The Owners - Strata Plan 9314 v Bloch

Patrick Stevedores Operations No 2 Pty Limited v Maritime Union of Australia (No 3) (1998) 195 CLR 1 Cardile v LED Builders Pty Limited (1999) 198 CLR 380 Jackson v Sterling Industries (1987) 162 CLR 612 Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264 Ausbro Forex Pty Ltd v Mare (1986) 4 NSWLR 419 Ninemia Maritime Corp v Trave GmbH & Co KG (The Niedersachsen) [1984] 1 All ER 398 The Irina Zharkikh [2001] 2 NZLR 801; [2001] 2 Lloyd Rep 319 Waimond Pty Ltd v Byrne (1989) 18 NSLWR 642 Baumgartner v Baumgartner (1987) 164 CLR 138 CASES CITED: Charles Marshall Pty Ltd v Grimsley (1956) 156 CLR 365-366 Calverly v Green (1984) 155 CLR 242 Black Uhlans Inc v NSW Crime Commission (2002) 12 BPR 22,421, 22,433 Salvo v New Tel Ltd [2005] NSWCA 281 Hussey v Palmer [1972] 1 WLR 286 Gissing v Gissing [1971] AC 886 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 Frigo v Culhaci [1998] NSWCA 393 Pelechowski v Registrar, Court of Appeal (1998) 198 CLR 435 Derby & Co Ltd v Weldon (Nos 3 and 4) [1990] 1 Ch 65 Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319

PARTIES: The Owners - Strata Plan 9314 (Plaintiff) Lewis Benjamin Bloch (Defendant)

COUNSEL: Mr Hewitt (Baker) Mr Gollan (McGlynn)

SOLICITORS: Ramensky Lawyers (Baker) McGlynn & Partners (McGlynn)

1 The Applicant on the motion is a cross claimant in proceedings brought by a body corporate for unpaid strata levies. The unpaid levies related to the occupation of a hotel in the city known as the Globe Hotel, in respect of which a unit trust had been established to buy the Globe Hotel business. The main proceedings which gave rise to the cross-claim have been resolved. They apparently terminated with the Applicant, Mr Baker, having to pay money in a settlement to others. He also had to extricate himself from the unit trust, had to pay money to the National Australia Bank ('the NAB'), and received, by way of assignment, rights against another unit holder, Mr McGlynn, in a document described as the 'Accession Agreement' in the Notice of Cross Claim.

2 By his Cross Claim, the Applicant, Mr Baker, alleges that Mr McGlynn acted as his solicitor in relation to the purchase of the units in the Globe Hotel, and he also sues in respect of Mr McGlynn's liabilities as assignee of the units.

3 By the motion as amended in Court, Mr Baker, for whom Mr Hewitt of counsel appears, seeks a Mareva order in relation to three parcels of commercial real estate owned by Mr McGlynn, which relate to Level 11 (one parcel) and Level 14 (two parcels) of a commercial block at 82 Elizabeth Street Sydney, and against Ms Hanness and Mr McGlynn in respect of a property at 11A Jersey Road, Woollahra. Mr McGlynn and Ms Hanness are living together in a de facto relationship, and Mr McGlynn recently transferred his legal interest in 11A Jersey Road (a one tenth interest) to Ms Hanness. Mr McGlynn conducts the practice of McGlynn & Partners at Level 11, in partnership with two other solicitors. Level 14, or much of it, is leased to the Dust Diseases Board.

4 The motion originally sought restrictions on expenditure of money by Mr McGlynn, but that claim has been abandoned. An undertaking as to damages was proffered by Mr Baker in written form: see Exhibit 'E'.

5 Mr Baker relies on the affidavits of his solicitor, Ms Gisella Ramensky, of 5 and 10 August 2005, and of Jeffrey David Edwards of 17 February 2004 (which establishes service of the Cross Claim on Mr McGlynn on 17 February 2004). Mr McGlynn relies on an affidavit of his own of 5 August 2005, paras 81 and 144 only, and of 9 August 2005.

6 There is evidence that Mr McGlynn has been in a position of financial crisis. He said, in an email of 28 June 2004 (see Annexure 'A' to Ms Ramensky's first affidavit): 'You are all aware that Peter Baker is suing me for $500,000, interest and damages. I am not covered by my professional indemnity policy for this, so Peter will have to look to me personally to pay. The investment in the Globe will have wiped me out, and I will in all probability go bankrupt' (p 2).

7 In para 15 of his affidavit of 9 August 2005, he said, 'In addition to my personal day to day living expenses, for the period from about mid-2000 until now, my outgoings have exceeded my income by a considerable amount and I have been obliged to meet a number of substantial capital payments. By reason of the above my capital base has been eroded by a significant amount.'

He estimates he has spent $291,000 in addition to $972,300 (see paras 16 and 17 of his affidavit), and then refers to another $338,403 that he has paid out: see para 18 of his affidavit.

8 There is no dispute that on 8 August 2004 Mr McGlynn transferred his one tenth legal interest in the property at 11A Jersey Road to his partner, Ms Hanness. There is no dispute that the property was purchased in February 2002: see Exhibit '4'.

9 I shall endeavour to set out in basic point form the principles relevant to Mareva orders. I draw these from Patrick Stevedores Operations No 2 Pty Limited v Maritime Union of Australia (No 3) (1998) 195 CLR 1, Cardile v LED Builders Pty Limited (1999) 198 CLR 380, Jackson v Sterling Industries (1987) 162 CLR 612 and from the very helpful text of Mr Biscoe QC, Mareva and Anton Pillar Orders, LexisNexis Butterworths 2005:

(1) The power to make a Mareva order is an inherent power of the court to prevent the abuse or frustration of the court's process (Patrick at p 400), and, in the case of third parties, the administration of justice (Patrick at p 401).

(2) A Mareva order is not granted to give the plaintiff priority or advantage over other creditors, or to stop a defendant from sliding into insolvency: Frigo v Culhaci [1998] NSWCA 393, and see Pelechowski v Registrar, Court of Appeal (1998) 198 CLR 435, [53] and Derby & Co Ltd v Weldon (Nos 3 and 4) [1990] 1 Ch 65 at 76E.

(3) The orders may be granted where there is a 'danger' that by reason of the defendant's absconding or of assets being removed from the jurisdiction, or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, 321F. This was described by Mr Biscoe as 'the heart and soul of the Mareva jurisdiction': para 6.5 supra. The 'danger' has been replaced with 'a real risk' by some: see Cardile per Kirby J, [122].

(4) The plaintiff must establish that he has at least a good arguable case or a 'prima facie cause of action' or that there is 'a serious question to be tried'. There may be differences in the effect of the different formulations but the Defendant concedes that this aspect is satisfied, however the relevant test is formulated.

(5) 'An order can be made against a third party where 'the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including "claims and expectancies", of the judgment debtor', or some process 'ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor': Cardile, [57].

(6) The order involves an infringement of the normal proprietary rights of a party and a third party, whether related or not, and the court should be cautious in making an order of this kind: see Cardile, p104.

(7) The onus is on the party seeking the order to establish that there is a danger of frustration of the court's process, and that an order should be made.

(8) The District Court's power to make a Mareva order is found in s 46 of the District Court Act and is limited to exercise of the jurisdiction to hear and dispose of actions in s 44 of the District Court Act: Pelechowski. No argument was raised in this case as to jurisdiction.

10 It has been said that a Mareva order is directed to dispositions of property which are intended to frustrate, or have the necessary effect of frustrating, the plaintiff in his or her attempt to seek, through the court, a remedy for the obligation to which he claims the defendant is subject: see Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264. It is not necessary for the plaintiff to establish that the defendant intends to frustrate any judgment obtained (Cardile [26]) but evidence of a positive intention is a relevant matter: see Ausbro Forex Pty Ltd v Mare (1986) 4 NSWLR 419, at 423.

11 It has been said that lack of information about a defendant can be enough to justify a Mareva order (see Ninemia Maritime Corp v Trave GmbH & Co KG (The Niedersachsen) [1984] 1 All ER 398, 406 ff per Mustill J), and it has been said a plaintiff may be able to found its case on the fact that inquiries about the characteristics of the plaintiff have led to a blank wall: see The Irina Zharkikh [2001] 2 NZLR 801; [2001] 2 Lloyd Rep 319, 360 per Young J HCNZ.

12 There was no dispute that, quite apart from Mr Baker's claim, Mr McGlynn has had financial problems. Indeed, much of his affidavit evidence was directed to explaining the financial demands which have been made upon him, and the fact that expenses have outstripped income. Some of those expenses have been discretionary, such as funding his daughter's expenses: see 15(g) and (h) of Mr McGlynn's affidavit of 9 August.

13 Speed of action in seeking to obtain a Mareva order is a relevant matter (Cardile [53]) but in this case it was only in May 2005 that Ms Ramensky became aware of changes to property holdings of Mr Glynn, and around that time that LawCover's solicitors would not indicate that LawCover would take over defence of the proceedings: see affidavit of Ms Ramensky of 10 August 2005.

14 Mr Baker's submissions focussed on the following matters:

(1) the fact that Mr McGlynn, a very short time after receipt of the Cross Claim in the proceedings, arranged a valuation of the Jersey Road property and then proceeded to transfer the one tenth legal interest in the property valued at 1.7 million for $73,000. The sum of $73,000 per se was not attacked because there was a $1 million mortgage on the property to NAB, so one tenth approximates to one tenth of net value;

(2) the fact that Mr McGlynn has been taking steps to sell Level 11 and Level 14 of the Elizabeth Street premises or reduce his interest in those properties;

(3) the fact that Mr McGlynn was not frank with the Court about his endeavours to sell and or to have reduced his interest in Levels 11 and 14;

(4) the fact that Mr McGlynn has a number of complex financial arrangements which are not easy to interpret and many of which involve friends and relatives.

15 In para 6.10 of his book, Mr Biscoe sets out a number of matters which may be considered by the court in deciding whether there is a danger of dissipation of assets. Mr Hewitt relied on (b), (g), (h), (i) and (k), ie Mr McGlynn's dealings with assets, ease of conversion of assets (by means of agreements struck with friends and relatives) and poor financial position, inquiries about Mr McGlynn leading to a blank wall of sorts, and the evasive conduct of Mr McGlynn in response to the claim.

16 Mr Gollan submits that there is nothing to indicate any wrongful dissipation of assets, that Mr McGlynn is in financial difficulties and needs to be free to sell whatever assets he has to meet other creditors. He submitted that Mr McGlynn has acted responsibly to his creditors and that Mr Baker should not be placed in any better position viz a viz those other creditors. He disputed the contention that Mr McGlynn had been evasive, and also pointed out that there had been no attack on the level of production in answer to Mr Baker's Notice to Produce.

17 I have made reference to the absence of any dispute in relation to the requirement that Mr Baker have an arguable case on the substantive matter. I should note that in this context Mr Baker asserts that Mr McGlynn was his solicitor and acted in that capacity. Mr McGlynn admits that Mr Baker had been a longstanding client and friend but denies that he acted for Mr Baker in relation to the involvement of Mr Baker in the Globe Hotel project (in which Mr McGlynn was a major investor), saying that Lenblue Pty Ltd, the trustee, was his client. It is often difficult for a solicitor to establish that he did not have dual obligations in such situations (see Waimond Pty Ltd v Byrne (1989) 18 NSLWR 642), but there is a further dimension to at least part of this case because it is not disputed that Mr McGlynn entered into an arrangement to purchase Mr Baker's units in the trust for $1 (they had originally been purchased by Mr Baker for $24,000 each), and in return to indemnify Mr Baker in respect of losses, and I was informed that Mr McGlynn asserts that the agreement did not extend to all losses suffered by Mr Baker as a result of taking up units, although the defence as pleaded does not make that clear: see the Amended Notice of Grounds of Defence to the Second Cross Claim - para 4 was identified by Mr Gollan as the only paragraph relevant to this. If the agreement as drawn up by Mr McGlynn is ambiguous and is held as a matter of construction to favour Mr McGlynn, the failure to advise Mr Baker to obtain independent legal advice itself, as Mr Gollan recognised, could cause significant problems for Mr McGlynn.

18 Unfortunately for Mr McGlynn and Mr Baker, LawCover has declined to take over conduct of the proceedings on behalf of Mr McGlynn, and it is this aspect which has apparently spurred Mr Baker's solicitor into action, contemplating the real prospect that Mr McGlynn is uninsured and with very few assets in comparison to Mr Baker's substantial claim. Although it is not necessary for me to consider in any detail the strength of Mr Baker's case against Mr McGlynn, the long solicitor/client relationship before the venture, the extent of the losses on the project, the involvement of Mr McGlynn in the setting up of the venture or at least the involvement in it of a number of his clients, and the further involvement of Mr McGlynn in purchasing the worthless units, suggest that Mr Baker's claim is far from marginal.

19 The sale of the one tenth interest in Jersey Road does not of itself establish any attempt to defeat Mr Baker, because the proceeds were, it was established, used to pay out the NAB, which had lent $850,000 for the purchase of the Globe Hotel. However, Mr McGlynn admits to having provided one third of the money for the purchase (that is of the money not provided by the bank) and he admits to paying a substantial proportion (two thirds) of the mortgage (which is in Ms Hanness' name only) - he had only met Ms Hanness five months before the purchase and he asserted that he had 'got her into a bind' in relation to her relationship with her former husband and the poor financial position in which she found herself as a result.

20 Mr Baker asserts that what occurred in relation to the purchase of the Jersey Road property gives rise to a constructive trust that yields to Mr McGlynn an interest greater than a one tenth interest. He relies on Baumgartner v Baumgartner (1987) 164 CLR 138, in which it was held by the High Court that a constructive trust arose by reason of the circumstance that the parties had lived in a de facto relationship in a house developed as a home for both that was indirectly financed out of money drawn from the pool of their earnings, although individual financial contributions had to be taken into account as well. Mr Gollan submits that Baumgartner does not assist Mr Baker because it is clear from Mr McGlynn's evidence that he most deliberately considered what share in the house Ms Hanness should have and he determined, for the reasons he gave, it should be a nine tenths interest. It is highly relevant that he undertook no mortgage liability himself, leaving the burden entirely to Ms Hanness. Mr Gollan also pointed out that the decision of Mr McGlynn to contribute two thirds of the mortgage was based on their respective contributions to other aspects of the household.

21 Mr Hewitt responded by asserting that intention was relevant only to a claim of resulting trust.

22 The term resulting trust describes a trust which arises where one person confers title to property to another person, but retains beneficial ownership of the property in whole or in part (see Halsbury's Laws of Australia para 430-500). The trust is one which arises by operation of law (see Ford & Lee para 21000) and is based upon the presumed intention of the disponor - that is why the resulting trust is not presumed where there is a presumption of advancement: Charles Marshall Pty Ltd v Grimsley (1956) 156 CLR 365-366, Calverly v Green (1984) 155 CLR 242. Intention then is very important in the field of resulting trust - evidence of actual intention will preclude the presumption of a resulting trust. See also Black Uhlans Inc v NSW Crime Commission (2002) 12 BPR 22,421, 22,433 and Salvo v New Tel Ltd [2005] NSWCA 281, [92].

23 There are various kinds of constructive trust. A very useful list of the categories is found in a chapter by R P Austin (as he then was), 'Constructive Trust', in Essays in Equity, Finn ed., Law Book Co 1985, only one of which is presently relevant: '(h) the trust imposed to prevent an unconscientious assertion of title against a contributor to acquisition or improvement of the property, a person with whom the title holder has made an informal agreement or to whom he has granted a licence, and certain others.'

24 The learned author, in a footnote, reminded readers that the resulting trust may overlap with the constructive trust, and several NSW authorities are there collected in this connection: see also Lord Denning in Hussey v Palmer [1972] 1 WLR 286 at 1289, and Lord Diplock in Gissing v Gissing [1971] AC 886 at 905, who both seem to regard the nomenclature as unimportant.

25 It seems, however, that one essential difference between the two types of trust is that the resulting trust arises where a person who asserts the trust is the person who owned the property and transferred it or who paid the purchase price for the acquisition or contributed to the purchase price, which is not required for a constructive trust (see Ford & Lee, supra, 22110), and intention not to pass beneficial title, or not to pass the whole of the beneficial title, is very important. The constructive trust is imposed because the court is satisfied that the other person could not in good conscience 'retain for himself or herself a benefit, or the proceeds of a benefit, which he or she has appropriated in breach of his or her contractual or other legal or equitable obligations to another': Halsbury 430-565, citing Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41, at 125.

26 Mr Baker's claim as to Mr McGlynn's interest is based on payment of $200,000 towards the purchase of the $1.61 million price and two thirds payment of the mortgage. Mr McGlynn is and was at the time of purchase a solicitor. The property was purchased for $1.61. The bank provided $970,000. Of the balance, Mr McGlynn provided $200,000 and Ms Hanness the balance. Ms Hanness alone entered upon the mortgage and Mr McGlynn gave evidence of why he was prepared to accept only a 10% interest (compared to at most a 33% interest, ie 200/640 even disregarding the mortgage - with the mortgage liability taken into account, the percentage would be 13%). Mr McGlynn has given evidence that is inconsistent with any resulting trust, and would defeat any claim by him that it would be unconscionable for his de facto, Ms Hanness, to have a beneficial interest greater than 66%. I regard it as of significance that it was not established (nor was it put to Mr McGlynn) that his reason for accepting a 10% interest in the property at the time of purchase (which is the relevant time: see Calverley v Green) was connected to some actual or perceived financial problem at that time.

27 Mr McGlynn was not cross-examined in relation to his intentions at the time of purchase, and I am not persuaded that a trustee in bankruptcy of Mr McGlynn's estate, if bankruptcy were to occur, would have a realistic prospect of establishing a resulting trust or a constructive trust in favour of Mr McGlynn, in whose shoes the trustee would stand, and in the circumstances, I do not think it is appropriate to make an order against a third party, albeit one who is very close to Mr McGlynn. Although it is of limited significance, I note too that there is no evidence of any attempt by Ms Hanness or Mr McGlynn to sell or deal further with Jersey Road, save that it was Mr McGlynn's evidence that he and Ms Hanness did contemplate moving out of Jersey Road into smaller rented premises and renting out Jersey Road, but this did not eventuate.

28 Mr Baker's solicitor had heard that Mr McGlynn was endeavouring to sell Level 11 and Level 14. In correspondence, Mr McGlynn did not admit that he had done so. In his affidavit of 9 August 2005, Mr McGlynn spoke of Level 11 and Level 14. Of Level 11, he said, 'the floor is occupied as the office floor of the McGlynn & Partners legal practice. I have no intention of moving from this location as it is in an ideal location for a legal practice.'

29 Nowhere in the affidavit did he say that he had discussed selling Level 11 or Level 14 with anyone, however in a letter, Annexure 'E' to his affidavit of 9 August, Mr McGlynn's solicitor (an employee of his firm), said: 'Mr McGlynn did have a general discussion with Rex Greensill about the sale of his interest in level 14, 82 Elizabeth Street, Sydney. It went no further than that. Mr Greensill had not raised the matter again with Mr McGlynn, nor has Mr McGlynn with him.'

30 The letter then went on to deal with a claim that Mr McGlynn had endeavoured to sell his Mercedes Benz, which is under lease from the NAB, 'in order to reduce his outgoings, given his financial circumstances'. Having dealt with these two matters, the letter went on: 'In the light of the above, it is quite clear that the conclusion that Mr McGlynn is actually trying to divest himself of his assets is incorrect.'

The letter proceeded to reiterate that Mr McGlynn would not give an undertaking as previously sought by Mr Baker's solicitor.

31 In cross-examination, Mr McGlynn was asked whether he had discussed possible sale with others - Mr McGlynn then recounted discussions he had with Mr Lancely, Chief Executive Officer of the Dust Diseases Tribunal. Nothing had been said about this in any affidavit or in the letter. He then described a conversation with Mr Rex Greensill, an investor client (mentioned in the letter), and after further questioning he mentioned a conversation with Mr John Cregan - another investor, Mr Downing and Ms Cho - his partners in the practice - and a Ms Shaw, but he denied that he had attempted to sell Level 11. He was then shown a document produced by the NAB on subpoena, in which he undertook to the NAB to: 'pay to the Bank all net proceeds received by him from the sale of the property known as Level 11, 82 Elizabeth Street Sydney, being lot 11 in strata plan 12878 ("the Property") up to an amount equal to the amount owing, immediately upon receipt of those net proceeds (subject to the rights of the existing registered mortgagee of the Property'.

32 That document points not only to contemplation of a sale of the property but realisation of a sale in the near future. The document postdates payments apparently made to the NAB out of the funds from Jersey Road (see Exhibit 'C'), and the relationship between the amount in Exhibit 'F' and Exhibit '3', the payments made in December 2004, and the amount of $20,000 which Mr McGlynn said he now owed to the NAB, were opaque, to say the least.

33 There then came out in further cross-examination evidence from Mr McGlynn that he had in fact entered into a recent transaction for which he would have to pay vendor tax in respect of a share in the premises at Level 11, and which, according to Exhibit '2', replaces a mortgage to Ms Wolifson with 'equity' to Ms Barns. His explanation for not mentioning it previously was that Ms Jan Barns, a friend, had taken over an arrangement previously in place with Ms Wolifson, effecting no change in his equity in the property. The absence of any reference earlier to the arrangements that apparently had been in place concerning Level 11 and then had been changed, the undertaking found in Exhibit 'F', the complex nature of the arrangements, and the identity of the other parties to the transactions, together with the failure until cross-examination to fully detail the discussions he has had in recent times concerning Levels 11 and 14, left me, unfortunately, persuaded that on the balance of probabilities there is a substantial danger that Mr McGlynn will seek to structure his affairs to prevent his assets or the monies realised from their sale being available to Mr Baker should Mr Baker obtain a judgment against Mr McGlynn, in circumstances where there is, on Mr McGlynn's admission, no prospect of Mr Baker being able to recover all of the judgment sum he might obtain, and accordingly that it is appropriate to make an order to preclude such a possibility.

34 In coming to that view, I should record that although Mr McGlynn spoke of his straitened financial circumstances when I asked him to summarise who his current debtors were, he said he owed a net figure of $20,000 to the NAB. He also said he was now working 70 hours a week in an endeavour to regain income stream. There was nothing which made it likely that he would now have to sell Level 11 or Level 14 to meet pressing debts (ie other than a judgment in favour of Mr Baker).

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