RAFFLES EDUCATION CORPORATION LIMITED V MILLS HC AK CIV 2007-404-001096

RAFFLES EDUCATION CORPORATION LIMITED V MILLS HC AK CIV 2007-404-001096 16 November 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2007-404-001096UNDER the Arbitration Act 1996 IN THE MATTER OF an application for Mareva Injunction BETWEEN RAFFLES EDUCATION CORPORATION LIMITED Plaintiff AND KAREN ANN MILLS Defendant Hearing: 14 March, 26 April and 21 June 2007 Appearances: C Patterson for Plaintiff R J Latton for Defendant Judgment: 16 November 2007JUDGMENT OF COOPER JThis judgment was delivered by Justice Cooper on 16 November 2007 at 10.30 a.m., pursuant to r 540(4) of the High Court Rules Registrar/Deputy Registrar Date: Solicitors: Jones Young, PO Box 189, Shortland Street, Auckland Lee Salmon Long, PO Box 2026, Shortland Street, Auckland Copy to: C Patterson, PO Box 2886, AucklandIntroduction[1] The defendant applies to set aside or vary an order (the "Mareva order") made on an ex parte originating application by the plaintiff by which she was restrained until further order, from disposing of or dealing in any way with any of her money, property or other assets. [2] The plaintiff seeks to maintain the Mareva order. It also applies to join, as further defendants, the trustees of a Trust with which the plaintiff is associated (the Kamil Inn Trust). The defendant is one of three trustees, the others being her husband and a company. [3] The dispute between the plaintiff and the defendant arises out of an agreement executed on 31 July 2006 ("the share purchase agreement") for sale and purchase of the shares in a company owned by the defendant called the Mac Club Ltd. That company operated two training institutions called Digitrain and Educol. In an affidavit sworn on 9 March 2007, the defendant explained that she had incorporated the Mac Club Ltd in March 2000. In 2001 it obtained NZQA accreditation to be able to offer full-time training to students and that enabled it to obtain government funding. Until September 2006, the defendant was a director and the shareholder of the Mac Club Ltd. [4] In June 2004, the defendant purchased Educol Ltd. That was also an educational training business, specialising in beauty, photography and special effects make up. She was the sole director of Educol Ltd., and the Kamil Inn Trust was the sole shareholder. (At some stage Educol Ltd., was renamed "Educol 2004 Ltd". I will simply call it Educol.) In her affidavit the defendant explained that Educol and the Mac Club Ltd were two separate companies trading as Educol and Digitrain respectively. From early 2006 they were effectively both run as one school. Both Digitrain and Educol received substantial funding from the Tertiary Education Commission. [5] The plaintiff is incorporated in Singapore. According to Ee Yong Chong, its Director, Mergers and Acquisitions, it is a leading provider of education services inAsia, and operates a total of 26 colleges in the Asia Pacific region. It conducted a due diligence process during which it received from Mr d'Souza, the Mac Club Ltd's Operations Manager, a spread sheet showing that the business (Digitrain and Educol) had 376 students. [6] In the material on which it relied to obtain the Mareva order, the plaintiff maintained that in October 2006 it discovered that the data base was missing some 192 students, but was assured that the missing files would be retrieved from archives. On 27 October 2006 the plaintiff paid the defendant the agreed purchase price under the share purchase agreement of $1.5 million. [7] The plaintiff asserted in its application for the Mareva order that the business is in fact effectively worthless. Far from having purchased a profitable going concern it had to inject capital of $500,000 to keep it solvent. It claimed that it faced a potential liability to repay the sum of $960,000 for over-funding, wrongly claimed from the Tertiary Education Commission. It alleged the defendant had breached the warranty provisions in the share purchase agreement. [8] The plaintiff disclosed to the Court that there was an arbitration clause in the share purchase agreement. However, counsel for the plaintiff pointed out in his memorandum accompanying the ex parte application, that pursuant to Article 9 in Chapter 2 of the First Schedule to the Arbitration Act 1996, the Court has the same powers in relation to disputes being arbitrated as it has in respect of proceedings before the Court to make interim injunctions or other interim orders. So that, although the rights and obligations of the parties were to be arbitrated under the share purchase agreement, the schedule to the Arbitration Act nevertheless enabled the Court to exercise its powers to issue Mareva injunctions under r 239 of the High Court Rules. [9] Before turning to the applications of the parties that now need to be resolved, it will be helpful to set out by way of background the procedural path that the proceeding has followed since the Mareva order was made.Procedural background[10] Winkelmann J granted the Mareva order on 5 March 2007. As already mentioned, it restrained the defendant from disposing of or dealing with in any way, any of her money, property or other assets within her own name or not and whether solely or jointly owned. Winkelmann J also ordered that the defendant was to file and serve an affidavit listing her current assets, and any assets that she has disposed of since 1 November 2006 and their whereabouts. That affidavit was ordered to be filed and served by 5.00 p.m. on Tuesday 13 March 2007. [11] On 8 March the matter was mentioned before me in the Duty Judge's list. I altered the order that Winkelmann J had made by consent, providing for certain exceptions from it to enable the defendant to meet legal costs, taxation liabilities, accountancy fees and to pay her ordinary living expenses. Mr Latton foreshadowed an application to set aside or vary the order and the defendant accepted time-table orders that I made so as to enable the application to be heard on 14 March. [12] The orders that I made were that the defendant's application be filed and served by 5.00 p.m. on that day, that any affidavits in support of the application were to be filed and served by 5.00 p.m. on 9 March, and affidavits in reply to be filed by 5.00 p.m. on 13 March. I did not expressly mention the fact that Winkelmann J had ordered, as part of the orders that she made on 5 March, that the defendant was to file and serve the affidavit listing her current assets. [13] I recorded a concession made by Mr Latton that, at the hearing of the application, the defendant would not argue that there was not a good arguable case that there had been breaches of warranties and misrepresentations inducing the plaintiff to enter into the share purchase agreement. [14] When the deffendant's application came on for hearing on 14 March, affidavits in support of it were filed, sworn by Mr Brendan Wood, the defendant's solicitor, by Mr d'Souza, and by the defendant herself. However, the defendant's affidavit, sworn on 9 March, did not contain a statement of her assets and liabilities. At paragraph 68 of that affidavit, the defendant stated:I am currently preparing a statement of my assets and liabilities. I intend to file and serve this statement by 12 March 2007 in accordance with Winkelmann J's order.[15] Notwithstanding her stated intention, that affidavit was not filed by the morning of 14 March when the hearing commenced. Mr Latton referred to difficulties that had arisen out of the defendant's recent hospitalisation, as well as difficulties in obtaining information from an accountant. Mr Patterson indicated that he was content to proceed in the absence of the affidavit, pointing out that the defendant had been able to file a detailed affidavit dealing with other matters. In the argument that followed, one of Mr Paterson's submissions was that the Court could infer that the failure to provide the statement of assets and liabilities was an attempt by the defendant to conceal the true position. That, in turn, would be relevant, in his submission, to the risk of dissipation of assets. [16] By the time of his reply to Mr Paterson's submissions, Mr Latton was able to refer the Court to an affidavit that had by then been sworn by the defendant as to her assets and liabilities. It showed that her only personal assets were the sum of $2,000. Mr Patterson complained that the affidavit did not, as Winkelmann J had required be done, refer to any assets that had been disposed of since 1 November 2006 and their whereabouts. He indicated that he might receive instructions to make an application to enforce, Winkelmann J's order in that respect. [17] Having heard the parties' argument on the application to vary or rescind the Mareva order, I reserved my decision. However, on 16 March 2007, the defendant filed a further affidavit in which she deposed to how the $1.5 million that she had received from the plaintiff on the sale of the business had been dealt with. Over half had been paid to reduce the overdraft and loan indebtedness of the Mac Club Ltd and Educol. A further substantial payment had been made to the Inland Revenue Department in respect of GST and PAYE liabilities of the Mac Club Ltd. $237,441.50 had been paid to the Kamil Inn Trust, apparently for the defendant's personal benefit. Another $162,000 was also paid to that Trust. [18] On 19 March the plaintiff applied for compliance orders, to vary the order made by Winkelmann J on 5 March and to join further defendants. That applicationwas to be heard on 26 April. It sought to vary the order to require the defendant to list assets disposed of since 6 September 2006 (rather than 1 November 2006 as originally required) and to require her to file a more explicit affidavit listing her current assets and those disposed of. As to joinder, the plaintiff initially sought to join the trustees of the Kamil Inn Trust and Young Nails Ltd (another company owned by the defendant) as defendants. In the event, that application was pursued only in relation to the trustees of the Trust. [19] In a memorandum filed on 20 April, Mr Latton sought to place before the Court considerations relevant to the issue of over-funding students by the Tertiary Education Commission. As I have noted earlier, one of the plaintiff's contentions was that it had been left with a liability to the Tertiary Education Commission to refund a substantial sum in respect of over-funding as a result of misstatements by the defendant as to the number of students enrolled in courses at Digitrain and Educol. An affidavit had also been filed on 20 April 2007 by one Michael Heard, a solicitor employed by the defendant's solicitors, attaching certain correspondence that had passed between the plaintiff's counsel and the defendant's solicitors on that issue. [20] With that correspondence was a letter dated 29 March 2007 from the Tertiary Education Commission to the defendant's solicitors, and attached documentation. This showed that there had been over-funding by the Tertiary Education Commission paid to Educol 2004 Ltd in a sum of $374,543.23. But there had been no over-funding of the Mac Club Ltd. In addition, an e-mail from the Tertiary Education Commission to the defendant of 19 April 2007 confirmed that Digitrain had been over-funded by $51,958, for the period January to March 2006, equating to ten students. The defendant's solicitors wrote to the plaintiff's counsel concerning these matters on 5, 13 and 19 April 2007. Only the last communication received a response, and that was of a holding nature pending receipt of further instructions from the plaintiff's principal who was in Singapore. [21] At the hearing on 26 April, the plaintiff sought to rely on two affidavits that had only been served on the defendant at 5.00 p.m. on Tuesday 24 April (i.e. the day before Anzac Day). Mr Latton opposed those affidavits being read, on the basis thatthey contained factual material which the defendant disputed, but she had had no opportunity to respond. Having heard counsel I indicated that I would not be prepared to read the affidavits. At that juncture, Mr Patterson sought an adjournment, which I granted on the basis of an agreed time-table. I directed the Registrar to set the matter down for hearing on the first available date after Friday 8 June 2007, by which time the final step in the time-table was to be completed. [22] Before adjourning the matter however I was able to deal with that part of it seeking a variation of Winkelmann J's orders of 5 March 2007. As a result, the defendant was ordered to list any assets that she had disposed of since 6 September 2006. In other words, the required disclosure of assets disposed of was extended back by almost two months. In view of the material on which both parties apparently wished to rely at the next hearing, I also secured their agreement that the further evidence to be adduced at the hearing would be able to be taken into account in respect of the application to set aside Winkelmann J's orders. Thus, notwithstanding the fact that I had heard argument on that matter on 14 March, when I had reserved my decision, both parties agreed on the sensible position that I should take the material filed since then into account for the purpose of deciding that application, and the decision remained reserved in the meantime. [23] The further fixture was allocated for 21 June 2007.Joinder[24] I will deal first with the plaintiff's application to join the trustees of the Kamil Inn Trust. That application was no doubt prompted by the fact that when the defendant swore her affidavit of 14 March 2007 it showed her as having personal assets of only $2,000. Under a heading "Trust Assets" there was reference to two properties, by their addresses: 125 Victoria Street, 123 White Swan Road and 28 College Hill. Their values were given as respectively $1,550,000, $480,000 and $448,000. There was also a substantial list of liabilities, including mortgage debts to the National and ANZ Banks. Together with an overdraft facility of $220,000, these debts exceeded $1 million.[25] In her further affidavit of 16 March, the defendant deposed as to what she had done with the $1.5 million that she had received from the plaintiff pursuant to the share purchase agreement. Her evidence was that over $476,000 had been used to retire debt owed by the Mac Club Ltd and over $573,000 to retire debt owed by Educol. $98,384 had been paid to the Inland Revenue Department in respect of GST and PAYE obligations of the Mac Club Ltd. The remainder of the purchase price, according to the defendant, had been:paid into Kamil Inn Trust bank account as follows: (a) $62,320.61 on behalf of Educol; (b) $100,008.94 on behalf of the Mouse Factory Trust; and (c) $237,441.50 paid to me personally.[26] The defendant further deposed in her 16 March affidavit that, of the money paid into the Kamil Inn Trust on behalf of Educol, $18,438 had been used to meet tax obligations of Educol and $10,000 toward outstanding rental payments owing by that company. The balance had been used to repay part of a debt owed by Educol to Young Nails Ltd. The defendant described the Mouse Factory Trust as a "holding entity for equipment and staffing to be shared across both the Mac Club and Educol". Out of the money received from the plaintiff, $20,610.34 had been used to repay a National Bank overdraft. The remaining $100,008.94 had been used as to $9,800 to pay outstanding tax obligations of the Mac Club; as to $23,100 to pay outstanding tax obligations of the Mouse Factory Trust and as to $15,000 to repay part of the debt owned by Educol to Young Nails Ltd. [27] As to the sum of $237,441.50, the defendant maintained that it was paid to her "personally", although it was paid into the Kamil Inn Trust's bank account. Of that money, the defendant asserted that $60,000 had been loaned to the plaintiff, and $20,000 spent on marketing trips that she had undertaken for the plaintiff. $50,000 had been used in the purchase of the White Swan Road property. $10,000 had been spent on her legal fees. The balance had been expended on renovations of 125 Victoria Street.[28] In another affidavit, that she swore on 14 June 2007, the defendant stated that she had had accounts prepared for the Kamil Inn Trust. The accounts were annexed to her affidavit. They showed a debt owed by the Trust to the defendant of $1,350,163. The Kamil Inn Trust was described in an earlier affidavit as the sole shareholder of Educol, Mrs Mills personally being that company's sole director, as previously mentioned. [29] Mr Patterson was critical of this evidence noting that the defendant had not explained when or how the Trust had incurred a debt to the defendant of such a substantial amount. He also questioned why it had taken the defendant so long to disclose the existence and amount of the Trust's debt to her despite the order requiring full disclosure of her financial position by 13 March 2007. The defendant's explanation of this delay had been difficulties encountered in having accounts prepared. Mr Patterson submitted that those delays ought not to have prevented her giving an approximate indication of the amount of the debt, given the facts that she is both a trustee of the Trust and also a substantial creditor of it, and the Trust debt increased from zero to $1.35 million in the last financial year. Mr Patterson contended that, in the circumstances, the Court could draw an inference that the defendant had acted evasively and/or dishonestly. [30] Mr Latton submitted, somewhat faintly, that the failure to disclose the Trust debt until 14 June 2007 had not been a breach of Winkelmann J's order because it was not an asset. However, since the Trust apparently has substantial interests in real property, and substantial mortgage debts secured against those properties have been retired, if a debt is truly owed to the defendant by the Trust, the defendant would likely be able to recover it and in my view it was an asset that should have been disclosed. I do not find convincing either the submission advanced by Mr Latton that it was because of difficulties in getting the accounts prepared that the debt was not earlier disclosed. I consider that Mr Patterson was correct when he contended that the defendant must have been in a position much earlier to disclose the existence of such a substantial debt, even if she could only do so in approximate terms.[31] Mr Patterson argued in the circumstances that the Court could infer that the Trust's debt to the defendant must represent the advance by her of the majority of the purchase price (paid under the share purchase agreement) to the Trust. However, Mr Latton maintained that that was not so. Rather, it arose from the transfer to the Trust of properties that Mrs Mills had previously owned personally. I think that that explanation is born out by the accounts that were attached to the defendant's affidavit of 14 June, which do not show any debt being acquired by the Trust in the financial year ending 31 March 2007. [32] Nevertheless, Mr Patterson argued that I could infer that the Trust was a sham, and merely the defendant's alter ego. In that respect, he relied in particular on evidence given at paragraphs 40-43 of the defendant's affidavit sworn on 14 June 2007 which, he submitted, showed that the Trust operated without any demarcation between the defendant's personal assets and those that might belong to the Trust itself, and between decisions being made by the defendant in her personal capacity as opposed to her role as a trustee of the Trust. The relevant paragraphs of her affidavit read:40. In June 2005 I won $450,000 from a Lotto draw. Annexed and marked 'C' is a copy of my bank statement showing payment of this sum by the Lotteries Commission. I decided that I would use the bulk of this money to renovate 125 Victoria Street. 41. I had purchased Educol in June 2004. Shortly after I had won Lotto, I became aware that the previous owners of Educol had over- estimated the number of students that would be attending the following year. As a result, Educol had been over-funded by approximately $180,000. Because of this, the TEC immediately suspended our regular monthly funding payments (in the sum of approximately $60,000), until this sum had been repaid. I decided to loan the majority of my capital Lotto winnings to Educol so that it could fund the business. Once Educol had got itself into a better financial position it would be able to repay me this money. 42. Rather than repaying me for the full loan at once, Educol repaid me when it had spare cash. I would use these sums to pay Artifications [to do work on 125 Victoria Street]. Usually these repayments would be in sums of approximately $50,000 to $60,000 at a time. 43. I arranged for the Educol loan repayments to be made direct into the Trust bank accounts. As I have said above, I had not yet decided whether I would require the Trust to repay that money to me. I thought that in the meantime it was appropriate to keep a record of the expenditure incurred by me in respect of the Trust's property.For this reason, most of Artifications' invoices were paid using Trust cheques.[33] It is apparent from evidence that I have earlier summarised that the defendant also appears to have used the Trust's bank account for the affairs not only of Educol, but also the Mac Club Ltd. [34] Mr Patterson submitted that the Trust was in a relationship with the defendant analogous to that of a bank to its customer. Mareva orders may, of course, extend to a defendant's bank accounts, the bank being treated as owing a debt to the customer equivalent to his or her current account balance. So too, Mr Patterson argued, could the Mareva order in this case be extended to the Kamil Inn Trust, of which the defendant was the primary settlor, a discretionary beneficiary, a significant creditor and having considerable control over its assets. [35] Alternatively, Mr Patterson argued that there was an arguable case that the defendant, in the knowledge of the existence of deliberate over-funding and likelihood of a claim from the plaintiff, had engaged in a fraudulent scheme to "judgment proof" herself by preferring some of her other creditors to the plaintiff, and transferring part of the proceeds of the sale of her business to the Kamill Inn Trust. In those circumstances he argued, justice warranted the imposition of a constructive trust for the benefit of the plaintiff. [36] In my view, Mr Patterson's argument that the Trust should be regarded as the defendant's alter ego was not without merit. However, the difficulty that the defendant faced in advancing a claim against the trustees in this case is that the present proceeding was commenced by originating application, in exercise of the right given by Article 9(1) in Chapter 2 of the First Schedule to the Arbitration Act. The arbitration is under the share purchase agreement, and the parties to that arbitration are the plaintiff and the present defendant. The subject matter in their dispute is the alleged breach by the defendant of warranties under the share purchase agreement. There can, of course, be no claim for breach of warranty against the trustees of the Kamil Inn Trust qua trustees, because they were not parties to the share purchase agreement. Mr Latton submitted that the trustees could not be joined for that reason; that any claim against the trustees would have to be based on a claimadvanced in a separate proceeding in which an appropriate cause of action (not based on the dispute which is the subject of the arbitration), could be alleged against the trustees. In simple terms there is no proper basis for joinder of the trustees to the present proceeding because they were not parties to the share purchase agreement. [37] That submission derives considerable support from the decision of the House of Lords in Fourie v Le Roux & Others [2007] 1 All ER (Comm.) 571. In that case, a liquidator had obtained an ex parte Mareva injunction against defendants who by fraud and deception had stripped a South African company of its assets and removed them to England. The defendants' assets in England and Wales were frozen up to a value of £3.4 million. The defendants applied for an order setting aside the freezing order, arguing that there had been no jurisdiction to make it. That application was successful, it being held by the High Court that in order to support the grant of a freezing order the applicant needed proceedings to enforce an existing cause of action that had either already been instituted or would be instituted pursuant to an undertaking to the Court within a short time-frame. No such proceedings had been commenced, nor had such an undertaking been given. [38] The Court of Appeal upheld the order discharging the freezing order. The order was also upheld in the House of Lords, although Lord Scott of Foscote, with whom the other members of the House of Lords agreed, emphasised that it was wrong for the Courts below to have held that there was no jurisdiction to grant the order. Rather, the proper position was that although there was jurisdiction, in a strict sense, nevertheless the order should not have been made in the absence of substantive proceedings or an undertaking to issue proceedings. Lord Bingham observed at [3]:In recognition of the severe effect which such an injunction may have on a defendant, the procedure for seeking and making Mareva injunctions has over the last three decades become closely regulated. I regard that regulation as beneficial and would not wish to weaken it in any way. The procedure incorporates important safe guards for the defendant. One of those safe- guards, no means the least important, is that the claimant should identify the prospective judgment whose enforcement the defendant is not to be permitted, by dissipating his assets, to frustrate. The claimant cannot of course guarantee that he will recover judgment, nor what the terms of the judgment will be. But he must at least point to proceedings already brought, or proceedings about to be brought, so as to show where and on what basis he expects to recover judgment against the defendant.[39] I see no reason why the decision of the House of Lords should not be treated as representing the law in New Zealand. Mr Patterson did not submit to the contrary. Its implications in the present case are that in the absence of any possible claim against the Kamil Inn Trust in the present proceedings, its trustees should not be joined. Whatever claim the plaintiff might have against the trustees, on the facts as they have arisen, it could not be a claim advanced against them in the context of the present originating application which sought a Mareva order as an ancillary order in the context of a dispute which is the subject of arbitration under the Arbitration Act. In order to proceed against the trustees, the plaintiff would need to commence a separate proceeding against them by filing a notice of proceeding and statement of claim, alleging a separate cause of action not based on the matter subject to arbitration. In my view, it would be wrong in principle to join the trustees to the present proceeding. [40] Mr Patterson submitted that Fourie v Le Roux & Others is distinguishable. He argued that was so because the Mareva injunction which was the subject of the proceedings in that case was ordered when no claim had been filed, and that no evidence had been provided that a claim had even been formulated. He pointed out that the plaintiff in the present case, when applying for the Mareva injunction, had demonstrated a clear intention to bring a claim against the defendant, and had formulated its claim for the Court in terms of the memorandum filed by counsel and affidavits filed in support of the application for Mareva injunction. [41] Be that as it may, in my view, those submissions do not overcome the fundamental difficulty that I have identified flowing from the fact that there is no extant claim or formulated proposed claim against the trustees, and any claim against them could not be based on the dispute that is subject to arbitration. [42] For the reasons I have given, I decline the plaintiff's application to join the trustees of the Kamil Inn Trust.Discharge[43] The defendant's application to discharge the Mareva order was advanced on two main bases. First, it was alleged that there had been significant failures on the part of the plaintiff in terms of its obligation to disclose relevant facts to the Court when applying ex parte for the Mareva order. Second, it was claimed that there is insufficient evidence before the Court that there is a risk that the defendant would dissipate assets unless restrained. [44] In relation to the disclosure issue, the defendant alleged that the plaintiff had failed to disclose to the Court that there had been meetings between the parties and their legal advisors on the issues which underpinned the plaintiff's application. Further, there had been a failure to disclose that there had been correspondence between counsel on those issues, with information being sought by the defendant from the plaintiff. Then, the plaintiff had waited for two months following a threat of legal proceedings, and a month following meetings and the correspondence which took place between the parties before the ex parte application had been made. [45] Mr Latton also relied on the fact that the defendant had paid significant sums of money to the plaintiff when (it was claimed) not legally obliged to do so, another fact not disclosed to the Court. Also undisclosed were the facts that the defendant was owed significant sums of money by the plaintiff and, in addition, that the defendant had advised the Tertiary Education Commission of matters which the plaintiff alleged were evidence of the defendant's dishonesty. Mr Latton contended that there was no explanation in any urgency or lack of time to make proper inquiries for the failure to disclose these matters to the Court. He argued also that the plaintiff should have disclosed the correspondence from the Tertiary Education Commission showing the decreased level of over-funding in issue since the Mareva order was obtained. He submitted that, collectively, these considerations should result in the order being rescinded. [46] On these issues, Mr Patterson argued first, that the plaintiff had put before the Court all the material facts known to it, thereby discharging its obligation of full and frank disclosure. Insofar as meetings between the parties and their legal advisorswere concerned, Mr Patterson pointed to paragraph 53 of Mr Chong's affidavit of 2 March 2007. In that paragraph, Mr Chong referred to a settlement meeting that had taken place and a follow-up e-mail sent by Mr Patterson to Mr Latton on 8 February 2007. The e-mail itself referred to a voice mail message which had been left for Mr Latton on the previous day. Insofar as the omission to refer to further correspondence that had taken place between counsel, with information being sought by the defendant from the plaintiff was concerned, Mr Patterson referred to the fact that the meeting that had taken place had been one that was "without prejudice", with the result that correspondence that flowed from it was also arguably without prejudice as well. He submitted further that the correspondence itself contained nothing that was material to the Court's consideration of whether or not to issue the Mareva order. [47] Having viewed the relevant correspondence, I am inclined to accept Mr Patterson's submission. Although there was an exchange of e-mails following the meeting that had taken place on 9 February, nothing was really achieved by the exchange. The most that could be said was that there was some evidence of on- going consideration of the parties' respective positions. Mr Latton emphasised that the defendant had requested further information about the matters on which the plaintiffs were relying for their claims of misrepresentation, so that they could consider making a proposal. The plaintiffs had not provided the information requested. However, in one of the e-mails not put before the Court for the purposes of the application for the Mareva order, Mr Patterson had pointed out that the information upon which the plaintiff was relying was information that had been sourced from the defendant. [48] In another e-mail, Mr Patterson had argued out that there was nothing to prevent a proposal being made and had also referred to the risk that the defendant was running that Raffles would act unilaterally due to a lack of any constructive progress towards the resolution of the matters in issue. [49] Had that exchange of correspondence been before the Court, I doubt that it would have influenced Winkelmann J against the grant of the Mareva order on an ex parte basis. I certainly would not regard the failure to disclose the correspondenceas being in the "egregious" category which would be required in order to justify discharge of an ex parte order on the basis of material non-disclosure (see Allan and Another v Commissioner of Inland Revenue (2004) 21 NZTC 18,000 718 at [93]). [50] Mr Patterson also referred to the fact that the correspondence was plainly "without prejudice" correspondence. The use to which such correspondence may legitimately be put was reviewed by Allan J in Covington Group Holdings Ltd v Lin (Lily) Zhong and Golden City Developments Ltd (HC AK CIV 2004-404-3099, 8 November 2004) at [23-28]. At [28], Allan J set out the exceptions to the rule prohibiting the tendering in evidence of without prejudice communications from the judgment of Robert Walker LJ in Unilever PLC v Proctor & Gamble [2001] 1 All ER 783, at 791-793:a) Communications are admissible when the issue is whether without prejudice communications have resulted in a concluded compromise agreement; b) Evidence of negotiations is also admissible to show that an agreement apparently concluded should be set aside on the ground of misrepresentation, fraud or undue influence; c) A statement may be admitted which is alleged to give rise to an estoppel; d) Evidence of without prejudice negotiations will be admitted if to exclude it would be to act as a cloak for perjury, blackmail, or other "unambiguous impropriety"; e) Evidence of privileged negotiations may be given in order to explain delay or apparent acquiescence; f) Evidence of privileged communications may be admitted where the issue is whether a plaintiff has acted reasonably to mitigate loss; g) An offer expressly made "without prejudice except as to costs" will take effect as an exception to the ordinary rule, upon the basis that the communication is relevant by reason of an express or implied agreement between the parties; h) There are certain apparent exceptions related to a developing category of communications received in confidence with a view to matrimonial conciliation.[51] Mr Patterson is correct when he submits that the correspondence in the present case would not have fallen within any of the listed exceptions. He also referred to the decision of the New South Wales Court of Appeal in Frigo v Culhaci[1998] NSWSC 393 in which was held that the duty of frank disclosure had not been met when an applicant for a Mareva order had relied on a letter that was written on a without prejudice basis, without disclosing the status of the letter to the Judge. He submitted that on such an approach, the plaintiff would have been criticised had it referred to the correspondence and risked having the Mareva order discharged had it done so. [52] I am not aware of any authority which exempts an applicant for a Mareva order from referring to without prejudice correspondence where that is necessary in order to comply with the obligations of full and frank disclosure. I think Mr Latton's approach that, in appropriate circumstances, a failure to do so may in fact justify setting aside a Mareva order, is correct. However, in the present case, I am not satisfied that failure to refer to the correspondence should have that consequence. [53] Insofar as the question of a two month delay, following the threat of legal proceedings is concerned, I do not consider that, in the circumstances of this case, that should have any consequences adverse to the plaintiff. The delay was not a long one. In view of the stance adopted by the plaintiff during the discussions which took place (and I have referred in this respect to the warning that Mr Patterson gave in the exchange of correspondence) I do not consider that the delay would have had any adverse effect on the defendant or misled her in any way. [54] Insofar as the payment of money by the defendant to the plaintiff is concerned, the defendant, in her affidavit of 9 March 2007 had deposed that she had, since the sale of the business to the plaintiff, made GST payments of $11,620, expended the sum of $20,000 on marketing trips, lent the plaintiff $60,000, attended (in part) to repayment of a loan that should have been payable by the plaintiff in the sum of $10,897, foregone salary in the sum of $33,269 and also repaid a bank overdraft that should have been repaid by the plaintiff in the sum of approximately $90,000. Mr Chong affirmed an affidavit in reply on 9 March 2007. In it, he pointed out that the plaintiff had never been invoiced in respect of these various claims, and indicated that her affidavit was the first time that she had "officially listed all sums she claimed". There was, he said, no evidence available to the plaintiff hands verifying that these payments had been made.[55] Mr Chong expressed the opinion that the moneys paid appeared to be liabilities that the defendant had an obligation to discharge when they fell due. I note that, although she swore a reply affidavit on 14 June, the defendant did not deal with that evidence of Mr Chong. On the current state of the evidence, I could not conclude that there was an obligation, which the plaintiff failed to fulfil, to disclose the payments allegedly made by the defendant on behalf of the plaintiff to the Court for the purposes of the application for a Mareva order. [56] Turning next to the advice that the defendant gave to the Tertiary Education Commission, Mr Latton's point was that when she discovered that there had been a mistake in relation to student numbers, the defendant contacted the Tertiary Education Commission about the problem. Amongst the evidence on which the plaintiff had relied in seeking the Mareva order was an affidavit of Cecilia Lim sworn on 1 March 2007. Ms Lim was the one who first discovered discrepancies in the actual enrolled numbers of students. She gave evidence that on 17 January 2007, the defendant had told her that the "missing students" were not real students as many were persons who had not started their courses, which was why there were no files for them. At the same time, the defendant had acknowledged that the plaintiff had been receiving Tertiary Education Commission funding for the 192 students. [57] In her affidavit of 9 March 2007, the defendant accepted that she had told Ms Lim what the problem was. She then said that she had told Ms Lim that it was necessary to get access to the database to ascertain exactly what had happened, but that she did not know how it worked. Importantly for present purposes, it was her evidence that she had then run the acting area manager of the Tertiary Education Commission and explained to him that there had been a problem with over-funded students. His response had been that he would advise his superiors of the problem and make contact with her again. Then, on 23 January 2007, she had sent an e-mail to the plaintiff explaining what she thought had actually happened. She also offered to go to Singapore to explain the matter directly to Mr Chong's principals. [58] The defendant's account of these events was set out in an e-mail dated 23 January 2007 which she sent to Mr Pemberton, Mr Chong's assistant, and is the chief executive officer of Raffles KvB, owned by the plaintiff. In his affidavit of1 March 2007, sworn in support of the application for the Mareva order, he spoke of having become aware of an issue regarding student numbers in early January 2007 and of travelling to Auckland on 18 January, and contacting the Tertiary Education Commission about the matter. He organised a meeting with the Tertiary Education Commission regional manager on the morning of 19 January. In his affidavit of 13 March 2007, he reiterated those basic facts, but added that, when he met with the regional manager, the latter told him that the defendant had rung the Tertiary Education Commission during the afternoon of 18 January to notify them of the problem. He expressed the view that the defendant only did that because she realised that he would be making contact with the Tertiary Education Commission themselves. [59] Mr Latton contended that the fact that the defendant had herself made contact with the Tertiary Education Commission was not drawn to the attention of Winkelmann J. However, it was mentioned in her own e-mail of 23 January 2007 which had been placed before the Court as an exhibit to Mr Chong's first affidavit. Mr Latton contended that given the bulky nature of that affidavit (the exhibits ran to over 300 pages), the plaintiff should have made specific mention of the e-mail, thereby alerting the court to its existence, rather than leaving it buried in the annexures to the affidavit. However, the e-mail had in fact been referred to at paragraph 36 of Mr Chong's affidavit. I do not consider, in the circumstances, that there was any failure by the plaintiff of its duty in this respect. [60] I have reached the same conclusion with respect to Mr Latton's argument based on the non-disclosure of the correspondence concerning the number of enrolled students, that arose subsequent to the making of the Mareva order. I accept that there can be an ongoing obligation to advise the Court of information that may be relevant to the maintenance of a Mareva order, but in the circumstances of this case I doubt that that obligation arose from the correspondence that occurred. I consider that the plaintiff was justified in maintaining its view that the reduction in the overstatement of students enrolled to 62 (and the corresponding reduction in the amount of any refund that might be owing to the Tertiary Education Commission) still left the overstatement at a significant figure. In any event, it would have beenjustified in taking the view that the matter would inevitably be raised by the defendant, as swiftly occurred. [61] On the basis of the foregoing discussion, I would not discharge the Mareva order on the basis of non-disclosure. [62] The second main plank of the defendant's argument that the order should be discharged, was that there was insufficient evidence before the Court that there is a risk that the defendant would dissipate assets. As to that, Mr Latton relied on Euro National Corporation v Petricevic (1989) 2 PRNZ 351 and Bank of New Zealand v Hawkins (1989) 1 PRNZ 451 to submit that the plaintiff must establish that there is a real risk (a mere suspicion is insufficient) that the defendant will dissipate or dispose of assets so as to render herself judgment proof. [63] The main thrust of Mr Latton's submissions on this issue was designed to rebut the contention plainly made in the application for the Mareva order that the defendant had dishonestly misstated the number of students enrolled in the courses offered by Digitrain and Educol. Thus, at [1] of his memorandum accompanying theex parte application for the Mareva order, Mr Patterson had referred to a "deliberate misrepresentation by the defendant that the business had 376 students when it only had 184 students" and at [18] he submitted that it was "clear that the defendant must have known that the student numbers were false prior to accepting payment of the sale price of the business from the Defendant." [64] On 14 March, Mr Latton submitted that: a) There is no evidence that the defendant intentionally and dishonestly misrepresented student numbers other than an affidavit by one Stacey Ranapia. b) Any misrepresentation had been made by a staff member without the defendant's knowledge.c) The alleged misrepresentation was a mistake made by another staff member when entering information into a data base, a process with which the defendant had had no involvement. d) The mistake had occurred some four months before the plaintiff expressed an interest in the defendant's business. e) The defendant provided the plaintiff with actual class rolls during the due diligence process which recorded accurate student numbers. f) The defendant is married with two children, and has confirmed that by her affidavit evidence that she had no intention of leaving the jurisdiction permanently. g) She had provided a statement of her assets and liabilities, and given an undertaking that she had not, and would not in the future, remove any of her assets from the jurisdiction or otherwise deal with them in a way that would frustrate any award that might be made in favour of the plaintiff. [65] By the time of the resumed hearing on 21 June, Mr Latton was able to point to the fact that, as earlier discussed, the alleged discrepancy as to student numbers was a good deal less than the 192 that had been asserted when the application was originally made. That had been confirmed by the correspondence, earlier mentioned, received from the Tertiary Education Commission, and in an affidavit sworn on 10 June 2007, a manager employed by the Commission, Esther Calley deposed that Educol had been over-funded in the 2006 year by a total of $374,543.24; there was no over-funding of Digitrain in that year. The over-funding of Educol represented an overstatement of numbers by about 62 students. As previously discussed, Mr Latton relied on the correspondence that had taken place between the parties and the Tertiary Education Commission to submit that there had been a failure by the plaintiff to meet its obligation to disclose material matters to the Court. In the present context, he submitted that the new evidence that the defendant had placed before the Court was significant because the plaintiff had relied on the magnitude ofthe over-statement of student numbers when it applied for the Mareva order, and alleged that it had been deliberate. He contended further that the inference of dishonesty that the plaintiff drew from the over-statement of student numbers was the only basis on which the plaintiff had been able to assert that there was a real and significant risk that the defendant would dissipate her assets. [66] Taking all of these matters into account, Mr Latton contended that the plaintiff had failed to establish that there was an actual risk of dissipation, and that there was no longer any basis on which the order should be maintained. [67] In response, Mr Patterson submitted that the numbers of students enrolled in the business had determined the price that the plaintiff had paid for it, and since they were effectively the business's stock in trade, the defendant must have known that the figures were overstated. An overstatement of the numbers by 62, although much less than the figure that the plaintiff had originally thought to be the case, was nevertheless significant. [68] Mr Patterson referred to the affidavit of Stacey Ranapia, sworn on 13 March 2007. She had been an employee of the business at relevant times. She deposed, on the basis of events and discussions recounted in the affidavit, that the defendant had been well aware that actual student numbers were fewer than had been claimed and had been so aware since at least June 2006. The contents of that affidavit were in dispute, the defendant expressing herself very critically about Ms Ranapia's record and qualities as an employee, as well as giving a point by point rebuttal of the contents of the affidavit. It is not possible, of course, for the differences between the defendant and Ms Ranapia to be resolved in an interlocutory application such as the present, but in view of the defendant's detailed response to the affidavit I have not felt it appropriate to give it any weight in the resolution of the application. [69] Mr Patterson however was also able to rely on the defendant's tardy response to the disclosure order made by Winkelmann J, and he emphasised, in particular, the fact that it was not until she made her affidavit of 14 June 2007 annexing the accounts of the Kamil Inn Trust that the defendant had mentioned the debt that the Trust owed her. Even then, as he submitted, the basis of the debt and when the Trusthad incurred it were not explained. He contended that the breach of the disclosure order, coupled with the failure to disclose the Trust debt until 14 June 2007 justified an inference of dishonesty and/or evasiveness on the defendant's part. [70] Where there is an application to rescind an order obtained ex parte, the Court is not confined to an examination of the facts as they stood at the time that the order was originally made. The issues are to be approached afresh, and the Court may take into account matters that have subsequently arisen: Carter Holt Holdings Ltd v Fletcher Holdings Ltd [1980] NZLR 80, at 84;D B Baverstock Ltd v Haycock [1986] 1 NZLR 342. Both parties effectively asked me to proceed on that basis. [71] Approaching the matter on that basis, I consider that Mr Patterson was right in the emphasis he gave to the defendant's long delay in disclosing her asset position. For reasons that I gave in addressing the joinder issue earlier in this judgment, there was no reason that she could not have disclosed the existence of the Kamill Inn Trust debt, even if only in approximate terms, at a much earlier stage. The fact that the nature of the debt is unexplained is also of concern, as is the fact that the defendant's evidence shows that she really made no distinction in her dealings between money that was hers, money that belonged to the Trust and money that was claimed to be owing to or by other corporate entities with which she is associated. [72] I also accept that, although much less than the plaintiff considered to be the case when making the application for the Mareva order, the overstatement by 62 of the numbers of students enrolled in Educol courses at the relevant times is a significant issue. As the person effectively in control of a business that depended on payments for enrolled students it is hard to understand why the defendant did not have an accurate knowledge of the student numbers. Although various explanation were proffered in the evidence, ultimately amounting to assertions of data entry or record keeping errors, in the end it is a simple proposition that records could have been kept that accurately recorded the position.[73] Notwithstanding these conclusions, I am not persuaded that there is a real risk of dissipation of the defendant's assets. I say that because, although belatedly, the defendant has now apparently fully disclosed her asset position, and although some questions remain, about, for example, the nature of the Kamill Inn Trust debt, I am not prepared, at this interlocutory stage, to draw the inferences of dishonesty that lie at the heart of the plaintiff's assertion of risk of dissipation. [74] Although she should have known the true position as to the numbers of students enrolled, the evidence shows that she simply did not. She was in fact initially prepared to accept that there had been over-funding by 192 students, and it was only later that the true, significantly lower, figure was ascertained. The impression that I have after considering the defendant's affidavit evidence, both as to student numbers and in relation to her dealing with money, is that she has conducted her affairs in a muddled way, and has not engaged in deliberately dishonest acts. [75] That being my conclusion, the main basis for the claimed risk of dissipation falls away, and the Mareva order cannot stand. [76] I direct that it be discharged accordingly. [77] The defendant is entitled to costs. If they cannot be agreed I will receive memoranda from counsel.