Rohan v Pavloff Family Investments Pty Ltd
[2023] VSC 175
•6 April 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2023 01266
| JAMES ROHAN | Applicants |
| (and others according to the attached schedule) | |
| v | |
| PAVLOFF FAMILY INVESTMENTS PTY LTD (ACN 164 004 997) | Respondents |
| (and another according to the attached schedule) |
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JUDGE: | Nichols J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 31 March 2023 |
DATE OF JUDGMENT: | 6 April 2023 |
CASE MAY BE CITED AS: | Rohan v Pavloff Family Investments Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2023] VSC 175 |
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PRACTICE AND PROCEDURE – Freezing order – Whether there is an arguable case – Whether there is a risk of dissipation of assets – Prima facie case of unconscionable conduct established, marginally – Risk of dissipation of asset not established – Supreme Court (General Civil Procedure) Rules 2015 order 37A – Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; Rozenblit v Vainer [2019] VSCA 164 applied – Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 considered – Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr L Wirth | SLF Lawyers |
| For the Respondents | Mr T Warner | Becketts Lawyers |
TABLE OF CONTENTS
Introduction and background.......................................................................................................... 1
Principles............................................................................................................................................. 3
The applicants’ proposed claims..................................................................................................... 6
Risk of dissipation of assets.......................................................................................................... 26
Conclusion......................................................................................................................................... 32
Disposition by Transfab Holdings?............................................................................................. 32
HER HONOUR:
Introduction and background
The first applicant, James Rohan, has a longstanding professional relationship with the second respondent, Andrew Pavloff, who is the director of the first respondent (PFI)[1] and one of its shareholders (together with his wife and brother). They and their controlled entities are in dispute about the proceeds of the sale of the business that was owned by PFI and sold to a third party in October 2022, and in which Rohan[2] had worked since about 2013.[3] James Rohan, his wife Karuna Kissun (the second applicant) and the trustee of the Rohan Family Trust (RFT, the third applicant) seek freezing orders to prevent the dissipation of the assets of PFI and Andrew Pavloff.
[1]The first respondent was incorporated in May 2013 under the name Transfab Reinforcement Australia Pty Ltd. Upon the sale of business it changed its name to Pavloff Family Investments Pty Ltd. Its shareholders are Andrew Pavloff, Joy Pavloff and John Pavloff.
[2]With no disrespect intended, for convenience I refer to the parties by their surnames.
[3]The evidence was unclear – James Rohan commenced working with the business sometime between 2013 and 2015.
The sale of the business occurred pursuant to a sale agreement between PFI and the third party, Transfab Holdings Pty Ltd[4] (the BSA) executed on 6 October 2022 and completed during October 2022.[5] On the same day PFI and each of the present applicants entered into a Deed by which it was agreed that subject to the completion of the BSA, RFT would receive certain proceeds of the sale and PFI would procure the transfer to Kissun, of unencumbered ownership of a property at Rutherglen.
[4]The purchaser is not related to PFI or the Pavloff Family and it was not suggested that it was not a genuine third party purchaser. The entity’s name suggests that it was created as a special purpose vehicle for the sale.
[5]The agreement is dated 7 October 2022.
Proceeds under the BSA and the Deed were to be paid in tranches. Some have been paid and some are yet to be paid. The applicants do not allege breaches of the Deed[6] but have foreshadowed seeking orders for preliminary discovery to assist them to ascertain whether they have received all that they are entitled to receive under the Deed.
[6]Save possibly in respect of the transfer of the Rutherglen property, which was not said by itself to support a freezing order, and which was at best, pressed only faintly on this application.
The applicants say in substance that Rohan worked in the Transfab business as its Chief Executive Officer over several years, on below market wages, on the assurances of Mr Pavloff that he would be “treated as a 49 percent owner of PFI”. In fact, under the Deed, his entitlements (through RFT) are substantially less than the monetary equivalent of a 49 percent interest in the company. He agreed to the terms of the Deed (as did Kissun and RFT), but says that they were coerced into doing so.
While PFI was negotiating the sale of the business to the third party, the Pavloff Family and Rohan and Kissun (and their respective advisers) discussed what the Rohan Family was to receive as a result of the sale. Rohan received a draft of the Deed which set out his entitlements and obligations only a few business days before the proposed completion of the BSA. He was “strongarmed” into signing it, and did not have sufficient time to get informed legal advice.
The applicants have not issued proceedings but foreshadow issuing claims against PFI and Mr Pavloff by which they will say that their conduct was unconscionable within the meaning of s 21 of the Australian Consumer Law, and that the respondents are estopped from departing from their representations. Those proposed claims were the focus of this application. They also foreshadow secondary claims in respect of the transfer of the Rutherglen property.
The applicants say that without a freezing order there is a real danger that the Pavloff Family[7] will dissipate assets and put them beyond the applicants’ reach, thereby frustrating the exercise of the court’s jurisdiction to be invoked by their foreshadowed claims.
[7]I refer to the Pavloff Family or Interests, and the Rohan Family or Interests where the context requires. It is unnecessary for present purposes to distinguish between relevant entities and proposed parties, save where indicated.
The application was brought on notice. The applicants relied upon the affidavit of their solicitor, David Jackson. The respondents relied upon the affidavit of their solicitor, Peter Clay.
Principles
This Court has both inherent and statutory power (under Order 37A of the Supreme Court (General Civil Procedure) Rules 2015 (Vic)) to make freezing orders. Order 37A expressly preserves the Court’s inherent jurisdiction[8] and addresses the minimum requirements that an applicant for a freezing order must meet. Its terms closely reflect the governing principles enunciated by the High Court in Cardile v LED Builders Pty Ltd.[9] Accordingly, the same principles govern the exercise of the statutory and inherent powers.[10] The principles are well understood. They were summarised by the Court of Appeal in Rozenblit v Vainer.[11] There, the Court of Appeal was considering a freezing order pending the determination of an appeal, but in most respects (and in all respects for present purposes) the principles to be applied are the same, regardless of the stage at which a freezing order is sought.[12] They may be stated in this way:
[8]Supreme Court (General Civil Procedure) Rules 2015 (Vic) ord 37A(6).
[9]Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 (Gaudron, McHugh, Gummow and Callinan JJ) (Cardile).
[10]Rozenblit v Vainer [2019] VSCA 164, [14], [19] (McLeish and Niall JJA) (Rozenblit).
[11]Rozenblit (n 10).
[12]Ibid [18].
(a) A freezing order by its very nature is a drastic remedy which will not be granted lightly. A court must exercise a high degree of caution before taking a step which will interfere with a party’s capacity to deal with his or her assets.[13]
[13]Ibid [19].
(b) The rationale for freezing orders is to prevent the frustration of the Court’s processes and ensure the effective exercise of the jurisdiction invoked, or, in the case of a non-party, to prevent interference with the administration of justice.[14]
[14]Ibid [1].
(c) Conversely, a freezing order is not designed to provide security for the applicant’s claim. It is solely directed to preserving assets from being dissipated, thereby frustrating court processes.[15]
[15]Rozenblit (n 10) [1].
(d) The applicant bears the onus of satisfying the Court that the order should be made, in the monetary amount the subject of the order. An order may only be made on admissible evidence, for which speculation and guesswork are no substitutes.[16] Allowance must be made, however, for the fact that the merits of the case will only be argued in a “broad brush” way at the hearing of an application for a freezing order.[17]
[16]Zhen v Mo & Ors [2008] VSC 300, [25] (Zhen).
[17]Rozenblit (n 10) [18].
(e) The applicant must establish that there is a “good arguable case” against the respondent. This means that it can be seen from the available material that the claim or proposed claim has a real prospect of success.[18]
[18]Ibid [19].
(f) The applicant must establish that there is a danger of a prospective judgment of the Court being wholly or partly unsatisfied. It must be shown that there is a reasonable possibility, not necessarily more than 50 percent chance, that assets may be disposed of or dealt with or diminished in value if an order is not made.[19] In making this assessment all of the circumstances must be taken into account including the likely amount of the judgment, the circumstances in which the cause of action arose, the conduct of the respondent and the respondent’s capacity to take avoidance action.[20]
[19]Ibid.
[20]Portbury Development Co Pty Ltd Ottedin Investments Pty Ltd [2012] VSC 147.
(g) The exercise of the power is discretionary. Accordingly, other considerations including the balance of convenience may bear upon the Court’s decision, but that the balance of convenience favours the making of the order is not a distinct requirement.[21]
[21]Rozenblit (n 10) [19].
(h) The value of the assets covered by a freezing order should not exceed the likely maximum amount of the applicant’s claim, including interest and costs. It is recognised that quantification of a claim can be challenging at an early stage.[22] As Forrest J put it in Zhen, the task of a court in making a freezing order is particularly difficult where estimates of the value of a claim are tinged with speculation or self-interest, but the interests of justice may require a court to place an interim and necessarily imprecise value on the relevant claim that will determine the limits of any putative judgment.[23] Obviously, there must be a basis on the material before the Court on the application, for such an assessment to be made.
(i) As a condition of a freezing order it will ordinarily be appropriate to require the applicant to give undertakings to the Court, including the usual undertakings as to damages, supported if necessary by the provision of security.[24]
(j) Freezing orders may be made against third parties, meaning persons against whom no substantive relief is sought or proposed. Order 37A(5) expressly so provides. That rule (which is understood to essentially codify the test laid down in Cardile[25]) provides in substance that an order may be made where there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of that party’s ability to exercise power in respect of relevant assets, or that court processes may be available to the applicant as a result of a prospective judgment, under which the third party may be obliged to disgorge assets or contribute towards satisfying a prospective judgment.[26] As the High Court said in Cardile, if relief is available against third parties the focus must be on the administration of justice, and in that context, “there are significant differences between an order protective of the court’s processes set in train against a party to an action … and an order extending to the property of persons who are not parties and who cannot be shown to have frustrated, actually or prospectively, the administration of justice”.[27]
[22]Supreme Court (General Civil Procedure) Rules 2015 (Vic) ord 37A.02(4); Supreme Court of Victoria, Practice Note SC Gen 17: Freezing Orders, 30 January 2017, [4.9].
[23]Zhen (n 16) [53].
[24]Rozenblit (n 10) [19]; Supreme Court (General Civil Procedure) Rules 2015 (Vic) ord 37A.02(4); Supreme Court of Victoria, Practice Note SC Gen 17: Freezing Orders, 30 January 2017, [4.14].
[25]Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd (2009) 77 ATR 414, 420 [22].
[26]Rozenblit (n 10) [19].
[27]Cardile 401 [42], 402 [46]-[47], 403 [50].
The applicants’ proposed claims
The applicants’ proposed claims are grounded in conduct said to be unconscionable within the meaning of s 21 of the Australian Consumer Law, and promissory estoppel.
The circumstances relevant to those claims that were addressed by the evidence, were as follows.
Before the events the subject of this application, James Rohan owned and controlled a company (Rebar) that was in the business of manufacturing and supplying pre-fabricated concrete products. That business ultimately failed and Rebar was put into liquidation. It owed debts to Andrew Pavloff in the order of $2 million. Pavloff and Rohan had discussions about starting a new business in the same industry. No detail was given about those discussions.
PFI (until recently, named Transfab Reinforcement Australia) was incorporated in 2013 for the purposes of conducting a business making and supplying prefabricated concrete products. Its shareholders were, as noted, members of the Pavloff Family. Rohan became an employee of PFI from the commencement of its business, at some time between 2013 and 2015.[28] As the respondents put it,
Mr Rohan joining PFI was in part a way of Mr Rohan making good the significant debts Rebar owed to Mr Pavloff when that company was liquidated. Mr Rohan did not gain any ownership of PFI due to legal issues Mr Rohan faced at the time in connection with the liquidation of Rebar and also because he did not have funds to put towards contributing capital in PFI.
[28]The evidence was unclear. The respondents said that PFI was established in May 2015, although in fact it was incorporated in May 2013.
As the applicants put it,
Notwithstanding the shareholding recorded with ASIC, Mr Pavloff repeatedly assured Mr Rohan that he would be treated as a 49% owner of the company. In return, Mr Rohan was to work, in effect, as the company’s CEO, although his official title was sales executive, and he was to be paid a modest salary. Over time, Mr Rohan was to account to Mr Pavloff for the debt the previous company owed him. Mr Rohan estimates that Mr Pavloff’s debt was repaid by about June 2015.
…
In reliance on Mr Pavloff’s assurance that Mr Rohan would be treated as a 49% shareholder of Transfab [now PFI] Mr Rohan continued to operate and grow Transfab’s business and continued to receive renumeration well below market rates. But for those assurances, Mr Rohan would have established and grown his own business.
(emphasis added)
In July 2015, Rohan presented a debtor’s petition for his bankruptcy, and was discharged in February 2019. The Transfab business was successful. Its EBITDA at the time of the sale in October 2022 was said to be about $6 million.
The representations or assurances said to have been made by Andrew Pavloff are the foundation of the applicants’ proposed claims. No detail, beyond what is set out above, was provided in the evidence. There was no elaboration of what was actually said or of the discussions had at the commencement of the business.
Both parties elected to proceed on affidavits from their respective solicitors. The respondents denied that the representations alleged were made. They said instead that,
At some stage significantly after the formation of PFI … Mr Pavloff and Mr Rohan agreed to build the business and that, by the time Mr Pavloff was 70 years old, the business would be sold and Mr Rohan was receive 49% of the proceeds of the sale.
(emphasis added)
The respondents also said that the Pavloff Family had contacts for sales, prior experience in prefabrication, business systems in place and adequate capital to establish the Transfab business without Rohan’s experience.
It was uncontentious that PFI had advanced funds from time to time to Rohan on a no interest basis, in order to provide him and his family with financial support. The loan was described in the context of the business sale and Deed, as the “Transfab Loan Amount”.
Separately, in 2018 Rohan and Kissun wanted to purchase a new home (the Rutherglen property). Their evidence was that they had funds for a deposit and stamp duty; the respondents said that because they could not afford to purchase a home, Pavloff suggested, and Rohan and Kissun agreed, that PFI or its nominee would borrow funds to complete the purchase and become the registered purchaser. That in fact occurred. The Rohan Family lived in the house rent-free, but met other expenses related to the property. PFI’s nominee purchaser made the loan repayments on the borrowing secured by mortgage against the property. The applicants said that Andrew Pavloff “repeatedly assured” them that “the property would be treated as theirs”.
The applicants gave no evidence about the wages Rohan had been paid, or how those wages compared with what they understood to be market rates. Their solicitor’s affidavit made only the conclusionary statement set out above. Email correspondence from September 2022 was in evidence, in which on one occasion Rohan said to PFI’s advisers, in the course of negotiating the Deed in respect of the proceeds of sale, that the Pavloffs had made a good return but over the preceding nine years he had been paid “fuck all wages”. The respondents denied that they had paid below market remuneration.
Noting that the evidence was given in very general terms and on information and belief, some things are clear for present purposes. Pavloff and Rohan agreed to work in the Transfab business together, and did so. Rohan did not have the funds to contribute capital to the business and thereby acquire an ownership share in PFI. His bankruptcy may have also stood in the way of any intention that he become a shareholder of PFI (if indeed there was such an intention). At least part of the reason for his involvement in PFI was to pay off debt to Pavloff. There are conflicting claims about whether he was paid a salary at market rates. If he did receive low remuneration, that may have been a reason he was to receive a share of the proceeds of sale of the business, noting that other benefits also accrued to the Rohan Family.
However, there was in substance no dispute that Rohan and Pavloff agreed that they would build the business together and once it was sold, Rohan was to receive “49 percent of the proceeds of the sale of the business”. Rohan’s version of the assurances given by Pavloff was that he was to be “treated as a 49 percent owner”, but it was implicit in that proposition that he would receive at least that proportionate share of the proceeds of the sale of the company’s business. The real difference between the parties (as the claims and defences are presently explained) turns on what it was that Rohan was entitled to receive, beyond a 49% proportion of the proceeds of sale, if he were “treated as a 49 percent owner of the business” (if that was the representation in fact made). It also turns on what was meant by the promise that he (at least) receive 49 percent of the proceeds of sale, and how that compares with what he will receive under the Deed. Those difference are made more concrete in the discussion below.
As to the steps said to have been taken in reliance on the assurances given, it was said by Rohan’s solicitor’s affidavit that, “but for those assurances Mr Rohan would have established and grown his own business”. Nothing further was said. To the extent that the claim that the respondents pressured Rohan into signing the Deed could be characterised as itself amounting to unconscionable conduct, it was submitted that in due course it may be contended that had the deal been negotiated fairly and consistently with the assurances as to a 49 percent interest, the outcome would have been commercially more sensible and fair to the Rohan interest. No evidence or more specific explanation addressed that issue.
The applicants did not appear to make any assertion of detrimental reliance in respect of the Rutherglen property.
Turning to more recent events, against that background the Rohan Interests and the Pavloff Interests negotiated in respect of the proposed sale of the business and the benefits that were to flow to the Rohan Interests from that sale.
Relevantly, the evidence that was before me on this application (which consisted largely of emails exchanged between the parties and their advisers) indicated the following as to the course of negotiations:
(a)Both Rohan (for his interests) and the Pavloff Interests engaged advisers or agents in respect of the sale process. Much of the correspondence occurred through their agents, but at times it was also sent directly from the Pavloff Interests to Rohan.[29] The parties later engaged solicitors.
[29]Unless relevant, I have not distinguished between the parties and their agents when describing the correspondence between them.
(b)In about June 2022, PFI received an offer to purchase its business from Civilmart (which it described as a large player in the precast concrete industry) which, after negotiation, became the purchaser of the business through a subsidiary nominee (Transfab Holdings Pty Ltd).
(c)On 30 June 2022, a meeting attended by Rohan, Kissun, their financial adviser, Pavloff and various advisers for the Pavloff Interests was convened. On the respondents’ evidence, it was resolved by all of those present to pursue the offer from Civilmart, on the basis (as the respondents put it) that PFI would pass on 49 percent of the proceeds to the applicants on terms to be agreed, including that part of those proceeds would be used to repay the Transfab Loan Amount and part pay for the acquisition of the Rutherglen property.
(d)In about July 2022, PFI advanced to Rohan $100,000 for the purposes of the Rohan Interests obtaining their own legal, tax and accounting advice in relation to the documentation of the agreement to be formed between PFI and themselves.
(e)In July 2022, the Pavloff Interests informed the Rohan Interests of the bidders’ due diligence requirements. On receipt of signed confidentiality undertakings, Rohan, Kissun and their financial adviser were provided with a copy of the bidders’ unredacted letter of offer (which was not in evidence).
(f)On 2 September 2022, Civilmart’s representatives communicated a purchase proposal and indicated that they were expecting an expedited process with settlement to occur on 1 October 2022. That proposal was sent to Rohan on the same day.
(g)On 12 September 2022, David Bell, the Pavloffs’ adviser, wrote to Rohan setting out the elements of a proposed agreement between the Rohan and Pavloff Interests. He said that an outline of the proposal had been provided when Rohan and Kissun had attended before the commencement of due diligence and that Bell was keen to have clear instructions so that the lawyers could draw up the agreement in respect of proceeds Rohan was to receive from the sale. He said that, “we need to have this concluded by Wednesday afternoon at latest as it must be reduced to writing by then”. The email went on to set out the following elements of the proposal deal:
— Rohan family proceeds equal to 49% of the sale price
— Assets to be purchased by bidder:
FY 22 EBITDA
EBITDA multiple
Sub-total
Payment on settlement
Payment for stock
Deferred payment at six months
Earn out payments at 12 months
Earn out bonus at 12 months – a deduction to David Bell of $100,000 but remaining benefit to yourselfPurchase price
— Less encumbrances over assets acquired
Creditors relating to stock on hand
Finance on equipment
Adviser fees payable (Southgate Lawyers, Bell)
Net asset value (equity value)
Net asset value (equity value) (49%)
Less family home costs — forgiven and loan paid out as part of deal
Less Transfab loan account — to be repaid
Earn out bonus of 12 months — to be kept by you as part of the transaction (increase of $150,000)
Rohan family proceeds (excluding GST)
GST
Rohan family proceeds (including GST)
The email referred to earlier discussions in which Rohan had sought the forgiveness of the Transfab Loan (said at that time be approximately $1,095,400) and the proposed transfer of the Rutherglen property (said to be valued at $1.6 million). It was apparent that after discussions the Pavloff Interests agreed to transfer the property unencumbered, but did not agree to forgive the loan.
(h)On 14 September 2022, Rohan replied, relevantly saying that the Transfab Loan “needs to be forgiven in full” and that the house must be transferred to his family trust free of charge on the first settlement. He said, “as you are aware the initial agreement was always between me and Andrew, of 50 and 49 percent shares, that to me means exactly that (this means, profit share as well as sale price of the business when it’s sold)”. He set out a table replicating the structure of the deal from Bell’s email of 12 September, including the deductions from the sale price (loan account, plant and equipment leases and creditors), at estimated amounts. Bell’s email included the amount of $3,000 for creditors relating to stock on hand as a “dummy number for illustrative purposes”.
(i)On 21 September 2022, one of the Pavloffs’ advisers sent to Rohan an updated spreadsheet reflecting the proposed deal, which contained the same elements as set out in Bell’s 12 September email. Estimate amounts were included in this and other correspondence. No submissions were made on this application about estimates given in the negotiation process and it was not indicated that the applicants relied upon them, so I say nothing about them, other than to mention the value of deductions for stock creditors and the Transfab Loan, the relevance of which is discussed below. Once again creditors relating to stock on hand (an amount to be deducted from the proceeds) was estimated at $3 million, “to be updated at settlement per stocktake”. The Transfab Loan Account (to be repaid by Rohan) was estimated at $1,095,000. That email attached what appeared to be a draft balance sheet for July and August 2022 (to which reference will be made later).
(k)On 21 September 2022, Rohan wrote to the advisers for the Pavloff Interests and said in substance that he would “accept the deal we agreed to in the boardroom on 30 June 2022”, with three changes, namely, that the family home be transferred unencumbered at the first settlement of the sale; that the Transfab Loan be paid by him and taken out of his share; and that the earn out payment under the BSA ($500,000 conditional upon EBITDA of $7 million in the 12 months post-sale) to be split 49 percent to Rohan and 51 percent to the Pavloff Interests. The Pavloffs’ adviser responded on 25 September, stating that Rohan’s proposal was accepted and that the lawyers were currently drafting the “proceeds side agreement” which should be available the next day.
(l)The respondents’ evidence was that the draft Deed was provided by their financial advisers to Rohan on 28 September 2022. The applicant’s evidence did not say explicitly when the Deed was received, but an email from their solicitors (SLF Lawyers) indicated it likely that they had a copy of the Deed by 30 September 2022, on which day they wrote to Rohan saying they had had a look at it, it was not a five minute job, it was doubtful that it would be “done today”, and asking whether it was “possible to have it done on Monday”. The subject of the retainer was evidently, advice about the Deed. Rohan’s financial adviser (Sam Mancuso) replied to SLF an hour later, saying that Monday was okay. On Monday 3 October 2022, Mancuso wrote to SLF, asking for a time that day to speak. SLF replied, saying that they had a copy of the draft Deed and the BSA, attaching terms of engagement and advising of their costs.
(m)In the afternoon of 4 October 2022, SLF wrote to Mancuso attaching a memorandum, saying that they had reviewed the draft deed and BSA and required some further instructions, and once they received that information, they would draft a detailed letter of advice outlining their suggested amendments to the draft agreement.
(n)At 11.00am on 5 October 2022, the advisers for the Pavloff Interests provided some of the information that SLF had requested about the BSA and the Deed, by inserting comments on the document SLF had provided. They suggested that a call be arranged between SLF and Becketts Lawyers, who were acting for the Pavloff Interests, to “round out the legal questions” and follow up any matters arising from their responses to SLF’s document. They asked what time would suit SLF for a discussion saying, “the sooner the better”.
(o)SLF responded at 8.53am on 6 October 2022, saying that a message had been left the previous day; that they were unavailable that day because they had back-to-back meetings, but were available on 7 October if that was suitable. The Pavloffs’ adviser responded shortly thereafter, saying that he hadn’t received a message, and that, “unfortunately tomorrow isn’t suitable as we need to sign the transaction documents today”, and that they would speak with Rohan and discuss an alternate plan. Three hours later, Mancuso wrote to the Pavloffs’ advisers, saying that the timeline was unfair and that Rohan had engaged SLF. Just under an hour later (at 2.21pm) SLF wrote to the Pavloffs’ advisers saying:
It is unreasonable and highly prejudicial to expect our client to adhere to such short timeframes unilaterally and without prior notice. … Our client is a party to the agreement and it is unacceptable to pressure our client into signing any documents without receiving sufficient legal advice. Our client reserves all rights in the event the documents are signed without our input or suggested amendments. We otherwise reiterate that we are available tomorrow to discuss the matter.
(q)Becketts said that they did not recall any request for an extension of time being made to them; the request had been sent to the financial advisers for the Pavloff Interests.
(r)Later on 6 October 2022, Rohan and Kissun signed the Deed in the presence of David Bell. The evidence on this application given by Rohan’s solicitor was that:
At the time of signing Mr Bell attended Mr Rohan’s home and made various threats to Mr Rohan and Ms Kissun to procure their signatures. Among other things, Mr Bell asserted that if they did not sign the document at that time, Transfab would or would likely lose the sale to the purchaser. The plaintiffs have not received any explanation on what basis the purchaser might not execute the BSA if Transfab did not procure the execution of the proceeds Deed in the form it stood on 6 October 2022.
(s)The respondents’ evidence (given by their solicitor) was that Bell denied procuring the execution of the Deed by threats. He said he was welcomed into their house and fed, and given food to take to Mr Pavloff. Bell’s account was said to be that Rohan said that he wanted to sign the agreement and that both he and Kissun had read the agreement and were happy with it, and were frustrated by the lawyers not communicating; and that they did not want to jeopardise the sale transaction.
It is necessary only to mention some central terms of the Business Sale Agreement and the Deed.
By the BSA, the purchaser agreed to purchase the Transfab business and the vendor’s assets, as defined. Certain assets were excluded from the sale (case, book debts, excluded records and stock and certain vehicles). The vendor assumed only certain liabilities (accrued employee entitlements and obligations and liabilities under assumed contracts and services arrangements arising after the completion date). Excluded liabilities (which remained with the vendor) include all other debts, trade creditors, liabilities and obligations of the vendor or any other person in respect of the business relating to the period prior to completion. Consideration was payable in three tranches: a completion payment (of $8,625,000 less the value of the employee adjustment) and a stock payment (payable shortly after completion, value to be determined on a stock take); a deferred payment of $5,175,000 and an earn out payment predicated on the value of normalised EBITDA (ranging between $0 and $3,950,000). Rohan was defined as a key employee and, as a condition precedent to the sale, was required to enter into an employment agreement with the purchaser on acceptable terms. The vendor gave a number of warranties about the business.
The Deed (the parties to which were PFI, Rohan, Kissun and RFT) was conditional upon completion occurring under the BSA. Subject to that (and other conditions) it was agreed that PFI would calculate and pay certain amounts to RFT, by agreed dates. RFT was to receive a “completion payment”, a “stock payment”, a “deferred payment”, an “escrow payment” and possibly an “earn out payment”. The completion payment was calculated as 49 percent of the completion payment paid to PFI under the BSA[30], less the value of stock related creditors;[31] less the value of equipment related debts; less the value of transaction costs; less the “Transfab Loan Amount”.[32] The stock payment was 49 percent of the stock payment to PFI under the BSA. The deferred payment was 49 percent of the deferred payment to PFI under the BSA. The escrow payment was 49 percent of the escrow amount released to PFI under the BSA. The earn out payment was 49 percent of the earn out payment (if any) received by PFI under the BSA. In addition, PFI agreed to procure the completion of the transfer of the Rutherglen property to Kissun by (among other things) providing funds to the property wone to repay and discharge the mortgage over the property and provide funds to Kissun to pay the purchase price and complete the purchase with the landowner. Entitlement to the proceeds to flow to RFT was subject to Rohan remaining employed as CEO of the business. It was a term of the Deed that Rohan had been provided and had read in detail, the vendor warranties to be given by PFI to the purchaser under the BSA, and had satisfied himself that based on his knowledge of the business and his position as CEO, that he is not aware of any facts or circumstances that would reasonably likely give rise to a claim for breach of warranty against PFI, other than as fairly disclosed in the disclosure materials.
[30]Excluding the value of any employee entitlement adjustment amount which was to the account of PFI.
[31] Stock related creditors was defined as the aggregate of all trade creditors at completion of the BSA payable by the vendor (i.e. PFI) that relate to stock (as defined).
[32]The Transfab Loan Amount was defined as the aggregate of all amounts owing to PFI or its related parties by RFT and its principals or their related entities as at the time of the payment of the completion payment.
After the execution of the BSA and the Deed, the following communications occurred:
(a)31 October 2022, PFI paid the sum of $1,496,793.94 to the Rohan Family Trust under the BSA (the first tranche of payments).
(b)Thereafter, the communications occurred between the parties’ respective solicitors, Becketts and SLF.
(c)In mid-November 2022, the parties discussed how the settlement of the Rutherglen property was to be effected to reflect the term of the Deed (vendor to provide funds to the transferee by way of a loan which would be forgiven). In that context, an issue about GST arose. Pavloffs’ representatives were pressing for tax invoices that they said were required in order that settlement could be booked in.
(d)It became apparent at that time that the parties had different views as to the taxation implications of the benefits to flow under the Deed. The Pavloffs’ position was that the consideration under the Proceeds Deed was in respect of a taxable supply, meaning the payments to be made by PFI were subject to GST. By the Deed RFT had warranted that it was registered for GST (when it was not in fact at that time not registered, but subsequently became registered). PFI was not asking the Rohan Family Trust to pay GST from the amounts otherwise due to them, but had paid and would pay any GST in addition to the amounts due from it as provided by the Deed, subject to the production of the appropriate tax invoices. The sticking point became the provision of tax invoices.
(e)On 14 December 2022, the Rohan Interests had agreed to provide the Pavloffs with a tax invoice for the loan balance as a way of resolving the property transfer aspect without further delay.
On 1 February 2023, SLF pressed for the completion of the Rutherglen property transfer steps required under the Deed. They threatened court proceedings if those steps did not occur promptly. Becketts, in reply, said that the transfer of the property was consideration for a taxable supply, setting out their reasons. They proposed that the Pavloff Interests provide a recipient-created tax invoice as envisaged by the Proceeds Deed, but in order for them to do so, the trust must be registered for GST, as was required by the Deed. They demanded that Rohan attended to having the Rohan Family Trust registered for GST.
(f)On 23 March 2023, SLF wrote to Becketts, noting the continued dispute about GST, and the fact that an amount $136,072.09 that had been paid by PFI to RFT in respect of GST was said to be an overpayment (if in fact, as RFT contended, the payment was not a taxable supply). They relevantly said:
So that our clients may among other things properly consider your assertion that they have received an “overpayment” please provide the following information:
•Details of all sums that Transfab has received from Transfab Holdings (purchaser) under or in connection with the business sale agreement.
•Details of how those funds have been applied including payments made to third parties.
•The value of each of the following amounts referred to in the proceeds deed: completion net proceeds, stock related creditors, equipment related debt, transaction costs, Transfab loan amount, actual stock value and Rutherglen property owner loan.
Our clients ask that your client undertake not to dissipate the funds it receives under or in connection with the BSA. In particular, please confirm that all payments received from the purchaser after the date of this letter will be directed into your firm’s trust account and will not be disbursed from that account unless your client gives at least five business days’ notice in writing of any intended disbursement. Please provide your response by 28 March 2023.
(g)It was uncontentious that this was the first occasion on which information of that kind had been sought by the Rohan Interests. The letter set out no basis on which PFI should be required to hold funds received by it under the BSA, on trust.
(h)Becketts responded on 28 March 2023 reiterating their position in relation to the GST issue and noting that it had come to their client’s attention that the Rohan Family Trust had since been registered for GST with the registration backdated to 5 October 2022, with the result that their client could now proceed, including by issuing recipient-created tax invoices. An invoice was attached in respect of proceeds in the total sum of $3,955,326.32 (including $1,200,000 as the value of the Rutherglen property) plus GST of $395,532.63).[33] The letter went on to state that should SLF’s clients wish to receive further amounts in the nature of proceeds payments under the Deed and proceed with the completion of the Rutherglen property transfer, they should confirm that the Rohan Interests accepted that all amounts paid by the vendor under the Proceeds Deed was subject to GST, and have their clients reconcile the amounts they have received to date and advise what they consider still to be payable in respect of the amounts set out in the attached invoice, and return a copy of the land sale contract executed by their clients.
(h)SLF responded on 29 March 2023 setting out that they would agree to proceed on the basis that amounts paid to them under the Proceeds Deed are subject to GST on two conditions. The first was that PFI immediately and irrevocably authorise the purchaser to pay all moneys payable to the Rohan Family Trust under the Proceeds Deed into SLF’s trust account. The second condition was that information be provided by PFI, including details of all sums due from the purchaser under or in connection with the BSA, how those funds had been applied and as to the value of amounts referred to in the Deed, namely, completion net proceeds, stock related creditors, equipment related debt, transaction costs, the Transfab Loan amount, actual stock value and the value of the Rutherglen property owner loan. SLF went on to state that if the Pavloffs did not agree to those conditions, the Rohan Interests would make an urgent application for a freezing order. The basis for the order was said to be that, “there are serious questions arising as to whether our clients are receiving everything to which they are entitled under the Proceeds Deed and whether your client has dealt with Mr Rohan fairly or misled him in procuring his execution of the Deed”, and that “PFI has a single director secretary and three shareholders with the same name” and had declined to undertake to hold the funds to be received from the purchaser in trust.
(i)Becketts responded that day, setting out their account of the chronology of events occurring between December 2022 to March 2023 and providing the information that had been sought in the SLF letter as to the value of certain payments under the BSA and amounts referred to in the proceeds deed, save in respect of funds to which the Rohan Interests had no entitlement, for which no information was provided. For reasons set out in the letter, it was said that there was no basis for a freezing order. The letter conveyed that they were instructed to organise a meeting in the coming weeks if necessary to resolve any outstanding matters.
[33]That sum did not include amounts yet to be paid to RFT under the Deed, including the Rohan deferred payment.
On 29 March 2023, SLF notified the Court’s Registry that they were seeking to obtain a freezing order. Later that night, they advised that they were not in a position to pursue it at that time. On the afternoon of 30 March 2023, they sought to have the application listed. It was heard on 31 March 2023. PFI and Pavloff gave interim undertakings until the delivery of judgment on the application.
Section 21 of the Australian Consumer Law prohibits conduct in trade or commerce in connection with the supply or acquisition of goods or services, that is, in all the circumstances, unconscionable. There is no statutory definition of unconscionable conduct, and its meaning in this context has been developed by courts over years. Much has been written about unconscionability but it is unnecessary to say much on this application. In ACCC v Kobelt, Gageler J said that conduct proscribed by the section,[34] is conduct that is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience.[35]
[34]That case concerned s 12CB of the ASIC Act 2001 (Cth) which is substantively equivalent for present purposes.
[35]ACCC v Kobelt (2019) 267 CLR 1, 40 [92].
Section 22 sets out matters to which the court may have regard in determining whether a contravention of s 21 has occurred. They include the relative strengths of the bargaining positions of the parties, whether any undue pressure or unfair tactics were used, and the terms of any relevant contract.
As Allsopp CJ explained in Paciocco,
In any given case, the conclusion as to what is, or is not, against conscience, may be contestable. That is inevitable given that the standard is based on a broad expression of values and norms… The evaluation is not a process of deductive reasoning predicated upon the presence of absence of fixed elements or fixed rules. It is an evaluation of business behaviour (business in trade or commerce) as to whether it warrants the characterisation of unconscionable, in the light of values and norms recognised by the statute.[36]
[36]Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199, 276 [304].
Expressed at a high level of abstraction, circumstances in which one party works in and improves the value of a commercial enterprise owned by the other, and the other party represents to the employee that they will in return receive a substantial financial benefit on the sale of the enterprise, but later coerces the employee to agree to a deal in which he or she receives substantially less than promised, might well be capable of involving unconscionable conduct by the promising party. Whether or not such conduct is proved will depend on what is established on the question of what was in fact promised, what was in fact gained in return, the detail and complexion of the conduct alleged to have been coercive, and will require a considered analysis of the whole course of dealings between the parties, and of their relationship. In that analysis it will likely be relevant to consider, among other things, what leverage each party possessed at each relevant point in time, and why each party took the steps it did concerning the agreement that was reached.
The central components of the applicants’ claim are the representations said to have been made by Pavloff, the actions on behalf of the respondents said to have been coercive, and the terms of the deal actually struck.
What representations were made and what they meant, can only be determined at a trial of the applicants’ claims. The evidence on this application was given at a very high level of generality. It might have been given in greater detail, and might have been given by Rohan himself. But even had that occurred, no real assessment could be made at this juncture of the likelihood of Rohan’s account being established.
As to the conduct said to involve “strong-arming” Rohan and Kissun into signing the Deed, a number of things can be said on the basis of the documentary evidence on this application. The Rohan Interests were apprised of the potential sale by at least June 2022, and it appears that they were advised of the bidder’s offers at the time the offers were received by PFI. Around that time, Rohan was given funds of $100,000 to obtain legal, taxation and financial advice. On 2 September 2022, Rohan was told that the bidder was expecting to settle the transaction on 1 October 2022. On 12 September 2022, the elements of the deal between Pavloff and Rohan that were later expressed in the Deed, were set out in an email to Rohan from Bell. That email set out that the composition of the proceeds that would flow to RFT from the sale price on the positive side (completion payment, deferred payment and so on) and on the negative side, specifically that Rohan would receive 49 percent of the proceeds less the “encumbrances” of creditors relating to stock, finance on equipment, advisor fees and less the balance of the Transfab Loan amount. That proposal was substantively replicated in the Deed, received some two weeks later. There were subsequent discussion about the Rutherglen property, which resulted in the Pavloff Family agreeing to procure its transfer to Kissun, free of encumbrance. Rohan said in his 21 September email that he would accept the deal that had been agreed in June 2022, with three amendments he set out. Agreement was reached on that basis.
It is in that context that the pressure applied to get the Deed executed, will fall to be assessed. In that context, Rohan had a few days within which to get advice on the Deed. Evidently understanding the urgency, Rohan’s solicitors said they could confer with the Pavloff’s advisors on 7 October but not 6 October (because of other commitments). They had, in the time available, raised a number of inquiries, some of which were answered, some of which were not, in relation to the Deed. They protested strongly, when told on 6 October that the Deed had to be signed that day.
How the decision by the Pavloff Interests to press on and require the execution of the Deed on 6 October is to be characterised, can only be determined at a trial of the applicants’ claims. What took place in the meeting between Rohan and Bell, can only be determined at trial. It is noted the “threats” made by Bell were said to be that he told Rohan that if they did not sign at that time PFI would or would likely lose the sale. Whether that was in fact true, whether it was exaggerated, and the effect to which it was deployed, are questions for later. Answering them would also require consideration of any other factors influencing Rohan’s decision-making in relation to the execution of the Deed. On that assessment, among other things, it may be relevant that the transaction between PFI and the purchaser was evidently, by late September, a fast moving one, and also that Rohan and the Pavloff Interests had been negotiating their “proceeds” deal for some months. The importance to the parties, including to the Rohan Interests, of the terms of the Deed and the BSA will bear on that analysis. There were clear linkages between the BSA and the Deed, including the requirement in the BSA that Rohan enter into an employment agreement with the purchaser, and the need on PFI’s part to give the warranties that required considered input from Rohan. At least on the face of things it appears to make commercial sense that that those agreements were intended to be executed at the same time. Whether that meant that the 6 October 2022 deadline that PFI pressed for the execution of the Deed was necessary or reasonable or unconscionably harsh in all the circumstances, is a question for trial.
The applicants’ submissions about the difference between the entitlements of the Rohan Interests under the Deed, and what Rohan was promised, focused on the assets that were excluded from the sale (and therefore remained with PFI), for which there were also certain related liabilities remaining with PFI. Although the point was developed only generally, the tenor was that the deal between PFI and the purchaser of the business was structured in such a way that contributed to PFI not sharing 49 percent of the true value of its interest in the business with RFT. The predicate of that submission was a construction of the representation said to have been made by Pavloff about Rohan’s 49 percent entitlement.
Under the Deed, various deductions were to be made from the amount of the completion payment to PFI under the BSA, to reach the “completion payment” made to RFT (i.e. RFT’s completion payment was 49 percent of PFI’s completion payment less various deductions). Rohan had agreed in principle to those deductions occurring sometime before 6 October, but the value of the deductions was not known at the time of settlement. The submission on this application focused on the value of the stock-related creditors deduction which was eventually determined to be $5,535,160. PFI was paid $5,528,490.25 in actual stock value, under the BSA. The applicants pointed to a draft balance sheet circulated during negotiations that shows a total trade creditors liability in August 2022, of $3,075,217, which had been at $5,121,199 in July 2022. The accounts showed cash on hand of $15,193,127 in August 2022. Rohan’s evidence (through his solicitor) was that the business had accumulated a large amount of stock that should have well exceeded $5.5m in value, and that all suppliers were regularly paid on time. He did not at any stage have access to the company’s accounts (he did not say that he was entitled to such access). It was said that Rohan suspects that PFI has kept or dissipated cash at bank in order to increase the sum owed to creditors and that “by doing so, the effect of the BSA was to reduce the net proceeds payable from the Purchaser to [PFI], which in turn reduced the amount available for payment to [RFT] under the Proceeds Deed”. As the respondents pointed out, the case was that PFI assumed a liability that it might have sought to be borne by the purchaser, reducing funds payable to itself, with a flow on effect to RFT. There was force in the submission that the commercial logic of that analysis was entirely absent, but for a theory that PFI intended to harm itself in order to harm the Rohan Interests. That theory itself appeared at this point to be mere assertion. Ultimately, no more can be said about the applicants’ case on the structure of the deal, save that they might possibly establish that it was structured in such a way as to minimise what it paid to RFT. That will depend upon what evidence they are able to assemble and what facts are found. There was considerable speculation in that part of the proposed claim.
The respondents relied upon the failure of Rohan to complain about the substance of the deal at any time before March 2023. That he had not complained earlier was not contested. Whether or not the complaints were recently invented is something that can only be determined at trial.
Were the Rohan parties to establish that the respondents engaged in unconscionable conduct, they would also need to establish what result they would have achieved had the parties negotiated commercially but without unlawful behaviour on the part of the Pavloffs. The outcome would likely turn on findings about the substance of the representations and the effect of the Deed, in the context of a considered analysis of the BSA and the financial position of PFI in about October 2022.
As I said earlier, conduct of the general kind described, if looked at abstractly, could be capable of meeting the description of unconscionable conduct for the purposes of s 21 of the Australian Consumer Law. In this case, the course of dealings described might ultimately be found to be robustly commercial and self-interested, but not unconscionable. The formation of a conclusion about whether a course of conduct of the kind described in this case is unconscionable requires a highly contextual consideration of intersecting elements. On the one hand, the generality of the applicants’ evidence points to the availability of the alternative characterisation. On the other, it must be acknowledged at an interlocutory stage on an urgent application, in cases of this kind a conclusion as to whether a good arguable case exists is likely to be significantly caveated, because of the multi-faceted character of the analysis required to characterise a course of conduct of the kind in issue, as unconscionable. Different facts might permit a clearer assessment at an interlocutory stage. Taking all things into consideration I am inclined to the view that the applicants have done enough to show an arguable case, but only just. This is in my view, a marginal case, for relevant purposes.
I am not so persuaded in relation to the promissory estoppel claim, even having regard to the “broad brush” analysis of liability questions required at this stage.
Promissory estoppel, like other species of estoppel, is intended to serve the fundamental purpose of protection against the detriment which would flow from a party’s change of position if the assumption (or expectation) that led to it were deserted. The requirements for establishing promissory estoppel are that the defendant has induced the plaintiff to adopt an assumption or expectation; the plaintiff acts or abstains from acting in reliance on the assumption or expectation; the defendant knew or intended the plaintiff to do so; the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled, and the defendant has failed to act to avoid that detriment whether by making good the assumption or expectation, or otherwise. If those requirements are met, equity may intervene to provide the minimum equity necessary to do justice between the parties.[37] A representation capable of founding a promissory estoppel must be clear and unambiguous.[38]
[37]See Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 419 (Brennan J), 404 (Mason CJ and Wilson J); Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, 674–5; Sidhu v Van Dyke (2014) 251 CLR 505, 511 [1].
[38]Legione v Hateley (1983) 152 CLR 406, 435–7 (Mason and Deane JJ).
The manner in which that part of the applicants’ claim was put, is set out above. It was lacking even the most basic of detail beyond the description of Pavloff’s representation. In particular, the evidence directed to detrimental reliance did not arise above the most general of assertions.
In respect of the Rutherglen property, the draft general indorsement of claim prepared by the applicants set out that in breach of the Proceeds Deed, the title to the property remains encumbered with a mortgage and Kissun has not been registered as the proprietor. It was put that the steps that were to be completed months ago had stalled, apparently on account of the debate about GST. It was not said that that claim by itself would support a freezing order, save insofar as it went to demonstrate what the applicants described as the self-serving attitude of the Pavloff Interests towards the Rohan Interests, which was broadly relied upon to support a conclusion that the Pavloffs will dissipate funds to put them beyond the applicants’ reach. Otherwise the claim was faintly pressed. No more need be said about it.
Because of the conclusion I have reached on the question of the risk of dissipation of assets, it is unnecessary to address the question whether the applicants have sufficiently quantified their claims to support the quantum of the freezing order sought.
Risk of dissipation of assets
The applicants submitted that by an accumulation of factors I could be satisfied that there is a real danger that the Pavloff Interests will dissipate PFI’s assets and put them beyond the plaintiff’s reach, in particular:
(a) The structure of the entity: members of the Pavloff Family hold all the shares in PFI and Andrew Pavloff is its sole director. The company no longer trades, and has not traded since the settlement of the sale in October 2022. The company’s assets are liquid (cash from the sale) and its shareholders can readily obtain what is left of the company’s assets.
(b) Lack of transparency: the applicants have never seen any accounting for the Transfab Loan Account or any statement for the mortgage loan over the Rutherglen property. Separately, PFI’s treatment of stock-related creditors for the purposes of the BSA and the Deed is “alarming and devoid of any explanation”.
(c) PFI has refused to undertake to direct the purchaser of the Transfab business to pay Rohan’s share of the next proceeds instalment into his solicitor’s trust account and have not explained why.
(d) The conduct of PFI and Pavloff is such that at every turn, they have acted against the interests of Rohan, Kissun and RFT. The conduct – making representations then illegitimately pressuring Rohan into a Deed that conferred benefits worth substantially less than promised, maintaining a lack of transparency and delaying the transfer of the Rutherglen property as required by the Deed - cumulatively demonstrates that the respondents will do whatever they can to ensure that their assets are not available to satisfy a judgment given in favour of the applicants.
As to the “shell” point, I accept that because PFI no longer trades, its assets are likely to consist of the remaining payments under the BSA. It may also have remaining liabilities. Pavloff, its sole director, can determine (subject to his duties as a director) that the company will make distributions to the company’s shareholders. I accept that if it were so inclined, PFI and Pavloff could in theory take steps to put the company’s funds out of the reach of the applicants. If combined with other evidence that established a real risk that that may occur, the opportunity to do so would be relevant, but of itself, the fact that the putative respondents have control of their funds does not take the matter very far. The applicants could not point to any evidence that the respondents were intending or attempting or likely to put their assets beyond reach of the applicants, save what could be gleaned from the lack of transparency and course of conduct points. It was not disputed that the company and control structures had not changed since the sale in October 2022. They appear to have been in place over the long term. Furthermore, the fact that PFI is no longer trading is a natural consequence of the sale of the business, which sale itself was anticipated by all concerned, for a lengthy period of time. The applicants could not identify anything in the affairs of the respondents or their conduct, that had changed since the sale, to crystalise the risk of dissipation of assets, save for the very recent responses to the applicant’s solicitors’ correspondence.
As to the lack of transparency point:
(a) Rohan said that he had never received any “detailed” accounting in respect of the Transfab Loan. It was evident from the emails relied upon by the applicants that the Loan was the subject of negotiation between Rohan and the Pavloff Interests since sometime before September 2022. In mid-September, Rohan said that he was seeking its repayment in full. On 12 September, the Pavloffs’ adviser provided an estimated amount. The first occasion on which the value of the Loan was sought by Rohan was on 23 March 2023, by his solicitors’ letter, by which they also demanded that all payments received by PFI under the BSA be placed into Becketts’ trust account. They did not ask for a detailed accounting by that letter, or by the 29 March 2023 letter. The evidence did not otherwise suggest that he had earlier sought and been denied a detailed accounting. It was not submitted that anything in particular flowed from the absence of a detailed accounting, or that Rohan believed the Loan amount to be overstated.
(b) The stock creditors’ liability issue is mentioned above. Rohan made clear that he had never had access to the company accounts. He did not say he was entitled to such access, and had been denied. His evidence on this application pointed to a total trade creditors amount of $3,075,217 in August 2022, which was about $2 million less than the stock creditors amount that was calculated by PFI for the purposes of the BSA and the Deed, which was in turn very close to the actual stock value. Those circumstances raised questions as to how those values were derived, but did not reasonably support any further inference. Rohan’s solicitors’ letter of 23 March 2023 was the first occasion on which he asked for the value of the stock related creditors. It did not ask for a detailed accounting by that letter, or by the 29 March 2023 letter. The contention that PFI had arranged its financial affairs in order reduce the net proceeds payable to it from the purchaser did not rise above speculation. It did not found an inference that PFI or Pavloff have been concealing information that should have been provided to the applicants.
By their 29 March 2023 letter the applicants requested an undertaking that the respondents irrevocably instruct the purchaser to pay all amounts payable to the respondents under the Deed, into SLF’s trust account. It was said that unless such undertaking by that afternoon was given, the applicants would apply for a freezing order. The basis on which the applicants would be entitled to a freezing order was expressed as set out earlier in these reasons. The grounds were put extremely generally. The risk of dissipation of assets was said to arise because PFI has a single director and three shareholders with the same surname and has declined to undertake to hold the funds to be received from the purchaser, on trust. Nothing more was said. No concerns about the respondents’ dealings with their assets had been raised before 29 March 2023 (noting that the 23 March letter did not set out any grounds for the undertaking). It will be recalled that by SLF’s 23 March letter, they demanded that PFI place all funds received under the BSA into trust (not just moneys to the value of RFT’s prospective entitlements under the Deed). By the 29 March letter that demand was narrowed, but at the same time an application was threatened in reliance on the earlier refusal (which had been communicated by Becketts’ 28 March letter, responding to the 23 March letter). In all of the circumstances, I do not consider that the refusal by the respondents to give an undertaking evidenced a real risk that they would take or were taking steps to put assets out of reach of the applicants.
It was submitted that I could infer from the respondents’ conduct cumulatively (“at every turn, acting against the interests of the applicants”) that the respondents will do whatever they can to ensure that their assets are not available to satisfy a judgment given in favour of the applicants. I do not consider that the applicants have established a basis for that inference.
As I have said earlier, the course of dealings may be capable of being characterised as unconscionable, but it might also be properly characterised as commercially legitimate conduct that falls short of unconscionability. Let it be assumed for the purposes of analysis that the respondents have engaged in sharp, unfair and “strong-arming” conduct that might be found to have crossed the line into unconscionability. More would be needed in these circumstances, on the material of this application, to conclude that it follows that there is a real risk that the respondents will deal with their assets so as to put them beyond the reach of the applicants. It is relevant also to take into account that it was not put that the respondents have failed to comply with their contractual obligations under the Deed. That was faintly suggested in relation to the delay in the transfer of the Rutherglen property, but the documents before me demonstrate that the transfer steps were held up by reason of the parties’ dispute about GST. Both parties in that dispute held considered positions and communicated to the other, their reasons for doing so.
It is well established that in determining whether there is a sufficient danger of a defendant disposing of assets in order to defeat a judgment, the court may consider the evidence adduced by the plaintiff to establish its claim to the substantive relief sought.[39] The Court may not infer a risk of dissipation merely from the fact that the plaintiff has a good arguable case. For example, in Patterson v BTR Engineering,[40] the New South Wales Court of Appeal held on the facts before it that a prima facie case had been established that the defendant had fraudulently misappropriated a large sum of money, and that evidence could be relied upon to infer that if such some money was still under the control of the defendant he would not preserve it for the plaintiff should the plaintiff be successful in the action. Patterson concerned a breach of fiduciary duty by a fraudulent design to procure payments said to amount to secret profits. In that case, Gleeson CJ said that,
Giles J was correct in taking the view that the evidence as to the nature of the scheme in which the appellant was allegedly involved, which established a prima facie case against him, was such as to justify the conclusion that there was a danger that the appellant would dispose of assets in order to defeat any judgment that might be obtained against him and that such danger was sufficiently substantial to warrant the injunction. There is no reason in principle why the evidence which is relevant to the first of the issues might not also have bearing on the second, and this will especially be so where the prima facie case that is made out against a defendant is one of serious dishonesty involving a diversion of money from its proper channels.[41]
[39]Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 (Gleeson CJ, Meagher JA and Rogers AJA) (Patterson); Victorian University of Technology v Wilson [2003] VSC 299, [33] and the cases there cited (Redlich J); Distinctive FX Pty Ltd v Wright [2015] VSC 299 (Elliot J).
[40]Patterson (n 39). See also DCT v Robertson [2000] WASC 42, [37]-[43].
[41]Patterson (n 39) 325-6 (Gleeson CJ, Rogers AJA agreeing).
Meagher JA said that,
Normally one cannot infer a risk of dissipation of assets from the mere fact that the plaintiff has a prima facie cause of action. … However in exceptional cases … one can infer the existence of the latter ingredient wholly or partly from proof of the former. This may well be the situation in all cases where the plaintiff’s prima facie case against the defendant involves proof of dishonesty.[42]
[42]Ibid 326 (Meagher JA).
I do not read that reasoning as purporting to lay down a prescriptive test or a stand-alone principle to be applied only in cases in which a particular standard of fraudulent misappropriation or gross dishonesty is reached. Rather, the reasoning draws attention to the factual inferences that might be drawn from facts that go to establish the defendant’s conduct. The inferences available in any given case will depend upon the facts and the strength of the evidence. The material on this application does not support the inference for which the applicants contend.
In relation to Andrew Pavloff individually, the application was put in relation to him in the same way that it was put in relation to PFI, on the basis that he was its directing mind, and its conduct was also his conduct. Nothing was said about his assets.
Taking all of those considerations into account, I consider that that the plaintiffs have not established that there is a reasonable possibility that the defendant’s assets may be disposed of or dealt with or diminished in value if a freezing order is not made.
It will be recalled that a freezing order is not designed to provide security for the applicants’ claim but is directed solely to preserving assets from being dissipated, thereby frustrating court processes. The applicants were seeking security for their claims but they have not discharged their burden in respect of the risk of frustration of the Court’s processes.
Conclusion
Taking into account all of the matters addressed below, and taking a cautious approach as I am required to do, I am not persuaded that there is a sufficient basis to exercise my discretion to make the orders sought against PFI and Pavloff.
Disposition by Transfab Holdings?
The applicants also sought an order against the purchaser under the BSA, Transfab Holdings, seeking that it be required to direct any payment due from it to PFI, to SLF’s trust account. There was no evidence indicating, nor indeed, any submission directed to showing that there is a risk that Transfab Holdings will take any step intended to frustrate, or that might have the effect of frustrating the administration of justice, unless restrained. All that it was said that they would do if not restrained, was to pay to PFI, the proceeds that were due to it under the BSA. The order was in substance directed to obtaining security for the applicants’ claim, by orders against a third party. No basis for an order against Transfab Holdings was made out.
SCHEDULE
BETWEEN
JAMES ROHAN
First applicant
and
KARUNA KISSUN
Second applicant
and
ROHAN FAMILY INVESTMENTS PTY LTD (ACN 622 863 863)
as trustee for the ROHAN FAMILY TRUST (ABN 75 543 521 324)
Third applicant
and
PAVLOFF FAMILY INVESTMENTS PTY LTD (ACN 164 004 997)
First respondent
and
ANDREW PAVLOFF
Second respondent
2
9
0