Applied Electro Systems Pty Ltd v Neal [2017] QDC 211

DISTRICT COURT OF QUEENSLAND CITATION: Applied Electro Systems Pty Ltd v Neal & Anor [2017] QDC 211 PARTIES: APPLIED ELECTRO SYSTEMS PTY LTD (ACN 010 634 214) (applicant/plaintiff) v THOMAS ELLIOTT NEAL (first respondent/defendant) and AMEE BENFER (second respondent) FILE NO/S: 2917 of 2017 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: District Court at Brisbane DELIVERED ON: 11 August 2017 DELIVERED AT: Brisbane HEARING DATE: 10 August 2017 JUDGE: Reid DCJ ORDERS: 1. The order made on 3 August 2017 against Ms Benfer be discharged. 2. The application against Ms Benfer filed on 7 August 2017 be dismissed. 3. The respondent be stayed until further order, in terms to be settled by counsel, except in relation to the sum of $41,281.75 held in the solicitor’s trust account. 4. The proceedings of the applicant commenced by claim and statement of claim filed on 3 August 2017 be stayed until the conclusion of the committal proceedings against the respondent on the charge laid against him referred to in Exhibit G to the affidavit of Greg Hutley filed on 3 August 2017. -- 1 of 18 -- 2 CATCHWORDS: APPLICATION – FREEZING ORDER – whether a danger that assets would be disposed of, dealt with or diminished in value – whether applicant came to court with clean hands – where funds required to defend criminal charges – whether third party may be obliged to disgorge assets or contribute towards satisfying a judgment – whether risk to satisfaction of judgment Uniform Civil Procedure Rules 1999 (Qld), rules 260A and 260D Gold Ribbon (Accounts) Pty Ltd (in liquidation) v Sheers [2002] 1 Qd R 683 Hamilton Island Enterprises Limited & Anor v Johnston [2010] QSC 38 COUNSEL: PD Lane for the applicant/plaintiff J Rolls for the respondents/defendants SOLICITORS: Meridian Lawyers for the applicant/plaintiff Kerin Lawyers for the respondenst/defendants Factual background [1] The respondent, Thomas Neal, was employed by the applicant, Applied Electro Systems Pty Ltd (AES), as an electrical contractor from March 2011 to 19 May 2015. He was required to perform work as the operations manager of AES on a construction site in Western Australia. AES and its managing director, Greg Hutley, allege that the respondent misappropriated the proceeds from the sale of excess cable owned by AES. He has been charged in Western Australia with criminal offences arising from that sale. The criminal proceedings were mentioned in court on 5 May 2017. The respondent pleaded “not guilty” to all charges. The criminal proceedings have not yet been concluded. The material discloses the matter was to be mentioned in court on 28 July but the result of that mention is not known to me. -- 2 of 18 -- 3 [2] On 3 August 2017, an interim freezing order was made in respect of property of the respondent and of a third party, his wife, Amee Benfer (also known as Amee Neal). When the matter came before a judge of this court on the applications list on that occasion, the respondent was self-represented. Ms Benfer was not present and had not been served, but it was likely she knew of the matter through her husband. [3] It is important to understand that until his appearance in court, early on the morning of 3 August, the respondent had himself not been served with any material. He was given that material only when he attended court and had, I infer, little opportunity to read or understand it. Certainly, he did not have any opportunity to obtain legal advice in respect of it. For all intents and purposes, the application was really an ex parte one. It was certainly an ex parte application concerning Ms Benfer. [4] An affidavit of Mr Hutley was relied on by the applicant both on 3 August and, before me, on 10 August. It discloses that on or about 27 July Mr Hutley discovered on realestate.com.au that a property at 3 Essex Close, Springwood was subject to a contract of sale. That property, it is common ground, was then owned by the respondent and Ms Benfer as joint tenants. It had been purchased by them in July 2014, at a time the respondent was employed by the applicant. Mr Hutley said that he knew Ms Benfer, she having previously also worked for AES. He also knew she and the respondent were married. [5] The affidavit of Mr Hutley discloses that in or about May 2016 he ascertained (see para 27 thereof, read in conjunction with para 16) that the respondent and Ms Benfer were the owners of the property at Essex Close. It discloses that he ascertained this from a “property search” but does not disclose the nature of that search. -- 3 of 18 -- 4 [6] Importantly, the judge who heard the matter on 3 August was not informed, as it is apparent was the case from an affidavit of the respondent’s solicitor, Mr Eardley that: (i) The respondent was and is the registered proprietor of another property at 47 Ebony Crescent, Redland Bay; and (ii) Ms Benfer was and is the registered proprietor of another property situated at 4/86 Dorset Drive, Rochedale. [7] I note from that the title searches exhibited to the affidavit of Mr Eardley that the respondent’s property at Redland Bay was purchased on 29 July 2014 but that Ms Benfer’s property at Rochedale was not purchased until 9 September 2016, well after the termination of the applicant’s employment of the responent. [8] Mr Eardley in his affidavit attests also to the fact, that is not contested, that a property search with the Department of Natural Resources would have revealed that ownership of those two properties. I infer that no such search was conducted by the applicant or its solicitors. [9] An affidavit of the applicant’s solicitor’s, Ms Sayers, relied on by the applicant on 3 August and before me, discloses that, presumably as a result of her client telling her about the pending sale of the Essex Close property, she, on 2 August, conducted a search on realestate.com and ascertained the name of the real estate agent involved in the pending sale, Lindsey Battley. She says she rang him and he told her that the property settlement was to be effected on 3 August at 10.00am. Later that same day, at 6.18pm, she again spoke to Mr Battley and told him she had been instructed to apply to the court on 3 August to prevent the proceeds of sale being dispersed. She says she was told by Mr Battley that, inter alia, he had been instructed by the purchaser’s solicitor “to release the balance of the deposit to Mr Neal – meaning the -- 4 of 18 -- 5 amount of $76,700”. It is apparent from her affidavit and the settlement statement prepared by the solicitors who acted for the respondent in that conveyance (Ex PCE-E to Mr Eardley’s affidavit), who are different from his instructing solicitors in this matter, that this sum (in fact $76,750) was the whole of the deposit and not the sum to be released. It seems clear from paragraph 23 and 25 of Mr Eardley’s affidavit and from Exhibit PCE-M thereto that in fact the balance released was $51,281.75 and that it was released not to the respondent himself but to his solicitors who acted in that conveyance. [10] Ms Sayers’ affidavit confirmed she was told by Mr Battley that the sale price of this jointly owned property was $767,500. [11] At 5.43pm on 2 August, Ms Sayers left a phone message on the respondent’s phone asking him to contact her on a phone number which she left as part of the message. He rang back at 6.06pm. She advised him, as set out in paragraph 11 of her affidavit filed on 3 August, that she proposed on behalf of AES to obtain a court order to prevent the proceeds of the settlement of the Essex Close property “being distributed”. She advised him the application was to be heard in the Supreme Court at 10.00am on 3 August. Subsequently, at 8.20pm on that day she advised him that in fact the matter was to be heard in the District Court at 8.15am on 3 August. At that time the respondent, as I have previously indicated, appeared, unrepresented. [12] During the earlier 6.06pm call the respondent told Ms Sayers, in response to her advice about the hearing that “there are no proceeds from the sale of the house”. Ms Sayers says she asked him why that was so and the respondent said “I don’t have to tell you of that, there are just no proceeds”. -- 5 of 18 -- 6 [13] This is as the position stood when the matter came before the court early on 3 August. Counsel for the applicant called Mr Hutley to give oral evidence. Before his Honour, counsel for the applicant indicated that in view of the oral evidence he intended to lead, he proposed to enlarge the scope of the order he was seeking to restrain disposition of property not only by the respondent but also by Ms Benfer, purportedly in reliance of r 260D(4) of the UCPR (see T1-4, ll 24-34). [14] It is also noted: 1. That prior to the matter being before the court early in the morning of 3 August, that neither the respondent nor Ms Benfer had been served with any material; and 2. Only the respondent, and not Ms Benfer, had been advised of the proceedings and nothing had been communicated to the respondent or to Ms Benfer to indicate orders were proposed to be sought against Ms Benfer. [15] When the respondent appeared at the court he was served with the material on which the applicant then relied (see T1-3, ll 28-30 of the hearing of 3 August). [16] The evidence given by Mr Hutley was to the effect that an organisation, TMR (presumably a business name, or the initials of a business) in Western Australia, which had purchased six containers of the cable earlier referred to, had paid the purchase price of that cable into a number of bank accounts. Whilst one of the accounts was said by Mr Hutley to be the account of the respondent, two were said (on the basis of information and belief) to be Ms Benfer’s accounts and one was an account in the name of a Daisy Benfer, said by Mr Hutley to be Ms Benfer’s daughter but that Ms Benfer was the “custodian” of that account. He said police had told him that Ms Benfer’s daughter, Daisy, was a minor as she was under 18 years of age. -- 6 of 18 -- 7 [17] On the basis of the material and the claim and statement of claim filed in the proceedings on that day, the court made an order of 3 August which, inter alia, froze the assets of the respondent and Ms Benfer subject to certain conditions. I note the claim and statement of claim only sought relief against the respondent, and not Ms Benfer. The order also required those parties to provide their financial details on or before the return date of the application. Some of the material read before me relates to an anticipated non-compliance with that order, but it appears to me that the affidavit of Mr Eardley filed on the morning of the application before me substantially complies with that direction. [18] Before me the applicant relied on a further affidavit of Ms Sayers. She, inter alia, refers to a conversation she had with the respondent at 12.53pm on 3 August in which the respondent said, “Just to let you know under s 10(d) the settlement is still going ahead today for the purchase and sale”. [19] The reference to “s 10(d)” appears clearly to be a reference to cl 10(d) of the order of 3 August. Clause 10 of that order provides: “This order does not prohibit the respondent and Ms Amee Benfer from: (a) paying up to $500 a week on the respondent’s and Amee Benfer’s ordinary living expenses; (b) paying $10,000 on the respondent’s and Amee Benfer’s reasonable legal expenses; (c) dealing with or disposing of any of the respondent’s and Amee Benfer’s assets in the ordinary and proper course of the respondent’s business, including paying business expenses bone fide and properly incurred; and -- 7 of 18 -- 8 (d) in relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of the respondent’s and Amee Benfer’s assets in discharging obligations bone fide and properly incurred under a contract entered into before this order was made, provided that before doing so that the respondent and Amee Benfer gives the applicant, if possible, at least two working days written notice of the particulars of the obligation.” [20] The balance of Ms Sayer’s affidavit deals with the manner in which Ms Sayers became aware that Kerin Lawyers were to act for the respondent and Ms Benfer, and with the service of material of that firm. [21] The respondent and Ms Benfer rely on an affidavit of their solicitor, Mr Eardley. In his affidavit he attests to the following: (i) That the respondent and Ms Benfer jointly owned the property in Essex Close; (ii) That Ms Benfer owns a further property at 4/86 Dorset Drive, Rochdale; (iii) That the respondent owns a further property at 47 Ebony Crescent, Redland Bay; (iv) That he conducted searches at the Department of Natural Resources and Mines to ascertain that information concerning other properties and, consequently, asserted or inferred that if the applicant’s solicitors or Mr Hutley had done so they would have ascertained those facts; (v) That the Essex Close property was sold pursuant to contract of 3 June 2017 for $767,500, with a 10 percent deposit; -- 8 of 18 -- 9 (vi) That sale was completed on 3 August. The settlement statement of Wheldon Solicitors, who acted for the respondent and Ms Benfer in conveyancing matters, is Exhibit PCE-E to Mr Erldey’s affidavit. It indicates a payment of $240,888.73 to the ANZ Bank from those settlement proceeds; (vii) That on 6 June 2017 the respondent and Ms Benfer entered into a contract to purchase a property at Gowrie Junction, Toowoomba for $445,000 which sale settled simultaneously with the sale of the Essex Close property. The settlement statement for that property is Exhibit PCE-G to Mr Eardley’s affidavit. Other than some incidental related payments, $342,311 of the purchase price was paid to AMP Bank Limited (which I infer was to discharge the vendor’s mortgage to that bank) and $92,350 to the vendor’s solicitors. Each of those sums are also shown in the settlement statement of the Essex Close sale. [22] I deduce from the settlement statements that no monies were paid directly to either the respondent or to Ms Benfer from the sale of the Essex Close property and that the only payments held on their behalf following the sale was the $51,281.75, being the balance of the agent’s deposit paid to their conveyancing solicitor’s account, earlir referred to. [23] Mr Eardley deposes to the fact, consistent with Exhibit PCE-E, that the $240,888.73 paid to the ANZ Bank was to reduce the facility of the respondent and Ms Benfer with that bank. I accept, consistent with the submission of counsel for the respondent and Ms Benfer, and with paragraph 15 of Mr Eardley’s affidavit, that the intention of the respondent and Ms Benfer was to reduce their indebtedness to a more manageable level. That is, I conclude a likely motivation when neither of -- 9 of 18 -- 10 them is currently employed and when, as Mr Hutley’s affidavit discloses, the respondent was, when employed by AES, earning somewhere between $195,600 and $265,600 per annum, depending on whether he was working away. [24] Mr Eardley’s affidavit also discloses the asset position of his clients. Overall, they have assets of approximately $1.4 million and current indebtedness of approximately $1.2 million. Primarily their assets and indebtedness relate to the three properties I have referred to and to the cash sum, being the balance of the deposit, held by their solicitors. Their financial position, other than for motor vehicles and some minor bank accounts consists of the following: [25] Property Value of Asset [26] Liability Ownership Equity Respondent Ms Benfer Gowrie Junction $445,000 $399,300 50% 50% $45,700 Redland Bay $570,000 $497,056 100% 0% $72,944 Rochedale South $275,000 $247,504 100% 0% $27,496 Balance of Deposit $41,281 – 50% 50% $41,281 [27] I note the $41,281 is $10,000 less than the $51,281 paid by the estate agents to Wheldon Solicitors earlier referred to. This is consistent with the payment of that sum (i.e. $10,000) to Kerin and Co on account of legal fees as allowed by cl 10(b) of the order of 3 August earlier set out. -- 10 of 18 -- 11 Considerations [28] The relevant rules are as follows: 260A Freezing order (1) The court may make an order (a freezing order) for the purpose of preventing the frustration or inhibition of the court's process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partly unsatisfied. (2) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets. 260D Order against judgment debtor or prospective judgment debtor or third party (1) This rule applies if judgment has been given in favour of an applicant by the court or another court and there is sufficient prospect that the judgment of the other court will be registered in or enforced by the court. (2) This rule also applies if an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in— (a) the court; or (b) another court and— (i) there is a sufficient prospect that the other court will give judgment in favour of the applicant; and (ii) there is a sufficient prospect that the judgment of the other court will be registered in or enforced by the court. -- 11 of 18 -- 12 (3) The court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because— (a) the judgment debtor, prospective judgment debtor or another person might abscond; or (b) the assets of the judgment debtor, prospective judgment debtor or another person might be— (i) removed from Australia or from a place inside or outside Australia; or (ii) disposed of, dealt with or diminished in value. (4) The court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a third party) if the court is satisfied, having regard to all the circumstances, that— (a) there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because— (i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or -- 12 of 18 -- 13 (ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (b) a process in the court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment. (5) This rule does not affect the power of the court to make a freezing order or ancillary order if the court considers it is in the interests of justice to do so. [29] It is accepted that the applicant has shown a prima facie cause of action against the respondent. However no claim is made in the claim or statement of claim against Ms Benfer. Nevertheless the applicant relied on r 260D(4) to justify the making of the order against her, both on 3 August and also before me. [30] The respondent opposes the making of orders against him on the basis that, despite my being satisfied the applicant has shown a good arguable case on a cause of action justiciable in this court, I would not be satisfied of the matters set out in r 260D(3). More particularly his counsel submits I would not be satisfied that there is a “danger” that any judgment would be unsatisfied, in whole or in part, because the assets of the respondent might be disposed of, dealt with or diminished in value. The applicant submits I would be so satisfied. [31] Furthermore the respondent submits that, even if I was so satisfied, the relief sought against him should not be granted. In particular he relies on: -- 13 of 18 -- 14 1. The fact that neither the application nor his solicitors disclosed to the court on 3 August 2017 that the applicant and Ms Benfer, in addition to being the joint owners of the Essex Close property, also owned the properties at Redland Bay and Rochedale respectively. He submits that omission indicates the applicant did not come to the court “with clean hands”; and 2. The funds of $41,281.47available to the respondent in his solicitor’s accounts to fund his defence to the criminal charges should remain available because of the primary importance of criminal matters in our legal system. [32] Counsel also submits that there is no basis, and was not any basis when the matter came before this court on 3 August, for making an order freezing Ms Benfer’s assets. He submits that under s 260D(4) a court may only make a freezing order against Ms Benfer if satisfied that there is a danger any prospective judgment will be wholly or partially unsatisfied because of one or more of the matters set out in subsections (a)(i) or (ii), or subsection (b) thereof. Counsel submits that there is no evidence, and no inference available from the evidence, that Ms Benfer holds or is using or has exercised or is exercising a power of disposition over assets of the respondent, or is in possession of or in a position of control or influence concerning such assets. He also submits there is no evidence, and no inference available from the evidence, that there is a danger that any judgment may be so unsatisfied because a process in the court which may ultimately be available to the applicant as a result of any judgment it may obtain, will be frustrated. He submits that there is no basis for concluding there could be any process available to the applicant which might oblige Ms Benfer to disgorge assets or contribute towards satisfying any judgment. [33] That submission is made, despite evidence given before the judge on 3 August that proceeds of sale of the cable was said to have been paid into the accounts of Ms -- 14 of 18 -- 15 Benfer and one of her daughters, a minor whose accounts Ms Benfer was “the custodian” of, because the claimant’s statement of claim makes no allegation against Ms Benfer and seeks no redress against her and she has not been charged with any criminal offence. [34] In his submissions counsel for the applicant relied on the provisions of s 260D(4) to support the making of an order against Ms Benfer. [35] The difficulty I have with that submission is precisely the matters on which the respondent’s counsel relies. In my view there is no basis for concluding that there is a danger of any judgment against the respondent being unsatisfied in whole or in part by reason of any process available to the applicant which might oblige Ms Benfer to disgorge assets or contribute towards satisfying the judgment, being frustrated. In circumstances where there is, for example, no tracing claim made against Ms Benfer I cannot be satisfied that s 260D(4) has been engaged. Accordingly, I would dismiss the application insofar as it relates to Ms Benfer. [36] In coming to that conclusion I am conscious of the fact that Ms Benfer’s interest in the property at Rochedale was only acquired, according to the title search, being Exhibit PCE-B to Mr Erldey’s affidavit, on 9 September 2016, being a time after the alleged misconduct and, I infer, after the date of the alleged payments into the accounts of Ms Benfer and her daughter. In the event that a claim were made by the applicant against Ms Benfer directly, a different determination might be made, but on the basis of the current pleadings I conclude s 240D(4) has not been engaged. [37] My determination of the question of whether to extend the freezing order against the assets of the respondent, is influenced by competing considerations. I am conscious of the non-disclosure before the court on 3 August of the other properties of Ms -- 15 of 18 -- 16 Benfer and the respondent. I am inclined to conclude however that such non- disclosure was not deliberate misconduct. I conclude it probably involves a failure by the applicant’s solicitors not to undertake appropriate searches, and that is not a matter that should in my view, significantly impact on the applicant itself. In so concluding I am conscious of the approach of Holmes J (as the Chief Justice then was) in Gold Ribbon (Accounts) Pty Ltd (in liquidation) v Sheers [2002] 1 Qd R 683 at 694-5. It is a factor but in my view not a critical factor, in consideration of the particular circumstances of this case. [38] I am conscious of the need for the respondent to defend himself against the criminal charges. I conclude that can, at this stage, be accommodated by exempting the $41,281.75 held in the solicitors account from the order. [39] I am conscious too of the fact that to freeze the real property assets of the respondent should not cause him significant distress. There is no suggestion he intends to sell them, either the jointly owned property at Gowrie Junction, which was of course only very recently purchased, or that at Redland Bay. His equity in those properties is not great and any sale would itself would not very significantly enhance his liquid assets. [40] I am satisfied there is however a good arguable case of misconduct by the respondent, consistent with the allegations in the statement of claim filed. Despite thinking he would probably not sell the properties, I am nevertheless satisfied in the circumstances of that alleged misconduct, that there is nevertheless a danger that the respondent might dispose of or deal with or diminish the value of his assets or his equity in them so as to result in any judgment against him being unsatisfied. The circumstances on which I rely, in so concluding, include the evidence of the payment of monies derived from the sale of the cable into the accounts of Ms -- 16 of 18 -- 17 Benfer and her daughter. I infer this was probably, to ensure that the commission of the misconduct was not detected by the purchaser of the cable by drawing the attention of that purchaser to the fact that that respondent may have been himself directly a beneficiary from that sale. That conduct I conclude indicates a level of planning by the respondent consistent with a danger he might seek to frustrate a court order by dissipation of his assets. [41] Although I accept the submission of the respondents’ counsel that the sale of the Essex Close property was designed to retire debt, and not to hide or dissipate his assets, I do not think that counters my finding that there is the requisite danger. [42] In the circumstances, I will grant a freezing order of the assets of the respondent apart from the $41,281.75 previously referred to. [43] I will ask that counsel together provide to me a form of order to reflect these reasons. [44] Counsel for the respondents also seeks an order staying the proceedings until the committal of the applicant on the charges referred to in Mr Hutley’s affidavit. I accept that the respondent ought to be protected, until then at least, from the prejudice which might flow from having both the civil and criminal proceedings covering the same ground running concurrently. [45] The issues involved in such a determination were recently examined by McMeekin J in Hamilton Island Enterprises Limited & Anor v Johnston [2010] QSC 38. I adopt his Honour’s approach to such matters. [46] Counsel for the applicant fairly, and in recognition of those principles, does not oppose a stay on the basis ordered by McMeekin J. -- 17 of 18 -- 18 Conclusion [47] I will thus make orders: 1. That the order made on 3 August 2017 against Ms Benfer be discharged. 2. That the application against Ms Benfer filed on 7 August 2017 be dismissed. 3. That the respondent be stayed until further order, in terms to be settled by counsel, except in relation to the sum of $41,281.75 held in the solicitor’s trust account. 4. That the proceedings of the applicant commenced by claim and statement of claim filed on 3 August 2017 be stayed until the conclusion of the committal proceedings against the respondent on the charge laid against him referred to in Exhibit G to the affidavit of Greg Hutley filed on 3 August 2017. [48] I ask that counsel confer and settle an agreed order to reflect these reasons. In the event that agreement cannot be so reached I will re-list the matter on Friday, 18 August 2017 at 9.00am and, in the interim would extend the orders made against the respondent on 3 August.. [49] I will order that the applicant pay the costs of Ms Benfer of and incidental to the application. I order that the costs of the application involving the respondent be reserved. -- 18 of 18 --