Pico Holdings Inc v Dominion Capital Pty Ltd

[2001] VSC 313

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 6630 of 2001

PICO HOLDINGS INCORPORATED	Plaintiff
V
DOMINION CAPITAL PTY. LTD.	Defendant

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JUDGE:	BONGIORNO, J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	20 AUGUST 2001
DATE OF JUDGMENT:	20 AUGUST 2001
CASE MAY BE CITED AS:	PICO HOLDINGS INC. v. DOMINION CAPITAL PTY. LTD.
MEDIUM NEUTRAL CITATION:	[2001] VSC 313

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CATCHWORDS:     Injunction – Mareva order – Third party – Liability to Mareva order.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr. M. Pearce	Gilbert & Tobin
For the Defendant	Mr. J. Styring	Malleson Stephen Jaques

HIS HONOUR:

1. By a writ issued out of this court on 9 July 2001 Pico Holdings Incorporated made a claim against Dominion Capital Pty Ltd for amounts owing under two promissory notes totalling, in all, US$2.2 million together with interest and costs.  An appearance has been entered on behalf of the defendant and this summons comes before the court for orders, commonly referred to as Mareva orders, seeking restraints on the dealing with its property of the defendant and of two directors of the defendant, Peter David Voss and Katherine Mary Voss.  The application in respect of Katherine Voss is not now pressed and, accordingly, will be dismissed at the outset.

1. Beach J in the Practice Court, had earlier made an order in these terms:

"Until further order the defendant, whether by itself or its servants or agents, shall be restrained from disposing of or dealing with any of its assets other than in the ordinary course of its business and from meeting legal expenses and save to a maximum of $150,000 per week". 

That order was made on 1 August and varied on 15 August to the form which I have just recited.

1. The summons, which now comes before me for determination, is for an interlocutory order in similar terms binding not only the defendant, Dominion Capital Pty Ltd but also Peter David Voss in respect of his assets.

1. So far as the defendant is concerned, it is prepared to consent to an order in similar terms to that made by Beach J but without any maximum expenditure limit per week and with some differences in wording.  However, Mr Styring, who appeared on behalf not only of the defendant but also Peter David Voss, contested the application on behalf of Mr Voss.

1. I deal firstly with the application against the defendant.

1. It seems to me that having regard to the concession made by the defendant and to the fact that the balance sheet of the defendant appears, on its face, to be less than frank as to its liabilities including a liability apparently not disputed in respect of one of the promissory notes (although I hasten to add Mr Styring says that there is an explanation for such omission) it seems appropriate that a Mareva order should broadly go in the terms suggested by Mr Styring but with a monetary limit of $75,000 per week.  Accordingly, upon the usual undertaking as to damages being given, I will order as follows :-

Until the final hearing and determination of this proceeding or further order, the defendant, whether by itself or by its servants or agents, shall be and is hereby restrained from selling, assigning, transferring or disposing of any of its assets other than for the bona fide payment of its arm's length creditors in the ordinary course of business, or for the payment of reasonable legal costs incurred to a maximum total of $75,000 per week.

1. So far as the application against Mr Voss is concerned, Mr Pearce, who appeared for the plaintiff, relied upon the High Court decision in Cardile v L.E.D. Builders Pty Ltd[1] and in particular on the statement made by the majority, (Gaudron, McHugh, Gummow and Callinan JJ) at p.405 in the following terms:

   [1](1999) 198 C.L.R. 380

"What then is the principle to guide the courts in determining whether to grant Mareva relief in a case such as the present where the activities of third parties are the object sought to be restrained?  In our opinion such an order may, and we emphasis the word 'may', be appropriate, assuming the existence of other relevant criteria and discretionary factors in circumstances in which; (1) 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, (2) 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 the 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."

The phrase "claims and expectancies", which appears in this passage, is derived from a judgment of Deane J in Jackson v. Sterling Industries Ltd[2].  Reference to Deane J's judgment in that case makes it clear that the first part of the principle expounded by the High Court in Cardile relates to property which belongs to the potential judgment debtor.  In Jackson's case (which was a case involving the jurisdiction of the Federal Court to grant Mareva relief generally and in particular its jurisdiction to require the payment of money into court pending the determination of proceedings) Deane J said in respect of the purpose of an order for the preservation of a defendant's assets pending judgment:

"It is to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action."

Mr Pearce argued that Mr Voss' relationship to the company and the fact that he was a creditor of the company in a very large amount placed him in the position of being a third party who exercised or was exercising a power of disposition over or was otherwise in possession of assets (including claims and expectancies) of the potential judgment debtor.  However, it seems to me this proposition misconceives the first principle enunciated by the majority in Cardile.

[2](1987) 162 C.L.R. 612at 625

1. A director of a company, when he disposes of the property of the company in the company name, does so as the company itself, not as a third party using the property of the company or exercising a power of disposition over it in his own right.  Nor does the fact that he is a large creditor of the company himself mean that he has any particular power over any "claims and expectancies" of the company as referred to in that first principle.

1. Accordingly it seems to me that Mr Voss does not fall within the first of the principles enunciated by the majority in Cardile.

1. Mr Pearce, in the alternative, argued that Mr Voss fell within the second of the two principles enunciated in Cardile by reason of the fact that in one of the promissory notes upon which the action is brought, he made a representation that a certain asset of the potential judgment debtor was unencumbered.  As, on a prima facie basis at least, Mr Pearce was able to demonstrate that that asset probably was in fact encumbered, the representation contained in the document was arguably false.

1. Mr Pearce then said that if such a representation was false it would give rise to a cause of action under the Trade Practices Act 1974 in the present plaintiff against Mr Voss by reason of the accessory liability provisions of that Act.

1. However, once again I find it impossible to relate such a potential claim, if it exists, to the principle enunciated in Cardile.  It seems to me that the second limb of that principle is concerned with the assets of the potential judgment debtor.  What it is seeking to do is to prevent a third party, against whom a Mareva order might be made, from interfering with the assets of the potential judgment debtor in such circumstances that the potential judgment debtor (or someone standing in its or his shoes, such as a liquidator, trustee in bankruptcy or the like) would be able to require, either at law or inequity, disgorgement of property acquired by the third party from or on behalf of the potential judgment debtor.  What the High Court was getting at was the proposition that a court could restrain a third party in circumstances where subsequently, perhaps upon the liquidation of the potential judgment debtor or upon his bankruptcy if an individual, the liquidator or trustee in bankruptcy could effectively use the processes of the courts to regain possession of assets removed by the third party from the potential judgment debtor at an earlier time.

1. Accordingly, it seems to me that on neither ground set out in the majority judgment of Cardile does Mr Pearce succeed in his application for Mareva relief against Mr Voss.  For those reasons the claim in respect of Mr Voss will be dismissed.

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