Zhang v Sam & Mary Pty Ltd

[2013] QDC 226

[2013] QDC 226

DISTRICT COURT OF QUEENSLAND

CIVIL JURISDICTION

JUDGE ROBIN QC

No 1803 of 2013

YU ZHANG  Plaintiff/Applicant

and

SAM & MARY PTY LTD and OTHERS  Defendant/Respondent

BRISBANE

3.12 PM, WEDNESDAY, 22 MAY 2013

JUDGMENT

CATCHWORDS

District Court of Queensland Act 1967 (Qld) s68(1)(b)(iii), s68(1)(b)(v), s69(2)(d)
Uniform Civil Procedure Rules r268, 272

Ex-parte application for appointment of interim receivers and managers - plaintiff resident outside of Australia - what undertakings appropriate considered.

HIS HONOUR:  This is an application, hardly straightforward, which seeks relief of a Mareva kind, albeit by the appointment of interim receivers and managers so that the rules that are appropriate may be those to do with receivers in Rule 266  and following more than those earlier rules commencing at Rule 260. 

The application has not been served. 

The orders sought and to be made after amendments to a considerable extent to satisfy the concerns of the court are to take effect immediately but run only for the two weeks leading to a return date on 5th of June 2013 when an application for interlocutory relief in similar, perhaps expanded, terms will be heard.

The power of the court to appoint a receiver, including an interim receiver, is expressly recognised in section 69(2)(d) of the District Court of Queensland Act1967, and no doubt arises more generally under the section which confers on this court all the powers and authorities of the Supreme Court in any proceeding which is within its section 68 jurisdiction. 

So far as that is concerned, relevantly the court has jurisdiction under section 68(1)(b)(iii) where specific performance is sought of an agreement for sale of an interest in land or any other property within the monetary limit; subparagraph (i)(5) following confers jurisdiction in a proceeding for a declaration of partnership or dissolution or winding up of a partnership where the partnership's property doesn't exceed in amount the value of the monetary limit, being $750,000.

The specific performance sought is of an asserted agreement whereby the plaintiff's share in a partnership conducted with the first defendant, and at an earlier stage also another person Yan Lu, known to her intimates as Peggy, was sold to the first defendant.  When she and the plaintiff, Yu Zhang, known to her intimates as Emily, bought into the partnership, each paid $150,000 for a 30 per cent interest. 

The plaintiff says there's been an agreement for her 30 per cent interest to be bought out for that same amount of $150,000.  If those sums bear any relation to reality, there are no concerns here arising from the monetary limit confining the court's jurisdiction. 

The scenario is a complicated one.  The material placed before the court in support of the present application is voluminous.  I have had the opportunity to read it, but not all of the exhibits in full.  The affidavit evidence broadly, indeed fairly closely, supports the contentions in the statement of claim and the summary of them in the written submissions, which Mr Amerena has presented to the court today. 

The first defendant operated a newsagency under the name Stationery House at Grand Plaza Shopping Centre at Browns Plains in Queensland.  The second and third defendants it is said are the directors, and the second defendant the sole shareholder.  It is contended by the plaintiff that he was and still is married to the third defendant who takes an active role in the operation and management of the business.  She has also taken, according to the affidavits, a prominent and sometimes the entire role in negotiating arrangements with the plaintiff. 

She is a young woman who came to Australia for education purposes.  Her home is in the People’s Republic of China where she presently is.  While a student here, she met Yan Lu, like her another young woman studying in Australia, in her case at Griffith University. 

Miss Lu, at the least, seems to have been under family pressure to acquire a right of permanent residence in Australia and the plaintiff, with or without influence from family in China, developed a similar interest.  The defendants became known to Ms Lu as offering a vehicle that might lead to the desired permanent residence in Australia on the basis of a visa available to people investing certain amount of money, owning a business or the like.  It hasn't been necessary to go into the details of that. 

The method adopted by Ms Lu was for her to contribute $150,000 to acquire a 30 per cent interest in the newsagency business. 

The plaintiff became interested in following suit and, in due course, did so, paying over the money and executing a partnership agreement. 

...

HIS HONOUR:  The documents which the defendants and Ms  Lu signed included a business of sale contract dated 8th of October 2010, the subject of which was "30 per

cent (30%) of total interest in stationery store business shop G129 Grand Plaza Shopping Centre" for a purchase price of $150,000 on 10 per cent deposit. 

This was followed by the deed of partnership dated 30th of November 2010, parties to which are the first defendant company, the plaintiff, and her immediate predecessor new partner Yan Lu. 

The basic idea seems to have been that the two young women would be silent partners, yet there were also suggestions that their prospects so far as concerned migration matters might be enhanced by their spending time in the business getting to know it, which is something that to an extent appears to have come about. 

Unfortunately for all concerned, the government revised the visa categories that had been relied on so that the ultimate goal of permanent residence in Australia seemed impossible.  The plaintiff's case is that a new agreement was made whereby she would sell out of the partnership for $150,000.  In other words, get her money back, albeit by a new contract  and an important one, being the one of which she seeks specific performance. 

Yan Lu found herself in a similar case, and, it seems, made an agreement along similar lines as a way of dealing with the changed situation.  In the event, she, it seems, has been paid $127,000, some, at least, of which was paid in Chinese currency and possibly in China. 

The plaintiff has not fared so well.  Notwithstanding that she gives evidence of a buyout in respect of her share for $150,000, when matters came to the point, she says she was offered, although I think without tender, an amount of about $85,000. 

The defendants, she says, sought to justify that on the basis of the accounts of the business.  Those are unlikely to be straightforward, as in the time that's elapsed, the business expanded - acquiring and then disposing of another outlet at Ashgrove.  The plaintiff, although according to her understanding little, has gone along with numerous requests that have come her way from the defendants and lawyers representing them to sign documents in respect of various matters, including, by way of example, Ashgrove.  She says when she has sought explanations, and specifically from the lawyer, she's been fobbed off, but nonetheless has gone along with all requests.

When she asked to be supplied with a copy of the partnership financial information, she was refused, being given only, in substance, what the defendant said was the bottom line. 

She, according to her, has been told in no uncertain terms that if she persists in seeking more information, her entitlements will fall far short of the $85,000.

It seems there were intimations that the records she had no more than an opportunity to glance at were not necessarily correct or not necessarily the only set of records. 

That's a suspicious circumstance and perhaps one hard for the court to make much of.  It is something which may bear on and support the appropriateness of the court proceeding ex parte today as it does. 

What is important in this regard is evidence from both the plaintiff and Yan Lu to the effect that Yan Lu was enjoined by one or more of the defendants not to let the plaintiff know that her buyout figure, actually realised, was of the order of $127,000.  If that evidence is true, as to what was to Yan Lu, then the conclusion that the plaintiff, who was engaging in similar negotiations at more or less the same time, is being deceived and denied the level of honest and fair dealing between partners which the law and every other consideration would require.  No reason appears for distinctions to be drawn between the two withdrawing partners

It seems to me in these circumstances that there is a risk that untoward things might occur to the detriment of the plaintiff's prospects of a useful outcome of her claim if the defendants had notice of today's application.  It seems to me that like considerations make appropriate the grant of interim relief.  It's sought by way of appointment of interim receivers and managers, managers because it's presumably in the interest of all parties that the business continue to operate. 

Alternative ways of dealing with the situation might have been by injunction and the like, but this is, it seems to me, a useful way to proceed.  By that I mean, appointment of receivers and managers.  The court, in such a situation, should have a general concern that expenses are not incurred which could be avoided. 

The interim order contemplates much activity by the interim receivers and managers directed to ascertaining the state of the business.  That's got to do with identifying its assets, placing values upon them, investigating the debtors and creditors of the business, including, it is suggested, some who which may not appear in records that will be readily made available to the receivers and managers. 

To an extent, the court has to rely on the good judgment of the persons appointed who have given their consent to act as required.  They are experienced accountants and liquidators.  Some change will be made to the order to make it clear that in reporting as to the state of the partnership's affairs, they should rely on their own judgment and not at expense engage outside consultants or experts to advise them and the like.  Nor should they, in my opinion, be overzealous in exploring, as paragraph 4C of the order invites or examining "whether there is any legitimate basis for disputing" partnership liabilities. 

It may well be that that provision, which remains in the order, is there against the possibility that liabilities of the partnership to one or more of the defendants might be asserted that could properly be challenged. 

The order attempts to keep flexible arrangements for repayment of the receivers and managers should the assets they take in their charge prove insufficient to cover their remuneration.  Prima facie, that's to be paid by the partners in accordance with their shares, but these seem to be circumstances in which that should be expressly subject

to some other order being made which the court might think better meets the justice of the case.  It may be that in the end the heavier share ought to be borne by the plaintiff. 

One of the insertions made in the order is to appoint the interim receivers and managers jointly and severally, which Mr Amerena indicated was an appropriate way to describe the way that the two gentlemen concerned proposed to act, namely by one of them only at any particular time.  That would presumably limit costs.

I omitted to advert earlier to another significant feature of the evidence, which is that in recent times the defendants have caused public records, which formerly recorded the plaintiff as one of the owners of the partnership name, so that her name now no longer appears there.  That is something that's occurred without any involvement or knowledge by her and a factor which tends to support her claim of an agreement to buy her out. 

The order proffered by Mr Amerena referred to the plaintiff giving the usual undertaking as to damages.  Her acknowledged residence in China obviously raises a question of the value of her undertaking, which may be called on if, for example, things go wrong badly in the business while it's under the control of the interim receivers and managers. 

The proposal was made that the undertaking be secured by an equitable charge over the plaintiff's partnership interest.  That is now an addition to the reference in the

order to the undertaking as damages, but with the qualification that an equitable charge be supplied if the court requires, something which is likely to occur, if it does at all, on the 5th of June. 

I have added an undertaking which instructions for were obtained during the luncheon adjournment, that the plaintiff will not reduce the balance held in her Commonwealth Bank of Australia account, said in her solicitor's affidavit to contain tens of thousands of dollars, until after the return date of the 5th of June. 

Mr Amerena explained that the revelation of the existence of that account, in the solicitor's affidavit sworn today, comes in circumstances where the solicitors have only just learned of that account in a context where full and frank disclosure in the applicant's ex parte proceedings is required. 

Mr Amerena was anxious that his client not suffer having to provide double security in the twin forms of the equitable charge and freezing of her bank account balance, which, it seems, she may not have appreciated was an Australian asset.  It certainly is not the court's intention today to require both forms of security and it is obvious that only one has been required.  If the court adopts what seems to be the longstanding practice of courts, it would not be likely to impound the moneys in the bank or prevent recourse to them if such recourse was necessary to fund this proceeding, for example, or for the day‑to‑day support of the plaintiff and any dependants. 

The last matter which requires comment is the orders taking effect immediately,

notwithstanding that the interim receivers and managers have not filed security for the performance of their duties.  Rule 268 states that the appointment of receiver by the court doesn't start until the receiver files security acceptable to the court for the performance of the receiver's duties.

It's established that the receivers have insurance that would protect the situation for single claims of several millions of dollars and for the amount of something like $500,000 for any claim based on a fidelity shortcoming.  One would think that's sufficient.  The difficulty in the way of the court dispensing with security was outlined in Red Wagyu Australia Pty Ltd [2003] 1 Qd R 445.

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