FEDERAL COURT OF AUSTRALIA

Currie (Liquidator) of Carluke Capital Pty Ltd (in liq), (Receiver) of Carluke Capital Trust v 133-165 Kensington Road Pty Ltd, in the matter of 133-165 Kensington Road Pty Ltd [2013] FCA 1355

IN THE MATTER OF 133-165 KENSINGTON ROAD PTY LTD ACN 091 785 312

INTRODUCTION

1.    This order takes effect until 5 pm on 12 February 2014 or further earlier order.

2.    Anyone served with or notified of this order, including you, may apply to the Court at any time to vary or discharge this order or so much of it as affects the person served or notified.

3.    In this undertaking:

(a)    “Bronwen” means the second defendant;

(b)    “Company” means the first defendant, 133-165 Kensington Road Pty Ltd ACN 091 785 312;

(c)    “plaintiff”, means Ian Alexander Currie both as liquidator of Carluke Capital Pty Ltd ACN 010 855 188 (In Liquidation) and as receiver of The Carluke Capital Trust;

(d)    “you”, and “your” is a reference to the third defendant.

4.    (a)    If any defendant named in this order undertakes to do something, the defendant must do it themselves or through employees, agents or others acting on their behalf or on their instructions;

(b)    If any defendant named in this order undertakes not to do something, the defendant must not do it, itself or through its employees, agents or others acting on its behalf or on its instructions or with its encouragement or in any other way.

FREEZING OF TAX REFUND AND SHARES

UPON Ian Alexander Currie, by his counsel, giving the undertakings set out in Schedule A hereto,

AND UPON:

(a)    the Company and third defendant, as sole director of the Company, by her counsel undertaking in terms of paragraphs 5 and 6 below; and

(b)    the second defendant, by her counsel, undertaking in terms of paragraph 7 below,

5.    The Company and you, as sole director of the Company, will pay any refund of tax received from the Australian Taxation Office to the trust account of James Conomos Lawyers to be held pending further or earlier order in accordance with this order. The Company and you, as sole director of the Company, also consent to the Australian Taxation Office paying any such refund directly to the trust account of James Conomos Lawyers if they so wish.

6.    The Company and you, as sole director of the Company, will not, without order of the court, remove from Australia or in any way dispose of, encumber or otherwise deal with or diminish:

(a)    the shares in the Company held by her, the subject of these proceedings; and

(b)    the value of any refund of tax received from the Australian Taxation Office; and

(c)    any other assets of the Company.

7.    Bronwen will not, without order of the court, remove from Australia or in any way dispose of, encumber or otherwise deal with or diminish the shares in the Company held by her, the subject of these proceedings.

EXCEPTIONS TO THESE UNDERTAKINGS

8.    The undertakings given in paragraphs 5, 6 and 7 do not prohibit the Company and you, as sole director of the Company, from dealing with any refund of tax received from the Australian Taxation Office to:

(a)    meet the Company’s taxation liabilities;

(b)    comply with any statutory requirements to which the Company is or may become subject;

(c)    meet the Company’s normal and reasonable accounting fees;

PROVIDED THAT not less than 14 days written notice of an intention to do so is first given to the plaintiff and the lawyers for the plaintiff. Any such notice must include full details and an explanation of who is to be paid, what services were provided, how much is to be paid and include a copy of any relevant invoice.

9.    The Company, Bronwen, you and the plaintiff may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case the plaintiff, the Company, Bronwen and you must as soon as practicable file with the Court and serve on the other parties a minute of a proposed consent undertaking recording the variation signed by or on behalf of the parties, and the Court may order that the exceptions are varied accordingly.

UPON THE PARTIES PROVIDING THESE UNDERTAKINGS, THE COURT ORDERS THAT:

1.    The interlocutory application filed on 5 December 2013 be adjourned for directions to 9.30 am on 12 February 2014.

2.    The plaintiff file and serve a statement of claim by 4 pm on 29 January 2014.

3.    The costs of this application be reserved.

4.    There be liberty to apply.

PENALTY NOTICE

To:        The Defendants

        133-165 KENSINGTON ROAD PTY LTD ACN 091 785 312

        BRONWEN MARY HOFMEISTER

        CARRIE ELLEN HOFMEISTER

IF YOU:

(A)    REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF ANY ACT; OR

(B)    DISOBEY THE ORDER OR ANY UNDERTAKING GIVEN BY YOU BY DOING AN ACT WHICH THE ORDER OR UNDERTAKING YOU TO ABSTAIN FROM DOING,

YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT.

ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER OR THE UNDERTAKINGS GIVEN BY YOU MAY BE SIMILARLY PUNISHED.

Schedule A

UNDERTAKINGS GIVEN TO THE COURT BY IAN ALEXANDER CURRIE

1.    Ian Alexander Currie undertakes to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) adversely affected by the operation of the order, or undertaking.

2.    As soon as practicable, the plaintiff will cause anyone notified of this order to be given a copy of it.

3.    The plaintiff will pay the reasonable costs of anyone other than the defendants which have been incurred as a result of this order.

4.    The plaintiff will not, without the leave of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings, either in or outside Australia, other than this proceeding.

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

IN THE MATTER OF 133-165 KENSINGTON ROAD PTY LTD ACN 091 785 312

REASONS FOR JUDGMENT

1    Pursuant to an interlocutory application filed on 5 December 2013 the plaintiff in this matter seeks interlocutory relief pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth), s 472(2) of the Corporations Act 2001 (Cth) (“Corporations Act”) and r 7.32 and r 14.21 of the Federal Court Rules 2011 (Cth). In summary, the relief sought by the plaintiff is as follows:

    The Court appoint Mr John Feddema as receiver and manager of the first defendant, with power to do all things necessary for the preservation of the assets of the first defendant.

    Alternatively, Mr Feddema be appointed as provisional liquidator of the first defendant pursuant to s 472(2) of the Corporations Act.

    Within 14 days, Mr Feddema (in either capacity) provide to the Court and defendants a report as to the financial position of the first defendant.

    Alternatively to this relief, the Court order an injunction restraining the defendants from dealing with assets in the first defendant or the share held by the second and third defendants in the first defendant.

    Alternatively to this relief, any tax refund payable by the Commissioner of Taxation to the first defendant be paid into Court pending further order by the Court.

    Within seven working days the first and third defendants provide to the plaintiff information as to all of the assets and liabilities of the first defendant.

2    The plaintiff offers an undertaking as to damages in respect of the interlocutory relief he seeks.

3    On 5 December 2013 the plaintiff also filed an originating process pursuant to ss 588FB, 588FDA, 588FF and 461(k) of the Corporations Act, seeking the following orders:

1.    The first defendant should be wound up pursuant to s 461(k) of the Corporations Act 2001 (Cth).

2.    Pursuant to s 588FF of the Corporations Act the share in 133-165 Kensington Road Pty Ltd ACN 091 785 312 be transferred to Carluke Capital Pty Ltd ACN 010 855 188.

3.    The second and third defendants pay the plaintiff’s costs of and incidental to the application.

4    It is only the interlocutory application which engages the Court at this juncture.

5    Some background facts of relevance to this application can be seen in my earlier judgment in Deputy Commissioner of Taxation v Eskdale South Cattle Company Pty Ltd [2013] FCA 740. The first defendant is a related company of the defendant in that proceeding, and is another company controlled by the Hofmeister family who also figured prominently in that matter.

6    In Court this afternoon Counsel for both the plaintiff and the defendants informed me that they had substantially reached a consent position in respect of orders to be made. In substance, the parties have agreed that an impending refund by the Australian Taxation Office to the first defendant, which appears to be the only asset of substance of the first defendant other than a right to payment from the Carluke Capital Trust, should be paid into the trust account of the lawyer for the defendants pending resolution of the litigation between them.

7    There remain, however, two issues of dispute between the parties in respect of orders to be made.

Exceptions to undertaking

8    The first issue concerns exceptions to the undertakings to be given by the first defendant (“Kensington”) and the third defendant (as sole director of Kensington). The defendants propose that the exceptions read as follows:

7.    The undertakings given in paragraphs 4, 5 and 6 do not prohibit the Company and you, as sole director of the Company, from dealing with any refund of tax received from the Australian Taxation Office to:

(a)    meet the Company’s taxation liabilities;

(b)    comply with any statutory requirements to which the Company are [sic] or may become subject;

(c)    meet the Company’s normal and reasonable accounting fees;

(d)    to pay any ordinary business expenses of the Company save for any payments to the second and third defendants;

(e)    paying the Company’s reasonable legal expenses of defending these or any other legal proceedings and any appeal there from,

PROVIDED THAT not less than 14 days written notice of an intention to do so, is first given to the plaintiff and the lawyers for the plaintiff. Any such notice must include full details and an explanation of who is to be paid, what services were provided, how much is to be paid and include a copy of any relevant invoice.

9    The plaintiff opposes the inclusion of undertakings 7(d) and (e), in summary because:

    The amount of the refund from the Australian Taxation Office is in the order of approximately $120,000.

    It is likely that this sum would be swallowed up in legal fees, thus frustrating the order of the Court – to which the parties substantially consent – to preserve the assets of Kensington.

    Kensington does not need to take an active role in this litigation.

    The second and third defendants are the parties likely to benefit from the impending refund by the Australian Taxation Office.

    Kensington has no business expenses.

    There is no evidence before the Court as to the amount of legal expenses required by the first defendant, and there is no evidence that the first defendant cannot currently fund its defence.

10    The defendants however submit that:

    Practice Note CM 9 of the Federal Court of Australia contemplates that a party the subject of a freezing order will be spared sufficient funds to fund its defence.

    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, and certainly not to deprive a party of its legitimate right to defend itself or to carry on business in the ordinary way pending determination of the dispute: cf Harrison Partners Construction Pty Ltd v Jevena Pty Ltd [2006] NSWSC 317 at [10], Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 410, Derby & Co Ltd v Weldon (Nos 3 and 4) (1988) 1 Ch 65 at 76.

11    The submissions of Counsel for the defendants have undoubted merit. In the circumstances of this case, however, I consider it appropriate to make orders whereby no exception is made in respect of ordinary business expenses or legal expenses. I have formed this view for the following reasons.

12    First, while there is no evidence before the Court that funds the subject of any refund by the Australian Taxation Office will be used for illegitimate purposes or otherwise in abuse of Court process, it is clear that there is a history of dissipation of assets of the Carluke Capital Trust for improper purposes. To that extent, I consider that it is appropriate for a freezing order to be made to provide protection of relevant assets pending determination by the Court of proper entitlement.

13    Second, the amount involved in this proceeding is likely to be relatively small, and should the defendants have untrammelled access to it for the purposes of legal or other expenses it would almost inevitably be quickly exhausted. The plaintiff submits that this would frustrate any freezing order of the Court. I agree. While it is clear that a freezing order does not create security for the plaintiff party, nonetheless it is important that the Court balances the rights of the defendant with the rights of the plaintiff seeking an order to preserve an asset. In my view the balance in this case would be best struck by the Court refusing to allow an exception as contemplated by undertaking 7(e).

14    Third, while Practice Note CM 9 contemplates an exception being provided in relation to reasonable legal expenses, it is clear that the practice note is but a guide and does not dictate the exercise of the Court’s discretion in relation to the contents of a freezing order.

15    Fourth, it is not in dispute that the first defendant is not trading. There is no evidence before the Court as to when it last traded. I am not persuaded that there is a need to provide an exception in relation to ordinary business expenses as contemplated by undertaking 7(d).

16    Fifth, I am bolstered in this view by the fact that the first defendant is but one of three defendants in this proceeding, and is the defendant which is likely to participate least in the matter. It is difficult to see how the case of the first defendant in properly defending itself would be stultified by the absence of an exception for reasonable legal expenses in this case, simply because it appears that the defendants with the most to lose are the joint shareholders of the share in the first defendant.

17    Finally, Practice Note CM 9 contemplates that there can be a monetary limit on the amount of reasonable legal expenses to be exempted from a freezing order. In this case however there is no evidence before me as to the amount of any reasonable legal expenses to be incurred, and in the absence of such evidence it is not appropriate to either attempt to estimate in an arbitrary fashion such legal expenses, or to estimate the first defendant's proportion of such legal expenses.

Limitation on capacity of plaintiff in providing undertaking as to damages

18    The second issue concerns the undertakings as to damages to be provided to the Court by the plaintiff. The plaintiff proposes that the first undertaking be in the following terms:

Ian Alexander Currie in his capacity as Liquidator of Carluke Capital Pty Ltd ACN 010 855 188 (In Liquidation) and as Receiver of the Carluke Capital Trust only undertakes to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) adversely affected by the operation of the order, or undertaking.

19    The defendants submit that the words “in his capacity as Liquidator of Carluke Capital Pty Ltd ACN 010 855 188 (In Liquidation) and as Receiver of the Carluke Capital Trust only” should be deleted from this undertaking, because (in summary) there is no reason to limit the undertaking in such fashion and there may be unidentified third parties who are entitled to the benefit of the undertaking.

20    In De Boer v Williams [2004] NSWSC 351 Einstein J observed:

… No matter how difficult the particular circumstances may be, it is always quintessentially necessary for the Court to take into account the fact that the giving of the usual undertaking as to damages is the price paid by the plaintiffs for obtaining the very significant relief constituted by the grant of an interlocutory injunction and most particularly by the grant of a Mareva injunction. Not only does the extraction of such an undertaking enure to protect the defendants to the proceedings, but at least in the State of New South Wales, the undertaking enures for the benefit of non-parties who may be very significantly affected by the order in a fashion by definition often, indeed usually, not able to be foreseen at the time the Court pronounces the order.

21    This is but one example of many judicial observations concerning the extreme importance of the Court requiring an effective undertaking as to damages in circumstances where a freezing order is made.

22    In this case I am not persuaded that the limitation on the undertaking of the plaintiff which he proposes is warranted. I have formed this view in circumstances where:

    No grounds of substance have been advanced by the plaintiff to justify the limitation.

    It is not in dispute that unencumbered trust assets to which the plaintiff may have resort by way of indemnity are in the amount of $1.5 million, and to that extent there does not appear to be any risk that the plaintiff would be out of pocket should he be ultimately unsuccessful in relation to this litigation.

    It is very important that a meaningful undertaking be given to support a freezing order, which is itself an order of considerable restriction on the party the subject of that order.

Associate:

Dated:    12 December 2013