Stancu v Barua
[2022] VSC 481
•5 August 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2021 03171
| MIRCEA STANCU | Plaintiff |
| v | |
| ATANU BARUA | 1st defendant |
| AND | |
| SYBILLA JANE MARGIT DE URAY | 2nd defendant |
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JUDGE: | Elliott J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 4 August 2022 |
DATE OF JUDGMENT: | 5 August 2022 |
CASE MAY BE CITED AS: | Stancu v Barua |
MEDIUM NEUTRAL CITATION: | [2022] VSC 481 |
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INTERLOCUTORY INJUNCTION – Freezing order – Arguable case – Danger of unsatisfied judgment – Allegations of dishonesty – Overseas resident – Removal of assets from Australia highly likely – Consequences if amount the subject of existing order not reduced – Balance of convenience – Appropriate sum – Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 37A.05(4).
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr G Moloney | David Joseph & Co., Lawyers |
| For the 1st defendant | No appearance | |
| For the 2nd defendant | Dr M Sharpe | McKean Park Lawyers |
IntroductionA.
The plaintiff, Mircea Stancu (“Stancu”), has made an interlocutory application for a freezing order against certain assets of the second defendant, Sybilla Jane Margit de Uray (“de Uray”). Stancu seeks to restrain de Uray from dealing with her Australian-based assets, in particular the proceeds of sale of a residential property at 86 Orrong Crescent, Caulfield North, Victoria, which is currently registered in de Uray’s name (“the Property”). He submits that these proceeds are likely to be the only assets in Australia against which he may enforce any judgment obtained against de Uray.
Stancu claims de Uray and the first defendant, Atanu Barua (“Barua”), knowingly or recklessly were involved in an online share trading scam through which they scammed him out of approximately $133,000.00,[1] resulting in losses of up to approximately $2.9 million.
[1]All monetary amounts in these reasons are in Australian dollars unless expressly stated otherwise.
On 22 July 2022, an interim order was made by consent freezing de Uray’s assets in Australia up to an amount of $1.15 million until 4.00 pm on 28 July 2022. On 28 July 2022, the interim order was extended by consent so that de Uray could put further evidence before the court. That interim order remains in place until further order.
The partiesB.
Stancu resides in Victoria. Since May 2014, he has regularly traded shares on the stock market. In early 2015, Stancu investigated the possibility of purchasing shares, including in the Tesla Corporation (“Tesla”). His evidence was that, as Tesla is listed on the NASDAQ[2] in New York, United States, purchasing shares in the company required the assistance of a share broker.
[2]The National Association of Securities Dealers Automatic Quotation System.
While looking for a suitable share broker, Stancu discovered the website AAFXtrading.com. The website claimed it was run by a share trading company operating under the name of AAFX Trading Company Limited (together with the website or individually, “AAFX Trading”).
Barua resides in New South Wales. Stancu has alleged that Barua was involved (or purported to represent that he was involved) in the business run by AAFX Trading.
De Uray was born in Geelong, Victoria and lived in the state for approximately the first 24 years of her life. She moved to India in 1997[3] and now resides in Kolkata, West Bengal, India. As pleaded in the statement of claim filed on 25 October 2021 (“the Statement of Claim”), de Uray is also alleged to have been involved (or purported to represent that she was involved) in the business said to be run by AAFX Trading.
[3]Before moving to India, de Uray spent about 7½ years in London, United Kingdom.
Klonis Kirby & Co is a firm of solicitors based in Melbourne, Victoria. It is not a party to the proceeding. It is common ground that Klonis Kirby & Co has conduct of the conveyance of the Property on behalf of de Uray and therefore will have control over the proceeds of sale once they are received by the firm as part of the settlement process.[4] Settlement of the sale of the Property is due to occur today.
The substantive claimsC.
[4]On the first return of the hearing of this application, Klonis Kirby & Co undertook to the court to abide by any orders made that relate to funds from the sale of the Property which come into Klonis Kirby & Co’s possession or control. As a result, Stancu desisted with his application for interlocutory relief in this regard as against the firm.
For the purposes of this application, it is only necessary to give a broad summary of Stancu’s case.
Stancu claims he opened an account with AAFX Trading in May 2015. He alleges that in doing so, he entered into a contract with 1 or other of the defendants or AAFX Trading for the purchase of stock on his behalf.
Between May 2015 and April 2016, Stancu allegedly transferred approximately $133,000.00 for disbursement to AAFX Trading, including to bank accounts belonging to Barua and de Uray in the following amounts:[5]
[5]These amounts are taken from a witness statement filed on behalf of Stancu which he has sworn to be true and correct in an affidavit sworn on 4 August 2022. These figures are not identical to those previously pleaded in the Statement of Claim.
Date
Amount
Account credited (or allegedly credited)
1 June 2015
USD[6] $3,653.00
AAFX Trading account[7]
4 June 2015
USD $232.00
AAFX Trading account
8 June 2015
USD $5,270.00
AAFX Trading account
10 June 2015
USD $7,700.00
AAFX Trading account
10 June 2015
USD $3,852.00
AAFX Trading account
11 June 2015
USD $3,852.00
AAFX Trading account
8 July 2015
USD $20,250.00
AAFX Trading account
25 July 2015
USD $14,000.00
AAFX Trading account
2 September 2015
$20,000.00
(USD $14,010.00) (“the Deposit”)de Uray’s Westpac Banking Corporation account
(“the de Uray Account”)10 September 2015
$15,000.00
(USD $10,591.73)Barua’s Commonwealth Bank of Australia account
11 September 2015
$5,000.00
(USD $3,538.75)Barua’s Commonwealth Bank of Australia account
[6]That is, United States dollars. The amounts in United States dollars reflect Stancu’s evidence rather than the amounts pleaded in the Statement of Claim (which were all in Australian dollars).
[7]Stancu alleges he was directed by unnamed representatives of AAFX Trading to open an AAFX Trading account. He was told to transfer money to the account using an acceptable online payment platform. Although the AAFX Trading account was ostensibly opened in his name, Stancu had no direct control over the account or the funds within it. It is alleged that Stancu made 8 deposits into the AAFX Trading account from 1 June 2015 to 25 July 2015, each using the “Skrill” payment platform. Following each deposit, he would direct AAFX Trading to use the funds to purchase shares nominated by him.
Stancu alleges that Barua and de Uray represented to him that AAFX Trading had used these funds to purchase “396 units of Tesla stock … about 261 units of Solar Edge stock and 2 units of gold stock” on his behalf.
However, it is also alleged by Stancu that:
(1) No such purchases were made by Barua, de Uray or AAFX Trading.
(2) There is no company incorporated in Australia under the name “AAFX Trading Company Limited”.
(3) The funds were fraudulently misappropriated by Barua and de Uray for their own use or benefit.
(4) AAFXtrading.com was a sham platform established and operated by Barua and de Uray for the sole purpose of scamming and misappropriating funds from unsuspecting share investors, including Stancu.
Stancu claims Barua and de Uray are liable for fraudulent misrepresentation, breach of fiduciary obligations, various contraventions of the Australian Securities and Investments Commission Act 2001 (Cth), alternatively, misleading or deceptive conduct under the Australian Consumer Law[8] and equitable fraud. He seeks damages, alternatively statutory compensation or equitable compensation, from Barua and de Uray, along with interest and costs.
Procedural historyD.
[8]Competition and Consumer Act 2010 (Cth), sch 2 (“the Australian Consumer Law”).
Following the commencement of the proceeding in late August 2021, Stancu experienced difficulty serving the originating process (in both its original and amended form) on de Uray. At the time, her whereabouts was unknown to Stancu.
An unsuccessful attempt was made to serve de Uray at a residential address in East Malvern, Victoria, being the address to which her bank statements were mailed by her bank, Westpac Banking Corporation (“Westpac”). This property was registered in the name of de Uray’s brother. The process server employed by Stancu reported that the person at that address (who was not de Uray) would not accept service.
Subsequently, Stancu discovered that de Uray was located in Kolkata, West Bengal, India. Service was still not able to be effected. On 10 June 2022, orders permitting substituted service were made. Service was effected in accordance with those orders on 17 June 2022.
On 11 July 2022, de Uray filed an appearance. In a defence filed on 26 July 2022, de Uray either denied any knowledge or claimed no knowledge of the allegations in the Statement of Claim, including any receipt of money from Stancu. Further, by way of affidavit evidence, she deposed that she was unaware of any AAFX Trading scam or the related matters alleged by Stancu.
Stancu did not experience the same difficulties in serving Barua. On 30 November 2021, a defence was filed on Barua’s behalf. Broadly, by that defence it is pleaded that Barua had a complete lack of knowledge of AAFX Trading, any online platform using that or any associated name or the communications that were sent to Stancu as alleged. However, Barua admitted receipt of $20,000.00 because of Stancu’s “mistaken payments to him” and that he is liable to return those funds to Stancu, together with interest.
The current interlocutory applicationE.
On 21 July 2022, Stancu filed and served a summons on de Uray for the hearing of an application for a freezing order over the proceeds of sale of the Property.
Stancu’s submissions and the evidence relied uponE.1
First, Stancu submits that he has a good arguable case against de Uray. Accordingly, he contends it is more likely than not that a court will award judgment in his favour.
Secondly, Stancu submits it is highly likely de Uray’s assets will be dissipated if an interlocutory injunction is not ordered. Stancu relies on de Uray being a resident overseas and having limited assets in Australia. Beside a few bank accounts (the value and operational status of which remain unknown), Stancu submits that de Uray has no known assets of value in Australia other than the Property. Further, Stancu points to evidence suggesting that a contract for the sale of the Property was signed on 20 June 2022, that is, 3 days after service of the writ in this proceeding was effected on de Uray.
Furthermore, Stancu relies on the following concerning the sale of the Property:
(1) Prior to being sold, the Property was listed as having a value of $1.425 million. De Uray has admitted that the Property was sold for this sum.
(2) The net proceeds of sale of the Property are estimated to be approximately $1,196,933.08.
(3) Settlement is due to occur today.
(4) It has been agreed that the deposit and proceeds of sale[9] of the Property will be transferred to de Uray’s conveyancing solicitors, Klonis Kirby & Co.
[9]After the payment of costs incurred as a result of the sale of the Property.
Moreover, Stancu submits that it should be presumed that the proceeds of sale of the Property will eventually be sent to de Uray in India. While Stancu has questioned the reliability of de Uray on this topic (and more generally), her evidence is that she has entered into an oral contract to purchase an apartment in India (“the Apartment”), with settlement to occur on 20 August 2022. Her evidence is that a substantial part of the proceeds of the sale of the Property will be needed to complete the purchase of the Apartment. In light of this, Stancu contends that there is a real and immediate risk that the sale proceeds will be transferred out of Australia.
Thirdly, in circumstances where the proceeds of sale are the only known asset of value belonging to de Uray in Australia, Stancu submits that the possible transfer of these proceeds out of the jurisdiction creates a danger that any prospective judgment in his favour will go wholly or partly unsatisfied.
Accordingly, Stancu seeks a continuation of the interim freezing order precluding de Uray from removing or dissipating any of her assets in Australia, including the net proceeds of sale of the Property, in an amount of $1.15 million,[10] until the hearing and determination of this proceeding.
The evidence and submissions in oppositionE.2
[10]The amount of $1.15 million was put forward by Stancu’s counsel as “the just and equitable midpoint in relation to the possible liability for de Uray in the event that judgment is given against her for the larger sum [of roughly $2 million]”.
In opposing the application, de Uray relies upon alleged deficiencies in the Statement of Claim, together with the evidence in her affidavits sworn 26 July 2022 (“the First Affidavit”) and 2 August 2022 (“the Second Affidavit”).
Put broadly, de Uray submits that the Statement of Claim is deficient in the following respects:
(1) The claim of fraudulent misrepresentation has not been properly pleaded or particularised. The Statement of Claim merely states that the representations alleged to have been made by Barua and de Uray are to be inferred by reason of each of them “providing, allowing or facilitating others to provide, to the plaintiff, their bank account details”. There is no allegation that de Uray communicated with Stancu or authorised others to provide, allow or facilitate the provision of her bank account details to Stancu on her behalf.
(2) Stancu’s claim for compensation for breach of fiduciary obligations depends on the existence of a relationship in which such obligations are owed by de Uray to the plaintiff. However, no such relationship has been pleaded by Stancu.
(3) The claims of unconscionable conduct in breach of sections 12CA or 12CB of the Australian Securities and Investments Commission Act are “flimsy” and only supported by a bald allegation without particulars.
(4) Similarly, the allegations of misleading conduct in breach of sections 12DA and 12DF of the Australian Securities and Investments Commission Act have not been properly articulated or particularised.
(5) In relation to section 12DB of the Australian Securities and Investments Commission Act, there was nothing in the Statement of Claim identifying de Uray as the maker of the alleged representation.
(6) The claims that de Uray breached sections 12DI and 12ED of the Australian Securities and Investments Commission Act have not been made out as it has not been alleged that de Uray was engaged in, or purported to be engaged in, the provision of financial services.
(7) The claim for breach of section 18 of the Australian Consumer Law is misconceived. By reason of section 131A of the Competition and Consumer Act 2010 (Cth), the Australian Consumer Law does not apply to transactions in respect of financial services or products.
(8) The strict requirements in respect of pleading equitable fraud and misappropriation have not been met.
Further, in the First Affidavit, de Uray deposes that her full name is Sybilla Jane Margit de Uray, not Sybilla Jane Margin de Uray (as incorrectly stated in the summons filed on 21 July 2022) nor Sybillia Jane Margin de Uray (as incorrectly stated in the Statement of Claim). The first misspelled version of de Uray’s name was also used in 2015 when Stancu was provided with details of the de Uray Account.
De Uray admits that she was the holder of the de Uray Account.[11] Her evidence is that she opened the bank account in the late 1980s and used it to receive commissions and payments for work she completed furnishing old colonial buildings and rent from properties that she previously owned in Victoria.[12]
[11]In some of the evidence tendered by Stancu, the materials state that he was instructed to transfer the Deposit to an account with the account number “52113”. The exhibits confirm the account number was in fact “521113”, which is the account number of the de Uray Account
[12]However, see further pars 34-35 below.
De Uray swears in the First Affidavit that she has no knowledge of whether the Deposit was received into the de Uray Account. Her position is that because of the volume of money in the de Uray Account and the irregular timing of transactions to and from it, a fluctuation in the account balance of around $20,000.00 would not have attracted her attention.
Further, de Uray gave evidence that:
(1) The cheque books for the de Uray Account were stolen in 2011 when the Property (at which the cheque books were temporarily stored) was burgled.
(2) She has requested a copy of the police report filed after the burglary occurred.[13]
[13]This was stated in the First Affidavit. No report was tendered.
(3) She closed the de Uray Account in September 2015,[14] due to her displeasure with the way in which Westpac (which was also the insurer of the Property) responded to her insurance claim following the burglary.
(4) As at the time of swearing the First Affidavit, she was seeking to obtain bank statements from 2015 to determine if the Deposit was “in fact received into the de Uray Account and, if so, what happened to it”.[15]
[14]However, see par 34 and fn 15 below.
[15]The bank statements were not tendered, but the court was told bank statements for a period up to August 2017 have been produced by Westpac pursuant to a subpoena.
The First Affidavit made no reference to the interest the Australian Federal Police had regarding de Uray’s use of the de Uray Account or that its residual funds had been forfeited. Of course, it may have simply been an oversight or a lack of appreciation of the significance of such matters, and no conclusion is drawn on this issue for the purpose of this application. Whatever might have been the reason for the absence of this information in the First Affidavit, upon de Uray’s belated application it was necessary to adjourn the substantive hearing of Stancu’s summons by a week to allow de Uray to put on further evidence.
The Second Affidavit contained important additional information. Despite having sworn in the First Affidavit that the de Uray Account was closed in September 2015, the Second Affidavit stated that de Uray had consented to orders in the County Court of Victoria in July 2019 (“the Money Laundering Orders”), which included an order in respect of the de Uray Account. That order required that funds standing to the credit of the de Uray Account in the sum of $5,498.47 be forfeited to the Commonwealth of Australia.
The Money Laundering Orders were made in a proceeding commenced in 2016 by the Commissioner of the Australian Federal Police pursuant to section 142 of the Anti-Money Laundering and Counter-Terrorism Financing Act2006 (Cth). On 8 April 2019, that proceeding was settled and a deed of settlement was prepared. Pursuant to that settlement, on 16 July 2019 Judge Carmody made the Money Laundering Orders by consent which, amongst other things, dismissed the proceeding without adjudication on the merits and with no order as to costs.
The Money Laundering Orders included that property specified in schedule 2 of the orders was forfeited to the Commonwealth of Australia pursuant to section 49 of the Proceeds of Crime Act 2002 (Cth). Schedule 2 of the Money Laundering Orders listed 7 properties located in Victoria, collectively with an estimated value at that time of $4,312,400.00. De Uray also agreed to forfeit funds standing in various bank accounts in Australia, including those in the de Uray Account. The Property was referred to in the Money Laundering Orders but was expressly excluded from the restraining orders made, including those made previously. Further, the Money Laundering Orders included the following:
Pursuant to section 77 of the Proceeds of Crime Act 2002 (Cth):
a. The proportion of the value of [de Uray’s] interest in the property forfeited … not to be derived or realised from the commission of any offence is $649,490.00.
Accordingly, pursuant to the Money Laundering Orders, the Commonwealth of Australia was required to pay the amount of $649,490.00 to a mortgagee, and specifically a mortgage account held in the name of de Uray.
De Uray makes no mention in either of her affidavits of any other Australian assets in her name. However, it was accepted by her counsel that the evidence led on her behalf demonstrated that she had access to funds from other sources, including the business she conducts in India on an ongoing basis.
In response to the suggestion that the sale of the Property was prompted by the commencement of this proceeding, de Uray gave evidence that her decision to sell the Property was motivated at an earlier point in time by the deaths of her parents and brother within a short period. She deposes that these deaths prompted her to consider her own mortality and to make plans to provide for her daughter by purchasing the Apartment. She deposes that on 21 January 2022 she engaged a real estate agency to sell the Property by auction.
Her decision to purchase the Apartment was also an event that preceded the service of the writ upon her. On 1 March 2022, she says she orally agreed to purchase the Apartment for $517,250.00 (subject to exchange rates). De Uray gave evidence that she paid a deposit of $44,000.00 as a down payment on the Apartment using borrowed funds.[16] Her evidence is that she borrowed the funds from HDFC Bank and is required to repay these funds to the bank, but no further substantive details have been given. In addition, the vendor is alleged to have verbally agreed to let her rent the Apartment for $950.00 per month until settlement.
[16]No documents were produced to corroborate her evidence of the existence of this loan.
De Uray submits her ability to complete the purchase on 20 August 2022 will be crippled if a freezing order is made in the sum sought by Stancu. In light of the fact that the agreement to purchase the Apartment is oral and has not yet been replaced by a signed contract of sale,[17] de Uray submits it is likely any delay on her part in transferring the outstanding settlement sum may cause her to lose her deposit and the opportunity to purchase the Apartment. She believes that the vendor is unlikely to agree to extend the settlement period, as 1 extension has already been negotiated. Evidence of a written statement of the vendor was tendered to the effect that the sale had been negotiated and finalised and that if the transaction did not proceed on 20 August 2022 then “the deal will be cancelled”.
[17]In the Second Affidavit, a draft contract of sale was exhibited but there was no evidence as to by whom it was drafted or if it had been agreed to by the vendor.
Further, de Uray gave evidence that if she is unable to complete the purchase of the Apartment, she may be rendered homeless. Her month-to-month lease of the Apartment is allegedly an unwritten “handshake deal” that is conditional on her purchasing the Apartment and is otherwise due to end on 20 August 2022.
Furthermore, de Uray gave evidence that she has already paid for substantial improvements to the Apartment during the tenancy, which commenced around the end of February 2022. These improvements include $23,310.00 on kitchen renovations, $1,350.00 on painting and wallpapering, $5,100.00 on window coverings, and $2,520.00 on fans. She gave evidence that if the purchase of the Apartment cannot be completed, she will lose the benefit of these improvements.
Finally, by way of an affidavit sworn on 1 August 2022, de Uray’s solicitor deposed that he had conducted a title search and that Stancu did not appear to be the owner of any real estate in Victoria.[18] De Uray submits that Stancu’s apparent lack of assets raises questions as to the value of his undertaking and his ability to meet any order for damages, should the freezing order be granted and later found to be unwarranted.
Some key matters that are not in issueE.3
[18]Stancu subsequently gave evidence that he owns real estate in the Australian Capital Territory jointly with his wife. See par 67 below.
It is helpful to identify some matters that are not presently in controversy. These have arisen out of the evidence before the court and as a result of various exchanges during the course of argument:
(1) Stancu has paid a total of $133,000.00 or thereabouts[19] as a result of a share trading scam and has recovered none of those moneys.
[19]Approximate amounts were given in Australian dollars for payments that were alleged to have been made in United States dollars.
(2) The scam was conducted by a person or persons associated with AAFX Trading, through a website with the address AAFXtrading.com.
(3) As part of the scam, Stancu was directed to pay the Deposit of $20,000.00 into the de Uray Account, and he did as instructed.
(4) On 2 September 2015, the Deposit was paid by Stancu and credited to the de Uray Account, and de Uray has not returned it.
(5) Stancu remitted a deposit slip to AAFX Trading as proof of payment of the Deposit into the de Uray Account.
(6) Leading up to 2016, de Uray engaged in conduct which resulted in the Australian Federal Police alleging she committed money laundering offences in Australia and as a result, by way of the Money Laundering Orders, she agreed to forfeit millions of dollars in assets to the Commonwealth of Australia.
(7) Amongst other bank accounts, the de Uray Account was subject to the Money Laundering Orders such that the funds standing to the credit of that account (then being approximately $5,498.47) were forfeited to the Commonwealth of Australia.
(8) The transactions as recorded in a bank statement of the de Uray Account for the 4 business days between 28 August 2015 and 2 September 2015 demonstrate a pattern consistent with money laundering in that, over those 4 days, 15 deposits were made at amounts between $8,000.00 and $9,800.00; that is, just below the threshold of $10,000.00 at which reporting obligations arise.[20] De Uray provided no explanation for these payments other than very general comments.[21]
[20]Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), s 43; Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth), ch 19.
[21]See par 30 above.
(9) On 28 August 2015, the balance of the de Uray Account was $85,326.78 and progressively rose to a balance of $226,626.78 on 2 September 2015, with only 1 withdrawal made during that period in an amount of $500.00.
(10) The payment of the Deposit into the de Uray Account on 2 September 2015 was inconsistent with the pattern of receiving deposits under the threshold of $10,000.00.
(11) In approximately 2016, de Uray had her Indian passport seized by the Directorate of Enforcement in India. Her passport is still held by the Directorate of Enforcement. The reasons for the seizure were not apparent on the evidence on this application.
(12) De Uray has an undisclosed amount of assets other than the proceeds of sale of the Property and de Uray has made no attempt to give evidence as to her assets and liabilities generally.
(13) The Statement of Claim is poorly pleaded and in a number of respects fails to disclose the causes of action sought to be identified. Stancu’s counsel accepts the Statement of Claim needs to be substantially amended.
(14) If the freezing order is not continued or is continued at a lesser amount, de Uray will remove the proceeds of sale of the Property from Australia to the extent these proceeds are available.
(15) De Uray accepts it is appropriate that the freezing order continue in relation to an amount equivalent to the Deposit. Indeed, she has indicated that she will consent to a freezing order in the amount of $100,000.00, which she submits will more than cover any legitimate claim Stancu may have against her.
The relevant principlesE.4
The court may make a freezing order pursuant to order 37A of the Supreme Court (General Civil Procedure) Rules 2015 or its inherent jurisdiction.[22]
[22]Rule 37A.06 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) states that nothing in order 37A limits the court’s inherent, implied, or statutory jurisdiction to make a freezing order.
Rule 37A.05(4) provides:
The Court may make a freezing order … against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because any of the following might occur–[23]
[23]In this context, the word “might” means “a reasonable possibility, not fanciful or unreal, but not necessarily more than 50 percent”: Rozenblit v Vainer [2019] VSCA 164, [15] (McLeish and Niall JJA), citing Deputy Commissioner of Taxation v Gashi (2010) 27 VR 127, 131 [14] (Bell J).
(a) …
(b) the assets of the judgment debtor, prospective judgment debtor or another person are–
(i) removed from Australia or from a place inside or outside Australia; or
(ii) disposed of, dealt with or diminished in value.
The principles to be applied in determining whether a freezing order ought to be made are not in dispute. In the appellate context,[24] they were summarised by the Court of Appeal in Rozenblit v Vainer:[25]
[24]See, for example, Zhen v Mo [2008] VSC 300, [21]-[30] (Forrest J) for a statement of the principles in the context of an interlocutory application in the trial division.
[25][2019] VSCA 164, [19], applied in Argyle Building Services Pty Ltd v Franek [2020] VSCA 196, [70] (Kyrou, McLeish and Niall JJA). Also, the court is required to have regard to the practice note concerning freezing orders: r 37A.02(4). See Practice Note SC Gen 17: Freezing Orders (30 January 2017).
(1) The purpose of granting a freezing order is to prevent the frustration or inhibition of the Court’s process by seeking to meet a danger that a prospective judgment of the Court will be wholly or partly unsatisfied. Its purpose is not to provide security in respect of a prospective judgment or order.
(2) A freezing order is to be viewed as an extraordinary interim remedy. The order is a drastic remedy which calls for a high degree of caution on the part of the Court before an order is made.
(3) An applicant for a freezing order pending appeal will be required to establish that there is a good arguable case that the appeal will succeed. This means that it can be seen from the available material that the appeal has a real prospect of success.
(4) It must be shown that there is a reasonable possibility, not necessarily more than a 50 per cent chance, that assets may be disposed of or dealt with or diminished in value if an order is not made.
(5) ...
(6) The value of the assets covered by a freezing order should not exceed the likely maximum amount of the applicant’s claim, including interest and costs.
(7) As a condition of making a freezing order it will normally be appropriate to require the applicant to give undertakings to the Court, including the usual undertaking as to damages, supported if necessary by the provision of security.
(8) The order being discretionary,[26] other considerations including the balance of convenience may bear upon the Court’s ultimate decision, but it is not a distinct requirement that the balance of convenience favours the making of the order.
(9) The inherent jurisdiction of the Court is preserved and r 37A.05 simply addresses the minimum requirements that ordinarily need to be satisfied in an application.
[26]Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, 404 [53] (Gaudron, McHugh, Gummow and Callinan JJ).
As observed in Distinctive FX Pty Ltd v Wright,[27] the evidence relied upon by a plaintiff in seeking to establish an arguable case against a defendant may also be relied upon to demonstrate that there is a danger that a prospective judgment will be wholly or partly unsatisfied as a result of the removal, disposal or diminishing of assets. Where the allegations made against a defendant concern serious dishonesty, evidence supporting those allegations may itself satisfy the court that the requisite danger exists.[28]
The decisionE.5
[27][2015] VSC 299, [39], applied in Arabic Assemblies of God Inc v Land of Refuge Arabic Church in Melbourne Inc [2020] VSC 24, [15] (Connock J).
[28]Victoria University of Technology v Wilson [2003] VSC 299, [33] (Redlich J); Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, 325F–326A (Gleeson CJ, with whom Meagher JA and Rogers AJA agreed).
On the basis of the concessions properly made on behalf of de Uray, there can be no issue that a freezing order should be made on an interlocutory basis until the hearing and determination of this proceeding (subject, of course, to further order). The real issue is the amount that should be made the subject of the freezing order.
To address this, it is convenient to commence with the Deposit into the de Uray Account.
In my view, Stancu has a good arguable case that it will be found at trial that de Uray was aware of the Deposit in September 2015 and that she chose not to make enquiries or to take any steps to return moneys that she knew, or ought to have known, did not belong to her; or that de Uray was reckless in that regard.[29] This conclusion falls from the facts before the court, including:
[29]As the term “reckless” is understood in the context of a case based on fraud: Magill v Magill (2006) 226 CLR 551, 567 [37] (Gleeson CJ), 587-588 [114] (Gummow, Kirby and Crennan JJ); Banditt v The Queen (2005) 224 CLR 262, 265 [2] (Gummow, Hayne and Heydon JJ); Derry v Peek (1889) 14 App Cas 337, 374.3 (Lord Herschell).
(1) The amounts transferred in and out of the de Uray Account other than the Deposit suggest that de Uray was very attentive as to how much was being deposited either by others or by herself.
(2) De Uray’s claim that she was unaware of the fraudulent scheme is far from beyond suspicion. Generally speaking, it would be highly unusual for a person who is not involved in a fraudulent scheme to receive, on an unsolicited basis, a large sum of money arising out of the operation of that scheme with (apparently) no strings attached (including no demand for its return).
(3) Further to subparagraph (2), de Uray did not adduce any evidence showing that the persons involved in the fraudulent scheme tried to obtain the Deposit or any other moneys from her account by way of unauthorised withdrawals. On the supposition that de Uray was not involved in any wrongful conduct, it would be reasonable to assume it would have been likely that the scammers would have sought to withdraw the Deposit and transfer it to an account from which they could access the funds.
(4) Both the various deposits made at the time and the absence of any reference in the First Affidavit to the reason for the de Uray Account’s forced closure casts some material doubt over de Uray’s claims that she was not aware of the Deposit.
Further, Stancu has established a good arguable case that if those funds had been returned to him he would have used them to buy Tesla shares. The contemporaneous documents demonstrate this was Stancu’s intention. He has also given evidence to this effect in his witness statement, the contents of which have been confirmed on oath.
The evidence is that in September 2015, $20,000.00 would have enabled Stancu to acquire 63 Tesla shares. If Stancu had acquired those shares and kept them, as he has sworn he would have, as at January 2022 they would have been worth $413,018.00.[30] Accordingly, there is a good arguable case that Stancu may recover damages of this order at trial.
[30]Stancu has filed an expert report dated 17 February 2022, in which the alleged loss is calculated to 25 January 2022. Parts of this report were relied upon in this application.
As there was no evidence from either party as to what has happened to the Tesla share price since (and obviously the price of Tesla shares will continue to fluctuate into the future), this is the best available evidence of an estimate of Stancu’s potential losses at this time.
That said, as the date given is 25 January 2022, it may be that an interest component ought to also be factored in if no adjustments are made in relation to the share price from that time. However, as no submissions were made on the amount of loss that might be claimed beyond the figure provided of $413,018.00, that figure will be adopted for the purposes of determining the amount of the freezing order.[31] This then leaves consideration of the payments made before and after 2 September 2015.
[31]In any event, for reasons that will become apparent, it is unnecessary to explore this matter further: see pars 61-62 below.
As to the payments made before, there is no evidence at all beyond the payment of the Deposit to de Uray on 2 September 2015 to link de Uray to the first 8 payments or to AAFX Trading. In circumstances where the proceeding has been on foot for nearly a year, and Stancu has had the opportunity to issue subpoenas and seek non-party discovery to disclose some form of connection but has failed to do so, I am not satisfied that Stancu has a good arguable case in this regard.[32]
[32]The writ and indorsement of claim were filed by Stancu on 31 August 2021. Since commencing the proceeding, Stancu has issued:
(1)A subpoena to Westpac dated 19 October 2021 seeking all bank statements and transaction records of the de Uray Account.
(2)A subpoena to GoDaddy Online Services Pty Ltd (the host of AAFXtrading.com) dated 15 February 2022, seeking all records and other information in relation to the owners of AAFXtrading.com and the bank account details used to pay for the GoDaddy service.
(3)A subpoena to National Australia Bank Ltd dated 15 February 2022, seeking all records and information in relation to the holders of any account under the name “Skrill” or necessary variants.
During the hearing, Stancu’s counsel informed the court that:
(1)Westpac had responded to the subpoena by producing the bank statements of the de Uray Account, but these statements only covered transactions up to and including August 2017.
(2)GoDaddy Online Services Pty Ltd had objected to answering the subpoena on the basis that it was not the operator or manager of AAFXtrading.com. This objection was received approximately 2 weeks after the subpoena was issued.
(3)National Australia Bank Ltd had provided documents to Stancu, but they were of no assistance in identifying the persons behind the alleged AAFX Trading scam.
Stancu’s counsel confirmed that his client had made no attempts to issue any additional subpoenas. Further, he stated that Stancu had “no direct evidence” to link de Uray to any of the payments other than the Deposit.
Ultimately, when faced with this unsatisfactory position, Stancu’s counsel contended in his reply submissions that the evidence presently before the court shows that de Uray is just the sort of person who would involve herself in such a transaction.
Without commenting on whether this submission was justified based on the limited evidence before the court on this application, and accepting it for the purposes of argument, it is axiomatic that a general position concerning her character is materially deficient in establishing that de Uray was fraudulently involved in the antecedent transactions in question. Accordingly, the freezing order will not take into account amounts transferred prior to the Deposit.
As for the later payments of $15,000.00 on 10 September 2015 and $5,000.00 on 11 September 2015, the position is different because of questions of causation rather than de Uray’s character.[33] There is a good arguable case that if de Uray had acted upon receipt of the Deposit from Stancu in a timely manner and not (on the case against her) wrongfully kept the Deposit, then Stancu would have been alerted to the scam and would not have paid a further total of $20,000.00 into Barua’s bank account on 10 and 11 September 2015.
[33]See, for example, Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, 12.8, 13.3 (Mason, Wilson and Dawson JJ); Gould v Vaggelas (1984) 157 CLR 215, 223.9-224.4 (Gibbs CJ), 265.4 (Dawson J).
Thus, there is a good arguable case that de Uray’s alleged fraudulent conduct caused further losses beyond those discussed above. Although Barua has acknowledged in his defence that he is liable to repay the later payments totalling $20,000.00, together with interest, there is no evidence that he has done so. Further, there is a good arguable case that if Stancu had not paid this additional $20,000.00, he would have invested that money in Tesla shares by some other means in September 2015. If a like approach to that referred to in paragraph 53 above is adopted, Stancu would have acquired another 63 Tesla shares worth an additional $413,018.00. Putting both those sums together equates to an amount of approximately $826,000.00 for the purposes of any freezing order.
However, consideration of the appropriate amount of the freezing order does not end there. Although the contract of sale is not fully documented yet, on the balance of probabilities on an interlocutory basis I am satisfied that, pursuant to arrangements made before she was served with the writ, de Uray does require funds to settle the Apartment on 20 August 2022. Further, although Stancu has submitted I should not accept it, de Uray’s evidence is that the consequences of her not being able to settle could be very serious, including eviction from the Apartment and homelessness.
This evidence as to the potential ramifications for de Uray is uncontested. There is no proper basis to reject it,[34] despite the lack of evidence of the full details of the financial position of de Uray. Thus, in my opinion, the balance of convenience favours the freezing order being set at an amount that allows de Uray to have sufficient funds to complete the pre-existing agreement to purchase the Apartment. Based on the evidence presently available, that amount is in the order of $517,250.00. The reduction of the amount of the existing freezing order in this way will leave a significant amount of the proceeds of sale of the Property to be the subject of the injunction. Such an amount is well in excess of the total amounts paid by Stancu as a result of the alleged fraud (albeit not the entirety of the losses claimed for loss of the expected benefits of the alleged fraudulent transactions for which it has been held there is an arguable case).
[34]There was no application to cross-examine de Uray. The court was informed by her counsel that she was available by video link.
However, because there are still 2 weeks until settlement of the Apartment, I will order that de Uray file and serve a further affidavit stating precisely how much is needed to settle the Apartment, together with documentary evidence to establish the amount specified. This order will also include a requirement to state in an affidavit the full details of her assets and liabilities.
Further mattersE.6
There are some further matters that need to be addressed. It is noted that de Uray has made no application for any allowance for living expenses or legal costs. Presumably, this is because she has some resources available to her beyond the proceeds of sale of the Property. Also, in due course it may be expected that de Uray will own the Apartment, which will be unencumbered.[35]
[35]There was no submission by Stancu on this application that de Uray ought to be able to raise funds by reason of her purchase of the unencumbered Apartment, but perhaps this was by reason of the limited time available until settlement.
Further, I do not accept Stancu’s submission that de Uray sold the Property as a result of the writ being served upon her by way of substituted service. The evidence shows the sale was already contemplated and arranged well before service.
As to the state of the pleadings, the Statement of Claim will be struck out in its entirety and Stancu will be directed to file and serve an amended statement of claim promptly. There are numerous flaws in the Statement of Claim and it will be of benefit to all if it is re-pleaded in its entirety. Thus, the making of this decision, as set out above, has placed little reliance on the Statement of Claim as presently pleaded. Rather, the evidence in the affidavits, the submissions based on that evidence and the causes of action that obviously arise if those facts were established at trial are the basis upon which the orders have been made.
In relation to Stancu’s undertaking as to damages as part of the basis on which the freezing orders have been made and will continue to be made, the evidence is that he owns a property in the Australian Capital Territory jointly with his wife. Although there is no evidence concerning its current value, based on the purchase price in 2016 and the current amount owing on the mortgage, together with the fact that Stancu is an individual living in Victoria,[36] I am satisfied that the undertaking given is of substance.
ConclusionF.
[36]There was no suggestion that Stancu was intending to remove any of his assets from the jurisdiction.
In the circumstances, subject to further order, the freezing order will be extended on an interlocutory basis until the hearing and determination of this proceeding. The amount will be determined before 20 August 2022 but after there has been further material provided by de Uray (as will be ordered presently).
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