Lambros v Urbanlux Homes Pty Ltd (In Liq)

[2021] NSWSC 1615

Supreme Court

New South Wales

Medium Neutral Citation:

Lambros v Urbanlux Homes Pty Ltd (In Liq) [2021] NSWSC 1615

Hearing dates:

10 December 2021

Date of orders:

14 December 2021

Decision date:

14 December 2021

Jurisdiction:

Equity - Commercial List

Before:

Williams J

Decision:

Order that the amended notice of motion seeking freezing orders and the notice of motion seeking an interim injunction are dismissed.

Catchwords:

PRACTICE AND PROCEDURE — application for freezing order against third parties — whether plaintiff has a good arguable case against defendants now in liquidation and bankruptcy — where there is presently no application for leave under s 500(2) of the Corporations Act 2001 (Cth) and/or s 58(3)(b) of the Bankruptcy Act1966 (Cth) — whether the plaintiff has demonstrated a good arguable case for leave — whether the third party respondents have possession of, or control or influence over assets of the defendants — whether the plaintiff is required to and has demonstrated a good arguable case for disgorgement by a third party under s 37A of the Conveyancing Act 1919 (NSW) — where assets of one of the respondents which would be subject to the freezing order are jointly owned and joint owner was not a respondent to the motion

PRACTICE AND PROCEDURE — application for ex parte interim injunction — whether the proceedings raise any claim for final relief that warrants preservation of the status quo

Legislation Cited:

Bankruptcy Act 1966 (Cth) ss 58, 120, 121

Conveyancing Act 1919 (NSW), s 37A

Corporations Act 2001 (Cth), s 500

Home Building Act 1989 (NSW)

Uniform Civil Procedure Rules 2005 (NSW), rr 25.11, 25.14, 42.7

Cases Cited:

Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370

Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63,

Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557; [1992] HCA 26

Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18

Finn v Carelli [2007] NSWSC 261

Frigo v Culhaci [1998] NSWCA 88

Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3

Ninemia Maritime Corporation v Trave SchiffahrtsgesellschaftmbH & Co KG 'The Niedersachsen' [1983] 1 WLR 1412; [1984] 1 All ER 398

Papas v Grave [2013] NSWCA 308

Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319

Public Trustee v Smith [2008] NSWSC 397

Rafferty v Time 2000 West Pty Ltd (No 7) [2011] FCA 405

Robmatjus Pty Ltd v Violet Home Loans Australia Pty ltd [2007] VSC 165

Saba v Plumb (2018) 97 NSWLR 278; [2018] NSWCA 60

Samimi v Seyedabadi [2013] NSWCA 279

Super Vision Resources Ltd BVI Registered No 1810534 v AC Holdings Co Pty Ltd [2020] NSWCA 319

Suzhou Haishun Investment Management Co Ltd v Zhao (No. 2) [2018] VSC 176

Texts Cited:

D. Ong, Trusts Law in Australia (5th ed, 2018, The Federation Press)

Category:

Procedural rulings

Parties:

Dr Mike Lambros (Plaintiff)
Urbanlux Homes Pty Ltd (ACN 618 206 652) (in liq) (First Defendant)
Michael Robert Lotz (Second Defendant)
Manfred Lotz (Third Respondent)
Naraic Building & Pest Inspections Pty Ltd (ACN 601 152 701) in its own right and as trustee for The Naraic Trust (Fourth Respondent)

Representation:

Counsel:
Ms R Gall (Plaintiff)
Mr G Lancaster (Solicitor) (Third and Fourth Respondents)

Solicitors:
Gionis Legal & Advisory (Plaintiff)
Lancaster Law & Mediation (Third and Fourth Respondents)

File Number(s):

2020/89007

Publication restriction:

N/A

Judgment

INTRODUCTION

1. These reasons for judgment concern the plaintiff’s motion for freezing orders against two third parties to these proceedings and a further motion in which the plaintiff seeks an interim injunction against another third party restraining them from dealing with specified property.

2. Both motions are to be dismissed for the reasons explained below.

FACTS

3. Dr Mike Lambros is the plaintiff in these proceedings.

4. On 23 December 2017, Dr Lambros entered into a contract with the first defendant, Urbanlux Homes Pty Ltd (Urbanlux), pursuant to which Urbanlux agreed to provide construction management services in relation to the construction of a residential home at Coogee in New South Wales. Pursuant to a deed of guarantee and indemnity entered into on the same date, the second defendant, Mr Michael Lotz, guaranteed Urbanlux’s performance of its obligations under the contract and indemnified Dr Lambros in respect of costs and damages incurred or suffered from or in connection with any failure of Urbanlux to perform those obligations. Mr Michael Lotz is the sole director of Urbanlux.

5. Dr Lambros issued a show cause notice on 25 September 2019 and subsequently terminated the contract on 1 November 2019 as a result of allegedly defective work and Urbanlux’s alleged non-compliance with its contractual obligations.

6. On 23 December 2019, Dr Lambros’ solicitor wrote to the solicitor then acting for Urbanlux and Mr Michael Lotz in relation to the contractual dispute. The letter demanded that Urbanlux pay $1,486,592 for costs and damages that Dr Lambros claimed to have incurred and suffered as a result of alleged breaches of the contract, negligence, and breaches of statutory warranties under the Home Building Act 1989 (NSW). The letter stated that Dr Lambros held Mr Michael Lotz liable for those costs and damages under the deed of guarantee and indemnity. The letter then stated:

“11.1    We note that the Guarantor is the registered proprietor of properties with title reference:

(a)    115/1202219; and

(b)    8/SP75428.

11.2   Lot 115 in DP1202219 is known as 158 Liz Kernohan Drive, Eldersile, NSW 2570 and according to a title search is mortgaged to AFSH Nominees Pty Ltd.

11.3   According to the Transfer no. AK988201, on 30 November 2016 Michael Robert Lotz purchased the property for $719,950.

11.4   The property is listed as ‘for sale’ on

11.5   According to the website, the current advertised sale price is $655,000 - $685,000.

11.6   We are instructed that the property was first listed for sale on 23 October 2019 for $699,000, shortly after the date of issue of our client’s Show Cause Notice on 25 September 2019.

11.7    Our client is concerned that the Guarantor is taking steps to frustrate or inhibit the court’s process by selling assets so as to render any prospective judgment of the court wholly or partly unsatisfied given the Guarantor’s obligations under the Guarantee.

11.8   We are particularly concerned given:

(a)    the fact that the property was listed for sale shortly after our client issued his Show Cause Notice;

(b)    the property is being sold of substantially less that its purchase price and the sale price has been reduced significantly in recent months (which suggests that it is being sold by way of ‘fire sale’).

11.9   Accordingly, our client demands that the Guarantor gives our Client an    undertaking to:

(a)    cease all steps to sell the property; or

(b)    alternatively, if a contract for sale has been entered on a bona fide basis with an unrelated third party, to deposit the net proceeds into his solicitor’s trust account pending resolution of the matters in dispute; and

(c)    not take any steps to dispose of Lot 8 in SP75428 until resolution of the matters in dispute.

11.10   In the event your client does not agree to provide the undertaking, our client may apply to the Supreme Court of New South Wales on an urgent basis seeking a freezing order which will include a restraint of the sale of the property referred to above, without further notice to you, and seek an order that you pay his costs.

Our client reserves all his rights.

This letter may be relied upon in relation to costs.”

7. The solicitor then acting for the defendants replied by letter dated 5 February 2020. In relation to the allegations of asset dissipation, the defendants’ solicitor stated:

“Our client has no intention of selling the property known as 8/SP75428.

In respect to the Eldersile property, we confirm that this property is listed for sale. The necessity for our client to sell this property is solely due to the actions of your client.

Due to your client’s actions in terminating the Contract, (which our client reserves its rights in respect to this termination) and the failure by your client to pay trades people, our client’s cash flow has been severely affected. This in turn has affected our client’s ability to earn income.

Further as a result of your client’s actions our client has incurred and will continue to incur significant legal costs.

The fact that the property has been listed for sale since October 2019 and there has been no offers, clearly demonstrates that the property is not been [sic] sold below market value. Rather it has been listed for sale at a price higher than what prospective buyers are prepared to pay.

Further we note that you have given notice of a potential claim against our client to our client’s insurer.

Accordingly, if there is a successful claim against our client which is not met by our client, your client has the benefit of claiming on our client’s insurer”.

8. The reference to an insurance policy in this letter is curious. The Court was informed during the hearing of the plaintiff’s motions that the defendants did not take out any insurance policy in respect of the work to be done by Urbanlux under the contract with Dr Lambros. This was common ground between the plaintiff and the third and fourth respondents to the plaintiff’s freezing order motion and I proceed on that basis.

9. The property known as 8/SP75428 is located in Kingscliff, New South Wales. It is convenient to refer to it as the Kingscliff property. According to Mr Michael Lotz’s affidavit affirmed on 26 October 2021, he purchased the Kingscliff property in about August 2019 as a home for his elderly parents, Mr Manfred Lotz and Mrs Sue Lotz. The purchase price was $575,000, to which Mr and Mrs Lotz snr contributed $356,500. Mr Michael Lotz describes the $356,500 as a loan made by his parents to him. Bank statements and a real estate agent’s deposit receipt confirm the transfer of funds totalling $356,500 to Mr Michael Lotz from the jointly held bank account of his parents during the period between May and August 2019. The first transfer of $57,500 was used to pay the deposit for the Kingscliff property on 23 May 2019 and the other two transfers were applied towards the completion of the purchase. Mr Michael Lotz took out a further $250,000 loan from a third party lender to raise the balance of the funds required to purchase the Kingscliff property. The $250,000 loan was secured by registered first mortgage against the Kingscliff property in favour of Perpetual Trustee Company.

10. On 23 May 2019, Mr Michael Lotz entered into an agreement with his parents under which he acknowledged the financial assistance that they had agreed to provide towards his purchase of the Kingscliff property and agreed to grant them an unregistered second mortgage over the property and a life tenancy interest in the property.

11. On 30 November 2019, Mr Michael Lotz entered into a further agreement entitled “Mortgage Linked Loan Agreement” pursuant to which he agreed to grant his parents a registered mortgage over the Kingscliff property on the terms set out in a specified memorandum of mortgage registered at the Land Titles Office.

12. It was submitted on behalf of Dr Lambros that the two agreements referred to above were not genuine. Counsel for Dr Lambros referred in particular to the fact that the “Mortgage Linked Loan Agreement” post-dated the August 2019 loan and not all of the details (including the term of the loan) have been completed in the summary page of the agreement. In my opinion, the fact that the agreement post-dated the loan is not significant. The earlier agreement already provided for an unregistered second mortgage and life tenancy. The “Mortgage Linked Loan Agreement” improved the lenders’ security position by providing for a registered mortgage, although the mortgage was not in fact registered. There is no basis for the Court to infer from the absence of some details on the summary page that the “Mortgage Linked Loan Agreement” did not record the terms of an agreement in fact made between Mr Michael Lotz and his parents. It is equally possible that the details were not completed because the solicitors responsible for preparing the agreement – the same solicitors who referred in earlier correspondence to an insurance policy that the plaintiff accepts did not exist – failed to attend to those details. The Court will not engage in impermissible speculation by inferring from the complete summary page that the agreement was a sham. A further reason why the allegations cannot be accepted is that counsel for Dr Lambros did not seek to cross-examine Mr Michael Lotz and he therefore did not have an opportunity to answer the allegations that the agreements were not genuine.

13. Dr Lambros commenced these proceedings in the Technology and Construction List on 20 March 2020. As against Urbanlux, Dr Lambros claims damages for alleged breaches of the contract, negligence, breaches of statutory warranties under the Home Building Act and misleading or deceptive conduct. Dr Lambros seeks to enforce the deed of guarantee and indemnity against Mr Michael Lotz and also claims damages against him for alleged misleading or deceptive conduct.

14. The parties have served their lay and expert evidence and the proceedings are listed for final hearing in March 2022. There have been interlocutory disputes along the way, as a result of which Dr Lambros has two costs orders in his favour against the defendants. Those costs orders were made on 10 September 2020 and 23 September 2021. By reason of Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.7(2), the costs that are the subject of those orders are not payable by the defendants until the conclusion of the proceedings. The amount of the costs has not yet been assessed.

15. At all relevant times prior to 22 September 2020, Mr Michael Lotz was the sole director and the owner of the single issued share in Naraic Building & Pest Inspections Pty Ltd, which was previously known as Naraic Projects Pty Ltd (Naraic). Naraic was and remains the trustee of the Naraic Trust, a discretionary trust established by a deed dated 12 August 2014 under which Mr Michael Lotz, his spouse, their children and various other relatives were beneficiaries. Naraic operated a building and pest inspection business in its capacity as trustee of the Naraic Trust. That business has traded at a modest profit or net loss in recent financial years. There is no evidence that Naraic carried on any business other than as trustee of the Naraic Trust.

16. On 22 September 2020, Mr Michael Lotz transferred his share in Naraic to Mr Manfred Lotz for no consideration. Mr Manfred Lotz replaced Mr Michael Lotz as the sole director of Naraic at the same time.

17. In his affidavit affirmed on 26 October 2021, Mr Michael Lotz deposed that the purpose of the share transfer and change in directorship “was simply so that I was not a director of any company, given the relentless pursuit of Urbanlux Homes and myself by Dr Lambros and his solicitor. I also prepared for the possibility that I may need to become a bankrupt and could not act as a director if I was bankrupt.”

18. Mr Michael Lotz also deposed that Naraic had not traded since 2018 with the exception of some activity derived from or related to his work as a project manager for various companies. In February 2021, Mr Michael Lotz decided that he no longer wanted to continue in business as a builder and Urbanlux ceased trading. As the Naraic Trust was already established, he decided to use it as the entity through which to conduct his new business of pest and building inspections. That business relies on his personal services. He deposed that the Naraic Trust has only minimal assets. Mr Michael Lotz was not cross-examined.

19. On 22 November 2020, Mr Michael Lotz signed a lease granting his parents (as joint tenants) a rent-free lease in respect of the Kingscliff property for a term expiring on the death of the last joint tenant. This gave effect to the life tenancy aspect of the earlier security agreement referred to at [10] above. The lease was not registered. It was submitted on behalf of Dr Lambros that this agreement was not genuine. Counsel for Dr Lambros emphasised that the lessees’ signatures were not witnessed and that the lessor had signed a statement required to be signed by the lessee. In my view, the failure of Mr Michael Lotz and his elderly parents to attend to these formalities does not support the inference that the lease was a sham. It was entirely consistent with the security agreement they had in May 2019 which referred to the parents’ life interest. The allegation that the lease was a sham was not put to Mr Michael Lotz.

20. On 12 July 2021, Mr Michael Lotz and his parents entered into a deed terminating their lease in respect of the Kingscliff property in consideration for Mr Michael Lotz paying to his parents the sum of $150,000.

21. The termination of the lease paved the way for the sale of the Kingscliff property by Mr Michael Lotz to third parties for $789,000. The sale was completed on about 10 August 2021. There is no suggestion that the transaction was not at arms-length or that the sale price did not reflect market value. The sale proceeds were applied to discharging the registered mortgage, repaying the loan from Mr Lotz’s parents, paying the $150,000 consideration to Mr Lotz’s parents the termination of their life tenancy, and paying various legal and accounting fees. Mr Michael Lotz received only $12,666.24 after all of these amounts had been paid.

22. According to an affidavit sworn by Mr Manfred Lotz’s solicitor on information and belief and documentary evidence exhibited to that affidavit, Mr and Mrs Lotz applied the amount of approximately $506,000 that they received from the sale of the Kingscliff property in the following manner:

1. $32,500 for one year’s rent paid in advance on 11 August 2021 for the rental premises they moved into after the Kingscliff property was sold;

2. approximately $13,000 paid on 16 September 2021 for a new car after their existing car had been written off in an accident;

3. $19,450 paid on 13 October 2021 as a deposit for the purchase a relocatable home;

4. $369,550 paid on about 1 November 2021 to complete the purchase of the relocatable home;

5. approximately $15,500 paid for renovations or modifications to the relocatable home, which are being undertaken while Mr and Mrs Lotz continue to reside in the rental premises for which rent has been paid in advance; and

6. living expenses.

23. The contract for the purchase of the relocatable home is in the joint names of Mr Manfred Lotz and Mrs Sue Lotz. The Court was informed that all of their assets are joint assets, including the bank accounts in the name of Mrs Sue Lotz from which the $356,000 had been paid towards the purchase of the Kingscliff property in 2019.

24. Dr Lambros became aware of the transfer of the share in Naraic from Mr Michael Lotz to Mr Manfred Lotz in September 2021.

25. On 30 September 2021, Dr Lambros’ solicitor wrote to the solicitor then acting for the defendants asking questions about the sale of the Kingscliff property and the transfer of the share in Naraic from Mr Michael Lotz to Mr Manfred Lotz. The solicitor’s response on 18 October 2021 stated that:

1. the Kingscliff property had been sold due to ongoing COVID-19 restrictions, lack of work and the costs of these proceedings;

2. the sale and purchase had been conducted on an arm’s length basis; and

3. the sale proceeds had been paid to Mr Michael Lotz.

26. The last statement was incorrect. As I have explained above, most of the sale proceeds were paid to Mr Michael Lotz’s parents, Mr Manfred Lotz and Mrs Sue Lotz.

27. At the same time that his solicitor sent the response referred to above, Mr Michael Lotz wrote directly to Dr Lambros, stating:

“I am writing this letter to you in the hope that you will obtain a better appreciation of where this matter is at and where it is heading.

You appear to have an endless amount of money to spend on destroying my business but also sending me bankrupt. If that is your wish, then that is probably what is going to happen.

The rights and wrongs of your arguments are no longer relevant to where this matter ends up. I do note that the value of your property would have risen substantially since 2019.

What I believe you should realise however is that every dollar that you continue to spend on this matter is going to be at your cost. I suspect that a lot of what you have already spent is going to be at your cost.

You need to accept that I have not colluded with anyone to divest me of my assets. As your solicitor will soon be aware, because of a number of reasons such as, no work, COVID and the costs associated this this ongoing litigation, I have been forced to sell assets. I now must pay rent. At my request Mr Beveridge has assisted me in his role as my Accountant and Business Advisor as well as my friend.

You and your Lawyer have taken a course of action that has left me no choice other than to close down Urbanlux Homes Pty Ltd – a business that I established in 2017 and worked very hard to grow from that date.

The latest is that you challenged the report of Graeme Beveridge which was written in response to the expert report by your Mr Ted Brincat.

Not being able to rely on Mr Beveridge’s report is no longer the point. Mr Brincat’s report was totally flawed as indicated in Mr Beveridge’s report. He could not even add up properly – by hundreds of thousands of dollars. If this matter proceeds to hearing, we intend to strenuously cross examine Mr Brincat of his errors. I hope that you have taken the time to carefully read Mr Beveridge’s report because you need to.

And now as a clever legal tactic you have incurred costs of $17,897.58 to exclude Mr Beveridge’s report. Well good luck with that because, even if you are successful, by the time this Court case is over I have no doubt that I will be bankrupt. I can assure you, there will be no money for you and worse for you is that it will most likely have cost you a further $100,000 paying your Lawyer.

It is worth noting that Mr Beveridge did his best to negotiate with you in 2019 in the hope of avoiding this legal battle. You were not interested.

To put this in context, because I am sure your Lawyer has told you that I have plenty of money, Attachment A is a statement of my assets and liabilities as of now. I am happy to have that reviewed and certified by an independent firm of Accountants (not Mr Beveridge or his firm) and provide a copy to you.

I have moved to Northern NSW and am now renting. I am working as a Building & Pest Inspector, and I can assure you the earnings are not great. I was receiving the COVID-19 Disaster payment from the Federal Government up until a week ago.

I was forced to sell my investment property at Eldersile to fund this battle and the proceedings of that sale have been spent – primarily on costs associated with your case.

As you are no doubt aware, I was the registered owner of a property at Kingscliff. This property was purchased for my elderly parents to live in (they are 76 and 81 years old). My parents provided me with a loan of $356,500 to purchase that property and I borrowed the rest. My parents had a lifetime lease on the premises. At no time did I live in the property.

Because of your relentless pursuit of Urbanlux Homes and myself, the decision was made to sell the Kingscliff property recently and repay my parents their money. My parents are not in good health, and they have now had to rent which is causing them considerable stress and anxiety.

So, if you think that you are going to receive a substantial payment re the sale of this property then you need to think again because there is nothing left re that sale. The Kingscliff property was always my parent’s home notwithstanding the fact that title was in my name.

So where does that leave us now?

You can either wait until next March for the Hearing and continue to spend huge amounts on legal fees preparing for that Hearing or you can accept reality and come to the table to reach a Settlement that enables both parties to get on with their lives.

I chose not to spend $15,000 plus in legal costs to challenge your latest Motion re Mr Beveridge’s report as it would have been a pointless exercise and I need to preserve any available funds for the Hearing in March. I reserve my right to obtain a further completely independent report to replace Mr Beveridge’s report if necessary.

It is inevitable that Urblanlux Homes will go into Liquidation, and you will be able to claim $340,000 from the Home Warranty Insurance Scheme. That can happen now, and you will save all your future costs. That is all there is for you to receive.

I am prepared to appoint a Liquidator for Urbanlux Homes Pty Ltd now so that payment of the $340,000 can be facilitated as soon as possible however I will only do that on the basis that you release me personally from this claim – i.e I will not be forced into Bankruptcy by you.

Alternatively, I will see you in Court in March 2022.

The choice is yours.

Please advise what you would like to do?”

28. On 20 October 2021, Dr Lambros filed a notice of motion seeking freezing orders against:

1. Urbanlux, Mr Michael Lotz and Naraic, restraining them from disposing of, dealing with or diminishing the value of their assets in Australia up to the unencumbered value of $2,339,170, being the amount of Dr Lambros’ claims against Urbanlux and Mr Michael Lotz in these proceedings; and

2. Mr Manfred Lotz, restraining him from disposing of, dealing with or diminishing the value of his assets in Australia up to the unencumbered value of $356,000(subsequently increased to $506,000).

29. It is convenient to refer to this notice of motion as the freezing order motion.

30. Mr Manfred Lotz and Naraic are not parties to these proceedings other than as respondents to the freezing order motion. They were named as the third and fourth respondents respectively.

31. The notice of motion and supporting affidavit was served on Naraic on 21 October 2021. It is not clear when it was served on Urbanlux, Mr Michael Lotz or Mr Manfred Lotz. I assume that it came to their attention at the same time as it was served on Naraic.

32. On 22 October 2021, a liquidator was appointed to Urbanlux under a creditors’ voluntary winding up. The liquidator’s report to creditors dated 24 November 2021 stated that, based on investigations at that time, Urbanlux had assets of $15,194 and unsecured creditors’ claims totalled $2,758,569 including Dr Lambros’ claim that is the subject of these proceedings. The report stated that the liquidator had not identified any potential void transactions or offences committed by officers of the company, but that the company’s expected date of insolvency was January 2021 and the liquidator had identified a potential insolvent trading claim.

33. Mr Michael Lotz was made bankrupt on 26 October 2021 on presentation of a debtor’s petition. A trustee in bankruptcy’s report to creditors dated 23 November 2021 states that the trustee’s investigations have identified unsecured creditors with claims totalling approximately $3,733,699, including Dr Lambros’ claim in these proceedings in the amount of approximately $2,399,170. The trustee is investigating whether the payments to Mr Manfred Lotz and Mrs Sue Lotz totalling approximately $506,000 out of the sale proceeds of the Kingscliff property may be void pursuant to ss 120 and 121 of the Bankruptcy Act 1966 (Cth). The trustee is also investigating “the commerciality of” the transfer of the share in Naraic from Mr Michael Lotz to Mr Manfred Lotz.

34. By reason of s 500(2) of the Corporations Act 2001 (Cth), these proceedings (including the freezing order motion) cannot proceed further as against Urbanlux except by leave of the Court. By reason of s 58(3)(b) of the Bankruptcy Act, Dr Lambros cannot take any fresh step in the proceedings against Mr Michael Lotz except with the leave of the Federal Court of Australia. Dr Lambros has not made any application to apply to this Court or to the Federal Court for leave to continue these proceedings against Urbanlux or Mr Michael Lotz. Counsel for Dr Lambros candidly admitted that no decision to apply for leave has been made. Counsel was unable to articulate the likely the grounds of any such potential application.

35. Dr Lambros accepts that, in those circumstances, he cannot proceed with the freezing order application against Urbanlux and Mr Michael Lotz. On 10 December 2021, an amended freezing order motion was filed in Court on behalf of Dr Lambros removing the claims for freezing orders against Urbanlux and Mr Michael Lotz. Dr Lambros pressed the application for freezing orders against Mr Manfred Lotz and Naraic only.

36. On 27 November 2021, Mr Manfred Lotz transferred the share in Naraic to Mr Blake Lotz. Mr Blake Lotz replaced Mr Manfred Lotz as the director of Naraic on the same date.

37. On 10 December 2021, a further notice of motion was filed in court on behalf of Dr Lambros seeking an order restraining Mr Blake Lotz from transferring, disposing of, granting any interest in, diminishing the value of, encumbering or otherwise dealing in any way with the share in Naraic. Counsel for Dr Lambros described this motion as an application for an interim injunction and not as an application for a freezing order. It is convenient to refer to the motion as the injunction motion. It has not yet been served on Mr Blake Lotz.

38. At the hearing on 10 December 2021, Dr Lambros moved on the amended freezing order motion. The solicitor for Mr Manfred Lotz and Naraic appeared. There was no appearance for Mrs Sue Lotz, as she is not a respondent to the amended freezing order motion. Dr Lambros also moved on the injunction motion ex parte.

CONSIDERATION AND DETERMINATION

Freezing order motion

39. It is well established that a plaintiff applying for a freezing order against a defendant is required to demonstrate:

1. a prima face case, or good arguable case, against the defendant in respect of whose assets the freezing order is sought, in the sense that the case is more than barely capable of serious argument, albeit not necessarily one which the court considers to have a better than fifty per cent chance of success: see, for example, Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321 (Gleeson CJ) and 326 (Meagher JA); Samimi v Seyedabadi [2013] NSWCA 279 (Samimi) at [69] (McColl JA, citing Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG 'The Niedersachsen' [1983] 1 WLR 1412; [1984] 1 All ER 398 at 404); and

2. a danger that any judgment obtained by the plaintiff against the defendant will be wholly or partly unsatisfied because the defendant’s assets might be disposed of, dealt with or diminished in value. This danger must be established by evidence, rather than being merely asserted. The evidence may take a number of forms, including direct evidence that the defendant has previously acted in a way which shows that its probity is not to be relied on. However, it is not necessary for a plaintiff to show that the defendant has a positive intention of evading a judgment. It is sufficient if the defendant’s conduct or proposed conduct is, objectively speaking, calculated to have the effect of frustrating the enforcement of any judgment that the plaintiff may obtain: UCPR, r 25.11; Samimi at [72]-[74] (McColl JA, citing Frigo v Culhaci [1998] NSWCA 88 at pages 6 and 8 per Mason P, Sheller JA, Sheppard AJA and Finn v Carelli [2007] NSWSC 261 at [4] per Brereton J (as his Honour then was)).

40. Assuming that those two matters are established, discretionary considerations must also be taken into account, including whether the plaintiff has proceeded diligently and expeditiously in applying for the freezing order: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 (Cardile v LED) at [53] (Gaudron, McHugh, Gummow and Callinan JJ); see also Samimi at [75] (McColl JA).

41. As the Court of Appeal said in Frigo v Culhaci [1998] NSWCA 88, in a passage subsequently approved in Cardile v LED at [51] (Gaudron, McHugh, Gummow and Callinan JJ), a freezing order:

"… is a drastic remedy which should not be granted lightly ... if granted, [it] imposes a severe restriction upon a defendant’s right to deal with his or her assets. It is granted at the suit of a plaintiff whose status as a creditor is in dispute … Its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to provide a ‘plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied…’”

42. Those observations apply equally to an application for a freezing order against third parties to the proceedings.

43. In Cardile v LED, the High Court held that the protection of the integrity of the court’s processes relating to the execution and enforcement of judgments “may, in a proper case, extend to asset preservation orders against third parties to the principal litigation”: at [25] (Gaudron, McHugh, Gummow and Callinan JJ). Their Honours expressed the guiding principle to be applied in determining applications for freezing orders against third parties in the following terms (at [57], citations omitted):

“In our opinion such an order may, and we emphasise the word ‘may’, be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which:

(i)    the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including "claims and expectancies", of the judgment debtor or potential judgment debtor; or

(ii)    some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor.”

44. That guiding principle is now reflected in UCPR r 25.14, on which Dr Lambros relies in support of the freezing orders sought against Mr Manfred Lotz and Nairac. That rule provides:

“25.14    Order against judgment debtor or prospective judgment debtor or third party

(1) This rule applies if--

(a)    judgment has been given in favour of an applicant by--

(i)    the court, or

(ii)    in the case of a judgment to which subrule (2) applies-- another court, or

(b) an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in--

(i)    the court, or

(ii) in the case of a cause of action to which subrule (3) applies--another court.

(2)    This subrule applies to a judgment if there is a sufficient prospect that the judgment will be registered in or enforced by the court.

(3)    This subrule applies to a cause of action if--

(a)    there is a sufficient prospect that the other court will give judgment in favour of the applicant, and

(b)   there is a sufficient prospect that the judgment will be registered in or enforced by the court.

(4)    The court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur--

(a) the judgment debtor, prospective judgment debtor or another person absconds,

(b)    the assets of the judgment debtor, prospective judgment debtor or another person are--

(i)    removed from Australia or from a place inside or outside Australia, or

(ii)    disposed of, dealt with or diminished in value.

(5)

   The court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a

‘third party’) if the court is satisfied, having regard to all the circumstances, that--

(a)    there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because--

(i)    the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor, or

(ii)    the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor, or

(b) a process in the court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.

(6)    Nothing in this rule affects the power of the court to make a freezing order or ancillary order if the court considers it is in the interests of justice to do so.”

45. It was submitted on behalf of Dr Lambros that interlocutory costs orders have been made in his favour against Urbanlux and Mr Michael Lotz in these proceedings (r 25.14(1)(a)(i)) and his substantive claims for damages against them constitute a good arguable case in the sense described in the authorities referred to above (r 25.14(1)(b)(i)).

46. It was further submitted that:

1. there is a danger that the costs orders and the prospective substantive judgment against Urbanlux and Mr Michael Lotz will be wholly or partly unsatisfied because Mr Manfred Lotz is in possession of the proceeds of sale of the Kingscliff property (or the relocatable home purchased with those sale proceeds), which is an asset or the traceable proceeds of an asset of Mr Michael Lotz (r 25.14(5)(a)(ii)); and/or

2. Mr Manfred Lotz may ultimately be required to disgorge the sale proceeds of the Kingscliff property and the relocatable home into which those proceeds can be traced pursuant to s 37A of the Conveyancing Act 1919 (NSW) (r 25.14(5)(b)).

47. Counsel for Dr Lambros emphasised, and I accept, that r 25.14(5)(a)(ii) and (b) are alternatives and it is only necessary for the Court to be satisfied of one of those matters in order for the power under r 25.14(5) to be enlivened. (Dr Lambros did not rely on r 25.14(a)(i).)

48. Dr Lambros also relied on r 25.14(6).

49. Mr Manfred Lotz and Naraic do not dispute that Dr Lambros has a good arguable case against Urbanlux and Mr Michael Lotz, subject to the qualification that Dr Lambros requires leave to pursue those cases by reason of s 500(2) of the Corporations Act and s 58(3)(b) of the Bankruptcy Act. Counsel for Dr Lambros accepted (correctly, in my view) that leave is required and that it is also necessary to demonstrate a good arguable case for leave.

50. I accept the submission made on behalf of Mr Manfred Lotz and Naraic that Dr Lambros has not established a good arguable case for leave.

51. First, as I have referred to above, Dr Lambros has not even decided to make an application for leave and counsel for Dr Lambros was unable to articulate the grounds of any hypothetical future application.

52. Second, the evidence adduced on the hearing of the freezing order motion did not reveal circumstances that would support a grant of leave to the plaintiff to continue these proceedings against Urbanlux under s 500(2) of the Corporations Act and/or against Mr Michael Lotz under s 58(3)(b) of the Banktruptcy Act. It was not submitted on behalf of Dr Lambros that the claims involve complex questions of fact or law that should be determined by a court rather than in proof of debt processes in the winding up and bankruptcy. Any application for leave would need to demonstrate why Dr Lambros should be permitted to continue the proceedings in circumstances where there is no insurance policy to meet the claims, the reports of the liquidator and the trustee in bankruptcy indicate that they would lack adequate funding to defend the claims (resulting in other unsecured creditors being disadvantaged by the risk of the claims not being able to be vigorously defended) and any successful prosecution of the proceedings would be likely to be futile because the reports of the liquidator and the trustee indicate that the assets available in the winding up of Urbanlux and in Mr Michael Lotz’s bankrupt estate are manifestly inadequate to satisfy any judgment in favour of Dr Lambros. It was not submitted on behalf of Dr Lambros that those reports were inaccurate or that the liquidator and trustee are not discharging their obligations under the Corporations Act and Bankruptcy Act respectively in a competent manner and independently of Urbanlux and Mr Michael Lotz.

47. I acknowledge that the outcome of any future proceedings against Mr Manfred Lotz and Mrs Sue Lotz under s 37A of the Conveyancing Act or any action by the trustee in bankruptcy under ss 120 or s 121 of the Bankruptcy Act may affect any assessment of the utility of granting leave to continue the proceedings. However, no proceeding or action has been commenced at this stage. For the reasons explained below, the evidence presently before the Court does not demonstrate a good arguable case or real case to be investigated under s 37A of the Conveyancing Act. [1]

    1. Robmatjus Pty Ltd v Violet Home Loans Australia Pty ltd [2007] VSC 165 at [59]; Suzhou Haishun Investment Management Co Ltd v Zhao (No 2) [2018] VSC 176 at [29].

48. Of course, it is open to Dr Lambros to make an application for leave under s 500(2) of the Corporations Act and/or s 58(3)(b) of the Bankruptcy Act. Any such application would need to be determined on the basis of the evidence adduced before the court on the hearing of that application. My observations above are based on the evidence adduced before the Court on the hearing of the amended freezing order motion. My conclusion that this evidence does not establish a good arguable case for leave does not pre-empt any determination of a future application for leave to this Court (in relation to s 500(2)) or the Federal Court of Australia (in relation to s 58(3)(b)). Similarly, any future proceedings under s 37A of the Conveyancing Act or ss 120 and 121 of the Bankruptcy Act would fall to be determined on their merits on the basis of the evidence adduced in those proceedings.

49. My conclusion that there is no good arguable case for leave to continue these proceedings against Urbanlux and Mr Michael Lotz is sufficient reason to dismiss the amended freezing order motion against Mr Manfred Lotz. Without leave being granted to continue these proceedings, there is no prospect of a judgment being given in favour of Dr Lambros which may be unsatisfied by reason of the sale proceeds of the Kingscliff property having been paid to Mr Manfred Lotz and Mrs Sue Lotz, or which may result in Mr and Mrs Lotz being required to disgorge those sale proceeds (or the assets into which they can be traced) pursuant to s 37A of the Conveyancing Act. As I have already mentioned, the evidence presently before the Court does not establish a good arguable case or real case to be investigated under s 37A of the Conveyancing Act. I will return to the reasons for this below. Without leave being granted to continue these proceedings, there is also no prospect of the proceedings coming to a conclusion such that Dr Lambros would then be in a position to enforce the existing interlocutory costs orders.

50. Even if I had been satisfied that there was a good arguable case for leave to continue the proceedings, I would have declined to make the freezing order sought against Mr Manfred Lotz for the following additional reasons.

51. First, Dr Lambros has had ample opportunity to commence and prosecute applications for leave to continue the proceedings against Urbanlux and Mr Michael Lotz. He has taken no steps to do so. As I have already mentioned, Dr Lambros has not even committed or undertaken to do so. That is a powerful discretionary factor against making a freezing order against a third party such as Mr Manfred Lotz. It is not to the point that Mr Michael Lotz’s trustee in bankruptcy has expressed the view in email correspondence with Dr Lambros’ solicitors that the trustee supports the freezing order motion and that a freezing order would be of assistance to the trustee. The power of this Court to make a freezing order exists to prevent the frustration of this Court’s processes, not to assist a trustee in bankruptcy who has at their disposal all of the powers conferred on them by the Bankruptcy Act.

52. Second, because the assets of Mr Manfred Lotz are jointly owned with Mrs Lotz, any freezing order affecting Mr Lotz’s interest in those assets is likely to have an adverse impact on Mrs Sue Lotz. Counsel for Dr Lambros submitted that the terms of the proposed freezing order apply only to Mr Lotz’s interest in those jointly owned assets. However, no analysis was directed to whether Mr Lotz has an interest in those assets that is separate from Mrs Lotz’s interest so that Mrs Lotz would be free to deal with her interest, or whether Mr Lotz has a joint interest in the whole of the assets with Mrs Lotz so that the practical effect of a freezing order would be that neither of them would be able to deal with the assets. In the absence of that analysis, the unexplained failure of Dr Lambros to join Mrs Lotz as a respondent to the amended freezing order motion so that she had an opportunity to be heard is a further reason why I would have declined to make the freezing order sought against Mr Lotz. Counsel for Dr Lambros submitted that Mrs Lotz’s husband was represented at the hearing and had an opportunity to be heard. That does not cure the lack of procedural fairness to Mrs Lotz. Counsel for Dr Lambros also submitted that the Court could overcome the problem by making a freezing order against Mr Lotz for a short period of time and bringing the matter back before the Court towards the end of that period in order to hear from Mrs Lotz. I fail to see why an applicant who has inexplicably neglected to join all persons whose interests may be affected by the order sought should be granted that indulgence.

53. Third, assuming that he had established a good arguable case for leave to continue these proceedings, Dr Lambros would have also needed to establish a good arguable case or a real case to be investigated that Mr Manfred Lotz holds, is using or is controlling or influencing assets of Urbanlux or Mr Michael Lotz, or that Mr Manfred Lotz may be obliged by some process of this Court to disgorge assets or contribute towards satisfying the prospective judgment in favour of Dr Lambros. [2]

    2. Note 1 supra.

54. Dr Lambros did not identify any assets of Urbanlux in Mr Manfred Lotz’s possession, control or influence.

55. Dr Lambros’ contention that the Kingscliff property sale proceeds were assets of Mr Michael Lotz in the possession or control of Mr Manfred Lotz rested on four propositions:

1. the security agreement, “Mortgage Linked Loan Agreement” and lease referred to at [10]-[11] and [19] above were not genuine agreements;

2. the Kingscliff property was sold contrary to Mr Michael Lotz’s statement (through his former solicitors) in February 2020 that he had no intention of selling the property, and inconsistent explanations given for the sale in August 2021 together with the timing of the sale immediately prior to his bankruptcy raise suspicions;

3. the sum of $150,000 paid to Mr Manfred Lotz and Mrs Sue Lotz in consideration for the termination of the lease exceeded the market value of the life tenancy; and

4. it should be inferred that cash withdrawals from the joint bank account of Mr and Mrs Lotz after completion of the sale of the Kingscliff property were payments of part of the sale proceeds to Mr Michael Lotz and the further inference should be drawn that this reflected the true position that those sale proceeds were his assets.

62. In relation to the first proposition, for the reasons explained at [12] and [19] above there is nothing on the face of the documents themselves that would support a finding that they are not genuine agreements. Any such finding would be a serious matter and could not fairly be made without Mr Michael Lotz having an opportunity to answer the allegation. He was not given that opportunity because he was not cross‑examined. To the extent that Dr Lambros submitted that any relevant inference should be drawn from what was described as the “refusal” of the solicitor acting for Mr Michael Lotz and Mr Manfred Lotz to produce the original documents, I reject that submission. No notice to produce the original documents was issued. A mere request for the originals was made. The solicitor queried the reason for the request and the matter rested there.

63. In relation to the second proposition, I reject the notion that a change of intention in relation to holding or selling the Kingscliff property some 18 months after the original intention had been expressed is inherently suspicious. Contrary to Dr Lambros’ submissions, I do not regard the explanations offered for the sale (COVID-19 restrictions, lack of work and the costs of these proceedings) as inconsistent with the payment of approximately $506,000 of the sale proceeds to Mr Michael Lotz’s parents. When the circumstances established by the evidence are viewed as a whole, it can be seen that financial pressures on Mr Michael Lotz arising from COVID-19 restrictions, lack of work and the costs of these proceedings are likely to have put at risk his ability to service or contribute to servicing the $250,000 loan secured by the registered mortgage in favour of Perpetual Trustee Company. That in turn carried the obvious risk of a mortgagee sale of the property and his parents being required to vacate the home to which they had contributed $356,000. The submission made on behalf of Dr Lambros ignored the evidence of the bank statements that establish this contribution by Mr and Mrs Lotz. The sale of the Kingscliff property and the repayment of that loan to them, together with the payment made to terminate their life tenancy put them in funds to make alternative arrangements for their accommodation. I do not regard the incorrect statement in the solicitor’s letter of 18 October 2021 that the sale proceeds had been paid to Mr Michael Lotz as anything more than an error by that solicitor. Mr Michael Lotz himself stated the correct position in his own letter to Dr Lambros dated 18 October 2021.

64. The third proposition did not rise above mere assertion by Dr Lambros.

65. In relation to the fourth proposition, it would be grossly unfair to draw any of the inferences for which Dr Lambros contended without these matters having been put to Mr Michael Lotz in cross-examination.

66. As I have already mentioned, Dr Lambros relied on s 37A of the Conveyancing Act in support of his contention referred to at [46] above that Mr Manfred Lotz may be obliged by some court process to disgorge assets or contribute towards satisfying the existing interlocutory costs orders and a prospective judgment in these proceedings favour of Dr Lambros.

67. Counsel for Dr Lambros submitted that UCPR r 25.14(5)(b) did not require a good arguable case to be established against Mr Manfred Lotz under s 37A of the Conveyancing Act. Counsel referred to Rafferty v Time 2000 West Pty Ltd (No 7) [2011] FCA 405 at [66], in which Lander J said of the equivalent rule in the Federal Court Rules that it “does not require the applicant to make out an arguable case in relation to this aspect of the application. The paragraph merely requires that the Court be satisfied that there may be a process which ultimately may allow the applicant to call upon the third party to disgorge assets or contribute towards the judgment.” During the hearing, I indicated that I was inclined to accept that submission. On reflection, Lander J’s statement appears to be based solely on a literal reading of the words of the rule and is difficult to reconcile with the drastic nature of a freezing order and its effect on any third party against whom it is made. Moreover, my own research has discovered a line of relevant cases in the Supreme Court of Victoria to which counsel did not refer. Those cases are authority for the proposition that an applicant for a freezing order relying on UCPR r 25.14(5)(b) or the equivalent rule in Victoria must demonstrate a good arguable case, or a real case to be investigated, for the third party to disgorge assets. Those cases have also expressed doubt about whether there is any real difference between a “good arguable case” and a “real case to be investigated”: Suzhou Haishun Investment Management Co Ltd v Zhao (No. 2) [2018] VSC 176 at [29] and the authorities there referred to. Having regard to the object of freezing orders and r 25.14, I would construe r 25.14(5)(b) as requiring an applicant to demonstrate a good arguable case (in the sense referred to at [39] above) for disgorgement by the third party.

68. Section 37A of the Conveyancing Act provides:

“(1)   Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.

(2)   This section does not affect the law of bankruptcy for the time being in force.

(3)   This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors.”

69. I accept that the payment of $506,000 from the Kingscliff property sale proceeds to Mr Manfred Lotz and Mrs Sue Lotz was an alienation of property within the meaning of s 37A(1): Cardile v LED at [65]-[68]. I also accept that Dr Lambros is a creditor within the wide meaning of that term in s 37A. Given the advanced stage of these proceedings at the time the Kingscliff property was sold in August 2021, there is a good arguable case that Mr Michael Lotz believed that he was at risk of becoming indebted to Dr Lambros in the relatively near future: Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370 at 374 (Stephen J, Menzies and Gibbs JJ agreeing); Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557; [1992] HCA 26 at [10]; Saba v Plumb (2018) 97 NSWLR 278; [2018] NSWCA 60 at [69] (Macfarlan JA, Emmett AJA and Sackville AJA agreeing).

70. However, for the reasons explained at [61] to [65] above, if it had been necessary to determine whether there was a good arguable case under s 37A, I would have held that Dr Lambros had failed to establish a good arguable case that Mr Michael Lotz paid $506,000 of the Kingscliff property sale proceeds to his parents with the actual intention of delaying, hindering or otherwise defrauding creditors: Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370 at 375 (Stephen J, Menzies and Gibbs JJ agreeing); Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 at [19], [32] and [57] (French CJ, Gummow, Crennan and Bell JJ); Saba v Plumb (2018) 97 NSWLR 278; [2018] NSWCA 60 at [68] (Macfarlan JA, Emmett AJA and Sackville AJA agreeing); Super Vision Resources Ltd BVI Registered No 1810534 v AC Holdings Co Pty Ltd [2020] NSWCA 319 at [4] (Meagher JA, Basten JA agreeing).

71. My conclusion that there is no good arguable case for leave to continue these proceedings against Urbanlux and Mr Michael Lotz is sufficient reason to dismiss the amended freezing order motion against Naraic. Further reasons for dismissing the motion against Naraic include that:

1. Dr Lambros has not applied for leave to continue the proceedings (see [57]) above;

2. there was no suggestion that Naraic has possession of, or control or influence over, assets of Urbanlux or Mr Michael Lotz;

3. it was not submitted that Naraic may ultimately be required to disgorge assets or contribute to any prospective judgment in favour of Dr Lambros.

72. Counsel for Dr Lambros emphasised that the share transfer occurred shortly after the first interlocutory costs order was made against UrbanLux and Mr Michael Lotz in these proceedings. I do not regard that as significant because the share was not an asset of Mr Michael Lotz that was of any value for the reasons explained immediately below. Mr Michael Lotz’s explanation for the share transfer referred to at [17] above indicates that, in his mind, the ownership of the share and the directorship of Naraic went hand in hand. He was concerned about potential bankruptcy, and understood that he could not act as a company director if bankrupt. The subsequent report of the trustee in bankruptcy and the fact that Mr Michael Lotz had sold his investment property to pay his mounting legal costs of these proceedings in 2019, suggests that his concerns about potential bankruptcy in September 2020 were not unreasonable.

73. It was submitted on behalf of Dr Lambros that the freezing order sought against Naraic was in the nature of an ancillary order to prevent Naraic from dealing with its assets in a manner that would diminish the value of the share in Naraic that had been owned by Mr Michael Lotz before being transferred to Mr Manfred Lotz and then to Mr Blake Lotz. As I understand it, that submission invoked UCPR r 25.14(5)(b) in that it was suggested that Mr Manfred Lotz and Mr Blake Lotz may ultimately be required to disgorge the share under s 37A of the Conveyancing Act. I reject the submission because the evidence presently before the Court establishes that Naraic’s assets are held on trust for the Naraic Trust. Mr Michael Lotz’s shareholding of Naraic gave him no interest in those assets. As one of the beneficiaries of the discretionary trust, Mr Michael Lotz is entitled to enforce due administration of the trust, but does not have a proprietary interest in the assets of the trust: Public Trustee v Smith [2008] NSWSC 397 at [107] and the authorities there cited; see also D Ong, Trusts Law in Australia (5th ed, 2018, The Federation Press) at 327–331. That was the position before he transferred the share in Naraic to his father, and it remains the position now. The share transfers have no bearing on Dr Lambros’ ability to enforce any prospective judgment in his favour in these proceedings. For those reasons, Dr Lambros has failed to establish a good arguable case under s 37A of the Conveyancing Act that the share in Naraic was transferred with the intent to defraud creditors.

74. To the extent that it was submitted on behalf of Dr Lambros that UCPR r 25.14(6) supported the freezing orders sought against Mr Manfred Lotz and/or Naraic notwithstanding the matters referred to above, I reject that submission. Rule 25.14(6) does not authorise an asset preservation order for a purpose other than the protection of the integrity of the court’s processes for enforcement of (relevantly) a prospective judgment on a cause of action in respect of which the plaintiff has demonstrated a good arguable case and in circumstances where there is a danger that those processes of the court will be frustrated. Rule 25.14(6) merely recognises that sub-rules (4) and (5) may not necessarily capture the universe of circumstances in which those processes may be frustrated by reason of the conduct of the prospective judgment debtor or a third party: Cardile v LED at [41]-[42].

75. For completeness, I note that it was submitted on behalf of Dr Lambros that the timing of the liquidation of Urbanlux and the bankruptcy of Mr Michael Lotz almost immediately after the freezing order motion was filed was “inherently suspicious” and that Mr Michael Lotz’s letter to Dr Lambros dated 18 October 2021 stating that there will be no money to meet any judgment debt is “very telling as to his intentions”. I reject that submission. The reports to creditors that have subsequently been issued by the liquidator and the trustee in bankruptcy do not support this view of events. Those reports reveal a company and individual debtor struggling under the weight of mounting legal costs and other debts. The liquidator has formed the view that Urbanlux may have been insolvent as early as January 2021. As I have already noted, there is no suggestion that the liquidator and trustee are not independent professionals competently discharging their statutory functions. As was submitted on behalf of Mr Manfred Lotz and Naraic, the information contained in the reports supports a reading of the 18 October 2021 letter as merely informing Dr Lambros of the reality confronting the defendants rather than indicating any intention to remove assets from the reach of Dr Lambros. Contrary to the submissions made on behalf of Dr Lambros, I consider the tone of the letter was informative rather than threatening. Mr Michael Lotz voluntarily disclosed information about his financial position and offered to have that information reviewed by an independent accountant.

72. For all of those reasons, there will be an order dismissing the amended freezing order motion. There is no apparent reason why costs should not follow the event, no party to the motion indicated that they would wish to be heard in relation to costs once the outcome of the motion was known.

Injunction motion

77. There will also be an order dismissing the injunction motion because Dr Lambros’ claims in these proceedings do not raise any claim for final relief that warrants preservation of the status quo in relation to the share in Naraic (assuming the Dr Lambros applies, and is granted, leave to continue the proceedings against both defendants). The only remedy sought against Urbanlux and Mr Michael Lotz is damages: Cardile v LED at [31]; Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63, especially at [8]-[13], [18] (Gleeson CJ), [91] (Gummow and Hayne JJ, Gaudron JJ agreeing); Papas v Grave [2013] NSWCA 308 at [83] (Emmett JA, Sackville AJA agreeing).

78. If Dr Lambros had sought a freezing order rather than an interim injunction against Mr Blake Lotz, I would have dismissed that application for the reasons given above, including that neither the past dealings nor any future dealings with the share in Naraic have any bearing on Dr Lambros’ ability to enforce any prospective judgment in his favour against Urbanlux and/or Mr Michael Lotz for the reasons explained at [73] above. The share now owned by Mr Blake Lotz is the sole share in a company that has no business except as trustee of the Naraic Trust and whose assets are held as trustee to be administered in accordance with the terms of that discretionary trust.

79. In circumstances where the injunction motion was not served on Mr Blake Lotz, the appropriate costs order is that Dr Lambros pay his own costs of that notice of motion.

CONCLUSION AND ORDERS

80. For all of the reasons above, the orders of the Court are as follows:

1. Order that the plaintiff’s amended notice of motion filed in court on 10 December 2021 seeking freezing orders is dismissed.

2. Order that the plaintiff pay the costs of the third and fourth respondents to the amended notice of motion in such amount as may be agreed or assessed.

3. Order that the plaintiff’s notice of motion filed in court on 10 December 2011 seeking an interim injunction is dismissed.

4. Order that the plaintiff pay his own costs of the notice of motion referred to in order 3 above.

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Endnotes

Decision last updated: 14 December 2021