GE Capital Australia v Davis

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J WEDNESDAY, 26 SEPTEMBER 2001 4683/01 G E CAPITAL AUSTRALIA v TANA RUTH DAVIS & ORS Judgment 1 HIS HONOUR: This is an application by the plaintiff for what should now be referred to as a Mareva order rather than a Mareva injunction: see Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 401. The principles on which such relief is generally granted were usefully set out by Gleeson CJ when Chief Justice of this Court in Patterson v BTR Engineering (Australia) Ltd (1989) 18 NSWLR 319 where his Honour said at 321 - 322: "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 or 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."

2 As will be apparent from what follows, on the material before me the plaintiff has established a strong prima facie case that it will recover judgment against the first and second defendants (hereinafter referred to as "the defendants") against whom the relief is sought. However, this is a case where the matter is closer to the line in drawing the necessary inference that there is a danger of the dissipation of the defendants' assets so as to prevent satisfaction of a judgment if obtained. This matter must be looked at carefully because the courts have repeatedly emphasised that the Mareva order ought not be used simply as a form of security for the payment of a judgment yet to be obtained, but should be granted only in circumstances where such a danger is established. 3 The plaintiff advanced moneys to companies with which the defendants were associated. On 6 March 2001 those companies went into voluntary administration. On 7 March 2001 they had receivers appointed and on 21 May 2001 they were placed into liquidation. The defendants had guaranteed those companies' obligations. Certainly no later than the appointment of liquidators there was an event of default under the loan agreement so that the moneys became owing by the principal creditors and the defendants, as guarantors, became liable to meet those obligations if not met by the principal creditors. Notice of demand was served on the creditors on 4 September 2001. Despite extensive correspondence, to which further reference will need to be made, there has been no suggestion as to what the defence is to the claim against the defendants under their guarantees and the plaintiff must be regarded as having a strong prima facie case for the recovery of judgment against them. The amount of the potential judgment is quantified in the evidence as exceeding $500,000. 4 There is no evidence about the defendants' assets, save evidence relating to their home. The evidence shows that they live at 40 Cuzco Street, South Coogee ("the property") and that they own the property. The evidence suggests that upon a sale of the property there will be, after payment out of the mortgage debt, a surplus in excess of $600,000. The evidence shows that the property was put to auction on 15 September 2001. That is not sufficiently long after the service of the demands for an inference to arise that the sale of the property was triggered by service of the demands, but it is significant that it occurs not long after the companies of which the defendants were the guarantors had got into difficulties and gone to the wall and, despite opportunities given, no material is brought forward to give any explanation whatever for sale at that stage. Correspondence between the plaintiff's solicitors, Kemp Strang, and the defendants' solicitors, Hugh & Associates, commenced about 13 September and has continued in a steady stream since that time. The plaintiff threatened these proceedings and then, on 21 September 2001, approached Bryson J sitting as Duty Judge in this Division for leave to serve short notice of this application. On that day it filed a statement of claim propounding its claim on the guarantees. Bryson J gave leave to make the motion which I am dealing with returnable today in the Duty Court and gave leave to serve short notice by 5 pm on 21 September 2001. Process servers went to 40 Cuzco Street, South Coogee that afternoon and could not find the defendants. Before 5 pm on that afternoon they left the documents at those unattended premises. This does not, of course, constitute personal service as required by Pt 9 r 1 of the Supreme Court Rules 1970. Copies of the documents were also forwarded to the defendants' solicitors. 5 I do not think there is any useful purpose in my setting out the correspondence at length but it goes, in the short time span involved, through more than a half dozen letters. The defendants' solicitors concede in that correspondence that they act for the defendants, that the defendants live at 40 Cuzco Street, South Coogee, that they own the property and sold it by a contract exchanged on 19 September 2001 which provides for settlement 13 weeks after exchange. They asked on a number of occasions what the plaintiff's claim over the property was and a number of other questions about the nature of the plaintiff's claim against the defendants and the documentation supporting it. All their enquiries and requests for documents have been promptly and fully answered by the plaintiff's solicitors. The defendants' solicitor's correspondence continues to deny that there has been service upon the defendants and suggests that, on that basis, the plaintiff's application ought not be heard today, although it is clear that they are in possession of the documents and that they and the defendants are well aware of the application being made today. The plaintiff's solicitors have at all times made it entirely clear that the plaintiff claims no proprietary interest in the property but it claims relief by way of a Mareva order in relation to the judgment that it seeks against the defendants. The defendants' solicitors have been repeatedly invited to state what the defence to the action is and also to state what is intended to be done with the proceeds of sale of the property and impliedly, if not expressly, to be given some assurance that the defendants will not dissipate their assets so as to frustrate the execution of any judgment obtained. 6 Despite the continuing correspondence not a word has been brought forward as to what the defence against the claim may be, or as to what the defendants' financial situation and general position in life is. All that there has been is the cute assertion that, although the papers are in their possession, they have not been served in accordance with the Rules and that the Court cannot or ought not hear the plaintiff's application today but should hear it at some time next week or the week after, or some other time when their counsel can be here and a defence brought forward. There is no explanation as to why that cannot be done at least in some form today. This course of action is disingenuous. It would not have been attractive in 1951 and in 2001, with a profound change in the way that litigation is conducted in the courts of this State, it is even less attractive and may well be in breach of the obligations of both the defendants as litigants and their solicitors under Pt 1 r 3 of the Rules. 7 That particular lack of explanation does not of itself, of course, establish that the matter necessarily calls for a Mareva order to be made against the defendants. But on the issue of the likelihood of dissipation of their assets, the Court is left with evidence that the defendants' home with a large equity in it is on the market shortly after their companies have come to grief, leaving them exposed to a six figure claim under a guarantee. They are well aware both of the claim made by the statement of claim and the proceedings under the notice of motion for a Mareva order. Even if they are not able to bring forward a defence in final form, they have chosen not to inform the plaintiff or the Court of any area in which it may be thought they have a defence to the claim. It would, of course, be a case in which a Mareva order ought not be made if, however strong a claim for $600,000 there were against them, they were clearly going to continue themselves to be personally present in New South Wales and had large assets in this State against which a judgment could easily be executed. Again by choice, not a word is brought forward before the Court about their whereabouts, their intentions as to their own location, their property or their intentions in relation to their property. Bearing in mind all of the above circumstances, it is, in my view, possible to draw the inference referred to in Patterson's case that there is a real risk of the respondents removing or dissipating their assets and thereby depriving the plaintiff of the fruits of a judgment and I do draw that inference upon the material. 8 The relief by way of Mareva order that the plaintiff actually seeks is sensibly limited to such portion of the proceeds of the property as would be necessary to meet the plaintiff's claim under the guarantee and the costs of pursuing that claim. In those circumstances I am prepared to grant an order restraining the defendants from disposing of, charging, mortgaging or otherwise encumbering or creating an interest in the net proceeds of the sale of the property other than any amount in excess of $600,000 and from further charging, mortgaging or otherwise encumbering the property whilst it is still held by them. In the circumstances of the case I am prepared to make those orders until further order. I shall grant to the defendants liberty to apply to discharge the orders on three days' notice. I am also prepared to order that the defendants give to the plaintiff's solicitors written notice of any earlier settlement date of the sale of the property than 19 December 2001. I shall also made an order in the circumstances for the substituted service of the statement of claim. I propose to make in the plaintiff's favour the usual order for the costs of a successful applicant for interlocutory relief, namely, that the costs of the application be the plaintiff's costs in the proceedings. 9 I shall add at the end of the minutes: (8) The plaintiff's costs of this application be the plaintiff's costs in the proceedings. (9) I direct that these orders be entered forthwith. (10) I direct that the matter be placed in the Expedition Judge's list on 12 October 2001. There will be orders in accordance with the short minutes initialled by me and placed with the papers.

Last Modified: 10/26/2001 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.