Wilden v Jennings

District Court of NSW|2022-06-14|Before: Mr J

Introduction

Pursuant to liberty to apply granted to the parties, the Defendant arranged for this matter to be listed before me again on 1 June 2022. The Defendant sought to vary the terms of a Penal Notice following orders being made by consent under UCPR 25.11 (the Original Freezing Order) to allow him to encumber his assets to borrow funds for legal fees.
The Original Freezing Order was made on 10 December 2021 and subsequently varied again by consent on 10 February 2022. Initially, the Defendant was permitted to incur a debt for the payment of legal fees in an amount not exceeding $20,000.00 (Schedule D Clause (1)(c)). There was also an allowance for ordinary living expenses.
On 30 March 2022, the Penal Notice was varied by consent permitting the Defendant to enter into a debt of up to $125,000.00 plus GST in order to prosecute an appeal in respect of the judgment of this court. The legal representatives of the Defendant did not ask to vary the clause which prevented the Defendant from encumbering "any real property assets or any interest in any real property assets held by him to the unencumbered value of $1,200,000.00" (Schedule D Clause (1)(a)).
This is the first occasion on which the Defendant seeks to further encumber his remaining assets. It is alleged that it is necessary for him to provide security to his former partner, Ms Harris, in order for her to release $165,000.00.
In the period of 15 February 2020 to 3 September 2021 the Defendant sold three investment properties and paid the proceeds, exceeding $1,600,000.00 to Ms Harris. Save for a payment of $620,000.00 on 20 July 2021 said to be pursuant to an unwritten Separation Agreement, the balance of the money was paid to Ms Harris without consideration, without a legal obligation to do so and seemingly as a gift or ex gratia payment.
The Plaintiff is concerned that any further encumbrance of what remains of his assets (said to be already less than the judgment sum) will substantially impact upon her ability to enforce the judgment of $490,091.05 plus costs, part of which were ordered to be paid on an indemnity basis. Of course, this risk to the Plaintiff would arise in the event that the Defendant is unsuccessful on appeal.

Short Version Chronology

A lengthy chronology was prepared on behalf the Plaintiff and is marked Exhibit 2. I do not intend to set that out in full but draw upon the following salient events: 20 March 2008 Defendant purchased Monaco Place property for $475,000.00. 2010-March 2016 Plaintiff and Defendant in a relationship. They were married on 24 October 2015. 21 October 2012 Tukara Road property purchased for $593,000.00. 1 November 2015 Oxford Street property purchased for $955,000.00. 13 November 2015 Montrose Street property purchased for $1,100,000.00. 21 December 2016 Anne Minchen Way property purchased for $1,050,000.00. 14 September 2018 Family Law proceedings filed in Federal Circuit Court. 15 February 2020 Monaco Place property sold for $1,015,000.00, $331,648.39 paid to Ms Harris. 24 February 2020 Proceedings commenced. Early April 2021 The Defendant claims to have separated from Ms Harris. 19 May 2021 Tukara Road sold $1,000,025.00. The entire proceeds of sale ($447,815.40) paid to Ms Harris. 25 May 2021 District Court hearing commenced. 14 July 2021 First day of oral submissions. Preliminary indication given by court to parties that Plaintiff's claim preferred. Parties referred to mediation which did not proceed. 20 July 2021 Defendant paid Ms Harris $1,020,028.00. About $400,000.00 was said to be the repayment of a loan. About $620,000.00 was said to be paid pursuant to a separation agreement. Balance of Defendant's account reduced to approximately $1,350.00. 20 July 2021 According to an affidavit of Mr Jennings sworn 17 March 2022 (MFI 7) the terms of the Separation Agreement are: (a) Mr Jennings to pay Ms Harris $620,000.00 in cash deposit; (b) Mr Jennings to pay Ms Harris half of his superannuation; and (c) Mr Jennings to pay child support when financially capable of doing so. 18 August 2021 Loan from Ms Harris to Defendant in the amount of $300,000.00 secured by a mortgage over Montrose Street property. 20 August 2021 Ms Harris paid approximately $220,000.00 to the Defendants solicitors, secured under loan. 30 August 2021 Second day of oral submissions. 3 September 2021 Oxford Street property sold for $975,000.00, an increase of just $20,000.00 in the six years since purchasing the property. After repayment of a mortgage, approximately $238,000.00 was paid to Ms Harris. 17 September 2021 Mortgage securing loan from Ms Harris to Defendant registered on title of Montrose Street property. 10 December 2021 Original Freezing Order made. 21 December 2021 Judgment in proceedings delivered. Judgement in favour of the Plaintiff against the Defendant in the sum of $490,091.05 plus costs, part of which were ordered to be paid on an indemnity basis. 19 January 2022 Notice of Intention to Appeal filed. 21 March 2022 Notice of Appeal filed. January - April 2022 Numerous non-compliance with Defendant of orders regarding disclosure of financial information and records. 4 May 2022 Defendant's solicitor request consent to encumber assets up to $125,000.00 plus GST for legal fees. 1 June 2022 First listing of Defendant's application to vary Penal Notice. 7 June 2022 Second listing at Defendant's request of Defendant's application to vary Penal Notice. 14 June 2022 Third listing at Defendant's request of Defendant's application to vary Penal Notice. Defendant gave evidence.

The Application

On 1 June 2022 counsel for the Defendant had proposed Short Minutes of Order. The order sought in 1(b) was made, permitting the Defendant to enter into a debt of up to $150,000.00 plus GST for the reasonable legal costs expenses and disbursements to be incurred in prosecuting the appeal.
The decision in respect of the order sought in 1(a) reserved. The order sought was: That the Penal Order made by Wilson DCJ on 21 December 2021 (and varied by order dated 30 March 2022) be further varied as follows: (a) Schedule D(1)(a) to read: Sell, dispose of, mortgage or further encumber any real property assets or any interest in any real property assets held by him to the unencumbered value of $1,200,000.00. "Assets" means assets as defined in the Supreme Court Practice Note SC Gen 14 and includes all assets of the Michael Jennings family trust and M Jennings Pty Ltd save to secure the raising of funds to facilitate: (a) the payment of up to $150,000.00 plus GST for the payment of the reasonable legal costs, expenses and disbursements to be incurred from today's date by Jennings in prosecuting an appeal against the judgement in these proceedings in appeal 2022/00014130 in the New South Wales Court of Appeal (and seeking of this order).
That is the order which the Defendant seeks and the Plaintiff opposes.

The Evidence

The Defendant relied upon four affidavits and he gave oral evidence. The affidavits are: 1. affidavit of Michael Jennings sworn 19 May 2022 (exhibit A); 2. affidavit of Pierre Safi sworn 19 May 2022 (exhibit B); 3. further affidavit of Pierre Safi sworn 31 May 2022 (exhibit C); and 4. further affidavit of Michael Jennings sworn 9 June 2022 (exhibit D).
The Defendant also relied upon an outline of submissions dated 1 June 2022 (MFI 1) and an additional outline of submissions dated 7 June 2022 (MFI 4).
The Plaintiff relied upon the following evidence: 1. affidavit of Moya de Luca-Leonard sworn 31 May 2022 (Exhibit 1); and 2. Chronology (Exhibit 2).
Mr Jennings' first affidavit indicated that his new lawyers had estimated the costs of the appeal to be $150,000.00 plus GST. He currently resides with his parents at a property which he owns with his two brothers in equal share. He owns another property at Montrose Street which he rents out for $700.00 per week. He estimated the present value of that property to be $1,500,000.00. There is an outstanding loan of approximately $930,000.00. In addition to the rental which is applied against the loan, he pays a further $1,350.00 per month on the loan. He currently earns $45,000.00 per annum resulting in a net monthly pay of about $3,750.00.
On or about 18 May 2022 the Defendant made enquiries of the ANZ Bank for the purpose of taking out a loan of $260,000.00. Apparently, he was told that any loan would need to be secured against his assets.
In his affidavit he stated that between December 2021 and April 2022 he asked Ms Harris if she would loan him $260,000.00 to pay legal fees. Apparently, she said that she would not lend the money unless he provided her with a asset-based security. This evidence was, to some extent, inconsistent with the sworn evidence given by him on 14 June 2022. A clear inference if that Ms Harris has funds up to at least $260,000.00 which she could make available to Mr Jennings.
Mr Safi provided two affidavits (exhibits B and C). He confirmed that he had told Mr Jennings that it would cost about $150,000.00 plus GST to fund the appeal. counsel fee disclosure letters were attached to his affidavit as was his own costs disclosure document. He said that the Defendant's former solicitors, Brydens Lawyers were owed around $96,000.00 and they had not released their file on account of the outstanding invoices. Mr Safi confirmed his instructions that without security over real property, the Defendant will be unable to pay the amount due to his former lawyers and the funds required to be paid to his present lawyers.
In Exhibit C, Mr Safi provided a breakdown of his estimate of costs, as follows: 1. solicitor's fees- $75,000.00; 2. senior counsel's fees- $50,000.00; and 3. junior counsel's fees- $25,000.00.
Mr Safi urged that his estimate of fees was reasonable.
Mr Jennings decided to put on further evidence explaining the payments made to Ms Harris (exhibit D). He said that he commenced a relationship with her in or around May 2016. Their first child was born 23 November 2018. Their second child was born 12 April 2021. The Defendant said they separated in early April 2021, a week or so prior to the birth of the second child.
He said that in or around 2018 whilst residing at Monaco Place, Ms Harris "dedicated her maternity leave to the renovation of the property". Apparently it was agreed that when the property was sold she would receive the full amount of any increase in equity of the property. He estimated the total cost of the renovations at $150,000.00. As is apparent from the chronology above, that property was purchased in 2008 for $475,000.00 and sold in February 2020 for $1,015,000.00. The increase in equity was just over $500,000.00. Ultimately, Ms Harris received $951,885.73 from the sale of that property, almost double what was said to have been agreed with the Defendant. I note that $630,000.00 of that sum was said to be pursuant to the unwritten Separation Agreement.
Mr Jennings said that he sold the Tukara Road property for $1,025,000.00 in May 2021. He said that he directed the proceeds of sale be paid to Ms Harris "for Kristin (to) look after money and to use (it) for the benefit of our children's future".
On 20 July 2021 the Defendant paid Ms Harris $620,000.00 "pursuant to a Separation Agreement", such money coming from the proceeds of sale of the Monaco Place property.
Mr Jennings referred to the sale of the Oxford Street property in September 2021 and confirmed that he directed that the sum of $238,108.05 be paid to Ms Harris. He said that money "is to be looked after for the benefit of our children's future".
Mr Jennings was required for cross-examination. The focus of the cross examination was twofold. First, that Ms Harris had since they were together taken care of the Defendant's financial affairs and continues to do so. Secondly, that it was not until the affidavit of 9 June 2022 that Mr Jennings offered any explanation for why he paid large sums of money to his former partner.
I note that he was required to make disclosures following the making of the Original Freezing Order. Ms Beange was critical of him for not providing that explanation on an earlier occasion. It was accepted, however, that Mr Jennings had not been asked to provide that information.
Mr Jennings gave evidence that Ms Harris would only provide the required funds if she was protected by way of security. In order to clarify an important aspect of his evidence, I asked Mr Jennings number of questions: Q. What I don't understand is you've given your former partner $1.6 million including an amount for separation agreement of 620, which means that she's got about a million dollars of your money and you need to fund your appeal in this matter. Surely in those circumstances you can call back a sum of money from her? A. Yeah well before your Honour did make a decision, I was confident that I was and I'm still confident now that I was innocent. I believed that I was going to win the case and I didn't think I was going to be in this situation of going through anything else, so I didn't think about trying to save money to-- Q. No but now that you're in this position, the appeal is obviously very important to you and you want to succeed on the appeal. A. I do, yes. Q. Surely Ms Harris would give you back at least some of the money you've given her; your lawyers are asking A. As long as she's protected and-- Q. Hang on. Your lawyers are asking for about $150,000; if you asked her, she'd give that to you, wouldn't she? A. Only if she's protected, that's, that's all I'm going to say. If she is protected - like anyone that's going to loan me money, they need to be protected. For me, I would ask-- Q. Well except that it's your money. A. It's not, it's for the kids' future and her to - like, she's good with money. I would have blown it away, you know, did stupid business adventures but it was going to the kids. Q. But if you need to tap into it to win your appeal, why can't you? A. Like I said it is, she needs security for provided for me. Q. Even if it means that you can't proceed with your appeal? A. No, I guess I find another way, I guess. I don't know another way, my friends won't lend me money so-- Q. So the money that she has, is it held in a bank account, do you know? A. No, it's in their house with the kids. Q. What does that mean, it's in the house? A. Well I'm not too sure, but they bought a house for her and the kids, they live up in Central Coast. Q. Has she re-partnered? A. No. Q. So she bought a house in her name? A. Yes. Q. And used the money for that purpose, is that correct? A. Not all of it, so there's still some for - I'm not too - I don't know exactly how much but there's some money for - I don't know if it's enough to, to fund me but Q. How much did she pay for the house? A. She paid 1.3 I think it was. Q. So that there'd be 300 left over or thereabouts? A. Yeah. Q. Surely she'd lend that to you for the appeal, wouldn't she? A. Unless she's covered, as in she's protected-- Q. Doesn't she trust that you will repay it when you can afford to? A. Well she just - she doesn't - she's..(not transcribable)..anyone that loans you money wants to make sure that you can actually get it back. Q. She's not running a business though, she's a former partner of yours who's received a large amount of your money. A. I understand - I do understand that. It's just she's - how to say, she's wired different, whereas she financially knows I can't - that's why she took over all my finances, because she just knew what's needed for the money. So unless she's - and this is - I've asked her but and it was, like I said, it was embarrassing for me to ask anyone just to pay for what my other legal fees, so I just - right now I don't know.
It later became apparent in his evidence that Mr Jennings had not yet asked Ms Harris for the money (T44.5). This is contrary to the sworn evidence in his affidavit (exhibit A) that between December 2021 and April 2022 he asked her if she would loan him $260,000.00 to pay his legal fees and that she said that she would not unless he provided her with asset-based security. This raised legitimate doubts about his reliability.
The solicitor for the Plaintiff prepared an affidavit (Exhibit 1). She provided the history of the Defendant's delay in complying with the orders of the Court following the Original Freezing Order. The Defendant solicitor's estimate of costs was also disputed. Information was provided as to the conduct of the appeal and the assistance provided by the Plaintiff's solicitor to the Defendant solicitor to alleviate the difficulties created by the fact that the latter did not have access to the former solicitor's file.
Ms de Luca-Leonard also gave evidence in her affidavit as to the prejudice which would be suffered by her client in the event that the variation sought by the Defendant was made: 36. The Plaintiff will be prejudiced by the grant of an amendment to the freezing order. At present, the Defendant's assets are insufficient to meet the judgement debt. An increase will directly reduce the amount of money available to satisfy the judgment she has obtained. 37. The provision of security will mean that the ultimate pool of assets available to satisfy a judgment debt will be reduced prior to, and in priority to any consideration of the Plaintiff's judgment debt."
That comprises the evidence.

The Defendant's Argument

I accept the general proposition that the purpose of a freezing order is to prevent frustration or abuse of the processes of the court and not to provide security in respect of a judgment or order (Supreme Court Practice Note SC Gen 14). That is to prevent the Defendant from dealing with his assets in a way which, should the judgment be upheld, will not be able to be satisfied. The Defendant has, however, already placed himself in that position by reason of the numerous transfer of funds to Ms Harris.
I also accept that an exception to a freezing order is to permit the payment of reasonable legal expenses of defending proceedings and any appeal. I observe that in Deputy Commissioner of Taxation v Bollands [2012] FCA 1050 at [22] (cited with approval in Re Colorado Products Pty Ltd (In Prov Liq [2013] NSWSC 611 at [18]) McKerracher J stated that a freezing order should make provision for the paying of reasonable legal expenses is "the general default position".
I also respectfully acknowledge and accept the observations of Barrett J in Goumas v McIntosh [2002] NSWSC 713 at [23] that the concern with an injunction of this type is to implement reasonable measures: [T]o ensure that the processes of the court are not frustrated by removal from the jurisdiction, dissipation or misapplication of assets which will be available to meet any eventual judgment. The aim is not to stop people spending their money. It is to stop them spending in ways which are not legitimate, having regard to the interests of the claimant and ensuring that there is no untoward removal of assets from the ownership of the person against whom a judgment may in due course be entered.
I accept the submission by counsel for the Defendant that, as a general proposition, the Defendant is entitled to fund his appeal. The Defendant acknowledges that the Plaintiff is entitled to restrain the Defendant from dissipating his assets to avoid judgment.
The concern in this instance is that the Defendant has already acted in a way so as to dissipate his assets by paying approximately $1,600,000.00 to Ms Harris. Even accepting that about $620,000.00 was paid pursuant to a separation agreement, there remains a substantial pool of funds which were paid without any consideration whatsoever and, in some instances, after the Defendant and Ms Harris had separated.
The matter was initially before me on 1 June 2022. The Defendant was given the opportunity to have the matter relisted to provide an explanation for the transfer of money from the Defendant to Ms Harris. That listing occurred on 7 June 2022. No additional evidence was offered. It was plain from submissions advanced by counsel for the Defendant on that occasion that he did not know why the Defendant had paid approximately $1,000,000.00 to his former partner. Mr Sleight submitted (at T5.48): We don't know, he's had two children with this woman, he's lived with her, he may be morally responsible for upkeep, he's facing a court case, he has to look after her and to fill his moral responsibilities.
When the matter returned on 14 June 2022 the Defendant had sworn a further affidavit (exhibit D) wherein he provided the following explanations: 1. for the Monaco Place residence, the payment to Ms Harris was on account of renovation work which she undertook and/or supervised; 2. for theTukara Road property, the payment to Ms Harris was "for Kristin (to) look after money and to use (it) for the benefit of our children's future"; and 3. for the Oxford Street property, the payment to Ms Harris was made "to be looked after for the benefit of our children's future".
The two latter payments were made after money had been paid by the Defendant to Ms Harris pursuant to the unwritten Separation Agreement.

The Plaintiff's Argument

The Plaintiff accepts that the Defendant should be allowed to incur debts for reasonable legal costs. She consented to an increase of the amount of debt which the Defendant was entitled to incur from $125,000.00 plus GST to $150,000.00 plus GST. The Plaintiff does not, however, consent to any further encumbrance of the Defendant's assets. The Plaintiff resisted that variation on the basis that the Defendant has delays in the prosecution of his appeal, the appeal lacks merit and to make the order sought would cause prejudice to the Plaintiff (MFI 2).
The Plaintiff also relied upon the fact that the circumstances giving rise to the Defendant's request were entirely the result of the Defendant's own actions in dissipating his assets in 2020 and 2021.
The Plaintiff submitted, and I accept, that the decision is a discretionary one to be made according to the interests of justice. The Plaintiff relied upon a decision of Brereton J in Harrison Partners Construction Pty Ltd v Jevena Pty Ltd [2006] NSWSC 317. His Honour (at [10]) referred to the general position that the proper legal costs of the defence should be exempted from the scope of an asset preservation order. Further that "It is a principle of 'Mareva' relief that it should not be allowed to stultify the proper defence of the proceedings". The primary submission for the Defendant was that unless the variation was granted the appeal would be stultified.
The Plaintiff further relied upon the remarks of Brereton J at [14]: [I]n the context of a variation of a Mareva order to release funds, demonstration that circumstances had sufficiently changed to warrant reconsideration of the matter will normally involve showing that there is a new need for expenditure, which cannot be satisfied other than by resort to the frozen assets. While the owners do not necessarily require the applicant to account for all its expenditure from its other assets and resources, how it has spent its other resources may well be relevant to the exercise of discretion. If resources that could have been used to the purpose proposed have been expended wantonly, that might well weigh against permitting access to the asset that has been the subject of the preservation order (emphasis added).
The Plaintiff also relied upon a decision of Ball J in Bindari Beef Pty Ltd v Chinatex (Australia) Pty Ltd [2018] NSWSC 57 at [23]: [H]owever, as I have said, the evidence in this case is that Chinatex Australia received approximately $38,000,000 in exchange for its shares in Unibale. No explanation is given of what happened to that money, although that information is peculiarly within the knowledge of Chinatex Australia. In the absence of any explanation, it is reasonable to infer that the money was dissipated in order to defeat enforcement of Bindaree's judgment debt. Consequently, if the appeal is rendered nugatory, it is rendered nugatory because of steps taken by Chinatex Australia to avoid satisfying the judgment if its appeal fails. In my opinion, it cannot rely on the consequences of its own decisions that were taken to avoid enforcement of the judgment as grounds for why the judgment should be stayed.
In the present case, the Defendant ultimately provided explanations, referred to above. The Plaintiff submits that I would not accept the reasons proffered by the Defendant. It was submitted that the Defendant's conduct was consistent with the Defendant acting so as to dissipate his assets to avoid satisfying the judgment.

Determination

Whilst some of the authorities referred to above might be on their face distinguishable on the basis that the applicant's relevant conduct occurred after the freezing order had been in place, I consider the principles relevant to the exercise of the discretion in this instance. That is, I am to examine all the circumstances, including the Defendant's behaviour prior to (and in this case justifying) the Original Freezing Order.
Even accepting that he paid over $600,000.00 to Ms Harris pursuant to an unwritten Separation Agreement, there remains considerable doubt as to his motive in paying her an additional sum of approximately $1,000,000.00. The majority of that sum was paid, according to exhibit D, for Ms Harris to look after and for the benefit of their children's future. One would ordinarily expect that the money paid pursuant to the Separation Agreement would account for the Defendant's contribution to the welfare of his children. The terms of the agreement made it clear that a substantial proportion of his estate was to go to Ms Harris and allowance was made for child support in the future.
I refuse the Defendant's application to further vary the Penal Notice for the following reasons: 1. the majority of the money paid to Ms Harris was paid without consideration; 2. the suggestion that it was paid for the benefit or welfare of their children is, at least to some degree, contradicted by the fact that there was a separate separation agreement whereby the Defendant paid the sum of $630,000.00 to Ms Harris, presumably for reasons including the welfare of the children; 3. the Defendant's evidence was that the money was paid both for the benefit of the children's future and for Ms Harris to "look after". This suggests that she was looking after his funds in the same way she did when they were together; 4. according to the oral evidence of the Defendant on 14 June 2022, he has not yet asked Ms Harris whether she will pay him the money to fund his appeal (T 44.5); 5. Ms Harris has the financial capacity to return the funds to meet the Defendant's costs; 6. I do not accept the Defendant's explanation that the money was paid to Ms Harris and is now irrecoverable from her without further encumbering what remains of the Defendant's assets; 7. I consider the Defendant's explanation to be improbable and unlikely; 8. I find that the payment of money to Ms Harris (perhaps save for the money pay pursuant to the unwritten Separation Agreement) was done in order to dissipate or minimise the Defendant's assets in a transparent attempt to avoid satisfying the judgment made in favour of the Plaintiff. I consider this inference compelling, reasonable and logical in view of (a)- (g) above; 9. I find that the Defendant has conducted himself in a way directed to frustrate or abuse the process of this Court. 10. the judgment entered in favour of the Plaintiff would largely be rendered nugatory; 11. I acknowledge that this decision may impact the Defendant's capacity to pay the legal fees, but as the circumstances are of his making the decision is in the interests of justice. 12. The variation sought would conflict with the purpose for which the order was made in the first place (Break Fast Investments Pty Ltd v Gravity Ventures Pty Ltd [2013] VSC 89 at [43] per Vickery J).

Orders

In relation to the application by Mr Jennings, I make the following orders: 1. the Defendant's application to further vary the Penal Notice is refused; 2. the Defendant is to pay the Plaintiff's costs of this application; 3. in the event that the Defendant wishes to be heard against the order concerning costs, his solicitor is to notify my Associate and the Plaintiff's solicitor within 48 hours of entering these orders.

Amendments 28 June 2022 - Formatting issues resolved. 16 August 2022 - decision numbered (no 2) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 August 2022

At a glance

Court

Decision date

Before

Source

Judgment (9 paragraphs)

Parties

Cases Cited (6)