Supreme Court New South Wales Medium Neutral Citation: Katrina June Harris v Paul Edward Harris [2014] NSWSC 675 Hearing dates: 9 May 2014 Decision date: 09 May 2014 Jurisdiction: Equity Division Before: Young AJA Decision: Prima facie case for granting of freezing order in relation to development or incumberancing land made out. Freezing order not granted as undertaking of first, second and third defendants in relation to this property accepted. Plaintiff's undertaking as to damages in relation to the defendants' undertaking accepted. Plaintiff's applications for freezing orders in relation to other properties dismissed. Leave granted to defendants to amend defence. Catchwords: FREEZING ORDERS - whether freezing orders should be granted over assets of a family trust - whether prima facie case of plaintiff established - whether danger and threat that any judgement obtained will be wholly or partly unsatisfied due to removal of assets. Category: Procedural and other rulings Parties: Katrina June Harris (plaintiff) Paul Edward Harris (respondent) Representation: Counsel: Ms N Obrart (plaintiff) Mr M Henry (respondent) Solicitors: Shaye Chapman Lawyers (plaintiff) Polczynski Lawyers (respondent) File Number(s): 2011/00394272 Publication restriction: None Judgment 1This is an application for a freezing order over assets of a family trust. The underlying litigation is between a sister and two brothers, over what happened to the family fortune. The history, so far as is relevant today, goes back to 2008. The parties, together with their parents, were primary beneficiaries under a trust which was set up, which was to vest 15 years after the death of the father of the present disputants. He died in January 1994, so that the trust vested in January 2009. 2The plaintiff says that there were some very questionable transactions which took place within a couple of months of the vesting date which meant that, as at the vesting date, there was a very considerable depletion of assets available for distribution. Under the trust deed, the distribution would be such that the plaintiff would be entitled to a quarter of the capital. The other three quarters would go as one quarter to each of the first and second defendants and one quarter to the parties' late mother to whom I will refer by her first name, Dulcie without meaning any disrespect. 3Dulcie has now died. Before Dulcie died, she dealt with her share and other property allied to the family trust by benefiting her two sons, the first and second defendants. The plaintiff says that Dulcie was not of sound mind, memory and understanding at that stage and those transactions can be attacked. 4Since the death of Dulcie, the administration of the family affairs has been left in the hands of the first and second defendants, with the assistance of the fifth defendant, who is a chartered accountant and who has for many years dealt with the administration of the family's affairs. 5There is a large amount of evidence that has been put before me. A lot of that evidence is very disturbing, because having sat in these cases on the bench for some 29 years, and before that as an equity barrister, there are many manoeuvres disclosed in the evidence which one customarily finds in family fraud cases. Now, they may be quite legitimate in this particular case, but they do give rise to great suspicion. However, I am not here today to find facts and Mr Henry for the defendants concedes that so far as today is concerned, there is a prima facie case. 6When I say "as far as today is concerned", an applicant for a freezing order must show that she has a good arguable case or prima facie case, as well as showing that there is a danger that any judgment she gets in this case will be wholly or partly unsatisfied because of removal of assets, that there is a threat that this will occur, and that discretionary factors favour the grant of a freezing order, rather than its refusal. In that sense, the barrier of establishing an arguable or prima facie case has been made out. 7Just to digress for a moment, there are five lever arch files of evidence that I have been given. I do not need to assess that evidence. However, the usual practice in this division is that this material should be provided to the judge at least three days before the hearing. The reason for that is that most judges these days in this division make quite sure they are thoroughly familiar with the material before they come on the bench, so that hearing time is not wasted and, accordingly, the cost to the parties is reduced. In this case, four of those bundles arrived in my chambers shortly after 5 o'clock last night. This is increasingly happening and sooner or later we will have to make some order against solicitors personally or alternatively deprive them of the costs of the evidence if we do not get proper service and have all this material three days before. We seem to have got through today by being led through the material, but that is not always going to happen. 8The other comment I should make while I am on this digression is that it has been standard practice in equity for at least a century that if a person is seeking an order of a freezing order or an injunction, then unless the circumstances are such that there is a danger that the defendant, being alerted, will quickly act and get rid of the property, the applicant must notify the defendant of the order it seeks and ask for an undertaking or consent to the orders before issuing the notice of motion. 9Traditionally, if that were not done, there was no costs ever given of the notice of motion, because one finds that as a general rule in at least 50% of the cases some sort of undertaking is given and costs are saved. 10I will now return to dealing with the actual notice of motion. The notice of motion was filed on 3 March this year, but amended on 1 May this year. It seeks a number of orders. However, these can be put into two or three categories. 11The five lever arch files contain a large number of facts and I will not burden these reasons by going into them fully. But the affairs of the family are very complicated and they were administered by the accountant, it would seem, with a view to legitimately minimising taxation liabilities. However, they involved a series of trusts, a series of companies and in some cases companies in the group are trustees of more than one trust. 12A property at Manly, which I will call "property 32", was held by the third defendant who is one of these companies, on trust. Originally it was Dulcie's home. About a year ago the third defendant purported to resolve, and I say "purported" because there is some suspicion that the minutes that have been created are not minutes of meetings that actually took place, but there is not enough material one way or the other at this stage to make a determination on that issue. But the minutes say that the first and second defendants as the sole directors of the third defendant resolved to sell property 32 to themselves or their own companies for $3.5 million. The $3.5 million was not to be paid in cash but by a series of book entries. The plaintiff wishes to challenge that transaction. 13There is some suggestion from the accountant that the intention of the first and second defendants is to demolish the house and to build large buildings upon the land and to have it subdivided at a great profit for themselves. The first and second defendants have not given any evidence at all on this motion, and that, of course, in itself increases the suspicions. However, if they do intend to develop the land, one would have thought that, unless they have encumbered it, that that only can improve it. Furthermore, the redevelopment can only take place after there is an application to the head lessor (because this land is only held on lease up to 2044) for permission and then a development application made to the Manly Council which will be duly publicised. 14Accordingly, it is very difficult, with respect to property 32, for the plaintiff to show that there is immediate threat of harm. 15However, there is now an undertaking to the court proffered by the first, second and third defendants upon the plaintiff giving the usual undertaking as to damages, which is given, that they will give to the plaintiff twenty-eight days' written notice before transferring or incumbrancing or causing the transferring or incumbrancing of 32, and they also undertake that other than in the ordinary course of business or for paying legal or accounting expenses, they will not do so in relation to the assets of four-named companies. It seems to me that that undertaking together with the fact that any development application will be publicly notified in the locality is sufficient not to make any order with respect to property 32, at least at this stage. 16There is an application by the plaintiff to seek freezing orders with respect to a property at Freshwater. I will call this "property 18". The defendants say that property 18 is held by a trustee company within the group as trustee for a trust known as the Pauterson Unit Trust and that is the trust in which the plaintiff has no interest. Ms Obrart, who appears for the plaintiff, says, "well, that is what they say but where is the evidence of it", to which the riposte is "where is there any evidence that the plaintiff actually does have any interest in the property". The plaintiff has not made out a prima facie case with respect to property 18. The defendants declined to give any undertaking with property 18, and I do not think that there is sufficient material to justify me making any order. 17The plaintiff seeks an order that the defendants be restrained from altering the share structure of the third defendant. There is no evidence of any threat to do that, so that particular claim fails. 18The plaintiff seeks an order that the defendants be restrained from removing from the jurisdiction or disposing or diminishing their assets below $2.5 million. Again, there is no threat to do that and there are other matters that mean that I should not grant that order. Accordingly, it seems to me that although there is some suspicion and there is a prima facie case, looking at the whole of the material, there is insufficient reason to justify any further orders being made other than accepting the undertaking. 19Mr Henry also raised two other matters of defence. One was the delay in bringing these proceedings. It has been known, since the middle of last year with respect to some matters and certainly by October 2013 in respect of others, that the present facts existed. The plaintiff says that she has been busy on other aspects of the case, but really preservation of the subject matter should have been such a priority matter that it is significant that something like five months went by before she issued the notice of motion, and that is a significant discretionary factor why I should refuse relief. 20Also, there is the matter before Hallen J on 7 February 2013. It would seem that the plaintiff abandoned a significant part of her case, yet the further amended statement of claim resuscitates it in a different form. That, it seems to me, is significant but not for this particular motion. I mention it to show that I have not forgotten it. 21There are other significant matters, too, one only will I mention at this stage, and that is that the plaintiff's shareholding in the third defendant has been watered down. This was done by alleging that the company needed extra capital, offering the shares to the shareholders, including the plaintiff, equally, and then issuing shares to the only people to take them up; namely, the first and second defendants. It may be quite legitimate in the present case, but it certainly is one of the traditional devices used by fraudsters to gain control of family companies, and also, prima facie, the reasons given for the raising of the capital do not really seem to hold water. But it may be that when further evidence comes in the trial judge will take a different view. 22The other matter that I must take into account is the period for which the freezing order, if made, would be in place. The realities of the litigation appear to be that it is unlikely to come on for trial, unless previously settled, before the beginning of 2015, which means that the minimum of any freezing order would affect the parties for nine months. Freezing some of these transactions where the defendants would be liable to pay interest, yet not receive any income from property 32 other than rent that might be received for a domestic letting, would be a serious consideration for a nine-month period whereas it might not be if one was only talking about a month or two; but it is more likely than not that we are thinking of a nine-month period. Accordingly, I accept the undertakings to the court of the first, second and third defendants, which, for the purposes of identification, I have initialled and dated and will be put in the papers as MI 03 and retained. 23I accept the undertaking as to damages by the plaintiff given by her counsel. I note that, subject to checking, all the affidavits of the plaintiff have now been filed other than affidavits which may emerge as a result of discovery and interrogatories. But in order to give the plaintiff some time to make quite sure of it, I will order that all affidavits other than those as a result of discovery and interrogatories on the part of the plaintiff be filed and served not later than 30 May 2014, and that the defendants' affidavits be filed and served no later than 30 June 2014, again with that exception. The matter should then be put in the Registrar's list some time in July, and I will just say 8 July for present purposes, but counsel may require some different date. I will have the matter put in my list at 10.30am on 26 August 2014 but the Registrar is at liberty to delete that if he finds that in July a more accelerated programme is desirable and either counsel may arrange with my Associate to alter this time. 24So far as costs are concerned, I think the plaintiff has partially succeeded. The defendants have partially succeeded. The plaintiff did not ask for an undertaking before commencing these proceedings. The plaintiff has established a prima facie case. My feeling is that costs should be costs in the cause, but I will hear counsel. 25 There is one other matter that I should mention, and that is the defence appears to me to have some problems because the drafter has used the words "and otherwise denies the allegations" too liberally. Accordingly, if the defendants wish to file an amended defence they may do so by 30 May 2014. 26I thank counsel today for their assistance. Orders (1)Accept plaintiff's undertaking as to damages to support undertaking of defendant's as set out in Order 2. (2)Accept undertaking to the court of defendants 1, 2 and 3 as per document M103. (3)Order that all the plaintiff's affidavits, other than those made as a result of discovery and interrogatories, be filed and served no later than 30 May 2014. (4)Order that all the defendant's affidavits (with the same exception) be filed and served by 30 June 2014. (5)List matter before Registrar at 9:00am on 8 July 2014. (6)Provisionally list before Young AJA at 10:30am on 26 August 2014 for further directions. (7)Costs of motion of 3 March 2014, as amended on 1 May 2014, to be costs in the cause. ********** 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: 27 May 2014