Redwin Industries Pty Ltd v Feetsafe Pty Ltd [2002] VSC 427

Supreme Court of Victoria|2002-10-10|Before: HABERSBERGER J

INJUNCTIONS - Application for discharge of asset preservation order - Failure to make to full and fair disclosure of material facts on ex parte application - Whether that failure tainted interlocutory order made on second occasion when defendant did not appear - Whether interlocutory order could be set aside in any event - Rule 46.08 of the Supreme Court Rules - Order discharged - No basis for making fresh asset preservation order - Inquiry as to damages - Whether delay precluded order for inquiry.

The application came before me in the following way. On 29 March 2001, the plaintiff, Redwin Industries Pty Ltd ("Redwin"), commenced proceeding P00651416 in the Magistrates' Court at Melbourne claiming the sum of $33,273.20 ("the debt") from Feetsafe for "product ... duly manufactured by the plaintiff and in part delivered to the firstnamed defendant or held in the warehouse of the plaintiff" (paragraph 4 of the Particulars of Claim), and from the secondnamed defendant ("McDonnell") "pursuant to a Director's Guarantee he executed on the 19 July 2000" (paragraph 6 of the Particulars of Claim).

By summons dated 29 March 2001, addressed only to the firstnamed defendant, Redwin made "an ex parte application ... for an urgent interim injunction." The application was supported by two affidavits, both sworn on 29 March 2001, one by Ian Douglas Travers, the General Manager of Redwin ("Travers' supporting affidavit") and one by Keith Ross Cameron, the solicitor acting for Redwin ("Cameron's supporting affidavit"). On the same day, the Magistrates' Court at Melbourne made the following order:

"Upon the Plaintiff by its Counsel undertaking to abide by any order the Court may make as to damages in the event that the Court hereafter considers that the First and Second Defendant or any third party involved in the carrying out of this Order shall have sustained any by reason of this Order which the Plaintiff ought to pay The Court orders that: 1. The first named Defendant and its Directors, Michael Patrick McDonnell and Wayne Paul Lee, its employees, agents, attorneys or otherwise be restrained until further order:

a) from transferring, disposing of, dealing with or divesting itself of, charging or diminishing any of the assets of the First Defendant including the trademark All Sports, in any manner whatsoever and from removing any such assets from the State of Victoria save for bona fide dispositions in the ordinary course of the day to day operations of the First Defendant's business and save insofar as the unencumbered value of such assets exceeds $40,000.

b) from selling or completing the sale of any part of the business of the First Defendant including the trademark All Sport, in any manner whatsoever.

c) from entering into or completing any financial transaction which may compromise its ability to meet and pay the debt of the First Defendant owing to the Plaintiff.

The further hearing of the proceeding was adjourned to 2 April 2001. Although the defendants were served with the relevant Court documents on the morning of 30 March 2001, they did not seek to appear on 2 April 2001. On that day, the Magistrates' Court ordered as follows:

"That the injunction granted on the 29 March 2001 be extended until the determination of the proceeding or until further Orders [sic]."

There followed various interlocutory steps in the Magistrates' Court proceeding, some of which I refer to below. Then, by a counterclaim filed on 3 September 2001, Feetsafe sought damages for breach of contract and for negligence. The claim appeared to exceed $500,000. By an application dated 5 November 2001, the defendants sought an order that the orders made on 29 March 2001 "restraining the Defendants from divesting themselves of their assets [sic], cease to have operation." On 7 November 2001, this application was amended to include reference to the orders made on 2 April 2001 and both this application and an application by Redwin for an order for security for the costs of the counterclaim were adjourned. On 9 November 2001, an order was made, pursuant to s.27 of Courts (Case Transfer) Act 1991, transferring the proceeding to this Court. By order of Master Bruce made on 13 December 2001, the proceeding was entered into the Common Law Division and the application to dissolve the asset preservation order was listed for hearing in the Practice Court on 30 January 2002. Feetsafe's summons seeking the orders set out above was filed on 18 January 2002.

There were a number of affidavits filed in relation to the application to dissolve the asset preservation order. The defendants relied on two affidavits by McDonnell, a lengthy one sworn on 9 January ("McDonnell's principal affidavit") and a shorter one sworn on 24 January 2002. Redwin filed the following affidavits: two by Cameron sworn on 23 and 29 January 2002 respectively, one by Travers sworn on 31 January 2002, one by George John Pearson, the Sales Manager of Redwin, sworn on 31 January 2002 and one by Kenneth Thomas Roberts, a director of Roberts & Partners (Vic) Pty Ltd, sworn on 18 January 2002. Some of these affidavits referred to earlier affidavits in this proceeding, which I have also read.

Mr Forbes of counsel, who appeared for the defendants before me, submitted that, apart from costs, there were three issues for determination. First, whether the asset preservation order should be dissolved or discharged because Redwin had failed to discharge its duty, on an ex parte application, to put before the Magistrates' Court all facts material to its determination as to whether such an order ought to be made. The second issue was whether, even if there had been no failure to disclose, the Court, in its discretion, should dissolve the asset preservation order, having regard to the relevant current facts and circumstances. The third issue was whether, assuming that the asset preservation order was dissolved or discharged, an inquiry into damages should be ordered. Each of these issues was opposed by Redwin.

The Principle of Full and Fair Disclosure on Ex Parte Applications

Mr Forbes referred to the judgment of McDonald J in Westpac Banking Corporation v Hilliard ("Hilliard")[2] in support of the proposition that a party making an ex parte application is bound to make full and fair disclosure of all material facts. In that case, his Honour examined the leading authorities on this topic and I can do no better than to repeat and adopt his analysis:

"In Thomas A. Edison Ltd v Bullock[3] it was held by Isaacs J that on an ex parte application to a court for an interlocutory injunction, there is imposed on the applicant a duty to bring before the court all facts material to its decision whether such injunction should be granted and that the failure to bring material facts before the court is a ground for such injunction to be dissolved. At p. 681 of this judgment his Honour said: 'Dalglish v Jarvie 2 Mac. and G 231, a case of high authority, establishes that it is the duty of a party asking for an injunction ex parte to bring under the notice of the court all facts material to the determination of his right to that injunction and it is no excuse for him to say he was not aware of their importance. Uberrima fides is required, and the party inducing the court to act in the absence of the other party, fails in his obligation unless he supplies the place of the absent party to the extent of bringing forward all material facts which the party would have presumably brought before the court in his defence to that application. Unless that is done, the implied condition upon which the court acts in forming its judgment is unfulfilled and the order so obtained must almost invariably fall. I add the word 'almost' in deference to such exceptional case as Holden v Waterlow 15 W.R. 139.' In Town and Country Sport Resorts (Holdings) Pty Ltd and Ors v Partnership Pacific Ltd[4], the court (Davies, Gummow and Lee JJ.) at p.543 said: 'Any party who seeks the granting of an injunction on an ex parte basis has a duty to place before the court all relevant matters including such matters which would have been raised by the respondent in his defence if he had been present.' After reference to that said by Issacs J in Thomas A. Edison Ltd v Bullock (as I have previously referred to) their Honours continued: 'The rationale behind the principle is clear; it is of utmost importance in the due administration of law that courts and the public are able to have confidence that an ex parte order has been made only after the party obtaining it has complied with its duty to disclose all relevant facts.' In Lloyds Bow Maker Ltd v Britannia Arrow Plc[5] Glidewell LJ at p.1343 after citing and referring to a number of authorities, at pp.1341-43, said that he accepted the proposition of law advanced by counsel, at p.1341 that: 'A party who seeks relief ex parte is under a duty to the court to make the fullest disclosure of all material facts. He must disclose any defence he had reason to anticipate may be advanced. If he does not comply he will be deprived of the fruits of his order without consideration of the merits and irrespective of whether, had he made such disclosure, he would or would not have obtained the order. It matters not whether the non-disclosure is deliberate or innocent. The court may allow a limited latitude for a slip, but only where the parties seeking relief has corrected the error quickly.' . . . In Brink's Mat Ltd v Elcombe[6] Ralph Gibson LJ at pp.1356-1357 set out seven enumerated principles applicable as requiring full and fair disclosure of all material facts to a court by a party making an ex parte application to the court for a Mareva order and the effect of the failure to make such disclosure. Without citing the authorities cited and referred to by his Lordship, in his judgment, I set out the seven principles. They were: '(1) The duty of the applicant is to make a 'full and fair disclosure of all the material facts'.

(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers.

(3) The applicant must make proper enquiries before making the application ... the duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional fact which he would have known if he had made such enquiries.

(4) The extent of the enquiries which will be held to be proper and therefore necessary must depend on all the circumstances of the case including -

(a) the nature of the case which the applicant is making when he makes the application; and

(b) the order for which application is made and the probable affect of the order on the defendant; and

(5) If material non-disclosure is established the court will be 'astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure ... is deprived of any advantage he may have derived by the breach of duty'.

(6) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty of the applicant to make all proper enquiries and to give careful consideration to the case being presented.

(7) Finally, it is 'not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded' ... the court has a discretion notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order or to make a new order on terms ...'."[7]

Does the Principle Apply to the Orders Made on 29 March and 2 April 2001?

In my opinion, the first question to be considered is whether Feetsafe was correct in seeking an order dissolving or discharging both the order made by the Magistrates' Court on 29 March as well as that made on 2 April 2002. The first order was not in the usual form for an ex parte order in that it was "expressed to operate, not for the shortest possible time until a specified day or until the hearing and determination of an interlocutory application, but until further order."[8] Nevertheless, the matter did come back before the Court in a short space of time and on that date a further order was made. Therefore, it seems to me that, despite the fact that neither party before me drew any distinction between the two orders, the order made on 29 March 2001 ceased to operate by its own terms upon the Magistrates' Court making the order on 2 April 2002. Thus, the only order that could now be dissolved or discharged, in my opinion, is that made on 2 April 2002, which, as it happens, incorporates by reference the terms of the earlier order.

The next question to be considered is whether the principle of full and fair disclosure on ex parte applications applies at all, in the circumstances of this case. Both parties approached the first issue on the basis that the orders by the Magistrates' Court on both 29 March and 2 April 2001 were made ex parte. Clearly, the first order was ex parte, but was the second? As previously stated, the defendants were served with the relevant Court documents on the morning of 30 March 2001, but they did not appear at the second hearing. In McDonnell's principal affidavit, he sought to explain why there had been no appearance for Feetsafe:

"At that time I did not take any action for Feetsafe to appear in the Magistrates' Court on the following Monday, 2 April 2001. The reason for this is that I did not know anything could be done to change the orders that were made and I didn't have the time or ability to do anything about the situation given that there was only a week-end in which to do so."

I shall return to consider this rather extraordinary explanation later in these reasons.

The order of 2 April 2001 was made in the absence of the defendants[9], but not without notice to them. The defendants chose not to appear. Therefore, it is not correct, in my opinion, to describe the order of 2 April 2001 as one made ex parte, which means in this context in the absence of one party because there had been no notice to that party.[10] Accordingly, the principle of full and fair disclosure on an ex parte application may not apply to the order made on 2 April 2001.

However, I am of the view, if I find that there was non-disclosure to the Court on 29 March 2001, that that non-disclosure should be regarded as tainting the second order, because the very basis of the second order would be the first order which had been obtained without full and fair disclosure. Just as a party must make full and fair disclosure to the Court when applying for an ex parte order, so it seems to me that it should be obliged to make full and fair disclosure when the proceeding returns to the Court on the hearing of the application on notice. In particular, why should the applicant not be obliged to correct any errors in the material put before the Court on the first occasion when, as will usually be the case, the ex parte application will have been made in some haste because of the perceived urgency? And why should that obligation not be imposed on the applicant regardless of whether or not the defendant appears at the other party appears at the second hearing? Thus, in my opinion, the principle would still be applicable.

I am strengthened in this conclusion by the approach of McDonald J in Hilliard[11]. In that case, ex parte asset preservation orders had been obtained by the plaintiff on 20 December 2000 against the two defendants and against a non-party, Ms McCready. Differently worded asset preservation orders were made against the two defendants and Ms McCready, in substitution for the earlier orders, on a further ex parte application by the plaintiff on 21 December 2000. The restraint on Ms McCready was expressed to be "until 4.00 p.m. on 29 January 2001."[12] On 11 January 2001, the asset preservation orders were varied with the consent of the defendants to delete the order restraining the Registrar of Titles. An asset preservation order against Ms McCready was again made in the same terms as that ordered on 21 December 2000.[13] Further orders were made on 29 January 2001. The earlier asset preservation orders were vacated and differently worded asset preservation orders were made against Mr Hilliard and Ms McCready "until 4.00 p.m. on 19 February 2001." Although the plaintiff and the defendants were represented before the Court on 29 January 2001, Ms McCready was not.[14] On 19 February 2001, Ms McCready was represented. By consent, but without prejudice to Ms McCready being able to contend that the initial order should not have been made by the Court and on the basis that the order made on that day was to be treated for all purposes as if it was an ex parte order, the orders made on 29 January 2001 were vacated and differently worded asset preservation orders were once again made against Mr Hilliard and Ms McCready "until further order."[15] Despite the fact that Ms McCready had not appeared on 29 January 2001, McDonald J stated that he would treat the order of 19 February 2001 "as being made on 21 December 2000 not by consent but by an ex parte application made on behalf of the plaintiff."[16]

I have, therefore, concluded that the principle that a party making an ex parte application should make full and fair disclosure to the Court of all material facts should be treated as extending to the order of 2 April 2001.

Was There Full and Fair Disclosure of All Material Facts?

The next matter to be addressed is whether there was full and fair disclosure by Redwin to the Magistrates' Court of all material facts relevant to the applications made on 29 March and 2 April 2001. That question involves a careful analysis of what material was put before the Magistrates' Court on those days. Obviously, I have the two affidavits relied on by Redwin in support of its applications. Unfortunately, however, Redwin has not put any material before the Court detailing what, if anything, was submitted by its counsel on those applications, and what, if any, reasons were given by the Magistrates for making their respective orders. This state of uncertainty should not be allowed to benefit Redwin in its opposition to this issue.

Mr Forbes submitted that the asset preservation order should be dissolved or discharged because Redwin failed to disclose to the Court a large amount of information and documentary evidence material to the consideration of its applications. He examined in some detail a range of issues which, he submitted, illustrated that Redwin had failed to provide full and fair disclosure of all material facts to the Magistrates' Court. I do not propose to examine all of these examples. In the end, the decision on many of them depends on the resolution of disputed conversations and other matters and it is not appropriate that I embark on that task at this stage of the proceeding. Nor is it necessary because, in my opinion, the four examples I deal with below lead inevitably to the conclusion that the plaintiff did fail in its duty to provide full and fair disclosure of all material facts to the Magistrates' Court.

The material most relevant to the granting of the asset preservation order would have been, without doubt, the statement in the affidavit of Travers sworn on 29 March 2001 that "I believe that the first named defendant is about to divest itself of all of its assets." This belief was said to be based on information provided to Redwin by a facsimile from McDonnell on 21 March 2001. It is difficult, in my opinion, to see how Travers could have formed such a belief. In his affidavit, Travers said that the facsimile indicated that "the first named defendant was 'selling out completely to a publicly listed company, and in turn will be taking shares in the new company'." I consider that, if this had been the statement in the facsimile, it should have conveyed to Travers, and to the Magistrates' Court, that Feetsafe would be receiving shares in the publicly listed company as the consideration for the sale of its business. However, what McDonnell actually said in his facsimile was that "We are selling out completely to a publicly listed company, and in turn will be taking shares in the new company. This will give us immediate access to markets in USA, Europe and Asia as well as considerable financial and management recourses [sic]." I consider that the actual statement in the facsimile should have conveyed to Travers, and the Magistrates' Court, that the shareholders in Feetsafe would be selling their shares in that company and receiving shares in the new company as the consideration for the sale of the shares in Feetsafe, but that that company would be continuing in existence and continuing to operate its business.

The evidence before the Magistrates' Court revealed that on 27 March 2001, Cameron replied to McDonnell's facsimile of 21 March 2001. In his facsimile, Cameron stated that:

"On reviewing the facsimile ... it is not clear who or which entity or party will be receiving such shares nor is it clear what company is providing the shares"

"full particulars of the proposed sale to the publicly listed company and how Feetsafe Pty Ltd would acquire considerable financial resources given that the consideration on the sale will be shares provided to unnamed parties."

This indicates to me that at that time Cameron understood the proposed sale was of the shares in Feetsafe. Otherwise, if it were a sale of the business of Feetsafe, in the normal course of events, Feetsafe and not "unnamed parties" should be receiving the shares in the publicly listed company. However, Cameron then asserted that there was a "clear intent that you are divesting all the assets of the company". Again, I do not understand the logic of this claim.

The response to this letter seems to have been the rather unsatisfactory telephone conversation between McDonnell and Cameron first thing on 29 March 2001. In affidavits sworn on 29 October and 5 November 2001, McDonnell said that he was "wary" that if he gave details to Cameron "there may have been some prejudice to the negotiations that we were endeavouring to finalise". Nevertheless, McDonnell did not assist matters, despite what he says were the difficulties caused by Cameron's aggressive manner, by telling Cameron that it had not been decided to which public company "the assets of the firstnamed defendant would be sold" and that "Ken Roberts was a Director of the company which would be buying the assets" (paragraph 6 of Cameron's supporting affidavit and confirmed in paragraph 120 of McDonnell's principal affidavit) (emphasis added) and by answering that "it is no concern of yours" to the following questions: what was the name of the publicly listed company to which Feetsafe was selling its assets; who would be receiving the shares in the new company and what consideration was being paid to Feetsafe on the sale (paragraph 7 of Cameron's supporting affidavit and confirmed in paragraph 127 of McDonnell's principal affidavit). Contrary to what he said then, McDonnell has now sworn that the proposed transaction did not contemplate any sale of assets, only the shares in Feetsafe were to change hands (paragraph 115 of McDonnell's principal affidavit).

Nevertheless, despite the confusion there was no justification, in my opinion, for Redwin to have approached the Magistrates' Court on the basis that Feetsafe was "about to divest itself of all of its assets." It should have been understood by Travers and Cameron that, if the sale went through, either Feetsafe would be continuing to run the business with new shareholders or it would be receiving shares in a publicly listed company in return for selling its business. The wording of the order made on 29 March 2001 would indicate that the Magistrate considered that Feetsafe was about to sell all or part of its business. However, as Mr Forbes submitted, the changing of an asset, from one form to another, is not evidence of any dissipation of that asset. I accept Mr Forbes' submission that the alleged circumstances of the sale did not reveal any dissipation of Feetsafe's assets and that Redwin therefore mis-stated the position to the Magistrate by asserting that Feetsafe was "about to divest itself of all of its assets." Given the evidence before the Magistrates' Court on 29 March and 2 April 2001, there was no reasonable basis, in my opinion, for the plaintiff or the Magistrates' Court to fear frustration of the Court's process.

Mr Forbes submitted that Redwin failed to make full and fair disclosure to the Magistrates' Court with respect to two dishonoured cheques. In Travers' supporting affidavit, he referred to Redwin receiving a cheque from Feetsafe in the sum of $45,000.00, "however, this cheque was not honoured as a stop payment was put on it by [Feetsafe]." Travers produced the Dishonour Notice dated 18 September 2000. He then referred to Feetsafe providing Redwin with another cheque in the sum of $45,000, which again was dishonoured, and he produced the Dishonour Notice dated 4 October 2000.

The defendants submitted that Redwin knew the reasons why the first cheque was stopped because McDonnell explained them in his facsimile to the General Manager of Redwin dated 19 September 2001. This facsimile read as follows:

"After taking independent advice, payment to your company for $45,000 has been withheld because: 1. You have not yet supplied correct detailed amended invoices; 2. Notification of what stock is ready or when it will be delivered; 3. What recourse do we have concerning poor quality products. Please advise in writing by fax (9889 8295) complete, accurate and up to date information as requested above so that we may effect payment."

On 19 September 2000, McDonnell received a facsimile from Helena Sidelick of Redwin in reply to his facsimile. It listed the stock Redwin was to send with a total value of over $90,000 and stated that "All goods are completed and await your cheque so we can dispatch the goods." McDonnell then arranged for a second cheque in the sum of $45,000 to be deposited into Redwin's bank account on 3 October 2000. On the morning of 4 October 2000, he received a facsimile from Travers in which it was said that he needed a further payment of $12,247.83 to bring the payments up to two-thirds of the value of completed product available for despatch. In that letter, Travers stated:

"You will recall that the terms you and I agreed were 1/3rd on invoice, 1/3rd prior to delivery and 1/3rd within 30 days of first delivery. There has been no variation to this agreement."

According to McDonnell, this statement by Travers went back on the agreement he had made with Rory Barnes, the National Sales Manager of Redwin, and Helena Sidelick for supply of all outstanding product upon payment of $45,000, with the balance payable in 30 days. McDonnell therefore stopped the second cheque and sent a facsimile, dated 4 October 2000, to Travers explaining his reasons for stopping the cheque. It stated:

"This fax is to advise you that I have just stopped payment on our cheque number 000611 for $45,000. I have taken this action reluctantly because of uncertainties over the quality of the goods you are to supply us with, and the fact that you have changed the Agreement I made with Rory Barnes. (We pay $45,000 and receive all of the goods with the balance 30 days from delivery). The 125g sunscreen is not acceptable if the product supplied so far is representative. I will be at your office at 9.00 am tomorrow, Thursday, as arranged to inspect All Stock and agree to payment terms again. Clear funds can be put into your account tomorrow if a satisfactory agreement is reached."

Neither the facsimile dated 19 September nor the facsimile dated 4 October 2000 were put before the Magistrates' Court. In my opinion, they should have been, because they put a different complexion on the stopping of the cheques in September and October 2000. Without the correspondence, the Magistrates may have viewed the stopping of the cheques as a deliberate attempt by Feetsafe to avoid payment of its debt to Redwin or as an inability by Feetsafe to pay that debt. This in turn may have affected how the Magistrates viewed the suggestion that Feetsafe was "about to divest itself of all of its assets." In the circumstances, in my opinion, the correspondence was material to the Court's consideration of whether or not to grant the asset preservation order, even if Redwin did not agree with what was said in McDonnell's letters about terms of payment and so forth.

Ms Hannon of counsel, who appeared for the plaintiff before me, submitted that if there was any lack of disclosure on the part of Redwin in respect of the dishonoured cheques, that lack of disclosure was not material to Redwin's application for an asset preservation order. She submitted that the circumstances of Feetsafe's credit history were not material matters. I agree that one could query the relevance of the history of the dishonoured cheques to the application for an asset preservation order, but the fact is that this material was included in the affidavit of Travers in support of Redwin's application, so presumably it was seen as material at the time. In the absence of any evidence of what was said by either counsel for Redwin or the Magistrates, I consider that I cannot ignore the non-disclosure of the full story concerning the dishonoured cheques. As Dillon L J said in Lloyds Bowmaker Ltd v Britannia Arrow Holdings Plc ("Britannia Arrow"):

"The applicant owes a duty of fullest and frankest disclosure: if he puts in matters of prejudice he must put them in as fully as is necessary to be fair. He cannot pile on the prejudice and then when it is pointed out that he has told only half of the story and has left out matters which give a quite different complexion, say 'Oh, well, it is not material. It is only prejudice, and so, on a strict analysis of the pleadings, does not have to be regarded.'"[17]

The next example of a failure by Redwin to give full and fair disclosure relied on by the defendants is that in Travers' supporting affidavit he referred to a meeting on 13 October 2000 at which, he said, McDonnell agreed that Feetsafe would pay Redwin the sum of $33,273.20 within thirty days. In his affidavit sworn on 31 January 2002, Travers conceded that this statement was incorrect and said that agreement had been reached on that sum only on 21 February 2001. He said that in his haste in reviewing the affidavit, on the morning of 29 March 2001 prior to swearing it, he did not note the "confusion in the sequence of events". Travers said that it was not his intention to mislead the Court and he apologised for the error. I note, however, that this error was not corrected before the hearing on 2 April 2002 and was only belatedly acknowledged by Travers after it had been raised by McDonnell in both his affidavit sworn on 7 November 2001 in support of his first application to dissolve the asset preservation order and in his principal affidavit.

I consider that this non-disclosure was material because it portrayed a situation quite different to the true picture. As far as the Magistrates' Court was concerned, on the evidence put before it, this was a case of an agreed debt being outstanding from as long ago as 12 November 2000 (30 days after 13 October 2001), whereas, at best for Redwin, that debt had not become due and payable until very recently, on 23 March 2001 (30 days after 21 February 2001). Also there was evidence from Travers, which cannot be correct, that numerous demands had been made for payment of the agreed sum of $33,273.20 and that promises were made for payment of that sum on a number of occasions. Again, one may query the relevance of all of this evidence, but it was referred to in Travers' supporting affidavit, and it was incorrect. This misstatement of the facts may well have affected the preparedness of the Magistrates' Court to grant the asset preservation order.

Mr Forbes' fourth complaint was that neither of the supporting affidavits mentioned the value of the stock which Redwin retained in its warehouse. In McDonnell's principal affidavit it was said that the total wholesale value of finished stock retained by Redwin was $167,388.10, exclusive of GST (paragraph 22). In Cameron's affidavit sworn on 23 January 2002 in opposition to this application, he referred to McDonnell's assertion about the wholesale value of the goods retained in Redwin's warehouse and stated that he was informed by George Pearson, the Sales Manager of Redwin, that if Redwin were to sell the goods held in its warehouse, it would recover between $0.40 and $0.70 per unit, or between approximately $9,033.20 and $15,808.10.

I assume that the Magistrates were aware that some stock was "held in the warehouse of the plaintiff." That is set out in paragraph 4 of the Particulars of Claim and paragraph 10 of Travers' supporting affidavit. However, Mr Forbes submitted that, as it would appear from the order itself that no account was taken of the value of the stock retained by it, Redwin must have failed to bring this issue to the attention of the Magistrates' Court. On the plaintiff's own material, he submitted, the minimum value of assets figure of $40,000, required by the order to be retained by Feetsafe, should have been reduced by at least $9,000. (Presumably, the amount of $40,000 was reached on the basis of a rounding of the claim, plus interest, plus costs.) Further, as the plaintiff was obliged to put the defendants' possible arguments before the Court on an ex parte application, the Magistrates' Court should have been told that the wholesale value of the retained stock greatly exceeded Redwin's claim. I accept Mr Forbes' submission that there was a failure to provide full and fair disclosure by Redwin in not informing the Magistrates' Court that, at the very least, it held stock in its warehouse which, if sold by it, could generate funds of approximately $9,000 and which, if sold by Feetsafe, could probably generate funds well in excess of the amount of Redwin's claim. This was material information, in my opinion, for the Magistrates' Court to know when considering whether or not it was appropriate to make an ex parte asset preservation order.

Conclusion on the Issue of Full and Fair Disclosure

As stated above, in my opinion, Redwin did fail in its duty to provide full and fair disclosure of all material facts to the Magistrates' Court. The incorrect allegation that Feetsafe was "about to divest itself of all of its assets" would have been sufficient on its own to reach that conclusion, because this went to the very heart of the application for the asset preservation order. But, in addition, there were the three other examples which, I have concluded, were all failures to provide full and fair disclosure of material facts.

Therefore, applying the principles set out in the passage quoted above from the judgment of McDonald J in Hilliard[18], I propose to discharge the asset preservation order made by the Magistrates' Court at Melbourne on 2 April 2001.

Even if I am wrong in concluding that the principle that a party making an ex parte application should make full and fair disclosure to the Court of all material facts should be treated as extending to the order of 2 April 2001, Feetsafe was not without remedy, in my opinion. Pursuant to s.22(2) of the Courts (Case Transfer) Act 1991, the Supreme Court (General Civil Procedure) Rules 1996 ("the Supreme Court Rules") applied to the transferred proceeding. Rule 46.08(a) of the Supreme Court Rules provides that the Court may set aside or vary an order which affects a person where the application for the order:

"(a) was made on notice to that person, but he did not attend the hearing of the application."

Although neither party addressed submissions specifically on this aspect, it would appear that such an application should be determined according to the considerations that are relevant on an application under r.21.07 to set aside or vary a judgment regularly entered or given in default of appearance or defence.[19] Adapted to fit the particular circumstances of r.46.08, these considerations would, in my opinion, include:

(a) whether the non-appearing party had, on the merits, grounds for opposing the order made; (b) the reason for the non-appearance; (c) whether the application to set aside the order was made promptly after the order came to the knowledge of the non-appearing party; and (d) whether if the order were set aside the other party would be prejudiced in any respect which could not be adequately compensated for by a suitable award of costs.[20]

I have already decided that Feetsafe would have had good grounds for opposing the making of the asset preservation order if it had appeared on 2 April 2001. Further, I do not consider that Redwin would suffer any prejudice which could not be adequately compensated for by a suitable award of costs, were the Court to grant an application to set aside the asset preservation order.

Feetsafe, however, is not as strong on the second consideration set out above because I consider that the reason given by McDonnell for the non-appearance was quite extraordinary. I have great difficulty in accepting that McDonnell did not have "the time or ability" on the Friday he was served with the ex parte order or on the Monday before the hearing, at least to ring a solicitor to find out if "anything could be done to change the orders that were made" or to arrange for the hearing to be adjourned so that Feetsafe could properly consider its position. The explanation is not convincing. On the other hand, one wonders why Feetsafe did not take any immediate action to avoid the order being made, if not for the reason given.

A further difficulty for Feetsafe is that there can be no doubt that the application to set aside the order was not made promptly, as required by the third of the above considerations. Some seven months elapsed between 2 April and the first application by Feetsafe to set aside the asset preservation order on 5 November 2001. It is hardly surprising that there was no prompt application to set aside the order of 2 April 2001, because McDonnell deposed in his principal affidavit that he only saw his solicitor "for the first time in relation to this matter on 19 April 2001." This is three weeks after he was served with the initial ex parte order. Moreover, when dealing with another submission about delay, Ms Hannon drew my attention to the fact that during this period, Feetsafe filed a defence on 20 April, filed an affidavit sworn by McDonnell on 12 June, appeared before the Magistrates' Court in respect of a summary judgment application on 15 June, filed an amended defence on 29 June, attended a pre-hearing conference on 25 July, filed another affidavit sworn by McDonnell on 20 August, appeared at an application for leave to file its counterclaim out of time on 24 August, filed an amended defence and counterclaim on 3 September, filed an affidavit sworn by McDonnell on 29 October and appeared at an application for security for the costs of the counterclaim on 30 October 2001. Notwithstanding all of this activity, there was no attempt to set aside the asset preservation order until 5 November 2001.

The question therefore becomes whether Feetsafe would be precluded from obtaining relief under r.46.08 by reason of its lack of any reasonable explanation for its non-appearance on 2 April 2001 and its failure to apply promptly to set aside the order made in its absence on that day. In the circumstances of this case, I do not consider that it should. Apart from the reasons discussed above, which have led me to conclude that the Magistrates' Court would not, and should not, have made the asset preservation order if Redwin had made full and fair disclosure of all material facts, there is a further reason why the order should be set aside under r.46.08. In respect of another aspect of the case, Mr Forbes submitted that an order such as the one made in this proceeding should only be as wide as was necessary to protect the legitimate interests of the plaintiff. As Kirby J said in Cardile v Led Builders Pty Ltd:

"To the extent that orders for the preservation of property impede the use by a party of its assets beyond that which is essential to the purposes of the preservation, it oppresses the party bound, exposes it needlessly to risk of punishment for contempt, ties up its affairs and finds no justification in either of the reasons which have given birth to this remedy."[21]

Here, Mr Forbes argued, the order went beyond what was required. He referred again to the minimum value of assets figure of $40,000 in sub-paragraph 1(a) of the order and submitted that this was at least $9,000 too high. More importantly, Mr Forbes submitted that there was no need for paragraph 1(b) of the order to stop any proposed sale from being completed. Redwin's position would have been protected by an order freezing the proceeds of the sale or providing that the consideration for the sale received by Feetsafe, for example, the shares in the public company, be preserved or retained by Feetsafe. The potential disturbance to Feetsafe resulting from an asset preservation order would be likely to be much less if the order allowed any proposed sale to be completed. Although there was an attempt to limit the scope of the asset preservation order, it still exceeded, in my opinion, the maximum required to protect Redwin's interests. Moreover, there is also the criticism that it is by no means clear what conduct was actually being restrained by the order, in particular sub-paragraph 1(c).

Therefore, I am of the view that, if I had not discharged the asset preservation order, made on 2 April 2001, because of the breach of the principle of full and fair disclosure, it could have been dissolved, pursuant to the provisions of r.46.08.

Should There Now Be An Asset Preservation Order?

The second issue raised by the defendants was that, even if there had been no non-disclosure justifying the discharging of the asset preservation order, there should, in any event, be an order dissolving that order because it was no longer appropriate. Mr Forbes submitted that on the material now before the Court it was clear that there was no threat of a dissipation of the assets of Feetsafe. There was, therefore, no basis for Redwin or the Court to fear frustration of the Court's process.

Ms Hannon submitted that whilst the Court has an inherent discretion to vary or discharge the asset preservation order, it should not permit Feetsafe to re-litigate the merits of the original order. Ms Hannon relied on the decision of Warren J in Jindra v Tech-Rentala Pty Ltd[22] in support of her submission that "a variation of an injunction will only be granted where new facts come into existence or are discovered which render its enforcement unjust".[23] That decision in turn followed Adam P Brown Make Fashions Pty Ltd v Phillip Morris Inc[24], where Gibbs CJ, Aickin, Wilson and Brennan JJ stated:

"Considerable argument was directed to the question whether a court has power, otherwise than in the case of mistake operative at the time of giving it to release a party from an undertaking, at least in the absence of the consent of the other party. But in our opinion a court undoubtedly has such a power. Just as an interlocutory order continues 'until further order', so must an interlocutory order based on an undertaking. A court must remain in control of its interlocutory orders. A further order will be appropriate whenever, inter alia, new facts come into existence or are discovered which render its enforcement unjust."[25]

Ms Hannon submitted that there was nothing in the material before me which indicated changed circumstances or new facts that rendered the enforcement of the asset preservation order unjust. I disagree. Even if the view was taken that the proposed sale justified the making of the order on 2 April 2001, which I do not, by the time the matter came before me it was clear that this proposed sale was no longer proceeding. This was a significant new fact which, in my opinion, rendered the continuation of the asset preservation order unjust because it was no longer necessary.

The other way in which consideration had to be given to the question of whether there should now be an asset preservation order is that the plaintiff pressed for such an order to be made, even if I reached the view that there had been non-disclosure requiring dissolution of the ex parte order. In Britannia Arrow, Glidewell LJ said:

" even though a first injunction is discharged because of material non-disclosure the court has a discretion whether to grant a second Mareva injunction at a stage when the whole of the facts, including that of the original non-disclosure, are before it and may well grant such a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed."[26]

See also the statement by Ralph Gibson LJ in Brink's Mat Ltd v Elcombe[27] of his seventh principle set out at the end of paragraph 8 above and the statement to the same effect by Davies, Gummow and Lee JJ in Town & Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Limited[28] citing the decision of Northrop J in Barneys Blue-Crete Pty Ltd v Australian Workers' Union[29].

Ms Hannon submitted that, in the event of the Court determining that there had been non-disclosure by Redwin, there should be a new asset preservation order made in similar terms. However, in my opinion, there was no material before me which could justify Redwin's application for a continuation of the asset preservation order or the making of a fresh order to that effect. I am not satisfied that, at the present time, there is a risk that Feetsafe will attempt to divest itself of its assets or dissipate its assets in a manner designed to frustrate the process of the Court.

The third issue is whether, having decided to discharge the asset preservation order, I should order an inquiry as to damages, pursuant to the undertaking given by Redwin. Mr Forbes submitted that where an injunction, or more precisely an asset preservation order, should not have been granted, an inquiry as to the damages which the defendants may have suffered by reason of the order should be ordered, provided that the damage was due to the order and was not trivial or trifling.[30] Whilst it is clear that the ordinary course is that an inquiry as to damages will be ordered if there is any possibility of damage having been suffered, there are numerous authoritative statements to the effect that the Court has a discretion whether to enforce the undertaking at all.[31]

In Cheltenham & Gloucester Building Society v Ricketts[32], Neill LJ listed eight points extracted from the authorities in relation to the enforcement of an undertaking as to damages. I refer to the penultimate point in the analysis of his Lordship:

"Where an interlocutory injunction is discharged before the trial the court at the time of discharge is faced with a number of possibilities. (a) The court can determine forthwith that the undertaking as to damages should be enforced and can proceed at once to make an assessment of the damages. It seems probable that it will only be in rare cases that the court can take this course because the relevant evidence of damages is unlikely to be available. ... (b) The court may determine that the undertaking should be enforced but then direct an inquiry as to damages in which issues of causation and quantum will have to be considered. It is likely that the order will include directions as to pleadings and discovery in the inquiry. ... A decision that the undertaking should be enforced is a precondition for the making of an order of an inquiry as to damages. (c) The court can adjourn the application for the enforcement of the undertaking to the trial or further order. (d) The court can determine forthwith that the undertaking is not to be enforced. ..."[33]

"There is an obvious risk of unfairness to a respondent against whom an interlocutory injunction is ordered at a time when the issues have not been fully determined and when usually all the facts have not been ascertained. The order might subsequently prove to have been wrongly made but in the meantime the respondent by reason of compliance with the injunction may have suffered serious loss from which he will not be compensated by the relief sought in the proceedings. The risk of such injustice is the greater when the interlocutory injunction has been granted ex parte. The risk is particularly great with Mareva injunctions, granted as they are almost invariably ex parte, and frequently imposing severe restrictions on the respondents' right to spend their money or otherwise dispose of their assets: such injunctions can have the effect of ruining a thriving business or of otherwise causing substantial loss to the respondent. ..."[34]

Peter Gibson LJ then referred[35] to a passage from the judgment of Lloyd LJ (with whom Stocker LJ and Sir George Waller agreed) in Financiera Avenida v Shiblaq:[36]

"Two questions arise whenever there is an application by a defendant to enforce a cross-undertaking in damages. The first question is whether the undertaking should be enforced at all. This depends on the circumstances in which the injunction was obtained, the success or otherwise of the plaintiff at the trial, the subsequent conduct of the defendant and all other circumstances if the case. It is essentially a question of discretion. ... If the first question is answered in favour of the defendant, the second question is whether the defendant has suffered any damage by reason of the granting of the injunction. . . In a simple case the trial judge may be able to deal with causation and quantum himself as soon as he has exercised his discretion. But in a more complicated case it may be necessary for him to order an inquiry as to damages. . . . Very occasionally he may find it necessary to leave over the exercise of the discretion."

Peter Gibson LJ concluded that Financiera Avenida v Shiblaq:

". . . reaffirmed the well-established position that the court has a discretion whether to enforce the undertaking in the light of the circumstances, and that was so even though the injunction in question was a Mareva injunction.[37]

In Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd ("Air Express")[38], Aickin J referred to a number of cases in which the view had been taken that the right to an inquiry as to damages (an equitable remedy) may be lost by delay. In the same case, on appeal, Mason J (as his Honour then was) referred to "statements which indicate that the Court has a discretion to decide whether it shall order an inquiry for damages for breach of an undertaking given to the Court", and to the absence of "any special circumstances" in that case.[39]

Mr Forbes submitted that this was a clear case for an inquiry as to damages. Feetsafe's claim was that in January 2001 an agreement had been reached that the shareholders of Feetsafe would sell their shares to a public company owned by the family and associates of Ken Roberts in exchange for 49% of the shares in that company, and that as a result of the granting of the asset preservation order Roberts had pulled out of that transaction on 19 April 2001, thereby causing Feetsafe significant loss. Part of Redwin's response was to rely on an affidavit by Roberts in which he denied that he had reached any agreement with McDonnell or the other director of Feetsafe prior to the granting of the asset preservation order and to put into evidence communications between McDonnell and Roberts which indicated that negotiations between them were still continuing as late as August 2001. It is premature for me to consider the issues in that dispute. What I first have to decide is whether there should be an order for an inquiry as to damages because Redwin also relied on the previously referred to delay by Feetsafe in making the application to dissolve the asset preservation order as a ground for refusing to order an inquiry.

The cases of delay referred to by Aickin J in Air Express[40] were cases involving delay in applying for an order for an inquiry as to damages once the injunction had been discharged. Here, the criticism of Feetsafe was that it delayed in applying to have the asset preservation order discharged. If anything, this makes the argument against ordering an inquiry stronger. Ms Hannon submitted that the delay was such that it should prevent Feetsafe from being entitled to an order for an inquiry as to damages. She emphasised that Feetsafe chose not to appear at the hearing on 2 April 2001, did not confer with its solicitor until 19 April 2001 and did not apply to have the asset preservation order dissolved until 5 November 2001, despite having appeared at hearings in the Magistrates' Court on four previous occasions during the seven month period of delay.

However, in Britannia Arrow,[41] an inquiry as to damages was ordered, apparently without argument, where nearly two years had elapsed between the granting of the ex parte asset preservation order and the application for the discharge of that order. Further, the order had been varied twice in the intervening period, so as to allow various payments to be made for the costs of the party subject to the restraint.[42] This would indicate that delay alone may not be sufficient to deprive the restrained party of an order for an inquiry as to damages and I therefore reject Redwin's submission that I should refuse to order an inquiry because of Feetsafe's delay. Of course, the delay in applying for the discharge of the order may be highly relevant to questions of causation and quantum. Here, for instance, Feetsafe's claims may be open to the argument that if it had applied prior to 19 April 2001, the alleged agreement may not have been terminated by Roberts. But, as I have said, that is not an issue which is presently before me. Nor do I have to decide, at this stage, whether Mr Forbes was correct in submitting that Feetsafe was entitled to exemplary damages because of Redwin's conduct in wrongly obtaining the asset preservation order.

Pursuant to the undertaking given by Redwin, I propose to order that there be an inquiry as to the damages which Feetsafe may have suffered by reason of the making of the asset preservation order on 2 April 2001.

1. The asset preservation order made by the Magistrates' Court at Melbourne on 2 April 2001 be discharged.

2. There be an inquiry as to the damages which the firstnamed defendant may have suffered by reason of the making of the asset preservation order on 2 April 2002.

3. The question of any directions or orders concerning the hearing and determination of such an inquiry be referred to Master Wheeler on a date to be fixed.

4. The plaintiff's application for security for costs dated 23 October 2001 be listed for hearing before Master Wheeler on a date to be fixed.

[1] The origin of this terminology for a Mareva type injunction or order is to be found in Cardile v Led Builders Pty Ltd (1999) 198 CLR 380 at 393 per Gaudron, McHugh, Gummow and Callinan JJ and at 411-2 per Kirby J and Pelechowski v The Registrar, Court of Appeal (NSW) [1999] HCA 19; (1999) 198 CLR 435.

[7] [2001] VSC 187 at [19] - [21] and [23].

[8] National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386 at 538 per Kaye, Murphy and Brooking JJ. See also Practice Note No 4 of 1993 [1994] VicRp 4; [1994] 1 VR 86.

[9] See definition of "ex parte" in Osborn's Concise Law Dictionary, eighth ed. 1993.

[10] See definition of "ex parte" in Butterworths Australian Legal Dictionary 1997.

[19] Williams: Civil Procedure Victoria I 46.08.05

[20] See for example Rosing v Ben Shemesh [1960] VicRp 28; [1960] VR 173; Kostokanellis v Allen [1974] VicRp 71; [1974] VR 596

[23] [2000] VSC 122 at [23], citations omitted

[30] Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 306 at 323 per Mason J

[31] See, for example, Newby v Harrison [1861] EngR 850; (1861) 3 De GF & J 287 at 290 per Turner LJ; Graham v Campbell (1878) 7 Ch D 490 at 494 per James LJ; F Hoffmann La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 at 361 per Lord Diplock and the cases referred to in the following text.

[36] The Times, 14 January 1991; Court of Appeal (Civil Division) Transcript No 973 of 1990, CA.

[37] [1993] 1 WLR 1545 at 1556. See also Balkanbank v Taher [1995] 1 WLR 1056

[40] Newcomen v Coulson (1878) 7 Ch D 764; Ex parte Hall; in re Wood (1883) 23 Ch D 644

[42] [1988] 1 WLR 1337 at 1339 per Glidewell LJ

At a glance

Court

Decision date

Before

Source

Judgment (141 paragraphs)

Parties

Cases Cited (9)