State of New South Wales v Shinji Pty Ltd

The relevant background to the application

1. On 2 July 2014, there was a fire on a property at Alexandria of which the first defendant was the registered proprietor ("the Depot"). The fire spread to an adjoining property of which the New South Wales Minister for Public Works was the registered proprietor ("the adjoining property"). The second defendant and Mariko Imaeda, who was his wife, were the sole directors of the first defendant. At the time of the fire, the second defendant was estranged from his wife and resided in an office at the Depot.
2. On 30 June 2020, the plaintiff commenced proceedings against the defendants by statement of claim, claiming damages for negligence and nuisance in respect of damage caused to the adjoining property.
3. The first defendant was deregistered on 20 March 2015. On 29 June 2020, Black J made orders reinstating the company, winding it up pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) and appointing a liquidator. On 2 July 2020, the statement of claim was served upon the first defendant. On 3 September 2020, the Court made an order staying the proceedings against the first defendant.
4. The plaintiff has been unable to locate the whereabouts of the second defendant. On 24 December 2021, Davies J made orders for substituted service allowing the second defendant to be served by email at his last known email address. The statement of claim, the notice of motion and associated documentation were served on the second defendant on 24 December 2021. There has been no response to date, and there was no appearance by or on behalf of the second defendant at the hearing of this application.
5. The essence of the plaintiff's claim, as distilled from its statement of claim, is as follows. The first defendant operated a tourist bus business from the Depot. At the time of the fire, the second defendant resided in an office on the premises and provided low-cost accommodation, for a fee, in caravans and a bus that were parked there and for the storage of various items including vehicles, boats and butane gas. At the time of the fire, there were about thirteen occupants of the property.
6. The second defendant provided power to the bus and caravans by way of extension cords that were connected to a power board in a shed. The electrical system was unsafe and the second defendant knew it to be so. The fire was started by an electrical fault in the shed that was caused by an excessive amount of electricity being used by one or more of the occupants.
7. The alleged defendants' breaches of duty in negligence are pleaded in the following terms: "Breach of Duty 29 Shinji breached its Duty to the plaintiff by reason of one or more the following matters: a. failing to eliminate electrical ignition sources at the Depot; b. creating the circumstances in which a fire could occur, and the plaintiff repeats paragraphs 9 and 12 to 16 hereof; c. failing to engage an electrical contractor to: i. install fixed power circuits to supply the energy requirements of the various locations at the Depot; ii. otherwise review the safety of the mechanisms by which electricity was otherwise supplied to the Depot; and thereafter used d. failing to [sic] with the terms regulating its use of the Depot e. failing to prevent the supply of current to appliances in the caravans and a bus at the Depot through a number of cord extensions and power boards; f. failing to engage an electrical contractor to undertake 'tag and test' certification of the power cords in use at the Depot; g. storing materials at the Depot which sustained and exacerbated a fire; h. failing to prepare and implement a fire management plan, or an adequate fire management plan, to minimise the incidence and impact of fire at the Depot; and i. failing to install a fire suppression sprinkler system, or other suppression systems, to defeat a fire early in its development. 30 By reason of one or more of the breaches pleaded in paragraph 29 above, Shinji breached its Duty (Shinji's Breach of Duty). Imaeda's participation in Shinji's Breach of Duty 31 At all material times, Mr lmaeda: a. knew of; and b. procured; and c. otherwise participated in the matters giving rise to Shinji's Breach of Duty. PARTICULARS a. The plaintiff repeats paragraphs 9 to 16 and 18 and 18 hereof b. Mr lmaeda modified the caravans and a bus for use as rental accommodation including installing appliances in them. c. He did so knowing that the Depot could not be lawfully used for the purpose of accommodation and the storage of goods. d. Mr lmaeda directed the Depot be used for the purposes of renting out one or more of the caravans and a bus and storing vehicles, boats, trailers, building materials and foodstuff, included inflammable gas and liquid as referred to in paragraph 9a.ii) above. e. Mr lmaeda personally caused electricity to be supplied to, and consumed on the Depot, in circumstances which he knew might cause a fire to occur. f. Mr lmaeda personally installed equipment which had not been approved by a licenced electrician. g. Mr lmaeda was aware, prior to the commencement of the fire, that: I. large amounts of electricity was being consumed; II. the occupants of the Depot were using electrical appliances in such a way that a fire might be caused; h. Mr lmaeda permitted the supply of current to appliances in the caravans and a bus at the Depot through a number of cord extensions and power boards from the Shed. i. Mr lmaeda had the management and control of the Depot at all material times by reason of his position as director and secretary of Shinji. 32 By reason of the matters pleaded in paragraph 31 above, Mr lmaeda: a. directed or procured Shinji's Breach of Duty; and b. had made the tort his own, in that he had a close personal involvement in the matters constituting Shinji's Breach of Duty; c. further or alternatively, deliberately, wilfully and knowingly participated in Shinji's Breach of Duty, with the consequence that he is concurrently personally liable for the loss and damage caused by Shinji's breach. Causation 33 Shinji's Breach of Duty, and Mr lmaeda's conduct as pleaded in paragraphs 31 and 32 hereof: a. caused the Fire; b. permitted the Fire to spread to the Premises; and/or c. failed to prevent the spread of the Fire to the Premises. Loss and Damage 34 By reason of one of more of the breaches pleaded herein, the plaintiff has suffered loss and damage."
8. The particulars of the second defendant's liability in nuisance are a repetition of par 31 of the statement of claim.
9. The plaintiff's contention as to the source of the fire is supported by two reports. One was issued on 29 July 2014 by the Fire Investigation and Research Unit of Fire and Rescue NSW, which concluded that there was a low probability of the fire being deliberately lit and that the probable cause was "an unspecified electrical fault involving possibly an appliance, an electrical extension cord or power board". The other was commissioned by the plaintiff from Murray Nystrom of Australia Forensic Pty Ltd and dated 22 June 2020. It concluded that the fire originated from "some form of unidentified electrical fault" in a storage compartment at the Depot.
10. The second defendant was interviewed by police on the day of the fire. In the course of the interview, he stated that he believed that the power source to the caravans was unsafe.
11. In 2016, the second defendant pleaded guilty to two charges pursuant to the Environmental Planning and Assessment Act 1979 (NSW) ("the EPA Act"), namely, that he carried out a development without obtaining the required consent (s 76A(1)(a)) and that he carried out a development that was prohibited under the provisions of the Local Environmental Plan, being the Sydney Local Environmental Plan 2012 (s 76B) ("the Land and Environment proceedings"). He was fined a total of $210,000 and ordered to pay the prosecutor's costs of $71,000: The Council of the City of Sydney v Imaeda [2017] NSWLEC 19.
12. In the proceedings, the parties tendered a statement of agreed facts. Paragraph 14 stated: "14. The Defendant installed a number of caravans and a bus at the subject premises. He furnished and fitted these out so that they could be rented. The defendant ran power cords to the bus and to the caravans. Each caravan and the bus had a small fridge. The power would shut off regularly because too much current was being drawn, particularly in winter if tenants used heaters."
13. In mid-December 2014, the first defendant sold the Depot for the sum of $4,246,000. The sum of $4,104,083 of the proceeds was paid into an account in the name of the Masaaki Super Fund, via the trust account of the solicitors acting on the conveyance for the first defendant, Foulsham and Geddes. The only beneficiaries of the Masaaki Super Fund were the second defendant and Mariko Imaeda. The trustee of the Masaaki Super Fund was Masaaki Enterprises Pty Ltd. The second defendant and Mariko Imaeda were the directors of Masaaki Enterprises Pty Ltd.
14. On 24 January 2015, the first defendant sold another property using the same firm of solicitors, an apartment in the City of Sydney, for the sum of $990,000. Of the sale proceeds, the sum of $966,615 was paid into the solicitors' trust account and thence to the Shinji Family Trust ($386,000), Moumoku Pty Ltd ($350,000) and the Masaaki Super Fund ($230,615). Moumoku Pty Ltd was incorporated on 28 November 2014. Its sole director and shareholder was the second defendant's son, Shinji Imaeda. On 5 December 2014, Moumoku Pty Ltd replaced the first defendant as the trustee of the Shinji Unit Trust. The material before me does not include any identification of the trustee or beneficiaries of the Shinji Family Trust.
15. On 17 February 2015, the second defendant applied to the Australian Securities and Investments Commission ("ASIC") for voluntary deregistration of the first defendant. In the application, the second defendant stated that the company's assets were worth less than $1,000 and that it had no outstanding liabilities. The application identified Ark Accounting Pty Ltd as the relevant contact, should ASIC have a query concerning the application. As noted, the first defendant was deregistered on 20 March 2015.
16. The liquidator of the first defendant investigated the company's examinable affairs, including the whereabouts of its directors, the reasons for the sale of the Depot and the apartment, the traceable proceeds of the sales, the second defendant's assets and the advice received by the first defendant from a financial advisor and its solicitors concerning its liabilities.
17. As to the latter issue, the liquidator examined Jacob Carswell-Doherty, a principal of Foulsham and Geddes who acted for the first defendant on the conveyances and for the second defendant in the Land and Environment proceedings. Mr Doherty gave evidence that in late 2014 he advised the second defendant that the owner of the adjoining property may have a claim in tort against the first defendant and that if the first defendant was to be wound up, then funds would need to be set aside to deal with possible creditors, including the plaintiff.
18. As to the second defendant's whereabouts, Dylan Chan, who was a director of Ark Accounting Pty Ltd, gave evidence on 5 July 2021 that the second defendant had informed him that he was leaving Australia. Mr Chan therefore presumed that the second defendant was overseas. On 2 September 2021, Mr Chan gave evidence that the last contact he had with the second defendant was in the form of an email that he received from him dated 7 July 2021. The address on the email was the address at which the second defendant was served with the plaintiff's statement of claim, pursuant to the orders made by Davies J on 24 December 2021.
19. A solicitor acting for the plaintiff, Jacqueline Haski, in an affidavit that was affirmed on 22 December 2021 and read on the motion, deposed to unsuccessful attempts to locate a residential address for the second defendant and to contact him.
20. As to the second defendant's traceable assets, Mr Chan gave evidence concerning three accounts. 1. Part of the proceeds of the sale of Depot and apartment were held in an account known as the Asgard eWRAP Super Account, which was a superannuation fund comprising units in index managed funds, for the benefit of the second defendant. The value of the units, as at 2 September 2021, was $194,388.14. 2. The second defendant had a Wealthtrac Allocated Pension Division Account, which is a form of superannuation account, from which regular drawdowns of about $3,000 to $6,000 per month were made. The underlying assets of the account included publicly listed shares. As at 2 September 2021, their value was $1,632,321.59. 3. A personal account with the ING bank, which the second defendant referred to in an email from the second defendant that was addressed to Mr Chan, dated 24 June 2020. There is no information as to the balance of the account.
21. The plaintiff's case against the second defendant is that his personal liability for the tortious acts of the first defendant arises from his direction of, and participation in, the tortious acts: Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd (2003) 9 VR 171; [2003] VSC 291 at [198]-[201].

The assets sought to be frozen

1. The order sought as to the nature of the second defendant's assets to be frozen is in the following terms: "(1) your assets include: (a) all your assets, whether or not they are in your name and whether they are solely or co-owned; (b) any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and (c) the following assets in particular: (i) funds held or deposited into Asgard Infinity eWRAP Super Account (no. XXX); (ii) funds held or deposited into Wealthtrac Allocated Pension Division Account (no. XXX); (iii) funds held or deposited into ING Bank Account (BSB XXX; Account No XXX). (2) the value of your assets is the value of the interest you have individually in your assets."

The relevant principles

1. Rules 25.11 and 25.14 of the UCPR are pertinent to the application. The relevant parts are as follows: "25.11 Freezing order (1) The court may make an order (a freezing order), upon or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the court's process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partly unsatisfied. (2) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets. … 25.14 Order against judgment debtor or prospective judgment debtor or third party (1) This rule applies if - (a) judgment has been given in favour of an applicant by - (i) the court, or (ii) in the case of a judgment to which subrule (2) applies - another court, or (b) an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in - (i) the court, or (ii) in the case of a cause of action to which subrule (3) applies - another court. … (4) The court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur - (a) the judgment debtor, prospective judgment debtor or another person absconds, (b) the assets of the judgment debtor, prospective judgment debtor or another person are - (i) removed from Australia or from a place inside or outside Australia, or (ii) disposed of, dealt with or diminished in value .…"
2. As to the meaning of "a good arguable case" in r 25.14(1)(b) and "a danger that a … prospective judgment will be wholly or partly unsatisfied because … the assets of the … prospective judgment debtor … are … disposed of, dealt with or diminished in value" in r 25.14(4)(b)(ii), I note that in Blue Mirror Pty Ltd v Pegasus Australia Developments Pty Ltd [2021] NSWSC 961, Kunc J observed: "79 The criterion of a 'good arguable case' requires proof 'of a case which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success': Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH &Co KG, The Niedersachen [1983] 1 WLR 1412; [1984] 1 All ER 398 (Ninemia) at 404 per Mustill J. In the Court's assessment of a 'good arguable case', the Court 'should not be drawn into a premature trial of the action, rather than a preliminary appraisal of the plaintiff's case': Ninemia at 404; see also Samimi v Seyedabadi; Seyedabadi v Samimi [2013] NSWCA 279 at [69] and [70], where McColl JA approved the observations of Mustill J in Ninemia. 80 The second relevant criterion is whether there is a risk that the defendant will, either by absconding or dissipating its assets, render itself 'judgment proof'. In satisfying the Court of this criterion, it is not incumbent on the plaintiff to establish this risk or danger on the balance of probabilities: see [Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319] at 325 per Gleeson CJ; see also Severstal Export GmbH v Bhushan Steel Ltd (2013) 84 NSWLR 141; [2013] NSWCA 102 at [57]-[60] per Bathurst CJ, with whom Beazley P and Barrett JA agreed. Rather, it is incumbent on the plaintiff to satisfy the Court that there is a danger that the prospective judgment will not be satisfied if the asset preservation order is not made, notwithstanding that the risk of that occurrence may be less probable than not. There is no requirement that evidence of the real risk that a defendant may abscond or dissipate its assets be direct; it may, and often will, be adduced by evidence that calls for inferences to be drawn. Additionally, there is no requirement imposed upon the plaintiff to adduce evidence of a positive intention by the defendant to frustrate any judgment: National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271 at 277; [1990] HCA 10 per Mason CJ, Brennan and Deane JJ. 81 Although the second criterion does not need to be established on the balance of probabilities, the plaintiff is nevertheless required to adduce 'solid evidence' that there exists a real risk that the defendant will abscond or dissipate its assets; mere assertion of that risk or proof that a company is incorporated abroad and does not have assets within the jurisdiction is insufficient: Ninemia at 406; Frigo v Culhaci [1998] NSWCA 88; Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194; [2010] FCA 1014 at [12] per Kenny J. As Lawton LJ explained in Third Chandris Shipping Corporation v Unimarine SA [1979] 1 QB 645, there must be facts from which the Court, 'like a prudent, sensible commercial man, can properly infer a danger of default if assets are removed from the jurisdiction': at [56]. I would respectfully add to his Lordship's observations that there may be evidence, inferential or otherwise, demonstrating a sufficient danger of default if the defendant's assets are dissipated within the jurisdiction."

Consideration and determination

1. On the basis of the material that has been tendered by the plaintiff, in particular, as to the origin and cause of the fire and the second defendant's actions, I am satisfied that the plaintiff's claim against the second defendant, as pleaded in its statement of claim, constitutes a "good arguable case". The evidence is capable of persuading the Court that the second defendant resided at the Depot, was responsible for letting the accommodation and was aware of the dangers posed by the manner in which he provided electrical power to the tenants. Further, that it was the negligent manner in which electrical power was provided by the second defendant that caused the fire and, ultimately, the damage to the adjoining property.
2. Had the second defendant filed a defence by the hearing of this motion, it would have been taken into account by the Court in determining whether the "good arguable case" requirement is met: Formerank Ltd v Luo [2020] NSWSC 1641. In the absence of a defence and any supporting material, my determination is based exclusively on the plaintiff's pleading and the material tendered on the application by the plaintiff.
3. As to the second requirement, that there is a danger that the second defendant's assets will be "disposed of, dealt with or diminished in value" so as to render the prospective judgment wholly or partly unsatisfied, I take into account the steps taken by the second defendant as a director of the first defendant to liquidate and transfer its assets to other entities of which he was a beneficiary and that these actions were contrary to the advice he received from his solicitor, namely, that before doing so, there was a need to make financial allowance for a claim in respect of the fire damage to the adjoining property. I also take into account that the second defendant's whereabouts are unknown and that attempts made on behalf of the plaintiff to contact him have been unsuccessful.
4. I am satisfied by that evidence that there is a danger that the prospective judgment will not be satisfied if the freezing order is not made.

Orders

1. Accordingly, I make the following orders. (1) Upon the plaintiff giving to the Court the usual undertaking as to damages with respect to the second defendant and until 9 February 2022, the Court makes orders in terms of the document which is Annexure 1 hereto. (2) The Court orders that these orders be entered forthwith. (3) The Court lists the matter before the Common Law Duty Judge at 10am on 9 February 2022.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 January 2022