Zhang v Oakmont Properties Pty Ltd
[2020] VSC 810
•24 November 2020 (First revision: 14 December 2020)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2020 03907
| DUAN LAN ZHANG and LING HE | Applicants |
| v | |
| OAKMONT PROPERTIES PTY LTD (ACN 106 786 010) | First Respondent |
| STEPHEN ANDREW JUST | Second Respondent |
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| JUDGE: | Ginnane J |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 19 November 2020 |
| DATE OF JUDGMENT: | 24 November 2020 (First revision: 14 December 2020) |
| CASE MAY BE CITED AS: | Zhang v Oakmont Properties Pty Ltd |
| MEDIUM NEUTRAL CITATION: | [2020] VSC 810 |
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PRACTICE AND PROCEDURE – Freezing order – Order sought pending appeal from VCAT order, in respect of unpaid taxed costs order and in respect of costs yet to be taxed – Whether reasonable possibility that assets may be disposed of, dealt with or diminished in value – Freezing order granted in respect of costs yet to be taxed – Supreme Court (General Civil Procedure) Rules O 37A.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicants | T G Sedal | Luna & Xia Lawyers Pty Ltd |
| For the First Respondent | No appearance | |
| For the Second Respondent | F C Brimfield | Johnston Construction Lawyers |
HIS HONOUR:
Duan Lan Zhang and Ling He, whom I will call the applicants, seek a freezing order over assets of Mr Stephen Andrew Just pursuant to r 37A of the Supreme Court (General Civil Procedure) Rules 2015. This follows their domestic building dispute with a builder, Oakmont Properties Pty Ltd (‘Oakmont’) over the construction of two houses. The Victorian Civil and Administrative Tribunal heard the dispute for 20 days and ordered Oakmont to pay them the sum of $270,217. Mr Just was a director of Oakmont. VCAT also ordered Oakmont to pay the applicants’ costs, but not on the indemnity basis they sought and refused to order that Mr Just be joined as a party and be ordered to pay their costs.
Both parties sought leave to appeal VCAT’s orders to this Court. On 4 March 2020 Judicial Registrar Clayton dismissed Oakmont’s appeal in proceeding number S ECI 2019 00794 under r 62.04 and ordered it to pay the present applicants’ costs of the proceeding. In addition, the Judicial Registrar ordered that Mr Just be joined as a party to the proceeding and ordered that if Oakmont failed to pay any part of the applicants’ costs of the proceeding then Mr Just was to pay the unsatisfied costs liability that Oakmont had incurred to the present applicants.
The applicants seek freezing orders on three bases. First, on the basis of an interlocutory costs order in the sum of $11,455, which was taxed on 27 March this year, which remains unpaid. Secondly, on the basis of the costs that Judicial Registrar Clayton on 4 March 2020 ordered to be paid, which now have to be paid by Mr Just. On 20 July, Mr Zhang and Ms He served a bill of costs on Mr Just in the sum of $149,634.51 and a costs mediation is fixed for 8 December 2020. Thirdly, on the basis of the major amount of $686,841.62, which are the costs they claim in respect of the VCAT proceeding. As mentioned, VCAT refused to join Mr Just as a party and award costs against him. The applicants seek leave to appeal that order and argue that, if they are successful, either this Court or VCAT will end up ordering Mr Just to pay the applicants costs of $686,841.62.
I will first consider the freezing order insofar as it is based on the claim for $686,841.62. This Court has jurisdiction to grant a freezing order pending an appeal under r 37A.05. If the applicant, in the case of an appeal, has a good arguable case in respect of that appeal, then the Court considers whether or not the freezing order should be made. That power was considered last year by the Court of Appeal in Rozenblit v Vainer.[1] The Court referred to the terms of the Practice Note including:
4.2 The purpose of a freezing order is to prevent frustration or abuse of the process of the Court, not to provide security in respect of a judgment or order
4.3 A freezing order should be viewed as an extraordinary interim remedy because it can restrict the right to deal with assets, even before judgment, and is commonly granted without notice.[2]
[1][2019] VSCA 164 (McLeish and Niall JJA).
[2]Ibid [13].
The Court outlined principles including that:
(1)The purpose of granting a freezing order is to prevent the frustration or inhibition of the Court’s process by seeking to meet a danger that a prospective judgment of the Court will be wholly or partly unsatisfied. Its purpose is not to provide security in respect of that judgment or order.
(2) A freezing order is to be viewed as an extraordinary interim measure. The order is a drastic remedy which calls for a high degree of caution on the part of the Court before an order is made.
(3)An applicant for a freezing order pending appeal will be required to establish that there is a good arguable case that the appeal will succeed.
(4) It must be shown that there is a reasonable possibility, not necessarily more than a 50 per cent chance, that assets may be disposed of or dealt with or diminished in value if an order is not made.[3]
[3]Ibid [19].
Mr Zhang and Ms He’s application for leave to appeal are based on questions of law said to arise from VCAT’s refusing to make orders joining Mr Just as a party and ordering that he pay them the costs of the VCAT proceeding on an indemnity basis because an offer of settlement was refused. Two of the grounds of appeal reveal its substance. They are:
1.In the absence of any evidence, and contrary to the overwhelming evidence, the Tribunal erroneously found at paragraph 104 to 106 of the Tribunal’s reasons dated 11 September 2020 (Reasons) that as at 4 July 2016, Oakmont’s liabilities did not significantly succeed its assets and it was therefore not impecunious.
…
10. It was not open for the Tribunal to find that the Owners’ offer to settle the proceeding dated 1 June 2017 was ambiguous and unclear and such a finding was so unreasonable that no reasonable decision maker could have reached that conclusion.
It is significant that the applicants’ appeal is limited to questions of law in circumstances when VCAT was exercising a costs discretion. If the applicants, Mr Zhang and Ms He, succeed on their appeal on questions of law, then it is likely that the matter will be remitted to VCAT for a fresh determination of costs. At least for present purposes, I do not consider it likely that this Court would exercise the powers contained in s 148(7)(b) of the Victorian Civil and Administrative Tribunal Act 1998 to make costs orders for the VCAT proceeding.
No authority was cited where a freezing order has been made on the basis of a prospective costs order that might be made upon remittal of a proceeding to VCAT as a result of a successful appeal to this Court.
I note that r 37A.05(2) states:
This paragraph applies to a judgment if there is a sufficient prospect that the judgment will be registered in or enforced by the Court.
I also note that s 121 of the VCAT Act permits monetary orders made by VCAT to be registered in this Court for the purposes of enforcement.
However, I do not consider that the applicants are persons who have a prospective judgment against Mr Just, as a prospective judgment debtor, for the purposes of r 37A.05. Assuming that r 37A.05(2) applies to a prospective order for costs by VCAT upon remittal following a successful appeal to this Court, Mr Zhang and Ms He are some distance from obtaining such a VCAT costs order against Mr Just. They must obtain leave to appeal and establish an error on a question of law affecting VCAT’s decision. If they do, it is likely that the case will be remitted to VCAT for the rehearing of their costs application according to law. They would then have to persuade VCAT to grant the order that they seek. Their counsel submitted that there is a strong likelihood that they will succeed and will persuade this Court to order that Mr Just pay their costs without the need for the remittal of the proceeding to VCAT. But in my opinion, the case is more complex than that and, at least for present purposes, I consider that it is unlikely that this Court will make orders for the costs of the VCAT proceeding. I am not satisfied that it is appropriate to make a freezing order on the basis of a possible costs order for $686,841.62 against Mr Just.
The applicants’ second basis for a freezing order is the unpaid interlocutory costs order dated 27 March 2020 whereby Mr Just became a judgment debtor of the applicants in the sum of $11,455. That order was made in a different proceeding, number S ECI 2019 00794. I suggested to the parties that any freezing order granted would need to be made in the appropriate proceeding, being the proceeding in which the judgment or prospective judgment has been, or might, be made. However, I was prepared to proceed on the basis that if I were to make a freezing order, steps could be taken to issue the necessary summons to ensure that the freezing order was made in the appropriate proceeding.
The interlocutory costs order of 27 March 2020 for $11,455 is an enforceable judgment for costs, but has not been enforced for reasons unexplained. Mr Zhang and Ms He have had a right to enforce that order since it was made. Freezing orders are not made to provide security and no case was cited where a freezing order has been made in respect of a costs order which could, but has not been, executed. I am not prepared to make a freezing order in those circumstances.
The third basis upon which the freezing order is sought is the order for costs of 4 March 2020. Mr Just was ordered to pay the appeal costs if they were not paid by Oakmont. The quantification of those costs is before the Costs Court, in proceeding number S ECI 2020 3910. As mentioned, the applicants served a bill of costs in the amount of $149,634.51 on Mr Just on 20 July 2020; but he has not filed or served any material in response. A mediation is to occur on 8 December 2020.
Counsel for Mr Just suggested that the costs order was unlikely to be taxed in that sum because it mainly consisted of substantial fees for counsel. It is difficult in advance of the taxation to express any view on that submission, but if I make a freezing order I would take into account that some reduction in costs may occur on taxation.
There is authority, both in England and Australia, that freezing orders may be made in aid of an order for costs pending taxation of costs.[4]
[4]Pelechowski v Registrar, Court of Appeal (NSW) (1999) 198 CLR 435; 482. See also LexisNexis Butterworths, Civil Procedure: Victoria, vol 1 (at Service 317) [4202.29].
The applicants’ case in this respect is set out in the affidavit of their solicitor, Meng Zhi Xian’s, affidavit of 9 October 2020 in the following terms:
The Owners are gravely concerned that Mr Just will dissipate his assets to avoid complying with the orders of this Court and the orders sought against him in VCAT Proceeding (now on appeal to this Court), for the following reasons. Mr Just appears to be taking active steps to rearrange his financial affairs:
(a)since 20 September 2019, 10 new encumbrances and caveats have been registered on the title of the Lydia Court Property, including six new caveats between 22 May 2020 and 6 July 2020; and
(b)on 29 March 2020 a raft of changes were made to Stonecastle Pty Ltd, including changes to member shareholding and changes to company office holders.
Counsel for Mr Zhang and Ms He submitted that there are grounds for believing or inferring that Mr Just’s assets may be diminished or dissipated. Oakmont has not paid amounts ordered by VCAT. Mr Just has not paid the interlocutory costs order of $11,455. There has been a raft of corporate changes to Stonecastle Pty Ltd, which owns a property in Elwood. About three weeks after Judicial Registrar Clayton’s order in March, Mr Just transferred his directorship and 80 per cent of the shares in Stonecastle to his wife. New encumbrances and caveats have been registered on the title of Mr Just’s principal asset, a property at Deepdene, on which a home is being constructed and fast tracked while simultaneously he has sought to delay the taxation of the appeal costs. But as I have said, the mediation of those costs is to occur in a fortnight. The applicants further submitted that the Court had considered that Mr Just had been less than candid in evidence given to it during the litigation regarding his financial affairs and that of his company.
The applicants also submitted that Mr Just’s conduct throughout the litigation was significant. He had directed his company Oakmont to issue proceedings in VCAT knowing that it could not pay the appellants’, or its own solicitors, costs. Having refused the applicants’ walk away offer and having failed in that proceeding, he then directed Oakmont to issue an appeal knowing that it was a ‘man of straw’ and could not provide security for costs or pay an adverse costs order. Notwithstanding the various costs and other orders made by this Court, Mr Just and his company have made no payments to the appellants.
In response, Mr Just’s counsel submitted that there was not sufficient evidence that he is attempting to, or intends to, dissipate his assets. Changes to his company and share ownership were made in March 2020 and the caveats were placed on the Deepdene property between September 2019 and early July 2020. None of those transactions are recent and the applicants have provided no evidence that they are anything but ordinary and innocuous transactions. Much of the applicants’ affidavits contain inadmissible statements.
The suggestion that the building of the house at Deepdene has occurred at a rapid pace, bearing in mind the pandemic, was merely an opinion. There is no evidence that Mr Just is seeking to delay the taxation of costs and the suggestion that he directed the company to commence proceedings in VCAT knowing that it could not pay the applicants’ costs was similarly no more than opinion.
Unlike the taxed costs of $11,455, I consider that a freezing order should be made on the basis of the costs order of 4 March 2020. Pursuant to r 37A.05(4), there is a reasonable possibility that a prospective judgment of the Court in favour of the applicants for the amount of the taxed costs will be wholly or partly unsatisfied because Mr Just’s assets may be disposed of, dealt with or diminished in value.
Mr Just’s major asset is the property in Deepdene, which upon completion of the house, will have considerable value. The property is being prepared for sale and can be sold by private sale without any notice to Mr Zhang and Ms He.
The Judicial Registrar in 2019 recorded Mr Just’s assertion that he had no further assets with which to assist Oakmont. But she also noted that she had no appropriate evidence as to the financial circumstances of Oakmont and in her order of 4 March 2020 referred to a lack of candour. It is significant that Mr Just did not file an affidavit as to his financial affairs. While, as counsel pointed out, the freezing order application was brought on quickly last Thursday, no application was made to adjourn it to enable such an affidavit to be prepared.
Next, a number of encumbrances have been added to the title of the Deepdene property, including in the middle of this year. While it is true that the interests upon which those caveats and charges are based are said to have been created some time ago, many of them were registered on the title in the space of a couple of months this year.
Then there is the change in March this year, soon after Judicial Registrar Clayton’s order, to the shareholding of Stonecastle Pty Ltd that owns the Elwood property. Mr Just argued that Mr Zhang and Ms He knew, or should have known, of these steps some months ago. But their concern appears to have mainly arisen from the Deepdene property being readied for sale.
Taking these factors into account, and after considering the parties’ submissions, I conclude that there is a danger that the judgment for costs yet to be taxed will be wholly or partly unsatisfied because the assets of Mr Just might be disposed of, dealt with, or diminished in value. This is so in circumstances where Mr Zhang and Ms He will have no way of knowing if the Deepdene property is sold or is about to be sold. In those circumstances, it is appropriate to make a freezing order subject to these qualifications. It should not be for the whole $149,634.51 as an allowance should be made for the possibility that the taxed costs might be for a smaller sum. I propose to make a freezing order for $120,000. The freezing order should only last until the costs have been taxed and a further month has passed in which the costs order may be executed. Thereafter, the applicants would have to persuade the Court that any further freezing order should be granted. As I have said, freezing orders are not to provide security, where enforcement of an order can occur.
I will grant the freezing order subject to modifications of the draft that I will discuss with the parties. In addition to the usual undertaking as to costs, I will require an undertaking that a summons for a freezing order be issued forthwith in the appropriate proceeding, to be treated as if it had been returnable before the Court last Thursday. The summons in this proceeding number S ECI 2020 03907 will otherwise be dismissed.
I consider that the applicants are entitled to some costs of this application. While they did not succeed in obtaining the freezing order that they sought, they did have to commence the proceeding to ensure their prospective order for taxed costs was not rendered nugatory and the Court’s processes frustrated. They have obtained a freezing order. Mr Just should pay 50 per cent of the applicants’ costs of this application.
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