This judgment arises out of an interlocutory application which came before me on 19 August. The plaintiffs applied for a freezing order against the defendant and against another respondent not party to the proceedings.
Following a hearing on 19 August, I dismissed the plaintiffs' application. I also decided to make an order for costs in favour of the respondents. In accordance with directions I then made, I received supplementary affidavit evidence and written submissions from the parties on the form of the costs orders to be made.
This judgment sets out my reasons for dismissing the plaintiffs' application on 19 August. It also sets out my reasons for the orders I will now make concerning costs.
[2]
Claims and defences, procedural history and evidence
As pleaded in the plaintiffs' statement of claim, the case arises out of a borrowing by Mete Corp Group Pty Ltd, the first plaintiff. Mete is a company controlled by Abraham Mete, the second plaintiff.
In August 2018 Mete borrowed $380,000 from a company called First Mortgage Capital Pty Ltd ("FMC"). The loan was guaranteed by the second plaintiff. Its terms were onerous. The loan was to be repaid in six months and the interest rate was 48 per cent per annum.
The loan was arranged by a broker called Hodgestone Finance Pty Ltd. According to the plaintiffs, they were introduced to Hodgestone by Clinton Sarina, the defendant.
It is agreed between the parties that in December 2018 Mete paid the sum of $300,000 to Mr Sarina. Mete paid a further $57,500 in January 2019. The plaintiffs allege that the payment was made on terms that Mr Sarina would pay the monies over to FMC to discharge the loan before it fell due for repayment in February. He has not done so.
The plaintiffs claim a declaration that the monies were held by Mr Sarina on trust for Mete, and an order for Mr Sarina to pay the monies over to Mete. Alternatively, the plaintiffs seek judgment in favour of Mete against Mr Sarina for breach of trust, or breach of contract.
Mr Sarina's defence denies that the monies were received by him on trust, and asserts instead that they were paid to him by way of loan. He also alleges that he has repaid a sum of approximately $58,000 by making a payment to FMC at Mete's direction. The defence appears to deny any obligation to repay the balance but the basis for such a denial is unclear.
[3]
Application for freezing order
The present application was triggered by Mr Sarina's decision to sell the home which he and his family live in. The plaintiffs' solicitor seems to have become aware of the sale sometime in July. The sale price was $4.8 million and the sale was due to complete on 1 October.
The property is not owned by Mr Sarina. The registered proprietor is Willela Holdings Pty Ltd ("Willela"). Mr Sarina is the sole shareholder of Willela and its sole director. It is the second respondent to the application. It is not a party to the proceedings.
The plaintiffs' application for a freezing order was made by way of notice of motion which was filed in the course of an ex parte application before Robb J, sitting as Duty Judge, on 27 July 2020. The application sought an order in the usual form requiring both Mr Sarina and Willela to ensure that the net value of their Australian assets not be reduced below a specified sum. The sum in the application was $391,000 which apparently represents the $357,500 claimed together with interest and costs.
On 27 July, Robb J made ex parte freezing orders against both respondents. The orders were continued on an interim basis by Lindsay J on 3 August. As already mentioned, the application came before me in the Duty List on 19 August. The parties agreed that the onus lay on the plaintiffs to justify the continuation of the freezing orders.
The evidence filed for the purposes of the freezing order application showed (and this appeared not to be in dispute) that Willela bought the property in 2016, two and a half years before the payments to Mr Sarina which are the subject of these proceedings. According to Mr Sarina, Willela bought the property in its capacity as trustee of a trust for the benefit of Mr Sarina's family. The trust is called the Belliam Investments Family Trust. Mr Sarina is neither the appointor nor a beneficiary of the trust. Mr Sarina's evidence in this regard appeared to be supported by the loan application which was made when Willela purchased the property.
When the application came on for hearing before me, counsel for the plaintiffs sought an adjournment to allow for the further production of documents, with a corresponding extension of the interim freezing orders. I was unwilling to accede to this request, given the fact that the orders had been made ex parte more than three weeks before. There were also obvious difficulties with the application, which had been pointed out in written submissions supplied in advance of the hearing by counsel for the respondents.
Regrettably, the application bore the hallmarks of an attempt to obtain security for an unsecured claim by Mete against Mr Sarina. Authority establishes that this is not a proper basis for the exercise of the Court's power to make a freezing order. Where such an order is made, the plaintiff may incidentally obtain the setting-aside of a fund of money out of which the judgment the plaintiff seeks can be satisfied, but that is not the object of the order and it is not something to which the plaintiff has some sort of right.
A freezing order is made only where it is necessary to do so to protect the Court's processes from being frustrated. It is an essential requirement of such an application that the evidence establishes that if the order is not made, there is a risk of the defendant attempting to defeat the claim by removal of assets from, or dissipation of assets within, the jurisdiction. Such a risk is not always easy to establish, especially when the defendant is an individual who lives in Australia and is selling his or her own home: see Moustapha v Nelson (No 3) [2020] NSWSC 1263 at [81].
In the present case, the owner of the property, Willela, is not an individual, but the circumstances are comparable. Mr Sarina asserts that the funds raised from the purpose of the sale will be used to purchase a new home in the name of the trust. In those circumstances, there would appear to have been little, if any, prospect of the sort of dissipation required to justify a freezing order.
But the difficulties with the application were more fundamental even than this. The application was prompted by the sale of a property, but it was not Mr Sarina's property. The proceeds were not going to be received by him personally and no question of his dissipation of assets so as to make himself judgment-proof arose. There was no pleaded claim against Willela; the question of it dissipating assets to avoid judgment against itself therefore did not arise either.
In Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [44] the High Court said that the effective exercise of jurisdiction over a claim against a defendant may require asset preservation orders against third parties who may hold, or otherwise be interested in, assets of the prospective judgment debtor, or who may be obliged to contribute to the property of such a judgment debtor to help satisfy the judgment. There was no allegation that Willela was in that position. On the evidence, the property was held by it on trust and Mr Sarina had no interest in it.
The facts of the case as alleged did suggest that Mete had a proprietary claim. The plaintiffs' allegation was that the monies received by Mr Mete were held on trust. That claim would have supported an injunction on an ordinary interlocutory basis restraining Mr Mete from dealing with the monies until the question of the plaintiffs' proprietary entitlement to them could be determined.
To the extent that Mr Sarina might have already paid the monies away, it might have been possible to trace them into other assets. There might even have been claims against third parties on Barnes v Addy ((1874) LR 9 Ch App 244) principles. Or, if the monies had been used to pay off the mortgage on the property, as counsel for the plaintiffs at one point suggested, there might have been a restitutionary claim under the principles in Heperu Pty Ltd v Belle (2009) 76 NSWLR 230. These possible claims might have justified a more targeted interlocutory injunction against the monies or their proceeds.
But no such claims had been made in the proceedings. I thought that the application was, unfortunately, a case of the plaintiffs' legal advisers having been distracted by the supposed availability of a freezing order (which is designed for unsecured claims) from considering whether it was still possible to pursue a narrower, orthodox, application for interlocutory proprietary relief. In short, the application was misconceived.
For these reasons, on 19 August, I ordered that the interim freezing orders be discharged and the plaintiffs' notice of motion dismissed.
[4]
Costs
The respondents sought an order that the plaintiffs pay their costs of the motion. Willela also sought an order that its costs of the motion be fixed in a lump sum and paid forthwith, or that the order in its favour be assessable and payment forthwith so that it could pursue recovery of the costs now.
In support of this application, evidence was led from the respondents' solicitor, Elias Sayed Yamine. Mr Yamine gave details of the respondents' expenditure of legal costs on the motion. He calculated the total amount spent up to 19 August as $41,400. Applying a 65 per cent recovery for assessed costs, the recoverable costs would be $27,000. Mr Yamine argued that Willela should receive 75 per cent of that, or approximately $22,600.
Counsel for the plaintiffs accepted that a costs order would follow the dismissal of the motion. But counsel resisted any order that Willela's costs be paid at this stage.
Uniform Civil Procedures Rules 2005 (NSW), r 42.7 provides:
(1) Unless the court orders otherwise, the costs of any application or other step in any proceedings, including -
(a) costs that are reserved, and
(b) costs in respect of any such application or step in respect of which no order as to costs is made,
are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.
(2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings.
A motion by a party to proceedings against a non-party would usually answer the description of an "application or other step in" the principal proceedings. But there is no apparent reason why the assessment and payment of the costs of such an application, as between an applicant party and a non-party respondent, should await the assessment and payment of the general costs of the proceedings, in which the non-party has no interest.
The rule does not expressly deal with this conundrum. Neither party argued before me that as a matter of construction the rule does not apply. The present case illustrates a difficulty with any such argument, because there were two respondents to the application, one of whom was a party (and therefore should clearly be bound by r 42.7) and one of whom was not.
In the circumstances I have proceeded on the assumption that r 42.7 applies to the costs of the application as between the plaintiffs and Willela. But I think that the fact that Willela is a non-party and has no interest in the general costs of the proceedings is itself a good reason to order otherwise and allow for it to proceed immediately to assessment and payment under the rule. Furthermore, as I explained in Moustapha at [43]-[46] and [93], an application for a freezing order has characteristics which make it discrete from the principal proceedings for recovery of the judgment sought by the plaintiff, and that is another factor in favour of separate assessment and payment.
Counsel for the plaintiffs argued that I should, however, refuse to make the order for immediate payment of Willela's costs which was sought. He submitted that, because of the apparent close relationship between Willela and Mr Sarina, there would be no real hardship if Willela had to wait until the end of the proceedings. He also pointed out that Mr Sarina appears to accept liability to repay the loan and has promised more than once to have it paid. Accordingly, counsel submitted, the proceedings were likely to be resolved shortly and the trial (currently fixed for March next year) would not be necessary. Counsel also argued that Mr Yamine's division of the costs between Willela and Mr Sarina was arbitrary, and pointed to items of costs which were arguably excessive, at least on a party-party basis.
There is some force in these points, but not enough. The simple fact is that Willela was brought to court for the purposes of an application for orders against it, and has defeated that application. Indeed, given that the property in question belonged to Willela, I think it is fair to say that Willela was really the principal target.
I appreciate the difficulties in determining the amount of the costs to which Willela might ultimately be entitled. A separate assessment of Willela's entitlement would have to address both the scope of the costs to which it (as distinct from the other successful respondent, Mr Sarina) is entitled and the application of the indemnity principle in the light of whatever solicitor-client liability Willela has for the costs of defending the application: see French v Bremner (No 2) [2019] NSWSC 1504 at [27]-[35].
In these circumstances I think it would be undesirable to make an order for Willela's costs to be separately assessed now. But there is another solution to the problem. That is to make an order that the plaintiffs pay Willela a fixed amount now on account its costs entitlement.
It needs to be clear that this does not involve a lump sum costs assessment under Civil Procedure Act 2005 (NSW), s 98(4). The amount to be paid will only be a payment on account of costs. If that amount proves less than Willela's ultimate entitlement, as determined by agreement or assessment, the plaintiffs will have to make a further payment. If it proves to be more, Willela will have to repay the difference.
In these circumstances, fixing the amount can be done with the broadest of brushes. I have decided to award the figure of $15,000.
[5]
Orders
The orders already made by the Court on 19 August were:
Discharge order 4 made by Robb J on 27 July, as varied and extended by Lindsay J in Orders 1 and 2 made on 3 August.
Dismiss the plaintiffs' notice of motion filed 27 July 2020.
Reserve the costs of the motion.
I now make the following orders:
1. Order that the applicants (plaintiffs) pay the costs of the respondents of the plaintiffs' notice of motion dated 27 July 2020.
2. Order that the plaintiffs pay the sum of $15,000 to the second respondent on account of their liability under Order (1).
[6]
Amendments
20 November 2020 - minor typographical amendments at various paragraphs
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Decision last updated: 20 November 2020