Case: Cardile v LED Builders Pty Ltd [1999] HCA 18 ; (1999) 198 CLR 380
Outcome: applied
The Court has power under s 23 of the Federal Court of Australia Act 1976 (Cth) to make Mareva orders or (as they are referred to in the Federal Court Rules ) freezing orders. A number of principles relating to the circumstances in which such orders may be made have been developed in the cases. For present purposes, it is sufficient to refer to Jackson v Sterling Industries Ltd (1987) 162 CLR 612 ; Cardile v LED Builders Pty Ltd [1999] HCA 18 ; (1999) 198 CLR 380 (" Cardile "). 15 Cardile is of particular significance in this case because it concerned Mareva orders sought against third parties. In their joint reasons, Gaudron, McHugh, Gummow and Callinan JJ made a number of points. First, there is no basis for the making of an order against a non-party which is not answerable or liable in some way to a party (applicant or respondent) in a proceeding where judgment has not been obtained or execution recovered, or not holding, controlling or capable of disposing of the property of a party in that proceeding (at 401-402 [45]). Secondly, the jurisdiction of the Court to grant Mareva orders against third parties is not limited to cases in which the third party holds or is about to hold or dissipate or further dissipate property beneficially owned by the defendant in the substantive proceedings. Nevertheless, if such circumstances do not exist, it will be a rare case in which a Mareva order will be granted (405 [54]). Thirdly, the guiding principle in considering whether to grant Mareva orders against third parties is set out in the following passage from the joint reasons (at 405-406 [57]) (citations omitted): What then is the principle to guide the courts in determining whether to grant Mareva relief in a case such as the present where the activities of third parties are the object sought to be restrained? In our opinion such an order may, and we emphasise the word "may", be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which: (i) the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including "claims and expectancies", of the judgment debtor or potential judgment debtor; or (ii) some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor. Fourthly, there are a number of discretionary factors (referred to at 404 [53]) relevant to whether an order should be made and these include, but are not limited to, the following: 1. Whether the applicant has acted in a timely fashion; 2. Whether the applicant has obtained a money judgment in the proceeding; and 3. Whether the applicant has a cause of action against the third party. 16 Order 25A of the Federal Court Rules is entitled "Freezing Orders" and came into operation on 5 May 2006. For the most part it reflects the principles developed in the cases, including Cardile . Order 25A r 6 provides that "[n]othing in the Order diminishes the inherent, implied or statutory jurisdiction of the Court to make a freezing order or an ancillary order". Order 25A r 5(1)(b) provides that in a case such as the present, the applicant must have a "good arguable case" on an accrued cause of action. Order 25A r 5(4) deals with freezing orders against judgment debtors and prospective judgment debtors. Order 25A r 5(5) deals with freezing orders against third parties and it provides: (5) The Court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a third party ) if the Court is satisfied, having regard to all the circumstances, that: (a) there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because: (i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (b) a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment. 17 The first question in the present case is whether the applicants have a good arguable case on an accrued cause of action against the respondents. Neither party made detailed submissions on this question. I have considered carefully the pleadings and affidavits and I am satisfied that the applicant has a good arguable case on an accrued cause of action against the respondents. 18 The second question is whether there is a danger that a prospective judgment in favour of the applicants against the respondents will remain unsatisfied, or partly unsatisfied, if recovery is restricted to the assets of those respondents. Details of the financial affairs of the respondents have not been put before me and, in fact, the applicants seek by way of ancillary orders, orders that affidavits of disclosure be filed and served by the respondents. It has been established that the respondents do not own any real property in the State of Victoria. It has also been established that the second respondent owes reasonably substantial sums of money to the third parties. It has also been established that one of the companies associated with Mr Donovan, Gemhall Holdings, will be unable to pay the mortgage over the Chapel Street property beyond December 2008 if it is not sold. If the property is sold the deposit money will be sought to be released to be used to continue to pay the mortgage until settlement of the sale. In my opinion, the applicants have established that there is a danger that a prospective judgment in their favour against the respondents will remain unsatisfied, or partly unsatisfied, if recovery is restricted to the assets of the respondents. 19 It seems to me that the most contentious issue in this case relates to the third question, namely, whether some process, ultimately enforceable by the courts, is or may be available to the applicants as a consequence of a judgment against the respondents, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the respondents to help satisfy the judgment against the respondents. 20 The applicants submit that I should ignore the transactions effected on 10 or 11 December 2008. They submit that, if anything, those transactions should heighten the Court's concern about the disposal of assets rather than allay it. The applicants submit that Mr Donovan owns and controls Gemhall Holdings and that, by reason of the fact that he holds the power of appointment, he controls the Stephen Donovan Family Trust. 21 The respondents submit that the properties are held by the third parties as trustees for the respective trusts and that, as the Stephen Donovan Family Trust is a discretionary trust, there is no property of Mr Donovan which could be recovered by a trustee in bankruptcy, should Mr Donovan suffer bankruptcy as a result of the applicants obtaining a judgment against him. 22 In my opinion, a Mareva or freezing order should be made against the third parties. 25 The respondents' submission that Mr Donovan, as a member of a class of possible objects of appointment, has no proprietary interest in the trust assets is correct: In re Coleman; Henry v Strong (1888) 39 Ch D 443 ; In re Weir's Settlement Trusts; Macpherson v Inland Revenue Commissioners [1971] Ch 145. However, I do not think that is fatal to the applicants' application. I say that for the following reason. I think the test formulated by the High Court in Cardile ((ii) in the passage quoted above at [15]) and reflected in O 25A r 5(5) is wide enough to cover the present circumstances. Both refer to a process which "is or may ultimately be available" and the fact that the third party " may be obliged to disgorge assets" or contribute towards satisfying the judgment or prospective judgment. It is possible that Mr Donovan will receive an interest under the Stephen Donovan Family Trust which is recoverable by a trustee in bankruptcy in the event that the applicants obtain a judgment against Mr Donovan and he is placed into bankruptcy upon being unable to satisfy that judgment. I am mindful of the fact that considerable caution must be exercised in making freezing orders against third parties, but at the same time there needs to be some flexibility in the test, as the circumstances of this case plainly show. Other courts have considered that the use of the word "may" is significant: Westpac Banking Corporation v Hilliard [2001] VSC 187 ; Audio Products Group Pty Ltd v Mamone [2005] NSWSC 982 ; Robmatjus Pty Ltd v Violet Home Loans Australia Pty Ltd [2007] VSC 165. 26 There are two other possible bases for orders in this case. The first is that, in the circumstances of this case, the Court is able to look behind the trust structure and determine that, in reality, the property of the trust is effectively Mr Donovan's property because he effectively controls the power of selection ( Australian Securities and Investments Commission v Carey (No 6) [2006] FCA 814 ; (2006) 153 FCR 509 at 518 [29] and 520-521 [36]-[39] per French J). The second possible basis is that Mr Donovan has, in the particular circumstances of this case, an expectancy under the Stephen Donovan Family Trust (see Gartside v Inland Revenue Commissioners [1967] UKHL 6 ; [1968] AC 553 at 607 per Lord Reid, at 615 per Lord Wilberforce; Hunt v Muollo [2003] 2 NZLR 322 at 325 [11]) and the case falls within Cardile ((i) in the passage quoted above at [15]) or O 25A r 5(5)(a). As these possibilities were not the subject of detailed submissions by counsel, I do no more than identify them as a possible basis for the freezing orders against the third parties. 27 I have considered whether there are any discretionary reasons not to make freezing orders against the third parties. I have considered the type of matters identified by the High Court in Cardile (see [15] above). I do not think that there are any discretionary reasons not to make the orders. 28 In addition to the freezing orders, I think it is appropriate to make the ancillary orders. 29 I will make the orders sought by the applicants, subject to any submissions the respondents wish to make as to the form of the orders. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. Associate: Dated: 18 December 2008 Counsel for the Applicants: Mr I C Robertson Solicitor for the Applicants: Cosoff Cudmore Knox Counsel for the Respondents: Mr S J White Solicitor for the Respondents: Madgwicks Date of Hearing: 12 December 2008 Date of Judgment: 17 December 2008 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2008/1931.html