Equity - Appointment of receiver in relation to assets the subject of mareva order - Breach of mareva order

Supreme Court Act 1935, s 25(9)

A J Bekhor & Co Ltd v Bilton [1981] EWCA Civ 8; [1981] 1 QB 923

Connell v The Queen (No 6) (1994) 12 WAR 133

Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612

Law Society of New South Wales v Hughes, unreported; SCt of NSW; 25 November 1994

Maughan v Sharpe 34 LJCP 19

National Employers' Mutual General Insurance Association Ltd v Waind [1978] 1 NSWLR 372

Stanley v Layne Christensen Co [2004] WASCA 50

The Commissioner of Railways v Small (1938) 38 SR (NSW) 564

Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509

1 PULLIN J: There are four applications before me as follows:

(a) The plaintiff's application for appointment of a receiver until trial or further order, or alternatively, a variation of the mareva order made by me on 11 December 2003;

(b) The plaintiff's application for an order that the third defendant, Mrs Pallister, produce patent applications referred to in par 4(5) of her affidavit of 19 December 2003;

(c) The defendants' application to vary the mareva order;

(d) The defendants' application that the "plaintiff be refused leave to inspect documents" produced by persons and companies under subpoena issued and served by the plaintiff pursuant to orders made by me on 25 March 2004.

2 The background to the applications is as follows. The plaintiff issued the writ in this action on 12 November 2003. The plaintiff's claim is for two amounts of money, namely $425,000 and $504,992.

3 Under a "first loan agreement", the plaintiff advanced $425,000 to a partnership, the partners of which were the first defendant ("Rototek") and another company. The plaintiff alleges that Rototek and Mrs Pallister, by their agent the second defendant, Mr Pallister, made representations which amounted to misleading conduct in contravention of the Trade Practices Act and the Fair Trading Act, and that the misrepresentations induced the plaintiff to make the advance and thereby caused loss. The plaintiff has rescinded the first loan agreement and sues for damages and also brings a proprietary claim for the moneys paid over pursuant to the first loan agreement.

4 Under a second loan agreement, the plaintiff advanced $504,992 to Rototek. The plaintiff alleges it was induced by misrepresentations amounting to misleading conduct in contravention of the Trade Practices Act and the Fair Trading Act. This contravention is alleged to have caused loss. The plaintiff has rescinded the second loan agreement and claims damages and brings proprietary claims for the moneys paid over in reliance on the representations.

5 As security for repayment of the amount claimed under the second loan agreement, Mrs Pallister gave to the plaintiff the duplicate certificate of title to land at Secret Harbour. Having obtained the duplicate certificate of title, the plaintiff then lodged a caveat to protect the equitable mortgage which arose from the deposit of the duplicate certificate of title. Mrs Pallister's solicitors confirmed in writing that the certificate of title was held as security. Notwithstanding this, Mrs Pallister lodged an application to remove the caveat. This resulted in the plaintiff applying to extend the operation of the caveat in action CIV 2450 of 2003. An order extending the operation of the caveat was made by Justice McKechnie on 2 December 2003.

6 On 11 December 2003 I made a mareva order. This order was directed to preserving assets owned by the defendants pending the disposal of the litigation. The order required the defendants to record and report disposal of moneys or property in excess of $200 if they were not living expenses.

7 The plaintiff applied for summary judgement in relation to the $504,992.

8 This came on for hearing before Master Newnes on 10 March 2004. Counsel for the defendants suggested that the moneys would be paid within seven days and as a result, the application for summary judgment was adjourned. The money was not paid.

9 Before me, counsel for the defendant said that the defendants were still prepared to arrange for the $504,992 and some agreed interest to be paid to the plaintiff in exchange for the release of the duplicate certificate of title for the Secret Harbour land and a withdrawal of caveat. Counsel for the defendant said that once that happened, Mrs Pallister was prepared to mortgage that land to raise $425,000 and pay that sum into a trust account so that the whole of the plaintiff's claim would then either be paid or covered by money held in trust pending disposal of the litigation. The parties have worked out a set of orders to facilitate these events.

10 It is commendable that the parties are trying to resolve the matter in this way. If it is, the mareva order can be discharged. After I heard the four applications on 22 June 2004, I indicated that I would reserve my decision for long enough to allow the parties to try and make arrangements for these payments to be made, but I indicated that if the arrangements had not been made, I would publish reasons for decision in relation to the four applications on 2 July 2004. I have today been told that arrangements have not been made between the parties and it is therefore necessary for me to deal with the four applications.

11 I deal first with the plaintiff's application for appointment of a receiver until trial or further order, or alternatively for a variation of the mareva order. I will dispose of the alternative order proposed. In my view the proposed variation of the mareva order is likely to lead to further disputation. It will involve the plaintiff in supervision of the defendants' affairs and that I consider to be undesirable.

12 The submissions of the parties were largely directed to whether or not a receiver should be appointed. I will now deal with that application. The foundation for the plaintiff's application for appointment of a receiver is as follows. The plaintiff submits that there has been a breach of the mareva order. The plaintiff submits that there has been an unauthorised dispositions of money and that this has occurred in deliberate breach of the mareva order or because of an inability on the part of the defendants to understand the obligations and restraints imposed by the mareva order. The result of these dispositions means that according to the plaintiff the defendants' assets are not being preserved as intended by the mareva order.

13 I should begin my consideration of these submissions by referring to the provisions of the mareva order. The order restrained the defendants pending the determination of the action from disposing of, encumbering or otherwise dealing with any of their money, property or other assets, whether in their own name or not and whether solely or jointly owned. There was an exception which permitted money to be disposed of for the purpose of paying legal expenses in relation to the proceedings and other litigation, for the purpose of complying with statutory requirements for the purpose of meeting taxation liabilities, for the purpose of paying ordinary and proper business expenses bona fide incurred by one or more of the defendants and for the purpose of paying the second and third defendants' reasonable ordinary living expenses.

14 If there were payments of money greater than $200 for the permitted purposes, the defendants were required to keep a record of such payments and to serve a record of them upon the plaintiff's solicitors each month. The obligation to supply that record commenced on 17 November 2003.

15 A record was kept by the defendants and a report made to the plaintiff's solicitors. Mr Morgan on behalf of the plaintiff by his affidavit dated 3 May 2004 at pages 87, 89 and 90 has provided an analysis of three accounts in the name of Mrs Pallister which revealed payments in excess of $200 and which had not been reported to the plaintiff. I will concentrate on one of those accounts, namely the National Australia Bank account referred to at 87 of Mr Morgan's affidavit and being Account No 555598368. This reveals that payments in excess of $200 and totalling approximately $114,000 have been paid out of the account between 17 November 2003 and 16 February 2004. Mrs Pallister does not dispute that there have been such payments. She offers a general explanation for her apparent breach of the mareva order. She says that these payments of money are matched by a reimbursement of a similar amount of money from third parties. Mrs Pallister says that these payments are to meet the expenses of others and that because of the reimbursement it was not necessary for her to report the payments.

16 This explanation about reimbursement of expenses was only set forth in any detail in affidavits on 21 June 2004, that is the day before the hearing. The affidavit material does not condescend to particulars. The affidavit material is contradictory and the details of alleged reimbursements which are said to exceed the $114,000 do not match the period 17 November 2003 to 16 February 2004 which the plaintiff concentrated upon. Furthermore, the defendants, in these affidavits of Mrs Pallister and Mr Tollman, raise more questions than they answer. Mr Tollman, who is the chief financial officer of a company called "Mobilarm Ltd", says that Mobilarm had an agreement with the Pallister Family Trust whereby the trust contracted to supply labourers and employees of the Pallister Family Trust. He deposes to the fact that the Pallister Family Trust provided the services of these employees and then charged Mobilarm for the cost of their wages plus an on-cost percentage of 15 per cent to take into account things like workers' compensation and superannuation and that GST was levied on the grossed-up amount as well. No tax invoices were produced to support this contention. Mrs Pallister in her affidavit of 21 June 2004 gave a different account. She said that:

"It was my understanding that the accounts could continue to be used to pay Rototek Pty Ltd. Those types of expenses included wages for employees. The position was that we would be reimbursed by Mobilarm for expenses paid on behalf of Mobilarm. Rototek subcontracted the labour of its employees to Mobilarm and was reimbursed accordingly. The agreement we had with Mobilarm was that Mobilarm would pay money into the National Australia Bank accounts and then Rototek would pay the expenses".

17 She said that as of March 2004 the agreement with Mobilarm "finished" as Mobilarm employed its employees itself from that date and "Rototek did not subcontract its employees". It can therefore be seen that Mr Tollman gave one account about employees being supplied by the Pallister Family Trust and Mrs Pallister gave another explanation about Rototek subcontracting its employees.

18 Wherever the truth lies, the fact is that Mrs Pallister should have been reporting the payments in excess of $200. Payments of more than $100,000 have not been reported. This amounts to non-compliance with the mareva order.

19 Even more troubling is the revelation in Mr Tollman's affidavit of 21 June 2004 when he says:

"I was provided with access to those National Australia Bank accounts with password numbers so I could conduct internet banking, and then made certain transfers to the various employees out of those accounts. Other payments were made by my predecessors, but from searching the records of the company I can say that during the period 17 November 2003 to 29 February 2004 payments totalling $143,800.10 were paid to the employees of the Pallister Family Trust for work done on behalf of Mobilarm Ltd, as well as the on-cost to the Australian Taxation Office and various superannuation funds and payroll on the costs of the subcontractors."

20 If this reference to "those National Australia Bank accounts" include a reference to National Australia Bank Account No 555598368, then Mrs Pallister has, without regard to the maveva order and apparently without explaining to Mr Tollman the effect of the mareva order, authorised Mr Tollman to operate this bank account himself.

21 In addition, Mr Tollman discloses that certain payments in reimbursement of alleged expenses were paid into a "CBA cheque account", which was not disclosed by Mrs Pallister in the statement of assets and liabilities she filed as required by the mareva order par 6. This paragraph required each of the defendants to file and serve an affidavit setting out for each of the defendants the defendants' respective assets and liabilities. Mrs Pallister filed such an affidavit but did not disclose the existence of a CBA bank account.

22 Counsel for the defendants conceded that of the three bank account Mr Morgan analysed, and which are set out on pages 87, 88, 89 and 90 of his affidavit of 3 May 2004, only the bank account statement which is the subject of the analysis on page 89 was a trust account. The other two are therefore personal accounts and subject to the mareva order.

23 I regard the failure to report the amounts referred to on pages 87 to 88 of Mr Morgan's affidavit of 3 May 2004 to be a serious breach of the mareva order by Mrs Pallister. I should also mention that it is Mrs Pallister who holds most of the assets because Mr Pallister was once bankrupt and has almost no assets in his name.

24 I now turn to the complaint that there was non-compliance with that part of the mareva order which required the defendants to file and serve an affidavit setting out the defendant's assets and liabilities. The plaintiff submits that some liabilities were not disclosed, some assets were not disclosed and that some information provided was false.

25 I shall deal with one point of non-disclosure which is relatively straight-forward. In another action in this Court, action CIV 1344 of 2004, Mr Morgan is suing Mrs Pallister claiming repayment of the sum of $340,000 which Mr Morgan says he advanced to Mrs Pallister. Mrs Pallister did not show this as a liability in her statement of assets and liabilities. When she was challenged by the plaintiff's solicitors about this omission, Mrs Pallister swore an affidavit on 19 December 2003 in which she said "I was never lent $340,000 by David Morgan". At the hearing on 22 June 2004, counsel for Mrs Pallister conceded that not only was this sum indeed lent by Mr Morgan to Mrs Pallister, but that it was now repayable. Counsel for Mrs Pallister however submitted that it was not repayable at the time the statement of assets and liabilities was prepared and that it was only a contingent liability. Counsel for Mrs Pallister submitted that it was a contingent liability because no demand had been made and that this is why it was not disclosed. In my opinion, it matters not whether the liability was contingent. In my opinion, by failing to state that she had this liability, Mrs Pallister breached the mareva order and by doing so, in effect, overstated the net value of her assets, or to put it another way, understated her liabilities. Mr Morgan is a representative of the plaintiff and counsel for the defendant says that the plaintiff therefore knew full well that this liability existed. In my opinion that is not relevant. The mareva order required disclosure of all liabilities and this liability which should have been disclosed was not disclosed, and was indeed disputed when the plaintiff's solicitors not unexpectedly asked why the liability was not referred to in the statement of assets and liabilities.

26 There is another instance of non-compliance with the mareva order. This relates to a 58 foot ketch called "Quasar". When the defendants filed their affidavit stating what their assets and liabilities were no such asset was revealed. The plaintiff's solicitors wrote on 18 December 2003 to the defendants' solicitors and said:

"Mr Pallister has not referred to the 58 foot ketch 'Quasar'. There is evidence Mr Pallister paid the mooring fees for that yacht from the Concept Boats Partnership account, another liability he has not disclosed in his affidavit."

27 This letter was referred to by Mrs Pallister in her affidavit of 19 December 2003. As to the passage in the letter just quoted, Mrs Pallister's affidavit read:

"Dealing with the issues raised in that correspondence I comment as follows ... Not applicable."

28 However, Mr Pallister in his affidavit of 19 December 2003 said:

"I do not own any 58 foot vessel as alleged by the plaintiff. The vessel Quasar was owned by Vanessa [ie Mrs Pallister] but was sold on 6th September to provide further funds to continue the Mobilert development. I do not recall ever having paid mooring fees for the yacht from Concept Boats. If we did it would be debited to the loan account of Vanessa Pallister."

29 The plaintiff then subpoenaed certain documents which revealed that Mr and Mrs Pallister had made an offer to purchase the yacht Quasar, that Mrs Pallister had paid a substantial portion of the purchase price and that a company called "Jayden Holdings Pty Ltd" or its sole director Mr Scott, had agreed to provide the balance of funds required to settle on the vessel being the sum of $118,000 in exchange for an "equitable half interest in the vessel". The agreement recorded that the other half interest would be held by Mr Scott or Jayden Holdings Pty Ltd "in beneficial trust for Vanessa Pallister and shall be transferred to Vanessa Pallister immediately upon request for such transfer". It then emerged in a letter dated 21 April 2004 from the defendants' solicitors that the arrangement about the Quasar was:

"4. ... orally varied by Brenton Scott on behalf of Jayden Nominees and by Vanessa Pallister on 6 September 2003 when Jayden Nominees agreed to advance to Vanessa Pallister an amount of $100,000.00. In exchange Vanessa Pallister was to transfer any interest she held in the vessel to Jayden Nominees.

5. The agreement struck between Jayden Nominees and Vanessa Pallister was that provided Vanessa Pallister repaid the money lent to her by Jayden Nominees in full then upon completion of the instalment payments necessary to satisfy the loan an equitable half interest in the boat would be transferred back to her.

6. My client continues to make payments to Jayden Nominees. She does not have an interest in the boat and will not have an interest in the boat unless and until she continues making instalment payments and satisfies the amount lent."

30 This evidence means that Mrs Pallister had mortgaged her interest in the vessel. Neither the liability to Mr Scott or Jayden Nominees to pay the $100,000 nor the equity of redemption in the vessel were disclosed in the statements of assets and liabilities. In my opinion this amounts to a breach of the mareva order.

31 Furthermore, Mrs Pallister was paying substantial mooring fees in relation to the vessel, some of which were reported and some of which were not, even though each such payment was in excess of $1,000 and paid on a monthly basis. It was the disclosure of the first of these mooring fees which rightly prompted the enquiry by the plaintiff's solicitors about why she would be paying mooring fees for a boat in which she had no interest. Only through diligent enquiry and investigation by the plaintiff has the truth emerged.

32 A further complaint about the statement of financial position as to assets and liabilities produced by Mrs Pallister is the valuation she has placed on an asset, namely a loan to "I-Lert". This loan is said to have a value of $545,000. This company is "dormant" and it is likely that this loan is not recoverable at all or, at best, only recoverable in part.

33 The plaintiff also complains about non-disclosure of assets which are the subject of another action in this Court, namely Rototek Pty Ltd v AD Engineering Pty Ltd, action CIV 2283 of 2003. Rototek and Mrs Pallister in those proceedings claim the right to delivery up of certain intellectual property and other assets. Simmonds J in Rototek Pty Ltd v AD Engineering Pty Ltd [2004] WASC 108 referred to the contentions by Rototek and Mrs Pallister that the assets the subject of dispute in that case were to be valued at $10 million to $20 million (see [38]). This valuation was assertion only, not proved by any evidence, and it may be that the assets do not have such great value, but is clear enough that the assets were worth the commencement of action in the Supreme Court and that suggests that the assets do have value that would at least exceed the costs of the proceedings. The assets claimed in that litigation should have been, but were not, disclosed by the defendants in compliance with the mareva order, which required disclosure of all assets. This is another instance of non-compliance.

34 I should mention that the plaintiff has made, through its solicitors, every effort to give the defendants the opportunity to explain their non-disclosure of information. The defendants have generally been evasive in their responses and the affidavits which have been filed in these proceedings have been drawn without any attention to detail and with the result that the information provided is at times confusing, and at times impossible to follow.

35 The purpose of the mareva order was to preserve the status quo so far as the defendants' assets were concerned, pending the resolution of the litigation. If adjustments are made for liabilities not disclosed or adjustments are made to reflect the true value of some of the assets, the position is that the value of the assets less liabilities of the defendants is less than the combined amount of the plaintiff's claims, interest, and costs.

36 The non-disclosure of assets, the failure to report disposal of moneys in excess of $100,000, the non-disclosure of assets, and the misreporting of the value of assets, all in breach of the mareva order, lead me to the conclusion that there is a danger that the defendants' assets may be disposed of before this litigation is concluded.

37 As a result, it is my view that a receiver should be appointed to prevent this unauthorised disposal taking place. The Court has power to appoint a receiver on an interlocutory basis in all cases where it is just and convenient to do so: see s 25(9) of the Supreme Court Act 1935. The appointment of a receiver is a drastic step and a party seeking such relief must not only demonstrate that the protection is required to preserve the assets in accordance with the mareva order, but also that a lesser remedy that does not involve removing the administration of the assets from the defendants would fit the circumstances of the case. See Beach Petroleum NL v Johnson (1992) 9 ACSR 404 at 406. A receiver may be appointed to a fund to prevent it being dissipated to defeat a plaintiff's right: see Cummins v Perkins [1899] 1 Ch 16 at 19. Cummins v Perkins was not a case involving a mareva injunction but the statements made in that case apply with equal force in the present circumstances. In my opinion, this is an appropriate case for the appointment of a receiver to ensure that the mareva order already in place is complied with. In my opinion, no remedy short of the appointment of a receiver will ensure that the terms of the mareva order are complied with.

38 For those reasons I would make orders for the appointment of a receiver on the plaintiff's application. I will hear the parties as to the terms of an appropriate undertaking as to damages, the powers the receiver is to have and as to the identity of the receiver, and the form of the security to be given by the receiver pursuant to O 51 r 3(1). In view of the conclusions I have reached, I dismiss the defendants' application to vary the mareva order.

39 I now refer to the defendants' application which seeks to have resolved the objection made by Mobilarm to the subpoena duces tecum served on that company by the plaintiff requiring production of the Mobilarm share register. The subpoena on Mobilarm was prompted by an issue about uncertainty as to the ownership of the patents, technology, and intellectual property relating to the Mobilert invention. Suffice it to say that there were two patents applied for by Mr and Mrs Pallister in relation to this "technology". Mr Pallister in his affidavit of 19 December 2003 said that the patents "have lapsed". He then went on to say, however:

"(13) I-lert has taken up the project and is trying to overcome these difficulties, and if the difficulties are overcome (which is uncertain at the moment) then the overall project will ultimately have a greater value.

(14) An agreement to vend this project into Mobilarm Ltd for a substantial shareholding has been reached but until the development project is completed and the unit proved to work and be patentable this is unable to be completed."

40 The subpoena to Mobilarm Ltd required the production of the "agreement" and also sought the production of the share register so that it may be examined to see whether there has been any "substantial shareholding" as suggested by Mr Pallister. Once again Mr Pallister's explanation is so general in its terms, probably inadmissible as either secondary evidence of a document or conclusionary if it refers to an oral agreement, that it raises questions rather than answers the points made against the defendant. Suffice it to say that there was sufficient information to warrant the issue of a subpoena directed to the interlocutory dispute about whether there has been compliance or non-compliance with the mareva injunction.

41 Counsel for the defendants said that the defendants were concerned that the plaintiff would use the information from the share register to cause difficulties for Mobilarm Ltd. The plaintiff would well know that it would be contempt of court to obtain information on subpoena and use it for a collateral purpose. The assertion by the defendants that it might be used for this purpose remains assertion only and can form no basis for an order of this Court preventing the plaintiff from inspecting the documents which have been subpoenaed and which are to be produced by Mobilarm Ltd. I understand that a witness responding to the subpoena to Mobilarm Ltd attended court to produce the documents and may still have them in his custody. If it had been necessary to do so, I would have ordered the documents to be surrendered into the custody of the Court and that the plaintiff be given liberty to inspect the documents. However, the purpose of the subpoena was to assist in establishing that there had been a breach of the mareva order and in support of the application for the appointment of a receiver. Because I have decided that there was such a breach and that a receiver should be appointed, it is unnecessary for the Mobilarm documents to be delivered into the custody of the Court. There would appear to be no other purpose in the documents being produced. This application should therefore be dismissed.

42 Finally I turn to the plaintiff's application for an order that Mrs Pallister produce the patent applications referred to in par 4(5) of her affidavit of 19 December 2003. Once again it appears that the order was sought as a means of providing support for the plaintiff's contention that there had been breaches of the mareva order in support of the application to appoint a receiver. Because I have decided that a receiver should be appointed, it is unnecessary for any order to be made on this application. This application should therefore be dismissed.