Judgment - EX TEMPORE
Revised from transcript; issued 5 February 2021
Before the Court is an interlocutory application. The plaintiff seeks continuation of freezing orders originally made ex parte and the making of a disclosure order in aid of those continued orders.
The plaintiff in the proceedings is Graham Colin O'Keefe. Mr O'Keefe is about 70 years old. He is, by trade, a designer and project co-ordinator.
The first defendant, Integral Corporate Property Pty Limited ("ICP"), is controlled by the second defendant, James George Petersen. According to the plaintiff's statement of claim, Mr Petersen is a struck‑off solicitor who subsequently turned to providing business advice. It is alleged that he acted as Mr O'Keefe's advisor, going back at least as far as 2012.
Mr O'Keefe's main complaint in the proceedings concerns a home unit property he owned at Glebe. According to the statement of claim, the property was transferred by Mr O'Keefe to a man called Adam Stone in June 2012. Later Mr Stone transferred it to ICP.
Despite transferring the property out of his name, Mr O'Keefe continued to pay the mortgage repayments and other outgoings on the property. But last year ICP obtained an order from the New South Wales Civil and Administrative Tribunal evicting him from the property. At that stage it had been his home for 43 years. Mr O'Keefe says that the transactions were orchestrated by Mr Petersen and resulted in his being deprived of his home.
Following the transfer of the property to Mr Stone, and then to ICP, further moneys have been borrowed against it. The property is currently subject to a mortgage in favour of the Commonwealth Bank of Australia ("CBA"). The mortgage covers both the Glebe property and another property at The Entrance owned by ICP. The total amount outstanding is approximately $1.3 million.
Mr O'Keefe claims that he made the transfers because he was assured by Mr Petersen that the properties would be held on trust for him. Although this is not fully reflected in Mr O'Keefe's prayers for relief in the statement of claim as it is currently framed, if he succeeds on his claim he will be entitled to:
1. a declaration that the Glebe property is held by ICP as trustee for him;
2. an order for an account of any benefits obtained by ICP from ownership of the property (including in particular any benefit obtained, or any property acquired, from the borrowing of further moneys);
3. an order that the moneys found due under the account be applied to discharging the CBA mortgage on the property and reconveying the property to him.
At the time of the transfer to Mr Stone in 2012, the Glebe property was already mortgaged to another financier to secure a debt of about $500,000. Counsel for Mr O'Keefe accepts that he will need to give credit for this amount, and perhaps for interest on it, as a condition of any relief which may be granted. Counsel indicated that if that point was reached Mr O'Keefe proposed to borrow the necessary funds.
There is a complication with Mr O'Keefe's claim. In 2016 he was made bankrupt (Mr O'Keefe says that this was as a result of advice from Mr Petersen). The claim made in these proceedings was initially made in proceedings begun in early 2020. Those proceedings were dismissed because, the cause of action having passed to the bankruptcy trustee, Mr O'Keefe had no standing to sue. In these proceedings Mr O'Keefe sues as assignee of the Trustee in Bankruptcy.
The statement of claim makes other claims on behalf of Mr O'Keefe. These include a claim for payment for work done and services provided in connection with the property at The Entrance. It is not necessary to go into this claim or any of Mr O'Keefe's other monetary claims in any more detail for the purpose of this judgment.
The proceedings were begun by way of statement of claim filed in Court on 8 January 2021, that is, last month. On that occasion the Duty Judge (Slattery J) made freezing orders against the defendants in the usual form on the basis that they would expire today. His Honour declined at that stage to make an order for disclosure.
The extension of the freezing orders was opposed by counsel for the defendants. Counsel initially took three points.
Counsel's first point concerned the arrangements made between Mr O'Keefe and the Trustee in Bankruptcy for assignment of the cause of action. The parties executed a deed styled "Deed of Assignment" on 6 January, two days before the proceedings were begun. That deed provided for Mr O'Keefe to pay the initial sum of $30,000, whereupon the trustee agreed to "transfer, convey and assign" to him the relevant chose in action.
Counsel's point was that this was only an agreement to assign, not an actual assignment for the purposes of the Conveyancing Act 1919, s 12. But in the course of argument counsel indicated that he would not pursue this point as an answer to the grant of injunctive relief, although, as I understood counsel, he wished to reserve the point to be debated perhaps at a later stage of the proceedings.
Counsel's second and third points concerned the scope of the continued freezing order which was sought. Counsel pointed out that the order did not contain an exception which would allow counsel's fees to be paid out of the defendant's assets. The other point was that ICP has entered into a contract to sell the property. Counsel submitted that the order should not prevent that sale from taking place. Counsel submitted that the price appeared to be a fair price for the property.
In a case such as this it is important to distinguish between an asset preservation order on the one hand, and an injunction on ordinary equity principles to preserve the subject matter of proceedings, on the other. I referred to the reasons for this in Ip v Chiang [2019] NSWSC 1549 at [126]-[129]. In particular, an asset preservation order will almost invariably have built into it an exception for reasonably incurred legal fees, whereas the case for making such an exception in an order preserving an asset pending trial may be much weaker.
Initially, counsel for Mr O'Keefe simply pressed for the existing asset preservation order to be extended. Counsel did not, in her initial submissions, advert to the distinction to which I have referred. But it is clear in the present case that the claim with respect to the Glebe property gives rise to a case for an injunction to preserve that property pending the determination of the plaintiff's claim, and I intend to deal first with whether such an injunction should be granted.
Counsel for the defendants did not rely, in opposition to such an injunction, on any hardship argument based on inability to pay his legal fees. Nor was there any hardship argument based on inability to pay interest on the CBA loan. No evidence was presented that these obligations could not be met from other sources of funds available to the defendants.
Counsel did press opposition to such an injunction on the basis of the sale contract. But the purchaser is the de facto wife of Mr Petersen. There is no evidence of any pressing need to sell. On ICP's accounts, which are in evidence, the value of the two properties, taken together, exceeds the amount secured on them by $600,000.
I acknowledge that there is little, if any, evidence that Mr O'Keefe will be in a position to meet the undertaking as to damages. But as I have already pointed out, there is no evidence that the defendants would be unable to continue to service the mortgage in the meantime. Nor is there any evidence that the purchaser under the contract (who, of course, is not at arm's length) has threatened to terminate it.
In these circumstances, I propose to grant an injunction restraining ICP from disposing of the property or from encumbering it any further. I will return to the precise form of the order in due course.
In addition to granting such an injunction, counsel for Mr O'Keefe pressed me to extend the asset preservation order as well. Counsel submitted that the evidence showed a history of questionable transactions involving the defendants.
The preliminary problem with this submission is that, if an asset preservation order is to be made on top of an order preserving a specific asset, namely the Glebe property, pending determination of the plaintiff's claim for that asset, then the terms of that asset preservation order (including in particular the amount specified in the order) need to be considered separately. Counsel did not, in her submissions, undertake this task.
More importantly, in my view the evidence did not really go beyond showing that there had been dealings in which the defendants had been involved which were not fully explained on the evidence. But it is hardly surprising that the defendants would have treated their assets as their own in the period after 2012. What Mr O'Keefe really needed to show was a risk of dissipation based on the defendants taking active steps to make themselves judgment proof in response to his claim since it was first articulated early last year.
I discussed some of the difficulties in establishing such a risk of dissipation, especially as against an individual defendant resident in Australia, in my decision in Moustapha v Nelson (No 3) [2020] NSWSC 1263 at [78]-[82]. In my view, the evidence and submissions on this application fell short of demonstrating that any such risk had been established.
Therefore, I do not propose to make an extended asset preservation order beyond the order which I will make concerning the Glebe property. It follows that I will not make the disclosure order which was sought in aid of that extended asset preservation order, in the terms sought. It may be that early discovery orders are appropriate in aid of Mr O'Keefe's proprietary claim, but that is a matter which can be dealt with in the ordinary course as part of the case management of the proceedings.
In that regard Mr O'Keefe's legal advisors will also need to consider, among other things, whether to amend the pleadings so as to address the foreshadowed issue about assignment and the expedition of the proceedings. They will also need to consider whether the Court is to be asked to determine quantum issues at the trial, rather than referring them out to be dealt with alongside any account which might ultimately be ordered.
(Counsel addressed on the form of orders)
The orders of the Court are:
1. Order that upon the plaintiff, by his counsel, giving the usual undertaking as to damages, the first defendant be restrained until further order from dealing with, disposing of or further encumbering the property known as [XX] Forsyth Street, Glebe, except that the first defendant may let the property on ordinary commercial terms for the period up to 31 December 2021.
2. The plaintiff's application for interlocutory relief be otherwise dismissed.
3. I order that the costs of the application be costs in the cause.
4. The proceedings be listed for directions before the Expeditions List Judge on 12 February 2021.
5. These orders are to be entered forthwith.
[2]
Amendments
15 March 2021 - amend typographical error in [16]
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Decision last updated: 15 March 2021