This matter comes before me today, 22 December 2022, pursuant to a notice of motion filed by the first and second defendants on 20 December 2022 seeking variations of earlier freezing orders made on 2 December 2022.
Mr Dimeo, solicitor, appears for the first and second defendants. Mr Hallahan, of counsel, appears for the plaintiff.
The orders sought today by the first and second defendants are, in essence, a variation of the freezing order to permit payment of reasonable legal expenses by the first and second defendants up to $100,000 (when the existing order limits the amount to $50,000).
The matter first came before the Court by way of an ex parte application brought by the plaintiff on 2 December 2022, for the purposes of seeking freezing orders in respect of the property and assets of the defendants. At that time, N Adams J made the orders sought by the plaintiff on an ex parte basis and made various procedural orders.
The matter was due to come before the Court on 6 December 2022, at which time I understand that some consent orders were made. The matter then came before Lonergan J on 15 December 2022, essentially for the purposes of extending the freezing order and, as I understand it, to deal with the question of costs. The matter then came before Chen J on 19 December 2022, at which time no orders were made.
The proceedings involve the alleged sale of gold bars by the plaintiff, who was a gold investor, to the first defendant by two separate agreements. The second defendant is the director of the first defendant. The third defendant is a company, of which the second defendant is a sole director.
In support of their application (that is, the application only by the first and second defendants), the first and second defendants rely on an affidavit of their solicitor, Justin Gibb Bates, sworn 20 December 2022. They have also provided me with helpful written submissions.
In his affidavit, Mr Bates sets out the procedural history of the matter, the nature of the allegations that are made and provides some detail as to the work undertaken to date. As he says in his affidavit, at [24]:
"Costs to date are in the range of $45,000 to $55,000 including an allowance for the preparation and hearing of the application to vary the freezing orders to increase the amount of reasonable legal expenses ...."
Mr Bates then goes on to say that the likely cost of work, which he believes will have to be undertaken over the next five to six weeks, is $65,000 to $80,000, which he says "may be incurred with respect to any one or more of the defendants or [Oli Private Investment Pty Ltd] (depending on which of them may remain active)". He details the work that he intends doing, which includes preparing the defence, seeking particulars, preparing any cross-claim, briefing counsel, interviewing potential witnesses, preparing affidavits of potential witnesses, commencing preparation of evidence of the defendants, considering any notices to produce and subpoenas, negotiating timetabling or attending on the directions hearing on 6 February 2023. He estimates, on a preliminary basis, that the first and second defendants' costs, assuming a three-day hearing, will be in the range of $200,000 to $300,000.
Mr Dimeo submits that, having regard to the evidence of Mr Bates (to which there is no challenge), I would make the orders sought in the motion. This would increase the amount which the defendants may pay, and which is not subject to the freezing order, to $100,000 per defendant.
Mr Dimeo appropriately refers me to those cases which set out the well-known principle that "a freezing order should make provision for the paying of reasonable legal expenses": see Deputy Commissioner of Taxation v Bollands [1] and Goumas v McIntosh. [2]
I accept, as a matter of principle, that any freezing order may make provision for the payment of reasonable legal expenses. However, this is provided that there is a proper basis for a defence. I hasten to add that in some circumstances, those representing a defendant will not be able to determine whether there is a proper basis for a defence but at least, in my view, in a case like this, that is something which the legal representatives of any defendants would wish to understand and be instructed on very early in the proceedings.
Mr Hallahan submits, on behalf of the plaintiff, that the motion is premature for the reason that, on a fair reading of Mr Bates' affidavit, the costs which have been incurred to date are around $45,000 in total and the current freezing order already has in it an exception which is a permission for each of the defendants to pay up to $50,000, on account of reasonable legal expenses, thereby making the total pool $150,000. He says it follows that, at least on one view, there should be more than adequate provision for the payment of reasonable legal expenses on the existing freezing orders.
On the commencement of the application, I asked Mr Dimeo to provide some indication as to the nature of the defence. He frankly acknowledged that he was not able to do so, other than to say it is more likely to be "legally based" than "factually based". He suggested that the current timetable did not require the defendants to file a defence until the end of January and thus, proper instructions have not yet been taken on the nature of the defence. He says that the second defendant, who is instructing his firm, is currently in Bangkok.
I accept what Mr Dimeo says. However, I find it somewhat surprising that, having incurred up to $45,000 in legal fees, the solicitors for the defendants are unable even to indicate to the Court what the nature of the defences might be.
As I said to Mr Dimeo, I was not seeking to bind him, but the Court needed to understand that (as far as he was concerned at this time), there was at least an arguable defence.
In National Australia Bank Ltd v Human Group Pty Ltd (No 2), [3] Henry J observed that, in circumstances in which a party sought to vary freezing orders so as to prevent defendants from having recourse to company assets for the purposes of paying their living legal and business expenses, "that party must establish that it has a prima facie or arguable case for a proprietary claim to [the company] assets generally." [4] Whilst the circumstances of that case are quite different to this one, in my view, by analogy, in circumstances in which a party seeks to vary freezing orders to increase the amount allowed for legal expenses, it is incumbent upon that party to at least demonstrate that there may be an arguable defence. In this matter, the exception to the freezing orders is that each of the defendants may pay reasonable legal expenses up to $50,000; that is, $50,000 each.
The first and second defendants have come to court today to say essentially that that amount is not enough and that the orders should be varied to allow each of the first and second defendants to spend up to $100,000 in legal fees.
Although there was some indication when the matter came before Chen J that this application may be premature, the defendants have decided to pursue it at this time. Whilst I accept what Mr Bates says, and it is no doubt a genuine estimate, I have difficulty with his suggestion that it will be necessary to undertake all of the work which he refers to, even before being in a position to file a defence.
In the circumstances, I accept the submission of the plaintiff that this application is premature. Whilst I may be persuaded to make the orders sought in the motion in due course, I would not make the orders sought in the motion increasing the amounts allowed for legal costs until the defendants are able to inform me of the nature of their defence.
In the circumstances, I will:
1. stand this motion over before me to 10am on Wednesday, 1 February 2023, by which time the defendants would have filed their defence;
2. vacate the directions hearing before the Registrar on 6 February 2023; and
3. make orders for the future conduct of the matter on 1 February 2023.
If the defendants wish to pursue this motion or any other motion at that time, they may do so. I direct that the defendants notify my chambers and (of course) the plaintiff by 5pm on 27 January 2023 as to what orders they will be seeking on 1 February 2023. Similarly, the plaintiff should inform my chambers prior to Friday, 27 January 2023 as to what orders they will be seeking on 1 February 2023.
Should, despite what I have just said, the defendants consider it necessary to revisit the motion before 1 February 2023 because they have spent more than the amounts allocated, then they may apply to the duty judge on three days' notice at any time in January 2023. However, bearing in mind what I have said, I would expect that the solicitors for the defendants would, at the least, annex to any affidavit their bills of costs verifying the amounts that they have spent.
I order the first and second defendants to pay the plaintiff's costs of today's proceedings.
[2]
Endnotes
[2012] FCA 1050 at [22] (McKerracher J).
[2002] NSWSC 713 at [23] (Barrett J).
[2020] NSWSC 1900 ("National Australia Bank").
National Australia Bank at [105].
[3]
Amendments
23 August 2023 - Judgment certification stamp removed.
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Decision last updated: 23 August 2023