Chiou v Wang

[2000] FCA 713

FEDERAL COURT OF AUSTRALIA

Chiou v Wang [2000] FCA 713

MAREVA INJUNCTION - Mareva-type injunction sought and refused - applicants sought to restrain non-party to proceedings in Supreme Court between applicants and non-party’s ex-husband - Mareva relief sought against non-party on basis that ex-husband insolvent, likely to be bankrupted for non-payment of judgment applicants expected to obtain in Supreme Court proceedings and part proceeds of sale of house would be recoverable from non-party by ex-husband’s trustee in bankruptcy - application refused

Bankruptcy Act 1966 (Cth) s 43(1)(b) and s 121

Cardile v Led Builders Pty Ltd (1999) 73 ALJR 657 cited
Jackson v Sterling Industries Ltd (1987) 162 CLR 612 referred to
Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 referred to
Re Taylor; Ex parte Natwest Australia Bank Ltd (1992) 37 FCR 194 referred to
Bullock v The Federated Furnishing Trades Society of Australasia (1985) 5 FCR 464 referred to

JIANN-SHAN CHIOU AND TE-WAN HONG v HUANG MA-LI WANG
Q 28 OF 2000

DRUMMOND J
29 MAY 2000
SYDNEY (HEARD IN BRISBANE)

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 28 OF 2000

BETWEEN:

JIANN-SHAN CHIOU
FIRST APPLICANT

TE-WAN HONG
SECOND APPLICANT

AND:

HUANG MA-LI WANG
RESPONDENT

JUDGE:	DRUMMOND J
DATE OF ORDER:	29 MAY 2000
WHERE MADE:	SYDNEY (HEARD IN BRISBANE)

THE COURT ORDERS THAT:

1.The application be refused.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 28 OF 2000

BETWEEN:

JIANN-SHAN CHIOU
FIRST APPLICANT

TE-WAN HONG
SECOND APPLICANT

AND:

HUANG MA-LI WANG
RESPONDENT

JUDGE:	DRUMMOND J
DATE:	29 MAY 2000
PLACE:	SYDNEY (HEARD IN BRISBANE)

REASONS FOR JUDGMENT

1. The applicants, Messrs Chiou and Hong, apply for an order against Mrs Wang that she be restrained from disposing, transferring or otherwise encumbering $2,000,000 from the proceeds of sale of her house property in Brisbane, “pending further orders”.  The application is in form an originating one, though the relief sought is an interlocutory Mareva-type order.

2. The applicants have sued Mrs Wang’s former husband in the Supreme Court of Queensland for repayment of a debt in excess of $2,000,000.  These proceedings are moving along slowly, though the applicants expect, in the near future, to be able to enter up default judgment against Mr Wang.  Orders have been made in the Supreme Court for substituted service of the writ in Taiwan on Mr Wang and he has not entered an appearance.  A Supreme Court judge declined to deal with the application for Mareva relief against Mrs Wang which the applicants foreshadowed bringing in that Court, indicating that it was more appropriate for such relief against her to be sought in this Court, which, since 1996, has had exclusive jurisdiction in bankruptcy.

3. The applicants have brought these proceedings against Mrs Wang although she is not liable in respect of her husband’s debt, because, by transfer executed in August 1999 and registered on 7 September 1999, Mr Wang transferred his half interest in what I have referred to as Mrs Wang’s house property to her for nil consideration.  This transfer was said by the applicants to have been motivated by a desire by Mr Wang to prevent the applicants satisfying the claim they have made against him from his interest in the house property.  The evidence suggests that once he made this transfer to his wife, he was left with no assets in Australia.

4. Prior to this transfer, Mr and Mrs Wang were joint owners, initially of the land purchased in May 1990, and then of the land and house erected on it in 1993.  The applicants say the house was Mr and Mrs Wang’s matrimonial home until the marriage broke down.  They were divorced in April 2000.  The house has been the home in which Mrs Wang and her children have lived since 1993.  It is obviously a valuable property:  she has entered into a contract to sell it for $3,600,000.  Completion is imminent.  It is this event which has provoked the present application against Mrs Wang.

5. The applicants’ case is that Mr Wang has for some time been in financial difficulty and cannot repay the applicants’ loan, circumstances that suggest his insolvency. Further, Mr Wang signed the transfer of his half interest in the property for no consideration in early August 1999, only three months before he was required to repay the applicants’ loan, in accordance with arrangements he made when he told the applicants of his financial difficulties. The applicants contend that these circumstances raise a strong case that Mr Wang made this transfer to put his interest in the house beyond the reach of the applicants as his creditors. They submit that there is a strong prospect that they will, in the not too distant future, be able to bankrupt Mr Wang because it is unlikely that he will satisfy the judgment they expect soon to obtain against him; in that event Mr Wang’s trustee in bankruptcy will be able to set aside the transfer pursuant to s 121 the Bankruptcy Act 1966 (Cth) and so ensure that this half interest (or one-half of the proceeds of the sale by Mrs Wang of the house) will be available to meet the applicants’ claims (as well as those of any other creditors Mr Wang may have) in his bankruptcy. The applicants, by their senior counsel, confirmed that it was on this narrow basis that this Court’s jurisdiction is now invoked. The applicants rely upon Cardile v Led Builders Pty Ltd (1999) 73 ALJR 657, particularly at [57], as showing that the Court has power to grant the Mareva-type relief they are seeking against Mrs Wang.

6. Though the half interest in the proceeds of sale which the applicants seek to freeze equates to only $1,800,000, they claim relief in respect of $2,000,000 of those proceeds on the basis that in October 1998 Mrs Wang received $200,000 in cash from Mr Wang.  She says that, after the marriage broke down and after Mr Wang had returned to Taiwan to live, she was able from time to time to extract from him moneys for her and the children’s maintenance and for the upkeep of the house property, with the sum of $200,000 being received by her in October 1998:  she says she has now spent it all.  But the applicants contend that the trustee in Mr Wang’s bankruptcy would also be entitled to set aside this payment, hence the claim for interlocutory relief in respect of $2,000,000 of the sale proceeds.

7. The applicants accept that, in order to obtain the relief they now seek, they must show that there is a real risk that, if relief is not granted against Mrs Wang, she will be likely to put the proceeds of the sale of the property beyond the reach of Mr Wang’s trustee in bankruptcy.  See Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 623 and Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319. Unless such a risk is made out by the evidence, it is difficult to see how there can be any justification for the Court intervening in the way now sought by the applicants: see Cardile at [42]. They say that since it should be inferred that Mr Wang transferred his half interest in the house to her to defeat the applicants’ claims on him and since the house property will soon be turned into easily disposable cash, the further inference is that Mrs Wang, in effect, will ensure Mr Wang’s intentions to defeat the applicants are carried into effect.

8. Mrs Wang, by her counsel, submits that there is no basis for the grant of the relief sought against her.  She says the marriage had broken down long before the applicants’ debt fell due for repayment.  Mr and Mrs Wang and their two children (one born in 1976 and the other in 1983) came to Australia as immigrants in about 1989 and were both naturalised as Australian citizens in 1990.  She says that while she and her children have since then continuously resided in Australia, her husband, soon after their migration to Australia, returned to Taiwan to open up a new business, that thereafter he would visit Mrs Wang and the children in Australia for about one month in every six months, the last visit being in about June 1998.  She says the marriage was in serious difficulty as early as about 1992 and that, in 1996, she sought legal advice with respect to obtaining a divorce and to finalising a property settlement.  She says the last time Mr Wang was in Australia was in about June 1998 and that the last time she saw him was on her visit to Taiwan in December 1998.  She says that while she did from time to time receive maintenance moneys from Mr Wang from 1992 through to apparently October 1998, it became increasingly difficult to get moneys out of him and it was against the background of the failed marriage and those difficulties that she sought the legal advice about a divorce in October 1996.  This included advice that she should seek to have Mr Wang transfer his interest in the house property to her.

9. The effect of Mrs Wang’s evidence is that Mr Wang severed his ties with Australia and her well prior to transferring his interest in the house to her.  This process included closing the joint accounts he held with his wife in 1997 and divesting himself of his other interests in Australia, save for his interest in the house property.  By December 1998, he had ceased to have any contact with his children by Mrs Wang and finally he transferred his last Australian asset, his interest in the house property, to her in August-September 1999 as a settlement of her claims on him for future support for herself and her children.  That Mr Wang has no assets in Australia is supported by the applicants’ own evidence of searches made.  Mr Wang has remarried in Taiwan and has a wife and other children living with him there.

10. Mrs Wang’s case is that the house property was transferred to her by Mr Wang as a property settlement in anticipation of their divorce, not as a device to defeat Mr Wang’s creditors, including the applicants, that she is now a divorced Australian citizen who has lived with her children in Australia continuously since about 1989. She disputes that the evidence before the Court is sufficient to enable an inference to be drawn, to any standard of persuasion at all, that Mr Wang’s purpose in transferring his interest in the house property to her was that referred to in s 121(1)(b) the Bankruptcy Act 1966 (Cth). She also submits that there is no basis, against this background of her being at arms’ length from Mr Wang at all presently relevant times, for any inference that she will act to put the proceeds of sale beyond the applicants’ reach if they should succeed in bankrupting Mr Wang.

11. Mrs Wang’s evidence as to the gradual breakdown of the marriage and to the circumstances in which Mr Wang came to transfer his half interest in the property to her is supported by the uncontradicted evidence of her solicitor.  The solicitor supports her evidence that Mr Wang had agreed to transfer his interest in the home to Mrs Wang by early 1999, though that was not done until much later.  The solicitor also provides an explanation for why the transfer was made in circumstances that attracted about $61,000 stamp duty rather than by means of a Family Court property settlement, which would not have attracted any duty.

12. It is not for this Court, in the context of this interlocutory application, to attempt to arrive at a conclusion on whether the transfer was made by Mr Wang for the purpose suggested by the applicants.  But the state of the evidence on this issue before me is such that it cannot be said that the applicants have anything more than a fairly weak case on this issue on the material as it presently stands.

13. The other basis, upon which counsel for Mrs Wang placed most emphasis at the hearing, for contending that the relief sought by the applicants should be refused is that they will be unable to satisfy the relevant requirement of s 43(1)(b) the Bankruptcy Act 1966 (Cth) and so will be unable to obtain a sequestration order against Mr Wang, even if they obtain judgment against him in the Supreme Court and can serve a bankruptcy notice on him demanding payment of that judgment. Senior counsel for the applicants accepted that it would only be if the applicants could satisfy the court dealing with their anticipated bankruptcy petition that, at the time when it should be expected that Mr Wang will be required to comply with the foreshadowed bankruptcy notice, he will then be “ordinarily resident in Australia” within the meaning of that expression in s 43(1)(b)(i) the Bankruptcy Act 1966 (Cth). Additionally, they will be able to bankrupt him and thus bring into existence circumstances which will enable action to be taken against Mrs Wang to recover Mr Wang’s half interest in the house property or its monetary equivalent. Re Taylor; Ex parte Natwest Australia Bank Ltd (1992) 37 FCR 194 was referred to by both counsel as providing proper guidance on the construction of this expression in s 43 the Bankruptcy Act 1966 (Cth).

14. Counsel for the applicants pointed to the circumstances in which Mr Wang migrated to Australia in 1989 and to his obtaining citizenship here in 1990, a citizenship which he retains.  He submitted that there is a strong inference that Mr Wang came here at that time intending to make Australia his permanent home and there is sufficient foundation for presuming that he continues to have that intention.  Reference is made to the evidence suggesting that he is in real financial difficulties in Australia, something which it is said suggests that his absence from Australia, at least since late 1998, may be a temporary absence only.  Against this body of evidence, however, is the evidence pointing to the termination of Mr Wang’s personal ties with this country, as evidenced by the breakdown of his marriage and the breakdown of his relationship with his children by Mrs Wang and by his remarriage in Taiwan.  I have also referred to the evidence, largely common ground before me, that Mr Wang now does not have, and for some time has not had any assets in Australia, other than his interest in the house property, of which he divested himself in September 1999.

15. It is difficult to accept that the applicants will be able to satisfy the bankruptcy court that any non-compliance by Mr Wang with the envisaged bankruptcy notice will occur at a time when it can be said that he will be ordinarily resident here.  The case they seek to make out against Mr Wang is greatly weakened for this reason.

16. Senior counsel for the applicants submitted, with respect to the balance of convenience, that there was no evidence that the interlocutory restraint sought would impose any hardship at all on Mrs Wang:  if granted, she would have unfettered use of about $1,600,000 in circumstances where there is nothing to indicate that temporary denial of access to the further $2,000,000 sought to be frozen, if that denial ultimately turns out to be unjustified, would cause Mrs Wang any difficulty at all.  It is also said that, so far as the evidence indicates, it is unlikely that the temporary restraint sought, if unjustified, would inflict much in the way of damage upon her, particularly if the frozen moneys are invested, pending determination of the foreshadowed proceedings in bankruptcy, in a suitable form of investment.  In any event, the applicants offer the usual undertaking as to damages and there is nothing before me to suggest that that undertaking will not provide adequate protection to Mrs Wang.

17. The applicants have, at best, a weak case only that they may, by means of bankruptcy proceedings yet to be instituted, be able to bring in to the pool of divisible property the sale proceeds that represent the half share in the house property which Mr Wang formerly owned. Their case is particularly insubstantial on the issue they will have to establish before s 121 the Bankruptcy Act 1966 (Cth) can be invoked as they envisage, viz, as to Mr Wang being ordinarily resident in Australia at the relevant future time.

18. The weakness of the case and in particular the case on the circumstances in which Mr Wang transferred his interest to Mrs Wang has a twofold relevance:  firstly, it is a proper matter to take into account in assessing the balance of convenience (see Bullock v The Federated Furnishing Trades Society of Australasia (1985) 5 FCR 464 at 472) though it has limited significance in telling against the grant of relief, in view of the applicants’ likely difficulty in satisfying any judgment they obtain against Mr Wang: unless the relief now sought is granted, they will very likely be unable to satisfy the judgment they anticipate obtaining against Mr Wang, something that Mrs Wang cannot dispute in view of the evidence as to Mr Wang’s Australian asset position (whether Mr Wang has assets in Taiwan that might be able to be recovered by an Australian trustee was not the subject of discussions by either counsel). More importantly, it, in large part, destroys the evidentiary basis for any conclusion that there is a sufficient risk that, unless restrained, Mrs Wang will dissipate so much of the proceeds as the applicants make claim to, as to justify the grant of the relief sought. Where Mareva-type relief is sought against a third party not shown to be set upon a course of frustrating the administration of justice as between claimant and respondent (as is the position here), “[i]t requires a high degree of caution on the part of a court invited to make” such an order: Cardile at [50] and [51].

19. In these circumstances, I do not think the applicants are entitled to the relief they seek against Mrs Wang as to the $1,800,000.

20. As to the claim also made for interlocutory relief in respect of the additional $200,000, there is nothing that throws any doubt at all on Mrs Wang’s evidence that she has long since spent the whole of those moneys, to which she acquired a good title when they were paid to her, on living expenses. It was not suggested that any part of these moneys could be traced into any identifiable property remaining in Mrs Wang’s hands. The applicants did not attempt to explain how voidance in these circumstances at the behest of any trustee who may be appointed to administer Mr Wang’s affairs of the transfer of the $200,000 by him to Mrs Wang would entitle the trustee to any order in respect of the $200,000 against Mrs Wang in proceedings brought pursuant to s 121 the Bankruptcy Act 1966 (Cth) against her.

21. The application will therefore be refused.

I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond.

Associate:

Dated:             29 May 2000

Counsel for the First and Second Applicants:	Mr Broun QC
Solicitor for the First and Second Applicants:	Hayes & Company
Counsel for the Respondent:	Mr Fraser QC
Solicitor for the Respondent:	Hopgood Ganim
Dates of Hearing:	18 April and 26 May 2000
Date of Judgment:	29 May 2000