Yan v Zhang
[2019] FCCA 2990
•21 October 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| YAN & ANOR v ZHANG | [2019] FCCA 2990 |
| Catchwords: BANKRUPTCY – Application to review a sequestration order made by a registrar – whether the court should go behind the judgment – whether the deed on which the judgment and the bankruptcy notice were based was unenforceable – whether the deed stifled a prosecution – whether the relevant clauses are severable – whether the debtor entered the deed under duress – whether the debtor is solvent. |
| Legislation: Bankruptcy Act 1966, s.52(1)(2) Federal Circuit Court of Australia Act 1999, s.104(2) |
| Cases cited: Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40; (1989) NSW ConvR 55-476 Kerridge v Simmonds (1906) 4 CLR 253; (1906) 13 ALR 459; [1906] HCA 66 Louis Vuitton Malletier SA v Design Elegance Pty Ltd (2006) 149 FCR 494; (2006) 225 ALR 541; (2006) 67 IPR 611; [2006] FCA 83 Public Service Employees Credit Union Co-operative Ltd v Campion (1984) 56 ACTR 39; (1984) 75 FLR 131; [1983-84] ANZ ConvR 699; (1984) ASC 55-349 Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132; (2017) 345 ALR 534; (2017) 91 ALJR 803; (2017) 122 ACSR 115; [2017] HCA 28 Yan & Anor v Zhang [2018] VSC 694 |
| First Applicant: | WEIMIN YAN |
| Second Applicant: | SHANGHAI YINGYUE INVESTMENT GROUP CO PTY LTD (CHINESE BUSINESS REGISTRATION NO.310107000117626) |
| Respondent: | HENG ZHANG |
| File number: | MLG 1783 of 2019 |
| Judgment of: | Judge Riley |
| Hearing date: | 7 October 2019 |
| Date of last submission: | 7 October 2019 |
| Delivered at: | Melbourne |
| Delivered on: | 21 October 2019 |
REPRESENTATION
| Counsel for the applicants: | Amanda Carruthers |
| Solicitors for the applicants: | SBA Law |
| Counsel for the respondent: | Michael G R Gronow QC with Lana Collaris |
| Solicitors for the respondent: | Hopkins Lawyers |
ORDERS
The application filed on 29 August 2019 for review of the decision made on 8 August 2019 by a registrar be dismissed.
The petitioning creditors’ costs of the application for review, including reserved costs, be paid from the bankrupt estate in accordance with the Bankruptcy Act 1966.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 1783 of 2019
| WEIMIN YAN |
First Applicant
| SHANGHAI YINGYUE INVESTMENT GROUP CO PTY LTD (CHINESE BUSINESS REGISTRATION NO.310107000117626) |
Second Applicant
And
| HENG ZHANG |
Respondent
REASONS FOR JUDGMENT
Introduction
This matter comes before the court on an application by a bankrupt under s.104(2) of the Federal Circuit Court of Australia Act 1999 for review of a sequestration order and associated orders made by a registrar. Applications of this nature are hearings de novo. The applicants are the petitioning creditors and the respondent is the debtor. The application was brought within the time permitted by the rules of court. The question for the court is whether, on the material before the court, a sequestration order should be made.
The application is governed by s.52(1)(2) of the Bankruptcy Act 1966 (“the Act”), which provides that:
(1)At the hearing of a creditor's petition, the Court shall require proof of:
(a)the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
…
(2)If the Court is not satisfied with the proof of any of those matters, or is satisfied by the debtor:
(a) that he or she is able to pay his or her debts; or
(b)that for other sufficient cause a sequestration order ought not to be made;
it may dismiss the petition.
The petitioning creditor provided the formal proofs. The debtor argued that the court should go behind the judgment in this case. The debtor argued that the deed on which the judgment and the bankruptcy notice were based was void because it contained clauses that stifled a prosecution, and because the debtor entered into the deed under duress.
Background
The applicant’s outline of submissions filed on 4 October 2019, summarises the background to this matter as follows:
2.1On 31 July 2015 a Writ with Statement of Claim was filed by the Applicants against the Bankrupt in the Supreme Court of Victoria, proceeding SCI 2015 3944 relating to loans and personal guarantees provided by the Bankrupt (Original Proceedings).
2.2In the Original Proceedings, orders were sought by the Applicants against the Bankrupt, including:-
2.2.1Damages of CNY3,000,000 in favour of the First Applicant; and
2.2.2Damages of CNY22,000,000 in favour of the Second Applicant.
2.3In the Original Proceedings, the Applicants successfully obtained freezing orders against the assets of the Bankruptcy, and against Ausen International Pty Ltd (ACN 081 997 248) (Ausen) and Xiao Qun Huang (Huang) (Freezing Orders).
2.4The parties attended a court ordered mediation on 3 May 2017. All parties were legally represented.
2.5On or around 3 May 2017 a Deed of Settlement was entered into between the parties together with Ausen and Huang to settle the dispute (Deed).4
4 A copy of the Deed is exhibited at HZ-D to the Bankrupt’s 1 August 2019 Affidavit filed in this proceeding.
2.6The Deed contained terms relating to payment of monies from the Bankrupt to the Applicants, including:-
2.6.1The Bankrupt and Ausen direct and authorise $500,000 to be paid from their lawyers’ trust account to the Applicants;
2.6.2The Bankrupt would sell 205/370 St Kilda Road, Melbourne and (following specified distributions and expenses) would provide all sale proceeds to the Applicants; and
2.6.3The Bankrupt would make a lump sum payment of $1,000,000 in cleared funds to the Applicants via their lawyers by 3 May 2018.
2.7The Deed contained further terms, including interest payable and disposal of the Original Proceedings. [And that the applicants would, within seven days of the payment of the $500,000, ask the Chinese authorities to withdraw criminal complaints against the debtor and, if the applicants did not make the request within the specified time, the debtor would not be required to pay the $1,000,000 to the applicants.]
2.8On or around 5 May 2017 the Bankrupt remitted payment of $500,000 to the Applicants.5
5 Weimin Yan & Shanghai Yingyue Investment Group Co Pty Ltd -v- Zhang [2018] VSC 694 (Judgment) [25]. The judgment is exhibited at MEB3 to the 7 August 2019 Affidavit of Miranda Ellen Bordignon.
2.9On or around 6 May 2017, copies of the request to withdraw criminal complaints were forwarded by the Applicants to multiple recipients by domestic standard express post.6
6 Judgment at [32].
2.10On or around 9 May 2017, receipt of $500,000 was confirmed by the Applicants’ solicitors and copies of the request to withdraw criminal complaints previously sent to the relevant authorities were forwarded to the solicitors for the Bankrupt.7
7 Judgment at [27].
2.11The Bankrupt did not pay the Applicants the required $1,000,000 by 3 May 2018 or at all.8
8 Judgment at [2].
2.12On 6 June 2018 the Applicants issued a summons in the Original Proceeding seeking judgment against the Bankrupt pursuant to the breach under the Deed.9
2.13A Directions Hearing was held on 29 June 2018,10 with the application being heard on 13 November 2018, and judgment was handed down on 4 December 2018.
2.14Among other matters, the withdrawal of the criminal complaint was raised at the Directions Hearing by Justice Kennedy.11 Pertinently, it was noted by the Bankrupt’s legal representative that the Bankrupt had “demanded” the relevant clause.12
2.15A list of agreed issues in dispute was provided by the parties, and referred to and relied on at the hearing13 and in Justice Kennedy’s judgment.14
2.16Justice Kennedy expressly confirmed, and Counsel for all parties agreed, that only the matters in the list of agreed issues were being raised, and: “[t]here’s no issues about enforceability of the deed, et cetera, just the issues that are in that list.”15
2.17The critical matter in contest [before Kennedy J] was whether the Applicants breached their obligation to withdraw their criminal complaint to the relevant Chinese authorities, as agreed under the Deed, and not the propriety of that obligation.16 After a contested hearing in which all parties were legally represented, Her Honour Justice Kennedy determined that the Applicants had not breached their obligation.17
2.18Accordingly, on 4 December 2018 judgment was ordered in the Applicants’ favour due to the Bankrupt’s breach of the Deed. The orders are annexed to the Bankruptcy Notice, and comprise the claim amount of $1,000,000, interest of $58,904.10, and costs (including reserved costs) on an indemnity basis (Judgment Debt).
2.19The Judgment has not been appealed.
2.20After obtaining the Judgment, on 6 December 2018 the Applicants caused a Bankruptcy Notice to be issued (the Bankruptcy Notice).
2.21At 3.08pm on 6 December 2018 the Bankruptcy Notice was sent by ordinary pre-paid to the Bankrupt, by way of service.18
9 Judgment at [1].
10 The transcript for the Directions Hearing is exhibited at MEB2 to the 7 August 2019 Affidavit of Miranda Ellen Bordignon.
11 Transcript 29 June 2018 at T6 L30 to T7 L27.
12 Transcript 29 June 2018 at T15 L10-17.
13 Transcript 13 November 2018 at T1 L13 to T2 L7. The transcript for the Hearing is exhibited at MEB4 to the 11 September 2019 Affidavit of Miranda Ellen Bordignon.
14 Judgment at [4].
15 Transcript 13 November 2018 at T2 L2-3.
16 Judgment at [3]-[4].
17 Judgment at [107]-[110].
18 Affidavit of Service of Alexander Thomas sworn 5 June 2019.
2.22 The Bankruptcy Notice expired unsatisfied and unchallenged.
2.23The Applicants filed the Creditor’s Petition in this proceeding on 6 June 2019 (Creditor’s Petition).
2.24The Creditor’s Petition and associated documents were served on the Bankrupt on 4 July 2019.19
19 Affidavit of Service of Robert Felix Preac sworn 5 July 2019.
2.25On 9 July 2019 the Bankrupt filed a Notice of Appearance dated 5 July 2019.
2.26The first return date of the Creditor’s Petition was 11 July 2019.
2.27The Bankrupt appeared in person on 11 July 2019, and provided the Court and the Applicants’ Counsel with a document titled, “Apply for Adjournment Creditor’s Petition Hearing”. In that document, the Bankrupt stated inter alia: “I need more time to find a solicitor to help me for preparing Notice of Stating Grounds of Opposition and affidavit plus supporting documents.”
2.28The Court granted an adjournment to 11am [on] 8 August 2019.
2.29The Bankrupt filed a Notice of Opposition and Affidavit in Support on 1 August 2019. The grounds of opposition appear to be:-
2.29.1A related entity has a counterclaim, set off, cross demand, equitable right to compensation or contribution or the like, in relation to a proceeding in China;20 and/or
20 Notice of Opposition at [1].
2.29.1The Applicants have acted unconscionably against the Bankrupt, and have not taken all available steps to withdraw the criminal complaint referred to above, and the “arrangement ought not be enforced”.21
21 Notice of Opposition at [2]-[6].
2.30The second return date of the Creditor’s Petition was heard on 8 August 2019. The Bankrupt again appeared in person, and sought an adjournment.
2.31The request for a further adjournment was denied, and the Sequestration Order was made. Petr Vrsecky was appointed Trustee over the Bankrupt’s estate.
2.32On 29 August 2019 the present application for review was filed with the Bankrupt’s Affidavit in Support.
2.33The Bankrupt appeared in person on 5 September 2019 at the first return date, before Judge Riley.
2.34Judge Riley made orders on 5 September 2019, including that the Bankrupt:-
2.34.1File and serve an affidavit regarding service on the creditors of the notice to creditors on or before 12 September 2019; and
2.34.2File and serve any other affidavit on or before 26 September 2019.
2.35No further Affidavits or other documents have been received from the Bankrupt, following the 5 September 2019 return date.
Following the filing of the applicants’ written submissions on 4 October 2019, the applicant filed an affidavit on 4 October 2019 and another on 7 October 2019.
The Supreme Court judgment
The bankruptcy notice was based on the Supreme Court of Victoria judgment dated 4 December 2018 in a proceeding between the applicants and the debtor, namely, Yan & Anor v Zhang [2018] VSC 694. In that proceeding, the principal question was whether the applicants had complied with their obligation under the deed to request the Chinese authorities to withdraw a criminal prosecution brought by the applicants against the debtor. Kennedy J clarified with the parties that they did not wish to ventilate the issue of whether the deed was enforceable at all.
Kennedy J said at [4] of the judgment:
In the result, the parties co-operated to agree that there are only 3 issues for determination (with no other issues, for example as to the enforceability of the Deed)2 as follows:
1.Did the Plaintiffs breach their obligation to submit a request to the Chinese authorities in accordance with clause 1.10 of the Settlement Deed?
2.If yes to [1], was the Defendant’s notice dated 16 May 2017, further or alternatively the Defendant’s notice dated 20 July 2018, an effective written notice of the breach for the purposes of clause 1.11 of the Settlement Deed?
3.If yes to [1] and to [2], did any breach of which written notice was given continue for a period of 7 days following written notice of the breach?
If the Defendant establishes that the answer to each of [1], [2] and [3] is “yes”, the Defendant is released from his obligation to pay the “Balance” under clause 1.8 of the Settlement Deed.
If the Defendant does not establish that the answer to each of [1], [2] and [3] is “yes”, the Defendant is liable to pay the Plaintiffs the Balance plus interest and costs, and the Plaintiffs are entitled to judgment accordingly under clause 3.1 of the Settlement Deed.3
2 Transcript of Proceeding (13 November 2018) 1–2.
3 See ‘Agreed List of Issues for Determination at the Hearing on 4 October 2018’ (Agreed List of Issues).
Ultimately, her Honour concluded that the applicants had sent the requests to withdraw the criminal proceedings in the required timeframe and that the debtor was therefore liable to pay the $1,000,000 plus interest to the applicants.
The issue in the present proceeding
The issue in the present proceeding is one that was not resolved by Kennedy J, namely, whether the deed was enforceable insofar as it required the payment of $1,000,000. That turned on whether the deed was unenforceable for reasons of duress or because it stifled a prosecution.
In circumstances where the issue now sought to be ventilated was not dealt with by the court which gave the judgment on which the bankruptcy notice was based, there is scope to go behind the judgment. It is well established that a court exercising bankruptcy jurisdiction may go behind a judgment and assess for itself whether, in truth and reality, there is a debt. In my view, this is a case in which it is appropriate to go behind the judgment.
The deed
The recitals to the deed explained that the applicants claimed RMB25 million (about $A5,000,000) from the debtor under certain guarantees and oral promises.
In addition to the requirements for the debtor to pay the applicants $500,000 and the proceeds of the sale of a property in St Kilda Road, the deed contained the following clauses:
Payment of AU$1 million
1.8[The debtor] agrees to pay [the applicants] the sum of AU$1 million (Balance) in cleared funds … by 3 May 2018.
…
Criminal prosecution
1.10Within seven days of receipt of the AU$500,000 under clause 1.2, [the applicants] shall submit a request to all relevant Chinese authorities seeking to withdraw any and all criminal complaints against [the debtor] and Yang Maoqiang (of Shanghai Xie Law Firm) instigated by [the applicants] in China. [The applicants] shall provide a copy of the request to [the debtor’s] solicitors within seven business days of submitting the request.
1.11If [the applicant’s] breach their obligation to submit a request to the Chinese authorities in accordance with clause 1.10 of this deed, and the breach continues for a period of seven days following written notice of the breach by [the debtor], then [the debtor] shall be released from his obligation under clause 1.8 to pay the Balance.
1.12In addition to the obligation set out in clause 1.10, [the applicants] will take any further reasonable steps within their power to support the termination of criminal proceedings arising as a result of the criminal complaints referred to in clause 1.10 against [the debtor] and Yan Maoqiang.
Authorities
The parties agreed that the leading case on whether an agreement is void because it stifles a prosecution is Kerridge v Simmonds (1906) 4 CLR 253; (1906) 13 ALR 459; [1906] HCA 66. In that case, at 258, Griffiths CJ quoted from Keir v Leeman 6 QB 308 at 321 where Tindal CJ said:
We have no doubt that, in all offences which involve damages to an injured party for which he may maintain an action, it is competent for him, notwithstanding they are also of a public nature, to compromise or settle his private damage in any way he may think fit. It is said, indeed, that in the case of an assault he may also undertake not to prosecute on behalf of the public. It may be so; but we are not disposed to extend this any further.
Griffiths CJ went on to say at 258 to 259 and at 260:
This case [Keir v Leeman] establishes, in my opinion, that there is no objection to compromising a claim for private injury resulting from an act which amounts to an indictable offence provided that it is not a matter of public concern. As to the argument founded on the concluding words of Tindal, C.J, I would point out that an agreement by an individual not to prosecute can only bind himself, and cannot prevent the assertion of the rights of the public by anyone else. That case has been referred to in several later cases.
…
In the case of Windhill Local Board of Health v. Vint the question was again considered. The question there was as to an agreement to compromise a prosecution for a nuisance, Cotton L.J. said:—
To my mind, the reason of the rule goes deeper than that; it is this, that the Court will not allow as legal any agreement which has the effect of withdrawing from the ordinary course of justice a prosecution when it is for an act which is an injury to the public.
Fry L.J. said:—
It appears to me that the law on this point is determined by the case of Keir v. Leeman 56 Q.B., 308; 9 Q.B., 371. That lays down this principle, which I take to be one of general application, that where the matters of indictment are matters of public concern they are not the subject of compromise.
All the learned Lords Justices thought it necessary to show that the matter under consideration was one of public concern, and for that reason, which was assumed to be the governing consideration, it was held that the agreement in question was void because it was an agreement to stifle the course of public justice. Upon the authority of these cases I am of opinion that the law allows the compromise of a prosecution for oral defamation for which the injured party can sue and recover damages. … the injury complained of was a purely personal injury. … For these reasons I am of opinion that it is not unlawful for a person defamed, or who has sustained purely personal injury, to withdraw a prosecution already instituted for such an offence, or to agree not to institute such a prosecution.
Where a person is entitled to recover pecuniary damages, the suggestion that there is a social duty incumbent upon him to prosecute is untenable. The law allows him either to prosecute or to sue for damages, and I can see nothing to prevent him from agreeing to receive an indemnity for the personal injury he has sustained, leaving the representatives of the public to prosecute if they think fit. If, as in some cases, he is the only person entitled to institute the prosecution, then a fortiori it is a matter of private, and not of public, concern.
(citations omitted)
Barton J was very clear in Kerridge v Simmonds that the slander in that case was not a matter of public interest. His Honour said at 262 to 263:
I fail to see how by any possible construction those proceedings can be called matters in which the public had an interest, in the sense in which that expression is used in the case to which I have referred. If there was any injury, "the personal interest of the injured party is really above the matter in question." Can it be said that any wrong was done to society by the abandonment of this prosecution, or that any good would have been done to society by persisting in it? I think that, so far as public interest was concerned, it was more in the interest of society that this dirty linen was not washed in public. In such a case there was no question of an attempt to stifle a prosecution in the sense in which that expression is used in the cases.
In Kerridge v Simmonds, the offence in question was a slander. The High Court considered that the offence was not of a matter of public concern, and therefore the agreement to stifle the prosecution of that offence was not contrary to public policy and the agreement was enforceable.
In Public Service Employees Credit Union Co-operative Ltd v Campion (1984) 56 ACTR 39; (1984) 75 FLR 131; [1983-84] ANZ ConvR 699; (1984) ASC 55-349, a man illegally obtained some money from a credit union. His father agreed to enter into a guarantee on the promise that the credit union would not be involved in a prosecution of his son. The Supreme Court of the Australian Capital Territory found that agreement to be unenforceable.
Kelly J said in Campion at 138 to 140:
In Williams v Bayley (1866) LR 1 HL 200, the respondent, a businessman of substance who owned a colliery and occupied a large farm and who had his solicitor present at material times, mortgaged property to the appellants, bankers, on being informed that his son had committed various forgeries. There was no explicit threat, but the bankers had made it clear that they had it in their power to prosecute the son for felony. The solicitor for the bankers, then present, said it was “a serious matter” and the respondent's solicitor added, “a case of transportation for life”. At first instance the Vice-Chancellor (Sir John Stuart) set aside the mortgage: Bayley v Williams [1864] 4 Giff 638 ; 66 ER 862. The headnote to the report reads in part:
“The assent which is necessary to the validity of an agreement in [the] Court [of Chancery] must be an assent uninfluenced by any power which the one party may have of operating on the fears of the other.”
The decree was upheld in the House of Lords. Lord Cranworth LC said (at p 213):
“Lord Ellenborough positively states that which has always been understood to be the correct view of the law upon this subject, namely, that although in that case there was no reason for treating the agreement as invalid, yet it would have been otherwise if the agreement had been substantially an agreement to stifle a criminal prosecution …. Now, is the agreement in question, or is it not, one the object of which is to stifle a criminal prosecution? If there be any case in which that character can be properly given to an agreement I think that this is such a case, and therefore, in my opinion, the decree is perfectly right.”
...
In Kerridge v Simmonds (1906) 4 CLR 253, the High Court considered the question of agreements to stifle prosecution. That case is also, in my opinion, authority for the proposition that an agreement to stifle the course of public justice is void. Barton J cited Jones v Merionethshire Permanent Benefit Building Society [1892] 1 Ch 173 with approval. In that case the secretary of a building society had made default in accounting for money paid to him, and was threatened with a prosecution for embezzlement. He applied for assistance to the plaintiffs who gave a written undertaking to the society to make good the greater part of the debt due from the secretary and two promissory notes and some title deeds as collateral security. It was proved that in giving the undertaking they were actuated by a desire to prevent the prosecution, that that was known to the directors of the society but no promise was made that there should be no prosecution. The society brought an action on the promissory notes, but it was held that it was an implied term of the agreement that there should be no prosecution and that the agreement was therefore founded on an illegal consideration and was void. At p 184, Bowen LJ said:
“I will deal generally with wrongs committed against the public as well as against the individual. It is not possible to deny that embezzlement, like false pretences, is a crime committed against the public as well as against the individual, and, in deciding what steps should be taken to punish it, the person who has to deal with the case must, if he is to discharge his moral duty, conscientiously consider the public as well as himself.”
…
… Subject to their proof the facts alleged against the defendant's son would, in my opinion, constitute a larceny. He is said to have taken away money belonging to the plaintiff with the intent of converting it to his own use and making it permanently his own property without the consent of the plaintiff. The elements necessary to establish the crime of larceny are therefore present: Croton v R (1967) 117 CLR 326 at 328, per Barwick CJ.
The misappropriation alleged against the defendant's son was a wrong committed against the public and may not therefore be the subject of an agreement to stifle a prosecution in respect of it. See also s 44 of the Crimes Act 1914 (Cth) which says that:
“Any person who asks, receives or obtains, or agrees or attempts to receive or obtain, any property or benefit of any kind for himself or any other person, upon any agreement or understanding that he will compound or conceal any indictable offence against the law of the Commonwealth or a Territory, or will abstain from, discontinue, or delay any prosecution for any such offence, or will withhold any evidence thereof, shall be guilty of an offence.”
In my opinion the second guarantee was void for illegality as an agreement to stifle prosecution for an indictable public offence.
The parties also addressed the court on Louis Vuitton Malletier SA v Design Elegance Pty Ltd (2006) 149 FCR 494; (2006) 225 ALR 541; (2006) 67 IPR 611; [2006] FCA 83. In that case, Merkel J said:
[40]A further difficulty with settlement of a claim of “a criminal nature” that is in the public interest, rather than merely just in the private interest of the parties, is that it may be contrary to public policy. In Kerridge v Simmonds (1906) 4 CLR 253 ; [1906] HCA 66 , the High Court held that a settlement which involved the withdrawal of a private prosecution for unlawful publication of defamatory matter was not contrary to public policy, and therefore void, because the offence was not of a public nature but, rather, was one for which the injured persons could sue and recover damages. The principle stated by Griffith CJ (at CLR 258 ) was that:
… there is no objection to compromising a claim for private injury resulting from an act which amounts to an indictable offence provided that it is not a matter of public concern.
…
[42]When regard is had to Witham there is some difficulty in contending that a contempt claim is not of public concern and does not involve any interest of a public character.
[43]In the present case, I need not go so far as to find that claims of contempt resulting from breach of a court order cannot be compromised or settled; there was no compromise or settlement of the contempt claims that were pressed by Louis Vuitton at the hearing. However, Louis Vuitton made offers to Maskiell to compromise or settle the claims it was entitled to pursue as a result of her re-infringing conduct in breach of the court’s orders. The issue is whether Louis Vuitton’s conduct in relation to those offers ought to result in it not receiving any orders for costs and being required to pay for any costs incurred by the respondents in raising issues concerning the propriety of that conduct.
[44]Plainly, where conduct is in breach of a court order, but also gives rise to private claims for relief, the private claims may be compromised or settled. However, in the light of Witham, an aggrieved party and its solicitors should exercise prudence and caution when offering to settle claims arising out of the contravening conduct. That is particularly so when they are dealing with a litigant in person. The reason for that is that breach of a court order is criminal in nature, may result in fines and imprisonment and has the potential to constitute a criminal contempt. Accordingly, there is a real risk of impropriety, and possibly illegality, if an offer to compromise or settle the claims of the aggrieved party in respect of the contravening conduct is not reasonably and fairly based on the legal right to relief the aggrieved party has, or may have, in respect of that conduct. In other words, if the threat or prospect of contempt proceedings is used to obtain a compromise or settlement beyond that to which the aggrieved party would be entitled as a matter of law, the threat may amount to improper pressure, duress or even extortion.
[45]While the law may be in an uncertain state on this issue, it is plainly prudent that any offer of a settlement or compromise of private claims, which arise out of conduct in breach of a court order, should clearly specify the private claims that are being settled and make quite clear what is intended, or not intended in respect of the contempt claim. For example, a private litigant is not under a duty to prosecute a contempt claim. Therefore, provided that there is still a distinction between civil and criminal contempt, it may not be improper for a party to indicate that, if that party’s non-contempt claim is resolved, that party does not intend to prosecute the contempt claim. Further, even if a prosecution has commenced, it may not be improper for the prosecuting party to agree to seek to discontinue the contempt claim provided an adequate disclosure is made to the court. However, it is clear that, save where the issue of contempt is entirely excluded from the offer, the offer should be limited to matters that fall within, and do not travel beyond, the legal entitlement of the aggrieved party. At the least, the offer should be based on a reasonable and reliable estimate of that entitlement.
…
[58]In my view, the conduct of Louis Vuitton and Corrs outlined above is a serious misuse of the entitlement of Louis Vuitton to threaten and bring contempt proceedings in respect of the respondents’ conduct in breach of the consent orders. That conduct does not in any way excuse the respondents’ contempt of court, which I have found has been established. It is also not relevant to the penalties I regard as appropriate in respect of that contempt. However, it is appropriate that the court express its disapproval of the conduct by refusing to make orders for the payment by the respondents of Louis Vuitton’s costs of its contempt proceeding.
[59]It is also appropriate to order Louis Vuitton to pay the costs of counsel and solicitors acting pro bono for the respondents in so far as those costs are related, directly or indirectly, to the conduct the subject of the criticism set out in these reasons. Those costs include the costs in connection with charges 3(a), (b) and (c) and in connection with the extensive and helpful written submissions of counsel concerning whether the entitlement of Louis Vuitton to threaten and bring contempt proceedings may have been misused.
In Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40; (1989) NSW ConvR 55-476, McHugh JJA, with whom the other members of the Court of Appeal agreed, said at 45 to 46:
In my opinion the overbearing of the will theory of duress should be rejected. A person who is the subject of duress usually knows only too well what he is doing. But he chooses to submit to the demand or pressure rather than take an alternative course of action. The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress.
The debtor’s claims regarding the deed
The debtor said in paragraphs 5 to 13 of his affidavit affirmed on 4 October 2019 that:
Entry into Deed of Settlement
5.The Deed of Settlement was entered into in full and final settlement of Supreme Court of Victoria proceeding number S CI 2015 03944 (SC Proceeding). A copy of the writ and statement of claim filed in the SC Proceeding appears at annexure HZ-C of my affidavit sworn 1 August 2019.
6.In the SC Proceeding, the applicants claimed in effect that I was personally liable to pay them approximately Chinese RMB 25 million pursuant to two personal guarantees executed in October 2012 and May 2013 and a number of oral loan agreements made between December 2012 and March 2013. I denied all of these claims.
7.The SC Proceeding was listed for hearing on 2 May 2017 before Kennedy J. On that day, Kennedy J ordered the parties to attend a mediation of the matter on 3 May 2017.
8.The parties attended a mediation on 3 May 2017 in accordance with Her Honour’s orders. The mediation commenced at about 9:00 am and concluded at about 8.00pm.
9.During the course of the mediation, I was told that the applicants would settle the SC Proceeding if I:
a.paid them AU $500,000; and
b.sold a property I owned at 205/370 St Kilda Road, Melbourne (Property), and gave the applicants the proceeds of the sale after payment of reasonable selling and other costs.
10.I agreed to those terms, and they are reflected at clauses 1.2 to 1.7 of the Deed of Settlement.
11. Also during the course of the mediation, I was told that:
a.if I paid the applicants the additional sum of AU $1,000,000, then the second applicant would withdraw a criminal complaint it had made against me in China on 17 September 2013. The criminal complaint had nothing to do with the SC Proceeding. A copy of the criminal complaint made against me in China by the second applicant appears at annexure HZ-B of my affidavit sworn 1 August 2019; and
b.the first applicant had to fly back to China that night and he would walk away if I didn’t sign the Deed of Settlement that day.
12.I agreed to pay the applicants the additional sum of AU $1,000,000 to withdraw the criminal complaint against me as provided for by the Deed of Settlement because I was concerned about the criminal complaint and police proceedings in China, and the possibility of my being arrested an imprisoned there, and urgently needed (and still need) to enter China in order to sell the mall that I refer to in paragraphs 20 to 33 below. The mall is owned by Ausen Real Estate Development (Shanghai) Co Ltd (Ausen Shanghai). I have an interest in Ausen Shanghai as described from paragraphs 17 to 19 below.
13.One of the reasons I urgently needed (and still need) to enter China in order to sell the mall is because Ausen Shanghai provided a third party mortgage over the mall to Jiang Tong International Trading Co Ltd (Jiang Tong) to secure obligations owed by the second applicant to Jiang Tong. The second applicant has defaulted on those obligations and, on 20 October 2015, Jiang Tong obtained orders from the Shanghai Pudong New District People’s Court to enforce the third party mortgage. I could not enter China in order to defend that proceeding because of the criminal complaint made against me by the second applicant on 17 September 2013. A copy of the judgment and orders made by the Shanghai Pudong New District People’s Court appear at annexure “HZ-E” of my affidavit sworn 1 August 2019.
The applicants’ notes of the mediation
Annexure MP-1 to the affidavit affirmed by Milica Petronijevic on 7 October 2019 consists of her detailed, contemporaneous notes of the mediation. Those notes include the following:
FIRST OFFER (communicated as between lawyers and Wood AsJ only)
11.44AM – From Defendant
-Defendant offers to pay:
o240 million Yuan from proceeds of sale of Song Jiang property [i.e. the mall in Shanghai], with 12 months to sell it, if the mortgage is not in existence;
oIf the mortgage is in existence at the time of sale, then 270 million Yuan will be paid to Copper, with difference of 30 million Yuan being a windfall to Yingyue
-Reserve for sale is 420 million Yuan and it is on the market
Internal discussion amongst plaintiff and his representatives:
SECOND OFFER (communicated as between lawyers and Wood AsJ only)
12.10pm – From plaintiffs:
-$2.7 million
oFrozen funds paid immediately
oOther assets remain frozen with balance payable in 30 days
Rejected by defendant
McKenzie-McHarg: prepared to work with plaintiffs in China to do whatever is necessary to promote sale. Independent government valuation of Song Jiang property is about 700 million Yuan and may be prepared to pay any shortfall from his own pocket – consider guillotine order at end of 12 months in Australia as one form of compromise.
Petronijevic: please find out what total available AUD is and if assets are not on the table, explain why.
THIRD OFFER (communicated as between lawyers and Wood AsJ only)
1.20pm – From plaintiffs, following discussions between lawyers:
1.$600,000 from trust
2.Sell St Kilda Rd and give us equity. We drive the sale.
3.AU$2 million within 12 months.
4.If default on [4], default judgment entered for $2 million.
5.Full releases from all parties, including freezing order third parties.
FOURTH OFFER (communicated as between lawyers and Wood AsJ only)
2.10pm – From defendant:
1.$500,000 from trust payable immediately
2.Sell St Kilda Rd and give us equity. We can drive the sale.
3.AU$2.5 million payable from proceeds of sale of Song Jiang property.
4.No default judgment clause.
5.Releases – did not discuss terms as [4] was a sticking point.
Bigos: [3] unlikely to be acceptable as contingent on sale of Chinese property.
McGowan: if default judgment required, figure likely to be a lot lower than $2.5 million
Bigos: please take instructions on figure for [3].
FIFTH OFFER (communicated as between lawyers and Wood AsJ only)
2.46pm – From defendant:
1.$500,000 from trust payable immediately
2.Sell St Kilda Rd and give us equity. We can drive the sale.
3.Up to AU$2.5 million payable from proceeds of sale of Song Jiang property or such lesser amount as may be available to him.
4.In default of payment under [3], will consent to judgment for $300,000.
5.Full releases including withdrawal of prosecution in China and release to be operative in respect of his person liability in China.
Petronijevic: [3] should include a minimum payment of $300,000, failing which [4] is triggered. Otherwise, “lesser amount as may be available” may mean $1, in which case we would have been better off with a total default so that the $300,000 judgment was triggered.
Internal discussion between plaintiff and his representatives:
The solicitor’s notes continued, with the details of 10 offers being summarised. Counsel for the debtor expressly accepted that the solicitor’s notes were accurate. To the extent that they differ from the debtor’s recollection of the mediation, I prefer the solicitor’s contemporaneous notes.
Consideration of whether the deed stifled a prosecution
The question posed by Kerridge v Simmonds is whether the relevant offence was of a public or a private nature. In the present case, the debtor said that the offence was of a public nature. The applicants submitted that the offence was of both a public and a private nature. The applicants further submitted that Kerridge v Simmonds allowed a person to recover pecuniary damages for the private aspect of the offence, and leave it to the authorities to pursue the public aspect of the offence.
The alleged offence in the present case is described in annexure “HZ-B” to the affidavit sworn by the debtor on 1 August 2019. That annexure is a translation of a document headed, Criminal Reporting Materials. It names the applicants as the informants and the debtor as suspect 2. The document says that the applicants gave the suspects some money for a real estate deal which the suspects used for their own purposes. The document concludes:
The informant considered: the suspect 1, 2 and 3 had conspiracy to defraud large amount of money by using false information to induce informant entered into sales of property agreement. This conduct constituted contract defrauds crime in section 244 <People’s Republic of China Crimes Act>. (errors in original)
These allegations can only be regarded as criminal in nature. If the offence had occurred in Australia, I daresay it would have been indictable and it would have been a matter of public concern. The applicants’ submission, that Kerridge v Simmonds allows a person to recover pecuniary damages for the private aspect of an offence, and leave it to the authorities to pursue the public aspect of it, seems to me to be misplaced, at least in the case of an indictable offence which is of public concern.
The offence in the present case is more akin to the offence of larceny, which was the subject of Campion, rather than slander, which was the subject of Kerridge v Simmonds. In Campion, Kelly J said:
The misappropriation alleged against the defendant's son was a wrong committed against the public and may not therefore be the subject of an agreement to stifle a prosecution in respect of it.
I do not accept the applicants’ submission that they were able to enter into a contract to stifle the civil part of the alleged wrong against them, because I consider that the alleged wrong was, like the offence in Campion, an offence of public concern.
The applicants argued that the present case did not involve the stifling of a prosecution, because the complaint had already been made to the authorities, and the agreement was to withdraw, rather than lay, a complaint. However, in my view, that distinction is not relevant. In Halsbury’s Laws of England, Fifth Edition, Volume 22, paragraph 227, it is said that:
At common law, however, an agreement to stifle or withdraw from a prosecution in respect of a misdemeanour of a public, as opposed to a private, nature is against public policy, because the effect is to take the administration of the law out of the hands of the courts and to put it into the hands of a private individual to determine what is to be done in the particular case. (emphasis added)(footnotes omitted)
A footnote after the word misdemeanour says that:
Since an agreement to compound a felony was itself an offence, no such agreement could be enforceable, whether the offence compounded was of a public nature or not.
Griffiths GJ, in Kerridge v Simmonds, also saw no difference between laying a prosecution or withdrawing from an existing one. His Honour said at 260:
For these reasons I am of opinion that it is not unlawful for a person defamed, or who has sustained purely personal injury, to withdraw a prosecution already instituted for such an offence, or to agree not to institute such a prosecution.
It may be that the authorities in China, being apprised of the matter, may be able to take some action against the debtor, notwithstanding the applicants’ request to withdraw the complaint. However, the better view is probably that there is little chance of a successful prosecution, even in China, where the informants in relation to the alleged offence ask the authorities to withdraw the prosecution, and where the informants are contractually bound to help terminate the prosecution.
The applicants also argued that the agreement encapsulated in the deed did not stifle a prosecution because they did not promise that the prosecution would in fact be withdrawn and they did not promise that they would stop or impede any prosecution.
I do not consider those matters to be a material distinctions. The applicants promised to ask the Chinese authorities to withdraw the prosecution. That is sufficient to bring the case within the rule regarding the stifling of prosecutions, whether the applicants succeeded in having the prosecution terminated or not. In relation to the second point, by clause 1.12 of the deed, the applicants promised to take any further steps within their power to support the termination of the criminal proceedings. That amounts to impeding the prosecution.
The applicant argued that it was not open to the debtor to raise the issue of the enforceability of the contract in circumstances where the contract had been the subject of a Supreme Court proceeding, in which the debtor chose not to raise the issue of enforceability, and where the applicants had performed their side of the bargain, in that they had asked the Chinese authorities to withdraw the prosecution.
It does not seem to me that there can be any form of estoppel in the present proceeding. While, in general, people are required to bring their whole case in any given litigation and cannot be heard to raise other points in subsequent litigation between the same parties about the same subject matter, there is an exception in bankruptcy matters where the court goes behind the judgment to see whether there is in truth and reality a debt which founds the bankruptcy notice.
That is made clear in Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132; (2017) 345 ALR 534; (2017) 91 ALJR 803; (2017) 122 ACSR 115; [2017] HCA 28, at [54] where Kiefel CJ, Keane and Nettle JJ said:
In point of principle, scrutiny by a Bankruptcy Court of the debt propounded by a judgment creditor seeking a sequestration order in no sense involves an attempt to impeach the judgment. A Bankruptcy Court is not concerned with whether the judgment should be set aside as upon an appeal, or even as a default judgment or a judgment obtained by fraud may be set aside; nor is a Bankruptcy Court concerned to deny the effect of the judgment as “res judicata” between the parties to it. A Bankruptcy Court is not concerned to prevent the judgment creditor from invoking the ordinary processes of execution available under the general law. Rather, a Bankruptcy Court is concerned with whether the debt on which it is based is truly a basis for the making of a sequestration order.61 A Bankruptcy Court has a statutory duty to be “satisfied” as to the existence of the petitioning creditor’s debt; a creditor should not be able to make a person bankrupt on a debt which is not provable.
61 In re Fraser; Ex parte Central Bank of London [1892] 2 QB 633at 636–637.
It is true that the applicants have performed their side of the bargain. The applicants were required to ask the Chinese authorities to withdraw the criminal complaints, and, following that, the debtor was required to give the applicants $1,000,000. Kennedy J found in the Supreme Court proceeding that the applicants had fulfilled their side of the bargain. That finding was not effectively challenged in the present proceeding.
In fact, the debtor has had the benefit of the agreement to stifle the prosecution, but does not wish to pay the price of that agreement. His conduct may be regarded as underhand, but that would not make an unenforceable contract enforceable.
For these reasons, clauses 1.10, 1.11 and 1.12 of the deed are unenforceable because they would stifle a prosecution.
Duress
I do not consider that there is a proper basis to declare the deed unenforceable for reasons of duress. The debtor was legally represented at the mediation when the deed was entered into. The debtor’s legal representatives were senior counsel, junior counsel and a solicitor. Obviously, various pressures are applied in negotiating settlements of legal proceedings, including threatening to walk away if an offer is not accepted on the same day. These types of pressures do not amount to duress.
While the debtor may have felt under a lot of pressure because of the outstanding criminal proceeding in China, I do not consider that pressure forced him to enter into the deed. He chose to introduce the question of the Chinese criminal proceedings into the negotiations for the deed. The mediation was in fact in relation to a matter that was entirely separate from the Chinese criminal proceedings. It does not seem to me that the debtor can now claim that illegitimate pressure was applied to him in relation to the criminal matter, when he was the one who introduced it to the negotiations that led to the deed.
Severance
There is a severability clause in the deed. It is in clause 9.1 and provides that:
Any provision of this Deed which is unenforceable or partly unenforceable is, where possible, to be severed to the extent necessary to make this Deed enforceable, unless this would materially alter the intended effect of this Deed.
It is worth setting out again the relevant provisions of the deed, which are as follows:
Payment of AU$1 million
1.8Zhang agrees to pay [the applicants] the sum of AU$1 million (Balance) in cleared funds … by 3 May 2018.
…
Criminal prosecution
1.10Within seven days of receipt of the AU$500,000 under clause 1.2, [the applicants] shall submit a request to all relevant Chinese authorities seeking to withdraw any and all criminal complaints against [the debtor] and Yang Maoqiang (of Shanghai Xie Law Firm) instigated by [the applicants] in China. [The applicants] shall provide a copy of the request to [the debtor’s] solicitors within seven business days of submitting the request.
1.11If [the applicant’s] breach their obligation to submit a request to the Chinese authorities in accordance with clause 1.10 of this deed, and the breach continues for a period of seven days following written notice of the breach by [the debtor], then [the debtor] shall be released from his obligation under clause 1.8 to pay the Balance.
1.12In addition to the obligation set out in clause 1.10, [the applicants] will take any further reasonable steps within their power to support the termination of criminal proceedings arising as a result of the criminal complaints referred to in clause 1.10 against [the debtor] and Yan Maoqiang.
Whether the offending clauses can be severed and the balance of the deed can remain in force depends on whether the severance would materially alter the intended effect of the deed. The intended effect of the deed was that the debtor would pay the applicants $500,000, plus the proceeds of sale of the St Kilda Road property plus $1,000,000 in exchange for a release from the claims in the Supreme Court proceeding. However, it was also intended that the debtor would not be required to pay the $1,000,000 if the applicants failed to send the Chinese authorities a request to withdraw the prosecution by a certain date.
It is noteworthy that requirement for the payments of the $500,000, the proceeds of the St Kilda Road property and the $1,000,000 were expressed as separate obligations in the deed, each under a separate heading. The unenforceable clauses were under an entirely separate heading, namely, criminal prosecution. It was only the unenforceable clauses that tied the obligation to pay the $1,000,000 to the withdrawal of the criminal prosecution.
It is also noteworthy that Ms Petronjevic’s notes of the mediation show that the proposal for the debtor to pay the applicants some millions of dollars, in addition to paying them $500,000 immediately, and paying them the proceeds of the property in St Kilda Road upon sale, preceded any suggestion that the criminal prosecution would be withdrawn. The solicitor’s notes of the mediation show that:
a)the third offer, which was made by the applicants, asked for $600,000, plus the proceeds of the St Kilda Road property, plus $2,000,000;
b)the fourth offer, which was made by the debtor, offered $500,000 plus the proceeds of the St Kilda Road property plus $2,500,000; and
c)the fifth offer, which was made by the debtor, offered $500,000 plus the proceeds of the St Kilda Road property plus up to $2,500,000 plus withdrawal of the Chinese prosecution.
The negotiations continued from there. But what the notes of the mediation demonstrate is that the requirement to pay the $1,000,000 was not simply for the withdrawal of the prosecution. The $1,000,000 was part of the demand that the applicants made originally in relation to the guarantees and the oral promises, and prior to the request by the debtor that the applicants ask the Chinese authorities to withdraw the criminal prosecution. That means that, in the negotiation of the deed, clauses 1.10. 1.11 and 1.12 were not so integral to the requirement to pay the $1,000,000 that they cannot be severed, especially where, as a matter of fact, the applicants have fulfilled what might be regarded as their side of the bargain, even though it was unenforceable.
Kennedy J found in the Supreme Court proceeding that the applicants had sent the request to the Chinese authorities by 12 May 2017. That finding was not effectively challenged in this proceeding. As the applicants have sent the required request, severing clauses 1.10, 1.11 and 1.12 of the deed would not now, in the real world, materially alter the intended effect of the deed. Severing those clauses would mean that, as originally intended, the debtor would be required to pay the applicants $1,000,000 by 3 May 2018, in circumstances where the applicants have in fact complied with their unenforceable but intended obligation to ask the Chinese authorities to withdraw the prosecution.
The applicants presumably have not complied with their obligation under clause 1.12 of the deed to take any further reasonable steps within their power to support the termination of the criminal proceedings. However, I do not consider that the severance of this clause would materially alter the intended effect of the deed. I consider that clause 1.12 of the deed was a relatively insignificant clause, as demonstrated by the fact that, unlike clause 1.10, there was no consequence for non-compliance expressed in the deed. The word materially in the severance clause must be given some meaning, or there would have been no point in having a severance clause in the deed at all. It seems to me that issues of the present type were what the severance clause was intended to deal with. There was clearly an intention to preserve the enforceable parts of the deed where possible. Severing clauses 1.10, 1.11 and 1.12 of the deed achieves that intention.
All in all, I consider that clauses 1.10, 1.11 and 1.12 of the deed are unenforceable, as they stifle a prosecution. However, those clauses can be severed and clause 1.8 remains enforceable. As such, in truth and reality, the debtor owes the applicants a debt of $1,000,000, plus interest.
Solvency
The debtor said in his affidavit sworn on 4 October 2019 that:
20.I caused Ausen Shanghai to be incorporated in order to construct and develop a furniture retail shopping mall in Shanghai (Mall).
21. On 16 April 2008, Ausen Shanghai:
a.Purchased the land at 1 Xinlu Road, Xinbang Town, Songjiang District, Shanghai, China (Land); and
b.Was granted a “State-Owned Construction Land Use Right” in respect of the Land by Songjiang Real Estate Registration Office.
…
23.In early 2010, construction of the Mall on the Land commenced.
24.In July 2012, construction of the Mall on the Land was completed.
…
26.From about May 2012, Ausen Shanghai commenced leasing spaces in the Mall to furniture retail shops.
27.In 2013, due to a slow down of business, most of the tenants had left the Mall. Accordingly, Ausen Shanghai ceased to trade in 2013. The Mall was been empty since that time.
…
30.Ausen Shanghai owes liabilities of approximately ¥ 520 million (which is approximately AU $108 million), comprised of the following:
a. A mortgage in respect of the Land under which Ausen Shanghai owes ¥ 300 million;
b.Unsecured loans of approximately ¥ 120 million;
c.Interest on the unsecured loans in the sum of approximately ¥ 65 million; and
d.Debts to builders in respect of the Mall in the sum of approximately ¥ 35 million.
…
37.As stated in paragraph 2 above, I am employed by Ausen as a marketing manager. My salary fluctuates from year to year. For the 2017 financial year, my gross income was $80,220. This figure was comprised of salary and wages in the sum of $31,107; interest in the sum of $168; rental income in relation to the Property in the sum of $6,395; and “category 2” income in the sum of $42,550. The “category 2”income related to commission income I received from Chinese investors who are seeking investment opportunities in Australia and to source Australian products. I have recently instructed my accountant to prepare my 2018 and 2019 income tax returns. On 3 October 2019, my accountant told me and I believe that he will need several days to complete my 2018 income tax return and two weeks to complete my 2019 income tax return.
…
39. In addition to my shares in Ausen, I have the following assets;
a.Approximately $2,160 cash at the bank;
b.A car valued at approximately $5,500;
c.Shares in Medibank Private valued at approximately $8,475;
d.Superannuation with Australian Super valued at approximately $183,022.72;
e.Superannuation with Care Super valued at approximately $28,829.48;
f.A notebook computer valued at approximately $1,300;
g.A camera valued at approximately $500; and
h.Watches valued at approximately $1,100.
40. I also have the following liabilities;
a.A credit card with Westpac under which I owe approximately $25,912. That account is not in default and I make monthly payments in the usual way; and
b.An income tax debt which I owe to the Australian Taxation Office in the sum of $14,231.
It is tolerably clear that the debtor is the sole shareholder of Ausen International Pty Ltd which is the sole shareholder of Ausen Real Estate Development (Shanghai) Co Ltd (“Ausen Shanghai”). Ausen Shanghai owns a mall, which is vacant, in Shanghai. The debtor said that, on 2 May 2017, the mall was valued at $160,000,000. The debtor conceded that Ausen Shanghai also has liabilities of $108,000,000. That suggests that Ausen has an equity in the mall of $52,000,000.
However, at the mediation on 3 May 2017, the debtor said that the mall was on the market with a reserve of ¥420,000,000. That is worth about $90,000,000. Taking the liabilities of $108,000,000 from that figure means that Ausen Shanghai is in debit to the extent of about $20,000,000.
Even if Ausen Shanghai were not in debit, on the debtor’s own case, he is unable to effect a sale of the mall because he has to be physically present in China to sell it, and he cannot go to China because the applicants have a prosecution hanging over his head. I am not entirely satisfied that the debtor does need to be in China to sell the mall and I am not entirely satisfied that the debtor does have a prosecution hanging over his head, as the applicants have asked the Chinese authorities to withdraw the prosecution. The debtor cannot blame the applicants for him being unable to sell the mall.
In any event, for whatever reason, on the debtor’s own case, he is unable to realise a sale of the mall in the reasonably foreseeable future, as he cannot go to China. Furthermore, the mall has been on the market since at least 2017. There is no reason to suppose it will be sold anytime soon. As such, there is no reason to suppose that the debtor will be able to use the mall to pay his debts in the relatively near future. The debtor did not, for instance, suggest that he could borrow any money against the mall. That is consistent with Ausen Shanghai being in debit to the extent of $20,000,000.
Similarly, there was no suggestion that the debtor would be able to access his superannuation. That means that, on his own case, he has assets which he could dispose of in the reasonably foreseeable future of:
a)approximately $2,160 cash at the bank;
b)a car valued at approximately $5,500;
c)shares in Medibank Private valued at approximately $8,475;
d)a notebook computer valued at approximately $1,300;
e)a camera valued at approximately $500; and
f)watches valued at approximately $1,100.
The debtor did not provide very much in the way of evidence to support his claims about his assets. However, accepting his claims as true, he has assets that he could liquidate in the near future of $19,035.
Based on his 2017 tax return, which is the last one he has lodged, the debtor appears to have an after tax income of about $60,704. The debtor’s 2018 income tax return is overdue. That in itself is a cause for some concern about the accuracy of his claims about his income. However, for present purposes, he can be given the benefit of the doubt.
The debtor disclosed debts of about $26,000 for a credit card and about $14,000 to the tax office. He said that he makes monthly payments on his credit card in the usual way. If that is so, but for the bankruptcy, the $24,000 would not be presently payable.
The debtor did not explain how his tax debt arose or when it is due and payable. He did not, for example, suggest that he has a payment arrangement with the tax office. From his 2017 tax return, it appears that the debtor may have a tax liability for that year of about $9,000.
Leaving aside the credit card debt, and the $1,000,000 owed to the applicants, the debtor has a slight excess of assets that he could liquidate relatively quickly over his liabilities.
However, for the reasons explained, it is not appropriate to leave aside the $1,000,000. In my view, the debtor owes that sum, plus interest, to the applicants. On that basis, he is clearly insolvent.
Conclusion
I consider that, in truth and reality, the debtor owes the applicants the debt of over $1,000,000 claimed in the creditors’ petition. I consider that the debtor is not solvent. I do not consider that there is any other reason for which the debtor should not be made bankrupt. Consequently, the application for review will be dismissed.
I certify that the preceding sixty four (64) paragraphs are a true copy of the reasons for judgment of Judge Riley
Associate:
Date: 21 October 2019
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