FremantleMedia Ltd v Yu
[2016] NSWSC 1167
•16 August 2016
Supreme Court
New South Wales
Medium Neutral Citation: FremantleMedia Ltd v Yu [2016] NSWSC 1167 Hearing dates: 16 August 2016 Date of orders: 16 August 2016 Decision date: 16 August 2016 Jurisdiction: Equity Before: McDougall J Decision: Freezing orders continued.
Catchwords: PRACTICE AND PROCEDURE – injunctions – freezing order – whether order should be made to extend freezing order – where plaintiff has commenced proceedings against defendants in People’s Republic of China – where if successful plaintiff will seek to enforce judgment against defendants in Australia – where there is a danger of non-satisfaction of the prospective judgment in People’s Republic of China Legislation Cited: Civil Procedure Act 2005 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)Cases Cited: Severstal Export GmbH v Bhushan Steel Ltd (2013) 84 NSWLR 141
FremantleMedia Ltd v Le [2016] NSWSC 983Category: Procedural and other rulings Parties: FreemantleMedia Ltd (Plaintiff)
Le Yu (First Defendant)
Lu Gan (Second Defendant)Representation: Counsel:
Solicitors:
D R Sulan / C Mitchell (Plaintiff)
D A Allen (Defendants)
File Number(s): 2016/196179
Judgment (ex tempore – revised 16 august 2016)
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HIS HONOUR: The plaintiff seeks the continuation of a freezing order that was originally granted ex parte against the defendants on 28 June 2016. The order has been continued from time to time until now, although there was a contested application (on which the defendants succeeded) to vary the terms of the disclosure order that was made as part of the freezing order.
Background
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The case is a little unusual. The plaintiff's business includes the development, production and distribution of television programs. They include what the Court has been told are well known "reality" shows, with names such as Idol and X-Factor. Apparently, they are programs on which people are invited to display, to popular acclaim or derision as the case may be, their talents or lack of them.
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The plaintiff wished to distribute its programs in the People's Republic of China (for convenience, I will refer to that country hereafter simply as "China"). It employed the first defendant, Mr Yu, as its managing director in China. The second defendant, Ms Gan, is the wife of Mr Yu.
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On about 30 October 2012, Mr Yu and Ms Gan caused a company known as First Elite Global Ltd (First Elite) to be incorporated in the British Virgin Islands. So far as the evidence goes, Mr Yu is the sole director of that company. He and Ms Gan each hold one share in the capital of the company.
The plaintiff’s case
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The plaintiff's case is that commencing in about 2014 (I should perhaps have said that Mr Yu was employed as managing director from July 2010 to June 2015), Mr Yu inserted First Elite between the plaintiff and companies in China to whom it licensed its programs. The plaintiff's case is that in effect, Mr Yu pretended to it that First Elite was the end user, whilst pretending to the television stations and the like who wished to screen the programs that it was somehow connected with, or an agent or representative of, the plaintiff.
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The plaintiff's case is that by acting in this way, covertly, Mr Yu succeeded in diverting to First Elite substantial sums of money that otherwise would have been paid to the plaintiff. There are in evidence two sets of contracts. In each case, the contracts suggest that First Elite contracted with the plaintiff and agreed to pay a fixed licence fee, and then contracted with the end user for the same program, with the end user paying the First Elite a higher licence fee. In another case, it appears, First Elite contracted with a company in China to screen one of the plaintiff's television programs, and received the entire licence fee for itself.
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No doubt because of that and other reasons, Mr Allen of Counsel, who appeared for the defendants today to oppose extension of the freezing orders, accepted (in terms of UCPR r 25.14) that the plaintiff had a good arguable case on an accrued or prospective cause of action against at least Mr Yu, and that its causes of action were justiciable in the courts of China.
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The plaintiff's evidence shows, further, that substantial sums of money have been paid to First Elite, and onpaid by First Elite either to Mr Yu or Ms Gan or to other people, some in Australia, some in Singapore and some elsewhere, whose entitlement to receive any part of the proceeds of dealings with the plaintiff's programs in China is, at best, dubious.
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For present purposes, the plaintiff quantifies its claim at a little under $US1.3 million. That includes an amount for interest. It has brought a case in the Beijing Xicheng District Court to assert its claim. Under the laws of China applicable to such proceedings, a judge of the Court has reviewed the claim and signified that the Court accepts it. On the unchallenged evidence of Ms Ye, an expert lawyer for the plaintiff, Chinese law has a requirement that any claim must be examined before acceptance, and that the judge examining the claim must satisfy himself or herself that, on a preliminary basis, it appears to be valid. Ms Ye’s evidence says, further, that where the case is "foreign-related" (as the plaintiff's case in the Beijing Court is), the review process is "stricter and more vigorous".
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Mr Sulan of Counsel, who appeared with Mr Mitchell of Counsel for the plaintiff, relied on that evidence and on the fact of acceptance to support the proposition that the plaintiff had a good arguable case.
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Mr Allen's concession to that effect was, initially, limited to the plaintiff's case against the first defendant, Mr Yu. However, the case that was filed in the Beijing Court was brought both against Mr Yu and against Ms Gan. The fact of scrutiny and acceptance would appear to carry with it a conclusion that the case against Ms Gan could also be described as a good arguable case. Ultimately, Mr Allen accepted that it was. I should note that the case against Ms Gan was based, in part, upon the proposition that she had received part of the proceeds of the alleged fraud, and was a joint tort-feasor; and in part under a provision under the Chinese Marriage Law which, it was said, might make her, as Mr Yu's wife, liable in any event for his tortious acts. Although the latter basis was somewhat contentious, it does not need to be pursued, given the concession to which I have referred.
Enforcement of any judgment
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The process of enforcement of a judgment of the Beijing Court in this country would require the plaintiff to sue again on the debt created by the judgment (if given) and recover judgment on the basis that the defendants are estopped by the judgment of the Beijing Court from disputing liability. At a level of some generality, it is likely (assuming a judgment be given against the defendants by the Beijing Court) that if the judgment were final and conclusive, and given pursuant to a jurisdiction recognised by this Court, it would be enforceable through the mechanism that I have briefly outlined. For the purpose of UCPR r 25.14(3)(b), Mr Allen conceded, as to each defendant, that there was an appropriate or sufficient prospect that the judgment would be so enforced by this Court, if it were given.
The issue in dispute
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The dispute between the parties arises under r 25.14(4)(b). To enable that to be understood, I set out UCPR rr 25.11 and 25.14:
r 25.11 Freezing Order
(1) The court may make an order (a freezing order), upon or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the court’s process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partly unsatisfied.
(2) 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.
r 25.14 Order against judgment debtor or prospective judgment debtor or third party
(1) This rule applies if:
(a) judgment has been given in favour of an applicant by:
(i) the court, or
(ii) in the case of a judgment to which subrule (2) applies—another court, or
(b) an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in:
(i) the court, or
(ii) in the case of a cause of action to which subrule (3) applies—another court.
(2) This subrule applies to a judgment if there is a sufficient prospect that the judgment will be registered in or enforced by the court.
(3) This subrule applies to a cause of action if:
(a) there is a sufficient prospect that the other court will give judgment in favour of the applicant, and
(b) there is a sufficient prospect that the judgment will be registered in or enforced by the court.
(4) The court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur:
(a) the judgment debtor, prospective judgment debtor or another person absconds,
(b) the assets of the judgment debtor, prospective judgment debtor or another person are:
(i) removed from Australia or from a place inside or outside Australia, or
(ii) disposed of, dealt with or diminished in value.
(5) The court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a third party) if the court is satisfied, having regard to all the circumstances, that:
(a) there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because:
(i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor, or
(ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor, or
(b) a process in the court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.
(6) Nothing in this rule affects the power of the court to make a freezing order or ancillary order if the court considers it is in the interests of justice to do so.
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The plaintiff relied also on whatever remains of the Court's inherent jurisdiction to grant freezing orders. However, since Mr Sulan accepted (I think correctly) that if his client did not succeed under r 25.14, it would not succeed under the inherent jurisdiction, it is unnecessary to pursue that point.
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Before I turn to the particular dispute, I should note that the fact that the various requirements of the rule are ticked does not mean that the plaintiff thereby becomes entitled to the order that it seeks. The order remains a discretionary one. That is to say, if the appropriate factual conditions are demonstrated, the Court nonetheless retains its discretion to decide whether to grant the injunction. That point was made clear by Bathurst CJ, with whom Beazley P and Barrett JA agreed, in Severstal Export GmbH v Bhushan Steel Ltd (2013) 84 NSWLR 141 at 160. One of the matters to be considered in deciding whether to exercise the discretion (if the grounds for its exercise are made out) is that freezing orders "should not be granted lightly": see, again, what Bathurst CJ said in Severstal at [71].
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Mr Allen submitted that the prospective judgment, of which it might be said there was a danger that it could be wholly or partly unsatisfied, was not the judgment of this Court (were the Beijing Court to give judgment in favour of the plaintiff, and were this Court to enforce that judgment through the mechanism that I have outlined). It was, he submitted, the judgment of the Beijing Court. In my view, that submission is correct. I refer again to the judgment of Bathurst CJ in Severstal, this time at [52] to [54]. Rather than take up time summarising those paragraphs, I will set them out:
[52] In these circumstances, it seems relatively clear in my opinion that thejudgment or prospective judgment referred to in the opening words ofr 25.14(4), in the case of a judgment or prospective judgment to whichr 25.14(1)(a)(i) or r 25.14(1)(b)(i) applies, is a judgment of the court. However, where r 25.14(1)(a)(ii) or r 25.14(1)(b)(ii) applies, the judgment is the judgment of the other court as defined. Although the application of the rule in the latter class of case is subject to the preconditions in r 25.14(2) and r 25.14(3) respectively, that does not mean that r 25.14(4) applies to the local judgment obtained upon registration or enforcement of the judgment of that court. Such a construction will give a different meaning to the word judgment in r 25.14(4), as compared to that contained in the preceding rules. There is no reason to conclude that this was the intention of those who framed the rules.
[53] It does not seem to me that r 25.11 requires that a contrary conclusion be reached. It is true that the rule makes it clear that the power to make a freezing order is to prevent the frustration or inhibition of the court’s processes. However, the construction which I consider preferable will not defeat that purpose. If the conditions of jurisdiction contained in r 25.14(2) and r 25.14(3) are made out and there is a danger that a foreign judgment or prospective foreign judgment will not be enforced because of the matters referred to in r 25.14(4)(a) or (b), then the court can protect its registration and enforcement process by making a freezing order. On the other hand, if there is no risk to the enforcement of the foreign judgment or prospective judgment, there is no need for the court to make any order to protect its process.
[54] Further, even if the contrary construction was correct, it would not beappropriate in my opinion to grant a freezing order against the foreign corporation in respect of proceedings which had no connection with Australia in circumstances where the foreign judgment was capable of enforcement in the foreign corporation’s place of residence. To make such a freezing order in these circumstances would be an unjustifiable use of the powers of the court and an unwarranted interference in foreign proceedings. The only question then on either construction is whether there is a danger that the prospective judgment in the Indian proceedings would not be enforced if the cheques or the proceeds were remitted from Australia: see Reches Pty Ltd v Tadiran Pty Ltd (1998) 85 FCR 514 at 518–520 and the cases cited therein.
The evidence and submissions
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The evidence on which the plaintiff relied, as to the danger of non-satisfaction, arose in part from the very nature of what the plaintiff said was the dishonest scheme that the defendants, or Mr Yu at least, had perpetrated. Mr Sulan noted that Mr Yu had described the role of First Elite in one way to the plaintiff, so as to induce the plaintiff to deal with it; and in quite a different way to the television companies with whom First Elite dealt, in part on its own account. The evidence certainly indicates that First Elite did behave in a way that could be so described. Mr Allen did not submit otherwise.
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Mr Sulan noted that the dealings in question had not been disclosed to the plaintiff. Rather, they had been discovered by the plaintiff only after undertaking detailed searches and inquires, including in the British Virgin Islands and in Hong Kong. Again, that appears to be correct.
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As I have noted, the defendants were ordered to make and file affidavits disclosing their assets. The orders as made extended not only to their assets in this country, but to their assets wherever held. It was the latter aspect of the order that they applied, successfully, to vary: see the judgment of Stevenson J in Fremantlemedia Ltd v Le [2016] NSWSC 983. As a result, the affidavits sworn and filed by the defendants have been masked so as to prevent any disclosure of their assets outside this country.
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That is a somewhat peculiar position, because one of the discretionary factors on which the defendants rely is evidence (of an extremely summary and conclusory nature, on information and belief only, from their solicitor, Mr Jim Dai) that they have both real and personal assets in China. Each of the defendants wishes to say through Mr Dai that he or she has real property in China and that he or she has money in bank accounts in China: totalling about $AU810,000 or, in round figures, $US600,000.
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Mr Allen relied on that evidence to submit that the plaintiff had not discharged its onus of showing that it could not protect itself sufficiently by taking proceedings in China to freeze the defendant's assets. That lead to a dispute as to whether such a freezing order could be obtained in the absence of specific evidence identifying particular assets. At one stage, it appeared that the parties contemplated an adjournment of this application so that each could put on expert evidence on that topic. Bearing in mind the command of s 56 of the Civil Procedure Act 2005 (NSW), and taking into account that the issue had not been flagged in the defendants’ written submissions, I declined to allow either party to take that course.
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I should say that the defendant's written submissions were totally unhelpful. In five numbered sentences, over eight lines, they stated in substance only that the defendants opposed the continuation of the order and that there was no sufficient basis shown for the making of the order. They failed entirely to articulate any ground of opposition other than that the plaintiff had failed to prove its case. That is entirely unsatisfactory.
Decision
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The evidence of Mr Dai on information and belief purported to ascribe values to the defendants’ Chinese real estate. I rejected that, because it was stated in an entirely conclusory form which did not enable any understanding of how the values ascribed to the properties had been reached. If there were expert or other valuations standing behind the ascriptions, Mr Dai did not trouble to refer to them in his affidavit.
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Nor did the affidavit disclose the nature of the bank accounts: for example, whether they were term deposit accounts, or whether they were working accounts subject to inflows and outflows according to the needs of the defendants’ business activities. Nor did Mr Dai's evidence disclose what, if any, liabilities the defendants had in China, or whether and if so, to what extent, the assets to which the defendants, through him, deposed might be charged with the payment of any such liabilities.
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In the result, whilst I accept at face value the statements that each defendant has real property in China, and (at the date of affirming Mr Dai's affidavit at least) a stated sum of money in a bank account, I am entirely unsatisfied that even now, let alone at 6, 12 or 18 months in the future when judgment might be rendered against the defendants, those assets are or would be available for satisfaction of any claim that the plaintiff might prove against them.
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In any event, as it seems to me, this aspect of Mr Allen's submissions proceeds on some misconception as to the task required by r 25.14 to be performed. The relevant test is that there is a danger that a prospective judgment will be wholly or partly unsatisfied if, among other things, assets within Australia are removed from Australia or are disposed of, dealt with or diminished in value. On any view, given my rejection of the totally inadmissible assertions of value, the assets that the defendants have "proved" they presently hold in China are insufficient to satisfy a judgment of the magnitude claimed by the plaintiff. In those circumstances, it seems to me, it is axiomatic that if assets in Australia are removed, there is a danger that a prospective judgment of the Beijing Court in favour of the plaintiff might be at least partly unsatisfied.
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The defendants' evidence, through their disclosure affidavits, is that they hold parcels of real estate in Australia, and sums of money in bank accounts. On the evidence, the six parcels of real estate that Mr Yu owns are owned by him as trustee for a family trust known as the YLGB family trust. The settlor of that trust is a Mr Peter Yu. Mr Yu is the trustee. He, Ms Gan and their two sons are the "specified", or primary, beneficiaries. There are extended classes of beneficiaries, including the defendants' grandchildren and people who appear to be, if I can put it without being disrespectful, more remote relatives.
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The trust is discretionary both as to income and as to capital. Thus, there is no certainty that the trust assets could be accessed to satisfy any judgment that might be recovered in the Beijing Court and enforced by this Court.
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Ms Gan owns the family home in Hurstville. It appears to have equity of about $400,000. In addition, she holds money in various bank accounts in Australia. Although the assets available in this country to Mr Yu and Ms Gan would appear to be substantial, it is likely that the enforcement of any judgment against them would consume most, if not all, of those assets.
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Mr Allen noted that Ms Gan is a citizen of this country, and that Mr Yu has the right of permanent residency here. He noted, further, that they have a family home in Sydney, and that they wish to send their two sons to a well known private school in Sydney. In those circumstances, Mr Allen submitted, there was a solid connection between the defendants and this country, and little likelihood that they would dissipate their local assets.
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Mr Sulan relied on the evidence to which I have referred. He submitted that the defendants had shown the ability to move money around, not just within one jurisdiction, but between jurisdictions. Undoubtedly, the evidence makes that proposition good.
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The fundamental point, as I have indicated, is that I am simply not satisfied, on such evidence as the defendants have chosen to put forward, that a judgment of the magnitude claimed against them by the plaintiff (if awarded in its favour by the Beijing Court) would be enforceable and recoverable out of such assets as the defendants appear to hold in China. I accept, of course, that it is the plaintiff that is the moving party, and thus the plaintiff that bears the onus of proving, on the civil standard, the various matters to which the rule makes reference. However, as it seems to me, once the plaintiff proves those matters, what might be called a persuasive burden shifts onto the defendants. That is to say, where the elements of the rule has been satisfied, the defendants have to make a choice whether or not to put on evidence. In the present case, they chose to put on evidence. However, as I hope is clear from what I have said, that evidence is so limited and conclusory that it is of little use.
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Further, in this context, it is to be noted that the defendants sought successfully to set aside so much of the order made as required them to disclose their overseas assets. In those circumstances, I see no reason why the Court should be prepared to draw inferences in their favour from the sketchy, conclusory material that was all they chose to put before it.
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In short, when one goes through the requirements of the rule, the requirement for a good arguable case on an accrued or prospective cause of action against each defendant, justiciable in the Beijing Court, has been admitted for the purposes of this application. So too has the requirement of a sufficient prospect that the judgment (if recovered) will be enforced by this Court been admitted. For the reasons I have given, I conclude that there is a danger that the prospective judgment of the Beijing Court will be unsatisfied, at least in part, if the defendants are permitted to remove assets from Australia or to dispose of, deal with or diminish them, below the total of the amount presently claimed by the plaintiff. In fact, bearing in mind the limited nature of such evidence as has been given, the evidence as a whole leads me to think that it is at least likely that the judgment, if given, will be wholly unsatisfied in China. Regardless, all I need to find is "a danger", and I am comfortably satisfied that such a danger exists.
Discretion
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In those circumstances, there remains the residual discretion to which I referred earlier in these reasons. The defendants have not submitted that a continuation of the order would hamper them in any way in conducting their legitimate business or domestic activities. There is no evidence that would enable the Court to infer that it would hamper them.
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There are a couple of other matters that are relevant in this context. One is that although the defendants' rights to live in this country are as I have described them above, they are at present resident, and it would appear carrying on business, in China. The other is that they would have at least the right of access to the trust funds of the YLGB family trust to enable them to carry on their business activities, or otherwise to further their interests and their family's advancement in life, should they so desire.
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In relation to the trust deed, Mr Sulan submitted that it was affected by the order that has been made, and would be caught by the order if continued. At one stage, Mr Allen appeared disposed to challenge that proposition. Ultimately, the challenge was not pursued. In any event, it seems to me to be irrelevant. If the order does extend to the assets of the trust, and the plaintiff takes the view that, so construed, the order has been breached, the question can be decided authoritatively on an application to deal with the defendants for contempt. Until that time, the question is hypothetical, and is thus not one that ought be decided.
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There were other matters canvassed in the submissions. One is that, as Mr Allen submitted, the acquisitions of the properties to which I have referred occurred in most cases before (and in one case, well before) the activities of which the plaintiff complains. That is correct. However, it does not seem to me to add anything of significance to the discretionary mix. It may mean (for example) that the plaintiff could not trace any proceeds of any fraud that it may prove into the assets (either of the trust or otherwise). But tracing is not an ingredient of, let alone something ordinarily required for, a freezing order to be made or continued.
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Bearing in mind the serious nature of the allegations that the plaintiff makes against the defendants, and the substantial body of evidence that gives significant credence to those allegations, I have come to the view that the residual exercise of discretion requires that the freezing orders be continued. To my mind, the absence of any real indication of inconvenience to the defendants is a significant factor in considering that exercise of discretion. Further, in the circumstances of this case, where the defendants have shown both the propensity and the ability to move substantial sums of money around the globe, I am by no means satisfied that they would refrain from doing so in the future unless restrained, if it seemed to them in their interests to do so.
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The plaintiff sought an extension of the freezing order until further order. Mr Allen sought an extension for a fixed period of six or, at most, 12 months. The evidence suggests that it could be anything from nine months to 18 months before the plaintiff's case is heard in the Beijing Court and a judgment rendered. Clearly enough, how the case progresses may depend, in part at least, on the degree of expedition with which the plaintiff prepares it.
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In any event, I do not think that it is appropriate simply to extend the freezing order until further order. The better course, I think, is to bring the matter back before the Court at a fixed time, of course reserving liberty to apply in the meantime, so that if it appears that the situation has changed (either as to the speed with which the litigation is progressing or otherwise), whatever needs to be argued can be argued.
Orders
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For those reasons, I make the following orders:
I note that the plaintiff by counsel gives, or continues, the undertakings given by it to the Court on 26 June 2016 and renewed from time to time thereafter.
I extend until 5pm on 16 February 2017 orders 4 to 7 and 10 to 17 made on 28 June 2016 and extended from time to time thereafter.
I reserve liberty to apply on 24 hours’ notice or on such other notice as the Court in all the circumstances may allow.
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Decision last updated: 23 August 2016
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