Karadimas v H & P Solopitias Pty Ltd [2000] VSC 392

Supreme Court of Victoria|2000-09-20|Before: Eames J

MAREVA INJUNCTION - Plaintiff alleges fraudulent misrepresentations by defendants inducing a sale of property - Proceeds of sale disbursed by second defendant to her children including her son - Son of second defendant alleged to be implicated in fraud - Second defendant denies knowledge or authority for son to act as alleged - Second defendant owns other property - Whether real risk that the other property will also be disposed, in order to avoid possible judgment - Onus of proof.

This is an application for the extension of a Mareva injunction granted ex parte by Smith, J. on 15 September this year.

The plaintiff brings proceedings by writ against the first-named defendant, which is a company which had been the registered proprietor of property, being a shop premises known as Shop 166 Gladstone Park Shopping Centre, and more particularly described in the affidavit material. The second defendant is a 62 year old widow, who is the sole director of the first-named defendant and holder of 99 percent of the shares, and whose son, Jim, has one percent of the shareholding.

The plaintiff purchased the property as an investment for the sum of $195,000. Settlement was effected on 17 July 2000.

The plaintiff alleges that he was induced to purchase the property by representations made by or on behalf of the vendor by the estate agent for the vendor that the tenant was paying rental of $25,000 per annum, which would increase to $26,000 per annum.

In fact, the plaintiff alleges that by a written note dated 29 March 2000, Jim Solopitias, the son of the second defendant identifying himself as landlord, had advised the tenants that rent would be reduced to $1,500 per month, an annual rental of only $18,000. The plaintiff had not been advised of that event.

The claim is in its early stages and the question of damages is obviously difficult to estimate, even in the broadest and most optimistic way, but counsel for the plaintiff submitted that were those facts to be established and damages to be awarded, in very broad terms, one might expect an award of damages in the order of between $60,000-$70,000. Counsel for the defendants disputed that suggestion, suggesting that any award of damages would be very considerably lower and would be likely to be within the jurisdiction of the Magistrates' Court and submitted that, in any event, the defendant had failed to take steps to mitigate its damage by evicting the tenant, who is in arrears of rental, albeit reduced.

The plaintiff claims damages for misrepresentation and asserts that in agreeing to reduce the rent Jim Solopitias was the agent of the defendants, who were thus aware of the misrepresentation. The claim also seeks restitution but, as a practical proposition, given that the transfer is complete and the funds disbursed, it is improbable that that would result, and it is probable that the action will become one of damages and that, given that the first-named defendant was apparently a company without means, the action will be directed primarily, if it is to be successful, against the second defendant.

In support of the ex parte application, the plaintiff filed an affidavit from his solicitor and the plaintiff himself swore an affidavit. In that material it is disclosed that, according to the plaintiff's solicitor, the estate agent who handled the sale of the property, Mr Piperias, had advised him that the second defendant had sold the property in order to move overseas.

Today, the matter has returned to court and the defendants have appeared through counsel and filed affidavits from the second defendant and from the solicitor for the defendants. The second defendant deposes that she had no idea that a reduction in rental had purported to be effected by her son; she deposes that he had no authority of either defendant to do so; she deposes that he had resigned as a director of the first defendant in 1998; and she deposes that she had not said to anyone that she intended to return to live in Greece, nor does she intend to do so; she deposes that she did not tell her agent otherwise, save for telling him that she was going for a holiday. The defendants' solicitor deposes to a conversation with the agent, in which the agent denied telling anyone that the second defendant was moving permanently to Greece, but said that he had only said that she was going on a holiday.

On behalf of the plaintiff, it is submitted that the Mareva injunction in the terms ordered should be continued.

It is submitted that the case for the plaintiff is a very strong one (albeit the case for restitution against the first defendant is now weak). It is submitted that the case against the second defendant for fraud remains a strong one, not merely by virtue of the interpretation of fraud in cases such as Krakowski v. Eurolynx Properties Ltd (1995) 130 A.L.R. 1, but also on the facts, which it is submitted reek of knowledge of fraud conducted by or on behalf of the defendants, and reek of the suggestion that the second defendant was herself aware of what occurred through her son in the reduction of rent.

It was submitted by counsel for the plaintiffs that the second defendant now admits disposing of the proceeds of that sale within a week of settlement and of giving the funds as gifts to her children, one of whom is the very person, the son, who it is alleged made the arrangements to reduce rent which constitutes the basis for the fraud allegation. (It is not disputed in the affidavit by the mother that there is, indeed, a document which shows such a reduction in rent had been purported to be granted by her son.)

The second defendant deposes that the proceeds of sale were distributed, firstly, to payment of a $30,000 debt to the bank, then to payment of expenses for the sale, and with the balance being distributed between her three children. Those facts alone, it is submitted for the plaintiffs, raise the real likelihood that what was being done in those circumstances was an exercise to dissipate the assets of the second defendant in anticipation of this action succeeding.

In addition to that property which has now been disposed of, the second-named defendant is the owner of an unencumbered property in which she resides . Counsel for the plaintiff submitted that if the order is not continued, then there is nothing to stop that property also being sold and those funds being similarly dissipated by the second defendant.

Counsel for the defendants challenges the assertion that the plaintiff has a good case, asserting that the son acted without authority, that his offer to reduce the rent was done for no consideration and was void under s.53(1) of the Property Law Act 1958, as he was not an agent appointed in writing.

It is unnecessary, in the circumstances for me to examine those issues more closely. I am satisfied that there is an arguable case, and as to that issue, being the first requirement for a grant of Mareva injunction, the plaintiff has satisfied me. The critical issue here, however, is whether it has been demonstrated that there is a real risk the plaintiff will dispose of property and distribute funds in order to frustrate any judgment. I must consider, too, whether the balance of convenience is in favour of the granting of such an order or, its continuance.

For the Mareva remedy to be granted, its use must be necessary to prevent abuse of process of the court. It is not a means of giving security to a litigant: see Jackson v. Sterling Industries Ltd [1987] HCA 23; (1987) 162 C.L.R. 612 at 617-8; 625.

The question is whether there is a real danger rather than a mere suspicion that an abuse of process will arise unless the second defendant is restrained. The requirement of there being a real risk is that which has been adopted in this court: see Pearce v. Waterhouse [1986] VicRp 57; [1986] V.R. 603.

Whilst the facts betray a suspicion that the second defendant may act to hide her assets, there is no direct evidence that she is planning to do so, save that it is said that the disposition of the proceeds of sale on the last occasion must show, of themselves, that that was her intention and that her denial of knowledge of her son's actions as to the rental should be disbelieved, notwithstanding her oath to the contrary.

It is not necessary for an applicant for a Mareva injunction to prove that the intention behind a course of conduct was to hide assets: see Glenwood Management Group Pty Ltd v. Mayo [1991] VicRp 45; [1991] 2 V.R. 49 at 53. If there is a course of conduct which objectively satisfies the court that it reflects an effort to stultify a court order, that will be sufficient to found an order: Australian Iron and Steel Pty Ltd v. Buck [1982] 2 N.S.W.L.R. 889, and that may be so notwithstanding denials on the part of the person concerned. (As to the question of the course of conduct, see, too, Patterson v. BTR Engineering (Aust) Ltd [1989] 18 N.S.W.L.R. 319).

Counsel for the plaintiff pointed to the failure of the son or of the estate agent to swear affidavits, as being further evidence that there is a real risk of the dissipation of funds and as further evidence of the falsity of the assertions by the second defendant and of her denials of knowledge as to the conduct of her son.

As to the absence of affidavits from the son or from the estate agents, counsel for the defendants notes that little time has been available in preparation for the case since the orders were made ex parte last Friday, today being Wednesday of the following week.

As to the balance of convenience, counsel for the plaintiff submits that any hardship in restraining any disposition of the second defendant's residential property must be considered against the unlikelihood of a 62 year old widow proposing to sell the property except in order to hide assets in the same way as she had done, so it was alleged , in her investment property transaction.

I do not find this an easy application to determine. There are, indeed, suspicious circumstances surrounding the sale of the previous property. It is, indeed, difficult to accept that the son could have acted without any knowledge at all on the part of the second defendant. Furthermore, it excites suspicion that the second defendant's affidavit does not offer any explanation for the reason why she chose when she did to sell the investment property and why she chose to give the funds, then, to her children. Nor does her affidavit offer any comment about whether she has any plans for the sale of her residential property and the disposal of the proceeds. Those matters indeed excite deep suspicion, but the onus of satisfying the court that an order should be made rests squarely with the plaintiff: see J.D. Barry Pty Ltd v. M & E [1978] VicRp 18; [1978] V.R. 185 at 187.

A Mareva injunction has been called a drastic remedy which should not be lightly exercised. In Cardile v. LED Builders (1999) 162 A.L.R. 294, the High Court at 310 held that it requires "a high degree of caution" before a court will make an order of this kind.

Whilst there is real cause for suspicion, I do not find myself persuaded that the plaintiffs have established that there is a real risk of an abuse of the court's process. It may be that little more might be required to establish that to the court's satisfaction, but the balance, in light of the affidavits sworn and filed on behalf of the defendants (notwithstanding their deficiencies), rests against granting the application at this time.

Accordingly, I will order that the orders of Smith, J. of 15 September be discharged.

MR UPJOHN: Your Honour, I rise to clarify one point. It is not pleaded that Jim Solopitias made any representation in relation to the sale.

HIS HONOUR: You can read the judgment, it has been delivered. If it is wrong, it it is wrong.

MR UPJOHN: But also, Your Honour, I rise to apply for costs.

MR HAYES: Your Honour, on the basis that the plaintiff had very good reason in light of the circumstances of this case to bring this application. The appropriate order is that costs should be costs in the cause. If what is claimed by the defendants is right and proper, they should carry on the day of the hearing and should recover their costs at that time.

HIS HONOUR: It seems appropriate to me this should be a case of costs in the cause, given the issues of credibility which are involved here.

MR UPJOHN: Yes, Your Honour. However, in my submission, in the ordinary course of events, costs of an application should be costs following the event. Now, this was an application made ex parte with some urgency. My client has been required to come to court as a matter of quick-sticks with two days to prepare, the material before it is necessarily embryonic, and no criticism of the inadequacy of that ought follow into the costs order, in my submission.

I think this is an appropriate case, for the reasons I have just pronounced, where costs in the cause are highly appropriate, and the order I will make is that the orders of Smith, J. be discharged; that the costs be costs in the cause.

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