Katanga Developments Pty Limited v Bookarelli Pty Limited

9In about late January 2011, Bookarelli directed Mee Ling Solicitors to pay Katanga 25 per cent of the first interim distribution received in respect of those qualifying shareholders, introduced by Katanga, whose proofs of debt were lodged prior to 1 January 2011. This payment amounted to $142,543.16. It represented 25 per cent of the first interim dividend payments for 69 shareholders that Katanga had introduced to Bookarelli. Each of those 69 shareholders is recorded on schedule D. 10Shortly thereafter (notwithstanding cl 7 of the deed and in the absence of Katanga's written consent) Bookarelli terminated its arrangement with Mee Ling Solicitors and directed the deed administrator of ION to make payments of all further interim dividend distributions to Thomas Booler & Co Solicitors. 11There was evidence that Marcel Joukhador of Thomas Booler & Co knew of Katanga's entitlements and was instructed to pay to Katanga 25 per cent of the dividends received from the shareholders introduced by Katanga. Mr Gulson in his affidavit of 30 April 2013 recounted conversations between himself, Mr Joukhador and a representative of Bookarelli. At [13]-[15] he stated: "13. We then talked about the transfer of shareholder files from the offices of Mee Ling Solicitors to Marcel Joukhador's law firm, Thomas Booler & Co. We then had a conversation to the following effect: FG: Richard, has Marcel been made aware of the fee sharing arrangement between Bookarelli and Katanga in relation to the ION dividends? RK: Yes, Marcel knows that in relation to shareholders introduced by Katanga, Bookarelli and Katanga are entitled to receive 50% of the total dividends paid to those shareholders, and that Katanga's share is half of that, which is 25% of the total dividend receipts for those shareholders. MJ: That is correct. Richard has told me that the Agreement between Bookarelli and Katanga. I am aware that Katanga is entitled to a 25% share of the total amount received by my firm from the deed administrators for those shareholders.

SECOND ENCOUNTER WITH THE SECOND DEFENDANT 14. A few months later, in or about June or July 2011, I was with Richard Kurland in the Supreme Court of NSW building in Phillip Street, Sydney, and we again bumped into Marcel Joukhadour in the corridors of the building. 15. I was aware that a second dividend distribution was likely to be announced the McGarthNicol in the next month or so. It was opportune to confirm that Marcel Joukhadour was fully aware of and understood the terms of the Agreement between Katanga and Bookarelli. We had a conversation in words to the following effect: FG: Marcel, we believe that McGarthNicol will soon be announcing a second interim dividend distribution. I just want to make sure that you will look after Katanga's entitlements. Katanga is entitled to 25% of the amount you receive from McGarthNicol on behalf of the shareholders that Katanda introduced. MJ: Yes, I know about Katanga's entitlements and the entitlements of others. You do not need to worry."

12In the period 28 June 2011 to 28 March 2012, Thomas Booler and Co Trust Fund received from the ION deed administrator at least $463,236.61 under the first interim distribution, $124,587.50 under the second interim distribution and $207,645.85 under the third interim distribution, a total of at least $795,469.96. 13The evidence did not disclose how much of these amounts were in respect of shareholders introduced by Katanga. But no amount of money in respect of this sum of $795,469.96 received by Bookarelli's solicitor has been paid to Katanga. 14Katanga made numerous inquiries of Bookarelli in late 2011 about the timing of further payments to Katanga in respect of the second interim distribution and was told that Katanga was not being paid any further dividend payments because it was "poaching clients from Bookarelli". 15Katanga disputes that it poached any of Bookarelli's clients. Katanga commenced proceedings against Bookarelli and Mr Joukhador. The current statement of claim alleges breach of cl 7 of the deed by termination of Paul Mee Ling as Bookarelli's solicitor without Katanga's written consent, and also alleges breach of trust, breach of s 255(1) of the Legal Profession Act 2004 and breach of the deed in Bookarelli and Mr Joukhador's failure, and their continuing failure, to pay 25 per cent of relevant dividends to Katanga. 16Section 255 of the Legal Profession Act 2004 provides: "255 Holding, disbursing and accounting for trust money (1) A law practice must: (a) hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received, and (b) disburse the trust money only in accordance with a direction given by the person. Maximum penalty: 50 penalty units. (2) Subsection (1) applies subject to an order of a court of competent jurisdiction or as authorised by law. ..." 17The defence of Mr Joukhador admits receipt of some dividends from ION but otherwise largely "does not admit" the allegations of Katanga. Mr Bookarelli's defence is similar, save that the deed is admitted, but the pleaded obligations arising from the deed are denied. The breach of the "just and faithful" obligation in the deed is alleged to give rise to a set-off quantified at $427,258.67. This is said to have occurred because Katanga allegedly "induced" 20 named "potential" clients of Bookarelli to become clients of Katanga "after termination". A cross-claim to similar effect has been filed. 18On 5 and 9 August 2013, the ION deed administrator and its solicitors respectively gave notice that the deed administrator proposed to declare a sixth interim dividend on 13 August 2013. On that same date, that is, 13 August 2013, Katanga applied ex parte and obtained an order that: "Keith Crawford, ION Deed Administrator, at McGrath Nicol withhold 50% of all dividend distributions payable to those ION DOCA Group shareholders listed in schedule A to the Notice of Motion filed 13 August 2013 until further order of the Court." 19The matter was listed the next day before the list judge, who amended the order by changing the 50 per cent to 25 per cent, and listed the matter for hearing. Katanga's undertaking as to damages was also noted. 20The notice of motion proposes to vary the current restraint. It seeks the following orders: "Upon the Plaintiff, by its counsel, giving the Court the usual undertaking as to damages, the Court orders that: 1 Pending the Court making final orders in these proceedings, or until further order: a. Keith Crawford, in his capacity as deed administrator of ION Ltd (subject to Deed of Company Arrangement) ... ('the Deed Administrator'), must provide the Plaintiff (through its solicitors on the record) with: i. 5 days prior written notice of any distribution of dividend payments to be made to the Second Defendant in accordance with authorities provided to the Deed Administrator by the ION DOCA Group shareholders listed in Schedule B to this Notice of Motion; and ii. a Schedule indicating which shareholders are to be paid and the total amounts to be paid; and b. Within 7 days of receipt of any dividend payments on behalf of the ION DOCA Group shareholders listed in Schedule B from the Deed Administrator, the Second Defendant must: i. pay into Court 25% of the dividend distribution as received; and ii. within a further 3 days provide confirmation of payment into Court to the Plaintiff in writing. 2. Pending the Court making final orders in these proceedings the First Defendant must not take any steps to alter the direction to pay in any authorities provided to the Deed Administrator by the ION DOCA Group shareholders listed in Schedule B to this Notice of Motion. 3. The First and Second Defendants pay the Plaintiff's costs of this motion and the costs of the Third party respondent to the Motion, the Deed Administrator. 4. Such further order as the Court thinks appropriate." 21Evidence before me contained an amended schedule B that included the names of some additional joint shareholders. The parties accepted that I should treat the reference to schedule B in the notice of motion as a reference to the amended schedule B. It was also not disputed that all of the 133 shareholders listed in the amended schedule B were named among the 390 shareholders listed in the schedule D document to which I earlier referred. 22The deed administrator consented to the orders sought against it. Those orders were opposed by Mr Joukhador and Bookarelli. An order for the costs of the deed administrator to be paid by the plaintiff, by consent of the deed administrator and the plaintiff, was made during the course of the hearing. 23As this was the first occasion that the notice of motion has been the subject of a contested hearing, I adopted the course that Katanga, the plaintiff applicant, was required to establish its claim for relief, notwithstanding the terms of the existing order in place that provided for an injunction "until further order" (see Resort Hotels Management Pty Ltd v Resort Hotels of Australia Pty Ltd (1991) 22 NSWLR 730, 731). 24Katanga submits that I am entitled to make orders of the type sought under Uniform Civil Procedure Rules 2005, r 25.3, r 25.14 and under the inherent jurisdiction of the Court. 25Rule 25.3(3) provides: "In proceedings concerning the right of any party to a fund, the court may order that the fund be paid into court or otherwise secured". 26In Newcastle City Council v Caverstock Group Pty Ltd [2008] NSWCA 249 at [23] and [24], Spigelman CJ stated: "The word 'fund' is protean and will take its colour from its context. It is capable of applying to an accounting entry. As Lord Greene MR said in Allchin v Coulthard [1942] 2 KB 228 at 234: 'The word "fund" may mean actual cash resources of a particular kind (eg money in a drawer or a bank), or it may be a mere accountancy expression used to describe a particular category which a person uses in making up his accounts.' The latter, in my opinion, is not the sense in which the word is used in r 25.3(3). It is used in the former sense of money held in a particular and separate form such as a trust fund. A party does not institute proceedings concerning a 'right' to a book entry." 27In my view, the penultimate sentence in this quotation supports the proposition that monies paid into the Thomas Booler trust account were within the ambit of the term "fund" in r 25.3. 28Rule 25.14 relevantly provides: "25.14 Order against judgment debtor or prospective judgment debtor or third party (cf Federal Court Rules Order 25A, rule 5) (1) This rule applies if: (a) judgment has been given in favour of an applicant by: (i) the court, or (ii) in the case of a judgment to which subrule (2) applies-another court, or (b) an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in: (i) the court, or (ii) in the case of a cause of action to which subrule (3) applies-another court. (2) This subrule applies to a judgment if there is a sufficient prospect that the judgment will be registered in or enforced by the court. (3) This subrule applies to a cause of action if: (a) there is a sufficient prospect that the other court will give judgment in favour of the applicant, and (b) there is a sufficient prospect that the judgment will be registered in or enforced by the court. (4) The court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur: (a) the judgment debtor, prospective judgment debtor or another person absconds, (b) the assets of the judgment debtor, prospective judgment debtor or another person are: (i) removed from Australia or from a place inside or outside Australia, or (ii) disposed of, dealt with or diminished in value. ..." 29The meaning of the term "good arguable case" was considered by McColl JA in Samimi v Seyedabadi; Seyedabadi v Samimi [2013] NSWCA 279 at [69]. Her Honour stated: "The expression 'good arguable case' is used 'in the sense of a case which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success'". 30Subject to particular arguments raised by the respondents, to which I will come, I am satisfied that Katanga has at least a good arguable case against Bookarelli for breach of cl 2 of the deed. 31Bookarelli did not attempt to establish by evidence or make submissions regarding the strength of the cross-claim. Accordingly, the cross-claim has been given little weight in determining whether Katanga has a "good arguable case". 32The case against Mr Joukhador is perhaps not so straightforward. Mr Joukhador is, of course, an agent of Bookarelli. Nevertheless, the breach of a statutory duty claim may raise questions about whether a breach of s 255 of the Legal Profession Act 2004 gives rise to an entitlement to damages. And the claim for breach of trust is maintained against another party's solicitor, which is not a point in its favour in circumstances where the existence of an irrevocable direction to pay is not altogether clear. 33However, I think the case is "more than barely capable of serious argument" and so, subject to the arguments considered below, I accept that Katanga has a good arguable case. 34The other question raised by r 25.14 is whether there is a danger that the prospective judgment will be unsatisfied. McColl J in Samimi at [73] and [74] stated: "[73] In Ninemia Maritime (at 406), in a passage effectively approved in Frigo v Culhaci (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" [emphasis removed]. 35In this regard Katanga relies on the failure of the defendants to respond to notices to produce, to respond to requests for information and to comply with court orders. Some attempt was made by Bookarelli to explain the non-compliance but the defendants were unable to offer any coherent explanation as to why a verified defence of the solicitor, Mr Joukhador, or the client, Bookarelli, would "not admit" whether certain monies were received into the trust account and would swear that "after reasonable inquiry, I do now know whether the allegations of fact that are not admitted in the defence are true". The same can be said of the non-admission of the deed and its terms. 36In my view, the failure to respond to requests for information and the contents of the verified defences reflect a "blank wall" approach by the defendants. 37Also, Bookarelli is a $1 company. If Katanga's share of the dividends has been paid to Bookarelli then Bookarelli's financial position raises the prospect of Katanga ending up with an unsatisfied judgment. 38The non-payment of any amount of dividends to Katanga of monies paid to Mr Joukhador is, in my mind, solid evidence of a risk of dissipation of assets in accordance with the principles in the Samimi decision. 39In my view, rr 25.3 and 25.14 and the implied or incidental power of this Court arising from s 90 of the Civil Procedure Act 2005 provide jurisdiction to make the orders sought. 40Further, Tagget v Sexton [2009] NSWCA 91 at 63-66 [145]-[151] supports the conclusion that the Court does have power to make freezing orders of the type sought. 41The defendants asserted that the Court should not make an order for payment of monies contrary to the shareholder's direction. They submitted that the shareholders directed that 50 per cent of the monies received should be paid to Bookarelli, and that it would be contrary to this direction if any part of that 50 per cent payable to Bookarelli was to be paid to someone other than Bookarelli, such as by a payment into court. 42I regard this argument as one without substance. The shareholder has directed Bookarelli to receive 50 per cent of the money. It cannot be that such a direction precludes Bookarelli from directing that 25 per cent, half of Bookarelli's 50 per cent share, be paid to Katanga as the deed provided. 43In my view, if Katanga is successful s 255 of the Legal Profession Act 2004, far from barring payment to Katanga, requires those funds to be paid to Katanga in accordance with Bookarelli's direction, in the absence of a court order or some other lawful direction by Bookarelli. 44In Frigo v Culhaci [1998] NSWCA 88, the Court of Appeal noted that a Mareva injunction is a drastic remedy, not to be granted lightly. It imposes a severe restriction on the defendant being able to deal with its assets. However, a plaintiff need not be a secured creditor in order to obtain the remedy; indeed the plaintiff's status as a creditor may be in dispute. 45The Court of Appeal also noted that the injunction is not given to provide security for the plaintiff or to improve the plaintiff's position in insolvency. 46Some discretionary considerations are raised in Cardile v LED Builders Pty Ltd [1999] HCA 18 at [53] which I have considered. 47In this case, Katanga seeks no orders in respect of dividends already paid out to Bookarelli. Katanga appears to have acted promptly once it became aware that a further sixth interim dividend was to be paid. If Katanga's case is accepted, it seems to me strongly arguable that Katanga is not merely entitled to a sum of money from Bookarelli but has a 25 per cent interest in the funds received from the ION deed administrator in respect to the nominated shareholders approached by Katanga. 48Bookarelli's defence asserts "termination of the relationship". It does not assert that any obligation persisted beyond "termination" (which I take to include termination of the obligations in the deed). It is not apparent to me why the "just and faithful" covenant would necessarily persist beyond termination, as is alleged in the defence. 49Although not disclosed in the evidence as a reason for refusing payment, the defence of Bookarelli also alleges a breach of fiduciary duty. No claim for relief is sought in respect of that breach. Bookarelli asserts, "in consequence of the breach of that fiduciary duty the first defendant was damaged [sic]". But the claim for damages is only "as a consequence of the breach of the covenant" of the "just and faithful" obligation. 50Bookarelli's claim for damages in the defence - asserted to be a set-off - alleges various amounts in respect of 13 of the 20 "potential" clients. Further, the potential clients and the loss alleged are not asserted to be in respect of the funds received from the ION deed administrator. Moreover, Bookarelli asserts an agreement with those potential clients that Bookarelli would receive 55 per cent of the "benefit" received by the client, not 50 per cent of the dividend provided for in the deed and the agreements with ION shareholders. These matters raise a question, unanswered before me, about the "potential clients", the money they received and the ambit of the deed. It is not asserted that Katanga received any benefit from these "potential clients". 51Finally, the defendants did not assert in submissions that this pleaded set-off represented a proper basis on which I should refuse to grant a freezing order. Had they done so, some of the apparent difficulties with the cross-claim would have been explored and might have been explained. 52In view of the absence of any express reliance on this claim by Bookarelli in this application, other than a one-line reference to the existence of the claim in the defence in the written submissions, and in view of the questions which arise from its content, I have concerns about whether there exists a genuine basis for refusing to pay the 25 per cent claimed by Katanga. This concern is not mitigated by the failure of the defendants to disclose to Katanga the funds received from ION, and the shareholders in respect of whom the funds were received, notwithstanding the requests by Katanga for this information. 53In my view, there is a proper basis for a freezing order in respect to the funds received from the ION deed administrator and held by Mr Joukhador. The balance of convenience favours such an order as it preserves the funds to which Katanga claims to be entitled. There was no evidence before me that indicated any particular prejudice that would arise from Mr Joukhador retaining 25 per cent of the funds in his trust account. 54Katanga sought that the appropriate freezing order should require the funds being paid into court rather than imposing some restraint on Mr Joukhador and Bookarelli. No reason was advanced other than it was the safer course. 55The evidence, admitted without objection, contained an entry on the Register of Disciplinary Action of the Office of the Legal Services Commissioner that Mr Joukhador had been reprimanded in March 2010 for unsatisfactory professional conduct. However, the particular conduct specified in the register does not, in my view, raise a question about whether Mr Joukhador would comply with a court order. 56Accordingly, I do not accept a need, on the evidence before me, for the funds to be physically removed from Mr Joukhador. 57For the reason given, I propose to vary order 1(b) of the notice of motion so that in its place there be an order that Mr Joukhador be restrained from disbursing 25 per cent of any dividend distributions received from the ION deed administrator in respect to the shareholders listed in amended schedule B (being annexure F to the affidavit of Sally Webber sworn 6 September 2013) and to hold those funds (that is, the relevant 25 per cent) separately on trust pending further order. 58I also will make orders 1(a) and 2 of the notice of motion, save that the reference to schedule B will be changed to "amended schedule B". 59During the course of the hearing the defendants sought an order that the plaintiff provide security for the usual undertaking. There was no evidence before me of the possible damages to the defendants arising from the proposed orders, nor any evidence supporting the need for the security, other than an assertion, accepted by the plaintiff, that the plaintiff had already been ordered to provide security for costs. 60In these circumstances, I do not propose to make any order for security for the usual undertaking. My orders do not preclude any application for such security should it be brought on a proper basis with evidence. 61I also propose to direct that each month Mr Joukhador provide to the plaintiff an updated schedule setting out the total amount held separately in the trust account in accordance with order 1(b). I propose to grant liberty to apply on three days' notice in respect of any matter arising in relation to these orders. 62Katanga seeks an order for costs, having been successful with the motion, in accordance with Uniform Civil Procedure Rules 2005 r 42.1. Bookarelli and Mr Joukhador seek an order that costs be costs in the proceedings. In my view, Bookarelli has unsuccessfully opposed the motion and should not receive its costs in any event, but should Katanga fail in the proceedings proper, I do not think Katanga should receive its costs. 63Accordingly, I propose to order that the plaintiff's costs of the motion, including the costs of the deed administrator as agreed with the defendants or assessed, be the plaintiff's costs in the proceedings. 64I noted earlier in this judgment that the plaintiff previously gave the usual undertaking. 65Accordingly, the orders of the court are as follows: Upon the plaintiff giving the court the usual undertaking as to damages, the court orders: (1)Until further order: (a)Keith Crawford, in his capacity as deed administrator of ION Ltd (subject to Deed of Company Arrangement) (ACN 009 106 272) ("the Deed Administrator"), be ordered to provide the plaintiff (through its solicitors on the record): (i)5 days prior written notice of any distribution of dividend payments to be made to the second defendant in accordance with authorities provided to the Deed Administrator by the ION DOCA Group shareholders listed in amended schedule B contained in annexure F to the affidavit of Sally Webber sworn 6 September 2013 ("Amended Schedule B"); (ii)a schedule indicating which shareholders are to be paid and the total amounts to be paid; and (b)the second defendant be restrained from disbursing or otherwise dealing with 25 per cent of any dividend distributions received from the Deed Administrator in respect of shareholders listed in Amended Schedule B, save that the second defendant is to hold those funds (that is, the relevant 25 per cent) separately in trust. (2)Until further order the first defendant must not take any steps to alter the direction to pay in any authorities provided to the Deed Administrator by the shareholders listed in Amended Schedule B. (3)I direct that the second defendant notify the plaintiff once per month of the total amount held separately in trust in accordance with order 1(b). (4)The plaintiff's costs of the motion, including the costs of the Deed Administrator (as agreed with the defendants or as assessed), be the plaintiff's costs in the proceedings. (5)Grant liberty to apply on 3 days' notice in relation to any matter arising in relation to these orders.

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