Federal Court of Australia

Heers (Trustee), in the matter of Priest (Bankrupt) v Priest [2022] FCA 1139

ORDERS

PENAL NOTICE

TO: Terrance James Priest, Beth Laraine Kay and Edward Rex Turner

This is a ‘freezing order’ made against you on 19 September 2022 by Justice Rangiah at a hearing without notice to you after the Court was given the undertakings set out in Schedule A to this Order and after the Court read the affidavits listed in Schedule B to this Order.

THE COURT ORDERS THAT:

1.    The application for this order is made returnable immediately.

2.    Subject to the next paragraph, this order has effect up to and including 27 September 2022 (‘the return date’). On the return date at 11.00 am, there will be a further hearing in respect of this order before Thomas J.

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

4.    In this order, ‘you’ includes all the respondents.

5.    If you are ordered not to do something, you must not do it personally or through directors, officers, partners, employees, agents or in any other way.

6.    You must not remove from Australia or in any way dispose of, deal with or diminish the value of:

(a)    an 83-foot steel tri-hull charter boat known as “Olivia J” or “Reef Princess” or by registration number “ADP40Q” or BE189Q (“the Boat”);

(b)    a 2008 Mercedes Sprinter Truck mounted motorhome with registration no. 991LKA and VIN WDB9061552N351361 registered in the name of the Second Respondent (the RV”);

until 4.00 pm on the return date.

7.    The costs of this application are reserved.

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

SCHEDULE A

Undertakings Given to the Court by the Applicants

1.    The applicants undertake to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the order.

2.     As soon as practicable, the applicants will file and serve upon the respondents copies of:

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

4.    The applicants will pay the reasonable costs of anyone other than the respondents which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the respondents’ assets.

5.    If this order ceases to have effect, the applicants will promptly take all reasonable steps to inform in writing anyone to who has been notified of this order, or who he has reasonable grounds for supposing may act upon this order, that it has ceased to have effect.

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

7.    The applicants will not, without leave of the Court, seek to enforce this order in any country outside Australia or seek in any country outside Australia an order of a similar nature or an order conferring a charge or other security against the respondents or the respondents’ assets.

SCHEDULE B

Affidavits relied upon

Name and Address of Applicants’ Lawyers

The Applicants’ lawyers are:

REASONS FOR JUDGMENT

(DELIVERED EX TEMPORE AND REVISED FROM TRANSCRIPT)

RANGIAH J:

1    The applicants (the Trustees) are the trustees of the bankrupt estate of the first respondent, Terrance James Priest (the Bankrupt). The Trustees have commenced proceedings seeking declarations that a 2008 Mercedes Sprinter Truck mounted motorhome (the motorhome) and an 83-foot steel tri-hull charter boat (the boat) are property of the bankrupt estate.

2    The Trustees have also made an urgent, ex parte application for freezing orders in respect of the motorhome and the boat on the basis that there is a danger the Bankrupt will dispose of them and thereby frustrate the principal proceeding.

3    The Court has the power to make freezing orders under s 23 of the Federal Court of Australia Act 1976 (Cth) and Div 7.4 of the Federal Court Rules 2011 (Cth). Rule 7.32 of the Federal Court Rules provides:

7.32    Freezing order

(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.

Note:    Without notice is defined in the Dictionary.

4    Rule 7.33 provides:

7.33    Ancillary order

(1)    The Court may make an order (an ancillary order) ancillary to a freezing order or prospective freezing order as the Court considers appropriate.

(2)    Without limiting the generality of subrule (1), an ancillary order may be made for either or both of the following purposes:

(a)    eliciting information relating to assets relevant to the freezing order or prospective freezing order;

(b)    determining whether the freezing order should be made.

5    Rule 7.34 provides:

7.34    Order may be against person not a party to proceeding

The Court may make a freezing order or an ancillary order against a person even if the person is not a party in a proceeding in which substantive relief is sought against the respondent.

6    In Rambaldi (Trustee) v Sumpton, in the matter of the Bankrupt Estate of Sumpton [2021] FCA 1199, Anderson J observed:

9    The principles governing the grant of freezing orders are well-established. The applicant must show that:

(a)    it has a good or reasonably arguable case;

(b)    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.

10    The following observations about freezing orders should be made.

11    First, that 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.

12    Second, the order is not designed to provide security for the applicant’s claim. It is solely directed to preserving assets from being dissipated, thereby frustrating the court process.

13    Third, 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.

14    Fourth, an 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.

15    Finally, there may be 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.

7    On the basis of the affidavits filed by the Trustees, I am satisfied that the following matters are established on a prima facie basis:

    A sequestration order was made against the estate of the Bankrupt on 4 October 2018.

    The Bankrupt has not provided a statement of affairs and has not otherwise disclosed to the Trustees his assets or the transactions outlined below.

    The boat was purchased in 2014 by the Bankrupt, a related company and a related trust. The Bankrupt was at least a part-owner of the boat.

    In June 2021, the Bankrupt agreed to sell the boat to Christopher Marks for $280,000. Mr Marks paid instalments totalling $120,000 to the Bankrupt in June and July 2021. Mr Marks and the Trustees have now entered into an agreement for the Trustees to sell the boat and pay Mr Marks the proceeds after deducting the remaining $160,000 and any selling costs.

    The third respondent, Edward Rex Turner, is now claiming to be the owner of the boat. Both Mr Marks and the third respondent are shown as the registered owners in the Queensland Motor Vehicle Register.

    The Trustees have not been able to identify any evidence of payments made by the third respondent in relation to any purported purchase of the boat.

    In August 2021, an amount of $94,990 was paid from the Bankrupt’s bank account for the purchase of the motorhome.

    The motorhome was purchased in the name of Beth Laraine Kay, the second respondent. She is the partner of the Bankrupt.

8    I am satisfied that there is a reasonably arguable case that the boat and the motorhome are “property of the bankrupt” which vests in the Trustees pursuant to s 58(1) of the Bankruptcy Act 1966 (Cth) and are property divisible amongst the Bankrupt’s creditors under s 116(1) of that Act. Accordingly, I am satisfied that the Trustees have demonstrated a reasonably arguable case in respect of the substantive declarations they seek.

9    I am satisfied, on a prima facie basis, that the Bankrupt failed to disclose to the Trustees the sale of the boat to Mr Marks or any transfer of ownership of the boat to the third respondent. Further, the Bankrupt failed to disclose the purchase of the motorhome in the second respondent’s name. The Bankrupt has not complied with his obligation under s 54(1) of the Bankruptcy Act to file his statement of affairs and provide a copy to the Trustees. In these circumstances, the Trustees have demonstrated a reasonable apprehension that the boat and the motorhome may be disposed of or dealt with in a way that may frustrate the principal proceeding.

10    The third respondent does not presently have possession of the boat, and there is presently no evidence available as to the basis upon which he claims to be entitled to possession. The motorhome is currently parked at the second respondent’s address.

11    There is presently nothing to indicate that the Bankrupt or the second or third respondents will be materially prejudiced by the making of freezing orders. I am satisfied that the balance of convenience favours the making of freezing orders until the return date of 27 September 2022 in respect of the boat and the motorhome.

12    The Trustees seek ancillary orders. Rule 7.33(2) of the Federal Court Rules provides that an ancillary order may be made for the purpose of eliciting information relating to assets relevant to the freezing order. The Freezing Orders Practice Note (GPN-FRZG) (the Practice Note) indicates that the most common example of an ancillary order is an order for the disclosure of assets.

13    The Trustees seek orders that the Bankrupt and the second respondent provide affidavits setting out all of their assets in Australia, giving their value, location and details and the extent of their interests in the assets. The Trustees have not referred me to any authority concerning the making of orders of such generality in circumstances where it is sought to restrain dealings with a small number of specifically identified assets. It is for the applicants to satisfy the Court that it is appropriate to make the orders sought, not for the Court to search for authority that may support the proposed orders. I decline to make orders in the terms sought.

14    The Trustees seek an order that the third respondent provide an affidavit setting out all of the information he relies on to claim that he has paid any amount for the boat. Again, the Trustees have not referred me to authority concerning the making of such an order. I decline to make the orders sought on an ex parte basis.

15    The Trustees also seek an order that the orders will cease to have effect against the Bankrupt if he pays $400,000 into Court or provides other security for that amount. I have not been referred to authority indicating that such an order directed to a person who is already bankrupt is appropriate. I decline to make that order.

16    The Trustees seek orders that the orders will cease to have effect against the second respondent if she pays $95,000 into Court or security for that amount and will cease to have effect against the third respondent if he pays $280,000 into Court or provide security for that amount. Although the standard form of orders under the Practice Note provides for such orders, I have not been taken to any authority dealing with whether it is appropriate to make such orders on an ex parte basis. If the Trustees wish to seek such orders against the second and third respondents, they can be sought on the return date.

17    I note that the Trustees give the undertakings referred to in Schedule A of the draft orders provided to the Court. Subject to the matters I have referred to and some additional minor adjustments, I propose to make orders in terms of the draft.

Associate:    

Dated:    23 September 2022