FEDERAL COURT OF AUSTRALIA

Amalia Investments Ltd v Virgtel Global Networks NV [2009] FCA 39

PRACTICE AND PROCEDURE – ex parte application for freezing order – circumstances where freezing order appropriate – whether order would prevent frustration or abuse of process

Held: Application dismissed.

Federal Court Rules O 25A

Bridges Financial Services Pty Ltd v Brown [2008] FCA 992 cited

Elderslie Finance Corporation Ltd v Newpage Pty Ltd (No 4) [2007] FCA 500 cited

Virgtel Ltd v Zabusky [2006] QSC 66 cited

Virgtel Ltd v Zabusky [2006] QSC 241 cited

Virgtel Ltd v Zabusky [2008] QSC 213 cited

Virgtel Ltd v Zabusky (No 2) [2008] QSC 316 cited

AMALIA INVESTMENTS LTD, AMALIA ZABUSKY and HARVEY ZABUSKY v VIRGTEL GLOBAL NETWORKS NV, HENDRIK VAN LEEUWEN, MARIA ANTONIA JOSEPHINA ADRIANA VAN LEEUWEN-VAN HAL and VISCAYA ARMADORA SA

QUD 3 of 2009

COLLIER J

30 JANUARY 2009

BRISBANE

THE COURT ORDERS THAT:

1.                  Paragraphs B(1), (2), (3) of the Application be dismissed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

1                     Before me is an application filed 7 January 2009 seeking both permanent and interlocutory relief. The matter is listed on the docket of his Honour Greenwood J, however it came before me ex parte this morning as duty judge in relation to the interlocutory relief sought. The applicants have submitted that resolution of their claims for interlocutory relief is urgent.

2                     The applicants are, respectively, an unregistered foreign corporation incorporated in the British Virgin Islands, Mrs Amalia Zabusky, and Mr Harvey Zabusky. They are not legally represented. Order 4 r 14(2) provides that, except as provided by or under any Act, a corporation may not, without the leave of the Court, commence or carry on any proceeding otherwise than by a solicitor. Mr Zabusky has sought the leave of the Court to represent the first applicant with the assistance of Mrs Zabusky. This morning I granted leave for Mr Zabusky to represent the first applicant for the purposes of today’s hearing only.

3                     The interlocutory relief sought by the applicants is as follows:

1.         An order restraining the Respondents, whether by their servants or agents or howsoever otherwise, until further order from doing the following acts:

a.         Removing, or causing or permitting to be removed or taking any steps to remove, any of their assets out of the jurisdiction of this Court; or

b.         Disposing, transferring, charging, dissipating or diminishing or in any way dealing with their assets within the jurisdiction.

Whether in the case of the Second and Third Respondents, by the Second and Third Respondents personally or by the Second and Third Respondents’ servants or agents or any of them or otherwise; and whether in the case of the First and Fourth Respondents, by their directors, officers, servants or agents or any of them or otherwise.

2.         Without limiting the generality of paragraph 2, the assets of the Respondents within the jurisdiction include:

a.         Four Cost Orders in the amount of $282,307.19 in case 6547 of 2005 before the Supreme Court, Brisbane Registry or any future Costs Orders in the above Court proceedings;

b.         The sum of $650,000 deposited with James Conomos Lawyers of Level 16, 215 Adelaide Street, Brisbane, QLD 4001.

3.         An order requesting the Respondents and each of them within seven days of the service of this order upon them to make and serve on the Applicants an affidavit disclosing with full particularity:

a.         The full value of their assets whether within or without the jurisdiction of the Court

b.         The nature of all such assets

c.         Whether those assets are held in their own names or held jointly or held by nominees or otherwise on their behalf or on behalf of any of them

d.         The identity of all bank and other accounts in their sole names or jointly held by nominees or otherwise on their behalf and the sums standing to their credit in those accounts

e.         Any real estate or other assets, money or goods owned by them or any of them within or without the jurisdiction of the Court and the whereabouts of the same and the names and addresses of all persons who have or may have possession, custody or control of any such assets, money or goods at the date of service of this order; and

f.          Full statement of all transactions made in all assets of all transactions made in all assets listed in subparagraphs (a) to (e) from 1 November 2000 until the date of service of this order.

4.         An order granting leave to service documents on the Respondents by email to James Conomos Lawyers email address James@jcl.com.au and/or the Respondents email addresses hvl@broadnetcommunications.co.uk and/or dokeb@skynet.be and/or global.agt@tiscali.nl and/or rgcbv@worldonline.nl.

5.         An order granting leave to represent Amalia Investments Ltd to the third Applicant assisted by the Second Applicant.

BACKGROUND

4                     On 14 January 2009 Mr Zabusky filed a lengthy affidavit – some 303 paragraphs – in support of the interlocutory application. The affidavit sets out in some detail Mr Zabusky’s evidence as to the background of these proceedings. No evidence has been filed by other witnesses in respect of these proceedings.

5                     I have already noted the identity of the applicants. The first respondent is a company incorporated and registered in the Netherlands; the second respondent is director of both the first and fourth respondents, and the third respondent is the wife of the second respondent. In summary, the applicants claim that, notwithstanding a shareholder protocol executed on 20 October 2000 between the first applicant and the fourth respondents, shares of the first applicant in the first respondent were fraudulently misappropriated as a result of actions of the second, third and fourth respondents in 2003 and 2004.

6                     The second and third applicants and the first respondent to these proceedings have already been parties to extensive litigation in the Supreme Court of Queensland in respect of matters arising from the breakdown in relations between the parties: Virgtel Ltd v Zabusky [2006] QSC 66, Virgtel Ltd v Zabusky [2006] QSC 241, Virgtel Ltd v Zabusky [2008] QSC 213 and Virgtel Ltd v Zabusky (No 2) [2008] QSC 316.

FREEZING ORDERS

7                     Provision for freezing orders – more traditionally known as Mareva orders – is found in O 25A Federal Court Rules. In particular, O 25A r 2 and r 5 provide, inter alia, as follows:

2(1) The Court may make an order (a freezing order), upon or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.

2(2) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.

…

5(1) This rule applies if:

(a)…

(b) the applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in:

(i) the Court; or

(ii) in the case of a cause of action to which subrule (3) applies – another court

…

5(4) The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur:

(a)        the judgment debtor, prospective judgment debtor or another person absconds; or

(b)        the assets of the judgment debtor, prospective judgment debtor or another person are:

(i)         removed from Australia or from a place inside or outside Australia; or

(ii)        disposed of, dealt with or diminished in value.

…

5(6) Nothing in this rule affects the power of the Court to make a freezing order or ancillary order if the Court considers it is in the interests of justice to do so.

8                     Federal Court of Australia Practice Note 23 issued 5 May 2006 supplements O 25A and addresses the Court’s usual practice relating to the making of a freezing order. In particular, the Practice Note provides that, inter alia:

·                    the purpose of a freezing order is to prevent frustration or abuse of the process of the Court, not to provide security in respect of a judgment or order (para 5);

·                    a freezing order should be viewed as an extraordinary interim remedy because it can restrict the right to deal with assets even before judgment, and is commonly granted ex parte (para 6);

·                    the duration of an ex parte freezing order should be limited to a period terminating on the return date of the motion, which should be as early as practical (usually not more than a day or two) after the order is made, when the respondent will have the opportunity to be heard. The applicant will then bear the onus of satisfying the Court that the order should be continued or renewed (para 9);

·                    the order should exclude dealings by the respondent with its assets for legitimate purposes, in particular payment of reasonable legal expenses (para 12);

·                    as a condition of making a freezing order, the Court will normally require appropriate undertakings by the applicant to the Court, including the usual undertaking as to damages. If it is demonstrated that the applicant has or may have insufficient assets within the jurisdiction of the Court to provide substance for the usual undertaking as to damages, the applicant may be required to support the undertaking by providing security (para 16 and para 17);

·                    the applicant for a freezing order should, inter alia, provide information about the cause of action including the basis of the claim for substantive relief, the amount of the claim, and, if the application is made without notice to the respondent, the applicant’s knowledge of any possible defence.

SUBMISSIONS OF THE APPLICANTS

9                     The submissions of the applicants in support of their claims for ex parte interlocutory relief are relatively brief. In summary:

·                    the applicants claim loss and damages resulting from the alleged theft of the first applicant’s shares in a telecommunications company in Nigeria by the respondents;

·                    the respondents are foreign corporations and individuals;

·                    the only assets of the respondents in Australia are:

o              the proceeds of four successful costs orders following the successful outcome for the respondents (against the applicants) in proceedings in the Supreme Court of Queensland (BS 6547 of 2005); and

o              the sum of $650,000 held in the trust account of the first respondent’s solicitors, which sum the applicants submit represented the amount ordered by the Supreme Court of Queensland to be paid by the first respondent as security for costs and undertaking for costs and damages in relation to BS 6547 of 2005;

·                    the second, third and fourth respondents have assets overseas;

·                    because the respondents are foreign, they can disappear at will with those assets;

·                    once the assets are out of Australia, the Court has no jurisdiction over them;

·                    the parties are also involved in litigation in Nigeria;

·                    the reasons for the ex parte application are to prevent the respondents removing the assets in Australia precipitously, and because Mr Zabusky fears physical harm from the second respondent.

CONSIDERATION

10                  I am not satisfied on the evidence before me that an ex parte order freezing assets of the respondents is warranted. I form this view for the following reasons.

11                  First, in my view, even assuming for the moment that the applicants’ substantive case against the respondents is such that there is a serious question to be tried, there is no evidence before me of a danger that a judgment in the applicants’ favour would be wholly or partly unsatisfied because the respondents or any of them might abscond, or that assets within Australia would be removed, disposed of, dealt with or diminished in value. It is clear from the affidavits of Mr Zabusky and his submissions in Court this morning that the key events from which the applicants’ claims arise occurred between 2000 and 2004. There is no evidence of any more recent developments which suggest that assets currently held by the respondents in Australia or overseas are at risk of dissipation.

12                  Other than the claims of the applicants as to the conduct of the respondents in 2003 and 2004, which are not substantiated otherwise than in the affidavits of Mr Zabusky, this is not a case where, for example, there is compelling evidence that funds previously have been inappropriately dissipated (cf Elderslie Finance Corporation Ltd v Newpage Pty Ltd (No 4) [2007] FCA 500, Bridges Financial Services Pty Ltd v Brown [2008] FCA 992). No evidence has been produced to me that the respondents are in any way at risk of disappearing or dissipating their assets, other than the suspicions of the applicants. Indeed in his affidavit sworn 30 January 2009 and filed in Court this morning, Mr Zabusky identified extensive properties in Europe and Africa, including real properties, which he submitted were assets of the respondents potentially available to satisfy a judgment against the respondents. I am fortified in this conclusion by the fact, as demonstrated both by the submissions of the applicants and the publicly-available decisions of the Supreme Court of Queensland in related litigation, the respondents have submitted themselves to the Supreme Court of Queensland over a period of several years (as is clear from such decisions as Virgtel Ltd v Zabusky [2006] QSC 66, Virgtel Ltd v Zabusky [2006] QSC 241, Virgtel Ltd v Zabusky [2008] QSC 213 and Virgtel Ltd v Zabusky (No 2) [2008] QSC 316); have, I understand from the submissions of the applicants, paid significant sums of money into the trust account of their solicitors as ordered by the Supreme Court; and currently retain solicitors in Queensland.

13                  Second, the assets of the respondents which are the subject of the applicants’ claims include moneys ordered by the Supreme Court of Queensland to be paid to the first respondent by the applicants in related litigation: Virgtel Ltd v Zabusky [2006] QSC 66. I need make no findings at this stage as to the overlap (if any) between issues raised in the substantive proceedings in this Court and the litigation conducted in the Supreme Court of Queensland. However to the extent that an order of this Court can potentially frustrate a costs order made by another Court, no submissions have been made which suggest that such an order by this Court is either necessary or desirable. I do not accept that there is anything sinister associated with what I understand from Mr Zabusky’s submissions to be the intention of the first respondent to transfer the proceeds of its successful costs orders from Australia – indeed this strikes me as unexceptional given that it is likely the costs orders merely reimburse the first respondent for legal costs already paid.

14                  Further, although Mr Zabusky submitted in Court that the applicants’ debt to the first respondent in respect of costs constituted an asset which could be the subject of a freezing order, I am not persuaded on these facts that it is an asset which could be the subject of such an order within the terms of O 25A. I make this observation particularly in light of the ex parte nature of the application before me.

15                  In any event, I note the proposition advanced in the Practice Note that a freezing order should exclude dealings by the respondent with its assets for legitimate purposes including payment of reasonable legal expenses. Any monies paid by the applicants to the first respondent in respect of legal costs incurred in respect of related litigation in my view falls into the category of assets used by the respondents to pay “reasonable legal expenses”, and prima facie should not be the subject of a freezing order. The fact that the applicants may suffer financial difficulties conducting the litigation in this Court once they have paid the first respondent the monies ordered by the Supreme Court is not germane to the grant of a freezing order within the terms of O 25A.

16                  Third, I understand from the submissions of Mr Zabusky that the assets of the respondents which are the subject of the applicants’ claims include $650,000 ordered to be paid by the Supreme Court of Queensland into the trust account of the first respondent’s solicitor in support of an undertaking by the first respondent as to costs and damages. In my view it would not be appropriate for this Court to make an order affecting with those monies in the absence of clear information identifying the circumstances surrounding the deposit of those monies.

17                  Fourth, the fact that the respondents are foreign corporations and foreign individuals does not automatically warrant an order freezing their assets pending a successful claim by the applicants to these proceedings. As the Practice Note states, an application for a freezing order is not to be confused with an application for security for costs. In my view the terms of the application before me are suggestive of a security for costs application pursuant to O 28 Federal Court Rules rather than a claim for a freezing order.

18                  As stated in the Practice Note, a freezing order is an extraordinary interim remedy. It should only be granted in exceptional circumstances. In my view the circumstances of this case do not warrant such an order.

19                  Finally, this morning the applicants did not press their claim under para B(4) of the Applicant. Accordingly I make no order in relation to this aspect of the claim.

Associate:

Dated:         30 January 2009