General Thomas Jackson is known as Stonewall Jackson because he stood impassive and defiant ‘like a stone wall’ in the face of overwhelming odds in the first Battle of Bull Run in the American Civil War (July 21, 1861).

Stonewalling is a litigation strategy used by defendants. The objective is to frustrate the plaintiff’s pursuit of their claim.

Stonewalling is a fruitful strategy for a defendant to use while it continues to collect the ongoing profits that the plaintiff is disputing. This strategy is commonplace in commercial disputes involving shareholders, joint venturers, partners and agents.

To combat a stonewalling strategy, a plaintiff might make an application to quarantine the ongoing profits in dispute until the trial.

Katanga Developments Pty Ltd v Bookarelli Pty Ltd [2013] NSWDC 237 is a decision of the District Court of NSW in which Judge P Taylor SC made a Freezing Order (a Mareva injunction) to quarantine distributions payable to the defendant pending the trial, pursuant to Rule 25.14 of the NSW Uniform Civil Procedure Rules (‘UCPR’).

Background

Bookarelli is a litigation funder. Through Richard Kurland, it requested Katanga to market its proof of debt assistance agreements to shareholders of various companies in liquidation, including the ION Group. Katanga introduced approximately 2,000 shareholders in the ION Group to Bookarelli.

Bookarelli obtained authorities, prepared and lodged proofs of debt for 390 of these shareholders, with the ION deed administrators. It was agreed that the distributions would be paid into a solicitor’s trust account, and that Bookarelli would direct the solicitor to pay 50% of the sum to the shareholders, 25% of the sum to Bookarelli and 25% of the sum to Katanga.

The first ION distribution was applied accordingly. But subsequent ION distributions were applied as to 50% to the shareholders and 50% to Bookarelli (at its direction). Katanga commenced proceedings in September 2012, after Bookarelli had failed to direct that a 25% share of the 2nd, 3rd and 4th interim distributions be paid to Katanga.

Bookarelli adopted a stonewall strategy. Almost one year passed without a trial date: the court practice is for a trial date within one year. After the proceedings commenced, a 5th interim distribution was made which Bookarelli failed to direct payment to Katanga of its 25% share.  In early August 2013, Katanga learned that ION was about to make a 6th interim distribution, which was large. Katanga feared that Bookarelli would again fail to direct payment of its 25% share.

The Freezing Order proceedings

On 13 August, 2013, Katanga made an ex parte application and obtained an injunction restraining the ION deed administrator from making the 6th interim distribution and other payments to the shareholders who had authorised payment to Bookarelli, without following a set procedure to quarantine the money payable to Katanga.

Rule 25.14 UCPR sets out the rules for a plaintiff to obtain a Freezing Order (a Mareva Injunction).

At the contested hearing of the application in September, two aspects of Rule 25.14 UCPR were examined:

  1. Was there a good arguable case on a cause of action? The court accepted there was a good arguable case, adopting the words of Justice McColl in Samimi v Seyedabadi; Seyedabadi v Samimi [2013] NSWCA 279 at [69]: The meaning of the term ‘good arguable case’ is used in the sense of a case which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success.
  2. Was there a danger that the prospective judgment will be unsatisfied? The court accepted there was a danger, for three reasons:
    • The defendants’ failure to respond: to notices to produce; to requests for information; and comply with court orders. Together with averments in their defences that they ‘did not admit’ receipt of monies, and their denials of the existence of an agreement, the court concluded that these actions reflect a “blank wall” approach by the defendants.
    • The fact that Bookarelli was a $1 company, and in the absence of evidence of financial position, the court concluded that this raises the prospect of an unsatisfied judgment.
    • Mr Joukhador’s non-payment of the share of the distributions to Katanga was solid evidence of the risk of dissipation of assets.

Discretionary factors in favour of a freezing order were: Katanga acted promptly; the case for a 25% interest in the ION distributions is strongly arguable; and the failure by the defendants to disclose the funds received from ION to Katanga. The balance of convenience favours a freezing order as it preserves the funds to which Katanga claims to be entitled.

Rule 25.3(3) provides: In proceedings concerning the right of any party to a fund, the court may order that the fund be paid into court or otherwise secured. In this case, the court ordered that the 6th and other future ION distributions be paid into the solicitor’s trust account of Marcel Joukhador trading as Thomas Booler & Co, the second defendant, and that he be restrained from dealing disbursing or otherwise dealing with them.

Postscript

In this case, the Freezing Order has successfully quarantined future distribution payments. In effect, the plaintiff has security for damages in the event of a favourable judgment at the trial.

The stonewall (‘blank wall’) strategy adopted by the defendants was one reason the court gave for granting the freezing order. Those interested in exploring other approaches to overcome the stonewall strategy are encouraged to read – Scaling the Stonewall: Retaining Lawyers to Bolster Credibility an article in the Harvard Negotiation Law Review by David C. Croson & Robert H. Mnookin [Vol.1:65 Spring 1996].

As for Stonewall Jackson, after routing the Federal army in the Battle of Chancellorsville, his left arm was hit by three bullets in friendly fire, and was amputated. Eight days later, he died of pneumonia (May 10, 1863). His body was buried in the Stonewall Jackson Memorial Cemetery, Lexington, Virginia. His left arm was buried separately near the field hospital where it was amputated.