Lake v Crawford

LEGISLATION CITED : Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005

Lake v Crawford [2010] NSWSC 232 Lunn v All Starr Video Ltd (1993) The Times, 25 March 1993 CASES CITED : Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH und Co KG (The Niedersachsen) [1983] 1 WLR 1412; [1984] 1 All ER 398 Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 Turner v Universal Home Loans Pty Ltd [2004] NSWSC 936

Desmond Kenneth Lake by his tutors Gregory Grant Shand and Helen Keilar PARTIES : Ngaope Hoia Crawford (aka Sonny Crawford) (First Defendant) Delcort Investments Pty Ltd (Second Defendant)

COUNSEL : R Sheldon SC (Plaintiff) J Drummond (First Defendant)

SOLICITORS : Goldbergs Lawyers (Plaintiff) Steven J Doran, Solicitor (First Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

2009/295057 Desmond Kenneth Lake by his tutors Gregory Grant Shand and Helen Keilar v Ngaope Hoia Crawford (aka Sonny Crawford) and Delcort Investments Pty Ltd

JUDGMENT 1 HIS HONOUR: On 23 April 2010 I made interim ex parte freezing orders against each of the defendants up to and including 30 April 2010. In accordance with my directions, the proceedings were made returnable before me on that day when the plaintiff sought to continue the injunctions until further order. The defendants opposed that course and asked that the injunctions be dissolved. For the reasons that follow I consider that each injunction should go. Background 2 On 31 March 2010 I published my reasons for judgment in an application by the plaintiff to amend the statement of claim: see Lake v Crawford [2010] NSWSC 232. These reasons assume familiarity with that judgment and with the summary of the facts that it contains. 3 By his notice of motion filed in court on 23 April 2010, the plaintiff sought to restrain the defendants, in what may be described as the usual terms of such an order, from disposing of or dealing with or diminishing the value of any of their assets below an unencumbered value of $3.9M. That sum represents the amount of money transferred to the first defendant by the plaintiff's wife before she died and is also the amount that is in dispute in these proceedings. The matter proceeded ex parte on the plaintiff's application, to which I acceded, upon the contention that there was a fear that the defendants would proceed to dissipate their assets if not otherwise restrained by order of this Court. The plaintiff relied for that contention, and for his application for freezing orders generally, upon the following facts, which are presently uncontroversial. Some of this material derives from an affidavit of the plaintiff's solicitor, Michael Stiles sworn on 16 April 2010, to which no objection was taken. 4 There is no dispute in the proceedings that the first defendant received a total of $3.9M in three tranches of $2.8M, $100,000 and $1.0M, between 20 November 2007 and 30 January 2008 from the plaintiff's wife as earlier described. The first defendant subsequently caused a property at Bringelly to be purchased by the second defendant for $1.345M using a portion of these funds. The second defendant is still registered as the proprietor of the property and it is unencumbered. The first defendant is the sole director of the second defendant and the holder of its only issued share. 5 The first defendant invested $1,007,100 in a superannuation fund administered by Wealthtrac Portfolio Services on 12 December 2007. That money remains there although the first defendant would appear to have made a withdrawal request for the money in January 2009. The funds are currently said to be frozen as the result of recent global liquidity constraints but are liable to be paid to the first defendant at the discretion of the funds manager at any time following approval of the payment by him. 6 Mr Stiles deposed to his inquiries concerning the whereabouts of the remaining $1,547,900. Documents produced by the Commonwealth Bank of Australia relating to the first defendant's Streamline Unlimited account with that bank show a transfer of $2.5M from that account to his NetBank Saver account on 26 November 2007. Between 11 December 2007 and 12 June 2008 just short of $2,071,000 was transferred out of that account and back into the Streamline Unlimited account. The net balance of the NetBank Saver account became $7,766.65 by 2 June 2009. 7 The sum of $1,270,895.63 was withdrawn from the Streamline Unlimited account on 5 February 2008. This would appear to be the source of funds provided to the second defendant for the purchase of the Bringelly property. A withdrawal of $67,250 from the same account on 31 January 2008 would appear to have been used for the deposit on that purchase. Stan Clements, whose role or relationship to the first defendant, if any, is otherwise unexplained, was paid $200,000 from this account on 28 November 2007 and John King, whose role or relationship to the first defendant, if any, is also unexplained, was paid $75,000 on 5 February 2008. The sum of $1,007,100 was paid to Wealthtrac Portfolio Services from that account on 12 December 2007. A withdrawal of $510,020 from the same account was made on 2 April 2008. A deposit of $200,000 and a withdrawal of $190,000 occurred on 27 March and 31 March 2008 respectively. Between December 2007 and June 2009 there were a further twenty-eight withdrawals from the Streamline Unlimited account totalling nearly $596,000. 8 On 6 April 2010 the plaintiff's solicitors wrote to the defendants' solicitors in terms which included the following: "We note the payment of $3,900,000 of the funds of D K Lake to the first defendant as pleaded in paragraph 12 of the Amended Statement of Claim, and in light of the affidavit of your client filed in these proceedings, there appears to be no dispute about receipt of these moneys.

Please note that we require the defendant [sic], by 12.00 noon on Thursday 8 April 2010 to advise where the funds received were banked and details of how such funds have been dealt with since the date of receipt of same, including providing documentary evidence of all funds transferred and present account balances.

We further require an undertaking not to deal with all available funds, or proceeds from such funds, in excess of an amount of $10,000 without forwarding this office at least five business days notice of intention in writing to do so.

We also require an undertaking that first and second defendants will not transfer, encumber, mortgage or pledge as security, the [Bringelly property] without forwarding this office at least five business days notice of an intention to do so in writing.

In the absence of the provision of such information and undertakings required above, we will seek appropriate orders and an injunction to protect our client's rights." 9 That letter relevantly provoked the following response two days later: "We are of the view, that unless you have evidence of dissipation of funds that you are not entitled to the information you seek." 10 The plaintiff's solicitor wrote back on 9 April 2010 in these relevant terms: "In relation to your response to the issues raised in our letter of 6 April 2010 concerning the funds paid to Mr Crawford and the property acquired by Delcort Investments, his company, with funds received from our client, we note your response to our request.

We ask that you formally confirm you also hold instructions from Delcort.

In relation to dissipation of funds we rely on the fact that of the $3,900,000 of Mr Lake's funds transferred to Mr Crawford's account … we are concerned that by 22 June 2009 there was a balance of $12,504.71 only remaining in the account…

In relation to Mr Crawford's [other] account … where $2,500,000 of the funds were transferred from [the other account] on 26 November 2007 [we] note that as at June 2009 the account balance was $7,766.05…

We have observed that on 5 February 2010 $1,270,895.63 was transferred to be utilised towards the purchase of the [Bringelly property].

As the funds paid have otherwise been dissipated, unless we receive the information and undertaking by 4.00 pm Monday 12 April 2010 we reserve our rights to seek appropriate orders and an injunction to protect our client's rights." 11 There was no response to that letter. The plaintiff's case 12 The plaintiff contended that the defendants' failure to provide the assurances sought by his solicitor gave rise to an inference that in those circumstances the uncertain destination or location of so much of the $3.9M as was not used either to purchase the Bringelly property or for investment with Wealthtrac Portfolio Services had been dissipated. The plaintiff contended that at the very least a suspicion arose, that the defendants had put the balance of the funds beyond his reach, from the fact that the defendants could so easily have allayed the plaintiff's concerns about the whereabouts of the balance of the fund but instead refused or neglected to do so. It was wholly within the defendants' power to provide information that would clarify what is presently said to be unclear and the plaintiff submitted that I should treat the adoption of that position by the defendants as indicating that there was a high probability that at least some of the monies in dispute had been dealt with in a way that was likely to frustrate an order of this Court. 13 It will be apparent that to a large extent the plaintiff was driven to the formulation of submissions in these terms because there was no direct evidence of dissipation at all. There is evidence that the first defendant has withdrawn some of the money from his accounts and spent it or used it. The plaintiff wished to move from that simple proposition to the point of asserting that this gave rise to an inference adverse to him. As will shortly emerge, I do not consider that this follows. The defendants' case 14 The defendants contended quite simply that the money and the property belonged to them and they were entitled to deal with or dispose of it in any way that they chose. Moreover, the defendants submitted that there was a difference between using the money for uncontroversial purposes on the one hand and activities that suggested a plan to frustrate the potential operation of an order against them in the proceedings on the other hand. They emphasised that they were under no obligation to answer the calls by the plaintiff for any kind of undertakings or assurances and that in the absence of evidence that showed that they were actively taking steps to dissipate or hide the money, they were beyond either criticism from the plaintiff or the reach of restraint by this Court. Relevant principles 15 Practice Note SC Gen 14 provides in part that the purpose of a freezing order is to prevent frustration or abuse of the process of the Court, not to provide security in respect of a judgment or order. Such an order should be viewed as an extraordinary interim remedy because it can restrict the right to deal with assets even before judgment. Such orders are commonly granted ex parte. However, while the rules specifically contemplate that applications for freezing orders may be made ex parte, the exceptional nature of the order and its possible adverse consequences make it generally undesirable for an application to proceed in that way unless there are exceptional circumstances for doing so: see Lunn v All Starr Video Ltd (1993) The Times, 25 March 1993. If a freezing order is made without notice to the defendant, as in the present case, it should be expressed to operate only until the return date of the formal motion by which the substantive application is made. An applicant for an ex parte freezing order is under a duty to disclose all material facts to the Court. 16 UCPR 25.11 provides as follows: " 25.11 Freezing order

(1) The court may make an order (a freezing order ), upon or without notice to a respondent, for the purpose of preventing 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.

(2) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets." 17 As the commentary to the rules points out, the jurisdiction to grant freezing orders is not intended to enable a plaintiff or judgment debtor to obtain security for its judgment in advance of execution. It is founded on the jurisdiction of the Court to prevent abuses of its process by preventing a defendant or judgment debtor from embarking on a course of conduct that would have the effect of defeating the Court's jurisdiction. The fact that a judgment may not be satisfied for reasons of impecuniosity does not mean that there is an abuse of process. 18 In the present case the significant issue was whether or not the plaintiff had managed to demonstrate that assets would be lost in the absence of a freezing order. The principles that inform this issue were discussed by the Court of Appeal in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319. At 322 Gleeson CJ quoted what had been said by the trial judge in that case as follows: "It was said by Young J in Hortico Australia Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 at 558, after discussion of a number of statements of the test for the risk of dissipation of assets, that whichever way the test is put it is clear that the court only intervenes if there is more than a usual likelihood of a defendant who is being sued so organising his assets that any judgment obtained by the plaintiff will be frustrated." 19 It was at the heart of the defendants' response to the present application that the plaintiff had to do more than merely assert that there was a risk. They referred to the passage cited by the Chief Justice in Patterson, taken from Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH und Co KG (The Niedersachsen) [1983] 1 WLR 1412; [1984] 1 All ER 398, that "[b]are assertions that the defendants are likely to put any asset beyond the plaintiff's grasp and are unlikely to honour any judgment or award are clearly not enough by themselves" and that "[s]omething more is required". 20 The defendants also referred to the decision of Palmer J in Turner v Universal Home Loans Pty Ltd [2004] NSWSC 936. In that case his Honour set out at [16] - [20] some useful general principles, which the defendants sought in these proceedings to embrace, as follows: "[16] The principles upon which a Mareva or asset preservation order will be made are well known and need not be expounded at length. They are encapsulated in decisions such as Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319; Jackson v Sterling Industries Ltd (1987) 162 CLR 612; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380. So far as is relevant for present purposes, the principles may be summarised as follows.

[17] A plaintiff seeking to obtain a Mareva or asset preservation order must first establish a prima facie cause of action against the defendant. In the present case, there has been no serious debate as to whether or not the Plaintiffs have satisfied that requirement. I take it that the Defendants accept that the Plaintiffs' Statement of Claim raises at the least a serious question to be tried.

[18] Second, a plaintiff must establish that there is a danger that he will not be able to recover the fruits of a judgment against the defendant by reason of the defendant absconding, removing assets from the jurisdiction, or otherwise disposing of or dealing with assets in some way such as to defeat the judgment.

[19] In considering whether a plaintiff has established such a danger the Court bears in mind that a Mareva or asset preservation order is not made for the purpose of better securing to the plaintiff payment of a judgment debt; such an order is made to prevent an abuse or frustration of the process of the Court by the defendant. To make an order preventing a person dealing with his assets when no claim against him has yet been proved is no light matter and the Court proceeds with caution.

[20] While is not appropriate to apply a special standard of proof to a plaintiff's application for a Mareva or asset preservation order, the plaintiff must show that the danger of dissipation of assets is sufficiently substantial to warrant the granting of the injunction. While it is not an essential ingredient of such an application, a prima facie case that the defendant has been dishonest in dealing with the subject matter of the plaintiff's claim will often give rise to a strong inference that the defendant will not, unless restrained, preserve the subject matter of the claim for the benefit of the plaintiff should he be successful in the action." 21 The defendants did not strenuously contend that the plaintiff had not established the prima facie existence of a good or arguable case, beyond a repetition of the arguments proffered by them on the plaintiff's earlier application to amend the statement of claim. I consider that the views that I expressed at [29] of my earlier reasons for judgment effectively foreclose such a contention for present purposes. Consideration 22 In the present case it is clear to me that the plaintiff has not established that there has been a dissipation of the money or that there is a real risk that there will be such dissipation. The evidence upon which the plaintiff moves does not to my mind establish that there is some real risk of dispersal by the defendants of their assets and does not amount to proof on the balance of probabilities that there is a real risk of the dissipation of the assets. The defendants' failure to cooperate with the plaintiff's attempts to satisfy himself of the whereabouts of the balance of the funds not otherwise readily identifiable or capable of being located does not, in the absence of some further, compelling material, raise the plaintiff's case to the level of proof of the risk of dissipation that is required. 23 None of the transactions to which the plaintiff has sought to draw attention was a transaction that took place after the commencement of these proceedings on 25 June 2009. In that sense, none of the defendants' dealings with the funds transferred by the plaintiff's wife has the characteristics of an attempt to avoid the reach of these proceedings. More generally however, none of the defendants' dealings with the funds, to the extent that they have been revealed, involves transactions apparently for no consideration or with parties beyond the jurisdiction or for transactions that appear on their face to be suspect or bogus. On one view the first defendant has set about his affairs either oblivious to the plaintiff's prospective challenge to his entitlement to retain the funds or audaciously, not to say indignantly, confident of his right to exploit the money as his own in any manner he chooses. Nothing that the first defendant has done points in the direction of dissipation or disposal of assets or anything similar. 24 Moreover, nothing arguably or apparently untoward, suspicious or surreptitious attends anything that the first defendant has done. Even his application to redeem the funds lodged with Wealthtrac Portfolio Services in January 2009 cannot in the absence of considerably more information be characterised either as prima facie evidence, or as showing more than a usual likelihood of a danger, of dissipation. In a somewhat extraordinary turn of events, Mr Stiles deposed that he had been able to obtain details of the first defendant's private dealings with Wealthtrac Portfolio Services by the simple expedient of a telephone call to that organisation. To adopt the plaintiff's contention that the unanswered request for assurances and undertakings gives rise to an adverse inference against the defendants upon the basis of which this Court should act would be blatantly and inappropriately to reverse the onus of proof. The plaintiff's evidence has not reached the stage that requires the defendants to do anything more in an evidentiary sense than to remain silent. That is what they have done. Conclusion 25 In my opinion the injunctions granted by me, on an interim basis on 23 April 2010 and in the absence of the defendants, should be discharged. The defendants incurred no costs of that day but have incurred costs in successfully resisting the plaintiff's application to continue the injunctions in the hearing before me on 30 April 2010. Having regard to UCPR 42.1 and s 98 of the Civil Procedure Act 2005 I consider that the plaintiff should pay the defendants' costs of and incidental to their appearance on that day.

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