Yenald Nominees P/L v Como Investments P/L (In Liquidation) (ACN 008 732 223) & Ors

YENALD NOMINEES PTY LTD v. COMO INVESTMENTS PTY LTD (IN LIQUIDATION), RICHARD
ELLIS (WESTERN AUSTRALIA) PTY LTD, GIACOMO BEVACQUA AND LIDIA BEVACQUA,
MAURICE LYFORD AND CHRISTOPHER WILLIAMSON as Liquidators of COMO INVESTMENTS
PTY LTD AND DELPHINIUM PTY LTD
Nos. WAG51 and 65 of 1994
FED No. 374/94
Number of pages - 20
Practice and Procedure - Legal Practitioners

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
CARR J

CATCHWORDS

Practice and Procedure - Mareva injunctions - claim arising out of purchase of commercial investment property - settlement effected - subsequent complaint by purchaser of misleading or deceptive conduct - vendor company placed into members' voluntary liquidation soon after notice of purchaser's complaint - substantial part of sale proceeds distributed in specie to trustee of family trust - whether intent to frustrate applicant's claim - whether proof of such intent necessary to warrant grant of Mareva injunctions.

Legal Practitioners - solicitors - conflict of interest - whether same solicitors may act for all respondents - whether in practical terms any real possibility of conflict of interest.

Trade Practices Act 1974 (Cth) ss.51A, 52, 82, 87
Fair Trading Act 1987 (W.A.) s.9

Demagogue Pty Ltd v. Ramersky (1992) 39 FCR 31
David Securities Pty Ltd v. Commonwealth Bank of Australia (1992) 175 CLR 353
Jackson v. Sterling Industries Ltd (1987) 162 CLR 612
Rahman (Prince Abdul) v. Abu-Taha (1980) 1 WLR 1268
Perth Mint v. Mickelberg (1985) WAR 117
Riley McKay Pty Ltd v. McKay (1982) 1 NSWLR 264
SCF Finance Co Ltd v. Masri (1985) 2 All ER 747
Re Gasbourne Pty Ltd (1984) 2 ACLC 103
Re William Hockley Ltd (1962) 1 WLR 555
Re Sutherland (Deceased) (1963) AC 235
Re S.B.A. Properties Ltd (1967) 1 WLR 799
Community Development Pty Ltd v. Engwirda Construction Co (1969) 120 CLR 455
Solla v. Scott (1982) 7 ACLC 323
Chase Manhattan Bank N.A. v. Israel British Bank (London) Ltd (1981) Ch 105
Wan v. McDonald (1992) 105 ALR 473
Mallesons Stephen Jaques v. Peat Marwick (1991) 4 WAR 357

HEARING

PERTH, 2, 3, and 7 June 1994
#DATE 10:6:1994

Counsel for the Applicant: Mr P.A. Tottle

Solicitors for the Applicant: Clayton Utz

Counsel for the Respondent: Mr R.I. Viner QC with him Mr E.W.

Nielsen

Solicitors for the Respondent: Nielsen and Co.

ORDER

THE COURT ORDERS THAT:
A. On the applicant's motion dated 30 May 1994 and upon the applicant

having given and filed the usual undertaking as to damages

1. The first respondent be restrained up to and including the conclusion of the hearing of this application or further order, by itself its servants or agents from removing, or causing, or permitting, to be removed from the jurisdiction, or selling, charging, mortgaging or otherwise dealing with or disposing of, or causing or permitting to be sold, charged, mortgaged or otherwise dealt with or disposed of, all or any of its assets save as follows:

(a) the liquidators of the first respondent may disburse its funds in:

(i) payment of their fees in conducting the administration of the first respondent's affairs;

(ii) payment of the first respondent's legal fees in this application;

(iii) payment of their legal fees as liquidators of the first respondent in Federal Court of Australia Application No. WAG 65 of 1994; and

(iv) payment of such expenses as are necessary to maintain the assets of the first respondent;

(b) this order shall not preclude the first respondent by its liquidators investing such amount of its liquid funds as those liquidators deem prudent from time to time in the purchase of bills of exchange provided that such bills of exchange are endorsed by a bank within the meaning of that expression in the Banking Act 1959 (Cth).

2. There be liberty to all parties to apply on giving 48 hours written notice to the other parties.

3. The motion be otherwise dismissed.

4. The costs of the motion be costs in the cause.

B. On the applicant's motion dated 17 May 1994 and upon the applicant

having given and filed the usual undertaking as to damages:

1. The third respondents and each of them be restrained and an injunction be granted restraining the third respondents until the hearing of this application or further order from exercising any powers each of them may have:

(a) as a director of Delphinium Pty Ltd;

(b) as a shareholder of Delphinium Pty Ltd;

(c) arising out of or in relation to the trust deed and any amendments thereto of any trust for which Delphinium Pty Ltd is the trustee; that may have the result of Delphinium Pty Ltd disposing of or dealing with the sum of $850,000 paid to it by the first respondent in March 1994 in such manner as will reduce the balance of such sum below an amount of $250,000 provided that this order shall not prevent the third respondents from causing Delphinium Pty Ltd to invest the whole or such part of that sum of $250,000 as they deem prudent from time to time in the purchase of bills of exchange provided that such bills of exchange are endorsed by an Australian bank within the meaning of that expression in the Banking Act 1959 (Cth).

2. The motion otherwise be dismissed.

3. All parties to have liberty to apply on giving 48 hours written notice to the other parties.

4. The costs of the motion be costs in the cause.

THE COURT ORDERS THAT:

On the applicant's motion filed 31 May 1994:

1. The second respondent be restrained up to and including the

conclusion of the hearing of this application or further order by itself its servants or agents from removing, or causing, or permitting, to be removed from the jurisdiction, or selling, charging, mortgaging or otherwise dealing with or disposing of, or causing or permitting to be sold, charged, mortgaged or otherwise dealt with or disposed of the sum of $850,000 paid to it by Como Investments Pty Ltd (In Liquidation) in March 1994 in such manner as will reduce the balance of such sum below an amount of $250,000 provided that this order shall not prevent the second respondent from investing the whole or such part of that sum of $250,000 as it deems prudent from time to time in the purchase of bills of exchange provided that such bills of exchange are endorsed by a bank within the meaning of that expression in the Banking Act 1959 (Cth).

2. The applicant shall within seven days file in these proceedings the

usual undertaking as to damages.

3. There be liberty to all parties to apply on giving 48 hours written

notice to the other parties.

4. The motion be otherwise dismissed.

5. The costs of the motion be costs in the cause.

NOTE: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

Introduction
CARR J

The applicant in the first application described above, Yenald

Nominees Pty Ltd ("Yenald") has filed two notices of motions for interlocutory relief in the form of Mareva injunctions. In its first motion, Yenald seeks orders against the third respondents, Giacomo Bevacqua and Lidia Bevacqua restraining them from exercising any powers which they may have in relation to the disposal of a sum of $850,000 to which sum further reference is made below.

In the second motion, Yenald seeks to restrain the first respondent, Como Investments Pty Ltd (In Liquidation) ("Como") from dealing with any of its assets "save and insofar as the assets exceed $2,150,000" and in particular from disposing of or otherwise dealing with its interest in the abovementioned sum of $850,000.
On 13 May 1994 I granted an interim injunction in respect of the first motion until 17 May 1994 when that injunction was extended again on an interim basis. The second notice of motion was filed two days before the hearing of the first motion.
Yenald has also filed the second application described above (No. WAG 65 of 1994) said to be brought under ss.503 and 511 of the Corporations Law, in which Mr Maurice Lyford and Mr Christopher Williamson, as liquidators of Como, are first respondents and Delphinium Pty Ltd ("Delphinium") is the second respondent. In those proceedings Yenald also seeks interlocutory relief by way of injunctions restraining Delphinium from disposing of or otherwise dealing with the abovementioned sum of $850,000 and restraining the firm of solicitors which currently acts for all of the respondents in those proceedings and all the respondents other than the second respondent Richard Ellis (Western Australia) Pty Ltd ("Richard Ellis") in Application No. WAG 51 from acting for either Messrs Lyford and Williamson or for Delphinium in Application No. WAG 65 of 1994 or for Como in Application No. WAG 51 of 1994. The ground upon which that latter injunction is sought is that it is said that there is a conflict of interest which precludes those solicitors from acting for those parties.
I made orders that all three interlocutory motions be heard together with the evidence in each of them to be evidence in the other two.

Factual Background
6. For the benefit of the parties, I must stress that these applications are only interlocutory applications. Whilst numerous affidavits were tendered in evidence and witnesses were cross-examined, this was only for the purposes of deciding whether it is appropriate to make the orders sought by Yenald on an interim basis pending the hearing of these matters. Any observations made in these reasons on factual matters are to be taken in that context and (unless otherwise stated) should not in any manner be taken as conclusions but as interim assessments made on a prima facie basis. Conclusions of fact will only be drawn, and the relevant legal principles applied to those facts only after there has been a final hearing in respect of all the matters in issue.

Yenald has only two directors, Dr Khoi Seong Leong and Mrs Rosita Leong. In about September 1993 Yenald resolved that it would purchase a commercial property as an investment. Dr and Mrs Leong started looking at such properties in late September or early October 1993.
On 17 November 1993 Dr Leong says that he saw an advertisement in "The West Australian" newspaper for a public auction of a property at 72 Francis Street, Northbridge, an inner suburb of Perth ("the Premises"). The Premises were then owned by Como. Richard Ellis had placed the advertisement in their capacity as Como's agents for the sale of the Premises. Mr and Mrs Bevacqua are the only directors of Como. The Premises comprised a reception centre and restaurant.
On 18 November 1993 Dr and Mrs Leong met a Mr William Quinn-Schofield, an employee of Richard Ellis, at the Premises. Mr Quinn-Schofield gave Dr Leong a brochure ("the Brochure") and an eight page description of the Premises which has been described as a sales report ("the Sales Report"). Yenald complains that certain statements made in the Brochure and the Sales Report constituted misleading and deceptive conduct on the part of Como and Richard Ellis in contravention of s.52 when read with s.51A of the Trade Practices Act 1974 (Cth) ("the Act") and s.9 of the Fair Trading Act 1987 (W.A.). It is claimed that Mr and Mrs Bevacqua were knowingly concerned in or party to the misleading and deceptive conduct of Richard Ellis.
The Brochure contained the following statements:

(a) On its front page: "Fully Leased Property Investment";

(b) Under the heading "Tenancy Details": "The property is being offered for sale on a fully leased basis with an initial term of 5 years plus 2 further optional terms of 5 years each. The lease commencement date was the 8th of March 1993. Full tenancy details are available on request".

The Sales Report contained the following statements:

(a) Under the heading "General Comments": "The subject property possesses the following major attributes ...

(ii) The investor is protected by an excellent lease covenant over the subject premises."

(b) Under the heading "Tenancy Details" "The property is being offered for sale on a fully leased basis with an initial term of 5 years plus two further option terms of 5 years each. The lease commencement date was the 8th March 1993. Rental:

Current rental (till first rent review): $200,000.00 per annum plus all outgoings ($150,000.00 from tenant plus $50,000.00 to be paid in advance by vendor at settlement).

6/9/94 - 6/9/95: $200,000.00 per annum plus all outgoings.

6/9/95 - 6/9/96: $216,000.00 per annum plus all outgoings.

6/9/96 - Thereafter: Annual increase of 8% on the preceding rental."

The tenant referred to was a company called Jentine Pty Ltd ("Jentine").
After some negotiations, Yenald made a written offer (on 18 November 1993) to purchase the Premises for $2,150,000 which Como accepted on that day. Settlement took place on 27 January 1994.
It would appear that at about the time of that settlement, Jentine vacated the premises. This appears to have been the case because on 1 February 1994 Dr and Mrs Leong attended a meeting with Mr Quinn-Schofield and a Mr Craig Dawson, also employed by Richard Ellis, at which Mr Dawson told Mrs Leong that Richard Ellis would try and release the property.
On or about 2 February 1994 Yenald received a letter from the National Australia Bank Ltd bearing that date and advising that the bank held a floating charge over the assets of Jentine which had crystallised on 28 January 1994.
On 4 February 1994 Yenald received a Notice of Meeting of Creditors of Jentine which showed Como as a creditor in the sum of $57,391.01 an amount which comprises arrears of rent of the Premises for the months of November and December 1993 and January 1994 and some outgoings payable by Jentine. The rent was payable on 1 November, 1 December and 1 January respectively. The rent due and payable on 1 October 1993 had not been paid until 23 November 1993.
On 14 February 1994 Messrs Tan and Tan, Yenald's then solicitors, wrote to Como's solicitors (Messrs Nielsen and Co) complaining of misleading and deceptive conduct in relation to the sale of the Premises in respect of (amongst other things) the financial standing of Jentine. That letter sought rescission of the agreement and compensation. The letter concluded by requesting an informal conference and stating that unless Messrs Tan and Tan heard from Messrs Nielsen and Co. within 7 days "... a Writ may be issued against your clients without any further reference."
On 1 March 1994 Como's solicitors replied by letter denying liability and declining a meeting.
On 27 May 1993 Mr and Mrs Bevacqua had arranged for the establishment of a trust ("the Delphinium Family Trust") for themselves and their children. Delphinium was the trustee of that trust. Delphinium holds 9,000 of the 9102 shares issued by Como and their daughter Francesca Mestichelli holds a further 100 of those shares.
Mr and Mrs Bevacqua each hold one share of the two shares issued in the capital of Delphinium. The directors of Delphinium are Mr and Mrs Bevacqua and an Anita Bevacqua who is 20 years old and lives at their address and whom I infer is another of their daughters. Mr and Mrs Bevacqua were appointed directors of Delphinium on 19 March 1983 but Ms Anita Bevacqua's appointment was on 2 July 1993, shortly after the Delphinium Family Trust was constituted.
Mr Bevacqua's evidence is that "as early as late 1993" he had instructed his accountants to arrange the liquidation of Como. He or they decided to delay the liquidation until the settlement of the sale of the Premises. One of the liquidators was approached on 13 January 1994.
On 17 March 1994 the formal steps to put Como into a members' voluntary liquidation commenced. At a meeting of its directors held on that date Mr and Mrs Bevacqua executed a declaration of solvency in respect of Como. In the portion of that declaration relating to contingent creditors there was a blank, which, from a reading of the rest of the declaration, signified that there were no contingent creditors. The total of the liabilities shown in the declaration was $9750 comprising estimated expenses of winding up of $4000 and "other liabilities" of $5750.
Evidence has been adduced in these interlocutory proceedings that the Department of Productivity and Labour Relations has been pursuing Como on behalf of several of Como's former employees for wages allegedly underpaid amounting to approximately $56,500. Those claims were first made, so I was told, "many years ago" and currently form the subject of summonses served upon Como about five years ago. Those matters have not yet been heard. There is some suggestion in the evidence that those claims may be settled for an amount of approximately $17,000. Como does not appear to have any other creditors of significance.
On 18 March 1994 there was a meeting of the shareholders of Como at which a resolution was passed that the company be wound up and that Messrs Lyford and Williamson be appointed its liquidators.
On 28 March 1994 Como's shareholders held another meeting and resolved to distribute Como's assets in specie. On the same date, Mr Bevacqua sought and obtained from the liquidators of Como authority to distribute to Delphinium the sum of $50,000 and on 30 March 1994 sought and obtained their authority to a distribution of a further sum of $800,000 to Delphinium. Both those distributions were made on those respective dates.
Those two amounts comprise the sum of $850,000 referred to above.
It is common ground that immediately prior to payment of the sum of $850,000 by Como to Delphinium, Como held an amount of approximately $1,140,000 in cash at bank. It was also common ground that this sum represented the net proceeds of the sale of the Premises after discharge of two mortgages registered on the certificate of title to the Premises.
On 27 April 1994 the applicant filed Application No. WAG 51 of 1994 in this Court. In those proceedings the applicant claims against Como rescission of the agreement for the purchase of the Premises and in the alternative damages and interest. As against Richard Ellis and Mr and Mrs Bevacqua the applicant seeks damages. Interlocutory injunction relief has been sought in those proceedings, as described above.
In order, so it is said, to protect its position further and also to protect the position of Como's creditors, Yenald has issued the second set of proceedings referred to above (Application No. WAG 65 of 1994) for a determination, pursuant to s.511 of the Corporations Law, of the issue of the ownership of that amount of $850,000 and for certain other relief. As part of those proceedings, an interlocutory injunction has been sought to restrain Delphinium from disposing of the $850,000. The Contentions in Respect of the Interlocutory Relief Sought in Application WAG 51 of 1994

Whether there is a serious question to be tried?

29. At this stage, Yenald relies only upon the allegation of the conduct said to involve misrepresentations concerning the standing of Jentine as a tenant and the security of rental income. Yenald points to the contents of the Brochure and the Sales Report set out above, the fact that it entered into the agreement to purchase the Premises and the fact that Jentine was in arrears with its rent and was not a tenant of good standing. In support of this latter contention, Yenald refers to the evidence that at the time when the representations were made Jentine was six weeks in arrears with its October rent, well over two weeks in arrears with its November rent and did not pay its November and December 1993 rent or its January 1994 rent at all. It will be remembered that settlement took place on 27 January 1994. Furthermore, Yenald relies on the fact that Jentine called a meeting of its creditors and went into liquidation in early February 1994.

The respondents have not adduced any evidence to suggest that Jentine was a sound and reliable tenant at the relevant time.
Mr P.A. Tottle, counsel for Yenald, acknowledged that there was no plea of fraud but submitted that there was proof of false statements having been made either expressly or by silence in circumstances where the true position should have been disclosed. The case of Demagogue Pty Ltd v. Ramersky (1992) 39 FCR 31 was cited. Mr Tottle submitted that the fact that fraud had not been pleaded would not preclude an argument at the hearing of this application that there was fraudulent conduct i.e. that the misleading or deceptive conduct was at the fraudulent end of the scale of such conduct.
It was said that this provided "tangential support" for the claim to rescission. In those circumstances, it was said that there was "certainly room" for orders to be made having the effect of rescinding the contract so as to provide restitution as between Yenald and Como by way of transfer of the property and repayment of what cash Como had available to it, with the difference being made up by Mr and Mrs Bevacqua pursuant to an order in personam to that effect. Reference was made to the flexibility of orders which could be made pursuant to s.87 in conjunction with s.82 of the Act.
The respondents argue that Yenald cannot reasonably expect to obtain relief by way of rescission. They point to the fact that the contract has been completed and part of the settlement involved the discharge of mortgages by Como to give unencumbered title to Yenald.
In my opinion, it would be inappropriate for me to say very much, at this stage, about the likelihood or otherwise of Yenald obtaining relief by way of rescission in these proceedings. The proceedings are at far too early a stage. Nevertheless, in my view, there is a serious question to be tried in respect of the allegation of misleading and deceptive conduct. Insofar as such a finding is the first foundation stone for any interlocutory relief, I propose to confine that foundation to the existence of a serious question to be tried with regard to misleading or deceptive conduct rather than the likelihood or otherwise of rescission being included as one of the eventual remedies if Yenald is ultimately successful. However, that does not mean that I would rule out the possibility that when all the evidence is in, rescission might be an appropriate remedy.
In a situation where fraud has not been pleaded by Yenald and in the absence of clear-cut evidence of fraud I propose to approach the matter on the basis that if Yenald is successful, its remedy will probably be damages.
It seems to me that the interests of justice will be best served by adjusting the respective interlocutory rights and obligations of the parties not on the basis that there is a likelihood that the applicant will be granted rescission of the contract but on the basis that if there is the requisite degree of risk of dissipation of monies, and the other discretionary requirements for the issue of a Mareva injunction are satisfied, then any right which the applicant may have to indemnity by way of damages should be adequately protected. To take the approach suggested by Yenald would, in my opinion, be unduly restrictive upon the respondents.

Principles Governing the Grant of a Mareva Injunction
37. The principles upon which Mareva injunctions are to be granted in Australia were outlined by the High Court of Australia in Jackson v. Sterling Industries Ltd (1987) 162 CLR 612 and in particular by Deane J. at p 623 where his Honour adopted the words of Lord Denning MR in Rahman (Prince Abdul) v. Abu-Taha (1980) 1 WLR 1268 at p 1273:

"As a general proposition, it should now be accepted in this country that `a Mareva injunction can be granted ... if the circumstances are such that there is a danger of (the defendant's) absconding, or a danger of the assets being removed out of the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgment, will not be able to get it satisfied'."

At the same page, his Honour described the power as being:

"... an established part of the armoury of a court of law and equity to prevent the abuse or frustration of its process in relation to matters coming within its jurisdiction."

At p.625 Deane J further explained the purpose of a Mareva injunction in these terms:

"That purpose is not to create security for the plaintiff or to require a defendant to provide security as a condition of being allowed to defend the action against him. ... It is to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action."

Risk of Dissipation
39. Yenald says that this is not a case in which the Court is called upon to evaluate the possibilities of dissipation but one in which steps have already been taken at the instigation of Mr and Mrs Bevacqua to put Como's assets out of Yenald's reach. Yenald invites me to infer that the member's voluntary liquidation of Como was undertaken for the specific purpose of defeating its claim. I was invited to make that inference from various matters including the coincidence of Yenald's claim and the commencement of the winding-up of Como, the alleged errors in completion of the declaration of solvency, what was said to be the unsatisfactory explanation for those errors and what was said to be the unexplained urgency associated with the liquidation.

Apart from the omissions in the declaration of solvency (referred to above) I was referred to four handwritten memoranda made by Mr K. Strickland, an accountant who is handling the liquidation of Como under the supervision of Messrs Lyford and Williamson. Mr Tottle said that these memoranda conveyed the "overwhelming impression" of a great sense of anxiety on Mr Bevacqua's part "to get the assets out of Como." In particular I was referred to a passage in Exhibit "O" (being a memorandum of a telephone conversation between Mr Bevacqua and Mr Strickland on 9 May 1994) which reads:

"He (Mr Bevacqua) could not understand why the company was put into liquidation if we are still going to have problems."

There was some dispute about whether the problems included Yenald's claim. That may well have been the case. If so, the memorandum would be evidence of an intention on Mr Bevacqua's part that Como be placed into liquidation to render worthless any judgment which Yenald might obtain. In my view there is sufficient ambiguity in the memorandum to preclude that positive finding, which is of course a finding of a very serious nature.
In the cases to which I have been referred where Mareva injunctions have been granted there does not appear to have been much doubt that the defendant intended to place assets out of the reach of the plaintiff.
In this matter, I do not think that the evidence at this stage is sufficiently clear for me to find that Mr and Mrs Bevacqua had that intent when the arrangements were made for the winding up of Como and the subsequent distribution of the sum of $850,000 referred to above. On the one hand, there is the fairly fast sequence of events once the formalities of the liquidation commenced. Those formalities commenced on 17 March 1994 and thirteen days later the sum of $850,000 was in Delphinium's bank account. On the other hand, there is evidence that the arrangements which led to these formalities started much earlier. The respondents have tendered an explanation for the restructuring of their affairs. That explanation was that the various restaurant businesses conducted by Como have been sold, Mr Bevacqua's health is affected by an asbestos-related disease and he wishes to place his affairs in order using the Delphinium Family Trust. In cross-examination, Mr Bevacqua said, in effect, that at the time of making the declaration of solvency he did not think it likely that the applicant would bring these proceedings and referred to the word "may" in the last paragraph of the letter from Messrs Tan and Tan.
I do not feel at this stage that I have sufficient evidence upon which to make a finding that Mr and Mrs Bevacqua intended to place Como's assets out of the reach of the applicant. Nevertheless the deliberate course of action upon which they have embarked will have that effect, whether intended or not.
However, in terms of the principles governing the grant of Mareva injunctions, I see nothing in those principles which requires a finding of such a specific intent. The basic principle, referred to above in Jackson v. Sterling Industries Ltd is that the circumstances are such that there is a danger of the assets being disposed of within the jurisdiction or otherwise dealt with so that there is a danger that the applicant if it gets judgment will not be able to get it satisfied.
I note that in the first case where the New South Wales Court of Appeal considered whether there was jurisdiction to grant a Mareva injunction, Riley McKay Pty Ltd v. McKay (1982) 1 NSWLR 264, at p 276 there was reference to the alternatives of intent and effect:

"It (the jurisdiction) is directed to dispositions ... which are intended to frustrate, or have the necessary effect (my emphasis) of frustrating, the plaintiff in his attempt to seek through the Court a remedy for the obligation to which he claims the defendant is subject."

In my view, those circumstances exist in the present case because Mr Bevacqua in cross-examination made it clear that unless the Court otherwise orders, he wishes to distribute the amount of $850,000 held by Delphinium to members of his family. He also indicated an interest in transferring the assets of Como to his family.
In those circumstances, if Yenald obtains judgment against Como and the assets available to that company fall short of the best estimate which I can make, at the present stage of these proceedings, of the likely quantum of such damages, there is a danger that the judgment will not be satisfied. It will not be satisfied because of the deliberate course taken by Mr and Mrs Bevacqua to move the major part of the net proceeds of the sale of the Premises out of Como's control into the control of Delphinium, a company which they also control and from which they propose to distribute those funds to members of their family.
Mr R.I. Viner QC, who appeared for the respondents, referred me to certain passages of the reasons for judgment of Burt CJ in Perth Mint v. Mickelberg (1985) WAR 117 and I respectfully adopt a passage at p 119 which reads:

"If some basis in fact is made for the prognosis that unless restrained the defendant will, prior to judgment, dissipate his assets so as to leave and with the intention of leaving nothing to satisfy the judgment, if obtained, the Court must then form a judgment as to the strength of the plaintiff's case. That obviously cannot be anything in the nature of a final judgment. It can only be an informed prognosis based on the material brought before the Judge. Some of the cases speak of the necessity for the plaintiff to satisfy the Judge that he has a "prima facie" case, others speak of a "good arguable case" and others that a "sufficiently strong case to justify the grant of the interlocutory remedy" be made out ... it seems to me that the sufficiency of the strength of the plaintiff's case will always fall to be judged in the context of the risk that the defendant will dissipate his assets with the intention of placing them beyond the reach of the plaintiff. As has been said, those two considerations must be judged in combination."

As I have indicated above, in my opinion there is a serious question to be tried in Application No. WAG 51 of 1994 and I have also found that there is a danger of Como's assets being disposed of within the jurisdiction. In those circumstances, whether there is also a danger that if Yenald obtains judgment it will not be able to get it satisfied, requires some assessment of the possible quantum of damages and the value of Como's assets, a subject to which I return below. Subject to that matter (and the question of the balance of convenience) I have formed the opinion, after weighing up the two considerations in combination, that Mareva orders should be made.
I now turn to the question of the balance of convenience. Yenald submits that there is no evidence adduced on behalf of either relevant respondent that they will suffer any hardship if Mareva orders are made in respect of both the assets remaining in Como and the sum of $850,000 referred to above.
It is true that there is no such evidence of hardship but the test is expressed in terms of convenience and furthermore I feel that I should take into account Mr and Mrs Bevacqua's wish to restructure their family affairs. I should take care not to restrict their financial dealings to any extent greater than is absolutely necessary to protect the legitimate interests of the applicant if it should be successful at the eventual hearing of this matter. In that regard, I am conscious of the fact that interlocutory proceedings of this type can sometimes be used not only to protect legitimate rights but also to apply commercial pressure on a respondent. In that regard I have been referred to the third item in the memorandum being annexure "CMW6" to Exhibit 2 (being Mr Williamson's affidavit sworn on 31 May 1994). That item refers to a statement by a solicitor acting for Yenald that her client is "commercial" and may be interested in a settlement proposal. I reject the suggestion that these interlocutory proceedings have been brought substantially for that purpose and thus constitute an abuse of process. There is simply insufficient evidence in my view to support that contention. However, it seems to me that a fair and finely- balanced approach is required to prevent undue pressure being applied on the respondents.
Mr Viner QC for the respondents has confirmed that the liquidators are prepared to continue their undertaking to the applicant's solicitors in relation to the matter of not making further distributions of Como's assets. That undertaking was that they would not distribute any more of Como's assets pending resolution of these proceedings other than to make payments of:

. Como's legal fees in respect of these proceedings; . the liquidator's own fees including any legal expenses; and

. any necessary expenses for the maintenance and preservation of Como's assets including the farm at Byford.

Mr Viner told me that those assets total approximately $700,000 being cash of approximately $250,000 and the Byford property worthy approximately $450,000.

Towards the end of the interlocutory hearing, Mr Tottle produced a calculation showing his client's assessment of its likely damages compared to the assets in the hands of the liquidators. That calculation indicated that the estimated damages exceeded the assets which would be in the hands of the liquidators by some $684,250.
To start with, that calculation puts a value on the Byford property of $360,000 whereas in Como's balance sheet as at 11 March 1994 the value of the Byford farm and buildings is shown as approximately $414,000. Secondly, the calculation is based on the complete acceptance of the valuation obtained by Yenald from Messrs Knight Frank Hooker. That valuation suggested that a fair yield or capitalisation rate to be applied when valuing the Premises would be between 10.5% and 11%. The higher end of the range was selected and a reason was given for that selection. Nevertheless a difference of 0.5% in the capitalisation rate results in a difference in valuation of nearly $90,000. Furthermore I must take into account a valuation of the Premises dated 4 December 1992, put into evidence on behalf of the respondents, which showed a then value of $2,110,000. The applicant's calculation of asset shortfall is based on the employee's claims being paid in full, $200,000 being required to satisfy Como's taxation obligations and various other fairly substantial items.
At this stage of the proceedings I find it impossible to make an accurate assessment of the likely amount of damages which would be awarded to Yenald if it were successful at the hearing. However, I have weighed up the various factors and I have had regard to the likely range in which such damages would lie. In my opinion, in addition to the assets of Como remaining in the liquidators' hands, it would be appropriate for $250,000 of the funds held by Delphinium to be preserved pending the hearing of this action or further order. That is, provided that the jurisdiction to restrain the disbursement of those funds exists and it is otherwise appropriate as a matter of discretion to restrain the disbursement of those funds. It is at this point, as I see it, that the two underlying applications (No. WAG 51 of 1994 and No. WAG 65 of 1994) overlap to some extent.
In the hope that my reasoning may be clearly understood, I should say at this stage that if Como had in its possession and control assets of approximately $950,000 I would grant a Mareva injunction against it to that extent i.e. to the extent of $950,000 but on the basis that the various disbursements referred to above could be made by the liquidators.
I now turn to the question of restraining, pending the hearing of these applications, the disbursement of $250,000 out of the $850,000 currently held by Delphinium and at the moment under the interim restraint of the injunctions granted against Mr and Mrs Bevacqua.
There is authority for the proposition that where a Court is asked by a plaintiff to include within a Mareva injunction assets which on their face belong to a third party, the Court will only do so where there is good reason for supposing that the assets are in fact those of the defendant: SCF Finance Co Ltd v. Masri (1985) 2 All ER 747. In that case the assets comprised monies in a bank account in the name of Mr Masri's wife. There was evidence that Mr Masri was using signed blank cheques drawn on that account for the purpose of trading. A Mareva injunction was granted in respect of part of the funds in Mrs Masri's bank account and a trial was ordered of the preliminary issue of the beneficial ownership of the monies remaining in Mrs Masri's account within the jurisdiction. The Court of Appeal dismissed an appeal against a decision to refuse a discharge of that injunction. It seems to me that there are strong parallels between that case and the present matter. The trial of the issue as to the beneficial ownership of Mrs Masri's assets within the jurisdiction is very similar to the main issue raised in Application WAG 65 of 1994 namely whether the sum of $850,000 distributed to Delphinium is, in equity, the property of Como.

If one were to apply the Masri decision strictly, it would seem that before granting a Mareva injunction in Application No. WAG 51 of 1994 in respect of the monies held by Delphinium I would need to be satisfied that there is "good reason for supposing" that those monies belong to Como. If I were not satisfied on that standard, I would then have to consider, in the context of Application No. WAG 65 of 1994 whether Yenald had standing to bring those proceedings and if so whether on the usual Mareva tests an injunction of that type should issue.
I do not propose to follow that somewhat tortuous course. It seems to me that if there is in train a set of proceedings pursuant to which ownership of the property held by the third party will be decided, then whether the disposal of that property is to be restrained on an interim basis should be decided by applying the usual Mareva principles in those proceedings. I propose to take that course.
In view of what I have already decided above, there remain, in my opinion, only two further issues in respect of the sum of $850,000 to be decided on an interlocutory basis.
The first is an issue limited to Application No. WAG 65 of 1994, namely whether Yenald has standing to bring those proceedings. The second issue, which is common to both applications, is whether there is a serious question to be tried in respect of the applicant's claim that Como is the beneficial owner of the sum of $850,000 held by Delphinium. It will be necessary for me to weigh up the strength or otherwise of that claim at the same time as making a further evaluation of the balance of convenience between the parties concerned. I have already considered the balance of convenience so far as the parties to Application No. WAG 51 of 1994 are concerned but there remains the matter of any inconvenience to the respondents in Application No. WAG 65 of 1994.

Whether the applicant has sufficient standing to make Application No. WAG 65 of 1994?
64. The question is whether Yenald is a "creditor" within the meaning of s.511(1) of the Corporations Law which provides as follows:

"Application to Court to have questions determined or powers exercised

The liquidator, or any contributor or creditor, may apply to the Court:

(a) to determine any question arising in the winding up of a company; or

(b) to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court."

Yenald says that it has standing as a creditor of Como by reason of s.553(1) of the Corporations Law which provides:

"Subject to this Division, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company."

Reliance was placed upon the decision of Nicholson J. in Re Gasbourne Pty Ltd (1984) 2 ACLC 103 and in particular at p 131 in relation to the definition of a "contingent creditor". His Honour made the following observation:

"In my view a claimant is properly admitted as a contingent creditor of a company if he can show that he has an arguable claim against the company whether the same is for unliquidated damages or otherwise ..."

The particular context in that case was whether the claimant had standing to be heard on the return of a winding up petition as a contingent creditor.

Nicholson J. considered some of the authorities bearing on the interpretation of the phrase "contingent debt" including Re William Hockley Ltd (1962) 1 WLR 555 at p 558; Re Sutherland (Deceased) (1963) AC 235 at pp. 247, 249, 251 and 262; Re S.B.A Properties Ltd (1967) 1 WLR 799 and Community Development Pty Ltd v. Engwirda Construction Co (1969) 120 CLR 455.
In those cases it was held that where there was an existing obligation on a company's part to a person and out of that obligation a liability on the part of the company to pay a sum of money will arise in a future event which may or may not happen, then that person is a contingent creditor of the company.
Nicholson J. did not see that definition as being exhaustive although some might read the decision of the High Court in the Community Development Pty Ltd case as requiring there to be an underlying existing obligation (which may or may not convert into a present liability depending on the happening of a future event) before a person can be said to be a "contingent creditor". Mr Tottle sought additional support from the decision in Solla v. Scott (1982) 7 ACLR 323 at p 325 and McPherson's "The Law of Company Liquidation" (3 ed) at pp 44, 374 and 378.
It was common ground that the term "creditor" was not relevantly defined in the Corporations Law.
It is not necessary nor appropriate, at this interlocutory stage of the proceedings, for me to reach a concluded view on whether Yenald is a "creditor" within the meaning of s.511(1). If Yenald is successful in Application No. 51 of 1994 then it will almost certainly be entitled to admission to proof against Como (pursuant to s.553(1)) in the winding up. Depending on the views which the liquidators might form if Yenald were to lodge a proof of debt, it might be admitted to proof even without obtaining a judgment. I have held that there is a serious question to be tried in respect of Yenald's claim and, in my opinion, that gives it sufficient standing pursuant to s.511(1) to bring proceedings for interlocutory relief in Application No. WAG 65 of 1994. As part of those proceedings or (almost certainly) by virtue of the judgment in Application No. WAG 51 of 1994, its standing will be determined conclusively leaving the way open for the determination, pursuant to s.551 of the questions arising for determination in the winding up of Como.

Whether there is a serious question to be tried in Application No. WAG 65 of 1994?
71. Yenald's primary submission is that the sum of $850,000 is owned by Como. It is contended that Como's liquidators authorised the distribution of that amount in the mistaken belief that Mr and Mrs Bevacqua's declaration of insolvency of 17 March 1994 was accurate and in particular, in the belief that there were no contingent liabilities of the company i.e. that the monies were paid under a mistake of fact. Accordingly, it is said, on a prima facie basis, that the liquidators are entitled to recover that money. Reliance is placed on the High Court decision of David Securities Pty Ltd v. Commonwealth Bank of Australia (1992) 175 CLR 353.

Mr Williamson said in cross-examination that if he had known of Yenald's claim he would not have authorised the distribution of the sum of $850,000 to Delphinium. He also confirmed that when he authorised that distribution he had no knowledge of the claims being made on behalf of the former employees of Como.
Mr Tottle submitted that Delphinium, as the recipient of money paid under a mistake of fact, is a constructive trustee of the sum of $850,000 which the liquidators authorised to be paid to it. Como's remedy was, so it was submitted, proprietary in nature. Reliance was placed on the decision in Chase Manhattan Bank N.A. v. Israel British Bank (London) Ltd (1981) Ch 105. That decision and the principles set out in the reasons for judgment support Yenald's submission. I think there is also merit in the argument that the dual capacities of Mr and Mrs Bevacqua as directors of Como and also directors of Delphinium and discretionary beneficiaries under the Delphinium Family Trust give rise to a fiduciary relationship between them and the liquidators and arguably between Como and Delphinium. Again, it is not necessary for me to form a concluded view, but I have formed the view that there is a serious question to be tried as to the beneficial ownership of the sum of $850,000.
I have also had regard to the provisions of s.501 of the Corporations Law which suggest to me that in a voluntary winding up a company's property is to be applied first in satisfaction of its liabilities and then distributed among the members, not in the opposite order.
I have already set out above my opinion that there is the requisite degree of risk of dissipation and my reasons for holding that opinion.
Although the parties to Application No. WAG 65 of 1994 are different in that the respondents are the liquidators of Como as first respondent and Delphinium as second respondent, in my view this does not change the answer to the question of the balance of convenience referred to earlier. In my opinion, the balance of convenience favours the grant of a Mareva injunction. However, I propose to tailor that relief so that it will be consistent with the extent of the relief which I indicated above as being appropriate in Application No. WAG 51 of 1994. The evidence strongly suggests that Yenald is the only other likely indirect and substantial (relatively speaking) claimant in respect of those funds.

The interlocutory injunction sought to restrain the liquidators from instructing Messrs Nielsen and Co.
77. As part of the relief sought in its amended application in proceedings No. WAG 65 of 1994 Yenald seeks an injunction restraining Messrs Lyford and Williamson as liquidators of Como from instructing the firm of solicitors Messrs Nielsen and Co. from acting on behalf of the liquidators and also restraining that firm from acting for Delphinium in those proceedings or on behalf of Como in proceedings No. WAG 51 of 1994. An interlocutory injunction is sought in the same terms.

In summary, the submissions put on behalf of Yenald were as follows:

1. Messrs Nielsen and Co. as solicitors are fiduciaries and cannot act for

clients whose interests conflict or where there is a real and sensible possibility of a conflict. Reliance was placed on the decisions in Wan v. McDonald (1992) 105 ALR 473 and Mallesons Stephen

Jaques v. Peat Marwick (1991) 4 WAR 357 and the provisions of Order 45 rule 2 of the Federal Court Rules which provide: "Where a solicitor or his partner acts as solicitor for any party to any proceedings ... that solicitor shall not, without the leave of the Court, act for any other party in the proceedings not in the same interest."

2. That the liquidators are under a duty to preserve Como's assets and owe duties to Como's creditors. An incident of those duties is to take steps to recover the sum of $850,000 paid to Delphinium. Pursuing the claim against Delphinium, so it is put, is clearly inimicable to the interests of Delphinium.

3. There is thus an actual conflict between the interests of the liquidators and Delphinium so that Messrs Nielsen and Co. should not act for both parties.

4. Furthermore in Application No. WAG 51 of 1994 the same actual conflict arises in the context of the Mareva injunction application. It is argued that in terms of the wider conduct of those proceedings,

Como's interests and those of Mr and Mrs Bevacqua do not coincide and

again that Mr and Mrs Bevacqua should conduct the litigation in the interests of Como's creditors and not solely in their own interest.

Mr Viner QC submitted on behalf of all of the respondents that there was no conflict of interest because the liquidators were not bound to agree with Yenald. They were, so he said, entitled to take the view that their conduct has been correct, that the winding up was regular and effective and that the property in the $850,000 passed to Delphinium as a distribution in specie to Como's major shareholder in the course of the members' voluntary winding up. It was submitted that to contend, as Yenald contends, that the liquidators must act to recover the $850,000 begs the question which the Court has to decide and that the remedy lies with Yenald to pursue its claim if it believes in its cause. It was argued that the decisions of Mallesons and Wan are distinguishable on the facts of the present matter. The present matter was not a case of two masters in conflict but of the respondents having a common view against the claim made by Yenald.
The two cases of Wan and Mallesons Stephen Jaques were very different to the present case. In Wan the applicant succeeded in obtaining an order preventing her former solicitor from acting against her in subsequent proceedings which arose out of the very transactions in which he had previously represented her. There was also the factor that the solicitor had received confidential information from Mrs Wan.
Mallesons Stephen Jaques was a case where there was a real and sensible possibility of information which was the subject of legal professional privilege being disclosed or used to the detriment of a former client by a solicitor.
In the present matter Yenald is seeking to deny the liquidators of Como (in that capacity) from instructing solicitors of their own choice to act for them and also to deny Como and Delphinium the right to continue using the solicitors of their choice in these respective matters.
In my view, the reality of the situation, as disclosed on the evidence to date, is that there are only two broad sets of competing interests. I put to one side the claims made on behalf of the former employees of Como. In relative terms the amount involved in those claims is not substantial. Based on the evidence adduced through Mr Williamson and my observation of him in the witness box I have little doubt that there will not be a final distribution of Como's assets until the claims of those former employees have been resolved.
Delphinium owns 98.88% of the shares in Como and Mr and Mrs Bevacqua and their daughter hold the rest. The net assets of Como will be distributed to Delphinium and those persons in those proportions. Delphinium is the trustee for the Delphinium Family Trust which is a trust for the benefit of the Bevacqua Family. Accordingly Como and Delphinium are, for practical purposes, on the same side of the proceedings.
There is no evidence to suggest that the liquidators are not conscious of the duties which come with that office. In fact the evidence points to their recognition of those duties and the taking of prudent steps to preserve Como's assets once they received notice of Yenald's claim.
The only real adverse interest is that of Yenald. Yenald's interests are being vigorously protected by its solicitors.
In my opinion the liquidators are entitled to assess the factual position and to decide for themselves which solicitors they should retain to represent the interests of Como and those persons who may have an interest in the distribution of its net assets. Delphinium has the same right. I have very serious doubts whether there is a serious question to be tried on the question of conflict of interest. Even if I did not have such doubts and there is a serious question to be tried on that issue, I would not grant the interlocutory relief sought because in my opinion the balance of convenience weighs heavily against taking that course.
To compel another firm or even other firms of solicitors to be engaged to represent the liquidators (in that capacity), Como and Delphinium respectively would involve considerable expense without, in my view, protecting the interests of any party whose interests are not already fully protected. Conclusion
For the above reasons I propose to make orders in respect of each of the abovementioned applications in terms of the foregoing minutes.

[1994] FCA 374

10 JUNE 1994