Transerve Pte Ltd v Blue Ridge WA Pty Ltd

THE EVIDENCE 8 It is unnecessary to identify all of the extensive affidavit material relied upon by Transerve, save to observe that, for reasons discussed below, I disallowed reliance upon bank statements annexed as 'KLD 6' to the affidavit of Kylie Lauren Dunn dated 29 September 2015, which comprised 400 pages of bank statements which were procured compulsorily from the second respondent in proceedings concerning the winding up of Blue Ridge WA and then sought to be used in these proceedings. 9 Mr Mackenzie also relied on affidavit material to point out, amongst other things, that there were few assets to freeze and the exercise was academic, such that any successful appeal would not be rendered nugatory.

THE PRINCIPLES 10 By r 7.32(1) of the Federal Court Rules 2011 (Cth), the Court has a general power to make freezing orders with or without notice to the respondent for the purpose of preventing a 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. 11 Rule 7.35 empowers the Court to make a freezing or an ancillary order against a judgment debtor or prospective judgment debtor where the applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in this Court. 12 There is no evidence in this case of anyone absconding or being likely to do so, but there is evidence that assets have been dealt with so as to diminish the value of any prospective judgment against Mr Mackenzie. There is also evidence of non-disclosure of assets. 13 Transerve contends that not only is there power to make a freezing order to restrain a respondent from disposing of assets pending an unsuccessful applicant's substantive appeal, but further, there is no reason in principle why the considerations applicable to the grant of a Mareva injunction should not be applied in favour of such an unsuccessful applicant providing there are good arguable appeal prospects: Tomasetti v Brailey [2012] NSWCA 6 per Campbell JA (at [13]) and Aspermont Ltd v Lechmere Financial Corporation [2002] WASCA 52 per Hasluck J (at [57]-[65]). 14 It is important to recognise that an applicant seeking freezing orders pending an appeal in circumstances where it has failed in the proceedings is required to satisfy a higher test than an applicant pending trial: see Perdaman Chemicals and Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2011] WASCA 188 per Pullin JA (at [5]). In assessing the balance of convenience, weight must be given to a respondent's success in the court below: Re Middle Harbour Investments Ltd (in liquidation) (unreported, New South Wales Court of Appeal, 15 December 1976) (at [2]) per Mahoney JA (Moffit P and Glass JA agreeing). In Perdaman, the Western Australian Supreme Court of Appeal noted that the criteria for the grant of an injunction pending an appeal are analogous to those relevant to the grant of a stay of judgment pending the hearing of an appeal: Eastland Technology Australia Ltd v Whisson (2003) 28 WAR 308. These include the fact that the respondent has the benefit of a judgment of the court below and is entitled to the benefit of that judgment. Therefore, special circumstances must be shown to exist. In particular, it will usually be necessary to show that the appeal will be rendered nugatory if the injunction is not granted: Perdaman per Pullin JA (at [5]). 15 The parties are at odds on the question of quantum. Mr Mackenzie says that the matter would be required to be remitted to the primary judge for determination on the quantum question, which was seriously in issue at trial, but not assessed and determined by the primary judge. Transerve suggests that the formula of the damages claim is perfectly simple and could be dealt with arithmetically by an appeal court.

PROSPECTS OF SUCCESS ON AN APPEAL 16 In some respects the grounds of appeal might be said to be somewhat formulaic, but in other respects they do descend to some particulars. When pressed on the matter in oral submissions on the final hearing of the application for the freezing orders, counsel for the applicants made the point that there were two key issues in the appeal. The first of these was whether it was open to the primary judge to conclude, as a matter of law, that Mr Mackenzie's conduct, despite a finding that it was 'sharp and secretive', was simply in his commercial interests and therefore not unconscionable. The second central issue was whether the primary judge had accurately assessed, or considered at all, all of the evidence advanced for the applicants at the hearing. 17 Counsel for Transerve submitted that the short point is that under Australian law, in particular under the Competition and Consumer Act 2010 (Cth) Sch 2, s 21 and s 22, it cannot reasonably be suggested that a party can bring about the termination of a subcontract in order to get the work for itself (or in this instance its alter ego), whilst concealing that from the party with whom it has undertaken contractually to supply the work, and in a manner which deliberately steps around a contractual mechanism for termination of the contract. 18 After a reasonably extensive trial with a substantial body of documentation, it is not the Court's function on this application to dissect every aspect of the evidence to ascertain the prospects on appeal. This is not the time to attempt to resolve difficult issues of fact or complex matter of law. As Parker LJ said in Derby & Co Ltd v Weldon [1990] Ch 48, applications for Mareva injunctions should take hours not days. 19 I cannot say that Transerve would necessarily succeed on the second contention, but I am satisfied that in the form ultimately identified by counsel, such a proposition would satisfy the test as there is a reasonably good arguable point. This is, of course, subject to the facts falling the right way. This may all fall away on the analysis of the detail, but for present purposes I consider that the first limb of the test is satisfied.

A DANGER THAT JUDGMENT WILL BE UNSATISFIED 20 The affidavit material, Mr Mackenzie says, establishes that all assets directly or indirectly under his control are known to Transerve and have been known for a very long time. The liquidators of Blue Ridge WA, whom counsel for Transerve also represents, have obtained all the financial statements of every entity associated with Mr Mackenzie and are aware of his assets. There is, therefore, he argues, no evidence of an ensuing danger of dealing with assets. In any event, Mr Mackenzie says that even if Transerve succeeded on appeal, he does not have assets which could satisfy a judgment debt in the sum claimed by Transerve or even a small portion of such damages. Mr Mackenzie argues that the only assets he has of any value is his 50% interest in a Hillary's property, which is valued at about $290,000, and $40,000 in respect of interest in another property known as 'Lot 625'. Part of those funds are required by him for payment of legal fees and living expenses. The only sum remaining in bank accounts associated with him is the sum of approximately $11,496. 21 Mr Mackenzie makes the point (with which I am inclined to agree) that Transerve has gone to extraordinary lengths to try and demonstrate that there is evidence of a positive intention to frustrate a judgment and to put assets beyond reach of the applicants. He notes that Blue Ridge WA was put into voluntary liquidation as a consequence of cash flow issues following on from the failure by Roy Hill to pay contractual amounts due and owing to Blue Ridge WA. He says that the submission that Mr Mackenzie placed Blue Ridge WA into liquidation to avoid a judgment debt or to avoid the claim by the applicants has not been made out on the evidence. Mr Mackenzie also contends that the suggestion that the initial liquidator was somehow complicit in such an arrangement failed on the evidence at trial. 22 There is no debate, however, even from Mr Mackenzie, that his disclosure when first ordered by the Court in respect of an application for freezing orders was deficient in various respects. Mr Mackenzie tends to gloss over this somewhat. But, in my view, the deficiency was substantial, being significant sums and was then further repeated in subsequent affidavits. His answer is that the applicants were entitled to take further steps to remedy that situation, such as pursuing him for contempt of court for alleged breaches or for failure to disclose, but did not do so. As explained to me by counsel for Transerve, the decision not to press on with a contempt application close to the commencement of the trial was based on an indication given by the primary judge that there may be difficulties in the timing and circumstances in his sitting on the actual trial if he were to hear and determine the contempt application. It was on that basis that the application was not pursued. This explanation was not challenged by counsel for Mr Mackenzie and, having regard to the timing of the contempt application, would appear to make sense. 23 It is common ground that Mr Mackenzie holds no personal bank accounts in Australia. Taken alone, I accept his submission that there is nothing particularly sinister about that. Mr Mackenzie has said in the course of a creditor's examination, which was adduced in evidence without objection, that all monies ever received by him have always been paid into his wife's account. 24 On the explanation provided by counsel for Transerve at the final hearing of the application, it became apparent that such amounts may be substantial and go a long way to satisfying a judgment debt on a successful appeal if the disposition of those funds should properly be recovered. It is this prospect that militates against the suggestion that a freezing order should not be made where there would be little left from the respondent's frozen assets to meet a judgment debt after making the usual allowances for legal and living expenses including payment of debts. 25 Other factors that I take into account in concluding that there is a danger of dissipation are the fact that Mr Mackenzie, as sole director and shareholder of Blue Ridge WA, incorporated a new company, Blue Ridge Transportables Pty Ltd, three days after the issue of the proceedings. He is also the sole director and shareholder of Blue Ridge Transportables. 26 Putting aside findings in relation to the precise claims pleaded against him, it is also the case that Mr Mackenzie caused Blue Ridge WA to be put into voluntary liquidation following the issue of proceedings. The initial liquidator informed and advised creditors that there was no distribution of any sums available for creditors and a deficiency exceeding $5 million, notwithstanding the fact that at the first creditors' meeting in May 2013, Mr Mackenzie told creditors that the company had been running for years, still had lots of jobs on and was, in effect, still trading and would continue to trade despite Blue Ridge WA being in liquidation. 27 On the evidence which I do not propose in the circumstances to examine in close detail, there is, consistent with the foregoing, an apparent lack of explanation as to what happened to some $2 million in cash apparently held by Mr Mackenzie's companies, including Blue Ridge WA, $15 million in turnover confirmed by Mr Mackenzie which that company had enjoyed, realisable or assessable assets as at March 2012 in Blue Ridge WA of $1.5 million, the proceeds of the sale of 50 units under the Roy Hill contract of $4.2 million, or the general dissipation and loss of assets shown in the draft 2012 accounts. 28 In a generalised way, Mr Mackenzie says that Blue Ridge WA was substantially indebted to him and that the company's funds were paid in settlement of those debts. This may well be so, but the detail of this explanation is sparse, and there is no adequate recording of funds moving to Mr Mackenzie, and then moving to others, notably to his wife, Mrs Mackenzie. 29 I also note that the extraction of financial information from Mr Mackenzie has not been straightforward. The fact that all funds due to him were paid to his wife was disclosed by Mr Mackenzie in his examination before Deputy District Registrar Trott on 4 December 2014. Transerve's lawyers sought and obtained orders pursuant to s 597(9) of the Corporations Act 2001 (Cth) for the production by Mrs Mackenzie of all bank account statements for any bank accounts maintained by her during the period 15 December 2010 to 4 December 2014, and the production of further books and records by Mr Mackenzie and Mr Paul Mahar, Blue Ridge WA's former accountant and Mr Mackenzie's current accountant. Mr and Mrs Mackenzie sought review of those orders, and in particular challenged the scope of the orders. The result of the review was that minor amendments were made to the wording of the orders. On 7 August 2015, various books and records were produced to the Court by Mr Mackenzie's solicitor on behalf of Mr and Mrs Mackenzie. As Mr Mackenzie was overseas, his oral examination was adjourned to 15 October 2015. 30 Counsel for Transerve sought leave to rely upon the documents thus produced, notably, bank account statements and also sought leave to cross-examine Mr Mackenzie in relation to them. I disallowed reliance on the bank statements and indicated that I would not be favourably disposed to cross-examination in an application of this sort, which should not be reduced to a mini trial. Moreover, Mr Mackenzie faces cross-examination by the same counsel over the same matters in the liquidator's examination. Again, I do not propose to deal with the reasonably extensive submissions exchanged on this topic, save to say that I accept Mr Mackenzie's submission that it is not appropriate to rely upon the documents. 31 I note that information produced as a result of invoking the compulsory processes of the Court is subject to an implied undertaking that the information will only be used for the purposes of the proceedings in which it is produced. The bank records at 'KLD 6' were obtained under compulsion by the production order in the examination proceedings, in which neither the applicants in this application or the appeal, nor Mr Mackenzie, were parties. This implied undertaking is a substantive legal obligation arising by operation of law: Hearne v Street (2008) 235 CLR 125. It is clear that the implied undertaking is binding upon anyone into whose hands the relevant documents come, if that person is aware that they have been obtained by way of discovery: Hamersley Iron Pty Ltd v Lovell (1998) 19 WAR 316 per Anderson J (at 334-335). While the examination proceedings were not litigation in the party and party sense, nonetheless, the documents produced were by way of compulsion through court order and the protection afforded in respect of such processes would be very limited if it did not extend to examination proceedings pursuant to the Corporations Act. Of course, the position is different if approval for relief from the implied undertaking is obtained before use of such documents. 32 In this instance there is no doubt as to the knowledge as to the source of the documents. I infer that the liquidators for Blue Ridge WA were of the view that they should not release the documents unless ordered to do so by subpoena. I gave leave for a subpoena to issue at an earlier hearing of this application without the opportunity to hear argument on the full circumstances and relevant principles in relation to the proposed use of the documents. The documents did not come into evidence as I did not permit reliance upon them. Nor was I prepared to grant leave nunc pro tunc. Such leave would be given rarely. In this instance it was not needed or desirable. As noted, Mr Mackenzie is to be cross-examined on those documents in any event by (the same) counsel for the liquidator. 33 Nonetheless, and without reliance upon the documents produced under subpoena, it is clear that there is evidence that notwithstanding orders made by the Court on 13 May 2014 for freezing orders and ancillary disclosure orders, Mr Mackenzie entered into a contract to sell a property at Hay Street, West Perth, and subsequently transferred his interest in that property to a third party by way of dealing and disposing of an asset, at least on the face of it, contrary to freezing orders. 34 Counsel for Transerve says: 44. Mr Mackenzie's disclosure in these proceedings has been deficient in the following respects: 44.1 in general, very few bank accounts have been disclosed on affidavit by Mr Mackenzie, despite the Applicants requesting an explanation by letter dated 6 June 2014. It was only discovered that Mr Mackenzie held bank accounts through telephone conversations and correspondence between the parties' solicitors from 17 June 2014 to 26 June 2014 ,as outlined at paragraph [10.1] of the affidavit of Enzo Belperio dated 2 July 2014, and only because Mr Mackenzie was concerned that NAB had frozen the accounts; 44.2 on 1 August 2014, Mr Mackenzie disclosed NAB bank accounts which raise more questions than they answer. Those accounts disclose that: 44.2.1 on 6 May 2014, Mr Mackenzie appears to have entered into 46 transactions through his bank accounts. The nature and quantum of those transactions is not known because these transactions have been redacted from the bank account statements provided; 44.2.2 these transactions occurred at a time when: (a) on the morning of 6 May 2014, Mr Mackenzie, through Senior Counsel, requested an adjournment of the freezing order application for one week so that he could adduce evidence in relation to it. It was submitted by Mr Mackenzie, through Senior Counsel, that the Applicants would not suffer any prejudice from the adjournment; and (b) pursuant to orders made by [the primary judge] on 2 May 2014, which froze assets on an interim basis, the net proceeds of the Bellevue Terrace property were expressly subject to the freezing order; 44.3 there are also serious questions in relation to how it could be true that Mr Mackenzie has very little assets, when documents prior to the commencement of these proceedings show Mr Mackenzie's companies having $2 million in cash, and documents disclosed by the liquidator of Blue Ridge WA show that Roy Hill appears to have paid approximately $7.5 million for work performed by Blue Ridge WA between June 2012 to November 2012, of which $2.4 million does not appear to have been deposited in bank accounts of Blue Ridge WA, and a further $2 million appears to have been directly transferred to Mr Mackenzie. 45. It appears from Mr Mackenzie's affidavit of 7 July 2014 that half of the net proceeds of the Bellevue Terrace Property have been dissipated to his wife, when in fact she was only entitled to 5/100ths of the net proceeds. 35 There is little objection to this account on behalf of Mr Mackenzie. The redaction referred to at 44.2.1 was said to be justified on the basis that there was no order to disclose transactions prior to the date when the freezing orders were made by the primary judge. Of course, by then the very significant number of transactions had been made, but not disclosed. Technical compliance displaced transparency.

CONCLUSION 36 At an earlier hearing I invited the parties to seriously consider coming to some arrangement concerning sale of assets if that was a course that Mr Mackenzie and/or his wife chose to take. Nothing appears to have developed from this suggestion, but in considering the balance of convenience, there is nothing to prevent Mr Mackenzie applying to the Court if freezing orders are made to seek relief in order to enable, for example, the sale of the family home to raise funds. 37 Given that there is prima facie evidence, both of non-disclosure of assets when ordered and that he has disposed of assets in the past without seeking leave which is potentially in breach of Court orders, there is, in my assessment, a danger which should be addressed by the Court in preserving assets pending the outcome of the appeal. 38 Such a freezing order is serious and unusual relief. Nonetheless, in this situation I consider that granting a freezing order is appropriate for the reasons that I have given. The practical effect would be to preserve the status quo. Should a further need to deal with assets arise between now and the hearing of the appeal in February 2016, such need can be addressed by an appropriate application. There will be liberty to apply pursuant to the orders. 39 I propose to reserve costs and make the observation that, in my view, it would be appropriate for the Full Court to deal with the question of costs of this freezing order application. If the appeal does not succeed, that may be a matter to take into account in relation to costs. I note that I would discount the costs to which the applicants are entitled by 30% as substantial costs were incurred in relation to the final hearing and in relation to the use of the documentation which I disallowed. 40 Otherwise, I consider that it is appropriate that the freezing orders be extended. The parties should agree upon the terms of those orders or I will settle them if necessary. The terms of the orders should reflect the reasoning above. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.