Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2012] FCA 746 | Case summary

Consideration 31 It is well established that this Court has jurisdiction to grant Freezing Orders in an appropriate case. However, the grant of such orders is an exceptional interlocutory remedy and must be granted only when the circumstances of the case justify such a significant interference in the personal affairs of a citizen. As was said by the New South Wales Court of Appeal in Frigo v Culhaci [1998] NSWCA 88 (BC9803225) at 9-10 in the BC report: Its function is to minimise the possibility of an unscrupulous defendant seeking to render himself or herself "Judgment proof" by taking steps to ensure that no assets within the jurisdiction can be found on the day of judgment: see generally Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 622. However it is a drastic remedy which should not be granted lightly. We agree with the comment in Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 3rd ed s [2188] that: "It is obvious that by obtaining a Mareva injunction even an innocent plaintiff can wreak havoc with the defendant's business, and an unscrupulous plaintiff can ruin his opponent ...." A mareva injunction is an interlocutory order which, if granted, imposes a severe restriction upon a defendant's right to deal with his or her assets. It is granted at the suit of a plaintiff whose status as a creditor is in dispute and who need not be a secured creditor. Its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to "provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant's insolvency." (Abella v Anderson (1987) 12 Qd R 1 at 2-3 per McPherson J) 32 In Frigo, the Court went on to observe that the point of the exercise is not to create additional rights in favour of a putative judgment creditor, but rather to enable a court to protect its process from abuse in relation to the enforcement of its orders. A Mareva injunction is not a species of anticipatory execution nor does it provide a form of security for any judgment which may ultimately be awarded. 33 In New South Wales, the leading case in which the principles upon which this extraordinary remedy will be granted were explained, is Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319. In that case, Gleeson CJ (when he was Chief Justice of New South Wales) at 321-322 said: The remedy is discretionary, but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that, by reason of the defendant's absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied. 34 At 323, the Chief Justice went on to explain what was meant by the element requiring a risk to the assets. In that passage, his Honour referred to a number of cases where different expressions such as "a 'real risk'", "a 'risk demonstrated by solid evidence'" and "a real cause to apprehend" were used to describe the necessary degree of risk. The phrases chosen by the Chief Justice suggest that the risk must be palpable and demonstrated by evidence, not reside, only as a suspicion, in the mind of an overly anxious plaintiff. 35 In Frigo, the Court of Appeal looked at a number of aspects of what had occurred in the District Court of New South Wales when a judge of that Court had granted a Mareva injunction in circumstances which the Court of Appeal ultimately held did not justify the grant of such relief. In Frigo, there was a suggestion that, from the mere fact that a parcel of real property had been put on the market, the Court should infer that the defendant was moving to dispose of his assets in order to render himself judgment proof. In dealing with that point, the Court said the following: A plaintiff must establish, by evidence and not assertion, that there is a real danger that, by reason of the defendant absconding or removing assets out of the jurisdiction or disposing of assets within the jurisdiction, the plaintiff will not be able to have the judgment satisfied if successful in the proceedings. There has been much debate as to the precise degree of risk which must be shown: see generally Patterson. What is clear is that mere assertions that the defendant is likely to put assets beyond the plaintiffs reach will not be enough: Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398; Patterson. The evidence relied upon at the contested hearing fell far short. The admissions in the "without prejudice" correspondence should have been ignored. The sale of an encumbered home unit at a figure above market value does not, standing alone, imply disposal of assets in order to defeat a prospective judgment, even where the purchaser is a close relative. Even if, which is doubtful, the appellant's suspension of work in the building contract could have been regarded as evidence of financial difficulties, it was not argued below that it had such effect. More importantly, that alone is not enough. A mareva injunction is not designed to stop a person from sliding into insolvency. 36 Another element in Frigo which attracted strong criticism from the Court of Appeal was the form of orders which had been sought by the plaintiff and granted by the District Court Judge. The orders did not recognise the long-held view that Mareva orders should be expressed by reference to the amounts claimed in the substantive proceedings and should allow a person affected by them to keep specified amounts in order to meet reasonable expenses, both for living purposes and in order to enable him to defend the proceedings. It is not appropriate, and never has been appropriate, for blanket orders restricting the disposition of assets to be made under these principles. The constraints on the litigant's freedom to deal with his assets imposed by such orders must not exceed those which are reasonably necessary to protect the applicant's legitimate claims. 37 I now turn to the present case. 38 The first matter relied upon by the applicant as evidence of the necessary threat is that the Monash property has been put on the market with an asking price which appears to equate to its market value or a figure slightly above its market value. The second matter relied upon is that the fourth respondent has decamped to Western Australia and sought and obtained permanent employment there. The third matter is that apparently, in 2008, the fourth respondent had received some monies as a beneficiary of a discretionary investment trust with which he had some kind of connection and that he failed in his affidavit, sworn and filed yesterday, to refer to any current or likely future entitlements under that trust. It was said that this failure on the part of the fourth respondent was an indication that he was intending to dissipate his assets or put them beyond the reach of the applicant. 39 It will be readily apparent from the authorities to which I have referred that none of these matters, whether taken individually or together, constitute the necessary threat that would be the starting point for the grant of the extraordinary relief which the applicant seeks. In the absence of other compelling evidence, it is not appropriate for the Court to restrain an arm's length sale of a residential property, jointly owned by a litigant and his wife, at a figure which is at or close to market value in circumstances where nothing about that sale indicates any intention to spirit away the remaining equity in the property. The property is heavily mortgaged in favour of Westpac and the fourth respondent's equity is likely to be around the $50,000 mark. Furthermore, the evidence shows that, far from absconding from the jurisdiction, the fourth respondent has accepted and commenced permanent employment within the jurisdiction (Western Australia). Finally, there was no evidence as to the current position with the discretionary investment trust from which the fourth respondent received a distribution in 2008, some four years ago. The evidence showed that that trust was probably still in existence, but nothing more. 40 As far as the evidence of threat to assets on the part of the second respondent is concerned, there is simply no evidence of any such threat. One cannot manufacture such a threat by asserting that, because the second respondent's lawyers did not reply to or answer unjustified demands made by the lawyers for the applicant, somehow that constitutes the kind of threat that might engage the Mareva principles. 41 For those reasons, it seems to me that the applicant's current Application fails at the outset because the applicant has failed to demonstrate any relevant threat to the assets of either the second or the fourth respondent. 42 There are further difficulties with the Application. The orders which the applicant seeks are inappropriate and would not have been granted, even if the Court had thought that there was some justification for its intervention. As I have already indicated, the proper form of order is for the defendant litigants to be restrained from removing or otherwise disposing of assets so as not to leave available within the jurisdiction assets of a certain specified value but allowing those defendants to keep sufficient funds for their reasonable living expenses and further reasonable expenditure on legal fees in connection with the relevant proceeding. None of this was accommodated in the orders sought by the applicant with the consequence that, for this reason as well, I would have refused the Application. 43 For all of the above reasons, it seems to me that the applicant's Interlocutory Application must fail. I propose to dismiss it. 44 The second and fourth respondents seek their costs of having to meet the applicant's Interlocutory Application. Counsel for the applicant has pressed upon me that there should be no order as to costs because his client behaved reasonably at all times and because the lawyers for the second and fourth respondents were not completely forthcoming in their responses to the correspondence initiated by the lawyers for the applicant and, in particular, had only brought forward information about the second respondent's financial position in the affidavit filed by the fourth respondent yesterday. 45 It seems to me that the true complexion of what occurred is that the applicant made unreasonable and unjustified demands upon the second and fourth respondents which were answered openly, frankly and with a great deal of detail in a short space of time and under significant unnecessary pressure. The substance of the financial position of the fourth respondent was conveyed to the lawyers for the applicant in the letter sent by them on 2 July 2012 which was, after all, the next business day after the initial correspondence from the lawyers for the applicant. What has happened here is that the applicant has elevated its suspicions to a level which caused it to make its Interlocutory Application in circumstances where that Application should never have been made. 46 I will therefore order the applicant to pay the second and fourth respondents' costs of and incidental to the applicant's Interlocutory Application. I also order that, unless the quantum of those costs is promptly agreed, they may be taxed forthwith. 47 There will be orders accordingly. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.

Bayley & Associates Pty Ltd v DBR Australia Pty Ltd

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