Everhard Industries v Ross[2006] QSC 329

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

ROBIN A/J

No S4084 of 2006

and

ELIZABETH ROSS    Second Defendant

and

WASTE WATER EQUIPMENT SUPPLIES PTY LTD Third Defendant

(ACN 105 221 467)

and

SELWYN DAVIS    Fourth Defendant

    (added by counterclaim)

BRISBANE

..DATE 31/10/2006

ORDER

CATCHWORDS:  Uniform Civil Procedure Rules r 260 Mareva order - whether court lacked jurisdiction in a contested application because supporting affidavits did not contain all of the "information" listed in r 260 (4).

HIS HONOUR:  This is an application under rule 260 for a Mareva order by a plaintiff.  It is the all too familiar scenario of former employees and the trading entity in which they now carry out their income earning activities being pursued.

The applicant sets considerable store by the contention that a lack of frankness in the defendant's pleading, which it says is damning, bespeaks dishonesty of a kind said to present an analogy with the circumstances in Patterson v. BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, with particular reference to a passage commencing at 325E.

The third defendant is the entity for which, since late last year, Mr and Mrs Ross have worked.  It is perhaps unclear to what extent they claim ownership of it now.  Their contention is that at all times before they resigned from the plaintiff's employment in late 2005, it was the business of Mrs Ross 's sister, who, for reasons of ill health, found herself marooned in New Zealand.  She gave her address as a house at St Lucia owned or occupied by the Ross's son.

There was a manager controlling the business of the third defendant.  Circumstances which the plaintiff contends are suspicious include Mr Ross's having engaged Mr McKenzie-Ross, no relation, negotiating his terms of employment and the like.

Documentary material tends to show that Mrs Ross, too, exercised influence, if not control, over the manager of the third defendant, or sought to.

It was known to the plaintiff's manager that the Ross's owned the building where the third defendant, active in the same or an associated area of commerce, conducted its business in Geebung.  Also, that they knew the owner of that business.

Material in evidence indicates that the links were rather greater.  They include Mrs Ross's being a signatory on the bank account.  Against that background, it is concerning to the plaintiffs that the Ross's, both of whom appear to have signed at least 21 purchase orders directed to the third defendant from the plaintiff, which are in evidence, put business which the plaintiff had to offer the third defendant's way.  It might be the case, as the Ross's contend, that the plaintiff got a good deal on those occasions and could not have done any better.

The plaintiff prosecutes the matter, however, on the basis that the individual defendants, as officers or employees of it, breached the duties of good faith and the like which were owed to it pursuant to "sections 182(1), 183(1), 184(2) and 184(3) of the Corporations Act 2001." 

The relief sought pursuant to section 1317H is an accounting to the plaintiff for profits and compensation for loss and damage suffered.  Other relief sought in the proceeding include returns of certain property of the plaintiffs, alternatively damages for wrongful detention of that property.

On the basis of fiduciary or like duties being owed by the Ross's and any breach of them in which the third defendant may be seen as complicit, there can arise a duty to account for those profits.  Mr Formica of the plaintiff has quantified the claim in that regard as up to $426,000 or thereabouts.  The plaintiff has not quantified in a similar way the loss involved in the diversion elsewhere of business which it says it should have had.

That can be a significant difficulty where a Mareva injunction is sought, as the Court should be astute not to impound or freeze assets well in excess of the value of a claim being pursued.  It is a radical enough thing to do to give a plaintiff an indirect kind of security, imperfect as it is, for a claim without doing so in respect of some inappropriately high value of assets.  That observation provides an introduction to the technical deficiencies to which Mr Wilson, in his able submissions, which merit a tribute, drew attention, based on subrule (4)(b)(a)(ii)(c) and (e)(i)(ii) of rule 260.  This is not the common situation of an order sought without notice to the persons who will be affected, under rule 259, where the importance of "information" listed is readily understandable.

There seems to be no fear in the present circumstances, notwithstanding that Ms Rault must be presumed to have a New Zealand domicile, that assets might be removed from Australia.

Mr Clothier for the applicant urged on the Court that it should not construe subrule (4) as mandatory where it provides that the supporting affidavits "should include" listed information.  In my opinion, it is appropriate to read that subrule in connection with associated rules in the relevant part of the UCPR, including rule 258 subrule (2), which contemplates that such orders may be sought before a proceeding starts.  If an order is applied for at that stage, then the necessity for affidavits to set out the basis of the claim for principal relief is obvious.

It is not so clear that where there is a statement of claim disclosing an intelligible cause of action the affidavit must satisfy the same requirement.  As appears elsewhere, I think it is right for the Court to be concerned about the amount of the claim and its troubling feature, that a large component of the plaintiff's claim has not been quantified here as yet, even in a pleading.

So far as paragraphs (b)(ii) and (c) are concerned, what is pointed to is Mr Formica's affidavit in paragraph 38 where the deponent refers to his concern that:

   "The first defendant and the second defendant are dealing with their assets in a manner which might defeat the ability of the plaintiff to execute any judgment  which it obtains against them.  I therefore believe that the  first defendant and the second defendant should be restrained from dealing with their assets in such a manner."

In the circumstances of this application where there is a wealth of material before the Court, I think that the Court should not accede to Mr Wilson's submission that there is no jurisdictional basis upon which the Court may make an order.

The uncontested material shows that the Ross's have sold the property at Geebung and have put on the market a residence at 28 Church Road, Zillmere and 32 Church Road, Zillmere.

Indeed, as I understand it, there is an unconditional contract in existence for that property.

Mr Clothier indicates the plaintiff's attitude is that it would not wish to prevent the completion of a genuine contract of sale.  That may be particularly the case to the extent that the proceeds may be applied to the acquisition of further real estate.  While the plaintiff sees the disposal of a property as sinister or concerning, Mr Ross explains it in terms of the changed circumstances in which it is no longer convenient or necessary for them to live close to their former employment with the plaintiff.

Furthermore, there are associations with a son who resided there with them who has recently, unfortunately, passed away. That bereavement was the basis of some indulgence being allowed by the plaintiff from the point of view of getting a defence filed.  It is also the basis of Mr Wilson's urging that the Court take an understanding attitude about the supposed lack of frankness of his clients in their pleading.  It is asking a lot, he submits, of bereaved people to expect a completely punctilious pleading exercise.  All sorts of things get into pleadings in a system which does not require that they be sworn to and the Court should take that into account.

There remain some difficulties for the Ross's in that regard, including their bald denials that they played any part in the affairs of the third defendant and, indeed, in specific respects such as Mrs Ross's role as bank account signatory.

For present purposes, at least, the plaintiff has been able to demonstrate the falsity of such stances in the pleading. 

An important recent development reported in Mr Ross's very recent affidavit is the establishment of a company called Eco Water Pty Ltd. The Court lacks full details of it, such as an ACN or the identities of its shareholders.  The Ross's see business opportunities in the area in which they have expertise (including that acquired by working for the plaintiff) in the area of commerce being pursued by Eco Water. Mr Ross says, and in the circumstances this is uncontested, that Eco Water is a commercial rival of a division of the plaintiff called Aqua Nova.  That is a troublesome aspect of the application.

Mr Clothier made it clear that in contemplating that the defendants might under the order sought dispose of or deal with assets for the purpose of carrying on a business or occupation currently carried on by them as contemplated in the application, there would be no room for Eco Water Pty Ltd to participate. The Ross's are concerned that it not be starved of funds, as should the Court be.

Rule 264 subrule (5) makes it clear that the undertaking as to damages, which would be a necessary part of any order, no good reason otherwise appearing to satisfy rule 264(1), would extend to protect Eco Water Pty Ltd and, indeed, all third parties.

My approach in this application is, and I find myself comfortably satisfied, that it is an appropriate case for relief under rule 260.  The circumstances established by uncontested evidence, leaving aside the other evidence which is contested, tend to show a disturbing involvement of the Ross's with the third defendant at times when they remained in the plaintiff's employ and owed it duties of good faith.  I am not inclined to act on the assertion in the defence not verified in any way in the affidavit that Mr Formica or others in the plaintiff knew more of the Ross's involvement with the third defendant than Mr Formica concedes.  I think there is a promising case shown for an account of profits.

Although the defendants have deposed to innocent intentions and motives in the sales of real property, I think there is a proper concern that the plaintiff's claim might be defeated if there is any dissipation or concealing of the proceeds of sale.  It is not incumbent on a plaintiff to show that a defendant has an improper purpose.  See Northcorp Limited v. Allman Properties (Australia) Pty Ltd [1994] 2 QdR 405.

I understand that there is one further item of real property, namely, a unit Mr Ross has at Taigum. 

I have done considerable surgery upon and redrafting of the terms of the application.  It is probably convenient that I read into these reasons the state it is currently in from the point of view of constituting a draft order:

Upon the plaintiff, by its counsel, giving the usual undertaking as to  damages, which extends to nonparties, including Eco Water Pty Ltd, the Court orders:

1.   That until the determination of this proceeding or further order the defendants, whether by themselves, their servants or agents be restrained from:

   A.   Removing any of their assets from Australia;.

   B.   Disposing of, selling, transferring, mortgaging, encumbering or otherwise dealing with any of their assets except -

(i)For the purpose of carrying on any business or occupation carried on by them, including Eco Water Pty Ltd, so long as the defendants are the only shareholders and nontrade creditors of it, in the bona fide and ordinary course of that business or occupation.

(ii)In the case of the first and second defendants, for the purposes of paying their reasonable living expenses.

(iii)For the purposes of paying their bona fide debts and liabilities.

(iv)For the purposes of paying their reasonable legal costs and outlays in connection with the proceeding,

but not so as to prevent the completion of any genuine sale already entered into.

2.   That the defendants keep and maintain accurate records of any dealing with any of their assets having a value in excess of $10,000.

3.   That the defendants provide to the plaintiff's solicitors within seven days of the date of this order an affidavit or affidavits listing each of their assets having a value in excess of $10,000, the locations of them and the approximate values of them, except for assets already disclosed to the plaintiff or its solicitors.

4.   That the defendants provide to the plaintiff's solicitors seven days advance notice in writing of any proposed dealing with their assets which exceeds $10,000, identifying reasonable particulars of the proposed dealing.  This provision not to apply to any transaction in the ordinary course of business.

5.   That costs of and incidental to the application to be assessed on the standard basis be costs in the cause.

6.   That after 14 days from today, the restraint in paragraph 1 be limited to assets having an aggregate realisable value of $750,000 unless within that time the plaintiff files an affidavit showing how its monetary claim in this proceeding exceeds or probably exceeds $750,000.

7.   Liberty to apply.

HIS HONOUR:  Counsel might have questions about that.

MR CLOTHIER:  I do.  Only two, your Honour.

HIS HONOUR:  Well, do you understand the idea, you've got-----

MR CLOTHIER:  Yes.

HIS HONOUR:  It's limited to $750,000 unless you file something in the Court showing why it should be - why it should apply to more.

MR CLOTHIER:  I agree - I understand that, your Honour.  Can I submit that the reference to "aggregate realisable value" really should be "net value"-----

HIS HONOUR:  Well, that might be right, but-----

MR CLOTHIER: -----for the simple reason that one could sell, probably subject to debts-----

HIS HONOUR:  I'm just trying to make sure there's $750,000 left.

MR CLOTHIER:  The reference to "net value" is appropriate in those circumstances, in my submission, so that they can sell-----

HIS HONOUR:  So, you want "aggregate realisable net value"?

MR CLOTHIER:  Yes, your Honour.

HIS HONOUR:  All right.  Well - all right.

MR CLOTHIER:  So that they could sell-----

HIS HONOUR:  Yes, all right.

MR CLOTHIER: -----assets which retain-----

HIS HONOUR:  Yes.

MR CLOTHIER:  So that that they have a net value of $750,000?

HIS HONOUR:   Has net got one "T" or two?

MR CLOTHIER:  Sorry, your Honour?

HIS HONOUR:  Has net got one "T" or two?

MR CLOTHIER:  One, I think, your Honour.

HIS HONOUR:  Has it?  Yes?

MR CLOTHIER:  And, your Honour, given that this issue - we have no issue with the completion of any bona fide contract-----

MR CLOTHIER:  Yes.

HIS HONOUR: -----but given it's an issue that's really raised recently and without any production of the contract, can we have a direction that the contract be produced so that we can satisfy ourselves that it's-----

HIS HONOUR:  Well, they've got seven days.  I think that comes within-----

MR CLOTHIER:  Well, your Honour's order 1-----

HIS HONOUR:  I have no idea when completion might be due.

MR CLOTHIER:  No, but your Honour's order 1 contains a blanket exception allowing them to complete any genuine contract. Now, in order that we might satisfy ourselves as to the genuineness of the contract-----

HIS HONOUR:  Well, all right, I could add to that "any genuine contract of sale already entered into to be advised forthwith to the plaintiff's solicitors" you want something like that?

MR CLOTHIER:  Plus a copy of which is to be produced forthwith-----

HIS HONOUR:  All right.

MR CLOTHIER: -----to the plaintiff's solicitors so we get a copy of it so we can see what - if it in fact's genuine.

HIS HONOUR:  Yes, all right.  Well, you have persuaded me at the moment, but I've still got to hear from your adversary.

MR CLOTHIER:  Yes.

HIS HONOUR:  A copy of - so, I have referred to any genuine sale already entered into, a copy of which is to be provided to the plaintiff's solicitors forthwith.  All right.  So, that's your shopping list there?

MR CLOTHIER:  Yes, your Honour.

HIS HONOUR:  And you understand they don't have to tell you about any assets that are worth less than $10,000?

MR CLOTHIER:  And any that have already been disclosed.

HIS HONOUR:  And if they want to order a quarter of a million dollars worth of pipes or tanks or something and they think that can be characterised as in the ordinary course of business, then they can do it.

MR CLOTHIER:  I understand, your Honour.

HIS HONOUR:  All right.  Now, have you got anything you want to say about it, Mr Wilson?

MR WILSON:  Just briefly, your Honour.  On the last point, first, there is no resistance to a copy of the contract.  I'm instructed that there is a copy available and can be forwarded.

HIS HONOUR:  All right, but those words went in.

MR WILSON:  Yes.  Just a point of clarification, is it the effect of the order, and I would have to read it, is it the effect of the order that at all times a minimum of $750,000 worth of assets must be maintained?  For instance, if $250,000-----

HIS HONOUR:  Well, that's what I'm thinking about at the moment, and it might be more than that.  You've got to retain everything for 14 days.

MR WILSON:  Yes, your Honour.

HIS HONOUR:  Then after 14 days-----

MR WILSON:  Assume the number of 750?

HIS HONOUR:  -----but after 14 days, you can do what you like with your assets provided you've got 750,000 retained.

MR WILSON:  So, that means you can only put that 250,000 into Eco Water as long as it leaves 750,000 extra, is that your Honour's order?

HIS HONOUR:  No, no, Eco Water's part of the - sorry, it-----

MR WILSON:  Okay, so part of the-----

HIS HONOUR: -----provided that the shareholders in Eco Water are the Ross's - you see, I've put liberty to apply in there-----

MR WILSON:  Yes, your Honour.

HIS HONOUR: -----because I'm guessing-----

MR WILSON:  Certainly.

HIS HONOUR: -----about a lot of these things.  If they come along and say, "Look, this is how Eco Water is beneficially held:  the sister in New Zealand's got one share, we've got five shares each," or something like that, then we look at it, but provided that they own - that Mr and Mrs Ross have all the shares in Eco Water and provided that they haven't - then I've attempted to stop them giving a fixed and floating charge over all the assets to someone else.  So, in other words, they can't crush it with debt.  The only debts that I am contemplating Eco Water incurring are ordinary trade debts and I didn't put the rent of the premises, but it would seem obvious that they're included.  I'm attempting to permit EcoWater to trade.  Now-----

MR WILSON:  Thank you, your Honour.

HIS HONOUR: -----do you think I need to put in anything else to clarify-----

MR WILSON:  No, your Honour.

HIS HONOUR: -----that?

MR WILSON:  If it turns out to be oppressive, there is leave to apply.

HIS HONOUR:  That's right.

MR WILSON:  Liberty to apply.

HIS HONOUR:  Yes.

MR WILSON:  And that would satisfy - that would satisfy it, your Honour.

HIS HONOUR:  Yes, all right. 

I can say orders as per initialled draft, but it's highly illegible; I have read the full order into my reasons and there were two additions to it requested by Mr Clothier, which I made. 

I hope this can be resolved in some other way.  You don't want directions for the future conduct of this?  I suppose people want to go away and have a good think.

MR CLOTHIER:  I don't think we need any at the moment, thank you, your Honour.

HIS HONOUR:  All right.