FEDERAL COURT OF AUSTRALIA

MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383

THE COURT ORDERS THAT:

1.    Until judgment or further order and on the undertaking of Mr Alberto Vinciguerra filed 8 March 2012 that he will pay to any party restrained or affected by the restraints imposed by this application such compensation as the Court may in its discretion consider in the circumstances to be just, such compensation to be assessed by the Court in accordance with such directions as the Court may make and to be paid in such manner as the Court may direct:

(a)    The first defendant, save to the extent required for the payment of ordinary living expenses, shall be restrained from disposing of, dealing with, diminishing the value of, or otherwise encumbering:

(i)    Lot 114 on Diagram 45574, being the land contained in Certificate of Title Volume 1364 Folio 732;

(ii)    Lot 341 on Diagram 72693, being the land contained in Certificate of Title Volume 1788 Folio 686;

(iii)    Lot 4115 on Plan 108062, being the land contained in Certificate of Title Volume 2224 Folio 726;

(iv)    shares held by the first defendant in any company;

(v)    any beneficial interest that the first defendant has in any property held subject to any trust the beneficiary of which is, or one of the beneficiaries of which is, the first defendant;

(vi)    any motor vehicle or watercraft; and

(vii)    any bank accounts held in the name of the first defendant.

(b)    The second defendant, save to the extent required for the payment of ordinary business expenses, shall be restrained from disposing of, dealing with, diminishing the value of, or otherwise encumbering any or all of its assets.

(c)    The second defendant be further restrained from effecting any change to the terms of the Gilmour Family Trust, including, without limitation, any change to the position of trustee or appointor.

(d)    CE (Aust) Pty Ltd, save to the extent that is required to do so for the payment of ordinary business expenses, shall be restrained from disposing of, dealing with, diminishing the value or, or otherwise encumbering any or all of its assets.

(e)    ACN 153 631 166 Pty Ltd, save to the extent that it is required to do so for the payment of ordinary business expenses, shall be restrained from disposing of, dealing with, diminishing the value of, or otherwise encumbering any or all of its assets.

(f)    ACN 153 631 175 Pty Ltd, save to the extent that it is required to do so for the payment of ordinary business expenses, shall be restrained from disposing of, dealing with, diminishing the value of, or otherwise encumbering any or all of its assets.

2.    To the extent that the interlocutory application filed 8 March 2012 seeks discovery, the application be dismissed.

3.    The defendants shall pay the plaintiff’s costs of this application to be taxed if not agreed, provided however that there be no order as to costs so far as the discovery application is concerned.

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

REASONS FOR JUDGMENT

stay of proceedings under s 440D corporations Act 2001 (Cth)

1    On 22 March 2012, the Court heard the interlocutory application of the plaintiff filed 8 March 2012 for (1) freezing orders against the defendants and certain third party companies in relation to this proceeding and (2) discovery. The Court reserved its decision on that application on 22 March 2012.

2    On 26 March 2012, by letter to the Court, the solicitors for the respondents, advised that the plaintiff had been placed in external administration that day and provided a copy of the relevant ASIC form 505: External administration: Appointment of external administrator. The solicitors for the defendants raised as an issue the effect of the appointment of the external administrator in light of s 440D of the Corporations Act 2001 (Cth) (Corporations Act).

3    The Court immediately relisted the interlocutory application for freezing orders and received submissions from the parties as to what effect, if any, the appointment of the external administrator had in those circumstances, both on the primary proceeding and the interlocutory application.

4    Section 440D(1) relevantly provides as follows:

440D Stay of proceedings

(1)    During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:

(a)     with the administrator’s written consent; or

(b)     with the leave of the Court and in accordance with such terms (if any) as the Court imposes.

5    Having regard to the terms of s 440D(1), neither the primary proceeding nor the interlocutory application for freezing orders is a proceeding in the Court “against the company”: they are both proceedings against the respondents. The primary proceeding is what is commonly called a derivative action. In this case the second cross-respondent, Mr Vinciguerra, has been given leave to institute the proceeding in the name of the plaintiff company against the defendants. The interlocutory application for freezing orders is in relation to a prospective judgment in that proceeding.

6    The term “proceeding” does not appear to be defined relevantly in the Corporations Act but it is defined in s 4 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) to mean “a proceeding in a court, whether between parties or not, and includes an incidental proceeding in the course of, or in connexion with, a proceeding, and also includes an appeal”. In my view, in the present circumstances, the FCA Act definition of “proceeding” should be adopted for the purposes of the Corporations Act, not on the basis that the FCA Act definition applies as a matter of incorporation, but rather on the basis that the broad definition given in the FCA Act accords with the ordinary meaning of the word and there is nothing in the context of the Corporations Act to suggest it has a different or narrower meaning of the word for the purposes of s 440D.

7    The primary question to be determined then is whether either the primary proceeding or the interlocutory proceeding is “a proceeding…in relation to any of its [the company’s] property”. If it is, then it cannot be “proceeded with” except with the administrator’s written consent, which has not been forthcoming, or with “the leave of the Court” and in accordance with such terms, if any, as the Court imposes. Self evidently, the interlocutory application for freezing orders is not against the plaintiff and not in relation to the plaintiff’s property. The substantive question is whether the primary proceeding is affected by s 440D. If it is, a further question arises whether the Court should grant leave.

8    I should immediately note that the words “in relation to” are very broad in scope. In Travelex Ltd v Commissioner of Taxation of the Commonwealth of Australia [2010] HCA 33; (2010) 241 CLR 510 (Travelex) at [25], French CJ and Hayne J, for example, observed that it may readily be accept that “in relation to” is a phrase that can be used in a variety of contexts, in which the degree of connection that must be shown between the two subject matters joined by the expression may differ. In this context, I consider the degree of connection between the subject matters “proceeding in a court” and “any of its property” should be substantial or real, although it may be indirect, as suggested by Hill J in HP Mercantile Pty Ltd v Federal Commissioner of Taxation [2005] FCAFC 126; (2005) 143 FCR 533 at [35]; approved in Travelex by their Honours at [25].

9    It is necessary, however, first to understand what “property” means for the purposes of s 440D of the Corporations Act, in order to exercise judgment as to whether or not either the primary proceeding may be said to be “in relation to” any of the company’s “property”. The term “property” is defined by s 9 of the Corporations Act to mean “any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action”.

10    The primary proceeding taken in the name of the company is for orders requiring the defendants to pay compensation under s 1317H of the Corporations Act for breaches of duties owed by Mr Gilmour to the plaintiff under s 181, s 182 and s 183 of the Corporations Act; alternatively equitable compensation or an account of profits for breaches of fiduciary duties. The breaches of duties relate to alleged excessive management fees earned and director’s fees paid. On the face of it, this proceeding is not in relation to any legal or equitable estate or interest (present or future, vested or contingent) in real or personal property of any description. The fact that the plaintiff may be seeking, in effect, to recover money it says it should never have been required to pay does not alter this view. There is a question, however, whether the entitlement of the plaintiff company to bring or maintain such an action constitutes “a thing in action”.

11    The expression “a thing in action” is not itself defined in the Corporations Act, although it has a long lineage in corporations’ legislation, both in Australia and the United Kingdom. Another expression well known to the law, which would appear to be the very same expression, is “chose in action”. In Krishell Pty Ltd v Nilant [2006] WASCA 223; (2006) 60 ACSR 410 (Krishell) at [73], McLure JA (with whom Wheeler JA agreed) considered that the expression “things in action” means “choses in action”. Buss JA, at [100] took the same view.

12    In Krishell, McLure JA noted that a chose in action has been considered a personal right of property that can only be claimed or enforced by action as distinct from taking physical possession: Loxton v Moir (1914) 18 CLR 360 at 379. Thus, choses in action include shares, debts, judgment debts, negotiable instruments and rights enforceable by action (or causes of action). Her Honour referred to Starke JG, Assignments of choses in action in Australia (Butterworths, 1972) at p 3, where the learned author stated that an essential criterion of a chose in action is that the right be proprietary in character; a purely personal right is not a chose in action because it is not property. Her Honour also observed that assignability is not an essential characteristic of a right of property but a proprietary right must be capable in its nature of assumption by third parties and referred to R v Toohey; Ex parte Meneling Station Pty Ltd [1982] HCA 69; (1982) 158 CLR 327 at 342-3.

13    At [75], McLure JA also recognised that some bare rights to litigate, including a bare right to litigate a cause of action in tort, are not capable of being assigned under the general law: Poulton v The Commonwealth (1952) 89 CLR 540 at 602 (Poulton v The Commonwealth). Her Honour considered it would seem to follow that such bare rights to litigate are not property and thus are not choses in action. Her Honour noted, however, that Meagher R, Heydon D and Leeming M in Meagher, Gummow and Lehane's Equity Doctrines & Remedies (4th Ed, Butterworths, Sydney, 2002) suggest at [6-480] that all bare rights to litigate are choses in action regardless of whether or not they are property. Her Honour suggested that a partial reconciliation of the position might be that bare rights that are incapable of being assigned in isolation are in fact property because they are capable of being assigned when annexed or ancillary to other property. Her Honour accepted that other bare rights to litigate (such as a right of action arising under a contract) are capable of being assigned, and so are considered property and choses in action. At [78], McLure JA also noted that in Equity Doctrines & Remedies at [6-480] it is said that a sufficient interest in the right to litigate is at the root of the distinction between rights of action that are property and capable of being assigned and those that are not.

14    Justice Buss, at [100], by reference to what is stated in Halsbury's Laws of England, 4th ed, 2003 Reissue, vol 6 at [1], appeared to accept that a thing in action, in the literal sense, means a thing recoverable by action, as contrasted with a chose in possession, which is a thing of which a person may have not only ownership but also actual physical possession; and that the expression is now used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession.

15    Perhaps more cautiously in Ninelen Pty Ltd v Interim Advance Corporation Pty Ltd [2011] WASC 107 at [22], Le Miere J, relying on what was said by Williams, Webb and Kitto JJ in a joint judgment in Poulton v The Commonwealth at 602, considered that a bare right to litigate was not capable of assignment, unless one applied the view advanced in Trendtex Trading Corporation v Credit Suisse [1982] AC 679 (Trendtex) at 703 where the House of Lords held that while a bare right of action cannot be assigned, an assignment is permitted if the assignment is of a property right or interest and the cause of action is ancillary to that interest, or if the assignee had a genuine commercial interest in taking the assignment and enforcing it for its own benefit.

16    These dicta about what a thing, or chose in action is today reflect a range of authorities and texts that have expressed a level of puzzlement with rules that appear to include some actions for recovery within the category of things or choses in action, while denying other actions that property status. For example, why should a personal action for personal injury, defamation or false imprisonment not be assignable as a chose in action, but an action in contract for recovery of a debt be assignable as a chose in action?

17    There is debate in Australia as to whether or not the dicta in Trendtex, referred to above, applies in Australia: see Rickard Constructions & Anor v Richard Hails Moretti Pty Ltd [2004] NSWSC 1041 (Rickard Constructions) at [42]-[61]; TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) [2007] FCA 151; (2007) 158 FCR 444 at [79]-[81]. But even if it does, a bare cause of action (whether in contract or tort) would need to meet the sufficient interest test mentioned. In Rickard Constructions, McDougall J accepted what Lindgren J said of this test in National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 at 540, that a genuine commercial interest refers to a commercial interest which exists already or by reason of other matters and which receives ancillary support from the assignment. On that basis, it is difficult to see how the causes of action relied upon in this proceeding by the plaintiff against the respondents would ever cease to be anything but bare causes of action capable of assignment, and so not property or a thing in action.

18    There is, however, another or related reason why the proceeding should not be considered a thing in action and that is because it is one for compensation under s 1317H of the Corporations Act in respect of losses referred by the alleged breach of the Corporations Act by Mr Gilmour (and the complicity of the second defendant, Magil Nominees Pty Ltd (Magil Nominees) therein) and such an action is not assignable under the Corporations Act. Only a “corporation or registered scheme” that suffers damage can be compensated under this provision. Just as similar statutory compensation provisions, for example, s 82 of the former Trade Practices Act 1974 (Cth), have been held not to be assignable (see, for example, Park v Allied Mortgage Corporation Ltd [1993] FCA 286; (1993) ATPR 46-105) so too should the right of the plaintiff to claim compensation under s 1317H be considered incapable of assignment. As a result, it should be considered a cause of action not constituting a thing in action. The dependant or related equitable claims should, in my view, be regarded similarly.

19    But even if the primary proceeding could be considered a thing in action belonging to the plaintiff I struggle to see how the proceeding can properly be characterised as one “in relation to” the thing in action. In my view, the relevant words include only a proceeding which relates to some property of the company, for example an application for an injunction or specific performance. A proceeding brought by a company related to its own property should not be considered to fall within the expression. If it were otherwise, s 440D(1) would apply to a proceeding by or against the company. This would have an effect unintended by Parliament.

20    In Uvanna Pty Limited v Tsang (1997) 72 FCR 502, Wilcox J had to deal with a submission that an appeal by the company against a damages award made against it, was affected by s 440D(1). His Honour rejected the submission. He said that the appeal was not a “proceeding against the company”; rather it was a proceeding instituted by the company for its own benefit in the hope of ridding itself of judgments entered against it. His Honour then added:

Nor do I think it is a proceeding ‘in relation to any of its property’. It might perhaps be said, in a loose sense, that an appeal involving the question whether certain people are entitled to recover damages against a company affects the company’s property; but I do not think that is a correct understanding of the application of subs (1). I think the relevant words were intended to refer to litigation over a property owned by the company – an item of property in relation to which it can prove title. As Mr Basten [counsel for the company] pointed out, this is consistent with the way in which the phrase ‘property of the company’ is used in the two immediately preceding sections. It is not difficult to think of cases to which s 440D(1) might apply, if interpreted in this way: for example, injunctive proceedings and actions for specific performance. I do not think the words are apt to include a mere claim for damages, where the award of damages does not effect a charge against particular property.

21    I agree with the observations of Wilcox J. It seems to me that when one takes into account the various provisions falling within Div 6 of Pt 5.3A of the Corporations Act, the expression “proceeding in a court…in relation to any of its property” is simply not intended to encompass an action by the company where it seeks to act on, in Court proceedings, a thing in action that it has. Rather, it is important to read the expression “in relation to any of its property” in the context of the complete expression, “a proceeding in a court against the company or in relation to any of its property”. There may be some circumstances where there is a proceeding against the company, but not in relation to its property and there may be proceedings against the company in relation to its property, but not directly against the company. The point of s 440D(1) is to ensure that where the company is the target of a proceeding or in some relevant way its property is the target of a proceeding, then that proceeding may not be begun or proceeded with, except with the administrator’s written consent or with the leave of the Court. This ensures that, in the first instance, the administrator has the opportunity to view the continuance of such proceedings and the Court has a final say as to whether or not the proceeding may proceed. Where, however, the company is an applicant or plaintiff in a proceeding then different considerations apply. In such circumstances the administrator does not need the benefit of a provision such as s 440D(1) to decide whether or not to proceed with the proceeding. The approval of the Court in those circumstances would not be required.

22    As the plaintiff points out, s 437A(1) of the Corporations Act confers power on an administrator of a company to have control of the company’s business, property and affairs. Section 437A(1) is complemented by s 437C to s 437E which provide for the powers of a company’s officers to be suspended during administration. Given these provisions if s 440D(1) applied to all proceedings brought by a company which entered administration, it would operate so as to require an administrator to give himself or herself consent in writing or to obtain the Court’s leave before causing the company to begin or proceed with the proceedings – a nonsensical outcome.

23    In my view, s 440D(1) does not apply in the circumstances of this case to require the consent of the administrator or the leave of the Court to the maintenance of the derivative proceeding commenced in the name of the plaintiff, nor to the instant application brought by the plaintiff for freezing orders and discovery in that proceeding. In these circumstances, the further question whether the Court should grant leave to continue the proceeding does not arise.

application for freezing orders

24    Orders sought: By the interlocutory application filed 8 March 2012, the plaintiff seeks freezing orders against the first defendant (Mr Gilmour), the second defendant (Magil Nominees) and certain third party corporations.

25    As against Mr Gilmour, the plaintiff seeks in substance a freezing order that, save to the extent required for the payment of ordinary living expenses, the following assets be frozen:

(1)    Real estate known as Lot 114, 11 Alfred Street, Belmont, Western Australia.

(2)    Real estate known as Lot 341, 4629 Great Eastern Highway, Bakers Hill, Western Australia.

(3)    Real estate known as Lot 4115 in the Shire of Northam, Western Australia.

(4)    Shares held by him in any company.

(5)    Any beneficial interest held by him in any property held subject to any trust.

(6)    Any motor vehicle or water craft.

(7)    Any bank accounts.

26    As against Magil Nominees, the plaintiff seeks in substance a freezing order that, save to the extent required for the payment of ordinary business expenses, there be a freezing order over all of its assets.

27    The plaintiff also seeks an order that Magil Nominees be restrained from effecting any change to the terms of the Gilmour Family Trust, including any change to the position of trustee or appointor.

28    As against three third parties, CE (Aust) Pty Ltd, ACN 153 631 166 Pty Ltd and ACN 153 631 175 Pty Ltd the plaintiff seeks freezing orders that, save to the extent each is required to do so for the payment of ordinary business expenses, there be freezing orders in respect of all of their assets.

29    The freezing orders are sought until judgment or further order.

30    Facts: The main proceeding is a hard fought derivative proceeding in which the second cross-respondent, Alberto Cesario Vinciguerra, in the name of the plaintiff sues the first defendant, Mr Gilmour and the second defendant, Magil Nominees. Background to this proceeding may be found in the decision of Gilmour J granting leave to the commencement of the derivative proceeding: MG Corrosion Consultants Pty Ltd v Gilmour [2010] FCA 1390. Magil Nominees was at all times a company of which Mr Gilmour was the sole director and shareholder. Management fees were paid by the plaintiff to Magil Nominees. The plaintiff alleges the fees exceeded what would have been reasonable in the circumstances for the plaintiff’s contribution towards shared expenses incurred by Magil Nominees. Magil Nominees says the fees were reasonable and reflected a proper apportionment of expenses that it incurred for the benefit of both itself and the plaintiff. Amongst expenses challenged as having been incurred in an excessive amount are not only management fees but also director’s fees paid by the plaintiff to Mr Gilmour. For example, for the years ended 30 June 2006 and 30 June 2007, the plaintiff paid Mr Gilmour director’s fees in the amounts of $118,913 and $129,633 respectively. As noted above, the plaintiff seeks to recover those “lost fees” as compensation for breach of directors’ duties primarily pursuant to s 1317H of the Corporations Act.

31    Court’s power to make a freezing order: Under s 23 of the FCA Act the Court has the power to “make orders of such kinds, including interlocutory orders…as the Court thinks appropriate”. In Jackson v Sterling Industries Limited (1987) 162 CLR 612 (Jackson v Sterling), the High Court recognised that this power includes the power to make orders to prevent the abuse or frustration of the Court’s process, such as a Mareva order or injunction or freezing order.

32    In Jackson v Sterling the Court emphasised that orders to that end should be framed so as to come within the limits set by the purpose which such an order can properly be intended to serve: see Deane J at 625. This was confirmed in Cardile v LED Builders Pty Limited (1999) 198 CLR 380 (Cardile) at 400-401, per Gaudron, McHugh, Gummow and Callinan JJ.

33    In the joint judgment in Cardile, at [51], their Honours confirmed that a Mareva type order is a drastic remedy which should not be granted lightly. Their Honours noted that the purpose of such an order is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to provide a plaintiff with security in advance for a judgment that the plaintiff hopes to obtain and fears might not be satisfied. Nor is it intended to improve the position of the plaintiff in the event of the defendant’s subsequent insolvency.

34    In the joint judgment, at [52], their Honours also noted that another reason for care in exercising the power to grant a Mareva type order is that there may be difficulties associated with the quantification and recovery of damages pursuant to the undertaking given in relation to the grant of the order, if it should turn out that the order should not have been granted. Their Honours added that a further question to which such an order gives rise is the identification of the events to trigger its dissolution or an entitlement to damages. So far as it is possible, some attention to that question should be given at the time that the order is framed in the first instance.

35    Their Honours also added, at [53], that the discretionary considerations generally should carefully be weighed before such an order is made. Questions will arise such as: has the applicant proceeded diligently and expeditiously? Has a money judgment been recovered in the proceedings? Are proceedings available against the third party? Why, if some proceedings are available, have they not been taken? Why, if proceedings are available against a third party and have not been taken and the Court is still minded to make a Mareva type order, should not the grant of the relief be conditioned upon an undertaking by the applicant to commence, and ensure so far as it is possible the expedition of such proceedings?

36    In relation to an application for a Mareva type order against a third party, their Honours, at [54], noted that the proposition, that the grant of such an order against a third party should be 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, is too narrowly expressed. Nevertheless, it will be a “rare case” in which such relief will be granted if such a situation does not exist.

37    Against that general law background, the Federal Court Rules 2011 (Cth) (Rules) expressly provide in Div 7.4 for the making of “freezing orders”. By R 7.32(1), the Court may make a freezing order 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.

38    By R 7.34, the Court may make a freezing order against a person who is not a party in the proceeding in which the substantial relief is sought against the respondent.

39    Rule 7.35 applies, relevantly to the circumstances of this case, where an applicant has a “good arguable case” on an accrued or prospective cause of action that is justiciable in the Court.

40    By R 7.35(4) the Court may make a freezing order against a prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that the prospective judgment will be wholly or partly unsatisfied because any of the following might occur:

(a)    The prospective judgment debtor or another person absconds;

(b)    The assets of the 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.

41    By R 7.35(5) the Court may make a freezing order against a third party, if the Court is satisfied, having regard to all the circumstances that:

(a)    There is a danger that a prospective judgment will be wholly or partly unsatisfied because:

(i)    The third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the prospective judgment debtor; or

(ii)    The third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the prospective judgment debtor.

42    Finally, R 7.35(6) provides that nothing in R 7.35 “affects the power of the Court to make a freezing order or ancilliary order if the Court considers it is in the interests of justice to do so”.

43    Thus, R 7.35 generally reflects the recognition that the jurisdiction of this Court under s 23 of the FCA Act is broad and may be exercised to make an order in the nature of a freezing order, where it is in the interests of justice to do so.

44    Finally, R 7.36 confirms that the general jurisdiction of the Court to make a freezing order under s 23 is not removed by Div 7.4, as “Nothing in this Division diminishes the inherent, implied or statutory jurisdiction of the Court to make a freezing order or ancilliary order”.

45    The Court has issued Practice Note CM9 concerning freezing orders. By [5], Practice Note CM9 notes, consistently with the general law and the Rules, that 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”.

46    By [6], Practice Note CM6 confirms that 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 without notice.

47    In Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014; (2010) 273 ALR 194, Kenny J considered the circumstances in which a freezing order should be made by reference to the general law and Order 25A of the former Federal Court Rules 1979 (Cth), which order has been substantially replicated by the current Rules in Div 7.4. Justice Kenny, at [8]-[13], by reference to authority and in the circumstances of that case, made the following points:

    The cases speak of the need for the applicant to establish, first, a prima facie cause of action against the defendant and, secondly, a “danger” or “real risk” that a judgment debt will go unsatisfied because assets are removed from the jurisdiction or disposed of in some way.

    Depending on the circumstances, the interests of justice may support the grant of a freezing order to prevent the dissipation of assets pending the hearing of an action even though the risk of dissipation is less probable than not, so accordingly, what must be established is a sufficient likelihood of risk which in the circumstances of a particular case justifies an asset preservation order.

    A freezing order may be granted even though there is no evidence of the respondent’s positive intention to frustrate a judgment.

    There must be evidence which establishes or from which it may properly be inferred that there is a danger of removal or dissipation.

    The fact that assets within the jurisdiction are moveable, and that a respondent is incorporated outside the jurisdiction is not enough to warrant an inferential finding of danger of dissipation. Rather the facts must be such that a prudent, sensible commercial person can properly infer a danger of default if assets are removed from the jurisdiction.

    In summary, the Court must consider whether there is a good arguable case and then consider whether on the evidence before it there is a danger a prospective judgment will be unsatisfied because assets are removed from Australia or disposed of, dealt with or diminished in value.

    Finally, the Court must consider the overarching question whether, in all the circumstances, the case is one in which the interests of justice support the freezing order or its maintenance or continuance. Amongst other things the Court must consider the likely consequences to the applicant if the assets are removed and the hardship that such an order inflicts on a defendant or third parties.

48    Good arguable case: There is no real dispute between the parties, in circumstances where Mr Vinciguerra was granted leave by this Court to commence the derivative action in the name of the plaintiff against the respondents, that there exists a good arguable case, in the sense that there are serious questions to be tried. I need not rehearse the analysis here. It is adequately dealt within the decision of Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763, and in the unsuccessful appeal against that decision in MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31. I find there is a good arguable case maintained by the plaintiff.

49    Disposal of assets: The principal question for consideration in this case is whether on the evidence before the Court there is a danger a prospective judgment against the defendants will be unsatisfied because assets held or controlled by Mr Gilmour will be disposed of, dealt with or diminished in value; and whether the interests of justice support the making of the freezing order.

50    The evidence drawn from the affidavit of Katie Genevieve Shea filed 8 March 2012 and Adam Forrest Roberts filed 22 March 2012 formally read on the application, discloses as follows. On 15 September 2011 a Deed of Charge was executed by the plaintiff company, MG Corrosion Consultants Pty Ltd ACN 084 715 177 as Chargor and Sola-Kleen Pty Ltd ACN 009 059 607 in its own capacity and as trustee for the Gilmour Family Trust and the first defendant, Malcolm Stuart Gilmour, as Chargee. By cl 2 of the Deed of Charge the Chargor as beneficial owner charges the Charged Property to the Chargee to secure the satisfaction of the Obligations and in the Collateral Liabilities and the payment to the Chargee of the Secured Money, as those various terms are defined in cl 1 of the Deed of Charge. By cl 1.1, the Charged Property means all of the Chargor’s assets. The Obligations referred to are defined by cl 1.1 to mean all the liabilities and obligations of each Relevant Person to the Chargee under or by reason of any Transactional Document or “any other transaction, matter or event”. The Collateral Liabilities are defined by cl 1.1 to mean all liabilities and obligations of any Relevant Person to the Chargee or to any Related Body Corporate of the Chargee that have arisen before the date of this Charge or which arise during this currency of this Charge which do not form part of the Obligations and whether they are primary or secondary, whether liquidated or not, and whether contingent or presently accrued due. Secured Money is defined by cl 1.1 to mean all money the payment or repayment of which from time to time forms part of the Obligations or the Collateral Liabilities. Relevant Person means each Chargor, Customer and Guarantor severally.

51    On 11 October 2011, a Notification of discharge or release of property from a charge, Form 312 was lodged on behalf of the plaintiff company as chargor with the Australian Securities and Investments Commission (ASIC). The charge details include ASIC charge number 2237424 and the date of discharge or release is shown as 30 September 2011. The form indicates that the property released was that described in annexure B to that form. Annexure B indicated that the property released was the goodwill of the Chargor in and attaching to the Chargor’s business of chemical supply and water treatment services and a number of items of plant and equipment were set out, together with all stock-in-trade chemicals owned by the Chargor in relation to the Chargor’s business as at 30 September 2011, a 2003 Falcon XR6 ute, intellectual property mentioned and “the business name M.G. Corrosion Consultants being Western Australian registration number BN11924664”. The Chargor’s business records and the right to occupy the premises at 24 Bassendean Road, Bayswater, Western Australia were also expressly mentioned as part of the property released from the charge.

52    The form of notification of discharge or release of property from a charge was signed by Mr Gilmour in his own capacity and as sole director of “Sola-Kleen Pty Ltd ACN 009 059 607” (this being the former name of Magil Nominees). Annexure B was dated 7 October 2011.

53    A search of the register kept under the Business Names Act 1962 (WA) records that the second defendant, now known as Magil Nominees Pty Ltd, carried on business under the business name “Sola-Kleen” from 6 March 1997 to 5 December 2011. However, as of 5 December 2011, another company, Sola-Kleen Pty Ltd ACN 153 974 737 (the new Sola-Kleen) has carried on business under that name.

54    ASIC company records show that half of the shares in the new Sola-Kleen are held by Wise Earth Pty Ltd, a company in which all the shares are owned by its sole director, Garry Baverstock. The other half of the shares are held by CE (Aust) Pty Ltd, a company in which the sole shareholder and sole director is Mr Gilmour.

55    Copies of certificates of title from Landgate records show that Mr Gilmour was formerly the owner of land at 24 Bassendean Road, Bayswater, the premises occupied by the plaintiff company at material times and mentioned as charged properly released in annexure B to the form of notification of discharge or release of property from the charge. On 10 January 2012, however, Mr Gilmour transferred title in 24 Bassendean Road, Bayswater to Wise Earth Syndicate Pty Ltd (not to be confused with the aforementioned Wise Earth Pty Ltd).

56    ASIC records show that Wise Earth Syndicate Pty Ltd was registered in Western Australia on 5 February 2003, that the sole director of the company is Garry Frederick Baverstock and that the only two ordinary shares that are issued in the company are both beneficially held by Mr Baverstock.

57    Thus, Mr Baverstock is interested in both the Wise Earth companies.

58    A search of the register kept under the Business Names Act 1962 further records that from 4 August 2011 to 30 September 2011, Mr Gilmour carried on business under the name “MGCC Corrosion Consultants” (not to be confused with the name of the plaintiff). However, as of 30 September 2011, C & H Synergy (Australia) Pty Ltd (C & H Synergy) has carried on business under that name. C & H Synergy is a company in which the sole director and shareholder is Chong Leong Choe.

59    The plaintiff says that the nature of the business the plaintiff has carried on at material times was described by Mr Gilmour in the earlier proceedings mentioned above, as “The supply of chemicals for water treatment in and cooling towers and heat exchanges and descaling treatments for the mining and processing industries”. The plaintiff says C & H Synergy has rendered invoices for water treatment services in the nature of those that have been performed by the plaintiff in the past. Those invoices request payment to be made to “MGCC Corrosion Consultants, 24 Bassendean Road, Bayswater”.

60    On 25 January 2012, Solomon Brothers, solicitors for the plaintiff in this proceeding, sent a letter to Q Legal, the solicitors for the respondents, seeking an explanation as to why C & H Synergy was issuing these invoices. They did not receive any response.

61    On 17 February 2012, Solomon Brothers sent a further letter to Q Legal seeking an explanation for the apparent dissipation of assets by Mr Gilmour and Magil Nominees.

62    On 29 February 2012, Solomon Brothers received a letter from Q Legal denying that grounds for a freezing order existed and stating that all transactions were at arm’s length and for market value, although failing to provide any details or information in support of that statement.

63    Records of Landgate disclose that Mr Gilmour is currently the registered proprietor of land:

(1)    being Lot 114, 11 Alfred Street, Belmont, which is the subject of certificate of title volume 1364 folio 732;

(2)    being Lot 341, 4629 Great Eastern Highway, Bakers Hill, which is the subject of certificate of title volume 1788 folio 686; and

(3)    having no street address but within the local government area of the Shire of Northam, which is the subject of certificate of title volume 2224 folio 726.

64    Entries on the last two certificates of title suggest the first property, Lot 114, 11 Alfred Street, Belmont, is Mr Gilmour’s residential abode.

65    While the application for freezing orders seeks freezing orders against ACN 153 631 166 Pty Ltd and ACN 153 631 175 Pty Ltd, little if any information is provided concerning those companies. Mr Gilmour however, as noted below, states in his affidavit read on the application that they have no assets and are merely “shelf companies”.

66    Plaintiff’s submissions: From the dealings concerning the business of “Sola-Kleen”, the plaintiff says the obvious inference is that Magil Nominees has disposed of the assets pertaining to the business that is carried on under the name “Sola-Kleen” to the “new Sola-Kleen”, being Sola-Kleen Pty Ltd ACN 153 974 737.

67    The plaintiff says that this is also confirmed by the fact that the 24 Bassendean Road, Bayswater property has been transferred by Mr Gilmour to Wise Earth Pty Ltd, the two ordinary shares in which are beneficially held by Mr Baverstock.

68    The plaintiff also relies on the evidence that Mr Gilmour no longer carries on business under the business name “MGCC Corrosion Consultants” but that a company named C & H Synergy does and has been issuing invoices on a letterhead using that business name.

69    The plaintiff says the obvious inference is that Mr Gilmour has disposed of assets pertaining to the business that is now carried on under the name “MGCC Corrosion Consultants”, to C & H Synergy. Further, that the business C & H Synergy is now providing services previously provided by the plaintiff company.

70    The plaintiff says this leads to an inference that the business that Mr Gilmour carried on, is a business that was previously carried on by the plaintiff company, which raises serious issues about his conduct in personally carrying on, and disposing of, the “MGCC Corrosion Consultants” business to C & H Synergy.

71    The plaintiff says that the defendants have quite suddenly and in the teeth of the current proceedings disposed of multiple assets. Those assets were disposed to multiple parties on different dates and the multiplicity of the dispositions cannot be explained by multiple assets being sold to one buyer as part of a single transaction. Numerous new entities have been incorporated, through which Mr Gilmour has retained an indirect interest in, at least, the Sola-Kleen business. The plaintiff says the timing coincides with Mr Gilmour causing the plaintiff company to grant a charge on 15 September 2011, over its assets in favour of the defendants, as well as foreshadowing the discovery application which was resolved by the Court in MG Corrosion Consultants Pty Ltd v Gilmour [2011] FCA 1514.

72    The plaintiff says the defendants have provided no explanation for their sudden disposition of assets and their solicitors have responded to letters from the plaintiff’s solicitors with only a bald statement that the transactions have been at “arm’s length”.

73    The plaintiff says that it does not know the precise circumstances of each disposition of assets, the consideration paid for each asset, whether that consideration reflects market value and whether the defendants received or retained any consideration provided. However, all of these things are known by the defendants who have elected to provide no disclosure. The plaintiff says that in these circumstances the evidence should be weighed according to the proof which it was in the power of one side to have produced and in the power of the other to have contradicted, a principle stated in Blatch v Archer (1774) 98 ER 969 and applied in Vetter v Lake Macquarie City Council [2001] HCA 12; (2001) 202 CLR 439 at [36]. The plaintiff says that in the absence of evidence, it should be inferred that the respondents have not received or retained market value for the assets they have disposed of.

74    The plaintiff says that in circumstances where assets have been disposed of suddenly in the teeth of ongoing proceedings and they have refused to provide an explanation, let alone any evidence as to the circumstances of the dispositions and any considerations received, there are grounds for a genuine and well-founded belief that there is a risk the defendants will dispose of further assets, such that any judgment entered against them will not be satisfied.

75    The plaintiff also submits that the apprehension that further assets will be dissipated that underlies the need for a freezing order, is heightened by the first defendant’s conduct in placing the plaintiff into voluntary administration only two business days after the freezing order application was argued and then contending that the application cannot now be determined. No explanation for the timing of the administration has been proffered – there is no suggestion of matters developing so as to require immediate administration. The plaintiff submits the Court should be reluctant to allow the first defendant to frustrate its processes in this manner.

76    Defendant’s position: As noted above, Mr Gilmour put on an affidavit on behalf of the defendants which was formally read in the proceeding. He confirms he is the registered proprietor of the three properties mentioned above, all of which are in Western Australia and have mortgages registered against them. He states that he believes his net equity in the three properties is sufficient to meet any judgment in favour of the plaintiff, should they be successful, although he provides no details of values or the securities.

77    Mr Gilmour confirms the advice that his solicitors gave the plaintiff’s solicitors that the transactions inquired about were brought about by “arm’s length transactions”. However, he does not elaborate on the transactions in any way.

78    Mr Gilmour also says that he does not intend to abscond from Western Australia and intends to continue to defend the proceeding as he has done since 2006 when Mr Vinciguerra commenced the derivative proceedings against the defendants.

79    Mr Gilmour says that the two companies, ACN 153 631 166 Pty Ltd and ACN 153 631 175 Pty Ltd are shelf companies which do not trade and have no assets or liabilities.

80    Mr Gilmour expresses concern about the extent to which the plaintiff is able to claim an arguable case. He also questions the strength of any undertaking offered by Mr Vinciguerra in anticipation of freezing orders being made.

81    The defendants submit that:

    There is no evidence that Mr Gilmour is moving assets outside the jurisdiction.

    There is a lack of solid evidence of any risk that the defendants’ assets will be dissipated.

82    In relation to dissipation of assets, the defendants’ evidence adduced by the plaintiff shows only that:

(1)    Mr Gilmour has sold 24 Bassendean Road, Bayswater.

(2)    The business name “Sola-Kleen” is no longer being used by Magil Nominees but by another company, one half of which is owned by CE (Aust) Pty Ltd of which Mr Gilmour is the sole director.

(3)    The business name “MGCC Corrosion Consultants” is no longer being used by the plaintiff company.

83    The defendants say that Mr Gilmour sold only one of four real properties that he owns in Western Australia. The other properties are not involved in the business of the plaintiff or the second defendant and are therefore fundamentally different in character to 24 Bassendean Road, Bayswater which has been sold.

84    The defendants say no inference can be drawn from the sale of the 24 Bassendean Road, Bayswater property to demonstrate a risk that Mr Gilmour will dispose of, deal with or diminish in value his other assets.

85    The defendants say Mr Gilmour has equity in the other three properties sufficient to meet any judgment entered against him and so the freezing order is unnecessary.

86    The defendants submit it is not every disposal of assets by a party to litigation that will amount to disposal, dealing or diminution in value sufficient for the grant of a freezing order.

87    The defendants also raise questions about the terms of the proposed freezing order and the value of the undertaking of Mr Vinciguerra.

88    Consideration: The evidence adduced by the plaintiff, and confirmed by the defendants, is that the ownership of assets pertaining to the business names “Sola-Kleen” and “MGCC Corrosion Consultants” have been affected by recent dealings caused by Mr Gilmour.

89    Whereas Magil Nominees used to carry on business under the name “Sola-Kleen” and was fully controlled by Mr Gilmour, as of 5 December 2011 the new Sola-Kleen Pty Ltd has been carrying on business under that name. Half the shares in the new Sola-Kleen are owned by Wise Earth Pty Ltd, Mr Baverstock’s company, and the other half are owned by CE (Aust) Pty Ltd, Mr Gilmour’s company. Mr Gilmour therefore appears to continue to have an interest in “Sola-Kleen”.

90    However, the property at 24 Bassendean Road, Bayswater, at which the plaintiff’s business apparently was carried on in the past, has been sold by Mr Gilmour to another company material to Mr Baverstock. No details of this sale are in evidence.

91    Until 30 September 2011, Mr Gilmour carried on business under the name “MGCC Corrosion Consultants”, but since then C & H Synergy has carried on business under that name and has issued some invoices for the type of work that the plaintiff conducted in the past. Those invoices requested payment be made to “MGCC Corrosion Consultants, 24 Bassendean Road, Bayswater”.

92    Just how the plaintiff company, the new Sola-Kleen Pty Ltd, Mr Baverstock, Wise Earth Pty Ltd, Wise Earth Consultants Pty Ltd, CE (Aust) Pty Ltd and C & H Synergy and Mr Gilmour all fit together, or if they do, in whole or in part, is not clear from or explained by the evidence.

93    The defendants provide no explanation at all for these recent dealings, save that Mr Gilmour says in his affidavit that they have been carried out at arm’s length. Then, very soon after the freezing order application is argued in Court and the decision is reserved, the first defendant causes the plaintiff to be placed in voluntary administration and, by his solicitors, advises the Court of this action and raises s 440D as an issue. The question is whether the dealings identified by the plaintiff and the voluntary administration action should lead the Court to infer that there is a danger or real risk that the defendants are disposing of assets or will dissipate assets such that the plaintiff will be frustrated in satisfying any judgment that it may ultimately obtain against the defendants in this proceeding.

94    The fact that Mr Gilmour has not disposed of any assets outside the jurisdiction is irrelevant to the matters that need finally to be considered. The fact that he is personally within the jurisdiction and says that he has no plans to abscond are also, in the circumstances of this case, largely irrelevant. Mr Gilmour’s statement that the real properties he continues to hold have sufficient equity to satisfy any judgment debt that may be obtained, is also of marginal relevance as it constitutes a mere assertion lacking any evidentiary support.

95    Mr Gilmour’s assertion that the dealings that the plaintiff draws attention to have been conducted at arm’s length is also troubling and he steadfastly refrains from providing any detail or information about the actual business arrangement. It would appear, for example, that goodwill in the business names have been transferred to other parties, yet no explanation for the transactions are offered. Mr Gilmour has moved to cause the plaintiff to appoint a voluntary administrator, for the reason, as explained by counsel for the defendants from the bar table in Court, that the administrator will be in a position to provide an independent view as to whether the accounting advice that underpins the derivative action of Mr Vinciguerra is to be preferred to that of the late Mr Ruthven that the defendants apparently relied on at material times. This of course is the very issue in the proceeding.

96    The question raised is whether, given the state of the evidence and the reluctance of Mr Gilmour to provide any detail or information about the transactions recently concluded and now the appointment of the administrator, the Court can reasonably infer there is a danger or real risk Mr Gilmour will abuse the Court’s process by disposing of his assets, such that justice requires the making of the freezing orders requested by the plaintiff.

97    I recognise that to grant a freezing order is a serious thing to do and should not be done lightly; and there needs to be reasonably solid evidence to support the making of the orders. In all the circumstances, I am satisfied that there is. While the business dealings concluded between Mr Gilmour and Mr Baverstock and the entities associated with them are in respect of the operation of the business in relation to which Mr Gilmour apparently retains some interest, nothing is known about the terms of the dealings that have resulted in the completion of these transactions and, most recently, without any useful explanation save for an explanation from counsel from the bar table that the administrator can in effect play the role of a referee between duelling accountants, Mr Gilmour has placed the plaintiff into voluntary administration. In the result, I have considerable misgivings about the actions of the defendants I have just identified. I have a real concern that the defendants may dissipate their assets further such that a prospective judgment will be unsatisfied.

98    For these reasons, the freezing orders sought should be made. I am satisfied that the undertaking given by Mr Vinciguerra is sufficient in the circumstances.

99    I should add that as this order is interlocutory in nature, and made until judgment, it remains open to the defendants to apply to the Court to discharge or modify the orders made should appropriate circumstances arise.

discovery

100    By the interlocutory application filed 8 March 2012, the plaintiff also seeks an order that Mr Gilmour produce for inspection copies of his personal tax returns for the years ended 30 June 2001 to 30 June 2007 or file and serve an affidavit in effect specifying what has become of those documents.

101    The material before the Court ultimately disclosed that the defendant apparently could not discover the hard copy personal tax return documents required for inspection and had instructed his accountant to obtain duplicate copies of those documents from the Australian Taxation Office but that the documents had not yet come to hand.

102    Following submissions it was accepted by counsel for the defendant that steps should be taken forthwith to have either the solicitors for Mr Gilmour or his accountants communicate with the Australian Taxation Office concerning this issue, pointing out that the relevant documents were required urgently to satisfy an order of the Federal Court of Australia, and were not required simply to satisfy a private need of the taxpayer. On this basis it appears to the Court that there is no need for any order to be made.

103    As a result the interlocutory application to the extent that it requires discovery orders should be dismissed.

ORDERS

104    There will be orders as follows:

1.    The Court orders that until judgment or further order and on the undertaking of Mr Alberto Vinciguerra filed 8 March 2012 that he will pay to any party restrained or affected by the restraints imposed by this application such compensation as the Court may in its discretion consider in the circumstances to be just, such compensation to be assessed by the Court in accordance with such directions as the Court may make and to be paid in such manner as the Court may direct:

(g)    The first defendant, save to the extent required for the payment of ordinary living expenses, shall be restrained from disposing of, dealing with, diminishing the value of, or otherwise encumbering:

(i)    Lot 114 on Diagram 45574, being the land contained in Certificate of Title Volume 1364 Folio 732;

(ii)    Lot 341 on Diagram 72693, being the land contained in Certificate of Title Volume 1788 Folio 686;

(iii)    Lot 4115 on Plan 108062, being the land contained in Certificate of Title Volume 2224 Folio 726;

(iv)    shares held by the first defendant in any company;

(v)    any beneficial interest that the first defendant has in any property held subject to any trust the beneficiary of which is, or one of the beneficiaries of which is, the first defendant;

(vi)    any motor vehicle or watercraft; and

(vii)    any bank accounts held in the name of the first defendant.

(h)    The second defendant, save to the extent required for the payment of ordinary business expenses, shall be restrained from disposing of, dealing with, diminishing the value of, or otherwise encumbering any or all of its assets.

(i)    The second defendant be further restrained from effecting any change to the terms of the Gilmour Family Trust, including, without limitation, any change to the position of trustee or appointor.

(j)    CE (Aust) Pty Ltd, save to the extent that is required to do so for the payment of ordinary business expenses, shall be restrained from disposing of, dealing with, diminishing the value or, or otherwise encumbering any or all of its assets.

(k)    ACN 153 631 166 Pty Ltd, save to the extent that it is required to do so for the payment of ordinary business expenses, shall be restrained from disposing of, dealing with, diminishing the value of, or otherwise encumbering any or all of its assets.

(l)    ACN 153 631 175 Pty Ltd, save to the extent that it is required to do so for the payment of ordinary business expenses, shall be restrained from disposing of, dealing with, diminishing the value of, or otherwise encumbering any or all of its assets.

2.    To the extent that the interlocutory application filed 8 March 2012 seeks discovery, the application be dismissed.

3.    The defendants shall pay the plaintiff’s costs of this application to be taxed if not agreed, provided however that there be no order as to costs so far as the discovery application is concerned.

Associate:

Dated:    16 April 2012