MG Corrosion Consultants Pty Ltd v Gilmour

BETWEEN: MG CORROSION CONSULTANTS PTY LTD ACN 084 715 177

iNTERLOCUTORY APPLICATION TO VARY FREEZING ORDER 1 On 16 April 2012, I made a freezing order affecting the property of the first defendant (Mr Gilmour) and the second defendant (Magil Nominees): see MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383. 2 By an interlocutory application as amended and filed 21 May 2012, Mr Gilmour and Magil Nominees apply to vary the orders made in the following terms: 1. The orders made by Justice Barker on 16 April 2012 be varied to include the following: The defendants be permitted to pay: (a) the sum of $27,000 to meet legal services up to and including 2 May 2012; (b) up to $50,000 for ongoing legal services in relation to this matter; (c) up to $35,000 to an expert witness to prepare an expert report in relation to the allegations raised in the statement of claim; (d) up to $10,000 to Mr George Lopez, the liquidator of the plaintiff, to conduct his investigation into the affairs of the plaintiff; (e) a weekly allowance of $1,000 for usual living expenses; and (f) monthly mortgages including the following: (i) $1,584 in respect of the property listed in 1(a)(ii) of these orders; and (ii) $4,381.39 in respect of the property listed in 1(a)(iii) of these orders. Including any additional amounts arising from variations in the interest rate charged on these mortgages by the Australia and New Zealand Banking Group Limited. 3 Save in respect of para (e) (as to which the plaintiff says the Court could make an appropriate allowance), the plaintiff opposes the variation application on the basis, variously, that the application in substance constitutes an impermissible appeal against the freezing order determination or otherwise does not raise changed circumstances from those that obtained at the time the freezing order was made. Additionally, the plaintiff says that there has been a failure by the defendants and particularly Mr Gilmour to state exactly what means he has to meet the expenses referred to in the proposed variation order, aside from those assets affected by the freezing order. 4 At the conclusion of the hearing of the interlocutory application on 25 May 2012, at the request of counsel for Mr Gilmour and Magil Nominees, I gave those parties the opportunity to file and serve by 1 pm on Tuesday 29 May 2012 a further affidavit as to means and the opportunity for the parties thereafter to file further written submissions by 4pm, the following day.

evidence in support of variation 5 By an affidavit filed 3 May 2012, Mr Gilmour on behalf of both defendants stated in support of the variation application words to the effect: His solicitors had informed him that he needed to pay them the sum of $26,976.28 to meet legal services provided up to and including 2 May 2012. He had been advised by his solicitors that for the purpose of the hearing in the proceeding he would need to engage an expert witness to replace the late Mr Ruthven and complete preparation of non-expert witness statements. That the estimated cost of a new expert witness, considering all the materials and preparing an expert report would be $35,000. That the estimated costs of additional solicitors costs and disbursements including liaising with expert witnesses would be $50,000 (on the hearing of the variation application counsel for the defendants also being the solicitor for those parties indicated that the $50,000 estimate included work up to and including the trial in the proceeding). He had received from George Lopez, the administrator of the plaintiff (now liquidator) a letter dated 17 April 2012 that in order to undertake and complete the tasks identified in that letter, the costs of investigation would be not less than $10,000. 6 By further affidavit Mr Gilmour on behalf of the defendants filed 21 May 2012, Mr Gilmour further stated words to the effect: The properties listed in paras 1(a)(ii) and 1(a)(iii) of the orders that are made on 16 April 2012 are mortgaged to Australia and New Zealand Banking Group Limited (ANZ). He had received from ANZ a letter dated 16 May 2012. That letter indicated that the current position of his lending with the ANZ was as follows: Account number 3684-55118 Loan expiry 11/1/13 Arrears $4,381.39 Repayment interest only Next due 11/6/12 Account number 3711/72944 Loan expiry 5/7/13 Arrears $1,584.00 Repayment interest only Next due 5/6/12 The bank stated that it holds registered mortgages over the properties known as Lot 4115 Jose Road, Bakers Hill and 4629 Great Eastern Highway, Bakers Hill which are held in support of both loans. That in addition to being able to make repayments on the mortgages on the properties owned by him, he required a further amount of at least $1,000 per week to enable him to meet his usual living expenses, including food, electricity, water and gas, rates and taxes, fuel, clothing, personal hygiene items and entertainment expenses. On 7 May 2012, Mr George Lopez was appointed the liquidator of the plaintiff but will still require $10,000 to conduct his investigation in relation to the "allegations contained in the Statement of Claim". 7 By further affidavit filed 25 May 2012, Mr Gilmour on behalf of the defendants stated words to the effect: He had been unable to withdraw any money from his accounts held with ANZ, including accessing money from an ATM, and first encountered this problem about one week after the date of the freezing order. Upon realising that he could not access his ANZ accounts, he spoke to staff at the Inglewood branch of ANZ who told him that their legal department had received information that his accounts had to be frozen until further notice. After speaking to staff at that branch, he spoke to the business banking manager at the Midland branch who said that the ANZ's legal department had contacted the Midland branch and told them there was a freezing order in place and that the ANZ's legal department would be in contact with him. A few days later he missed a telephone call from the ANZ's manager of commercial lending services, but he then contacted him and was told that there was a freezing order in place and that ANZ required specific court orders in relation to monies that he can access for living expenses and interest payments before ANZ could release funds for those purposes. On 3 May 2012, he received a letter from the business banking manager with ANZ which enclosed an extracted copy of the freezing order. On 22 May 2012, he received a letter from the ANZ's manager of commercial lending services that gave "notice of event of default". 8 The plaintiff also put on evidence in the form of an affidavit filed by Mr Adam Forrest Roberts, filed 22 May 2012, to which was annexed a document entitled "Declaration of Independence, Relevant Relationships and Indemnities" from Melsom Robson Chartered Accountants and a copy of a report to creditors of the plaintiff (administrators appointed), together with a copy of Australia Securities and Investments Commission form 505 for the appointment of an external administrator to the plaintiff and a circular to creditors from the plaintiff's liquidators. The report to creditors provided some primary information but noted that due to time constraints there was insufficient time to complete investigations although sufficient and meaningful information was provided. It included towards the end of the report, calculations of net profit before taxation and net profit after tax excluding management fees for the financial years 2001 to 2011 inclusive. 9 Pursuant to the leave granted at the hearing, as referred to above, by affidavit filed 29 May 2012, Mr Gilmour on behalf of the defendants stated to the following effect: Other than the assets that are the subject of the freezing order, he does not have any other assets, including cash, which can be used to pay the amounts identified in the application originally filed and dated 3 May 2012. Other than the assets that are the subject of the freezing order, Magil Nominees does not have any other assets, including cash, which can be used to pay the amounts identified in the application originally filed and dated 3 May 2012. As a consequence of the freezing order: (1) he has been unable to access any accounts held by ANZ to withdraw any funds, including funds to meet ordinary living expenses (ANZ having stated that it will not release any funds from his accounts without an order of the Court identifying specific amounts permitted by the freezing order); and (2) he has had to rely upon friends to provide him with funds to meet ordinary living expenses. 10 In light of Mr Gilmour's further affidavit as to means, the plaintiff by written submissions of its solicitors filed 30 May 2012, accept that the freezing orders should be varied so as to permit the expenditure set out at [1(f)] of the application to vary. 11 The plaintiff also accepts that the Court should declare that the withdrawal of cash from Mr Gilmour's bank accounts of not more than $1000 per week would be permitted by the exception to meet ordinary living expenses. 12 Otherwise the plaintiff relies on its written and oral submissions and submits the affidavit of means provides no further support for the application to vary.

consideration 13 The plaintiff, save in respect of the question of the mortgage payments and a weekly allowance, strongly opposes any variation to the freezing order, for the primary reasons outlined above. The plaintiff refers to a number of authorities to suggest that interlocutory injunctions, including freezing orders, should ordinarily only be varied or discharged in exceptional circumstances and should only be varied where there has been a material change of circumstance since the original application was heard or the discovery of new material which could not reasonably have been put before the Court at the hearing of the original application. On that basis the plaintiff says there should be no variation because the question of indebtedness to the solicitors by the defendants should have been raised at the freezing order hearing, as should have been the question of provision for continuing legal services in relation to this proceeding. Similarly, the question of an expert and the expenses associated with the expert should have been then raised. As to the amount of $10,000 to be paid to the former administrator, now liquidator, Mr Lopez, the plaintiff says that this is not an expense relevant to these proceedings and so there is no justification for any funds affected by the freezing order to be applied towards it. 14 So far as the Court's power to vary a freezing order is concerned, there can be little doubt about it. Similarly, it is also clear that having made a freezing order a court should not be quick to reverse it save for good reason and the dictates of justice. In making the order, I made it plain at [99] that the order was interlocutory in nature and made until judgment and it remained open to the defendants to apply to the Court to discharge or modify the orders should appropriate circumstances arise. That is a conventional statement of the circumstances in which discharge or variation might occur. There are numerous authorities, indeed too many to list, that make this point. It is sufficient for present purposes to refer to what her Honour, Collier J, said to similar effect at [28] of Bird v McComb (No 3) [2011] FCA 697 and the authorities there noted. Ultimately, the grant or discharge or variation of an interlocutory injunction, including a freezing order will be dictated by what justice demands in the particular circumstances of the case. 15 When the freezing order was made in this case, the defendants did not make any submissions, even though they could have and did make submissions about other matters, concerning the amount of living expenses or the need to service mortgages in respect of certain properties owned by Mr Gilmour. Nor did they raise the question of their ongoing legal fees and the need to pay for an expert witness in this proceeding. 16 Nonetheless, in my view, they are items that, in all the circumstances, fall into the category of what I might call refinements to the terms of the freezing order and do not strike at the basis of the grant of the freezing order or otherwise seek to undermine the basis upon which the freezing order was granted. This is not a case, therefore, where it can truly be said that the terms of the variation in substance constitute an appeal against the order earlier made. These sorts of expenses should have been thought about earlier but obviously were not given proper attention on behalf of the defendants at the time the freezing order application was argued and the freezing order granted. 17 The primary objection therefore that needs to be considered, in my view, in the current circumstances is whether the defendants in fact do have other means available to them to meet a number of the expenses mentioned in the variation application. The further means affidavit put on by Mr Gilmour addresses that question. I am reasonably satisfied in the circumstances that if there were not some variations to the existing freezing order, some injustice is reasonably likely to be visited upon the defendants. 18 Turning then to each of the variations raised, the first in (a) is variation to permit the payment of $27,000 (in round terms) to pay for the legal services provided up to and including 2 May 2012 by the defendants' solicitors. It seems to me it is unnecessary to doubt that that expense has been incurred. It is not necessary for me in these circumstances to act as some sort of taxing officer in order to assess whether those expenses have been reasonably incurred. No issue of reasonableness is raised on the materials. I would allow a variation of the freezing order to this end. 19 As to the variation proposed in (b) to permit the payment of $50,000 for ongoing legal services in relation to the matter, I have noted that this is an estimate made by the defendants' solicitors from in effect 2 May 2012 up to and including the trial of this proceeding, including dealing with an expert witness. Taking a global approach to this, and without the benefit of any detailed estimate or bill of likely costs prepared by the solicitors for the defendants, I would be prepared at this stage to allow say $35,000 on account of ongoing legal services. I do this because the proceeding is at a point where, following the proceeding whereby leave to commence the derivative action was undertaken and the various interlocutory battles between the parties, much of the legal preparation for trial must already have been done. It only remains really for the new expert witness to be briefed and then for final getting up prior to trial. Without the benefit of anything but a global estimate by the solicitors for the defendants as to what their ongoing legal fees are likely to be, I consider a sum of $35,000 to be adequate at this point. 20 As to the variation proposed in (c) of $35,000 to be paid to an expert witness, I accept that a new expert will be required, the defendants' former expert having passed away some time ago. Once again, there is nothing but the global estimate of the solicitors for the defendants as to what the expert witness might cost. In all the circumstances, that being the only information given to me, I would allow only the sum of $15,000. Obviously I consider that it is appropriate to allow some funds to be released to this end to avoid the defendants suffering an injustice of not being able to call an expert at the hearing. I would allow variation as sought in (c) but only to the extent of $15,000. 21 As to the variation required in respect of (d) of a further payment of up to $10,000 to Mr George Lopez, the current liquidator, I accept the submissions made on behalf of the plaintiff that it is by no means clear that Mr Lopez is important in the scheme of this proceeding as it goes to trial. From the defendants' point of view, Mr Lopez is able to provide useful information to them or their expert from the administration work already done and possibly from the liquidation yet to be completed. But the liquidator is not in that sense a person undertaking some review of the statement of claim, at least not for the purpose of these proceedings. I would doubt that he would be called as a expert at the hearing. All the information tells me, in light of the defendants' desire to call another expert witness, that Mr Lopez is not important and it is not necessary for funds to be released from the freezing order, so to speak, to meet Mr Lopez' further investigations. I would therefore not allow a variation in terms of (d) of any sum. 22 As to the proposed variation in (e) of a weekly allowance of $1,000 to be paid for usual living expenses of the defendants, which must mean Mr Gilmour, I would allow that sum. There is nothing to suggest that $1,000 estimate per week is unreasonable. The plaintiff does not oppose this order. 23 As to the proposed variation in (f) of the payment of the monthly mortgage sums earlier identified of $1,584 and $4,381.39, I would also allow these variations to be made. There is, in all of the circumstances, no particular reason to think that the defendants have the means to meet these expenses if the variation of the freezing order is not made. It would be unjust and indeed unfair from the plaintiff's point of view if the properties, which are the subject of the freezing orders, should be put at risk by the non-payment of the payments due in respect of the securities over them. I would therefore allow the variation in terms of (f). The plaintiff in the end does not oppose this order. 24 In these circumstances orders to that effect should be made, along with an order that the defendants pay the plaintiff's costs of the application. In my view, the matters raised in the main are ones that could have been raised at the time the freezing order was made or that are not issues for which the plaintiff should have to bear the costs of responding. The plaintiff also reasonably acknowledged the appropriateness of some variations after the needs affidavit of Mr Gilmour was filed.

Conclusion and orders 25 I would make the following order: 1. The orders made by the Honourable Justice Barker on 16 April 2012 be varied to permit the defendants to pay from their liquid assets affected by those orders the following: (a) the sum of $27,000 to meet legal services provided by the solicitors for the defendants to the defendants up to and including 2 May 2012; (b) the sum of $35,000 to meet ongoing legal services in the conduct of this proceeding up to and including the trial; (c) the sum of $15,000 to be paid to an expert witness to be engaged on behalf of the defendants to provide a expert report in relation to the allegations raised against the defendants in the statement of claim in the proceeding; (d) a weekly allowance of $1,000 for usual living expenses for the first defendant; (e) monthly mortgage payments as follows: (i) $1,584 in respect of the property listed in para 1(a)(ii) of the orders made 16 April 2012; (ii) $4,381.39 in respect of the property listed in para 1(a)(iii) of the orders made 16 April 2012; including any additional amounts arising from variations in the interest rate charged on the mortgages in respect of the properties by the Australia and New Zealand Banking Group Limited. 2. The defendants pay the plaintiff's costs of this application to be taxed, if not agreed. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker.