McLeary v Swift

Judgment 1HIS HONOUR: I am trying the issue raised by Notice of Motion filed by the plaintiff on 8 February 2013 and Amended on 12 February 2013 seeking various freezing orders with respect to the property of the defendant and corporations in which he has an interest because of a fear that the judgement in these proceedings might be nullified by the defendant's activities. 2The background facts are that the plaintiff and the defendant formerly carried on business together as air conditioning contractors. They carried on business under a number of corporate vehicles. Their relationship broke down and they entered into an agreement dated 27 February 2009 to deal with their ongoing relationships. 3Clause 5.9 of the agreement provided that financial statements for various corporate entitles would be submitted to the Australian Taxation Office and that Messrs McLeary and Swift "acknowledge and agree that they will each be liable for one half of the taxation liability assessed as payable by the Australian Taxation Office... up to and including the financial year ended 30 June 2008." 4One of the companies covered by this clause was Teffcog Pty Ltd. That company was originally assessed income tax for the financial year 2006 in the sum of $103,529. However after an audit the tax office issued a notice of amended assessment for an additional sum of $970,200 and also a penalty notice for a further $485,100. The plaintiff has paid some amounts on account of his liability to pay half that tax, but complains that the defendant did not. The plaintiff commenced specific performance proceedings and on 21 November 2012 Windeyer AJ held that the plaintiff should succeed and ordered that by 24 December 2012 the defendant pay to the Deputy Commissioner of Taxation for the credit of Teffcog Pty Limited the sum of $ 822,995.47. 5The defendant appealed against that decision: the appeal has not yet been argued. However, no stay has been granted and the defendant did not make payment by 24 December as ordered. 6I should note that no party wished to argue that the defendant not be permitted to argue this motion because he was in contempt of court having disobeyed Windeyer AJ's order. 7The plaintiff complains that since the judgment he has evidence that the defendant has transferred shares in companies to another entity and fears that unless restrained the defendant will strip himself of assets so as to be unable meet the judgment. 8The Amended Notice of Motion seeks very specific orders with respect to the holdings of the defendant in two principal companies Astbury Enterprises Pty Ltd and Murri Wunda Pty Ltd, as well as interests in six other companies which have been described in evidence as "the Entities". As the defendant did not give evidence, the nature of the defendant's interests in the Entities is a little obscure, but it would seem that they are single venture companies developing properties in the Newcastle area in which the defendant and various investors own equity shares. 9Almost every corporation (other than perhaps some of the Entities) is a trust corporation in the sense that it holds all its property on discretionary trusts. So far as Astbury and Murri Wunda are concerned, the defendant has the role of appointor so that it appears that he can remove the Trustee and appoint a new Trustee at whim. He is also one of the contingent beneficiaries. 10As I have said, the Amended Notice of Motion seeks very specific freezing orders. These orders were so draconian that it inspired the defendant's counsel and the Entities' solicitor to focus on their impracticality. I tried to move away from that position because it seemed to me that it was far more useful to focus on whether orders should be made at all (and, if so, their ambit) and only if that question was answered in favour of the plaintiff to turn attention to the form of the orders. 11The oral hearing took place before me on Monday 11 March 2013. Mr FG Kalyk appeared for the plaintiff, Mr JT Johnson appeared for Mr Swift, and Ms SS Nash (solicitor) appeared for the Entities even though the Entities are not actually a party to these proceedings. 12The plaintiff read his affidavit and was then cross-examined. The cross examination seemed to me to be removed from the question I had to decide, but in any event it did not get anywhere because Mr McLeary showed very little knowledge of what technically was going on in the various corporate entities controlled by him and his former partner. 13Mr Johnson then attempted to read the affidavit of Mr Swift. Mr Kalyk objected on the basis that Mr Swift was not present for cross-examination. Mr Swift's affidavit was sworn on 11 February 2013. It was sworn because Mr Swift was ordered to file an affidavit as to his assets and liabilities at an earlier directions hearing in these proceedings. 14On the Friday evening prior to the hearing the plaintiff sent a missive to the defendant's solicitors that the defendant should attend for cross-examination. This missive was only received by the solicitor for the defendant in Newcastle early on the morning of the hearing and Mr Johnson gave me to understand that at that stage the solicitor did not know where the defendant was. 15I declined to read the affidavit. Assuming it was an affidavit merely dealing with assets and liabilities it did not seem to me to have any relevance to the issue I had to try. Apart from that, my experience is that, particularly in this sort of case, parties are normally expected to attend the Court and that Notices to Attend for Cross Examination are really only given for more abundant caution. 16However, Mr Johnson of counsel vigorously protested at my ruling and insisted that I give reasons. He pointed to UCPR 35.2 which says that a party may, by written notice given a reasonable time before the hearing and served on the party proposing to use an affidavit, require the attendance for cross-examination of the person who made the affidavit. 17It is clear that no such notice was given within a reasonable time. However the fallacy in Mr Johnson's argument is to assume that UCPR 35.2 must be read to mean that, if no notice is given, the plaintiff is not required for cross examination. The question as to whether an affidavit will be read is primarily in the hands of the lawyer presenting his or her case, but the Judge is in ultimate control. That control must be exercised with fairness to both parties. It is to be expected in most cases that parties will attend the hearing; after all, it is the Supreme Court and there is in this case almost a million dollars in issue. Litigants would normally expect the opposing party to be present in the courtroom, and, as he or she would be in the courtroom, to be available for cross examination. A fortiori is that the case where the allegation is that the opposing party is a person who is carrying out some sharp practices in order to evade the compliance with the judgment of the Court. 18Accordingly, when a party to these sort of proceedings absents himself from the Court without any explanation other than he has not been given notice for cross examination and then seeks to read an affidavit, and the other side protests, the Court may very well decide that it would not be appropriate in the interests of justice for that person to take advantage of having his or her affidavit read without being liable to cross examination. 19As no explanation was given as to why the defendant was not present or why he had not been in communication with his solicitor so as to be able to hear what was happening in his court case it seemed to me appropriate not to read the affidavit and I so ruled. 20It would be a completely different matter if the solicitor for the defendants communicated with the plaintiff and said, "our client is unable to be present at the hearing on 11 March 2013 and as we have received no notice of cross examination we assume that his affidavit may be read without objection" and there was not response. That is not this case. Nor was any adjournment sought, after I made my ruling. 21I must say that I cannot really see how the reading or non reading of the affidavit if it only dealt with assets and liabilities of Mr Swift could have any pivotal bearing on the result of this motion. I have only spent time giving these reasons because I was specifically asked to do so. 22I turn now to the merits of the motion. 23There is not doubt at all that under Windeyer AJ's order the defendant should have paid to the Australian Taxation Office some $822,597 on account of Teffcog Pty Ltd and that it did not do so. Between 10 December and 29 January however, he divested himself of his beneficially owned share in five of the Entities. The transferee in each case was Astbury Enterprises Pty Ltd, a company which is the Trustee of one of Mr Swift's discretionary trusts under which he is merely appointor and contingent beneficiary. He has thus divested himself of his beneficial interest in that property. 24Mr Johnson says, "so what". The defendant is a man who held shares in single venture companies which appear to be trustees for discretionary trusts; in other words, companies whose assets are nil or close to $1. That transfer must be of no moment. 25However, an ordinary tribunal of fact, such as I am, reasons that experienced business men (as these people appear to be) do not just do things for the love of it but because there is some commercial reason in doing it. We do not know what, if any, trusts affect the Entities - whether they are trustee companies for the discretionary trusts or not - but one can assume that there was some purpose in the transfer. Before the transfer Mr Swift had beneficial interests as a 50 per cent or lesser shareholding. Afterwards it was Astbury, the discretionary trustee, who held that interest and Mr Swift himself was merely a beneficiary in a discretionary trust. 26Running against that is the fact that by his actions Mr Swift transferred his four ordinary shares in Astbury which held as beneficiary to Astbury itself. The effect of this rather strange transaction was not argued before me. It may be that it is an unauthorised reduction which left Mr Swift liable to a penalty under s 256D of the Corporations Act 2001 (Cth) or an unauthorised by-back. It may be that his ex-wife is now the sole shareholder in Astbury. I merely mention it to counter balance the thought that there was some purpose in the transfer of the shares. It may be just profound ignorance, though that was not argued. 27I should also note, though whether this has any significance or not is unclear, that Mr Swift did not shed himself of his beneficial interests in Crown on Darby Pty Ltd which is evidently building in one of Newcastle's principal streets (Mr Swift owned one share out of 606 ordinary shares though Astbury held another 120). He also continued to hold beneficially his one out of two ordinary shares in Blue Sky Developments Pty Ltd, one of the Entities. 28Mr Johnson's principal defences to the motion were: