FEDERAL COURT OF AUSTRALIA

Nicols as trustee of the bankrupt estate of Manietta v Manietta, in the matter of Manietta [2022] FCA 39

ORDERS

THE COURT ORDERS THAT:

1.    The fourth respondent produce to the applicant by 21 February 2022, the following:

(a)    the current register of unit holders of the New Mizpah Investment Trust;

(b)    any documents recording any change in the composition of unit holders of the New Mizpah Investment Trust from 1 July 2016 to date; and

(c)    any bank statements evidencing the redemption of units or the issue of new units in the New Mizpah Investment Trust.

2.    The parties confer in relation to short minutes of order to give effect to these reasons and if agreed, to provide proposed short minutes of order by email to the Associate to Justice Cheeseman by 7 February 2022.

3.    In the absence of agreement by Monday 7 February 2022, the parties are to submit by 9 February 2022 by email to the Associate to Justice Cheeseman;

(a)    joint short minutes of order marked up to show the issues in dispute; and

(b)    written submissions (limited to 3 pages) in respect of the issues in dispute.

4.    Leave to apply on 2 days’ notice.

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

REASONS FOR JUDGMENT

CHEESEMAN J:

OVERVIEW

1    These reasons concern two competing interlocutory applications which by the time the proceedings were heard, had narrowed.

2    The issue for determination in the first interlocutory application by the first to sixth and eleventh respondents (collectively the respondents) had reduced to whether two freezing orders made on 19 August 2020 (the 2020 freezing orders) should be discharged. The balance of the freezing orders made on that occasion are not the subject of the present discharge application. The active respondents are Rick Frank Alfred Manietta, a bankrupt and the second respondent, his wife Patricia Michel Manietta, the first respondent, and several corporate entities described below.

3    The second interlocutory application was filed by the applicant, Steven Nicols, in his capacity as the Trustee of the bankrupt estate of Mr Manietta and is an application for additional freezing orders in respect of property not previously restrained.

4    The seventh respondent, HUB24 Limited, is a retail superannuation fund of which Mr Manietta is a member. HUB24 appeared at the hearing and did not consent to or oppose the competing applications. References within to the respondents exclude the seventh respondent which adopted a neutral position in respect of the applications. For completeness I note that for reasons not presently relevant, HTSF Nominees Pty Limited has been substituted for HUB24 as the seventh respondent with no change to the legal representation of the seventh respondent. The proceedings have been dismissed against the eighth, ninth and tenth respondents.

ENTITIES ASSOCIATED WITH MR MANIETTA

5    The financial affairs and interests of Mr Manietta (and therefore of his bankrupt estate) and Mrs Manietta are complex. Mrs Manietta is one of the persons restrained by the 2020 freezing orders which are the subject of the discharge application. It is convenient to provide a brief description of some of the relevant entities and structures at the outset and identify which entities are the subject of the freezing orders in issue on these applications.

6    The Trustee deposes to Mr Manietta’s involvement in a financial planning and wealth advisory business partnership and his and his wife’s interests and roles in respect of a complex web of corporations and trusts.

7    The business partnership is the Ti Amo Strategies Partnership. Mr Manietta was one of two partners.

8    The relevant corporations included:

(1)    Ti Amo Strategies Pty Limited (TAS), the sixth respondent, a company incorporated on 26 July 2002 of which Mrs Manietta is the sole director and secretary. D’Aconia Copper Pty Limited holds one fully paid ordinary share in TAS. TAS was the first trustee of the Ti Amo Superannuation Fund (TAS Fund) until it was replaced in June 2015 by Galt Superannuation Fund Pty Limited;

(2)    Mizpah Investments Pty Limited, the fourth respondent, a company incorporated on 29 February 1988 of which Mrs Manietta is the sole director, secretary and shareholder. Mizpah Investments is the trustee of both the old and new Mizpah Investment trusts (the Old Mizpah Trust and the New Mizpah Trust respectively). Mizpah Investments is one of the entities the subject of the proposed additional freezing orders;

(3)    D’Aconia Copper, the third respondent, a company incorporated on 4 June 2012 of which Mrs Manietta is the sole director, secretary and shareholder. Mrs Manietta holds one fully paid share in D’Aconia Copper beneficially. On around 1 July 2012, D’Aconia Copper replaced Rick Manietta Investments Pty Ltd (RMI) as trustee of the Manietta Settlement Trust. D’Aconia Copper is one of the entities the subject of the proposed additional freezing orders. D’Aconia Copper is a minor unit holder in the New Mizpah Trust in its capacity as trustee of the Manietta Settlement Trust;

(4)    RMI, a company incorporated on 25 November 1997 of which Mr Manietta was formerly a director until his resignation on 2 May 2017. Mr Manietta is the sole shareholder of RMI. Mr Manietta’s interest in RMI is beneficially owned. RMI was the initial trustee of the Manietta Settlement Trust but resigned and was replaced by D’Aconia Copper in 2012;

(5)    Galt, the fifth respondent, a company incorporated on 27 May 2015 of which Mrs Manietta is the sole director, secretary and shareholder. Mrs Manietta holds 2 fully paid ordinary shares beneficially. In 2015 Galt replaced TAS as the trustee of the TAS Fund. Galt in its capacity as trustee of the TAS fund is one of the entities restrained by the 2020 freezing orders which are the subject of the discharge application;

(6)    ACN 098 688 058 Pty Ltd (formerly Super Smart Strategies Pty Limited), a company incorporated on 8 November 2001 and deregistered on 18 April 2019. Mr Manietta was formerly a director of Super Smart until it was deregistered. Super Smart was involved in the financial planning and wealth advisory business conducted by Mr Manietta; and

(7)    TAS Investment Advisers Pty Limited, the eleventh respondent, a company incorporated on 10 October 2016 with Mrs Manietta as sole director and secretary. D’Aconia Copper holds 1 fully paid share. TAS Investment Advisers was appointed as trustee of the Ti Amo Strategies Investment Advisers Trust (TAS IA Trust) on 1 November 2016. In around February 2017, the TAS IA Trust took over the role of Super Smart in the business conducted by Mr Manietta.

9    The relevant trusts included:

(1)    The Old Mizpah Trust which was created by a Unit Trust Deed between Deidre Pratt and Mizpah Investments on 14 August 1995 with Mr and Mrs Manietta as equal unitholders. The trustee of the Old Mizpah Trust is Mizpah Investments;

(2)    The New Mizpah Trust which was created on 1 August 2012 by the Mizpah Investment Unit Trust Deed between Greg Vidler and Mizpah Investments. The trustee of the New Mizpah Trust is Mizpah Investments. Galt in its capacity as the trustee of the TAS Fund is the majority unitholder (96.43%) and D’Aconia Copper in its capacity as trustee of the Manietta Settlement Trust is the minority unit holder (3.57%);

(3)    The TAS Fund which was established by the Ti Amo Superannuation Fund Deed dated 20 February 2003 with TAS as trustee. On 2 June 2015, by Deed of Retirement and Appointment of New Trustee, TAS was replaced by Galt as trustee of the TAS Fund. The TAS Fund is styled as a self-managed superannuation fund (SMSF). A principal matter in dispute between the parties is whether the TAS Fund was set up and/or operated as a sham. Initially Mr and Mrs Manietta were each members of the fund. Mr Manietta ceased to be a member on or about March 2017 when he purported to rollover his interest into a superannuation account with HUB24 leaving Mrs Manietta as the only member of the TAS Fund. The effect of Mr Manietta’s purported exit from the TAS Fund is in dispute. The assets of the TAS Fund are directly and indirectly the subject of the freezing orders presently in issue;

(4)    The Lime Street Trust which was established on 20 February 2003 by the Lime Street Property Trust Deed between Wilton Wong and Mizpah Investments as trustee, with Mr and Mrs Manietta as unitholders;

(5)    The Manietta Settlement Trust which was established on 23 December 2010 by trust deed entitled “the Manietta Settlement” between Greg Vilder and RMI as trustee. As noted above, RMI resigned as trustee and was replaced by D’Aconia Copper in 2012. Mr and Mrs Manietta were the primary beneficiaries of the Manietta Settlement Trust which is a discretionary trust. The assets of the Manietta Settlement Trust are directly or indirectly the subject of the freezing orders presently in issue;

(6)    The Woollahra Trust which was established by trust deed between Peter James Donkin and Woollahra Enterprises Pty Limited. The trust was constituted with Woollahra Enterprises as its trustee and TAS Investment Advisers as its sole unitholder; and

(7)    The TAS IA Trust which was established by trust deed on 1 November 2016 with TAS Investment Advisers as the trustee. Woollahra Enterprises in its capacity as trustee of the Woollahra Trust was the sole unitholder upon establishment.

THE MONCUR STREET PROPERTY

10    The freezing orders presently in issue relate, directly or indirectly, inter alia, to the assets of the New Mizpah Trust, interests in which are held by the TAS Fund and the Manietta Settlement Trust. The orders are directed to preserving the value of those assets and to preventing dealings with those assets including by in effect diluting or altering the existing interests in each of the three trusts.

11    At the time the proceedings were commenced, Mizpah Investments as trustee of the New Mizpah Trust was the registered proprietor of real property at 28 Moncur Street, Woollahra (Moncur Street property). The Moncur Street property comprises the principal asset of the New Mizpah Trust and also of the TAS Fund by virtue of Galt’s substantial unitholding in the New Mizpah Trust in its capacity as trustee of the TAS Fund.

12    A recent real estate sales appraisal suggested that the Moncur Street property could achieve a sale price of between $9 – 10 million. That appraisal was not a formal valuation. It was admitted on this interlocutory application over the Trustee’s objection. It is the only evidence as to a relatively current market value of the Moncur Street property. This evidence is relevant to the issue of whether if the freezing orders in dispute are made/maintained, the monetary or value cap to which such orders should be subject.

13    The main asset of the TAS Fund is ownership of 96.43 percent of units in the New Mizpah Trust. The remaining 3.57 percent of units in the New Mizpah Trust are owned by D’Aconia Copper as trustee of the Manietta Settlement Trust. The Moncur Street property was acquired by Mizpah Investments as trustee of the New Mizpah Trust by contract of sale dated 18 August 2012 with a purchase price of $2,956,000. The property is a mixed commercial and residential premises in which Mr and Mrs Manietta reside. The timing of when the Maniettas moved into the property is in dispute. The applicant contends that the Maniettas have resided in the property from around 2012 or 2013. The Maniettas say they moved into the upstairs part of the property in mid-August 2014. Mrs Manietta’s evidence on this application is that they continue to reside at the property. The issue in respect of whether Mr and Mrs Manietta reside at the Moncur Street property is relevant to the Trustee’s contention that the TAS Fund is a sham and not in truth a superannuation fund.

14    The parties’ negotiations regarding the sale of the Moncur Street property and the application of the proceeds of sale are contained in correspondence exchanged in the period from July to September 2021. The parties are in agreement that the property may be sold on terms, with an agreement, the terms of which are not in evidence, in place pending determination of the present applications.

PROCEDURAL HISTORY – FREEZING ORDERS

15    These proceedings were commenced ex parte on 2 June 2020. On that day the Trustee sought urgent interlocutory relief restraining the respondents from dealing with their assets. On 2 June 2020 Perram J made interim ex parte orders against Mr and Mrs Manietta and the trustees of various trusts.

16    The application was brought back before Gleeson J on 26 June 2020 after the Trustee became aware that certain jewellery, wine and artwork had not been referred to in Mr Manietta’s Statement of Affairs. At that time, Gleeson J made additional freezing orders in relation to the property comprised of the jewellery, wine and artwork and extended the existing interim orders until further order.

17    On 19 August 2020, by consent and without admission by any respondent, Gleeson J made freezing orders, including the 2020 freezing orders that are the subject of the present application. The orders were relevantly made “until further order or written agreement between the parties.” The inter partes hearing in respect of the interim freezing orders that was listed for 21 August 2020 was vacated. Neither party sought to lead any evidence in relation to the negotiations that resulted in the consent orders being submitted to the Court. I note that the timing of consent orders was reasonably proximate to the public examinations conducted on 11 August 2020 and continued on 12, 13 and 25 August 2020.

18    An unusual feature of the 2020 freezing orders is that they are not limited to a specified monetary value or percentage of the restrained assets. Similarly, the proposed additional freezing orders sought in the present application are not limited to a specified monetary sum or percentage of the restrained assets. This is in the context of the creditors’ claims totalling about $5.9 million and the value of all of the restrained assets exceeding that sum by a significant amount. Even taking into account the costs of the administration and costs of the present proceedings beyond the recoverable costs, it appears that the value of the assets restrained or otherwise impacted by the existing freezing orders may exceed the likely quantum of the Trustee’s claim in the event that the Trustee is successful. One of the issues in the present application concerns whether the freezing orders in issue should be subject to a limitation and if so, what that limit should be.

19    Subsequent to the 2020 freezing orders being made, on 14 October 2020 the Trustee filed an Amended Application and an Amended Statement of Claim (Amended Pleadings). Recently, on 13 January 2022, the Trustee filed a Further Amended Application and a Further Amended Statement of Claim (together the Further Amended Pleadings) pursuant to leave granted on 11 January 2022. The respondents did not consent or oppose the grant of leave.

FREEZING ORDER THE SUBJECT OF THE PRESENT APPLICATIONS

20    As noted at the outset, the respondents sought to narrow the issues in dispute and did not pursue discharge of orders 1 to 4 or 6 of the 2020 orders which restrain the respondents from dealing with certain property including wine, jewellery and artworks. The respondents also indicated they did not object to prayer 4 of the Trustee’s amended interlocutory application which seeks orders for production of certain documents from the respondents. I will make orders in relation to these matters that reflect the respondents’ position on these issues.

21    The substantive issues for determination are two-fold but the facts relevant to both largely overlap. The first issue focusses on whether order 5 of the 2020 freezing orders should be discharged. The second issue is whether additional freezing orders should be made.

Order 5 of the 2020 freezing orders

22    Order 5 of the 2020 freezing orders provides:

[Mrs Manietta] and [Galt] as trustee of the [TAS Fund] be restrained from selling, transferring, mortgaging, charging or encumbering any assets of the [TAS Fund]:

(a)    pending further order; or

(b)    on terms as first agreed in writing between the parties.

23    Order 5 restrains Mrs Manietta and Galt, as trustee of the TAS fund, from dealing with assets of the TAS Fund. It will be recalled that Mrs Manietta is the sole director, secretary and shareholder of Galt.

24    The TAS Fund is styled as a superannuation fund of which Mrs Manietta has been the sole member since March 2017. Mrs Manietta deposes that she relies on the TAS Fund for her pension. The Trustee contends that the TAS Fund was set up and/or operated as a sham in that the assets of the TAS Fund were held on trust for each Mr and Mrs Manietta but not as an Australian superannuation fund. The Trustee seeks various relief in relation to the assets of the TAS Fund including a declaration that the assets of the TAS Fund are beneficially held equally by Mr and Mrs Manietta and a declaration that the assets of the TAS Fund are held beneficially as to 2% by Mrs Manietta and as to 98% by Mr Manietta. These declarations are not expressed to be in the alternative.

25    On or about 11 June 2020, the Trustee caused a dealing to be lodged on the title of the Moncur Street property which asserted that the property was subject to a court order made on 5 June 2020. The Moncur Street property was not subject to any such court order. The Trustee appears to have laboured under the misapprehension that the 2020 freezing orders operated to restrain dealings with the Moncur Street property. I say appears because there is a lacuna in the Trustee’s evidence which would explain why he caused the dealing to be lodged. If the dealing was lodged by reason of a mistaken belief that the 2020 freezing orders covered the Moncur Street property such a belief may have been borne of the fact that the names of two of the trusts with which Mr Manietta is associated are identical, both being designated as the Mizpah Investment Trust and both being under the control of the same trustee. In the present proceedings, the names “Old Mizpah Trust” and “New Mizpah Trust” have been used to differentiate between the two. The Old Mizpah Trust was captured by the 2020 freezing orders. The New Mizpah Trust was not.

26    It was not until around 23 June 2021 that the respondents’ solicitor raised an issue in relation to the coverage of the existing freezing orders and the invalidity of the registered dealing. The context for the issue being raised at that point was the respondents’ desire to sell the Moncur Street property in the then prevailing market conditions and in circumstances where the Maniettas were in need of funds to relocate to the Central Coast to be closer to elderly and infirm relatives. There followed a period of negotiation between the parties in which inter alia the Trustee sought to impose conditions on his preparedness to take steps to remove the registered dealing, including with respect to preserving any proceeds of sale of the Moncur Street property in circumstances where that property was not covered by the 2020 freezing orders and the Trustee had made no application to the Court for orders in respect of it. It is not necessary here to otherwise recount the detail of the negotiations, suffice to note that the negotiations did not achieve a resolution by 21 September 2021, when the respondents served an amended interlocutory application which sought an order requiring the Trustee to immediately take all reasonable steps to remove the improperly lodged request. In the result the dealing on the title of the Moncur Street property was removed following a Court order made by consent on 7 October 2021. By that time, the Trustee filed the amended interlocutory application seeking additional freezing orders which are directed inter alia to restraining the Moncur Street property. By the time of the present interlocutory hearing it was common ground that the 2020 freezing orders did not cover the New Mizpah Trust and so did not cover the Moncur Street property.

The additional freezing orders

27    By prayers 2, 3 and 6 of the Trustee’s amended interlocutory application, the Trustee seeks the following additional freezing orders:

2.    An order that [Mizpah Investments] as trustee of the [New Mizpah Trust]…be restrained until further order from selling, transferring, mortgaging, charging or encumbering any assets of the [New Mizpah· Trust]:

(a)    pending further order; or

(b)    on terms as first agreed in writing between the parties.

3.    An order that [Mizpah Investments] as trustee of the [New Mizpah Trust] be restrained until further order from creating, issuing or allocating any further units in the [New Mizpah Trust]:

(a)    pending further order; or

(b)    on terms as first agreed in writing between the parties.

6.    An order that [D’Aconia Copper] in its capacity as trustee of the Manietta Settlement Trust be restrained until further order from selling, transferring, mortgaging, charging or encumbering any assets of the Manietta Settlement Trust:

(a)    pending further order; or

(b)    on terms as first agreed in writing between the parties.

(underlining as per original)

28    The proposed additional orders, which are opposed by the respondents, seek inter alia to restrain the way in which the Moncur Street property (and any proceeds of sale in respect of that property) can be dealt with, while permitting the sale of the Moncur Street property on terms agreed in writing between the parties. Proposed order 6 seeks to restrain the D’Aconia Copper, as trustee of the Manietta Settlement Trust, from dealing with the assets of that trust including any the proceeds of sale of the Moncur Street property it receives as a minority unit holder in the New Mizpah Trust, subject to terms being agreed in writing between the parties.

THE EVIDENCE

29    The respondents relied on:

(1)    Affidavits of Jovan Sarai, solicitor for the first to sixth and eleventh respondents, affirmed 17 September 2021, 21 September 2021 and 14 October 2021;

(2)    Affidavit of Mrs Manietta sworn 12 October 2021;

(3)    Affidavit of Mr Manietta sworn 12 October 2021; and

(4)    Affidavit of Peter Donkin dated 13 October 2021.

30    The Trustee relied on:

(1)    Affidavits of the trustee dated 1 June 2020, 26 May 2021, 24 September 2021 and 5 October 2021, and the exhibits thereto;

(2)    Affidavits of Steven Peter Agosta, solicitor for the trustee, dated 2 September 2021 and 21 September 2021; and

(3)    Affidavit of Richard Arnold dated 24 May 2021.

BACKGROUND

Bankruptcy of Mr Manietta

31    The Trustee was appointed as trustee of the bankrupt estate of Mr Manietta on 8 May 2017 following the presentation of his debtor’s petition.

32    On 4 May 2017, Mr Manietta executed his Statement of Affairs attesting to the value of his assets being $10,000 (excluding his wedding ring). Some property that had been itemised as joint property of Mr and Mrs Manietta some three years earlier in a joint personal financial statement provided to Westpac Banking Corporation were not included in Mr Manietta’s Statement of Affairs. In that joint personal financial statement Mr and Mrs Manietta declared joint property to the value of $13 million and liabilities $500,000 (when drawn).

33    In his Statement of Affairs, Mr Manietta declared his residential address to be a property in Glenmore Road, Paddington (the Glenmore Road property).

34    On 20 November 2018, the Trustee commenced proceedings in the Federal Circuit Court of Australia seeking the issue of summonses for the examinations of the Maniettas and other persons and entities associated with the bankrupt. Public examinations were conducted in August 2020 after some delay arising from the COVID-19 pandemic. Mr and Mrs Manietta were each examined on 11 and 12 August 2020. The Trustee also obtained orders for the production of documents in February 2020, with documents being produced in response to those orders in March 2020.

35    Mr and Mrs Manietta were examined in respect of, inter alia, their residential address and certain valuable items of personal property. Mrs Manietta’s evidence during her s 81 examination was that her residential address at the time was the Glenmore Road property. Upon being further questioned Mrs Manietta revealed that she resided in the Moncur Street property "most of the time" with her husband and that the her clothing and personal effects, together with Mr Manietta's, were located at that property. Mrs Manietta was also questioned regarding jewellery and watches which were said to belong to Mr Manietta but were not disclosed to the Trustee. While Mrs Manietta was aware of the existence the jewellery and watches referred to, she could not say who they belonged to, notwithstanding Mrs Manietta's evidence was also that she arranged insurance for Mr Manietta's watches each year between financial years 2014 to 2018. She said she did not obtain insurance for watches in the FY 2018 but instead kept the watches in a safe.

36    Mr Manietta was due to be discharged from bankruptcy on 8 May 2020 however the Trustee, on 3 April 2020, filed an objection to his discharge. On 6 April 2020, the Official Receiver extended the bankruptcy for a further five years.

37    The events giving rise to Mr Manietta’s bankruptcy are summarised in the Trustee’s evidence. The following background is drawn from that evidence.

38    On 21 September 2012, solicitors for Brent Courtney, Maureen Courtney (the Courtneys) and the Courtney Superannuation Fund (CSF) issued a letter of demand in the sum of $2,060,735.50 plus interest to Super Smart, a company of which Mr Manietta was the sole director and secretary at the relevant time, seeking payment of damages for the provision of allegedly negligent investment advice to the Courtneys and CSF.

39    The investment in issue was represented to be through a new trust in which the investors would be unitholders. The fund created was to be used as short term interest bearing loan secured by registered first mortgages over property comprised of two pubs and a property in the eastern suburbs of Sydney.

40    On 14 March 2013, Richard Webster, Loris Webster (the Websters) and the Webster Superannuation Fund commenced proceeding in the Supreme Court of New South Wales against Super Smart, Mr Manietta and RMI for damages in respect of allegedly negligent investment advice and misleading and deceptive conduct (Webster proceedings). The investment in issue involved the same trust as had been recommended by Mr Manietta to the Courtneys and CSF.

41    On 5 September 2016, the Courtneys and CSF commenced proceedings in the Supreme Court of New South Wales against Super Smart, Mr Manietta and RMI alleging breach of contract, breach of duty of care and statutory causes of action based on misleading and deceptive conduct (Courtney proceedings). Default judgment in the Courtney proceedings was entered by Campbell J on 9 March 2017.

42    Both the Webster and Courtney proceedings concerned allegations of negligence against Mr Manietta and his associated entities regarding financial advice in respect of investments that the Websters and Courtneys had been advised to make. The substance of the allegations concerned recommendations made by Mr Manietta on his behalf and on behalf of Super Smart and RMI in October 2010 that the Websters and the Courtneys each invest $1 million through a new trust in which they would become unit holders. The investment was proposed to be a three month loan which was due to be repaid in January 2011. The monies were ultimately used to pay down tax liabilities and other liabilities of the borrowers.

43    In around 2013 and 2014, Mr Manietta was audited by the Australian Taxation Office (ATO) and was found to have a tax debt of $363,247.85 in relation to financial years ending 30 June 2009 to 2012. These debts remain outstanding.

44    On 6 October 2016, Mr Yates of Yates Beaggi Lawyers, solicitors who were retained by Mr Manietta in respect of the Webster and Courtney Proceedings, sent correspondence to Mr Manietta advising that Yates Beaggi Lawyers would no longer act for him in in circumstances where he owed in excess of $600,000 in legal fees.

45    Shortly thereafter Mr Manietta commenced discussions with Mr Brien of Nicols and Brien, an insolvency practice of which the trustee is a partner. During the course of October and November 2016, Mr Manietta discussed the possibility of a Part X arrangement or bankruptcy. On 19 October 2016, in a meeting with the trustee, Mr Manietta claimed that he had at least three significant creditors being the ATO ($1 million), Yates Beaggi Lawyers ($700,000) and the Websters and the Courtneys ($2.2 million).

46    The Webster proceedings and the damages assessment in the Courtney proceedings, were heard together by Adamson J. On 4 May 2017 her Honour delivered judgment: Webster v Super Smart Strategies Pty Ltd; Courtney v Super Smart Strategies Pty Ltd [2017] NSWSC 531. Judgment was entered against Mr Manietta for $1,545,428.32 (plus costs) in the Webster proceedings and $1,279,928.32 (plus costs) in the Courtney proceedings. Mr Manietta was found to have known, but not revealed to the Websters that the monies would largely be used to pay the tax liabilities of the proposed borrowers on the loan: Super Smart Strategies at [15].

APPLICABLE PRINCIPLES

Freezing orders

47    The Court’s power to make freezing orders arises under s 23 of the Federal Court of Australia Act 1976 (Cth) and Division 7.4 of the Federal Court Rules 2011 (Cth). Relevantly, r 7.32 states:

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

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

48    The principles applicable to the making of freezing orders are well settled and were recently summarised by Anderson J in Rambaldi (Trustee) v Sumpton [2021] FCA 1199 at [9] to [15] and may be summarised as follows:

(1)    in a contested application for freezing orders, the applicant bears the onus of showing:

(a)    a good or reasonably arguable case;

(b)    that there is a danger that the prospective judgment will be wholly or partly unsatisfied because the assets of the prospective judgment debtor or another person will be removed from Australia or the assets will be disposed of, dealt with or diminished in value; and

(c)    the balance of convenience favours granting the order.

(2)    a freezing order, by its very nature, is a drastic remedy and a court must exercise a high degree of caution before taking a step which will interfere with a party’s capacity to deal with his or her assets;

(3)    a freezing order is solely directed to preserving assets from being dissipated, thereby frustrating the court process, and is not designed to provide security for the applicant’s claim;

(4)    the applicant bears the onus both in satisfying the court that the order should be continued and in satisfying the court as to the amount which is to be the subject of the order;

(5)    a freezing order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork are no substitute for either the facts or inferences properly drawn from proven facts; and

(6)    there may be important discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court.

49    The applicant bears the onus of establishing that there is a good arguable case on legal and factual matters or a sufficiently realistic prospect of success on the proceedings: Basi v Namitha Nakul Pty Ltd [2019] FCA 743 at [8] (Wigney J). The criterion of good arguable case is a lesser standard than the prima facie cause of action requirement favoured by the majority in Patterson v BTR Engineering (1989) 18 NSWLR 319 (Gleeson CJ and Rogers A-JA). That is, a good arguable case is one which is “more than barely capable of serious argument, and yet not necessarily one the judge considers would have more than a fifty percent change of success”: Curtis v NID Pty Ltd [2010] FCA 1072 at [6] (Edmonds J) citing Ninemia Maritime Corp v Trave Schiffahrtsgesselschaft mbH & Co KG (The Niedersachsen) [1983] Com LR 234 at 235 (affirmed on appeal: [1983] 1 WLR 1412); Deputy Commissioner of Taxation v Greenfield Electrical Services Pty Ltd (2016) 103 ATR 327; [2016] FCA 653 at [7] (Flick J).

50    The applicant must establish on the evidence that there is a risk of dissipation of assets. While the quality of the risk has been variously described in the authorities, it is clear that the applicant must establish that there is a real risk. In Patterson, Gleeson CJ rejected a formulation of the test that required satisfaction of a risk of dissipation on the balance of probabilities. His Honour observed that there may be some situations in which equity and justice require the granting of relief to prevent the dissipation of assets pending a hearing, even if such a risk may be assessed as being somewhat less than probable: Patterson at 325 (Gleeson CJ) (with whom Meagher J agreed at 326 – 327). What must be established is a sufficient likelihood of risk which in the circumstances of the particular case warrant an order being made: Victoria University of Technology v Wilson [2003] VSC 299 at [36] (Redlich J) citing Gleeson CJ at 325 in Patterson; see also Lifetime Investments Ltd v Commercial (Worldwide) Financial Services Pty Ltd [2005] FCA 226 at [14] (Kiefel J, as her Honour then was). Importantly the plaintiff must establish, by evidence and not assertion, that there is a real danger that by reason of the respondent absconding or removing assets out of jurisdiction, they will not be able to have the judgment satisfied if successful against the respondent: Frigo v Culhaci [1998] NSWCA 88 at 8 (Mason P, Sheller JA and Sheppard AJA); Curtis at [9] – [10] (Edmonds J).

51    The risk of dissipation of assets to avoid a judgment may be established by inference when, for example, there is a strong prima facie case of serious dishonesty against the respondent from which it can reasonably be inferred that the respondent is the sort of person who would, unless restrained, not preserve his or her assets intact so that they might be available to a judgment creditor: Patterson at 325 - 326 (Gleeson CJ). The respondents submitted that there has been much debate in the case law about the applicability and correct interpretation of Gleeson CJ’s approach in Patterson. I do not understand there to be controversy around the correctness of principle espoused in Patterson that it is open to the Court to draw an inference of a risk of dissipation based on the evidence in respect of, and the nature of, the good or reasonably arguable case against the respondent. The authorities demonstrate that whether an inference may be drawn will depend on the circumstances of a particular case: see Wilson at [36] (Redlich J) which was cited with approval by Kiefel J in Lifetime Investments at [9]. There is no requirement that there must be direct evidence on the risk of dissipation. Evidence of a real risk of dissipation in the requisite sense may, and often will, be indirect in that it is an assessment of future conduct and necessarily dependent on inferences being drawn (including by reason of the nature and strength of the case relied on by the applicant): Blue Mirror Pty Ltd v Pegasus Australia Developments Pty Ltd [2021] NSWSC 961 at [80] (Kunc J).

52    The considerations that bear on the exercise of the discretion to make a freezing order are similarly relevant to an assessment of whether those freezing orders ought to be dissolved: Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 at [53] (Gaudron, McHugh, Gummow and Callinan JJ).

Sham

53    In the present application, the Trustee seeks to establish that he has a good or reasonably arguable case by reference to the legal doctrine of sham.

54    In Raftland Pty Ltd v Federal Commissioner of Taxation [2006] FCA 109; (2017) ALR 598 the Court was concerned with an appeal by a taxpayer from the Commissioner of Taxation’s disallowance of its objection to a notice of assessment. The taxpayer contended that the Commissioner’s finding that certain distributions made by it in its capacity as trustee of a unit trust operated as a sham was incorrect at law. Justice Kiefel found that the distributions at issue, which were made to an entity that had sustained substantial losses, were sham transactions intended to reduce the tax liabilities of the taxpayer. In resolving the proceedings against the taxpayer, her Honour had regard to the following principles regarding the sham doctrine (at [76] - [78]):

[76] The term “sham” has been used in the context of commercial transactions and the ITAA. It has come to be applied where persons have entered into an “ostensible transaction as a disguise to conceal their true transaction”: Re State Public Services Federation; Ex Parte Attorney-General (WA) (1993) 178 CLR 249 at 290; 113 ALR 385 at 405–6; [1993] HCA 30 per Toohey J. In Sharrment Pty Ltd v Offıcial Trustee in Bankruptcy (1988) 18 FCR 449 at 454; 82 ALR 530 at 536–7 (Sharrment), Lockhart J reviewed the authorities on the meaning of “sham” in this context, and concluded:

A “sham” is therefore for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.

[77] Critical to a characterisation of a transaction as a sham is that the parties do not intend to give effect to the ostensible transaction: Scott v FCT (No 2) (1966) 40 ALJR 265 at 279 (Scott v FCT); Coppleson v FCT (1981) 34 ALR 377 at 380–1; 52 FLR 95 at 98 (Coppleson v FCT). In Sharrment at FCR 455; ALR 537–8 his Honour gave the example of a purported disposal of property and the creation of a debt. In his Honour’s view it might be a sham if the donor and donee do not intend to give effect to the transaction, it being agreed between them that there will be no change in the legal and beneficial ownership of the property. His Honour referred to Lord Diplock’s judgment in Snook v London & West Ryding Investments Ltd (1967) 2 QB 786 at 802 where it was explained that a sham arose where acts are done, or documents are created, which are intended to give the appearance of creating the parties’ legal rights and obligations, different from the actual legal rights and obligations. His Lordship considered it to be clear, in legal principle, that to be a sham the parties must have “a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating”. It is otherwise where the parties intend that the documents in question should take effect, and operate according to their tenor “and that they should respectively have the rights and be bound by the obligations thereby created”: Lau v FCT (1984) 54 ALR 167 at 172–3 per Connolly J.

[78] …In Sharrment Lockhart J considered that one person’s control of the situation did not itself permit a conclusion about whether a loan was regarded by the parties as recoverable: at FCR 457; ALR 539–40. It was necessary to look at the legal effect of what had been undertaken.

[79] The importance of this consideration was confirmed in Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471; 211 ALR 101; [2004] HCA 55 where the High Court rejected an argument that unless real money was lent, the transaction was a sham. In their Honours’ view this relied upon an economic rather than a legal effect of the transaction: at [48]. A “sham” refers to steps which take the form of a legally effective transaction, but which the parties do not intend should have the apparent, or any, legal consequences. The proposition that no real money was lent, and no real capital therefore brought to the venture, depended upon an unstated premise that the obligations said to be owed could not, or would not, be met: at [49].

Her Honour’s approach was upheld by the majority of the High Court in Raftland Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2008] HCA 21; (2018) 238 CLR 516.

55    At [88], Kiefel J cited the observations of Windeyer J in Scott v Federal Commissioner of Taxation (Cth) (No 2) (1966) 40 ALJR 265 (at 279):

But it is not enough to say that a fund governed by the provisions of a deed such as that we have here could be a superannuation fund within the meaning of the Act. For it to be so in fact the parties concerned must have intended that the deed should take effect and operate according to its tenor; that a fund should be set up subjected to the trusts of the deed; and that Associated Provident Funds should as trustee be bound to carry out those trusts. On the other hand, if the scheme, including the deed, was intended to be a mere facade behind which activities might be carried on which were not to be really directed to the stated purposes but to other ends, then the words of the deed should be disregarded. It was urged for the appellant Associated Provident Funds that it is a real company and that the deed was really executed by it; and that, it was said, is the end of the question. But it is not. A disguise is a real thing: it may be an elaborate and carefully prepared thing; but it is nevertheless a disguise. The difficult and debatable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be in truth their transaction, or did they mean it to be, and in fact use it as, merely a disguise, a facade, a sham, a false front — all these words have been metaphorically used — concealing their real transaction …

56    The Full Court in Coshott v Prentice [2014] FCAFC 88; (2014) 221 FCR 450 was faced with an appeal from a decision in which the primary judge found that the bankrupt held his 50% interest in certain property beneficially and not on trust in a superannuation fund. The primary judge further found that the arrangement was a sham. The principal issue on appeal was whether the bankrupt’s interest in the property was held by him as trustee or beneficially. In considering this issue, the Full Court considered the legal meaning of the term “sham” (at [63] – [64]):

63     While the term “sham” may be ambiguous and its meaning and application uncertain, it has a clear and well-understood legal meaning: Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516 (Raftland) at [35] (Gleeson CJ, Gummow and Crennan JJ). As Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ explained in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 (Equuscorp) at [46] in a passage cited by the primary judge at [88], when employed as a legal term, the word “refers to steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences”. In other words, as Leeming JA (with whose reasons McColl JA and Sackville AJA agreed) recently explained in Lewis [v Condon [2013] NSWCA 204; (2013) 85 NSWLR 99; 304 ALR 410] at [59]:

… it is essential that there be an intention that the true transaction is different from that which would ordinarily be attributed to the transaction on the face of the documents. As Lord Wilberforce put it, “to say that a document or transaction is a ‘sham’ means that while professing to be one thing, it is in fact something different”: WT Ramsay v Inland Revenue Commissioners [1982] AC 300 at 323.

64    Thus, the element of deliberate deception lies at the heart of the legal concept of a sham. The seriousness of the allegation of a sham thus mandates that the Court act with much care and caution before finding that it is established, as the appellants contend. More fundamentally, it is this element of intentional deceit which justifies the Court taking the exceptional step of determining the legal effect of a document, such as a contract or trust instrument, on the basis of the parties’ subjective intentions, including by reference to extrinsic material, as opposed to the objective meaning of the document: Raftland at [140]-[142]; Lewis at [60]-[72]. This is the rationale for the sham doctrine. As Professor Matthew Conaglen explained in “Sham Trusts” (2008) 67(1) Cambridge Law Journal 176 at 180 (in an analysis approved by the NSW Court of Appeal in Lewis):

Where parties have chosen to “channel” their relations through certain legal forms, the courts necessarily apply a two-stage process when construing that arrangement: first, ascertaining what rights and obligations the parties intended to create, and second, categorising that set of rights and obligations as a matter of law … The doctrine of sham is crucially relevant at the first stage of the process, in that it identifies the material to which a court can and cannot have regard when ascertaining what rights and obligations the parties intended to create.

(Emphasis in original.)

CONSIDERATION

57    As noted in Cardile at [53], the considerations that bear on the exercise of the discretion to make a freezing order are similarly relevant to an assessment of whether those freezing orders ought to be dissolved. That is particularly so in the present applications which arise from the same complex factual background and where the orders in issue are ultimately directed to stemming any dealing or dilution of interest in the assets of TAS Fund which comprise principally the Moncur Street property. Subject to addressing a preliminary issue raised in relation to the onus of proof on the application for discharge of the 2020 freezing orders, given the substantial overlap between the two applications, I will consider the competing applications together.

Onus on the application for discharge of existing orders

58    While it is accepted that the Trustee bears the onus of establishing that the additional freezing orders should be made, a dispute between the parties emerged during oral argument as to who bore the onus on the issue of the discharge application.

59    It will be recalled that the chronology in respect of the 2020 freezing orders is as follows: ex parte orders which were subject to a temporal limitation to 3 July 2020 were made on 5 June 2020; the orders were extended by consent until further order (and varied to include additional property) on 26 June 2020; and extended “by consent and without admission by any respondent” on 19 August 2020 until further order or written agreement by the parties. On 19 August 2020, the date of 21 August 2020, which had been fixed for the inter partes hearing was vacated, and procedural orders were made timetabling service of a draft statement of claim. As noted above, the parties did not lead evidence in relation to the negotiations that resulted in the consent position being reached on 19 August 2020.

60    The Trustee accepts that the Court has power to discharge the orders but submits that the respondents bear the onus. The Trustee argues that he is not in the position of an applicant who has obtained orders ex parte and carries the onus on whether the orders should be continued when the matter is returned before the Court on an inter partes basis. The Trustee submits that the respondents bear the onus of establishing that the existing freezing orders against Mrs Manietta and Galt as trustee of the TAS Fund should be discharged. The trustee relies on Guo v Xu [2021] NSWSC 460 (Rees J) and submits that the respondents must demonstrate that there has been a material change of position warranting the discharge of the existing freezing orders, which were made by consent and have been on foot for a considerable period of time.

61    In Guo an ex parte freezing order had been made in aid of proceedings that the plaintiff proposed to commence in the High Court of the Hong Kong Special Administrative Region Hong Kong. The Hong Kong proceedings were duly commenced. The freezing order was extended by consent and varied, culminating in the court making orders by consent extending the freezing order until the conclusion of the Hong Kong proceedings. The relevant issue in Guo for present purposes was whether where the defendants had consented to the freezing order following negotiation, it was necessary to establish exceptional circumstances or merely a material change of circumstances in order to discharge the consent order. The court was concerned with consent orders which were found to give effect to a contract between the parties following protracted and difficult negotiations and which operated not only to continue the freezing order but also to finalise all remaining procedural issues in the Australian proceedings, including costs: Guo at [170]. The Trustee accepts that in the present proceedings the consent orders do not give effect to a contract between the parties as was the case in Guo. The Trustee does not contend that the heavy or exceptional onus that applies where there has been an interim settlement is engaged: c.f. Guo at [162] and the authorities cited therein. Nevertheless, the Trustee submits because the freezing orders are interlocutory orders made by consent, the respondents must establish a material change in position in order to obtain a discharge of those orders.

62    The respondents counter that the principle that interlocutory orders may only be discharged in the event of a material change of circumstances does not apply in the present context where there has not been a contested hearing and the orders were made by consent and without admission: Brimaud v Honeysett Instant Print Pty Ltd [1988] 217 ALR 44 at 46 (McLelland J, as his Honour then was). The respondents draw attention to McLelland J’s observation that not all kinds of interlocutory applications attract the same considerations:

Not all kinds of interlocutory orders attract the same considerations. For present purposes one may put to one side orders of a merely procedural nature (as to which see for example Wilkshire & Coffey v Commonwealth (1976) 9 ALR 325) and injunctions (or undertakings) made or given by agreement and without contest “until further order” (as to which see for example Warringah Shire Council v Industrial Acceptance Corp (unreported, SC(NSW), McLelland J, 22 November 1979).

63    In the circumstances in which the 2020 freezing orders were made, the respondents submit that the position is analogous to that in Warringah Shire Council v Industrial Acceptance Corp (unreported, 40 SC(NSW), McLelland J, 22 November 1979) where McLelland J observed at 3:

However, where the parties agree upon the manner in which an application for interlocutory relief is to be disposed of and relief is granted pursuant to that agreement, whether by way of injunction or the acceptance by the Court of an undertaking, without any contest, any subsequent application for the variation of that relief must be approached on the basis of what justice requires as between the parties.

and at 4 continued in respect of the phrase “until further order of the Court”:

In the absence of any countervailing circumstances and of any reference to the final hearing of the proceedings, I take this phrase to express the mutual contemplation by the parties that at some time pending the final hearing of the proceedings the question of whether the second defendant should continue to be restrained from selling or completing any contract of sale of its land might properly be submitted for determination by the Court, such determination to supersede the agreed undertakings.

In these circumstances, although in a technical sense the second defendant as the moving party has the onus of showing that the orders it seeks should be made, the question is in substance, whether the plaintiffs are entitled on ordinary principles to interlocutory relief restraining the second defendant from selling or completing any contract for the sale of its land.

64    In this respect I note that in Guo, Rees J in reviewing the authorities on the court’s inherent power to vary or discharge a freezing order made by consent, did not conclude that the only circumstance in which the power could be exercised was where there had been a material change in circumstances. To the contrary, Rees J recognised that a material change of circumstance, being an aspect of the live issue before her Honour, was one situation in which the court may do so (at [162]):

Even where a freezing order is made, or an undertaking given, by consent, the Court has inherent power to vary the freezing order or release a party from their undertaking inter alia where new facts come into existence or are discovered which render enforcement of the order or undertaking unjust: Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 178; [1981] HCA 39; Hutchinson v Nominal Defendant [1972] 1 NSWLR 443 at 447 per Isaacs J; RD Werner & Co Inc v Bailey Aluminium Products Pty Ltd (1988) 18 FCR 389 at 392-3; [1988] FCA 142 per Woodward and Foster JJ; Short v Crawley (No 42) [2009] NSWSC 1110 at [74]-[75] per White J. However, the nature and quality of the consent underpinning the order or undertaking will affect the Court’s willingness to do so.

65    The parties did not lead any evidence against which I can assess the “nature and quality of the consent underpinning” the orders made in the present case. The chronology exposed by the Court record reveals that at the same time as the freezing orders were made by consent, timetabling orders were also made by consent for the inter partes hearing in respect of the ex parte orders to be vacated and for the service of any draft statement of claim. There has been no hearing on the merits. The examinations of Mr and Mrs Manietta were in train at the time the consent orders were made having commenced on 11 August 2020 and continued on 12, 13 and 25 August 2020. Viewed in this context and in the absence of any evidence as to what led to the consent orders being entered I would readily infer the parties being otherwise occupied in respect of the examinations and progressing the pleadings in the substantive proceedings agreed to put off the inter partes contest in respect of the freezing orders to a later time should it be necessary to agitate it. For these reasons, while in the technical sense, described by McLelland J, the respondents as moving party, bear the onus on the discharge application, as a matter of substance it is for the Trustee to justify the freezing orders. I am satisfied that justice requires this approach as between the parties.

66    In reaching this conclusion I have had regard to the drastic nature of freezing orders as a remedy and the high degree of caution that a court must exercise before interfering with a party’s capacity to deal with his or her assets. I am also conscious that the freezing orders are not subject to a limitation as to the value of the restrained property and that the Trustee has not sought to establish by evidence what an appropriate limit would be if the freezing orders stand. While it is correct to observe that the freezing orders in their current form have been in place for some time that is as a result of a consensus which has now fallen away. During the time the existing orders have been on foot the case propounded by the Trustee has evolved. As a matter of substance it is for the Trustee to justify the making of the orders and, if justified, the amount which is to be the subject of the order.

Good or reasonably arguable case

Variation to the Trustee’s case

67    The way in which the Trustee puts his case was the subject of considerable refinement during the oral submissions in a way that was not exposed in detail in the Trustee’s written submissions. By agreement between the parties, the respondents addressed first on the application. The order of address did not reflect a concession by the respondents in respect of the issue of onus. As a result, the respondents’ critique of the way in which the Trustee framed his case was necessarily directed in large part to the way in which the case was formulated in the written submissions.

68    This is further compounded by the fact that subsequent to the interlocutory application being heard the Trustee notified the respondents that he intended to seek leave to file the Further Amended Pleadings. Orders for the service of the proposed Further Amended Pleadings were made on 16 December 2021. On 11 January 2022 I heard an application for leave to file the Further Amended Pleadings at which time I granted leave. The respondents neither consented nor opposed that application for leave. In some but not all respects, the amendments operated to bring the pleadings into line with the way in which the Trustee’s case was framed in the oral submissions on the present application.

69    Based on the Further Amended Pleadings, the Trustee now seeks declarations in respect of the TAS Fund which include that:

(1)    the TAS Fund was not validly constituted as a superannuation fund or a trust fund;

(2)    the assets of the TAS Fund are beneficially held equally by Mr and Mrs Manietta;

(3)    the setting up and/or operation of the TAS Fund was a sham;

(4)    as at the commencement of the bankruptcy:

(a)     the TAS Fund was not an “Australian superannuation fund” within the meaning of s 295-95(2) of the Income Tax Assessment Act 1997 (Cth) (ITAA);

(b)    The assets of the TAS Fund were held on trust for Mrs Manietta as to 2% and Mr Manietta as to 98% or in such other proportion as the Court shall think fit;

(c)    Mrs Manietta held and continues to hold her interest in the TAS Fund in the proportion as to 2 % on her behalf and as to 98% on behalf of Mr Manietta or in such other proportion as the Court shall think fit;

(5)    The payment of $2,065,924 or $2,043,833 by or at the direction of Mr Manietta from the TAS Fund to HUB24 is void or voidable (relying on various bases); and

(6)    Mrs Manietta holds her interest in the TAS Fund to the amount of $950,000 on trust for Mr Manietta and that these “Trust Moneys” are property of Mr Manietta within the meaning of s 5 of the Bankruptcy Act 1966 (Cth).

70    By way of contrast, the relief sought by the Trustee in the version of the pleadings that were current as at the date of the interlocutory hearing, the Amended Pleadings, did not seek declarations to apportion the respective interests in the TAS Fund as 98% to Mr Manietta and 2% to Mrs Manietta. Rather, the Trustee sought a declaration that the assets of the TAS Fund are beneficially held equally by Mr and Mrs Manietta. The original prayer, which is not expressed to be in the alternative and which is expressed in the present tense and is not limited as to a point in time, is maintained in the Further Amended Pleadings. In addition, in both the Amended Pleadings and the Further Amended Pleadings, the Trustee seeks a declaration that Mrs Manietta’s interest in the TAS Fund to the amount of $950,000 is held on trust for Mr Manietta and is property of his bankrupt estate. The amendments appear to be directed, at least in part, to making it clear that the Trustee’s claim is not limited a claim to 50% or thereabouts of the assets of the TAS Fund.

71    A further aspect of the recent amendments is to introduce an alternative formulation of the way in which the Trustee’s case based on the sham doctrine is framed. The declaration in respect of the TAS Fund being a sham was previously expressed in the Amended Pleadings in terms of “the setting up and operation of the TAS Fund” being a sham. In the Further Amended Pleadings a declaration is now sought that the “setting up and/or operation of the TAS Fund is a sham”.

72    I have not been assisted with submissions from the parties that reconcile the way in which the relief is now framed with the way in which the Trustee framed his argument during the interlocutory hearing. When the matter was listed in mid-January 2022 in respect of the Trustee’s application for leave to amend, the respondents having been required to be served with the proposed Further Amended Pleadings on 30 December 2021 and, who were represented by senior counsel on the leave application, did not consent or oppose the grant of leave. The respondents did not point to any prejudice occasioned by the amendments. The Trustee did not address the significance of the Further Amended Pleadings to the present applications. The parties did not seek to make any further submissions on the present interlocutory applications at that time. Accordingly, in my consideration of the interlocutory applications and in particular whether the Trustee has established a good or reasonably arguable case and if so, whether the freezing orders in dispute should be subject to a limit as to the value of the property restrained, I have directed my consideration to the case as framed in the Further Amended Pleadings.

Sham as pleaded in Further Amended Pleadings

73    The introduction of an additional alternative case based on the operation of the TAS Fund as a sham makes it unnecessary to determine whether the Trustee has established a good or reasonably arguable case predicated on the TAS Fund being a sham from its inception. The Trustee has introduced a claim in the alternative that rests on the operation of the TAS Fund simpliciter which is independent of the claim based on the compound allegation that the setting up and operation of the TAS Fund was a sham. In this respect, the Trustee’s additional alternative claim bears some similarity to the sham findings in respect of the distributions in the Raftland decision. The allegation of sham is focussed on conduct and transactions connected with the operation of the trust and is not dependent on the trust being set up as a sham from inception.

74    Based on the argument developed in oral submissions and in the context of the Further Amended Pleadings, the Trustee’s position is that Mr Manietta saw the collapse of his business ventures and his ultimate bankruptcy on the horizon from shortly after the beginning of 2011 and thereafter took steps:

(1)    to remove his assets, and his entitlement to assets, from his name and to have Mrs Manietta installed as a figurehead notionally in control but in truth directed by him; and

(2)    to protect his business by in effect transferring clients from Super Smart to TAS Investment Advisers in circumstances where the business continued to be operated by Mr Manietta and the evidence does not demonstrate that there was an arm’s length sale or that any real consideration was paid as a matter of substance.

75    The Trustee contends by his Further Amended Statement of Claim that Mr Manietta’s intention in setting up and operating the TAS Fund was to achieve the appearance of the necessary legal form to qualify as an ‘Australian superannuation fund’ in order to enable favourable taxation treatment of contributions and distributions but in fact to use the TAS Fund as an alter ego for himself and Mrs Manietta to hold assets and distribute income without the taxation consequences that would apply if the TAS Fund was not an ‘Australian superannuation fund’ and to protect his and/or Mrs Manietta’s assets from claims by creditors, and potential creditors.

76    Principally, the Trustee contends that the manner in which the TAS Fund was operated demonstrates that it was never intended to function as a superannuation fund, rather it was a means of holding assets to give the appearance that the investments were for superannuation purposes. The Trustee submits that the fund operated as a “cloak” to move around investments of Mr Manietta’s and his related parties. The Trustee submits that the TAS Fund was a sham created by Mr Manietta with the participation of Mrs Manietta.

77    The Trustee’s argument in respect of the TAS Fund being operated as a sham is based on an analysis of the way in which the TAS Fund acquired its assets and its systemic and significant non-compliance with the requirements of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act). The Trustee submits that the Court should infer that there is a good or reasonably arguable case that Mr Manietta, with the participation of Mrs Manietta, used the TAS Fund to hide his assets from lawful creditors by placing them within a structure that was an artifice for the purpose of protecting them in the event of his personal insolvency. The Trustee contends that the TAS Fund acquired its only significant assets in contravention of the prohibition on related party transactions applicable to SMSFs at around the time Mr Manietta must have apprehended that he may be exposed to substantial claims by the Courtneys and the Websters.

78    The Trustee expressly acknowledges that his case based on the sham doctrine is a difficult case. He submits however that for the purpose of the present applications the evidence demonstrates to the requisite standard that there is a good or reasonably arguable case. In this respect I note that what is required is a lesser standard than the prima facie case standard. A good arguable case is one which is more than barely capable of serious argument, and yet not necessarily one that is considered to have more than a fifty percent chance of success.

Claims arising from Mr Manietta’s interest in New Mizpah Trust

79    In addition to the overarching attack made by the respondents on the Trustee’s claim as it was originally framed, the respondents’ position is that the Trustee’s underlying claim with respect to the TAS Fund is ill-defined, imprecise, and rises no higher than mere assertion in the pleading without the support of cogent evidence. The respondents submitted (based on the Trustee’s written submissions and necessarily by reference to the then current version of the pleadings) that they were in the dark as to how it is asserted that the bankrupt estate has any interest in the TAS Fund. The respondents argue that the Trustee has not established a good or reasonably arguable case in relation to the bankrupt estate’s interest in the New Mizpah Trust, whether by way of the majority unitholding of 96.43% held by Galt as trustee of the TAS Fund or via the minor unitholding of 3.57% held by D’Aconia Copper as trustee of the Manietta Settlement Trust.

80    The respondents’ submissions in respect of the majority unitholding held by the TAS Fund is twofold. The respondents’ primary submission is that Mr Manietta has no interest in the TAS Fund. The respondents contend that Mrs Manietta is the sole beneficiary of the TAS Fund, Mr Manietta having rolled over his interest in the TAS Fund to HUB24 as the trustee of a retail superannuation fund some time after February 2017.

81    The respondents’ secondary submission was based on the then current Amended Pleadings which have been relevantly amended to include a claim based on Mr Manietta being beneficially entitled to 98% of the TAS Fund. The respondents’ submission is that the Trustee has conceded that Mrs Manietta is entitled to 48.22% of the units in the New Mizpah Trust based on the Trustee’s acceptance that she is entitled to 50% of the assets of the TAS Fund and therefore half of the 96.43% interest that the TAS Fund holds in the New Mizpah Trust was based on the previous iteration of the pleadings. The relief claimed by the Trustee in the current iteration of the pleadings in not so confined.

82    The respondents also submitted that it is remarkable that order 5 of the 2020 freezing orders was entered denying Mrs Manietta access to the entirety of her superannuation entitlements under the TAS Fund when they contend that the Trustee acknowledges at least 48.22% of the New Mizpah units are Mrs Manietta’s property. An immediate difficulty with that submission is that prior to the respondents bringing the present application, Mrs Manietta, as well as the other respondents, had consented to the order being made in these terms. That be as it may, the question of whether the freezing orders in issue should be subject to a limitation reflecting the amount in issue in the substantive proceedings, and if so, what that limitation should be, is clearly a live issue on the present applications.

83    In respect of the minority unitholding of the Manietta Settlement Trust, the respondents submit the Manietta Settlement Trust is a discretionary trust and while Mr Manietta is a discretionary beneficiary, he is neither the trustee nor the appointor. The respondents submit that Mr Manietta’s interest under the Manietta Settlement Trust rises no higher than a right to its due administration. The respondents submit that Mr Manietta’s status as a beneficiary of the discretionary trust does not give him an interest in the TAS Fund and therefore the Moncur Street property. It is therefore unclear what interest in that discretionary trust is available to creditors of Mr Manietta. Against this, in oral submissions, the Trustee acknowledged that the Manietta Settlement Trust is a discretionary trust but says that there is no indication that the money going to the discretionary trust will go to any party other than Mr Manietta and Mrs Manietta.

Reasonably arguable case established

84    For the reasons which follow I am satisfied that the Trustee has established to requisite standard a reasonably arguable case based on the sham doctrine in respect of the operation of the TAS Fund. In reaching this conclusion, I am conscious that in the present applications, it is neither possible nor appropriate to conduct a trial of the underlying case or to determine contested questions of fact and conflicts in affidavit evidence: see Shercliffe v Engadine Acceptance Corporation Pty Ltd [1978] 1 NSWLR 729 at 734 (Mahoney JA (with whom Glass & Samuels JJA agreed) cited by the Full Court in Warner-Lambert Company LLC v Apotex Pty Ltd [2014] FCAFC 59; (2014) 311 ALR 632 with approval at 647 [72] (Allsop CJ, Jagot and Nicholas JJ). Rather, what is required is a “qualitative evaluation” of the evidence: Skyworks NSW Pty Ltd v 32 Drummoyne Pty Ltd [2017] NSWSC 343 at [24] (McDougall J). What must be established is that the applicant has a reasonably arguable case on both factual and legal matters: Basi at [8] (Wigney J) and authorities cited therein. As noted above, the expression “reasonably arguable case” is a lesser standard than the prima facie cause of action standard. A good arguable case is one which is more than barely capable of serious argument, and yet not necessarily one that would have more than a fifty percent chance of success.

85    The starting point is the discrepancy between the asset position of $10,000 declared by Mr Manietta in his Statement of Affairs signed on 4 May 2017 and the joint asset position of $13 million (with liabilities of only $500,000 when drawn) that the Maniettas declared to Westpac some three years earlier in a joint personal financial statement dated 5 August 2014. The joint personal financial statements listed assets not disclosed on the Mr Manietta’s Statement of Affairs including cash held in the TAS Fund ($875,000) and the Manietta Settlement Trust ($625,000); assets held by Super Smart ($2,900,000) and TAS ($1,800,000); properties located in Woollahra, Alexandria and Surry Hills held through Mizpah Investments ($4.2 million), Anthem Rand Pty Limited ($665,000), one of the Mizpah Trusts ($540,000); two luxury vehicles (valued at $154,000); art ($500,000); jewellery and personal belongings ($250,000); wine ($125,000) and household effects ($250,000).

86    The Trustee has identified creditors of Mr Manietta’s bankrupt estate to the value of $5.9 million. The creditors include the ATO ($1,349,930.00), the Courtneys ($1,337,928.32), Mr Webster ($1,722,000) and several law firms including Meridian Lawyers ($215,000), McCabes Lawyers ($223,326) and HWL Ebsworth Lawyers ($140,000). There are a number of other minor creditors in value including related parties such as Mrs Manietta.

87    The significance of the Courtneys, the Websters and the ATO as the major creditors or Mr Manietta’s estate emerges from the chronology of events leading to Mr Manietta lodging a debtor’s petition for bankruptcy set out at [36] – [44] above. From this evidence, I infer that from at least early 2011 Mr Manietta was aware of the potential collapse of his business and that he may himself face significant claims arising from the non-repayment of the investments made by the Courtneys and the Websters on his advice. I note that Mr Manietta was held to be liable in respect of the advice he had given in 2010 to the Courtneys and the Websters and that Mr Manietta was found to have been aware that the relevant loans were made for purposes other than as disclosed to the Courtneys and the Websters. This context is important in assessing the steps thereafter taken by Mr Manietta.

88    Before moving to the alleged “round robin” transactions on which the Trustee relies, I will first address the overarching context of the TAS Fund’s status as a purported superannuation fund. That is the context in which the specific transactions relied on by the Trustee fall to be considered in relation to whether there is a good or reasonably arguable case that the operation of the TAS Fund was a sham.

89    The Trustee submits, and I accept, that central to the operation of a SMSF is that the members use the structure as a means of placing investments to accrue income or other value with a view to securing a superannuation benefit in the form of a return on retirement. One of the attractions of the structure is that, if the SMSF is a complying superannuation fund within the meaning of the ITAA, it receives preferential tax treatment in that it does not attract the relatively higher rates of taxation that apply to other entities including companies and trusts. Use of the SMSF structure is highly regulated and to set up and operate a compliant SMSF would in most cases be a costly distraction if the structure was not used to harness the available preferential tax treatment. Further, in addition to compliance costs associated with operating a SMSF, there is the potential of criminal penalty if the SMSF structure is abused. A SMSF cannot be used to house assets in what would amount to a tax shelter.

90    In order for an SMSF to be a complying superannuation fund and receive the concessional 15% tax rate, it needs to be a resident regulated superannuation fund at all times during the income year and meet the definition of an “Australian Superannuation Fund” under s 295 – 95 (2) of the ITAA: SIS Act, ss 10 and 42A; Income Tax Rates Act 1986 (Cth), s 26(1).

91    Subject to limited exceptions that are not presently relevant, a central tenet of the SMSF regime is that an SMSF must not intentionally acquire an asset from a related-party of the fund: SIS Act, s 66(1). If an SMSF does so, it will become a non-complying fund and will not obtain the preferential tax treatment that is otherwise available to compliant SMSFs: c.f. SIS Act, s 42A(3); see also Income Tax Rates Act 1986 (Cth), s 26(2). It will also be an offence punishable by imprisonment for a term up to one year: SIS Act, s 66(5). In such circumstances, the establishment of the SMSF structure is likely to be a costly waste of time.

92    A “related party” is a member of the fund, an employer sponsor of the fund or a Part 8 associate of either of the former entities: SIS Act, s 10. Part 8 associate is defined in Part 8, subdivision B of the SIS Act. Broadly, a Part 8 associate of an individual (whether or not the individual is in the capacity of trustee) includes, but is not limited to: a relative of the individual (including their spouse and any children); other members of the SMSF; if the member is a partner in a partnership, other partners in the partnership and the partnership itself; a trustee of a trust where the individual controls the trust; or a company in which the individual has a majority voting interest (either in their own capacity or through another entity that is a Part 8 associate): SIS Act, s 70B (associates of individuals), s 70C (associates of companies), s 70D (associates of partnerships).

93    There are certain exceptions to the prohibition on acquisitions from related parties of a fund: see s 66(2), (2A) of the SIS Act. The respondents did not make submissions based on these exceptions.

94    It is not in issue that the TAS Fund if properly constituted would be a regulated fund within the meaning of s 19 of the SIS Act. The Trustee submits that the TAS Fund, in respect of every significant acquisition, infringed the rule that a trustee of a SMSF must not intentionally acquire assets from a related party. The particular transactions the Trustee points to which it says contravene s 66(1) include the acquisition of the units in the Lime Street Trust by the TAS Fund and also the acquisition of the units in the New Mizpah Trust. The Trustee’s position is that the latter acquisition is not exempt under s 66(2)(b) from the prohibition against acquiring related party assets on the basis that the property is business real property. The Trustee contends that the property was used as the Maniettas’ residence and cannot fall within the relevant exception.

95    To establish that the TAS Fund was a non-compliant SMSF in material respects the Trustee relies on an expert report of Richard Arnold, a chartered accountant, company auditor and SMSF auditor. In his report Mr Arnold states that, in his view, there have been several breaches of the SIS Act by the TAS Fund and its trustee including by reason of incomplete, inadequate, or late audits of the fund (s 35C(1)), the absence of trustee declarations in respect of the fund’s accounts and statements for all years from 2010 to 2019 (s 35B(3)) and critically by reason of the related party dealings between the Lime Street Trust and Mizpah Investment Trusts in contravention of s 66(1) of the SIS Act. On the basis of a qualitative assessment of the expert evidence and the documentary evidence relied on by the Trustee at this preliminary stage I am satisfied that the Trustee has established a reasonably arguable case in respect of the allegations of the TAS Fund being operated as a sham by reference to the following transactions.

Transfer of units in Lime Street Trust to TAS Fund

96    The first major asset acquired by TAS as the then trustee of the TAS Fund was on 14 February 2011 when it purportedly acquired Mr Manietta’s units in the Lime Street Trust for $2 million. By way of context, this transaction was proximate in time to when the Courtneys and the Websters were supposed to be, but were not, repaid the loans that comprised the investments they had each made on the basis of Mr Manietta’s financial advice. As noted above, judgment was entered against Mr Manietta in respect of proceedings in which it was claimed he had given advice that was negligent or amounted to misleading and deceptive conduct. At the time Mr Manietta solicited the investments of $1 million from each of the Courtneys and the Websters he knew but did not reveal, that the monies would be used to pay the tax liabilities of the borrowers on the proposed loan: Super Smart Strategies at [15]. The court inferred the principal purpose of the transaction was to repay the borrowers’ pressing debts and that notwithstanding a representation had been made that the monies would be repaid to investors within three months that did not eventuate: Super Smart Strategies at [22]. A facility deed was prepared in respect of the loan but was not provided to the Courtneys and Websters. On settlement of the loan in question Ti Amo Strategies Partnership, a partnership of which Mr Manietta is a partner, took a fee of $60,000: Super Smart Strategies, at [20]. Mr Manietta did not disclose that such a fee would be paid.

97    Returning to the Lime Street Trust transaction, the following steps were part of the process by which the trustee of the TAS Fund came to acquire Mr Manietta’s units in the Lime Street Trust. On 14 February 2011, Westpac lent Mr Manietta $4 million on terms requiring repayment of the sum on the same day with an additional $1 million in order to reduce an existing commercial bill of $1.95 million (Westpac Transaction). On the same day that Westpac deposited $4 million into an account in the name of Mr Manietta, the Maniettas caused the following series of payments to be made:

98    The Trustee believes that Mr Manietta arranged the payments summarised above to be made in a series of round robin transactions and that Mr Manietta did not receive valuable consideration for the sale of his units in the Lime Street Trust. The Trustee contends that the transaction to move the value of Mr Manietta’s interest in the Lime Street Trust into the TAS Fund was a related party transaction. The Trustee relies the exposition of the series of transactions on 14 February 2011 set out in a letter of Greg Vidler, an employee of the Ti Amo Strategies Partnership at the time, to Westpac dated 10 December 2010 in this respect.

99    The evidence on the application also includes financial statements of the Lime Street Trust and the TAS Fund for the financial years ending 30 June 2011, 2012 and 2013. The financial statements of the Lime Street Trust for the financial year ending 30 June 2011 record that Mr Manietta held no units in the Lime Street Trust whilst the TAS Fund held units to the value of $2 million.

100    The member’s financial statements for the TAS Fund for year ending 30 June 2012 record that Mrs Manietta was credited with a member’s contribution of $1 million in circumstances where she had not contributed funds in that amount and that Mr Manietta was credited with a member’s contribution of $1 million instead of $2 million. The financial statements for the TAS Fund in the financial year ending 30 June 2012 also record that the fund held units in the value of $2,093,000 in the Lime Street Trust.

101    As noted above, on around 18 August 2012, Mizpah Investments in its capacity as trustee of the New Mizpah Trust entered into a contract to purchase of the Moncur Street property for $2,956,000. There is a substantive dispute as to the ownership of the units in the New Mizpah Trust.

102    The respondents contend that on or around 18 August 2012, Mrs Manietta owned 3,116,000 units in the New Mizpah Trust and that these units were purchased with funds she borrowed from Westpac (Westpac Facility). On 1 May 2013, Mrs Manietta’s units in the New Mizpah Trust were redeemed following the discharge of the Westpac Facility by the TAS Fund from the proceeds realised by the sale of a property held by the Lime Street Trust. On the same day Mizpah Investments issued 3,116,000 units in the New Mizpah Trust to the TAS Fund. The balance of the units in the New Mizpah Trust are held by D’Aconia Copper as trustee for the Manietta Settlement Trust.

103    The Trustee claims that the acquisition by TAS of the units in the New Mizpah Trust is void as TAS intentionally acquired the New Mizpah units from a related party of the TAS Fund in contravention of s 66(1) of the SIS Act. I am satisfied that the Trustee has established a reasonably arguable case in this regard and that it is another facet of the reasonably arguable case based on operation of the TAS Fund as a sham.

Superannuation rollover

104    The respondents contend that Mr Manietta has no interest in the TAS Fund because he rolled over his interest in the fund to a retail superannuation fund sometime after February 2017. The respondents submit that Mr Manietta did this in anticipation of his bankruptcy. He was declared bankrupt in May 2017 following presentation of his debtor’s petition dated 8 May 2017. On 20 December 2016, Galt in its capacity as trustee of the TAS Fund made a determination that the value of Mr Manietta’s interest in the TAS Fund was $2,043,833. At the time this determination was made, Mr Manietta was a director of Galt. Sometime after, in February 2017, Mr Manietta opened an account with the seventh respondent, HUB24. On 23 February 2017, $2,065,924.06 was paid into a HUB24 account in Mr Manietta’s name at his direction. The funds held in Mr Manietta’s superannuation account were frozen by HUB24 upon being served with these proceedings.

105    The respondents contend that Mr Manietta’s conduct in rolling over his entitlements under the TAS Fund is contrary to the suggestion that the fund was engaged in by way of a sham or to avoid creditors. Prior to his bankruptcy, Mr Manietta was a director of Galt, the corporate trustee of the TAS Fund, as he was required to be due to his membership in the fund. The respondents submit that as Mr Manietta would become a disqualified person within the meaning of s 120(1)(b) of the SIS Act by reason of his bankruptcy, he could no longer continue as director of TAS nor could be remain a member of the TAS fund. As a result, he was required to rollover his entitlements in the TAS Fund in accordance with the legal obligations imposed upon him by the SIS Act.

106    The Trustee claims that the rollover of Mr Manietta’s interest in the TAS Fund to HUB24 was arranged by Mr Manietta so as to further deflect attention from the operation of the TAS Fund as a sham. I am satisfied that the Trustee’s contention is reasonably arguable in the context of the way in which the claim is now put.

Conclusion on good or reasonably arguable case

107    The Trustee is correct to acknowledge that his case based on the sham doctrine is a difficult one, and indeed it is not a case where the evidence at this preliminary stage allows a bullish conclusion in respect of the Trustee’s prospects, but that is not what is required for present purposes. The evidence on this interlocutory application is sufficient to demonstrate that there is a reasonably arguable case that the TAS Fund was operated as a sham in that it was not operated to create superannuation or a retirement benefit but rather for the purpose of giving the affectation of superannuation to cloak its real purpose which was to seek to hide related party assets and to put these assets beyond the reach of Mr Manietta’s creditors. Accordingly, I am satisfied that notwithstanding the difficulties attendant on the sham argument, that having regard to the applicable standard for the purpose of this application, the Trustee has by reference to the evidence outlined above, and taking into account the inferences drawn from that evidence, established the requirement of a reasonably arguable case on this aspect of its claim.

108    In reaching this conclusion I am conscious that it is necessarily made by reference to the evidence on this interlocutory application which is at present untested. At the final hearing the entirety of the evidence will have to be weighed with care and caution before reaching the necessary conclusion of intentional deception that lies at the heart of the legal concept of sham.

Risk of dissipation

109    The Trustee relies on the following evidence to establish the requisite risk of dissipation.

110    The Trustee submits that the evidence which supports the conclusion that the Trustee has a good and a reasonably arguable case based on the sham doctrine demonstrates serious and calculated dishonesty on the part of Mr Manietta. Further, that Mr Manietta’s conduct was directed to putting his assets (whether directly or indirectly held by him and related parties of his) beyond the reach of his creditors. The Trustee submits that the conduct which informs the good and reasonably arguable case gives rise to the inference that unless restrained Mr and Mrs Manietta are the types of person who will not preserve their assets in tact so that they might be available to a judgment creditor.

111    In respect of Mrs Manietta, the Trustee submits that she was a conscious participant in the alleged sham and not just a creature of her husband. The Trustee points to the evidence given by Mrs Manietta during her examination which is outlined above.

112    The Trustee submits that Mrs Manietta’s obfuscation under oath in her examination goes beyond being a credit issue and is demonstrative of her preparedness to tell basic falsehoods to advance and protect the sham in order to deprive potential creditors. The Trustee submits that Mrs Manietta’s evidence in which she sought to hide the Moncur Street property as her place of residence reflects a consciousness on her part of the need to do so in order to maintain the artifice in respect of that property, being an asset held by the TAS Fund as a superannuation fund.

113    I have concluded that the Trustee has established a reasonably arguable case in respect of the sham doctrine in relation to the operation of the TAS Fund. I am satisfied for the purpose of this application on the evidence available that Mr Manietta appears to have been the driving force but Mrs Manietta has been a participant and directly involved in many of the transactions which are integral to the way in which the TAS Fund is alleged to have been operated and which the Trustee seeks to impugn. Further, I accept that the impugned evidence given by Mrs Manietta is capable of going not only to credit but also to an active involvement in the perpetuation of the sham. I am satisfied for the purpose of this application, bearing in mind that it is not possible at this stage to resolve conflicts in the evidence, that the Trustee’s case in respect of the operation of the TAS Fund as a sham is sufficiently arguable to give rise to an inference that if not restrained there is a risk the property will be dissipated and the Court’s processes may be frustrated.

114    The elaborate arrangements in respect of the TAS Fund’s acquisition of property occurred at a time proximate to when Mr Manietta’s financial difficulties were becoming manifest. The elaborate transactions taken together with Mr Manietta’s steps to exit the TAS Fund in anticipation of his bankruptcy using a valuation provided by Galt, a company of which he was necessarily a director, the dramatic decline in his asset position and the complex arrangements by which Mr and Mrs Manietta hold their joint and respective assets give rise to the appearance of a concerted effort to hide assets and to avoid creditors.

115    In the circumstances, I am satisfied that the Trustee has established the requisite risk of dissipation on the evidence on this application and not by mere assertion. That the evidence is in part indirect inferential evidence does not detract from my conclusion in that regard.

Balance of convenience

116    The Trustee must show the balance of convenience favours the making of the orders: Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014; (2010) 273 ALR 194 at 198 [13] (Kenny J).

117    In favour of making the order is the risk that assets will be dissipated. Having regard to the nature and purpose of the dishonesty alleged as the foundation of the case based on sham in the operation of the TAS Fund, and the relatively recent episodes of obfuscation during the examination of Mr and Mrs Manietta, I regard the risk of dissipation to be real and in favour of granting the order.

118    Against the making of the order is the recognition that freezing orders by their very nature are an extraordinary remedy which inevitably cause prejudice to those against whom they are made. In the present case, that is compounded by two things.

119    First, the existing freezing orders have been in place since 2 June 2020, a period of over 18 months. I note however, that for most of that period the freezing orders have been continued as a result of consent orders being in place. The consent orders have been in place for longer than the parties may have originally anticipated. The timeframe has been expanded by the impact of the COVID-19 pandemic on the parties’ preparation of the substantive case, defaults in the timetable for the filing of evidence by both sides of the record and by the refinement of the way in which the case is now put. That said, the substantive hearing is now less than 5 months away.

120    The second aspect that compounds the inevitable prejudice caused to the respondents is that the Trustee registered a dealing on the title of the Moncur Street property which was in place for a considerable period of time and which was lodged in circumstances where the Trustee had not obtained a relevant Court order which would support the allegation made in the dealing. When the respondents challenged the legitimacy of the Trustee’s action in lodging the dealing, the Trustee delayed in taking action to remove the dealing from the register. The Trustee accepts that the application for the additional freezing order is late but has not sought to explain his conduct in causing the dealing to be registered or in delaying to bring the present application to obtain a relevant freezing order directed to the Moncur Street property. The Trustee’s conduct of the present applications has been somewhat of a moveable feast with the way in which the case is framed being progressively refined. Even at this late stage the Trustee has not articulated a clear position as to the appropriate limit in terms of monetary or value cap on each of the freezing orders in issue if they are to be made or continued.

121    The Trustee sought to justify this by submitting that because the respondents were seeking to discharge the 2020 freezing orders, which were without limitation, it was for the respondents to nominate the amount or value by which any fresh or varied orders should be limited.

122    The respondents submit that the Trustee has not justified why the combined quantum of the assets frozen by the freezing orders grossly exceeds the value of the creditors’ claims. Further, that it is incumbent on the Trustee to identify, with precision, the limit of the freezing order. The respondents submit that a freezing order, without reference to any limit, is an improper freezing order.

123    Consistent with the approach I have taken with respect to the dispute about onus on the discharge application, I accept the respondents’ submissions on this issue. I also note that the Trustee’s argument in respect of onus cannot apply to the Trustee’s application for additional freezing orders. It is the Trustee that must justify the amount which is sought to be protected for the purpose of preventing the frustration or inhibition of the Court's process. While the respondents may choose to agree the relevant limits with the Trustee, it is not for the respondents to suggest to the Court the amount to be included in each of the freezing orders in issue. That is particularly so given that the Trustee has significantly amended his case in respect of the way in which it is contended that the estate in bankruptcy has an interest and the extent of any such interest in the restrained property.

124    The Trustee had made no serious attempt to justify what would be an appropriate limit on the freezing orders at the time of the interlocutory hearing. That has been compounded by the filing of the Further Amended Pleadings which, inter alia, impact the interlocutory relief sought in respect of the assets of the New Mizpah Trust, the TAS Fund and the Manietta Settlement Trust. Whether, and if so how, the Further Amended Pleadings impact the limit on the value of the property to be restrained has not been addressed by either party. It is the Trustee who should have taken the lead on this issue.

125    While I am troubled by the way in which the Trustee has conducted the present applications, I have concluded that in the final analysis this does not count against the making of freezing orders if I am otherwise satisfied the orders should be made in order to prevent the potential frustration or inhibition of the Court’s process. The concerns I have may appropriately be dealt with in requiring the Trustee to justify an appropriate limit to be included in any of the freezing orders that are made or continued, and in making appropriate costs orders.

126    Another factor against the making of the freezing orders is that the duration of the current freezing orders has caused considerable hardship to Mr and Mrs Manietta. Mrs Manietta’s access to what she asserts are her superannuation entitlements under the TAS Fund has been restricted and will continue to be so pending determination of the substantive proceedings. The respondents further submit that this is exacerbated by the fact that HUB24 has, since being served with the proceedings, denied Mr Manietta access to his superannuation as a member of that fund. The respondents’ evidence is that the Maniettas wish to relocate to the Central Coast in order to be closer to Mrs Manietta’s parents. Mrs Manietta says that her parents are in need of care due to their being elderly and ill.

127    Militating against the hardship visited upon the Maniettas is that the Trustee has given the usual undertaking as to damages, the terms of the order provide that the respondents can pay their reasonable legal expenses and the Maniettas are permitted their reasonable living expenses and that the freezing orders if made will be subject to a monetary or value cap rather than continuing in the unlimited form that has been in place by consent.

128    Weighing the foregoing considerations and having regard to the nature of the case on the operation of the TAS Fund, the risk of dissipation and that the substantive proceedings now appear to be on track to be heard in less than 5 months’ time, I am satisfied that the balance of convenience favours the continuation of the 2020 freezing orders and the making of the additional freezing orders but it will be necessary, in the absence of the parties reaching agreement, to determine the form the appropriate orders should take including as to a monetary or value cap on the property covered.

NEXT STEPS

129    The parties are to submit short minutes of order to give effect to these reasons. In the event that the parties are unable to reach agreement in relation to the monetary or value limit to be incorporated into the freezing orders and with respect to the costs of the interlocutory application, I will make procedural orders to timetable the determination of that issue. In the absence of agreement between the parties I will make orders to preserve the status quo in the short interim period pending the precise form of the orders (including as to the amount or value by which the orders will be limited) being resolved.

Associate:

Dated:    31 January 2022

SCHEDULE OF PARTIES