Re Sunnya Pty Limited

Case •

[2023] NSWSC 225

•

09 March 2023

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Re Sunnya Pty Limited [2023] NSWSC 225
Hearing dates: 3, 9 March 2023
Date of orders: 3, 9 March 2023
Decision date: 09 March 2023
Jurisdiction:Equity - Corporations List
Before: Black J
Decision:

Leave granted on interim basis to commence and continue derivative proceedings, nunc pro tunc; amendment application allowed; freezing orders made and interlocutory injunctions granted.

Catchwords:

CIVIL PROCEDURE — Interim preservation — Freezing orders — Against third parties — Jurisdiction to make freezing order — Discretion whether to make freezing order

CORPORATIONS — Statutory derivative action — Application to bring proceedings on behalf of company —whether interim leave should be granted.

CIVIL PROCEDURE — Pleadings — Amendment — Whether amendment should be allowed.

Legislation Cited:

- Corporations Act 2001 (Cth) ss 79, 181-182, 237, 241, 1324

- Civil Procedure Act 2005 (NSW) ss 56-58, 60, 64

- Evidence Act 1995 (NSW) s 136

Cases Cited:

- AON Risk Services Australia Limited v The Australian National University (2009) 239 CLR 175

- Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57

- CME Properties (Australia) Pty Ltd v Prime Capital Securities Pty Ltd [2016] WASC 231

- Grimaldi v Chameleon Mining NL (No 2) [2012] 200 FCR 296; 87 ACSR 260; [2012] FCAFC 6

- Guildford Montessori Kindergarten Pty Ltd v Wehbe [2022] NSWSC 1560

- Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266

- Jaken Properties Australia Pty Ltd v Naaman [2020] NSWSC 1554

- Natural Extracts Pty Limited v Stotter (1997) 24 ACSR 110

- Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319

- Power v Ekstein (2010) 77 ACSR 302; [2010] NSWSC 137

- Re Broadcast One Pty Ltd (unpublished, 16 December 2016)

- Re HPack Investments Pty Ltd [2020] NSWSC 1638

- Re Legal Practice Management Group Pty Ltd [2017] NSWSC 1500

- Re Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510

- Re Rus Holdings (Australia) Pty Ltd [2012] NSWSC 1075

- Re Wonga Pastoral Development Co Pty Ltd [2023] NSWSC 133

- SEA Food International Pty Ltd v Lam (1998) 16 ACLC 552

- Streeter v Western Areas Exploration Pty Ltd (No 2) (2011) 82 ACSR 1; [2011] WASCA 17

- Westpac Banking Corp v Sentox Pty Ltd [2022] NSWSC 150

- Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570

Category:Principal judgment
Parties: Jatcorp Limited (First Plaintiff)
Sunnya Pty Ltd (Second Plaintiff)
Yinhan He (First Defendant)
Yanxia Lu (Second Defendant)
Guangzhou Aotea Biological Technology Pte Ltd (Third Defendant)
Guangzhou Niuriu Trading Co., Ltd (Fourth Defendant)
Sunlife Healthfood Pty Ltd (Fifth Defendant)
Yaqing He (Sixth Defendant)
HWL Investments Pty Ltd (Seventh Defendant)
Supermega Market Ltd (Eighth Defendant)
Megadairy Ltd (Ninth Defendant)
Representation:

Counsel:
R Foreman SC/M Davis (First and Second Plaintiff)
J Shepard (First and Second Defendant)
B Le Plastrier (Third Defendant)
A Harding SC (Eighth and Ninth Defendant)

Solicitors:
Auyeng Hencent & Day Lawyers
Sunfield Chambers Solicitors & Associates (First to Third Defendants)
XR Consulting Pty Ltd (Eighth and Ninth Defendants)
File Number(s): 2022/00329426

JudgmentS - EX TEMPORE (Revised 9, 14 march 2023)

Whether leave should be granted to bring derivative proceedings on an interim basis

  1. By Originating Process initially filed on 3 November 2022, and subsequently amended to take the form of an Amended Originating Process filed on 8 November 2022, the Plaintiffs, Sunnya Pty Ltd (“Sunnya”) and Jatcorp Limited ("Jatcorp") together seek a range of relief against Mr He, his wife Ms Lu, and others. An Amended Statement of Claim was in turn filed on 23 November 2022 and is the subject of a further amendment application. In the Amended Originating Process, Jatcorp, which is a shareholder in Sunnya, seeks, as final relief, an order under s 237 of the Corporations Act 2001 (Cth) (“Act”) that it be granted leave to bring proceedings on behalf of and in the name of Sunnya against the Defendants, and an order that that order be made nunc pro tunc so that Jatcorp is taken to have commenced the proceedings in the name of Sunnya on the date of filing of the Originating Process. Corresponding relief is sought in paragraphs 1 and 2 of the relief claimed in the Amended Statement of Claim. By an Amended Interlocutory Process filed on 3 March 2023, Sunnya and Jatcorp in turn seek a range of interlocutory relief against several Defendants, including freezing orders against Mr He and Ms Lu.

  2. At the commencement of the hearing of this application, I raised the desirability of dealing with the question whether Jatcorp should be permitted to bring the proceedings on Sunnya's behalf, at least on an interim basis, so far as a contention seemed to be raised in opposition to the interlocutory relief that the proceedings were of uncertain status. Counsel have agreed that that application should be dealt with on an interim basis, albeit reserving the Defendants' ability to oppose leave being granted on a final basis. Counsel have also recognised the desirability of an application for leave on a final basis being determined as a preliminary question, prior to the hearing of other issues in the proceedings which may be complex and time consuming.

  3. It appears that Sunnya’s directors have not yet passed a resolution to authorise the commencement of the proceedings, although they have taken steps anterior to and associated with the commencement of the proceedings, and although any resolution that they may have passed could in turn have been contested. It appears that, on 2 November 2022, Sunnya's board then constituted by Mr Wang, Mr Shen and Mr Zhang, and in the absence of Mr He and Ms Lu, approved the engagement of solicitors to provide advice and represent Sunnya in relation to the conduct of any investigation or the taking of any legal action "as the board shall further approve", concerning the dissipation or potential dissipation of Sunnya's assets. That resolution plainly contemplated that the board would reach a decision as to the taking of further legal action. Subsequently, on 8 November 2022, a shareholders' meeting was convened and the notice of that shareholders' meeting recognised that Sunnya had commenced proceedings on 3 November 2022 against Mr He, Ms Lu and an associated company. That shareholders' meeting did not proceed, but the resolutions there proposed dealt with the removal of Mr He and Ms Lu as directors of Sunnya, rather than authorising the commencement of the proceedings, which was likely a matter for directors rather than shareholders in any event.

  4. Plainly, one would expect the directors of Sunnya to take steps to consider whether to commence the proceedings, although it appears that any decision by them to authorise the commencement of the proceedings may be contested by Mr He and Ms Lu so far as there is a contest as to the composition of the board of Sunnya, by reference to the provisions of a Shareholders' Agreement. I proceed on the basis that the directors of Sunnya have not presently authorised the commencement of the proceedings; Jatcorp seeks leave to bring the proceedings on Sunnya's behalf under s 237 of the Act, and the question that now arises is whether it should be granted that leave on an interim basis.

  5. I was initially informed by Counsel that there was common ground between the parties that leave should be granted on an interim basis, although the Court would still have been required to exercise a judicial discretion whether to grant leave under s 237 of the Act in those circumstances. In the event, it emerged that there was not common ground as to that question, since Ms Shepard, who appears for Mr He and Ms Lu contested the question whether leave should be granted on interim basis, and contended that Jatcorp should be required to provide security for costs of the proceedings, or at least some form of indemnity as to Sunnya’s exposure to costs and other loss in the proceedings, including as to any undertaking as to damages that it gave, where there was a suggestion (to which I will return) that Jatcorp is in a troubled financial position. It will, therefore, be necessary to determine that question, at this stage, at least on an interim basis, although it may also arise in determination of any question whether to grant leave to Jatcorp to continue the proceedings on a final basis.

Applicable principles

  1. Turning to the applicable principles, and their application in a case for interim leave under s 237 of the Act, the Court’s power to grant such leave on an interim basis is well established. That power arises under s 241 of the Act which provides that the Court may make any orders, on an application for leave, including interim orders. There are several cases in which interim leave has been granted, including my decisions in Re Rus Holdings (Australia) Pty Ltd [2012] NSWSC 1075; Re Broadcast One Pty Ltd (unpublished, 16 December 2016) and Re Legal Practice Management Group Pty Ltd [2017] NSWSC 1500 at [6]ff where I reviewed the relevant principles. In each of those cases, I held that an order granting leave for derivative proceedings could be made on an interim basis, where a grant of leave was necessary at an early stage, without a full exploration of the relevant factual issues. Here, it seems to me, that the practical necessity in dealing with the question of leave at this stage arises from the fact that interlocutory relief has previously been sought and granted and further interlocutory relief is now sought against Mr He and Ms Lu, and against additional parties and potential parties, and a question has been raised in submissions by at least one party as to whether Sunnya has properly commenced the proceedings.

  2. Accepting that the Court has power to make an order for leave on an interim basis, the question then is whether it should do so here. Section 237(2) of the Act identifies the matters that are relevant to the grant of leave, including on an interim basis. I have recently reviewed the application of those principles, in an application for leave to bring derivative proceedings on a final basis in Re Wonga Pastoral Development Co Pty Ltd [2023] NSWSC 133 (“Wonga”) and I will generally adopt, without repeating, the analysis of the relevant factors set out in that judgment.

  3. The first question arising under s 237(2)(a) of the Act is whether it is probable that Sunnya ought not themselves bring the proceedings, or properly take responsibility for them, or for the steps in them. Here, that question arises in an odd way, because Sunnya has, in fact, commenced proceedings as the First Plaintiff, has instructed solicitors to act in them, and has been active together with Jatcorp, in pursuing them. The difficulty arises, however, that it appears that Sunnya has not itself formally authorised a commencement of proceedings, by resolution of the directors, and that the status of a future resolution to do so is likely to be disputed, having regard to the underlying dispute as to the constitution of Sunnya’s board, having regard to its Shareholders’ Agreement. It is not possible to determine the extent of that dispute in this application and it is preferable not to do so.

  4. It seems to me that, at least on an interim basis, it is established that Sunnya would not properly take responsibility for the proceedings, notwithstanding that it commenced them and seeks to pursue them, if its decision whether or not to do so will be contested and the validity of that decision will only be determined at the conclusion of the proceedings. It would, it seems to me, arguably be perverse if leave to bring a derivative action was withheld on the basis that Sunnya would properly take responsibility for the proceedings, and a shareholder was not permitted to do so on Sunnya’s behalf, only to find at the conclusion of the proceedings that Sunnya had never been able to take responsibility for the proceedings, because of any attack upon its decision making or the constitution of its board in that respect. That seems to me to be sufficient to satisfy this requirement for the grant of leave, at least on an interim basis.

  5. The second question under s 237(2)(b) of the Act, to be dealt with here only on an interim basis, is whether the applicant, Jatcorp, is acting in good faith. I did not understand it to be contended to the contrary, at least in this interim application, and it is apparent that Jatcorp holds a significant interest in Sunnya, and would benefit to the extent that its shareholding in Sunnya would be more valuable if Sunnya obtained the substantial financial recoveries which are sought in the proceedings. On the face of it, that seems to me to be sufficient to support a finding that Sunnya is acting in good faith, at least for the purposes of this application on an interim basis.

  6. The third question, also to be dealt with on an interim basis, is whether it is in Sunnya’s best interests that Jatcorp be granted leave to commence and continue the proceedings. The case law has recognised that the Court must be satisfied, at least in an application for leave on a final basis, that the proposed action is, on the balance of probabilities, in the relevant company’s best interests. Relevant factors have been identified in the case law and one, to which Ms Shepard gives some weight in this application, is whether an indemnity is offered by the applicant in respect of the costs to which the company would be exposed by the conduct of the proceedings and in the event of their failure. That question has been given particular weight in New South Wales, including in decisions since Power v Ekstein (2010) 77 ACSR 302; [2010] NSWSC 137, several of which I referred to in Wonga at [41].

  7. Here, at least in this interim application, Jatcorp has not offered an indemnity as to the costs or exposure of Sunnya in respect of the proceedings, although there is a suggestion that discussions are underway between the parties as to whether security will be offered in respect of the undertaking as to damages that would be necessary for the grant of interlocutory relief. I accept that the case law in New South Wales, has given significant weight to the existence or nonexistence of an indemnity. However, I do not understand that case law to have dealt with the position where a company has an arguably strong case for breach of directors’ duties; an arguably strong case for recovery of substantial damages; the remaining shareholder is impecunious, and that impecuniosity arises, at least in part, because the dividend flow to it has been depressed by the alleged diversion of profits to the alleged wrongdoer, restricting the company’s ability to pay dividends to its shareholders; and the proceedings would not be able to be commenced if an indemnity was required. In particular, I do not understand any Court to have held that in those circumstances, the Court should decline leave to bring an arguably strong case, offering arguably strong prospects of recovery, because an indemnity was not provided. At least in those circumstances, it seems to me possible that the Court would potentially grant leave, without requiring an indemnity, and on the basis that the company would be left to incur the costs of the proceedings, even if the consequence was, as Ms Shepard points out, that the alleged wrongdoer, or interests associated with him or her, may indirectly bear a proportion of those economic costs if the proceedings are unsuccessful: compare Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570. It is not necessary, or appropriate, to determine that question on a final basis here, where all that is sought is interim leave. It seems to me that it is sufficiently arguable that leave would be granted in a sufficiently strong case without requiring an indemnity, or without requiring security for indemnity, that the Court should treat that matter as not having the consequence that the proceedings are not in Sunnya’s best interests at this point, for the purposes of an interim leave application, and otherwise defer dealing with that question to the point that leave is sought on a final basis.

  8. The fourth question arising under s 237(2)(d) of the Act is that there is a serious question to be tried. I understand that Mr He and Ms Lu do not contend that there is not a serious question to be tried, at least for the purposes of the injunctive relief that is sought today, and I proceed on the basis that that concession extends to this application for interim leave, while leaving it open to them to contest that matter, if they wish, at a final application for leave.

  9. The final question is whether the applicant gave written notice to the company, at least fourteen days before making the application. Strictly, it seems to me that the answer to that question is, no, although it is plain that Sunnya has had notice of the application, well before the hearing today, so far as it is raised in the Originating Process and the Statement of Claim. If the fourteen day requirement was not satisfied, I would consider, for the purposes of s 237(2)(b) of the Act, that it was appropriate to grant leave although the first element or the notice requirement was not satisfied.

Orders as to interim leave to bring derivative proceedings

  1. In these circumstances, I am satisfied that, in order to allow the substantive issues as to interlocutory relief and other relevant issues to be determined, and in order to allow the proceedings to continue on a proper basis, at least until the point at which an application for leave on a final basis is determined, the Court should grant interim leave to Jatcorp to commence and continue the proceedings, nunc pro tunc, and I grant that interim leave.

Amendment application

  1. The Plaintiffs also seek leave to file a Further Amended Statement of Claim, and I do not understand that application to be opposed. Nonetheless, I must have regard to ss 56-58 and 60 and 64 of the Civil Procedure Act 2005 (NSW) and that requires the Court to have regard to the dictates of justice when considering an order, inter alia, for the amendment of documents, and to have regard to the provisions of ss 56 and 57 of the Civil Procedure Act 2005 (NSW). I also have regard to the case law, including AON Risk Services Australia Limited v The Australian National University (2009) 239 CLR 175. Here, the proposed amendments are not made particularly late, although a substantial amount of evidence has already been filed in the proceedings, and appear to be directed to identifying further matters in issue, so far as further events that have occurred and further information that has been provided or positions taken by the parties have identified further aspects of the issues in contest. I bear in mind the desirability of determining all issues in the proceeding at the same time, and that supports the amendment where, it will likely not delay a hearing or substantially affect the course of evidence.

  2. The amendment seeks to join two defendants that are incorporated in New Zealand, and they neither consent to nor oppose the amendment on the joinder. Where they are sought to be joined as persons who are allegedly knowingly involved in a breach of statutory directors’ duties under the Act, or in a breach of general law fiduciary duties, I accept that the Court has jurisdiction to deal with the claims so far as the Act applies to acts and omissions outside the jurisdiction and to bodies corporate whether formed or carrying on business in Australia or not. It is not necessary to deal with any question of service outside the jurisdiction, where those Defendants have appeared, and no point has been taken by them that service outside the jurisdiction was not within the scope of the matters listed in Schedule 6 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”).

  3. For these reasons I grant leave to file the Further Amended Statement of Claim in the form marked MFI-2 and direct that a signed and verified copy be filed and served by 4pm on 7 March 2023. I order that the Plaintiffs pay any costs thrown away by the amendments.

Freezing orders against Mr He and Ms Lu

  1. By Interlocutory Process filed on 3 March 2023 and further amended in the course of the application, the Plaintiffs, Sunnya and Jatcorp, seek an order in the nature of a freezing order against the First and Second Defendants, Mr He and Ms Lu. The dispute in respect of the freezing order was narrowed somewhat in the course of submissions, but it is still necessary for me to deal with aspects of it, where I did not understand there to be a formal concession that such an order should be made, and in any event, the Court must exercise its jurisdiction whether to make such an order on the merits. The freezing order sought by the Plaintiffs provides that Mr He and Ms Lu must not remove from Australia or dispose of or diminish the value of their assets up to the unencumbered value of A$16 million, and it appears there is now no dispute, so far as that monetary limit is concerned, although I will refer below to the way in which it is derived. The proposed order was amended in the course of the application to permit the First and Second Defendants to pay a relatively substantial amount each month on ordinary living expenses; pay their legal expenses, limited only by a criteria that those expenses be "reasonable"; and permit continuing mortgage payments; and the proposed order also permits their dealing with or disposing of assets in the ordinary and proper course of Mr He’s and Ms Lu’s business. A question also arose in the course of submissions as to the position if the Defendants wished to sell the properties that they own, but that, of course, can be addressed by agreement between the parties, as contemplated by paragraph 11 of the order or, if no such agreement is reached, by an application to the Court in the usual way.

  2. I reviewed the applicable principles as to the grant of freezing orders at some length in Re HPack Investments Pty Ltd [2020] NSWSC 1638 (“HPack”). I there referred to the circumstances in which r 25.11 of the UCPR allows a freezing order to be made, so as to prevent the frustration or abuse of the Court's process, and to the provision in r 25.14 for a freezing order to be made where the Plaintiff has a good arguable case and, having regard to all the circumstances, there is danger that a judgment or perspective judgment will be wholly or partly unsatisfied because of, inter alia, the assets of a prospective judgment creditor or another person being disposed, dealt with or diminished in value. Ms Shepard submitted, and I accept that a high degree of caution is necessary before making a freezing order. I also recognise that the purpose of a freezing order is not to create security for the Plaintiffs.

  3. In HPack, I referred to the well-known observations of Gleeson CJ in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 322 as to the circumstances in which a freezing order might be made, including where a plaintiff has a prima facie cause of action against the defendant, and there is a danger, inter alia, by reason of assets being removed or disposed of, so that the plaintiff will not be able to have this judgment satisfied. I also there referred to the extent to which the allegations made against a defendant, and the evidence that supports those allegations, may itself create the inference that the defendant "is not the sort of person who would, unless restrained, preserve his assets intact so that they might be available to his judgment creditor". I also there referred to Rees J's helpful summary of the relevant cases and the applicable principles in Jaken Properties Australia Pty Ltd v Naaman [2020] NSWSC 1554 and to the relevant discretionary considerations. The Court has since applied the approach adopted by Gleeson CJ in Patterson v BTR Engineering, placing weight upon the alleged conduct and the evidence for it as a matter that supports a making of a freezing order in a particular case; in cases including Westpac Banking Corp v Sentox Pty Ltd [2022] NSWSC 150 and a similar approach was taken in Guildford Montessori Kindergarten Pty Ltd v Wehbe [2022] NSWSC 1560.

  4. Here, the parties led voluminous evidence, and made detailed submissions, as to the matters which may support an inference that Mr He and Ms Lu would not retain their assets for the benefit of a judgment creditor, unless restrained from doing so. I am conscious that this is an interlocutory application; Mr He and Ms Lu have not been cross-examined; and I should not and do not reach any inference adverse to them in dealing with the application, other than to the limited extent that it is necessary to reach findings as to the risk of dissipation of assets, on an interlocutory basis, in an application of this kind.

  5. The Plaintiffs lead evidence that is directed to matters including the transfer of certain trademarks out of Sunnya, at the time when the proceedings were commenced; an attempted transfer of a sum of money out of Sunnya, under what was arguably a false description of the purpose of the transfer; the conduct alleged against Mr He and Ms Lu in the proceedings, which involves a claim that products were sold at undervalue to an entity associated with their former members, as to which there is evidence that the average price payable by that entity was significantly less than the average price payable by other significant customers, although I bear in mind that Ms Shepard indicates that they will seek to distinguish between the price payable in the wholesale and retail markets; and the fact that Mr He and Ms Lu are presently resident in China and that, although an inquiry was made as to when they will return, their solicitors have not responded to that inquiry.

  6. It seems to me that here, deciding this question only to the limited extent that it is necessary to do so for the nature of the application, the nature of the conduct that is alleged, and the evidence that would support it, at least in respect of differential prices as between dealings between Sunnya and the company associated with Mr He’s and Ms Lu’s family members, and the subsequent steps taken in respect of trademarks and attempted steps in respect of monetary payments, are sufficient to raise a risk that Mr He’s and Ms Lu’s assets might be dealt with in a way that would defeat the Plaintiffs’ rights. Ms Shepard also fairly recognises that the absence of Mr He and Ms Lu from the jurisdiction is a matter that is relevant in that respect. The fact that some of the assets which they hold, as disclosed by a statement of assets provided by their solicitor, have a liquid character is also relevant.

  7. It seems to me that those matters are sufficient to warrant the making of a freezing order, subject to the usual undertaking as to damages given by the Plaintiffs, and subject to a question whether any undertaking as to damages given by Jatcorp should be secured. Ms Shepard puts some weight upon the latter proposition, and drew attention to a qualification by Jatcorp's auditors to Jatcorp’s going concern status in a recent financial report. I bear in mind, however, that, first, an undertaking as to damages is offered by Sunnya, and there is no suggestion that it lacks financial substance, although I will refer to Ms Shepard's submission that it is unfair to Mr He and Ms Lu that an undertaking as to damages should be given by an entity in which they have a substantial interest.

  8. Second, I bear in mind that there is evidence, in the same financial report, that Jatcorp has an excess of assets over liabilities, although that excess is less in respect of current than in respect of non-current liabilities.

  9. Third, I bear in mind that, so far as Ms Shepard points to market volatility as a matter that may increase the risk of a freezing order, it is open to Mr He and Ms Lu to seek to realise assets, either by agreement with the Plaintiffs or by application to the Court, and place them in less volatile investments if they wish to do so.

  10. Fourth, it seems to me that there is little substance in the submission that there is any unfairness to Mr He and Ms Lu in an undertaking as to damages being given by Sunnya, together with Jatcorp. Ms Shepard submits that it is unfair that that should occur, because Mr He and Ms Lu are Defendants, and the undertaking which protects their interest in respect of the freezing order is given by an entity in which they have a substantial interest and, if that undertaking is called upon, they will bear some of its economic cost. Ms Shepard was unable to draw my attention to any authority which indicated that an undertaking as to damages should not be accepted from a company in which a defendant had an interest, or a substantial interest. It is not apparent to me that there is any unfairness, logically speaking, in that occurring, where Sunnya would receive the benefit of any damages award, and to that extent benefits from the preservation of Mr He and Ms Lu's assets in order to meet such an award. In those circumstances, it is not unreasonable that it, as a separate entity, give an undertaking as to damages, and that undertaking as to damages protects the interests of Mr He and Ms Lu as shareholders. It is correct, of course, that if that undertaking is called upon, then they may bear some of the economic cost of that occurring; but that is not an unfair result where, if Sunnya succeeds in the claim against them, they benefit from that success as shareholders in Sunnya, notwithstanding that that benefit may be funded by them or by assets of entities associated with them.

  11. In these circumstances, I am not satisfied that it is necessary or appropriate to require that Jatcorp provide a secured undertaking as to damages, where the position of Mr He and Ms Lu will be sufficiently protected by an undertaking as to damages offered by Jatcorp and Sunnya, jointly and severally, by their Senior Counsel. For these reasons, I will make the freezing order in the form sought, and subject to that undertaking. I have not disregarded the fact that Ms Shepard drew attention to a form of undertaking which had been offered by Mr He and Ms Lu, although there was little detailed scrutiny of that undertaking. It seems to me that that did not take matters much further, so far as the Plaintiffs were not required to accept an undertaking of that character.

Freezing orders against HLW Investments Pty Ltd and ALL168 Pty Ltd

  1. As noted above, on 3 March 2023 I delivered an ex tempore judgment in respect of a freezing order sought against Mr He and Ms Lu. In the course of that application, evidence was led as to the extent of the assets of Mr He and Ms Lu, and I will return to that evidence below. I made a freezing order, on an undertaking as to damages given by the Plaintiffs, Sunnya and Jatcorp, by their counsel, which prevented Mr He and Ms Lu from removing from Australia or disposing of, dealing with or diminishing assets up to the unencumbered value of $16 million, which extended to identified assets which were the subject of the freezing order, including moneys held in two accounts at National Australia Bank in the name of Mr He and Ms Lu.

  2. By Interlocutory Process filed on 8 March 2023, Sunnya and Jatcorp sought further freezing orders against two entities associated with Mr He and Ms Lu, HLW Investments Pty Ltd ("HLW") and ALL168 Pty Ltd ("ALL168") in an ex parte application before the then Corporations Duty Judge, Hammerschlag CJ in Equity. His Honour then made freezing orders against HLW and ALL168 on an interlocutory basis, to continue to the further hearing of this matter today, and deferred the questions of leave sought by the Plaintiffs to issue a notice to produce and subpoena in respect of transactions recorded in bank accounts of HLW and ALL168.

  3. The matters that gave rise to that further application emerge from an affidavit dated 8 March 2023 of Mr Simon Li, a solicitor acting for Sunnya and Jatcorp in respect of the proceedings. That affidavit establishes that, between the date of a statement of assets dated 1 March 2023 given by Mr He and Ms Lu, through to the date on which that statement of assets was tendered before me on 3 March 2023, further transactions in Mr He's and Ms Lu's bank accounts had significantly reduced the amount of funds in those accounts, by transferring funds to accounts held in the names of HLW and ALL168. An exhibit to that affidavit, which was tendered before Hammerschlag CJ in Eq, and again before me today, contains a copy of that statement of assets in the form annexed to an affidavit dated 2 March 2023 of Mr He's and Ms Lu's solicitor, Mr Luo, which referred to cash at bank then held by Mr He and Ms Lu of approximately $2.5 million and also recorded Mr He's and Ms Lu's holding of shares in HLW and ALL168.

  4. A further affidavit dated 8 March 2023 of Mr Luo, filed by Mr He in the application, and later read by Mr He and Ms Lu in the application, referred to bank statements which had been provided by Mr He to Mr Luo on 6 and 7 March 2023 which disclosed that, on 1, 2 and 3 March 2023, amounts were transferred out of the accounts held in the name of Mr He and Ms Lu to bank accounts of HLW and ALL168, reducing the balance held in the accounts of Mr He and Ms Lu from $2,587,084.30 to $262,098.57. I pause to note, without further comment, that those transactions occurred in circumstances where an application for a freezing order on an ex parte basis had previously been made but deferred to allow Mr He and Ms Lu an opportunity to be heard. The bank accounts holding substantial funds had not been identified when that application was brought on an ex parte basis; the Court had not been prepared to deal with the application on an ex parte basis, where it then appeared to relate to real property only; the application had then been served on Mr He and Ms Lu; and the transfers occurred on the two days prior to the hearing of the application and on the day on which the application was heard, although it is not apparent at what times they occurred on that day. I was in turn taken to records of transfers from the accounts of Mr He and Ms Lu to and from the accounts of HLW and ALL168, which disclose several transfers that significantly reduced the balance of the funds held by Mr He and Ms Lu that are subject to the freezing orders from the amount which was contained in the statement of assets and liabilities which Mr He and Ms Lu had provided on 1 March 2023 and prior to the hearing on 3 March 2023.

  5. That exhibit to Mr Li’s affidavit also contains a company search for HLW, which records that Mr He and Ms Lu are its directors and Ms Lu holds ordinary shares, which are held beneficially, being all of the issued shares in that company. A company search for ALL168 in turn establishes that Mr He was its sole director and that that Ms Lu holds all of the class A shares in ALL168 and Mr He holds all of the ordinary shares in ALL168, being all of the issued shares in that company.

  6. With this background, the question arises whether the interlocutory relief granted by Hammerschlag CJ in Eq yesterday should now be continued until further order of the Court, consistent with the freezing orders previously made against Mr He and Ms Lu. There was no appearance for HLW and ALL168 in the application, although Ms Shepard appears for Mr He and Ms Lu, who, as I have noted above, are together the sole directors and sole shareholders of those companies. Ms Shepard was heard on the application, so far as it affected the interests of Mr He and Ms Lu, although I do not understand her to accept that they have also had the opportunity to make submissions for the companies, in which they hold management control of and all the available shares. Ms Shepard indicated that, so far as Mr He and Ms Lu were affected by the orders sought, they did not now oppose them.

  7. It seems to me that the orders sought should be made on three bases. First, the Court has already made freezing orders in respect of Mr He and Ms Lu. At the time they were made, all parties must have understood the freezing orders to attach to the funds held in their bank accounts which, at least as far as the Plaintiffs, the Court and Mr He and Ms Lu’s legal representatives then knew, were in the order of $2.5 million, although obviously Mr He and Ms Lu personally then knew that was not the case. The order that is now sought, so far as it extends those freezing orders to HLW and ALL168, gives effect to the position which would have existed, in respect of the moneys held in Mr He’s and Ms Lu’s bank accounts, had the position which was put before the Court when those orders were made been accurate.

  8. So far as the Court's jurisdiction to make that order is concerned, UCPR Part 25 Rule 14 allows the Court to make a freezing order against a person other than a prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that, first, there is a danger that a prospective judgment will be wholly or partly unsatisfied because a third party is in possession of assets of the judgment debtor or, second, a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, by which the third party may be obliged to disgorge assets or contribute towards satisfying the judgment or prospective judgment.

  9. It seems to me that, here, both limbs of that rule are satisfied. So far as the first limb of that rule is concerned, there is a danger that a prospective judgment will be unsatisfied for the reasons noted in my judgment making the freezing order against Mr He and Ms Lu, which are equally applicable to HLW and ALL168 where Mr He and Ms Lu are the controllers of those companies. The position is reinforced because the transactions occurring immediately before the freezing orders were made emphasise the risk that a judgment or prospective judgment of the Court may be unsatisfied, because of transfers of assets by Mr He or Ms Lu, which would otherwise be available to meet a judgment, to HLW or ALL168 or both.

  10. So far as the second limb of the rule is concerned, it seems to me that there is plainly a process in the Court that is available to the Plaintiffs as a result of a prospective judgment, under which HLW or ALL168 or both may be obliged to disgorge assets. It seems to me that there is a strongly arguable case that those entities, on the evidence, are each the "corporate creature, vehicle or alter ego" of Mr He and Ms Lu, adopting the language in Grimaldi v Chameleon Mining NL (No 2) [2012] 200 FCR 296; 87 ACSR 260; [2012] FCAFC 6 (“Grimaldi”) at [242]-[243], so that an order may be made against them where it may be made against Mr He and Ms Lu in respect of any breach of fiduciary duty that is established against Mr He and Ms Lu. Second, it seems to me that there is a strongly arguable case for knowing receipt against each of HLW and ALL168, so far as they have received funds that are arguably the proceeds of a breach of fiduciary duty by Mr He and Ms Lu, and they have the knowledge of their controllers, Mr He and Ms Lu, in respect of the circumstances of any breach of fiduciary duty and the circumstances of the receipt of the funds.

  11. It seems to me that, here, the extension of the freezing order to HLW and ALL168 is also appropriate, so far as UCPR 25.14(6) preserves the Court's power to make a freezing order or ancillary order on wider grounds, if the Court considers it in the interests of justice to do so. The circumstances to which I have referred above, including the transfer of funds that were stated to be held by Mr He and Ms Lu, as at 1 March 2023 and as at the time the relevant statement of assets was put before the Court, to ALL168 and HLW seems to me to support the making of that order.

  12. Finally, it seems to me that the order that is properly made against HLW and ALL168 should have the same maximum amount as the maximum amount of the freezing orders made against Mr He and Ms Lu, namely $16 million, rather than only the amount transferred to them. The circumstances to which I have referred above emphasise the extent to which, under the principles in Grimaldi, there is a seriously arguable case that those entities are the alter ego of Mr He and Ms Lu, with the consequence that all of their assets, and not only the assets recently transferred to them by Mr He and Ms Lu, would arguably be available to meet a judgment against Mr He and Ms Lu.

  1. For these reasons, I make orders in accordance with the short minutes of order initialled by me and placed in the file, which include an order that these orders be entered forthwith.

Application for interlocutory injunctive relief against Biological Technology Pte Limited, Guangzhou Niuriu Trading Co Ltd and Sunlife Healthfood Pty Ltd

  1. By Amended Interlocutory Process filed on 3 March 2023, the Plaintiffs seek interlocutory relief against the Third Defendant, Guangzhou Aotea Biological Technology Pte Limited ("GABT"), the Fourth Defendant, Guangzhou Niuriu Trading Co Ltd ("GNT") and the Fifth Defendant, Sunlife Healthfood Pty Ltd ("Sunlife"), a company associated with the daughter of Mr He and Ms Lu. On their undertaking as to damages, they seek orders that GABT, GNT and Sunlife be restrained from taking any steps to manufacture, sell or export any "Neurio" or “Guamis” branded products to or for any person other than Sunnya or persons authorised by Sunnya in writing to engage in such conduct. The Plaintiffs also seek orders that GABT and GNT be restrained from taking any steps to have Neurio or Guamis branded products manufactured for its benefit in Australia or to have such products manufactured for its benefit in New Zealand.

  2. I deal first with the claim for interlocutory injunctive relief against GABT and GNT.    GABT appears, represented by the same solicitors as Mr He and Ms Lu, but represented by a different counsel, Mr Le Plastrier. GNT does not appear. In order to obtain interlocutory injunctive relief against GABT and GNT, the Plaintiffs must not only demonstrate a prima facie case or serious question to be tried as to their entitlement to the relief sought at the final hearing, but also that damages would not be an adequate remedy, so as to warrant the granting of injunctive relief and that the balance of convenience favours the grant of an injunction on an interlocutory basis: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at [19]. Those considerations are inter-related; the greater the extent to which the balance of convenience favours one course over another, the less strong the case for final relief is required to justify an injunction; conversely, the stronger the case for final relief, the less that will be required to establish that the balance of convenience favours interlocutory relief.

  3. Dealing first with the Plaintiffs’ claim for relief as to Neurio branded products, Mr Foreman draws attention to paragraphs 210GBA of the Further Amended Statement of Claim, which allege that Mr He and Ms Lu caused the unauthorised sale by third parties of purportedly destroyed Neurio products. That allegation, obviously enough, relates to previously manufactured stock, rather than to products to be manufactured in the future. It is not necessary to decide whether there is a seriously arguable case in respect of that claim, because it seems to me not to support the interlocutory relief that the Plaintiffs seek in respect of Neurio branded products, namely to restrain GABT and GNT from taking any steps to have Neurio products manufactured for them in Australia or New Zealand, as distinct from selling previously manufactured products which it had been represented were destroyed. Mr Foreman does not draw attention to any pleading of any material facts to the effect that Mr He, Ms Lu or any third party propose to manufacture Neurio products in either Australia or New Zealand in the future. Where it is not alleged that the conduct will take place, in respect of the future manufacture of products, and no factual basis for such an allegation is identified, then it seems to me that no basis for injunctive relief is established.

  4. For that reason, no injunctive relief can be granted against GABT or GNT in respect of Neurio branded products. It is a matter for the Plaintiffs to articulate the case they seek to put, and there is no basis on which they should be granted interlocutory relief that extends beyond the case that they put. The same result may well also follow in respect of claims for interlocutory injunctive relief relating to the future manufacture, sale or export of Neurio's branded products against other Defendants, where there is no underlying allegation to which that injunctive relief is directed.

  5. Turning now to the position in respect of Guamis branded products, Mr Foreman draws attention to the pleading commencing at paragraph 210A, which alleges that Sunlife registered the trademark for Guamis branded products in March 2020. The Plaintiffs then plead that, from September 2021, Mr He or Ms Lu caused Sunnya to commence producing and selling (predominantly in China) milk formula products under the Guamis trademark and also caused Sunnya to engage in marketing and brand development of the milk formula products being produced and sold by Sunnya under that trademark, and plead the sale of Guamis branded products by Sunnya and the costs incurred by Sunnya in respect of the registration of the trademarks. The Plaintiffs then plead that, since mid-January 2023, GABT and/or GNT have been operating a website in China which has been selling the Guamis branded products with similar packaging to that previously used by Sunnya.

  6. The Plaintiffs plead that Mr He and Ms Lu breached their directors’ duties owed to Sunnya in this regard, so far as costs were incurred by Sunnya in respect of the Guamis trademark's registration and the promotion and sale of the Guamis branded products, but the trademark for those products was held by Sunlife, being (as I noted above) a company associated with Mr He and Ms Lu's daughter. Although the pleading is complex, its essential core is that there is a breach of the statutory duties, or the broadly corresponding fiduciary duties comprised in the no conflict and no profit rules, by causing Sunnya's resources to be devoted to promoting the product, while the trademark registration was left with Sunnya. The remedial consequences of that claim are put, alternatively, as an entitlement to compensation, or a claim to a constructive trust over the Guamis brand, or its trademark, which is specifically pleaded in paragraph 210BG of the Further Amended Statement of Claim. It seems to me that that claim is seriously arguable, where the Courts have awarded relief by way of remedial or constructive trust in cases of this character. I also bear in mind, that neither GABT nor GNT lead any evidence to suggest that Sunnya's efforts were trivial in this respect or not necessary to the development of the Guamis brand, and I can infer, in those circumstances, that that evidence that they might have led would not have assisted them in that respect. It also seems to me that the case of interlocutory relief is supported by the likelihood that Sunnya would have difficulty in quantifying the amount of its loss arising from lost sales of Guamis branded products, where sales largely take place in China and GNT has not appeared and it is not apparent that it would make documentation available to quantify the loss suffered by Sunnya as a result of its conduct in that respect.

  7. So far as the balance of convenience is concerned, I bear in mind that the grant of injunctive relief will protect the interests of the Plaintiffs, where it preserves their opportunity to sell Guamis branded products, as they have previously done, but will potentially be disadvantageous to GABT and GNT, at least if they do not choose to come to terms with Sunnya as to the basis on which such products should be sold in China. It is not apparent to me, however, that that disadvantage outweighs the basis for the grant of injunctive relief, where that injunctive relief preserves the opportunity for Sunnya to sell Guamis branded products, and neither GABT nor GNT lead any evidence or make submissions to establish the amount of the detriment that they might suffer from the grant of injunctive relief.

  8. On balance, it seems to me that Sunnya has established a serious question to be tried in respect of breach of directors' duties, based on the proposition that it would arguably be a breach of Mr He’s and Ms Lu’s directors' duties to cause Sunnya to pay the cost of the trademark registration, promotion and sale of a product, where Sunlife controls the trademark, and that breach of duty might, in an appropriate case, be remedied by an order for a constructive trust over that trademark. Where there is a seriously arguable case in that respect, and given the difficulties of quantification of Sunnya's damages from a continued sale of Guamis' branded products by other parties, excluding its own opportunity for sale of such products, it seems to me that an order for injunctive relief should be made on an interlocutory basis, and on the Plaintiffs’ undertaking as to damages, continuing until further order of the Court. That relief should only be allowed in respect of Guamis branded products, and I do not grant injunctive relief in respect of Neurio branded products for the reasons noted above.

  9. I now turn to the Plaintiffs’ claim for interlocutory injunctive relief against Sunlife. The Plaintiffs first seek an order that Sunlife be restrained from taking any steps to manufacture, sell or export Neurio branded products or Guamis branded products to any person other than Sunnya or persons authorised by it in writing to be engaged in such conduct. There is again no pleaded case that Sunlife proposed to, or threatens to, take steps to manufacture, sell or export Neurio branded products and it seems to me that the absence of a pleaded case again provides sufficient reason that interlocutory relief cannot be granted against Sunlife in respect of Neurio branded products.

  10. Turning now to the position as to Guamis branded products, the Plaintiffs plead, in paragraphs 210Aff of the Further Amended Statement of Claim, the development of sales under the Guamis trademark and the fact that Sunlife registered the Guamis trademark in Australia and, as I have noted above, plead that Mr He or Ms Lu caused Sunnya to undertake the marketing and development of the Guamis brand. Paragraphs 210BIBff plead what is described as the “Guamis Scheme”, which is alleged to have had the purpose of using Sunnya’s resources to market and develop the Guamis brand and increase the value of the Guamis trademark and allow Sunlife to derive the benefit of the increased value of the trademark. Paragraph 210BIS pleads a claim for compensation against Sunlife and to restrain Sunlife from manufacturing, selling or exporting Guamis branded products to any person other than Sunnya or persons authorised by it. That claim is reflected by the interlocutory injunctive relief now sought.

  11. Mr Foreman accepts that the risk that Sunlife will take steps to manufacture, sell or export Guamis branded products is a matter of inference. He submits that, first, prior to disputes arising, Sunlife was a supplier of those products to Sunnya, and that that establishes that Sunlife had the capacity to manufacture or sell those products. He also relies on the evidence of Mr Wu, who is a director of Supermega Market Ltd (“Supermega”) and Megadairy Ltd (“Megadairy”), which are New Zealand companies which have been joined to the proceedings, in his affidavit dated 1 March 2023. Mr Wu there contends that injunctive relief should not be granted against those companies, on the basis that Sunlife is the owner of the Guamis trademarks in Australia and New Zealand and Megadairy and Supermega wish to be able to fill orders for the manufacture of Neurio and Guamis products if such orders are placed by Sunlife or other entities associated with Mr He and Ms Lu. I recognise that that statement is conditional, being directed to the position if Sunlife or the associated entities placed such orders. However, I infer that Mr Wu is not here dealing with something that he regards as a remote possibility; I consider that it should be inferred from Mr Wu’s affidavit that he regards it as a serious and significant possibility that Sunlife would place such orders, which is why he contends that injunctive relief should not be granted against Supermega and Megadairy to prevent them from accepting those orders.

  12. Mr Wu also gives evidence that injunctive relief granted against Megadairy and Supermega would cause “serious” financial losses to those companies (although the word “serious” was admitted with a limiting order under s 136 of the Evidence Act 1995 (Cth), as a submission) and that suggests that the orders that he anticipates would be placed by, inter alia, Sunlife, with Megadairy and Supermega must be significant in scale. He refers to the fact that, in the year 2022, orders amounting to approximately NZ$1.2 million were placed with Supermega for the Guamis branded product, although he does not indicate who placed those orders, and he then estimates that, if Sunlife or other entities associated with Mr He and Ms Lu placed similar volume of orders with Megadairy and Supermega for Neurio and Guamis products going forward, then injunctive relief would deprive Supermega and Megadairy of earnings of “many millions of dollars”. Again, I proceed on the basis that Mr Wu is not there developing a possibility which he regards as remote or unlikely, and that he there recognises a real prospect that Sunlife and other entities associated with Mr He or Ms Lu would place substantial orders with Megadairy and Supermega for the manufacture of Guamis branded products. It seems to me that the inference is properly drawn that there is a significant risk that Guamis products would be manufactured, sold or exported by Sunlife where it is the holder of the trademark for Guamis branded products, has sold such products to Sunnya in the past, and Mr Wu anticipates that it will or may cause Supermega and Megadairy to manufacture such products in the future, at a substantial scale.

  13. It seems to me that there is a seriously arguable case, corresponding to the seriously arguable case which I have found to be established in respect of Mr He and Ms Lu, GBAT and GNT, that that conduct would amount to involvement in breach of directors’ duties owed by Mr He and Ms Lu, so far as they have caused Sunnya to invest in the relevant products, while allowing Sunlife to hold the relevant trademark, and that the balance of convenience would again favour the grant of injunctive relief, because of the difficulty in establishing damages, where such sales or exports take place largely in China and Sunlife has not appeared in the proceedings and there is no reason to think that it will give disclosure so as to allow such loss to be quantified.

  14. For these reasons, I am satisfied that, on the undertaking as to damages offered by the Plaintiffs, an interlocutory injunction should be granted against Sunlife, extending to the manufacture, sale or export of Guamis branded products and continuing until further order of the Court.

Application for interlocutory relief against Supermega and Megadairy

  1. By paragraph 15 of the Amended Interlocutory Process filed on 3 March 2023, Sunnya and Jatcorp also seek interlocutory injunctive relief against Supermega and Megadairy. They did not press their application for an interlocutory injunction to restrain the manufacture, sale or export of Neurio branded products where I have indicated in earlier judgments that I would not grant such an injunction in respect of those products, given the absence of a pleaded case as to that matter. The Plaintiffs press their application for an interlocutory injunction in respect of the manufacture, sale or export of Guamis branded products and that application is opposed by Supermega and Megadairy, for whom Mr Harding appeared.

The Plaintiffs’ pleaded case

  1. By their Further Amended Statement of Claim filed on 7 March 2023, the Plaintiffs plead, against Mr He and Ms Lu, the alleged "Guamis scheme", which they allege used Sunnya's resources to market and develop the Guamis brand, but allowed Sunlife to derive the benefit of that brand and to be in a position to sell products under that brand without any consideration being paid to Sunnya. It is alleged that Mr He's and Ms Lu's conduct in that respect contravened their statutory directors' duties, including ss 181-182 of the Act.

  2. Paragraphs 210BIAKff of the Further Amended Statement of Claim and following in turn plead the dealings between Mr He, Ms Lu and Supermega and Megadairy. The Plaintiffs plead that Supermega and Megadairy commenced business dealings with Mr He and Ms Lu through Sunnya and that, in about 2019, the director of Supermega and Megadairy, Mr Wu, presented an opportunity for Mr He and Ms Lu to register the Guamis trademark and become the promoter and distributor of Guamis products. The Plaintiffs plead, in paragraph 210BIAK, that the Guamis opportunity was presented to Mr He and Ms Lu by virtue of their previous dealings with Supermega and Megadairy in their capacities as directors of Sunnya. They plead an entry into a Brand Establishment and Business Agreement which provided for registration of the Guamis trademark in Australia in the name of Sunlife, or an associated company, and I have noted above that the trademark was registered in the name of Sunlife, a company associated with Mr He's and Ms Lu's daughter. They plead that Mr He and Ms Lu have thereby diverted a corporate opportunity away from Sunnya and plead a contravention of the Act in that respect.

  3. I have not neglected the fact that Mr Harding points to a pleading that Mr He's conduct was not in the interests of Sunnya and was not carried out for a proper purpose, and contends that Supermega and Megadairy were not on notice of that matter; however, that pleading is superfluous so far as a contravention of s 181 of the Act is concerned, where all that is necessary for such a contravention is that the director improperly used their position to gain an advantage for themselves or someone else or caused detriment to the corporation.

  4. The Plaintiffs then plead that Supermega and Megadairy, through their director Mr Wu, had knowledge of relevant matters and plead that Supermega and Megadairy was, or would be, involved with the relevant contraventions of the Act within the meaning of s 79 of the Act. Mr Harding responds that there is no specific pleading of the nature of the future contravention that would occur; however, it is apparent from Mr Wu's evidence in this application that Supermega and Megadairy will, if permitted to do so, accept orders from Sunlife or entities associated with Mr He and Mr Liu for Guamis branded products, to be sold to the exclusion of Sunnya selling those products. By paragraph 210BIBBA of the Further Amended Statement of Claim, Sunnya seeks injunctive relief to prevent that occurring in respect of Supermega, and the same relief is sought in respect of Megadairy in paragraph 210BIBEA. That injunctive relief plainly enough relies on s 1324 of the Act which relevantly provides that, where a person is proposing to engage in conduct that would constitute being directly or indirectly knowingly concerned in, or party to, the contravention by a person of the Act, then the Court may, on the application of the person whose interests would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate.

Affidavit evidence

  1. Turning to the affidavit evidence, the Plaintiffs rely on the affidavit dated 17 February 2023 of Mr Wang, a director of Sunnya, and the managing director of Jatcorp, who refers to the registration of Sunlife and the circumstances in which it took up the Australian trademark for Guamis branded products. He also observes that, from January 2023, a website with a Chinese registration started to market Guamis branded products, having removed an earlier reference to the "Neurio" brand in the product line identification, and he refers to the identification of the Chinese exclusive distributor on the product information. An exhibit to his affidavit contains a photograph of the Guamis product packaging which records Megadairy as the manufacturer of that product, which there appears without a reference to the Neurio brand.

  1. Supermega and Megadairy in turn read the affidavit dated 1 March 2023 of Mr Wu, who indicates that he commenced business dealings with Mr He and Ms Lu in about 2019, including through companies they appeared to control, including Sunnya, Sunlife and GABT. Mr Harding submits that there is no evidence that the commencement of business dealings with Mr He and Ms Lu had any connection with Sunnya. I do not accept that submission, because Mr Wu himself says that he commenced those dealings through companies Mr He and Ms Lu appeared to control, including Sunnya, and that establishes an arguable basis that those dealings commenced with Mr He and Ms Lu in their capacity as directors of Sunnya, even if they also commenced in their capacity as directors of other companies. Mr Wu in turn explains why he has had limited communication with personnel from Sunnya since November 2022, making some bold self-serving observations about his wish to avoid infringement of the trademark law of China and of his assessment of the current management team of Sunnya.

  2. Mr Wu also refers to the entry into a Brand Establishment and Business Agreement in respect of Guamis branded products, and I was taken to that agreement in the course of submissions. That agreement records that Supermega "opened up a line of liquid products and is able to design excellent product formulations"; that Mr He and Ms Lu had "excellent management experience" and "are able to create factories and get a lot of orders and now they are entrusted to find cooperation partners", and that agreement in turn refers to the brand being registered by Sunlife or its appointed company, implicitly a company other than Sunlife. Mr Harding points to that document as establishing a lack of relationship between the development of the opportunity and Sunnya. That matter arguably evidences the breach by Mr He and Ms Lu of their statutory duties owed to Sunnya, rather than displacing such a breach.

  3. Mr Wu in turn referred to the losses which could be suffered by Supermega and Megadairy, if he was unable to accept offers to supply Guamis branded products from Mr He, Ms Lu and their associated companies, including Sunlife and GABT, and referred to the potential scale of such opportunities. Mr Harding has rightly accepted that that evidence now does not take Supermega and Megadairy very far in opposing injunctive relief, where Mr He, Ms Lu, Sunlife and GABT are all the subject of interlocutory injunctions which would prevent them placing such orders with Supermega and Megadairy, and the only circumstances in what such orders could be placed would be if those injunctions were contravened, or if they were evaded by an attempt to nominate another entity to purchase such products from Supermega and Megadairy.

Applicable principles and the parties’ submissions

  1. Turning now to the applicable principles, the alleged breach of Mr He’s and Ms Lu’s statutory duties under the Act has the nature of a "corporate opportunity" claim and that concept is taken up in the Plaintiffs’ pleadings of the relevant claims. I reviewed the nature of such a claim at some length in Re Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510, and I do not understand that review to have been adversely affected by the appeal from that decision. I there noted that the diversion of a "corporate opportunity" is a particular example of a contravention of the no conflict and no profit rules, which are in turn broadly reflected in s 182 of the Act. I also referred to Natural Extracts Pty Limited v Stotter (1997) 24 ACSR 110 at 138, where Hill J noted that a fiduciary must account for a profitable benefit if it was obtained "by reason of his fiduciary position or by reason of his taking advantage of an opportunity or knowledge derived from that fiduciary position" and to SEA Food International Pty Ltd v Lam (1998) 16 ACLC 552 at 557, where Cooper J in turn noted that what was necessary to establish such a breach was "a sufficient temporal and causal connection between the obligations and the opportunity" and pointed to relevant factors in that regard. The case law, including Streeter v Western Areas Exploration Pty Ltd (No 2) (2011) 82 ACSR 1; [2011] WASCA 17 has in turn referred to the relevance of any duty of a director to seek out an opportunity, which may depend upon whether that opportunity was outside the actual or intended line of the company's business. There is no suggestion here that the distribution of milk products, into the Chinese market, was outside the intended or actual scope of Sunnya’s business.

  2. Mr Foreman submits that there is a seriously arguable case that Supermega and Megadairy were knowingly involved in a contravention of s 182 of the Act, so far as they were associated with that contravention from its origin, having brought an opportunity to Mr He and Ms Lu, and having seen Mr He and Ms Lu take up that opportunity in an entity other than Sunnya. He submits that injunctive relief should be granted, because the manufacture, sale or export of Guamis products by Supermega and Megadairy, for Mr He or Ms Lu or their associate entities, would amount to a continuing knowing involvement in the relevant contravention of s 182 of the Act. That contravention seems to me to be seriously arguable in circumstances that Mr He and Ms Lu are former directors of Sunnya, or former officers of Sunnya, and their resignation as directors or officers of Sunnya is arguably connected with their seeking to take advantage of that opportunity.

  3. Mr Harding responds that, first, the pleaded allegations show no breach, and he undertakes a close analysis of the pleading in that respect. I do not accept that submission, when it is plain enough that there is an allegation that Supermega and Megadairy knew the essential facts of the alleged contravention, namely that the opportunity was brought to Mr He and Ms Lu in connection with their role as directors of Sunnya, and that opportunity was then taken up by another entity. Mr Harding submits, in particular, that Supermega and Megadairy through their directors did not know the essential facts of a contravention and, in particular, did not know of any impropriety in the relevant dealings, and did not know that there had been no consent to Mr He and Ms Lu taking up the opportunity through other entities. That submission is inconsistent with the approach taken by the Court of Appeal in Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266, in dealing with an allegation of knowing involvement in the contravention of directors’ duties. Leeming JA, with whom the other members of the Court agreed, there referred, with apparent approval, to the trial judge’s observation that what was necessary, for an allegation to establish knowing involvement, was that the facts known to the person alleged to have been knowingly involved, regarded objectively, demonstrated a breach of fiduciary duty. His Honour also there rejected the submission, also made by Mr Harding, that a plaintiff must establish the absence of fully informed consent, in order to fix a third party with knowledge, observing (at [139]) that:

“Where the third party knows the essential facts constituting what is prima facie a dishonest breach of duty, in which he or she is participating, then without more the third party would be liable on conventional principles.”

  1. His Honour went on to emphasise (at [140]) that, if a third party knows of the essential facts which, absent fully informed consent, amount to a breach of fiduciary duty which is a dishonest and fraudulent design, and continues to participate without inquiring whether there is fully informed consent, then the third party is liable in that respect.

  2. Mr Harding also submits that damages would be an adequate remedy. I bear in mind that s 1324 of the Act is directed to the restraint, including interlocutory restraint, of conduct that is alleged to constitute a contravention of the Act, including a person being knowingly concerned in the contravention by another person of the Act. The authorities indicate that, so far as the Court has to determine whether to grant relief under that section, its jurisdiction to do so is not limited by the equitable principles, although it will have regard to those principles in exercising that jurisdiction: CME Properties (Australia) Pty Ltd v Prime Capital Securities Pty Ltd [2016] WASC 231. It seems to me that that Mr Harding’s submission has the difficulty that it contemplates the continuance of conduct which arguably amounts to involvement by Supermega and Megadairy in a contravention of duty by Mr He and Ms Lu, which, on the face of it, would likely continue to erode any association of Sunnya with the Guamis branded product, in a manner that would be difficult to remedy by an award of damages. So far as the balance of convenience is concerned, I have noted above that Mr Harding accepts that that is now of limited relevance, where the orders which Supermega and Megadairy wish to accept are orders that Mr He, Ms Lu and their associated entities have been injuncted from placing with them.

  3. It seems to me that there is a seriously arguable case that Supermega and Megadairy are knowingly involved in the relevant contraventions, in the relevant statutory sense, where they knew of the facts constituting the contraventions, whether or not they recognised subjectively that those contraventions amounted to contraventions of the Act. In particular, there seems to me to be a seriously arguable case that Supermega and Megadairy knew that the opportunity had come to Mr He and Ms Lu, at least in part, by reason of their position with Sunnya and business dealings that had occurred with Sunnya, and knew the fact that the opportunity was taken up by Sunlife, a different entity, associated with Mr He’s and Ms Lu’s daughter, in a manner that would inevitably involve depriving Sunnya of that opportunity.

  4. I have not neglected Mr Wu’s expressed concern in his affidavit dated 1 March 2023 that the grant of injunctive relief may cause customers to “wrongly perceive that Supermega and Megadairy have acted wrong or [sic] or illegally.” To be clear, what is required for interlocutory injunction relief under s 1324 of the Act is that the Court has found that there is a seriously arguable question that Supermega and Megadairy are knowingly concerned in, or party to, the contraventions by Mr He and Ms Lu of the Act. No doubt, customers will approach that finding in the terms in which it is made, and bearing in mind, as Mr Harding points out, that it is always the case in granting interlocutory relief that a different result may follow at a final hearing, when all evidence is led. I do not accept the proposition that the Court should decline to grant interlocutory injunctive relief, where it is otherwise properly founded, because of any concern that it may be misunderstood in the market.

  5. Finally, Supermega and Megadairy put a submission that the Plaintiffs should be required to give a secured undertaking as to damages. I have rejected that submission in respect of earlier submissions of that character, where there is no suggestion that Sunnya lacks the capacity to meet an undertaking as to damages. I give little weight to any suggested difficulty arising because Supermega and Megadairy are incorporated in New Zealand, and Sunnya is incorporated in Australia, where Supermega and Megadairy have appeared in these proceedings, and have the opportunity to enforce any undertaking as to damages in these proceedings, and there is no particular procedural difficulty involved in their doing so.

  6. For these reasons, I also make orders in respect of Supermega and Megadairy in accordance with the short minutes of order initialled by me and placed in the file, and I make a further order that these orders be entered forthwith.

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Decision last updated: 15 March 2023

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Cases Citing This Decision

4

In the matter of Sunnya Pty Ltd [2024] NSWSC 403
In the matter of Sunnya Pty Ltd [2023] NSWSC 1104
Cussen, in the matter of Lindak Investment Holdings Pty Ltd [2025] FCA 675