Badman v Drake [2008] NSWSC 968 | Case summary

3733/08 Dorothy Badman v Lawrence Drake JUDGMENT (ex tempore) 1 HIS HONOUR: The plaintiff Dorothy Badman claims to be beneficially entitled to the property comprised in Folio Identifier 27X/XXX6729 situate at and known as 9 Nunkere Crescent, Rouse Hill in the State of New South Wales, pursuant to a resulting trust or a constructive trust said to arise from her having provided the whole of the purchase price of the property which is in the name of the defendants Lawrence Drake and Judith Drake. The Drakes contend that Mrs Badman provided the purchase price in effect as a gift. 2 Mrs Badman commenced these proceedings, by Summons filed on 15 July 2008, for an extension of a caveat in respect of which a lapsing notice has been served. The Chief Judge in Equity declined to make an order extending her caveat, his Honour then not being satisfied that the provision of the purchase price and related expenses, amounting to some $378,000 in all, was not a gift. However, on 15 August 2008, Palmer J by consent made an order that the Drakes be restrained from selling, mortgaging, or otherwise dealing with or disposing of the subject property; expedited the hearing of the proceedings; and fixed them for hearing on 3 November 2008 for three days. 3 Subsequently, on or about 15 August, it was discovered that the Drakes had, on 23 July 2008, entered into a sale and mortgage transaction with Homesafe Solutions Pty Ltd, pursuant to which they received a sum of $167,000 and are permitted to remain in the property for the remainder of their lives, on various terms and conditions. The sale will be completed upon their demise; in the meantime, their proprietary interest in the property progressively erodes, as that of Homesafe increases. They have already disbursed some $100,000 of the proceeds, and the balance of about $63,000 is now in their solicitor's trust account. So far as the evidence presently discloses, in addition to moneys transferred to their solicitor's trust account, they have expended the funds on the purchase of a motor vehicle, a caravan, landscaping the property, and gifts to their sons. 4 Mrs Badman, having learnt of the Homesafe transaction, now proposes to join the Drakes' solicitor and Homesafe as additional defendants, and at least as against the solicitor to allege that he is liable pursuant to the principle in Barnes v Addy (1874) LR 9 Ch App 244 for knowing assistance of a breach of trust. By Notice of Motion filed on 19 August 2008 Mrs Badman seeks orders restraining the Drakes from dealing with the proceeds of the Homesafe transaction. The Drakes have offered to submit to orders restraining them from dealing with or diminishing the value of their assets, except for the purpose of paying ordinary living expenses and reasonable legal expenses, and without limiting the foregoing not to complete the sale of the property to Homesafe; and also to file and serve an affidavit setting out the steps they have taken in connection with the Homesafe transaction and accounting for the whole of its proceeds. At issue is whether the Drakes should be required to pay into Court the balance of $63,703 now standing to their credit in their solicitors trust account. 5 It is not seriously in doubt - and indeed the contrary was not seriously submitted - that Mrs Badman has a seriously arguable case for final relief, although the strength of that case was very much disputed. On an application of this kind, faced with the evidence presently before the Court, it is not possible to do more than conclude that while there is a seriously arguable case, there are also seriously arguable matters of defence, and, in particular, a number of matters - to which reference has been made in the course of the hearing - about which Mrs Badman will no doubt be cross-examined and which provide reasonable grounds for disputing her claims. None of that denies that she has a seriously arguable case for final relief, but at this stage it is far from clear cut. Thus, the balance of convenience will be determinative. 6 In this respect, it is important to bear in mind that what is sought is not a Mareva injunction, but an injunction to preserve a specific fund which is the subject matter of the proceedings. If an injunction is wrongly declined, the subject matter of the proceedings will be diminished. In those circumstances, the principles applicable to a Mareva injunction, which dictate that an exception will always be made to permit expenditure on reasonable living expenses and legal costs, do not apply. In A v C (No 1) [1981] 1 QB 956, Robert Goff J, as his Lordship then was, first drew the distinction between a Mareva injunction and a conventional interlocutory injunction in aid of a proprietary claim to a fund, holding that the plaintiffs were entitled to an injunction to restrain the defendants from disposing of the trust fund or what remained of it, quite apart from the Mareva jurisdiction [see also PCW (Underwriting Agencies) Ltd v Dixon [1983] 2 All ER 158, 163h]. The basis of this distinction is that otherwise the trust fund might be dissipated before the action comes on for trial, and equity would have been invoked in vain. In PCW Ltd v Dixon, Lloyd J (at 164g) distinguished A v C on the basis that, whereas in that case the claim related to a specific identifiable bank account, in the case before him the claim was to the whole of the defendant's assets (to which a constructive trust was alleged to attach). On the distinction between a claim for a Mareva injunction and an injunction in aid of a proprietary claim, see also Australian Receivables Ltd v Tekitu Pty Ltd [2008] NSWSC 433, [28]; and McCleary v Bullabidgee Pty Ltd [2008] NSWSC 534, [5]. The latter of those cases, however, also illustrates that notwithstanding that what is involved is a proprietary claim, ultimately there is a discretion as to the extent of any interlocutory injunctive relief that will be granted. 7 The present case is closer to A v C than to PCW Ltd v Dixon, in that what is in issue is a specific identifiable fund; but that specific identifiable fund appears to correspond with most of the Drakes' realisable assets. The result is that while the Court is not bound to make an exception for living and legal expenses, as it would be if the claim were for a Mareva injunction, as a matter of discretion it may nonetheless do so. 8 There is little doubt that an injunction if granted will have a serious impact on the ability of the Drakes to defend the proceedings, in circumstances where, just as Mrs Badman has a seriously arguable claim, I have concluded that the Drakes have a seriously arguable defence. To shut out a litigant from the means of defending proceedings is a very serious step, particularly when it cannot be said that their case is a manifestly weak one. 9 Against that, had the Drakes left in place the status quo which applied when proceedings were commenced on 11 July 2008, they would then have been in no better position than they would be, if the relief now sought by Mrs Badman were granted. The circumstance that after proceedings were commenced - and indeed, it would seem after the Chief Judge declined to extend the caveat - the Drakes embarked on the Homesafe transaction and not only raised but dissipated a significant portion of the funds it realised, cannot be regarded with favour, and tells significantly against them as a matter of discretion. The current position, in that sense, is one that has been artificially created by their action after they were on notice of the proceedings. 10 The significance of that factor, however, is mitigated to some extent by the circumstance that it seems probable that the Drakes had some pre-existing equity in the property. As the evidence so far discloses, the Drakes occupied the subject property under some arrangement (perhaps akin to a life estate) with its previous owner, from whom it was ultimately purchased in their name with Mrs Badman's funds, apparently at significantly less than market value, in that all that was required to be paid was the amount owing to a third party mortgagee - the difference, which may have been in the order of $150,000, representing the pre-existing interest of the Drakes. The amount that they have raised by the Homesafe transaction is not much different from the amount that, prima facie, their equity might have been worth. 11 Thus, these are factors on the balance of convenience that point in both directions. Ultimately, I must ask what would be the prejudice to Mrs Badman if an injunction is wrongly declined, and what would be the prejudice to the Drakes if an injunction is wrongly granted. If an injunction is wrongly declined, part of the subject matter of the proceedings may be lost. The significance of that is diminished, at least to some extent, by the circumstance that the amount in jeopardy appears (at this early stage) not to exceed by very much the equity that the Drakes probably already had in the property. It is also diminished by the circumstance that the Drakes have some other assets, apparently acquired with the proceeds of the Homesafe transaction, to which the injunctions they offer to submit to will attach, and provide some small measure of additional recourse for Mrs Badman. 12 If an injunction is wrongly granted, however, the Drakes will be practically prevented from defending proceedings in which I have found they have at least a seriously arguable case. That, it seems to me, would be a serious injustice indeed, as it seemed to Lloyd J in PCW v Dixon. The suggestion that they should be able to obtain Legal Aid does not, as I understand the current Legal Aid environment, realistically answer the problem, especially where the property is an asset apparently in their name. 13 On balance, I think that despite the disfavour with which I view the way in which the Homesafe transaction proceeded after proceedings were commenced, the prejudice to the Drakes from wrongly granting an injunction is greater than the prejudice to Mrs Badman from wrongly declining one. 14 Accordingly, on balance of convenience considerations, I will decline to grant the additional relief for which Mrs Badman presses, and I will grant the relief to which the Drakes offered to submit. 15 I grant leave to the plaintiff to amend her Notice of Motion by filing in Court the form of Amended Notice of Motion initialled by me, dated this day and placed with the papers. Upon the plaintiff by her counsel giving to the Court the usual undertaking as to damages, I make orders 2 and 3 in the document entitled Short Minutes initialled by me, dated this day and placed with the papers. I stand over the balance of the Motion, being paragraphs 5 and 6, to the Expedition List on Friday 29 August 2008. I grant leave to the defendants to issue a subpoena to Dr Ann Lowe, returnable on 29 August 2008 at 10:00am before the Expedition Judge. I abridge time for service of such subpoena to Monday 25 August at 5:00pm. 16 The defendants have succeeded on that part of the motion that was in dispute, but only on the balance of convenience, and only on a fairly fine balance of convenience and prejudice. The application was provoked by a transaction entered into by them after the institution of proceedings, and not disclosed even when interlocutory relief was agreed on 15 August. Costs of the application today should be the defendants' costs in the cause. 17 The exhibits may be returned. **********

Badman v Drake

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