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Mareva injunction - Test to be applied - Turns on own facts

Patrick Stevedores Operation No 2 Pty Ltd v Maritime Union of Australia (1998) 72 ALJR 868

1 MILLER J : On 27 July I granted an ex parte Mareva injunction in this matter. At that time I took the view that an asset preservation order was necessary to ensure that money in possession of the fourth defendant would be available to satisfy any judgment obtained by the plaintiff in the action.

2 The essential facts of the matter are that the plaintiff sues the first defendant and others for the return of a deposit of $150,000 paid by the plaintiff to the first defendant in relation to a conditional contract to purchase a property in Gould Street, Herdsman Business Park for the sum of $3.85 million. The plaintiff alleges that the first defendant wrongfully terminated the contract and wrongfully forfeited the deposit paid by the plaintiff. Subsequently the first defendant sold the property in question to a third party. In consequence the plaintiff lodged a caveat but that caveat was rejected by the Registrar of Titles on the basis that a previous caveat in the same form had lapsed. On 22 July 1999 the first defendant effected sale of the property to Glenmont Properties Ltd for $3.95 million.

3 On the same day the plaintiff made application to restrain the disposition of $150,000 of the purchase price from the first defendant to any other party or parties. At the hearing of the matter on that day I was advised that all of the purchase price had in fact been disbursed. I thereupon ordered the first and second defendants to file and serve affidavits no later than 10 am on 26 July 1999 deposing to the details of the settlement effected on 22 July, including details of distribution and/or disposal of the proceeds of settlement and the entities to which those proceeds were paid. On the afternoon of 26 July the first defendant filed and served an affidavit indicating that $1.1 million, being the balance of the proceeds of sale, had been paid to the fourth defendant. It became apparent that the fourth defendant was a company which effectively owned all of the issued share capital of the first defendant. The fourth defendant received that money pursuant to a deed of first right of refusal dated 24 March 1998 and stamped 8 September 1998. Questions have arisen in the course of submissions as to the validity of the date assigned to the deed, but I make no finding about that. The affidavit of the first defendant contained no statement of its assets and liabilities, although it was clear from the materials that the land in question was its only asset.

4 On 27 July an urgent ex parte application was brought before me to restrain the balance of the proceeds of the sale fixed at $150,000 from being disbursed by the fourth defendant. An order was made in those terms together with orders enabling the fourth defendant to be joined as a fourth defendant in the proceedings and requiring a statement of claim to be served upon it.

5 The present position is that the fourth defendant has at least $150,000 of the moneys paid to it and this money, I conclude, is likely to be disbursed unless the fourth defendant is restrained from doing so. The first defendant in its financial statements for the year ending 30 June 1998 has shown the sum of $150,000 under the heading "Other Creditors", that sum representing the moneys claimed from it by the plaintiff. The fourth defendant in submissions before the Court has effectively conceded that the first defendant would be in no position to pay a judgment of $150,000 if that judgment was entered against it. It is said that the plaintiff could liquidate the first defendant and recover any moneys paid as a preference.

6 I am satisfied from the evidence that the fourth defendant effectively owns all of the issued share capital in the first defendant and that the second defendant is a director of both companies, they both having the same registered office and place of business, same address and same telephone number. Neither the first defendant nor second defendant has deposed to the asset position of the first defendant in terms of assets and liabilities as at 22 July 1999 and there has been a continued silence from the first and second defendants in that regard. Further, none of the defendants has indicated any likely prejudice to it in consequence of the Mareva order which I made. The fact of the matter is that if the fourth defendant disburses the $150,000 presently restrained, there are serious doubts as to whether the plaintiff would recover anything if successful against the first defendant. The action is ready for trial. The sum of $150,000 represents only a very small portion of the payment made by the first defendant to the fourth defendant.

7 It is argued by the fourth defendant that the Mareva injunction should be discharged. The bases of the argument are: (1) there is no evidence to support the proposition that the first and/or fourth defendant will dissipate assets so as to leave and with the intention of leaving the plaintiff with a barren judgment; (2) the basis for the grant of a Mareva injunction is to prevent abuse and not simply to protect the interests of the plaintiff.

8 However, on the facts it seems to me that there is primary evidence to establish that the fourth defendant will, if not restrained, dissipate $1.1 million (or whatever remains of it) paid by the first defendant to it unless restrained from doing so. As a result the plaintiff would be left with a barren judgment against the first defendant which apparently has no other assets. That primary evidence comes from the evidence adduced by affidavit on behalf of the first defendant. It is supported by evidence that the solicitor for the fourth defendant has made statements consistent with the likelihood that the moneys will be disbursed unless the fourth defendant is restrained from so doing. Further, I conclude from the evidence that there are primary facts to support the conclusion that the plaintiff would be unable to enforce a judgment in this matter against the first defendant. Liquidating the first defendant and recovering any moneys paid as a preference do not seem to me to be a sufficient answer to the assertion that the first defendant has no assets from which to satisfy a judgment.

9 The law in relation to the Mareva injunction is in a fluid state. The most recent authority of Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 73 ALJR 657 sets out the parameters of the remedy. It is not appropriate for me to seek to summarise the effect of that judgment, but I accept the submission of the plaintiff that the remedy is an evolving remedy and its precise contours have yet to be fixed. For a Mareva injunction to be granted it is necessary to show:

(1) a prima facie case for the plaintiff in the proceedings;

(2) a real risk or danger of the defendant's assets being dissipated or put beyond the reach of the Court if the order is not made;

(3) as in the case of any injunctive relief, a balance of convenience in its favour: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321.

10 I adopt and apply the test formulated in Patterson (supra) by Gleeson CJ (at 321-322) where his Honour said:

"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."

11 The function of a Mareva injunction is to minimise the possibility of an unscrupulous defendant seeking to render itself judgment-proof or to dispose of assets in a manner prejudicial to the plaintiff's ability to satisfy any potential judgment debt in the action: Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612, per Deane J (at 623). I accept that a Mareva injunction will not be granted where there is an attempt merely to get security for a judgment and I find that that is not the case here.

12 I was referred by counsel for the fourth defendant to the observations of Ipp J in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 8 WAR 183, ad in particular his Honour's statement at 185:

"In Perth Mint v Mickelberg (No 2) [1985] WAR 117 Burt CJ (at 118) approved of the remarks of Kerr LJ in Z Ltd v A-Z [1982] 1 QB 558 at 585, where his Lordship said:

'[A] Mareva injunction should be granted but granted only, when it appears to the court that there is a combination of two circumstances. First, when it appears likely that the plaintiff will recover judgment against the defendant for a certain or approximate sum. Secondly, when there are also reasons to believe that the defendant has assets within the jurisdiction to meet the judgment, in whole or in part, but may well take steps designed to ensure that these are no longer available or traceable when a judgment is given against him.'

Burt CJ said, further, in Perth Mint v Mickelberg (No 2) (at 118):

'The true basis for exercise of the jurisdiction, I think, is to render the administration of the law effective and to prevent abuse and not when expressed in general terms to protect the interests of the plaintiff.'

Mareva injunctions are directed against dispositions which are intended to frustrate or to have the necessary effect of frustrating the plaintiff in his attempts to seek an appropriate remedy through the courts: see State Bank (Vic) v Parry (unreported, Supreme Court, WA, Library No 7408, 22 November 1988).

The plaintiff is, accordingly, required to establish an intention on the part of the defendant to dispose of his assets so as to defeat the claims of creditors and to ensure that any judgment obtained by the plaintiff would be unsatisfied: see Perth Mint v Mickelberg (No.2); State Bank (Vic) v Parry."

13 In my view, further consideration is required in the light of more recent developments of the test formulated by Ipp J. I prefer the test formulated by Gleeson CJ in Patterson (supra).

14 The purpose of the Mareva injunction is to preserve the status quo so that the administration of the law is not rendered ineffective.

15 The Court will look to the effect rather than the purpose of the defendant's conduct in determining whether the Court's processes have been abused or frustrated: Glenwood Management Group Pty Ltd v Mayo [1991] VicRp 45; (1991) 2 VR 49 at 53. Further, third parties may be restrained by a Mareva order: see Cardile v LED Building Pty Ltd (supra) 670-671:

"What then is the principle to guide the courts determining whether to grant Mareva relief in a case such as the present where the activities of third parties are the object sought to be restrained? In our opinion such an order may, and we emphasise the word 'may', be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which:

(i) the third party holds, is using, or has exercised or is exercising power of disposition over, or is otherwise in possession of assets, including 'claims and expectancies', Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612, of the judgment debtor or potential judgment debtor; or

(ii) some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor."

16 I am satisfied in this case that there is a prima facie case made out on behalf of the plaintiff against the first defendant. The description of the plaintiff as a "current creditor" in the statement of assets and liabilities as at 23 June 1999 establishes that fact. Further, there is a real risk that the assets, or at least $150,000 of them, held by the fourth defendant which effectively owns all the issued share capital in the first defendant, will be dissipated and/or put beyond reach of the Court if I discharge the order I have made. I apply the test formulated by Gleeson CJ in Patterson (supra) governing the case and I consider there is a balance of convenience in favour of the plaintiff, as is required in the grant of any injunctive relief. In the exercise of the discretion which is essential to the issue of grant or otherwise of the relief sought I conclude the following factors to be important: (1) the case is about to be entered for trial; (2) there is only $150,000 of the $1.1 million being withheld; (3) no prejudice to the first or fourth defendant has been identified in any way. I therefore conclude that the injunction should continue and I dismiss the application to discharge it.