Gibb Australia Pty Limited; Kenneth Farish Scott; Anthony Derek Swift Mangnall; William Thomas Noel Reeve; John Richard Edward Kent; Geoffrey Hamilton Coates and Kevin John Cairns v Cremor Pty Limited; Peter Reeves and Helen Margaret Reeves [1992] ACTSC 23 (10 March 1992)

SUPREME COURT OF THE ACT

GIBB AUSTRALIA PTY LIMITED; KENNETH FARISH SCOTT; ANTHONY DEREK SWIFT
MANGNALL; WILLIAM THOMAS NOEL REEVE; JOHN RICHARD EDWARD KENT; GEOFFREY
HAMILTON COATES and KEVIN JOHN CAIRNS v. CREMOR PTY LIMITED; PETER REEVES and
HELEN MARGARET REEVES
S.C. Nos. 558 and 266 of 1991
Injunctions
(1992) 106 FLR 453

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Higgins J.(1)

CATCHWORDS

Injunctions - Mareva injunctions - Grounds for continuation - Prima facie case - Fraud and breach of fiduciary duty - Danger of defendant dissipating and concealing proceeds of liquidation of assets - Cross-claiming by defendants.

Injunction - Mareva Injunction - Claim against director of company - Assets in name of director's wife - Wife a director - Family assets - Jurisdiction to grant injunction relating to those assets.

Vereker v Choi (1985) 4 NSWLR 277

Winter v Marac (1986) 6 NSWLR 11

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

A.J. Bekhor and Co Ltd v Bitton (1981) QB 923

Demeter Cormack Pty Ltd v Caribbean Foods Limited (Fed Ct Aust; French J.; 20/11/91; unreported; p 11)

HEARING

CANBERRA
10:3:1992

Counsel for the Plaintiff: Mr A. Sullivan QC with Mr S. Gageler

Instructing solicitors: Messrs Blake Dawson Waldron (Mr John Briggs)

Counsel for the Defendant: Mr P. Biscoe

Instructing solicitors: Messrs Sly and Weigall (Mr John Webber)

ORDER

1. The present orders continue.

DECISION

On 27 November 1991, I refused an application by the defendants that the plaintiffs to give security for costs. I set out there a brief description of this complex litigation. It does not need to be repeated.

2. On 20 May 1991, I granted to the plaintiffs, ex parte, a Mareva injunction restraining the defendants from disposing of or removing their assets. The defendants, on 4 June 1991, informed the plaintiffs that they intended to move for the dissolution of that injunction "as soon as possible". The injunction has subsequently been modified but has otherwise continued since that time.

3. The defendants, on 15 July 1991, informed the plaintiffs that they would be put to strict proof, so far as that might lawfully be necessary, on any subsequent application to continue the injunction.

4. As it happened, it was not until 27 November 1991 that the issue as to the continuance or dissolution of the injunction was brought on for hearing. This is the hearing of that application.

5. The injunction was granted in the first instance on the basis that there was a prima facie case of fraud and breach of fiduciary duty against the defendants. It was an apparently strong one. Of course, it must be noted that the defendants deny any such breach. It does not follow from the grant of the injunction or its subsequent continuance that there is any finding or presumption as to the truth of those allegations.

6. Indeed, whereas it was reasonably suspected that the second defendant had bank accounts in Hong Kong to which the proceeds of asset sales could be removed, enquiries there, made with the consent of the defendants, have failed to reveal any such account.

7. There has been no submission from the defendants that no prima facie case has been established by the affidavit evidence against the second defendant.

8. As Mr Sullivan QC for the plaintiffs, submitted, if it is accepted that there has been massive misappropriation by the second defendant of the plaintiff's funds and assets, then a real risk that the second defendant would attempt to dissipate and conceal the proceeds of liquidation of his known assets must also be accepted. That contention is supported by Patterson v BTR Engineering (Aust) Ltd (1968) 18 NSWLR 319, 326 per Meagher J.A.

9. There have been transfers of assets from the second defendant to the third defendant. The second defendant is alleged to have asserted that he had transferred out of his name all assets which might be seized should this litigation go against him.

10. The second defendant has substantial control over the first defendant. Its interests can be regarded as co-extensive with those of the second defendant.

11. There was a contention put by Mr Biscoe QC for the defendants that, as there was no prima facie case of fraud against the third defendant, the injunction should be dissolved as against her.

12. The plaintiffs dispute this contention. They submit that the third defendant must have known that the transfers of property to her were intended as a hedge against an adverse result in this litigation. Further, she has benefitted from the alleged breaches of fiduciary duty. She has participated actively in the management of the first defendant. They submit that the inference is open, particularly in the absence of contrary evidence, that the third defendant has participated knowingly in the breaches of duty alleged against the second defendant. Further, she has the benefit, generally, of the enhanced "family assets".

13. It is conceded by both sides that the late Mr Royle was a rogue. The third defendant, it seems, signed four cheques made out to him. Those cheques are alleged to represent payments to which Mr Royle had no lawful entitlement.

14. Printing was done by the first defendant for the first plaintiff. The first defendant invoiced the first plaintiff for those services. The first plaintiff alleges that its assets and resources were wrongfully used to produce these services. Whilst it is not possible to conclude that the third defendant directly prepared or instructed the preparation of the relevant invoices, it is open to conclude that she was aware of this arrangement and approved of it.

15. There is also the matter referred to as "the Broken Hill matter". It was a transaction entered into by the first defendant. It was a business transaction similar in type to those usually engaged in by the first plaintiff. It is open to conclude that the first defendant was guilty of a breach of fiduciary duty in engaging in and retaining the proceeds from that transaction. If that inference was drawn it would be open to conclude that the third defendant (as well as the second defendant) was aware of that breach.

16. There are other specific examples of the third defendant's participation in the affairs of both the first and second defendants. It suffices to say that, if it is open to conclude that the first two defendants have been guilty of breaches of fiduciary duty, then it is equally open to conclude that the third defendant was knowingly concerned in those breaches of duty.

17. The third defendant is in a significantly different position from that of the seventh plaintiff. Although the latter was also present in Australia at the time of the alleged breaches of fiduciary duty, there is no evidence that he knew of them. Nor did he benefit from any of them. Indeed the prima facie inference is to the contrary.

18. Even if it was incorrect to assert that there was a prima facie case against the third defendant, it was submitted that the assets sought to be preserved were "family assets" to an extent representing proceeds of the breaches of duty committed and otherwise representing assets which ought to be available to satisfy the causes of action, if any, ultimately proved against the second and/or first defendants.

19. In Vereker v Choi (1985) 4 NSWLR 277, Clarke J. considered a Mareva injunction sought against a company director and his spouse. The spouse held assets in her name but was not otherwise involved in the proceedings. The spouse resisted the continuance of interim "Mareva" orders against her on the ground that no cause of action was asserted against her. She further asserted, and produced documentary evidence to support the assertion, that the defendant director (Choi) had no legal interest in any of the assets in her name. However, Clarke J. did not accept that, as a result, the interim orders against the spouse should be discharged.
(283) "In Bank of Queensland Ltd v Grant (1984) 1 NSWLR

409, I concluded that, as a general rule, it was necessary
for an applicant for a Mareva injunction to establish the
existence of such a cause of action (against the person to
be restrained) ... I did recognise the possibility of
exceptions to the general rule ..."
(284) "(in this case) ...in commercial reality, the money
is family money and that he probably has at least as great
an interest in it as she has...
...My final observation on this aspect is that there will,
in my opinion, be a real question at the end of the day
whether the plaintiff, if he obtains a verdict, should not
be able to lay his hands on those moneys."

20. The injunction in the latter case issued against all the assets in the spouse's name notwithstanding the lack of any cause of action against her. In the present case causes of action are asserted against the third defendant.

21. The present case also, in relation to assets held by the third defendant, is to be contrasted with a case where a spouse or other relative holds "family assets" in which the other spouse has no legal or equitable interest. Those assets might, at the discretion of that family member, ultimately be used for the benefit of the party against whom relief is sought. If that was the only connection of the assets to the litigation it would, in my opinion, be insufficient to justify a "Mareva" injunction against such a family member. There is in this case, however, a serious question to be tried which, if decided favourably to the plaintiffs, would enable recovery of the whole of the assets in the third defendant's name, particularly if they are found to have been acquired, directly or indirectly, out of the proceeds of the alleged breaches of duty (see Winter v Marac (1986) 6 NSWLR 11) even if no primary cause of action is made out against her.

22. It is also relevant that, in my opinion, the nature of the causes of action asserted in this litigation against the second defendant leads to an inference that there is a real risk of dissipation of assets. There is also a real risk of the concealment of the proceeds of sale of his assets by diverting the benefits of such proceeds to his spouse (see Patterson v BTR Engineering (Aust) Ltd (supra); A.J. Bekhor and Co Ltd v Bitton (1981) QB 923, 941-2).

23. In the present case there are cross-claims by the defendants. Those cross-claims also have prima facie validity. Indeed, the first defendant has summary judgment for a significant sum in one such matter. That matter is presently subject to appeal but the defendants are entitled to have it taken into account (see Demeter Cormack Pty Ltd v Caribbean Foods Limited (Fed Ct Aust; French J.; 20/11/91; unreported; p 11)). Also to be considered is the availability of reciprocal enforcement legislation in those places to which it is considered that there is a risk of assets being removed.

24. Those matters tend to favour the defendants' contention that, in the exercise of its discretion, the Court should dissolve the present orders.

25. However, the prima facie case outlined by the plaintiffs' evidence, particularly Mr Cairns' affidavit of 20 May 1991, indicates the claim to be for sums very much exceeding the cross-claims asserted even if those cross-claims are accepted at face value. Further, the claims involve an assertion that the property restrained (or the bulk of it) is either property which should be restored to the plaintiffs or is property obtained, directly or indirectly, from the proceeds of breaches of fiduciary duty.

26. It is also apparent that the second defendant has world-wide connections. He would be able to arrange, if free to do so, for the proceeds of liquidation of his Australian assets to be converted into any form in almost any country. I do not say that I am persuaded that he would do so, merely that, if the plaintiffs are correct and the second defendant has, with Royle, defrauded them, the risk of dissipation of assets is a real one. It could be arranged in places where no reciprocal enforcement is available, even if the place or places to which assets or proceeds were removed could be readily identified.

27. It follows that, subject to continuance of the undertakings as to damages and to the right of the defendants to seek a release of assets or the proceeds of sale of assets for particular purposes, the present orders should continue.

28. I will hear the parties as to costs.