Australian Unicorn Agricultural Development Pty Ltd v Aufeng Investment Holdings Pty Ltd
[2016] VCC 2025
•23 December 2016
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-16-04705
| AUSTRALIAN UNICORN AGRICULTURAL DEVELOPMENT PTY LTD (ACN 165 764 947) | Plaintiff |
| v | |
| AUFENG INVESTMENT HOLDINGS PTY LTD (ACN 133 493 704) | First Defendant |
| and | |
| AUSSIE MEATS INTERNATIONAL TRADING PTY LTD | Second Defendant |
| and | |
| ZHENGGUO SONG | Third Defendant |
| and | |
| GAOMING SONG | Fourth Defendant |
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JUDGE: | HIS HONOUR JUDGE SMITH | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 and 21 December 2016 | |
DATE OF JUDGMENT: | 23 December 2016 | |
CASE MAY BE CITED AS: | Australian Unicorn Agricultural Development Pty Ltd v Aufeng Investment Holdings Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2016] VCC 2025 | |
REASONS FOR JUDGMENT
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Subject: PRACTICE AND PROCEDURE
Catchwords: Freezing order – principles applicable – sufficiency of evidence as to risk of dissipation – balance of convenience
Legislation Cited: Civil Procedure Act 2010, s26; County Court Civil Procedure Rules 2008, Order 37A
Cases Cited:Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd [2009] VSC 418; Victoria University of Technology v Wilson & Ors [2003] VSC 299
Judgment:Freezing orders sought by the plaintiff Property granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Booth with Mr M Garret | United Associates Barristers and Solicitors |
| For the Defendants | Mr J Snow | Australian International Lawyers & Associates |
HIS HONOUR:
1 By Summons dated 15 December 2016, the plaintiff seeks freezing orders against each of the defendants. It further seeks, pursuant to s26 of the Civil Procedure Act 2010 (“the Act”), disclosure of a number of classes of documents from the defendants on the basis that they are critical to the resolution of the dispute between the parties.
Freezing orders
2 The application for freezing orders is brought pursuant to order 37A.02 of the Rules of the Court. That Rule provides that a freezing order may be made if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because any of the following might occur –
(a) The prospective judgment debtor absconds; or
(b) The assets of the prospective judgment debtor are –
(i) removed from Australia; or
(ii) disposed of, dealt with, or diminished in value.
3 The orders sought against the first defendant (“Aufeng”) are that it be required to provide the plaintiff’s solicitors with fourteen days’ written notice of any intention by it to sell, transfer, dispose, assign, encumber, or further encumber:
(a)the real property situated at 60 Abattoir Road, Pyramid Hill in Victoria (“the Property”); and
(b)any asset of any kind, whether directly or indirectly, legally, or beneficially owned by it within Australia.
4 Further, an order is sought against Aufeng that it must not remove from Australia, or in any way dispose of, deal with, or diminish any of its assets which are in Australia, including any proceeds of any sale of the Pyramid Hill property, up to the unencumbered value of AUD $1 million.
5 The order sought in relation to each of the other three defendants are identical, save for the omission of any reference of the Property.
6 The parties were in agreement that the legal principles to be applied in relation to the making of freezing orders were accurately summarised by J Forrest J in Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd.[1] I see no need to reproduce the nine principles enunciated by his Honour in these Reasons. I accept that they are to be applied by me.
[1][2009] VSC 418 at paragraph [20]
7 The relevant background to this dispute is set out in the plaintiff’s Statement of Claim and, further, in an affidavit sworn by Wenyong Huang, the sole director of the plaintiff company.
8 In summary, the plaintiff alleges that:
(a) It entered into agreement with the defendants regarding the refurbishment of an abattoir business at Pyramid Hill near Echuca.
(b) Pursuant to the agreement, it has advanced to the defendants, sums totalling $778,273.95.
(c) It was to become a 50 per cent owner of Aufeng and the business.
(d) The agreement was varied at a later time so that the shares in Aufeng were to be held as to:
·475 shares, being 47.5 per cent, by the plaintiff;
·50 shares, being 5 per cent, by Mr Huang’s brother, Henry; and
·475 shares, being 47.5 per cent, by Xuzhou Runmu Foodstuff Company Ltd, a company in which the third defendant is a director and majority shareholder (“Xuzhou”).
9 Aufeng owns the Property on which is situated facilities that at one time functioned as an abattoir business. There is no evidence of Aufeng owning other assets in Australia.
10 The third defendant is the father of the fourth defendant. They are directors of Aufeng and of the second defendant, Aussie Meats.
11 It appears that none of the second, third or fourth defendants own real estate in Australia. There is no evidence as to what other assets any of the defendants have in this country.
12 The plaintiff submits there is a real danger that, unless the freezing orders sought are made, that any judgment that it obtains against the defendants will go unsatisfied.
13 I consider that the evidence discloses three general areas of concern which give rise to a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendants either removing assets, or disposing or dealing with them so as to diminish their value.
14 Firstly, Mr Huang’s description of the circumstances in which monies were advanced by the plaintiff. The initial agreement was entered into in 2014 and 2015 and is described as a joint venture agreement between the plaintiff and the first, second and third defendants, to own and operate an abattoir on the Property. He deposed that the third defendant informed him that $400,000 would be sufficient to enable a completion of the refurbishment of the abattoir facilities and to obtain the approvals required to operate the abattoir business by the end of 2014. A profit projection document was provided, painting an attractive financial picture. The plaintiff agreed to advance $400,000 to the first and second defendants for those purposes. By the end of 2014, none of the required approvals had been obtained. The third defendant had advised him that a further $600,000 was required in order to complete the refurbishment works and obtain the required approvals. $130,000 of that amount was required for stamp duty. Later, he was advised by the third defendant that the stamp duty would be $285,101.15 rather than $130,000. The plaintiff agreed to advance further sums, bringing the total amount up to $778,273.95.
15 The unchallenged evidence is that, by the end of June 2015, none of the required approvals had been obtained and no refurbishment work had been commenced, let alone been completed, at the Property.
16 Mr Huang was not provided with any information or advice as to why the required approvals had not been obtained, why the cost of such approvals had varied so significantly, or when such approvals were likely to be obtained.
17 Secondly, in about mid-2015, Mr Huang observed a company search document relating to Aufeng in which Xuzhou was described as its ultimate holding company. Mr Huang has no interest in Xuzhou.
18 On 20 August 2015, company documents relating to Aufeng disclosed that 9,000 shares in the company had been issued to Xuzhou, the company majority-owned by the third defendant. The effect of this was to dilute the value of the plaintiff’s shares in Aufeng very significantly. Instead of the shareholding being:
· The plaintiff - 47.5 per cent;
· Henry, 5 per cent; and
· Xuzhou RFCL, 47.5 per cent.
The adjusted shareholdings were, from that time:
· The plaintiff, 475 shares (4.5 per cent);
· Henry, 50 shares (0.5 per cent); and
· Xuzhou, 9,575 shares (94.75 per cent).
19 No explanation was ever provided by the defendants, or by their solicitors, regarding that share issue despite requests from the plaintiff’s solicitors for such explanation. Just how an entity with less than 50 per cent of the shares in Aufeng was able to arrange the issue of a further 9,000 shares to itself has never been explained.
20 Thirdly, on 22 July 2016, shortly prior to the commencement of this proceeding, and after correspondence giving notice of a proposed claim, Aufeng mortgaged the Property to one Lei Sun. The mortgage was registered with the Registrar of Titles.
21 The plaintiff’s solicitors have written to the solicitors for the defendants seeking an explanation for and details of the mortgage. None were provided. At the hearing of this application, counsel for the defendants advised the Court that Lei Sun was a person who had loaned money to Aufeng, which loan had been secured by a mortgage over the Property. The amount of the sum loaned, the purpose of the loan, or any other details, have never been advised to the plaintiff or to the Court.
22 The plaintiff submitted, and I accept, that it has an arguable case against the defendants, thus satisfying the fifth requirement enunciated by J Forrest J in the AES decision. Counsel for the defendants conceded that an arguable case had been demonstrated.
23 The principal area of dispute between the parties was whether the plaintiff had established that there was a danger that a prospective judgment in favour of it would be wholly or partly unsatisfied as a result of the defendants’ actions in either removing the assets, or disposing or dealing with them so as to diminish their value.
24 I have come to the conclusion that the plaintiff has established that there is such a danger.
25 Whilst there is no express evidence of any threat by the defendants to dissipate assets or remove them, I have come to the conclusion that the danger of such dissipation can be inferred in all of the circumstances.
26 Here, the material deposed to by Mr Huang contains what I consider to be allegations of serious dishonesty against the defendants or one or other of them. The defendants filed no answering material disputing any of the allegations made by Mr Huang.
27 I note the decision of Victoria University of Technology v Wilson & Ors,[2] in which Redlich J (as he then was) stated:
“A risk of dissipation cannot be inferred merely from the fact that the plaintiff has a prima facie cause of action. One may in some cases, having regard to the nature of the plaintiff's claim, infer the existence of a risk of dissipation partly or wholly from the fact that the plaintiff has a good, arguable case. Where the plaintiff's prima facie case against a defendant involves proof of allegations of serious dishonesty, such an approach may be appropriate.”
[2][2003] VSC 299 at paragraph [33]
28 Those comments were applied by J Forrest J in AES.
29 Taking into account the nature of the alleged conduct of the defendants concerning the requests for the advancement of monies from the plaintiff to the defendants, the secret issue of shares to Xuzhou, and the mortgaging of the Property to a person unknown to the plaintiff and for unknown and unexplained purposes, I consider that these are circumstances constituting dishonesty which are neither explained nor disputed. In those circumstances, I consider that there is a real danger that assets held by one or other of the defendants in this country may be dissipated in order to avoid satisfying a judgment debt in favour of the plaintiff.
30 The defendants’ solicitor, Mr Peng, has affirmed that he has instructions from the defendants that they have no plans or intention to sell the property. It follows that the orders sought by the plaintiff are unlikely to inconvenience the defendants, or cause any expense to them. I have come to the conclusion that the evidence discloses that no prejudice would be suffered by the defendants as a consequence of the orders sought.
31 I have also taken into account that relatively simple and straightforward undertakings previously have been sought from the defendants concerning the property and dissipation of assets. No response has been received in respect of such requests. I am able to infer that the defendants are not prepared to make any such undertakings as sought.
32 In all of the circumstances, I am of the view that the balance of convenience lies, here, in favour of the plaintiff.
33 The plaintiff is prepared to give undertakings to the Court in the form set out in Schedule A to each of the proposed freezing orders.
34 I consider that it is appropriate in all of the circumstances to make the freezing orders sought by the plaintiff save for proposed Orders 9 and 10. I have requested counsel to make short written submissions as to why these orders should be made.
Section 26 Civil Procedure Act 2010 application
35 The plaintiff seeks, pursuant to s26 of the Act, that each of the defendants make disclosure of critical documents of the following categories:
(a)Bank account statements of any bank accounts maintained by each of the defendants (or on their behalf) from 1 January 2014 until today;
(b)Documents recording the source of the monies used in order to fund the acquisition of all real property acquired by each of the defendants since August 2012;
(c)Any contracts of sale concerning the sale or disposal of all real property acquired by each of the defendants since 1 January 2014;
(d)Any contracts or correspondence referring to or constituting any loan secured by the Pyramid Hill property; and
(e)The profit and loss statements and balance sheets of each of the first and second defendants for the period from 1 January 2014.
36 One assumes that the reference to such documents is intended to be a reference to such documents, accounts or property located in Australia.
37 The defendants submit that none of these documents are “critical” within the meaning of s26. It is submitted that the documents cannot resolve the proceeding.
38 Counsel for the plaintiff submits that documents relating to expenditure by and receipt of funds by the respective defendants, and other documents or classes referred to, are critical to resolution.
39 I accept that the issue concerning Aufeng’s equity in the Property, is likely to be highly relevant to resolution issues and, in that sense, critical. I shall order the first defendant to disclose the existence of such documents that are, or have been, in its possession, custody or control relating to:
(a) the value of the Property; and
(b) the extent to which the Property is encumbered by mortgage or other charge (with full particulars of such encumbrances).
40 With regard to the second, third and fourth defendants, I am not persuaded that the documents requested are anything more than an attempt to learn more about the financial interests of those defendants. I am not satisfied that they are critical to the resolution of the dispute.
41 The parties are to prepare Orders consistent with these reasons.
42 On a date to be fixed, I shall also hear the parties in respect of any orders concerning costs or other ancillary orders if such matters cannot be agreed upon.
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