Chong v Huang
[2021] ACTSC 310
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Chong v Huang |
Citation: | [2021] ACTSC 310 |
Hearing Date: | 02 December 2021 |
DecisionDate: | 02 December 2021 |
Before: | McWilliam AJ |
Decision: | See [33]-[34] |
Catchwords: | PRACTICE AND PROCEDURE – FREEZING ORDER – Urgent ex parte application – alleged dilution of corporate shareholdings and misrepresentations as to purchase price of waterpark business in Macquarie – where allegations in the nature of serious dishonesty – whether there is a danger that any prospective judgment debt will not be satisfied – whether the evidence establishes a good arguable case – whether the balance of convenience favours making the orders |
Legislation Cited: | Court Procedures Rules 2006 (ACT) rr 741, 743 |
Cases Cited: | Blue Mirror Pty Ltd v Pegasus Australia Developments Pty Ltd [2021] NSWSC 961 |
Parties: | Mei Chong (First Plaintiff) Yuxuan Sun (Second Plaintiff) Songnan (Morris) Huang (First Defendant) Translink Property Management Pty Ltd (ACN 603 381 317) (Second Defendant) Translink Management Group Pty Ltd (ACN 602 187 584) (Third Defendant) Enlighten Management Pty Ltd (ACN 604 284 068) (Fourth Defendant) Braybrook Bruce Development Pty Ltd (ACN 613 359 032) (Fifth Defendant) ACT Waterpark Management Pty Ltd (ACN 643 509 835) (Sixth Defendant) |
Representation: | Counsel P Greenwood SC with C Tam ( Plaintiffs) No appearance ( Defendants) |
| Solicitors Kamy Saeedi Law ( Plaintiffs) No representation ( Defendants) | |
File Number: | SC 498 of 2021 |
McWilliam AJ
Before the Court, on an urgent duty and ex parte basis, is an amended originating application, that I granted leave to file in court today. The relief sought in the application is as follows:
Interlocutory Relief
1 Upon the plaintiffs undertaking to pay any applicable filing fee, they have leave to file this Originating Application and the affidavits of Mei Chong dated 1 December 2021 and Yuxuan Sun dated 1 December 2021 and prayers 1 to 18 of this Originating Application be returnable instanter.
2 The time for service of the Originating Application is abridged to
3 Service is taken to be effected upon the defendants if a copy of the Originating Application and the affidavits of Mei Chong dated 1 December 2021 and Yuxuan Sun dated 1 December 2021 are sent by email to the first defendant at the email address [email protected] and by post by posting them to 6 Kuhn Place, Nicholls ACT, 2913.
Freezing Order – first defendant
4 On the undertaking set out in Schedule A to the Penal Notice included in this Originating Application, until further order, pursuant to rules 741 and 743 of the Court Procedure Rules 2006, that the first defendant be restrained, in any respect, from disposing of, dealing with, or diminishing the value of any part of the personal and real property that he owns beneficially, including his interest in 6 Kuhn Place, Nicholls ACT, 2913.
5 As to the first defendant, on the undertaking set out in Schedule A to this Originating Application orders, pursuant to rules 741, 742 and 743 of the Courts Procedure Rules 2006, orders in accordance with the Penal Notice included in this Originating Application.
Freezing Order – second defendant
6 On the undertaking set out in Schedule A to the Penal Notice included in this Originating Application, until further order, pursuant to rules 741 and 743 of the Court Procedure Rules 2006, the second defendant be restrained, in any respect, from disposing of, dealing with, or diminishing the value of any part of its interest in the Land situated at Macquarie Section 53 Block 1 on Deposited Plan 5093 (original title, Volume 1766, Folio 85).
7 As to the second defendant, on the undertaking set out in Schedule A to this Originating Application orders, pursuant to rules 741, 742 and 743 of the Courts Procedure Rules 2006, orders in accordance with the Penal Notice included in this Originating Application.
Freezing Order – third defendant
7A On the undertaking set out in Schedule A to the Penal Notice included in this Originating Application, until further order, pursuant to rules 741 and 743 of the Court Procedure Rules 2006, the third defendant be restrained, in any respect, from disposing of, dealing with, or diminishing the value of any property that it beneficially owns.
7B As to the third defendant, on the undertaking set out in Schedule A to this Originating Application orders, pursuant to rules 741, 742 and 743 of the Courts Procedure Rules 2006, orders in accordance with the Penal Notice included in this Originating Application.
Freezing Order – fourth defendant
8 On the undertaking set out in Schedule A to the Penal Notice included in this Originating Application, until further order, pursuant to rules 741 and 743 of the Court Procedure Rules 2006, the fourth defendant be restrained, in any respect, from disposing of, dealing with, or diminishing the value of any part of its interest in:
a. Lot 9 in Strata Plan 94321 at West Ryde, Local Government Area: Ryde; and
b. Lot 6 in Strata Plan 94321 at West Ryde, Local Government Area: Ryde.
9 As to the fourth defendant, on the undertaking set out in Schedule A to this Originating Application orders, pursuant to rules 741, 742 and 743 of the Courts Procedure Rules 2006, orders in accordance with the Penal Notice included in this Originating Application.
Freezing Order – fifth defendant
10 On the undertaking set out in Schedule A to the Penal Notice included in this Originating Application, until further order, pursuant to rules 741 and 743 of the Court Procedure Rules 2006, the fifth defendant be restrained, in any respect, from disposing of, dealing with, or diminishing the value of any part of its interest in Lot 7 in Strata Plan 99739 at Carlingford, Local Government Area: City of Parramatta.
11 As to the fifth defendant, on the undertaking set out in Schedule A to this Originating Application orders, pursuant to rules 741, 742 and 743 of the Courts Procedure Rules 2006, orders in accordance with the Penal Notice included in this Originating Application.
Freezing Order – sixth defendant
11A On the undertaking set out in Schedule A to the Penal Notice included in this Originating Application, until further order, pursuant to rules 741 and 743 of the Court Procedure Rules 2006, the sixth defendant be restrained, in any respect, from disposing of, dealing with, or diminishing the value of any property that it beneficially owns.
11B As to the sixth defendant, on the undertaking set out in Schedule A to this Originating Application orders, pursuant to rules 741, 742 and 743 of the Courts Procedure Rules 2006, orders in accordance with the Penal Notice included in this Originating Application.
Freezing Order – provision of information
12 Pursuant to rule 742(2)(a) of the Courts Procedure Rules 2006, on or before seven days from the date of these orders, the first defendant is to swear and serve on the plaintiffs an affidavit addressing:
a. the price paid to purchase the Land situated at Macquarie Section 53 Block 1 on Deposited Plan 5093 (original title, Volume 1766, Folio 85);
b. the nature and extent of any encumbrances on the Land situated at Macquarie Section 53 Block 1 on Deposited Plan 5093 (original title, Volume 1766, Folio 85);
c. the nature and extent of any encumbrances on Lot 9 in Strata Plan 94321 at West Ryde, Local Government Area: Ryde; and
d. all assets beneficially owned by the first defendant.
Freezing Order – other orders
13 These orders be taken out forthwith.
14 Liberty to restore on 24 hours’ notice.
15 Any other orders that the Court considers appropriate.
16 Costs reserved.
Future Conduct of the Proceeding
17 That the proceeding proceed by way of pleadings.
18 That the plaintiffs, by file and serve a Statement of Claim setting out the final relief that they seek against the defendants and that otherwise the proceeding proceed in accordance with the Courts Procedure Rules 2006.
In addition to granting leave to file the originating process in court, I also made interlocutory orders abridging the time for service of that originating application and dealing with the means of service on the defendants in the proceedings, given the urgency with which the application was brought before the Court. The orders are set out at the end of these reasons.
Evidence
The evidence led in support of the application included two affidavits. The first was an affidavit affirmed by the first plaintiff, Ms Mei Chong, on 1 December 2021. The second affidavit was affirmed by the second plaintiff, Ms Yuxuan Sun, on 1 December 2021. Those affidavits contained voluminous exhibits and I was taken to the relevant parts of those exhibits during the hearing of the application by Senior Counsel appearing for the plaintiffs. It is unnecessary to set out the detail of the affidavits for the purposes of the reasons on this interlocutory aspect of the proceeding.
The defendants are all related entities in the following way. The first defendant is the sole director of the second to sixth defendants. The second defendant is wholly owned and controlled by the third defendant and is also the registered proprietor of what is described in the affidavit evidence as the Macquarie Land, being Macquarie Section 53, Block 1 on Deposited Plan 5093 (original title, Volume 1766, Folio 85). The third defendant is wholly owned and controlled by the first defendant.
The fourth defendant is wholly owned and controlled by the first defendant and is the registered proprietor of Lots 6 and 9 of 29-31 Gaza Road, West Ryde, New South Wales (West Ryde Development). The fifth defendant is wholly owned and controlled by the first defendant and is the registered proprietor of Lot 7, 14-16 Blenheim Road, Carlingford, NSW (Carlingford Development). The sixth defendant is wholly owned and controlled by the first defendant.
The Court’s power
The power of the Court to grant the relief sought arises from rr 741 and 743 of the Court Procedures Rules 2006 (ACT) (Rules). They relevantly provide:
741Freezing orders—general
(1) The Supreme Court may make an order (a freezing order) for the purpose of preventing the frustration or inhibition of the court’s process by ensuring that an order or prospective order of the court is not made valueless or diminished in value.
…
(3) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets.
(4) For the Supreme Court, a freezing order or ancillary order may be made whether or not the respondent is a party to an existing proceeding.
743Freezing orders—order against enforcement debtor or prospective enforcement debtor or third party
(1)This rule applies if—
(a)an order has been given in favour of an applicant by—
(i) the court; or
(ii) for an order to which subrule (2) applies—another court; or
(b)for the Supreme Court—an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in—
(i) the court; or
(ii) for a cause of action to which subrule (3) applies—another court;
…
(4)The court may make a freezing order or ancillary order (or both) against an enforcement debtor or prospective enforcement debtor if satisfied, having regard to all the circumstances, that there is a danger that an order or prospective order will be completely or partly unsatisfied because any of the following might happen:
(a)the enforcement debtor, prospective enforcement debtor or someone else absconds;
(b)the assets of the enforcement debtor, prospective enforcement debtor or someone else are—
(i) removed from Australia or from somewhere in or outside Australia; or
(ii) disposed of, dealt with or diminished in value.
In terms of the principles that are applicable when the Court is determining whether to grant such relief, they have been discussed in Owen v Owen [2019] ACTSC 108 (Owen), where Murrell CJ said at [15]-[19]:
15. The relevant rules are rr 741 and 743 of the Court Procedures Rules 2006 (ACT). Rule 741 relates to the making of a freezing order to prevent the frustration of the court's process by ensuring that a prospective order of the court is not made valueless or diminished. It applies to any costs order that might be made in connection with the current proceedings before this court.
16.The rule that is relevant in relation to the costs order made by the New South Wales Supreme Court is r 743. It applies if an order has been given in favour of an applicant by another court and if there is a sufficient prospect that the order will be registered in or enforced by this court. Rule 743(4) provides:
(4) The court may make a freezing order or ancillary order (or both) against an enforcement debtor or prospective enforcement debtor if satisfied, having regard to all the circumstances, that there is a danger that an order or prospective order will be completely or partly unsatisfied because any of the following might happen:
…
(b) the assets of the enforcement debtor, prospective enforcement debtor or someone else are –
(ii) disposed of, dealt with or diminished in value.
17.Under r 743(5), the court may make a freezing order against a third party where the third party holds a power of disposition over assets.
18.The purpose of the discretionary power to make a freezing order is not to create security for the applicant; it is to prevent frustration of a court process: Jackson v Sterling Industries Ltd (1987) 162 CLR 612. Before an order is made, the applicant must establish both a good arguable cause of action and that there is a danger (or “real risk”) that a judgment debt will go unsatisfied because of the disposal of assets.
19.In National Gallery of Australia v Beljan [2018] ACTSC 78 at [30], Mossop J said:
In general terms, in order to warrant the making of a freezing order it is necessary to establish:
(a) that the plaintiff has a vested and accrued cause of action against the defendant;
(b) that a danger exists that if the plaintiff is successful, it will not be able to have the judgment satisfied by reason of the defendant absconding, removing assets from the jurisdiction, disposing of them within the jurisdiction or otherwise dealing with them in a manner that puts them beyond reach; and
(c) the balance of convenience favoured the granting of relief.
Dealing with each of the three considerations referred to by Mossop J, Senior Counsel for the plaintiffs’ drew the Court’s attention to a recent judgment of Kunc J in relation to the equivalent rule in the New South Wales jurisdiction, namely Blue Mirror Pty Ltd v Pegasus Australia Developments Pty Ltd [2021] NSWSC 961 (Blue Mirror). His Honour discussed the considerations at [79]-[86]:
79.The criterion of a "good arguable case" requires proof "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": Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH &Co KG, The Niedersachen [1983] 1 WLR 1412; [1984] 1 All ER 398 (Ninemia) at 404 per Mustill J. In the Court's assessment of a "good arguable case", the Court "should not be drawn into a premature trial of the action, rather than a preliminary appraisal of the plaintiff's case": Ninemia at 404; see also Samimi v Seyedabadi; Seyedabadi v Samimi [2013] NSWCA 279 at [69] and [70], where McColl JA approved the observations of Mustill J in Ninemia.
80.The second relevant criterion is whether there is a risk that the defendant will, either by absconding or dissipating its assets, render itself "judgment proof". In satisfying the Court of this criterion, it is not incumbent on the plaintiff to establish this risk or danger on the balance of probabilities: see Patterson [v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319] at 325 per Gleeson CJ; see also Severstal Export GmbH v Bhushan Steel Ltd (2013) 84 NSWLR 141; [2013] NSWCA 102 at [57]–[60] per Bathurst CJ, with whom Beazley P and Barrett JA agreed. Rather, it is incumbent on the plaintiff to satisfy the Court that there is a danger that the prospective judgment will not be satisfied if the asset preservation order is not made, notwithstanding that the risk of that occurrence may be less probable than not. There is no requirement that evidence of the real risk that a defendant may abscond or dissipate its assets be direct; it may, and often will, be adduced by evidence that calls for inferences to be drawn. Additionally, there is no requirement imposed upon the plaintiff to adduce evidence of a positive intention by the defendant to frustrate any judgment: National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271 at 277; [1990] HCA 10 per Mason CJ, Brennan and Deane JJ.
81.Although the second criterion does not need to be established on the balance of probabilities, the plaintiff is nevertheless required to adduce "solid evidence" that there exists a real risk that the defendant will abscond or dissipate its assets; mere assertion of that risk or proof that a company is incorporated abroad and does not have assets within the jurisdiction is insufficient: Ninemia at 406; Frigo v Culhaci [1998] NSWCA 88; Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194; [2010] FCA 1014 at [12] per Kenny J. As Lawton LJ explained in Third Chandris Shipping Corporation v Unimarine SA [1979] 1 QB 645, there must be facts from which the Court, "like a prudent, sensible commercial man, can properly infer a danger of default if assets are removed from the jurisdiction": at [56]. I would respectfully add to his Lordship's observations that there may be evidence, inferential or otherwise, demonstrating a sufficient danger of default if the defendant's assets are dissipated within the jurisdiction.
82.In its assessment of the purported risk or danger posed by a defendant absconding or dissipating its assets, the Court may also have regard to the nature of the allegations raised against the defendant, particularly in circumstances where the "good arguable case" is one involving serious dishonesty or fraud. In Patterson, Gleeson CJ relevantly said (at 325–6):
"… the evidence as to the nature of the scheme in which the appellant was allegedly involved, which established a prima facie case against him, was such as to justify the conclusion that there was a danger that the appellant would dispose of assets in order to defeat any judgment that might be obtained against him and that such danger was sufficiently substantial to warrant the injunction. There is no reason in principle why the evidence which is relevant to the first of the issues earlier referred to might not also have a bearing on the second, and this will especially be so where the prima facie case that is made out against a defendant is one of serious dishonesty involving diversion of money from its proper channels. The present is not a case in which a plaintiff who claims simply to be an unsecured creditor seeks to prevent a dissipation of assets which have no particular connection with the claim in question. This is a case in which the plaintiff claims that the defendant, making use of a corporation controlled by him, fraudulently misappropriated a large sum of money which, if it is still under the control of the appellant, would be quite likely to constitute, directly or indirectly, the bulk of his assets. As Giles J held, the nature of the scheme in which, on the evidence to date, the appellant appears to have engaged, is such that it is reasonable to infer that he is not the sort of person who would, unless restrained, preserve his assets intact so that they might be available to his judgment creditor."
83.The third criterion — that the Court should exercise its discretion in favour of continuing the Freezing and Disclosure Orders — engages a wide range of considerations, including those set out by the High Court in Cardile [v LED Builders Pty Ltd [1999] HCA 18; 198 CLR 380] at [53] … In addition to those considerations, the discretionary considerations in an application of the present kind include the Court's assessment of the parties' respective compliance with orders of the Court and disclosure obligations, particularly those obligations impressed upon a plaintiff where asset preservation orders are obtained ex parte, which necessarily includes what is contained in [19] of Practice Note SC Gen 14. That paragraph provides:
"An applicant for an ex parte freezing order is under a duty to make full and frank disclosure of all material facts to the Court. This includes disclosure of possible defences known to the applicant and of any information which may cast doubt on the applicant's ability to meet the usual undertaking as to damages from assets within Australia."
84.If a plaintiff fails to comply with these obligations, the Court may, subsequent to its grant of an asset preservation order — which is usually the case where an order is made ex parte because evidence of a plaintiff's non-compliance with Practice Note SC Gen 14 will ordinarily be brought to the Court's attention by the party against whom the order is made — dissolve that order in the exercise of its discretion. As the High Court explained in Thomas A Edison v Bullock (1912) 15 CLR 679 at 681–2:
"… it is the duty of a party asking for an injunction ex parte to bring under the notice of the Court all facts material to the determination of his right to that injunction, and it is no excuse for him to say he was not aware of their importance. Uberrima fides is required, and the party inducing the Court to act in the absence of the other party, fails in his obligation unless he supplies the place of the absent party to the extent of bringing forward all the material facts which that party would presumably have brought forward in his defence to that application. Unless that is done, the implied condition upon which the Court acts in forming its judgment is unfulfilled and the order so obtained must almost invariably fall."
85.Also of relevance to the Court's exercise of its discretion in applications of the present kind is the issue of whether the plaintiff has proffered an undertaking as to damages and, consequentially, the adequacy of that undertaking. An undertaking as to damages will be required in applications of the present kind unless exceptional circumstances exist justifying departure from that rule, including where the plaintiff establishes an unarguable case of fraud: see, eg, De Boer v Williams [2004] NSWSC 351 at [20] and [23] per Einstein J; Southern Tableland Insurance Brokers Pty Ltd (in liq) v Schomberg (1986) 11 ACLR 337 (Southern Tableland) at 340 per Young J (as his Honour then was), quoting Kerridge v Foley (1968) 70 SR (NSW) 251 at 255 per Sugerman JA with approval. The failure of a plaintiff to proffer an undertaking as to damages, although not ipso facto fatal to an application for an asset preservation order, weighs heavily against an order of that nature.
86.The Court will also take into account, in the exercise of its discretion, the adequacy of that undertaking. Akin to the absence of an undertaking, the Court will be less inclined, in the exercise of its discretion, to grant an asset preservation order in circumstances where it is satisfied that a plaintiff does not have the wherewithal to honour its undertaking, either because of practical difficulties the defendant is likely to encounter in enforcing the undertaking or on account of the plaintiff's want of sufficient funds: Carlton and United Breweries (NSW) Pty Ltd v Bond Brewing (NSW) Ltd (1987) 76 ALR 633 at 640; Southern Tableland at 342–3. If the Court is not satisfied that the undertaking proffered by the plaintiff would be sufficient to satisfy losses caused by the Court's order preserving the defendant's assets, then the Court may require security to support that undertaking: Southern Tableland at 343; Re DPR Futures Ltd [1989] 1 WLR 778 at 786.
It can be seen from the above principles that there are essentially two main matters of which the Court must be satisfied. The first is that the plaintiffs have a good arguable case; the second is that there is a real risk that the defendant will, either by absconding or dissipating assets, render himself (in this case) or itself “judgment proof” (to use the words of Kunc J at [80] of Blue Mirror). The Court then has a discretion, which involves considerations of the kind set out by Kunc J in Blue Mirror above, as to where the balance of convenience lies. Each of these three matters will be addressed in turn.
Do the plaintiffs have a good arguable case?
The relevant facts are set out in the affidavit evidence and were helpfully summarised by Senior Counsel for the plaintiffs in written submissions and also orally during the hearing.
In 2016, the first plaintiff and her husband contributed $6.2 million to two residential property developments (the West Ryde Development and the Carlingford Development). The first defendant was involved personally and via corporate vehicles that were specifically established for each development.
That developments were completed in 2019. The first plaintiff was to receive an unencumbered townhouse in the West Ryde Development. It is alleged the parties agreed that the fourth defendant would hold the townhouse, which is Lot 9, on trust for the first plaintiff's benefit. The first plaintiff was also to receive:
(a) A 60 per cent shareholding in the fourth defendant (the corporate vehicle for the West Ryde Development); and
(b) A 60 per cent shareholder in the fifth defendant (the corporate vehicle for the Carlingford Development).
The Waterpark Development
After the first two developments, the first plaintiff and the first defendant undertook a further venture in the Territory, described as the ACT Waterpark Development. In September 2019, the first plaintiff contributed approximately $6.4 million for the purchase of land and an existing waterpark business at Macquarie. The first defendant is said to have represented that the purchase price of the land was $17.5 million and that the purchase price of the business was $1.5 million. A contract for sale was in evidence, which bears the purchase price of the land as $17.5 million.
The first plaintiff was to receive 53.2 per cent of the shares in the second defendant, which was the corporate vehicle used to purchase the land. The parties agreed that those shares would be transferred to the second plaintiff, who is the daughter of the first plaintiff. That appears to have originally occurred.
$6.4 million was then advanced by the first plaintiff and the land and business were purchased by the second defendant, which was at the time wholly owned and controlled by the third defendant. In turn, that entity was wholly owned and controlled by the first defendant. It was intended that the waterpark business be operated through the sixth defendant and the parties agreed that the first plaintiff would be a 53.2 per cent shareholder in that entity, but that those shares would be held by the second plaintiff. Again, that appears to have happened initially.
However, as events have transpired, the first and second plaintiffs, through their enquiries and investigations of their solicitors, have reason to believe that the following matters have occurred. In relation to the first plaintiff:
(a)The townhouse that was meant to be unencumbered and held on trust for the first plaintiff in respect of the West Ryde Development is now encumbered. The first plaintiff says that she did not know or give approval for such an encumbrance to occur.
(b)In relation to the fourth defendant, the shares that were meant to be in the name of the first plaintiff have since been transferred, so that the ASIC record as at 23 November 2021 (in evidence on the application) shows that the first defendant is a 100 per cent shareholder.
(c)Similarly, although the first plaintiff was meant to be a 60 per cent shareholder in the fifth defendant, the ASIC record (also before the Court) confirms that the first defendant is 100 per cent shareholder in the fifth defendant. Both of those share transfers are said by the first plaintiff to have occurred without her knowledge or consent.
The plaintiffs also have concerns in respect of the purchase of the ACT Waterpark Development. The evidence before the Court contained a number of documents, including as I have said, the contract for sale recording the purchase price of $17.5 million, however the authenticity of that document is questionable on its face. There is a concern that the contract for sale that was shown to the first plaintiff has been manipulated to represent to her a sale price of $17.5 million, when in fact the sale price was $7.5 million.
The matters giving rise to that concern are as follows. First, the transfer that has been registered with Access Canberra says that the sale was in fact $7.5 million. Second, investigations by the plaintiffs’ solicitors with the solicitor for the vendors in respect of that sale have confirmed that the sale price was $7.5 million.
Dealing specifically with the interest of the second plaintiff:
(a) It is alleged that her allocated shares in the second defendant have been diluted without the knowledge or consent of either the first or second plaintiff. They have been transferred to the third defendant, an allegation which was supported through the ASIC searches in evidence.
(b) Further, the second plaintiff's shares in the sixth defendant, the corporate vehicle for the waterpark business, have also been diluted without the second plaintiff's knowledge or consent. The first defendant is now the sole shareholder in the sixth defendant, as recorded on the ASIC search in evidence.
The effect of all of this is to give rise to the plaintiffs seeking to bring proceedings in this Court for a number of causes of action. They include:
(a)Breach of contract;
(b)Breach of fiduciary duty;
(c)Misleading or deceptive conduct;
(d)Fraud or deceit;
(e)Breach of trust in relation to the investment of approximately $6.4 million plus damages, interests and costs.
Due to the urgency with which the application was brought on, the statement of claim is yet to be drafted to reflect the above causes of action. However, the detail of the elements necessary to support each action was provided in the written submissions provided by the plaintiff and the comprehensive affidavit material that was before the Court.
The relief that will be sought includes declarations and orders for:
(a)the removal of the incumbrance on the townhouse in the West Ryde Development; and
(b)the transfer of the townhouse in the West Ryde Development back into the first plaintiff's name.
In her affidavit, the first plaintiff deposes to further relief to be sought in the nature of damages for breach of contract and for breach of fiduciary duties in relation to the West Ryde Development and Carlingford Development.
On the evidence that has been put before the Court, including the sworn evidence by the people who were involved in the transactions and who are in a position to know what occurred and what was intended, combined with the documentary evidence supporting the facts alleged as set out above, I am satisfied that there is a “good arguable case” for each of the above causes of action and for the relief proposed to be sought.
Is there a real risk that the defendants will dissipate assets?
The second question is whether there is a real risk that the defendants will render themselves “judgment proof”.
As pointed out by Senior Counsel for the plaintiffs in written submissions, one matter that is relevant to that question is whether there is involved in the case a “real dishonesty”, relying on the dicta of Gleeson CJ in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 325-326 (emphasis added):
In any event, for the reasons given by Giles J, I consider that the case was one in which the evidence fully justified the granting of a Mareva injunction. In particular, I consider that Giles J was correct in taking the view that the evidence as to the nature of the scheme in which the appellant was allegedly involved, which established a prima facie case against him, was such as to justify the conclusion that there was a danger that the appellant would dispose of assets in order to defeat any judgment that might be obtained against him and that such danger was sufficiently substantial to warrant the injunction. There is no reason in principle why the evidence which is relevant to the first of the issues earlier referred to might not also have a bearing on the second, and this will especially be so where the prima facie case that is made out against a defendant is one of serious dishonesty involving diversion of money from its proper channels. The present is not a case in which a plaintiff who claims simply to be an unsecured creditor seeks to prevent a dissipation of assets which have no particular connection with the claim in question. This is a case in which the plaintiff claims that the defendant, making use of a corporation controlled by him, fraudulently misappropriated a large sum of money which, if it is still under the control of the appellant, would be quite likely to constitute, directly or indirectly, the bulk of his assets. As Giles J held, the nature of the scheme in which, on the evidence to date, the appellant appears to have engaged, is such that it is reasonable to infer that he is not the sort of person who would, unless restrained, preserve his assets intact so that they might be available to his judgment creditor.
I accept the submission that the gravamen of the real risk here is that the first defendant's interference with the shareholdings of the corporate defendants without the plaintiffs' knowledge or consent gives rise to a case of serious dishonesty involving diversion of money and diversion of shares in corporate entities owning valuable assets. Consequently, there is, prima facie, a real danger that any prospective judgment will not be satisfied.
The plaintiffs have an obligation to be candid about all matters that may affect an application made ex parte. That includes matters affecting urgency. The plaintiffs have been aware of the relevant facts giving rise to the commencement of these proceedings since August 2021. They delayed approaching the Court at that time because of an attempt to sell the townhouse in the West Ryde Development with a view to recouping some of the money that they had deployed in that and other projects. This required the cooperation of the first defendant, and it appeared that they had it, at least in September 2021 when the first defendant advised the plaintiffs of a buyer who was prepared to pay $1.88 million with a 10 per cent deposit.
The first plaintiff instructed the first defendant to accept that offer and documentation was received by way of a transfer, which the first defendant said in September 2021 was part payment of the deposit. A copy of the contract for sale was also presented to the first plaintiff.
However, this latest contract for sale again gave rise to a concern on the part of the plaintiffs that the sale transaction was either not genuine, or that the relevant property was affected by other interests, or that there are undisclosed difficulties with the sale. This is because the title search attached to the contract for sale dated 1 September 2021 referred to five notifications, but only three were listed below. That discrepancy caused the first plaintiff to instruct her solicitor to carry out a separate title search of the property on 2 September 2021. That search indeed revealed that there were five notifications of interests affecting title, the further two being a mortgage to Perpetual Corporate Trust Limited and a caveat lodged by someone called Liyong Qu. In any event, settlement was to occur by 21 October 2021, and the purported sale has not completed, for reasons which are not yet entirely clear to the plaintiffs.
In combination with the other matters earlier discussed as to the foundation for an allegation of dishonesty against the first defendant, who controls the remaining defendants, I am comfortably satisfied on the evidence discussed above that there is a real risk the prospective judgment will be valueless or diminished in value, were the plaintiffs to proceed on their case and to succeed on their anticipated claims.
The balance of convenience favours granting the freezing order
One of the matters that affects the balance of convenience is whether the plaintiffs have given the usual undertaking as to damages, which has been proffered in the affidavit evidence and which I accept. The plaintiffs are clearly people of significant financial means and that undertaking has value behind it. As I am satisfied about the adequacy of the undertaking and there are no other discretionary matters of which I am presently aware that would weigh against the orders being made (at least until the defendants have had the opportunity to come to Court) I consider the balance of convenience favours the grant of the freezing orders and accordingly, I will make the orders sought in the application.
Orders
The orders of the Court are as follows:
Interlocutory Relief
1.Upon the plaintiffs undertaking to pay any applicable filing fee, leave is granted to file in Court the Originating Application and the affidavits of Mei Chong dated 1 December 2021 and Yuxuan Sun dated 1 December 2021, with prayers 1 to 18 of this Originating Application be returnable instanter.
2.The time for service of the Originating Application is abridged to 3 December 2021 at 6:00pm.
3.Service is taken to be effected upon the defendants if a copy of the Originating Application and the affidavits of Mei Chong dated 1 December 2021 and Yuxuan Sun dated 1 December 2021 are sent by email to the first defendant at the email address [email protected] and the first defendant is personally served and/or a copy of the documents are left at the residence of 6 Kuhn Place, Nicholls ACT, 2913.
Freezing Order – first defendant
4.On the undertaking set out in Schedule A to the Penal Notice accompanying the Originating Application, until further order, pursuant to rules 741 and 743 of the Court Procedures Rules 2006 (ACT), the first defendant is restrained, in any respect, from disposing of, dealing with, or diminishing the value of any part of the personal and real property that he owns beneficially, including his interest in 6 Kuhn Place, Nicholls ACT, 2913.
5.As to the first defendant, on the undertaking set out in Schedule A to the Penal Notice accompanying the Originating Application, pursuant to rules 741, 742 and 743 of the Courts Procedures Rules 2006, orders are made in accordance with the said Penal Notice.
Freezing Order – second defendant
6.On the undertaking set out in Schedule A to the Penal Notice accompanying the Originating Application, until further order, pursuant to rules 741 and 743 of the Court Procedures Rules 2006, the second defendant is restrained, in any respect, from disposing of, dealing with, or diminishing the value of any part of its interest in the Land situated at Macquarie Section 53 Block 1 on Deposited Plan 5093 (original title, Volume 1766, Folio 85).
7.As to the second defendant, on the undertaking set out in Schedule A to the Penal Notice accompanying the Originating Application, pursuant to rules 741, 742 and 743 of the Courts Procedures Rules 2006, orders are made in accordance with the said Penal Notice.
Freezing Order – third defendant
7A.On the undertaking set out in Schedule A to the Penal Notice accompanying the Originating Application, until further order, pursuant to rules 741 and 743 of the Court Procedures Rules 2006, the third defendant is restrained, in any respect, from disposing of, dealing with, or diminishing the value of any property that it beneficially owns.
7B.As to the third defendant, on the undertaking set out in Schedule A to the Penal Notice accompanying the Originating Application, pursuant to rules 741, 742 and 743 of the Courts Procedures Rules 2006, orders are made in accordance with the said Penal Notice.
Freezing Order – fourth defendant
8.On the undertaking set out in Schedule A to the Penal Notice accompanying the Originating Application, until further order, pursuant to rules 741 and 743 of the Court Procedures Rules 2006, the fourth defendant is restrained, in any respect, from disposing of, dealing with, or diminishing the value of any part of its interest in:
a) Lot 9 in Strata Plan 94321 at West Ryde, Local Government Area: Ryde; and
b) Lot 6 in Strata Plan 94321 at West Ryde, Local Government Area: Ryde.
9.As to the fourth defendant, on the undertaking set out in Schedule A to the Penal Notice accompanying the Originating Application, pursuant to rules 741, 742 and 743 of the Court Procedures Rules 2006, orders are made in accordance with the said Penal Notice.
Freezing Order – fifth defendant
10.On the undertaking set out in Schedule A to the Penal Notice accompanying the Originating Application, until further order, pursuant to rules 741 and 743 of the Court Procedure Rules 2006, the fifth defendant is restrained, in any respect, from disposing of, dealing with, or diminishing the value of any part of its interest in Lot 7 in Strata Plan 99739 at Carlingford, Local Government Area: City of Parramatta.
11.As to the fifth defendant, on the undertaking set out in Schedule A to the Penal Notice accompanying this Originating Application, pursuant to rules 741, 742 and 743 of the Courts Procedures Rules 2006, orders are made in accordance with the said Penal Notice.
Freezing Order – sixth defendant
11A.On the undertaking set out in Schedule A to the Penal Notice accompanying the Originating Application, until further order, pursuant to rules 741 and 743 of the Court Procedures Rules 2006, the sixth defendant be restrained, in any respect, from disposing of, dealing with, or diminishing the value of any property that it beneficially owns.
11B.As to the sixth defendant, on the undertaking set out in Schedule A to the Penal Notice accompanying the Originating Application, pursuant to rules 741, 742 and 743 of the Court Procedures Rules 2006, orders are made in accordance with the said Penal Notice.
Freezing Order – provision of information
12.Pursuant to rule 742(2)(a) of the Court Procedures Rules 2006, on or before 13 December 2021, the first defendant is to swear and serve on the plaintiffs an affidavit addressing:
a) the price paid to purchase the Land situated at Macquarie Section 53 Block 1 on Deposited Plan 5093 (original title, Volume 1766, Folio 85);
b) the nature and extent of any encumbrances on the Land situated at Macquarie Section 53 Block 1 on Deposited Plan 5093 (original title, Volume 1766, Folio 85);
c) the nature and extent of any encumbrances on Lot 9 in Strata Plan 94321 at West Ryde, Local Government Area: Ryde; and
d) all assets beneficially owned by the first defendant.
Freezing Order – other orders
13.These orders are entered forthwith.
14.Liberty to restore on 24 hours’ notice.
I will also make the following further orders:
15.Costs are reserved.
16.The matter is listed for directions before the Court on 15 December 2021 at 10:00am.
| I certify that the preceding thirty-four [34] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Acting Justice McWilliam. Associate: Dominic Page Date: 10 December 2021 |
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