RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd

1. The orders freezing the assets of the Second and Third Respondents are discharged with immediate effect.
2. The Applicants are to pay the costs of the Second and Third Respondents of and incidental to the interlocutory application of 14 November 2017.
3. The matter is adjourned to the pre-trial directions hearing at 9 am on 13 February 2018. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

WHITE J: 1 On 15 November 2017, on the ex parte application of the three Applicants in these proceedings, I issued freezing orders directed to the Second and Third Respondents: RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd [2017] FCA 1352. The question now before the Court is whether those freezing orders should be continued. 2 In the decision 15 November 2017, I referred to the principles concerning the issuing of freezing orders so that it is not necessary presently to repeat them. It is for the Applicants to show that it is appropriate for the freezing orders to be continued. 3 In the underlying proceedings, the Applicants allege that, by reason of misleading or deceptive conduct of the Second and Third Respondents, they were induced to invest in businesses conducted by the Respondents. The businesses have failed with the consequence that the investments of the Applicants have been substantially, if not wholly, lost. 4 The principal matters upon which I relied in granting the freezing orders were, first, the fact that each of the corporate Respondents in the proceedings is now in liquidation and the proceedings against them stayed; secondly, the then unexplained withdrawal of a substantial sum, over $440,000, from the bank account of the 11th Respondent over which the Second and Third Respondents had control only a few days before administrators were appointed to the 11th Respondent; thirdly, the nature of the Applicants' allegations against the Second and Third Respondents, these amounting to allegations of fraud and the recognition in the authorities that an inference that a respondent may wish to frustrate execution of the Court's process may more readily be drawn when the underlying allegation is that the respondent had sought by improper means to obtain funds from an applicant; and lastly, the failure by the Respondents' solicitor to respond to a reasonable request by the Applicants for information with respect to the preservation by the Respondents of their assets. 5 The Applicants also provided evidence indicating that the Second and Third Respondents appeared at least in some respects to have paid little regard to the distinction between the funds of the 11th Respondent on the one hand and their personal funds on the other. In particular, the Applicants noted that the Third Respondent appeared to have used a credit card linked to an account of the 11th Respondent for a number of personal expenses. I declined for reasons which I gave at the time to attach any significant weight to this last circumstance. 6 The Applicants have not adduced any further evidence in support of the continuation of the freezing orders. They did, however, provide an analysis of some of the debits and credits in the accounts of the 11th Respondent. That analysis was said to reveal that in the period from 1 July 2013 to 30 September 2015: (a) some $202,841.79 had been withdrawn from the principal account of the 11th Respondent and paid to or on behalf of the Second Respondent; (b) some $22,450 had been withdrawn from the same account and paid to or on behalf the Third Respondent; (c) the destination of withdrawals totalling some $1.4 million from the same account was not known; and (d) funds contributed by the Applicants appeared to constitute the principal source of funds deposited into the account. 7 The Respondents have filed affidavits. These comprise affidavits as to their assets as required by the Court's freezing orders and, separately, affidavits regarding their circumstances more generally. In addition, they have filed two affidavits from their personal accountant Mr Zerella. Mr Zerella has acknowledged that he had formerly provided account services to the 11th Respondent but had not prepared its financial statements. He has had access to the MYOB records of the 11th Respondent. 8 The Respondents' affidavits explain that the $440,000 was withdrawn because Mr Zerella had persuaded the ANZ Bank, the banker to the 11th Respondent, to allow a withdrawal of that amount in order to discharge the liability of the 11th Respondent, Second Respondent and his wife to CEG Securitas. That entity held a second mortgage over two of the properties of the Second and Third Respondents. It seems that at that time CEG Securitas was threatening to enforce its security. Significantly, for present purposes, the evidence seems to establish that the funds went from the overdraft account of the 11th Respondent to CEG Securitas. I also understand that that payment did not alter the overall indebtedness of the 11th Respondent. 9 Next, the affidavits indicate that the personal expenses incurred by the Third Respondent on the credit card of the 11th Respondent were accounted for in the books of the 11th Respondent as salary. This seems a little unusual as an arrangement, but nevertheless, the amounts involved do not appear to be substantial. I am not satisfied that, considered by itself, the use of the company credit card for the payment of personal expenses, with those expenses then accounted for in the 11th Respondent's books as salary, gives rise to an apprehension that a judgment obtained by the Applicants against the Third Respondent would go unsatisfied. 10 The payments from the account of the 11th Respondent to or on behalf of the Second Respondent are substantial. There is evidence that these amounts were recorded in the books of the 11th Respondent as either salary or as repayments of the amount of a loan from the Second Respondent to the 11th Respondent. 11 I think it fair to say that the evidence provided by the Respondents bearing on these matters is incomplete. The Second Respondent could have provided evidence of his salary at various times, but has not. It seems surprising that, despite his analysis of the MYOB records of the 11th Respondent, Mr Zerella has not identified the amount recorded as having been paid by way of salary. The Second Respondent could have deposed, with appropriate details, to the making of a loan or loans to the 11th Respondent, in respect of which there are said to have been repayments. He has not. 12 At its highest, the Respondents' evidence seems to establish little more than the fact that the payments to the Second Respondent were recorded in the accounts of the 11th Respondent, either as salary or as repayments of a loan account. Accordingly, in my view, the evidence concerning the payments to the Second Respondent does not allay altogether the sense of unease to which the Applicants referred concerning the conduct of the Second Respondent. 13 I emphasise, however, that the relevant apprehension must relate to the risk that a judgment obtained by the Applicants may go unsatisfied. Several of the Applicants' submissions seemed to refer to an unease of a different kind, namely, that the Respondents have not informed the Court as completely as is desirable about their own financial affairs and the relationship of those affairs with those of the 11th Respondent. That may well be so for the reasons which I have given. 14 However, the incompleteness of the Respondents' explanations and evidence is relevant for the present purposes only to the extent to which it informs the existence or otherwise of an apprehension that a judgment may go unsatisfied because of the removal of assets or the disposition of assets by either Respondent between now and the time at which the Court may deliver judgment in the underlying proceedings. Mere proof of an unease about the way in which the Second and Third Respondents have conducted themselves in the past and dissatisfaction about the evidence which they have provided to the Court now about that conduct does not, of itself, support an apprehension that a judgment would go unsatisfied. 15 I take into account that the real estate assets of the Second and Third Respondents are said to be encumbered. That being so, there does not seem to be a realistic prospect that those assets may be disposed of in the immediate future, at least, without the involvement of the ANZ Bank. The evidence available so far suggests that the amounts owing to the ANZ Bank by the Second Respondent exceed the value of the assets. If that be right, then there would not seem to be much incentive for the Second Respondent to dispose of the properties because the whole of the proceeds would, in any event, be going to the ANZ Bank to discharge the indebtedness to that bank. 16 Although, for the reasons which I have mentioned, I consider that there are a number of shortcomings in the evidence which the Second and Third Respondents have provided, concerning their financial affairs, I am not satisfied that the evidence taken as a whole gives rise to the apprehension which is necessary for the continuation of the freezing orders, namely, satisfaction that there is a real risk that a judgment debt would go unsatisfied by reason of the removal or disposal of the Respondents' assets. 17 I am satisfied that the freezing orders should be discharged. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White.