Supreme Court New South Wales

• Medium Neutral Citation: Gap Constructions Pty Limited & Anor v Vigar Pty Limited & Ors [2011] NSWSC 1205
• Hearing dates: Tuesday, 27 September 2011
• Decision date: 27 September 2011
• Jurisdiction: Equity Division - Duty List
• Before: Brereton J

Decision

Injunction restraining fourth defendant from dealing with or disposing of certain moneys and shares to continue until final hearing or further order.

• Catchwords: INJUNCTIONS - Interlocutory injunctions - plaintiff seeks continuation of interlocutory orders restraining defendants from dealing with certain moneys and shares - moneys and shares said to be traceable from breach of fiduciary duty by defendants - plaintiffs question propriety of expenditure by fourth defendant and accuracy and completeness of information provided as to expenditure - injunction deals with assets the subject matter of proceedings - principle applicable to Mareva injunctions that party be allowed to make expenditure for living expenses and legal costs not applicable where injunction deals with subject matter of claim - injunction sought specific to such moneys and shares not to totality of defendants' assets - defendants' have substantially dissipated moneys by engaging in liberal level of living expenses - unacceptable situation ought not continue - injunction continued.
• Legislation Cited: (CTH) Corporations Act (2001), s 182,s 183
• Cases Cited: Australian Receivables Limited v Tekitu Pty Limited [2008] NSWSC 433; Badman v Drake [2008] NSWSC 968; Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44
• Category: Procedural and other rulings
• Parties: Gap Constructions Pty Limited (first plaintiff); Peter Bega (second plaintiff); Vigar Pty Limited (first defendant); Bega Pty Limited (second defendant); Con Bosganas (third defendant); Bugong Pty Limited (fourth defendant)
• Representation: Counsel: Mr A Hourigan (plaintiffs); Mr P Bruckner (defendants); Solicitors: O'Neill Partners (plaintiffs); Bolzan & Dimitri (first, second & third defendants); MacRae Lawyers (fourth defendant)
• File Number(s): 2011/198502

Judgment (ex tempore)

1 HIS HONOUR: In the substantive proceedings, the plaintiffs Gap Constructions Pty Limited and Peter Bega sue the defendants Vigar Pty Limited, Bega Pty Limited, Con Bosganas and Bugong Pty Limited in respect of alleged breaches of fiduciary and like duties, under (CTH) Corporations Act (2001), s 182 and s 183, and for consequential relief flowing from alleged breaches by the third defendant, who was an officer of the first plaintiff, of his fiduciary obligations, which involved him allegedly appropriating to himself and subsequently causing to be transferred into a share trading account held by the fourth defendant sums of moneys totalling nearly $1,000,000. There does not appear to be any issue that the third defendant appropriated such sums, nor does there appear to be any issue that at least a substantial part of them were transferred into the share trading account in question. It appears that the principal issue in the substantive proceedings is whether certain conditions on which it is said that the third defendant was to be entitled to those funds were or were not satisfied. There is a cross-claim, but it is not material for present purposes.

2 It is accepted for the purposes of the present interlocutory application that there is a serious question to be tried for final relief. In that respect it is, I think, important to observe that while the proceedings are framed as proceedings for relief under the Corporations Act , including for compensation under that Act, they are in respect of sums allegedly appropriated in breach of fiduciary duty and traceable into the share trading account in question.

3 On 27 June 2011, White J made orders relevantly as follows:

...

3. Until 5pm on 4 July 2011, the defendants are restrained from dealing with the proceeds in the E*trade Cash Investment account 012-012 2587-52672 with ANZ Banking Group Limited ("Share Trading Account") and the account referred to in account statements for that account as the "NOM AC" ("Main Account"), except as provided by paragraphs 4-7.

4. The order in paragraph 3 does not prohibit payment out from the Main Account of the ordinary living expenses of the defendants, Diana Pappas, Alex Pappas, Elizabeth Bosganas and their children (including for the holiday to Greece for the third defendant and wife and children from 3 July 2011 to 5 August 2011), on the condition that they keep a written record of all such expenditure exceeding $500.

5. The order in paragraph 3 does not prohibit payment out from the Main Account of the defendants' reasonable legal expenses, on the condition that they instruct each relevant lawyer to produce as and when they require a statement of legal expenses incurred and a statement that they have been reasonably and properly incurred.

6. The order in paragraph 3 does not prohibit payments between the Share Trading Account and the Main Account.

7. The order in paragraph 3 does not prohibit share trading using funds in the Share Trading Account, however it does prohibit encumbering shares.

...

4 An interlocutory hearing in respect of the continuation of those orders commenced before Ward J on 4 July 2011 and was settled in the course of the hearing whereupon her Honour, by consent, made orders, relevantly in the following terms:

...

3. The restraints in paragraphs 3-7 made in these proceedings on 27 June 2011 are continued until further order, with the liberty in paragraph 8 of those orders granted, except paragraph 7 of those orders is varied by adding the following words "provided any share purchases are confined to companies in the top 200 public companies trading on the Australian Stock Exchange and provided that only Alex Pappas gives instructions to make the trades, there is no margin trading and the fourth defendant's solicitors provide to the plaintiffs' solicitors weekly a report of the transactions made during the past week and shares held at the end of the week.

3A. While the restraints referred to in paragraph 3 of these orders remain in operation, the fourth defendant is to notify the plaintiffs' solicitors forthwith if the value of the shares held by the fourth defendant in its Share Trading account together with the value of the funds held by the fourth defendant in the Main account and Share Trading account (as those terms are defined in the orders of 27 June 2011) falls below $600,000 in aggregate.

5 On 16 September 2011, the plaintiffs approached Rein J sitting as duty judge, ex parte , on which occasion his Honour granted leave to file a number of affidavits and adjourned the proceedings to 19 September. On 19 September, his Honour (although it seems that no process was filed), upon the plaintiffs giving the usual undertaking as to damages, made the following orders:

1. Up to and including 23 September 2011, the fourth defendant including its servants and agents be restrained from dealing with or disposing of all monies and shares retained on behalf of the Fourth Defendant in:

(a) Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ) Main Account 4886 93807 (Main Account) and;

(b) E*Trade Cash Investment Account 012 012 2587 52672 - account number 1163854 (Share Trading Account).

2. Up to and including 23 September 2011, Etrade Australia Securities Pty Ltd CAN 078 174 973 including its servants and agents be restrained from dealing with or disposing of all monies and shares retained in the Main Account and Share Trading Account.

3. Up to and including 23 September 2011, ANZ including its servants and agents be restrained from dealing with or disposing of all monies and shares retained in the Main Account and Share Trading Account.

6 The proceedings returned before his Honour on 23 September in the duty list. There was on that occasion apparently not time for a further interlocutory hearing, and his Honour adjourned the proceedings to today, in the meantime making the following relevant orders:

1. Up to and including 27 September 2011, the Fourth Defendant including its servants and agents be restrained from dealing with or disposing of all monies and shares retained on behalf of the Fourth Defendant in:

a. Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ) Main Account 4886 93807 (Main Account) and;

b. E*Trade Cash Investment Account 012 012 2587 52672 - account number 1163854 (Share Trading Account).

2. The Plaintiffs notify ANZ and Etrade Australia Securities Pty Ltd CAN 078 174 973 of Order 1.

...

7 Today, the plaintiffs move the court for continuation of the interlocutory orders made on 23 September 2011. The plaintiffs contend that information provided on behalf of the defendants in respect of the status of the share trading account from time to time since the 4 July orders has been inaccurate and incomplete and has overstated the amount standing to the credit of that account, so as to give a false impression as to its status. The plaintiffs further question the propriety of at least some of the expenditure engaged in by the fourth defendant from the account in question, which has been characterised as legal expenses or reasonable living expenses. In essence, the plaintiffs contend that what has happened in respect of the account amounts to a sufficient change in circumstances to justify revisiting the consent interlocutory order of 4 July.

8 It is well established that where there has been a material change in circumstances since an interlocutory order was made, the court may review the order and consider whether it remains appropriate or whether some different order should be made. As McLelland J, as the later Chief Judge in Equity then was, pointed out in Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 (at 46-47):

... the ordinary rule of practice is that an application to set aside, vary or discharge the order must be founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the court on the hearing of the original application : see Woods v Sheriff of Queensland (1895) 6 QLJ 163 at 164-5; Hutchinson v Nominal Defendant [1972] 1 NSWLR 443 at 447-8; Chanel Ltd v F W Woolworth & Co [1981] 1 All ER 745 ; [1981] 1 WLR 485 Adam P Brown Male Fashions v Philip Morris (1981) 148 CLR 170 at 177-8 ; 35 ALR 625 at 629-30; Butt v Butt [1987] 1 WLR 1351 at 1353; Gordano Building Contractors Ltd v Burgess [1988] 1 WLR 890 at 894.

9 Despite the extent of the evidence that has been put before the court on this application, the important aspects of it can be summarised relatively briefly. First, it is clear that the material provided on behalf of the fourth defendant is at best ambiguous, and that there are amounts in it which call for further explanation. Secondly, it is also clear that the material more recently provided by E*Trade, on which the plaintiff relies, is itself incomplete because, on any view, it does not include proceeds of share sales transactions not yet settled. Thirdly, on 29 August 2011, the defendants' solicitors informed the plaintiffs' solicitors that the total cash and shareholdings of the fourth defendant "are now below the $600,000 threshold". Indeed, the plaintiffs' contentions are correct, it may have been below that threshold for some time before then. Fourthly, on the evidence placed before the court today, it seems that even on the defendants' version, the total cash and shareholdings of the fourth defendant are now less than $88,000, whereas it was plainly in the contemplation of the parties when the 4 July orders were made that they exceeded $600,000. In other words, on the most benign view of what has happened, more than $500,000 out of the $600,000 has been lost by one means or another over a period of three months.

10 The evidence indicates that about $250,000 has been spent on legal expenses or living expenses. Bearing in mind that about $132,000 of that has been spent on legal expenses, that leaves some $120,000 approximately spent on living expenses, which represents about $40,000 per month. Whilst acknowledging that that includes private school fees, nonetheless, it is a liberal level of expenditure. It is reasonably clear that, if the present regime remains in place, in a few month's time nothing will be left.

11 As to the other $250,000 odd of losses, that appears to have been incurred by way of share trading losses. In those circumstances, it is difficult to see why it is in the interests of either party to permit the defendant to continue to engage in loss making share trades.

12 In this case one has to balance the competing interests of the parties. I fully accept that, ordinarily, a Mareva order is not to operate as security for a prospective judgment. On the other hand, where a plaintiff has a seriously arguable claim to a beneficial interest is the fund in question, those considerations do not apply to the same extent. I said at the outset that it was important to bear in mind that this is a case in which the plaintiff's claim is one in respect of funds which they claim have been misappropriated and may be able to be traced into the relevant account. The importance of that is that this is not simply a claim for unliquidated damages or debt, but a claim where it is at least seriously arguable that the plaintiff has a beneficial interest in the fund, or traceable into the fund, in question. In Badman v Drake [2008] NSWSC 968 I explained (at [6]):

... it is important to bear in mind that what is sought is not a Mareva injunction, but an injunction to preserve a specific fund which is the subject matter of proceedings. If an injunction is wrongly declined, the subject matter of the proceedings will be diminished. In those circumstances, the principles applicable to a Mareva injunction, which dictate that an exception will always be made to permit expenditure on reasonable living expenses and legal costs, do not apply

13 [See also Australian Receivables Limited v Tekitu Pty Limited [2008] NSWSC 433, (at [28])]. It is therefore inappropriate in a case such as the present to allow dissipation of assets that are the subject matter of proceedings, by making an allowance for reasonable living expenses and legal costs, as that will be tantamount to converting the subject matter of the plaintiffs' claim to the defendants' personal use.

14 Here, the defendants have had ample opportunity to resort to the fund in question and have availed themselves of that opportunity to the utmost. In my opinion, it would be quite unjust to permit that to continue for one moment longer. It may well be that the plaintiffs' ability to recover has already been substantially frustrated, but it should not be permitted to be frustrated any further.

15 I am fortified in this conclusion by the circumstance that what is sought is not an injunction in the conventional Mareva form restraining the defendants from dealing with all of their assets; the order relates only to one particular specified asset. As I also observed in Tekitu, although when granting a Mareva injunction it is ordinarily always appropriate to exempt expenditure for legal and living expenses (at [28]), where the injunction is limited to specified assets no such exemption is necessary at the outset. Applied to this case, what that means is that, because a general freezing order restraining dealing with all of the defendants' assets is not proposed, the fact that they will be restrained from dealing with one of their assets does not require that an exception for living expenses and legal expenses be carved out. If they wish to demonstrate that they cannot otherwise provide for reasonable living expenses and legal expenses, they can make an application to the court, providing to the court appropriate evidence proving that they have no other resources, and showing a reasonable amount that ought to be permitted for that purpose.

16 I order that the orders made by Rein J on 23 September 2011 continue until the hearing or until further order of the court.

17 The costs of the application will be the plaintiffs' costs in the proceedings.

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Decision last updated: 03 November 2011