FEDERAL COURT OF AUSTRALIA Sunsafe Weathaspans v Moses Consulting [1999] FCA 578 PRACTICE AND PROCEDURE – Federal Court of Australia Act 1976 (Cth) – Mareva injunction – circumstances in which jurisdiction of the Court to grant a Mareva injunction is enlivened Federal Court of Australia Act 1976 (Cth), s 23 Jackson v Sterling Industries (1987) 162 CLR 612, referred to Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, cited SUNSAFE WEATHERSPANS PTY LIMITED & ORS v MOSES CONSULTING & ORS NG 689 of 1997 BRANSON J 4 MAY 1999 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 689 of 1997 BETWEEN: SUNSAFE WEATHERSPANS PTY LIMITED First Applicant GREGORY JAMES MOORE Second Applicant NATALIE MAREE MOORE Third Applicant AND: MOSES CONSULTING AND MARKETING PTY LIMITED First Respondent IAN WARWICK MOSES Second Respondent IAN McCORMACK Third Respondent JUDGE: BRANSON J DATE: 4 MAY 1999 PLACE: SYDNEY REASONS FOR DECISION (EX TEMPORE) 1 The applicants have formally moved for an order that: "The Second Respondent be restrained until the final determination of the proceedings from (by himself, his servants or his agents) removing, causing or permitting to be removed from New South Wales or selling, charging, mortgaging, or otherwise dealing with or disposing of any of his assets located in New South Wales." 2 The order sought is ordinarily known as a Mareva injunction. It can no longer be doubted that s 23 of the Federal Court of Australia Act 1976 (Cth) ("the Act"), which gives the Court power - "… in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders … as the Court thinks fit." confers on the Court powers, in an appropriate case, to make a Mareva injunction (Jackson v Sterling Industries (1987) 162 CLR 612 partic per Deane J, with whom Mason CJ and Wilson and Dawson JJ agreed in this regard, at 622). In that case at 622-623 Deane J observed: "Initially, injunctive orders to preserve assets were made to prevent a non-resident defendant from removing assets from the territorial limits of a court's jurisdiction so as to frustrate the effectiveness of any judgment that might be obtained. … In due course, it was perceived that a general interlocutory power to make orders preventing a defendant from disposing of his assets so as to defeat any judgment obtained in an action was an incident of the substantive jurisdiction to entertain the action and was not confined to the case where the defendant is not resident. … As a general proposition, it should now be accepted in this country that "a Mareva injunction can be granted … if the circumstances are such that there is a danger of [the defendant's] absconding, or a danger of the assets being removed out of the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgment, will not be able to get it satisfied." (citations omitted) 3 By an application dated 26 August 1997 the applicants claim against the second respondent, amongst other things, damages pursuant to s 82 of the Trade Practices Act 1974 (Cth) ("the TP Act") and damages for breach of contract. 4 It is admitted by the second respondent on the pleadings that the second respondent is a director of the first respondent and that he at all material times "acted for and on behalf of the First Respondent". It is further admitted by the second respondent that by a sale agreement dated 23 May 1996 ("the Sale Agreement") the first applicant purchased from the first respondent a business conducted by the first respondent under the name "Sunsafe Weatherspans" ("the Business"). The applicants allege by their statement of claim that they entered into the Sales Agreement, and other agreements, in reliance on, amongst other representations, certain representations made to them by the first and second respondents. The second respondent denies the making of most, but not all, of the representations allegedly made by him or the first respondent. 5 The principal areas of dispute between the parties, as revealed by the pleadings, appear to be – (1) What representations concerning the Business were made to the applicants before the date of the Sales Agreement; (2) What were the levels of sales achieved by franchisees of the Business before the date of the Sales Agreement; (3) Whether the Business was experiencing significant production problems before the date of the Sales Agreement; (4) Whether there were significant undisclosed costs and expenses affecting the Business; and (5) Whether the Business was a profitable business making, and likely in the future to continue to make, substantial profits. 6 The second applicant has sworn an affidavit verifying in substance the claim of the applicants. The respondents' evidence has not been filed but, for the purposes of the present application, I am satisfied that the applicants have a prima facie case against the second respondent. The applicants have placed a value on their claim of approximately $300,000. 7 The evidence concerning dealings by the second respondent with his assets may be summarised as follows. 8 It is not in dispute that the second respondent holds 99% of the shares in the first respondent. Vivienne Gail McIntosh ("Ms McIntosh"), the second respondent's de facto wife, owns the remaining shares. As is mentioned above, the first respondent sold the Business to the first applicant in May 1996. The sale price was $600,000 of which approximately $118,000 has not been paid. 9 One hundred thousand dollars of the sale price of the Business was invested by the second respondent and Ms McIntosh in a company also owned by them known as Pet Mobile Pty Limited. It appears that a further amount of approximately $250,000 was spent refurbishing a property known as "Russley" at Scone, NSW owned and operated by the second respondent and Ms McIntosh as a "bed and breakfast" establishment. An amount of $100,000 was repaid to shareholders, ie the second respondent and Ms McIntosh. 10 In April 1999 Pet Mobile Pty Limited sold the Australian rights of its business for approximately $700,000, the net amount being received by the company being approximately $500,000. All but $50,000 of that $500,000 has been transferred by the company Pet Mobile Pty Limited, now known as Aussie Pet Mobile Pty Limited ("Aussie Pet Mobile") to the United States of America where it is proposed that Aussie Pet Mobile will carry on business. The second respondent gave evidence that the amount of $600,000 is required by Aussie Pet Mobile to set up its business in the United States. 11 The property "Russley" has now been sold for an amount of $832,000. After the payment of fees and charges connected with the sale, and the discharge of a mortgage over the property, each of the second respondent and Ms McIntosh will receive $161,000 from the settlement of the sale of Russley. The second respondent proposes to transfer the $161,000 which he will receive at settlement to the United States of America. That amount, added to the $450,000 which has already been transferred to the United States following the sale of the Pet Mobile business, will give Aussie Pet Mobile the $600,000 said to be required to set up its business in the United States. The evidence of the second respondent was that Ms McIntosh does not propose to transfer out of Australia the $161,000 that she will receive following the settlement of the sale of Russley. She will apparently use the funds received by her to repay in part a loan made by Aussie Pet Mobile to her and the second respondent. 12 The limited financial statements of the first respondent and Aussie Pet Mobile respectively which are in evidence suggests a practice of moving funds between the two companies, and lending company funds to the second respondent, Ms McIntosh and businesses apparently connected with them. No explanation was advanced by the second respondent as to why the proceeds of the sale of Russley received by Ms McIntosh should be used to repay the loan apparently made by Aussie Pet Mobile to him and her jointly. Nor was any explanation offered as to why the whole of the proceeds of the sale of Russley to be received by the second respondent are to be transferred to the United States, whilst none of the proceeds of sale to be received by Ms McIntosh are to be transferred by her out of the jurisdiction. 13 If the second respondent does transfer his share of the proceeds of the sale of Russley out of the jurisdiction, his total assets within the jurisdiction will be comprised of an equity of $10,000 in a property in Scone, his shareholdings in the first respondent and Aussie Pet Mobile, other shareholdings with a value of less than $1,000 and certain personal assets of a total value of approximately $45,000. Despite its having received approximately $500,000 for the sale of the Business in 1996, the present assets of the first respondent are comprised of its cause of action in the cross-claim against the applicants in this proceeding, a loan to Aussie Pet Mobile and approximately $50,000 in cash. No financial records for Aussie Pet Mobile for the period after the sale of its Australian business have been placed in evidence. I consider it fair to assume, however, having regard to the evidence of the second respondent, that its significant assets are now in the United States of America and that it is likely that any further funds received by it will be transferred to the United States to support the establishment of its business there. 14 In summary, the evidence discloses that although the second respondent has a controlling interest in the first respondent and in another company, Aussie Pet Mobile, each of which companies has sold assets for significant sums of money in recent years, the only significant asset which the second respondent has within the jurisdiction is the right to receive $161,000 upon the settlement of the sale of Russley. His evidence is that, unless restrained by an order of the Court, he will transfer his share of the settlement proceeds of Russley to the United States of America. 15 I do not accept the evidence of the second respondent that if he is restrained from transferring $161,000 to the United States the establishment of the Pet Mobile business in the United States will be frustrated. First, as is mentioned above, no evidence has been given as to why Ms McIntosh, who is apparently a shareholder in Aussie Pet Mobile, can not transfer her $161,000 to the United States rather than the second respondent transferring his $161,000. Moreover, assuming that Ms McIntosh does use her $161,000 to repay a loan to Aussie Pet Mobile, it has not been explained why those funds could not then be transferred to the United States by the company itself to assist in the establishment of the business there. On the evidence of the second respondent, Aussie Pet Mobiles only requires the transfer to the United States of a further $150,000. 16 The remedy here sought is discretionary. As a general rule an applicant for a Mareva injunction must establish, first, a prima facie cause of action against the respondent, secondly a danger that, by reason of the respondent's absconding or of assets being removed from the jurisdiction or disposed of within the jurisdiction or otherwise dealt with, the applicant, if it succeeds, will not be able to have its judgment satisfied (Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 per Gleeson CJ at 321-322). 17 I have already indicated that I am satisfied that the applicants have a prima facie case against the second respondent. At the close of argument it was not really in dispute that the second respondent either has, or proposes to, remove the majority of his assets, whether personal assets or funds within Aussie Pet Mobile which is a company controlled by him, to the United States of America. I am satisfied that there is a real danger that if the applicants obtain judgment against the second respondent, they will not be able to have the judgment satisfied. 18 The jurisdiction of the Court to grant a Mareva injunction is thus enlivened. Counsel for the applicants indicated at the close of argument that they would only seek an order restraining the second respondent from removing from the jurisdiction or otherwise disposing of his share of the proceeds of the settlement of the contract for the sale of "Russley". 19 It has not been suggested that the second respondent requires access to his share of the proceeds of the settlement of the sale of "Russley" to meet his living or legal expenses. If circumstances should change materially, or if the applicants fail hereafter to prosecute their claims with due diligence, the second respondent can make application for this order to be varied or discharged. 20 I am satisfied that, upon the applicants giving an appropriate undertaking as to damages, it is appropriate to make an order of the limited kind now sought by the applicants. 21 I propose to give the parties an opportunity to give consideration to the precise terms of appropriate orders having regard to these reasons. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson. Associate: Dated: 6 May 1999 Counsel for the Applicant: Mr J. Turnbull Solicitor for the Applicant: Hickson Wisewoulds Counsel for the Respondent: Mr M. Spartalis Solicitor for the Respondent: Esplins Date of Hearing: 29 April 1999 Date of Judgment: 4 May 1999