Cardile v LED Builders PTY Limited: 1999

(High Court of Australia) The respondent (‘LED’) twice sought relief from Eagle Homes PTY Limited (‘Eagle’) for copyright infringement. Anticipating the proceedings the only shareholders and controllers of Eagle, the claimants arranged the declaration and payment of a dividend to them by Eagle of $400,000, and after the hearing of the infringement actions in March 1996, but before judgment in July, a similar payment of a further dividend of $658,977.12, again intenting to put Eagles assets beyond the reach of LED. LED obtained freezing orders against Mr and Mrs Cardile, and they sought to have them set aside on appeal on the grounds that there was no case against them of receipt and retention of any property of Eagle, nor any other basis for the grant of a freezing order against them in favour of LED.
Held: The court undertook a comprehensive review of the nature and rationale of the jurisdiction to grant interim relief and freezing orders based largely on English authority which included reference to the Aiglon case. The court set out principle determining whether Mareva relief should be granted in relation to the activities of third parties: ‘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 third parties are the object 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:
(i) the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including ‘claims and expectancies’ , of the judgment debtor or potential judgment debtor; or
(ii) some process, ultimately enforceable by the courts, is or may be 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.’
Applying that statement of principle to Mr and Mrs Cardile, the majority concluded that there were two bases upon which the court had jurisdiction to grant a freezing order against them on the application of LED. The first was that it was arguable that the declaration and payment of the dividends was an alienation of property with intent to defraud creditors, voidable at the instance of any person thereby prejudiced, within the meaning of section 37A of the Conveyancing Act, sufficient to give LED a direct cause of action against Mr and Mrs Cardile as a person thereby prejudiced.
The second basis was that the declaration and payment of both dividends were voidable transactions within the meaning of Part 5.7B Divider 2 of the Corporations Law, and therefore liable to be set aside on application by a liquidator appointed at the instance of LED by way of enforcement of a quantified judgment for damages at the conclusion of its infringement proceedings. As they put it in paragraph 69 of their judgment: ‘A liquidator probably appointed on the initiative of LED but acting on behalf of all creditors, would be entitled to pursue and recover those funds’ (meaning the dividends).
Kirby J: ‘To secure an asset preservation order in a case such as the present, it will be necessary for the party seeking it to show, in addition to the conditions ordinary to the grant of relief injunctive in nature that (1) there is a danger that the non-party will dispose of relevant assets or property in its possession or under its control; and (2) that the affairs of the actual or potential judgment debtor and the non-party are closely intermingled and that the actual or potential judgment creditor has a vested or accrued cause of action against the non-party or may otherwise become entitled to have recourse to the non-party, its property and assets to meet the claim. Clearly, on the preliminary findings made by the primary judge, these preconditions were established in the present case.’
Gaudron, McHugh, Gummow, Kirby and Callinan JJ
[1999] HCA 18
Cited by:
CitedC Inc Plc v L and Another QBD 4-May-2001
The plaintiff had obtained judgment against L, only then to find that she claimed that all only apparent assets were held by her on trust for or as agent for her husband who was overseas. The plaintiff therefore now set out to add him, and to claim . .
CitedHM Revenue and Customs v Egleton and others ChD 19-Sep-2006
The claimants had applied for the winding up of a company for very substantial sums of VAT due to it. Anticipating that hearing, it now sought restraining orders against the director defendants, alleging that there had been a carousel or missing . .

Lists of cited by and citing cases may be incomplete.
Updated: 20 August 2021; Ref: scu.245163