Scanlan v Greenport Nominees Pty Ltd

[2001] WASC 233

SCANLAN & ANOR -v- GREENPORT NOMINEES PTY LTD & ORS [2001] WASC 233

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2001] WASC 233
Case No:	COR:308/1998	Heard:	17 AUGUST 2001
Coram:	HASLUCK J	Delivered:	31/08/01
No of pages:	26	Judgment Part:	1 of 1
Result:	Application allowed
Category:	B
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Parties:	LAWRENCE SCANLAN L J SCANLAN & ASSOCIATES PTY LTD GREENPORT NOMINEES PTY LTD (ACN 067 084 057) PETER JERMYN CAPITAL ALLIANCE PTY LTD (ACN 008 802 757)
Catchwords:	Mareva injunction Relevant principles Orders restraining any dealing with proceeds of sale of business Application to set aside Mareva injunction allowed Turns on own facts
Legislation:	Corporations Law, s 260
Case References:	Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 Perth Mint v Mickelberg & Ors (No 2) [1985] WAR 117 Santos & Associates v Glowtime Pty Ltd & Anor [2000] WASC 58 Westwind Air Charter Pty Ltd v Hawker De Havilland Ltd (1990) 3 WAR 71 Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249 Behbehani v Salem [1989] 1 WLR 723 Bullock v Federated Furnishing Trades Society of Australia (No 1) (1985) 60 ALR 235 Jackson v Sterling Industries (1987) 162 CLR 612 Ninemia Maritime Group v Tave GmbH & Co KG (The Niedersachsen) [1983] 1 WLR 1412 Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1 Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645 Thomas A Edison Ltd v Bullock (1912) 15 CLR 679

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : SCANLAN & ANOR -v- GREENPORT NOMINEES PTY LTD & ORS [2001] WASC 233 CORAM : HASLUCK J HEARD : 17 AUGUST 2001 DELIVERED : 31 AUGUST 2001 FILE NO/S : COR 308 of 1998 MATTER : Section 260 of the Corporations Law of Western Australia

and

GREENPORT NOMINEES PTY LTD (ACN 067 084 057)

BETWEEN : LAWRENCE SCANLAN

First Applicant

L J SCANLAN & ASSOCIATES PTY LTD
Second Applicant

AND

GREENPORT NOMINEES PTY LTD (ACN 067 084 057)
First Respondent

PETER JERMYN
Second Respondent

CAPITAL ALLIANCE PTY LTD (ACN 008 802 757)
Third Respondent

(Page 2)

Catchwords:

Mareva injunction - Relevant principles - Orders restraining any dealing with proceeds of sale of business - Application to set aside Mareva injunction allowed - Turns on own facts

Legislation:

Corporations Law, s 260

Result:

Application allowed

Category: B

Representation:

Counsel:

First Applicant : Mr P G McGowan
Second Applicant : Mr P G McGowan
First Respondent : Mr N W McKerracher QC & Mr R A C Cullen
Second Respondent : Mr N W McKerracher QC & Mr R A C Cullen
Third Respondent : Mr N W McKerracher QC & Mr R A C Cullen

Solicitors:

First Applicant : Tottle Christensen
Second Applicant : Tottle Christensen
First Respondent : Dwyer Durack
Second Respondent : Dwyer Durack
Third Respondent : Dwyer Durack

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

Cardile v LED Builders Pty Ltd (1999) 198 CLR 380
Perth Mint v Mickelberg & Ors (No 2) [1985] WAR 117
Santos & Associates v Glowtime Pty Ltd & Anor [2000] WASC 58


(Page 3)

Westwind Air Charter Pty Ltd v Hawker De Havilland Ltd (1990) 3 WAR 71

Case(s) also cited:

Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249
Behbehani v Salem [1989] 1 WLR 723
Bullock v Federated Furnishing Trades Society of Australia (No 1) (1985) 60 ALR 235
Jackson v Sterling Industries (1987) 162 CLR 612
Ninemia Maritime Group v Tave GmbH & Co KG (The Niedersachsen) [1983] 1 WLR 1412
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1
Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645
Thomas A Edison Ltd v Bullock (1912) 15 CLR 679

(Page 4)

1 HASLUCK J: These proceedings were commenced by an application for relief made by the first applicant, Lawrence Scanlan, and the second applicant, L J Scanlan & Associates Pty Ltd, in 1998. The applicants relied upon provisions of the Corporations Law concerning unfair and oppressive conduct. The relief sought by the applicants included orders that Mr Scanlan be allotted sufficient shares in the first respondent, Greenport Nominees Pty Ltd, to increase his shareholding to 25 per cent of the issued shares or, alternatively, that Greenport be wound up by the Court.

2 The form of the relief sought is reflected in the amended application for relief dated 7 September 1999. I will return to the issues raised by that application in due course. The application included a claim, in the alternative, that Greenport pay the second applicant $367,527.25 with interest thereon from 12 February 1998 for architectural services.

3 On 17 October 2000, many months after the proceedings had been commenced, and at a time when various formal documents had been filed and served on behalf of the parties to the proceedings, the first applicant applied for restraining orders described as a Mareva injunction on an ex parte basis. The orders obtained by the first applicant upon that date included an order to the effect that the first respondent was at liberty to apply on not less than 24 hours' notice to the first applicant to vary or discharge the orders.

4 The application presently before me is an application to discharge the restraining orders pursuant to the liberty to apply just mentioned. Before turning to the issues raised by the application to discharge the orders, it will be useful to look briefly at the nature of the dispute between the parties.

5 Mr Scanlan is an architect by profession who carries on business via the second applicant, L J Scanlan & Associates Pty Ltd. Mr Jermyn is a businessman. It seems that some years ago these two individuals got together with a view to establishing a restaurant on the beachfront at Cottesloe, being the premises destined to be known as The Indiana Teahouse. This led to the formation of Greenport Nominees Pty Ltd as a corporate vehicle constituted to carry forward the venture. The parties recognised from the outset that it would be necessary to negotiate a suitable lease or licence arrangement with the Town of Cottesloe.

6 Mr Scanlan was not in a position to contribute significant amounts of capital to the venture. According to him, the arrangement made between

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the parties was that he would provide architectural services in lieu and would thereby become entitled to certain benefits. Mr Jermyn would attend to financing the venture.

7 These matters are referred to in the amended application for relief. The application asserts that by an oral agreement made late October/early November 1994 between the first applicant on behalf of the second applicant and the second respondent (Mr Jermyn) it was agreed that Mr Scanlan and Mr Jermyn would incorporate a company for the purpose of tendering to develop a restaurant facility on the site of the former Cottesloe beach bathing pavilion. The company so formed (Greenport) would engage L J Scanlan & Associates to carry out architectural and other required services in relation to the project. That firm was to be paid a fee for architectural services by Greenport between 7.5 per cent and 12 per cent of the actual costs of the works, or otherwise a fair and reasonable fee.

8 The amended application pleads that Mr Scanlan, on behalf of his firm, further agreed with Mr Jermyn on behalf of Greenport that if Greenport's tender for the project was successful, then, in any event, L J Scanlan & Associates was to be paid a success fee in the sum of $100,000.

9 The amended application goes on to assert that the tender was successful, with the result that Mr Scanlan's firm was entitled to be paid the success fee of $100,000. It is said further that between December 1994 and February 1998, the firm carried out architectural services to the value of $367,567.25, being an amount allegedly due to Mr Scanlan's firm.

10 Greenport engaged a building company known as Beechboro Building Co Pty Ltd to carry out the building work in mid-1995. The site supervisor of the building company was a Mr Dietrich. On Mr Scanlan's case, the building contract was in the sum of $1,465,000. Beechboro went into voluntary administration in March 1996, by which time about one-third of the work had been completed. Dietrich was then employed as site supervisor by Greenport so that the development could proceed.

11 I have already noted that, on the applicants' case, various architectural services were allegedly provided by Mr Scanlan's firm as the project proceeded. There is now a dispute between the parties as to the adequacy and value of such services. Mr Dietrich has sworn an affidavit in support of the Greenport position. The first applicant contends that the

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arrangements made by the parties included a commitment whereby Greenport would either allot or cause sufficient shares to be vested in Mr Scanlan to increase his shareholding to at least 25 per cent of the issued shares of the company. The arrangements allegedly allowed for fees owed to Mr Scanlan's firm to be converted into shares in Greenport. Greenport and Mr Jermyn deny that any such arrangements were made and deny that any fees for services are outstanding.

12 It seems that funds were borrowed from Union Petroleum SA and from the third respondent, Capital Alliance Pty Ltd, so that the development could proceed. It seems also that, with the passage of time, the differences of opinion between the parties as to the adequacy of the architectural services being provided by Mr Scanlan's firm gradually deepened.

13 On the applicants' case, Mr Scanlan was not kept fully informed by Mr Jermyn about the financial affairs of the company, including its borrowings and financial arrangements. It seems that the various factors I have just mentioned led to a degree of tension between the parties and eventually to the applicants issuing the application for relief mentioned earlier.

14 The orders sought by the first applicant were on the grounds that by reason of the exclusion of Mr Scanlan from management, and/or the use of voting power to prevent the allotment or transfer of shares to Mr Scanlan, the affairs of Greenport were allegedly being conducted in a manner that was oppressive or unfairly prejudicial to Mr Scanlan.

15 On 16 March 2000, Mr Scanlan discovered that the respondents had executed a contract to sell the shares in Greenport to a purchaser. A month later, Mr Scanlan applied to restrain the sale. Upon the undertaking of the respondents not to sell, Mr Scanlan's application for an injunction did not proceed. In the meantime, exchanges took place between the parties concerning the discovery of financial and other documents. A number of formal documents were filed at the Supreme Court directed to such matters.

16 These documents throw further light on the nature of the dispute between the parties. Thus, in Mr Scanlan's affidavit sworn 20 April 2000, the initial discussions between the parties are described as follows:

"6. Sometime before 26 October 1994 I had approached Peter Jermyn ('Jermyn') to become a partner in the Project. Before the tender had been won and during late October

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to early November 1994 I met with Jermyn on several occasions to discuss the Project and by the conclusion of these discussions Jermyn had said that he would become my partner in the Project on the following terms:-

6.1 I would continue to do all work necessary to win the tender and Jermyn would nominate himself as one of the partners and guarantors;

6.2 Myself and Jermyn would incorporate a body to be the tendering body and to run the Project if the tender was obtained. This body would be Greenport which would be the corporate vehicle for the partnership with both myself and Jermyn as equal directors and shareholders.;

6.3 if the tender was successful then myself and Jermyn would jointly develop the Project through Greenport;

6.4 I was to receive a $100,000.00 fee for payment for my work in winning the tender;

6.5 Jermyn would be responsible for the funding of the Project through debt and equity;

6.6 I would contribute my share of equity though cash or services and work performed and would retain between 25 & 50% of equity depending on my ability to fund the shares. The services or work performed to be contributed would be the provision of architectural and other required services from myself or from Lawrence J Scanlan & Associates Pty Ltd with any cash coming from the completion of other projects;

6.7 when the shares were eventually issued to me they would be at the same price as Jermyn's. Any other partners that were introduced to the Project would pay a premium for their shares;

6.8 I would be entitled to a delay in payment for my share of equity on the basis that this would depend on my or Lawrence J Scanlan & Associates Pty Ltd's architectural and consultants fee and what percentage of that fee I or Lawrence J Scanlan & Associates Pty Ltd could afford to

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use as equity capital and what other funds I would have available through other projects; and

6.9 Lawrence J Scanlan & Associates Pty Ltd or my fee for provision of the architectural services was to be a fee that was capable of bearing scrutiny from third parties. As this was a commercial arrangement I understood that this implied that a fee consistent with practise [sic] in the industry could be charged."

17 In the same affidavit, Mr Scanlan goes on to say:

"8. Throughout the course of the Project and in particular since the commencement of operations of the restaurant I have been concerned with the management and operation of Greenport. These concerns are set out in detail in paragraphs 29 to 45 of my Previous Affidavit. I do not have current access and nor did I have access during the period I was director of Greenport to the books and records of Greenport and have been denied accounts or any detailed current financial information despite repeated requests. Following the commencement of these proceedings I was dismissed as a director of Greenport in January 1999. In consequence of these concerns in these Proceedings I allege that I have been excluded from the management of Greenport contrary to the original basis on which I became a member of Greenport by reason of which the affairs of Greenport are being conducted in a manner that is oppressive.

…

13. In these proceedings I allege that Greenport and the other Respondents have failed to acknowledge my contribution to Greenport and remunerate me appropriately through equity and/or the failure to meet the invoices of Lawrence J Scanlan & Associates Pty Ltd and that this failure is contrary to the original basis upon which I became a member of Greenport. As a consequence I allege that the majority is being used to restrict my remuneration, and/or to prevent the allotment or transfer of shares such that the affairs of the company are being conducted in a manner that is unfair and prejudicial to my interests."

(Page 9)

18 Mr Jermyn responded to these allegations in an affidavit sworn 26 May 2000. His response reads, in part:

"(a) There was never any agreement that the First Applicant and I were to act as partners. The agreement was that we would be shareholders in a company in which there would be other shareholders in due course. The shareholders would only be issued that number of shares which they paid for.

(b) At a meetings of directors of Greenport held 17 July 1995, it was resolved to allot 100,000 shares in Greenport at $1.00 per share to the First Applicant conditional upon the receipt of $100,000.00. That amount or any amount was never received by Greenport. At the same meeting, 100,000 shares at $1.00 per share were allocated to Capital Construction Company Pty Ltd, now named Capital Alliance Pty Ltd. Funds for that allotment had already been advanced to Greenport by Capital Alliance. It was also resolved at the same meeting to allot 600,000 shares in Greenport to Union Petroleum SA at $2.50 per share conditional upon the receipt of $1,500,000.00. That money was received by Greenport several days later. The minutes of the said meeting referred to above were signed by the First Applicant as a true and correct record and are annexed hereto and marked "PJ5".

(c) During the period of construction of the building, the Second Applicant rendered accounts to Greenport for architectural services supplied to Greenport in respect of the project and those accounts were paid. However, the First Applicant never used any of those proceeds to subscribe for the shares, nor did he obtain funds from elsewhere to do so."

19 I digress briefly to note that Mr Scanlan's application for an injunction to restrain the sale of Greenport shares was supported by various affidavits, including an affidavit by himself sworn 28 June 2000. Exhibited to that affidavit is a statement of his assets and liabilities prepared by him as at 31 May 2000. The statement includes his claimed interest in Indiana Teahouse, but without a value being recorded upon the basis that this aspect of the matter was the subject of the current litigation.
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20 The relevant statement of assets and liabilities suggests that the surplus of his assets over liabilities amounts to $1,040,000. A significant asset included in the statement was 1.5 acres of land at Bali, said to be worth $750,000.

21 It was against this background that Mr Scanlan applied for the orders comprising the Mareva injunction mentioned earlier.

22 The application was supported by the affidavit of the applicants' solicitor, Andrew John Mason, sworn 16 October 2000. In that affidavit, Mr Mason referred to previous procedural matters and to the fact that he had caused application to be made on behalf of Mr Scanlan for orders restraining the sale of the assets and business of Greenport. He referred also to documents suggesting that a sale of the assets and business of Greenport had been completed pursuant to a contract between Greenport and a company known as Skynova.

23 Mr Mason placed particular reliance on a letter dated 13 October 2000 from Gadens, in their role as solicitors for Greenport, to Tottle Christensen, as solicitors for Mr Scanlan. The letter in question contains the following passage:

"We are surprised that you find our earlier advice re the sale ambiguous. For the avoidance of any further confusion we confirm that following Town of Cottesloe and DOLA approval to the extension of lease and to its assignment to Skynova, approval was sought from the office of Racing, Gaming and Liquor to the transfer of the liquor licence. That approval was given and the licence accordingly transferred on 29 September 2000. Completion of the outstanding conditions of the contract between Greenport and Skynova occurred, settlement was effected and the business transferred."

24 Upon the hearing of the application for a Mareva injunction, counsel for Mr Scanlan submitted that his client had not been kept fully informed and there was a risk, unless restraining orders could be obtained as a matter or urgency, that Greenport would dissipate the proceeds of the sale to the third party.

25 The orders sought by Mr Scanlan were that Greenport be restrained from disposing of or dealing with any funds realised from the sale of its assets and business to Skynova Pty Ltd. Further orders were sought that Greenport disclose the sums or balances standing in any account in its name and that relevant documents be retained. These orders were not to

(Page 11)

prevent Greenport from paying bona fide debts incurred in the ordinary course of business or from making repayments in respect of existing liabilities. I have already noted that these orders were granted upon an ex parte basis without any submissions being put to the Court on behalf of the respondents. I must also note that an undertaking as to damages was provided by the applicants in the usual form.

26 The record of the hearing before me on 17 October 2000 indicates that in the course of argument, a chronology of events was handed up with a copy affidavit of Mr Mason, sworn 17 October 2000. The effect of the further affidavit was that the applicants for the Mareva injunction sought to rely upon affidavits previously filed, including the affidavit of Mr Scanlan, sworn 28 June 2000 mentioned earlier. This meant that the evidentiary materials before the Court as it proceeded to evaluate facts and matters bearing upon the application for a Mareva injunction and related undertaking as to damages included reference to a statement of assets and liabilities suggesting that Mr Scanlan's net worth exceeded $1,000,000.

27 Since the grant of the Mareva injunction on 17 October 2000, it has been open to the first respondent to apply on short notice to discharge or vary the orders made pursuant to the liberty to apply.

28 It is apparent from the extensive affidavit evidence now presented to me that in the months that followed various exchanges took place between the parties and that the legal advisers to Greenport were taking steps to assemble materials which would underpin an application to vary or discharge the Mareva injunction. In particular, information was sought from the solicitors for the applicants concerning Mr Scanlan's purported land holding in Bali and other matters bearing upon the sufficiency of the undertaking as to damages.

29 Greenport now applies to discharge the Mareva injunction upon the grounds that the applicants are unable to demonstrate that the grant of a Mareva injunction is justified in the circumstances of the present case. Greenport contends that the applicants are unable to satisfy the Court that they have a real prospect of success in respect of the claims reflected in their amended application for relief or that there is a real risk of the remaining funds held by Greenport being dissipated. Greenport says further that there was a failure to disclose facts and matters bearing upon the undertaking as to damages at the time the Mareva injunction was granted, with the result that the injunction should be set aside.

(Page 12)

30 Counsel for the applicants accepted at the hearing before me that, in circumstances where orders for a Mareva injunction were obtained initially upon an ex parte basis, as in the present case, with liberty to the respondent to discharge the same, it must follow that in the event of an application to set aside being made, the burden of proof lay upon the applicant for the injunction - in this case, Mr Scanlan and his firm - to satisfy the Court that a Mareva injunction should be granted. In my view, this is the correct approach and I will proceed accordingly.

31 The principles bearing upon the application of a Mareva injunction are set out in Seaman's Civil Procedure. The author notes at par 52.1.30 that the juridical foundation of an injunction of that kind is the inherent jurisdiction of the Court to protect the integrity of its processes once they are set in motion and it is not to be moulded by the principles which apply to interlocutory injunctions as administered by courts of equity because it is of a different nature.

32 When one turns to the relevant principles, I take account of the decision of the Full Court in this State in Perth Mint v Mickelberg & Ors (No 2) [1985] WAR 117. In that case, it was held that in order to obtain a Mareva injunction, a plaintiff must first show (a) a good, arguable case, (b) a real risk that if the injunction is not granted, the defendant will remove or dissipate his assets. The strength of the plaintiff's case is to be viewed in context to the risk of dissipation or removal of assets.

33 In the Perth Mint case, the Chief Justice gave consideration as to what constitutes an arguable case. He said at page 118:

"The reservation which I have lurks in the requirement that it should appear to the court to be 'likely that the plaintiff will recover judgment against the defendant for a certain or approximate sum'. My reservation as to that is as to the degree of likelihood which must be made to appear. That is something which, in my view, may vary within quite wide limits as it must be judged in the context of the strength of the provisional proof of the other considerations. The true basis for the exercise of the jurisdiction, I think, is to render the administration of the law effective and to prevent abuse and not, when expressed in general terms, to protect the interests of the plaintiff."

34 The Chief Justice goes on to say that the sufficiency of the strength of the plaintiff's case will always fall to be judged in the context of the risk that the defendant will dissipate his assets with the intention of

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placing them beyond the reach of the plaintiff. The two considerations must be judged in combination.

35 It is also apparent from Seaman that a Mareva injunction will not be granted merely for the purpose of providing a plaintiff with security for a claim, even when the plaintiff appears likely to succeed and even when the granting of the injunction will not cause hardship to the defendant.

36 Because the granting of a Mareva order before judgment has a significant impact on the property of the person against whom it is made, and carries the sanction of contempt, it requires a high degree of caution by the Court, being a drastic remedy which should not be granted lightly: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 403.

37 Seaman notes at par 52.1.14 in regard to interlocutory injunctions that it is the duty of the party asking ex parte for an order in the nature of an injunction to bring under the notice of the Court all facts material to the determination of the issue. The duty of disclosure extends to any defence which the defendant has indicated. Failure to make full and fair disclosure provides a basis for setting aside the injunction.

38 Where there has been no deliberate lack of candour and the matter which is not disclosed is not of a major character overall and was omitted in circumstances in which extensive instructions have necessarily been taken in haste, the injunction will not necessarily be set aside: Westwind Air Charter Pty Ltd v Hawker De Havilland Ltd (1990) 3 WAR 71 at 88.

39 I must now turn to the circumstances of the present case.

40 It is apparent from the narrative that the Mareva injunction and related liberty to apply was granted on 17 October 2000 pursuant to an ex parte application by Mr Scanlan against Greenport.

41 The injunction is in these terms:

"1. Until further order, the First Respondent be restrained and an injunction be granted restraining it from removing from the jurisdiction of the Court or otherwise disposing of or dealing with any of the funds, property, moneys (whether on deposit or otherwise and including any credit balance in any account in the name of or held on behalf of or to the order of the First Respondent) or other assets of the First Respondent realised from the sale of its assets and business to Skynova Pty Ltd.

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2. The First Respondent disclose to the First Applicant within 14 days of the service of this Order upon it, by writing verified by affidavit:

(a) the sums or balances at present standing in any account in the name of or held on behalf or to the order of the First Respondent whether as trustee or otherwise at any bank, branch of a bank, building society, credit union, financial institution or other institution with which moneys are deposited; and

(b) details of all personal and real property and any other assets held by it and its liabilities whether associated with those assets or otherwise and in any capacity.


3. The First Respondent preserve until further Order all documents and copies thereof whilst they are in its possession, custody or power relating to any of the facts and matters referred to in paragraph 2 hereof.

4. Nothing in paragraph 1 shall prevent the First Respondent from:


(a) paying or satisfying a debt due to persons who are not associates (as that term is defined in ss10 to 17 of the Corporations Law) of the First Respondent provided that those debts have been or are incurred bona fide and necessarily in the ordinary course of the conduct of a business carried on by the First Respondent and relate to its ordinary trading operation and in particular exclude those debts which consist of loans and convertible notes to J.H. Atkinson, Capital Alliance Pty Ltd, Union Petroleum Pty Ltd, Llandbedr Holdings Pty Ltd, Romarcon Pty Ltd and Arlco Australia Pty Ltd;

(b) making repayments on exiting mortgages or loans to banks or other financial institutions in accordance with obligations undertaken by the First Respondent to do so; and

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(c ) paying legal costs reasonably and necessarily incurred in defending these proceedings or related proceedings brought against the First Respondent.

5. The First Applicant is at liberty to take out a summons at any time until further orders, returnable on not less that 24 hours notice to the First Respondent, to vary these orders or to extend their operation.

6. The First Respondent is at liberty to apply on not less than 24 hours notice to the First Applicant to vary or discharge these orders.

7. The costs of the application be in the cause."

42 As I have already indicted, pursuant to the liberty to apply, Greenport now applies to set aside these orders.

43 According to the affidavit of Mr Jermyn sworn 4 July 2001 and filed and served in support of the application to set aside, Union Petroleum SA, a company residing in the UK, holds approximately 86 per cent of the shares in Greenport. That company and the third respondent, Capital Alliance Pty Ltd, hold between them 700,000 shares in Greenport out of a total of 700,002 shares, which is 99.99 per cent of all of the shares in Greenport. The remaining two shares are held as to one each by Mr Jermyn and Mr Scanlan.

44 It emerges from the affidavit of Peter Ross Lloyd-Cooper sworn 5 July 2001, that he is the solicitor for Union Petroleum which is the holder of 600,000 out of 700,002 issued shares in Greenport. In 1995, Union Petroleum subscribed the sum of $1.5 million to Greenport in order to obtain the issue of the shares just mentioned.

45 Mr Lloyd-Cooper confirms that the restaurant business formerly owned by Greenport was sold last year. He goes on to say that "approximately $500,000" remains after the sale, which funds are effectively "frozen" in a bank account pursuant to the Mareva order. The bank account pays only a relatively low rate of interest and the affidavit suggests that the interested parties would like to see such funds earning a significantly higher rate of return.

46 Mr Lloyd-Cooper goes on to say that during the time that Greenport owned The Indiana Teahouse restaurant a substantial amount of money was lost. This has meant that the value of the shares owned by Union

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Petroleum in Greenport has decreased to a considerable extent. He contends that the best way for the funds held in suspension to be made up to the maximum extent would be for Greenport to be free to have its own form of investment and be able to act on its own choice.

47 It is apparent to me from other evidence before me on affidavit that as at the date on which the Mareva orders were granted, the funds in the relevant bank account amounted to $816,070. The relevant bank statements suggest that the money in the bank account where the funds are held had been reduced to $452,154 by mid-March this year.

48 It follows from the narrative that Mr Scanlan's primary claim is that he is entitled to at least 25 per cent of the equity of Greenport pursuant to an alleged agreement and that he has been oppressed in that he has never received the allocation he seeks. He further alleges that he has been oppressed by being excluded from management. He seeks a winding-up order and, through his firm, claims certain professional fees.

49 Counsel for Greenport submitted that no plausible evidence supporting an entitlement to receive such a shareholding, either for cash or for nil cash consideration, has been brought forward. Greenport and its fellow respondents have denied the entitlement. Nonetheless, as appears from a letter exhibited to Mr Jermyn's affidavit, an offer to meet the primary claim of the applicants has been made. This offer was not accepted. Greenport therefore contends that in the circumstances any claim of oppression in respect of the primary claim is manifestly weak and falls far short of the level of strength which would justify the grant of a Mareva injunction which is generally not granted lightly.

50 The respondents say further that the present proceedings are an inappropriate and oppressive pursuit of remedies under the Corporations Law for debt collection.

51 The remaining issue between the parties is the second applicant's claim for payment of invoices allegedly owing to it by Greenport. Counsel for Greenport argues that a disputed claim for invoices against which there are counterclaims based inter alia on negligence and alleged inadequacies in the architectural services provided cannot be regarded as a sufficient basis for preserving a Mareva injunction, especially where the evidence of dissipation of assets is far from compelling.

52 It follows from the legal principles referred to in earlier discussion that in general terms a Mareva order can be sought when it appears likely that the plaintiff will recover judgment and there are reasons to believe

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that the defendant has assets within the jurisdiction sufficient to meet the judgment in whole or in part, but may take steps designed to ensure that these assets are no longer available in the event of judgment being given against the plaintiff.

53 Greenport contends, in the circumstances of the present case, that there is insufficient evidence before the Court that the applicants will recover judgment, or, more importantly, that Greenport will take any steps to ensure that its assets are unavailable or untraceable if judgment is given against it. The decided cases suggest that the remaining proceeds of the sale should not be used simply as a form of security in respect of any judgment the applicants might be able to obtain in due course.

54 Counsel for the respondents submits further that there has not been shown any balance of convenience in favour of preservation of a Mareva injunction in these proceedings. In this instance, not only is the claim weak, but the balance of convenience does not support continuation of the orders. If Greenport is permitted to invest the subject funds elsewhere, the funds will be translated into other assets which can be resorted to by the applicants in the event of their succeeding in their claim. Their utilisation of the assets for investment cannot be regarded as a form of dissipation which might preclude the applicants from obtaining relief eventually.

55 Reference was made to various investment opportunities detailed in the affidavit of Mr Jermyn sworn 4 July 2001 and to the fact that Greenport has been denied these opportunities as a consequence of the granting of the Mareva injunction. The affidavits of Mr Jermyn suggest that as the action has not yet been listed for trial, the respondents and Union Petroleum, as an interested third party, will be denied opportunities for financial growth or capital gain if the orders remain in force. This state of affairs may be of no material consequence to Mr Scanlan who holds only one share, but it is a matter of significant concern to the respondents and to Union Petroleum.

56 As to the value of the applicants' undertaking, the affidavits of Mr Jermyn sworn 4 and 30 July 2001, in summary, present evidence to this effect.

57 Mr Scanlan's statement that he holds an interest in land in Bali to the value of $750,000 and owns property in Cottesloe is contradicted by statements he made to a solicitor named Carrington in mid-2001 and by title searches and other inquiries. He has failed to respond to reasonable

(Page 18)

requests to clarify the situation. Further, the trial of the action has been delayed and may not be heard for some time.

58 When the various matters and evidentiary materials relied upon by Greenport are drawn together, it becomes apparent that the central thrust of the Greenport submissions is to this effect.

59 The applicants are seeking to recover professional fees for architectural services relating to the development known as The Indiana Teahouse. That claim is complicated and rendered uncertain to some extent by the presence of alleged arrangements whereby the claim can be converted into shares in Greenport. The amended application for relief, however, does not disclose a clearly articulated basis for such a contention and, in any event, a dispute has arisen between the parties as to the adequacy of the services provided. These matters should properly be resolved at the trial of the action which will take place in the near future. In the meantime, Greenport submits, the applicants should not be allowed to use the application for or grant of a Mareva injunction as a means of debt collection, or as a way of applying pressure.

60 Greenport submits further, as appears from a thorough review of the evidentiary materials, that the applicants were kept informed about negotiations leading to a sale of the company's assets. There is no persuasive evidence before the Court that Greenport was or is going to dissipate the proceeds of the sale. The desire to invest the proceeds in a more productive manner than is presently allowable by the terms of the restraining orders is consistent with commercial practice and the company's obligations to its shareholders.

61 The consequence of investment decisions will simply mean that funds in a bank account will be translated into other assets and decisions of this kind cannot be equated to a prospective dissipation of assets of the kind that usually attracts an application for Mareva orders. Further, and in any event, the decided cases indicate that Mareva orders are not to be used simply as a means of securing a judgment that might ultimately be obtained by a plaintiff.

62 Greenport reminds the Court that the applicants' Mareva injunction was obtained upon an ex parte basis without Greenport being afforded an opportunity to present submissions of the kind just mentioned. It is true that the terms of the orders obtained allowed Greenport an opportunity to discharge the orders. However, in order to pursue that option, Greenport

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had to assemble the evidentiary materials required to put forward a properly presented case for discharge.

63 Greenport submits that it is not obliged to justify the delay in presenting such an application. Nonetheless, the explanation provided by it is that expert evidence had to be reviewed, Mr Dietrich experienced a period of ill-health, a mediation was held, an offer of shares was made, inquiries had to be made concerning the Bali land, and responses were sought from the applicants in regard to issues of this kind. These matters are referred to in the affidavit of Mr Cullen sworn 14 August 2001.

64 Greenport reminds the Court that the shareholders of Greenport include a third party, Union Petroleum, which has a significant stake in the company. Union Petroleum has an interest in having Greenport's assets employed in a more productive manner.

65 Greenport reminds the Court also that where orders are obtained upon an ex parte basis, there is an obligation of full disclosure. In this case, the applicants sought to rely upon affidavit evidence suggesting that the undertaking as to damages provided by the applicants represented a suitable security for the proposed order. In the event, however, in the light of subsequent inquiries, significant doubts arise as to whether the applicants have an interest in land in Bali, being a major asset underpinning the undertaking provided to the Court, and these ambiguities lend further support to Greenport's application to have the orders previously made discharged.

66 In reply, the applicants rely upon various matters and evidentiary materials, including the affidavits of Gary David Cobby sworn 7 August 2001, Fiona Vernon sworn 8 August 2001, Lawrence Scanlan sworn 8 August 2001 and Andrew John Mason sworn 16 August 2001. The applicants recognise, as I have already noted, that as this is the first occasion on which the question of whether a Mareva injunction should be granted or remain in force has been argued on a contested basis, the applicants bear the burden of proof.

67 At the conclusion of the hearing before me, counsel for the applicants seemed to accept that at the ex parte hearing on 17 October 2000 the materials before the Court included not only a chronology bearing that date but also a copy affidavit of Andrew John Mason sworn 17 October 2000 which invited the Court to take account of affidavits previously relied upon by the applicants in support of an application for an interim injunction. This included the affidavit of Mr Scanlan sworn

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28 June 2000 in which his assets are portrayed as including 1.5 acres of land in Bali to the value of $750,000. I pause to say that, in any event, I have now checked the record of the relevant hearing and am satisfied that the Mason affidavit, and thus the Scanlan affidavit, were before the Court and can be regarded as part of the materials relied upon. I will take account of this finding in the observations that follow.

68 In opposing the application to discharge, counsel for the applicants emphasised the proposition that Greenport was a corporate vehicle formed for the sole purpose of carrying into effect the Indiana Teahouse project, being a concept devised as a result of discussions between Mr Scanlan and Mr Jermyn. It follows from this, counsel submitted, that the proceeds of the sale should not be regarded as funds available for general investment or to advance other projects, but should be held principally for the purpose of meeting the obligations and expectations envisaged by the original parties to the venture. The evidence indicates that Mr Scanlan was not kept fully informed as to the negotiations and circumstances bearing upon the sale of Greenport shares initially proposed and the eventual sale of assets and this meant that an urgent application for relief upon an ex parte basis was justified, especially in circumstances where the major shareholder in Greenport was an overseas company.

69 Counsel for the applicants acknowledged that in recent months, subsequent to the grant of the Mareva injunction, an offer had been made to vest 25 per cent of the shares in Greenport in Mr Scanlan, being outwardly an offer made in purported satisfaction of the relief originally sought by the applicants, but it had to be kept in mind that the financial circumstances of Greenport had changed significantly since the proceedings were commenced in that the company had now disposed of its business and principal assets.

70 Counsel for the applicants drew attention to the fact that the Mareva orders obtained ex parte on 17 October 2000 included provision for Greenport to meet bona fide ongoing commitments and the consequence was that the proceeds of the sale were now significantly less than the proceeds available at the time the orders were made. The dispute between the parties had been listed for hearing in mid-2001, but as the consequence of further exchanges between the parties and programming orders made by the Court allowing for the delivery of further affidavits directed to various matters in controversy, including the adequacy and value of the architectural services, the parties could not necessarily assume that the central dispute would be listed for hearing in the near future. Accordingly, the applicants had a legitimate interest in the Mareva

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injunction being kept in place until the trial of the action. The Court should also take account of the fact that Greenport was in delay in seeking to exercise its entitlement to apply for a discharge of the Mareva injunction.

71 Counsel for the applicants went on to submit that there was no basis for Greenport's submission that the applicants' claim for oppression is manifestly weak. The applicants have filed substantial affidavits in support of their claims. It is said that the evidence against Mr Scanlan bearing upon the adequacy of the architectural services provided, including an alleged claim in negligence, is not compelling and consists in the main of unsubstantiated claims of overpayment to a builder. Counsel contends that the Greenport claim in that regard, in which reliance is placed upon an affidavit sworn by the builder Dietrich, is rebutted by the facts and matters attested to in the affidavit of Mr Scanlan sworn on 13 August 2001.

72 Counsel for the applicants went on to submit that there is clear evidence of a risk that if the Mareva order is set aside, the assets of Greenport will be dissipated, leaving Greenport unable to meet an order for payment of money or any order for costs. Greenport's only asset now is the money held in the account the subject of the Mareva order, which has been reduced from $826,070.29 to a closing balance as at mid-March 2001 of $452,154.

73 As to the question of whether the applicants were kept informed, counsel refers to the applicants being provided with a copy of a contract indicating that settlement was to take place on 31 October 2000, but without the applicants being informed, notwithstanding repeated contact between the parties, that settlement was effected on 6 October 2000. It was when this state of affairs came to light that the applicants felt obliged to make application for the Mareva injunction as a matter of urgency.

74 Counsel for the applicants argued that it is apparent from the evidentiary materials before the Court that the net proceeds of sale received by Greenport are affected by loan repayments in respect of which there is not satisfactory documentation recording obligations to pay the loan amount. In respect of the Max Resources NL transaction, there is no record of any obligation to pay Union Petroleum SA $192,000.

75 Counsel submitted that the investment opportunities purportedly made available to Greenport subsequent to the granting of the Mareva injunction were for the most part verbal offers and it is not clear whether

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they were taken up by Mr Jermyn or by any other company in which he is involved. Further, given the very high returns that are alleged to be attainable from these investments, it may be assumed that they carry a correspondingly high risk that the investment may produce no return.

76 Further, and in any event, counsel submitted that there is no evidence of the interest rate presently applicable on the Greenport account in order to make any comparison of the relevant returns. It may be inferred from the respondents' failure to set aside the Mareva injunction, that Greenport did not consider it was suffering any detriment by the money being retained in an interest-bearing account. There is no evidence that Union Petroleum SA will suffer any detriment by the moneys remaining in the present interest-bearing account, given that the hearing of the matter will occur in the near future.

77 Counsel for the applicants acknowledged, in regard to the controversy concerning the undertaking as to damages, that it is the duty of the party asking for an injunction ex parte to bring under the notice of the Court all facts material to the determination of its right to that injunction. Counsel submitted that doubts as to the value and existence of the assets thought to be underpinning the undertaking do not establish as a material fact that the undertaking has no value. It is said that the first applicant is an experienced architect and runs and operates an established architectural practice through his own company, the second applicant. He has capacity to earn income through the second applicant and, as such, has the capacity to pay compensation for any damage as a result of the injunction being wrongfully granted. Thus, the allegation of Greenport that the undertaking is of no or no sufficient value is disputed.

78 In reviewing the principles bearing upon the grant of a Mareva injunction, I have already noted that the true basis of this form of relief is to render the administration of the law effective and to prevent abuse, not to protect the interests of the plaintiff. There is no basis for the exercise of the jurisdiction, unless the risk or likelihood of dispositions intended to frustrate, or having the necessary effect of frustrating, the plaintiff is shown, whereupon the sufficiency and strength of the plaintiff's case falls to be considered in the context of that risk. The jurisdiction cannot be invoked for the purpose of providing security to plaintiffs even when they appear likely to succeed and the order would impose no real hardship on the defendants. The cases also indicate that an injunction of this kind is regarded as a drastic remedy which requires a high degree of caution by the Court, because it carries with it the sanction of contempt, and it should therefore not be granted lightly.

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79 When I apply these principles to the circumstances of the present case, bearing in mind the respective submissions of the parties, I must begin by saying that, in my view, the applicants, as the parties bearing the burden of proof and of persuasion, have not demonstrated to my satisfaction that there is a real risk that Greenport will remove or dissipate the proceeds of the sale unless restrained in the manner countenanced by the existing orders.

80 The exchanges between the parties and their legal representatives in the period leading up completion of the sale do appear to have created in the mind of the first applicant a genuine doubt as to when the sale was to be completed and as to what might happen in the immediate aftermath of the sale. It was the presence of this doubt which prompted the application for relief upon an ex parte basis, although, in the usual course of events, where the solicitors for each side have been in regular communication, one would expect that no interim orders would be applied for or made without the party affected by the orders being allowed an opportunity to be heard.

81 Counsel for the applicants submitted that an urgent application was justified by the doubt that had arisen and the presence in the orders of a provision allowing liberty to apply for a discharge upon short notice was sufficient to prevent any real prejudice to the respondents. Nonetheless, even though the applicants may arguably have been entitled to proceed upon an ex parte basis in circumstances of presumed urgency, they were required then, and are still required, to show that there was and is a real risk of the proceeds of the sale being removed or dissipated. To my mind, a doubt of the kind just mentioned, especially when it arises in the context of what appears to be a bona fide difference of opinion between the parties as to the nature of the arrangements originally made and the adequacy of services subsequently provided by the applicants, is not sufficient.

82 The decided cases clearly show that relief of the kind sought is to be granted with caution. One must also take account of the notion that Mareva orders are not to be used to secure a prospective judgment and, generally speaking, a corporate entity, like any individual, should be at liberty to employ its resources as it sees fit, unless restrained by a court order. If the remaining proceeds of the sale are deployed in a manner other than being held in an interest-bearing bank account, with the result that the subject funds are translated into other assets, I have difficulty in accepting that a step of this kind should be regarded as analogous to a removal or dissipation of the funds. For this reason also, I am not

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persuaded that the grounds relied upon by the applicants are sufficient to justify continuation of the injunction.

83 Further, and in any event, even if there be a degree of risk of the kind alleged by the applicants, I am not persuaded that the applicants' claim is sufficiently strong to outweigh the considerations I have mentioned. The affidavits point to the existence of a rather complicated controversy between the parties as to the nature of the original arrangements and as to the effect of subsequent events, and it cannot be said that the applicants are clearly bound to succeed, with the result that it would be unjust to countenance any degree of risk concerning dissipation of the assets.

84 In summary, then, I say this. It is apparent from the decided cases including the Perth Mint case that the sufficiency of the strength of the plaintiff's case will always fall to be judged in the context of the risk that the defendant will dissipate the subject assets with the intent of placing them beyond the reach of the plaintiff.

85 To my mind, when the strength of the present case is viewed in this context, it falls short of the level of strength that would justify the grant of a Mareva injunction. The plaintiff alleges unfairness and oppression. He presently holds one share of 700,002 fully paid shares. His claim to be allotted 25 per cent of the issued shares of Greenport is referable not to arrangements made with Greenport, but to an informal oral agreement made with Mr Jermyn, which is not evidenced by any contemporary and compelling documentation.

86 Further, and in any event, the alleged arrangements are somewhat uncertain in their terms in that, as appears from the passage I have quoted from Mr Scanlan's affidavit of 20 April 2000, the entitlement is described in a very general way and the arrangements are dependent on the fulfilment of various conditions precedent which, in turn, are somewhat uncertain. In the meantime, without admission of liability, an offer of shares to the extent claimed has been made, but the offer has been refused. I note also that Mr Scanlan is a signatory to a minute suggesting that shares in the company were only to be issued as against payments in cash.

87 All this indicates that in reality the applicants' claim is a claim for payment of certain architectural fees which are the subject of an ongoing dispute. The background to the dispute includes the fact that the claimant has already received various payments for services rendered. The applicants place some reliance on payments made by Greenport to third parties in discharge or purported discharge of arrangements allegedly

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made to finance the project, but it is apparent from Mr Scanlan's own affidavit that he himself was privy to an understanding from an early stage that Mr Jermyn would attend to such matters and that finance would be obtained from parties such as Union Petroleum and the third respondent.

88 When these matters are drawn together, they affirm my conclusion that the strength of the claim is not sufficient to justify the grant of Mareva orders of the kind contended for by the applicants. Additionally, when there has been what I perceive to be a failure to make a full and sufficient disclosure of material facts at the time the orders were obtained on an ex parte basis, I consider that the orders previously made must be set aside.

89 I find support for the views I have expressed in the reasoning of Murray J in Santos & Associates v Glowtime Pty Ltd & Anor [2000] WASC 58. In that case, his Honour affirmed the rule that a Mareva order should be granted with caution and confined to that class of case where it is cogently established that the assets of the defendant in the action may be removed from the jurisdiction or dealt with in such a way as to prevent a judgment being enforced. In that case, he dismissed the application for an assets preservation order.

90 It follows from what I have said that I have reservations as to whether the applicants made a full disclosure concerning the land in Bali, and thus the assets pointed to as underpinning the undertaking as to damages. The presence of these reservations underpins the conclusion I have already expressed that the Mareva injunction previously granted should be set aside. I note in passing that, in my view, I do not see a degree of delay in the circumstances of the present case as being a bar to an application to discharge the injunction. Further, and in any event, I consider that there is a sufficient explanation for the delay and I am therefore not prepared to deny relief to Greenport upon that ground.

91 When one looks at the balance of convenience, viewed as at the present date, and bearing in mind that the parties are getting close to having the matter listed for trial, I consider that Greenport should not be fettered by the present order in the deployment of its assets by the orders previously made, for such a fetter has an impact upon third party shareholders. On the other side of the equation, I notice that the applicants do not presently have any access to, or clear entitlement in respect of, the funds in question and are therefore not being deprived of anything akin to moneys in hand. The applicants are arguably being deprived of funds that might otherwise be available to secure any

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judgment eventually obtained. However, as I have already noted, a consideration of that kind is not sufficient to justify the grant of a Mareva injunction.

92 In summary, then, the orders for a Mareva injunction previously made on 17 October 2000 are to be set aside having regard to the reasons contained in this judgment. I will hear from the parties as to the orders required to carry this ruling into effect and as to whether any other orders are now required in regard to the matters in issue.