DC Rd DC Pty Ltd v Zhang (No 3)

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FEDERAL COURT OF AUSTRALIA

DC Rd DC Pty Ltd v Zhang (No 3) [2024] FCA 221

File number: NSD 247 of 2023
Judgment of: JACKMAN J
Date of judgment: 12 March 2024
Catchwords:

CONTEMPT OF COURT – whether company breached court order – whether transaction was in ordinary and proper course of business – where mortgage covered debts of second company with common director – charge dismissed

CONTEMPT OF COURT – where alleged contemnor not bound by court order – where alleged contemnor director of contemnor – whether liable only if director had actual knowledge that conduct would breach court order – conflict between seriously considered High Court obiter dicta and Full Court ratio decidendi – High Court dicta followed and charge dismissed

Legislation:

Corporations Act 2001 (Cth) ss 50, 259A

Federal Court Rules 2011 (Cth) rr 7.32, 7.33, 7.35
Cases cited:

ADM International SARL v Grain House International SA [2024] EWCA Civ 33

Attorney-General v Newspaper Publishing Plc [1988] Ch 333

Australian Competition and Consumer Commission v Goldstar Corporation Pty Ltd [1999] FCA 585

Australian Securities and Investments Commission v One Tech Media Limited (No 3) [2018] FCA 1071

Australian Securities and Investments Commission v Sigalla (No 3) [2010] NSWSC 1076

BB Retail Capital Pty Ltd v Alexandria Landfill Pty Ltd [2015] NSWCA 319

BCEG International (Australia) Pty Ltd v Xiao [2023] NSWSC 57

Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380

Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89

Fire Nymph Products Ltd v The Heating Centre Pty Ltd (in liq) (1992) 7 ACSR 365

Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq)(No 3) [2022] NSWSC 1702

Fortune Holding Group Pty Ltd v Zhang (No 2) [2017] VSC 738

Harvard Nominees Pty Ltd v Tiller [2020] FCAFC 229; (2020) 282 FCR 530

Humane Society International Inc v Kyodo Senpaku Kaisha Limited [2015] FCA 1275; (2015) 238 FCR 209

Hurd v Zomojo Pty Ltd [2015] FCAFC 148

ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248

Jorgensen v Fair Work Ombudsman [2019] FCAFC 113; (2019) 271 FCR 461

Kazal v Thunder Studios Inc (California) [2017] FCAFC 111; (2017) 256 FCR 90

Mahaffy v Mahaffy [2018] NSWCA 42; (2018) 97 NSWLR 119

Mead v Mead [2007] HCA 25; (2007) 235 ALR 197

Metcash Trading Ltd v Bunn (No 5) [2009] FCA 16

Michael Wilson and Partners Ltd v Emmott [2015] EWCA Civ 1028

Pape v Commissioner of Taxation [2009] HCA 23; (2009) 238 CLR 1

Reynolds Bros (Motors) Pty Ltd v Esanda Limited (1983) 8 ACLR 422

Seaward v Paterson [1897] 1 Ch 545

Sigalla v TZ Limited [2011] NSWCA 334

The Queen v Khazaal [2012] HCA 26; (2012) 246 CLR 601

Witham v Holloway (1995) 183 CLR 525

Z Limited v A-Z and AA-LL [1982] QB 558

Zhang v Shi (No 5) [2021] VSC 695

Zhu v Treasurer…

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Details
Case
[2024] FCA 221
Decision Date

CaseChat Overview and Summary

The applicants in DC Rd DC Pty Ltd v Zhang (No 3) sought a contempt of court charge against Belrose COB and Mr Zhang, alleging that they breached a freezing order by using funds from the sale of a property to purchase another property. The Federal Court was required to decide whether the transaction was in the ordinary and proper course of business and whether Mr Zhang, as a director of Belrose COB, was bound by the freezing order. The court also had to consider whether Mr Zhang could be held liable for contempt if he did not have actual knowledge of the breach. The court found that the transaction was in the ordinary course of business and that the principle concerning contempt by third parties applied to those not bound by the order, rather than only those not parties to the proceedings. The court followed the High Court's obiter dicta and dismissed the charge. The interlocutory application was dismissed, and the applicants were ordered to pay the costs of Belrose COB and Mr Zhang.

Orders

Orders of the court

1. The interlocutory application dated 18 December 2023 be dismissed.

2. The applicants pay the first and ninth respondents’ costs of that interlocutory application.

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

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

There is one final line of argument advanced by the applicants which I should also deal with. The applicants draw attention to the fact that Mr Zhang is a party to the principal proceedings, being the first respondent, and is also subject to a freezing order himself in substantially the same terms as the order made against Belrose COB. The applicants submit that the principle concerning contempt of court by third parties applies to persons or entities who are not parties to the proceedings, in contrast to those who are not parties to the particular order. I reject that submission. The High Court authorities to which I have referred are expressed in relation to persons who are not bound by the relevant order, as too is the long-established authority of Seaward v Paterson, and I regard the principle concerning contempt by third parties as being applicable to persons who are not parties to the particular order, rather than applying only to those who are not parties to the proceedings at all. Occasionally, the authorities in this area do refer to the third party as not having been a party to the proceedings (eg, in Sigalla at [12]), but there is no indication in the reasons of any of the cases that that is the distinguishing feature which characterises such persons as third parties, rather than the fact that they are not a party to the order itself.Conclusion It follows that the interlocutory application dated 18 December 2023 should be dismissed. The applicants should pay the costs of Belrose COB and Mr Zhang in relation to that interlocutory application.

Ratio Decidendi

Legal Principle Established

Belrose COB was incorporated on 16 April 2020. Since that time, Mr Zhang has been the company’s sole director. At the time of its incorporation, Mr Zhang was also the sole shareholder in Belrose COB, however since 27 January 2023, it appears that Belrose COB has held all the issued shares in itself. The question whether, and if so how, that is consistent with s 259A of the Corporations Act 2001 (Cth) (Corporations Act) does not arise on the present application. Belrose COB is the trustee of the Belrose Investment Unit Trust. Mr Zhang is the sole unit holder of the Belrose Investment Unit Trust, and holds those units in his capacity as trustee of the DDQ Family Trust. The trust deeds for those trusts are not in evidence (although the trusts are referred to in paras 44 and 45 of Mr Zhang’s affidavit of 28 April 2023 disclosing the assets and liabilities of himself and Belrose COB, and those paragraphs were included in the portions of that affidavit which were tendered by the applicants). The applicants contend that between February and May 2020, InvestX Investments Pty Ltd, a company controlled by Mr Zhang, transferred funds totalling $19,739,471.93 from the proceeds of sale of the property located at 30 Denham Court, Denham Court, NSW, 2565 to an account with Bank of China (Hong Kong) Ltd held by Link Investments Ltd (Link), a company incorporated in Hong Kong which is also controlled by Mr Zhang. Of these funds, it appears that $2.6 million was used for the payment of a deposit for the purchase of a commercial property at 3 Minna Close, Belrose, NSW, 2085 (Belrose Property) on 16 April 2020. Further, it appears that a total of $15,699,960, originating from funds received by Link, was transferred to Belrose COB in June 2020. Certain of those funds then appear to have been used for the purchase of the Belrose Property by Belrose COB. Belrose COB entered into a contract to purchase the Belrose Property on 10 August 2020, and settlement of the transaction took place on 16 September 2020. On the same day, Belrose COB transferred the amount of $10,567,690.84 to its solicitors, Sui & Co Legal, which was used to fund the purchase of the Belrose Property. Separately, Belrose COB appears to have received the benefit of the payment of the $2.6 million deposit for the Belrose Property. Belrose COB entered into a loan agreement with ING for the provision of $14,300,000 towards the purchase of the Belrose Property. Following settlement, on 14 October 2020, a mortgage in favour of ING was registered on the title to the Belrose Property. On 17 March 2023, I made a freezing order pursuant to rr 7.32, 7.33 and 7.35 of the Federal Court Rules 2011 (Cth) against Belrose COB as the ninth respondent in these proceedings, as set out in Order 14 and Annexure H to the relevant interlocutory application. I also made a freezing order against Mr Zhang, as set out in Order 7 and Annexure A to the relevant interlocutory application. Those freezing orders were extended on 22 March 2023 with the consent of Belrose COB and Mr Zhang until the further hearing of the proceedings on 11 April 2023, on which occasion I extended the freezing orders until further order of the Court. On 11 April 2023, I also increased the limit of funds from which the respondents could pay their legal fees. Belrose COB and Mr Zhang accept that they had actual knowledge of the freezing orders at all material times.