Yanlord v James Peng

[2008] NSWSC 1212

CITATION:	Yanlord v James Peng [2008] NSWSC 1212
HEARING DATE(S):	4 November 2008
JUDGMENT OF:	McDougall J at 1
EX TEMPORE JUDGMENT DATE:	4 November 2008
DECISION:	See para [37] of the judgment.
CATCHWORDS:	INJUNCTIONS - freezing order - assist disclosure order - grounds for - jurisdiction to grant - nature of evidence required - ex parte relief - party seeking relief ex parte bears a heavy onus to disclose all relevant material - orders set aside for material nondisclosure.
LEGISLATION CITED:	Evidence Act 2005 Uniform Civil Procedure Rules
PARTIES:	Yanlord (Holdings) Industrial Ltd (First Plaintiff) Yanlord Land Pte Limited (Second Plaintiff) Yanlord Capital Pte Limited (Third Plaintiff) Defendant (James Peng)
FILE NUMBER(S):	SC 50223/08
COUNSEL:	E A Cheeseman (Plaintiffs) J V Nicholas SC / N Manousaridis (Defendants)
SOLICITORS:	Blake Dawson (Plaintiffs) Elson Pow & Associates (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McDOUGALL J

4 November 2008 ex tempore (revised – 4 November 2008)

50223/08 YANLORD (HOLDINGS) INDUSTRIAL LTD & ORS v JAMES PENG

JUDGMENT

The plaintiffs (together “Yanlord”) seek:

(1) the continuing of a freezing order made against the defendant (Mr Peng);
(2) an order that Mr Peng make an affidavit disclosing his assets.

2 Yanlord's case is that one or other of the plaintiffs made a number of loans to Mr Peng between January 2002 and October 2006. Some of the loans were made in Hong Kong dollars and some in Australian dollars. The total, in Australian dollars, is said to be about 18.4 million dollars.

3 Mr Peng appears to accept that the loans in question were made. However, it would seem, he wishes to argue that they were made either upon terms as to repayment on the occurrence of certain events that have not yet arisen and might not arise or, alternatively, accompanied by representations as to when the repayment obligation might arise, in circumstances that would give rise to some defence of estoppel.

4 It is not necessary to go into the details of the underlying transactions because, to the extent that it is a relevant consideration, I am satisfied that Yanlord has demonstrated at least a fairly arguable case that it is entitled to repayment of the loans in question.

5 Of course, it does not follow from that that Yanlord is entitled to the relief presently sought. To justify the grant of such relief, Yanlord is required to demonstrate an arguable case that if the orders sought are not made the Court's processes may be frustrated because a prospective judgment of the Court might be unsatisfied. See UCPR rr 25.11, 25.14.

6 The matter came before me ex parte in the duty list on 27 October 2008. I was satisfied that a freezing order should be made ex parte, and did so. When the matter was returned, the freezing order was continued by consent but without admission up until today and Yanlord's application for an asset disclosure order was stood over until today.

7 That history is relevant because of the way that Yanlord put its case on the question, was there a danger that any judgment in its favour might go unsatisfied. In the written submissions handed up on 27 October, some nine or ten matters were relied upon. I set out in full paragraph 26 of those submissions:

26. In this case the evidence to support the inference that there is a danger that Mr Peng may arrange his affairs so as to defeat or frustrate any prospective judgment is cumulative and is as follows:

(a) Mr Peng has not repaid the loans as they have fallen due;

(b) Mr Peng has not repaid those loans that have fallen due and for which demand has been made;

(c) Mr Peng has not repaid the loans in accordance with representations he made as to future sources of income from which payment could be made if necessary:
(i) Mr Peng obtained a judgment in Hong Kong in the sum of HKD160,500,000 in December 2004. Mr Peng represented that if necessary he would repay the loans from this judgment but has declined to do so;
(ii) Mr Peng in 2006 sold his Sydney property for in excess of AUD22 million. He represented that he would repay the loans if necessary from the proceeds of sale (save keeping AUD 2million for his own use) but has not repaid the loans;
(d) In 2007 Mr Peng drew out negotiations to consolidate and extend the terms of the loans and ultimately did not agree to conclude the proposed arrangements;
(f) In 2007 and 2008 Mr Peng withdrew loans he had made to Acreis/Once which had been in turn funded by the loans made by the applicants – in doing so he falsely represented to those employed by Acreis/Once that he had Mr Zhong’s approval to make the withdrawals and that the moneys would be applied for the purpose of the company;
(g) At around the time that Mr Zhong sent Mr Lo to live in Australia to oversee the finances of Acreis/Once, Mr Peng withdrew from the company the remaining balance with all accrued interest of the shareholder loans that he had made to the company funded in turn by loans provided by the applicants. In doing so he falsely represented that he had Mr Zhong’s approval to do so;
(h) Mr Zhong became aware recently that Mr Peng was being pursued by creditors in respect of gambling debts incurred in Macau;
(i) Mr Peng has in recent days (c 21 October 2008) stated that he fears that Mr Zhong will institute proceedings to recover the loans made through the Yanlord companies and that:
“he is a desperate man and might do desperate things”
“he only had his life left and nothing else to lose
“he might do things that were irrational”

(j) Mr Peng’s recent statement has caused Mr Zhong to become gravely concerned as to actions Mr Peng may take, not only as to rearranging his affairs so as to defeat any judgment but also in terms of approaches that he may make to Mr Zhong’s daughter who is resident in Australia.

8 Considering those matters against the evidence that was then before the Court, I came to the conclusion, on balance, that the order sought should be made.

9 Matters of particular significance in those submissions include:

(1) the judgment recovered in Hong Kong;
(2) the sale of the property in Australia; and
(3) the circumstances in which Mr Peng withdrew (as undoubtedly he did) the loans that he had made to "Acreis/Once".

10 Before I return to those matters, I should say that the eighth matter relied upon - gambling debts incurred in Macau - is not the subject of any evidence before me today, given that the evidence that was proffered was entirely inadmissible even on an interlocutory application and taking into account s 75 of the Evidence Act 2005. I should also say that, having regard to the form in which that evidence was put, even if I had concluded that it might be technically admissible, I would have rejected it under s 135.

11 I return to the matters of particular significance.

12 The sum of HKD 160,500,000 referred to in paragraph 26(c)(i) of the submissions is plainly a matter of great importance. As the submissions put the matter, Mr Peng said that he would, if needed, repay the loans from the satisfying of that judgment "but has declined to do so". The inescapable inference from the way that this aspect of the case was put ex parte is that Mr Peng had the ability to repay the loans from that source but had chosen not to do so.

13 The uncontested (on this aspect) evidence of Mr Peng shows why he has not repaid the loan from the fruits of that judgment. On 5 January 2006, the Court of Final Appeal of the Hong Kong Special Administrative Region overturned the judgment in favour of Mr Peng (or his company). Thus, whatever may have been the position prior to January 2006, there was not thereafter any such source from which the loan could be repaid.

14 Ms Cheeseman of counsel, who appeared for the plaintiffs both ex parte and today, submitted that the failure to disclose the ultimate negative (from Mr Peng's perspective) resolution of this litigation could be understood in circumstances where, firstly, Mr Zhong (the principal of Yanlord) did not speak English, secondly his evidence was obtained through an interpreter, and thirdly the evidence in support of the application was put on information and belief.

15 However, in an affidavit sworn or affirmed on 3 November 2008, Mr Zhong has said in reference to this matter (paragraph 37):

I did know about the case because it was in the public forum and I was paying attention because if Mr Peng was successful that would provide a source from which he could repay the loan made to him.

16 That paragraph was sworn in answer to paragraph 44 of Mr Peng's affidavit, in which paragraph Mr Peng had referred to the decision of the Court of Final Appeal. Further, Mr Peng said (paragraph 44) he had a conversation with Mr Zhong in the course of which Mr Zhong said, with reference to the decision of the Court of Final Appeal:

You have lost your case. I am your best friend and yet the last one to know. It's only because someone else told me that I knew what happened?

17 Mr Zhong did not deny that he said some such words to Mr Peng one or two days after 5 January 2006. The inference that I draw is that Mr Zhong was well and truly aware within a few days of the Court of Final Appeal handing down its decision, that the judgment in favour of Mr Peng's company was no longer available as a source of repayment of the loan made. But Mr Zhong did not see fit to put this before the Court either directly or through his solicitor who swore an affidavit on information and belief.

18 Further, the written submissions for Yanlord placed substantial reliance on this. That is hardly surprising.

19 I do not for a minute suggest that, so far as the legal representatives of Yanlord were concerned, the omission to disclose and refer to the decision of the Court of Final Appeal was conscious. On the contrary, I am satisfied that had they known of the decision, firstly it would have been referred to in the solicitor's affidavit (if it was still seen to be relevant) and, secondly, the Court's attention would have been drawn to it in the submissions.

20 It is clear that a party seeking ex parte relief bears a heavy onus of disclosing all relevant material, even if that material is not supportive of the relief sought. It is clear that the circumstances relating to the Hong Kong judgment were perceived by Yanlord (and, as I have said, on the basis of apparently inadequate or deficient instructions, by its lawyers) as significant. In my view, the failure to disclose what must have been known to Mr Zhong - the decision of the Court of Final Appeal - is of itself sufficient to require that the relief granted ex parte, and continued, without disclosure be set aside. Further, once the true position is appreciated, a significant prop in support of the grant of relief, if a fresh application were made in that regard, has been knocked out.

21 I turn to the sale of Mr Peng's Sydney residence. It is now clear that Mr Zhong became aware of that at the latest in 2007 and on any view well before the application for interlocutory relief was pressed. Presumably, at that time, Mr Zhong thought that he had a case against Mr Peng for repayment of the loans. The explanation that he has given for this is that Mr Peng sought to stall Mr Zhong by saying that he had had to tie up the net proceeds of the sale for various purposes and that in about a year's time "I will receive some money and be able to repay you". Mr Peng has not been able to answer that allegation because it appeared, I think for the first time, in Mr Zhong's affidavit sworn in reply. Thus, I am in no position to know whether Mr Peng accepts that he did or did not say that. I am, however, in a position to say that having regard to the way that this aspect of the case for Yanlord has emerged, and having regard to the fact that Mr Peng has not been able to respond, I do not place any weight on this aspect of Mr Zhong's evidence. It may be correct. It may not be correct. But coming late and untested, and in circumstances where there has been no opportunity to respond, I will do no more than note it and pass on.

22 Thus, as to the sale of the Sydney house, it is clear that Mr Zhong has known (I would think for at least a year, and perhaps longer) that this has happened, and has not sought interlocutory relief based on it. In my view, the significance of the sale of the house, in terms of generating the apprehension of non-payment to which rule 25.11 is directed, evaporates when those matters are taken into account.

23 I turn to the withdrawal of the loans. The case that was put was that Mr Peng falsely represented that he had Mr Zhong's approval to make those withdrawals, and made a false representation as to the reason for the withdrawals. That is in dispute. But two things have emerged from the evidence as it now stands. The first is that Mr Peng was entitled to make those withdrawals, and that Yanlord recognises this. That this is so is apparent from the affidavit of Mr Stephen Benton, the Chief Executive Officer of Once; and also, in context, from the affidavit of Mr Howard Ho, the General Manager, Finance for Once.

24 I accept that the case ex parte was not put on the basis that the withdrawals were unauthorised having regard to the terms on which the funds had been deposited with the company. On the contrary, I accept that the folder of exhibits that was put before the Court included material which, if read, would have revealed that the funds in question were “at call”. (By way of explanation: what Mr Peng withdrew from Once was the fruits of loan that he had made to it, together with interest. As I have said, it is common ground that those loans were "at call".)

25 However, and this is the second point of significance in this context, it is now clear also that Yanlord, if not Mr Zhong personally, was aware of those withdrawals within a month or so of them having been made. Mr Ho refers to various withdrawals and says in relation to them that he included details of the payments "in the monthly management reports which are sent to the Finance Department of Yanlord".

26 It may be, as Ms Cheeseman submitted, that Mr Zhong personally was not aware of those withdrawals. But it is clear that Yanlord was. In those circumstances, bearing in mind firstly that as between Mr Peng and Once the withdrawals were authorised and secondly, that the withdrawals, when made, were reported to Yanlord, the significance of those withdrawals as supporting the apprehension of non-payment to which r 25.11 looks evaporates.

27 Ms Cheeseman submitted that the parties clearly regarded Mr Zhong's approval as a relevant matter. I am not sure that this is so. But accepting it for the moment, it seems to me to go nowhere. The position is simply that Mr Peng was entitled to make the withdrawals. If it is suggested that Mr Zhong's approval for the exercise of that legal right was required, one must ask why. The answer, presumably, is that Mr Zhong might wish to prevent it. If that were the case, then prima facie the proposition must be that Mr Zhong would seek to interfere in the contractual relationship between Mr Peng and Once so as to prohibit Mr Peng from exercising the contractual right. Alternatively, the proposition might be that Mr Zhong's approval was a mere formality. If that is so, then the failure to obtain it, and even the false representation (if it were made) as to its having been obtained, does not it seems to me to have a great deal to do with the apprehension to which r 25.11 looks.

28 Thus, of the matters relied upon (and still relied upon), one is left with the facts of non-repayment, the alleged drawing-out of negotiations to consolidate and extend the terms of the loans, and a couple of statements said to have been made by Mr Peng to others.

29 Mr Nicholas of senior counsel, who appears with Mr Manousaridis of counsel for Mr Peng, submitted that the first two of those matters were neutral. The degree of "neutrality" (if neutrality is susceptible to an analysis by degrees, which I doubt) depends, in effect, upon the strength of the case for Yanlord as to the recovery of the loan; alternatively, on the strength of Mr Peng's suggested defences. If the case is strong, and the defences are weak, then the circumstances might not be neutral. But if the converse applies, they might be either neutral or favourable to Mr Peng. Be that as it may, I do not think that the fact of non payment by itself goes anywhere near demonstrating a sufficient basis for orders of the kind contemplated by r 25.11.

30 The alleged drawing-out of negotiations seems to me to fall into a similar category. Its significance ultimately depends on an evaluation of the strengths of the competing cases. That is something which the Court is unable to undertake at this stage.

31 Finally, the comments said to have been made by Mr Peng, although of themselves of some weight in supporting an apprehension reasonably generated by other material, do not seem to me to be sufficient to support the fear that is now relied upon. A statement (if it were made) that a person is irrational or desperate, and might do desperate things, does not necessarily (or even prima facie) suggest that the person will take steps to put assets beyond the reach of creditors. It may suggest a possibility of self harm - whether or not that was intended to be suggested (if the comments were made) is something on which I express no opinion. But that of itself does not seem to me to take the matter much further.

32 Finally, in this context, I note that the alleged statement has caused Mr Zhong to become concerned. The question is not however whether Mr Zhong has a concern but whether (assuming he does) that concern is rational, and based on matters that are sufficient to justify the grant of the relief sought.

33 By reason of the non-disclosure to which I have referred, the interlocutory relief that has been granted, and continued without admissions, should be set aside. Further, when the matters on which Yanlord relies are examined in the light of the evidence now available, I am satisfied that if application were to be made now for orders of the kind sought, the material on which Yanlord relies is not sufficient to justify the making of those orders.

34 Accordingly, I order that the orders granted ex parte on 27 October 2008 and continued by consent but without admissions on 4 November 2008 be discharged. I dismiss the plaintiff's notice of motion filed on 27 October 2008.

35 Ms Cheeseman has pointed out, perfectly correctly, that when I said that Mr Zhong had not denied that he said words to the effect alleged by Mr Peng in paragraph 44 of Mr Peng's affidavit, I was incorrect. However, it remains the fact that the inescapable inference from all the evidence, even taking into account Mr Zhong's denial, is that Mr Zhong was aware of the decision of the Court of Final Appeal shortly after it was given. In any event, I would have inferred that from paragraph 37 of Mr Zhong's affidavit.

36 In those circumstances, the factual error that I made is not sufficient to cause me to revise the substance of the reasons that I have given or to reconsider the orders that I have made, but I am grateful to Miss Cheeseman for drawing the matter to my attention.

37 I order the plaintiffs to pay the defendants' costs of the application for interlocutory relief. To the extent that it may be necessary, I order that those costs be assessed and paid forthwith.

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