KQ International Trading Pty Ltd v Yang
[2012] VSC 415
•12 September 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
PRACTICE COURT
No. SCI 2012 4695
| KQ INTERNATIONAL TRADING PTY LTD (ACN 120 547 971) | Plaintiff |
| v | |
| JIA FU YANG (aka KERRY JIA FU YANG) | Defendant |
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JUDGE: | KAYE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 September 2012 | |
DATE OF JUDGMENT: | 12 September 2012 | |
CASE MAY BE CITED AS: | KQ International Trading Pty Ltd v Yang | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 415 | |
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PRACTICE – Freezing order – Extension until trial – Application by defendant’s wife to exclude properties – Potential claim by wife for interest in properties in Family Court – Supreme Court (General Civil Procedure) Rules 2005, O 37A.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A. Kirby | Jonathon Wong Lawyers |
| For the Defendant | Mr R. Tan | RTC Legal |
HIS HONOUR:
In this proceeding, the Chief Justice, on 22 August, made an interim freezing order under rule 37A of the Rules of the Supreme Court. On 24 August, her Honour extended the operation of the freezing order until 7 September 2012. The plaintiff has now applied for an order, extending the operation of the freezing order until the trial of the proceeding. Application was made on behalf of the defendant to vary the order, so as to permit him to be paid a larger sum by way of ordinary living expenses. More substantively, the plaintiff’s former wife, Hua Tian, has submitted that the order should not be extended to cover particular assets, to which I shall shortly refer.
The background to the plaintiff’s claim, against the defendant, need only be shortly stated. In June 2004, the defendant and Guo Quiang Zhao (“Zhao”) became shareholders of the plaintiff. Subsequently, the plaintiff took over Zhao’s business of importing clothing from China. In 2006, Zhao transferred his shareholding in the plaintiff to his sister and brother-in-law. Nevertheless, he remained in charge of the operations of the plaintiff in China, while the defendant was in charge of those operations in Australia.
At the times which are relevant to these proceedings, the plaintiff had two bank accounts with the Westpac Bank, a trading account, and an interest account. The defendant was the sole signatory and operator of those accounts.
In late 2009, Zhao became concerned as to how the defendant was managing the plaintiff’s funds in those two bank accounts. He performed a reconstruction of the accounts, on the basis of which, he has calculated that amounts, totalling $5,358,071, have not been properly accounted for in the trading account, and that amounts, totalling $322,171, have not been properly accounted for in the plaintiff’s savings account. In these proceedings, the plaintiff claims damages against the defendant in the sum of $5,680,193.
I shall first consider the application by the plaintiff to extend the freezing order until the determination of the trial in the proceeding. The principles governing the grant of a freezing order are well established, and need only be referred to briefly. In order to be entitled to a freezing order, the plaintiff must, first, demonstrate that it has a realistic prospect of success, or a good arguable case, at trial. Secondly, the plaintiff 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 plaintiff must establish that the balance of convenience lies in favour of the grant of such an injunction.[1]
[1]Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49, 53 (Young CJ); Brereton v Milstein [1988] VR 508; Liquorland (Aust) Pty Ltd v Anghie [2001] VSC 362, [58]-[59] (Warren J); Zhen v Mo & Ors [2008] VSC 300, [22] and following (J. Forrest J); Anderson v Xie [2011] VSC 486, [11] (Dixon J).
The affidavit of Zhao sets out sufficient facts to establish that the plaintiff has a good arguable claim against the defendant. The defendant has not filed any affidavit, or put forward any other material, in response to Zhao’s affidavit. At the hearing before me, Mr Tan, who appeared on behalf of both the defendant and Hua Tian, did not seek to argue that the plaintiff does not have a good arguable case.
I am also satisfied that, if the existing freezing order is not extended until trial, there is a realistic risk that any judgment in favour of the plaintiff would remain unsatisfied. Indeed, Mr Tan did not contend to the contrary. The defendant left Australia for China in August, and he is now in China. He has not, as yet, provided any explanation in relation to the shortfall of funds in the accounts of the plaintiff. Instead, he repeatedly prevaricated in responding to requests made by Zhao to be provided with the books of account of the plaintiff. In addition, in 2010, the defendant, unbeknown to Zhao, deregistered the plaintiff company. The order of the Chief Justice required the defendant to state on affidavit all his assets in Australia and worldwide. Pursuant to that direction, the defendant has filed an affidavit, revealing that he has a property in Taylors Hill, a property in Footscray, and two bank accounts, which have limited funds. Notwithstanding that affidavit, there is evidence that the defendant also owns a property in Hai Zhu District, Guang Zhao City in China. Part of the assets, over which the freezing order currently extends, are cash in an account, maintained with the Commonwealth Bank. If the freezing order did not attach to those funds, they would be paid into a bank account of the defendant. As the defendant is now residing in China, it is probable that the defendant will quickly remove the funds from the jurisdiction.
Thus, I am satisfied that there is a realistic possibility that, if the freezing order is not extended, any judgment obtained by the plaintiff in this case would not be satisfied.
In addition, it was not submitted on behalf of the defendant that the balance of convenience does not favour the extension of the freezing order. It is clear that, subject to the matters put on behalf of Hua Tian, the balance of convenience strongly lies in favour of the extension of the freezing order.
Those conclusions bring me to the application, which was made on behalf of Hua Tian. It was submitted on behalf of Hua Tian that paragraph 6A of the order of the Chief Justice should not be extended, and that paragraph 6 of the order of the Chief Justice, should not extend to cover assets currently owned by the defendant in Australia, and in respect of which Hua Tian seeks to make a claim pursuant to the Family Law Act.
Paragraph 6A of the order of the Chief Justice provides as follows:
“Hua Tian must not remove from Australia or in any way dispose of, deal with or diminish the proceeds to be payable to the defendant and referred to in the terms of the Chief’s Settlement dated 15 August 2012 between Hua Tian and Minh Wang in the County Court proceedings bearing court number CL-11-03523 out of the jurisdiction of the court.”
The background to that paragraph of the order is somewhat detailed, but can shortly be summarised. In November 2007, Zhao and the defendant incorporated a company, “WM & TH Pty Ltd” (“WMTH”) to act as the family trustee of the WM & TH Family Trust, which was established for the benefit of their respective families. Zhao’s wife, Minh Wang, and the defendant’s wife, Hua Tian, were appointed as co-directors and equal shareholders of WMTH. That company purchased a warehouse in Strzelecki Avenue, West Sunshine (“the factory”). Zhao and the defendant agreed that they should each contribute equally to the purchase of the factory.
In October 2009, it was agreed that Minh Wang would sell her share in WMTH to Hua Tian, for the sum of $135,000. After some delay, that amount was paid to Minh Wang. Accordingly, in June 2011, Minh Wang resigned as a director of WMTH, and transferred her shares in that company to Hua Tian. I interpolate that, although Hua Tian claims that she funded the payment which was made to Minh Wang, that proposition is put in contest by the affidavit of Zhao.
In any event, in February 2011, the factory was sold. The proceeds of the sale of the factory, amounting to $298,000, were paid into the bank account with the Commonwealth Bank. In July 2011, Hua Tian commenced proceedings against Minh Wang and WMTH for failing to pay the proceeds of the sale of the property to her. On 15 August 2012, those proceedings were resolved. Handwritten terms of settlement were entered into between the parties, signed by Hua Tian, the defendant, Minh Wang, and Zhao. Clause 1(a) of the terms provided for the payment, from the Commonwealth Bank account, to Minh Wang, of the sum of $32,500. Clause 1(b) of the terms of the settlement provided for the transfer of the balance of the Commonwealth Bank account into a Westpac Banking Corporation account in the name of the defendant.
The present application was commenced by summons on 21 August 2012.
Mr Tan, who appeared both for the defendant and Hua Tian, submitted that, in those circumstances, paragraph 6A of the order of the Chief Justice should not be extended. He submitted that at the time of the sale, the factory was, in effect, wholly owned by Hua Tian. There is no evidence that the funds, alleged to have been misappropriated by the defendant from the plaintiff, were used for the purchase of the factory. Thus, he submitted that the freezing order should not be extended to cover the amount which is to be transferred from the account of the Commonwealth Bank to the account of the defendant.
In response, Mr Kirby, who appeared on behalf of the plaintiff, advanced two propositions. First, he submitted that, by its express terms, the terms of settlement in the County Court proceedings provided for the money in the Commonwealth Bank account to be transferred to the defendant, not to Hua Tian. Thus, he submitted that, in that way, the money constituted an asset of the defendant, which should be covered by the freezing order. Secondly, he submitted that there is evidence that the defendant and Hua Tian are organising their affairs to enable Hua Tian to be used as a conduit, to protect the defendant’s funds from the reach of any award of damages made in favour of the plaintiff in the present case.
In particular, Mr. Kirby pointed to the fact that, in the County Court proceedings, Hua Tian did not discover any bank statements demonstrating that she had made any contribution to the purchase of the factory. Further, in her affidavit, Hua Tian has exhibited a divorce order made by a Registrar of the Family Court, dated 6 September 2011, dissolving the marriage with the defendant. Yet, notwithstanding that order, Hua Tian entered into the terms of settlement of the County Court, directing payment of the proceeds of the Commonwealth Bank account to a bank account of her former husband.
Mr Tan submitted to me that Hua Tian did not understand the terms of settlement when she signed them. However, clause 5 of the terms contained an acknowledgment by each of the parties that the terms had been explained to them in Mandarin, which was understood by all of them. I also note that Hua Tian’s affidavit in this proceeding was not interpreted. I infer, therefore, that she had a sufficient grasp of the English language to be able to understand the terms of settlement.
In addition, Mr. Kirby noted that, according to an affidavit of Zhao sworn 6 September, in June 2012, he met the defendant and Hua Tian, and he was told by them that they still lived in the address in Guang Zhao. In her affidavit, Hua Tian states that her current address is 53 Willys Avenue, Keilor Downs. However, it transpires that is the address of a business known as “Willys Convenience Store”. On 6 September, an employee of the plaintiff’s solicitors attended at that store. There, she was told that Hua Tian is the sister of the previous owner of Willys Convenience Store, and that Hua Tian had returned to China many years ago.
The matters relied on by Mr Kirby persuade me that paragraph 6A of the freezing order of the Chief Justice should be extended. First, the terms of settlement of the County Court proceedings expressly provide for the proceeds of the Commonwealth Bank account (less $32,500 payable to Minh Wang) be transferred to the account of the defendant. The terms of settlement were signed by both Hua Tian and the defendant. On the face of those terms, the funds, if transferred to the defendant, will belong to the defendant. In any event, they will be in the control of the defendant, who currently resides in China.
Secondly, and allied to that, the matters relied upon by Mr Kirby indicate that the defendant and Hua Tian may not be entirely at arm’s length, notwithstanding that the Family Court has made an order dissolving their marriage. It is, of course, premature for me to express any concluded view on the matter. However, the materials put before me, and which I have summarised in outlining in Mr Kirby’s submissions, persuade me that there is a reasonable basis upon which I should infer, for the present purposes, that the defendant may be using Hua Tian as a conduit in order to endeavour to shelter his assets from the reach of any award of damages, which may be made, in favour of the plaintiff.
I emphasise that that conclusion is based on the materials which are before me at this preliminary stage. Nevertheless, the state of the evidence at this stage is such as to persuade me that there is a realistic possibility, if not a probability, that the defendant is using his wife as a means of endeavouring to shelter his assets. In this respect, it is relevant to bear in mind the observations, contained in the authorities, that the Court should be mindful that a debtor, or a potential judgment debtor, may resort to a number of different schemes in order to divest himself of assets before judgment.[2]
[2]Jackson v Stirling Industries Ltd (1987) 162 CLR 612, 621 (Brennan J); Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, 402.
The other aspect of the application made on behalf of Hua Tian relates to paragraph 6 of the orders of the Chief Justice, which prohibits the defendant from removing from Australia, or in any way disposing of, dealing with or diminishing the value of, any of his assets in Australia up to an unencumbered value of $5.6 million. In his affidavit sworn pursuant to the order of the Chief Justice, the defendant has disclosed that he is the registered proprietor of a property at 13 Woronora Way, Taylors Hill (“the Taylors Hill property”), and of Unit 302, 28 McDougall Drive, Footscray (“the Footscray property”). It was submitted on behalf of Hua Tian that the freezing order should not cover either of those properties.
In her affidavit, Ms Tian has exhibited minutes of a consent order in the Federal Magistrates’ Court dated 19 July 2011, signed by herself and the defendant. Those minutes recite that, by consent, it is ordered that the defendant shall transfer all his right, title and interest to the property at Taylors Hill to Hua Tian. Clause 2 of those consent orders provide: “Any other property both real and personal whatsoever and wheresoever situate in the name of the husband (the defendant) shall remain his without any right or claim from the respondent (Hua Tian)” except for the superannuation of the defendant, which was transferred to Hua Tian. Those minutes have not been lodged with the Family Court, and thus, no orders have been made to the effect contained in them. Hua Tian has sworn that she has now understood that under a property settlement of the Family Court proceedings, she would be entitled to a greater share of her husband’s assets, including a right to the Footscray property. Thus, it was submitted, on her behalf, that clause 6 by the orders of the Chief Justice should not be extended to cover the Taylors Hill and Footscray properties.
The short answer to the application made by Hua Tian is that, at this stage, the Taylors Hill property and the Footscray property are both owned by the defendant. Hua Tian does not have any legal or equitable interest in them. She has foreshadowed making a claim, in the Family Court proceedings, to an entitlement to part of those properties. However, in In the marriage of Prince,[3] the Full Court of the Family Court held that Family Court property orders should not be made until the liability of one of the parties to the marriage to a creditor is determined in proceedings in a State court. Thus, it is likely that if Hua Tian, at this stage, sought to claim an interest in the Taylors Hill and Footscray properties, the Family Court would defer determining that application until the contingent liability of the defendant and the plaintiff were determined in this Court.
[3](1984) 54 ALR 467.
Furthermore, for the reasons, which I have stated in determining that I should extend paragraph 6A of the orders of the Chief Justice, on the materials before me, there is an appropriate basis to infer that the defendant and Hua Tian may not be at arm’s length in dealing with the property of their marriage. That consideration reinforces the conclusion, which I have reached, that I should not exclude from the operation of the extended freezing order either the Taylors Hill property or the Footscray property.
I note that Hua Tian has also submitted that the proceeds of the defendant’s superannuation should be excluded from the operation of such an order. Mr Kirby accepted that he would not be able to resist such an application and, accordingly, I shall make an order directing that clause 6 of the freezing order should not preclude the transfer, by the defendant, to Hua Tian of his superannuation entitlements.
Finally, the defendant has sought a variation of paragraph 11(a) of the freezing order, to increase the amount available to him for his weekly spending from $600 per week to $1200 per week. In his affidavit, he has sworn that that increase is necessary to take into account his periodic mortgage repayments of $900 per week for the Taylors Hill and Footscray properties, and related expenses.
I am not satisfied, on the materials, that I should increase the amount available to the defendant for his living expenses. The defendant has not provided any information relating to his present income. As I have already noted, it would appear that he owns a property in China, which he has not disclosed in his affidavit of 30 August 2012. I therefore reject the application made on his behalf to vary paragraph 11(a) of the freezing order.
Conclusion
For the reasons which I have stated above, subject to the plaintiff providing to the Court the undertakings set out in Schedule A to the freezing order, I shall make an order extending the effect of the freezing orders, made by the Honourable Chief Justice on 22 August 2012, until the hearing and determination of the trial of this proceeding, or until further order. The order shall be expressed to exclude, from the operation of clause 6(a), the defendant’s superannuation entitlements.
Orders
Subject to hearing from counsel, I shall therefore make orders to the following effect:
Upon the plaintiff, by its counsel, giving to the Court the same undertakings which were given to the Honourable Chief Justice on 22 August 2012, the Court orders:
1. Subject to paragraph (2) hereof, the effect of paragraph 2 of the order of the Honourable Chief Justice made 22 August 2012 be further extended until the hearing and determination of the proceeding or until further order.
2. Paragraph 6(a) of the said order, as extended by this order, shall not preclude the transfer or payment to Hua Tian of the Defendant’s superannuation entitlements.
I shall hear counsel on the question of the costs of the application.
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