Unconventional Conventions v Accent Oz [2004] NSWSC 247

New South Wales Supreme Court

CITATION : Unconventional Conventions v Accent Oz [2004] NSWSC 247 HEARING DATE(S) : 25 March 2004 JUDGMENT DATE : 25 March 2004 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : Order varied to permit sale of real property, on conditions designed to ensure that the sale is at market value and at arms' length

CATCHWORDS : EQUITY - asset preservation order - variation - power to vary conditionally CASES CITED : Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 PCW (Underwriting Agencies) Ltd -v- Dixon [1983] 2 All R 158 Unconventional Conventions Pty Ltd (P) PARTIES : Accent Oz Pty Ltd (D1) David Blogg (D2) Karyn Rae Matterson-Blogg (D3) FILE NUMBER(S) : SC 2586/02 COUNSEL : D Robinson SC (P) P Hallen SC with M Pesman (D) SOLICITORS : Access Business Lawyers (P) Schrader & Associates (D)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

AUSTIN J

THURSDAY 25 MARCH 2004

2586/02 UNCONVENTIONAL CONVENTIONS PTY LTD V ACCENT OZ PTY LTD & ORS JUDGMENT (Ex tempore; revised 30 March 2004) 1 HIS HONOUR: By application filed 20 February 2004 the defendants, as applicants, seek orders for the variation of existing asset preservation orders that were made by Hamilton J in November 2002 and varied by his Honour in April 2003. 2 The further variation now sought is a variation to permit the second and third defendants to sell the property they now own at 16 Dillwynia Grove East Heathcote, and to discharge all registered securities over the title of that property, and to place the net balance of proceeds of sale in such account as the Court considered appropriate pending the hearing, which is scheduled in about six weeks time. 3 The property in East Heathcote is the former matrimonial home of the second and third defendants, in which the third defendant now lives with her children. The property is the subject of a mortgage to Westpac Banking Corporation. The evidence reveals that the mortgage debt is in arrears and that the second and third defendants, in the events that have happened, no longer can afford to pay the instalments due under the mortgage. The evidence also shows that the second and third defendants have other debts including, in the case of the second defendant, a substantial credit card debt owing to Citibank. 4 The defendants' solicitors wrote to the plaintiff's solicitors on 9 February 2004, informing them that the second and third defendants separated from each other in approximately September 2003, and that the separation had caused a significant and adverse impact on the financial resources of those parties. The letter enclosed copies of the proposed affidavits of the second and third defendants which were read in Court today. It foreshadowed the application now before me. It invited the plaintiff to consent to the making of orders without the necessity of the application being made. Senior Counsel for the defendants informed the Court today that no reply has been received to that letter - that proposition has not been disputed. 5 The principles governing the granting and modification of asset preservation orders are not relevantly in contention. The primary issue to be addressed by the Court is whether it is necessary to prevent a defendant from abusing or frustrating the processes of the Court, by removing from the jurisdiction or concealing or dissipating his or her assets or, as the matter was put in PCW (Underwriting Agencies) Ltd –v- Dixon [1983] 2 All R 158 at 162 "to prevent the plaintiffs being cheated out of the proceeds by their action." 6 As the High Court emphasised in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 relief of this kind is not intended to operate as a form of de facto security for the claims of a party seeking to impose a restraint. Moreover, the Court must be careful to ensure that orders of this kind do not operate oppressively. 7 In my opinion the applicants' evidence demonstrates the case for modification of the asset preservation order so as to permit the sale of the East Heathcote property. 8 The plaintiff informed the Court today that it does not oppose the variation as such, but it is concerned to ensure that its position is not compromised through the sale process in the event that the sale is not at arms length at a proper value. 9 Senior Counsel for the plaintiff drew attention to the amended Statement of Claim, in which it is alleged that the defendants have acted in breach of trust. One of the prayers for relief seeks, in effect, an accounting and tracing of the proceeds of breach of trust. Senior Counsel for the plaintiff submitted that if its claims set out in the amended Statement of Claim were made good, the plaintiff would be able to assert a proprietary entitlement to trace into the real property in the names of the second and third defendants. I accept this submission. 10 Secondly, Senior Counsel for the plaintiff drew attention to allegations in the amended Statement of Claim which amount to allegations of dishonesty on the part of the second and third defendants. Such allegations were referred to by Hamilton J in his Reasons for Judgment at para 3. 11 Thirdly, Senior Counsel for the plaintiff submitted that in the circumstances there was reason to believe that the proposed sale of the East Heathcote property would not be a sale at arms length. 12 When Senior Counsel for the plaintiff made application to adduce evidence to support these propositions, objection was taken by Senior Counsel for the defendants on the ground that no notice of the intention to read such evidence had been given. I was faced with the procedural difficulty that if I were to permit evidence, apparently relevant to the application, to be read on behalf of the plaintiff, it would be likely that I would grant an adjournment so as to give the defendants the opportunity to consider their position and if necessary tender evidence in reply. When the hearing resumed, there would be a real risk that issues that are really issues for determination at the trial, relating to allegations going to the integrity and reputation of the second and third defendants, would have to be dealt with at least on a prima facie basis a few weeks before the trial, in interlocutory circumstances and at additional cost. 13 I decided, in the exercise of my discretion, that the best course to take at today's hearing was to deny the plaintiff's application to adduce evidence of these matters. I did so on the basis that it would be sufficient to record the nature of the allegations and to take the existence of the allegations, certainly unproven allegations, into account in determining what course I should take in the present interlocutory circumstances. 14 It seems to me appropriate for the Court to be concerned having heard the submissions made on behalf of the plaintiff, to ensure, as best it can, that the variation to the orders now sought and justified by the financial circumstances of the defendants does not produce an outcome that removes or seriously prejudices the protection afforded to the plaintiff by Hamilton J's orders. 15 It is at least hypothetically possible, if no conditions are imposed upon the variation sought by the defendants, that a sale would take place at less than the true value of the East Heathcote property, and the proceeds of sale in fact received would be used to discharge the secured debt with little or no surplus remaining. Given the evidence before me that the defendants have virtually no other assets of value and the second defendant has substantial debt, the result would be the dissipation of assets in a manner that would frustrate the processes of the Court, in the event that the plaintiff were to succeed at the trial. 16 It seems to me, therefore, appropriate to address the plaintiff's concern and, indeed, the Court's concern about such an outcome, by imposing some procedural conditions. 17 The Court's power to impose conditions on an application for variation is an aspect of the Court's inherent power to prevent abuse of its own processes; in other words, the power is founded in the source of power for asset preservation orders themselves. It is not necessary, in my view, for the Court to reach a conclusion that on the balance of probabilities there is a likelihood or even a risk that, in fact, the property will be sold at an under-value, provided that the conditions are not onerous and are capable of being satisfied inexpensively. 18 When I outlined to the parties the conditions I had in mind and they were able to take instructions, I became satisfied that the conditions would meet these criteria. In fact, both Senior Counsel for the plaintiff and Senior Counsel for the third defendant informed me, on instructions, that they would not object to those conditions. 19 My orders and conditions will be along these lines: first, I shall make an order along the lines of the order proposed in the Notice of Motion (although I shall give the parties the chance to consult over luncheon on some possible fine-tuning adumbrated by Senior Counsel for the plaintiff but not developed in argument); 20 Second, I shall suspend the operation of that order until conditions are satisfied; 21 Third, the conditions will be as follows: (a) Within 7 days the second and third defendants are to permit the East Heathcote property to be inspected for the purposes of valuation by a valuer nominated to them in writing on behalf of the plaintiff, such valuer to be independent of the plaintiff. (b) That the second and third defendants provide the plaintiff's solicitors with a copy of the draft contract of sale at least 7 days before the contract is made and that during that period of 7 days the plaintiff does not exercise the liberty to apply granted by these orders. 22 Fourth, liberty to either party to apply to the Equity Duty Judge on 48 hours notice.