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[2022] QSC 194
The primary issue in this case was whether a Freezing Order made in respect of Mr Dunne extended to real property assets held by companies he controlled. The Freezing Order relevantly applied to assets owned or under the power of Mr Dunne, including shares. After that order was made, the respondent obtained caveats over properties held by three development companies of which Mr Dunne was the sole director and shareholder. Cooper J held that the Freezing Order did not extend to the assets of those companies. His Honour clarified that the primary question in such cases is always whether a judgment would be enforceable against the asset of that third party, such that a Freezing Order would achieve its purpose of protecting enforceability if granted.
Cooper J
12 October 2022
Background
On 17 October 2018, Justice Boddice made a Freezing Order against Mr Dunne and MP01 Pty Ltd (“MP01”) on an ex parte basis. [3].
Subsequent to the making of the Freezing Order, three companies (‘the development companies”) controlled by Mr Dunne purchased real property for the purpose of development. [4]. Mr Dunne was the sole director and shareholder of those companies. [11], [16], [20], [32]. The plaintiff in the principal proceedings (the respondent in the present application) lodged caveats over those properties, on the basis of s 122(1)(e) Land Title Act 1994 and the Freezing Order. [4].
Mr Dunne and MP01 then applied to the Court for clarification that the Freezing Order did not apply to the development companies, which in turn also filed an application for the removal of the caveats. [5]–[6].
The Freezing Order relevantly provided, at paragraph 13 of the order: [10]:
“For the purpose of this order, a defendant’s assets include:
(a) all of the defendant’s assets, whether they are in the defendant’s name and whether they are solely or co-owned;
(b) any assets the defendant owns as trustee;
(c) any asset which the defendant has power, directly or indirectly, to dispose of or deal with as if it were the defendant’s own (the defendant is to be regarded as having such power if a third party holds or controls the asset in accordance with the defendant’s direct or indirect instructions); and
(d) the following assets in particular:
…(iv) Any shares owned or held by a defendant.”
The applicant development companies argued that Mr Dunne’s assets, for the purpose of the Freezing Order, were limited to his shares in those companies and did not extend to the real properties those companies owned. [40]. To find otherwise, in the applicants’ submission, would be to inappropriately disregard the corporate veil. [40].
Decision of Cooper J
Justice Cooper held the Freezing Order did not extend to the real property held by the development companies. [94].
In arriving at this decision, his Honour relied upon English cases in which Freezing Orders applying to a sole director and shareholder’s assets were found not to extend to assets of the company itself. [41].
Assets of another, those cases reasoned, would not be available to satisfy judgment in the event of a successful claim – which is the purpose of a Freezing Order. [45], [55]. The English decisions emphasised that if a freezing order was to extend further, clear language to this effect must be used. [45]. Indeed, in respect of extending an order through lifting the corporate veil, “it is always necessary to show impropriety in the sense of a misuse of the company as a device or façade to conceal wrongdoing” (per Hilyard J in Group Seven Ltd v Allied Investment Corporation Ltd [2014] 1 WLR 735, [63]). This applies regardless of whether the company is controlled by a sole director and shareholder because it is ultimately the company that has the power to deal with its assets; others are merely acting as the company’s agents. [47].
The question of whether it is appropriate to extend a freezing order to a third party is to be answered by whether a judgment would be enforceable against the asset of that third party, for example, because these are beneficially owned by the defendant. [55]–[57].
Those principles, particularly looking to the purpose of a Freezing Order to protect enforcement of a judgment, are reflected in the Australian authorities. [66]. Those principles are summarised in the leading case of Cardile v LED Builders Pty Ltd (1999) 198 CLR 380. [67]. Relevantly, in cautiously determining the appropriateness of a Freezing Order:
“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 (plaintiff or defendant) in a proceeding or who is not holding, controlling or capable of disposing of the property of a party in that proceeding ... [but may be granted in cases] in which the third party holds or is about to hold or dissipate or further dissipate property to which the defendant is beneficially entitled in the substantive proceeding is too narrowly expressed; nevertheless, it will be a rare case in which a freezing order will be granted if such a situation does not exist…”. [67].
On the facts before Cooper J, his Honour found that para 13 of the Freezing Order, properly construed, did not extend operation of that order to the development companies. [76]. If Mr Dunne were, in his position as sole director and shareholder of the development companies, to cause those companies to deal with the caveated properties, he would be acting merely in right of and on behalf of the company and not directing it. [77]. The evidence in support of an inference that those properties were held by the development companies beneficially for Mr Dunne was insufficient. [78]–[82]. As the respondent failed to demonstrate how the development companies would become obliged to disgorge the caveated properties or funds in the event of a judgment against Mr Dunne, their argument for a Freezing Order against the development companies failed. [90]–[93].
His Honour went on to observe that each of the development companies were “assets of Mr Dunne which fall within the scope of the Freezing Order.” [39]. Thus, if Mr Dunne were to act in a manner that diminished the value of his shareholdings in those companies, this would contravene the Freezing Order. [39]. Thus, it would be unnecessary to extend a Freezing Order to the third-party company. [60], [118].
However, this fact did not assist the respondent in this case. [86]. Unlike the English authorities discussed, there was no evidence that the development companies were not trading or had no business, such that they were a “wallet” for Mr Dunne. [86]–[87].
Finally, his Honour found s 122(1)(e) Land Title Act 1994 would not allow a caveat to be sustained on the basis of a Freezing Order which was not directed to the registered proprietor. [98]–[106].
For these reasons, his Honour therefore ordered the caveats be removed. [119], [127].
Z Brereton of Counsel