Hyder Consulting (Victoria) Pty Ltd v Transfield Pty Ltd [2002] VSC 315

5. The present application is brought by the TOJV parties on 21 June 2001 pursuant to general liberty to apply, seeking Mareva relief against Egis. As finally formulated the orders sought were the following:

"1. That Egis, whether by its Directors, officers, employees or agents, disclose all relevant details of all transactions between Egis and Tall Wind Pty Ltd. 2. That Egis, whether by its Directors, officers, employees or agents, disclose details of the sale of the Egis business to GHD as sought in Malleson's letter of 10 July 2002. 3. That Egis, whether by its Directors, officers, employees or agents, not apply the proceeds of sale of any property or asset in the distribution of any dividend or any other form of profit distribution, return any capital, make any loan or guarantee or charge over the assets of the company in favour of a related party or repay any related entity loan or charge (including any loan or charge to Tall Wind Pty Ltd) (`Distribution') without providing at least 14 days notice of any such proposed distribution to TOJV, unless otherwise agreed to or ordered by the court. This order does not apply to any trade creditors of Egis paid in the normal course of business."

9. While it is true that there are professional indemnity insurance interests involved, it was said that there was uncertainty whether the insurers would answer the claims of the Hyder parties upon them and that, in any event, the available cover would be insufficient to satisfy the judgment if the TOJV parties were substantially successful. So much was not disputed before me. I find that there is sufficient risk that, if Mareva relief is not granted, the judgment which the TOJV parties hope to recover against Egis will be rendered partly ineffective.

12. The transactions which have provoked this application occurred in the early months of this year. The facts, which were not in contest, appear from the affidavits of Jim Delkousis, the solicitor for the TOJV parties, sworn on 21 June 2002 and 1 August 2002 respectively, that of Alan John Stringfellow, the managing director of Egis, sworn 17 July 2002 and that of David Beaumont Andrews, the solicitor for Egis, affirmed on 1 August 2002.

15. In 2001 a majority of the issued shares in Egis were held by its French parent company. According to Mr Stringfellow, the French parent had provided working capital to Egis totalling some $8.36M. By July 2001 Egis was therefore indebted to the parent in that sum plus an amount in excess of $2.5M for unpaid interest and management fees. In November 2001, its capital position, as it appears in an informal consolidated summary balance sheet produced by Mr Stringfellow, showed that it had current assets of $20.348M, including approximately $3M cash and about $9.5M debtors. Against this, its current liabilities, including the $11.295M owing to the French parent, totalled $25.101M. When non-current assets and liabilities are brought into account, the net capital deficit at the end of November 2001 was $3.17M. In October 2001, upon an assessment by Ernst & Young, the picture was less hopeful: the company was valued at negative $2.403M as a going concern and at negative $12.294M on a liquidation basis.

18. Against this background, the French parent was minded to withdraw its financial support in December 2001. Accordingly, the Australian management proposed to buy out the interests of the French company on the following basis. First, the overseas shareholders were to sell their shares to Drifting Dunes Pty Ltd as trustee for the Drifting Dunes Unit Trust. The Drifting Dunes Unit Trust is a trust for interests associated with the Australian management of Egis. The consideration for this transfer was not disclosed. Second, the French parent and Egis agreed to restructure their loan account by writing off about $2.5M management fees and capitalising interest so that the total debt was reduced to $8.905M. The time for repayment of this debt was extended to 31 January 2002. Third, the French parent creditor assigned its rights to repayment of the debt to Tall Wind Pty Ltd, a company also owned by interests associated with the Australian managers. The consideration for this assignment was that the French parent would receive 20 percent only of the repayments received by Tall Wind from Egis. Again, no documents supporting or detailing these arrangements were produced.

21. From the perspective of the TOJV parties as prospective judgment creditors of Egis, the consequence of this transaction is not significant. Egis remained subject to a very substantial debt to a person or persons associated with its management. On its balance sheet its working capital remained negative and its value as a going concern and upon liquidation was probably unchanged. This would have the consequence that, in the event of a substantial judgment in favour of the TOJV parties, the company would probably be wound up and those parties would have to prove in the winding up ranking with other unsecured creditors.

24. The next transaction was that Egis agreed with Tall Wind to an extension of the repayment date of the loan debts to 31 July 2002. Again, it does not appear when this was agreed or the terms of the agreement.

27. And then, in May 2002, Egis entered into two agreements which give rise to the present application. First, on 13 May 2002 Egis agreed to sell to the Gutteridge Haskins & Davey Group ("GHD") certain of its assets and liabilities for an undisclosed consideration. The sale was effective on 31 May 2002. The subject matter of this sale is described on the Egis website as "all operational staff and assets". In his affidavit Mr Stringfellow is a great deal more circumspect. The subject matter is described by him as "certain assets and the assumption of certain liabilities of Egis in respect of employees and leases". There was also an agreement whereby GHD offered employment to employees of Egis and its subsidiaries. Again, no documents or details are provided.

30. About the same time, on 22 May 2002, Egis requested Tall Wind again to vary the repayment date of the loans. This was agreed to so that the $6.6M loan plus $574,960 capitalised interest became payable on 31 May 2002. For this indulgence Egis agreed to pay $29,426 as an early repayment fee. It was further agreed that the repayment date of the loan of $1.74M be extended to 31 December 2002. No documents or details of these agreements have been provided.

33. The effect of these transactions for present purposes has been to improve the net balance sheet position of Egis. On the summary balance sheet, its net current assets or working capital increased from negative $3M to nearly $2M in credit. This has been achieved by reducing current assets by about $5.5M and by reducing current liabilities by about $10.5M.

36. What is puzzling about this May transaction, however, is how it was achieved. On the slender information available, it would seem that Egis then paid to Tall Wind about $7.2M. Most, if not all, of this must have been provided by GHD under the sale agreement. This is puzzling because the summary balance sheet does not show what assets of this value might have been sold to produce such a sum other than Accrued Revenue/CCIP which fell by $4.7M between December 2001 and May 2002. It is true that net trade debtors were also reduced in the same period by about $3.3M but this may be partly explained by the increase of $1.976M in cash. It should be observed that, in this period according to its website, Egis was not entering into new contracts for consulting engineering services and had disposed of its operational staff and assets.

39. Notwithstanding that these transactions may be puzzling, they will not support the Mareva relief sought unless it be established to the appropriate standard that there is a risk that Egis may put its assets beyond the reach of the TOJV parties in the event of their success. This satisfaction is not to be founded upon any insufficiency or obscurity in the disclosures of Egis although these may make the Court less likely to displace adverse inferences which are otherwise open[1].

42. The present position, as the information provided to me shows it to be or warrants an inference, is as follows. Egis has received a significant injection of capital from GHD. This has been applied to discharge its liabilities to interests associated with its current management, to reduce creditors other than trade and loan creditors and to create provision for insurance and redundancies. I make no finding about the propriety or otherwise of these payments. The effect, however, has been that these creditors were paid in full whereas other creditors will have to rank in the event of a winding up. These other creditors will include the TOJV parties if they are successful and if the insurance cover is insufficient. All of this, however, is in the past. What lies ahead is the prospect of a repayment of a further $1.74M loan payable to Tall Wind on 31 December 2002 or earlier.

45. Counsel for Egis submitted that his client should be permitted to deal with its assets as it saw fit unless the threatened disposition was improper, and that it was perfectly proper for a company to pay its debts. The word "improper" in this context boasts no less respectable provenance than Spry on Equitable Remedies, whose 6th edition contains the following:

"Here it is important to bear in mind that the purpose of Mareva injunctions is to prevent the improper removal and dissipation of assets, and not to affect otherwise the activities of the defendant or to affect the priorities of creditors."[2]

49. Nevertheless, impropriety in the sense of a breach of some right or obligation is not a feature of Mareva relief[3]. Nor is it part of the plaintiff's proofs to show that the apprehended disposal was improper in the sense that Egis intended to frustrate a judgment which the TOJV parties hoped to recover[4]. The question for the Court at this stage is simply whether there is a risk that the assets of Egis will be dealt with so as to put them out of reach of such a judgment[5].

52. What is here apprehended is that Egis will pay $1.74M to Tall Wind so that it receives payment of this debt in full. The TOJV parties, if successful, and with insufficient insurance cover, will rank with other unsecured creditors. The order sought is to have the effect of giving the TOJV parties the opportunity of preventing this preferential payment being made, although the apprehended payment would not be set aside as an undue preference pursuant to s. 565 of the Corporations Act because there is little prospect of the TOJV parties obtaining judgment within the relevant period. Against this, counsel for Egis asserted his client's right to pay its creditors or any of them as it chose to pay. It is clear enough that a Mareva order ought not to be made to prevent a company from paying its ordinary trade creditors in the ordinary course of its business[6], but the presently apprehended payment does not fall within this class.

55. I turn now to the orders sought. Those in paragraphs 1 and 2 seek details of all transactions between Egis and Tall Wind and of the sale from Egis to GHD. These orders can be made only insofar as they are in aid of Mareva relief[7]. They are concerned with transactions which, on the evidence, have already been entered into and are not amenable to Mareva relief. To my mind these paragraphs go beyond orders in aid of orders necessary to restrain Egis from future dispositions[8]. I will not make them.

58. Proposed order 3 seeks to compel Egis to give 14 days' notice of a proposed disposition of assets herein described, otherwise than by a payment to trade creditors in the ordinary course of its business. As I have mentioned, the effect of such a disposition will be in part to destroy the value of the order for damages which the TOJV parties hope to recover. Given the circumstances of the transactions which have led to this apprehended payment and to the consequence of such a payment as I have found it, I will make the order sought.

[1] Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG; "The Niedersachsen" [1983] 2 Lloyd's Rep 600 at 609, per Mustill J and at 619 per CA.

[3] Mercedes Benz AG v Leiduck [1996] 1 AC 284 at 303, per PC.

[4] Glenwood Management Group Pty Ltd v Mayo [1991] VicRp 45; [1991] 2 VR 49 at 53, per Young CJ.

[5] Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG; "The Niedersachsen" [1983] 2 Lloyd's Rep 600 at 605-606, per Mustill J and at 617-18 per CA and the cases there referred to; Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612.

[6] The Angel Bell [1981] 1 QB 65 at 73; Avant Petroleum Inc v Gatoil Overseas Inc [1986] 2 Lloyd's Rep 236 at 242.

[7] Ashtiani v Kashi [1987] QB 888 at 897, per Dillon LJ.

[8] Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612.