GMW Group Pty Ltd (Receivers and Managers Appointed) (in liquidation) & ors v Michael Saadie in his own right and trading as GMW1 & ors [2012] QSC 140

**[1] The applicants apply for judgment against the respondents, in each case pursuant to r 374 of the Uniform Civil Procedure Rules 1999. Their argument is that the respondents, in various ways, have failed to comply with freezing orders, both by dealings with certain property and by failing to provide the affidavit evidence as to their assets which those orders required. Before going to those arguments it is necessary to set out the events which led to this case.

[2] The respondents are the shareholders of the first applicant which I will call "the company". It is in liquidation and has receivers and managers appointed, who are the second applicants. They were appointed by the third applicant ("Westpac").

[3] The first respondent, Mr Saadie, was a director from May 2007 until September 2010. The applicants allege that after then he acted as a de facto director. Each of the second and third respondents were directors from 2003 and remained so at all relevant times.

[4] In 2008, Westpac lent the company about $12.5 million, secured by a charge granted by the company and guarantees and indemnities given by each of the respondents. The applicants allege that the company fell into default, entitling Westpac to call up the entire debt and to appoint receivers. The second applicants were appointed in December 2010. A few days later the company went into voluntary administration where it remained until February 2011 when it became subject to a Deed of Company Arrangement. Subsequently the company went into liquidation.

[5] The applicants allege that each of the respondents is liable under his guarantee for, as at 30 March 2012, $9,965,604.96. This is after giving credit for various sums as the proceeds of sale of some of the company's assets.

[6] This proceeding was commenced by an Originating Application, by which the applicants sought and obtained a freezing order on 12 January 2012. The basis for that application was as follows. The company owned, or apparently owned, five licences under the Gaming Machine Act 1991 (Qld). But the receivers were unaware of this property and the applicants claim that the respondents kept that information from them. Mr Saadie managed to have those licences sold, without the knowledge of the applicants, late last year for a total price of $323,900. Allowing for commission, there were net proceeds of $226,730 which were paid to an account with the Commonwealth Bank which Mr Saadie had opened under a business name "GMW1". On the face of things, this was a misappropriation of property of the company, to which Westpac, as a fixed chargee, was entitled.

[7] By the freezing order, each respondent was restrained from disposing of, dealing with or diminishing the value of his assets in Australia up to an unencumbered value of $323,900 (the sale price of the licences) upon the basis that each had received these proceeds or was otherwise so involved in the sale of the licences as to be liable for their misapplication.

[8] It was a further requirement of the freezing order that each respondent would within five working days after being served with the order, make and serve an affidavit as to the respondent's assets in Australia, providing details of their value, location and any encumbrance.

[9] On 17 January 2012, the freezing order was extended to 22 February 2012. By that stage the respondents had been served with documents originally filed and with the freezing order. The date for provision of the affidavits was not extended and having regard to the date of service of the original order, that date remained 19 January 2012. That day passed with no respondent providing an affidavit.

[10] On 17 January, it was further ordered that the applicants file and serve a statement of claim by 23 January. That was duly filed. Mr Saadie has filed a Defence but the other respondents have not done so. There is some basis for inferring that those respondents were served with the statement of claim, because on 21 February 2012, all respondents agreed to orders which included an order requiring his Defence by 14 March 2012.[1] Nevertheless, there is no affidavit of service of the statement of claim, apart from that of Mr Wellmeela,[2] deposing as to service upon the second respondent on 28 March.

[11] On 8 March, Mr Saadie filed an affidavit as to his assets together with his Defence. On the following day, at a review of this case in the Commercial List, Mr Saadie through his counsel conceded that his affidavit was insufficient to comply with the order. The second and third respondents did not then appear. The date for the provision of the required affidavit from each respondent was extended to 14 March 2012. It was then further ordered that by the same date, each respondent was to file and serve an affidavit detailing any and all of that respondent's assets which had been disposed of or otherwise dealt with by him between 12 January 2012 (the date of the original freezing order) and the date of the filing and service of his affidavit as to assets. This order was made in circumstances of a substantiated concern by the applicants that whilst the respondents had delayed in disclosing their assets, they had been disposing of some of them in breach of the freezing order.

[12] Those orders were served on the second and third respondents on the same day, 9 March.

[13] No affidavits were provided by 14 March. On 16 March, Mr Saadie served a further affidavit as to his assets, which was filed on 20 March.

[14] On 20 March, the freezing orders were extended until 30 March. There was then no appearance for the second and third respondents. But on that same day, the solicitors who had been acting for them wrote to the applicants' solicitors saying that they no longer acted for the second respondent but would continue to act for the third respondent. They added that the third respondent was overseas and would need a further 14 days in which to complete an affidavit as to his assets. The orders of 20 March were served on each respondent.

[15] On 19 March, the applicants had served an application pursuant to r 374. On 26 March, they filed an amended application which is the one under present consideration. Affidavits of the applicants' solicitor Mr Williams establish that this amended application was served on the first and third respondents on 26 March and on the second respondent on 28 March.

[16] On 30 March, I extended the freezing orders until trial or further order. The application for judgment was argued by counsel for the applicants and for Mr Saadie. There was no appearance for either the second or third respondent.

[17] According to Mr Saadie's Defence, he did cause the licences to be sold and deposit the net proceeds into an account which he opened. But he pleads that the licences were beneficially his property and not that of the company. The facts from which that legal assertion is pleaded are not revealed. For example, he does not plead that the licences were acquired by spending his own money.

[18] As to the case pleaded by Westpac to recover under his guarantee, Mr Saadie pleads that in the period of May to July 2010, he had discussions with a representative of Westpac about extending the date for repayment of the company's loan and that at the end of this period it was agreed between the company, Mr Saadie and Westpac that the date for repayment would be extended by one year from 31 July 2010. Consequently, he alleges, the company did not refinance the Westpac loan. He pleads that either by an agreement or an estoppel, Westpac could not claim that the company was in default at least prior to July 2011. The statement of claim pleads that the company was in default from 23 July 2010 and that a demand for repayment was duly made upon the company and the respondents as guarantors on 3 November 2010. It is the failure to meet that demand which Westpac pleads as its entitlement to be paid by the guarantors. According to Mr Saadie's case then, Westpac was not entitled to make demand upon the guarantors in November 2010. No other demand is pleaded by Westpac. A promise by a surety to pay on demand if the principal debtor does not, is a collateral promise, for which no cause of action arises until the demand is made: Australia and New Zealand Banking Group Limited v Douglas Morris Investments Pty Ltd.[3] It may be that the terms of this guarantee are such as to make the respondents subject to a principal obligation, obviating the necessity for a demand. But that question was not the subject of submissions here.

[19] I go then to the affidavits by Mr Saadie as to his assets. In the first of them, he referred to some details of his house, its value and the fact that it was subject to a mortgage to Westpac said to secure $1.08 million. He referred to another real property which he said he held on trust for his brother. He said nothing about its value but said that it was mortgaged to Westpac securing $476,000. The other assets which he there identified were a car and some furniture. He said nothing about his bank accounts. That omission is inexplicable, especially in the context of the applicants' case that the proceeds of misappropriated property had been paid by him to a certain account.

[20] Somewhat prompted by the complaints made in an affidavit by the applicants' solicitor, Mr Saadie made his supplementary affidavit which was filed on 20 March. He there made some reference to companies associated with him which he said had not traded and did not hold bank accounts. The bank statements of other companies associated with him were exhibited. But he did not exhibit any bank statement for the account into which the proceeds of sale of the licences had been paid. He sought to explain that by saying that as that account was now closed, there would be a delay of "about 2 to 3 weeks" to obtain them. He identified a personal account with Westpac and two accounts he held with Sydney Credit Union for which he provided statements for the period 1 January to 16 March 2012. One of these accounts had an opening balance on 1 January 2012 of $90,106.56 which was almost wholly paid to the other account within the subject period. From that other account, which had an opening balance on 1 January of $10,000, there were substantial payments on 12 and 20 February and on 5, 7 and 9 March. The last of those was a payment of $56,500 by a cheque in favour of "M K Worthington". In this supplementary affidavit he said that he paid this sum in part repayment of a loan. Another of the March payments was said to be for legal fees. The payment on 12 January, which was of $11,019.72, was said to have been made to an individual for "his fee for advising and assisting in the sale of the gaming licences".

[21] He explained that the total of $100,000 (as at 1 January) in these Sydney Credit Union accounts came from that sum being transferred from the GMW1 account. But beyond that he revealed nothing as to the payments from that GMW1 account.

[22] No affidavit has been filed by the second or third respondents. They have filed no Defences.

[23] Rule 374 applies when a party "does not comply with an order to take a step in a proceeding". In Mr Saadie's case, that step is said to be the provision of an affidavit which truly and completely discloses his assets and the disposition of property after the original freezing order. In the cases of the second and third respondents, they have failed to take the same step or steps in that they have provided no affidavit. Further, in their cases, they have filed no Defence, notwithstanding an order to do so.

[24] There was no debate as to what constituted a "step" in the circumstances and for the purposes of this rule. But as I will explain, it is unnecessary to determine here whether a failure to provide an affidavit or affidavits in compliance with the orders was a failure to take a "step" in the relevant sense. The provision of such an affidavit is not a formal step itself required by the rules, and in that way it might be considered that it is not a "step" for this rule.[4] The filing of a Defence is clearly a step in the relevant sense.

[25] Division 2 of Chapter 9 of the UCPR provides for a judgment to be given in favour of a plaintiff in default of a Defence. But it does not appear to apply here because that division applies only in a proceeding started by claim: r 281(1). This proceeding was commenced by an Originating Application, and although pleadings have been ordered, there was no order that the proceeding continue as if started by a claim.[5] In cases within Division 2, r 282 provides that a plaintiff must prove service of a claim (and thereby the statement of claim) on a defendant in default before judgment may be given against the defendant. As I have noted, in this case there is no affidavit as to the service of the statement of claim upon the third respondent, or upon the second respondent apart from service only two days prior to this hearing. In cases within Division 2, the basis for a judgment is the admission of the plaintiff's case which is implied from the defendant's default in pleading to it. But that is not the basis upon which the applicants seek judgment against the second and third respondents. Rather, they have applied expressly pursuant to r 374 for what they say is the appropriate consequence for a failure to take a step as ordered by the Court. It is the discretionary power under that rule which is to be exercised here.

[26] I return to the application against Mr Saadie. I accept that his first affidavit failed to disclose all of his assets in conformity with the orders. In particular, he failed to disclose his interests in a number of companies as identified by the affidavit of Mr Williams of 9 March 2012.

[27] His second affidavit is also non-compliant, at least in relation to the account in the name of GMW1. That is simply the business name. There is no distinct legal entity of that name which was the holder of that account. It was an account of Mr Saadie. He says that it was closed in February 2012. Had he filed his affidavit as to assets as required by 19 January, the balance in that account would have been an asset which he was required to disclose within the affidavit. He was also required to disclose his dealings with property after the original freezing order. He has purported to comply with that order within this supplementary affidavit. He there identifies payments from the GMW1 account after the date of the freezing order. It may well be that by making one or more of those payments, most importantly that made to Ms Worthington, he has breached the freezing order and is in contempt. But this is not an application to be dealt with for contempt. The present question is whether he has, by now, failed to comply with the orders requiring affidavits from him.

[28] The applicants complain that he has not explained what was done with the balance of the proceeds of sale of the licences. He was obliged to do that by these orders if he dealt with them, as his property, after the freezing order made on 12 January. It may be the case that they were paid from the GMW1 account prior to then. The uncertainty as to this is clearly a matter of concern both to the applicants and to the Court. But at present, it is not established that he has failed to comply with the orders as to affidavits by not providing information as to the disposition of the balance of the proceeds of sale of the licences.

[29] The outcome is that I am not satisfied that as of the date of the hearing of this application, the first respondent was in default of the orders requiring affidavits from him. That is sufficient to dispose of this application for judgment against him. But there are further matters, detailed in the following paragraph, which are also reasons for the dismissal of the application as against him as well as against the second and third respondents.

[30] The second and third respondents have filed no affidavit or Defence. At least for their failure to file a Defence, r 374 is engaged. Upon the basis of this default, the applicants seek judgment. But there are several causes of action which are pleaded by them. One is the claim under the guarantees, for which only Westpac could be given a judgment. Another is the claim for misappropriation of the licences. Although Westpac has an equitable interest in them (assuming that they were legally owned by the company), the appropriate plaintiff in that respect is the company. Therefore, it is the first applicant which has claimed relief in relation to the proceeds of sale. It claims a declaration that the respondents are liable to account to the first applicant for the sum of $326,900, damages for equitable compensation in that sum or alternatively a declaration that they hold that sum on a constructive trust for the first applicant. The freezing order and the orders for the provision of affidavits were concerned to protect the causes of action claimed by the first applicant. Indeed, when the original freezing order was made, Westpac was not yet a party to this proceeding. A default in complying with orders for the provision of these affidavits seems remote from Westpac's distinct claim for payment under the guarantees. The failure to comply with orders directed to the first applicant's distinct cause of action should not be used as an opportunity for the third applicant to obtain a judgment summarily and without any consideration of the merits of its claim. That is particularly so in the case of the first applicant, who has filed a defence to all causes of action. And it also applies to the second and third respondents, insofar as the third applicant seeks to rely upon their failure to provide affidavits.

[31] As to the failure by the second and third defendants to file a Defence, as I have noted it is far from clear that they were duly served with the statement of claim at a relevant time. Of course they agreed, by correspondence, to orders that they file a Defence by a certain time, suggesting that they have by then received a statement of claim. But it is possible that they did say it in anticipation of being served with it. Where the Court is being asked to give effectively a default judgment, it is necessary for the parties seeking that judgment to strictly prove the facts and circumstances upon which it relies.

[32] Further, again it must be kept in mind that this application is made in reliance upon r 374. It was not made against any respondent in reliance upon r 292. Thus as against the second and third respondents, it would be wrong to explore whether they could have any real prospect of successfully defending all or part of the plaintiff's claim. Rather, the discretion under r 374 is concerned with whether, because of the circumstances of a party's default in taking a step as required by an order, the interests of justice require the proceedings to be immediately concluded by a judgment. In the circumstances, I am not persuaded that the broad discretion under r 374 should be exercised in that way.

[33] The outcome is that the application for judgment against each respondent will be dismissed. I will hear the parties as to costs and other orders.**

[1] The second and third respondents did not appear on that date but in correspondence from their then solicitors, they expressed their agreement to such orders being made. Those orders also provided for an extension of time for the filing and service of the affidavits as to assets to 29 February 2012.

[3] [1992] 1 Qd R 478 at 484 per McPherson J (Connolly and Williams JJ agreeing).

[4] See eg the discussion by Applegarth J in Artahs Pty Ltd v Gall Standfield & Smith (firm) [2011] QSC 273 at [8]- [12].