Seeley International Pty Ltd v Millennium Electronics Pty Ltd (in liq) (No 2)
[2020] SASC 211
•30 October 2020
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
SEELEY INTERNATIONAL PTY LTD v MILLENNIUM ELECTRONICS PTY LTD (IN LIQ.) (No 2)
[2020] SASC 211
Reasons for Decision of The Honourable Justice Livesey
30 October 2020
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - DETENTION, INSPECTION AND PRESERVATION - FREEZING ORDERS
At a directions hearing before the trial commencing on 2 November 2020, the applicant made an ex parte application seeking a freezing order with ancillary orders to freeze the respondent's assets and obtain financial information about the respondent. Immediately before the application, but on the same day, a liquidator was appointed by way of a creditors' voluntary winding up. This Court made the orders sought by the applicant ex parte on 9 October 2020, Seeley International Pty Ltd v Millennium Electronics Pty Ltd [2020] SASC 205.
The applicant subsequently sought the following orders:
1. Pursuant to s 500(2) of the Corporations Act 2001 (Cth) that leave be granted to the applicant to proceed against the respondent and to obtain the freezing order.
2. To the extent required, that leave be granted nunc pro tunc.
3. The applicant also sought an interim freezing order and other ancillary orders against two third parties, being the ostensible purchaser of the respondent’s business and assets, and the holder of a fixed and floating charge over the assets of the purchaser.
The liquidator strongly opposed leave for the making of the freezing order.
Held, allowing the applications:
1. The applicant is granted leave to proceed in respect of the main proceeding as well as in respect of the application for asset freezing orders, on an interim and interlocutory basis, notwithstanding the appointment of a liquidator in connection with a creditors’ voluntary winding up.
2. Leave is granted nunc pro tunc, on condition that further leave is required before the applicant can enforce any judgment.
3. An ancillary order for the production of documents by the liquidator is granted.
4. The ex parte interim relief sought against the two third parties is granted.
Corporations Act 2001 (Cth) s 9, s 58AA, s 459P, s 468, s 471B, s 477, s 486, s 494, s 500(2), s 511, s 513A, s 545, s 588FB; Insolvency Practice Schedule (Corporations) 2016 s 70-45, referred to.
Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd [2020] SASC 161; Aiglon Ltd v Gau Shan Co Ltd [1993] 1 Lloyd’s Rep 164; Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1979) 146 CLR 249; BHG Nominees Pty Ltd v Ellis Young Investments Pty Ltd (1998) 16 ACLC 1539; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; Catto v Hampton Australia Ltd (In Liq) (No 2) (1998) 29 ACSR 225; Capita Financial Group Ltd v Rothwells Ltd (No 2) (1989) 15 ACLR 348; Commonwealth v Davis Samuel Pty Ltd (No 5) [2008] ACTSC 124; CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345; Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209; Donmint Pty Ltd v Farrow Mortgage Services Pty Ltd (1991) 7 ACSR 731; Emanuele v Australian Securities Commission (1997) 188 CLR 114; Hall v Poolman (2009) 75 NSWLR 99; Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545; Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2003) 45 ACSR 224; Federal Commissioner of Taxation v Linter Textiles Australia Pty Ltd (in Liq) (2005) 220 CLR 592; Jackson v Sterling Industries Ltd (1987) 162 CLR 612; Maher v Taylor [1984] 1 NSWLR 231; Marshall v Proteus Solutions Ltd (In Liq) (2006) 162 IR 135; Meehan v Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSR 123; Mercantile Group (Europe) AG v Aiyela [1994] QB 366; O D Transport (Australia) Pty Ltd (In Liq) v OD Transport Pty Ltd (1997) 80 FCR 290; Oceanic Life Ltd v Insurance and Retirement Services Ltd (In Liq) (1993) 11 ACSR 516; Ogilvie-Grant v East [1983] 2 Qd R 314; PT Bayan Resources TBK v BCBC Singapore Pte Ltd (2015) 258 CLR 1; Re Addstone Pty Ltd (In Liq); Ex parte Macks (1998) 30 ACSR 162; Re AJ Benjamin Ltd (In Liq) (1969) 90 WM (Pt 1) (NSW) 107; Re Cummins; Richardson v Cummins (1951) 15 ABC 185; Re DSHE Holdings Ltd (Receivers and Managers appointed) (In Liq) (2018) 36 ACLC 18-002; Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314; Re Symon; Public Trustee v Symon [1944] SASR 102; Rushleigh Services Pty Ltd v Forge Group Ltd (In Liq) (Receivers and Managers appointed) [2016] FCA 1471; Speiser v Locums Financial Management Pty Ltd (1996) 22 ACSR 478, considered.
SEELEY INTERNATIONAL PTY LTD v MILLENNIUM ELECTRONICS PTY LTD (IN LIQ.) (No 2)
[2020] SASC 211Civil: Application
LIVESEY J:
Introduction
On 9 October 2020 I made interim Mareva orders, now commonly described as asset freezing orders, because I was satisfied that:
1there was a good and arguable case, on both the law and the facts, in favour of the applicant;
2there was a real, and not fanciful, danger that any prospective judgment would be wholly or partly unsatisfied because assets of the prospective judgment debtor may be disposed of, dealt with, or otherwise diminished in value; and
3the balance of convenience favoured the grant of relief.
These reasons address the question of leave to proceed pursuant to s 500(2) of the Corporations Act 2001 (Cth) (the Act) which was argued before me on 16 and 23 October 2020. These reasons also address the question of third party relief argued on 23 October 2020.
For the reasons that follow, I granted the applicant leave to proceed in respect of both the main proceeding which is listed for trial before me commencing on 2 November 2020, as well as in respect of the application for asset freezing orders, on an interim and interlocutory basis, notwithstanding the appointment of a liquidator in connection with a creditors’ voluntary winding up which commenced on 9 October 2020. I have also granted limited ancillary orders for the production of documents by the liquidator, argued on 23 and 26 October 2020. These reasons also explain why I granted urgent, interim ex parte relief against two third parties on 23 October 2020.
The application for leave
After I made interim orders against the respondent on 9 October 2020 the liquidator was served. There were further hearings before me on 16, 23 and 26 October 2020. The liquidator was then represented.
The applicant sought the following orders:
1That pursuant to s 500(2) of the Corporations Act 2001 (Cth), leave be granted to the applicant to proceed as against the respondent (formerly Millennium Electronics Pty Ltd) in respect of this proceeding.
2To the extent required, the applicant have leave, nunc pro tunc, to obtain the freezing orders made by this Honourable Court on 9 October 2020, subject to an amendment to paragraph [10] of the freezing order.
3An additional ancillary order requiring the liquidator to file and serve an affidavit sworn by him identifying the assets of the respondent giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of its interest in the assets and deposing to any transfers or assignments by the respondent to any third party of any asset, including intangible asset, of the respondent (other than in the ordinary course of the respondent’s business) and the 12-month period preceding the date of this order. (Ultimately, an order in these terms was not pressed and a much more limited order sought.)
On 23 October 2020 the applicant sought orders against two third parties, both related parties with directors common to the respondent and the third parties, being Messrs Au and Conci. These were:
1the ostensible purchaser of the respondent’s business and assets, Millennium Electronics International Pty Ltd (Millennium International); and
2the holder of a fixed and floating charge over the purchaser, Millennium Electronics Industrial Co Ltd, incorporated in Hong Kong (Millennium HK).
A freezing order was sought against Millennium International, together with an ancillary order requiring the production of documents and an affidavit from a director identifying its assets. As against Millennium HK, an injunction was sought restraining it until further order from taking any steps in Australia to enforce its security over any asset of Millennium International.
The orders against these third parties were initially sought on an urgent, interim ex parte basis. On 23 October 2020 orders were made on that basis until 30 October 2020. On 26 October 2020 an order for substituted service was made, whereby service on the third parties was effected by service on one of the directors.
The applicant’s evidence
In support of the applications, the applicant’s solicitor deposed, amongst other matters, to the following:
1A search of a website maintained by ASIC on 12 October 2020 revealed that Mr Gollant of CJG Advisory had been appointed liquidator of the respondent on 9 October 2020 by way of creditors’ voluntary winding up.
2Searches of trademarks belonging to the respondent were undertaken on the IP Australia website on 14 October 2020. The request to assign the trademarks to a third party on 1 October 2020 was refused on 14 October 2020 following receipt of correspondence on 12 October 2020. On 12 October 2020 the solicitors for the applicant had lodged a copy of, amongst other matters, correspondence attaching the Order of this Court dated 9 October 2020 on IP Australia’s online portal against each of the relevant trademarks. It was submitted that I may draw the inference that the transfer of the trademarks was impeded by the Order made by this Court.
3On 9 October 2020 an officer of the applicant spoke with the liquidator. The liquidator advised the officer that “the business of Millennium” had recently been sold to a subsidiary. The liquidator confirmed that the subsidiary was Millennium International.
4By the time of the applicant’s affidavit evidence on 23 October 2020, the applicant’s legal representatives had obtained a copy of an Asset Purchase Agreement dated 30 September 2020 which had been executed by “the common directors” of the respondent and Millennium International. The applicant remained concerned that the assets the subject of that agreement may be vulnerable to further alienation “for so long as they are in the control of the common directors”.
5In addition, by the same affidavit evidence, it transpired that the directors for the respondent had caused it to grant security to Millennium HK over all of its present and after acquired property on or about 24 July 2020 by means of a fixed and floating charge.
6According to the liquidator’s Initial Report to Creditors published on 20 October 2020, the liabilities of the respondent, not including any contingent liability to the applicant, total approximately $5.428 million, the largest of which is a liability to Millennium HK. According to a personal property security register search (PPSR), a security interest was first registered by that Hong Kong entity in respect of the respondent on 24 July 2020.
During the course of argument my attention was drawn to an affidavit affirmed by a former solicitor for the respondent, which deposed to the fact that one of the experts in these proceedings had been asked by the former solicitors for the respondent to assume that the respondent’s annual turnover had approximated $10 million. I was asked to compare this with the fact that the Asset Purchase Agreement appeared to provide for a payment by the purchaser (Millennium International) to the respondent by means of the issue of $1 per share in the capital of the purchaser, and that this appeared to correlate to the shareholding held by the respondent in the purchaser with a value of around $420,000.[1] In addition, it was submitted that, in accordance with ordinary accounting practices, it was unlikely that the balance sheet used for the purposes of the Asset Sale Agreement accounted for the true value of the respondent’s goodwill.[2]
[1] See clause 3.3 of the Asset Sale Agreement and the reference to the “purchase price” being “the amount” which represents the “Net Assets in the Completion Balance Sheet”. At the time of the hearings before me the Completion Balance Sheet was apparently not available.
[2] The Australian Accounting Standards Board standard for Intangible Assets, AASB 138 at [48], shows, for example, that internally generated goodwill is not to be disclosed as an asset. See Box v Federal Commissioner of Taxation (1952) 86 CLR 387, 395-397 (Dixon CJ, Williams, Fullagar and Kitto JJ); Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 and Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 93 ALJR 65, [52]-[71] (Kiefel CJ, Bell, Nettle and Gordon JJ). See also Yuan v O’Neill [2020] SASC 49, [87]-[89].
The implication appeared to be that the common directors may have engaged in transactions which transferred the benefit of the respondent’s assets and trademarks to Millennium International and conferred a security in favour of Millennium HK over the property of both the respondent and Millennium International which rendered that property vulnerable to any decision made by the directors of Millennium HK, for example, to appoint a receiver. In addition there were, at the least, questions about the value of the consideration offered to the respondent in the Asset Purchase Agreement, the value of the shares taken by the respondent in Millennium International, and the debt owed by the respondent to Millennium HK and secured by a charge.
The applicant’s chronology in overview
As a result of this evidence, as well as information from the liquidator, the applicant submitted that the following matters have occurred:
In early July 2020 the then directors and members of the respondent contacted and then met with the current liquidator “for the purposes of discussing the financial position of the company and [the liquidator’s] potential appointment”.
On 27 July 2020 a fixed and floating charge over the respondent was registered on the PPSR in favour of Millennium HK.
On 11 September 2020 the respondent acquired all of the shares in Millennium International.
On 30 September 2020 the respondent and Millennium International, by their common directors Messrs Au and Conci, executed an Asset Purchase Agreement, whereby all of the respondent’s assets and liabilities, other than any potential contingent liability against the respondent arising out of this proceeding, were transferred to Millennium International which had the effect of leaving the respondent as “a shell entity” in these proceedings.
Also on 30 September 2020, the directors of the respondent resolved to change its name from “Millennium Electronics Pty Ltd” to “ACN 081 014 208 Pty Ltd” and lodged that resolution for processing with ASIC.
On 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 (presumably) Millennium International.
Also on 1 October 2020, a fixed and floating charge over Millennium International was registered on the PPSR in favour of Millennium HK, the related party incorporated and domiciled in Hong Kong.
On 7 October 2020, ownership of the domain name for the “Millennium Electronics” website ( was transferred from the respondent to Millennium International.
On 8 October 2020, the liquidator provided documentation to the directors and members of the respondent “for the purposes of placing the company into liquidation”.
On 9 October 2020, the members of the respondent resolved to wind the company up and the current liquidator was appointed.
The applicant emphasises that this has all occurred on the eve of trial and without notice to the applicant or its solicitors.
The position of the liquidator
On 16 October 2020, the solicitor for the liquidator submitted that the liquidator neither consented to, nor opposed, the grant of leave to proceed pursuant to s 500(2) of the Act against the respondent in respect of the proceeding, or what might otherwise be described as “the main proceeding”.
The liquidator’s solicitor submitted that this was a position taken on the basis that the liquidator would be under no obligation to instruct solicitors or counsel to appear at the trial listed for 2 November 2020, or to provide any documents.
He added that he agreed with the concern that I had expressed to counsel for the applicant that any grant of leave must include a term that the applicant will not enforce any judgment obtained against the respondent without a further grant of leave.
However, the solicitor for the liquidator submitted that “the liquidator strongly opposes the making or extension of the freezing orders”. I will return to the liquidator’s position directly.
It became clear during the course of the hearing that the liquidator was “still getting across the details” of the sale of the respondent’s assets on or about 30 September 2020. In addition, I was told that because of the significant lockdown restrictions as the result of the COVID-19 pandemic applicable in Melbourne, where the liquidator is based, the liquidator was encountering some difficulty in ascertaining the respondent’s “position” and obtaining its books and records.
Nonetheless, the primary submission was that the making of a freezing order in these circumstances was both novel and without utility.
Because I was concerned to give the liquidator an opportunity to address the issues in a considered way, I adjourned the hearing for one week to enable the liquidator to consider his position and put on written submissions and evidence.
To facilitate that process, I granted the applicant leave to proceed with the freezing orders against the company nunc pro tunc, at least until 23 October 2020. I did so again until 26 October 2020 to allow the applicant and the liquidator an opportunity to take instructions and confer on the scope of any order for the production of documents.
The requirements for leave to proceed
When this matter was first addressed on 9 October 2020, the applicant believed that the liquidator had been appointed pursuant to a members’ voluntary winding up. On that basis it was submitted that there was no requirement for leave to proceed pursuant to s 500(2) of the Act.
That submission was based on authority in this Court in support of the proposition that leave is required under s 500(2) to proceed against a company the subject of a creditors’ voluntary winding up, but not against a company the subject of a members’ voluntary winding up.[3]
[3] Catto v Hampton Australia Ltd (In Liq) (No 2) (1998) 29 ACSR 225 (Burley J) with which Barrett J later agreed in Awada v Linknarf Ltd (In Liq) (2002) 55 NSWLR 745, citing Ogilvie-Grant v East (1983) 7 ACLR 669, 672 (McPherson J) and RA Ringwood Pty Ltd v Lower [1968] SASR 454, 462-463 (Walters J, with whom Bray CJ and Mitchell J agreed).
Section 9 of the Act defines a “members’ voluntary winding up” as a voluntary winding up under Part 5.5 where a majority of the directors has made a declaration of solvency in accordance with s 494 of the Act. By contrast, under s 9 a “creditors’ voluntary winding up” is a voluntary winding up under the same Part that is not a members’ voluntary winding up.
Since 9 October 2020 the applicant and its legal representatives have ascertained that there has been no declaration of solvency from the respondent’s directors, or a majority of them, pursuant to s 494 of the Act. Accordingly, the applicant now accepts that it requires leave to proceed pursuant to s 500(2) of the Act. Leave under s 500(2) may be sought from this Court given the definition of “the Court” in s 58AA of the Act.
In Re DSHE Holdings Ltd (Receivers and Managers appointed) (In Liq), Black J explained the broad purpose of s 500(2) as follows:[4]
Broadly, the purpose of this section is to prevent a company's assets being dissipated by unnecessary litigation, and an applicant for leave will be required to show why it should not be left to prove its debt in the winding up … The claimant must establish that the claim has a solid foundation and gives rise to a serious question to be tried; factors relevant to the exercise of the court's discretion may include the degree of complexity of legal and factual issues and the prospect that a proof of debt will be rejected; and the power to grant leave is discretionary and other factors may be relevant to its exercise …
(Citations omitted.)
[4] Re DSHE Holdings Ltd (Receivers and Managers appointed) (In Liq) (2018) 36 ACLC 18-002, [18] (Black J).
The requirement for a serious question to be tried is not as demanding as demonstrating the existence of a prima facie case,[5] but the Court should be concerned to avoid impeding the orderly winding up of the company or giving some creditors an unfair advantage over others.[6] Where a serious question to be tried is demonstrated, the “balance of convenience” is often evaluated by contrasting what may occur if leave is granted, as opposed to requiring that the claimant proceed by way of proof of debt, together with any potential appeal of the liquidator’s decision on the proof which may come before the Court.[7]
[5] O D Transport (Australia) Pty Ltd (In Liq) v OD Transport Pty Ltd (1997) 80 FCR 290.
[6] Silbermann v One Tel Ltd (No 1) (2001) 132 IR 369 and Silbermann v One.Tel Ltd (In Liq) (2002) 167 FLR 274.
[7] Ogilvie-Grant v East (1983) [1983] 2 Qd R 314, 317 (McPherson J) and Donmint Pty Ltd v Farrow Mortgage Services Pty Ltd (1991) 7 ACSR 731, 735.
Whilst it is well recognised that the circumstances in which leave to proceed may be granted, and the factors to be taken into account, are not capable of definitive listing,[8] in Commonwealth v Davis Samuel Pty Ltd (No 5) Refshauge J listed many of the matters which the courts have previously taken into account:[9]
[8] Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314, 317.
[9] Commonwealth v Davis Samuel Pty Ltd(No 5) [2008] ACTSC 124, [30] (Refshauge J), in the context of s 471B of the Corporations Act 2001 (Cth).
1where proceedings are already in train at the time of liquidation that does not necessarily, of itself, mean that leave should be granted although it is a highly relevant factor;[10]
2whether the company is indemnified by insurance in respect of the claim is a relevant factor;[11]
3whether there is any procedural or substantive prejudice to creditors resulting from continuing the proceedings;[12]
4whether granting leave will unleash an “avalanche of litigation”;[13]
5whether the liquidator is likely to reject any proof of debt so that an appeal to the court will in any event be necessary;[14]
6whether the resources of the company are meagre and the cost of any hearing considerable;[15]
7whether it is desirable for the company to be bound by the outcome of the proceedings;[16]
8the extent to which the litigation has proceeded, and if already commenced, the resources already expended that would be wasted if leave were not granted;[17] and
9the amount and seriousness of the claim together with the degree of complexity of any legal or factual questions involved.[18]
[10] Meehan v Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSR 123, 127 and Speiser v Locums Financial Management Pty Ltd (1996) 22 ACSR 478, 482-483.
[11] Re AJ Benjamin Ltd (In Liq) (1969) 90 WM (Pt 1) (NSW) 107, 110.
[12] Maher v Taylor [1984] 1 NSWLR 231, 234.
[13] Capita Financial Group Ltd v RothwellsLtd (No 2) (1989) 15 ACLR 348, 353.
[14] Capita Financial Group Ltd v RothwellsLtd (No 2) (1989) 15 ACLR 348, 352-353 and Meehan v Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSR 123, 127.
[15] Meehan v Stockmans Australian Cafe (Holdings) Pty Ltd (1996) 22 ACSR 123, 128.
[16] Re Addstone Pty Ltd (In Liq); Ex parte Macks (1998) 30 ACSR 162, 174.
[17] Speiser v Locums Financial Management Pty Ltd (1996) 22 ACSR 478, 482-483.
[18] BHG Nominees Pty Ltd v Ellis Young Investments Pty Ltd (1998) 16 ACLC 1539, 1544.
The main proceeding
Notwithstanding the lack of opposition from the liquidator, it is appropriate to first consider whether leave should be granted to proceed against the respondent in the main proceeding.
There is no obligation on the liquidator to appoint and retain solicitors or counsel to appear at the trial of the main proceeding. Whether documents are required from the liquidator is a separate issue that can be addressed at the time any request is made.
I have already determined, for the purposes of the orders made on 9 October 2020, that the applicant has demonstrated a good arguable case and, in the circumstances, I have little difficulty in concluding that the applicant’s claim has a solid foundation and gives rise to a number of serious questions to be tried.
This litigation has been on foot for a considerable period, during which a large amount has already been expended in costs. There is, to my mind, at least some doubt about whether a claim which has been formulated in the range $15 million to $19 million, involving a range of difficult liability and quantum issues, could be appropriately and expediently addressed within the regime applying to proofs of debt.[19]
[19] Australia v Davis Samuel Pty Ltd (No 5) [2008] ACTSC 124, [70] and Morgan v Farrow Mortgage Services Pty Ltd (In Liq), an unreported decision of Anderson J in the Supreme Court of South Australia on 8 April 1994. See also BHG Nominees Pty Ltd v Ellis Young Investments Pty Ltd (1998) 16 ACLC 1539; Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2003) 45 ACSR 224.
Given the costs expended to date, the advanced stage of the proceedings and their complexity and size, in my opinion it is appropriate to grant the applicant leave to proceed against the respondent in the main proceeding. Leave is granted on the condition that the applicant will again need to seek leave if it intends to enforce any judgment obtained against the respondent, so as to avoid undue interference in the administration of the liquidation of the respondent.[20]
Whether to give leave nunc pro tunc
[20] Marshall v Proteus Solutions Ltd (In Liq) (2006) 162 IR 135.
It is well recognised that leave to proceed under the Act may be granted retrospectively, or nunc pro tunc, in the event that an action or a proceeding has been commenced or continued without the requisite leave.[21]
[21] Oceanic Life Ltd v Insurance and Retirement Services Ltd (In Liq) (1993) 11 ACSR 516, 521-522; BHG Nominees Pty Ltd v Ellis Young Investments Pty Ltd (1998) 16 ACLC 1539 and Rushleigh Services Pty Ltd v Forge Group Ltd (In Liq)(Receivers and Managers appointed) [2016] FCA 1471, [21] and [24].
The question of giving leave nunc pro tunc was considered in some detail by the High Court in the different context of an order that a company be wound up in insolvency under s 459P in Emanuele v Australian Securities Commission.[22] The majority held that the failure to obtain leave was a mere defect or irregularity in the exercise of jurisdiction that did not affect the validity of the order, and that this may be cured by the grant of leave nunc pro tunc, even by an appeal court.
[22] Emanuele v Australian Securities Commission (1997) 188 CLR 114, 123 (Brennan CJ), 125 (Dawson J), 128 (Toohey J), 137 (Gaudron J) and 142 (Kirby J) (Brennan CJ and Gaudron J dissenting as to the result).
Toohey J traced the history of these orders back to the late seventeenth century and cited Lord Eldon’s explanation in Donne v Lewis that the Court will make this type of order where it is “satisfied … that it is only doing now what it would have done then”.[23]
[23] Emanuele v Australian Securities Commission (1997) 188 CLR 114, 132 (Toohey J), citing Donne v Lewis (1805) 11 Ves Jun 601, 601; 32 ER 1221, 1222 (Lord Eldon).
Accordingly, and to the extent necessary, I give leave to proceed against the respondent in the main proceeding, nunc pro tunc, on the condition that the applicant will need to again seek leave if it intends to enforce any judgment it might obtain.
Leave in respect of the freezing orders?
Given the liquidator’s opposition to leave in respect of the freezing orders, it is appropriate to address this separately.
I accept that it is, at the least, unusual to consider the making of freezing orders at a time when a liquidator has been appointed. Nonetheless, two examples of orders having been made in similar, though not precisely the same, circumstances were cited to me.[24]
[24] See, eg, Malhotra v Tiwari [2005] VSC 260, [12]-[16] (Cummins J) and Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd (No 3) [2010] WASC 2, [32] and [110]-[115] (Simmonds J).
The liquidator’s initial opposition to the grant of leave in respect of any freezing order was clarified in written submissions and orally on 23 October 2020. To a significant extent the written submissions address the same issues initially addressed on 16 October 2020. The liquidator’s position is addressed in the following propositions:
1It was submitted that “the Court must first be satisfied that there is a serious question to be tried” but, because of his appointment, the assets of the respondent were under the control of the liquidator with the result that “there is not and can be no serious contention that there is a risk” that the liquidator will improperly dispose of assets. It was submitted that there is “therefore no serious question to be tried” and the application for leave to seek the freezing orders “should be dismissed”.
2Associated with the foregoing point, the liquidator submitted that he was appointed to carry out certain statutory duties and the propriety of his position was reinforced by two matters. These were, first, that in relation to the various intellectual property registrations previously held in the name of the respondent, he would neither consent to nor oppose an order being made restraining the formal registration of those trademarks and, secondly, he would neither consent to nor oppose an order being made that he provide the applicant with two business days’ notice of any intention to dispose of the shares held by the respondent in the purchaser, Millennium International.
3In any event, the liquidator submitted that leave to proceed should not be granted because freezing orders “might impede the orderly winding up of the company” or give the applicant “an unfair advantage” to the prejudice of other creditors. The extent to which the orderly winding up of the company might be impeded was illustrated by reference to the inhibition imposed on the liquidator’s disposal of assets. The overarching submission was that any disposal would only occur in the exercise of the liquidator’s statutory duties so that there was no need for any freezing order. The two examples given were of the need for the liquidator to seek the applicant’s approval in respect of any disclaimer of an onerous contract and the need for the liquidator to seek permission before making any compromise in connection with the disposal of an asset. Thus, if the respondent were owed a debt of $100,000 and the liquidator, exercising commercial judgment, wished to accept payment for less than that amount there would therefore be a potential disposal of an asset to the extent of any reduction on the full amount, requiring the applicant’s approval as well as the Court’s permission to vary the terms of the existing freezing order.
4As a result, the liquidator submitted that the Court would “essentially be called upon the supervise the conduct of the liquidation” with unnecessary involvement in the exercise of the liquidator’s commercial judgments and decisions. The example given was of the principles formerly applied under s 511 of the Act, now Div 90 of the Insolvency Practice Schedule (Corporations) 2016 (IPSC). It was submitted that the authorities demonstrate that it is inappropriate for liquidators to seek directions in relation to their commercial decisions.[25] The submission appeared to be that Court oversight of particular transactions and of the liquidator’s commercial decisions is inappropriate.
5This, it was submitted, “would elevate” the position of the applicant as a contingent, unsecured creditor to a “quasi-secured creditor”, placing it “in a position of influence that no other creditor in the liquidation would have”.
6In circumstances where the liquidation is presently “unfunded” it was said to be significant that the applicant had made no offer to secure or indemnify the liquidator for costs to be incurred by him in observing the terms of the freezing order. Reference was made to s 545(1) of the Act whereby a liquidator, save for exceptions such as compliance with statutory duties, is under no obligation to incur any expense in relation to the winding up where there are insufficient funds to cover costs. In addition, s 545(2) of the Act provides that the Court (or ASIC) on the application of a creditor or contributory, may direct a liquidator to incur an expense “on condition that the creditor … indemnifies the liquidator in respect of the amount expended”.
7Perhaps most importantly, the liquidator submitted that there was simply no utility in maintaining the freezing orders. By his affidavit and written submissions the liquidator confirmed that the respondent had in fact sold its business and associated assets to Millennium International “with completion being effected on 30 September 2020”. As to this, it was submitted:
7.1 If upon the liquidator’s investigations, the sale of the respondent’s assets has been a sale for no or insufficient value, the transaction is subject to the provisions of Div 5.7B of the Act, such that it may be voidable as against the liquidator.
7.2If that is the case, the applicant, together with all other creditors, will share in any benefit of the liquidator’s recovery claims “in due course”.
[25] Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209.
Disposition of the application for leave to seek freezing orders
It seems to me that whether leave should be granted to proceed with the freezing orders first made on 9 October 2020 on an interim basis, and to continue those orders on an interlocutory basis, ultimately turns on whether there is any utility in their continued existence, associated with whether and to what extent their continued existence will unduly impede the orderly liquidation of the respondent.
Before addressing some of the arguments which have been put, I think it is appropriate to first consider the potential for conflict between the imposition of a freezing order and the orderly discharge of a liquidator’s obligations in connection with a creditors’ voluntary winding up.
In broad terms, the point of a freezing order was addressed by the High Court in Cardile v LED Builders Pty Ltd as follows:[26]
As the argument proceeded … several matters became apparent. One was that the English authorities appear to have developed to a stage where what is identified as the Mareva injunction or order lacks any firm doctrinal foundation and is best regarded as some special exception to the general law. Another was that, whilst it is undesirable that asset preservation orders of the Mareva variety be left as a sui generis remedy with no doctrinal roots, the term “injunction” is an inappropriate identification of that area of legal discourse within which the Mareva order is to be placed. The third was the point encapsulated in the joint judgment of this Court in CSR Ltd v Cigna Insurance Australia Ltd[27]:
“The counterpart of a court’s power to prevent its processes being abused is its power to protect the integrity of those processes once set in motion.”
The integrity of those processes extends to preserving the efficacy of the execution which would lie against the actual or prospective judgment debtor[28]. The protection of the administration of justice which this involves may, in a proper case, extend to asset preservation orders against third parties to the principal litigation.
(Emphasis in original.)
[26] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [25] (Gaudron, McHugh, Gummow and Callinan JJ).
[27] CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345, 391 (original emphasis).
[28] Jackson v Sterling Industries Ltd (1987) 162 CLR 612, 623 and 638.
The High Court emphasised the armoury of a court of law and equity to prevent the abuse or frustration of its process in relation to matters within its jurisdiction. Emphasis was given to the “mistaken” proposition that Mareva relief would only be granted if there was a “positive intention to frustrate” any judgment of the Court.[29]
[29] Citing National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271, 277 (Mason CJ, Brennan and Deane JJ).
The Court emphasised that this kind of relief is “directed to orders against parties to the proceedings and against whom any final relief was sought” which represents a focus upon avoiding “frustration of the court’s process”.[30]
[30] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [42] (Gaudron, McHugh, Gummow and Callinan JJ).
As for the liquidator and his role, it is generally accepted that the duties of a liquidator in a creditors’ voluntary winding up are “identical, in most situations, with those of a liquidator in a compulsory winding up”.[31] Unlike a sequestration order in bankruptcy, a winding up order does not vest the property of the company in the liquidator. The liquidator becomes the agent of the company, with the company retaining both legal and beneficial ownership in its property.[32] Nonetheless, upon the appointment of a liquidator, the company is disabled from dealing with its property and any disposition made after the commencement of the winding up is usually void unless the court otherwise orders.[33]
[31] Murray and Harris “Keay’s Insolvency – Personal and Corporate Law and Practice”, 10th ed. Law Book Co. 2018, [11.30].
[32] Federal Commissioner of Taxation v Linter Textiles Australia Pty Ltd (in Liq) (2005) 220 CLR 592 cf Ayerst (Inspector of Taxes) v C & K (Construction) Ltd [1976] AC 167.
[33] Corporations Act 2001 (Cth), s 513A(e). Whether the Court otherwise orders will be guided by the interests of creditors, Jardio Holdings Pty Ltd v Dorcon Construction Pty Ltd (1984) 3 FCR 311. Note that s 468(1) applies only to Court liquidations. See Carter v New Tel Ltd (In Liq) (2003) 44 ACSR 661.
The statutory moratorium or stay operates to prevent the commencement or continuation of litigation against the company so as to enable the equitable and fair distribution of its remaining assets amongst creditors. As well, it minimises the risk of further trading and creditor losses and allows for investigation into the company’s affairs. It is in that context that the liquidator exercises statutory duties as a fiduciary, subject to obligations which include the obligations to act honestly and avoid conflicts of interest.[34]
[34] That is, supplemental to s 181 of the Corporations Act 2001 (Cth) the liquidator must exercise the powers conferred bona fide and for the purposes for which they were conferred, Burnells Pty Ltd v Walsh; Re Burnells Pty Ltd [1979] Qd R 440 and Ah Toy v Registrar of Companies (NT) (1986) 10 FCR 356. See also the prohibition against profit save by way of proper remuneration, Commissioner for Corporate Affairs v Harvey [1980] VR 669.
In these circumstances, the Act places upon the shoulders of liquidators the obligation to exercise professional judgement and discretion, albeit that they are entitled to seek advice and appoint agents.[35]
[35] Corporations Act 2001 (Cth), s 477(6).
The duty to ascertain and take possession of company assets has been described as a liquidator’s “principal” duty.[36] As a result, liquidators may need to commence litigation to recover company property, such as where it has been disposed of by an “uncommercial transaction” within s 588FB of the Act. The risk of litigation and its concomitant time and cost imposes a particular need in a liquidator to give careful consideration to the prospects of success as against the cost and extent of any likely recovery.[37]
[36] See ss 474(1) and 478(1) regarding the power to take into custody all property and the obligation to do everything to collect it expeditiously.
[37] Hall v Poolman (2009) 75 NSWLR 99.
With these very general observations in mind, it may be accepted, speaking broadly, that will not often be necessary or appropriate for relief in the nature of Mareva or freezing orders where a liquidator is appointed and subject to statutory and fiduciary obligations, given the armoury of statutory powers at her or his disposal to recover and hold company property and, ultimately, to distribute it in accordance with the Act. That is, the appointment of a liquidator will usually represent adequate protection against the risk of asset dissipation which is targeted by the making of an asset freezing order.
Having said that, there are a number of matters which suggest that there is some utility in the making of freezing orders in the particular circumstances of this case. In my view:
1The liquidator neither consents to nor opposes orders being made to restrain the formal registration of the respondent’s trademarks to Millennium International, a subsidiary in which the respondent holds shares. Likewise, he takes the same position in relation to being subjected to providing notice of any intention to dispose of the shares held by the respondent in that company. The necessary corollary of this position is that the liquidator, by his legal representatives, accepts that there is some utility in orders being made, at least over those particular assets. The existence of orders will provide a measure of protection notwithstanding the appointment of a liquidator. The question in this case seems to be the width of the orders to be made, rather than whether there should be any orders made at all.
2Though it was contended that the “serious question to be tried” requirement applies to the risk that the liquidator will dispose of assets, that is an incorrect conflation of the applicable principles. The requirements for a freezing order, and the requirements for leave to proceed under s 500(2), are separate and distinct. So far as the risk of dissipation of assets is concerned under a freezing order, the question is whether there arises a risk or danger that a prospective judgment will be left wholly or partly unsatisfied.[38] So far as leave to proceed is concerned, the question is whether the relevant claim has a solid foundation and raises a serious issue to be tried. In my view, these separate requirements can be satisfied notwithstanding the appointment of a liquidator where the relevant risk is not concerned with dissipation by the liquidator. This arises in circumstances where the liquidator says that substantial assets have already left his control but that an order might nevertheless be made so as to ensure that they are not further dissipated. For example, there may be assets which are subject to a process of dissipation which is not yet complete, and an order will assist to ensure that no further steps can lawfully be taken to complete the alienation of that property.
3The burden of the submissions and affidavit evidence led by the parties to this point is that there remains some doubt about the terms and effect of the sale of the respondent’s business and assets to Millennium International on 30 September 2020. On one view of it, there is nothing left. Alternatively, it may be that the respondent has other assets not caught by the sale, even though it has otherwise been left with large liabilities, not merely to Millennium HK, but also the contingent liability to the applicant in these proceedings. In circumstances where the liquidator does not yet have all of the books and records of the respondent, there seems to be some scope for doubt about the liquidator’s knowledge of, and his control over, the respondent’s assets.
4I must admit to some concern that the liquidator, in breach of the obligations applicable to affidavit evidence in an interlocutory hearing, did not disclose in his affidavit sworn on 21 October 2020 the source of his information about the sale, nor whether he has any (and if so, what) view as to the truth of that information.[39] The terms of the sale were first revealed to the Court by the applicant’s affidavit evidence received by the Court on the morning of 23 October 2020. This appears to have been prepared after the applicant obtained documents from the liquidator at the time of his Initial Report to Creditors on 20 October 2020.[40] That is, the liquidator provided information and documents to the applicants before he swore his affidavit, but he did not include all of the information or the documents in his affidavit filed with this Court. The requirement to attest to the source of information and the extent of any belief in its veracity is no idle matter. For example, whilst submissions were made to the effect that the liquidator does not have all of the books and records, the affidavit of the liquidator does not comprehensively address this issue, and the Initial Report to Creditors says merely that the directors were assisting to obtain the records.
5On the current state of the evidence, there may be other assets of the respondent, and they may be in the hands of third parties. The liquidator cannot presently say otherwise. Not only will the continuation of orders protect identified assets such as the trademarks formerly held by the respondent, and the shareholding in the purchaser presently held by the respondent, their existence may well deter others from parting or dealing with property of the respondent but about which the liquidator is presently ignorant. To be clear, though I do not suggest that there is any particular risk that the liquidator will dissipate assets such as the trademarks and the shareholding, orders should be made more broadly because the existence of orders may serve to protect property which is not yet in the possession or control of the liquidator.
6The applicant submitted that the liquidator has revealed in his Initial Report to Creditors that he met with representatives of the respondent during July 2020, but it was uncertain whether he had then given advice to the respondent for which no charge had been made. Though counsel for the liquidator submitted that there was no issue about a meeting such as this, the applicant maintains that there remains, at the very least, a question about the liquidator’s independence. This, the applicant contends, is reinforced by an apparent reluctance in the liquidator to take control of the purchaser. The liquidator counters that he is under no obligation to assume the role of a director of Millennium International. Given the circumstances of urgency, and the paucity of material presently available to the Court, it is not possible to make any findings about these contentions. Nonetheless, as a general proposition, these contentions do not suggest that there is no utility in freezing orders being continued at this time.
7Whilst a number of concerns were raised by the liquidator about the ways in which orders might impede the liquidation, about such issues as the disclaimer of onerous contracts and entry into compromises on the disposal of company assets, these objections were made at a very high level of generality. It was with this in mind that I gave the liquidator the opportunity to put on written submissions and evidence. It is significant that, notwithstanding that opportunity, the matters raised remain largely theoretical. No particular issue associated, for example, with the actual disclaimer of particular property or with an actual compromise has been raised by the liquidator. Similarly, no particular issue has been raised to show that the Court will in fact be supervising the conduct of this liquidation, nor why it will become embroiled in any commercial decisions the liquidator might be called upon to make.
8Though it is true that holding a freezing order will give the applicant some degree of oversight and control denied to other creditors or potential creditors, it is wrong to suggest that the applicant will in fact be elevated to a “quasi-secured creditor”.[41] There is no security. The respondent’s ranking as a potential creditor has not been altered. The protection of the assets provided by the freezing order, such as it is, will enure for all creditors or potential creditors and not merely for the applicant. The amendment to clause 10 of the freezing orders allows the liquidator to deal with assets for the purposes of addressing his proper remuneration as well as his ordinary costs and expenses. Any requirement that the liquidator correspond with the applicant (and ultimately seek a variation to the orders made), in the event of any particular difficulty with a particular asset which has not yet been identified, does not appear at present to be either onerous or time consuming.
9Though it is suggested that the liquidator will be put to additional expense, it is not yet clear to me whether or to what extent that will be significantly different to the expense to which the liquidator would be put by reason of his statutory duties in any event.
10 In all of these circumstances I am persuaded that, whilst it may be unusual to grant asset freezing orders in respect of a company the subject of a creditors’ voluntary winding up, there is some utility in doing so in this case. Whilst it may be thought obvious, it is as well to state explicitly that I will give liberty to apply so that the parties, and the liquidator, may come back before the Court in the event that there is better information or there is a development which suggests a particular problem presented by the orders made.
[38] The real risk or danger must not be fanciful, see Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, 321; Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 80 ATR 449, [12] and BGC Contracting Pty Ltd v Western Australian Construction Hire Pty Ltd [2010] WASC 25, [15].
[39] See, eg, Draoui v Le [2020] SASC 155, [30]ff (Bleby J). See also the former rule 162(2) of the Supreme Court Civil Rules 2006 (SA) and now rules 31.7(12) and101.4(1) of the Uniform Civil Rules 2020 (SA). See also Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd [2020] SASC 161, [74]-[76] (Doyle J).
[40] The liquidator acted quickly under the Insolvency Practice Schedule (Corporations) 2016 s 70-30, to report to creditors before the stipulated 10 business days of appointment.
[41] Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545, 558-559 (Young J).
A final issue concerning the scope of these orders is the period over which they should operate.
The applicant sought orders “until further order”, whereas the liquidator maintained that, if orders are made, they should only be made for a matter of days. This submission was associated with the submission that allowance should be made in the freezing order to permit the liquidator to meet his proper remuneration. Ultimately, the applicant did not contest this and the orders I made reflected that the liquidator could deal with the respondent’s assets for the purposes of meeting his approved remuneration and costs and expenses incurred in the liquidation.
As for the period of the orders, I am not presently prepared to make the orders “until further order”. Given the fast pace at which developments have occurred over the last few days, I think that it will be appropriate to make an order until the determination of the trial which is set for hearing before me on 2 November 2020. The parties will have liberty to apply.
The production of documents
By the time of the hearing on 26 October 2020 most of the documents that the applicants had requested from the liquidator were no longer pursued as ancillary orders to the freezing order.
The applicant and the liquidator apparently resolved that various documents will now be supplied by a combination of s 486 of the Act and s 70-45(1) of the IPSC, rather than pursuant to the freezing order.
Nonetheless, the parties remained in dispute as to whether the liquidator should produce various documents relating to the liquidator’s initial meetings with representatives of the respondent during July 2020. These meetings were referred to in the liquidator’s Initial Report to Creditors dated 20 October 2020.
The application was primarily based upon rules 112.15 and 116.1 of the Uniform Civil Rules 2020 (SA) and the inherent jurisdiction of the Court.
The liquidator opposed the making of orders ancillary to the freezing order requiring the production of these documents.
The opposition to production under rule 116.1 was based upon a misreading of the word “claim”, as defined in rule 51.2, rather than the word “Claim” as defined under rule 63.1. That is to say, the applicant sought the documents under the former but not the latter, whereas the liquidator opposed production under the latter.
For the purposes of my ruling, it is sufficient to say that I am satisfied that the production of these documents is properly regarded as “ancillary” to the freezing order within rule 112.15 because the rule is not confined to orders that may be made after a freezing order. These orders may be made antecedent to the freezing order or in aid of it. In the circumstances of this case, there is still likely to be some contention about the length of time that any freezing order should subsist, and possibly also about the extent of the liquidator’s compliance.
The documents that have been sought are likely to be relevant to both issues, in the sense that they may inform questions about the liquidator’s independence. In that sense, I am satisfied that the documents are not merely sought as an exercise in impermissible fishing.[42]
[42] Adelaide Brighton Cement Ltd v Hallett Concrete Pty Ltd [2020] SASC 161, [25]-[28] (Doyle J).
Third party orders?
It is appropriate to explain my reasons for making urgent interim ex parte orders against the third parties.
On the face of it there is, at the least, a question about whether the purported sale on 30 September 2020 was made with the intention of putting the respondent’s assets beyond the reach of creditors. Nonetheless, I need not, and do not, make any concluded decision about that.[43] I do not know the circumstances behind these transactions.
[43] That is to say, I do not make any findings of the kind made by Debelle J when granting Mareva relief which precluded him from proceeding with the trial in Southern Equities Corp Ltd (In liq) v Bond (2000) 78 SASR 339 (Olsson and Bleby JJ, Williams J contra).
For the purposes of what I am about to say, it is sufficient that there are transactions that may be vulnerable to challenge. On the face of it, by these transactions there has been, or at least an attempted, “alienation” of the respondent’s property because there has been a parting with property, or some interest in property,[44] and the owner appears to have taken steps to vest it in another in a manner beyond any “mere personal right”.[45] Accordingly, when considering the scope for relief against non‑parties in a case such as this, “the focus must be the administration of justice”.[46] Importantly:[47]
The effective exercise of the jurisdiction … may call for asset preservation orders against third parties who may hold or otherwise be interested in … assets of the judgment debtor or potential judgment debtor or who may be obliged to contribute to the property of such a judgment debtor to help satisfy the judgment.
[44] Re Cummins; Richardson v Cummins (1951) 15 ABC 185.
[45] Re Symon; Public Trustee v Symon [1944] SASR 102, 108 (Mayo J), citing Lang v Castle [1924] SASR 255, 263-264. See also Ord Forrest Pty Ltd v Federal Commissioner of Taxation (1974) 130 CLR 124, 142.
[46] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [42] (Gaudron, McHugh, Gummow and Callinan JJ).
[47] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [44] (Gaudron, McHugh, Gummow and Callinan JJ).
When addressing the circumstances in which an order might be made against a third party, in Cardile v LED Builders Pty Ltd reliance was placed on the decision of Kiefel J in Tomlinson v Cut Price Deli Pty Ltd,[48] where orders were made “where the third party has become mixed up in” the challenged transaction, meaning there had been an “intermingling of affairs” in the sense explained in Coxton Pty Ltd v Milne[49] and Mercantile Group (Europe) AG v Aiyela.[50] In the case before Kiefel J, evidence supported a strongly arguable case that a third party had used property and business of the potential judgment debtor so as to prevent access by the applicant. Similarly, in Aiglon Ltd v Gau Shan Co Ltd there was evidence of “asset stripping” in favour of a non‑party.[51] As the High Court explained:[52]
These cases were not mere cases of a mixing or intermingling of affairs… In using expressions such as “mixing” or “intermingling”, their Honours and his Lordship were doing no more than describing the deliberate blurring, and attempts at the transferring, of property rights and interests that the evidence in those cases established on a sufficient basis for the grant of the relief. There was nothing novel in that approach to determination of the appropriate remedy.[53]
[48] Tomlinson v Cut Price Deli Pty Ltd (unreported, Federal Court of Australia, 23 June 1995).
[49] Coxton Pty Ltd v Milne (unreported, Court of Appeal of New South Wales, 20 December 1985) (Hope JA).
[50] Mercantile Group (Europe) AG v Aiyela [1994] QB 366, 375 (Hoffmann LJ).
[51] Aiglon Ltd v Gau Shan Co Ltd [1993] 1 Lloyd’s Rep 164.
[52] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [47] (Gaudron, McHugh, Gummow and Callinan JJ).
[53] See, eg, Gilford Motor Co v Horne [1933] Ch 935, 961-962, 965, 969 and Jones v Lipman [1962] 1 WLR 832, 836-837.
After referring to authority which recognised the “drastic remedy” embodied in a Mareva order, which “should not be granted lightly”,[54] as well as the need to consider the difficulties associated with the quantification and recovery of damages pursuant to the undertaking if it turns out the orders should not have been granted,[55] the Court then outlined a number of discretionary considerations which should be weighed before any order is made.[56]
[54] Frigo v Culhaci (unreported, Court of Appeal of New South Wales, 17 July 1988) (Mason P, Sheller JA, Sheppard AJA) and Glover v Walters (1950) 80 CLR 172, 175-176 (Dixon J) regarding the writ of ne exeat colonia and the need for care.
[55] Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1979) 146 CLR 249, 260 et seq (Aickin J).
[56] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [52]-[53] (Gaudron, McHugh, Gummow and Callinan JJ).
The Court emphasised that the grant of Mareva relief against a third party will, save in rare cases, usually be limited to cases in which a third party holds, or is about to hold or dissipate, or further dissipate, property beneficially owned by the defendant in substantive proceedings, though that “general proposition” was said to be “too narrowly expressed”.[57]
[57] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [54] (Gaudron, McHugh, Gummow and Callinan JJ).
The High Court articulated the guiding principle in cases involving Mareva relief against third parties in the following way:[58]
In our opinion such an order may, and we emphasise the word “may”, be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which: (i) a third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets including “claims and expectancies”[59], of the judgment debtor or potential judgment debtor; or (ii) some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor.
[58] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [57] (Gaudron, McHugh, Gummow and Callinan JJ).
[59] The phrase used by Deane J in Jackson v Sterling Industries Ltd (1987) 162 CLR 612, 625.
Ultimately, the High Court determined to grant some, but not all, of the relief claimed. In the subsequent decision of PT Bayan Resources TBK v BCBC Singapore Pte Ltd, the High Court explained:[60]
The actual holding in Cardile v LED Builders Pty Ltd illustrates that the prospective enforcement process that a court might protect by making a freezing order can be a process contingent on factors in addition to the outcome of a substantive proceeding in that court. The holding was that a freezing order can be made against a third party against whom no present cause of action exists and against whom no present proceeding has commenced. It is enough that some future legal process (which might be contingent, for example, on the appointment by another court of a liquidator or a trustee in bankruptcy) may be available pursuant to which the third party may be obliged to contribute to the funds of the judgment debtor to help satisfy the judgment against the judgment debtor.
(Citation omitted.)
[60] PT Bayan Resources TBK v BCBC Singapore Pte Ltd (2015) 258 CLR 1, [47] (French CJ, Kiefel, Bell, Gageler and Gordon JJ).
In the same decision, the Court emphasised that, in Mercedes Benz AG v Leiduck, Lord Nicholls had thought there was “nothing exorbitant” in a Hong Kong court making a freezing order in aid of a prospective judgment of a foreign court, being a judgment “which will be recognised and enforceable in Hong Kong”:[61]
The alternative result would be deeply regrettable in its unfortunate impact on efforts being made by courts to prevent the legal process being defeated by the ease and speed with which money and other assets can now be moved from country to country. The law would be left sadly lagging behind the needs of the international community.
[61] Mercedes Benz AG v Leiduck [1996] AC 284, 313-314 (Lord Nicholls).
In making the urgent interim ex parte orders against the third parties in this case, I was conscious of the requirements for the making of a freezing order generally, as well as the “guiding” principle described in Cardile v LED Builders Pty Ltd.[62] The application of this principle is a matter of law, though discretionary elements are involved.[63] That is to say, Millennium International has a power of disposition over, or is otherwise in possession of, the respondent’s assets through the medium of the Asset Purchase Agreement, as is Millennium HK, through the medium of the charges in its favour. I am satisfied that there is a real risk of dissipation, or further dissipation, though I have, of course, not yet heard from the third parties.
[62] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [57] (Gaudron, McHugh, Gummow and Callinan JJ).
[63] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [58] (Gaudron, McHugh, Gummow and Callinan JJ).
In addition, whether under the powers available to a liquidator, or under the Statute of Elizabeth,[64] these third parties may be obliged, whether at the suit of the liquidator or a creditor, to disgorge or otherwise surrender these entitlements, so as to assist satisfying any judgment liability obtained against the respondent.
[64] That is, the transactions are voidable under s 588FE(5) of Division 5.7B of the Corporations Act 2001 (Cth), or made with the intent to defraud, s 86 of the Law of Property Act 1936 (SA) (and its interstate Statute of Elizabeth counterparts), Grellman v PT Garuda Indonesia Ltd (1991) 29 FCR 26, [34]-[35]; Marcolongo v Chen (2011) 242 CLR 546 and Johnson v Leader Computers Pty Ltd (2014) 118 SASR 408. Even if valuable consideration was given, if a fraudulent intention is proved on the part of both disponor and disponee, or with the purpose of defeating, delaying or interfering with the rights of creditors, including future creditors, the transaction may be set aside, see Re Australian Co-operative Development Society Ltd [1977] Qd R 66, 77.
Conclusion
For these reasons, I am satisfied that the applicant should have leave to proceed under s 500(2) of the Act against the respondent in respect of the main proceeding and the interim and interlocutory freezing orders. Leave is granted nunc pro tunc. In addition, it is appropriate to grant urgent interim ex parte relief against the third parties.
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