FEDERAL COURT OF AUSTRALIA Reemac Pty Ltd v Financial Partners Pty Ltd [2007] FCA 434 REEMAC PTY LTD (ACN 050 131 425), JOY NORTON AND SANDRA MCCAW v FINANCIAL PARTNERS PTY LTD (ACN 076 326 737) AND SIMON CHARLES PATRICK FINNIGAN VID235 OF 2007 JESSUP J 26 MARCH 2007 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID235 OF 2007 BETWEEN: REEMAC PTY LTD (ACN 050 131 425) First Applicant JOY NORTON Second Applicant SANDRA MCCAW Third Applicant AND: FINANCIAL PARTNERS PTY LTD (ACN 076 326 737) First Respondent SIMON CHARLES PATRICK FINNIGAN Second Respondent JUDGE: JESSUP J DATE OF ORDER: 26 MARCH 2007 WHERE MADE: MELBOURNE Upon the applicants by their counsel undertaking: a) to submit to such order (if any) as the court may consider to be just for the payment of compensation, to be assessed by the court or as it may direct, to any person, whether or not a party, adversely affected by the operation of the interlocutory order or undertaking or any continuation (with or without variation) thereof; and b) to pay the compensation referred to in (a) to the person there referred to. c) to cover each of the aforesaid services with a letter from the applicants' solicitors stating that the restraining order referred to below has been made under circumstances of urgency and if there is any reason why that order should not continue pending the hearing and determination of the proceeding, that reason may be advanced at the adjourned date referred to below, And upon the first and third applicants by their counsel undertaking: a) to serve the Application, the Statement of Claim, the affidavit of Sandra McCaw affirmed on 23 March 2007, the order made by Tracey J on 23 March 2007 and this order upon the first respondent by personal service with expedition; b) to serve this order on the second respondent; and c) to cover each of the aforesaid services with a letter from the applicants' solicitors stating that the restraining order referred to below has been made under circumstances of urgency and if there is any reason why that order should not continue pending the hearing and determination of the proceeding, that reason may be advanced at the adjourned date referred to below, THE COURT ORDERS THAT: 1. Until 4.00 pm on 2 April 2007 the second respondent be restrained from disposing of any property and any interest in any property other than a) pursuant to a legal obligation in existence before 23 March 2007; b) in the ordinary course of his business or employment, not being a business or employment in which he commenced to be engaged on or after 23 March 2007; c) to meet reasonable personal or domestic expenses; or d) pursuant to the leave of the court. 2. The applicants' application for interlocutory relief pending the hearing and determination of the proceeding be adjourned to 10.15 am on 2 April 2007 at Melbourne. 3. The proceeding be listed for directions at 10.15 am 2 April 2007 at Melbourne. 4. Any time limit otherwise required by the Rules of Court be abridged to permit service of the two preceding orders at or before 5.00 pm on 28 March 2007. 5. Each party have liberty to apply. 6. Costs be reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID235 OF 2007 BETWEEN: REEMAC PTY LTD (ACN 050 131 425) First Applicant JOY NORTON Second Applicant SANDRA MCCAW Third Applicant AND: FINANCIAL PARTNERS PTY LTD (ACN 076 326 737) First Respondent SIMON CHARLES PATRICK FINNIGAN Second Respondent JUDGE: JESSUP J DATE: 26 MARCH 2007 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 This proceeding was commenced by Application, supported by Statement of Claim, on 23 March 2007 (last Friday). The applicants allege that, in 2002 and 2003, they invested monies with the first respondent substantially upon the basis of certain representations or assurances given by the second respondent who, it is alleged, substantially controls the first. The applicants sue on a number of contracts which are said to have covered these investments, upon the consumer protection provisions in the Trade Practices Act 1974 (Cth) ('the TP Act'), and upon corresponding provisions in the Australian Securities and Investments Commission Act 1989 (Cth) and the Fair Trading Act 1999 (Vic) ('the FT Act'). They sue the first respondent in contract and the second respondent as guarantor under some of the contracts involved. The applicants claim damages, including equitable damages, restitution, interest and costs. 2 In their Application, the applicants make the following claims for interlocutory relief: 1. Injunctions restraining each of the Respondents from dissipating the whole or any part of their assets otherwise than in the ordinary course of business or personal life (Asset preservation order); 2. Injunctions restraining the Second Respondent from leaving the jurisdiction until the hearing and determination of these proceedings (Prohibition order); 3. An order that the Second Respondent deliver up his passports and other travel documents to the custody of the court until the hearing and determination of these proceedings (Mandatory order). On Friday, the applicants moved for that interlocutory relief by ex parte application heard by Tracey J, then the duty Judge. His Honour made the following orders: 1. Until 4pm (AEST) on 26 March 2007 the Second Respondent is restrained from: (a) leaving Australia; and (b) attending at any point of departure from Australia. 2. The Second Respondent has leave, on three hours notice to the Duty Judge and to the First and Third Applicants, to make application to the Court to have paragraph 1 of these orders discharged. 3. The further hearing of the application be adjourned to 10.15am on 26 March 2007 in Melbourne before the Duty Judge. 4. Costs be reserved. 3 The matter came before me at 10.15 am today, when Ms Ruddle moved for an extension of the orders made by Tracey J, and for the other interlocutory orders sought by the applicants in their Application. 4 There was no appearance on behalf of the respondents. Ms Ruddle, who represented the applicants, dealt with the question of service. Although the Application, the Statement of Claim, the affidavit in support of the interlocutory application and a sealed copy of the order made by Tracey J were sent by ordinary post to the first respondent on 23 March 2007, there was no evidence of personal service on that respondent. Indeed, Ms Ruddle accepted that there had not been personal service. In the circumstances, to the extent that any further interlocutory relief is sought against the first respondent, the application therefor must be treated as being made on an ex parte basis. 5 There was no affidavit of service with respect to the second respondent. However, the third applicant, Ms McCaw, gave oral evidence that, at about 10.00 am on 24 March 2007, she personally served the Application, the Statement of Claim, her affidavit in support of the interlocutory application and the order made by Tracey J upon the second respondent at Sydney. When the matter came on before me this morning there was no appearance by or on behalf of the second respondent. After hearing from Ms Ruddle on behalf of the applicants, I adjourned to consider my judgment. Upon returning to chambers I was informed that the second respondent had been in contact with the court. I instructed my associate to inform the second respondent that he should make contact with the solicitors for the applicants. Upon returning to court this afternoon I was informed by Ms Ruddle that they had not heard from the second respondent. I was also told by Ms Ruddle that she was instructed by Ms McCaw that there was a brief interchange between her and the second respondent on the occasion when the documents were served in Sydney on Saturday, from which it was evident that the second respondent appreciated that the matter was listed in court today. In the circumstances, I shall treat so much of the interlocutory application as relates to the second respondent as an application on notice. 6 The interlocutory application was supported by an affidavit of the third applicant. According to that affidavit, Ms McCaw first met the second respondent when she attended a seminar in May 2001. The second respondent conducted that seminar. Subsequently, the applicants advanced large sums of money to the respondents for the purposes of investment. In part, those sums were repaid as and when promised. However, about $947,000 in principal remains outstanding. 7 Ms McCaw gave evidence viva voce today that two of the agreements in relation to which the principal remained outstanding were those made on 20 February 2003 between the first respondent and Augusta National Super Fund (of which the first applicant is trustee), and between the first respondent and the first applicant itself. In both cases the second respondent is guarantor of the first respondent's obligations under those agreements. Ms McCaw gave evidence that despite repeated demands for performance made by her to the second respondent, the first respondent has not repaid the moneys as required by those agreements and the second respondent has not made good on his guarantees. According to Ms McCaw's affidavit, in recent years she and the second applicant have become more and more concerned at the state of their investments. They have made repeated requests to the respondents for their money to be returned, but to no avail. 8 In 2004, the first respondent's office in South Melbourne was closed down, after which all of its business was conducted from its office in Elizabeth Street, Sydney. In mid-2005, the Elizabeth Street office was closed down, and the first respondent moved to premises at Edgecliff. More recently, the Edgecliff premises have also been closed down, and Ms McCaw now believes that the first respondent is conducting its business from the second respondent's home address in Rushcutters Bay. Giving evidence in her affidavit on information and belief, Ms McCaw said that the Edgecliff premises were closed down because another of the second respondent's companies, Simply Beautiful Cosmetic Surgery and Laser Clinic Pty Ltd, was placed into voluntary liquidation on 14 March 2007. At a creditors' meeting for that company, the administrator said that all the other companies conducted by the second respondent had been sub-letting the Edgecliff premises from that company, and that that company had been evicted for non-payment of rent. 9 Ms McCaw spoke to the second respondent on 20 March 2007, when he told her that he had been evicted and that he was going to try and keep one of his companies – apparently called "Biotech Solutions" – going because that was the only way he could get investors' money back. Ms McCaw viewed that statement as indicating that there was a substantial chance that all of the money invested by the second applicant and herself was at serious risk of never being repaid. 10 The applicants are fearful that the second respondent will leave Australia. According to her affidavit, Ms McCaw has noticed that the second respondent carries a British passport. He previously told her that he was "only a resident here in Australia". He has "no ties to Australia". She has seen, and exhibited to her affidavit, a copy of an email from a Mr Glen Coxon in which he said that he had had a conversation with the second respondent on 12 March 2007. According to Mr Coxon, the second respondent asked him what he should do, said that he did not want to go to jail, and surmised that he should "just do the bolt to overseas and set up somewhere else". He said that he was "not sticking around to go to jail". This information from Mr Coxon has reinforced the applicants' fears that the second respondent proposes to leave Australia without attending to the applicants' claims. 11 I shall consider first the applicants' claim for an extension of the injunction made ex parte by Tracey J on Friday. This is a civil proceeding for damages, and possibly other money remedies. Ms Ruddle was unable to refer me to any decided case in which a respondent to such a proceeding was, as an interlocutory measure, restrained from leaving the country. For my own part, I am unaware of any. It is not at all self-evident that the applicants' attempts to obtain justice through these proceedings would be frustrated if the second respondent were not obliged to remain in Australia throughout. Although not referred to by Ms Ruddle, s 272 of the Bankruptcy Act 1966 (Cth) deals generally with the position of persons who seek to leave Australia for the purpose of defeating or delaying their creditors. Speaking in the context of that provision, in Re Tyndall (1977) 30 FLR 6, 15, Deane J said: A citizen should be free to travel if and when his commercial activities or personal desires prompt him so to do. Restrictions upon such travel under the bankruptcy legislation must be seen as being aimed at insuring the proper administration of the bankruptcy laws and of bankrupt estates under such laws and not as a penalty imposed upon a citizen as a consequence of inability to pay debts leading to the making of a sequestration order. In the present case, there has, of course, been no suggestion of bankruptcy, but the circumstance that special provision is made in the Bankruptcy Act to restrain persons in defined circumstances from leaving Australia underlines the general inappropriateness of such restrains when sought on no basis other than the interests of applicants in normal civil proceedings. 12 I turn next to the applicants' claim for a Mareva order. Because it has not been served, to the extent that this claim is sought to be made against the first respondent, I shall treat it as an ex parte application. It is generally appropriate that such orders be sought ex parte: I C F Spry, Principles of Equitable Remedies (6th ed, 2001, p 520). That having been said, the applicants did not seek to make any distinction between the respondents: indeed, Ms Ruddle said that the second respondent was the sole director and shareholder of the first respondent, and that my focus should be upon the second respondent's intentions. 13 Turning to the second respondent, the authorities show that the first question I should consider, as with any interlocutory application, is whether the applicants have a seriously arguable case against the person whom they seek to restrain. The primary contractual obligations upon which the applicants sue were undertaken by the first respondent. What might be called secondary contractual obligations in the nature of guarantees have been undertaken by the second respondent. The effect of the evidence to which I have referred above, and which was given by Ms McCaw viva voce this afternoon, is that the second respondent is in breach of contractual obligations which he has as guarantor under two of the eight contracts referred to in the Statement of Claim. I am prepared to hold that the applicants have established an arguable case in relation to their claim in contract against the second respondent. 14 The applicants' claims under the TP Actare of course made primarily against the first respondent. As it happens their Statement of Claim does not make any such allegations as would sustain a case of accessorial liability against the second respondent under s 75B of that Act. The pleadings do seek to make a direct case against the second respondent of misleading conduct and unconscionable conduct pursuant to the FT Act. However, that case has not been made good, even on an arguable basis, in the evidence which is now before the court. 15 Notwithstanding these limitations in the applicants' case and the evidence presently in support of it, there is, as I have said, an arguable case against the second respondent in contract, and I am prepared to proceed upon that basis further to consider the applicants' claim for a Mareva order against him. Ms Ruddle did not refer to any principles by which, given the establishment of an arguable case on the merits, the court's discretion on the making of a Mareva order should be guided. Probably the most authoritative statement in that respect is that of the New South Wales Court of Appeal in Patterson v BTR Engineering (Australia) Limited (1989) 18 NSWLR 319. Gleeson CJ said at 321 to 322: The remedy is discretionary, but it has been held that, in addition to any other considerations that may be valid in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first a prima facie cause of action against the defendant; and secondly, a danger that, by reason of the defendant's absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied. Meagher JA said at 326: To obtain such an injunction a plaintiff must prove two ingredients: first, that he has a prima facie case against the defendant, and secondly, that there is some risk of dispersal by the defendant of his assets so as to defeat the value of the plaintiff's victory if he ultimately wins. Normally proof of the first ingredient alone will not suffice; normally one cannot infer a risk of dissipation of assets from the mere fact that the plaintiff has a prima facie cause of action. In normal circumstances this is particularly so in cases like the present, where there is no evidence at all what the defendant's assets are. However, in exceptional cases (of which the present is unfortunately one) one can infer the existence of the latter ingredient partly or wholly from proof of the former. This may well be the situation in all cases where the plaintiff's prima facie case against the defendant involves proof of gross dishonesty. 16 In making these statements their Honours were echoing the words of Deane J, who, with the assent of a majority of the court in Jackson and Sterling Industries Ltd (1987) 162 CLR 612, said at 623: 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 his judgment, will not be able to get it satisfied." Per Lord Denning, MR, Rahman (Prince Abdul) v Abu-Taha (1980) 1 WLR 1268 at 1273, quoted with approval by Street CJ, in Ballabil Holdings (1985) 1 NSWLR at 160. 17 Turning to the facts of this case, there are several matters which would disincline me to make the order sought. First, I have no evidence of the second respondent's assets, save possibly to the extent that may be inferred from the fact that the first respondent was evicted from its Edgecliff premises for non-payment of rent. Secondly, such as it is, the evidence of the second respondent's reason for wishing to depart from Australia is not that he would take assets with him, as urged upon me by Ms Ruddle, but that he wished to avoid a jail sentence. There is nothing from which I could infer that the second respondent has the intention of taking any particular assets, or indeed assets generally, out of the jurisdiction. Thirdly, I do not believe that applicants in a civil proceeding for damages should regard themselves as automatically entitled to a Mareva injunction on no further facts than the very spare ones which have been placed before me. 18 On the other hand, there is evidence of an intention to abscond on the part of the second respondent and of a disposition to put his own personal advantage ahead of a conscientious concern for the satisfaction of such obligations to investors as he and the first respondent may have. The evidence suggests that he has no particular ties to Australia. In the circumstances, although the state of the evidence is quite unsatisfactory, I think I should conclude that there is a risk that, unless restrained, the second respondent would seek to put such assets as he has beyond the reach of the applicants, assuming them ultimately to become the holders of a money judgment as a result of these proceedings. 19 Due to the urgency with which the application was brought before Tracey J on Friday, and subsequently referred to me today, I am left with a lingering disquiet that the second respondent may still not have had a satisfactory opportunity to meet the interlocutory application which the applicants have brought. The application was not endorsed with a time for the hearing of interlocutory relief, and no abridgment of service was either sought or granted. The only indication to the second respondent that the matter would be dealt with today came from the terms of the order of Tracey J, to which I have referred. Although I am prepared to regard that as sufficient effectively to put the second respondent on notice that the applicants would be prosecuting the interlocutory application before me, I am left with a concern that the time has been insufficient for him to appreciate the purpose of the documents with which he has been served and the gravity of the position in which he may find himself. 20 There is also the outstanding question of the first respondent not yet having been served with the court proceedings to any extent. What I propose to do therefore is to bring the interlocutory application back before the court at a time which will give the respondents an opportunity not only to be aware of the proceeding, but to prepare themselves for them, and to require the applicants to give certain undertakings in that regard. I would require them not only to undertake to serve the first respondent by proper personal service as a matter of expedition, and to serve the orders which I make today, but to cover the service of the orders, particularly in the case of the second respondent, with correspondence from their solicitors which makes it clear that the orders I make today are holding ones pending the respondents having the opportunity to appear before the court and argue why what I would call a true interlocutory injunction pending the hearing determination of the proceedings as such ought not to be granted. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup. Associate: Dated: 29 March 2007 Counsel for the Applicants: E Ruddle Solicitor for the Applicants: Lamplugh McIntosh Lawyers Counsel for the Respondents: The respondents did not appear Date of Hearing: 26 March 2007 Date of Judgment: 26 March 2007