Kekecial Pty Ltd v Aus Made Express International Group Pty Ltd
[2023] VCC 463
•29 March 2023
| IN THE COUNTY COURT OF VICTORIA AT Melbourne commercial DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-20-05300
| KEKECIAL PTY LTD (ACN 620 714 383) | Plaintiff |
| v | |
| AUS MADE EXPRESS INTERNATIONAL GROUP PTY LTD (ACN 604 566 065) & ORS (ACCORDING TO THE SCHEDULE ATTACHED) | Defendants |
---
JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 March 2023 | |
DATE OF RULING: | 29 March 2023 | |
CASE MAY BE CITED AS: | Kekecial Pty Ltd v Aus Made Express International Group Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 463 | |
REASONS FOR RULING
---
Subject: INJUNCTIVE RELIEF – FREEZING ORDER
Catchwords: Continuation of freezing order – initial ex parte hearing – disclosure obligations – undertaking as to damages – insufficient disclosure at ex parte hearing
Legislation Cited: Migration Act 1958 (Cth)
Cases Cited: KQ International Trading Pty Ltd v Yang [2012] VSC 415;
Redwin Industries Pty Ltd v Feetsafe Pty Ltd and McDonnell [2002] VSC 427; Thomas A Edison Ltd v Bullock (1912) 15 CLR 679; Westpac Banking Corporation v Hilliard [2001] VSC 187; Zhen v Mo & Ors [2008] VSC 300
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr L Magowan | Lin Legal |
| For the Defendant | Mr T J Scotter | WB Legal |
HIS HONOUR:
Introduction
1This application came before me upon the return of a summons filed by the plaintiff (“Kekecial”) on 20 February 2023. The summons was first listed as an ex parte hearing before Her Honour Judge Burchell and sought an interim freezing order pursuant to Order 37A of the County Court Civil Procedure Rules 2018 (“the Rules”). Her Honour granted the freezing order on 21 February 2023. The plaintiff seeks a continuation of this freezing order.
Background
2In the proceeding, Kekecial claims that a debt is owed to it by the first defendant (“Aus Made”) and alleges that the disinfecting and santising paper products it supplied were defective. Aus Made accepts that the relevant sums would have been payable to Kekecial but says that they were applied to an unpaid amount for another transaction. This forms the basis of Aus Made’s counterclaim where they allege that Kekecial and Mr Yang reneged on an agreement to purchase other sanitising products from Aus Made.
3Kekecial first applied for a freezing order before Judge Woodward on 31 March 2021. His Honour refused the plaintiff’s application on 22 April 2021 on two grounds. First, whilst it was submitted that the second defendant, Huifeng Liu (“Liu”), had been assessed by the Australian Security Intelligence Organisation (“ASIO”) to be a national security risk, the only evidence before His Honour on this point was hearsay evidence from media reports and His Honour was not satisfied that such an determination by ASIO, if it existed, would be a sufficient basis for drawing inferences about dissipation of assets. Further, there was no evidence before His Honour of actual dissipation of the defendants’ assets.
The application before Judge Burchell
4At the hearing before Her Honour Judge Burchell on 21 February 2023, Kekecial submitted that there were two relevant changes in circumstance which justified the grant of ex parte relief against the defendants:
(a) there was indisputable evidence that Liu had become the subject of an adverse security assessment by ASIO; and
(b) there was fresh evidence of actual dissipation of assets by Liu.
5Kekecial submitted that a person whom ASIO had determined to be a national security risk was likely, by implication, to be the type of person who would seek to frustrate the court’s processes by dissipating assets.
6There was material before Her Honour showing that Liu had transferred his shares and/or directorships in a number of companies to his wife Ms Qiujia Zhang (“Zhang”). These transfers occurred in late October 2022.
7On 31 October 2022, Liu transferred his 90 shares in Sino-Anz Traceability Association Pty Ltd (ACN 613 854 014) (“Sino-Anz”) to his wife and resigned as a director on 1 November 2022.
8On 31 October 2022, Liu transferred his 53 shares in Australia International Education Center Pty Ltd to his wife and resigned as a director on 31 October 2022.
9On 31 October 2022, Liu transferred his 100 shares in Southern Cross Biotechnology Pty Ltd (ACN 626 762 776) to his wife and resigned as a director on 31 October 2022.
10On 31 October 2022, Liu resigned as a director from the first defendant.
11On 8 November 2022, Zhang completed the Form 6010 applying to voluntarily deregister Sino-Anz.
12Judge Burchell found that there was a realistic prospect of success or an arguable case at trial in the proceeding. Her Honour held that the transfer of shares outlined above constituted dissipation of assets and she had regard to court documents from the Federal Court which indicated that ASIO considered Liu to be a national security risk. Furthermore, Her Honour noted that Zhang, being the other shareholder in the first defendant, had her visa linked to Liu.
13Kekecial sought a non-party order as against Zhang as well as an order against Liu insofar as the shareholdings remained in his name.
14Her Honour was satisfied that the balance of convenience favoured the applicant and she granted the freezing order sought.
15The parties came before me initially on 7 March 2023 at the urgent request of the defendants’ solicitor. For a number of reasons, the matter was adjourned for a short time.
16The matter returned on 14 March 2023 and Kekecial sought to continue Judge Burchell’s freezing order. The defendants opposed the continuation of the freezing order on the basis that the grounds for a freezing order were not made out. Further, the defendants submitted that there had been significant non-disclosure of material matters, the plaintiff’s undertaking as to damages was worthless, the application constituted an abuse of process and that the amount sought to be restrained was excessive.
Legal principles
17The principles governing the grant of a freezing order are well-established. In KQ International Trading Pty Ltd v Yang[1] Justice Kaye noted that an applicant “must, first, demonstrate that it has a realistic prospect of success, or a good arguable case, at trial. Secondly, [the applicant] must establish that the refusal of the injunction would involve a real risk that any judgment or award of damages in favour of it would remain unsatisfied. Thirdly, [the applicant] must establish that the balance of convenience lies in favour of the grant of such an injunction.”[2]
[1][2012] VSC 415
[2]Ibid at [5]
18Justice Forrest in Zhen v Mo & Ors[3] helpfully set out further principles to be applied in freezing order applications:
[3][2008] VSC 300
First, that a freezing order, by its very nature, is a drastic remedy and a court must exercise a high degree of caution before taking a step which will interfere with a party’s capacity to deal with his or her assets.
Second, the order is not designed to provide security for the applicant’s claim. It is solely directed to preserving assets from being dissipated, thereby frustrating the court process.
Third, the applicant bears the onus both in satisfying the Court that the order should be continued and in satisfying the Court as to the amount which is to be the subject of the order.
Fourth, that an order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no substitute for either the facts or inferences properly drawn from proved facts.
Fifth, that before such an order can be made it is necessary that the applicant establish –
(a) an arguable case against the defendant; and
(b) that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the defendant’s actions in either removing the assets or disposing or dealing with them so as to diminish their value.
Sixth, the balance of convenience must favour the granting of the freezing order.
Seventh, that there is no set process determining the exact nature of an order. The order will be framed according to the circumstances of the case.
Eighth, the applicant must establish with some precision the value of prospective judgment. The order should not unnecessarily tie up a party’s assets and property.
Finally, there may be discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court. [4]
[4]Ibid [22]-[30]
19With regard to ex parte hearings, the obligations on the moving party are more onerous than in an inter partes hearing. Since the applicant asks the court to grant immediate relief in the absence of the respondent, the moving party is expected to take the place of the absent respondent to the extent of bringing forward all the material facts which the defendant presumably would have brought forward in opposing the application.[5] The applicable principles were set out by Habersberger J in Redwin Industries Pty Ltd v Feetsafe Pty Ltd and McDonnell,[6] where his Honour quoted extensively from the judgment of McDonald J in Westpac Banking Corporation v Hilliard.[7] The main points to note are as follows:
[5]Thomas A Edison Ltd v Bullock (1912) 15 CLR 679 at 681-2
[6][2002] VSC 427 at [8]
[7][2001] VSC 187
· any party seeking an injunction on an ex parte basis has a duty to place before the court all relevant matters, including such matters which would have been raised by the respondent in his defence if he had been present.
· it is of utmost importance in the due administration of law that courts and the public have confidence that an ex parte order has been made only after the applicant has complied with its duty to disclose all relevant facts.
· an applicant must disclose any defence which he had reason to anticipate may be advanced. If an applicant does not comply with his duty, it will be deprived of the fruits of any order without considering the merits and irrespective of whether, had the applicant made such disclosure, it would or would not have obtained the order.
· an applicant must make proper enquiries before applying to the court. The duty of disclosure applies not only to material facts which the applicant knew, but also to additional facts which the applicant would have known if due enquiries had been made.
· the extent of the necessary enquiries depends on all the circumstances of the case, including:
§the nature of the case which the applicant is making;
§the order sought and its probable effect on the defendant;
§the degree of legitimate urgency and the time available for making enquiries.
· Whether an undisclosed fact is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends upon the importance of the fact to those issues which were to be decided by the judge on the application. An important but not decisive factor is whether the non-disclosure was innocent in the sense that the applicant was unaware of the fact or did not perceive its relevance.
Analysis
20The defendants submit that the plaintiff failed to disclose:
· the true position as to Liu’s residency status and alleged deportation order;
· the fact that Judge Woodward had rejected identical submissions in respect of the ASIO allegations. The defendants further argued that the reason for Judge Woodward’s rejection of the ASIO allegations was misstated; and
· the weakness of the Kekecial’s undertaking as to damages.
21The affidavit of the defendants’ solicitor, Mr Wang, affirmed on 3 March 2023 deposed to an interlocutory finding made in the Federal Court defamation proceeding involving Liu as the applicant and Mr Kang as the respondent. Mr Kang made an application for security for costs against Liu and Zhang. The court heard the application on 16 November 2022. Because the court was satisfied that Liu and Zhang were ordinarily resident in Australia, it dismissed the application.
22At the hearing before Judge Burchell, Kekecial submitted that Liu was “currently the subject of a deportation order”. I inferred from this comment that Kekecial was suggesting that:
(a) if the deportation order were imminent and acted upon soon, then Liu would be absent from Australia and unlikely to return here anytime soon; and
(b) if Liu were deported and not within the jurisdiction, then it would be more difficult for Kekecial to enforce any judgment which it obtained against him.
23When the hearing before Judge Burchell took place, Kekecial’s lawyers were aware that the Federal Government was most unlikely to take any immediate action on any deportation order. The lawyers knew that the relevant government department had informed Liu’s lawyers in writing that the responsible minister would defer making a decision about Liu’s request to revoke the order refusing Liu’s application for a visa until after the hearing and determination of Liu’s judicial review application challenging the Commonwealth’s decision.
24Kekecial’s lawyers obtained this knowledge in the following way. The firm of Lin Legal and Mr Magowan, the same lawyers who are acting for Kekecial in this matter, acted on behalf of Mr Kang in the defamation proceedings launched against him by Liu.
25During the hearing seeking security for costs, Liu relied upon an affidavit affirmed on 21 September 2022 by his solicitor, William Wang, in which Mr Wang explained the history of the dealings between the Australian Government and Liu (together with his wife Ms Zhang and their daughter) in relation to visas. Included in the affidavit was a reference to Liu commencing proceedings against ASIO and the responsible minister in the Federal Court of Australia seeking judicial review orders to the effect that the initial ASIO assessment of Liu and the refusal of his visa application be quashed.
26The parties resolved the litigation by agreement. By letter dated 6 November 2020, the department confirmed the minister’s position to Wang in the following terms:
“The Minister will defer making a decision in relation to Mr LIU's request for revocation, pending the completion of the Federal Court of Australia review proceedings. Following the conclusion of these proceedings the Minister will give consideration to Mr LIU's pending revocation application and the appropriateness of revoking the visa refusal decision.”
The minister thereby agreed in effect not to deport Liu from Australia pending the hearing and determination of the Federal Court judicial review proceedings.
27Notwithstanding that Kekecial’s solicitors knew that this was the situation at the time of the hearing before Judge Burchell, they did not inform Her Honour of this matter.
28During the hearing, Liu relied upon an affidavit sworn by his solicitor William Wang in which Wang stated that:
(a) between 2014 and 2016, and before Liu’s permanent visa application in 2016, Mr Liu and his family were temporary residency visa holders (subclass 188);
(b) on 23 December 2016, Liu and his family (being his wife Zhang and their daughter) made a combined application for Business Skills (Permanent) (class EC) Business Innovation and Investment (Permanent) (subclass 888) visa (“Visa Application”). Liu was the primary applicant and Zhang and their daughter were the dependent applicants. In this combined application, each applicant, being Liu, Zhang and their daughter made their respective application for the same visa which was to be individually considered and determined by the then Department of Immigration and Border Protection;
(c) upon making the Visa Application, Liu, Zhang and their daughter were respectively granted a bridging visa allowing them to lawfully stay in Australia while the Visa Application was being considered;
(d) on 2 September 2020, the then Minister of Immigration, Citizenship, Migration Services and Multicultural Affairs (“Minister”) made a decision to refuse Liu’s Visa Application pursuant to section 501(3)(a) of the Migration Act 1958 (Cth). This decision was made as a result of ASIO’s adverse security assessment dated 10 August 2020;
(e) Liu’s bridging visa was cancelled by operation of law under section 501F(3) of the Migration Act 1958 (Cth);
(f) On 9 September 2020, Liu made representations to the Department for revocation of the refusal of his Visa Application;
(g) on 10 September 2020, Liu (without his wife and daughter) commenced proceedings against ASIO and the Minister before the Federal Court of Australia (“Visa Proceeding”), seeking orders that the first ASIO security assessment and the refusal of his Visa Application be quashed, with interlocutory relief that:
“until further order, the first respondent [Minister] be restrained from removing the applicant [Mr Liu] from Australia”
(h) at all relevant times there has been no deportation order against Liu;
(i) there has been no cancellation of the visas of Zhang or their daughter. They can lawfully stay in Australia.
(j) Zhang and their daughter never became unlawful non-citizens;
(k) the Visa Proceeding reached a resolution whereby a further security assessment was proposed (“the Second Security Assessment”) and the initial adverse security assessment was essentially abandoned by ASIO. This proposed resolution was approved by Justice Abraham on 26 May 2021 where Her Honour made orders to this effect.
(l) Liu was interviewed by ASIO for the Second Security Assessment, but the result is still pending. Wang stated he was unaware of the specific timeline for obtaining ASIO’s next security assessment of Liu.
29From the above, I consider that Kekecial, through its lawyers, knew that there was no imminent risk of Liu being deported from Australia. Kekecial also knew the visa status of Liu and his family as they understood the position to be from their lawyer.
30Again, Kekecial’s lawyers did not draw Judge Burchell’s attention to these matters. Nor did they inform Judge Burchell that in his ruling, Judge Woodward said that:
(a) as at April 2021, there was no suggestion that Liu would be subject to any deportation order in the near future. His Honour said that it seemed distinctly possible that, if the case were decided against Liu, it would be unlikely to be determined until after the proposed trial in September 2021.[8]
(b) the evidence about what effect the deportation of Liu would or might have upon his wife and daughter was conflicting and unresolved. His Honour was satisfied on the material that it was unlikely that Liu’s deportation would result in the deportation of his wife and child.
Accordingly, when seeking the freezing order from Judge Burchell, Kekecial presented its own version of the case regarding these matters and did not advise the court of matters which Liu might well have raised had he been present. This was so even though Kekecial had a reasonably good understanding of Liu’s position on several important contested issues.
[8]I note that Liu is still in Australia and seeking to remain here by challenging ASIO in the Federal Court of Australia.
31The defendants further submitted that the plaintiff misstated the reason for Judge Woodward’s rejection of Kekecial’s submissions concerning the ASIO allegations. The Seventh Lin affidavit deposed that Judge Woodward found the evidence on this point was deficient because the plaintiff only relied upon online media reports to determine that Liu had been assessed by ASIO to be a national security risk. Whilst this statement is correct, it is only part of the story. His Honour went on to say that, even if he accepted the evidence that ASIO found Liu to be a security risk, he was not satisfied that such a determination by ASIO would be a sufficient basis for drawing inferences about dissipation of assets, as the plaintiff sought to submit.
32I note that the written submissions filed by Kekecial regarding this ASIO assessment point and relied upon before Judge Burchell were almost identical to those relied upon before Judge Woodward in 2021. The written submissions presented to Judge Burchell failed to properly reflect or take into account the detail of the ruling made by Judge Woodward.
33Kekecial’s oral submissions before Judge Burchell noted that:
· Judge Woodward said in 2021 in relation to the ASIO issue that having regard to the drastic remedy sought, he had to be particularly careful with such material. Having reviewed the media reports about the ASIO assessment of Liu, Judge Woodward was satisfied that the evidence about Liu was deficient.
· Judge Woodward also said that without real evidence of dissipation, a concern that a plaintiff’s claim was unsecured was not enough for the purpose of the making of a drastic remedy such as a freezing order.
34Counsel did not draw the court’s attention to other comments in Judge Woodward’s ruling such as:
· even if His Honour accepted the media reports that ASIO had made an adverse determination against Liu, that would not be a sufficient basis for drawing inferences about the dissipation of assets.
· His Honour concluded that the application before him was conducted in such a way that it strongly suggested Kekecial was looking to obtain security for its claim.
· His Honour found the media evidence about an ASIO determination was inadmissible. Even if Judge Woodward had reached a contrary view about this point, he said he was not satisfied that there was a relevant correlation between such a determination and the kind of dishonesty or like conduct which was necessary for the purposes of drawing inferences about the risk of dissipation. Individuals could be the subject of adverse views by the security services regarding a person’s conduct in Australia on grounds which had nothing to do with impropriety or dishonesty. Hence, Judge Woodward did not agree that because a person was or might be subject to an adverse finding on security grounds, they were the sort of person who would engage in conduct intended to frustrate the court’s purposes.
35I consider that Kekecial should have drawn these further matters to the attention of Judge Burchell in order to properly discharge the obligations imposed upon parties making ex parte applications for drastic orders.
36A final area of concern is the plaintiff’s undertaking as to damages. The commentary in William’s Civil Procedure Victoria notes that in relation to freezing orders:
“Disclosure must be made of any information which may cast doubt on the ability of the applicant to meet, from assets within Australia, the usual undertaking as to damages.” [9]
[9]Civil Procedure Victoria commentary at 37A.01.155
37This situation regarding the undertaking is also referred to in paragraph 318 of the Commercial Division Omnibus Practice Note PNCO 2-2022 which says:
“If it is demonstrated that the applicant has or may have insufficient assets within the jurisdiction of the court to provide substance for the usual undertaking as to damages, the applicant may be required to support the undertaking by providing security. The security may, for example, take the form of a banks’ irrevocable undertaking to pay or a payment into court.”[10]
[10]County Court of Victoria Commercial Division Omnibus Practice Note at [318]
38The plaintiff has applied for freezing order. It is the only entity which has provided an undertaking as to damages.
39Kekecial did not reveal or explain to Judge Burchell that:
(a) around March 2021 the defendants made application seeking security for costs of the proceeding against Kekecial. The defendants relied upon the affidavit of William Wang affirmed on 2 March 2021 which stated that:
§Kekecial had only $100 of paid-up capital
§Zhenhua Yang was the sole director and company secretary of Kekecial
§Yang and Ms Yong Hong Li were the shareholders of the plaintiff
§The address of Yang and Li, and the principal place of business of Kekecial, was 148 Greythorn Road, North Balwyn, Victoria
§Yang and Li were husband and wife
§Yang and Li were temporary residents under a subclass 188 Business Innovation and Investment (Provisional) Visa Business Innovation Stream
§Kekecial was inactive and no longer conducted business in Australia
§As at February 2021, Kekecial owned no real property in Victoria
(b) at around April 2021, Kekecial was not a company of substance. As a result, Yang as the sole director of the company, gave an undertaking to personally bear the costs of the proceeding up to $100,000.
40At the first application before Judge Woodward, the defendants relied upon the paucity of the plaintiff’s undertaking as to damages. Ultimately, due to the plaintiff company’s lack of financial substance, Yang offered an undertaking of up to $100,000 at the security for costs hearing. This fact and the plaintiff’s inability to provide an undertaking of substance for the grant of the freezing order ought to have been disclosed to Judge Burchell at the subsequent ex parte hearing.
41Yet at the hearing before Judge Burchell, no reference was made to the fact that the only undertaking as to damages offered was from the plaintiff company which was recognised in April 2021 as being without the financial resources to meet an order for security for the defendants’ costs of the proceeding.
42Given the importance of the undertaking and the fact that the court had found, in effect, that Kekecial was not able to honour such an undertaking if called upon to do so, I consider that Kekecial should have revealed this to Judge Burchell. Where a court grants a freezing order, the defendant is entitled to protection in the event that it is later held that the court should not have granted the order and the defendant has suffered loss as a result. A plaintiff seeking such an order is obliged to address this issue of the undertaking with the court.
43I am not satisfied that the non-disclosure set out above was innocent in the sense that the plaintiff was unaware of these facts or did not perceive their relevance. The application had been made on notice to the other side and refused. The plaintiff was well aware of matters the defendants could raise in opposition to the order and Kekecial either ignored or glossed over certain significant matters. The plaintiff’s failure to disclose any defence which he had reason to believe may have been advanced is sufficient to dismiss the plaintiff’s application for continuation of the freezing order without considering the merits of the application.
44Accordingly, I find that the freezing order made by Judge Burchell on 21 February 2023 should be discharged and of no further effect.
45I do not need to address the merits of Kekecial’s application for a freezing order. However, if I did, I expect I would have refused to continue the freezing order. It is a drastic remedy not designed to provide security for an applicant’s claim. In my opinion, the evidence of dissipation is weak. The business conducted by Liu’s companies was minimal and one company has been deregistered. The adverse security assessment by ASIO adds little. Even if the second ASIO assessment is negative, that does not necessarily mean that Liu will act in a way intended to frustrate or stultify the enforcement of a judgment. Given the issues with the visa and the litigation which Liu has launched against ASIO, Liu seems keen to remain in Australia rather than being forced to leave the country. Liu’s conduct is inconsistent with someone who wants to evade a potential judgment by fleeing overseas. To the extent that Kekecial is concerned about the transfer of shares from Liu to his wife, she has offered to transfer them back to Liu. Overall, I am not satisfied that the circumstances warrant the continuation of a freezing order where:
· Kekecial’s claim against Liu is not sufficiently strong;
· the balance of convenience does not favour the freezing order; and
· the risk of removal or dissipation of assets is not sufficiently compelling.
SCHEDULE OF PARTIES
BETWEEN
| KEKECIAL PTY LTD (ACN 620 714 383) | Plaintiff |
| and | |
| AUS MADE EXPRESS INTERNATIONAL GROUP PTY LTD (ACN 604 566 065) | First defendant |
| HUIFENG LIU | Second defendant |
| AUS MADE EXPRESS INTERNATIONAL GROUP PTY LTD (ACN 604 566 065) HUIFENG LIU and KEKECIAL PTY LTD (ACN 620 714 383) ZHENHUA YANG | First plaintiff by counterclaim Second plaintiff by counterclaim First defendant by counterclaim Second defendant by counterclaim |
0
5
0