Solicitors:
Birchgrove Legal (plaintiff)
P Anjos (defendants)
File Number(s): 2019/182242
[2]
Judgment
On 16 November 2018, the plaintiff, Marango Investments Pty Ltd, as vendor, entered into a contract for the sale of 2-4 Pope Street, Ryde, in this State to the defendant, Kingdom Towers 4 Pty Ltd, for a price of $12,400,000.
The second defendant, Mr Andrew Bodnar, executed a guarantee contained in the contract of the purchaser's obligations thereunder.
The first defendant did not complete the contract on the date for completion. The plaintiff extended the time for completion, in return for the first defendant agreeing to pay an additional amount of $350,000 on completion. The plaintiff served a notice to complete on 8 May 2019 that required completion by 24 May 2019. As completion had not occurred by 31 May 2019, the plaintiff served a notice of termination on the first defendant on that date.
The evidence is that the first defendant has paid to the plaintiff a deposit of $248,000 and a further instalment of $150,000, giving a total of $398,000.
The plaintiff tendered a formal valuation of the property as at 3 June 2019 that fixed its value at $10,281,375.
Consequently, the plaintiff's case is that it was entitled under the contract to receive $12,400,000 plus a further $350,000, making the total amount $12,750,000. Following the breach of the contract by the first defendant, the plaintiff retains the property valued at $10,281,375, and has received from the first defendant the amount of $398,000, giving a total of $10,679,375. The difference is $2,070,625. That is the amount that the plaintiff claims against the first defendant for breach of the contract, and against the second defendant on his guarantee.
The proceedings were commenced on 12 June 2019, by leave of the duty judge, who made orders for short service of the plaintiff's summons. By its summons dated 12 June 2019, the plaintiff sought damages and/or a monetary judgment as final relief, and as interlocutory relief a freezing order as set out in prayer 1, that would restrain both defendants from alienating, encumbering or further encumbering any of their assets, except so far as doing so would not reduce their assets below $2,200,000 in value. The order sought was subject to exceptions that would allow the second defendant a fixed amount for living expenses, and both defendants an amount to cover their reasonable legal expenses in connection with these proceedings.
The plaintiff's summons was listed for hearing before me in the duty list on 17 June 2019. The plaintiff was represented by counsel and a solicitor appeared for the defendants. After discussion between the representatives of the parties, the Court was invited, by consent, to make the following orders:
1. Upon the plaintiff by its counsel giving the usual undertaking as to damages, until 4pm on 24 June 2019, the first and second defendants by themselves, their servants and agents are restrained from alienating, encumbering or further encumbering the properties at:
a. 50 Queens Road, Hurstville NSW, being folio identifier 61/10046; and
b. 31a Bardia Parade, Holsworthy NSW, being folio identifier 60/1221664.
2. The parties, and any person adversely affected by order 1 above, have liberty to apply on 2 days' notice in respect of that order.
3. List the matter for further hearing before the Duty Judge at 10am on 24 June 2019.
…
The proceedings were heard again on 24 June 2019 before me in the duty list. The plaintiff was represented by counsel and the same solicitor appeared for the defendants.
The defendants did not file any affidavit evidence in response to the evidence relied upon by the plaintiff.
The plaintiff sought a freezing order in different terms to the order agreed on the first return date. The orders sought were as follows:
1. Upon the plaintiff by its counsel giving the usual undertaking as to damages, and until further order, the second defendant by himself, his servants and agents is restrained from alienating, encumbering or further encumbering:
a. the property at 50 Queens Road, Hurstville NSW (being folio identifier 61/10046);
b. the property at 31a Bardia Parade, Holsworthy NSW (being folio identifier 60/1221664);
c. shares in Kingdom Towers 2 Pty Ltd ACN 617 821 691;
d. shares in Kingdom Towers 3 Pty Ltd ACN 619 553 365;
e. shares in Kingdom Towers 4 Pty Ltd ACN 620 416 864; and
f. shares in Kingdom Towers 8 Pty Ltd ACN 626 058 544.
This order does not prevent the second defendant from selling any of the above properties and shares at market value, provided that the proceeds of any such sale are paid directly into court.
2. The parties, and any person adversely affected by order 1 above, have liberty to apply on 2 days" notice in respect of that order.
3. Costs of the freezing order to be the plaintiff's costs in the cause.
The plaintiff apparently revised the terms of the freezing order that it sought because it had discovered that the first defendant apparently owns no property in this State, and the second defendant owns shares in the companies listed in order 1 in addition to the other properties.
There was no evidence concerning the values of the properties and shares listed in order 1 of the proposed short minutes. Consequently, the Court was not in a position to know what the effect of order 1 would be if it were made.
The defendants did not agree to the continuation of any freezing order, so it was necessary for the Court to hear the plaintiff's application.
This is a case where the plaintiff has an apparently strong case against both defendants for an award of damages, or an order for payment under the second defendant's guarantee, of an amount in the order of that claimed by the plaintiff, being $2,070,625. Accordingly, the plaintiff has satisfied the requirement for the making of a freezing order that requires that it establish that it has a good arguable case that it is entitled to the final relief claimed: see Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 25.14(1)(b).
The plaintiff accepted that, before the Court will make a freezing order in its favour, the plaintiff must establish that there is a danger that a prospective judgment in its favour will be wholly or partly unsatisfied because assets of the defendants are disposed of, dealt with or diminished in value: UCPR r 25.14(4)(b)(ii). The object of freezing orders is to protect "[t]he integrity of [the Court's] processes [by]…preserving the efficacy of the execution which would lie against the actual or prospective judgment debtor": see Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 at [25]. The risk of dissipation must be established by evidence and not mere assertion: see Severstal Export GmbH v Bhushan Steel Ltd (2013) 84 NSWLR 141; [2013] NSWCA 102 at [57]. As was said by the Court of Appeal in Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264 at 276:
…The basis of jurisdiction is founded on the risk that the defendant will so deal with his assets that he will stultify and render ineffective any judgment given by the Court in the plaintiff's action, and thus impair the jurisdiction of the Court and render it impotent properly and effectively to administer justice in New South Wales. As has appeared, the jurisdiction to grant the injunction is not to be exercised simply to preclude a debtor from dealing with his assets, and in particular to prevent him from using them to pay his debts in the ordinary course of business. It is directed to dispositions which do not fall within this category and which are intended to frustrate, or have the necessary effect of frustrating, the plaintiff in his attempt to seek through the court a remedy for the obligation to which he claims the defendant is subject.
Assuming that the jurisdiction is exercised with due caution, it seems to us that it is necessary for the administration of justice in this State that the court should have power to prevent a defendant who would otherwise have assets to satisfy a judgment from setting the court and its procedures at naught by making sure that its judgment will be a mere brutum fulmen. The whole sense and purpose of the inherent powers, as well as the powers which s 23 confers, are to ensure the effective administration of justice…
The plaintiff relied upon the following circumstances to establish that there is a sufficient risk that the assets of the defendants will be dissipated in a manner that will have the necessary effect of frustrating any judgment obtained by the plaintiff against the defendants to justify the making of a freezing order against them.
First, the second defendant owns a property at 50 Queens Road, Hurstville in this State. On 14 January 2019, after the original completion date of 28 December 2018 under the contract, the second defendant entered into a loan agreement in respect of which the borrowing was secured over the Hurstville property. The amount borrowed by the second defendant is not known.
Secondly, the Hurstville property is currently listed for sale.
Thirdly, the second defendant appears to operate a real estate development business under the name "Kingdom Developments Australia", through a number of separate companies that appear to be special purpose vehicles for particular developments. Company searches indicate that the second defendant was the sole or majority shareholder in Kingdom Towers 1, 2, 3, 4, 5, 6, 7 and 8 Pty Ltd. The exhibit to the plaintiff's solicitor's affidavit contains a schedule that sets out details of the recent transfers of shares by the second defendant. The following table contains a summary of the information in the schedule. I have referred to the companies as "KT" followed by the relevant number. The column "Shares" states the total number of shares issued in each company. The column "Retained" states the number of shares retained by the second defendant compared to the shares originally held. The shares in some of the companies were transferred on various dates, and generally only the latest date is stated. The column "Beneficial" indicates, where it is known, that the transferee does not apparently hold the transferred shares beneficially. It is not known on behalf of whom the shares are held.
Company Shares Retained Dates Beneficial
KT 1 100 0 of 100 Latest 6/5/19 No
KT 2 100 14 of 80 Latest 25/2/19 N/A
KT 3 150 71 of 100 Latest 21/3/19 N/A
KT 4 100 36 of 100 Latest 25/10/18 N/A
KT 5 100 0 of 100 Latest 3/18 No
KT 6 100 0 of 100 Various No
KT 7 100 0 of 100 20/4/18 No
KT 8 100 43 of 100 Latest 14/5/19 N/A
[3]
The available information concerning the transfer of shares shows that there have been a significant number of recent transfers at times when the second defendant may have been concerned that the first defendant would not be able to complete the contract with the plaintiff. At present, there is no evidence about the value of the shares, or the consideration paid to the second defendant, or whether consideration was in fact paid.
In essence, the plaintiff's submission was, at the hearing, that the evidence that it was able to present established a real reason for concern that the second defendant may be in the course of liquidating his assets. Given what the plaintiff reasonably submitted was its relatively strong case for an order against the second defendant, on the guarantee given by him, for payment of a sum in the order of $2,000,000, the plaintiffs submitted that the evidence that it had put before the Court called for an explanation from the second defendant, as to why his conduct is not likely to frustrate any judgment made by the Court. No explanation has been given by the second defendant.
The solicitor for the defendants did not object to any part of the plaintiff's evidence, and did not lead any evidence in opposition to the plaintiff's application. After counsel for the plaintiff had made his submissions, the defendants' solicitor suggested that there existed documents relevant to the application that could be tendered in support of the defendants' opposition to the plaintiff's claim for a freezing order. There was some confusion as to what those documents might be, or where they might be found. The solicitor suggested that documents may have been produced to the Court pursuant to a notice to produce.
The confusion was not dissipated by the tender by the plaintiff of a notice to produce issued by the plaintiff addressed to the defendants, which sought, among other things, the loan agreement relevant to the borrowing secured over the Hurstville property, any current agency agreements for the sale of the properties, and documents recording the transfers since 16 November 2018 of the shares the subject of the table set out above. This notice to produce, together with the response of solicitors acting for the defendants, other than the solicitor who appeared for them, became Exhibit P3. The response stated in respect of the loan agreement, the agency agreements, and the documents relating to the share transfers that there were no documents to produce.
These matters led to the solicitor for the defendants asking for the Court to adjourn the plaintiff's application.
Submissions were then made on the issue of whether the application should be adjourned, and if so on what terms as to the continuation of the freezing order.
I am persuaded by the submissions made for counsel for the plaintiff that the defendants had elected not to put on evidence in response to the plaintiff's evidence, and had not applied for an adjournment until after the plaintiff's submissions had been made. There was no explanation by the defendants concerning how matters would change if they were given a belated adjournment of the hearing.
The evidence upon which the plaintiff relies is not conclusive, and it is consistent with the defendants having some proper explanation of the reasons for the recent steps taken by the second defendant that suggest he is in the course of realising his assets. For instance, it is possible that the second defendant has taken these steps to try to fund the purchase of the plaintiff's property by the first defendant, or to fund these proceedings. However, given the apparent strength of the plaintiff's case, I am satisfied that the Court should, on balance, make a freezing order against the defendants.
I would not make an order in the alternative form sought by the plaintiff at the hearing, as the plaintiff had not given due notice to the defendants of the change in the relief that it would seek, and, as there is no evidence of the value of the assets that would have been the subject of that order, the Court cannot assess the practical consequences of that order being made.
As the parties agreed to the terms of the freezing order made on 17 June 2019 by consent, it will be appropriate to continue the order on those terms. I will not, at this stage, make an order as sought in par 1 of the summons, as there was no consideration of the appropriateness of the allowance for living expenses and legal fees made in that proposed order. I observe that the order that was sought in the summons is in more conventional terms than the order that was agreed between the parties.
Although the Court did not accede to the defendants' solicitor's belated application for an adjournment, I was satisfied that there was some risk that the confusion that appeared to have affected the defendants' approach to resisting the plaintiff's application may have impeded that resistance. I indicated that, in lieu of granting an adjournment, if I decided to continue any freezing order, it would be on terms that the defendants have leave to apply to the Court to vary or revoke the order, without the defendants needing to show that any circumstances had changed after the interlocutory order was made.
Accordingly, I will make the following orders, when I deliver these reasons for judgment, if the usual undertaking as to damages is given by the plaintiff:
1. Upon the plaintiff by its counsel giving the usual undertaking as to damages, until the determination of these proceedings or further order, the first and second defendants by themselves, their servants and agents are restrained from alienating, encumbering or further encumbering the properties at:
1. 50 Queens Road, Hurstville NSW, being folio identifier 61/10046; and
2. 31a Bardia Parade, Holsworthy NSW, being folio identifier 60/1221664.
1. The parties, and any person adversely affected by order 1 above, have liberty to apply on 2 days' notice in respect of that order, and in the case of the defendants without needing to demonstrate that there has been any material change in circumstances since these orders were made.
2. The costs of the application are to be the plaintiff's costs in the cause.
[4]
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: 01 July 2019