On 22 March 2023, I made orders extending freezing orders originally made ex parte against the defendant, Kaloriziko Pty Ltd (the Owner), on 21 February 2023 and made freezing orders against the Owner's two directors, Mr Camile Chanine and Mr Eddie Tran. These are my reasons for making those orders.
In the proceedings, the plaintiff, Calibre Construction Group Pty Limited (the Builder), seeks to recover amounts said to be payable to it under a design and construction contract dated 30 November 2017 (the D&C Contract) by which it agreed to design and construct a mixed use residential and commercial development in Ryde, New South Wales (the Development) on land owned by the Owner. The Builder claims the return of retention moneys it paid under the contract totalling $1,783,560.09, the payment $297,486.62 for 19 variations under the contract and the balance of a progress claim of $289,764.66 for work done under the contract (as well as certain additional variations). The proceedings were commenced on 5 July 2022.
In support of the freezing order, the Builder relied on evidence that, shortly before the proceedings were commenced, the Owner owned 12 units in the Development. The evidence is that all the units have since been sold and that the Owner's only asset is the amount of $426,372.17 currently held in its bank account. There is evidence that it has a tax liability of $195,919. Seven of the units were sold approximately three weeks after the proceedings were commenced to the directors or entities associated with them and all but one of those units were subsequently on-sold to third-party purchasers.
In addition, under cl 5.1 and item 14 of the D&C Contract, the Builder was required to provide security in the form of cash retentions. The total amount of security provided in that form was the $1,783,560.09. Clause 5.5 relevantly provides:
Except where held by a government department or agency or a municipal, public or statutory authority, any portion of security (and interest earned thereon) which is cash or retention moneys, shall be held in trust for the party providing them until the Principal or the Contractor is entitled to receive them.
Under cl 5.2, the Owner was required to give the Builder five business days' notice of its intention to call upon "Security". The evidence was that, apart from the amount held in the Owner's bank account no amount is held by the Owner in respect of cash retentions and no notice was given under cl 5.2 of the D&C Contract of the Owner's intention to call on the security.
On 1 September 2022, the Owner proffered an undertaking not to sell or transfer two of its units which is said had a total value of at least $1,890,000 without providing 21 days' notice of its intention to do so. The evidence suggested that the Owner had entered into contracts to sell both those units on 26 July 2022.
Following correspondence between the parties' solicitors, on 16 September 2022, the solicitor for the Owner wrote to the solicitor for the Builder stating that it "has exercised its rights to the security held under the Contract and has had recourse against the whole of the security" and that it would not "provide an undertaking to not alienate, dispose, deal with or encumber the security".
The Builder submitted that, in light of the evidence concerning the retention moneys, it proposed to amend its claim to join the directors on the basis that they knowingly assisted the Owner in its breach of trust.
The Owner accepted for the purposes of the application for a freezing order that the Builder has a good arguable case to recover part of the retention money, although it submits that it (the Owner) has an off-setting claim. However, the directors denied that the Builder had an arguable case against them and, on that basis, they denied that a freezing order should be made against them. In any event, the directors submitted that there was no evidence that they have dissipated their assets.
The Owner also accepted that, because of its current financial position, there is a danger that any judgment that the Builder obtains will not be satisfied. However, it submitted that there are discretionary reasons for refusing a continuation of the freezing orders. In particular, the Owner submitted that the freezing order would be futile, that the Builder delayed in bringing the application and failed on the ex parte application to comply with its duty of candour.
As to the directors, I accepted that there was a strongly arguable claim against them. In order to make out a case of knowing assistance in a breach of trust, the Builder must prove (1) a dishonest and fraudulent breach of duty by the Owner in the sense that there was a transgression of ordinary standards of honest behaviour; (2) knowledge of that breach by the directors and (3) assistance in that breach by the directors: see Re Sirrah Pty Ltd (in prov liq) [2021] NSWSC 413 at [152] per Black J, and the cases cited there.
The D&C Contract was signed by one of the directors, Mr Chanine. In the absence of any evidence to the contrary, it may be inferred that both directors were aware of the terms of the contract. Consequently, it is strongly arguable that the directors were aware that the retention moneys were the subject of a trust and could only be paid out following five days' notice to the Builder. No explanation has been given for why the retention moneys were paid out without the requisite notice. In the absence of an explanation and having regard to the other conduct of the Builder in disposing of its assets, I concluded that it was strongly arguable that the Owner acted dishonestly and fraudulently in paying the money away without first giving the Builder notice of its intention to do so. In the absence of any explanation from the directors, I also concluded that it may be inferred that they caused the Owner to pay the retention moneys away and, in doing so, assisted the breach of duty by the Owner.
Although there was no direct evidence that the directors had dissipated their assets, the fact that they had caused the Owner to dissipate its assets in the way that it did and the fact that there was a strong argument that they had knowingly assisted the Owner to breach its duties as trustee provided a sufficient basis for inferring that there was a real risk that they would dissipate their assets unless restrained.
As to the discretionary reasons advanced by the Owner, I did not accept that any of them formed a sufficient basis to refuse a freezing order against the Owner or the directors.
In my opinion, the court should not readily refuse a freezing order because the defendant has already successfully dissipated its known assets, particularly, as here, the evidence suggests that the assets were dissipated for the purpose of avoiding liability for a judgment debt. Moreover, in the present case, the Owner retained approximately $426,000 in a bank account. There is some evidence that it has a liability to the Australian Tax Office of approximately $196,000. However, it is at least arguable that the amount of $426,000 is impressed with a trust, with the result that it would be a breach of trust by the Owner to pay the Tax Office in priority to the Builder. Consistently with the proposed freezing order, the remainder of the amount held by the Owner could properly be dissipated in the payment of legal costs. However, until that happens, there was no reason why a freezing order should not be made.
I accepted that there had been some delay by the Builder in bringing the application. It must have been apparent at least by 16 September 2022 that the Owner was not willing to give any of the undertakings sought by the Builder. The application for a freezing order was not made until 21 February 2023. However, there was no suggestion that the Owner or the directors suffered any prejudice as a consequence of the delay. Moreover, in the absence of any evidence, the steps taken by the Owner and the directors appeared to be deliberate steps taken to defeat the Builder's claim. In those circumstances, I concluded that the delay was not sufficient to disentitle the Builder from obtaining a freezing order.
Two matters were relied on in support of the submission that the Builder had not complied with its duty of candour, although the second was withdrawn after I delivered my judgment. First, it was alleged that the Builder had misrepresented the terms of the undertaking originally offered by the Owner. Second, it was alleged that the Builder had failed to disclose that it had agreed to provide $45,000 as security for the Owner's costs.
In my opinion, neither of those submissions had any merit.
The offer to provide an undertaking was disclosed as a matter which might cause the Court to refuse the ex parte freezing order. As disclosed, the terms of the offer were more favourable to the Builder than the offer that was actually made. Accordingly, any misdescription of the terms of the offer could not have been material to the question whether the ex parte injunction should have been granted.
As to security for costs, the plaintiff agreed to provide security. It was not suggested that the Builder did not have the financial resources to pay the Owner's costs or to pay any amount ordered to be paid in accordance with its undertaking as to damages. It may be inferred in those circumstances that the Builder agreed to provide security rather than incur unnecessary costs in defending an application for security. In those circumstances, the fact that security was given was irrelevant to the question whether an ex parte order should be made.
The Owner also took issue with the form of the freezing order sought by the Builder and, in particular, with the proposed monetary limit of the freezing order of $1,783,560, on the basis that it had an arguable set-off. It submitted that the monetary limit of the freezing order should be approximately $365,000, which was the difference between the amount claimed by the Builder and the amount of the Owner's set-off. I did not accept that argument. The set-off largely relates to alleged defects in the building work and a liability that the Owner is said to have to a neighbour arising from damage caused by the building work. However, there was no evidence before the Court concerning the strength of those claims. On the basis of the material before the Court, the Builder had a strongly arguable case that its claim would succeed and the set-off would fail. In those circumstances, it was appropriate to make orders in terms of those sought by the Builder.
The orders of the Court made on 22 March 2023 are as follows:
(1) The Plaintiff has leave to file in Court the Amended Notice of Motion dated 2 March 2023;
(2) Order 3 of the Orders made on 21 February 2023, being the Freezing Order as against the First Defendant, to continue until further order, save that paragraph 10(b) is amended so that it reads: "(b) paying your reasonable legal expenses as and when they are incurred";
(3) The Freezing Orders as against the First Respondent and Second Respondent to the Amended Notice of Motion sought by the Plaintiff at Annexure A of this short minutes of order be made and continue until further order;
(4) By 4.00 pm on 24 March 2023, the First and Second Respondents, by a director, to produce to the plaintiff's legal representative, Jamie Antonopoulos of One Group Legal Pty Ltd by email to Jamiea@onegrouplegal.com.au an affidavit stating:
1. all their assets worldwide, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of their interest in the assets;
2. all of their liabilities; and
3. the BSB and Account Number of all bank accounts in their name, or controlled by them, and the most recent unredacted bank statement, or in the absence of a statement, a printout from internet banking.
(5) The Defendant and the First and Second Respondents to pay the Plaintiff's costs of the Notice of Motion filed on 22 February 2023 and the Amended Notice of Motion dated 6 March 2023;
(6) The Plaintiff is to serve on the Defendant and the First and Second Respondents a proposed Further Amended Summons and Technology and Construction List Statement by 4.00pm on 12 April 2023.
(6A) Order 3 of the orders is revoked if the Plaintiff fails to comply with order 6;
(7) The matter is listed for further directions on 14 April 2023.
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Decision last updated: 28 March 2023