Seeley International Pty Ltd v Millennium Electronics Pty Ltd
[2020] SASC 205
•9 October 2020
Supreme Court of South Australia
(Civil: Application)
SEELEY INTERNATIONAL PTY LTD v MILLENNIUM ELECTRONICS PTY LTD
[2020] SASC 205
Ruling of The Honourable Justice Livesey (ex tempore)
9 October 2020
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - DETENTION, INSPECTION AND PRESERVATION - FREEZING ORDERS
The applicant commenced proceedings in this Court seeking damages from the respondent for negligent breach of duty, breach of contract and misleading or deceptive conduct. The respondent voluntarily wound up and a liquidator was appointed on a special resolution of shareholders. The applicant sought a Mareva order with ancillary orders to freeze a portion of the respondent’s assets and obtain financial information with respect to the respondent. The application for a Mareva order was made ex parte.
Held, allowing the application:
1. The respondent’s assets are frozen to the value of $19.3 million, and the respondent must provide the applicant with copies of financial statements and tax returns for the years ended 30 June 2019 and 30 June 2020, and printouts from its accounting system to identify its cash at bank, stock on hand, debtors and liabilities as at 30 June 2020.
2. For the Court to make a Mareva order, the applicant must satisfy the Court that there is a good and arguable case, there is a danger that a prospective judgment will be wholly or party unsatisfied because the prospective judgment debtor’s assets are diminished in value, and the balance of convenience favours the grant of the Mareva order.
Competition and Consumer Act 2010 (Cth) sch 2, s 18; Corporations Act 2001 (Cth) s 471B, s 440D, s 500(2); Supreme Court Act 1935 (SA) s 29; Uniform Civil Rules 2020 (SA) r 25.2, r 112.14, r 112.15, r 112.17, referred to.
BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd [2010] WASC 25; Brentwood Village Ltd (in liq) v Terrigal Grosvenor Lodge Pty Ltd [2014] FCA 1203; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; Devlin v Collins (1984) 37 SASR 98; Thomas A Edison Ltd v Bullock (1912) 15 CLR 679; Yadlamalka Land Pty Ltd v Ragless [2018] SASC 131, considered.
SEELEY INTERNATIONAL PTY LTD v MILLENNIUM ELECTRONICS PTY LTD
[2020] SASC 205Civil: Application
LIVESEY J:
This action has been listed for trial to commence before me on 2 November 2020, with four weeks set aside. The matter was called on this morning for further directions.
Counsel for the respondent then advised me that her instructors had yesterday received a letter terminating their instructions. This morning, the respondent’s solicitors were advised that a liquidator would be appointed at a meeting to be held in Melbourne earlier this morning.
Concurrently with these developments, the solicitors for the applicant have become concerned about a number of transactions which I will address shortly. As a result of those concerns, an application was filed this morning seeking freezing and ancillary orders to be made against the respondent to:
1prevent the further disposition of the respondent’s assets in advance of the trial of this action; and
2obtain information to enable the applicant to identify the nature, extent and value of the respondent’s assets that cannot be identified by public searches, as well as the extent to which any of those assets have been transferred or otherwise disposed of other than in the ordinary course of business.
In support of that application I received an affidavit from Matthew Selley sworn 9 October 2020, an ASIC search relating to the respondent obtained this morning at around 9.11 am (Adelaide time), and a copy of a resolution for a company described as ACN081014208 Pty Ltd, which provides as follows:
Consent to short notice.
We, being the shareholders of ACN081014208 Pty Ltd, agree that the resolution set out below be proposed and passed as a special resolution at a meeting of the company to be held at 12 Webber Parade, Keilor East, Victoria, 3033, on 9 October 2020 at 9.15 a.m., of which less than 21 days’ notice has been given.
Special resolution:
That the company be wound up voluntarily, and that Matthew Gollant of CJG Advisory be appointed liquidator of the company.
dated 9/10/20
[A signature:]
……………………..
Promentor Pty Ltd
[A signature:]
……………………..
Odero Conci
[A signature:]
……………………..
Eric Au
In support of its application, the applicant relies upon:
1Rule 112.14 of the Uniform Civil Rules 2020 (SA), by which a freezing order may be sought for the purposes of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partially unsatisfied;
2Rule 112.15, which permits orders ancillary to a freezing order for the purposes of eliciting information relating to assets relevant to the freezing order;
3Rules 112.17(1)(b) and 112.17(4)(b)(ii), to permit the applicant to seek a freezing order and ancillary orders where it has a good arguable case on an accrued course of action justiciable in the Court, and there is a danger that the prospective judgment will be wholly or partly unsatisfied because the assets of the prospective judgment debtor are disposed of, dealt with, or diminished in value;
4Otherwise, s 29 of the Supreme Court Act 1935 (SA), and the inherent jurisdiction of the court which prevents the frustration of the Court’s processes.[1]
[1] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380.
The principles relating to the grant of what is commonly described as a Mareva order, together with ancillary orders, are not in doubt. They can be summarised as follows:
1There must a good and arguable case, on both the law and the facts, in favour of the applicant.[2]
2There must arise a danger that a prospective judgment will be wholly or partly unsatisfied because the assets of the prospective judgment debtor are disposed of, dealt with, or otherwise diminished in value.[3]
3The balance of convenience favours the grant of the orders sought.[4]
[2] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [68]. See also rule 112.14 of the Uniform Civil Rules 2020 (SA).
[3] Yadlamalka Land Pty Ltd v Ragless [2018] SASC 131, [35]-[44]. See also rule 112.17(4) of the Uniform Civil Rules 2020 (SA).
[4] BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd [2010] WASC 25, [22].
Otherwise, it must be borne in mind that, notwithstanding the terms of the rules of Court, the Court always retains the power to make orders in the nature of freezing or ancillary orders, whenever it considers that it is in the interests of justice to do so.[5]
[5] Yadlamalka Land Pty Ltd v Ragless [2018] SASC 131, [35]-[44].
It is well recognised that the threshold for demonstrating a “good arguable case” is low. It has been said that all that is required is something which “is more than barely capable of serious argument and not yet necessarily one the judge believed to have a better than 50% chance of success”.[6]
[6] Brentwood Village Ltd (in liq) v Terrigal Grosvenor Lodge Pty Ltd [2014] FCA 1203, [24].
In this case, the applicant relies upon the Fourth Statement of Claim which has been filed in these proceedings on 4 November 2019. By that Statement of Claim, the applicant seeks damages for negligent breach of duty, breach of contract, and misleading or deceptive conduct, pursuant to s 18 of the Australian Consumer Law. The claim is for losses sustained as the result of what is alleged to be the respondent’s defective design of a “flame sensor circuit” which forms part of an electronic circuit board manufactured by the respondent for installation in ducted gas heaters sold by the applicant.
It is the applicant’s case that the design of the flame sensor circuit and, in consequence, the circuit boards manufactured by the respondent and supplied to the applicant, were defective for various reasons. Initially, this was because the voltage chosen by the respondent as the supply voltage for the flame sensor circuit was insufficient. Later, after the respondent increased the supply voltage to the flame sensor circuit, the applicant says that the electronic “noise” caused by a relay on the circuit board interfered with the flame sensor signal.
In consequence, the applicant contends that the ducted gas heaters which it had installed in residential properties manifested recurring faults. This required the applicant to replace the electronic control units in thousands of ducted gas heaters installed in residences across Victoria and South Australia from June 2015. The applicant contends that this was done at significant cost to it.
In support of its claim, the applicant has gathered together a number of experts who have provided expert reports. It is unnecessary for present purposes to go into detail about the nature of the expert opinion evidence gathered in support of the applicant’s case.
So far as compensation is concerned, the applicant relies upon a report prepared by Mr Brian Morris, a forensic accountant, which quantifies the applicant’s claims in the following ways:
1Direct losses of $4.4 million which the applicant attributes to the cost of labour and parts for the replacement of electronic control boards in gas heaters affected by the alleged defects;
2Anticipated future costs of future replacements that the applicant says are likely to be required as a consequence of the defects, and which have been quantified in the sum of $2.08 million;
3Losses that the applicant attributes to lost margins on sales that could otherwise have been expected to be enjoyed which have been formulated by Mr Morris in a range of between $12.8 million and $8.85 million. In all the applicant’s claims lie in the range of $15.3 million to $19.3 million in addition to interest and costs.
According to Mr Selley’s affidavit, the applicant has to date incurred costs totalling approximately $934,000 prosecuting this action, and it is estimated that the costs to be incurred to the commencement of the trial will approximate another $160,000.
As might be expected, the respondent denies liability for the applicant’s claims and has itself marshalled expert opinion evidence in support of its position. On the last directions hearing in this Court I heard from Mr Duggan QC, who then acted for the respondent, as to the grounds upon which the respondent maintains that it has a defence to the applicant’s claims, as well as the grounds upon which the respondent says that the applicant is guilty of contributory fault. Nonetheless, I am satisfied that the applicant has demonstrated the threshold test for a good arguable case.
As for the danger that any prospective judgment will be wholly or partially unsatisfied, the authorities make it clear that this will be demonstrated where the Court is satisfied on evidence that, without an order, there is a real risk of this occurring.[7] The applicant is not required to prove any particular intention on the part of the respondent or its directors.
[7] Yadlamalka Land Pty Ltd v Ragless [2018] SASC 131, [35]-[44]; Devlin v Collins (1984) 37 SASR 98.
In the course of hearings before this Court, the respondent’s capacity to meet a judgment has been openly canvassed. Apparently, at one stage, counsel for the respondent conceded that the respondent did not have the resources to meet an award in the amount of the total claimed by the applicant. In consequence, the solicitors for the applicant have regularly undertaken public searches of the respondent and related entities. These searches have been undertaken so as to ascertain whether there have been any material changes in control of the assets of the respondent.
According to Mr Selley’s affidavit, he believes that over the last seven days the directors of the respondent have been taking active steps to transfer the intangible assets of the respondent to related parties. He believes that these transfers have been most likely to Millennium Electronics International Pty Ltd in each case. Mr Selley goes on to explain that he believes that it is this entity which it is intended will assume the goodwill of the respondent and succeed it as the operator of the respondent’s business. Mr Selley explains why he believes that this has been conducted in a manner that will not be obviously detected. As Mr Selley puts it:
I believe that the directors of the respondent are taking calculated steps to alienate assets of the respondent before the trial in order to defeat or prejudice the applicant’s ability to enforce a judgment against the respondent.
In the course of the hearing before me this morning, Mr McFarlane who appears as counsel for the applicant, has highlighted the following matters, though he emphasised that the complete picture is not yet clear to the applicant or its solicitors:
1On 30 September 2020 the directors of the respondent resolved to change the name of the respondent from “Millennium Electronics Pty Ltd” to “ACN 081 014 208 Pty Ltd” and lodged that resolution for processing with ASIC. It is emphasised that this change occurred without notice to the applicant or the applicant’s solicitors.
2On 1 October 2020 applications were lodged with IP Australia for the transfer of registered trademarks owned by the respondent relating to the Intelligy brand to unidentified third parties.
3On 7 October 2020 ownership of the domain name for the Millennium Electronics website ( was transferred from the respondent to the related entity “Millennium Electronics International Pty Ltd”.
4On 11 September 2020 the respondent acquired all of the shares in Millennium Electronics International Pty Ltd.
I raised with counsel for the applicant whether this last step seemed to be circuitous and contrary to the submission that there are steps being taken to alienate assets. Whilst accepting that to an extent, counsel for the applicant emphasised that the picture is not yet clear and there is a great deal about these transactions which is not yet known to the applicant or its solicitors.
It was emphasised before me that the applicant is, as a result of these transactions, concerned that there arises the real risk or danger that the directors of the respondent have taken and are continuing to take steps to transfer the respondent’s assets, including any goodwill associated with the name Millennium Electronics, to third parties ahead of the trial which will have the effect of frustrating the applicant’s capacity to enforce any judgment it may obtain. As Mr Selley has put it in his affidavit at paragraph [23]:
I am concerned that if indeed the directors of the respondent are taking steps to transfer the assets of the respondent to the now subsidiary Millennium Electronics International Pty Ltd that is occurring with the intention that the respondent’s shares in Millennium Electronics International Pty Ltd will in due course be transferred to a third party such that the assets are then not within the reach of a liquidator of the respondent.
I am satisfied that there is evidence to support the proposition that there is a real risk that, without an order, there may be less assets available to the applicant should it obtain a judgment.
As for the balance of convenience, the applicant contends that it will suffer irremediable prejudice if orders are not made as sought. The applicant emphasises that the respondent will be adequately protected by the exceptions or carve-outs set out in order 10 of the proposed order which permit the respondent to continue to deal with its assets in the ordinary and proper course of its business. Obviously, in light of the appointment of a liquidator those are matters which, on the face of it, will apply to the liquidator.
I have raised with the applicant my concern about whether there is any utility in the making of orders given the appointment of a liquidator. Earlier today Ms Clark, then counsel for the respondent before leave was obtained for her solicitors to file a notice of cessation of acting pursuant to rule 25.2(3)(b) of the Uniform Civil Rules 2020 (SA), suggested that this action was subject to s 471B of the Corporations Act 2001 (Cth). That provision provides:
While a company is being wound up in insolvency or by the court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:
(a)a proceeding in a court against the company or in relation to property of the company; or
(b)enforcement process in relation to such property; except with the leave of the court and in accordance with such terms (if any) as the court imposes.
The operation of the Corporations Act 2001 (Cth) has the effect of staying proceedings or enforcement against the respondent company, not terminating them. Ordinarily, that will also preclude the commencement of further proceedings against the company without the leave of the Court. The Court will usually decline to permit proceedings to be commenced or continued where to do so will interfere with the orderly liquidation of the company. By contrast, where the commencement or continuation of proceedings will not interfere with the orderly liquidation of the company, for example, because the company is backed by an insurer and the insurer will meet any judgment against the company, the Court will very often grant leave on suitable terms.
In response to my enquiry of the applicant, Mr McFarlane has emphasised that s 471B does not in terms apply to a case where the liquidator has been appointed by a resolution of the members, sometimes referred to as a members’ voluntary winding up. He contrasts provisions such as s 440D, dealing with administration, and s 500(2) dealing with creditor appointments, and submits that there is no provision that directly operates in these circumstances so as to impose a stay on the respondent. In the circumstances he says that, notwithstanding the appointment of a liquidator, there is utility to the making of an order.
Whilst I am concerned that there is scope for doubt about that submission, I am conscious that these events have been unfolding rapidly and in circumstances where the applicant has been given little or no notice of the transaction undertaken by the respondent’s directors.
I am prepared to make orders notwithstanding the scope for doubt about utility because, in my view, it is in the interests of justice that the status quo be preserved until there is some better information about events over the last few days.
Finally, I should note that as the matter proceeded ex parte, consistently with the requirements of authorities such as Thomas A Edison Ltd v Bullock,[8] I enquired of Mr McFarlane whether there were matters which he thought it was necessary to raise with the Court in the absence of the respondent or those acting for the respondent and he addressed those matters to the extent that he thought it was appropriate to do so.
[8] Thomas A Edison Ltd v Bullock (1912) 15 CLR 679.
In the circumstances, I am prepared to make the orders which have been sought by interlocutory application dated 9 October 2020 as follows:
1That an interim freezing order be made against the respondent in the form accompanying the application. The amount specified is $19.3 million.
2That the following ancillary orders be made requiring the respondent within seven days to produce to the applicant copies of:
2.1 the respondent’s financial statements and tax returns for the years ended 30 June 2018, 30 June 2019 and 30 June 2020 (if they have been prepared);
2.2 a printout from the respondent’s accounting system identifying its cash at bank, stock on hand, debtors and liabilities as at 30 June 2020, 1 July 2020, 30 September 2020, 1 October 2020 and as at the date an order is made by this Court in terms of this paragraph; and
2.3 the respondent’s management accounts for the months of June, July, August and September 2020.
I will direct that service of the orders made by the Court this morning be made on the liquidator.
I will adjourn this matter for further hearing to Friday, 16 October 2020 at 10.00 am before me and I will grant liberty to apply. I will reserve any question of costs.
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