Thursday’s hearing before Justice Bernard Bongiorno on the question of retaining an injunction over the proceeds from the sale of the Crikey bunker threw up some interesting argument which we’ve summarised here with some extracts from the official transcript.

From page 28

HIS HONOUR: The affidavit of Ms Piccinini seems to go quietly into her assets and subject to hearing Mr Wheelahan I am not quite sure what the relevance of all that is.

MR COLLINS: The relevance it goes all our way because what it discloses, Your Honour, that having incurred a debt on a Visa Gold Card to buy a car at the end of January and not having presently while she’s not working, the ability to reimburse those funds if they’re presently paid, although they are not presently being payable because there are further credit amounts available on the Gold Card and on the other accounts to which she refers, she has a further five and a half thousand dollars-odd available to her on her overdraft account. She has no immediate need of funds, but even if she did, what she is saying is I am going to use the proceeds of the sale to discharge my debts and I will have no capacity to reimburse them. That is the very thing that orders of this nature are designed to protect, 05.

And from page 36, discussing Stephen Mayne’s debts which were explained in the affidavit to include $18,000 payable to Diners and approximately $10,000 on credit card and overdrafts.

MR COLLINS:

He does depose as to his debts in paragraph 22. There are credit card debts, but Your Honour will note that although there are outstanding debit balances on those credit cards, none of them are at the limit, so the only amounts required are the amounts required to make the minimum payments due. That would have to be an obligation to be met as they fall due, but there is clearly a capacity to make those modest payments that fall due during the relevant period.

Your Honour, if you go to paragraph 31 you will see Mr Mayne’s only explanation for the fact that he and his wife don’t have substantial assets at the present time, although on any view they have a substantial asset which is the net proceeds of sale, but there was $40,000 spent on a wedding and honeymoon during 2000, $30,000 incurred in losses share market transactions.

The decision to purchase the Ford station wagon which was bought for about seventeen and a half thousand dollars at the end of January – I am sorry, it was $19,500, $17,500 after a trade in of $2000 on a very old vehicle. And the fact that Ms Piccinini is not presently working, as she has I think a six month old child. So that they are circumstances unrelated to the proceeding, many of them are personal discretionary expenditure. We don’t criticise them for making those decisions, but they are their decisions and none of them have put them in such a part as financial circumstance, that their day to day living expenses can’t be met without access to $118,000.

And from PAGE 38

HIS HONOUR: Her affidavit, what did you want to say about that?

MR COLLINS: Yes Your Honour. As to her financial position, paragraph 14 deposes to the net proceeds – we concede it would only be the net proceeds and we don’t seek any orders that would interfere with the completion of the sale. The income Your Honour, we don’t seek to challenge – what she says, that she exhausted most of the proceeds of her work at the Bar which she would be likely to receive in a relevant period. So it really then goes straight to para 24, her financial position and it’s set out in this paragraph. The overdraft account, it’s accepted that the material shows a debit balance on her overdraft account. But it also deposes that there’s a limit on the overdraft account of $10,000, so rather than that amount being used, she in fact has access to a further amount of $5300 of credit on that account. That is available for living expenses in the interim, that $5300 which remains within the limit of the overdraft account.

HIS HONOUR: Just say that again.

MR COLLINS: The overdraft account – she has an overdraft which has a limit on it of $10,000. That’s her credit. That account is presently in debit in the amount of $4650, so rather than it being a pressing need to repay that sum to the bank, she in fact has access to a further $5300 credit in that account.

So if necessary, if Mr Mayne was unable to draw funds from Crikey and the evidence indicates he could, they do have access to that credit facility to meet their reasonable expenses over the next month. The Visa Card, again, it is a gold card. There was virtually nothing outstanding on it until the purchase of the Ford vehicle at the end of January for 19 and a half. The $17,500 and a half that had to be paid after allowance for the trade-in of $2000, was paid on that credit account, but it similarly has a small credit amount available on it still of $1072. There’ll be interest and minimum payments. They’re modest amounts and that was – well not entirely discretionary, because it’s accepted a family of two with a young child and Mr Mayne’s car is not currently running, need some transport. You can buy reliable second hand cars for less than $20,000. They chose not to and I can understand why, because they could afford to, but that’s not a reason why she ought to be able to discharge her liabilities, dissipating the funds available in satisfaction of any judgment.

HIS HONOUR: Yes.

MR COLLINS: Then she has her taxation liabilities of $14,282, deposed to in para 26(b). Those amounts will have to be paid but as we all know, arrangements can be made with the Taxation Department to pay those over time, although interest is payable and again, that’s the very reason why an injunction should be made, because if the funds are applied to discharge Ms Piccinini’s obligation to the Taxation Department, those funds will not be available for the satisfaction of Mr Mayne’s liabilities to his creditors, including the plaintiff as a judgment creditor if the action proceeds. That’s the very thing that the orders are designed to protect and Mr Mayne does not depose to any urgent expenses which he is unable to meet over the next month, until the action should be completed, that he’s unable to fund. Save, here he refers to the legal expenses. They’re only the disbursements which I’ve already addressed.

The response from Paula’s counsel

In reply, Counsel for Paula, Michael Wheelahan, said the following from page 60 of the transcript:

MR WHEELAHAN: The other point arising from the PCW case Your Honour is that a Mareva injunction ought not to be allowed to be used as an instrument of oppression and that in my submission is what the plaintiff is seeking to do here. He wants to go into this trial with a gun at the head of the second defendant and his wife. He wants to freeze all their liquid assets, so he starts the trial knowing that the second defendant’s wife can’t pay her tax bill, that they’ve got all these credit cards which have debts attracting high rates of interest, and thereby puts the second defendant and his wife in a position of duress.

The court should avoid that consequence. If there is any doubt about that position Your Honour it was resolved by the submissions made on behalf of Mr Price by my learned friend, where my learned friend took Your Honour to the detail of the assets and liabilities and said, “They can get a little bit of money out of this credit card and they’ve got a bit left on this overdraft and so forth”.

Mr Price wants to put the second defendant and his wife in the position where their only source of money for every day living is on credit cards. He wants to be in that position going into this trial. He wants to prevent my client paying her tax bill and that in my submission is a matter which Your Honour should take into account when Your Honour comes to the balance of convenience. So Your Honour also has before Your Honour a history of the mortgage taken out by my client in respect of the property and Your Honour will see from the history that the principal has remained at about the same level, 05.the principal has remained static for the duration of the loan. There’s been no attempt to borrow further moneys on the property and the principal which was discharged – the principal of the second defendant’s loan which was discharged, was not much less. It was about $303,000, so the mortgage – the level of the mortgage on the property has remained relatively unchanged throughout that period.

So going back to the balance of convenience Your Honour, my primary submission is that the balance of convenience favours the discharge of the injunction entirely. My alternative submission Your Honour is that if Your Honour were of the view that some sum ought to be frozen, it has to be far less than the $118,000 which the plaintiff seeks and that’s for all the reasons I’ve submitted, which are the speculative nature of the quantum of the plaintiff’s damages. The hardship which would be caused to the second defendant and my client, should the order remain at the level which is being sought. The difficult financial position my client particularly is in, in relation to her taxation. The fact that she’s willing to undertake to the court to use any moneys released to her in the manner which I submitted earlier. The fact that the manner in which Mr Price has sought this order and is attempting to continue it will be oppressive in the context of the litigation and finally Your Honour, the requirement that the court should do only the minimum to do justice between the parties and in my submission, the minimum to do justice between the parties might involve freezing say about 30 or $40,000. They are my submissions Your Honour.

In summing up we now return to Mr Price’s silk FROM PAGE 68:

MR COLLINS: That really then leaves us Your Honour with the question of hardship and oppression and as Your Honour has pointed out, you only really have to look at Ms Piccinini’s debts and position in order to see that. The hardship isn’t the hardship of denying them the ability to live. What it would mean is that they would have to live on income, as opposed to capital.

And there’s no material that suggests that Mr Mayne and Ms Piccinini can’t sustain their reasonable standard of living between now and the trial on the income available to him from his work strikey.com. I mean he’s entitled to draw money for his efforts and he has done so and is continuing to do so, and as the material demonstrates, the capacity of strikey.com to make funds available to enable him to live and to provide him with an income, it’s where he spends all his time and effort and his skill has increased over the last month rather than being diminished, so they’re in no different position to most people in our community who, rather than living out of capital they live out of income, and what they’re asking is to be treated in an exceptional way where, despite the fact there’s a judgment that’s transferring these circumstances, that they be entitled to dissipate that asset which we say should be preserved until trial, by living out of it rather than out of income, and that really leaves us, Your Honour, with the credit cards – there is no reason why they should be dissipated, and the distinction between

And in concluding his argument, Paula’s counsel responded as follows:

MR WHEELAHAN: My learned friend Mr Collins made a submission in reply that Ms Piccinini and Mr Mayne ought to live off income like everyone else and not live off capital. That’s the very sort of thing that I submit amounts to oppression. They’re the sort of mean submissions being made on behalf of Mr Price in this case and that is oppression and duress and that’s something that Your Honour should take into account in determining what orders should be made.

HIS HONOUR’S DETERMINATION

This is an application for the continuation of an asset preservation order which I made ex parte on last Friday, last Thursday, 21 February 2002. The plaintiff Mr Price was granted an order affecting the proceeds of the sale of some real estate which had then been recently sold by the second defendant’s wife, Paula Piccinini. The proceeds of that sale which taking into account, secured debts on them, amount to some $118,000. It is now sought by Mr Price the plaintiff in this action, to continue the asset preservation order until trial in respect of that $118,000.

The basis of the plaintiff’s claim is that the property the subject of the sale and therefore, the source of the $118,000, would be property which in the event that Mr Mayne, the second defendant, was declared bankrupt, his Trustee in Bankruptcy would be able to recover pursuant to s.120 of the Bankruptcy Act. That brings the case into the statement of principle laid down by the High Court in Codela v. LED Builders Pty Ltd (1999) 198 C.L.R. at 380. And the principle contained in the statement of the court at 405 in these terms.

“What then is the principle to guide the courts in determining whether to grant Mareva relief in a case such as the present where the activities of the concerned parties are the objects sought to be restrained. In our opinion such an order may, and we emphasise the word may, be appropriate assuming the existence of other relevant criteria and discretionary factors in circumstances in which: One, the third party holds, is using or has exercised or is exercising the power of disposition over, or is otherwise in possession of assets including ‘claims and expectancies’ of the judgment debtor or potential judgment debtor; or Two, some process ultimately enforceable by the courts is or maybe available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which whether by appointment of a liquidator, Trustee in Bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor, to help satisfy the judgment against the judgment debtor”.

It is the second of those two principles upon which the plaintiff relies in this case. There are a number of considerations which are relevant to the grant of an asset preservation order pending the trial of an action such as that with which this case is concerned, and many of them have been referred to an argument. Among them is the strength of the case which the plaintiff has. The likely quantum of the damages which he might obtain. The hardship which might be imposed upon the third party and the oppression which might arise from the granting of Mareva relief in circumstances where the parties are as they are in this case, that is the defendant is, as he is in this case, not a person of infinite wealth or a bottomless pocket.

It’s inappropriate that I should comment at this point on any matter relating to the strength of the plaintiff’s case or the likely quantum of damages. It is likely that I will be the trial judge in relation to the trial, which is shortly to be held and that those issues will of course be canvassed at length there and a decision given in respect of them. It would be inappropriate for me at this stage to comment upon them. There are two issues which apply in every interlocutory injunction – the two matters which must be looked at in relation to every interlocutory injunction, namely, the question of whether there’s a serious issue to be tried in respect of which the injunction – on the issue in respect of which the injunction is sought and what the balance of convenience is in relation to the injunction, were also canvassed in argument.

Mr Collins asserts that so far as s.120 of the Bankruptcy Act is concerned, it would be a foregone conclusion that were a Trustee in Bankruptcy to seek recovery of the proceeds of the sale of the house, with which this application is concerned, he would be successful on the basis of the circumstances in which the transfer to Ms Piccinini occurred. Mr Wheelahan for the purposes of this application only, concedes that there is at least a serious issue to be tried as to that matter and there is no need for me to concern myself further with it, having regard to that entirely appropriate concession.

When one looks to the balance of convenience, a large number of factors arise, not the least of which is that the parties in respect of whom the injunction is sought, namely Ms Piccinini and by derivation, the second defendant in the trial, are living in circumstances where their living expenses and assets are only just covering, covering with very little leeway, their expenses. That hardship is one of the matters that needs to be taken into account, as is the argument put by Mr Wheelahan that were this order to operate oppressively against Ms Piccinini at this point, it would have a derivative affect on Mr Mayne’s capacity to properly fund his defence of Mr Price’s action. There is something in each of those propositions, as there is in Mr Collins’ argument that if he’s correct about the operation of s.120 in this circumstance, then this would – the failure to continue the injunction would make Mr Mayne judgment proof to the detriment of his client, Mr Price.

In all the circumstances I propose to take a middle course and to take up the offer made by Mr Wheelahan on behalf of Ms Piccinini in respect of undertakings. It’s a well known principle that one of the discretionary factors to be taken into account in relation to the granting of an injunction, is the offer of a party to give an undertaking. In the circumstances here,

Mr Wheelahan has offered on behalf on Ms Piccinini to undertake to hold a specified amount in her solicitor’s trust account, pending the resolution of this litigation, and in respect of the amount not so held to use it in accordance with certain priorities.

In all the circumstances I consider it appropriate that the sum of $40,000 should be held in the solicitor’s trust account pursuant to Ms Piccinini’s undertaking and that she should also be asked to undertake to disperse the balance firstly, in payment of her taxation liability and – or her total taxation liability, that is to say the final notice in respect of her assessment, and the current BAS payment which is currently due. Upon the giving of those undertakings in an appropriate form, I consider it appropriate in this case to dismiss the application for the continuation of the injunction.

Ends

Price’s counsel then said the following:

MR COLLINS: Your Honour there will be an issue – a real issue about the order because you will recall Mr Wheelahan wanted to apply the proceeds after the payment of the tax for the benefit of Mr Mayne. We will want the proceeds applied to her debts in the first instance, rather than Mr Mayne’s because of course if Mr Mayne becomes a bankrupt then to the extent that they’re applied towards the payment of his debts or expenses he incurs in the future, he’ll obtain the benefit and they won’t be recoverable.

HIS HONOUR: The limit of the restraint that I’ve proposed in my reasons Mr Collins was that she must pay her tax debt. She can deal with her other debt in whatever way she likes. If she wants to lend money to Mr Mayne or give money to Mr Mayne, that will be a matter for her. The restraint is only in respect of the – there are two benefits your client gets: one is the benefit of the $40,000 and the other is that she must immediately pay off her tax debt and her – – –

MR COLLINS: I understand that so that she would receive the whole of the funds, if she dissipated them and so therefore, if she was found liable to repay the 118,000 to a trustee, the whole of that amount would then be treated as her liability because it is her application for funds she receives – – –

HIS HONOUR: Just say all that again.

MR COLLINS: I’m thinking ahead Your Honour because the effect of Your Honour’s order is that it gives Ms Piccinini the capacity to dissipate the funds, save for $40,000 of them. If ultimately Mr Mayne becomes bankrupt and the whole of the 118 is therefore recoverable, rather than just the 40 that will remain, then she would have a liability for that amount.

HIS HONOUR: Yes, which she may or may not be able to meet.

MR COLLINS: Which she now may not and whatever flows from that, flows from it. I want to make it clear though that it would be as Mr Wheelahan understands it. She is the person who will be dissipating those funds and would there have a liability as – – –

MR WHEELAHAN: No I won’t accept that at all.

HIS HONOUR: The only restraint Mr Collins, whether I do it by undertaking or by injunction seems immaterial – is that she will hold $40,000 in her solicitor’s trust account and she will use – from the balance she will pay off her taxation debts. What happens after that will be entirely a matter for her – no restraint at all.