Goumas v McIntosh

• 10 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2332/98 - GOUMAS & ORS v McINTOSH & ORS JUDGMENT 1 There are in place in these proceedings certain orders of a Mareva kind made against the first, second and third cross-defendants, respectively, Internet Wines Pty Ltd, Mr McIntosh and Mrs McIntosh. The orders were made on 30 December 1999 and have been continued on more than one occasion since. There has also been a variation or consent to allow assets owned by Mr McIntosh and caught by the orders, namely, the family home of which he was the owner, to be sold, but on the footing that the net proceeds must be held in a separate bank account in the name of the solicitors for Mr McIntosh. 2 These funds, which amount to a little over $363,000, are held in the bank account under the control of the solicitors subject to an undertaking by Mr McIntosh not to cause the moneys to be applied in any other way (that is, apart from being deposited in the account itself) without first giving ten days notice to the cross-claimants, Mr Flowers and Mrs Flowers. The undertaking in this respect currently in place was given on 31 May 2002. It superseded an earlier undertaking given in generally similar terms and incorporating the ten days notice provision. 3 Notice contemplated by the undertaking was given by Mr McIntosh to Mr Flowers and Mrs Flowers on 19 June 2002. The notice referred to a proposal to pay out of the funds held in the separate bank account four items: first, an unspecified sum for Mr McIntosh's costs and disbursements in connection with the proceedings; second, a sum of $500.00 per week each to Mr McIntosh and Mrs McIntosh (ie, a total of $1,000.00 per week) for living expenses; third, a sum of $6,724.34 to Westpac Banking Corporation (apparently to meet a credit card bill); and, fourth, a sum of $1,134.12 to National Australia Bank Gold Mastercard. 4 Receipt of this notice prompted Mr Flowers and Mrs Flowers to file a notice of motion seeking variation of the earlier orders to include requirements that the sum slightly in excess of $363,000 remain in the bank account in the name of the solicitors for Mr McIntosh and that Mr McIntosh not deal with those funds in any way. The principal orders sought, as additions to those already in place, are: "1. Pending the determination of these proceedings the second cross defendant (Bruce McIntosh) deposit with the ANZ Bank, in the name of Dickson Fisher Macansh, solicitors, the amount of $363,669.13 ('the Fund'). 2. Pending the determination of these proceedings the second cross defendant (Bruce McIntosh) whether by himself, his servants or agents be restrained from dealing with in any manner whatsoever or disposing of the Fund." 5 The notice of motion thus raises, perhaps somewhat indirectly, the question whether there should be in place orders which prevent resort to the funds except for the particular purposes and in the particular sums (in so far as sums were specified) notified in the notice given by Mr McIntosh on 19 June 2002. The position of Mr Flowers and Mrs Flowers is that they do not oppose an exception allowing reasonable living expenses, that $1,000 per week for Mr McIntosh and Mrs McIntosh (ie, $500.00 per week each) exceeds what is reasonable and that they oppose the other foreshadowed inroads upon the funds in the bank account. 6 The further orders Mr Flowers and Mrs Flowers seek are intended to be additional to the orders already in place, stemming from those originally made on 30 December 1999. The question whether the exceptions Mr McIntosh seeks should be allowed therefore falls to be determined in the context of the totality of the orders, both existing and proposed. 7 It is noteworthy, in that respect, that the existing orders do not operate indiscriminately upon the property of Mr McIntosh or Mrs McIntosh, although the existing orders do have a comprehensive operation in relation to Internet Wines by restraining it from disposing of and dealing with its property generally. In the case of Mr McIntosh and Mrs McIntosh, there are existing orders restraining transfer of property or money by them to particular persons but, as I say, there is no general restraint upon their dealing with their assets as they wish. This means that, to the extent (if any) that Mr McIntosh and Mrs McIntosh have assets over and above the fund in the bank account which is the subject of the undertaking (and which Mr Flowers and Mrs Flowers seek to have made subject to an order of the court), they are at liberty to use those assets to meet the expenditures in respect of which the notice of 19 June 2002 stated a desire to resort to the funds in the bank account. 8 Mr McIntosh and Mrs McIntosh say, in summary, that they have no other assets of value from which they can meet expenses, that the funds in the bank account are the only source from which they can meet the various expenditures and that, on the principles relevant generally to Mareva relief, they should be allowed to do so. It was submitted on behalf of Mr Flowers and Mrs Flowers that the assertion by Mr McIntosh and Mrs McIntosh that they have no other assets cannot be accepted. It is therefore necessary to go into some detail on certain aspects of the evidence. 9 Mr Flowers and Mrs Flowers first point to an allegation in the proceedings that Mr McIntosh failed to account for or misappropriated substantial funds while managing the business of the fourth cross-defendant, Palm Beach Cellars Pty Ltd. There is a suggestion that he therefore has funds available to him. Reports by accountants appear to reach different views relevant about the alleged defalcation. Mr McIntosh denies the allegation. It is simply impossible, at this stage, to form any opinion on the matter. I can only work on the basis that it has not been shown that Mr McIntosh has (or ever had) funds from this source. 10 Mr Flowers and Mrs Flowers next refer to a loan obtained by Mr McIntosh and Mrs McIntosh from William Waterhouse Investments Pty Ltd under a loan agreement dated 10 May 2000. The sum lent was $82,500, inclusive of advances actually made before the execution of the agreement. Mr McIntosh has given evidence of the expenditure or application of that sum as follows: $12,500 Counsel's fees for a hearing in May 1999

$27,000 Costs of former solicitors in these proceedings

$9,500 Fees of counsel in these proceedings ($4,800, $3,900 and $800 respectively for three barristers)

$13,417.95 Paid into trust account of present solicitors pending assessment of costs of former solicitors - with no part available pending completion of assessment and any excess over assessed costs then reverting

$13,000 Costs of present solicitors in these proceedings

$1,982 Paid to solicitors for lender as costs and disbursements in relation to loan agreement

$2,455 Used for living expenses of Mr McIntosh and Mrs McIntosh

Balance Used to purchase stock for Palm Beach Cellars

11 Several of these applications of funds are borne out by the evidence of Mr Rook, the solicitor for Mr McIntosh and Mrs McIntosh and independent documentary evidence. There is no apparent basis on which I should disbelieve any of this evidence. 12 Mr Flowers and Mrs Flowers also refer to the domain name www.wine.com.au which, according to Mr McIntosh, is the principal asset of Internet Wines of which Mr McIntosh is a director and the sole shareholder. Mr McIntosh says that the domain name has a value of less than $10,000. I admitted, over objection, affidavit evidence of Mr Ellison, a chartered accountant who has been a registered liquidator for 22 years and has been involved in the insolvency profession since 1963. Mr Ellison deposed to his opinion that the domain name "has great commercial appeal because of its simplicity" and "a significant commercial appeal to major retailers in the liquor industry such as Coles and Woolworths"; and that it would attract purchasers willing to pay within the range $50,000 to $100,000. 13 Mr Ellison stated no basis for this opinion. He made no attempt to relate it to sales of other domain names or even to say that he is aware of the prices at which other names have changed hands. The figure $50,000 to $100,000 is merely plucked out of the air, so far as explanation offered by Mr Ellison goes. Principles analysed by Heydon JA in Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705 point clearly to the conclusion that Mr Ellison's opinion evidence must be discounted to the point of being of no real assistance or utility. 14 In any event, Mr McIntosh deposes to having searched on the internet for several analogous domain names (with "liquor", "beer", "spirits" and "alcohol" appearing instead of "wine") and having located none of them. He also produced responses to inquiries of Melbourne IT, the keeper of the Australian register of domain names, confirming this position. The fact that no one has seen fit to attempt to secure any of the analogous names does call in question Mr Ellison's view of the great desirability of the name centred upon "wine". 15 In all of the circumstances, it cannot be concluded that the domain name has a value anything like that suggested by Mr Ellison. There is also the point that no basis has been suggested upon which it would be a proper exercise of the duties of the directors of Internet Wines to cause the domain name to be sold and somehow to channel the proceeds to Mr McIntosh. This issue is particularly pertinent in light of the fact that claims are made against that company in the proceedings and that certain orders are in place restraining dealings with its assets (although those orders do not prevent arms length sale of the domain name). 16 The next contention of Mr Flowers and Mrs Flowers is that Mr McIntosh can turn to account a wholesale liquor licence held by Leisure and Lifestyle Pty Ltd, a non-operating company. However, it is said against this that there is no business attached to the licence and therefore no means of generating returns. In any event, the holder of the licence was required to give an undertaking to the Licensing Court that Mr McIntosh would not be involved in the management of any business conducted using the licence. In every practical sense, therefore, the licence cannot be regarded as a potential source of revenue at this point. 17 It was suggested that Mr McIntosh has superannuation resources. Mr Ross, brother of Mrs Flowers, deposed to a conversation with Mr McIntosh in about November 1998 in which Mr McIntosh referred to having been in the Air Force and another conversation in or about early May 1999 in which Mr McIntosh said words to the effect, "I have tried to get money from my super from the Air Force but they won't let me because of my age." 18 Mr McIntosh says in an affidavit of 15 July 2002 that he did not qualify for a pension on leaving the Air Force because he had not served for the qualifying period of 20 years. He did receive a lump sum on resignation in 1981 but lost most of it in a company that failed in the mid 1980s and now has none left. He also gave evidence of balances of some $1,600 in separate superannuation funds that he believes are not accessible until he reaches the age of 55 (he is now 51). 19 Mr Flowers deposed to a conversation with Mr McIntosh and Mrs McIntosh in about May 1997 in which Mr McIntosh made reference to the possibility of using as security for a bank loan Mrs McIntosh's "half share in a house she owns with her sister Anne". Mrs McIntosh, in her affidavit of 5 July 2002, says that she has never owned property with her sister. The sister, in an affidavit of 4 July 2002, says the same. Search results from the Land Titles Office covering the period 1 June 1971 to 4 July 2002 annexed to an affidavit of the solicitor for Mr McIntosh and Mrs McIntosh disclose a property registered in the name of the sister jointly with a person of the same surname who is probably her husband and that Mrs McIntosh was registered previously in respect of a property transferred before 1998. Neither is otherwise recorded as having held any property under the Real Property Act 1900 in the period mentioned. 20 An affidavit of Mrs McIntosh sworn on 3 July 2002 says that she has no bank account, no shares in companies (other than companies involved in these proceedings), no real property and is not employed. She owns jointly with her husband furniture in storage valued at bout $40,000. She has wedding and engagement rings, a gold chain, a bracelet, a watch and a silver pendant. She does not know the value of these items. 21 Mr McIntosh deposes to ownership of shares in Internet Wines and Leisure and Lifestyle (both of which have already been mentioned) and in other companies that are non-operating and essentially of no value. He has no other assets apart from the fund of $363,000 under the control of the solicitors, this being the balance of the proceeds of the sale of the family home which was owned by him alone and had to be sold to meets the demands of the bank mortgagee. He is unemployed. He owes some $90,000 to William Waterhouse Investments Pty Ltd, $11,000 to his father and $40,000 to a close friend. All these sums were borrowed to cover expenses of the litigation and living expenses. 22 Turning now to the legal issues, there is a preliminary question as to the correct approach in this case - whether it should be treated as an application for new or further Mareva relief or an application to vary existing Mareva restraints. In the latter kind of case, it may well be that the party seeking release of assets from the orders so that those assets may be applied for particular purposes bear the burden of showing not only the legitimacy of those purposes but also that they have no other assets (that is, assets not caught by the orders) from which the legitimate expenditure may be met: A v C (No 2) [1981] 1 QB 961, Szentessy v Woo Ran (Australia) Pty Ltd (1985) 64 ACTR 105, Clout (Trustee) v Anscor Pty Ltd [2001] FCA 174. Where a Mareva order is being imposed in relation to the whole of a person's property, the approach must be to impose it in terms that create an exception for necessities, particularly reasonable living expenses and reasonable expenses of the litigation itself: see, for example, the views expressed by Powell J (as his Honour then was) in Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552. 23 As the High Court has emphasised, most recently in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, Mareva relief is not intended to operate as some form of de facto security for the claims of the party seeking the imposition of the restraint. The sole concern is with reasonable measures to ensure that the processes of the court are not frustrated by removal from the jurisdiction, dissipation or misapplication of assets which will be available to meet any eventual judgment. The aim is not to stop people spending their money. It is to stop them spending it in ways which are not legitimate, having regard to the interest of the claimant in ensuring that there is no untoward removal of assets from the ownership of the person against whom a judgment may in due course be entered. 24 Because the fund in the hands of the solicitors is covered only by the undertaking and application of those funds is not restricted by any order of the court, I consider the correct approach to the present application of Mr Flowers and Mrs Flowers to be that applicable to the grant of Mareva relief rather than the variation of existing orders affecting specific property. 25 In taking that approach in this case, however, I believe that the evidence requires me to proceed on the footing that, apart from personal belongings, the furniture in storage and the shares in non-operating companies, the only asset presently available to Mr McIntosh is the sum on deposit under the control of the solicitors. It may be that, in time, there will be some accretion to Mr McIntosh's available funds by reason of sale or utilisation of the www.wine.com.au domain name or the wholesale liquor licence or both. For the moment, however, neither can be regarded as representing available value. Nor can there be regarded as available any of the other items Mr Flowers and Mrs Flowers sought to identify. 26 The substantive claims against Mr McIntosh are sufficiently cogent to form the basis for Mareva relief. The inherent ease of movement of cash to inaccessible destinations makes the fund under the solicitors' control a proper object of Mareva restraint. But, with other assets not at present available to Mr McIntosh and Mrs McIntosh I would be going beyond the proper bounds of such relief by making orders in the absolute terms the applicants seek. 27 It has been said repeatedly by the courts that a Mareva order must not operate as a form of de facto security for the applicants' claims and that the sole purpose is to prevent illegitimate dissipation of assets that will otherwise be available to meet any judgment. I say "illegitimate" dissipation to emphasise that to deny access to funds needed for ordinary living purposes or to fund the conduct of the very litigation the integrity of which the order is designed to protect goes beyond the proper protective province of the jurisdiction and causes the order sought to be a means of exerting pressure foreign to the underlying purpose. 28 In that connection, it is instructive to note the eight exceptions for which provision was made in the form of order seen as appropriate by Gaudron, McHugh, Gummow and Callinan JJ in Cardile v LED Builders (above): "… other than for the following purposes: (i) to enable them to pay and to continue to pay the reasonable legal expenses of defending these proceedings and any appeal therefrom; (ii) to protect the copyright of Eagle Homes Pty Ltd [Eagle Homes] or Ultra Modern in their housing plans (other than plans relating to these proceedings) by the commencement and prosecution of proceedings against infringement of the same; (iii) to commence and prosecute any other bona fide proceedings which Eagle Homes or Ultra Modern may be advised to bring; (iv) to defend any other proceedings that may be brought against Eagle Homes or Ultra Modern; (v) to meet their taxation liabilities and those of Eagle Homes or Ultra Modern; (vi) to comply with the statutory requirements to which they, Eagle Homes or Ultra Modern are subject; (vii) to meet their normal accountancy fees and those of Eagle Homes or Ultra Modern; (viii) to pay ordinary and proper business expenses bona fide incurred by them or by Ultra Modern or Eagle Homes; and (ix) to pay their ordinary living expenses." 29 There was no attempt here to fix a weekly amount for living expenses. While that is sometimes done, it can present problems. Not only is it difficult for the court to set an appropriate amount except by reference to evidence of the circumstances of the persons concerned, but the fixed weekly maximum assumes - probably wrongly - that expenses are incurred and needs encountered at a constant rate. The form preferred by the members of the High Court in item (ix) means that the relevant party must pause to think every time he or she goes to make a payment in case to do so involves a contempt of court. There is no scope for the person to be lulled into thinking that, in effect, there is a fixed sum which may be spent each week with impunity. 30 The result of the present application must be that the orders sought - which, as I have said, are orders making no allowance for living expenses, legal expenses and other proper outlays - will not be granted in the terms in which they are sought. The notice of motion must therefore be dismissed. That is not to say that an order with appropriate exceptions would not be considered appropriate if sought. **********

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