Zhang v Zhang

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FEDERAL COURT OF AUSTRALIA

Zhang v Zhang [2023] FCA 1660  

File number(s): VID 610 of 2023
Judgment of: O’CALLAGHAN J
Date of judgment: 22 December 2023
Catchwords: INJUNCTIONS – where a judge granted after an inter partes hearing an application for a freezing order – where the parties in respect of which the freezing order was sought declined to adduce evidence at that hearing – whether material changes of circumstances since the freezing order was made – where no such changes established – interlocutory application to discharge freezing order dismissed
Legislation: Evidence Act 1995 (Cth) s 75
Cases cited:

Chanel Ltd v FW Woolworth & Co Ltd [1981] 1 WLR 485

Paras v Public Service Body Head of the Department of Infrastructure (No 2) [2006] FCA 652; (2006) 152 IR 352

Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs: 71
Date of hearing: 13 December 2023
Counsel for the Applicants: CM Archibald KC with P Annabell
Solicitor for the Applicants: Gilbert + Tobin
Counsel for the First and Second Respondents: D Pritchard SC with N Kabilafkas
Solicitor for the First and Second Respondents: Juris Cor Legal
Counsel for the Third and Fourth Respondents: D Merriman
Solicitor for the Third and Fourth Respondents: GWH & Associates

ORDERS

VID 610 of 2023
BETWEEN:

JAMES TENGHUI ZHANG

First Applicant

YONG HENG AUSTRALIA PTY LTD (ACN 605 345 239)

Second Applicant

AUSEA CAPITAL INVESTMENTS PTY LTD (ACN 169 944 950) (and others named in the Schedule)

Third Applicant
AND:

YIHAO (ERIC) ZHANG

First Respondent

TASMAN DEVELOPMENT HOLDINGS PTY LTD (ACN 168 751 077)

Second Respondent

XINRAN (YVONNE) LIU (and others named in the Schedule)

Third Respondent
AND BETWEEN:

YIHAO (ERIC) ZHANG (and another named in the Schedule)

First Cross-Claimant
AND:

JAMES TENGHUI ZHANG (and others named in the Schedule)

First Cross-Respondent

ORDER MADE BY:

O’CALLAGHAN J

DATE OF ORDER:

22 DECEMBER 2023

THE COURT ORDERS THAT:

1.The interlocutory application brought by the first applicant dated 24 November 2023 be dismissed.

2.The third and fourth respondents be discharged from the undertaking as to damages given to Beach J on 6 October 2023.

3.The first applicant pay the first and second respondents’ costs of the application.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

O’CALLAGHAN J

Introduction

  1. By interlocutory application dated 24 November 2023, the first applicant seeks to discharge a freezing order made by Beach J on 6 October 2023.  The freezing order was made on the application of the respondents in an inter partes hearing, in anticipation of them bringing a cross-claim, which has since been brought, although only by the first and second respondents.

  2. I heard the application on 13 December 2023.  It is desirable that I rule on it before the end of term. 

  3. The first applicant (James Zhang) and the first respondent (Eric Zhang) are not related.  At the hearing before me, counsel used their…

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Details
Case
[2023] FCA 1660
Decision Date

CaseChat Overview and Summary

In Zhang v Zhang, the court addressed an application to discharge a freezing order granted by Beach J in relation to assets of James, who runs the APH Group, and his related entities. The application was brought by Eric, who runs the Tasman Group, and other respondents, who sought to discharge the freezing order on the grounds of alleged material changes in circumstances since the order was made. The applicants, including James and associated entities, opposed the application and argued that no such material changes had occurred.

The legal issues before the court included whether the cross-claim brought by Eric disclosed a good arguable case, whether the alleged changes in circumstances constituted material changes warranting discharge of the freezing order, and whether the consequences of the freezing order on James's financial standing constituted a significant shift in the balance of convenience. The court considered these issues in light of the principles governing interlocutory applications and the ongoing need for the freezing order to prevent dissipation of assets.

The court found that the cross-claim did not disclose a new or significantly different arguable case compared to the one presented to Beach J. It also held that the alleged changes in circumstances, such as lenders withdrawing or renegotiating facilities, were foreseeable and should have been considered before the freezing order was granted. The court further determined that James's substantial wealth and the lack of evidence showing significant financial detriment from the freezing order did not sufficiently alter the balance of convenience. The court concluded that no material changes of circumstance had been established that would warrant discharging the freezing order.

In its final orders, the court dismissed the interlocutory application to discharge the freezing order, discharged the third and fourth respondents from an earlier undertaking as to damages, and ordered the first applicant to pay the costs of the application.

Orders

Orders of the court

1. The interlocutory application brought by the first applicant dated 24 November 2023 be dismissed.

2. The third and fourth respondents be discharged from the undertaking as to damages given to Beach J on 6 October 2023.

3. The first applicant pay the first and second respondents’ costs of the application.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

At the hearing before Beach J, James chose not to call evidence and eschewed the opportunity for an adjournment. The freezing order has not been appealed, nor has any application been made to vary it.Background James runs “the APH Group”, which invests and develops in the commercial, health care, hospitality, retail and residential property sectors. In about August 2016, Eric, who runs “the Tasman Group”, first met James in China. They discussed investing in a development of residential apartments in Darlinghurst, NSW. Shortly afterwards, Eric told James that he would be conducting his due diligence on him and his companies, and he instructed his employees to do so. At about the same time, they also discussed participation in a development of land in Campsie, NSW. As a result of these discussions, in February 2017 Eric caused Tasman Development Holdings Pty Ltd (TDH, the second respondent) and another company controlled by him, Tasman Capital Management Pty Ltd, to pay certain deposits on the “Campsie Land” of $2.4 million. On 20 April 2017, Eric caused TDH to transfer $5.5 million to 10 London Street Pty Ltd (10LS). James, however, did not disclose to Eric that he had been charged, and on 20 December 2016 convicted, by the Futian District People’s Court in China of “the illegal transfer of a land use right by means of fraudulent lawsuits”, and that he received a suspended term of imprisonment of three years and four years’ probation, and financial penalties. 10LS became the registered proprietor of the Campsie Land on 4 October 2017. TDH and 10LS formalised their agreement relating to the $5.5 million transfer on about 9 November 2017 by a document called the “Tasman Loan Agreement”. On 20 July 2017, TDH and another company controlled by Eric, TFM Chatswood Land Pty Ltd (TFM Chatswood), and a company controlled by James, Ausea Capital Investments Pty Ltd (Ausea), entered into a cooperation deed relating to a development of property in Wolli Creek, NSW (Wolli Creek Development Cooperation Deed). Ausea is the third applicant in this proceeding, which I will now briefly summarise.The proceeding On 7 August 2023, James, Yong Heng Australia Pty Ltd, Ausea, and Australia Bai Fu Xin (International) Investment Pty Ltd (collectively, the applicants) commenced this proceeding against Eric, TDH, Xinran (Yvonne) Liu (Ms Liu, the third respondent), and Northwalker Realty Pty Ltd (Northwalker, the fourth respondent) (collectively, the respondents). The relief sought includes orders permanently preventing, extinguishing, and/or transferring the obligation of payment by 10LS to TDH under the Tasman Loan Agreement; declarations that the respondents engaged in misleading or deceptive conduct and/or unconscionable conduct; and orders for the payment of damages, compensation, and indemnity pursuant to statute and contract including damages for alleged breaches of the Wolli Creek Development Cooperation Deed. Mr CM Archibald KC, who appeared with Mr P Annabell for the applicants, summarised the pleaded issues in his oral submissions with admirable brevity, in these terms:Broadly speaking, the – at the heart of the dispute for the Campsie project is that the respondents did not disclose to APH Group a valuation for the Campsie property which was much less than the price at which we bought in, a non-disclosure of value – valuation. And for the Wolli Creek project, the allegations centre upon a misrepresentation as to the level of presales for the apartments or premises that were to be constructed as part of Wolli Creek. Where the cross claim brought by Eric Zhang, the first respondent, arises is that he pursues repayment of the Tasman loan, the loan I referred to as pleaded on the statement of claim as having been swept within the buyout of the Campsie project. The cross claim contends that the Tasman loan was left out of the buyout and is pursued for repayment.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Fifthly, he also emphasised that James still has offered no explanation for the transfer of his share in the matrimonial home to his wife.Consideration I will take each point in turn.The pleading Mr Archibald submitted that the cross-claim did not disclose a good arguable claim, and that now that the case that Beach J had found was a good arguable case has been pleaded, I should form a different view. He submitted that is a relevant material change of circumstance within the meaning of the principles referred to above. I do not agree with that submission. It seems to me that the pleaded case is no more and no less than the case that Eric’s counsel told Beach J would be pleaded, both orally and in writing. (As to the latter, see Eric’s submissions on the freezing order application dated 6 October 2023 at [26]-[29]). Indeed, Mr Archibald volunteered that the difference between the case put to Beach J and the pleaded one “is different … [as] a matter of detail”. I do not, in those circumstances, propose to traverse the detail of the cross-claim, or Mr Archibald’s criticisms of it. He can pursue whatever complaints remain (if any) after he has conferred with Mr Pritchard about them, in the usual manner. The impact of the freezing order on James The next thing said to constitute a material change of circumstance is the evidence given by Ms Yoyo Zhang to the effect that one lender has withdrawn from negotiations with the APH Group for a facility worth $4.2 million and a second lender has renegotiated the terms of its facility to require additional security. The evidence did not disclose the identity of the lenders. That information was redacted. Mr Pritchard said in those circumstances, the evidence was inadmissible hearsay under s 75 of the Evidence Act 1995 (Cth) because no evidence was adduced of its source. That may well be right, but it seems to me that Mr Pritchard’s better point is that the time to make submissions about such obviously foreseeable consequences was before Beach J. Further, in the circumstances of this case, even accepting that two lenders to the APH Group have acted in the way alleged, in my view that does not weigh with any particular significance in assessing the balance of convenience. James’s wealth It was also submitted on behalf of James that the evidence contained in his disclosure affidavit shows that his wealth is so significant that the Court should not require him to put up security. Whether the evidence shows that is debatable. But, more relevantly for present purposes, the time to make that submission was before Beach J.Risk of dissipation Eric submitted that there are four circumstances which provide a basis for inferring a threat of dissipation: (i) the transfer of his share in the matrimonial home; (ii) the serious nature of James’s conviction for an offence of dishonesty in China; (iii) noncompliance with the disclosure order; and (iv) the offering for sale of the Rolls Royce, one of the assets disclosed in James’s disclosure affidavit.