WESTERN AUSTRALIA REAL ESTATE INVESTMENT LTD (ACN 076 608 681)

Mareva order - Ex parte order restraining applicant from using $150,000 - That sum paid to applicant by subsidiary company pursuant to terms of a deed - No evidence of illegal conduct by applicant - Applicant was not originally sued by first respondent who had applied for the order - Was a third party - Refusal to discharge order - On appeal

Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170

Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 8 WAR 183

Ninemia Corporation v Trave GmBH [1983] 1 WLR 1412

Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319

Superstar Australia Pty Ltd v Coonan & Denlay Pty Ltd [1981] FCA 195; (1981) 57 FLR 110

1 WALLWORK J: The applicant in this matter applied for leave to appeal against an order of a Judge of this Court made on 27 August 1999 whereby his Honour dismissed the applicant's application to discharge an ex parte order which had previously been granted on 27 July 1999. Pursuant to the order of 27 July 1999 the applicant had been restrained from disposing of $150,000 which was part of a sum of money it had obtained from the sale of a property at 4 Gould Street, Herdsman and which had been deposited in its account with Bankwest on 23 July 1999.

2 The applicant had received the relevant $150,000 from Pontoon Holdings Pty Ltd a company which it wholly owned. The two companies had a common director. The $150,000 was part of a sum which had been paid by Pontoon to the applicant pursuant to the provisions of a deed made 24 March 1998 whereby Pontoon had agreed to grant to the applicant a first right to purchase the property at Gould Street, subject to the terms and conditions contained in the deed. It was stipulated in the deed that on the sale of the relevant property, Pontoon would pay to the applicant a sum to be calculated in accordance with cl 4(b) of the deed on the date that Pontoon settled the sale of the property to a third party. The agreed sum was paid on the date of settlement. Various other moneys were disbursed by Pontoon including a sum of $2,501,200 which was paid by Pontoon to Bankwest to repay a cash advance by Bankwest to Pontoon.

3 At the conclusion of the hearing of this application on 17 February, the requested leave was granted and the appeal was allowed. I set out below my reasons for agreeing to those orders.

4 The ex parte order which was originally made on 27 July 1999 restraining the applicant from disposing of the $150,000 is usually described as a mareva order. In this case the order affected the applicant company, which was a company associated with Pontoon Holdings Pty Ltd, which last-mentioned company had been sued for the recovery of $150,000 which had been paid by way of a deposit by the plaintiff in that action (the first respondent) in connection with a contract for the sale of the relevant land which contract was dated 29 August 1997 and had been made by the plaintiff in that action (the first respondent) as purchaser and Pontoon as vendor. When that contract was not completed, the plaintiff in the action (first respondent) claimed that Pontoon became liable to repay to it the $150,000 paid by way of deposit. The action was quite complex and involved allegations against five defendants including Pontoon, but it is not necessary to say any more about it in these reasons, other than that Pontoon denied any liability to return the $150,000 to the plaintiff (the first respondent) in that action.

5 It was the first respondent who had obtained the ex parte mareva order against the applicant in the present application. The applicant had not originally been involved in the action and it had not been suggested that the applicant had been involved in the contract with the plaintiff. The applicant's involvement was as a third party to whom Pontoon had paid moneys pursuant to the deed already mentioned.

6 In his reasons for refusing to discharge the ex parte order which were published on 8 September 1999 and from which decision the applicant applied for leave to appeal in the proceedings, the learned Judge said that on 27 July 1999 he had granted the original mareva order because at that time he had taken the view that an asset preservation order was necessary to ensure that money in possession of the applicant would be available to satisfy any judgment obtained by the plaintiff in the action.

7 His Honour recited that the plaintiff (first respondent) had alleged that Pontoon had wrongfully terminated the contract and wrongfully forfeited the deposit which had been paid to it by the plaintiff. Subsequently Pontoon had sold the property in question to a third party for $3.95M. On the same day the plaintiff had made an application to the learned Judge to restrain the payment of $150,000 from Pontoon to any other party or parties, but at the hearing of the application, his Honour had been advised that all of the purchase price had been disbursed. Included in the disbursement of the purchase price had been $1.1M which had been paid to the applicant, which effectively owned all the issued share capital of Pontoon.

8 Following the earlier application on 22 July 1999 and on 27 July 1999 an urgent ex parte application had been made to prevent the sum of $150,000 being disbursed by the applicant. His Honour concluded that the $150,000 was likely to be disbursed unless the applicant was restrained from doing so. The applicant had conceded at the hearing that Pontoon would be in no position to pay a judgment of $150,000 if such a judgment was obtained against it by the plaintiff (first respondent). Apparently it had been said by counsel that if a judgment was obtained, the plaintiff would be able to liquidate Pontoon and recover moneys paid as a preference.

9 In his reasons of 8 September 1999 for refusing to discharge the ex parte order, the learned Judge said that if the applicant disbursed the $150,000 which had been restrained on 27 July 1999, there were serious doubts as to whether the plaintiff would recover anything if it was successful against Pontoon. His Honour said that it had been argued that there was no evidence to support the proposition that the applicant would dissipate its assets so as to leave, and with the intention of leaving, the plaintiff with a barren judgment. His Honour said that it seemed to him that there was primary evidence to establish that the applicant would, if not restrained, dissipate the $1.1M (or whatever remained of it) which had been paid by to it Pontoon, unless it was restrained from doing so and that as a result the plaintiff would be left with a barren judgment against Pontoon which apparently had no other assets. His Honour said that the primary evidence came from the evidence which had been adduced by affidavit on behalf of Pontoon. It was supported by evidence that the solicitor for the applicant had made statements consistent with the likelihood that the moneys would be disbursed unless the applicant was restrained from doing so. He also concluded that there were primary facts to support the conclusion that the plaintiff would be unable to enforce a judgment in the matter against Pontoon if it obtained such a judgment.

10 The learned Judge recognised that a function of a mareva order was to minimise the possibility of an unscrupulous defendant seeking to render itself judgment proof or to dispose of assets in a manner prejudicial to a plaintiff's ability to satisfy any potential judgment debt: Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612 per Deane J at 623. He accepted that a mareva order would not be granted where there was an attempt merely to get security for a judgment. He found that that was not the case in the application before him. He said he was satisfied that there had been a prima facie case made out on behalf of the plaintiff against Pontoon and that there was a real risk that "the assets, or at least $150,000 of them" held by the applicant which effectively owned all the issued capital in Pontoon, would be dissipated and/or put beyond the reach of the Court if he discharged the order that he had previously made. His Honour considered that there was a balance of convenience in favour of the plaintiff and said:

"In the exercise of the discretion which is essential to the issue of the grant or otherwise of the relief sought, I conclude the following factors to be important:

(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."

11 In the decision of Cardile v LED Builders Pty Ltd (1999) 162 ALR 294 at 301 [par 20], Gaudron, McHugh, Gummow and Callinan JJ said:

"Ultra Modern is entitled to dispose of assets that it owns or has lawfully acquired. To dispose of its own assets, without more and when no substantive proceedings have been taken against it, cannot be said to be an abuse or frustration of the court's process in respect of litigation between other parties."

12 That passage highlights the fact that in this case the applicant, being a company in its own right, is prima facie entitled to dispose of assets which it owns or has lawfully acquired. In the present case there was no evidence that the applicant had done anything illegal.

13 In Cardile their Honours accepted that in a proper case the protection of the administration of justice may extend to asset preservation orders against third parties (in this case the applicant) to the principal litigation. Their Honours said at 310 [par 50]:

"Nevertheless, those statements should not obscure the reality that the granting of a Mareva order is bound to have a significant impact on the property of the person against whom it is made: ... It requires a high degree of caution on the part of a court invited to make an order of that kind. An order lightly or wrongly granted may have a capacity to impair or restrict commerce just as much as one appropriately granted may facilitate and ensure its due conduct."

14 In this case, counsel for the first respondent suggested that evidence of a real risk that the $150,000 held by the applicant would be dissipated and/or put beyond the reach of the court if the ex parte order was discharged, lay in the comment by the solicitor for Pontoon and the applicant that his client would not be concerned if the money was tied up "for a few more days". It was also submitted that some aspects of the deed encompassing the right of first refusal were suspect; thirdly, that the solicitors for Pontoon and the applicant, when asked to agree to an undertaking to hold the money pending the trial of the action, if the plaintiff agreed to a discharge of the injunction, had refused to agree to that undertaking. It was submitted that if a party is invited to give an undertaking not to dispose of relevant money in a case such as this and that party refuses to give the undertaking, there must be a risk that the moneys would be used in some way as to avoid the situation where they would be available at the end of the day if they were required to honour a judgment.

15 It was said that the primary evidence which had been accepted by the learned Judge to establish that the applicant would, if not restrained, dissipate the moneys, lay in the words of the solicitor who had said: "Mr Hodgeson is not likely to mind if the moneys are tied up for a few more days ...." and that following that, the defendants, including the applicant, had declined to give undertakings in writing to the court that they would not dispose of the injuncted funds or preserve the same pending trial or until further order, in exchange for a release of the order.

16 It was common ground that Pontoon had no assets left and that the applicant owned Pontoon. It was conceded that the applicant had received $1.1M arising from the sale of the Gould Street property pursuant to its right of first refusal. However in my view there was not sufficient evidence to indicate that the applicant was likely to do something to defeat the course of justice. It was conceded that there was no evidence one way or the other that in 6 months time the applicant would not have sufficient funds to pay $150,000 if it was required by a court order to do so.

17 Granted that the applicant was a bona fide company which wished to continue with its lawful business, in my view there was not sufficient evidence to enable the learned Judge to infer that it was likely to defeat the ends of justice by dissipating the relevant moneys.

18 It was for the above reasons that I agreed to the orders made on 17 February 2000 allowing the appeal and discharging the mareva order.

19 MURRAY J: I have read in draft the reasons published by Wallwork J. They express generally for me the reasons why I joined in the orders made by the Court on the hearing of the appeal whereby leave to appeal was granted and the appeal was allowed.

20 It seems to me that the crucial aspect of this case was that the applicant, who was subjected to the assets preservation order, was not a party to the principal litigation, but was an entity to which a wholly owned subsidiary, a defendant in that action, had remitted funds, probably in circumstances which would constitute an undue preference on the winding up of the second respondent, Pontoon Holdings Pty Ltd.

21 In my opinion the evidence that the applicant planned to divest itself of the funds as part of a process calculated to frustrate the processes of the Court if the first respondent should ultimately succeed in its action was extremely weak. No more was shown, I think, than that the applicant proposed to trade utilising its own resources, including the funds in question. In those circumstances the order was really designed to function as a way of preserving funds to satisfy a judgment if, as appeared likely, the defendant, Pontoon Holdings Pty Ltd, was itself unable to satisfy the judgment from its resources. That is not the purpose of the order.

22 It must be steadily borne in mind that an assets preservation order is one made as an adjunct to the effectiveness of the Court's processes. Because it may have a substantial impact upon the position of the party affected by the order, the Court should exercise the jurisdiction to make such an order with care and in my opinion such an order should not be lightly made.

23 Particularly is that the case, I think, when the party subjected to the order is a third party not originally involved in the litigation. That was this case. The circumstances in which such a party may be subjected to an assets preservation order were recently discussed by the High Court in Cardile v LED Builders Pty Ltd (1999) 162 ALR 294. Those circumstances need not be repeated here. They no doubt applied in this case. But as to the discretionary judgment whether or not to make the order, I would set out what was said by Gaudron, McHugh, Gummow and Callinan JJ at 310, par [50]:

"...the development of this ancillary jurisdiction to grant Mareva orders has been an evolving process and the courts have approached the different factual situations as they have arisen 'flexibly'. There is a temptation to use the term 'flexible' to cloak a lack of analytical rigour and to escape the need to find a doctrinal and principled basis for orders that are made. There are significant differences between an order protective of the court's process set in train against a party to an action, including the efficacy of execution available to a judgment creditor, and an order extending to the property of persons who are not parties and who cannot be shown to have frustrated, actually or prospectively, the administration of justice."

That seems to me to be the applicant's situation in this case and for that reason I joined in the orders made.