Rowell v Torbeckin Pty Ltd
[2022] VSC 624
•18 October 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PRACTICE COURT
S ECI 2022 04086
| RODNEY STANLEY ROWELL | Plaintiff |
| v | |
| TORBECKIN PTY LTD (ACN 006 306 047) | First Defendant |
| and | |
| REGISTRAR OF TITLES | Second Defendant |
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JUDGE: | FORBES J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 October 2022 |
DATE OF RULING: | 18 October 2022 |
CASE MAY BE CITED AS: | Rowell v Torbeckin Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2022] VSC 624 |
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PRACTICE COURT – Freezing order – Application by First Defendant made in caveat removal proceeding – Freezing order sought to restrain net proceeds of sale – Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 37A – Application for freezing order refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | P Caillard | Hicks Oakley Chessell Williams |
| For the Defendant | J Kenny, solicitor | Kalus Kenny Intelex |
HER HONOUR:
Before me in the Practice Court is an application by the first defendant for a freezing order, pursuant to Order 37A of the Supreme Court (Civil Procedure) Rules 2015 (Vic), against the proceeds of sale of the plaintiff’s home. The amount sought to be subject to the freezing order is approximately $330,000.
The application arises in somewhat unusual circumstances. The first defendant (Torbeckin) lodged a caveat over the plaintiff’s home in McKay St, Richmond on 12 September 2022. The plaintiff (Rodney) had entered into a contract of sale that was due to settle on 17 October 2022. On 12 October 2022, Rodney filed an application to remove the caveat, which was listed for hearing on 14 October 2022. However, despite correspondence since 20 September 2022 between the parties’ solicitors foreshadowing provision of an affidavit,[1] Torbeckin had filed no affidavit material in support of its caveatable interest by the morning of the 14 October 2022. The correspondence on behalf of Torbeckin focused on alleged wrongdoing by Rodney and the need for a restraining order to compel discharge of a debt Rodney owed to Torbeckin as a result of misuse of company funds. By correspondence dated 13 October 2022, the second defendant indicated that she did not intend to appear in the caveat removal action.
[1]Letter from Jonathan Kenny to Matthew Hicks dated 20 September 2022 (Exhibit to the Affidavit of Rodney Rowell dated 12 October 2022, pages 143-145).
The proceeding was stood down to allow Torbeckin to provide its affidavit material and it did so. In the course of the day the parties reached an agreement that the caveat would be removed and Torbeckin would bring this application for a freezing order in relation to some funds from the settlement, which would be heard on 17 October 2022. Rodney has undertaken not to deal with surplus funds from settlement pending determination of the freezing order application.
Torbeckin’s main asset is the freehold of premises at 392 Victoria St, Richmond VIC 3121, at which a business operates called ‘the Candy Club’. Rodney has been a director and secretary of Torbeckin since the 1980s and was shareholder until 2009. In 2009, Rodney’s shares were transferred to his son Jeremy. From sometime between 2002 and 2004, Rodney and Jeremy have jointly arranged their affairs through Torbeckin. On 17 May 2022, Jeremy appointed himself director and removed Rodney as director and company secretary. Jeremy transferred his shareholding to his girlfriend Emma in July 2022. The transfer of shares from Rodney to Jeremy in 2009 and from Jeremy to Emma in July 2022 has become contentious.
Torbeckin says it has an action against Rodney for breach of his fiduciary duties as director, for misappropriation of company funds and for delivery up of company assets including a Toyota Landcruiser and caravan. It has not yet commenced such a proceeding, nor provided any draft pleading. On the information presently disclosed, all causes of action relate to activity on a loan taken out by Torbeckin in 2016.
The property at McKay St was security, and Rodney the guarantor, for borrowings from ANZ of $1,000,000 by Torbeckin in 2016 (the ANZ loan). Torbeckin has not made repayments of the loan since May 2022, with Rodney making such payments to avoid Torbeckin defaulting. Rodney intends to pay out the balance of the loan from the proceeds of sale, which is estimated to be approximately $870,000, to discharge Torbeckin’s liability. Torbeckin therefore stands to obtain a significant benefit from the sale of Rodney’s home.
Legal Principles
The principles to be applied in approaching the application are settled and were not in dispute. They were summarised by J Forrest J in Zhen v Mo & Ors:[2]
[2][2008] VSC 300, [22]-[30] (‘Zhen’) (citations omitted).
22First, that a freezing order, by its very nature, is a drastic remedy and 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.
23Second, the order is not designed to provide security for the applicant’s claim. It is solely directed to preserving assets from being dissipated, thereby frustrating the court process.
24Third, the applicant bears the onus both in satisfying the Court that the order should be continued and in satisfying the Court as to the amount which is to be the subject of the order.
25Fourth, that an order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no substitute for either the facts or inferences properly drawn from proved facts.
26Fifth, that before such an order can be made it is necessary that the applicant establish –
(a) an arguable case against the defendant; and
(b)that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendant’s actions in either removing the assets or disposing or dealing with them so as to diminish their value.
27Sixth, the balance of convenience must favour the granting of the freezing order.
28Seventh, that there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case.
29Eighth, the applicant must establish with some precision the value of prospective judgment. The order should not unnecessarily tie up a party’s assets and property.
30Finally, there may be discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court.
To obtain an order pursuant to rule 37A, Torbeckin has the onus to establish three elements:
(a)that it has a good arguable case;
(b)that there is a danger that the company’s prospective judgment will be frustrated by the removal or dissipation of assets; and
(c)that the balance of convenience favours the granting of the order.
It is important to put the evidence in some context. Both Rodney and Jeremy agree that their personal and business relationship was a good and close relationship until early this year.
The evidence relied on by Torbeckin
The evidence relied on by Torbeckin consisted of four affidavits sworn by Jeremy on 14, 15, 16 and 17 October 2022 together with exhibits.
The first affidavit sets out Jeremy’s position as the only shareholder from 2009 and his steps to remove Rodney as director of Torbeckin on 17 May 2022. It provides some context for the breakdown of the relationship based upon information Jeremy learnt for the first time earlier in 2022 going through the company records and other documents.
In the affidavit, Jeremy deposes that he transferred his shareholding in July 2022 because of concerns ‘that Rodney would forge my signature and try to take the company’s shares’.[3] He deposes that concern was well founded because a share transfer document was forwarded to him on 27 July 2022 that bears his signature but which he deposes that he did not sign.
[3]Affidavit of Jeremy Stanley Rowell dated 14 October 2022, [8].
Jeremy submits that his signature on the share transfer document in 2022 was inconsistent with at least four documents that evidence the transfer of the shares in 2009 and subsequently describe Jeremy as the majority shareholder.
The affidavit addresses the allegation that Jeremy had conducted unauthorised transactions on Rodney’s cryptocurrency account, which Jeremy denies. Jeremy alleges that Torbeckin’s investment in a failed business venture of Jeremy and his brother was falsely recorded by Rodney in the company accounts, in a way that benefited Rodney’s loan account with Torbeckin. He also alleges that the contract of sale for McKay St has been altered, with details overwritten after execution.
Jeremy alleges that, when the ANZ loan was obtained, it was for ‘working capital’ and to draw upon if other company borrowings with NAB were required to be repaid or reduced. Jeremy deposes that he did not know ANZ would require security for the loan or that McKay St was offered as security. He alleges that approximately $493,000 of the ANZ loan was used to discharge a 2002 mortgage over the McKay St property, which he alleged was misappropriation of company funds. He disputes the validity of an Acknowledgment of Debt executed on 20 October 2016, which states that Torbeckin owes Rodney $1,000,000, and refers to a Deed of Forgiveness of Debt dated 18 February 2021, in which Rodney forgives the alleged $1,000,000 debt owing by Torbeckin.
Jeremy alleges that every withdrawal of funds by Rodney from the commencement of the ANZ loan was a misappropriation of company funds. By a spreadsheet compiled by him showing deposits and withdrawals attributed to the company ‘Rodney loan account’ and ‘Jeremy loan account’, he alleges misappropriation over six years of an amount totalling just over $1,700,000. This includes the purchase of a caravan in the sum of $130,000 in 2016 and a Landcruiser in 2016 in the sum of $123,460. Those assets, initially purchased by Torbeckin, have been transferred into Rodney’s name and thereafter into Rodney’s wife’s name. Jeremy estimates that $77,702 of company funds has been spent on improvements to the Landcruiser.
Jeremy alleges that he learnt of ‘identity theft’ in 2020 by a letter he purportedly signed instructing Torbeckin’s accountant to record a sum of just over $500,000 as a debit from Jeremy’s loan account and not against Rodney’s loan account.
Jeremy deposes that he was aware Rodney used company funds to renovate McKay St but did not object to that use as Rodney’s will left the property to him. It seems that the falling out began when Jeremy learned that Rodney had changed his will in favour of his wife, whom Rodney married in 2009.
In March 2022 Rodney and Jeremy agreed to part ways and to effect a financial division of assets. In an email of 31 March 2022 Jeremy proposed selling the company property at Victoria St. He listed assets, both company and personal, to be accounted for in a division. He included McKay St even though it was a personal asset of Rodney’s because of the recent sale of Jeremy’s house, funds from which had been deposited into the company accounts. He proposed a 50/50 split. This divided company assets notwithstanding that Jeremy was the sole shareholder in the company and had been for some years. Jeremy said this offer was before he learnt of the extent of personal use by Rodney of company funds.
Jeremy’s second affidavit takes issue with Rodney’s assertion that McKay St is his only major asset, referring to the cryptocurrency account, the Landcruiser and funds of $428,488 withdrawn from the company since December 2021 by Rodney. Jeremy alleges that Rodney has no fixed address since the sale of McKay St, and is concerned he has ‘fled the jurisdiction’.[4] He also briefly refers to Rodney’s bankruptcy in 1992.
[4]Second Affidavit of Jeremy Stanley Rowell dated 15 October 2022, [9].
Jeremy’s third affidavit exhibits documents showing the transfer of the caravan and Landcruiser to Rodney’s wife. Jeremy’s fourth affidavit merely corrects a wrong document exhibited in the first affidavit.
Although Torbeckin did not give affidavit evidence about providing an undertaking as to damages, I note that Rodney did not take issue with Torbeckin’s ability to satisfy the usual undertaking as to damages.[5] I have proceeded on the basis that were I to grant the order, Torbeckin would provide that undertaking.
[5]Transcript of Proceedings, Rowell v Torbeckin Pty Ltd (Supreme Court of Victoria, S ECI 2022 04086, Justice Forbes, 17 October 2022) 54.11-19.
Torbeckin’s submissions
Torbeckin submits that Jeremy’s affidavits demonstrate:
(a)A strong arguable case that Rodney has benefits himself to the value of $1,775,023.83 plus interest.
(b)A very real risk of dissipation of proceeds of McKay St because:
(i)first, there has already been dissipation of assets by transfer of the Landcruiser and caravan;
(ii)secondly, the sale of McKay St at an amount less than Rodney’s own previous assessment of its value at $1,700,000 by a contract of sale that has been surreptitiously altered; and
(iii)thirdly, Rodney has previously moved his assets to put them beyond the reach of creditors in 1992.
(c)Instances of dishonest conduct and false documents and a failure by Rodney to disclose assets honestly, are relied on to demonstrate the danger that any prospective judgment by Torbeckin will be unsatisfied.[6]
(d)Rodney can leave the jurisdiction using the Landcruiser and caravan and be of no fixed address.
[6]Distinctive FX Pty Ltd v Wright [2015] VSC 299, [39].
Torbeckin submits that the balance of convenience favours the granting of the orders sought as Rodney has not demonstrated any immediate need for the funds which, if released, can be converted, hidden or moved and no one will know where the funds or Rodney is at any time.
The plaintiff’s evidence
Rodney relies on two affidavits sworn by him on 12 and 15 October 2022 and an affidavit sworn by his solicitor on 17 October 2022. In his first affidavit Rodney deposes to matters relevant to the caveat removal application. Those matters include that he took out a loan in his own name secured by a mortgage over his home in 2002 (the 2002 loan) in order to advance funds to Torbeckin for the purpose of renovation works to the Victoria St property. He deposes that none of the funds advanced pursuant to the 2002 loan were applied to the McKay St property.
Rodney deposes to the ANZ loan requiring McKay St as security and therefore the paying out of the 2002 loan in order to do so. The personal guarantee given in 2016 for the obligations of Torbeckin was also exhibited to the affidavit. Rodney’s deposes to an agreement with Jeremy that some company funds would be used for personal reasons.
Rodney deposes that Jeremey used about $400,000 of company funds for a failed business venture, and about $300,000 of company funds for investment in cryptocurrency.
Rodney deposes to Jeremy signing a blank transfer of shares document in 2009 at a meeting the two of them had with the accountant, and that it was this document Rodney executed in July 2022
Rodney describes the breakdown of his business and personal relationship with Jeremy in 2022 and alleged that Jeremy fraudulently lodged documents removing Rodney as company director and secretary. Rodney deposes that he did not sign the documents purportedly signed by him nor agree to his removal as company director and secretary. He deposes that, as a result of events from May 2022 onwards, he has obtained an intervention order against Jeremy and Emma, and Jeremy has been charged with a number of offences in relation to those events.
Rodney deposes to his financial status as a 77-year-old retiree, stating that he requires the proceeds of the sale of the McKay St property, after payment of Torbeckin’s obligations in respect of the ANZ loan and selling costs, for living expenses and legal fees.
The plaintiff’s submissions
The parties agree that they operated business arrangements together in a common enterprise, variously described in lay terms as a joint venture or partnership. Negotiations for an amicable split ended those arrangements acrimoniously.
Rodney denies Jeremy’s various allegations. Rodney submits that he was an authorised signatory on company accounts and had a company credit card. He submits that the withdrawal of funds from company accounts were either made for purposes of the common endeavour or were for personal use with Jeremy’s knowledge or agreement, pursuant to their agreement that in lieu of salary, withdrawals for personal use from time to time would occur.
Rodney submits that Torbeckin has not demonstrated with sufficient precision the quantification of the potential judgment. In that regard, Rodney says Jeremy has not sought to differentiate those withdrawals made with knowledge or approval and those that he says are unauthorised. Instead, Jeremy alleges that all withdrawals are misappropriated despite his own evidence consenting to Rodney’s personal use of some funds. Rodney says that Jeremy also fails to identify the credit received by Torbeckin for the repayment of the ANZ loan in full from the proceeds of sale.
Rodney objects to evidence relied on to support the allegation that the McKay St contract of sale has been impermissibly altered. That evidence deposes to a conversation with a person, Neil Murray, whose opinion, expressed in an email, was that the document that Murray looked at contained multiple overwrites. The other opinion evidence is that of a real estate agent who expresses an opinion that the contract of sale had been altered after execution. Rodney relies on a letter from his conveyancing solicitor who writes that a comparison of the contract of sale received from the purchaser on 19 September 2022 and the version provided on 14 October 2022 were consistent, with the copy provided on 14 October 2022 the same as the contract signed by the purchaser.
Rodney submits that there is no ‘real risk’ of dissipation. He says that the alleged conduct over years – namely his withdrawals of company funds for personal use that Jeremy asserts were misappropriated – does not demonstrate any real risk that he will seek to remove the proceeds of sale, or diminish its value, in order to frustrate the process of the Court. He submits that the transfer of the caravan and Landcruiser – to which Jeremy referred as evidencing Rodney’s attempts to dissipate previous company funds – occurred in 2021, which was prior to any breakdown in relations, and were done pursuant to an ongoing understanding. Further, he says that he remains in the jurisdiction with no intention to flee or hide, and any failure to disclose his actual address is explicable by the present Family Violence Intervention Orders.
Rodney submits that the balance of convenience does not call for him to be deprived from dealing with the net proceeds of sale. He says that if, as alleged by Torbeckin, he has other substantial assets, there is no need for a freezing order, and that the delay in bringing the application and the lack of candour by Jeremy about the matters in dispute between him and his father are discretionary matters that tell against the grant of relief sought.
Rodney submits that this is fundamentally a commercial dispute between father and son that will be resolved by the taking of accounts to determine the entitlements of each party and does not require a freezing order. Rodney advised that he intends to commence such a proceeding.
Consideration
The allegations of fraud and dishonesty levelled in the affidavits of Jeremy on behalf of Torbeckin are serious allegations. Likewise the allegations of dishonesty levelled by Rodney. Jeremy’s affidavit itself acknowledges that for some time Jeremy knew of Rodney using funds for personal use and did not object to him doing so. He complains that he did not know the extent of such personal use.
The allegations are not substantively supported by any independent evidence. Allegations of dishonesty cannot be determined in this application and are likely to be resolved, if at all, only at trial. Given the drastic nature of the remedy sought and the need to exercise caution, I am of the view that I should look carefully at the evidence relied on by Torbeckin to support the allegations made and upon which it bears the onus. Absent some evidence, the allegations are no more than assertion.
Jeremy proffers no evidence to counter the evidence that McKay St was security for the 2002 loan of funds for the benefit of Torbeckin. The affidavit material points to NAB funds obtained in 1999 or thereabouts for works in 2000 but does not address works done for the benefit of Torbeckin on or after 2002. While Jeremy relies on documents confirming the share transfer in 2009, there was no dispute that the shares were transferred to Jeremy at that time. What is in dispute is the nature of any agreement that was reached at or before the time of transfer, which is said to be entered into with advice of and witnessed by the accountant Mr Hughes.[7] To the extent Jeremy addresses the circumstances in which the share transfer occurred in 2009, he deposes only to that being a term of the proposed joint venture arrangement reached earlier between he and Rodney.[8]
[7]Second Affidavit of Rodney Stanley Rowell dated 16 October 2022, pages 6, 18-19.
[8]Affidavit of Jeremy Stanley Rowell dated 14 October 2022, [45].
Despite an allegation of unauthorised moving of funds between the NAB facility and ANZ loan, no evidence is given about loan arrangements prior to 2016 nor the use (or any improper use) of a NAB loan facility. The only financial material Torbeckin relies on is a spreadsheet prepared by Jeremy said to be from bank statements for the period. The does not identify any income received by Torbeckin from the Victoria St premises or repayments made by Torbeckin for the ANZ loan. It is necessarily incomplete and its accuracy cannot be ascertained from source documents or other admissible material. It identifies withdrawals for personal use made by both Jeremy and Rodney at various times. Clearly there is to be a dispute about the extent to which personal use of funds by both parties are to be accounted for in any ending of the endeavour. It is clear that both Jeremy and Rodney had loan accounts recorded in the company accounts; demonstrated by the allegation that Rodney falsified a letter instructing a correction to transfer funds from one loan account to the other. Torbeckin submitted that the spreadsheet document created ‘loan accounts’ for the purpose of reconstructing the bank statements but did not purport to show running loan accounts during the period between 2016 and 2022.[9] No company financials were relied on.
[9]Transcript of Proceedings, Rowell v Torbeckin Pty Ltd (Supreme Court of Victoria, S ECI 2022 04086, Justice Forbes, 17 October 2022) 81.25-31.
I am not satisfied that Torbeckin has demonstrated a ‘good arguable case’[10] by admissible evidence of such a value that requires the freezing of a sum of approximately $330,000. The spreadsheet is the fundamental document relied on to establish a quantum. As explained, it is based upon an assertion that all withdrawals constitute misappropriation. This cannot be sustained upon Torbeckin’s own evidence. Further the allegation of funds misappropriated for use on McKay St renovations does not identify any renovations in the relevant period 2016 to 2022,[11] other than air-conditioning and pergolas. There is a dispute as to whether these two items were installed at McKay St or Victoria St and no evidence of the value of those works, and so I put them to one side. Given the close relationship persisting until early 2022, the assertion by Jeremy in his first affidavit that other, undated, renovations are estimated at ‘hundreds of thousands of dollars’ is properly characterised as speculation or guesswork and is insufficient for the Court to act upon as quantifying a potential judgment.
[10]Zhen (n 2) [26]; see also Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49, 49.
[11]Affidavit of Jeremy Stanley Rowell dated 14 October 2022, [106].
It is particularly concerning that the allegation of dishonesty made in reference to the sale of McKay St - the source of funds sought to be restrained – is made without any evidence in support. That evidence was relied on to support an allegation that the dollar amount of the contract of sale was for less than market price. I accept the submission that the evidence of Neil Murray and the real estate agent is not admissible. That is clearly correct and no attempt was made to defend their admissibility.
Neil Murray’s opinion is qualified as not having had time for a proper examination. No attempt has been made to qualify him as an expert or comply with Order 44. Similarly the real estate agent could on no view be an expert opinion on whether a document had been altered. There is no evidence of any impropriety in the sale of McKay St that could demonstrate any intent to minimise or dissipate the proceeds. The evidence in paragraphs 118 and 119 is not admissible To the extent that Jeremy provides his own opinion as to the sales contract, at paragraphs [113]-[115] of his first affidavit, that evidence is based upon familiarity with Jellis Craig documents, based upon his own recent sale of property using that agent. The opinion, if admissible at all, is of little weight.
In my view it is telling that Rodney, who has been personally servicing the company debt since May 2022, is to pay out that debt from sale proceeds. Torbeckin makes no allowance for this in its quantification of the judgment it says it is entitled to, other than to say Rodney’s alleged debt to the company exceeds the balance of the ANZ loan. Torbeckin has taken no steps to otherwise deal with its obligation to ANZ. That conduct by Rodney speaks against a real risk of dissipation.
The transfer of the Landcruiser and caravan from the company may demonstrate a dissipation of company assets. Both transfers occurred prior to the breakdown in relationship, in circumstances where account was to be made of those (and other personal items) in the division of assets. I note that Jeremy contends the Landcruiser, with improvements is worth in the order of $200,000[12] and the caravan was purchased for $130,000 and has also undergone improvements. Torbeckin will seek to have those assets delivered up to the company. In those circumstances I do not place any great weight on those transfers as demonstrating a ‘real risk’ that McKay St sale proceeds will be dissipated. Nor do I accept that Jeremy holds some concern there is some real risk that Rodney will flee the jurisdiction. To the extent that Rodney went to NSW as deposed to by Jeremy, it is clear he has returned to the jurisdiction and has deposed to continuing to live in Melbourne. In any event, Jeremy’s affidavit demonstrates that he has the ability through satellite internet links to track the caravan.
[12]Purchased for $123,000 and with $77,702 estimated in improvements.
I accept the submission that the defendant has not established the matters on which he bears the onus, either a good arguable case and a real risk of dissipation of the identified funds such that would lead to the imposition of a freezing order. In saying this I am not determining whether the allegations made by Jeremy might be sustained. Clearly if his evidence was accepted some or all of those allegation may be made out. At this stage however, that prospect is entirely speculative. As such it is not necessary to consider whether by delay or by lack of candour the relief should otherwise be refused. Both parties have foreshadowed intended litigation over the dispute.
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