By a notice of motion filed on 5 March 2015, the second defendant (Mrs Boga) seeks orders varying consent orders made on 8 January 2015. The effect of the orders now sought would be that the balance of the proceeds of sale of a property owned by Mrs Boga (which had been paid into an account jointly controlled by the solicitor for the plaintiff (Trust Company) and the solicitor for Mrs Boga) would be available to pay Mrs Boga's legal expenses of these proceedings. The amount held in the account is approximately $106,000.
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Background
The proceedings were commenced on 11 March 2014. In them, Trust Company claims damages against the first defendant (Kebab King) for breach of a lease of retail premises in the Stocklands shopping centre at Merrylands, as well as for reimbursement of a fit-out contribution and other costs and disbursements. Trust Company also sues Mrs Boga and the third defendant (Mrs Boga's sister-in-law), who are the shareholders and directors of Kebab King, on guarantees they gave in connection with the lease and the deed by which Trust Company agreed to contribute to the costs of the fit-out of the leased premises.
Mrs Boga is the wife of Mr David Boga, who is the founder, sole shareholder and director of A La Turko (Retailers & Wholesalers) Pty Ltd (A La Turko), which commenced business in the early 1980s. A La Turko operates a chain of takeaway kebab shops in various locations in Sydney. Mr Boga was the person who negotiated the retail lease with representatives of Trust Company and was the person who dealt with Trust Company on behalf of Kebab King concerning the fit-out.
On 20 June 2014, Trust Company made an application for a freezing order against Mrs Boga and the third defendant, which was returnable on 27 June 2014. On the return date, Hammerschlag J made a freezing order against both Mrs Boga and the third defendant, without opposition, until 18 July 2014.
On 18 July 2014, the matter came before me. At that time, I extended the freezing order until 7 August 2014 and ordered that Mrs Boga and the third defendant each swear and serve on Trust Company an affidavit setting out details concerning her assets.
On 7 August 2014, I made the following orders in respect of Mrs Boga:
(1) Upon the Plaintiff by its Counsel giving the usual undertaking as to damages, subject to order 2 below, the Second Defendant is restrained from selling, transferring, encumbering or otherwise dealing with her interest in the properties referred to in (a) and (b) below and from allowing or acknowledging any increase to her liability or contingent liability under her guarantee to ANZ for its loan to A La Turko (Retailers & Wholesalers) Pty Ltd referred to in paragraphs 16 and 17 of the affidavit of [Mrs] Boga affirmed 1 August 2014 in these proceedings until 7 days after giving written notice to the Plaintiff's solicitor of the proposed sale, transfer, encumbrance or dealing:
(a) Land comprised in folio identifier 117/1040989 being xxxxxx, Holroyd NSW; and
(b) Land comprised in folio identifier 3/SP37608 being xxxxxx, Villawood NSW.
(2) Order 1 does not restrain the Second Defendant from entering into any personal guarantee in the ordinary course of business of Kebab King Australia Pty Ltd.
I did not give formal reasons for the orders I made at that time. However, so far as Mrs Boga was concerned, I indicated that I was satisfied that there was a substantial risk that Mrs Boga would use the assets owned by her for the benefit of the A La Turko business and, in doing so, diminish the assets available to satisfy any judgment obtained by Trust Company in the event that it is successful in the proceedings.
On 5 January 2015, Mrs Boga's solicitors notified Trust Company's solicitors in accordance with order 1 made on 7 August 2014 that she intended to enter into a contract for the sale of the Villawood property.
Following negotiations between the parties, the Court relevantly made the following consent orders on 8 January 2015:
6. All the proceeds from the sale of the Villawood Property (subject only to repayment of any monies properly secured by registered mortgage AI386818 to the Australia and New Zealand Banking Group Limited) must be deposited into an interest bearing controlled moneys account (which account is to be opened by the Plaintiff's solicitors) in the name of Canan Boga [Mrs Boga], the signatories of which will be Craig Higginbotham and Daniel Riedstra, on the basis that any withdrawal of funds from that account requires both signatories of Craig Higginbotham and Daniel Riedstra.
7. The Second Defendant authorises the Plaintiffs solicitor to attend settlement of the sale of the Villawood Property and to hold in escrow, the bank cheque representing all of the proceeds of the from the [sic] sale of the Villawood Property (subject only to repayment of any monies properly secured by registered mortgage AI386818 to the Australia and New Zealand Banking Group Limited) (Bank Cheque) The Plaintiffs solicitor will deposit the Bank Cheque in the controlled moneys account referred to in order 6 above as soon as reasonable [sic] practicable after the date of settlement of the sale of the Villawood Property 8. Liberty to restore on 1 days' notice.
It is apparent from the correspondence from the defendants' solicitors that Mrs Boga was willing to agree to those consent orders "on the express basis that our client reserves the right to move the Court to vacate orders 6 and 7 once appropriate evidence is at hand".
Mrs Boga entered into a contract for the sale of the Villawood Property for $680,000 on 29 January 2015. Completion of the sale occurred some time before 16 April 2015, following which an amount of $106,509.81 was deposited in a controlled monies account established in accordance with the orders made on 8 January 2015.
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Consideration
A preliminary question is what test should be applied in determining whether to vary the orders made on 8 January 2015. It is Trust Company's contention that Mrs Boga is seeking to vary consent orders. Consequently, it submits that she has the onus of establishing that there has been a material change in circumstances or the discovery of new material not reasonably available to her at the time the orders were made: see Short v Crawley (No 42) [2009] NSWSC 1110 at [74-75]; Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 178. In the circumstances of this case, that means that Mrs Boga must establish the variation to the orders is needed to permit her to meet her proper expenses: see Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578 at [15] per Brereton J.
Mrs Boga, on the other hand, submits that the consent orders were put in place to allow the Villawood Property to be sold, but on the express basis that the question of what was to happen to any surplus would be dealt with later. The surplus belongs to Mrs Boga and the onus was on Trust Company to establish why she should not be permitted to use those funds to pay her own legal expenses.
In my opinion, the consent orders must be understood in the context of the orders made by me on 7 August 2014. Those orders were made in respect of specific assets in circumstances where the evidence strongly suggested that Mrs Boga was prepared to permit those assets to be used to support the business operated by A La Turko. It was not suggested at that time that Mrs Boga needed access to those assets in order to pay her legal fees. This is not a case where the freezing orders applied to all of Mrs Boga's assets so as to have made it necessary to make exceptions for reasonable living expenses and legal fees at the time the orders were made.
On the other hand, the form of the injunction that was granted did not restrain Mrs Boga from selling the Villawood Property. Rather, Mrs Boga was prevented from selling the property without giving 7 days' notice. The onus, then, was on Trust Company, on receiving notice, to apply for an injunction to restrain the sale of the property. Whether such an injunction would be granted would depend on whether Trust Company could satisfy the Court at the time that the effect of the disposition of the property would have been to deprive Trust Company of assets against which it could enforce its judgment if it was ultimately successful. The fact that the parties agreed on consent orders to permit the property to be sold does not in my view alter the position. It is apparent that those orders were agreed as a temporary measure to allow the property to be sold, leaving it to a future occasion to determine what should happen to the balance of the proceeds. Consequently, the onus still remains on Trust Company to satisfy the Court that, unless the injunction is granted, the Court's processes will be frustrated because assets that ought to be available to satisfy any judgment will not be.
The evidence is that the defendants have incurred approximately $67,000 in legal costs to date, of which approximately $25,000 has been paid. The evidence also suggests that the defendants' total legal costs of the proceedings will be in the order of $250,000. There is no evidence of the arrangements between the defendants concerning legal expenses. The solicitors' invoices are addressed to Kebab King and it may be inferred that that company has paid the invoices to date.
Trust Company points out that Kebab King appears to have a significant business. It employs between 5 and 10 staff and it is apparent from its bank statements that it has significant revenue. However, it is unclear what profit it earns. It pays Mrs Boga a salary of $15,600 per annum. However, it retains that salary as a loan from Mrs Boga to it. No freezing order has been sought against Kebab King and it is not suggested that it has or proposes to dispose of its assets with the purpose or effect of depriving Trust Company of assets against which it could enforce its judgment if it is successful.
The orders that were made on 7 August 2014 were made because the evidence indicated that there was a substantial risk that Mrs Boga would deal with her assets a way that was designed to assist the business conducted by A La Turko. She has no direct interest in that business.
Mrs Boga does, however, have an interest in the business carried on by Kebab King and Kebab King is the principal defendant in the proceedings. Moreover, this is not a case where it is alleged that the assets the subject of the freezing order were acquired by the fraud of the defendants. The Villawood property clearly belonged to Mrs Boga.
Whether Mrs Boga has paid legal fees to date or not and whether she is liable to pay those fees, it is difficult to see why she should not be entitled to use her available assets to pay for legal fees in connection with the case that has been brought against her. Moreover, she has an interest in seeing Kebab King succeed since, if it succeeds, she will not be liable on her guarantee. There is no evidence that Mrs Boga has other assets available from which she could meet legal fees.
It is unclear whether Kebab King has the resources to continue to pay the defendants' legal fees. Three points, however, may be made about that.
First, for the reasons I have given, the onus is on Trust Company to establish that Kebab King has the resources to pay the defendants' legal fees, since the onus is on it to establish that Mrs Boga should not be entitled to use the proceeds of sale of the Villawood property to pay the legal fees of the case.
Second, there is at least some evidence to suggest that Kebab King is struggling to pay the defendants' legal fees. It is behind in paying legal fees that have been incurred to date. Although, as I have said, it earns substantial revenues, there is no evidence concerning how much it earns in profits. However, the fact that Mrs Boga lends it the modest wages she is paid suggests that the profits are not substantial.
Third, it is difficult to see why it should matter to Trust Company if the legal fees are paid by Mrs Boga. If they are not paid by her, then, on its case, they will be paid by Kebab King. Trust Company cannot succeed against Mrs Boga unless it succeeds against Kebab King. Consequently, on Trust Company's case, to the extent that its position is prejudiced because Mrs Boga's assets will be diminished by the payment of legal fees its position will be improved because Kebab King will not pay those legal fees. Trust Company will only be worse off if Kebab King pays away money that it would otherwise have spent on legal fees otherwise than in the ordinary course of its business or if the true position is that Kebab King does not have sufficient resources to pay the legal costs of the case. As to the first possibility, as I have said, it has not been suggested that Kebab King has sought to dispose of its assets otherwise than in the ordinary course of business. As to the second, if that really is the position, then, for the reasons I have given, Mrs Boga should be entitled to use her own resources to pay for the legal costs of the case.
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Orders
It follows from what I have said, that Mrs Boga should be entitled to have access to the amount currently held in the controlled monies account established in accordance with order 6 of the consent orders made on 8 January 2015 to pay the legal costs of these proceedings.
The parties should bring in short minutes of order to give effect to this judgment. If the parties can agree on the orders, I will make them in chambers. If not, the matter should be relisted by contacting my Associate to deal with any outstanding issues concerning the form of the orders.
Mrs Boga has been substantially successful in her motion. In those circumstances, the plaintiff should pay her costs of the motion.
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Decision last updated: 11 May 2015