Supreme Court New South Wales

• Medium Neutral Citation: Downer EDI Engineering v Taralga Wind Farm Nominees No.2 [2014] NSWSC 971
• Hearing dates: 18/07/2014
• Decision date: 18 July 2014
• Jurisdiction: Equity Division - Technology and Construction List
• Before: McDougall J

Decision

Accept defendant's undertaking not to dissipate its assets. Order disclosure of trust assets and documents.

• Catchwords: PROCEDURE - Application for freezing order in relation to judgment debt - whether to make freezing order where judgment debtor failed to provide financial information or to give undertaking not to dissipate assets - whether to make freezing order where balance of convenience considerations
• Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW)
• Category: Procedural and other rulings
• Parties: Downer EDI Engineering Pty Ltd (Plaintiff); Taralga Wind Farm Nominees No 2 (as trustee of the Taralga Wind Farm Operating Trust) (Defendant)
• Representation: Counsel: M Christie SC (Plaintiff); M Gracie (Defendant); Solicitors: Corrs Chambers Westgarth (Plaintiff); Herbert Smith Freehills (Defendant)
• File Number(s): 2014/207727

Judgment (ex tempore - revised 18 july 2014)

1 HIS HONOUR: This is an application for a freezing order under UCPR r 25.14 and for ancillary orders, as to the disclosure of documents and information, under r 25.12.

2 The brief background is that the plaintiff (Downer) and the defendant (TWF) are parties to a construction contract. There was a dispute as to a payment claim made by Downer on TWF under that contract. The dispute was referred to adjudication. On 2 July 2014, the adjudicator determined that the adjudicated amount owing by TWF to Downer was, in round figures, $6,850,000. The determination was served on TWF on 2 July 2014.

3 Since then, so far as the evidence goes, there have been negotiations between the parties in relation to the adjudicated amount. Those negotiations did not proceed to the satisfaction of Downer. Accordingly, on 14 July 2014, Downer, having obtained an adjudication certificate, lodged it with this court and recovered a judgment for the net amount owing (calculation of the net amount took account of a payment that had been made). The amount of the judgment debt is, again in round figures, $6,478,000.

4 It seems that TWF is the trustee of an operating trust, and that whatever assets it holds may be assets of that operating trust. Certainly, TWF contracted (or purported to contract) with Downer as trustee for that operating trust.

5 The evidence satisfies me that Downer's lawyers have made several requests of TWF's previous and present lawyers for payment, and (in the absence of payment) for a statement of what trust assets may exist to satisfy the judgment. They have sought, also, an undertaking that the trust assets would not be dealt with adversely to Downer's rights as a judgment creditor.

6 Those requests, not unreasonable in themselves, have gone unanswered both by the previous lawyers and by the present lawyers.

7 Instead, for the past eight days or so, the present lawyers have made a number of responses which, whilst studiously ignoring the request for information, continue to insist that their client would like to negotiate, and "would prefer a commercial outcome if possible".

8 The correspondence suggests that there may have been negotiations between people, perhaps armed with authority to resolve the dispute, but that, so far, those negotiations have been unsuccessful.

9 Downer, for its part, has made its position clear. It is prepared to negotiate. Further, for a time, it was prepared not to take steps in relation to its judgment. However, that position was, as it made clear, conditioned on receipt of the information requested and the undertaking requested. That information has not been provided and the undertaking has not been given.

10 Indeed, although the matter came before me this afternoon on notice to TWF, and TWF was represented by Mr Gracie of Counsel, TWF has not been in a position to offer either information or an undertaking in satisfaction of Downer's requests.

11 Against that background, Mr Christie of Senior Counsel points to the requirement of r 25.14(4)(b)(ii), which requires the Court to be satisfied that in all the circumstances there is a danger that a judgment may be wholly or partly unsatisfied because assets may be disposed of, dealt with or diminished in value.

12 Mr Christie relies on the repeated requests for information, and TWF's repeated action in ignoring them. He points, also, to the fact that TWF is (as I have said) the trustee of an operating trust. Mr Christie points, further, to evidence which would suggest that either TWF or the trust is or may be controlled by foreign entities (specifically, a Spanish bank, and other Spanish entities) or that those entities may have some greater or lesser interest in the trust assets.

13 One thing which is clear is that, so far as searches have revealed, TWF has no real estate in its name, and such assets as it has appear to be encumbered.

14 Mr Gracie submitted that there was not the requisite degree of evidence to satisfy the statutory test. He did not wish to confront the proposition that an inference might be drawn from the repeated requests for information and the repeated refusal to satisfy them. His submission, which followed points that had been made in letters emanating from TWF's lawyers, was that TWF would prefer to negotiate a commercial outcome if possible.

15 The question of whether there is the "danger" of which the sub-rule speaks is not one that can be assessed in some a priori way, or by reference to the way in which the same test has been assessed in previous cases.

16 I do accept, as has been made clear time and again, that what used to be called Mareva Orders and are now called freezing orders represent drastic interferences with the property rights of the entity against whom they are made, and are orders that should not be lightly made. That is so whether they are made in anticipation of a judgment that might be recovered or, as here, in support of rights under a judgment that has been recovered.

17 As to the judgment: there has been no attack on the validity of the determination. Mr Gracie has not submitted that it is in some way susceptible to review. Nor is there any such suggestion in the correspondence that has emanated from his client's lawyers.

18 The position is thus that TWF has known of the determination, and thus of the substantial liability that it represents, for the past 16 days. For the past 10 days, it has been asked repeatedly to indicate what are its payment intentions, what are the trust assets out of which the judgment might be paid, and whether it is prepared to give an undertaking not to dissipate those assets. Its response, as I have said several times, is to insist on its preference to negotiate towards a commercial outcome.

19 The requirement that there be a danger does not require demonstrable proof that, absent the making of an order, assets will inevitably be disposed of or dealt with or diminished in value. It requires, in all the circumstances of the case, some rational basis for thinking that this might be so. That is why it is important to remind oneself of the exceptional nature of the order that is sought.

20 The general basis on which the question of danger is assessed requires that one ask whether there is a real risk that assets will be dealt with so as to prevent the satisfaction of the judgment that has been recovered.

21 If the assets had been identified, the question of risk would need to be assessed having regard to the nature of the assets and their susceptibility to disposal or other dealing, encumbering, and the like. Because there has been no disclosure of the assets, that test cannot be performed.

22 Further, if the assets had been revealed, some assessment could be made of what might be called their mobility: that is to say, the extent to which they could be repatriated to Spain (or, for that matter, to some other country). Again, because the assets have not been disclosed, that assessment cannot be made.

23 The Court is therefore left with the situation that a judgment debtor, who has made no complaint as to the source of the judgment, has refused to indicate at least in open correspondence what are its intentions in relation to payment; has refused to indicate what assets (if any) are available to satisfy it; and has refused to undertake that it will not deal with those assets so as to prejudice the rights of the judgment creditor.

24 In those circumstances, and in the absence of any explanation for the stance taken (save the preference for commercial negotiations) I think it is possible to infer that there is a real risk that the assets will be disposed of, in such a way as to thwart Downer's rights.

25 I say that because, it seems to me, anyone seeking to deal honestly and openly with a debt as to which there was no challenge would not have a problem giving the information sought. It may be - I do not know, because no explanation has been offered - that the stance taken by TWF reflects not some desire to defeat Downer's claim by dishonest means but, rather, a desire to improve or maintain its negotiating position in the negotiations that it hopes will take place. However, I must make the order (if I do) on the basis of the evidence that is before me, and not on the basis of evidence that might have been put before me.

26 Weighing those matters, and acknowledging that the conclusion is necessarily an impressionistic one based on a view taken of conduct as a whole, I conclude, as I have indicated, that the requisite danger exists. The fact that there is an explanation consistent with lack of danger does not remove the threat of danger. It means, at most, that Downer's case is not watertight.

27 By analogy with the basis on which other forms of interlocutory relief are granted, and the way in which the Court approaches the "serious question to be tried", I take the view that in weighing the danger, it is appropriate to look not only at evidence of danger strictly so called but, also, at balance of convenience considerations. That is because, as has been observed more than once, assessment of the strength of the serious question necessarily requires consideration of that question in context and not in isolation.

28 In the present case, it has not been suggested that an order for the short term sought (seven days, and liberty to apply would in any event be reserved) would offer any real impediment to TWF's legitimate conduct of its business activities.

29 For those reasons, I conclude that the orders sought by the notice of motion filed in court today should be made.

30 Those orders sought, as well as a freezing order, the provision of information. That information was the trust deed, and details of the assets of TWF and the trust. That is the information that has been repeatedly requested. It has not been suggested that TWF is not in a position to provide that information by the time sought, namely 24 July 2014.

[Counsel addressed.]

31 I note that the plaintiff by senior counsel gives to the Court the undertakings set out in schedule A to the attachment to the notice of motion filed in court today. I make an order in terms of that attachment as amended.

32 I reserve liberty to apply on such notice as the Court may in all the circumstances allow.

33 I adjourn the further hearing of the application to 25 July 2014 in the motions list.

34 I reserve the costs of today.

[Counsel addressed further.]

35 I direct that the orders be entered forthwith.

[Counsel addressed further.]

36 Whilst I was in the course of giving the above reasons, Mr Gracie received instructions by the miracles of modern telephony, that he could give to the Court an undertaking on behalf of TWF that it would not, up until the further order of the Court take any steps to dissipate its assets. Mr Gracie very properly told me that once I had concluded my reasons and made the orders that followed from those reasons.

37 In the light of that undertaking, it seems to me inappropriate that there should be a freezing order in existence. For those reasons, I revoke the orders made to the extent only of paragraphs 6 to 10 of the attachment to the notice of motion.

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Decision last updated: 22 July 2014