Li v Zheng
[2022] VSC 520
•5 September 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PERSONAL INJURIES LIST
S ECI 2022 03222
| RUNYANG LI | Plaintiff |
| v | |
| HANLING ZHENG | Defendant |
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JUDGE: | KEOGH J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 September 2022 |
DATE OF RULING: | 5 September 2022 |
CASE MAY BE CITED AS: | Li v Zheng |
MEDIUM NEUTRAL CITATION: | [2022] VSC 520 |
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PRACTICE AND PROCEDURE — Application for freezing order — Good arguable case — Risk of dissipation — Risk speculative — Whether defendant’s alleged offences support freezing order being made — Balance of convenience — Zhen v Mo & Ors [2008] VSC 300 — Supreme Court (General Civil Procedure) Rules 2015 (Vic) ord 37A.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | H McAvaney | Naomi Liu Legal |
| For the Defendant | A Naidu, solicitor | Logans Barristers & Solicitors |
HIS HONOUR:
The plaintiff, Runyang Li, alleges that in October 2020 the defendant, Hanling Zheng, wrongfully attacked him with a knife and stabbed him to the back, hand and chest. Li commenced this proceeding against Zheng by filing a generally endorsed writ claiming damages for injuries and loss sustained as a result of the alleged assault.
Zheng is the sole registered proprietor of the property at Unit 2, 7 Nestor Grove, Blackburn North (‘property’). Zheng entered a contract to sell the property in August this year. Settlement of the sale is to take place on 27 October 2022.
Li has applied for a freezing order over the net proceeds of the sale of the property. The application is opposed by Zheng.
The following affidavit evidence was filed on the application:
(a) Xufeng Liu, Li’s lawyer, affirmed 17 August 2022;
(b) Zheng, affirmed 30 August 2022;
(c) Ashwin Sivarajah, Zheng’s lawyer, sworn 30 August 2022.
Criminal charges
Zheng has been indicted in this Court on charges that on or around 23 October 2020 he attempted to murder, intentionally caused serious injury and recklessly caused serious injury to Li. The charges arise from an incident in which it is alleged Zheng stabbed Li in the back, hands and chest.
Evidence
Zheng
Zheng states he migrated to Australia in 2008 at the age of 14. He has since lived in Melbourne and is an Australian citizen.
Zheng married Chang Lu in Hebei in the People’s Republic of China in February 2019. He and Lu separated in late-2019. They have a three year old daughter.
Zheng said that in June 2019 he approached his father to assist with a deposit to buy a home. Zheng said: ‘My father agreed to loan us the sum of $500,000 to enable us to purchase our home on the condition that we repay him the loaned amount plus $100,000 in interest’.
In April 2019 Zheng purchased the property for $960,000. The purchase was in part funded by a RAMS home loan for $560,000 secured by first mortgage. Zheng said the balance of the purchase price was provided by his father via a cheque in the sum of $450,000 paid towards the deposit, and a second cheque for a further $50,000 paid into his account.
Zheng exhibited to his affidavit a seven-line document in Chinese text which he said was the loan agreement with his father dated 19 April 2019, a photograph of the first cheque, and a deposit receipt for the second cheque. There is no translation of the loan agreement.
Zheng exhibited to his affidavit the RAMS home loan agreement that records monthly repayments of $2,542 for the first 24 months, then increasing to $2,840. A current printout shows a loan balance of $550,000.
In October 2019 Zheng purchased a Mercedes-Benz motor vehicle for $154,400. Zheng paid a deposit of $4,400 and funded the balance of the purchase by a bank loan. The loan documents records monthly repayments of $2,220. An asset and liability declaration completed by Zheng records the property as his only major asset, and the RAMS home loan as his only major debt. In the document Zheng declared net assets of $685,000. Zheng did not disclose the loan from his father in the declaration.
In January 2021, Zheng sold the Mercedes-Benz motor vehicle at a loss for $122,000.
After the incident that resulted in the charges, Zheng was remanded in custody. He was granted bail in August 2021 on a surety of $550,000 provided by a person by the name of Mei Lin. The amount of the surety was reduced to $450,000 in July this year.
Zheng said that between June 2018 and March 2020 he worked in a commission-only role as a real estate agent and earned a total of about $10,000. He said that he is currently working full-time as a restaurant manager earning about $570 net per week.
Zheng said he and Lu have engaged lawyers and are in the process of negotiating a property distribution. He said Lu pushed for sale of the property, and he agreed.
On or about 17 August 2022 Zheng executed a contract to sell the property, with settlement to take place on 27 October. The sale price is $1,102,000.00. The deposit of $110,200.00 was payable by 23 August 2022.
Zheng said: ‘It has been agreed between the lawyers in the Family Law negotiations that the balance of the proceeds of the sale of the property will be held by my lawyers pending an agreed outcome or orders made by the Family Court’.
Zheng said his current bank balance is less than $2,000, and that he has no assets in Australia or overseas other than the property. He said: ‘Any asset I have accumulated in Australia was a direct result of assistance provided to me by my father’.
Caveat
In November 2020 Li lodged a caveat on the property. Within a week Li withdrew the caveat in response to a demand by Zheng’s lawyers.
Damages
Liu said Li did not intend to advance this proceeding until completion of the criminal proceeding. Liu said it was difficult to estimate the likely maximum quantum of Li’s claim, but that damages would likely be sought to compensate Li for pain and suffering, medical expenses, loss of earning capacity, as well as aggravated or exemplary damages reflecting the nature of the alleged assault.
There was no other evidence on this application about the seriousness of Li’s injuries or the loss and damage suffered as a consequence.
Principles and authorities
The Court may make a freezing order to meet a danger that a prospective judgment of the Court will be wholly or partially unsatisfied.[1]
[1]Supreme Court (General Civil Procedure) Rules (Vic) r 37A.02(1).
The relevant principles to determining an application for a freezing order were conveniently summarised by J Forrest J in Zhen v Mo & Ors:[2]
[2][2008] VSC 300 (citations omitted).
22.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.
23.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.
24.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.
25.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.
26.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.
27.Sixth, the balance of convenience must favour the granting of the freezing order.
28.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.
29.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.
30.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.
In Deputy Commissioner of Taxation v Gashi, Bell J considered the degree of risk of dissipation which must be shown:
I take “might” in Rule 37A.05(4) to mean a reasonable possibility, not fanciful or unreal, but not necessarily more than 50 per cent. The order makes clear that, when determining that matter, “all the circumstances” must be taken into account. This would include the likely amount of the judgment, the circumstances in which the cause of action arose, the conduct of the defendants and their capacity to take the avoidance action which gives rise to the danger.[3]
[3](2010) 27 VR 127, 131 [14].
Good arguable case
While Zheng indicated he would defend the criminal charges and this common law proceeding, it was not in issue that Li has a good arguable case in the claim for damages against him.
Risk of dissipation
The evidence discloses Zheng’s only asset of substance is his equity in the property.
The balance of the proceeds of sale after discharge of the RAMS mortgage will be about $550,000.
Zheng’s evidence establishes two ways in which his interest in the net sale proceeds may be further reduced. First is the family law claim by Lu for property division about which there is currently little evidence. Li accepted Lu may have a genuine claim to a share in the property equity by reason of her marriage to Zheng. However Li submitted that Zheng might, as a consequence of the circumstances he faces, be overly generous to Lu in the property settlement negotiations and division of the net proceeds of sale.
Second is the issue of repayment of the alleged loan from Zheng’s father. Li submitted he, and the Court, were entitled to be sceptical about the purported loan agreement with Zheng’s father, particularly where repayment would result in the net proceeds of sale of the property being reduced so substantially.
Li argued that the evidence suggests Zheng has been able to finance himself by obtaining financial support from others. Li pointed to the loan of financial assistance Zheng obtained from his father, and the bail surety. Li submitted there was an inference available that because Zheng had ready access to financial support he would suffer no real prejudice by a division of matrimonial assets that was overly generous to Lu, and by payment to his father pursuant to the alleged loan agreement.
Zheng submitted it was nothing more than speculation to suggest he would be overly generous in property division negotiations with Lu.
Zheng submitted there was no basis to challenge the authenticity of the loan from his father. In submissions, Zheng confirmed his intention that the loan be discharged by payment of $500,000 to his father from the proceeds of sale of the property.
Li relied on the nature of the allegations that form the basis of his cause of action against Zheng. Li submitted the circumstances were attended by animosity, and support an inference that Zheng is the sort of person who might dissipate assets in order to avoid paying a judgment debt in the proceeding.
Zheng submitted the alleged risk of dissipation did not rise above speculation. He submitted the caveat Li registered on the property in 2020 indicated that his real purpose in applying for the freezing order was to obtain security for his claim.
The common law proceeding by Li against Zheng is in its infancy. For good reason it cannot progress further until the criminal proceeding has completed. While I accept that precision about the value of Li’s prospective judgment against Zheng is not possible at this stage, there was almost no evidence provided to assist in assessing the scope of Li’s damages claim. There is evidence that Li suffered stab wounds, but nothing to indicate the seriousness of those wounds. While Li’s lawyer has said she anticipates that damages will include a claim for medical expenses and loss of earning capacity, no evidence was provided about facts that might underpin those heads of damage. There is simply no basis for assessing whether Li’s damages, if he succeeds with his claim against Zheng, might be assessed at $100,000 or $500,000, or a figure outside that range. On that basis alone a freezing order over the entire proceeds of sale of the property after repayment of the mortgage debt cannot be justified.[4]
[4]Cardile v Led Builders Pty Ltd (1999) 198 CLR 380, 428 [124].
Zheng’s position is that his only available asset to satisfy a judgment debt to Li is the net proceeds of the sale of the property, after repayment of the loan to his father and property settlement with Lu.
The evidence suggests the need to sell the property has followed naturally from the breakdown of the marriage between Zheng and Lu, and Lu’s claim for division of matrimonial assets. Zheng’s conduct in selling the property does not support an inference that he has or will dissipate assets in order to frustrate enforcement of a judgment in Li’s favour.
Zheng and Lu were married for a very short time. On his evidence Lu made no significant capital contribution to the purchase of the property. The evidence does not suggest that a transfer of part of the net proceeds of sale of the property to Lu by way of property settlement would risk the prospective judgment to Li being wholly or partly unsatisfied.
Li does not question the genuineness of Lu’s claim for a division of the matrimonial assets. There is no evidence to suggest Zheng’s response to that claim is not genuine.
Zheng’s evidence supports a conclusion that his father did contribute $500,000 towards the purchase of the property. Zheng was only 24 years old when the property was purchased. There is no evidence he had accumulated substantial assets by that age. Payment of $500,000 by Zheng’s father is supported by the cheque and bank deposit.
Although the brief document in Chinese text has not been translated, Li did not doubt that it was expressed as documenting a loan to Zheng by his father. The only evidence that calls into question whether the payments to Zheng by his father were a loan is the asset and liability declaration completed by Zheng in his application for a car loan, which does not make any reference to this agreement. Although the declaration has not been explained it is not by itself sufficient to seriously call into question that the $500,000 contributed to the purchase price of the property was paid by Zheng’s father as a loan to him.
There are cases where evidence relevant to the plaintiff’s cause of action against the defendant supports an inference that there is a risk of dissipation of assets.[5] Zheng has not been charged with dishonesty offences. There is no other evidence indicating Zheng has a propensity to dishonest behaviour. Even accepting Li’s submission that some degree of animosity can be inferred from the circumstances giving rise to the criminal charges that provides little if any support for the alleged risk of dissipation of assets. There is no evidence about the circumstances of the alleged offences that supports a motivation or preparedness by Zheng to shift, dispose of, deal with or otherwise diminish his assets so as to frustrate the Court’s process in relation to the claim for damages by Li.[6]
[5]Mort v Woolf [2002] VSC 503; Victoria University of Technology v Wilson [2003] VSC 299, [33]; Fernandez v Cohrs [2019] VSC 727 (‘Fernandez’).
[6]Fernandez (n 5) [59].
I do not accept there is significant support for an inference that Zheng is motivated to dissipate assets by reason of his past access to financial assistance from his father and the provision of bail security by another person. Zheng’s financial circumstances are modest. Dissipation of his assets is inconsistent with his current and likely future financial needs.
Taking all the above matters into account, I conclude Li has not discharged the onus of establishing a solid evidentiary basis for a freezing order.
Balance of convenience
The freezing order Li applied for would leave Zheng would almost no assets. Given the criminal proceeding has not yet been heard, that freezing order would be in place for an indefinite period, almost certainly exceeding 12 months. Had I found for Li on the other elements of the test, I would have concluded that the balance of convenience did not support an order freezing the entire net proceeds of sale of the property.
Conclusion
The application for the freezing order will be dismissed. I will hear from the parties as to any consequential orders.
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