Merryport Pty Ltd v Lawson

(Delivered ex tempore, revised from the transcript)

A INTRODUCTION AND BACKGROUND 1 This is an ex parte application for a freezing order that has come on urgently in my capacity as Commercial and Corporations Duty Judge. 2 Before turning to the nature of the urgent relief sought, it is useful to give some background as to how the present application has arisen. 3 The first applicant (Merryport) and the second applicant (H&J Bananas) (applicants) were two of three companies owned by the Johnston family, which operated a farming business in Tully, Queensland. The first respondent, Mrs Lawson, was a director and shareholder of the applicants, and was employed by Merryport in a secretarial role until June of this year. 4 At the heart of this case is an allegation that Mrs Lawson caused Merryport to pay her and members of her family sums to which they were not entitled. The applicants seek a remedial response, in one form or another, which would require that the allegedly unauthorised payments be disgorged. It is also alleged that the second and third respondents, Mrs Lawson's husband and son respectively, are liable to make good a smaller amount equal to that which they have improperly received from Mrs Lawson, and which they facilitated her obtaining. 5 Today, the applicants seek freezing and ancillary orders to prevent the dissipation of assets held by the respondents of which it is said were obtained by reason of the alleged wrongful conduct.

B FREEZING ORDERS 6 The power to make a freezing order is found in s 23 of the Federal Court of Australia Act 1976 (Cth), read with Div 7.4 of the Federal Court Rules 2011 (Cth) (FCR). The test for making such orders is not in doubt and was usefully summarised in Insolvency Guardian Melbourne Pty Ltd v Carlei [2016] FCA 72; (2016) 111 ACSR 236 (at 239 [16] per Edelman J): The criteria that must be satisfied for the court to grant a freezing order are set out in r 7.35 of the Federal Court Rules 2011 (Cth). In substance, the criteria relevant to this application are that: (1) the applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in the Federal Court of Australia; (2) there is a sufficient prospect that the judgment will be registered in or enforced by the Federal Court of Australia; and (3) the Court is satisfied, having regard to all the circumstances, that there is a danger that a 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; or (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. 7 As I explained in Deputy Commissioner of Taxation v Shi [2020] FCAFC 100; (2020) 277 FCR 1 (at 34 [103], Davies and Stewart JJ agreeing), the purpose of a freezing order is to prevent the abuse or frustration of the Court's process in relation to matters coming within its jurisdiction: Jackson v Sterling Industries Limited (1987) 162 CLR 612 (at 623 per Deane J). Such orders operate so as to preserve assets and assist and protect the use of methods of execution and are not a substitute for them: Cardile v LED Builders Pty Limited [1999] HCA 18; (1999) 198 CLR 380 (at 401 [43] per Gaudron, McHugh, Gummow and Callinan JJ). 8 In order to obtain a freezing order, it is not necessary for an applicant to prove on the balance of probabilities that steps will be taken to frustrate the Court's processes. Rather, what must be shown is that on the balance of probabilities, there is a real risk of the dissipation of assets: see Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 (at 327 per Meagher JA). 9 The Court may also make ancillary orders under FCR 7.33 for the purpose of eliciting information relating to assets relevant to the freezing order or for the purposes of determining whether the freezing order will be made. Ordinarily, ancillary orders include orders requiring the disclosure of assets. But the width of the orders that can be made is not confined by that usual form. They may include orders disclosing what has happened to funds which have been paid out: see, for example, Robmatjus Pty Ltd v Violet Home Loans Australia Pty Ltd [2007] VSC 165 (at [74] per Hargrave J) (under the equivalent Victorian legislation).

C CONSIDERATION 10 The Court has been provided with comprehensive and helpful submissions by Mr Derrington of counsel, who appeared for the applicants. In summary, the factual elements of the applicants' case depend on them establishing: first, the payments to Mrs Lawson were made; secondly, those payments were unauthorised; thirdly, Mrs Lawson's conduct in making the payments constituted a breach of her duties; and fourthly, knowing receipt and knowing assistance claims against the second and third respondents. 11 In relation to each of those matters, the applicant has set out comprehensively why, on the material before me (and without, obviously enough, forming a view as to the ultimate cogency of those allegations) there is a good arguable case. It is unnecessary to descend into detail, but there is also a sufficient case that the second and third respondents must have been aware their tax filings were being used improperly, or the circumstances were generally such as to ground a case of knowing assistance. 12 As Mr Derrington correctly submits, once the Court is satisfied there is a prima facie case, it follows that there is a sufficient prospect that the judgment will be enforced. The critical question is the risk of dissipation. The allegations in this case concern dishonesty and fraud. On the basis of the material that has been obtained to date, this is the kind of case that justifies the imposition of a freezing order. I am satisfied that there is a real risk of the dissipation of assets, particularly in the light of the allegation that the first respondent is the driving force behind what is alleged, on a proper basis, to be a calculated scheme of deception and dishonesty. 13 I should stress again that in reaching this conclusion, I have formed no final views about the allegations made in the proceeding. But on the material before the Court, I am satisfied that a freezing order should be made, together with ancillary orders, in the terms sought.

D THREE FINAL MATTERS 14 Before concluding, I should note three final matters. 15 First, with the candour one would expect of counsel on an ex parte application, Mr Derrington has drawn my attention to a document obtained by the applicants dated 16 June 2023, which was marked Exhibit A on the application. The document appears to be a file note of a telephone conversation between Mr Kevin Spies of the Queensland Police Service and Mrs Lawson. It is unnecessary to canvass the detail of that document, save to note that it contains information which might support an argument that the second and third respondents were not relevantly aware of the alleged wrongful conduct engaged in by Mrs Lawson. 16 Secondly, I am informed that the applicants are in the process of restructuring. Hence, Mr Derrington concedes it would be inappropriate to give the usual undertaking as to damages without an undertaking in the form of a bank guarantee. The applicant has proposed such an undertaking in the sum of $100,000, which is annexed to the proposed orders. With respect, that is a sensible course and it is appropriate this matter was drawn to the Court's attention given the nature of the application. 17 Thirdly, Mr Derrington has drawn my attention to the provenance of the documentary material forming part of the evidence on this application and the fact that boxes with documents were located on the business premises of the applicants following the termination of Mrs Lawson's employment. Mr Derrington noted that Mrs Lawson may not have had an opportunity to recover those documents, but absent some express agreement (of which I know nothing) any obligation of confidence that may exist in relation to such documents would likely be implied. Whether such an implied obligation could be maintained in equity is quite another thing, particularly in the context of an allegation of an iniquity. But it will likely not matter (for reasons I need not presently explain) and even if it might, it is not a sound basis to refuse the present relief. I am nonetheless grateful for Mr Derrington's indication, which is again consistent with the candour expected of counsel on such applications.

E CONCLUSION 18 Accordingly, I will make the freezing and ancillary orders in the terms proposed by the applicants. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee.