Zhang v Shi (No 6)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT
COMMERCIAL LIST

S ECI 2020 2465

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:	25 March 2022
DATE OF RULING:	26 May 2022
CASE MAY BE CITED AS:	Zhang v Shi (No 6)
MEDIUM NEUTRAL CITATION:	[2022] VSC 271

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CONTEMPT OF COURT – Breach of freezing order – Penalty – Applicable principles – Whether sentence may be suspended upon an undertaking to perform community work – Whether contempt contumacious – Whether party alleging contempt bears burden of proving aggravating features – Applicability of Sentencing Act 1991 (Vic) – Fine suspended upon contemnor undertaking to perform community work – R v Herald & Weekly Times Pty Ltd [2021] VSC 253, Registrar of the Court of Appeal v Maniam (No 2) (1992) 26 NSWLR 309, Kazal v Thunder Studios Inc (California) [2022] NSWSC 97, NHB Enterprises Pty Ltd v Corry (No 8) [2022] NSWSC 97, Moira Shire Council v Sidebottom Group Pty Ltd [2019] VSC 569, Hera Project Pty Ltd v Bisognin [2019] VSC 483, Koulouris v Haidaris (No 3) [2020] VSC 240, Grocon v Construction, Forestry, Mining and Energy Union (CFMEU) (No 2) [2014] VSC 134, CFMEU v Grocon [2014] VSCA 267, Primelife Corporation Ltd v Newpark Pty Ltd [2003] VSC 106, R v Isaacs (1997) 41 NSWLR 374, Formosa v The Queen (2012) 36 VR 679, Vaysman v Deckers Outdoor Corporation Inc (2011) 276 ALR 596 applied – Boulton v The Queen (2014) 46 VR 308 referred to – Sentencing Act 1991 (Cth) ss 5(1)-(2), Part 3A, Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 75.11.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr T Scotter	Robinson Gill
For the Defendants	Mr D Kim	JT Lawyers

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

The Charges................................................................................................................................... 1
Penalty Hearing and Further Submissions............................................................................... 2
Disposition: Summary.................................................................................................................. 4

Principles............................................................................................................................................. 7

Suspension of Punishment On Terms........................................................................................ 8
Appropriate Punishment........................................................................................................... 11
The Sentencing Act 1991 (Vic)................................................................................................... 15
Contumacy: Who Bears the Burden of Proof?........................................................................ 16

The Evidence Relevant to Penalty................................................................................................ 18

Background.................................................................................................................................. 18
Evidence of Mr Shi’s Legal Advice and Understanding of the Freezing Order................ 19
Combined Asset Position of Defendants................................................................................. 28

Were Mr Shi’s Contempts Contumacious, Deliberate or Reckless?...................................... 29

Determination of Appropriate Sentence..................................................................................... 32

Is a Custodial Sentence Appropriate?...................................................................................... 32
Is a Financial Penalty Appropriate?......................................................................................... 35
Mr Shi’s Financial Circumstances................................................................................... 35
Quantum of Fine................................................................................................................ 37

Disposition........................................................................................................................................ 39

Charge 1........................................................................................................................................ 39
Charge 2........................................................................................................................................ 40
Charge 3........................................................................................................................................ 40
Charge 4........................................................................................................................................ 41
Charges 5 and 6........................................................................................................................... 41
Suspension of Sentence Upon Condition of Community Service....................................... 41

HIS HONOUR:

Introduction

On 26 October 2021, I found six charges of contempt of court brought by the plaintiffs against Lionel Lin Shi, the first defendant, to be proven beyond a reasonable doubt.[1] All six charges involved breaches by Mr Shi of a freezing order made on 11 June 2020, and subsequently extended and amended (‘the Freezing Order’). These reasons concern the penalty which should be imposed in relation to the six charges of contempt. These reasons assume a familiarity with, and proceed on the basis of factual findings made in the primary reasons.
[1]Zhang v Shi (No 5) [2021] VSC 695 (‘the primary reasons’).

Mr Shi is the first defendant. At the time that the Freezing Order was originally made, Mr Shi was sole director of the second defendant Garden City Capital Pty Ltd (‘Garden City’), the third defendant MCITY Pty Ltd (‘MCITY’), the fourth defendant MEQUITY Pty Ltd (‘MEQUITY’) and the fifth defendant Aust Global Investments Pty Ltd (‘AGI’). The Freezing Order prohibited each defendant from disposing of, dealing with, or diminishing the value of their assets in Australia, up to an unencumbered value of $3 million.[2]
[2]The Freezing Order was originally made by Order made 11 June 2020 which bound the first to fourth defendants. The fifth defendant was bound to the terms of the Freezing Order by Order made 29 June 2020.

The Charges

Charges 1, 5 and 6 concern dealings by Mr Shi with a property at 22-24 Bennetts Lane, Melbourne, of which MEQUITY was the registered proprietor.

Charge 1 is the most serious of the six charges. On 14 December 2020, while the Freezing Order was in place, Mr Shi arranged for MEQUITY to refinance the Bennetts Lane property. The refinancing involved the grant of a first mortgage in favour of Prime Value Asset Management Pty Ltd (‘Prime Value’). The granting of the Prime Value mortgage was done without prior notice to the plaintiffs.[3] The Prime Value mortgage replaced an earlier mortgage in favour of Australian Golden Kangaroo Pty Ltd (‘AGK’). The refinancing increased the secured debt from $2,100,000 to $4,225,000.
[3]Transcript of Proceeding, Zhang v Shi (Supreme Court of Victoria, Delany J, 25 March 2022) (‘Transcript’), 45-46.

Charge 2 is related to Charge 1. Charge 2 involved the disposition of $464,750 by MEQUITY on 23 December 2020. The $464,750 that was disposed of was part of the $1,895,240.49 obtained by MEQUITY upon the refinancing of the Bennetts Lane property.

Charges 5 and 6 both involved the entry by MEQUITY into contracts for the sale of Bennetts Lane. Charge 5, the first contract of sale, was dated 1 November 2020 with La Moneta Capital Pty Ltd named as the purchaser. Charge 6, the second contract of sale, was dated 14 November 2020 with E2E Construction Pty Ltd named as the purchaser. As events transpired, neither of those contracts of sale was completed. For the purposes of the hearing as to penalty, the plaintiffs agreed that the entry into the two contracts were less serious matters than the refinancing of the Bennetts Lane property.

Charges 3 and 4 related to payments out of the assets of AGI in circumstances where the assets of AGI were at all relevant times below the $3 million threshold specified in the Freezing Order. Charge 3 involved the net payment of $390,300 by AGI in favour of Mr Shi’s second wife, Chanjuan Xu, between 24 July 2020 and 20 February 2021. Charge 4 involved the payment of $118,000 from AGI’s bank account in favour of Mr Shi’s former father-in-law, the father of Mr Shi’s first wife between 11 December 2020 and 20 February 2021.

Each of the charges alleged that Mr Shi ‘contumaciously, alternatively deliberately, alternatively recklessly’ breached the Freezing Order. While each of the charges were proven beyond reasonable doubt, it was not necessary for the Court to determine as part of the first stage of the hearing whether the contempt was contumacious, deliberate or reckless.[4]
[4]Primary reasons, [14], applying Deputy Commissioner of Taxation v Gashi (No 2) [2011] VSC 351.

Penalty Hearing and Further Submissions

The hearing as to the appropriate penalty which ought to be imposed took place on 25 March 2022. The submissions relied on at the hearing focused on two alternative types of punishment: a term of imprisonment or a fine.

One of the key issues that separated the parties at the penalty hearing was whether Mr Shi’s contempts were contumacious or deliberate. In that context, evidence given by Mr Shi that he received legal advice about the effect of the Freezing Order, and therefore his ability (and that of the companies of which he was a director) to deal with assets without being in breach. The lawyer who Mr Shi said gave him that advice was not called.

The plaintiffs submitted the breaches of the Freezing Order were contumacious and deliberate. They submitted Mr Shi bore the onus of showing the contempts were not contumacious. They submitted an adverse inference should be drawn from Mr Shi’s failure to call the lawyer who he said gave him the advice. They submitted that the nature and seriousness of the contempt, combined with Mr Shi’s financial circumstances, meant that a term of imprisonment was warranted.

Mr Shi accepted that he must face the consequences of his breaches of the Freezing Order. He denied that he acted contumaciously or that he wilfully disobeyed the Freezing Order. He denied that his breaches of the Freezing Order were intentional. He denied that he bore the onus of proof as to those matters. He submitted that a custodial sentence should not be imposed, and that a fine is an appropriate punishment.

On 11 April 2022, the parties were invited by the Court to make further written submissions. The Court invited these submissions to consider:

(a)first, whether it was open to the Court to impose an obligation of community service as a condition for suspending either the payment of a fine or a term of imprisonment which would otherwise be imposed; and
(b)second, whether either party contended that this is was an appropriate case to impose an obligation of community service as a condition of suspension of a fine or of a term of imprisonment.

The parties were also invited to file and serve any evidence relied upon in relation to the potential imposition of a community service obligation on Mr Shi.

On 4 May 2022, the parties filed joint written submissions. Both parties agreed that the Court has the power to impose an obligation of community service as a condition of suspending the operation of a fine or of a term of imprisonment. The plaintiffs maintained their submission that the contempts engaged in by Mr Shi were so serious that nothing less than a custodial sentence is appropriate. They also submitted that the consideration of general deterrence calls for such an outcome. Mr Shi submitted that a community service obligation that required him to perform community work as a condition of suspending the operation of a fine or term of imprisonment would be appropriate. Mr Shi proposed that such community service could be carried out at the Father Bob Maguire Foundation (the ‘Foundation’), a registered charity.

Disposition: Summary

In considering whether Mr Shi’s contempts were contumacious, deliberate or reckless, I proceed on the basis that it is for the plaintiffs to prove those matters. Having considered all of the evidence, including that of Mr Shi given on the penalty hearing, I am not satisfied that the six acts of contempt in this case, or any of them, were contumacious, deliberate or wilfully in breach of the Freezing Order. I am satisfied that the actions taken by Mr Shi that underpin Charges 1, 5 and 6 were reckless. I am not satisfied that is the case in relation to Charges 2, 3 or 4.

The imposition of a custodial sentence is to be regarded as a penalty of last resort. For that reason, and because the evidence of Jeffrey Elwood Cummins (a consulting, clinical and forensic psychologist) I accept that imposing a term of imprisonment on Mr Shi would likely lead to a deterioration in his mental health. Notwithstanding the seriousness of the contempts, in particular the reckless nature of the contempts constituted by Charges 1, 5 and 6, I do not consider the imposition of a term of imprisonment is appropriate.

Whilst that is so, the contempts that took place involved the interference with and the undermining of the administration of justice and the authority of the Court.

The Freezing Order was issued for the purpose of protecting the interests of the plaintiffs in the outcome of the proceedings. Particularly in relation to Charge 1, the actions of Mr Shi resulted in a very significant diminution in the net assets of MEQUITY. Had it not been for Mr Shi’s contempt, more than $2 million in equity in the Bennetts Lane property would have been preserved pending the hearing and determination of this proceeding.

I am concerned that the fines that I must impose to reflect the seriousness of the contempts that have occurred will not be able to be met by Mr Shi from his own financial resources. That has the consequence that if those fines are to be paid, the burden of ensuring that occurs is likely to fall upon others, including Mr Shi’s first wife, Ms Shen. To the extent fines might be met by Mr Shi from his own resources, that is likely to have the consequence that such limited funds as might otherwise be available to Mr Shi to meet financial obligations to his creditors (which include the plaintiffs) will be diminished.

Although there is no express power to require the performance of community service work as the penalty for contempt, I consider that the performance of unpaid community work is the most appropriate penalty for the contempts that have occurred. Such community service, if agreed to be undertaken by Mr Shi in lieu of penalties otherwise imposed, will serve as a specific penalty to be met by Mr Shi personally. I consider that community service is a penalty that suits Mr Shi’s particular circumstances. Acceptance by Mr Shi of such an obligation would have the significant practical consequence that it will be Mr Shi, and not others, who will bear the burden of the penalty for his contempts. Finally, to require the performance of such work by Mr Shi in lieu of the payment of fines will also serve as a general deterrent to others from engaging in similar conduct in breach of freezing orders.

For the reasons set out in detail below, I have determined to order that Mr Shi pay the following fines:

(a)In relation to Charge 1, $40,000.
(b)In relation to Charge 2, $2,500.
(c)In relation to Charge 3, $2,500
(d)In relation to Charge 4, $2,500.
(d)In relation to Charges 5 and 6, a total of $5,000.

The level of the fines that I have imposed reflect the seriousness of the contempts that have occurred.

I will order that the fines that I have determined to impose, totalling $52,500, are to be suspended on condition that Mr Shi agrees to undertake and in fact carries out 150 hours of voluntary work with the Foundation to be completed within a period of 18 months. If Mr Shi chooses not to agree to undertake the required hours of community work, then he must pay the fines which, if not paid, may carry the consequence of imprisonment. If Mr Shi agrees to undertake the community service work but fails to complete the required hours of work, then to the extent such work is not completed, Mr Shi will be required to pay a pro rata fine.[5]
[5]In total, I have fined Mr Shi an amount of $52,500. If Mr Shi undertakes to perform community work in lieu of paying the fines but does not complete 150 hours of work for the Foundation within a 18 month period, I will order that a $350 fine will remain outstanding for each hour of community service required to be performed but not in fact performed.

If Mr Shi agrees to undertake the community service work, then I will not impose a conviction in relation to any of the six charges of contempt. Should Mr Shi not choose to agree to undertake the community service work, I will record a conviction for contempt on Charge 1, the most serious of the six charges.

I will allow a period of five days for Mr Shi to consider whether he is prepared to undertake to perform the required hours of community service work and, if he is agreeable, to provide an undertaking to do so in open Court.

Principles

Turning first to the principles applicable to determining the appropriate penalty to be imposed, r 75.11 of the Supreme Court (General Civil Procedure) Rules 2015 (the ‘Rules’) deals with the Court’s power to punish for contempt:

(1)Where the respondent is a natural person, the Court may punish for contempt by committal to prison or fine or both.
(2)Where the respondent is a corporation, the Court may punish for contempt by sequestration or fine or both.
(3)When the Court imposes a fine, it may commit, or further commit, the respondent to prison until the fine is paid.
(4)The Court may make an order for punishment on terms, including a suspension of punishment.

In R v Herald & Weekly Times Pty Ltd,[6] John Dixon J held that although the Court’s inherent power to punish for contempt is regulated by r 75.11, the punishment for contempt is not limited by statute, but is at large.[7]
[6][2021] VSC 253 (‘Herald & Weekly Times’).
[7]Ibid, [205], [219] citing Pelechowski v Registrar, Court of Appeal (NSW) [1999] HCA 34; (1999) 198 CLR 435, 484 [147] (Kirby J). See also s 61 of the Supreme Court Act 1986 (Vic), which expressly states that the common law relating to contempt of court has effect in this jurisdiction.

It will be observed that r 75.11(4) expressly permits the Court to make an order on terms, including a suspension of punishment. The nature of such terms are not set out in the Rules. The ambit and operation of terms upon which the Court may suspend a sentence under r 75.11(4) are governed by the common law.

There is no maximum fine which may be levied as punishment for contempt,[8] but any such fine must not be manifestly excessive.[9] As with sentencing generally, it is axiomatic that a sentence of imprisonment for contempt is a penalty of last resort.[10]
[8]Ibid, [205], citing Smith v The Queen (1991) 25 NSWLR 1, 14 (Kirby P in dissent) and DPP (Vic) v Johnson (No 2) [2017] VSC 45, [8] (John Dixon J).
[9]A fine for contempt may be manifestly excessive if it is ‘wholly outside the range of sentencing options available’, though manifest excess is ‘a stringent ground which is difficult to make out’: 160 Leicester Pty Ltd v Melbourne City Council [2021] VSCA 250, [60] (Priest, Beach and Kaye JJA), citing Clarkson v The Queen [2011] VSCA 157; (2011) 32 VR 361, 384 (Maxwell ACJ, Nettle, Neave, Redlich and Harper JJA).
[10]Tax Practitioners Board v Hacker (No 4) [2021] FCA 940, [23] (Abraham J), citing Vaysman v Deckers Outdoor Corporation Inc [2011] FCAFC 17; (2011) 276 ALR 596 (‘Vaysman’), [54] (Gray J), see also Boulton v The Queen [2014] VSCA 342; (2014) 46 VR 308 (Maxwell P, Nettle, Neave, Redlich and Osborn JJA), [111].

There is no express power in the Rules to order the performance of community service, whether as a stand-alone sentence or in lieu of the imposition of a term of imprisonment or a fine.

Suspension of Punishment On Terms

In Registrar of the Court of Appeal v Maniam (No 2),[11] Kirby P (as his Honour then was) imposed a fine of $10,000 on the contemnor, which was suspended upon the condition that the contemnor undertake to perform 100 hours of voluntary service at Liverpool Hospital in Sydney. In that case, the contemnor was a medical practitioner who was served with a subpoena requiring him to attend court to give evidence in a criminal proceeding. He did not do so. The Supreme Court of New South Wales found that in failing to comply with the subpoena, the contemnor conducted himself in a manner which interfered, or tended to interfere, in the course of justice; he was accordingly guilty of contempt of court.[12]
[11](1992) 26 NSWLR 309 (‘Maniam’) (Kirby P, with whom Mahoney JA and Hope AJA agreed).
[12]Registrar of Court of Appeal v Maniam (No 1) (1991) 25 NSWLR 459 (Kirby P, Mahoney JA and Hope AJA).

In reaching this sentence, Kirby P stated:

The objective seriousness of that conduct and the elements of culpability on the part of the opponent clearly suggested the need for a custodial sentence. In my view, he escapes that sentence only because of the fulsome apology, public expressions of contrition and substantial evidence produced, deposing to his good character as a citizen and devotion as a medical practitioner. But for these considerations I would unhesitatingly have imposed a custodial sentence because the Court has found wilful disobedience and the opponent was, in effect, a repeat offender.
Having regard to the foregoing evidence it was initially my view that the Court should proceed to impose a substantial fine. The case is not one where it would be sufficient simply to find the contempt and to order the payments of costs. Something more by way of punishment is clearly required.
Coinciding with the proceedings in the Court widespread publicity was given to the severe crisis facing the public hospitals in the district of Sydney close to where the opponent carries on his practice. Because of severe staff shortages it was widely reported that the Casualty Unit of the Liverpool Hospital, one of the busiest in the State, would close for all but the most critical cases at certain times of the day. The reported difficulty was that of securing a senior medical practitioner to work in the Casualty Unit. Medical practitioners in the unit were reported as expressing concern about the continuing operation of the unit without a senior practitioner present.
…
In my opinion it is appropriate, to mark the Court’s disapproval of the opponent’s conduct, to require the opponent to undertake to perform what would be, in effect, community service at the Liverpool Hospital. Such a punishment would have the benefit of utilising his undoubted talents and capacities as a medical practitioner. It would afford him the opportunity to reflect, during such service, on his duties to the public which, ultimately, the Court is enforcing by protecting the administration of justice through the law of contempt. A similar type of order for community service was made in the Western Australian Supreme Court by Ipp J: see R v Eades (Supreme Court of Western Australia, 1 November 1991, unreported).[13]

[13]Registrar of the Court of Appeal v Maniam (No 2) (1992) 26 NSWLR 309, 318-319.

In Maniam, as here, the applicable rules did not expressly provide for the court to make an order for community service; providing only that the court had power to punish contempt by imposing a custodial sentence and/or fine, punishment which could be suspended on terms. In imposing a punishment on the contemnor which was suspended upon the condition of unpaid community service, Kirby P stated:

The Court has no express power to impose an obligation of community service on the opponent: cf Community Service Orders Act 1979, s 4. Although punishment for contempt is criminal in nature, it derives from the inherent power of the Supreme Court. It therefore does not attract the express statutory provisions relating to community service. Nevertheless, it was not contested by either party that the Court might, in effect, impose an obligation of community service in the Liverpool Hospital provided the hospital was prepared to accept the opponent and as a condition for suspending the operation of the fine which would otherwise be imposed: cf Adams v Carr (1987) 47 SASR 205 at 211. Placed before the Court, after argument was concluded, was a letter from the Liverpool Health Service expressing the Liverpool Hospital’s willingness to accept voluntary service by the opponent on Sundays from 9am to 1pm in the Hospital's Emergency Department.[14]

[14]Ibid, 319.

The judgment of Kirby P in Maniam has been followed in New South Wales,[15] as well as in the Australian Capital Territory in Dong v Song (No 5).[16] In that case, McWilliam AsJ expressly recognised that punishment by imposition of an order requiring community service is available as an exercise of the court’s inherent jurisdiction.[17]
[15]MB v SG [2019] NSWSC 4, [80] (McCallum J); Prothonotary of Supreme Court of New South Wales v Battye [2017] NSWSC 48, [41] (Schmidt J).
[16][2019] ACTSC 273 (McWilliam AsJ).
[17]Ibid, [60]-[61].

Counsel for the parties were not able to locate a case in this Court where a contemnor has been punished by ordering a term of community service (whether as a condition of a suspension or otherwise).[18]
[18]See CC Containers Pty Ltd v Lee (No 9) [2015] VSC 595, [73], where Ginnane J considered that r 75.11 did not necessarily exclude the exercise of the Court’s inherent power to impose other penalties (including, as was discussed by the parties in that case, a term of community service), but considered it more appropriate to impose a penalty provided for in r 75.11.

The inherent jurisdiction of the court over contempt was recognised by two of the judges of the Court of Appeal in Broken Hill Proprietary Co Ltd v Dagi.[19] In that case, Winneke P stated that:
[19][1996] 2 VR 117 (Brooking JA, with whom Tadgell and Phillips JJA agreed, Winneke P and Hayne JA dissenting).

[T]his appeal has been concerned with an alleged contempt of the processes of the Supreme Court which is the superior court of record in this State. In that capacity the Supreme Court exercises the power to punish for contempt as part of its inherent jurisdiction, a power which it derives from the fact that it is a superior court of record and a power which it enjoys in order to prevent abuses of its processes … The court is inherently invested with such powers to enable it to function effectively as a court of justice, by enforcing its rules of practice, suppressing abuses of its process and defeating any attempt to thwart its authority…[20]

Hayne JA (as his Honour then was) further stated:
Inherent jurisdiction is not something derived by implication from statutory provisions conferring particular jurisdiction…
…
It is clear that the jurisdiction and powers which a superior court of record has over contempt are inherent powers…[21]

[20]Ibid, 125 (Winneke P, in dissent).

[21]Ibid, 195 (Hayne JA, in dissent), citing R v Forbes; Ex parte Bevan (1972) 127 CLR 1, 7 (Menzies J).

On the basis of the authorities referred to above, including Maniam, I find that suspending a punishment for contempt of a fine or a term of imprisonment upon a condition that the contemnor perform unpaid community work is a course of action that is open to this Court. The making of such an order is expressly countenanced by r 75.11(4) of the Rules, and is within the Court’s inherent jurisdiction.

Appropriate Punishment

In Kazal v Thunder Studios Inc (California),[22] Besanko, Wigney and Bromwich JJ explained the basis of the power to punish for contempt:[23]

The plurality in Boral observed, … endorsing the statement of principle by Hayne J in Re Colina; Ex parte Torney, that the “cardinal feature of the power to punish for contempt” was as an exercise of judicial power to “protect the due administration of justice”. Viewed in that way, contempt proceedings are essentially protective in nature as to the judicial function and the role of the courts, even if they also serve to vindicate private interests and rights. Contempt proceedings are therefore to be viewed as essential in facilitating courts being able to function properly. That includes being, and being seen to be, effectual in adjudicating upon and resolving disputes, and in particular making orders that will ordinarily be obeyed. This means that individual contempt cases have an importance transcending the instant case by supporting and enhancing the integrity of judicial proceedings, both in respect of orders made, and more generally. That view of contempt proceedings can be seen to permeate longstanding sentencing authority in this area.

[22](2017) 256 FCR 90; [2017] FCAFC 111 (‘Kazal’).

[23]Ibid, [97] (citations omitted).

Recently, in NHB Enterprises Pty Ltd v Corry (No 8),[24] Bell P (as his Honour then was) made the following observations, including as to the underlying rationale of sentencing for contempt:[25]

26The underlying rationale of sentencing for both civil and criminal contempt is to protect the effective administration of justice …
27In Sun v He (No 2) … the Chief Judge in Equity noted that an important purpose of sentencing for contempt is to make clear the Court’s disapproval of such conduct, as well as to set a punishment that will further the object of general deterrence.

[24][2022] NSWSC 97.

[25]Ibid, [26]-[27] (citations omitted).

In Maniam, Kirby P stated that:

Contempt law has been fashioned by the courts to protect the administration of justice. This is an activity, self-evidently of the greatest importance to society. It represents a vital part of the peaceful government of a community such as ours…
…
A conviction of contempt of court is a conviction of an offence, criminal in nature. Punishment of the convicted contemnor must therefore take into account the considerations normally applicable to the punishment of crime and apt to uphold the purpose of this jurisdiction, viz, the undisturbed and orderly administration of justice in the courts according to law. Thus, in determining the punishment which is apt to the circumstances which have led to a conviction of contempt, it is appropriate to bear in mind the purposes of punishing the contemnor; deterring the contemnor and others in the future from committing like contempts; and denouncing the conduct concerned in an approximately emphatic way.[26]

[26]Registrar of the Court of Appeal v Maniam (No 2) (1992) 26 NSWLR 309, 315.

In Kazal, the Court discussed the factors generally to be taken into account when addressing the appropriate penalty for contempt:

101.In Matthews at [129], Tobias JA (with whom Basten and Campbell JJA agreed on this point) quoted with evident approval nine considerations the sentencing judge in that case had considered relevant to the question of determining an appropriate punishment for contempt of court as follows:
(1)the seriousness of the contempt proved;
(2)the contemnor’s culpability;
(3)the reason or motive for the contempt;
(4)whether the contemnor has received, or sought to receive, a benefit or gain from the contempt;
(5)whether there has been any expression of genuine contrition by the contemnor;
(6)the character and antecedents of the contemnor;
(7)the contemnor’s personal circumstances;
(8)the need for deterrence of the contemnor and others of like mind from similar disobedience; and
(9)the need for denunciation of contemptuous conduct.

102.That is a useful list of considerations that may properly be seen to have a part to play in a given case, although not exhaustive.[27]

[27]Kazal v Thunder Studios Inc (California) (2017) 256 FCR 90; [2017] FCAFC 111, [101]-[102] (Besanko, Wigney and Bromwich JJ).

A significant consideration in determining the appropriate penalty for contempt is whether such contempt is ‘contumacious’. In Maniam, Kirby P stated:

The most serious class of contempt, for the point of view of sanction, is contumacious contempt. Not every intentional disobedience involves a conscious defiance of the authority of the Court which is the essence of this class of contempt … This class of contempt is reserved to cases where the behaviour of the contemnor has been shown to be aimed at the integrity of the courts and designed to degrade the administration of justice, as distinguished from a simple interference with property rights manifested by a court order … In cases where such a measure of wilfulness is established, the court may proceed to punish the convicted contemnor by the imposition of a custodial sentence or a fine or both. In such a case the elements necessary to establish wilfulness, carrying as they do the potential of penal consequences, must all be proved to the criminal standard.[28]

[28]Registrar of the Court of Appeal v Maniam (No 2) (1992) 26 NSWLR 309, 315.

In Moira Shire Council v Sidebottom Group Pty Ltd,[29] Forbes J dealt with the distinction between civil and criminal contempt, the former involving contumacious conduct:[30]

12.A breach of a court order or undertaking in a civil proceeding is generally described as a civil contempt. However disobedience of such an order may amount to a criminal contempt if it is deliberately defiant, often described as being contumacious. The distinction between the civil and criminal contempt of a court order is sometimes described as “illusory” because the standard of proof of the contempt remains to the criminal standard of beyond reasonable doubt, whether the contempt be civil or criminal. Both civil and criminal contempt can be penalised by fine or imprisonment of the individual.
13.Whether the contempt is civil or criminal, the importance of upholding the effective administration of justice is central. However, there are distinctions to be drawn in the purpose for which the penalty is imposed. For a civil contempt the purpose of the contempt proceeding is primarily to “coerce the recalcitrant party into compliance, and not to punish the party for that breach”.
14.The fact that a contempt is wilful or deliberate does not in itself demonstrate contumacy. What must be demonstrated for a breach of a court order or undertaking to amount to a criminal contempt is that the breach was both wilful and calculated (in the sense of ‘likely’) to interfere with the course of justice. In Construction, Forestry, Mining and Energy Union v Grocon Constructors (Vic) Pty Ltd, the Court of Appeal made reference to Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd, where contumacy was described as:
It is appropriate for the contempt before the Chief Judge to be regarded as involving an element of contumacious conduct. Contumacy is perverse obstinate resistance to authority; see the Shorter Oxford Dictionary. Deliberate determination to defy the court for reasons founded upon union policy in which it sought to establish immunity from the law would seem within this concept of contumacy.

[29][2019] VSC 569 (‘Moira Shire Council’).

[30]Ibid [12]-[14] (citations omitted).

In Hera Project Pty Ltd v Bisognin,[31] Champion J said as follows:[32]
[31][2019] VSC 483.
[32]Ibid, [74], [78] (citations omitted).

74.While it is generally accepted that disobedience of a court order will usually be civil contempt, it may be a criminal contempt where:
(a)the contempt is contumacious; or
(b)the proceedings serve a punitive purpose of punishing a past breach, rather than a remedial purpose of coercing obedience with the order.

…
78.However, the intention with which the act was done will be highly relevant in determining the nature of the contempt and what penalty, if any, is to be imposed.

In Koulouris v Haidaris (No 3),[33] Connock J found that contempt that was not technical, casual, accidental or unintentional was not synonymous with being contumacious:

62.Although the defendant admitted the contempt and acknowledged that it could not be described as ‘technical, casual, accidental, or unintentional’, that does not mean that it was contumacious. As others have observed, even where a contempt is found to be wilful, that of itself does not demonstrate contumacy.[34]

[33][2020] VSC 240.

[34]Ibid, [62].

In Grocon Constructors (Victoria) Pty Ltd v Construction, Forestry, Mining and Energy Union (No 2),[35] Cavanough J considered that contumacious contempt must constitute deliberate defiance rather than public defiance, or an ‘obstinate disregard’ of the obligation imposed by or owed to the Court.
[35][2014] VSC 134 (‘Grocon’).

On appeal, in CFMEU v Grocon Constructors (Victoria) Pty Ltd,[36] Ashley, Redlich and Weinberg JJA discussed the relationship between intention and penalty:[37]

141.The intention with which the act was done will, of course, be highly relevant in determining what penalty (if any) is to be imposed by the court. However, liability for contempt is ‘strict’ in the sense that all that needs to be proved is knowledge of the order, and the subsequent conduct of the party bound by that order which is prohibited.
142.There is a discretionary character to the jurisdiction which enables a court to decline to exercise the contempt jurisdiction at all even though the court may be satisfied that the contempt has been established. Such a discretionary outcome is more likely where the court concludes the contempt to be of a technical nature, as for example where the act or omission may be described as casual, accidental or unintentional. The authorities have rarely regarded such contempts as deserving of punishment by fine or committal.

[36]CFMEU v Grocon Constructors (Victoria) Pty Ltd [2014] VSCA 261; (2014) 47 VR 527, upheld on appeal in Construction, Forestry, Mining and Energy Union v Boral Resources (Vic) [2015] HCA 21; (2015) 256 CLR 375 (French CJ, Kiefel, Bell, Gageler and Keane JJ).

[37]CFMEU v Grocon Constructors (Victoria) Pty Ltd [2014] VSCA 261; (2014) 47 VR 527, [141]-[142] (citations omitted).

It is clear from the authorities that whether contempt is properly regarded as contumacious, or, if falling short of contumacious, intentional, is an important consideration when determining an appropriate sentence for that contempt. Generally, a finding of contumacy will be required before the imposition of a custodial sentence.

The Sentencing Act 1991 (Vic)

The Sentencing Act 1991 (Vic) does not have direct application to penalties for contempt. While that is so, it is nevertheless appropriate to approach sentencing for contempt in a manner that is consistent with the approach adopted in the Sentencing Act.[38] In Herald & Weekly Times, John Dixon J stated:

Although it is accepted that the principles of the Sentencing Act 1991 (Vic) do not apply in terms [to punishment for contempt of court], in Varnavides v Victorian Civil and Administrative Tribunal [(2005) 12 VR 1], the Court of Appeal stated:
Nevertheless, contempt of court is a serious offence and should be approached, as far as possible, in a way which is consistent with that adopted when dealing with criminal conduct generally. There is no reason to suppose that the provisions of the Sentencing Act were intended to fetter the unlimited jurisdiction of the Supreme Court to punish for contempt of court.

With necessary modification, having regard to the nature of the jurisdiction, a range of the principles applicable to sentencing in criminal proceedings are relevant to the determination of an appropriate disposition when punishing for contempt of court.[39]

[38]Grocon v CFMEU (No 2) [2014] VSC 134, [75]-[78] (Cavanough J), Victoria v CFMMEU (19 December 2018) [2018] VSC 794; 285 IR 28 (McDonald J), The Queen v The Herald and Weekly Times Pty Ltd [2021] VSC 253, [209]-[210]. Note that suspended sentences were progressively abolished in the Sentencing Act from 1 May 2011: Sentencing Amendment (abolition of Suspended Sentences & Other Matters) Act 2013 (Vic).

[39]R v The Herald & Weekly Times Pty Ltd [2021] VSC 253, [209]-[210]. See also R v Herald & Weekly Times Pty Ltd [2008] VSC 251, [45]-[50] (Kyrou J); Broken Hill Proprietary Co Ltd v Dagi [1996] 2 VR 117, 193 (Hayne JA in dissent).

When considering whether to propose community service as a condition of suspending a fine or a term of imprisonment, Part 3A of the Sentencing Act is relevant. Pursuant to that Part, a community correction order (‘CCO’) may be imposed. A CCO is a non-custodial order to which certain mandatory conditions are attached, and to which the sentencing court may attach a range of additional conditions which may be coercive, prohibitive, intrusive and rehabilitative.[40]
[40]Boulton v The Queen [2014] VSCA 342; (2014) 46 VR 308 (‘Boulton’), [1] (Maxwell P, Nettle, Neave, Redlich and Osborn JJA).

Section 48C of the Sentencing Act states that a Court may attach a condition to a CCO requiring the offender to perform unpaid community work, up to a maximum of 600 hours. Punishment of a contemnor by imposing a suspended sentence or fine conditional on the carrying out of unpaid community work may be considered analogous to a CCO to which a condition of unpaid community work is attached. A key difference is that punishment for contempt, suspended upon the condition of an undertaking to perform community service work, will not also carry the mandatory conditions applicable to CCOs.[41]
[41]These include, amongst others, that the offender must periodically report to the Secretary to the Department of Justice and Community Safety and must not leave Victoria: Sentencing Act 1991 (Vic) s 45(1).

In Boulton v The Queen, the Court of Appeal set out guidelines for the imposition of CCOs. Generally, the Court considered that the principles of proportionality and suitability are the governing principles for deciding whether to impose a CCO, its length and the particular conditions imposed. That is, that the sentence does not exceed what is appropriate or proportionate to the gravity of the crime considered in the light of its objective circumstances, and that the terms of the order suit the offender’s particular circumstances. The Court considered that a CCO may provide very substantial specific deterrence and may coherently serve the purposes of punishment.[42]
[42]Boulton v The Queen [2014] VSCA 342; (2014) 46 VR 308, Appendix 1 ] (Maxwell P, Nettle, Neave, Redlich and Osborn JJA).

Contumacy: Who Bears the Burden of Proof?

Mr Shi relied upon Hera Project Pty Ltd v Bisognin (No 2)[43] in support of the proposition that it is for the plaintiffs to prove beyond reasonable doubt that a contemnor has acted contumaciously. In Hera Project (No 2), Champion J said:[44]

31.I note that in contempt proceedings, any factors relevant to penalty that may be considered aggravating features require proof beyond reasonable doubt.

[43][2019] VSC 625 (‘Hera Project (No 2)’), [31] (Champion J). Mr Shi also referred to and relied upon Kong Hwa Pty Ltd v Chih (No 2) [2021] VCC 341, [35] (Ryan J).

[44]Ibid, [31] (citation omitted).

In support of that proposition, Champion J cited Primelife Corporation Ltd v Newpark Pty Ltd.[45] In Primelife, Nettle J said as follows:[46]

39.But it remains that in a contempt proceeding the standard of proof required is the criminal standard, and therefore I take it that just as in criminal proceedings so too in this proceeding aggravating features relevant to penalty require proof beyond reasonable doubt. Accordingly, although there may be no general requirement to adopt the view of the facts most favourable to the contemnor, that is the practical effect of the requirement that there be proof beyond reasonable doubt of the facts which tell against him.

[45][2003] VSC 106 (‘Primelife’).

[46]Ibid, [39] (citations omitted).

In R v Isaacs,[47] the Court of Criminal Appeal of New South Wales stated:[48]

1.Where, following a trial by jury, a person has been convicted of a criminal offence, the power and responsibility of determining the punishment to be inflicted upon the offender rest with the judge, and not with the jury …
2.Subject to certain constraints, it is the duty of the judge to determine the facts relevant to sentencing. Some of these facts will have emerged in evidence at the trial; others may only emerge in the course of the sentencing proceedings. …
3.The primary constraint upon the power and duty of decision-making referred to above is that the view of the facts adopted by the judge for purposes of sentencing must be consistent with the verdict of the jury. …
4.A second constraint is that findings of fact made against an offender by a sentencing judge must be arrived at beyond reasonable doubt.
5.There is no general requirement that a sentencing judge must sentence an offender upon the basis of the view of the facts, consistent with the verdict, which is most favourable to the offender. … However, the practical effect of 4 above, in a given case, may be that, because the judge is required to resolve any reasonable doubt in favour of the accused, then the judge will be obliged, for that reason, to sentence upon a view of the facts which is most favourable to the offender. …

[47](1997) 41 NSWLR 374 (Gleeson CJ, Mason P, Hunt CJ at CL, Simpson and Hidden JJ).

[48]Ibid, 377-378 (citations omitted), cited with approval in Cheung v The Queen [2001] HCA 67; (2001) 209 CLR 1, [14] (Gleeson CJ, Gummow and Hayne JJ).

More recently, in Formosa v The Queen,[49] the Court of Appeal said that the legal principles which apply on a contested plea hearing include that a sentencing judge may not take facts into account in a way that is adverse to the interests of the accused unless those facts have been established beyond reasonable doubt. On the other hand, if there are circumstances which the judge proposes to take into account in favour of the accused, it is enough if those circumstances are proved on the balance of probabilities.[50]
[49][2012] VSCA 298; (2012) 36 VR 679.
[50]Ibid, [8] (Whelan JA, with whom Redlich and Osborn JJA agreed).

The effect of the authorities discussed above is that it is for the party who alleges the contempt to prove that the contempt is contumacious. It is for that party to prove that the contempt is criminal, not civil. I proceed on the basis that it is for the plaintiffs to prove the aggravating features alleged: that the contempts were contumacious, deliberate or reckless.

The Evidence Relevant to Penalty
Background

In relation to the penalty hearing, the plaintiffs relied on affidavits made by their solicitor, Lu Cheng, dated 29 June 2021 and 6 September 2021. Ms Cheng was not required to attend for cross-examination.

Mr Shi relied on his affidavits made on 18 January 2021, 19 November 2021, and 10 January 2022.

Mr Shi relied on the evidence of three other witnesses. He relied upon an affidavit from his first wife, Yibei Shen, made 10 January 2022. Ms Shen gave evidence about Mr Shi’s relationship with his 17 year-old son Jay Shi, from their marriage, and of her preparedness to support and assist Mr Shi if the Court determines a monetary penalty is appropriate. Those steps include, if necessary, selling the home in which she resides with Jay. Ms Shen was not cross-examined on her affidavit.

Mr Shi also relied on an affidavit of Mr Cummins dated 17 November 2021. Mr Cummins, who gave expert evidence about the impact of a custodial sentence upon Mr Shi’s mental health, was not cross-examined on his report.

Paul Anthony Brophy, general manager of the Foundation, made an affidavit dated 29 April 2022 in support of an opportunity for Mr Shi to perform community service work with the Foundation.

At the hearing on 25 March 2022, Mr Shi gave short evidence-in-chief. He was cross-examined. In evidence-in-chief, Mr Shi expressed his remorse at the events that had happened. He said that following the ruling on the contempt charges, he realised that what he had done was wrong. He expressed his sorrow for what he had done and for wasting the Court’s time and the plaintiffs’ money.

Evidence of Mr Shi’s Legal Advice and Understanding of the Freezing Order

In the hearing as to penalty, oral argument was directed toward the content of legal advice received by Mr Shi in the lead-up to the contempts, and Mr Shi’s understanding of the effect of the Freezing Order through the lens of that advice. The question of Mr Shi’s state of mind was not a relevant consideration in determining whether the contempts in fact occurred. However, evidence as to Mr Shi’s state of mind when committing the contempts is relevant to determining an appropriate penalty, particularly because such considerations are crucial to ascertaining whether the contempts in this case are properly categorised as contumacious, deliberate or reckless.

On affidavit and in his oral evidence Mr Shi gave evidence of legal advice which he said he received from his former solicitor, Guy Israeli, concerning the effect of the Freezing Order. He said that after the freezing order had come to his attention, he asked Mr Israeli:

to look into the matter and he [Mr Israeli] explained that as long as I personally [and the defendant companies] had $3 million I could do whatever I want to.[51]

Mr Shi gave evidence of his belief that the relevant net assets overall were no less than $3 million at the time of the events constituting the contempts.

[51]Transcript, 11.

When he was cross-examined, Mr Shi said he did not understand the Freezing Order. Consistent with evidence given in his 19 November 2021 affidavit, Mr Shi said that he would not have engaged in the dealings concerning the Bennetts Lane property or caused AGI to make the payments that it made had he known that such conduct was in breach of the Freezing Order.

Mr Israeli was not called to give evidence and no affidavit made by him was filed.

The plaintiffs submitted that Mr Shi bore the onus of proof, that it was for Mr Shi to prove that the breaches of the Freezing Order were not intentional and that the inference to be drawn from the failure to call a material witness in Jones v Dunkel[52] has application. The plaintiffs submitted that because Mr Israeli was not called, Mr Shi had failed to show that the contempt was not contumacious.
[52][1959] HCA 8; (1959) 101 CLR 298.

These propositions were contested by Mr Shi. He submitted that it is for the plaintiffs to prove all elements of the contempt alleged, including whether the contempt was contumacious. Mr Shi submitted that because the plaintiffs bear the onus of proof, Jones v Dunkel does not apply. Mr Shi submitted that the nature of a contempt proceeding is such that no inference can or should be drawn from his failure to adduce evidence from Mr Israeli.

I approach the contested question of the legal advice about the effect of the Freezing Order of which Mr Shi gave evidence and the absence of any evidence from the lawyer who gave that advice, Mr Israeli, as a witness on the basis identified by Nettle J in Primelife. Namely, that it is for the plaintiffs to prove aggravating circumstances beyond reasonable doubt. No inference adverse to Mr Shi may be drawn from his failure to adduce evidence from Mr Israeli. The rule in Jones v Dunkel, that the evidence of Mr Israeli, if called, would not have assisted Mr Shi’s case, has no application.

Mr Shi gave the following evidence concerning legal advice from, and his dealings with Mr Israeli in his 19 November 2021 affidavit:

28.I was extremely stressed and anxious due to my obligations to repay the outstanding $3.3 million to the Plaintiffs in accordance with the Deed of Settlement. From this stress and anxiety, I felt that my judgment was clouded, and I wanted legal advice as to how to deal with the issues. Given Ms Tam was going on leave, I sought legal advice from another lawyer in August 2020, Mr Israeli from GI Law to advise me whether I could sell or refinance the Bennetts Lane Property.
29.I telephoned Mr Israeli daily and multiple times a day to seek reassurance of whether I could refinance and or sell the project. During his telephone discussions with me, Mr Israeli advised me that so long as the value of the assets of the Defendants were above $3 million, I was entitled to refinance.
30.When I received the valuation from Charter Keck Cramer dated 25 November 2020 for the Bennetts Lane Property of $6.5 million, I thought that there would be a net equity above $3 million. This was also because at the time, I did not consider that MEquity owed Garden City the sum of $3 million as that was the same amount that the First Plaintiff had provided Garden City which was the amount that the Plaintiffs claimed against the Defendants in the proceedings. Based on the Honourable Justice Delany’s decision on 26 October 2021, I now understand that my belief about the $3 million limit under the Freezing Order was wrong. I now understand that the Freezing Order required each defendant to have at least $3 million worth of net assets. The Court has also decided that MEquity owed Garden City $3 million.
31.In or around August 2020, I sought Mr Israeli to undertake legal works regarding the Deed of Settlement, Freezing Order and selling of the Bennetts Lane Property.
32.In or around October 2020, I sought Mr Israelis’ advice on refinance again of the Bennetts Lane Property. Based on Mr Israeli’s advice to me and as I understood it to be, I was able to refinance the Bennetts Lane Property and in doing so I would not be in breach of the Freezing Order. This helped ease my grief and economic pressure that I was facing to repay the First Plaintiff and the loan of $2,100,000 to Australian Golden Kangaroo (AGK loan). This is because the funds obtained from the refinance would allow me to mitigate any further loss for both myself and the Plaintiffs, by repaying some of the debt owed to them and to provide initial funding so that the Bennetts Lane Property development project could continue.
33.On 14 December 2020, I arranged for MEquity to mortgage the Bennetts Lane Property in order to obtain a loan from Prime Value Asset Management Limited (Prime Value). This was obtained in order to:
a.pay out the AGK loan of $2,100,000; and
b.to borrow an additional $2,125,000 to pay the Second Instalment under the Deed and for the costs of the Bennetts Lane Property project, bank fees, interest and transaction costs.

34.On 22 December 2020, 17 February 2021 and 19 March 2021, the Court made orders requiring me to produce bank documents, application for refinance to Prime Value and copies of all invoices proposed to be paid from the surplus funds available being $1,895,240.49 (Surplus Funds).
35.On or around 16 December 2020, I was notified by Mr Israeli that the Plaintiff had alleged that I had breached the Deed of Settlement and Freezing Order due to the refinance of the Bennetts Lane Property. Charge 1 of the Amended Summons relates to this refinance.
36.In or around mid-December 2020, I instructed Mr Israeli to act for me in the Summary Judgment proceedings in Supreme Court proceedings, as he was aware of my circumstances of the refinance and selling of the Bennetts Lane Property project.
37.After being notified of the Plaintiffs’ allegations that I was in breach in the Freezing Order prior to them issuing the Summons for Summary Judgment, I arranged for the voluntary administration of the Second to Fifth Defendants.
38.In or around mid-March 2021, I instructed Mr Israeli to cease to act for me in the proceedings.[53]

[53]First defendant, affidavit of Lionel Lin Shi affirmed 19 November 2021, [28]-[38] (emphasis in original).

August 2020 was not the first occasion on which Mr Shi dealt with lawyers either in relation to the Freezing Order or in relation to the dispute between the parties more generally.

On 27 April 2020, Mr Shi engaged JT Lawyers, Ms Tam’s firm, to act on his behalf in the dispute between the first plaintiff, Danjuan Zhang, and himself. On 5 June 2020, he was served with the application for the Freezing Order.

The Freezing Order was made on an ex parte basis on 11 June 2020. Mr Shi gave evidence that he initially instructed Mr Israeli’s firm, GI Law, to act for him in relation to the application. However, due to the complexity of the matter and the short timeframe, he decided to change legal representation and instead, he re-engaged JT Lawyers to act on his behalf in this proceeding.

That evidence is confirmed by reference to the court file. It discloses that on 12 June 2020, JT Lawyers entered an appearance on behalf of Mr Shi and the defendant companies. On 15 June 2020, a notice of change of solicitor was filed on behalf of the defendants appointing GI Law as their solicitors. On 18 June 2020, JT Lawyers filed a notice of change of solicitor saying they were again acting on behalf of the defendants.

On 24 June 2020, Mr Shi made an affidavit in support of an application for discharge of the Freezing Order. That affidavit was filed on his behalf by JT Lawyers. The same was the case when Mr Shi made a further affidavit dated 26 June 2020.

On 29 June 2020, the Court heard an application by the defendants to discharge the Freezing Order. JT Lawyers acted for the defendants. The application was refused. The Freezing Order was not discharged.

On 8 July 2020, the Court delivered its reasons.[54] The 8 July 2020 reasons included:

… an arm’s length refinancing of [the Bennetts Lane property] so as to replace [the Australian Golden Kangaroo mortgage] when it falls due would be a dealing by MCity in the ordinary course of its business. Such a dealing is likely to be permissible without any breach of the freezing order.
However, as mentioned in discussion with counsel during argument, it would be prudent for the defendants to provide details of any offer to refinance for consideration by the plaintiffs before actually committing to refinance. That is, at the point that the defendants have a firm offer to refinance the Bennetts Lane property which they consider ought be accepted, they should provide details of that offer to the plaintiffs for the avoidance of further disputation.[55]

[54]Zhang v Shi (No 2) (Unreported, Supreme Court of Victoria, Delany J, 8 July 2020).

[55]Ibid, [36]-[37].

On 6 August 2020, an affidavit was filed on behalf of the defendants by Steven John Whiteside, a director of BlueRock Finance Pty Ltd, in relation to construction finance for the development of Bennetts Lane. Mr Whiteside was shown a redacted version of the terms of the refinancing of the Bennetts Lane property and stated in his affidavit that, generally, the terms of the refinancing were not unusual.

Mr Shi gave evidence that he again ended his engagement of JT Lawyers as his solicitors on 11 August 2020. The renewed engagement by Mr Shi of Mr Israeli began on 24 August 2020.

The payments from the bank account of AGI to Mr Shi’s second wife, Chanjuan Xu (known as Moon), that were the subject of Charge 3, began on 24 July 2020. Those payments resulted in a net amount of $390,300 being paid to Ms Xu between 24 July 2020 and 20 February 2021.

There is no evidence that Mr Shi sought or obtained legal advice as to the effect of the Freezing Order before beginning to make those payments. In cross-examination Mr Shi accepted that at no time did he receive written advice about the effect of the Freezing Order.

On 9 August 2020, the parties entered into a Deed of Settlement to settle the proceeding (‘Deed’). Pursuant to the Deed, Mr Shi agreed to repay the plaintiffs a total of $4.3 million, with the first instalment of $1 million to be paid on 30 September 2020. The Deed provided for further payments of $1.3 million by 31 December 2020, $1 million by 30 June 2021, and $1 million by 31 December 2021.

Clause 5.2 of the Deed contained an undertaking by the defendants, including Mr Shi, not to proceed with the then-proposed loan or other financing arrangements concerning the Bennetts Lane property, except as provided in clause 7 of the Deed, until the Freezing Order was discharged. Clause 7.1 contemplated the refinancing of the Bennetts Lane property in an amount not exceeding $2.2 million.[56]
[56]The amount secured was $2.1 million; a further $100,000 was permitted to be borrowed as part of the refinancing.

The Deed provided that upon payment of $2.3 million of the settlement sum, the Freezing Order was to be discharged by consent.

On 24 August 2020, Mr Shi sent an email to GI Law stating:

My issues is I have 2.1 mil loan on the land [Bennetts Lane] at this point and the end value base on the rent is 28 mil the net profit less the cost 23 mil is 5 mil.
I want to get back now for 4.5 mil or some close to that. I will curry [sic] the 2.1 loan of the land. No to pay off now.
So what or how this gonna structured.[57]

[57]First defendant, affidavit of Lionel Lin Shi affirmed 19 November 2021, exhibit “LLS-8”, 11.

On 25 August 2020, GI Law emailed Mr Shi, providing advice about a proposed joint venture to develop the Bennetts Lane property. Mr Israeli’s email included the following:

I had a look at the proposal and the JV.
You have a material issues in accepting this:
1. the Developer/JV partner does not propose to put in even one (1) red cent SO no sweat on their part just entitlement for management fees + possible material equity participation;
2. the Developer/JV partner wants 50% today on the basis that it will run the development, procure finance etc.. tomorrow - what if they can’t do or run the development? -OR what if they are unable to procure the construction finance? - how do we know they can deliver?;
3. isn’t the gist is that you need $4.3 Million within a short period of time? Even if you get it in 10 years how is that going to help you in the immediate future.[58]

[58]Ibid, exhibit “LLS-8”, 10.

When cross-examined, Mr Shi accepted that the reference to $4.3 million was to money required to pay out the plaintiffs and that Mr Israeli’s advice was predicated on there being sufficient cash for that to occur.

Between 25 and 29 September 2020, there were further email exchanges between Mr Shi and Mr Israeli. Those emails related to the proposal by E2E Construction Pty Ltd to purchase the land (the 14 November 2020 contract with E2E Construction Pty Ltd is the subject of Charge 6, an earlier contract, dated 1 November 2020 with La Moneta Capital Pty Ltd, is the subject of Charge 5).

On 25 September 2020, Mr Israeli sent an email to Mr Shi which included the following:

This is not bad @ 6M BUT you liability is $2.1 to Golden Kangaroo + 4.3 M to ex-JV partner SO you looking at $6.4 – you may want to consider getting the $6M now (no back mortgage) and call it a day – you will be $400K down on your total payout BUT you have time to figure out how to pay it[59]

[59]Ibid, exhibit “LLS-8”, 4.

The emails passing between Mr Israeli and Mr Shi, extracts of which are reproduced above, make no reference to the Freezing Order.

In cross-examination, Mr Shi denied having knowingly breached the Freezing Order. It was put to Mr Shi that he ‘decided simply to take a chance and refinance…all in the hope that [he’d] get the $1.3 million across [and] the freezing order would be discharged’, to which he replied ‘in a way yes’.[60]
[60]Transcript, 53, see also 47-48.

Mr Shi accepted that advice given by Mr Israeli in August 2020 was in the context of transactions that would enable him to ensure that the plaintiffs would be paid out as provided for in the Deed. In cross-examination, he said that Mr Israeli and he had discussions by telephone and in person about the effect of the Freezing Order. Mr Shi gave evidence that he had legal advice that he could enter into the transactions that he did, ‘for all of this’.[61]
[61]Ibid, 20.

During the penalty hearing, Mr Shi submitted that Mr Israeli knew about the Freezing Order and that he had known about the order since June 2020 when he was first instructed to act for the defendants. That submission is consistent with GI Law filing a notice of change of solicitor on 15 June 2020, and then ceasing to act on 18 June 2020.

The first instalment under the Deed was paid, albeit late, and not by a single payment. On 6 October 2020, MEQUITY paid Zhirong Wang (the third plaintiff) $270,000, on the same day Ms Shen paid $660,000 to Mr Wang on behalf of La Moneta, and on 19 October 2020 MEQUITY paid to Mr Wang the remaining $70,000, completing the payment of the first instalment.

It was after the first instalment was paid that Mr Shi entered into the contract of sale with La Moneta Capital Pty Ltd to sell the Bennetts Lane property, and then the second contract of sale with E2E Construction Pty Ltd, neither of which was completed.

On 14 December 2020, Mr Shi refinanced the Bennetts Lane property, causing MEQUITY to enter into the mortgage with Prime Value.

On 15 December 2020, JT Lawyers filed a notice of ceasing to act for the defendants. On 16 December 2020, GI Law filed a notice of solicitor acting on behalf of the other defendants.

On 18 December 2020, the plaintiffs made an application to the Court to compel production of the documents relating to the Prime Value loan. The documents sought were ultimately produced by Mr Shi.

On 18 January 2021, Mr Shi made an affidavit prepared by Mr Israeli’s firm. In that affidavit, Mr Shi gave evidence that he was informed by Mr Israeli and believed, that on 18 December 2020, Mr Israeli had advised the plaintiffs’ solicitors that $1.3 million was held in the trust account of his firm on behalf of the defendants, and that the defendants were able to pay the second instalment due under the Deed prior to the 31 December 2020 due date.

Mr Shi’s affidavit of 18 January 2021 referred to communications between Mr Israeli, on behalf of Mr Shi, and the plaintiffs’ solicitors between 20 December 2020 and 28 December 2020. In those communications, Mr Israeli said the defendants remained ready, willing and able to pay the second instalment of $1.3 million as provided for in the Deed. Details were sought of the bank account into which that amount was to be paid, as well as confirmation that the plaintiffs would comply with their obligations under the Deed. Those obligations included the discharge of the Freezing Order upon the payment of the second instalment.

Mr Shi’s affidavit of 18 January 2021 included an offer by Mr Shi to pay $1.3 million into Court in return for the discharge of the Freezing Order. While that never occurred, it is objectively the case that having refinanced the Bennetts Lane property in breach of the Freezing Order on 14 December 2020, MEQUITY had $1,895,240.49 available.

As set out in Charge 2, Mr Shi made a disposition of $464,700 on 23 December 2020. That disposition was made from the funds which MEQUITY had available following the refinancing. Following that disposition, via MEQUITY, Mr Shi still remained in a position to pay the second instalment of $1.3 million, being the amount due to be paid pursuant to the Deed, by 31 December 2020. Leaving to one side that the refinancing without notice to, and the consent of, the plaintiffs was a serious contempt of the Freezing Order and also a clear breach of clause 5.2 of the Deed, Mr Shi’s actions put him in a position to pay the second instalment due under the Deed. That instalment, if paid and accepted, entitled Mr Shi to require the withdrawal of the Freezing Order.

As events transpired no tender of $1.3 million was made by Mr Shi and the second instalment under the Deed was not paid.

In mid-2021, Mr Shi’s legal representation in this proceeding again changed. On 17 March 2021, GI Law gave notice of ceasing to act and Madgwicks filed a notice of change of practitioner, giving notice they now acted for Mr Shi and for parties including MEQUITY and AGI. On 21 April 2021, Madgwicks filed a notice of ceasing to act. On 23 July 2021, JT Lawyers filed a notice of appointment as solicitors for Mr Shi. That firm continues to act on behalf of Mr Shi.

Combined Asset Position of Defendants

The effect of the legal advice alleged to have been received by Mr Shi, of which he gave evidence, was that it was open to him to deal with the assets of the defendants without breaching the Freezing Order provided their combined assets did not fall below $3 million. As found in the primary reasons, this is an incorrect construction of the Freezing Order, which applied to each defendant discretely.[62] However, the legal advice received by Mr Shi and Mr Shi’s understanding of any advice is relevant to determining the appropriate penalty which should be borne by Mr Shi. Logically, if the Court is satisfied that Mr Shi received legal advice which, in effect, stated that Mr Shi could have refinanced the Bennetts Lane property without breach of the Freezing Order if the combined assets of the defendants exceeded $3 million, then the next enquiry to which the Court must be directed is whether Mr Shi thought the combined assets exceeded a net $3 million.
[62]Primary reasons, [25]-[37].

Prior to the refinancing on 14 December 2020, there is no real doubt that the combined net assets of the defendants exceeded $3 million. In addition to the equity in the Bennetts Lane property, Mr Shi was personally the registered proprietor of two other properties in which there was substantial equity. AGI also possessed some assets (see below).

In the primary reasons, I found that after the refinancing, MEQUITY had net assets of $1,170,240.49. The question of whether, after the refinancing, the defendants’ combined assets remained at $3 million or more was not explored in the course of the penalty hearing and the evidence is unclear.

At all relevant times Mr Shi continued to own properties in his own name although there is no evidence of the value of Mr Shi’s equity in real property as at December 2020. The evidence establishes that AGI had some debtors as at 14 December 2020, however the quantum of those debtors is uncertain, as is the overall asset position of AGI at that time.[63]
[63]Primary reasons, [107].

As far as AGI is concerned, the primary reasons involved a ‘bookend’ approach to an assessment of AGI’s financial position, taking 26 June 2020 as one bookend and 20 November 2021 as the other. I found that AGI’s net assets were less than $3 million at all relevant times, including as at December 2020.[64] However, it is not possible to say what those net assets were after 14 December 2020, particularly given the figure for goodwill of which Mr Shi gave evidence in his 26 June 2020 affidavit.[65]
[64]Ibid, [109].
[65]Ibid, [100], [101], [106].

The evidence does not establish that following the refinancing, the combined net assets of the defendants were less than $3 million. The evidence does not establish that Mr Shi did not have a belief that the combined net assets of the defendants at that time were no less than $3 million.

Were Mr Shi’s Contempts Contumacious, Deliberate or Reckless?

Counsel for Mr Shi relied on the legal advice received by Mr Shi, and their contention of Mr Shi’s understanding of that legal advice, in support of the position that Mr Shi’s contempts were not contumacious. There were essentially two limbs to this submission. The first limb concerns whether Mr Shi in fact received the legal advice that he contends he received from Mr Israeli. The second concerns Mr Shi’s actions on the assumption that he received such legal advice.

As to the first limb, I am not satisfied that the plaintiffs have discharged the burden to prove, beyond a reasonable doubt, that Mr Shi did not receive legal advice from Mr Israeli to the effect that it was permissible, under the terms of the Freezing Order, to engage in the refinancing of 14 December 2020.[66] When Mr Shi was cross-examined about the conversations with Mr Israeli referred to in his 19 November 2021 affidavit, he maintained both that he had received such advice and that he believed on the basis of that advice that the transactions which form the basis of each of the proven contempt charges were permitted transactions.
[66]See Transcript, 25.

As to the second limb, there is no evidence that Mr Shi carefully evaluated the value of the assets available to him and the defendant companies so as to determine that the combined available of the net assets was no less than $3 million. While that is so, I am satisfied that at all times prior to the refinancing of 14 December 2020, the combined net assets of the defendants exceeded $3 million. I am not satisfied that following the refinancing, the combined net assets of the defendants were clearly less than $3 million. I am not satisfied that the plaintiffs have discharged the burden of proving, beyond reasonable doubt, that at relevant times after the refinancing Mr Shi knew or believed the combined assets of the defendants to be less than $3 million.

In those circumstances, I am not satisfied that Mr Shi wilfully acted in breach of the Freezing Order or that his actions in relation to any of the contempts constituted perverse obstinate resistance to authority, being the oft-cited ordinary meaning of the term ‘contumacious’.[67] In Grocon, Cavanough J noted that a contumacious breach is more than a wilful breach. In Moira Shire Council, Forbes J held that what must be demonstrated is that the breach was both wilful and calculated (in the sense of likely) to interfere with the course of justice. Applying those descriptions of what constitutes a contumacious contempt, I am not satisfied that the plaintiffs have discharged the burden to prove, beyond reasonable doubt, that any of the six contempts committed by Mr Shi were contumacious.
[67]Australasian Meat Industry Employees Union v Mudginberri Station Pty Ltd (1985) 9 FCR 194, 207 (Smithers and Northrop JJ), cited in Moira Shire Council v Sidebottom Group Pty Ltd [2019] VSC 569 (Forbes J) and Construction, Forestry, Mining and Energy Union v Grocon Constructors (Victoria) Pty Ltd [2017] VSCA 261; (2017) 47 VR 527 (Ashley, Redlich and Weinberg JJA).

Separately, the charges alleged that Mr Shi’s conduct involved a deliberate or alternatively a reckless breach of the Freezing Order. Mr Shi accepted in cross-examination that when he arranged the refinancing, ‘in a way’, he took a chance. Looking at the chronology of events, it might fairly be inferred that Mr Shi took a deliberate chance on refinancing on 14 December 2020. Further, that he took a chance when MEQUITY entered into the contracts of sale with the La Moneta Captital Pty Ltd, and then the E2E Constructions Pty Ltd. That is so in each case so as to be in a position to meet the second payment obligation under the Deed by 31 December 2020. While I am not satisfied that when he took those chances, Mr Shi did so deliberately in the realisation that his actions constituted breaches of the Freezing Order, I consider that by deciding to take these chances, Mr Shi’s actions first to seek to sell the Bennetts Lane property and then to secure refinancing so as to be in a position to discharge the Freezing Order as contemplated by the Deed were reckless, so far as compliance with the Freezing Order is concerned.

The fact Mr Shi did not tell the plaintiffs that he was proposing to refinance to a value greater than $2.3 million before proceeding to refinance was a clear, and no doubt deliberate, breach of the Deed. But that is a separate matter to be a deliberate breach of the Freezing Order. In circumstances where Mr Shi took deliberate steps to secure the refinancing and where the objective of the refinancing was to obtain a discharge of the Freezing Order pursuant to the Deed, it is not correct to regard Mr Shi’s contempts as ‘casual, accidental or unintentional’.[68] Rather, his actions were reckless. Having regard to the chronology of events and the evidence, I find that was also the case in relation to the entry into the two contracts of sale relating to the Bennetts Lane property. I do not consider recklessness to be established in relation to the remaining charges.
[68]Construction, Forestry, Mining and Energy Union v Grocon Constructors (Victoria) Pty Ltd [2017] VSCA 261; (2017) 47 VR 527, [140], [142] (Ashley, Redlich and Weinberg JJA).

Determination of Appropriate Sentence
Is a Custodial Sentence Appropriate?

The plaintiffs submitted that, having regard to Mr Shi’s financial circumstances and to the nature and severity of the contempt (which they submitted should be regarded as contumacious criminal contempt), a custodial sentence is appropriate.

In considering that submission, Mr Shi’s personal circumstances and the impact that a custodial sentence might have on him are critical. Mr Shi submitted that imprisonment is a penalty of last resort. In Vaysman v Deckers Outdoor Corporation Inc,[69] Gray J (with whom Bromberg J agreed) said:

54.In any sentencing process, imprisonment is to be regarded as the penalty of last resort. Any period of deprivation of liberty is a drastic imposition on anyone. The value the law places on liberty is very high. It is incumbent on a sentencing judge to determine first whether any alternative to imprisonment would be appropriate. ... The fact that a person to be sentenced is bankrupt does not prevent the Court from considering the appropriateness of a fine or fines. A bankrupt is not relieved from any obligation to pay a fine. Any such obligation endures during the bankruptcy and after discharge from bankruptcy. It is always possible, and sometimes appropriate, to impose a fine with a term of imprisonment in default of payment of it. See, for instance, Pattison (Trustee), in the matter of Bell (Bankrupt) v Bell [2007] FCA 137. Before settling on imprisonment, the primary judge ought to have directed his attention to whether some other form of punishment was appropriate for some, or all, of the charges.[70]

[69][2011] FCAFC 17; (2011) 276 ALR 596, 640.

[70]Ibid, 640, see also Koulouris v Haidaris (No 3) [2020] VSC 240, [52]-[54] (Connock J).

Mr Shi is 48 years old. He has no prior convictions. He was born in Shanghai, China, and moved to Melbourne in 1991. He has been an Australian citizen since 1993, although due to his work in real estate, has spent much time since then based in China. He has been married twice – in 1998 to Ms Shen (they divorced in 2005) and in 2012 to Ms Xu, with whom Mr Shi has a nine year-old daughter. Mr Shi and Ms Xu have lived separately since 2016 and are currently involved in divorce proceedings.

Mr Shi’s mother lives in Melbourne. She is 78 years old and Mr Shi visits her twice or three times a week to provide her with care and support. She has a serious heart condition and is not aware of the contempt proceedings.

Mr Shi completed a degree in mechanics engineering at Deakin University in 1996. Between 1996 and 2005, he operated a franchise telephone business. In 2007 he obtained his real estate licence. In 2011 he established AGI and from 2015 that company traded as a real estate agency with offices in Shanghai and Nanjing. Mr Shi’s evidence is that both offices were very lucrative and provided him with financial capacity and also the networks for investment in Melbourne. The Bennetts Lane property development project began in 2016.

Mr Cummins interviewed Mr Shi in late 2021. Mr Cummins’ report, annexed to his affidavit, stated:

33.At interview Mr Shi eventually acknowledged feeling anxious and depressed, although he stated he was still of the opinion he was adequately managing his symptoms of anxiety and depression – which he acknowledged included concentration and memory difficulties, negative ruminative thinking and at times an overall sense of foreboding, helplessness, hopelessness and anticipated “demise”. At interview Mr Shi was very firm in stating he believed he had always acted honestly and in accordance with the terms of the freezing orders as he understood them. He stated at no time did he knowingly engage in any activity which he knew or anticipated would be a stepping stone to depriving Mr Wang from ultimately receiving monies owed to him.[71]

[71]First defendant, affidavit of Jeffrey Elwood Cummins affirmed 17 November 2021, exhibit “JC-2”, 6.

Mr Cummins went on to express his opinion concerning Mr Shi’s mental state based on his interviews with Mr Shi:

37.I formed the opinion he is suffering from a Major Depressive Disorder (DSM-5 Code 296.32) which is of at least moderate severity and reflective of a single episode of depression, triggered by matters related to the Bennetts Lane property development and the associated legal proceedings. I also formed the opinion he is now suffering from an Adjustment Disorder – which is a trauma– and stressor–related disorder and also triggered by issues related to the Bennetts Lane property development and associated legal proceedings. Specifically, he is suffering from an Adjustment Disorder with Mixed Disturbance of Emotions and Conduct (DSM-5 Code 309.4).
…
46.I diagnosed Mr Shi as suffering from a Major Depressive Disorder of at least moderate severity and an Adjustment Disorder with Mixed Disturbance of Emotions and Conduct (DSM-5 Code 309.4). In my opinion those mental health disorders were triggered by matters related to the Bennetts Lane property development project and the associated legal proceedings.
47.As indicated above, it is my opinion that some of Mr Shi’s comments at interview supported the conclusion that at times he had experienced episodes of transient delusional thinking (Encapsulated Delusional Disorder). When a patient is suffering from a Major Depressive Disorder and/or a trauma- and stressor-related disorder such as an Adjustment Disorder is it not uncommon for them to at times experience episodes of transient delusional thinking (often referred to as encapsulated delusional thinking) whereby they appear to be thinking and processing information rationally, although in relation to the triggers of their depression and/or trauma- and stressor-related disorder they are in fact engaging in transient delusional thinking.
48.In my opinion, at interview Mr Shi was emphatic that he had only ever acted properly and with Mr Wang’s ultimate financial concerns uppermost in his mind. At interview he repeatedly emphasised he had been committed to a path of either selling the Bennetts Lane property and via that means (which he regarded as being legitimate in terms of the freezing orders) repaying monies owed to Mr Wang, or alternatively borrowing against the Bennetts Lane property (which again he believed he could legally do in accordance with the freezing orders) with a view to redeveloping the property and via that means ultimately repaying monies owed to Mr Wang. In this regard I appreciate the objective observer may come to the conclusion Mr Shi was not thinking rationally and not processing the prevailing circumstances rationally when after repeated attempts he had not been able to sell the undeveloped Bennetts Lane property, or alternatively obtain finance to redevelop the property in accordance with the permit which was granted.
49.In my opinion Mr Shi’s current mental health is precarious and he presents as a psychologically vulnerable person. He simultaneously presents as someone who has very limited insight into his current psychological functioning and how that may (in my opinion, would) have impacted adversely on his decision making abilities. He also has very limited insight into the level of severity of his current mental health problems. In this regard, if Mr Shi was found guilty of breaching freezing orders and was then punished through a period of imprisonment, I would anticipate his mental health would inevitably deteriorate and significantly so. In my opinion Mr Shi should currently be medicated on antidepressant medication and ideally an antidepressant which also has anti-anxiety properties.
50.It is my opinion Mr Shi presented as a very cooperative and motivated interviewee and I did not form the opinion he was malingering or attempting to provide misleading information. Rather, I formed the opinion he was overwhelmed with his current financial and legal circumstances and was definitely struggling to think clearly and rationally regarding these matters. At interview he expressed shock and regret and spoke about a sense of unfairness that liquidators have been appointed in relation to the four companies for which he had operated as the sole director. In my opinion Mr Shi should be receiving ongoing mental health treatment which has a focus on assisting him to develop better insight into his current financial and associated legal circumstances.[72]

[72]Ibid, exhibit “JC-2”, 7-9.

Having regard to the expert evidence of Mr Cummins set out above, to sentence Mr Shi to a term of imprisonment would likely lead to a deterioration in his mental health, potentially a significant deterioration.

Taking into account the evidence as to Mr Shi’s personal circumstances, including his absence of any prior convictions, my findings as to contumacy, and the applicable principles as to sentencing, I do not consider that a custodial sentence is appropriate in this case in relation to all or any of the contempts. As is made clear in Vaysman, imprisonment is a sentence of last resort. The sentencing judge should first determine whether any other alternative would be appropriate.

Is a Financial Penalty Appropriate?

The alternative provided for in r 75.11 to a term of imprisonment is a fine. In determining whether a fine is an appropriate sentence, it is first necessary to examine Mr Shi’s financial circumstances.

Mr Shi’s Financial Circumstances

Mr Shi’s financial circumstances are not buoyant. MCity, MEQUITY and AGI are all in liquidation. In his affidavit of 10 January 2022, Mr Shi gave evidence about his asset position:

(a) Both properties owned by him have been repossessed by the mortgagees.

(b) Mr Shi has net equity in the property in which he resides on Dryburgh Street, West Melbourne of $136,238.45.

(c) Mr Shi has net equity in the other property, a unit on St Kilda Road, Melbourne of around $1,012,815.53.

(d) Mr Shi has no other assets of significant value.

(e) In his affidavit of 10 January 2022, Mr Shi estimated his total net assets to be $1,149,053.98.

(f) Mr Shi’s and his second wife Ms Xu are currently involved in divorce proceedings in the Federal Circuit and Family Court of Australia. Mr Shi’s evidence is that that proceeding involves a dispute about property entitlements.

(g) The plaintiffs in this proceeding are third party interveners in the Federal Circuit and Family Court proceedings. They allege an entitlement to payment from Mr Shi’s total assets.

(h) If Mr Shi were to be awarded 30% of his combined asset pool pursuant to the Federal Circuit and Family Court proceedings, his estimate of his share would be $344,716.19.

In his affidavit of 10 January 2022, Mr Shi gave evidence that since October 2021 he has been employed as a Business Development Manager. His remuneration is $65,000 per annum, plus commissions. He estimates expenses of $34,200, but those expenses do not include rent or mortgage payments. Mr Shi has not made payments in relation to the mortgages of either the North Melbourne or St Kilda Road properties since March 2021.

Mr Shi’s evidence about his income and expenses was not challenged.

Ms Shen has offered to help Mr Shi pay any fine that may be imposed. Her personal wealth is modest. It comprises, predominantly, her net equity in the Point Cook property in which she lives with Jay, their son. Jay, with whom Mr Shi is in regular contact, is presently completing the Victorian Certificate of Education. The net equity in the Point Cook property is estimated by Ms Shen to be around $500,000. Ms Shen has placed the Point Cook property on the market ‘for sale’ to ensure timely compliance with any monetary penalty the Court might impose.

Quantum of Fine

Neither party directly addressed the Court in relation to the quantum of fines that ought be imposed on the six charges, whether individually or cumulatively. Both parties provided examples of fines imposed in earlier cases. When it comes to determining the appropriate penalty to be imposed, because it is difficult to discern any substantial pattern in the quantum of contempt sentencing, earlier decisions provide limited guidance.[73]
[73]Tax Practitioners Board v Hacker (No 4) [2021] FCA 940, [57] and [58].

In his written submissions, Mr Shi identified examples of cases where the courts have considered what constitutes an appropriate amount of a fine. It is convenient to reproduce some of the examples referred to in the submissions:

…
b.McKinnon v Adams (No 2),[74] where Bongiorno J fined the first defendant the sum of $10,000 for being in civil contempt. The defendant had failed to comply with orders of the court to hand documents over belonging to the body corporate and for her failure to pay monetary order of $2,000 per the three units she owned.
c.Haritopoulos Pty Ltd v Scott,[75] where the Court of Appeal found that the trial judge’s order of fines of $200,000 against the defendants for contempt were too high. The defendants had entered a premises and removed assets and vehicles in possession of the receivers and had sold some of the vehicles. It was a first offence. The trial judge ordered a fine of $200,000 in total for each defendant - $100,000 for breaching each of the two orders that the court had made. The Court of Appeal reduced the fines to $30,000 for each finding of contempt (a total of $60,000 for each defendant), finding that although the initial fines were excessive, the degree of culpability was high and there needed to be adequate general and specific deterrence.[76] In doing so, the Court considered other cases where courts had imposed fines for contempt, which were in the range of $2,500 to $120,000.[77]
…
f.CC Containers Pty Ltd v Lee,[78] where the contempt concerned withdrawals of over $87,000.00 by the contemnor. The Court imposed a fine totalling $12,000.00. There was no adverse cost order against the contemnor.
g.Koulouris,[79] where Connock J considered what penalty ought to be handed down on a contemnor who had not compiled [sic] with a requirement under the relevant freezing order. The contemnor had been required to file and serve an affidavit which set out certain information regarding his assets and financial position. In that case, the contemnor admitted to the breach and Connock J found that the contempt was civil. His Honour imposed a fine of $5,000.00 on the contemnor without conviction.[80]

[74][2003] VSC 502.

[75][2007] VSCA 174.

[76]Ibid at [110].

[77]Ibid at [104]-[109].

[78][2015] VSC 595.

[79][2020] VSC 240.

[80]First defendant, outline of submissions dated 15 September 2021, [47].

The plaintiffs also provided a table of cases summarising some decisions which they submitted were relevant to the level of any penalty. Mr Shi submitted, and it is the case, that each of those cases involved findings of contumacious conduct on the part of the contemnor.[81] Part of that table is reproduced below:[82]
[81]While Dodds-Streeton J in Scott v Evia Pty Ltd [2007] VSC 110 does not expressly describe the contempts involved as ‘contumacious’, I infer that they satisfy that threshold.
[82]Plaintiffs, outline of submissions on penalty dated 30 November 2021, [29]

Case Facts Penalty

Chan v Chen (No 3) [2007] VSC 52 Breach of freezing orders (withdrawing funds) Fines of $27,350 and $25,850 imposed as against the defendants respectively

Scott v Evia Pty Ltd [2007] VSC 110 Orders provided that the defendants must permit receivers to remain in possession of property; defendants caused the locks to be changed and excluded the receivers and removed the property. Fines of $100,000 and 30 days’ imprisonment for the criminal contempt

Hera Project Pty Ltd v Bisognin (No 2) [2019] VSC 625 Two freezing orders: failure to file information required by the orders Six months’ imprisonment, indemnity costs

Khory v Kirwan [2021] VSC 682 Non Party breach of Harman undertaking Fine of $5,000, indemnity costs

It was submitted on behalf of the plaintiffs that if fines were to be imposed, Mr Shi would not personally be able to pay those fines, making fines an inappropriate penalty. While I accept that the fact that Ms Shen may assist Mr Shi with paying any potential fine imposed, and this may affect the punitive and deterrent value of such a sentence,[83] I do not consider that this fact alone warrants the imposition of a custodial sentence. Taking such a course of action is unsupported by the authorities dealing with sentencing for contempt (as in Vaysman), or sentencing generally (as in Boulton).
[83]Gallagher v Durack [1983] HCA 2; (1983) 152 CLR 238, 245 (Gibbs CJ, Mason, Wilson and Brennan JJ).

Disposition

Taking into account Mr Shi’s circumstances and the applicable principles set out in these reasons, I consider that in relation to each of the six charges of contempt, that a fine, rather than a term of imprisonment, is an appropriate penalty. As detailed below, I sentence Mr Shi to a fine totalling $52,500. In imposing this sentence, I have had regard to whether each individual fine achieves a proportionate total sentence.

Charge 1

Charge 1 is the most serious of the six charges. The granting of the Prime Value mortgage, which had the effect of increasing the secured debt over the Bennetts Lane property by more than $2 million without prior notice to the plaintiffs, significantly undermined the Freezing Order and, as a result, undermined the administration of justice. The requirement that parties abide by freezing orders made by the Courts is extremely important to the orderly and effective administration of justice. Freezing orders ensure that assets are preserved pending the hearing and determination of a proceeding when there is a risk, absent such orders, that the assets will be dealt with or dissipated so as to defeat the claims of another party. That is what occurred in this case as a result of Mr Shi’s actions.

While I have found that Mr Shi’s intention when refinancing the Bennetts Lane property was to pay the second instalment due under the Deed, as a result of which the Freezing Order would, in accordance with the Deed, be discharged, in acting as he did Mr Shi was reckless as to whether or not his conduct was itself in breach of the Freezing Order.

I consider that it is just, in all the circumstances, to sentence Mr Shi to a fine of $40,000 in relation to Charge 1.

I find that such a fine is likely to deter Mr Shi and other persons from committing offences of the same or of a similar character, and it is proportionate in the circumstances. In imposing this fine, I have taken into account Mr Shi’s personal circumstances.

Charge 2

Charge 2 related to the disposition of part of the funds obtained on the refinance of the Bennetts Lane property. At the time of that disposition, 23 December 2020, there remained sufficient funds available to MEQUITY to enable Mr Shi to pay the second instalment required to be paid under the Deed. I consider that fact to be a mitigating circumstances in relation to Charge 2. Given the timing of the disposition, I am not satisfied that when making the payment, Mr Shi was recklessly indifferent to the terms of the Freezing Order. I think it is more accurate to say that at that time, whilst misguided, Mr Shi was generally seeking to achieve an outcome consistent with the Deed, albeit that by refinancing the Bennetts Lane property, he had already acted in breach of the Deed.

Taking into account the amount of the payment and the amount that remained available from funds obtained pursuant to the refinancing following the payment, I sentence Mr Shi to a fine of $2,500 in relation to Charge 2.

Charge 3

Charge 3 involved the net payment of $390,300 by AGI in favour of Ms Xu over a six-month period. There existed a degree of uncertainty regarding the financial position of AGI throughout this period. I am not persuaded that when those payments were made that Mr Shi’s conduct was reckless as to whether (by making the payments) he would be acting in breach of the Freezing Order. That is so notwithstanding my finding that, when the first of the payments were made and until 24 August 2020, Mr Shi had not received any legal advice about the effect of the Freezing Order.

I sentence Mr Shi to a fine of $2,500 in relation to Charge 3.

Charge 4

Charge 4 involved the payment of $118,000 from AGI’s bank account between 11 December 2020 and 20 February 2021.

Once again, while those payments were in breach of the Freezing Order, I am not satisfied that when making them, Mr Shi was recklessly indifferent as to whether or not by doing so he was acting in breach of the Freezing Order.

I sentence Mr Shi to a fine of $2,500 in relation to Charge 4.

Charges 5 and 6

Charges 5 and 6 involved the entry into contracts for the sale of the Bennetts Lane property without prior notice to, or the consent of, the plaintiffs in breach of the Freezing Order. As events transpired, neither of those contracts of sale was completed. However, I consider that in entering into those contracts, Mr Shi was recklessly indifferent as to whether or not his dealings with the land, prohibited by the Freezing Order, would in fact breach that order. I consider that the consequences of the breaches which, in the events that happened, were not as serious as might have been the case, to be a mitigating factor in relation to these charges.

I sentence Mr Shi to a cumulative fine of $5,000 in relation to Charges 5 and 6.

Suspension of Sentence Upon Condition of Community Service

I consider that, having regard to Mr Shi’s personal circumstances, it is both appropriate and proportionate to suspend the payment of the fines that I have imposed on Mr Shi upon the condition that he agrees to undertake unpaid community work with the Foundation.[84]
[84]This order will be made pursuant r 75.11(4) of the Rules and the Court’s inherent jurisdiction.

The acts of contempt, particularly those involved in Charge 1, are very serious. In his evidence, Mr Shi accepted that he must face the consequences of his breaches. The seriousness of the charges is reflected in the quantum of the fines that I have determined should be imposed. If fines only are imposed, having regard to Mr Shi’s financial circumstances, the burden of those fines is likely to fall on others, Mr Shi’s family and his creditors. Ms Shen has given evidence that she is prepared to assist Mr Shi in paying any fine, including by selling her current residence (where she lives with Jay, who is currently completing his VCE).

Having regard to Mr Shi’s financial circumstances and to Ms Shen’s evidence, I believe that imposing a term of community service (presuming that Mr Shi agrees to such a term) would serve as a far more effective specific deterrent for Mr Shi than a fine. The performance of community service work instead of a fine would have the result that such financial resources as Mr Shi has remain available for his creditors and his family.

When considering the objectives of specific deterrence and general deterrence I consider the most appropriate penalty to be imposed upon Mr Shi is one that requires him to perform community service. 150 hours of community service is a substantial obligation, as reflects the seriousness of the contempts, in particular Charge 1. In determining the number of hours, I have had regard to the principles relating to the imposition of a CCO and to the guidelines to which the Court of Appeal referred in Boulton. To undertake to perform 150 hours of community service work requires a serious and significant commitment from Mr Shi, consistent with the remorse that he has expressed for his actions.

Mr Brophy has given evidence that based on his dealings with Mr Shi he has found him to be a passionate advocate for community services like those that the Foundation provides. He has said that he has no concerns about Mr Shi helping the Foundation and that he is hopeful that by helping the Foundation it will enable Mr Shi to further appreciate the importance of community service and will have a positive impact on his life.

Mr Brophy has given his commitment on behalf the Foundation to having Mr Shi undertake a period of unpaid work at the Foundation. He has given evidence that, should the Court order that Mr Shi work with the Foundation, he would inform the Court of Mr Shi’s completion and would provide a certificate from the director of the Foundation certifying Mr Shi’s satisfactory performance of the required voluntary service ordered by the Court.

If Mr Shi is prepared to agree to undertake 150 hours of community service work in lieu of the payment of the sentence of $52,500 in fines, I consider that his commitment to doing so provides an appropriate reason, in this case, not to record a conviction for contempt of court on any of the six charges. That is, to order that without conviction, the Court impose total fines of $52,500, the payment of which is suspended, upon Mr Shi agreeing to undertake 150 hours of community work with the Foundation, such work to be performed within 18 months.

I will order that the fines imposed on Mr Shi be wholly suspended upon him providing an undertaking to the Court that he carry out 150 hours of community service with the Foundation within 18 months.

It is important that Mr Shi has the opportunity to consider whether he wishes to provide such an undertaking. If he determines not to provide an undertaking to perform such community work, then I will impose the fines to which referred and will also record a conviction for contempt of court on Charge 1, which is the most serious of the charges.

I will allow a period of five days for Mr Shi to consider whether he is prepared to undertake to perform the required hours of community work in accordance with the draft form of order and undertaking annexed to these reasons.

The Orders made on 6 August 2021 restrain Mr Shi from leaving Australia and require the delivery up of his passport to his solicitors to be held by them, only to be released upon the written consent of the plaintiffs or an order of this Court. Those Orders are to remain in place until either the community service work for which the penalty orders provide or the fines have been paid in full.

I will also make orders requiring Mr Shi to pay the plaintiffs’ costs on an indemnity basis.

ANNEXURE

IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST

S ECI 2020 02465

BETWEEN:

DANJUAN ZHANG & ORS (in accordance with the Schedule)	Plaintiffs
- and -
LIONEL LIN SHI & ORS (in accordance with the Schedule)	Defendants

DRAFT ORDER

JUDGE: The Honourable Justice Delany

DATE MADE:

ORIGINATING PROCESS: Writ filed on 5 June 2020

HOW OBTAINED:

ATTENDANCE: N/A

OTHER MATTERS:
A.       The reasons in support of these Orders are the reasons in Zhang v Shi (No 5) [2021] VSC 695 and Zhang v Shi (No 6) [2022] VSC 271.

B.       Paragraphs 5-6 of these Orders are made conditional upon:

1.   Lionel Lin Shi undertaking to perform 150 hours of community work at the direction of the Father Bob Maguire Foundation (‘Foundation’) (‘Community Service’) within the period of 18 months from the date of this Order, and;

2.   upon reading the affidavit of Paul Anthony Brophy made 29 April 2022 in which Mr Brophy advised that he would inform the Court of the completion by Mr Shi of such community work, and would provide an undertaking and certificate from the Director of the Foundation, certifying his satisfactory performance of the Community Service.

THE COURT ORDERS THAT:

The first defendant, Lionel Lin Shi, is found to have committed contempt of court in respect of the granting a mortgage over the property at 22-24 Bennetts Lane, Melbourne on 14 December 2020 in breach of the order made 11 June 2020 (as subsequently extended) (‘Freezing Order’) (charge 1) and is fined $40,000.
Mr Shi is found to have committed contempt of court in respect of a payment of $464,750 on 23 December 2020 in breach of the Freezing Order (charge 2) and fined $2,500.
Mr Shi is found to have committed contempt of court in respect of the payment of a net amount of $390,300 between 24 July 2020 and 20 February 2021 in breach of the Freezing Order (charge 3) and fined $2,500.
Mr Shi is found to have committed contempt of court in respect of payment of $118,000 between 11 December 2020 and 20 February 2021 in breach of the Freezing Order (charge 4) and fined $2,500.
Mr Shi is found to have committed contempt of court in respect of the entry into a contract of sale dated 1 November 2020 with La Moneta Capital Pty Ltd in breach of the Freezing Order (charge 5) and is found to have committed contempt of court in respect of the entry into a contract of sale dated 14 November 2020 with E2E Construction Pty Ltd in breach of the Freezing Order (charge 6) and is cumulatively fined $5,000.
Payment of the fines in paragraphs 1-5 of this Order (together, the ‘Fines’) are suspended upon the undertaking of Mr Shi referred to in Other Matters.
Upon the Court receiving notification by the Foundation that Mr Shi has completed the Community Service in accordance with the undertaking referred to in Other Matters:
(a)the obligation of Mr Shi to pay the Fines or any part of those Fines shall be discharged;
(b)paragraphs 1-5 of this Order shall be vacated; and
(c)paragraphs 1-2 of the Orders made 6 August 2022 shall be vacated.
If Mr Shi does not complete the Community Service within 18 months of the date of this Order, then Mr Shi will be fined an amount which is equal to $350 multiplied by the number of hours of Community Service required to be performed as required by the undertaking in Other Matters but not in fact performed by Mr Shi.
The Foundation, by its authorised officer, is directed to report to the Court by email to [email protected] on 1 December 2022 and 1 June 2023 as to the progressive completion of the Community Work by Mr Shi as at each of those dates respectively.
Should Mr Shi not agree within 5 days to give the undertaking referred to in Other Matters, but not otherwise, then a conviction for contempt shall be recorded in relation to charge 1.
Mr Shi pay the plaintiffs’ costs of and incidental to the plaintiffs’ amended summons filed 27 September 2022 on an indemnity basis (with the exception of the costs dealt with in paragraph 3 of the Orders made 13 December 2021), to be taxed if not agreed.

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) (In liqiudation)

Second Defendant

MCITY Pty Ltd (ACN 610 964 675) (In liqiudation)

Third Defendant

MEQUITY Pty Ltd (ACN 618 231 173) (In liqiudation)

Fourth Defendant

AUST Global Investment Pty Ltd (ACN 151 592 880) (In liqiudation)

Fifth Defendant

Case	Facts	Penalty
Chan v Chen (No 3) [2007] VSC 52	Breach of freezing orders (withdrawing funds)	Fines of $27,350 and $25,850 imposed as against the defendants respectively
Scott v Evia Pty Ltd [2007] VSC 110	Orders provided that the defendants must permit receivers to remain in possession of property; defendants caused the locks to be changed and excluded the receivers and removed the property.	Fines of $100,000 and 30 days’ imprisonment for the criminal contempt
Hera Project Pty Ltd v Bisognin (No 2) [2019] VSC 625	Two freezing orders: failure to file information required by the orders	Six months’ imprisonment, indemnity costs
Khory v Kirwan [2021] VSC 682	Non Party breach of Harman undertaking	Fine of $5,000, indemnity costs

JUDGE:	The Honourable Justice Delany
DATE MADE:
ORIGINATING PROCESS:	Writ filed on 5 June 2020
HOW OBTAINED:
ATTENDANCE:	N/A
OTHER MATTERS:	A. The reasons in support of these Orders are the reasons in Zhang v Shi (No 5) [2021] VSC 695 and Zhang v Shi (No 6) [2022] VSC 271. B. Paragraphs 5-6 of these Orders are made conditional upon: 1. Lionel Lin Shi undertaking to perform 150 hours of community work at the direction of the Father Bob Maguire Foundation (‘Foundation’) (‘Community Service’) within the period of 18 months from the date of this Order, and; 2. upon reading the affidavit of Paul Anthony Brophy made 29 April 2022 in which Mr Brophy advised that he would inform the Court of the completion by Mr Shi of such community work, and would provide an undertaking and certificate from the Director of the Foundation, certifying his satisfactory performance of the Community Service.

[2022] VSC 271

26 May 2022