BGC AUSTRALIA PTY LTD -v- MINSPEC PTY LTD [2015] WASC 134 (17 April 2015)

Without limiting the generality of subrule (1), an ancillary order may be made for either or both of the following purposes:

(a) eliciting information relating to assets relevant to the freezing order or prospective freezing order;

(b) determining whether the freezing order should be made.

3 The plaintiff operates a quarry situated in the Darling Ranges east of Perth. The plaintiff claims that, in 2009 and 2010, it engaged the first defendant to design, manufacture and supply five screens for installation in a plant to be used for crushing stone at the quarry in order to produce aggregate. In very broad terms, the plaintiff claims the screens failed to operate properly and had to be repaired and, ultimately, replaced, causing the plaintiff to incur expenses and lose profits.

4 The plaintiff has instituted these proceedings seeking damages for breach of contract and by reason of the making of statements in connection with the contract which are said to have been misleading and deceptive for the purposes of s 52 of the Trade Practices Act 1974 (Cth) (which remained in force at the time the statements were made). The second and third defendants are the directors and shareholders of the first defendant. The plaintiff claims that they made misleading statements which caused the plaintiff to acquire the screens from the first defendant, and seeks damages based on a contravention of s 10 of the Fair Trading Act 1987 (WA).

5 A submission was made for counsel for the third defendant and Mrs Brown to the effect that the pleading did not actually allege any representation made by the third defendant. I do not accept that submission. Paragraphs 10 and 11 of the consolidated statement of claim assert that representations were made by the second and third defendants, each in the presence of the other. That fact is denied in par 6 of the consolidated defence, which pleads at par 6.2 that (only) the second defendant showed Mr Churcher, a representative of the plaintiff, drawings of the screens and the double screen covers prepared for Downer EDI. What is said in par 6.2 is admitted in the reply, but that admission does not involve any derogation from the plaintiff's principal plea in pars 10 and 11 of the consolidated statement of claim.

6 The plaintiff is not seeking freezing orders now. Rather, the plaintiff seeks to obtain information about assets that may be subject to a prospective freezing order. The contemplated freezing order would deal with the judgments that the plaintiff seeks in these proceedings.

7 The plaintiff also seeks orders against Mrs Brown, to whom it is said that the relevant assets have been transferred. Orders were originally sought against the wife of the second defendant. Unfortunately, she passed away after the chamber summons was issued. The plaintiff does not seek to pursue relief against her personal representatives.

8 The quantum of the plaintiff's claim against the defendants is approximately $3.6 million plus lost profits.

9 The plaintiff has adduced evidence in the form of the affidavit of Mr Hollingsworth, the general manager of a division of the plaintiff. Attachments to that affidavit indicate that:

1. in June 2013, the first defendant paid dividends of about $1.6 million, a significant proportion of its assets, to the second and third defendants and a company controlled by the second defendant and his wife;
2. the second and third defendants have disposed of the amount paid to them in dividends;
3. the third defendant has disposed of his interest in a residential property at Carmel by selling it to his wife at or near market value and investing the proceeds in redeemable preference shares of JTB (Perth) Pty Ltd, a newly incorporated company controlled by his wife; and
4. a number of corporate and trust entities have been established under the control of the second and third defendants and their wives for reasons which have not been satisfactorily explained.

10 I am satisfied that the transactions to which the affidavit of Mr Hollingsworth refers give rise to a sufficient concern to justify an ancillary order, which may provide the plaintiff with evidence to support a future application for a freezing order.

11 As a freezing order is not contemplated at this stage, I do not need to determine whether the criteria for making a freezing order are satisfied. It is sufficient that there is a proper basis for apprehending that there might be grounds for making such an application in the future.

12 I am also satisfied that the prospect of a potential claim under s 89 of the Property Law Act 1969 (WA) in respect of property held by Mrs Brown is sufficient to justify requiring her to swear an affidavit. I am also satisfied that, despite the plaintiff's requests of the parties against whom the order is sought, those parties have not adequately demonstrated a willingness to provide the relevant information voluntarily. To the extent that the information has been provided, it is appropriate to require it to be verified by affidavit.

13 There remain two outstanding issues concerning the orders which should be made.

14 The first issue concerns the orders sought in the plaintiff's chamber summons filed on 9 December 2014 at par 2(e) (in relation to the third defendant) and pars 3(b) and (c) (in relation to Mrs Brown). The plaintiff seeks orders requiring the third defendant and Mrs Brown to prepare and provide to it financial statements of the companies identified in those paragraphs. Mrs Brown has deposed that there are no existing financial statements of either of those two companies. However, the plaintiff points out that those companies were established at approximately the same time as the property transaction involving the Carmel land, and it appears that the third defendant has subscribed $256,000 to JTB (Perth) Pty Ltd. There is no indication of where those funds have been distributed.

15 In those circumstances, it does seem to me to be appropriate to require the third defendant or Mrs Brown to take steps to have financial statements prepared for that company and verified by affidavit. Therefore, I would be prepared to make orders in terms of paragraphs 2(e) and 3(b) and (c) in the terms sought by the plaintiff, subject to a modification to make it clear that the orders require financial statements to be prepared where they do not currently exist.

16 Financial statements are also sought in relation to a company formerly known as Oreflow Australia Pty Ltd, but called Wolf Ero Company Pty Ltd until its deregistration in December 2014, and an associated trust. Mrs Brown and Mrs King were the original directors of the company, and Mr Brown and a company controlled by Mr King were shareholders. Notwithstanding the deregistration of the company, it does seem to me appropriate to order that the financial statements be prepared by the third defendant and Mrs Brown on being satisfied that they have information in their possession which would enable those statements to be prepared. Therefore, I would make orders in the terms sought by the plaintiff in paragraphs 2(f) and (g) and 3(d) and (e).

17 In relation to the company which now bears the name Oreflow Australia Pty Ltd, there is no evidence that either the third defendant or Mrs Brown have any current control of or involvement in that company. Nor is there evidence that they have had such control or involvement in the past. In those circumstances, I do not consider it appropriate to make an order in terms of paragraphs 2(h) or 3(f).

18 An issue was also raised as to the availability of the affidavits to be sworn by the second and third defendants and Mrs Brown. It became clear during the course of argument that the concern of the second and third defendants and Mrs Brown was simply that the affidavits on the court file not be available for inspection. To that end, those parties sought an order restraining the plaintiff from using any information obtained as a result of my orders for the purpose of any civil or criminal proceeding other than the present proceedings. I would make an order in those terms, which reflects the implied undertaking that would apply in any event.

19 I will also order that the affidavits on the court file sworn pursuant to these orders not be available for inspection by any person other than the plaintiff and its solicitors without leave of the court.

20 I will order that the second and third defendants pay the plaintiff's costs of the application in any event. There are two factors which lead me to that conclusion.

21 The first is that the plaintiff has been largely successful in its application, relief being refused in respect of only one of the entities about which it sought information.

22 The second factor concerns the orders made by Edelman J on 14 January 2015. Those orders required that the defendants file and serve a notice of objections and affidavits by 30 January 2015, and file and serve submissions by 27 February 2015. Those orders of the court seem simply to have been ignored, without any real explanation offered.

23 If the defendants, for some reason, were not able to comply with those orders, then it would have been appropriate for them to liaise with the other parties to seek a variation of the orders by consent and, in any event, to inform the court of what had happened and seek a variation of those orders. What it was clearly not appropriate for the second and third defendants to have done was simply to ignore the orders and then, in the two days prior to this matter being listed for hearing, put in submissions and, in the case of the third defendant, affidavits. It may well have been that the scope of this hearing and the amount of work involved for the plaintiff in preparing for it would have been significantly reduced had the defendants complied with the orders.