Vaughan v Duncan

Frigo v Culhaci [1998] NSWCA 17 July 1998 unreported MGICA (1992) Pty Ltd v Kenny & Good Ltd (No 2) (1996) 70 FCR 236 CASES CITED : Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398 Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 Ryder v Frohlich (No 2) [2006] NSWSC 1325 Tjiong v Tjiong [2007] NSWSC 216

Diane Vaughan (P) PARTIES : Peter Victor Duncan (D & XC) Colin Raymond Vaughan (XD)

No appearance (P) COUNSEL : J B Whittle SC and J T Svehla (D & XC) M Ashhurst (XD)

McGrath Dicembre & Co (P) SOLICITORS : Lobban McNally Lawyers (D & XC) Gibsons Lawyers (XD)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3062/03 DIANE VAUGHAN v PETER VICTOR DUNCAN JUDGMENT 1 HIS HONOUR: This is an application in effect for a continuation of Mareva relief sought in support of the enforcement of orders for the payment of money. The orders are orders for costs totalling about $165,000 arising out of litigation that has been decided. At the time that an interim order for Mareva relief was made by Brereton J, the costs had not been assessed. They have now been assessed and the larger amount has in fact been translated into a judgment for those costs in the District Court at Sydney. 2 Why I say that the proceedings are in effect for a continuation of Mareva relief is that the relief originally granted by Brereton J has been converted into an order that $200,000 be paid into court to abide the further order of the Court, the intention being that it be frozen in that way by an order in the nature of Mareva relief to be available to meet the orders for costs. The money at the moment remains in court under Mareva relief in that form. The original orders made by Brereton J have in effect been extended from time to time by consent pending the determination of the application for Mareva relief and it is upon the final determination of that application before me that the appropriateness of Mareva relief was to be and is being determined. 3 A case was put by Mr Ashhurst, of counsel for the cross defendant, that the original order made by Brereton J was tainted by circumstances arising when it was obtained, which meant that its being obtained amounted to an abuse of process. In view of what I am about to say, I need not go into what may or may not have been the consequences of there having been an abuse of process in its being obtained. 4 Various complaints were made to me about the matters that were put to Brereton J. However, there was only one which, in my view, had real potential to render the obtaining of ex parte relief from his Honour an abuse. It was originally alleged that the cross claimant's counsel had not revealed to Brereton J that the real value of the Clareville property, which has since been sold, was about $5 million, rather than the $2 million which was at one time taken to be its value. However, it has become quite plain during the course of the hearing before me that Brereton J was in fact informed of this increase in value in the Clareville property. That being so, there were not in my view any circumstances that would have rendered the application for grant of that relief by Brereton J an abuse of process. None of the other circumstances put forward, alone or together, led to that conclusion. That matter can be put out of consideration. 5 The real question in this case is whether there is a sufficient apprehension of dissipation of the cross defendant's assets in a fashion which would lead to the cross claimant not being able to have his orders for costs satisfied. The usual first part of the test laid down by Gleeson CJ in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321 - 322 is irrelevant in this case, namely, that there be established a sufficient prima facie cause of action. In fact, this is an application made after judgment and there is absolutely no doubt of the existence of the costs liability which is being dealt with. The only matter, therefore, that the applicant for the injunction needs to establish is a sufficient apprehension of dissipation of the assets. 6 One familiar statement of what is necessary to establish this apprehension was made by Mustill J in Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398 at 402 - 3. There his Lordship said: "It is not enough for the plaintiff to assert a risk that the assets will be dissipated. He must demonstrate this by solid evidence. This evidence may take a number of different forms. It may consist of direct evidence that the defendant has previously acted in a way which shows that his probity is not to be relied on. Or the plaintiff may show what type of company the defendant is (where it is incorporated, what are its corporate structure and assets, and so on) so as to raise an inference that the company is not to be relied on. Or, again, the plaintiff may be able to found his case on the fact that inquiries about the characteristics of the defendant have led to a blank wall. Precisely what form the evidence may take will depend on the particular circumstances of the case. But the evidence must always be there. Mere proof that the company is incorporated abroad, accompanied by the allegation that there are no reachable assets in the United Kingdom apart from those which it is sought to enjoin, will not be enough."

The matter was revisited more recently by the NSW Court of Appeal in Frigo v Culhaci NSWCA 17 July 1998 unreported. There their Honours said: "A plaintiff must establish, by evidence and not assertion, that there is a real danger that, by reason of the defendant absconding or removing assets out of the jurisdiction or disposing of assets within the jurisdiction, the plaintiff will not be able to have the judgment satisfied if successful in the proceedings. There has been much debate as to the precise degree of risk which must be shown: see generally Patterson . What is clear is that mere assertions that the defendant is likely to put assets beyond the plaintiffs reach will not be enough: Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398; Patterson .

The evidence relied upon at the contested hearing fell far short. The admissions in the 'without prejudice' correspondence should have been ignored. The sale of an encumbered home unit at a figure above market value does not, standing alone, imply disposal of assets in order to defeat a prospective judgment, even where the purchaser is a close relative. Even if, which is doubtful, the appellant's suspension of work in the building contract could have been regarded as evidence of financial difficulties, it was not argued below that it had such effect. More importantly, that alone is not enough. A mareva injunction is not designed to stop a person from sliding into insolvency."

And see my judgment in Tjiong v Tjiong [2007] NSWSC 216 7 The material on which the cross claimant relies to establish the apprehension of dissipation was dealt with under a number of heads. 8 The first was said to be the established dishonesty of the cross claimant. There were two matters put under this head. The first, a finding of Macready AsJ at the trial that the cross defendant had been dishonest in concealing, at his mother's request, the transfer of certain shares and had, indeed, executed false documents to be filed with the companies authorities concerning this matter. That was, indeed, a matter of substantial dishonesty, involving as it did the putting of false information on the public record. However, without in any way condoning it, it occurred in the rather special context of the cross defendant being asked to follow that course of action by his mother. It is to be noted that Macready AsJ did not otherwise make any adverse finding as to the cross defendant's credit. 9 The second basis on which the dishonesty was put occurred in the proceedings before me. The cross defendant omitted from an affidavit listing his liabilities, some of them provisional only, the fact that a claim had been made, in the sense that an action had been brought against the cross defendant in the Common Law Division of this Court, for the recovery of some $875,000 income tax. The liability for this amount is denied by the cross defendant. It does, however, seem strange that there should not have been some mention made of it, particularly when the claim is in a very large sum, in the affidavit relating to his liabilities. 10 However, this omission needs to be viewed in the light of three matters. First, there is the cross defendant's denial of the tax liability and long and complicated negotiations in that matter between his accountant and the lawyer acting for him on the one had and the Taxation Office on the other. It seems to be extremely unclear as to how much of the claim is disputed and what the amount of liability will be when settled between the Taxation Office and the cross defendant, either by agreement or by trial of the action which is on foot. It is perhaps notable that no steps have been taken by the Deputy Commissioner of Taxation to strike out the defence to the whole of the large sum claimed on the basis that the defence is wholly or in part bogus or unsubstantiated. 11 Secondly, the cross defendant's evidence on this subject matter did not leave me with any feeling of satisfaction that he had been attempting to deceive the Court or anybody concerning this claim and its impact on him, in view of its inchoate nature. 12 Thirdly, and most importantly, the conduct of the cross defendant since the injunction was first granted does not appear to me to be the conduct of a man minded to dissipate his assets so as to defeat the satisfaction of the cross claimant's orders. I shall return to this aspect in due course. 13 Before I do that, I should also add that, as Mr Ashhurst has reminded the Court in his written submissions, it is, in the words of Brereton J in Ryder v Frohlich (No 2) [2006] NSWSC 1325 at [28]: "… a long leap from an adverse conclusion on credit, made in the course of contested proceedings, to a finding that there is a risk of an improper dissipation of assets to defeat a judgment."

This is particularly so where the case is not a case of fraudulent misappropriation of assets, as was Patterson : see Ryder at [29]. 14 Another matter on which the cross claimant sought to rely is non compliances by the cross defendant with the Court's orders and directions, both during the course of the proceedings and during the costs assessment. However, I am not inclined to infer an apprehension to dissipate from those matters. 15 Likewise, I am not inclined to view the cross defendant's alleged avoidance of service of documents, which really does not seem to have been of any great substance, as leading by itself or in conjunction with other matters to any substantial apprehension of dissipation. 16 I return to the question of what the cross defendant's conduct has in fact been as to his financial position since the grant of the original ex parte relief. 17 The cross defendant has substantial assets which would outweigh his liabilities, even if the debt claimed by the Taxation Office were fully established against him. He and his wife have something in the vicinity of $2.1 - $2.2 million out of the net proceeds of the sale of the Clareville property. The cross defendant also has an interest through a company in which he is solely interested in a property at Elizabeth Bay valued at no less than $875,000. He has, in addition, a half interest in a yacht worth perhaps $300,000. Those are his substantial assets. The cross defendant has no income of any substance at the moment. 18 However his wife, Dr Margaret Vaughan, has a substantial income from her medical practice as a general practitioner at Mona Vale. For some little time after the settlement of the sale of the Clareville property, there were various approaches by the cross defendant and Dr Vaughan to buy another residential property. The prices of the properties investigated varied between about $1.4 and about $3 million. What both of them regarded as potential sources for the purchase price of that property were in part the proceeds of the Clareville property, in part borrowings, the interest payments on which would be met out of Dr Vaughan's income, and, more recently, the use of $400,000 which is to be gifted to the cross defendant and Dr Vaughan by Dr Vaughan's parents. There is a proposal under way for the cross defendant and Dr Vaughan to buy Dr Vaughan's parents' house for about $2.9 million, although that will not occur for at least a couple of months from now. 19 It is significant that all these proposals have been for the replacement residence to be bought in the names of both the cross defendant and Dr Vaughan. One of the most commonly used devices where somebody is trying to put assets beyond reach on the changeover of residences is for one spouse's share of the proceeds of the first residence to be contributed to the new dwelling, but for the new dwelling to be purchased in the name of the non debtor spouse only. There is not the faintest suggestion of that occurring here. In fact, there is a contract in relation to one property which was actually executed, although not subsequently exchanged, where the purchase was clearly to be made in the name of both spouses. And we are talking here about dwellings valued in the order of $2 to $3 million. That is hardly the action of somebody trying to put his funds or assets out of the reach of the orders. 20 In fact, now that a property purchase is not actively going ahead at the moment, the money, apart from the $200,000 paid into Court, is sitting in bank accounts. At least one of those accounts is in the cross defendant's name. The others are in Dr Vaughan's name. But both the cross defendant and Dr Vaughan acknowledge in the witness box that the moneys in the accounts in Dr Vaughan's sole name are owned equally between them. 21 Even in the absence of this evidence of the way in which the cross defendant has proceeded to deal with his assets, I should not form the view on the materials put forward to support the Mareva relief that there was a sufficient apprehension of dissipation to found the relief. When one adds to it the evidence of how the cross defendant has in fact proceeded to deal with his assets, it seems to me that a sufficient apprehension of dissipation is quite impossible. 22 The cross claimant's claim for relief was put not only on straightforward Mareva doctrines, but on an alternative basis of a jurisdiction to grant an injunction over a fund which has been designated to meet a debt. There is no need for me to go into the existence or applicability of that doctrine. It is conceded that, like relief on Mareva principles, it can be granted only if it seems clear that there is some risk of the cross defendant dealing with assets in a way which will defeat, delay or hinder the satisfaction of a judgment. Such a finding on the basis set out above I am not prepared to make. 23 I propose to dismiss the amended notice of motion. 24 The cross defendant has tendered a Calderbank letter sent on 5 April 2005. The offer made was for the release from the Court of the $200,000 paid in into an interest bearing account in the cross defendant's name, but controlled by his solicitors for the purpose of securing the payment of costs found to be payable, and the payment by each party of his own costs of the notice of motion. 25 Mr Ashhurst asks for payment of the cross defendant's costs up to and including 6 April 2007 on the ordinary basis and from 7 April 2007 onwards on the indemnity basis. 26 It is clear that an offer to the cross claimant at least as good as the result was made by the cross defendant and not taken up. What is unusual in these circumstances is that, although the cross defendant was insisting on the release from Mareva restraint of the $200,000, it was offering to provide an effective security of $200,000 for the costs liability. If any concession by the cross claimant was required, it was that it should bear its own costs of the application up to that time. 27 An order for indemnity costs does not flow automatically from the making of a Calderbank offer, its non acceptance and the fact that the offeree has not done better at hearing. A question that often arises, and arises in this case, is whether or not it was reasonable or unreasonable for the offeree to maintain the proceedings from that time onward: see MGICA (1992) Pty Ltd v Kenny & Good Ltd (No 2) (1996) 70 FCR 236. 28 The central argument of Mr Svehla, of counsel for the cross claimant, against indemnity costs was that, bearing in mind what was known by the cross claimant at the time of the offer, it was reasonable at that time for him to continue with the application. It is true that a deal of the subsequent conduct of the cross defendant that I have adverted to in this judgment had not occurred or become plain at that stage. On the other hand, as is already clear from what I have said, even at that stage the evidence supporting the apprehension of dissipation was very weak. Bearing in mind that weakness, combined with the fact that the offer provided for effective security for the costs liability, I am of opinion that it was quite unreasonable in the circumstances for the offer not to be accepted. 29 In those circumstances I propose to make the costs order sought by Mr Ashhurst. 30 The orders of the Court will therefore be:

(1) The cross claimant's amended notice of motion filed on 10 July 2007 is dismissed. (2) I order that the cross claimant pay the cross defendant's costs of the cross claimant's application for relief by way of freezing order up to and including 6 April 2007 on the ordinary basis and from and including 7 April 2007 on the indemnity basis. (3) I order that the sum of $200,000 paid into Court together with interest accumulated thereon be paid out forthwith to the cross defendant's solicitors Gibsons Lawyers. (4) All exhibits and documents produced to the Court on subpoena or otherwise may be returned.

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