New South Wales Supreme Court CITATION : Mutch v English & Anor [2006] NSWSC 946 HEARING DATE(S) : 28 August 2006 JUDGMENT DATE : 28 August 2006 JURISDICTION : Equity Division JUDGMENT OF : Palmer J EX TEMPORE JUDGMENT DATE : 08/28/2006 DECISION : Orders continued. CATCHWORDS : EX PARTE INJUNCTION – ASSET PRESERVATION ORDER – whether plaintiff had made frank disclosure of disputed fact in seeking ex parte asset preservation orders – whether ground for asset preservation orders made out. LEGISLATION CITED : Fair Trading Act 1987 (NSW) Trade Practices Act 1974 (Cth) CASES CITED : Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 Christopher David Mutch – Plaintiff PARTIES : Trent Andrew English – First Defendant Electronic Countermeasures International Pty Ltd – Second Defendant FILE NUMBER(S) : SC 4049/06 COUNSEL : R. Margo SC – Plaintiff E. Cox – First Defendant SOLICITORS : E Philips & Co – Plaintiff Paul A Curtis & Co – First Defendant 1 The Plaintiff sues the First Defendant for a declaration that a business partnership between them has been dissolved and for an accounting of substantial sums which the Plaintiff says he provided to the First Defendant in reliance upon representations that the payments would be used as the capital of the partnership. The Plaintiff says that the representations were fraudulent in that the First Defendant intended to use the Plaintiff's payments, and did in fact use the Plaintiff's payments, for his own private purposes and not for the purposes of the partnership. 2 Accordingly, the Amended Statement of Claim pleads causes of action in deceit and under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW). Fraud on the part of the First Defendant is specifically pleaded. 3 On 2 August 2006, the Plaintiff applied to Nicholas J as Duty Judge seeking ex parte asset preservation orders against the First Defendant. The substantive affidavits in support of the application were those of the Plaintiff's solicitor, Mr Phillips, which contained evidence on information and belief. His Honour was satisfied that on the evidence then presented, the Plaintiff had: "… a strong arguable case in support of the claims pleaded in the statement of claim, particularly the allegations of fraud and dishonesty." 4 Referring to the decision of the Court of Appeal in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, his Honour made asset preservation orders and disclosure orders of a familiar type. The asset preservation orders were limited to expire at 5pm on 7 August 2006 and the matter was stood over into the Duty Judge's list on that day. 5 On 7 August, on the return of the Notice of Motion the Defendants were represented by Senior Counsel. Discussion between the parties resulted in consent orders and directions. Asset preservation orders were made including orders which permitted the First Defendant to expend certain sums on legal expenses, living expenses and other liabilities. The parties agreed on a timetable for the further conduct of proceedings, which was set out in the Short Minutes. The asset preservation orders made on 7 August were expressed to be until further order or final determination of these proceedings. 6 Further orders were made by Nicholas J on 9 August 2006. Various caveats lodged by the Plaintiff against properties of the First Defendant were, by consent, extended and orders were made for the production of documents by the First Defendant. 7 Further orders were made by Nicholas J on 11 August 2006 which required the First Defendant to disclose to the Plaintiff the location of assets and the disposal of money the subject of the proceedings. 8 The Plaintiff complained about the adequacy of production of documents and the parties returned to Court for further orders and directions. Those were made by Windeyer J on 15 and 16 August. Essentially those orders were concerned with production of documents and the extension of the caveats. 9 A mediation between the parties which occurred in mid-August was unsuccessful. On 25 August the matter was expedited and a further timetable was set. 10 The First Defendant now brings an application for the dissolution of the asset preservation orders on the ground that, in obtaining the ex parte orders made on 2 August 2006, the Plaintiff did not fully and frankly disclose a material fact. The fact which the First Defendant says ought to have been disclosed and which was not disclosed was that a conversation reported in Mr Phillips' affidavit of 1 August – which was doubtless reported in an endeavour to show a tendency on the part of the First Defendant to make away with his assets to defeat a judgment – was a conversation which was disputed, to the knowledge of the Plaintiff's solicitors at the time that Mr Phillips swore the affidavit. 11 Mr Cox, who appears for the First Defendant, says that failure to disclose the fact that that conversation was disputed ought to result automatically in the dissolution of the injunction. He says that if the Plaintiff then wants to maintain any protective orders, he must demonstrate afresh an entitlement to those orders. 12 I do not wish to derogate in the slightest from the principle that a party applying ex parte to the Court for relief bears a heavy onus of frankness and candour in placing before the Judge the material said to support the claim for relief. A great deal has been said about the reasons for that rule and I need not add to those reasons – they are self-evident. 13 However, in this case I do not think that the failure on the part of the Plaintiff's solicitors to inform the Court that the evidence of the Plaintiff's solicitor as to this conversation was disputed was a relevant material fact requiring disclosure. After all, the very fact that the matter had come to the point of litigation demonstrated that that there was a dispute between the parties as to their respective rights and entitlements and the Court proceeds on the basis that a great deal of the evidence adduced by the Plaintiff in support of both interlocutory and final relief is going to be disputed by the Defendant. 14 In the present case, the conversation which is the focal point of Mr Cox's submissions is very remote hearsay which, even when read literally, provides no direct evidence of an intention on the part of the First Defendant to make away with his assets to defeat the present claim of the Plaintiff. Nicholas J did not refer in his brief reasons to that conversation, for the very good reason, I suspect, that it would have counted for nothing in his Honour's consideration of the question. Likewise, that conversation would count for nothing with me in determining whether the Plaintiff was entitled to an asset preservation order. 15 It seems to me that the failure of the Plaintiff to disclose the fact that this piece of evidence, as well as, no doubt, most of the other evidence relied upon by the Plaintiff to support the Plaintiff's case, was disputed does not constitute the sort of failure to act frankly and with candour that the Court expects in relation to ex parte applications. Accordingly, I do not think that the principle to which Mr Cox refers is invoked in the present case. 16 However, lest I be wrong in that conclusion, and in order that the First Defendant should have a proper consideration of the Plaintiff's case for asset preservation orders on its merits, I have embarked on a review of the evidence which the Plaintiff and the First Defendant have deployed on the motion to ascertain whether the Plaintiff has, in any event, demonstrated a sufficient case for asset preservation orders. 17 It is always the right of a defendant affected by asset preservation orders to approach the Court for dissolution or variation of those orders. The defendant may be able to demonstrate that the reason for making orders in the first place has disappeared, or that there has been some other change of circumstances which makes the continuation of asset preservation orders unnecessary, unjust or unduly oppressive. Because an interim asset preservation order can be onerous and is imposed before the case is heard on its merits, I think that the Court should be slow to refuse a defendant a review of the orders and of the evidence justifying it, if a defendant applies on some ground not previously argued and determined. 18 I have examined the evidence filed by the parties in the present case in support of, and in opposition to, the asset preservation orders. Mr Cox, in his able submissions, says that this is a case in which fraud and dishonesty is raised only upon allegation in the Plaintiff's pleading and in evidence given by the Plaintiff's solicitor, not by the Plaintiff himself. He says that a mere allegation of fraud, particularly one which is not supported by the Plaintiff personally, is not enough to invoke the protection of an asset preservation order. He reminds the Court, correctly, that this sort of order is very invasive and is not lightly made. 19 I do not think that this is a case in which concern about dissipation of assets rests solely upon the mere allegation of fraudulent conduct on the Plaintiff's part. There is other evidence which suggests that there is a real risk that the First Defendant will not act honestly in dealing with his assets, for the purpose of defeating any judgment which may be entered against him. 20 I bear in mind that the principal allegation of dishonest conduct is the allegation by the Plaintiff that in making various representations to him, the First Defendant acted with deliberate dishonesty. However, there is more than just the Plaintiff's mere assertion of dishonesty in the transaction which is the subject of the proceedings. There is an allegation by the Plaintiff that, quite apart from representations made dishonestly to him by the First Defendant, the First Defendant forged his signature on a document upon which the First Defendant will place some reliance at the trial in his defence. 21 There is evidence by a Mr McCormack that his signature was forged on a document which purports to provide a basis for the First Defendant receiving money from Mr McCormack and not accounting for it in a certain way. The allegation of forgery by Mr McCormack is given in an affidavit which is filed in support of this motion. The dealings between the First Defendant and Mr McCormack are not remote from the issues for decision in this case. Mr McCormack was apparently engaged, or about to be engaged, in a business relationship with the partnership between the Plaintiff and the First Defendant or with a corporate entity which was going to embody that partnership. 22 Mr Cox says that the evidence of Mr McCormack does not go to any issue in these proceedings and therefore should not be considered as relevant to the present application by the Plaintiff. It may or may not be the case that Mr McCormack's evidence goes to an issue in the proceedings between the Plaintiff and the First Defendant, but that is not decisive in considering whether the Plaintiff has shown that there is a risk of dissipation of assets. 23 In an application for interim asset preservation orders, the Court is not limited to evidence which is relevant to the issues in the proceedings. The Court is concerned with the essential question whether the First Defendant is a person of such character, antecedents or disposition as to be likely to act dishonestly in the disposition of his assets so as to defeat a judgment. Evidence as to that risk can come from any source. 24 Therefore, if it transpires that Mr McCormack's evidence is not relevant to an issue raised directly in these proceedings, it can still be relevant to the question of the First Defendant's general honesty and character: one may say that if a person is prepared to forge a signature for commercial ends, he may well be prepared to do other dishonest acts for his financial advantage. Accordingly, I regard the evidence of Mr McCormack as to the alleged forgery as material evidence for the purposes of this motion. 25 There is other evidence which suggests a pattern of questionable, if not dishonest, conduct on the part of the First Defendant. There is an allegation by the Plaintiff that he has been present with the First Defendant on a number of occasions when there was a knock at the door of their premises and the First Defendant told the Plaintiff not to answer the door and to keep quiet in order to give the appearance that no one was at home. There is an allegation that the First Defendant did not give his current address for service when commencing proceedings in the District Court recently against the Plaintiff. 26 Both of those allegations may be denied, although Mr Cox has not been able to direct my attention to those denials in evidence. I do not myself recollect any substantial explanation given by the First Defendant as to the address for service in the District Court proceedings. 27 It may be thought that this evidence is relatively insignificant and, taken separately and out of context, that may well be so. However, when one puts together the evidence of: – the First Defendant's apparent unwillingness to confront openly people enquiring as to his whereabouts; – the First Defendant's apparent reluctance to disclose a current address for service; – an allegation by Mr McCormack of the First Defendant's reliance on Mr McCormack's forged signature; – an allegation by the Plaintiff of the First Defendant's reliance on the Plaintiff's forged signature; – the allegation of fraudulent misrepresentation in the Statement of Claim, then it can be seen that from a number of sources a pattern of conduct on the part of the First Defendant is alleged which raises a substantial suspicion of dishonesty. 28 For those reasons, having reviewed the evidence both for and against the continuation of asset preservation orders, I am satisfied that the orders which have been made, as embodied in the latest set of orders, ought to be continued. – oOo – DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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