SUAVIS P/L v Top End Roofing & Cladding P/L - [2008] SADC 157

District Court of South Australia
(Civil: Interlocutory Application)
SUAVIS P/L v TOP END ROOFING & CLADDING P/L
[2008] SADC 157
Reasons for the Order of His Honour Judge Clayton (ex tempore)
11 November 2008
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS
The plaintiffs were formerly the lessees of a licensed hotel. The defendant, which was the holder of the freehold, had entered into a contract to sell the freehold.
HELD: There was a risk that the defendant which was a trustee might dissipate the proceeds of sale in a way which could frustrate any judgment which the plaintiff may obtain.
Freezing order made.
Supreme & District Court Civil Rules 2006 r 247; Misrepresentation Act 1972 s 7; Trade Practices Act 1974 s 52; Retail and Commercial Leases Act 1995 ss 68 and 69, referred to.
Taylor v Diamond (1997) 6 Northern Territory Law Reports 164; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 8 WAR 183; Devlin v Collins (1984) 37 SASR 98; Mitchell v Sarrinjan (1994) 117 Family Law Reports 273; Brew v Crouch [1998] SASC 6633; Cummins v Pathline Australia Pty Ltd & Ng [2004] SASC 95; RTP Holdings Pty Ltd & Anor v Roberts & Ors No. 2 [2000] SASC 390; Derby & Co Ltd v Weldon (1989) 1 AER 469 , considered.

SUAVIS P/L v TOP END ROOFING & CLADDING P/L
[2008] SADC 157

The plaintiff seeks a freezing order with respect to the proceeds of sale of a property known as the Lady Daly Hotel, formerly The Territorian Hotel, which, it is alleged, is being sold by the defendant.
I take into account the fact that undertakings have been offered by the plaintiff company and Mr Freer and Ms Brown, the shareholders and directors of the plaintiff.
Mr McCarthy, who appeared for the plaintiff, argued that because an offer had been made to purchase the hotel for approximately $640,000 in 2005, it could be inferred that the property was now worth at least that sum.
The court has power to make a freezing order by reason of rule 247. That rule replaces an earlier rule dealing with Mareva orders. The new rule is a uniform rule which applies throughout Australia on the recommendation of the Harmonisation Committee.
Subrule (5) provides that where an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in the court the rule applies. It applies where proceedings have been commenced but not yet proceeded to judgment.
Subrule (5) provides that the court may make a freezing order against a 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 will be wholly or partly unsatisfied because the assets of the prospective judgment debtor might be disposed of or dealt with. I have omitted the words which are not relevant to the present situation.
The order is not an injunction and the criteria for the order are not those which apply in the case of an interlocutory injunction. It was previously accepted that a Mareva injunction, or Mareva order, was an exceptional remedy and was not to be granted lightly.
The criteria to be applied are those set out in subr (5). It had been decided that the approach of the court with an application for a Mareva order was to ask first, whether the plaintiff had a good arguable case, secondly, whether the defendant has assets over which an injunction could be granted and third, whether there was a real risk and a legitimate concern for dissipation or secretion of assets which may render any judgment nugatory. That principle was set out in Taylor v Diamond (1997) 6 Northern Territory Law Reports 164.
The purpose of the order is not to provide security for a plaintiff’s claim but to prevent a defendant from defeating the plaintiff’s claim by disposing of its assets before judgment. That comes from Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 8 WAR 183 at 186 and the well-known South Australian case of Devlin v Collins (1984) 37 SASR 98.
The plaintiff does not have to establish that the defendant intends to frustrate any judgment that the plaintiff may obtain but only that something may have that effect. I have been referred to and had regard to the discussion with respect to rule 247 in Lunn’s Civil Procedure. I accept that an order should not be made merely to prevent a defendant from dealing with assets in the ordinary course of its business.
In the present case the defendant is a trustee. The plaintiff alleges that the defendant has no other assets and that if it was to distribute the proceeds of sale of the hotel there would be no fund from which the plaintiff could satisfy a judgment.
Mr Howard who appeared for the defendant referred me to a letter of 4 November 2008 from Duncan Basheer Hannon to Beger & Co which contains the statement: ‘Our client is a developer and uses funds for ongoing projects. The company that owns the hotel is his main trading entity.’ He also referred to a mortgage which was an exhibit to the affidavit of Mr Freer, exhibit MAF5. In the third covenant of the mortgage there is a reference to ‘Collateral security’. Neither of those documents really disclose a great deal about the defendant’s position and I cannot attribute any real weight to them for the purpose of this application.
In his discussion of rule 247 para.6R247.10 Judge Lunn states: ‘There is no need for proof of an intention to remove assets from the jurisdiction and it is enough if the court has a feeling that if the plaintiff succeeded the defendant might have dealt with assets so as to deprive the plaintiff of the benefit of any judgment.’ The text refers to Mitchell v Sarrinjan (1994) 117 Family Law Reports 273 and an unreported decision of Bleby J in Brew v Crouch of 23 April 1998. Judgment No.S6633.
Those cases reflect the attitude of the court to see that its orders are meaningful and not hollow declarations.
I was referred to the decision of Bleby J in Cummins v Pathline Australia Pty Ltd & Ng, a decision of 26 March 2004 judgment 2004 SASC 95. In his reasons at para.17 Bleby J referred to: ‘The danger of assets being withdrawn from the jurisdiction and thus of having the possible effect of frustrating the due process of the court.’
Mr Howard also referred to the decision of Lander J in RTP Holdings Pty Ltd & Anor v Roberts & Ors No.2 [2000] SASC 390. As Mr McCarthy pointed out, in para.37 Lander J observed that the plaintiffs have to establish that there is a danger that the defendants will remove their assets from the jurisdiction. In that case His Honour found that there was no evidence of that or no evidence from which it could be inferred that there was any such risk. Lander J noted that while the defendants had sold their house but they explained the circumstances. Additionally it appeared that the defendants had no equity in the property. I do not regard that decision as a reason why an order should not be made in this case.
On an application for a Mareva injunction the court was concerned with whether the plaintiff had an arguable case, I think I should adopt the same test. That is referred to in para.6R247.30 of Judge Lunn’s book.
The plaintiff relied upon two affidavits of Mr Freer and Mr Jakobsen. The defendant did not file any affidavit material and did not seek to cross-examine the deponents to the plaintiff’s affidavits. Counsel for the plaintiff referred to and relied upon the allegations in the Statement of Claim and the contents of the affidavits. Mr Howard argued that the material did not establish any basis for a freezing order. He argued that the affidavits just did not satisfy the fundamental requirements.
In my opinion the Amended Statement of Claim which was filed on 12 August 2008 raises a number of valid causes of action. The parties had entered into a lease of the hotel on 21 January 2005. The plaintiff alleges that before settlement the defendant gave undertakings which are set out in para.5 of the Statement of Claim. The plaintiff alleges that the defendant failed to carry out the undertakings and that as a result the plaintiff has suffered loss and damage.
Secondly, the plaintiff complains that it has suffered loss and damage as a result of the defendant’s failure to make proper disclosure.
Third, the plaintiff claims it has suffered loss and damage by reason of misrepresentations which are set out in para.19 of the Statement of Claim. It alleges the plaintiff executed the sale agreement in reliance on the representations.
Fourth, it is alleged that the defendant made other misrepresentations after the execution of the sale agreement but before settlement and that in reliance of those representations the plaintiff settled upon the sale agreement.
Fifth, there is an allegation of breach of s 7 of the Misrepresentation Act 1972, there is an allegation that the defendant engaged in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974. And there is also a claim pursuant to ss 68 and 69 of the Retail and Commercial Leases Act 1995. At this stage the court is not required to resolve any dispute of questions of fact or law. Judge Lunn refers to Derby & Co Ltd v Weldon (1989) 1 AER 469 in support of that proposition.
I am satisfied that the Amended Statement of Claim pleads good causes of action and that on the basis of the affidavits the plaintiff has a good arguable case. Naturally I can make no finding as to the ultimate merit of the plaintiff’s claim.
As things stand there is no reason why the defendant could not distribute the proceeds of sale. In fact, its duty as a trustee may require it to do that. On the evidence before me, having regard to the defendant’s situation, I find that there is a likelihood that the defendant may dispose of money in a way which could frustrate any judgment that the plaintiff may obtain.
I accept the submission of Mr McCarthy that a finding to that effect is enhanced by the fact that questions raised by a letter of 4 November were not answered. There was no obligation for the defendant to answer the questions but the fact that they were not answered does give rise to an inference.
In the circumstances I think the plaintiff has satisfied the requirements for a freezing order.