Plaintiff v Defendants

2 The application was made in a proceeding commenced on 21 July 2011 in which the plaintiff claimed nearly $3.7 million as a result of a shortfall (less a credit for the deposit) on the resale by it of a property at Officer ("the Officer property"). Portbury had rescinded a December 2008 contract of sale of the Officer property on 14 April 2011 and re-sold that property on 29 June 2011, with settlement taking place on 30 August 2011. It was alleged that the first defendant, Ottedin Investments Pty Ltd ("Ottedin"), was the initial purchaser under the contract of sale; the second defendant, Goldcare Developments Pty Ltd ("Goldcare"), was the substituted purchaser; and that the third defendant, Peter Ottewell, and the fourth defendant, George Kosta, were guarantors.

3 A summary judgment application by Portbury was heard on 14 December 2011 by Gardiner AsJ. Leave was given to the plaintiff to file written submissions in reply by 25 January 2012. His Honour's decision is now reserved.

4 There had been an earlier proceeding concerning the Officer property in which Ottedin sought a declaration that it was entitled to have its deposit repaid to it. Ottedin claimed that because the contract of sale was a terms contract within the meaning of the new definition in s 29A of the Sale of Land Act 1962 it had the right to terminate the contract of sale. Portbury successfully brought an application for summary judgment.[1] Dixon J dismissed Ottedin's proceeding and ordered that its caveat lodged in support of the claim for the return of the deposit be removed. His Honour also ordered that Ottedin pay Portbury's costs of the proceeding.

5 There are now harmonised court rules, which apply in all superior courts in Australia, concerning the circumstances in which the court may exercise its inherent power to make a freezing order.[2] Order 37A of the Supreme Court (General Civil Procedure) Rules 2005 ("the Rules") applies to applications in this Court for a freezing order.

6 Rule 37A.02 relevantly provides:

37A.02 Freezing order

(1) The Court may make an order (a freezing order), upon or without notice to the respondent, for the purpose of preventing the frustration or inhibition of the Court's process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.

(2) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.

...

(4) In making a freezing order or an ancillary order, the Court shall have regard to the practice note concerning freezing orders.

7 Rule 37A.05(4) specifies circumstances in which the Court may make a freezing order or an ancillary order against a defendant or judgment debtor. It provides:

37A.05 Order against judgment debtor or prospective judgment debtor or third party

...

(4) The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because any of the following might occur -

(a) the judgment debtor, prospective judgment debtor or another person absconds; or

(b) the assets of the judgment debtor, prospective judgment debtor or another person are -

(i) removed from Australia or from a place inside or outside Australia; or

(ii) disposed of, dealt with or diminished in value.

8 The legal principles concerning applications for freezing orders were summarised by J Forrest J in Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd.[3] I respectfully adopt what his Honour said:

First, that a freezing order, by its very nature, is a drastic remedy and a court must exercise a high degree of caution before taking a step which will interfere with a party's capacity to deal with his or her assets.[4]

Second, the order is not designed to provide security for the applicant's claim.[5] It is solely directed to preserving assets from being dissipated, thereby frustrating the court process.[6]

Third, the applicant bears the onus both in satisfying the Court that the order should be continued and in satisfying the Court as to the amount which is to be the subject of the order.

Fourth, that an order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no substitute for either the facts or inferences properly drawn from proved facts.[7]

Fifth, that before such an order can be made it is necessary that the applicant establish -

(a) an arguable case against the defendant[8]; and

(b) that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendant's actions in either removing the assets or disposing or dealing with them so as to diminish their value.[9]

Sixth, the balance of convenience must favour the granting of the freezing order.[10]

Seventh, that there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case.[11]

Eighth, the applicant must establish with some precision the value of prospective judgment. The order should not unnecessarily tie up a party's assets and property.[12]

Finally, there may be discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court.[13]

9 The summons for the freezing order was supported by an affidavit sworn by the plaintiff's solicitor, Mark Schofield, a director of Nicholas O'Donohue & Co on 2 March 2012. Mr Schofield said in his affidavit that in a letter dated 25 January 2012 to the defendants' solicitors he requested undertakings by the defendants that they would not "dispose of, encumber, dissipate or deal with" the property identified in the letter before satisfying in full any liability to his client. In an email from the defendants' solicitors dated 16 February 2012, it was indicated that no such undertakings would be given. As a result of various types of searches, the following information concerning the defendants was set out in Mr Schofield's affidavit.

10 Ottedin owns no real estate in Victoria. It has issued only one $1 share, to Mr Ottewell. It has registered charges in favour of Sandhurst Trustees Ltd ("Sandhurst") and Kettering Nominees Pty Ltd ("Kettering").

11 Goldcare owns no real estate in Victoria. It has issued twenty $1 shares, ten each to Mr Kosta and Mr Ottewell. It has a registered charge in favour of Kettering.

12 Mr Ottewell is registered as the owner of one of four equal undivided shares in a property at 223 Booran Road, Caulfield South ("the Caulfield South property"). There is a mortgage over the property to the Westpac Banking Corporation ("Westpac") registered in February 2009 at the same time as the owners were registered on title. Mr Ottewell is registered as a shareholder in nine other companies.

13 Mr Kosta is registered as the owner of three properties in Victoria. He is registered as the joint owner with Lillian Merle Kosta, deceased, of a property at 18 The Close, Beaumaris ("the Beaumaris property") and a property at 27 Leonard Street, Tootgarook ("the Tootgarook property"). He is also registered on Certificate of Title Volume 8727 Folio 565 as the joint proprietor with Lillian Merle Kosta, deceased, of one of two equal undivided shares of the third property, the address of which was unknown ("the address unknown property"). There are mortgages to the Australia and New Zealand Banking Group Ltd ("ANZ"), registered in March 1973, over both of the first two properties. Mr Kosta is registered as a shareholder in twelve other companies.

14 Various searches in respect of the companies in which one or both of Mr Ottewell and Mr Kosta were shareholders revealed the following. Goldcare Kyneton Pty Ltd ("Kyneton") is, and has been since September 2008, the registered proprietor of a property at 5 Ripplebrook Road, Kyneton ("the Kyneton property"), which is encumbered by mortgages entered into in September 2008 with Westpac and Kettering. There is also a September 2008 registered charge over Kyneton in favour of Westpac. The Kyneton property is being advertised for sale at a price of $3.5 million. Mr Ottewell and Mr Kosta each own two of the eight issued shares. They are two of the three current directors of Kyneton. Mrs Kosta owned another two shares and was a fourth director.

15 Gold Pharmaceuticals Pty Ltd ("Pharmaceuticals") is, and has been since May 2008, the registered proprietor of 22 properties at 27 Jefferson Road, Garfield ("the Garfield property"), which are all encumbered by mortgages to CL Asset Holdings Ltd ("CLA") and Sandhurst. There are also registered charges over Pharmaceuticals in favour of CLA and Sandhurst. The securities in favour of CLA were registered in August 2011, the mortgages to Sandhurst in September 2005 and the charges to Sandhurst in July 2009. The Garfield property is a retirement village and the individual lots are for sale at prices starting at $279,000. Mr Ottewell owns 60 of the 120 issued shares in Pharmaceuticals and is one of two directors of that company.

16 Goldcare Eco Villages Pty Ltd ("GEV") is, and has been since August 2011, the registered proprietor of a property at 100 Toomuc Valley Road, Pakenham ("the Pakenham property"). There is an August 2009 caveat over the Pakenham property in favour of Kettering and an October 2010 caveat in favour of SPI Electricity Pty Ltd. There is a fixed charge over GEV in favour of Toyota Finance Australia Ltd ("Toyota") registered in September 2011. The Pakenham property is a retirement village and homes in the retirement village are for sale for between $399,000 and $435,000. Mr Ottewell owns six of the 24 issued shares, Mr Kosta owns twelve of the shares and his late wife owned the remaining six shares. Mr Ottewell and Mr Kosta are both directors of GEV. Mrs Kosta was the third director.

17 Pakenham Commercial Pty Ltd ("PAC") is, and has been since January 2009, the registered proprietor of a property at 82 Toomuc Valley Road, Pakenham ("the second Pakenham property"). There is a September 2008 mortgage over the property in favour of Raydon Nominees Pty Ltd ("Raydon"). The second Pakenham property is being advertised for sale at a price of $630,000. Mr Ottewell and Mr Kosta each own six of the 24 issued shares. They are two of the three current directors of PAC. Mrs Kosta owned another six shares and was a fourth director.

18 Goldcare Drouin Pty Ltd, a company in which Mr Ottewell owns 60 of the 200 issued shares, owns real estate but no evidence was found that the property was for sale.

19 GK Nominees Pty Ltd, a company in which Mr Kosta and his late wife own one share each, owns real estate but no evidence was found that the property was for sale.

20 Uncia Pty Ltd ("Uncia"), a company in which Mr Kosta and his late wife own one share each, owns real estate but no evidence was found that the property was for sale. Uncia has the following charges over it - a March 2006 fixed charge to the ANZ, three fixed charges to Morgan Stanley Smith Barney Australia Pty Ltd the last of which was in September 2007, and a September 2005 fixed and floating charge to Leveraged Equities Limited, which is a margin lender.

21 The plaintiff's summons was returnable in the Practice Court on 6 March 2012. Whelan J adjourned the application for a week to enable the defendants to file affidavit material. Without admitting the plaintiff's entitlement to any of the orders sought in the summons, the defendants undertook not to dispose of, deal with or diminish the value of their interests in any of the Beaumaris property, the Tootgarook property, the address unknown property and the Caulfield South property until 4.00 pm on 13 March 2012, the return date.

22 The defendants relied on an affidavit affirmed on information and belief on 9 March 2012 by their solicitor, Leonard Warren, a member of the firm Russell Kennedy. Mr Warren's affidavit revealed the following further information about the assets of the defendants.

23 Ottedin's only asset was the chose in action represented by its counterclaim in this proceeding.

24 Goldcare is the trustee of the Goldcare Developments Unit Trust, which was established for the purchase of the Officer property. Goldcare's only asset was the chose in action represented by its counterclaim in this proceeding.

25 Mr Ottewell has "no real property in Victoria or elsewhere registered in his name" save for the one quarter undivided share in the Caulfield South property. Mr Ottewell estimated the value of that property at $1.1 million, but the debt to the mortgagee Westpac is approximately $899,000. Mr Ottewell said that he owes one quarter of the deposit of $130,000 to the owner of another one quarter undivided share and that:

until he pays his share of the deposit, he does not claim a beneficial interest in the property as he has not contributed to the purchase price or any subsequent mortgage repayments or expenses.

26 Mr Ottewell agreed that he owns shares in the companies referred to in Mr Schofield's affidavit, but except for Ottedin and Pharmaceuticals "those companies own no assets in their own right".

27 Mr Kosta was currently in the process of making survivorship applications in respect of the registered interest of his wife, who died in January 2012, in the Beaumaris and Tootgarook properties. Mr Kosta estimated the value of the Beaumaris property to be approximately $1 million and the value of the Tootgarook property to be approximately $500,000. The debt to the mortgagee ANZ is approximately $630,000. Mr Kosta said that the address unknown property was sold about 40 years ago.

28 Mr Kosta agreed that he owns shares in the companies referred to in Mr Schofield's affidavit, but "those companies own no assets in their own right".

29 Kyneton is the trustee of the Goldcare Kyneton Unit Trust and "does not own any assets in its own right". The Goldcare Kyneton Unit Trust owns no assets apart from the Kyneton property. The debt to the mortgagee Westpac is approximately $443,000. The debt to the mortgagee Kettering (entered into in its capacity as trustee of the Coral Unit Trust) is approximately $3.64 million. The Kyneton property is being sold because a permit to construct a retirement village on the land was refused by the Victorian Civil and Administrative Tribunal ("VCAT") on 29 March 2011. It was valued in July 2011 at $2.19 million. The best offer received to date was approximately $2.7 million. The property is being marketed and sold "in the ordinary course of business" and not "to frustrate or defeat any prospective judgment creditors". Expenses may be incurred in obtaining a town planning permit to sub-divide the property into 84 lots, but those expenses will be incurred in the ordinary course of business.

30 Pharmaceuticals holds the Garfield property on behalf of the Kinsmen Gold Joint Venture, 20% of which is owned by Pharmaceuticals and 80% by an unrelated entity, Kinsmen Development Fund. Pharmaceuticals was registered as the owner of the Garfield property in about 2004 and it was the stage 2 division which was registered in May 2008. The Garfield property currently consists of 37 units, 15 of which have been sold to persons over 55 years of age. Selling of units commenced in about 2006. The last sale was about 18 months ago. The remaining 22 units are presently for sale for between $275,000 and $295,000. Twenty of these 22 units are currently rented to persons over 55 years of age. There is also a clubhouse worth approximately $750,000. The debt to the first mortgagee CLA is approximately $1.32 million. CLA paid out the earlier first mortgagee. The debt to the second mortgagee Sandhurst is approximately $6.7 million. Mr Ottewell estimated that currently there was negative net equity in the Garfield property. The units are being marketed and sold or rented "in the ordinary course of business" and not "to frustrate or defeat any prospective judgment creditors".

31 GEV is the trustee of the Goldcare Eco Villages Unit Trust and "owns no assets in its own right". The Goldcare Eco Villages Unit Trust owns only the Pakenham property, of which it became the registered owner in September 2008, and a community bus worth approximately $58,000. The bus is the subject of the charge in favour of Toyota. A balance of approximately $20,000 is due in about five years. The Pakenham property currently consists of approximately 28 units, 17 of which have been licensed to persons over the age of 55 years with a further four units subject to contract. Licences first became available for acquisition in about 2010. The net purchase price of the Pakenham property was approximately $7.76 million. Approximately $4.2 million has been spent on infrastructure. Road, sewerage, drainage, water and electricity have been installed for the first 98 houses and two slabs constructed for 48 apartments. The SPI caveat relates to an electrical sub-station easement. A December 2011 valuation estimated the current value of the retirement village at $10.14 million. The debt to Kettering consists of a loan of approximately $16 million plus interest subsequently incurred. A prior mortgage to Westpac was discharged in October 2011. Mr Ottewell and Mr Kosta estimated that currently there was negative net equity in the Pakenham property, but that the remaining 81 units could be completed and licensed at an estimated profit of $200,000 for each unit. The licences are being marketed and sold "in the ordinary course of business" and not "to frustrate or defeat any prospective judgment creditors".

32 PAC is the trustee of the Pakenham Commercial Unit Trust and "owns no assets in its own right". The Pakenham Commercial Unit Trust owns no assets apart from the second Pakenham property. It was acquired with a view to developing it for medical suites. A permit was obtained but due to a lack of interest it had been allowed to lapse. The undeveloped property was put up for sale about two years ago but there have been no offers at the sale price of $630,000. The debt to the mortgagee Raydon was believed by Mr Kosta to be "a small amount" but he could not give further details. The property was being marketed and sold "in the ordinary course of business" and not "to frustrate or defeat any prospective judgment creditors".

33 Uncia is the trustee of the Uncia Unit Trust and "owns no assets in its own right". The Uncia Unit Trust has been trading in shares for about 15 years, using margin lending for about ten years. The share trading is "in the ordinary course of business" and neither the buying or selling of shares nor the obtaining of margin lending was done in order "to frustrate or defeat any prospective judgment creditors".

34 On 13 March 2012, it became apparent that "due to the exigencies of the business in the Court, the application was unlikely to be reached" that day. Accordingly, Macaulay J ordered that the summons be adjourned to 3 April 2012 and restrained the defendants until 4.00 pm on that day from disposing of, dealing with or diminishing the value of their interests in the Beaumaris property, the Tootgarook property, the address unknown property and the Caulfield South property.

35 On or about 13 March 2012, the plaintiff indicated that it was now seeking a freezing order in a more limited form than that originally sought. The order sought was to restrain the defendants from disposing of, dealing with or diminishing the value of their interests in:

(c) the one half share in the unknown address property alleged to be owned by Mr Kosta and his late wife;

(d) the one quarter share in the Caulfield South property alleged to be owned by Mr Ottewell;

(e) the shares held by Mr Ottewell in the companies listed in paragraph 31 of Mr Schofield's affidavit;

(f) the shares held by Mr Kosta in the companies listed in paragraph 32 of Mr Schofield's affidavit; and

(g) the units held by Mr Ottewell and Mr Kosta respectively in the Goldcare Developments Unit Trust, the Goldcare Kyneton Unit Trust, the Goldcare Eco Villages Unit Trust and the Pakenham Commercial Unit Trust;

36 During the course of argument, counsel for the plaintiff amended sub-paragraph (g) to include the units held by Mr Kosta in the Coral Unit Trust and the Uncia Unit Trust.

37 At the conclusion of the argument on 3 April 2012 I reserved my decision and ordered that the restraining order made by Macaulay J be extended until further order.

38 Portbury's application was based on a number of different grounds. The first ground was that given the existence of the earlier judgment by Dixon J it could not be sensibly argued that Portbury had anything other than a strong case. It is not necessary to decide whether that submission is correct because the defendants have accepted, for the purpose of this application only, that the plaintiff has a "good arguable case" which is all that is required by r 37A.05(1)(b) of the Rules.

39 The second ground was that the defendants did not have the assets available to satisfy a judgment against them in this proceeding. This was said to be established by the fact that in the hearing before Gardiner AsJ the defendants' senior counsel had stated several times in open court that the defendants would be "wiped out" if Portbury's application was successful. It was submitted that where such a drastic consequence for the defendants was openly conceded, they were not likely to stand by and allow Portbury to enforce its potential judgment.

40 The defendants submitted that this ground showed that the primary purpose of the plaintiff's application was to obtain security for its alleged claim against the defendants. They submitted that this was an impermissible purpose, as stated in paragraph 5 of Practice Note No 5 of 2010,[14] namely:

The purpose of a freezing order is to prevent frustration or abuse of the process of the Court, not to provide security in respect of a judgment or order.

41 I am not persuaded that the possible inability of the defendants to satisfy the judgment which Portbury hopes to obtain is a sufficient reason for the making of a freezing order. In my opinion, a plaintiff is not entitled to a freezing order simply because there is a danger that the defendants' assets will be insufficient to meet the amount of the potential judgment. The relevant danger is that there is a risk that the defendants by their actions will prevent successful recovery against their assets.

42 The third ground was that the defendants had engaged in various delaying tactics, including:

(a) threatening to appeal Dixon J's judgment for several months before finally abandoning any prospect of appeal;

(b) mounting various spurious defences before Gardiner AsJ in an attempt to circumvent Dixon J's judgment;

(c) attempting to bring a third party claim against their former solicitor, on the eve of the summary judgment application, in an attempt to delay the summary judgment application; and

(d) serving very detailed written submissions midway through the hearing before Gardiner AsJ leading to the requirement to grant more time to Portbury to respond.

43 Assuming without deciding that it had been established that these various steps were taken by the defendants in an attempt to delay Portbury obtaining judgment against them, I do not consider that it supports a conclusion that there is a danger that such judgment will be wholly or partially unsatisfied because the assets of the defendants have been or will be in the interim disposed of, dealt with or diminished in value.

44 A related argument was that the spurious ground advanced on the extended settlement date by Ottedin and/or Goldcare in an attempt to get out of the contract of sale was an indication that the defendants were not the type of people who were going to stand around and let Portbury enforce its potential judgment against their assets. In Patterson v BTR Engineering (Aust) Ltd,[15] Gleeson CJ concluded his judgment as follows:

This is a case in which the plaintiff claims that the defendant, making use of a corporation controlled by him, fraudulently misappropriated a large sum of money which, if it is still under the control of the appellant, would be quite likely to constitute, directly or indirectly, the bulk of his assets. As Giles J held, the nature of the scheme in which, on the evidence to date, the appellant appears to have engaged, is such that it is reasonable to infer that he is not the sort of person who would, unless restrained, preserve his assets intact so that they might be available to his judgment creditor.

45 A similar statement was made by Redlich J (as he then was) in Victoria University of Technology v Wilson:

It is well established that, in determining whether there is a sufficiently substantial danger of defendants disposing of assets in order to defeat a judgment that might be obtained against them, the court is permitted to consider the evidence adduced by the plaintiff to establish its claim to the substantive relief sought: see Patterson v BTR Engineering (Aust) Ltd. A risk of dissipation cannot be inferred merely from the fact that the plaintiff has a prima facie cause of action. One may in some cases, having regard to the nature of the plaintiff's claim, infer the existence of a risk of dissipation partly or wholly from the fact that the plaintiff has a good, arguable case. Where the plaintiff's prima facie case against a defendant involves proof of allegations of serious dishonesty, such an approach may be appropriate.[16]

46 However, I am not prepared to draw such an inference in this case. The adverse inferences drawn against defendants in cases such as Patterson, Wilson, AES Services, Deputy Commissioner of Taxation v Gashi,[17] and Anderson v Xie[18] arose in factual situations far different from the present situation.

47 What I have called the fourth ground brings together a number of submissions by Portbury which were to the effect that the individual defendants had taken action, and were likely to take action, to sell real estate properties thereby rendering a judgment in favour of Portbury ineffective.

48 It was submitted that Mr Ottewell and Mr Kosta had employed an elaborate corporate structure including using a different company for each property development and that this complex corporate structure could easily involve the "warehousing" or "churning" of assets. Then it was submitted that the evidence clearly established that the following properties owned by one or other of the companies "within the defendants' stable" were on the market for sale - the Kyneton property, the Garfield property, the Pakenham property and the second Pakenham property. Next, it was submitted that as the defendants had given no explanation as to how substantial mortgages were funded, it should be inferred that it was from selling assets such as real estate and shares. Finally, it was submitted that no explanation was given by the defendants of the mortgage debts due from Kyneton to Kettering and from GEV to Kettering or of how Kettering funded these advances or to whom it owed money. It was submitted that the sale of real estate properties by Kyneton and GEV would benefit Kettering in the form of interest payments or reduction of indebtedness and, under the business model described by Mr Warren in his affidavit, it was likely that any proceeds of sales paid to Kettering would then be deployed to acquire other real estate properties. Each of these matters, it was submitted, was likely to lead to the risk that in due course the defendants would be unable to satisfy a judgment in favour of Portbury.

49 This is the crucial issue, in my opinion, in deciding whether or not to make a freezing order in this case. The defendants disputed that Portbury had established that there was any risk of dissipation of assets. First, they submitted that there was no evidence that assets of the defendants were "being disposed of, dealt with or diminished in value", let alone evidence that assets of the defendants were being disposed of or dealt with so as to diminish their value. They referred to the statement by Davies J in Mr Gloss Pty Ltd v Mischel[19] that:

The authorities make it clear that the plaintiffs must establish a "real risk" of dissipation of assets. In other words, they must establish that there is a danger that assets will be dissipated if the freezing order is refused.[20] The existence of a real risk or danger may be a matter of inference and there does not have to be evidence of a positive intention to frustrate a judgment.[21] However there must be "solid evidence" of the risk of dissipation.[22]

50 I agree with the defendants' submission that there was little or no evidence before the Court that any of the assets of Mr Ottewell or Mr Kosta sought to be restrained by the plaintiff's new proposed form of order were being disposed of, dealt with or diminished in value. One exception was the survivorship applications by Mr Kosta in respect of his late wife's interest in the Beaumaris and Tootgarook properties, but that "dealing with" would, of course, result in an increase rather than a diminution of Mr Kosta's interests in those properties.

51 On the other hand, I agree with Portbury's criticism about the lack of disclosure on the part of the defendants. Reliance has been placed not on affidavits by Mr Ottewell and Mr Kosta but on an affidavit by their solicitor on information and belief. Secondly, although much was made in that affidavit about many of the relevant companies being only trustees of unit trusts, nothing was said about whether Mr Ottewell and Mr Kosta were owners of units in any of those trusts. In the absence of evidence to the contrary, I would be prepared to tentatively assume that the units in the particular Unit Trust were held in the same proportion as the shares in the trustee company. But this is by no means clear because the units may very well be owned by, for example, discretionary family trusts. Thirdly, no financial accounts for any of these companies or trusts were provided. Thus, very little is known about the value of the shares or units. Fourthly, it seemed to me that it was not correct to repeatedly state that these trustee companies had no assets in their own right when each of them would have a right of indemnity against the assets of the trust.

52 Moreover, nothing was said in Mr Warren's affidavit about the future intentions of Mr Ottewell and Mr Kosta with respect to their assets. In my opinion, the defendants' position would have been much stronger if there had been such a statement. What is clear is that they did not want a freezing order impacting on their ability to continue their property developments.

53 Another aspect of the defendants' material relevant to the question of the risk of dissipation of assets was the statement in Mr Warren's affidavit that Mr Ottewell did not claim a beneficial interest in the Caulfield South property as he had not contributed anything to its purchase. Certainly, his equity might be negative but I would have thought that he held his registered one quarter share, however small, for himself beneficially. Without further explanation, this appeared to be an attempt to suggest that a judgment creditor could not look to his share to satisfy part of any judgment. As counsel put it, Mr Ottewell was trying to argue himself out of having an interest in the property.

54 The possible ownership by Mr Ottewell or Mr Kosta of units in the various identified Unit Trusts is important, in my opinion, because it is what happens to those assets, rather than whether the real estate properties owned by the identified companies are sold, that will impact on Portbury's ability to execute on any judgment it might obtain. Thus, although a great deal of attention was given in the affidavits to the details of the properties being sold by the identified companies, I do not consider that the fact that these properties are for sale really assists Portbury in making out its claim to a freezing order. Explanations have been given as to why each of the properties is for sale - the Kyneton property and the second Pakenham property are no longer required and the Garfield property and the Pakenham property are retirement villages.

55 I also agree with Portbury's submission that it was irrelevant that Mr Warren reiterated that each of these properties was being marketed and sold "in the ordinary course of business" and not "to frustrate or defeat any prospective judgment creditors". It was the possible detrimental effect of a defendant's actions, not the intent with which they were done, that could give rise to relief in the nature of a freezing order.[23]

56 However, what Portbury did not explain, in my opinion, was how these sales were detrimental to it or how they supported an inference that there was a "real risk" of dissipation of the defendants' assets. It is helpful to consider each property in turn.

57 The Kyneton property is being sold because the application for a permit to develop a retirement village was refused by VCAT. The defendants submitted that there was nothing suspicious about their conduct in respect of this property because all the mortgages and charges had been entered into before the date of the Officer property contract of sale, the subject of this proceeding, and the property was being publicly advertised for sale on the open market. The defendants further submitted that as there was a negative net equity in the property, even if the asking sale price was obtained, neither the real estate property itself nor the units in the Goldcare Kyneton Unit Trust, whoever they are owned by, were assets that were at "real risk" of being dissipated instead of otherwise being available to meet a judgment against the defendants.[24] In any event, Portbury has no right to the proceeds of any sale before the secured creditors are paid out. Further, it seems to me that the sale of the Kyneton property would benefit Kettering as part or all of its substantial debt would be repaid. This could only be to the benefit of Mr Kosta if he is the owner of any units in the Coral Unit Trust.

58 The Garfield property is a retirement village. The defendants submitted that there was nothing suspicious about their conduct in respect of this property because selling of the retirement units had commenced in 2006, they were being publicly advertised for sale on the open market and the mortgages had originally been entered into before the date of the Officer property contract of sale. The defendants repeated their submission about the negative net equity meaning that there were not assets at "real risk" of dissipation. This applied both to the remaining retirement units on the Garfield property and the shares in Pharmaceuticals, whoever they are owned by. In any event, Portbury has no right to the proceeds of any sales before the secured creditors are paid out.

59 The Pakenham property is also a retirement village. I consider that the mortgage to Kettering was probably entered into after the date of the Officer property contract of sale as Kettering's caveat was not lodged until August 2009, although this was before the original settlement date of that contract of sale. The defendants again submitted that there was nothing suspicious about their conduct in respect of this property as the retirement units were being publicly advertised for sale on the open market. The defendants repeated their submission about the negative net equity meaning that there were not assets at "real risk" of dissipation. This applied both to the remaining retirements on the Pakenham property and the units in the Goldcare Eco Village Unit Trust, whoever they are owned by. In any event, Portbury has no right to the proceeds of any sales before the secured creditor is paid out. Further, it seems to me that the sale of licences to further retirement units would benefit Kettering as part of its substantial debt would be repaid. Again, this could only be to the benefit of Mr Kosta if he is the owner of any units in the Coral Unit Trust.

60 The second Pakenham property is being sold because the purpose for which it was acquired has failed. The defendants submitted that there was nothing suspicious about their conduct in respect of this property because the mortgage had been entered into before the date of the Officer property contract of sale and the property was being advertised for sale on the open market. If the second Pakenham property is sold for around $630,000 and if the mortgage to Raydon is "small", as suggested by Mr Kosta, then there should be surplus proceeds of sale which would be paid to PAC as the trustee of the Pakenham Commercial Unit Trust. Presumably this would be to the benefit of the owners of units in that Trust, whoever they may be.

61 As far as Kettering and the Coral Unit Trust are concerned I consider that it is quite likely that any repayments of Kettering's mortgages from the proceeds of the sales referred to above would be deployed in acquiring other assets. However, to suggest that this would be done in such a way that the owners of the units in the Coral Unit Trust, whoever they might be, would not benefit is purely speculation.

62 Finally, I do not consider that continued trading in shares by the Uncia Unit Trust creates any "real risk" of the dissipation of the assets represented by the units in that Trust, whoever they are owned by.

63 I recognise the strength of the statement by J Forrest J in AES Services that:

In cases in which freezing orders are sought there will rarely be direct evidence of conduct deliberately designed to frustrate the processes of the Court.[25]

64 I am also conscious of the criticisms of the defendants' lack of disclosure referred to above. Nevertheless, I am not persuaded that I should conclude that the plaintiff has established from the evidence and the appropriate inferences from all the circumstances of this dispute that there is a "real risk" of dissipation of assets.

65 The fifth ground was that the course which would entail the lesser risk of injustice[26] was to preserve the status quo in respect of the defendants' assets the subject of the proposed order. It was submitted that the defendants would not be materially prejudiced by the granting of the application and that the defendants would be protected by:

(a) the freezing order being limited to their interests in real properties and their shares and units in companies and trusts respectively;

(b) the undertaking as to damages, which in any event was highly unlikely to be "triggered" given the strength of Portbury's case; and

(c) the reservation of liberty to apply, which the defendants could utilise if needed to dispose of particular assets or hardship was encountered.

66 I do not agree. If there is no "real risk" that assets will be dissipated, the above points are no justification for the making of a freezing order. In any event, it seems to me that making such an order could be quite disruptive to Mr Ottewell and/or Mr Kosta because they would have to be careful that in their ongoing business activities they did not take any steps which might temporarily diminish the value of any units owned by them in one or other of the identified Unit Trusts. For example, incurring the expenses of obtaining a town planning permit to subdivide the Kyneton property into 84 lots might temporarily diminish (in the sense of an increase in the negative net equity) the value of the units in the Goldcare Kyneton Unit Trust. The same comment would apply to the units in the Goldcare Eco Villages Unit Trust in respect of the expenses incurred in completing the remaining units at that retirement village.

67 Although it is not strictly necessary given the conclusion I have reached about the lack of persuasive evidence that there is a "real risk" that assets will be dissipated, I do want to refer briefly to two further submissions made by the defendants in opposition to the application. First, the defendants submitted that the plaintiff had not proceeded diligently and expeditiously and therefore the application should be refused. The defendants pointed to the eight month delay between 29 June 2011, when the Officer property was resold, and 2 March 2012, when the summons seeking the freezing order was filed. I do not consider that such a delay would be a reason for not granting the application, if there were a "real risk" of dissipation of the assets. Much of the intervening period was spent on pleadings and the summary judgment application. Moreover, the gathering together of the information relied on by Portbury would no doubt have taken some time.

68 The second submission by the defendants was that the undertaking as to damages by Portbury was inadequate because there was doubt as to its ability to meet that undertaking. They referred to paragraph 17 of the Practice Note, which says:

If it is demonstrated that the applicant has or may have insufficient assets within the jurisdiction of the Court to provide substance for the usual undertaking as to damages, the applicant may be required to support the undertaking by providing security.

The defendants also pointed out that the ASIC historical search revealed that Portbury had a share capital of only $12. Eight shares were registered in the name of its sole director Robert Portbury and four in the name of Lauren Portbury. Further, the Titles Office search of properties registered in Portbury's name revealed that they were all mortgaged to the National Australia Bank Ltd ("the NAB").

69 In my opinion, what might have been a valid point about the plaintiff's insufficient assets, was laid to rest by an affidavit rather belatedly sworn by Portbury's Business Manager, Susan Mary Kelly, on 2 April 2012. She deposed that to her knowledge Portbury had in excess of $5 million in equity in the properties mortgaged to the NAB. Therefore, if I had been satisfied that there was a "real risk" of dissipation of the assets of the defendants, I would have found that Portbury had sufficient assets to support its undertaking as to damages.

70 Accordingly, the order I would propose is that the plaintiff's summons filed on 2 March 2012 be dismissed. I will hear from the parties on costs.

[1] Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd [2011] VSC 222 (Dixon J).

[2] Robmatjus Pty Ltd v Violet Home Loans Australia Pty Ltd [2007] VSC 165, [47] (Hargrave J).

[3] [2009] VSC 418, [20].

[4] Cardile v LED Builders Pty Limited (1998) 198 CLR 380, [51]; Practice Note 3 of 2006

[5] Jackson v Sterling Industries [1987] HCA 23; (1987) 162 CLR 612, 621, 625.

[6] Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) [1998] HCA 30; (1998) 195 CLR 1, [73].

[7] Hartwell Trent (Aust) Pty Ltd v Tefal Societe Anonyme [1968] VicRp 1; [1968] VR 3, 13.

[8] Glenwood Management Group Pty Ltd v Mayo [1991] VicRp 45; [1991] 2 VR 49, 49.

[9] R.37A.02(1) Under the general law the plaintiff must establish that there is a real risk of assets being disposed of: Cardile [122].

[10] Consolidated Constructions Pty Ltd v Bellenville Pty Ltd [2002] FCA 1513.

[11] Jackson v Sterling Industries [1987] HCA 23; (1987) 162 CLR 612, 621.

[14] See (2010) 26 VR 708.

[15] (1989) 18 NSWLR 319, 325-326.

[16] [2003] VSC 299, [33].

[17] (2010) 27 VR 127, [34].

[18] [2011] VSC 486.

[19] [2011] VSC 40, [4].

[20] Pearce v Waterhouse [1986] VicRp 5; [1986] VR 60; Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH und Co KG [1983] 1 WLR 1412, 1422_; Construction Engineering (Aust) Pty Ltd v Tambel (Australasia) Pty ltd_ [1984] 1 NSWLR 274, 279; Victoria University of Technology v Wilson [2003] VSC 299, 8.

[21] Victoria University of Technology v Wilson [2003] VSC 299, 36; Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, 326.

[22] Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH (The Niedersachsen) [1984] 1 All ER 398, 406 H Mustill J.

[23] National Australia Bank Ltd v Bond Brewing Holdings Ltd [1990] HCA 10; (1990) 169 CLR 271, 277 (Mason CJ, Brennan and Deane JJ), approved in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, 394 (Gaudron, McHugh, Gummow and Callinan JJ).

[24] Mr Gloss Pty Ltd v Mischel [2011] VSC 40, [10], [13] (Davies J).

[25] [2009] VSC 418, [35].

[26] Bradto Pty Ltd v State of Victoria [2006] VSCA 89; (2006) 15 VR 65, [33]-[35].