FC of T v KARAGEORGE & ORSJudges:
Supreme Court of New South Wales
These proceedings were commenced by summons filed on 2 August 1996 for Mareva relief against Constantine Karageorge and Nodnara Pty Ltd, a company in which he is interested. Three other persons, Diana Karageorge, Ann Maree Bowen and John Gerathy are defendants to the proceedings but no or no further relief is sought against them at this time. On that day Mr Justice Abadee granted interlocutory relief until further order as follows:
``That the first defendant and the second defendant be restrained from operating upon any account held by him or it or on his or its behalf with the National Bank of Greece or the Agricultural Bank of Greece or any other bank or financial institution outside of the Commonwealth of Australia and from receiving, dealing with or disposing of or causing to be disposed of or dealt with any moneys in those accounts.''
Although that relief was granted until further order and a formal motion to dissolve the injunction was not filed, both parties (as the transcript reveals) conducted the matter before me as if it were at large and I was to make fresh orders. The plaintiff pressed for orders in terms of prayers 1, 4, 5 and 6 of the summons which are as follows:
``1 An order that without further order of the Court or the written consent of the plaintiff the defendants and each of them be restrained from selling, disposing, encumbering, transferring or otherwise dealing with any assets belonging to the first or second defendants or either of them or which they or either of them may be beneficially entitled including in this respect any real estate, personal property or money and any other asset of any kind whatsoever and wheresoever situate save that this order shall not prevent the first defendant from spending the sum of $300.00 per week on ordinary living expenses.
4 An order that without further order of the Court or the written consent of the plaintiff the first and second defendants and each of them be restrained from operating upon any savings, credit or cheque account wheresoever situate held by the first or second defendant with any bank or other financial institution and whether in his or its name or otherwise and also be restrained without further order of the Court or the written consent of the plaintiff from receiving or otherwise dealing with any monies to which the first and second
ATC 5116defendants or either of them may be or [sic] entitled save that this order shall not operate so as to prevent the defendant from spending or receiving the amount specified in order 1 above in respect of ordinary living expenses or to prevent compliance with order 6 hereunder.
5 The first defendant and the second defendant be restrained from operating upon any account held by him or on his behalf with the National Bank of Greece or the Agricultural Bank of Greece or any other bank or financial institution outside of the Commonwealth of Australia and from receiving or disposing of or causing to be disposed any monies in those accounts save that this order shall not operate so as to prevent compliance with order 6 hereunder.
6 The first and second defendants forthwith take all necessary steps (including the signing of such authorizations and authorities) to cause all monies in the accounts specified in order 5 or held by or on behalf of the first or second defendants or either of them with any bank, financial institution, person or entity outside the Commonwealth of Australia or to which the first and second defendants or either of them is or are entitled to be deposited with the Prothonotary of this Honourable Court.''
In relation to order 1, it was conceded on behalf of the plaintiff that $750 per week would not be unreasonable as the living allowance and that Mr Karageorge must have access to moneys for his criminal defence. The defendants pressed that there should be no Mareva relief at all on the evidence now available; that the application should be characterised as one whereby the plaintiff seeks to have security for its judgment rather than a proper invocation of the Mareva principle; and that, in any event, the order for the return of funds to Australia and their deposit with the Prothonotary of the Court is novel, ought not be made and would certainly cross the boundary of giving the plaintiff security.
Mr Karageorge has certainly been the object of concentrated use by the Commonwealth of Australia of its coercive powers. He at present awaits trial for indictable offences charged against him on behalf of the Commonwealth. When those charges were brought in the ordinary way they were at committal dismissed by the Magistrate. Thereupon, ex officio indictments were filed against him. In respect of certain property transactions in the past the defendants were assessed to almost $700,000 in capital gains tax by the Commissioner of Taxation. Thereupon moneys to that extent were taken by the Commissioner by the use of notices under s 218 of the Income Tax Assessment Act 1931 (``the ITAA''). Thereafter, those assessments were reduced on objection to some $23,000. The balance taken was not refunded but further assessments were then raised by the Commissioner on a different basis but, as I understand it in respect of the same transactions. Objections were made to these assessments but remain undetermined by the Commissioner more than 12 months later. But he has issued out of this Court process for the recovery of outstanding amounts under the assessments and it is in support of that process, although brought in separate proceedings by the present summons that relief is presently sought. Upon Mr Karageorge obtaining from this Court a variation of his bail conditions to permit him to travel to Greece the plaintiff by administrative fiat forbade him from doing so. Mr Oakes of Senior Counsel for the defendants has eloquently characterised the facts as a concerted attack by government upon citizens which he says ought not be further assisted. Mr Walker of Senior Counsel for the Commissioner has with equal eloquence replied that the powers exercised have been given to the public officials concerned by the laws of a democratic Parliament and that their use is not untoward.
Against that background of conflict I turn to the evidence on which the present relief is sought.
Mr Karageorge is obviously of Greek origin or descent. His father lives in Greece. Even during the 2 years traversed in some detail by the evidence in this case Mr Karageorge has visited Greece for some time on at least 2 occasions and returned thereafter to Australia. He has some form of business association with his father through the second defendant. He and his father are the directors of the second defendant. They are the shareholders of the company. There is conflict as to whether 4,500 additional shares have or have not been issued to the father and when, but I regard that as peripheral to this matter. The accounts of the company show that it has lent some $1,270,000
ATC 5117to Mr Karageorge Sr. This is in excess of the amounts which have been sent by the defendants to Greece of recent times as shown in the evidence and suggests that before any of the events traversed in the evidence the company had sent funds to Greece which were lent to Mr Karageorge Sr, ie, the course of dealing involving the lending to that gentleman by the company of large sums of money had commenced before the present conflict arose.
The plaintiff's evidence of the amounts that have been transmitted by the defendants to Greece since the beginning of July 1994 is set out in the affidavit of Ray Laurence Francis sworn 2 August 1996 and is as follows:
- ``(i) 20 July 1994, an amount of $232,034.35 was deposited with the National Bank of Greece, two cheques made payable to C Karageorge in the amounts of $162,034.35 and $70,000.
- (ii) 23 February 1995 an amount of $142,772.00 to the Agricultural Bank of Greece by way of an Outgoing International Funds Transfer.
- (iii) On 3 April 1995 an amount of $125,000.00 was withdrawn from an account in the name of AM Bowen and a cheque drawn in favour of C Karageorge which cheque was presented to the National Australia Bank Limited for an international funds transfer.
- (iv) 4 April 1995 an amount of $125,000.00 to the Agricultural Bank of Greece by way of an Outgoing International Funds Transfer.
- (v) 18 April 1995, a St George Bank cheque (drawn on an account in the name of AM Bowen) payable to C Karageorge in the amount of $30,000.00 was deposited with the Agricultural Bank of Greece.
- (vi) 1 July 1995 an amount of $242,500.00 a St George Bank cheque made payable to C Karageorge and deposited with the Agricultural Bank of Greece on 16 June 1995.
- (vii) 23 August 1995, an amount of $100,000.00 by way of an Incoming International Funds Transfer from the Agricultural Bank of Greece to Bowen & Gerathy.
- (viii) 18 March 1996 an amount of $3,500.00 by way of an Incoming Funds Transfer, from the Agricultural Bank of Greece to AM Bowen.''
There is, in addition, in Exhibit G evidence that suggests the transmission of an additional sum of $140,000 by the first defendant on 23 April 1995.
The criminal proceedings and taxation assessments appear to be as follows. On 12 July 1994 the plaintiff commenced an audit into the taxation affairs of the defendants. On 19 July 1994 assessments were issued to the second defendant in the amount of $698,760.34 in respect of the years of income 30 June 1991 to 30 June 1993 inclusive. This sum (which was inclusive of penalties) was said to be in respect of capital gains during those years of $1,050,440. It is not clear from the evidence when these assessments were received by the defendants. Also on 19 July 1994 the first defendant was arrested on charges of conspiracy and perjury. Also on that day s 218 notices were served on various banks including the St George Bank and on 21 July 1994 that Bank paid to the Commissioner $698,760 out of the second defendant's account. On 25 July 1994 the Commissioner informed the defendants that a tax audit was being undertaken. On 16 September 1994 the second defendant lodged objections to the assessments. On 25 March 1995 the objections were allowed and the tax liability was reduced to $23,440. On 28 March 1995 the plaintiff issued a revised assessment of $880,000 including penalties on an alleged income of $1,660,000 claiming tax was payable by the second defendant under s 25(1) of the ITAA on the basis that the second defendant was a trader in property and also disallowing certain deductions in various years as not being proper deductions. On 25 October 1994 the first defendant was examined on oath by officers of the Commissioner pursuant to s 264 of the ITAA. On 28 July 1995 the conspiracy charge against the first defendant was dismissed. In August 1995 Nodnara paid uncontested 1994 tax of over $100,000, repatriating funds from Greece to do so. In September 1995 the first defendant travelled to Greece and subsequently returned. On 13 December 1995 the perjury charge against the first defendant was dismissed. Thereafter ex officio indictments were filed against him. On 10 February 1996 the first defendant travelled to Greece returning on 20 April 1996. On 15 April 1996 assessments of income tax were issued against the first defendant personally. On 11 July 1996 the first defendant applied for a
ATC 5118bail variation to permit travel to Greece which was granted by Simpson J. On 15 July 1996 the Commissioner issued a departure prohibition order against the first defendant. On 2 August 1996 the summons in these proceedings was issued.
On his bail variation application on 11 July 1996 Mr Karageorge gave oral evidence and was examined and cross examined before Simpson J in this Division. His answers included the following (transcript pp 8, 18):
Q You also recall on p 6 of the statement of facts a reference to two transfers of funds?
Q To the Agricultural Bank of Greece?
A That's correct.
Q Namely 142,772?
Q And $125,000?
A That's correct.
Q Did you transfer amounts of money In those sums to the said bank?
A That's correct.
Q What was the purpose and nature of that transfer?
A The purpose and the nature was that I wished to have about $250,000 in Greece as a fund so I can use that fund to fight both the National Crime Authority in my incoming case in November and also the dispute with the Taxation Department. Had the money been left here the Taxation Department with the help of the National Crime Authority would have tried to impound that money again under a s 218 and they would have left me with no money to fight either my criminal charges in November or my taxation case and I would probably have to get legal aid.
Q Perhaps I'll just move on. Apart from the $267,000 you sent overseas, what other money have you sent overseas?
A None at all. Sorry, none at all. Not to - I haven't sent any money to myself at all, no.
Q Have you sent any other money overseas to anyone on behalf of anyone?
A Yes, I have sent some money prior to my arrest on about the 19th of July 1994. I sent proceeds of a property sale that my father conducted here to him, about $232,000 from memory.
Q So apart from that $232,000 and the $267,000 referred to today you haven't sent or caused to be sent by yourself or on behalf of anyone else money overseas?
Q At any time?
The High Court in
Jackson v Sterling Industries Ltd, (1987) ATPR ¶40-792; (1987) 162 CLR 612 allowed an appeal from an order made by the Federal Court requiring the respondent to ``provide security in the sum of $3 million in such manner and form as the parties may agreed or, in default of agreement, the Court or its Registrar may approve''. Wilson and Dawson JJ said (at ATPR p 48,641; CLR p 619):
``It has been a criticism of the Mareva doctrine that it constitutes an enlargement rather than the fulfilment of a court's function: see, eg,
Pivovaroff v Chernabaeff (1978) 16 SASR 329, per Bray CJ; Meagher, Gummow and Lehane, Equity: Doctrines and Remedies, 2nd ed. (1984), pars 2183-2187. The criticism has not generally prevailed but it serves to emphasize the limited scope of the Mareva injunction. It exists not to create additional rights but to enable a court to protect its process from abuse in relation to the enforcement of its orders. It is neither a species of anticipatory execution nor does it give a form of security for any judgment which may ultimately be awarded. For the reasons given by Deane J, the orders made by the Federal Court went beyond the proper limits of the remedy and this appeal must be allowed.''
And Deane J said (at ATPR 48,644-48,645; CLR pp 625-626):
``There are three related grounds upon which these combined orders are susceptible of attack. First, they required the appellant to pay into court not money identified as being within his possession but money
ATC 5119which he was required to provide or obtain regardless of source. Secondly, they go beyond a mere order for the preservation of assets pending judgment or execution in that they specifically required that the money be paid into court as `security'. Thirdly, they failed to identify either what the money paid `to any Registrar' was to secure or what the entitlement of the appellant (or anyone else) was in relation to it after it has been so paid. Put in positive form, it appears to me that, when an order for the preservation of assets goes beyond simply restraining the defendant from disposing of specific assets until after judgment, it must be framed so as to come within the limits set by the purpose which it can properly be intended to serve. That purpose is not to create security as a condition of being allowed to defend the action against him. Nor is it 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 (including claims and expectancies) 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 or (in `a most exceptional case') extends to the appointment of a receiver of all or part of the assets of a defendant company (see the discussion in the judgment of Street CJ in
Ballabil Holdings Pty Ltd v Hospital Products Ltd (1985) 1 NSWLR 155 at p 159ff). 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: it should not purpose to create security over them in favour of the plaintiff...''
What then must be established for an applicant for Mareva relief to succeed and to what standard of proofs? The relevant guidance for trial Judges in this State comes from the decision of the Court of Appeal in
Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, where Gleeson CJ said (at pp 321-324):
``The remedy is discretionary, but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that, by reason of the defendant's absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied....
Ninemia Maritime Corporation v Trave  1 WLR 1412,  1 All ER 398, the Court of Appeal in England declined the invitation of Mustill J to give a more precise definition of the standard of proof required in relation to this matter. Their Lordships said (at p 1419; 417):
`... However, in our view this is again not a matter on which this court should, or usefully could, express any general view. Although the plaintiffs' evidence on this aspect is open to the three criticisms mentioned above - the first of which was probably unknown to the judge at that stage - we do not think that it would be useful to seek to lay down any standard of evidence which applicants for Mareva injunctions must satisfy in order to succeed upon an ex parte application. Bare assertions that the defendants are likely to put any asset beyond the plaintiff's grasp and are unlikely to honour any judgment or award are clearly not enough by themselves. Something more is required. Viewed from this point of view, the plaintiffs' evidence in the present case can certainly be described as exiguous. In that respect it is very much of a borderline case. However, the judge presumably took the view that in all the circumstances there was just enough to justify the limited injunction which he granted, leaving it to the defendants to apply to have it discharged, as happened, and knowing that no real harm would thereby befall them which could not be dealt with by an order as to costs.
ATC 5120Accordingly, despite the judge's implied invitation to us to do so, we would not go so far as to say that, in the exercise of his discretion, he was wrong to make the order which he made. However, the exiguousness of the plaintiffs' evidence on this aspect must naturally weigh strongly, as it did with the judge in this case, when the court comes to consider the whole of the evidence on the application inter partes to discharge the injunction.'
I agree that it would be undesirable for courts to endeavour to be more precise in relation to the question now in issue....
Just as in the ordinary case of the granting of an interlocutory injunction a judge is required to be sensitive to the consideration that the final hearing of the suit will ordinarily not involve issues which go to the matter of balance of convenience, and that he is therefore deciding that matter once and for all, so when an application is made for a Mareva injunction a judge will necessarily be sensitive to the need for caution in considering the requirement presently under discussion. To impose a complete or partial freeze on the assets of a person is no light matter....''
A further complication in this matter arises from the fact that the vast bulk of the assets sought to be restrained on the evidence before me are overseas and were overseas at the time of the commencement of these proceedings and of the making of the ex parte order by Abadee J. There is no doubt that in the case of a defendant which has a presence within the jurisdiction so that equity may act upon him or it in personam (as is the case with each of the defendants in these proceedings) Mareva injunctions may be granted in relation to assets outside Australia: so much was decided in Ballabil, supra. However, it is said that the jurisdiction in relation to assets overseas will be exercised only in exceptional cases. One of the complications with relation to assets overseas is that persons other than the defendants who may be affected by the order are in no way within the jurisdiction of the Court. In Ballabil the exceptional feature said to justify the exercise of the jurisdiction was that the assets concerned had been within the jurisdiction at the time proceedings were commenced and removed from the jurisdiction thereafter. In England more extensive use has been made of the jurisdiction to restrain overseas assets than in Australia. But it is still said by the Court of Appeal in England that that jurisdiction should be exercised only in exceptional cases: see
Derby & Co Ltd v Weldon (No 3 & 4)  Ch 65;
Derby & Co Ltd v Weldon (No 6),  1 WLR 1139; and see generally Gee on Mareva Injunctions and Anton Piller Relief (3rd Edn, 1995) 155-158. And there a standard form proviso is incorporated in such orders to circumscribe its effect on third parties outside the jurisdiction formulated in
Babanaft International Co SA v Bassatne  Ch 13 and now prescribed by Practice Direction (Mareva and Anton Piller Orders)  1 WLR 1233;  4 All ER 52.
It appears that here there is in the first defendant an individual who lives in Australia but has connexions in Greece to which he travels regularly. There is a company incorporated in New South Wales of which the shareholders and directors are this individual and his father, who lives permanently in Greece. The evidence shows that the defendants transferred various sums to Greece before the commencement of these proceedings. The first defendant said in evidence before Simpson J that the reason in relation to at least some of the transfers was to put them beyond administrative action under s 218 of the ITAA under which the Commissioner in fact obtained payment of some $689,000 from a bank account of the second defendant. I am impressed by the fact that of the sums sent to Greece at least $100,000 was repatriated in 1995 to pay taxation owing to the Commissioner of Taxation. Mr Walker concedes that there is nothing unlawful in an individual so arranging his or its affairs and so placing his or its money that it is not available to be taken pursuant to s 218. The affairs of the first defendant and particularly of the second defendant were and at all material times have been partly in Australia and partly in Greece. The first defendant has travelled to Greece whilst on bail and returned to answer his bail. Bearing in mind the factual matters laid before me and what was said by the Chief Justice in Patterson's case, supra, I am not prepared to find it established on the evidence that there is a danger of the first defendant's absconding or the defendants dealing with their assets so that the plaintiff if he succeeds will not be able to have his
ATC 5121judgment satisfied. I bear in mind that in some cases relief has been granted on exiguous evidence, but this is not a case such as Patterson's case where the cause of action itself was a cause of action in fraud against the plaintiff.
I have been pressed by Mr Walker to find that I should draw the inference from the intention to put money beyond the reach of a s 218 notice an intention to put it beyond the reach of any judgment (although this test is beyond what a plaintiff must establish) or to infer a danger of dissipation of funds so that a judgment will be frustrated. Similarly I have been pressed by Mr Walker either to infer a dishonest intent on the part of the first defendant or at least to infer such a danger from the wrongness of the first defendant's answers before Simpson J on 11 July 1996 in that in denying that he had paid moneys overseas beyond those referred to in the cross examination he omitted to mention some payments, the principal of which was $140,000 on or about 23 April 1995. However, bearing in mind the different nature of the issues in those proceedings, the comparatively small part that this aspect played in that matter, the fact that the payment of which mention was omitted was one of a number of payments over a period, the less than entirely clear evidence concerning that payment, the fact that it had been made some 15 months before the day on which the evidence was given, and the size of the amount involved compared with the $600,000 odd the transmission of which overseas was admitted, I do not see in that error, however it arose, the significance which Mr Walker presses on me. The answers as to motive and the incorrectness arising from the omission of mention of the $140,000 I have taken into consideration in coming to the conclusion expressed above and they are not sufficient taken with the other matters to cause me to come to the opposite conclusion. I also bear in mind, in exercising my discretion in this matter, the fact that the bulk of the assets sought to be restrained are overseas and were overseas before the commencement of these proceedings; that it would seem that the rights or interests of other people including the banks with whom they are deposited and the father who is the co-owner of the second defendant may be affected by the granting of the injunction; and the limitation by the Courts here and in England of relief in relation to overseas assets to exceptional cases, of which, in my view, this is not one in the requisite sense.
Mr Walker concedes that the relief asked for by way of orders ensuring the return of moneys to Australia to be deposited with the Prothonotary are even more exceptional and he can point to no case in which such an order has been made in circumstances such as the present. I decline to do this. In doing so, it does seem to me that in exceptional circumstances the Court's jurisdiction may go so far: receivers have been appointed under the Mareva jurisdiction and orders even made in English courts ordering the transfer of assets from one foreign jurisdiction to another: Derby & Co Ltd (No 6), supra. I am not proceeding on the basis that an order of this type might never be made but that there are not in this case such exceptional circumstances as would lead to the making of such an order.
In this matter orders by way of discovery have been made after the commencement of the proceedings against both the 2 defendants who are responding to the present application and against the other 3 defendants who are parties to the proceedings but against whom no further orders are now sought. Those orders are spent and it is not my intention that what follows should disturb any existing order, with the exception of the subsisting ex parte injunction of Abadee J. So far as that injunction is concerned, since it was made until further order, albeit ex parte, the first and second defendants bear the onus of demonstrating that it ought be dissolved. That, however, is the conclusion to which I have come on the evidence before me and in the light of the considerations set out above.
As a result of my conclusions the orders I propose to make are:
1 I order that order 1 made by Abadee J on 2 August 1996 be discharged.
2 Apart from orders previously made and still subsisting I dismiss the summons.
There are certain outstanding matters of costs relating to the fourth and fifth defendants. I am prepared to hear submissions relating to costs as between the plaintiff on the one hand and the
ATC 5122first and second defendants on the other and these can be dealt with at the same time as the outstanding issues of costs relating to the fourth and fifth defendants.
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