Woodside Hospital Consulting Pty Ltd v Stockton Nominees Pty Ltd [1998] VSC 121

Supreme Court of Victoria|1998-09-11|Before: CHERNOV, J.

The application which I am considering is an application for a Mareva injunction in relation to the assets of the third defendant, particularly the $55,000 to which the third defendant is entitled by way of net proceeds of sale of his matrimonial home. It is common ground - and if it is not, it is my view - that the remedy of a Mareva injunction is a discretionary one and, in addition to the other matters that are relevant to the exercise of such a discretion, as a general rule, in order for an applicant for such relief to succeed, it must establish:

(b) that there is a real risk that the defendant will remove his or her assets from the jurisdiction or dissipate them so as to defeat the plaintiff's entitlement to judgment should it succeed;

I turn to the first matter that must be made out by the plaintiff, namely, that it has a good arguable case. The plaintiff relied on a number of affidavits. There is no need to refer to all of them. It is sufficient if I mention that the affidavits of Darrell Joseph Talbot (Talbot) of 7 September 1998 and 10 September 1998 show that he is a director of the plaintiff and depose to the fact that at all relevant times the third defendant was the sole director of the first and second defendants.

Talbot also deposes to the agreement between the first two defendants and the plaintiff and its assignor. In general terms, he sets out the type of management services provided by the plaintiff to the defendant companies' hospitals.

He deposes further to the fact that the first and second defendants were, at all relevant times, in arrears in paying the plaintiff the bonuses and other moneys to which it was entitled and, importantly, he sets out allegations that the third defendant had drawn substantial amounts of money out of the accounts of the first and second defendants in order to sustain his other activities, which included property development, race horses and the payment of personal income tax in the amount of approximately $5 million.

Talbot further deposes to the fact that by 1997, the interests, costs and bank charges of the hospitals' bankers exceeded its gross annual profits. He claims that the accelerated decline in the hospitals' financial fortunes was brought about by reason of the third defendant drawing out the gross profits of the two hospitals; he provides other examples of what he says was abuse by the third defendant of his position as director.

The plaintiff alleges that, as at early this year, hundreds of thousands of dollars were due to it, and when that is taken into account, as well as the value of the future consultancy fees which the plaintiff lost by reason of the first and second defendants' premature termination of its engagement on 5 March 1998, the total sum lost to Woodside exceeded $2 million.

There is, on the material before me, a clear dispute between the plaintiff and the third defendant as to the priority or otherwise of any withdrawals made by the third defendant from the funds of the two defendant companies, as well as the reason for the companies' failure. That they have failed financially is beyond doubt. The third defendant, in his affidavit of 10 September 1998, deposes to the fact that this failure brought about the situation where he is, in effect, impecunious and is in receipt of an old aged pension. The material discloses that his only asset is the $55,000, to which I have referred earlier. If there are other assets, they are not apparent on the material before me, although it is made clear that the children of the third-named defendant are, in relative terms, financially well off.

The plaintiff's solicitor has sworn an affidavit that searches have not disclosed that there is any other real property that is in the name of the plaintiff, nor is there any suggestion in the material that the third defendant has definitive interests in any identified trusts or corporations.

As I have said, the third defendant swore an affidavit in this proceeding, in which he deposes that he is 86 years of age and that the settlement moneys are necessary for him to maintain himself and his wife. Of course, his wife is entitled to a like amount of the proceeds of sale.

He says that he and Mrs Catchlove require the settlement money for their day-to-day living expenses and to assist them to resettle their life after the loss of the hospitals and the sale of the home. He denies that he intends to use the money to put it out of the reach of the plaintiff, but he is candid in stating his intention to use the money to pay for his day-to-day living expenses and the legal costs of this proceeding and to help his wife, in the sense of providing for her as much as he can.

I should mention that the settlement of the matrimonial home was originally scheduled to take place on 16 September 1998. It was moved forward to 9 September 1998 on the basis, so it is said by the third defendant, that his daughter, who was assisting him and his wife with the settlement and relocation, was due to travel overseas on 9 September 1998 and for the sake of her convenience, the settlement date was brought forward. In order to have the purchasers agree to this move in the settlement date, the Catchloves were required to pay, in effect, the sum of $2000.

I should also mention that part of the deposit moneys, namely $16,000, had been paid to the third defendant about a month or so ago and on the material before me, it would seem that most or all of that money has been expended by the Catchloves in meeting various living expenses, legal accounts, medical accounts and the like.

The third defendant also deposes to the circumstances leading to the collapse of the hospitals and, as I have mentioned earlier, there is, clearly, a dispute between the parties as to which of them was responsible for the financial collapse of the hospitals. Needless to say, this is a matter that I cannot determine at this stage.

The difficulties posed in seeking to determine in an application of this nature, whether the plaintiff has a good arguable case, have been succinctly outlined by Vincent J in Pearce v Waterhouse, supra, at pp. 605 and 606. Not surprisingly, the parties have not put into evidence all the financial documents that will have to be analysed in order to determine the correctness or otherwise of their competing allegations. The question of what representation was made and who made it, will, of course, depend to a large extent on the credibility of the witnesses. These matters will have to be resolved at trial and, bearing in mind that I am likely to hear that trial and the conclusions that I have reached in relation to other matters, there is no need for me to make a definitive conclusion as to whether the plaintiff has a good arguable case. I shall, however, assume for the purpose of the examination of the plaintiff's entitlement to injunctive relief, that the plaintiff has made out the requirement that it has a good arguable case.

Turning to the question of the risk of dissipation, the plaintiff relies on a number of matters which include the following: first, the $16,000 paid to the Catchloves as deposit moneys was expended within one month; and secondly, the $2000 was paid to the purchaser to bring forward the date of settlement, which was characterised by the plaintiff as an extravagance allegedly to avoid it bringing this application against the third defendant. I have already given the third defendant's version as to why the settlement was moved forward by one week and, on the material before me, that seems to be a plausible explanation. But in any event, as the third defendant has pointed out, it is highly unlikely that the move in the settlement date was made for the purpose of obtaining and dissipating the settlement moneys early so as to defeat the plaintiff's claim, because if that was the case, it is more likely than not that the settlement would have been brought forward much earlier than it in fact was.

I take into account the matters to which Miss Loughnan, who appeared for the plaintiff, mentioned, that is to say, the correspondence between the parties and the refusal by the solicitors for the third defendant to make disclosure of any relevant material pertaining to the settlement and the fact that the plaintiff has had to determine for itself exactly when settlement was going to take place. But the material before me shows that the plaintiff was aware that settlement was brought forward as early as 4 September 1998.

It was further submitted by the plaintiff that the third defendant could live on the old aged pension which he receives and that he should curtail his lifestyle so as to fit his expenditure to the pension paid to him. It is claimed by the plaintiff that it is sufficient for the purpose of making good the requirement that there be a real risk that there will be dissipation of funds in order to defeat the plaintiff's claim, that it be established that the money will in fact be used and will no longer be available to the plaintiff if it succeeds in obtaining judgment against the third defendant.

It is clear that by the time the plaintiff obtains judgment, it is highly improbable that any of the $55,000 will be left to satisfy it, because, as the third defendant says, he intends to use that money on normal living expenses as well as paying for the legal expenses associated with this case. In my view, the mere fact that the $55,000 is likely to be expended before the plaintiff obtains any judgment, should it do so, does not of itself warrant the granting of a Mareva injunction.

I mention at this point that the withdrawal of the moneys by the third defendant from the two hospitals took place last year and before, so that it is not likely that the withdrawal of those funds was made for the purpose of defeating the plaintiff's claims in this proceeding. The material also seems to indicate that the funds were used by the third defendant in relation to his other ventures. Importantly, the material does not establish that the moneys were withdrawn for the purpose of hiding those funds from and defeating the claims of creditors, or of anyone else for that matter.

As Wilson and Dawson JJ said in Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612, at p.617:

"The principal purpose of the Mareva injunction is to prevent abuse of the process of this Court by the frustration of its remedies."

In the context of this case, the purpose of the remedy would be to prevent the dissipation of the money in question for the purpose of frustrating any judgment that the plaintiff may obtain against the third defendant. Their Honours said:

"Its use must be necessary to prevent the abuse of the process of this Court."

Their Honours referred, at p.618, to the point made by Ackner LJ in AJ Bekhor & Co Ltd v Bilton [1981] EWCA Civ 8; (1981) QB 923, at pp.941-942, that:

"The Mareva injunction represents a limited exception to the general rule that the plaintiff must obtain his judgment and then enforce it."

"The plaintiff cannot beforehand prevent the defendant from disposing of his assets merely because he fears that there will be nothing against which to enforce his judgment nor can he be given a secure position against other creditors."

"Like 'other creditors' of the defendant, the plaintiff must first obtain his judgment and then enforce it. He cannot prevent the defendant from disposing of his assets pendente lite merely because he fears that by the time he obtains judgment in his favour the defendant will have no assets against which the judgment can be enforced. Were the law otherwise, the way would lie open to any claim and to paralyse the activities of any person or firm against whom he makes his claim by obtaining an injunction freezing their assets. The purpose of the Mareva injunction is simply to prevent the injustice of a defendant removing his assets from the jurisdiction" - and I interpolate, or from dissipating it - "which might otherwise have been available to satisfy a judgment. It is not a form of pretrial attachment but a relief in personam which prohibits certain acts in relation to the assets in question."

Returning to Jackson v Sterling Industries Ltd, supra, Deane J, at p.625, said:

"It must be framed so as to come within the limits set by the purpose which it can properly be intended to serve. That purpose is not to create security for the plaintiff or to require a defendant to provide security as a condition of being allowed to defend the action against him ... It is to prevent a defendant from disposing of his actual assets so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action."

In my view, the mere fact that the use of the assets by a defendant will result in there being an insufficiency of assets available to the plaintiff against any judgment which it may obtain, does not, of itself, mean that there is such an improper dissipation of assets as to warrant the granting of a Mareva injunction.

Thus, the plaintiff here must demonstrate by evidence that there is a real danger that the third defendant will dissipate the $55,000, namely, spend it, with the intention or for the purpose of defeating the plaintiff's claim should it succeed against the third defendant, or otherwise spend it improperly. As I have mentioned, the evidence on which the plaintiff essentially relies is the alleged wrongful use by the third defendant, of the income generated by the first and second defendants in the past. The plaintiff says that this goes to show that the third defendant has a propensity to hide assets from proper claimants. In this respect I am mindful of what was said by Meagher JA in Patterson v BTR Engineering (Aust) Ltd, supra, at p.326. His Honour said:

"Normally proof that the plaintiff has a good arguable case against the defendant will alone not suffice to establish the presence of the risk of dissipation."

"Normally one cannot infer a risk of dissipation from the mere fact that the plaintiff has a prima facie cause of action. ... however, in exceptional cases (of which the present is unfortunately one) one can infer the existence of the latter ingredient partly or wholly from the proof of the former."

Thus, in this case I do take into account as evidence of the risk of improper dissipation of assets, the plaintiff's evidence as to the third defendant's behaviour in respect of the funds of the hospitals and their operating companies.

In my view, however, even if one accepts the plaintiff's assertions in this respect, namely, that there was an improper withdrawal of funds by the third defendant from the two hospitals, it does not establish that he drew those funds, as I have said earlier, for the purpose of defeating proper claimants. The drawings were made, on the face of it, to satisfy the defendant's other debts, and no doubt his lifestyle.

In the circumstances, I am not satisfied that the third defendant will use the $55,000 for the purpose of placing it beyond the reach of the plaintiff, or otherwise spend it improperly. I am satisfied that as a matter of probability, those funds will be expended by him in what I term loosely his living expenses and that it is unlikely that any or much of that sum will be left by the time this trial concludes.

In my view, this situation is one where the plaintiff has brought a proceeding against a defendant who turns out to be, in relative terms, impecunious and that is a risk that any plaintiff takes in bringing an action against a defendant. The Mareva injunction, in my view, is not a process that can be used in order to obtain security for costs, as is contemplated in the context of corporations legislation.

I am satisfied, therefore, that the second condition for the granting of the Mareva injunction has not been satisfied. Having regard to that, there is no need for me to consider the question of the balance of convenience and I will dismiss the plaintiff's summons and discharge the order granting interim relief to the plaintiffs that I made on 9 September 1998.

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