FEDERAL COURT OF AUSTRALIA Merryport Pty Ltd v Lawson [2023] FCA 838 File number(s): QUD 303 of 2023 Judgment of: LEE J Date of judgment: 20 July 2023 Date of publication of reasons: 24 July 2023 Catchwords: PRACTICE AND PROCEDURE – urgent ex parte application for freezing and ancillary orders – whether arguable case exists – whether there exists a real risk of the dissipation of assets in order to frustrate a prospective judgment – allegations of serious fraud and dishonesty – application granted Legislation: Federal Court of Australia Act 1976 (Cth) s 23 Federal Court Rules 2011 (Cth) Div 7.4, r 7.33 Cases cited: Cardile v LED Builders Pty Limited [1999] HCA 18; (1999) 198 CLR 380 Deputy Commissioner of Taxation v Shi [2020] FCAFC 100; (2020) 277 FCR 1 Insolvency Guardian Melbourne Pty Ltd v Carlei [2016] FCA 72; (2016) 111 ACSR 236 Jackson v Sterling Industries Limited (1987) 162 CLR 612 Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 Robmatjus Pty Ltd v Violet Home Loans Australia Pty Ltd [2007] VSC 165 Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 18 Date of hearing: 20 July 2023 Counsel for the first and second applicants: Mr N Derrington Solicitor for the first and second applicants: Eaglegate Lawyers ORDERS QUD 303 of 2023 BETWEEN: MERRYPORT PTY LTD IN ITS CAPACITY AS TRUSTEE FOR THE MR JOHNSTON FAMILY TRUST ACN 052 224 292 First Applicant H & J BANANAS PTY LTD IN ITS CAPACITY AS TRUSTEE OF THE H & J UNIT TRUST ACN 079 404 023 Second Applicant AND: MICHELLE KATHLEEN LAWSON First Respondent HEATH ASHLEY LAWSON Second Respondent HAYDEN GARRY TERRENCE LAWSON Third Respondent order made by: LEE J DATE OF ORDER: 20 JULY 2023 PENAL NOTICE TO: MICHELLE KATHLEEN LAWSON, HEATH ASHLEY LAWSON, AND HAYDEN GARRY TERRENCE LAWSON IF YOU (BEING THE PERSON BOUND BY THIS ORDER): (A) REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR (B) DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU NOT TO DO, YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT. ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED. TO: MICHELLE KATHLEEN LAWSON, HEATH ASHLEY LAWSON, AND HAYDEN GARRY TERRENCE LAWSON This is a "freezing order" made against you on 20 July 2023 by Justice Lee at a hearing without notice to you after the Court was given the undertakings set out in Annexure A to this order and after the Court read the affidavits listed in Annexure B to this order. THE COURT ORDERS THAT: 1. The application for this order be made returnable immediately. 2. The time for service of the originating application, the statement of claim, and the affidavits filed in support of the application for interlocutory relief is abridged and service is to be effected by email by 4pm on 20 July 2023 and personally forthwith. 3. Subject to Order 4, the interlocutory relief sought have effect up to 4pm on 28 July 2023 (the Return Date). On the Return Date at 10:15am, there will be a further hearing in respect of this order before Justice Downes. 4. Anyone served with or notified of this order may apply to the Court at any time to vary or discharge this order or so much of it as affects the person served or notified. 5. In this order, save where the context otherwise requires: (a) 'applicant', if there is more than one applicant, includes all the applicants; (b) 'You', where there is more than one of you, includes all of you and includes you if you are a corporation; (c) 'third party' means a person other than you and the applicant; (d) 'unencumbered value' means value free of mortgages, charges, liens or other encumbrances. 6. If You: (a) Are ordered to do something, you must do it by yourself or through directors, officers, partners, employees or agents or others acting on your behalf or on you instructions; (b) Are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or in any other way or others acting on your behalf or on you instructions or with your encouragement or in any other way. Freezing of Assets 7. You, being in this paragraph Michelle Kathleen Lawson, must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia ('Australian assets') up to the unencumbered value of $3,439,233.07 ('the relevant amount') until 4pm on the Return Date. 8. You, being in this paragraph Heath Ashley Lawson, must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia ('Australian assets') up to the unencumbered value of $793,983.58 ('the relevant amount') until 4pm on the Return Date. 9. You, being in this paragraph Hayden Garry Terrence Lawson, must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia ('Australian assets') up to the unencumbered value of $233,271.26 ('the relevant amount') until 4pm on the Return Date. 10. If the unencumbered value of any of your Australian assets exceeds the respective relevant amount as applying to you as set out in orders 7 to 9 above, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the respective relevant amount for that respondent. 11. For the purposes of this order, your assets include: (a) all your assets, whether or not they are in its name and whether they are solely or co-owned; (b) any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and (c) the following assets in particular: (i) in the case of Michelle Kathleen Lawson: A. the property known as Lot 403 Old Tully Road, Birkalla, QLD, 4854 which is also known as 131 Old Tully Road, Birkalla, QLD, 4854 or, if it has been sold, the net proceeds of the sale; B. the shares owned by the first respondent in Bowmun Pty Ltd, or if those shares have been sold, the net proceeds of the sale ; and C. any money in account BSB: 083-004, Account number 86-679-2993 in the name of Michelle Kathleen Lawson at the National Australia Bank; D. any money in account BSB: 084-974, Account number 54-973-0107 at the National Australia Bank; E. any money in account BSB: 084-974, Account number 56-043-7868 at the National Australia Bank; F. any money in account BSB: 084-974, Account number 13-442-1230 at the National Australia Bank; (ii) in the case of the Heath Ashley Lawson: A. the property known as Lot 403 Old Tully Road, Birkalla, QLD, 4854 which is also known as 131 Old Tully Road, Birkalla, QLD, 4854 or, if it has been sold, the net proceeds of the sale; B. any money in account BSB: 084-974, Account number 54-973-0107 at the National Australia Bank; C. any money in account BSB: 084-974, Account number 55-853-6517 at the National Australia Bank. (iii) in the case of the Hayden Garry Terrence Lawson: A. the property known as 25 Dugong Crescent, Mount Louisa, QLD, 4814 or, if it has been sold, the net proceeds of the sale; B. any money in account BSB: 084-974, Account number 13-442-1230 in the name of Hayden Garry Lawson at the National Australia Bank. Provision of information 12. Subject to paragraph 13, you (and each of you) must: (a) on or before the return date for the further hearing of the interlocutory relief sought (or within such further time as the Court may allow) to the best of your ability inform the applicants in writing of all your assets in Australia, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets; (b) within 7 working days after being served with this order, swear and serve on the applicants an affidavit setting out the above information; and (c) on or before the Return Date, produce to the applicants all copies within your possession or control of bank statements covering the period between 1 July 2014 and 30 June 2023 of any bank account held in your name, whether solely or jointly, and including in particular the following bank accounts: (i) the account held with the National Australia Bank with the BSB: 084-974, Account number 56-043-7868; (ii) the account in the name of Michelle Kathleen Lawson held with the National Australia Bank with the BSB: 083-004, Account number 86-679-2993; (iii) the account in the name of Hayden Garry Lawson held with the National Australia Bank with the BSB: 084-974, Account number 13-442-1230; (iv) the account held with the National Australia Bank with the BSB: 084-974, Account number 55-853-6517; (v) the account held with the National Australia Bank with the BSB: 084-974, Account number 13-442-1230; and (vi) the account held with the National Australia Bank with the BSB: 084-974, Account number 54-973-0107. 13. This paragraph applies if you wish to object that compliance with Order 12 on the grounds that some or all of the information required to be disclosed may tend to prove that you: (a) have committed an offence against or arising under an Australian law or a law of a foreign country; or (b) are liable to a civil penalty. (c) You must: (i) disclose so much of the information required to be disclosed to which no objection is taken; and (ii) prepare an affidavit containing so much of the information required to be disclosed to which objection is taken, and deliver it to the Court in a sealed envelope; and (iii) file and serve on each other party a separate affidavit setting out the basis of the objection. Exceptions to this order 14. This order does not prohibit each of you from: (a) paying up to $800 a week on your ordinary living expenses; (b) paying $40,000 on your reasonable legal expenses; (c) dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; and (d) in relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation. 15. You and the applicants may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case the applicants or you must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the applicants and you, and the Court may order that the exceptions are varied accordingly. 16. This order will cease to have effect in respect of you, being in this paragraph Michelle Kathleen Lawson: (a) pays the sum of $3,439,233.07 into Court; or (b) pays that sum into a joint bank account in the name of the first respondent's solicitor and the solicitor for the applicant as agreed in writing between them; or (c) provides security in that sum by a method agreed in writing with the applicant to be held subject to the order of the Court. 17. This order will cease to have effect in respect of you, being in this paragraph Heath Ashley Lawson: (a) pays the sum of $793,983.58 into Court; or (b) pays that sum into a joint bank account in the name of the second respondent's solicitor and the solicitor for the applicant as agreed in writing between them; or (c) provides security in that sum by a method agreed in writing with the applicant to be held subject to the order of the Court. 18. This order will cease to have effect in respect of you, being in this paragraph Hayden Garry Terrence Lawson: (a) pays the sum of $233,271.26 into Court; or (b) pays that sum into a joint bank account in the name of the third respondent's solicitor and the solicitor for the applicant as agreed in writing between them; or (c) provides security in that sum by a method agreed in writing with the applicant to be held subject to the order of the Court. 19. Any payment and any security given in accordance with any of orders 16 to 18 will not provide the applicants with any priority over your other creditors in the event of your insolvency. 20. If this order ceases to have effect in respect of a respondent pursuant to order 16, 17, and 18, that respondent must as soon as practicable file with the Court and serve on the applicants notice of that fact. Costs 21. The costs of this application are reserved to the Court hearing the application on the Return Date. Persons other than the applicants and respondents 22. This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave the respondent before it was notified of this order. 23. No bank need inquire as to the application or proposed application of any money withdrawn by a respondent if the withdrawal appears to be permitted by this order. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. Annexure A Undertakings given to the Court by the applicants 1. The applicants undertake to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the freezing orders sought. 2. As soon as practicable, the applicants will file and serve upon the respondents copies of: (a) this order; (b) the application for this order for hearing on the return date; and (c) the following material in so far as it was relied upon by the applicant at the hearing when the order was made: (i) affidavits; (ii) any exhibits capable of being copied; (iii) written submissions; (iv) any other document that was provided to the Court; (d) a transcript, or, if none is available, a note, of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put, to the Court; (e) the originating process. 3. As soon as practicable, the applicants will cause anyone notified of any freezing orders obtained to be given a copy of it. 4. The applicants will pay the reasonable costs of anyone other than the respondents which have been incurred as a result of any freezing orders obtained, including the costs of finding out whether that person holds any of the respondents' assets. 5. If any freezing orders obtained cease to have effect, the applicants will promptly take all reasonable steps to inform in writing anyone to who has been notified of this order, or which they have reasonable grounds for supposing may act upon the orders obtained, that it has ceased to have effect. 6. The applicants will not, without leave of the Court, use any information obtained as a result of any orders obtained for the purpose of any civil or criminal proceedings, either in or outside Australia, other than this proceeding. 7. The applicants will not, without leave of the Court, seek to enforce any orders obtained in any country outside Australia or seek in any country outside Australia an order of a similar nature or an order conferring a charge or other security against the respondents or the respondents' assets. 8. The applicants will: (a) within two business days, cause an irrevocable undertaking to pay in the sum of $100,000.00 to be issued by a bank with a place of business within Australia, in respect of any order the Court may make pursuant to the first undertaking offered; and (b) immediately upon issue of the irrevocable undertaking, cause a copy of it to be served on the respondents. Annexure B AFFIDAVITS RELIED UPON NAME OF DEPONENT DATE AFFIDAVIT MADE MELANIE ANN JOHNSTON 14 JULY 2023 PAUL RICHARD JOHNSTON 14 JULY 2023 PAUL RICHARD JOHNSTON (SECOND AFFIDAVIT) 14 JULY 2023 REASONS FOR JUDGMENT (Delivered ex tempore, revised from the transcript) LEE J A INTRODUCTION AND BACKGROUND 1 This is an ex parte application for a freezing order that has come on urgently in my capacity as Commercial and Corporations Duty Judge. 2 Before turning to the nature of the urgent relief sought, it is useful to give some background as to how the present application has arisen. 3 The first applicant (Merryport) and the second applicant (H&J Bananas) (applicants) were two of three companies owned by the Johnston family, which operated a farming business in Tully, Queensland. The first respondent, Mrs Lawson, was a director and shareholder of the applicants, and was employed by Merryport in a secretarial role until June of this year. 4 At the heart of this case is an allegation that Mrs Lawson caused Merryport to pay her and members of her family sums to which they were not entitled. The applicants seek a remedial response, in one form or another, which would require that the allegedly unauthorised payments be disgorged. It is also alleged that the second and third respondents, Mrs Lawson's husband and son respectively, are liable to make good a smaller amount equal to that which they have improperly received from Mrs Lawson, and which they facilitated her obtaining. 5 Today, the applicants seek freezing and ancillary orders to prevent the dissipation of assets held by the respondents of which it is said were obtained by reason of the alleged wrongful conduct. B FREEZING ORDERS 6 The power to make a freezing order is found in s 23 of the Federal Court of Australia Act 1976 (Cth), read with Div 7.4 of the Federal Court Rules 2011 (Cth) (FCR). The test for making such orders is not in doubt and was usefully summarised in Insolvency Guardian Melbourne Pty Ltd v Carlei [2016] FCA 72; (2016) 111 ACSR 236 (at 239 [16] per Edelman J): The criteria that must be satisfied for the court to grant a freezing order are set out in r 7.35 of the Federal Court Rules 2011 (Cth). In substance, the criteria relevant to this application are that: (1) the applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in the Federal Court of Australia; (2) there is a sufficient prospect that the judgment will be registered in or enforced by the Federal Court of Australia; and (3) the Court is satisfied, having regard to all the circumstances, that there is a danger that a prospective judgment will be wholly or partly unsatisfied because any of the following might occur: (a) the judgment debtor, prospective judgment debtor or another person absconds; or (b) the assets of the judgment debtor, prospective judgment debtor or another person are: (i) removed from Australia or from a place inside or outside Australia; or (ii) disposed of, dealt with or diminished in value. 7 As I explained in Deputy Commissioner of Taxation v Shi [2020] FCAFC 100; (2020) 277 FCR 1 (at 34 [103], Davies and Stewart JJ agreeing), the purpose of a freezing order is to prevent the abuse or frustration of the Court's process in relation to matters coming within its jurisdiction: Jackson v Sterling Industries Limited (1987) 162 CLR 612 (at 623 per Deane J). Such orders operate so as to preserve assets and assist and protect the use of methods of execution and are not a substitute for them: Cardile v LED Builders Pty Limited [1999] HCA 18; (1999) 198 CLR 380 (at 401 [43] per Gaudron, McHugh, Gummow and Callinan JJ). 8 In order to obtain a freezing order, it is not necessary for an applicant to prove on the balance of probabilities that steps will be taken to frustrate the Court's processes. Rather, what must be shown is that on the balance of probabilities, there is a real risk of the dissipation of assets: see Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 (at 327 per Meagher JA). 9 The Court may also make ancillary orders under FCR 7.33 for the purpose of eliciting information relating to assets relevant to the freezing order or for the purposes of determining whether the freezing order will be made. Ordinarily, ancillary orders include orders requiring the disclosure of assets. But the width of the orders that can be made is not confined by that usual form. They may include orders disclosing what has happened to funds which have been paid out: see, for example, Robmatjus Pty Ltd v Violet Home Loans Australia Pty Ltd [2007] VSC 165 (at [74] per Hargrave J) (under the equivalent Victorian legislation). C CONSIDERATION 10 The Court has been provided with comprehensive and helpful submissions by Mr Derrington of counsel, who appeared for the applicants. In summary, the factual elements of the applicants' case depend on them establishing: first, the payments to Mrs Lawson were made; secondly, those payments were unauthorised; thirdly, Mrs Lawson's conduct in making the payments constituted a breach of her duties; and fourthly, knowing receipt and knowing assistance claims against the second and third respondents. 11 In relation to each of those matters, the applicant has set out comprehensively why, on the material before me (and without, obviously enough, forming a view as to the ultimate cogency of those allegations) there is a good arguable case. It is unnecessary to descend into detail, but there is also a sufficient case that the second and third respondents must have been aware their tax filings were being used improperly, or the circumstances were generally such as to ground a case of knowing assistance. 12 As Mr Derrington correctly submits, once the Court is satisfied there is a prima facie case, it follows that there is a sufficient prospect that the judgment will be enforced. The critical question is the risk of dissipation. The allegations in this case concern dishonesty and fraud. On the basis of the material that has been obtained to date, this is the kind of case that justifies the imposition of a freezing order. I am satisfied that there is a real risk of the dissipation of assets, particularly in the light of the allegation that the first respondent is the driving force behind what is alleged, on a proper basis, to be a calculated scheme of deception and dishonesty. 13 I should stress again that in reaching this conclusion, I have formed no final views about the allegations made in the proceeding. But on the material before the Court, I am satisfied that a freezing order should be made, together with ancillary orders, in the terms sought. D THREE FINAL MATTERS 14 Before concluding, I should note three final matters. 15 First, with the candour one would expect of counsel on an ex parte application, Mr Derrington has drawn my attention to a document obtained by the applicants dated 16 June 2023, which was marked Exhibit A on the application. The document appears to be a file note of a telephone conversation between Mr Kevin Spies of the Queensland Police Service and Mrs Lawson. It is unnecessary to canvass the detail of that document, save to note that it contains information which might support an argument that the second and third respondents were not relevantly aware of the alleged wrongful conduct engaged in by Mrs Lawson. 16 Secondly, I am informed that the applicants are in the process of restructuring. Hence, Mr Derrington concedes it would be inappropriate to give the usual undertaking as to damages without an undertaking in the form of a bank guarantee. The applicant has proposed such an undertaking in the sum of $100,000, which is annexed to the proposed orders. With respect, that is a sensible course and it is appropriate this matter was drawn to the Court's attention given the nature of the application. 17 Thirdly, Mr Derrington has drawn my attention to the provenance of the documentary material forming part of the evidence on this application and the fact that boxes with documents were located on the business premises of the applicants following the termination of Mrs Lawson's employment. Mr Derrington noted that Mrs Lawson may not have had an opportunity to recover those documents, but absent some express agreement (of which I know nothing) any obligation of confidence that may exist in relation to such documents would likely be implied. Whether such an implied obligation could be maintained in equity is quite another thing, particularly in the context of an allegation of an iniquity. But it will likely not matter (for reasons I need not presently explain) and even if it might, it is not a sound basis to refuse the present relief. I am nonetheless grateful for Mr Derrington's indication, which is again consistent with the candour expected of counsel on such applications. E CONCLUSION 18 Accordingly, I will make the freezing and ancillary orders in the terms proposed by the applicants. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee. Associate: Dated: 24 July 2023