Beijing Urban and Rural Construction Group v GOLDENFIELD International Import and Export Pty Ltd

[2000] NSWSC 578

CITATION:	BEIJING URBAN & RURAL CONSTRUCTION GROUP v GOLDENFIELD INTERNATIONAL IMPORT & EXPORT PTY LTD & ORS [2000] NSWSC 578
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 2179/00
HEARING DATE(S):	20 June 2000
JUDGMENT DATE:	20 June 2000
PARTIES :	BEIJING URBAN & RURAL CONSTRUCTION GROUP LTD v GOLDENFIELD INTERNATIONAL IMPORT & EXPORT PTY LTD & 3 ORS
JUDGMENT OF:	Mason P at 1

COUNSEL :	Plaintiff: A S Martin SC 1st,3rd,4th Defendants: E A Cohen
SOLICITORS:	Plaintiff: Clayton Utz 1st,3rd,4th Defendants:Neil J O'Connor & Associates
DECISION:	Mareva Orders as per Short Minutes

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

2179/00

MASON P

Tuesday 20 June 2000


BEIJING URBAN & RURAL CONSTRUCTION GROUP LTD v
GOLDENFIELD INTERNATIONAL IMPORT & EXPORT
PTY LTD & 3 ORS
JUDGMENT

1    HIS HONOUR: The second plaintiff was the vehicle through which the first plaintiff invested funds in Australia. The first plaintiff is owned by the Beijing Municipal Government. The second defendant, Fah Hok Li, was deputy general manager of the first plaintiff between 1994 and early 2000. 2    In 1995 the plaintiffs entered into a joint venture with a company called Australia United International Investment Group Proprietary Limited (Australia United). It was to be the vehicle whereby the plaintiffs invested in Australian real estate. The second, third and fourth defendants were directors of that company, the second and third defendants being brothers. The first plaintiff held 3000 of the 8000 issued shares, the third defendant 3500. The second defendant, the fourth defendant and one Li Sheng Wang held 500 shares each. In 1996/97 the second plaintiff transferred approximately 2.7 million dollars to the first defendant in Sydney. 3    The first defendant is a company in which the third defendant holds two shares and the fourth defendant one share. The reasons why the first defendant was the chosen vehicle to receive the plaintiff's moneys as distinct from Australia United are not presently material. They can be explored at the final hearing if they are relevant. It would appear that none of the parties dispute, at this stage, the propriety of the money being channelled through the first defendant rather than Australia United. It is common ground that the first defendant received the money for the purpose of the joint venture that had been originally planned to involve Australia United. 4    In November 1996 the first defendant used the transferred funds to purchase a property at 29 John Street, Rydalmere, for $138,000 and a development site at 2a Charlotte Place, Illawong, for $930,000. 5    The latter site was developed into twelve townhouses which were completed in late 1999. The personal defendants were closely involved in this work and from time to time representatives of the plaintiffs came to Australia to supervise and check out developments. The second, third and fourth defendants also invested borrowed moneys through the first defendant in the Illawong project. It may very well be that the personal defendants incurred expenses for which they may be entitled to some credit in a proper accounting. At this stage I am not in a position to do any more than note that as a likely outcome. 6    On about 1 September 1999 the second defendant executed a termination agreement with the first defendant, purportedly on behalf of the plaintiffs. The plaintiffs say that they had no knowledge in advance of his intention to do so. The matter is complicated by the fact that there appear to be two versions of a document, apparently signed about the same time, broadly having common provisions but with discrepancies, some of them apparently material. Both versions of the agreement acknowledged the termination of the joint ventures. The twelve Illawong townhouses were, by these agreements, to be divided between the two groups with the first plaintiff being allocated six of them including unit 12. 7    Various matters have happened since then which the plaintiffs rely upon as the bases for the substantive claims they make in these proceedings. To date, no pleadings have been filed and it seems to me that this is a case that cries out for the plaintiffs’ claims to be embodied in proper pleadings. The plaintiffs submit that the dealings in late 1999 and early 2000 are incompatible with the defendants’ duties as parties or directors of parties to the joint venture, and also incompatible with a proper or sufficient winding up of the affairs of the joint venture. The plaintiffs contend that these dealings give cause for real concern as to the capacity of the plaintiffs to recover the money owing to it through the taking of accounts in what is now, on any version, a terminated joint venture as between the plaintiffs and the first defendant. 8    The matters relied upon by the plaintiffs as the bases for the final and the interim relief which they seek in the proceedings include the following:

(a) On 3 September 1999 the first defendant transferred to the third defendant the Rydalmere property for a purported consideration of $140,000 but a real consideration of $1. The property has been used since that date as the matrimonial home of the third and fourth defendants. A recently filed affidavit of the third defendant sets out various bases upon which offsets are claimed which are said to give rise to an entitlement to the transfer of this property without payment of full consideration, or indeed entitlement to transfer of the property at all.

It seems to me that these are matters of which the plaintiffs were unaware, at least until very recently, and which have not been the subject of any informed consent on the plaintiffs’ behalf. At least that appears to be the strongly arguable case on the present state of the evidence. No mention was made of this particular transaction in a memorandum which purports to have been sent by the third defendant to the first plaintiff in December 1999 although it should be noted that the authenticity of this memorandum is itself a matter of dispute.


(b) On 4 January 2000 the first plaintiff terminated the second defendant's appointment as a director and general manager. There is evidence that since that date the second defendant has resisted attempts to be contacted and to discuss a final accounting. His present whereabouts are not presently known. He has submitted to appropriate Mareva orders. In saying that I am not indicating that that in itself establishes any case against the other defendants.

(c) On 21 January 2000 the third defendant purported to transfer to the second defendant all of the issued shares in the first defendant and each of the six lots at Illawong which were to pass to the plaintiffs under both versions of the termination agreement. The defendants have offered in an affidavit of the third defendant explanations for this based upon the error of their former solicitor, Y Andrews. To date no evidence has been tendered on the latter's behalf. Suffice it to say that the transaction excites concern and will need proper attention and full explanation at the final hearing.

(d) The first defendant sold five of the six lots that were to pass to it under the termination agreement. However, despite the termination agreement providing that unit 12 would pass to the plaintiffs, the first defendant has also sold unit 12. The proceeds of that sale were sent to New Zealand in circumstances to which I shall come.

(e) On 25 February 2000 the third defendant handed to the second defendant the folio identifiers and discharges of mortgage relating to five of the six of the units that were to go to the plaintiffs under the termination agreement. Nothing appears to have come of whatever was intended by this particular transaction because the plaintiffs have placed caveats against the title of these remaining units as well as the one of the six units that were to pass to the first defendant under the termination agreements. In doing this the plaintiffs do not claim to have adopted the termination agreements, rather merely to have grabbed hold of what remains from the pool of assets clearly identifiable as the proceeds of the original investment of the plaintiff's money. They are, in any event, only part of the proceeds as will appear.

(f) The plaintiffs had also used the second defendant to set up a roughly parallel scheme for investing in New Zealand real estate. A company called Hi Win NZ Limited was established. However the first plaintiff is not recorded as a shareholder and control of the equity in that company, which is now in liquidation, appears to be in dispute in proceedings in the New Zealand High Court.

(g) Attempts by Zang Anquan, the plaintiffs’ authorised representative, to meet the third defendant to seek a full accounting as to the 2.7 million dollars have been rebuffed to date. There is evidence that the third defendant refused to speak to Zang Anquan. A promise to make contact through solicitors came to nothing. On 3 March the third defendant told the plaintiff's solicitors:
I have not heard of Beijing Urban and Rural Construction. I will have a meeting. I will have my lawyer phone you.
Nothing happened thereafter, apart from the third defendant subsequently changing his lawyer. The third defendant has offered an explanation, at least as to part of this conduct.
At this stage of the proceedings I do not need to resolve the differences between the parties on these matters. Suffice it to say that there is an arguable case that the third defendant has shown considerable lack of co-operation in attempts to obtain any accounting from him.


(h) To date no part of the 2.7 million dollars sent from China has been returned to the plaintiffs.

(i) The third defendant has remitted moneys from the joint venture to New Zealand. Exactly what the purpose of those remitters was, is a matter of dispute and will no doubt be explored in due course. Some of those moneys have got complicated or tied up with the liquidation proceedings in the New Zealand High Court. As to other moneys the defendants represented in the present proceedings have indicated their willingness to repatriate the moneys, but to date have not done so. I would have thought that there would have been an opportunity to have done so promptly if the money was as accessible as they contended, namely in a solicitor's trust account at call on their behalf.

9    On 19 June the second defendant filed a supplementary affidavit sworn on 16 June. That affidavit seeks to give a form of accounting with reference to the 2.7 million dollars remitted from the plaintiffs to the first defendant. There are claims which may well be good claims for moneys spent in various aspects of the development. Whether they were spent in aid of the plaintiff's half share or really in aid of the defendant's half interest in the Illawong development remains to be seen. So too does the verification of most, if not all, of the offsets that are claimed. Mr Martin SC for the plaintiffs has pointed to various discrepancies between the offsets as claimed in the affidavit and as claimed in earlier versions of the termination agreements. The detail does not matter very much. What is clear is that no money has been paid to the plaintiff out of its 2.7 million dollar investment, whether voluntarily or involuntarily, and the defendants are asserting in recently filed affidavits that in effect no money is payable. 10    To date only a summons has been filed and that has recently been amended by the joinder of the second plaintiff. I have been informed that the claims sought to be propounded are based upon constructive trusts arising from actual receipt of the plaintiff's moneys as well as constructive trusts based upon claims of knowing dishonest involvement in the misdoings of the second defendant and perhaps also of the corporate first defendant. 11    I direct the plaintiffs to file a statement of claim within fourteen days, setting out the bases upon which the substantive relief is sought in these proceedings. 12    The present application concerns an application for Mareva orders against the first, third and fourth defendants. Orders were made by consent and effectively without admission down to and including today. 13    In broad terms the plaintiffs accept that their interests in obtaining a full accounting and full restitution of moneys due to them are protected to about the tune of 1.95 million dollars through the caveats that have been placed upon six of the twelve townhouses from the Illawong development. In essence what the plaintiffs seek is relief in the form of Mareva orders as to the balance of a million dollars which, give or take some sum, would cover the portion of the 2.7 million dollars not invested in the two properties I have mentioned, plus interest, plus costs. The defendants have in essence asserted that the plaintiffs have had all the moneys they are entitled to when various offsets are taken into account. I have indicated why that assertion cannot be accepted at this stage in the proceedings. They have also offered to have remitted forthwith to the plaintiffs the moneys said to stand in a solicitor's trust account in New Zealand. When and if that offer is made good then it would be open to the defendants to seek modification of the orders I propose making, to an appropriate extent. They also say in effect that they were entitled to rely upon the authority of the second defendant to remit to New Zealand the moneys that have got tangled up in the claims associated with the liquidation of the company over there. At this stage I think there is an arguable case that they were on notice of the lack of authority of the second defendant and in any event were not entitled to rely upon his say-so as the basis for remitting out of this jurisdiction moneys which, on their own case, were due to the plaintiffs under a proper accounting for the now terminated joint venture between the plaintiffs and the first defendant. 14    The principles relating to the grant of Mareva relief are not, I think, in doubt. It is sufficient to refer to the judgment of Gleeson CJ in Patterson v BTR Engineering (Aust) Limited (1989) 18 NSWLR 319 at 321-322. I should indicate, because the contrary proposition was asserted from time to time, that Mareva relief may be granted where there is an established risk that assets may be disposed of either outside or within the Australian jurisdiction or otherwise dealt with in some fashion as to impede a plaintiff if successful from being able to have its judgment satisfied. 15 On the present evidence I would accept the submission of Miss Cohen that the personal defendants are to be treated in all respects as being Australian citizens or permanent residents here, and the case is not to be determined by reference to any evidence or suspicion that because they are of Chinese derivation that they might be likely to return to China or otherwise disappear from Australia. 16 However the material which I have referred to in the paragraphs (a) to (h) satisfy me that there is a prima facie case that without interim relief the cause of action which I am satisfied has been made good to the appropriate standard for an accounting and for claims based upon the first defendant's receipt of moneys belonging to the plaintiffs may be rendered nugatory. In particular, I am satisfied that there is a danger that remaining assets may not be available because they may be dealt with in such a way as to defeat the plaintiffs’ interests. The reason for that satisfaction to the appropriate standard for making interlocutory orders is found in the combination of the various matters to which I have referred. Were there just one standing alone it might be one thing. But the combination of the various matters, all of which seem to me to establish prima facie evidence of dealings incompatible with the plaintiffs’ interest in the moneys in question and incompatible with the duties of the personal defendants as persons with knowledge of the source of those moneys. All of these matters excite a level of concern that the defendants have been, until very recently, content to proceed on the basis that they will look to their own interests without any regard to those of the plaintiffs. The very belated accounting of sorts in the most recent affidavit has come too late to remove the concern that I have, that unless restrained, the defendants may put the plaintiff further at risk as to its proper rights of recovery. 17 The need for protection through Mareva orders is for the reasons I have indicated limited to the sum of $1,000,000 and the relief which I think is appropriate should be made subject to an express liberty to apply to vary that relief. That liberty would be inherent anyway, but I have in mind, in particular, the right of the defendants to approach the Court to modify the relief when and if the money from New Zealand is repatriated and handed over to the plaintiffs, and when and if some mutually satisfactory arrangement could be made with respect to the income stream that appears to be flowing from the six units which remain under the control of the first defendant, albeit subject to the caveats to which I have referred. 18 I understand it is not the practice in the Equity Division for any judge other than the expedition judge to order expedition of proceedings in the Division. I will say no more than this, that this seems to me to be a case that cries out for a proper accounting to be done as an interim step in the litigation. I do not understand the defendants to dispute the plaintiffs’ right to a proper accounting. If the parties can agree, or in default of agreement orders can be made by way of interim order to track and to document the money and the various claims, and to do the vouching that would attend a claim for accounting, then I feel quite sure that many of the disputes between the parties will go away or at least be more properly focused than they are. 19 The balance of convenience does, in my view, favour the plaintiffs. I say that having regard to the qualifications to the Mareva orders which are proposed by the plaintiffs, which I think are appropriate to the power of the Court to further modify Mareva orders in the light of particular information or supervening events. 20 It will be open to the parties to apply for expedition in the ordinary course and I have already indicated that the plaintiffs are to file proper pleadings within a fortnight so as to get this litigation well and truly on the road.

Miss Cohen is there anything you wish to say about the latest form of the short minutes of order?

COHEN: Firstly in relation to the land tax in F, my clients are responsible for land taxes. These properties are not going to be - well they're still in their name.

HIS HONOUR: In the first defendant's name?

COHEN: All land tax assessed on the properties in paragraph F on page 3, because apparently the assessments for land tax come periodically, quarterly.

HIS HONOUR: Well (F) seems to allow them to pay the land tax.

COHEN: Only one assessment. They've got to pay all assessments.

HIS HONOUR: Are we talking about future assessments or arrears?

COHEN: There was one, at the time the consent orders were made there was one assessment outstanding. I'm given to understand that the assessments come every month or two. And there are more assessments. And they are by reason of land that we say belongs to the plaintiff, that is still held in my client's name.

HIS HONOUR: Well on anyone's version the first defendant is a trustee of sorts of land that belongs--

COHEN: Of land, yes.

MARTIN: Your Honour there shouldn't be a problem. What I'd suggest is that my friend submit any further claims to my instructing solicitors and they will be favourably received, your Honour. As normally happens with this type of regime there is a bit of give and take in the sense of communication required between the parties and the orders could be subsequently varied to deal with any further expenditure.

HIS HONOUR: Will (F) cover the land tax to date?

COHEN: The problem is that once the banks get served with these orders they don't let anyone pay anything and it is an administrative nightmare trying to get the banks to let any money out of the bank when these orders are served on them because banks just cannot be bothered worrying about whether someone's paying $500 a week.

HIS HONOUR: Well if I changed assessment dated 11 April 2000 into land tax as assessed from time to time in relation to the Illawong units?

MARTIN: Yes your Honour.

HIS HONOUR: Yes.

COHEN: There is really no problem with the orders except for the fact, as I said to your Honour before, the bank just freezes everything and no money is becoming available to my clients at all since these orders have been made and it's the main problem we have with them. That's an administrative matter between my clients and their own banks. But this is, in effect, what does happen when this type of order is served on a bank. And the real problem is an administrative problem between the bank and my client and it's nothing, I suppose, that the Court can do anything about.

HIS HONOUR: I will just add an order No 6, Liberty to Apply, I do not think that is expressly there. I will add a (7). Direct plaintiffs to file and serve--

MARTIN: Just on that, your Honour, the Master yesterday did make orders by consent that the proceedings continue on pleadings and for filing of a statement of claim by 10 July.

21    HIS HONOUR: Thank you. I have added (6) Liberty to Apply and I have made the change to 4 (F) that I have indicated. I shall initial those changes and I make orders in accordance with the short minutes of order, today's date, which I have initialled.

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Last Modified: 03/13/2001