Touch for Health Pty Ltd as Trustee for Knight Superannuation Fund v Property Mentors Australia Pty Ltd
[2024] FCA 275
•22 March 2024
FEDERAL COURT OF AUSTRALIA
Touch for Health Pty Ltd as Trustee for Knight Superannuation Fund v Property Mentors Australia Pty Ltd [2024] FCA 275
File number(s): VID 301 of 2021 Judgment of: NESKOVCIN J Date of judgment: 22 March 2024 Catchwords: FREEZING ORDER – whether the applicants have “a good arguable case” - danger that a judgment would be wholly or partly unsatisfied - interests of justice - balance of convenience Legislation: Federal Court Rules 2011 (Cth) rr 7.32, 7.33, 7.35, 7.36 Cases cited: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380
Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 4) (2012) 19 ATR 711
Jackson v Sterling Industries Ltd (1987) 162 CLR 612
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1
Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 38 Date of last submission: 29 February 2024 Date of hearing: 15 March 2024 Counsel for the Applicants: Mr S Rubenstein Solicitor for the Applicants: DSA Law Solicitor for the First and Third Respondents: Mr D Fairweather of Fairweather Legal Counsel for the Second Respondent: The Second Respondent appeared in-person ORDERS
VID 301 of 2021 BETWEEN: TOUCH FOR HEALTH PTY LTD (ACN 125 775 135) AS TRUSTEE FOR KNIGHT SUPERANNUATION FUND
First Applicant
BRIAN KNIGHT
Second Applicant
CLAIRE KNIGHT (and others named in the Schedule)
Third Applicant
AND: THE PROPERTY MENTORS AUSTRALIA PTY LTD (ACN 169 559 693)
First Respondent
MATTHEW BATEMAN
Second Respondent
LUKE HARRIS (and another named in the Schedule)
Third Respondent
ORDER MADE BY:
NESKOVCIN J
DATE OF ORDER:
22 MARCH 2024
THE COURT ORDERS THAT:
1.Within two business days, Counsel for the applicants shall submit a form of order to give effect to these reasons.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
NESKOVCIN J:
The applicants are members of a property investment club operated by the first respondent. The first respondent offered investment opportunities promoted by the first respondent and its directors, the second and third respondents. The claims which the applicants make against the respondents in this proceeding concern the respondents’ alleged conduct in connection with certain investment opportunities promoted by the respondents.
The applicants’ originating application was filed on 3 June 2021. In their amended concise statement filed on 1 March 2022, the applicants claim that the respondents engaged in misleading and deceptive conduct in contravention of:
(a)s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act); and or
(b)s 1041H of the Corporations Act2001 (Cth) (the Act); or
(c)s 18 of Schedule 2 to the Competition and Consumer Act 2010 (Cth) (ACL) (including future matters in respect of which the applicants rely on s 796C of the Act, s 12BB of the ASIC Act, and s 4 of the ACL).
The applicants seek damages pursuant to:
(a)s 12GF or s 12GM of the ASIC Act; or
(b)ss 953B, 1022B, or 1041I of the Act; or
(c)s 236 of the ACL.
Alternatively, the applicants seek declarations pursuant to s 601MB of the Act that the applicants’ contracts for subscriptions for units in a certain investment trust are void, and orders for repayment of their subscription monies by the first respondent.
By interlocutory application filed on 20 February 2024, the applicants initially sought orders pursuant to rr 5.07, 17.01, 1.32 and 1.33 of the Federal Court Rules 2011 (Cth) (the Rules) seeking, among other things, to restrain the second respondent from selling certain properties and assets.
By submissions and a minute of proposed orders filed on 29 February 2024 the applicants refined the interlocutory application to seek freezing orders pursuant to rr 7.33, and 7.35(4) of the Rules to prevent the second respondent from disposing of assets owned or controlled by him until the hearing and determination of the proceeding.
The applicants sought orders to the effect that:
(a)half the net proceeds of sale from Unit 2, 16 Golden Avenue, Bonbeach, Victoria, 3196 (Golden Avenue Property) and the net proceeds of any sale of Unit 1, 131 Lower Dandenong Road, Mentone, Victoria 3194 (Lower Dandenong Road Property) be paid into Court or otherwise paid into an account controlled by lawyers for the applicants but not to be paid out until the further order of the Court at the conclusion of the proceedings or otherwise as agreed in writing;
(b)the second respondent provide the applicants with:
(i)at least 30 days’ notice in writing of any plan to list for sale, any intention to enter into a contract of sale, and the date fixed for settlement of any contract of sale, of any real property in which he has a direct, indirect, or beneficial interest; and
(ii)a sworn statement of his assets and liabilities including any assets that he holds indirectly or beneficially.
The applicants relied on affidavits of Madeleine Brown, solicitor for the applicant, affirmed on 19 and 28 February 2024 and an affidavit of Francesco Starvaggi, solicitor for the applicant, sworn on 14 March 2024. The applicants also relied upon five other affidavits filed in the proceeding for the purpose of the trial. The applicants’ Counsel indicated that the applicants relied on the latter affidavits on the question whether there was a prima facie or good arguable case and those affidavits were not tendered.
The second respondent, who is self-represented, opposed the application. The second respondent relied on an affidavit in opposition to the interlocutory application sworn on 28 February 2024.
The application was initially set down for hearing on 1 March 2024 and adjourned to a further hearing on 15 March 2024. At the initial hearing, the second respondent sought and was granted an adjournment of the hearing in order to provide any further affidavit directed to the financial position of any entities in which he had a direct or indirect financial interest. On 8 March 2024, the second respondent filed a further affidavit, upon which he relied, regarding the financial position of himself and seven entities in which he held a direct or indirect interest as at 30 June 2023.
In addition, on 5 March 2024, the second respondent gave an undertaking that upon settlement of the Golden Avenue Property, he and Peak Potential Health & Wellness Centre Australasia Pty Ltd (ACN 099 894 130) (Peak Potential) shall cause half the net proceeds of sale (after payment of necessary costs and expenses and discharge of a mortgage to Bank of Queensland Ltd) to be paid into Court or into an account controlled by the lawyers for the applicants pending further order of the Court or otherwise agreed in writing.
The proceeding is set down for trial on 24 June 2024.
POWER TO MAKE FREEZING ORDERS
The applicants relied on the powers conferred on the Court under rr 7.33 and 7.35.
Rule 7.32 provides as follows:
7.32 Freezing order
(1) The Court may make an order (a freezing order), with or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.
(2) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.
Rule 7.33 provides:
7.33 Ancillary order
(1) The Court may make an order (an ancillary order) ancillary to a freezing order or prospective freezing order as the Court considers appropriate.
(2) Without limiting the generality of subrule (1), an ancillary order may be made for either or both of the following purposes:
(a) eliciting information relating to assets relevant to the freezing order or prospective freezing order;
(b) determining whether the freezing order should be made.
Rule 7.35 relevantly provides:
7.35 Order against judgment debtor or prospective judgment debtor or third party
(1) This rule applies if:
…
(b) an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in:
(i) the Court; or
(ii) for a cause of action to which subrule (3) applies—another court.
…
(4) The Court may make a freezing order or an ancillary order or both 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 will be wholly or partly unsatisfied because any of the following might occur:
(a) the judgment debtor, prospective judgment debtor or another person absconds;
(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.
(5) The Court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a third party) if the Court is satisfied, having regard to all the circumstances, that:
(a) there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because:
(i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or
(ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or
(b) a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.
(6) Nothing in this rule affects the power of the Court to make a freezing order or ancillary order if the Court considers it is in the interests of justice to do so.
Practice Note GPN-FRZG supplements the Rules relating to freezing orders and addresses the Court’s usual practice relating to the making of a freezing order and the usual terms of such an order. Relevantly, the Practice Note states:
(a)the purpose of a freezing order is to prevent frustration or abuse of the process of the Court, not to provide security in respect of a judgment or order (para 2.5);
(b)a freezing order should be viewed as an extraordinary interim remedy because it can restrict the right to deal with assets even before judgment, and is commonly granted without notice (para 2.6);
(c)r 7.35(5) addresses the minimum requirements that must ordinarily be satisfied on an application for a freezing order against a third party, who will not necessarily be a party to the substantive proceeding, before the discretion is enlivened (para 2.7);
(d)a freezing order should reserve liberty for the respondent to apply on short notice (para 2.10);
(e)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 (para 2.11);
(f)the order should exclude dealings by the respondent with its assets for legitimate purposes, in particular:
(i)payment of ordinary living expenses;
(ii)payment of reasonable legal expenses;
(iii)dealings and dispositions in the ordinary and proper course of the respondent’s business, including paying business expenses bona fide and properly incurred;
(iv)dealings and dispositions in the discharge of obligations bona fide and properly incurred under a contract entered into before the order was made (para 2.12); and
(g)the Court may make ancillary orders, the most common example of which is an order for the disclosure of assets (para 2.14).
The purpose of a freezing order (also referred to as a Mareva order or an asset preservation order) is to prevent an abuse or frustration of the court process by depriving the applicant of the fruits of any judgment obtained in the action: Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 625 (Deane J). Imposing a freezing order on the assets of a person is “no light matter” and the Court should be sensitive to the need for caution: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 324F (Gleeson CJ).
In Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 403 – 404 at [51], the plurality said:
We agree with the tenor of what was said with particular respect to Mareva relief before judgment by the Court of Appeal of New South Wales (Mason P, Sheller JA, Sheppard AJA) in Frigo v Culhaci:
"[A Mareva order] is a drastic remedy which should not be granted lightly. ...
A [Mareva order] is an interlocutory order which, if granted, imposes a severe restriction upon a defendant's right to deal with his or her assets. It is granted at the suit of a plaintiff whose status as a creditor is in dispute and who need not be a secured creditor. Its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to 'provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant's insolvency'. ...Many authorities attest to the care with which courts are required to scrutinise applications for [Mareva orders]. The leading decision in this State is Patterson v BTR Engineering (Aust) Ltd."
For present purposes, there must be a ‘danger’ that a judgment will be wholly or partially unsatisfied because assets might be disposed of, dealt with or diminished in value, however, that does not mean that the Court need be satisfied that the risk of dissipation is more probable than not; and there does not necessarily need to be evidence of any intention to dissipate: Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 4) (2012) 19 ATR 711; [2012] FCA 1064 at [23] (Perram J).
The applicant’s Counsel confirmed that the application was made on the basis that there is a danger that a judgment will be wholly or partly unsatisfied because assets of the second respondent might be disposed of or dealt with. The applicants point to the sale or potential sale of the Lower Dandenong Road and Golden Avenue Properties and say “[t]his raises the concern that [the second respondent] is realising properties in order to dispose of or diminish his available assets prior to the trial and determination of the proceeding.”
The facts relied upon by the applicants in support of the application include that:
(a)The Lower Dandenong Road Property, which is registered in the second respondent’s own name, is listed for sale on a real estate agent’s website. The second respondent’s evidence was that this is not new information and “[t]he property had been continuously listed for sale since the 22nd June 2022”, but he says the real estate agents’ sales authorities have expired and are no longer valid.
(b)Peak Potential, in which the second respondent is the sole director and shareholder, holds an interest in two properties, including the Golden Avenue Property. At the time the interlocutory application was filed, the Golden Avenue Property was subject to a contract of sale, but the settlement date was unknown. Settlement subsequently occurred on 8 March 2024. Prior to settlement, the second respondent gave the undertaking referred to above. The registered proprietors of the Golden Avenue Property are Peak Property and Holmes Invest Pty Ltd, as tenants in common. The second respondent admits that Peak Potential, as trustee of a discretionary trust in which the second respondent is a beneficiary, authorised entry into a contract of sale for the Golden Avenue Property on 9 December 2023. The second respondent’s unchallenged evidence was that Mr Shannon Holmes in his capacity as Director of Holmes Invest Pty Ltd proposed the sale in or around mid-2023.
The second respondent’s affidavit of 8 March 2024 sets out the financial position of the second respondent and seven entities in which he held a direct or indirect interest as at 30 June 2023. That affidavit exhibits a statement of assets and liabilities spreadsheet prepared by an accountant which, among other things, refers to various liabilities of the second respondent and other entities, including a liability of $185,138.19 to a person whom the second respondent indicated is his father.
The applicants challenged the adequacy of the second respondent’s statement of assets and liabilities on the basis that it was not up to date and did not give full disclosure of the extent of the second respondent’s financial position. The second respondent responded to provide further details, however, the applicants maintained that the level and extent of disclosure was inadequate.
CONSIDERATION
I am satisfied on the evidence before me that a freezing order is warranted for the following reasons.
I am satisfied the applicants have “a good arguable case” for the relief sought in the originating application, meaning “a reasonably arguable case on legal and factual matters”: Cardile at 408 [68] (Gaudron, McHugh, Gummow and Callinan JJ).
I am satisfied there is a danger that a judgment in the applicants’ favour would be wholly or partly unsatisfied because the evidence before the Court establishes that the second respondent has sought to divest, and has the ability and incentive to further divest, himself of or dissipate assets.
First, the Lower Dandenong Road property which is registered in the second respondent’s own name was listed for sale after the commencement of this proceeding and has “been continuously listed for sale” since it was first listed. Although the second respondent says the sales authorities have expired and are no longer valid, at the time of the adjourned hearing of the application he had not sought to have the property removed from the real estate agent’s website.
Second, although the second respondent did not initiate the sale of the Golden Avenue Property, he did not object to the sale. The property is part owned by Peak Potential, which the second respondent controls and which is the trustee of a discretionary trust whose beneficiaries include the second respondent. The second respondent asserted that what Peak Potential as trustee of the discretionary trust does or does not do as part of its normal business dealings “is of no relevance to the Applicants.”
Furthermore, the second respondent objected to the application on the basis that it was prejudicial to Peak Potential, in its capacity as trustee of the said discretionary trust, and to him personally if he is to have a chance to meet his living and legal expenses and meet “any, or all, of my current and very real creditors claims” (sic). The liabilities of the second respondent include a liability of $185,138.19 to the second respondent’s father and I am satisfied that in the absence of a freezing order, the second respondent would be inclined and have the incentive to use any available assets to repay debts owed to his father.
Finally, insofar as the applicants have challenged the adequacy of the second respondent’s disclosure of assets in which he has a direct and indirect interest, it may be observed that the second respondent volunteered to provide a statement of financial position. While the disclosure of information by the second respondent has been somewhat piecemeal, the second respondent is self-represented and says he has had limited assistance from his accountant. Nevertheless, the applicants say and I accept that the second respondent ought to be in a position to know the extent of his assets and interests in other entities. The applicants therefore submit and I accept that the failure to make adequate disclosure is a further basis on which the Court may be concerned about the danger of dissipation of assets.
I consider that the interests of justice and the balance of convenience favour the making of the freezing orders against the second respondent. This will preserve the status quo in circumstances where there is a danger the assets might be dissipated in the absence of a freezing order. The orders sought by the applicants, which I will deal with next, do not prevent the second respondent from dealing with any income from his assets or with any assets in the ordinary course of business. The second respondent will have liberty to apply on one day’s notice. The orders will not enjoin the second respondent from dealing with assets or the proceeds of sale of assets that exceed the maximum amount of the applicants’ claim. Insofar as half of the net proceeds from the sale of the Golden Value Property are to be paid into Court, the second respondent will be able to make any application for the release of funds paid into Court, including to meet ordinary living and legal expenses. Third parties will also be able to make any application they might seek to make in relation to the funds in Court or any assets the subject of the orders of the Court.
Unlike the usual form of freezing orders set out in the Practice Note, the applicants seek orders that the proceeds of sale of two properties be paid into Court, that the second respondent notify the applicants of any intention to sell further assets and that the second respondent provide a sworn statement of his assets and liabilities. The applicants submit that orders in the form sought will be easier for the second respondent to comply with while protecting the applicants from the disposal or dissipation of assets by requiring the second respondent to notify the applicants if he intends to sell any further assets.
The general power conferred by the Rules is complemented by the more specific provisions in r 7.35, although those provisions do not limit the other powers the Court has to make asset preservation orders: rr 7.35(6) and 7.36.
The basis of the Court’s implied powers and power under the Rules to make a freezing order is the necessity to ensure the effective exercise of the Court’s jurisdiction by making orders restraining an asset disposal or reduction in value that involves a real risk any judgment might not be satisfied: Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1 at 32 (Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ); Cardile at 400 – 401 [40] – [41]. The Court’s powers may be exercised according to the exigencies of the case. The Practice Note also notes that the Court’s usual practice relating to the making of a freezing order and the usual terms of such an order do not, and cannot, limit the judicial discretion to make such order as is appropriate in the circumstances of the particular case.
I am satisfied that the orders sought by the applicants requiring the second respondent to pay the proceeds of sale of the two properties into Court and to notify the applicants of any intention to sell other assets are framed to prevent the reduction in the value of assets, or the proceeds from the sale of the assets, and the frustration of the Court’s processes.
The second respondent has given an undertaking to pay half of the net proceeds of sale of the Golden Avenue Property into Court. If the net proceeds of sale of the Golden Avenue Property have not yet been paid into Court, an order to that effect will be made. The second respondent has agreed and I will make an order that he provide the settlement statement from the conveyancer in relation to the net proceeds from the sale of the Golden Avenue Property and a sworn statement of assets and liabilities.
I will direct that the applicants submit a form of order to reflect these reasons.
I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Neskovcin. Associate:
Dated: 22 March 2024
SCHEDULE OF PARTIES
VID 301 of 2021 Applicants
Fourth Applicant:
SCOOB PTY LTD (ACN 098 689 046) AS TRUSTEE FOR THE SCOOB FAMILY TRUST
Fifth Applicant:
RICHARD IGNATIUS AND JENNIFER KAYE SEGUI AS TRUSTEES FOR THE SEGUI FAMILY TRUST
Sixth Applicant:
DW SUPER FUND PTY LTD (ACN 605 831 810) AS TRUSTEE FOR THE DW SUPER FUND
Seventh Applicant:
DW ASSETS PTY LTD (ACN 606 293 074) AS TRUSTEE FOR DW TRUST
Respondents
Fourth Respondent:
DAVLYN PROPERTY PTY LTD (ACN 605 101 531) AS TRUSTEE FOR THE SECRET HARBOUR UNIT TRUST
0
4
1