Melwani v Touch Gold Enterprises Pty Ltd [2019] FCA 1743 | Case summary

WHEELAHAN J: 1 At the first case management hearing in this proceeding on 18 October 2019, the applicants sought freezing orders against the first, second, third and fourth respondents, and orders that the first and second respondents make their books of account available for inspection by the applicants or their lawyers. The application for these interlocutory orders was on notice, and was foreshadowed by the originating application which was filed on 2 September 2019. 2 No pleadings have been filed in the proceeding. The subject matter of the applicants' claims was, however, described in the originating application as follows - DETAILS OF CLAIM Pursuant to sections 18, 30, 232, 234 and 236 of the Australian Consumer Law, sections 181, 182, 183, 232, 233, 236, 237, 247A, 461 and 1324 of the Corporations Act, the Court's accrued jurisdiction in associated matters under s 32 of the Federal Court Of Australia Act and otherwise the Court's accrued jurisdiction and on the grounds stated in the accompanying affidavit of Hirao Melwani, the Applicants seek the following relief: 1. Damages. 2. Alternatively, equitable compensation or damages. 3. Alternatively, an account of profits. 4. Further and/or alternatively, orders for the tracing of all trust property held on behalf of the Applicants that can be traced into the possession of the Third to Seventh Respondents. 5. A declaration that the Third to Seventh Respondents have contravened sections 181, 182 and 183 of the Corporations Act. 6. Compensation pursuant to s 1317H of the Corporations Act. 7. A declaration that Third to Seventh Respondents have engaged in oppressive conduct pursuant to s 232 of the Corporations Act. 8. Alternatively, an order pursuant to s 233 and/ors 461(e), (f) and {k) of the Corporations Act that the First and Second Respondents be wound up. 9. Costs. 10. Interest. 11. Such further or other relief as the Court see fits. 3 The application for interlocutory orders was supported by an affidavit of the first applicant, Hiroo Melwani, sworn 27 August 2019. 4 The applicants seek a freezing order at this stage only upon an interim basis. The applicants acknowledge that their claims against the respondents have not yet been fully articulated and submit that they will be in a better position to do so upon inspecting the books of account of the first and second respondents. The applicants propose that they will, before a return date, prepare a statement of claim that identifies their causes of action and the material facts supporting the same with some precision. 5 The Court's power to make a freezing order is engaged under rule 7.35 of the Federal Court Rules 2011 (Cth) if, among other things, the applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in the Court. This requires the Court to be satisfied of something more than a serious question to be tried. 6 The principles relating to the making of a freezing order were recently identified and summarised by Wigney J in Basi v Namitha Nakul Pty Ltd [2019] FCA 743 at [7] - [9] - 7 The purpose of a freezing order is to prevent an abuse or a frustration of the Court's process by depriving an applicant of the fruits of any judgment obtained in the action: Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 625. It is "no light matter" to freeze a party's assets and there is, accordingly, a need for the Court to exercise caution: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 324F. A freezing order is a "drastic remedy" which should not be lightly granted: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [51] citing Frigo v Culhari (unreported, NSW Court of Appeal 17 July 1998 at 10-11). 8 An applicant has a good arguable case if they have "a reasonably arguable case on legal as well as factual matters": Cardile at [68]; Insolvency Guardian Melbourne Pty Ltd v Carlei (2016) 111 ACSR 236; [2016] FCA 72 at [18]. It has also been said that a "good arguable case" is one "which is more than barely capable of serious argument, and yet not necessarily one the judge considers would have better than a fifty per cent chance of success": Curtis v NID Pty Ltd [2010] FCA 1072 at [6] citing Ninemia Maritime Corp v Trave Schiffahrtsgesselschaft mbH & Co KG (The Niedersachsen) [1983] Com LR 234 at 235 (affirmed on appeal: [1983] 1 WLR 1412); Deputy Commissioner of Taxation v Greenfield Electrical Services Pty Ltd (2016) 103 ATR 327; [2016] FCA 653 at [7]. 9 Where a freezing order is sought on the basis of a danger of the dissipation of assets, it is not necessary for the Court to be satisfied that the risk of dissipation is more probable than not. Nor is it necessary for the applicant to adduce evidence of an intention on the part of the respondent to dissipate assets: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194; [2010] FCA 1014 at [8]-[10]; Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 4) (2012) 90 ATR 711; [2012] FCA 1064 at [23]. The making of a freezing order involves a discretionary exercise of power. The Court retains a discretion to refuse relief even if the requirements in r 7.35 of the Rules are satisfied: Patterson at 321-322. 7 In this proceeding, the applicants had six weeks between the time of filing their originating application and the hearing of their application for interlocutory orders at the first case management hearing. Despite this passage of time, no statement of claim was before the Court which identified the causes of action which the applicants claim to have. Nor did the applicants prepare any written outline of submissions or aide-mémoire of any kind to assist the Court. 8 Counsel for the applicants alleged that there had been misleading and deceptive conduct in contravention of the Australian Consumer Law, but did not identify that conduct. Counsel further alleged that there were breaches of fiduciary duties involving the failure to report and the failure to account for funds. Counsel further alleged that at least the third respondent was liable under the principles essayed in Barnes v Addy (1874) LR 9 Ch App 244. However, these submissions were not subject to any great elaboration. 9 Having regard to the requirement that the Court be satisfied that the applicants have a good arguable case on a cause of action that is justiciable in the Court, I am not persuaded to make a freezing order on the applicants' material as it currently stands. The Court should not be left in the position where it is, in effect, asked to speculate about causes of action which the applicants might have. In my view, it is not possible from the affidavit material as presently constituted to discern with any precision the causes of action which the applicants might have. 10 The absence of a pleading in this case has special significance given the terms of a letter of demand dated 18 March 2019 which the applicants' solicitors sent to the respondents. In particular, there is a passage on the last page of the letter of demand which appears at page 191 of the exhibit bundle to the affidavit of the first applicant sworn 27 August 2019 which stated as follows - We confirm that investigations as indicated above could have serious and detrimental consequences by exposing financial and corporate irregularities/fraud and unlawful conduct and/or business practices and potentially result in significant costs, fines/penalties and possible imprisonment. Investigations of this sort can also impact a company's and/or individual's credit rating and ability to maintain and secure finance such as loans or credit cards. We trust that all parties will act in good faith and that the Total Amount Demanded equal to, AU$869,285 will be paid by 4:00PM pm Monday, 1 April 2019 into the trust account indicated such that the investigations and decisive legal action will not be necessary. [Emphasis in original] 11 Rule 34.1.2 of the Legal Profession Uniform Law Australian Solicitors' Conduct Rules 2015 provides as follows: 34.1 A solicitor must not, in any action or communication associated with representing a client: … 34.1.2 threaten the institution of criminal or disciplinary proceedings against the other person if a civil liability to the solicitor's client is not satisfied. … 12 The absence of a properly articulated cause of action in this case gives rise to a danger that, if the Court were to make a freezing order, there would be the appearance that the Court is giving effect to the threats contained in the letter from the applicants' solicitors. As I have indicated, on the material at present I consider that it is not possible to conclude that there is a good arguable case on a cause of action. Further, it is not apparent what imminent threat exists that has not existed for many months, and I do not consider there is sufficient urgency to warrant the making of any sort of interim order. So accordingly, the application for an interim freezing order will be dismissed. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wheelahan.

Melwani v Touch Gold Enterprises Pty Ltd

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