New South Wales Supreme Court CITATION : Oliver v Lake Side Resort Development Pty Ltd [2005] NSWSC 510 HEARING DATE(S) : 17/05/05, 18/05/05, 19/05/05, 20/05/05, 24/05/05, 25/05/05, 26/05/05, 27/05/05 JUDGMENT DATE : 27 May 2005 JURISDICTION : Equity Division JUDGMENT OF : Barrett J DECISION : Mareva order refused CATCHWORDS : EQUITY - Mareva orders - application after close of evidence in seven day trial - whether danger of dissipation of assets shown Aquasun Pty Ltd v Coverdale Ram Pty Ltd [2000] NSWSC 1146 Cardile Pty Ltd v LED Builders Pty Ltd (1999) 198 CLR 380 CASES CITED : Jackson v Sterling Industries Ltd (1987) 164 CLR 612 Patterson v BTR Engineering Australia Ltd (1989) 18 NSWLR 319 Christopher John Oliver - First Plaintiff Janet Patterson - Second Plaintiff Optima Developments Pty Ltd - Third Plaintiff Lakeside Property Pty Ltd as trustee for the Lakeside Property Trust - Second Defendant PARTIES : Lakeside Golf Pty Ltd - Third Defendant Hun Sun Woo - Fourth Defendant FILE NUMBER(S) : SC 3260/01 Ms J.F. Merkel - Plaintiffs COUNSEL : Mr R.K. Newton - Defendants Mallesons Stephen Jaques - Plaintiffs SOLICITORS : James R. Knowles Lawyers Pty Limited - Defendants LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J FRIDAY 27 MAY 2005 3260/01 - CHRISTOPHER JOHN OLIVER AND 2 ORS v LAKESIDE RESORT DEVELOPMENT PTY LIMITED AND 3 ORS JUDGMENT - On application for relief pending judgment; see p 500 of transcript 1 At the conclusion of the defendants' case yesterday, the plaintiffs gave notice of an intention to make an oral application for relief pending judgment. I heard the application yesterday afternoon. The relief sought was set out in a draft form of order handed up by Miss Merkel. There were essentially two orders or groups of orders: first, an order that the defendants pay $900,000 into a controlled moneys account to be administered by the respective solicitors and to be applied by them according to the outcome of the proceedings; and, second, an order of a Mareva kind. 2 The first application was not pressed. Nor could it properly have been pressed. It amounted to an application for an order that cash security be provided pending judgment and was accordingly objectionable for reasons clearly stated by Deane J in Jackson v Sterling Industries Ltd (1987) 164 CLR 612 at p.625. The application eventually proceeded by reference to the Mareva claim only. 3 In submissions against the making of the order claimed, Mr Newton of counsel, who appeared for the defendants, emphasised that the basis for the grant of Mareva relief lies, as the High Court confirmed in Cardile Pty Ltd v LED Builders Pty Ltd (1999) 198 CLR 380, in the court's power to protect its own processes from frustration. The purpose of such an order is to maintain the status quo pending judgment. In Patterson v BTR Engineering Australia Ltd (1989) 18 NSWLR 319, Gleeson CJ said that the remedy is discretionary: "… but it has been held that in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will 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 of assets being removed out of the jurisdiction, or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied." 4 As far as a prima facie cause of action is concerned, I am satisfied that that requirement is met in this case. The application was, after all, made on the seventh day of the trial after evidence from both sides was complete but before submissions. 5 The plaintiffs point to five main areas of concern in support of the contention that there exists a danger of dissipation of assets sufficient to warrant the exercise of the Mareva jurisdiction. The plaintiffs first express concern that until evidence given on Wednesday of this week, it appeared that the third defendant, Lakeside Golf Pty Ltd, was party to a shareholders agreement in relation to Clarendon Resort Housing Pty Ltd, the developer of the Wyong golf course and housing project, which involved the third defendants having a right to 47.5 percent of the profits from that project, but it is now clear that the third defendant no longer has that interest and disposed of it some two years ago. 6 Documents in evidence show that the third defendant did, in October 2001, become party to a shareholders agreement among the then shareholders or, as they were at that stage, prospective shareholders of Clarendon Resort Housing Pty Ltd, a company they formed as a vehicle for their development joint venture. There were three such parties, including the third defendant, Lakeside Golf Pty Ltd, and the shareholders agreement did, in general terms, provide for 47.5 percent of the surplus proceeds to be enjoyed by the third defendant. 7 In the last two days, the plaintiffs have become aware that the agreement of October 2001 was varied in May 2003 in consequence of the third defendant having transferred its shareholding to two other parties. The documents in evidence are sufficient to warrant an inference for the purposes of the present application that the third defendant's shareholding consisted of 95 shares and that these were transferred, as to 50, to Kooindah Pty Ltd and, as to 45, to CPG Developments Pty Ltd, formerly Clarendon Apartments Pty Ltd. It is accepted that CPG Developments stands at arm's length from the third defendant; indeed, from all the defendants. But it is said that Kooindah is associated with the defendants. This is borne out by an ASIC search of Kooindah which shows the fourth defendant, Hun Sunwoo, to be the sole director and his wife and two sons, all of whom share the fourth defendant's home address at Turramurra, to be the holders of 50 percent of the shares, the other 50 percent being held by persons with other names who share an address at Strathfield. 8 Also in evidence, however, is the instrument of transfer by which the 50 shares were transferred by the third defendant to Kooindah. It shows a consideration of $475,000. There is nothing before me to suggest that this consideration is otherwise than genuine. If one assumes that a sale to an arm's length party would be at a price per share not less than that applying to a sale to an associated party, the indication is that the transfer of the 95 shares by the third defendant in May 2003 was for a total consideration of the order of $902,500. If that is so, the third defendant's shareholding in Clarendon Resort Housing Pty Ltd came to be replaced by proceeds, in cash or receivables, of some $900,000. How that can be said to smack of dissipation or demonstrate a danger of dissipation is not readily explained. 9 The plaintiffs next point to matters concerning an option to purchase the development site at Wyong. The owner of the land, in the sense of the registered proprietor, is a non-party, Lakeside Resort Development Pty Ltd, which I shall call "LRD", in which the third defendant has at all relevant times held a 30 percent shareholding interest. Under a development agreement made in October 2001, LRD granted to Clarendon Resort Housing Pty Ltd an option to purchase the site for $10 million. That option was later exercised, it appears, with the result that the price of $10 million became owing to LRD. 10 The evidence does not appear to show when the $10 million became owing or when it was required to be paid, but the plaintiffs have put into evidence a letter dated 4 May 2004 by which Clarendon Resort Housing Pty Ltd asked LRD for an extension of time to pay, the extension being on the basis that $2 million would be paid by 4 October 2004, a further $1 million would be paid by 30 April 2005 and the balance would be paid by 4 October 2005. The letter gave two reasons for the request: first, delay in starting the project "for various reasons"; and, second, bank financing not being finalised. The letter carries an endorsement of agreement by LRD signed by two directors, one of whom is the fourth defendant. 11 I am not at all sure how this evidence is supposed to indicate danger of dissipation of assets by the defendants. The arrangement for time to pay represented an indulgence granted by a non-party, albeit one in which the third defendant has a 30 percent shareholding and the fourth defendant had a position of influence as a director at the time (although he ceased being a director on 18 April 2005), but the indulgence was granted to a Clarendon entity which stands at arm's length from the defendants and their associated interests. That arm's length relationship, coupled with the fact that the indulgence involved no more than the granting of time to pay without any form of release of the debt itself, does not seem to me to indicate any shadow of danger of dissipation relevant to the current application. 12 The third matter upon which the plaintiffs rely arises from evidence given by the fourth defendant in cross-examination on Tuesday last, 24 May. The fourth defendant was referred to a letter he wrote to a creditor of his group in 2000 saying that if the creditor (a company called Heilbrunn, represented by Mr Rutledge) were to press for payment of a sum then due, he, the fourth defendant, would have to become bankrupt. I quote here transcript page 356, line 33, to page 357, line 30: "Q. And you were at pains to write to Mr Rutledge then that if Heilbrunn were to take you to Court, 'I have no choice but to declare bankrupt. It means inconvenience for me but end the matter with your client'? A. Probably did, yes. Q. And I am suggesting to you, Mr Sunwoo, it was not true that you could not pay the amount of your obligation to Heilbrunn in the year 2000? A. $675,000? Q. Yes? A. No, I wasn't able to pay. Q. You had taken no steps to ensure that you would be able to pay an obligation that you had taken on, is that what you tell the Court? A. I'm confused. Q. You tell the Court that you had taken no steps to honour an obligation that you had taken on in 1993? A. No. I made an arrangement with Mr Heilbrunn to pay best as my capabilities concerned, yes. Q. Do you-- A. And he accepted that. Q. You entered into a deed, did you not, Mr Sunwoo? A. Yes, ma'am, yes. Q. That was a solemn agreement to pay $675,000? A. No, it was, I think, $100,000 was the final, yes. Q. In 1993, you entered into a solemn agreement to pay Mr Heilbrunn $675,000? A. Yes, yes. Q. Are you suggesting that was no more than a promise to do what you could as your obligations allowed? A. No, that was still my obligation, yeah, obliged to him, yes, that's correct, at that time. Q. And you agree that you took no steps between 1993 and 2000 to be able to honour that obligation to Mr Heilbrunn and Heilbrunn Investments? A. I don't know what you mean by no steps but-- Q. Well, you didn't make any arrangement-- A. No, I-- Q. --to pay that, did you? A. No, I continued to have a relationship with Mr Heilbrunn. Q. You didn't do anything to pay him, did you? A. I may not have, yes." 13 The plaintiffs contrast this evidence of the fourth defendant with evidence he gave the following morning about refurbishment of the family home which is owned by his wife. I quote the question and answer at transcript page 371, lines 21 to 24: "MERKEL: Q. But you accept that you did about $500,000 worth of refurbishment work between 1998 and 2000 at 44 Kissing Point Road, Turramurra? A. About $300,000." 14 Juxtaposition of these two pieces of cross-examination shows, in the plaintiffs' submission, that the fourth defendant was quite willing to sink $300,000 into improving a property owned by his wife over a period which ended at about the time that he was due to pay $675,000 to a creditor; and that this demonstrates some kind of propensity to avoid paying creditors and to channel money into family investments which he does not himself own. 15 This, in my judgment, is a very long bow. To spend $300,000 on family home renovations over a three year period and then at or towards the end of that period to lack the capacity to pay a $675,000 debt does not necessarily involve any deliberate action to frustrate the creditor's claim. It is very clear that the fourth defendant was at all material times a businessman who took risks and was used to negotiating and bargaining. In 2000, he took a gamble on being able to persuade or bluff Heilbrunn into a compromise of the debt he owed it. The gamble, it appears, paid off. 16 The plaintiffs next refer to an affidavit sworn by the fourth defendant in other proceedings stating that the fourth defendant took $600,000 out of the account of LRD. It appears that he took the money in the belief that it was his due for services rendered and for sums he had lent that company. The company sued him. The claim was settled apparently on the basis that some moneys at least were returned, although the precise basis does not appear. This is said to show a propensity of the fourth defendant to take money that does not belong to him but, in my view, the evidence does not enable me to come to any such conclusion. On his own evidence, he took under a claim of right which was challenged in proceedings that were afterwards settled. 17 The final matter raised by the plaintiffs concerns another golf course development in which the fourth defendant appears to be involved. The evidence on this adduced by the plaintiffs yesterday is wholly documentary. The first item is a transfer of land between a company called Fobipu Pty Ltd as transferor and a company called Springs Golf Club Pty Ltd as transferee. The transfer is dated 1 October 2003 and shows a consideration of $1.65 million. There is then an ASIC search of Springs Golf Club Pty Ltd showing the fourth defendant as the sole director with a date of appointment of 19 September 2003 and his two sons as the only shareholders. The other document is a mortgage dated 19 January 2004 by which Springs Golf Club Pty Ltd mortgaged the transferred property to Provident Capital Limited. The mortgage does not state any sum secured but the stamp duty marking tends to indicate that the mortgage is available as a security for $1.2 million. The transfer of this property to Springs Golf Club Pty Ltd took place in the same month (October 2003) as the sale by the third defendant, Lakeside Golf Pty Ltd, of its shareholding interest in Clarendon Resort Housing Pty Ltd to Kooindah Pty Ltd and CPG Developments for a price I have postulated already was of the order of $900,000. 18 It is possible that Lakeside Golf made some or all of these funds available towards the purchase by Springs Golf Club Pty Ltd but there is no evidence of this any more than there is evidence that any such transaction, if it occurred, took place otherwise than on proper commercial terms. 19 The plaintiffs point out that these proceedings were commenced in 2001 so that all the events to which I have referred (except those involving the home renovations and the Heilbrunn debt) occurred after the commencement of the proceedings. But taken both individually and collectively, the matters upon which the plaintiffs rely in this application do not, to my mind, show the existence of a clearly demonstrated danger of dissipation or removal of assets sufficient to warrant the seriously intrusive step of granting Mareva relief. 20 The circumstances of this case are the same, to my mind, as those described by Bryson J in Aquasun Pty Ltd v Coverdale Ram Pty Ltd [2000] NSWSC 1146. His Honour said: "The facts in evidence reveal no conduct on the part of the defendants which can reasonably be interpreted as potentially having the effect of frustrating the ordinary processes of the court and the enforcement of its judgments, or of being intended to do so, or of being in any way evasive indicating dishonesty, or otherwise indicating actually or potentially that the assets of the company have been or will be dealt with in an irregular way. I should not assume that the directors would behave irresponsibly or dishonestly unless some substantial ground for fearing that they may do so has been shown." 21 The matters upon which the plaintiffs rely do not indicate potential frustration of the process of the court. Those matters cannot be said to involve anything more than commercial transactions, albeit transactions that may in some respects have been attended by direct action, bluff and hard-nosed business tactic. 22 The application for Mareva relief is dismissed. ********** 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.