Joanne Elizabeth Young v Leslie James Young

Judgment 1HIS HONOUR: On 4 September 2014, the Court issued orders, the effect of which was to continue a freezing order issued by Bellew J on 29 August 2014. The Court vacated a further order issued by his Honour and reserved reasons for judgment. These are the reasons.

History of Litigation 2It is necessary to set out a very brief history of the litigation between the parties. The plaintiff, Joanne Young, commenced two proceedings which were heard together and determined, as to liability and the methodology by which damages should be calculated, by Adamson J on 11 April 2013. 3Causes of action were alleged in tort and in relation to certain property settlements in which the plaintiff alleged malicious procurement of a search warrant and malicious procurement of arrest, together with malicious prosecution. On 11 April 2013, her Honour directed the plaintiff to bring in short minutes and ordered that the defendant, subject to the quantum being identified in those short minutes, pay damages to the plaintiff. 4On 23 April 2013, her Honour ordered the defendant to pay damages in the sum of $2,663,000, to continue to pay an amount per week until the aforesaid sum had been paid, credits and other monies and certain other ancillary orders. The order for damages and other ancilliary orders have not been satisfied. 5The failure to satisfy the Court's judgment was the catalyst for the commencement of bankruptcy proceedings against the defendant. 6On 5 June 2014, bankruptcy notice 172322 was issued by the Australian Financial Security Authority to the defendant. A process server was engaged but was unable to effect service. 7On 4 August 2014, application was made to the Federal Court for substituted service, which application for substituted service was served upon the defendant by post and by email. 8On 13 August 2014, the Federal Court issued orders for substituted service of the bankruptcy notice, which, as a consequence, is deemed to have been served on 3 September 2014. 9The defendant in the proceedings was formerly a joint tenant of the property with his partner, the respondent to the motion, Josephine Smith. On 7 August 2014, three days after the service by email of the application for substituted service of the bankruptcy notice, a transfer was effected between the defendant and his partner. The transfer purported to convey the defendant's interest in the joint tenancy to the partner for $1,800,000. 10The plaintiff seeks to file and serve process that will have the effect of voiding the transfer to which reference has been made. 11On 1 September 2014, the defendant applied for bankruptcy in which he referred to the sale on 7 August 2014 to the respondent to the motion, Ms Smith. The bankruptcy notice refers to the value of the property being 50% of the property valued at between $5,500,000 and $6,000,000. The interest was sold for $1,800,000 and the bankruptcy notice discloses that nothing was in fact received for that interest. The interest in the property was purportedly transferred pursuant to a purported agreement of 4 December 2001 and a further agreement of 2002. 12The defendant's bankruptcy application suggests that Ms Smith was a secured creditor. No evidence of any security is before the Court. 13Debts are said to be owed to the defendant by a company, now in liquidation, of which the defendant is the sole director. 14By motion, dealt with ex parte, the plaintiff sought orders freezing any dealings with the property described above and further orders preventing the defendant or Ms Smith dealing with any property in excess of $1,000 pending further order of the Court. Those orders were granted on 29 August 2014. 15The ex parte judgment was ordered to be served on the defendant and Ms Smith and the orders, on their face, stood the matter over to 4 September 2014. 16The matter came before the Court, as presently constituted, on 4 September 2014 and the Court dealt with the matter as if no order had already been made, requiring the plaintiff to establish a proper basis for the grant of a mareva injunction. 17The facts set out above were established by affidavit and were not controverted. Notwithstanding the notice of one week before the proceedings returned to the Court, the only evidence adduced by anyone in opposition to the proposed mareva order was an affidavit of Mr David Baker, solicitor for the respondent, Ms Smith, in these proceedings, which annexed the Debtor's Petition and Statement of Affairs filed on 1 September 2014 and attested to the fact that on 2 September 2014 the defendant, Mr Young, was rendered bankrupt. It annexed a property search in relation to the property subject to the impugned transfer and a valuation report, valuing the property at approximately $3,500,000. 18Mr Baker is a principal of the firm Buckingham Lawyers, which firm acted in the transfer of the property to which reference has been made. The affidavit of Mr Baker, apart from annexing formal documents, attests, by hearsay, to the discharge of a mortgage over the property. It is not said who the mortgagee was. Nor does Mr Baker produce the agreement which was said to give rise to the right to transfer. 19As earlier stated, solicitors in the employ of Mr Baker acted on the transfer. No affidavit or evidence is adduced from them or from the respondent, Ms Smith, as to the nature of the transfer or its bona fides. Nor, as earlier stated, is the deed of agreement produced to the Court. 20While, in earlier times, there was some significant issue about the power or basis upon which courts would grant mareva injunctions (now generally referred to as freezing orders), those doubts have been generally overcome and mareva injunctions or freezing orders are more readily granted than was once considered desirable. 21The principles for the grant of a mareva injunction are now well-settled. Essentially, in a case such as the present, mareva orders are concerned with the prospect that a person (usually the plaintiff) with a remedy in damages may find no asset to satisfy the damage: Reliance Financial Services Pty Ltd v Lemery Holdings Pty Ltd [2006] NSWSC 1079 at [21]. It was described by the High Court as "the paradigm example of an order to prevent the frustration of the court's process": Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) [1998] HCA 30; (1998) 195 CLR 1 at [32]. Orders may be made after judgment, as in this case, to protect a party's ability to recover costs: Ryder v Frohlich (No 2) [2006] NSWSC 1325, per Brereton J. See also Vaughan v Duncan [2007] NSWSC 811, per Hamilton J. 22The principles were recently summarised by Foster J in Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2012] FCA 746, in which his Honour described, at [31], that the grant of such orders "is an exceptional interlocutory remedy and must be granted only when the circumstances of the case justify such a significant interference in the personal affairs of a citizen". His Honour referred to and relied upon the judgment of the Court of Appeal in Frigo v Culhaci [1998] NSWCA 88, in which the Court said: "Its function is to minimise the possibility of an unscrupulous defendant seeking to render himself or herself "Judgment proof" by taking steps to ensure that no assets within the jurisdiction can be found on the day of judgment: see generally Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 622. However it is a drastic remedy which should not be granted lightly. We agree with the comment in Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 3rd ed [2188] that: It is obvious that by obtaining a Mareva injunction even an innocent plaintiff can wreak havoc with the defendant's business, and an unscrupulous plaintiff can ruin his opponent .... A mareva injunction is an interlocutory order which, if granted, imposes a severe restriction upon a defendant's right to deal with his or her assets. It is granted at the suit of a plaintiff whose status as a creditor is in dispute and who need not be a secured creditor. Its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to "provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant's insolvency". (Abella v Anderson (1987) 12 Qd R 1 at 2-3 per McPherson J)." 23In Bayley, Foster J also relied upon the judgment of Gleeson CJ (as Chief Justice of New South Wales) in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, in which Gleeson CJ said: "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." 24In the matter that came before the Court on 4 December, the Court took the view that there was more than a real risk that the defendant was or had sought to make himself judgment proof from a judgment of this Court. There were significant questions as to the bona fides of the transfer sought to be effected for a sum significantly less than the stated value of the interest and in circumstances where no amount of money was in fact provided as consideration for the transfer. 25Nevertheless, the orders of Bellew J, made ex parte and in urgent circumstances, froze the assets of both the defendant and the respondent well beyond the amount of the judgment debt. In those circumstances, the freezing order was continued only to the extent of the property subject to the impugned transfer, the value of which was approximately the value of the debt owed by the defendant to the plaintiff arising from the judgment of Adamson J. 26The respondent was prepared to offer an undertaking to that extent (or at least in in similar terms). Nevertheless, given the inferences available, and the allegations made, as to non-arm's length transactions, it was appropriate that the condition continue to be imposed by order of the Court. 27For the foregoing reasons, I made the orders, ex parte, on 4 September 2014 in the following terms: 1.Vacate order 4 of the orders made by Bellew J on 29 August 2014; 2.Otherwise the orders of Bellew J remain in force; 3.In relation to the Short Minute of Orders, (a) Pursuant to 25.12 of the Uniform Civil Procedure Rules 2005, by 4pm on 12 September 2014, the defendant to file and serve an affidavit of assets held by him (including any acquired or disposed of assets) worth more than $1,000.00 in the period of April 2013 to the date of the affidavit relating to the following individuals and entities: i.The defendant; ii.Josephine Aapa Smith; iii.Jetobee Pty Limited; iv.Smith and Young Pty Limited; v.LJ & CA Young Pty Limited; vi.Nouveu Contractors Services Pty Limited; (b) Leave is granted to the plaintiff the file and serve, by 5.00pm on 5 September 2014, subpoenas for financial records in the period from 31 December 2012 to date for each of the individuals and entities referred to in paragraph 3(a) above with the subpoenas to be returnable at 9.00am on 11 September 2014. This order is made with the following qualification, namely, that leave is being granted for subpoenas in appropriate form for what are otherwise considered to be financial records in relation to transactions or matters that relate to the defendant Leslie James Young; 4.The matter is listed before the duty judge on 15 September 2014; 5.Reasons reserved; 6.Costs be costs in the cause arising from these matters or relating to any matter arising against the respondent.