In the Matter of Ausun Property CBD Pty Ltd (In Liquidation)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

PROPERTY LIST

S ECI 2022 01742

PHILIP NEWMAN IN HIS CAPACITY AS RECEIVER AND MANAGER OF THE ASSETS OF THE AUSUN PROPERTY CBD TRUST

Plaintiff

L & Z CORPORATION PTY LTD (ACN 139 930 108) & ORS

And

Defendants

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

CORPORATIONS LIST

S ECI 2022 01767

LI ZENG & ORS	Plaintiffs
v
AUSUN PROPERTY CBD PTY LTD (IN LIQUIDATION) (ACN 602 986 050) & ORS	Defendants

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JUDGE:	Riordan J
WHERE HELD:	Melbourne
DATE OF HEARING:	23 May 2022
DATE OF JUDGMENT:	24 May 2022
CASE MAY BE CITED AS:	In the Matter of Ausun Property CBD Pty Ltd (In Liquidation)
MEDIUM NEUTRAL CITATION:	[2022] VSC 541

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CAVEAT – Application for removal – Caveator failed to establish a serious question to be tried about whether the receiver breached a duty to consult with the unitholders – Caveator failed to establish a serious question to be tried about whether the purchaser of the property was not a bona fide purchaser for value without notice.
INJUNCTIONS – Application for interlocutory injunction to restrain the sale of the properties by receiver – Interests of a third party bona fide purchaser for value without notice – Substantial delay by the applicant – Application refused.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs in S ECI 2022 01767 and the Defendants in S ECI 2022 01742	Mr M McKillop	Ark Legal
For the Defendants in S ECI 2022 01767 and the Plaintiff in S ECI 2022 01742	Mr M Harvey KC with Mr C Fenwick	Nicholas O’Donohue & Co

HIS HONOUR:

By originating motion and summons both filed 13 May 2022 in proceeding S ECI 2022 01742 (‘the Caveat Proceeding’), the plaintiff (‘Mr Newman’) applies for an order pursuant to section 90(3) of the Transfer of Land Act 1958 (Vic) (‘TLA’), that the Registrar of Titles remove the caveat numbered AV488404V from:
(a)256-258 Normanby Road, South Melbourne, more particularly described in Certificate of Title Volume 09666 Folio 725; and
(b)260-262 Normanby Road, South Melbourne, more particularly described in Volume 09669 Folio 524,
(together, ‘the Properties’).
By originating process filed 16 May 2022 in proceeding S ECI 2022 01767 (‘the Termination Proceeding’):
(a)the first plaintiff, Li Zeng (‘the Director’), being the sole director of the first defendant, being Ausun Property CBD Pty Ltd (‘Ausun’); and
(b)the other unitholders of the Ausun Property CBD Trust (‘the Trust’) (together ‘the Termination applicants’) apply for orders including an interlocutory injunction to restrain the sale of the Properties.
Ausun was registered as a corporation on 21 November 2014 for the sole purpose of acting as a trustee for the Trust pursuant to a unit trust deed dated the same day (‘the Unit Trust Deed’). Clause 3.2(c) of the Unit Trust Deed relevantly provides:
Subject to the other provisions of this Deed no Unit Holder shall:
(i)be entitled merely by the holding of any Units to the transfer of any property comprising the Trust Fund or to interfere with the Trustee’s powers to deal with any part of the Trust Fund; or
(ii)exercise any rights, powers or privileges in respect of any part of the Trust Fund.
There are currently two unitholders of the Trust, being:
(a)L & Z Corporation Pty Ltd as trustee for Zeng Family Trust for 90 units (‘the second plaintiff in the Termination proceeding’). The Director is the sole director and shareholder of L & Z Corporation Pty Ltd.
(b)Ziqian Wang (also known as Zack Wang), who is trustee for the Wang Family Trust for 10 units (‘the third plaintiff in the Termination proceeding’).
By contract dated 8 August 2015, the Director and Ziqian Wang (and/or nominees) contracted to purchase the Properties for a total purchase price of $13,080,000.
Ausun was nominated as the purchaser and settled the purchase of the Properties in September 2017. It was registered as the proprietor of the Properties from 11 October 2017.
In August 2020, Ausun obtained a planning scheme amendment to permit the Properties to be redeveloped with a mixed use development comprising a 19-storey plus basement parking building with residential units and offices. The cost of the development permit was $388,500.16.
Prior to the order for its winding up, Ausun had two employees, being Ms Xinjie Li (known as Rimini), who had been employed on a casual basis as a bookkeeper from 2018, and Mr Hongyu Wei (known as Harry),[1] who was a full-time project manager responsible for the day-to-day operations of the company from 2018 until he resigned in August 2021.
[1]With no disrespect intended, I refer in these reasons to Ms Li and Mr Wei by the names by which they are each known being ‘Rimini’ and ‘Harry’.
In April 2020, the Director returned to China for business visits and has not returned to Australia since that time as a result of the COVID-19 pandemic restrictions.
By originating process filed 22 July 2021 in proceeding S ECI 2021 02582, a company called Hayball Pty Ltd (‘Hayball’) filed an application to wind up Ausun for outstanding invoices totalling $12,721.50.
In August 2021, Harry resigned from his employment by WeChat text message.
On 25 August 2021, Ausun was wound up and Mr Newman was appointed as liquidator. On that day, Mr Newman wrote to the Director at Ausun’s registered office and to an email address, being the only addresses he had, requiring delivery up of books and records and the attendance at his office pursuant to ss 475(a) and 530A(6) of the Corporations Act 2001 (Cth).
On 26 August 2021, the Director engaged Klonis Kirby & Co Solicitors (‘Klonis Kirby’) to act on his behalf.
By email of 30 August 2021 to Mr Klonis of Klonis Kirby, Mr Newman stated:
I have been appointed the liquidator to the above company by Court Order as advised by the petitioning creditor's solicitors. A copy of the Court Order is attached for your records.
I understand you act for the Director and maybe previously for the company.
I have called your office but am unable to leave a message. Please advise if you wish correspondence for the Director to be emailed to your office.
By email of 30 August 2021, Mr Klonis advised Mr Newman that he would apply to the Court for orders terminating the winding up. On the same day, Mr Newman replied stating: ‘[i]f those are your instructions, I am happy to work together with you to achieve that outcome’.
On 31 August 2021, the registered office of Ausun was updated to Ausun’s business address from where it had been operating since 13 February 2020. The Director deposes that the relevant papers were served on the company at its previous registered office in accordance with the ASIC records, and that the documents did not come to the attention of the Director or Ausun’s employees.
On 2 September 2021, Mr Newman telephoned Mr Klonis, who informed him that he was awaiting instructions from the Director and that he had a Zoom meeting with him the previous Friday. He said they were considering applying to the Court to ‘wind back’ the liquidation. Mr Newman said he would wait for Mr Klonis to receive instructions and would then write to him formally.
By email of 6 September 2021 to Mr Klonis, Mr Newman asked if he had received instructions and noted that he had scheduled an interview for the Director at 11:00am.
On 8 September 2021, the Director arranged for Hayball to be repaid $12,721.50.
By email on 6 September 2021 to Mr Newman, Ms Di Carlo of Romanis Cant, who had been appointed as liquidator of Ausun Property Pty Ltd (a company related to Ausun) (‘APPL’) by order of 16 June 2021, said that APPL was the trustee of the Don Peria Unit Trust, and that lawyers for directors of APPL intended to apply to set aside the winding up order.
On 13 September 2021, Mr Newman prompted an email exchange with Mr Klonis in which Mr Klonis confirmed he was acting for the Director and Mr Newman asked if he had instructions to terminate the liquidation.
On 13 September 2021, there was a conversation between Mr Newman and Ms Di Carlo in which Ms Di Carlo said she had met with the Director and Mr Klonis on the previous Thursday on Zoom and that she had his email details. Due to privacy concerns, she was unable to give him the Director’s contact details but agreed to pass on a request to the Director for those details to be given to Mr Newman. She intended to give them one week to make an application to terminate the liquidation and if not she was going to the Court to be appointed as receiver. Mr Newman noted that she had waited a long time and she responded that they had kept saying the application to set aside would be made shortly and so she was concerned about accruing costs.
By email of 13 September 2021 to Romanis Cant, Mr Newman stated:
Further to our telephone conversation earlier today.
Below are the only contact details I have for the Director.
Harry Klonis of Klonis Lawyers is not currently acting for the company or the Director. Consequently I have no way of contacting the Director.
Are you able to ask the Director if you are able to give his email contact details to me as the details I have are no longer correct.
By email of 13 September 2021 to Mr Zeng, Rimini and Klonis Kirby, Ms Di Carlo forwarded the email from Mr Newman and stated:
I refer to the email below from Philip Newman the Liquidator for Ausun Property CBD.
I kindly ask that you please contact him in relation to the liquidation of Ausun Property CBD.
By email the same day to Mr Newman, Ms Di Carlo attached the above email and stated that ‘I have sent the below email on to the Director. Hopefully, that assists with getting a response’.
By email of 20 September 2021 to Ms Di Carlo, Mr Newman asked:
I presume you have not heard from the Director as yet?
Also have they made an application to set aside your appointment?
By email of 20 September 2021 to Mr Newman, Ms Di Carlo stated:
Further to my Zoom meeting with the Director, Alex, we provided him and his lawyers with a letter giving them 2 weeks notice to make the application or I would make my application to Court to get appointed Receiver and for my fee approval.
So they haven’t yet made an application to set aside my appointment, I have given them until the 30 September to make their application.
Was my email any assistance… has the Director or his lawyer Harry responded to you?
By email of 1 October 2021 to Mr Newman, Mr Klonis stated:
We confirm that we have instructions on behalf of Li Zeng who is a director of [Ausun].
He seeks to apply to end the liquidation and we would request that you provide us with a copy of any relevant documents in the matter, including a copy of the company bank account statements for the last 12 months.
By email, the letter of 4 October 2021 to Mr Klonis (‘the 4 October Letter’), the solicitors for Mr Newman stated that:
(a)they were currently finalising application to be made receivers of the trust assets;
(b)the email of 1 October 2021 stated that the Director seeks to apply to end the liquidation but provides no basis for the application, accordingly Mr Newman was unable to consider the merits of the application;
(c)they had instructions to accept service of the foreshadowed application and to avoid unnecessary costs, it should be made by 8 October 2021; and
(d)that the Director had failed to complete a report on company activities and property (‘ROCAP’); deliver the books and records of the company in his possession or attend an interview on 6 September 2021 as had been requested in Mr Newman’s letter of 25 August 2021 addressed to the Director (a copy of which was attached to the 4 October Letter), and to which there had been no response.
By a report by Mr Newman dated 10 October 2021 lodged with ASIC, Mr Newman stated that:
(a)he had ‘made various attempts to contact the company’s director by telephone, letter and email’ and received no response; and
(b)all creditors should submit particulars of their debt or claim to his office before 20 October 2021.
On 12 October 2021, Mr Newman filed an originating motion applying to be appointed as a receiver, together with an affidavit in support filed on 12 October 2021. In summary, the affidavit deposed to the following:
(a)Mr Newman set out the investigations to date with respect to the assets of the company. In particular, it notes his attempts to communicate with Mr Klonis and the Director, and to obtain Mr Zeng’s contact details.
(b)He set out his investigations to obtain information in relation to the company’s financial affairs, including that on 13 September 2021 he had written to the known unitholders of the Trust (as detailed in the Register) seeking evidence in their possession in relation to the assets owned by the Trust and that he did not receive a response from any of the unitholders.
(c)He set out his investigations with respect to the assets of the Trust and noted that the only substantial asset was the Properties which estate agents had indicated would be valued between $9.5 million and $10.5 million.
(d)He set out the liabilities of the Trust and noted the Trust’s externally prepared balance sheet as at 30 June 2018 identified loans of $14,837,744, and that the liquidator of APPL had confirmed that the amount of $4,097,744 remains outstanding.
(e)He stated that ‘[g]iven the matters deposed [in paragraph 39], it is my opinion that it is critical to the winding up of the Company that the Assets be promptly realised’. In paragraph 39, he stated his preliminary assessment was that:
(i)‘the assets available to meet known creditor claims against the Company are likely insufficient to pay those claims in full. On the basis of the matters outlined in paragraphs 27 to 34, I estimate that the value of the Company's assets total $10,053,707.01. As detailed in paragraph 38 of this affidavit, known debts of the Company total $15,725,950.55. Accordingly, I estimate a net deficiency in the liquidation before realisation costs, Liquidator’s remuneration and expenses’; and
(ii)‘unless there is a recovery for the Company from the Properties, there is not likely to be any funds available for distribution to creditors of the Company’.
By affidavit filed 29 October 2021, Mr Klonis deposed to the fact that the Director intended to make an application to terminate the winding up of both Ausun Property CBD and APPL, that he required further time and he therefore requested a 14 day adjournment.
On 29 October 2021, Efthim AsJ adjourned the proceeding to 19 November 2021 and ordered the Director to file and serve any affidavits upon which he wished to rely by 12 November 2021.
By a further report by Mr Newman dated 24 November 2021 lodged with ASIC, Mr Newman stated that ‘as a result of debts and interest that were continuing to accrue on the Properties, [he] made an urgent application to Court to be appointed as Receiver and Manager of the assets of the Trust’.
By email of 18 November 2021 at 3:08pm to Mr Newman’s solicitors, Mr Klonis served a notice of ceasing to act in the receivership application.
By email of 18 November 2021 at 3.51pm to Mr Klonis, Mr Newman’s solicitors stated:
Thank you for your email today enclosing the notice of ceasing to act. Kindly confirm if you otherwise still act for Mr Klonis.
I note that we have not received any response to our email of 29 October 2021 nor our letter of 11 November 2021.
We would appreciate the courtesy of a reply given that if you no longer hold instructions to act for him in any capacity, we would need to contact Mr Zeng directly in relation to the administration of the liquidation of the Company.
Mr Klonis replied at 4:56pm, stating:
We no longer act in the proceeding however we may have communications with Mr Zeng from time to time, subject to any further instructions that we may receive from him or on his behalf.
Mr Newman’s solicitors replied at 4:58pm, stating:
Kindly confirm if we are to continue to direct correspondence to your office. If so, kindly advise when we may receive a response to our letter of 11 November 2021.
At 5:03pm, Mr Klonis replied, stating:
We emailed the correspondence to Mr Zeng but have not received any further instructions on the matter.
On 19 November 2021, Efthim AsJ made the receivership orders. There was no appearance on behalf of the Director.
From November 2021, the Director ceased making payments under the first mortgage on the Properties.
On 2 December 2021, Mr Newman approached real estate agents for the purpose of determining who should be engaged.
On 21 December 2021, Mr Newman engaged the commercial real estate agency, CBRE to sell the Properties.
On 11 March 2022, Mr Newman entered into a contract to sell the Properties for $10,020,000. In the contract, the purchaser acknowledged that Mr Newman was selling the Properties as the receiver of the Trust appointed by the Court and included clauses 15.4 to 15.8, which made provision in the event that Mr Newman did not have the right to sell.
On 23 March 2022, the Director engaged Ark Legal.
By email of 28 March 2022 to Mr Newman, Ark Legal informed him of their engagement and requested various documentation relating to the liquidation and the sale of the Properties.
On 1 April 2022, Ark Legal lodged caveat AV488404V on the Properties.
On 14 April 2022, the Director completed the ROCAP and relevantly noted the amounts owed by Ausun to its creditors exceeded $18 million as follows:
(a)Prime Capital  $5,059,410.10
(b)Ausun Property Pty Ltd     $6,438,667.43
(c)L & Z Corporation Pty Ltd     $1,232,000.00
(d)Zeng     $5,711,181.50
(e)City of Port Melbourne      $TBC
(f)South East Water                $TBC
(g)SRO      $TBC.
By letter of 14 April 2022 to Mr Newman, Ark Legal set out the basis upon which it was proposed to apply to terminate the liquidation.
By email of 20 April 2022 to the Director’s solicitors, the solicitors for the mortgagee stated:
Our client has concerns regarding the defaults which have occurred and your client's financial position generally. We presume that your client's material to be filed in support of the application will address those matters. Once we have received the material, we will be in a position to obtain instructions.
In the interim, we advise that our client has cancelled the facility and requires payment of the Secured Money in full.
Our client has forborne from exercising power of sale as mortgagee in relation to the properties on the basis that the Liquidator/Receiver has taken steps to market and sell the property. Our client is expecting to be paid from the sale of the properties, which are under contract.
By letter of 22 April 2022, Mr Newman’s solicitors responded to the asserted bases of the application in the letter of 14 April 2022 and stated with respect to the request that Mr Newman consent to the application:
First, the granting of the proposed Application is a discretionary matter for the Court, and there is a clear onus on the applicant to make out a positive case. Secondly, our client will assess the merits of the Application by reference to the affidavit material filed in support of it and not on the basis of assertions contained in your letter.
By summons filed 13 May 2022, Mr Newman sought to apply to remove the caveat on the basis that the settlement of the sale of the Properties was due on 25 May 2022.
By originating process filed 16 May 2022, the unitholders of the Trust applied for orders terminating the winding up of Ausun and interlocutory and permanent injunctions to restrain the sale of the Properties.

Principles with respect to applications for interlocutory injunctions

The principles to be applied on applications for interlocutory are well established and were summarised by Justice Dixon of this Court in Saraya Nominees Pty Ltd (in its own right and as trustee for the A Saraya Family Trust) v National Australia Bank Ltd[2] as follows:
(a)The plaintiff must demonstrate a prima facie case. This requirement is to be understood as to whether there is a serious question to be tried as to the plaintiff’s entitlement to relief, not whether it is more probable than not that the plaintiff will succeed at trial. The sense in which the test is understood is that the plaintiff must prove prima facie a sufficient likelihood of success to justify in the circumstances preservation of the status quo pending trial. In context, it must show that it has a putative legal or equitable right in respect of which final relief is sought which will justify the restraint sought. The requisite strength of the probability of ultimate success depends on the nature of the rights asserted and the practical consequences likely to flow from the interlocutory orders sought.
(b)The injury which the plaintiff is likely to suffer must be one for which damages will not provide an adequate remedy.
(c)The balance of convenience must favour the granting of an injunction. The balance of convenience requires a consideration of the relevant matters favouring or militating against the granting of an injunction and will necessarily involve a consideration of the strength of the plaintiff’s claim, assuming that a serious issue has been identified. In Victoria, this consideration is further clarified by the decision of the Court of Appeal in Bradto Pty Ltd v State of Victoria.The court must, in determining whether to grant an interlocutory injunction ‘take whichever recourse appears to carry the lower risk of injustice if it should turn out to have been “wrong”, in the sense of granting an injunction to a party who fails to establish his right at the trial or in failing to grant an injunction to a party who succeeds at [the] trial’.[3]
[2][2014] VSC 524, [28].
[3]Ibid, quoting Bradto Pty Ltd v State of Victoria; Tymbook Pty Ltd v State of Victoria (2006) 15 VR 65, 73 [35] (citations omitted).

If these elements are satisfied there remains a residual discretion in the Court, which may be affected by issues such as delay and the like.

Principles with respect to applications for the removal of caveats

Pursuant to s 90(3) of the TLA, any person who is adversely affected by a caveat may bring proceedings against the caveator for removal of the caveat.
An application for removal of a caveat is to be determined by the same two stage test as applicable to an interlocutory injunction, which means the onus is on the caveator to satisfy the Court that:
(a)there is a serious question to be tried that they have the interest in the land as claimed; and
(b)the balance of convenience favours the maintenance of the caveat until trial. The Court is not confined as to the matters it may consider as going to the balance of convenience.
This two stage test only informs the Court in considering whether to exercise its discretion in any particular case because s 90(3) of the TLA is drafted broadly and requires the Court to make such order as it thinks fit.[4]
[4]Lee v Yap [2021] VSCA 297, [78]-[79], [85] (Kyrou, McLeish and Walker JJA).

Submissions on behalf of the Termination applicants

On behalf of the Termination applicants, it was submitted that there was a serious question to be tried as to whether the receiver had breached his fiduciary duty to exercise due diligence in the interests of the unit holders in entering into the contract of sale of the Properties, because the receiver entered into the contract of sale:
(a)without consulting with the Director with respect to the proposed sale in the period from 19 November 2021;
(b)prior to being satisfied that Ausun was insolvent, which it would not be if the debts to related companies would not be enforced; and
(c)prior to properly investigating whether the debt to APPL in liquidation would be resolved by the termination of the liquidation either by application or return to the directors after payment of debtors.
Further, it was submitted as follows:
(a)The receiver had obstructed the unitholders in bringing an application to terminate the liquidation. In particular it had failed to respond to the letter of 14 April 2022 by refusing to state whether it would support the application.
(b)Although the receivership order expressly authorised the sale of the Properties, the receiver still had his duties to consider the interests of the unitholders.
(c)There was a serious question to be tried about whether the purchaser had notice of the breach of fiduciary duty by reason of the inclusion of the restricted rights clauses in the contracts; and the unitholders wanted the opportunity to get disclosure of documents relating to the purchaser’s knowledge.
(d)Although the Director did not resist the receivership application and delayed in making the application for termination of the liquidation, that conduct was explained by his inability to leave China, difficulties with communication both language and technological; and his mistaken belief that, on payment of the Hayball debt, control of the company would return to him and it would be business as usual.

Submissions on behalf of receiver

On behalf of the receiver it was submitted that the caveat should be removed and the injunction refused, for the following reasons:
(a)Unitholders in the unit trust expressly do not have an interest in the assets of the trust and therefore do not have a caveatable interest.
(b)The receivership order expressly authorised the sale of the Properties.
(c)There is no serious question that the receiver had breached his duty to the unitholders on the basis he was obliged to consult with the unitholders in the circumstances where there was no opposition to the receivership order and the attempts to communicate with the Director.
(d)The interest of the bona fide purchaser for value without notice had priority over the interests of the unitholders.

Conclusion

In my opinion, the Director’s allegations that:
(a)the receiver’s failure to consult with him; or
(b)properly investigate the debts constituted a breach of duty; and
(c)the balance of convenience favours maintenance of the caveat,
cannot be sustained in the following circumstances:
(i)On the Director’s case, the liquidation arose as a result of the failure of the corporation to register its current address with ASIC or arrange for correspondence to be forwarded from its previous address.
(ii)Despite engaging a lawyer (Mr Klonis) on the day after the liquidation, the Director failed to fulfil his duties to attend for an interview (by Zoom or otherwise) or provide a ROCAP, until 14 April 2022.
(iii)Between the date of the liquidation order and the filing of the receivership application on 12 October 2021, Mr Newman made numerous attempts to contact the Director and offered opportunities for the Director to proceed with his proposed application to terminate the liquidation. The Director did not respond to Mr Newman, did not authorise Romanis Cant to supply Mr Newman with his email address and did not file a termination application.
(iv)From the filing of the receivership application on 12 October 2021 until 18 November 2021:
(1)Mr Newman deposed as to:
(A)his intention to sell the property;
(B)the basis for his belief that the trust was insolvent; and
(C)his opinion that it is critical to the winding up of the Company that the Assets be promptly realised.
(v)The Director had Mr Klonis acting for him but did not oppose the application and, on 18 November 2021, the instructions of Mr Klonis ceased at least with respect to the application.
(vi)On 19 November 2021, the Court expressly authorised Mr Newman to take possession of, preserve, maintain and sell the assets comprising the Trust Property.
(vii)Between the date of the receivership order and the contract to sell the Properties on 11 March 2022:
(1)Mr Newman:
(A)undertook an extensive process to identify and engage an appropriate agent to sell the Properties;
(B)valued the Properties;
(C)conducted a sales campaign through expressions of interest; and
(D)entered into a contract of sale of the Properties, and
(2)the Director:
(A)did not inform Mr Newman that his related debts would not be enforced against Ausun;
(B)took no objection to the sale of the Properties by lodging a caveat or otherwise;
(C)made no contact with Mr Newman;
(D)did not provide Mr Newman with his contact details or instruct a solicitor; and
(E)made no payments to the first mortgagee.
(viii)After the date of the contract of sale of the Properties, the Director:
(1)instructed his current solicitors on 23 March 2022;
(2)lodged a caveat on the titles of the Properties on 1 April 2022;
(3)provided a completed ROCAP on 14 April 2022;
(4)by letter of 14 April 2022, again foreshadowed an application to terminate the liquidation; and
(5)filed termination applications with respect to the liquidations of Ausun and APPL on 16 May 2022.
In summary, at the time of the sale, in my opinion Mr Newman was reasonably entitled to form the following opinions:
(a) He was authorised by Court order to sell the Properties.
(b)The sale price represented fair value for the Properties (which was not contested on this application).
(c)The Director had more than adequate notice of his intention to sell the Properties to satisfy the trust creditors.
(d)The Director was refusing to communicate with him and that the Director was unlikely to proceed with a termination application with respect to Ausun.
(e)No payments were being made under the first mortgage and the mortgagee would exercise its power of sale if Mr Newman did not.
(f)There was no reason to doubt the substantial insolvency of Ausun as disclosed by its accounts balance sheet and in particular that:
(i)the debt to APPL was not a related party debt and no action had been taken to terminate the liquidation of that company and there was no reason to believe the debt would be waived; and
(ii) the Director had not waived the debts owed to his related companies.
Accordingly, I do not consider that the Director has established that there is any serious question to be tried as to whether Mr Newman has breached his duties as receiver to the Director or his related unitholders.
Further, I reject the submission that the restricted rights clauses in the contracts were sufficient to give notice of any otherwise unknown breach of duty by a Court appointed receiver. The submission was made without authority.
I accept that any of the five levels of knowledge identified by Peter Gibson J in Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA,[5] would be sufficient to constitute notice so as to defeat a claim by a bona fide purchaser.[6] However, in my opinion, the inclusion of the restricted rights clauses in the contracts is not a circumstance which would put an honest and reasonable man on inquiry. Rather, absent other circumstances, an honest and reasonable man would consider that an insolvency practitioner authorised to sell a property of an insolvent entity is concerned to protect his or her position if, as frequently occurs in this context, another dissatisfied party applies to restrain the sale.
[5][1993] 1 WLR 509, 575-6.
[6]Great Investments Ltd v Warner (2016) 243 FCR 516, 544-6 [110]-[120] (Jagot, Edelman and Moshinsky JJ).
Neither do I consider that a caveator can satisfy its onus of establishing a serious question to be tried by asserting, without more, that it would like the opportunity to get discovery from the other party. There may be circumstances where there is sufficient basis for suspicion of notice by the purchaser that the Court will maintain a caveat until after discovery; but I do not consider this to be such a case. Mr Newman has deposed in some detail how he engaged a reputable agent and how the sale process was effected through an expression of interest campaign. There is no reason to suspect that the owner had knowledge of any matter that would put it on inquiry.
Although there is evidence that the amount expended by Ausun on the Properties exceeds the sale price achieved by Mr Newman, I am not satisfied that the sale is the cause of the loss of the excess. It is not contended by the Director that the sale price was below the Properties’ true value and the sale price was reached on the basis of its development potential. There is no evidence that the Properties would be of greater value in the hands of Ausun.
Accordingly, in summary my findings are that the Director has failed to establish that there is a serious question to be tried as to:
(a)whether Mr Newman breached his duties as a receiver by selling the Properties; or
(b)whether the purchaser’s interest under the contract of sale should be subordinated to the Director’s interest in the Properties. In this respect, I particularly have had regard to the purchaser’s status as a bona fide purchaser for value without notice and the Director’s inadequate explanation of:
(i)the delay in opposing the receivership order;
(ii)the delay in applying for termination of the liquidation; or
(iii)his failure to communicate with Mr Newman or even request that the sale of the Properties be delayed.
Further, in my opinion, the delay by the Director referred to above is also a strong discretionary factor in refusing the relief sought by the Director. I reject the submission that this failure was adequately explained by COVID-19 pandemic restrictions applicable to the Director in China. There is evidence that he was able to communicate by Zoom to the liquidator of APPL and Mr Klonis; and no reason was proffered as to why he could not have done so with Mr Newman or any other solicitor whom he may have wished to engage – such as he did with Ark Legal. Neither do I accept he believed it was business as usual after repaying the petitioning creditor. This submission was inconsistent with the following:
(a)He had a solicitor acting for him when Mr Newman served his affidavit in support of the receivership application. The affidavit made it perfectly plain that the liquidation was proceeding and it was intended to sell the Properties.
(b)His decision not to oppose the receivership application.
(c)His cessation of payments on the first mortgage at or about the time of the receivership order.
Accordingly, I propose to dismiss the Director’s claim for an injunction to restrain the sale of the Properties; and order pursuant to section 90(3) of the Transfer of Land Act 1958 (Vic), that the third defendant remove the caveat numbered AV488404V from Certificate of Title Volume 09666 Folio 725 and Certificate of Title Volume 09669 Folio 524.

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[2022] VSC 541

24 May 2022