Case: Cardile v LED Builders Pty Limited [1999] HCA 18 ; (1999) 198 CLR 380
Outcome: referred to
purposes identified in the rules are consistent with the purposes for such orders identified by the High Court in Jackson v Sterling Industries Limited [1987] HCA 23 ; (1987) 162 CLR 612 and in Cardile v LED Builders Pty Limited [1999] HCA 18 ; (1999) 198 CLR 380. The application is brought by the respondents to the proceeding and I shall continue to refer to them as the respondents. Next, his Honour considered the law. He noticed that the Court had 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 Rules, freezing orders, and he had regard to the decisions of the High Court in Jackson v Sterling Industries Limited [1987] HCA 23 ; (1987) 162 CLR 612 and Cardile v LED Builders Pty Ltd [1999] HCA 18 ; (1999) 198 CLR 380. He observed that the joint reasons of the majority in Cardile [1999] HCA 18 ; 198 CLR 380 raised a number of propositions. First, that an order should not be made against a non-party to 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". Secondly, he observed the general proposition that the grant of freezing orders against a third party "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". Thirdly, he observed that the guiding principle in considering whether to grant Mareva orders against third parties is as set out in [57] of the majority's reasons: 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. Lastly, he observed that there are a number of discretionary factors to which the majority in Cardile [1999] HCA 18 ; 198 CLR 380 referred at [53] which needed to be taken into account in determining whether an order should be made: 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. There is no complaint that his Honour has misunderstood the law. His Honour turned his attention to the resolution of the issues. He said that although neither party made detailed submissions on the question as to whether the applicants had a good arguable case, he was of the opinion that such a case existed. Issue was taken in relation to that holding by the respondents and Gemhall Holdings and Time 2000 on this application. They said that his Honour ought not to have found that there was a serious question to be tried. However, it is clear that the case which is raised by the applicants against the respondents will be determined upon a construction of the various agreements which, undoubtedly, were entered into by the parties. Although the respondents deny that those agreements amount to franchise agreements or give rise to a franchise regime, it cannot be doubted, I think, that as between the parties there is a serious question to be tried. His Honour addressed the question as to whether there was a danger that a prospective judgment in favour of the applicants against the respondents would remain unsatisfied or partly unsatisfied if recovery is restricted to the assets of those respondents. That proposition was criticised by Mr White, counsel for the respondents on this application. But I think that his Honour was merely considering whether there was any need for a freezing judgment at all because if there was not any risk that a prospective judgment against the respondents would remain unsatisfied, or partly unsatisfied, there would be no reason to make a freezing order against any non-party. I think there is nothing, with respect, in that criticism. His Honour then said: 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 parties, 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, a 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. His Honour addressed the facts and said: 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. His Honour is undoubtedly correct about that and no criticism is made about that statement. His Honour concluded, however, that that submission was not fatal to the applicants' application. In my opinion, his Honour was right to approach the matter in the manner in which he did. First, to remind himself, as he did, that the respondent, Mr Donovan, has no proprietary interest in the trust assets of Gemhall Holdings or Time 2000. He was also right, in my opinion, to conclude that that was not fatal to the applicants' application. That follows, it seems to me, from the judgment of the majority in Cardile [1999] HCA 18 ; 198 CLR 380 and, in particular, at 401-402, and at [45]. His Honour also said it followed from the provisions of O 25A r 5(5) itself and, I think, in that respect, he was also right. That rule 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. In my opinion, that subrule supports the contention that it is not fatal to the applicants' application that Mr Donovan has no proprietary interest in the trust assets. His Honour concluded: 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's placed into bankruptcy upon being unable to satisfy that judgment. The gravamen of the respondents' argument on this application is that his Honour posed for himself the wrong test. It was said that his Honour posed for himself a test which was merely speculative and whether it was possible or not the event might occur was an irrelevancy. I think, with respect, that argument ignores the sentence before the one to which I have referred in which he said, after referring to Cardile [1999] HCA 18 ; 198 CLR 380 and to O 25A r 5(5): 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 also overlooks, with respect, the cases to which his Honour referred which were all, as his Honour noticed, directed to the question as to whether it may be that an interest of the kind to which his Honour referred will arise. I think, without doubt, that the test which his Honour was addressing was the test which was referred to in Cardile [1999] HCA 18 ; 198 CLR 380 and in the Rules, and also in the cases to which his Honour referred. He concluded that there was a possibility that Mr Donovan may receive an interest under the Stephen Donovan Family Trust and, in those circumstances, he was entitled, notwithstanding the criticism made by Mr White, to conclude that orders ought to be made of the kind which were made.