FEDERAL COURT OF AUSTRALIA SBA Music Pty Ltd v Hall [2014] FCA 1038 Citation: SBA Music Pty Ltd v Hall [2014] FCA 1038 Parties: SBA MUSIC PTY LTD (ACN 009 310 525) and SBA MUSIC SOLUTIONS PTY LTD (ACN 009 434 584) v WAYNE HALL File number: NSD 1587 of 2013 Judge: WIGNEY J Date of judgment: 22 September 2014 Catchwords: PRACTICE AND PROCEDURE – application for freezing orders – freezing orders against third parties – relevant principles Legislation: Bankruptcy Act 1966 (Cth) Federal Court Rules 2011 (Cth) Cases cited: Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2012] FCA 746 Curtis v NID Pty Ltd [2010] FCA 1072 Frigo v Culhaci [1998] NSWCA 88 Patterson v BTR Engineering (Australia) Ltd (1989) 18 NSWLR 319 Date of hearing: 22 September 2014 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 26 Counsel for the Plaintiffs: D Mahendra Solicitor for the Plaintiffs: Sparke Helmore Counsel for the Defendant: G O'Shea Solicitor for the Defendant: Megan McCormick & Andrew Williams Lawyers Counsel for Sylvie Comeau-Hall: W Lloyd Counsel for Mosaic Media Pty Ltd and Habitat Digital Pty Ltd: P Afshar IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1587 of 2013 BETWEEN: SBA MUSIC PTY LTD (ACN 009 310 525) First Plaintiff SBA MUSIC SOLUTIONS PTY LTD (ACN 009 434 584) Second Plaintiff AND: WAYNE HALL Defendant JUDGE: WIGNEY J DATE OF ORDER: 22 SEPTEMBER 2014 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Paragraphs 12, 13 and 14 of the plaintiff's interlocutory application filed 16 September 2014 be dismissed. 2. There be no order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1587 of 2013 BETWEEN: SBA MUSIC PTY LTD (ACN 009 310 525) First Plaintiff SBA MUSIC SOLUTIONS PTY LTD (ACN 009 434 584) Second Plaintiff AND: WAYNE HALL Defendant JUDGE: WIGNEY J DATE: 22 SEPTEMBER 2014 PLACE: SYDNEY REASONS FOR JUDGMENT REVISED FROM TRANSCRIPT 1 On 6 August 2013, SBA Music Pty Ltd and SBA Music Solutions Pty Ltd (together SBA) commenced proceedings in this Court against Wayne Hall. In very general terms, SBA alleges that Mr Hall was a director or senior officer of SBA and that while in that position he breached his fiduciary duties by, amongst other things, diverting business opportunities to himself, rather than SBA. The relief sought by SBA includes damages and compensation. Evidence filed by SBA in the principal proceedings indicates that, if successful, SBA may be entitled to damages or compensation in the order of $3 million. 2 By interlocutory application dated 16 September 2014, SBA sought freezing orders and ancillary orders under Division 7.4 of the Federal Court Rules 2011 (Cth) (the Rules) against various persons and entities. The individuals against whom orders were sought included Mr Hall and his spouse, or former spouse, Ms Sylvie Comeau-Hall. The entities included various companies that appeared to be using business names or operating businesses that had previously been used or operated by Mr Hall. 3 As events transpired, on the eve of the hearing of the interlocutory application on 19 September 2014, Mr Hall presented a debtor's petition against himself, pursuant to s 55 of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). When the matter came on for hearing on 19 September 2014, the precise status of the petition was unclear. It was not known whether the Official Receiver had rejected or accepted Mr Hall's debtor's petition in accordance with s 55 of the Bankruptcy Act. It was accordingly unclear whether, at that point in time, Mr Hall had become bankrupt. 4 As a result of the late change in circumstances, SBA's applications against Mr Hall and Ms Comeau-Hall were adjourned by consent. Undertakings were given by Mr Hall. Likewise, the application against Soundmark Solutions Pty Ltd, a company whose director and sole shareholder is Mr Hall, was also adjourned. The applications against two other entities, Mosaic Media Pty Ltd and Habitat Digital Pty Ltd, were not pressed by SBA. The only application that was pressed on 19 September 2014 was the application against a company called Venue Music Systems Pty Ltd. There was no appearance for Venue Music Systems Pty Ltd at the hearing. There is acceptable evidence that Venue Music Systems Pty Ltd was served with SBA's interlocutory application and supporting evidence. 5 The evidence relied on by SBA in support of its application reveals that as at 15 September 2014, the director and sole shareholder of Venue Music Systems Pty Ltd was a gentleman named Neil Anthony Hawkesford. The basis of SBA's application for a freezing order against Venue Music Systems Pty Ltd appears to relate to its use or apparent use of the business name, MyStore Radio. 6 Part of SBA's case against Mr Hall in the principal proceedings relates to a business known as MyStore Radio. The business appears to have originally been operated by a company named MyStore Radio Pty Ltd. SBA apparently provided services to that company. The company, MyStore Radio Pty Ltd, subsequently got into financial difficulties. Administrators who were appointed by the company entered into negotiations in relation to the sale of its business, including the business name MyStore Radio. SBA alleges that Mr Hall, whilst he was an officer of SBA, directed that particular business opportunity to himself, rather than SBA. Exactly who ended up owning the MyStore Radio business name and business is unclear, though SBA alleges that Mr Hall, or persons or entities associated with him, ultimately owned and operated that business. 7 In support of its application for a freezing order against Venue Music Systems Pty Ltd, SBA relies on evidence which appears to suggest that Venue Music Systems Pty Ltd now owns, or at least uses, the business name MyStore Radio. It also relies on evidence that tends to indicate that Mr Hall has some involvement or connection with Venue Music Systems Pty Ltd. 8 The evidence relied on by SBA is largely documentary and comprises extracts from various databases, including the Australian Securities and Investment Commission's (ASIC) business name database and the Australian Business Number (ABN) database. That evidence reveals the following: 1. Venue Music Systems Pty Ltd was incorporated on 25 March 2010. 2. ABN records for Mr Hall show that from at least 2009 he used various business names, including the business names Venue Music Solutions and Soundmark Solutions. 3. On 27 September 2013, about seven weeks after SBA commenced these proceedings against Mr Hall, Soundmark Solutions Pty Ltd was incorporated. Mr Hall was its director and sole shareholder. 4. The ASIC and ABN databases record that in June 2014 an unincorporated entity or structure called the Trustee for Soundmark Solutions Trust, became the registered holder of the business names Soundmark Solutions, Venue Music Solutions and MyStore Radio. Other ASIC extracts appear to link the business name, the Trustee for Soundmark Solutions Trust, to Soundmark Solutions Pty Ltd. 5. The business name MYSTORE RADIO appears to have previously been held by Mr Hall's sister, Margaret Dubyk. That particular business name was apparently cancelled in June 2014. 6. ASIC extracts relating to Venue Music Systems Pty Ltd do not indicate that it is the registered holder of any business names. 9 What seems to flow from these documents is that sometime after the commencement of the principal proceedings, Mr Hall's association with various business names changed. Those names, including MyStore Radio, came to be held or registered in the Soundmark Solutions Trust, which in turn appeared to be associated in some way with Soundmark Solutions Pty Ltd. 10 The only evidence of any connection between the company, Venue Music Systems Pty Ltd (as opposed to the business name Venue Music Solutions), Mr Hall and the business name MyStore Radio, appears to be that various documents bearing the name MyStore Radio refer to ABN 74 142 779 235. That is the ABN of Venue Music Systems Pty Ltd. These documents include invoices bearing the name, MyStore Radio. These invoices are dated in 2010, 2011 and 2012. SBA also relies on an email dated 24 July 2014 from Mr Hawkesford, the director of Venue Music Systems Pty Ltd. This email indicates that Mr Hall had previously loaned money to Venue Music Systems Pty Ltd and that the loan had been converted to "equity in the business" for Mr Hall. SBA submits that this evidence demonstrates that Mr Hall is seeking, or has sought, to transfer his business interests into Venue Music Systems Pty Ltd, and that Venue Music Systems Pty Ltd is, or will be, in possession of Mr Hall's assets, trading as MyStore Radio. SBA also submits that the affairs of Venue Music Systems Pty Ltd are effectively controlled by Mr Hall and that SBA may therefore become entitled to have recourse to Venue Music Systems Pty Ltd or its assets to meet any prospective judgment in the principal proceedings. 11 Rule 7.32 of the Rules provides as follows: 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. 12 Rule 7.35 relevantly provides as follows in relation to freezing orders against third parties: (1) This rule applies if: (a) judgment has been given in favour of an applicant by: (i) the Court; or (ii) for 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; (ii) or for a cause of action to which subrule (3) applies – another court. … (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 partly 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. 13 To obtain a freezing order against Venue Music Systems Pty Ltd, which is a third party, SBA must accordingly demonstrate: 1. that SBA has a good arguable case or cause of action in this Court; and 2. there is a danger that any judgment SBA may obtain will be wholly or partly unsatisfied because either: a. Venue Music Systems Pty Ltd holds or is using, or has exercised or is exercising, a power of disposition over any of Mr Hall's assets; or b. Venue Music Systems Pty Ltd is in possession of, or in a position of control or influence concerning, assets of Mr Hall; or 3. a process of this Court is or may ultimately be available to SBA as a result of a prospective judgment in the principal proceedings under which process Venue Music Systems Pty Ltd may be obliged to disgorge assets or contribute towards satisfying the judgment. 14 The 'good arguable case' threshold has been held to be a "low threshold" in the context of freezing orders: Curtis v NID Pty Ltd [2010] FCA 1072 at [6]. I am prepared to proceed on the basis that SBA has a good arguable case in the principal proceedings. 15 It is clear, however, that a freezing order is an exceptional interlocutory remedy which involves a significant interference in the personal affairs of a person or entity: Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2012] FCA 746 (Bayley & Associates) at [31]. It is clear from authorities relating to what was previously called a Mareva injunction that the purpose of such an order is to "minimise the possibility of an unscrupulous defendant seeking to render himself or himself judgment proof by taking steps to ensure that no assets within the jurisdiction can be found on the day of judgment": Frigo v Culhaci [1998] NSWCA 88 (BC9803225) at 9-10 in the BC report. 16 The remedy is discretionary and as a general rule an applicant will need to establish a danger that by reason of a respondent dealing with his, her or its assets in some fashion, the applicant will be unable to have a judgment satisfied: Patterson v BTR Engineering (Australia) Ltd (1989) 18 NSWLR 319 at 321-322. That danger must be established by evidence and not mere assertion. The risk must be "palpable and demonstrated by evidence and not reside only as a suspicion in the mind of an overly anxious plaintiff": Bayley & Associates at [34]. 17 I am not satisfied on the evidence before me that a freezing order against Venue Music Systems Pty Ltd is appropriate. That is so despite the non-appearance and non-opposition by Venue Music Systems Pty Ltd on this application. The only relevant asset that SBA points to as being an asset of Mr Hall that Venue Music Systems Pty Ltd either possesses or has some power over is the business name MyStore Radio. But the evidence in relation to that business name is far from clear. There is no evidence of any other asset associated with any business conducted in the name MyStore Radio. 18 The evidence connecting Mr Hall to the use or ownership of the business name MyStore Radio is not entirely clear. It was never registered in his name. It is apparently registered in the name of the Trustee for the Soundmark Solutions Trust. The association between that business name and the company Soundmark Solutions Pty Ltd is also somewhat unclear on the evidence. 19 The link between Venue Music Systems Pty Ltd and the business name MyStore Radio is even less clear. As already indicated, the only link is that the ABN of Venue Music Systems Pty Ltd has been used on certain invoices bearing the name MyStore Radio. That use, however, goes back as far as 2010, well before the proceedings against Mr Hall were commenced. In these circumstances, it is difficult to see how it could be inferred that Mr Hall has been shifting assets, including the ownership of the MyStore Radio business name, to Venue Music Systems Pty Ltd, so that he is judgment proof in the principal proceedings. It is even more difficult to see that there is any risk or danger in Venue Music Systems Pty Ltd relevantly dealing or disposing of any assets that Mr Hall has supposedly transferred to him. 20 In my opinion, the evidence is insufficient to make out the relevant requirements in r 7.35(5). I am not satisfied on the evidence before me that Venue Music Systems Pty Ltd is in possession of, or holds or exercises any power over, any of Mr Hall's assets that would otherwise be available to satisfy any judgment that may be given against Mr Hall. Nor am I satisfied that SBA may be able to utilise any process in this Court to require Venue Music Systems Pty Ltd to disgorge any relevant asset to meet a judgment. 21 There are other considerations that militate against the making of a freezing order against Venue Music Systems Pty Ltd. 22 First, there is no evidence that the business name has any value or worth. There is no evidence that the business MyStore Radio is still being conducted by anyone. There is no evidence that Venue Music Systems Pty Ltd is still conducting that business or any business using the MyStore Radio name. There is no evidence of the assets of Venue Music Systems Pty Ltd. 23 Second, in light of Mr Hall's likely bankruptcy, it is at least doubtful that the principal proceedings will ever proceed to judgment in this Court. It may ultimately be a matter for SBA to prove in Mr Hall's bankruptcy. 24 If in recent months Mr Hall has dealt with his assets in such a way as to defeat creditors or prospective creditors, such as SBA, that would be a matter that would no doubt be investigated by Mr Hall's trustee in bankruptcy. The trustee in bankruptcy has considerable powers under the Bankruptcy Act to claw back assets. 25 For all the above reasons, I am not satisfied that the circumstances of this case warrant the exercise of the discretion to grant the exceptional interlocutory remedy of a freezing order against Venue Music Systems Pty Ltd. I have serious doubts that such an order against Venue Music Systems Pty Ltd would have any utility in the circumstances. 26 Accordingly, I dismiss paragraphs 12, 13 and 14 of the interlocutory application filed by SBA and dated 16 September 2014, those being the paragraphs that seek orders against Venue Music Systems Pty Ltd. Since Venue Music Systems Pty Ltd did not appear on the application, I make no order as to costs. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wigney. Associate: Dated: 8 October 2014