[1999] HCA 18
Frigo v Culhaci [1998] NSWCA 88
Jackson v Sterling Industries Limited (1987) 162 CLR 612
[1987] HCA 23
Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG 'The Niedersachsen' [1983] 1 WLR 1412
Source
Original judgment source is linked above.
Catchwords
[1999] HCA 18
Frigo v Culhaci [1998] NSWCA 88
Jackson v Sterling Industries Limited (1987) 162 CLR 612[1987] HCA 23
Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG 'The Niedersachsen' [1983] 1 WLR 1412
Judgment (11 paragraphs)
[1]
Solicitors:
Ashurst Australia (Plaintiff/Applicant)
DLA Piper Australia (Defendant/Respondents)
File Number(s): 2021/248980
[2]
JUDGMENT
The Plaintiff, Mooi Holdings Pty Ltd, seeks an extension, until the final determination of these proceedings, of interim freezing orders made on 24 and 28 March 2023 against the Defendant, SFN Constructions Pty Ltd and against six respondents, being two related companies and the four directors of the Defendant ("the Respondents").
The freezing orders are in the usual form and restrain the Defendant and the Respondents from dealing with their assets to the value of some $17.78 million, being the amount the Plaintiff claims against the Defendant in the final determination of these proceedings.
The proceedings relate to a building dispute under a design and construction contract ("the Contract") in respect of a residential apartment development in Bellevue Hill. The Plaintiff was the developer and the Defendant was the original builder. The Plaintiff took work under the Contract out of the Defendant's hands. The superintendent under the Contract certified the amount due to the Plaintiff under the Contract at, ultimately, some $17.78 million.
The Defendant, as well as being a builder, is also a developer and is a member of a family controlled and tightly held group of companies to which the parties referred to as the "SFN group". That group includes two of the Respondents, SFN Build Group Pty Ltd and CharlesLily Pty Ltd.
The other Respondents are the directors of the Defendant, Mr Salvatore and Mrs Maria Sciacca, and their sons, Mr Francesco and Mr Venerando Sciacca. During argument, for convenience, counsel referred to the members of the Sciacca family by their given names. I will do the same. I intend no disrespect.
The proceedings have reached a stage where the Plaintiff's evidence has been served and directions have been made for the Defendant to serve its evidence.
On the Plaintiff's application for an extension of the freezing orders, and after almost two days of argument, it emerged that neither the Defendant, nor the Respondents, disputed that the freezing orders should continue. The debate focused on whether the freezing orders should be maintained at the level of $17.78 million.
There was no dispute as to the relevant principles.
The Court's power to make a freezing order is contained in the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), rr 25.11 and 25.14.
Argument focused on the requirements of UCPR r 25.14 and, relevantly whether:
1. the Plaintiff has a "good arguable case on an accrued or prospective cause of action" against the Defendant; [1]
2. as against the Defendant, there was a danger that any judgment obtained by the Plaintiff against the Defendant would be wholly or partly unsatisfied because the Defendant's assets may be disposed of, dealt with, or diminished in value; [2] and
3. as against the Respondents:
1. there was a danger that any judgment obtained by the Plaintiff against the Defendant would be wholly or partly unsatisfied because the Respondents are in possession of assets of the Defendant; [3] or
2. a court process may ultimately be available under which the Respondents may be obliged to disgorge assets to satisfy any judgment that the Plaintiff might obtain against the Defendant. [4]
On behalf of the Plaintiff, Ms Ashworth identified six transactions involving the Defendant and the Respondents that, it was submitted, enlivened the Court's jurisdiction to make and continue the freezing orders.
As to whether the Plaintiff has a good arguable case on an accrued or prospective cause of action, a good arguable case is "one which is more than barely capable of serious argument, and yet not necessarily one which the judge believes would have a better than 50% chance of success". [5]
The test is less stringent than requiring proof on the balance of probabilities. [6]
In opening written submissions, Mr Shipway, who appeared with Ms Carr for the Defendant and the Respondents, accepted that, for the purposes of UCPR r 25.14(1)(b), the Plaintiff had a "good arguable case".
Accepting that a plaintiff has a good arguable case, for the purpose of considering whether the Court's power to make a freezing order is engaged, does not in my opinion preclude the Court from looking at the issues in the case, without attempting to express any view about their likely resolution, in the course of determining what amount should be the subject of the freezing order. This is consistent with the necessity to ensure that any freezing order causes the "minimum disturbance" so as not "to tie up assets and property beyond the extent that the party seeking the orders maybe thought likely to recover" [7] and so that the "relief is confined to the 'limits set by the purpose which it can properly be intended to serve'". [8]
In this case, as I discuss below, consideration of the issues in the case is capable of relevance to the question of whether the freezing orders should be maintained at their current level: $17.78 million.
During oral argument, Mr Shipway also accepted that the other requirements of UCPR r 25.14 were established against both the Defendant and the Respondents, at least in relation to two of the six transactions the subject of Ms Ashworth's submissions, albeit, as I have said, subject to the question of the monetary level at which the freezing orders should be continued.
Indeed, in his submissions, Mr Shipway focused only on that question and did not seek to respond to Ms Ashworth's comprehensive submissions as to the six transactions to which I will now turn.
[3]
The transferred properties
Prior to September 2018, the Defendant had developed, and built, a complex comprising 14 two-bedroom apartments in Brays Road, Concord, and a complex comprising 14 three-bedroom apartments in Cavendish Street, Concord.
Included in those developed properties were Lots 3, 4 and 6 in the Cavendish Street development, and Lot 11 in the Brays Road development. On 5 September 2018, the Defendant transferred these four properties to Francesco, Venerando, Salvatore and Maria. I will refer to these properties as the "Transferred Properties".
Each of the Transferred Properties was subject to mortgages in favour of National Australia Bank Limited ("NAB"). NAB also had security over nine other properties owned by the Defendant. The amount owing by the Defendant to NAB totalled some $13.6 million.
The Defendant wished to refinance the NAB facility with Suncorp-Metway Limited ("Suncorp").
The borrowing from Suncorp was structured so that Suncorp made 13 individual advances, totalling $13.6 million (the amount needed to retire the NAB loan), to be secured by mortgage over the 13 properties then owned by the Defendant: the four Transferred Properties and the nine other properties.
Thus, in July 2018, Suncorp approved loans including:
1. a loan of $1.16 million to Francesco to be secured over Lot 3 in the Cavendish Street development;
2. a loan in the same amount to Venerando to be secured over Lot 4 in the Cavendish Street development;
3. a loan in the same amount to Salvatore and Maria to be secured over Lot 6 in the Cavendish Street development; and
4. a loan of $760,000 to Salvatore and Maria to be secured over Lot 11 in the Brays Road development.
What was contemplated was that at settlement, Francesco, Venerando, Salvatore and Maria would become the owners of those properties and mortgagors to Suncorp.
So it happened.
Thus, at settlement on 5 September 2018:
1. NAB discharged its mortgages over the Defendant's properties, including the four Transferred Properties;
2. the Defendant transferred the Transferred Properties to Francesco (Lot 3 in the Cavendish Street development), Venerando (Lot 4 in the Cavendish Street development), and Salvatore and Maria (Lot 6 in the Cavendish Street development and Lot 11 in the Brays Road development); and
3. Suncorp took a mortgage over each of the properties transferred by the Defendant, including the Transferred Properties.
The totality of the 13 Suncorp loans was used to refinance the Defendant's NAB facility and, in that way, used by the Defendant to carry out a further development, this time at Queen Street, Concord.
Francesco explained in an affidavit:
"The loans [from Suncorp] were recorded as secured liabilities in the financial statements for [the Defendant] for the year ended 30 June 2019 …
Although the loan agreements [in respect of the properties] show (variously) myself, … my brother and my parents as the 'borrower', the funds obtained were used by [the Defendant] to continue its business and carry out the [development at Queen Street, Concord]."
The result was that Francesco, Venerando, Salvatore and Maria became the registered proprietors of the four Transferred Properties.
Francesco, Venerando, Salvatore and Maria "paid" the Defendant the consideration stated in the transfers of those properties ($1.16 million for each of the three Cavendish Street lots and $760,000 for the Brays Road lot) by the funds advanced by Suncorp which, at settlement, were paid, presumably at their direction, to the Defendant.
Nonetheless, as Francesco deposed, the Defendant has recorded in its financial statements its liability in relation to the Suncorp borrowings. The Defendant is servicing the Suncorp loans, and is thus, in effect, discharging Francesco's, Venerando's, Salvatore's and Maria's liability under the Suncorp mortgages. Indeed, I was informed during argument that the Defendant has repaid the amount owing to Suncorp that was secured over Lot 6 of the Cavendish Street development.
As Ms Ashworth has submitted, the effect of these transactions is that the Defendant is, in substance, repaying to Francesco, Venerando, Salvatore and Maria the purchase price that, by reason of the Suncorp advances, they each "paid" for the Transferred Properties.
Nonetheless, as Ms Ashworth has pointed out, in the evidence filed in relation to the Plaintiff's applications for interim and final freezing orders, each of Francesco, Venerando, Salvatore and Maria assert that the Transferred Properties are their assets. Francesco has sworn a number of affidavits purporting to set out the assets of the Defendant. He has not disclosed the Transferred Properties as assets of the Defendant.
In those circumstances, Ms Ashworth submitted:
"The effect of the re-financing insofar as the Transferred Properties are concerned was simply that the Defendant used its properties to re-finance existing loans. It follows that although the Transferred Properties were nominally transferred to the directors, it is arguable that the Defendant retains equitable ownership of same."
Mr Shipway accepted this was an available conclusion.
In those circumstances, I am satisfied that, in relation to the four Transferred Properties, the Plaintiff has shown there is a danger that any judgment the Plaintiff may obtain against the Defendant would not be satisfied because:
1. Francesco, Venerando, Salvatore and Maria might dispose of assets that in equity belong to the Defendant and are in the position to control the disposition of those assets; and
2. that a court process may be available to the Plaintiff under which those individuals may be obliged to disgorge the Transferred Properties towards satisfying any judgment that the Plaintiff might obtain against the Defendant.
[4]
The Cav3 and Cav4 offset accounts
These are bank accounts with Suncorp in the names of Francesco and Venerando respectively.
These accounts were described in Mr Shipway's and Ms Carr's written submissions as offset accounts "to the loan by Suncorp taken out for the benefit of the Defendant over personal property held by" Francesco, being Lot 3 of the Cavendish Street development, and Venerando, being Lot 4 of the Cavendish Street development.
In one of his affidavits, Francesco said:
"… I have never and do not now operate the Cav 3 Bank Account as a personal bank account. Rather, it was [the Defendant's] business bank account used by [the Defendant] for the [Queen Street development] and interest payments for [the Defendant's] loans."
Although Venerando did not make a statement to the same effect concerning Cav4, there was no dispute before me that he also regarded that account as a "business bank account" of the Defendant.
As there are only nominal amounts presently in these accounts, their significance relates to the matter that I will next consider.
[5]
The proceeds of the Queen Street development
The Defendant developed and built a 15-townhouse complex in Queen Street, Concord. The project was completed in August 2020. As I have mentioned, part of the Suncorp refinance of the NAB debt was used for the purpose of this development.
All of the townhouses in the Queen Street development have been sold.
From those proceeds, some $4 million was paid into the Cav3 offset account.
In his affidavit evidence, Francesco said that these proceeds were "used to pay [the Defendant's] business-related expenses" and "repay its loans". Ms Ashworth did not, for the purposes of this application, dispute that proposition.
Between August and October 2020, some $1 million was paid from the Cav3 account to the Cav4 account.
Those funds are no longer in the Cav4 account. The Defendant and Respondents have offered no explanation for this.
In those circumstances, I accept Ms Ashworth's submissions that:
"Such unexplained dissipation provides further support for the existence of a risk that the Defendant's assets will be diminished in value if the freezing order against it is not extended."
[6]
The CharlesLily Pty Ltd development
CharlesLily Pty Ltd was a company incorporated by the Sciacca family to develop three properties in Charles Street, Lilyfield.
CharlesLily purchased the three properties in October 2020. The development was completed in August 2022.
CharlesLily retains one of the three properties. The other two have been sold. The sale of one has settled. CharlesLily holds the proceeds of that sale. The sale of the other is to settle very shortly.
The Defendant was the builder of the project, although there is no building contract between it and CharlesLily.
The Defendant paid the deposit for the purchase of the three Charles Street properties.
The Defendant also advanced $5.8 million to CharlesLily to fund the development. There was no loan agreement recording this transaction. CharlesLily has paid no interest on this loan.
The Defendant also borrowed $424,000 from Suncorp which, on 22 February 2022, it advanced to CharlesLily.
As builder, the Defendant delivered 21 payment claims to CharlesLily for the building work it carried out. The total of these payment claims was in the order of $2.7 million.
The payment claims did not state that they were made pursuant to the Building and Construction Industry Security of Payments Act 1999 (NSW) as was then required by s 13(2)(c) of that Act. That fact appears to reflect an informality consistent with these being "family business" arrangements.
As those payment claims were made, the Defendant concurrently advanced funds to CharlesLily to enable it to pay each of the payment claims. In one instance, the amount advanced by the Defendant, $83,646.56, was exactly the amount of the relevant payment claim.
Further, on 3 and 7 March 2023, the Defendant advanced to CharlesLily the proceeds of sale of the last two units sold in the Defendant's Queen Street development. Each of these payments was in the sum of $1,145,333.50.
This was contrary to the assertion made in correspondence by the solicitors for the Defendant, doubtless on instructions, that the sale of Lots 4 and 6 of the Queen Street development had been undertaken at the request of Suncorp so as to reduce the level of the Defendant's indebtedness to Suncorp. In fact, the vast bulk of the proceeds of the sale of Lots 4 and 6 of the Queen Street development, represented by the payments to which I have referred, was paid to CharlesLily.
Further, in May 2022, Suncorp wrote to the Defendant, approving an increase in two facilities. In Suncorp's letter it was stated that the purpose of such increase was:
"To vary the terms of the existing Facility as set out in this letter, including an increase to the Facility Limit to release capital invested in redevelopment of 68, 70 and 72 Charles Street, Lilyfield and amendments to the Fees and Charges, Security Details and removal of Redraw." (Emphasis added.)
The passage I have emphasised, which I infer is what a member of the Sciacca family told Suncorp, shows that those controlling the Defendant saw the Defendant's involvement in the CharlesLily project as a "capital investment": not merely a loan, let alone an arm's length building project.
Again, this suggests that one or more of the Respondents is in a position to control or influence the Defendant's assets and cause them to be used for the benefit of a different member of the family corporate group.
[7]
The related party loans
The Defendant has made loans to each of Francesco, Venerando, Salvatore and Maria and to a number of the corporate members of the SFN Group.
Those loans are as follows:
1. To CharlesLily - $2,870,550.08;
2. To CharlesLily - $424,000;
3. To Smart Funding Pty Ltd - $46,838.69;
4. To SFN Associates Pty Ltd - $94 666.59;
5. To Project09 Pty Ltd - $227,630.85;
6. To Francesco - $936,685.15;
7. To Venerando - $936,685.15;
8. To Salvatore and Maria - $861,234.07;
9. To Salvatore and Maria - $180,000.
Only the loans to the directors, Francesco, Venerando, Salvatore and Maria are documented.
Those loan agreements oblige the borrowers to pay interest on the loans and to make minimum repayments. This has not happened.
The other loans are undocumented. Thus, there are no agreed payment terms, and no obligations to pay interest. No interest has been paid.
I accept Ms Ashworth's submission that it is at least arguable no benefit has been conferred on the Defendant by these loan transactions. The Defendant and the Respondents have not adduced any evidence to show what any such value might be. They would know.
[8]
The transfer of the intellectual property and goodwill from the Defendant to SFN Build
The Defendant was incorporated in 2001.
SFN Build was incorporated in 2021.
The Defendant has no current projects. It apparently employs no staff. The Defendant's last project, as a builder, was the CharlesLily development that was completed in August 2022.
SFN Build is currently engaged in four or five projects with a total contract value in the order of $12 million.
At the conclusion of Francesco's cross-examination, he gave this evidence in answer to questions from me:
"Q. Who decided to use SFN Build rather than SFN Constructions to do the developments we have been discussing?
A. The client ones [sic], my brother and I, my partner.
Q. Why did you make that decision? Why not keep using SFN Constructions?
A. My father retired as of two and a half years ago. He's, you know, hung up the boots. He has a sore back, so he's basically retired from SFN Constructions. In order to start new projects, client projects, the best way to, obviously, keep my father separate from those projects and not involved, as he's obviously not part of those mum and dad projects, the only way we were advised would be to create we wanted to keep the name, but we couldn't because of existing properties and so forth. Venerando and I wanted to keep the brand but just rename. So the liability on those mum and dad projects are now only Venerando and I.
Q. Your mum and dad are not directors of SFN Build, that's just you and your brother?
A. It's purely my brother and I."
SFN Build uses the same logo and get up as the Defendant, which is consistent with Francesco's evidence that "Venerando and I wanted to keep the brand but just rename".
The online presence of SFN Build shows that Francesco and Venerando use the expressions "SFN Constructions" and "SFN Build Group" interchangeably.
On Francesco's "LinkedIn" site, under his profile title "Frank Sciacca - SFN Build Group Pty Ltd", he has stated the following as his job description:
"SFN Constructions Pty Ltd have [sic] over 80 years of combined experience in the construction industry. Established in 2001 as a family business, SFN (Sam [9] , Frank [10] and Nando [11] ) have [sic] enjoyed the success in providing optimum service to their clients.
SFN Constructions has a vast experience in all project types specialising in residential, commercial, retail, industrial and property development.
A solid team, reputable services put together with the experience, SFN Constructions makes sure that all ideas and dreams are met within your project."
The same wording appears on SFN Build's LinkedIn profile. This is a vivid example of the interchangeable use by those associated with these companies of the named "SFN Build" and "SFN Constructions".
Thus, in his LinkedIn Profile, Francesco speaks of the Defendant, SFN Constructions, in the present tense, despite the fact that it is effectively dormant and no longer engaging in construction work.
Further, Francesco had described in his LinkedIn Profile, and under the banner of "SFN Build Group Pty Ltd", projects conducted and completed by the Defendant, not SFN Build, and honours and awards conferred on the Defendant, not SFN Build.
On SFN Build's website, the expressions "SFN Build" and SFN Constructions" are used interchangeably.
For example, it is stated, concerning Francesco:
"Prior to founding SFN Build, Frank worked with Cordell Building Information Services, successfully climbing to National Sales Manager. Frank is a fully qualified and licenced [sic] builder with a Diploma in Construction and Building and Certificate IV in Residential Construction.
Frank leads Business Development at SFN and provides himself in his relationship building. As one of the founders of SFN Build he has successfully delivered over 150 projects since establishment in 2001." (Emphasis added.)
Thus, in this statement SFN Build speaks of SFN Build having been "established in 2001". But SFN Build was incorporated only in 2021. It was the Defendant, SFN Constructions, that was founded in 2001.
Similarly, on his LinkedIn profile Venerando describes his experience as follows:
"Experience
Director - Construction Manager at SFN CONSTRUCTIONS
SFN CONSTRUCTIONS
Jan 2001 - Present ∙ 22 years 2 mos
Sydney, New South Wales, Australia"
Here Venerando draws no distinction between his "experience" at the Defendant, SFN Constructions, and his current experience at SFN Build.
In those circumstances, I see substance in Ms Ashworth's submissions that:
"It appears that the goodwill and intellectual property of the Defendants are being used by SFN Build. No consideration was received by the Defendant in respect of that apparent transfer.
In those circumstances, the Defendant arguably retains beneficial ownership of the goodwill and intellectual property, and it was and is entitled to the profit generated by the use thereof."
[9]
Consideration
The circumstances I have outlined above show that there is a sound basis for continuing the freezing order. As I have said, Mr Shipway did not contest this.
The circumstances show a tendency on the part of the Defendant and the Respondents to treat assets of the Defendant as being generally available for use in the Sciacca family business.
This is consistent with the evidence that Francesco gave:
"Q. So loans to related parties, directors, shareholders, were assets of the company who made the loan?
A. I didn't appreciate - didn't appreciate the total, I mean, meaning of "asset", to be honest, that the loan - I mean, we're family. It's not - we're not people we don't know each other so we look at it different, you know. If it was an unrelated person that I didn't know then maybe I'd look at it a different way. I mean, it's - you know, it's, yeah, that's the truth.
Q. So what you're saying is because it's a family group of companies, you don't have regard to whether it's this particular company or that particular company; the important thing from your perspective is that it's the group's money, it's the group's assets, is that correct?
A. To an extent, yes."
That this is symptomatic of the manner in which the Sciacca family fail to appreciate the boundaries of the corporate personalities involved in their "family business" is illustrated by the "open offer" made in Mr Shipway's and Ms Carr's written submissions:
"Messrs Francesco Sciacca and Venerando Sciacca each undertake to the Court to:
a. maintain and to not dispose of, transfer, sell, further encumber or otherwise deal with the following properties located in New South Wales;
i. 68 Charles Street, Lilyfield;
ii. 29 Tillock Street, Haberfield;
iii. 2 Wallace Street, Concord;
iv. 3/4-10 Cavendish Street, Concord West;
v. 4/4-10 Cavendish Street, Concord West; and
vi. 33 Tebbutt Street, Leichhardt;
b. not take any steps to dispose of, transfer, sell, further encumber or otherwise deal with the above properties without first providing the Plaintiff with 10 business days' prior written notice of their intention to do so."
The proposed undertaking was from Francesco and Venerando. But the property at (i) is owned by CharlesLily, and not by either Francesco or Venerando. The property at (ii) is owned by Francesco's wife, Ms Samantha Sciacca The property at (vi) is owned by another company in the group, SmartFunding Pty Ltd.
This is no doubt reflected in Mr Shipway's realistic submission in closing:
"The test my friend seeks to meet on the freezing order is that there is a good arguable case on the main proceeding.
She also seeks to satisfy your Honour - and I think this is strictly a separate question, separate issue - she seeks to satisfy your Honour that there are equitable interests, for example, held by the defendant in assets that are in the possession at law of third parties, the respondents. I am putting that in a general way but that's the way my friend puts her application today.
I am not going to seek to persuade your Honour that the arguable test for that equitable interest is not made out."
Mr Shipway's oral submissions were directed to what he described as the "end point", being the monetary limit to be applied to the oncoming freezing order.
At present, that "end point" is $17.78 million, being the amount claimed by the Plaintiff in these proceedings.
In fact, $17.78 million is the maximum of a number of alternative claims that the Plaintiff makes in the proceedings.
Under the Contract the Plaintiff was, in certain circumstances, entitled to take work out of the hands of the Defendant and thereafter entitled to recover, subject to various matters specified in the Contract, the amount certified as being due by the superintendent. [12]
The Plaintiff took work out of the hands of the Defendant on 16 January 2018.
Thereafter, a superintendent of the Plaintiff [13] issued three certificates under the Contract:
1. on 24 May 2019 for some $3.013 million;
2. on 27 April 2021 for some $4.046 million; and
3. finally on 4 August 2021 (three and half years after the work was taken out of the hands of the Defendant) in the sum now claimed, some $17.78 million.
In its List Statement, the Plaintiff claims the amount at [99(c)] and, in the alternative, the amount at [99(b)] and, in the further alternative, the amount at [99(a)].
Alternatively, the Plaintiff seeks "such further sum as the Court determines in accordance with" the Contract.
There will be an issue at the hearing of these proceedings as to whether the Plaintiff was entitled to issue more than one certificate. There will also be an issue as to the identity of superintendent as the superintendent who issued the final payment claim was not the superintendent during the life of the Contract, but rather a director of the Plaintiff.
The 4 August 2021 certificate includes claims for what is asserted to be the cost to complete the Bellevue Hill project. It also claims an amount for loss of profit in relation to the Bellevue Hill project, and also in relation to two other unrelated projects of the Plaintiff at Rozelle and Balmain.
There will be an issue at the hearing as to whether these claims for loss of profit are available under the Contract.
There will be an issue in the proceedings as to whether a provision of the Contract which appears to exclude "consequential loss" operates to prevent the Plaintiff pursuing these claims. [14] That clause does not apply in the case of "gross negligence". There will be an issue as to whether, as the Plaintiff contends, the Defendant did act with "gross negligence".
There was also an issue as to the apparent tension between a provision in the Contract excluding consequential loss [15] with the provision dealing with the subject of the superintendent certificate, which includes costs "arising out of all as a consequence of the [Defendant's] breach". [16]
There will also be an issue in the proceedings as to whether a clause limiting the Defendant's liability under the Contract to the amount of the "Contract sum" (some $7.25 million) applies. [17] Again this clause is subject to a carve out for "gross negligence".
It is not for me to express any view about the outcome of these disputes. The point is that the current limit of the freezing order has been set at the level of the best possible result for the Plaintiff in the proceedings.
As I have set out above, I do not accept it follows from the fact there is no contest the Plaintiff has a "good arguable case" in the proceeding for the purpose of engaging the UCPR rules concerning freezing orders, that the issues facing the Plaintiff to the proceedings cannot be taken into account in determining what the ongoing limit of the freezing orders should be. It is not a foregone conclusion that the Plaintiff, if otherwise successful, will recover the maximum of the amounts claimed.
Mr Shipway submitted that the appropriate "end point" was either $4.6 million (being the net value of the Transferred Properties plus one of the CharlesLily properties) or $6.4 million (being the net value of the Transferred Properties and CharlesLily properties).
But this does not take into account the apparent migration of the Defendant's intellectual property and goodwill to SFN Build and to what I have found to be the Defendant's arguable interest in SFN Build's business and profits; a matter that warrants a higher "end point".
A further relevant factor is that the Defendant has professional indemnity insurance in relation to the Bellevue Hill project in the sum of $20 million. The insurers have admitted liability to indemnify the Defendant in relation to the Plaintiff's claim and, indeed, the solicitors on the record for the Defendant and who have instructed Mr Shipway and Ms Carr throughout the pendency of the Plaintiff's application for a freezing order are the insurer's solicitors.
The insurer's admission of liability to indemnify the Defendant is made on the usual basis of the insurer reserving its rights under the policy. The insurer has also, in terms, reserved its right to rely on two identified exclusions in the policy. [18] However, the fact that the insurer has admitted liability to indemnify the Defendant, and is conducting these proceedings on behalf of the Defendant, suggests that the insurer does not presently believe it has a basis to rely on either of these exclusions. Whilst it is, of course, not certain that the Defendant's liability to the Plaintiff will be met by the insurer, there is at least a sensible possibility that this is the case. I see this as a factor weighing heavily in the balance when determining the appropriate ongoing limitation for the freezing order.
It is also necessary to take into account the impact that the freezing order is having on the Defendant and the Respondents. It may be accepted that, as the Defendant appears to have ceased trading, there is little ongoing effect on the Defendant's business. However, if as the Plaintiff contends, the Defendant continues to have an equitable interest in the businesses now being conducted as SFN Build, its own interests require that consideration be given to the day-to-day effect of the current freezing orders.
In that regard, in their written submissions Mr Shipway and Ms Carr put:
"The imposition of the interim freezing orders has been notified to the Defendant's and Respondents' banks. The consequence of that has been to potentially jeopardise the finance for a current residential development being undertaken and to effectively 'freeze' the Defendant and Respondents out from assessing their assets for those legitimate (and expected) expenses notwithstanding the carve out of ordinary living and business expenses from the orders made on 24 and 28 March 2023 (as reflected in the precedent form of order).
Since the freezing orders were made against the Defendant and Respondents on 24 March 2023, the Defendant's and [Respondents'] bank accounts with the Commonwealth Bank of Australia (CBA), St George and Westpac have been inaccessible. Mr Francesco Sciacca is required to personally attend a CBA branch to transact on both business and [personal] accounts, Mr Salvatore Sciacca is required to personally attend a local CBA branch to transact on his personal account and Mr Venerando Sciacca is also required to personally attend a local banking branch to transact on his personal account and debit and credit cards. In respect of Mr Francesco Sciacca, depending on the number of transactions that are required to be carried out on a particular day to give effect to any ordinary living or business expenses, this could take a few hours each day, of a bank teller is available with an individual cost imposed by CBA on each transaction."
To some extent these difficulties are, as I have set out above, of the Respondents' own making. Nonetheless, I find this is a factor to be taken into account.
Finally, there is no evidence as to the value of the undertaking as to damages that has been given to the Court by the Plaintiff. The Plaintiff has no real estate. Its paid up capital is $2. It is a trustee, and sues only in that capacity. Those behind the Plaintiff do not offer their assets as security for the undertaking. Thus, the value of the Plaintiff's undertaking is unknown.
[10]
Conclusion
Determination of the monetary limit under which the freezing orders should continue involves an evaluation assessment, not susceptible to precise logical or arithmetical analysis, of the competing factors at play.
As Robb J said, in like circumstances:
"It would be an illusion for the Court to pretend that there was any rational way of weighing up all of these claims to determine the amount of the defendant's assets that should continue to be the subject of a freezing order.
In my view it is necessary for the Court to adopt a holistic approach to determining the proper outcome of this interlocutory application, as it would be artificial to attempt to calculate the appropriate amount to be the subject of the freezing order, and also the allowances to be made to the defendant in any arithmetical way." [19]
Taking into account all the factors I have described, and bearing in mind the "holistic" and evaluative approach that I must take, my conclusion is that the freezing orders should be continued but with the monetary limit varied to $10 million. Factors I find having particular weight are the value of the real estate in the hands of the Respondents and the fact that there seems to be a significant prospect of the Defendant having insurance cover in respect of the Plaintiff's claim.
In my opinion, in all the circumstances, a freezing order so limited is sufficient to protect the interests of the Plaintiff between now and the final resolution of these proceedings.
The parties should confer and agree on short minutes to give effect to these reasons.
I will hear argument as to costs. If there is a dispute as to costs, the parties should agree on a timetable for short written submissions. I will deal with that issue on the papers.
Finally, I record that the Plaintiff did not move on its Notice of Motion on 23 April 2023 seeking the appointment of receivers to the Defendant and the Respondents. I have stood that motion over to the Technology and Construction List on 9 June 2023, to be listed in the motions list for directions.
[11]
Endnotes
UCPR r 25.14(1)(b).
UCPR r 25.14(4)(b)(ii).
UCPR r 25.14(5)(a)(ii).
UCPR r 25.14(5)(b).
Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG 'The Niedersachsen' [1983] 1 WLR 1412; [1984] 1 All ER 398 at 404 (Mustill J), followed in, for example, Samimi v Seyedabadi [2013] NSWCA 279 at [69] (McColl JA).
Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 325 (Gleeson CJ); Frigo v Culhaci [1998] NSWCA 88 at [18] (Mason P, as his Honour then was, Sheller JA and Sheppard AJA).
Cardile v LED Builders Pty Limited (1999) 198 CLR 380; [1999] HCA 18 at [124] (Kirby J).
Ibid, citing Jackson v Sterling Industries Limited (1987) 162 CLR 612; [1987] HCA 23 at 625 (Brennan J).
I infer this refers to Salvatore.
I infer this refers to Francesco.
I infer this refers to Venerando.
At clauses 39.4, 39.5 and 39.6 of the Contract.
There were two superintendents.
Clause 47 of the Contract.
Clause 47 of the Contract
Clause 39.6 of the Contract.
Clause 48 of the Contract.
Relating to liability assumed under contract or liability arising from defective workmanship or materials: clauses 6.12 and 6.24 of the policy.
Rema Tip Top Asia Pacific Pty Ltd v Grüterich [2018] NSWSC 591 at [109] and [115].
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Decision last updated: 29 May 2023
Parties
Applicant/Plaintiff:
Mooi Holdings Pty Ltd
Respondent/Defendant:
SFN Constructions Pty Ltd
Legislation Cited (2)
Building and Construction Industry Security of Payments Act 1999(NSW)