Supreme Court of NSW|1998-07-17|Before: Mason P, Sheller JA

Frigo v Culhaci Matter No Ca 40414/98 [1998] NSWSC 393 (17 July 1998)

The Supreme Court of New South Wales Court of Appeal

NATURE OF JURISDICTION: DISTRICT COURT - JUDGE CHRISTIE QC

Error of law - failure to give reasons for decision

Mareva injunctions - requirement for undertaking as to damages - grounds for - proper form

Appeal and new trial - error of law - failure to give reasons for decision - dismissal of motion that mareva injunction be set aside

Evidence - inadmissibility - communication made in connection with an attempt to negotiate a settlement of the dispute - Evidence Act 1995, s131

Injunctions - mareva injunctions - requirement for undertaking as to damages - grounds for - standard of proof

Injunctions - mareva injunctions - proper form - provision for living expenses, payment of debts, legal expenses - maximum sum limit - qualification that injunction did not apply "in the ordinary course of business"

Legal Practitioners - barristers - duty to court - undertaking as to damages - interlocutory injunction - order made ex parte - duty of full disclosure - dissolution of injunction

Mr Culhaci (plaintiff/respondent) contracted with Mr Frigo (appellant) and Mr Sica for them to construct six units on a property owned by Mr Culhaci. By early 1998 the parties were in dispute and the plaintiff terminated the contract on 17 February 1998. By Statement of Claim filed in the District Court on 20 May 1998 the plaintiff sued the appellant and Mr Sica for $162,803 damages, interest and costs. On the day of commencing proceedings the plaintiff moved ex parte for mareva injunctions against the defendants.

In the proceedings before his Honour Judge Christie QC, two affidavits were tendered by counsel for the plaintiff. The first affidavit was sworn by the solicitor for the plaintiff which proved that a home unit was transferred to the appellant in 1995 for $60,000 subject to a mortgage in favour of Westpac Banking Corporation. It was later transferred to the appellant's sister for $62,000, the transfer and fresh mortgage registered sometime before 25 March 1998.

The second affidavit was sworn by the plaintiff. It established a prima facie case of breach of contract sounding in damages in the amounts claimed in the Statement of Claim. One of the annexures to the affidavit was a letter dated 3 March 1998 from the appellant's solicitors to the respondent's solicitors. The letter was headed "WITHOUT PREJUDICE", and contained admissions as to the ability of the appellant to remain solvent in the context of dispute settlement negotiations.

Christie DCJ was not offered nor did he require an undertaking as to damages. On 21 May 1998 his Honour made orders, in summary, restraining the defendants from disposing of or mortgaging any of their assets except in the ordinary course of business. Further, the defendants were required to file and serve affidavits setting out their assets and liabilities, and in the case of the appellant, certain other information. On 29 May 1998 the appellant filed a Notice of Motion seeking to have the orders made on 21 May 1998 set aside. Judge Christie dismissed the motion with costs, without any reasons except those appearing in the course of dialogue between bench and bar.

HELD, setting aside the injunction for the following reasons:

(1) A judge is under a general duty to give reasons, in order to facilitate the proper exercise of rights of appeal.

Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247; Beale v Government Insurance Office (NSW) (1997) 25 MVR 373, applied.

(2) A mareva injunction must be granted subject to an undertaking as to damages. The continuing absence of the undertaking should have led to the dissolution of the ex parte orders, including those requiring the defendants to file an affidavit disclosing their assets and liabilities.

Kerridge v Foley (1968) 70 SR(NSW) 251; National Australia Bank Ltd v Bond Brewing Holdings Ltd [1990] HCA 10; (1990) 169 CLR 271, applied.

(3) The admissions contained in the letter of 3 March 1998 were clearly inadmissible as they were part of a communication made in an endeavour to settle a pending dispute - Evidence Act 1995, s131.

(4) A plaintiff must establish, by evidence and not assertion, that there is a real danger that, by reason of the defendant absconding or removing assets out of the jurisdiction or disposing of assets within the jurisdiction, the plaintiff will not be able to have the judgment satisfied if successful in the proceedings. The evidence relied upon at the contested hearing fell far short of this standard.

Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, applied.

(5) The plaintiff's reliance upon the inadmissible material in the "without prejudice" letter of 3 March as a basis for obtaining ex parte relief amounted to a lack of that level of candour which is to be required of an applicant for ex parte relief.

Thomas A Edison Ltd v Bullock [1912] HCA 72; (1913) 15 CLR 679, applied.

Discussion of counsel's duty to the court in relation to an undertaking as to damages.

Discussion of the proper form of a mareva injunction. In particular,

(1) Provision should be made for the defendant to have access to his or her own assets for living expenses, payment of debts and legal expenses. Ideally such a provision should be included from the outset. If not, it should be engrafted at the earliest appropriate time.

Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552; Glenwood Management Group Pty Ltd v Mayo [1991] VicRp 45; [1991] 2 VR 49; Polly Peck International plc v Nadir (No 2) [1992] EWCA Civ 3; [1992] 4 All ER 769, applied.

(2) It is the practice for mareva injunctions normally to be qualified by a proviso that limits the restraint against disposal of assets so that it does not exceed the sum which the plaintiff may be thought likely to recover.

Z Limited v A-Z and AA-LL [1982] 2 QB 558; Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552, applied.

(3) The qualification in order (1), to the effect that it did not apply "in the ordinary course of business" should have been phrased by reference to the ordinary course of the defendant's business.

3. Set aside the interlocutory orders against the appellant first made on 20 May 1998 and continued (as amended) on 5 June 1998.

4. Respondent to pay the appellant's costs of the interlocutory proceedings in the District Court.

5. Respondent to pay appellant's costs of the appeal, but to have a certificate under the Suitors' Fund Act if qualified.

THE COURT: Mr Culhaci (the plaintiff/respondent) owned a property at Chullora. He contracted with Mr Frigo (the appellant) and Mr Sica for them to construct six units on the site. Contract works commenced on 26 May 1997 and, according to the plaintiff, were required to be completed by 8 November 1997. The work was not completed. By early 1998 the parties were in dispute with the plaintiff terminating the contract on 17 February 1998.

By Statement of Claim filed in the District Court on 20 May 1998 the plaintiff sued the contractors for $162,803 damages, interest and costs. On the day of commencing proceedings the plaintiff moved ex parte for mareva injunctions against the defendants.

Counsel for the plaintiff appeared before his Honour Judge Christie QC armed with two affidavits dated 20 May. The first affidavit, sworn by Richard Watson, the solicitor for the plaintiff, relevantly proved that a home unit at Port Macquarie was transferred to the appellant in 1995 for $60,000 subject to a mortgage in favour of Westpac Banking Corporation. It was transferred to Christina Maria Frigo for $62,000 pursuant to a Transfer stamped on 11 March 1998. The Westpac mortgage was discharged and a fresh mortgage granted. The transfer and mortgage were registered sometime before 25 March 1998.

The second affidavit was sworn by the plaintiff. It established a prima facie case of breach of contract sounding in damages in the amounts claimed in the Statement of Claim. Before us counsel for the appellant accepted this proposition. There was also specific evidence, given on information and belief, that Mr Sica was in the process of dispersing his assets and preparing for bankruptcy. The mareva injunction granted against him has not been challenged in this appeal.

Several letters were annexed. They trace the eruption of the building dispute from October 1997 onwards, including correspondence between solicitors for the parties endeavouring to negotiate its resolution. The proprietor and builders were each claiming money from the other and asserting that the other was in breach. One of the annexures was a letter dated 3 March 1998 from the appellant's solicitors to the plaintiff's solicitors. It is headed "WITHOUT PREJUDICE". Relevantly it states:

"On our instructions the position may be summarised as follows:-

...5. Our client has no funds or assets of (sic) means of raising funds which would enable him to finance any part of the completion of the works taken over, then abandoned, by his former partner ....

11. Our client has no assets from which he can meet any judgment entered against him as a member of the former partnership ....

We have advised Mr Frigo that if proceedings are commenced against him he should forthwith lodge a debtor's petition for bankruptcy ....

Accordingly we are instructed that our client offers to resolve the present dispute on the following terms, subject to contract:-....

The plaintiff's solicitor's reply was also marked "without prejudice".

The affidavit concluded with the conventional statement of the plaintiff's fear that unless the defendants were restrained from disposing or further encumbering their assets they would either dispose of or reduce their equity in their assets.

Christie DCJ was not offered nor did he require an undertaking as to damages. Nevertheless, he made the following orders (ex parte) on 21 May 1998:

1. Until further order the defendants, whether by themselves, their employees, agents, attorneys or otherwise, be restrained until further order:

(a) from disposing of or mortgaging (or increasing any mortgage liability) or encumbering or dissipating or dealing with in any manner whatsoever any of their assets whether such assets be within or outside the jurisdiction;

(b) in the case of any such assets within the jurisdiction, from removing such assets from the jurisdiction;

2. The first defendant, within seven (7) days of service of a copy of this order, file and serve an affidavit setting out:

(b) whether he has received any funds in connection with the transfer of the land referred to in Certificate of Title Folio Identifier 3/SP18069 from the first defendants to Christina Maria Frigo and if so how and when the said funds were dispersed.

3. The second defendant file and serve, within seven (7) days from the date of service of this order, an affidavit setting out his assets and liabilities.

4. The plaintiff serve with a copy of this order:

(b) Affidavit of Richard Watson sworn 20 May 1998

(c) Affidavit of Daniel Culhaci sworn 20 May 1998.

5. Time for service of this order and the documents referred to in order 4 be abridged to on or before 9.00pm on 21 May 1998.

6. The Notice of Motion filed 20 May 1998 (and referred to in order 4(a)) be stood over to 10.00 am on 25 May 1998 at Level 15, 86-90 Goulbourn Street, Sydney NSW 2000.

The entered orders warned each of the defendants that if they disobeyed the orders they were liable to sequestration of property and imprisonment.

According to an affidavit of service filed on behalf of the plaintiff, copies of the Statement of Claim, Notice of Motion, the two affidavits and the order were handed to a person admitting to be Mario Frigo on 21 May. However, the appellant has sworn that the documents were not served upon him. Nevertheless, it is clear that the documents came to his attention, at least on the following day Friday 22 May. He contacted his solicitor that day and arrangements were made for the orders to be continued "without prejudice and without admissions" to 5 June 1998. Orders to this effect were made on 25 May 1998, being the return date of the plaintiff's original Notice of Motion.

On 29 May 1998 the appellant filed a Notice of Motion seeking to have the orders made on 21 May 1998 set aside. He relied on an affidavit of Fofi Zeglis sworn 29 May 1998. Ms Zeglis is a solicitor employed by the appellant's solicitor. She swore that she had the carriage of the sale of the Port Macquarie home unit. The purchaser was Mr Frigo's sister and the contract for sale was made on 10 March 1998. She annexed a valuation report showing a current fair market value of the fee simple of the subject property, with vacant possession, as $58,000. On this basis a contract price of $62,000 could scarcely be challenged on the ground of sale at undervalue.

On 29 May 1998 Acting Judge McLaughlan adjourned the appellant's Notice of Motion to 5 June, the adjourned hearing date of the plaintiff's original Notice of Motion. However, the judge amended the original orders by adding to Order 1 the words:

"and without prejudice to the rights of the First Defendant to dispose of his assets for the purpose of legitimate debts and ordinary living expenses and legal costs."

At the same time the sum thus capable of being disposed of was limited to $1500. Costs were reserved. The two adjourned motions were heard by Christie DCJ on Friday 5 June 1998. In addition to the evidence already summarised, Mr Frigo relied upon a further affidavit asserting that he had not been personally served with any documents.

On 28 May the appellant's solicitor wrote to the plaintiff's solicitor foreshadowing various challenges to the orders originally made on 21 May. These were advanced by counsel for the appellant Frigo before Christie DCJ on 5 June. His Honour was informed that service had been effected on 21 May on Mr Frigo's father whose name, like the son, was Mario Frigo. This appears to have been accepted by counsel for the plaintiff, but it does not appear to have been advanced as a ground for dissolving the orders. After all, the documents had been served on a person admitting to the same name as the defendant on the day on which they were ordered to be served, and those documents came to the defendant's attention no later than the following day. The injunctions were continued by consent on and after 25 May. Whatever the position in relation to the enforcement of the orders were it to be alleged that the appellant had breached them in some way, no challenge was pressed on this account.

The challenges advanced by the appellant's counsel before Judge Christie were:

1. No undertaking as to damages had been obtained.

2. There was no evidence that the appellant was disposing of his assets.

3. No provision was made for expenditure on the necessities of life and legal costs. It was contended that this omission had led to an urgent and unnecessary application by the defendant (on 29 May) to vary the original order so that the appellant could use his assets to buy groceries and petrol.

4. The order froze the entirety of the appellant's assets and was not limited to the extent of the appellant's claim in the proceedings.

5. The order should not have been made in reliance on the admissions contained in the "without prejudice" letter of 3 March 1998.

Following dialogue with counsel the learned judge announced:

"Mr Dodson I haven't the faintest intention of setting aside these orders, not the faintest, not on the basis of what I have seen".

Subsequently, the appellant's notice of motion was dismissed with costs. No reasons were given except those which appear in the course of some equally robust dialogue between bench and bar. This is unfortunate and sufficient in itself to justify appellate review. After all, this was the effective return date of a contested interlocutory application having very considerable significance for the parties, especially the defendant.

The orders made by Christie DCJ on 21 May and 5 June must be set aside for several reasons. Before stating them we make some general remarks.

On existing authority, the District Court has jurisdiction to grant a mareva injunction in a proper case as an incident of its jurisdiction in a particular action: see Registrar, Court of Appeal v Pelechowski (Court of Appeal, unreported, 28 October 1997); District Court Act s46(1). (We have not overlooked the fact that the High Court has granted special leave to appeal in Pelechowski. That case is however distinguishable from the present in that it deals with a mareva injunction granted after final judgment. In any event, the mere pendency of an appeal to the High Court does not provide a sufficient basis for declining to follow a recent decision of this Court.)

But the jurisdiction must be exercised only in proper cases and in accordance with proper procedure. Section 46(2)(c) of the District Court Act stipulates that in relation to the power of the District Court to grant any injunction which the Supreme Court might have granted:

"The practice and procedure of the Court shall, so far as practicable and subject to this Act and the rules, be the same as the practice and procedure of the Supreme Court applicable in the like circumstances."

A mareva injunction is an exceptional interlocutory remedy. Its function is to minimise the possibility of an unscrupulous defendant seeking to render himself or herself "judgment proof" by taking steps to ensure that no assets within the jurisdiction can be found on the day of judgment: see generally Jackson v Sterling Industries Limited [1987] HCA 23; (1987) 162 CLR 612 at 622. However it is a drastic remedy which should not be granted lightly. We agree with the comment in Meagher, Gummow and Lehane, Equity Doctrines and Remedies 3rd ed s[2188] that:

"It is obvious that by obtaining a Mareva injunction even an innocent plaintiff can wreak havoc with the defendant's business, and an unscrupulous plaintiff can ruin his opponent...."

A mareva injunction is an interlocutory order which, if granted, imposes a severe restriction upon a defendant's right to deal with his or her assets. It is granted at the suit of a plaintiff whose status as a creditor is in dispute and who need not be a secured creditor. Its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to

"provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant's insolvency." (Abella v Anderson [1987] 2 Qd R 1 at 2-3 per McPherson J)

In Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) [1998] HCA 30; (1998) 72 ALJR 873 at 892 Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ approved the following passage from Jackson (at 619):

[The mareva injunction] `exists not to create additional rights but to enable a court to protect its process from abuse in relation to the enforcement of its orders. It is neither a species of anticipatory execution nor does it give a form of security for any judgment which may ultimately be awarded'.

Many authorities attest to the care with which courts are required to scrutinise applications for mareva injunctions. The leading decision in this State is Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319. See generally Alan Sullivan QC, "Mareva Injunctions - Preparation and Conduct of Applications for (and Opposition to) a Mareva Injunction" (1991-92) 8 Australian Bar Review 205; Meagher, Gummow and Lehane, op cit ss [2185] ff; Kunc, "Mareva Injunctions" in Parkinson ed, The Principles of Equity chapter 20.

This is not the occasion for a definitive analysis of the conditions and restrictions attending the exercise of the power to grant this form of injunction. In Patterson, Gleeson CJ said (at 321-2):

"The remedy is discretionary, but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that, by reason of the defendant's absconding, or of assets being removed out of the jurisdiction of disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied."

Proof of the defendant's insolvency is not itself sufficient: Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545. There must be evidence of at least a more than usual danger of assets being removed: Patterson.

In framing the order, counsel for the plaintiff should bear in mind that a court exercising equitable jurisdiction generally will only grant to a plaintiff by way of interlocutory relief the minimum relief necessary to do justice between the parties: see eg Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 411.

The orders made below must be set aside for a number of reasons.

It is the practice of the Supreme Court for reasons to be given, albeit sometimes in short form, after the hearing of a contested motion for an interlocutory injunction. Section 46(2)(c) of the District Court requires no less. More importantly, the general duty to give reasons, and its rationale as including proper exercise of rights of appeal, is well established: see Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247; Beale v Government Insurance Office (NSW) (1997) 25 MVR 373.

We cannot conceive of circumstances where an ex parte mareva injunction should be granted otherwise than subject to an undertaking as to damages. See generally Kerridge v Foley (1968) 70 SR(NSW) 251. The continuing absence of the undertaking should have led to the dissolution of the ex parte orders, including those requiring the defendants to file an affidavit disclosing their assets and liabilities. Cf National Australia Bank Ltd v Bond Brewing Holdings Ltd [1990] HCA 10; (1990) 169 CLR 271 at 277.

The plaintiff has filed an affidavit in this Court indicating that his counsel had instructions at all times to give the necessary undertaking; and now proffering it, nunc pro tunc if necessary. However, Mr Gruzman has frankly acknowledged that no such undertaking was proffered on behalf of the plaintiff at any stage of the proceedings in the District Court, including the hearing on 5 June 1998 before Judge Christie. It has been suggested that the failure to extract an undertaking on the 5 June was an oversight on the judge's part. When the absence of an undertaking was advanced as a ground of opposition to the injunction his Honour rejoined "that can be adjusted in a minute". Unfortunately he never made the requisite adjustment. Even more unfortunately he was not reminded about this by counsel for the plaintiff. The onus was on the plaintiff through his counsel to ensure that the undertaking was offered and that the judge be reminded of his intention, if he had such intention, to include such undertaking in any continuation of the existing orders.

We regret to add that the failure to have drawn this matter to the attention of a busy judge who may have been inexperienced in matters of equitable jurisdiction represented a serious breach of counsel's obligations to the Court. See generally Ipp, "Lawyers' Duties to the Court" (1998) 114 LQR 63. His Honour should have been reminded of the legal principles, known to counsel, about an undertaking being the "price" of interlocutory relief at the suit of a private plaintiff.

It was quite wrong for counsel for the plaintiff to take the stance that an undertaking as to damages would be offered if and when but only if and when it was sought. He should have reminded the judge of this invariable incident of an interlocutory injunction of this nature at the time when the injunction was sought ex parte. Judge Christie should have refused to continue the interim injunction beyond 5 June unless and until such undertaking were proffered. And counsel for the plaintiff should have reminded the judge about this if it were thought, as has been submitted before us, that his omission to engraft this condition was an oversight. See National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386 at 560.

The absence of an undertaking as to damages is a severe detriment to a defendant who, if the proceedings fail, will be left without remedy against the plaintiff with respect to any loss flowing from obedience to the injunction. Before us, counsel for the plaintiff offered the undertaking nunc pro tunc. In the circumstances of the case, where the omissions to give the undertaking at the outset and on 5 June were not an oversight, we would dissolve the injunction on this ground alone.

The admissions contained in the letter of 3 March 1998 were clearly inadmissible. The letter as a whole represented a communication made in an endeavour to settle a pending dispute, albeit one that had not yet erupted into litigation. The admissions made on behalf of the defendant formed an integral part of the letter and were privileged: see Evidence Act 1995, s131. Before us counsel for the plaintiff conceded that none of the exceptions in s131(2) applied.

The transcript of the hearing of 5 June discloses that Christie DCJ was informed that day that the letter was without prejudice and that no attempt was made to demonstrate that it fell within any exception to the general rule of inadmissibility. Nevertheless, he took it into account because "it's here now, I've read it" (Tr p3). This should not have occurred.

4. Lack of evidence of threat to dispose of assets.

A plaintiff must establish, by evidence and not assertion, that there is a real danger that, by reason of the defendant absconding or removing assets out of the jurisdiction or disposing of assets within the jurisdiction, the plaintiff will not be able to have the judgment satisfied if successful in the proceedings. There has been much debate as to the precise degree of risk which must be shown: see generally Patterson. What is clear is that mere assertions that the defendant is likely to put assets beyond the plaintiff's reach will not be enough: Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398; Patterson.

The evidence relied upon at the contested hearing fell far short. The admissions in the "without prejudice" correspondence should have been ignored. The sale of an encumbered home unit at a figure above market value does not, standing alone, imply disposal of assets in order to defeat a prospective judgment, even where the purchaser is a close relative. Even if, which is doubtful, the appellant's suspension of work in the building contract could have been regarded as evidence of financial difficulties, it was not argued below that it had such effect. More importantly, that alone is not enough. A mareva injunction is not designed to stop a person from sliding into insolvency.

Before us the appellant also submitted that the plaintiff's reliance upon the inadmissible material in the "without prejudice" letter of 3 March as a basis for obtaining ex parte relief amounted to lack of that level of candour which is to be required of an applicant for ex parte relief: see generally Thomas A Edison Ltd v Bullock [1912] HCA 72; (1913) 15 CLR 679. We note that Judge Christie indicated on 5 June (Tr p3) that he had not previously been aware of the fact that the letter was written without prejudice. Counsel for the plaintiff, who had acted for the plaintiff at all stages in the litigation in the District Court, advanced in the Court of Appeal (for the first time) the argument that the relevant parts of the letter were in some way outside of the privilege. We have already indicated why this submission must be rejected. If it was part of counsel's contention that this was the case at the time of the ex parte application, then it was incumbent upon him to draw the matter to the judge's attention and to advance the argument why exceptionally there should have been no undertaking as to damages. Cf Hoechst UK Ltd v Chemiculture Ltd [1993] FSR 270 at 273. This did not occur. This is a further basis for dissolving the injunction. Indeed it is a factor that would have been very relevant had the plaintiff moved on notice for fresh injunctions: see Ali and Fahd Shobakshi Group Ltd v Moneim [1989] 1 WLR 710; Behbehani v Salem [1989] 1 WLR 723 (n).

The defendant's objections to the form of the existing injunction were ignored by Judge Christie when he continued the orders. This should not have occurred. Ultimately, however, the injunctions must be discharged for the reasons given above. Nevertheless, we offer the following comments about the form of mareva injunctions, which are necessarily tentative especially since time did not permit full argument on this issue.

There is useful discussion about the proper form of mareva injunctions in Kunc loc cit, at s[2020]; Gee QC, Mareva Injunction and Anton Piller Relief, 3rd ed 1995 chapter 3; Halsbury's Laws of Australia "Injunctions" [325-2890].

Three aspects of the form of orders made in the present case deserve attention:-

(a) Exception for living expenses and legal fees

Provision should be made for the defendant to have access to his or her own assets for living expenses, payment of debts and legal expenses. Ideally such a proviso should be included from the outset. If not, it should be engrafted at the earliest appropriate time: Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552 at 569; Glenwood Management Group Pty Ltd v Mayo [1991] VicRp 45; [1991] 2 VR 49 at 55-6; Polly Peck International plc v Nadir (No 2) [1992] EWCA Civ 3; [1992] 4 All ER 769 at 785. From 29 May onwards the injunction against the appellant was appropriately qualified apparently by consent, and (again apparently by consent) a one off drawing of $1500 was allowed. There are difficulties with this type of approach: see Meagher, Gummow and Lehane, op cit s[2187]. Since, however, there may well have been agreement on this matter, and since we have not heard argument upon it, we would not dissolve the injunction on this ground alone.

It is the practice for mareva injunctions normally to be qualified by a proviso that limits the restraint against disposal of assets so that it does not exceed the sum which the plaintiff may be thought likely to recover: Z Limited v A-Z and AA-LL [1982] 2 QB 558 at 576, 589; Clark Equipment at 568.

The usual form of such an order restrains the defendant from disposing of assets "save insofar as the unencumbered value of such assets exceeds $...": see Williams' Civil Procedure Victoria at 4280-1; Ough, The Mareva Injunction and Anton Piller Order 2nd ed 1993 at 22. Even this form is arguably ambiguous insofar as a defendant with encumbered assets exceeding the limit might take the view that it will be enough if he or she brings into account the unencumbered value of those assets without taking into account the amount for which they are charged or mortgaged. Tighter drafting would see the qualification recast as:

"save to the extent that the value of the defendant's unencumbered interest in such assets does not fall below $...."

Maximum sum orders seek to frame relief that is no more extensive than that to which the plaintiff is entitled, and they may obviate the necessity of contested applications by the defendant needing access to assets for legitimate purposes, including those discussed in (a) above: see Z Ltd at 589.

But it must, however, be recognised that they present difficulties of enforcement, even when precisely cast. There are at least two difficulties. The first was identified by McPherson J (as he then was) in Abella v Anderson [1987] 2 Qd R 1 at 4. His Honour said that he regarded as a defect in the form of the order the fact that it was expressed by reference to assets of the defendant in a sum of money. He referred to the fact that, insofar as the defendant's assets did not consist of cash, it would presumably be necessary for the defendant to have them valued in order to ensure that he or she avoided contravening the Court's order. McPherson J pointed out that this was contrary to the requirement that the language of an injunction should not be ambiguous, uncertain or indefinite.

The second difficulty exists when the mareva injunction is directed at a bank or other third party. In Z Ltd, Lord Denning MR (at 576) and Kerr LJ (at 589-90) spoke of the problems faced by a third party that could not be expected to know the value of the defendant's assets - at least unless and until the defendant complied with the common ancillary order requiring the filing of an affidavit of assets and liabilities.

These difficulties are avoided in cases where it is clear from the outset that the defendant's assets do not exceed the sum claimed by the plaintiff, although here the order may run into other difficulties given that it is not the function of a mareva injunction to give the plaintiff a preferential right over creditors. In Z Ltd, the English Court of Appeal reached the conclusion (somewhat tentatively) that a "maximum sum" order was fairer than an unlimited restraint as a general rule.

In some cases these difficulties can be met by agreement, sometimes reached after the return date of the notice of motion for interlocutory relief, or in the light of the assets disclosed by the defendant.

Because this matter was not fully debated before us, and because the order must clearly be discharged for other reasons we leave further discussion of this difficult issue for an appropriate case.

The injunction in the present case contained no maximum sum limitation. Judge Christie intimated in argument (Tr p5) that he was not disposed to amend the orders in this way unless and until the appellant disclosed his assets. There may be cases where this is appropriate, but it was an unjustified reversal of the onus of proof in the present matter.

The qualification in order (1), to the effect that it did not apply "in the ordinary course of business" should have been phrased by reference to the ordinary course of the defendant's business. The wider exception is inherently vague and ambiguous and this undermines effective enforcement through contempt proceedings.

3. Set aside the interlocutory orders against the appellant first made on 20 May 1998 and continued (as amended) on 5 June 1998.

4. Respondent to pay the appellant's costs of the interlocutory proceedings in the District Court.

5. Respondent to pay appellant's costs of the appeal, but to have a certificate under the Suitors' Fund Act if qualified.

Frigo v Culhaci Matter No Ca 40414/98 [1998] NSWSC 393

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Frigo v Culhaci Matter No Ca 40414/98 [1998] NSWSC 393 (17 July 1998)

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Cases Cited (10)