Trad Financial Services Pty Ltd & Anor v Trad & Anor

Judgment 1HIS HONOUR: On 18 November 2013 I gave judgment in these proceedings (Trad Financial Services Pty Limited & Anor v Carl Trad & Anor [2013] NSWSC 1691). I made an order that the first defendant pay the plaintiffs' costs of the proceedings against him and I ordered that the plaintiffs pay the second defendant's costs of the proceedings against it. Because two issues that had been flagged had not been resolved, I directed that the orders of 18 November not be entered until further order. 2This morning I made an order for the removal of the registration of the purported security interest that had been filed in the Personal Property Securities Register by Trad Financial Services. 3There are two remaining issues. First, the plaintiffs seek a variation or discharge of the costs order that I made on 18 November that the plaintiffs pay the second defendant's costs of the proceedings against it. They submitted that the defendants had common representation, that the issues in the proceedings were intermeshed and that there was a real risk that the costs order in their favour would not be satisfied and that they would be liable to pay the costs of the second defendant. 4Those were all the matters I took into account when I made the costs order on 18 November. 5The costs orders involve no departure from the prima facie position established by r 42.1 of the Uniform Civil Procedure Rules 2005 and reflected the fact that the plaintiffs had chosen to sue two defendants, one of whom they say is impecunious. Although they succeeded against him, they failed in their other claim. 6Counsel for the plaintiff raised additional matters that had not been taken into account by me when I made the costs order on 18 November. She submitted the plaintiffs' costs had been increased by reason of the defendants' failure to comply with various orders of the Court, including orders for discovery. 7In my reasons of 18 November 2013 I referred to such defaults. I accept that the second defendant as well as the first defendant has to bear the consequences of those defaults. Mr Trad contended that the defaults were due to failures by his previous representatives. I am not in a position to decide whether or not that was so. But even if it were so, he and the second defendant must bear the consequences of the defaults. 8I think that the cost orders made in favour of the second defendant should be varied to take account of the fact that the plaintiffs' own costs of the proceedings would have been increased beyond what they ought to have been by reason of the default of both defendants. Accordingly, I discharge the order that I made on 18 November 2013 that the plaintiffs pay the second defendant's costs of the proceedings against it. Instead I order that the plaintiffs pay the second defendant's costs of the proceedings against it, but that the amount of such costs payable by the plaintiffs to the second defendant pursuant to this order be reduced by the amount by which the plaintiffs' costs of the proceedings were increased by the defendants' default in complying with the Court's orders. 9The second issue is the plaintiffs' application for a freezing order. The plaintiffs seek an order pursuant to r 25.14 of the Uniform Civil Procedure Rules restraining Mr Trad from selling, transferring or in any way dealing with his shareholding in Koenigsegg Australia until payment in full of the judgment debt, and restraining Koenigsegg Australia from selling, transferring or dealing with the orange Koenigsegg or transferring or in any way dealing with "the shareholdings/ownership of Koenigsegg Australia" until payment in full of the judgment debt. 10The evidence before me was that the orange Koenigsegg acquired in the name of Koenigsegg Australia was purchased with funds borrowed by Mr Carl Trad from Unique Finance Pty Limited and from a Mr George Katrib, and also from the sale of a Ferrari owned by him. 11As I understood his evidence, Mr Carl Trad said that his brothers paid interest on the loan from Unique Finance, and as it does not appear from the evidence that Mr Carl Trad had any other substantial assets, I infer that it is his case that his brothers have assisted in repayment of the loan from Unique Finance. Prima facie, as Mr Carl Trad obtained the moneys either from the sale of a vehicle owned by him or from his borrowing moneys that were then used by Koenigsegg Australia to purchase the orange Koenigsegg, that vehicle would be held by Koenigsegg Australia on a resulting trust for him. 12That is the prima facie position. But the question of who has the beneficial ownership of the vehicle is not something that has been directly in issue in these proceedings. It may be that others claim a beneficial interest in the vehicle. 13Nonetheless, these circumstances are sufficient to provide the basis for the Court's having jurisdiction to make a freezing order against the asset of the second defendant, Koenigsegg Australia. It appears that it holds and would have the power of disposition over the asset which may be available by a process of execution to satisfy the judgment against Mr Carl Trad (Cardile v LED Builders Pty Limited (1999) 198 CLR 380). 14That having been said, the question remains whether it is appropriate to grant such a freezing order. The function of a freezing order is not to provide a plaintiff, or a judgment creditor, with security that could not otherwise be obtained through a process of execution of the judgment, in order to improve the priority of the judgment creditor over other creditors of the judgment debtor. (See, for example, Cardile v LED Builders Pty Limited at [51]; PCW (Underwriting Agencies) Ltd v Dixon & Anor [1983] 2 All ER 158 at 162; Hortico (Australia) Pty Limited v Energy Equipment Co (Australia) Pty Limited (1985) 1 NSWLR 545 at 557; Finn v Carelli [2007] NSWSC 261 at [5]; and Re C & L Cameron Pty Limited; GB Gazzana v Nadalan Enterprises Pty Limited [2012] NSWSC 676 at [195]-[198].) 15In the last case, Ward J (as her Honour then was) cited with approval the following passage from the judgment of Barrett J (as his Honour then was) in TZ Limited v ZMS Investments Pty Limited [2010] NSWSC 196 at [26], where his Honour said: "A general law freezing order is warranted only if ... there has been 'conduct on the part of the defendants which can reasonably be interpreted as potentially having the effect of frustrating the ordinary processes of the court and the enforcement of its judgments or of being intended to do so or of being in any way evasive indicating dishonesty or otherwise indicating actually or potentially that the assets of the company have been or will be dealt with in an irregular way'." 16Upon entry of the orders of 18 November 2013 the first plaintiff, Trad Financial Services, will have available to it the remedies of a judgment creditor. These would include the remedies of a charging order pursuant to s 126 of the Civil Procedure Act 2005 and rr 39.44 and 39.45 of the Uniform Civil Procedure Rules in respect of what the plaintiffs say is Mr Trad's equitable interest in the orange Koenigsegg. 17Such a charging order if made, would mean that the judgment debtor and any person having notice of the charging order who dealt with the judgment debtor's equitable interest in the vehicle or its proceeds of sale, could themselves become liable to the judgment creditor to the extent that the value of the "security interest" might be necessary to satisfy the judgment. 18Section 128 would also have the effect of preventing a disposal of that security interest otherwise in accordance with the directions of the judgment creditor. 19The judgment creditor would also be entitled to have recourse to the bankruptcy processes. 20There is, however, the possibility that execution of the judgment might be stayed by the making of an application for an instalment order and might be stayed until such time as that application is determined, or any objection in relation to such an application is determined. (See UCPR r 37.5.) 21That possibility is not in itself a sufficient reason for granting the freezing order sought. But it does demonstrate that the available processes of execution may not be an adequate remedy to prevent an abuse of the Court's process if Mr Trad were to deal with the vehicle in a way designed to frustrate Trad Financial Services from obtaining execution of its judgment. 22Whilst it is not the function of a freezing order to provide an advantage or priority of the judgment creditor over other creditors, it is a legitimate function of a freezing order that the judgment debtor be prevented from acting so as to disadvantage a judgment creditor against other creditors. 23In the present case I think the evidence does establish a proper ground for apprehension, that in the absence of restraint Mr Carl Trad would be likely to deal with the vehicle in a way so as to advantage the other persons whom he claims are his other creditors, whom he says were instrumental in providing the funds for the purchase of the orange Koenigsegg, and to put the asset out of reach of execution by Trad Financial Services. I think this can be inferred from at least the following. 24First, as counsel for the plaintiff submits, the evidence recounted in my reasons of 18 November 2013 demonstrates that Mr Carl Trad has been prepared to use deception to seek to prefer his interests over those of others, an instance in particular being his dealings with GE. 25Secondly, he has denied that he borrowed the moneys in question from Damian Trad or Trad Financial Services. I have rejected that denial, but I think it more than on the cards that Mr Trad would take steps to deal with his assets in such a way that they would not be available to his cousin or his cousin's company, Trad Financial Services, with whom there has been such a spectacular falling out. 26Thirdly, it seems to me from the statements made by Mr Carl Trad that he considers that the persons who provided the funds, albeit by way of loan to him, which enabled him to purchase the orange Koenigsegg, have a better claim to the proceeds of sale of the orange Koenigsegg for repayment of their debts than does Trad Financial Services whose moneys were used to acquire the black Koenigsegg. I think that in the absence of an appropriate freezing order, it is likely that Mr Carl Trad would so apply the proceeds of the car irrespective of the true priorities, or absence of them, as between Trad Financial Services on the one hand and his other creditors including his brothers or friends who provided funds for the purchase of the car. 27In my view the car, or its proceeds of sale, should be frozen until the questions of the claims of the various creditors can be determined. The evidence of Mr Damian Trad was that he believed Mr Carl Trad had no other assets with which to satisfy a judgment debt and that contention was not disputed by Mr Carl Trad in his evidence. 28Mr Carl Trad raised a different defence to this claim. He said in substance that the plaintiffs come with unclean hands because they filed a REVS listing that has prevented his dealing with the orange Koenigsegg for years when, on the findings I have made, the plaintiffs had no right to take those steps. He said that had the plaintiffs not illegally registered an interest against the vehicle, the vehicle could have been sold, and should have been sold, to pay out creditors. 29That perhaps highlights the difficulty. 30It is true that I have found that the plaintiffs had no right to the remedy of self-help that they took and I have made an order requiring them to remove the listing in the Personal Property Securities Register. 31On the other hand, I have found that Mr Carl Trad was indeed indebted to Trad Financial Services; something which he denied. If the facts were known at an earlier stage, as I have found them to be, then although the plaintiffs would not have been entitled to maintain the registration of a security interest on the Personal Property Securities Register, it seems to me they would have been entitled to an order restraining Mr Carl Trad from dealing with the vehicle or its proceeds of sale in a way which would have frustrated their claims as a prospective judgment creditor. 32When the application came before me in December 2012 for an order for removal of what was called the REVS listing, I declined to make that order at that time. Instead I adjourned the notice of motion and observed that whilst the plaintiffs did not then clearly identify how they claimed a proprietary interest in the orange Koenisegg, that was at least largely due to a lack of information about how the moneys advanced were used by Mr Carl Trad, what was the source of the funds for the purchase of the second vehicle, and what had been done with the first vehicle. I observed that that difficulty arose not just because the defendants had not served their evidence but also because they had not produced documents which they were required to produce pursuant to a notice to produce. 33In those circumstances I do not infer, as I was asked to, that the plaintiffs were acting "illegally", that is, with the knowledge that they did not have a legitimate claim to an interest in the second vehicle. I do not think that the registration of an alleged security interest in relation to the vehicle is a reason for refusing the freezing order in support of the judgment debt. 34The freezing order is sought both in respect of Mr Carl Trad's shares in Koenigsegg Australia and in respect of the vehicle itself. Both the shares and what is prima facie Mr Carl Trad's beneficial interest in the orange Koenigsegg are assets which might be available to satisfy a judgment debt and I think it appropriate to make an order in respect of both assets. 35The order, insofar as it seeks a freezing order in relation to the car, can be made against the second defendant, Koenigsegg Australia, for the reasons I have given. However, the plaintiff does not have a judgment debt against Koenigsegg Australia, and the question as to the beneficial ownership of the vehicle has not been decided. 36In my view, before a freezing order should be made against Koenigsegg Australia in relation to its dealing with the vehicle the plaintiffs should give the usual undertaking as to damages. That undertaking is not proffered in the plaintiffs' notice of motion. 37The freezing orders are sought until payment in full of the judgment debt. I do not think that form of order is appropriate. It may well be that Mr Carl Trad cannot pay all of his debts, including the debt I have found is due to Trad Financial Services. I think the freezing order should rather apply until further order, and there should be liberty to the defendants to apply to discharge or vary the order. 38I make an order in substance as sought in paragraph 1 of the plaintiffs' notice of motion filed on 19 November 2013 without requiring an undertaking as to damages until further order, and I am prepared to make the order in paragraph 2 until further order subject to the provision of the usual undertaking as to damages. [Plaintiffs' counsel addressed.] 39I order that until further order, the first defendant be restrained from disposing of, or dealing with his shares in the second defendant. 40I further order that until further order, and on the plaintiffs by their counsel giving the usual undertaking as to damages, the second defendant be restrained from disposing of, or dealing with, the orange Koenigsegg vehicle VIN number YT9XC44BX8A007050. I give the parties liberty to apply on seven days' notice. 41I order that the plaintiffs' notice of motion dated 19 November 2013 and filed in court on 21 November 2013 be otherwise dismissed. 42I think the plaintiffs have been substantially successful on the application for a freezing order. 43Mr Trad was successful in his application for the removal of the security interests. Subject to hearing the parties I think the appropriate orders are that the plaintiffs pay the defendants' costs incurred from 18 November 2013 in respect of the defendants' notice of motion of 28 September 2012 and that Mr Carl Trad pay the plaintiffs' costs of the plaintiffs' notice of motion filed today. [Parties addressed on costs.] 44I make those orders. 45The exhibits are to be dealt with in accordance with the Practice Note and I direct that the orders made on 18 November 2013, except the order that I made in relation to the payment of the second defendant's costs, are to be entered. The orders made today are also to be entered. 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: 28 November 2013