Aqualand North Sydney Lavender Development Pty Ltd v The Owners – Strata Plan No. 102081

1. [1]

   Mitchelmore JA: The applicant, Aqualand North Sydney Lavender Development Pty Ltd, sought leave to appeal from freezing orders made by Stevenson J on the application of the respondent, the owners corporation of a mixed commercial and residential development in Milsons Point that the applicant developed (I will refer to the applicant below as the Developer). The respondent has brought proceedings seeking damages against the Developer and another company in the Aqualand group in respect of alleged building defects. The orders which are the subject of the application for leave enjoin the Developer from disposing of, dealing with or diminishing the value of any of its assets below the unencumbered value of $10,628,123.00, being the amount of the respondent’s claim.

2. [2]

   The Developer sought leave to appeal on the basis that the freezing orders are interlocutory: Supreme Court Act 1970 (NSW), s 101(2)(e). The draft notice of appeal contained a single proposed ground, alleging that the primary judge misapplied the test in r 25.11 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and/or to enliven the Court’s inherent jurisdiction to grant a freezing order. The application for leave was heard concurrently with the appeal.

3. [3]

   Although the Developer contended that the application raised a point of general principle, its arguments in support of the proposed ground of appeal were directed at the primary judge’s application of settled principles to the particular circumstances of the case, and did not raise an injustice which was reasonably clear in the sense of going beyond what was merely arguable: see eg Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]; Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]-[39]. Accordingly, I would refuse leave to appeal.

The decision of the primary judge

1. [4]

   The respondent made the application for freezing orders under Part 25 Division 2 of the UCPR. Relevantly for present purposes, r 25.11 provides:

2. [5]

   Rule 25.14 relevantly provides:

3. [6]

   The primary judge heard and determined the respondent’s application for freezing orders on the same day. His Honour noted that the respondent had filed all of its evidence in the proceedings, including from a quantity surveyor evidencing the amount of its claim: at [5]. At the time of his Honour’s decision, the Developer’s evidence was due in March 2025 (senior counsel for the Developer informed this Court that the due date has since been pushed back).

4. [7]

   There was no dispute that the respondent had a good arguable case in terms of its underlying claim for damages: at [8]. The issue between the parties was whether the respondent had shown that there was “a danger that any judgment it obtains will be wholly or partly unsatisfied because the Developer will or may dispose of its assets”: at [9]. As to that issue, the primary judge stated at [10]:

5. [8]

   Turning to the facts of the present case, his Honour noted that the development was completed in July 2021, and “[s]ince August 2021, the Developer has been selling the residential units in the ordinary course”: at [11]. Four units, with a total value of some $23.8 million, remained unsold and in the Developer’s name: at [12]. The Developer also retained the two commercial lots, which were valued at some $5.3 million and were subject to leases with third parties expiring in 2031: at [14].

6. [9]

   His Honour noted that the four remaining residential units were listed for sale on the Domain.com and Aqualand websites: at [12]. Although none of the units was placed with an agent for sale at the time of his Honour’s decision (one of the units has since been sold), there was “no reason to think the Developer has lost interest in selling those units and every reason to think that, in due course and very likely before the finalisation of these proceedings, it will sell them”: at [13]. The Developer had adduced no evidence to suggest otherwise: at [13]. In relation to the commercial lots, his Honour noted that their combined value would be insufficient to meet the respondent’s claim if successful: at [14].

7. [10]

   The primary judge then made the following findings:

8. [11]

   His Honour considered that one fact supporting the inference he drew in [16] “albeit perhaps faintly” was that the Developer had refused the respondent’s request for an undertaking that it not dispose of the proceeds of sale of the remaining lots below the amount needed to meet the respondent’s claim. Although his Honour acknowledged that the Developer was not obliged to give that undertaking, “its failure to do so is at least consistent with the inference that I have drawn that, absent restraint, it would continue to deal with proceeds of sale as it has in the past”: at [17]. His Honour also noted that the Developer did not point to any prejudice it would suffer if it were obliged to retain the figure the subject of the respondent’s claim: at [18]. In all of the circumstances, his Honour was “persuaded that the requisite ‘danger’ exists and to make the order that the Owners Corporation seeks”: at [19].

The application for leave to appeal

1. [12]

   The primary judge recognised, in [9], that the purpose of the power to make a freezing order is, as expressed in r 25.11, to prevent “the frustration or inhibition of the court’s process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partly unsatisfied”. The Developer did not take issue with his Honour’s summary, in [10], of the test to be applied when considering whether there is such a danger.

2. [13]

   At the outset of his oral submissions, senior counsel for the Developer submitted that what was unusual about the present case was that the primary judge granted the respondent’s application “when there were no facts found suggesting something in the scheme of circumstances that would give rise to a frustration of the assets to abuse the court's processes”: Tcpt, 27 May 2025, pp. 1(47)-2(2). As articulated at the hearing, the Developer’s primary contention was that his Honour was not entitled to grant the extraordinary remedy of a freezing order where his Honour found that the Developer sold units “in the ordinary course” of its business and that its conduct, in distributing profits by way of dividend or loaning some part of the proceeds to other companies in the group, was normal and commercially rational.

3. [14]

   Senior counsel’s invocation of the language of frustration and abuse of process reflected that used in cases addressing applications for orders of this nature, a number of which he took the Court to during oral submissions. In Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264 (“Riley McKay”), which concerned an application for a Mareva injunction, in explaining its conclusion that the Court had jurisdiction to make such an order deriving from s 23 of the Supreme Court Act or the Court’s inherent power, the Court (Street CJ, Hope JA and Rogers AJA) stated at 276:

4. [15]

   The Developer also highlighted the general principles that Gaudron, McHugh, Gummow and Callinan JJ endorsed in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 (“Cardile”) at [41] by reference to the joint judgment of Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 32-33; [1998] HCA 30. Relevantly for present purposes, the joint judgment in Cardile stated at [42] that where relief is directed against parties to the proceedings and against whom final relief is sought, the focus is “the frustration of the court’s process”. By contrast, if relief is available against non-parties, their Honours said that “the focus must be the administration of justice”.

5. [16]

   The Developer accepted that it was not necessary for an applicant for freezing orders to establish a positive intention on the part of their opponent to frustrate the court’s processes, consistently with National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271 at 277; [1990] HCA 10. Nonetheless, it submitted that there needed to be something about the identified conduct to justify the remedy in the circumstances, given its extraordinary character. Without drawing the precise limits of that “something”, the Developer submitted that it was absent from the present case. The primary judge’s finding that the conduct the Developer was likely to engage in (with the effect of diminishing its assets below the amount of the claim) was expected, ordinary and commercially rational was not sufficient to constitute the requisite danger to which r 25.11 of the UCPR refers.

6. [17]

   The Developer submitted that in proceeding on the basis that the matters on which his Honour relied were sufficient, the primary judge significantly lowered the jurisdictional threshold for the grant of a freezing order. On his Honour’s approach, freezing orders could effectively be used as security for judgments, contrary to authorities that have warned against such orders being used for that purpose: see eg Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 621, 625; [1987] HCA 23, and the passage from Riley McKay at 276 that I have extracted at [14] above.

7. [18]

   The Developer’s submissions focused on particular descriptions the primary judge applied to aspects of its conduct at the expense of a broader (and fairer) reading of his Honour’s ex tempore reasons. His Honour’s finding that the Developer was selling units “in the ordinary course” (at [11]) reflected its status as a special purpose vehicle “whose only function was to develop the subject site”: at [15] (emphasis added). Of the 121 units it had sold, the Developer had retained none of the proceeds of sale. Instead, it had distributed the profit by way of dividend or, from time to time, loaned some part of the proceeds to other members of the Aqualand group. His Honour found, as a matter of reasonable inference, that absent restraint the Developer would act in the same way in relation to the four (now, three) remaining units once sold.

8. [19]

   As the respondent submitted, the Developer’s sale of the units might have occurred in the ordinary course, but the manner in which it dealt with the proceeds of sale were not “ordinary course transactions” such as might otherwise have immunised them from enjoinder. They were not akin to the payment of trading debts and satisfaction of ordinary trading liabilities, such as paying wages, tax liabilities or utilities. Contrary to the complexion that the Developer sought to place on how his Honour described its activities in his reasons, the primary judge did not treat them as such.

9. [20]

   His Honour’s findings as to how the Developer ordinarily dealt with the profits it received from the sale of the units provided a more than sufficient basis for the conclusion that, with only four units remaining, the requisite danger to which r 25.11 refers existed, namely, that the prospective judgment “will be wholly or partly unsatisfied”. Considered together with the absence of prejudice to the Developer in the event that freezing orders were made (which his Honour found at [18]), his Honour made the order in the exercise of the discretion.

10. [21]

    The Developer referred to a number of cases to support that the primary judge made the error for which it contended and that his Honour’s findings should have marked the beginning and not the end of an evaluative exercise. Those authorities do not call for a contrary conclusion to that which the primary judge reached in the present case or otherwise demonstrate error on his Honour’s part.

11. [22]

    The first of these was Palmer v Parbery; QNI Metals Pty Ltd v Parbery [2019] QCA 27; (2019) 136 ACSR 26 (“Palmer v Parbery”), which involved the equivalent rules to rr 25.11 and 25.14 in the Uniform Civil Procedure Rules 1999 (Qld) (rr 260A and 260D). McMurdo JA (Fraser and Gotterson JJA agreeing) considered at [54] the following statement of Gloster LJ in Holyoake v Candy [2017] 3 WLR 1131 at [34]:

12. [23]

    The primary judge in Palmer v Parbery had been critical of the use of “unjustifiable” on the basis that it would involve an inquiry into the defendant’s purpose or motivation, but McMurdo JA considered that what Gloster LJ meant by “unjustifiable” was informed by the relevant text that was cited, Gee on Commercial Injunctions (6th ed) at [12-032] (the relevant section in the latest edition (Gee on Commercial Injunctions (7th ed)) is [12-040]). As McMurdo JA stated by way of summary, at [55]:

13. [24]

    His Honour then referred to TTMI Ltd of England v ASM Shipping Ltd of India [2006] 1 Lloyd’s Rep 401, in which Clarke J similarly stated at [25]:

14. [25]

    McMurdo JA considered the passage from Riley McKay at 276 that I have set out at [14] above to be to the same effect: at [56].

15. [26]

    The Developer sought to emphasise the focus in these passages, and in Palmer v Parbery itself, on the nature of the dispositions in question. The transactions and attempted transactions that formed the basis for the relief sought in Palmer v Parbery were, as McMurdo JA described them at [57], “extraordinary by any measure”. The Developer submitted that by contrast, on the primary judge’s findings, its sale of the units took place in the ordinary course and its payment away of profits in the form of dividends or loans was normal and commercially rational, the implication being that they provided an insufficient basis on which to find an unjustifiable disposition of its assets.

16. [27]

    Reliance on the notion of an unjustifiable disposition of assets places an unnecessary gloss on the language of the rules. Ultimately, senior counsel for the Developer returned to the policy behind r 25.11, submitting that its purpose was not to provide a plaintiff with security but rather to prevent a frustration of the court’s processes, and that this “looks at whether something exists in the factual spectrum that takes this out of the ordinary into the extraordinary”: Tcpt, 27 May 2025, p. 14(15)-(18). For the reasons I have already explained, the primary judge’s findings as to the Developer’s “ordinary” activities met that threshold, and are not to be equated with the satisfaction of ordinary trading liabilities.

17. [28]

    The Developer also referred to Organic Grape Spirit Ltd v Nueva IQT, SL [2020] EWCA Civ 999 (“Organic Grape”) in support of the proposition that ordinary course business transactions do not ordinarily ground jurisdiction to make a freezing order (although senior counsel did not submit that such transactions were incapable of giving rise to the requisite danger). Newey LJ (Arnold LJ and Richards LJ agreeing) stated at [17]:

18. [29]

    In Organic Grape, the primary judge had granted a freezing order enjoining transactions in pursuit of a new business venture. Newey LJ first considered whether the transactions were “in the ‘ordinary’ course of business” and concluded that they were not, as there was no prior pattern of trading or pre-existing business by reference to which the pattern of transaction behaviour could be judged as ordinary: at [29]. Nonetheless, Newey LJ considered that the primary judge had erred in granting the freezing order because doing so enjoined the legitimate pursuit of a business venture, and that business venture was not of sufficiently low prospects and was not pursued in bad faith, stating at [31]:

19. [30]

    These parts of the reasons of Newey LJ in Organic Grape serve to highlight the differences with the present case. True it is that the Developer sold units as a matter of course, and dealt with the proceeds of those sales in the same way each time, and its conduct in that respect was, as his Honour found, common and expected of a special purpose vehicle. Far from assisting the Developer, however, that is precisely what gave rise to the requisite danger.

20. [31]

    The Developer also referred to the decision of McDougall J in Skyworks v 32 Drummoyne Road [2017] NSWSC 343, in which his Honour granted freezing orders in respect of a risk of dissipation of assets by a special purpose vehicle incorporated for the purpose of developing property, which had a pattern of loaning proceeds to other entities within its corporate group. The Developer sought to emphasise what it submitted were the exceptional circumstances on which McDougall J relied in that case, being:

    1. (1)

       There were no grounds for considering the respondent would be able to meet any claim: at [32]; and

    2. (2)

       the appointment of a new Superintendent (without apparent explanation), replacing a Superintendent who had demonstrated some support for the applicant’s claims, in respect of which McDougall J stated that “(a)bsent some explanation, this could be viewed as a ruse or, at best, tactical manoeuvre” which gave rise to an inference that the respondent might not wish to pay the claim: at [33]-[34].

21. [32]

    These matters do not relevantly distinguish this case in the manner contended by the Developer. So much is apparent from McDougall J’s conclusion. Ultimately, his Honour was satisfied that the jurisdiction to grant a freezing order was enlivened because the evidence demonstrated that the respondent’s assets in that case, if available, would be used to pay down debt owed to other companies in the corporate group, and it was not relevant that this dissipation might be for “legitimate business purpose[s]”:

22. [33]

    As was raised with the Developer during the hearing, the logical conclusion of its submission that this conduct was no more than ordinary was that if it sold the four units and paid any remaining expenses, the Developer would be justified in distributing the net proceeds of sale to the shareholders of the company (or loaning it to other entities in the corporate group) even though it faced claims of defective workmanship. Taking the argument to its logical conclusion, which would, in the words of Riley McKay, have “the necessary effect of frustrating” the respondent in its attempt to seek a remedy, highlights the difficulty with the Developer’s primary contention that “something more” was required than what the primary judge found.

23. [34]

    The Developer also submitted, as a secondary point, that the primary judge granted the freezing order prematurely (accepting, implicitly, that the conduct that the Developer sought to characterise as ordinary could ground the requisite danger). The point advanced in this context was that it was not open to the primary judge to find that there was the requisite danger at the time his Honour heard the application when the four units remained unsold and were not being actively marketed (although listed for sale online). As senior counsel put it, the primary judge made the determination “at a point far removed from getting to the point in time where that evaluative exercise might be undertaken”: Tcpt, 27 May 2025, p. 9(20)-(25). I do not accept the submission. His Honour found that there was a pattern of conduct on the part of the Developer that would be repeated when it sold the four remaining units. That finding was based on the sale of the previous 121 units. It did not follow from the Developer not having sold the four remaining units at the time of his Honour’s orders (one having since been sold) that his Honour could not find that the requisite danger existed, having regard to what had gone before. This secondary point, which only crystallised during oral submissions, does not warrant a grant of leave to appeal.

Conclusion

1. [35]

   I propose the following order:

   1. (1)

      The summons seeking leave to appeal is dismissed with costs.

2. [36]

   BALL JA: I agree with Michelmore JA. The language used in other cases to explain when it may and when it may not be appropriate to grant a freezing order should not be permitted to obscure the facts of this case. Here, the Developer was established as a special purpose vehicle to construct and to sell units in a mixed residential and commercial development and to distribute the profits of the venture to its shareholders. The obvious purpose of the structure was to insulate the other business activities of the shareholders from the financial risks associated with the venture. Apart from the sale of the remaining units and the distribution of the profits generated by those sales, the special purpose vehicle has served its purpose. The clear consequence of permitting it to distribute its remaining profits before defects claims were resolved would be to deny the claimant any remedy if its claims succeed. It is not helpful in that context to ask whether the distribution of the remaining profits was in the ordinary course of business or was something that was “extraordinary”. The only source the Developer had to meet claims for defects were the profits it generated from the venture and it was reasonable to infer that unless restrained it would continue to distribute those profits on the sale of the remaining units. In the circumstances of this case, that was sufficient to satisfy the requirements of UCPR r 25.14(4)(b)(ii) and to justify the granting of a freezing order.

3. [37]

   FREE JA: I agree with Mitchelmore JA, and with the additional reasons given by Ball JA.