Plaintiffs v Defendant

I. FACTS

1 The plaintiffs are two finance brokers. Each of them is owned and controlled by John Condo.

2 The defendant Violet Home Loans Australia Pty Ltd is a mortgage originator, which is majority owned (95 per cent) and controlled by John Mingos. Mr Mingos is a solicitor practising in Victoria.

3 In and between 2002 and 2005, the parties conducted dealings pursuant to the terms of two unsigned draft agreements. For the purposes of the application before the Court, these draft agreements were treated as governing the relationship between the parties.

4 Under the agreements, the first plaintiff, and subsequently the second plaintiff, referred loan applications to the defendant. In turn, the defendant submitted some or all of these applications to financiers with whom it had separate contractual arrangements. If a loan application referred by one of the plaintiffs to the defendant resulted in one of these financiers making a loan to the loan applicant, the defendant agreed to pay the plaintiffs certain fees. First, an "up-front" fee representing a percentage of the commission paid to the defendant by the financier upon establishment of the loan. Second, a "trailer" fee, representing a percentage of the trailer fee paid to the defendant by the financier in respect of the loan.

5 The draft agreements included clawback provisions, under which the plaintiffs were obliged to repay fees received by them in the event that a loan resulting from a referral by them was discharged and the defendant was required by the financier to repay its fees. Any obligation by the plaintiff to repay could, if not paid, be set off by the defendant against future fees due to the plaintiffs under the draft agreements.

6 During November 2004, the defendant ceased paying any fees to the plaintiff. Thereafter, the defendant ceased accepting loan referrals from the plaintiffs.

7 In March 2005, the defendant terminated all contractual relations with the plaintiffs.

8 In October 2005, the plaintiffs commenced this proceeding.

9 The plaintiffs' claim is for unpaid up-front fees and trailer fees. The amount of the claim has recently been the subject of detailed particulars. The total claim, including interest calculated to the end of the trial, which is fixed for October 2007, is for $1,258,602.00. In summary, $594,120.00 is claimed for unpaid fees due as at 31 March 2007; $101,982.00 is claimed for unpaid trailer fees between 31 March 2007 to the conclusion of the trial; a lump sum of $437,500.00 is claimed for the value of the future trailer fees due under the draft agreements; and $125,000.00 is claimed for interest.

10 The defendant's defence admits the payment of fees due under the draft agreements until November 2004 and the termination of contractual relations with the plaintiffs. The defendant relies upon alleged breaches of an express term of the draft agreements, to the effect that the plaintiffs would act with "all due care and skill" in relation to the referral of loan applications to it. The defendant alleges that the plaintiffs breached this term because they were:

in fact guilty of negligence ... including submitting forged, suspect, inaccurate and fraudulent bank statements, financial information and employment details to the defendant with loan applications in or about the 2002-2004 period.[1]

11 Further, the defendant alleges that, as a result of the plaintiffs' negligence:

the defendant and the lenders to whom the loan applications were referred experienced a high default and arrears rate with loans introduced by the plaintiffs and the lenders in 2004-2005 refused to accept any further loan applications referred or introduced by the plaintiffs or any other entity associated with John Condo.[2]

12 The defendant has given particulars of 20 loan applications submitted by the plaintiffs which included forged, suspect, inaccurate or fraudulent bank statements, financial information, personal information or employment details. The defendant's particulars of negligence continue as follows:

As a result, a total of 517 of 1,136 loans introduced by the plaintiffs have been in arrears of payment. This is five to six times the defendant's average default rate, and five to six times the industry average default rate for loans of this kind.

13 Notwithstanding the plea of negligence, in breach of an express term of the draft agreements to act with due care and skill, the defendant has not pleaded any set-off or counterclaim. In particular, the defendant has not made any claim for repayment of fees in respect of loans which have been discharged or for damages for breach of the agreements. There is no allegation in the amended defence that the defendant has, by reason of the plaintiffs' alleged breaches of contact, been required to repay any fees received by it from the financiers with which it has a contractual relationship. Nor is there any allegation that any lender has ceased paying trailer fees to the defendant as a result of the plaintiffs' alleged breaches. Accordingly, the amended defence does not, at present, plead any answer to the claims made for unpaid fees which had accrued due at the time of termination of the agreements, or for trailer fees which are continuing to accrue.

14 There was a directions hearing in the proceeding on 12 December 2006 before the Listing Master. The plaintiffs sought a trial date. The defendant vigorously opposed the fixing of a trial date. It was submitted on behalf of the defendant that the proceeding was not ready for trial, because the defendant wished to file and serve a counterclaim. Notwithstanding these objections by the defendant, the Listing Master set the proceeding down for trial on 22 October 2007 on an estimated duration of seven to eight days. Further, the Listing Master ordered that any application by the defendant to file and serve a counterclaim be filed and served by 28 February 2007.

15 No application has ever been made by the defendant to file and serve a counterclaim. No application has ever been made by the defendant to amend its defence to plead a set-off against the plaintiffs' claims in the proceeding. The only references in the evidence to the possible magnitude of such a set-off or counterclaim are the wholly unparticularised assertions of Mr Mingos in his affidavit sworn 27 March 2007, that the plaintiffs' breaches of the draft agreements:

have had a significant adverse effect on the defendant's business operations, profitability and reputation. It is my belief that this loss and damage is likely to be at least $500,000.

There is no evidence to support this assertion. For example, there is no evidence as to the amount of fees which the defendant has been required to repay to financiers as a result of loans which are the subject of the defence being discharged or the subject of defaults.

16 Next, on 20 March 2007 the plaintiffs applied to the Court ex parte for, and obtained, a freezing order pursuant to Rule 37A.[3] The freezing order restrained the defendant from in any way disposing of, dealing with, encumbering or diminishing the proceeds of the sale of its business. That freezing order has been continued pending the hearing and determination of an interlocutory hearing. Furthermore, the plaintiffs have now filed a summons seeking freezing orders against a number of non-parties associated with the defendant. The plaintiffs' summons seeks the following orders that, until the hearing and determination of the proceeding or further order, the defendant, Violet Home Loans Pty Ltd, Franklin Dell Pty Ltd and John Mingos be prohibited from in any way disposing of, dealing with, encumbering or diminishing their assets to the extent of $1,258,602.57.[4]

17 The catalyst for the plaintiffs' ex parte application for a freezing order was the receipt by it of a copy of an email sent on 14 March 2007 by Matthew Rae, apparently a credit manager of the defendant, advising that the defendant had sold its entire loan portfolio with Adelaide Bank Ltd. It is common ground that the Adelaide Bank portfolio comprised the majority of the assets of the defendant. Upon reading this email, Mr Condo became concerned that the defendant was taking steps to dispose of its assets and thus place it in a position whereby it will be unable to pay any judgment awarded in favour of the plaintiffs against it. Accordingly, Mr Condo instructed the plaintiffs' solicitors to write to the solicitors for the defendant seeking confirmation of the sale of the Adelaide Bank loan portfolio and an undertaking that the net proceeds of sale would not be disbursed other than in the normal course of any on-going business. The defendant's solicitors responded by telephone, and advised that they were unaware of the sale but would seek urgent instructions. No immediate response was received. Accordingly, the ex parte application was made.

18 Paragraph 7 of the initial freezing orders required the defendant to swear and serve on the plaintiffs an affidavit setting out, to the best of its ability, all of the defendant's assets in Australia, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of the defendant's interests in the assets, and details of the sale of the business of the defendant between 1 January 2007 and 20 March 2007.

19 Pursuant to this order, Mr Mingos swore an affidavit on 21 March 2007. In that affidavit, by reference to a letter prepared by the defendant's accountant, Mr Mingos stated the net asset position of the defendant as at 21 March 2007 as follows:

Assets

Cash at Bank $ 1,826

Receivables $17,550

Total Assets $19,376

Less: Liabilities

Unsecured Shareholder Loan

($19,364)

Net Assets $12

20 These details were set out in a letter dated 21 March 2007 from the defendant's accountant. That letter concluded:

We further confirm that there has been no sale of assets by the company during the period 1 January 2007 to 20 March 2007.

Mr Mingos concluded his affidavit with the statement that he proposed to explain in more detail, in a further affidavit, that the defendant did not sell any aspect of its business between 1 January and 20 March 2007.

21 Subsequently, Mr Mingos has sworn further affidavits. I commented in the course of argument that these affidavits did not contain a full explanation of the events which are relevant to the determination of the application for interlocutory freezing orders. As a result, senior counsel for the defendant took instructions from Mr Mingos and, based on those instructions, informed the Court of a number of further relevant matters. However, the position remains that the defendant, and the non-parties against whom freezing orders are sought, have not provided the Court with a full explanation of all relevant events. The defendant and the non-parties were all represented by the same counsel and solicitors. Mr Mingos, who must know all the relevant events, was in court during the hearing of the application.

22 Based upon the evidence contained in the three affidavits sworn by Mr Mingos, and the statements from the bar table by senior counsel for the defendant and the non-parties, I find that the defendant and the non-parties have embarked upon a course of conduct which, if fully carried into effect, will result in the whole of the defendant's business and assets being disposed of and the proceeds of sale distributed to Mr Mingos or to persons or entities associated with him. This would leave the defendant with no assets with which to satisfy any judgment obtained by the plaintiffs in this proceeding. From the evidence and statements from the bar table, the following factual chronology emerges.

23 On 1 July 2005, Mr Mingos, in his capacity as chairman and sole director of the defendant, resolved to revalue the defendant's loan book from $0 to $1,300,000. The minutes of the "meeting of directors" records that:

The value of the loan book was based on the share transaction of 10 September 2004, taking into account a reduction since then.

It would appear from records maintained by the Australian Securities and Investments Commission that a previous shareholder and director, John Hendriks, ceased to be a shareholder and director on that day.

24 On 2 July 2005 Mr Mingos, as sole director of the defendant, resolved to declare and pay an ordinary dividend of $1,378,198.00 immediately. At this time, the only shareholder was Franklin Dell Pty Ltd. Franklin Dell is the trustee of the Mingos Family Trust. It is controlled by Mr Mingos. In circumstances where the defendant did not, in the absence of a sale of the whole of its business and assets, have the funds to pay the dividend, the declaration of the dividend cannot be viewed as being in the ordinary course of business. It was made after the defendant had ceased paying fees to the plaintiffs and soon after the defendant terminated its agreements with the plaintiffs. By this time, the unpaid fees due to the plaintiffs were substantial. I infer that the defendant must have realised that a claim by the plaintiff for unpaid fees due under the agreements was likely.

25 Also on 2 July 2005, the defendant prepared a Shareholder Distribution Statement. That statement records the date of payment of the $1,378,198.00 dividend (which appears to have been all of the assets of the defendant at the time) as being payable on 2 July 2005.

26 On 3 March 2006, there was an alteration to the shareholding structure of the defendant. Franklin Dell, which represents the interests of Mr Mingos, ceased to be the only shareholder. Five A Class shares were issued to NV Home Loans Pty Ltd, a company apparently representing the interests of Philip Andrew Sealy. Franklin Dell continued to hold 83 ordinary shares. Mr Sealy was appointed a director from 3 March 2006.

27 The current shareholding structure, according to the ASIC records, is 95 ordinary shares owned by Franklin Dell and five A Class shares owned by NV Home Loans Pty Ltd.

28 On 26 May 2006, the defendant filed its amended defence. As I have said, the amended defence raises no set-off, and there is no counterclaim. There is still no set-off or counterclaim pleaded or proposed.

29 On 9 June 2006, Mr Mingos, in the absence of Mr Sealy, resolved that the defendant would sell its business to Violet Home Loans Pty Ltd for the sum of $1,410,742.00, pursuant to a sale of business agreement attached to the minute of resolution. Violet Home Loans Pty Ltd is, and was at the time the sale of business agreement was entered into, a company in which Franklin Dell owns 95 ordinary shares and NV Home Loans owns five Class A shares. Mr Mingos and Mr Sealy are its directors. Accordingly, the sale of business agreement had the result that the business and assets of the defendant were sold to a company with the same ownership, same directors and, practically speaking, the same name.

30 The sale of business agreement states in the schedule that the sale price is comprised of:

Loan Book Value $1,300,000.00

Equipment Value $110,742.00

TOTAL $1,410,742.00

31 Clause 5 of the sale of business agreement recognises that the principal asset of the defendant comprises its contracts with financiers. Although the defendant is able to assign its entitlement to receive benefits under those contracts, it cannot assign its obligations. That requires a novation between the defendant, Violet Home Loans and the financier. Accordingly, cl. 5 of the sale of business agreement provides:

5.1 The Vendor assigns and novates to the Purchaser on the Settlement Date all of the Vendor's right, title, interest, benefits and obligations under the Contracts as and from the Settlement Date.

5.2 After the execution of this Agreement to ensure that the Contracts are assigned or novated, the Vendor and the Purchaser must:

(a) notify the other parties to each of the Contracts and if required by the terms of the particular Contract, seek the consent of the other parties to the assignment or novation of the Contract;

(b) prepare any documentation and do all things necessary to effect an assignment or novation of such Contract.

5.3 If an assignment or novation of a Contract is not obtained by the Settlement Date:

(a) The Vendor and the Purchaser must consult to determine an alternative method by which the assumption by the Purchaser of the Vendor's Liabilities and obligations to the other parties, can in substance be achieved and the Vendor and the Purchaser must continue to use their best endeavours to obtain the necessary consent or novation required.

(b) The Purchaser shall, on behalf of the Vendor and at the Purchaser's expense, pay, perform and discharge all the obligations of the Vendor under the Contracts and all proceeds or benefits arising and received by the Vendor shall immediately be accounted to and transferred to the Purchaser, who, upon settlement, becomes the absolute beneficial owner of same. Any delay in the obtaining of the necessary consent or novation shall in no way prejudice the Purchaser's right, interest, ownership and entitlement in any and all proceeds of benefits arising and received by the Vendor.

32 The sale of business agreement provides that the sale consideration is payable on 1 July 2006. However, it is clearly the case that there was no expectation that this could occur. The obvious intention, acknowledged by senior counsel for the defendant and Violet Home loans, was that Violet Home Loans, as purchaser of the defendant's business and assets, would on-sell the business and assets and use the proceeds of sale to satisfy the purchase consideration.

33 However, there was never any intention for the purchase consideration to be paid to the defendant. Instead, on 1 July 2006 the defendant executed a document authorising and directing Violet Home Loans, as purchaser of its business and assets, to effect payment of the sale consideration in the following manner:

1. Discharge of the Shareholder Loan owing to Franklin Dell Pty Ltd as Trustee of the Mingos Family Trust.

2. Discharge of the arrears provision.

3. Balance to be held on account of and applied against any liabilities arising out of or as a consequence of any post settlement liabilities incurred as stipulated in clause 11 of the Sale of Business Agreement.

This authority and direction was signed by Mr Mingos.

34 In his affidavit sworn 27 March 2007, Mr Mingos gave the impression that the sale of business agreement had been completed, the consideration paid and the defendant's liability to pay the dividend to Franklin Dell had been discharged. For example, he swore:

The sale was effective as of 1 July 2006. The net consideration was used by the defendant to discharge a pre-existing liability in respect of a loan account to another entity named Franklin Dell Pty Ltd (which is trustee of my family trust). That was done as a result of a written direction dated 1 July 2006 ... As a result there was at that time no change to the defendant's net beneficial asset position. The loan account liability to Franklin Dell Pty Ltd had existed since 1 July 2005 (prior to the commencement of this proceeding in October 2005).[5]

35 Further, in his affidavit sworn 27 March 2007, Mr Mingos sought to explain why it was necessary for the defendant's business and assets to be sold to Violet Home Loans. Mr Mingos swore:

The sale of the business and other assets of the defendant to Violet Home Loans Pty Ltd was undertaken as the result of a business restructure consequent upon the introduction of a new partner in the business who took up equity in Violet Home Loans Pty Ltd, and to enable the defendant to satisfy the pre-existing liability it had to Franklin Dell Pty Ltd. I did not and do not consider that it rendered the defendant unable to meet its liabilities then or subsequently. That is because, for the reasons given above, I consider that the plaintiffs' claim in this proceeding is most unlikely to succeed.

36 This explanation of the commercial rationale for the sale of business agreement does not accord with business common sense or the objective facts. Mr Mingos does not explain any of the circumstances in which the "new partner", NV Home Loans Pty Ltd, was introduced or for what purpose. The evidence discloses no more than the payment of $5 by NV Home Loans Pty Ltd for the issue of five A Class shares in the defendant, and the appointment of Mr Sealy as a director of the defendant. In addition, the ASIC records establish a similar $5 investment by NV Home Loans Pty Ltd in Violet Home Loans, and the appointment of Mr Sealy as a director. Given the obvious intention to sell the business and assets of the defendant and to distribute nearly all of the proceeds of sale to Franklin Dell as trustee of the Mingos Family Trust, I infer that that NV Home Loans was introduced into the corporate picture as a means of providing some form of objective justification for stripping the defendant of its assets. In this respect, I note that Mr Sealy did not swear an affidavit, did not sign any of the relevant transaction documents and was not present when the defendant resolved to enter into the sale of business agreement with Violet Home Loans. Further, the direction by the defendant to Violet Home Loans, to effect payment of the purchase consideration by first paying Franklin Dell, is signed by Mr Mingos only.

37 Furthermore, Mr Mingos's explanation that the sale of the business and other assets of the defendant to Violet Home Loans was undertaken in order "to enable the defendant to satisfy the pre-existing liability it had to Franklin Dell" makes no sense. The objective evidence indicates that the only means available to satisfy such a liability was from a sale of the business and assets of the defendant. No good reason has been demonstrated as to why it was necessary to first transfer those assets and the business to Violet Home Loans. I infer that this was done for the sole purpose of the denuding the defendant of its assets, in the face of a claim by the plaintiffs.

38 I do not accept the explanation by Mr Mingos that he did not consider that the sale of business agreement and the direction to use the proceeds to pay Franklin Dell would render the defendant unable to satisfy its liabilities, because he considers the plaintiffs' claim is unlikely to succeed. If Mr Mingos truly held that belief, he should have ensured that the amended defence, filed about two weeks prior to the sale of business agreement, contained full particulars of the set-off relied upon, or was accompanied by a counterclaim. Mr Mingos is a solicitor. He must have realised the need for the defence to contain particularised allegations of set-off, or to be accompanied by a counterclaim. Notwithstanding leave to file a counterclaim in December 2006, the defendant has still not done so.

39 Notwithstanding the impression created by the affidavits sworn by Mr Mingos, a substantial proportion of the price payable by Violet Home Loans to the defendant, approximately $550,000, remains unpaid. Further, it was only recently that any of the sale consideration was paid.

40 The principal assets which the defendant sold to Violet Home Loans comprise three "loan books". The loan books are governed by contracts with Adelaide Bank Ltd, Macquarie Securitisation Ltd and AFIG Wholesale Pty Ltd. The Adelaide Bank loan book is the most valuable.

41 In or about February 2007, Violet Home Loans sold, or purported to sell, the Adelaide Bank loan book to Iden Loan Services Pty Ltd for the sum of $850,000. The sale agreement is undated, but was obviously entered into before 28 February 2007, which is the final date specified for the completion by Iden of its due diligence.

42 The sale agreement between Violet Home Loans and Iden proceeds on the assumption that there has been a novation of the original contract between the defendant and Adelaide Bank, whereby Violet Home Loans became the contracting party with Adelaide Bank in place of the defendant.

43 By a novation deed which apparently became effective on 1 March 2007, Adelaide Bank agreed with Violet Home Loans and Iden that there would be a novation of the contract between it and Violet Home Loans whereby Iden became the contracting party in place of Violet Home Loans. Violet Home Loans remained liable for any breach of the contract prior to the novation, and its obligations were guaranteed by Mr Mingos.

44 I was informed by senior counsel for the defendant and the non-parties that the sum of $850,000 has been paid by Iden to Violet Home Loans and that, in turn, Violet Home Loans has paid that sum to Franklin Dell in partial discharge of its obligation to pay the purchase price to the defendant under the sale of business agreement.

45 Further, I was informed by senior counsel for the defendant and the non-parties that Franklin Dell has distributed the whole of that $850,000 to beneficiaries of the Mingos Family Trust. I commented during argument that the evidence did not disclose who had received the $850,000. Counsel for the defendant and the non-parties agreed that this is so. However, notwithstanding the presence of Mr Mingos in Court, the Court was not informed as to the identity of the recipient. I infer that the $850,000 has been received by Mr Mingos, or has been applied at his direction.

46 The defendant has given notice to the plaintiff that it intends to enter into novation agreements with Violet Home Loans, Macquarie Securitisation and AFIG Wholesale, so as to replace Violet Home Loans as the contracting party with Macquarie Securitisation and AFIG Wholesale. Counsel for the defendant and the non-parties informed me that, once the novations are completed, it is the intention of Violet Home Loans to sell the Macquarie Securitisation loan book and the AFIG Wholesale loan book, so as to enable Violet Home Loans to pay the balance of $550,000 due by it to the defendant under the sale of business agreement. In turn, it is intended that Violet Home Loans will apply the proceeds of sale of these loan books in accordance with the authority and direction to pay Franklin Dell in satisfaction of its dividend entitlement.

II. RELEVANT LEGAL PRINCIPLES

47 The circumstances in which the Court may exercise its inherent power to make a freezing order, also known as a "Mareva order" or an "asset preservation order", is now the subject of harmonised court rules, which apply in all superior courts in Australia. The harmonised rules reflect, and are informed by, the numerous reported cases dealing with the extraordinary power of the Court to freeze the assets of a judgment debtor, prospective judgment debtor or a third party in circumstances where there is a risk that they may act to frustrate or inhibit the Court's process, by taking steps which will or may result in a judgment or prospective judgment of the Court being wholly or partly unsatisfied. In Victoria, Order 37A of the Supreme Court (General Procedure) Rules 2005 applies to applications for a freezing order.

48 Rule 37A.02(1) 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.

49 Rule 37A.03 provides for the making of ancillary orders:

37A.03 Ancillary order

(1) The Court may make an order (an "ancillary order") ancillary to a freezing order or prospective freezing order as the Court considers appropriate.

(2) Without limiting the generality of paragraph (1), an ancillary order may be made for either or both of the following purposes--

(a) eliciting information relating to assets relevant to the freezing order or prospective freezing order;

(b) determining whether the freezing order should be made.

50 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. Rule 37A.05(4) 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.

51 Rule 37A.05(5) specifies circumstances in which the Court may make a freezing order or an ancillary order against a person other than the judgment debtor or prospective judgment debtor, referred to in the rule as a "third party". The rule provides:

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

...

(5) The Court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a "third party") if the Court is satisfied, having regard to all the circumstances, that--

(a) there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because--

(i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or

(ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or

(b) a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment of the Court, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.

52 The Court's powers to make a freezing order or an ancillary order are not limited to the circumstances stated in Rule 37A.05.[6] However, the power to make orders in this case can be determined by reference to the circumstances specified in Order 37A. Of course, an order will not follow as a matter of course if the elements for the existence of the Court's power are established. The Court retains a discretion and must consider the balance of convenience.

III. GOOD ARGUABLE CASE

53 I am satisfied that the plaintiff has a good arguable case. Under the terms of the contractual arrangements between the plaintiffs and the defendant, up-front fees and trailer fees have become due and, in respect of trailer fees, are continuing to accrue. They have not been paid. The defence raised by the defendant does not, in the absence of any particularisation of damage caused to the defendant by reason of the alleged breaches of contract by the plaintiffs, answer the plaintiffs' contractual claims. The defendant has had a full opportunity to plead a set-off or counterclaim and has not availed itself of that opportunity.

IV. DANGER OF UNSATISFIED JUDGMENT

54 There is obviously a danger that any judgment obtained by the plaintiff in the proceeding will, if the transactions orchestrated by Mr Mingos on behalf of the defendant, Violet Home Loans and Franklin Dell are brought into effect, have the result that the judgment will be wholly or partly unsatisfied. The declaration of the dividend to Franklin Dell, the entry into the sale of business agreement and the direction by the defendant to Violet Home Loans that the purchase consideration be paid first in satisfaction of Franklin Dell's entitlement to receive the dividend, has already had the effect that the whole of the assets of the defendant have been disposed of, dealt with or diminished in value. Accordingly, there may be no utility in continuing the order freezing the defendant's assets. The relevant dealings with the defendant's assets have already occurred. Accordingly, in order to make a freezing order with which will prevent the frustration or inhibition of the Court's process, orders against the non-parties are required.

55 It was submitted on behalf of the plaintiffs that there was utility in making a freezing order against the defendant, so as to prevent the completion of the proposed novations of the contracts between the defendant and Macquarie Securitisation Ltd and the defendant and AFIG Wholesale. It was submitted that, in the absence of such novations being implemented, the income derived from those contracts will be paid to the defendant, and not Violet Home Loans. That position should be preserved. I do not accept this submission. Under the sale of business agreement, the income stream arising from these contracts has already been assigned to Violet Home Loans. On the evidence, that income is being paid direct to Violet Home Loans.

56 The real issue in this application is whether the Court is justified in making freezing orders against the non-parties, so as to prevent them dealing with the assets which previously belonged to the defendant, or with the proceeds of sale of those assets.

V. AVAILABLE PROCESS AGAINST THIRD PARTIES

57 The plaintiffs rely upon the second limb of Rule 37A.05(5). Rule 37A.05(5) is based upon the decision of the High Court in Cardile v LED Builders Pty Ltd.[7] The facts in that case bear a number of similarities to the facts in this case. The joint judgment of Gaudron, McHugh, Gummow and Callinan JJ contains the following statement of principle as to the circumstances in which freezing orders may be made against persons who are not parties to the proceeding:

What then is the principle to guide the courts in determining whether to grant Mareva relief in a case such as the present where the activities of third parties are the object sought to be restrained? In our opinion such an order may, and we emphasise the word "may", be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which:

(i) the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including "claims and expectancies", of the judgment debtor or potential judgment debtor; or (ii) some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor.[8]

58 The principles stated by the High Court are now contained in Rule 37A.05(5). In this case, reliance was placed by the plaintiffs upon sub-rule (b) of that Rule. It was submitted that there may be a process available to the plaintiffs under which the non-parties may be required to disgorge property or otherwise contribute to the funds of the defendant to help satisfy any judgment against it.

59 A threshold issue was raised in argument. It was submitted on behalf of the defendant and the non-parties that, in order to establish that a relevant process "may" ultimately be available, the plaintiffs must establish "a compelling cause of action" for relief as a result of such process being instigated. It was submitted that a mere possibility that some process may ultimately lead to relief of the relevant kind is not sufficient for the purposes of the rule. I do not accept this submission. Although I accept that a merely theoretical possibility will not fall within the rule, I do not think that a plaintiff need establish a "compelling cause of action". It will be enough if a plaintiff can satisfy the Court that, in all the circumstances of the case, there is a real case to be investigated under the process or processes relied upon as potentially yielding a means of satisfaction of the judgment from the assets of the non-parties.

60 The plaintiff relies upon a number of processes which are or may ultimately be available to them. First, it was submitted that s.172(1) of the Property Law Act 1958 (Vic) may be a foundation for a proceeding in the Court to set aside the sale of business agreement between the defendant and Violet Home Loans. Section 172(1) of the Property Law Act provides:

172 Voluntary conveyances to defraud creditors

(1) Save as provided in this section, every alienation of property made, whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.

61 It was submitted on behalf of the defendant that there was no case for possible relief under s.172(1) because the sale of business agreement was entered into for full consideration. Reliance was placed upon s.172(3) which provides:

(3) This section shall not extend to any estate or interest in property alienated for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the alienation, notice of the intent to defraud creditors.

62 I do not accept the submission of the defendant in this regard. I accept that the evidence does not enable any conclusion to be drawn as to whether the sale of business agreement was entered into for valuable consideration, or upon good consideration. However, there is a real case to be investigated as to whether the sale of business agreement was entered into in good faith. Further, if the sale of business agreement was entered into with intent to defraud creditors, in particular the plaintiffs, there can be no doubt that Violet Home Loans, through Mr Mingos, had notice of that intent. Accordingly, s.172(3) is not a complete answer to the plaintiffs' reliance upon s.172(1) as a process which is or may be available to them to recover any judgment from the non-parties.

63 I say the non-parties, and not just Violet Home Loans, because it seems to me that there is a real case to be investigated as to whether the direction by the defendant to Violet Home Loans, that Violet Home Loans should pay the purchase consideration under the sale of business agreement to Franklin Dell in satisfaction of its dividend entitlement, also constituted an alienation of property made with intent to defraud creditors. Accordingly, there is a real case to be investigated as to whether that direction should be set aside under s.172(1).

64 Further, there is a real case to be investigated as to whether the distribution or distributions by Franklin Dell to the beneficiary or beneficiaries of the Mingos Family Trust, which I was informed amounts to the whole of the $850,000 paid by Iden in respect of the sale by Violet Home Loans of the Adelaide Bank loan portfolio, is an alienation of property which may be set aside under s.172(1). At present, the evidence justifies the inference that Mr Mingos was the recipient of the $850,000 or, if not him personally, a person or entity associated with him.

65 Accordingly, the plaintiff has satisfied me that s.172(1) is a process which is or may ultimately be available to it in order to set aside the sale of business agreement, the direction that the purchase consideration payable by Violet Home Loans to the defendant be paid to Franklin Dell and any distribution made by Franklin Dell to a beneficiary of the Mingos Family Trust of monies representing the proceeds of that purchase consideration. If these transactions are set aside, then the Court could order that the sum of $850,000 already paid in respect of the sale of the defendant's assets be returned to the defendant, in order to satisfy any judgment against it. Further, the remainder of the assets sold by the defendant to Violet Home Loans would revert to the defendant and would be available to satisfy any judgment.

66 It is accordingly unnecessary to reach a firm conclusion in relation to the other processes which were relied upon by the plaintiffs in argument. Those processes included processes available to a liquidator of the defendant under various provisions of the Corporations Act 2001 (Cth) relating to unreasonable director-related transactions, unfair preferences or breach of director's duties. Further, reliance was placed on and the possibility of a liquidator proceeding against the non-parties to recover property of the defendant received by them in circumstances where it was transferred to them as a result of the actions of Mr Mingos in breach of his duties as a director of the defendant, thus calling into play the principles in Barnes v Addy.[9] However, it seems to me that the possibility of such claims being pursued by a liquidator of the defendant is a real one. One or more of these processes may well be available to a liquidator of the defendant, in the event that the plaintiffs succeed in obtaining judgment in the proceeding.

VI. BALANCE OF CONVENIENCE

67 In my view, the balance of convenience strongly favours the granting of freezing orders against the non-parties. On the evidence, they are either in possession of, or may soon be in receipt of, assets of the defendant or the proceeds of the sale of those assets. In the absence of freezing orders, any judgment recovered by the plaintiffs against the defendant will most likely be wholly unsatisfied.

68 It was submitted on behalf of the defendant and the non-parties that no injunctive relief should be granted in any event, because the plaintiffs were companies of no substance and their undertaking as to damages was worthless. Accordingly, it was submitted that, at the very least, the plaintiffs should be required to provide security in respect of any undertaking given by them as to damages.

69 I accept that the ability of a plaintiff to satisfy any undertaking as to damages is a relevant factor to take into account in the balance of convenience. However, this is only one of the totality of factors relevant to the exercise of the Court's discretion to grant or withhold injunctive relief.[10]

70 In all the circumstances of the case, I do not believe that the plaintiffs should be required to provide security in respect of their undertaking as to damages. As the evidence presently stands, the impecuniosity of the plaintiffs has been substantially contributed to by the defendant's alleged breaches of contract. Further, the conduct of the defendant and the non-parties in seeking to strip the defendant of all its assets and place them under the control of Mr Mingos is a strong discretionary factor against requiring the plaintiffs to support their undertaking by security which they are unable to give. In reaching this conclusion I have also taken into account the fact that Mr Condo is prepared to give a personal undertaking as to damages, in order to support that given by the plaintiffs.

71 Next, as to the balance of convenience, it was submitted on behalf of the defendant and the non-parties that any freezing order should be made conditional upon the plaintiffs commencing a proceeding under s. 172(1) of the Property Law Act. In this regard, reliance was placed upon the reference by the High Court in Cardile v LED Builders Pty Ltd to the need to consider whether such a condition should be imposed, as part of considering the balance of convenience and the form of relief to be granted.[11]

72 In my view, I should not impose such a condition. It was not said in Cardile v LED Builders Pty Ltd that such a condition ought be imposed, only that consideration should be given to whether such a condition should be imposed in the circumstances of a particular case. In this case, it would be unfair to require the plaintiffs, as a condition of obtaining relief, to commence proceedings under s. 172(1). First, it would be unfair because the trial of this proceeding is imminent. It would be unduly burdensome upon the plaintiffs to require them to now formulate their case under s. 172(1) prior to the hearing and determination of this proceeding. Second, if the plaintiffs are successful in obtaining judgment, they will no doubt seek to have a liquidator appointed to the defendant. The plaintiffs and the liquidator may then wish to join in proceedings under s. 172(1) of the Property Law Act, and also join in that proceeding other claims available to a liquidator, with a view to minimising costs and avoiding multiplicity of proceedings. Further, in formulating and prosecuting their claims, the plaintiffs and the liquidator may wish to avail themselves of the forensic advantages available to liquidators, by the use of processes such as compulsory examination of directors and compulsory production of documents.

73 Of course, if the plaintiffs wish to commence a proceeding under s. 172(1) now, it is open for them to do so. It is also open for them to apply in this proceeding to join the non-parties as parties and to amend their statement of claim to raise claims under s. 172(1) in this proceeding. However, that is a matter for them. No doubt, the risk that such a course of action may have the result that the current trial date is vacated will be a matter considered by the plaintiffs in this regard.

VII. ANCILLARY ORDERS

74 I have referred to the fact that, notwithstanding that Mr Mingos was in court during the hearing of the application and gave instructions to senior counsel for the defendant and the non-parties on numerous occasions, the Court has not been informed as to the identity of the persons who received the sum of $850,000 which was paid to Franklin Dell and then distributed by it to the beneficiaries of the Mingos Family Trust. In my view, an ancillary order under Rule 37A.03 should be made, requiring Mr Mingos to forthwith swear an affidavit disclosing all matters relating to the use and application of the $850,000 paid to Franklin Dell. If it transpires that these moneys, or assets acquired from the application of them, are not held by Mr Mingos but are held by other non-parties, the Court will entertain an application for freezing orders against those parties.

ORDERS

75 For the reasons given, I will make freezing orders against the defendant, Violet Home Loans Pty Ltd, Franklin Dell Pty Ltd and John Mingos. In all the circumstances, I will make the order against the defendant, even though there may presently be no identifiable utility in doing so. In circumstances where Mr Mingos controls the defendant, Violet Homes Loans and Franklin Dell, and having regard to the course of action embarked upon by Mr Mingos, I will exercise my discretion to include the defendant within the orders.

76 The freezing orders will prevent the defendant, Violet Home Loans, Franklin Dell and Mr Mingos from disposing of, dealing with, encumbering or diminishing their assets to the extent of the particularised amount of the plaintiffs' claim, in the sum of $1,258,602.57. Further, I will order that Mr Mingos swear and file a detailed affidavit disclosing all matters relating to the payment and application of the $850,000 paid to Franklin Dell. I will hear the parties as to the precise form of the orders to be made and as to costs.

[1] Amended defence dated 26 May 2006, para. 7(a).

[2] Amended defence dated 26 May 2006, para. 7(b).

[3] Supreme Court (General Civil Procedure) Rules 2005 (Vic).

[4] The amount is the particularised amount of the plaintiffs' claims in the proceeding.

[5] Emphasis added.

[6] Rule 37A.05(6), Rule 37A.06.

[7] (1999) 198 CLR 380.

[8] Ibid, [57] (citations omitted).

[9] (1874) LR 9 Ch App 244.

[10] Active Leisure (Sports) Pty Ltd v Sportsman's Australia Ltd [1991] 1 Qd R 301, 311.

[11] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [70].