I gave judgment in this matter on 22 August 2019: Hurford Hardwood Kempsey Pty Ltd v Kempsey Timbers (Sawmilling) Pty Ltd [2019] NSWSC 1069. I shall use the same abbreviations here.
It followed from my reasons that Hurford was entitled to judgment against Kempsey Timbers in the sum of $234,740 together with interest.
I entered judgment and made an order for interest on 17 September 2019.
That judgment will be satisfied from funds that, on 20 September 2019, I ordered be paid out of Court to Hurford from the fund referred to at [7] of my August judgment.
It also followed from my reasons that Hurford was entitled to the bulk of its costs.
On 19 September 2019, I ordered that Kempsey Timbers pay Hurford's costs, other than in relation to the long service leave issue, on the ordinary basis until 22 October 2018 and on an indemnity basis thereafter: Hurford Hardwood Kempsey Pty Ltd v Kempsey Timbers (Sawmilling) Pty Ltd (No 2) [2019] NSWSC 1248.
Hurford's solicitor has deposed that Hurford's actual costs at the time of judgment were in the order of $570,000.
Unless, as seems unlikely bearing in mind the history of this matter, the parties can agree as to the quantum of the costs to which Hurford is entitled, the matter will have to proceed to assessment. I am told that the process of assessment is likely to take up to 12 months.
As set out in the August judgment, by contract made in November 2017, Kempsey Timbers sold Hurford its timber mill and sawmill business for $6.8 million. Between then and August 2018, pursuant to its entitlement under the contract, Kempsey Timbers sold the Processed Stock at the mill for some $2.5 million. In May and July 2018, Kempsey Timbers sold two other properties it owned at Kempsey for a total of $760,000.
Kempsey Timber's remaining asset is a property a Wauchope valued at some $1.5 million.
Hurford contends that Kempsey Timbers has been taking steps to diminish the value of its equity in the Wauchope property by causing it to be encumbered by a mortgage to a related company, Oakley Investments Pty Ltd. Hurford contends that the effect of its conduct is to create a danger that the costs order I have made will be unsatisfied.
In those circumstances, Hurford seeks an order that Kempsey Timbers not dispose of, deal with, or diminish the value of the Wauchope property to an unencumbered value of $650,000 pending satisfaction of the costs order.
My conclusion is that no such order should be made.
In my opinion, a fair view of the evidence is that, rather than seeking to diminish the value of its equity in the Wauchope property, Kempsey Timbers is seeking to increase the value of such equity. That is because Kempsey Timbers is seeking to develop the property by subdividing it into industrial lots, and thus increase its value. It is using the funds advanced, and to be advanced to it by Oakley Investments, for that purpose.
[3]
The Oakley Investments facility
Oakley Investments has been making advances to Kempsey Timbers since prior to May 2016. The amount owing by Kempsey Timbers to Oakley Investments on 12 May 2016 was some $58,500.
Until March 2019, the advances made by Oakley Investments to Kempsey Timbers were unsecured.
At one point, in March 2017, the amount owing by Kempsey Timbers to Oakley Investments was some $2.1 million.
[4]
The mortgage
At the time Kempsey Timbers granted a mortgage to Oakley Investments in March 2019, the loan had been reduced to some $534,000.
The mortgage is not in evidence before me. Evidently, it is not registered. The only evidence of the circumstances in which the mortgage was entered is in an affidavit sworn by Mr Graeme Dowsett on 18 September 2019. Mr Dowsett is the accountant for Kempsey Timbers and Oakley Investments. The following passage from Mr Dowsett's affidavit was received without objection:
"In about February/March 2019, I became aware from Douglas Head that Oakley [Investments] had agree [sic] to provide further loans to [Kempsey Timbers] up to $1.5 million (including the existing balance of $533,852) but on the basis that the full amount of the loans, including past loans, were secured. I understand that Kempsey Sawmilling subsequently granted a mortgage to Oakley over 9 Bago Road, Wauchope although I have not seen a copy of it."
[5]
Mr Dowsett's 2018 Affidavit
Shortly after these proceedings were commenced, Hurford sought orders restraining Kempsey Timbers from calling on it to make the final payment of $500,000 due under the contract.
In that context, Mr Dowsett swore an affidavit on 18 September 2018 in which he did not refer, in terms, to the advances made by Oakley Investments to Kempsey Timbers. In that affidavit Mr Dowsett said Kempsey Timbers had "a secured creditor in the sum of $500,000" and that "the companies have nil external debt". In fact the amount due by Kempsey Timbers to Oakley Investments on the date of Mr Dowsett's 2018 Affidavit was at least some $834,000. It may have been some $984,000 as $150,000 was repaid by Kempsey Timbers to Oakley Investments that day.
Mr Dowsett's 2018 Affidavit was in those circumstances, to say the least, incomplete. That is unsatisfactory. However, Mr McCall, who appeared for Hurford, did not seek to cross-examine Mr Dowsett about that matter.
[6]
Further drawdowns
Since Kempsey Timbers granted Oakley Investments the mortgage in March 2019, Kempsey Timbers has made a number of drawdowns under its facility with Oakley Investments.
The amount currently due by Kempsey Timbers to Oakley Investments is $1,050,000.
That fact, and the existence of the mortgage and the $1.5 million facility, was revealed by Kempsey Timbers' solicitor, Mr Worthington, on 11 September 2019 in response to an enquiry made by Hurford's solicitor.
On 3 June 2019, $166,149 was drawn down. Mr Dowsett deposed that the money was used to pay the following expenses:
"Solomon Island project $50,000.00
ICARE Workers Compensation premium
(Kempsey Timbers) $32,523.00
Telstra $1,035.00
Petty Cash $656.00
Software Licence fee $718.00
Barristers fees $70,800.00
Filing fees $263.00
IT Support $517.00
General expenses $2,362.00
Bago Road Development costs $16,407.00
Council rates $782.00".
[7]
In relation to the $50,000 paid in respect of the "Solomon Island project" Mr Dowsett said:
"My understanding, from discussions with [Dr] Head, is that a related entity, Musashi Group Pty Ltd…, was developing a log trading business in the Solomon Islands and has contractual rights to log certain areas in that country. The payment of $50,000 has been recorded as a loan from [Kempsey Timbers] to Musashi. That business is currently on hold due to local difficulties in the Solomon Islands."
As Mr McCall submitted, it is hard to understand why Oakley Investments needed to advance to Kempsey Timbers money needed by another related entity, Musashi Group Pty Ltd, in relation to the Solomon Islands venture. Oakley Investments could simply have loaned the funds directly to Musashi Group. However, Mr McCall did not object to Mr Dowsett's evidence and did not seek to cross-examine him about it.
The barristers' fees paid with this drawdown were those incurred by Kempsey Timbers in relation to these proceedings.
On 1 August 2019, shortly after the conclusion of the hearing before me, Kempsey Timbers drew down a further $150,000 under its facility with Oakley Investments.
Mr Dowsett has deposed that that drawdown was used to pay the following expenses:
"Bago Road Development costs $572.00
Interest (Oakley Investments) $2,917.00
Legal fees $39,295.00
Council and water rates $857.00
ASIC $267.00
Electricity $190.00
ICare Workers Compensation (Kempsey Sawmilling) $41,167.00".
[8]
The legal fees referred to are those associated with these proceedings.
Mr McCall accepted that all of the expenses paid for from this drawdown were those of Kempsey Timbers but pointed out that Mr Dowsett's explanation does not account for $64,700 of the $150,000 drawdown. The evidence is to that extent incomplete. However, Mr Dowsett was not cross-examined about this.
On 1 and 2 September 2019, shortly after I delivered the August judgment, the final drawdown of $200,000 was made.
Mr Dowsett deposed that this drawdown was used to pay the following expenses:
"Douglas Head $50,000.00
Legal fees $46,000.00
Interest (Oakley Investments) $6,458.00
ICare Premium (Kempsey Sawmilling) $107,375.00".
[9]
As to the $50,000 paid to Dr Head, Mr Dowsett deposed:
"The $50,000 payment to Douglas Head was made in part repayment of loans that he had made to [Kempsey Timbers] in the past."
The $50,000 said to have been owed by Kempsey Timbers to Dr Head was not disclosed, in terms, in Mr Dowsett's 2018 Affidavit. As I have said, Mr Dowsett then said that "the companies have nil external debt". It may be that Mr Dowsett did not regard an amount owing to Dr Head to be "external debt". The matter was not explored in cross-examination.
Mr McCall submitted that I should be cautious about accepting that $50,000 was in truth owing by Kempsey Timbers to Dr Head. However, in absence of any challenge to Mr Dowsett's evidence about this, I must accept that what he has deposed to reflects the facts.
[10]
Imminent development approval of the Wauchope property
The bigger picture here is that Kempsey Timbers has sought development approval to subdivide the Wauchope property into 40 lots, each of 1,000 m2.
There is no dispute that development approval is likely to be granted by the relevant development assessment panel by the end of October 2019.
On 18 September 2019, a licensed real estate agent, Mr Michael Marsh, wrote to Dr Head expressing the following opinion in relation to the value of the Wauchope property once development approval is granted. Mr Marsh's letter was received without objection:
"Per our discussion on the change in value of your proposed subdivision, in my experience with its D/A due out shortly and you are able to start work on it around the end of this October. I would comfortably value it today with the D/A approved in the vicinity of $2.5M if you choose to on sell it. I'm comfortable with this value today which is largely due to the strong sales rate and pricing of the subdivision immediately adjoining, which has seen this industrial precinct come to life.
With the almost total take up in a very short time of this subdivision adjoining yours with only 2 lots left, it also saw pricing into the $130/m2 region which is most encouraging for your holding. This precinct has now set the new and very high presentation standard for Wauchope's industrial sector with yours now the choice locality for good presentation, always a challenge in industrial land.
Notably the ability to start work on yours almost immediately is great and will add to its buyer appeal with its ability to generate a sale revenue of $12-15 M is that reward. This especially as it's the last industrial land in Wauchope's industrial strip to be developed, there is no more land. What makes it more interesting is its refreshingly high in representation compared with all of the existing industrial estates.
Surprising for your holding the significantly less well located Sancrox precinct industrial land being offered by the Cassegrain's family has seen almost all their blocks taken now. This is a very comforting result with you thinking of starting yours, especially as these lots sold at sale rates nicely higher around $155/m2. All factors somewhat encouraging in this tough economic period, the buyers were a good mix from civil contractors to transport and a planned mixed tenancy landlord which is refreshing for its speed of sale and great pricing achieving from your viewpoint." (Emphasis added.)
Thus, Mr Marsh's opinion is that the Wauchope property will increase in value from some $1.5 million to $2.5 million once development approval is granted and, if the subdivision proceeds, sale revenue between $12 million and $15 million is likely to be achieved.
Mr McCall criticised the opinions expressed by Mr Marsh and submitted that he was being unreasonably optimistic.
That may be so, but Mr McCall did not object to the tender of Mr Marsh's letter nor seek to limit the use to which it could be put.
Nor did Mr McCall challenge this evidence given by Mr Worthington in relation to the Wauchope development:
"4 I am advised by Douglas Head, principal of Kempsey Timbers…and verily believe that it is its intention to retain the Bago Road property, obtain approval of the Development Application currently before the local Council for subdivision into 40 individual industrial lots and thereafter market those lots for sale.
5 I am further advised by Douglas Head and verily believe that the only activity of Kempsey Timbers…is processing the Development Application for the Bago Road property and attending to a number of financial commitments incurred by that company including the following:-
Technical assistance from Eclipse Technical Services in the sum of $517 per month
Telstra payments from $300 per month
Credit cards (car leases) of $2,000 per month
Quarterly payments of council and water rates
Kempsey Timbers…has no other source of income."
This evidence satisfies me that Kempsey Timbers intends to develop the Wauchope property by seeking development approval and thereafter causing it to be subdivided as Mr Marsh and Mr Worthington have described.
This shows, in my opinion, that Kempsey Timbers is intent on maximising its equity in the Wauchope property, rather than diminishing it, let alone diminishing it with a view to stifling Hurford's ability to recover its costs.
The matters that must be demonstrated to justify a freezing order have been stated in many cases.
A convenient summary is that of McColl JA in Samimi v Seyedabadi; Seyedabadi v Samimi [2013] NSWCA 279 at [72] to [75]:
"72 The question whether there is a danger that any judgment obtained…, or that already obtained, will be wholly or partly unsatisfied because the owner's assets might be disposed of, dealt with or diminished in value (UCPR 25.11; 25.14(4)(b)) reflects the general law concepts again developed in accordance with Mareva injunctions, that the applicant must demonstrate 'a danger that by reason of the defendant's…assets being…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': Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 (at 321 - 322) per Gleeson CJ.
73 In Ninemia Maritime [Corporation v Trave Schiffahrtsgesellschaft mbH & Co K G (The Niedersachsen) [1984] 1 All ER 398] (at 406), in a passage effectively approved in Frigo v Culhaci [[1998] NSWCA 88] (at p 8), Mustill J discussed the nature of the evidence the applicant for a freezing order should adduce as follows:
'It is not enough for the plaintiff to assert a risk that the assets will be dissipated. He must demonstrate this by solid evidence. This evidence may take a number of different forms. It may consist of direct evidence that the defendant has previously acted in a way which shows that his probity is not to be relied on. ... Or...the plaintiff may be able to found his case on the fact that inquiries about the characteristics of the defendant have led to a blank wall. Precisely what form the evidence may take will depend on the particular circumstances of the case. But the evidence must always be there...'
…
74 It is not necessary for an applicant to show that the respondent has a positive intention of evading a judgment, and it is sufficient to show that the course on which the respondent proposes to embark is, objectively speaking, calculated to have that effect: Finn v Carelli [[2007] NSWSC 261] (at [4]). As Brereton J added:
'It is important to bear in mind that the jurisdiction to make orders of this type was never intended simply to enable a plaintiff or judgment debtor to obtain security for its judgment in advance of execution, but was firmly founded on the jurisdiction of the Court to prevent abuses of its process by preventing a defendant or judgment debtor from embarking on a course of conduct which would have the effect of defeating the Court's jurisdiction. It also needs to be borne in mind that the mere fact that a judgment may not be satisfied for reasons of impecuniosity does not mean that there is an abuse of process. Indeed, it has been pointed out on several occasions that the prospect of impending insolvency is not a reason to grant a Mareva injunction [Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 at 558].' …
75 Finally, in determining whether a freezing order should be made, the Court must take into account any discretionary considerations, including the balance of convenience." (Emphasis added.)
I am not persuaded that Hurford has shown that Kempsey Timbers is engaging in conduct which is calculated to have the effect of causing Kempsey Timbers to evade its obligations to meet the costs order I have made. I see no sign of any abuse of process by Kempsey Timbers.
For those reasons, my conclusion is that Hurford's application should be dismissed.
I make the following orders:
1. The plaintiff's Notice of Motion of 12 September 2019 is dismissed.
2. Set aside order 1 made by me on 17 September 2019.
I will hear any submissions as to costs.
[11]
Amendments
01 October 2019 - [19] Typographical error corrected
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Decision last updated: 01 October 2019