Zhang v Zhao (No 2)
[2025] VSC 340
•13 June 2025
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2023 00653
| ZHENG CHAO ZHANG & ANOR (according to the Schedule) | Plaintiffs |
| v | |
| LIN ZHAO & ORS (according to the Schedule) | Defendants |
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JUDGE: | Delany J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 28 May 2025 |
DATE OF RULING: | 13 June 2025 |
CASE MAY BE CITED AS: | Zhang v Zhao (No 2) |
MEDIUM NEUTRAL CITATION: | [2025] VSC 340 |
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PRACTICE AND PROCEDURE — Freezing order — Application for variation to increase limit for legal expenses — Whether defendants discharged the onus of establishing they have no other financial resources available to pay costs — Whether variation in the interests of justice — Application allowed.
PRACTICE AND PROCEDURE — Freezing order — Application by plaintiffs for variation to remove exceptions for living and legal expenses — Onus — Court should not be quick to reverse a freezing order except for good reason and the dictates of justice — Vasilaras & Co Pty Ltd v Laprese [2019] VSC 56, applied — Application refused.
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APPEARANCES: | Counsel | Solicitors |
| For the first and third plaintiffs/defendant by counterclaim | David K Carlisle and Fatmir Badali | Murdockcheng Legal Practice Pty Ltd |
| For the first to fifth defendants/first to third plaintiffs by counterclaim | Nicole Papaleo and Kay Chan | Danaher Moulton |
TABLE OF CONTENTS
A.. Introduction.................................................................................................................................. 1
B.. The substantive issues in the proceeding............................................................................... 3
C.. The freezing order history.......................................................................................................... 7
8 March 2023.................................................................................................................................. 7
13 April 2023.................................................................................................................................. 7
29 May 2023.................................................................................................................................... 8
9 April 2024.................................................................................................................................... 8
25 October 2024............................................................................................................................. 8
22 November 2024......................................................................................................................... 8
28 January 2025.............................................................................................................................. 9
D.. The evidence................................................................................................................................. 9
E... The principles............................................................................................................................. 10
F... The personal relationship........................................................................................................ 14
G.. The issues on the applications................................................................................................ 15
H.. The plaintiffs’ submissions..................................................................................................... 16
I.... The defendants’ submissions.................................................................................................. 17
J.... Consideration.............................................................................................................................. 20
K.. Disposition.................................................................................................................................. 28
HIS HONOUR:
A. Introduction
This ruling involves a determination of two competing applications arising out of a freezing order originally made against the first to fifth defendants (‘defendants’ / ‘Ms Zhao’) on 22 February 2023 and later the subject of a number of variations (‘freezing order’).
The competing applications are as follows:
(a) The defendants’ application made 6 May 2025 to vary the freezing order so as to remove the limit of $20,000 per month to pay the defendants’ reasonable legal expenses and to permit payment of:
(i) past legal expenses owed to Danaher Moulton as at 5 May 2025 in the amount of $186,277.06; and
(ii) reasonable legal expenses up to and including the first five days of the trial as and when those expenses fall due for payment, up to a limit of $338,770.00.
(b) The plaintiffs’ (‘Mr Zhang’) application made 13 May 2025 to vary the freezing order to remove the following expenses exceptions:
(i) Ms Zhao paying up to $5,000 per week on living expenses; and
(ii) the respondents to the freezing order paying their reasonable legal expenses, to a limit of up to $20,000 per month.
On 14 May 2025 an Order was made requiring the defendants to file an affidavit in response to the plaintiffs’ application filed 13 May 2025.
In addition to seeking a variation to the freezing order, the 13 May 2025 summons filed by the plaintiffs sought an order that the defendants:
(a)file an affidavit explaining what has happened to the funds admitted by the defendants to have been dispersed by Ms Zhao in specific paragraphs of the amended defence and counterclaim dated 9 April 2025 (‘ADC’); and
(b)make full disclosure supported by documentation of:
(i)all bank accounts and credit cards operated in Australia by the defendants since 1 January 2019;
(ii)all bank accounts and credit cards operated outside of Australia by the defendants since 1 January 2019;
(iii)all property and assets held by the defendants outside Australia; and
(iv)Ms Zhao’s living arrangements and living expenses.
On 28 January 2025, the proceeding was fixed for trial on 26 May 2025 on a five day estimate. By agreement between the parties, on 7 May 2025 that trial date was vacated. The trial was re‑listed to commence on 24 November 2025 on an estimate of 10 to 15 days.
The issues are currently defined by the amended statement of claim dated 7 February 2025 (‘ASOC’) and ADC.
Where in these reasons I refer to the ADC I refer to the ADC dated 9 April 2025. A reference to the ‘further ADC’ is a reference to the 30 May 2025 further amended defence and counterclaim.
During the hearing on 28 May 2025 leave was given to the defendants to further amend the ADC. That amended pleading was provided to the solicitors for the plaintiffs on 30 May 2025 and filed on 3 June 2025.
Provision has been made for the filing of a reply and defence to the further ADC but that pleading has not yet been filed.
The parties have not yet filed and served their evidence for trial. The plaintiffs have filed a chronology of WeChat messages. A joint chronology, including by reference to WeChat messages is to be filed by 30 June 2025.
B. The substantive issues in the proceeding
The key issues that separate the parties on the pleadings at trial are quite narrow.
The case for Mr Zhang and the second plaintiff, Fortune Twin Ltd (British Virgin Islands company no. 1806508) (‘Fortune Twin BVI’), a company registered in the British Virgin Islands, is that in 2017, Mr Zhang entered into an agreement with Ms Zhao (‘2017 Agreement’). The agreement was partly oral and partly to be implied. Insofar as it was oral it was constituted by discussions that took place in 2017 in France, England and Australia between Mr Zhang and Ms Zhao.
The plaintiffs allege that Ms Zhao agreed to act as Mr Zhang’s agent and to invest money on his behalf in Australia.
The plaintiffs allege that pursuant to that agreement between 30 October 2017 and 7 December 2017 Mr Zhang transferred US $12,979,155.10 (‘Transferred Money’) to an account in the name of the second defendant, Fortune Twin Pty Ltd, an Australian company controlled by Ms Zhao. It is alleged that the Transferred Money was all times trust money to be held on trust for Mr Zhang by Fortune Twin Pty Ltd and that he is entitled to beneficial ownership of the Transferred Money and its traceable proceeds.
Mr Zhang alleges that in return for Ms Zhao acting as his agent, subject to profits being made through the investments for which Ms Zhao was required to account to Mr Zhang, Ms Zhao was to be paid a yearly salary of AUD $100,000 out of profits.
Included in the relief sought by Mr Zhang in the 7 February 2025 ASOC, Mr Zhang claims against Ms Zhao personally:
(a) USD 13,961,805.74 comprising:
(iii) the Transferred Money;
(iv) interest earned on the ‘Credit Suisse Funds’, referred in the ASOC to as the amount of USD 5,684,760.67 of the Transferred Money to Credit Suisse transferred on or about 12 June 2018 to the account of Fortune Rainbow, USD 156,623.76; and
(v) the profit made on the purchase and sale of United States Oil Fund LP units referred to in the ASOC (USD 826,026.98);
(b) equitable compensation;
(c) an account of profits;
(d) a declaration that the Transferred Money and its traceable proceeds including:
(i)the net proceeds of sale of the property at 10 Jean Street, Templestowe Lower, Victoria, 3107 (‘Templestowe property’);
(ii)the net proceeds of sale of the properties at 60 Ringwood Street, Ringwood, Victoria, 3134 and 62 Ringwood Street, Ringwood, Victoria, 3134 (together, ‘Ringwood properties’);
(iii)the net proceeds of sale of the properties at 644 Mountain Highway, Bayswater, Victoria, 3153, 1/646 Mountain Highway, Bayswater, Victoria, 3153 and 2/646 Mountain Highway, Bayswater, Victoria, 3153 (together, ‘Bayswater properties’); and
(iv)the Credit Suisse Funds including:
·the interest earned on the Credit Suisse Funds (USD 156,623.76); and
·the profit made on the purchase and sale of United States Oil Fund LP units (USD 826,026.98),
is trust money held on constructive trust by Ms Zhao for Mr Zhang;
(e)a declaration that Ms Zhao held or holds any part of the Transferred Money and its traceable proceeds in her possession on trust for Mr Zhang; and
(f)an order that Ms Zhao bring in a proper account.
In both the ADC and the further ADC Ms Zhao and the other defendants deny the alleged 2017 Agreement.
It is the defendants’ case that on about 18 October 2016 Ms Zhao, her father Xin Min Zhao and a business associate of the father, Ms Lanlan Zang (‘True Owners’) entered into an agreement pursuant to which Ms Zhao agreed to invest the proceeds of shares sold by Mr Zhao and Ms Zang in the Peoples’ Republic of China in Australia on their behalf (‘2016 Agreement’). The 2016 Agreement is alleged to have been partly in writing and partly oral.
The defendants’ case is that the money that was transferred to Australia was beneficially owned by the father of Ms Zhao and by her father’s business associate, Ms Zang.
The defendants plead that pursuant to article 1 of the 2016 Agreement Ms Zang caused RMB 66 million (approximately AUD $12,716,813.62) to be transferred to Ms Zhao ‘through an account or accounts controlled by Mr Zhang’. It is alleged the True Owners of the money agreed to transfer possession but not ownership of their money to Mr Zhang, in substance, in order to be able to transfer their money out of the People’s Republic of China without a trace.
There is a personal element to what was previously the relationship between Mr Zhang and Ms Zhao that is relevant to Ms Zhao’s pleaded case.
The defendants allege that Ms Zhao and Mr Zhang commenced a close intimate relationship in 2013 which she ended in 2014 when Ms Zhao discovered that Mr Zhang was married. It is alleged the relationship recommenced in July 2017 when Mr Zhang told Ms Zhao that he had separated from his wife and that in about July to October 2017 Mr Zhang and Ms Zhao planned to move to live together in Australia. Ms Zhao fell pregnant with Mr Zhang’s child.
The defendants allege that in July to October 2017 Mr Zhang told Ms Zhao that he wanted to provide for her, that he knew she was experienced in buying and selling Australian property and that he would send funds so that she could provide for herself and her daughter from a previous relationship, so that she could purchase property in Australia for herself and for Mr Zhang to live in and/or invest in together. The defendants allege that Mr Zhang told Ms Zhao that he wanted her to use the funds to build a life for them together in Australia.
These matters are relied on in the ADC and in the further ADC in support of an allegation that to the extent any of the funds received into bank accounts referred to in the ASOC belonged to Mr Zhang, that money was a gift made by Mr Zhang to Ms Zhao.
In the ADC and further ADC Ms Zhao seeks relief including the following:
To the extent that any part of the Transferred Money is found to have belonged to Zhang (which is denied):
A. A declaration that the Transferred Money was a gift to Zhao.
B. Alternatively to A, a declaration that the Transferred Money as to half was a gift to Zhao.
C. Alternatively to B,
(a)a declaration that:
(i)the Partnership existed between Zhang and Zhao as from October 2017;
(ii)Zhang and Zhao were interested in the capital and profits of the Partnership in equal shares;
(iii)the Partnership was dissolved on 21 February 2023, when the plaintiff served his claim upon the defendants;
(iv)alternatively to [(C)(a)(iii)], an order under s 39 of the Partnership Act that the Partnership be dissolved.
(b)a declaration that the Warrandyte Property and Lower Templestowe Property are property of the Partnership;
(c)a declaration that Fortune Twin Australia holds the Lower Templestowe Property on trust for the Partnership;
(d)a declaration that Fortune Apple holds the Warrandyte Property on trust for the Partnership.
(e)an order that the affairs of the Partnership be wound up;
(f)pursuant to s 52.01 of the Rules, an order that there be a taking of accounts of the Partnership …
C. The freezing order history
The freezing order included an exception of $5,000 for living expenses and an exception for reasonable legal expenses. The $20,000 per month limit on those expenses was imposed on 9 April 2024.
There have been far too many applications and hearings concerning variations to the freezing order since February 2023 but until now, no move by either party to alter the terms of the original expenses exceptions.
Variations that have occurred in the meantime have come about so as to enable the payment of expenses relating to land development. The variations that have occurred and the payments that have been made or permitted to be made pursuant to them are as follows:
8 March 2023
(a) the freezing order was extended until 19 April 2023 or further order;
(b) directions for the service of affidavits relating to freezing order application were made;
(c) directions for service of evidence and submissions concerning plaintiffs’ 7 March 2023 application to appoint receivers were made;
(d) both plaintiffs’ summonses were listed for further hearing 19 April 2023;
13 April 2023
(e) the freezing order was extended until 2 June 2023 or further order;
(f) timetable extensions for evidence and submissions concerning plaintiffs’ freezing order and receive applications were given;
(g) $100,000 held in solicitors’ trust account was ordered to be paid into Court as security in support of the plaintiffs’ freezing order;
(h) the hearing of the plaintiffs’ summonses dated 21 February 2023 and 7 March 2023 was adjourned to 2 June 2023;
29 May 2023
(i) the freezing order was extended until further order;
(j) an extension of the timetable for further affidavit evidence in relation to plaintiffs’ freezing order application was granted;
(k) the plaintiffs’ summons for the appointment of receivers was withdrawn, no order as to costs;
9 April 2024
(l) a variation to the freezing order to permit payment of reasonable legal expenses to a limit of $20,000 per month was made;
(m) the freezing order amended to permit the sale of Lower Templestowe with proceeds to be paid to solicitors’ trust account and permitted to be used to pay legal expenses incurred from 9 April 2024;
25 October 2024
(n) restatement of, and further variation to the freezing order to permit payment of certain land tax, council invoices and legal fees referred to in Ms Zhao’s 24 October 2024 affidavit;
22 November 2024
(o) there was restatement of and further variation to the freezing order to permit payment of specific invoices including relating to Warrandyte and Templestowe properties;
(p) directions in relation to any application by Mr Zhang to reinstate Fortune Twin BVI as a party were given;
28 January 2025
(q) the freezing order was further varied to provide for the payment of architect’s fees, without prejudice to any party’s right to contend the invoices should not have been paid; and
(r) the defendants’ summons (seeking payment of specified expenses as an exception to the freezing order) was adjourned to the first day of trial.
It is observed that in 2023 the plaintiffs applied on summons to appoint a receiver to the corporate defendants. That application was not pressed and was withdrawn.
D. The evidence
In relation to the current applications, the plaintiffs rely on the affidavits of Vincent Wai Chun Cheng dated 13 May 2025 and 27 May 2025.
In response to the plaintiffs’ summons, Ms Zhao filed her eighth affidavit dated 22 May 2025.
Prior to Ms Zhao filing her eighth affidavit, an affidavit dated 6 May 2025 was filed by the defendants’ solicitor, Timothy James Prudden, in support of the defendants’ summons seeking variations concerning legal costs.
Various parts of a number of affidavits earlier made by Ms Zhao were relied on by the parties during the hearing. Those are the affidavits dated and described as follows:
(a) 2 March 2023 (‘first affidavit’);
(b) 22 August 2023 (‘second affidavit’);
(c) 20 March 2024 (‘third affidavit’);
(d) 5 April 2024 (‘fourth affidavit’);
(e) 6 June 2024 (‘fifth affidavit’);
(f) 14 June 2024 (‘affidavit of documents’);
(g) 23 July 2024 (‘sixth affidavit’); and
(h) 24 October 2024 (‘seventh affidavit’).
The plaintiffs filed submissions dated 13 May 2025 and 27 May 2025. The defendants filed submissions dated 27 May 2025.
E. The principles
The principles by reference to which I must determine the applications are not in dispute.
In Vasilaras & Co Pty Ltd v Laprese,[1] Derham AsJ provided the following summary of principles:
[1][2019] VSC 56; (2019) 58 VR 155 [73] (‘Vasilaras’).
Where there is an application for a variation of the terms of the freezing order, the variation is dictated by what justice demands in the particular circumstances of the case. The following matters are established by the authorities:
(a)the Court may vary the terms of the order to give the defendant access to assets in order to meet, amongst other things, legal expenses of defending proceedings providing the purpose does not conflict with the purpose for which the order was made;[2]
(b)having made a freezing order, a Court should not be quick to reverse it save for good reason and the dictates of justice;[3]
(c)the defendant carries the burden of establishing the lack of assets, other than those bound by the injunction, out of which the expenses might be paid;[4]
(d)a general assertion about inability to pay expenses is insufficient;[5]
(e)when a defendant seeks variation of a freezing order allowing a specific dealing, even for intended permitted purposes, it is relevant to take into account whether the defendant has access to other sources of funds for those purposes;[6]
(f)where the plaintiff seeks the recovery of money allegedly held by the defendant on trust, an order allowing the defendant to use part of the money to pay legal expenses does no more than permit to be done what otherwise would constitute a contempt of court. If the plaintiff succeeded at trial, the order would not necessarily bar the plaintiff from recovering the money from the solicitors to whom the payment for the expenses was made;[7]
(g)it may be appropriate in the interests of justice to refuse a variation where the variation requested, if granted, would give rise to a substantial risk that any judgment obtained by the plaintiffs would be rendered nugatory due to the limited remaining assets held by the defendants, so that the effect of the variation, if ordered, would more than likely frustrate the plaintiffs in their attempt to seek a remedy at law.[8]
[2]Iraqi Ministry of Defence v Arcepey Shipping Co SA [1981] 1 QB 65 (Goff J); Allomak Ltd v Allan [2010] VSC 187 (Davies J); Break Fast Investments Pty Ltd v Gravity Ventures Pty Ltd [2013] VSC 89 [43] (Vickery J); Batrouney v Forster [2016] VSC 393 (Keogh J).
[3]MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 568 [14] (Baker J); Break Fast Investments v Gravity Ventures Pty Ltd [2013] VSC 89 [43] (Vickery J).
[4]Clark Equipment Credit of Australia v Como Factors Pty Ltd (1988) 14 NSWLR 552; Deputy Commissioner of Taxation v Gashi (No 4) [2011] VSC 487; Allomak Ltd v Allan [2010] VSC 187 (Davies J).
[5]Allomak Ltd v Allan [2010] VSC 187 (Davies J).
[6]Deputy Commissioner of Taxation v Karas [2011] VSC 673 (Bell J).
[7]United Mizrahi Bank Ltd v Doherty [1998] 2 All ER 230; [1998] WLR 436 (Burton J); Distinctive FX Pty Ltd v Wright(No 3) [2015] VSC 482 (Elliott J).
[8]Break Fast Investments v Gravity Ventures Pty Ltd [2013] VSC 89 [45].
This proceeding involves competing allegations concerning the beneficial ownership of property. The authorities support the proposition that in such cases caution should be exercised when permitting carve outs from freezing orders to permit the payment of expenses.
In His Eminence Metropolitan Petar v The Macedonian Orthodox Community Church St Petka Inc,[9] there was a contest as to whether property was held on trust by the defendant for the plaintiff. The Court of Appeal held there was a prima facie case the property was trust property and that the Court should be ‘attentive’ to the protection of trust property.[10] However the proposition that the Court should be ‘attentive’ does not preclude the Court from granting access to such funds in an appropriate case.
[9][2006] NSWCA 277 (Beazley, Giles and Hodgson JJA) (‘Macedonian Orthodox Community’).
[10][2006] NSWCA 277 [85] (Beazley, Giles and Hodgson JJA).
Where a freezing order does not relate to the whole of a respondent’s assets, the respondent (at an inter‑partes hearing) has an evidentiary onus, if not a full persuasive onus, of showing that legal or other expenses cannot be met from unfrozen assets. In A v C (No 2)[11] Goff J refused an application for the release of money from the ambit of the Mareva order restricted to assets within the jurisdiction to enable them to meet costs. It was held that a respondent making such an application bore the onus of establishing they had no other assets, beyond those covered by the Mareva order, to which resort might be had to meet those costs.[12]
[11][1981] QB 961; [1981] 2 All ER 126.
[12][1981] QB 961; [1981] 2 All ER 126; see also Halifax plc v Chandler [2001] EWCA CiV 1750 [17].
In Clout (Trustee) v Anscor Pty Ltd[13] Drummond J held:
19.... It is plain that even in a case in which a Mareva restraint is justified it can never extend to prevent a respondent from having access to its own assets to the extent necessary to meet legitimate expenses such as ordinary living and business and legal expenses.
20.But at least where, as here, a Mareva restraint is imposed only on part of the assets of a respondent in an action, the respondent who seeks a relaxation of the restraint has an evidentiary onus, if not a full persuasive onus to show that it has no other assets beyond those covered by the injunction to which it can resort to meet the expenses in question …
[13][2001] FCA 174[19]–[20] (‘Clout’) (Drummond J).
The defendants submitted the principle in Clout has no application where, as here, the freezing order is not over a specific asset or only some assets. As $16,909,969.56 far exceeds the value of the defendants’ assets, its practical effect is that of an ‘all assets’ freezing order. In such a case the defendant will be entitled to access frozen funds, even those that are subject to a proprietary claim to pay their living and legal expenses if the interests of justice weigh in their favour.
The defendants further submitted that even if the freezing order were treated as a ‘limited’ freezing order, Clout does not stand for the proposition that there is an invariable requirement or precondition that the defendant must discharge the onus of establishing that he or she does not have other available assets out of which expenses might be paid before the Court’s discretion can be exercised in their favour.
The defendants submitted the question of allowances for expenses is ultimately determined by analysing whether any injustice to the plaintiffs would be outweighed by the potential injustice to the defendants if they were precluded from accessing funds. The defendants submitted no greater or ‘predominant’ weight is to be attached to the fact that the plaintiffs have made a claim that is proprietary in nature. It is but one of the range of considerations that the Court must consider in weighing the interests of justice, including:
(a)whether the defendants have shown that it is necessary for them to have access to funds over which a proprietary claim is made;
(b)the potential injustice to the defendants if they were precluded from accessing funds and therefore denied the opportunity to advance an arguable defence; and
(c)other relevant discretionary factors that may be relevant, such as delay.
The defendants referred to Plus Recruitment Pty Ltd v Phillips (No 2),[14] where Lyons J rejected a submission that the Court could only grant a carve‑out of a limited freezing order if it is satisfied the respondent has no other assets from which to pay expenses. His Honour referred to the nature and purpose of a freezing order — that its aim is not to provide security nor to stop people having access to their own assets to meet legitimate expenses.[15] Lyons J concluded ‘the task of the Court is to consider all the evidence and circumstances to determine … what is just and convenient’.[16]
[14][2019] VSC 611.
[15][2019] VSC 611 [44].
[16][2019] VSC 611 [46].
The defendants submitted that whether the defendant has sufficient available assets[17] (other than those which are the subject of the freezing order) is but one of many relevant factors to consider in an application for a limited freezing order where the defendant seeks a carve out to meet legal costs or other expenses.
[17][2019] VSC 611 [47] (Lyons J).
The two expenses exceptions in this case have been in place for approximately 12 months. In National Australia Bank Ltd v Human Group Pty Ltd (No 2),[18] Henry J said:
To engage the Court’s discretion to vary the Freezing Orders, NAB must establish that there has been a material change of circumstances since the original application for the orders was heard or the discovery of new material that was not reasonably available at the time they were made.
F. The personal relationship
[18][2020] NSWSC 1900 [104].
There is an element of commonality between the evidence filed in the proceeding to date by Mr Zhang and the evidence given by Ms Zhao concerning the personal nature of their relationship.
In his 21 February 2023 affidavit Mr Zhang gave evidence that after he met Ms Zhao in about 2013 they had:
…an intimate relationship which lasted about four years, from about 2014 or 2015 to 2019. Our relationship was sexual on a few occasions. Ms Zhao and I maintained a good friendship until around early 2022. I am married with two children. My wife knows about my relationship with Ms Zhao.
Ms Zhao resided in Australia and travelled frequently to China between the period from 2013 to 2019.
During that period, Ms Zhao and I saw each other in person when she was in China. We also regularly communicated via WeChat … particularly when she was in Australia.
In the same affidavit Mr Zhang gave evidence that he wanted to move some of his money from Hong Kong to Australia because he wanted to diversify his investment portfolio outside China and Hong Kong. In late September to mid-October 2017 he and Ms Zhao attended the same study trip in England and France as part of the business course they were undertaking. He gave evidence that it was during this time that the agreement pleaded in the ASOC was arrived at.
In her fifth affidavit Ms Zhao gave evidence that at all relevant times Mr Zhang said he loved her and wanted to provide for her and her daughter and that he wanted them to build a life together in Australia. Exhibited to her fifth affidavit are the following WeChat messages:
(a) a WeChat message sent by Mr Zhang on 26 October 2019 ‘how can you say that I don’t love you’;
(b) a message dated 7 November 2019 with a photograph of Ms Zhao wearing a Tiffany’s diamond ring on her engagement finger which she sent to Mr Zhang to which he messaged back ‘buy it’; and
(c) a message from Mr Zhang dated 7 December 2019 with a link to a mansion in Queensland to which she responded ‘birthday gift?’ and to which Mr Zhang replied ‘Ok’.
The evidence of the relationship between Mr Zhang and Ms Zhao provides context within which at trial it will be necessary to determine whose version of events is more probable than the other and who is the true owner of the USD $13 million that in late 2017 came into bank accounts in Australia controlled by Ms Zhao.
G. The issues on the applications
The plaintiffs submitted Ms Zhao has failed to discharge the onus of proving her asset position such that the exceptions in question should remain in the freezing order. Separately, they submitted that it may be inferred from the evidence that Ms Zhao does not reside in Melbourne.
The defendants submitted they do not have sufficient available assets, other than those which are the subject of the freezing order, to meet costs. They submitted the evidence establishes both that Ms Zhao resides in Melbourne and that the original allowance of $5,000 for her living expenses is reasonable and appropriate, irrespective of her place of residence, and should continue.
There is no issue between the parties about the quantum of legal costs that are sought to be the subject of the exception.
Assuming against their primary position that there should be an allowance for legal costs, the plaintiffs do not dispute the amount claimed in respect of past legal expenses. Nor do they contend that the quantification of future legal expenses up to and including day five of the trial is inappropriate.
During the hearing leading counsel for Mr Zhang submitted that if the exception in favour of an allowance of $5,000 for Ms Zhao’s living expenses was not discharged in its entirety that the allowance should be reduced to $3,000 per week on the basis of the 22 August 2023 affidavit of Ms Zhao which substantiated living expenses of $2,806 per week.
H. The plaintiffs’ submissions
The plaintiffs submitted that since the making of the original freezing order there has been a material change in circumstances. The plaintiffs are now in a position to identify money transferred out of Ms Zhao’s personal accounts, not simply money transferred out of the corporate defendants’ accounts.
The plaintiffs submitted there is now evidence that gives rise to the inference that Ms Zhao has significant financial resources available to her that she has not disclosed. In particular, $3.13 million representing the proceeds of sale of the Ringwood properties, $3.877 million of Credit Suisse Funds and $5.7 million from the proceeds of sale of the Bayswater properties.
The plaintiffs submitted that in 2021 Ms Zhao had $13 million in her bank accounts. Those funds have left her accounts. They have not been accounted for. They were probably repatriated to the People’s Republic of China.
The plaintiffs referred to inconsistencies and changes of position by Ms Zhao and the defendants.
When Ms Zhao made her disclosure affidavit on 2 March 2023 her assets were said to include a debt of $5 million owed to her by her father, Xin Min Zhao. That is, in addition to 100 shares in Yarra Nineteen Pty Ltd (‘Yarra Nineteen’), jewellery of $200,000, artwork of approximately $100,000 and other listed assets. On 22 August 2023 Ms Zhao made her second affidavit, the stated purpose of which was to ‘correct errors’ in her disclosure affidavit. She gave evidence that her father did not owe her any money and that her father had assisted her financially between 2007 and 2014.
The plaintiffs submitted a $5 million debt is not the type of matter a person makes a mistake about.
Instead of the shares in Yarra Nineteen being her own shares, in her second affidavit Ms Zhao gave evidence that the property at 19 Moore Street, South Yarra VIC 3141 was held on trust for three people in China and that the shares were not her property. Contrary to her disclosure affidavit, her jewellery was said to be worth less than $200,000 with a specific item, a ring, valued at $40,000.
The plaintiffs submitted the second affidavit is significant for its failure to refer to matters dealt with by Ms Zhao in her eighth affidavit.
The August 2023 affidavit referred to purchases of property by Ms Zhao’s father and transfers of property is in China but contained no reference to transfers of funds via Credit Suisse in 2019, referred to in her most recent affidavit. The same is the case concerning the proceeds of sale of the Bayswater properties and Ringwood properties. While there is discussion of these matters in Ms Zhao’s eighth affidavit, the her second affidavit was silent as to these matters. The eighth affidavit includes new evidence that Ms Zhao transferred money to Mr Zhang as a loan. That new evidence is inconsistent with the case pleaded by the defendants in the ADC. The new evidence that money was paid to Mr Zhang is not only contrary to the defendants’ pleaded case, it is not supported by any documents.
It was submitted Ms Zhao has failed to provide evidence of bank accounts in China. So far as funds transferred by her the subject of her eighth affidavit are concerned, Ms Zhao has not produced bank records showing the destination of funds transferred from accounts in her name or accounts controlled by her.
I. The defendants’ submissions
The defendants accept that they have the onus to substantiate the exceptions to the freezing order, particularly where the property in question is disputed trust property.
The eighth affidavit includes evidence from Ms Zhao that she does not have any assets outside Australia, that includes bank accounts. The Court must accept the evidence that Ms Zhao has no assets. There has been no challenge to that evidence. Ms Zhao’s eighth affidavit contains evidence that she has no other sources of income or any other assets outside Australia. It constitutes comprehensive disclosure and satisfies the onus the defendants are required to discharge.
It was submitted the purposes of the affidavits made in 2023 and the purpose of Ms Zhao’s eighth affidavit were different. The first affidavit and the correcting second affidavit made after Ms Zhao changed lawyers were disclosure affidavits. That is, to show the defendants’ financial position at a point in time in accordance with the freezing order. The eighth affidavit specifically responded to the Order made on 14 May 2025 requiring disclosure of what had occurred in the past with particular funds referred to in the ADC.
It was submitted that while there were variation applications to pay architects and other fees relating to the Templestowe property, and that Ms Zhao made affidavits in support of those applications, no occasion arose in relation to those applications for Ms Zhao to put on further evidence about her or the defendants’ then current asset position.
The defendants submitted the explanation in Ms Zhao’s second affidavit for errors in her disclosure affidavit, in particular her distress and stress as a single mother due to the imposition of the freezing order and the need to very quickly make the affidavit should be accepted.
It was submitted that although Ms Zhao has filed numerous affidavits and there have been numerous variation applications, there has been no challenge to Ms Zhao’s evidence and no application to cross‑examine her.
Concerning aspects of the eighth affidavit where Ms Zhao was unable to recall the destination of certain payments and transfers, it was submitted that on any view of the evidence, Ms Zhao was involved in multiple financial transfers and transactions involving many millions of dollars over the relevant period. It was submitted to be clear that the Zhao family treats funds with a certain ‘fluidity’ which makes individual transactions difficult to track. It was submitted that in those circumstances it is understandable that Ms Zhao was unable to precisely detail and explain what occurred to all amounts of money involved.
It was submitted that although it is correct that Ms Zhao has not exhibited documents to her eighth affidavit that show the destination of ‘cash withdrawals’ from bank accounts, she has produced her own bank records. At the moment that is the extent of the information that she has. The position may be different if bank records are subpoenaed prior to trial.
Ms Zhao drew attention to the asserted consistency in her earlier affidavits that she did not have access to assets from which to pay living expenses or legal fees. From her second affidavit the constant position has been that Ms Zhao has no assets. Attention was directed to the third and fourth affidavits of Ms Zhao in which she gave evidence that she had needed to borrow money from friends and that she did not have access to any other money.
The defendants submitted that contrary to the submissions on behalf of Mr Zhang, there has been no material change in circumstances. The plaintiffs’ claim has always been that $13 million transferred to Ms Zhao is money held on trust for the plaintiffs. It was alleged the money went to Fortune Twin Pty Ltd and was controlled by Ms Zhao. There has been no change of position.
So far as the substantive contest is concerned, the most recent affidavit by Ms Zhao verifies the defendants’ allegation that the money came from Ms Zhao’s father and Ms Zang. The affidavit exhibits the 2016 Agreement and the ledger prepared by Ms Zang which are the only documents produced by either side that go to the beneficial ownership of the funds. It was submitted that while Ms Zhao does not suggest the plaintiffs do not have an arguable claim, this evidence supports a finding that the balance of convenience favours the position of Ms Zhao.
In her eighth affidavit Ms Zhao gave evidence that in late 2016 Mr Zhang told her that he could help her father and Ms Zang to move money out of China and he had connections which could ensure the money was moved without trace and that her father and Ms Zang agreed to transfer money to Mr Zhang for that purpose in the following amounts:
(a)RMB 20 million (approximately $AUD3,893,778.96) on 16 November 2016;
(b)RMB 31 million (approximately AUD$5,983,794.87) on 22 January 2017;
(c)RMB 5 million (approximately AUD$935,648.35) on 26 July 2017; and
(d)RMB 10 million (approximately AUD$1,903,591.44) on 18 September 2017.
The defendants submitted the eighth affidavit verifies Ms Zhao’s allegations in the ADC although it was conceded that due to inconsistencies between the affidavit and the ADC that the defendants need to further amend their defence and counterclaim. It was submitted that the preparation of the eighth affidavit had resulted in some ‘further clarity’ about what occurred. Amendment to the ADC was required to be attended to by 30 May 2025 pursuant to leave granted during the hearing, including leave to withdraw admissions previously made, the withdrawal of which is supported by the eighth affidavit of Ms Zhao. Those matters have been attended to in the further ADC.
The defendants submitted the lack of details and particulars in the ASOC concerning the Bayswater properties supports the view that the plaintiffs have a weak case compared to that of the defendants.
It was submitted that although there is a need to balance the question of claimed trust property, that issue is weak so far as the plaintiffs are concerned because the contemporaneous documentary evidence is inconsistent with the plaintiffs’ case.
Finally, it was submitted that the delay by Mr Zhang, in bringing the application so long after the freezing order and delaying after having foreshadowed the application in January 2025 at a time the case was listed for trial in May 2025 means that at a minimum Ms Zhao should not be denied the ability to pay past legal fees.
J. Consideration
I accept the submission on behalf the defendants that in substance the case that separates the parties has not changed since the freezing order was obtained in 2023.
I proceed on the basis that because asserted trust funds are to be the source of the expenses exceptions proposed by the defendants that caution is required.
It is not possible and nor is it appropriate this stage of the proceeding to express any concluded views about the substantive merits of the parties’ cases. That is important because both parties assert an entitlement to beneficial ownership of the $13 million transferred to Australia in 2017 that is consistent with their respective cases.
While the evidence for trial has not been filed and while the pleadings have not yet closed, based on the evidence and objective facts currently available, on balance, the defendants appear to have a stronger case than the plaintiffs.
So far, only the case for the defendants is supported by any documentary evidence. The 2016 Agreement between Ms Zang and Ms Zhao expressly addresses the question of property purchase and holding in Australia. The document appears to have been prepared and witnessed by Ms Zang’s lawyer, I assume, in the People’s Republic of China on 18 October 2016. It is no part of the plaintiffs’ case, at least at present, to seek to impugn the validity or authenticity of that document.
That agreement and the ledger exhibited to the eighth affidavit of Ms Zhao prepared by Ms Zang provide some corroboration of the defendants’ case concerning beneficial ownership of the money.
The case for the plaintiffs is not supported by any contemporaneous documents to which my attention was referred in the course of the hearing and none is referred to in the ASOC.
This may be a case where there are few if any WeChat messages that can provide assistance to determine disputed evidence about events that occurred in 2016, 2017 and thereafter. Whether that is the case will become clearer after 30 June 2025 when the parties are required to file an agreed chronology including an agreed chronology of WeChat messages.
In her eighth affidavit, discussing transfers of sums of money out of China Ms Zhao gave evidence that:
Mr Zhang said to me words to the effect that he was worried about putting details of any transactions or transfers of money in our WeChat exchange because of the CRS (that is, the Common Reporting Standard, which means that co‑operating countries share information on their residents’ assets and income automatically), and about the fact that the Chinese government supervises conversations on WeChat. Mr Zhang said to me words to the effect that he was very concerned that the Chinese government might find out about him sending money out of China …
For that reason, each time Mr Zhang asked me to transfer money, he asked me to log into an email account, where he had saved an email in the “Drafts” folder (and not sent) containing the following information …
Each time he asked me to transfer funds, I would log in to the email account and make a note of the bank account details which he had written in the draft …
It was the plaintiffs’ case when the proceeding was initiated that Mr Zhang’s money would be transferred to Australia by Fortune Twin BVI. After the proceeding was issued it was learnt that Fortune Twin BVI had become deregistered. Arrangements were made for that company to be reregistered and, after that occurred, it was reinstated as a plaintiff.
The routing of the monies which both parties seem to accept were originally from the People’s Republic of China through a company incorporated in the British Virgin Islands is consistent with the general thrust of the defendants’ case concerning money being transferred out of China without ‘trace’. It is consistent with evidence given by Ms Zhao in her eighth affidavit about that topic.
I proceed on the basis that the defendants carry the burden of establishing the lack of assets other than those bound by the freezing order out of which the expenses might be paid.
The evidence in the eighth affidavit of Ms Zhao is that she does not have any other sources of income and neither she nor any of the defendant companies still have any of the money that she has described as being paid out of her accounts in her affidavit. It is her evidence she does not have any assets outside Australia.
It is understandable that the plaintiffs should treat this evidence with scepticism given the discrepancies between the first affidavit and Ms Zhao’s second affidavit. However those discrepancies and the explanation for them in the second affidavit have been known to the plaintiffs since August 2023. Between August 2023 and 13 May 2025 the plaintiffs took no action to set aside or vary the exceptions to the freezing order based on those discrepancies or inconsistencies.
The eighth affidavit was made several days prior to the hearing of the two applications. There was no application to cross‑examine Ms Zhao on that affidavit or otherwise on the application. That being the case, I proceed on the basis that the evidence given by Ms Zhao in her eighth affidavit to which I have referred concerning assets available to her and to the defendants is accurate. That evidence is sufficient to discharge the burden to which I have referred.
I accept that the evidence to which I have referred might in isolation be regarded as a general statement only about inability to fund legal costs and living expenses. However, the evidence to which I have referred must be seen in light of the balance of matters addressed in the eighth affidavit. The affidavit seeks to address in detail the source of funds Ms Zhao invested in Australia, bank account balances as at 19 May 2025 following the freezing order made on 22 February 2023, and various payments and transfers referred to in the ASOC.
While it is correct as submitted by the plaintiffs that there are some gaps in the explanation concerning where the funds the subject of particular withdrawals, some of which are very substantial, have ‘ended up’ and while the documents exhibited do not corroborate the evidence concerning the end destination of transfers and payments, I proceed on the basis that the eighth affidavit constitutes a bona fide attempt by Ms Zhao to explain what became of payments made between 2019 and late 2022. Whether that explanation or part of it is sufficient and is accepted and acted upon at trial is not a matter to be determined on these applications.
In considering where the interests of justice lie the delay by the plaintiffs in seeking to remove the exceptions to the freezing order which have been in place for more than two years in the case of the living expenses exception, and approximately twelve months in the case of the current specific exception for legal costs is a relevant consideration.
No satisfactory explanation for delay was given on behalf of the plaintiffs. I do not accept that it was only recently that the plaintiffs determined that it was Ms Zhao who had the money rather than the other defendants and that this made a material difference to their approach to the freezing order and its exceptions.
During the two‑year period since the freezing order was made there have been a number of occasions on which applications have been made by the defendants to the Court for the payment of particular expenses and for variations. The number of times the matter came back to Court for variations was such that I was prompted to order on 28 January 2025 that the balance of the defendants’ summons seeking payment of specified expenses be adjourned to the first day of trial.
Despite the frequency with which issues concerning the freezing order came back to Court over the two‑year period, on none of those occasions was it suggested by the plaintiffs that either of the existing exceptions to the freezing order should be set aside.
The first occasion the present application by the plaintiffs was foreshadowed was when the case was set down for trial. The application by the plaintiffs was further delayed until after the defendants had themselves applied to vary the freezing order to enable them to pay legal costs up to and including the fifth day of trial being at that stage the anticipated last day of the trial.
The matter having been set down for trial, the defendants incurred legal costs of $186,277.06 to 5 May 2025. There is no suggestion those costs or any of them were incurred other than bona fide in preparing the case for trial.
I proceed on the basis as stated in Vasilaras that the Court should not be quick to reverse a freezing order except for good reason and the dictates of justice. The order for legal expenses was made assuming a monthly expenditure $20,000 by the defendants. It is not contested that the cost estimate to the end of the five day trial of a further $338,770 is reasonable. It was not reasonable or realistic to expect the solicitor for the defendants to have provided that cost estimate until recently. The fact that the work needed to prepare for a five day trial had become known, explains why an application to vary the future costs exception was not made earlier.
I accept that based on the evidence available, unless an order were made to permit the defendants to access funds for the purposes of paying legal expenses the subject of the 6 May 2025 summons that the defendants would be denied the opportunity to advance their defence at trial in circumstances where the case as pleaded in the further ADC appears to be a case of substance. This is a relevant consideration when determining where the interests of justice lie.
The revised estimate of the trial duration is now 10 days. If closer to trial that appears to be the realistic estimate, it will be open to the defendants to make a further application concerning legal costs. Any such application will need to be determined at that time having regard to where the interests of justice lie, assessed at that time.
It is necessary to deal separately with the application by the plaintiffs that the living expenses exception to the freezing order should be discharged.
The allowance of $5,000 per week for Ms Zhao’s living expenses is the amount specified in the original ex parte freezing order made on 23 February 2023. Despite a number of hearings and the variations to the freezing order to which I have referred, the amount specified for living expenses has remained unchanged.
Although Mr Zhang now wishes to discharge the $5,000 living allowance in its entirety, it was not until 13 May 2025, only after the defendants had issued their summons seeking to vary the limit on payment of legal expenses, that for the first time since February 2023 the plaintiff have sought to eliminate entirely the exception for ordinary living expenses in favour of Ms Zhao.
It is important to appreciate that both the amounts specified for living expenses and legal expenses in the existing Order corresponds to the amounts that Mr Zhang and those advising him in 2023 felt appropriate, presumably having regard to his knowledge of Ms Zhao’s personal circumstances and her reasonably required anticipated levels of expenditure, including on legal costs at that time.
The defendants submitted that while each affidavit filed by Ms Zhao records an address in Australia, that it may be inferred from the evidence that Ms Zhao does not reside in Melbourne.
It was submitted, and the evidence shows, that with the exception of the 14 June 2024 affidavit of documents signed in person in Melbourne and the eighth and most recent affidavit apparently signed electronically in Melbourne, all other affidavits made by Ms Zhao were affirmed in China, the most part specifically in Xinjiang City, China. In 2024 Ms Zhao spent approximately six months in China based on the date the various affidavits were made in that year and the place at which they were sworn or affirmed.
It was submitted that while an invitation had been made to Ms Zhao to provide a copy of her passport, that she had not done so, even though a threat had been made by the plaintiffs to subpoena her passport if it was not produced.
The plaintiffs submitted the obligation lies upon Ms Zhao to satisfy the Court about the level of expenditure on her reasonable living expenses. It was submitted that her living expenses are high, approximately $170,000 after‑tax which includes approximately $40,000 in school fees, presumed to be private school fees.
It was submitted the evidence concerning Ms Zhao’s living expenses in her eighth affidavit consists of assertions only. The onus is on Ms Zhao to satisfy the Court these are in fact the living expenses. They include $20,000 for holidays. If the Court infers that Ms Zhao is for the most part living in the People’s Republic of China, the Court should infer that her living expenses would be less than if she were living in Australia.
In response to this issue, leading counsel for Ms Zhao drew attention to the evidence by Ms Zhao that she is an Australian citizen and that she no longer holds a Chinese passport. It was submitted the evidence shows that Ms Zhao spent time in 2024 both in China and in Australia. However, her eighth affidavit exhibits bank statements that show expenditure in March 2025 consistent only with Ms Zhao being present and living in Australia.
It was submitted the bank statements of the account into which the amount of $5,000 per week is paid exhibited to Ms Zhao’s eighth affidavit show expenditure consistent with living expenses of $5,000 per week.
It is important to approach the residence issue bearing in mind what is common ground between the parties. Namely, that at the time the relationship between Mr Zhang and Ms Zhao was ongoing, Ms Zhao spent time both in the People’s Republic of China and in Australia.
There is nothing in the evidence led in support of the original ex parte freezing order or in later evidence filed on behalf of Mr Zhang to suggest that the amount of $5,000 fixed upon by him and the plaintiff’s legal advisers was determined on the basis of an assumption that Ms Zhao would only live in Australia and would not travel to or spend part of the time in the People’s Republic of China.
The most recent documentary evidence of expenditure by Ms Zhao shows expenditure by her on food and other similar items in the suburbs of Melbourne in late March 2025. It seems to me reasonable to infer and I did not understand the plaintiffs to contend to the contrary, that Ms Zhao’s daughter is attending a private school in Victoria. While Ms Zhao might not be living all of the time in Victoria or in Australia, there does not appear to have been any particular change in her living circumstances from those that were occurring when Ms Zhao and Mr Zhang were on much better terms prior to the end of 2022.
Even if it were correct to find that Ms Zhao is predominantly residing in mainland China, there is no evidence from which I could infer or find that the living expenses of Ms Zhao if residing in that country are materially different to her living expenses when residing in Australia.
Contrary to the plaintiff’s submissions, I do not consider that there is a proper basis for me to draw an inference that Ms Zhao’s costs would be less if she is residing in China than if she were residing in Australia. It goes without saying that a person’s living expenses can be the same no matter the country in which they reside depending upon the lifestyle that they choose to adopt in that country.
No variation is proposed by Ms Zhao to the exception in relation to her living expenses. In those circumstances I do not consider that she bears an onus of persuading the Court that the freezing order previously made permitting her expenditure of $5,000 per week on living expenses should be varied.
K. Disposition
I will vary the freezing order to permit payments of the defendants’ past legal expenses as at 5 May 2025 in the amount of $186,277.06. I will also vary the freezing order to permit the payment of the defendants’ reasonable legal expenses up to and including the first five days of trial as when those expenses fall due for payment up to a limit of $338,770.
I refuse the plaintiffs’ application to vary the freezing order to remove the living expenses exception of $5,000 per week in favour of Ms Zhao.
The plaintiffs are to pay the defendants’ costs of and incidental to the defendants’ summons dated 5 May 2025 and the plaintiffs’ summons dated 13 May 2025.
SCHEDULE OF PARTIES
| By Original Proceeding | ||
| ZHENGCHAO ZHANG | First Plaintiff | |
| FORTUNE TWIN LIMITED (COMPANY NUMBER 1806508) | Second Plaintiff | |
| - and - | ||
| LIN ZHAO | First Defendant | |
| FORTUNE TWIN PTY LTD (ACN 622 424 908) | Second Defendant | |
| FORTUNE APPLE PTY LTD (ACN 624 035 678) | Third Defendant | |
| FORTUNE SUNLAND PTY LTD (ACN 625 362 870) | Fourth Defendant | |
| FORTUNE RAINBOW PTY LTD (ACN 623 486 420) | Fifth Defendant | |
| FORTUNE BAYSWATER PTY LTD (ACN 626 522 674) | Sixth Defendant | |
| MENGFAN ZHAO | Seventh Defendant | |
| By Counterclaim | ||
| LIN ZHAO | First Plaintiff by Counterclaim | |
| FORTUNE TWIN PTY LTD (ACN 622 424 908) | Second Plaintiff by Counterclaim | |
| FORTUNE APPLE PTY LTD (ACN 624 035 678) | Third Plaintiff by Counterclaim | |
| - and - | ||
| ZHENGCHAO ZHANG | Defendant by Counterclaim | |
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