BWK Elders (Australia) Pty Ltd (ACN 000 320 794) v Westgate Wool Company Pty Ltd

REASONS FOR DECISION 1 On 10 August 2001, I ruled upon the application by the applicant for a Mareva injunction against each of the respondents. I made such an order in relation to the first respondent, but declined to do so in respect of the second, third and fourth respondents. These are my brief reasons for that decision. 2 The proceedings were commenced on 11 July 2001. In broad terms, the applicant alleges that the first respondent engaged in conduct in contravention of s 52 and of other sections of the Trade Practices Act 1974 (Cth) (the TPA) by providing wool to the applicant which was different from and inferior to that which it had agreed to provide to the applicant. The allegations made are quite serious, as the applicant's claim includes that the first respondent has falsely labelled wool bales to represent a quality and source which is different from that which the applicant had contracted to buy. The second, third and fourth respondents are each working directors of the first respondent and are alleged to have been knowingly involved in that conduct. I made an order in the nature of an Anton Piller order on 12 July 2001 to enable the applicant to inspect the first respondent's premises and to take possession of wool bales and certain other items found at those premises. On 6 August 2001, I gave reasons for refusing to discharge that order. 3 The initial application sought, as part of the interlocutory relief claimed, ex parte a Mareva order against each of the respondents. When the application was first before me, that part of the claim for interlocutory relief was not really pursued. The application for that interlocutory relief was pursued, on an inter partes basis, on 10 August 2001. 4 There is no real dispute about the principles to be applied in considering the application. The Court has power to grant a Mareva injunction in appropriate cases: s 23, Federal Court of Australia Act 1976 (Cth); Jackson v Sterling Industries Ltd (1987) 162 CLR 612. As a general rule, the court will not grant a Mareva injunction unless the applicant establishes that it has a prima facie cause of action against the respondent against whom the order is sought, and that there is a danger that that respondent might abscond or might remove assets out of the jurisdiction or dispose or otherwise deal with them within the jurisdiction so that the efficacy of the execution of a judgment in favour of the applicant if it succeeds in its claim is lost: see e.g. CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 at 391. 5 I respectfully follow the views of Gleeson CJ (as Chief Justice of the Supreme Court of New South Wales) in Patterson v BTR Engineering (Aust.) Ltd (1989) 18 NSWLR 319 at 312 - 326 that the nature of the conduct of a respondent which might be relevant to the existence of a prima facie case might also bear upon the second of those two criteria. His Honour said at 325: "I consider that Giles J [the judge at first instance] was correct in taking the view that the evidence as to the nature of the scheme in which the appellant was allegedly involved, which established a prima facie case against him, was such as to justify the conclusion that there was a danger that the appellant would dispose of assets in order to defeat any judgment that might be obtained against him and that such danger was sufficiently substantial to warrant the injunction. There is no reason in principle why the evidence which is relevant to the first of the issues earlier referred to might not also have a bearing on the second, and this will especially be so where the prima facie case that is made out against a defendant is one of serious dishonesty involving diversion of money from its proper channels." 6 The respondents referred to the view expressed by Gaudron, McHugh, Gummow and Callinan JJ in Cardile v LED Builders Ltd (1999) 198 CLR 380 at 403 that, because the granting of a Mareva order is bound to have a significant impact on the property of the person against whom it is made, it "requires a high degree of caution" on the part of a court. In considering the application, I was mindful of those strictures. I was also mindful that the making of a Mareva order, if ultimately the applicant's claim were unsuccessful, would entitle the respondents to recover damages upon the undertaking proferred by the applicant and, importantly, the difficulties which might confront the respondents severally in quantifying their losses. 7 I had regard to the affidavits relied upon by the applicant in support of the application. It is not necessary to refer to each of them separately. The particular paragraphs of the affidavits and the exhibits relied upon, and the facts which are then said to be proved on a prima facie basis, are set out in the document entitled "Summary of Affidavit Evidence Relied Upon by the Applicant against the Respondents". The applicant also provided a document entitled "Evidence at 9.8.01 as to the Involvement of the Three Individual Directors". It sets out some facts said to be relevant to the claim against each of them. It also refers to paragraphs of, and exhibits to, affidavits upon which the applicant relied in support of its application. It referred to that material separately in relation to each of the second, third and fourth respondents. I had regard to that material in considering the application. Of course, I also had regard to the respective contentions of the parties through their senior counsel. 8 I am satisfied that the applicant has made out a prima facie case that the first respondent has engaged in misleading and deceptive conduct in the supply of wool to the applicant. That issue was not seriously contested by the respondents. The information suggests that the quality of wool supplied by the respondent was significantly different from that which had been agreed to be supplied by the respondent. But beyond that, the evidence presently indicates that the respondent's premises had equipment for packing and baling, and stencilling or marking, wool bales which would not normally be required for its business. That business, routinely operated, would involve the receipt, storage and dispatch of baled wool, so that no baling or wool marking activities would be required. The evidence also suggests that certain of the wool bales supplied by the first respondent had features also indicative of the first respondent having baled and marked wool bales in its premises, using wool of inferior quality to that agreed to be supplied. Those features include the use of property names not commonly known in the wool industry, the duplication of some bale numbers in one year for brand names and property names, the amount of wool of asserted high quality emanating from certain properties without a corresponding quantity of lesser quality wool, and the apparent availability of wool from certain properties on a continuous basis rather than related to their shearing periods. There is evidence also that the first respondent had acquired some 4000 wool packs for packing and baling wool, again suggesting it had packed and marked wool bales itself. 9 Of course, the applicant's evidence might be challenged at the hearing. The first respondent may disclose other matters which explain the features of the applicant's case in a way which removes the sting which presently the applicant attaches to those features. This is not the occasion to speculate about what answer the respondents may provide. None has yet filed any affidavit. The relevant material filed on behalf of the respondents to date is confined to affidavits from their solicitor, principally directed to the second criterion referred to above. It is sufficient to indicate that, in my view, the applicant has made out a prima facie case of misleading and deceptive conduct on the part of the first respondent, and that the first respondent engaged in that conduct with an awareness of its misleading and deceptive character. 10 I am also satisfied that there is a prima facie case that the second, third and fourth respondents were directly concerned in that conduct on the part of the first respondent, and also were aware of the misleading and deceptive nature of that conduct. Each was a director in the business, and directly employed in it, and each owned one third of the shares in the first respondent. Each therefore stood to gain by the first respondent's conduct. There is evidence that the second and fourth respondents engaged in the packing and baling of wool at the first respondent's premises. The second and third respondents are each wool classers, and their wool classers' number has been stencilled on certain of the bales of wool which, on testing, do not correspond with the description of the wool provided by the first respondent. 11 In considering the second of the criteria relevant to the application, I formed the view that there is a significant risk that the first respondent would act to put its assets beyond the reach of the applicant, if it were to succeed in its claim, so as to frustrate the recovery of any judgment against it. I have had regard to the nature of the conduct which is claimed to give rise to that cause of action, and the apparently deliberate nature of that conduct. The fact that the first respondent engaged in such conduct, if ultimately it is found that it did, is itself a reason to anticipate that it might now seek to secure the fruits of that conduct and its assets from the reach of the applicant. The evidence shows also that the first respondent has the capacity to disburse its available cash resources readily, as the amounts paid to each of the other respondents for salary, consultancy and superannuation in the 2000/2001 financial year demonstrates. I also had regard to the two transactions of an apparently unusual character described in the affidavit of Donald Ross McLearie sworn on 2 August 2001. The first is the re-auction of certain wool in July 2001 in a short period after its acquisition and without the first respondent having taken possession of that wool. The second is what is called the "Lyons transaction", whereby the first respondent appears to have sold in August 2001 a substantial quantity of wool to one of its principal suppliers of wool. Each of those transactions would have the effect of converting wool assets of the first respondent into cash, and each at least on one view is not routine in the normal conduct of the first respondent's business. I acknowledge that, on the information provided by the solicitors for the respondents on instructions from the finance and administration manager of the first respondent (who is not a respondent to these proceedings), the first respondent says that those two transactions were abnormal and were undertaken to secure working funds for its business as its cash resources diminished following publicity about the Anton Piller order made on 12 July 2001. I have taken that affidavit into account, but have not placed great weight upon it as it is secondary evidence and it is expressed in quite general terms. I do not consider that it dissipates the significance of the two transactions, to my judgment, as to whether the second criterion has been made out. 12 In the exercise of my discretion, I decided to make an order to prevent the first respondent from dissipating its assets. I was conscious of the need not to impair its day-to-day operations so the terms of the order are appropriately limited. The restriction extends to the payment to any of the second third and fourth respondents or related persons beyond the salary normally being paid to them. It permits the use of its resources to pay the reasonable expenses of defending these proceedings. The order, therefore, seeks to ensure that the first respondent is not impeded in its routine operations. 13 I declined to make similar orders against the second, third and fourth respondents. That is not because the applicant had not established a prima facie case against them, including their awareness of the character of the first respondent's alleged conduct. It was a consequence of the caution which I should exercise before making such an order, and having regard to the consequences of any such order. I do not regard the large payments received by each of the second, third and fourth respondents from the first respondent in the 2000/2001 year as now being of particular significance; they were payments made by an apparently profitable business to its working directors in a not abnormal way. They do not indicate, in my view, that at that point the first respondent was embarking upon a process of putting its assets beyond the reach of its creditors. There is nothing to indicate that the second, third and fourth respondents then embarked upon a process of putting their assets beyond the reach of any potential creditors. I have little information about the financial position of the personal respondents, or of their assets. I do not know if they have assets of significance, and whether any such assets are sensitive to removal from the reach of the applicant. The order I have made against the first respondent will now prevent its assets being passed to the second, third and fourth respondents and through them out of the reach of their creditors. Given the caution which I should exercise before making an order of the nature now sought, and the controls imposed upon the first respondent in relation to its assets, I am not persuaded that I should extend those orders to the second, third and fourth respondents. Accordingly, although I accept that there is a real risk that those respondents, as directors of the first respondent, might procure the first respondent to put its assets beyond the reach of the applicant, I do not consider I should impose an order on the personal respondents in the nature of a Mareva order. In the exercise of my discretion, at this point I decline to do so. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.