Rhodes v De Castro - [2021] WASC 262

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   RHODES -v- DE CASTRO [2021] WASC 262
CORAM:   HILL J
HEARD:   27 JULY 2021
DELIVERED          :   27 JULY 2021
PUBLISHED           :   3 AUGUST 2021
FILE NO/S:   CIV 1721 of 2021
BETWEEN:   DAMIEN TERENCE MICHAEL RHODES
First Plaintiff
ROSS EDWARD CARGEEG
Second Plaintiff
AND
GUI JORGE DA COSTA NAPOLEAO DE CASTRO
First Defendant
PMM GROUP PTY LTD
Second Defendant
MY TWO BOYS (AUST) PTY LTD
Third Defendant

Catchwords:

Practice and procedure - Application for freezing order - Ex parte application - Where there is a risk of removal or dissipation of assets - Where there is misleading or dishonest representations as to the ownership of assets - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 52A

Result:

Application for freezing order granted

Category: B

Representation:

Counsel:

First Plaintiff	:	Mr C S Gough
Second Plaintiff	:	Mr C S Gough
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	No appearance

Solicitors:

First Plaintiff	:	Mills Oakley
Second Plaintiff	:	Mills Oakley
First Defendant	:	In person
Second Defendant	:	In person
Third Defendant	:	In person

Case(s) referred to in decision(s):

Ailakis v Olivero [No 2] [2014] WASCA 127; (2014) 100 ACSR 524
Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380
Deputy Commissioner of Taxation v Winter (1988) 92 FLR 327
Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49
Jackson v Sterling Industries Ltd [1987] HCA 23;(1987) 162 CLR 612
Perdaman Chemicals & Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2011] WASC 188
Perth Mint v Mickelberg (No 2) [1985] WAR 117
Rimex Wheel Pty Ltd v Wulff [2018] WASC 180

HILL J:

(This judgment was delivered extemporaneously and has been edited from the transcript)

The plaintiffs filed a writ of summons in this court on 23 July 2021, endorsed with an indorsement of claim. The plaintiffs' causes of action arise in respect of three separate oral agreements for the purchase or transfer of shares in PYX Resources Limited (PYX Resources) and Sprintex Limited from the first and third defendants to the plaintiffs. The plaintiffs allege that the first and third defendants have failed to transfer the shares in accordance with these agreements.
The first plaintiff also alleges that the first and third defendants' conduct in providing him with financial product advice was misleading or deceptive or alternatively, likely to mislead or deceive, contrary to s 4 and s 18 of the Australian Consumer Law.
On 23 July 2021, the plaintiffs also filed a chamber summons for a freezing order. In support of their application, the plaintiffs rely on three affidavits: an affidavit of each of the plaintiffs together with an affidavit of Ms Meriel Louise Steadman, a partner at Mills Oakley, the solicitors for the plaintiff, all filed on 23 July 2021.
The application was supported by an undertaking as to damages, and I have also had the benefit of an outline of submissions, both filed on 23 July 2021.
This application has come on before me on an urgent ex parte basis. The plaintiffs sought a waiver of the requirements of O 59 r 9 of the Rules of the Supreme Court 1971 (WA) (Rules). In the circumstances of this case as set out in the affidavits that have been filed in support of the application, I am satisfied that it is appropriate to grant the waiver that has been sought.
I note that at the hearing of the application only the plaintiffs' version of the facts was before me. In determining the application, I have accepted the version of facts set out in the supporting affidavits. In my view, this evidence meets the test set out in O 52A of the Rules. However, in coming to this conclusion, I am not making any findings of fact, nor is it necessary for me to do so. Nothing in these reasons should be taken as amounting to any final or conclusive finding of fact.
I note from the outset that a freezing order is a drastic remedy. However, for the following reasons, I consider that it is appropriate to grant a freezing order, but of short duration. The defendants will have a full opportunity to contest the continuation of the freezing order or raise any other matter on the return date of the application.

Legal principles

The plaintiffs' application is made pursuant to O 52A r 5 of the Rules. This relevantly provides as follows:
(1)This rule applies if -
…
(b)an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in -
(i) the Court; …
(4)The Court may make a freezing order or an ancillary order or both against a … prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a … prospective judgment will be wholly or partly unsatisfied because …
(b)the assets of the … prospective judgment debtor … are -
…
(ii) disposed of, dealt with or diminished in value.
The purpose of a freezing order is to prevent frustration or abuse of the process of the court, not to provide security in respect of a judgment or order, nor to substitute for the use and methods of execution.[1]
[1] Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 [43], referring to Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612, 626, 633, 637 and Deputy Commissioner of Taxation v Winter (1988) 92 FLR 327, 328 - 331.
Before the discretion to make a freezing order is enlivened I must be satisfied that first, the plaintiffs have a good arguable case against the defendants on either an accrued or prospective cause of action that is justiciable in the court, and second, that there is a danger that the prospective judgment will be wholly or partly unsatisfied because assets of the defendants might be removed or otherwise disposed of, dealt with or diminished in value.
The remedy is discretionary. The strength of the plaintiffs' case, the danger of frustration of a prospective judgment, the balance of convenience and any other relevant discretionary factors are all considered together in the exercise of the discretion whether to grant the orders sought.[2]
[2] Perdaman Chemicals & Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2011] WASC 188 [142], citing Perth Mint v Mickelberg (No 2) [1985] WAR 117, 119; Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49, 54 - 55.

Plaintiffs' case

Mr Rhodes' evidence is that, since about 2018, the first defendant has been his financial advisor.[3] He pays an annual sum for the first defendant's advice on shares that he should consider purchasing.[4] The invoices that have been issued to the first plaintiff are in evidence before me. I note that the invoices have not been issued by the same entity. The first invoice was issued by PMM Wealth Advisors Pty Ltd and the second by PMM Financial Services Pty Ltd.[5] The second invoice is for services provided in the year 1 August 2020 until 31 July 2021.
[3] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [8].
[4] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [7], [9].
[5] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [10] – [11], 'DTMR-03', 'DTMR-04'.
Mr Rhodes' evidence is that he understood that he engaged the first defendant on behalf of the second defendant.[6]
[6] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [13].
In about September 2020, Mr De Castro first spoke to Mr Rhodes about purchasing shares in PYX Resources.[7] At that stage Mr Rhodes told him that he was not interested in purchasing shares as he has had trouble with investments in Indonesian companies previously.
[7] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [14].
A couple of weeks later, Mr De Castro said to Mr Rhodes words to the effect 'PYX Resources, that company I recommended you buy shares in, I have got shares in escrow and can give them to you for 40 cents per share'. Mr Rhodes responded, 'Okay'.[8]
[8] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [16].
In or around early October 2020, Mr De Castro said to Mr Rhodes that he would transfer the shares in PYX Resources to him from his company My Two Boys (Aust) Pty Ltd (My Two Boys) on 28 February 2021.[9]
[9] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [18].
On 6 October 2020, Mr Rhodes gave Mr De Castro a cheque for $170,000 payable to My Two Boys and on 3 November 2020 he gave Mr De Castro another cheque for $300,000 to the same payee. In about October 2020, Mr Rhodes attended the offices of the PMM Group, met with Mr De Castro and signed two off market transfer forms for the purchase of 1.175 million shares in PYX Resources.[10]
[10] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [19] – [20].
In the same month, Mr De Castro said that he would pay Mr Rhodes a bonus of shares to the value of $50,000 in Sprintex Limited if he found investors who purchased shares in PYX Resources.[11] Mr Rhodes' evidence is that he introduced two investors to PYX Resources, being Ms Isabella Rhodes and the second plaintiff. However, Mr Rhodes did not receive the shares in Sprintex Limited on 5 November 2020, or at all.[12]
[11] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [21].
[12] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [22] – [30].
In October 2020, the first plaintiff spoke with the second plaintiff about purchasing shares in PYX Resources. The second plaintiff agreed to purchase shares at 40 cents per share to the value of $50,000, with the share transfer taking place on 28 February 2021.[13] Between 21 and 23 October 2020, the second plaintiff transferred $50,000 in three tranches to a bank account of My Two Boys.
[13] Affidavit of Ross Edward Cargeeg filed 23 July 2021 [7] – [8], 'REC-01' – 'REC-03'.
On or about 3 November 2020, the second plaintiff spoke to Mr De Castro who said to him that if he purchased additional shares in PYX Resources to the value of $60,000 he would transfer a bonus to him of shares to the value of $30,000 in Sprintex Limited at no cost. The second plaintiff agreed to this.[14] Between 2 and 5 November 2020, the second plaintiff transferred another $60,000 to the bank account of My Two Boys.[15] Despite transferring these funds, he has not received the shares in Sprintex Limited.[16]
[14] Affidavit of Ross Edward Cargeeg filed 23 July 2021 [9].
[15] Affidavit of Ross Edward Cargeeg filed 23 July 2021 [10] – [11], 'REC-05' – 'REC-07'.
[16] Affidavit of Ross Edward Cargeeg filed 23 July 2021 [13].
On 28 February 2021, Mr Rhodes did not receive the shares in PYX Resources. His evidence is that he was not concerned at that stage as he was aware that Mr De Castro was busy with the proposed listing.[17] Between 22 March 2021 and 3 June 2021, Mr Rhodes exchanged various text messages with Mr De Castro regarding the share transfers, in which Mr De Castro repeatedly promised to transfer the shares in PYX Resources to him.[18]
[17] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [33] – [34].
[18] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [35] – [58].
On 4 May 2021, the second plaintiff received 275,000 shares in PYX Resources but has still not received shares in Sprintex Limited.[19]
[19] Affidavit of Ross Edward Cargeeg filed 23 July 2021 [14].
On 23 June 2021, the plaintiffs' solicitors issued a formal notice of demand to PMM, marked to the attention of Mr De Castro, demanding transfer of the shares.[20] On 5 July 2021, a further letter of demand was sent to the second defendant, PMM Group Pty Ltd (PMM Group) and its directors, alleging that Mr De Castro's conduct was in breach of s 18 of the Australian Consumer Law.[21] The plaintiffs' solicitors have not received any substantive response to their correspondence. The only correspondence they have received is from another director saying that he was no longer a director of the PMM Group.[22]
[20] Affidavit of Meriel Louise Steadman filed 23 July 2021 [5], 'MLS-01'.
[21] Affidavit of Meriel Louise Steadman filed 23 July 2021 [7], 'MLS-02'.
[22] Affidavit of Meriel Louise Steadman filed 23 July 2021 [8], 'MLS-04'.
On 21 July 2021, Mr Rhodes attended the share registry of PYX Resources with his solicitor to attempt to register the off market transfer.[23] Mr Rhodes was unable to register the transfer as it was a CHESS security and had to be processed by a stockbroker. While he was there, Mr Rhodes and his solicitor had a conversation with Mr Wall who informed them that the shares the subject of the off market transfer form had been transferred on 21 May 2021, that the account had only ever held a maximum of 500,000 shares, and that the account balance was currently zero.[24]
[23] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [56], [59].
[24] Affidavit of Damien Terence Michael Rhodes filed 23 July 2021 [72] – [73], [76].

Claims against the defendants

The plaintiffs' claims against the defendants are based on oral agreements between each of them and the first defendant on behalf of the third defendant.
Mr Rhodes contends that Mr De Castro and My Two Boys have breached the oral agreement in failing to transfer the 1.175 million shares in PYX Resources on 28 February 2021 or since then, or shares to the value of $50,000 in Sprintex Limited by 5 November 2020 or at all.
The second plaintiff alleges that Mr De Castro and My Two Boys have breached the oral agreement to transfer shares in Sprintex Limited to the value of $30,000 by 5 November 2020 or at all.
The first plaintiff also claims that the first defendant, on behalf of the second and third defendants, made representations to him that the third defendant had shares in PYX Resources that were available to purchase and that these representations were false, contrary to the provisions of s 4 and s 18 of the Australian Consumer Law.
While I accept that the evidence before me is that the first defendant made certain representations on behalf of himself and the third defendant, at this stage, I do not consider there was sufficient evidence before me that these representations were made on behalf of the second defendant. However I note that, as was pointed out by counsel for the plaintiffs, no interim relief is sought against the second defendant.

Assets available to the defendants

I accept on the evidence before me that the first and third defendants have limited assets.
The evidence is that the first defendant has no real property in Western Australia.[25] He is currently a third party in District Court proceedings and the second defendant in Supreme Court proceedings that were only recently commenced on 9 July 2021.[26]
[25] Affidavit of Meriel Louise Steadman filed 23 July 2021 [30] – [35].
[26] Affidavit of Meriel Louise Steadman filed 23 July 2021 [36] – [37].
The third defendant is the registered proprietor of property located at Unit 1901/63 Kishorn Road, Mount Pleasant in Western Australia.[27] The certificate of title shows that a mortgage was registered on 25 February 2021 for $937,500 and that a caveat was lodged on 25 May 2021. The caveat was lodged by agreement in support of a charge granted by the third defendant. The evidence before me is that the third defendant also owns 6,460 shares in the second defendant.
[27] Affidavit of Meriel Louise Steadman filed 23 July 2021, 'MLS-27'.

Disposition

Good arguable case

On the evidence before me, I am satisfied that the plaintiffs have demonstrated that they have a good arguable case against the first and third defendants for breaches of the oral agreements, causes of actions which are justiciable in this court.

Danger that the prospective judgment will be wholly or partially unsatisfied

The affidavit evidence relied upon by the plaintiffs in seeking to establish the arguable case, can also be relied upon to demonstrate that there is a danger that a prospective judgment will be wholly or partially unsatisfied because assets of the defendants might be removed or otherwise disposed of, dealt with or diminished in value. Where an allegation made against a defendant concerns serious dishonesty, that evidence of itself may satisfy the court that requisite danger exists.
The affidavit evidence that has been filed by the plaintiffs strongly suggests that there is apparent dishonesty on the part of the first defendant in his representations about the third defendant’s ownership of shares. On the evidence before me that the first and third defendants have limited assets, I consider there is a danger that a prospective judgment could be wholly or partially unsatisfied unless freezing orders are made.

Discretionary considerations

In considering whether or not to grant the orders sought, it is necessary to consider whether there are any discretionary considerations which mitigate against the granting of a freezing order, such as a delay in bringing the application or a lack of candour in the materials that are placed before the court.
In this case, while the oral agreements were entered into in September and October 2020, I do not consider there has been any undue delay in bringing the application. On the evidence before me, the plaintiffs chased up the transfers of the shares and were repeatedly assured by the first defendant that these would occur. A letter of demand was sent on 23 June 2021, a little over a month ago and it appears that the first plaintiff has only recently, namely, in the last week or so, become aware that the representations made to him were false.
The evidence filed by the plaintiffs is detailed and does not suggest there is any lack of candour on behalf of the plaintiffs. This is the case, notwithstanding my comments in relation to the lack of evidence concerning the second defendant.
In exercising my discretion, I am required to balance the interests of all the parties. In all of the circumstances of this case, I consider it is appropriate to grant the freezing orders. I am prepared to do so on the basis that a prompt return date is fixed, that the defendants have liberty to apply at short notice and that the orders include the usual carve outs for ordinary living expenses and reasonable legal expenses. In the exercise of my discretion, I have also weighed the protection afforded to the defendants by the undertaking as to damages.

Undertaking as to damages

The plaintiffs have given an undertaking as to damages. The only evidence before me as to the strength of the undertaking is the background information that has been provided by the first plaintiff as to his share portfolio. However, for the purposes of today's hearing, there is no information before me which would cast doubt on the ability of the plaintiffs to meet the undertaking from assets within Australia.

Value of assets covered by freezing order

The value of assets covered by a freezing order should not exceed the likely maximum of the plaintiffs' claim, which may also include interest and costs.[28]
[28] Rimex Wheel Pty Ltd v Wulff [2018] WASC 180 [48], referring to Consolidated Practice Directions PD 9.6.1 par 11.
Counsel for the plaintiffs contends that the freezing order should be limited to the amount of $1,057,864.33.
I do not accept that submission. In my view, I consider that it would be appropriate to fix the sum of $750,000 as the amount to be included in the freezing order against the defendants. This allows $720,000 as the possible value of the plaintiffs' claim, taking into account the share price at the date of the breach of the oral contract on 28 February 2021, and costs of $25,000. In this regard, I consider that that the assessment of the plaintiffs' damage is likely to be the difference between the contract price and the value of the shares on the date they should have been delivered to the plaintiffs.[29] On the evidence before me if the shares were transferred on 28 February 2021, the market price for the shares at that time was $0.925 per share.
[29] See Ailakis v Olivero [No 2] [2014] WASCA 127; (2014) 100 ACSR 524.

Ordinary living expenses and reasonable legal expenses should also be excluded from the freezing orders. In this regard, I consider that it is appropriate to fix the amount at $600 per week and reasonable legal expenses of $50,000.

Other orders

The plaintiffs also seek ancillary orders pursuant to O 52A r 3 of the Rules. The ancillary orders concern the provision of information about the defendants' assets. In the exercise of my discretion I do not intend to make these orders on an ex parte basis. The question as to whether the appropriate disclosure orders are appropriate can be raised by the plaintiffs on the return date.

Conclusion

For these reasons I intend to make freezing orders against the first and third defendants for a limited time. I propose that orders, together with the application, be returnable before me at 10.30 am on Thursday 5 August 2021. I will give the parties liberty to apply on 24 hours' written notice.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ME
Associate to the Honourable Justice Hill
2 AUGUST 2021