The Beehive Corp Pty Ltd v XY - [2021] WASC 352

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   THE BEEHIVE CORP PTY LTD -v- XY [2021] WASC 352
CORAM:   KENNETH MARTIN J
HEARD:   4 OCTOBER 2021
DELIVERED          :   4 OCTOBER 2021
PUBLISHED           :   19 OCTOBER 2021
FILE NO/S:   CIV 2670 of 2018
BETWEEN:   THE BEEHIVE CORP PTY LTD
First Plaintiff
DIANA QUAN
Second Plaintiff
AND
XY
Defendant

Catchwords:

Application for variation of freezing orders - Upcoming criminal trial - Sale of property - Funds for payment into trust to cover lawyers' fees at trial - Potential equitable tracing claim - Order refused

Legislation:

Nil

Result:

Application refused

Category: B

Representation:

Counsel:

First Plaintiff	:	Mr L Hager
Second Plaintiff	:	Mr L Hager
Defendant	:	Mr W Macdonald

Solicitors:

First Plaintiff	:	Tudori Hager Grubb
Second Plaintiff	:	Tudori Hager Grubb
Defendant	:	Chan Galic Barristers & Solicitors

Cases referred to in decision:

Birketu v Westpac Banking Corporation (No 2) [2018] NSWSC 494
Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105
Crosby Textor Research Strategies Results Pty Ltd v Syed [2020] NSWSC 1792
Polly Peck International Plc v Nadir (No 2) [1992] 4 All ER 769
Re Hallett's Estate (1879) 13 Ch D 696
Re Oatway [1903] 2 Ch 356

KENNETH MARTIN J:

(This judgment was delivered extemporaneously on 4 October 2021 and has subsequently been edited from the transcript.)
(The applicant defendant is referred to throughout this judgment as 'XY')

Introduction

I am dealing with an urgent chambers application brought on behalf of the defendant, XY, on 31 August 2021 to vary freezing orders issued by Master Sanderson on 4 October 2018.
The plaintiff commenced these proceedings by writ on 20 September 2018, in circumstances where they contended then for a claim against the defendant based on her alleged theft of significant funds from the first and second named plaintiffs in the period between 2011 and 2018. Upon the plaintiffs' subsequent application for freezing order relief (filed on 21 September 2018), Master Sanderson issued an order on 4 October 2018 in orthodox terms - prohibiting the defendant from dealing with any of her assets in Australia up to the unenumbered value of $3,064,108.16 (see folio document 13).
Those orders contained the usual exceptions (seen at par 10) in respect of living expenses ($1,000 per week) and indeed, for the payment of legal expenses ($15,000). There is no argument against the appropriateness of those freezing orders as issued by Master Sanderson at that time.
For reference, I note that Master Sanderson's orders subsequently came to be extended until further order on 22 November 2018 (see folio document 21), and they still apply to this day.
On the present application, the defendant urgently seeks a variation to Master Sanderson's freezing orders of 4 October 2018 - to allow her to sell her joint interest in her strata property located at 188 Adelaide Terrace, East Perth - and to place the net proceeds from a sale into a trust account - to be subsequently used to meet the defendant's reasonable legal expenses incurred in defending her upcoming criminal trial in the District Court of Western Australia. I note that this criminal trial involves overlapping circumstances of alleged stealing and fraud. It is due to commence on 25 October 2021 and the defendant is seeking to place into trust approximately $200,000 to go towards her reasonable legal expenses of that criminal trial.
Although it is not said, I infer that the defendant has pleaded 'Not Guilty' to the criminal charges relating to her upcoming trial. Consequently, a 28-day trial has been listed. That has given rise to the present application - notwithstanding that her trial was listed for a hearing some seven months ago (on 22 March 2021) and the application to release funds is only made by the chamber summons of 31 August 2021. So clearly, there is a component of delay present.

Evidence on the present application

The defendant's application is supported by two affidavits of herself, XY - the first sworn on 31 August 2021 and the second on 22 September 2021. The plaintiffs rely on the affidavit of the first named plaintiff, Diana Quan, sworn 17 September 2021 and that of the plaintiffs' solicitor of record, Mr Luke Hager, sworn 20 September 2021.
There is also a helpful chronology filed by the plaintiffs to which I refer (folio document 85).

The present application

The overriding question on this application is whether the Court should make orders varying the existing freezing order as they were issued by Master Sanderson, so as to permit the sale of a property that the defendant owns with her husband as a joint tenant at 188 Adelaide Terrace, East Perth - in circumstances where the current freezing orders prohibit any such dealing.
In these circumstances, I do not hold a prima facie difficulty with an order, if sought, permitting an orderly sale process of that apartment - provided the net proceeds (if any) are protected. The real question is the further component of the relief sought - which is effectively to utilise the (anticipated) equity of approximately $195,000 or perhaps less, realised from a sale of that apartment, to fund the defendant's personal legal expenses.
I have worked to calculate the likely equity upon a sale of the East Perth property based on the XY affidavit sworn 22 September 2021, which estimates that the strata apartment owned by herself and her husband would realise in the mid‑$500,000 to $600,000 range (see par 15 and a market appraisal at annexure MMK-3). Consequently, I work off an approximate number in the order of $550,000, of which there would need to be deducted normal commissions and expenses of any sale in due course. Currently, the strata apartment is encumbered by a first registered mortgage to the Commonwealth Bank of Australia, securing an indebtedness of $365,186.86 as at 30 June 2021 (see attachment DQ3 to Ms Quan's affidavit sworn 17 September 2021). There looks, therefore, to be a potential net equity of around $195,000 for the joint owners, not allowing for selling costs.
The defendant's application is made on the basis that she has been advised by her lawyers that they have briefed (unnamed) counsel for her upcoming criminal trial and so, that they need $200,000 to be held in their trust account in order to pursue her representation at the trial. The material put before me about how that amount is calculated is very sparse.
In XY's affidavit sworn 31 August 2021, she merely said (at par 14):
I have been advised by my solicitors that the legal cost will be approximately $200,000 as they will be engaging counsel for the trial.
Counsel was not there identified and the logistics of how that $200,000 figure came to be arrived at is not further elaborated on. XY also says in that affidavit (at par 15):
I have also been advised by my solicitors that they will not be able to represent me without the funds in trust prior to the trial.
In a further affidavit filed by XY on 22 September, she gave a little more detail about that $200,000 figure. At par 18, XY said:
The trial has been listed for a period of 6 weeks.
At par 19, she continued:
My solicitors have informed me and I believe that legal fees for the entire trial of 6 weeks will be approximately $200,000. I have also been informed that if I am unable to come up with the funds for legal expense, I may not be able to obtain legal representation.
In current circumstances where the same underlying facts founding this civil action would seem to be at the heart of the defendant's pending criminal proceedings, the defendant is presently entitled to a presumption of innocence (like all accused) until such time she is ever convicted by a jury of her peers. The defendant is also entitled to assert her privilege against self-incrimination in terms of what she chooses to put before this court on the present application.
As mentioned, the material put before me from the defendant is sparse, but in the circumstances, perhaps understandably so. I am not at all critical of her for that.
However, the countervailing material put before me on the part of the plaintiffs under the affidavit of Ms Quan sworn 17 September 2021, is very extensive. The analysis as to what is there identified as the calculated lost amounts of cash taken out of the businesses of the first and second plaintiffs over time (extending between 2011 through to 2018) is, prima facie, compelling.
In particular, as articulated under the plaintiffs' written submissions (at pars 20 to 22), very significant amounts of money appear to have been deposited into bank accounts of the defendant by herself, as well into joint bank accounts of the defendant and her husband - which amounts have then moved from those accounts into the Commonwealth Bank mortgage loan account, delivering in the end the resultant effect of reducing the indebtedness of the CBA loan secured against the defendant's (and her husband's) strata property in East Perth.
In particular, I refer to par 12 of Ms Quan's affidavit sworn 17 September 2021 which says this:
The CBA Mortgage Account was reduced by lump sum deposits. For example, between 28 July 2015 and 29 July 2018 there are lump sum deposits of either $2,500 or $5,000 and 1 deposit of $9,650 totaling [sic] $272,150.
I also refer to the table at par 21 of Ms Quan's affidavit by reference to the CBA Offset Account and the alleged cash amounts lost by her business.
Having been comprehensively taken through many aspects of that documentary material by counsel for the plaintiffs, it seems to me that the plaintiffs, on this evidence, have a more than respectable argument to say that a lesser level of indebtedness to CBA as seen reflected in a potential equity surplus position of the defendant upon a sale of the East Perth property, can be directly seen as attributed to amounts received from the CBA Offset Account - presently assessed to be in the realm of some $272,150.
Now I point out that the magnitude of amounts received from the CBA Offset Account, measured against the potential equity realised upon a sale (which is at best in the order of about $195,000), would indicate that the plaintiffs hold a strongly arguable tracing claim in equity (in other words, a proprietary claim) against any residual funds in that CBA account once the secured debt is paid out to CBA at a sale: see Re Hallett's Estate (1879) 13 Ch D 696 at 709 and Re Oatway [1903] 2 Ch 356 at 360 - 361. That would be a case based on tracing principles and would apply even if the plaintiff had legitimately mixed some of her own personal funds into the same CBA Offset Account over time. However, it is not for me to render an affirmative tracing determination of such a claim, today.
Rather, I turn to mention some legal principles concerning stolen funds which are the subject of trust property.

Relevant legal principles

In 1910 O'Connor J, sitting as a member of the High Court in relation to following the process of some stolen funds as they came to be considered in Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105, agreed with the reasons of Griffith CJ given in that case. But O'Connor J added some following comments concerning stolen money which had been passed then from a thief (the husband) to his wife and from there were dealt with further.
O'Connor J then observed this in a well-known passage (at page 110):
Where money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character. If he pays it over to another person, then it may be followed into that person's hands. If, of course, the other person shows that it has come to him bona fide for valuable consideration, and without notice, it may then lose its character as trust money and cannot be recovered. But if it has handed over merely as a gift, it does not matter whether there is notice or not. The only question therefore is: what were the plaintiffs obliged to prove in this case?
His Honour concluded his observations (at page 111) in terms:
In all the circumstances, I am of opinion that there was a prima facie case, that she [the wife] was a volunteer, and that this money retains its character as trust money and she cannot be allowed to keep it.
Beyond this leading case authority, a number of other cases were referred by counsel on each side. Rees J's decision in Crosby Textor Research Strategies Results Pty Ltd v Syed [2020] NSWSC 1792 (referred to by both parties in their written submissions), helpfully collects many of the authorities. An underlying principle emerging is that when it comes to dealings with property that is arguably trust property, the normative predisposition towards allowing a party to have the use of their money that is a subject of a civil freezing order - so as to fund their legal defence in a criminal trial - needs to be qualified.
I incorporate by reference, Rees J observations in Crosby between [36] - [46], particularly her Honour's reference to Scott LJ's observations in Polly Peck International Plc v Nadir (No 2) [1992] 4 All ER 769 and as well, to Garling J's observations in Birketu v Westpac Banking Corporation (No 2) [2018] NSWSC 494 at [60] - [61].
Rees J's observations were:
[36]The legal principles were as advanced by the plaintiff and Mr Syed. The question is how these principles should be applied to the facts at hand noting, of course, that there is a limit to what Mr Syed can say in respect of the evidentiary material relied upon by the plaintiff as he has chosen to exercise his right to silence. Accepting that, there is a substantial amount of material in support of the plaintiff's contention on this application that Mr Syed appears to have defrauded the plaintiff for amounts in excess of $3 million over several years. The tracing exercise undertaken by the plaintiff thus far has been undertaken from 1 January 2015 onwards. There are several years of Mr Syed's employ yet to be explored, noting that he commenced employment with the plaintiff in 2008. There is also a significant amount of evidence which indicates that the plaintiff may be entitled to the proprietary relief it seeks, including against Ms Parveen. Of course, at a final hearing, the plaintiff's evidence will be tested thoroughly and the defendants may advance evidence which puts a different complexion on the transactions identified by the plaintiff's forensic accountants as suspicious.
[37]In JKB Holdings Pty Ltd v de la Vega¸ Lindsay J considered the principles concerning an application for payment out of funds paid into court 'pending court order or written agreement between the parties': at [90]. When the parties have given close attention to the precise scope of what the fund paid into court would secure, the preferable view is that it was intended to secure any monetary liability of one to the other that might be established in the proceedings which includes any costs order: [88] - [92]. At [99]:
At least in proceedings in which parties have agreed that moneys be paid into court 'to abide the order of the court' in circumstances in which there is no pre-existing trust, the right of the claimant of funds in court may, generally, be a right to due administration of the funds in court, and a right to be heard about disposition of those funds, rather than a right of property: Harmer v Federal Cmr of Taxation (1991) 173 CLR 264 at 272 - 274 …
[38]His Honour observed that, if the funds in court are subject to a pre-existing trust, they remain so : [101]. At [111]:
… funds paid into court for a particular purpose associated, as it must be, with the administration of justice by the court, are dedicated to that purpose and orders made by the court in pursuit of that purpose. It is not open to claimants to the funds, by private agreement unattended by an order of the court, to divert the funds away from a purpose to which they are dedicated or to override orders of the court.
[39]The plaintiff did not contend that the deed, considered in light of JKB Holdings, deprived the Court of power to amend the freezing order or permit the funds in Court to be paid out as requested by Mr Syed, but rather that the existence of the deed and the circumstances in which the money was paid into Court pointed strongly in favour of refusing the orders sought. Accepting that, I also agree with the submissions of Mr Syed's counsel that the deed should be viewed against the context in which it was entered into, where freezing orders had been made and the deed was a convenient way of dealing with the circumstances in which the plaintiff agreed to vary the freezing order to permit the Rhodes property to be sold. I note that it was also in the plaintiff's interests that the defendants' assets were reduced to monetary form and placed with the court. Thus, the deed is a factor which I will take into account, but it is not determinative.
[40]There is a risk of injustice to My Syed if he cannot use the proceeds of sale of the Rhodes property to fund his legal expenses, in particular, to defend legal proceedings where a penal sentence may be imposed. There is also an obvious risk of injustice if the plaintiff who, on the face of it, has a proprietary claim to a substantial portion of the monies presently in court -and, as further tracing work is completed, may be able to trace into more or all of these funds - has those monies expended on those legal costs. That may have the effect of compounding the loss suffered by the plaintiff as a consequence of the alleged fraud.
[41]Ultimately the question is whether Mr Syed should be allowed to use what may well be the plaintiff's money to defend himself. In Polly Peck International Plc v Nadir (No 2) [1992] 4 All ER 769, Scott LJ stated at 784:
There is, in general, no reason why a defendant should be permitted to use money belonging to another in order to pay his legal costs or other expenses. The objection in principle to the grant of a Mareva injunction to which I have referred does not apply to an injunction to preserve a fund that, in the contention of PPI, belongs to PPI.
[42]As Garling J noted in Birketu Pty Ltd v Westpac Banking Corporation(No 2) [2018] NSWSC 494 at [60] - [61]:
60In light of Birketu's proprietary claim to the money in the accounts subject to the Freezing Order, there is an 'obvious risk of injustice' to Birketu if the Clarke Motion is successful. If Birketu ultimately succeeds in obtaining final relief, its funds will have been used to finance Mr Clarke's unsuccessful defence, compounding the loss suffered as a consequence of the alleged fraud.
61Accordingly, a 'careful and anxious judgment' is required, whereby the Court must assess whether any injustice to Birketu will be outweighed by any potential injustice to Mr Clarke if he is precluded from accessing funds, and is therefore perhaps denied the opportunity to advance an arguable defence: Sundt Wrigley Co Ltd v Wrigley (Court of Appeal (UK), 23 June 1993, unrep), Bingham MR, cited in Halifax v Chandler [2001] EWCA Civ 1750 at [17] .
In Birketu, Garling J was satisfied that the applicant should not be allowed to access money to which he had no legal or moral claim to enable him to spend it on private representation of his choice: at [63], citing Commonwealth of Australia v Jansenderge (Unreported, Supreme Court of Victoria, 3 October 1985).
[43]Birketu v Westpac was followed by Black J in Re Courtenay House: at [49]. Further, at [51]:
… the usual position when making freezing orders is that an allowance is made for living expenses and legal expenses … [D]ifferent considerations may apply in respect of trust property and there is no predisposition to allow access to trust funds for payment of a defendant's living and legal expenses: Petar v Macedonian Orthodox Community Church St Petka Inc [2006] NSWCA 297 at [59]; Badman v Drake [2008] NSWSC 968 at [6]; Australian Spirit Management Pty Ltd v Commissioner of Taxation [2012] NSWSC 123 at [11]. The [defendants] also recognised the relevance of the strength or otherwise of the Plaintiffs' case and that the Court may have regard to the balance of justice between permitting the Defendants to expend funds which might belong to the Plaintiffs, and refusing to allow them to expend funds which might belong to them: Independent Trustee Services Ltd v GP Noble Trustees Ltd [2009] EWHC 161 (Ch) at [6] .
[44]In Courtenay House, Black J considered that the plaintiffs had a good claim and the defendants had other assets with which to fund their defence. His Honour did not accept that the plaintiffs' application to vary the freezing orders to exclude the payment of living expenses and legal expenses from specified bank accounts prevented the defendants from defending themselves 'as distinct from reserving monies that are substantially, even if not wholly, trust monies for the benefit of parties who have a strong claim to them': at [52].
[45]Re Courtenay House is somewhat different to the facts at hand in that Mr Syed apparently does not have other assets which he could realise in order to fund his defence in these and related criminal proceedings. There do, however, appear to be some other avenues available to Mr Syed to fund his legal expenses. He is working, although not earning a great deal of money. He has been able to enter into an instalment arrangement with his lawyers to pay their fees, although does not appear to have adhered to that arrangement. He is living with his wife, who is taking care of household expenses. He has borrowed money from his wife in the past. His wife appears to be in employment.
[46]Having regard to the quality and nature of the case against the plaintiff, the amount of money allegedly defrauded, the period of time which it appears that the forensic accountants work have examined thus far and have yet to examine, I am concerned that making the orders sought by Mr Syed may have the consequence that he will be using money belonging to the plaintiff in order to pay his legal costs, compounding the loss suffered by the plaintiff as a consequence of the alleged fraud. I consider that the potential injustice to the plaintiff outweighs the potential injustice to Mr Syed. I decline to make the orders sought.

On that basis as articulated, Rees J declined to make the variation on the freezing orders as had been sought in that case.

Evaluation and Decision

Those observations cited above from Crosby echo my position in the present circumstances towards this defendant, based on the materials before me.
It seems to me that there is a significant danger that if I make the orders as sought by the defendants - in terms of allowing access to realised funds from the sale of the East Perth apartment, those funds, which in the eyes of equity can be viewed as the property of the plaintiffs, will be used and fully consumed for the purposes of funding the defendant's criminal trial in the District Court. A consumption of what then remains of the plaintiff's funds to be traced - would only add itself to financial injury.
Balancing the competing interests, I am not prepared to allow that to happen. I would be prepared, however, to countenance effectively a sale of the joint property on agreed terms between the parties, provided that any net realised funds (after accounting for proceeds of sale) are held securely - either to be paid into this court to be dealt with by consensual order, or by some other way agreed between the parties. But that is not the orders or the course of action sought to be approved today.
Were a consensual application made in terms of orders to the end of sale with any net proceeds secured, then I would be prepared to countenance a sale of the joint property to proceed. Such orders would be for the parties to confer over, if they wish to go further down that path.
But in present circumstances, I am not prepared to make the orders for a variation of Master Sanderson's freezing orders of 4 October 2018, in the terms as sought on the defendant's chamber summons.
Accordingly, I will make orders in terms that the defendant's urgent chamber application of 31 August 2021 be refused and that the defendant pay the plaintiffs' costs, to be taxed if not agreed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
RC
Associate to the Honourable Justice Martin
19 OCTOBER 2021