International Skin Care Suppliers Pty Ltd v Whyte [2011] NSWSC 46

Supreme Court New South Wales

Medium Neutral Citation: International Skin Care Suppliers Pty Ltd v Whyte [2011] NSWSC 46 Hearing dates: 11 February 2011 Decision date: 11 February 2011 Jurisdiction: Equity Division - Corporations List Before: Barrett J Decision: Freezing and related orders made Catchwords: PROCEDURE - freezing orders - where plaintiffs allege second defendant acquired business with knowledge of mortgagee's interest - good arguable case shown - risk of dissipation shown - no question of principle Cases Cited: Goumas v McIntosh [2002] NSWSC 713 Westpac Banking Corporation v McArthur [2007] NSWSC 1347 Category: Procedural and other rulings Parties: Paul Andrew Bill Billingham and Gayle Louise Dickerson as joint and several receivers and managers of International Skin Care Suppliers Pty Ltd - Plaintiffs Eileen Ann Whyte - First Defendant Industry Only Pty Limited - Second Defendant Representation: Counsel: Mr J E Hynes - Plaintiffs Mr B Levet - Defendants Solicitors: Henry Davis York - Plaintiffs Bundock/Palmer Lawyers - Defendants File Number(s): 2011/19538

Judgment 1The plaintiffs are receivers of the assets and undertaking of the company which has been referred to in the course of argument as "Indio". The receivers were appointed by the Bank of Western Australia. 2In these pending proceedings, the plaintiffs have made an application on short notice for interlocutory orders intended to maintain the status quo pending trial. 3Specifically, the plaintiffs seek orders restraining disposal and other dealings of various kinds with the assets of the skin care product wholesaling business known as Indio, but with carve-outs for sales of stock in trade in the ordinary course of business and for the payment of ordinary business expenses and legal expenses in these proceedings, although in each case subject to monetary limits to which I shall return. 4Also sought is an interlocutory order that the second defendant keep accurate and complete records of sales of stock and an order that the proper officer of the second defendant file and serve an affidavit setting out the second defendant's assets and liabilities and particulars of disposals within a certain time and of a certain magnitude. 5The case the plaintiffs seek to make is, in essence, that the second defendant became the successor in business of Indio in circumstances calculated to defeat, if not creditors generally of Indio, then at least the bank by which the plaintiffs were appointed. 6I am satisfied that there is a serious question to be tried (and a good arguable case) as to whether, first, the second defendant acquired the business of Indio in circumstances where the disposal by Indio, to the knowledge of the second defendant, was made in breach of the terms of the bank's charge and, second, whether the subject matter of the disposal was taken by the second defendant with notice of the bank's interest. 7Factors that prompt my finding of serious question to be tried are as follows. 8First, the sole director of the second defendant is the son of the sole director of Indio. 9Second, a Mr Michaelson, a former employee of Indio, appears now to be working for the second defendant and is shown to have sent an email on behalf of the sole director of the second defendant. 10Third, the second defendant is now operating in premises leased to Indio for a term of years not yet expired, in circumstances where Indio is said no longer to occupy the premises. 11Fourth, material from a website of the second defendant carries strong overtones of apparent attempts to represent the second defendant as Indio, or at least to imply that goodwill that one might have expected to belong to Indio is now vested in the second defendant. 12These, as I have said, are the factors that cause me to conclude that there is a serious question to be tried (and a good arguable case) of the kind to which I have referred. 13As to the risk of dissipation of assets, the matters already mentioned create a sufficient apprehension. 14The second defendant complains about the speed with which the application has been brought on and the quantity of material that has been presented at short notice. 15The complaint is understandable but in my view beside the point. The circumstances are such as might well have merited a grant of relief on an ex parte application. Added to that, as Mr Hynes has pointed out, the case presented on the interlocutory hearing has been almost exclusively a documentary case based on documents that come from the second defendant or are readily available to it. There should have been no surprise for the second defendant about any of the documentary material. 16The other complaint made by the second defendant through its counsel, Mr Levet, goes to the monetary limits in the order sought with respect to disposals of assets or, more particularly, expenditures of money by the second defendant. The orders as sought include a carve-out in respect of ordinary business expenses incurred in the ordinary course of business up to $4,000 per week and for legal costs and expenses reasonably incurred in relation to these proceedings, up to $10,000. 17Two things need to be said about these limits. First, there is no evidence to support their appropriateness. Mr Hynes faintly suggested that one could look at historical accounts to get some idea of levels of business expenditure. There are two problems with that. First, one can have no idea whether current levels of expenditure that might be reasonable are indicated by historical levels of expenditure. Secondly, the kind of limit proposed assumes that business expenses are incurred at a steady rate. It would be very surprising if that were so. As to the legal expenses, Mr Levet has made the point that these are not insubstantial proceedings and that a limit of $10,000 might be quickly used up. There is merit in that submission. 18That leads to the second point about the limits. There is, in my mind, an objection in principle to limits of this kind. I referred to them in Westpac Banking Corporation v McArthur [2007] NSWSC 1347 and Goumas v McIntosh [2002] NSWSC 713. The imposition of a limit which refers to reasonable expenses is of itself enough. The money concerned is money of the party restrained. That party has no particular interest in squandering the money and might be expected in its own interests to spend it wisely. The imposition of a limit expressed in terms of reasonableness is, therefore, sufficient. 19The comments I have just made go to what is order 4 in the form of order that has been handed up. I intend to make order 4 without the monetary limits noting, I might say, that the usual undertaking as to damages is proffered not by the plaintiff/receivers in person but rather by their appointor, the Bank of Western Australia. 20The second substantive order, order 5, presents no difficulty. It does no more than require the keeping of accurate records which any responsible business owner would keep in any event. 21Orders 6 and 7 go to matters of disclosure. They are orders commonly made in circumstances such as the present and they are appropriate orders to be made in this case. 22Upon Bank of Western Australia Limited by its counsel giving to the court the usual undertaking as to damages, I make the orders 1 to 11 in the short minutes of order which I initial and date today. [Counsel addressed on costs] 23I order that the second defendant pay the plaintiffs' costs of the interlocutory application with which I have just dealt.