Next Constructions Pty Ltd (Subject to a Deed of Company Arrangement) v Ryan

These reasons concern an application made by the defendants to be released from undertakings given to the Court on 3 July 2024 in respect of a specific asset of the defendants. The undertakings were given, without admissions, in lieu of freezing orders that had been made on a short-term basis following an ex parte hearing and which the plaintiffs sought to continue. The specific asset represented only part of the defendants’ assets. The defendants seek to be released from those undertakings, and offer substitute undertakings in respect of the same asset or propose that the Court make orders to the same effect as the proposed substitute undertakings, which will have the effect of permitting them to pay out of the relevant asset their reasonable legal costs of defending these proceedings and living expenses of up to $1,500 per week, but otherwise restraining them from dealing with or diminishing the relevant asset. The defendants make that application on the basis that they now require access to the relevant asset in order to fund part of their ordinary living expenses and to pay their legal costs.

The plaintiffs accept that the Court has power to grant the relief sought by the defendants, but oppose the defendants’ application to be released from their undertakings.

The defendants’ application was heard on 13 and 16 March 2026. At the conclusion of the hearing on 16 March 2026, I made orders releasing the defendants from their undertakings but restraining them until further order of the Court, from paying out of the asset that had been the subject of those undertakings anything other than their reasonable legal costs of defending these proceedings and an amount of up to $1,500 per week towards their ordinary living expenses. Those orders were made upon the plaintiffs and their sole director giving the usual undertaking as to damages, and on the basis that my reasons would be published as soon as practicable. These are those reasons.

These proceedings were commenced on 26 June 2024.

The first defendant is a former employee of the first plaintiff. The plaintiffs claim that their subcontractors made payments to totalling $726,948 to IJH Corporation Pty Ltd during the period from 29 June 2020 to 30 March 2022, that those payments were secret profits procured by the first defendant in breach of his fiduciary obligations owed to the plaintiffs, and that the first and second defendants received the benefit of those payments. The plaintiffs allege that the first defendant was a controlling mind of IJH Corporation and the second defendant, who is married to the first defendant, was the sole formally appointed director, secretary and shareholder of IJH Corporation. The second defendant is alleged to have knowingly assisted in the first defendant’s breaches of fiduciary duty or, alternatively, to have received the benefits of the payments as a volunteer.

The plaintiffs claim an account of profits or, alternatively, equitable compensation in the sum of $726,948, against each of the first and second defendants.

The plaintiffs do not make any claim for proprietary relief based on tracing.

Upon the plaintiffs and their sole director Mr Joseph Di Girolamo giving to the Court the usual undertaking as to damages, the Court made freezing orders against the defendants on an ex parte basis on 26 June 2024. The freezing orders restrained the second defendants from:

The plaintiffs submit that the sum of $1,100,000 was calculated on the basis of the sum of $726,948 plus interest and an amount for the plaintiffs’ costs of the proceedings.

The terms of the freezing order provided that it did not prohibit the defendants from paying up to $2,000 per week in ordinary living expenses, making ordinary repayments in respect of the mortgage secured against the Mepunga Property, or paying other bona fide living expenses after giving prior notice to the plaintiffs.

The Court made orders requiring the defendants to disclose bank statements relating to the loan secured by mortgage against the Mepunga Property. The plaintiffs’ application for disclosure orders in respect of all of the defendants’ assets was stood over to be determined at an inter partes hearing.

The plaintiffs’ summons and the freezing orders were served on the defendants on 27 June 2024.

On 1 July 2024, the defendants’ solicitors wrote to the plaintiffs’ solicitors offering to resolve the freezing order application on terms that:

That offer was made without admissions and without prejudice to the defendants’ position in relation to the freezing orders and the plaintiffs’ substantive claims for relief in these proceedings. The defendants dispute the allegations on which the plaintiffs’ substantive claims are founded.

On 2 July 2024, the plaintiffs’ solicitors responded with proposed consent orders that were consistent with the defendants’ proposal, with the addition of an undertaking not to encumber, dispose of, deal with, or diminish the value of the amount of $1,100,000 to be paid into the defendants’ solicitor’s trust account following the sale of the Mepunga Property. The consent orders provided for the Court to accept the defendants’ undertakings, for the freezing order to be permitted to lapse or be discharged on 4 July 2024, and for the parties to have liberty to apply “with respect to the operation of the undertaking provided by the defendants”.

The defendants’ solicitors replied that afternoon with a minor amendment to the description of the freezing orders in the terms of the consent orders, which the plaintiffs accepted.

On 3 July 2024, the Court made orders by consent noting the defendants’ undertakings in the terms that had been agreed by the parties and discharging the freezing orders with effect from 4 July 2024.

The discharge of the freezing orders had the effect of releasing the plaintiffs and Mr Di Girolamo from their usual undertaking as to damages. It appears that the parties may not have appreciated this at the time. At the hearing on 13 March 2026, counsel for the plaintiffs offered to the Court on behalf of the plaintiffs and Mr Di Girolamo the usual undertaking as to damages, retrospectively from and including 3 July 2024, in consideration for the defendants’ undertakings noted by the Court on 3 July 2024.

The undertakings noted and accepted by the Court on 3 July 2024 were not expressed to be until further order. However, the undertakings were plainly intended by the parties to be offered by the defendants and accepted by the Court on an interim basis pending the final determination of these proceedings, in lieu of the continuation of interim freezing orders.

At the time the defendants gave the undertakings noted by the Court on 3 July 2024, the Mepunga Property had been listed for sale with a price guide of $5,000,000. A sale at that price would have left the defendants with net proceeds of approximately $2,600,000 after discharging the mortgage over the Mepunga Property under which approximately $2,400,000 was owing. After paying $1,100,000 into their solicitor’s trust account in accordance with the undertakings, the defendants would have been left with funds of $1,300,000 million that were not the subject of the undertakings.

The Mepunga Property was sold for $4,300,000. After discharging the mortgage on settlement of the sale on or about 10 December 2024, the defendants were left with net sale proceeds $1,810,518, of which $1,100,000 was paid into their solicitor’s trust account in accordance with the undertakings. That left the defendants with a fund of $710,518 that was not the subject of the undertakings.

According to the first defendant’s evidence read in support of the defendant’s application, that fund has been expended in the following manner since 10 December 2024:

The total amount of the expenses listed above is $677,833.

The first defendant gave evidence that the defendants’ weekly income varies between approximately $3,162 and $3,662, depending on the number of hours worked by the second defendant in any given week. Their average weekly expenses (including rent and car loan repayments) are $4554. According to this evidence, there is an average shortfall of weekly income compared to expenses of between approximately $896 and $1,396. I infer that this shortfall accounts for the defendants drawing on the fund of $710,518 to meet some of their ordinary living expenses.

The first defendant also gave evidence that the defendants’ current assets are the 2024 Range Rover Sport valued at approximately $115,000 (in respect of which they owe $61,924) and $10,500 cash at bank. The defendants are currently liable to pay approximately $174,233 in respect of legal fees invoiced by their solicitors in respect of these proceedings.

The plaintiffs submit that the defendants’ evidence identifying the payments that have been made from the fund of $710,518 since December 2024 leaves approximately $76,000 unaccounted for when regard is had to the income that the defendants have earned while they have been incurring rent and other living expenses. That is to say, there is a sum of $76,000 of the $710,518 fund that may or may not have been spent by the defendants since December 2024 and in respect of which the defendants’ evidence is silent.

The plaintiffs also submit that the evidence leaves unanswered questions about whether the defendants, or either of them, have received additional income as beneficiaries of THJI Corp Trust, a discretionary trust which paid consulting fees totalling $42,171 and $61,347 in the 2024 and 2025 financial years respectively. However, as the defendants submitted, the plaintiffs have had access to bank statements produced by the defendants and have not identified any payments to the defendants from a bank account in the name of the THJI Corp Trust or its trustee, THJI Corp Pty Ltd, for consulting fees, distributions, or otherwise.

By amended notice of motion filed on 12 December 2025, the defendants seek an order releasing them from their undertakings noted by the Court on 3 July 2024. In substitution for those undertakings, the defendants offer undertakings on the same terms save that they be permitted to pay out of the $1,100,000 fund their reasonable legal costs incurred in defending these proceedings and an amount of up to $1,500 per week for living expenses. Alternatively, the defendants offer to consent to orders restraining them until further order from accessing the $1,100,000 fund, other than for the purpose of paying those legal costs and ordinary living expenses. The defendants submit that they do not otherwise have sufficient resources to pay their defence costs and to fund their reasonable living expenses, noting that they have three dependent children.

The plaintiffs correctly accept that the Court has power to grant the relief sought by defendants if new facts have come into existence or been discovered which render continued enforcement of the undertakings unjust. However, the plaintiffs submit that the Court’s willingness to do so will be affected by the fact that the defendants gave the undertakings to the Court pursuant to a negotiated agreement. [1] The plaintiffs submit that the defendants are therefore required to establish not just a material change in circumstances since the undertakings were given, but exceptional or special circumstances, before they can be released from the undertakings.

The plaintiffs submit that the defendants have not established exceptional or special circumstances, or even a material change in circumstances since the undertakings were given on 3 July 2024. The plaintiffs submit that the debts and expenses that the defendants have paid out of their assets that are not the subject of the undertakings - being the fund of $710,518 - were either known and foreseeable at the time the undertakings were given, or were “wanton” discretionary spending. As I have already mentioned, the plaintiffs also submit that the defendants have not fully accounted for the disposal of their assets that are not the subject of the undertakings.

As I have explained, the undertakings noted by the Court and the orders made by consent on 3 July 2024 were the product of an agreement between the parties whereby the plaintiffs would not apply for the continuation of the freezing orders that had been made ex parte on 26 June 2024 if the defendants gave the undertakings. The undertakings were plainly intended by the parties to be offered by the defendants and accepted by the Court on an interim basis pending the final determination of these proceedings and to serve the same purpose as would have been served by a continuation of the freezing orders. The orders made by consent granted liberty to the parties to apply “with respect to the operation of the undertaking”. I do not consider that the parties’ agreement precluded the defendants from exercising that liberty if the defendants’ circumstances changed in such a manner that the undertakings interfered with the defendants’ ability to fund their defence of these proceedings, to pay their reasonable living expenses, or to pay other liabilities incurred bona fide. That is to say, a reasonable businessperson in the position of the parties, understanding the nature of a freezing order for which the defendants’ undertakings were offered as a substitute and having regard to the terms of the order granting liberty to apply, would not have understood the parties to have intended that the undertakings would effectively give the plaintiffs security for any future judgment in their favour, irrespective of any resulting prejudice to the defendants’ ability to pay their ordinary living expenses, their reasonable legal costs of defending these proceedings, and other bona fide debts and liabilities, if the defendants’ financial circumstances changed during the course of the proceedings.

I reject the plaintiffs’ submissions to the contrary. It is not relevant that Mr Di Girolamo may have subjectively relied on the agreement as precluding the defendants from exercising the liberty to apply to be partly released from their undertakings, even in those circumstances, and thereby providing iron-clad security for any future judgment in the plaintiffs’ favour.

For those reasons, I reject the plaintiffs’ submission that the defendants must demonstrate special or exceptional circumstances in order to persuade the Court to grant the release from the undertakings. However, the defendants are required to demonstrate that their circumstances have changed sufficiently since 3 July 2024 to warrant the Court considering what is, in effect, a proposed variation to the interim regime established by the undertakings. In the circumstances of this case, that will involve demonstrating that the defendants have a need for expenditure which cannot be satisfied other than by resort to the $1,100,000 fund that is the subject of the undertakings. [2]

The manner in which the defendants have spent their other resources since 3 July 2024 is relevant to the determination of the application. If the defendants have dissipated those other resources in a manner which, when coupled with the variation to the undertakings now sought, would have the effect of frustrating the enforcement of any future judgment against them, that will be relevant to the exercise of the Court’s discretion.

The evidence which I have summarised at [20]-[26] above establishes that the defendants’ circumstances have changed since the undertakings were given on 3 July 2024, in that they received substantially less from the sale of Mepunga Property than they would have anticipated based on the selling price guide and that, unless they are able to draw on the $1,100,000 fund that is the subject of those undertakings, they will have insufficient funds to pay their presently outstanding legal fees for their defence of these proceedings and to pay their future legal fees, and they will be unable to cover all of their ordinary living expenses. The defendants’ need for access to the $1,100,000 fund is clear, notwithstanding that their evidence does not account for every dollar of expenditure out of their other resources. The amount of legal fees presently owing by the defendants in respect of these proceedings significantly exceeds the $76,000 amount which the plaintiffs submit the defendants have not “accounted for”. [3] The plaintiffs did not take any issue about the reasonableness of the amount of those legal fees.

I reject the plaintiffs’ submission that this is not a relevant change in circumstances because the defendants knew of their obligations to repay the loan to the second defendant’s father, and were aware of their weekly living expenses and the estimated legal costs of these proceedings at the time they gave the undertakings on 3 July 2024. That submission irrationally ignores the substantial change in the amount of the net funds actually received by the defendants from the sale of the Mepunga Property in December 2024 compared to the anticipated outcome of that sale at the time the undertakings were given.

I reject the plaintiffs’ submission that the defendants have spent their available resources “wantonly” since the undertakings were given. The defendants’ expenditure is not of a kind which, coupled with the variation to the undertakings now sought, is calculated to have the effect of frustrating the enforcement of any future judgment against them in these proceedings. It is not to the point that the defendants might have chosen to purchase a less expensive vehicle, or to deprive their children of a family holiday. Those are the only items of expenditure that the plaintiffs characterise as “wanton” discretionary spending.

To decline to release the defendants from their undertakings and to substitute the orders that they propose in respect of the $1,100,000 fund would be to give the undertakings an even more draconian operation than any freezing order could legitimately have. It would be unjust, and contrary to the well-established principles governing freezing orders, to hold the defendants to their undertakings that were given in lieu of freezing orders and to thereby deprive the defendants of the ability to pay their legal costs and all of their ordinary living expenses. [4]

I reject the plaintiffs’ submission that the Court should decline to release the defendants from their undertakings – thereby imposing the draconian consequence referred to above – on the basis that the evidence adduced by the defendants failed to disclose the existence of the THJI Corp Trust as an additional resource or source of income on which they could draw. As I have already mentioned, there is no evidence that either of the defendants has in fact received distributions from the THJI Corp Trust or other payments from the trustee, and the evidence revealed that the THJI Corp Trust made only very modest profits. The evidence does not support an inference that the defendants have adopted a strategy of retaining or accumulating wealth in the THJI Corp Trust in order to be able to present their financial position summarised at [20]-[26] above in support of their application to be released from their undertakings so as to be permitted to draw from the $1,100,000 fund to pay their legal expenses and to pay part of their ordinary living expenses.

For all of the foregoing reasons, the following orders were made at the conclusion of the hearing on 16 March 2026: