CIP Group Pty Ltd v So (No 3)

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FEDERAL COURT OF AUSTRALIA

CIP Group Pty Ltd v So (No 3) [2023] FCA 518

File number: QUD 93 of 2022
Judgment of: DERRINGTON J
Date of judgment: 24 May 2023
Catchwords: PRACTICE AND PROCEDURE – injunctions – applicants seek to prevent disposal of disputed assets pending hearing of action – whether serious question to be tried – whether all relevant persons are before the Court
Legislation:

Australian Securities and Investments Commission Act 2001 (Cth)

Corporations Act 2001 (Cth)

Personal Property Securities Act 2009 (Cth)

Federal Court Rules 2011 (Cth)

Land Title Act 1994 (Qld)
Cases cited:

A v C [1981] QB 956

Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57

Barnes v Addy (1874) LR 9 Ch App 244

Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618

BPESAM IV M Ltd v DRA Global Ltd (2020) 381 ALR 252

Bradto Pty Ltd v State of Victoria (2006) 15 VR 65

China First Pty Ltd v Mount Isa Mines Ltd [2019] 3 Qd R 173

CIP Group Pty Ltd v So [2022] FCA 1490

El Ajou v Dollar Land Holdings plc [1993] 3 All ER 717

Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89

Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296

John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1

Mediterranea Raffineria Siciliana Petroli SpA v Mabanaft GmbH (unreported, Court of Appeal, 1 December 1978)

News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410

Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1988) 195 CLR 1

Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52

Re Stanford International Bank Limited (in liq) [2020] 1 BCLC 446

RnD Funding Pty Ltd v Roncane Pty Ltd [2023] FCAFC 28

Robins vIncentive Dynamics Pty Ltd (in liq) (2003) 175 FLR 286

Slea Pty Ltd v Connective Services Pty Ltd [2019] VSC 201

Super 1000 Pty Ltd v Pacific General Securities Ltd (2008) 221 FLR 427

Taylor v Blakelock (1886) 32 Ch D 560

Turner v O’Bryan-Turner (2022) 107 NSWLR 171

Twigg v Twigg (2022) 402 ALR 119

Williams v Minister for Environment and Heritage (2003) 74 ALD 111
Division: General Division
Registry: Queensland
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 105
Date of hearing: 3 April 2023
Counsel for the Applicants: Mr M Hodge KC with Mr AG Psaltis
Solicitor for the Applicants: Bartley Cohen
Counsel for the First, Fourteenth, Fifteenth, Sixteenth and Seventeenth Respondents: Mr S Couper KC with Mr W LeMass
Solicitor for the First, Fourteenth, Fifteenth, Sixteenth and Seventeenth Respondents: Colin Biggers & Paisley Lawyers
Counsel for the Eighteenth Respondent: Mr C Wilkins KC with Ms J Sargent
Solicitor for the Eighteenth Respondent: RE Legal

ORDERS

QUD 93 of 2022
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Details
Case
[2023] FCA 518
Decision Date

CaseChat Overview and Summary

CIP Group Pty Ltd v So (No 3) involved CIP Group Pty Ltd, Carver’s Group Pty Ltd, and other Carver’s entities, as applicants, seeking to prevent the disposal of disputed assets pending the hearing of their action against Ultimate Group Pty Ltd, UIP Group Pty Ltd, Mr So, and others. The applicants sought an injunction to freeze certain assets and prevent their disposal until the substantive proceedings were resolved. The underlying dispute centred on allegations of breaches of fiduciary duties and the tracing of funds obtained from the sale of land.

The court was required to decide whether a serious question to be tried existed concerning the applicants' claims, and whether all relevant persons were before the court. The applicants argued that the defendants had engaged in fraudulent transactions to dissipate assets, making it necessary to preserve those assets. The defendants, on the other hand, contended that the applicants had not demonstrated a serious question to be tried and that not all relevant parties were before the court.

The court found that there was indeed a serious question to be tried regarding the applicants' claims of breaches of fiduciary duty and the tracing of funds. The evidence suggested that the defendants had conducted complex transactions involving the sale of land and the transfer of proceeds, raising questions about the legitimacy of those transactions. Furthermore, the court determined that not all relevant parties were before the court, as certain individuals with interests in the disputed assets had not been joined as parties to the proceedings. However, the court found that the applicants had demonstrated sufficient grounds to grant the injunction to prevent the disposal of certain assets.

The court ordered that the respondents must notify the applicants before settling any sales of specified real property and must hold any proceeds from such sales in a trust account. These orders were to remain in effect until further order of the court or until certain conditions were met. The costs of the application were to be borne by the parties.

Orders

Orders of the court

Upon the usual undertaking as to damages given by Mr Marc Andrew Clancy:

1. The first and fourteenth to eighteenth respondents:

(a) notify the applicants in writing no later than 7 business days prior to the proposed settlement of any sale of any real property in Stages 7 to 11 of the development (such properties being identified in Annexure A);

(b) not assign or otherwise deal with any rights, entitlements or interests to any or all proceeds from the sale of any real property in Stages 7 to 11 (Stage 7 to 11 proceeds) under any instrument;

(c) hold in a trust account maintained by their solicitors, any or all of the Stage 7 to 11 proceeds purportedly payable to the seventeenth or eighteenth respondents pursuant to any asserted right, entitlement, or interest under any instrument;

(d) save for making any payment into a solicitors’ trust account in order to comply with Order 1(c) above, not dispose of or otherwise deal with or diminish the value of the Stage 7 to 11 proceeds.

2. Order 1 above is to apply until further order of the Court, or unless the applicants expressly provide prior written consent in respect of any proposed non-compliance orders, a request for such consent to be received no later than seven business days prior to the proposed non-compliance.

3. Orders 1 and 2 above will cease to have effect if, within 21 days from the date of these orders, the applicants and/or the second to thirteenth respondents have not made an application to join SEL Property Investments Pty Ltd, Ms Lai Wah Wong and Ms Suk Kuen Leung to these proceedings.

4. The costs of this application are the parties’ costs in the proceedings.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ANNEXURE A

Background

Background to the litigation

The underlying foundation of the claim for relief against Ultimate is that the loan, mortgages and securities over the Carver’s Estate land were obtained by it with knowledge of their connection to certain breaches of the fiduciary duties owed by Mr So (the controlling mind of Ultimate) to the Carver’s entities, or were otherwise the result of its participation in, or being party to, those breaches. The basis of the substantive relief against UIP is more complex and, indeed, is partly founded upon the claims made against Ultimate. As articulated in the applicants’ and Carver’s entities’ written submissions on this application, it is that UIP “received proceeds from sales which occurred as a result of Ultimate having realised some of the Carver’s [Estate] land pursuant to, and in partial discharge of, Ultimate’s loan, mortgages and securities, which proceeds UIP has then used to pay out a secured debt owed to IJ Financial by the Carver’s entities and has received an assignment of IJ Financial’s mortgages and securities over the remaining Carver’s [Estate] land.” (AS [4]). In essence, this is a tracing claim, to the effect that Ultimate’s sale of some of the Carver’s Estate land, referred to as “Stage 6”, was associated with Mr So’s alleged breaches of duty, giving rise to a claim that Ultimate held the proceeds of the sale on constructive trust for the Carver’s entities, and that the Carver’s entities are now entitled to trace those proceeds into the loan, mortgages and securities that UIP subsequently acquired. Background Leaving aside the background facts referred to in CIP Group Pty Ltd v So, of particular importance to the present application is the conduct of Mr So in 2021 and 2022 in incorporating UIP and using it to acquire the first-ranking securities over the Carver’s Estate land, previously held by IJ Financial. The evidence as to these matters was substantial and was further supplemented by cross-examination of both the solicitor for UIP and Mr So himself. UIP was incorporated on 24 November 2021 with Mr So as its sole director. Its sole shareholder was Hamilton 1 Pty Ltd, of which Mr So was also a director. Under cross-examination, Mr So claimed that he did not incorporate UIP for any particular purpose, but merely used the company for trading or conducting business. On 16 December 2021, Mr So caused Ultimate to appoint Mr Marcus Watters of Hall Chadwick as receiver of the assets of the Carver’s entities, including those entities that were possessed of the Carver’s Estate land. Shortly thereafter, Mr Watters refinanced the Carver’s entities’ first-ranking secured debt, then owed to Makro Finance Pty Ltd (Makro), in favour of IJ Financial Pty Ltd. This was done at the recommendation of Mr So and his lawyer at that time, Mr Wong of Thynne + Macartney. Mr So allegedly told Mr Watters that Ultimate was not prepared to pay out the Makro loan itself, with the consequence that refinancing had to occur through a third entity.

Evidence

Evidence Before The Court

For the purposes of the present application, it was submitted by the So interests and UIP that Ms Wong and Ms Leung were persons who were interested in these proceedings and would be directly affected by the granting of an injunction. As they were not parties to the proceedings, final relief could not be granted in the action, making it inappropriate for any interlocutory injunction to be granted.The further affidavit evidence The manner in which Ultimate and UIP had dealt with the proceeds from the receiver’s sale of Stage 6 of the Carver’s Estate land was addressed in certain affidavits filed and relied upon by the So interests and UIP. The first was an affidavit of Mr Michael Gill, a solicitor of RE Legal, acting for UIP. He gave evidence on information and belief from Ms Tsang, Mr So’s wife and the sole director of UIP, as to the entering into of the loan deed and general security deed dated 25 November 2022 with Ms Wong and Ms Leung. Similar evidence was given in relation to the execution by UIP, Ms Wong, Ms Leung and Ultimate of another agreement of the same date, which was referred to as a “Payment by Direction Deed”. A copy of that final document was annexed to Mr Gill’s affidavit. Relevantly, it provided that the parties agreed that:(a)upon the settlement of the sale of Stage 6, Ultimate, as mortgagee, would receive most of the sale proceeds and would use them (in the amount of $7.4 million) to make a repayment towards its debt owing to Ms Wong and Ms Leung under the loan deed dated 8 May 2020; (b)once Ms Wong and Ms Leung received those funds, they would advance them under a new loan deed (which became the loan deed dated 25 November 2022) to UIP;(c)UIP would receive those funds and use them for the sole purpose of paying part of the consideration due to IJ Financial under the terms of the Deed of Assignment, pursuant to which UIP would take a transfer of the Mortgages (that term taking the same meaning as it bore in the Deed of Assignment); and(d)UIP would become possessed of a bank cheque in favour of IJ Financial, and would deliver it to IJ Financial or its solicitors by way of payment under the Deed of Assignment. Unusually, IJ Financial was not a party to the Payment by Direction Deed. Yet, pursuant to its provisions, Ultimate was required to cause a bank cheque for $7.4 million in favour of IJ Financial to be delivered to UIP. It was not explained how, or by what authority, Ultimate might cause the bank cheque to be so delivered. Importantly, Mr Gill also gave evidence at paragraph 2(e) of his affidavit that he had been informed by Ms Tsang and believed that, at the completion of the sale of the Stage 6 land:(i)Ultimate received $7.4 million, which Ultimate paid to Ms Leung and Ms Wong in partial discharge of its debt to them;(ii)Ms Leung and Ms Wong then lent $8.16 million to UIP, comprised of the $7.4 million which had been paid to them by Ultimate, plus a further $760,000; and(iii)UIP used the $8.16 million lent to it by Ms Leung and Ms Wong to purchase from IJ Financial Services Limited as trustee for the IJ Lending Fund No. 1 (IJ Financial) a debt of $8.16 million and the securities held by IJ Financial for repayment of that debt.

Decision

Reasons for decision

Mr So was also cross-examined, with the aid of an interpreter. In the course of his cross-examination he seemed to accept that the $7.4 million was never received by Ultimate by being banked into its account, or in any other fashion. He accepted that those funds were never received by Ms Wong and Ms Leung either. Mr So acknowledged that, from the sale proceeds, a bank cheque for $7.4 million was drawn in favour of IJ Financial, and was given to it. In cross-examination, the following exchange took place:MR HODGE: Whatever your intention was, there was never any money that flowed from the sale of stage 6 through an Ultimate bank account through to your mother and your aunt, correct?THE INTERPRETER: That’s correct, but we have got the Payment by Direction Deed, so it’s still, like, legally binding. Conclusions in relation to the proceeds of sale It is not necessary on this application to reach any final conclusion as to the events that occurred upon the sale of Stage 6. It must be stressed that it is apparent that all of the evidence in relation to that transaction may not be before the Court and that subsequent evidence may alter the complexion of the facts that arise. Nevertheless, it is sufficient to observe that there is a serious question as to the manner in which UIP allegedly received funds as a result of the sale of the Carver’s Estate land. On the assumption that the Deed of Assignment, the loans between Ms Wong and Ms Leung and UIP, and the associated securities were actual transactions (the issue of “sham transactions” not having been raised), a question self-evidently arises as to the level of the indebtedness of the Carver’s entities pursuant to the loan made by IJ Financial. The evidence suggests that all that occurred in relation to the proceeds of the sale of Stage 6 was that a bank cheque in the amount of $7.4 million was made out by either the purchaser or the receiver to IJ Financial, and then received by that entity at or around the time of settlement. There is no evidence that the proceeds were dealt with otherwise, and it might even be inferred that the cheque was banked by IJ Financial. Whilst IJ Financial might conceivably have directed the cheque to Ultimate, as the So interests and UIP submitted, that would not impact the contractual relationship between it and the Carver’s entities. If, as the So interests and UIP necessarily accept, IJ Financial had the power to direct that the cheque be paid to Ultimate, it must have been the holder of that cheque as a consequence of the cheque having been delivered to it. That being so, the cheque would seem to have been received as payment or, at least, part payment of the indebtedness owed to it by the Carver’s entities, and it apparently accepted that cheque in reduction of that indebtedness. If so, the debt owed by the Carver’s entities to IJ Financial must thereby have been reduced by $7.4 million upon its receipt. Whilst, as previously detailed, several transactions were apparently entered into, by which those funds were allegedly used to acquire IJ Financial’s mortgages and debt, in the circumstances revealed by the evidence at present, there is a real possibility that the debt secured by the mortgages was reduced in value by $7.4 million prior to any such assignment taking place. If so, it would not matter what arrangements were put in place as between IJ Financial, Ultimate, UIP and Ms Wong and Ms Leung. They could contractually agree to deal with their rights inter se in accordance with whatever arrangements they wish to create, but this would not affect the contractual rights and obligations as between IJ Financial and the Carver’s entities.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.