Karl Suleman Enterprizes Pty Ltd (In Liquidation) v Jessie George & Ors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

1446/02 KARL SULEMAN ENTERPRIZES PTY LTD (IN LIQUIDATION) v JESSIE GEORGE & ORS JUDGMENT 1 HIS HONOUR: This is the hearing of a notice of motion brought by the fifteenth defendant in the proceedings. The proceedings are ones which are brought by Karl Suleman Enterprizes Pty Ltd (In Liquidation) against some fifteen people. 2 The claim against the fifteenth defendant is that he was involved in obtaining money which assisted Karl Suleman Enterprizes Pty Ltd. It is alleged that that money was obtained in circumstances which resulted in the fifteenth defendant having an equitable personal obligation to repay some of that money. The claim is put in various ways, including an allegation that he was a trustee and also that there was a claim for equitable compensation arising from a breach of the second limb of Barnes v Addy. 3 A Mareva order was made against the fifteenth defendant on 3 June 2002. It imposed significant restrictions on the respondent dealing with any of his assets. There was a proviso to the order that said that the order, "(f) shall not prevent the first respondent from: (i) paying ordinary living expenses up to an amount of five hundred dollars ($500) per week; (ii) paying costs reasonably incurred in these proceedings up to an amount of ten thousand dollars ($10,000)." 4 There is evidence that before that order was made, on 11 April 2002, the fifteenth defendant paid into the trust account of his solicitors, Smith Monti Legal, an amount of $2000. Six hundred dollars of that amount was appropriated in payment of costs on 8 May; that is, before the Mareva order was made. Another amount of $1000 was appropriated on 25 June 2002 - that is, after the Mareva order was made. 5 There is owing to the solicitors an amount of $4726. There is owing to counsel an amount of $4496. That totals a little over $9200; thus, with the $1000 which was appropriated after the Mareva order, payment of the fees currently rendered would more than exhaust the limit which the Mareva order had placed on payment of legal costs. 6 The fifteenth defendant seeks a variation of the Mareva order so that a further $8000 could be expended for anticipated future costs in the matter. The evidence in support of that application consists of an affidavit from Mr Kazi, the solicitor handling the matter. He says that he anticipates that a defence on behalf of the fifteenth defendant will be filed and served shortly, that thereafter a significant amount of work will be required in the preparation of affidavit evidence in support of the fifteenth defendant's defence, as well as appearances at directions hearings. Mr Kazi says that he anticipates that costs to be incurred in drafting and settling affidavit evidence, appearing in court at directions hearings, preparing for final hearing and appearing at final hearing in this matter would easily exceed $4000 on behalf of Smith Monti Legal and $4000 on behalf of counsel. 7 Counsel for the plaintiff in the proceedings accepts the necessity of the fifteenth defendant having proper legal representation available to him. However, the plaintiff criticises the particularity with which the evidence has been put forward by the fifteenth defendant. 8 While the evidence is not as particular as one might like, it does come to an explicit conclusion about the total amount which is likely to be expended, and there has been no attempt to cross-examine on that evidence. The evidence that has been presented is, to put it at a very low level, not the sort of evidence which is inherently improbable, and hence I accept the evidence that has been put forward about the likely expenditure. 9 I vary the order made 3 June 2002, to which I earlier referred, by substituting for "ten thousand dollars ($10,000)" the amount of "eighteen thousand dollars ($18,000)". 10 I should say that one matter which I have taken into account in being prepared to make this order, on the basis of fairly slim evidence, is that the expenditure of the money will be under the control of his solicitor. The solicitor will, in consequence, only be able to expend money pursuant to the extension of the order that I have allowed if costs are reasonably incurred. 11 As well, I have taken into account that, in the context of the fees involved in running large litigation, the extra amount which is sought is not large. 12 Another variation is sought by the fifteenth defendant. There is, in the trust account of Smith Monti Legal, the proceeds of sale of some real estate which the fifteenth defendant once had an interest in. The solicitors for the fifteenth defendant seek clarification that they are entitled to pay from the trust account an amount of $500 per week for living expenses. 13 They seek an order that they be entitled to pay out that $500 per week, in place of and not in addition to Order 1(f)(i) of the orders of the Court made 3 June 2002. 14 It is a fundamental principle upon which Mareva orders are made that a person bound by such an order is entitled to have his or her assets expended for ordinary living expenses. That principle is not challenged here. 15 The problem is really one of drafting. It arises in circumstances where, I am told from the Bar table, the fifteenth defendant has obtained employment, but the net earnings from his employment are insufficient to cover the amount of $500 per week, or the amount of his ordinary living expenses. 16 There are two possibilities open to me. One is to simply leave the living expenses order in the form it presently takes. If that were to happen, then it would be open to the fifteenth defendant's solicitors to release money to the trust account at a rate of not more than $500 per week, provided that they had reason to believe that the release of that money was needed for the purpose of the fifteenth defendant having available to him an amount of $500, in total and from all sources, for the payment of his living expenses each week. 17 Given the serious consequences that there may be for someone releasing assets to a person who is bound by a Mareva order and the possibility of there being contempt of court if one aids and abets in a breach of Mareva orders, it seems to me that it is not desirable to impose on the solicitors an obligation to make enquiries about how much money the fifteenth defendant has from other sources before releasing any other moneys to him from the trust account. 18 The preferable course seems to me to be to allow all living expenses to be paid from the trust account but to ensure that the terms of the injunction are such that no other assets from any other source are free to be used for living expenses. 19 I therefore modify the existing Order 1(f)(i) by adding to the end of it the words, "provided that such expenses are paid only from money standing to the credit of the first respondent in the trust account of Smith Monti Legal, Solicitors." 20 On 20 June 2002 the interlocutory order that I have referred to was varied by adding a paragraph 1(f)(iii), which aimed to permit the fifteenth defendant to complete the sale of the real estate which I have earlier referred to. That order was made, "on the condition that the net proceeds of sale are paid into and retained in the trust account of Smith Monti Legal, solicitors for the fifteenth defendant, pending further order." 21 For the sake of complete clarity, I make clear that the order I have just made is a "further order" within the meaning of paragraph 1(f)(iii). In consequence, it will not be a breach of paragraph 1(f)(iii) if moneys are paid from the trust account of Smith Monti Legal for the purpose of paying living expenses in the manner permitted by the order I have just made. 22 Otherwise, the notice of motion is dismissed. I note that neither party asks for an order for costs. **********

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

1446/02 KARL SULEMAN ENTERPRIZES PTY LTD (IN LIQUIDATION) v JESSIE GEORGE & ORS JUDGMENT 1 HIS HONOUR: On 9 April 2002 the Court made Mareva orders against the thirteenth and fourteenth defendants in proceedings brought by Karl Suleman Enterprizes Pty Ltd (In Liquidation) against what is now a total of fifteen defendants. The thirteenth defendant is a natural person. The fourteenth defendant is a company which was associated with him. 2 The allegations made by the plaintiff against those defendants include an allegation of breach of fiduciary duty as an agent and a Barnes v Addy claim. As well there is a claim against the thirteenth defendant that he was a de facto director of the plaintiff and a civil compensation order under s 1317H of the Corporations Law is sought. 3 The Mareva orders which were made were in a form which was common to the two defendants. There were substantial restrictions on the defendant's dealing with assets but there was a proviso in paragraphs 1(f) and 4(f) that the restriction would not prevent the thirteenth (in one case) or the fourteenth (in the other case) defendants from paying costs reasonably incurred in the proceedings which, taking the costs of the thirteenth and fourteenth defendants together, did not exceed $25,000. Today, application is made to vary each of those orders to increase the amount to $50,000. 4 There is one troubling aspect of the application which I should mention at the outset. Notwithstanding that the orders impose a limit of $25,000 on the amount which could be expended for legal costs, the former solicitors of the thirteenth and fourteenth defendants have rendered accounts totalling a little over $29,500 and those accounts have been paid. The third of the accounts, which took the amount over the $25,000 which had been permitted, was rendered on 9 May 2002. That is, over four months ago. It was paid soon afterwards. In addition to the amounts which have been paid to those former solicitors, there is an account of $1330 rendered by them which has not been paid. 5 By his affidavit of 13 September 2002 Mr Sindon, the thirteenth defendant, deposed to not having noticed that the payment of the third account resulted in him exceeding the amount allowed by the Court order and that the fact was not drawn to his notice by his former solicitors. He apologised to the Court for his accidental breach of the Court order. 6 It is most important for the practical operation of Mareva orders that solicitors who are involved in acting for a defendant who is the subject of a Mareva order take meticulous care that they do not do anything which results in there being a breach of that order. It is a matter of high seriousness that this be scrupulously observed. 7 It is clear law that if people have knowingly aided and abetted a breach of an injunction, proceedings can be taken against them for contempt (see for instance Elliot v Klinger [1967] 1 WLR 1165 at 1166). This is so even if that person is not strictly someone who is bound by the Mareva order. 8 It is common for a Mareva order to be expressed so that it applies to a particular respondent, acting by himself, his servants or agents. It is not only people who are strictly bound by the Mareva order itself who need to take care that they are not assisting in a breach of it. In Seaward v Paterson (1897) 1 Ch 545, Lindley LJ said at 554 of a person who was neither a servant nor an agent of a person who was the subject of an injunction: "He is bound, like other members of the public, not to interfere with and not to obstruct the course of justice; and the case, if any, made against him must be this - not that he has technically infringed the injunction, which was not granted against him in any sense of the word, but that he has been aiding and abetting others in setting the Court at defiance, and deliberately treating the order of the Court as unworthy of notice. If he has so conducted himself, it is perfectly idle to say that there is no jurisdiction to attach him for contempt as distinguished from a breach of the injunction, which has a technical meaning." 9 I make these observations at the level of general principle. It is important to point out that the former solicitors of the thirteenth defendant have not been heard and may have a different view of events to that which has been placed in evidence before me. I stress that I am not making any finding that they have actually been involved in any wrongful conduct. My point in making these remarks is to stress the seriousness, as a matter of general practice, of solicitors acting for parties bound by Mareva orders not engaging in conduct which will have an inevitable effect on their clients being in breach of those orders. If a solicitor acting for a client who is bound by a Mareva order sees that the amount of funding which the Mareva order allows for legal costs is running out, the proper course is to apply to vary the funding limit in the Mareva order before the funding limit actually runs out. 10 As the reader will infer, the thirteenth and fourteenth defendants have changed solicitors. Their new solicitor has done work which will entitle him to payment of some $3250 but, properly, no account has yet been rendered for that amount. 11 There is evidence from the thirteenth and fourteenth defendants' new solicitors that he estimates the costs of the thirteenth and fourteenth defendants from and including this application until completion of interlocutory steps following the filing of a defence, including application for discovery and interrogatories, if administered, will be no less than $25,000. 12 The increase of the limit for legal costs to $50,000 is intended to legitimise, retrospectively, the over-payment which has been made to the previous solicitors, to allow the previous solicitors to be paid the amount of $1330 which is outstanding and to allow the present solicitor to be paid the amount of $3250 which has been accrued but not rendered. 13 In an earlier application today brought by the fifteenth defendant, I allowed the increase in the amount of legal expenses which could be paid under a Mareva order. In this case, as in that one, it is, in my view, relevant that the terms of the Mareva order which are presently on foot permit expenditure of legal costs only when costs are reasonably incurred in these proceedings. That term imposes, in my view, a useful restraint on the legal representatives of defendants bound by a Mareva order. 14 It is, however, also appropriate that the legal representatives of someone bound by a Mareva order be given scope for exercise of their professional judgment about what is proper and reasonable to defend the interests of their client. It is often not possible for a court order to circumscribe that any more closely than by allowing money of the person bound by the Mareva order to be used in "paying costs reasonably incurred", up to a particular dollar sum. 15 There is in this case some lack of particularity about the justification for the increase in fees which is sought. In broad terms, it will allow about another $20,000 of funding to be available. 16 Given the requirement that it can only be expended reasonably, and given that the order, as it presently stands, sets an upper limit to the amount of expenditure, and given that the issues in the case are ones of reasonable complexity, it seems to me appropriate that the limit should be increased as asked. 17 I vary the orders made 9 April 2002 by deleting the amount of "$25,000" in paragraph 1(f)(ii) and paragraph 4(f)(ii) and in each case replacing it with the sum of "$50,000". 18 I note that neither party seeks an order for costs. **********

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