DGL Mobile Computer Services Pty Ltd v Lichtenstein

REASONS FOR JUDGMENT 1 This proceeding was commenced by application filed on 8 December 2010. The applicant is DGL Mobile Computer Services Pty Ltd (ACN 098 643 880) (DGL). By that application, DGL seeks to restrain the respondents, Dov Gershon Lichtenstein and Lmlich Pty Ltd (Lmlich), from alleged conduct arising out of a new business commenced by the respondents. DGL alleges the new business was commenced in breach of Mr Lichtenstein's duties under the Corporations Act 2001 (Cth). In addition, DGL raises other breaches, including breaches of confidence and, further or alternatively, alleges that the respondents engaged in misleading and deceptive conduct in representing that Lmlich was either DGL, the successor to DGL, or related to it. 2 These proceedings are vehemently opposed. The parties have been unable to resolve their differences. On 10 December 2010, the respondents, by their Counsel, provided undertakings to the Court, including an undertaking not to dissipate any of their assets except in the ordinary course of business. The matter is set down for hearing on Wednesday, 6 April 2011. The respondents seek to vary the undertaking to which I have referred to read as follows: Not to dissipate any of their assets except in the ordinary course of business or by the payment, or provision of security for the payment, of bona fide and reasonable legal fees. (Emphasis added.) 3 Mr Lichtenstein filed an affidavit in support of the application in which he deposes to the fact that he retained P&B Law as his solicitors on 1 March 2011 and that that law firm has now requested funds be placed in its trust on account of costs and disbursement in this proceeding, including Counsel fees. His affidavit further states that due to cash flow constraints, he is unable to meet this request and that his only realisable asset of any worth is his family home, which he jointly owns with his wife, where he holds equity of about $75,000. He goes on to state, unsurprisingly, that, given the short proximity of time to the hearing date, he has been unable to secure a loan or an extension of his home loan to meet payment of the funds required. Nevertheless, P&B Law have indicated that they are willing to continue acting on behalf of the respondents provided their fees and expenses are secured by a charge over Mr Lichtenstein's interest in the family home. P&B Law have indicated to him, so he states in his affidavit, they are not otherwise prepared to act. He goes on to state that he has been told by his solicitors that the undertaking does not restrict him from paying his bona fide and reasonable legal fees or securing his fees, but out of an abundance of caution, he seeks variation to the undertaking I have referred to. 4 It is now well established that where a Mareva has been granted, it can not extend to prevent a respondent from having access to his own assets to the extent necessary to meet legitimate expenses such as ordinary living and business and legal expenses: see in particular, Clout (Trustee) v Anscor Pty Ltd [2001] FCA 174 at [19] - [21] and Practice Note CM9 - Freezing Orders, para 5. 5 Despite this principle, DGL opposes the variation sought by the respondents on 3 bases. First, that the proposal is open-ended and that the fees to be charged are not disclosed. Secondly, that the undertakings to which I have referred, which were given last December, were the result of discussions and agreements and that what the respondents seek to achieve is a variation to that agreement. Thirdly, that as a result of the agreement reached in December, the current proposal by the respondents would result in the only equity available to them being "fizzled away in legal fees". Alternatively, Mr Whelen, Counsel for the applicant, submitted that the respondents would not oppose the variation if it was subject to DGL being given a priority over the respondents' legal fees. 6 I would grant the variation sought by the respondents. First, it is common ground that the purpose of a freezing order is not to prevent frustration or abuse of the process of the Court (of which there is no allegation), and, more particularly, not to provide security in respect of a judgment or order. What DGL seeks is to achieve by its opposition to the variations to that order is precisely that. 7 Secondly, contrary to the submissions of DGL, Counsel for the respondents have informed the Court that the legal fees are in the vicinity of $75,000. That itself is probably irrelevant because the variation to the undertaking sought the provision of bona fide and reasonable legal fees. 8 For those reasons, I would grant a variation to the undertaking granted by the respondents by their Counsel on 10 December 2010 in recital F as follows: Not to dissipate any of their assets except in the ordinary course of business or by the payment, or provision of security for the payment, of bona fide and reasonable legal fees in this proceeding. 9 I will make orders accordingly. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.