Macquarie Bank v Riley Street Nominees

[2005] NSWSC 162

CITATION:	Macquarie Bank v Riley Street Nominees [2005] NSWSC 162
HEARING DATE(S):	3 March 2005
JUDGMENT DATE :	3 March 2005
JURISDICTION:	Equity Commercial List
JUDGMENT OF:	Campbell J
DECISION:	Freezing orders, and disclosure orders subject to privilege against self-incrimination, made

CATCHWORDS:	PRACTICE - Mareva orders - how to take account of privilege against self-incrimination in asset disclosure orders - asset disclosure orders against a respondent who has been served but not appeared - purpose of Mareva orders - application of freezing Mareva orders to refinancing of existing liabilities - application of freezing Mareva orders to borrowings for legal purposes
LEGISLATION CITED:	Family Law Act 1975
CASES CITED:	ASIC v Rich (2003) 181 FLR 181 Karl Suleman Enterprizes Pty Ltd (in Liquidation) v Jessie George & Ors [2002] NSWSC 917 Pathways Employment Services Pty Ltd v West [2004] NSWSC 903 Ross v Internet Wines Pty Ltd [2004] NSWCA 195
PARTIES:	Macquarie Bank Limited - Plaintiff/Cross-Defendant to First Cross-Claim/Cross-Defendant to Second Cross-Claim/Applicant Riley Street Nominees Pty Ltd - First Defendant/First Cross-Claimant to First Cross-Claim Raymond Henry Aitken - Second Defendant/Second Cross-Claimant to First Cross-Claim Joseph Bardetta - Third Defendant/Cross-Claimant to Second Cross-Claim/First Respondent Colo Riverside Park Pty Limited - Fourth Defendant/Third Cross-Claimant to First Cross-Claim Abrolane Pty Limited - Fifth Defendant/Fourth Cross-Claimant to First Cross-Claim The Gallery at Wentworth Pty Limited - Sixth Defendant/Fifth Cross-Claimant to First Cross-Claim Ana Maria Bardetta - Second Respondent Harmonious Holdings Pty Ltd - Third Respondent
FILE NUMBER(S):	SC 50126/04
COUNSEL:	Dr A S Bell; P Kulevski - Plaintiff/Applicant No appearance - First Respondent/Third Respondent T G Feerick, solicitor - Second Respondent
SOLICITORS:	Clayton Utz - Plaintiff/Applicant No appearance - First Respondent/Third Respondent Frontier Law Group - Second Respondent

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY JUDGE LIST

CAMPBELL J

THURSDAY 3 MARCH 2005

50126/04 MACQUARIE BANK LTD v RILEY STREET NOMINEES PTY LTD & ORS

JUDGMENT – Ex Tempore

1 HIS HONOUR: This is the return of an application for Mareva relief, made in proceedings which Macquarie Bank began on 31 May 2004. Macquarie Bank had lent money which was guaranteed by Mr Bardetta, the third defendant in the proceedings. The proceedings seek, among other things, to enforce a guarantee against Mr Bardetta. The primary security which Macquarie Bank had for the loan has all been sold, and resulted in a shortfall.

2 The shortfall is expected to be of the order of $1.7 million as at May this year, the date when the trial is expected to come on for hearing.

3 Before the facility agreement was entered into, Mr Bardetta provided an asset and liability statement to Macquarie Bank, which showed that he had some real estate at Rushcutters Bay and Vaucluse. Last July Mr Bardetta transferred the real estate to his wife, by a transfer document in the form appropriate to be used for transfer without monetary consideration. The transfer effecting that change in ownership was not registered until January of this year. At present there is no explanation for that delay. It appears, from the face of the transfer, that the transfer was effected pursuant to orders made under section 79 of the Family Law Act 1975. The transfer does not state the date of those orders.

4 Section 79 of the Family Law Act 1975 has been construed as creating an obligation on an applicant for an order to notify third party creditors of any intention to seek an order in relation to property, where that creditor might be adversely affected by the order: ASIC v Rich (2003) 181 FLR 181, at [45]. No notification was given to Macquarie Bank of any application to the Family Court, which might result in the transfer of any of the assets of Mr Bardetta to Mrs Bardetta.

5 Macquarie Bank offers to the court an undertaking that it will take proceedings in the Family Court to set aside the orders resulting in the transfers to Mrs Bardetta.

6 Some of the property which was transferred to Mrs Bardetta was mortgaged, after it was transferred to her, to a company called Harmonious Holdings Pty Ltd, of which she is sole director. That company is one which was incorporated only after the transfers were made.

7 The proceedings against Mr Bardetta are ones wherein his defence admits the guarantee, and admits the debt guaranteed. His defence is to do with whether a term was incorporated into the borrowing arrangements, relating to whether an extension of time would be granted to the borrower. In these circumstances there is a prima facie case for the relief Macquarie Bank seeks from him.

8 From this recitation of the facts, one can see that the circumstances are ones which excite enquiry. It is, of course, impossible to know at this stage what the outcome of that enquiry will be. The enquiry that I say is excited is one concerning the circumstances in which the transfer from Mr Bardetta to Mrs Bardetta came to be made, and whether it was part of an attempt by Mr Bardetta to make himself judgment-proof. There is sufficient proof of a danger to assets against which Macquarie Bank might execute if it is successful.

9 The court's Mareva order jurisdiction is available to assist in ensuring that any orders which the court might make against Mr Bardetta, following the trial in May, are not defeated by assets being spirited away in a way which is not justified while those proceedings are pending. I am satisfied that the present is a circumstance where it is justifiable to continue the order against Mr Bardetta which was made on Monday which, in broad terms, freezes his assets, subject to the usual carve outs for a Mareva order concerning living expenses, legal expenses and the like.

10 Mr Bardetta has been served, but has not appeared today.

11 At the initial hearing of this matter, after some discussion of the principles in the Court of Appeal's decision in Ross v Internet WinesPty Ltd [2004] NSWCA 195; (2004) 60 NSWLR 436 and my decision in Pathways Employment Services Pty Ltd v West [2004] NSWSC 903; (2004) 212 ALR 140, Macquarie Bank did not press, at that stage, for any asset disclosure order against either Mr or Mrs Bardetta. Today it seeks such orders. As I understand the effect of Ross v Internet Wines, it is inappropriate to require an affidavit of assets - or indeed any affidavit whatever - to be brought into existence, in circumstances where the bringing into existence of that affidavit might result in the disclosure of information concerning which a claim of privilege is made.

12 In my view, the circumstances are such that it is appropriate to make against Mr Bardetta a disclosure order, of a limited kind, which requires him to give disclosure of his assets to the extent, and only to the extent, that such disclosure does not impinge upon any claim for privilege which he may make. Further, it seems to me to be appropriate to fix a time limit for the time during which he should be required to place before the court any material he wishes the Court to consider as providing the basis for any claim of privilege which he wishes to make, but to leave it to him to decide what material he wishes to place before the court in support of any such claim for privilege. The order which I shall make is drafted with those principles in mind.

13 As Mr Bardetta has not appeared today, there is no basis for me to know whether he might want to claim a privilege against self-incrimination. That he might want to do so is at this stage nothing more than an abstract possibility, which needs to be provided for in the terms of the order. I stress that I have formed no views at all on whether any criminal conduct has actually occurred.

14 The Court of Appeal in Ross v Internet Wines at [109], 453 of NSWLR stated that it is “generally undesirable” that mandatory orders be made ex parte. I shall assume that an asset disclosure order is an ex parte order within the meaning of this statement (even though the precise mandatory order that was under consideration in Ross v Internet Wines was, as appears from para [38] of the decision, an order requiring money to be paid into a certain bank account). I further note (as also appears in para [38] of the decision) that the order under consideration in Ross v Internet Wines was one made in the absence of the person against whom it was made, in circumstances where that party had written to the court saying he could not attend that day and asking for an adjournment – from which I infer that either he had been served, or had otherwise acquired knowledge of the application made against him. The statement in Ross v Internet Wines is not, however, a blanket prohibition against making mandatory orders in the absence of a party; it is an empirical generalisation, that such orders are “generally undesirable”. The application of that general statement to the particular circumstances of an asset disclosure order needs to be considered. In my view, Macquarie Bank was right in not pressing for an asset disclosure order to be made when it first approached the Court for relief, before Mr Bardetta had been served. I do not say that an asset disclosure order, even of the limited type which preserves the privilege against self-incrimination, should never be made before the person against whom it is sought has been served, but it would take a particularly strong case of dire and immediate risk of assets being spirited away before it would be likely to be appropriate. This was not such a case. However, once a person against whom an asset disclosure order is sought has been served, the situation is different. If the Ross v Internet Wines statement applied to prevent the making of an asset disclosure order in such circumstances, a respondent could avoid an asset disclosure order being made against him by choosing to stay away from court, and would thereby frustrate the exercise of the Mareva jurisdiction. I doubt that that could be the law. Whether an asset disclosure order should actually be made against a respondent who has been served but not appeared depends, of course, on forming an assessment of all the relevant circumstances.

15 Mrs Bardetta has appeared today, by her solicitor. She opposes in principle the making of any disclosure order against her. Her solicitor submits that if Macquarie Bank thinks it has a case against her, it should prove it on the evidence it has. In my view, that submission mistakes the nature of a Mareva order. The purpose of the order is to ensure that the Court’s processes are not frustrated, insofar as there is an action already on foot by Macquarie Bank against Mr Bardetta. For the purpose of ensuring any orders it might make against Mr Bardetta are not frustrated, in circumstances where there has been a property transfer which is the cause for enquiry, as happens in the present case, it is appropriate for there to be disclosure of assets, so that, if it were to turn out that assets of Mr Bardetta have improperly been transferred to Mrs Bardetta, Macquarie Bank will be in a position where it does not lose access to those assets. It is solely for the purpose of protecting the position, against a future eventuality which cannot be known at this stage, that the orders are made. It is, however, appropriate, in my view, so that Macquarie Bank is in a position to know what has become of the equity in the property which was transferred to Mrs Bardetta, for a disclosure affidavit to be made by her. It should, of course, be one which is within the confines aimed at protecting any privilege against self-incrimination which she might have which I have earlier outlined concerning Mr Bardetta.

16 Macquarie Bank applies to have Harmonious Holdings Pty Ltd joined as a respondent to the notice of motion. In my view, given the role it has played in the transaction which I have earlier outlined, it is appropriate that it be so joined. I understand that, if the court decides it is appropriate for Harmonious Holdings to be joined, Mrs Bardetta’s solicitor is instructed to treat the service which has already been effected on Mrs Bardetta as being service upon that company.

17 There are three practical problems which Mrs Bardetta's solicitor has raised concerning the drafting of the orders which freeze Mrs Bardetta's assets. The first of them is that a refinancing of some of the property is due in May. The orders, in the form in which they were made on the first occasion, could impose some practical difficulties on that refinancing.

18 Mareva orders are not designed to stop one mortgagee at arms length from the mortgagor being substituted for another, in relation to some particular amount of borrowing. Rather, they are designed to preserve the equity which the owner of the property has in it. No form of words was suggested to me today which would allow such a refinancing. The absence of a form of such words today is not a reason for declining to make the freezing order at all. Once there is a specific refinancing transaction which Mrs Bardetta wishes to enter, or general form of words which permits refinancing which she wants to include, if Macquarie Bank does not agree to a modification of the orders to make clear that a refinancing, of no more than the existing debt, is permitted, then the matter can be brought back to Court. I shall reserve liberty to enable that to be done.

19 As well, there is a concern raised by Mrs Bardetta about the means whereby she would be able to raise moneys for her legal defence, consistently with the orders. Her solicitor expresses concern that a person or institution approached to lend money to her for that purpose may decide it was too hard to police whether any borrowings she made were really for the purpose of her defence, and refuse to lend to her at all. I see no reason why a regime cannot be worked out which enables money to be borrowed, and paid into a solicitor’s trust account, on the basis that it will be used only for certain specified purposes (cfKarl Suleman Enterprizes Pty Ltd (in Liquidation) v Jessie George & Ors [2002] NSWSC 917). The detail of any such regime is one which is a matter of drafting. I propose to reserve liberty to apply to modify the orders to enable such a regime to be put in place.

20 Another objection which Mrs Bardetta makes is that the dealings with her assets are restricted up to a value of $1.733 million. That amount is one which is the amount of the judgment which Macquarie Bank expects it will have again Mr Bardetta in May, if it succeeds in its case against him. Even if it be correct - and there is no evidence about this at the moment - that Mrs Bardetta's assets are in total less than this sum, it is still appropriate to include this limitation in the order, because it fixes an amount beyond which Macquarie Bank could have no interest in any asset of hers. Insofar as she has assets of value less than $1.733 million, her ability to deal with those assets for ordinary purposes is preserved by carve outs in the order relating to legal expenses, living expenses, and the like.

21 I indicate that I shall make orders in the form of the draft which has been submitted to me, substituting for order 5 in that draft the following:

“In the event that the first or second respondent or deponent on behalf of the third respondent considers that compliance with orders 3 and 4 above may incriminate him or her, the first, second and third respondents shall file and serve within seven days an affidavit setting out such matter as the deponent wishes to place before the court in support of any claim that a privilege against self-incrimination exists. In the event that a claim for privilege is made by a respondent or by a deponent on behalf of the third respondent, that respondent need comply with orders 3 and 4 only to the extent, if any, which is possible without disclosing material concerning which the privilege is claimed”.

22 I shall add to the short minutes of order a further order expressly stating:

“I reserve liberty to apply to modify these orders if refinancing of any mortgage is required, or to establish a regime to enable a respondent to raise and expend money for the purpose of paying legal fees”.

23 I shall also order that the contents of any disclosure affidavit made by a respondent shall not be disclosed save to the legal advisers of the plaintiff without further order of the court. The intent of that last mentioned order is to make sure that, when disclosure is made in a compulsory fashion of someone's assets, the information goes no further than is needed for the purpose of the Mareva order.

24 There is one matter which remains, concerning an exception from the orders of money in a particular bank account which Mrs Bardetta has, and which she wishes to have unrestricted access to. While the parties are ad idem about the principle that she should have access to that money, they still need to carry out the drafting to enable that exception to be made.

25 I stand the matter down to enable that drafting to occur. When it has, I shall make orders in the form indicated.

**********