Old Law – New Again – Insolvencies

We have all heard the old ‘there is nothing new under the sun’ with the NSW Supreme Court giving new life to “Ne Exeat Colonia”. A case outlined in this casenote proves just that and it may be of use in insolvency situations.

The Dispute

The Sharkey v Mayahi-Nissi case involved a contest about the legal and beneficial ownership of a property in Sydney.

In short, the Plaintiff asserted that despite legal title to the property being vested in the Defendant, the property was held on trust for the Plaintiff. The Defendant alleged that the property had been gifted to the Defendant who had paid the mortgage in respect of the Property.

There were sundry assertions by both parties as to their entitlement not relevant to the subject of this short note, other than to say that, whichever argument was successful, the Defendant asserted that the Plaintiff would owe $500,000 to the Defendant.

As it happened, the Plaintiff was resident in the USA and had substantial business assets there.

There was some suggestion that upon finalisation of the Plaintiff’s evidence on a particular day, the Plaintiff was due to return, by air, to the United States that afternoon.

The Defendant was concerned that if the Plaintiff returned to the United States, as the Defendant apprehended, there would be no security for a payment of the amount claimed in the proceedings. The Defendant was particularly concerned that, if successful, the Defendant would have no way of recovering the $500,000 asserted to be owed by the Plaintiff to the Defendant, being money the Defendant had borrowed to pay the plaintiff’s mortgage debt.

On the day before the hearing Solicitors for the Defendant were instructed to seek a Writ or Order to prevent the Plaintiff leaving the jurisdiction.

The Law & The Remedy

Some quick research disclosed the existence of the ancient Writ of Ne Exeat Regno [Do Not Leave the Kingdom], an ancient English writ, available since Elizabethan times, which was used to prevent debtors going abroad to avoid payment of certain debts.

Research also found that the Writ was available in former English colonies where it is known as Ne Exeat Colonia – [Do not Leave the Colony], as opposed to Do Not Leave the Kingdom.

The Hearing & Result

An urgent ex parte application was made before Justice McDougall, at the same time as the substantive proceedings were being heard by another judge of the NSW Supreme Court.

What needs to be proved?

In the Australian High Court, Justice Dixon (as he then was) set out the requirements for the Writ in Glover & Anor v Walters. In paragraph 2 he set out quite succinctly the requirements to obtain the Writ:

“I do not doubt the power of this Court to issue a Writ of Ne Exeat Colonia in a proper case. It is a prerogative writ used for the purpose of preventing a subject quitting the country without giving bail or security to answer a monetary claim of an equitable nature. Formerly the writ was issued out of the High Court of Chancery……..”

He quoted Lord Eldon in Boehm v Wood in setting out the circumstances in which a Writ would be issued:

1. In the first place the debt must be equitable;

2. In the second place, it must be due; and

3. In the third place, it must be a debt in respect of which the Court can see its way to direct what sum shall be marked upon the Writ.

To obtain the Writ the applicant must show that he has such an equitable claim, that the person to be restrained is about to depart beyond the seas and either that he is doing so to avoid the jurisdiction or that the debt will be endangered or at all events that the remedy for its recovery will be prejudiced.

In Sharkey v Mayahi-Nissi , Justice McDougall delivered an extempore judgement in which, upon the basis of the Defendant’s undertaking as to damages, the Court ordered that the Plaintiff be restrained from leaving Australia and that he surrender his passport to the Court. The proceedings were stood down until later that day to allow service of the Order upon the Plaintiff.

It is important that Justice McDougall considered that Ne Exeat Colonia relief is just as available now as it was 400 years ago. So far as our researcher can tell this is the first time the NSW Supreme Court has granted an order in the form of the old Writ Ne Exeat Colonia.

The Orders were served and importantly, Ports Watch was lodged with the Department of Immigration in Canberra. The purpose of this is that if the Plaintiff approached a point of departure (sea or air) from Australia, authorities would stop the Plaintiff at immigration.

A week later, the matter again came before Justice McDougall. Upon a contested hearing, his Honour was satisfied that, after a full consideration of the Plaintiff’s evidence, there was not a sufficient risk of prejudice to the Defendant and the defendant’s case if the Plaintiff was allowed to leave the jurisdiction and consequently dissolved the Orders.

In summary, there are a number of reasons for this:

1. The Plaintiff had indicated that he intended to return to Australia permanently when his children were at school age;

2. The Plaintiff travels frequently between Australia and the United States;

3. There were alternative forms of relief in the main proceedings that would see the Defendant’s position protected; and

4. Lastly, he was not satisfied that the Plaintiff had the wherewithal to make good her undertaking as to damages in the event that the Plaintiff was detained from his business interests (and family) in the United States.

The Plaintiff duly went into parts beyond the seas that very afternoon.

Notwithstanding that the Writ, in this particular case, was dissolved, the first judgement of Justice McDougall is clear authority for the proposition that the relief remains available in appropriate circumstances.

The Longer Term Implications

Why would the availability of such a Writ and relief interest insolvency practitioners?

The key is that the nature of the claim for relief sought to be protected by relief in the nature of Ne Exeat Colonia and which might be defeated if the Defendant were to flee the jurisdiction must be equitable.

Such an equitable claim would include, in the case of liquidation:

1. In some circumstances recovery of an unfair preference;

2. Claims in relation to unfair director related transactions;

3. Uncommercial transactions; and, possibly

4. Claims for insolvent trading.

In the context of bankruptcy, the relief might be sought in the context of:

1. Claims pursuant to section 120 of the Bankruptcy Act (for undervalued transaction);

2. Section 121 of the Bankruptcy Act (transactions to defeat creditors); and

3. Section 122 of the Bankruptcy Act (unfair preferences).

There seems to be no reason why, by virtue of the combined effect of section 30 of the Bankruptcy Act and section 79 of the Judiciary Act, such an application could not be brought in the Federal Court. In context of the Federal Court, being a Court of the Commonwealth of Australia, an application of the relevant relief might revert to the original name Ne Exeat Regno because the Commonwealth of Australia is never relevantly been an English colony.

Likewise, the doctrine would be equally applicable to claims pursuant to section 37A of the Conveyancing Act in relation to transactions to defeat creditors.

Similar “freezing orders” are available under UCPR R 25 where the requirements of that Rule can be satisfied. The Ne Exeat Colonia Writ and relief is, of course, an equitable rule.

Nonetheless, it may be available in jurisdictions not having the equivalent of UCPR R 25 and might be seen as supplementing UCPR R 25 where the circumstances so require.

Obviously each case will turn on its own facts but the availability of a Writ and or “freezing order” under UCPR R 25 to prevent someone departing the jurisdiction prior to the entry of judgment, or indeed the commencement of proceedings is not one to be overlooked.

The text of the paper is only a summary and discussion of particular facts and principles. It is not to be taken as legal or commercial advice as to any particular factual circumstances. Gregory can be contacted, if readers have any issues. I acknowledge the contribution of Mark Doble, one of my partners, to the above.