KR Properties Global Pty Ltd (ACN 602 693 729) t/as AK Properties Group (ABN 62 971 068 965) v Kazzi

Court of Appeal (NSW)|2024-06-03|Before: Mitchelmore JA, Stevenson J

Background

I have referred in broad outline above to the nature of the proceedings at first instance to the extent that they remain relevant to the appeal before this Court. The following background is relevant to the present application and was canvassed in detail by Williams J in her Honour's careful and comprehensive judgment delivered on 22 May 2024.
On 2 September 2021, consent orders were entered in the proceedings in the Equity Division recording an undertaking by Mr Kazzi that he would not remove from Australia, dispose of, deal with, or diminish the value of any of his assets up to the value of $1,250,000 without providing at least 14 days' prior written notice to the Owners' solicitors (the Undertaking). The Undertaking expressly provided that it did not prohibit Mr Kazzi from paying his ordinary living expenses, paying his legal expenses, dealing with or disposing of any of his assets in the ordinary and proper course of his business (including paying business expenses bona fide and properly incurred), or otherwise dealing with or disposing of any of his assets to discharge obligations bona fide and properly incurred under a contract entered into before the Undertaking was given.
At the time he gave the Undertaking, Mr Kazzi was the registered proprietor of land situated at 15 Noble Street, Gerringong, on which he was constructing five units. For four of the units, he had entered off-the-plan contracts of sale. Between 2 September 2022 and 14 October 2022, Mr Kazzi transferred those four units to various purchasers, leaving the fifth unit, being the Property.

Application for Freezing Orders

On 10 May 2024, the Owners' solicitors discovered, through a notice on the website "realestate.com.au", that Mr Kazzi appeared to have sold the Property, on 1 May 2024.
On 14 May 2024, following an ex parte application by the Owners, Richmond J made orders in respect of the proceeds of sale (in the same terms sought on this notice of motion) on an interim basis, and an ancillary order requiring Mr Kazzi to serve on the Owners an affidavit setting out his assets and liabilities by 21 May 2024.
On 21 May 2024, Mr Kazzi swore an affidavit identifying his only major asset as the Property, which was encumbered by a mortgage to La Trobe in the amount of $813,336.26. It disclosed that a contract of the Property in the amount of $1,375,000 was exchanged on 23 April 2024 and that the sale was due to settle on 4 June 2024. The affidavit also disclosed funds of $201 in an account with NAB and shares in eleven companies with a total paid up share capital of approximately $997. By contrast with the affidavit he swore in March 2023, Mr Kazzi did not express any belief that the value of the shares in the companies he identified likely exceeded their nominal value.
On 21 May 2024, the matter came before Williams J. Insofar as the application concerned the costs order entered on 15 August 2023, the Owners relied upon the following conduct of Mr Kazzi to establish the requisite danger that the order will be unsatisfied by Mr Kazzi disposing of, dealing with, or otherwise diminishing the value of his assets (at [42]): "(1) bank statements for [Oxford's] accounts which the Owners submitted disclose a 'pattern' since about the time of the commencement of these proceedings in 2020 whereby any money paid into the account was promptly paid out of the account, with the result that the account did not maintain a credit balance; (2) certain building invoices that were in issue in the substantive proceedings, which the Owners submitted that Mr Kazzi had fabricated; (3) Mr Kazzi's conduct in causing his property at Gerringong to be refinanced just weeks after the conclusion of the hearing before Stevenson J, which resulted in the registration of the mortgage over [the Property] … , securing a debt which the Owners submitted did not appear to have been incurred in the ordinary and proper course of business because part of the proceeds of the refinance were deposited in Mr Kazzi's account and then applied in a series of payments, many of which were made to [PK Roofing] … ; and (4) Mr Kazzi's conduct in deposing in his affidavit sworn on 24 March 2023 that he believed that his shares in the fourteen companies identified in that affidavit had a value in excess of their paid up share capital totalling $1,101,099, which the Owners submitted is shown to have been misleading because Mr Kazzi subsequently informed the liquidator of the Builder (being one of the fourteen companies) that the Builder had ceased trading in about March 2023."
Williams J did not accept that those matters, considered individually or as a whole, supported an inference that there was the requisite danger: at [43]. Her Honour found: 1. The evidence adduced at the hearing did not provide a sufficient basis for her Honour to infer that the transactions relied upon by the Owners as demonstrating the "pattern" of withdrawals from Oxford's accounts were not transactions made in the ordinary and proper course of Oxford's business: at [43]. 2. The primary judge had not made any finding that Mr Kazzi had fabricated any invoices, and the Owners had not adduced any evidence that was capable of proving that serious allegation: at [44]. 3. The Owners had "failed to articulate any reason why the refinancing reflected poorly on Mr Kazzi's probity", particularly given that refinancing to facilitate the sale of units was the very kind of thing that one would expect to occur in the ordinary and proper course of the business of developing units: at [45]. In relation to the transfers made in March 2023 following receipt of $470,000 from La Trobe, her Honour (at [45]) accepted Mr Kazzi's submission that there was: "… no evidence that the payments made from Mr Kazzi's bank account in March 2023 were not payments made in the ordinary course of business, at a time when he was in the process of finalising the development and preparing to complete the contracts that he had entered into some years earlier for the sale of four of the units". Her Honour earlier noted that the Owners had invited her to infer that the transactions were not bona fide payments made in the ordinary and proper course of business. Her Honour did not consider the evidence provided a sufficient basis for such an inference, and further noted that the Owners did not make a freezing order or other application relying on those bank statements at the time: at [18]. 1. The evidence adduced did not address the financial position of 10 out of the 14 companies referred to in Mr Kazzi's 24 March 2023 affidavit, and did not support an inference that Mr Kazzi did not genuinely hold the belief expressed in his 24 March 2023 affidavit about the value of his shareholdings at that time: at [46].
Her Honour considered that Mr Kazzi's offer to provide a second mortgage over the property to secure his liability to the Owners pointed "strongly" to the conclusion that he was selling the Property in the proper and ordinary course of business, and that the sale of the Property was "not calculated to have the effect of frustrating the enforcement of the costs order": at [47].
Even if the requisite danger existed, her Honour would have declined to continue the freezing order because the evidence did not provide a sufficient basis for the Court to estimate the amount of costs for which Mr Kazzi was liable under the costs order, in the absence of a costs assessment or agreement between the parties as to the quantum of costs that Mr Kazzi is liable to pay: at [48].
Insofar as the application concerned the prospective judgment in the appeal proceedings, her Honour concluded that she did not have jurisdiction as a judge of the Supreme Court sitting at first instance to make a freezing order on the basis that the applicant had a good arguable case in proceedings that were on foot in the Court of Appeal: at [55]. Her Honour thus discharged the freezing orders with immediate effect: at [57].

Subsequent Events

On 23 May 2024, the Owners' solicitors sent a letter to Mr Kazzi's solicitors seeking an explanation as to why Mr Kazzi had transferred the sum of $554,880 to PK Roofing between 17 October 2022 and 16 March 2023, that being the sum of the transfers to which I have referred above, raising a concern that those transfers were made in breach of the Undertaking. The Owners' solicitors also stated: "Furthermore, in circumstances where Mr Kazzi: 1. currently has a bank balance of $210.59 (as disclosed by his affidavit of 21 May 2024); 2. has a history of transferring any large sums of money received into his bank account to other entities within days of receipt; and 3. does not own any assets of significant value other than the [Property] (as disclosed by his affidavit of 21 May 2024); we also request that Mr Kazzi provide our clients with an undertaking that he will pay the proceeds of sale of the Apartment (less amounts owing on the mortgage, together with conveyancing costs and disbursements and agent's commission) into your firm's trust account where they will be held until 14 days after the final determination of the Court of Appeal proceedings."
On 24 May 2024, Mr Kazzi's solicitors replied by email, rejecting what was described as an assertion that Mr Kazzi breached the Undertaking and rejecting that there had been any dissipation of his asserts. The email continued: "Our client maintains, as he always has, that the relevant transactions were made in the ordinary and proper course of business."
Mr Kazzi's solicitors did not say anything in that email in response to the Owners' solicitors request for an undertaking. In response to the email from Mr Kazzi's solicitors, the Owners' solicitors sent a further email on the same day, referring to what Mr Kazzi said about the character of the transfers and asking for an explanation of the purpose of the transfers to PK Roofing and how they were in the ordinary and proper course of business. Mr Kazzi's solicitors replied shortly thereafter, stating that the Owners had not articulated the basis on which they were entitled to the information sought that Mr Kazzi was "under no obligation to provide" the requested information.

Good Arguable Case

A good arguable case is one "which is more than barely capable of serious argument, and yet not necessarily one which the judge believes would have a better than 50 per cent chance of success": Samimi at [69] (McColl JA). In Care A2, Simpson AJA stated (at [19]): "As the freezing order is sought pending appeal in this Court, the 'good arguable case' that the applicants must establish depends on the extent to which the pleaded grounds can be seen to be arguable (so far as that can be judged). This is not, however, a preliminary assessment of the merits of the appeal. All that is necessary is that the grounds (or one or more of them) raise a fairly arguable point. Regard must be had to the nature of the grounds identified."
In addition to the grounds of appeal, some weight is given to whether the applicant has been successful at trial: Samimi at [71] (McColl JA); Finn v Carelli [2007] NSWSC 261 at [6] (Brereton J). In Care A2, Simpson AJA observed that "[w]here an order is sought by an unsuccessful litigant pending appeal it will usually be more difficult, although far from impossible, to discharge the onus of establishing a 'good arguable case'": at [6].
Having heard full argument on the Owners' cross-appeal on 24 April 2024, I am satisfied that there is a good arguable case as that criterion has been applied. Mr Kazzi did not make any submissions to the contrary.

Danger of an Unsatisfied Judgment Caused by a Risk of Disposal of Assets

In Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1983] 1 WLR 1412; [1984] 1 All ER 398 at 406, in a passage approved by McColl JA in Samini at [73], Mustill J discussed the nature of the evidence an 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. …"
It is not necessary for the applicants to establish the likelihood that, by reason of the assets being dissipated or otherwise, they would be unable to have the judgment satisfied: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 325 (Gleeson CJ) ("Patterson"). Rather, "[w]hat must be established is a sufficient likelihood of risk which in the circumstances of a particular case justifies an asset preservation order": Victoria University of Technology v Wilson [2003] VSC 299 at [36] (Redlich J), quoted in Severstal Export GmbH v Bhushan Steel Ltd (2013) 84 NSWLR 141; [2013] NSWCA 102 at [59] (Bathurst CJ, Beazley P and Barrett JA agreeing). Depending on the circumstances, the interests of justice may favour the grant of a freezing order even though the risk of dissipation is less probable than not: Patterson at 325 (Gleeson CJ).
The Owners advanced a number of matters in support of the existence of a real and unanswered risk of dissipation of the net proceeds of the Property if a freezing order was not granted. In their submissions, they relied on the following: 1. Mr Kazzi's failure to give written notice to the Owners of his intention to grant the mortgage over the Property to La Trobe, which the Owners contended was a breach of the Undertaking. 2. Mr Kazzi having given evidence, in his affidavit of 24 March 2023, that the value of his shares in Oxford exceeded $1.1 million, in circumstances where Oxford ceased trading in or about that time and Oxford's bank account had a balance of $5,432.80 as at that date and was placed into liquidation on 8 March 2024. 3. Mr Kazzi's transfer of funds to PK Roofing both upon receipt of proceeds of one of the unit sales (in October 2022 ($142,000)) and upon receipt of part of the loan funds from La Trobe (in March 2023 ($412,880)), at a time when the Undertaking was on foot. 4. Mr Kazzi's evidence, in his affidavit of 21 May 2024, that his only asset of any real value was the Property, from which the Owners submitted that it followed that the $554,880 that Mr Kazzi transferred to PK Roofing "appears to have been dissipated". 5. Mr Kazzi's declining to provide any explanation for those transfers of funds apart from asserting that the transfers were made in the ordinary and proper course of business. 6. Mr Kazzi having declined to provide an undertaking in relation to the net proceeds of sale of the Property, which they submitted may be taken into account by the Court. 7. Mr Kazzi's conduct in causing Oxford to sue the Owners for fees alleged to have been incurred by Oxford for scaffolding and fencing provided to the building site which, in fact, was never provided, relying on the primary documents together with the judgment of Stevenson J in Oxford (No 1) at [24]-[28].

Grant of Mortgage and Declaration of Assets (Submissions 1 and 2)

As to the first matter, I do not consider that the granting of a mortgage over the Property without notice to the Owners demonstrated, without more, a breach of the Undertaking. As Williams J stated in her Honour's reasons at [45], in circumstances where Mr Kazzi was, at that time, constructing five units on his land, "[a] refinancing to facilitate the sale of those units is the very kind of thing that one would expect to occur in the ordinary and proper course of the business of such a development". In their submissions before me, the Owners made the point that the sale of the units occurred some months before the mortgage was taken out, which told against the refinancing being to facilitate the sale of the units. That might change the purpose of the refinancing, but without more it would not cause me to form a different view as to the character of the transaction.
I am also not satisfied that the matters on which the Owners rely as to the second matter are sufficient for me to draw the serious inference that Mr Kazzi gave deliberately misleading evidence in his affidavit of 24 March 2023 when stating his belief as to the value of his shares, including in Oxford.

Transfers to PK Roofing (Submissions 3-5)

The third, fourth and fifth matters are more significant, and the Owners spent some time on them in their written and oral submissions. As I have noted above, in October 2022 and March 2023 Mr Kazzi made several transfers from his NAB account to the account of PK Roofing. The transfer of $142,000, in October 2022, represented most of the proceeds that Mr Kazzi received following completion of the sale of one of the other units. The transfers in March 2023, of $412,880, followed Mr Kazzi's receipt of $470,000, being part of the loan funds from La Trobe. At that time, the Undertaking was in force. As I have noted above, Williams J was not prepared to find that those transfers were not in the proper and ordinary course of business, which the Undertaking permitted.
Two things have occurred since her Honour's decision that are material to my consideration of this aspect of the Owners' application. First, the Owners, through their solicitors, sought an explanation for those transfers and were told by Mr Kazzi's solicitors that the transfers were in the ordinary and proper course of business (see [43]-[45] above). Second, as I have noted above, the Owners served the subpoena on PK Roofing which relevantly sought PK Roofing's financial statements for the financial year ended 30 June 2023 or, in the alternative, PK Roofing's management accounts for that year (including the profit and loss statement and balance sheet).
In answer to the subpoena, PK Roofing produced a balance sheet as at June 2023. It was marked "Draft" and the footer of the document stated that it was "subject to review by the company accountant and is subject to errors & omissions and review & audit". Under the heading "Current Assets", and the subheading "Bank Accounts", the company included the entry "Loan - P Kazzi" and provided a negative amount of $353,470.18. Next, under the heading "Liabilities", and the subheading "Credit Cards", there is an entry described as "Loan - Peter Kazzi", with the figure $1,356,118.92. Finally, under the heading "Non-Current Liabilities", a further entry appears for "Loan - P Kazzi", in the amount of $245,422.31. The total amount of the funds described as loans from Mr Kazzi is $1,955,011.41.
The Owners relied upon the three references to loans from Mr Kazzi in the balance sheet for two purposes. First, they submitted that the existence of loans demonstrated that Mr Kazzi had failed to disclose the full extent of his assets in the affidavits he was ordered to provide in March 2023 and in May 2024. The Owners sought an inference from this failure that Mr Kazzi was hiding his assets. Secondly, they submitted that the balance sheet, and the corporate structure of PK Roofing, told against Mr Kazzi having transferred the funds that he did in October 2022 and March 2023 in the ordinary and proper course of his business.
In relation to the first matter that the balance sheet was said to demonstrate, the Owners referred to the orders made by consent on 17 June 2023, which required Mr Kazzi to swear and serve an affidavit that relevantly identified all of his assets "world wide, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of his interest in the assets". The orders of Richmond J made on 14 May 2023 included a requirement in similar terms. Separately, Mr Kazzi's solicitor had informed the Owners' solicitor, in an email dated 20 February 2024, that the best the Owners could do in terms of any order against Mr Kazzi was to receive the remaining equity in the Property, which he estimated was worth $400,000 (based on a property value of $1.2 million with a first mortgage liability of $800,000).
Noting the loans in the balance sheet of PK Roofing, including a current liability of $1,356,118.92, the Owners submitted that in the absence of any evidence from Mr Kazzi that explained the loans or explained their treatment in the balance sheet, I should infer that the balance sheet reflects the correct characterisation of the funds and that it could only follow that Mr Kazzi had failed to disclose significant assets in his March 2023 and May 2024 affidavits. The Owners relied on a decision of Cheeseman J in Hurst, in the matter of Lloyds Curry Shop Pty Ltd (in liq) v Prasad (No 3) [2023] FCA 1174 ("Hurst"), in which her Honour stated at [102]: "… the issue of non-disclosure pursuant to an order that is made as an ancillary order to a freezing order is a matter that may, when taken in context of the whole of the evidence, demonstrate a reasonable apprehension of unjustifiable dissipation which may in turn frustrate the Court's processes. That inference is readily drawn where assets are omitted from the affidavit which purports to be given in accordance with the order made and the omission is not adequately explained."
Mr Kazzi submitted that in so far as the Owners sought to rely on the loan funds in the balance sheet in relation to Mr Kazzi's May 2024 affidavit, there was a temporal gap between the balance sheet (relating to the 2023 financial year) and May 2024, in light of which the Court would not lightly infer that Mr Kazzi had failed to make a disclosure of all of his assets in the May 2024 affidavit in the absence of further evidence. In relation to the March 2023 affidavit, Mr Kazzi submitted that his bank statements, which he provided in response to queries from the Owners following service of his affidavit, showed the transfers he had made, which told against the inference that he was seeking to hide his assets. However, when Mr Kazzi was asked for an explanation for those transfers, his solicitors, no doubt on instructions, said no more than that the transfers were in the ordinary course of business, which does not disclose the actual character of the payments as disclosed in the balance sheet.
Mr Kazzi's submission in relation to his bank statements was, however, suggestive of an acknowledgement on his part that the transfers he made were, in fact, loans to PK Roofing which should have been disclosed as an asset in the March 2023 affidavit. That is consistent with the supplementary written submissions of Mr Kazzi dated 3 June 2024, which stated at [4]: "The evidence before the Court in this proceeding is that Mr Kazzi is running the [PK Roofing] business. He is PK Roofing's sole director, a role he's held since its incorporation in October 2019: Ex LC-1, 75. He is paid by PK Roofing. PK Roofing's sole shareholder is [Tyga Holdings] and Mr Kazzi is the sole director of Tyga Holdings and the beneficial owner of its shares: Ex LC-1, 20. Mr Kazzi loaned PK Holdings [sic] $1,955,011.41, only a small proportion of which was loaned after the conclusion of the hearing in the proceeding no.7703 of 2020 in the Supreme Court of New South Wales. This is consistent with the loans being in the ordinary course of business."
In oral submissions, however, counsel for Mr Kazzi sought to emphasise the "draft" nature of the balance sheet and that it was said to be subject to review by the company accountant, implicitly calling into question the reliability of the document. Counsel also submitted that if the funds were loans, then it was not possible for the Court to make definitive findings about the character of the loans or what occurred in respect of them. Counsel suggested, by way of example, that if the trade debtors did not ultimately pay their debts then the amounts that Mr Kazzi lent could not be repaid.
Counsel then submitted that although characterised as loans in the balance sheet, it may be that the funds that Mr Kazzi paid to PK Roofing were not loans but "working capital injections". In support of that submission, Mr Kazzi relied on the bank statements that PK Roofing had produced on subpoena, noting that shortly after funds were received from Mr Kazzi in the period between October 2022 and March 2023 they were paid out by PK Roofing to various entities. The implication was that I could reasonably infer from the transaction history that the transfers were not loans. However, the manner in which PK Roofing paid out the funds it received from Mr Kazzi says nothing one way or the other about the basis on which it received the funds.
Having regard to the principles in Blatch v Archer [1774] EngR 2; (1774) 98 ER 969, which entitle a Court to have regard to which party has the power to prove particular matters, as the person who made the transfers, and the sole director of the company to which the transfers were made, Mr Kazzi was plainly in a position to explain the balance sheet and whether it accurately reflected the character of the transfers he made. Instead, he sought, through his counsel, to raise possible explanations without sufficient evidence. In the absence of any evidence from Mr Kazzi as to why the balance sheet should not be read consistently with what it says or otherwise to explain it, it is reasonable to infer that the balance sheet reflects the actual position regarding the character of the transfers he made, and that Mr Kazzi should have, but failed to, disclose loans made to PK Roofing as an asset in at least the March 2023 affidavit.
Consistently with Cheeseman J's observations in Hurst, the omission supports a reasonable apprehension of unjustifiable dissipation which may in turn frustrate the Court's processes. As her Honour stated, that inference is more readily drawn where assets are omitted from an affidavit which purports to be given in accordance with the order made and the omission is not adequately explained. Although the March 2023 affidavit was not sworn in the context of a freezing order, Mr Kazzi had given the Undertaking, and the affidavit was sworn pursuant to an order, in circumstances where the Owners had approached the Court out of concern that Mr Kazzi was acting in breach of the Undertaking. I do not consider those circumstances to be relevantly distinguishable from Hurst in terms of the inference that her Honour said could more readily be drawn.
In relation to the second matter that the balance sheet was said to demonstrate, namely, that Mr Kazzi had acted in breach of the Undertaking, the Owners relied on the fact that he was the sole director of PK Roofing but was not a shareholder (all shares in PK Roofing being held by Tyga Holdings Pty Ltd (Tyga Holdings)) and was paid wages by PK Roofing. The Owners also relied on the absence of any evidence that Mr Kazzi was in the business of money lending. On the basis of the characterisation of the funds Mr Kazzi provided to PK Roofing in the balance sheet as loans, the Owners submitted that the transfers were not made in the proper and ordinary course of business as they were made to a company in which Mr Kazzi did not have a proprietary interest, beneficial or otherwise, and thus were in breach of the Undertaking that was in force at the time.
In support of their submissions on this point, the Owners relied on a decision of in JSC BTA Bank v A [2010] EWCA Civ 1141 ("JSC BTA Bank") at [78]. The Court in JSC BTA Bank was relevantly focused on a particular term of a freezing order, that provided that the order did not prohibit the respondents to the order, including Mr A, "from dealing with or disposing of any of their assets in the ordinary and proper course of any business conducted by them personally" (emphasis added): at [42]. Mr A had given evidence that the use of funds to purchase subordinated debt in a company of which he was a substantial shareholder was to assist the company to maintain its required capitalisation (at [77]). The Court rejected the proposition that the injection of significant assets into a company by its controlling shareholder necessarily constituted part of the ordinary course of business carried on by Mr A personally, stating at [78]: "A private investor does not ipso facto carry on an investment business. Mr A does not in terms suggest that he does. He simply characterises his dealings as shareholder with BTA Moscow as part of his business rather than his non-business activities. But on the evidence this is nothing more than the concentration by him of part of his assets in a particular business. As such, he is no different from any other private investor who, on his own behalf, decides where to put his money. We fully appreciate that the investment of those monies may be significant in terms of supporting the business of BTA Moscow. But that is not Mr A's business nor can a loan to BTA Moscow from its majority shareholder be regarded as part of that business." (Emphasis added.)
The Owners relied on this statement for the proposition that a loan to a company made by its majority shareholder is not ipso facto a transaction made in the ordinary and proper course of that shareholder's business and that the position is a fortiori with respect to a loan made by a director/employee who is not a shareholder.
After submissions had finished, Mr Kazzi sought leave to reopen and tender the Family Trust Deed, the trustee of which was identified in the Schedule as Tyga Holdings. There was no opposition to the tender. The terms of the Family Trust Deed indicate that the trust is wholly discretionary, the beneficiaries of which are Mr Kazzi, his wife, and his two children (Schedule 8). Mr Kazzi is the Nominator under the Family Trust Deed (Schedule 7).
The Owners submitted in respect of the Family Trust Deed that as a discretionary beneficiary, Mr Kazzi does not have a proprietary interest in the assets of the Trust, including the shares in PK Roofing that Tyga Holdings holds: see Southage Pty Ltd v Beijing Garden Resort Pty Ltd [2013] VSC 272 at [65] (Vickery J). On the basis that the transfers made by Mr Kazzi to PK Roofing in 2022 and 2023 were loans (which I have found to be the reasonable inference on the face of the balance sheet and without any evidence from Mr Kazzi seeking to otherwise explain them), the Owners submitted that Mr Kazzi made those loans to a company of questionable solvency (given the state of the balance sheet as at June 2023), in which he had no proprietary interest. It followed, in their submission, that the loans were not made in the ordinary and proper course of his business.
In Mr Kazzi's written submissions in response, he submitted that it was not necessary to demonstrate a proprietary interest in PK Roofing in order for the Court to conclude that PK Roofing was his business. Counsel relied on the decision of French J in Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509 for the proposition that where a discretionary trust is controlled by a trustee who is in truth the alter ego of a beneficiary, then a contingent interest may be identified because, in the words of French J at [36], "it is as good as certain that the beneficiary will receive the benefit of distributions of either income or capital or both". Counsel drew the Court's attention to a number of further authorities in which the reasoning of French J in Carey was applied to make freezing orders extending to a third party.
Mr Kazzi submitted that the evidence showed that Mr Kazzi was "a beneficiary who controls the P&L Kazzi Family Trust, through his control of [Tyga Holdings] and his powers as Nominator under the trust deed (Schedule 7, Clauses 4, 6 and 14)". It followed, in his submission, that the transfers made to PK Roofing, the sole shareholder of which is Tyga Holdings, were properly characterised as made in the proper and ordinary course of business.
The structure of shareholding of PK Roofing supports the submission that Mr Kazzi, although not a shareholder, has an interest in PK Roofing which would render the circumstances distinguishable from cases such as JSC BTA Bank. In light of this evidence, I am not satisfied that Mr Kazzi breached the Undertaking in so far as the March 2023 transfers were concerned. However, if, as he would have me accept, the business of the company is his business, it highlights the unsatisfactory nature of his disclosure of his assets and his reluctance to provide an explanation when raised by the Owners, initially in correspondence and then in answer to evidence they have filed in this Court. The Family Trust Deed does not shed any light on the proper characterisation of the transfers which, on the face of the balance sheet, were made pursuant to loans which should have been disclosed in at least the March 2023 affidavit.

Absence of undertaking and Mr Kazzi's reliability (Submissions 6 and 7)

As to the absence of an undertaking, it is the case that Mr Kazzi did not respond to the request by the Owners' solicitors, in their correspondence of 23 May 2024, for an undertaking in respect of the net proceeds of sale of the Property. However, as counsel for the Owners accepted during the hearing, that must be seen in its proper context. In February 2024, Mr Kazzi was prepared to offer the Owners a second mortgage over the Property with respect to all the remaining equity, which the Owners did not accept. Additionally, at the time the undertaking was requested, Williams J had very recently discharged the freezing orders. Seen in that context, I do not consider that the absence of an undertaking in the present case bears the significance it might otherwise have: cf Tomasetti at [18].
The final matter on which the Owners relied was Mr Kazzi's approach to particular invoices which formed part of his claim against the Owners but which he subsequently withdrew before the matter was determined. In the paragraphs of the reasons of Stevenson J on which the Owners relied, his Honour was considering whether Mr Kazzi was a reliable witness. In reaching the conclusion that he was not reliable, his Honour referred to his evidence regarding these invoices as an example of him giving evidence "that could not be reconciled with objectively established facts": Oxford (No 1) at [24]. His Honour considered that Oxford implicitly, but clearly, accepted that those invoices did not "reflect the facts" by not pressing its claim with respect to those invoices: Oxford (No 1) at [28]. Notwithstanding, Stevenson J's finding that Mr Kazzi was an unreliable witness did not amount to a positive finding of dishonesty, and I would not be prepared to make such a serious finding on what is presently before me.

Matters relied on by Mr Kazzi

Mr Kazzi relied on the absence of any evidence to show that he had engaged in any dissipation of his assets in the intervening period. He submitted that in the face of the inquiries made following service of his March 2023 affidavit, and the possibility that the matter would be relisted and freezing orders sought, he had not sought to further encumber the Property or to refinance the Property so as to obtain further funds. Mr Kazzi relied in this respect on the following statement of Cheeseman J in Hurst at [101]: "In the circumstances of this application, having regard to the passage of time since the impugned transactions and the absence of evidence of actual unjustifiable dissipation in the lengthy intervening period, it is necessary for the applicants to establish by evidence that there is presently a reasonable apprehension of the relevant risk. In making that observation, I do not intend to suggest that the mere fact of delay in bringing the initial application establishes that there is no risk of dissipation. Where a respondent knows that he or she faces legal proceedings and a freezing order application for a substantial time, and does not take steps to dissipate its assets, that can be a powerful factor militating against a conclusion of a real risk of dissipation. The equally available alternative inference in the present circumstances is that the relevant respondents did not appreciate that they were at risk, and that the passage of time reinforced their confidence in that regard. Had there not been additional evidence, I would have regarded the issue of dissipation to be finely balanced, and as the applicants bear the onus I would have reached a similar conclusion as I did in relation the continuance of the freezing orders against Kaushik, and now, David."
I accept that Mr Kazzi's submission has some force, although I consider there is also force in the submission of the Owners that there is a real question as to whether the Property could in reality be further encumbered noting Mr Kazzi's asset position as disclosed in his affidavit of 21 May 2024.
Mr Kazzi also submitted, with some force, that in considering the risk of dissipation it was relevant that he had offered the Owners a second mortgage over the Property in relation to the equity that remained. The Owners sought to counteract the significance of that consideration on the basis that the mortgage offer was no longer relevant, it having been advanced in the course of settlement negotiations in which Mr Kazzi sought to avoid the Owners issuing a bankruptcy notice, and those negotiations were not ultimately concluded. I do not accept that the offer of the mortgage in February of this year no longer has relevance, and give it some weight as a factor that points against the risk that I am here considering.

Conclusion

Having regard to the issues I have identified surrounding Mr Kazzi's disclosure of his assets, I am satisfied that there is a danger that, if an order is not made, the costs order of Stevenson J (if upheld by this Court) and any order of this Court increasing the award of damages against Mr Kazzi will be wholly or partly unsatisfied by Mr Kazzi disposing of, dealing with, or otherwise diminishing the value of his assets. I note that the value of the potential judgment of the Court of Appeal on the cross-claim would exceed the amount of the net proceeds of sale (noting that the Property was sold for $1,375,000 and as at 21 May 2024 the loan balance was $813,336.26).

Discretion

Mr Kazzi submitted that even if the Owners established the relevant risk, the Court should decline to make the orders sought because the Owners did not proceed diligently or expeditiously in applying for the freezing order. In particular, Mr Kazzi relied upon the following: "a. the applicants took no further action after 29 March 2023 in relation to their complaints about the adequacy of Mr Kazzi's disclosure to comply with the orders made on 17 March 2023. Their solicitors did not write to Mr Kazzi's solicitors and they did not seek to relist the proceedings; b. the applicant took no steps to clarify whether Mr Kazzi's 3 September 2021 undertaking continued to bind him pending the execution of the judgment and costs order against him, nor did they make any application to Stevenson J for a freezing order pending execution of that judgment and enforcement of the costs order; c. from March 2023, the applicants had in their possession the bank statements showing payments from the Builder to PK Roofing yet did not seek a freezing order; d. the applicants did not make an application for a freezing order during the hearing of the Appeal (even though they knew that Mr Kazzi was selling Unit 2); e. the applicants (perhaps unsurprisingly given the Appeal) took no steps to assess their costs."
As the Owners submitted, it is necessary to place these matters in their complete chronological context. In his affidavit sworn 24 May 2024, Mr Carney referred to the exchange of correspondence between the parties following receipt of Mr Kazzi's affidavit of 24 March 2023. As I noted above, the Owners applied to relist the matter but the listing was overtaken by Stevenson J's delivery of judgment in Oxford (No 1) on 6 April 2023, in which his Honour rejected the Owners' claim against Mr Kazzi.
Following two further decisions of Stevenson J in which his Honour addressed the Owners' claim for interest on borrowings against Mr Kazzi, his Honour made the final orders on 15 August 2023 to which I have referred above. As I have already noted, on 12 September 2023 the Owners obtained a garnishee order for rent collected from the Property, and on 13 September 2023 they obtained a writ for the levy of property, which on 20 October 2023 was registered on the title of the property.
As Brereton J stated in In the matter of Colorado Products Pty Ltd [2012] NSWSC 1251 at [6], in the context of a Mareva application, a plaintiff (here, a cross-claimant) "is not necessarily bound to come to court to seek a freezing order at the first possible opportunity". In this case, the Owners moved to protect their position with respect to the Property within a month of Stevenson J's final orders. In circumstances where an appeal was then filed, and the writ of levy was in force for six months, the Owners' delay in making the application until May 2024, once the Property had actually been sold, does not weigh against the making of the orders the Owners have sought.
I note that apart from the general prejudice of being unable to utilise funds to which he would otherwise be entitled, Mr Kazzi did not advance any evidence or make any submissions as to particular prejudice he would suffer if the orders sought were made. Mr Kazzi did submit that the form of orders, which required a positive payment to the Owners' solicitor's trust account, was irregular, and that no provision was made for him to meet his ordinary living expenses or legal expenses.
As to the positive payment, the Owners submitted that it was not material for their purposes whether the proceeds were paid into their solicitors' trust account or into the trust account of Mr Kazzi's solicitors, provided that the proceeds were frozen and could not be the subject of charge or otherwise encumbered. In response to Mr Kazzi's submissions regarding living expenses and legal expenses, the Owners referred to the fact that Mr Kazzi had been able to source $278,000 in April 2024 to meet the condition of the extension of time for compliance with the bankruptcy notice.
In circumstances where Mr Kazzi's solicitors gave an undertaking to hold the net proceeds in its trust account pending delivery of my reasons in this matter, I consider the appropriate course is that they remain in that account, subject to a freezing order. As to living expenses and legal expenses, as Black J observed in In the matter of Black Eagle Media Pty Ltd [2014] NSWSC 1778 at [25], the usual practice of including such exceptions is recognised in Practice Note SC Gen 14 and in Jackson v Sterling Industries Ltd (1987) 162 CLR 612; [1987] HCA 23. However, having regard to my concerns regarding Mr Kazzi's disclosures, and the size of the payment that Mr Kazzi was able to source to meet the security condition without deposing to any liability with respect to that amount (or any amounts) in his affidavit of 21 May 2024 (noting that the orders of Richmond J of 14 May 2024 required his affidavit to set out both his assets and liabilities), I consider that in the event that Mr Kazzi requires access to part of the net proceeds for the payment of living expenses or legal expenses, he should make that application with evidence.

Conclusion

I have referred above to the undertaking given by Mr Kazzi's solicitors that the net proceeds of sale would be paid into their trust account and would be held for seven days, during which period they would not act on any directions from Mr Kazzi with respect to payment away of any of those funds. For the avoidance of doubt, that undertaking should be discharged. Some minor amendments to the orders the Owners sought have been necessary to reflect the completion of sale of the Property and the fact that the funds are currently held in the trust account of Fortis Law pursuant to the undertaking given by them on 3 June 2024.
Accordingly, I make the following orders: 1. Upon the first and second cross-appellants giving the usual undertaking as to damages and the other undertakings recorded in Schedule A of the Form of Orders annexed to the orders and marked "A", orders are made on the terms of Annexure "A". 2. The cross-respondent is to pay the cross-appellants' costs of the notice of motion filed on 24 May 2024. 3. The undertaking given by the solicitors on the record for Mr Kazzi on 3 June 2024 is discharged. 4. Liberty is granted to apply on 12 hours' notice. 5. These orders are to be entered forthwith.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 June 2024

Solicitors: Horowitz & Bilinsky (Applicants on the Motion / Cross-Appellants) Fortis Law (Respondent on the Motion / Cross-Respondent) File Number(s): 2023/00277906 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity - Technology and Construction List Citation: Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 (No 4) [2023] NSWSC 960 Date of Decision: 15 August 2023 Before: Stevenson J File Number(s): 2020/00007703

Relevant Principles

The grant of a freezing order seeks to prevent "the frustration or inhibition of the court's process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partly unsatisfied": Uniform Civil Procedure Rules 2005 (NSW), r 25.11(1). Rule 25.14 relevantly provides: (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.
The language of rr 25.11 and 25.14 is sufficiently broad to encompass a prospective judgment following a successful appeal: Care A2 Plus Pty Ltd v Pichardo [2023] NSWCA 156 at [4] (Simpson AJA) ("Care A2").
A freezing order is an "exceptional" or "drastic" remedy which should not be granted lightly: Frigo v Culhaci [1998] NSWCA 88 at p 6 (Mason P, Sheller JA and Sheppard AJA); Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 at [51] (Gaudron, McHugh, Gummow and Callinan JJ) ("Cardile"); Tomasetti v Brailey [2012] NSWCA 6 at [16] (Campbell JA) ("Tomasetti"). There are two preconditions, each of which must be satisfied before the order can be made: 1. that the applicants have a "good arguable case"; and 2. that there is a danger that, if an order is not made, a judgment or prospective judgment will be wholly or partly unsatisfied for any one or more of the reasons stated in r 25.14(4).
Even when those conditions are satisfied, the making of the order is discretionary, with discretionary considerations including whether the Owners have proceeded diligently and expeditiously in applying for the freezing order: Cardile at [53] (Gaudron, McHugh, Gummow and Callinan JJ); Samimi v Seyedabadi [2013] NSWCA 279 at [75] (McColl JA) ("Samimi").

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