FEDERAL COURT OF AUSTRALIA

Tadros v J & R Investment Services Pty Ltd [2007] FCA 1041

ASSET PRESERVATION ORDER – also known as freezing order – formerly Mareva injunction - whether objective fact test or subjective purpose test – purpose alone is not sufficient – high degree of caution appropriate – orders discharged.  

Fair Trading Act 1987 (NSW)

Federal Court Rules 

Partnership Act 1892 (NSW)

Trade Practices Act 1974 (Cth)

Beach Petroleum NL v Johnson (1992) 9 ACSR 404

Biscen Pty Ltd v Temsign Pty Ltd & Ors [1995] FCA 806

Cardile v LED Builders Pty Ltd (1999) 198 CLR 380

Consolidated Constructions Pty Ltd v Bellenville Pty Ltd [2002] FCA 1513

Hayden v Teplitzky (1997) 74 FCR 7

Mount Lyell Mining & Railway Co Ltd v Roxson Companies Oy [1994] FCA 848

Northcorp Ltd v Allman Properties (Australia) Pty Ltd [1994] 2 Qd R 405

Patrick Stevedores Operations (No 2) Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 

Victoria University of Technology v Wilson [2003] VSC 299

Yenald Nominees P/L v Como Investments P/L (In Liquidation) (ACN 008 732 223) & Ors [1994] FCA 374

ANTHONY TADROS v J & R INVESTMENT SERVICES PTY LTD, JOSEPH WAKIM, RITA WAKIM, BEN KANNAN, SAYED EL-HAWACHE AND JAMES JOSEPH LAHOOD

NSD 1924 OF 2006

BUCHANAN J

11 JULY 2007

SYDNEY

THE COURT ORDERS THAT:

1.                  Orders 2 and 3 made by Bennett J on 25 May 2007 be vacated.

2.                  The amounts held in trust by James Lahood & Associates in the names of James Lahood and Rocco Ardino, being the net proceeds of the sale of 27 Urunga Street, Punchbowl, be paid as directed by the second and third respondents.

3.                  Order 1 made by Bennett J on 28 December 2006 be vacated.

4.                  Costs of the motion are reserved.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

BUCHANAN J:

1                     This judgment deals with a notice of motion to set aside orders made by a judge of this Court, as duty judge, restraining the disposition of certain assets of the second and third respondents.  I shall deal more particularly with those orders, and the foundation for them shortly.

2                     The proceedings before the Court in which the orders were made were commenced by application and statement of claim filed on 3 October 2006.  The proceedings arise from an alleged joint venture or partnership between the applicant and the first and/or second respondent.  The other respondents are alleged to be variously involved in ways it is not necessary to explore at present.  The statement of claim pleads reliance on the Trade Practices Act 1974 (Cth), the Fair Trading Act 1987 (NSW) and the Partnership Act 1892 (NSW).  The statement of claim is not in a satisfactory form.  In my opinion it does not comply with the requirements of the Federal Court Rules.  I have indicated on two earlier occasions that attention should be given to pleading the applicant’s case in a satisfactory way.  I have now made directions that an amended statement of claim be filed by 27 July 2007 and given further directions for the filing of defences and any replies.  However, those procedural matters do not bear directly on the present issue for decision.

3                     On 21 December 2006 the applicant filed a notice of motion, supported by affidavit, in which he sought, amongst other things, an order in the nature of an asset preservation order.  It was wide in its terms.  The affidavit contained a number of assertions and allegations of various kinds of wrongdoing by the respondents, principally the second respondent, Mr Joseph Wakim and, through him, the first respondent J & R Investment Services Pty Ltd.  The applicant alleged, amongst other things, a number of threats of violence by Mr Wakim against the applicant and his family and, of particular relevance to the matters with which this judgment is concerned, the following statements were alleged to have been made by Mr Wakim:

(on 17 June 2005)

‘James [Lahood – Mr Wakim’s solicitor and also sixth respondent] will help me get rid of all of my assets and will make it look like I own nothing …’

(on a number of occasions):

‘Just do as I say.  If you don’t, I will bankrupt you and your wife, you will have nothing left, and don’t think you are ever going to get anything out of me because all of my property will be shifted to other people and you’ll never find my money …’

(by telephone in late 2006 after the application and statement of claim had been served):

‘You will get nothing out of us.  There will be nothing for you to take.’

4                     Three properties were identified by the applicant’s affidavit as ones with which the second, third and fourth respondents might deal in a way to dispose of assets.  The second and third respondents were said to be the registered proprietors of a residential property at 27 Urunga Parade, Punchbowl which had been placed on the market on 8 April 2006 for auction, passed in unsold and remained for sale.  They were also said to be the owners of a property at 48 Stacey Street, Bankstown.  The fourth respondent and his wife were said to hold a third property, at 860 Hume Highway, Bass Hill on trust for the second and third respondents.

5                     On the basis of the allegations made in his affidavit about the stated intentions of the second respondent the applicant sought orders restraining divestiture by any of the first to fourth respondents of the properties I have identified and ‘all other valuable assets in the nature of cash, savings accounts, term deposits, shares, motor vehicles, and any interest in any business which they may own or have a beneficial interest in’.  The notice of motion came before the duty judge on 21 December 2006.  Orders for abridged service were made and it was stood over for hearing one week later.

6                     On 28 December 2006 when the matter came again before the next duty judge attention was concentrated on the three identified properties.  The solicitor for the first to fourth respondents, Mr Lahood, was away from Sydney and his office was closed for the Christmas season.  Arrangements were made for Mr Lahood to contribute to the proceedings (after they had commenced) by telephone.  The factual premise upon which the applicant proceeded on that day as suggesting urgency – that the property at 27 Urunga Parade, Punchbowl had been sold and completion of the sale was imminent – was later proved incorrect.  Indeed, Mr Lahood indicated to the duty judge that it was most unlikely that the proposed sale then in progress, relied on by the applicant, would proceed to completion.  The duty judge was persuaded, however, that no real prejudice would occur if, in order to deal with the fact that the application was brought urgently in a non-sitting period, a temporary requirement was imposed on the second and third respondents that any proceeds of sale of that property be placed into a joint account in the names of Mr Lahood and Mr Ardino (solicitor for the applicant) and on the second, third and fourth respondents to give notice in writing to the applicant of any proposal to divest themselves of any interest in the two other properties I earlier identified.  It was emphasised during the hearing that these arrangements were not to be regarded as fixed but were ‘only a holding situation’.  It should also be noted that these respondents have at no time in the proceedings accepted that the property at Bass Hill is held on trust for the second and third respondents.

7                     The duty judge made the following orders (so far as here relevant):

‘1.        The second, third and fourth respondents are to give to Mr Ardino, solicitor for the applicant, 48 hours’ notice in writing of any proposal or steps taken to divest or pass by any of them, any interest in the properties at 48 Stacey Street Bankstown 2200 and/or 860 Hume Highway Bass Hill 2190.  This is to include, without limitation, any listing for sale.

2.         The proceeds of sale of 27 Urunga Parade Punchbowl 2196, net of any payment to any mortgagee secured against the property and the legal costs of the transaction, and any other costs as agreed between the solicitors, be placed into a joint account in the names of James Joseph Lahood and Rocco Michael Ardino.

3.         The parties have liberty to apply on 48 hours’ notice, including liberty to apply with respect to any payment out of the joint account.’

Costs were reserved.

8                     For a considerable period of time the respondents took no action to set aside the orders.  In fact, as I have said, no sale went ahead at that time in relation to the property at 27 Urunga Parade, Punchbowl.  Subsequently a different contract for sale was made and the property has now been sold.  Despite the terms of the orders which were made the proceeds were not in fact put into a joint account but ultimately, by agreement, were placed in Mr Lahood’s trust account.  

9                     The matter went to mediation but did not settle.  On 25 May 2007 the second and third respondents filed a notice of motion seeking that Orders 2 and 3 made on 28 December 2006 be vacated.  The matter was dealt with again by Bennett J as duty judge.  On that day orders were made by consent in the following terms:

‘1.        Order 2 of the orders made on 28 December 2006 is vacated.

2.         The sale deposit for 27 Urunga Street, Punchbowl, currently held by “Bobb Real Estate” on behalf of the 2^nd and 3^rd Respondents, be paid (net of the agent’s commission) into the trust account of James Lahood & Associates to be held on trust in the names of James Lahood and Rocco Ardino until further order;

3.         The proceeds of settlement of the sale of 27 Urunga Street, Punchbowl be paid (net of legal costs and disbursements associated with the sale) into the trust account of James Lahood & Associates to be held on trust in the names of James Lahood and Rocco Ardino until further order;

4.                  The notice of motion filed on 25 May 2007 be stood over to 29 May 2007 before Buchanan J.’

10                  On 29 May 2007 I gave directions for the purpose of dealing with the notice of motion.  I directed that the second and third respondents file any evidence upon which they wished to rely by 12 June.  An earlier affidavit had been filed in support of the notice of motion.  Two further affidavits were filed on 13 June. 

11                  By an amended notice of motion also filed on 13 June 2007 the second and third respondents then sought the following orders:

‘1.        Orders one and two made by Her Honour Bennett J on 25 May 2007 be vacated;

2.         The amounts held in trust by James Lahood & Associates in the names of James Lahood and Rocco Ardino, being the net proceeds of the sale of 27 Urunga Street, Punchbowl, be paid to the Second and Third respondents forthwith; and

3.         Costs of this motion be the Second and Third respondents costs in the cause.’

12                  I am satisfied that the second and third respondents are really seeking to vacate Orders 2 and 3 made on 25 May 2007 (which were proposed to her Honour originally as orders marked 1 and 2.  Order 1 was added to the proposed orders by her Honour in handwriting and marked initially as Order 1A).

13                  The evidence of the second and third respondents on the motion consisted solely of evidence by Mr Rahal and Mr Lahood, both of James Lahood and Associates, Solicitors, conveying information to the Court on instructions.  At the hearing of the motion no objection was taken to the content of the affidavits and, in light of the fact that the proceedings are interlocutory in nature the evidence is not inadmissible merely because hearsay (see Evidence Act 1995 (Cth) s 75).  There is no evidence before the Court from any of the second to fourth respondents which denies the substance of the allegations earlier made which provide the (only) foundation for the orders at present in place. 

14                  The evidentiary case for the applicant is even weaker.  I indicated on 29 May 2007 to Mr Ardino, who has appeared consistently for the applicant, that the applicant should file and serve a further affidavit dealing specifically with the matters which arose for consideration in connection with the motion at present under attention and that I would not permit him to rely on the earlier affidavit.  I took the view that it was largely irrelevant and contained a good deal of prejudicial material which did not bear on the issues for decision.  Although I directed that the applicant file any evidence on which he wished to rely by 3 July no evidence was filed by the applicant, by that date or at all, for the purpose of dealing with the motion which I heard on 9 July 2007.

15                  Although no objection was taken to the content of the affidavits relied on by the second and third respondents Mr Ardino, solicitor for the applicant, sought an adjournment of the proceedings.  The application for adjournment appeared to be based on a collateral attack on the retainer of the solicitors acting for the third respondent.  It arose from two paragraphs in Mr Lahood’s affidavit disclosing that Mrs Wakim, the third respondent, suffers from bipolar disorder for which she receives treatment.  Mr Ardino sought to tender a letter from a psychiatrist opining that it could not be concluded, without further investigation, that she was capable of giving proper instructions to her legal representatives.  The opinion was not in an appropriate form to provide to the Court as an expert opinion and did not comply with the usual requirements.  I rejected the tender of the letter.  I declined to adjourn the proceedings.  Mr Ardino then indicated, in response to my question, that he wished to cross-examine Mr Rahal and Mr Lahood.  No other or prior notice had been given to the respondents.  In the circumstances I refused to allow cross-examination on the affidavits.

16                  As a result of the fact that the applicant had not filed any evidence, as directed, there was no evidentiary foundation upon which to resist the orders sought by the motion or suggest that the challenged restraints should remain in place.  Mr Ardino attempted to meet that difficulty by suggesting that it was necessary for the second and third respondents to prove some change of circumstance since the orders were made which might justify modification to them.  In my view that approach is misconceived for two reasons.  First, it is clear that the restraints imposed on 28 December 2006, largely with Mr Lahood’s co-operation, were strictly temporary and without prejudice to the right of the respondents to call them into question at a later time.  They did not represent even a prima facie view by the Court that any such restraint was necessary.  Secondly, upon examination, as is now possible, it is clear that the tests for the imposition of such restraints are not satisfied, and were not satisfied in the first instance.

17                  The orders which the applicant obtained from the duty judge on 28 December 2006 are asset preservation orders (earlier known as Mareva injunctions).  In Hayden v Teplitzky (1997) 74 FCR 7 Lindgren J examined the jurisdictional foundation for the grant of such relief.  He stated the issue for examination in the following terms (at 14):

‘The first question, a fundamental one, which arises on the applicants’ motion is:  What is the ground of the Court’s jurisdiction to grant Mareva relief?  In particular, is it a threatened dissipation of assets as an objective fact, or is it a subjective purpose, objective or aim of the defendant to render irrecoverable any judgment which the plaintiff may obtain?  If the former reflects the position, payment of a defendant’s only funds to discharge a debt will give jurisdiction, albeit the creditor is unrelated to the defendant, the genuineness of the debt is unassailable, and the proposed payment would have been made in the absence of the pending proceeding.  The defendant’s purpose would, however, be relevant to the exercise of the discretion whether to grant relief.  If, on the other hand, purpose is an essential element of the ground of jurisdiction, it is difficult to conceive of circumstances in which Mareva relief would be withheld in the exercise of discretion.’

(emphasis added)

18                  Lindgren J identified a line of authority (although it was not uniformly adhered to) illustrated by the judgments of von Doussa J in Beach Petroleum NL v Johnson (1992) 9 ACSR 404, the Queensland Court of Appeal in Northcorp Ltd v Allman Properties (Australia) Pty Ltd [1994] 2 Qd R 405, Sackville J in Mount Lyell Mining & Railway Co Ltd v Roxson Companies Oy [1994] FCA 848 and Carr J in both Yenald Nominees P/L v Como Investments P/L (In Liquidation) (ACN 008 732 223) & Ors [1994] FCA 374 and Biscen Pty Ltd v Temsign Pty Ltd & Ors [1995] FCA 806 which favoured the first approach.  His Honour said:

‘Although I am not bound by the line of authority represented by Beach Petroleum, Northcorp and the Mount Lyell, Yenald Nominees and Biscen cases, I would depart from it only if I thought that it was plainly wrong.  I do not think this and, accordingly, I propose to follow it.

There will be jurisdiction in the present case, therefore, if TOCNQ intends to do acts which will have the effect of rendering a judgment for damages obtained against it by the applicants in the present proceeding wholly or partly ineffective.’

19                  Carr J confirmed his view of the correctness of the principle identified by Lindgren J in Consolidated Constructions Pty Ltd v Bellenville Pty Ltd [2002] FCA 1513.

20                  If the line of authority within this Court is to be followed as I think in point of principle and for reasons of comity it should be, the focus of enquiry must be on whether there is adequate evidence of a likely dissipation of assets which would have the effect, objectively judged, of rendering a judgment wholly or partly ineffective.  In making that assessment it is permissible to have regard to any purpose declared by a relevant respondent but purpose alone could not be regarded as sufficient.

21                  The relevant principles were also comprehensively distilled by Redlich J in Victoria University of Technology v Wilson [2003] VSC 299 in the following way:

‘To maintain a Mareva or asset preservation order, as described by Kirby J in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 412 a plaintiff must show that it has a good arguable cause of action and that there is a real risk of dissipation of assets that the defendant has within the jurisdiction, such that any judgment would not be satisfied: See Cardile v LED Builders Pty Ltd; Jackson v Sterling Industries Ltd (1987) 162 CLR 612; Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49; Patterson v BTR Engineering (Aust) Ltd [1989] 18 NSWLR 319; National Australia Bank Ltd v Dessau [1988] VR 521 at 524; and Liquorland (Australia) Pty Ltd & Anor v Anghie & Ors. [2001] VSC 362 per Warren J.  The power to grant the order is part of the inherent jurisdiction of the court to prevent the frustration of its process: See Cardile v LED Builders Pty Ltd ip sid; Patrick Stevedores Operation (No 2) Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1 at 32; and Frigo v Culhaci [1998] NSWCA 17.  The court will not by injunction require a defendant to give security to a plaintiff's claim: See National Australia Bank Ltd v Bond Brewing Holdings Ltd. [1991] 1 VR 386 per Brooking J at 553.  A mere claim by the plaintiff that the defendants intend to place assets beyond the plaintiff's reach will be insufficient: See Frigo v Culhaci [1998] NSWCA 17.  The function of the Mareva order is to reduce the risk of an unscrupulous defendant seeking to render itself judgment-proof or to dispose of assets in a manner prejudicial to the plaintiff's ability to satisfy any potential judgment in the action: See Third Chandris Shipping Corp v Unamarine SA(The Pythia; The Angelic Wings: The Genie [1979] 1 QB 645; Jackson v Sterling Industries Ltd (1987) 162 CLR 612; Liquorland (Australia) Pty Ltd v Anghie & Ors ip sid and Western Australian Real Estate Investment Ltd v Pontoon Holdings Pty Ltd [1999] WASC 162 at paragraph 11 per Miller J.  See also Spry, The principals of equitable remedies Spry, ICF (2001) The principles of equitable remedies: specific performance, injunctions, rectification and equitable damages (6^th ed.) Pyrmont, NSW, Law Book Co. at 514 and Meagher et al, Equity: doctrines and remedies Meagher, R.P. et al (1992) Equity: doctrines and remedies, Sydney, Butterworths at paragraph 2185. The court will look to the effect rather than the purpose of the defendant's conduct in determining whether the court's processes are likely to be abused or frustrated: See Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49; Beach Petroleum N L v Johnson (1992) 9 ACSR 404; Northcorp Ltd v Allman Properties (Australia) Pty Ltd [1994] 2 Qd R 405; and Hayden v Teplitzky (1997) 74 FCR 7 per Lindgren J.  The court's power to make such orders is discretionary but, like other injunctive relief, the balance of convenience between the parties must also be considered: See Consolidated Constructions Pty Ltd v Bellenville Pty Ltd [2002] FCA 1513.  The granting of the Mareva order, even to an innocent plaintiff, can wreak havoc with a defendant's business: See Meagher et al para 2188 and Frigo v Culhaci et al.  Consequently, a high degree of caution is required when the court is invited to make such orders: See Cardile v LED Builders Pty Ltd [1989] 18 NSWLR 319, per Gleeson CJ at 325, Meagher, JA at 326 and Rogers AJA at 330-331. It is a drastic order which should not lightly be granted.’

(Citations in footnotes have been included in the text)

(Emphasis added)

22                  The consequence of applying these principles is, for the present applications, significant.  Even were I to take into account on the present motion the earlier, as yet untested, evidence of Mr Wakim’s declaration that he proposed to conduct himself so as to make his assets unavailable to meet any claim by the applicant there is no evidence of actual conduct from which it might be inferred that any of the respondents had in fact set upon a course to do acts which would have the effect of rendering a judgment against them wholly or partly ineffective.  Furthermore, there is no reason to suppose, if a judgment is given against any of the respondents, that means would not be available to identify and if necessary trace, any relevant assets.  Even taking shelter in insolvency would not inhibit a trustee or an administrator taking the usual steps to trace and obtain property which should properly be regarded as falling within a bankrupt or insolvent estate.

23                  An asset preservation order will not be lightly made.  It is not available just for the asking.  The principle concern is the efficacy of the court’s own processes but the courts are careful also to ensure that the interests of persons whose assets may be affected are also taken into account and protected.  In Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 the High Court confirmed as appropriate, in cases where Mareva injunctions were sought against parties to the proceedings and against whom final relief was sought, the following passage from Patrick Stevedores Operations (No 2) Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 33 (Cardile at p 400-401):

‘As Brennan J observed in Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 621:  “A judicial power to make an interlocutory order in the nature of a Mareva injunction may be exercised according to the exigencies of the case and, the schemes which a debtor may devise for divesting himself of assets being legion, novelty of form is no objection to the validity of such an order.”  The general principle which informs the exercise of the power to grant interlocutory relief is that the court may make such orders, at least against the parties to the proceeding against whom final relief might be granted, as are needed to ensure the effective exercise of the jurisdiction invoked.  The Federal Court had jurisdiction to make interlocutory orders to prevent frustration of its process in the present proceeding.’

(emphasis added)

24                  In Cardile the High Court was at pains also to emphasise the ‘high degree of caution’ which should be exercised before a Mareva injunction was made (see at [50] – [52]). 

25                  So far as the present motion is concerned there is no evidentiary foundation for a continuation of the challenged orders.  In my view no particular onus lies upon the second and third respondent in order to have those orders discharged.  Rather the onus lies upon the applicant to provide a suitable and satisfactory foundation for their continued existence.  That has not been done.

26                  In any event I should make it plain that I do not think that the applicant ever provided satisfactory material which sufficiently addressed the need for an objective evaluation of the effect of any alleged conduct of the second and third respondents.  Mere assertion in an affidavit that some declaration of general intent had been made is not enough to establish that the Court’s processes are likely to be abused or frustrated.  I intend no criticism whatsoever of the judge of this Court who made the orders at present under consideration.  Those orders were made urgently and in circumstances where the judge was at pains to emphasise to the applicant, and reassure the respondents, that the matter could readily be brought again before the Court in a less urgent fashion.  Now that has been done it is clear that the orders lack a proper foundation.

27                  In the circumstances I am satisfied that I should make the first of the orders sought in the present motion, save that the orders vacated will be Orders 2 and 3 of the orders made on 25 May 2007.

28                  Vacation of those orders should permit the moneys held in the trust account of James Lahood and Associates to be paid as directed by the second and third respondents but to make that clear I will make an order similar to that sought in Order 2 on the motion but stating that the moneys be paid as directed by the second and third respondents.

29                  I have so far dealt only with the orders made on 25 May 2007 as that is the only issue to which the notice of motion was directed.  Order 1 made on 28 December 2006 is not the subject of the notice of motion.  However, the foundation for that order was even more flimsy than the orders I have dealt with so far.  At first it was not sought at all but was added, initially in Mr Lahood’s absence, as a ‘protective measure’ although there was no indication available to the applicant of any specific intention by any relevant respondent to dispose of any interest in either of the Bankstown or Bass Hill properties.  Again, I intend no criticism of the judge who dealt with the matter on 28 December, 2006.  Necessarily, the matter was dealt with on very limited information and ultimately Mr Lahood did not resist the idea of a notification requirement in respect of these properties on a temporary basis.  However, I am satisfied that there was not any foundation established for Order 1 which would justify its continuation.  It is not appropriate that it be allowed to stand now that attention has been given to the circumstances in which the orders made on 28 December 2006 were sought and obtained.  It will be vacated also.

30                  The third order sought by the motion is that the costs of the motion be the second and third respondents’ costs in the cause.  Although I have concluded that certain of the orders earlier made should be vacated the respondents did not move quickly, as the judge of the Court who made the orders indicated was possible, to vary or vacate them.  The appropriate order is that costs be reserved.

Associate:

Dated:         11 July 2007