Westpac Banking Corporation v McArthur [2007] NSWSC 1347 | Case summary

4792/07 WESTPAC BANKING CORPORATION & ANOR v JON CHARLES McARTHUR & ANOR JUDGMENT 1 In these proceedings commenced by summons filed on 28 September 2007, the first plaintiff ("Westpac") seeks an order that the defendants (Jon Charles McArthur and Richard Walter Fritsche) pay to it the sum of $2,790,958.58, an order for the taking of an account of moneys received by the defendants or their agents for the benefit of Westpac and an order that the defendants pay to Westpac the sum found to be due on the taking of the account. There are also ancillary claims. 2 Filed with the summons was a notice of motion by which Westpac sought, among other orders, freezing orders in respect of the assets generally of the defendants. Westpac moved ex parte on the notice of motion upon its being filed in court on 28 September 2007. 3 The ex parte application was heard by Austin J on that day. His Honour made freezing orders against both defendants up to and including 3 October 2007. When the matter came back before Austin J on 3 October 2007, both Westpac and the defendants were represented by counsel. The freezing orders, in somewhat modified form, were continued up to and including 31 October 2007. Austin J delivered a brief ex tempore judgment. 4 On 31 October 2007, the proceedings came before Hamilton J. Again, counsel appeared on both sides. An affidavit was filed in court on behalf of the defendants. It was an affidavit of Mr Toda, a solicitor. Hamilton J continued the freezing orders up to and including 12 November 2007. 5 When the matter came before me as Duty Judge on 12 November 2007, it was submitted on behalf of the defendants that the freezing orders should be discharged (or allowed to lapse). In other words, the defendants said that the orders should not be further extended. Westpac pressed for renewal of the orders until further order. 6 I heard the case in part on that day, during such intervals as the Duty List allowed. At the end of the day, cross-examination of Westpac's main witness, Mr Billingham, was incomplete. I adjourned the further hearing of the matter to 13 November 2007, at the same time extending the orders to that day. On that occasion also, the matter was heard during intervals over the day and was adjourned, with the orders continued. The proceedings were last before me on 15 November 2006. The hearing concluded on that day and I reserved judgment, at the same time extending the orders until determination of Westpac's application. 7 The onus lies, of course, with Westpac. It must make a case for the imposition of the restraint sought. The defendants' position is as follows: (a) each says that the existing order should be dissolved because of breach by Westpac of the fundamental obligation of candour to which an applicant ex parte for injunctive relief is subject; (b) Mr McArthur does not oppose the re-making of the order against him, but contends that the exceptions and qualifications to the order should be modified; and (c) Mr Fritsche opposes the re-making of the order against him but says that, if it is re-made, the exceptions or qualifications should be modified. 8 Because Westpac is pressing for the continuation (or re-imposition) of restraints substantially in the original form and one of the defendants does not, in concept, oppose a freezing order against him, there seems little point in proceeding to consider whether the original orders should be dissolved because of what is said to have been failure of Westpac in the due discharge of the obligation of candour upon the original ex parte application. That matter is best left until after a consideration of the merits of Westpac's application to have the orders continued or re-made. 9 Mr McArthur and Mr Fritsche are (and were at all material times) the only directors of Bon McArthur Transport Pty Ltd ("BMT"). In February 2006, Westpac and BMT entered into an "invoice funding" agreement - essentially, a factoring arrangement under which Westpac advanced funds to BMT against invoices raised by BMT against its customers and delivered by BMT to Westpac. In April 2006, Mr McArthur and Mr Fritsche guaranteed to Westpac the indebtedness of BMT. In August 2006, BMT granted a general charge to Westpac. In the same month, certain companies associated with BMT created guarantees and charges in favour of Westpac. 10 By September 2007, the financial position of BMT had deteriorated. On 19 September 2007, Westpac appointed Grant Thornton (NSW) Pty Ltd to investigate the financial affairs of BMT. On that day, Mr Billingham of Grant Thornton attended a meeting at which were present, among others, Mr McArthur and Mr Fritsche, as well as Mr Toda who, as Mr Billingham understood it, was the solicitor for BMT, Mr McArthur and Mr Fritsche. Mr Billlingham's evidence is that, at the start of the meeting, Mr Toda said: "This is a without prejudice discussion. We have something to come clean with. We've got a problem. We have about $3.3 million in uncollectible debt." 11 Mr Spoto, an employee of BMT, then produced a list of invoices totalling $3,488,698.23. Mr Spoto or another person understood by Mr Billingham to be from BMT then said: "This is a list of the uncollectible invoices which were purchased by the Bank but which we do not have available supporting documentary evidence." 12 Mr Billingham then records a conversation as follows: "Mr Starkey (Bank): What is the problem? Why are these debts uncollectible? Mr Toda: We are not going to tell you at this time. Mr Billingham: This changes the scope of things. We're going to have to review the issue. Do you mind if we and the Bank had a discussion?" 13 The BMT representatives left the room. They returned several minutes later and a conversation as follows occurred: "Mr Billingham: 'Why are these debts uncollectible?' Mr Toda: 'We're not in the position to tell you just now.'" 14 After further discussion, a person identified in Mr Billingham's affidavit as Mr Mottershead, BMT's external accountant, is reported to have said: "We require urgently approximately $1.5 million to cover employees, subcontractors and fuel. We need the Bank to let us know whether they can give us the funds by Thursday." 15 The Westpac people left the meeting soon afterwards. Mr Billingham and two colleagues from Grant Thornton remained with Mr McArthur, Mr Fritsche and other representatives of BMT. This conversation followed after some discussion of BMT's operations: "Mr Billingham: 'Look, no mucking about, what has happened with these invoices? It seems to me that either one of your employees has improperly or mistakenly raised invoices, maybe some of your customers have gone bust or otherwise, things have got pretty tight for you and you have raised some invoices you shouldn't have in order to access funds?' Mr McArthur: 'Yes, the latter. We have raised some (nodding) invoices we shouldn't have raised. But I can say that I take full responsibility for the problem. I have been preoccupied with commercial proposals regarding the further development of the Seven Hills property and recently I have taken my eye off the debtors. '" 16 Mr Biscoe, one of Mr Billingham's colleagues, made a file note of something said by Mr Mottershead: "Ross confirmed that the company has included false invoices in the Westpac Debtor Finance Facility to obtain further drawdown facility as they were struggling for cash." 17 No evidence has been given by Mr McArthur or Mr Fritsche. There is, however, the affidavit evidence of their solicitor, Mr Toda, who was present at the meeting. He does not take issue in any way with the account of events at the meeting given by Mr Billingham. 18 Certain later events should now be mentioned. On 24 September 2007, the directors of BMT appointed administrators under Part 5.3A of the Corporations Act 2001 (Cth). On the same day, Westpac appointed Mr Billingham and Mr Pogroske (also of Grant Thornton) to be receivers and managers of the assets and undertaking of BMT. On 19 October 2007, the creditors of BMT resolved that the company be wound up, whereupon the administrators became liquidators. 19 The first question posed by Westpac's application may be approached solely by reference to the facts just outlined. The question is that posed by rule 25.14(1)(b)(i) of the Uniform Civil Procedure Rules 2005: "This rule applies if … (b) an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in: (i) the court …" 20 In such a case, the court may make an order as stated in rule 25.14(4): "The court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur: (a) the judgment debtor, prospective judgment debtor or another person absconds, (b) the assets of the judgment debtor, prospective judgment debtor or another person are: (i) removed from Australia or from a place inside or outside Australia, or (ii) disposed of, dealt with or diminished in value." 21 Westpac contends that it has a "good arguable case" against each of Mr McArthur and Mr Fritsche upon several alternative causes of action for the recovery from them of sums equivalent to those advanced by Westpac upon the faith of the BMT invoices subsequently acknowledged to be false. The alternative causes of action are: (a) for damages by reason of contravention of s.42 of the Fair Trading Act 1987 in that each individual engaged in misleading or deceptive conduct by representing to Westpac that false invoices were genuine; (b) for damages by reason of contravention of a combination of ss.52, 75B and 76 of the Trade Practices Act 1974 (Cth) in that each individual was knowingly concerned in or otherwise privy to misleading or deceptive conduct of BMT in the form of representations to Westpac that false invoices were genuine; (c) for damages for the tort of deceit; (d) for damages for fraudulent representation; (e) for equitable compensation by reason of knowing participation in a breach of trust. 22 Mr Stevenson SC, who appeared for Westpac, pointed out that the "good arguable case" criterion adopted by this rule of court is less stringent than the "prima facie cause of action" requirement referred to in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319. He quoted a passage (set out at paragraph 25.14.5 of "Ritchie's Uniform Civil Procedure NSW") from the judgment of Mustill J in Ninemia Maritime Corp v Trave [1983] 2 Lloyd's Rep 600 at p.605 describing a "good arguable case" as "one which is more than barely capable of serious argument, and yet not necessarily one the judge considers would have a better than 50% chance of success". This test has been applied and followed in a number of cases arising under rule 25.14(1) - see, for example, the recent instances of Errigal Ltd v Equatorial Mining Ltd [2006] NSWSC 953 (White J) and Pure Logistics v Scott [2007] NSWSC 595 (McDougall J). 23 Mr McArthur's statement of 19 September 2007 (see paragraph [15] above), makes it clear that false invoices had been created and submitted to Westpac for the purpose of inducing it to extend credit to BMT, which it did. A question of particular significance centres upon the word "we" in the admission to that effect made by Mr McArthur to Mr Billingham, his colleagues from Grant Thornton and the Westpac officers present at the meeting on 19 September 2007. 24 The position the defendants take is that "we" referred to the company (BMT) and that Mr McArthur, by his statement of acceptance of responsibility, acknowledged his own complicity in the company's conduct. Westpac maintains that, with both directors of BMT present at the meeting when Mr McArthur spoke, the word "we" should be taken to refer to those two directors (Mr McArthur himself, and Mr Fritsche), being the persons responsible for BMT's activities. In that way, according to Westpac, Mr Fritsche is implicated, in addition to Mr McArthur - it being noteworthy, in Westpac's view, that Mr Fritsche did not disagree, protest or seek to dissociate himself when Mr McArthur spoke. 25 Counsel for the defendants, referring to the position of Mr Fritsche, relied on affidavit evidence of Mr Toda and of the solicitor now acting for the defendants, Mr Tierney. Each affidavit contains hearsay representations of Mr Fritsche. They are admissible on this interlocutory application: Evidence Act 1995, s.75. Caution must nevertheless be exercised in relation to them. Mr Toda says that Mr Fritsche, apart from participating as a director in adoption of annual accounts, did not play a role in the financial management of BMT. He was responsible for the day-to-day management of plant and equipment of the trucking business. A financial controller attended to the financial management of BMT. Mr Tierney deposes that Mr Fritsche has no accounting qualification or experience and that the financial controller employed in the last twelve months was paid a salary of approximately $140,000 or $150,000. 26 With the evidence in this state, I am of the opinion that a "good arguable" case has been shown against Mr McArthur but not against Mr Fritsche. Mr McArthur spoke the words in question. When he said "we", he may have been referring to himself and another person or other persons; or he may have been referring to BMT, the company. It is commonplace for directors, officers and employees of a company to refer to the company, in conversation, in the first person plural - "we", "us", "our". (It is noteworthy, in this connection, that the statement by Mr Mottershead recorded in Mr Biscoe's note referred to "the company" having submitted false invoices.) 27 Whatever the precise meaning intended by him, however, Mr McArthur squarely implicated himself. By his explicit acceptance of responsibility (and apart from the use of the word "we"), he acknowledged his own complicity. 28 In the case of Mr Fritsche, however, there is (at lest at this point) nothing, with the possible exception of his silence, to justify a finding that he participated in the acts involving submitting of false invoices to Westpac. Such evidence as there is places him at a distance from the day-to-day financial and financing activities of BMT. His apparent silence, when and after Mr McArthur spoke, is consistent with several possibilities - including, but not limited to, the possibility that he understood "we" to refer to BMT, the company; and that that, plus Mr McArthur's acceptance of responsibility, was seen by him as calling for no comment by him. Another possibility is that Mr Fritsche understood Mr McArthur's use of "we" as a reference to individuals within BMT involved in invoicing and the submission of invoices to Westpac - a group of financial people not including himself so that, again, the statement called for no comment by him. A third possibility is the one for which Westpac contends, namely, that "we" referred to the directors (Mr McArthur and Mr Fritsche), that Mr Fritsche understood this and that his silence connoted lack of questioning or contradiction of Mr McArthur's statement about the past conduct of the two directors. 29 On the very limited evidence available, I cannot say with any degree of confidence that the last of these possible interpretations should be embraced. If Mr McArthur used "we" to refer to several individuals including himself (and did so when, in addition to himself, Mr Fritsche and other persons employed by or associated with BMT were present), there is no apparent basis on which Mr Fritsche should be taken to be included in "we" and one or more of other relevant persons present should be taken not to be so included. More fundamentally, there is no basis on which to discard the first two possibilities mentioned in favour of the third. The strong likelihood is that Mr McArthur's reference to "we" was made without particular attention to the specific involvement or responsibility of individuals other than himself. Indeed, there is a fourth possibility: that when Mr McArthur said "we", he meant "I". One has only to listen to witnesses in the witness box for any length of time to realise that some people adopt a manner of speaking which involves, for commoners, a form of expression that is the equivalent of the Royal plural. 30 It must be remembered that the bases of liability Westpac puts forward (see paragraph [21] above) involve active and knowing conduct. Speculation about what Mr McArthur meant when he said "we" is not, in the circumstances, a basis for making a reliable finding at this point about the active and knowing conduct of Mr Fritsche, even when considered in the light of Mr Fritsche's silence. 31 My conclusions with respect to "good arguable case" mean that no freezing order will be made in relation to Mr Fritsche. Consideration of the other prerequisites to the making of a freezing order will therefore be confined to Mr McArthur. 32 In the case of Mr McArthur, his statement at the meeting warrants a finding that he has engaged in or condoned dishonest conduct. Westpac submits and I accept that that is something that can be taken into account when considering whether there is a danger that any judgment against him will be unsatisfied because of removal, secreting or dissipation of assets. 33 Westpac also refers to Mr McArthur's apparent complicity in diversion of BMT funds which should have been directed to Westpac. Mr Billingham gave evidence that in the week commencing 10 September 2007 (that is, the week before Mr McArthur's confession about the false invoices), 36 cheques totalling $162,742.13 received by BMT were paid into an account of BMT with the ANZ Bank. There were two such deposits, one on 10 September 2007 and the other on 13 September 2007. These cheques represented payments received by BMT from customers in response to genuine invoices. Under BMT's contract with Westpac, the cheques should have been paid into a dedicated debtor account maintained by BMT with Westpac. Mr Billingham has exhibited to his second affidavit copies of banking documents supporting his evidence about the dealings with these cheques and deposit of them into the ANZ account. 34 Mr Billingham goes on to say that the moneys deposited into the ANZ account just mentioned were immediately transferred to another ANZ account in the name of BMT. Again, supporting documents are exhibited to Mr Billingham's affidavit. As at 17 September 2007, the credit balance in the second ANZ account was $221,654.81. On that day, a cheque for $180,000.00 was drawn on the second account in favour of "B.J. Foster". A copy of the cheque is in evidence but the signature (there is only one) is, to me, indecipherable on that copy - although Westpac submits that it appears to be Mr McArthur's signature. 35 Mr Billingham's evidence about the application of the $180,000.00 goes on to ground a plausible finding that that sum was used to pay, in part, a deposit of $247,500.00 called for by a contract for the purchase of a property at Harbord by LLP Investments Pty Ltd (a company of which Mr McArthur and his children are directors), which deposit was later forfeited. There is accordingly ample scope for a reasonable apprehension that funds of BMT were applied not only in breach of BMT's contractual arrangements with Westpac but also in a way which entailed no corporate benefit to BMT and substantial personal benefit to Mr McArthur - in other words, a misapplication. 36 Westpac submits that, in the absence of any countervailing evidence from the defendants (and there is none), these events concerning the sum of $180,000.00 are further evidence pointing towards dishonest conduct on Mr McArthur's part. I accept that submission. 37 There is then the matter of events at the BMT office premises on Sunday, 23 September 2007. That was the day before Mr McArthur and Mr Fritsche, as directors of BMT, resolved to appoint administrators. It seems that the decision to do so had been made on the preceding Friday, 21 September 2007 after Westpac had indicated that it would not advance any further moneys. 38 On 23 September 2007, Mr McArthur, Mr Fritsche, Mr McCormack (BMT's finance manager) and members of Mr McArthur's family (including his daughter and son-in-law) went to the BMT office. Their activities were captured on CCTV. Stills from the film are in evidence. It is clear from these that documents were brought into and out of the premises by Mr McArthur and Mr Fritsche, as were boxes, bags and folders. The daughter and son-in-law carried boxes and bags out of the premises. The daughter, at one point, carried two chairs to a document shredder. Shredded paper is visible in the hand of a child, on the floor and in yellow plastic bags carried by Mr McArthur. Mr McCormack is seen using a vacuum cleaner in the area where shredded paper appears on the floor. 39 None of the persons present at the BMT office on 23 September 2007 has given evidence about the events of that day. Hearsay evidence of things said by Mr McArthur and Mr Fritsche is contained in the affidavit of Mr Toda (as to which the caution mentioned at paragraph [25] above must again be exercised). 40 In relation to the events of that day, Mr Toda deposes to having been informed: (a) by Mr McArthur and Mr Fritsche that, when they arrived at the premises, there were two yellow plastic bags of shredded paper next to the shredder; (b) by Mr McArthur that he removed from the premises a number of items (listed in the affidavit) which appear to be his personal property; (c) by Mr McArthur that he shredded some documents and removed others; (d) by Mr McArthur that the documents removed by him were documents relating to matters described in the affidavit, which appear to be matters unrelated to the business and affairs of BMT (these included documents related to McArthur Corporation, said to have been given subsequently to receivers and managers of property of that company); (e) by Mr McArthur that the documents he shredded were documents relating to matters listed in an exhibit to Mr Toda's affidavit, which again appear to be unrelated to the business and affairs of BMT and to concern, in very large part, companies no longer trading and personal projects completed; (f) by Mr McArthur that Mr Fritsche removed a "safe truck manual" (of which Mr Fritsche's son had been the author) and a 2001-2002 budget of BMT's McArthur Express business, the manual being one of several hard copies of a document also available on the BMT system in electronic form and the budget, clearly enough, being for a period which ended more than five years ago; and that Mr Fritsche, upon later realising that the two items belonged to BMT, arranged for them to be sent on or about 18 October 2007 through Mr Toda to the receivers appointed by Westpac. 41 In light of this evidence, I am unable to make a positive finding that, apart from the manual and the old budget, any document or other thing related to the BMT business was removed from the office on 23 September 2007. I am also unable to make any positive finding that any document related to the business was shredded on that day. This is because the only evidence about the nature of things removed and the content of documents removed or shredded is the hearsay evidence from Mr McArthur and Mr Fritsche. 42 That removal and shredding of documents by Mr McArthur took place at all is, however, a source of some apprehension that similar activities might be resorted to in the future. That factor works against him to some extent but, in light of the evidence to which I have referred, it is by no means a weighty or serious factor. 43 The final aspect to be mentioned relevant to the question of danger posed by rule 24.14(4) is a communication between Mr McArthur and his estranged wife with whom he is apparently involved in matrimonial litigation or dispute. On 18 December 2006, she sent him an email as follows: "Subject: Without Prejudice Dear Jon Just out of interest why is [sic] necessary for you to move everything offshore if you are not trying to cheat me? Love Kathy" 44 The reply of the same date reads: "Re: Without Prejudice WITHOUT PREJUDICE SO AS TO PROTECT TAXATION ISSUES." 45 It is submitted on behalf of Westpac that this is evidence of a course of conduct on the part of Mr McArthur, contemplated or completed, involving moving assets to other countries for the purpose of shielding them from claims. I accept that submission. 46 Having regard to Mr McArthur's acknowledged involvement in the submission of false invoices to Westpac, to the apparently deliberate diversion of $180,000.00 of BMT money through two separate bank accounts to the benefit of himself and his children and his acknowledged intention (whether executed or prospective) to move assets offshore "so as to protect taxation issues", I am satisfied that there is, in terms of rule 25.14(4), a danger that any prospective judgment against Mr McArthur will be wholly or partly unsatisfied because assets of Mr McArthur are removed from Australia or disposed of or diminished in value. The evidence shows him to have distinct proclivities in that direction. 47 A freezing order will therefore be made against Mr McArthur, there being, in my view, no aspect of the evidence indicating any other appropriate manner of exercising the discretion created by the rule. While such an order is intrusive and should not be made lightly, a clear basis for the grant of the relief has been shown in the case of Mr McArthur, added to which, as I have said, Mr McArthur does not oppose the concept of such an order, although he does oppose a particular form of order. The order against Mr McArthur will subsist until further order. 48 I turn now to the matter of the qualifications or exceptions to which the order should be subject. The order made ex parte in respect of Mr McArthur was subject to exceptions to the effect that the order did not prohibit: (a) payment of up to $1,000.00 per week for his ordinary living expenses; (b) payment of $20,000.00 for his reasonable legal expenses; (c) dealing with his assets in the ordinary and proper course of his business; and (d) otherwise, dealing with his assets in discharging obligations properly incurred under a contract entered into before the making of the order, subject to two working days advance notice being given to Westpac "if possible". 49 Mr McArthur's position is that any new order should allow: (a) payment of living expenses of $3,265.00 per week; (b) payment of credit card bills of some $26,000.00 (plus interest) incurred before the original orders were made; (c) payment of future legal expenses of $150,000.00; (d) repayment of some $10,000.00 borrowed to pay past legal expenses;

(e) payment of future accounting fees of $10,000.00; and (f) payment of legal fees of $50,453.42 already incurred. 50 Westpac's position is, in essence, that the original regime should be reimposed. 51 In relation to all these matters, it is necessary to remember that a freezing order of this kind is not meant to operate as a form of de facto security for any judgment the plaintiff may ultimately recover. The sole concern is with reasonable measures to ensure that the processes of the court are not frustrated by removal or dissipation of assets that will in the ordinary course be available to answer the judgment. 52 I shall come to the particular items in contention presently. First, it is appropriate to make some general observations. When it comes to specifying monetary limits for legal expenses and accountancy expenses, the court necessarily enters upon a difficult terrain. I note, in that respect, that the draft form of order suggested by the majority in Cardile v LED Builders Pty Ltd (1997) 198 CLR 380 at p.410 does not contemplate any monetary limit. There is reference only to "the reasonable legal expenses of defending these proceedings and any appeal therefrom" and "their normal accountancy fees". This, it seems to me, indicates the desirability of allowing expenditure on "reasonable and proper" legal and accountancy expenses incurred and to be incurred by the person concerned. It would be wrong to think that a client subject to a freezing order and incurring such legal and accounting expenses will somehow be more profligate and less vigilant than a client not subject to such an order. The money is, after all, his own money and expenditure of it by way of payments to lawyers and accountants for services rendered cannot be seen as presenting some opportunity for indirect and improper dissipation in the face of the possibility of a future judgment. As a check, however, it is desirable that provision be made for what was called, in Halifax plc v Charlton [2001] EWCA Civ 1750, "self-certification", that is periodic written certification by Mr McArthur's lawyers as to the amount of the reasonable and proper legal expenses incurred. The lawyers, as officers of the court, would have obvious responsibilities in that regard. 53 In relation to living expenses, a limit per week (or per month or per day) presents obvious difficulties. If a person goes to the dentist for major treatment, thousands of dollars might be spent in one particular week on that item alone, while nothing is spent on dental treatment again for many months. If rent for a dwelling is payable monthly and a weekly limit on expenditure is set, there will be an item of expenditure for rent in every fourth week but no such expenditure in any of the intervening weeks. If a residential property is owned, there will be expenditure on council rates in one week of the year (or one week in each quarter, if the option to pay by four instalments is exercised). An order embodying a weekly limit may instinctively be assumed to allow some form of averaging (so that, for example, the large dental bill or the annual or quarterly charge for rates can somehow be spread over some number of weeks assumed to be appropriate) - but, of course, that is not the effect of such an order at all. An order which simply limits expenditure on living expenses to a stated sum "per week" means what it says, that is, that there must be no week in which more than the stated sum is expended on living expenses. 54 There is also the point that a successful applicant for a freezing order does not acquire the right to tell the person bound by the order how to live his or her life. The draft form of order suggested in Cardile refers simply to "ordinary living expenses" without quantification. 55 In the case of Mr McArthur however, Westpac is on notice of a "budget" (annexed to Mr Toda's affidavit) and of Mr McArthur's implicit representation that he needs no less than $3,265.00 per week for living expenses. I assume this is an average since, there are, for example, an item of $30.00 for "medical and dental" and another $30.00 item for "clothing". One cannot imagine Mr McArthur (or anyone else) always spending $30.00 or less on a single visit to the doctor or dentist or on all visits to doctors and dentists in any given week. Nor can one imagine Mr McArthur (or anyone else) always spending $30.00 or less on a single visit to a clothing shop or $30.00 in total on all visits to clothing shops in any given week - unless, perhaps, patronage were confined to second hand or charity shops. 56 Another item in Mr McArthur's budget is $800.00 per week for "vehicle payment". As the context makes clear, this is exclusive of fuel, insurance and running costs. Simple mathematics show that loan payments at the rate of $800.00 per week over a term of three years on a loan carrying interest at 10% per annum would mean that the borrowed sum was of the order of $110,000.00. Three quite adequate new cars could be bought for that sum. 57 Mr McArthur's budget allocates $1,400.00 per week to "rent". Yet, as counsel for Westpac pointed out, the evidence given by Mr Toda is that Mr McArthur is living rent free in a house occupied by his estranged wife. The demonstrated need for "rent" is therefore zero. 58 Other items in the budget relate to "pets": $60.00 per week for food and $20.00 per week for "medical". 59 The budget does not purport to be evidence of what Mr McArthur is actually accustomed to spending or needs to spend. This, coupled with the general air of unreality surrounding it, means that the budget does not form any basis for fixing a weekly or other periodic limit on personal expenses. 60 The preferable approach, in my view, is to follow the course suggested by the draft form of order in Cardile and to provide an exception for "ordinary living expenses" without qualification. But in view of the apparently large sums in Mr McArthur's budget, this should be in the context of a further order requiring that Mr McArthur keep a written record of sums actually expended by him on "ordinary living expenses" and produce that record to the court if and when a further order requiring such production is made. This would provide a mechanism for monitoring and checking should the plaintiff in future persuade the court that compliance with the "ordinary living expenses" exception is in question. 61 A person who is under court-imposed constraint as to expenditure on "ordinary living expenses" must, before making any expenditure on "living", pause to think whether the expense he or she is defraying is in truth part of "ordinary" living expenses. If a clear positive answer cannot be given, the expenditure must not be made. The need to keep records imposes an additional personal discipline. 62 Returning to the list of items at paragraph [49] above, I consider the following approach to be appropriate: 1. There should be an unconditional exception for items (b), (d) and (f) being liabilities already incurred and needing to be discharged. There is no apparent reason why any of them should not be paid. 2. In the case of (a), there should be an exception for "ordinary living expenses" with no weekly or other periodic limit specified, but with a condition requiring Mr McArthur to keep a written record of all expenditure on "ordinary living expenses". 3. In relation to (c), there should again be exceptions in terms of the draft form of order in Cardile but with a condition requiring Mr McArthur to instruct each relevant lawyer to produce as and when Mr McArthur requires a statement of legal expenses incurred and a statement that they have been reasonably and properly incurred by him. 4. In relation to (e), there should be a regime in terms corresponding generally with those applicable to (c). 63 In addition, there should be liberty for Westpac to apply with a view to obtaining an order allowing examination and review of the records and statements produced in accordance with the conditions just outlined. 64 Finally, I turn to the question whether, as Mr McArthur and Mr Fritsche allege, Westpac failed in its duty of candour when making its ex parte application on 28 September 2007. In view of the conclusions I have reached on Westpac's application for renewal or re-imposition of restraints, the question is of no substantive relevance for the future but I accept that there are other reasons why it should be addressed. 65 The relevant duty or obligation is now probably most often associated with the judgment of Isaacs J in Thomas A Edison Ltd v Bullock (1912) 15 CLR 679 at p.682: " Uberrima fides is required, and the party inducing the Court to act in the absence of the other party, fails in his obligation unless he supplies the place of the absent party to the extent of bringing forward all the material facts which that party would presumably have brought forward in his defence to that application. Unless that is done, the implied condition upon which the Court acts in forming its judgment is unfulfilled and the order so obtained must almost invariably fall. I add the word 'almost' in deference to such an exceptional case as Holden v. Waterlow 15 W.R., 139. The obligation is stated by Turner L.J. in that case 15 W.R. 139, at p. 140 to be to 'state their case fully and fairly,' and so by Sugden L.C. in Dease v. Plunkett Drury, 255, at p. 261, where he said: - 'The plaintiff had not fully and fairly disclosed the entire facts of the case'. Lord Cottenham L.C. in Brown v. Newall 2 My. & C., 558, at p. 570, observes that the power to grant such an injunction should exist is indispensable, but, from the liability to injustice, must be exercised with caution. Then he says 2 My. & C., 558, at p. 571: - 'The Court can have no ground upon which it can proceed, in granting an ex parte injunction, but a faithful statement of the case'. The learned Lord Chancellor distinguishes between mis-statement, or suppression likely to influence the Court in acceding to the application and that which is immaterial." 66 It may generally be expected that failure to discharge the duty of candour will result in discharge of the order made ex parte, although there are suggestions that the court retains a discretion in the matter: see the judgment of Connolly J, with whom Campbell CJ agreed, in Re South Downs Packers Pty Ltd [1984] 2 Qd R 559. 67 Complaint is made on behalf of Mr McArthur and Mr Fritsche that counsel for Westpac said to the court upon the hearing of the ex parte application: "It appears the two directors of Bon McArthur made up invoices to the tune of about 3½ million dollars." 68 And later: "[T]here seems to have been some removal and destruction of company documents which seems to be as a result of the false invoices and hiding the trail of what occurred." 69 It is said on behalf of Mr McArthur and Mr Fritsche that there was not, as at 28 September 2007, evidence supporting either of these statements or allegations to such an extent as to allow them to be advanced responsibly. I reject that submission. The evidence of what Mr McArthur said at the meeting on 19 September 2007, as recorded in Mr Billingham's affidavit, was in the same form then as it is now. For reasons I have discussed, the use of the word "we" was, in the context of the meeting alone, quite consistent with the possibility that Mr McArthur was referring to himself and Mr Fritsche. It was the subsequent evidence about Mr Fritsche's activities and position that caused me to prefer one of the alternative constructions. As to the second matter, Mr Billingham's affidavit referred to the CCTV footage and the stills taken from it. That evidence was quite consistent with the version of events put to the court by Westpac's counsel. There was, at that stage, no evidence about what was actually removed and shredded. A statement of suspicion of evasive conduct was well open on the evidence as it stood on 28 September 2007. 70 It is also said on behalf of Mr McArthur and Mr Fritsche that Westpace compounded the alleged breach of duty by subsequent conduct. On the hearing of the ex parte application, Westpac gave to the court an undertaking as follows: "As soon as practicable, the plaintiffs will file and serve upon the defendant [sic] copies of (a) … (b) … (c) … (d) a transcript or, if none is available, a note, of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put, to the court; (e) …" 71 On 5 October 2007, Mr Toda, solicitor for Mr McArthur and Mr Fritsche, wrote to Westpac's solicitors referring to this undertaking and noting that no transcript or note of the kind referred to in it had been furnished. On 8 October 2007, Westpac's solicitors replied saying that a copy of the transcript would be forwarded "once it is received from the transcribers" (thereby making it clear that it had then not been received) and noting that "we have already provided you and your clients with a copy of counsel's written submissions". Mr Toda renewed his clients' demands in a letter of 11 October 2007 and sought delivery of a transcript or note in accordance with the undertaking by 4pm the following day. The solicitors for Westpac replied on 12 October 2007: "Mr Thawley of counsel informed your counsel, Mr Gregory, on 3 October 2007, that he had sought to confine the oral submissions made to the court on 28 September 2007 to those which were put in summary form in the written submission and to factual matters contained in the affidavit material and inferences which could be drawn from those factual matters. Mr Thawley informed Mr Gregory that a transcript had been ordered to make sure he had successfully so confined what was put orally. It is our understanding and Mr Thawley's understanding that no 'exclusively oral allegation of fact' was made and that no 'exclusively oral submission' was put. The submissions were based upon and made by reference to the written material before the Court. We confirm that a copy of the transcript will be forwarded to you immediately upon our receipt of it from the transcribers. We have contacted them again today to try to expedite obtaining it. We reject your assertion that there has been a breach of any undertaking to the court." 72 On 18 October 2007, Westpac's solicitors forwarded to Mr Toda a copy of the transcript under cover of a letter in which they described it as "just received this afternoon". 73 The written submissions of Westpac's counsel put before the court on 28 September 2007 (given to counsel instructed by Mr Toda on 3 October 2007) are in evidence. Referring to the affidavit evidence, counsel submitted that "false representations were made to Westpac as to the invoices the company had issued (or whether they were genuine)", that Mr McArthur and Mr Fritsche "were knowingly involved in the making of those representations", that "funds were advanced by Westpac on the faith of the false representations" and "that the respondents appear to have been engaged in the destruction of documents". It is true that the written submissions did not say expressly that the apparent destruction of documents seemed to be "as a result of the false invoices and hiding the trail of what occurred", but the part of the submissions referring to the document destruction began with the words "The applicants submit that there is a real risk of dissipation of assets". That, to my mind, clearly implied the connection to which specific reference was made orally. 74 In short, I am satisfied that, having received the copy of Westpac's counsel's written submissions on 3 October 2007, Mr McArthur and Mr Fritsche had before them in writing the substance of the material allegations of fact made at the ex parte hearing. I am also satisfied that a copy of the transcript was given promptly after being received. The allegation that Westpac failed to honour its undertaking given to the court cannot be sustained. 75 Significant time was spent at the hearing on the matters concerning Westpac's supposed defaults in observing its duty of candour and its express undertaking to the court. Even more time (including extensive cross-examination of Mr Billingham) was spent on laying the ground for a submission that Westpac would recover in full from BMT the moneys outlaid by it on the faith of the false invoices, so that it would suffer no loss and the damages recoverable from Mr McArthur and Mr Fritsche upon the separate causes of action alleged by Westpac against them would be zero. That proposition was clearly articulated on the second day of the hearing, after the evidence had concluded. Yet the submission was withdrawn and the line of argument was expressly abandoned (with new written submissions being substituted) immediately the matter was called on for further hearing on the third day. 76 I direct that short minutes of orders giving effect to these reasons be filed by delivery to my Associate within seven days. I further direct that the proceedings be listed at 9.30am on 6 December 2007 for the purpose of settling the orders and hearing argument on costs. In the meantime and upon the plaintiff's existing undertaking as to damages, I order that orders 1 and 2 made on 3 October 2007 (as varied on 31 October 2007 and 13 November 2007) be continued up to and including 6 December 2007 against and in respect of the first defendant Jon Charles McArthur. I also order that the second defendant Richard Walker Fritsche be released from the said orders 1 and 2 and that those orders be discharged insofar as they apply to him. **********

Westpac Banking Corporation v McArthur

At a glance

Court

Decision date

Before

Source

Judgment (12 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (5)

Cited By (11)