Clout (Trustee) v Anscor Pty Ltd

(b) she may charge, mortgage, encumber or secure 530 Gold Creek Road Brookfield on condition that any such charge, mortgage, encumbrance or security shall rank subsequent to and not prejudice any charge over or other interest in that property to which the applicant may be held to be entitled in these proceedings for or in relation to $59,855.25 or part thereof and interest at 9 per cent per annum thereon from 24 October 2000.

3. The first and ninth respondents pay the applicant's costs of and incidental to their notice of motion filed 21 February 2001 to be agreed or failing agreement to be assessed.

4. The costs of and incidental to the applicant's notice of motion filed 17 January 2001 be reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

BETWEEN: DAVID LEWIS CLOUT (AS TRUSTEE IN BANKRUPTCY OF THE ESTATE OF GEOFFREY ROBERT DEXTER)

THORNVILLE PTY LTD IN ITS OWN CAPACITY AND IN ITS CAPACITY AS TRUSTEE OF THE ANSCOR EXECUTIVE INCENTIVE TRUST AND THE THORNVILLE EXECUTIVE INCENTIVE TRUST

1 I have before me a notice of motion filed by the applicant trustee on 17 January 2001 for an interlocutory restraint in the nature of a Mareva injunction on the ninth respondent's right to deal with two of her properties at Anstead and Brookfield. On 18 January the hearing was adjourned by consent to 22 February, the respondent consenting to an order to operate until then in terms of the relief sought by the trustee. I have also before me a motion by the first and ninth to twelfth respondents filed 21 February in which variation of "the mareva orders made in these proceedings on 31 May 2000 and 18 January 2001" is sought, to allow these respondents to utilise the assets the subject of those two orders as security for borrowings for the purpose of enabling them to pay various expenses and outgoings, including legal fees in respect of this and other actions in which they are involved. 2 On 31 May 2000, on the application of the present applicant, the trustee in bankruptcy of the estate of GR Dexter, who was the promoter of the Wattle investment scheme, I issued Mareva injunctions after a contested hearing restraining each of the first and the ninth to twelfth respondents from dealing with certain assets of each that were specified in the injunctions. The properties at 76 Cantwell Street, Anstead and 530 Gold Creek Road, Brookfield owned by the ninth respondent were expressly excepted from these injunctions. 3 The trustee's motion now seeks in effect to extend the Mareva restraint to these two properties. In May last the trustee sought Mareva injunctions covering the entirety of the assets of the first and the ninth to twelfth respondents, subject only to the ninth respondent, Mrs Corbett, being at liberty to use these assets to pay up to $50,000 in respect of these respondents' legal costs of this action and to be at liberty to expend a sum not exceeding $1,000 per week for her ordinary living expenses. 4 As appears from the reasons I published on 31 May last, I refused to grant the universal restraint being sought other than in respect of the first respondent. I limited the other Mareva injunctions to the particular assets which the evidence before me then suggested had been purchased by each of the ninth, tenth, eleventh and twelfth respondents from moneys paid to them by the first respondent from commission moneys it in turn had received from Dexter between February 1997 and March 1998, when Dexter's scheme collapsed as a result of action taken against him by the Australian Securities Commission (as it then was). 5 Although the first respondent's relationship as agent for Dexter had commenced well prior to February 1997, the trustee has limited his claim in the action under s 120 the Bankruptcy Act 1966 (Cth) against the first respondent to the commission moneys it received from Dexter only from February 1997. The trustee also claims an entitlement to trace some of the moneys so received by the first respondent into properties now owned by the ninth to twelfth respondents. 6 In May last the evidence suggested that the commissions in respect of which the trustee was pursuing its claims totalled approximately $20 million. It is now admitted in the amended pleadings filed since I gave that judgment that the true figure is nearly $25.5 million. 7 I incorporate the reasons I gave for making the orders of 31 May 2000 in these reasons. The respondents justify their resistance to the trustee's attempt to bring the Anstead and Brookfield properties under Mareva restraint and their claim to the variation of the orders of 31 May 2000 on the basis that they intend to use these assets to obtain borrowings to pay outstanding legal fees and other debts already incurred and to be incurred and that that is not a risk of dissipation which justifies a Mareva order. Counsel for the respondents tendered the summary of these expenses totalling approximately $600,000. Of this sum, $114,000 or thereabouts is identified as legal expenses already incurred in the present action and $208,000 is estimated as legal expenses to be incurred by all five respondents from now until trial. A further $105,000 or thereabouts has been incurred in certain Supreme Court proceedings in which these five respondents are involved, with a further $115,000 being estimated as the legal expenses to be incurred in the future in connection with those proceedings. The other major items of expense totalling about $42,000 already incurred in connection with the criminal proceedings that have been brought by the Australian Securities and Investment Commission and a further $125,000 being estimated as the expenses likely to be incurred in the future in defending those charges. Further sums totalling about $60,000 were also identified as expenses incurred by each of the five respondents in respect of rates, land tax, accountancy fees in connection with taxation services and other business expenses. 8 The trustee's for Mareva relief in May last was then based upon the receipt by the ninth, tenth, eleventh and twelfth respondents from the first respondent of commission moneys received by it from February 1997. In the reasons I published on 31 May last, I refused to make the ninth respondent's properties at Anstead and Brookfield subject to the Mareva restraint I then issued for the reason that these properties were purchased by the ninth respondent in 1994 and the trustee had failed to show any basis upon which it would be proper to grant relief then sought against her in respect of them. I also limited the Mareva injunctions then issued against the tenth, eleventh and twelfth respondents to the specific property which the evidence before me indicated, to the requisite level of cogency, had been acquired by those respondents with moneys received from the first respondent from February 1997. Because I refused to grant the trustee's application for a restraint upon the totality of the assets of the ninth, tenth, eleventh and twelfth respondents, I declined to make any order in favour of the ninth respondent giving her limited access to the frozen assets for the purpose of meeting legal and living expenses proposed by the trustee when he sought the universal restraint on all of the assets of the ninth to twelfth respondents as well as the first respondent. 9 It is important for present purposes to set out my reasons for reaching these conclusions.

"[27] Subject to one qualification, Clout seeks a general restraint upon Mrs Corbett, Anscor Investments, Thornville and Croftby Downs' dealing with any of their assets, including the various properties to which I have referred. The qualification is that Clout proposes an order which will leave Mrs Corbett free to incur and pay costs reasonably incurred in these proceedings up to an amount of $50,000 and to expend a sum not exceeding $1,000 per week on her ordinary living expenses.

[28] For the reasons given, while Clout has made out an entitlement to wide-ranging Mareva-type relief against Anscor, he has shown an entitlement against the four new respondents only to relief in respect of the real properties of each of them and the equipment and improvements on Croftby Downs' farm acquired with Anscor moneys from February 1997. Given this and given that upwards of $20,000,000 has passed through Anscor's hands since February 1997 when Mrs Corbett has been its sole director and that Clout has only been able to point to what has become of part of that large sum and given further that the respondents to the motion have not provided any explanation for what has become of the $20,000,000 received by Anscor from Dexter since February 1997, I think that the wide-ranging relief sought against Anscor and the limited relief I am prepared to grant against each of the four new respondents will do justice between Clout and those respondents in the present context. I will not give Mrs Corbett access to any of the assets the subject of the restraints I propose to impose as suggested by Clout, a suggestion based I think on Clout's unjustified assumption that the Court will impose a total freeze on all of the respondents' assets."

10 As I have mentioned, it is now agreed that from February 1997 until March 1998 the first respondent in fact received nearly $25.5 million in commission from Dexter rather than the $20 million or so I mentioned in [28] of my earlier reasons. In those reasons I placed significant weight on the absence of any evidence from the first or ninth respondents explaining what had become of a very large part of this sum of $25.5 million and on the trustee's inability to identify its fate from the information then available to him. I took that aspect of the evidence then before me into account not only in refusing to qualify the restraints I then imposed in respect of the first and ninth respondents to give them access to the frozen assets to meet their legal and other expenses, but also in concluding to the relevant level of cogency that there was a risk that unless restrained, the first, tenth, eleventh and twelfth respondents (of which the ninth respondent has at all relevant times been sole director) would so act to deal with their assets as to frustrate enforcement of any judgment the trustee might obtain against them. 11 Although the Mareva restraint has been in place since May 2000, and although the trustee filed his notice of motion seeking to extend that restraint on 17 January, it was not until 21 February, the day before the hearing, that the present respondents filed their motion seeking access to the frozen assets for the purpose of meeting their expenses. Importantly, they did not initially file any material to throw any light upon the issue on which I place such importance in my judgment of May 2000, viz, what had become of the very large amount of the $25.5 million that the trustee has not been able to identify. 12 When this matter was raised in argument on 22 February, the first response of senior counsel for the respondents was to say that the trustee has now conducted extensive public examinations including examination of the ninth respondent and now has the documents of the first and ninth to twelfth respondents and there is no evidence of any assets held by any of these respondents apart from those the subject of the orders of 31 May that could generate the moneys they need to meet their expenses. When I suggested that it was for the respondents as claimants for a variation to the Mareva injunctions to show that they needed access to the frozen assets to meet their expenses, counsel then sought an opportunity to file further evidence, something done on Friday, 23 February. 13 As to the trustee's application with respect to the ninth respondent's two properties, it appears from the material before me now that between 26 March 1996 and 17 April 1997 the ninth respondent procured the discharge of a mortgage to an arm's length third party over her Anstead property by paying it $345,000 from moneys she obtained from the first respondent from moneys it in turn obtained from Dexter by way of commissions. It further appears that between 26 March 1996 and 3 February 1997 the ninth respondent also procured the release by the same third party of a mortgage over her Brookfield property by paying $175,000 which she raised by way of loan from the Bank of Queensland secured by a mortgage she then granted to the Bank over that property and by the further payment of $51,820 from moneys she obtained from the first respondent from moneys it in turn obtained by way of commissions from Dexter. It further appears that she made at least twelve monthly repayments of $1,331 to the bank in respect of this mortgage, again, from moneys she obtained from the first respondent. 14 The trustee accordingly seeks orders in the action that the ninth respondent holds both these properties on trusts he is entitled to enforce for the benefit of the estate to the extent that the original third party mortgages over both properties were discharged with moneys the ninth respondent obtained from the first respondent and to the further extent, in relation to the Brookfield property, that she expended moneys in paying amounts due under the Bank of Queensland mortgage from moneys she also received from the first respondent. 15 In May last in the context of dealing with the trustee's claim for Mareva relief, I held that he had an arguable case that he was entitled under s 120 the Bankruptcy Act to avoid the transfer by Dexter to the first respondent of almost the whole of the commission moneys paid to that respondent from February 1997. I also held that the trustee had an arguable case against each of the ninth, tenth, eleventh and twelfth respondents, that properties which they purchased with moneys obtained from the first respondent (whose only substantial business was its agency relationship with Dexter) after January 1997 were also impressed with either a resulting or a constructive trust in favour of the first respondent which the trustee could enforce against them. 16 I exempted the ninth respondent's properties at Anstead and Brookfield now sought to be made subject to Mareva restraint on the ground that the evidence before me did not reveal any basis upon which the trustee would be entitled to the equitable relief now sought against the ninth respondent in respect of those two properties, given that they had been purchased by the ninth respondent in 1994. The evidence now before me in relation to these two properties indicates that the trustee has an arguable case against the ninth respondent in respect of them on the same basis which I accepted he had shown in May last in respect of the properties of the ninth to twelfth respondents which I then made subject to the Mareva orders. 17 I so concluded whether or not the moneys which it appears the ninth respondent received from the first respondent from Dexter commission moneys were at all times the first respondent's moneys or whether they were received by her by way of loan from the first respondent. See [11], [12], [13] and [15] of the reasons I gave in May last. At the hearing on 22 and 23 February last, it was not disputed, otherwise than on two particular bases, that the trustee has now made out a case, in accordance with the principles I referred to in [6] of my reasons of 31 May 2000, for a Mareva restraint over the ninth respondent's Anstead and Brookfield properties to the extent set out above. 18 These two bases are, first, that an intention to use frozen assets to meet ordinary expenses does not give rise to such a risk of dissipation of assets as can justify Mareva relief or continued Mareva relief and, secondly, it was said a question has arisen as to the worth of the trustees undertaking as to damages given in connection with the Mareva restraints obtained and sought. 19 This first submission by the respondents can be accepted. The principle is sometimes put on the basis that a Mareva injunction cannot be used to give the applicant security in respect of an as yet unliquidated claim, that its sole legitimate object is to prevent a respondent, pending final adjudication, from disposing of assets where the respondent's object in doing that is to abuse the process of the Court by ensuring that, if the applicant is successful in the litigation, its judgment will be an empty one. It is plain that even in a case in which a Mareva restraint is justified it can never extend to prevent a respondent from having access to its own assets to the extent necessary to meet legitimate expenses such as ordinary living and business and legal expenses. 20 But at least where, as here, a Mareva restraint is imposed only on part of the assets of a respondent in an action, the respondent who seeks a relaxation of the restraint has an evidentiary onus, if not a full persuasive onus to show that it has no other assets beyond those covered by the injunction to which it can resort to meet the expenses in question. In A v C (No 2) [1981] 2 All ER 126, Robert Goff J held that on an application to vary a Mareva injunction that had been granted over part only of a respondent's assets to permit the payment of legal costs of the action out of the assets the subject of the restraint, that it was not enough for the respondent to merely state that it owed money to someone but had instead, to show that it did not have any other assets available out of which the expenses could be paid. Rogers J took the same approach in Australian Iron & Steel Pty Ltd v Buck [1982] 2 NSWLR 889 at 890. See also Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552 at 568 to 569. 21 In this case the significance of the present respondent's failure to explain what has become a very large part of the $25.5 million received by the first respondent in commissions between February 1997 and March 1998 was emphasised by me in the reasons I gave when I granted the Mareva injunctions in May last in respect of part only of the respondent's assets for refusing to qualify those injunctions so as to give those respondents access to the frozen assets to meet any of their expenses. 22 The trustee has limited means only of ascertaining what has become of this very large sum which the first respondent received in the short period of thirteen months or so while under the sole control of the ninth respondent. It is true that the trustee has conducted public examinations of the ninth respondent and others including her accountant and financial adviser, and that, earlier this month, he received from the respondents their financial records, some in electronic form, records which he says in the short time available he has not yet been able to examine in detail. In these circumstances it is, I think, a matter of practical necessity for the present respondents and in particular the ninth respondent to show that no significant portion of the large part of $25.5 million received by the first respondent from Dexter, which the trustee has been unable as yet to identify, remains accessible either as cash or other property to any of these respondents. Only by doing that will the present respondents now be able to say that the frozen assets, and in the case of the ninth respondent her properties at Anstead and Brookfield, do comprise the totality of the assets upon which they have to rely to meet the expenses they have referred to. 23 In the affidavit material filed on behalf of the first and ninth to twelfth respondents on 23 February last directed to this issue, nothing more is said about what has happened to this large sum than that all receipts by the first respondent of commission moneys from Dexter and all disbursements by the first respondent from those moneys are properly recorded in the first respondent's accounting records recently provided to the trustee. 24 Mr Corbett, who at his wife's request, on 17 January 2001 replaced her as sole director of the first, tenth, eleventh and twelfth respondents, says that an examination of these records "will show how the funds paid out of Anscor's bank accounts have been disposed of". He also says "neither I nor any of the first, tenth, eleventh or twelfth respondents have the funds to meet the various expenses" referred to in the respondents' material. Mrs Corbett in her recently filed material deposed to the truth of the matters set out in her husband's affidavit. She also says she was not asked any questions in the course of her examination under s 81 the Bankruptcy Act on what has become of the commission moneys received by Anscor Pty Ltd from the Wattle Group, and that it was not suggested to her in the course of that examination that there were funds received by Anscor from the Wattle Group that were unaccounted for. The respondents' solicitor, Mr Saunders, in an affidavit sworn on 23 February, also deposes to the fact that the respondents' external accountant, Mr Atchison, and their financial adviser, Mr McAuley, were not questioned during the examination about what had become of the commission moneys received by the first respondent from Dexter "save for some specific payments" and that it was not put to either of those persons that there were funds received by the first respondent from Dexter "that were unaccounted for". 25 The question of present importance, however, is not so much whether the disbursements from Anscor's account of the entirety of the commission moneys received by it from Dexter after February 1997 are all recorded in its records, but rather whether any of the first, tenth, eleventh and twelfth respondents and, in particular, the ninth respondent has access to any of this money or other assets, apart from the assets the subject of the orders of 31 May 2000. 26 Given the very large amount of moneys in question, the application of which the trustee has not been able to identify in the limited time available to him, I am not prepared to accept the general assertions of the respondents as taking the question of whether the ninth respondent, in particular, has access to assets comprising or generated from the large amount of moneys received by the first respondent from Dexter, the application of which the trustee has not been able to account for. 27 On 26 June 2000, I ordered that Pacific International Asset Management Limited (PIAM) be joined as thirteenth respondent. No Mareva injunction has been issued to it. PIAM's relationship with the first and ninth to twelfth respondents is dealt with at some length in my reasons of 31 May. The evidence before me indicates that on 26 March 1998, ie, at the time Dexter's investment scheme collapsed, PIAM transferred $1.155 million of moneys it then received from the first respondent into its Brisbane account and from that account to an account in Singapore. PIAM is represented by the same solicitors who are representing the first and ninth to twelfth respondents in this action. 28 Trustee's counsel submits that in defending the trustee's claims against it, the issues PIAM is interested in litigating are relevantly the same as those which the first and ninth to twelfth respondents have to make out to defeat the trustees claim on them. PIAM disputes the making by Dexter to the first respondent of payments within s 120 and it disputes the entitlement of the trustee to trace into various assets of the ninth, tenth, eleventh and twelfth respondents such of those moneys as were received by the first respondent from Dexter. The trustee accordingly submits that only one set of costs will be incurred by the first and ninth to twelfth respondents and PIAM in this action and that, given the $1.155 million that PIAM received from the first respondent and moved offshore to Singapore in early 1998, there is good reason for thinking that that particular respondent has assets which it can properly apply in meeting the expenses of defending the action against it, a defence of which the first and ninth to twelfth respondents can take advantage. 29 But, notwithstanding the submission by trustee's counsel as to the thirteenth respondent being in the position to run a defence to the trustee's claims in the present action, which will inure for the benefit of the first and ninth and twelfth respondents, that consideration of itself can at most provide a reason for limiting the variation sought by the first and ninth and twelfth respondents to the orders of 31 May 2000 so as to leave the thirteenth respondent to fund the defence in the present action. It is no answer of itself to the respondents' claim that they need access to the frozen assets to meet the other expenses not associated with this action which they have identified. 30 In his affidavit filed on Friday last, Mr Corbett says of this $1.155 million received by PIAM, that in the period from about June 1998 through to early 2000 these moneys have been spent in the following manner:

"a) Approximately $600,000.00 has been spent during that period on the various overheads, costs and expenses of Anscor Pty Ltd, including the payment of significant legal costs associated with the various court actions that Anscor Pty Ltd, my wife and I are involved in;

b) An amount of approximately $300,000.00 has been spent on the Croftby Downs Farm, including normal overhead and operating expenses as well as an olive grove plantation;

c) The balance of approximately $200,000.00 has been utilized in various smaller investments which have not been successful."

31 Though Mr Corbett has long been involved in the respondents' dealings with PIAM and since January last has been the sole director of the first respondent, he can only provide this very general information as to the application of the $1.155 million, of which the first respondent is said to be trustee. 32 The applicant trustee has obtained some limited information touching on this issue. The statements sent by Pacific International Trustees Limited to the first respondent dated 31 March 1998 show that, as at 30 March 1998, $1,150,810 was held by Pacific International Trustees Limited, apparently an associate of the thirteenth respondent, for the benefit of the superannuation fund of which the first respondent is trustee. The applicant trustee has also obtained a letter dated 21 September 1998 from Mr Francken of the thirteenth respondent to Mr Corbett which encloses "a summary of the movements in the Singapore account of the Anscor Superannuation fund until the end of August". This statement shows an opening balance at an unidentified earlier date of $939,782 and the closing balance as at 31 August 1998 of only $64,384. Major disbursements are identified only as "Loan Depalex $300,000"; "Investment Marlinn Mushrooms $60,000"; and "Investment Internation Fin. Facilities $480,000". This information, limited though it is, is not consistent with what Mr Corbett has to say by way of explaining how the $1.155 million of moneys provided by the first respondent to the thirteenth respondent in March 1998 has been disposed of. 33 Mr Corbett's evidence, particularly in the way he deals with the application of the Singapore moneys, does not lift the cloud of obscurity over the accuracy of his general assertion, and that of his wife and the other respondents to the present interlocutory proceedings, that they are, apart from the frozen assets, bare of assets. The respondents have accordingly failed to show they need access now to the frozen assets (and to the Anstead and Brookfield properties) to meet the expenses they have referred to. 34 Although it was not an issue in May 2000, the other ground upon which the respondents oppose the extension of the Mareva injunction to the ninth respondent's properties at Anstead and Brookfield, and contend for the variation sought to the Mareva injunctions issued in May last, is the question mark those respondents say now exists against the worth of the undertakings as to damages which the trustee gave in May, and which he will have to extend, if the Anstead and Brookfield properties are to be subject to Mareva-type restraint now. 35 The evidence relevant to this issue is substantially, though not completely, contained in the exchange of correspondence between the solicitors for the first and ninth to twelfth respondents, and the solicitor for the trustee about this matter. To show the worth of his undertaking, the trustee relies upon income he has received in the form of one interim dividend of $100,000 paid prior to 4 August 2000 and the further interim dividend of $760,000 received on about 19 October 2000 in respect of the liquidation of a company, Foundation Technologies Pty Ltd. The trustee said on 3 January 2001 he then held about $600,000 as the balance of these two interim dividends, and that he expected a further dividend, unspecified in amount, to be paid by the liquidator of this company. 36 The trustee thus says he has moneys, substantial in amount, to meet his own costs of his administration, including his costs of this action, and any liability he may have in damages should he ever have to make good his undertaking to any of the first and ninth to twelfth respondents. But it is apparent that if the trustee loses the action and becomes liable on his undertaking as to damages, it is likely that only a fairly modest sum will be available from the $600,000 to make good the undertaking. 37 However, it is, on the material before me, difficult to do more than speculate about the quantum of any damages that the respondents may be able to recover from the trustee if he has to make good his undertaking. It is said that the tenth respondent has been deprived by the Mareva injunction of the opportunity of earning what is said by Mr Corbett to be "a significant income stream" from the tavern project which sparked the trustee's application of May 2000 for Mareva relief and to which I referred in my reasons of 31 May. 38 The claim made that the damages suffered by reason of the tenth respondent's inability to enter into this project will amount to "a minimum amount of some $3.750 million, and possibly considerably higher" must necessarily involve a good deal of speculation since it is dependent upon the tavern achieving an annual level of profitability sufficient to enable it to pay the tenth respondent at least $150,000 per annum over a very long period of time - twenty-five years. 39 It is also said that but for the grant of the Mareva orders in May last, the tenth respondent would have entered into a successful project for the development and sale of olive plantations on its farm; this, it is said, would have generated an initial profit of some $300,000, followed by an entitlement for a period of some ten years to an annual management fee of $150,000. The viability of such a project, which would appear likely to depend in part on investors receiving taxation benefits, is impossible to assess on the material before me. 40 I am not prepared, on the information presently available, to find that the capacity of a trustee to give an effective undertaking as to damages is so questionable, in view of the highly speculative nature of his exposure, that variation of the orders of 31 May 2000 is warranted or that extension of the Mareva restraint to the ninth respondent's properties at Anstead and Brookfield should be refused for that reason. 41 The respondents' notice of motion will be dismissed. Upon the trustee giving the usual undertaking as to damages, there will be an order along the lines of par 1 of the trustee's notice of motion, although that will need some modification. I will hear the parties on the form the order should take. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond.

Counsel for the Applicant: Mr McMurdo QC and Mr Quayle

Solicitor for the Applicant: Mallesons Stephen Jaques

Counsel for the First and Ninth Respondents: Mr Cooper SC

Solicitor for the First and Ninth Respondents: Shand Taylor

Dates of Hearing: 22 and 23 February 2001

Date of Judgment: 26 February 2001