Lisson Nominees Pty Ltd Trading as BGC Builders Supplies as trustee for the PBS Unit Trust v Conview Victoria Pty Ltd - [2021] WASC 263

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   LISSON NOMINEES PTY LTD TRADING AS BGC BUILDERS SUPPLIES AS TRUSTEE FOR THE PBS UNIT TRUST -v- CONVIEW VICTORIA PTY LTD [2021] WASC 263
CORAM:   TOTTLE J
HEARD:   22 JULY 2021
DELIVERED          :   22 JULY 2021
PUBLISHED           :   2 AUGUST 2021
FILE NO/S:   CIV 1698 of 2021
BETWEEN:   LISSON NOMINEES PTY LTD TRADING AS BGC BUILDERS SUPPLIES AS TRUSTEE FOR THE PBS UNIT TRUST
First Plaintiff

BGC (AUSTRALIA) PTY LTD
Second Plaintiff

AND

CONVIEW VICTORIA PTY LTD
First Defendant

SHARON JING CHEN
Second Defendant

JIE LU
Third Defendant

ANGELA LIXIA HUANG
Fourth Defendant

Catchwords:

Practice and procedure - Freezing orders - Whether danger that judgment will be unsatisfied because of dissipation of assets - Where prima facie evidence of dishonesty on behalf defendants - Freezing order made

Legislation:

Rules of the Supreme Court 1971 (WA), O 52A

Result:

Freezing order made

Category: B

Representation:

Counsel:

First Plaintiff	:	M G Lundberg & A Rompotis
Second Plaintiff	:	M G Lundberg & A Rompotis
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	No appearance
Fourth Defendant	:	No appearance

Solicitors:

First Plaintiff	:	Jones Day
Second Plaintiff	:	Jones Day
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	No appearance
Fourth Defendant	:	No appearance

Case(s) referred to in decision(s):

Duro Felguera Australia Pty Ltd v Trans Global Projects Pty Ltd (in Liquidation) [2018] WASCA 174

TOTTLE J:

(This judgment was delivered extemporaneously on 22 July 2021 and has been edited from the transcript.)

Introduction

The plaintiffs seek freezing orders and ancillary relief pursuant to O 52A of the Rules of the Supreme Court, read in conjunction with the inherent jurisdiction of this court. The application is brought before the court as a matter of urgency by way of a writ of summons filed 21 July 2021, and an ex parte chamber summons filed 22 July 2021. The plaintiffs have filed a memorandum addressing the requirements of O 59 r 9 and explaining, in effect, why there has been no conferral with the defendants in relation to this application.
The urgent circumstance in which the application is brought is that it has come to the attention of the management of the plaintiffs that a property owned or registered in the name of the second defendant in Victoria, has been recently sold at auction. The plaintiffs contend that this has taken place in circumstances in which the defendants have been on notice of the plaintiffs' claims and have been requested to refrain from dissipating their assets (though I add that the defendants have said that they are under no obligation to exercise any restraint, in relation to the way in which they deal with their assets).

The application

The present application is an application restraining the defendants from disposing of any of their assets up to a value of $2 million. To express that in a slightly different way, if the defendants have assets of over $2 million, under the orders sought by the plaintiffs, they may be disposed of, provided that the defendants retain $2 million in assets.
The other aspect of the freezing order that is notable is that the plaintiffs seek orders in terms (not unusual in the context of these applications) that the defendants identify the nature and extent of their assets, by way of the provision of affidavits.
The draft freezing orders propose that there be carve outs from the restraints imposed, of up to $500 per week, in respect of ordinary living expenses and up to $25,000 in respect of reasonable legal expenses.
The application is supported by an affidavit sworn by Mr Brian Michael Adams on 21 July 2021. Mr Adams is the executive general manager of BGC Building Products Group. Mr Adams is also the group's chief information officer and chief personnel officer. The second plaintiff, is the ultimate holding company for the group. The plaintiff also relies upon affidavits sworn by Mr Pierce Tate McMahon, on 21 and 22 July 2021, a solicitor representing the plaintiffs.

Background

The following account of the factual background substantially reproduces the summary provided in the plaintiff's outline of submissions.
In about May 2020, Mr Adams became aware of information which indicated that there had been a series of dealings between certain personnel within the BGC builders supplies division, and external suppliers to the division.
Mr Adams caused an investigation to be undertaken into those matters, which involved the engagement of forensic accountants and lawyers. The personnel whose activity was being investigated were the then general manager of the division (General Manager), and the fourth defendant, Ms Huang, a senior accountant within the division.
The external suppliers were Conview Victoria Pty Ltd, the first defendant, and Hong Kong Weiching International Co Ltd. Conview Victoria is based in the state of Victoria, and Hong Kong Weiching International Co Ltd is based in China. The director and company secretary of the first defendant is Ms Sharon Jing Chen, and she is the second defendant in these proceedings. Ms Chen and her spouse, Mr Jie Lu, who is the third defendant in the proceedings, are shareholders of the first defendant.
Ms Chen is the sole director of Hong Kong Weiching International Co Ltd and together with Mr Lu, appears to own that company.
The investigation undertaken by the plaintiffs is said to have disclosed:
(1)that over the course of some years, Hong Kong Weiching International Co and the first defendant, Conview Victoria, had entered into contracts with the first plaintiff to supply steel products to the BGC group. Those contracts involved the payment of millions of dollars by the first plaintiff to the first defendant.
(2)money had been transferred by Ms Chen to Ms Huang's bank accounts, for the benefit of both Ms Huang and the General Manager. Gifts had been made to both Ms Huang and the General Manager, including gifts and payment of business class upgrades for flights. The full extent of those payments and gifts was not initially apparent. But as further investigations were undertaken, it became that the payments and gifts were considerable.
(3)The third matter is that Ms Chen and Ms Huang were involved in other companies and interests, outside of BGC. Including a company now de-registered, known as Conview Group Pty Ltd. The General Manager's wife was involved together with Ms Chen, in a further company currently in the process of de-registration.
In addition, it became apparent that Ms Huang had entered into a loan arrangement with Ms Chen, by which approximately $250,000 was loaned to Ms Chen by Ms Huang.
As a result of those investigations, the second plaintiff took steps to summarily terminate the employment of both the General Manager and Ms Huang. On 8 September 2020, the General Manager's wife, gave notice to BGC that she voluntarily resigned from her position with the business.
In early October 2020, the plaintiffs' solicitors issued demand letters to each of the defendants. The first plaintiff took steps to terminate the contracts on foot with the first defendant, and demanded the return of moneys which had been paid to the first defendant for steel products which had not yet been supplied. The first defendant, informed the first plaintiff that it considered that the first plaintiff had repudiated the contracts, and that it would withhold the moneys paid to it, which amounted to $528,697.
In November 2020, a deed of settlement was executed by the plaintiffs with the General Manager and his wife. The settlement involved the General Manager giving a statutory declaration as to the matters, the subject of the investigation, in which he described the following.
(1)That he had received payments and gifts from Ms Chen, during the course of his employment with BGC, totalling over $214,000. Some were direct payments, and others had been passed through Ms Huang.
(2)In return for those payments and gifts, the General Manager authorised BGC to enter into contracts with companies associated with Ms Chen, including the first defendant.
(3)The General Manager did not disclose those matters to BGC.
(4)Companies were set up to assist Ms Chen to obtain permanent residency in Australia.

Disposition

It is unnecessary for present purposes to set out the provisions of O 52A of the Rules of the Supreme Court. Both those provisions and the guiding principles are referred to and summarised in the Court of Appeal's decision in Duro Felguera Australia Pty Ltd v Trans Global Projects Pty Ltd (in Liquidation).[1] I adopt what was said by the Court of Appeal about the principles concerning the availability of relief under O 52A.
[1] Duro Felguera Australia Pty Ltd v Trans Global Projects Pty Ltd (in Liquidation) [2018] WASCA 174.
On the basis of the factual summary which I have just provided, I am satisfied that at an interlocutory level, on the materials contained in the affidavits to which I have referred, the plaintiffs have established a good arguable case in respect of the causes of action that are alleged against those defendants.
Those causes of action against the defendants the subject fo the proposed freezing orders are summarised at par 17 of the plaintiffs' outline of submissions as follows:
(a)breach of the various sales contracts, for which the plaintiffs seek damages including for the retention by the First Defendant of a deposit paid by the first defendant prior to termination of the supply contracts;
(b)knowing assistance in breaches of fiduciary duty by the General Manager and Ms Huang, for which the plaintiffs seek an account and compensation; and
(c)inducing the General Manager and Ms Huang to breach their employment contracts, for which the plaintiffs seek an award of damages, aggravated damages and exemplary damages
The second matter which I have to address is what are the considerations that may be referred to by the compendious phrase 'the risk of dissipation'.
In the Duro Felguera case the Court of Appeal restated the well known principle that the risk or danger must be real or substantial, as opposed to a remote speculative or theoretical possibility. The court emphasised that there was little utility in attempting a more precise quantification of the degree of danger or risk which will justify the grant of a freezing order.
The test must be applied in a variety of circumstances and, ultimately, it is a question for evaluation by the issuing court as to whether the degree of danger or risk is sufficient to justify an order in the terms in which the court is asked to make. In making that evaluative assessment, the court will bear in mind that a freezing order is a drastic remedy, which imposes a severe restriction on a respondent's right to deal with its assets.
The evidence relied upon by the plaintiffs to establish a risk of dissipation may be summarised as follows:
(1)The sale of the property in Victoria. The evidence establishes that that property was listed for sale in about May 2021 and subsequently sold at auction on 27 June 2021. The publicly available information indicates that the price at which the property was sold was $1,317,000. The plaintiffs point to a number of circumstances surrounding that sale as supporting the existence of a risk of dissipation. They point to the fact that the property was put on the market not long after there were exchanges between the plaintiffs' solicitors and the defendant's solicitors of a without prejudice nature. The content of those without prejudice communications have not been disclosed to the court.
(2)The plaintiffs also point to the fact that a mortgage which was registered against the property in favour of the ANZ Bank was discharged on 1 June 2021, which the plaintiffs say is a curious and arguably suspicious development, given that mortgages are usually discharged on the sale or settlement of properties and the plaintiffs say that the discharge of that mortgage in and of itself points to a dissipation of the defendant's assets.
(3)Steps taken by the second defendant to apply for the voluntary deregistration of certain companies. In each case the process of voluntary deregistration was commenced on 16 July 2021. The plaintiffs say that those are steps which are consistent with a realisation of the assets of the defendants in the jurisdiction and a precursor to those assets being dissipated in a way that may frustrate any judgment obtained by the plaintiffs. In that respect, the plaintiffs also point to what they describe as a strong connection between the defendants and the Chinese company, Hong Kong Weiching International Co Ltd, and the business which manufactured and supplied the steel products which were ultimately sold to the plaintiffs, that latter business being based in mainland China. The plaintiffs reinforce all of those submissions by drawing attention to the fact that what might be described as the infrastructure or asset base of the first defendant in respect of its business within Australia comprised no more than the residential property in Victoria which is the subject of the sale.
(4)The next matter and in some respects the most powerful matter on which the plaintiffs rely is what they allege is the dishonest conduct on the part of the defendants in their dealings with the plaintiffs' personnel, that is, in their dealings with the General Manager and his wife, and with Ms Huang. On the face of the material put before the court, those dealings, as described in the affidavit material, on a prima facie basis appear to involve dishonesty on the part of the defendants. The plaintiffs say that when the sale of the property is viewed in the context of that history of dishonesty, the court will readily draw an inference that there is a risk of dissipation.
The plaintiffs' submissions conclude on the basis that if there is a risk of dissipation, then the balance of convenience favours the grant of the interlocutory relief sought by them.
At the commencement of this hearing, I expressed my concern that the evidence adduced by the plaintiffs and the matters relied upon them as giving rise to the risk of dissipation were not of sufficient force to justify the relief that is sought in the minute of orders sought by the plaintiffs. Having had the benefit of the submissions of counsel for the plaintiffs, I am persuaded that there is a risk of dissipation and that that arises because of the matters that I have most recently referred to in these reasons, namely, the combination of the sale of the property coupled with the evidence that points to the defendants having engaged in dishonest conduct.
I am mindful, however, that there may be many reasons why the second defendant has decided to sell the property and that caution should be exercised in drawing adverse inferences. It may be, for example, that the second defendant is selling the property to realise cash with which to pay her solicitors in order to be able to defend the proceedings that were, in May of this year, threatened, but which have now been commenced.
The need for caution leads me to the conclusion that this court should not exercise its discretion to grant all of the relief sought by the plaintiffs in their proposed orders, but that the relief that should be granted should be tailored to meet the risk of dissipation which is presented most directly by the evidence that has been put before the court, by which I mean that the relief should address the disposal of the net proceeds of sale of the Victorian property.
I will hear counsel on the terms of the order that should be made.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AS
Associate to the Honourable Justice Tottle
2 AUGUST 2021