Rhino Trading Pty Ltd v Lotte Enterprise Pty Ltd

[2024] VSC 52

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S ECI 2024 00530

RHINO TRADING PTY LTD (ACN 655 361 345) TRADING AS OTCPRO	Plaintiff
and
LOTTE ENTERPRISE PTY LTD (ACN 668 371 944)	First Defendant
and
KOW SENG CHAI	Second Defendant

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JUDGE:	M Osborne J
WHERE HELD:	Melbourne
DATE OF HEARING:	15 February 2024
DATE OF JUDGMENT:	21 February 2024
CASE MAY BE CITED AS:	Rhino Trading Pty Ltd v Lotte Enterprise Pty Ltd
MEDIUM NEUTRAL CITATION:	[2024] VSC 52

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PRACTICE AND PROCEDURE—Application for substituted service—Strauss v Macdonald [2023] VSC 226— Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 6.10.

INJUNCTION—Application to restrain defendant from departing jurisdiction—Application for a freezing order—Applicable principles—Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 37A.03—Talacko v Talacko (No 2) (2009) 25 VR 613.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S Minahan	Colin Biggers & Paisley
For the Defendants	No appearance

HIS HONOUR:

Introduction

1. On 9 February 2024, I made freezing orders in the form set out in Form 37AA of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the ‘Rules’) upon the ex parte application of the plaintiff, Rhino Trading Pty Ltd (‘Rhino’) against the defendants, Lotte Enterprise Pty Ltd (‘Lotte’) and Kow Seng Chai (‘Mr Chai’). Mr Chai is the sole director of Lotte.

1. I did not accede to an application on that day for orders for substituted service in respect of Mr Chai but I nevertheless directed that the writ, freezing order and related material (the ‘Documents’) be sent to him by email to the address [email protected] (the ‘Gmail Address’) and posted to addresses at 207 Eleventh Street, Mildura and 5 Jenkins Street, Mildura. There was no need to make orders for substituted service in respect of Lotte as personal service could be effected on it by posting a letter to its registered office unit 209/1-9 Meagher Street, Chippendale in accordance with s 109X of the Corporations Act 2001 (Cth).

1. The freezing order was made on an interim basis until 4:00pm on 15 February 2024 or further order.  The defendants did not appear when the matter returned to Court on 15 February 2024.  The plaintiff pressed for orders for substituted service on Mr Chai and sought orders restraining Mr Chai from leaving the State of Victoria, preventing him from attending any point of international departure and for the delivery up of his passport to the Prothonotary (the ‘No Departure Orders’).

1. After hearing counsel for the plaintiff, I determined to make the orders for substituted service and the No Departure Orders and provided brief oral reasons which would be the subject of later short written reasons.

The claim made in the proceeding

1. Rhino trades under the name OTCPro (and hereafter shall be referred to as ‘OTCPro’) and operates an online digital currency trading exchange.  The exchange allows members to purchase and trade in cryptocurrency.

1. The exchange is regulated by the Australian Transaction Reports and Analysis Centre (‘AUSTRAC’).  Every crypto exchange is required to be registered with AUSTRAC and has certain reporting obligations in respect of anti-money laundering and counter terrorism regulations.  The regulations require monitoring of the exchange and reporting to AUSTRAC in the event of a belief as to suspicious behaviour involving money laundering or terrorist activity.

1. In around June 2023, a company called New Everise Holdings Pty Ltd (‘New Everise’) made an application to be a user of the exchange.  In order for an applicant to be accepted certain information verifying identity must be provided.  New Everise’s application was not accepted as this information was not provided.

1. In or around December 2023, OTCPro received a new application from Lotte which was accompanied by the following supporting information:

(a)   its user address which was the Gmail Address;

(b)  a copy of Mr Chai’s driver’s licence which was in the form of a learner’s permit which listed his residential address as 5 Jenkins Place, Mildura;

(c)   Mr Chai’s mobile phone number;

(d)  A copy of a utilities bill issued on 8 October 2023 and addressed to Mr Chai for the service address at 5 Jenkins Place, Mildura; and

(e)   copies of various invoices sent to Lotte.

1. As a result of the provision of appropriate identity information, OTCPro accepted Lotte’s application. 

1. Users of the exchange deposit funds in AUD which are then credited to their trading accounts.  The funds can then be used to purchase cryptocurrency.  Once the cryptocurrency is purchased it can then be withdrawn up to a daily limit of USD100,000. 

1. OTCPro’s director, Qi Tang, observed that Lotte’s standard trading pattern was to deposit funds in AUD almost every day and then traded in a form of cryptocurrency called Tether, known by its abbreviated name USDT.  On most days, Lotte would purchase USDT and then withdraw the USDT up to the maximum daily limit of USD100,000.  The USDT would be withdrawn to a private blockchain wallet.

1. On 25 January 2024, OTCPro received five separate deposits from Lotte for AUD82,000, AUD84,000, AUD99,000, AUD99,500 and AUD99,700.  As this differed from Lotte’s previous trading pattern, Ms Tang asked for proof of the source of funds and evidence of Lotte’s business activities.  Evidence of the latter was provided by way of the provision of bank statements in an account in Lotte’s name from the Bank of Melbourne. 

1. As noted above, one of the deposits made by Lotte on 25 January 2024 was for AUD99,500.  In error, when OTCPro credited Lotte’s trading account in the exchange it mistakenly added a zero to the amount crediting AUD995,000 not AUD99,500 but did not realise the mistake until 4 February 2024.  By this time, Lotte had used the AUD that had been mistakenly credited to its account to purchase USDT and withdraw up to the daily limit of USDT.  OTCPro subsequently suspended Lotte’s account and declined a request to withdraw additional funds on 4 February 2024. 

1. According to OTCPro, it has suffered a loss as a result of the mistaken payment in the sum of AUD491,934.76 (based on the current day exchange rate of USDT as at 9 February 2024). 

(a)   Lotte’s summary of account:

Total deposit since account opening	AUD1,912,400
Total creditor deposit	AUD2,807,900
Over-credited	AUD895,500
Total USDT withdrawal	USDT1,576,104.25

(b)  25 January 2024 account balance:

True AUD balance	AUD464,263.3
AUD balance as a result of mistake	AUD1,359,763.3

(c)   Current account balance held by the plaintiff:

AUD balance	AUD248,267.3
USDT balance	USDT100,295.748

1. OTCPro  claims that the total loss is the over credited amount less the current account balance, which is AUD895,500 less the sum of AUD248,267.3 and USDT100,295,748 which is AUD491,934.76. 

1. On 4 February 2024, OTCPro sent an email to the Gmail Address asking for the mistaken payment to be returned.  There was no response.  OTCPro otherwise took the following further actions:

(a)   it called the phone number previously provided by Mr Chai and was told by the person that answered that it was not the phone number of Kow Seng Chai;

(b)  it made enquiries of the Bank of Melbourne in relation to the bank statements and was advised that the account name did not belong to the account number listed on the bank statements and that the statements were inauthentic; and

(c)   the plaintiff’s lawyers undertook a personal name search of Mr Chai in respect of records maintained by ASIC and discovered that he was also the director of New Everise Contractor Pty Ltd which listed Mr Chai’s residential address as 207 Eleventh Steet, Mildura. 

1. The plaintiff has also undertaken a search of the blockchain wallet with the address provided by Mr Chai using the website tronscan.org.  The search revealed that only AUD149.33 in assets remained in the wallet.

The freezing order

1. In making the freezing order, I was satisfied that:

(a)   the plaintiff had a good arguable case against the defendants;[1]

(b)  there was a danger that any prospective judgment would be wholly or partly unsatisfied as a result of the defendants’ actions in either removing the assets or disposing or dealing with them so as to diminish their value;[2] and

(c)   there was a real risk of assets being disposed of.[3]

[1]Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49; Zhen v Mo [2008] VSC 300, [26].

[2]Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 37A.02(1).

[3]Cardile v LED Builders Pty Ltd (1999) 198 CLR 380.

1. In relation to the requirement of a good arguable case, I was satisfied that the circumstances gave rise to a cause of action against Lotte for restitutionary remedies including moneys paid under a mistake or pursuant to contract where the consideration has totally failed.[4]  I was also satisfied of the existence of a good arguable case against Mr Chai, pursuant to the second limb of Barnes v Addy[5] on the basis that the money when received by Lotte constituted trust money and the subsequent dealings with that money were dishonest or fraudulent. 

   [4]Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1998) 164 CLR 662, 673.

   [5](1874) LR 9 Ch App 244.

1. I was satisfied that there was a risk that any prospective judgment against the defendants would be wholly or partly unsatisfied.  The alacrity with which the defendants had acted to remove the funds obtained from the account and the wallet and the circumstances of the initial receipt were such that it was possible to infer a further risk of dissipation.  The inauthenticity of the Bank of Melbourne statements added substantially to those concerns.

1. Having regard to the interim nature of the order and the provision for reasonable living expenses and reasonable legal expenses, I was satisfied that the balance of convenience favoured the grant of the freezing order. 

Substituted service

1. At the initial return of the application, the plaintiff also sought an order for a substituted form of service being service by email to the Gmail Address. 

1. On the first return of the application, I was not satisfied that there was sufficient evidence before me to establish that the sending of the Documents to the Gmail Address would be sufficient to bring the documents to Mr Chai’s attention as the only evidence before me on that day was the sending of an email to that address on 4 February 2024 to which there was no response.

1. When the matter returned to Court on 15 February 2024, OTCPro relied upon a second affidavit from Ms Tang in which she deposed to a series of further communications with Mr Chai in the period from 31 January 2024 to 3 February 2024 which showed that Mr Chai was using the email address.  In particular, on four occasions between 31 January 2024, 1 February 2024, 2 February 2024 and 3 February 2024, Mr Chai himself sent emails.  This showed that Mr Chai was clearly monitoring and using the account at least up to and including 3 February 2024.

1. Rules 6.10(1), (2) and (3) of the Rules provide as follows:

Substituted service

(1)Where for any reason it is impracticable to serve a document in the manner required by these Rules, the Court may order that, instead of service, such steps be taken as the Court specifies for the purpose of bringing the document to the notice of the person to be served.

(2)Where the Court makes an order under paragraph (1), the Court may order that the document be taken to have been served—

(a)       on the happening of any specified event; or

(b)       on the expiry of any specified time.

(3)The Court may make an order under paragraph (1) notwithstanding that the person to be served—

(a)       is out of Victoria; or

(b)       was out of Victoria when the proceeding commenced.

1. The principles regarding substituted service have been recently addressed in a number of cases, including Strauss v Macdonald[6] and Sanc (Australia) Pty Ltd v Dixon[7] and need not be repeated here.  Relevantly for present purposes, the authorities establish that it is not necessary for an applicant for an order for substituted service to prove that personal service is impossible or futile.[8]  Urgency is a relevant factor in assessing the impracticability of service.[9]  For substituted service to be ordered, the Court must be satisfied that the steps proposed to be taken are likely to bring the originating process to the attention of the relevant defendant.[10]

   [6][2023] VSC 226.

   [7][2020] VSC 872.

   [8]Royal Express Pty Ltd v Huang (No 3) [2021] FCA 611.

   [9]Ibid [8]-[10]; Park v Tschannen (2016) 341 ALR 452.

   [10]Foxe v Brown (1984) 58 ALR 542, 546-7; Chen v Blockchain Global Limited [2020] VSC 751.

1. I am satisfied that in the circumstances it is impracticable to seek to effect service personally; Mr Chai has given two addresses in Mildura such that his whereabouts are not clear.  The extent of the over crediting of his account, the alacrity with which he has sought to move the funds out of the account, the absence of any response to the request that he refund the overpayment and his apparent deployment of the forged Bank of Melbourne bank statements all give rise to a significant concern that Mr Chai will not be a person upon whom service can be effected easily.  There is also significant urgency given the nature of the orders made.  The combination of urgency and the likely difficulty in effecting service is such that I am satisfied that personal service is impracticable.

1. I am also satisfied that sending the Documents to the Gmail Address is likely to bring the documents to Mr Chai’s attention.  In particular, I am satisfied that Mr Chai’s regular usage of the Gmail Address up to 3 February 2024 is sufficiently proximate in time such that it can be inferred that he actively maintains that account.[11]  Further, when the Documents were sent by email to the Gmail Address on 9 February 2024, the sender received a Microsoft delivery notification which serves to confirm that the email had been delivered to that address.  A read receipt sent by the destination server would have confirmed that it has been read but this is not determinative as it depends on the email settings which have been established.

   [11]Cf Strauss v Macdonald (n 6) where Connock J was not satisfied that emails sent some 7-8 months prior to the application for substituted service are such that it could be said that the email address was or remains an email address controlled by the defendant and currently being used by him.

1. As a supporting mode of service, the order contemplates that service will be made to the company’s registered office.  Whilst there is no direct evidence of Mr Chai’s communications with that address, as the sole director of the company which was, on Mr Chai’s account actively carrying on business, it should be inferred, absent evidence to the contrary, that Mr Chai is conducting his affairs in a regular manner such that he could be expected to be in receipt of communications sent to that address.

1. Accordingly, on 15 February 2024 I made orders for substituted service to the effect that service by email and by posting a copy to the address of the first defendant’s registered office would constitute good sufficient service on the second defendant.

Application for No Departure Orders

1. At the further return of the matter before me on 15 February 2024, OTCPro also made application for No Departure Orders against Mr Chai.

1. The jurisdictional basis of such orders was discussed by Habersberger J in Talacko v Talacko (No 2).[12] 

   [12](2009) 25 VR 613, [23]-[46].

1. In that case, his Honour concluded that the Court had power to make No Departure Orders on three separate but related bases. First, his Honour accepted that r 37A.03 of the Rules was a possible source of power. Rule 37A.03 provides:

Ancillary order

(1)The Court may make an order (an ancillary order ) ancillary to a freezing order or prospective freezing order as the Court considers appropriate.

(2)Without limiting the generality of paragraph (1), an ancillary order may be made for either or both of the following purposes—

(a)eliciting information relating to assets relevant to the freezing order or prospective freezing order;

(b)determining whether the freezing order should be made.

1. Given the transferability of cryptocurrency, and noting that the terms of the freezing order require the defendants to, inter alia, provide a disclosure affidavit, I am satisfied that the No Departure Orders may be appropriate in circumstances where there is a concern that the person otherwise required to make the affidavit may abscond from the jurisdiction, thus resulting in the order for the provision of the disclosure affidavit being ignored. In appropriate circumstances the making of No Departure Orders may be necessary to ensure that the respondent to the order remains in the jurisdiction and hence can provide an affidavit which provides information relating to assets relevant to the freezing order. Further and in any event, I note that the discretion conferred by r 37A.03 of the Rules is very broad with the matters set out in subparagraph (2) of the order being only examples of the types of orders that can be made. I agree with his Honour’s conclusion in Talacko v Talacko (No 2) that a court might consider it appropriate that a no departure injunction be granted as an ancillary order to a freezing order in order to prevent its orders being abused.

1. Similarly, I agree with his Honour that the statutory power of the Court conferred by s 37 of the Supreme Court Act 1986 (Vic) to grant an injunction, interlocutory or final, ‘if it is just and convenient to do so’ constitutes a separate source of power.

1. In Bayer AG v Winter,[13] Fox LJ, with whom Ralph Gibson CJ agreed, made No Departure Orders pursuant to s 37(1) of the Supreme Court Act 1982 (UK) which is in similar terms to the Victorian s 37(1) quoted above. Fox LJ wrote that:[14]

… the court has a wide discretion to do what appears to be just and reasonable in the circumstances of the case. 

The court has to exercise that discretion according to established principles, and the particular matter with which we are concerned at the moment, namely of an injunctive restraint on a person leaving the jurisdiction, is not one on which there appears to be previous authority. It is clear, however, that the law in relation to the grant of injunctive relief for the protection of a litigant’s rights pending the hearing of an action has been transformed over the past ten years by the Anton Piller and Mareva relief which has greatly extended the law on this topic as previously understood so as to meet the needs of justice.

Bearing in mind we are exercising a jurisdiction which is statutory, and which is expressed in terms of considerable width, it seems to me that the court should not shrink, if it is of opinion that an injunction is necessary for the proper protection of a party to the action, from granting relief, notwithstanding it may, in its terms, be of a novel character.

…

Therefore it seems to me that the court is faced with a situation in which there is a risk to the plaintiffs that they may not obtain the information ordered to be disclosed, unless the order which is now sought is granted; while, at the same time, any risk of hardship to the first defendant is dealt with by his capacity to apply to a judge to vary or discharge the order.

[13][1986] 1 WLR 497.

[14]Ibid 502.

1. Third, Habersberger J considered that the Court had inherent power to make orders for the purposes of preventing the abuse of its processes or for the purposes of advancing the administration of justice and therefore in an appropriate case such power justified the making of No Departure Orders for one or other of those purposes. 

1. A No Departure Order involves the restriction of a subject’s liberty and as such needs to be exercised with caution.  Mindful of that caution, I was nevertheless satisfied that there was a reasonable basis to apprehend that if no order was made, Mr Chai may depart the jurisdiction such as to render the freezing order and this Court’s power to make final orders against him unenforceable and of no practical consequence.  As such, I consider that there is a basis to make the order by references to all three sources of power suggested.

1. In reaching that conclusion, I note that in Kea Investments Ltd v Wikeley (‘Kea Investments’),[15] Cooper J of the Supreme Court of Queensland made such an order in circumstances where his Honour accepted that there was probable cause for believing that the respondent was about to quit the jurisdiction unless restrained from doing so and that the absence of the respondent from the jurisdiction would materially prejudice the applicant and the prosecution of the action.

   [15][2023] QSC 79 (‘Kea Investments’)

1. I do not take his Honour’s reasons as suggesting that it is an irreducible requirement as to the making of such an order that the applicant be able to point to evidence that establishes that it is more probable than not that the respondent will depart the jurisdiction.  Indeed, in Kea Investments, his Honour noted that ‘something less than proof on the probabilities… but more than fear… is required’.[16] 

   [16]Ibid [66].

1. In my view, the nature of the jurisdiction is one which lends itself more readily to a broad evaluative judgment as to whether the circumstances of the case are such that there is a real risk of the Court’s powers being abused or rendered ineffective if an order is not made.  As part of that evaluative judgment, a court will no doubt take account of the fact that such an order interferes with the liberty of an individual and will not lightly make such an order.

1. In my view it is appropriate to make such an order here; the apparent circumstances of the case are such that the defendants have received a very significant payment wrongly credited to Lotte’s account in circumstances where it must have been aware of the overpayment.  Despite this, the defendants have dissipated the funds in short order apparently for their own purposes and ignored OTCPro’s request to return the money.  Further, the defendants have used apparently forged bank statements for their own purposes.  The company search material discloses that Mr Chai was born in Malaysia which suggests overseas ties and the evidence relating to his presence in Australia is suggestive of no firm ties; the company searches disclose two different addresses in Mildura whilst the registered office of Lotte is in New South Wales.  Overall having regard to the nature of the cause of action alleged against him, the lack of any ties to Victoria and Australia and the existence of apparent ties to another country, there is a real risk that Mr Chai may depart the jurisdiction so as to render the Court’s processes ineffective.  The balance of convenience favours the grant of such orders.  The order is made on an interlocutory basis and in any event it remains open to Mr Chai upon being served with the order to seek its variation and/or discharge if he is able to satisfy the Court that there is no basis for any apprehension that he may depart the jurisdiction or alternatively there is a legitimate reason for him doing so.  The plaintiff also provided an undertaking as to damages.

1. Accordingly, I made orders in the form sought.