Supreme Court New South Wales Medium Neutral Citation: J.C. Storm Pty Ltd v 8 Baldwin Rise Pty Ltd [2023] NSWSC 1467 Hearing dates: 8 November 2023 Decision date: 30 November 2023 Jurisdiction: Equity Before: Robb J Decision: See [75] – [80] Catchwords: CIVIL PROCEDURE – interim preservation – freezing orders – where defendant has proffered undertakings to the Court to resist plaintiff's proposed freezing orders – whether undertakings proffered by defendant provide adequate protection to plaintiff – held that the undertakings proffered by defendant will sufficiently put the plaintiff in the same position as if a freezing order had been made requiring the defendant to retain sufficient assets to satisfy debt claimed by plaintiff – application for freezing order to be dismissed Legislation Cited: Civil and Administrative Tribunal Act 2013 (NSW), s 78(4) Property and Stock Agents Act 2002 (NSW), s 36 Uniform Civil Procedure Rules 2005 (NSW), rr 13.4(1), 14.28(1), 25.14 Category: Procedural rulings Parties: J.C. Storm Pty Ltd (Plaintiff) 8 Baldwin Rise Pty Ltd (Defendant) Representation: Counsel: S Docker SC (Plaintiff) J E O'Sullivan (Defendant) Solicitors: Henry William Lawyers (Plaintiff) & Legal (Defendant) File Number(s): 2023/304814 Publication restriction: Nil JUDGMENT 1. The plaintiff in these proceedings, J.C. Storm Pty Ltd, conducts a real estate agency business trading as Century 21 J & V Realty. The defendant, 8 Baldwin Rise Pty Ltd, is a special purpose vehicle that was incorporated to engage in a residential townhouse development at Asquith. The defendant retained the plaintiff to introduce purchasers of the completed townhouses. The plaintiff's purpose in commencing these proceedings is to obtain a judgment against the defendant for the commission that it claims in respect of its introduction of purchasers for most of the townhouses in the development. The plaintiff's claim arose under a deed between the parties dated 2 June 2021 (the Deed). 2. The plaintiff commenced these proceedings by summons filed in court on 25 September 2023. The final relief sought by the plaintiff was judgment for the plaintiff against the defendant in the amount found by the Court to be owing under the Deed, or damages in the alternative. That common law claim would ordinarily be commenced by statement of claim. 3. The apparent reason for the plaintiff commencing the proceedings by summons was that the interim relief sought by the plaintiff was a freezing order pursuant to r 25.14 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) or the inherent jurisdiction of the Court. 4. On 28 September 2023, the defendant gave an undertaking to the Court that it would not remove from Australia or in any way dispose of, deal with or diminish the unencumbered value of its assets in Australia below $1,805,606.62 (less certain payments that have been made to the plaintiff) without further order of the Court or the written consent of the plaintiff. That undertaking was for a limited period, but at the hearing of the plaintiff's claim for a freezing order that took place before me on 8 November 2023, the defendant continued its undertaking until the date of publication of these reasons for judgment. 5. I note that, although the defendant has sought an order that it be released from the undertaking that has been given, the undertaking will lapse in accordance with the terms upon which it was given when this judgment is delivered. If that understanding is correct, then an order releasing the defendant from its undertaking would be superfluous. 6. The defendant responded to the plaintiff's summons by filing a notice of motion on 27 October 2023, that sought an order under r 14.28(1) of the UCPR that the summons be struck out. That order was sought on the basis that the proceedings were incompetent because they had been commenced in contravention of s 36 of the Property and Stock Agents Act 2002 (NSW) (the Property and Stock Agents Act). The plaintiff took the point in its submissions that the reliance by the defendant on r 14.28(1) was misplaced because it permits the Court to make an order striking out a pleading, and the plaintiff's summons is not a pleading. I think that the defendant intended to seek an order for summary dismissal of the plaintiff's claim under UCPR r 13.4(1), as, to the extent that the defendant prosecuted its application, it sought an order for summary dismissal of the plaintiff's claim. 7. I will start by explaining the basis of the plaintiff's claim that it has an outstanding right to be paid commission by the defendant under the terms of the Deed. 8. Clause 3.1(a) of the Deed appointed the plaintiff as the defendant's buyer's agent for the purpose of the purchase of the development site at Asquith for the construction of 38 townhouses. Clause 3.1(b) and (c) provided (referring to the plaintiff as Century 21 and the defendant as Rise): 3. Appointment as Buyer's Agent 3.1 Rise to appoint Century 21 as Buyer's agent … (b) On the date of this Agreement (or as soon as practicable) Rise and Century 21 will enter into a Buyer's Agency Agreement for the purchase of the Development Site in the form attached at Schedule 1 on the following terms: (1) following the purchase by Rise of the Development Site, Rise will pay a buyer's agency fee to Century 21 of $150,000.00 (exclusive of GST); (2) Rise acknowledges that the buyer's agency fee paid to Century 21 is a discounted rate and that the discount is conditional upon Rise entering into Resale Agency Agreement in accordance with clause 3.1(c) of this Agreement for the sale of all Subdivided Lots the subject of the Development Consent and construction by Rise at the Development Site; and (3) Rise acknowledges that if it is in breach of clause 3.1(b)(2), or if Rise terminates the Resale Agency Agreement for any reason other than as set out in clause 4.2, then Century 21 will be entitled to receive the full buying fee from Rise of $528,000.00 being an amount equal to 3.3% (including GST) of the total purchase price of the Development Site. (c) In consideration for the buyer's agency fee paid to Century 21 under clause 3.1(b)(1), the parties to this Agreement will enter into the Resale Agency Agreement on the following terms: (1) commission will be paid to Century 21 at the rate of 2.2% (including GST) on the sale price for each Subdivided Lot sold to a purchaser introduced by Century 21; (2) commission will increase by an additional 1% if the Target Pre-Sale Amount is met under a contract with a purchaser introduced by Century 21, payable only on the Target Pre-Sale Amount received by Rise; (3) subject to clause 3.2(b), an additional incentive amount will be paid on the proportion of the purchase price obtained for all Subdivided Lot which is in excess of the Target Sales Price as set out in the Resale Agency Agreement and the additional amount will be equal to 20% of the difference between the Target Sales Price and the Sales Price; … (6) the exclusive agency period of the Resale Agency Agreement shall be 20 months from the date of execution. 1. The commission referred to in clause 3.1(c)(1) is in effect the ordinary commission that is usually payable by a vendor to an agent under an agency agreement in respect of the introduction of a purchaser who completes a contract for the purchase of the vendor's land. The defendant has paid all of this component of the commission that has become payable under the Deed, save for an amount of about $15,000 that relates to the sale of a townhouse in respect of which the defendant claims there was another agent who was entitled to share the commission with the plaintiff. The defendant has paid half of the commission for that townhouse that was payable to the plaintiff and to the other agent. As I understand it, the plaintiff claims that it was entitled to receive the whole amount of the commission. There is a genuine dispute between the parties on this issue. Given the sum involved, the dispute is irrelevant to the outcome of the plaintiff's application for a freezing order. 2. The defendant has not paid to the plaintiff the commission that it claims under clauses 3.1(c)(2) and (3). It is the defendant's position that, in the events that have happened, the plaintiff is not entitled to those payments, or not yet entitled to them. 3. Relevantly to the application of clause 3.1(c)(2), "Target Pre-Sale Amount" is defined in clause 1.1 as meaning "the total target sales amount, to be determined by Rise and notified to Century 21, once Rise has obtained finance for the purchase and redevelopment of the Development Site on terms acceptable to it." The clause therefore contemplated that at the specified time the defendant would notify the plaintiff of its target for the total sales prices of all of the townhouses. This aspect of the commission was therefore an incentive payment to the plaintiff, if it could introduce purchasers for all of the townhouses for prices that in aggregate equalled the Target Pre-Sale Amount. 4. The application of clause 3.1(c)(3) depended upon the meaning of "Target Sales Price", which is defined in clause 1.1 as meaning "the aggregate total target price expected by Rise for all of the Subdivided Lots as constructed under the Development Consent and set out in the schedule to the Resale Agency Agreement". "Sales Price" is defined in clause 1.1 as meaning "the aggregate total price paid by purchasers for all Subdivided Lots, introduced and sold by Century 21." The Resale Agency Agreement was to be in the form of Schedule 2 to the Deed. As I understand it, Schedule 2 is the document at pages 24 to 32 of Exhibit VN-1. That sets out, at pages 24 to 31, the agency agreement, and attaches at page 32 a "price list" with individual target prices for the 38 townhouses, giving a total price of $44,420,000. That appears to mean that if the aggregate of the prices for the townhouses for purchasers introduced by the plaintiff exceeded $44,420,000, then the plaintiff would be entitled to an additional commission of 20% of the difference. I note that the evidence contains an email from the defendant to the plaintiff dated 22 June 2021 that suggests that the parties may have renegotiated the content of the attachment at Schedule 2 after the date of the Deed, and the email contains a varied schedule. Even then, the schedule is expressed to be "subject to change pending final approval from council". The precise value of the Target Sales Price is immaterial to the determination of this application. 5. The total amount claimed by the plaintiff is now $1,959,000, with about $500,000 claimed under clause 3.1(c)(2) and about $1,400,000 claimed under clause 3.1(c)(3). 6. The plaintiff has made a number of claims that the defendant is liable to pay it outstanding commission. On 3 August 2023, the plaintiff sent an email to the defendant that stated: "Here are our attached invoices for commission and top up due to Century 21". The plaintiff's witness, Valerie Naidoo, said in her 31 October 2023 affidavit that pages 1 to 33 of her Exhibit VN-3 were the invoices attached to the email. It is difficult to follow Exhibit VN-3 as a letter dated 30 October 2023 and its attachments have been interposed out of order in the exhibit. Sales invoices are found at pages 4 and 5 and 13 to 40. Many of the same invoices are found at pages 44 to 73, which were said by Ms Naidoo to be attachments to later demands. In the circumstances, it is difficult to be sure what invoices were attached to the 3 August 2023 email. The emails claim the outstanding amounts of all three types of commission. 7. The defendant's solicitors wrote an email to the plaintiff's solicitors on 4 August 2023, in which they stated that they had been handed correspondence between the parties including invoices "in which your client purports to have an entitlement of 3.3% commission plus an additional incentive bonus". 8. The email then said: Your client purports to rely on the deed of agreement of 2 June 2021 in support of its claimed commission. Having reviewed the deed of agreement, it appears clear that in respect of 1.1% of the commission your client is relying on clause 3.1(c)(2). Your client's position in respect of this amount is incorrect for the following reasons: 1. The provision refers to an additional 1% not 1.1%. 2. The provision increases the commission by 1% only if the Target Pre-Sale Amount is met. On 22 October 2022, our client confirmed the Target Pre-Sale Amount of your client being the sale of all lots by February 2023, a target which your client did not achieve; In respect of the additional incentive payment, this appears to be calculated in accordance with clause 3.1(c)(3). We note however, that the calculation portion of this clause is modified by clause 3.2(b) which applies in the current circumstances. It is clear from the drafting of clause 3.1(c)(3) that the calculation is only intended to be done once all subdivided lots are sold and accordingly your client's invoices so far as they applied to any incentive amount are premature. … 1. As noted above, the effect of clause 3.1(c)(6) was that the period of the plaintiff's exclusive agency was 20 months from the date of execution of the Deed. The reference in numbered par 2 of the email to February 2023 was a reference to the time when the plaintiff's exclusive agency ended. 2. Clause 3.2(b) of the Deed had the effect that if the defendant obtained a Modified Development Consent, the additional incentive paid by the defendant under clause 3.1(c)(3) would be 20% of the difference between the Modified DC Target Sales Price and the Sales Price. 3. It has not been necessary for the Court to set out the parties' arguments concerning the existence of the debt claimed by the plaintiff in detail, as the Court will not be called upon in these reasons to decide that issue. Generally, the plaintiff's response to the defendant's arguments was that they were inconsistent with the express terms of the Deed. 4. The issue of what sales invoices were attached to the plaintiff's 3 August 2023 email is further clouded by evidence given in an affidavit by the defendant's witness, Daniel James Pszczonka, dated 27 October 2023, who said that the invoices referred to by the defendant's solicitors in their 4 August 2023 email were the invoices at pages 1 to 30 of his Exhibit DJP-2. These invoices contained claims for the commission payable under clause 3.1(c)(2) of the Deed but not the commission payable under clause 3.1(c)(3). It looks like Ms Naidoo asserts that the invoices that were sent claimed both types of commission but Mr Pszczonka asserts that the invoices that were received only claimed one type of commission. This confusion was not resolved at the hearing. 5. On 8 August 2023, in apparent response to the defendant's solicitors' 4 August 2023 email, the plaintiff's solicitors made a demand on the defendant's solicitors that attached sales invoices that claimed $493,728.62 for outstanding commission under clause 3.1(c)(2) of the Deed. The email stated the plaintiff's position in relation to its entitlement to outstanding commission, and said that the plaintiff would issue a further invoice claiming the 20% incentive amount upon completion of all sales of all properties. 6. On 22 September 2023, the plaintiff's solicitors made a further demand that the plaintiff be paid $1,806,606.62. The demand contained details of the plaintiff's claim under clause 3.1(c)(2) and (3). 7. A further schedule of the plaintiff's claim was annexed to the affidavit of Jay Naidoo dated 25 September 2023 that was served on the defendant with the summons in these proceedings. The amount claimed was $1,905,606.52 8. A formal document called a statement of claim dated 30 October 2023 was served on the defendant that claimed $1,959,728.62. 9. In addition to its claim that it is not legally obliged by the terms of the Deed to pay all of the commission claimed by the plaintiff, the defendant claims, as noted above, that these proceedings are premature because they were not commenced after the expiration of 28 days from the service by the plaintiff on the defendant of the statement of claim required by s 36 of the Property and Stock Agents Act, which provides: 36 Review of commission and fees (1) An action or other proceedings cannot be commenced by a licensee for the recovery of remuneration or any sum as reimbursement for expenses until the expiration of 28 days after a statement of claim has been served personally or by post on the person to be charged with the remuneration or expenses. (2) The statement of claim must be in writing, set out the amount claimed and contain details of the services performed by the licensee in respect of which the remuneration or expenses are claimed. … (4) A person who is served with a statement of claim under this section or is provided with an itemised account of a transaction as provided by this section may apply to the Tribunal for the determination of a consumer claim within the meaning of Part 6A of the Fair Trading Act 1987 in relation to— (a) the entitlement of the licensee to the whole or any part of the amount specified in the statement of claim or the itemised account, or (b) whether the whole or any part of the amount is reasonable, or both. (5) For the purpose of the application of Part 6A of the Fair Trading Act 1987 to that person, a reference in that Part to a consumer is taken to include a reference to that person. … (8) In this section— expenses means expenses or charges incurred in connection with services performed by a licensee in his or her capacity as a licensee. remuneration means remuneration by way of commission, fee, gain or reward for services performed by a licensee in his or her capacity as a licensee. 1. White J (as his Honour then was) in Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59 observed: [30] The expression "statement of claim" is not defined. However, in the present context, its ordinary meaning is a demand for something as due and an assertion of a right or alleged right (Macquarie Dictionary Revised, 3 ed). I accept that a statement of claim may be delivered before commission has become payable (Jacobs v The Public Trustee at 956). Nonetheless, to qualify as a statement of claim, the document must make it clear that the agent is making a demand for the payment (when it becomes due) of commission. The service of a statement of claim gives the vendor the right to challenge the licensee's entitlement to the remuneration claimed, or the reasonableness of the charge. There is no legislative requirement that a statement of claim expressly state that it is made under s 36 of the Property, Stock and Business Agents Act. Nor is there currently a requirement that a vendor be advised of his or her entitlement to seek a review of the remuneration or expenses claimed. Nonetheless, it should be clear to a person cognisant of his or her right to seek a review that he or she has been served with a statement of claim. The sales summary did not make that clear. 1. The only claims that were made more than 28 days before the filing of the summons on 25 September 2023 were whatever sales invoices were attached to the plaintiff's 3 August 2023 email to the defendant and the plaintiff's solicitors' 8 August 2023 letter of demand. 2. The plaintiff responded to the defendant's application for an order dismissing its summons on the ground that it was filed in contravention of s 36 of the Property and Stock Agents Act by submitting that a failure to comply with the section was a procedural defect and also by relying on the 3 August 2023 and 8 August 2023 documents. 3. I incline to the view that a claim in this Court that is made in contravention of s 36 of the Property and Stock Agents Act is incompetent on the ground that it is prohibited by the statute, but it is not necessary for the Court to express a final view upon this issue. 4. Even if these proceedings are incompetent, that does not mean that the defendant is not indebted to the plaintiff, as the debt arises under the Deed and not under the statute. As I will explain below, the application for the freezing order may continue even if, presently, the proceedings for the recovery of the debt are premature. In par 10 of its supplementary submissions, the plaintiff referred to authorities that have considered this issue, but have not determined it. 5. The reason why, in this case, I will not dismiss the plaintiff's summons for want of compliance with s 36, is that I am not satisfied, as a matter of fact, that the plaintiff's claim is entirely in contravention of the section. Although the section states that an action or other proceeding cannot be commenced until the expiration of the 28 day period, that does not necessarily mean that proceedings commenced within that period are prohibited unless the statement of claim that was required claimed the whole of the amount claimed in the proceedings. In relation to the individual sales invoices that were served on the defendant, I am inclined to the view that the section will be satisfied if the plaintiff relies upon many separate statements of claim for the individual components of its commission, and it is not necessary that a single statement of claim be served that claims the whole amount. Furthermore, it may be that the 8 August 2023 demand is an effective statement of claim for the clause 3.1(c)(2) commission, even if it is insufficient to permit the plaintiff to claim the clause 3.1(c)(3) commission. 6. As this aspect of the dispute involves an application by the defendant for an order summarily dismissing the plaintiff's summons, I do not think it is necessary for the Court to express a final opinion as to the effect of s 36 of the Property and Stock Agents Act in these circumstances. That is particularly so as the parties did not provide comprehensive submissions on the issue. If, which is the view that I prefer, the plaintiff can rely upon the individual sales invoices and the partial letter of demand, then the outcome of the application of s 36 of the Property and Stock Agents Act would most likely be that only part of the plaintiff's claim would be incompetent. 7. Section 36 of the Property and Stock Agents Act is relevant to another issue in the proceedings, being that s 36(4)(b) entitles the defendant to challenge the reasonableness of the amount of commission claimed by the plaintiff in the NSW Civil and Administrative Tribunal (the Tribunal). The defendant has given evidence that it intends to make an application to that Tribunal under s 36(4)(b). 8. The result has been that, while each party submitted that its claim or defence was valid, as the case may be, each party accepted for the purposes of this interlocutory application that the other's position was reasonably arguable as to whether or not the final claim for commission that the plaintiff has made is valid. 9. The parties also accepted that the effect of UCPR r 25.14(1) and (3) is that this Court has jurisdiction to make a freezing order, whether the plaintiff's claim is prosecuted in this Court or in the Tribunal, because the effect of s 78(4) of the Civil and Administrative Tribunal Act 2013 (NSW) is that, if the plaintiff succeeds in obtaining an order from the Tribunal that the defendant pay it an amount of commission, a certificate of a Registrar of the Tribunal operates as a judgment that can be registered in a court of competent jurisdiction. 10. The result of these considerations is that the Court must now determine whether the plaintiff has established the requirements for the issue of a freezing order against the defendant. 11. UCPR r 25.14 provides: 25.14 Order against judgment debtor or prospective judgment debtor or third party (1) This rule applies if— … (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. (2) This subrule applies to a judgment if there is a sufficient prospect that the judgment will be registered in or enforced by the court. (3) This subrule applies to a cause of action if— (a) there is a sufficient prospect that the other court will give judgment in favour of the applicant, and (b) there is a sufficient prospect that the judgment will be registered in or enforced by the court. (4) The court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur— … (b) the assets of the judgment debtor, prospective judgment debtor or another person are— … (ii) disposed of, dealt with or diminished in value. … (6) Nothing in this rule affects the power of the court to make a freezing order or ancillary order if the court considers it is in the interests of justice to do so. 1. As already noted, the parties accept that the requirements of UCPR r 25.14(3) are satisfied. The only remaining question is whether UCPR r 25.14(4)(b)(ii) is enlivened, and if so, whether the Court should exercise its discretion to grant the freezing order. 2. It will be appropriate to start by setting out the relevant facts. Mr Pszczonka is the sole director and secretary of the defendant. 3. The defendant is a special purpose vehicle that is a member of a group of interrelated companies that undertake property developments. It was incorporated to undertake the development project at Asquith in relation to which it retained the plaintiff as its agent. That development has been completed, and the Court was told that all of the townhouses have been sold. As of the date of Mr Pszczonka's 16 October 2023 affidavit, the defendant had cash at bank of $1,370,341.51, and title to the one remaining lot in the development, with a value of $1,369,000, subject to a liability for agent's commission of $45,177 and GST of $87,021.31. 4. Another company in the same group as the defendant is Rise South West Rocks Pty Ltd (Rise SWR). The sole shareholder of Rise SWR is Rise Corporate Holdings Pty Ltd. Rise SWR is the owner and developer of land at South West Rocks. The purchase price of the land for the development was $6,930,000 under a call option dated 3 May 2021. The purchase of the property was completed on 13 September 2023. Construction of the development is scheduled to begin in 2024. An independent valuation report for the property dated 7 July 2023 valued the property "as is" at $13,225,000 exclusive of GST. The value "as is" assuming the approval of a development application was $15,150,000. Development approval was granted on 15 August 2023. Assuming development approval and the completion of the development, the value given was $54,150,000. 5. Rise SWR entered into a loan agreement dated 13 September 2023 for the purpose of purchasing the property. The amount of the loan was $7,488,000. The loan to value ratio was 65%, to be reduced to a maximum of 60% within two months of the loan date. The period of the loan was six months, so that it will be necessary for Rise SWR to refinance within that period. 6. The evidence includes management accounts for Rise SWR that show that it has total equity of $8,918,230.19. Subject to the mortgage over the property to secure the loan referred to above, which is the only security granted by Rise SWR, its total equity in the property is $7,662,000. 7. In Mr Pszczonka's 13 October 2023 affidavit, he said that a payment under the loan agreement of $630,000 was due on 8 November 2023, and Rise SWR would need to pay $384,500 to obtain a construction certificate by 13 January 2024. Rise SWR is required to make monthly interest payments on the loan in the amount of $81,120 and incurs monthly operating costs and overheads in the amount of approximately $127,833. Mr Pszczonka said that he intended approximately $1,800,000 from the proceeds of sale of the last lots in the Asquith development to be paid via "the Rise Group" to Rise SWR to provide it with cash flow to meet its obligations. In addition, the defendant needs approximately $50,000 on hand to meet any claims made during the 90 day defect rectification period following the sale of the Asquith townhouses, and it owes approximately $157,000 to contractors by way of release of retention sums or final contract payments. 8. The defendant's position is that it wishes to transfer at least $1,800,000 to Rise SWR through another group company to fund Rise SWR's development project at South West Rocks, and, as I understand it, it wishes to use the balance to fund these proceedings and the proposed proceedings in the Tribunal, and possibly also, if necessary, to provide additional funding to Rise SWR. 9. The plaintiff accepted that the evidence did not establish that the subjective purpose of the defendant in proposing to apply its funds in the manner described above was to put those assets beyond the reach of this Court or the Tribunal. 10. Nonetheless, it is the case that the defendant is a special purpose vehicle and to the extent that it transfers the funds or assets to which it is entitled to Rise SWR or any other company in the group, that will create a risk that the defendant will not be able to satisfy any judgment that the plaintiff is awarded against it. 11. The plaintiff relied primarily on the decision of Brereton J (as his Honour then was) in Harrison Partners Construction Pty Ltd v Jevena Pty Ltd [2005] NSWSC 1225; (2005) 225 ALR 369 (Harrison Partners) as authority for the proposition that the Court may find that there is a sufficient risk that the defendant will place its assets beyond the reach of the Court's judgment even though the evidence does not establish that that result is the subjective purpose of the defendant's intended transfer of its assets. 12. Harrison Partners is also a convenient authority for the well-established principles as to what must be proved before the Court may exercise its discretion to issue a freezing order. Brereton J said: [31] Ultimately, the Mareva jurisdiction in this country was confirmed by the decision of the High Court of Australia in Jackson v Sterling Industries Ltd (1987) 162 CLR 612; 71 ALR 457. The leading judgment was that of Deane J, whose judgment enjoyed the concurrence of Mason, Wilson, Dawson and Gaudron JJ. His Honour [at 622] described a general interlocutory power to make orders preventing a defendant from disposing of his assets so as to defeat any judgment obtained in an action as an incident of the substantive jurisdiction to entertain the action. His Honour held that, as a general proposition, it should now be accepted in this country that a 'Mareva' injunction can be granted if the circumstances are such that there is a danger of the defendant's absconding, or a danger of the assets being removed out of the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgment, will not be able to get it satisfied [see also Rahman (Prince Abdul) v Abu-Taha [1980] 1 WLR 1268 at 1273 (Lord Denning MR); approved in Ballabil Holdings Pty Ltd v Hospital Products Ltd (1985) 1 NSWLR 155 at 160 (Street CJ)]. … [33] Several of those passages were cited with approval by the Court of Appeal in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319. In that case Gleeson CJ said [at 321] that to obtain a Mareva order, as a general rule, a plaintiff would 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 assets being removed out of the jurisdiction or disposed of or otherwise dealt with in some fashion, the plaintiff would not be able to have his judgment satisfied, if he succeeded. 1. Importantly, Brereton J added the intervening observation, which is relevant to the determination of the present application: [32] Later [at 625] [Deane J in Jackson v Sterling Industries Ltd] emphasised that the purpose of Mareva relief was not to create security for the plaintiff, nor to require a defendant to provide security as a condition of being allowed to defend the action, nor to introduce a new vulnerability to imprisonment for debt or alleged indebtedness by requiring a defendant under the duress of the threat of contempt to find money, but to prevent a defendant from disposing of his actual assets, including claims and expectancies, so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action. However, his Honour added that it may be appropriate in a rare case that such an order require the defendant to deliver assets to a named person or even to the court itself. 1. Brereton J later addressed the issue of whether it is necessary for the plaintiff to show a subjective intention on the part of the defendant to put its assets beyond the reach of the Court's judgment, in the following terms: [42] Thus, although the authorities sometimes use language which approaches that of suggesting that intent is required, proper analysis shows that in fact they focus on the anticipated result, and not on the subjective intent that accompanies it. A better word than intent would be "calculated" or "liable to", rather than "intended to" produce the result of defeating an anticipated judgment. [43] Accordingly, I would hold that an applicant for Mareva relief, in establishing a serious risk of dissipation, need not establish that a defendant may deal with the assets in a manner intended to produce the result that the plaintiff, if successful, would not be able to have his or her judgment satisfied. It will suffice to establish that there is a real risk that the defendant will deal with the assets in a manner calculated, or liable, to produce the result that a judgment in the favour of the plaintiff would not be satisfied. [44] That test, in my opinion, is plainly met in the present case. There is a real risk that, if granted access to the funds in court, Jevena will deal with them by investing in the proposed business, albeit bona fide, and that that business would fail, resulting in Jevena having insufficient assets to satisfy any judgment which Harrison might recover. 1. White J implicitly accepted this statement of principle in Errigal Ltd v Equatorial Mining Ltd [2006] NSWSC 953 at [55]. So did I in Zhang v Woo [2021] NSWSC 1496 at [118], where I observed that, in that case, the defendants had not provided sufficient detail of their potential future business activities to enable the Court to determine whether, or to what extent, any freezing orders would unfairly prejudice the defendants. I found in that circumstance that the prospect of the defendants employing their assets in indefinite future business activities should be treated as a potential means of dissipation of the defendants' assets on the basis considered by Brereton J. 2. Although it is a trite observation that generally the specific factual circumstances of one interlocutory claim will be of limited assistance in determining a later claim where the circumstances differ significantly, it will assist in the present case to note a number of aspects of the case in Harrison Partners that satisfied Brereton J that the application of its funds as proposed by the defendant should be treated objectively as creating an unsatisfactory risk that the defendant would not be able to satisfy a judgment in favour of the plaintiff, notwithstanding that his Honour was satisfied that the defendant's proposal was genuine and bona fide. His Honour found that the defendant was not presently carrying on any business. There was no evidence that the defendant had any assets of significance, other than the funds that would be the subject of the orders sought by the plaintiff. (In that case, the funds had already been paid into court, and the issue was whether they should be paid out to the defendant, rather than that the defendant should be the subject of a freezing order). There was no evidence that the defendant had any creditors, other than potentially the plaintiff, and it had no employees. The defendant proposed to start a new business involving the establishment of a showroom to sell kitchen cabinets imported from China by a novel business method. His Honour analysed the components of the expenditure proposed by the defendant, and concluded: [25] …Generally speaking, those funds will not be applied to acquire what might be described as hard assets. In particular, they are not to be applied to the acquisition of real property, and, to the extent that they are to be applied at all to the acquisition of assets, they are assets which are of a character prone to depreciate… In short, should the business fail there will be precious little to show for the $511,000. Under Jevena's proposal, the funds will be applied to the acquisition of assets which will not realise anything like their cost of acquisition in the unhappy event of the business failing. [26] … However, Jevena has supplied no business forecasts or analysis of the business's financial performance. Whether the business will succeed or fail is speculative. Even if it does not fail, whether Jevena would retain realisable assets to the order of $400,000 is doubtful. In my opinion, if the proposal were sanctioned, there is a very real risk that if Jevena were permitted to deal with the funds as it proposes, they would be diminished or lost, and it would be left with insufficient funds to meet Harrison's claim. 1. Thus, Brereton J found that the defendant wished to apply its funds in establishing a new business with a novel business model that had to be established from scratch through the acquisition of assets that would be of substantially diminished value if the venture failed, in circumstances where no reliable business forecasts had been prepared. In that sense, the business was speculative and there was a very real risk that the funds would be diminished or lost. As the order proposed by his Honour would not interfere with the conduct of an established business, it would not "wreak havoc with [the defendant's] current affairs": see [13]. 2. As Brereton J observed at [45]: "…In this respect the case is far removed and distinguishable from a case in which it is proposed to use funds to pay creditors or employees or even in the course of an ongoing existing business. Rather, this proposal involves putting funds which are currently safe in jeopardy, in a speculative venture…" 3. Finally, in considering the issue of the balance of convenience, Brereton J said: [48] So far as considerations of balance of convenience remain relevant, I have already referred to the fact that Jevena has no creditors, no employees and no business, and that no disruption of the type normally occasioned by a Mareva injunction will be occasioned here. All that will happen is Jevena will be required to have its funds invested in the court rather than in a speculative business venture… 1. Although the defendant resisted the Court making any freezing order against it, in recognition of the reality that the defendant is a special purpose vehicle and its financial circumstances are as explained above, the defendant offered undertakings to the Court that it submitted would provide adequate protection to the plaintiff, if in return for the undertakings the Court declined to make the freezing orders sought by the plaintiff. 2. The undertakings to the Court offered by the defendant are as contained in the extract from the draft short minutes of order proposed by the defendant that is set out below: The Court: 1 Notes that Rise South West Rocks Pty Ltd (ACN 666 607 674) ("Rise SWR"), by its sole director and secretary Mr Daniel James Pszczonka, undertakes to the Court that Rise SWR will guarantee any obligations of the Defendant in the proceedings payable by the Defendant to the Plaintiff in an amount of up to $1,805,606.62, less amounts paid by the Defendant to the Plaintiff since 25 September 2023. 2 Notes that Rise SWR, by its sole director and secretary Mr Daniel James Pszczonka, undertakes to the Court not to dispose of or encumber its interest in the property known as [details of development site inserted] ("Property") by itself, employees, agents or otherwise so as to maintain a net equity amount of not less than $1,805,606.62, less amounts paid by the Defendant to the Plaintiff since 25 September 2023, without further order of the Court, the written consent of the Plaintiff or until the making of orders disposing of these proceedings. 3 Notes that Rise SWR, by its director Mr Daniel James Pszczonka, represents to the Court that Rise SWR has no secured creditors other than BPF 224 Pty Ltd (ACN 670 857 52) and Private Mortgage Holdings Pty Ltd (ACN 662 260 433) (together "the Lenders") who are the mortgagees under the Registered Memorandum of Mortgage numbered No. AP740071 ("Mortgage"). 4 Notes that Rise SWR, by its director Mr Daniel James Pszczonka, undertakes to the Court that, other than to obtain a refinance of its indebtedness to the Lenders and the discharge of the Mortgage, Rise SWR will not grant any security interest over its assets by way of charge, mortgage or personal property security interest over its assets without giving the Plaintiff not less than 14 days' notice in writing before so doing. 5 Notes that the Defendant's sole director and secretary, Mr Daniel James Pszczonka, undertakes to the Court to accept personal liability for any amount the Defendant may be found to owe to the Plaintiff in these proceedings. 6 Orders that the Defendant be discharged from the undertaking noted by the Court in paragraph 2 of the orders made on 26 October 2023. … 1. As I understand it, these undertakings refer to the amount of $1,805,606.62 because that was the amount claimed by the plaintiff at the time the proposed short minutes of order were prepared. I also understand that Rise SWR and Mr Pszczonka are prepared to offer the same undertakings in respect of the larger amount of $1,959,728.62 that is now claimed by the plaintiff. 2. The plaintiff has rejected the offer of undertakings to the Court by Rise SWR and Mr Pszczonka, and has submitted instead that the Court should make orders in terms of the precedent in Practice Note SC Gen 14, which would have the effect that the only relevant undertaking given by the plaintiff would be the following, as stated in Schedule A: (1) The applicant undertakes 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 order. 1. The defendant challenged the worth of this undertaking, given the risk that the making of the freezing order would place Rise SWR's development at South West Rocks in jeopardy, and given what is at stake in that development, given the value on completion of $54,150,000. 2. The plaintiff responded with evidence in Ms Naidoo's 24 October 2023 affidavit that, as at 27 September 2023, the plaintiff had approximately $590,000 in its bank account and as at 23 October 2023 it had $655,000 in that account. Ms Naidoo also offered to provide an equitable charge over real property to secure the plaintiff's undertaking over three properties owned by Ms Naidoo or her husband with a claimed aggregate value of $4,285,000, and equity after allowing for the balance of debts secured on mortgage of $2,607,883.71. 3. The plaintiff tendered evidence of company searches of the chain of companies that hold shares in Rise SWR, which appears to show that Mr Pszczonka and a person who is likely to be Mr Pszczonka's wife beneficially own the shares in what appears to be the ultimate holding company, but the intermediate holding companies do not hold their shares beneficially. That gives rise to the possibility that shares in an intermediate holding company are held on some unidentified trust. Mr Pszczonka is the sole director and secretary of all of the companies. 4. The plaintiff also relied upon the fact that Mr Pszczonka had not provided any evidence of his current assets and liabilities. 5. For the reasons that follow, in the exercise of my discretion, I will dismiss the plaintiff's claim for the making of a freezing order against the defendant, provided that the defendant causes Rise SWR to give to the Court the undertakings and to make the representation, and for Mr Pszczonka to give the undertaking, contained in the draft short minutes of order proposed by the defendant in respect of the final amount claimed by the plaintiff. 6. That determination is on the basis that it is made clear that the undertaking in par 1 of the proposed orders is an undertaking by Rise SWR to guarantee the obligation of the defendant, and not an undertaking to grant a guarantee in a separate transaction with the plaintiff. The latter course would be inadequate because it would require the plaintiff to institute new proceedings against Rise SWR if the defendant did not satisfy any judgment in its favour, and Rise SWR did not quickly pay the amount payable under the guarantee. 7. First, the plaintiff did not bargain for a security under the terms of the Deed. The consequence is that the effect of a freezing order that required the defendant to retain assets in the amount of the debt claimed by the plaintiff would, in practical terms, give the plaintiff a security over the defendant's assets. 8. I consider that the circumstances dealt with by Brereton J in Harrison Partners are distinguishable from the present circumstances. If the business model adopted by Mr Pszczonka had been to conduct all of his property developments through the defendant, so that the defendant would have all of the assets and liabilities of both itself and Rise SWR, the combined business entity would have net assets of about $10,269,143.20, subject to the effect of any transactions that have occurred after the dates at which the specific amounts for the value of assets and liabilities that have been referred to above were determined. The combined business entity would also enjoy the prospect of receiving the estimated $54,150,000 proceeds of the sale of the properties the subject of the South West Rocks development on completion, although that receipt would be reduced by the unknown additional development costs. 9. Although there is risk inherent in all property development ventures, I do not accept that the plaintiff's categorisation of the development project as speculative is justified. The defendant, being one of Mr Pszczonka's companies, has just completed the successful development and sale of the 38 townhouse development at Asquith, which apparently had a total sales value somewhere in excess of $44,420,000. While it is always possible that that success will not be repeated in the South West Rocks development, it justifies the conclusion that that development project is not a merely speculative one. 10. These circumstances are far removed from the speculative venture that was the subject of Harrison Partners, where the principals of the defendant company had had no experience in the new venture, which they intended to start from scratch, by way of importing products from China, to be sold by means of a novel business model. 11. If Mr Pszczonka had conducted all of his property development projects through the defendant, there is no way that the Court would have made a freezing order against the defendant. To do so would indeed give the plaintiff a security for which it had not bargained. 12. The obvious difficulty faced by the defendant is that Mr Pszczonka's business model of using special purpose vehicles for each property development project has created the risk that, if the defendant does not retain assets sufficient to satisfy any judgment that this Court or the Tribunal might grant to the plaintiff, the judgment will to that extent not be satisfied. That circumstance has created the need for Mr Pszczonka to give, and to cause Rise SWR to give, the undertakings to the Court. It has also created the need for Mr Pszczonka to make, and to cause Rise SWR to make, the representation to the Court referred to in the draft short minutes of proposed orders. The undertakings offered by Rise SWR will sufficiently, in my view, put the plaintiff in the same position as if a freezing order had required the defendant to retain assets sufficient to satisfy the debt claimed by the plaintiff. The undertakings offered are comprehensive and although Mr Pszczonka has not provided evidence of his assets and liabilities, I accept the submission made by the defendant that, given that he is apparently the effective principal of a substantial property development business, the fact that he is prepared to give an undertaking to the Court to accept personal liability for any amount that the defendant may be found to owe the plaintiff is, in my view, a valuable additional practical security for the plaintiff. The sanctions to which Mr Pszczonka would be liable if he did not satisfy his undertaking to the Court will give him a significant incentive to ensure that the plaintiff is paid any debt that it establishes, as the consequences of default would jeopardise the continuation of Mr Pszczonka's successful property development business. 13. I note from par 1 of the orders proposed by the defendant that Rise SWR will guarantee payment of an amount up to the debt presently claimed by the plaintiff. Paragraph 5 is an undertaking by Mr Pszczonka to accept personal liability "for any amount the Defendant may be found to owe to the Plaintiff in these proceedings." That may be a larger amount than the amount to be guaranteed by Rise SWR. However, it is not satisfactory that it is limited to the amount found in these proceedings. It will be necessary for par 5 to be amended to be expressed in general terms, so that it will cover the case where the plaintiff establishes the amount of the debt in the Tribunal. 14. In its submissions, the plaintiff undertook an exercise of analysing the relationship between the amount of the assets presently retained by the defendant, and the evidence of the assets and liabilities of Rise SWR, and the likelihood and timing of Rise SWR actually having to make payments for the purposes of the South West Rocks development. I consider that it would be wrong on an interlocutory application such as the present for the Court to act on the necessarily insubstantial evidence that is before it, to interfere with the commercial operations of Rise SWR, or to, as it were, second-guess commercial decisions that will have to be made by Mr Pszczonka. In this context, the Court will not allow itself to be the potential cause of any loss in the conduct of the South West Rocks development project. 15. The consequence is that the Court will make orders generally as proposed by the defendant, with the adjustments that I have referred to above. There is an outstanding issue as to whether the order in par 6 discharging the defendant from its initial undertaking is required. As the defendant sought the order and as it can do no harm if made, I will make it. Otherwise, the plaintiff's application for a freezing order will be dismissed. The defendant's notice of motion will also be dismissed. 16. As a freezing order would have been made by the Court against the defendant, were it not for the undertakings that the defendant has offered, the plaintiff's costs of the application for the freezing order up to the time when the defendant first offered to give the undertakings should be the plaintiff's costs in the cause. The plaintiff should be ordered to pay the defendant's costs of the freezing order application from the time when it offered to give the undertakings. The defendant should be ordered to pay the plaintiff's costs of the defendant's notice of motion. 17. If the defendant commences the foreshadowed proceedings in the Tribunal, that may have the effect that these proceedings should be discontinued. If that happens, then the parties will need to give separate attention to the appropriate costs orders in that event. 18. For the foregoing reasons, I propose that the Court will make orders and note undertakings as follows. I will do so in chambers, provided that counsel for the parties send to my Associate emails in which they inform the Court that they have instructions from the relevant parties to give the undertakings and make the representation. Counsel should also confirm that they have instructions that their clients will accept the variations that I have made to the undertakings and orders proposed by the defendant. I am prepared to consider drafting improvements and minor substantive changes. Counsel should respond within seven days of the publication of these reasons. 19. The Court's orders and notations will be: 20. On the Plaintiff by its counsel giving to the Court the usual undertaking as to damages, and upon counsel for the Defendant giving to the Court on behalf of the parties stated the undertakings and making the representation contained in pars 1 to 5 of the following notations and orders, the Court: 1. Notes that Rise South West Rocks Pty Ltd (ACN 666 607 674) ("Rise SWR"), by its sole director and secretary Mr Daniel James Pszczonka, undertakes to the Court that Rise SWR will pay to the Plaintiff the amount of any judgment against the Defendant in favour of the Plaintiff in these proceedings or in equivalent proceedings in the NSW Civil and Administrative Tribunal in an amount of up to $1,959,728.62, less amounts paid by the Defendant to the Plaintiff since 25 September 2023 ("Amount Guaranteed") if the Defendant does not pay that amount, within 30 days of written demand being made by the Plaintiff. 2. Notes that Rise SWR, by its sole director and secretary Mr Daniel James Pszczonka, undertakes to the Court not to dispose of or encumber its interest in the property known as [details of development site inserted] ("Property") by itself, employees, agents or otherwise so as to maintain a net equity amount of not less than the Amount Guaranteed, without further order of the Court, the written consent of the Plaintiff or until the making of orders disposing of these proceedings. 3. Notes that Rise SWR, by its director Mr Daniel James Pszczonka, represents to the Court that Rise SWR has no secured creditors other than BPF 224 Pty Ltd (ACN 670 857 52) and Private Mortgage Holdings Pty Ltd (ACN 662 260 433) (together "the Lenders") who are the mortgagees under the Registered Memorandum of Mortgage numbered No. AP740071 ("Mortgage"). 4. Notes that Rise SWR, by its director Mr Daniel James Pszczonka, undertakes to the Court that, other than to obtain a refinance of its indebtedness to the Lenders and the discharge of the Mortgage, Rise SWR will not grant any security interest over its assets by way of charge, mortgage or personal property security interest over its assets without giving the Plaintiff not less than 14 days' notice in writing before so doing. 5. Notes that the Defendant's sole director and secretary, Mr Daniel James Pszczonka, undertakes to the Court to accept personal liability to pay the Amount Guaranteed to the Plaintiff if that amount is not paid by the Defendant or Rise SWR, within 30 days of written demand being made by the Plaintiff. 6. Orders that the Defendant be discharged from the undertaking noted by the Court in paragraph 2 of the orders made on 26 October 2023. 7. Orders that the Plaintiff's claim for interlocutory relief in the summons be otherwise dismissed. 8. Order that the notice of motion filed by the Defendant on 27 October 2023 be dismissed. 9. Order that the Plaintiff's costs of its interlocutory application for a freezing order against the Defendant up to the time when the Defendant first offered to give undertakings substantially in the terms of the undertakings noted in pars 1 to 5 of these orders be the Plaintiff's costs in the cause. 10. Order the Plaintiff to pay the Defendant's costs of resisting the Plaintiff's application for a freezing order against the Defendant for the period after the Defendant offered to give the undertakings referred to in order 9. 11. Order the Defendant to pay the Plaintiff's costs of the Defendant's notice of motion filed on 27 October 2023. 12. Stand the proceedings into the Registrar's list on 6 December 2023 for directions. 1. The orders that will be made will include the details of the development site that have been omitted from the notation in draft order 2 above. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 November 2023