was intended to formalise their oral agreement, that it provided for him to hold the money as stakeholder by mistake, and that he is entitled to an order for the rectification of the contract accordingly. The pleadings in the action include a counterclaim by him seeking such rectification. It is also pleaded that the plaintiff wrongfully failed to complete the contract, and that the defendant has suffered damage as a result. Further, damages are counterclaimed pursuant to the Trade Practices Act 1974 (Cth), s52, and the Fair Trading Act 1990, s14. It is alleged that the plaintiff made misleading representations as to an intention to complete his purchase, that the defendant relied upon such representations, and that he suffered damage as a result. His case is that he suffered not only a loss in connection with the re-sale of the Lilydale property at a lower price, but also that his reliance on misleading representations by the plaintiff resulted in losses in connection with the chateau venture.
The interlocutory application came before me on the afternoon of Friday, 10 October. I was told that the defendant had booked a flight from Melbourne to France departing late on Monday, 13 October. Counsel for the plaintiff, Mr Grey, did not seek an adjournment. He opposed the interlocutory application. He submitted that, if the orders made in January were discharged, the defendant should be required to pay $30,000 into court before the release of his passport. After some discussion, he asked, as an alternative, for orders restraining the defendant from dealing with the bulk of the remaining proceeds of sale of the Lilydale property. During the hearing of the interlocutory application, the defendant produced a bank statement revealing that he had $34,000 in a cheque account as at 3 October.
In the context of common law proceedings for the recovery of monies, it is unusual for an interlocutory injunction to be granted restraining a defendant from leaving the jurisdiction or requiring a defendant to surrender his or her passport. A writ of ne exeat regno could be granted in the Court's equitable jurisdiction, but only for the purpose of a plaintiff prosecuting an equitable action for debt, and only if the defendant's absence from the jurisdiction would impede the plaintiff's prosecution of the action. See Meagher, Gummow and Lehane, Equity: Doctrines and Remedies 4th ed, par3-040. Under the Debtors Act 1870, s5(2), a judge may order a defendant "to be arrested and imprisoned for 6 months, unless and until he has sooner given the prescribed security, not exceeding the amount claimed in the action, that he will not go out of Tasmania without the leave of the court or a judge". In order to obtain that drastic remedy, it is necessary to satisfy the judge, amongst other things, "that the absence of the defendant from Tasmania will materially prejudice the plaintiff in the prosecution of his action". When a Mareva order has been made, an injunction restraining the defendant from leaving the jurisdiction can be made in order to render that order effective, but for no longer than is necessary to give effect to the orders of the court: Bayer A G v Winter [1986] 1 All ER 733; Allied Arab Bank v Hajjar [1988] 1 QB 787 at 795 - 796.
The plaintiff claims to be entitled to recover $74,188 in consequence of having avoided his contract pursuant to the Housing Indemnity Act, s17. His claim is a common law claim, and not an equitable one. There was no suggestion that the absence of the defendant from Tasmania would materially prejudice the plaintiff in the prosecution of his action, as distinct from the enforcement of a judgment. There was no suggestion that it was necessary to compel the defendant to remain in Tasmania in order to make a Mareva order effective. There was thus no basis for the continuation of the injunction restraining the defendant from leaving Tasmania, nor was there any basis to refuse the return of his passport. I therefore concluded that the only appropriate course was for the order of 28 January to be discharged.
A Mareva order does not deprive the party subject to its restraint of the assets to which the order extends: Cardile v LED Builders Pty Limited (1999) 198 CLR 380 per Gaudron, McHugh, Gummow and Callinan JJ at 403. The order is intended to preserve the status quo. Thus it would have been entirely inappropriate for me to have ordered the defendant to pay money into court, as suggested by Mr Grey. It followed that the only appropriate order, if any, was a Mareva order restraining the defendant from dealing with some or all of the remaining proceeds of sale of the Lilydale property, those monies apparently constituting his only significant asset in Australia.
I accepted Mr Harrison's submission that the traditional test for granting a Mareva order remains as articulated by Young CJ in Glenwood Management Group Pty Limited v Mayo [1991] 2 VR 49. The first thing that a plaintiff must show when seeking a Mareva order is that he has a good arguable case. This plaintiff's case is based upon the Housing Indemnity Act. Under s16(2) of that Act, an "owner-builder" is required not to enter into any contract of sale within a period of six years after the completion of any building work carried out in respect of the land or residential building to which the contract relates unless, amongst other things, a policy that complies with the Housing Indemnity Act, Pt3, Div2, is in force in relation to that building work. As I have said, it is admitted on the pleadings that the defendant carried out substantial works to the residential building on the Lilydale property in 2002, and did not obtain insurance pursuant to the Housing Indemnity Act. It was pleaded in the statement of claim that the defendant was an owner-builder within the meaning of the Housing Indemnity Act, but the defendant did not admit that allegation. If the defendant had in fact engaged a builder to carry out the relevant work, I expect he would have said so in his affidavit, in which reference was made to the work, but he did not, nor was it pleaded that he had engaged a builder. In the absence of any evidence or pleading that he engaged a builder, I think the plaintiff's chances of establishing that the defendant was an owner-builder must be strong.
On the basis that the defendant was an owner-builder, the plaintiff relies on the Housing Indemnity Act, s17, which reads as follows:
"17 If an owner-builder contravenes section 16(2) in respect of a contract of sale, that contract of sale is voidable at the option of the purchaser before the completion of the contract."
Mr Harrison outlined a number of arguments in relation to s17, some of which had been pleaded and some of which had not. Apparently the defendant contends that the plaintiff is estopped from relying on s17; that a right to avoid a contract pursuant to s17 does not give rise to a right to recover any deposit paid pursuant to the contract; and that the counterclaim against the plaintiff for damages pursuant to the Trade Practices Act and the Fair Trading Act exceeds $74,188. There are also arguments that, if there was a valid avoidance of the contract pursuant to s17, the Court should make some sort of order under the Trade Practices Act or the Fair Trading Act setting aside the avoidance of the contract, and that any entitlement to relief under the Trade Practices Act would prevail over any rights of the plaintiff under the Housing Indemnity Act because of the Constitution, s109.
In relation to the estoppel argument, which is not pleaded, the conduct of the plaintiff relied upon by the defendant appears to comprise the sending of some e-mails during December 2002 representing that he was proceeding with the purchase of the Lilydale property, had the necessary money, and would settle on time. There is no suggestion that the requirements of the Housing Indemnity Act were referred to. If the plaintiff had said that he would proceed with the purchase despite the lack of the policy required by that Act, the defendant would be in a stronger position. In my view the plaintiff has a strong argument that the defendant could not reasonably have relied upon any indications by the plaintiff of a willingness to complete when the defendant knew or ought to have known that he had not effected the required policy of insurance, and that the plaintiff would not be getting the benefit of such a policy on completion. That is to say, I think the plaintiff's chances of success in relation to the estoppel argument are strong.
Mr Harrison submitted that it is an open question whether the avoidance of a contract pursuant to the Housing Indemnity Act, s17, is an avoidance ab initio or an avoidance in futuro. He submitted that the avoiding of a contract would not give rise to an entitlement to recover a deposit paid under it. He relied on the cases in which it has been held that, when a contract is unenforceable for want of writing by reason of the Conveyancing and Law of Property Act 1884, s36, or a similar Statute of Frauds provision, any deposit paid pursuant to the unenforceable contract is not recoverable. See Voumard, Sale of Land in Victoria, 5th ed, par12180. The irrecoverability of a deposit in that situation is a logical consequence of the unenforceability of a contract. But no question of unenforceability arises in relation to s17. That section needs to be given an interpretation that would promote the purpose or object of the Housing Indemnity Act: Acts Interpretation Act 1931, s8A(1). In my view it is strongly arguable that an interpretation of s17 favourable to a purchaser would promote the purpose or object of that Act. A right to avoid a contract is unlikely to be availed of by a purchaser who has paid a substantial deposit if that deposit will not be recoverable. The right of a purchaser to avoid a contract is hardly likely to result in an unscrupulous vendor obtaining the required insurance policy if the exercise of the right would result in a deposit becoming irrecoverable. I think the plaintiff is in a strong position in relation to the interpretation of s17.
The counterclaim under the Trade Practices Act is based on s6(3) thereof, which extends the operation of certain provisions, including ss51A and 52, to the conduct of individuals involving the use of postal, telegraphic or telephonic services. I accept that the defendant has a strong argument that the plaintiff's conduct in communicating by telephone and e-mail attracts the operation of s6(3). The defendant's case is that the plaintiff represented to him between 30 October 2002 and 28 January 2003 that he was able to complete the purchase of the Lilydale property, that he would be able to do so when required, that he knew of no fact or reason why he would not complete the purchase, and that he agreed to the $74,188 being used by the defendant to acquire an interest in the chateau. The defendant contends that the plaintiff had no reasonable grounds for those alleged representations relating to completion of the purchase, and that such representations must be taken to be misleading by operation of s51A. It has not been pleaded on behalf of the plaintiff that he had reasonable grounds for making any particular representations as to an intention to complete his purchase, but that situation might have arisen as a result of an incomplete investigation of the facts, as did the absence of a plea of estoppel on behalf of the defendant. However, I think the greatest weakness of the defendant's Trade Practices Act arguments relates to causation. Under the Trade Practices Act, s82, the defendant can recover damages only if he has suffered loss or damage "by conduct of" the plaintiff. If the plaintiff was able to escape from his contract for the purchase of the Lilydale property as a result of the defendant not having complied with the Housing Indemnity Act, the view might very well be taken that any damage suffered by the defendant flowed from his own conduct, rather than any misleading representations by the plaintiff as to future matters.
The counterclaims under the Fair Trading Act are, for practical purposes, indistinguishable from the counterclaims under the Trade Practices Act. The merits of them do not need to be considered separately. I think there are weaknesses in all the arguments outlined by counsel for the defendant in relation to the plaintiff's case. I think the plaintiff has a strong arguable case.
An applicant for a Mareva injunction must also show that there is a risk that the defendant will remove his assets from the jurisdiction before any judgment obtained by that applicant is satisfied. The evidence is that the defendant has no work in Australia, hopes to find work in France, has his interest in the chateau there, and would like to have had a greater interest in that chateau. When I dealt with this matter, the defendant was anxious to go to France for a series of meetings in relation to the chateau, and for the purpose of finding work there. I was told that he had family in Australia, but apparently he has no significant property here, other than money in the bank. Plainly he sees his future in France. I think there is every chance that, unless restrained, he will move his money to France. That risk would be all the stronger if, as contended by the plaintiff, it was not orally agreed that the defendant would be entitled to use the deposit monies in purchasing an interest in the chateau.
An applicant for a Mareva injunction must show that there is a danger of default if assets are removed from the jurisdiction. If the defendant's funds are moved from Tasmania to France, there would be no way of enforcing a judgment against the defendant in Tasmania, or elsewhere in Australia. It would have to be enforced in France. I accept that Tasmanian judgments are enforceable in France. I received no evidence of French law as to the enforcement of foreign judgments. Even if the French legal system, unlike ours, is an ideal one for foreign judgment creditors, I expect that there would be difficulties in the plaintiff enforcing in France a Tasmanian judgment against this defendant for $74,188. Two corporations have been formed in relation to the chateau – one to operate a maze as a tourist attraction, and one to own the chateau. The defendant owns 20 per cent of the owner corporation. He owes a fellow investor E42,990 as the result of the exercise of a put option by that investor. The owner corporation intends to develop the chateau, and to sell off parts of it as apartments. That corporation will be undertaking renovations to a building constructed from the 12th century to the 16th century. I have no evidence as to what power existing investors would have to obstruct any forced sale of the defendant's interests but, given the circumstances, I would expect the enforcement of a judgment against any such interests would be problematic, to say the least. I cannot see any way in which the judgment could be satisfied in France other than by some sort of sale of the defendant's interests in one or both of the two French corporations.
The fact that the defendant left Tasmania in contravention of the original injunction suggests there is a risk that he will not willingly satisfy any judgment obtained by the plaintiff. The defendant received a copy of the formal order, whose wording I have quoted above. He said that he misunderstood it, and assumed that he was free to leave Tasmania once he surrendered his passport. Further, if as asserted by the plaintiff there was no oral agreement allowing the defendant to spend the deposit money on an interest in the chateau, the risk that the defendant will not willingly satisfy a judgment obtained by the plaintiff is even greater.
In my view the balance of convenience favours the plaintiff. The defendant has had the use of $74,188 paid by the plaintiff. I think the risk of prejudice to the plaintiff if some of the $34,000 in the cheque account is not preserved outweighs the prejudice that the defendant will suffer if not all of that money is available to him pending the determination of the action.
Having regard to all these matters, I formed the view that it was appropriate to make a Mareva order for the purpose of preserving the bulk of the $34,000 in the defendant's bank account. Mareva orders commonly allow defendants to draw on their assets for ordinary living expenses, to pay legal expenses, to pay debts, or to pursue the normal conduct of their businesses. See, for example, Clark Equipment Credit of Australia Limited v Como Factors Pty Limited (1988) 14 NSWLR 552. I accepted that it was reasonable for the defendant to travel to France, and to have access to $7,000 from the bank account in order to meet his travelling expenses, living expenses, and legal costs, but took the view that it was appropriate to preserve the other $27,000 in the account.
I reserved liberty to apply in case the defendant wished to apply for further funds to be made available from the account, and in case the plaintiff wished to apply for orders as to the disclosure or preservation of other assets, or the binding of persons other than the defendant and his agents.
Accordingly, I made the following orders on 10 October:
1That until further order the defendant and his agents be restrained from dealing with, charging or otherwise disposing of the funds in the defendant's cheque account with the Commonwealth Bank of Australia, Launceston Branch, number 06 7600 10401299 save in relation to transactions concerning funds in that account in excess of $27,000.
2That both parties have liberty to apply.
3That order number 1 made by the Honourable Mr Justice Crawford on 28 January 2003 be discharged.
4That the defendant's passport be delivered to Messrs Douglas & Collins forthwith.
5That the costs of the interlocutory application be reserved.
0
3
0