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High Court of Australia Transcripts |
Sydney No S61 of 1998
B e t w e e n -
PAUL CARDILE, LUCY CARDILE and ULTRA MODERN DEVELOPMENTS PTY LIMITED
Appellants
and
L.E.D. BUILDERS PTY LIMITED
Respondent
GAUDRON J
McHUGH J
GUMMOW J
KIRBY J
CALLINAN J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 8 OCTOBER 1998, AT 9.36 AM
(Continued from 7/10/98)
Copyright in the High Court of Australia
GAUDRON J: Yes, Mr Hughes.
MR HUGHES: If your Honour pleases. Apropos the discussion that occurred between your Honour Justice Gaudron and myself yesterday afternoon about the discretionary aspect of the case, what we have done overnight, your Honours, is to propound a draft of a modified Mareva order, which I will seek leave to hand up. I have given copies to my friends. The effect of the proposed modified order would be to put a limit of $1.2 million on the disposal of assets by Mr and Mrs Cardile and restrain as well the disposition of the assets of Ultra Modern, including the business name, but the draft is - - -
KIRBY J: You are conceding that the appeal must be allowed, because we would have no authority to make another order unless we allowed the appeal and set aside orders already made.
MR HUGHES: If the Court is of the view that the appeal should be allowed to the extent of modifying what may be seen to be the rigours of the existing order, we are proposing, without in any way conceding, I should add, that any ground of appeal has been taken of challenging the extent of the order. I want to emphasise that.
GAUDRON J: Yes.
MR HUGHES: This is an exercise on the footing that discretion is sometimes the better part of forensic valour.
GAUDRON J: And on the footing that appropriateness is a limitation on the Court's part of granting a Mareva-type injunction.
MR HUGHES: Yes, on that footing.
KIRBY J: Do you contest that footing? Is your primary submission that that is not the correct approach and that this is, as it were, if contrary to your submissions the court came to that view and took a different view, that these would be the orders that you say in those circumstances should be made and then the question would arise whether the new order was in substance different from the order that had been made.
MR HUGHES: Yes. I can hand it up so that your Honours will see what I am contingently about doing, but I want to emphasise that this is an exercise from our perspective in protecting our flank, without conceding that there is, having regard to the limited nature of the notice of appeal, a need to do so.
GAUDRON J: I understand your position, Mr Hughes.
MR HUGHES: An alternative approach, and this is a matter that was discussed between your Honours and my learned friend yesterday, might be, and I simply put this to the Court for its consideration, that if on consideration this Court comes to the conclusion that Mareva relief of some sort would be appropriate, but not relief of the width propounded by the Full Court and Justice Emmett, the appropriate course may well be to allow the appeal on that limited basis.
KIRBY J: Another course may be that if the appellants take the view, having heard what fell from the Court yesterday, that they need to raise a ground of appeal objecting to the terms of the present order and, as it were, put in issue those terms, then this is your way of defending that, and you, I assume, would then say that the price of the amendment of the grounds of appeal to enlarge the matters before the Court is that you should have the leave to defend a different order which responds to the ground of appeal added.
MR HUGHES: The answer to your Honour's proposal is that we respectfully adopt it. If the correct view is that the present notice of appeal is not wide enough, there ought to be an application for leave to amend it, and then we can deal with the matter from there; but I thought that it might help to short cut discussion if I propounded, without any concession of the need to do so, an alternative form of order.
GUMMOW J: Yes, I think we understand that, Mr Hughes.
MR HUGHES: If your Honour pleases.
McHUGH J: Mr Hughes, under this proposed order, how do you justify seeking to restrain Ultra Modern Developments from disposing of their assets up to the value of $1,200,000?
MR HUGHES: I thought that the - - -
CALLINAN J: Order 3(c), Mr Hughes.
MR HUGHES: 3(c). It should be - - -
GAUDRON J: In the case of the two individuals.
MR HUGHES: That should apply to the two Cardiles.
GAUDRON J: Yes.
MR HUGHES: It should not apply to Ultra Modern because if our analysis of the factual situation and our submissions as to conclusions that underpinned the decision of the Federal Court are correct, Ultra Modern obtained all its assets in such a way as to make it answerable either under section 37A or on the ground of preference in a subsequent liquidation.
GAUDRON J: And that is 1.2 million, jointly, as distinct from 1.2 million per individual respondent?
MR HUGHES: Yes, that would have to be so, with respect.
KIRBY J: Well, the formula - the pronoun is their and that would be read distributively and it is solely or jointly.
MR HUGHES: Yes.
CALLINAN J: Well, the formal order - - -
GAUDRON J: That is really up to a total value.
MR HUGHES: Yes.
CALLINAN J: Perhaps the form of order - your instructing solicitor might be asked to redraw it, Mr Hughes, during the morning.
MR HUGHES: Yes, we will attend to that. But, I am obliged for that suggestion. Perhaps I can now go on with the rest of my argument and leave that to be attended to later.
GAUDRON J: Yes, indeed. It can be handed in any time during the day.
MR HUGHES: Yes, thank you. There is one other matter I should mention. I did not point out yesterday afternoon that if one examines the accounts of Eagle Homes for the year ended 30 June 1996, one finds there is no provision for contingent liabilities. In other words, the liabilities that are reflected in the balance sheet appear to be actual liabilities, current and non-current, but no provision for contingents, which gives added strength to the conclusion that when the expected judgment is handed down, there will be a deficiency overall in the company's assets, taken - - -
KIRBY J: I do not understand that.
MR HUGHES: If one takes a minimum liability on the account for $200,000, the position would be, on the 1996 accounts, that the liabilities would exceed the assets, because shareholders' funds on the 1996 account are down to $32,000. Your Honours - - -
KIRBY J: Are you going to address the suggestion that the order that was made, and perhaps even the redrafted order, would cut across the ordinary operation of bankruptcy legislation and give a special protection supported by the law of content to your client, which was not enjoyed by other creditors, and that that is a reason, in principle, for the hesitation of courts to give an open-ended power to make orders of this kind?
MR HUGHES: On analysis, your Honour, these orders do not affect any proprietary interests at all of any of the appellants. A point was made by - - -
GUMMOW J: Well, they impose restraint and alienation.
GUMMOW J: Well, they impose a restraint on alienation.
MR HUGHES: Yes, but that does not offend against the bankruptcy law.
CALLINAN J: It does not make the assets available preferentially to your client.
MR HUGHES: Exactly, because we acquire no proprietary interest in the assets as a result of a Mareva order. It was Lord Mustill, I recall, who in Channel Tunnel or it may have been in Mercedes Benz, pointed out the limitation in that respect of a Mareva order; it does not effect proprietary rights of the Mareva defendant or vest any proprietary rights in the Mareva plaintiff.
CALLINAN J: In one view it might make perhaps a bigger fund ultimately available for all creditors.
MR HUGHES: Well exactly, indeed. I suppose it could be said, on analysis, following your Honour's line of thought, that this order might usefully supplement the laws as to the winding up of an insolvent company.
KIRBY J: But that is a bit dangerous, is it not, because it does so at two costs: one, of supplementing what the Parliament has ordained should be the law, in that regard; and two, at the cost of derogating from ordinary property rights, which are important civil rights, in our sort of society?
MR HUGHES: But, your Honour, the orders would not derogate from the administration in due course of the bankruptcy law.
KIRBY J: No, they do not derogate, but they supplement what Parliament has seen fit to provide, in that regard.
MR HUGHES: Well, there is another way of looking at that, your Honour, with respect, and that is that the bankruptcy law cannot be looked at in isolation as the expression of the parliamentary intention; one cannot leave out of account section 23 of the Federal Court of Australia Act.
CALLINAN J: Mr Hughes, just one other matter, I am sorry, about this order, but you would probably want a provision there also for liberty to apply to the Federal Court, I would think.
MR HUGHES: Indeed, yes, as there is under the existing law.
KIRBY J: Does it provide for holidays.
MR HUGHES: I was going to draw attention to the fact that it does not.
KIRBY J: It would seem to be a great concern to some people, not to me, of course, but to others.
CALLINAN J: I wonder if ordinary litigants know - - -
MR HUGHES: Well, that was what I suggested tentatively yesterday, but it is a little difficult to argue that ordinary holidays would not be ordinary living expenses. The difficulty is that if you make an open-ended provision for holidays they could - - -
KIRBY J: But if, as Justice Callinan has suggested, there is a power of liberty to apply, then that ought to be in every such order.
MR HUGHES: Yes, indeed. This is one of the problems that arises when you try to draft something hurriedly overnight without - - -
KIRBY J: You have had hours, Mr Hughes, hours.
GAUDRON J: Perhaps the order can be sorted out - - -
GUMMOW J: Perhaps we can get on with some substance.
MR HUGHES: I would like to do that, your Honour. It is our submission that if one adopts as one of the criteria, assuming that there are inflexible criteria for the grant of Mareva relief, that one of the criteria for its grant is the availability to the plaintiff of a cause of action or substantive right against either the defendant or the third party. That requirement is satisfied in the present case.
Where a Mareva injunction is sought in aid of the enforcement of a judgment, as this Mareva injunction was, the relevant cause of action is the cause of action that has passed into judgment albeit in this case not a final judgment, only a judgment on liability, but there is a judgment which, in due course, is known on the evidence to be a judgment that will sound in a money sum.
In that situation, if one adopts the conceptual basis of Mareva relief as stated by this Court in its several judgments in Jackson, the cause of action has passed into judgment, it is embodied in the judgment and the question is whether, on discretionary grounds, it is appropriate in all the circumstances for the Court to reach out to the third party and involve the third party in the injunctive net.
It is less difficult than in ordinary circumstances to do that in this case and, indeed, easier to do that in this case than in other cases involving third parties because of the findings that have been made as to the complicity of the defendant and the third parties in the activities designed to defeat the judgment.
McHUGH J: I still do not appreciate how that helps you. All of the allegation of fraud, let it be assumed you have made out a prima facie case of fraud against the appellants, all it does is indicate that given the opportunity they will dissipate or get rid of their assets and that is one of the criteria for the judgment but, that said, it cannot be the case that on every occasion where a person owes or is likely to owe money to a defendant in an action, that the plaintiff can get a Mareva injunction against that person simply because there is the fear that that third party will dissipate its assets and be unable to pay the defendant. Now, what is the principle that distinguishes one case from another?
MR HUGHES: It is not necessary, in my submission, and I put this diffidently to your Honour, to find an inflexible principle because of the terms of section 23 of the Act. In the course of developing that argument I want to go back, as briefly as may be, over the course of authority in this case, to show that there has been a shift. There has been a shift away from inflexible principle because of the imperative need in a modern commercial environment to protect judgments against ingenious and dishonest defendants and third parties who, for example - and this is not putting this case too high - conspire together to achieve the unlawful purpose of defeating the court's processes.
McHUGH J: You may have other remedies here. For example, on your case, there may be civil or criminal conspiracies by these appellants, but it still does not seem to me to get you there in terms of obtaining an order against them in the action between Eagle Homes and your client.
MR HUGHES: Not in the action, but - - -
McHUGH J: It has to be in the action because the order that you seek is an interlocutory order in that action.
MR HUGHES: We take leave to contest the proposition that it is necessary to join the third parties in the action. That course was propounded and - - -
McHUGH J: No, I am not suggesting that you have got a joinder as a party but, nevertheless, it is an order that you seek in an action between Eagles Homes and LED and that shows the extraordinary nature of it, that you are seeking to get orders against people who are not even parties to that action.
MR HUGHES: Your Honour, they have been given all the rights of parties. They are, effectively, parties. They have had the same rights to appear, as is their due, and to argue and to come to this Court as if they were parties and - - -
KIRBY J: In any case, section 23 says:
The Court has power, in relation to matters -
it is not in an action.
MR HUGHES: No. The words "in relation to" are, as is well recognised, very wide.
GUMMOW J: No, Justice McHugh's question is not limited to that. I mean, there is the one matter and these people are somehow drawn into this matter at this moment. There is only one constitutional matter, one controversy, and they are not parties to the controversy, it seems.
MR HUGHES: They are drawn into this matter because these are the circumstances.
GUMMOW J: Well, it would be no different, I suppose, in a way, as if the party had received a subpoena and they turned up to set the subpoena aside and that is refused and then they take a procedure.
MR HUGHES: Yes. They would be entitled to appeal.
GUMMOW J: Yes, that is right, but this is a different conceptual situation, I suspect.
GAUDRON J: If the purpose of the injunctions that can be granted under section 23 is to preserve, as it were, the subject matter of - well, to preserve assets for satisfaction of the subject matter or the claim which is the subject matter, then how do you get to people whose assets would not ordinarily be available to satisfy that claim? I think that is what Justice McHugh asks.
McHUGH J: Yes.
MR HUGHES: You get to them in this case because they have conspired with the appellant to move assets out of Eagle Homes; because they have conspired with Eagle Homes to move assets out of Eagle Homes into their own hands - what I called yesterday "a shuffle" - all designed to frustrate the judgment. One can look at the position conceptually from several perspectives: one, the relevant cause of action or substantive right is the judgment already obtained; alternatively, the relevant cause of action, prima facie, or substantive right, prima facie, is the right which the respondent, prima facie, has to challenge these transactions, these impugned transactions, as fraudulent alienations under section 37A. Now, that is not a federal matter but there is an entitlement - - -
McHUGH J: But you may have many remedies against these appellants. As I say, I do not know, it is possible that you have an action for conspiracy against you by the use of the copyright, after all the male appellant apparently gave the directions. You may have civil conspiracy to injure.
MR HUGHES: Yes.
McHUGH J: There are all sorts of actions that you may have against them. And it may be that in that sort of action, you could get a Mareva-type injunction against the defendants, but what we are talking about is this action in the Federal Court between Eagle Homes and LED.
MR HUGHES: And we are talking, your Honour, if I may interpose, about the need to protect the integrity of the Federal Court's judgmental processes in that action. That is where the words "in relation to" in section 23 come into play, and enable the court to reach out and throw its injunctive net over third parties, if discretionary considerations do not preclude it.
KIRBY J: Justice McHugh said yesterday something which resonates in my mind, and I have been thinking about it, that really the starting point for us ought to be section 23.
MR HUGHES: Yes.
KIRBY J: We ought not to be locked into these historical categories, whereby the English law, in Mareva and the predecessor and all the cases since, came at this remedy. We are here sitting to construe an Act of the Australian Parliament.
MR HUGHES: Yes, indeed.
KIRBY J: Can you tell me this: did the Mareva injunction arise out of a provision of the Judicature Act of England, which was in similar terms to section 23, or was the language significantly or relevantly different?
MR HUGHES: Similar, but not as wide. We can - - -
GUMMOW J: Just and equitable - - -
GAUDRON J: Section 37.
MR HUGHES: Just and equitable, or just and convenient
GUMMOW J: Beauchamp's Case is the provision - - -
MR HUGHES: Yes, Beauchamp's Case.
GUMMOW J: Yes.
MR HUGHES: Following on what your Honour Justice Kirby has just said, it is important to bear in mind, when examining the English cases that, from an early time, and Harris v Beauchamp is a very good example, the English courts have felt constrained by the terms of the Rules of the Supreme Court that impose restrictions outside the provisions of the Judicature Act on the availability of, for example, equitable execution in an action. Could I go to Harris to try to make that point, and there is another very important point that comes out of Harris to which I shall allude while I am referring to Harris. If one goes to - - -
KIRBY J: If you did not know all of the history of Mareva and all the other cases, and just as a matter of statutory construction you sat down with section 23 in your armchair, you looked at it and said the Court has power to make orders of the kind that it thinks appropriate.
MR HUGHES: Yes.
KIRBY J: The very generality, I suppose, tells lawyers you have to gear it back, otherwise it would be at large and would not be judicial power of the type that a common or Federal Court can exercise, but the words, on their face, are extremely wide, and they include the words "in relation to matters", so that the Parliament has - unless we are going to be locked into all the English jurisprudence, and our own jurisprudence, which, in a sense, picked up the same blinkers, if we go back to our source and go back to the statute of the Parliament of Australia, we have a very, very wide mandate, and necessarily so, it seems to me, because of the infinite variety of cases that have to be dealt with by courts.
MR HUGHES: Quite so, with respect, your Honour. The protection of a Mareva defendant, given that there is a judgment that needs to be enforced, or of a Mareva third party who has been brought into the proceeding, rests on the sound exercise of discretion.
GUMMOW J: To talk of discretion leads one to the fringes of the rule of law, does it not?
MR HUGHES: If it leads us to the fringes of the rule of law, your Honour, they are fringes ordained by Parliament.
KIRBY J: And in the hands of federal judges.
MR HUGHES: And in the hands of the judiciary.
GUMMOW J: So be it.
MR HUGHES: I am only saying this, and I say this without any intent - - -
GUMMOW J: But a law that said the judge can reach the result which he or she thinks fair in the particular case is just deeply offensive to basic principles of the rule of law.
GAUDRON J: And may offend Chapter III.
McHUGH J: It does offend Chapter III. That was the decision in those rules cases in 100 CLR under the old arbitration power that used to get struck down.
GUMMOW J: Spicer and those cases.
McHUGH J: Spicer and cases like that where you just could not give the courts power to strike down rules that they did not like because of exercise of judicial power.
KIRBY J: We were told affirmatively yesterday we had no Chapter III point, and so the relevance of this is to so construe section 23 that it conforms to the Constitution.
MR HUGHES: We have no Chapter III point, according to what my learned friend said yesterday and we have no matter point. It was not argued - - -
GUMMOW J: No one is saying any section is invalid. The question is how one construes it. One construes it against this background of principle. At the moment one mentions the Constitution there is no big alarm bell and we do not give notices. We are all informed about it, that we are construing an Act.
GAUDRON J: And one would have thought one construes it against the general legal principle that people can do whatever they like with their property so long as they act in accordance with the general law.
MR HUGHES: Including section 37A.
GAUDRON J: I do not know that section 37A says that you cannot. It says that you can but certain consequences may follow.
MR HUGHES: That is part of the general law which comes into play and statute law which comes into play, in our submission, in this case.
KIRBY J: Anyway, you put Harris before us. What was the point of that?
MR HUGHES: I was going to say that in Harris these points emerge. First of all, the judgment turned to a substantial degree on the terms of Order XLII rule 3 and rule 28 which are set out at page 807 of the report because after alluding to the restrictive content of those rules Lord Justice Davey, giving the judgment of the court, said:
But neither of those rules, while they preserve all existing modes of enforcing judgments, purports to provide any new mode of so doing; and, in our opinion, if any more convenient process is to be established, it ought to be by the Legislature and not by the Court.
The whole thrust of this judgment is that the methods of equitable execution which the High Court are to administer are frozen or fixed by reference to the modes of execution that were available on the passage of the Judicature Act in 1873.
KIRBY J: I hear those chains clanking in the background.
MR HUGHES: Well, in a sense they are in this case because my learned friend has postulated two inflexible criteria and that is against the trend of modern authority as I shall endeavour to show. Interestingly, however - and this is the other point I wish to make about Harris - is this, that if one goes to the bottom of page 810, the very last words, his Lordship, after dismissing as inadequate the grounds in support of the application for equitable execution made upon behalf of the plaintiff, says this:
We are, however, far from saying that, if a case were established to the satisfaction of the Court that the defendants threatened and intended "fraudulently" (we use the word advisedly) and for the purpose of delaying and defeating the creditors to make away with the property, it would not justify the interference of the Court.
Now that, if I may say so, is a very pregnant statement.
GUMMOW J: Yes, and it indicates that equally it does not have some form of sclerosis. The only people who think things were frozen in 1873 are people who do not understand equity, it would seem to me. Lord Justice Davey understood it as he said - - -
MR HUGHES: Well, he was an equity judge.
GUMMOW J: Yes.
MR HUGHES: But the heresy continued, but your Honours may think that that was, in a sense, an augury of things to come, because the facts postulated by the learned Lord Justice are facts very like this case; they fit this case now before your Honours. So we derive - - -
McHUGH J: I would have thought it is a long way removed from this case, because what it authorises is, for example, an order against Eagle Homes and it may well authorise a third party from removing property which it has received from a defendant, but you have got a blanket order in your favour here, you want to prevent them from using all their assets and I find that very difficult to justify, Mr Hughes.
MR HUGHES: That is not, on analysis, the real effect of the order, because there are provisos in the order which enable them to use their assets for a large range of legitimate purposes.
McHUGH J: Well, accepting that, the fact is if they want to sell shares they have got to go and get an order from the court, if they want to transfer from shares to bonds, they have got to do it. Indeed, if they want to change from one bank to another - - -
KIRBY J: Against the background of their actions found on a prima facie basis, that might well have been prudent.
MR HUGHES: It does not shock when one bears in mind the findings of fact that have been made.
McHUGH J: But still, it would be different if you had a cause of action against them. At the moment you do not seem to have a cause of action. You say you have a potential cause of action?
MR HUGHES: No, a prima facie cause of action under section 37A of the Conveyancing Act.
McHUGH J: Well, not against Ultra Homes, have you?
MR HUGHES: Yes, they would be parties to an action under section 37A, to set aside the alienations of property that have occurred.
McHUGH J: Well, the only alienation that seems to have occurred is the transfer of the use of the name, the goodwill of the name.
MR HUGHES: Well, that ignores - and your Honour may ultimately ignore the submission I made yesterday. I tried to analyse the payment to the dividends to show, argumentatively, that the declaration and subsequent payment of the dividends constituted an alienation of Eagle Homes' money.
McHUGH J: But did it go to Ultra Modern?
MR HUGHES: No, it went to the Cardiles, your Honour.
McHUGH J: It went to the Cardiles. That is a different matter. I was talking about Ultra Modern.
MR HUGHES: I was not meaning to confine myself to Ultra Modern. In the case of Ultra Modern it is our submission that the handing over of at least part of Eagle Homes' business to Ultra Modern amounted to an alienation.
McHUGH J: Well, "business" is a commercial term, it is not a legal term. It is not a term of property unless you can relate it to something such as a trademark, a trade name, goodwill, et cetera.
MR HUGHES: Certainly the trade name and certainly the goodwill. It is open, on the evidence, prima facie, to conclude that there was by a species of handing over an alienation of the goodwill or of part of the goodwill.
McHUGH J: Well, how does 37A help you there? At the most, it would get you the trademark, in a common law sense, back but that is about all, would it not?
MR HUGHES: And the business itself because the business is the embodiment of the goodwill.
McHUGH J: Yes, but what about the earnings of the business - of the company, Ultra Modern? You would not be entitled to that?
MR HUGHES: Those earnings derive from the fraudulent alienation of the business. I use that - - -
McHUGH J: I think you would have great difficulty using 37A to get hold of the profits of the business. It is a transfer of the name and that makes it void but these moneys have been earned by Ultra Modern, as it has been trading. How are you going to get those back under 37A?
MR HUGHES: Because the alienation can be set aside and there could be an account of profits.
McHUGH J: Under what heading? I mean, 37A strikes down - - -
MR HUGHES: The alienation.
McHUGH J: But 37A does not provide causes of action, does it?
MR HUGHES: Yes, it does.
GAUDRON J: And if it does - - -
MR HUGHES: Section 37A says an alienation of property with intent to defraud creditors can be set aside:
at the instance of any person thereby prejudiced.
McHUGH J: Well, I appreciate that but that is all it does. It is like the old section 260 of the Income Tax Act that strikes down but it does not create new rights.
GAUDRON J: And if you were to commence proceedings under that section and then make an application for Mareva-type injunctions, well, that would be one clear case.
MR HUGHES: Yes.
GAUDRON J: But here you are trying to make a bridge to a situation which might or might not happen. That seems to me to be the difficulty. You are making a bridge to a proceeding that has not been brought, may never be brought by your wide third party Mareva injunctions.
MR HUGHES: But the bridge we make is made in order to preserve assets which, if not preserved, will not be available to meet a judgment and - - -
GAUDRON J: But not this judgment, not the judgment against Eagle Homes; to preserve a judgment under section 37A.
MR HUGHES: But the judgment under section 37A would be a judgment which would put back into the pot the assets which would, under section 37A, against the Cardiles, would provide assets to go into the pot, assets which would not otherwise be available to go into that pot when the probability occurs - and this is open on the evidence prima facie - that when the judgment is given for a finite sum of money, there will be not enough to meet it.
McHUGH J: Mr Hughes, at the moment it seems to me that the only property that section 37A would assist you to recover is the business name and the two dividend payments. If you are after the profits of the business, I think prima facie at the moment you would have to rely on some fiduciary rights that belong to Eagle Homes.
MR HUGHES: They are not hard to search for.
McHUGH J: I know, but it means that Eagle Homes would be the party to the action.
MR HUGHES: But Eagle Homes would have to be a party to the action to set aside the alienation of the business assets.
McHUGH J: I thought at the moment you were dealing with it and saying that you are relying on your right to utilise 37.
MR HUGHES: Yes, in relation to the dividends and the business assets of Ultra Modern.
GUMMOW J: Why are you prejudiced thereby, within the meaning of 37A? I think there is a large question in there as to the construction of 37A.
MR HUGHES: The words "any person thereby prejudiced" - - -
GUMMOW J: I know.
MR HUGHES: - - - would include a judgment creditor, the effectiveness of whose judgment - - -
GUMMOW J: Against the defendant.
MR HUGHES: - - - against the defendant is diminished by the ostensibly fraudulent alienation.
GUMMOW J: By the defendant?
MR HUGHES: By the defendant.
GUMMOW J: At some time in the past?
MR HUGHES: At some time in the past; but not only by the defendant, by the Cardiles and Ultra Modern, who joined in the enterprise. The proper parties to a proceeding under section 37A, if taken by this present respondent, would be Eagle Homes, the Cardiles and Ultra Modern.
GAUDRON J: On one view of it you thought that you seek this injunction to avoid taking those proceedings, to circumvent them.
MR HUGHES: That is a view that is, with respect, not open on the evidence. Their Honours in the Federal Court adverted to section 37A as a prospective cause of action, as well as adverting to the preference provisions in the Bankruptcy Act. It would be, in my respectful submission, inappropriate, on the state of the evidence to draw a conclusion that these - - -
GAUDRON J: But it does have that effect, does it not, while these injunctions stand?
MR HUGHES: While these injunctions - - -
GAUDRON J: Other avenues may infer that other legal remedies which are available will not be taken.
MR HUGHES: That does not foreclose the - - -
GAUDRON J: It does not foreclose them, but you have not sought those remedies.
MR HUGHES: No, we have not.
GAUDRON J: And, it seems to me, one is a little bit in the situation one used to be in when one sought an urgent ex parte injunction and you got the injunction on terms that you commenced the action within two or three days; that is one of the aspects that is worrying me in relation to the appropriateness, and when I use the word circumvent, I am looking at it in terms of the old equity practice where you were obliged to commence your proceeding.
MR HUGHES: Well, in this case, I am constrained - - -
GUMMOW J: You see, you are really getting this relief in aid of this prospective right.
MR HUGHES: Well no, in aid of the judgment, on analysis.
GUMMOW J: Well, that is part of the problem.
MR HUGHES: Because it is in aid of a prospective right, your Honour, it does not follow that it is not in aid of the judgment.
GUMMOW J: No, but in so far as it is also in aid of a prospective right, you do not seek to exercise that right.
MR HUGHES: Well, not at the moment but, your Honour, no suggestion was ever made below on behalf of the present appellants that we should be put on terms as to the exercise of the right; no argument was put to the court below that it would be inappropriate on the discretionary basis to grant this injunction, unless we were put on terms to take proceedings under section 37A and, given that circumstance, it would not be appropriate, in my respectful submission, for this Court to take into account the factor tentatively alluded to by your Honour Justice Gaudron or by your Honour Justice Gummow. The parties had their battle below and the question of discretion was considered below on grounds that it did not embrace the sort of considerations to which your Honours have referred.
Now, I want to say a little more about the cause of the English decisions which, in my submission, should not constrain the Court in this case, given the terms of section 23, but I will not go over that ground again.
The second case to which your Honours were good enough to refer the parties was Soinco, and that case is important, in our submission, because it is a step in the onward march of a flexible interpretation of statutory provisions authorising the grant of relief in aid of judgments of a court.
It is not without importance, your Honours may think, that in that case, Soinco, Mr Justice Colman referred, under the general heading "The more recent authorities", to a decision of the Court of Appeal in England - this is at page 344 and 345 of the report (1998) 2 WLR - to Parker v Camden Borough Council (1986) Ch 162 and his Lordship noted that in the course of the judgment of the Master of the Rolls Sir John Donaldson in Parker v Camden Borough Council, consigned, as it were, Harris to what might be described as the dustbin of history saying that the appointment of a receiver should be refused because the Court of Chancery would not have granted such relief in 1873 should be rejected and he said at the bottom of page 344:
"For my part I do not accept that the pre-Judicature Act practices of the Court of Chancery or any other court still rule us from their graves.
GUMMOW J: Well, who would say that they did? Equity is dynamic, not static.
MR HUGHES: Your Honour knows that. All your Honours know that but I am merely pointing - - -
GUMMOW J: It seemed to me destroying a straw man, that is all. It is a straw man put up by counsel, I suppose.
MR HUGHES: It is a straw man - it is basic to the case that is argued by the appellant here that there are two inflexible criteria to the grant of Mareva relief against a third party. One, that the Mareva plaintiff must have a cause of action against the third party or, two, if not a cause of action against the third party, must show that the third party holds property for the Mareva defendant. Now, that is the case that is put against us and I cannot treat it as a straw man, with respect.
GUMMOW J: No, but what is really involved is the quest for some principle spun out of these words "thinks appropriate" in section 23 other than a totally open-ended subjective discretion as to what I, Mr Justice or Madam Justice X think looks fair in the case.
MR HUGHES: I do not have to go that far - - -
GUMMOW J: No I am sure you do not seek to.
MR HUGHES: - - - but I do not seek to.
GUMMOW J: But the question is, where is the line in the middle, as it were?
MR HUGHES: The line in the middle is this: that in a case such as the present, if those are relevant criteria, first of all we have established a prima facie cause of action by the plaintiff against the third parties, against the third parties in conjunction with Eagle Homes as a co-defendant.
GAUDRON J: Under 37A.
MR HUGHES: Section 37A. It is not necessary, in our respectful submission, to hold that that is one of two inflexible criteria. Your Honours will have seen - and having regard to the passage of time, I want to avoid unnecessary reference to authorities, but your Honours will have seen, in our outline of argument, a reference to BTR Engineering and to another case in which these requirements, one or other of them, are propounded as a general rule. The point I make is that the general rule is not inflexible, and it is implicit in those authorities that the rule is not inflexible.
I want to say something, very briefly, about the second inflexible criterion for which my learned friend contends, and that is, absent a cause of action, it must be shown, prima facie, of course, that the Mareva defendant, that is in this case the third party, holds property which would otherwise be reached by the judgment for, in this case, Eagle Homes. There is an oddity about that criterion, as propounded, and it is this: take the case of a judgment debtor, the defendant, who does not just give his assets to a third party upon trust to hold them for him but who makes an outright gift, in order to defeat the judgment, for example, to his wife or to a close relative. On the argument presented, a Mareva injunction will reach the third party if he or she holds assets on trust for the defendant, but a Mareva injunction would not go if the third party has been given the assets. That would involve the incongruity that the greater the dispositive intent and effect of what is done, the further the third party goes away from the reach of a Mareva. That, in principle, and in common sense, cannot be right.
McHUGH J: But that is one of the problems of this case. At the moment, I do not have any problem with restraining a third party who has knowingly received property from a defendant when it is being done for the purpose of defeating the potential judgment in the matter, but you want to go much further than that and the material that you put on does not even really tell us what exactly, for example, the personal defendant has in terms of transfer of property. I know there is a cash withdrawal of $600,000-odd at one stage but to whom it was paid we are not told. What, in terms of money or its equivalent, and not book entries, did the personal appellants get in this case?
MR HUGHES: They got the benefit of the dividend. Could I just go back for a moment to what your Honour first recounted as a prefatory part of the question which your Honour put to me. What your Honour first propounded is this case, this very case. Now, the second part of your Honour's question is answered this way, or at least I would endeavour to answer it this way. A dividend was declared and in effect it was paid. That was common ground.
McHUGH J: No, but when we are talking about "paid", it is in terms of a book entry. What is being paid, from what I understand, is there has been a - and it was credited to the loan account and the loan account has been reduced by some form of payment to the appellants, but what are the sums?
MR HUGHES: Well, the sums are the amounts of the dividends.
McHUGH J: Well, are they? I cannot find it in the material that that is so. Maybe it is and maybe it is not.
MR HUGHES: Well, there are minutes in the appeal papers recording the resolution to declare the dividend.
McHUGH J: I understand that. I understand that, but it then went into the loan accounts. You see, if you are going to injunct the personal appellants from disposing of assets, if you can say, "Well, they received $100,000 which they should not have received and they received $1,200,000" or whatever the sum might be, it may be proper to order them not to dispose of assets in excess of that sum.
MR HUGHES: Yes.
McHUGH J: But where in the material is there identified what they have received as a result of this fraudulent design of which you speak?
MR HUGHES: The material indicates that they got the benefit of the dividend, if not by payment, by crediting to their loan accounts thereby reducing the money that they owed the company.
McHUGH J: That is a book entry, that can all be reversed, but what we want to do is stop them, on your argument, from disposing of assets that they have got out of Eagle Homes and cash that they have got, cash or property of some form.
MR HUGHES: A lot of transactions, as your Honour well knows, dealt with in company accounts between shareholders and the company on a non-cash basis.
McHUGH J: I appreciate that.
MR HUGHES: And the Cardiles never proffered evidence below to suggest that they did not get the benefit of the dividends and, prima facie, on the evidence below they did get the benefit of the dividends because those dividends were credited to their loan accounts.
McHUGH J: I appreciate that, but let us stop at that stage. No money moves out of the company at that stage; you have got a credit to their loan account.
MR HUGHES: And their debit is reduced.
McHUGH J: And their debit is reduced, but the property is still there in the company; the physical property, if I can use that term. The next step is, did any money go from Eagle Homes to the Cardiles? If it did, then they have received money that they may have to pay back.
MR HUGHES: They have in substance received credits, which are the same, because of the way they chose to do it, as the receipt of money.
McHUGH J: Well, credits are book entries.
MR HUGHES: Yes, but book entries against an - - -
McHUGH J: Was there any transmission of funds, any assignment of property to them, that we could identify now? Supposing, for example, they have received a block of land in payment of their dividends. Well, it might be open to the Court to restrain them from disposing of the block of land, but what property have they received?
MR HUGHES: Would your Honours just pardon me for a moment. I am looking at page 175 of the appeal book. If your Honours would be good enough to look at page 176, under "non-current liabilities" as at 30 June 1996, shareholders' loans are shown at $241,712.30.
McHUGH J: Yes.
MR HUGHES: That is after - - -
McHUGH J: That means nothing. That means no property has transferred. If you could show me a balance sheet then for 30 June 1997 which showed shareholders' loans was now $100,000 one can infer they have been repaid 141,000 by some means or other, perhaps by that means that $600,000 cash payment, but all that page 175 shows is that they had lent 100,000 as at 30 June 1995 and it is now 241,000, but the funds are still there on these figures. All it means is that the Cardiles are a creditor of Eagle Homes now for 241,000.
MR HUGHES: Whereas before they would have been a creditor for 1,200,000 plus the 241,000.
CALLINAN J: Or plus the 100,000 probably, which is the amount from the previous year. There is no profit and loss statement, Mr Hughes. There is just the balance sheet, is there?
McHUGH J: No, at 176 there is a trading profit and loss statement.
CALLINAN J: Oh, I am sorry.
KIRBY J: Mr Hughes, I am just a simple lawyer. I find these things very hard to follow. Would it be possible after the case stands for judgment, for some note to be sent in with step-by-step answers, or seeks to answer the points that Justice McHugh has raised because I would like to study it and think about it, and I find it very hard to do that on the run. I did an economics degree but unfortunately there was not an accounting component, so I just do not understand it. It will take time.
MR HUGHES: That will be done, your Honour.
CALLINAN J: Mr Hughes, there seems to have been a gross profit from trading of 2.2 million on page 176.
MR HUGHES: Yes.
McHUGH J: Which is reduced to 110,000.
CALLINAN J: 110,000 is it?
McHUGH J: On 177. Sorry, 219,000 - - -
MR HUGHES: Your Honour is looking at 176?
McHUGH J: No, 178. The net profit was 219,000 after you take into account other income.
MR HUGHES: Yes.
CALLINAN J: Mr Hughes, could I just ask you - I am sorry to go back on this - but could I just ask you two questions about 37A?
MR HUGHES: Yes.
CALLINAN J: Do you say that the payment of a dividend - and let us assume that it was actually paid - is an alienation of property?
MR HUGHES: Yes, your Honour, of money.
CALLINAN J: Hardly apt to describe a resolution and the payment out of a dividend to which, prima facie, people are entitled as an alienation of property, is it not?
MR HUGHES: One asks what passes? Money.
CALLINAN J: But is it an alienation? Let us assume that the money does pass. An alienation involves, does it not, a transfer or an assignment.
MR HUGHES: It is a very wide word, your Honour.
CALLINAN J: Does it not usually mean a passing of title of some kind?
MR HUGHES: If money passes - - -
CALLINAN J: Sorry, the ownership or the title to it passes.
MR HUGHES: If money passes by way of payment of a dividend, property passes. That is an alienation.
CALLINAN J: I understand what you say. Do you also say that in respect of section 37A, bearing in mind that this is in the nature of interlocutory relief, you have to show any more than that you have got a reasonably arguable case in respect of the legal effect of section 37A?
MR HUGHES: No, I do not. I have to show what used to be called a prima facie case.
CALLINAN J: You do not have to establish conclusively that you are right so far as your construed action - - -
MR HUGHES: I do not have to establish the cause of action conclusively.
CALLINAN J: Exactly, and that applies not only to the factual position but also to the legal position.
MR HUGHES: To the legal position. If your Honour pleases.
KIRBY J: I imagine many injunctions of this kind have to be dealt with very quickly.
MR HUGHES: Yes, sometimes ex parte, but not this one.
McHUGH J: Mr Hughes, the problem is these are not loans by the company to the shareholders. These are loans by the shareholders to the company and all the document at 175 shows is that the company, Eagle Homes, owed the shareholders $100,000 in 95. It now owes them $241,000 but no property is transferred. You have got to be able to show, it seems to me, that money in some form or other, in reduction of these shareholders' loans accounts or otherwise, has gone out of Eagle Homes to the Cardiles.
MR HUGHES: Your Honour, that is not an inflexible requirement, with respect. If I can show that the effect of what was done was the same as if they had received money as, for instance, would have been the case and was the case if their dividends were credited in reduction of debts that they owed to the company, that is enough. It is, in legal effect, - - -
McHUGH J: Not the debts they owed to the company. This company owes them money. Eagle Homes - - -
MR HUGHES: I am sorry. I put it the wrong way around.
McHUGH J: Yes, Eagle Homes owes them money.
MR HUGHES: Yes.
McHUGH J: And all that the declaration of dividend has done is to increase the amount of money that Eagle Homes owes the Cardiles.
MR HUGHES: Yes.
McHUGH J: But in terms of what is in the pocket it has not increased one cent. There is a book entry which says, "We, Eagle Homes, now owe you $200,000 where we used to owe you $100,000." They are a creditor. The shareholders were a creditor.
MR HUGHES: Yes.
McHUGH J: The Cardiles were creditors, unless the position has changed dramatically since these accounts, but at the moment I cannot see, on the material, that they have got any money at all.
MR HUGHES: Your Honour, that is not the basis upon which the case proceeded below. It was accepted below that they had received the benefit of the dividends.
McHUGH J: That is why I was asking earlier, was there any evidence that cash payments had been - and the ledger shows at one stage, according to Ms Cartwright, that $600,000-odd, she says at page 170 in paragraph 7 of her affidavit, shareholders' funds stood at $692,163.
MR HUGHES: Could I put my position in this way?
McHUGH J: Yes.
MR HUGHES: The case was fought below on the basis that the Cardiles had received the benefit of the dividends, howsoever.
McHUGH J: Well, they certainly have, but it is only in terms of a book entry. They have become a creditor in an increased amount, so far as these documents show.
MR HUGHES: If that is so, there has been an alienation.
McHUGH J: I have a recollection there is a decision in this Court, it may be Walker v Wimborne, which says that a book entry is not an alienation of property for the purpose of the Companies Act. There is some case, but, in any event, it must be right as a matter of principle, but when we are talking about injunctions we would want to think that they have got hold of something that they could be restrained from disposing of. On these documents they have not got anything. They have got a right against Eagle Homes.
MR HUGHES: They have got a chose in action.
McHUGH J: Yes, but on that basis, why should they be restrained from dealing with their own assets?
MR HUGHES: Well, for the reason - I do not want to go around the circle again, your Honour, but I have endeavoured to explain that. At the very least, the effect of declaring the dividends and of the way the dividends were treated in the books is that they got a chose in action which, unless undone, is enforceable against the company, Eagle Homes.
McHUGH J: Well, they cannot get any benefit from that because there is a restraining order against Eagle Homes restraining them from disposing of their assets otherwise than for the stated purposes.
MR HUGHES: That is axiomatic.
McHUGH J: Yes.
MR HUGHES: But if the company gave them a chose in action available against the company that, in my submission, prima facie - and we are not trying the ultimate question - is an alienation and it - - -
McHUGH J: But not an alienation that would entitle you to get an injunction restraining them from dealing with their assets because you cannot get anything back from them. The most you can do is have this book entry set aside, this resolution set aside.
MR HUGHES: Well, that would undo the dividend.
McHUGH J: But it is not a reason why they should be injuncted from using their assets now as they think fit.
MR HUGHES: Well, your Honour, the case was fought below on the basis that they had received, if not in cash, in effect money from the company by - - -
KIRBY J: Is there any ground of appeal that goes to this issue?
MR HUGHES: I hope I am not tedious in adverting, as I was about to - Your Honour has again anticipated me - that there is no ground of appeal directed to this question.
McHUGH J: Yes, the case I have in mind is Manzi v Smith 132 CLR, which says entries in the company's books were not evidence against the shareholders. There is no evidence of any payment of the indebtedness. That was a preference case.
MR HUGHES: Yes, and, of course, it is an evidence case, I suppose.
McHUGH J: Yes.
MR HUGHES: The company's books are not evidence against the shareholders.
McHUGH J: Yes.
MR HUGHES: It does not really - if my argument has any integrity, as I submit it does, at the end of a very long day and a half - pleasurable day and a half - that case does not affect.
McHUGH J: Yes. I would suspect, probably, part of these loans have been repaid to Cardiles, but I cannot see any evidence to suggest that the loans owed by Eagle Homes to the Cardiles have been repaid to them.
MR HUGHES: I am bound to say to your Honour that that may be a very pertinent observation if there were a ground of appeal directed to this question. The case was conducted below on the basis that section 37A was in play. It is specifically referred to in each of the judgments of the Full Court, and your Honours will look in vain, I venture to suggest, for any ground of appeal directed to suggesting that there was not the receipt, in effect, of a dividend. I really do not think I can say anything more on that point.
CALLINAN J: Mr Hughes, on that, if I might say so, even the appellants' written submissions tend to support you. The language that is used in paragraph 2, I know it says "the accounts", but it says:
The accounts of Eagle Homes as at 30 June 1994 disclose payment of a dividend of $400,000 -
and there is a similar statement in paragraph 8 with respect to the other dividend.
MR HUGHES: I am obliged, your Honour. But, your Honour, can I leave this topic now on the assurance that we will put something in writing to analyse the position.
McHUGH J: I will certainly benefit from it, Mr Hughes. I will go over these accounts with a fine tooth comb, but - - -
MR HUGHES: I thought your Honour had already done so.
KIRBY J: Of course the appellants should have the opportunity to respond.
MR HUGHES: Yes, we will have to give our work, when it is done, to the appellants. What Justice Callinan has pointed out is not without some significance.
McHUGH J: No, there is no doubt there is payment in terms of a book entry, but for the purpose of 37A and the Mareva injunction, it seems to me that you may have to do more than show a book entry.
MR HUGHES: We say we have done enough on a prima facie basis.
GAUDRON J: Well you will be allowed seven days, Mr Hughes, to put that matter in writing and Mr Jucocic will have a further seven days to reply, with respect to the payment of the dividends.
MR HUGHES: Could I crave the indulgence of the Court to ask for a little more time. I was going to take a short holiday next week?
KIRBY J: What, not a holiday.
MR HUGHES: Only a short one.
McHUGH J: Is this part of your ordinary living expenses?
MR HUGHES: Yes, in a very real sense, having regard to where I am going - to look at my valuable sheep.
GAUDRON J: What time do you require, Mr Hughes?
MR HUGHES: Fourteen days.
GAUDRON J: Fourteen days, and Mr Jucovic will be happy with seven? Yes, thank you.
MR HUGHES: Soinco is a manifestation of a trend towards flexibility in the grant of equitable remedy and it is not, your Honours may think, without significance that in one of the cases referred to by Mr Justice Colman, Bourne v Colodense (1985) 1 ICR 291, summarised by the learned judge at page 345, the Court of Appeal in England, granted by way of equitable execution, on the application of a successful defendant in common law proceedings for damages for industrial injury, the appointment of a receiver of a right of indemnity held by the court to be available to the unsuccessful plaintiff against the trade union that had, on the findings of the court, contractually undertaken to support the unsuccessful plaintiff's proceedings financially. So the court held that the unsuccessful plaintiff had a right of indemnity for the costs of his action against the union. The Court of Appeal appointed a receiver of the cause of action embodied in that right of indemnity, so it was really, on analysis, granting equitable relief against a third party.
Now, I am just trying to check my notes, because my presentation this morning has been unnecessarily discursive; I do not mean any discourtesy.
GUMMOW J: It has been stimulated by our interventions, I think, Mr Hughes.
MR HUGHES: We do rely on the reasoning of Mr Justice Hope, speaking for the Court of Appeal in Coxton v Milne. That is an unreported case which has been provided to your Honours. This case is another example of the developing flexibility of courts in considering questions of entitlement to Mareva relief. It was a case where Mareva relief was granted against the third party. The particularly relevant parts of the judgment, which I shall not weary the Court by reading in extenso, start at page 8 of the print and go through to page 13. Your Honours will see at page 12 his Honour propounded a hypothetical case, not unlike the present case, in essence - I will not read it, I will just invite your Honours' consideration of the similarity between the hypothetical case in this case - and then at page 13 his Honour, and I should perhaps read this quickly, in the first complete paragraph on the page:
What I have described hypothetically seems to me to be a very clear case. Without attempting to define or to limit the extent of the exception -
that is the exceptions cause of action or property held:
Without attempting to define or to limit the extent of the exception, the necessary circumstances will exist when the affairs of a defendant sued by a creditor for an alleged debt and of the third party against whom the injunction is sought are intermingled, the alleged debtor and the disposition of its assets are effectively controlled, de jure or de facto, by the third party, the debtor's assets will be insufficient to meet the debt, the creditor, although having no vested or accrued cause of action against the third party, may become entitled to have recourse to the third party or his assets to meet his debt, and there is a danger that the third party will send his assets abroad or otherwise dispose of them. It is necessary then to look at the facts of the present case to see whether such an exception is wide enough to cover them.
GUMMOW J: Now that passage is, most of it, is set out by Mr Justice Emmett at 282 in his judgment.
MR HUGHES: Yes. The most relevant parts of the judgment on the question of principle start at 9 and finish, I think, there. Perhaps one should read on to the next paragraph but I will not read anything. Now, in my submission, his Honour was there propounding a principle. The facts of this case fall within that principle clearly and, on that footing and by reference to that principle, we were entitled to our injunction. There has been an intermingling of the assets of all these entities.
I will not go through it again because your Honours have heard it all but that is a satisfactory principle. That was a judgment where Mr Justice Hope was speaking for the court and it is a principle that is consistent with the demands of justice in many cases that can arise where people who are either clever or cleverly advised and are prepared to be unscrupulous can try to put their assets into a black hole beyond the reach of the enforcement processes of a court.
We would adopt as part of our submission some observations made in the dissenting opinion of Lord Nicholls of Birkenhead in the Mercedes Benz Case (1996) AC 307 and 308. The first passage is at paragraph C where his Lordship said - perhaps before I ask your Honours to read it, I should perhaps point out that the essential facts in that case were that there were proceedings in Monaco against the first defendant and his company. It was found in due course that he had another company in Hong Kong and that that company had assets in Hong Kong but there was no basis under the rules of court of the Supreme Court of Hong Kong for serving the would-be foreign defendants out of the Hong Kong jurisdiction, outside the territorial jurisdiction of Hong Kong and the majority view was that because there was no cause of action available against the defendant against whom Mareva relief was claimed in Hong Kong the proceedings were defective.
But Lord Nicholls in his dissenting opinion struck a note which I am gratefully constrained to adopt as part of our general argument. What his Lordship said at page 307 was this:
A further point, to be noted here in passing, is that the plaintiff's underlying cause of action is essentially irrelevant when considering the court's jurisdiction to grant Mareva relief. Since Mareva relief is part of the court's armoury relating to the enforcement process what matters, so far as the existence of jurisdiction is concerned, is the anticipated money judgment and whether it would be enforceable by the Hong Kong court. In general, and with some well known exceptions, the cause of action which led to the judgment is irrelevant when a judgment creditor is seeking to enforce a foreign judgment. It must surely be likewise with a Mareva injunction. When a court is asked to grant a Mareva injunction, and a question arises about its jurisdiction to make the order, the answer is not to be found by looking for the cause of action on which the plaintiff is relying to obtain judgment. So far as jurisdiction is concerned, that would be to look in the wrong direction. Since Mareva relief is designed to prevent a defendant from frustrating enforcement of a judgment when obtained, the plaintiff's underlying cause of action entitling him to his judgment is not an apposite consideration, any more than it is when a judgment creditor applies to the court to enforce the judgment after it has been obtained.
Excluding the foreign element from that passage it is, mutatis mutandis, applicable in the present case and I gratefully adopt it as part of my argument. Over on page 308 his Lordship made some remarks about The Siskina and in the paragraph commencing at C, after referring to a number of cases to support the proposition that:
Lord Diplock's categorisation of the circumstances in which alone an interlocutory injunction may be granted by the English court has been queried by, among others -
and his Lordship sets them out. His Lordship went on to say:
These are highly persuasive voices that the jurisdiction to grant an injunction, unfettered by statute, should not be rigidly confined to exclusive categories by judicial decision. The court may grant an injunction against a party properly before it where this is required to avoid injustice, just as the statute provides and just as the Court of Chancery did before 1875. The court habitually grants injunctions in respect of certain types of conduct. But that does not mean that the situations in which injunctions may be granted are now set in stone for all time.
So His Lordship was saying what your Honour Justice Gummow said to me this morning and, in our respectful submission, those are highly persuasive thoughts which fit the present case.
We say that there is an imperative need to maintain flexibility in the application of Mareva relief. We have propounded by reference to judicial decisions, particularly Mr Justice Hope's in Coxton v Milne, what we submit is a workable principle which fits this case and, for that reason, we submit that this appeal should be allowed. If your Honours please.
GAUDRON J: Dismissed.
McHUGH J: Should be allowed - dismissed.
MR HUGHES: Dismissed, I am sorry, yes; Freudian slip.
GAUDRON J: Thank you, Mr Hughes.
MR HUGHES: I think my fault may be ascribed to the fact that in the course of discussion this morning I felt more like an appellant than a respondent.
GAUDRON J: Yes, Mr Jucovic.
MR JUCOVIC: Could I explain our position in relation to the form of the order. We would rather adopt what fell from your Honour Justice Gaudron that our criticism of the form of the order is a criticism that the order demonstrates the error in which the court fell into in there not being before it a cause of action propounded by the respondent or some investigation of whether the assets of the appellants or, in truth, the assets of the respondent. The way we framed our notice of appeal, in particular paragraph 2 of our notice of appeal, was to say - if I could take your Honours to paragraph 2 at page 338 - that where you have a Mareva injunction which affects the property of the appellants, you have got to show that there is some cause of action you bring that gives you that right to relief or that there is some proprietary interest in an asset, and those are the proper principles upon which a Mareva injunction is to be granted.
McHUGH J: Why do you have to show that there is a proprietary interest? Why is it not sufficient to show that the claimant for the Mareva-type order may be able to set aside a transaction between the potential judgment debtor and the third party?
MR JUCOVIC: Can I answer that question by saying firstly that the principles that this Court should apply are not in doubt and the principles were in the passages in Patrick Stevedores that I read to your Honours. If I could just give - that the power of the court is exercised by reference to the relief which is finally available. Now, if there is a proprietary interest, if there is a debate about whether the assets of the appellants and in fact the assets of the respondent, at that point of time, then the court can decide that question and can say one way or another whether, in the process of execution, those assets are available for execution.
McHUGH J: Take a simple case: defendant sued, transfers his assets to a third party, the third party knows what the purpose of the transfer is, surely the power under section 23 would be sufficiently wide to restrain the third party from further dealing with those assets.
MR JUCOVIC: Your Honour, the difference between sending assets over in trust and sending assets over by way of not in trust but by way of absolute assignment is that the asset is the property of the third party.
McHUGH J: I know it is.
MR JUCOVIC: If the third party is to be restrained for the use of its asset it has to be on some basis that that money will come back. One basis, for instance, which is adumbrated here, is section 37A.
McHUGH J: But in the example I gave you, you would accept that the defendant could be restrained from making the transfer?
MR JUCOVIC: No doubt about that, your Honour.
McHUGH J: No doubt about that. The third party could be restrained, could it not, from receiving it?
MR JUCOVIC: No doubt about that.
McHUGH J: So why cannot the Court take the extra step and say to the third party, "Now you have it, but you will not move it any further"?
MR JUCOVIC: Because the Court has to answer the question of why - - -
GUMMOW J: Well, of course, the question is, this is an interlocutory remedy: what then would happen when judgment is recovered against the judgment debtor?
MR JUCOVIC: That is so, your Honour.
GUMMOW J: It means it is frozen in the hands of the third party, but what happens then?
MR JUCOVIC: The Court has to answer that question, your Honour. Perhaps I could approach it by looking at another aspect of an injunction. The injunction is interlocutory and a - - -
GUMMOW J: It cannot be a permanent injunction against the third party. It has to be until something happens.
MR JUCOVIC: That is so, your Honour. An undertaking as to damages is given. If one looks at the normal practice in relation to a Mareva injunction, just an ordinary paradigm, if I could use the expression, "plain vanilla case": an action is brought against someone on a debt; the debt is disputed, and there is evidence that would justify the grant against the defendant of a Mareva injunction. The defendant is restrained from dealing with its assets in such a way as to lose a valuable commercial opportunity. It has a real complaint.
The question of whether there was a likelihood of dissipation of assets is never dealt with again, it is simply dealt with at the time the injunction is granted, on hearsay evidence, because it is an interlocutory order, and not on any final basis. The case goes to trial. When is the defendant entitled to an inquiry as to damages? In the normal case the defendant is entitled to an inquiry as to damages. If the case fails, that is, the debt is not established, the defendant is entitled to an inquiry as to damages. If the case succeeds, he is not entitled to an inquiry as to damages. His rights are affected, but they are affected in aid of the execution of this judgment.
Now, what happens to these people where no action is taken under section 37A? That is the vice that was referred to in the case in 1894. It is never determined; their rights are never determined. These people did not bring an action. The relief that ought to be moulded must reflect some action that can be brought to bring these assets back in if they are, in truth, the assets of the - - -
McHUGH J: Why cannot an order be made that they be restrained from disposing of it until any judgment is met in the action and there is an undertaking as to damages. If they suffer damages as a result of it, does the third party suffer damage, then the applicant for the Mareva has got to pay the damages.
MR JUCOVIC: The normal practice with Mareva injunction, your Honour, is that there is never a final inquiry about the threat. Are you entitled to the inquiry because you have no underlying cause of action or you are entitled to the inquiry because, on a final hearing based upon all the evidence without hearsay evidence there was, in fact, no threat.
McHUGH J: The basic principle underlying the Mareva is the courts will not permit the course of justice to be frustrated by the defendant taking action the purpose of which is to render nugatory or ineffective any judgment which the plaintiff may later obtain. Now, if the courts can restrain the defendant from disposing of its assets, if it can restrain a third party from receiving those assets, it seems to me to be a very short step indeed to say it can then restrain the third party from further disposing of the assets.
MR JUCOVIC: But it has got to be in aid of some prevention because the court is deciding to prevent something, your Honour. It has got to be in aid of preventing something happening. It is not there to punish for contempt because something has already happened. It is ancillary to the prevention of a further abuse of process. If there is a cause of action on the part of the judgment creditor against the third party then he is entitled to bring it.
If your Honours closely examine Coxton v Milne, your Honours will see that there was not an investigation as to exactly what the cause of action was and right at the end of the judgment it was noted that it had not been really debated and the parties had to come back to demonstrate the cause of action. There the likely cause of action may have been a subrogation to the indemnity of the trustee.
If there is a cause of action, there is a debate between the parties about what their rights are and those rights can be vindicated. The vice of this order is that it simply sidesteps that and leaves the rights of the parties in the air.
McHUGH J: I hear what you say about the practical problems but the vice of no order is that because action has been started in the Federal Court there are no assets to meet a judgment. That is the other side of it. I am interested in a more practical question.
MR JUCOVIC: Yes.
McHUGH J: Do you accept that your client has received, that is the personal defendants or united, have received other than by way of book entry assets of Eagle Homes, the property of Eagle Homes?
MR JUCOVIC: Can I answer that question in the context of the case that might be brought under section 37A and then your Honour will understand my position. Your Honours, it is loose language to talk about a 37A action. What can be bought but what has not been bought is an action by the creditor. Let us assume for a moment that the respondent meets the description of creditor, to bring back into the assets of Eagle Homes something, perforce the operation of 37A.
Section 37A, in appropriate circumstances, avoids title to property in the hands of the third party. Upon avoidance, the title, as it were, comes back or can be made to come back so it benefits all creditors. Eagle Homes could not bring an action to recover property under 37A, a creditor must do so. When he does so there is an act of avoidance. That is the first step. There is no act of avoidance here. No action has been brought. No evidence. There is no letter written saying, "We avoid this transaction under our rights". The first step. The next step is, it has to be within 37A. The declaration of a dividend is not an alienation of property.
McHUGH J: Can I ask you a more direct question? Is there any evidence in this material before us which is capable of proving that your client has received any property of Eagle Homes otherwise than by way of book entry?
MR JUCOVIC: Yes, your Honour, the balances of the account indicate that over time the book entry - that the liability to my client has been reduced. I accept that.
McHUGH J: So, there has been payments out?
MR JUCOVIC: There has been some payment out but what I understood your Honour to be asking about is not so much whether there have been payments out but the nature of those payments. Can I take - - -
McHUGH J: Well, could you quickly take me to where it is - - -
MR JUCOVIC: It is shown in the balances of the loan account, your Honour.
McHUGH J: But it is not. Unless I have completely misunderstood the case, they are not loans to your clients, they are loans from your clients to the company, are they not?
MR JUCOVIC: That is right, because it - - -
McHUGH J: Well, it goes the other way.
MR JUCOVIC: No, I am sorry, it works this way, your Honour: the dividend is declared.
McHUGH J: Yes.
MR JUCOVIC: It creates a liability in the company.
McHUGH J: Yes.
MR JUCOVIC: There is an entry into the shareholders' loan account which indicates that the shareholders treat that liability as being a loan back to the company on the dividend.
McHUGH J: Yes.
MR JUCOVIC: The loan having been made then gets paid out. You can see that by the balances in the loan accounts because the $800,000 dividend, your Honour, was declared before the end of the 30 June financial year, credited to a loan account, and I think there is some evidence that some money went out. So, it is shown in the balance of the loan account.
McHUGH J: Yes.
MR JUCOVIC: What I had apprehended your Honour was concerned about is the following: title to property is avoided. If it is found in the hands of the third party at the time of avoidance he has to account for that property. The significance of Brady v Stapleton is that if it is not in the hands of the third party at the time of avoidance or - I am sorry, the significance is that "avoid" means exactly what it says, it is the third party's property until avoidance and he can do what he liked with it. Now, what I had apprehended your Honour to be concerned about it is, if there is going to be an order in pursuit of some right against a prospective avoidance - because it has got to be a prospective avoidance, there has not been avoidance - the identification of what has to come back. Now, if, for instance, this money - there has been a loan account and part of the money is paid - and this was never investigated - by the company, the company might pay the director's living expenses or pay their American Express bill or give them cash.
Now, if they did, if the third parties took this money, and prior to avoidance paid their living expenses out of it, to the extent that they did so, pro tanto, nothing would come back. There would be nothing for the avoidance to operate upon. So, the vice of this order, the vice of simply not adumbrating a cause of action, is that none of this is investigated. You do not see what the rights will be available. The relief cannot be moulded to the relief that would be available at the hands of somebody, be it the respondent or a liquidator, your Honour.
In the meantime, there are other means available, such as the appointment of receivers or the taking of action in which all these rights can be dealt with, rather than produce this rather extraordinary remedy.
GUMMOW J: I want to ask a question about that, Mr Jucovic, and this might be the moment to do it. The undertaking to damages is usually thought as an obligation which is triggered when the plaintiff fails in the action, right?
MR JUCOVIC: Yes.
GUMMOW J: How does that work here? What is the action , against whom, which fails which triggers the requirement to honour the undertaking?
MR JUCOVIC: It is our precise point, you cannot identify it, your Honour.
GUMMOW J: Well, is it the action under 37A?
MR JUCOVIC: There is none brought. It may never be brought, your Honour.
CALLINAN J: What about satisfaction of the judgment, would that not trigger the right to damages, the right to have the undertaking made good?
GUMMOW J: It would have to be non-satisfaction of - - -
MR JUCOVIC: The point we seek to make, your Honours, is you do not know.
CALLINAN J: Well satisfaction against the judgment debtor.
GUMMOW J: Yes. But if there is no satisfaction against the judgment debtor, what happens then? When is the undertaking triggered?
MR JUCOVIC: One never knows.
GUMMOW J: And by what?
MR JUCOVIC: We - - -
GUMMOW J: An execution which fails against the third party?
MR JUCOVIC: One might have to investigate why it fails, your Honour.
GUMMOW J: Because this an interlocutory remedy.
MR JUCOVIC: Yes, that is exactly right.
GUMMOW J: It must have a terminus.
CALLINAN J: Would you not just apply for a dissolution, for the injunction to be dissolved and for damages?
MR JUCOVIC: But the problem is, your Honour, if Mr Hughes is correct in his central proposition - - -
GUMMOW J: But that could be resisted on the footing we have not yet got our judgment paid in full.
MR JUCOVIC: Or some action that we might take has not been taken, or something like that.
KIRBY J: Yes, but ultimately a court can deal with that.
MR JUCOVIC: The question is, why should it do so? It is what - - -
GUMMOW J: The question is, how does this requirement of an undertaking as to damages, which, dare I say it, was invented before 1873, is now to be applied, one extends as one has done, into third party situations? That has not been, as I see it, articulated in any authority.
MR JUCOVIC: That is so, your Honour, but it is not - - -
GUMMOW J: It may be because these remedies are so drastic, that they provoke their own dramatic effect, and it is never resolved. I may be wrong about that. It may produce an unfair catastrophic result.
MR JUCOVIC: Your Honour pointed out to the fact that they used to engender settlements, your Honour. But the reason I approached the question of what - - -
GUMMOW J: Because a party faced with this cannot trade; for example, they are missing out on commercial opportunities. It is no good saying they have got to go off to the Equity Court and spend some days debating without getting liberty to apply; commerce does not work like that. This is the other end of the equation which says, you have got to have the injunction to assist commerce. Well it can clog up commerce too, and that is the problem which we have to solve.
MR JUCOVIC: Your Honour, we do not resile from our written submissions that there is no controversy here, because if you had something to resolve then you would know, with some certainty, whether the undertaking as to damages operates or not.
Your Honour, can I just return briefly to section 37A. I should point out in the Brady v Stapleton example, in terms of remedies, that the third party there was party to the fraud; there was no doubt about it, it was mixed up with it. That did not affect the remedy or impose any personal remedy. The next step under the section 37A issue is, you have got to identify whether it is within section 37A or not, and we addressed your Honours on Garuda and Mr Hughes has not, in our respectful submission, addressed the proposition in relation to the dividends, that - - -
CALLINAN J: Well, no, that is not quite right. He said that the making of the resolution and the payment were arguably an alienation. He did specifically deal with that.
GUMMOW J: From the money.
CALLINAN J: And he took the position that he did not have to establish that as a legal proposition at this stage, finally.
MR JUCOVIC: What fell from your Honour is an alienation involves a transfer of property from A to B.
CALLINAN J: Well, I asked him whether he had thought that, yes.
MR JUCOVIC: Your Honour, there is some authority on the meaning of "alienation". It is not in the section 37A context. It says precisely that. It is a decision in South Australia, which I might have reference to here. It really involves understanding what the declaration of the dividend is. The declaration of the dividend is a statement by the company that it is going to pay - it creates a debt, your Honour.
CALLINAN J: That is why Justice Gummow and I, I think, asked that question.
MR JUCOVIC: Your Honour, it creates a debt. Your Honour, there is an authority about alienation. It is not on section 37A. It is called In re Symon: Public Trustee v Symon and Others.
CALLINAN J: You would think there would be a lot of authorities on the meaning of alienation though.
MR JUCOVIC: Yes, this is one of them.
CALLINAN J: This summarises it though, does it? What is the reference, Mr Jucovic?
MR JUCOVIC: It is [1944] SAStRp 21; (1944) SASR 102 and the relevant passage is at page 108, and it involves the divestiture of an asset and the vesting of an asset in something else.
CALLINAN J: Mr Jucovic, can I just ask you another question: is there anything wrong with a principle that the remedy should be available in aid of, or whether is some process ultimately enforceable by the courts, available to the judgment creditor as a consequence of a judgment against the judgment debtor pursuant to which, whether by the appointment of a liquidator, trustee in bankruptcy or receiver or otherwise, the third party may be obliged to disgorge property or otherwise to contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor. I know there is rather a lot wrapped up in that, but is there anything wrong with such a principle?
MR JUCOVIC: I am not entirely certain that I have caught every nuance, but one nuance that I did notice is that your Honour referred to some right which a liquidator might have.
CALLINAN J: Yes. As a result of the judgment creditors getting a provisional liquidator appointed and then standing, in effect, in the shoes of the judgment debtor.
MR JUCOVIC: There is nothing wrong with the principle if it seen to be a principle that is confined to assisting in the discovery of property of - sorry - either you have property that belongs - - -
CALLINAN J: That is really wrapped up, I think, in the last qualification in circumstances in which the third party may be obliged to disgorge property or otherwise to contribute to the funds or property of the judgment debtor to help satisfy the judgment.
MR JUCOVIC: I have to answer your Honour in this way: once it is a right that is in the hands of the liquidator, it is wrong to put it in the hands of the judgment creditor.
CALLINAN J: But it is the judgment creditor's action that is going to lead to the appointment of the liquidator.
MR JUCOVIC: That may be so, your Honour.
CALLINAN J: It is inevitable, almost.
MR JUCOVIC: It may or may not be so.
CALLINAN J: Well, it is a consequence of the judgment, because other liabilities cannot be satisfied.
MR JUCOVIC: Once that happens, we rely upon the fact that you cannot - you do not have any more rights in that judgment. All you can do is prove. You can no longer enforce that judgment, your Honour. What happens then is, there is an administration for the benefit of everybody.
CALLINAN J: Including the judgment creditor.
MR JUCOVIC: Including the judgment creditor and everyone else, your Honour.
GAUDRON J: If you wanted to protect property that would be available ultimately for payment of creditors, would not the appropriate course be to appoint somebody to receive that property, and then you could argue out with the receiver whether or not he or she was entitled, in fact, to get it back.
MR JUCOVIC: Precisely, your Honour. We have got no one to argue with. If there is a liquidator's right or a receiver's right the appellants can resolve some issue with them.
GAUDRON J: What I am talking of is a Soinco-type receiver.
MR JUCOVIC: The receiver there is a receiver - yes, certainly, if your Honour is speaking of a receiver of an asset of Eagle Homes, so be it. Justice Emmett referred to the possibility.
CALLINAN J: But if the assets have been dissipated then the appointment of a receiver might be futile, might it not, unless there can be a Mareva injunction in aid of it.
MR JUCOVIC: It depends on what asset you are talking about, your Honour.
CALLINAN J: Yes, I agree.
MR JUCOVIC: It depends on what asset you are talking about.
CALLINAN J: It may not be this case. I am really just talking about a principle.
McHUGH J: Can I get this clear from you. You accept that the $800,000 dividend was paid, in your terms, credited to your clients and effectively paid or part of it effectively paid some time during the 1996 year.
MR JUCOVIC: Yes, your Honour.
McHUGH J: One of the difficulties of it is this, that as Ms Cartwright said in her second affidavit, there is no sign anywhere of any cheques showing that it had been paid and on that basis it appeared to be that it may not have been paid but if you accept that it was paid somehow or other during the 1996 year, then it means they started off with a loan of funds of $100,000 they were owed. They had $800,000 credited to them and they ended up with $241,000, so somehow or other they got the benefit of approximately $560,000 during that year, notwithstanding the fact that Ms Cartwright was unable to identify any cheques which would suggest payment of the dividends.
MR JUCOVIC: Your Honour, we accept that that is the current state of the evidence. I mean, I am not saying to your Honours that your Honours cannot infer that we got the benefit of something during the course of that year.
McHUGH J: Yes, and then the further point arises as what is it.
MR JUCOVIC: And what is it, what is it.
McHUGH J: Yes.
MR JUCOVIC: Your Honour, if I can say one other matter about the rights of the appellants. The rights of the appellants are, your Honour, to have a final hearing about something, to have their rights resolved in relation to these assets.
GUMMOW J: That is the basis on which Justice Aickin in the Ansett Case 140 CLR approached the question of how you then quantify the measure of the damages.
MR JUCOVIC: That is right, and a - - -
GUMMOW J: On the undertaking?
MR JUCOVIC: Yes. And on the appointment of a receiver to the assets of Eagle Homes - - -
GUMMOW J: That will require an undertaking as well.
MR JUCOVIC: Yes.
GUMMOW J: That is the Bond Brewing message.
MR JUCOVIC: Yes. The appointment of a receiver of an asset of Eagle Homes to take action, your Honour, is far less intrusive upon the rights of the appellants in their property because they are entitled to resolve whatever issue someone wants to make in a properly constituted action. Can I just go back one step to the question of whether the payment - once the dividend is declared the payment out is within 37A. Section 37A never caught the preference between creditors and that might be the reason why your Honours could readily infer why no action has been brought under 37A because the same inhibitions do not apply to actions by liquidators. Actions by liquidators these days under the new section have greater remedies than Brady v Stapleton. Your Honours, unless there is anything I can further assist your Honours on - - -
GUMMOW J: The citation of Ansett [1981] HCA 75; 146 CLR 249, I should get on the record, and the judgment of Justice Aickin at 261 to about 268.
MR JUCOVIC: Thank you, your Honour. If your Honours please.
GAUDRON J: Yes, thank you.
MR HUGHES: I had forgotten, your Honours, to ask your Honours to consider two articles about Mareva. I am not going to refer to them but they have been made available to the Court officers. One is in the 112 Law Quarterly Review, at page 4. There is another article in the Cambridge Law Journal (1996) 12 and a Canadian article in the Canadian Business Law Review. They have been made available for distribution, if your Honours care to see them.
GUMMOW J: Yes, we have them, Mr Hughes.
GAUDRON J: Yes, thank you.
MR HUGHES: Thank you, your Honour.
GAUDRON J: The Court will consider its decision in this matter. Mr Hughes, you have 14 days in which to respond to those matters.
MR HUGHES: Yes.
GAUDRON J: And Mr Jucovic, a further seven days. The Court will now adjourn briefly before taking the next matter.
AT 11.52AM THE MATTER WAS ADJOURNED
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