FEDERAL COURT OF AUSTRALIA

Hathway (Liquidator), in the matter of Tightrope Retail Pty Ltd (in liq) v Tripolitis [2015] FCA 1003

IN THE MATTER OF TIGHTROPE RETAIL PTY LIMITED (IN LIQUIDATION) AND TIGHTROPE WHOLESALE PTY LIMITED (IN LIQUIDATION)

THE COURT ORDERS THAT:

1.    Pursuant to Rule 7.33 of the Federal Court Rules 2011, the first plaintiff have leave to cross-examine John Tripolitis on his affidavit sworn 6 July 2015 in response to Order 5 of the Orders made by Justice Foster on 18 May 2015, on such matters as the Court may later direct.

2.    Pursuant to Rule 7.33 of the Federal Court Rules 2011, the first plaintiff have leave to cross-examine Kristiana Tripolitis on her affidavit sworn 6 July 2015 in response to Order 5 of the Orders made by Justice Foster on 18 May 2015, on such matters as the Court may later direct.

3.    Pursuant to Rule 7.33 of the Federal Court Rules 2011, the first plaintiff have leave to cross-examine Anneliese Tripolitis on her affidavit sworn 6 July 2015 in response to Order 5 of the Orders made by Justice Foster on 18 May 2015, on such matters as the Court may later direct.

4.    Pursuant to Rule 7.33 of the Federal Court Rules 2011, the first plaintiff have leave to cross-examine Robyn Tripolitis on her affidavit sworn 12 June 2015 in response to Order 5 of the Orders made by Justice Foster on 18 May 2015, on such matters as the Court may later direct.

5.    The cross-examination of the first to fourth defendants shall take place on a date to be agreed between the parties and subject to the Court’s availability. The parties’ representatives should email my Associate within 7 days of the date of these orders with agreed available dates.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF TIGHTROPE RETAIL PTY LIMITED (IN LIQUIDATION) AND TIGHTROPE WHOLESALE PTY LIMITED (IN LIQUIDATION)

REASONS FOR JUDGMENT

Background

1    On 18 May 2015, the plaintiffs commenced proceedings by way of originating process against six named defendants: John Tripolitis, Kristiana Tripolitis, Anneliese Tripolitis, Robyn Tripolitis, AMTK Company Pty Limited and The Tripolitis Corporation Pty Limited.

2    On that day an interlocutory process was also filed pursuant to which, amongst other things, an order was sought that the first, second, third and fourth defendants each swear and serve on the plaintiffs an affidavit setting out their respective assets in Australia and world-wide including various details in relation to those assets. That application came before Foster J. Among other things, his Honour made orders on an interim basis pursuant to section 1323(3) of the Corporations Act 2001 (Cth) (the Act) restraining the first, second and fourth defendants from dealing with specified real property assets and made an order in the following terms:

5.    Within fifteen (15) working days from the date of these Orders, each of the first, second, third and fourth defendants swear and serve upon the plaintiffs an affidavit setting out his or her assets in Australia and world-wide, their value, location and details (including any mortgages, charges or other encumbrances to which those assets are subject) and the extent of the interest of each of them in each individual’s assets.

3    The interlocutory process was stood over for further hearing before the Commercial and Corporations duty judge on 27 May 2015.

4    On 27 May 2015, the interlocutory process came before Yates J. At that time, among others, his Honour made orders pursuant to section 1323(1) of the Act, until further order, restraining the first, second and fourth defendants from dealing with the same specified real property assets the subject of the interim orders made by Foster J on 18 May 2015 and ordered that the time for compliance with Order 5 of the Orders made by Foster J on 18 May 2015 be extended until 17 June 2015.

5    On 16 July 2015, Gleeson J ordered by consent that pursuant to section 1323(1) of the Act, until further order, the first and fourth defendants be restrained from dealing with any interest they may have in a further real property asset.

6    On 1 September 2015, the first plaintiff (the Liquidator) filed an interlocutory process seeking orders that, pursuant to r 7.33 of the Federal Court Rules 2011 (the Rules), he have leave to cross-examine each of the first, second, third and fourth defendants on their affidavits sworn and served pursuant to Order 5 made by Foster J on 18 May 2015, on such matters as the Court may later direct.

7    In support of that application the Liquidator relies on an affidavit sworn by him on 28 August 2015.

8    Each of the first, second, third and fourth defendants has served his or her affidavit in response to Order 5 made by Foster J on 18 May 2015 (the Affidavits of Financial Position). The current application arises out of the content of the Affidavits of Financial Position. In each case the Liquidator has set out in his affidavit the matters on which he wishes to cross-examine each of the first, second, third and fourth defendants arising out of the Affidavits of Financial Position.

Submissions

9    Counsel for the Liquidator submitted that over a three year period approximately $22 million had been transferred out of the bank accounts of the plaintiff companies and into bank accounts controlled by the defendants. The application of some of these funds has been identified, including having been traced into properties that are the subject of the current freezing orders. However, the balance, being the majority of the funds, remains unaccounted for.

10    The Affidavits of Financial Position do not disclose any assets beyond those already identified by the Liquidator, limited incomes and, in some cases, significant liabilities to the Tax Office.

11    The Liquidator seeks the order as ancillary to a prospective freezing order. The Affidavits of Financial Position raise issues and some inconsistencies upon which the Liquidator wishes to examine each of the first, second, third and fourth defendants to ascertain where the balance of the missing funds has gone.

12    Against this, counsel for the first to fourth defendants submitted as his primary position that:

(1)    the orders made to date are freezing orders preventing dealings with certain assets. Accordingly, the income and expenditure of the defendants is not relevant. The defendants do not presently seek to vary the freezing orders to allow them to deal with the assets in order to meet their expenses;

(2)    principally the Liquidator wishes to cross-examine on matters which go to ascertaining income and expenditure of the defendants rather than identifying further assets;

(3)    the issues about which the Liquidator wishes to cross-examine are not related to the freezing orders that have been made and thus the orders sought are not ancillary orders and should not be made;

(4)    the issues raised by the Liquidator would only be relevant if one of the defendants sought to vary the freezing orders, putting their income and expenditure in issue and, if so, providing an affidavit upon which they could then be cross-examined;

(5)    the Liquidator’s evidence is that he wishes “to better understand” various matters arising from the affidavits of financial position. He does not say that he is concerned that there may be other assets available to the defendants from which income is derived and an inference to that effect cannot be drawn from his evidence. On that basis, there is no foundation for the Liquidator’s purpose in seeking the order as ancillary to a prospective freezing order.

13    In the alternative, counsel for the first to fourth defendants submitted, based on the decision in Kodak (Australasia) Pty Limited v Cochran (1996) (unreported, Supreme Court of NSW, Brownie J, 4 April 1996) (Kodak), that it was only in a very unusual case that such cross-examination ought take place and that it was inappropriate in the circumstances of this case. He further submitted that, in the interests of the “just, quick and cheap” running of the proceedings, the appropriate order for the Court to make, should there be an issue that the defendants have failed to address, is for the provision of supplementary affidavits rather than cross-examination.

Consideration

14    Rule 7.33 of the Rules provides as follows:

(1)    The Court may make an order (an ancillary order) ancillary to a freezing order or prospective freezing order as the Court considers appropriate.

(2)    Without limiting the generality of subrule (1), an ancillary order may be made for either or both of the following purposes:

(a)    eliciting information relating to assets relevant to the freezing order or prospective freezing order;

(b)    determining whether the freezing order should be made.

15    The power of the Court to order cross-examination on an affidavit disclosing assets has been considered in the context of Mareva injunctions.

16    In Planet International Limited v Garcia (No. 2) [1991] 1 Qd R 426, his Honour Justice Thomas quoted from the judgment of Lord Chief Justice Cumming-Bruce in House of Spring Gardens Limited v Waite [1985] FSR 173 (House of Spring Gardens) at 183:

“The court has the power (and, I would add, the duty) to take such steps as are practicable upon an application of the plaintiff to procure that where an order has been made that the defendants identify their assets and disclose their whereabouts, such steps are taken as will enable the order to have effect as completely and successfully as the powers of the court can procure.”

and –

“The purpose of the cross-examination would be to elicit with greater particularity the extent and the whereabouts of the defendants’ assets. The background of applications for Mareva injunctions is often a situation in which it is urgently necessary for the court to intervene in order to assist the plaintiff to prevent the defendant from frustrating the object of the proceedings. In such a situation an order to cross-examine upon an unsatisfactory affidavit already filed is one of the courses that the court has jurisdiction to take. When such cross-examination takes place it is entirely a matter for the judge presiding on cross-examination properly to control it.”

17    His Honour went on to note at 427 that:

Mr Lyons Q.C. on behalf of the respondent Mr Garcia submitted that courts are slow to make such orders. I am not sure that that is correct, although I acknowledge that the defendants need protection from being treated as “debtors in advance” as Lord Ackner acknowledged in A.J. Bekhor and Company Limited v. Bilton [1981] Q.B. 923, 942; [1981] 1 Lloyd’s Rep. 491, 500. Also fishing expeditions must be prevented if that seems to be the object of the exercise. However it seems to me that the matter is at large and that it will depend upon the facts and circumstances of each particular case whether the exercise is unduly oppressive, unnecessary, insufficiently relevant, or whether the affidavit plainly requires better exposition that the deponent is prepared to give without the stimulus of cross-examination.

18    In Kodak, Brownie J observed that it would be a very unusual case where a plaintiff would be permitted to cross-examine a defendant or a witness for a defendant upon an affidavit filed in connection with the granting of a Mareva injunction. However, his Honour also relied on House of Spring Gardens saying in relation to that case that:

At 181 his Lordship, having stressed the need for a court to be careful to ensure that a Mareva injunction is not used as a weapon to oppress a defendant, said that a court may properly take the view that the calling or re-calling of a defendant for cross-examination on his affidavit is the only just and convenient way of ensuring that the exercise of its jurisdiction will be effective to achieve its purpose by ensuring that all the relevant assets are identified before any opportunity arises for their dissipation.

19    More recently, in Universal Music Australia Pty Ltd v Sharman License Holdings Ltd (2005) 228 ALR 174, Moore J, in considering whether deponents of affidavits disclosing assets in aid of a Mareva order ought be cross-examined, summarised the authorities as they then stood before noting at 184 that:

A Mareva order is protective of the court’s processes, including the efficacy of execution of those orders. Orders concerning disclosure affidavits and cross-examination can, in turn, be made to render the Mareva order more efficacious. This is the touchstone for determining whether leave should be given to cross-examine. A relevant consideration in determining whether leave should be given might, in an appropriate case, be the failure of the deponent of a disclosure affidavit to disclose assets completely or promptly or both. In such a case, leave might be given because doubts might arise about whether the deponent had understood and accepted the obligations and burdens imposed by the Mareva Order and the ancillary order requiring the disclosure affidavit. Cross-examination might be appropriate to test whether the disclosure affidavits fully revealed all assets on which the Mareva order operated and which might be available to satisfy any judgment. However, in other cases, other more significant factors might support the granting of leave to cross-examine.

20    I now turn to consider the circumstances of the application before me. I do not accept the primary submission of the first to fourth defendants that, given the nature of the freezing orders made to date, the income and expenses of each defendant is not relevant. The freezing orders that have been made relate to assets of which the liquidator has become aware to date. The order made for the provision of the affidavits of financial position was designed to identify all assets held by the first to fourth defendants, their location and status so that the Liquidator was aware of all assets. In providing those affidavits the first to fourth defendants have specified assets, liabilities, income sources and expenses.

21    The Liquidator seeks to inquire further into the detail of some of the matters included in those affidavits to ascertain certain matters including where those defendants might derive income in order to meet the various expenses included in the affidavits, to inquire into particular discrepancies or issues that arise on the evidence given and to ascertain how various liabilities have arisen. The object of the cross-examination is to test whether all assets have been disclosed.

22    I do not accept that the Liquidator’s evidence does not support the application currently before the Court. The Liquidator has set out in his affidavit that he wishes to better understand particular matters. It seems plain that, albeit politely, he is putting his position that he is concerned that there may be other assets available to the first to fourth defendants which have not been disclosed.

23    I endorse the view that an order for cross-examination ought not be made lightly. However, given that:

    funds have been moved from the plaintiff companies which were controlled by at least some of the defendants;

    it appears that those funds have been transferred into a bank account controlled by the defendants;

    only a small proportion of those funds have been located;

    the Liquidator owes duties to the creditors of the plaintiff companies; and

    there is a paucity of detail contained in the affidavits as to financial position,

this is an appropriate case in which to order cross-examination.

24    Taking into account the circumstances of this case, I consider that what is proposed is within the bounds of what is permitted and is a just and convenient way of ensuring that all relevant assets are identified before any opportunity arises for dissipation. The Liquidator has specified the issues which he wishes to investigate and on which he wishes to cross-examine. If the cross-examination is confined to those issues, as it properly should be, then it cannot be suggested that it is the Liquidator’s intention to embark on a fishing expedition.

25    In coming to this conclusion, I have considered counsel for the first to fourth defendants submission that, as an alternative, the Court should order the preparation and service of supplementary affidavits presumably addressing the matters raised by the Liquidator in paragraphs 19 to 33 of his affidavit sworn on 28 August 2015. I note that correspondence from the Liquidator’s solicitors to the defendants seeking further information consequent upon receipt of the affidavits as to financial position went unanswered. No explanation was proffered for that on behalf of the first to third defendants. The explanation proffered on behalf of the fourth defendant does not, in my view, provide an explanation as to why the information sought was not provided. The proposal to provide the information by way of affidavit was only made by counsel for the defendants in oral submissions in the face of the application to cross-examine. The resolution of matters according to law and as quickly, inexpensively and efficiently for all parties is a relevant consideration but it must be balanced against the circumstances of the particular matter, the nature of the orders sought and the interests of all parties. In the circumstances of this matter, I do not propose to accede to the alternate submission put that orders be made for the service of further affidavits.

26    I will make orders accordingly.

Associate:

Dated:    10 September 2015