Apostolidis v Kalenik

Petar v Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142 PT Bayan Resources TBK v BCBC Singapore Pte Ltd (2015) 258 CLR 1; [2015] HCA 36 Ratul v Islam; In the matter of Australian Real Estate Relation Pty Ltd [2023] NSWSC 78 Sayed v Hemat [2011] WASC 183 Texts Cited: P Biscoe, Freezing and Search Orders (3rd ed, 2023, LexisNexis) Practice Note SC Gen 14 Practice Note SC Gen 16 RP Austin and AJ Black, Austin & Black's Annotations to the Corporations Act (LexisNexis) Category: Procedural rulings Parties: Efrem Harkham (First Plaintiff) 10-12 Campbell Parade Pty Ltd (Second Plaintiff) The Summit Hotel Bondi Beach Pty Ltd (First Defendant) HK Empire Pty Ltd (Second Defendant) Patglen Pty Ltd (Third Defendant) Terry Harkham (Fourth Defendant) Geraldine Harkham (Fifth Defendant) Representation: Counsel: GA Sirtes SC/PD Reynolds (Plaintiffs) DR Sulan SC/L Rich (Second, Fourth and Fifth Defendant) J Whealing (First and Third Defendant)

Solicitors: Assured Legal Solutions (Plaintiffs) Jones Day (Second, Fourth and Fifth Defendant) Norton Rose Fulbright (First and Third Defendant) File Number(s): 2022/00372454 Publication restriction: Nil

JUDGMENT

1. On 15 February 2023, the plaintiffs filed an interlocutory process seeking freezing orders, or injunctive relief, requiring that the net proceeds of sale of four properties that were owned by the corporate defendants be held on trust until further order of the Court, or pending the determination of these proceedings.

The parties

1. The plaintiffs are Efrem Harkham and 10-12 Campbell Parade Pty Ltd (Campbell Co), the first and second plaintiffs respectively. For reasons that will shortly appear, Efrem Harkham is the only plaintiff who has a direct interest in the issues that remain in contention between the parties. Where I refer below to relief being sought by the plaintiffs, it will often strictly only involve a claim being made by Efrem.
2. The active defendants are the second defendant, a company called HK Empire Pty Ltd (HK Empire), the fourth defendant, Terry Harkham, who is Efrem's brother, and the fifth defendant, Geraldine Harkham, who is Terry's wife. As Terry and Geraldine Harkham are the only defendants who contest the outstanding issues, I will refer to them as the "defendants".
3. As the individual parties are members of the Harkham family, I will, with no disrespect intended, refer to them by their first names.
4. The companies who are or were the owners of the subject properties are as follows: 1. The first defendant, The Summit Hotel Bondi Beach Pty Ltd (SHBB), was the owner of 2-8 Campbell Parade, Bondi Beach (2-8 Campbell Parade), which is the subject of prayer 1 of the interlocutory process. 2. Campbell Co and HK Empire were the owners of 10-12 Campbell Parade, Bondi Beach (10-12 Campbell Parade), which is the subject of prayer 2 of the interlocutory process. 3. The third defendant, Patglen Pty Ltd (Patglen), purchased Shop 1, XX Reservoir Street, Surry Hills and XXX-XXXX Pitt Street, Haymarket, which are the subjects of prayer 3 of the interlocutory process.
5. SHBB and Patglen are companies in which Efrem, Terry and Geraldine are shareholders and directors. They were represented at the hearing of the interlocutory application by their solicitor, who appeared only to ensure that SHBB received the benefit of an order that I have made that will enable it to pay capital gains tax that it owes in respect of the sale of 2-8 Campbell Parade.
6. Campbell Co is owned by Efrem and HK Empire is owned by Terry. It is not necessary for the purposes of these reasons to provide any further information concerning Patglen or Campbell Co and HK Empire, or the basis upon which the latter two parties held their interests in 10-12 Campbell Parade, as the parties to the proceedings have in substance agreed concerning the interlocutory orders that should be made in response to prayers 2 and 3 of the interlocutory process. As will be seen, the primary issue arises in relation to SHBB and the interlocutory orders that should be made concerning the proceeds of sale of 2-8 Campbell Parade.

The first judgment

1. The initial hearing of the application took place on 10 and 15 March 2023. The defendants made an application for leave to cross-examine Efrem. I published reasons for judgment on that application on 29 March 2023: In the matter of The Summit Hotel Bondi Beach Pty Ltd [2023] NSWSC 295 (the first judgment or J). I gave the defendant leave to cross-examine Efrem on certain issues, see J [45] where I found: [45] Accordingly, I will grant the defendants leave to cross-examine Efrem limited to his awareness of the transactions that the plaintiffs seek to impugn in these proceedings, relating only to loans or other liabilities in the accounts of SHBB.
2. The cross-examination took place on 5 April 2023 and the hearing of the application was completed on that date.

Outline of the plaintiffs' allegations

1. I set out at J [14], an outline of the plaintiffs' claims in these proceedings. Following is a synopsis of the circumstances alleged by the plaintiffs.
2. As noted, Efrem and Terry are brothers. From about 1978, Efrem and Terry were parties to one or more arrangements that the plaintiffs described as "quasi-partnerships". Another brother, Uri, was also a member of some of the quasi-partnerships. He sold out his interests to Efrem and Terry in about 2012. It is not necessary for the Court to refer to Uri's involvement further, save to note that one of Efrem's claims is that Terry has failed to cause half of Uri's one third shareholding in Patglen to be registered in the name of Efrem.
3. The plaintiffs allege that the essence of the quasi-partnerships was that Efrem and Terry would invest on a long-term basis in commercial and residential real estate in Sydney through corporate vehicles in which they would each have equality of shareholding and control. Relevantly, SHBB and Patglen were the corporate vehicles. As Efrem moved permanently to the United States, it was agreed between the brothers that Terry would have the day-to-day management of the quasi-partnerships' investments. The brothers conducted the management of the companies informally by regular telephone conversations that occurred about fortnightly. Formal directors' meetings were not held and directors' resolutions were not made or recorded. Efrem relied upon Terry to inform him of any significant developments or change in plans for the quasi-partnerships. Efrem reposed implicit trust in Terry.
4. In fact, the plaintiffs allege, when Terry caused SHBB to be incorporated, he issued one third of its shares to each of Efrem, Terry and Geraldine. He caused Efrem, Terry and Geraldine to be appointed as its directors. Terry also caused Geraldine to be appointed as a director of Patglen with Efrem and Terry. These steps were taken without Efrem's knowledge or consent. The plaintiffs allege that Terry caused SHBB, in particular, to act as a "treasury" for himself, Geraldine, his family and associated entities. This led to substantial amounts of SHBB's funds being paid out to those interests. Terry and Geraldine also caused SHBB to engage in investments that were outside the parameters agreed when the quasi-partnerships were formed. These steps were unauthorised by Efrem and were not disclosed to him. When Efrem discovered these matters, there was a falling out between the brothers. Efrem through his solicitors sought to be provided with financial information to enable him to determine how the quasi-partnerships had in fact been operated. Terry has provided information to Efrem in response to the requests but the plaintiffs say the response has been substantially incomplete.

Relief claimed by the plaintiffs

1. I outlined the relief sought by the plaintiffs, by reference to the relevant paragraphs of the statement of claim, at J [14(27)], which I will now repeat for convenience: (27) On the basis of the facts alleged in the statement of claim, Efrem seeks orders: (a) that Terry account to him for breach of fiduciary duty: [248], [249]; (b) for relief for oppression under s 233 of the Corporations Act 2001 (Cth): [250]-[254]; (c) for the winding up of SHBB and Patglen by operation of ss 233(1)(a), 461(1)(e), (f), (g) and (k) of the Corporations Act [255]-[261]; and (d) that Efrem owns half of the shares in SHBB or that Geraldine holds half of her shares in SHBB on trust for Efrem on the basis of an estoppel [262]-[266].
2. I add that I now realise that my summary omitted a claim made by Efrem that he is also entitled to half of the shares in Patglen, because Terry has failed to cause half of the one third of the shares in that company that were originally issued to Uri to be registered in Efrem's name after the brothers equally bought out Uri.
3. The first claim made by the plaintiffs is for breach by Terry of fiduciary duties arising under an alleged quasi-partnership between Efrem and Terry (leaving aside the position of Uri) that they would invest on a long-term basis in commercial and residential real estate to be held in particular through the companies that became registered as SHBB and Patglen: see Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, as explained in Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd [2008] NSWSC 144; (2008) 66 ACSR 1 at [22] (Brereton J).
4. The relief sought in respect of this claim is set out in the amended statement of claim at par 249. That relief primarily takes the form of an order that Terry account to Efrem for such assets and other profits that he, his family and other parties associated with him have received by virtue of his alleged breaches of the fiduciary duties.
5. In par 249(c), the plaintiffs also claim an entitlement to an order that Terry "is not entitled to enforce as against SHBB, Patglen or the Quasi Partnership liabilities purported owed to him by the same procured from his breaches of the Fiduciary Duties". It is not clear what the basis of this further claim is. There are no liabilities that Terry has sought to enforce against the alleged quasi-partnership. Terry does claim that SHBB is indebted to him

Interlocutory relief sought

1. Prayer 1 of the interlocutory process seeks the following relief: This application is made under the Court's inherent jurisdiction, s 66 of the Supreme Court Act 1970 (NSW), rule 25.3, 25.11 and/or 25.14 of the Uniform Civil Procedure Rules 2005 (NSW). On the facts stated in the supporting affidavit(s), the applicants, Efrem Harkham and 10-12 Campbell Parade Pty Ltd, apply for the following relief: 1. In respect of the monies paid by the purchaser for the property situated at 2-8 Campbell Parade, Bondi Beach, NSW 2026 (First Property) including the deposit paid and the monies paid on settlement together with any interest that has accrued (First Settlement Proceeds), upon the Plaintiffs giving the usual undertaking as to damages, until further order: a. the First Settlement Proceeds are to remain in [name and number of account stated], to be held on trust pending the determination of these proceedings; b. the First Defendant, Fourth Defendant and Fifth Defendant are restrained from taking any step that causes the First Settlement Proceeds to be disposed of, diminished, transferred, spent, charged, pledged, encumbered or otherwise dealt with (in whole or in part) in the absence of a prior written consent signed by both the First Plaintiff and the Fourth Defendant or their respective nominees (in respect of which, the nomination must be in writing).
2. Prayer 1 took this form because the contract for the sale of 2-8 Campbell Parade had been completed and the net proceeds of sale were held in a solicitor's controlled monies account. Prayer 2 was in equivalent terms in respect of the sale by Campbell Co and HK Empire of 10-12 Campbell Parade. Prayer 3 was formulated in terms that would have the same effect after the completion of the contracts for sale of the two properties owned by Patglen.
3. The subject matter of the orders sought by prayers 1 to 3 of the interlocutory process is in each case money held, or to be held, by solicitors on trust for one or more of the four corporate parties. In each case part (a) of the order has the effect that the relevant corporate party or parties must leave the money in the relevant controlled monies account until the determination of these proceedings. Part (b) restrains Terry and Geraldine and the relevant corporate party or parties from dealing with the money in the manner stated, without the prior written consent of Efrem and Terry.

Defendants' response to the interlocutory process

1. The defendants contested the strength of the plaintiffs' interlocutory claim, but also offered a secured undertaking directed at protecting the plaintiffs, pending the final determination of the proceedings.

The proposed $10 million carveout

1. In essence, the defendants offered to consent to interlocutory orders that would have the effect that the proceeds of sale of all of the four properties would be held on trust pending the outcome of these proceedings or further order, subject to a carveout of $10 million from the restraint sought in prayer 1 of the interlocutory process, that would permit Terry and Geraldine to cause SHBB to repay debts to entities associated with Terry, with Terry and Geraldine providing an undertaking, secured by a mortgage over their residential property, to indemnify SHBB to the extent that it is determined by the Court that the entities associated with Terry were not entitled to receive the repayments.
2. The terms of the initial carveout sought by the defendants is set out at J [4]. If made, that order would have permitted Terry and Geraldine to cause SHBB to repay any of the debts owed by SHBB to any of the creditors described as "Terry and the Terry Related Entities", up to a total of $10 million. The Terry Related Entities are described at J [5], and, as stated in the Schedule to the defendants' proposed short minutes of order (omitting ACNs), are: 1. Lulubelle Pty Ltd 2. Tonale Pty Ltd 3. Hark Education Pty Ltd 4. Hark Investments Pty Ltd as trustee for the Foundation Trust 5. Foundation Education Holdings Pty Ltd. 6. Lulubelle Pty Ltd as trustee for the T & G Harkham SMSF 7. ACPE Holdings Pty Ltd 8. Geraldine Harkham
3. Following the completion of the interlocutory hearing, the defendants provided revised short minutes of the orders that they asked the Court to make. Order 1 of the revised short minutes of order, which provides for the carveout sought by the defendants, is in the following terms: Without admission by any party and upon the Plaintiffs giving the Court the usual undertaking as to damages, and providing the undertaking to the Court set out in order 7 below, the Court orders that: 1. In respect of the monies paid by the purchaser to the First Defendant (SHBB) for the property situated at 2-8 Campbell Parade, Bondi Beach, NSW 2026, (First Property) which are held in the Macquarie Bank controlled monies account in the name of [name and number of accounts stated] (SHBB RK Trust Account), until further order or the conclusion of these proceedings (whichever is the earlier): (a) subject to the mortgage referred to in Order 4(c) below being registered, $10,000,000 from the SHBB RK Trust Account is to be paid to SHBB, for the purposes of SHBB repaying amounts it owes (as reflected on the accounts of SHBB) to the Fourth Defendant (Terry Harkham) and/or the Terry Related Entities (as defined in Schedule 1 to these orders); (b) subject to orders 4 to 6 below, the balance remaining in the SHBB RK Trust Account are to continue to be held in trust in the SHBB RK Trust Account.

The secured indemnity offered by Terry and Geraldine

1. The terms of the secured indemnity, as originally offered by Terry and Geraldine, are set out at J [7]. The revised proposed order 4 is now in the following terms: 4. Subject to these orders, or any further order of the Court, the Fourth Defendant and Fifth Defendant undertake: (a) that they will not dispose of, deal with, encumber or alienate [the Vaucluse Property] prior to the conclusion of these proceedings without giving 14 days' notice in writing to the Plaintiffs; (b) to indemnify the First Defendant for the value of the repayments referred to in Order ‎1(a) plus interest (that is, up to $10 million plus interest accrued at the current "benchmark interest rate" under Division 7A of Part III of the Income Tax Assessment Act 1936 being 4.77% pa) to the extent that it is determined at the conclusion of these proceedings that Terry Harkham and/or the Terry Related Entities were not entitled to receive those repayments; (c) to provide a mortgage to SHBB over the Vaucluse Property with a maximum liability of $10 million to secure the indemnity referred to in order 4(b) above, and to take all necessary steps to ensure the mortgage is registered; (d) that they will not take any step prior to the conclusion of these proceedings that causes the: (i) monies in the SHBB RK Trust Account, 10-12 RK Trust Account and Patglen RK Trust Account, to be disposed of, diminished, transferred, spent, charged, pledged, encumbered or otherwise dealt with (in whole or in part); (ii) SHBB to release the mortgage referred to in order ‎4(c) above, in the absence of a prior written consent signed by both the First Plaintiff and the Fourth Defendant or their respective nominees (in respect of which, the nomination must be in writing).
2. The property that I have described as the Vaucluse property is unencumbered and has a value determined by valuation evidence of more than twice the amount of the carveout sought by the defendants. There is no need to disclose the value of the Vaucluse property in these reasons.
3. When read with the revised order 1(a), SHBB would not be permitted to repay any debt as part of the carveout until the mortgage referred to in order 4(c) has been registered. That change was apparently made in accordance with a suggestion made by the Court that the plaintiffs should be protected by the registration of the mortgage. Order 4(b) has been revised to accommodate another suggestion made by the Court, that the indemnity should extend to interest at an appropriate rate in respect of the portion of the $10 million carveout that is applied in the repayment of a debt.

Response of the plaintiffs to the defendants' proposal

1. As noted at J [8], the plaintiffs rejected the offer made by the defendants in the original version of their proposed short minutes of order. The plaintiffs made a counter-proposal that would permit SHBB to pay $2.1 million of liabilities recorded in its financial statements as being owed to Terry and the Terry Related Entities. As I understand it, that was on the basis that the smaller carveout would be protected by the secured indemnity to be granted by Terry and Geraldine.
2. The plaintiffs maintained this position on the final day of the interlocutory hearing. They submitted that a carveout of $10 million was not justifiable and was too large, having regard to the proportion that the amount of $10 million bore to the total amount of the net assets of SHBB that the evidence showed would be available, after the satisfaction of its liabilities, to be distributed to its shareholders.
3. The plaintiffs made submissions concerning the deficiencies in the secured indemnity offered by Terry and Geraldine, in order to counteract the defendants' claim that the balance of convenience clearly favoured the Court making the orders in the revised proposed short minutes of order, because the plaintiffs would be completely protected by the secured indemnity. I will consider the plaintiffs' objections to the terms in which the defendants formulated the secured indemnity when I deal with the terms of the orders that should be made on the interlocutory process.

The undertaking by Efrem to secure the usual undertaking as to damages

1. In the conventional way, the revised proposed short minutes of order submitted by the defendants required the plaintiffs to give to the Court the usual undertaking as to damages. Although the evidence in a general way suggests that Efrem is a man of considerable wealth, he is a resident of the United States of America. Although, on any view of the outcome of the principal proceedings, Efrem will be entitled to a substantial proportion of the balance that will be retained of the proceeds of sale of the four properties that will be held on trust pending the outcome of the proceedings, there remains the possibility that Efrem could deal with his interest in those funds, and SHBB and Patglen more generally, in a manner that undermined the value to the defendants of Efrem's usual undertaking as to damages. The defendants therefore submitted that Efrem should be required to provide some security to support the undertaking as to damages. The defendants included order 7, which is in the following terms: 7. The First Plaintiff undertakes to the Court that, prior to the conclusion of these proceedings or until further order, he will not: (a) call upon, pledge, charge, encumber, or otherwise deal with, any equity or other entitlement he may have in the First Defendant or the Third Defendant (including in relation to any loan owed to him); and/or (b) seek to cause the First Defendant or Third Defendant to make a payment to him in respect of his equity or any other entitlement he may have in relation to the First Defendant or Third Defendant (including in relation to any loan owed to him). The First Plaintiff acknowledges that this undertaking is provided in support of the undertaking as to damages provided by the First and Second Plaintiffs in these orders.
2. I accept that it will be appropriate for the plaintiffs to be required to provide an undertaking by Efrem to support their undertaking as to damages generally in the form of proposed order 7. As I understand the plaintiffs' position, as found in their version of the short minutes of order that should be made by the Court that was provided after the completion of the hearing, Efrem has agreed to secure his undertaking as to damages in the manner proposed by the defendants.

The remaining interlocutory issues

1. The only remaining substantive issue on the interlocutory application is whether the Court should make an order substantially in the terms of prayer 1 of the interlocutory process, or whether the Court should make that order subject to a carveout as sought by the defendants. If a carveout is authorised, there is a question whether it should be for the $10 million sought by the defendants or some smaller amount.
2. Given the evidence that the defendants now only seek the carveout to permit SHBB to partially repay a debt recorded in its financial statements as being owed to Lulubelle, it is no longer necessary for the Court to consider the circumstances of Patglen, or the circumstances in which SHBB may be indebted to Terry or the Terry Related Entities other than Lulubelle.
3. I will deal with issues that have arisen concerning the formulation of the orders to be made by the Court separately below.

The admissibility of Mr Dobson's new affidavit

1. It is necessary to deal with a number of preliminary issues before I return to the question of what orders should be made on this interlocutory application.
2. First, I will explain the Court's reserved ruling concerning the defendants' application for leave to read Mr Dobson's new affidavit. The rulings are summarised at T 35.29. I gave the defendants leave to read pars 40 to 44, which contained evidence on information and belief from Geraldine that Terry and Geraldine had made enquiry of their bank as to whether the bank would lend Terry and Geraldine $10 million on the security of the Vaucluse property, as an alternative means of funding their cash requirements, as set out in J [43]. The evidence was that, for reasons that need not be related, the bank was unwilling to provide that finance.
3. I declined to give leave to the defendants to read pars 31 to 37 of the new Dobson affidavit, the relevance of which was explained to the Court as being evidence of the sale of other properties that had led to Efrem receiving distributions of his interests in those properties. I was not satisfied that it was sufficiently material to the outcome of the interlocutory application, given the late service of the affidavit, that the plaintiffs were seeking to restrain distributions from the sale of some properties when they had enjoyed distributions from the sale of other properties. I also declined the defendants leave to read paragraphs 38 and 39 of Mr Dobson's affidavit, which did little more than augment the evidence that had already been received by the Court in par 26 of Mr Dobson's original affidavit concerning the defendants' need for the $10 million carveout, which is set out at J [43]. That evidence had not been answered by the plaintiffs and there was insufficient justification for the defendants to be permitted to augment that evidence.
4. The defendants then withdrew their application to read pars 15 to 37 of Mr Dobson's new affidavit, so it is not necessary to refer further to the content of those paragraphs.
5. The only outstanding issue is whether the defendants should be given leave to read pars 10 to 14 inclusive of Mr Dobson's new affidavit (the defendants having withdrawn the application for leave to read that part of par 12 after the first sentence). The parts of the affidavit that the defendants pressed were stated by Mr Dobson on information and belief from Terry. Paragraph 10 explained in broad terms the basis upon which Terry and the Terry Related Entities had made advances to SHBB over a period of at least 9 years, including that transactions were always accounted for by journal entry, loans were repayable on demand, loans were repayable by SHBB when it had available capital, the loans to SHBB were funded from the assets of Terry or the Terry Related Entities, and that over the years Lulubelle was the main lender to SHBB. Paragraph 11 contained an outline explanation of the business of Lulubelle in historical terms. I have already mentioned the content of pars 12 and 13 above, concerning the amount of the debt owed by SHBB to Lulubelle and the intention that the whole of the $10 million carveout would be applied to the partial repayment of the debt owed by SHBB to Lulubelle.

The cross-examination of Efrem

1. As noted above, the defendants were given leave to cross-examine Efrem, limited to his awareness of the transactions that the plaintiffs seek to impugn in these proceedings, relating only to loans or other liabilities in the accounts of SHBB. The relevant issue was whether, in fact, Efrem was aware of transactions that Terry and Geraldine caused SHBB to enter, when Efrem's evidence was that he had no knowledge of the transactions and they were entered into by SHBB without his consent or authority.
2. The thrust of the cross-examination of Efrem by senior counsel for the defendant was to direct his attention to accounting information supplied to Efrem (as attachments to emails addressed to Efrem's assistants) that were copied to Efrem for the purpose of the preparation of Efrem's US tax returns. Relevantly, the cross-examination commenced by the following exchange: T 5.10-5.25 Q. So it was important for [Efrem's assistant] and your accountants to get that Australian information and to review it, for the purposes of preparing your US tax returns. That's what you understood was happening, correct? A. Correct. Q. You yourself would review the information, because you were the person submitting the tax returns? A. Is that a question? Q. Yes. A. Actually, I may have perused the documents. I have no recollection of it, but my job was to pass it on. A lot of my emails were - all my emails, hundreds of emails daily - would be sifted through by my assistant, whoever it was at the time, and they would pass it on. They would know that our job was to pass it on to the accounting firm ASAP. So, there was - we all knew our marching orders.
3. Efrem accepted that he had received emails addressed to his staff that were copied to him that attached balance sheets or draft balance sheets for SHBB for the years 2013 to 2016 that specified the amount of the debt owed by SHBB to Lulubelle at the balance date. Efrem also accepted that the accounting information was incorporated in his US tax returns, specifically for the 2011 and 2012 years. The financial information included in the tax return was in the form "Loans from shareholders and other related persons" and specified the total of all such debts.
4. Broadly, the position adopted by Efrem was that he could not remember reading the financial information that was put to him in cross-examination at the time he received the emails. The financial information was generally received late, and was immediately forwarded to Efrem's accountants for the purpose of compiling his US tax returns against impending deadlines.

The credibility of the evidence given by Efrem

1. Senior counsel for the defendants made the following oral submissions concerning the credibility of the evidence given by Efrem: T 53.26-53.35 He was plainly a witness that was not giving in effect straightforward answers to questions from the cross-examiner, he was seeking to in effect propagate or propound his case theory to your Honour constantly and he was trying to distance himself from documents which he didn't put in his affidavit, which he plainly had access to, and for whatever reason chose not to, and paragraph 31 of the affidavit is to his complete discredit. When your Honour goes to that part of his affidavit and looks at [it], your Honour cannot reconcile that with the material that I showed him in cross-examination, and when I gave him an opportunity to depart from that and to correct it, he chose not to. That is to his discredit.
2. I do not make any negative finding on this interlocutory application concerning the credibility of the evidence given by Efrem in cross-examination. Efrem gave his evidence in difficult circumstances. The cross-examination took place remotely when Efrem was in Jerusalem and it was 3 AM in the morning. It lasted about one and a half hours. The process whereby the documents upon which Efrem was cross-examined were displayed on his computer screen was not seamless and, to my observation, Efrem experienced some difficulty in identifying relevant parts of the documents. Nonetheless, I am satisfied that Efrem generally gave direct and candid answers to the questions that he was asked. Although the evidence concerning Efrem's business interests was limited, it seems likely that his statement that he received hundreds of emails daily that were required to be vetted by his staff was correct. I am also prepared to accept that Efrem probably relied upon his accountants to prepare his US tax returns accurately, and given their length of over 100 pages, it is probable that he did not examine them minutely before he signed them.
3. Senior counsel for the defendants submitted that the Court ought not accept the evidence given by Efrem in cross-examination concerning his evidence in par 31 of his affidavit. The suggestion made was that it was plainly false for Efrem to say that he only received sporadic information on infrequent occasions from Terry concerning the financial circumstances of the Australian companies. That suggestion was made because the evidence suggested that, in fact, Efrem received financial statements from the companies regularly, each year in order to enable him to arrange for the preparation of his US tax returns. While I accept that there is some force in the submission that it was false to characterise regular, annual provision of financial statements as being sporadic and infrequent, this, in my view, is a debatable issue that should not be determined on this interlocutory application.

Purpose of the carveout

1. Terry's need for funds, and indeed the reason why the defendants have sought the carveout, is as stated in the evidence given by Mr Dobson and set out at J [43]. For convenience I will repeat that part of the first judgment: [43] The evidence relied upon by the defendants concerning their need for SHBB to be permitted to satisfy the liabilities contemplated by proposed order 1(a) is in my view relevant to whether they should be given leave to cross-examine Efrem on the issue of his awareness of the loan transactions. That evidence is given at [26] of the defendants' solicitor's 7 March 2023 affidavit in the following terms: [26] I am informed by Terry that he requires access to the funds to be released pursuant to the Interim Proposal to pay for living expenses, loan obligations, legal and professional service fees (including those being incurred in relation to the two USA proceedings referred to in paragraph 11 above) and other expenses and operating costs associated with the other properties and investments that Terry owns or controls. I am informed by Terry, and believe, that he does not otherwise have access to cash (as opposed to other assets which would have to be sold or encumbered) to fund these expenses and that he was depending on the receipt of the proceeds of sale from the Bondi Properties to provide him with funds to meet these expenses. Without limitation, I am informed by Terry that this includes: (a) approximately $400,000 required by Terry to fund a townhouse development project in Katoomba in respect of which Terry has an interest; (b) approximately $500,000 required by Terry for a development project in Victoria which is due over the next month, with a further obligation of $200,000 payable for subdivision and infrastructure works later in the year; (c) approximately $500,000-$1,000,000 required by Terry for renovation works to a motel in Echo Point planned to commence in July 2023 in respect of which Terry has an interest; and (d) approximately $4,800,000 payable by Terry in the final quarter of 2023 to fund the commencement of construction of a development project in Katoomba in respect of which Terry has in [sic] interest.
2. Terry and Geraldine have not been able to obtain alternative finance by means of a borrowing from their bank on the security of a mortgage over the Vaucluse property to satisfy Terry's continuing need for funds pending the determination of these proceedings.

Outcome of application

1. I agree with the defendants' submission that the offer of the secured indemnity by Terry and Geraldine fully negates the need or justification for an unqualified order in the terms of prayer 1 of the interlocutory process. I consider that the offer of the secured indemnity was a reasonable response by the defendants to the interlocutory process, that should have foreclosed the need for further judicial determination after the offer was made, as it extinguished any real risk that the assets of SHBB that may otherwise have been available to satisfy any orders made by the Court in favour of the plaintiffs would have been dissipated.
2. I agree with the observation made by senior counsel for the defendants that the Court's acceptance of the defendants' position was "the short way home": T 49.5. However, the plaintiffs did not accept the defendants' offer and have put in issue various matters that have required the Court's consideration. The reasons that follow explain why I do not accept the plaintiffs' submission that all of the freezing orders that they seek should be made on an unqualified basis. They also explain why I do not accept that any carveout that is made to the freezing order sought in prayer 1 of the interlocutory process should be substantially less than the $10 million sought by the defendants. In fact, I consider that the plaintiffs have not established a strong case for the making of freezing orders. It is not necessary to consider whether the application for freezing orders would have been dismissed in the absence of the offer made by the defendants. The making of that offer has had the effect that the Court has accepted that the carveout should be in the sum of $10 million without the defendants having to justify that amount with a detailed explanation.
3. The result is that the Court will make orders substantially in the form of the short minutes of order proposed by the defendants.

Consideration

1. The issue is whether the Court should make unqualified orders substantially in the form of prayers 1 to 3 of the interlocutory process, as sought by the plaintiffs, or whether the Court should accept the offer made by the defendants and make orders in terms of prayers 2 and 3, but make the order in terms of prayer 1 subject to the $10 million carveout sought by the defendants, on the basis that the plaintiffs will be protected by the secured indemnity offered by Terry and Geraldine.
2. The appropriate place for the Court to start is to identify the source of the Court's powers to make the orders sought by the plaintiffs.
3. The interlocutory process states that the application is made under the Court's inherent jurisdiction, s 66 of the Supreme Court Act 1970 (NSW) and rr 25.3, 25.11 and/or 25.14 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).

UCPR r 25.3

1. It will be convenient to first consider the plaintiffs' reliance upon UCPR r 25.3 as the source of the Court's jurisdiction to make the interlocutory orders that they seek. Rule 25.3 of the UCPR provides: 25.3 Preservation of property (1) In proceedings concerning property, or in which any question may arise as to property, the court may make orders for the detention, custody or preservation of the property. (2) An order under subrule (1) may authorise any person to enter any land or to do any other thing for the purpose of giving effect to the order. (3) In proceedings concerning the right of any party to a fund, the court may order that the fund be paid into court or otherwise secured.
2. The defendants took issue with the entitlement of the plaintiffs to rely upon this rule, on the ground that none of the plaintiffs had a proprietary interest in the funds that are or will be held on trust for SHBB or Patglen, relying upon the judgment of Spigelman CJ in Newcastle City Council v Caverstock Group Pty Ltd [2008] NSWCA 249 at [29]-[32], where the Chief Justice (with whom Bell JA and Handley AJA agreed) accepted a number of observations made by Lightman J in Myers v Design Inc (International) Ltd [2003] EWHC 103 (Ch); [2003] 1 WLR 1642 (at [10]-[12]), including that a rule with equivalent effect to r 25.3 is only applicable where there is a fund in which the applicant for interlocutory relief has a proprietary interest.
3. It is clear that the test to be applied in determining whether the interlocutory relief sought should be granted differs depending on whether the claim to the relevant funds is proprietary or non-proprietary. As Ward J (as her Honour then was) said in In the matter of C & L Cameron Pty Ltd - GB Gazzana v Nadalan Enterprises Pty Ltd; AF Gazzana v Nadalan Enterprises Pty Ltd [2012] NSWSC 676: [191] Although the Amended Notice of Motion specifically invokes only r 25.14 of the Uniform Civil Procedure Rules, in the course of submissions the applications by Nadalan Enterprises to restrain the payment out of the moneys to the Gazzana brothers were identified as being based on Rules 25.3 and 25.15 as well as 25.14(b). Those Rules deal, respectively, with applications to preserve a fund in respect of which a proprietary interest is claimed and applications for freezing orders. [192] There is a distinction between the two circumstances, as noted in A v C (No 1) [1981] 1 QB 956, by Robert Goff J, as his Lordship then was, and as recognised by Lloyd J in PCW (Underwriting Agencies) Ltd v Dixon [1983] 2 All ER 158 and by Brereton J in Badman v Drake [2008] NSWSC 968. [193] The purpose of an injunction of the former kind is to preserve a specific fund, which is the subject matter of the proceedings, not to prevent the dissipation of assets out of which a judgment debt might ultimately be met. As Brereton J noted in Badman, the basis of the distinction between the two types of case is that in the first the concern is that, absent a preservation order, the very subject matter of the proceedings might be dissipated before the hearing and equity would then have been invoked in vain (or, as was said in PCW, quoting Templeman LJ in an earlier case, "it is the concern of any court of equity to see that the stable door is locked before the horse has gone"). Whereas in the latter type of case (where the claim is not to a proprietary interest in a specific fund) the concern is as to abuse of the court's process. (For the distinction between a claim for a Mareva injunction and an injunction in aid of a proprietary claim, Brereton J in Badman also referred to Australian Receivables Ltd v Tekitu Pty Ltd [2008] NSWSC 433, at [28] and McCleary v Bullabidgee Pty Ltd [2008] NSWSC 534, at [5]).) [194] What must be established for such relief must, therefore, take into account the purpose for which the relief is sought. In this case of preservation of an asset over which a proprietary interest is claimed, one is looking to the identification of the specific fund and whether there is a serious question be tried as to the interest claimed in that fund (as well as to the adequacy of damages and the balance of convenience). In the case of an application for a freezing order, one looks to whether there is a reasonable apprehension of dissipation or removal of assets or use of the dispositive power so as to frustrate or abuse the process of the court.

Interlocutory injunction

1. I now turn to the potential application of s 66 of the Supreme Court Act, which enacts the Court's statutory power to issue injunctions, including interlocutory injunctions.
2. In par 140 of their written submissions, the plaintiffs confirmed that they applied for an order in the nature of an injunction, and they made brief submissions in support of that application at pars 179 to 182. The question therefore is whether, in this context, the Court can restrain the companies dealing with the funds representing the net proceeds of sale of their properties that are presently held on trust by issuing an interlocutory injunction. If the Court has that power, then the Court must proceed as stated in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46, where Gummow and Hayne JJ said (footnotes omitted): [65] The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued: "The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief … The second inquiry is … whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted." By using the phrase "prima facie case", their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal: "How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks."
3. If the Court were entitled to proceed upon that basis, then the first issue would be whether the plaintiffs have established a serious question to be tried that Efrem has a seriously arguable right to prevent the companies dealing with the funds held on trust for them. The Court would then assess whether the balance of convenience favoured the issue of the interlocutory injunction or not. Frequent experience demonstrates that the threshold for a claimant for an interlocutory injunction to establish a serious question to be tried is often relatively low.

Freezing order

1. Although an application for a freezing order may be determined on an interlocutory basis, the order is not a conventional interlocutory injunction, and should not be equated to such an order: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 (Cardile) at [26] and [42]. It is not sufficient for the applicant to establish that there is a real case to be tried on the claim that it makes and the balance of convenience favours the making of the freezing order.
2. As Campbell J (as his Honour then was) said in Davis v Turning Properties Pty Ltd [2005] NSWSC 742; (2005) 222 ALR 676 (Davis): [37] One consequence of a Mareva order not being a species of injunction is that, in deciding whether a Mareva order should be granted, the Court does not operate in the conceptual frame, appropriate to decisions about whether to grant an interlocutory injunction, of enquiring whether there is a serious question to be tried, and, if so, where the balance of convenience lies. Rather, the court adopts the conceptual frame used for other interlocutory decisions, of enquiring whether there is prima facie evidence of those facts which are the basis for the grant of the particular interlocutory relief in question and a reasonably arguable basis for any question of law involved: e.g. as to facts Wendo v R (1963) 109 CLR 559 at 572-3; DPP v Alexander (1993) 33 NSWLR 482 at 493; Attorney-General (NT) v Maurice (1986) 161 CLR 475 at 491. The joint judgment in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 took this approach, enquiring what the facts of that case showed on a prima facie basis at 406 [60], and 407 [64], and saying at 408 [68] "LED has to show a reasonably arguable case on legal as well as factual matters". Examining the facts and law by reference to this standard was an essential step in the ultimate conclusion reached in the majority judgment in Cardile. Thus, it settles the Australian law on the appropriate standard of proof for grant of a Mareva order, whatever uncertainty might continue to exist about the appropriate standard of proof for other types of interlocutory order (cf Cross on Evidence, 7th Australian edition (Butterworths 2004) para [1040] - [1045]). However, when deciding whether to grant a Mareva order involves both enquiring whether the case is one in which a Mareva order could as a matter of law possibly be granted, and whether as a matter of discretion the instant case is an appropriate one in which to actually grant one, and if so, in what precise terms, there remains some family resemblance between the conceptual frame in which Mareva orders are granted and that in which interlocutory injunctions are granted.

Good arguable case

1. In addition to r 25.11, the plaintiffs rely on r 25.14. I will consider the matters that must be demonstrated by the plaintiffs to satisfy this rule separately, in turn, as follows. Rule 25.14(1) of the UCPR relevantly provides: 25.14 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 …
2. A preliminary question arises as to whether Efrem has a "good arguable case" in relation to the proceedings, which is a precondition of the plaintiffs' entitlement to the orders sought under r 25.14. The plaintiffs made submissions in support of their claim that the evidence established that they had a good arguable case for each of the forms of relief that they sought at pars 150 to 171 of their written submissions. The defendants' position was that the plaintiffs' claims were weak. However, the defendants did not contest in detail the plaintiffs' submission that they had the good arguable cases as they claimed. That is presumably because of the approach adopted by the defendants, whereby they offered to consent to the making of the interlocutory orders sought by the plaintiffs subject to the inclusion of the $10 million carveout from the order sought in prayer 1 of the interlocutory process. I set out my findings relevant to whether the plaintiffs have a "good arguable case" below.

Breach of fiduciary duty claim

1. I accept that the plaintiffs have established that Efrem and Terry (and in some circumstances Uri) entered into an arrangement generally in the terms that the plaintiffs labelled "quasi-partnerships". However, the terms and implications of those relationships are presently indistinct. The amended statement of claim alleges in par 8 that the quasi-partnerships were in effect at all material times from about 1978. Efrem said in par 28 of his affidavit that, after Efrem moved to Los Angeles in 1978, he and Terry, and where appropriate Uri, had regular telephone conversations approximately once every two weeks up to about January 2020, that covered family as well as business matters. Efrem said in par 30 of his affidavit: I assumed that anything important regarding these property investments and companies through which those investments had been made would be mentioned by Terry during these conversations.
2. If, for the sake of argument, Efrem's evidence about the frequency of the telephone conversations between the brothers is taken literally, it follows that there were in the order of 1,000 conversations. The evidence given by Efrem in his affidavit is therefore necessarily an impressionistic summary of Efrem's present personal recollection of the substance of the conversations so far as they are relevant. That limitation on the evidence is understandable, but it means that the present evidence of the terms of the arrangements that the plaintiffs called the "quasi-partnerships", and how those arrangements may have evolved over time, is indefinite.
3. I will accept that the plaintiffs have established to the requisite standard that the quasi-partnership involving the acquisition of 2-8 Campbell Parade using SHBB as the corporate vehicle was agreed between Efrem and Terry, and that 2-8 Campbell Parade would be the one substantial objective of the quasi-partnership, such that it would be held as a real property investment for an indefinite time. I will accept that the plaintiffs have established that any changes to the objective of the quasi-partnership did not extend to the transactions that involved substantial borrowings and the acquisition of shares in other companies and share trading. It will follow that the plaintiffs have established to the requisite standard that Terry's conduct involved breaches of the fiduciary duties that he owed to Efrem as alleged. I stress that this finding only reflects the requirement that the plaintiffs have established a claim that is arguable to the requisite degree, and is not a finding that the matters that I am prepared to accept have been proved to the civil standard, given the interlocutory nature of the application.

Winding up claim

1. I am satisfied that the plaintiffs have established that there is a sufficient prospect that the Court will make winding up orders against SHBB and Patglen to support the Court making freezing orders, provided that the circumstances otherwise justify the making of those orders. It is not necessary to distinguish between the probability that a winding up order would be made under s 233(1)(a) or s 461(1)(k) of the Corporations Act. As I understand the evidence, the funds the subject of prayers 1 and 3 of the interlocutory process are the proceeds of sale of the principal assets of SHBB and Patglen. There is a good arguable case that there has been a breakdown in trust between the shareholders and directors of SHBB and Patglen, and dysfunctionality in their governance: see Australian Securities and Investments Corporation v Letten (No 10) [2011] FCA 498 at [12]-[13] (Gordon J). Furthermore, there is a good arguable case that SHBB and Patglen were incorporated to implement what the plaintiffs have called a quasi-partnership, which was an association formed on the basis of a personal relationship involving mutual confidence, and that confidence has broken down and the parties who are now in control of SHBB and Patglen have excluded Efrem from full access to information concerning the companies' business, and excluded him from making most decisions concerning their operations. There are irreconcilable differences between the companies' shareholders and directors: see Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 at [89]-[90] per Spigelman CJ; In the matter of Bicher & Son Pty Ltd [2020] NSWSC 711 at [123] and [131] (Black J); and Ratul v Islam; In the matter of Australian Real Estate Relation Pty Ltd [2023] NSWSC 78 at [22] (Black J).

Fifty percent shareholding claim

1. I accept that the plaintiffs have established a good arguable claim that Efrem is entitled to be the holder of 50% of the shares in SHBB and Patglen. Efrem's unanswered affidavit evidence at pars 77 to 83 of his affidavit was that he made an explicit agreement for equality of shareholding with Terry at the time the decision was made in 1997 that 2-8 Campbell Parade would be acquired by SHBB. Efrem's case in relation to the shares in Patglen is that one third of the shares were originally issued to Efrem, Terry and Uri, but by reason of the agreement made in 2012 that Efrem and Terry would equally buy out Uri, Efrem became entitled to half of Uri's shares: see pars 220 to 225.
2. Although I have expressed the view in the first judgment that the strength of the plaintiffs' overall case is not determinative of the outcome of this interlocutory application, I should note the evidence provided by Mr Dobson in pars 109 to 111 of his 7 March 2023 affidavit that Efrem's 2010 to 2012 US tax returns recorded that Efrem declared that he had a 33.33% interest in SHBB, which is inconsistent with the defendants' claims that Efrem thought that he held 50% of the shares in that company.

Evidence of financial transactions by companies

1. Efrem gave evidence in his affidavit of piecemeal agreements with Terry and Uri to buy and sell numerous properties, mostly in Sydney. Efrem did not give detailed evidence as to how the purchases were in each case funded. He acknowledged on a number of occasions that he was aware in a generic sense that properties had been purchased with loan money using the assets of the companies as security: see for example par 188.
2. Efrem gave evidence of a number of commercial loans that had been acquired on the security of the properties owned by the companies. Efrem said that he was not informed of the transactions at the time and that he did not consent to or approve of them. The transactions were: (1) $50 million charge by Patglen and a company called Negev Pty Ltd to Investec in 2002 (pars 111 to 115); (2) $16.3 million borrowing by SHBB from St George Bank in 2004 (pars 128 to 131); (3) $3 million margin lending facility to SHBB from St George Bank in 2008 (pars 180 to 183); (4) $46.95 million borrowing by Patglen from St George Bank after release of Investec facility in 2009 (pars 184 to 189); and (5) $6.625 million borrowing by Tonale Pty Ltd (Tonale) and Tova Bella Pty Ltd (Tova Bella) in 2011 guaranteed by SHBB and Patglen and other related companies (par 210). Efrem also gave evidence of an investment by SHBB of about $17 million for the acquisition of shares in Tova Bella and the making of loans to that company (pars 196 to 205), as well as transactions involving SHBB and Tonale, the latter as trustee for the Summit Trust (pars 206 to 209).
3. As the evidence outlined in the preceding paragraph was not answered by the defendants on the interlocutory application, it may be accepted by the Court for the purpose of these reasons. However, at present there is no evidence concerning how the companies who entered into the facilities used any money that was borrowed, whether the money was used for the proper purposes of the companies, or whether Terry and his associates have acquired property that ought to have been acquired for the benefit of the companies. In this respect, it must be remembered, as observed above, that no claim is made in these proceedings on behalf of the companies against Terry and Geraldine for any alleged breaches of duty that they owed to the companies as the directors.

Evidence of substantial payments out of companies' accounts

1. Efrem also gave evidence of substantial payments that he has learned were paid out of the companies' accounts without his knowledge or approval.
2. At par 113 of their written submissions, the plaintiffs listed the "transactions of concern" that they had so far identified. They referred to the paragraphs in their submissions that explained the transactions. The total amount of the payments was $50,832,533.54, as set out in the following table: Type of payment Amount Payments to Tova Bella $17,062,600 Payment to Viva (and write off) $250,000 Payments towards a "Pershing" trading account $5,204,176.47 Payments to Lulubelle Pty Ltd (a company owned by Terry and Geraldine) $3,579,627.78 Payments to Terry, Geraldine and their children $6,239,282.85 Payments to Harkham Wineries $1,320,000 Payments described as a payment to a foundation, ACPE, educt one or for education $3,636,558.67 Payments to Terry and Geraldine's personal advisors and representatives $2,772,493.35 Payments to the ATO unaccounted for $1,986,123.26 Payments toward 7 credit cards $2,542,285.56 Large payments for an unknown purpose $6,239,385.60 Total $50,832,533.54

1. It will be instructive to consider the payment of $17,062,600 recorded as having been made to Tova Bella because of the relative significance of the payment. The plaintiffs submitted in pars 39 to 42 of their written submissions that Tova Bella was incorporated on 28 June 2011, with Terry and one of his sons as directors. The total amount paid was paid in three tranches in 2011 and 2014. Apparently, the payments were made for the issue of shares by Tova Bella to SHBB. Efrem did not consent to SHBB paying these sums to Tova Bella for the acquisition of its shares or otherwise. Tova Bella does not hold any real property assets directly. The holding of shares by SHBB in Tova Bella is, the plaintiffs allege, not within the parameters of the quasi-partnership involving SHBB.
2. SHBB's investment in Tova Bella was included in all of the SHBB balance sheets provided by Terry annually to Efrem from the year ended 30 June 2011, under the heading "Investments". A balance sheet for Tova Bella for the year ended 30 June 2015 was sent on behalf of the defendants to Efrem's associate (with a copy to Efrem) on 5 October 2016: Exhibit D1 p 753; CB 5/3837. The balance sheet showed that Tova Bella had net assets of $17,071,600. The major asset consisted of three loans to "Summit Trust" totalling $12,879,833.48. There do not appear to be any other Tova Bella financial statements in evidence. The balance sheets for SHBB that were sent to Efrem's associate (copied to Efrem) showed income described as "Tova Bella dividend" for the financial years from 30 June 2015 as follows: 2015 ($0), 2016 ($2,159,505.88), 2017 ($893,955.44), 2018 ($986,717.92), 2019 ($700,022.04), 2020 ($657,529.82), 2021 ($560,968) and 2022 ($0).
3. Although this financial information concerning the relationship between SHBB and Tova Bella has not been explained in the evidence, and the Court cannot make any specific inferences concerning its significance, it shows that there was apparently a real investment by SHBB in Tova Bella that had financial benefits to SHBB. Whether or not Efrem looked at the financial information that he was given concerning this relationship, the information was provided to him. It demonstrates that it is not an adequate approach to the demonstration of a risk of dissipation of assets simply to point to transactions involving payments out of a company's accounts. It is necessary to explain the transactions in the context of the financial statements of the company as a whole.

Evidence of manner of conduct of SHBB's affairs

1. Efrem was content for the management of the investments to be left almost exclusively to Terry, subject to whatever information Terry thought was appropriate to provide Efrem from time to time.
2. The quasi-partnerships never operated with any formality and the only records that were consistently created were those necessitated by the existence of the companies, including the preparation of their financial statements and other regulatory requirements.
3. Efrem's involvement in the affairs of the quasi-partnerships was limited to whatever was discussed in the regular, usually fortnightly, conversations between the brothers that covered personal family matters as well as their investments.
4. The financial information in the financial statements for SHBB and the other companies was prepared formally by accountants based upon journal entries that recorded genuine transactions. By "genuine" I do not mean that the transactions were necessarily duly authorised by the boards of directors of the companies, but that they involved real transfers of money in the amounts recorded in the financial statements.
5. The transactions in the form of loans and repayments were not otherwise documented as they were effected as a result of decisions made by the active directors of the lender and the borrower companies.
6. There was no evidence of any specific payments that were made out of the accounts of SHBB that were not recorded in its books and included in the preparation of its annual financial statements. Even if the evidence does not establish that all of the relevant transactions engaged in by SHBB were duly authorised by resolutions of its board of directors, there is no evidence that its funds were dishonestly misappropriated by Terry and Geraldine.
7. Although the transactions recorded in the financial statements of SHBB as being loans to and by the company that did not involve a commercial lender were not formally documented, or even apparently recorded in written resolutions of the board of directors of the company, it does not follow from the mere fact of informality that the transactions are invalid: see Hylepin Pty Ltd v Doshay Pty Ltd [2020] FCA 1370; (2020) 148 ACSR 30, where O'Bryan J said at [59]: [59] The question whether an advance of money from one company to another is a loan or a misappropriation of funds is ultimately a question of fact. As stated by Lee J in Radilo Enterprises, a loan is a payment of money to or for someone on the condition that it will be repaid. It is not a condition of a valid loan that it be documented in a formal agreement; nor is it a condition that the advance of monies earn interest. The transaction must be considered in its context to determine its character. Relevant to that context is the nature of the parties to the transaction and their relationship. While the Full Court in Grimaldi upheld the primary judge's finding that advances by Chameleon were not loans, their Honours observed that the primary judge "was viewing the matter through the prism of allegations of what can only be described as egregious breaches of statutory duty and of fiduciary duty" and that the "language of 'not loans' but 'diversions of funds' ought in some degree be seen in that light" (at [330]).

Obligation on third party to disgorge assets or contribute toward satisfying prospective judgment

1. The parts of r 25.14(4) and (5) that require consideration are as follows: 25.14 Order against judgment debtor or prospective judgment debtor or third party … (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 - … (b) the assets of the judgment debtor, prospective judgment debtor or another person are - … (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 - … (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.
2. Rule 25.14(4) of the UCPR will not apply in the present case in relation to the plaintiffs' claim that Terry is liable to account to Efrem for breach of fiduciary duty arising out of the quasi-partnerships. That subrule applies where the freezing order is sought against the prospective judgment debtor in respect of his or her own property. Subrule (5)(a) will not support a freezing order against the companies, as it only applies when the prohibition relates to assets held by the third party for the prospective judgment debtor. However, r 25.14(5)(b) is potentially applicable.
3. This part of r 25.14 reflects part of the reasoning of the plurality in Cardile at [57] that is set out above. A number of authorities have recognised that the principle in r 25.14(5)(b) may apply in a case where a prospective judgment debtor is a shareholder in a company that has assets that may be made available to satisfy the prospective judgment debt because, if a sequestration order is made against the debtor for non-payment of the debt, the debtor's trustee in whom the shares will become vested as a result of the making of the order may be able to cause the company to be wound up and the debtor's share of the assets of the company available to be distributed to shareholders paid to the trustee and used to satisfy the judgment debt: see for example Caboche v Southern Equities Corporation Ltd [2001] SASC 55 at [23] (Williams J, Olsson and Duggan JJ agreeing); Davis (above) at [42] (Campbell J); Apostolidis v Kalenik (2011) 35 VR 563; [2011] VSCA 307 at [99] and fn 80 (Nettle, Ashley and Tate JJA); and BCI Finances Pty Ltd (in liq) v Binetter (No 3) [2015] FCA 1336 at [31] (Gleeson J).

Breach of fiduciary duties claim

1. For the reasons I have outlined at [118] to [121] above, I am satisfied that the plaintiffs have established a "good arguable case" for the purposes of r 25.14(1)(b).
2. However, while it is probable that the plaintiffs would succeed in obtaining an order that Terry give an account for his apparent breaches of fiduciary duties, it does not follow that it has been shown that, on the completion of the accounting process, the Court will probably order Terry to pay any amount to Efrem as a sum that he is liable to pay on the balance of the account. On the present state of the evidence, the Court cannot tell whether any of the transactions that the plaintiffs claim fell outside the boundary of the business of the quasi-partnership led to Terry, his family or other parties associated with him, obtaining assets or other profits that should have been received by SHBB. If any such assets or profits were gained, which is a fact not dealt with in the evidence, the Court has no means of knowing whether the beneficiary of the transactions was Terry, his family or other parties associated with him, or SHBB itself. The plaintiffs have not made a case that it would have been a breach of any fiduciary duties owed by Terry to cause SHBB to obtain assets or other profits by means of transactions that were outside the boundary of the agreed objective of the quasi-partnership.
3. The Court does not have a safe basis, even at an interlocutory level, to know what the consequences were of the transactions of which the plaintiffs complain. It follows that the Court has no means of estimating the quantum of the prospective judgment that Efrem may obtain against Terry at the end of the accounting process. That is a significant discretionary consideration because, in the absence of the Court being able to make a reasonably safe assessment of the possible quantum of the prospective judgment, the Court cannot assess the fairness of a freezing order that prevents Terry and Geraldine causing SHBB to make a $10 million partial repayment of the debt recorded in its financial statements as being owed to Lulubelle.
4. As the Court has stated above, the better view of the evidence is that all of the transactions in which SHBB engaged were accurately recorded in its financial statements (whether or not the transactions were properly authorised by its board of directors). Accordingly, SHBB is prima facie indebted to Lulubelle for an amount greater than $10 million. Furthermore, the net position as between SHBB and Terry and the Terry Related Entities is that SHBB is indebted by considerably more than the proposed $10 million carveout. That is a significant discretionary consideration given the Court's finding that the use of SHBB's accounts as a "treasury" was the relevant status quo. The making of the unqualified freezing order sought by the plaintiffs would therefore entail the unfairness involved in depriving Lulubelle of the money that it had deposited with SHBB.

Claims for winding up orders of SHBB

1. It is not usual to think of a winding up order that may be made by the Court as a "prospective judgment" that is capable of satisfaction by the company against which the order is made. It is also not usual to think that the dissipation of the company's assets in anticipation of the making of a winding up order will have the effect that the order is not satisfied. In a strict sense, a winding up order may be satisfied irrespective of the assets that become subject to the administration. Biscoe's Freezing and Search Orders (3rd ed, 2023, LexisNexis), refers to freezing orders as being available "to meet a danger that an actual or potential money judgment will be wholly or partly unsatisfied" (emphasis added): [1.1] and [1.34], and to the jurisdiction being "extended beyond the initial focus of debt recovery claims to any pecuniary claim": [1.5]. The making of a winding up order against the company does not make the company a judgment debtor. Not only would that result be conceptually inappropriate, but the definition of "judgment debtor" in s 3(1) of the Civil Procedure Act 2005 (NSW), although stated on an inclusive basis, appears to establish that a judgment debtor is a person required to pay a judgment debt, and a judgment debt involves an order to pay money.
2. It is not strictly necessary for the Court to decide whether a freezing order may be made against the assets of a company that is the subject of an application that it be wound up. As a matter of first principle, it seems obvious that a freezing order should be available in this context. While in a technical sense a prospective winding up order will have effect irrespective of the extent of the company's assets, as a practical matter the purpose of making the winding up order will be defeated if the company's assets have been dissipated during the course of the winding up application.
3. Were it necessary for me to do so, I would hold that the principles that are the source of the Court's jurisdiction to make freezing orders, as established by such authorities as Cardile and PT Bayan that have been considered above, are of general application and extend beyond the protection of money judgments made against judgment debtors to protect the integrity and the effectiveness of all judgments that the Court is empowered to make.
4. The only example of the making of a freezing order in this context that I have found is the decision of Commissioner Sleight in Sayed v Hemat [2011] WASC 183. The decision was made under the equivalent of UCPR r 25.14(5). The respondents to the orders were parties to the proceedings who were directors of the subject company in the equivalent position of Terry and Geraldine in this case. The orders were made in chambers and were not opposed by the directors. It is not clear why the orders were made against the directors as third parties, given that the assets were owned by the company and the directors were only restrained from causing that company to dispose of them.

Other claims

1. The plaintiffs seek as an alternative form of relief to Efrem's "oppression" claim that the Court make an appropriate buyout order as between Efrem and Terry. If such an order were made, the Court could determine the appropriate price by having regard to the consequences of any misconduct that is found against Terry and Geraldine. The plaintiffs have not shown how the dissipation of SHBB's assets could have the effect that a buyout order would not be satisfied.
2. Finally, the plaintiffs seek orders that have the effect that Efrem will be beneficially entitled to and registered as the holder of half of the shares in SHBB. If Efrem succeeds on this aspect of his claim, it will increase his equity in the companies, but will not change the legal nature of his rights in respect of the companies. Again, the plaintiffs have not shown how the dissipation of the companies' assets would have the effect that an order that the companies' share registers be rectified to record Efrem as being a 50% shareholder was not satisfied.

Amount of the carveout that should be authorised

1. It is necessary for the Court to deal with an argument made by the plaintiffs as to why, if a carveout from the orders sought in prayer 1 of the interlocutory process is permitted, it should be in sum substantially less than $10 million. The argument was based upon an aide memoir handed up by senior counsel for the plaintiffs during the hearing on 10 March 2023: see T 3.15. The document consisted of a table that set out the price obtained by SHBB for 2-8 Campbell Parade, and the deductions necessary to determine the net purchase price. It then set out a deduction of the amount of the capital gains tax payable following the sale of the property (which I have authorised the company to pay) as well as two amounts of $2 million that Terry and Efrem apparently agreed would be paid out to each of them from the sale proceeds. The result was a fund of slightly more than $23 million. The document then proceeded upon the basis that all of the debts recorded in the financial statements of SHBB as being owed to Terry and the Terry Related Entities would be repaid by the company. The total amount of those debts of slightly more than $25 million was apparently taken by the plaintiffs from a letter written by the solicitors for the defendants that stated the total amount of the debts. The conclusion expressed in the aide memoir was that the total amount of funds held on trust for SHBB, after the payment of CGT and the loans, would be slightly more than $3.6 million. The result would be that the amount that could be distributed to Terry, Efrem and Geraldine would be slightly more than $1.2 million each.
2. I do not, with respect, follow the logic of this argument. The latest financial statements for SHBB that are in evidence are the draft financial statements for the year ended 30 June 2022. Although the liabilities owed by SHBB to Terry and the Terry Related Entities are recorded, SHBB's total debt liabilities are stated at slightly more than $35 million. This must be balanced against debts owed to SHBB of about $22 million. The plaintiffs' argument ignores the fact that, although SHBB is recorded as owing Terry slightly more than $5 million, Terry is recorded as owing SHBB just less than $7.5 million. Furthermore, the plaintiffs' argument does not take into account other recorded assets of the company, principally shares of about $1.5 million, and shares in other companies called Malicom Pty Ltd (Malicom), Metropole (Katoomba) Pty Ltd (Metropole) and Tova Bella. The share in Malicom is brought to account as having a value of $1, but there is evidence that the asset is worth $5.5 million. The shares in Metropole are brought to account as having a value of $5, but there is evidence that the asset is worth $2.4 million. The shares in Tova Bella are given a value of $17 million, but the evidence is that the recorded value is the historical price of the acquisition of the shares, and there is no evidence as to what the value of the assets and liabilities of Tova Bella is, or hence what the value of SHBB's shareholding in that company is. Although Efrem's affidavit evidence acknowledged that he was aware of SHBB's acquisition of its shareholdings in Malicom and Metropole, he claimed to have had no knowledge of the investment in Tova Bella.

Formulation of orders

1. After the conclusion of the hearing, the defendants provided revised draft short minutes of order to the Court (DSMO). In the DSMO the defendants responded to a number of issues raised by the Court during the hearing. Subsequently, the plaintiffs provided their own version of the draft short minutes of order to the Court (PSMO). At the Court's request, the plaintiffs provided a combined version of the parties' draft short minutes of order that marked up the plaintiffs' changes on the DSMO.
2. The competing versions of the draft short minutes of order contain a number of differences, some of which appear to be substantive and others stylistic. In some cases the source of the difference appears to be that the plaintiffs started with the wording of the interlocutory process, while the defendants did not do so. Other differences appear to reflect the stylistic preferences of the drafter of the PSMO. Notwithstanding that the Court has spent some time trying to divine the reasons for some of the differences, this process has not been fruitful.
3. The parties must confer to resolve the drafting differences between their draft short minutes of order that should not require judicial adjudication.
4. I will now turn to the issues that require consideration in formulating the Court's orders.
5. Order 1(a) of the DSMO contains the $10 million carveout sought by the defendants. The PSMO does not. It follows from these reasons that the Court's orders will contain the carveout sought by the defendants.
6. Order 1(a) of the DSMO is in the same terms as the original draft short minutes of order offered by the defendants before the commencement of the hearing. It authorises Terry and Geraldine to cause SHBB to repay any debts recorded in its financial statements as being owed to Terry and the Terry Related Entities. Order 5(b) of the PSMO, which deals with the consequences of the Court permitting a carveout from the relief sought by the plaintiffs in prayer 1 of the interlocutory process, is drawn on the basis that only debts recorded as being payable to Lulubelle may be repaid. Given that the hearing was ultimately conducted on the basis that the defendants only sought authority to repay debts owed by SHBB to Lulubelle, I agree with the plaintiffs' position that order 1(a) should be amended to limit repayments by SHBB to debts recorded as being owed to Lulubelle.

Costs

1. Each of the parties' draft short minutes of order contains an order that would require the other to pay their costs of the interlocutory process, where the defendants are as described at [3] above.
2. The principles that are applicable to costs orders to be made in respect of applications for interlocutory injunctions were considered by the Court of Appeal in Petar v Macedonian Orthodox Community Church St Petka Inc (No 2) [2007] NSWCA 142 per Beazley, Giles and Hodgson JJA, where their Honours said: [16] The general rule as to costs is that costs follow the event unless it appears to the court that some other order ought to be made as to the whole or part of the costs: see r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (the UCPR). Rule 42.7 deals with interlocutory applications. It provides that unless the court otherwise orders: "The costs of any application or other step in any proceedings … are to be paid and otherwise dealt with in the same way as the general costs of the proceedings." … [18] An order that the costs be 'costs in the cause' or 'costs in the proceedings' (the terms are interchangeable) means that the costs of the interlocutory proceedings correspond with the final order for costs in the action. Thus if, in the final proceedings, the plaintiff is successful and an order for costs of the final hearing is made in the plaintiff's favour, the plaintiff gets the costs of the interlocutory proceedings as part of the costs of the action against the defendant, regardless of who was successful on the interlocutory application: see J T Stratford Ltd v Lindley [1969] 1 WLR 1547 at 1553 per Lord Denning MR … [27] Applications for interlocutory injunctions are commonplace. If there is nothing to distinguish an application from the typical case that comes before the court, then the underlying jurisprudence relating to the exercise of the discretion may warrant the making of what is referred to in the legal vernacular as the "usual order", whether that be costs in the cause or the plaintiff's costs in the cause. The making of such an order does not displace the exercise of the court's discretion. Rather, it is a shorthand form of giving effect to the principles that govern the court's discretion in circumstances where there are no countervailing or different circumstances to warrant the exercise of the discretion in a different manner.
3. As their Honours observed, each case must depend upon its own facts. In many cases, the justice of the circumstances dictates an adjustment to the application of the usual rule. Even though the Court cannot usually forecast the final outcome of the proceedings, the conduct of a party may justify the outcome that the parties should not receive the costs of the interlocutory application, even if that party is ultimately successful in the proceedings.

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