Commissioner of State Taxation v Mechold Pty Ltd & Forty Fifth Enterprise Pty Ltd, unreported; SCt of WA; Library No 950019; 23 January 1995

Fantasia v Otho Pty Ltd & Ors, unreported; SCt of WA; Library No 980054; 13 February 1998

Pearce v Waterhouse [1986] VicRp 57; [1986] VR 603

Third Chandris Shipping Corp v Unimarine SA [1979] QB 645

This is an application by the plaintiff for a Mareva injunction against the defendant. Each of the parties has filed a number of affidavits, of varying weight and relevance and the defendant has objected to some of the affidavits as containing inadmissible hearsay or as being irrelevant. An objection to the affidavit of Elizabeth Sterling sworn on 31 July 1998 as being hearsay was overruled by me on the grounds that the application is interlocutory and the deponent has stated the source of the material in question and deposed to her belief in its truth. Consequently, the affidavit evidence is admissible and the objection goes only to the weight of the material.

Objection was then taken to five affidavits filed by the plaintiff, on the grounds that each had been sworn before Mr Alan Karp, a member of the plaintiff's solicitors, contrary to O37 r12 of the Rules of the Supreme Court. That rule provides:

"An affidavit is not sufficient if sworn before any solicitor who has participated in any way in the preparation of the affidavit or in the proceedings in which the affidavit is intended to be filed, or before the party himself."

Counsel for the defendant was unable to say whether or not, at the date of the swearing of the affidavits, Mr Karp was a solicitor such as is described in r12 and Mr Mendelow for the plaintiff was unable to assist. In my opinion, the onus to establish that the person before whom an affidavit is sworn does fall within r12 lies upon the party alleging this. In the present case, the only evidence of Mr Karp's connection with the proceedings is a letter which he wrote to the defendant's solicitors a little over a week after the affidavits were sworn. Presumably, the plaintiff's solicitors are well aware of the provisions of the rule and, in the circumstances, I am prepared to accept that Mr Karp has not been shown to have been within the rule's ambit when the affidavits were sworn. Accordingly, I do not uphold the objection to those affidavits, being the affidavits of Hitzman, Hannagan, Lenhoff, Dumic and Forbes.

The plaintiff objected to para 87 of the defendant's affidavit sworn on 10 July 1998. That is a very long paragraph, covering some three pages in the affidavit, and it responds to the evidence furnished by the plaintiff by way of its balance sheet showing net assets of some $6 million. In para 87, the defendant, who is seeking to establish that the plaintiff's undertaking as to damages is worthless, alleges that: "The plaintiff will very soon be (if it is not already) facing enormous damages claims . . ."

The defendant then makes a number of allegations concerning the fire rating of flexible duct used in the plaintiff's air-conditioning and ventilation products. Much of what is said in this paragraph is secondary evidence of the contents of the Building Code of Australia, which Code is not produced. As such, I consider this evidence inadmissible. However, there are allegations in para 87 of what was said to the defendant by directors of the plaintiff, including alleged admissions that the plaintiff has never succeeded in getting the LP Flex material which the plaintiff uses in its products to pass the necessary tests. I regard that evidence as admissible. In answer, the plaintiff has supplied copies of test results, indicating satisfactory fire ratings for the material in question. Mr Forbes, for the defendant, says that the test results are misleading in that they refer to the material before it was laminated, whereas it is laminated material which is used in the plaintiff's products. There is nothing before me to suggest that laminating non-inflammable material could result in its becoming inflammable. I did not find that the allegations in para 87, to the extent that they may be admissible in evidence, assist me in reaching a conclusion to the effect that the plaintiff faces enormous claims for damages, such as to mean, in effect, that the net assets of $6 million are insufficient to render the plaintiff's undertaking as to damages worthless.

The plaintiff alleges that the defendant, who was at all material times the state manager of the plaintiff's branch office in this State, at various times between 1 July 1995 and 17 February 1998 received cash cheques drawn in favour of the plaintiff by Temp-Rite for goods purchased from the plaintiff, to the total value of $165,528.71 and failed to deposit those cheques to the plaintiff's bank account but, instead, cashed the cheques for his own benefit, or deposited them to his own bank account. Accordingly, the plaintiff pleads, the defendant converted those cheques to his own use and deprived the plaintiff thereof and is indebted to the plaintiff accordingly.

In addition, the plaintiff pleads that the defendant failed to deposit to the plaintiff's bank account cash cheques drawn by Comfort Control for a total of $62,641.44, in respect of moneys owed by Comfort Control to the plaintiff for goods purchased from the plaintiff. Accordingly, the plaintiff pleads, the defendant converted those cheques to his own use and deprived the plaintiff thereof and is indebted to the plaintiff accordingly.

The plaintiff then pleads similar allegations concerning cash cheques in the total amount of $41,176.50 drawn by Cleanwork Painting in respect of moneys owed to the plaintiff for goods purchased from the plaintiff. Accordingly, the plaintiff pleads, the defendant converted those cheques to his own use and deprived the plaintiff thereof and is indebted to the plaintiff accordingly.

The plaintiff then pleads that in or about July 1997, the defendant and one Roa converted a consignment of sisal Y fittings, the price of which was $20,311.45, the property of the plaintiff, to their own use and that the defendant is indebted to the plaintiff in that sum also, by way of damages.

There are several other claims by the plaintiff against the defendant for smaller amounts and, in all, the plaintiff claims damages or equitable compensation in the aggregate of $354,359.39.

In the defence, the defendant admits having failed to deposit to the plaintiff's bank account certain cash cheques drawn by Temp-Rite "in respect of moneys due by Temprite (sic) for goods ostensibly purchased from the plaintiff. The defendant denies that these goods were in fact purchased from the plaintiff and states that the defendant purchased such goods from third parties with his own funds. The amounts of the cash cheques which the defendant failed to deposit to the plaintiff's bank account were, the defendant pleaded, not owed to the plaintiff but to the defendant." The defendant denied the quantum of the cheques alleged by the plaintiff. The same contentions were raised in relation to the cheques drawn by Comfort Control and those drawn by Cleanwork Painting and there was a denial of the quantum alleged by the plaintiff in each case.

In general, the defendant denies being indebted to the plaintiff in respect of the claims pleaded by the plaintiff and the defendant raises a counterclaim for damages arising from his summary dismissal on 25 March 1998.

Accordingly, it is not disputed by the defendant that cheques drawn by Temp-Rite, by Comfort Control and by Cleanwork Painting respectively for goods "purportedly" sold to them by the plaintiff, were not banked by him to the credit of the plaintiff's bank account. It is implicit in the defendant's pleading that those cheques were taken by him for his own use. Although the defendant pleads that the goods in question were purchased by him with his own moneys, he says in para 26 of his affidavit sworn on 10 July 1998:

"To supply Temprite (sic) with product from an alternate manufacturer would cause little or no inconvenience, offence or complaint and it would maintain a customer of the plaintiff without the customer realising that the plaintiff was experiencing supply problems and was, in fact, unable to supply the customers needs. I did this on an ad hoc basis, as an (sic) when required and in the plaintiff's interests. I did not make any profit from these transactions and did not consider it necessary to keep records thereof. it was an embarrassing situation for me to have to acquire alternative goods for customers in this fashion but I regarded it as a necessity to maintain continued continuity of supply. I estimate the total purchases made by me in this regard to be tens of thousands of dollars but certainly not the $169,497.85 that the plaintiff alleges to be missing."

There are admissions on oath by the defendant that he has prevaricated on occasions. In para 20 of his affidavit sworn on 10 July 1998, he says, in relation to fittings manufactured under his instructions:

"I admit that I initially did say that I did not know where the fittings were being made. This was because I had wanted to present the full process as a success story at the end of the summer and show the Melbourne management what had been achieved. It had always been my intention to inform Sterling of how Kiara Metals operated but not until the completion of the summer."

In para 68 of that affidavit, in reference to the following statement in the affidavit of George Alan Forbes sworn on 12 June 1998:

". . . the Defendant said to me that one of the reasons for travelling to Thailand was that a container of ducting had gone missing and he was required to go there and sort it out. . . "

"As regards paragraph 24 of George's affidavit: I admit the contents of this paragraph. I could not see any purpose in revealing my true destination or motivation to George as it was none of his business. On this particular occasion I was in fact travelling to Adelaide on business for the plaintiff and Elizabeth Sterling had informed me that she did not want the industry to know. I therefore told George a deliberate lie in the knowledge and hope that the air-conditioning industry would hear the rumour of duct being sent to Thailand. This would confuse the plaintiff's competitors without giving the real reasons for my trip away."

The plaintiff has filed an affidavit sworn by Diana Roa, who was employed by the plaintiff at various relevant times. She says that she was involved in transactions concerning cash cheques drawn by Temp-Rite, Comfort Control and Cleanwork Painting. She says, in para 9(q) of her affidavit:

"When I cashed a cheque I would give the defendant the whole of the amount of the cheque to the defendant (sic) or he would say you have half and I would give him the rest."

In the light of the evidence as a whole, I am satisfied that the plaintiff has made out a good arguable case: see Perth Mint v Mickelberg (No 2) [1985] WAR 117; Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264.

It is therefore necessary to consider whether there is a real risk that if the injunction is not granted, the defendant will remove or dissipate his assets: Perth Mint v Mickelberg (No 2) (supra).

In Patterson v BTR Engineering (Aust) Ltd & Ors (1989) 18 NSWLR 319, a decision of the Court of Appeal, the Court held that, where a prima facie case has been established that a defendant fraudulently misappropriated a large sum of money, that evidence could be relied upon to infer that if such sum was still under the control of the defendant, he would not preserve it for the plaintiff should he be successful in the action.

At page 321 of the decision in that case, Gleeson CJ says:

"The remedy is discretionary, but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that, by reason of the defendant's absconding, or of assets being removed out of 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."

Meagher J expressed the matter, at page 326, as follows:

"To obtain such an injunction a plaintiff must prove two ingredients: first, that he has a prima facie case against the defendant, and secondly, that there is some risk of a dispersal by the defendant of his assets so as to defeat the value of the plaintiff's victory if he ultimately wins.

However, in exceptional cases (of which the present is unfortunately one) one can infer the existence of the latter ingredient partly or wholly from proof of the former. This may well be the situation in all cases where the plaintiff's prima facie case against the defendant involves proof of gross dishonesty."

"What degree of proof is, then, required? . . . I should have thought that the plaintiff is required to prove, on a balance of probabilities, that there is a real risk of the dissipation of assets."

Apart from the evidence as to the appropriation of cheques to which I have referred and upon which the plaintiff relies largely to demonstrate the risk of the defendant's dispersal of his assets, there is some evidence that the defendant intends to move to Thailand in order to establish a business there. I regard this evidence as of little weight, it is inconclusive and does not demonstrate with any conviction that there is a danger that the defendant is about to remove from the jurisdiction in the near future. Standing alone, that evidence would not suffice to persuade me that the plaintiff has demonstrated the existence of any such danger as is referred to in the authorities. Accordingly, the plaintiff is left to depend upon the principle expressed in Patterson v BTR Engineering (supra).

The plaintiff's case involves allegations of gross dishonesty on the part of the defendant, involving a substantial sum in excess of $350,000. The defendant admits that he has lied on occasions when it was expedient to do so. His answer to the allegations of conversion appears at this stage to be extremely implausible. It is undesirable that I say anything more in this regard in the circumstances.

I respectfully adopt what was said by Mildren J in Mitchell v Saengjan (1994) 117 FLR 273, which expresses the view I take of the present matter:

"All these factors together give rise to such a feeling of unease that I consider that there is a sufficient danger that the defendant will remove or dispose of or otherwise deal with in some fashion her assets in such a way that the plaintiff, if he were to succeed in this action, will not be able to have his judgment satisfied."

I am disposed to grant a Mareva injunction accordingly, limited to an amount not exceeding $350,000 and subject to appropriate conditions to meet the needs of the defendant pending the determination of the action. I shall hear from counsel as to the appropriate orders accordingly.