On 25 February 2020, three notices of motion were listed for hearing before me. The motions all pertain to principal proceedings brought by companies associated with Paul Aalders ("P Aalders") against his brother Adrian Aalders ("A Alders") and his associated company. These estranged brothers were formerly business partners who had an acrimonious split in 2009/2010. Proceedings were initially commenced in the Equity Division of this Court on 2 February 2010. Those proceedings were settled on 15 July 2010.
On 5 December 2018, the plaintiffs (three companies associated with P Aalders) commenced the current proceedings alleging breaches of the 2010 settlement agreement. To the extent it is relevant, it would appear that they did so on or close to the last day available under the Limitation Act 1969 (NSW) for bringing such proceedings. The plaintiffs assert that the defendants breached various terms of the settlement agreement including making unauthorised representations, breaching the term entitling the plaintiffs to be indemnified from any liability (including the liability for legal costs) arising out of unauthorised representations, failing to execute an agreement embodying the indemnity term and breaching the undertaking terms.
The first statement of claim filed on 5 December 2018 was struck out. An amended statement of claim was filed on 5 April 2019. On 24 February 2020, the plaintiffs filed a further amended statement of claim with the consent of the defendants. This further amended statement of claim is 76 pages long.
It would appear that there have been interlocutory skirmishes at every step of these proceedings.
The three notices of motion before me concerned the following issues:
1. The plaintiffs' notice of motion filed on 11 September 2019 sought a number of orders including a freezing order (the freezing order motion);
2. The defendants' notice of motion filed on 4 October 2019 sought payment into Court by the plaintiffs of security for costs in the amount of $75,000 pursuant to the Uniform Civil Procedure Rules NSW (2005) ("UCPR") Pt 42, r 21(1) [sic r 42.1] and s 1335 of the Corporations Act 2001 (NSW) (the security for costs motion).
3. The defendants' notice of motion filed on 18 February 2020 sought a review of the decision made by the Registrar on 17 February 2020 refusing to set aside a notice to produce and a subpoena issued by the plaintiffs (the review motion).
[4]
The hearing of the three motions on 25 February 2020
The court file noted that the only motions before me were the freezing order motion and the security for costs motion. At the commencement of the hearing before me, the parties requested that I also consider the review motion which had only been filed the week beforehand. It was submitted that the outcome of that motion would have relevance for the freezing order motion. I agreed to hear the review motion first. After doing so, I indicated that I proposed to allow the review and deliver my reasons later. My reasons for allowing the review and striking out the notice to produce and the subpoena commence at [53] below.
After I made my ruling in relation to the review motion, counsel for the plaintiffs, Mr Knackstredt, sought an adjournment on the basis that he had assumed the defendants would be unsuccessful in their review and he needed an adjournment to consider his position in relation to the freezing order application. He indicated that he would not be available again until late March 2020. An adjournment was vehemently opposed by counsel for the defendants. Given that this issue arose at 12.30pm it was agreed that I would take any early lunch adjournment and resume court at 2pm in order for plaintiffs' counsel to obtain instructions.
When court resumed after 2pm, Mr Knackstredt handed up draft consent orders in relation to the remaining two motions. During the ensuing exchanges between Mr Knackstredt and the Court, the defendants' counsel leapt to his feet to exclaim that the consent orders did not in fact represent the true state of affairs. After a brief skirmish, both counsel put before the court the emails that had been exchanged during the lunch agreement to establish which of them was correct on this issue.
During the ensuing arguments as to which orders were by consent and which were not, it became clear that the four remaining issues in dispute were:
1. The framing of the consent order regarding security for costs;
2. Whether the freezing order motion could be dismissed "by consent";
3. Whether the defendant's costs of the abandoned freezing order motion should be paid on an indemnity basis forthwith in the amount of $48,000;
4. Whether the costs of the review motion should be paid on an indemnity basis or forthwith
After making brief submissions, both counsel sought leave to provide supplementary written submissions in relation to the appropriate costs orders. I ordered that the defendants do so on or before 3 March 2020 and the plaintiffs on or before 10 March 2020. Both the defendants' and the plaintiffs' written submissions were filed by 10 March 2020 and the plaintiffs filed further submission on costs on 11 March 2020. I reserved my decision at that time.
[5]
Background to three notices of motion
As stated above, the Aalders brothers settled litigation between them in 2010.
On 19 July 2018, A Aalders emailed his solicitor and advised that he and his wife wished to sell a property they owned at North Rocks (the "Panaview" property). On 27 October 2019, the Panaview property passed in at auction. On 31 October 2019, A Aalders emailed his solicitor and indicated that he and his wife might sell another property in North Rocks instead. Emails produced by the defendants' solicitor confirm the fact and timing of these email exchanges.
The present proceedings were commenced a few months later, on 5 December 2018.
On 6 February 2019, the defendants filed a notice of motion seeking security for costs. P Aalders is not a plaintiff in the proceedings; his three companies are and they do not own any assets in the jurisdiction.
Following this letter, on 10 February 2019, the plaintiffs' solicitor wrote to the defendants' solicitor raising the potential issue of a freezing order.
On 21 February 2019, A Aalders informed his solicitor that he and his wife would be selling a different property in North Rocks ("the property"). On 18 March 2019, the property was advertised and listed for sale.
On 11 April 2019, the plaintiffs' solicitor wrote to the defendants' solicitor in relation to the motion seeking security for costs. He indicated that without any admissions the plaintiffs would be prepared to pay security for costs fixed in the sum of "$50,000 for the proceedings, to be paid on a staggered basis". This was less than had been sought. The following day the defendants' solicitor agreed to this but noted the following as to why senior counsel was required:
"… Your clients are litigating a number of different claims with discrete factual matrixes arising out of historical matters which occurred 15 years or more ago."
On 12 April 2019, the plaintiffs' solicitor wrote to the defendants' solicitor and after referring to the recent advertisements for sale of the property, requested an undertaking not to sell the property.
On 16 April 2019, A Aalders and his wife accepted an offer on the property. Contracts were exchanged two days later. On the same day, the defendants' solicitor wrote to the plaintiffs' solicitor indicating that the requested undertaking would not be given. Also, on that same day, an email was sent by the defendants' solicitor to the plaintiffs' solicitor advising that their anticipated costs of the proceedings would be $150,392.
[6]
The third Notice of Motion: UCPR r 49.19 review
The plaintiffs relied on the affidavits of Danielle Francis dated 11 September 2019 with exhibit "DF-2" and 20 December 2019 with exhibit "DF-4" and the affidavit of Paul Anthony Aalders dated 21 October 2019 with exhibit "PA-2". The defendants relied on the affidavits of Fiona Ta'akimoeaka dated 3 October 2019, 28 November 2019 and 23 December 2019.
[7]
The decision of the Registrar
The Registrar noted the basis of the dispute at [1]-[2]
At [3] of her Reasons the Registrar noted that on the plaintiffs' evidence the freezing order notice was filed after:
"a. contradictory statements were made by the defendants as to the circumstances under which the first defendant came to sell one of his properties located at 24 Cambridge Avenue, North Rocks, NSW (the North Rocks property); and
b. the defendants refused to provide consensual undertaking to the plaintiffs to restrain from dealing with their properties."
At [12] she noted that the defendants' relied upon:
"a. Affidavits of Fiona Ta'akimoeaka sworn on 3 October, 28 November and 23 December 2019; and
b. various paragraphs of and annexures to the Affidavit of the plaintiffs' solicitor, Danielle Francis, sworn on 11 September 2019."
At [13] she noted the evidence relied upon by the plaintiffs as:
"a. the Affidavits of Danielle Francis, sworn on 11 September 2019; and
b. the Affidavit of Paul Anthony Aalders, sworn on 21 October 2019."
At [17] she stated that:
"Notices to Produce and Subpoenas may be issued in support of any interlocutory application. The plaintiffs have in these proceedings issued the Notice and the Subpoena in support of their freezing order Notice and in order to test the circumstances of the sale of the North Rock property, which the plaintiffs submit may establish that there is a real risk that there will be dissipation or further dissipation of assets and thereby a 'frustration or inhibition of the court's process' in accordance with Rule 25.11(1) of the Uniform Civil Procedure Rules 2005 (NSW)(UCPR)." [emphasis in original.]
At [20]-[22] the Registrar stated:
"It seems to me that in view of the circumstances which purportedly gave rise to the filing of the freezing order notice as outlined at paragraph 3 of this judgment, the documents sought in the Notice and the Subpoena may well shed light on whether there is a real risk that there will be a dissipation or further dissipation of assets which will be a matter directly relevant to the freezing order Notice."
"Whilst the defendants have relied on the decision of Suzhou Haishun Investment Management Co Ltd v Yue'e Zhao (Ruling No 2) [2018] VSC 144 as authority for the proposition that subpoenas should not be used as a mechanism to avoid the requirements of satisfying an ancillary order, I do not consider that decision to be relevant to the circumstances of these proceedings. The Notice and the Subpoena seek production of documents in response to the circumstances of the sale of the North Rocks property and regarding the percentage of ownership of other properties, which are matters directed to satisfying the requirements of Rule 25.11(1) of the UCPR and, I consider, do not seek to elicit information relating to the defendants' asset position such as is sought in the freezing order Notice."
"…I accept the plaintiffs' submissions that noting that the circumstances of the sale of the North Rocks property are critical to the determination of whether there is a real risk that there will be dissipation or further dissipation of assets, the plaintiffs are entitled to test the veracity of the evidence of Ms Ta'akimoeaka, who, whilst a solicitor, should be treated no differently from any other witness (see Bale v Mills (2011) 81 NSWLR 498 at 106)."
[8]
The defendant's submissions identifying error
At the hearing, counsel for the defendants provided a document setting out the alleged errors affecting the Registrar's Reasons as follows.
First, it was submitted that [12] and [13] of the Reasons disclose a failure to consider all of the evidence by reason of failing to have regard to the affidavit of Danielle Francis dated 20 December 2019 which was read and relied on by the defendants in their written and oral submissions. The relevance of the 20 December 2019 affidavit is that it confirms the purpose for the plaintiffs' notice to produce/subpoena was to find out about the defendants' assets.
Second, the Registrar's statement at [17] of the Reasons is contrary to [6] and [11] of Ms Francis' 20 December 2019 affidavit. The Registrar was satisfied that the plaintiffs' notice to produce and the subpoena were not solely about the defendants' asset position. This was rebutted by the 20 December 2019 affidavit which the Registrar did not have regard to. At [6] and [11] of that affidavit Ms Frances deposes that "the asset position is in issue by reason of the Plaintiffs' Motion". Further, when the Registrar held that the defendants' assets were not the fact in issue but there was a risk of their dissipation, this was an error as it was based on bare allegations of contrary statements not supported by evidence or by identification of what those contradictory statements were.
Similarly, it was submitted that at [20] the Registrar accepted the plaintiffs' evidence identified in 3 and (b) but that this was contrary to the plaintiffs' own evidence. Paragraph 3 was based on the plaintiffs' assertions that the statements in relation to the sale of the property were contradictory without identifying the contradictions, whereas the plaintiffs' motivation was a refusal to give an undertaking (as per the affidavit of Danielle Francis dated 11 September 2019 at 3 and [37]). It was submitted that there is an error of law in accepting that a refusal to give an undertaking in 3 is a proper basis for seeking freezing orders.
It was also submitted that there was an error of law in that the Registrar should have followed the only authority on the point in circumstances where the documents, by plaintiffs' admission, were sought to determine the defendants' asset position: Suzhou Haishun Investment Management Co Ltd v Yue'e Zhao (Ruling No 2) [2018] VSC 144.
[9]
Plaintiffs' submissions
Counsel for the plaintiffs submitted that the notice to produce and the subpoena were issued to test the assertions made in the affidavit of Fiona Ta'akimoeaka dated 3 October 2019 that was filed in opposition to the application for a freezing order and that the question of onus in relation to an application for a freezing order is different from an evidence gathering process.
It was submitted that the question to be answered is not one of onus but whether there is a legitimate forensic purpose for the document and that it is permitted to issue a notice to produce in aid of an application for a freezing order. Counsel for the plaintiffs could not take the Court to any authorities that would support the proposition that an application for a notice to produce could be issued subsequent to the application for a freezing order in order to obtain information to support it.
It was further submitted that the plaintiffs have not made an allegation of fraud in relation to the evidence of Ms Ta'akimoeaka; they simply wanted to test her evidence about the emails she said she sent.
[10]
Consideration: Review motion
UCPR r 49.19 provides:
49.19 Review of registrar's directions, certificates, orders, decisions and other acts
(1) Subject to subrule (2), if in any proceedings a registrar gives a direction or certificate, makes an order or decision or does any other act, the court may, on application by any party, review the direction, certificate, order, decision or other act and make such order, by way of confirmation, variation, discharge or otherwise, as the court thinks fit.
…
The nature of such a review is well settled. In Tomko v Plasty (No 2) (2007) 71 NSWLR 61; [2007] NSWCA 369, Basten JA commented at [46]:
"…a "review" of the decision of the registrar pursuant to r 49.19 is not an appeal means that principles of restraint expressly adopted in relation to appeals do not, in terms, apply: c.f. Wentworth v Wentworth at [41] above. Further, the requirement to demonstrate error, which is an essential part of the appellate process, is also not applicable: see Coal & Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194 at [14] and CDJ v VAJ (1998) 197 CLR 172 at [111]. To introduce those constraints as applicable in the case of a procedure identified expressly as a "review" would be to impose constraints inconsistent with the language of the rule."
The question before the Registrar was whether the notice to produce and or subpoena should be set aside on the basis that they disclose no legitimate forensic purposes and/or were an abuse of process.
In assessing the question of legitimate forensic purpose it is necessary to have regard to what the plaintiffs had to establish in order to be successful in its application for a freezing order over the defendants' assets. The court has power to make a freezing order under UCPR r 25.14. The test is well settled. It was stated this way in Frigo v Culhaci (Court of Appeal (NSW), 17 July 1998, unreported):
"A plaintiff must establish, by evidence and not assertion, that there is a real danger that, by reason of the defendant absconding or removing assets out of the jurisdiction or disposing of assets within the jurisdiction, the plaintiff will not be able to have the judgment satisfied if successful in the proceedings. There has been much debate as to the precise degree of risk which must be known. What is clear is that mere assertions that the defendant is likely to put assets beyond the plaintiffs reach will not be enough."
[11]
The remaining two motions
As stated above, draft consent orders in these terms were handed up to me at 2pm on the day of the hearings:
"By consent and without admissions, the Court orders that:
"1. The Plaintiffs are to pay security for the Defendants' costs of the whole of the proceedings by way of payment into Court in the sum of $50,000 on or before 25 March 2020.
2. The Plaintiffs' notice of motion filed 11 September 2019 be otherwise dismissed.
3. The Defendants' notice of motion filed 4 October 2019 be otherwise dismissed.
4. The parties' costs of the notices of motion referred to in orders 2 and 3 above be the parties' costs in the cause.
5. The proceedings be listed for directions on 10 March 2020."
Despite the fact that the plaintiffs agreed to pay a further $50,000 as security for costs in addition to the $50,000 already paid, the defendant's counsel Mr Horobin took issue with the wording of the proposed "consent" order 1. He objected to the words "the Defendants' costs of the whole of the proceedings" in the order. He submitted that it would preclude the defendants from seeking additional costs if they escalated beyond $100,000.
Mr Horobin also objected to the phrase "by consent and without admissions" forming the preamble to the order dismissing the plaintiffs' motion of 11 September. He submitted that the notice had not been withdrawn "by consent and without admissions" and that a matter cannot be dismissed "by consent and without admissions". He proposed two separate orders, each dealing with the respective notices. Finally, he submitted that the costs for the freezing order motion should be payable on an indemnity basis because there were several additional orders sought in that motion that were withdrawn. He then submitted that the parties should file written submissions as to costs, contrary to what was set out in the consent orders.
In reply, Mr Knackstredt, for the plaintiffs, submitted that there was no need to delete the words "the whole of the proceedings" in relation to order 1 of the consent orders. He submitted that this was unnecessary given that, unless a party is precluded from seeking further security, they can return to court to obtain further security for costs. Furthermore, he submitted that order 1 contained these words because the amount specified had been provided by the defendants' based upon her assessment of what the costs would be for the whole of the proceedings. In relation to the costs issues, he submitted that it was not appropriate to make costs orders of motions which haven't been argued. However, he indicated that he was amenable to reserving the issue of costs for more detailed written submissions.
[12]
Subsequent written submissions
In written submissions, counsel for the defendants re-iterated the events of the hearing of 25 February 2020. He submitted that he had not, in fact, consented to the orders, as the terms of the orders differed from the terms proposed by counsel for the plaintiffs in an email sent during the luncheon adjournment.
Counsel for the defendants further submitted that the plaintiffs wished to use this email as evidence that there had been "no hearing on the merits" and therefore that no award should be made as to costs (see McHugh J in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6). However, he sought to take advantage of the exception identified in Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 where "one party, after litigating for some time, effectively surrenders to the other".
The defendants' written submissions then canvassed each of the orders sought in the freezing orders motion. They noted that the plaintiffs no longer required further particulars (order 1) as of 25 February 2020, as two weeks beforehand the plaintiffs indicated that they no longer needed this order. The second order was to set aside the defendants' categories of discovery but the defendants had advised that they would not seek to press disclosure of the documents.
In relation to the third order, the plaintiffs indicated in their submissions of 7 February that this order was not pressed. The fourth order, being a freezing order, was then no longer pressed after the luncheon adjournment on 25 February 2020.
The defendants then submitted that, on the basis of these events, the plaintiffs should pay costs on an indemnity basis. Mr Horobin provided three bases for this. First, he argued that "the plaintiffs were apparently mistaken as to what the law required in making out an application for a freezing order". The second basis was that the plaintiffs adduced evidence in which it was alleged that Ms Ta'akimoeaka, the solicitor for the defendants, had sought to "mislead" Mr Paul Aalders. The third reason was that the plaintiffs asked continuously for undertakings regarding the disposition of assets or a detailed disclosure of the plaintiffs' assets. Finally, the defendants submitted that such costs should be payable forthwith, relying on Fiduciary Ltd & Anor v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432. This was because 11 September 2019 represents the determination of a separately identifiable issue distinct from the substantive proceedings.
[13]
Consideration
I will first deal briefly with the wording of the order by which the plaintiffs agreed to pay a further $50,000 as security for costs. In any litigation where security for costs has been provided it will usually be open to a party seeking further security to make application to increase the relevant amount if it can be established that the costs have blown out. It will be a matter of evidence whether further security should be provided on the facts of each case. Contrary to the defendant's submission, the inclusion of the words "of the proceedings" in the security for costs order does not preclude a further approach being made to the court in this regard.
As for whether the freezing order motion was withdrawn or dismissed, it is clear that after the plaintiffs were unable to obtain further documents sought in the notice to produce that I set aside, a forensic decision was made not to pursue that motion as the high test required could not be met. The court was not advised that the freezing order motion would not be pressed until after 2pm on the day it was listed. It was too late to withdraw it and I dismissed it.
I turn next to the various costs arguments. Such orders are in the discretion of the court. Section 98(1)(b) of the Civil Procedure Act 2005 (NSW) provides that the court has "full power to determine by whom, to whom and to what extent costs are to be paid". This discretion is subject to the qualification that it "must be exercised judicially in accordance with established principle and factors directly connected with the litigation": Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [65], per McHugh J.
Among the fetters on the discretion to award costs are the rules of the court contained in Part 42 of the UCPR.
Dealing first with the freezing order motion, the usual rule is that costs follow the event, unless it appears to the court that some other order should be made: UCPR, r 42.1. The freezing order was dismissed. The plaintiffs lost. They would usually be required to pay the defendants' costs.
The plaintiffs submit that they should not be required to pay the defendants' costs of the dismissed freezing order motion as there was no hearing on the merits of the motion. Reliance was placed on the decision of McHugh J in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin in support of that proposition. I am not satisfied that those principles are applicable to an interlocutory skirmish such as the dismissed freezing order motion as opposed to final settlement of the proceedings. The present proceedings were not settled but even if they were, as Darke J observed in Luo v Carbone [2019] NSWSC 830 at [44], the principle in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin is not without exception. His Honour noted:
"...the proper exercise of this discretion in circumstances where proceedings have settled will often be that there be no order as to costs, but it may be otherwise if it can be shown that "one of the parties has acted so unreasonably" in bringing the proceedings or defending the proceedings up until the time of settlement that "the other party should obtain the costs of the action" (Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-5; ………….. This enquiry is one that must take into account the parties' conduct throughout the whole course of the proceedings (Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274 at [67])."
[14]
ORDERS
Further to the orders I made on 25 February 2020, I make the following orders
1. The plaintiffs' notice of motion filed on 11 September 2019 is dismissed.
2. The plaintiffs are to pay the defendants' costs of the 11 September 2019 notice of motion on the ordinary basis forthwith.
3. The defendants' notice of motion filed on 4 October 2019 be granted and by consent and without admissions the plaintiffs are to pay security for the defendants' costs of the proceedings by way of payment into Court in the sum of $50,000 on or before 30 April 2020.
4. The defendants' notice of motion filed on 4 October 2019 is otherwise dismissed.
5. The parties' costs of the 4 October 2019 notice of motion be the costs in the cause.
6. The costs order made on 25 February 2019 is varied as follows. The plaintiffs are to pay the defendants' costs of the 18 February 2020 motion on the ordinary basis forthwith.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 01 April 2020
On 14 May 2019, the plaintiffs' solicitor sent a further letter to the defendants' solicitor seeking further information regarding the defendants' financial position and seeking responses to various questions.
On 24 May 2019, the defendants' solicitor wrote to the plaintiffs' solicitor stating that the "first defendant retains assets the value of which would satisfy an adverse costs order in these proceedings" [emphasis added].
On 10 July 2019, the sale of the property was settled.
On 16 July 2019, the defendants' solicitor wrote to the plaintiffs' solicitor correcting an error in the letter of 24 May 2019 and advising that the reference to an adverse "costs" order should have been to an adverse "judgment".
On 11 September 2019, the plaintiffs filed a motion seeking, inter alia, a freezing order over the defendants' property.
On 3 October 2019, the defendants' solicitor disclosed to the plaintiffs the interests held by the defendants as follows:
"1. XX is a car space owned 90% by the first defendant's son; 5% by the first defendant's wife and 5% by the first defendant.
2. XX is an apartment owned in the same proportions as the car space above.
3. XX is owned by the first defendant and his wife as joint tenants. The property is estimated to be worth $1.4 M and they have a mortgage of $485K.
4. XX is a property owned by the first defendant's daughter as to 90%, 5% by the first defendant and 5% by the first defendant's wife.
5. XX was sold by Paul Aalders and his wife in 2008. See paragraph 46 above.
6. XX was a home owned by the defendant's son. It was sold in about October 2018."
On 14 October 2019, a property search was undertaken by P Aalders which led him to conclude that the maximum equity in these properties is $463,500. This is disputed by the defendants.
On 21 October 2019, the plaintiffs filed a notice to produce on the defendants and on 11 December 2019 a subpoena was served on the first defendant's wife Donna Alders. The schedule of the notice to produce sought production of the following documents:
"1. In this Schedule:
A. The word "document" has the same meaning as in the Evidence Act 1995 (Cth);
B. The word "include" and its derivatives are not terms of limitation;
C. The following definitions are used:
Adrian means Adrian Emile Francois Aalders;
Alders Finance means Alders Finance Pty Limited ABN 69 065 675 318 and includes its servants, agents or employees;
Affidavit means the Affidavit of Fiona Ta'akimoeaka sworn on 3 October 2019;
Defendants means Adrian and Alders Finance;
Property means XX Avenue, XX;
Financial Records include:
(i) Balance sheets;
(ii) Profit and loss statements;
(iii) Income tax returns;
(iv) Business activity statements;
(v) Income tax assessments;
(vi) Statements of assets and liabilities; and
(vii) Statements of cashflow.
2. A copy of all valuations for the Property prepared in 2018 or 2019.
3. A copy of all contract or contracts for the sale of the Property in 2018 and 2019 as deposed to in the Affidavit.
4. A copy of all agreements entered into with:
(a) a real estate agent; or
(b) online provider;
to sell the Property in 2018 or 2019.
5. A copy of all online listings or advertisements for the sale of the Property in 2018 or 2019.
6. A copy of the settlement adjustment and statement sheet in respect of settlement of the sale of the Property deposed to in the Affidavit.
7. A copy of all directions to pay for the sale of the Property deposed to in the Affidavit.
8. A copy of any loan agreements or mortgages between you and all financiers recording the terms of finance over the Property.
9. A copy of any document received from a financier containing a payout figure to discharge any mortgage over the Property prior to completion of the sale as deposed to in paragraph 34 of the Afft.
10. A copy of a document recording the current amount held by you, if any, from the proceeds of sale of the Property in 2019 as deposed to in the Affidavit.
11. A copy of certificate of title searches for the following properties:
(a) XX known as XX Street, XX;
(b) XX known as XX Street, XX;
(c) XX known as XX Crescent, XX;
(d) XX known as XX Place, XX;
(e) XX known as XX Street, XX;
collectively referred to as the "Assets".
12. A copy of all agreements recording your percentage of ownership of the Assets as deposed to in paragraph 45 of the Affidavit.
13. Any trust deed recording ownership information of the Assets.
14. A copy of all appraisals or valuations for the Assets in 2019.
15. A copy of all documents recording encumbrances over the Assets in 2019.
16. A copy of documents recording Financial Records for the Defendants as at:
(a) Year end 30 June 2018;
(b) Year end 30 June 2019; and
(c) Quarter end 30 September 2019.
17. All documents which record statements issued by, all and any, financial institutions to the defendants in the period commencing 5 December 2018 to date.
18. The original ".pst" file in respect of the email addresses containing the following emails received and/or sent by the Defendants:
(a) The email from Adrian to Cordato Partners sent on 19 July 2018, being the document referred to in paragraph 29 of the Affidavit, annexed and marked annexiure [sic] "B" to the Affidavit;
(b) The email from Adrian to Cordato Partners sent on 31 October 2018, being the document referred to in paragraph 31 of the Affidavit, annexed and marked "C" to the Affidavit;
(c) The email from Adrian to Cordato Partners sent at 4.22pm on 21 February 2019, being the document referred to in paragraph 32 of the Affidavit, annexed and marked "D" to the Affidavit;
(d) The email from Sally Wade to Adrian sent at 4.27pm on 21 February 2019, being the document referred to in paragraph 32 of the Affidavit, annexed and marked "D" to the Affidavit;
(e) The email from Adrian to Cordato Partners sent at 4.33pm on 21 February 2019, being the document referred to in paragraph 32 of the Affidavit, annexed and marked annexure "D" to the Affidavit."
The deletions at [15]-[17] were made on behalf of the plaintiffs at the hearing before the Registrar, as it was conceded they were not relevant to the freezing motion.
The schedule to the subpoena sought production of the following documents:
"1. In this Schedule:
A. The word "document" has the same meaning as in the Evidence Act 1995 (Cth);
B. The word "include" and its derivatives are not terms of limitation;
C. The following definitions are used:
Adrian means Adrian Emile Francois Aalders aka Adrian Alders; Properties means any one of the following:
(a) XX known as XX Street, XX;
(b) XX known as XX Street, XX;
(c) XX known as XX Crescent, XX;
(d) XX known as XX Place, XX;
(e) XX known as XX Street, XX; and
(f) XX Avenue, XX.
Bank Account means all bank accounts, mortgage accounts, credit card accounts, and debit card accounts held by you jointly with Adrian or in your own right;
Financial Records include:
(i) Bank account statements; and
(ii) Income tax returns, including all schedules to the returns; and
(iii) Income tax notices of assessment issued by the Australian Taxation Office.
2. A copy of any certificate of title or title search for the Properties.
3. A copy of any contracts for the sale or purchase of the Properties.
4. A copy of any agreements recording your percentage of ownership of the Properties.
5. For each of the Properties, a copy of any:
(a) trust deed; or
(b) superannuation fund deed,
recording ownership, of the Properties, as part of any trust or superannuation fund.
6. A copy of all valuations for the Properties prepared in either 2018 or 2019.
7. A copy of all documents recording encumbrances over the properties in 2018 or 2019.
8. A copy of all tenancy agreements for the Properties entered into in either 2018 or 2019.
9. A copy of all agreements entered into with:
(a) a real estate agent; or
(b) online provider;
to sell any one or more of the Properties in either 2018 or 2019.
10. A copy of all online listings or advertisements for the sale of the Properties in either 2018 or 2019.
11. A copy of all settlement adjustments or statement sheets in respect of the sale of any of the Properties.
12. A copy of all directions to pay for the sale of the Properties.
13. A copy of all loan agreements or mortgagees between you and all financiers recording the terms of finance over the Properties.
14. A copy of any document received from a financier containing a payout figure to discharge any mortgage over the Properties prior to completion of the sale.
15. A copy of a document recording the current amount held by you, from the proceeds of the sale of any of the Properties in 2018 and 2019.
16. A copy of your Financial Records as at:
- (a) Year end 30 June 2018;
(b) Year end 30 June 2019; and
(c) Quarter end 30 September 2019."
Again, the deletions at [16] were made on behalf of the plaintiffs at the hearing before the Registrar, as it was conceded they were not relevant to the freezing motion.
On 14 November 2019 and 19 December 2019, the defendants filed notices of motion seeking to set aside the notice to produce and the subpoena respectively on the basis that there was no material relevance of the documents sought to any fact in issue in relation to both the primary proceedings and the freezing order notice and they were an abuse of process. The basis for the claim that they were an abuse of process was that production would exceed the relief sought in the freezing notice that was yet to be heard and that the request for production of the "pst" file implicitly alleges the lack of authenticity of the emails that were sent by the defendants' solicitor.
On 17 February 2019, these motions were heard by Registrar Jones who dismissed them and granted leave to the parties to restore the matter within 14 days to make submissions as to costs of the motions in absence of which the defendants were to pay the plaintiffs' costs of the motions.
As stated above, on 18 February 2019, the defendants filed a motion seeking a review of the Registrar's orders 1, 2 and 3 made on 17 February 2020 pursuant to r 49.19 of the UCPR and costs on an indemnity basis. My reasons for allowing that review are as follows.
The defendants submitted that the plaintiffs' central argument was that the defendants would not be able to satisfy a judgment but that is not the relevant test: the relevant test is whether there is a real fear that the first defendant is taking active steps to frustrate a judgment in the future.
Finally, it was submitted that the Registrar's consideration that the circumstances of the sale of the property were not in issue (at [22]) was contrary to the affidavit of Fiona Ta'akimoeaka dated 3 October 2019 at [28] to [35] and [28] and annexure "F" of her affidavit dated 28 November 2019. This issue was not raised in the affidavits of Danielle Francis dated 11 September 2019 and Paul Aalders dated 21 October 2019. The Registrar should have followed the decision of the Supreme Court of Victoria and set aside the notice to produce and the subpoena because they sought ancillary orders for the disclosure of assets that are subject of a freezing order application that had not been determined as yet. It was submitted that the plaintiffs could make such applications only upon successful determination of their freezing order application and that the asset position of the defendants was not a fact in issue and irrelevant. Further, there was no evidence to suggest that there is some conflict in the evidence about it. It was submitted that the plaintiffs needed to obtain the documents in order to justify their application for a freezing order.
As for the contention that the orders sought were an abuse of process, it was submitted that they were sought after the filing of a notice of motion seeking a freezing order over the defendants' assets and that, in essence, reverses the onus. It was further submitted that the affidavits in support of the freezing order do not provide support for any allegation that there is a controversy in relation to the sale of the property that was explained in the affidavit of the defendants' solicitor, Fiona Ta'akimoeaka, dated 3 October 2019 and in the correspondence annexed to it. It was submitted that the allegation of fabrication of emails by the defendants' solicitor made in P Aalders 21 October 2019 affidavit and repeated in the affidavit of Danielle Frances dated 20 December 2019 is a live issue between the parties given that the notice to produce seeks the production of the metadata of those emails to test the evidence. No basis for the allegation was identified.
As for the subpoena to the first defendant's wife, who is not a party to the proceedings, it was similarly submitted that it seeks the same kinds of documents as the notice to produce and was issued after the defendants put on a notice of motion to set the notice to produce aside.
In Patterson v BTR Engineering (Aust) (1989) 18 NSWLR 319 at 327, Meagher JA held that "the plaintiff is required to prove, on a balance of probabilities, there is a real risk of the dissipation of assets".
Thus, the plaintiffs had to establish that if no order was made, there is a real risk that the defendants will either abscond or remove their assets out of the jurisdiction or dissipate them altogether. The test is not whether the defendants have sufficient assets to satisfy the judgment is unsuccessful. The documents sought by the plaintiffs pertained to proceeds of the sale of the property (settlement adjustment and statement sheet, directions to pay, loan agreements, mortgages and payout figures prior to completion) and financial documents about their other properties. In effect, the documents all sought information as to the defendants' asset position.
At the time that the motion seeking a freezing order was sought, the plaintiffs were aware that the defendants had advertised a property for sale in early 2019 and sold it but they also had documents from the defendants' solicitor showing that the decision to sell a property had been made before the plaintiffs commenced the proceedings against them. The plaintiffs conceded during the hearing before me that the defendants had no notice at all of the proceedings before they were served with the statement of claim in late December 2018. Other material available to the plaintiffs showed that the defendants had publicly listed the sale and provided the plaintiffs with documentation about the sale. There was no secrecy about the sale. What the defendants had not done, however, is agree to the plaintiffs' request to provide an undertaking not to sell the property (before they did) or sell anything else or to provide the plaintiffs with details as to what they had done with the proceeds of the sale.
The documents show that at the time that the freezing order was sought it was based on the refusal by the defendants to provide the undertakings. After the application was made (and after the defendants had provided details of their financial position), P Aalders swore an affidavit stating, inter alia:
"I am very concerned that the representation made by Ms Ta'akimoeaka [in her 24 May 2019 letter] was made to mislead the Plaintiffs to believe that the sale of the [property] was of no concern to the plaintiffs. I am of the view that the defendants made this representation to delay any application for freezing orders made by the Plaintiffs so that the sale of the property could be finalised."
The other complaints in the affidavit all concern the defendants' failure to disclose information to the plaintiffs about their asset position. Similarly, Ms Francis' 11 September 2019 affidavit contains complaints about the defendants' not providing her with information about their assets and the failure to provide the undertaking as requested. As for her 20 December 2019 affidavit (which the Registrar did not refer to) she noted (at [6]) that the defendants have not explained why they will not produce information about their asset position. She then states (at [7]) that the defendants' asset position is "greatly different" to what was previously asserted. At [11] she states that "the asset position is in issue by reason of the Plaintiffs' motion" and the defendants' evidence.
Thus, the plaintiffs' evidence before the Registrar, taken at its highest, was that the freezing order was sought based on the fact that the defendants would not undertake not to do certain things in relation to their property. After the application was filed and the defendants disclosed their current asset position, P Aalders investigated the material provided by the defendants' solicitor and formed the opinion that the defendants' assets would not be sufficient to satisfy an adverse judgment.
The Registrar stated at [3] of her Reasons that the freezing order was sought on the basis of "contradictory statements" made by the defendants "as to the circumstances under which the first defendant came to sell [the property]" and the failure to provide certain undertakings". There was no enunciation in the Reasons of what those contradictory statements were. Having read the plaintiffs' affidavits closely it seems to me that the only possible contradictory statements could be the fact that on 24 May 2019 Ms Ta'akimoeaka stated that the "first defendant retains assets the value of which would satisfy an adverse costs order in these proceedings" whereas in her 16 July 2019 letter she corrected this error advising that it should have said adverse "judgment" rather than adverse "costs" order. But these are not contradictory statements about the circumstances in which the property was sold (as stated by the Registrar at 3(a); rather they concern the defendants' assets which is not the relevant test for a freezing order.
A second possible inconsistency could be that P Aalders does not accept that the assets listed in the 3 October 2019 letter would in fact meet an adverse judgment. Again, it is not clear to me how this could be a "contradictory statement" about the circumstances in which the property was sold.
Although I am not required to find error in the decision of the Registrar, I was satisfied that error is disclosed in relation to the findings on whether there was a legitimate forensic reason for the notice to produce and the subpoena.
As for the question of onus reversal, the defendants submitted that the plaintiffs are seeking information to meet the relevant test after seeking the order. I do not accept this to be precluded as a principle of general application. For example, if a person overheard a conversation suggesting that someone with control of their funds might have stolen them it would be open to seek a freezing order pending commencement of proceedings based on that hearsay evidence and then seek the production of documents to prove it before the final order. I am not satisfied that it would reverse the onus to seek production of material in such circumstances to support a freezing order. But that is not this case. This freezing order was initially sought because the defendants would not provide certain undertakings to them. As Harrison J observed in Lake v Crawford (No 2) [2010] NSWSC 419:
"To adopt the plaintiff's contention that the unanswered request for assurances and undertakings gives rise to an adverse inference against the defendants upon the basis of which this Court should act would be blatantly and inappropriately to reverse the onus of proof. The plaintiff's evidence has not reached the stage that requires the defendants to do anything more in an evidentiary sense than to remain silent. That is what they have done."
The defendants' failure to cooperate with the plaintiffs' requests that an undertaking be provided or to advise of the whereabouts of the proceeds of the sale of the property is not positive evidence in the plaintiffs' case to establish that there is a risk of dissipation.
It was common ground that the Registrar did not refer to the 20 December 2019 affidavit of Ms Francis in her Reasons. It is not to the point to suggest, as the plaintiffs did, that just because she did not refer to it does not mean that she did not have regard to it. Not only is it not listed in the Reasons as forming part of the evidence before her, the fact that she made findings different to it without explanation is an additional basis to infer that no regard was had to it, possibly inadvertently.
As for those parts of the notice to produce that sought metadata from Ms Ta'akimoeaka's computer about the emails (confirming there had been an intention to sell property before the proceedings were commenced), I am not satisfied that there was a legitimate forensic reason for seeking that material either. When I raised the forensic purpose of this request during the hearing, Mr Knackstredt provided the same explanation as he did before the Registrar: "the plaintiffs assert that there was no veiled allegation of fraud against the first defendant and Ms Ta'akimoeaka, but simply that the plaintiffs are entitled to test the veracity of the evidence and that as a solicitor, Ms Ta'akimoeaka is not immune from the forensic powers of the court".
The Registrar later stated at [22] of her decision that a solicitor should be treated no differently from any other witness. In doing so she relied upon the decision in Bale v Mills (2011) 81 NSWLR 498; [2011] NSWCA 226. That decision is authority for the proposition that solicitors are not entitled to be placed in some "special or protected position" because of their profession. So much is to be accepted but that does not derogate from the fact that an allegation about a solicitor's character or credibility, including as is the present case, an allegation that a solicitor had created false emails, has to be proved to a high degree of satisfaction in accordance with the principles outlined by Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362; [1938] HCA 3.
It is not apparent to me how seeking the metadata from a solicitor's computer to check whether false emails have been sent is "testing" her evidence as opposed to impliedly suggesting the emails are false. If the metadata was sought to establish that Ms Ta'akimoeaka and the first defendant had fabricated their emails then that might be relevant but there was no basis to make such an allegation. If, on the other hand, the metadata was not sought for that reason then there was no legitimate forensic reason for seeking it. The plaintiffs would be perfectly entitled to "test" her evidence in cross examination.
Finally, as for the defendants' complaint concerning the decision in Suzhou Haishun Investment Management Co Ltd v Yue'e Zhao (Ruling No 2), I did not consider it necessary to consider that decision in order to dispose of this review. That decision was determined on its facts and I was not able to extract the statement of principle from it that the defendants relied upon at the time I made my decision on 25 February 2020.
It was for these reasons I allowed the review and made the orders set out below at [111].
In further written submissions dated 10 March 2020 the defendants sought a variation of the costs order in relation to the successful review of the Registrar's decision. Costs were sought on an indemnity basis or to be paid forthwith. Two reasons were advanced in support of that application.
The first one was that both the notice to produce and the subpoena were abuses of process; they were issued in order to ascertain the asset position of the first defendant and were issued after the filing of the freezing order application to address the inadequate evidence in support of a freezing order.
The second argument was that the plaintiffs' characterisation of the information provided by the defendants' solicitor as "contradictory" and "made to mislead" as their justification for the notice and the subpoena was unfounded, it was contrary to the facts known to the plaintiffs and their legal representatives in relation to the sale of the property and that no sensible explanation was offered as to why the emails were refused to be accepted at face value.
Reliance was placed on the factors identified by Shephard J in Colgate-Palmolive v Cussons (1993) 46 FCR 225; [1993] FCA 801 in relation to the court's discretion in favour of the indemnity costs order.
The defendants submitted that in the event that their indemnity costs application was unsuccessful they would seek that the costs of the motion be paid forthwith in exception to r 42.7 of the UCPR. Reliance was placed on the principles identified in Fiduciary Ltd & Anor v Morningstar Research Pty Ltd (2002) 55 NSWLR 1. The defendant's motion determined a distinct issue from the substantive proceedings, the plaintiffs' conduct was such that it warrants costs to be paid before the conclusion of the substantive proceedings and that the conclusion of the matter is "a long time away" given the plaintiffs' recent filing of a further amended statement of claim.
In reply, the plaintiffs submitted that the defendants' application for the costs of the freezing order motion was misconceived. This was because the majority of hearing time on 25 February 2020 was taken up with the determination of the defendants' motion to set aside the Registrar's decision on the subpoena issues. Secondly, the motion of 11 September 2019 was never heard on the merits. In relation to order 1, the plaintiffs submitted that it was unnecessary to pursue the application for further and better particulars given the filing of a further amended statement of claim and that this was confirmed in correspondence.
In relation to order 2, the plaintiffs submitted that it was appropriate to include this relief in the motion when it was filed, and appropriate not to press it once the defendants capitulated on 31 October 2019.
In relation to order 3, the plaintiffs submitted that the defendants did not communicate that they had no further documents to discover in response to all of the plaintiffs' categories of discovery until 27 September 2019.
Finally, in relation to the fourth order, the plaintiffs submitted that this freezing order application was predicated on the assumption that additional material would be produced pursuant to the notice to produce and the subpoena. When it became evident on 25 February 2020 that these documents would not be produced then the plaintiffs chose not to press the order. Therefore, the plaintiffs submitted, their conduct was not unreasonable and the usual rule stated in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin should be adhered to. Further, the plaintiffs submitted that "[w]hilst an argument is therefore available that there has been a measure of success on both sides, it would be costly and likely impossible to separately quantify the costs of the various applications with any accuracy."
In further written submissions dated 11 March 2020, Mr Knackstredt submitted that there was no basis for an indemnity costs order arising from the review of the Registrar's order. This was because the review motion was dealt with extremely expeditiously and the notice to produce and the subpoena were not hopeless or infected with unreasonableness. This was evidenced by the fact that the Registrar upheld the notice and the subpoena. Third, there was no improper purpose and fourth, the notice was based on information about transactions disclosed by the defendants. It was submitted that it was therefore not improper for the plaintiffs to seek new information about these transactions.
I have also had regard to the plaintiffs' submission that the majority of hearing time on 25 February 2020 was taken up with the determination of the defendants' motion to set aside the Registrar's decision. That does not deny the fact that the freezing order motion was dismissed and the plaintiffs lost that motion.
I have had regard to the fact that the freezing order motion initially sought additional orders that were ultimately not pressed (in relation to further and better particulars and discovery). The reasons the other orders were no longer sought was said to be that the defendants had consented to the filing of a further amended statement of claim, the defendants had agreed not to press for the notified categories of discovery and the defendants had informed the plaintiffs that they had no documents to discover. Although the defendants were informed that these orders were not pressed before the hearing, the defendants' written submissions still addressed those orders and the freezing order motion did require preparation. The defendants were required to file written submissions and come to court for the hearing of the motion. Their costs should be paid.
The plaintiffs have not persuaded me that there should be a departure from the usual rule that costs follow the event. The plaintiffs are to pay the defendants costs of the freezing order motion.
The defendants also seek that their costs be paid on an indemnity basis whereby "all costs are to be allowed": UCPR r 42.5. It is well settled that indemnity costs are not made to punish an unsuccessful party for persisting with a case that fails. Rather, such an order is made to compensate a successful party for costs incurred in certain circumstances. Such circumstances include when litigation has been conducted unreasonably or in bad faith. In Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; [1988] FCA 364, Woodward J explained that where an action is commenced or continued in circumstances where "the applicant, properly advised, should have known that he had no chance of success" then:
"…the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law."
Similarly, in Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCA 424 at [20]; [2002] FCAFC 97 it was held that indemnity costs can be ordered when the court takes the view that it was unreasonable for a party to have subjected the other party to the expenditure. More recently in Insurance Australia Ltd v Dent [2019] NSWCA 134 Gleeson JA (at [51]) and McCallum JA (at [53]) described the relevant conduct required to ground an order for indemnity costs as "delinquency or unreasonableness on the part of the party".
The defendants submit that the proceedings were unreasonable on three bases: the plaintiffs must have been mistaken as to what the law required in making out an application for a freezing order; they alleged that the defendants solicitor had sought to "mislead" P Aalders and they repeatedly made requests for undertakings regarding the disposition of assets or a detailed disclosure of the plaintiff's assets.
I have had regard to these submissions. They largely go to the merits of the freezing order which was dismissed. There was also a factual overlap between the freezing order motion and the review motion. I am not satisfied that there was delinquency or unreasonableness on the part of the plaintiffs in not proceeding with the freezing order motion on the day of the hearing after being unsuccessful in the review motion. I have already ordered them to pay the costs of the motion that was not proceeded with. I do not propose to order that those costs be paid on an indemnity basis.
The defendants further seek that the freezing order motion costs be payable to them forthwith. UCPR 42.7(2) provides that unless the court orders otherwise costs do not become payable until the conclusion of the proceedings. I am asked to make a specific order otherwise.
In Fiduciary Ltd v Morningstar Research Pty Ltd [2002] NSWSC 432; 55 NSWLR 1 Barrett J identified three circumstances in which costs might be ordered to be paid forthwith. Those matters are: when the interlocutory decision represents "the determination of a separately identifiable matter or may be viewed as the completion of a discrete aspect" of the case (at [11]); when some conduct of the unsuccessful party may be seen as being unreasonable (at [12]); and when "there is still some considerable distance to go in the litigation so that it may be appropriate that the successful party obtain the fruits of its costs order now" (at [13]). The defendants rely on all three of these factors as pertinent in this matter.
I am satisfied that the freezing order motion concerned a discrete matter which is now completed and, based on my brief involvement in this matter, I am satisfied that the conclusion of these proceedings is still some way off given the time spent on interlocutory skirmishes thus far. For these reasons, I am satisfied that the costs should be paid forthwith.
Finally, I turn to consider whether the plaintiffs should pay the defendants' costs of the review motion on an indemnity basis or forthwith. The plaintiffs were successful before the Registrar. They were unsuccessful before me. The arguments made by the defendants as to why the plaintiffs should pay their costs on an indemnity basis fail to have regard to the plaintiffs' success before the Registrar and repeat the arguments for having the Registrar's orders set aside. The plaintiffs were the unsuccessful respondents in the review motion. I am not satisfied that they should be ordered to pay indemnity costs in those circumstances.
As for whether the costs of the review motion should be ordered to be paid forthwith I am satisfied that they should for the same reasons as I set about above at [107]-[108]. That is, they finalised a separate issue and the final hearing appears to be some time off.