FEDERAL COURT OF AUSTRALIA

Sebastian v Strongwall International Limited (Deregistered) [2011] FCA 1045

THE COURT ORDERS THAT:

1.    The respondents do file a minute of orders to reflect these reasons within 10 days.

2.    The applicants file written submissions in response to Professional Payment Services Pty Ltd’s claim for costs on an indemnity basis within 7 days.

3.    The applicants file written submissions in response to the respondents' minute of draft orders within 7 days of the orders being filed.

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

REASONS FOR JUDGMENT

INTRODUCTION

1    This is a slightly unusual commercial dispute. The parties are, in effect, arguing over entitlement to intellectual property notionally and, at least, beneficially held by a company which was deregistered more than a year ago. The dispute started its life in this Court in the form of an urgent ex parte injunction application to restrain disposal of and dealing with the property. The application was supported by extensive affidavit material asserting a conventional range of complaints. Interim and short term orders were made in order to preserve the status quo. Those orders, again ex parte, were both extended (until trial) and expanded to include a freezing order over the proceeds of a property sale due to a third party.

2    These reasons address motions to dismiss those orders. At least as far as the parties are concerned, it appears to be accepted, albeit for different purposes, that it would be desirable to have the deregistered company reinstated. That relief is expressly sought in the statement of claim and the re-amended application, although some doubt as to this relief seems to have been raised more recently. That issue, however, needs consideration separately. But the sensible desire of all concerned to achieve a reinstatement in an effort to resolve the dispute is a factor relevant to the determination of these motions. It is one factor relevant to the desirability of continuing the injunctive relief.

3    For reasons which follow, I consider that safeguards should be imposed to ensure that the property under dispute is preserved and secondly, that there remains something in existence worth the ‘candle’. Other than that, though, with those objectives achieved, the injunctions will be discharged.

BACKGROUND

4    The applicants are aggrieved shareholders in the first respondent (Strongwall). They pursue these proceedings against Strongwall, its managing director, the second respondent (Mr Hanna) and the third respondent (Remex).

5    Broadly speaking, the applicants, as shareholders of Strongwall, complain of misleading and deceptive conduct in relation to representations made by Mr Hanna or breach by Mr Hanna of his director’s duties and fiduciary duties in relation to Strongwall. The applicants’ case is that they have invested funds into Strongwall based on Mr Hanna’s representations and have continued their support based on continuing representations.

THE APPLICANTS’ CASE

6    Although the applicants’ statement of claim had not been filed at previous hearings, the statement of claim is a convenient and succinct starting point from which the applicants’ case can be understood. It reflects the arguments and evidence previously relied upon by the applicants.

7    As is apparent from the pleading, the events to which the applicants’ case pertains relate to a significant period of time. Strongwall was incorporated on 2 March 1999. It was deregistered on 25 July 2010. The deregistration was due to non-compliance with the Corporations Act 2001 (Cth) (CA). Returns were not filed. The company was moribund for several years.

8    Remex was incorporated on 20 February 1992. On 10 July 2011 it also became deregistered, presumably for much the same reasons. Prior to that time and during the period from February 1992, Mr Hanna was director and shareholder of it.

9    As at 20 July 2000, the issued share capital of Strongwall was 8.8 million $1 ordinary shares with 1.2 million issued options convertible to ordinary shares. In the period from 27 April 2001 to 24 July 2010, the issued share capital of Strongwall was 10 million $1 ordinary shares.

10    The shareholders of Strongwall, as at 20 July 2000, were:

    the first and second applicants (Mr and Mrs Sebastian) - 100,000 shares;

    the third applicant (Mr Lim) - 100,000 shares;

    the fourth applicant (Ms Leow) - 100,000 shares; and

    Mr Hanna – 8.5 million shares.

11    However, after this preliminary period, between 27 April 2001 and 24 July 2010, the shareholders of Strongwall were:

    Mr and Mrs Sebastian - 500,000 shares;

    Mr Lim - 500,000 shares;

    Ms Leow - 500,000 shares; and

    Mr Hanna - 8.5 million shares.

12    On or about 3 March 2005, Remex acquired ordinary shares in Strongwall without payment. As at the date of deregistration, having transferred 400,000 share to others between acquisition and deregistration, Remex held 8.1 million ordinary shares in Strongwall.

13    It is common ground that on 20 July 2000, Mr Hanna had developed a specific method of construction of house (and presumably other) walls. He applied under the Patent Cooperation Treaty (PCT) by PCT application number PCT/AU 98/00652 in various countries for the grant of patents based on this method which was known as the Strongwall Construction System (the Strongwall System). Patents were applied for and granted over a period from the late 1990s to mid-2000 in Australia, several Asian countries, the United States and South Africa.

14    At the early stages of commercial development of the company in 2000 and 2001, the applicants paid $1 for each $1 share in Strongwall’s share capital to a total of $1.5 million.

15    The original Share Offer made by Mr Hanna to the applicants on 25 May 2000 (the Share Offer), was in these terms:

SHARE OFFER

STRONGWALL INTERNATIONAL LIMITED (SIL) is a new unlisted public company limited by shares and incorporated in Perth Western Australia on the 2nd of March 1999 ACN 086 506 176.

SIL owns the Intellectual Property of the Strongwall Construction System which is a New invention for the modular construction of load bearing and non load bearing walls of the type used in the building industry in general and the housing industry in particular.

SIL intends to develop in stages and commercialize this new technology by raising seed funds to fund Phase 2 of this project (See Annexure A)

THE SIL SHARE OFFER

SIL is inviting offers for the purchase of up to 1,500,000 subscribers (sic-subscribers’) shares as per terms and conditions of the Constitution of Strongwall International Limited. This amount of subscribers’ shares on offer shall represent 15% of the issued Capital Share of SIL.

The offer applies to Australian and overseas Investors

Each application shall be limited to a maximum of 500,000 subscriber shares.

Applicants must use the application form attached with this offer document.

Each application must be made for a minimum of (100,000 ?) subscribers’ shares.

Each applicant will have the OPTION to acquire the balance of the limit of the 500,000 subscriber shares allotted to each application in the following manner:

1.    A further 150,000 subscribers’ shares, on call by the company, but not before three months from the date of issue of the first subscriber shares.

2.    The remainder or 250,000 shares to be acquired, On Call by the company, but not before six months from the date of issue of the first lot of subscriber shares.

Applicants will be advised three weeks beforehand of the “On Call” date. If the option shares are not acquired by the applicant and fully paid for within seven days from the date of call, then the option to buy all the remaining shares shall expire. The remaining option for shares then expires. The Board of Directors may decide to offer the same shares to other investors at any price they may see fit at the time.

SIL will be inviting one Investor who subscribes to this first offer, to join the Board of Directors. We are happy to extend this invitation to Mr. Stanislaus Sebastian.

PRICE

The cost of each subscribers’ share is (AU)$1.00

PAYMENT

Shares must be fully paid on application.

…

16    By agreement reached between the parties, the consideration payable by Mr Hanna for his 8.5 million ordinary shares in the share capital of Strongwall (85% of the company) was to be $1 plus the transfer and assignment to Strongwall of all his rights, title and interest in the Strongwall System including the patents. Although he paid the $1 as consideration for the 8.5 million ordinary shares, it is common ground that he did not transfer and assign any of the legal rights, title and interest in the Strongwall System or patents to Strongwall.

17    The applicants assert that Mr Hanna has in fact retained all of his rights, title and interest in the Strongwall System including his right, title and interest in the Strongwall patents. He has done so notwithstanding the deregistration of Strongwall on 25 July 2010. As will be seen, however, Mr Hanna does acknowledge that Strongwall is the true owner and that he is holding the interests on behalf of Strongwall.

18    The applicants complain that they were unaware of much of the affairs of the company. From the incorporation of Strongwall on 2 March 1999 until its deregistration on 25 July 2010, Mr Hanna was the managing director of Strongwall and controlled and was in charge of its business affairs and dealings. In the early stages, the applicants say that Strongwall had no cash and conducted no business until their investment by the acquisition of shares.

19    The applicants say that their investment was induced by representations made by Mr Hanna to the applicants (in trade and commerce) in order to induce them to purchase the shares, to induce Mr Sebastian to become a director to represent the interests of the other applicants, for the applicants to maintain their share ownership and for Mr Lim to lend moneys or to cause moneys to be lent to Strongwall and Mr Hanna.

20    Those representations, the applicants contend, were that Strongwall owned the Strongwall System and the patents (the ownership representation); that the patents were worth at least $10 million (the patents value representation); that Deloitte Touche Tohmatsu Limited (Deloitte) had valued the patents at $10 million (the Deloitte’s representation); that Mr Hanna at Strongwall would commercialise the Strongwall System and bring houses made with that System to market (the commercialisation representation); and, finally, that Mr Hanna at Strongwall would commercialise the Strongwall System and bring houses made with that System to market within approximately nine months (the market representation). The applicants say that in reliance on all those representations, they purchased the shares and Mr Sebastian became and acted as a director of Strongwall.

21    The case for the applicants is that the ownership representation, the patents value representation, the Deloitte’s representation and the commercialisation representation were in the nature of continuing representations which were reiterated (at non-specific dates) by Mr Hanna during the period between 20 July 2000 and 25 July 2010 when Strongwall was deregistered (the continuing representations). The applicants contend that in reliance on the continuing representations they continued to maintain the ownership of their shares in Strongwall until 24 July 2010 and Mr Sebastian during the period from 20 July 2000 to 1 August 2007 continued to act as a director of Strongwall representing the interests of the other applicants.

22    The representations, on the applicants’ case, were false. As at 20 July 2000 the ownership representation was false and incorrect as Mr Hanna had not transferred any of his rights, title and interest in the Strongwall System or the patents to Strongwall, the patent value representation was false as they were not worth $10 million and the Deloitte’s representation was false as Deloittes had not valued the patents at $10 million or at all.

23    The applicants also contend that as at the same date, insofar as the ownership representation, the patents value representation, the commercialisation representation and the market representation involved future representations as to future matters, they were false and incorrect as they were made by Mr Hanna without reasonable grounds. The falsity of the continuing representations was not at any time corrected by Mr Hanna during the period up until the deregistration of Strongwall. In particular, at no time were the rights under the Strongwall System or the patents transferred; further, Mr Hanna was unable to commercialise the Strongwall System, did not bring houses made with the Strongwall System to market and did not advise the applicants that during the relevant period Deloittes had not valued the patents at $10 million or at all.

24    In addition to the share acquisitions, Mr Lim, in reliance on the continuing representations, advanced funds to Strongwall and to Mr Hanna or caused those funds to be lent in the amount of SGD829,215.68 and SGD39,203.13 in 2009 and 2010.

25    The applicants contend that the making of the alleged false representations in trade and commerce by Mr Hanna contravened s 10 of the Fair Trading Act 1987 (WA). As at the date of deregistration of Strongwall, Mr Hanna had not transferred any of his rights or interests in the Strongwall System or the patents to Strongwall and had been unable to commercialise the Strongwall System or to bring houses made with that system to market. Strongwall at that date had no business, was unable to pay its debts as and when they fell due but the applicants were still (collectively) owners of 1.5 million $1 ordinary shares in the Strongwall share capital. The issued share capital of Strongwall was still 10 million $1 ordinary shares. Mr Hanna was no longer a shareholder in Strongwall having transferred his interest to his Family Trust, Ribbon Discretionary Trust, of which the Trustee was Remex.

26    The applicants complain that as a result of the alleged contraventions by Mr Hanna, their shares became worthless, Mr Lim lost the loan moneys and they are now aggrieved by the deregistration of Strongwall and Remex.

27    During the same period, (from 20 July 2000 to deregistration), it is asserted that Mr Hanna, as managing director of Strongwall, conducted its affairs in a manner which was contrary to the interests of the shareholders of Strongwall as a whole and in a manner which was oppressive and unfairly prejudicial to or unfairly discriminatory against the applicants as shareholders and thereby in contravention of s 232 CA.

28    Particulars of these alleged contraventions are said to include the failure of Mr Hanna, at any time during that period, to transfer his interests in the Strongwall System or the patents to Strongwall, notwithstanding his advice to accountants that the transfer had occurred. Thus he caused and permitted false company accounts to be prepared and lodged with the Australian Securities and Investments Commission (ASIC) for the years 2000, 2001, 2002 and 2003. A further particular of the contravention is that Mr Hanna did not disclose to the applicants that the formulation of the Polymer Concrete to be used to build houses made employing the Strongwall System could not be used because it emitted toxic gases when subjected to fire. It is said that when that fact did become apparent to the applicants, Mr Hanna then refused to disclose to them the formulation of alternative products from which the walls of the houses using the Strongwall System could be built. Also, in about 2007, Mr Hanna caused Strongwall to enter into arrangements with 2020 Construction Systems Pty Ltd (2020) which failed and caused 2020 to issue proceedings against Strongwall seeking damages in excess of $2 million. Mr Hanna settled those proceedings by agreeing to pay $500,000 to 2020 without the knowledge, consent or authority of the applicants.

29    Complaint is also raised that in about 2009, Mr Hanna caused Strongwall to enter into a licence arrangement with a company called Hadrian-Eco-Systems Pty Ltd (Hadrian). The licence agreement ‘failed’. Mr Hanna, however, it is said, failed to disclose to the applicants that he was a director of Hadrian and refused to provide to Mr Sebastian a copy of the licence agreement reached or any explanation as to the nature of the arrangement or its commercial purpose. There is also a complaint that Mr Hanna caused Strongwall to enter into a licence agreement with a Singaporean company, Newall Systems Pte Ltd (Newall) in or about November 2008. Again, that company in 2009 terminated the licence agreement on the ground, amongst others, that the licence was void because Strongwall was not the proprietor of the patents and hence the licence had no subject matter. It is complained that Mr Hanna nevertheless refused to transfer the patents to Strongwall.

30    A further complaint is that Mr Hanna caused Strongwall to be deregistered on 25 July 2010, in particular, by reason of the failure of the company to lodge annual returns. Rather, it is said, Mr Hanna repeatedly told Mr Sebastian that annual returns had not been prepared because the company had no money. However, Mr Hanna on behalf of Strongwall caused accountants to prepare statements for the year ended 30 June 2005 to 30 June 2010. Mr Hanna did not, however, disclose that fact to Mr Sebastian or the other applicants and did not use those accounts on which to base annual returns for Strongwall for those years to be lodged with ASIC. Also, Mr Hanna did not inform the applicants that Strongwall had been deregistered on 25 July 2010 but instead purported to act as director of Strongwall thereafter. According to the pleading, the first occasion on which the applicants learnt that Strongwall had been deregistered was said to be in February 2011.

31    It is also complained that Mr Hanna failed to cause all of the sum of SGD829,215.68 to be used for Strongwall’s purposes and to be recorded as a loan in the accounts of Strongwall as at 30 June 2010.

32    The applicants seek re-registration of Strongwall and Remex. (As noted (at [1]) the respondents also seek re-registration). The applicants seek re-registration so that they can pursue orders under s 233(1) CA or s 601AH(3)(b) CA for the removal of Mr Hanna as director of Strongwall to be replaced by Mr Sebastian and for other relief. The applicants have foreshadowed claims for orders to transfer all of the interest held by Mr Hanna in the Strongwall System and patents to Strongwall as well as various share acquisition arrangements which do not presently need to be considered.

INTERLOCUTORY RELIEF

33    The interlocutory relief restraining, amongst other things, the purported disposal of the patents was based upon evidence as to a belief that such a transaction was imminent. It is now accepted that there have been negotiations towards a transaction of that broad nature.

34    The various orders made by the Court until now, in substance have been:

27 June 2011:

1.    Until 4.00 pm on 11 July 2011, and upon the Applicants’ undertaking as to damages, an order is granted for an interlocutory injunction pursuant to section 23 of the Federal Court of Australia Act 1976 (Cth) (FCA) and/or section 232 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)) (ACL) restraining the Second Respondent by himself, his officers, servants and agents from selling, disposing of, encumbering, mortgaging or otherwise disposing or parting with any right, title or interest in:

1.    The Patents;

2.    Any other patent not listed but related to the Strongwall Construction System;

3.    Any intellectual property including but not limited to trade mark, designs and copyright related to the Strongwall Construction System.

ii    Offering for sale or entering into any contracts for the sale of any of his shares in Strongwall’s or Strongwall’s shares,

6 July 2011:

TO:    GEORGE KHALIL HANNA, LAILA HANNA, PROFESSIONAL PAYMENT SERVICES PTY LTD AND REMEX AUSTRALIA PTY LTD

…

This is a ‘freezing order’ made against you on 6 July 2011 by Justice Gilmour at a hearing with notice to you, George Khalil Hanna and Remex Australia Pty Ltd and without notice to you, Laila Hanna and Professional Payment Services Pty Ltd.

THE COURT ORDERS THAT:

1.    Laila Hanna and the second respondent pay the proceeds of any sale or settlement in the property described in the Western Australian Certificate of Title Volume 1177 Folio 713, being the property situate at 55 St Kilda Road, Rivervale in the state of Western Australia (the Property) forthwith into Court, net of the amount used to repay the Police and Nurses Society Limited; net of the amount of money required to be paid to Professional Payment Services Pty Ltd in consideration of the withdrawal of the caveat dated 4 June 2009 registered over the Property (the Caveat) and net of the usual costs incurred during the course of sale.

2.    Professional Payment Services Pty Ltd forthwith pay into Court the full amount of money paid to it in consideration of its withdrawal of the Caveat.

3.    The applicants serve Laila Hanna, the Police and Nurses Credit Society Limited, Professional Payment Services Pty Ltd and Viva Natural Stone Pty Ltd with the following documents: the application; the orders of McKerracher J dated 27 June 2011; the orders of McKerracher J revised on 1 July 2011; Affidavit of Stanislaus Sebastian sworn 27 June 2011; Affidavit of Stanislaus Sebastian sworn 5 July 2011; Affidavit of Ms Ashlee Jade Watts sworn 6 July 2011; these orders; and the written submission of the applicant dated 6 July 2011.

4.    Costs be reserved.

35    On 11 July 2011, following an ex parte hearing, all orders were extended until trial including liberty to apply.

EVIDENCE FOR THE RESPONDENTS

36    The occasion for the respondents to file a defence has not yet arisen but they also rely on a considerable amount of affidavit material.

37    It is helpful to explain a little of the respondents’ position to illustrate not so much what is in dispute but what is not in dispute. To the extent that there are factual disputes between the parties, this is not the appropriate time to resolve them. Nevertheless, except to the extent that matters may be inherently implausible, I would proceed on the basis that the applicants’ assertions are substantially correct. There is a deal of material in an affidavit sworn by Mr Hanna which, in effect, explains the common ground but to a lesser extent but perhaps more importantly, deals with the current state of affairs. Although the applicants would challenge or, at least, not accept Mr Hanna’s evidence as to the current state of affairs, there is no evidence to the contrary in relation to certain commercial developments and, indeed, there is corroboration for them.

38    Mr Hanna graduated from Curtin University in 1965 with a civil engineering degree and joined the Department of Main Roads. He worked there for some seven years as a bridge design engineer and approximately three and a half years as a bridge construction engineer. He resigned from the Department of Main Roads and started his own civil engineering company working in the design and construction of commercial, industrial and residential properties.

39    Mr Hanna commenced working on the Strongwall concept, he says, in about 1976 or 1977 and 20 years later was satisfied with all the engineering characteristics and practical aspects of the Strongwall System. He described what those qualities were and after being satisfied he had achieved seven ‘parameters’ which he had set for himself for design purposes, he initiated an application for a world patent through a firm of patent attorneys. He, as inventor, was the applicant for the patent. He contends the Strongwall System is a novel and innovative concept for walling that could replace the widely used conventional masonry and other walling applications which are ‘tedious and time consuming’. In this regard, he draws on supportive remarks made by the Commonwealth Scientific and Industrial Research Organisation (CSIRO) in 2005.

40    Mr Hanna had known Mr Sebastian since the early 1990s, having built a showroom warehouse building for him in Canningvale, Western Australia in the early 1990s and also through working in a family owned office supply business.

41    Mr Hanna denies he made the commercialisation representation but accepts that he had numerous discussions with Mr Sebastian and other interested investors prior to the Share Offer under which the applicants invested. In addition, Mr Hanna had shown Mr Sebastian the product and explained it to him. Mr Hanna says that he explained that there would need to be testing, appraisal and certification from a proper authority such as the CSIRO or a recognised university. The testing had to be carried out by an independent institution to establish that a building product such as the Strongwall System would be acceptable in terms of the Australian Standards and Australian Building Code. None of this process had been carried out at that stage. There was discussion about marketing but that was to occur after testing and the building of the prototype house to see how the Strongwall System worked. He says there was a great deal of ongoing discussion. As a consequence, the payments made by the applicants, were duly made for the share interest in Strongwall.

42    As to the value of Strongwall at $10 million, Mr Hanna explained the circumstances in which he was advised by Deloittes that a value of at least $10 million should be put on the business at that stage. That, in turn, was reflected in the content of the Share Offer. The advances were made and, soon after, Mr Sebastian was appointed as director. Mr Hanna described the ongoing dealings in 2000 and the involvement of Mr Sebastian in those dealings in relation to testing and promotion of the Strongwall System. There is a deal of disagreement between Mr Hanna and Mr Sebastian as to the extent of disclosure of information. Mr Hanna accepts that financial statements were not completed after 2004 because Strongwall did not have the money to pay accountants or auditors to do the work. But he says this was something of which Mr Sebastian was well aware. It is unnecessary for present purposes to go into that area of disputation in any detail.

43    As to the assignment of the patent, Mr Hanna says that by Contract for the Transfer of Assets by Offer and Acceptance dated 18 July 2000, he sold the international patent for the Strongwall System to Strongwall in consideration for his receipt of 8,499,999 ordinary shares in the company. This agreement is reflected, he says, in a written document together with minutes of the meeting of directors and financial statements and reports prepared by Deloittes. These included a reference to the issue of shares in consideration for the purchase of the Strongwall System. He accepts that the company is the beneficial owner.

44    In relation to the dispute with 2020, Mr Hanna contends that Mr Sebastian was closely involved with negotiations to enter into the licence agreement with 2020. Negotiations ensued over a period of months during which 2020 established a factory in Kwinana, Western Australia without knowledge of Strongwall to ‘try to copy our product on their own’. When negotiations with 2020 broke down, 2020 threatened to sue Strongwall for $2.4 million for damages and for misleading and deceptive conduct. The dispute was settled by payment by Strongwall to 2020 of $500,000. Legal fees incurred had been very substantial and Mr Hanna was of the view that he could not continue to keep paying them, thus it was necessary to settle the matter.

45    In order to fund settlement of the 2020 dispute, Strongwall received $180,000 from Professional Payment Services Pty Ltd (PPS). This enabled the payment of $150,000 by bank cheque as the first instalment of the settlement agreement with 2020.

46    In relation to Newall, Mr Hanna contends that there was a shareholders agreement entered into on 3 November 2008 under which Newall was to be incorporated in Singapore. Strongwall would own 25% of its shares. A Strongwall director of Newall would be appointed at the nomination of Strongwall. (Mr Sebastian was appointed a director of Newall). Working capital was to be provided to that company by Mr Chew.

47    Newall reported that they were having difficulties with the mix of the product and were unable to obtain the required specified strength in it. Mr Ong, managing director of Newall, travelled to Perth so that Mr Hanna could show him how to correctly mix the product to obtain the correct compressive and flexural strength. Mr Sebastian was present at some of the meetings over three or four days between Mr Hanna and Mr Ong when the mixes were discussed. Strongwall and Newall entered into a licensing agreement of which Newall is presently in breach but Mr Hanna claims that Strongwall has no funds to pay for legal proceedings against Newall.

48    In relation to Hadrian, Mr Hanna confirms the entry into the shareholders and licence agreement with Hadrian and Stonegate Innovations Ltd (Stonegate) under which Hadrian was to pay Strongwall a one-off payment of $1 million by way of licence fee and various other payments. The payments did not proceed beyond the initial two payments which totalled $200,000. That sum was deposited into the Strongwall bank account.

49    It was common ground that Mr Hanna borrowed, on behalf of Strongwall, SGD829,215.68 from Mr Lim. The entire sum, Mr Hanna says, was applied to the Strongwall business, although the signed agreement does (misleadingly) refer to ‘business and personal use’. A further SGD39,203.13 was borrowed for personal use. Mr Hanna also borrowed USD100,000 from Mr Chew Son Kim’s brother rather than Mr Chew as a personal loan as he had not received a salary from Strongwall for many years due to its inability to pay. Mr Hanna accepts that he owes the company $479,385 as reflected in his loan account. Conversely, he is owed funds from the company which would, if paid, enable him to repay the loan. Mr Hanna himself is in difficult financial circumstances. His only substantial asset is the 81% shareholding in Strongwall which was owned by the Family Trust of which the Trustee was Remex. The beneficiaries of the Trust are Mr Hanna, his wife and his three children.

Recent negotiations

50    Attempts have been made by Mr Hanna to sell his shareholding or part of it to Mr Lim who had communicated, according to Mr Hanna, that Mr Lim wanted 60% of the shares in Strongwall, was not interested in paying any money to anyone and was not willing to forgive debts owed to him by Strongwall or Mr Hanna. No concluded agreement was ever reached. Mr Hanna says that Mr Lim threatened to close down Strongwall and Mr Hanna.

51    Mr Hanna told him that he was going to sell his Strongwall shares into the open market. Mr Hanna gave evidence of an agreement reached with Mr Shehade who, together with colleagues, was willing to invest money into Strongwall and to pay its debts including money owed to Mr Hanna. This was the only opportunity Mr Hanna had to obtain the repayment of moneys owed to him by Strongwall. The agreement reached with Mr Shehade predated the injunction ordered by the Court. Mr Hanna makes the point, however, that unless the company is allowed to be reinstated and to continue to trade he will have no opportunity of receiving payment of the debts owed to him by Strongwall. It is unlikely, he says, that investors which Mr Shehade hopes to attract will be interested in putting capital into the company when a freezing order is in place. It is also unlikely but perhaps to a lesser degree, he says, that investors will want to put money into the company when the main proceedings remain on foot. Each of the parties in that regard seeks expedition of the proceedings.

Negotiations with Mr Shehade

52    Mr Shehade resides in Willetton, Western Australia and is a director of Viva Natural Stone Pty Ltd (Viva). His ‘business partner’, Mr Sam Taweel, had informed him that he had met with Mr Hanna to discuss the patented invention and the prospects of the Strongwall System. Both Mr Taweel and Mr Hanna are engineers. Following that report on 8 June 2011, Mr Shehade met with Mr Hanna and Mr Sebastian. There was no discussion about Strongwall at this first meeting. A meeting was arranged for the following day. Mr Hanna then promoted the Strongwall System to the directors of Viva, namely, Messrs Taweel, Shehade and Varrone. At that meeting, Mr Hanna explained his version of the negotiations and the dispute with Mr Sebastian and Mr Lim and that Strongwall held a number of patents in several Asian countries for the Strongwall System. He explained, after the meeting (to put it substantially in his terms), that the Singapore licensee, Mr Chew, who had been introduced to Mr Hanna by Mr Sebastian and who was a close friend of Mr Sebastian had ‘reneged’ on the licence and shareholders agreement and payments that were due from the previous year had not been paid by Mr Chew.

53    Viva reached an ‘in principle agreement’ through Mr Hanna, it is said, for Strongwall (although it had been deregistered for about a year at this stage) and Mr Shehade for Viva. Under that agreement Viva would support Mr Hanna to recoup moneys due from Singapore (Mr Chew and Newall) so as to pay debts owed to Mr Lim. Agreement was reached that Mr Hanna would transfer 51% of ‘his’ shareholdings to Viva and retain 30%. Viva would take actions on behalf of Strongwall to enforce the licence in Singapore and to protect the patent. Mr Shehade would be appointed managing director and that due diligence would be concluded. The agreement was conditional on the fact that the representations made by Mr Hanna were true in relation to the business of Strongwall.

54    Following these negotiations, Mr Shehade flew to Vietnam on a previously scheduled business and stopped off in Singapore to conduct due diligence in relation to the Newall licence and to establish the likelihood of successful legal action for the alleged breaches of the shareholders and licence agreements. He described, in considerable detail, not presently necessary to record, his investigations on that topic.

55    Mr Shehade has, (essentially as part of his due diligence), examined an extensive amount of correspondence in relation to the various disputes discussed by Mr Hanna. In addition to that, he has sought to develop the business model and to promote the company and the Strongwall System to potential investors. However, the current status of the Strongwall company, including restrictions placed on it by the Court by way of injunctions, has stopped his ability to take action to enforce the Singapore licence and shareholders agreements. He is limited in his capacity to develop the business model and to pay Strongwall’s debts. Nevertheless, Mr Shehade has purported to continue in his notional capacity as ‘managing director’ of the deregistered Strongwall, he says, until a final determination can be made. He says he was already actively involved in the Strongwall business in accordance with his agreement with Mr Hanna before these proceedings were commenced.

56    On 29 June 2011, Mr Shehade met with representatives from Macquarie Bank to introduce the Strongwall product and to discuss funding for the Strongwall business. Mr Hanna contacted him during that meeting to explain that he had just received court documents that morning. Mr Hanna requested that Mr Shehade assist him due to his being incapacitated by health difficulties. Macquarie Bank, he says, nevertheless are waiting to meet after the matter is resolved.

57    The difficulty for Mr Shehade in continuing the pursuit of his investment activity with Strongwall is also detailed. It is, in summary, that Strongwall is registered in Singapore as Strongwall (Singapore) Pte Ltd (Strongwall Singapore) of which Mr Lim is a director. Strongwall Singapore licensed Newall of which Mr Sebastian is a director as well as Mr Chew. Mr Chew and unknown persons changed the name, at least of Newall, to Buildgreen (ASIA) Pte Ltd (Buildgreen). Buildgreen is using the Strongwall patent without regard for Strongwall and Mr Hanna. Mr Sebastian says that each of the ‘three Singaporeans’ was aware that Mr Hanna was financially vulnerable and would be unlikely to mount a defence for Strongwall in Singapore or Australia. Viva, however, has agreed to fund the enforcement of the licence and shareholders agreements in Singapore and to protect the patents on behalf of Strongwall and its shareholders.

58    Mr Shehade deposed that Viva wished to reinstate Strongwall from its deregistration and is prepared to pay all of its dues to ASIC, pay any patent fees due, establish the board of directors, pursue debtors, develop a business model, raise capital, pay creditors, market Strongwall licenses abroad, establish a joint venture with companies from the coal or cement industry to build an Australian plant and to trade generally. None of that is possible at present, Mr Shehade says, while injunctions remain in place.

PROFESSIONAL PAYMENT SERVICES PTY LTD

59    It is common ground that the residential property owned by Mr Hanna and his wife (the St Kilda Road property) has been sold. It has been necessary to do so in order, amongst other things, to meet indebtedness due to PPS in respect of the guarantees given by Mr and Mrs Hanna of Strongwall’s indebtedness to PPS. (It will be recalled that PPS made available $180,000 to Strongwall to assist it in the settlement of the 2020 proceedings). In order to preserve the status quo, settlement on the sale of the St Kilda Road property was to proceed but the proceeds which would otherwise have been released to PPS were to be paid into Court until further consideration.

60    The applicants make several points about the PPS advance. The PPS advance of $180,000 was paid to Strongwall on 2 June 2009. It was due to be repaid six weeks later in the sum of $190,000. It followed that $10,000 interest was payable for a loan of only six weeks representing, it is said, a ‘usurious rate of interest’. The loan made under the loan agreement was unsecured but contemplated that there would be a charge granted over the interest by Mr and Mrs Hanna in the St Kilda Road property. The charge was to secure the interest under the guarantees. The applicants say there was no evidence that the contemplated charge was ever granted and accordingly PPS had no security in relation to the St Kilda Road property to support the guarantee. Thus it is said that PPS had no caveatable interest over or in respect of the St Kilda Road property. Notwithstanding this, a caveat over the property was lodged and registered. The applicants claim that it should not have been lodged or registered as there was no basis for an assertion as to a caveatable interest. PPS, it is argued, is seeking to elevate its position in relation to the property to one where it is a secured creditor of Strongwall via Mr and Mrs Hanna’s guarantee whereas, in fact, no security was ever granted. In addition, the Court should take into account the fact that the principal of PPS is related to Mr Hanna. The Court should not regard the transaction as being a bona fide arm’s length transaction. If the freezing order were lifted, $62,415.27, being the equity in the St Kilda Road property after payment out of the mortgage, would be paid to PPS rather than into Court so as to impermissibly give PPS priority over the applicants as though PPS were a secured creditor of Mr and Mrs Hanna.

61    As against that, PPS argues that it is not a party to the action in any way and no substantive claim is brought by the applicants against PPS. There is no judgment against Strongwall and the claim against Strongwall has not been proven. The only utility of a freezing order would be to create a fund to stand as a potential target for execution by the applicants in the event that they ultimately were to succeed against the respondents. Further, the effect of the freezing order would be to give the applicants priority or advantage over other creditors of Strongwall which they would not otherwise have. PPS say the funds sought to be frozen on the sale of the St Kilda Road property have nothing to do with the dispute nor is Mrs Hanna even a party to or the subject of any claim in the primary proceeding. There is no basis at all advanced to freeze and portion of the proceeds of sale representing Mrs Hanna’s interest or the claims of PPS in respect of such interests.

62    It is the mortgagee (a building society) which is selling the St Kilda Road property, rather than Mr Hanna, Strongwall or Mrs Hanna or PPS. From the perspective of PPS, the sum which would be recovered (some $60,000) is only one-third of the principal sum advanced.

63    It is also submitted for PPS that the Court should take into account the obvious weakness of the applicants’ case.

64    Although it is accepted by PPS that the Court has jurisdiction and power in an appropriate case to make a freezing order against a third party (s 23 of the Federal Court of Australia Act 1976 (Cth); O 25A r 4 and r 5(5) of the Federal Court Rules and r 7.34 and r 7.35(5) of the Federal Court Rules 2011) (the 2011 Rules), this is not such a case.

CONSIDERATION

The freezing order and PPS

65    As to the argument concerning the validity of the charge over the St Kilda Road property, there is no doubt that Mr Hanna had previously consented to the requirement that a caveat be placed over the property to secure the loan advance. No particular form of words is required in order to create a charge. The intention of the parties is clear from the terms of the contract and its commercial purposes. The intention by agreeing to the charge and the placing of the caveat was that the St Kilda Road property should be available, if necessary, for the payment of the debt under the loan. There is no basis to conclude that there is not any valid charge over the St Kilda Road property.

66    Freezing orders against third parties raise different considerations from those against a party to the proceeding. In Rafferty v Time 2000 West Pty Ltd (No 2) [2008] FCA 1931 (at [14]-[15]), Besanko J noted:

14    The Court has power under s 23 of the Federal Court of Australia Act 1976 (Cth) to make Mareva orders or (as they are referred to in the Federal Court Rules) freezing orders. A number of principles relating to the circumstances in which such orders may be made have been developed in the cases. For present purposes, it is sufficient to refer to Jackson v Sterling Industries Ltd (1987) 162 CLR 612; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 ("Cardile").

15    Cardile is of particular significance in this case because it concerned Mareva orders sought against third parties. In their joint reasons, Gaudron, McHugh, Gummow and Callinan JJ made a number of points. First, 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 (applicant or respondent) in a proceeding where judgment has not been obtained or execution recovered, or not holding, controlling or capable of disposing of the property of a party in that proceeding (at 401-402 [45]).

Secondly, the jurisdiction of the Court to grant Mareva orders against third parties is not limited to cases in which the third party holds or is about to hold or dissipate or further dissipate property beneficially owned by the defendant in the substantive proceedings. Nevertheless, if such circumstances do not exist, it will be a rare case in which a Mareva order will be granted (405 [54]).

Thirdly, the guiding principle in considering whether to grant Mareva orders against third parties is set out in the following passage from the joint reasons (at 405-406 [57]) (citations omitted):

What then is the principle to guide the courts in determining whether to grant Mareva relief in a case such as the present where the activities of third parties are the object sought to be restrained? In our opinion such an order may, and we emphasise the word "may", be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which: (i) the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including "claims and expectancies", of the judgment debtor or potential judgment debtor; or (ii) some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor.

Fourthly, there are a number of discretionary factors (referred to at 404 [53]) relevant to whether an order should be made and these include, but are not limited to, the following:

1.    Whether the applicant has acted in a timely fashion;

2.    Whether the applicant has obtained a money judgment in the proceeding; and

3.    Whether the applicant has a cause of action against the third party.

67    There is no judgment obtained against PPS or any other party. There is no liability of PPS to any applicant. The charged indebtedness to PPS appears to be genuine. The tone of communications between PPS and Mr Hanna do not suggest that either the charge or the debt is a contrivance of some sort. In my view, while the applicants may not have delayed in relation to seeking the freezing order against the funds due to PPS (although PPS contend otherwise), they have not instituted these proceedings in a timely manner as will be discussed below. Rather, for an extended time they appear to have stood by, perhaps waiting to see how commercial events unravelled. Regardless of delay, there are other difficulties such that the applicants otherwise fail to meet any of the other considerations discussed in the passage cited from Rafferty.

68    In particular, 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, Federal Court of Australia Practice Note CM9 issued 1 January 2010 and Jackson v Sterling Industries Ltd (1987) 162 CLR 612 per Deanne J (at 625)).

69    I accept the submission for PPS that the entry into of the loan with PPS, the sale of the relevant property by the mortgagee and the potential receipt of part payment by PPS, do not appear to relate to or arise out of any attempt to defeat the claims of the applicants (if found to be valid), to dissipate the assets of Mr Hanna or defraud legitimate creditors.

70    There is one difficulty in relation to this order in that it was made by another Judge, again, on an urgent ex parte basis. It would not usually be open to one judge to vary or vacate the order of another judge. (Rule 39.05 of the 2011 Rules reflects the previous position). However, the exception to this would appear to be that any judge may set aside the ex parte order of another judge (Minister of Foreign Affairs, Trade and Industry v Vehicles & Supplies Ltd [1991] 4 All ER 65 (at 70)). This, particularly when the affected third party to the proceeding on whom the ex parte order has been served, relies upon detailed evidence which was not originally before the court. (Capesail Nominees Pty Ltd v Ride [2002] WASC 29). (No criticism is raised as to this. The evidence as to the private transactions and communications between PPS and Mr Hanna would not have been known to the applicants). In the advice of the Privy Council in the first of these cases, their Lordships said (at 70-71):

An ex parte order is, in its nature, provisional only and Carey JA was plainly right in following and adopting what was said to this effect by Sir John Donaldson MR in WEA Records Ltd v Visions Channel 4 Ltd [1983] 2 All ER 589 at 593, [1983] 1 WLR 721 at 727 and by Lord Denning MR in Becker v Noel [1971] 2 All ER 1248, [1971] 1 WLR 803. Rowe P considered that s 564B, in providing for an appeal to the Full Court against a refusal of leave, impliedly ousted any reconsideration of the matter either by the same judge or by another judge. This, with respect, is a non sequitur and it would, if correct, produce the absurd result that, even in a case where an order had been obtained by deliberate concealment of material facts and misleading evidence, the judge who had been wrongly persuaded to make the order would be incapable of revoking it. All other considerations apart, it is provided by s 686 that:

'Where no other provision is expressly made by law or by Rules of Court the procedure and practice for the time being of the Supreme Court of Judicature in England shall, so far as applicable, be followed … '

Neither the Civil Procedure Code nor the rules contain express provisions relating to the discharge of ex parte orders but RSC Ord 32, r 6 provides in terms: 'The Court may set aside an order made ex parte.' Leave granted to institute proceedings for judicial review can, in an appropriate case, be revoked by a judge under this rule (see R v Secretary of State for the Home Dept, ex p Herbage (No 2) [1987] 1 All ER 324 at 335, [1987] 1 QB 1077 at 1092).

Their Lordships entertain no doubt that Ellis J was acting within his jurisdiction in making the order which he made on the appellant's application … In their Lordships' judgment, Ellis J was entitled, on an application properly made, in his discretion to vary or revoke the ex parte order which had been made by Clarke J and no ground has been shown for any interference by an appellate court with his exercise of discretion, which seems to their Lordships perfectly proper on the supposition, which everybody connected with the court seems to have adopted, that the order for a stay had some inhibiting effect.

71    PPS is entitled to its costs. It seeks them on an indemnity basis. PPS makes the following submissions to which the applicants have not yet replied:

34.    An applicant who resorts to the jurisdiction to obtain a freezing order must expect to pay all reasonable expenses and costs to which innocent third parties may be put by their actions: Project Development Co Ltd SA v KMK Securities Ltd [1983] 1 All ER 465 at 468; [1982] 1 WLR 1470 at 1473.

35.    The innocent third party should not be out of pocket in seeking to vary an injunction which has impacted adversely upon his rights and he may commonly be awarded costs upon an indemnity basis: Norilya Minerals Pty Ltd v Ireland (Intervener Commonwealth Development Bank of Australia) (1994) 12 WAR 485 at 488.

72    I would allow the applicants an opportunity to respond within 7 days to the PPS claim for costs on an indemnity basis.

The strength of the arguable case against the respondents

73    It does not appear to be in dispute that the relevant considerations are the balancing of the strength of the arguable case for the applicants on the one hand, with the balance of convenience on the other and in addition, considering the interests of justice generally.

74    I have from the outset in this proceeding expressed reservation about the time that has passed since the initial breaches and even the repetition of the breaches. That passage of time is relevant not only to the need for a party to act without delay when seeking injunctive relief but also to the question of whether a cause of action can be pursued at this point in time having regard to the date at which the representations were made and the damage said to have been suffered.

75    In summary it can be seen that the investments by the applicants to a total of $1.5 million was made on three occasions. The first was on 20 July 2000, the second on 21 October 2000 and the third on 27 April 2001.

76    However, even on the applicants’ version of their case, the misrepresentations giving rise to their investment appears to have been made at least 10 years ago.

77    The Share Offer refers to an estimated time to complete phase 2 as being six to nine calendar months. To the extent that any elements of phase 2 were not completed within that period, the applicants became aware by, say 2002 at the latest, that the process of ‘commercialising’ the product was not occurring within the estimated timeframe. It follows that it is more likely than not that an action based on the commercialisation representation in the Share Offer commenced to run in about 2002 and finished some three years ago in 2008. There may be arguments to the contrary. But more importantly, in terms of obtaining injunctive relief, the delay in pursuing such a course was far too long.

78    In relation to the patents value representation and the Deloitte’s representation, again, notwithstanding the difficulty with the admissibility of this material, the case advanced through Mr Sebastian for the applicants is that Mr Hanna informed Mr Sebastian (for the applicants) that he, Mr Hanna, had been advised by Deloittes that they had valued Strongwall at $10 million. While it is conceivable that this might be put other ways, for example, that Mr Hanna was personally adopting and verifying the Deloitte’s valuation, it does not appear to be strongly advanced that way by the applicants; to the applicants the apparent reason of engaging Deloittes would be to obtain their advice on valuation, amongst other things. Rather, Mr Sebastian seems to reflect the evidence of Mr Hanna that it was, in effect, Deloittes who had expressed the view that the value of Strongwall was $10 million. It is not clear at this stage that that representation (that Deloittes had valued Strongwall at $10 million) was false. It may be that Strongwall was not worth $10 million but the main thrust of the evidence, advanced for the applicants, appears to not be that Mr Hanna warranted that Strongwall was worth $10 million but, rather, that he advised Deloittes had so valued Strongwall.

79    It is not presently necessary or possible to determine the valuation issue. But the respondents also point to the fact that the case as to the value is weak as on Mr Sebastian’s own evidence, he offered potential joint venture partners, ‘RDC’ and ‘VDM’, a 10% equity in Strongwall for $15 million on 14 May 2004. It follows, therefore, that at that stage, Mr Sebastian himself was representing that 10% of Strongwall was worth $15 million which would value Strongwall at $150 million. Again, at about this time, ‘VDM’ offered $5 million on 12 March 2004 for 25% equity in Strongwall which would value Strongwall at $20 million.

80    More significantly in weighing initial impressions as to the strength of the applicants’ case, the applicants contend that the falsity of the representations as to the value of Strongwall were discovered in ‘about 2007’. If that was so, it is difficult to understand why Mr Lim would lend Strongwall a total of SGD829,215.68 after discovery of the falsity of these representations. Those amounts were advanced between 30 September 2009 and 17 May 2010.

81    Much was made for the applicants about the fact that the loan advanced by Mr Lim was advanced after Strongwall was, to the knowledge of Mr Hanna, deregistered. In fact, that is not so. The deregistration date was 25 July 2010. The agreement which acknowledges the indebtedness was dated 4 August 2010. Although there is an acknowledgement of the advances which post-dates the deregistration, the advances themselves were made according to the material before me in Mr Sebastian’s affidavit between 30 September 2009 and 17 May 2010 prior to deregistration of Strongwall.

82    It does appear that the initial deregistration was unknown to the applicants but, according to counsel for the applicants, they learnt of that material probably in October 2010. This was only say three months after the deregistration. (The pleading now suggests the date was February 2011). While there may be some explaining to do as to why the applicants were not earlier informed of the deregistration, the time lapse, at least at October is not, in the scheme of the applicants own delay in pursuing the application, of particular significance.

Ownership of the patent representation

83    The dealings with the patents, on the other hand, do not appear to reflect a model of business efficiency. The Share Offer received on 25 May 2000 by the applicants prior to their investment in Strongwall makes it clear that Strongwall owned the intellectual property of the Strongwall System. It may be accepted that it was intended to include the patents. The patents at that stage were, however, registered in Mr Hanna’s personal name. The reason for this appears to be because the application for the world patent was made prior to the incorporation of the company and prior to his dealings with the applicants.

84    It is something of a mystery that no steps were taken to assign or transfer the patents prior to deregistration of Strongwall ten years later. Nevertheless, counsel for the respondents has made it quite clear (in substance) that Mr Hanna will give any undertaking necessary to put beyond doubt that the patents were at all times intended to be the property of Strongwall and that upon re-registration of Strongwall, Mr Hanna will do all things that are necessary to ensure that Strongwall is protected as to its ownership rights in respect of the patents. Once that is done, the major part of the problem seems to be overcome. Assuming for present purposes that representations were made from time to time by Mr Hanna that the patents were being assigned to Strongwall, and putting aside for present purposes any question of expiry of a limitation period for any relevant cause of action, enforceable undertakings in relation to the patents would appear to be the most practical solution to this difficulty.

85    If I were to exercise my discretion in favour of the respondents to discharge the present freezing orders so that the subsisting negotiations may be pursued, arguably in the interests of all concerned, it would be on two conditions, one being that enforceable undertakings were given in relation to the ownership of the patents. The other relates to shareholdings under the control of Mr Hanna. I will come to this.

The negotiations with Viva

86    The only evidence before me at present is that at a date prior to the Court making any freezing orders, Mr Hanna agreed to transfer to Viva 51% of ‘his’ shareholding in Strongwall, once it was re-registered. The only remaining asset at the disposal of Mr Hanna, via Remex, is the 30% shareholding in Strongwall. Counsel for the respondents indicated that Mr Hanna has no intention of parting, at least in the foreseeable future, with that shareholding. It seems to me that that is a plausible assurance given that the only presently known way Mr Hanna’s asset can acquire any value is by re-registration of Strongwall and pursuit of the dealings with Viva to maximise the value of the company’s asset, its intellectual property. Even then, one cannot be confident on the present materials that the negotiations with Viva will have significant value but the question is whether I should discharge the injunction so as to permit the existing negotiations with Viva to continue and, if so, on what terms. Again, a viable term, not inconsistent with the assurance given by counsel, would be on condition that an enforceable undertaking be given that neither Mr Hanna nor Remex would not, without leave of the Court, dispose of the 30% shareholding in Strongwall held by Remex on the re-registration of both Strongwall and Remex, should that eventuate.

Further arguments for the applicants

87    The applicants also raised difficulties about requirements to be imposed by ASIC (such as appointment of a provisional liquidator) if Strongwall were to be reinstated. It is sufficient to say that for present purposes those difficulties should await another day as I do not propose, at this stage, to order the reinstatement of Strongwall but I can indicate that as both parties have sought the reinstatement, I expect to hear that debate in the near future and the question of whether or not the requirements of ASIC (in particular, the appointment of a provisional liquidator) can be considered in the context of that debate.

88    As to the general complaint advanced by the applicants that they were not given access to documents and financial records and information concerning Strongwall’s affairs, the records show that Mr Sebastian himself was a director until 2007 when he resigned.

Timing

89    I have mentioned the delay by the applicants in pursuing relief in respect of some of the representations.

90    There is a further concern as to the timing of the applicants’ proceeding and claim for relief. On their own case, they appear to have known of the majority of the misrepresentations for some time – perhaps two or three years. The application for injunctive relief emerged only when Mr Hanna declined to transfer 60% of ‘his’ 81% shareholding to Mr Lim for no consideration. I am mindful also that the applicants have made it clear that they seek a ‘readjustment’ of the shareholdings. The injunctive relief should not be a vehicle for another means of seeking to attain the commercial objective of acquiring the shareholding or part of the shareholding of Mr Hanna. It may or may not be, after a trial, that relief of such a nature should be granted but in the meantime, I would require to be satisfied that the applicants have demonstrated that they have quite a strong arguable case, given the low balance of convenience from the general commercial perspective, in order to continue the injunctive relief against dealing with the assets of Strongwall. The delay on the part of the applicants in pursuing relief in light of their knowledge of the falsity of the alleged representations for some years, does not suggest that their case is strong. Further, it does not support the continuation of the injunctive relief.

Balance of convenience

91    Given the difficulties with the applicants’ case to which I have alluded, I would also need to be satisfied that there was a clear balance of convenience in continuing the injunctive relief. One cannot know whether the current negotiations between Viva and Strongwall will necessarily result in a beneficial commercial outcome. Those negotiations, in turn, involve the pursuit of other litigation. Any fruits which might be obtained could be some time away. Nevertheless, given the enforceable undertakings which I would require to be given in order to discharge the injunctions, the applicants would appear to be adequately protected in respect of their case.

Adequacy of the undertaking

92    An additional factor is that on the first application for injunctive relief, I enquired as to the adequacy of the undertaking to be given by Mr Lim and Ms Leow who are not resident within the jurisdiction. Notwithstanding that enquiry, neither has provided any information as to their respective asset position to support an undertaking as to damages. An opportunity to do so was afforded again following the substantive hearing of this application. No further affidavit material has been provided in support of the asset position.

CONCLUSION

93    It is clear that a freezing order is an extraordinary interim remedy only and it is not intended to give an applicant the status of a judgment creditor before judgment is given nor to preserve assets for the satisfaction of the applicant’s claim. It ought not to operate as a conferral of priority on applicants that they do not already have.

94    In all those circumstances, I am of the view that the existing injunctive relief in its entirety should be discharged but conditional only upon undertakings being given on the matters to which I have referred.

95    As it was effectively the respondents’ motion to discharge the injunctive relief and as the respondents will be required to proffer the enforceable undertakings concerning the patents and the shareholding of Mr Hanna, I will direct that the respondents do draft within 10 days orders to reflect these reasons. If the undertakings are not given, the injunctions as against the respondents will remain in place.

Associate:

Dated:    7 September 2011