LPH Developments Pty Ltd v Jameson Moore Pty Ltd [No 3]
[2017] WASC 284
•3 OCTOBER 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: LPH DEVELOPMENTS PTY LTD -v- JAMESON MOORE PTY LTD [No 3] [2017] WASC 284
CORAM: BANKS-SMITH J
HEARD: 20 SEPTEMBER 2017
DELIVERED : 3 OCTOBER 2017
FILE NO/S: CIV 2343 of 2015
BETWEEN: LPH DEVELOPMENTS PTY LTD
Plaintiff
AND
JAMESON MOORE PTY LTD
Defendant(BY ORIGINAL ACTION)
JAMESON MOORE PTY LTD
PlaintiffAND
LPH DEVELOPMENTS PTY LTD
Defendant(BY COUNTERCLAIM)
Catchwords:
Practice and procedure - Freezing orders - Whether danger that judgment unsatisfied because of dissipation of sole asset
Legislation:
Rules of the Supreme Court 1971 (WA), O 52A
Result:
Application dismissed
Category: B
Representation:
Original Action
Counsel:
Plaintiff: Mr A Metaxas
Defendant : Ms K R Lendich
Solicitors:
Plaintiff: Metaxas & Hager
Defendant : Mettam Legal
Counterclaim
Counsel:
Plaintiff: Ms K R Lendich
Defendant: Mr A Metaxas
Solicitors:
Plaintiff: Mettam Legal
Defendant: Metaxas & Hager
Case(s) referred to in judgment(s):
BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd [2010] WASC 25
Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380
Commissioner of Taxation v Manners & Terrule Pty Ltd (1985) 81 FLR 131
Commonwealth Bank of Australia v Oswal [2011] WASC 84
Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014
Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49
Iraqi Ministry of Defence v Arcepey Shipping Co [1981] 1 QB 65
Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612
LPH Developments Pty Ltd v Jameson Moore Pty Ltd [2015] WASC 416
LPH Developments Pty Ltd v Jameson Moore Pty Ltd [No 2] [2017] WASC 128
National Australia Bank Ltd v Bond Brewing Holdings Ltd [1990] HCA 10; (1990) 169 CLR 271
Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398
Norilya Minerals Pty Ltd v Ireland (1994) 12 WAR 485
Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319
Perdaman Chemicals & Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2011] WASC 188
PT Bayan Resources TBK v BCBC Singapore Pte Ltd [2014] WASCA 178
PT Bayan Resources TBK v BCBC Singapore Pte Ltd [2015] HCA 36; (2015) 258 CLR 1
Vantage Holdings Group Pty Ltd v Donnelly [2016] WASC 311
BANKS-SMITH J:
Introduction
In these proceedings, the plaintiff as purported purchaser claims breach of contract and damages by way of an alleged lost opportunity to acquire and profit from a commercial development site (Property). The defendant as purported vendor claims by counterclaim that it properly terminated the contract and seeks damages for loss of the sale, quantified at $850,000. The nature of the claims is set out more fully elsewhere.[1] The defendant subsequently sold the Property to a third party.
[1] LPH Developments Pty Ltd v Jameson Moore Pty Ltd [2015] WASC 416.
This application brought by the plaintiff is for a freezing order. The asset sought to be preserved is the balance proceeds of sale of the Property (Proceeds). The Proceeds are now in the sum of approximately $880,000[2] and are the only asset of the defendant.
[2] Plaintiff's outline of submissions dated 8 September 2017 [4].
Because of the respective submissions of the parties, it is necessary to provide some background to matters that have arisen since the proceedings commenced.
Relevant history
First application for freezing order
In May 2016 the plaintiff applied under O 52A Rules of the Supreme Court1971 (WA) for an order freezing the Proceeds. The parties had been in discussions about the provision of a voluntary undertaking before the application was filed. It was the defendant's position that there was no basis for inferring any intention that the defendant would dissipate the Proceeds and it rejected any such allegation.[3]
[3] Affidavit of Gregory Mettam filed 25 August 2017 [23(e)] (reference to PAH29): Mr Mettam writes, 'There is no basis for your client to infer [an intention to dissipate funds] exists and the allegation is rejected. Our client has at all times acted properly and intends to continue to do so.'
Prior to the hearing and without admitting any obligation to do so, the defendant voluntarily provided the court with an undertaking (Undertaking) and so the plaintiff's application was dismissed by consent.
Relevantly, the Undertaking provided:
1.[…] Jameson Moore undertakes to and will:
(a)hold the remaining $1,140,054.41 of the moneys received from the sale of the property known as 3 Keagan Street O'Connor (Funds) in the interest bearing Bendigo Bank account [account number];
(b)not make, or allow or authorise any other person to make, any disbursements at all of any parts of the Funds in any way, to any other party, unless required by law; and
(c)not deal, or allow or authorise any other person to deal with the Funds in any way that encumbers, or provides security by way of the Funds,
Until the conclusion of Supreme Court proceedings No. CIV 2343 of 2015 between LPH Developments Pty Ltd (ACN 166 701 122) (as trustee for LPH Developments Keegan Street Trust) (LPH) and Jameson Moore Pty Ltd (008 705 379) (Proceedings) (Undertaking).
2.Jameson Moore can withdraw the Undertaking on five (5) clear business days' notice in writing to the Court and to LPH by its solicitors on the record.
3.By this Undertaking Jameson Moore is not prevented from using the Funds to:
(a)pay $500.00 per week on ordinary expenses;
(b)pay the reasonable costs of defending or prosecuting the Proceedings, including any expert fees;
(c)in relation to matters not falling within paragraphs 3(a) and (b) above, dealing with or disposing of any of its assets in discharging obligations bona fide and properly incurred under any agreement entered into before this undertaking was given provided that before so doing Jameson Moore gives to LPH at least two (2) days written notice of the particulars of the obligation.
It does not seem to be in issue that the reference to 'ordinary expenses' includes the ordinary expenses of Mr and Mrs Moore, who are now apparently retired.[4]
Plaintiff ordered to pay security for costs
[4] Mettam affidavit [23(e)] (reference to PAH31); ts 51.
Subsequently, the defendant brought an application for security for costs, which was granted: LPH Developments Pty Ltd Jameson Moore Pty Ltd [No 2].[5] The plaintiff was ordered to pay $50,000 into court as security for the defendant's costs by 24 May 2017. It failed to do so and the action was accordingly stayed.
Administrators appointed to the plaintiff
[5] LPH Developments Pty Ltd v Jameson Moore Pty Ltd [No 2] [2017] WASC 128.
On 29 June 2017 Mr Hirschberg as sole director appointed administrators to the plaintiff under s 436A of the Corporations Act 2001 (Cth).[6] On 11 July 2017, a first meeting of creditors was held.[7] The defendant says that although it was a creditor at the time (having the benefit of a costs order) it was not informed of the administration or invited to attend the first meeting of creditors.[8] However, it attended the second meeting of creditors and received a copy of the administrators' report to creditors issued under s 439A of the Corporations Act. The administrators in their report recommended that the plaintiff be placed into liquidation or that the second meeting of creditors be adjourned so that the administrators could conduct further inquiries.[9]
Defendant withdraws the Undertaking
[6] Affidavit of Philip Hirschberg filed 24 August 2017 [31].
[7] Mettam affidavit GJM12 (32).
[8] Mettam affidavit [8], GJM15. The costs were subsequently paid to the defendant: ts 47.
[9] Mettam affidavit [13], GJM12.
Having been informed of the administration, on 27 July 2017 the defendant gave the court and the plaintiff 30 days notice of its intention to withdraw the Undertaking.[10] Such notice period was well in excess of the five days notice required under cl 2 of the Undertaking.
Plaintiff enters into DOCA
[10] Mettam affidavit [11].
On 3 August 2017, the second meeting of creditors was held. The defendant was represented at the meeting. Despite the administrators' recommendation, the creditors resolved to accept a Deed of Company Arrangement proposed by Mr Hirschberg. According to the defendant, related party creditors carried the vote.[11]
[11] Mettam affidavit [14].
Under the DOCA, control of the plaintiff has reverted to Mr Hirschberg. Further, the DOCA provides that a special purpose entity, Octani Investments Pty Ltd, has been constituted as a vehicle to pursue litigation funding to pursue these proceedings against the defendant. Pursuant to the distribution provisions in the DOCA, Octani Investments is entitled, at its sole discretion, to determine at any time the distribution of any proceeds received as a result of the litigation. Octani Investments is also to receive $525,000 from such proceeds following payment of the administrators' remuneration. The most significant creditor of the plaintiff is another company controlled by Mr Hirschberg, Octani Capital Pty Ltd. Octani claims to be a secured creditor of the plaintiff in a sum exceeding $2.9 million, of which about $2.2 million is claimed for advisory services said to have been provided to LPH for managing this action against the defendant.[12]
Plaintiff re‑applies for freezing order
[12] Mettam affidavit GJM12 (45 ‑ 47).
On 24 August 2017, and so a few days before the 30 days notice of the withdrawal of the Undertaking was to expire, the plaintiff applied on an urgent basis for a freezing order with respect to the Proceeds.
The application came before me on 28 August 2017 but the plaintiff was not ready to proceed. Accordingly, I made an interim freezing order to be vacated if the security for costs was not paid by 4 September 2017 and otherwise to apply until the application for the freezing order was determined.
On 1 September 2017 the plaintiff paid the security into court.
The application for the freezing order then came before me for hearing on 20 September 2017.
Relevant principles - freezing order
Under O 52A r 5 Rules of the Supreme Court, the court may make a freezing order against a prospective judgment debtor if the applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in the court and 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 prospective judgment debtor or another person absconds; or
(b)the assets of the 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.
The principles are discussed in detail elsewhere.[13] In summary, and relevant to this application:
(a)the expression 'good arguable case' means 'a case which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success';[14]
(b)the plaintiffs must establish that they have a reasonably arguable case on legal as well as factual matters;[15]
(c)the onus of proving the risk of a judgment being rendered fruitless is on the plaintiffs. The standard of proof of the danger of non‑satisfaction of the judgment is that the risk must be real and not fanciful. The plaintiffs do not have to prove a positive intention to frustrate a judgment;[16]
(d)while the inference of the risk of non‑satisfaction of a judgment cannot usually be drawn from the fact that a plaintiff has a sufficiently arguable cause of action, evidence going to a plaintiff's cause of action can in some cases be relied upon in drawing the inference of danger, for example when the case made out against the defendant is one of serious dishonesty involving diversion of money;[17]
(e)a freezing order is a drastic remedy which should not be granted lightly;[18] and
(f)the remedy falls within the court's inherent jurisdiction to prevent the frustration or abuse of its processes. The object is not to provide security to a plaintiff.[19]
[13] PT Bayan Resources TBK v BCBC Singapore Pte Ltd [2014] WASCA 178 [100] ‑ [110] (not affected by the High Court's reasons in PT Bayan Resources TBK v BCBC Singapore Pte Ltd [2015] HCA 36; (2015) 258 CLR 1); Perdaman Chemicals & Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2011] WASC 188 [129] ‑ [144].
[14] Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398, 404 (Mustill J).
[15] Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 [68]; BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd [2010] WASC 25 [5].
[16] Cardile [26]; National Australia Bank Ltd v Bond Brewing Holdings Ltd [1990] HCA 10; (1990) 169 CLR 271, 277.
[17] Cardile [26]; Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319; BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd [13] ‑ [15]; and for a recent example of such application see Vantage Holdings Group Pty Ltd v Donnelly [2016] WASC 311.
[18] Cardile [51]
[19] PT Bayan Resources TBK v BCBC Singapore Pte Ltd [2015] HCA 36; (2015) 258 CLR 1 [64] ‑ [75]; Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612, 619, 625 ‑ 26; Cardile [43].
The matters addressed by the parties in this application were, in particular:
(a)whether the plaintiff has a good arguable case against the defendant and whether damages claimed would in any event be less than the quantum of the Proceeds;
(b)whether there was any evidence of a danger of dissipation; and
(c)whether the application was a vehicle to effect a fraud against the creditors of the plaintiff and being used to bolster the chances of litigation funding and so was brought for an impermissible purpose.
It is convenient to start with the issue of danger of dissipation.
Alleged danger that judgment not met because of dissipation
The plaintiff does not point to any identified danger of dissipation of the Proceeds. It relies on the fact that the proceeds are the defendant's only asset and refers to the withdrawal of the Undertaking.
The defendant denies there is a risk of disposition of the Proceeds.[20] It says the Undertaking was only agreed to as a matter of cost‑saving and convenience, in order to avoid the cost of a contested interlocutory application and in the hope the litigation would proceed quickly. The change in circumstances by way of the failure to pay security and the appointment of administrators led to it withdrawing the Undertaking. It says no adverse inference is to be drawn from the withdrawal of the Undertaking in circumstances where it was always contended there was no basis for it and where the defendant maintained and maintains there is no risk of dissipation of the Proceeds.[21]
[20] ts 52, 102.
[21] ts 50, 52, 102; Mettam affidavit [23] (cross-references to PAH28 to PAH32, particularly PAH29).
The defendant is a special purpose entity that owned the Property. It holds the Proceeds in a bank account and participates in this litigation, but otherwise does not trade or carry on any business.
The plaintiff says that an order may be made against the defendant even though there is an absence of a positive intention to frustrate any judgment, citing National Australia Bank v Bond Brewing. It says that it does not have to prove that the defendant is intent on dissipating the assets, and that the object of the order is to preserve the integrity of the court's processes, and it is on that basis that an order may be made, citing Perdaman Chemicals v Griffin.
The difficulty with the plaintiff's submission is that it does not follow from those statements of principle that the court will without more freeze an asset where it is the only asset of a defendant. If that were the effect of those statements of principle, then a plaintiff would need to do no more on an application to establish a risk of 'danger' than identify that a defendant has limited assets and that they are capable of disposition. That is not the position at law.
In National Australia Bank v Bond Brewing, the court indicated that a view that a Mareva injunction cannot be obtained in the absence of a positive intention to frustrate any judgement would be mistaken.[22] The point, however, is that the court is concerned with effect rather than purpose.
[22] National Australia Bank v Bond Brewing (277).
The position was explained and applied in Glenwood Management Group Pty Ltd v Mayo:[23]
It is true that a Mareva order is not to be used to provide a plaintiff with some security over a defendant's assets or to rewrite the law of insolvency: see Iraqi Ministry of Defence v Arcepey Shipping Co SA [1981] QB 65, at 72. It is true also that it has been said that the granting of a Mareva injunction is intended to prevent a perceived abuse of the court's process: Pearce v Waterhouse [1986] VR 603, at 605. But neither proposition involves the consequence that a plaintiff must show that there is a risk that there will be an abuse of the process of the court in the ordinary sense of that expression. What a plaintiff must show is 'some grounds for believing that there is a risk of the assets being removed before the judgment or award is satisfied': per Lord Denning MR in Third Chandris Shipping Corporation v Unimarine SA. [1979] QB 645, at 669. Moreover, in the only case, so far as I am aware, where the question has been asked, does the plaintiff have to show that the disposal of assets is intended to frustrate a judgment, the answer given was, 'No'. The court is concerned with effect rather than purpose: see The Niedersachsen [1983] 1 WLR 1412, especially at 1422.
In the present case, the plaintiffs have, I think, discharged that responsibility. Even though Mayo may have had no intention before these proceedings were instituted of removing assets from the jurisdiction in order to defeat a claim by the plaintiffs, it is obvious that there is a real risk that if an injunction were refused he would take steps to place as many of his assets as possible out of the reach of the plaintiffs. I base that conclusion almost entirely upon the fact that Mayo intends to set up in business in the United States and he therefore has a legitimate reason for moving assets to that country.
[23] Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49, 53.
In Cardile, the intention to deplete assets was inferred in the particular context from distributions of dividends to shareholders.[24]
[24] Cardile [134].
In Commonwealth Bank of Australia v Oswal,[25] a finding of sufficient danger was made taking into account that the defendant had left the State and had taken furniture and household effects and had stated an intention to not return.[26]
[25] Commonwealth Bank of Australia v Oswal [2011] WASC 84.
[26] Commonwealth Bank of Australia v Oswal [26] ‑ [38].
The nature of the evidence from which an inference might be drawn was considered in Deputy Commissioner of Taxation v Hua Wang Bank Berhad.[27] It was not suggested in that case that there was direct evidence on the part of the respondent to frustrate a judgment:[28]
Nonetheless, the Commissioner argues that there is a danger of the removal of assets from the jurisdiction, which would have the effect of frustrating any judgment.
The existence of the danger, so the Commissioner argues in this case, is to be inferred from the evidence. Relying on the law as stated in Biscoe, the commissioner apparently accepts that '[s]olid evidence is required': see Biscoe, p 210 [6.20], quoting a passage from the judgment of Mustill J in Ninemia Maritime at All ER 406-7 ; WLR 406 , saying:
'It is not enough for the plaintiff to assert a risk that the assets will be dissipated. He must demonstrate this by solid evidence. This evidence may take a number of different forms. It may consist of direct evidence that the defendant has previously acted in a way which shows that his probity is not to be relied on. Or the plaintiff may show what type of company the defendant is (where it is incorporated, what are its corporate structure and assets, and so on) so as to raise an inference that the company is not to be relied on. Or again, the plaintiff may be able to found his case on the fact that the inquiries about the characteristics of the defendant have led to a blank wall. Precisely what form the evidence take will depend on the particular circumstances of the case. But the evidence must always be there. Mere proof that the company is incorporated abroad, accompanied by the allegation that there are no reachable assets in the United Kingdom apart from those which it is sought to enjoin, will not be enough.'(emphasis added)
[27] Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014.
[28] Deputy Commissioner of Taxation v Hua Wang Bank Berhad [10] ‑ [11].
The court took into account a range of evidence in reaching the view there was evidence supporting a finding of sufficient danger: that the respondents were foreign entities, each respondent had in the past been involved in transfer of significant moneys out of Australia; little information was known about the nature of the business activities of the respondents; each was experienced in setting up off shore tax structures and moving money between jurisdictions.[29]
[29] Deputy Commissioner of Taxation v Hua Wang Bank Berhad [56].
As these cases clearly reveal, it is not enough to assert there is no obligation to establish a positive intention to frustrate a judgment. In the absence of any such evidence, there must be some evidence from which the court can infer a danger as to disposition of assets before relief could be granted.
In this case, there is no cogent evidence from which I can infer any such danger. The defendant is not trading. Through its solicitors, it has denied any risk that it will dispose of the Proceeds (and I infer that means dispositions apart from for the purpose of Mr and Mrs Moore's ordinary living expenses and the defendant's legal fees). There is no history or pattern of disposition save for payment of what appear to be disclosed debts, ordinary expenses and legal fees.[30] It is not the purpose of O 52A to prevent the defendant from making such payments.[31] The mere fact that the Proceeds are the only asset that might be available to the plaintiff to meet a judgment in the event its claim against the defendant is successful is not of itself sufficient reason to freeze such Proceeds.
[30] Affidavit of Arthur Metaxas filed 8 September 2017.
[31] Iraqi Ministry of Defence v Arcepey Shipping Co [1981] 1 QB 65 as endorsed in Norilya Minerals Pty Ltd v Ireland (1994) 12 WAR 485, 487; Commissioner of Taxation v Manners & Terrule Pty Ltd (1985) 81 FLR 131, 136.
Against the backdrop of the explanation as to the circumstances of the grant of the Undertaking, the fact that its withdrawal was always permitted, the fact there was never a determination on the merits of the first application for a freezing order, the explanation as to the reason the Undertaking was withdrawn and the defendant's statement to the effect there is no risk of dissipation, I do not draw an inference adverse to the defendant to the effect that the Undertaking was withdrawn because it intended to dissipate the Proceeds. There is no evidence from which I could properly draw that inference.
Nor is this a case where the nature of the cause of action itself may suggest a risk of dissipation, in contrast, for example, to the circumstances explained in Vantage Holdings Group Pty Ltd v Donnelly.[32] The cause of action is breach of contract: there is no suggestion of fraud, dishonesty, breach of trust or the like.
[32] Vantage Holdings Group Pty Ltd v Donnelly [2016] WASC 311.
Good arguable case
In the circumstances, it is not necessary to decide whether the plaintiff has a good arguable case within the meaning of that expression in the context of O 52A. Had it been necessary to do so, I would have found the threshold was met.
There are practical limits on the extent to which the court can assess the merits of the respective cases at an interlocutory level, and particularly where, as in this case, both the plaintiff and the respondent seek to rely on expert evidence. Based on the submissions, live issues at trial will include the timing and reasonableness of steps taken by the plaintiff in order to meet conditions of the sale before the contract was terminated by the defendant, and an assessment of the value of any lost opportunity to develop the site, taking into account the prospect of acquiring an alternate development property. On the evidence currently before the court, it is not possible to assess the likelihood of success of the action. However, I am of the view that the claim is arguable and meets the minimum threshold of a good arguable case as those words have been described in the context of O 52A.[33]
[33] Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG (404); BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd [5].
Other discretionary factors
I do not accept the defendant's submission that the application has been brought for an improper purpose.
The plaintiff first applied for a freezing order well before issues as to a DOCA or litigation funding arose. It moved to re‑apply for a freezing order when the defendant notified the plaintiff that it was withdrawing the Undertaking. Presumably, the parties agreed to there being prior notice of the withdrawal of the Undertaking to facilitate the plaintiff applying to court for a freezing order if it elected to do so. At least, that was clearly the effect. In light of that, the application for a freezing order is not surprising.
I accept that on their face, the circumstances and terms of the DOCA give rise to serious questions. However, the Corporations Act provides for an application to be brought to set aside a DOCA.[34] It also provides a mechanism to challenge a resolution by which a DOCA has been accepted.[35] I do not have such an application before me and this is not the appropriate vehicle for addressing the veracity or otherwise of the DOCA.
[34] Corporations Act 2001 (Cth) s 445D, 445G: see also broad powers now under Schedule 2, Insolvency Practice Schedule, Division 90.
[35] Corporations Act 2001 (Cth), Schedule 2, Insolvency Practice Schedule, Division 75-41.
The fact that the DOCA provides for the question of litigation funding to be explored is not of itself surprising, given that the plaintiff is insolvent. The fact that the existence of a freezing order might make pursuit of the proceedings more attractive to a litigation funder is also not surprising. However, I do not consider the application is improper as a result. Again, it is to be borne in mind that a freezing order was first sought by the plaintiff well before the prospect of a DOCA or litigation funding arose.
Outcome
The plaintiff objected to certain paragraphs of the affidavit relied upon by the defendant on the ground of relevance. I have not relied upon those paragraphs in any event and it is not necessary to determine the objections. They do not affect the outcome.
The application for a freezing order is dismissed. I will hear the parties as to costs as required.
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