Rafferty v Time 2000 West Pty Ltd (No 2)

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FEDERAL COURT OF AUSTRALIA

Rafferty v Time 2000 West Pty Limited (No 2) [2008] FCA 1931

PRACTICE AND PROCEDURE – freezing orders – whether applicant has good arguable case on accrued cause of action against respondents – whether danger prospective judgment in favour of applicants against respondents will remain unsatisfied or partly unsatisfied if recovery restricted to assets of respondents – whether process is or may be available to applicants as consequence of judgment against respondents pursuant to which third party may be obliged to disgorge property or otherwise contribute to funds or property of respondents to help satisfy judgment against respondents – where properties potential subjects of freezing orders held by third parties as trustees for trusts – where fifth respondent is potential beneficiary under discretionary trust

Held: freezing order should be made – fact that fifth respondent only potential beneficiary and therefore not holder of proprietary interest does not take case outside scope of relevant principles.

Federal Court of Australia Act 1976 (Cth) s 23
Federal Court Rules O 25A rr 5, 6
Trade Practices Act 1974 (Cth)
Trade Practices (Industry Codes — Franchising) Regulations 1998 (Cth)
Franchising Code of Conduct cll 3(1), 4

Audio Products Group Pty Ltd v Mamone [2005] NSWSC 982 referred to
Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509 referred to
Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 applied
Gartside v Inland Revenue Commissioners [1968] AC 553 referred to
Hunt v Muollo [2003] 2 NZLR 322 referred to
In re Coleman; Henry v Strong (1888) Ch D 443 referred to
In re Weir’s Settlement Trusts; Macpherson v Inland Revenue Commissioners [1971] Ch 145 referred to
Jackson v Sterling Industries Ltd (1987) 162 CLR 612 referred to
Robmatjus Pty Ltd v Violet Home Loans Australia Pty Ltd [2007] VSC 165 referred to
Westpac Banking Corporation v Hilliard [2001] VSC 187 referred to

PATRICK CAMPBELL RAFFERTY, SANTORA HOLDINGS PTY LIMITED ACN 128 467 550 and KARAVILLE HOLDINGS PTY LIMITED ACN 009 439 178 v TIME 2000 WEST PTY LIMITED ACN 127 893 270, TIME 2000 SYSTEMS (AUSTRALIA) PTY LIMITED ACN 127 853 614, TIME 2000 OPERATIONS (AUSTRALIA) PTY LIMITED ACN 128 700 541, EMBLETON LIMITED (A COMPANY INCORPORATED IN HONG KONG) and STEPHEN GERARD DONOVAN

SAD 122 of 2008

BESANKO J
17 DECEMBER 2008
ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

SAD 122 of 2008
BETWEEN:

PATRICK CAMPBELL RAFFERTY
First Applicant

SANTORA HOLDINGS PTY LIMITED ACN 128 467 550
Second Applicant

KARAVILLE HOLDINGS PTY LIMITED ACN 009 439 178
Third Applicant
AND:

TIME 2000 WEST PTY LIMITED ACN 127 893 270
First Respondent

TIME 2000 SYSTEMS (AUSTRALIA) PTY LIMITED ACN 127 853 614
Second Respondent

TIME 2000 OPERATIONS (AUSTRALIA) PTY LIMITED ACN 128 700 541
Third Respondent

EMBLETON LIMITED (A COMPANY INCORPORATED IN HONG KONG)
Fourth Respondent

STEPHEN GERARD DONOVAN
Fifth Respondent

JUDGE:

BESANKO J

DATE OF ORDER:

17 DECEMBER 2008

WHERE MADE:

ADELAIDE

THE COURT ORDERS THAT:

1.The parties have leave to…

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Details
Case
[2008] FCA 1931
Decision Date

CaseChat Overview and Summary

Rafferty, represented by the applicants, brought a motion in the Federal Court of Australia against Time 2000 West Pty Ltd and others, seeking orders for the freezing of certain property proceeds and asset disclosure from specific respondents. Rafferty sought an order that Gemhall Holdings Pty Limited and Time 2000 Pty Limited pay the proceeds of any sale of the property located at Level 1, 529 Chapel Street, South Yarra, and 291 Beaconsfield Parade, Middle Park, into an interest-bearing account. Rafferty also sought an order restraining the respondents from disposing of or otherwise dealing with the moneys in the accounts unless the total exceeded $1.7 million. Rafferty further sought an order that the second to fifth respondents disclose the assets owned by each available to meet a judgment in Rafferty's favour.

The legal issues before the court included the appropriateness of issuing freezing orders to prevent the dissipation of assets and whether the respondents should disclose their assets to meet a potential judgment in Rafferty's favour. The court had to consider the evidence presented by Rafferty and the respondents, which included the ownership of the properties, the financial transactions involving the properties, and the necessity for the freezing orders.

The court determined that the freezing orders were appropriate given the evidence of financial transactions and the necessity to prevent the dissipation of funds. The court found that the proceeds of the sale of the specified properties should be held in an interest-bearing account to ensure they were available to satisfy any judgment in Rafferty's favour. Additionally, the court concluded that the respondents should disclose their assets to provide clarity on their financial position and ability to meet a potential judgment. The court made the orders sought by Rafferty, subject to any further submissions by the respondents regarding the form of the orders.

Orders

Orders of the court

1. The parties have leave to make further submissions, if so advised, on the form of the orders sought by the applicants in their notice of motion dated 5 December 2008.

Note:

Background

Background to the litigation

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Evidence

Evidence Before The Court

On 5 December 2008 the applicants issued a notice of motion seeking orders to the effect of the following (relevantly):1.that Gemhall Holdings Pty Limited ACN 065 106 381 pay the proceeds of any sale of the property described in Victorian Certificate of Title Volume 10362 Folio 393 being property situated at Level 1, 529 Chapel Street, South Yarra in the State of Victoria, net of the amount (if any) required to discharge any mortgage and net of all usual costs incurred in the course of sale, into an interest bearing account;2.that Time 2000 Pty Limited ACN 079 316 224 pay the proceeds of any sale of the property described in Victorian Certificate of Title Volume 8193 Folio 672 being property situated at 291 Beaconsfield Parade, Middle Park in the State of Victoria, net of the amount (if any) required to discharge any mortgage and net of all usual costs incurred in the course of sale, into an interest bearing account;3.in respect of the above orders, that Gemhall Holdings Pty Limited ACN 065 106 381 and Time 2000 Pty Limited ACN 079 316 224 respectively, by themselves, their directors, officers, employees, agents or otherwise, be restrained until further order from disposing of or otherwise dealing with the moneys in the accounts the subject of those orders (save and to the extent, if any, that the total of those moneys exceeds $1.7 million, in which case the balance of those moneys above $1.7 million is not to be the subject of this order); and4.that the second to fifth respondents inclusive file affidavits within seven days disclosing the assets owned by each of them available to meet a judgment in favour of the applicants.The evidence The evidence put forward by the applicants in support of their application establishes the following matters: 1.The respondents do not own any real property within Victoria. 2.The property at Level 1 (Lot 5), 529 Chapel Street, South Yarra, Victoria (“Chapel Street property”) is owned by Gemhall Holdings Pty Limited (“Gemhall Holdings”) and the property at 291 Beaconsfield Parade, Middle Park, Victoria (“Beaconsfield Parade property”) is owned by Time 2000 Pty Limited (“Time 2000”). 3.The Chapel Street property was advertised for sale by auction, and the date for the holding of the auction was 11 December 2008. The Beaconsfield Parade property was advertised for sale, and in the advertisement it was said that expressions of interest closed on 10 December 2008. The advertisement referred to the fact that the property is a beachfront property and that in relation to the property there is an approval to build three waterfront residences.4.In terms of the $1.7 million paid to the respondents by the applicants, the solicitors for the respondents paid $250,000 to each of Time 2000 and Gemhall Holdings on or about 31 December 2007. 5.Mr Donovan is the sole director of Time 2000 and Gemhall Holdings is the sole shareholder. Mr Donovan is the sole director and shareholder of Gemhall Holdings. The evidence put forward by the respondents in response to the application establishes the following matters. 1.By trust deed dated 6 April 1994, the Stephen Donovan Family Trust was established. The founder was Mr Bruce Heaney, and the trustee of the trust is Gemhall Holdings. The trust is a discretionary trust and the beneficiaries include Mr Donovan, his parents, any future spouse and child or children of Mr Donovan, any charity and any school, body, institution, corporation or foundation established for education purposes. Mr Donovan is named in the Trust Deed as the appointor. 2.On 6 February 1998, Gemhall Holdings, as trustee for the Stephen Donovan Family Trust, purchased the Chapel Street property. On 29 October 2007, Gemhall Holdings, as trustee for the Stephen Donovan Family Trust, entered into a mortgage with Perpetual Trustee Company Limited. In October 2007, Gemhall Holdings, as trustee for the Stephen Donovan Family Trust, commenced to lend moneys to T2S, and the loans totalled approximately $310,000. The payment of $250,000 made on 31 December 2007 was a partial repayment of the loans. Gemhall Holdings is required to sell the Chapel Street property in order to raise money to pay the mortgage to Perpetual Trustee Company Limited. The mortgage is currently paid until December 2008. Gemhall Holdings will be unable to pay the mortgage beyond December 2008 if the property is not sold. If the property is sold, the deposit money will be sought to be released to be used to continue paying the mortgage until settlement of the sale.3.By trust deed dated 1 April 2004, a trust called the Diamanti Trust was created. The trust is a unit trust and the trustee is Time 2000. The only unit holder is Gemhall Holdings, and it holds its 100 units as trustee for the Stephen Donovan Family Trust. 4.On 13 December 2004, Time 2000, as trustee of the Diamanti Trust, purchased the Beaconsfield Parade property. On 8 October 2000, Time 2000, as trustee for the Diamanti Trust entered into a mortgage in the sum of $1.8 million (approximately) with the Commonwealth Bank of Australia, secured by the Beaconsfield Parade property. The funds advanced by the Commonwealth Bank of Australia were used for the purpose of servicing and repaying loans owed by the trust. In October 2007, Time 2000, as trustee for the Diamanti Trust, commenced to lend moneys to T2S and the loans totalled approximately $310,000. These moneys were advanced for the purpose of funding the business operations of T2S. The sum of $250,000 paid to Time 2000 on 31 December 2007 was a partial repayment of the loans. 5.On 24 November 2008 a letter was sent to those who had expressed interest in the Beaconsfield Parade property, advising that the vendor had decided to develop townhouses on the property and that the townhouses would be sold “off the plan”. Construction works must begin on the Beaconsfield Parade property by November 2009, otherwise the planning permit will lapse. If no offers are received for the purchase of the townhouses, Time 2000 will consider other options including the sale of the Beaconsfield Parade property. 6.On or about 10 or 11 December 2008, Mr Donovan’s fiancée, Ms Kamila Runkowska, was appointed a director of each of Gemhall Holdings and Time 2000, and she replaced Mr Donovan as the appointor under the Stephen Donovan Family Trust. Ms Runkowska has sworn an affidavit saying that at all material times she has acted, and will continue to act, independently of Mr Donovan, and that her role as director and appointor is not subject to the control or direction of Mr Donovan. Mr Donovan states in his affidavit that the appointments were made:… in order to remove any perceived influence which any Respondent may have over the proceeds from the sale of the properties, I have ceased acting as the appointor of the Family Trust. Kamila Runkowska (“Ms Runkowska”), my fiancé [sic], is now the appointor of the Family Trust. Ms Runkowska has also been appointed as a director of Gemhall and Time 2000. Ms Runkowska is independently advised and has obtained legal advice as to her obligations as a director and an appointor of the Family Trust.The law

Decision

Reasons for decision

BESANKO J
In addition to the freezing orders, I think it is appropriate to make the ancillary orders.Conclusion I will make the orders sought by the applicants, subject to any submissions the respondents wish to make as to the form of the orders.

Ratio Decidendi

Legal Principle Established

Established by: BESANKO J

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