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Frigo v Culhaci [2014] NSWSC 672 | Case summary | Zoe

NSWNSWSC

Frigo v Culhaci

[2014] NSWSC 672

Supreme Court of NSW|2014-05-15|Before: Bergin CJ, Mr JJ, Deane J, Bathurst CJ, Gleeson CJ, Meagher JA

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2014-05-15

Before

Bergin CJ, Mr JJ, Deane J, Bathurst CJ, Gleeson CJ

Source

Original judgment source is linked above.

Judgment (1 paragraphs)

[1]

EX TEMPORE Judgment 1The plaintiffs and the first defendant, the liquidator of Gerard Cassegrain & Co Pty Ltd, make application pursuant to a Notice of Motion filed on 17 January 2014 to restrain the third defendant, Felicity Cassegrain, from dealing with her assets in the manner outlined in paragraph 1 of that Notice of Motion. 2The affidavit evidence in support of that motion is that of Andrew Joseph James Lacey sworn 14 March 2013. The application was heard on 15 May 2014 when Mr Ashhurst SC, leading Mr Colyer, of counsel, appeared for the applicants, and Mr JJ Garnsey QC, leading Mr R Raffell, of counsel, appeared for the respondent, to whom I will refer as Felicity without any disrespect. 3The matter is procedurally untidy. The application needs to be viewed in the light of my two judgments in Denis Cassegrain & Ors v Gerard Cassegrain & Co Pty Ltd & Ors [2012] NSWSC 403 and [2012] NSWSC 834. It also needs to be viewed in the context of the judgment of the Court of Appeal in Gerard Cassegrain & Co Pty Ltd (In Liquidation) v Cassegrain [2013] NSWCA 455. 4Although the Motion was originally fought on a wider basis the parties sensibly confined the real issues in dispute to two matters; one, the strength of the case as to whether any serious amounts might be awarded after the inquiry in relation to equitable compensation; and two, whether there was any evidence to support the granting of this order. 5The submissions on behalf of Felicity included written submissions referring to general legal principles and in particular r 25.14(4) of the Uniform Civil Procedure Rules which provides relevantly: (4) The court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur:

    (b) the assets of the judgment debtor, prospective judgment debtor or another person are:
    ---
    (ii) disposed of, dealt with or diminished in value.

6That rule reflects what was said by Deane J in Jackson v Sterling Industries Ltd (1987) 162 CLR at 612. Further analysis of the rule is to be found in more recent times in what Bathurst CJ said in Severstal Export GmbH v Bhushan Steel Ltd [2013] NSWCA 102. 7It is necessary on this application to be sensitive to caution: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 per Gleeson CJ, (with whom Meagher JA and Rogers A-JA agreed) at 324. It is also necessary to bear in mind that it is an exceptional remedy: Frigo v Culhaci [1998] NSWCA 88. 8The applicants rely upon the following findings in the judgment [2012] NSWSC 403: [218] I am satisfied that Claude and Mr Sarks were in breach of their fiduciary duty to GCC in failing to obtain an independent valuation of GCC's shares in TTO and OAL prior to the transfer of the shares to their wife and daughter respectively. I am also satisfied that Claude and Mr Sarks transferred the shares to Felicity for the illegitimate purpose of Claude and Felicity gaining control of the assets necessary to conduct a tea tree business and gaining control of OAL's capacity to prosper from the outcome of the Gardiner Proceedings. On Claude's own evidence there was also the improper purpose of removing the risk of the minority shareholders appointing a provisional liquidator to GCC in any circumstances whatsoever, even if such appointment was a legitimate one. --- [253] It was not until mid January 2005 that the arrangements in relation to the share transfers were put in place. Felicity admitted that she knew her husband wished to prevent his siblings from commencing further litigation against him and she knew that the purpose of the transfer was to prevent them from appointing a provisional liquidator to GCC. This was a tactic in a long history of litigation between the warring siblings of which Felicity was well aware. I do not accept that Felicity believed that she was paying "proper value" for the shares. I am satisfied that Felicity had knowledge of circumstances that would indicate the facts to an honest and reasonable person. [254] I am satisfied that Felicity was in knowing receipt of the shares and is liable under the first limb of Barnes v Addy. --- [257] I have rejected Claude's claims that the share transfers were agreed to on 21 December 2004. I am satisfied that Claude did not move to have the OAL shares transferred to Felicity until the day of the AAT decision. This was not a coincidence. I am satisfied that Claude transferred the OAL shares to Felicity to ensure that they were out of the reach of a provisional liquidator and to hinder, delay or defeat creditors, whether the ATO or any other creditor. The transfer of assets of the company at undervalue results in prejudice to the plaintiff as a creditor of the company, particularly in the light of the AAT decision and the burden of the tax debt on GCC without the benefit of those assets. --- [260] I am satisfied that Felicity knew that on 21 December 2004 she agreed to loan $194,249.19 to GCC with the security of a fixed and floating charge over the assets of GCC and an Option to purchase the shares in OAL. I do not accept Felicity's affidavit evidence that she reached agreement with Claude in December 2004 that in exchange for the payment of $194,249.19, she would receive the shares in OAL and TTO for the book value of the shares and the balance would be treated as a loan to GCC. Felicity's oral evidence was most unconvincing. I am satisfied that her nervousness in the witness box, particularly when she claimed she was "confused" (as extracted in the cross-examination above), stemmed in part from her concern that she had said something inconsistent with the maintenance of a version of events that she knew to be inaccurate. Felicity knew that her husband wanted to avoid the appointment of a provisional liquidator and wanted to take steps to get the GCC assets beyond the reach of his siblings. I am satisfied that Felicity was well aware that those steps were not taken until mid-January 2005. Felicity has not established that she was a bona fide purchaser without notice. --- [286] On 1 December 2000 the Board of Expressway resolved that the Winery be offered for sale on the open market. On 22 December 2000 Expressway received a letter from Claude demanding that it be withdrawn from sale and suggesting that he may be interested in purchasing it. Mr Wardman responded to Claude on that day and invited him to make an offer to purchase the Winery. No offer was received by Expressway from Claude or Anne-Marie to purchase the Winery. 9Those findings are relied upon to ground the concern that there is a real risk that Felicity may deal with or dispose of her assets in an attempt to frustrate the judgment of this Court. As can be seen from the judgments referred to above, both at first instance and in the Court of Appeal, Felicity is now a party to an inquiry in respect of any equitable compensation for which she is liable, having regard to the transactions in respect of which her conduct is outlined in those findings. 10Mr Garnsey submitted that even if compensation is awarded it will not be very much. He made the point that so much money has been spent in legal costs that there must hardly be anything left. There is no evidence of that at this stage other than what has been recorded previously in judgments in respect of the long running litigation. Indeed, the whole purpose of the inquiry is to inquire into the nature of the transaction, the result thereof and the loss that was caused to the company by the various transactions. 11The applicants have secured findings. This is not a case in which the applicants are met with a submission that it does not have solid evidence in respect of the main case. However they are met with a submission that they do not have solid evidence in respect of the particular application they now make. Indeed, Mr Garnsey went so far as to say that the orders sought would be an unjustified imposition resulting from morbid and baseless speculation as to some dissipation of assets. 12The findings referred to above demonstrate that Felicity is a person who was willing to receive assets of a corporation with the knowledge that the purpose of the receipt was to put those assets beyond the reach of a liquidator and her husband's siblings who may well have a valid claim in respect of those assets. 13Felicity has been shown to be a person who would propound the claim that the transaction pursuant to which she received those assets was justified when she knew it was not accurate. The evidence on this application shows that the applicants have over the period since judgment sought to identify the value of the various assets owned by Felicity. There has, according to Mr Lacey's affidavit, been resistance to providing any detail as to whether the assets are encumbered and/or the true value of the assets that are held. Mr Garnsey submitted that this was a justified response because Felicity is not required to inform the applicants what assets she holds or the value of them. 14One of the purposes for the inquiry made by the applicants in this regard as to the value of the assets is to facilitate possible extra-curial arrangements to allay the concern of the applicants. For example, parties in this Court quite often agree that assets will not be reduced below a particular level, or alternatively they agree that they will not deal with their assets in a particular way unless giving notice to the other side. These are all reasonable steps to take, and indeed since judgment Felicity has, without admission and/or without prejudice, provided undertakings not to deal with her assets. 15However, the Plimsoll Line was reached in January 2014 when it appears that Felicity decided no further undertakings would be given and the plaintiffs and the liquidator were then forced to bring the Motion. Further undertakings were given by Felicity to facilitate the hearing of this Motion. It was interrupted by other things and neither party can be criticised for the delay in bringing the Motion on for hearing, four months after it was filed. 16Mr Garnsey submits that the evidence does not support a finding that Felicity would dissipate her assets to frustrate a judgment of the Court. Indeed, he was so bold as to submit that what occurred in the transaction pursuant to which Felicity received the shares was the building up of her assets. He submitted that this shows that she wished to build her assets up and keep them rather than dissipate them. 17What the evidence shows is that Felicity was willing to be a party to a process that presented what was claimed to be an accurate corporate record to justify the transaction by which the assets were transferred to her at a particular time and in particular circumstances. She was willing to propound that the corporate record was accurate by giving evidence that a transaction occurred as described in my judgment, when she knew it was not accurate. This was to justify the claim that she should keep the assets on the basis that the transaction was aboveboard, when it was not. 18There are some difficult cases where an applicant for a freezing order presents with a fear that there will be dissipation but with little, or sometimes no evidence. Here there is evidence and indeed findings that justify the fear that the assets may be put beyond the reach of the liquidator, as was the purpose of the transaction in the original purported sale to Felicity. 19I am satisfied that the evidence establishes that there is a real risk that unless restrained Felicity may dispose of, deal with or diminish her assets so that a prospective judgment may be wholly or partly unsatisfied. I am satisfied that an order should be made in terms of the Motion filed by the applicants on 17 January 2014 with an adjustment to add the words to the first order "without giving thirty days written notice to the applicants". oOo DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 May 2014