Advertising on Hold Pty Ltd & Ors v G Sothcott & Anor [2011] QSC 280

SUPREME COURT OF QUEENSLAND CITATION: Advertising on Hold Pty Ltd & Ors v G Sothcott & Anor [2011] QSC 280 PARTIES: ADVERTISING ON HOLD PTY LTD ACN 100 688 962 (first applicant) VOICEWORKS AUSTRALIA PTY LTD ACN 108 451 430 (second applicant) FONEBOX AUSTRALIA PTY LTD ACN 002 071 427 (third applicant) v LEASE-WRIGHT PTY LTD ACN 010 230 074 TRADING AS KAZRO DESIGN (respondent) FILE NO/S: S219 of 2011 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 19 September 2011 DELIVERED AT: Brisbane HEARING DATE: 15 September 2011. JUDGE: Ann Lyons J ORDER: 1. The amount of $361,532.52 paid into court on 14 September is to be maintained in the court, 2. Mr Roger Cartwright pay $195,656.98 into court by 4pm 10 October 2011. 3. The funds paid into court (a) shall remain in the court until 14 days after delivery of judgment in the trial of this proceeding or such earlier order of this court; (b) subject to a further order of this court, the moneys (together with any accretions thereon) be paid out to Mr Roger Cartwright on the 15th day after delivery of the judgment in the trial of this action. 4. Mr Roger Cartwright pay the plaintiffs’ costs of and incidental to the application heard on 13 and 15 September 2011 fixed in an amount of $13,750 -- 1 of 11 -- 2 by 5 pm on 23 September 2011. 5. There be liberty to apply on one (1) day’s notice. CATCHWORDS: EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – FREEZING ORDERS –Where the plaintiffs brought proceedings against the defendants for breach of contract and damages - where the first defendant is bankrupt– where prior to the trial commencing an injunction was made that until further determination the second defendant‟s director be restrained from disposing of his share of the proceeds of sale of three properties – – where the trial of the proceedings is part heard – where one of the properties was disposed of and there is evidence that the second defendant has not acted in accordance with the injunction granted – whether monies the subject of the injunction should be reconstituted – whether if the monies the subject of the injunction are not reconstituted the second defendant should provide affidavit material in explanation COUNSEL: R Perry SC for the applicants T Sullivan SC for the respondent SOLICITORS: Carter Newell Lawyers for the applicants Rapp Law for the respondent ANN LYONS J: Background [2] The first defendant, who is currently an undischarged bankrupt, was employed by the first plaintiff from 19 September 2006 until 13 June 2008 to secure sales for the three plaintiff companies. Those businesses involved the sale of „message on hold‟ devices and associated services. He was subject to a non disclosure agreement that he would not divulge confidential information. [3] The plaintiffs allege that almost immediately after ceasing to work for the companies the first defendant marketed an MP3 message on hold device from July 2008 which was identical with the device developed by the second plaintiff. The plaintiffs allege that the device was constructed using the plaintiff‟s confidential information and trade secrets. [4] Pursuant to an application which was initially commenced in the District Court, the plaintiffs seek various declarations as well as damages for breach of contract against the second defendant for inducing a breach of contract by the first defendant. Orders are also sought that the defendants deliver up all identifiable MP3 message on hold devices in their possession and an account of profits received by the second defendants from the plaintiff‟s former clients resulting from the use of the plaintiff‟s confidential information. [5] On 9 March 2009 the plaintiffs brought an application pursuant to UCPR 72(1) and the Bankruptcy Act 1966 (Qld) that they be given leave to pursue the claim against the first defendant. Orders were also sought that the first and second defendants be restrained from; -- 2 of 11 -- 3 (a) soliciting business from the plaintiff‟s customers; (b) marketing the alleged identical MP3 player; (c) utilizing the plaintiff‟s software. [6] Pursuant to paragraph 30 of an affidavit sworn 5 April 2009, Roger Cartwright stated that he was a director of the second defendant, along with his wife Karen Cartwright. In that affidavit he swore “In the event that the plaintiffs are successful in the substantive matter, I undertake to pay damages and to keep a proper account of all sales of the „Triple888‟ MP3 player.” [7] On 6 April 2009 Forde DCJ made an order dismissing the application “Upon the giving of the undertaking contained in paragraph 30 of the affidavit of Roger Cartwright affirmed 5 April 2009, by the solicitor for the second defendant”. [8] The proceedings were ultimately transferred to the Supreme Court. On 14 February 2011 the plaintiffs filed an application seeking an order that the execution of the request for trial date by the first and second defendants be dispensed with and the matter be set down for a 3 day trial to commence in May 2011. An injunction was also sought to restrain Roger Cartwright from disposing of his share of the sale of the proceeds of three properties including a property at Commercial Drive Ashmore, until he provided sufficient security for the undertaking given by him on 5 April 2009. [9] On 22 February 2011 Philippides J made a number of orders in relation to listing the matter for trial. Orders were also made requiring delivery of a joint forensic report. Paragraph 7 of those orders contained an undertaking by Mr Cartwright whereby he undertook to provide 28 days notice to the solicitors for the plaintiff of the date for completion of any contract of sale in relation to the three properties and the amounts to be realised by each joint owner of the properties in order “to provide the plaintiffs the opportunity of making any such application for injunctive relief, as they may see fit, with respect to the disposition of Mr Roger Cartwright‟s share of the proceeds of the sale of those properties.” [10] The trial of this action was listed for three days and was scheduled to commence on 25 July 2011. [11] Prior to the commencement of the trial it became clear that the property at Commercial Drive was subject to a contract of sale dated 21 April 2011 and was due to settle on 30 June 2011. The purchase price for the property was $1.2 million. The plaintiffs were advised however that “Mr Cartwright will not realise any moneys from the sale of the property. He personally is not the owner. He is merely the trustee of the Superannuation Trust.” [12] Pursuant to an application filed on 23 June 2011, the plaintiffs applied for an injunction that until further determination the second defendant‟s director Mr Roger Cartwright be restrained from disposing of his share of the proceeds of sale of three properties namely the property situated at Commercial Drive Ashmore and the properties at Shearwater Esplanade Runaway Bay and Monaco Street Broadbeach. The application sought the restraint of those proceeds of sale until Mr Roger Cartwright provided sufficient security for and in respect of the undertaking given -- 3 of 11 -- 4 by him in his affidavit of 5 April 2009 whereby he gave an undertaking “to pay damages and keep a proper account of all sales of the “Triple 888MP3 Player”.” [13] That application was opposed with the second defendant‟s counsel Mr Marks arguing that “Public search has always shown the property to be owned by Mr & Mrs Cartwright as trustees” and accordingly the owners are therefore trustees owing duties to the beneficiaries of the fund who “would appear to be Mr & Mrs Cartwright”. [14] Counsel for the plaintiffs argued that Mr Cartwright had given an undertaking on 5 April 2009 to satisfy any judgment made against the second defendant which was significant as the second defendant owed no real property in Queensland. Furthermore the only evidence of any assets of the second defendant was the affidavit of 5 April 2009 which indicated that the assets of the company was “stock valued in excess of $1 million”. There had been no further evidence since 2009 to support that statement. [15] It was clear from the affidavit material that the Commercial Drive property was the only unencumbered property as the other two properties were subject to mortgages. Mr Cartwright had not responded to repeated requests to clarify the extent of the equity he held in those two properties and he had also refused to undertake not to dispose of his share of the proceeds of the sale of the Commercial Drive property. Counsel argued that; “This refusal to provide the undertaking sought by the solicitors for the plaintiffs concerning Mr Cartwright‟s disposition of his share of 23 Commercial drive, Ashmore- which is the only property held by him not encumbered by mortgage- on the basis of statements now advanced to the effect that he has no personal entitlement to any of the moneys realised from that sale, calls into serious doubt Mr Cartwright‟s bona fides in offering his personal undertaking in his affidavit of 5 April 2009.” [16] Following argument on 27 June 2011 orders were made which included the following at paragraph 2: “Upon the plaintiffs by their solicitor, giving the usual undertaking as to damages in accordance with r 264(5) of the Uniform Civil Procedure Rules 1999 (Qld) the second defendant‟s director, Mr Roger Cartwright be restrained until the final determination of this action or earlier order from disposing of the proceeds of the sale of the property situate at 23 Commercial Drive Ashmore which has the real property description of Lot 4 on Registered Plan 199306.” [17] Paragraph 3 of the order however indicated that Mr Cartwright was not prohibited from (a) paying to his former solicitors the sum of $114,729.72 and (b) paying such sum as represents the anticipated reasonable legal costs in respect of preparation for and conduct of the trial of the action schedule to proceed on 25 July 2011 and the reasonable costs of the application of the second defendant with respect to the current application. It was agreed that the plaintiffs and Mr Cartwright could agree in writing that the exceptions set out could be varied by agreement between the parties. [18] Paragraph 5(a) of that order of 27 June 2011 provided: -- 4 of 11 -- 5 “This order will cease to have effect if the second defendant or Mr Roger Cartwright: (i) Pays the sum of $700,000 into Court; (ii) pays that sum into a joint bank account in the name of the plaintiffs' solicitors and the solicitor for Mr Roger Cartwright, as agreed in writing between them; or (iii) Provides security in that sum by a method agreed in writing with the plaintiffs, to be held subject to the order of the Court;” [19] Those orders were not appealed. On 1 July 2011 the solicitors for the second defendant indicated that its assessment of the legal costs for preparation for trial was an additional $185,270.28. An amount of $557,189.50 had been paid into the ANZ bank account on 30 June 2011. [20] The trial commenced three and a half weeks later. Three sitting days were held on 25, 26 and 27 July 2011. The trial then continued on 18 and 19 August 2011. At the conclusion of the hearing it was indicated that the matter may not conclude until March 2012. [21] Accordingly the solicitors for the plaintiff wrote to the solicitors for the second defendant seeking confirmation, by way of the production of a bank statement, that the balance of the proceeds of the sale in the sum of $557,189.50 remained in the bank account into which it had been deposited by the second defendant. In that letter the solicitors suggested that it would be in the interests of all parties if the funds were paid into a joint interest bearing bank account in the name of the plaintiff‟s solicitors and the second defendant‟s solicitors in order that those funds generate interest pending the final determination of the action. [22] A formal response from the second defendant‟s solicitors was not obtained, however on 3 September 2011 an email from the solicitors indicated that the balance of the proceeds of sale had been deposited into an ANZ account and remained in that account. The solicitor for the second defendant indicated that he had asked his client to provide him with a copy of the bank statement evidencing the deposit. [23] On 3 September an email from the solicitors for the second defendant indicated: “Let me say there is no need for your concern. My clients tell me that the sum deposited to the ANZ account on settlement of 23 Commerce Drive remains in the account. I have asked my client to provide me with a copy statement.” [24] On 9 September 2011 the plaintiffs filed an application seeking an order that the amount of $557,189.50 received by the second defendant from the sale of the property at Commercial Drive Ashmore be paid into court. A further order was sought that on payment of the balance of the purchase price in respect of the sale a further sum of $142,810.50 also be paid into court. The matter was listed for hearing on 13 September 2011. -- 5 of 11 -- 6 [25] At the hearing on 13 September 2011 a bank statement setting out the dealings with the ANZ bank account was tendered.1 That bank statement indicates that on 30 June 2011 an amount of $557,189.50 was deposited. The statement then shows that there were a number of transactions whereby amounts had been were transferred out of the account, including an amount of $100,000 on 30 August 2011. The statement indicated that the current balance stood at $361,532.52. [26] Accordingly counsel for the plaintiff submitted that there were concerns that Mr Roger Cartwright had been unable to satisfy the reasonable concerns expressed on behalf of the plaintiff that the second defendant and Mr Cartwright had not acted in accordance with the order of 27 June 2011. [27] On 13 September 2011 an order was made that the amount of $361,532.52 be paid into court pending a further hearing on 15 September 2011. The amount required was paid into court on 14 September 2011. [28] The plaintiffs now seek orders that Mr Roger Cartwright pay into court the sum of $338,467.48 by 20 September 2011. As an alternative to that order the applicants seek an order that Mr Cartwright otherwise provide security to the plaintiffs for that sum by granting a mortgage over a real property held by him which has a value of not less than $400,000. [29] Orders were also sought by the plaintiffs that Mr Roger Cartwright and Mrs Karen Cartwright provide an affidavit explaining the reason for each and every deduction from the ANZ account from 27 June to 14 September 2011. The order of 27 June 2011 [30] Counsel for the second defendant, Mr Sullivan SC, argues that in obtaining the injunction on 27 June 2011 the only asset which was the subject of the order was the piece of real property and it was prima facie the subject of a trust. It is clear from the affidavit material and from the arguments of Counsel that there was on 27 June and there still is a dispute as to whether the proceeds of the sale of Commercial Drive are impressed with a trust pursuant to the Superannuation Trust. In particular it was argued on 27 June that Mr Cartwright had already dealt with the deposit of $120,000 paid pursuant to the contract of sale in a manner which was in fact inconsistent with its status as a superannuation trust fund. [31] I accept that to the extent that those moneys are indeed trust moneys they are not Mr Cartwright‟s money but are subject to the terms of the trust. I also acknowledge that Mrs Cartwright is not a party to the proceedings but note she is a director of the second defendant and has been present at the bar table throughout the trial. She was also present as a potential witness on 27 June 2011. The orders made on 27 June 2011 were made in the face of the specific argument that the proceeds of sale were trust funds. The ultimate resolution of the argument as to the ownership of those funds is however an argument for another day. [32] It is also clear that a freezing order would not have been necessary if Mr Cartwright had been able to provide assurances in relation to his undertaking of 5 April 2009 or 1 Exhibit 1 -- 6 of 11 -- 7 had taken advantage of one of the options in paragraph 5 of the 27 June 2011 orders to essentially provide security in respect of an amount of $700,000. [33] Clearly a Mareva injunction does not create a proprietary interest in property in favour of the applicant who obtains the injunction. The purpose of such an injunction is to freeze assets in the event that a successful judgment is in fact obtained. [34] It is clear however that the orders of 27 June 2011 froze the proceeds of sale of a specific property subject to the exceptions set out in the order. That property was the property at Commercial Drive, Ashmore. That order has not been appealed. [35] The settlement statement indicates that an amount of $557,189.50 went into the ANZ bank account after various deductions were made including the amounts allowed for in the orders. To the extent that amount was able to be identified that amount was understood to be an amount of $557,189.50 which was in fact the amount which went into the ANZ bank account on 30 June 2011. [36] Accordingly the amount that was paid into the account pursuant to paragraphs 2 and 3 the order of 27 June was $557,189.50. [37] It is clear that an amount of $361,532.52 remains of the amount in that specific ANZ bank account and has been paid into court. [38] There is therefore an amount of $195,656.98 which has not been accounted for in terms of the funds which were frozen on 27 June 2011. [39] I am advised that a further amount of $200,000 is yet to be paid and has been identified as „less vendor finance‟ and would seem to be payable by 30 June 2012. [40] In seeking a payment if $338,467.48 it would seem that the plaintiffs are trying to ensure a fund of exactly $700,000 be maintained. Essentially this amount would seem to be comprised of the reimbursement of the $195, 656.98 together with a payment from the $200,000 proceeds of sale yet to be paid. [41] Whilst an amount of $700,000 was identified in paragraph 5 of the June 27 orders as an amount which would discharge the freezing order on the proceeds of sale, it was not in fact the amount which was identified as the proceeds of sale calculated pursuant to paragraphs 2 and 3 of the order. [42] In this regard I note the decision of Pincus JA in BigJig Pty Ltd & Ors v Millennium Federation Pty Ltd2 where his Honour referred to the decision of the High Court in Jackson v Sterling Industries3 which considered a decision of the Federal Court with respect to an order for security. Pincus JA said; “[12] The court held by a majority that the order for security should not have been made. The essential question in the case was whether the order made was within the power granted by s. 23 of the Federal Court of Australia Act 1976 (Cth) "to make orders of such kinds, including interlocutory orders . . . as the Court thinks appropriate". The principal reasons were those of Deane J., who 2 [1998] QCA 432. 3 (1987) 162 CLR 612. -- 7 of 11 -- 8 made a number of criticisms of the Federal Court‟s order, some of which related to the point that the money was to be provided by way of security; it does not appear to me that those criticisms can apply in the present case. But his Honour also made other remarks, which bear upon the propriety of the order made here. I quote from pages 625 and 626: „… [these combined orders] … required the appellant to pay into court not money identified as being within his possession but money which he was required to provide or obtain regardless of source . . . [the purpose of such an order is not] . . . to introduce, in effect, a new vulnerability to imprisonment for debt, or rather for alleged indebtedness, by requiring a defendant, under the duress of the threat of imprisonment for contempt of court, to find money, which he may or may not have (whether or not at some point of time it may have been available to him), to guarantee to a plaintiff that any judgment obtained will be satisfied. It is to prevent a defendant from disposing of his actual assets . . . so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action. It may be appropriate in a rare case that such an order requires the defendant actually to deliver assets to a named person or even to the court itself ... Even in such cases however, the order must be confined to preserving assets until after judgment or, arguably, until there has been an opportunity to seek execution … any order requiring the delivery of assets should make clear that the assets will be held on behalf of the defendant until after judgment or further order and will then be re-delivered to the defendant unless they are made the subject of some other claim.‟ It will be seen from these observations that Deane J.‟s concerns went beyond the idea that there should not be an order for provision of security. His Honour‟s reasons tended to confine the scope of Mareva injunctions, in general, to orders restraining the disposition of the defendant‟s assets.” [43] In my view the identified amount of $557,189.50 which was the amount which went into the ANZ bank account on 30 June 2011 was the amount that was frozen by the orders of 27 June 2011. [44] I consider therefore that the amount of $557,189.50 should be re-constituted. The amount of $195, 656.98 should be paid into court within 21 days of today. [45] Mr Sullivan SC states that Mr Cartwright may not in fact currently hold such funds and that I should not make an order in these terms in the absence of an identified fund personally owned by Mr Cartwright in that sum. That may or may not be the case. Mr Cartwright has not provided any explanation or provided any material whatsoever to the court. [46] The matter can be re-listed before me on the giving of 1 day‟s notice. The amount paid into court -- 8 of 11 -- 9 [47] It is clear that the amount ordered to be paid into court was paid into court by the solicitors on 14 September 2011 and was paid in pending further argument at the adjourned application on 15 September 2011. [48] It is also clear that no evidence has been offered to explain the transactions and the dealings with the moneys in the ANZ bank account. In the circumstances therefore I consider it is appropriate that there be an order that those moneys be maintained in court. [49] Mr Sullivan SC on behalf of the second defendant argues that given the orders made on 27 June 2011 and 13 September 2011 the appropriate order with respect to that sum if it is to be maintained, should be that the moneys; (a) shall remain in the court until 14 days after delivery of judgment in the trial of this proceeding or such earlier order of this court; (b) subject to a further order of this court, the moneys (together with any accretions thereon) be paid out to Mr Roger Cartwright on the 15th day after delivery of the judgment in the trial of this action. [50] I consider that such an order is appropriate and that such an order will allow time for either party to seek a further order of the court in relation to the moneys. Should Mr and Mrs Cartwright provide affidavits to explain the transactions? [51] There is no doubt that Mrs Cartwright is not a respondent to this application nor was she named in the original order. Despite the fact that Mrs Cartwright is one of the directors of the second defendant and is one of the owners of the jointly owned property at Commercial Drive the plaintiffs have proceeded against Mr Cartwright only. [52] There is also no doubt that the prospect of contempt proceedings against Mr Cartwright was specifically alluded to in the submissions on 13 September 2011. Where an issue of contempt arises an order, requiring disclosure whether by affidavit of by documents, is not appropriate as the privilege in relation to documents or statements which would tend to subject a party to punishment or penalty would be infringed. In Deputy Commissioner of Taxation v AES Services Pty Ltd (No 2)4 Forrest J held; “19. It follows that any disclosure order should be made for the purpose of rendering the freezing order effective. In Turner v Universal Home Loans5, for example, Austin J found that it was inappropriate for the plaintiffs to seek an affidavit of assets and income, when it was plain that the purpose of requiring the affidavit would be related to the allegation of breach of the asset preservation orders, rather than to make the asset preservation orders effective. His Honour concluded that such disclosure would go “outside the jurisdictional basis for ancillary disclosure orders”. 20. In Universal Music Australia Pty Ltd v Sharman License Holdings Ltd, Moore J said: 4 [2009] VSC 527. 5 [2004] NSWSC 200. -- 9 of 11 -- 10 Ancillary orders can be made to make the Mareva order more efficacious. One such order involves directing the party bound by the Mareva order to file an affidavit disclosing assets on which the Mareva order operates: see generally the judgment of Conti J in Kuan Han Pty Ltd v Oceanview Group Holdings Pty Ltd [2003] FCA 1063 at [45] and following. The reasons why such an affidavit can render the Mareva order more efficacious are helpfully described by Peter Biscoe QC in Mareva and Anton Pillar Orders: Freezing and Search Orders, LexisNexis Butterworths, Sydney, 2005, at [3.3]: There are several reasons why an assets disclosure order is important to the efficacy the other freezing order. First, disclosure of the assets upon which the freezing order operates makes it more difficult for a respondent surreptitiously to disobey the freezing order. Secondly, disclosure identifies third parties such as banks who have custody of the assets and enables notice of the order to be given to them so as to bind them to the order, for third parties will be guilty of contempt of court if they knowingly assist a respondent to breach the order. Thirdly, disclosure may enable the freezing order to be framed by reference to specific assets rather than as a maximum some [sic] order, thereby minimising oppression to the respondent, and unnecessary exposure of the applicant to risk under its undertaking as to damages. Fourthly, disclosure assists an applicant to make a rational decision whether to continue its undertaking as to damages. 21. Courts have been careful to ensure that disclosure does not exceed what is necessary to make the freezing order effective. In Iraqi Ministry of Defence v Arcepey Shipping Co SA, [13] for example, Goff J said that the Mareva jurisdiction should not ”improve the position of claimants”. Rather, it should prevent the injustice of a defendant removing his assets from the jurisdiction which may have otherwise been available to satisfy a judgment. In Australia and New Zealand Banking Group Ltd v Bank of Melbourne Ltd, Ashley J said: It is no doubt very important that the intention of a Mareva injunction be not frustrated by a concealment or an inadequate disclosure of assets. As against that, a defendant is not to be treated as a "debtor in advance"; and the court should not sanction what appears to be a fishing expedition. 22. In keeping with these principles, in Macquarie Bank v Riley Street Nominees, Campbell J ordered that the contents of an asset disclosure affidavit should not be disclosed except to the applicant‟s legal advisers His Honour‟s intent being to ensure that information went no further than was needed for the purpose of the freezing order.” (footnotes omitted) [53] In my view therefore an affidavit in the terms sought by the plaintiffs is not appropriate in the current circumstances. [54] In terms of costs I consider that Mr Roger Cartwright should pay the plaintiffs‟ cost of and incidental to the application heard on 13 and 15 September 2011 fixed in an amount of $13,750 by 5 pm on 23 September 2011. -- 10 of 11 -- 11 [55] There should be liberty to apply on one (1) day‟s notice. [56] I consider that there should be orders as follows. Orders 1. The amount of $361,532.52 paid into court on 14 September is to be maintained in the court, 2. Mr Roger Cartwright pay $195,656.98 into court by 4pm 10 October 2011. 3. The funds paid into court (a) shall remain in the court until 14 days after delivery of judgment in the trial of this proceeding or such earlier order of this court; (b) subject to a further order of this court, the moneys (together with any accretions thereon) be paid out to Mr Roger Cartwright on the 15th day after delivery of the judgment in the trial of this action. 4. Mr Roger Cartwright pay the plaintiffs‟ costs of and incidental to the application heard on 13 and 15 September 2011 fixed in an amount of $13,750 by 5 pm on 23 September 2011. 5. There be liberty to apply on one (1) day‟s notice. -- 11 of 11 --