Zhang v Shi (No 5)
[2021] VSC 695
•26 October 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2020 02465
| DANJUAN ZHANG (and others according to the schedule of parties) | Plaintiffs |
| v | |
| LIONEL LIN SHI (and others according to the schedule of parties) | Defendants |
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JUDGE: | DELANY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27-28 September 2021 |
DATE OF JUDGMENT: | 26 October 2021 |
CASE MAY BE CITED AS: | Zhang & Ors v Shi & Ors (No 5) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 695 |
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CONTEMPT OF COURT – Alleged breach of freezing order – Construction of freezing order – Whether threshold of freezing order applies to assets of each defendant individually – Particularisation of charges of contempt of court – Whether value of assets after the transaction the subject of the charge exceed threshold – Deputy Commissioner of Taxation v Gashi (No 2) [2011] VSC 351; National Australia Bank v Juric [2001] VSC 375; Green v The Queen (1971) 126 CLR 28; Doney v The Queen (1990) 171 CLR 207 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr T Scotter | Robinson Gill |
| For the First Defendant | Mr D Kim | JT Lawyers |
HIS HONOUR:
Introduction
These reasons concern six charges of contempt brought by the plaintiffs, Danjuan Zhang, Ling Liu and Zhirong Wang against the first defendant, Lionel Lin Shi, by an amended summons dated 27 September 2021.[1]
[1]The amendments were allowed as result of a ruling delivered during the course of the hearing on 28 September 2021, the reasons for which included that the charges as originally drafted were not deficient and that the amendments proposed were minor and therefore, were allowed: Zhang & Ors v Shi & Ors (Ruling No 4) (Supreme Court of Victoria, Delany J, 27 September 2021.
The six charges, as amended, are as follows:
Charge 1. On or about 14 December 2020, the First Defendant, contumaciously, alternatively deliberately, alternatively recklessly, breached clause 6(a) of the freezing order granted by this Court on 11 June 2020 (as subsequently extended) (Freezing Order), by causing the fourth defendant (Mequity) to deal with the property at 22-24 Bennetts Lane Melbourne (certificate of title volume 11109 folio 957) (Bennetts Lane Property) by mortgaging it to Prime Value Asset Management Limited , which after such transaction the assets of Mequity were less than $3 million, as particularised at paragraphs 17 to 22 of the affidavit of Lu Cheng affirmed 29 June 2021.
Charge 2. On or about 23 December 2020, the First Defendant, contumaciously, alternatively deliberately, alternatively recklessly, breached clause 6(a) of the Freezing Order, by causing Mequity to dispose of the sum of $464,750 from its CBA bank account ending in #3086 which after such transaction the assets of Mequity were less than $3million as particularised at paragraphs 23 to 50 of the affidavit of Lu Cheng affirmed 29 June 2021.
Charge 3. Between 24 July 2020 and 20 February 2021, the First Defendant, contumaciously, alternatively deliberately, alternatively recklessly, breached clause 6(a) of the Freezing Order, by causing the fifth defendant (AGI) to pay the net amount of $390,300 from its Account 063 010 11969238 (AGI’s Account) to the first defendant’s wife Chanjuan Xu (or for her benefit), which after such transaction the assets of AGI were less than $3million as particularised at paragraph 53(a) and 53(c) of the affidavit of Lu Cheng affirmed 29 June 2021.
Charge 4. Between 11 December 2020 and 20 February 2021, the First Defendant, contumaciously, alternatively deliberately, alternatively recklessly, breached clause 6(a) of the Freezing Order, by causing AGI to pay dispose of the net amount of $118,000 from AGI’s Account to Yin Long Shen, which after such transaction the assets of AGI were less than $3 million as particularised at paragraph 53(d) of the affidavit of Lu Cheng affirmed 29 June 2021.
Charge 5. On a date unknown to the plaintiffs, the First Defendant, contumaciously, alternatively deliberately, alternatively recklessly, breached clause 6(a) of the Freezing Order, by causing Mequity to deal with the Bennetts Lane Property by entering into a contract of sale dated 1 November 2020 in respect to the Bennetts Lane Property with La Moneta Capital Pty Ltd, which after such transaction the assets of Mequity were less than $3million as particularised at paragraphs 54 to 64 and 70 of the affidavit of Lu Cheng affirmed 29 June 2021.
Charge 6. On a date unknown to the plaintiffs, the First Defendant, contumaciously, alternatively deliberately, alternatively recklessly, breached clause 6(a) of the Freezing Order, by causing Mequity to deal with the Bennetts Lane Property by entering into a contract of sale dated 14 November 2020, in respect to the Bennetts Lane Property with E2E Construction Pty Ltd, which after such transaction the assets of Mequity were less than $3million as particularised at paragraphs 65 to 70 of the affidavit of Lu Cheng affirmed 29 June 2021.
For the reasons that follow, I have found amended charges numbered 1 – 6 proven beyond reasonable doubt.
The Freezing Order
The freezing order made on 11 June 2020 (‘Freezing Order’) to which the charges in the amended summons relate is relevantly in the following terms:
4.In this order—
(a)“applicant”, if there is more than one applicant, includes all the applicants;
(b)“you”, where there is more than one of you, includes all of you and includes you if you are a corporation;
(c)“third party” means a person other than you and the applicant;
(d)“unencumbered value” means value free of mortgages, charges, liens or other encumbrances.
5.(a) If you are ordered to do something, you must do it by yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions.
(b)If you are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way.
FREEZING OF ASSETS
6.(a) You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets which are in Australia (“Australian assets”) up to the unencumbered value of AUD $3,000,000 (“the relevant amount”).
(b)If the unencumbered value of your Australian assets exceeds the relevant amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the relevant amount.
7.For the purposes of this order—
(a)your assets include—
(i)all your assets, whether or not they are in your name and whether they are solely or co-owned;
(ii)any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and
(iii)the following assets in particular—
(A)in relation to Lionel Shi, the properties known as:
1-9 Dryburgh Street West Melbourne, certificate of title volume 11979 folio 850;
Unit 1501, 450 St Kilda Road Melbourne, certificate of title volume 12001 folio 702; and
the shares in the fifth defendant, AUST Global Investment Pty Ltd;
or
if any or all of the assets have been sold, the proceeds of the sale;
(B)in relation to MEQUITY Pty Ltd the property known as:
22-24 Bennetts Lane Melbourne, certificate of title volume 11109 folio 957, or, if that asset has been sold, the proceeds of the sale; and
(iv)any money in any bank account, in particular—
(A)Commonwealth Bank account in the name of Garden City Capital Pty Ltd account number 063-019 11437 085; and
(B)Commonwealth Bank account in the name of Garden City Capital Pty Ltd account number 063-019 11437 050; and
(b)the value of your assets is the value of the interest you have individually in your assets.
…
EXCEPTIONS TO THIS ORDER
10. This order does not prohibit you from each—
(a)paying up to $1000 a week on your ordinary living expenses;
(b)paying your reasonable legal expenses;
(c)dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred;
(d)in relation to matters not falling within sub-paragraphs (a), (b) or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation.
On the return of the Freezing Order on 15 June 2020 the parties, by consent, agreed to extend the order until 29 June 2020. On 29 June 2020, on the further return of the freezing order, Mr Shi appeared and was represented by counsel. An application was made at that time on behalf of the defendants to discharge the Freezing Order. On 8 July 2020 that application was refused.[2]
[2]Zhang v Shi (Ruling No 2) (Supreme Court of Victoria, Delany J, 8 July 2020).
The parties and their relationship to Mr Shi
The second defendant, Garden City Capital Pty Ltd (‘Garden City’) is a company incorporated on 7 April 2016,[3] of which Mr Shi is and at all relevant times was the sole director. 20% of the shares in that company are owned by the plaintiffs and the other 80% of the shares are owned by the fifth defendant, Aust Global Investments Pty Ltd (‘AGI’).[4] Mr Shi is the sole director and the sole member of AGI.[5] The third defendant, MCITY Pty Ltd (‘MCITY’) is a company of which Mr Shi is and at all relevant times was the sole director.[6] The fourth defendant, MEQUITY Pty Ltd (‘MEQUITY’), is a company of which Mr Shi is and at all relevant times was the sole director.[7] AGI is the sole member of MEQUITY.[8] At relevant times from 3 October 2017, MEQUITY was the registered proprietor of the property at 22-24 Bennetts Lane, Melbourne referred to in paragraph 7(a)(iii)(B) of the Freezing Order. The registration of MEQUITY as the owner of the land was pursuant to a contract of sale, the consideration for which was $2,530,000.[9]
[3]Plaintiffs, Amended Statement of Claim dated 28 July 2020 (‘ASC’) [4(a)]; admitted in Defendants, Amended Defence dated 17 February 2021 (‘Amended Defence’).
[4]Ibid [4(c)], admitted in the Amended Defence.
[5]Ibid [7], admitted in the Amended Defence.
[6]Ibid [5], admitted in the Amended Defence.
[7]Ibid [6], admitted in the Amended Defence.
[8]Ibid, admitted in the Amended Defence.
[9]Ibid [23], admitted in the Amended Defence.
On 18 March 2021 each of AGI, Garden City, MCITY and MEQUITY were placed into administration. On 30 April 2021 it was resolved that each of those companies be placed into liquidation. David Juratowitch of Cor Cordis was appointed liquidator.[10] On 30 July 2021, the liquidator reported to creditors of those companies in accordance with the Insolvency Practice Rules (Corporations) 2016, s 70-40.[11]
[10]Plaintiffs, Affidavit of Lu Cheng affirmed 6 September 2021 (‘6 September Cheng Affidavit’), exhibit ‘LCH-14’ 936.
[11]Copies of the reports relating to MEQUITY and AGI are at pages 915 to 944 of exhibit ‘LCH-14’ to the 6 September Cheng Affidavit.
On 4 May 2021, Andrew Beck of Grey House Partners was appointed receiver and manager of MEQUITY Pty Ltd by Prime Value Asset Management Ltd (‘Prime Value’).[12] Mr Beck is in the process of selling the property at 22–24 Bennetts Lane, Melbourne.
[12]6 September Cheng Affidavit, exhibit ‘LCH-14’ 921.
The evidence relied upon in support of the charges
The plaintiffs relied on the following evidence in support of the charges:
(a) an affidavit of Lu Cheng affirmed 29 June 2021 and exhibits;
(b) an affidavit of Simon Wen Zhong Hu sworn 25 June 2021 and exhibits;
(c) an affidavit of Lu Cheng affirmed 6 September 2021 and exhibits;
(d) an affidavit of Lionel Shi affirmed 26 June 2020 and exhibits;
(e) an affidavit of Lionel Shi affirmed 9 July 2020 and exhibits;
(f) an affidavit of Lionel Shi affirmed 24 June 2020 and exhibits;
(g) two documents tendered by the plaintiff at the hearing, both dated 24 November 2021, relating to an offer to purchase the Bennetts Lane Property by an entity referred to as ‘Zermati’;[13]
[13]Transcript of the hearing in proceeding S ECI 2020 02465 (‘Transcript’), 27 September 2021, 106.
(h) the sale brochure relating to the property at 22–24 Bennetts Lane, Melbourne described as land with a permit approved for a 13-level development including 1889m² of gross floor area;
(i) five confidential documents relating to the proposed sale of the property at 22–24 Bennetts Lane, Melbourne produced by Mr Beck variously dated July to September 2021 (‘Mr Beck’s confidential documents’); and
(j) oral evidence given by Mr Beck (‘Mr Beck’s confidential evidence’).
No objection was taken on behalf of Mr Shi to the admissibility of any of the affidavit evidence or exhibits relied upon by the plaintiffs. None of the deponents of the affidavits were called or required for cross-examination.
The only witness who was cross-examined was the receiver and manager of MEQUITY, Mr Beck. Mr Beck gave evidence on subpoena. His evidence was heard in a closed court in accordance with an order made on 28 September 2021 pursuant to s 30(1) of the Open Courts Act 2013 (Vic). The only persons permitted to be present for the part of the proceeding during which Mr Beck gave evidence and during which Mr Beck’s confidential documents were produced were the legal representatives of the parties, and Mr Beck and his legal representatives. Mr Beck’s confidential evidence and documents were the subject of confidentiality orders because, at the time he gave evidence, Mr Beck was engaged in selling the property at 22-24 Bennetts Lane, Melbourne, the documents and evidence are relevant to that process, but no contract of sale had been entered into, and the sale process was not complete.
As is his right, Mr Shi elected not to give evidence himself. He did not adduce evidence in answer to the charges.
The applicable principles
A failure by a party to comply with a court order may constitute contempt of court.[14] In National Australia Bank Ltd v Juric,[15] Gillard J set out the elements that the plaintiffs must prove, where the contempt alleged is a breach of a court order:
[14]Hera Project Pty Ltd v Bisognin [2019] VSC 483, citing Legal Services Board v Forster (No 2) [2012] VSC 633.
[15][2001] VSC 375 (‘Juric’). See also Hera Project Pty Ltd v Bisognin [2019] VSC 483, [67].
(a) The court has made an order.
(b) The terms of the order are clear, unambiguous and capable of compliance.
(c) The order was served on the alleged contemnor or excused in the circumstances, or service dispensed with pursuant to the rules of the Court.
(d) The alleged contemnor has knowledge of the terms of the order.
(e) The alleged contemnor has breached the terms of the order.[16]
[16]Ibid, [37].
On a contempt application the plaintiffs must prove each of the five elements referred to by Gillard J in Juric beyond reasonable doubt.[17] In Deputy Commissioner of Taxation v Gashi (No 2),[18] John Dixon J discussed the proof required:
17.It is well established that a failure by a party to comply with an order, such as a freezing order made in a civil proceeding, constitutes a contempt of court. Such a contempt is commonly described as a “civil” contempt, although drawing a distinction between civil and criminal contempts, usually constituted by contempt in the face of the court or obstructing the course of justice, may not be helpful.[19] In all cases of contempt the charge of contempt must be proved on the criminal onus, beyond reasonable doubt.
…
22.In Advan Investments Pty Ltd v Dean Gleeson Motor Sales Pty Ltd,[20] Gillard J, after considering the English cases and the High Court’s decision in Australasian Meat Industry Employees Union & Ors v Mudginberri Station Proprietary Limited,[21] identified the principle applying in Victoria to be that, given the requisite knowledge of the order, a civil contempt usually requires that the plaintiff establish that the alleged contemnor had knowledge of the terms of the order and that he deliberately committed an act or omitted to do some act which had the effect of breaching the order. Unless the terms of the order require otherwise, the plaintiff does not have to prove that the act or omission constituting the breach was accompanied by an intention to deliberately breach the order.[22] Neither do the proofs require the contemnor to be aware of the full terms of the court order. It is sufficient if the contemnor knows the substance of the prohibition and knowingly acts in a manner contrary to it.[23]
23.In Scott v Evia Pty Ltd,[24] Dodds-Streeton J agreed that the authorities established it is generally unnecessary to prove that the contemnor committed the breach with an intention to disobey. If, however, the disobedience were “casual or accidental or unintentional” as distinct from “deliberate and voluntary”, then although it would prima facie give rise to liability, the Court might nevertheless decline to exercise the contempt jurisdiction. If the Court did exercise the jurisdiction, the casual or accidental or unintentional nature of the breach would be relevant to whether a penalty should be imposed, and if so, what it should be. Thus, any disobedience of an injunction which is worse than casual, accidental or unintentional will be regarded as wilful. The distinction is between the deliberate or intentional nature of the act constituting the breach of the order and a breach characterised by an element of defiance – contumacious disobedience.[25]
[17]Hera Project v Bisognin [2019] VSC 483 [67], citing Witham v Holloway (1995) 131 ALR 401, 408; Deputy Commissioner of Taxation v Gashi (No 2) [2011] VSC 351, [17]; Fortune Holding Group Pty Ltd v Zhang (No 2) [2017] VSC 738, [19].
[18][2011] VSC 351 (‘Gashi’).
[19]Australasian Meat Industry Employees Union & Ors v Mudginberri Station Proprietary Limited (1986) 161 CLR 98, 107 - 8; Witham v Holloway (1995) 183 CLR 525, 534; Chan & Ors v Chen & Ors (No 2) [2007] VSC 24 at [21].
[20][2003] VSC 201.
[21](1986) 161 CLR 98.
[22]Ibid [51].
[23]Madeira v Roggette Pty Ltd (No 2) [1992] 1 QB R 394, 403.
[24][2007] VSC 15 at [41].
[25]Deputy Commissioner of Taxation v Gashi (No 2) [2011] VSC 351 [17], [22]-[23].
Causing another party to breach a freezing order may amount to contempt. In Gashi, John Dixon J said:
19.Where acts or omissions contrary to the terms of an injunction have been established, it is not merely the person against whom the order is made, if he has acted in breach of the order after receiving notice of it, who will be liable for contempt of court. A third party who knowingly assists in the breach, that is, a third party who knows the terms of the injunction and wilfully assists the person enjoined to disobey it, will also be liable for contempt of court. This would be so whether or not the person enjoined had notice of the injunction.[26] (citations omitted)
[26]Ibid [19].
In the criminal context, the task of determining whether or not a particular charge has been proved ’beyond reasonable doubt’ is a matter for the jury, according to the standards which the jurors adopt.[27] In general, appellate courts have cautioned against trying to define ’beyond reasonable doubt’ for juries, for it is considered apt to lead to error.[28] When instructing the jury as to the meaning of ’beyond reasonable doubt’ the Victorian Criminal Charge Book notes that ’beyond reasonable doubt’ is a composite expression, not intended to be broken into its component parts or analysed.[29] It is designed to convey an accurate impression of the high standard of proof that the prosecution must satisfy. It is not possible to define each of the three words separately, because the phrase means more than the mere sum of its parts.[30]
[27]R v Chatzidimitriou [2000] VSCA 91; (2000) 1 VR 493.
[28]See, e.g., Green v The Queen (1971) 126 CLR 28 (‘Green’), 31-32 (Barwick CJ, McTiernan & Owen JJ).
[29]Judicial College of Victoria, Victorian Criminal Charge Book (at 26 October 2021), ‘1.7 Onus and Standard of Proof’ [32].
[30]R v Pahuja (1987) 49 SASR 191; R v Chatzidimitriou [2000] VSCA 91; (2000) 1 VR 493.
Although in England the term ’beyond reasonable doubt’ is seen to be synonymous with the term ’sure’,[31] this is not the case in Australia.[32] Proof ’beyond reasonable doubt’ cannot be expressed mathematically (e.g. as a 99% certainty). Such an approach incorrectly implies that the jury, or in the present case, the judge, should disregard any doubts that exist once the arbitrarily fixed percentage or rate is reached.[33] Trying to work out whether a doubt is reasonable or not is not only thought to be potentially unhelpful ’but may obscure the vital point that the accused must be given the benefit of any doubt which the jury considers reasonable’.[34]
[31]See, e.g., R v Hepworth & Fearnley [1955] 2 QB 600; R v Onufrejczyk [1955] 1 QB 388.
[32]Thomas v R (1960) 102 CLR 584; Dawson v R (1961) 106 CLR 1; R v Punj [2002] QCA 333; R v Cavkic(No 2) [2009] VSCA 43; (2009) 28 VR 341; Benbrika & Ors v R [2010] VSCA 281; (2010) 29 VR 593.
[33]R v Cavkic [2005] VSCA 182; (2005) 12 VR 136 [227].
[34]See Green, 32, citing a passage from Thomas v The Queen (1960) 102 CLR 584, 595 (Kitto J).
In Green the High Court (Barwick CJ, McTiernan and Owen JJ) said this: ’A reasonable doubt is a doubt which the particular jury entertain in the circumstances’.[35] If that is so, then, in the mind of a judge, dealing with contempt charges, a reasonable doubt is a doubt which the particular judge entertains in the circumstances. If the judge entertains such a doubt, the respondent to the charge must be given the benefit of that doubt and that charge must be dismissed. I have approached each of the contempt charges and the elements required to be proved by the plaintiffs on that basis and in accordance with the other authorities earlier discussed.
[35]Green v The Queen (1971) 126 CLR 28, 32-33 (Barwick CJ, McTiernan & Owen JJ).
The issues on the application
There is no dispute that the Court made the Freezing Order or as to service of the Freezing Order on Mr Shi. There is no doubt the terms of the Freezing Order are clear, unambiguous and capable of compliance. That is so although a question as to the proper construction of paragraph 6(a) of the Freezing Order was raised on behalf of Mr Shi. That question concerning the reference to the ‘relevant amount’ of $3 million is discussed below. There is no dispute that Mr Shi had knowledge of the terms of the Freezing Order. That fact is established by his application to discharge the Freezing Order heard on 29 June 2020.
There is also no dispute that the facts constituting the transactions in question, to which each of the six charges refer, took place. For example, in the case of charge 1, the mortgaging of the Bennetts Lane property as security for a loan of $4.255 million. During the hearing the Court was informed by his counsel that Mr Shi did not dispute the facts relied upon for any of the charges.[36] Given the evidence of the transactions in the 29 June 2021 affidavit of Ms Cheng relied on as particulars of the charges, and the exhibits to that affidavit and Ms Cheng’s second affidavit and exhibits, the decision of Mr Shi not to challenge the proof of the transactions was an appropriate one.
[36]Transcript, 27 September 2021, 42.
Each of the charges alleges that the actions of Mr Shi ‘caused’ (in the case of charges 1, 2, 5 and 6) MEQUITY to breach the freezing order, and (in the case of charges 3 and 4) ‘caused’ AGI to breach the freezing order.
There was no dispute that as the sole director of the companies, Mr Shi ‘caused’ MEQUITY and AGI to engage in or carry out each of the transactions the subject of the six charges. Proof that Mr Shi ‘caused’ each of the transactions to occur is established by the affidavit evidence upon which the plaintiffs rely to a standard beyond reasonable doubt.
The critical issue in respect of each of the charges is whether or not, by causing the transactions to occur, Mr Shi breached the terms of the Freezing Order.
There are three issues relating to breach. The first is a preliminary issue concerning the proper construction of the Freezing Order. In particular, what is meant by the ‘relevant amount’ of $3 million in paragraph 6(a) of the Freezing Order. The second issue concerns the proper construction of the amended charges. That is, whether what must be proved is that before the transaction the subject of each individual charge the assets of the corporate defendant to which the charge relates were required to be shown to be more than $3 million and after to be shown to be less than $3 million, or whether on the proper construction of the amended charges, it is sufficient that the plaintiffs prove that after the transaction in question the assets of the corporate defendant were less than $3 million. The third issue is a substantive issue that was the focus of the hearing. Namely, whether the plaintiffs have proved beyond reasonable doubt that at the time of each individual dealing to which charges 1, 5 and 6 relate, and at the time of each of the dispositions to which charges 2, 3 and 4 relate, the assets of the defendant whose property was the subject of the dealing in question or whose assets were the subject of the disposition were, or as a result of the transaction in question fell below the ‘relevant amount’ of $3 million specified in the Freezing Order.
Is the ‘relevant amount’ in order 6(a) $3 million per defendant, or is it $3 million for all defendants combined?
The starting point for any contempt charge is the order relied upon as the basis for the charge. If there is ambiguity, uncertainty or want of clarity in an order it should be construed against the interests of the party seeking to enforce it.[37] Where ambiguity cannot be resolved, the court cannot be satisfied beyond reasonable doubt that contempt has occurred.[38]
[37]Livingspring Pty Ltd & Ors v Ng & Ors [2007] VSC 9, [24] (Cavanough J), referring to the comments of Bainton J in ACCC v Collings Construction Co Pty Ltd (New South Wales Supreme Court, Bainton J, 2 July 1997) with approval. In that case, at 15, Bainton J held that in respect of an allegation of criminal contempt, “it would be anomalous if the proper construction of the injunction where there is doubt about it, should not be construed in favour of the person charged”.
[38]Australian Consolidated Press v Morgan (1965) 112 CLR 483, 515 (Owen J), 506 (Windeyer J agreeing); but see 491 (Barwick CJ); Tovehead Pty Ltd v Owston Nominees No 2 Pty Ltd [2002] NTSC 64; (2002) 171 FLR 278, [9]-[11] (Angel J).
Order 6(a) of the Freezing Order is the order relied on for each of the six charges, as amended. During argument concerning the sufficiency of the charges as originally framed, it was submitted on behalf Mr Shi that the reference to $3 million as the threshold above which any respondent to the order might deal with his, her, or its assets was a reference to the combined asset position of all respondents, and not to the assets of each individual respondent. The argument was not one based on ambiguity, but rather as to the proper construction of the Freezing Order.
I do not agree that on a proper construction of the Freezing Order, the reference to the ‘relevant amount’ of $3 million in order 6(a) is a reference to the combined assets of all of the respondents to the order.
The Freezing Order is directed to and individually enjoins each of Mr Shi, Garden City, MCITY, and MEQUITY. Order 6(a) commences with the words ‘you must not remove’. Order 4(b) defines ‘you’ as follows:
“You”, where there is more than one of you, includes all of you and includes you if you are a corporation.
Order 6(a), read with the fact there is more than one named respondent to the Freezing Order and the definition in 4(b), makes it plain that the reference ‘you’ and to ‘your’ in order 6(a) is a reference directed to each individual respondent. That is, to Mr Shi personally, and separately to each of the corporations who are the second to fourth defendants.
Unless one of the exceptions in the freezing order applies,[39] no individual defendant may dispose of, deal with or diminish the value of that person’s assets in Australia to the extent that person’s assets do not exceed $3 million.
[39]Such as provided for in paragraph 10(b).
That the ‘relevant amount’ has application to each individual defendant so as to prohibit any dealing or disposition in respect of assets of that person below $3 million expressly appears from the reference to the singular in order 6(b) of the Freezing Order. The text of that subparagraph includes ‘if the unencumbered value of your Australian assets exceeds the relevant amount, you… So long as the total unencumbered value of your Australian assets still exceeds the relevant amount’ (emphasis added). The reference to ‘your’ and ‘you’ in paragraph 6(b) is clearly a reference to each individual defendant’s assets.
That the reference in order 6(a) is a reference to the assets of each individual defendant is reinforced not only by order 6(b), but also by the text of paragraph 7 of the Order. Paragraph 7(b) provides that ‘the value of your assets is the value of the interest you have individually in your assets’ (emphasis added).
That the $3 million threshold is intended to have individual application to each individual respondent to whom an order is directed not only appears from the text of the order, it is also both consistent with the standard form nature of the freezing order provided for in rule 37A.02 and Form 37AA of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), and consistent with the purpose for such orders. The standard form in Form 37AA is to be employed in cases where there is a single respondent, just as it is in cases where there are multiple respondents. The purpose of a freezing order is that up to the ‘relevant amount’, assessed by reference to the likely quantum of the claim, the assets of each respondent to the order are frozen until the hearing and determination of the proceeding.[40] In a proceeding against multiple defendants, there may be separate claims against individual defendants relying on different facts and different causes of action. At trial, the plaintiff may succeed against one or more, but not against all defendants. That the freezing order should apply in relation to its monetary limits so as to permit dealings by each defendant on an individual basis is consistent with the purpose of ensuring that claims against individual defendants are not thwarted by individual defendants dealing with their assets. To adopt the construction for which Mr Shi contends would permit that to occur.
[40]Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213.
What is the proper construction of the amended charges?
It was submitted on behalf of Mr Shi that, for each of the amended charges, it was necessary that the plaintiffs prove first that the assets of the corporate defendant to which the charge relates were greater than $3 million before the transaction the subject of the charge, and secondly that the corporation’s assets were reduced to below $3 million as a result of the transaction.[41] This submission was advanced by reference to charge 3 relating to AGI but, if correct, has equal application to charges 1, 2 and 4. Those charges, like charge 3, concerned disposition of assets, in each case with the consequence the assets of the company in question were diminished.
[41]Transcript, 28 September 2021, 207-208, 214-215.
I do not agree with the construction of charge 3, or of the other charges I have mentioned for which Mr Shi contends. To construe the language of the charges in this way requires reading additional words into the charges that are not present and imports additional elements of proof of the charges which are not part of the charges as amended. Using charge 3 as an example, to adopt the construction for which Mr Shi contends requires the charge to read ‘in circumstances where before such transaction the assets of AGI were greater than $3 million, and which after such transaction the assets of AGI were less than $3 million’. There is no warrant for reading those additional words into the charge.
Order 6(a) contains a prohibition on disposition of any assets ‘up to the unencumbered value of AUD $3,000,000’. What matters for the purposes of the order and what the charges allege is that after the transactions to which the charges relate the assets of the individual corporate defendant in question were less than $3 million. It is the endpoint following the transaction that is important in the order itself, and it is the endpoint of the transaction that is the subject of the amended charges. That is made clear by the amended words ‘which after such transaction…’.
What the plaintiffs must prove in relation to each of charges 1, 2, 3, and 4 is that after the transaction referred to in those charges the assets of the individual defendant named in the charge were less than $3 million.
Did the assets of MEQUITY and of AGI fall below $3 million?
The critical issue of substance is whether the plaintiffs have discharged the burden of proving beyond reasonable doubt that at the date of the dealings referred to in charges 5 and 6, and after the dealing and dispositions specified in charges 1, 2, 3, and 4, the individual assets of the relevant corporate defendants (MEQUITY and AGI) were less than $3 million.
In closing submissions the plaintiffs provided a table setting out what they contended to be the assets and liabilities of MEQUITY as at the dates relevant for each of charges 1, 2, 5 and 6. It is convenient to reproduce that table:
Charge Date Charge 1 14/12/2020 1. Asset Liability 2. Bennetts Lane $6.5m* 3. Surplus funds as at 14/12/20 $1,895,240.49 4. Prime Value loan $4.225m 5. La Moneta loan $1m 6. Garden City loan $3m 7. Net $170,240.49 Charge 2 23/12/2020 8. Asset Liability 9. Bennetts Lane $6.5m* 10. Surplus funds left as at 23/12s [sic] ($47,499.44+$1.3m) $1,347,499.44 11. Prime Value loan $4.225m 12. La Moneta Loan $1m 13. Garden City Loan $3m 14. Net -$377,500.56 Charge 5 1/11/2020[42] 15. Asset Liability 16. Bennetts Lane $4m
(contract price of La Moneta contract)17. Aust Golden Kangaroo loan $2.1m 18. La Moneta Loan $1m 19. Garden City Loan $3m 20. Net -$2,100,000 Charge 6 14/11/2020 21. Asset Liability 22. Bennetts Lane $6.5m* 23. Aust G Kang loan $2.1m 24. La Moneta Loan $1m 25. Garden City Loan $3m 26. Net $400,000 [42]Charge 5 alleges entry into the contract of sale on a date unknown to the plaintiffs. 1 November 2020 is the date of the contract referred to in the charge.
As to the assets of MEQUITY, for the purposes of the table the plaintiffs adopted a value of $6.5 million for the Bennetts Lane property at dates relevant to each of charges 1, 2 and 6. Whilst that is so, they submitted the true market value of the Bennetts Lane property was well below $6.5 million at all dates relevant to those charges and also at the date relevant to charge 5. They submitted that the Court should make a finding to that effect.
In response, Mr Shi submitted that the adopted value of $6.5 million was supported by the Charter Keck Cramer valuation of the Bennetts Lane property at $6.5 million dated 8 December 2020. He submitted the Court should proceed by reference to that valuation, that it should be astute to do so in circumstances where the burden of proof that the plaintiffs must discharge is beyond reasonable doubt, and where there is no proper basis to impugn the Charter Keck Cramer valuation or to proceed other than by reference to that valuation.
Two of the liabilities of MEQUITY referred to in the plaintiffs’ table were in contest. The first, the ‘La Moneta loan’, in the table described as a liability of $1 million. The second, the ‘Garden City loan’, described in the table as a liability in the sum of $3 million.
It is convenient to separately consider the evidence relating to the market value of the Bennetts Lane property and to consider the La Moneta and Garden City loans before turning to the individual charges that relate to MEQUITY.
The Charter Keck Cramer valuation
The Charter Keck Cramer valuation formed part of the evidence tendered on behalf of the plaintiffs.[43] One of the authors of the valuation, Donald Tse, was subpoenaed by the plaintiffs to give evidence. The plaintiffs did not call on the subpoena.[44]
[43]Plaintiffs, affidavit of Simon Wen Zhong Hu sworn 25 June 2021, exhibit ‘SWZH-1’ 34-73.
[44]Counsel for the plaintiffs did not call upon the subpoena on the basis that it was not open for the plaintiffs to cross-examine Mr Tse, and opted instead to make submissions relating to the reliability of the Charter Keck Cramer report: see Transcript, 28 September 2021, 150-151.
The valuation identified the highest and best use of the property as for redevelopment purposes. It is on that basis that value was assessed. The valuation report includes consideration of the property, taking into account a permit for a 16-level hotel development. The gross floor area (‘GFA’) of the development is identified. The report highlights that the property benefits from a signed offer to lease the hotel operation on completion of the proposed development works to La Moneta Group dated 14 April 2020 at a base rent of $1.7 million per annum or 35% of revenue over an initial ten-year term. It also refers to a signed contract of sale for the property for $6.5 million dated 14 November 2020 with settlement due on 1 June 2021, with the purchasing company being a construction company. The terms of that transaction are recorded as a 10% deposit of $650,000 to be paid by 11 December 2020 of which $200,000 has been paid by 18 November 2020.[45] The report notes that its authors have been provided with a signed offer from another interested purchaser dated 20 October 2020 for $6 million.[46]
[45]Plaintiffs, affidavit of Simon Wen Zhong Hu sworn 25 June 2021, exhibit ‘SWZH-1’ 34-73.
[46]Ibid 38.
The report lists three sales of development sites within the CBD with planning permits to which the authors say they have ‘had regard’.[47] Sales of other sites without permits are also referenced as matters to which regard has been had.[48] When describing ‘valuation methodology’, the authors report:
In this instance, we have assessed value by direct sales comparison, having regard to a number of sales of development sites within the immediate / surrounding precincts. The various sales have been analysed to establish a GFA value rate or a p.s.m. basis with adjustments for size, location, zoning and development potential and permit status.[49]
[47]Ibid 49.
[48]Ibid 50-51.
[49]Ibid 51.
The authors conclude as follows:
We have referenced the value of the subject property against the following sales evidence referring you to our previous comments as to their respective comparability (in sale date order).
Address
Zoning
GFA sq.m.
Sale Price / Sale Date
GFA Rate p.s.m.
130 Little Collins Street Melbourne
Capital City Zone 1
11,224
$40,500,000
6/19
$3,608
140 King Street Melbourne
Capital City Zone 1
24,282
$29,000,000
3/19
$1,194
17 – 23 Wills Street Melbourne
Capital City Zone 1
16,852
$30,250,000
1/19
$1,795
We further note the asking price of 21 – 23 Anthony Street providing a GFA of 2,703 sq.m. indicates a GFA value rate of $2,960 p.s.m.
Analysis of sales with comparable redevelopment opportunities within the Melbourne CBD demonstrates a GFA value rate range of circa $1,200 – $3,600 p.s.m. Based on the abovementioned sales, SWOT analysis and characteristics of the subject property, we have adopted a GFA value rate of $3,500 p.s.m. The application of the adopted GFA value rate to the permissible GFA indicates an assessed value supporting the recent purchase price, which has been adopted for practical assessment purposes of $6,500,000 (exclusive of GST).
A summary of our calculations is as follows.
Permissible GFA
1,888 sq.m. @ $3,500 p.s.m.
$6,608,000
For Practical Valuation Purposes, Adopt Recent Purchase Price $6,500,000 (Exclusive of GST)
Alternatively, our assessed value can be considered on a land value rate basis. Analysis of recent development site sales indicate a land value rate range of circa $30,400 - $62,200 p.s.m., with variance due to the size, location, development potential and permit status of properties. Our assessed value indicates a land value rate of $53,410 p.s.m., which falls within the analysed rate range supporting our assessment by the GFA approach and the recent purchase price.[50]
[50]Ibid 52.
The plaintiffs submitted that the Charter Keck Cramer valuation should not be relied on. They submitted the level of value was inconsistent with evidence of value on either side of that valuation date, and that the 14 November 2020 contract of sale to which the valuation report referred was a sham.
The 14 November 2020 contract, in which the purchaser was E2E Construction Pty Ltd (‘E2E’), was terminated on 15 December 2020, the day after the Prime Value loan of $4.225 million was drawn down. In substance, the plaintiffs urged the Court to proceed on the basis that the $6.5 million contract of sale was a sham, that the Charter Keck Cramer valuation of the property proceeded by reference to that contract; as a result the valuation was unreliable and did not reflect the true market value of the property.
Separately, the plaintiffs submitted the level of value adopted by Charter Keck Cramer was inconsistent with the purchase price of $2.3 million in 2017 and was inconsistent with the Knight Frank valuation dated 2 July 2021 which formed part of the Beck confidential documents.
The submission that the E2E contract is a sham is supported by a letter from the Liquidator of MEQUITY dated 18 June 2021. In his letter, the liquidator reported that on around 24 November 2020 E2E was unable to pay the deposit. The liquidator relied upon a contemporaneous file note to that effect. The file note formed part of the evidence.[51] The deposit was in fact paid. The evidence shows that deposit funds payable pursuant to the E2E contract were transferred direct from the bank account of AGI, which can be traced further back to funds sourced from MCITY. On 18 November 2020, E2E signed a statement pursuant to s 27 of the Sale of Land Act 1962 (Vic) which authorised an early release of the deposit. On 24 November 2020, Mr Shi authorised the solicitor to transfer the deposit of $150,000 to settle the purchase of his spouses’ property which occurred on 26 November 2020. On 15 December 2020 Mr Shi advised the solicitor that he had not received any funds from E2E and he had agreed to terminate the contract as funds could not be raised to complete it.
[51]Plaintiffs, Affidavit of Lu Cheng affirmed 29 June 2021, exhibit ‘LCH-13’ 713-715.
Notwithstanding the evidence tending to show that the E2E contract was a sham transaction, the difficulty with the submissions on behalf of the plaintiffs is that on the face of the Charter Keck Cramer valuation, it was a valuation arrived at by reference to sales evidence to which the report itself refers, rather than a valuation based on the E2E contract. Although the Charter Keck Cramer report referred to the contract of sale for $6.5 million, it did not describe that contract as the basis for the opinion that the property had a market value of $6.5 million. Instead, as the passage from the report extracted at paragraph 47 above reveals, comparable sales to which the valuers had regard was the basis of the valuation.
The Charter Keck Cramer valuation is a valuation for first mortgage security purposes addressed to Prime Value. As such it could be considered likely to be a reasonably conservative assessment of value. It refers to an inspection of the land on 25 November 2020.
Had Mr Tse been called to give evidence, there is no reason to suppose that it would have been open to the plaintiff to cross-examine him as to the validity of the opinions expressed in the valuation report signed by himself and David Morton. In any case, there was no cross-examination of either of the authors and no witness was called to challenge the validity of the opinions contained in the report.
The affidavit of Mr Hu relied on by the plaintiffs refers to the circumstances in which Prime Value agreed to loan $4.225 million to MEQUITY in exchange for the mortgage the subject of charge 1. Those circumstances included that Prime Value was provided with a copy of the E2E contract of sale for the Bennetts Lane property at $6.5 million and also a copy of the Charter Keck Cramer valuation. At the time Prime Value agreed to make the loan, and at the time of settlement of the loan, it was unaware of the Freezing Order. Mr Hu gave evidence that had Prime Value been aware of the Freezing Order, it would not have made the $4.225 million loan. Whether or not Prime Value would have made the loan is not relevant to the question of the value of the Bennetts Lane property at dates relevant to charges 1, 2, 5 or 6. It is not of assistance in seeking to establish whether as at any of those relevant dates the net assets of MEQUITY exceeded $3 million. Mr Hu does not purport to be a property valuer. His evidence does not include any evidence about his opinion as the market the property, even if he had been qualified to express such an opinion. Nothing in his affidavit undermines the Charter Keck Cramer opinion of value.
The earlier purchase of the property in 2017 at $2.53 million,[52] relied on by the plaintiffs is three years old. Given the passage of time and that at the time of purchase the property did not enjoy the benefit of the hotel development permit,[53] the 2017 purchase price provides little evidence of the market value in November 2020. It cannot provide a proper basis for disregarding the contemporaneous Charter Keck Cramer valuation or for impugning the level of value adopted in that valuation.
[52]ASC [23], admitted in the Amended Defence.
[53]The planning permit allowing for the proposed use of the Bennetts Lane property as a hotel was granted on 7 March 2019: ASC [27], admitted in the Amended Defence.
The plaintiffs placed reliance on the Knight Frank valuation, part of Mr Beck’s confidential documents, in support of their submission that the Charter Keck Cramer valuation was unreliable and should be disregarded.
Knight Frank arrived at an assessment of market value as at July 2021 which is inconsistent with the level of value in the Charter Keck Cramer valuation some seven months earlier. The fact of that inconsistency does not mean that the Charter Keck Cramer valuation is either wrong as at the date of that valuation or that it should be disregarded when determining whether a reasonable doubt exists that the net assets of MEQUITY were more than $3 million at dates relevant to the charges. Both valuations were required to be carried out in the context of economic conditions heavily influenced by the impact of the COVID-19 global pandemic. Both valuations involve expressions of expert opinion. Neither valuation was tested in cross examination. The two valuations are seven months apart in what is no doubt a difficult market value to assess the market value of a development site in the CBD.
The Knight Frank valuation referred to the E2E contract of sale and to the $4 million La Moneta contract of sale. The author of that valuation determined not to have regard to those transactions. Like the Charter Keck Cramer valuation, the basis of valuation was comparable sales. The sales Knight Frank considered included sales in 2019, 2020 and a sale in February 2021. The February 2021 sale is a sale after the date of the Charter Keck Cramer valuation and after the relevant date for all of the charges.
When considering the contempt charges and the asset position of MEQUITY at dates relevant to charges 1, 2 and 6, the Charter Keck Cramer valuation of the Bennetts Lane property at $6.5 million cannot be put to one side. It is untested, but on its face it provides persuasive evidence of the market value of the property as at and around 8 December 2020. Bearing in mind the standard of proof required, I will proceed to consider the net asset position of MEQUITY relevant to charges 1, 2, and 6 on the basis the market value of the Bennetts Lane property is $6.5 million at the dates relevant to those charges.
Turning to charge 5, the plaintiffs’ table of values does not adopt $6.5 million as the market value of the property on 1 November 2020. The dealing of which charge 5 complains is the entry into a contract of sale for the Bennetts Lane property with La Moneta dated 1 November 2020, on a date unknown to the plaintiffs, to sell the property for $4 million. If the La Moneta contract is a genuine contract, it must be assumed that as at the date of that contract, whether 1 November 2020 or some other unknown date, being the date the contract was actually entered into, the market value of the property was $4 million.
A copy of the La Moneta contract of sale forms part of the evidence exhibited to the 6 September Cheng Affidavit. So too does a letter dated 25 March 2021 in which La Moneta‘s solicitors advised that their client intended to proceed with that contract. The letter from La Moneta‘s solicitors asserted that a deposit of $340,000 was paid on 1 September 2020 and a further deposit of $660,000 was paid on 6 October 2020.
When it comes to assessing the evidence of the market value of the Bennetts Lane property relevant to charge 5, both the opinion as to value contained in the Charter Keck Cramer report, an opinion provided to Prime Value approximately one month after the date of the La Moneta contract, and the contract price in the La Moneta contract of sale itself both need to be considered.
The La Moneta Loan
The totality of the evidence concerning the $1 million La Moneta loan is found in the 6 September Cheng Affidavit. That affidavit was made in reply to an affidavit of Mr Shi, but his affidavit was not tendered by either party and he was not called to give evidence.
Paragraph 22(a) of Ms Cheng’s reply affidavit relevantly states as follows:
the loan owed to La Moneta in the sum of $1 million. The loan agreement appears at pages 443 to 446 of LLS – 7. Mequity was named as the borrower, and the assets that were subject to the Freezing Order (including the Bennetts Lane property) were used as security.
Exhibit LLS-7, being the La Moneta loan agreement, does not form part of the evidence. I am not satisfied that the plaintiffs have proved that at any particular date there was a loan of $1 million owed to La Moneta by MEQUITY. That may have been the case and it may have been the case that MEQUITY lent $1 million to La Moneta so that it could make the two payments referred to in the 25 March 2021 letter from La Moneta’s solicitors. However those observations are based on speculation only. The Court must proceed, particularly in the case of contempt charges, by reference to evidence.
The two sentences in Ms Cheng’s affidavit, as extracted at paragraph 65 above, do not constitute evidence. They do not identify the date of any loan and nor do they say anything as to its terms. Without the La Moneta loan agreement, the evidence of Ms Cheng falls well short of proving the existence of the alleged La Moneta loan. In the absence of the loan agreement, the evidence upon which the plaintiffs rely is little more than an assertion. It is not evidence that can be acted upon.
The alleged existence of the $1 million La Moneta loan must be disregarded as a liability of MEQUITY when considering whether the net assets of MEQUITY were below the relevant amount of $3 million for the purposes of charges 1, 2, 5 and 6. I proceed on that basis.
The Garden City loan
Regarding the Garden City loan, the plaintiffs relied on allegations in the ASC and the responses to those allegations in the Amended Defence. In addition, they relied upon affidavit evidence of Mr Shi tendered as part of his case to prove that a loan of $3 million made by Garden City Pty Ltd to MEQUITY and was a liability of MEQUITY at dates relevant to each of charges 1, 2, 5 and 6.
The plaintiffs submitted the existence of the $3 million unpaid Garden City loan is admitted by Mr Shi and the defendants on the pleadings.
Paragraphs 19 and 20 of the ASC and of the Amended Defence to which attention was directed during the hearing are reproduced below:
19. Pursuant to the New Project Agreement, on or about 1 July 2017, Garden City and MEquity entered into a Heads of Agreement.
Particulars.
The Heads of Agreement is in writing. A copy may be inspected.
20. There were terms of the Heads of Agreement:
(a) Garden City agreed to provide financial accommodation to MEquity;
(b) Garden City was to provide the sum of $3M to MEquity by 15 August 2017 (clause 2 and Schedule 1);
(c) The advance was repayable on 15 August 2020 (clause 3 and schedule 1);
(d) Interest was payable on the advance at the rate of 20% per annum (clause 4 and schedule 1);
(e) The profits of the development of the Bennett’s Lane Property were to be shared 75% to Garden City and 25% to MEquity (Clause 6, Recital B and Schedule 2)
19. As to paragraph 19, they:
(a) admit that Garden City and MEquity entered into a written Heads of Agreement (Heads of Agreement);
(b) say that in around early to mid-2017 in discussions between Wang and Shang Shi, it was agreed that the repayment of the $3 million loan to Wang would occur at the same time as the completion of the Bennetts Lane property consistent with the repayment dates in the Heads of Agreement and the terms of the Investment Agreement;
PARTICULARS
This agreement was oral and constituted by discussions between Wang and Shi in around early to mid-2017 to the effect alleged.
(c) otherwise deny the allegations.
20. As to paragraph 20, they:
(a) admit that the Heads of Agreement included terms to the effect alleged in subparagraphs (a) to (d);
(b) say that the Heads of Agreement included the following other terms:
(i) If requested by MEquity, Garden City may at its discretion extend the repayment date of 15 August 2020 for a further period agreed to in writing between the parties (clause 3.2);
(ii) if requested by MEquity, Garden City may at its discretion require only partial repayment of the Loan on 15 August 2020 (or on the extension of the Repayment Date for a further period) (clause 3.3);
(iii) MEquity and Garden City agree that no repayment is intended prior to 15 August 2020 (or on the extension of the Repayment Date for a further period (clause 5.1);
(c) otherwise deny the allegations.
In addition to the pleadings, the plaintiffs relied upon the following paragraphs of Mr Shi’s 24 June 2020 affidavit to prove the $3 million Garden City loan:
38.The plaintiffs collectively advanced $3 million to Garden City in its Commonwealth Bank ‘Business Online Saver’ Account with the account number 06 3019 11437085, over the course of approximately 21 months between the period 19 April 2016 to 17 January 2018 on six different dates for the purpose of property development of land managed by me.
…
43.Once MEquity was incorporated, the advances made by the Plaintiffs were transferred from Garden City to me, then to Aust Global, then to MEQUITY to pay for the purchase of the land of the Bennetts Lane Property.
…
77.One of the objectives of the Heads of Agreement was to establish a connection with the $1.6 million advanced by Wang to Garden City in April 2016 and the transfers of money from Garden City to Lionel Shi and Aust Global because MEquity was not incorporated yet. Wang and his family are shareholders of Garden City and have a direct interest in the loan from Garden City to MEquity. A draft Heads of Agreement was sent to him at about the same time.
…
79.Following these discussions and entry into the Heads of Agreement, my belief was that the Garden City loan to MEQUITY would be repaid prior to the loan to Wang under the Shareholders Agreement. All returns were contingent on completion of the relevant project so that the full equity could be realised.
Dealing first with the pleadings, the allegations in paragraphs 19 and 20 of the ASC concern how money otherwise alleged to have been advanced by the plaintiffs to Garden City was to be dealt with as between Garden City and MEQUITY. The written heads of agreement requiring an advance of $3 million to be provided by Garden City to MEQUITY by 15 August 2017 to be repaid on 15 August 2020 with interest at the rate of 20% per annum is admitted in the Amended Defence. The defence alleges additional terms of the heads of agreement, including that if requested by MEQUITY, Garden City may, at its discretion, require only partial repayment of the loan on 15 August 2020. The defence does not plead that any such request was made, or that the loan was repaid.
The affidavit of Mr Shi contains an admission that $3 million was to be repaid by MEQUITY to Garden City. There is no evidence that that loan was repaid, whether on 15 August 2020, or at all. The affidavit refers to the loan being paid on completion of the project to develop the Bennetts Lane property; that event has never occurred.
The combination of the admissions in the defence and the affidavit evidence of Mr Shi establishes beyond reasonable doubt that, at all times relevant to the charges, MEQUITY owed $3 million to Garden City.
Findings as to the net asset position of MEQUITY
On the premise that the net asset position of MEQUITY must be proved beyond reasonable doubt to be less than $3 million after the relevant transactions on the specific dates relevant to charges 1, 2, and 6:
(a) I am not satisfied that at any of the relevant dates the value of the Bennetts Lane property was less than $6.5 million.
(b) I am not satisfied that at any of the relevant dates MEQUITY had a liability to La Moneta for $1 million.
(c) I am satisfied that at each of the relevant dates MEQUITY owed Garden City $3 million.
Dealing first with charge 1, by reference to the plaintiff’s table reproduced at paragraph 40 above and the findings I have made concerning the value of the Bennetts Lane property, the La Moneta loan and the Garden City loan, I find that as at 14 December 2020, the net assets of MEQUITY, after the property was mortgaged to secure the Prime Value Loan were less than $3 million:
Asset/Liability Value Assets Bennetts Lane Property $6,500,000.00 Surplus funds $1,895,240.49 Subtotal $8,395,240.49 Liabilities Prime Value loan ($4,225,000.00) Garden City loan ($3,000,000.00) Subtotal ($7,225,000.00) Net asset position $1,170,240.49
As to charge 2, I find that as at 23 December 2020, the net assets of MEQUITY after the transfer of $464,750 from the CBA account were less than $3 million:
Asset/Liability Value Assets Bennetts Lane Property $6,500,000.00 Surplus funds $1,347,499.44 Subtotal $7,847,499.44 Liabilities Prime Value loan ($4,225,000.00) Garden City loan ($3,000,000.00) Subtotal ($7,225,000.00) Net asset position $622,499.44
As to charge 5, I find that as at 1 November 2020, the date the La Moneta contract bears, the net assets of MEQUITY were less than $3 million. That is the case irrespective of whether the market value of the Bennetts Lane property was $6.5 million as per the Charter Keck Cramer valuation or $4 million being the contract price of the La Moneta contract. As at 1 November 2020, the liabilities of MEQUITY were $2.1 million owed to Australian Golden Kangaroo and $3 million owed to Garden City, for a total of $5.1 million. Accordingly, if the Bennetts Lane property’s market value was $6.5 million, the net assets of MEQUITY were $1.4 million. If the market value of the Bennetts Lane property was $4 million on 1 November 2021, the liabilities of MEQUITY exceeded its assets by a value of $1.1 million.
As to charge 6, I find that as at 14 November 2020, the date the E2E contract bears, the net assets of MEQUITY were less than $3 million:
Asset/Liability Value Assets Bennetts Lane Property $6,500,000.00 Surplus funds $1,347,499.44 Subtotal $7,847,499.44 Liabilities Prime Value loan ($4,225,000.00) Garden City loan ($3,000,000.00) Subtotal ($7,225,000.00) Net asset position $622,499.44
It is appropriate in light of those findings to deal with each of the individual charges that relate to MEQUITY.
Charges relating to MEQUITY
Charge 1
Charge 1 refers to the mortgage to Prime Value and alleges that, after that transaction, the assets of MEQUITY were less than $3 million, ‘as particularised at paragraphs 17 to 22 of the affidavit of Lu Cheng affirmed 29 June 2021’. The paragraphs of Ms Cheng’s affidavit incorporated in the charge establish that the mortgage was security for the loan facility in the sum of $4.225 million and that after a loan payout to Australian Golden Kangaroo and other associated costs of obtaining the facility, the surplus funds available to MEQUITY were $1,895,240.49.
I have found that after the Prime Value mortgage and the loan advance of $4.225 million which the mortgage secures, the assets of MEQUITY were less than $3 million.
The language of this and the other charges incorporates the words ‘contumaciously, alternatively deliberately, alternatively recklessly’ as part of the charge. However, as discussed by John Dixon J in Gashi, unless the terms of the order require otherwise, the plaintiff does not have to prove the act or omission constituting the breach was accompanied by an intention to deliberately breach.[54] Here, there was no such requirement included in the terms of the Freezing Order. Mr Shi’s actions in causing MEQUITY to mortgage the Bennetts Lane property were in contempt of clause 6(a) of the Freezing Order.
[54]Deputy Commissioner of Taxation v Gashi (No 2) [2011] VSC 351, [22].
I find charge 1 proven beyond reasonable doubt.
Charge 2
The assets of MEQUITY were less than $3 million both before and after the transfer the subject of charge 2.
Although in written submissions on behalf of Mr Shi it was contended the transfer was permitted under paragraphs 10(c) and 10(d) of the Freezing Order, there was no evidence adduced in support of those contentions.
In CC Containers Pty Ltd v Lee (No 8),[55] Ginnane J held:
72.The evidence of the BoQ’s statements suggests that the 10 withdrawals were to pay an ongoing obligation. Mr Lee bore the onus of proving that an exception to the freezing order permitted the withdrawal whether it was a direct debit or other withdrawal. However, the contract or the obligation under which the direct debit occurred was not proved. No written notice was given of these direct debits before they were made and no evidence led of whether Mr Lee could have given that notice, within two days or otherwise. Mr Lee’s conduct was intentional in that he permitted the debits to occur and did not give the required notice. (citations omitted)
[55][2015] VSC 478.
As there was no evidence adduced in support of the exceptions to the Freezing Order relied on in Mr Shi’s written submissions, neither exception is made out.
I find charge 2 proven beyond reasonable doubt.
Charge 5
The La Moneta contract is dated 1 November 2020. I have found that as at that date the net assets of MEQUITY were either $1.4 million, or ($1.1 million).
Charge 5 alleges the entry into the La Moneta contract was on a date unknown to the plaintiffs. There is no evidence that the La Moneta contract was entered into other than on the date it bears. The entry into the contract was a dealing prohibited by paragraph 6(a) of the Freezing Order. Although in March 2021, by its solicitors, La Moneta asserted that the contract remained on foot, that is not relevant to whether or not the charge is proved. For the purposes of the charge, all that is relevant is whether, by causing the entry by MEQUITY into the contract, Mr Shi engaged in a prohibited dealing and thereby breached the Freezing Order, which he did.
I find charge 5 proved beyond reasonable doubt.
Charge 6
I have found that as at 14 November 2020, the assets of MEQUITY were less than $3 million. Mr Shi caused MEQUITY to deal with the Bennetts Lane property by entry into the E2E contract dated 14 November 2020. As is the case with the La Moneta contract, the entry into the contract was a prohibited dealing. It matters not that the contract was later terminated and never completed.
I find charge 6 proven beyond reasonable doubt.
Charges relating to AGI
The net assets of AGI
Charge 3 covers the period from 24 July 2020 until 20 February 2021. Charge 4 covers the period from 11 December 2020 until 20 February 2021. There is no direct evidence of the value of AGI’s assets on 24 July 2020, on 20 February 2021 or on any specific date in between.
In Doney v The Queen, in the plurality judgment of Deane, Dawson, Toohey, Gaudron and McHugh JJ, their Honours said:[56]
Circumstantial evidence can prove a fact beyond reasonable doubt only if all other reasonable hypotheses are excluded.
[56]Doney v The Queen (1990) 171 CLR 207 (‘Doney’), 211.
The question concerning AGI is whether, applying the test in Doney, I am satisfied beyond reasonable doubt that throughout the periods in question relevant to charges 3 and 4 the net assets of AGI were less than $3 million.
The plaintiffs relied on evidence of AGI’s asset position on 26 June 2020, before the payments to which charge 3 relates were made and on evidence of its asset position as at July 2021, after the payments were made, as ‘bookends’. They invited the Court to infer on the basis of that evidence that at no time during the period to which the payments the subject of the charges were made did AGI’s assets exceed $3 million. The same is the position concerning charge 4.
In his affidavit dated 26 June 2020, Mr Shi deposed that AGI’s net assets were $2,025,000. It is convenient to reproduce the schedule of those assets that formed part of the exhibits to his affidavit:[57]
[57]Defendants, Affidavit of Lionel Shi dated 26 June 2020, exhibit ‘LLS-1’, 2.
| ASSET | DETAILS | VALUE | LOCATION OF ASSET | EXTENT OF INTEREST % | ENCUM- BRANCES | |
| 1 | S320 | CAR | $90,000 | 320/88 Albert Road South Melbourne | 100% | $75,000 |
| 2 | E300 | CAR | $90,000 | 320/88 Albert Road South Melbourne | 100% | $85,000 |
| 3 | A200 | CAR | $30,0000 [sic] | 320/88 Albert Road South Melbourne | 100% | $25,000 |
| 6 | CBA | Company Business Account #9238 | $12,562.96 *as at 20/03/20 | 100% | ||
| 7 | CBA | Credit Card #6369 | $5,000 | 100% | $4,675.55 *as at 22/05/2020 | |
| 8 | Business Value Goodwill | Company | E$1,500,000 | 100% | ||
| 9 | Commission | owed to company | $500,000 | 100% |
As will be observed from the schedule, the assets of AGI identified by Mr Shi as at 26 June 2020 included $1.5 million for goodwill and $500,000 for commissions owing.
The report from the liquidator of AGI dated 30 July 2021 is a report pursuant to s 70-40 of the Insolvency Practice Rules (Corporations) 2016 (Cth). The liquidator reported that as at 30 July 2021, AGI had assets of $180,000 and liabilities of $4.3 million,[58] including the debt owed to the plaintiffs of $3.8 million. The assets of $180,000 identified by the liquidator comprised commissions owing to AGI.[59] In the opinion of the liquidator, the company was insolvent from its incorporation on 20 June 2011 and remained insolvent at all times to the date of his appointment on 18 March 2021.[60]
[58]6 September Cheng Affidavit, exhibit ‘LCH-14’ 934.
[59]Ibid, 938.
[60]Ibid, 939.
The evidence available as to AGI’s assets at both ‘bookends’ is of opening assets of $2,025,000 and of closing assets, albeit some five months after 20 February 2021, of ($4.12 million). The liquidator’s opinion is that throughout this period AGI was insolvent. However, insolvency as referred to by the liquidator is insolvency as defined in s 95A of the Corporations Act 2001 (Cth). That section provides:
(1)A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
(2) A person who is not solvent is insolvent.
The classic statement of insolvency is that of Barwick CJ in Sandell v Porter:[61]
Insolvency is expressed in s. 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.
[61](1966) 115 CLR 666, 670.
As can be seen, whether the test in s 95A or the test in Sandell v Porter is applied, proving that a company was insolvent at a specific time does not prove the asset position of the company at that same point in time. A company may be asset rich: for example, it may have goodwill of $1.5 million as per Mr Shi’s table, but cash poor, and perhaps for that reason insolvent, unless and until it realises the goodwill of the business that it owns.
The evidence shows the assets of AGI to be less than $3 million at both ‘bookends’. The business conducted by AGI was not sold, and the goodwill (assuming it was actually valued at $1.5 million as at June 2020) was not realised. The goodwill not having been realised, no value was adopted for that item by the liquidator in July 2021.
Debtors that were $500,000 as at June 2020 were reduced to $180,000 as at July 2021. The liquidator’s opinion as to solvency throughout the period from incorporation, including between June 2020 and February 2021, does not support an inference that at any time during the period relevant to the charges, the business flourished such that there was a material increase in debtors. Further, if there was a material increase in debtors beyond $500,000, based on the insolvency assessment, creditors must also have materially increased such that the company remained insolvent.
Although the liquidator’s report containing his expression of opinion that the company was insolvent from the outset is a qualified opinion, determined on the basis of a presumption of insolvency pursuant to s 588E(4) of the Corporations Act (Cth) owing to the limited and inadequate books and records provided by Mr Shi,[62] there is nothing in the liquidator’s report that suggests or from which it might be inferred that at any time from incorporation, the assets of AGI exceeded $3 million.
[62]6 September Cheng Affidavit, exhibit ‘LCH-14’ 939.
Based on the asset position at both ‘bookends’ and the evidence of insolvency, the only inference available on the evidence is that the net asset position of AGI remained below $3 million at all dates relevant to charges 3 and 4. No other hypothesis was advanced in submissions on behalf of Mr Shi and no other hypothesis is available. In the circumstances, I find the fact the assets of AGI remained at all times relevant to charges 3 and 4 below $3 million to be proven beyond reasonable doubt.
Charge 3
Mr Shi did not dispute the facts alleged and verified in the affidavit of Ms Cheng, namely that the net amount of $390,300 was paid by AGI, of which Mr Shi is the sole director, to his wife, Chanjuan Xu, or for her benefit, between 24 July 2020 and 20 February 2021, and that he caused those payments to be made. The sum of $390,300 is particularised by reference to the net figure of $200,300 (referred to in paragraph 53(a) of the affidavit of Ms Cheng) and the sum of the three debits, referred to in paragraph 53(c) of the affidavit of Ms Cheng, totalling $190,000.
In written submissions Mr Shi contended:
54.Further, Mr Shi submits that the transfer of the sum was permitted under paragraph 6 of the Freezing Order given that the transfer did not reduce the relevant amount of the Australian assets and was in any event permitted under paragraph 10(c) or (d) of the Freezing Order. (footnotes omitted)
As I have found the Australian assets of AGI were at all relevant times less than $3 million, the first part of the submission must be rejected. The second part of the submission relies on the exceptions in paragraphs 10(c) and (d) of the Freezing Order. Mr Shi did not lead any evidence in support of the payments falling within either or both exceptions.
Not only did Mr Shi fail to prove the payments came within the exceptions relied on, (or either of them) there was no evidence from which it may be inferred the payments to Mr Shi’s wife were of the required character so as to satisfy either of the exceptions relied on.
I find charge 3 proven beyond reasonable doubt.
Charge 4
Charge 4 relates to payments made by AGI between 11 December 2020 and 20 February 2021. I have found proved beyond reasonable doubt that during that period the assets of AGI were less than $3 million.
The payments of $118,000 (net) were to Mr Shi’s former wife’s father. The table at paragraph 53(d) of the 29 June 2021 affidavit of Ms Cheng shows all relevant payments which are otherwise proved by the affidavit and exhibits.
In written submissions, Mr Shi contended:
56.Further, Mr Shi submits that the transfer of the sum was permitted under paragraph 6 of the Freezing Order given that the transfer did not reduce the relevant amount of the Australian assets and was in any event permitted under paragraph 10(c) of the Freezing Order. (footnotes omitted)
The first contention fails due to my factual finding regarding the asset position of AGI in the period in question. As to the second contention, there is no evidence in support of the reliance on the exception in clause 10(c) of the Freezing Order.
I find charge 4 proven beyond reasonable doubt.
Disposition
Each of charges 1 – 6 against Mr Shi is proven beyond reasonable doubt.
The legal representatives of the parties should contact my chambers to arrange a convenient date for a hearing as to penalty and for the staggered provision of submissions, with the plaintiffs’ submissions to be filed and served first.
SCHEDULE OF PARTIES
DANJUAN ZHANG First Plaintiff
LING LIU Second Plaintiff
ZHIRONG WANG Third Plaintiff
- and –
LIONEL LIN SHI First Defendant
GARDEN CITY CAPITAL PTY LTD
(ACN 611 744 122) Second Defendant
MCITY PTY LTD (ACN 610 964 675) Third Defendant
MEQUITY PTY LTD (ACN 618 231 173) Fourth Defendant
AUST GLOBAL INVESTMENT PTY LTD
(ACN 151 592 880) Fifth Defendant
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