BETWEEN : SANTOS & ASSOCIATES (ACN 009 241 552)

Practice and procedure - Assets preservation order - Application to continue refused - Turns on own facts

Babanaft International Co Sanperris v Bassatne [1990] QB 13

Ballabil Holdings Pty Ltd v Hospital Products Ltd (1985) 1 NSWLR 155

Coxton Pty Ltd v Milen, unreported; New South Wales Court of Appeal; 20 December 1985

J D Barry Pty Ltd v M & E Constructions Pty Ltd [1978] VicRp 18; [1978] VR 185

LED Builders Pty Ltd v Eagle Homes Pty Ltd (1997) 78 FCR 65

Mercantile Group (Europe) AG v Aiyela [1994] QB 366

Minema Maritime Corp v Tave Schiffahrsgesellschaft M & B H & Co K G [1983] 1 WLR 1412

Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 8 WAR 183

Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319

R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59

Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264

1 MURRAY J : This matter arises out of what I may shortly describe as oppression proceedings brought under the provisions of the Corporations Law s 246AA. That is a wide-ranging and very convenient form of proceeding available to a member of a company who takes the view that there is evidence that the affairs of the company, in this case the first respondent, have been unfairly conducted in a way which is prejudicial to or unfairly discriminatory against the particular member who raises the concern or the members generally.

2 It is a procedure in respect of which the court is given power to make wide remedial orders. They may require those who are parties to the proceeding to make good what has occurred or order that the company be wound up or effectively requiring the affairs of the company to be regulated in the future in a way which would cure what might be found to be the mismanagement of the corporation.

3 I have looked at issues concerned with that principal proceeding previously and on 23 September I made a number of orders which were of an interlocutory kind, but connected to the interim management and processes of the first respondent pending the final resolution of the principal proceedings. In the meantime, a number of affidavits have been filed which trade opposing views and raise various concerns about the propriety, in particular, of the second respondent's association with the management of the corporation.

4 On the view of the matters of fact raised by the affidavits most favourable to the present applicant and to the person standing behind it, Mr Esceray, there are serious questions to be litigated in the principal proceedings as to the management of this company, the first respondent, during the relevant period and particularly prior to the time when I made the various orders to which I have referred in September last year.

5 The particular proceeding with which I must now deal is an application for what is often described as a Mareva injunction but which is, I think, probably more properly described as an application for an asset preservation order. The application has led to some interim orders being made, those being particularly concerned with a property situated at 49 Jersey Street, Jolimont. I shall turn to that property in a minute but for the moment I simply want to point out that when, ex parte as I understand it, McKechnie J made an interim order of this kind on 10 February this year it was in a particularly limited time-frame to restrain the second respondent from selling or any other manner disposing of his interest in the property situated at 49 Jersey Street, Jolimont. That was modified to some extent and extended to 4 pm today, as it turns out, by Scott J on 17 February. The modification to that order, which has continued interim from that time, was that the second respondent is restrained from accepting any offer to purchase or in any other manner disposing of his interest in the property situated at 49 Jersey Street, Jolimont. It can be seen that that was a more limited form of order and would permit the second respondent to continue and to be involved in processes of negotiating for sale but not permit him to be involved in any process by which a contract of sale was finalised. If he could not be involved in that then nobody else could.

6 The form in which the order is now sought against the second respondent is, as Mr Hawkins indicates to me, intended to relate solely to the interest of the second respondent in the Jersey Street property and would permit the sale to be completed and would effectively preclude the second respondent from disposing of his net benefit from the sale of the property, should there be one, other than by paying it into a trust account jointly controlled by the solicitors for both parties. In addition, orders are sought preventing him from disposing of or otherwise dealing with any assets in his name or his interest in any assets held jointly with others in any form, except to spend up to $500 a week for ordinary living expenses.

7 In addition the order would preclude any disposition of or dealing with the assets of companies identified with the second respondent. There is evidence to show that identification, whether entirely accurately or not may be another question, but it is said that Coropean Pty Ltd is a corporation of which the second respondent is the sole director and one of two shareholders. Mid City Assets Pty Ltd is said to be a private company of which the second respondent is the sole director and shareholder and Wisdom Assets Pty Ltd is said to be a company of which the second respondent is one of three directors and one of three shareholders but the extent to which he has a controlling interest in that company is not made clear by any evidence before me. Nor, it should be said, is it clear, apart from the fact that he is said to be the sole director of Coropean, whether he has a controlling interest as a member of that company. Finally an order is sought which would prevent the second respondent from disposing of his interest under any trust arrangement for which any one or more of the corporations to which I have just referred are said to be parties as trustee.

8 To complete the picture with respect to the Jersey Street property, it should be said that, relying upon the uncontested material in the second respondent's affidavit of 17 February 2000, it appears that the second respondent and his wife, Yvonne Buller, are joint owners of the property, probably joint tenants, but it may be as tenants in common, and it matters not. It was purchased from his brother and sister-in-law, who themselves provided vendor finance. The property was purchased for the sum of $310,000 of which $248,000 was raised by a mortgage provided by BankWest, and so as mortgagee that bank remains as the party having the principal equitable interest in the property. There was another mortgage to secure $60,000 advanced by the second respondent's brother and sister-in-law and he himself contributed a small amount towards the balance of the purchase price, settlement fees and stamp duty.

9 It is a property in respect of which it is alleged that some private expenditure has been made by Mr Powell, utilising funds obtained from Glowtime in an improper way, an allegation which is denied but which nonetheless has some force on the face of the documentary material, although it must be said that the material in respect of the security system to which I have been referred seems to me to be somewhat equivocal. However that is not the purpose of referring to the interests in the property. What is material, it seems to me, is that it is a property in respect of which, if it was capable of being sold for the asking price of between $365,000 and $385,000, self-evidently would involve payments to the mortgagees of the amounts necessary to discharge those financial commitments and in respect of the balance of the funds Ms Buller has what I would take to be an equal interest in the proceeds to that of the second respondent.

10 So in almost all its aspects this is an assets preservation order as sought which involves not only the second respondent and his financial interests but also the interests of third parties, although it should also be said that apparently in one of the so-called entities controlled by the second respondent he is said to be the sole director and shareholder. So that in that case that corporation may be simply regarded as his extension for the purpose of any activities it may carry out.

11 The parties are ad idem with respect to the relevant legal principles which govern the grant of an order of this kind. I do not wish to refer to the authorities except to say that it is appropriate still to place reliance on authorities such as Perth Mint v Mickelberg (No 2) [1985] WAR 117 and later decisions of the Full Court together with two authorities of the High Court, Jackson v Stirling Industries (1987) 162 CLR 612 and most recently Cardile v LED Builders Pty Ltd (1999) 162 ALR 294.

12 From those authorities I extract the following general principles: it is important certainly to have regard to whether or not the plaintiff applying for an assets preservation order has in the principal litigation, of which the application for such an order is an interlocutory part, a case of some strength. In relation to that I appreciate that there is in almost every point at which that case is advanced by the applicant a contest of fact which is exposed on the documents and which I am unable on the documents to resolve. Nonetheless I think it is proper that I should take at face value for present purposes the assertions, so far as they are cogently made and supported, by the applicant.

13 There is a qualification which needs to be borne in mind. It is the case that at a number of points where what are described as questionable transactions are said to have occurred there is a deficiency in the record keeping which makes it impossible for those who have reported on the transactions, although they have the appropriate expertise, to express a definitive view about the propriety of those transactions. It would seem then that in relation to those matters final decisions about the propriety of those transactions must await the exposure of the deponents of affidavits to the processes of the court and the processes of trial in which, giving viva voce evidence, their credibility will be tested and appropriate decisions made by the court. In advance of that there are no more than assertions. If the assertions can be made good, then a clear case of oppression would be shown.

14 For the present purposes it seems to me to be sufficient to say that having read the affidavit material to which I have been directed there is sufficient there, in my opinion, to lead the court presently to the conclusion that the allegations may not be rejected and may be established, and if they are established they would make out a case for relief under s 246AA of the Corporations Law. The application for an asset preservation order may not, in my opinion, be dismissed by reason of a failure to comply with that threshold requirement that the plaintiff has a case of some apparent strength.

15 That, however, is not the end of the matter because, as the courts have continually pointed out, this is and ought to be an order which is confined to a relatively rare class of case; that is, one where it is cogently established to the court that the assets of the defendant in the action may be removed from the jurisdiction or dealt with within the jurisdiction in such a way as to cause, and indeed for the purpose of causing, the plaintiff, if it should be successful in the principal litigation, having in the result a judgment which may not be enforced. If that is established, then the court will conclude that the defendant before it is a person or entity about whom the judgment may be made that he or it is likely to attempt to thwart the jurisdiction of the court. Unless that conclusion may be drawn, to make an asset preservation order would be to do no more than move in an unjustifiable way to secure to the plaintiff the fruits of a judgment to which it has not yet established it is entitled, and to do that by unjustified interference with the personal property of the defendant.

16 Here the case which is advanced in support of the contention that I should reach that conclusion effectively relies upon what I have already said seems to me to be material about which I may not make definitive findings and to be material in respect of which I may say no more than that it reveals an arguable case. It reveals itself to be material which may ultimately be accepted in preference to the opposing view of the facts, and it reveals itself to be material which, if it was so accepted, would provide a cogent case for relief in the principal litigation. But, being unable to take it further than that seems to me to result in the court being presently precluded from relying upon that material in support of the making of the assets preservation orders sought.

17 In addition to that, it is said, however, that the court should conclude in any event that the second respondent is a person who, particularly having regard to the history of his gambling activity so far as it is exposed in the papers before the court, may irresponsibly dissipate his assets, particularly for example if he obtained proceeds from the sale of Jersey Street in liquid form, and to do that reckless of the obligations which he is said to owe Glowtime and of his likely liability to make good what has previously occurred in his management of that company. Again, I express the view that this ground for the grant of the order seems to me to lack the force and cogency which would support the making of an order of the kind sought.

18 In addition, it should be said that to the extent that the interests of third parties may be involved, particularly with respect to the corporate entities to which reference is made in the application, there is nothing, I think, to suggest that in the very limited circumstances in which the law allows an assets preservation order against a party to interfere with the rights of third parties, that would be justified in this case. It is a matter which is particularly discussed by the High Court in Cardile to which I have already had regard. For those reasons, in my opinion, the application for the assets preservation order must be dismissed and in the outcome, Mr Harrison, I think you would also require a particular order that the interim order, so far as it may still have life, should be discharged.