The plaintiff, Mr Graham O'Keefe, is an interior designer. The second defendant, Mr James George Petersen, practised as a solicitor under the name George Kekatos until 1993, when this Court ordered that his name be removed from the roll of legal practitioners. Mr O'Keefe claims in these proceedings that with the assistance of the other individual defendants and through the agency of the other corporate defendants, Mr Petersen fraudulently manipulated him into surrendering the home in which he had lived since 1977 for no consideration, so that he is now homeless. Mr Petersen denies these serious allegations against him, as do the other defendants.
There are two Motions before the Court. By an Amended Motion dated 7 June 2021 Mr Petersen and the other defendants move the Court for orders: that Mr O'Keefe provide security for the defendants' costs in these proceedings in the sum of $371,000 on the basis of the plaintiff's impecuniosity and that the proceedings are brought in a representative capacity; and in the alternative, that the proceedings be stayed. Mr O'Keefe says that as a natural person there is no legal ground for security for costs to be ordered against him and that his role in a representative capacity is very limited.
By a Motion dated 13 May 2021 Mr O'Keefe seeks the reinstatement of certain freezing orders made on 8 January 2021 against the first defendant in these proceedings, Integral Corporate Property Pty Limited ("Integral"), and Mr Petersen and the joinder of three other defendants. Those additional defendants, the third, fourth and fifth defendants respectively are K & T Services Pty Limited ("K & T"), Cheryl Joanne Thrush and Perpetual Business Services Pty Limited ("Perpetual"), who are said to have been involved in dealing in the shares of Integral, were joined to the proceedings in May. The defendants say that the freezing orders were made against Integral and Mr Petersen and then discharged by Parker J after a contested hearing and that there is no evidentiary basis now to extend them to the third to fifth defendants.
Both Motions were set down before me for hearing on 21 June 2021. Ms E. Cohen of counsel represented Mr O'Keefe, instructed by Litigation Specialists. The defendants were represented by Mr D. Allen of counsel, instructed by Kekatos Lawyers.
Mr O'Keefe commenced proceedings like the present proceedings on 21 February 2020, when I made ex parte freezing orders against Integral and Mr Petersen ("the 2020 proceedings"). But shortly afterwards Ball J dissolved the freezing orders in the 2020 proceedings, when it became apparent that many of the causes of action upon which Mr O'Keefe relied had accrued prior to his bankruptcy in 2015 and Mr O'Keefe did not have standing to bring the action.
On 6 January 2021 Mr O'Keefe executed a deed with the Official Trustee in Bankruptcy ("the Official Trustee"), under which he took an assignment from the Official Trustee of the causes of action in the 2020 proceedings. It was a term of the assignment to Mr O'Keefe that he pay $30,000 to the Official Trustee and in the event that Mr O'Keefe were to be successful on those causes of action that he pay the Official Trustee a further $100,000 after meeting his own costs. Mr O'Keefe is in fact the plaintiff in his personal capacity in respect of causes of action after his bankruptcy and sues based on the assignment from the Official Trustee in respect of causes of action before that. That distinction is not material for the purposes of determining these Motions and Mr O'Keefe will be described in these reasons as the plaintiff.
Mr O'Keefe commenced these proceedings on 8 January 2021. I made ex parte freezing orders that day as vacation Judge against Integral and Mr Petersen. Upon the return date of the ex parte orders, 4 February 2021, as Equity Duty Judge Parker J refused to continue the freezing orders but nevertheless restrained Integral from dealing with the Glebe property except to lease them on commercial terms until the end of this year: O'Keefe v Integral Corporate Property Pty Limited [2021] NSWSC 46. Other applications have been made since then, but they have resolved by consent.
This is an interlocutory hearing. The Court's duty is not to "decide questions of fact or law which will be in issue at the trial": Francome v Mirror Group Newspapers Ltd [1984] 1 WLR 892 (at 894H-895A); [1984] 2 All ER 408; (1984) 81 LSG 2225; (1984) 128 SJ 484 per Sir John Donaldson MR. The principal contest between these parties to be determined at a final hearing reflects the complicated history of dealings between them. The allegations on each side need to be summarised to give a chronological background to the issues on the present Motions.
[4]
Mr O'Keefe, Mr Petersen and a Glebe Apartment
Mr O'Keefe's case and the manner that the defendants take issue with it, can be briefly summarised. Mr O'Keefe purchased an apartment in Glebe in 1977 ("the Glebe property"). He resided there for 43 years from 1977 to June 2020, during which time he claims he paid all rates, mortgage payments and other outgoings on the property.
By about 2011 Mr Petersen had become a friend of Mr O'Keefe, who says that he did not know until much later that Mr Petersen had been struck off as a solicitor in 1993. Mr O'Keefe undertook interior design and project management work on properties at the Entrance on the Central Coast for Mr Petersen, namely an apartment at the Entrance ("The Entrance property") and a restaurant at the Entrance called the WatersEdge, in which Mr Petersen or members of his family have a financial interest. Mr O'Keefe was a contractor in this work. But during this work Mr Petersen persuaded Mr O'Keefe to allow Mr Petersen to put not only the renovation expenses but some of Mr Petersen's personal expenses on Mr O'Keefe's credit cards. The evidence to be adduced at trial shows that Mr O'Keefe kept what he claims are detailed records of these expenses. That Mr O'Keefe would agree to such a disadvantageous arrangement with Mr Petersen is one signpost which Mr O'Keefe contends indicates his vulnerability to manipulation by Mr Petersen.
These informal financial arrangements occurred in a broader context. Mr O'Keefe says that Mr Petersen gave the appearance of acting for Mr O'Keefe's benefit, informally giving him accounting, financial and legal advice especially between 2011 and 2016 when Mr O'Keefe was most intensively working for Mr Petersen. The constancy of Mr Petersen's advice to Mr O'Keefe developed into what Mr O'Keefe claims was an advisor/advisee fiduciary relationship between them. But by early 2012 Mr Petersen's renovation and other expenses remained unpaid and Mr O'Keefe was beset by credit card and other creditors.
He turned to Mr Petersen for advice. Mr O'Keefe says that Mr Petersen advised him to enter a series of transactions involving the Glebe property. There is objective documentary evidence supporting the existence of each of these transactions. Mr O'Keefe's evidence will clearly be the subject of contest at trial and is to be approached cautiously given its serious implications. But if accepted, it provides a reasonable basis to infer that Mr Petersen constructed and executed over several years a convoluted and dishonest scheme that, whilst it assisted Mr O'Keefe to avoid his creditors, also stripped Mr O'Keefe of the benefit of the Glebe property. Mr Petersen and the other defendants strongly dispute such an inference. And if accepted, the evidence is also unfavourable to Mr O'Keefe, indicating he was prepared to enter fictitious transactions in order to disadvantage his own creditors. Although Mr O'Keefe answers this charge to a degree by saying that a considerable number of those creditors were in truth suppliers of materials or services to Mr Petersen, who Mr O'Keefe had paid at Mr Petersen's request. More detail of these transactions is of importance for the later contest on the Motions. But the overall theme of the transactions was for Mr O'Keefe to distance his assets from his creditors.
Creating Alleged Fictitious Mortgages and the Transfer to Mr Stone. In the first stage of these transactions Mr O'Keefe provides evidence that Mr Petersen created two successive unregistered fictitious mortgages over the Glebe property supported by caveats. According to Mr O'Keefe, both these mortgages were in respect of fictitious or partly fictitious loans.
First, Mr Petersen advised Mr O'Keefe to sign a Deed of Loan recording a debt owed by him to his mother, Mrs Elizabeth O'Keefe. According to Mr O'Keefe this was fictitious: she had not lent any money to Mr O'Keefe. But the loan was said to be secured by an October 2011 mortgage over the Glebe property for an unspecified sum and the loan and mortgage security became the subject of a February 2012 caveat lodged over the Glebe property recording Mrs O'Keefe's interest as an equitable mortgagee.
The second mortgage, which appears to have replaced the first fictitious mortgage between Mr O'Keefe and his mother, was created when Mr O'Keefe was persuaded in June 2012 by Mr Petersen to transfer the Glebe property to a friend of Mr O'Keefe's, by the name of Adam Stone. The purpose of this transaction was to get the Glebe property out of Mr O'Keefe's name and away from his creditors. Mr O'Keefe says that Mr Petersen explained to Mr O'Keefe that he had arranged the transaction so that Mr Stone could hold the Glebe property on trust for Mr O'Keefe. But no documents recording this trust were ever created. Perhaps this was deliberate. But Mr O'Keefe's case is that it arguably deepened Mr O'Keefe's disadvantages in dealing with the more sophisticated Mr Petersen.
But at the time of Mr O'Keefe's June 2012 transfer to Mr Stone a second loan and mortgage was created in favour of Mrs O'Keefe, recording her making financial advances to Mr Stone. The direct evidence of this unregistered equitable mortgage is presently scant, but it is referred to in a subsequent assignment of Mrs O'Keefe's interest in the debt. Mr O'Keefe says that his mother made no such advances to Mr Stone. If they were made, there is yet no evidence of the money flows and for whose benefit they were applied.
Mr Petersen engaged independent solicitors for the conveyancing from Mr O'Keefe to Mr Stone in June 2012 for an expressed consideration of $850,000. Mr O'Keefe challenges many features of the transfer to Mr Stone as being in breach of Mr Petersen's then fiduciary duty to him as an advisor. For example he says, as earlier indicated, no trust deeds recording Mr Stone's trusteeship for Mr O'Keefe's benefit were ever created; Mr Stone borrowed $630,000 from Suncorp on the security of the Glebe property but did not account to Mr O'Keefe for the disbursement of all the borrowed funds in addition to the $588,000 that Mr O'Keefe required to meet his financial obligations to his existing mortgagee, Westpac; and no one ever accounted to Mr O'Keefe for the $262,000 difference between the $850,000 purchase price and the application of the $588,000 funds necessary to meet Mr O'Keefe's existing mortgage obligations. Mr O'Keefe says that he received no money from this sale.
After the transfer to Mr Stone, Mr O'Keefe says he continued to live in the property and make monthly mortgage payments to Suncorp and meet Council rates and other outgoings on the property, whilst continuing to improve it. He initially made these payments through Mr Stone but then directly to Suncorp.
Transfer of the Second Fictitious Mortgage and the Glebe Property to Integral. In the next group of related transactions, Integral Corporate Management Pty Ltd ("Management") acquired Mrs O'Keefe's interest in the fictitious mortgage debt in February/March 2013 and then Integral acquired the Glebe property itself in late 2013/early 2014. Mr O'Keefe alleges that Management is controlled by Mr Petersen, and its shareholding gives a basis for that inference.
On 6 February 2013, shortly before her death on 10 February 2013, Mrs O'Keefe executed a Deed of Assignment to Management of the benefit of a secured debt of $516,478 said then to be owed to her by Mr Stone. The Deed of Assignment expressed the consideration for the assignment to her as $350,000. Mr O'Keefe says this money was not paid to his mother, or to her estate, and Mr Petersen did not alert him to need to collect this sum. There appears to have been a transfer to Management of the mortgage from Mr Stone to Mrs O'Keefe at the same time, because Management lodged a caveat over the Glebe property on 1 March 2013 based on Mrs O'Keefe's assignment of the debt and transfer of the mortgage from Mr Stone.
Mr O'Keefe's case will adduce evidence to show that by March 2013 Management, as Mr Stone's mortgagee, had already taken substantial control of the Glebe property. But Mr O'Keefe's evidence also makes a case that Mr Petersen engineered the transfer of the Glebe property from Mr Stone to Management by Mr Petersen acting for Mr Stone and turning Mr Stone against Mr O'Keefe. The first hostile act by Mr Stone against Mr O'Keefe came quickly in April 2013; it was to serve upon him a notice of termination of an alleged residential tenancy agreement by which Mr O'Keefe occupied the Glebe property. Incensed by Mr Stone's failure to recognise their trust relationship, Mr O'Keefe failed to make mortgage payments on the Glebe property for a period.
In September 2013 Mr Stone commenced proceedings against Mr O'Keefe in the Consumer Trading and Tenancy Tribunal ("CTT") alleging Mr O'Keefe was his tenant in the Glebe property and that Mr O'Keefe had failed to make rental payments on the property, which were measured by its mortgage, strata title and rates outgoings. Mr O'Keefe's evidence is that Mr Petersen deliberately orchestrated conflict between himself and Mr Stone leading to this litigation. But there is evidence that Mr Stone had assumed financial obligations secured over the Glebe property that were inconsistent with his role as trustee. In any event Mr O'Keefe alleges that Mr Petersen acted in the role of legal counsel for Mr O'Keefe in the CCT proceedings. Mr Petersen denies that he acted for Mr O'Keefe. Mr O'Keefe says that Mr Petersen advised Mr O'Keefe to settle in the CTT on terms that involved Mr Stone transferring title to the Glebe property to Integral. If Mr Petersen did not act for Mr O'Keefe then Mr O'Keefe was apparently unrepresented and at a disadvantage in any event.
The terms of settlement gave the mortgagee, Management, the right to nominate a person to purchase the Glebe property from Mr Stone. Management nominated Integral to purchase the Glebe property from Mr Stone for an expressed consideration of $850,000. The property was transferred to Integral in February 2014, Suncorp was paid out and Eclipse Prudent Mortgage Corporation Limited ("Eclipse") became the incoming mortgagee. Although Mr Petersen had told Mr O'Keefe that Mr Stone held the Glebe property on trust for him and that Integral would continue to do so, neither Mr Stone, Mr Petersen, nor Integral accounted to Mr O'Keefe for the proceeds of the sale. And Management did not account for its dealings with the Glebe property either. Mr O'Keefe's evidence, if accepted, is that apart from paying out the Suncorp mortgage, the expressed consideration of $850,000 for the transfer to Integral was not paid to Mr O'Keefe, or for his benefit. Mr Petersen seems to admit that Management was not fully paid out on settlement.
The Deed of Settlement and Release of 15 December 2013 is in evidence. It records (clause 3.3) that upon completion of the sale to Integral, "any tenancy or other occupation agreement by which [Mr] O'Keefe occupies the property is terminated" and "if required to do so by the purchaser [Mr] O'Keefe is to give vacant possession of the property". This clause is inconsistent with the trust relationship Mr O'Keefe asserts. It either indicates that Mr O'Keefe is wrong about the trust relationship during Mr Stone's registered proprietorship of the Glebe property, or that if a trust relationship did exist then he did not understand from Mr Petersen or from anyone else what he was signing. It is difficult to conceive how Mr O'Keefe, properly advised, could ever have knowingly agreed to such a clause, if he believed that the Glebe property was held on trust for him. Mr Petersen says that at this time he made an oral agreement with Mr O'Keefe that Mr O'Keefe could rent the property if he paid as rent the equivalent of the outgoings on it. Mr O'Keefe disputes this.
But Mr O'Keefe also says that he supplied all the funding for the settlement. The mortgage payments to Suncorp were behind by amounts of $25,000 and $6,400 respectively, although Mr Petersen had made past promises to pay these amounts. Consistent with his belief that he, rather than Mr Stone, was a beneficial owner of the Glebe property, Mr O'Keefe paid the outstanding amounts to Suncorp to keep financial obligations to it up-to-date before settlement of the transfer to Integral in February 2014.
After the transfer to Integral, Mr O'Keefe says that based on Mr Petersen representing to him that Integral would continue to hold the Glebe property on trust for him, Mr O'Keefe resided in the property, renovated it, maintained it and paid mortgage payments, levies and other outgoings on it until he was ultimately evicted in June 2020. He says these payments were far greater in amount than the $700 per week which was the market rent for the Glebe property throughout this time.
Integral is still the registered proprietor of and Management a mortgagee of the Glebe property. Mr O'Keefe challenges many features of the transfer to Integral. Mr O'Keefe says he paid stamp duty and legal fees on both the transfer and associated documents. Mr O'Keefe claims Mr Petersen has long controlled Integral and Management. Mr Petersen disputes that he does so at least at the present time. Ownership of the shares in and the directorships of Integral has changed over time, a feature of one dispute on the present Motions.
In his continuing role as confidant and advisor to Mr O'Keefe, in September 2015 Mr O'Keefe says that Mr Petersen persuaded him to file a debtor's petition and he became bankrupt. Mr O'Keefe says that Mr Petersen filled out the statement of affairs for his bankruptcy in his handwriting, but that he, Mr O'Keefe, signed it. The statement of affairs nominates Mr Petersen's business, ICM Advisory Services, care of the Entrance property, as Mr O'Keefe's accountant. Mr O'Keefe's statement of affairs records his debts as including $268,855.77 owing on 10 credit cards issued by various financial institutions, the largest credit card debt being $42,000.91 and the smallest being $1,543.98. According to Mr O'Keefe, Mr Petersen kept advising him during the bankruptcy, including to make payments to reduce the mortgage over the Glebe property.
Throughout this whole period, despite acting in the role of a legal advisor to him, Mr O'Keefe says that Mr Petersen had done nothing to record for Mr O'Keefe's benefit that the Glebe property was held on trust for him. Unaware of the precarious nature of his position, Mr O'Keefe says that he continued to live in the Glebe property and to pay all outgoings upon it. Mr Petersen denies being Mr O'Keefe's legal, financial or personal advisor during this period and says that in any event Mr O'Keefe failed to pay the rent on the property by falling short of meeting all its outgoings.
Integral borrowed substantial sums on the security of the Glebe property, giving mortgages over it first to Eclipse upon settlement for $600,000, later increased to $683,000 in April 2015. Subsequently in July 2018 the Glebe property was jointly mortgaged to the Commonwealth Bank of Australia ("CBA") with the Entrance property to secure borrowings of $1,350,000. The purpose of CBA mortgage appears to have been to use the Glebe property as security to enable the acquisition of the Entrance property. And at various times subsequent mortgages were taken out over the Glebe property for advances of an additional $150,000 at high rates of interest. Some of the proceeds of the Eclipse mortgage satisfied Mr Stone's (or Mr O'Keefe's) mortgage obligations to Suncorp, which were in the order of $600,000. But Mr O'Keefe says he was unaware until these proceedings of either the use of the Glebe property, as security for a secured loan for more than double that amount from CBA to acquire the Entrance property, or of the subsequent mortgages.
No account has been given to Mr O'Keefe of the disbursement of the proceeds of the other mortgage advances to Integral. Prima facie on the evidence he has already adduced, if his trust case is made out, Mr O'Keefe would be entitled among other relief to an account of the application by Integral, Management and Mr Petersen of the amount by which these borrowings of $1.5 million ($1,350,000 and $150,000) exceeds the mortgage principal that Mr O'Keefe acknowledges of $600,000, namely $900,000. But he may also be entitled to relief returning Glebe property to him or its present value, including capital gains, once an account of that value is obtained.
Upon Mr Petersen's advice, and consistent with his continuing belief in his beneficial ownership of the Glebe property, in May 2016 Mr O'Keefe drew down from his personal superannuation and paid $50,000 to reduce Integral's mortgage obligations to Eclipse that were secured over the Glebe land.
Mr O'Keefe was discharged from bankruptcy in September 2018. Shortly afterwards Integral surprised Mr O'Keefe by treating him as a tenant of the Glebe property, rather than as its beneficial owner.
In April 2019, Integral served on Mr O'Keefe a notice which purported to terminate an alleged residential tenancy agreement between Integral and Mr O'Keefe. In September 2019 Mr O'Keefe did not vacate the Glebe property. Integral brought proceedings in the CTT (which was subsumed into the New South Wales Civil and Administrative Tribunal in December 2013, but for reasons of economy will continue to be referred to as the CTT in these reasons) for Mr O'Keefe's eviction. Based on the documents and evidence before it in January 2020 the CTT found that the relationship between Mr O'Keefe and Integral comprised a "residential tenancy" relationship under the Residential Tenancies Act 2010. Mr O'Keefe, rather than Integral, had paid for all the outgoings over the Glebe property consistent with his belief that he was a beneficial owner. But the CTT characterised these outgoings as "rent" providing it with jurisdiction in 2019 to make the orders for possession of the Glebe property in favour of Integral. On 28 January 2020 the CTT found that it had no jurisdiction to deal with the issues that are now raised in these proceedings and made orders for possession of the Glebe property in favour of Integral and against Mr O'Keefe.
An appeal in respect of the CTT's decision was heard by the Appeal Panel on 5 May 2020: Graham O'Keefe v Integral Corporate Property Pty Ltd [2020] NSWCATAP 76. The Appeal Panel dismissed Mr O'Keefe's appeal. Mr O'Keefe appealed to this Court. The matter came before Fagan J in the Common Law Division, who dismissed Mr O'Keefe's appeal on 5 June 2020: O'Keefe v Integral Corporate Property Pty Ltd [2020] NSWSC 737. Mr O'Keefe was evicted and is now living on the charity of friends.
Mr O'Keefe's evidence is that neither Integral nor Mr Petersen made any contribution to the costs of the purchase or acquisition of the Glebe property or to the outgoings upon the Glebe property from 1977 onwards. And his evidence is that he extensively renovated and improved the property at his own expense. Curiously none of the defendants' extensive affidavit evidence advances objectively verifiable material contradicting Mr O'Keefe's case in this respect, something that is not consistent with a mere tenancy. And at trial, if a trust or a fiduciary relationship as advisor is made out at the time of the settlement of the CTT proceedings in 2013, the transfer of the Glebe property to Integral has all the usual features of self-dealing. An act of self-dealing from which he, Integral, or the other defendants benefited would only ordinarily be excusable if Mr Petersen could show that Mr O'Keefe had received fully informed independent legal advice. There is no suggestion of that so far in the evidence and such a defence is not pleaded. Mr O'Keefe has advanced a coherent body of evidence that raises a serious question to be tried concerning the allegations that he makes and the relief that he seeks.
Mr O'Keefe says that his friendship with Mr Petersen and his wife explains his reliance upon him. That friendship also led to Mr O'Keefe renovating both the Entrance property and the WatersEdge restaurant on the Central Coast, with which Mr Petersen was associated. Mr O'Keefe alleges that Mr Petersen retained him as his interior decorator and project manager and that he worked on both these properties but was never paid for his work or reimbursed for the subcontractors that he had paid on Mr Petersen's behalf. Part of Mr O'Keefe's Amended Statement of Claim also seeks payment for work done and materials provided in relation to these properties for more than $150,000. These claims are additional to the claims for a constructive trust and for an account in relation to the defendants' dealings with the Glebe property.
The defendants do not reveal much of their positive case in their Defence to the Further Amended Statement of Claim. The Defence admits the primary transactions in the Glebe property, and the mortgages over it evidenced in the register. But the defendants will argue that Mr O'Keefe transferred both the legal and beneficial interest in the Glebe property to Mr Stone and subsequently to Integral. Any trust in his favour is denied. But unless the defendants can show, contrary to Mr O'Keefe's evidence, that they, not Mr O'Keefe, paid the outgoings on the Glebe property this may be quite a difficult defence to sustain at final hearing. None of the evidence that they have read on the present applications even suggests that this is the case.
Otherwise the Defence denies the existence of a fiduciary duty, denies involvement in any dishonest scheme to defraud Mr O'Keefe or any breach of fiduciary duty, claims that Integral has indefeasible title to the Glebe property free of any equitable claim by Mr O'Keefe, maintains that Mr O'Keefe was only a tenant in the Glebe property, paid rent that was less than the mortgage payments although it was paid into mortgage account, contends Mr O'Keefe suffered no damage because of his bankruptcy, contends that the Statement of Claim itself contains fraudulent allegations, alleges that Mr O'Keefe's claims against the Glebe the property are unenforceable because they are not recorded in writing; and contends that Mr O'Keefe is not entitled to equitable relief because of his unclean hands due to involvement in a fraud upon his own creditors and creating a trust hidden from the Official Trustee.
The procedural history of the case will be further described when the issues on the two Motions are analysed. These reasons will deal first with the defendants' Motion.
[5]
The Defendants' Motion for Security for Costs
By an Amended Notice of Motion filed on 7 June 2021, the defendants seek orders that Mr O'Keefe provide security for costs of $371,900 in the inherent jurisdiction of the Court. In the alternative the defendants' Motion seeks relief that security in the sum of $100,000 be provided for the costs of the fourth defendant, Cheryl Joanne Thrush. A stay of proceedings is sought if security for costs is not provided.
In support of the application the defendants read the affidavit of Mr Jim Kekatos, the principal director of Kekatos Lawyers, the solicitors for the defendants. He deposes to the charge out rates of himself, an associate, a graduate lawyer and senior and junior counsel for preparation for and representation at a hearing and estimates recoverable professional fees and disbursements of $371,900 should the defendants be successful in the proceedings.
Mr Kekatos also contemplates a costs order scenario where the fourth defendant, Ms Thrush, succeeds and obtains a costs order against Mr O'Keefe and the other defendants fail and have cost orders made against them. He estimates that her separate costs on this basis would be $100,000.
Mr Allen's written submissions propound four reasons for the making of these orders:
"a. The plaintiff is an assignee of the causes of action the primary concern of the proceedings (there is a colourable claim at [sic] that is not dependent upon the assignment which is for an amount well within the jurisdiction of the District Court and for which there is scant evidence in support);
b. The plaintiff paid money to take the assignment;
c. The assignor has an interest in the outcome of the proceedings because the plaintiff is to pay a success fee to the assignor;
d. The plaintiff is a recently discharged bankrupt, not gainfully employed, and admits that he is impecunious to the extent his Counsel has admitted on his behalf, "[s]ince 2000 the Plaintiff has been homeless and living with friends."
Mr O'Keefe's own affidavit evidence is that he is impecunious. His counsel, Ms Cohen, does not contest that he would be unable to meet a costs order of the amount contemplated.
Under Uniform Civil Procedure Rules 2005 ("UCPR"), r 42.21(1)(e), the Court may order security for costs against a non-corporate plaintiff in circumstances where "a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so". But Mr Allen correctly conceded during argument that his application does not come within UCPR, r 42.21(1)(e), or any other sub-rule in UCPR, 42.21. That concession is consistent with the decision of the UK Court of Appeal in Ramsey v Hartley [1977] 2 All ER 673; [1977] 1 WLR 686 ("Ramsey"). In Ramsey, the Court decided that the plaintiff, who had taken an assignment of a cause of action from his trustee in bankruptcy on the basis that he pay 35% of the proceeds of any successful action back to the trustee, was not a 'nominal plaintiff' within the meaning of a similar rule, RSC Ord 23, r 1(1)(b), and therefore he could not be ordered to give security for costs. Mr Allen accepts that Mr O'Keefe is suing largely for his own benefit. Moreover, as an assignee of the Official Trustee, Mr O'Keefe must only pay up to a maximum of $100,000 of the proceeds of action, after payment of his costs, to the Official Trustee.
Rather, Mr Allen submits that security for costs can be awarded in the inherent jurisdiction of the Court against a non-corporate plaintiff and that it should be awarded here. It is well-established that the Court does have a discretion to order security for costs against a natural person in appropriate circumstances: Rajski and Another v Computer Manufacture & Design Pty Ltd and Others [1982] 2 NSWLR 443. The Court is to exercise this discretion in a way that is not arbitrary or capricious: Oshlack v Richmond River Council (1998) 193 CLR 72; (1998) 152 ALR 83; (1998) 72 ALJR 578; [1998] HCA 11.
In written and oral submissions, Mr Allen relied on a decision of James J in Daly v Coffs Harbour Shire Council [2004] NSWSC 215 ("Daly") to support his contention that Mr O'Keefe should be ordered to provide security for costs. He relied on the following passage from Daly:
"[62] The general rule that poverty is no bar to a litigant expressed in Cowell (above) by Lord Justice Bowen, also refers to an exception, that is, an exception introduced in order to prevent abuse, that if an insolvent sues as a nominal plaintiff for the benefit of somebody else, he must give security. Lord Justice Bowen there was referring to cases where a person divested themselves of their interest and handed it over to someone else so that the transferee may sue for them. I see no reason why that proposition should not apply to an impecunious person who acquires the right to litigate on behalf of another and partly on their own behalf." (Emphasis added)
Mr Allen points to the last sentence of this passage. He contends that Mr O'Keefe's impecuniosity, and his position as an assignee of the Official Trustee, means he is a person "who, prima facie, would be good for any adverse costs order" and that this would be enough to enliven the Court's inherent jurisdiction, notwithstanding that Mr O'Keefe was partly suing on his own behalf. Mr Allen further contended in his written submissions that:
"12. The effect of the assignment has been to replace a person who was good for a costs order with someone who is not. In that circumstance, justice indicates that an order for security is warranted.
13. The injustice to the defendants is intensified by the fact that the assignor is to benefit from the litigation, or at least its successful prosecution. The plaintiff is to pay a success fee to the assignor. The plaintiff is suing for his and the assignor's benefit, and the assignor is not immediately exposed to an order for costs. The risk of unsuccessful litigation is fully allocated to the defendants, and this can be considered contrary to justice between the parties.
14. The evidence as to quantum is that of Mr Kekatos. His estimate is some $300,000.00 in rounded down figures. The hearing will take 5 days.
15. In the case of the 3rd and 5th defendants, they ask for less on the basis that there is no award of security for costs in favour of the 1st and 2nd defendants. Their claim is fortified by the fact that no maintainable cause of action is pleaded against them."
Ms Cohen sought to answer this argument. She contends that Daly is not authority directly relevant to Mr O'Keefe's position. She submitted: that Daly had been decided before the introduction of UCPR, r 42.21; that in Daly the assignment was from an impecunious company to a natural person, rather than from the Official Trustee to a natural person, as was the case here; and, that the remarks in Daly are obiter dicta because James J did not order security for costs in those proceedings, as he did not consider the assignment to be a device to avoid liability for costs.
The Court was not referred to, and is unaware of, any subsequent decisions considering James J's statement in Daly. But James J's statement is an expression of what is really an uncontroversial proposition that a defendant does not have to establish that a plaintiff is suing 100% for other persons before the jurisdiction to order security for costs is enlivened. The real question is whether the true plaintiff is shielding itself from an order as to costs.
That is not the case here. Impecunious though he is, Mr O'Keefe is exposed to a potential costs order as the price of advancing a claim which is overwhelmingly for his own benefit. His potential claim can be measured in many ways. But looking, for example, just at the claims for an account ($900,000) and for work done and materials provided ($150,000), a remission of $100,000 to the Official Trustee represents no more than 10% of these claims. Moreover, the Glebe property is still held in the name of Integral. Mr O'Keefe's purpose in these proceedings is to get his home back if he can, an objective in which the Official Trustee has no interest. The circumstances here do not bespeak an intent on the part of the Official Trustee to conduct lucrative litigation whilst avoiding the risk of an adverse costs order. Rather, after Mr O'Keefe has candidly shared information about his own conduct and that of Mr Petersen, during Mr O'Keefe's bankruptcy, the Official Trustee is seeking to recover some limited funds for general creditors; a matter which may go some way towards answering the unclean hands defence proposed to be fielded against Mr O'Keefe.
The Court will not make the security for costs order sought. The defendants have been unsuccessful and should pay the costs of their motion for security.
[6]
The Plaintiff's Motion to Continue the Freezing Orders
By his 13 May 2021 Motion Mr O'Keefe initially sought the reinstatement of the freezing orders I made on 8 January 2021 which were discharged by Parker J on 4 February 2021. But during argument on the Motion, Ms Cohen elected only to pursue the restoration of relief against Mr Petersen. The Motion also sought an extension of the freezing orders to the third, fourth and fifth defendants, K & T, Ms Thrush and Perpetual, who are said to have been involved in dealing in the shares of Integral.
The Motion also sought a restraint upon the defendants doing building work on the Glebe property to change its layout. The defendants made an open offer consenting to this restraint pending hearing.
The procedural background to this Motion is in short compass. Since these proceedings were last before me on 8 January 2021, when as Equity Duty Judge, I made ex parte freezing orders over assets in Integral's and Mr Petersen's possession or control ("the freezing orders") the proceedings have returned to Court twice. The 8 January ex parte freezing orders prohibited Integral and Mr Petersen from removing from Australia or in any way disposing of, dealing with, or diminishing in value any of their assets up to the unencumbered value of $1.2 million. At the same time the Court gave leave to Mr O'Keefe to lodge caveats over Integral's and Mr Petersen's property.
Upon the return of the ex parte orders before Parker J on 4 February his Honour refused to continue the freezing orders. His Honour was satisfied that an asset preservation order pending hearing should be made against Integral and Mr Petersen over the Glebe property but was unpersuaded that the freezing orders against them should be extended. On the evidence available up to that point his Honour characterised the transactions in which Integral and Mr Petersen had been involved as "not fully explained", but as not necessarily indicating a risk of dissipation of assets by those defendants. His Honour made orders as follows:
"…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 [the Glebe Property], except that the first defendant may let the property on ordinary commercial terms for the period up to 31 December 2021."
His Honour's orders did not deal with caveats that Mr O'Keefe had lodged against the Glebe and Entrance properties. Integral and Mr Petersen gave notice to Mr O'Keefe to lapse the caveats. Mr O'Keefe then brought separate proceedings against Integral and Mr Petersen (No. 2021/54306) to continue the caveats ("the caveat proceedings"). Integral and Mr Petersen contended that the caveats were defective in form.
Notwithstanding Parker J's refusal to extend the freezing orders, by a further Motion filed on 5 March 2021, Mr O'Keefe sought that they be reinstated. On 23 March 2021, that Motion settled by consent before Robb J including the issues in the caveat proceedings. The consent orders allowed for: the withdrawal of the existing caveats over the Glebe and the Entrance properties and their replacement with new caveats; the joinder of the caveat proceedings with these proceedings; the dismissal of Mr O'Keefe's Motion of 5 March 2021; and the exclusion from consideration of applications which Integral and Mr Petersen had by then made for security for costs.
Mr O'Keefe's Case on the Motion. Mr O'Keefe's case on the Motion to reinstate the freezing orders and extend them to the three new defendants depends upon a series of share transactions after Parker J refused to extend the freezing orders, on 4 February 2021. Understanding those share transactions starts with a snapshot of the ownership structure of Integral at the time of Parker J's orders.
In early February 2021 Integral was the registered proprietor of both the Glebe property and the Entrance property, which together are estimated to have a market value in excess of $3 million. Mr Petersen, who had been bankrupt between April 2009 and February 2013, beneficially acquired the single issued share in Integral in 2014 and became its sole director. Prior to his appointment, Ms Thrush, who is his de facto partner, had been the sole director of Integral from the time of its incorporation in October 2013. Mr Petersen held this single share until 2019. Australian Securities and Investments Commission ("ASIC") filings on 4 October 2019 record that on 1 July 2019 Mr Petersen transferred legal and beneficial title to that share to K & T, which still holds that share.
K & T has 10 issued shares. Mr Petersen owned them legally and beneficially until 2019. Filings with ASIC on 4 October 2019 disclose a transfer to Ms Thrush on 1 July 2019 of the legal but not the beneficial title to those 10 shares. The disposition, if any, of the beneficial title to these 10 shares in K & T at this time, or whether Mr Petersen retained it, is unclear. Ms Thrush became a director of K & T at the same time. It is unclear whether Mr Petersen received information that commencement of the 2020 proceedings was likely when he made this transfer to Ms Thrush. But his subsequent conduct would be consistent with the drawing of such an inference. This was the shareholding position when Mr O'Keefe commenced the 2020 proceedings.
Many share transactions altering the legal, and possibly the beneficial, ownership of K & T followed the commencement of each of the 2020 proceedings in January 2020 and these proceedings in January 2021. The course of these transactions is best understood cross-referenced to the major steps in the 2020 proceedings and these proceedings.
Indirectly these transactions may possibly have transferred several times the ultimate beneficial interest in K & T, which has not been demonstrated to hold any substantial assets other than its share in Integral. Prima facie, if a beneficial interest in the shares in K & T was transferred in the transactions detailed below, they should probably have attracted ad valorem stamp duty, as Ms Cohen has submitted. There is no evidence of stamp duty having been paid on any of these transactions. Whether stamp duty is payable will probably only become clearer after a final hearing throws more light on these transactions. But if a beneficial interest was not transferred, it is to be wondered what the point of the transactions was at this time.
Moreover, the Court does not have evidence that these shares were transferred in exchange for valuable consideration. In the absence of such evidence from the defendants, who have put on evidence in respect of these and subsequent share transfers, the Court can infer that no valuable consideration was exchanged for any of the share transfers considered in this section of these reasons.
Mr O'Keefe commenced the 2020 proceedings on 29 January 2020. At about that time Ms Thrush transferred her legal (not beneficial) interest in 10 shares in K & T to Tu Me Manques Pty Limited ("TMM") and resigned as a director of K & T. The ASIC records show that the share transfer was notified to ASIC on 1 February 2020, recording a transaction that is said to have taken place on 24 January 2020, before commencement of the 2020 proceedings. The control and role of TMM at that time is unclear on the evidence. Ball J dismissed the 2020 proceedings on 24 February 2020. According to ASIC filings, on 26 February 2020, TMM transferred the legal title to the 10 shares in K & T back to Mr Petersen notifying ASIC of the transaction on 27 February 2020 and notifying ASIC that Mr Petersen now held both the legal and beneficial interest in the shares. Mr Petersen had previously held these shares from 2014 until October 2019. K & T's shares remained in this structure until the commencement of these proceedings.
A compelling inference arises from the timing of these transfers in relation to the events of the 2020 proceedings and their lack of other demonstrable commercial purpose at the time they occurred: that they were designed to make it appear that neither Mr Petersen nor Ms Thrush had any shareholding interest in K & T before the 2020 proceedings were commenced. But once the 2020 proceedings were dismissed, Mr O'Keefe's bankruptcy made re-agitation of those proceedings unlikely, and both the legal and beneficial interests in K & T's issued share capital were returned into Mr Petersen's hands. Mr Petersen's evidence gives no other credible explanation for the timing and sequencing of these transactions.
The commencement of these proceedings on 8 January 2021, once again initiated change in the ownership structure of K & T's share capital. After Parker J's refusal to extend the freezing orders on 4 February 2021, ASIC filings on 22 February 2021 show that Mr Petersen is said to have transferred legal (not beneficial) title to the 10 shares in K & T to Perpetual on 20 December 2020. To whom, if anyone, the beneficial interest in those 10 shares passed at that time is unclear. Why it would take two months to file with ASIC a record of this share transfer is unclear. But this appears to have been a transaction, without other demonstrable commercial purpose, and it is consistent with a scheme to make it appear that Mr Petersen had no shareholding interest in K & T immediately before the commencement of these proceedings.
The defendants read limited evidence on Mr O'Keefe's Motion. In paragraph 35 of Mr Petersen's affidavit of 8 March 2021 he says that he transferred the shares in K & T "because they were worth only one dollar and K & T was no longer trustee of the Integral K & T 2012 Trust" ("the 2012 Trust"). He further says that arrangements for changing the trustee of the 2012 Trust occurred in December 2020, prior to the commencement of the present litigation and was put on hold until the freezing orders lapsed. Material explaining the constitution of the 2012 Trust and its business was not read, and other documents showing the transaction occurred in December 2012 were not produced in support, so it is very difficult to understand the purpose of the transfer to Perpetual, or to give any weight to this explanation.
Focus now shifts to Perpetual. In early February this year all its issued share capital of 100 shares was owned by Eurofund Pty Ltd ("Eurofund"). At that time Mr Arthur Kekatos legally and beneficially owned the 30 issued shares in Eurofund and was its director and secretary. The relationship of Mr Arthur Kekatos to Mr Petersen is unclear. Eurofund's registered address is Kekatos & Partners. For what legitimate commercial purpose on 22 February 2021 he was through Eurofund, given at least legal control of Perpetual, K & T, Integral, and in turn the two residential properties in Glebe and the Entrance, remains unexplained on the defendant's evidence.
After the making of the 23 March 2021 consent orders Eurofund transferred both a legal and beneficial interest in its 100 shares in Perpetual to a Mr Robert Jardine of Mount Lawley, Western Australia. Who Mr Robert Jardine is and what commercial transaction would justify this individual being given legal and beneficial control of Perpetual, and legal control of K & T, Integral, and in turn the two residential properties in Glebe and the Entrance remains unexplained on the defendant's evidence. Mr Jardine did not hold the 100 shares in Perpetual for long. On 11 May 2021 he transferred them both legally and beneficially to Ms Thrush, who was also appointed a director and secretary of Perpetual. She was not then a defendant in these proceedings.
Two days later Mr O'Keefe took out the present 13 May Motion to join her as a defendant. She still held those shares and those positions in Perpetual at the time of the hearing of Mr O'Keefe's Motion. The transfer to Mr Jardine and then to Ms Thrush at the time that they took place are transactions, which in substance and in timing are without demonstrable commercial purpose. It is open to the Court to infer that the real explanation for them was that they were undertaken to remove from Mr Petersen's name any legal or beneficial interest in shares in K & T. The result of these transfers is that Ms Thrush is now the beneficial owner of Integral through her controlling shareholding in Perpetual and its controlling shareholding in K & T.
In written submissions, on the Motion Ms Cohen also put following:
"8. The plaintiff seeks that the Court reinstates the freezing order made by Justice Slattery on 8th January 2021 so that the second defendant is stopped from transferring any further assets out of his own name to make himself judgment proof.
9. The second defendant is a member or controller of numerous corporations and it is difficult and expensive for the plaintiff to have to continue to update company searches of all of the corporations to trace the assets of the second defendant.
10. A number of the corporations are listed at pages 8-14 of the plaintiff's affidavit sworn 15th March 2021. That affidavit lists many transactions with ASIC in relation to corporations in the interest of the second defendant where the information given to ASIC is incorrect or false.
11 There are other problems with the transfer of the shares in K & T Services Pty Limited as this is a transfer of shares in a company that owns land and is effectively a transfer of land and transfers of shares may be subject to ad valorem duty."
Some examples may be given of the incorrect or false information given to ASIC, to which Ms Cohen's submissions refer. Mr O'Keefe's evidence is that from 1977 he remained in occupation of the Glebe property until his eviction in 2020 and that Mr Petersen never explained to him that he was signing any papers that would make him a director of any company or give him a shareholding in any company. But documents filed by or on behalf of Mr Petersen with ASIC have Mr O'Keefe holding 100% of the shares in TMM and residing at an address in Kent Street, Sydney. Similar errors occur with two other companies, Management and ACN 157 811 295 Pty Ltd. In ASIC filings K & T's registered place of business is given as the Glebe property.
The applicable legal principles are not in doubt. Since at least Jackson v Stirling Industries Ltd (1987) 162 CLR 612; (1987) 71 ALR 457; (1987) 61 ALJR 332; (1987) ATPR 40-792; [1987] HCA 23 at 623 the law in Australia has been clear that as a general proposition a freezing order can be granted in circumstances where there is a danger of a defendant relevantly disposing of assets within the jurisdiction, or dealing with them so that there is a danger that a successful plaintiff will not be able to have a judgment satisfied, if judgment is ultimately entered in the plaintiff's favour: see also Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; (1999) 162 ALR 294; [1999] HCA 18. The weight of authority in Australia supports the view that a plaintiff seeking a freezing order does not have to show that the purpose of the defendant's conduct, occurring or apprehended, is to prevent recovery of the amount of any judgment which might be obtained in the plaintiff's action: Parbert v QNI Metals Pty Ltd (2018) 358 ALR 88; (2018) 127 ACSR 582; [2018] QSC 107 at [34].
Evidence in relation to a serious question to be tried can also serve to establish the risk of dissipation of assets: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 ("BTR") a decision of the New South Wales Court of Appeal that has been regularly applied since: see for example: Clayton Utz v Dale (2015) 47 VR 48; [2015] VSCA 186 (Ashley, Tate and Ferguson JJA) at [205].
[7]
Submissions and Analysis
Mr Allen takes a preliminary point on behalf of the defendants in answer to this Motion. He submits, because Mr O'Keefe's earlier Motion filed 5 March 2021 seeking substantially the same orders as the Motion filed 13 May 2021 was settled by consent, that the Court should not now entertain the relief sought by Mr O'Keefe. In written submissions, Mr Allen cites Brimaud v Honeysett Instant Print Pty Ltd (1988) 214 ALR 44 ("Brimaud"), in which McClelland J stated:
"Interlocutory orders, of their very nature, created no res judicata or estoppel, and the court retains jurisdiction to set aside, vary or discharge an interlocutory order up to the time of the final disposition of the proceedings. However, the general rationale of the principles last referred to applies even in the case of interlocutory orders. It would be conducive to great injustice and enormous waste of judicial time and resources if there were no limit on the power of a party to have any interlocutory application or order relitigated at will…
In the present case I am dealing with an interlocutory order of a substantive nature made after a contested hearing in contemplation that it would operate until the final disposition of the proceedings…"
Mr Allen submits that this matter falls within the principle in Brimaud: it being an interlocutory order of a substantive nature made after a contested hearing, albeit that that contest settled on 23 March.
Mr Allen drew the Court's attention to Williams J's recent judgment in Overdean Developments Pty Ltd v Garslev Holdings Pty Ltd (No 2) [2020] NSWSC 745. In that matter, her Honour conveniently stated the law that there are at least two occasions upon which consent orders could be set aside or varied: (1) "on the same basis on which the Court could set aside the underlying agreement of the parties (for example, for misrepresentation or non-disclosure of a material fact where disclosure was required)", or (2) "on the basis of the overriding interests of justice, although the fact that the order was the subject of an agreement between the parties will be a relevant consideration when determining what the interests of justice require in all the circumstances of the case". Mr Allen contends that neither situation applies here and that the Court should not vary the consent orders made on 23 March.
Moreover, Mr Allen submits that the form of order sought here is one which should not be made as the freezing orders are too wide because an order restricting the defendants dealing with all their assets will leave them, particularly Mr Petersen and Ms Thrush, reliant on the charity of others: Frigo v Culhaci [1998] NSWCA 88.
Ms Cohen ultimately did not seek freezing orders against Integral. It is already the subject of orders preventing it dealing with the Glebe property or the Entrance property. She confined her claim to Mr Petersen, Ms Thrush, Perpetual and K & T.
As to Mr Petersen, but for Mr Allen's preliminary point there would in my view be a strong case for making freezing orders against him. This could be justified on several grounds. On BTR principles, the principal case against him indicating there is a serious question to be tried, indicates itself dealings involving alleged dishonesty that themselves indicate a risk of dissipation of assets. Moreover, the complexity and the lack of explanation of the various opaque transactions since the commencement of the 2020 proceedings in these proceedings confirm Mr Petersen is a person who presents a risk of dissipation of assets before judgment.
But Brimaud stands in the way of granting a freezing order here against Mr Petersen. Almost all the facts upon which Ms Cohen on behalf of Mr O'Keefe relies to propound a freezing order against Mr Petersen were either in evidence on the application to be heard on 23 March 2021 or were available as at that date through inquiries of ASIC. The only truly fresh evidence are the events that occurred after 23 March. They are limited, being the transfer of the 100 shares in Perpetual from Eurofund to Mr Jardine to Ms Thrush. Namely the transfer of the 100 issued shares to Ms Thrush. And these are not events that, on their face at least, involve Mr Petersen. And he did not file the ASIC documentation in relation to these transactions. Brimaud should be applied here. To do otherwise would invite further rounds of interlocutory applications to the disadvantage of all these parties.
As to the other three defendants, they are not caught by Brimaud. They were not parties to these proceedings when the 23 March 2021 orders were made. The primary facts do not implicate Ms Thrush, as all the conversations with Mr O'Keefe took place with Mr Petersen. But as the detailed history above shows all these defendants have all been involved in some movement of the legal or beneficial ownership of shares in Integral. For example, Ms Thrush disposed of her shares in K & T at the time that the 2020 proceedings were commenced and is now holding shares in Perpetual. And the corporate history of K & T and Perpetual indicate control by combination of Mr Petersen or Ms Thrush in unexplained and probably uncommercial transactions that deal with the legal or beneficial ownership of Integral.
Injunctive relief should be granted against these three defendants to restrain them from dealing with any shareholding interests in Integral or in one another. But a fundamental principle of the grant of injunctive relief is that it must be in support of identifiable final relief: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; (2001) 185 ALR 1; (2001) 76 ALJR 1; (2001) 22(19) Leg Rep 11; (2001) 54 IPR 161; (2001) Aust Torts Reports 81-627; [2001] HCA 63.
Here the evidence adduced by Mr O'Keefe suggests a basis for various possible forms of final relief against them, but the exact relief is less than clear. The third, fourth and fifth defendants have contended, through Mr Allen, that paragraphs 44A - to 44H of the Further Amended Statement of Claim do not clearly disclose a cause of action against them. After pleading many of the facts concerning them that are recorded in this judgment, the Further Amended Statement of Claim seeks a declaration that Integral holds the Glebe property on trust for Mr O'Keefe and seeks orders for its transfer to him. The Further Amended Statement of Claim claims relief against these three defendants that they "do all things necessary to give effect to these orders". The plaintiff's evidence, as analysed above, rather suggests that the plaintiffs may have a case for the declaration of a constructive trust under the first limb of Barnes v Addy (1874) LR 9 Ch App 244; (1874) 43 LJ Ch 513; (1874) 30 LT 4; (1874) 22 WR 505, of knowing receipt of trust property with actual or constructive knowledge that it was obtained by Integral in breach of trust or fiduciary duty. Mr Petersen has sufficient control of some of the defendants and proximity to Ms Thrush that they may well be affected by his knowledge as the alleged principal actor in the alleged defrauding of Mr O'Keefe. There may be other causes of action that should be clearly pleaded. An opportunity for this will be allowed.
But the Court will not grant general freezing orders against them. The present lack of clarity in the precise form of final relief to be sought against them weighs against such wide-ranging interlocutory relief belief being given. But because causes of action can be identified from the evidence, the defendants should nevertheless be restrained from dealing with all the various securities at issue in these proceedings until final hearing, or from dealing with any legal or equitable interest in the Glebe property or the Entrance property. It should be noted that this is not a freezing order but is restraint against assets against which the plaintiff has a claim for final relief. The defendants would not therefore ordinarily have recourse to these assets to pay legal fees or other personal expenses before final hearing.
Mr O'Keefe has been partly successful on this Motion but not wholly successful, nor successful against all defendants. The appropriate order in the circumstances is that each party bear its own costs of this Motion.
[8]
Other Matters
Mr O'Keefe has established that there is some prospect of the defendants undertaking work on the Glebe property. The defendants are prepared to consent to an injunction restraining them from undertaking renovation or restoration work to the property. The defendants made an open offer to give 14 days' notice of the commencement of such work. Although that is an appropriate structure to protect Mr O'Keefe's interests in preserving the value of the Glebe property, 14 days is insufficient, and the Court will allow 28 days.
The issues argued on these Motions prompt early consideration of matters that will make the conduct of these proceedings more efficient, and potentially bring them to a conclusion more rapidly with less overall cost of the parties.
The argument before the Court shows that the plaintiff has an imperfect understanding of the complex transactions in which the defendants have been involved. And it shows that the defendants strongly seek to challenge Mr O'Keefe's account of his complex dealings with Mr Petersen. These circumstances are sufficiently exceptional to displace the operation of Practice Note SC Eq 11 and the interests of justice in promoting an expeditious hearing make this an apt case for both parties to have an early return date for subpoenas and notices to produce. The directions below provide for such a date.
These proceedings may be appropriate for mediation. But the Court has not heard the parties on this question. Under Civil Procedure Act 2005, s 26 the Court can order a mediation, whether all parties consent to that course. But the Court would be assisted in deciding whether such a course will be cost-effective and should be ordered at this time, to hear briefly from the parties whether they wish for a mediation to take place.
Liberty to apply will be granted if the precise form of these orders needs to be adjusted or if any other issue arises in their implementation.
[9]
Conclusion and Orders
For these reasons and upon the plaintiffs by their counsel (now reverting to the plural form to describe the plaintiffs for the purposes of formal orders) giving the usual undertakings to damages, the Court makes the following orders and directions:
1. dismiss the defendants' Amended Notice of Motion seeking security for costs, which was originally filed on 4 February 2021;
2. order that the defendants pay the plaintiffs' costs of the Motion referred to in (1);
3. direct that the plaintiffs' undertakings as to damages, signed by the solicitor for the plaintiffs shall be provided in writing to my Associate by 10.00am tomorrow, 28 September 2021;
4. the defendants by their servants or agents are restrained until further order from undertaking any building, construction or renovation works at the Glebe property (which is identified in the Further Amended Statement of Claim in these proceedings), which are likely to change the layout of the living areas in the property, or which will destroy existing fixtures or fittings in the property, without first giving 28 days' notice to the plaintiff;
5. the third, fourth and fifth defendants by their servants and agents are restrained until further order from transferring, encumbering, disposing of or otherwise dealing with any shares or shareholding interest in any other corporate defendant in these proceedings, or in any legal or beneficial interest in the Glebe property or the Entrance property (as identified in the Further Amended Statement of Claim in these proceedings);
6. the plaintiffs and the defendants shall each bear their own costs of the plaintiff's Motion dated 13 May 2021;
7. appoint 9am on Wednesday, 13 October 2021 before the Registrar in Equity for the return of subpoenas or notices to produce;
8. list these proceedings in the Equity Division Expedition List for further directions on Friday, 15 October 2021;
9. grant leave to the plaintiffs to further amend the allegations against the third, fourth and fifth defendants made in paragraphs 44A to 44H of the Amended Statement of Claim in these proceedings;
10. direct the parties by Friday, 1 October 2021 to indicate in writing to my Associate whether or not they consent to the making of an order for mediation in these proceedings; and
11. grant liberty to apply in relation to the adjustment or implementation of these orders.
[10]
Amendments
27 September 2021 - Coversheet amended
28 September 2021 - Coversheet - cases updated
[22], [23], [24], [36] - spelling of name corrected
[75] line 9 - further citations added
06 October 2021 - Order (10) - "with" corrected to "whether or"
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Decision last updated: 06 October 2021