FEDERAL COURT OF AUSTRALIA Rafferty v Time 2000 West Pty Ltd (No 7) [2011] FCA 405 Citation: Rafferty v Time 2000 West Pty Ltd (No 7) [2011] FCA 405 Parties: PATRICK CAMPBELL RAFFERTY, SANTORA HOLDINGS PTY LTD ACN 128 467 550 and KARAVILLE HOLDINGS PTY LTD ACN 009 439 178 v TIME 2000 WEST PTY LTD ACN 127 893 270, TIME 2000 SYSTEMS (AUSTRALIA) PTY LTD ACN 127 853 614, TIME 2000 OPERATIONS (AUSTRALIA) PTY LTD ACN 128 700 541, EMBLETON LIMITED (A COMPANY INCORPORATED IN HONG KONG), STEPHEN GERARD DONOVAN and MADGWICKS File number: SAD 122 of 2008 Judge: LANDER J Date of judgment: 21 April 2011 Catchwords: PRACTICE AND PROCEDURE – freezing order – application to discharge freezing order by non-party –whether the circumstances have changed such that the freezing order ought to be discharged – whether there still exists a danger that the judgment will be wholly or partly unsatisfied – the degree of satisfaction required before the Court makes freezing order. Legislation: Bankruptcy Act 1966 (Cth) ss 40, 43, 58 Federal Court Rules O 25A Cases cited: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 cited Groeneveld Australia Pty Ltd v Nolten Vastgoed BV and Chris Nolten [2011] VSC 18 considered Robmatjus Pty Ltd v Violet Home Loans (2007) VSC 165 referred to Date of hearing: 31 March 2011 Date of last submissions: 30 March 2011 Place: Adelaide Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 74 Counsel for the Applicants: Mr A Rosser Solicitor for the Applicants: Cosoff Cudmore Knox Counsel for Gemhall Holdings Pty Ltd: Mr A Lazaravich Solicitor for Gemhall Holdings Pty Ltd: O'Loughlins Lawyers IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 122 of 2008 BETWEEN: PATRICK CAMPBELL RAFFERTY First Applicant SANTORA HOLDINGS PTY LTD ACN 128 467 550 Second Applicant KARAVILLE HOLDINGS PTY LTD ACN 009 439 178 Third Applicant AND: TIME 2000 WEST PTY LTD ACN 127 893 270 First Respondent TIME 2000 SYSTEMS (AUSTRALIA) PTY LTD ACN 127 853 614 Second Respondent/Second Cross Claimant TIME 2000 OPERATIONS (AUSTRALIA) PTY LTD ACN 128 700 541 Third Respondent/Third Cross Claimant EMBLETON LIMITED (A COMPANY INCORPORATED IN HONG KONG) Fourth Respondent/Fourth Cross Claimant STEPHEN GERARD DONOVAN Fifth Respondent/First Cross Claimant MADGWICKS Sixth Respondent/Cross Respondent JUDGE: LANDER J DATE OF ORDER: 21 april 2011 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. Paragraph 3 of Gemhall Holdings Pty Ltd's notice of motion of 10 November 2010 to revoke the orders made by Besanko J on 19 December 2008 and varied by Besanko J on 31 August 2010 and Lander J on 15 November 2010, 22 November 2010, 15 February 2011 and 23 February 2011 be dismissed. 2. Gemhall Holdings Pty Ltd pay the applicants' costs of the application since 17 March 2011 and the hearing of 31 March 2011. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 122 of 2008 BETWEEN: PATRICK CAMPBELL RAFFERTY First Applicant SANTORA HOLDINGS PTY LTD ACN 128 467 550 Second Applicant KARAVILLE HOLDINGS PTY LTD ACN 009 439 178 Third Applicant AND: TIME 2000 WEST PTY LTD ACN 127 893 270 First Respondent TIME 2000 SYSTEMS (AUSTRALIA) PTY LTD ACN 127 853 614 Second Respondent/Second Cross Claimant TIME 2000 OPERATIONS (AUSTRALIA) PTY LTD ACN 128 700 541 Third Respondent/Third Cross Claimant EMBLETON LIMITED (A COMPANY INCORPORATED IN HONG KONG) Fourth Respondent/Fourth Cross Claimant STEPHEN GERARD DONOVAN Fifth Respondent/First Cross Claimant MADGWICKS Sixth Respondent/Cross Respondent JUDGE: LANDER J DATE: 21 april 2011 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 This is an application by Gemhall Holdings Pty Ltd (Gemhall) to discharge orders made by Besanko J on 19 December 2008 which were varied by Besanko J on 31 August 2010, and later varied by me on 15 November 2010, 22 November 2010, 15 February 2011 and 23 February 2011. 2 Gemhall is not a party to the proceeding but it is necessary to say something about the proceeding to understand the orders which were made and the application which is presently under consideration. 3 On 14 August 2008 the applicants (the Rafferty interests) commenced this proceeding against the respondents (the Donovan interests) seeking declarations that a Heads of Agreement, a Rights Agreement and a Joint Venture and Shareholders Agreement were Franchise Agreements within the meaning of the Franchising Code of Conduct and, in the alternative, a declaration that the Heads of Agreement and Rights Agreement were Franchise Agreements within the meaning of the Franchising Code of Conduct. 4 They also sought declarations that the three agreements referred to were void ab initio or, in the alternative, voidable. They also sought orders that monies paid by the Rafferty interests to the Donovan interests in respect of the Heads of Agreement, the Joint Venture and Shareholders Agreement be repaid by the Donovan interests forthwith. 5 It is unnecessary for the purpose of this application to have other than the broadest understanding of the proceeding before the judge. 6 Gemhall is the trustee of the Stephen Donovan Family Trust. The appointor of the trust was Stephen Gerard Donovan who is the fifth respondent and one of the Donovan interests. He resigned as appointor on or about 10 December 2008. Until that time Mr Donovan was also the sole director of Gemhall but on that day his then fiancÉe and now wife, who I shall refer to by her married name, was appointed an additional director. On 10 December 2008 Ms Donovan was also appointed the appointor of the family trust. Mr Donovan was and remains the sole shareholder of Gemhall. The beneficiaries of the trust are Mr Donovan, his parents, any future spouse and child or children of Mr Donovan, any charity, school, body, institution, corporation or foundation established for educational purposes. 7 Gemhall acquired a property at Chapel Street in 1998 which it has held ever since (the Chapel Street property). It is the major if not the only asset of the trust. Gemhall derives income from the property. 8 On 5 December 2008 the Rafferty interests sought freezing orders against the Donovan interests and Gemhall in circumstances where the Rafferty interests alleged that some of the Donovan interests and Gemhall were intending to dispose of their properties. 9 On 19 December 2008 Besanko J made the orders which this application seeks to discharge. 10 The Rafferty interests' application was made in circumstances where they allege that the Donovan interests and Gemhall were intending to dispose of two properties; one owned by Time 2000 Pty Ltd (one of the respondents to the proceeding) (the Beaconsfield property) and the other, the Chapel Street property, owned by Gemhall. The purpose of the sale of the Beaconsfield property was to fund Gemhall's repayments on its mortgage obligations. 11 The orders which were made on 19 December 2008 and which are relevant to this application are: 1. Gemhall Holdings Pty Limited ACN 065 106 381 pay the proceeds of any sale or settlement of the property described in Victorian Certificate of Title Volume 10362 Folio 393, being the property situate at Level 1, 529 Chapel Street, South Yarra in the State of Victoria, into an interest bearing account, net of the amount used to discharge or reduce the sum secured under any existing mortgage on that property or the property referred to in Order 3, and net of usual costs incurred in the course of sale, the details of which account are to be notified by an affidavit filed and served within seven days of settlement. 2. Gemhall Holdings Pty Limited ACN 065 106 381 by itself, its directors, officers, employees, agents or otherwise be restrained until further order from disposing of or otherwise dealing with $1.7 million of the monies in the accounts referred to in order 1 and 3. … 10. This order does not prohibit Gemhall Holdings Pty Limited ACN 065 106 381 and Time 2000 Pty Limited ACN 079 316 224 from: (a) paying their reasonable legal expenses; (b) dealing with or disposing of their assets in the ordinary course of their business, including paying business expenses bona fide and properly incurred up to $3,000 for any single expense; (c) in relation to matters not falling within (a) or (b), dealing with or disposing of any of the assets of Gemhall Holdings Pty Limited and Time 2000 Pty Limited in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so the Second to Fifth Respondents give the Applicants, if possible, at least two working days' written notice of the particulars of the obligations, unless they arise from a contract with a related entity, in which case there be at least 14 days' written notice of the particulars of the obligation. 11. The Second to Fifth Respondents, Gemhall Holdings Pty Limited and Time 2000 Pty Limited and the Applicants may agree in writing that orders 10 (a), (b) or (c) are to be varied. In that case the Second to Fifth Respondents must as soon as practicable file with the Court and serve on the Applicants a minute of a proposed consent order recording the variation signed by or on behalf of the Applicants and the Second to Fifth Respondents, Gemhall Holdings Pty Ltd and Time 2000 Pty Ltd, and the Court may order the variation of the order accordingly. … 12 The Donovan interests applied for leave to appeal from the decision made by Besanko J which I heard and refused on 4 March 2009: Time 2000 Systems (Australia) Pty Ltd v Rafferty [2009] FCA 216. 13 The Beaconsfield property which was owned by the respondent, Time 2000 Pty Ltd, was sold and the proceeds were applied to reduce the mortgage on Gemhall's Chapel Street property. 14 On 13 July 2010 Besanko J delivered his reasons in the proceeding in which he found for the Rafferty interests against the Donovan interests. However, he reserved to each party the right to make further submissions in relation to the orders to be made in the light of his published reasons. In due course the parties made their submissions and on 17 August 2010 his Honour made orders setting aside the Heads of Agreement, the Rights Agreement and the Joint Venture and Shareholders Agreement, and ordered the respondents to pay to the applicants the sum of $1.7 million. The order was: 3. The first, second, fourth and fifth respondents jointly and severally pay to the applicants the following moneys: 3.1 as to Rafferty, the sum of $200,000.00; and 3.2 as to Karaville, the sum of $1,500,000.00. 15 He also ordered the first, second, fourth and fifth respondents pay to the applicants interest in the sum of $416,111.29. He ordered the second and fourth respondents pay the applicants' costs and after 30 January 2009 he ordered their costs be paid on an indemnity basis. He ordered the fifth respondent to pay the applicants' costs after 31 August 2009. 16 He made a number of consequential orders which are unimportant for the purpose of these reasons. 17 His Honour's orders made the fifth respondent, Mr Donovan, liable to pay the applicants the sum of $1.7 million, interest of $416,111.29 and the costs which I have identified. 18 The Donovan interests, except Time 2000 West Pty Ltd, have appealed against those orders. The appeal was heard in the February sessions but judgment has not yet been given. 19 Meanwhile on 4 August 2010, the Donovan interests' solicitors advised that Gemhall wished to refinance the Chapel Street property to fund a redevelopment. 20 In May 2008 the parties to the proceeding had agreed that none of the parties would deal with funds in a bank account in the name of Time 2000 West Pty Ltd, which was the first respondent to the proceeding. Both Mr Rafferty and Mr Donovan were directors of that company. On 17 August 2010 the Rafferty interests' solicitors became aware that approximately $95,000 had been withdrawn from the bank account contrary to that agreement and paid to the credit of Time 2000 West Pty Ltd (the first respondent). Subsequently, those monies were paid to Time 2000 Systems Australia Pty Ltd (the second respondent) on 5 July 2010, which was the date upon which the parties were advised that his Honour was to give his decision. 21 As a consequence, the Rafferty interests applied to extend the freezing orders against all respondents and against Gemhall. Justice Besanko gave the parties and in particular the Donovan interests an opportunity to explain the transaction which was apparently in breach of the parties' agreement, but no explanation was forthcoming. 22 On 31 August 2010 Besanko J made the following orders: Upon the applicants, by their counsel, giving to the Court, the usual undertaking as to damages, 1. That the orders made herein on 19 December 2008 be varied on the terms set out in paragraphs 2 and 3 of this order but otherwise the orders made on 19 December 2008 continue in full force and effect. 2. That until further order, Gemhall Holdings Pty Limited ACN 065 106 381 by itself, its directors, officers, employees, agents or otherwise be restrained from mortgaging or encumbering, or varying (including by way of increasing the principal sum secured other than interest or fees accruing with respect to the existing principal sum) any existing mortgage or encumbrance of, the property situated at Level 1, 529 Chapel Street, South Yarra in the State of Victoria, being the property described in Victorian Certificate of Title Volume 10362 Folio 393. 3. That a sealed copy of this order be served on Gemhall Holdings Pty Limited ACN 065 106 381 by sending a copy to its registered office by prepaid post. 4. That Gemhall Holdings Pty Limited ACN 065 106 381 and any interested party have liberty to apply on short notice. 5. The costs of and associated with this order be reserved. 23 The Rafferty interests did not apply for leave to appeal or seek to appeal from those decisions. 24 On 10 November 2010 the Donovan interests filed a notice of motion seeking the following orders: 1. That the within Application be made specially returnable to a Hearing on or before close of business on Monday, 15 November 2010. 2. That the freezing order placed on the property owned by Gemhall situated at Level 1, 529 Chapel Street, South Yarra in the State of Victoria ("the Chapel Street Property"), dated 19 December 2008, and varied on 31 August 2010 ("the Freezing Order"), be varied with so that Gemhall can negotiate a refinance of the mortgage facility currently registered on the Title of the Chapel Street Property. 3. That the Freezing Order over the Chapel Street Property be discharged. 4. Such further or other order as the Court deems fit. 25 On 15 November 2010 the matter came before me and I made the following orders: 1. The orders made herein on 19 December 2008 and 31 August 2010 be varied on the terms set out in paragraph 2 of this order but otherwise the orders made on those dates continue in full force and effect. 2. Gemhall Holdings Pty Ltd be at liberty to apply for a refinance of its existing finance facility, with an Australian Bank authorised to carry on banking business in Australia under the Banking Act 1959 (Cth) in order to: 2.1 repay to the existing mortgagee Challenger Managed Investments Limited (ACN 002 835 592) any sums due to it, including, but not limited to payment out of the existing mortgage dated 29 October 2010 secured over land comprised in Certificate of Title Volume 10362 Folio 393; and 2.2 establish an interest reserve of $130,000.00, which reserve will be placed on deposit in Gemhall Holdings' Account with Bendigo Bank (Account Numbered BSB 633-000; Account Number 132029778). 3. Gemhall Holdings Pty Ltd be at liberty to apply to have this matter called on to approve any refinancing of the kind described in paragraph 2 on 12 hours notice. 4. Costs be reserved. 26 Those orders were made to enable Gemhall to attempt to refinance its existing finance facility on better terms. 27 On 22 November 2010 I made further orders to enable that refinancing to occur and to establish an interest reserve for the payment of monthly interest payments. The relevant orders were: 1. The orders made herein on 19 December 2008, 31 August 2010 and 15 November 2010 be varied on the terms set out in paragraphs 2 and 3 of this order but otherwise the orders made on those dates continue in full force and effect. 2. Upon the undertaking Gemhall Holdings Pty Ltd ACN 065 105 381 ("Gemhall") that it will raise no objection to an application by Karaville Holdings Pty Ltd ACN 009 439 178 ("Karaville") to the Registrar General of Land Titles for the State of Victoria to lodge a further caveat in respect of the Chapel Street property (as herein defined), which caveat is to be in the same terms as the caveat described in paragraph 4 below, after the registration of the mortgage in favour of Bank of Queensland Limited (ABN 32 009 656 740) ("BOQ"), as contemplated in paragraph 2.4 of this Order, Gemhall be at liberty to enter into new banking facilities with BOQ ("the new facility"), in the terms described in 2(a) to 2 (d) below to: (a) repay to the existing mortgagee, Challenger Managed Investments Limited (ACN 002 835 592) ("Challenger") any sum due to it, secured under its registered mortgage over the property situated at Level 1, 529 Chapel Street, South Yarra in the State of Victoria ("the Chapel Street Property") being the land comprised in Certificate of Title Volume 10362 Folio 393. Those sums will include the payment of the existing principal sum, any outstanding interest payments, and any dishonour fees rendered by Challenger; and (b) re-establish an interest reserve, from which the monthly interest payments (in respect of the new mortgage, as contemplated in paragraph 2.4 of this Order) will be made to BOQ, which interest reserve will be for a sum of $135,000.00. That interest reserve will be held on deposit in Gemhall Holdings' Account with Bendigo Bank (Account Numbered BSB 633-000; Account Number 132029778), or an account as nominated by BOQ, and not to be drawn for any purpose other than to meet interest payments to BOQ; and (c) pay the establishment fees charged by BOQ, in respect of Gemhall's new facility (and new mortgage), which establishment fees will be for a sum of $8,974.70; and (d) grant a registered mortgage, in favour of BOQ, to secure the above new facility, over the Chapel Street Property, which mortgage will not exceed the sum of $A 1.015 m ("the new mortgage") 3. Until further order, and except as expressly provided in this order, Gemhall be restrained by itself, its directors, officers, employees, agents or otherwise from dealing with, disposing of or encumbering, its interest or any part of its interest in the Chapel Street Property. 4. That the caveat dated 23 August 2010 (No. AH 446174U) lodged on behalf of Karaville be removed from the title of the Chapel Street Property immediately before registration of the mortgage contemplated in paragraph 2(d) of this order. 28 Subsequently, Gemhall applied to further vary the orders to take up a commercial opportunity with which it had been presented. 29 Ms Donovan said in an affidavit sworn on 1 February 2011 that on 4 October 2010 she and Mr Donovan had been approached by Groove Train 19 Pty Ltd (Groove Train) with a proposal that Groove Train lease the Chapel Street property. After the orders were made on 22 November 2010, she and Mr Donovan on behalf of Gemhall entered into further negotiations with Groove Train with a view to executing a Heads of Agreement for the lease of the Chapel Street property. On 7 December 2010 a Heads of Agreement was executed by which Groove Train would pay for the fit-out of the Chapel Street property and would pay rental in the sum of $290,000. It was proposed that the premises be used as a 200-seat cafÉ and restaurant for which the premises are licensed. 30 The Donovan interests approached the Rafferty interests for their consent to vary the freezing orders to allow Gemhall to enter into the proposed lease with Groove Train but Ms Donovan deposed that at the date of her affidavit (1 February 2011) Gemhall's solicitors had not received any response to its proposal. 31 In her affidavit she deposed to the benefits to Gemhall if the freezing orders were varied to permit Gemhall to enter into the lease agreement with Groove Train. 32 The matter came on before me and eventually the parties reached an agreement which was reflected in orders that I made on 23 February 2011, which are in the following terms: 1. In addition to the orders sought pursuant to the notices of motion filed in the within action on 10 November 2010, the freezing order placed on the property owned by Gemhall Holdings Pty Limited ('Gemhall') situated at Level 1, 529 Chapel Street, South Yarra in the State of Victoria ('the Chapel Street Property') dated 19 December 2008, and varied on 31 August 2010 ('the Freezing Order') be varied so that: 1.1 Subject to Gemhall obtaining the approval of Bank of Queensland as identified in paragraph 2.2 of the notice of motion filed on 2 February 2011, Gemhall be permitted to enter into a lease with the Groove Train 19 Pty Ltd ('Groove Train') on the terms and conditions contain in the Heads of Agreement ('HOA'), exhibited as 'KJD-38' to the affidavit of Kamila Joanna Donovan sworn on 1 February 2011; 1.2 Subject to Gemhall obtaining the approval of Bank of Queensland as identified in paragraph 2.2 of the notice of motion filed on 2 February 2011, Gemhall be permitted to enter into a fresh construction contract with Constructive Group on the same terms as the previous contract dated 16 June 2010 exhibited as 'KJD-23' in the affidavit of Kamila Joanna Donovan of 18 November 2010 in the sum of $589,314 ('the contract sum') but allowing for a maximum increase in the contract sum of 5% for the purpose of allowing for any variation in sub-contractors fees, to a maximum sum of $620,000; 1.3 Subject to Gemhall obtaining the approval of Bank of Queensland as described in paragraph 1.2 hereof, Gemhall be permitted to have Constructive Group undertake the additional Landlords Works in the amount limited to $100,000 as specified in the HOA exhibited as 'KJD-38 in the affidavit of Kamila Joanna Donovan sworn on 1 February 2011 as variations to the contract; 1.4 Gemhall be permitted to further draw upon its existing finance facility with the Bank of Queensland to pay Constructive Group as required pursuant to the terms and conditions of the construction contract, only on the following terms: 1.4.1 all payments be made directly to Constructive Group by the Bank of Queensland; 1.4.2 all claims by the builder for progress payments shall only be made by the Bank upon certification of the claims by the Bank's independent quantity surveyor; 1.5 Gemhall be permitted to allow the Bank of Queensland to pay directly the respective outstanding consultant invoices, exhibited as 'KJD-34' to the affidavit of Kamila Joanna Donovan of 18 November 2010 drawing upon the existing finance facility; 1.6 Gemhall be permitted to have the Bank of Queensland pay directly to Groove Train the required landlord fit out contribution in accordance with the terms of the HOA exhibited as 'KJD-38' to the affidavit of Kamila Joanna Donovan of 1 February 2011 and upon completion of the fit out of the premises; 1.7 Gemhall to provide to the solicitors for Patrick Campbell Rafferty, Santora Holdings Pty Limited and Karaville Holdings Pty Limited ('the Applicants') copies of any agreements with Constructive Group to undertake the additional Landlord works as permitted by these orders within three business days of execution of such agreements; 1.8 Gemhall provide to the Applicants' solicitors copies of any lease or other agreement with Groove Train as permitted by these orders within three business days of execution of such lease or agreement; 1.9 Gemhall provide to the Applicants' solicitors notice of the amount, date and subject matter of any payment from Bank of Queensland to Constructive Group or Groove Train within three business days of such payment; 1.10 Gemhall provide to the Applicants' solicitors notice upon Groove Train entering into possession of the Chapel Street Property pursuant to the lease within three business days of that event occurring. 2. The applicants to the proceedings Patrick Campbell Rafferty, Santora Holdings Pty Ltd and Karaville Holdings Pty Ltd pay Gemhall Holdings Pty Ltd's cost of and incidental to the notice of motion of 2 February 2011. 33 Subsequently Gemhall sought a hearing to allow it to contend that the orders made by Besanko J on 19 December 2008 as varied be discharged. 34 The application was supported by an affidavit of Mr Kym Ryder, a partner in the firm of Gemhall's solicitors who exhibited correspondence which had been exchanged between his firm and the Rafferty interests' solicitors. 35 In a letter dated 16 March 2011 Mr Ryder advised that shortly after I had made the orders on 23 February 2011 Groove Train advised that it withdrew its intention to lease the premises and had secured a lease of another property. 36 The Heads of Agreement which had been signed by Gemhall and Groove Train was conditional upon Gemhall receiving consent to proceed from the Federal Court of Australia by 1 January 2011. Of course that day had long passed at the time that I made the orders on 23 February 2011. 37 In any event, the purpose of Mr Ryder's letter was to put the Rafferty interests' solicitors on notice that in due course their clients would be held responsible for any damage caused to Gemhall. 38 On 20 August 2010 a bankruptcy notice was served upon Mr Donovan. On 7 September 2010 Mr Donovan applied for an order to set aside the bankruptcy notice or for an extension of time within which to comply with the notice until such time as the Full Court of the Federal Court had delivered judgment in his and the Donovan interests' appeal against the orders made by Besanko J on 17 August 2010. On 23 December 2010 Registrar Christie dismissed that application. 39 On 15 February 2011 the Rafferty interests issued a creditor's petition seeking a sequestration order against Mr Donovan but as at 17 March 2010 had not been able to serve that creditor's petition. 40 This application comes to be considered in the following circumstances: 1. When Besanko J made his orders the trial of the proceeding had not taken place. 2. After the orders were made Besanko J found in favour of the Rafferty interests and ordered the Donovan interests to pay to the Rafferty interests the sum of $1.7 million together with costs. 3. The judgment sum has not been paid. 4. The orders made by his Honour on 17 August 2010 are under appeal and the appeal has been heard but not decided. 5. Gemhall is as it was at the time that his Honour made the orders under the direction of Mr Donovan and his wife. Ms Donovan is the appointor of the trust having been appointed on 10 December 2010 (at the same time as she was appointed a director). 6. Gemhall is a trustee company for the Stephen Donovan Family Trust. The trust is a discretionary trust which has as its beneficiaries, Mr Donovan, his parents, any future spouse and child or children of Mr Donovan, any charity, school, body, institution, corporation or foundation established for educational purposes. 7. Gemhall is the registered proprietor of the Chapel Street property. 8. In view of Registrar Christie's decision, Mr Donovan has failed to comply with the bankruptcy notice. 9. Failure to comply with a bankruptcy notice is an act of bankruptcy (s 40(1)(g) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act)) and which provides the jurisdiction for this Court or the Federal Magistrates Court to make a sequestration order against his estate (s 43(1) of the Bankruptcy Act). 41 This is not an appeal from the orders made by Besanko J on 19 December 2008. An application was made for leave to appeal but that, as I have said, was refused. The time for appeal has passed. 42 Gemhall can only succeed on this application if it can show that the orders made by his Honour ought to be varied or revoked. Gemhall can discharge that onus by showing that the need for the order has passed or that Gemhall's circumstances or the parties' circumstances have changed such that the order ought to be discharged. 43 Order 25A of the Federal Court Rules empowers the Court to make freezing orders and ancillary orders: O 25A r 2 and r 3. A freezing order may be made "without notice … 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": O 25A r 2. A freezing order can be made against a person who is not a party to the proceeding: O 25A r 4. 44 Order 25A rule 5(1) identifies the circumstances in which the rule applies: (1) This rule applies if: (a) judgment has been given in favour of an applicant by: (i) the Court; or (ii) in the case of a judgment to which subrule (2) applies — another court; or (b) an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in: (i) the Court; or (ii) in the case of a cause of action to which subrule (3) applies — another court. 45 In this case O 25A r 5(1)(b) was relied upon by the Rafferty interests when they made their application. 46 His Honour found that O 25A r 5(1)(b) was satisfied because the Rafferty interests had a good arguable case in relation to the cause of action which was raised in its proceeding against the Donovan interests. 47 Since that time of course judgment has been given in favour of the Rafferty interests so that there is no longer any doubt (at least until the Full Court says otherwise) that the rule should apply: O 25A r 5(1)(a)(i). 48 Thus the first condition necessary for the making of a freezing order was satisfied at the time the order was made and remains satisfied. 49 The second condition that must be satisfied on an application for a freezing order against a third party is contained in O 25A r 5(5). Order 25A rule 5(5) prescribes the circumstances in which the rule applies. It provides: (5) The Court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a third party) if the Court is satisfied, having regard to all the circumstances, that: (a) there is a danger that a judgment or prospective judgment will be wholly or party unsatisfied because: (i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (b) a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment. 50 The subrule clearly draws on the decision of the High Court in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380. The High Court said at [57]: What then is the principle to guide the courts in determining whether to grant Mareva relief in a case such as the present where the activities of third parties are the objects sought to be restrained? In our opinion such an order may, and we emphasise the word "may", be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which: (i) the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including "claims and expectancies", of the judgment debtor or potential judgment debtor; or (ii) some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor. 51 His Honour said of this aspect: 18 The second question is whether there is a danger that a prospective judgment in favour of the applicants against the respondents will remain unsatisfied, or partly unsatisfied, if recovery is restricted to the assets of those respondents. Details of the financial affairs of the respondents have not been put before me and, in fact, the applicants seek by way of ancillary orders, orders that affidavits of disclosure be filed and served by the respondents. It has been established that the respondents do not own any real property in the State of Victoria. It has also been established that the second respondent owes reasonably substantial sums of money to the third parties. It has also been established that one of the companies associated with Mr Donovan, Gemhall Holdings, will be unable to pay the mortgage over the Chapel Street property beyond December 2008 if it is not sold. If the property is sold the deposit money will be sought to be released to be used to continue to pay the mortgage until settlement of the sale. In my opinion, the applicants have established that there is a danger that a prospective judgment in their favour against the respondents will remain unsatisfied, or partly unsatisfied, if recovery is restricted to the assets of the respondents. 52 The position in that regard has not changed except that the Rafferty interests' case has strengthened. There is now a judgment against the Donovan interests for a significant sum of money. The judgment remains unsatisfied. Mr Donovan has committed an act of bankruptcy and a petition has issued for an order for his bankruptcy. There is therefore a danger that the judgment will be wholly or partly unsatisfied. 53 That leaves for consideration whether the judgment will remain unsatisfied because of any of the matters in paragraphs (a) and (b) of subrule (5) of rule 5 of O 25A. His Honour addressed this issue and said: 25 The respondents' submission that Mr Donovan, as a member of a class of possible objects of appointment, has no proprietary interest in the trust assets is correct: In re Coleman; Henry v Strong (1888) 39 Ch D 443; In re Weir's Settlement Trusts; Macpherson v Inland Revenue Commissioners [1971] Ch 145. However, I do not think that is fatal to the applicants' application. I say that for the following reason. I think the test formulated by the High Court in Cardile ((ii) in the passage quoted above at [15]) and reflected in O 25A r 5(5) is wide enough to cover the present circumstances. Both refer to a process which "is or may ultimately be available" and the fact that the third party "may be obliged to disgorge assets" or contribute towards satisfying the judgment or prospective judgment. It is possible that Mr Donovan will receive an interest under the Stephen Donovan Family Trust which is recoverable by a trustee in bankruptcy in the event that the applicants obtain a judgment against Mr Donovan and he is placed into bankruptcy upon being unable to satisfy that judgment. I am mindful of the fact that considerable caution must be exercised in making freezing orders against third parties, but at the same time there needs to be some flexibility in the test, as the circumstances of this case plainly show. Other courts have considered that the use of the word "may" is significant: Westpac Banking Corporation v Hilliard [2001] VSC 187; Audio Products Group Pty Ltd v Mamone [2005] NSWSC 982; Robmatjus Pty Ltd v Violet Home Loans Australia Pty Ltd [2007] VSC 165. 26 There are two other possible bases for orders in this case. The first is that, in the circumstances of this case, the Court is able to look behind the trust structure and determine that, in reality, the property of the trust is effectively Mr Donovan's property because he effectively controls the power of selection (Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509 at 518 [29] and 520-521 [36]-[39] per French J). The second possible basis is that Mr Donovan has, in the particular circumstances of this case, an expectancy under the Stephen Donovan Family Trust (see Gartside v Inland Revenue Commissioners [1968] AC 553 at 607 per Lord Reid, at 615 per Lord Wilberforce; Hunt v Muollo [2003] 2 NZLR 322 at 325 [11]) and the case falls within Cardile ((i) in the passage quoted above at [15]) or O 25A r 5(5)(a). As these possibilities were not the subject of detailed submissions by counsel, I do no more than identify them as a possible basis for the freezing orders against the third parties. 54 His Honour rested his decision on two separate grounds, both of which would satisfy O 25A r 5(5)(b). First, that Mr Donovan may become entitled to an interest in the Stephen Donovan Family Trust which would be recoverable by Mr Donovan's trustee in bankruptcy. Secondly, Mr Donovan has an expectancy under the Stephen Donovan Family Trust. Although his Honour did not say so, he must have considered that that expectancy may be recovered by Mr Donovan's trustee in bankruptcy. 55 The question is whether there have been any changes in the circumstances upon which his Honour relied such that there is now no basis under O 25A r 5(5)(b) or reason for the freezing order against Gemhall to continue. 56 As I have already said, this is not an appeal from his Honour's orders. They were made and stand unless they should be varied or revoked for reasons or circumstances that did not exist when his Honour made the orders. The question for me is whether both (because they were alternatives) bases relied upon by his Honour no longer apply. 57 The application can be disposed of quite quickly. The first basis on any understanding continues to operate. Indeed, the Rafferty interests have strengthened in relation to the first basis. 58 Paragraph (b) of O 25A r 5(5) operates when a process may become available as the result of a judgment. A process has become available to the Rafferty interests. They have a judgment against the Donovan interests and that judgment remains undischarged. Mr Donovan has committed an act of bankruptcy and a petition has issued. A process has now become available to the Rafferty interests as a result of the judgment. If a trustee is appointed to Mr Donovan's estate the shares in Gemhall being Mr Donovan's property will vest in the trustee: s 58 of the Bankruptcy Act. The trustee will control Gemhall and have the right to appoint its directors. Gemhall is the trustee of a discretionary trust. In those circumstances, it continues to be the case that Gemhall may contribute toward satisfying the judgment. 59 That is enough to dispose of the application. However, I will address Gemhall's counsel's arguments. 60 It was put by counsel for Gemhall that there were a number of reasons why the freezing order should be discharged. First it was put that because his Honour had granted liberty to apply to discharge the order the application was not contrary to the terms of the order. Nothing more needs to be said about that proposition which cannot be sustained. Secondly it was put that there had been "a shift in the law" since Besanko J made his orders and in particular in relation to the degree of satisfaction required in relation to granting a Mareva injunction against a third party. In that regard Gemhall's counsel relied upon a decision of Vickery J in the Supreme Court of Victoria in Groeneveld Australia Pty Ltd v Nolten Vastgoed BV and Chris Nolten [2011] VSC 18. In that case Vickery J addressed r 37A.05(4) of the Supreme Court (General Civil Procedure) Rules 2005 in Victoria which are harmonised court rules with the other rules of court in the various jurisdictions in Australia. In particular, his Honour addressed r 37A.05(5)(b) which is in the same terms as O 25A r 5(5)(b). 61 His Honour referred to a previous decision in the Supreme Court of Victoria in Robmatjus Pty Ltd v Violet Home Loans (2007) VSC 165 where Hargrave J speaking of the power under that rule said: A threshold issue was raised in argument. It was submitted on behalf of the defendant and the non-parties that, in order to establish that a relevant process "may" ultimately be available, the plaintiffs must establish "a compelling cause of action" for relief as a result of such process being instigated. It was submitted that a mere possibility that some process may ultimately lead to relief of the relevant kind is not sufficient for the purpose of the rule. I do not accept their submission. Although I accept that a merely theoretical possibility will not fall within the rule, I do not think that a plaintiff need establish a "compelling cause of action". It will be enough if a plaintiff can satisfy the Court that, in all the circumstances of the case, there is a real case to be investigated under the process or processes relied upon as potentially yielding a means of satisfaction of the judgment from the assets of the non-parties. 62 In Groeneveld Australia Pty Ltd v Nolten Vastgoed BV and Chris Nolten [2011] VSC 18, Vickery J said that insofar as Hargrave J was seeking to apply a test of "the real case to be investigated", his Honour was wrong. Vickery J said that the real test to be applied was whether there was an arguable case. 63 I do not need to decide which of the Victorian cases is to be preferred or if in fact there is any real distinction between the two decisions. I am not so sure that Hargrave J was seeking to apply the kind of test which Vickery J ascribed to him. I think Hargrave J was simply answering the proposition put by counsel for the defendant and non-parties that the party seeking freezing orders had to establish a "compelling cause of action". 64 But even if Hargrave J was advocating a universal test which should apply, in my opinion that decision and Vickery J's decision does not in any way impact upon Besanko J's decision. 65 Justice Besanko made a finding in accordance with O 27A r 5(5)(b). He found in both respects that if a process may be available to the Rafferty interests Gemhall may be obliged to disgorge assets or contribute to the judgment. He recognised that the Court should exercise caution in making the orders. He did not apply the test of which Vickery J disapproved. Justice Besanko did not indicate what degree of satisfaction he reached but clearly he was satisfied. On this application to revoke a freezing order, Groeneveld Australia Pty Ltd v Nolten Vastgoed BV and Chris Nolten [2011] VSC 18 is of no assistance to Gemhall. 66 In any event, O 25A r 5(5)(b) does not require the applicant to make out an arguable case in relation to this aspect of the application. The paragraph merely requires that the Court be satisfied that there may be a process which ultimately may allow the applicant to call upon the third party to disgorge assets or contribute towards the judgment. In other words, the Court must be satisfied that the two limbs in the subrule may occur – not that they will occur. It is satisfaction of two possibilities that must be reached before the order can be made. The High Court stressed the word "may" in the dicta to which I have referred. The degree of satisfaction may vary from case to case. 67 The second contention is rejected. 68 It was also put by Gemhall that the Court was now in possession of more detailed evidence than that which was available to his Honour and from that evidence it can be seen that the freezing orders has been at least inconvenient and perhaps damaging to Gemhall over the period of time the orders have been in place. 69 The evidence shows that Gemhall was obliged to apply to the Court for permission to refinance and to enter into a lease agreement with Groove Train. Ultimately approval was given in respect of both the refinancing and the leasing, but the leasing did not occur because Groove Train withdrew from the Heads of Agreement. 70 There is no evidence why Groove Train withdrew from the Heads of Agreement. I have already pointed out that the Heads of Agreement required the consent of the Federal Court by 1 January 2011, which could never have occurred because the application to the Court was not made until February 2011. The failure by Gemhall to make an application prior to 1 January 2011 is largely unexplained except that there had been some communications with the Rafferty interests' solicitors in the meantime. 71 If the clause in the Heads of Agreement meant that permission needed to be obtained as a matter of urgency which it is now said to have been, Gemhall failed to act in its own best interests in making an urgent application. 72 What is really being called into question on this application is whether the balance of convenience still favours the Rafferty interests. In my opinion, there is no doubt that the balance of convenience favours the continuation of the freezing orders. A judgment has now been obtained. One of the judgment debtors has committed an act of bankruptcy and there is a petition for the sequestration of his estate. If an order for a sequestration were made, his trustee in bankruptcy will become the shareholder of Gemhall and will be in a position to dictate Gemhall's commercial conduct. How the trustee would exercise that power is a matter for the trustee and, in any event, not a matter for speculation. 73 The appeal from his Honour's orders of 17 August 2010 has been heard but not decided, but it may be expected that a decision will be given within a matter of months. In those circumstances, notwithstanding the inconvenience which Gemhall continues to suffer, the orders made on 19 December 2008 should be allowed to continue. 74 The application is dismissed. Gemhall must pay the Rafferty interests' costs of the application. I certify that the preceding seventy-four (74) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander. Associate: Dated: 21 April 2011