Anderson & Ors v Xie [2011] VSC 486

3 The proceedings concerned circumstances in which an administrator was appointed; by the judgments the court made various declarations and orders concerning that appointment, and awarded costs against Ms Xie. The judgments were stayed for seven days with directions given for any application for a further stay pending an appeal to be made to the Court of Appeal. I was informed that an appeal against the judgments has been filed. However, no stay of execution of these judgments has been granted by the Court of Appeal.

4 The plaintiffs' application is to extend, inter partes, the freezing order, and that application is opposed by the defendant who has filed an affidavit sworn yesterday in support of her opposition.

5 Rule 37A.02(1) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) empowers this court to make a freezing order for the purpose of preventing the frustration or inhibition of the court's process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partially unsatisfied. Where the specified conditions are satisfied, an order may be made against an actual or prospective judgment debtor (see r 37A.05 (4)) or a third party (see r 37A.05(5)).

6 Practice Note No. 5 of 2010 governs the practice of the court when making a freezing order.[1] As r 37A.02(1) and paragraph 5 of the practice note make clear, the purpose of a freezing order must be to prevent the frustration or abuse of the processes of the court not to provide security in respect of the judgment or order. In this respect, r 37A reflects the principles governing asset preservation orders of the kind issued in Mareva Compania Naviera SA v International Bulkcarriers SA.[2]

7 In CSR Ltd v Cigna Insurance Australia Ltd, the High Court examined the nature of the power to make such orders, observing that the power is to prevent the processes of the court being abused and includes a 'power to protect the integrity of the those processes once set in motion'.[3] In Cardile v LED Builders Pty Ltd,[4] the High Court said:**

The integrity of those processes extends to preserving the efficacy of the execution which would lie against the actual or prospective judgment debtor. The protection of the administration of justice which this involves may, in a proper case, extend to asset preservation orders against third parties to the principal litigation.

**8 In the present case, the plaintiff seeks orders against the defendant effectively as a judgment debtor. The plaintiffs cannot move to immediate execution of their costs orders because of the delays inherent in the process of taxation of costs. The plaintiffs are entitled to the fruits of their judgment for costs but must first negotiate the process of taxation of costs to convert that order into enforceable judgment debt. Thus, to that limited extent, the plaintiffs are prospective judgment creditors. In the sense that the plaintiffs are judgment creditors, it is unnecessary to consider, when balancing competing considerations in the exercise of discretion, any more than whether costs will be assessed at $739,763.46 or some other amount.

9 Whether the plaintiffs are to be denied the fruits of their judgment by the appeal is not an appropriate consideration in the circumstances of this case - that is a matter for the Court of Appeal on an application to stay the judgment. Here, it is the prospect that the taxation processes may be abused or frustrated which is relevant.

10 The defendant submitted that I could conveniently have regard to two recent decisions in the trial division of this court where, following review of the authorities, the principles relevant to the determination of applications for freezing order have been conveniently summarised.

11 In Zhen v Mo,[5] Forrest J identified nine relevant principles. Omitting citations, they are as follows:**

First, that a freezing order by its very nature is a drastic remedy which a court must exercise a high degree of caution before taking a step which will interfere with a party's capacity to deal with his or her assets.

Second, the order is not designed to provide security for the applicant's claim. It is solely directed to preserving assets from being dissipated thereby frustrating the court processes.

Third, the applicant bears the onus both in satisfying the court that the order should be continued and in satisfying the court as to the amount which is to be the subject of the order.

Fourth, that the order can only be made on the basis of admissible evidence which supports the contentions made by the party seeking the order. Speculation and guesswork is no subject for either the facts or inferences properly drawn from proved facts.

Fifth, before such an order can be made, it is necessary that the applicant establish: (a) an arguable case against the defendant; and (b) that there is a danger that the prospective judgment will be wholly or party unsatisfied as a result of the defendant's actions in either removing the assets or disposing or dealing with them so as to diminish their value.

Sixth, the balance of convenience must favour the granting of the freezing order.

Seventh, that there is no set process for determining the exact nature of the order. The order will be framed according to the circumstances of the case.

Eighth, the applicant must establish with some precision the value of the prospective judgment. The orders should not unnecessarily tie up party's assets and property.

Finally, there may be discretionary considerations which militate against the granting of a freezing order, such as delay in bringing the application on before the court or a lack of candour in the materials placed before the court.

**12 More recently in Deputy Commissioner of Taxation v Gashi,[6] Bell J adopted as appropriate this summary of the principles applying. I too would, with respect, adopt the convenient summary of principle from Zhen v Mo.

13 Following judgment, by 30 August 2011 the plaintiffs had prepared a bill of costs in taxable form. The party/party costs of the plaintiffs in each proceeding before Ferguson J have been assessed at $739,763.46. It is in that particular sum that the plaintiffs seek to quantify the value of the prospective judgment and I am satisfied that the prospective judgment is valued with sufficient precision to meet the purpose of the eighth identified principle.

14 The plaintiffs' affidavits show that the defendant is the sole registered proprietor of a property in Canterbury and the joint registered proprietor, with her husband, of a property in Box Hill. Until 3 May 2011, the defendant was the registered proprietor of a property in Balwyn. The Balwyn property was transferred to purchasers on 3 May 2011, between the delivery of Ferguson J's reasons on 20 April 2011 and final orders on 16 May 2011. A copy of the transfer of land shows the consideration for the sale was $2,299,999. No further information was provided concerning this transaction.

15 The plaintiffs' solicitor has conducted some inquiries in respect of the Box Hill property, which show that this property is mortgaged to the Westpac Bank. On 20 September 2011, an internet search revealed a withdrawn historical advertisement for the sale of the property. Further searches found another listing of the property, which did not disclose the street address. It was apparent from a comparison of the photographs that the second listing was in fact the Box Hill property. A further search of another real estate internet site also revealed the property, again listed without a street address.

16 Precisely what inferences can be drawn from the absence of the street address in the internet listings of the property is a speculative matter. On the one hand, the plaintiffs contend I ought to infer there is some element of suspicious or surreptitious behaviour associated with the listing of the Box Hill property for sale. The defendant has provided no explanation of those particular circumstances. On the other hand, it may be that she has no direct knowledge of the listing activities of the real estate agent. I was informed that there is no further explanation offered about the advertising of the Box Hill property for sale because it was not appreciated that any inference was sought to be drawn from the absence of the address of the property after it was withdrawn from sale and then relisted.

17 Nevertheless, the property has been advertised with its address revealed in the usual way, and withdrawn from sale and readvertised with the address no longer displayed. It is possible that the address was no longer displayed in order to disguise the fact that the property was being marketed for sale.

18 The defendant does, however, by her affidavit admit that the property is for sale, that it is her primary place of residence and is presently worth about $1.8 million. She also states that she is building a new home at the property in Canterbury, which is not on the market. She expects that the Canterbury property will be worth $5.5-$6 million when completed. She states there is a substantial equity in both properties. No particulars have been provided of the extent of that equity or of the securities evident from title searches.

19 The explanation offered for the circumstances of the sale of the property at Balwyn was that the defendant has, since 1997, purchased or developed seven properties in Box Hill, Doncaster, Balwyn and Canterbury. She has never repatriated money to China, has always retained profits in Australia and invested the proceeds in 'her business and in further property developments'.

20 The business being referred to is the business of her husband, Ying Xie International Pty Ltd. The basis upon which any proceeds from the defendant's real estate activities may have been invested in that business is unclear. She is neither a director nor a shareholder of this company. The reasonable inference is that any such investment would be by unsecured loan accounts. The defendant's husband is undertaking a development in China, for which the defendant says does not require her financial support. Left unsaid is whether any financial support is required, or taken, by her husband from his business.

21 The plaintiffs have expressed a concern that the defendant may sell down real estate and remove the proceeds of sale to China. It can be observed that the Foreign Judgments Act 1991 (Cth) and its regulations make no provision for an Australian judgment to be enforced in the People's Republic of China, other than in Hong Kong. Thus, it may be the case that if the defendant was to move the proceeds of sale of assets to mainland China, the plaintiffs' judgment for costs would be thwarted.

22 The plaintiffs and the defendant once enjoyed a close business relationship and the plaintiffs are able to say that the defendant's parents, siblings and other close relatives reside permanently in southern China, and that the plaintiff and her husband have business interests in China. The plaintiffs assert that the proposed property development in Chiang Min City is being undertaken by the defendant and her husband, and comprises shops, factories and housing. The first named plaintiff states this because he was invited by the defendant to participate in that property development. For her part, the defendant disputes this proposition saying that this development is being undertaken by her husband alone.

23 The principal concern on this application is the risk that a transfer of assets out of the reach of processes for the execution of judgments might occur. The plaintiffs' material, when considered in its totality, in my view clearly supports an inference that there is a serious risk that the defendant may deal in her assets in a manner that may affect the capacity of the plaintiffs to enforce their costs order. There remains an opportunity for such arrangements to be made while the process of taxation of costs is finalised. Observations that the property market is slow, or that property takes time to realise, are not necessarily persuasive responses to that risk, having regard to the opportunities to contest and delay the process of taxation.

24 I am satisfied that the plaintiffs' material raises a sufficient basis for an inference of the risk that the court's processes may be open to abuse, calling for a response from the defendant, in particular concerning the circumstances of the sale of the Balwyn property and of the withdrawal and readvertising of the Box Hill property. The defendant's affidavit is in very general terms, and in consequence, fails to persuade me not to draw the inferences on the key issues requiring explanation. It will have been apparent, on perusal of the interim order that I made earlier this week - in particular paragraph 8 - that a proper and detailed explanation of assets and liabilities, such as mortgages and charges, the extent of interest in assets, had been ordered. In those circumstances, a proper and detailed explanation of assets and liabilities, and of the transactions and dealings that had persuaded a judge to grant an interim order ought to have been forthcoming. The defendant submitted that there was no appreciable risk of dissipation of assets and it was plainly within the capacity of the defendant to demonstrate that contention by proper material rather than mere assertion.

25 I reject the submission that it was unnecessary for the defendant to disclose her personal financial affairs because there was simply no risk shown of dissipation of assets. The reasons for that rejection are, I consider, clear on the material that the plaintiffs served on the defendant. In particular, they ought to have been clear from the fact that this court was prepared to grant an interim order earlier this week, which particularly required further and more detailed financial information to be given as part of the ancillary relief. The failure to accept and satisfy that evidentiary onus to show that there is no prospect of dissipation or inappropriate dealing in assets satisfies me that the plaintiff has established to the requisite standard the risk about which they are entitled protection by a freezing order under r 37A.

26 I do not consider that the plaintiffs' application is based on speculation or guesswork. They have satisfied the onus of showing the court that the order should be continued. Further, they have precisely identified the amount of the order which should be the subject of protection.

27 Turning to balance of convenience considerations, it would appear on the information available to the court at this point, that the defendant is a person of significant worth. No proposition was put to the contrary. It does not appear that the affect of the freezing order is likely to inhibit her dealings with third parties or the management of her assets generally. Again, I was not persuaded that this prospect was likely.

28 In her affidavit, the defendant pointed to the existence of a contract with a builder and construction activity at the Canterbury property. In fact, the defendant states, for reasons not explained, that she has told her builder of the freezing order. The defendant states that if she is unable to pay the builder, she will default on her building contract, and penalties, delays and damages will accrue. I do not accept that this is so.

29 There are exceptions to the freezing order which are set out in paragraph 10 of the order. Subparagraph (d) permits dealings in assets, subject to the order, for the purpose of discharging obligations, bona fide and properly incurred under a contract entered into before this order was made. As the defendant was able to notify the builder immediately upon being served with the order, it must be the case that the contract with the builder predates the order and would be governed by the exception. Further, protection is provided by paragraph 12 of the order, which sets out the circumstances in which the order will cease to have effect.

30 No other circumstances of particular inconvenience or prejudice to the defendant have been demonstrated. To the contrary, in the absence of proper particulars of her financial position, it appears the defendant has substantial equity in two properties. There was no reason advanced as to why I should not accept that the defendant is able to maintain equity in excess of the sum specified in the order in these properties without prejudice or detriment to other economic activity.

31 The only evidence that suggests the defendant may seek to use such equity is her statement that she retains the profits of her property development activities in Australia and invests the proceeds in the business, which I take to be a reference to Ying Xie International Pty Ltd. As I have already stated, such investments would appear to be made as unsecured loans to a private company. Unsecured loans to a private company holding its assets in China could constitute a significant diminution of the defendant's asset base amenable to execution of a judgment in Australia.

32 Two other discretionary considerations were put to me. The first, raised by the defendant, was delay in bringing the application. The period of delay, which was identified, was the period from the judgment of Ferguson J on 16 May 2011 until the issue of this proceeding on 20 September 2011. Even were those the appropriate dates under consideration, I do not think that is a period of excessive delay as would warrant denying the plaintiffs the relief they seek. However, the plaintiffs did not become aware of the defendant's activities to which they point as concerns until after the bill of costs in taxable form had been prepared on 30 August 2011. The evidence shows that soon after that date, inquiries were made and this application was promptly issued.

33 The second discretionary consideration is this - in her judgment, Ferguson J made credibility findings against the defendant. The plaintiffs urged me to accept those findings as showing the defendant was not a truthful witness. I do not think that her Honour's findings go that far. Plainly it was unnecessary that she do so. Her Honour found the defendant's evidence to be self-serving, contradictory, lacking in plausible explanations, not supported by documentary evidence and in conflict with the evidence of other witnesses. On this application, as I have stated above, the defendant's explanation and denial of any intention to diminish the value of assets was too general, failing to address the inferences sought. I am satisfied that the plaintiffs discharged an evidentiary onus from the investigations they had conducted and clearly cast upon the defendant the need to come forward with a proper explanation. That did not occur. I consider the defendant's grounds of opposition to the application to be unresponsive, self-serving, and unsupported by other evidence that might readily have been put to the court, creating a resonance with the credit finding made by Ferguson J.

34 I will continue the freezing order, being satisfied that there is an arguable case against the defendant because, as I have already mentioned, all that is involved is the quantification of the bill of costs and, secondly, there is a danger the prospective judgment may be partially unsatisfied by reason of disposition or dealing with assets so as to diminish their value.

35 Subject to any further submission from counsel, I will continue the order until the determination of the appeal in favour of the appellant in respect of the costs order or the expiration of 90 days after the authentication of the order of assessment of the costs payable under the orders of Ferguson J made 22 May 2011, whichever occurs first, or the earlier order of this court.**

Subject to the next paragraph, this order has effect up to and including the date on which costs orders of Ferguson J made 16 May 2011 are overturned on appeal or the satisfaction of the said costs orders, whichever occurs first.

37 Paragraph 2 is, effectively, liberty to apply. The defendant can at any stage apply to vary or discharge this order or so much of it as may seem appropriate.

38 I will make the order in terms of the draft, which I have initialled and placed on the court file, save that paragraph 1 will be in the form I have just read out, and in paragraph 8, the date will be 7 October 2011.

39 The plaintiffs apply for the costs of the proceeding including reserved. I accept the plaintiffs' submission that it is not appropriate to reserve these costs to another occasion before another judge, as I am in the best position to deal with costs. Equally, I do not see that there are any future developments that are likely to determine or be influential on the question of costs. Accordingly, the primary rule that costs follow the event will apply. Paragraph 13 will be amended to 'The defendant pay the costs of the plaintiffs of the proceeding, including reserved costs'.

[1] Supreme Court of Victoria, Practice Note No 5 of 2010 - Freezing Orders, 3 May 2010.

[2] [1980] 1 All ER 213 (23 June 1975).

[3] (1997) 189 CLR 345, 391 (Dawson, Toohey, Gaudron, McHugh, Gummow and Kirby JJ).

[4] (1999) 198 CLR 380, 393 [25] (Gaudron, McHugh, Gummow and Callinan JJ).

[5] [2008] VSC 300 (29 August 2008).

[6] [2010] VSC 120 (14 April 2010).