Print Management Australia Pty Ltd v Pasupati

Acquasun Pty Ltd v Coverdale Ram Pty Ltd [2000] NSWSC 1146 CASES CITED : Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 Thomas A Edison Limited v Bullock (1912) 15 CLR 67

Print Management Australia Pty Ltd - Plaintiff Kumareshwara Pasupati - First Defendant Tacatan Pty Ltd - Second Defendant PARTIES : S Satchithananda - Third Defendant K Satchithananda - Fourth Defendant Krishankumar Sellathurai - Fifth Defendant Maithili Sellathurai - Sixth Defendant Michael Hayter - Seventh Defendant

COUNSEL : Mr B A M Connell/Mr R M Higgins - Plaintiff Mr A R Moses/Mr T Saunders - First Defendant

SOLICITORS : Fox & Staniland - Plaintiff Thomas Playford - First Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2059/08 PRINT MANAGEMENT AUSTRALIA PTY LTD v KUMARESHAWARA PASUPATI & 6 ORS

1 Freezing orders were made in respect of the property of several defendants upon an ex parte application made by the plaintiff on 27 March 2008. The orders against all defendants other than the first have been dissolved by consent. 2 On 11 April 2008 I heard applications as to the future of the orders affecting the first defendant. 3 The cause of action the plaintiff asserts against the first defendant is based on alleged breach of duties owed by him as a director of the plaintiff. The first defendant is one of three shareholders in the plaintiff. He has a shareholding interest of about 42.5 percent. The other shareholders are Mr Okill (52.5 percent) and Mr Raymont (5 percent). All three of them are also directors. The first defendant was the chief financial officer of the plaintiff until 10 December 2007 when his employment was terminated. Mr Okill is and was the managing director. 4 The first defendant says that the orders obtained ex parte must be discharged because the plaintiff did not comply with its obligation to put all relevant matters before the court. Several contentions were put forward under this heading. It is sufficient to mention one of them. 5 The evidence put before the court by the plaintiff on the ex parte application referred to the first defendant's co-ownership with his former wife of a "large palatial property" in "a very expensive part of Strathfield" referred to as "the golden mile". The transcript shows that at the ex parte hearing this property was described as "the major asset". 6 The plaintiff did not disclose to the court (and accepts that it did not disclose) that it had lodged a caveat on the title to this property. The effect of the caveat, of course, is to prevent registration of dealings affecting the property without the consent of the plaintiff. In practical terms, therefore, no purchaser or mortgagee will accept the property unless the caveat is removed or the consent of the plaintiff is given. The plaintiff therefore already exercises a significant form of restraint in respect of "the major asset". It would have been highly material to the exercise of the court's discretion for this to be known. 7 This one matter is sufficient to warrant the ex parte orders being set aside in accordance with principles perhaps most often associated with the judgment of Isaacs J in Thomas A Edison Limited v Bullock (1912) 15 CLR 67. The onus is, therefore, now with the plaintiff to make a case justifying the reimposition of the orders. 8 I return then to the plaintiff's case. The alleged breaches of directors' duties concern transfers of funds from the plaintiff to the first defendant or persons apparently associated with him. It is clear that some transfers were made. Further evidence has been tendered by the plaintiffs since the ex parte hearing and the first defendant has also placed evidence before the court. 9 The position the plaintiff takes is, in essence, that the first defendant as chief financial officer had access to the plaintiff's bank accounts and used that access to make improper payments to himself or for his benefit. The first defendant says that payments were indeed made to him, but that they were authorised and regular and in accordance with both formal and informal agreements entered into by the plaintiff. 10 The first defendant has put into evidence copies of two loan agreements between the plaintiff as lender and the first defendant as borrower. These are in addition to a loan agreement put into evidence by the plaintiff. Mr Okill accepts that his signature appears to be on the two further agreements, but says that he has no recollection of them and that, if he did sign them, they must have been "slipped under his nose". The plaintiff also contends that its accounts do not reflect the transactions in these two alleged agreements. There are factual issues to be resolved on these matters. 11 The plaintiff relies on a forensic accounting report prepared by Deloittes. The first defendant points to material in the report to the effect that Deloittes did not themselves identify "suspicious" transactions and accepted what had been given to them by others. He also refers to the "limitations" stated on page 7 of the report. The weight to be given to the report is something that will have to be judged in due course in the light of the whole of the evidence about the underlying facts. 12 On the whole, however, I am satisfied that there is what rule 25.14(1)(b) of the Uniform Civil Procedure Rules 2005 calls "a good arguable case" on the proposition that the payments the first defendant caused the plaintiff to make to him were irregular, although I must say that, in the light of the evidence in the first defendant's affidavit, the case is by no means as strong as the plaintiff's original evidence might have suggested. 13 The next question, therefore, is whether, in the words of Gleeson CJ in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, there is "a danger that by reason of the defendants absconding or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion the plaintiff, if he succeeds, will not be able to have his judgment satisfied". 14 A freezing order is warranted only if, in the words of Bryson J in Acquasun Pty Ltd v Coverdale Ram Pty Ltd [2000] NSWSC 1146, there has been "conduct on the part of the defendants which can reasonably be interpreted as potentially having the effect of frustrating the ordinary processes of the court and the enforcement of its judgments or of being intended to do so or of being in any way evasive indicating dishonesty or otherwise indicating actually or potentially that the assets of the company have been or will be dealt with in an irregular way". 15 Mr Connell, counsel for the plaintiff, made some quite exaggerated submissions on this matter. He said in written submissions that the first defendant "had shown himself to be an expert embezzler" who had "a training and background to whisk away large amounts of money". These submissions are unhelpful. It is unfortunate that they were made in these colourful terms. 16 The real submission is that the events involving the payments at issue in this case themselves show that there is a relevant risk that the first defendant will somehow seek to put his assets beyond the reach of the processes of the court. The only other matter referred to is that in a document filed in the Family Court in June 2006 the first defendant stated the estimated value of his shares and the plaintiff to be $840,000 whereas a valuation by Deloittes commissioned by the plaintiff recently states an opinion of between $1.214 million and $1.469 million as at 31 December 2007. 17 The second matter may be dealt with briefly. The valuation of shares in private companies is by no means an exact science. The Deloittes opinion refers to value some eighteen months after the Family Court document. Any inference that the discrepancy bespeaks an intention to deceive is to my mind problematic to say the least. 18 The plaintiff's case on threat of dissipation or secreting away of assets is therefore left to rest on the evidence about the central issue in the case. That evidence immediately prompts the observation that the first defendant's affidavit is very detailed in its treatment of a large number of separate payments, transactions and events. 19 The first defendant has engaged squarely with all of the plaintiff's allegations and has sought to explain them on a basis reflecting fair and regular dealing in the particular context of the closely-held company the affairs of which were administered with a degree of informality. Indeed, he has even gone to the extent of pointing out two items of indebtedness owed by him to the plaintiff that are not referred to in the Deloittes report on which the plaintiff relies. This is not the approach that would be expected of someone with dishonest or devious intentions. 20 The first defendant's personal circumstances as related in his affidavit are also relevant. He lives in the house at Strathfield. His son is a student at a nearby private school. His daughter is studying at a university outside Sydney. While the first defendant is of Sri Lankan origin, he has not visited that country since 1987. His parents are also in Australia. Since their arrival here he has not been in contact with anyone in Sri Lanka. He does not have a Sri Lankan passport. He is a citizen of Australia and has an Australian passport. 21 The evidence does not satisfy me at all that there exists any real risk that the first defendant will resort to stratagems calculated to make assets unavailable to frustrate the ordinary processes of the court and the enforcement of any judgment. 22 I come back at this point to a matter already mentioned. The house at Strathfield is subject to a caveat lodged by the plaintiff. The prospects of that property being converted into cash without the plaintiff's knowledge, with the cash then being spirited away, is in practical terms very remote indeed. This is something which in any event weighs heavily against the plaintiff in the balance of convenience. 23 The freezing orders will be dissolved immediately and will not be reimposed.

(Counsel addressed on costs) 24 The first defendant had earlier foreshadowed a claim for an order that the plaintiff pay the first defendant's costs of the applications to which this judgment relates, that is, the applications for dissolution and reimposition of the orders plus costs of 2 April 2008, such costs to be assessed on the indemnity basis and to be assessed and payable forthwith. It may be that the first defendant now wishes to seek some other additional order. I direct that the first defendant file by delivery to my associate by 18 April 2008 written submissions in support of the costs orders referred to in the written submissions already filed or, alternatively, any motion intended to be brought in respect of costs. 25 I direct that the proceedings be listed for further directions on the matter of costs as between the plaintiff and the first defendant at 9.30am on 23 April 2008. 26 The orders made in respect of the first defendant on 27 March 2008 as subsequently varied are discharged. **********

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