NAF INVESTMENTS PTY LIMITED v ST MARYS INDOOR CRICKET CENTRE PTY LIMITED [2011] NSWDC 59

District Court New South Wales

Medium Neutral Citation: NAF INVESTMENTS PTY LIMITED v ST MARYS INDOOR CRICKET CENTRE PTY LIMITED [2011] NSWDC 59 Hearing dates: 26 May 2011 Decision date: 26 May 2011 Jurisdiction: Civil Before: Judge Peter Johnstone Decision: Motion Dismissed Catchwords: Freezing order - whether there was evidence of improper dealings by the second defendants designed to dissipate assets in order to defeat any prospective entitlement of the plaintiff Legislation Cited: Civil Procedure Act 2005 Category: Interlocutory applications Parties: NAF Investments Pty Ltd (Plaintiff) St Marys Indoor Cricket Centre Pty Ltd (1st Defendant Robert John Rennie and Maree Christine Rennie (2nd Defendants) Northern Sports Development Group Pty Ltd (3rd Defendant) Heidi Veronica Elizabeth Chaloner and Justin Shane Nelson (4th Defendants) Representation: Mr R Parsons of counsel (Plaintiff) Mr R Pluznyk of counsel (1st and 2nd Defendants) Bouzanis & Associates (Plaintiff) Pserras Lawyers (1st and 2nd Defendants) File Number(s): 2010/414850 Publication restriction: None

Judgment 1The plaintiff seeks a freezing order under UCPR r 25.11, and I suspect by implication r 25.14, against the second defendants, Mr and Mrs Rennie. 2In the substantive proceedings the Rennies are sued by the plaintiff in respect of an alleged liability for rent and/or shortfalls in rent in respect of a lease of premises, pursuant to a guarantee. 3That liability is alleged to arise as follows: The original tenant of the premises was the first defendant, the company operating a business in which the Rennies were involved. The Rennies were guarantors of the first defendant's obligations under the first lease. The first defendant assigned that lease to the third defendant. The fourth defendants guaranteed the obligations of the third defendant under the assigned lease. As part of the assignment arrangement, and, as I understand it, as part of the basis upon which it is alleged the plaintiff consented to that arrangement, the Rennies entered into a deed dated 8 July 2008, pursuant to which they guaranteed the obligations of the third defendant under the assigned lease, and the obligations of the fourth defendants as guarantors of the third defendant. 4The potential liability of the Rennies, in the event of a judgment against them, is in the order of $633,000 or more once costs and further interest are taken into account. 5The application for the freezing order was triggered by the attempts of the Rennies to sell their house at Glenbrook. There is no suggestion that this was other than a proposed bona fide transaction in respect of a genuine arms-length sale to purchasers for market value. Indeed the evidence establishes that the catalyst for the sale is the need for the Rennies to reorganise their financial affairs at the behest of the bank, in this case the NAB, and pay out to the bank various moneys owing to the bank in connection with a number of loans secured on their house, both in respect of their personal circumstances and in respect of the business in which they are engaged. 6It was common ground between the disputants that there are two main issues for the Court's determination. First, whether the plaintiff has a good arguable case against the Rennies in the substantive proceedings; secondly, whether the plaintiff has established a proper basis for the Court to exercise its discretion under UCPR r 25.11 or r 25.14. 7Counsel for the Rennies submits that the plaintiffs do not have a good arguable case against them. He relies principally upon cl 41(11) of the original lease agreement that was assigned, which provides: " A lessor (that is the plaintiff) covenants that any consent to assignment of the lease will include a proviso that the assignor and any guarantors under the lease be released from their obligations in respect of this lease." 8It is argued firstly, therefore, that the deed pursuant to which the Rennies purported to guarantee the assignee and its guarantors is of no force or effect. 9The plaintiff on the other hand submits that it was a reasonable concomitant of consenting to the assignment that the lessor required the outgoing guarantors to guarantee the rent payable by the incoming tenant and its guarantors. 10(10) The Rennies argue, secondly, that they have a right to set aside the deed pursuant to which they purported to guarantee the incoming tenant and its guarantors or that it is otherwise unenforceable on the grounds of unconscionability, relying on remedies available to it under the Trade Practices Act. 11In my view, however, the plaintiffs have a good arguable case based on the deed of 8 July 2008. All that has been demonstrated is a number of potential factual disputes that in my view must await a trial to be fully considered and determined. 12This ground of opposition to the application therefore fails. 13The second main contention of the Rennies is that their attempts to sell their house at Glenbrook have not been demonstrated to justify the making of a freezing order. Their basic submission is that the application is made for the purpose of providing the plaintiff with security against any judgment it recovers, and that it has not been demonstrated by the plaintiff that, by selling their house, the Rennies will frustrate or inhibit the Court's processes. In other words, what the Rennies are doing does not create any danger that a prospective judgment in the favour of the plaintiffs will to unsatisfied by reason of the way in which they are dealing with their assets or propose to deal with their assets. 14As the decided case is established, a freezing order should be viewed as an interim remedy to be granted only in extraordinary circumstances because it imposes severe restrictions on a party's ability to deal with his or her assets. It is not the purpose of a freezing order to create a security in favour of the plaintiff, nor to require a defendant to create a security as a condition of defending a claim against him or her. 15Nor is it the function of a freezing order to improve the position of a plaintiff in the event of the insolvency of the judgment debtor. The purpose is to prevent the judgment debtor from conduct in relation to his assets that would have the effect of defeating the Court's jurisdiction. This is generally a reference to conduct that points to improper or inappropriate dealings in those assets designed to dispose of or dissipate the assets to defeat a pros pective creditor's entitlement. 16Such conduct usually requires the demonstration of some evasiveness or dishonesty or otherwise indicating irregularity. Or, removal of the assets from the jurisdiction, inappropriate dissipation or other misapplication of those assets. 17There is no evidence in this application that the Rennies propose dealing with their assets in any untoward way or any irregular way or in any inappropriate fashion. On the contrary, the evidence is that they will be deploying their assets in the normal course for general needs of living, and to help the business from which they derive an income and keep it afloat. What the evidence establishes is that the Rennies have no intention of dealing with their assets other than in the ordinary course of living, and in the proper course of incurri ng bona fide business expenses. 18For these reasons I am not satisfied that the plaintiff has made out a case for the granting of a freezing order. Having regard to the totality of the evidence that I have heard, I would not in any event exercise my discret ion in favour of the plaintiff. 19The motion 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. Decision last updated: 07 July 2011