Mr D.M. Stone, counsel for the applicant, presented a very persuasive case for the proposition that summary judgment should be entered on behalf of his client against Penale. First, he referred to the matter of the cross-claim as having had the effect of seriously delaying the trial of the applicant's claim which turns, so he submitted, in effect on the resolution of a few short issues on confined facts. I have summarised above what transpired in relation to the cross-claim. I accept Mr Stone's submission that the cross-claim (which has so recently been abandoned) has had the effect of delaying the trial of his client's claim. My assessment is that the cross-claim and all the interlocutory matters which arose out of the cross-claim, before it was abandoned, had the effect of delaying the disposal of the application by about six months. Given the state of the list of cases awaiting hearing, my further assessment is that this application would by now have been heard with a reasonable prospect of judgment having been delivered. Whether that judgment would have been in favour of the applicant is another matter, but I feel that I should take this factor into account (and I do so) when deciding the application for summary judgment. In particular, if I refuse that application, I think it is a relevant factor when I consider what terms (if any) should be imposed as a condition of such refusal. Mr Stone also referred to the matter of delay in conjunction with the prejudice to his client arising out of certain transactions which occurred during the period of the delay. There is evidence that Penale has sold all of its shares in Holdings. It was through Penale's former control over Holdings that the Shares (i.e. the shares in Exploration) could have been made available as a "sweetener". The sale agreement, although executed, is undated. Other evidence puts the date of its execution at about 20 February 1997. The sale agreement states that the purchase price is $2.25 million. It also contains a condition that it "constitutes the sole and entire Agreement between the parties." On its face, the sale agreement would indicate a purchase price of $2.30 per share. But that impression, on the current state of the evidence, is wrong. There is evidence of another sale
agreement relating to the balance of the shares in Holdings to the same purchaser at a price of $5.58 per share. On first impression, it might be thought that the majority shareholder was obtaining a very substantial premium. However, it emerges from Mr Conway's affidavit, sworn 27 March 1997, of his and Penale's assets and liabilities ("the Penale affidavit") that the premium is not as substantial as it would seem. From the attachments to the Penale affidavit it is clear that in addition to paying Penale $2.25 million for its shares in Holdings, the purchaser has agreed to "assume" certain debts. Those debts were identified as loans owing to:
. Holdings ($171,197);
. Prosin Investments Pty Ltd ($1,329,269). There is evidence that a Mr Igor Prosin is a director of the purchaser; and
. M. Lanyon ($500,000).
The evidence before the Court is that Penale has no charges registered against any of its assets. From that I infer that the above creditors are unsecured creditors of Penale. The debts owing to these creditors are described in the documents filed on its behalf as "non-current liabilities". Another non-current liability shown in the financial statements is a loan of $430,000 from "FCTP Discretionary Trust". Note 3 to Penale's statement of assets and liabilities as at 13 March 1997 reads:
"Penale Pty Ltd has entered into a Loan Facility Agreement with FCPT (sic) Discretionary Trust where the facility is for $2.25 million."
FCTP is the purchaser's nominee (see Recital D of the Sale Agreement). Mr Conway's evidence is that Penale was to draw down the loan facility with FCTP on 7 April 1997 and thereby receive $2.25 million. I am unable to reconcile that figure
with the fact that $430,000 has apparently already been advanced. Mr Conway says that after Exploration's shareholders have approved the sale, Penale will pay back the loan of $2.25 million with the sale proceeds. It is apparent from the evidence that if, as at 13 March 1997, the applicant had obtained judgment against Penale for, say, $6 million and levied execution, then there would not have been sufficient assets to satisfy that judgment. The deficiency in trust funds (Penale is the trustee company for the Conway Family Trust) as at that date was $227,363. Mr Stone annexed to his outline of submissions what I would describe as a pro forma statement of assets and liabilities of Penale prepared on the assumption that the terms of the sale agreement are carried into effect i.e. that Penale receives $2.25 million for the shares and that the creditors listed above are paid. Although this pro forma statement indicates (subject to the occurrence of the above events) an excess of assets over liabilities of $2,971,145, a very substantial current asset is shown as a loan owing by Mr and Mrs Conway of $1,292,998. No evidence is currently before the Court concerning Mrs Conway's means. However, Mr Conway's own evidence is that he has an excess of liabilities over assets amounting to approximately $1,342,998. It is common ground that this is probably over-stated (by arithmetical error) by $100,000. This, I accept, places (at least potentially) the recoverability by Penale of the loan of $1,292,998 in some doubt.
Mr Stone relies upon these matters for two reasons. First to put in question "the bona fides of the defence". Secondly, as being relevant to his application for a Mareva injunction. At this stage I am concerned only with the summary judgment application; I deal with the application for a Mareva injunction below. I am not prepared to make a finding of bad faith on the state of the evidence to date. I have not had an
opportunity to see the witnesses give their evidence or be cross-examined, although the importance of demeanour and the manner in which a witness gives evidence may be over-estimated. However, I am concerned about these transactions and the timing of them. Those concerns are increased by the fact that the series of transactions started at a time when these proceedings were held up by the existence of the cross-claim and the interlocutory procedures associated with it. For example, the cross-claimants had not complied with orders that required them to provide for security for costs, failing which the cross-claim was stayed. I suspect that there was a degree of tactical manoeuvring involved on Penale's part to place obstacles in the applicant's path, but I am not prepared, as I say, to make a finding of bad faith at this stage. I take into account the effect of what has happened and what is planned. Mr Stone submits that the arrangements in relation to Penale's unsecured creditors (referred to above) have the effect of "putting out of the way" of the general body of Penale's creditors (including the applicant) some 47% of the true purchase consideration for the sale of Penale's shares in Holdings. He relies on the fact that the true purchase consideration was not revealed in the announcement to the Australian Stock Exchange Ltd nor in the sale agreement itself because there was no reference to the assumption of Penale's debts to the extent of $2,000,466. Next Mr Stone referred to what he described as "Penale's changes of position". Until 3 April 1997, when it discontinued its cross-claim Penale had adopted the following position:
. the applicant was a foreign corporation within the meaning of s.51(xx) of the Constitution - this is now put in issue;
. Mr Pittorino was the applicant's agent - that also is now in issue; and
. Penale pleaded and relied upon the Letter as founding a cause of action against the cross-respondents.
Mr Stone submitted that Penale was seeking to "approbate and reprobate", something which it was not permitted to do. He relied upon the Express Newspapers case for that proposition. I should interpolate that in my view that case is distinguishable from the present matter. In Express Newspapers the plaintiff had obtained summary judgment (and was seeking to retain it before the Court of Appeal) on the basis that there was no defence to its claim. The plaintiff then sought to defend a counterclaim on facts which were found to be relevantly indistinguishable from those of its claim. In the present matter, the cross-claim has been withdrawn and the defence is to be regarded as re-pleaded. Nevertheless I take into account Penale's recent and very belated changes in its position when considering whether summary judgment should be entered against it and, if not, whether terms should be imposed and what those terms should be. As I understand the authorities, the discretion is a composite or "global" one. See, for example, the decision of the Full Court of the Supreme Court of Queensland in DMS Shipping & Trading Co Ltd v. Lionheart Asia Ltd (1996) 2 Qd R 20 and, in particular, at pp.21 and 23.
Mr Stone then turned to the question whether there were triable issues. First, there was the issue whether Mr Conway had authority to bind Penale. Mr Stone contended that, on the evidence to date, Mr Conway was a director of Penale within the meaning of s.60 of the Corporations Law because he was a person occupying or acting in the position of director of that company, even though the evidence shows that he was not formally appointed to that position until 17 November 1996. I was referred to the
evidence that:
. Mr Conway held one of the three issued shares in Penale and that his wife and one other member of his family held the other two shares;
. Penale is the trustee of Mr Conway's family trust;
. Mr Shaw felt able to accept Mr Conway's instructions on behalf of Penale when he sent the Letter; and
. in his affidavit of 3 March 1997, Mr Conway speaks of "his" administration of the Trust.
I agree with Mr Stone's submission that, on the evidence to date, so much of the defence as is based on the contention that Mr Conway did not have the ostensible authority of Penale is not likely to succeed.
The next issue identified was whether Mr Pittorino was the applicant's undisclosed agent. At this stage there is Mr Pittorino's uncontradicted evidence to that effect. There is also the evidence of Mr Norman Leighton. Mr Leighton is a director of the applicant. On 3 April 1997 Mr Leighton swore an affidavit stating that the applicant was a company duly incorporated in the Bahamas and that throughout the transactions referred to in paragraphs 15, 16, 18 and 20 of Mr Pittorino's affidavit, Mr Pittorino acted as the applicant's agent. On the present state of the evidence the applicant's prospects of establishing that Mr Pittorino was the applicant's agent are, in my view, quite good. In the same paragraph of his submissions, Mr Stone contends "... the only issue is whether or not Conway agreed to that request [Mr Pittorino's request for 10 million shares in Exploration]." That may be so, but in my view it is a very basic issue. I return to that subject below. The applicant submits that Mr Conway's
contention that he acted under some form of "duress" in causing Mr Shaw to send the Letter evidencing an agreement which he did not make is "glaringly improbable" in the circumstances. Those circumstances were that shares in Exploration were trading at about 80 cents. The applicant poses the question: "Was anybody likely to take a placement at $2 a share unless they were offered some additional consideration to do so?" I must say that, on the evidence to date, the most probable answer to that question is - no. Another circumstance was the fact that, on Mr Conway's case, before he spoke to Mr Pittorino he wrote to Mr Thomas offering (not to County Natwest, but to the proposed subscriber) a transfer of extra shares as an incentive or "sweetener". Finally, so it was put, Mr Conway is not to be taken to be a man of particular vulnerability or lack of commercial experience. I do not think that there is sufficient evidence before me to form any opinion on that last particular point.
The next issue which Mr Stone identified was whether there was any consideration for the promise confirmed in the Letter. That brings one back to what I have described as a very basic issue i.e. whether an agreement was made with Penale in the terms alleged by the applicant and sworn to by Mr Pittorino. Part of Penale's case is that additional fees were paid to County Natwest for placing the extra 2 million shares. This was the increase in the rate of commission from 4% to 5% applied to the full amount subscribed. However, Mr Conway's evidence is that Mr Thomas had said (on 16 May 1994) that to conclude the placement on time "... would cost more than an arm and a leg, it would take half a body." The extra percentage commission amounts to $190,000. As a tentative, provisional, view in all the circumstances I would not regard the payment of an extra $190,000 as falling within that description. In his fax
of 14 May 1994 Mr Conway had already suggested "a sweetener" of a further 5 million shares (admittedly this was in the context of a subscription for 2.5 million, not 2 million shares). Even at that proposed rate (Mr Conway's opening proposal) with Exploration's shares trading at 80 cents each, the amount involved to "sweeten" a subscription of $2 million would be in the vicinity of $400,000.
I am acutely aware of the weight of all the submissions that Mr Stone put about the strength of the applicant's case on the evidence adduced to date. Central to that case is, of course, the Letter which provides very persuasive corroboration of what Mr Pittorino has sworn were the facts. [Mr P.M. Nisbet QC, who with Mr A.J. Gabrielson appeared for the respondents, submitted that the Letter was inadmissible because it was not stamped. He claimed that the Letter was chargeable with duty as a conveyance or transfer of property, being marketable securities. The parties addressed me at some length on this issue. However, I do not propose to give detailed reasons for my ruling (which I now make) that the Letter is not stampable and is admissible into evidence as being a most relevant document. Its relevance is that it strongly corroborates Mr Pittorino's sworn evidence of what took place between the parties. It is sufficient, at this stage, for me to say that in my opinion the Letter does not "effect" the agreement pleaded but rather is evidence that there was such an oral agreement - see Metro Taxi Management Pty Ltd v. Commissioner of State Taxation (W.A.) (1995) 95 ATC 4,671 at p.4,673 and Peko-Wallsend Operations Ltd v. Commissioner of State Taxation (W.A.) (1989) 89 ATC 4,569 at p.4,579 and the authorities there cited.]
Next I deal briefly with some objections taken on behalf of Penale to the evidence adduced by the applicant in support of the motion for summary judgment. First there was the objection that the corporate nature of the applicant had not been sufficiently verified. In my view, the uncontradicted evidence of Mr Leighton (a director of the applicant) to that effect (which is uncontradicted by other evidence) is sufficient in the circumstances. Then it is said that Mr Leighton's affidavit of 17 January 1997 does not identify Mr Pittorino as an officer, servant or agent of the applicant. It will be remembered that until 3 April 1997 Penale in its cross-claim was alleging that matter as a fact. I consider that there is sufficient evidence both in Mr Pittorino's affidavit and in Mr Leighton's later affidavit (referred to above) to identify Mr Pittorino as an agent of the applicant. Then Penale complains that Mr Leighton's affidavit does not swear to the material facts in support of the cause of action. Again, all that Order 20 rule 1 of the Federal Court Rules requires in that regard that "there is evidence of the facts on which the claim ... is based". In my view there is such evidence. I refer to Mr Pittorino's affidavit. Furthermore, Mr Leighton as a director of the applicant has sworn to his belief that Penale has no defence to its claim [see Order 20 r.1(1)(a)]. Mr Leighton exhibits (to his first affidavit) the Letter. The Letter would, in my view, justify Mr Leighton in holding such a belief.
On the other hand, Mr Conway has, on oath, set out what he says are the facts. If Mr Conway's oral evidence at the hearing is to the same effect and if he is believed then the claim against Penale will quite probably fail. I do not regard Mr Conway's versions of the facts as "inherently incredible" (the words used by the High Court in Webster v. Lampard at p.608). My assessment of the whole of the material is that I cannot say without doubt that there is no question to be tried on the issue whether or
not Mr Conway on behalf of Penale reached the alleged agreement with Mr Pittorino on behalf of the applicant. Nevertheless my view is that the material as to the merits of the defence are only just sufficient to raise a triable issue. Mr Conway, on his own evidence, was aware that a "sweetener" would be required by the proposed subscriber for the 2 million shares in Exploration. He sent a fax on 14 May 1994 suggesting how many shares could be made available as such a "sweetener". Then there is the Letter sent five days later confirming that Penale will transfer the Shares. The authorities talk about a defence as being "shadowy". I would not use that adjective because of the connotations of that word. Rather, I have formed the opinion that, on the evidence at this stage, the applicant's case is a strong one and the defence (when assessed in all the surrounding circumstances) is not a particularly strong one. I appreciate, however, that Mr Conway's credibility will be critical in the eventual disposal of the matter. In short, I consider that Penale is entitled to its day in Court, subject to an appropriate condition. I consider that an appropriate condition would be that Penale should make a payment into Court. In those circumstances, the applicant submitted that the payment into Court should be of the total proceeds of the sale of Penale's shares in Holdings i.e. $4,250,466. Mr Stone referred to Mr Conway's evidence that the terms of sale are presently the subject of further negotiation. He described the arrangements as being still "fluid". Mr Stone submitted that there was no evidence of any binding agreement relating to the assumption of debts totalling $2,000,466, being the debts referred to above. Alternatively Mr Stone sought an injunction restraining Penale from dissipating, transferring or realising any of its assets without first giving his client 14 days notice of its intention to do so and giving full details of each of the transactions proposed. By way of a further alternative, if settlement did not take place in respect
of the sale, Mr Stone sought a similar injunction in respect of the Holdings shares.
The effect of an order for payment into Court of the amount sought by the applicant would be to provide it with security to the extent of about 70% of its claim - see Commercial Banking Company of Sydney Ltd v. Colonial Financiers of Australia Pty Ltd [1972] VR 702 at p.705. Given how much turns on Mr Conway's credibility, I do not think that such an order would be just. I think that there should be an order for payment into Court, but not to that extent. In drawing that conclusion I have had regard to the present and likely future financial circumstances of Penale. In all those circumstances, I consider that as a condition of not having summary judgment entered against it for damages to be assessed, Penale should pay into Court an amount of $2 million. I deal below, in the context of the applicant's motion for a Mareva injunction, with Mr Stone's submissions that a similar injunction should be imposed as a condition of giving Penale "leave to defend". I put that phrase in quotations because there is no specific provision in the Federal Court Rules for granting leave to defend either conditionally or on terms. Such a provision is commonly found in rules of court providing for summary judgment - see for example Order 14 rule 4(3) of the Rules of the Supreme Court 1971 (W.A.). However, in Tomlinson v. Cut Price Deli Pty Ltd (1992) 38 FCR 490 Drummond J took a course which effectively gave the cross-respondents leave to defend, on terms. I respectfully propose in this matter to adopt a course which, in principle, I consider to be similar.
Whether a Mareva injunction should be granted
The principles upon which a Mareva injunction may be granted are now well-established. I propose, without reciting them, to apply them to the facts of this case.
First, for the reasons which I have set out above, I consider that the applicant has established a good prima facie case.
Next, I am satisfied that, unless restrained, Penale will deal with its assets in a fashion so that if the applicant is successful, it will not be able to have its judgment satisfied. That conclusion is subject always to the matter of the payment into Court of $2 million. Mr Nisbet submitted that, on the evidence before the Court to date, the applicant was already in that position. In my view the answer to that submission is that, where appropriate, a Mareva injunction is available to prevent the situation from becoming worse i.e. a lesser degree of recovery. I do not consider that it is necessary to show an intent on the respondent's part to frustrate an applicant. I think it is sufficient to show the necessary effect - see Riley McKay Pty Ltd v. McKay [1982] 1 NSWLR 264 at p.276. The current state of the evidence is that the real consideration for the sale of Penale's shares in Holdings is $4,250,466 of which $2,000,466 is to be applied in assumption of the debts referred to above. Although these debts are unsecured, there is no evidence that they are not real debts of Penale. In other words, they should be taken into account when assessing the net worth of Penale. To a considerable extent the application for a Mareva injunction has, in my view, been subsumed in my decision in relation to the motion for summary judgment i.e. the applicant will have (assuming it is successful in the principal application) security to the extent of $2 million if the monies are paid into Court. A Mareva injunction does not provide an applicant with security, it simply prevents dissipation. I do not
consider that it would be, in all the circumstances of this matter, a proper exercise of the discretion to make an order which would preclude Penale from making what appear to be bona fide arrangements for the discharge of existing indebtedness.
The dissipation to which I have referred above is rather to the use to which Penale proposes to put the cash component of the purchase consideration namely $2,250,000. On Mr Conway's evidence, almost half that amount is to be advanced to his wife to settle the purchase of a house in Mosman Park. The balance, so it is proposed, is to be applied in relation to the purchase of shares in a French fishing company and litigation in the United Kingdom. If I had not made an order for payment into Court, I would probably have made orders that the monies to be advanced to Mrs Conway be secured by first mortgage and that the balance of the cash be the subject of a Mareva injunction.
However, because of the various matters which I have mentioned above in relation to the motion for summary judgment, I consider that the adjustment of the respective interests of the parties requires that Penale make a payment into Court. That consideration overrides, in my view, the interest which Penale has in advancing some $900,000 to Mrs Conway, which I would otherwise have ordered to be secured.
Accordingly, I do not propose to grant a Mareva injunction in any of the forms proposed by the applicant. Nevertheless, I do not propose to dismiss the motion for a Mareva injunction. It may be necessary, depending upon how events transpire, to protect the applicant's interests, for example if Penale does not make any payment into Court. Accordingly, that motion will be adjourned generally, with liberty to apply.
I propose to make orders in terms of the minute of orders which precedes these reasons for judgment. However, I will hear counsel in relation to the terms of the orders.
I certify that this and the preceding twenty-nine
(29) pages are a true copy of the Reasons for
Judgment of Justice Carr.
Associate:
Date: 9 April 1997
Counsel for the Applicant: Mr D M Stone
Solicitors for the Applicant: Williams & Hughes
Counsel for the Second Respondent: Mr P M Nisbet QC (with him Mr A J
Gabrielson)
Solicitors for the Second Respondent: Messrs Deacons Graham & James
Date of Hearing: 4 April 1997
Date of Judgment: 9 April 1997