J Chen v D Xu

[2015] NSWSC 1697

Supreme Court

New South Wales

Medium Neutral Citation:	J Chen v D Xu [2015] NSWSC 1697
Hearing dates:	29 June 2015
Decision date:	29 June 2015
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Application for a freezing order is dismissed.
Catchwords:	PROCEDURE – freezing orders – whether to grant freezing orders without exceptions for legal and living expenses.
Category:	Procedural and other rulings
Parties:	Jie Chen (Plaintiff) Dong Xu (First Defendant/First Cross-Claimant) Sunshine Education Development Pty Ltd (Second Defendant/Second Cross-Claimant) Yongrong Tong (Cross-Defendant)
Representation:	Counsel: V R Gray (Defendants/Cross-Claimants)   Solicitors: Globalex Tax & Legal (Defendants/Cross-Claimants)
File Number(s):	2014/40151

Judgment – ex tempore

1. On 16 June 2015 I delivered judgment in respect of proceedings brought by the Cross-Claimant, Sunshine Education Development Pty Limited, against a Cross-Defendant, Ms Tong, and also ordered that there be costs in favour of Sunshine Education. I also made orders which were, in effect, freezing orders against the assets of the Plaintiff, Mr Chen, and the Cross-Defendant, Ms Tong, which were to run up to and including 4pm today. Those orders contemplated that service of the motion that sought them, the supporting affidavit and a copy of the orders would be made by a specified time. That has not occurred in circumstances to which I will refer. In those circumstances, the orders which I made have not come to have binding effect so far as the Plaintiff, Mr Chen, or the Cross-Defendant, Ms Tong, were concerned since they have not been served upon them.

2. The background to that development is set out in an affidavit to the Cross-Claimant's solicitor Mr Lee sworn 29 June 2015. Mr Lee indicates that he served the Court's order made on 16 June 2015 on two banks, Australian and New Zealand Group Limited and Westpac Banking Corporation, and that ANZ Bank responded that they were not able to freeze any accounts "in compliance with the order" and Westpac similarly identified difficulties in freezing accounts in accordance with the order. It should be noted that the orders were not directed to ANZ Bank or Westpac, but instead to Mr Chen and Ms Tong. It was no doubt sensible on the part of the Cross-Claimant's solicitor to give the bank notice of the orders, but those orders were not intended to impose any binding obligation on the banks, other than that which might attach to any third party who was aware of a Court's orders affecting accounts which it operated.

3. The particular concern raised by the ANZ Bank is that, where the order seeks to restrain Mr Chen and Ms Tong from disposing of assets so as to reduce their assets beneath a specified monetary level, then they would necessarily be free to deal with assets in excess of that level. ANZ Bank points out, obviously enough, that it does not know the level of the parties’ assets in Australia and is not in a position to determine whether any particular withdrawal from the account maintained with it is permitted on the basis that other assets held by the parties in Australia would leave the parties still compliant with the order. ANZ Bank also refers to other exceptions from the freezing order, which are in common form, which permit, for example, the expenditure of funds for reasonable living expenses and reasonable legal expenses. Again, there is considerable force in ANZ Bank's comment, but there is nothing particularly surprising about it because the orders were intended to bind Mr Chen and Ms Tong, and it was they, not ANZ Bank, who needed to know whether they were complied with, prior to undertaking a transaction within the scope of the orders.

4. The Cross-Claimant has now sought an amended form of freezing order but it is apparent that that amended freezing order would not meet ANZ Bank's concerns, because it also imposes a limitation on dealings only where they would reduce the parties’ assets beneath the specified amount, and ANZ Bank's point was that it had no way of knowing whether that was the case. Mr Gray, who appears for the Cross-Claimant then sought further to amend the order to address that point, by simply prohibiting withdrawals from the relevant account that would reduce its balance below a specified amount, subject to any application brought by Mr Chen or Ms Tong to permit such a withdrawal. That specified amount is, I infer, an amount that is intended to include both the amount of the judgment and an allowance for costs.

5. I am not persuaded that I can make an order in such a form. Freezing orders are typically made in a manner that provides for payment of reasonable living and legal expenses. There is presently no evidence before the Court as to whether the Plaintiff, Mr Chen, or the Cross-Defendant, Ms Tong, have other assets from which they could pay legal expenses or living expenses. If there was evidence that such other assets existed then it might well be possible to freeze the moneys in this account in the manner for which Mr Gray contends. However, absent such evidence, the consequence of such an order would be that Mr Chen and Ms Tong would be prohibited from expending money on living expenses, and legal expenses, without bringing an application to the Court. They may also be practically unable to bring such application, where they were prohibited from withdrawing monies so as to pay lawyers to act for them in it. It seems to me that an order of that kind would only be made in the most exceptional circumstances, and would at least require proof that the parties affected by it had other resources from which they could pay such living and legal expenses which is absent here. It is not to the point that third party banks find it difficult to implement the relevant orders, because, as I have noted, those orders are, in the first instance, directed to the parties affected by them, not the banks.

6. For this reason, there would be no point in making the further point of order in the form for which the Cross-Claimant initially contended, because it would not meet ANZ Bank's concern, and I am not satisfied that I could properly make the order for which Mr Gray contended in the alternative, which seems to me to go beyond the level of restraint reasonably proper, on the evidence, where it would potentially prevent payment of ordinary living and legal expenses without a court application first being made by the persons to whom it is directed.

7. There is a question in the circumstances whether the Cross-Claimant will press for a continuance of the freezing order in the earlier form and an extension of the time within which to serve it. It may be that it will not do so, having elected not to serve that order in that form in the first instance. I will hear Mr Gray as to that matter.

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Decision last updated: 17 November 2015