State of New South Wales v Shinji Pty Ltd

1. [1]

   HIS HONOUR: By notice of motion filed on 22 December 2021, the State of New South Wales (“the plaintiff”) seeks a freezing order against Shinji Pty Ltd (in liq) (“the first defendant”) and Masaaki Imaeda (“the second defendant”) pursuant to r 25.14(1) of the Uniform Civil Procedure Rules 2005 (NSW) (“the UCPR”). The order sought would affect the property of the second defendant pending the resolution of proceedings between the parties in the Common Law Division of the Court.

The relevant background to the application

1. [2]

   On 2 July 2014, there was a fire on a property at Alexandria of which the first defendant was the registered proprietor (“the Depot”). The fire spread to an adjoining property of which the New South Wales Minister for Public Works was the registered proprietor (“the adjoining property”). The second defendant and Mariko Imaeda, who was his wife, were the sole directors of the first defendant. At the time of the fire, the second defendant was estranged from his wife and resided in an office at the Depot.

2. [3]

   On 30 June 2020, the plaintiff commenced proceedings against the defendants by statement of claim, claiming damages for negligence and nuisance in respect of damage caused to the adjoining property.

3. [4]

   The first defendant was deregistered on 20 March 2015. On 29 June 2020, Black J made orders reinstating the company, winding it up pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) and appointing a liquidator. On 2 July 2020, the statement of claim was served upon the first defendant. On 3 September 2020, the Court made an order staying the proceedings against the first defendant.

4. [5]

   The plaintiff has been unable to locate the whereabouts of the second defendant. On 24 December 2021, Davies J made orders for substituted service allowing the second defendant to be served by email at his last known email address. The statement of claim, the notice of motion and associated documentation were served on the second defendant on 24 December 2021. There has been no response to date, and there was no appearance by or on behalf of the second defendant at the hearing of this application.

5. [6]

   The essence of the plaintiff’s claim, as distilled from its statement of claim, is as follows. The first defendant operated a tourist bus business from the Depot. At the time of the fire, the second defendant resided in an office on the premises and provided low-cost accommodation, for a fee, in caravans and a bus that were parked there and for the storage of various items including vehicles, boats and butane gas. At the time of the fire, there were about thirteen occupants of the property.

6. [7]

   The second defendant provided power to the bus and caravans by way of extension cords that were connected to a power board in a shed. The electrical system was unsafe and the second defendant knew it to be so. The fire was started by an electrical fault in the shed that was caused by an excessive amount of electricity being used by one or more of the occupants.

7. [8]

   The alleged defendants’ breaches of duty in negligence are pleaded in the following terms:

8. [9]

   The particulars of the second defendant’s liability in nuisance are a repetition of par 31 of the statement of claim.

9. [10]

   The plaintiff’s contention as to the source of the fire is supported by two reports. One was issued on 29 July 2014 by the Fire Investigation and Research Unit of Fire and Rescue NSW, which concluded that there was a low probability of the fire being deliberately lit and that the probable cause was “an unspecified electrical fault involving possibly an appliance, an electrical extension cord or power board”. The other was commissioned by the plaintiff from Murray Nystrom of Australia Forensic Pty Ltd and dated 22 June 2020. It concluded that the fire originated from “some form of unidentified electrical fault” in a storage compartment at the Depot.

10. [11]

    The second defendant was interviewed by police on the day of the fire. In the course of the interview, he stated that he believed that the power source to the caravans was unsafe.

11. [12]

    In 2016, the second defendant pleaded guilty to two charges pursuant to the Environmental Planning and Assessment Act 1979 (NSW) (“the EPA Act”), namely, that he carried out a development without obtaining the required consent (s 76A(1)(a)) and that he carried out a development that was prohibited under the provisions of the Local Environmental Plan, being the Sydney Local Environmental Plan 2012 (s 76B) (“the Land and Environment proceedings”). He was fined a total of $210,000 and ordered to pay the prosecutor’s costs of $71,000: The Council of the City of Sydney v Imaeda [2017] NSWLEC 19.

12. [13]

    In the proceedings, the parties tendered a statement of agreed facts. Paragraph 14 stated:

13. [14]

    In mid-December 2014, the first defendant sold the Depot for the sum of $4,246,000. The sum of $4,104,083 of the proceeds was paid into an account in the name of the Masaaki Super Fund, via the trust account of the solicitors acting on the conveyance for the first defendant, Foulsham and Geddes. The only beneficiaries of the Masaaki Super Fund were the second defendant and Mariko Imaeda. The trustee of the Masaaki Super Fund was Masaaki Enterprises Pty Ltd. The second defendant and Mariko Imaeda were the directors of Masaaki Enterprises Pty Ltd.

14. [15]

    On 24 January 2015, the first defendant sold another property using the same firm of solicitors, an apartment in the City of Sydney, for the sum of $990,000. Of the sale proceeds, the sum of $966,615 was paid into the solicitors’ trust account and thence to the Shinji Family Trust ($386,000), Moumoku Pty Ltd ($350,000) and the Masaaki Super Fund ($230,615). Moumoku Pty Ltd was incorporated on 28 November 2014. Its sole director and shareholder was the second defendant’s son, Shinji Imaeda. On 5 December 2014, Moumoku Pty Ltd replaced the first defendant as the trustee of the Shinji Unit Trust. The material before me does not include any identification of the trustee or beneficiaries of the Shinji Family Trust.

15. [16]

    On 17 February 2015, the second defendant applied to the Australian Securities and Investments Commission (“ASIC”) for voluntary deregistration of the first defendant. In the application, the second defendant stated that the company’s assets were worth less than $1,000 and that it had no outstanding liabilities. The application identified Ark Accounting Pty Ltd as the relevant contact, should ASIC have a query concerning the application. As noted, the first defendant was deregistered on 20 March 2015.

16. [17]

    The liquidator of the first defendant investigated the company’s examinable affairs, including the whereabouts of its directors, the reasons for the sale of the Depot and the apartment, the traceable proceeds of the sales, the second defendant’s assets and the advice received by the first defendant from a financial advisor and its solicitors concerning its liabilities.

17. [18]

    As to the latter issue, the liquidator examined Jacob Carswell-Doherty, a principal of Foulsham and Geddes who acted for the first defendant on the conveyances and for the second defendant in the Land and Environment proceedings. Mr Doherty gave evidence that in late 2014 he advised the second defendant that the owner of the adjoining property may have a claim in tort against the first defendant and that if the first defendant was to be wound up, then funds would need to be set aside to deal with possible creditors, including the plaintiff.

18. [19]

    As to the second defendant’s whereabouts, Dylan Chan, who was a director of Ark Accounting Pty Ltd, gave evidence on 5 July 2021 that the second defendant had informed him that he was leaving Australia. Mr Chan therefore presumed that the second defendant was overseas. On 2 September 2021, Mr Chan gave evidence that the last contact he had with the second defendant was in the form of an email that he received from him dated 7 July 2021. The address on the email was the address at which the second defendant was served with the plaintiff’s statement of claim, pursuant to the orders made by Davies J on 24 December 2021.

19. [20]

    A solicitor acting for the plaintiff, Jacqueline Haski, in an affidavit that was affirmed on 22 December 2021 and read on the motion, deposed to unsuccessful attempts to locate a residential address for the second defendant and to contact him.

20. [21]

    As to the second defendant’s traceable assets, Mr Chan gave evidence concerning three accounts.

    1. (1)

       Part of the proceeds of the sale of Depot and apartment were held in an account known as the Asgard eWRAP Super Account, which was a superannuation fund comprising units in index managed funds, for the benefit of the second defendant. The value of the units, as at 2 September 2021, was $194,388.14.

    2. (2)

       The second defendant had a Wealthtrac Allocated Pension Division Account, which is a form of superannuation account, from which regular drawdowns of about $3,000 to $6,000 per month were made. The underlying assets of the account included publicly listed shares. As at 2 September 2021, their value was $1,632,321.59.

    3. (3)

       A personal account with the ING bank, which the second defendant referred to in an email from the second defendant that was addressed to Mr Chan, dated 24 June 2020. There is no information as to the balance of the account.

21. [22]

    The plaintiff’s case against the second defendant is that his personal liability for the tortious acts of the first defendant arises from his direction of, and participation in, the tortious acts: Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd (2003) 9 VR 171; [2003] VSC 291 at [198]-[201].

The assets sought to be frozen

1. [23]

   The order sought as to the nature of the second defendant’s assets to be frozen is in the following terms:

The relevant principles

1. [24]

   Rules 25.11 and 25.14 of the UCPR are pertinent to the application. The relevant parts are as follows:

2. [25]

   As to the meaning of “a good arguable case” in r 25.14(1)(b) and “a danger that a … prospective judgment will be wholly or partly unsatisfied because … the assets of the … prospective judgment debtor … are … disposed of, dealt with or diminished in value” in r 25.14(4)(b)(ii), I note that in Blue Mirror Pty Ltd v Pegasus Australia Developments Pty Ltd [2021] NSWSC 961, Kunc J observed:

Consideration and determination

1. [26]

   On the basis of the material that has been tendered by the plaintiff, in particular, as to the origin and cause of the fire and the second defendant’s actions, I am satisfied that the plaintiff’s claim against the second defendant, as pleaded in its statement of claim, constitutes a “good arguable case”. The evidence is capable of persuading the Court that the second defendant resided at the Depot, was responsible for letting the accommodation and was aware of the dangers posed by the manner in which he provided electrical power to the tenants. Further, that it was the negligent manner in which electrical power was provided by the second defendant that caused the fire and, ultimately, the damage to the adjoining property.

2. [27]

   Had the second defendant filed a defence by the hearing of this motion, it would have been taken into account by the Court in determining whether the “good arguable case” requirement is met: Formerank Ltd v Luo [2020] NSWSC 1641. In the absence of a defence and any supporting material, my determination is based exclusively on the plaintiff’s pleading and the material tendered on the application by the plaintiff.

3. [28]

   As to the second requirement, that there is a danger that the second defendant’s assets will be “disposed of, dealt with or diminished in value” so as to render the prospective judgment wholly or partly unsatisfied, I take into account the steps taken by the second defendant as a director of the first defendant to liquidate and transfer its assets to other entities of which he was a beneficiary and that these actions were contrary to the advice he received from his solicitor, namely, that before doing so, there was a need to make financial allowance for a claim in respect of the fire damage to the adjoining property. I also take into account that the second defendant’s whereabouts are unknown and that attempts made on behalf of the plaintiff to contact him have been unsuccessful.

4. [29]

   I am satisfied by that evidence that there is a danger that the prospective judgment will not be satisfied if the freezing order is not made.

Orders

1. [30]

   Accordingly, I make the following orders.