This matter came before me as Equity Duty Judge on 4 May 2020 in the following circumstances.
The plaintiff's solicitor sent an email to my Associate at 7.30pm on 3 May 2020 attaching a Summons together with a supporting affidavit of Daniel Donald affirmed on 3 May 2020 (but without Exhibit DD-1 to that affidavit) and written submissions. The email requested that I consider the material in chambers and indicated that Exhibit DD-1 could be provided if requested and a hearing could be facilitated at short notice if required.
The Summons sought an order that it be returnable instanter and heard on an ex parte basis, interlocutory relief in the form of freezing orders against the first and second defendants and orders for short service of the Summons, supporting affidavit and freezing orders on the first and second defendants with the matter to be then relisted before the Duty Judge on an unspecified date.
Under the heading "Final relief", the Summons simply stated:
"8. Damages, compensation, refund or repayment.
9. Interest.
10. Costs.
11. Such other orders as this Honourable Court considers fit."
The plaintiff's solicitor's email stated:
"There is no evidence in the supporting affidavit of imminent dissipation of assets, abscondment or loss of legal rights. There is no identifiable prejudice to the interlocutory relief being determined tomorrow (Monday 4 May 2020)."
I commenced considering the material in chambers on the morning of 4 May 2020, requested a copy of Exhibit DD-1 to Mr Donald's affidavit and then listed the matter for hearing ex parte at 11.15am on 4 May 2020.
At that hearing, I made orders granting leave to the plaintiff to file in Court the Summons and the affidavit of Mr Donald, on the undertaking of the plaintiff's solicitor to pay the applicable filing fees. I made orders that the claims in the Summons for interim relief be returnable instanter and heard on and ex parte basis. Mr Mack of counsel, who appeared for the plaintiff, read the affidavit of Mr Donald and tendered Exhibit DD-1 to that affidavit.
Mr Mack made oral submissions at the hearing in support of the plaintiff's application for interim relief and I made directions at the conclusion of the hearing at approximately 12pm on 4 May 2020 adjourning the plaintiff's application for interim relief for further consideration on the papers following receipt of further written submissions about certain matters raised during the hearing, and any further revised Penal Notices setting out the terms of the freezing orders sought against the first and second defendants that the plaintiff wished to submit for consideration. Mr Mack accepted that I should complete my consideration of the ex parte application on the papers after receipt of those materials.
By email sent to my Associate at approximately 6.35pm on 4 May 2020, the plaintiff's counsel provided supplementary written submissions in support of the application for ex parte interim relief together with a revised form of Penal Notice addressed to each of the first and second defendants.
It is well established that an applicant for a freezing order is required to demonstrate:
1. a prima face case, or good arguable case, against the defendants against whom the freezing order is sought, in the sense that the case is more than barely capable of serious argument, albeit not necessarily one which the court considers to have a better than fifty per cent chance of success: see, for example, Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321 (Gleeson CJ) and 326 (Meagher JA); Samimi v Seyedabadi [2013] NSWCA 279 at [69] per McColl JA, citing Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG 'The Niedersachsen' [1983] 1 WLR 1412; [1984] 1 All ER 398 at 404 per Mustill J; and
2. a danger that any judgment obtained by the plaintiff against the defendant will be wholly or partly unsatisfied because the defendant's assets might be disposed of, dealt with or diminished in value. This danger must be established by evidence, rather than being merely asserted. The evidence may take a number of forms, including direct evidence that the defendant has previously acted in a way which shows that its probity is not to be relied on. However, it is not necessary for a plaintiff to show that the defendant has a positive intention of evading a judgment. It is sufficient if the defendant's conduct or proposed conduct is, objectively speaking, calculated to have the effect of frustrating the enforcement of any judgment that the plaintiff may obtain: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 25.11; Samimi v Seyedabadi [2013] NSWCA 279 at [72]-[74] per McColl JA, citing Frigo v Culhaci [1998] NSWCA 88 at pages 6 and 8 per Mason P, Sheller JA, Sheppard AJA and Finn v Carelli [2007] NSWSC 261 at [4] per Brereton J (as his Honour then was).
Assuming that these matters are established, discretionary considerations must also be taken into account, including whether the plaintiff has proceeded diligently and expeditiously in applying for the freezing order: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 at [53] per Gaudron, McHugh, Gummow and Callinan JJ; see also Samimi v Seyedabadi [2013] NSWCA 279 at [75] per McColl JA.
As the Court of Appeal said in Frigo v Culhaci [1998] NSWCA 88 at page 6 per Mason P, Sheller JA, Sheppard AJA, in a passage subsequently approved in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 at [51] per Gaudron, McHugh, Gummow and Callinan JJ, a freezing order:
"… is a drastic remedy which should not be granted lightly ... if granted, [it] imposes a severe restriction upon a defendant's right to deal with his or her assets. It is granted at the suit of a plaintiff whose status as a creditor is in dispute … Its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied…"
In this matter, it was necessary to hear the plaintiff's ex parte interim application for freezing orders in the staged manner that I have described above because the Summons was not accompanied by any pleading of the good arguable case that the plaintiff relied upon in support of the application. Nor was the nature of the cause of action relied on by the plaintiff articulated in the written submissions sent to my Associate on 3 May 2020. Rather, Exhibit DD-1 to Mr Donald's affidavit (which was tendered as Exhibit 1 on the hearing of the ex parte application on 4 May 2020) set out correspondence between the parties giving rise to the Summons. Mr Donald, a product specialist employed by the plaintiff, deposed in paragraph 66 of his affidavit that:
"I understand that the Plaintiff may have arguable claims for:
breach of contract against [the first defendant] and/or [the second defendant];
money had and received against [the first defendant] and/or [the second defendant];
inducing breach of contract against [the first defendant], [the second defendant] and/or [the third defendant]; and
contraventions of the Australian Consumer Law, in particular s 21, against [the first defendant], [the second defendant] and/or [the third defendant]. This may involve principal and accessorial liability."
In effect, the plaintiff sought to have the Court interrogate the correspondence and other documents in Exhibit 1 to determine whether the plaintiff has any of the good arguable claims that its product specialist understands it may have, unaided by a pleading of those claims or any written submissions directed to the causes of action. This is an entirely unsatisfactory way for an applicant for a freezing order to proceed. Ordinarily, the failure by a plaintiff to present the good arguable case relied on in the form of a verified pleading is likely to cast serious doubt on whether the plaintiff in fact has a good arguable case.
The plaintiff's supplementary written submissions annexed "a draft version in pleading form" of the plaintiffs' claims in contract against the first and second defendants. The plaintiff submitted that the strength of its prima facie case in contract alone is sufficient to justify the freezing order. It was also submitted that the plaintiff was "likely" to bring a claim for damages under s 236 of the Australian Consumer Law (the ACL) in respect of alleged breach of s 18 of the ACL. The plaintiff's supplementary submissions did not address the other kinds of claim referred to in paragraph [66] of Mr Donald's affidavit, save for the statement that: "Time has prevented a full elucidation of other claims".
In circumstances where it is clear from its supplementary written submissions that the plaintiff has not yet determined whether to make a claim for damages for breach of s 18 of the ACL, and has not directed submissions to claims for inducement of breach of contract or money had and received, consideration in these reasons of whether the plaintiff has demonstrated a good arguable case is limited to the claim in contract set out in the annexure to the plaintiff's supplementary written submissions.
For the reasons set out below, I have decided to grant the freezing orders set out in the amended penal notices accompanying the plaintiff's supplementary submissions for a short period after which the matter will be re-listed and the first and second defendants will have an opportunity to be heard. The plaintiff gives the usual undertaking as to damages, as recorded in prayer 2 of the Summons and in Annexure A to each of the penal notices.
I have considered Mr Donald's affidavit and Exhibit 1, which includes evidence to the following effect:
1. by email to the first defendant dated 2 April 2020 and subsequent purchase order no. PO05217, the plaintiff placed an order for 10,000 units of 500ml alcohol hand solution at a price of $112,000 excluding GST, or $123,200 including GST, to be supplied by "Safest Hands" (the First Order). An earlier version of the invoice issued by "Safest Hands" as a quote had mistakenly calculated the GST inclusive price as $128,200;
2. the ABN stated on the invoice issued under the name Safest Hands on 2 April 2020 in respect of the First Order is the ABN for the Trustee for Tuantab Business Trust, a discretionary investment trust. Tuantab is the surname of the first defendant;
3. two days prior to the placement of the First Order, the first defendant had told the plaintiff that the product could be supplied within 72 hours;
4. the invoice issued under the name Safest Hands on 2 April 2020 in respect of the First Order stated that 50% of the purchase price was payable on order and 50% was payable on dispatch;
5. at approximately 8.00am on 3 April 2020, the plaintiff transferred the sum of $64,100 to the account number nominated on the invoices issued in the name of Safest Hands, referred to above. That is an account number ending in #909. An earlier invoice issued in the name of Safest Hands for an order that did not proceed had nominated an account in the name of the first defendant, being an account number ending in #004;
6. the second defendant, Safest Hands Pty Ltd, was registered on 3 April 2020 with a share capital of two ordinary shares, one of which was issued to a George Tsalikidis and the other of which was issued to Victorian Sports Podiatry Pty Ltd. The first defendant is the sole director and shareholder of Victorian Sports Podiatry Pty Ltd. The directors of the second defendant are George Tsalikidis and the first defendant. The first defendant is also the secretary of the second defendant;
7. in an email dated 6 April 2020, the first defendant made certain statements about "the organisation" and "the company", and it is open to infer that the entity being referred to in that email is "Safest Hands". The email stated that "the company" was a "direct subsidiary and partner" of "Global Brands", and described "Global Brands" as "a huge international company". The email also stated:
"In regard to production, we can produce a few hundred thousand litres of alcohol hand solution (medical grade) every 72 hours …"
1. the ASIC extract for the second defendant does not disclose that it is a subsidiary of an entity by the name of Global Brands;
2. by purchase order no. PO05243 emailed to the first defendant at about 3.30pm on 7 April 2020, the plaintiff ordered a further 53,840 units of 500ml hand sanitiser (the Second Order);
3. at about 5.38pm on 7 April 2020, the first defendant emailed to the plaintiff an invoice for this order in the name of "Safest Hands" in the amount of $663,308.80 (including GST). The email stated that the order would be ready "at the latest Thursday", and the plaintiff says that it should be inferred from the context that this meant the Thursday of the following week, 16 April 2020. I accept that this inference is open, when this email is read in the context of other communications in the days before and after this email. The email requested Mr Donald of the plaintiff to advise "when you have a remittance of payment of the 50% as well";
4. the invoice in respect of the Second Order bore the same ABN as the invoice in respect of the Second Order (that is, the ABN for the Tuantab Business Trust). However, the invoice in respect of the Second Order also bore the ACN for the second defendant, Safest Hands Pty Ltd;
5. the invoice in respect of the Second Order stated that 50% payment was required on order, with the balance payable on dispatch. At approximately 12.34pm on 8 April 2020, the plaintiff paid the sum of $331,654.60 to the bank account number specified on the invoice;
6. on 8 April 2020, the first defendant informed the plaintiff that the "turn around time" for the next two weeks would be 7 days;
7. after 8 April 2020, various statements were made to the plaintiff by the first defendant and persons representing (or purporting to represent) Safest Hands and/or Global Brands to the effect that there had been various delays but the supply of the products ordered would be made by 16 April 2020;
8. on 15 April 2020, the first defendant emailed the plaintiff at approximately 10.58am stating:
"Just to confirm, I've been pushed that we need cleared funds for the dispatch tomorrow if you can send through."
1. later on 15 April 2020, the plaintiff paid the following sums into the bank account nominated on the invoices issued in the name of "Safest Hands" in respect of the First Order and the Second Order:
1. $59,100.00, being the balance owing for the First Order after the payment made on 3 April 2020; and
2. $331,654.40, being the balance owing for the Second Order after the payment made on 8 April 2020;
1. the products have not been delivered to the plaintiff, despite further requests made by the plaintiff for delivery; and
2. nor have the payments made by the plaintiff been refunded, despite demands made by the plaintiff for repayment and statements made by the first defendant and persons representing (or purporting to represent) Safest Hands to the effect that the plaintiff's money would be repaid.
In my opinion, the evidence that I have summarised above discloses a good arguable claim by the plaintiff that:
1. it entered into a contract with the first and/or second defendant on about 2 April 2020 for the supply by the first and/or second defendant of 10,000 units of 500ml hand sanitiser, which included a term requiring delivery within 72 hours after placement of the order which was later varied to require delivery by 16 April 2020;
2. it entered into a further contract with the first defendant/or second defendant on or about 8 April 2020 for the supply by the first and/or second defendant of a further 53,840 units of 500ml hand sanitiser, which included a term requiring delivery by no later than 16 April 2020;
3. the plaintiff paid the first defendant and/or the second defendant a total amount of $786,508.80 under the two contracts;
4. the first and/or second defendants have breached and/or repudiated the contracts by failing to deliver the products by 16 April 2020; and
5. the plaintiff has suffered loss or damage equivalent to at least the amount of $786,508.80 paid under the contracts.
That is not to say that I formed a view that the plaintiff's claim in contract would succeed, or would be likely to succeed, at trial against the first defendant and/or the second defendant. As the plaintiff's submissions properly acknowledge, there are potential defences to those claims that the first and second defendants may rely on, including defences as to the identity of the contracting supplier under both contracts, a defence to the effect that the date of delivery was not an essential term of the contracts and that there has therefore been no repudiation of the contracts, which remain on foot.
Nevertheless, I am satisfied that, on this ex parte application, the plaintiff has established a good arguable claim sufficient to warrant the making of freezing orders on an interim basis for a very short period pending an inter partes hearing. The question will need to be revisited on the first return date of the Summons, when it will fall to the plaintiff at that inter partes hearing to justify the continuation of the freezing order (unless the defendants consent to its continuation) and any evidence adduced and submissions made on behalf of the defendants will need to be considered.
Another very important factor for the court to consider will be whether or not the plaintiff has, by the time of the inter partes hearing, formulated its claims in contract and/or any other claims in a verified Statement of Claim. In circumstances where the plaintiff is invoking the Court's process to seek the drastic remedy of a freezing order on an urgent basis, it is incumbent on the plaintiff to act with urgency to comply with the Court's process requiring claims to be properly pleaded. A defendant resisting an application for a freezing order without having the benefit of a properly pleaded claim against it is placed in a very difficult position.
In relation to the danger that any judgment obtained by the plaintiff against the first and/or second defendants will be wholly or partly unsatisfied, the plaintiff's submissions referred to evidence suggesting that neither the first defendant nor the second defendant have any assets with any material unencumbered value, other than the payments made by the plaintiff (to the extent that those payments remain in bank accounts of the first or second defendant). The plaintiff submitted that there was therefore a risk that the funds totalling $786,508.80 recently transferred by the plaintiff would be dissipated with the result that, without a freezing order, there would be "nothing worth litigating over".
I was initially troubled that this submission appeared to suggest that the freezing order should be granted merely in order to provide the plaintiff with a form of security for any judgment that it may obtain against the first and/or second defendants, contrary to the authorities referred to above. However, I note that the form of freezing order sought by the plaintiff does not prohibit the first or second defendant from dealing with or disposing of assets in the ordinary and proper course of business.
What, then, is the risk of frustration or inhibition of the court's processes of execution of any judgment in favour of the plaintiff that justifies a freezing order in the circumstances of this case? In my opinion, the evidence adduced by the plaintiff on this ex parte application calls into question the probity of the first and second defendants, to adopt the language of Mustill J in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG 'The Niedersachsen' [1984] 1 All ER 398 at 406, cited by McColl JA in Samimi v Seyedabadi [2013] NSWCA 279 at [73], and this points to a sufficient risk to warrant the granting of an ex parte freezing order for a short time pending an inter partes hearing. I refer to the evidence of the statements made by the first defendant (a director and secretary of the second defendant) to the plaintiff in the email of 6 April 2020 referred to above to the effect that the second defendant was a "direct subsidiary" of a "huge international company" named "Global Brands". It appears from the contents of that email as a whole that those statements were made as part of an endeavour by the first defendant to elicit further orders, and payments, from the plaintiff. As referred to above, the ASIC extract for the second defendant included in Exhibit 1 shows that the second defendant is not a subsidiary of any entity named "Global Brands". Rather, the second defendant is a two dollar company owned by the first defendant's two dollar company Victorian Sports Podiatry Pty Limited and one other individual.
I accept, of course, that at the inter partes hearing at which the plaintiff will bear the onus of satisfying the Court that the freezing orders should continue, the defendants may adduce evidence explaining the statements in the email of 6 April 2020 and/or other evidence relevant to the question whether there is a risk of frustration of the courts processes in this case. That evidence may alter the assessment above.
In relation to discretionary considerations, I do not consider that there has been any delay by the plaintiff in approaching the Court that would warrant refusal of interim ex parte freezing orders for a short period pending an inter partes hearing.
As I have noted above the plaintiff gives the usual undertaking as to damages in respect of the freezing orders sought against both the first and second defendants.
The terms of the freezing orders sought in the proposed penal notices addressed to the first and second defendants (being the revised versions accompanying the plaintiffs' supplementary written submissions):
1. prohibit them from removing from Australia, disposing of or otherwise dealing with funds held in the two bank accounts referred to in the invoices issued to the Plaintiff (being the account numbers ending in #004 and #909 referred to above) up to the amount of $786,508.80;
2. alternatively, in the event that those funds have been distributed to them, prohibit them from removing from Australia, disposing of or otherwise dealing with their assets up to the value of $786,508.80 (with assets being defined in each case as including certain assets of each defendant identified in Mr Donald's affidavit and Exhibit 1);
3. otherwise reflect the substance of the example form of order annexed to Practice Note SC Gen 14, including that the orders do not prohibit the payment of a specified weekly sum for ordinary living expenses ($500, in the case of the first defendant), a specified sum in respect of legal expenses ($20,000 in the case of each defendant) and dealing with or disposing of assets in the ordinary and proper course of business, including paying business expenses bona fide and properly incurred.
Paragraph 10(a) of the terms of the proposed order in the penal notice addressed to the second defendant will be deleted, as it is inconsistent with paragraph 10(c).
The time for service of the plaintiff's application, the supporting affidavits and originating process in order 1(b) of each of the penal notices will be completed as 5pm on 6 May 2020. The return day will be completed as 2pm on 8 May 2020.
Prayer 3 of the Summons sought an order for substituted service of the Summons and other materials on the first and second defendants by email. However, there was no evidence that personal service was not practicable (see UCPR, r 10.14) and the order made will therefore simply abridge the time for service to 5pm on 6 May 2020 without derogating from the requirement for personal service under UCPR r 10.20.
The materials required to be served will also include Mr Donald's affidavit, Exhibit 1, the plaintiff's written submissions and supplementary written submissions, the transcript of the hearing on 4 May 2020, the orders made on 4 May 2020, these reasons for judgment and the orders made in accordance with these reasons.
[2]
Orders
1. Upon the plaintiff giving the usual undertaking as to damages, make orders in terms of the penal notice addressed to the first defendant, dated 5 May 2020 and annexed as Schedule "A" to these orders.
2. Upon the plaintiff giving the usual undertaking as to damages make orders in terms of the penal notice addressed to the second defendant, dated 5 May 2020 and annexed as Schedule "B" to these orders.
3. Order that the time for service of the Summons, the supporting affidavit of Daniel Donald affirmed on 3 May 2020 and Exhibit DD-1 to that affidavit, together with a copy of these orders, be abridged to 5pm on 6 May 2020.
4. Order that the plaintiff also serve on the first, second and third defendants by 5pm on 6 May 2020:
1. a copy of the orders of the Court made on 4 May 2020;
2. a copy of the plaintiff's written submissions dated 3 May 2020 and supplementary written submissions dated 4 May 2020;
3. a copy of the transcript of the hearing on 4 May 2020;
4. a copy of the reasons for judgment of Williams J dated 5 May 2020; and
5. a copy of any Amended Summons or Statement of Claim that the plaintiff intends to rely on at the further hearing referred to in order 5 below.
1. Adjourn the Summons to 8 May 2020 at 2pm before the Equity Duty Judge for further hearing of the plaintiff's application for freezing orders in terms of the penal notices referred to in orders 1 and 2 above.
2. Grant liberty to apply on one day's notice by email to the Associate to the Equity Duty Judge.
3. The costs of the plaintiff's application for interlocutory relief are reserved.
4. Direct that these orders be entered forthwith.
[3]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 06 May 2020
Parties
Applicant/Plaintiff:
Axis Medical & Rehabilitation Pty Ltd as trustee for Axis Trust trading as Astir Australia