Case: Cardile v LED Builders Pty Ltd [1999] HCA 18 ; (1999) 198 CLR 380
Outcome: applied
In determining whether an asset preservation order ought to be made, I am influenced by these considerations: 1. Although his Honour the Chief Justice of the Supreme Court of New South Wales, Gleeson CJ in Patterson v BTR Engineering (Aust) Ltd (1989) NSWLR 319 (Gleeson CJ, Meagher JA and Rogers A-JA) observed at page 321 that "... in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that by reason of the defendant's absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied", their Honours Gaudron, McHugh, Gummow and Callinan JJ in Cardile v LED Builders Pty Ltd [1999] HCA 18 ; (1999) 198 CLR 380 at 408 observed that the applicant "has to show a reasonably arguable case on legal as well as factual matters ". 2. The Mareva order for the preservation of assets is an expression of the development of doctrines and remedies to protect the integrity of the processes of the Court in the administration of justice. The scope of the order to be made in a particular case is conditioned by the source of the remedy and the power conferred by s.23 of the Federal Court Act 1976. 3. In respect of orders sought against parties to the proceeding against whom final relief is framed, the focus of the order is directed against the frustration of the Court's process. If relief is available against non-parties, the focus of the Court's intervention must be the administration of justice: Cardile v LED Builders Pty Ltd (supra) at page 401, paragraph 42. 4. The evidence may establish deliberate blurring and attempts at transferring of property rights and interests which go beyond mere mixing or intermingling of affairs and in the light of such evidence, there is a sufficient basis for the grant of the relief: Cardile v LED Builders Pty Ltd (supra) at page 402, paragraph 47. 5. Although the relief takes effect in personam, the availability of an equitable or other proprietary remedy such as tracing may be sufficient to constitute a substantive right in aid of which the Mareva relief, in personam, might go. Cardile v LED Builders Pty Ltd (supra) at page 405, paragraph 55. 6. The evidence may establish that the directors of a company against whom proceedings are brought are "mere conduits" for the transmission to a third party of funds received by a respondent. Such directors may exercise control over other entities which have received funds transferred by an applicant to a respondent on a certain basis. In assessing the activities of third parties generally, their Honours in Cardile v LED Builders Pty Ltd (supra) at page 405, paragraph 57 said this: "What then is the principle to guide the courts in determining whether to grant a 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 potential 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". 7. The application of that principle is a matter of law although discretionary elements are involved. 8. In Patterson v BTR Engineering (Aust) Ltd (1989) NSWLR 319 at page 325, Gleeson CJ accepted the force of the criticism of the proposition that an applicant must show a "more than usual likelihood" of a defendant dealing with or disposing of his assets so as to defeat a plaintiff's claim. His Honour observed that "it may be that all that is meant is that the facts of the case disclose circumstances giving rise to such a likelihood other than the bare circumstances, which exists in the 'usual' case, that one person is being sued by another". His Honour also rejected a balance of probabilities test as too inflexible observing that "it is not difficult to imagine situations in which justice and equity would require the granting of an injunction to prevent dissipation of assets pending the hearing of an action even though the risk of such dissipation may be assessed as being somewhat less probable than not " . 9. In Patterson v BTR Engineering (Aust) Ltd (1989) NSWLR 319, the conduct in issue concerned a senior employee of BTR purchasing major items of equipment from overseas suppliers through a company interposed by the employee between the supplier and BTR. The employee fraudulently procured the overpayment by BTR for equipment purchases thus securing a secret commission of substance. In examining the evidence of that conduct, his Honour said: "... the evidence as to the nature of the scheme in which the appellant was allegedly involved, which established a prima facie case against him, was such as to justify the conclusion that there was a danger that the appellant would dispose of assets in order to defeat any judgment that might be obtained against him and that such danger was sufficiently substantial to warrant the injunction. There is no reason in principle why the evidence which is relevant to the first of the issues earlier referred to [a prima facie case] might not also have a bearing on the second, and this will especially be so where the prima facie case that is made out against the defendant is one of serious dishonesty involving diversion of money from its proper channels. The present is not a case in which a plaintiff who claims simply to be an unsecured creditor seeks to prevent a dissipation of assets which have no particular connection with the claim in question. This is a case in which the plaintiff claims that the defendant, making use of a corporation controlled by him, fraudulently misappropriated a large sum of money which, if it is still under the control of the appellant would be quite likely to constitute, directly or indirectly the bulk of his assets. As Giles J held, the nature of the scheme in which, on the evidence to date, the appellant appears to have engaged, is such that it is reasonable to infer that he is not the sort of person who would, unless restrained, preserve his assets in tact so that they might be available to his judgment creditor." 10. The Applicant may choose to lodge a proof of debt in the liquidation of the First Respondent. That proof might be accepted. If rejected, the Applicant may challenge the rejection. The liquidator might well consider whether monies have been transferred by individuals to other entities in circumstances which confer a basis for a claim by the liquidator against particular parties. It may be that certain third parties will be obliged to disgorge property or otherwise contribute to the funds or property of the First Respondent in satisfaction of an accepted or demonstrated claim against the First Respondent. The Applicant may seek to pursue an equitable or other proprietary remedy tracing its interest in the fund or the chose in action which may stand outside the liquidation rather than a claim for damages. 11. The Applicant has a prima facie case of a claim for monies had and received against the First or Second Respondents and may seek to pursue tracing remedies either at common law subject to the limitations upon the common law remedy or more particularly a tracing order in equity or particular declarations of charge again subject to the limitations upon the equitable remedies. As to those matters see: Recovering Lost Assets: Tracing at Common Law and in Equity , Mr David Murr SC (2006) 27 Australian Bar Review, 174. 12. A claim against either the First or Second Respondent for monies had and received will give rise to a prima facie obligation to make restitution to the Applicant, in the sense of compensation for the benefit of any unjust enrichment. In Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation [1988] HCA 17 ; (1998) 164 CLR 662 at 673, Mason CJ, Wilson, Deane, Toohey and Gaudron JJ observed: "The common law right of action may arise in circumstances which also give rise to a resulting trust of specific property or funds or which would lead a modern court to grant relief by way of constructive trust. However, notwithstanding that the grounds of the action for recovery are framed in the traditional words of trust or use and that contemporary legal principles of restitution or unjust enrichment can be equated with seminal equitable notions of good conscience, the action itself is not for the enforcement of a trust or for tracing or the recovery of specific money or property. It is a common law action for recovery of the value of the unjust enrichment and the fact that specific money or property received can no longer be identified in that hands of the recipient or traced into other specific property which he holds does not of itself constitute an answer in a category of case in which the law imposes a prima facie liability to make restitution". 13. It may be, with the benefit of proper discovery and non-party discovery, that the passage of the actual funds will be identified beyond the account of CPFSP/L in a way which reveals the acquisition of specific assets out of the funds (or a part of the funds) or accounts (intermingled or mixed) which support a tracing order or a declaration of charge or a constructive trust. The Applicant claims by way of final relief the subsistence of a constructive trust and a tracing order. 14. In this case, the evidence for interlocutory purposes, establishes a strong prima facie case that monies were transferred by the Applicant to the First Respondent controlled by Mr and Mrs Wallader to be applied for a particular purpose in reliance upon Mr Wallader. A substantial proportion of the funds were transferred to another company controlled by Mr and Mrs Wallader. Mr Wallader chooses not to admit the receipt of the funds and has elected not to swear any affidavit disclosing the treatment of the funds. In the period since the receipt of the funds, the Applicant has expended significant sums in improving assets under his control or under the control of proprietary entities of which he is a director. Although there is no evidence that the actual funds transferred on or about 30 March to the First Respondent have been applied in a particular way (apart from the transfer of substantial funds to the account of CPFSP/L and the withdrawal of US$250,000.00) or to a particular asset, the inference is open that Mr Wallader has applied the monies to his own advantage or to the advantage of himself and his wife whether directly or by the vehicle of companies controlled by him. 15. Although the events leading to the agreement of 30 March 2001 and the transfer of the Applicant's funds occurred in March 2001, the evidence for interlocutory purposes, establishes an explanation for the election on the part of the Applicant not to commence proceedings until either it became clear that the investment would not be made by Mr Wallader or until efforts by ARL and the Applicant's solicitors failed to result in a refund of the investment monies as promised by Mr Wallader. 16. Although the Second Respondent says the action has been on foot for a year, the Applicant secured access to the documents pursuant to the Anton Pillar order relatively recently on 10 February 2006. Whilst the Respondents were not able to undertake the task of categorising of the documents into the privileged and non-privileged groups for eight weeks due to an illness on the part of Mr Wallader and other delays were explained on the basis of Mr Wallader suffering a bee sting which provoked an allergy reaction, the Respondents failed to comply with directions orders and ultimately took no step to assert privilege of any kind in respect of the documents. The Applicant was in effect held out of the benefit of the Anton Pillar order from the date of execution on 14 March 2005 until counsel for the Applicant saw the documents in Melbourne for the first time in the week beginning 13 February 2006. The execution of the Anton Pillar order failed to reveal bank statements for the National Australia Bank account to which the Applicant's funds were transferred and nor do the documents reveal the field of documents comprehended by paragraph 1 of Schedule A. 17. The conjunction of the failure on the part of the Second Respondent to effect a refund of the investment monies by the First Respondent as promised by him, his election to remain silent concerning the application of the funds and any material particular in relation to them, his election to put the Applicant to proof as to the receipt of the funds by the First Respondent, the delays in dealing expeditiously with the claim of privilege either on the ground of legal professional privilege or the privilege against self-incrimination thus preventing the Applicant from securing access to documents arising out of the execution of the Anton Pillar order, is evidence which has a strong bearing on the risk of a dealing in the assets of the Second Respondent or entities controlled by him so as to defeat the benefit of any judgment in terms of the relief claimed in the Statement of Claim. Although the Second Respondent says that the Applicant could and should have brought applications for third party discovery against various banks and other parties to discover the chain of dealing in the Applicant's funds, the Applicant is entitled to proceed on the basis that execution of the Anton Pillar order would properly reveal the receipt and treatment of the monies. 18. Although it is true that the real property assets of Mr and Mrs Wallader and the trustee of the Wallader Family Trust remain in place and unrealised, there have been substantial dealings in the assets and the creation of charges. Mr Wallader has not sworn to the value of the assets directly. Mr Watts has sworn to information from Mr Wallader of information given to Mr Wallader by a valuer but limited to the three domestic properties. No evidence has been provided of value in relation to Colinton Station . 19. It seems to me that by reason of all these factors, there is, in the light of all the material, a risk of dissipation of assets or a risk of a further dealing in assets which would be prejudicial to an effective remedy ordered in favour of the Applicant consequent upon a trial of the action. 20. In Cardile v LED Builders Pty Ltd (supra) at page 404, their Honours referred to a number of considerations demanding care in the exercise of the power to grant a Mareva order including difficulties associated with the quantification and recovery of damages pursuant to the undertaking should it transpire that the order ought not have been granted (see paragraph 52), the identification of the trigger events leading to dissolution of the order, discretionary considerations (see paragraph 53), the availability of and possible failure of the Applicant to take other proceedings which might be efficacious and the conditioning of the grant of the relief upon an undertaking by the Applicant to ensure as far as is possible, the expedition of the proceedings (see paragraph 53). 21. In this case, it may be difficult to assess and quantify damages pursuant to the undertaking as to damages. However, the strength of the claim is compelling. The difficulty of quantification of the claim might weigh more heavily in the exercise of the discretion if the Second Respondent had proffered some explanation as to the location of the funds or provided an explanation, by affidavit, of the apparent inconsistency between his election not to admit receipt of the monies and the sequence of oral and written communications contained in the affidavits of the Applicant. The Directions Orders provide for a trial of the action in approximately two months which provide the Second Respondent with a clear commitment from the Applicant to prosecute the action and the horizon by which the orders might be dissolved. The Second Respondent remains at liberty to make an application for security for costs should he choose to do so. 22. On the question of the susceptibility of the two instruments to stamp duty under Queensland legislation, that matter need not be resolved as the Applicant has now provided an undertaking to pay any stamp duty assessed to be payable in respect of the Agreement or the Deed of Guarantee and Indemnity.