Rail Plus Pty Ltd v Hee-Meng Ng
[2013] VSC 429
•22 August 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2013 00548
| RAIL PLUS AUSTRALASIA PTY LTD (ACN 081 473 172) | Applicant (Plaintiff) |
| v | |
| HEE-MENG NG | First Respondent (Defendant) |
| and | |
| MAI MOY NG | Second Respondent (Defendant) |
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JUDGE: | GINNANE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 June, 11 July, 2 August 2013 | |
DATE OF JUDGMENT: | 22 August 2013 | |
CASE MAY BE CITED AS: | Rail Plus Pty Ltd v Hee-Meng Ng and Another | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 429 | |
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INJUNCTIONS — Freezing orders against third party’s property — First respondent admitted debt — Likely bankruptcy of first respondent — Possible equitable interest of first respondent in property of third party — Possible action by trustee in bankruptcy against third party to recover first respondent’s property — Supreme Court (General Civil Procedure) Rules2005 r 37A.05.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant (Plaintiff) | Mr A Tragardh | Millens Pty Ltd |
| No appearance for the First Respondent (First Defendant) | ||
| For the Second Respondent (Second Defendant) | Mr T D Best | SDR Law |
HIS HONOUR:
The second respondent (second defendant), Ms Mai Ng, applies to discharge assets held in her name from a freezing order made by the Court on 5 February 2013 and as subsequently varied.
The freezing order was made against Ms Mai Ng as a third party (or non-party) as she was not then a party to the proceeding. She has made previous unsuccessful applications to discharge the freezing order, but the applicant (plaintiff) did not suggest that this prevented this application being made.
The freezing order also bound and continues to bind the first respondent (first defendant) (Mr Meng Ng). He was not represented at the hearing and no application was made to vary the freezing order made against him.
Ms Mai Ng seeks to discharge all her assets that are covered by the freezing order. Those assets include a property at Glen Iris in which she lives, bank accounts, shares, investment accounts and superannuation benefits. The Glen Iris property is valued at approximately $900,000 at least, shares are valued at about $355,000, there is $59,000 cash in bank accounts, there are superannuation entitlements of $337,000 and there is a credit balance in an AMP investment plan of $31,000. There is a mortgage securing a sum of about $50,000 over the property.
Rail Plus did not seek to justify the continuance of a freezing order that applied to all Ms Mai Ng’s assets, but only to those parts of the assets in which it contends that Mr Meng Ng has an interest. The parties made submissions on the basis that Ms Mai Ng should still be regarded as a third party, presumably because she had that status when the order of 5 February 2013 was made.
Mr Meng Ng was employed by the applicant (Rail Plus) as an accountant and then as a director and secretary. He was dismissed for dishonesty in December 2012.
Rail Plus commenced this proceeding seeking the sum of $2,059,093.70 from Mr Meng Ng and alleging that he had converted it. On 11 July 2013, when the matter was mentioned, I gave judgment by consent against Mr Meng Ng for that sum plus interest and costs. There is evidence that he used part of the money for gambling.
Ms Mai Ng was joined as a defendant to the proceeding in June 2013, when an amendment was made to the statement of claim alleging that she had obtained funds totalling $123,422.21 from Rail Plus by reason of Mr Meng Ng’s breach of statutory and fiduciary duties owed to Rail Plus. Rail Plus alleged that Ms Mai Ng received the money with the knowledge that Mr Meng Ng had obtained it by breach of those duties.
Rail Plus proposes to seek a bankruptcy order against Mr Meng Ng’s estate in reliance on the judgment. It will then seek to have his Trustee in Bankruptcy commence proceedings against Ms Mai Ng to recover what it says was Mr Meng Ng’s share of the property that she holds.
Rail Plus has obtained confirmation from Mr H McKinnon of Bent & Cougle Accountants that if Mr Meng Ng is made bankrupt, a member of his firm will consent to act as Trustee in Bankruptcy for his bankrupt estate. Mr McKinnon stated in his letter:
We confirm that in the event of a bankruptcy of Hee-Meng Ng, Keith Sutherland of this firm consents to act as the Trustee in Bankruptcy for the bankrupt. Subject to being funded by creditors, Mr Sutherland would seek to realise all the divisible property of the bankrupt including making a claim against real property which we understand is in the name of Mai Moy Ng only but which was occupied by Hee-Meng Ng, based on, inter alia, the common law, the principles of constructive trust such as Baumgartner v Baumgartner, Moshinsky(sic) v Dodds and subsequent cases, notwithstanding that Mr Hee-Meng Ng may have purported to assert that he does not own assets.
On 23 July 2013, Mr Meng Ng’s solicitor informed Rail Plus’s solicitor that Mr Meng Ng would consent to entering into bankruptcy and would contact the trustee proposed by Rail Plus. He had not done so by the date of hearing of 2 August 2013.
Ms Mai Ng disputes that Mr Meng Ng had any interest in her assets. She says that she does not have any power of disposition over his assets and cannot be required to disgorge assets to satisfy the judgment against him.
The applicable rules
The rules relevant to this application are r 37A.05(4), (5) and (6) which state:
(4)The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because any of the following might occur _
(a)the judgment debtor, prospective judgment debtor or another person absconds; or
(b)the assets of the judgment debtor, prospective judgment debtor or another person are –
(i)removed from Australia or from a place inside or outside Australia;
(ii) disposed of, dealt with or diminished in value.
(5)The Court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a third party) if the Court is satisfied, having regard to all the circumstances, that–
(a)there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because–
(i)the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or
(ii)the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or
(b)a process in the court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment of the Court, under which process the third party may be obliged to disgorge assets or contribute towards satisfying the judgment or prospective judgment.
(6)Nothing in this Rule affects the power of the Court to make a freezing order or an ancillary order if the Court considers it is in the interests of justice to do so.
Can Rail Plus seek a freezing order?
Ms Mai Ng argued that Rail Plus had lacked standing to seek the freezing order, as no bankruptcy order had yet been made against Mr Meng Ng. Rail Plus did not have an equitable cause of action that might give rise to the imposition of a constructive trust over Ms Mai Ng’s property. Mr Meng Ng alone could apply for a freezing order against assets of Ms Mai Ng in which he claimed an interest.
I do not accept that submission. In Cardile v LED Builders Pty Ltd,[1] four Justices of the High Court stated:
What then is the principle to guide the courts in determining whether to grant Mareva relief in a case such as the present where the activities of third parties are the object sought to be restrained? In our opinion such an order may, and we emphasise the word ‘may’, be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which: (i) the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including ‘claims and expectancies’, of the judgment debtor or potential judgment debtor; or (ii) some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor.
[1](1999) 198 CLR 380 at 405–406, [57].
Rule 37A.05 empowers the Court to make freezing orders against third parties in the circumstances described in Cardile v LED Builders.[2] The principles discussed by the High Court in Cardile v LED Builders[3] have been applied in decisions of this Court: for instance, in Robmatjus Pty Ltd v Violet Home Loans Australia Pty Ltd[4] and Deputy Commissioner of Taxation v Gashi.[5]
[2]Ibid.
[3]Ibid.
[4][2007] VSC 165.
[5](2010) 27 VR 127.
The principles governing freezing orders
The principles for making or continuing a freezing order were discussed by J Forrest J in Zhen v Mo[6] in the following terms:
[6][2008] VSC 300, [21]–[30].
In determining this application I have applied the following principles.
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.
In Cardile v LED Builders,[7] the High Court emphasised that freezing orders made against a third (or non-party) are made with a focus on the administration of justice. A freezing order is a drastic remedy and the Court invited to make such an order should exercise a high degree of caution. The Court should grant the minimum relief necessary to do justice between the parties.
[7](1999) 198 CLR 380.
Rule 37A.02(1) states:
The Court may make an order (a freezing order), upon or without notice to the respondent, for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.
The Court’s Practice Note concerning freezing orders states:
5.The purpose of a freezing order is to prevent frustration or abuse of the process of the Court, not to provide security in respect of a judgment or order.
6.A freezing order should be viewed as an extraordinary interim remedy because it can restrict the right to deal with assets, even before judgment, and is commonly granted without notice.
Has Rail Plus established a good arguable case against Ms Mai Ng?
To obtain or continue a freezing order an applicant must establish a good arguable case.[8]
[8]See the authorities discussed in Deputy Commissioner of Taxation v Ekelmans [2013] VSC 346.
Rail Plus argues that Mr Meng Ng, or his Trustee in Bankruptcy, has or would have an equitable interest in at least some of the property held by Ms Mai Ng. The Trustee will be able to obtain an order that a constructive trust binds that property. Mr Meng Ng has nominal assets in his own name.
The claim of the existence of an equitable interest is not pleaded in the current version of the statement of claim, presumably because Rail Plus could not seek such relief.
Rail Plus’s submission concerning the existence of a constructive trust is based on the following statement by Deane J in Muschinski v Dodds:[9]
… the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do…
[9](1984) 160 CLR 583 at 620.
Rail Plus also relied on the following statement in the joint judgment of the High Court in Baumgartner v Baumgartner:[10]
The case is accordingly one in which the parties have pooled their earnings for the purposes of their joint relationship, one of the purposes of that relationship being to secure accommodation for themselves and their child. Their contributions, financial and otherwise, to the acquisition of the land, the building of the house, the purchase of furniture and the making of their home, were on the basis of, and for the purposes of, that joint relationship. In this situation the appellant's assertion, after the relationship had failed, that the Leumeah property, which was financed in part through the pooled funds, is his sole property, is his property beneficially to the exclusion of any interest at all on the part of the respondent, amounts to unconscionable conduct which attracts the intervention of equity and the imposition of a constructive trust at the suit of the respondent.
[10](1987) 164 CLR 137 at 149.
Ms Mai Ng argued that Rail Plus’s proposed cause of action would fail. Her case is that she owns no joint assets with Mr Meng Ng and that he has no interest in her assets. The majority of her assets were acquired after her separation from Mr Meng Ng and before he commenced employment with Rail Plus. There was no evidence that he contributed to her acquisition of the frozen assets. Ms Mai Ng was an innocent party and Mr Meng Ng had acted unconscionably towards her to her detriment.
Ms Mai Ng argued that bankruptcy proceedings are complex. Rail Plus’s ability to recover any property in which Mr Meng Ng had an interest would be subject to the interests of other creditors, particularly any secured creditors who were entitled to prove in the bankruptcy. It would also be subject to any orders that particular property was not divisible among creditors pursuant to s 116(2)(a) of the Bankruptcy Act1966. Rail Plus was seeking to obtain security for its claim and a freezing order could not be granted for that purpose.
Mr Meng Ng did not make an affidavit in the proceeding, but he did sign statements following interviews with Mr S Ringin, an investigator who was engaged by Rail Plus. Rail Plus relies on conclusions drawn by Mr Ringin from his investigation of the payments that Mr Meng Ng is said to have made for Ms Mai Ng’s benefit.
Rail Plus submitted that Mr Meng Ng’s statements to Mr Ringin indicate that he contributed to the purchase of the Glen Iris property. Mr Meng Ng and Ms Mai Ng pooled their income. He used his income to pay the mortgage and for improvements to the property. He enabled Ms Mai Ng to use her income to purchase shares.
Mr Meng Ng and Ms Mai Ng were married in 1973. They have two children. In 1985, Mr Meng Ng left the family home after theft allegations were made against him by a former employer, and he was prosecuted in respect of them. They divorced in 1989. In 1991, Mr Meng Ng returned to the family home at Glen Iris and lived there until early this year, when Ms Mai Ng asked him to leave when she learned of Rail Plus’s allegations against him.
Rail Plus sought to establish that there was a continuing de facto relationship between Mr Meng Ng and Ms Mai Ng after their divorce, during which her assets were acquired. Rail Plus argued that there was evidence that Ms Mai Ng and Mr Meng Ng were living in a de facto relationship and that therefore the principles described in Muschinski v Dodds[11] were engaged. It relies on the following matters. Mr Meng Ng’s referred to Ms Mai Ng as his wife or partner. Ms Mai Ng’s brother and sister-in-law, in their affidavits dealing with earlier business transactions, did not suggest that Ms Mai Ng and Mr Meng Ng did not live as husband and wife. They travelled together when Mr Meng Ng attended international meetings of Rail Plus. Rail Plus’s solicitor, who attended the Glen Iris home earlier this year, when a search order was being executed, formed the impression that only one bedroom in the house was being used.
[11](1984) 160 CLR 583.
However, Ms Mai Ng swore that she and Mr Meng Ng have lived separate lives since 1991, although they have kept up the appearances of being a couple for the sake of the family. She travelled overseas with Mr Meng Ng because she enjoyed travel and she was often accompanied by, or met, members of her own family.
Evidence of payments by Mr Meng Ng that may have benefited Ms Mai Ng
Mr Meng Ng had Rail Plus pay Ms Mai Ng from his salary the amount of $1,000 each fortnight, and after February 2012, $1,500 a fortnight.
Ms Mai Ng said these payments were maintenance and rent, but she did not include them in her tax returns. Alternatively, she argued that her relationship with Mr Meng Ng had not broken down without attributable blame so as to engage the principles discussed in Muschinski v Dodds, and that a constructive trust could not be imposed over her assets. The fortnightly payments made by Mr Meng Ng amounted to approximately $140,000 and if he had any beneficial interest in her assets, it could only be in proportion to the amount of those contributions. Her frozen assets were worth about $1.68 million, which was far in excess of any contributions that Mr Meng Ng had made to their acquisition.
Ms Mai Ng stated that Mr Meng Ng did not pay any part of the purchase price for the Glen Iris home. She purchased the property with loans from friends and a bank mortgage, which she later repaid using funds from a redundancy payment that she received. Mr Meng Ng used his equity in their previous family home at Camberwell to pay debts owed to his former employer arising from the events that led to his prosecution.
Ms Mai Ng stated that she mixed the maintenance paid to her by Mr Meng Ng with her other income and used to meet day-to-day expenses, including those connected with their children. On some occasions the maintenance payments may have been used to make up the monthly mortgage payments on the Glen Iris home.
Rail Plus’s case is that Mr Meng Ng made a number of payments for Ms Mai Ng’s benefit. They are detailed in Mr Ringin’s third affidavit and are the basis of Rail Plus’s knowing receipts claim against her. They total $123, 422.21.
The first category of payments were 73 payments totalling $39,516.66 made by Mr Meng Ng from Rail Plus’s funds to Ms Mai Ng’s credit cards.
The second category were payments from Mr Meng Ng’s Citibank account into Ms Mai Ng’s ANZ Visa account, her investment plan and her Super Fund account. Those payments total $21,235.75. Rail Plus contends that Mr Meng Ng’s Citibank account was the principal account in which he deposited the monies that he misappropriated from Rail Plus.
The third category were payments totalling $62,669.80, which were made to Ms Mai Ng’s benefit from Mr Meng Ng’s Citibank account and from the Rail Plus TCA account. This amount was made up of 217 payments, which were made to credit card providers, to pay utility bills and insurance bills.
Ms Mai Ng contended that she has repaid Mr Meng Ng in cash amounts that he paid towards her credit cards debt. She stated that Mr Meng Ng made 28 payments totalling $12,870.05 on her ANZ Visa card, and $4,095.21 on her Citibank Visa card.
Ms Mai Ng gave no details of when she reimbursed Mr Meng Ng in cash, or the source of the funds that she used to make the reimbursements.
Ms Mai Ng has a National Australia Bank account, into which her salary was paid between September 2008 and February 2010. As previously stated, Rail Plus paid part of Mr Meng Ng’s salary into that account. Ms Mai Ng also has a NAB term deposit account and two Bank West term deposits. One contains $15,000, which Mr Meng Ng left in cash at the Glen Iris house. Ms Mai Ng does not claim that sum. The second Bank West term deposit account has $7,000, which Ms Mai Ng says is the total of board paid by relatives who stayed with her.
Ms Mai Ng also has Commonwealth Bank (CBA) accounts. All her wages between 2003 and 2008 were deposited into the first CBA account. From 2009, this account was linked to Ms Mai Ng’s CommSec Share trading account and the amounts contained in it were used by her to purchase shares.
Ms Mai Ng has a second CBA account which consists of $6,000 which was transferred from the first CBA account and the amount of two tax refunds.
Ms Mai Ng owns shares in a number of companies including Rio Tinto. She gave Mr Meng Ng authority to carry out share trades on her behalf through the CommSec account. She would tell him the shares that she wanted to buy and he would purchase them for her.
Rail Plus argues that Mr Meng Ng paid many household expenses connected with the Glen Iris property, thereby enabling Ms Mai Ng to use her funds to purchase shares and increase her investments.
Ms Mai Ng has a superannuation account with Australian Super with a balance of $307,185.41. The account had a balance on 30 June 2005 of $195,227.66. Ms Mai Ng stated that the increase in the balance has been mainly the result of an increase in the value of the fund. However, Mr Meng Ng did pay five contributions into her account. Ms Mai Ng says that she reimbursed Mr Meng Ng for those payments, but she did not say when the reimbursements occurred, or their source.
Ms Mai Ng has a second superannuation account which holds the employer contributions made for her during her employment. They are the amount of $29,034.41
Ms Mai Ng also has an AMP investment link plan investment, which has a balance of $31,095.74. There is evidence that Mr Meng Ng made payments totalling $6,899.12 to that plan. Ms Mai Ng says that she repaid that amount to Mr Meng Ng in cash, but she did not provide details of when that occurred.
Mr Ringin states that he found no evidence of any source of funds that might support Ms Mai Ng’s assertion that she reimbursed Mr Meng Ng for the payments that he made to her credit card bills, rate bills and utility bills.
Consideration of the submissions
I consider that Rail Plus has established a good arguable case that Mr Meng Ng and Ms Mai Ng maintained a close relationship between 1991 and early this year. There is evidence of a continuing close relationship between Ms Mai Ng and Mr Meng Ng after their divorce. They lived in the same home while their children were reared. They travelled overseas together and apparently on occasion shared the same room.
The evidence does not establish that they were living in a de facto relationship. However, a constructive trust can be imposed over the property of a person who is in a close relationship with another, even though they are not in a de facto relationship, when they have pooled their resources to acquire property.[12]
[12]See eg Swettenham v Wild [2005] QCA 264 at [41].
Mr Meng Ng informed Mr Ringin that he contributed a significant amount of his income towards paying the mortgage on the Glen Iris property. He also stated that he put the Glen Iris property in his wife’s name, when it was purchased to protect it from his creditors.
Ms Mai Ng denies that Mr Meng Ng paid any part of the purchase price for the Glen Iris home. Ms Mai Ng agrees that Mr Meng Ng paid her maintenance from 1986. Those payments were mixed with her other income and used to meet day-to-day expenses, including expenditure for their children. She says that on some occasions the maintenance may have been used to make up the monthly mortgage payments payable on the Glen Iris home.
Rail Plus has established a good arguable case that Mr Meng Ng made payments to a joint endeavour with Ms Mai Ng being the acquisition of, and maintenance of, the Glen Iris house and that he assisted her in paying household expenses such as utility and insurance bills. These payments arguably assisted Ms Mai Ng to purchase shares and increase her investments.
There is evidence referred to above of other payments made by Mr Meng Ng for Ms Mai Ng’s benefit that total $123,422.21. The question whether Ms Mai Ng made any payments of cash to reimburse Mr Meng Ng is a question of fact to be decided at trial.
Rail Plus has established a good arguable case that Mr Meng Ng’s earnings were used to help pay the mortgage debt. There is a good arguable case that he and Ms Mai Ng pooled their resources, including earnings, to pay the expenses associated with the operation of their home. If the Court at trial found that to be the case, then the Court may well decide that Mr Meng Ng has an interest in Ms Mai Ng’s assets including her personal property in accordance with the principles discussed in Baumgartner v Baumgartner.[13]
[13](1987) 164 CLR 137.
I therefore consider that Rail Plus has established a good arguable case that Mr Meng Ng has an equitable interest in part of Ms Mai Ng’s assets.
There is a good arguable case that Ms Mai Ng has a power of disposition over Mr Meng Ng’s assets and is in a position of control over them and will be required to disgorge assets to Mr Meng Ng’s Trustee in Bankruptcy.
There is a strong prospect that Mr Meng Ng will be made bankrupt. It is also likely on the evidence before me that a Trustee in Bankruptcy will bring proceedings to recover the amount of Mr Meng Ng’s interest in Ms Mai Ng’s assets.
If the Trustee in Bankruptcy established at trial that Mr Meng Ng had an equitable interest in part of Ms Mai Ng’s property, the Court would quantify Mr Meng Ng’s interest by considering the evidence of the contributions that each of them made to the acquisition of property. At this stage, it is only possible to attempt an estimate of the value of the assets in which a Court might find Mr Meng Ng has an interest. I estimate those assets to be to the value of $675,000, being $450,000, which on Ms Mai Ng’s evidence is about half the approximate value of the Glen Iris property, and a further $225,000 representing a proportion of Ms Mai Ng’s other assets. I consider that the amount of $225,000 is appropriate to adopt because, on the current state of the evidence, it is not clear that Mr Meng Ng has a good arguable claim of an interest or a part interest in all of Ms Mai Ng’s personal property.
Risk of dissipation of assets
Rail Plus also has to establish that, having regard to all the circumstances, there is a danger that a prospective judgment of the Court will be wholly or partially unsatisfied because the assets of Ms Mai Ng are disposed of, dealt with, or diminished in value: see Rule 37A.05(4).
I take into account that there is no evidence of dishonest conduct by Ms Mai Ng and that she did not act to diminish assets in the period after she became aware of Mr Meng Ng’s dishonesty and before the freezing order of 5 February 2013 was made.
In Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 4),[14] Perram J considered that a plaintiff seeking a freezing order had to establish that there was a danger of the dissipation of assets. Perram J referred to authority that depending on the circumstances, the interests of justice may support the grant of a freezing order to prevent the dissipation of assets pending the hearing of an action even though the risk of dissipation was less probable than not and stated:
Important for present purposes is the fact that there must be a ‘danger’; that this does not mean that the Court need be satisfied that the risk of dissipation is more probable than not; and there does not need to be evidence of any intention to dissipate.[15]
[14][2012] FCA 1064 at [23].
[15]Ibid at [23].
Rail Plus relies on the allegations of knowing receipt of property made against Ms Mai Ng and her denial that Mr Meng Ng has any interest in her assets. It argues that a risk of dissipation of assets can be readily inferred when its prima facie case is supported by Mr Meng Ng’s admission of serious dishonest conduct. Mr Meng Ng requested that Rail Plus not seek information concerning ‘the bank account of my wife’.
Rail Plus also relied on Ms Mai Ng’s treatment of the $15,000 in cash that Mr Meng Ng left in the Glen Iris property as her own. It argued that Ms Mai Ng may well dispose of the personal property that she holds. Shares can be readily sold. Once assets are sold, the Trustee of Mr Meng Ng’s estate may experience difficulties in tracing and recovering the proceeds of their sale.
The existing freezing order permits Ms Mai Ng to spend specified amounts drawn from her assets on living and legal expenses.
I consider that Rail Plus has established that there is a danger that Ms Mai Ng may dispose of, deal with or diminish in value some of the assets in which Mr Meng Ng may be found to have an interest before that proceeding comes to trial. I base this conclusion on the following matters. First, there is the nature of Mr Meng Ng’s dishonesty, which he has admitted by consenting to judgment against him. Rail Plus’s case is that Ms Mai Ng has benefited from his dishonesty. Secondly, is Ms Mai Ng’s response to the evidence that Mr Meng Ng has paid sums for her benefit which have come from Rail Plus’s funds and which may have helped pay the expenses of maintaining the Glen Iris property. Ms Mai Ng says that she reimbursed Mr Meng Ng in cash, but does not say when those payments were made. The reimbursements she alleges were made are of smaller amounts than Rail Plus alleges were paid to her benefit. Thirdly, there is Ms Mai Ng’s action in depositing the sum of $15,000 into her bank account and treating it as her own. Fourthly, Ms Mai Ng can readily access substantial parts of her personal property such as shares and cash in bank accounts. Fifthly, is the likelihood that Ms Mai Ng will face proceedings that will seek to establish that Mr Meng Ng is entitled to a significant part of her property.
Balance of convenience
The next issue is the balance of convenience. Rail Plus has recovered judgment against Mr Meng Ng. There is some evidence that Mr Meng Ng will consent to a bankruptcy order, and Rail Plus intends to provide funds to a Trustee in Bankruptcy to pursue the interest that that it claims that he has in her assets.
Whether Rail Plus will ever recover any sum from Ms Mai Ng is uncertain. A sequestration order must first be made, the constructive trust cause of action may not be established, and secured creditors may be entitled to any sum recovered from her.
Ms Mai Ng argues that the freezing order hangs on supposition and the mere possibility of the Trustee commencing proceedings to assert the alleged equitable cause of action and a court then construing a constructive trust in favour of Mr Meng Ng’s estate. No action has yet been commenced.
After I reserved judgment, Judd J delivered judgment in Deputy Commissioner of Taxation v Ekelmans,[16] where issues somewhat similar to those raised in the present proceeding were discussed. I relisted this matter so that the parties could make submissions about the significance of that judgment. They did so. In that case, the Deputy Commissioner of Taxation supported its application for a freezing order on the possibility, only advanced during the hearing, that with intent to defeat or delay his creditors he might seek to bankrupt the defendant on the ground he departed or remained out of Australia. Judd J stated:
[16][2013] VSC 346.
I propose to proceed on the basis that an applicant for relief against third parties is required to establish a ‘good arguable case’, and more particularly, a good arguable case that a third party ‘may be obliged to disgorge assets or contribute towards satisfying a judgment or prospective judgment’.[17]
…
The bankruptcy application, in contemplation by the applicant, will not initiate any proceeding under which the third party respondents ‘may be obliged to disgorge assets or contribute towards satisfying the … prospective judgment’. That would be a decision for the trustee. No trustee has yet been appointed. But on the assumption that a trustee will be appointed, and decide to commence the recovery proceedings contended for the applicant, the applicant must, in my view, establish a good arguable case that the assets targeted for recovery will be recovered from the third parties and contribute towards the assets available to satisfy the applicant’s claim proved in the bankruptcy.[18]
…
In the absence of evidence of some existing or contemplated process, the freezing orders now in existence are without a legitimate purpose and, more practically, they are without a relationship to a proceeding that will define the duration and inform the question of their continued utility. I do not propose to make any final orders in respect of any property until satisfied that an appropriate proceeding has been commenced, will be prosecuted with reasonable expedition, and within an acceptable timetable.[19]
His Honour adjourned the application stating:
I propose to adjourn the further hearing to a date to be fixed, on which occasion the applicant will have an opportunity to adduce evidence on the question of any proposed proceeding to recover the amount due under the assessments. On that occasion I will also hear the parties on costs and, if satisfied with the applicant’s evidence make final orders.[20]
[17]Ibid [26].
[18]Ibid [40].
[19]Ibid [122].
[20]Ibid [123].
The present circumstances differ from those in Deputy Commissioner of Taxation v Ekelmans.[21] Here there is a clear likelihood of a bankruptcy order being made, which in turn is likely to lead to the Trustee of Mr Meng Ng’s estate commencing proceedings against Ms Mai Ng to recover his share of her property.
[21]Ibid.
As I have stated above, Rail Plus has established a good arguable case that Ms Mai Ng may be found to hold part of her property on behalf of the estate of Mr Meng Ng.
I have taken into account the discretionary considerations referred to in Cardile v LED Builders.[22] This is not a case where the claimant has deliberately declined to bring a proceeding to recover the debt in a court or where there has been a significant lapse of time in bringing the action. Nor is it a case in which Mr Meng Ng disputed the facts of Rail Plus’s claim against him. The consent judgment against Mr Meng Ng was made very recently on 11 July 2013. I do not consider that Rail Plus has sought orders merely to obtain security.
[22](1999) 198 CLR 380.
Ms Mai Ng relies on prejudice that she will suffer if the freezing order continues. She no longer receives maintenance payments from Mr Meng Ng. She relies on her need to pay living and legal expenses; however, at least some of those expenses are excluded from the freezing order. Rail Plus argued that it would suffer prejudice if the order was discharged, as Ms Mai Ng may alienate the assets held in her name to avoid or frustrate the Court’s process. Ms Mai Ng’s prejudice consisted in her need to pay legal and living expenses, that she was not receiving maintenance from Mr Meng Ng and she was no longer working.
But Mr Meng Ng, too, is unemployed and cannot pay maintenance. The freezing order can be varied to allow Ms Mai Ng to pay further legal and living expenses.
The Court should generally grant the minimum relief necessary to do justice between the parties.[23]
[23]Ibid at 409.
Conclusion
I consider that the balance of convenience favours the continuance of a freezing order. I have decided that there is a danger that Ms Mai Ng may dispose of or diminish in value assets in which Mr Meng Ng may have an interest. I consider that it is in the interests of justice to continue a form of freezing order.
I propose to vary the freezing order so that it applies to assets in the name of Ms Mai Ng to the value of $675,000.
This is not a case where an undertaking can be required from Rail Plus that it will commence and pursue promptly an action against Ms Mai Ng, as was considered in Cardile v LED Builders[24] to be the normal requirement in cases like this. However, if no action is commenced within a reasonable time against Ms Mai Ng seeking relief on the basis that she holds parts of her assets on trust for Mr Meng Ng, then she should be able to apply to have the freezing order revoked. Ms Mai Ng will also have liberty to apply on other grounds that may arise.
[24]Ibid.
I will hear the parties about the form of orders that will give effect to my reasons.
When I delivered the judgment contained in the above paragraphs the parties addressed the form of order that should be made. They pointed out that the mortgage over the Glen Iris property had been discharged. I accordingly consider that the value of Ms Mai Ng’s assets that should be subject to the freezing order is the amount of $700,000. I am also persuaded that those assets should not include the amounts in Ms Mai Ng’s superannuation accounts as they may be difficult to access.
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