Supreme Court New South Wales

• Medium Neutral Citation: Australian Mortgage & Finance Company Pty Ltd as trustee of the Melnikoff Family Trust & Ors v Rome Euro Windows Pty Ltd as trustee of the Rome Euro Windows Unit Trust & Ors [2014] NSWSC 996
• Hearing dates: 26 June and 3 July 2014
• Decision date: 25 July 2014
• Jurisdiction: Equity Division
• Before: Black J

Decision

Parties to bring in agreed short minutes of order to give effect to judgment and, if no agreement is reached, their respective draft short minutes of order and submissions as to costs within 14 days.

• Catchwords: CORPORATIONS - membership, rights and remedies - derivative action - application for grant of leave by shareholders to commence and defend proceedings in name of relevant company under Corporations Act 2001 (Cth) s 237 - whether it is probable that company will not bring or defend the proceedings - whether applicants are acting in good faith in bringing or defending proceedings - whether in the best interests of company that applicants be granted leave - whether proposed proceedings involve serious questions to be tried - whether leave should be on terms that company be indemnified from costs - whether appropriate notice has been provided to company.; EQUITY - equitable remedies - application for variation of freezing orders - where there have been subsequent variations to initial freezing order - where no additional material is relied upon by defendants in application for variation - where relevant monies are held by relevant defendant partly as agent for company - whether basis for further variation of freezing orders has been established - whether proposed variation accords with interests of justice.
• Legislation Cited: -Corporations Act 2001 (Cth) ss 180, 181, 182, 183, 237, 237(2), 237(2)(a), 237(2)(b), 237(2)(c), 237(2)(d), 237(2)(e)
• Cases Cited: - A v C (No 2) [1981] QB 961; [1981] 2 All ER 126; - Bird v McComb (No 3) [2011] FCA 697; - Break Fast Investments Ltd v Gravity Ventures Pty Ltd [2013] VSC 89; - Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976; (2008) 68 ACSR 132; - Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008) 245 ALR 780; - Chanel Ltd v FW Woolworth & Co [1981] 1 WLR 485; 1 All ER 745; - Cooper v Myrtace Consulting Pty Ltd [2014] FCA 480; - Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640; (2002) 42 ACSR 534; - Halifax Plc v Chandler [2001] EWCA Civ 1750; [2001] All ER (D) 177; - Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859; - MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 568; - MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367; - Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69; - PCW (Underwriting Agencies) Ltd v Dixon [1983] 2 All ER 158; - Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302; - Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611; - Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 64; - Re Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260; - Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432; - Re Mycorp Group Pty Ltd [2013] NSWSC 1344; - Szentessy v Woo Ran (Australia) Pty Ltd (No 2) (1985) 64 ACTR 105; 82 FLR 306; - Showtime Management Australia Pty Ltd v Showtime Presents Pty Ltd [2008] NSWSC 618; - South Johnstone Mill Ltd v Dennis [2007] FCA 1448; (2007) 163 FCR 343; - Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313; - Vereker v Choi (1985) 4 NSWLR 277; - Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293
• Texts Cited: - P Biscoe, Freezing and Search orders: Mareva and Anton Piller orders, (2nd ed 2008, LexisNexis Butterworths)
• Category: Interlocutory applications
• Parties: Australian Mortgage & Finance Company Pty Ltd as Trustee for the Melnikoff Family Trust (First Plaintiff); Lilya Melnikoff (Second Plaintiff/First Cross-Defendant); Steve Melnikoff (Third Plaintiff/Second Cross-Defendant); Rome Euro Windows Pty Ltd as trustee of the Rome Euro Windows Unit Trust (First Defendant/First Cross-Claimant); Iryna Rosinska (Second Defendant/Second Cross-Claimant); Yuri Rudi (Third Defendant/Third Cross-Claimant); IUR Australia Holdings Pty Ltd (Fourth Defendant); Rome Euro Windows & Doors Pty Ltd (Fifth Defendant); Kathrin Rudi (Sixth Defendant)
• Representation: Counsel: D Hogan-Doran (Plaintiffs); J Hyde (First to Fourth Defendants); Solicitors: Aitken Lawyers Pty Ltd (Plaintiffs); Mills Oakley Lawyers (First to Fourth Defendants)
• File Number(s): 2014/28291

Judgment

1 By Notice of Motion filed on 7 April 2014, the Plaintiffs, Mr Steven Melnikoff and Mrs Lilya Melnikoff, seek orders striking out a Defence filed by Rome Euro Windows Pty Ltd ("REW"), certain prayers and paragraphs of a Cross-Claim filed by several of the Defendants/Cross-Claimants, Ms Iryna Rosinska, Mr Yuri Rudi and IUR Australia Holdings Pty Ltd ("IUR"), setting aside two notices to produce and subpoenas issued at the request of the Defendants/Cross-Claimants and other relief. By an Amended Notice of Motion filed on 26 June 2014, Ms Rosinska and Mr Rudi in turn seek a range of orders, some of which it is not presently necessary to determine. Those orders relevantly include striking out parts of the Plaintiffs' Statement of Claim, leave to take certain steps under s 237 of the Corporations Act 2001 (Cth) and variation of freezing orders previously made in the proceedings.

2 By way of background to these motions, REW is trustee of the Rome Euro Windows Trust Unit Trust ("REW Unit Trust") and has operated a window and door manufacturing business since 2008. Ms Rosinska, Mr Rudi, and Mr and Mrs Melnikoff are the directors of REW. REW is the trustee of a unit trust, 10 units which are held by the Rudi Family Trust and 10 units which are held by the Melnikoff Family Trust (Rosinska 30.5.2014 [6]-[7]). The Plaintiffs' Statement of Claim filed on 11 February 2014 seeks a range of relief, including by claims sought to be brought as a derivative action by Mr and Mrs Melnikoff in the name of REW as against Ms Rosinska and Mr Rudi. By an Amended Cross-Claim, Ms Rosinska and Mr Rudi in turn allege, inter alia, that Mr and Mrs Melnikoff diverted business away from REW, failed to account for substantial monies due to REW under contracts with third parties and that a company associated with Mr and Mrs Melnikoff's son did not pay money owing to REW in respect of a variation claim for work done on a property development. A personal claim is also made by Ms Rosinska against Mrs Melnikoff in respect of a substantial loan.

Application by Ms Rosinska and Mr Rudi to strike out parts of Plaintiffs' Statement of Claim (Paragraph 1 of the Defendants/Cross-Claimants' Amended Notice of Motion)

3 It will be convenient to deal first with the Defendants/Cross-Claimants' Amended Notice of Motion and then with the Plaintiffs' Notice of Motion. By paragraph 1 of the Defendants/Cross-Claimants' Amended Notice of Motion, Ms Rosinska and Mr Rudi seek to strike out parts of the Plaintiffs' Statement of Claim that are claims made by or against REW in circumstances where no leave had been granted pursuant to s 237 of the Corporations Act to bring those claims. To the extent that any such claims are to be brought by Mr and Mrs Melnikoff in the name of REW, such leave would be required. Mr and Mrs Melnikoff have taken the view that they do not intend to press an application for leave under s 237 of the Corporations Act until such time as the other matters pleaded have been determined, in particular, their other claims for breach of trust. This position appears to assume some form of split or sequential hearing, as to which the Court has made no order. It does not seem to me that that course should be permitted, because the parties should not be put to the expense of dealing with interlocutory steps in respect of any derivative claims sought to be brought by Mr and Mrs Melnikoff on behalf of REW if leave for such a claim will ultimately not be granted. However, the determination of this strike out application should be deferred until Mr and Mrs Melnikoff have had the opportunity to bring any application for leave under s 237 of the Corporations Act and lead any evidence on which they rely in respect of the application, in accordance with directions I have now made in that regard.

Order under s 237 of the Corporations Act in respect of the proposed Amended Cross-Claim (Paragraph 3 of the Defendants/Cross-Claimants' Amended Notice of Motion)

4 It is convenient next to address (although it is the third order sought in the notice of motion) the application by Ms Rosinska and Mr Rudi for leave under s 237 of the Corporations Act to bring a proposed Amended Cross-Claim that makes, in paragraphs 1-64, claims on behalf of REW. The principles applicable to the grant of such leave are well-established and there was little controversy between the parties as to their content. In order to grant leave under s 237(2) of the Corporations Act, the Court must be satisfied of five matters and it must grant that leave if it is satisfied of those matters. Mr and Mrs Melnikoff rightly submit that leave under s 237 of the Corporations Act should not be granted if any of the criteria under s 237(2) are not satisfied: Maher v Honeysett & Maher Electrical Contractors [2005] NSWSC 859 at [12]-[13]; Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69 at [55]-[65] per Campbell JA (with whom Spigelman CJ and Allsop P agreed).

5 The first requirement for the grant of leave under s 237(2)(a) of the Corporations Act is that it is probable that the company will not bring the proceedings. Ms Rosinska and Mr Rudi submit that, because of the nature of the claims advanced, it is unlikely that Mr and Mrs Melnikoff would authorise REW to bring proceedings to recover the relevant funds. That requirement appears to be satisfied in this case because Ms Rosinska and Mr Rudi on the one hand, and Mr and Mrs Melnikoff on the other, are REW's four directors and are likely to be deadlocked in respect of any decision whether to bring the relevant proceedings against Mr and Mrs Melnikoff.

6 The second requirement for the grant of leave under s 237(2)(b) of the Corporations Act is that Ms Rosinska and Mr Rudi are acting in good faith and they must establish this matter to the Court's satisfaction: Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008) 245 ALR 780 at [69]; Showtime Management Australia Pty Ltd v Showtime Presents Pty Ltd [2008] NSWSC 618 at [77]. Relevant factors include whether they honestly believe that a cause of action exists and has reasonable prospects of success and whether they are seeking to bring the action for a collateral purpose. It is not essential that they say by sworn evidence that they believe that a good cause of action exists, since inferences can be drawn from the nature and circumstances of the case sought to be brought: Maher v Honeysett and Maher Electrical Contractors Pty Ltd above at [33].

7 Ms Rosinska and Mr Rudi submit that, where they are two of the four directors of REW and are the beneficial owners of 50% of the issued shares in REW, the second requirement that they are acting in good faith is satisfied. I accept that, subject to establishing the merit of their proposed claims, it is likely that Ms Rosinska and Mr Rudi could establish that they had a legitimate interest in the recovery of property by REW, such that they would be acting in good faith in seeking to bring the proposed claim. They are shareholders in REW and unitholders in the REW Unit Trust and a recovery of funds by REW would likely benefit the trust and Ms Rosinska and Mr Rudi as unitholders in it. Conversely, Mr and Mrs Melnikoff submit that no evidence has been adduced from Mr Rudi attesting to his belief that good causes of action exist and have reasonable prospects of success and that the evidence of Ms Rosinska as to that matter is inadequate. They submit that Mr Rudi and Ms Rosinska as shareholders of REW will not suffer a real or substantial injury if the action is not permitted, where REW is the corporate trustee of the REW Unit Trust. I do not accept that submission, in the sense that it seems to me that shareholders may well be acting in good faith in bringing proceedings in the name of a corporate trustee so as to recover loss suffered by the relevant trust, where such claims by the corporate trustee in its capacity as trustee is the only way in which the trust can recover for any loss which it may have suffered.

8 The third requirement for the grant of leave under s 237(2)(c) of the Corporations Act is that the grant of leave is in the best interests of REW. This test requires more than a prima facie indication that the proceedings may be or are likely to be in the interests of REW and the Court must be satisfied that the proposed proceedings actually are, on the balance of probabilities, in REW's best interests: Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [55]-[56]. Relevant matters include the prospects of success of the proceedings, their likely costs, the likely recovery if the proceedings are successful and the likely consequences if they are not: Maher v Honeysett and Maher Electrical Contractors Pty Ltd above at [44]. In Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 at [57], Ball J observed that:

"In considering what is in the best interests of the company, it is necessary to consider the prospects of success of the action, the likely costs and likely recovery if the action is successful and likely consequences if it is not. One relevant matter in considering these issues is the nature of any indemnity the applicant has offered to the company if the action is brought and the likelihood that the company will recover under that indemnity. It is also necessary to consider the resources the company will be required to devote to the action and the resources it has available, together with the effect that the action may have on other aspects of its business. Finally, it is necessary to consider whether some other remedy is available to the applicant so as to make the proposed action unnecessary from its point of view ..."

9 Ms Rosinska and Mr Rudi acknowledged in submissions that the decision in Swansson v Pratt above required that the Court be satisfied that the proposed action actually was, on the balance of probabilities, in REW's best interests. They submitted that:

"In the present proposed proceeding, there is a significant amount of money that ought to be recoverable and given the amount outstanding, it can sensibly be said that in the event those funds were recovered, such recovery would plainly be of benefit to REW."

While that proposition may be true, so far as it goes, further attention needs to be given to the question whether such funds are likely to be recovered in respect of the particular claims. I am not satisfied of this matter in respect of key aspects of the proposed Amended Cross-Claim, as presently pleaded, for reasons that I will now explain.

10 The fourth requirement for the grant of leave, under s 237(2)(d) of the Corporations Act, is whether there is a serious question to be tried in the proceedings. Whether there is a serious question to be tried requires the application of the same test as applied by the Court in determining whether to grant an interlocutory injunction: Swansson v RA Pratt Properties Pty Ltd above at [25]; Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640; (2002) 42 ACSR 534 at [32]ff; South Johnstone Mill Ltd v Dennis [2007] FCA 1448; (2007) 163 FCR 343 at [78]; Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 at [140], upheld on appeal in MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367; Re Gladstone Pacific Nickel Ltd above at [56]. Ms Rosinska and Mr Rudi referred in submissions to the observations of Ball J in Re Gladstone Pacific Nickel Ltd above at [56] in respect of the test for whether there is a serious question to be tried and submitted that there was a serious question to be tried and a failure to grant leave would lead to substantial funds not being recovered by REW.

11 The proposed Amended Cross-Claim pleads that Ms Rosinska, Mr Rudi and Mr and Mrs Melnikoff were directors of REW and the primary business of that company was the manufacture of windows and doors for residential developments. The Amended Cross-Claim pleads that Mr and Mrs Melnikoff were at all times under a "fiduciary obligation" to exercise their powers and discharge their duties in a manner corresponding to the statutory duties imposed under ss 180-183 of the Corporations Act. It is open to question whether the pleaded statutory duties can properly be described in that manner, but it is not necessary to resolve that question for the purposes of this application. The proposed Amended Cross-Claim pleads that Ms Rosinska and Mr Rudi were responsible for the daily operation of REW, Mrs Melnikoff was responsible for sourcing contracts on behalf of REW and Mr Melnikoff was responsible for maintaining its books and records.

12 The proposed Amended Cross-Claim seeks, first, a declaration that Mr and Mrs Melnikoff, as directors of REW, failed to account for the sum of $1,174,362.50 in relation to a contract entered into between Karimbla Construction Services Pty Ltd ("Karimbla") and REW in or about September 2008 and a contract entered into between Karimbla and REW on or about 29 July 2009.

13 The facts pleaded to support this claim are that, in about September or October 2008, Mrs Melnikoff procured a contract for work to be carried out for Meriton Apartments Pty Ltd ("Meriton") by REW in a project at St Ives, and it was agreed between REW and Meriton that REW would enter into a contract with Karimbla which was a related entity of Meriton. The proposed Amended Cross-Claim pleads that the contract sum for that contract was $520,000 inclusive of GST and that, following completion of work under that contract, REW received an amount of $326,997 inclusive of GST for work carried out under that contract. The proposed Amended Cross-Claim then pleads that:

"25. To date Lilya Melnikoff and Steven Melnikoff have failed to account for the sum of $193,003 which comprises the balance of money paid by Karimbla under the St Ives contract.

26. By reason of the failure to account for the sum of $193,003 Lilya Melnikoff and Steven Melnikoff have:

26.1 Failed to discharge their duties in good faith in the best interests of REW;

26.2 Breached the duties owed to REW as directors in that they have used their position to gain an advantage for themselves;

26.3 Made a secret profit for their own personal benefit and to the detriment of REW; and

26.4 Concealed information from REW concerning the amount of money paid for the work carried out at the St Ives contract."

14 Ms Rosinska does not address the claims against Mr and Mrs Melnikoff in respect of the St Ives project in her affidavit affirmed 30 May 2014. In a further affidavit dated 24 June 2014, Ms Rosinska does not further elaborate on the basis of the claim against Mr and Mrs Melnikoff in respect of the St Ives project, other than to state that the documents that are available to her at that time had been produced under notice to produce and that:

"I respectfully submit that there is a good cause of action against Mr and Mrs Melnikoff in relation to their failure to account for monies rightfully owing to REW for work it carried out." (Rosinska 24.06.2014 [4])

That statement leaves open the question whether it is alleged that Mr and Mrs Melnikoff have in fact received the monies said to be owing to REW, or whether the underlying claim is that the contracting party has failed to pay that amount.

15 There seems to me to be a fundamental difficulty with this pleading and Ms Rosinska's supporting evidence. The reference to "the balance of money paid to Karimbla under the St Ives contract" in paragraph 25 of the proposed Amended Cross-Claim appears to assume that Karimbla paid the balance of that money, and paragraph 26 appears to assume that Mr and Mrs Melnikoff have received the balance of that money so as to fail to account for it. However, neither of those facts is specifically pleaded. None of the evidence to which my attention has been drawn in the course of this application provides any basis for an allegation that Karimbla in fact paid the balance of the money, as distinct from, for example, failing to do so either because the contract price was revised or because it did not comply with its contractual obligations. No facts, matters or circumstances are pleaded to indicate either any involvement of Mr and Mrs Melnikoff in any failure by Karimbla to pay that amount, nor is it squarely pleaded that Mr and Mrs Melnikoff received that amount. It does not seem to me that this omission is merely a lack of precision in the pleading, because it was squarely raised in Mr and Mrs Melnikoffs' submissions in opposition to the grant of leave and Ms Rosinska and Mr Rudi made no attempt to address it. It does not seem to me that it could be in the best interests of REW to bring that claim as presently pleaded, where it seems to me that it would be struck out on an application by Mr and Mrs Melnikoff by reason of the failure to plead the material facts necessary to such a claim.

16 The proposed Amended Cross-Claim seeks, second, a declaration that Mr and Mrs Melnikoff hold a further sum received by them for work performed by REW on behalf of Meriton, or a related entity of it, on trust for REW. An order is also sought that Mr and Mrs Melnikoff pay that amount into REW's bank account. The matters that support this relief are pleaded in paragraphs 28-46 of the proposed Amended Cross-Claim which deal with a contract defined as the "Pymble contract". Ms Rosinska also does not address the claims against Mr and Mrs Melnikoff in respect of the Pymble project in her affidavit affirmed 30 May 2014. In her further affidavit dated 24 June 2014, Ms Rosinska also does not further elaborate on the basis of the claim against Mr and Mrs Melnikoff in respect of the Pymble project, other than to make the statement to which I referred in paragraph 14 above, which leaves open the question whether it is alleged that Mr and Mrs Melnikoff received the monies said to be owing to REW, or whether the underlying claim is that the other contracting party has failed to pay that amount to REW.

17 Paragraphs 28-32 of the proposed Amended Cross-Claim plead an arrangement involving three stages of work for a contract sum of $1,675,000. Paragraph 35 pleads that Karimbla authorised payment to REW in the sum of $979,400 in respect of the first stage of the work but REW only received the sum of approximately $497,676 and that Mr and Mrs Melnikoff "have failed to account for the sum of $481,723.23". Paragraph 39 pleads that, by reason of that failure, Mr and Mrs Melnikoff have failed to discharge their duties in good faith in the best interests of REW, breached their duties as directors in that they have used their position to gain an advantage for themselves, made a secret profit for their personal benefit and to the detriment of REW and concealed information from REW concerning the amount of money paid for the work carried out under the Pymble contract.

18 The unpleaded premise of this allegation appears to be that Karimbla had in fact paid more than the sum of $497,676 since, if that is not the case, it is impossible to see how Mr and Mrs Melnikoff could have failed to account to REW for monies that Karimbla had not paid. However, that is not pleaded; to the contrary, the matters that are pleaded are consistent with the possibility that Karimbla ultimately paid less than the amount which it had originally authorised for payment. It again seems to me that the pleading, in its present form, would be struck out, because an essential aspect of the alleged breach of duty is that Karimbla in fact paid an amount for which Mr and Mrs Melnikoff have not accounted to REW, and that essential aspect of the breach is not pleaded. In these circumstances, it does not seem to me that it would be in the best interests of REW to grant leave to bring that claim.

19 Paragraphs 41-46 of the proposed Amended Cross-Claim then plead that Karimbla authorised REW to commence work for the second and third stages in March 2010; that REW did not perform that work and that, on or about March 2010, Mrs Melnikoff caused the second and third stage of work which REW was to perform to be directed to a third party. The facts, matters and circumstances that are relied upon to make that allegation are not further identified, whether by pleading them or by evidence in this application. In these circumstances, I cannot be satisfied that the bringing of that claim is in REW's best interests. Unless the unpleaded facts supporting that allegation can be established, there would be no basis for the allegation of breach of director's duties against Mrs Melnikoff in paragraph 45 of the proposed Amended Cross-Claim. Even if those facts could be established, there is no apparent basis for the allegation of breach of director's duties against Mr Melnikoff, where all that is pleaded is that Mrs Melnikoff (as distinct from Mr Melnikoff) acted in the alleged manner.

20 Paragraphs 47-64 of the proposed Amended Cross-Claim relate to a contract between REW and Luxcon Group, which is a property development company controlled by the son of Mr and Mrs Melnikoff. It is alleged that Mr and Mrs Melnikoff were directors and shareholders in that company some 4½ years prior to the relevant events, although the relevance of that fact to any claim against Luxcon Group is unclear. It is pleaded that Mrs Melnikoff negotiated a contract on behalf of Luxcon Group with REW in December 2012 which was entered at that time, for an initial contract sum of $921,750 plus GST; that variation work was undertaken in the course of the contract in the amount of $202,664; and that Luxcon Group has failed to pay REW for the variation work. By her affidavit affirmed 30 May 2014, Ms Rosinska refers to variations on the project undertaken for Luxcon in the amount of $200,000, but does not identify the terms of any contract with Luxcon Group, the work done to generate the variations or the basis on which those variations were chargeable by REW to Luxcon Group.

21 It is also necessary to address the question of an adequate indemnity to be given by Ms Rosinska and Mr Rudi in favour of REW in respect of the costs which it would incur in conducting the proposed Amended Cross-Claim and the costs to which it would be exposed if the proposed Amended Cross-Claim was unsuccessful, which is relevant to whether the grant of leave is in REW's best interests. The case law emphasises the importance of such an indemnity as a means of addressing the risk of prejudice to a company from the commencement of proceedings, should they ultimately prove to be unsuccessful, and the risk of exposure to costs and expenses of litigation including costs orders. In Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302 at [108], Austin J observed that:

"One of the issues for the court to consider is whether the company would be prejudiced by being exposed to the costs and expenses of litigation and the risk of an adverse costs order. That problem is often addressed by the court making a conditional order, by which the granting of leave is conditional upon the applicant undertaking to the court to pay and bear and indemnify the company against all costs, charges and expenses of and incidental to the bringing and continuation of the derivative claims for which leave is granted: see, for example, Gerard Cassegrain & Co Pty Ltd v Cassegrain [2010] NSWSC 91. In my opinion, such a condition is appropriate here, because the bringing of derivative claims is an aspect of the overall dispute between the plaintiff and Mr Ekstein, and therefore the plaintiff, rather than Companies in which she has only a minority interest, should be required to bear the costs of the litigation, including any adverse costs order that might be made if the claims are unsuccessful."

The importance of such an indemnity has also been recognised in Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976; (2008) 68 ACSR 132 at [73]-[76]; MG Corrosion Consultants Pty Ltd above at [64]; Re Mycorp Group Pty Ltd [2013] NSWSC 1344 at [13]; Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 64 at [10]; Re Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260 at [31] and Cooper v Myrtace Consulting Pty Ltd [2014] FCA 480 at [29], where Davies J observed that:

"Another of the issues for the Court to consider in determining whether the proposed action is in the best interests of the company is whether the company would be prejudiced by being exposed to the costs and expenses of litigation and the risk of an adverse costs order. The grant of leave has often been made conditional upon the applicant for leave indemnifying the company for its costs of the proceeding and any adverse costs order against the company arising out of the proceeding. The case law emphasises the importance of such an indemnity as a means of addressing the risk of prejudice to the company from the commencement of the proceedings..."

Ms Rosinska and Mr Rudi indicated in submissions that they are prepared to give such an indemnity.

22 The fifth requirement for the grant of leave is that, at least 14 days before making the application, Ms Rosinska and Mr Rudi gave written notice to the company of her intention to apply for leave and the reasons for applying or, alternatively, if it is appropriate to grant leave although that provision is not satisfied. Ms Rosinska and Mr Rudi rely on written notice given to Mr and Mrs Melnikoff of their intention to apply for leave and the reasons for the application prior to bringing this application.

23 I should add, for completeness, that Mr and Mrs Melnikoff took a further point in submissions dated 25 June 2014 as to delay in service of the proposed Amended Cross-Claim, by reference to orders previously made by the Court for service of evidence in chief. No prejudice has been identified by reason of any such delay and I do not consider that the matters referred to provide any reason not to determine the application for leave to amend the Cross-Claim and for leave to bring a derivative action on its merits, although I am not satisfied for the other reasons noted above that such leave should be granted.

Alternative claim for leave to bring proceedings against Luxcon Group (Paragraph 4 of the Defendants/Cross-Claimants' Amended Notice of Motion)

24 Ms Rosinska and Mr Rudi alternatively seek leave to bring proceedings on behalf of REW to recover outstanding payments owing to REW by Luxcon Group in respect of a project situated at North Sydney, New South Wales. That order is in the alternative to the order sought under s 237 of the Corporations Act to permit the claim against Luxcon Group to be brought in the Cross-Claim in the proceedings. I have held above that such leave should not be granted for that claim to be brought as a Cross-Claim in these proceedings, because there is no obvious connection between the claims brought between the parties in these proceedings and the claim proposed to be brought against Luxcon Group. It also does not seem to me that I should grant leave for such a claim to be brought in separate proceedings, until a pleading is prepared identifying the nature of the claim in those other proceedings. Any application for leave to bring the claim as a separate claim may properly be brought at the time the claim is formulated in that manner.

Application by Ms Rosinska and Mr Rudi for leave to defend the proceedings (Paragraph 2 of the Defendants/Cross-Claimants' Amended Notice of Motion)

25 Ms Rosinska and Mr Rudi also seek leave under s 237 of the Corporations Act to defend the proceedings brought by Mr and Mrs Melnikoff against REW on its behalf. The application for leave to defend the proceedings follows Mr and Mrs Melnikoff's application to strike out or set aside a Defence filed by REW in the proceedings, the instructions for which appear to have been given by Mr Rudi and Ms Rosinska. The Plaintiffs accept that no order should be made on their motion to strike out REW's Defence or restrain the use of REW's assets to pay its legal costs of preparing its Defence, if leave is granted in accordance with paragraphs 2 and 3 of the Defendants/Cross-Claimants' motion. The Plaintiffs press the orders sought in their motion if such leave is not granted.

26 The case law establishes that leave can be granted under s 237 of the Corporations Act not only for the commencement of proceedings, but also for their defence: Maher v Honeysett above at [16]. The first requirement for the grant of leave to defend proceedings, under s 237(2)(a) of the Corporations Act, is that it is probable that the company will not, relevantly, defend the proceedings. That requirement appears to be satisfied in this case because Ms Rosinska and Mr Rudi on the one hand and Mr and Mrs Melnikoff on the other are REW's four directors and are likely to be deadlocked in respect of any decision whether to defend proceedings brought by Mr and Mrs Melnikoff against REW.

27 The second requirement for the grant of leave under s 237(2)(b) of the Corporations Act is that Ms Rosinska and Mr Rudi are acting in good faith in respect of the defence of the proceedings and they must establish this matter to the Court's satisfaction. I have referred to the authorities at paragraph 6 above that establish that test, in dealing with the corresponding application for leave to bring the proposed Amended Cross-Claim in the name of REW. Relevant factors include whether Ms Rosinska and Mr Rudi honestly believe that a proper basis to defend the proceedings exists and has reasonable prospects of success and whether they are seeking to defend the proceedings for a collateral purpose. It is not essential that they say by sworn evidence that they believe that a good defence exists, since inferences can be drawn from the nature and circumstances of the case sought to be brought: Maher v Honeysett and Maher Electrical Contractors Pty Ltd above at [33]. The third requirement for the grant of leave under s 237(2)(c) of the Corporations Act is that the grant of leave is in the best interests of REW. The fourth requirement for the grant of leave under s 237(2)(d) of the Corporations Act is whether the defence is seriously arguable. It will be convenient to address these requirements together.

28 Mr and Mrs Melnikoff contend that Ms Rosinska and Mr Rudi cannot satisfy the requirement for good faith and that REW's defence of the proceedings is not in its best interests. They contend that Ms Rosinska caused REW to take the relevant steps without the authority or consent of Mr and Mrs Melnikoff and caused REW to incur a liability for legal costs at a time when its right for indemnity from trust assets was under challenge and depended upon whether or not it had breached its duty as alleged, and they contend that the defence makes admissions adverse to REW's interests by pleading to claims made against Defendants other than REW, for example in paragraphs 29, 38-43, 74 and 86. Mr and Mrs Melnikoff submit that a more appropriate approach would be for REW to make a submitting appearance, where each of the directors, shareholders and unitholders are parties to and in contest in the proceedings.

29 There is no suggestion in this case that a proper defence to the claims might not exist. Ms Rosinska and Mr Rudi are not only directors of REW but also the beneficial owners of 50% of the issued shares in REW and unitholders in the REW Unit Trust and they would benefit from the defence of the proceedings in those capacities. There seems to be no reason to consider that the defence, as a whole, is undertaken for any collateral purpose although there is real force in the criticism made by Mr and Mrs Melnikoff that it was not necessary or appropriate for REW to take a position in its defence as to matters alleged by Mr and Mrs Melnikoff against Ms Rosinska and Mr Rudi rather than against REW. However, that matter seems to me ultimately to be of little significance, where the same defences are raised by Ms Rosinska and Mr Rudi and REW's adopting them will ultimately have no impact on the outcome of the proceedings against it or them. The second requirement that Ms Rosinska and Mr Rudi are acting in good faith in seeking to defend the proceedings brought by Mr and Mrs Melnikoff against REW seems to me to be satisfied.

30 It seems to me that the third requirement, that the grant of leave to defend the proceedings brought by Mr and Mrs Melnikoff (with a qualification noted below) is in REW's best interests, is satisfied where REW would otherwise be exposed to the risk of a default judgment against it in the absence of a defence. It seems to me that, having regard to the pleadings and the detailed affidavit evidence led by Ms Rosinska, the defence that Ms Rosinska and Mr Rudi seek to maintain on behalf of REW is arguable and the fourth requirement for the grant of leave is therefore satisfied.

31 The fifth requirement for the grant of leave is that, at least 14 days before making the application, Ms Rosinska and Mr Rudi gave written notice to the company of her intention to apply for leave and the reasons for applying or, alternatively, if it is appropriate to grant leave although that provision is not satisfied. It seems to me appropriate to grant such leave, to the extent it may be required, where the parties have addressed the relevant issues in submissions.

32 It seems to me that the leave sought by Ms Rosinska and Mr Rudi to defend the proceedings on behalf of REW should be granted nunc pro tunc, but should be limited to the filing of a Defence, where the claim against REW could otherwise be determined by the default in doing so. That leave should not extend to any further step in filing evidence or taking any further step in the proceedings on behalf of REW, where any such evidence can be filed by Ms Rosinska and Mr Rudi and such steps can be taken in their own right. Ms Rosinska and Mr Rudi should also not be granted leave to defend the claims which they seek to bring against REW in respect of outstanding superannuation entitlements, since their personal interests and REW's interests are plainly in conflict in that regard. It will be a matter for Mr and Mrs Melnikoff to take such steps as they may be advised to seek leave to defend those claims if they wish to do so.

Application for leave in the NCAT proceedings (Paragraphs 5-6 of the Defendants'/Cross Claimants' Amended Notice of Motion)

33 An order is also sought under s 237 of the Corporations Act that Ms Rosinska and Mr Rudi have leave to defend proceedings on behalf of REW brought by a third party in the New South Wales Civil and Administrative Tribunal ("NCAT"). An order is also sought varying order 3 of orders made by the Court on 29 January 2014, as further varied by orders made by the Court on 31 January 2014, to permit Ms Rosinska and Mr Rudi to pay REW's legal fees incurred in the defence of the NCAT proceedings from specified bank accounts.

34 Ms Rosinska gives evidence as to the matters giving rise to the NCAT proceedings, which relate to the installation of windows and doors at a residential house at Avalon, work at which commenced in December 2012 and was completed in January 2013. The owners of the property have complained about the quality of the windows and doors and REW sought to rectify the works that are said to be defective in March 2013. Approximately $9,200 remains unpaid under that contract. An application was lodged in early December 2013 by one of the owners of the property with the Consumer, Trader and Tenancy Tribunal claiming $85,000 for the cost of removing and replacing the allegedly defective windows and doors. Ms Rosinska's evidence is that Mr and Mrs Melnikoff have not agreed to Mr Rudi and Ms Rosinska representing REW to defend it in the proceedings or offered to take on the defence themselves, exposing REW to the risk of a judgment for $85,000 plus costs in those proceedings.

35 Ms Rosinska and Mr Rudi seek leave to defend the NCAT proceedings on the basis that REW is presently at risk of judgment being entered because it cannot defend the claim. Mr and Mrs Melnikoff contend that they have put legitimate questions and sought relevant information from Ms Rosinska and Mr Rudi in respect of the NCAT proceedings and any leave granted should be on certain conditions proposed by Mr and Mrs Melnikoff in correspondence. It seems to me that leave should be granted to Ms Rosinska and Mr Rudi to conduct that defence so the proceedings are not determined against REW by default. In oral submissions, Ms Hogan-Doran, who appeared for Mr and Mrs Melnikoff, submitted that leave to defend the NCAT proceedings should be granted on condition that they, being continuing directors, are provided with copies of relevant material in a timely manner and are consulted in respect of the making of any offers of compromise and are provided with access to any relevant advice in that regard, on their undertaking that they would not unreasonably withhold consent to any such offer of compromise or compromise. It seems to me that such a condition is appropriate, although it will be necessary for the parties to formulate it in more precise terms than it was put in submissions.

Variation of freezing orders (Paragraph 7 of the Defendants'/Cross-Claimants' Amended Notice of Motion)

36 By paragraph 7 of their Amended Notice of Motion, Ms Rosinka, Mr Rudi and IUR initially sought an order varying freezing orders made by the Court on 29 January 2014, and a further order made on 31 January 2014, so as to preserve an amount in the sum of no more than $542,000 and otherwise permit Ms Rosinska, Mr Rudi or IUR to deal with the residue of assets remaining to IUR. The form of variation sought by Ms Rosinska, Mr Rudi and IUR was altered somewhat in the course of submissions, as I will note below.

37 By way of background, on 29 January 2014, Sackar J made orders on an ex parte basis freezing specified bank accounts of IUR, by reference to affidavits of Mr and Mrs Melnikoff each dated 28 and 29 January 2014. Those orders were varied by consent on 31 January 2014 to permit Ms Rosinka, Mr Rudi and IUR to pay rent and wages in respect of REW, Ms Rosinska's, Mr Rudi's and IUR's reasonable legal expenses and IUR's business expenses bona fide and properly incurred, with agreed limitations. On 6 May 2014, the orders made on 29 January 2014 and 31 January 2014 were further varied on the application of Ms Rosinska, Mr Rudi and IUR to permit the transfer of an amount held by IUR on fixed deposit to another account in the name of IUR, so that it could be accessed subject to the terms of the existing orders.

38 The question whether the freezing order should be varied should be determined by reference to the principles that support such an order and the relevant circumstances. In PCW (Underwriting Agencies) Ltd v Dixon [1983] 2 All ER 158 at 162, Lloyd J noted that:

"The purpose of the [freezing order] jurisdiction is not to secure priority for the plaintiff; ... the sole purpose or justification for the Mareva order is to prevent the plaintiffs being cheated out of the proceeds of their action, should it be successful, by the defendant either transferring his assets abroad or dissipating his assets within the jurisdiction."

39 In Break Fast Investments Ltd v Gravity Ventures Pty Ltd [2013] VSC 89 at [40]-[42], Vickery J similarly observed that:

"The jurisdiction to grant a freezing order is not exercisable simply to preclude a party from dealing with his or her assets, or to prevent a person using assets to pay debts in the ordinary course of business, or to meet ordinary living expenses. ...

A freezing order is directed to other dispositions, which are intended to frustrate or have the necessary effect of frustrating a plaintiff in its attempt to seek a remedy at law. It is a tool to be used to advance the interests of justice. The ultimate question on such applications is whether, in all the circumstances, it is just and convenient to make such an order.

At the same time, it is recognised that making of a freezing order is a drastic remedy, which should not be lightly granted. Further, it needs to be recognised that a freezing order is not a means of providing security for a plaintiff's claim and does not confer on the plaintiff an interest in the assets, the subject of the injunction."

40 I summarised the relevant principles in Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611 at [4] as follows:

"The balance of authority indicates that the Court may make a freezing order if it could have made an order appointing a receiver of property of a relevant person, although such an order is usually be made under s 1323 rather than under s 1324 of the Corporations Act: Re Richstar Enterprises Pty Ltd; Australian Securities and Investments Commission v Carey (No 3) [2006] FCA 433; (2006) 232 ALR 577; (2006) 57 ACSR 307; Australian Securities and Investments Commission v Krecichwost [2007] NSWSC 948; (2007) 213 FLR 314; (2007) 64 ACSR 411; Australian Securities and Investments Commission v Sigalla [2009] NSWSC 1205; (2009) 74 ACSR 710 at [15]. UCPR r 25.11 also allows a freezing order to be made where the Plaintiffs have a good arguable case and, having regard to all the circumstances, there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied, for example, because the assets of the judgment debtor, prospective judgment debtor or another person are disposed of, dealt with or diminished in value. In Patterson v BTR Engineering Australia Ltd (1989) 18 NSWLR 319 at 321-322 Gleeson CJ observed that:

'The remedy [of a freezing order] is discretionary but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that, by reason of the defendant's absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied'."

41 The Court has jurisdiction to vary or qualify a freezing order where a defendant satisfies the Court that the assets subject to the order are required for a purpose that does not conflict with the policy underlying that order: A v C (No 2) [1981] QB 961; [1981] 2 All ER 126; Szentessy v Woo Ran (Australia) Pty Ltd (No 2) (1985) 64 ACTR 105 at 108; 82 FLR 306. In Break Fast Investments Pty Ltd v Gravity Ventures Pty Ltd above, Vickery J observed (at [43]) that a freezing order may be varied on a defendant's application but any such variation must not, in the ordinary course, conflict with the purpose for which the order was made in the first place and must accord with the interests of justice.

42 However, the general position is that, where a point was open to an applicant on an earlier interlocutory application and not taken, then it is not open to the applicant to take that point in a later application where there has been no material change in circumstances and no new facts are raised: Chanel Ltd v FW Woolworth & Co [1981] 1 WLR 485; 1 All ER 745; P Biscoe, Freezing and Search Orders: Mareva and Anton Piller Orders, (2nd ed 2008, LexisNexis Butterworths) at [6.168]. That principle was applied, in the specific context of successive applications for variations of a freezing order, in Halifax Plc v Chandler [2001] EWCA Civ 1750; [2001] All ER (D) 177, where the Court of Appeal agreed with the view expressed by a primary judge that a second application to vary a freezing order, brought shortly after an earlier successful application, was an abuse of process. In Bird v McComb (No 3) [2011] FCA 697 at [28], Collier J summarised the broader principles applicable to the discharge of an interlocutory injunctive restraint previously placed on conduct of a party by a judge of a Court who had the opportunity to properly consider relevant material, and noted that the Court can discharge or vary such orders, but such a step requires careful consideration. In MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 568 at [14], Barker J observed that:

"So far as the Court's power to vary a freezing order is concerned, there can be little doubt about it. Similarly, it is also clear that having made a freezing order a court should not be quick to reverse it save for good reason and the dictates of justice. ... Ultimately, the grant or discharge or variation of an interlocutory injunction, including a freezing order will be dictated by what justice demands in the particular circumstances of the case."

43 These principles have particular application in this case, where Ms Rosinska, Mr Rudi and IUR previously brought a successful application to vary the freezing order on 6 May 2014, and the evidence on which they now rely in support of the application to vary the freezing order does not appear to raise any matter additional to that which had been relied on in support of the earlier successful application to vary the freezing order.

44 The freezing orders previously made by the Court and continued by consent should be assessed in the context of the claims advanced by the Plaintiffs. By their Statement of Claim, Mr and Mrs Melnikoff contend that they loaned the amount of approximately $737,610 to REW to purchase new plant and equipment for use in the relevant business and that REW breached its duties as trustee of the REW Unit Trust in paying that sum into a bank account belonging to IUR and that that amount is held on trust for them. Claims are also made that REW acted in breach of trust and/or duty to the First Plaintiff in transferring amounts totalling $542,000 to IUR in August and December 2013 and that Ms Rosinska, Mr Rudi and IUR knowingly assisted in or procured the relevant breaches of trust or duty. Paragraph 78 and following of the Statement of Claim in turn plead the receipt of amounts totalling $800,000 in respect of an insurance claim in August and December 2013; that those amounts were assets of the business and of the REW Unit Trust; that amounts totalling $542,000 from those funds were transferred to IUR in August and December 2013 and that those funds are held by IUR as agent for REW or that the transfer of those funds constituted a breach by REW of its duties as trustee.

45 Paragraph 83 of the Defence filed by REW in turn admits, albeit somewhat cryptically, the allegation that those monies were held by IUR as agent for REW "to the extent that the insurance payment was an asset of [REW]" and pleads, without further particularisation or identification of material facts, that the funds were applied to the acquisition or replacement of plant and machinery following water damage at the factory. Paragraph 85 of IUR's Defence in turn pleads that IUR:

"Admits paragraph 85 (ie that those funds were held as agent for REW) to the extent that the insurance payment was an asset of [REW] but otherwise denies the paragraph and says further that those funds were applied towards:

85.1 The acquisition of replacement plant and machinery following water damage to [REW's] plant and equipment;

85.2 Day-to-day running costs of [REW's] business operations; and

85.3 Liabilities of [REW]."

In closing submissions, Mr Hyde who appeared for Ms Rosinska, Mr Rudi and IUR accepted that IUR had received $542,000 by way of a payout from an insurance claim in relation to damage to machinery at the factory (3.7.2014, T6).

46 Ms Rosinska, Mr Rudi and IUR rely on Ms Rosinska's affidavit affirmed 30 May 2014 and on documents that they produced in response to a notice to produce issued by the Plaintiffs to establish the assets available to meet the claim against them. Ms Rosinska's evidence is that IUR owns real property situated in Bellevue Hill, New South Wales, purchased in April 2013 for an amount of $2,550,000, and subject to a mortgage to National Australia Bank in the amount of approximately $2,009,500 (Rosinska 30.5.2014 [56]-[59]) and also holds funds in a term deposit in the amount of approximately $155,600. There is evidence that IUR holds 725 of 1,000 shares in the Bellevue Hill property in common with Ms Rosinska and Mr Rudi, who indicated they did not oppose their portion of that property also being the subject of a freezing order in connection with the variation of the freezing orders that they seek. Ms Rosinska and Mr Rudi rely on a valuation of the property in the amount of $2,500,000 undertaken by a valuer on 17 April 2014. Taking that evidence at its highest, the current equity of Ms Rosinska, Mr Rudi and IUR in that property would be $490,469. Ms Rosinska's evidence is that she and Mr Rudi own two motor vehicles that Ms Rosinska says have an approximate value of $140,000 (Rosinska 30.5.2014 [58]), although her evidence as to that matter does not indicate the basis of that opinion and there is no independent evidence as to the value of those motor vehicles. Ms Rosinska also refers to loans on those vehicles in the amount of around $30,000, as to which there is also no independent evidence (Rosinska 30.05.2014 [59]).

47 The documents produced on notice to produce also indicated that other monies were held in bank accounts at various dates. A bank statement issued by ANZ Bank dated 23 May 2014 shows an amount of $453,357.10 held in the name of IUR. That amount of appears to be the residue of the insurance proceeds received by IUR, which (as I noted above) REW and IUR admit are held by IUR (at least in part) as agent for REW. Orders were made for the preservation on that amount on 31 January 2014. A document issued by National Australia Bank Limited refers to a term deposit in the sum of $127,500 lodged on 23 September 2013 and expiring 23 March 2014, several months prior to the hearing of this application. A document also shows funds held at St George Bank in the amount of $42,248.69 as at 11 June 2014. Taking Ms Rosinska's evidence at its highest, the value of assets covered by the freezing order is in the order of $3,263,105, as to which there are associated liabilities of approximately $2,039,531 and the assets net of liabilities are approximately $1,223,574.13.

48 Ms Rosinska's evidence is that, despite the orders made on 31 January 2014 and the subsequent variation of those orders, neither IUR, Mr Rudi nor herself have been able to pay reasonable legal expenses or all of IUR's proper business expenses. She refers to correspondence with IUR's bank in that regard, but that correspondence all predates the variation to the freezing orders made on 6 May 2014 to facilitate access to the term deposit, subject to the terms of the orders, and does not establish any difficulty arising since that variation. Ms Rosinska states in her affidavit that IUR has been unable to make payments from one of its bank accounts without first seeking approval from the bank, is incurring transaction fees for each transaction, and that the bank is not agreeing to pay some of the legal fees incurred and the operating expenses of the business. However, the account referred to is the fixed deposit account, and the monies held in that account were permitted to be transferred out of it by the orders made by the Court on 6 May 2014. Ms Rosinska was not available for cross-examination in respect of that affidavit, because it was suggested she was unwell. No medical evidence was led to support that suggestion.

49 In their opening submissions, Ms Rosinska, Mr Rudi and IUR submitted that:

"The freezing order should preserve no more than $547,000. The order was made on the basis that this was money that rightfully belonged to REW arising from an insurance claim for damage caused to the manufacturing plant.

IUR had always been used as the vehicle to acquire the plant and equipment for REW's manufacturing operations and the sum of $547,000 was to be used to acquire a new machine."

I understand the reference to $547,000 in that submission to be intended to refer to the amount of $542,000 pleaded in the Plaintiffs' Statement of Claim as the proceeds of the insurance claim that are alleged to be REW's property. Mr Hyde also raised the possibility of a somewhat different order in oral submissions, that only the amount remaining from the insurance proceeds of $450,000 should be preserved but any residue beyond that should not be the subject of the freezing order (T58). In oral submissions, Mr Hyde also raised a further alternative position that the Bellevue Hill property in which there was $500,000 of equity ought to be the subject of a freezing order and any residue of monies ought to be made available to IUR for its use in the running of its business, but on the basis that the $450,000 in cash which was the subject of the initial freezing order should also be preserved (T58).

50 Mr Hyde then advanced the position that there is sufficient equity in the Bellevue Hill property to support a freezing order, namely $460,469, and that should be the full extent of property subject to the freezing order. It seems to me that a freezing order made that was limited to the Bellevue Hill property, where there is a substantial mortgage on that property, would expose the Plaintiffs to the risk both that the amount that is the subject of that order may be inadequate, if the valuation of that property ultimately proves overoptimistic, or if there is a subsequent deterioration in the property market or difficulties in any subsequent attempt to realise that particular property, including if the property were sold for a lesser amount in a mortgagee sale in the event of default. I can also see no reason why the freezing order should be varied in a manner that would enable IUR to expend monies that it admits it holds as agent for REW (at least in part) for its personal purposes, or the personal purposes of Ms Rosinska or Mr Rudi, by limiting the freezing order to exclude those monies. When the matter was listed for brief further oral submissions, Mr Hyde was instructed to contend, in the further alternative to or instead of the earlier submissions, that no freezing order should be made, although he properly accepted that no earlier submission had been put to that effect. I do not accept that submission, so far as it would permit Ms Rosinska, Mr Rudi and IUR to expend monies that REW and IUR concede (as noted above) are held by IUR (at least in part) as agent for REW for their own purposes.

51 Mr and Mrs Melnikoff seek to support a freezing order, not only to preserve the amount of $542,000 received by way of insurance proceeds, but in respect of an amount initially contributed by Mr and Mrs Melnikoff to establishing the relevant business, which they quantify as $737,000, and which Ms Rosinska quantifies as $730,000. The claim in respect of that amount is put on the basis that that amount was loaned to REW for a purpose of being provided to IUR to acquire plant and equipment for the purposes of the business, and that has not occurred, or has occurred only in part. Ms Rosinska, Mr Rudi and IUR respond that the amount of $730,000 was by way of capital contribution to acquire the manufacturing plant for the relevant business, and contest the characterisation of that amount as a loan for a particular purpose. A further claim is made by Mr and Mrs Melnikoff in respect of an allegation that payments made by customers of REW were directed to accounts of IUR although the amount in issue has not been quantified. Mr and Mrs Melnikoff also submit that the application for a variation to the freezing order should be refused because it fails to identify a material change in circumstances since the making of the consent order; no application has been made to withdraw the "admission" embodied in the making of the consent order and the giving of the undertaking; it fails to recognise a suggested distinction, which had not been made clear in respect of the earlier order, between a freezing order in respect of the dissipation of assets and a proprietary interlocutory injunction where a unitholder seeks to trace trust assets; and IUR has failed to act with candour in disclosing its financial position and intentions.

52 The Court was initially satisfied that a freezing order should be made on an ex parte basis on 29 January 2014; the parties continued it by consent on 31 January 2014, and it now includes the usual exceptions to such an order; and it was then further varied on the application of Ms Rosinska, Mr Rudi and IUR to address a particular difficulty with access to funds held in a term deposit account on 6 May 2014, less than two months prior to the hearing of this application. Ms Rosinska's affidavit identifies no further difficulties that would warrant a further variation of the freezing order beyond those that were relied on in the earlier variation application. It also does not seem to me that the positions ultimately put by Ms Rosinska, Mr Rudi and IUR, namely that a freezing order should either be limited to their equity in the Bellevue Hill property or should not be continued, would be consistent with what justice requires in the circumstances of the case, particularly where REW and IUR acknowledge in their Defences that IUR holds the balance of the insurance proceeds (or at least some part of them) as agent for REW. It does not seem to me that the basis for a further variation of the freezing orders has been established.

Application for leave to bring claim against REW for wages etc (Paragraph 8 of the Defendants'/Cross-Claimants' Amended Notice of Motion)

53 An order was also sought under s 237 of the Corporations Act that Ms Rosinska and Mr Rudi be granted leave to bring proceedings against REW to recover wages, superannuation and statutory entitlements owing to them by REW notwithstanding they also have leave to bring proceedings on its behalf. The proposed Amended Cross-Claim seeks a declaration that Ms Rosinska and Mr Rudi were employees of REW and that REW pay specified amounts by way of wages and superannuation entitlements. Corresponding orders in respect of two other persons, who were not joined as party to the proceedings, were not pressed. A declaration is also sought in respect of a debt claimed by Ms Rosinska against Mrs Melnikoff.

54 Mr and Mrs Melnikoff submit that paragraph 8 in respect of leave for Mr Rudi and Ms Rosinska to bring a claim against REW does not arise, because no leave is required to bring such claims, which are personal claims and not claims brought in the name of REW. Mr and Mrs Melnikoff also contend that there is no pleading to support the claimed declaration that REW is permitted to pay all wages and statutory entitlements and superannuation liabilities properly incurred by it, although I note that there is a conclusory allegation in the proposed Amended Cross-Claim that Mr Rudi and Ms Rosinska are employees of REW.

55 It does not seem to me that a need for, or basis for, the grant of such leave has presently been established. Ms Rosinska and Mr Rudi are natural persons and they do not require leave under s 237 of the Corporations Act to bring proceedings in their own name against the company of the nature claimed. To the extent the application is intended to address any conflict that would arise had Ms Rosinska and Mr Rudi been granted leave to bring proceedings on REW's own behalf, at the same time as they brought proceedings against REW, that issue does not presently arise since I have not granted such leave for the reasons noted above. Any such issue is best determined if and when such an issue arises.

Orders for approval of payments (paragraphs 9-10 of the Defendants'/Cross-Claimants' Amended Notice of Motion)

56 Next, an order was sought directing Mr and Mrs Melnikoff to approve payment of certain "debts" of REW from a specified account. By the time of the hearing before me, the dispute had narrowed to three expenses, namely, an amount of $4,900 claimed by Techroll and wages and superannuation claimed by Ms Kathrin Rudi. A further order was sought that Mr and Mrs Melnikoff approve payment of REW's ordinary business expenses, properly incurred, to specified entities within 48 hours of notification by Ms Rosinska and Mr Rudi. The determination of those questions has been deferred, by the agreement of the parties, until after delivery of this judgment. The parties would be well-advised to seek to reach agreement as to a regime to deal with such expenses, to the extent they have not already done so. As I noted in the course of submissions, if the parties are unable to reach a consensual arrangement even for the payment of proper business expenses by REW on an ongoing basis, it may be necessary to consider the appointment of a provisional liquidator to REW.

The Plaintiffs' Notice of Motion

57 By Notice of Motion filed on 7 April 2014, the Plaintiffs sought orders striking out a Defence filed by REW, certain prayers and paragraphs of the Cross-Claim filed by Ms Rosinska, Mr Rudi and IUR, setting aside two notices to produce and subpoenas issued at the request of the Cross-Claimants and other relief. The Plaintiffs accepted, in submissions, that their application in respect of the Defence and Cross-Claim depended upon the outcome of the Cross-Claimants' subsequent application for leave to bring a derivative action, which I have addressed above. Since I will, for the reasons set out above, grant leave to Ms Rosinska and Mr Rudi to defend the claims brought by Mr and Mrs Melnikoff in REW's name, no occasion arises to strike out REW's Defence as sought by the Plaintiffs. Since I have not, for the reasons set out above, granted leave to Ms Rosinska and Mr Rudi to bring the claims sought to be brought in the name of REW in the Cross-Claim, orders should be made striking out the relevant paragraphs of the Cross-Claim. The issue as to notices to produce and subpoenas issued at the request of the Cross-Claimants has been resolved between the parties.

Orders and costs

58 The parties should bring in agreed Short Minutes of Order to give effect to this judgment and, if no agreement is reached, their respective draft Short Minutes of Order and submissions as to costs within 14 days.

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Decision last updated: 31 July 2014