BCEG International (Australia) Pty Ltd v Xiao

Background

1. First, it should be noted that at all relevant times Mr Xiao was a director of both IWC and WWMP, and Ms Chen was at all material times a director of IWC. All of the shares in IWC, and all of the shares in WWMP, were at all relevant times held by CX & DN Holdings Pty Ltd. That company is the trustee of the Xiao and Chen Family Trust. Mr Xiao and Ms Chen are directors of the company, and each holds 50% of its shares.
2. Secondly, it should be noted that at all relevant times WWMP has been the registered proprietor of two properties in Flinders Street, Wagga Wagga ("the Flinders Street properties"), being the land the subject of folio references 30/SP93076 and 31/SP93076, and that these properties were not encumbered by any registered mortgage until the grant of the mortgage to the CBA on about 1 June 2022. The Flinders Street properties were at all material times the only substantial assets of WWMP. WWMP is the trustee of a trust known as the West Wyalong Marketplace Unit Trust.
3. Thirdly, it should be noted that at all relevant times Mr Xiao and Ms Chen have been the registered proprietors of a property in Gloucester Street, The Rocks ("The Rocks property"), being the land the subject of folio reference 121/SP85578. Since August 2019, The Rocks property had been subject to a mortgage in favour of Westpac Banking Corporation. A second mortgage was recorded on the title on 7 June 2022 in favour of OUF Commercial Pty Ltd ("OUF").

Undertakings and Orders

1. It is also necessary to refer to the terms of the undertakings and orders that are claimed by the plaintiff to have been breached.
2. On 28 April 2022, the Court noted an undertaking to the Court given by the defendants' senior counsel on behalf of each of the defendants (and another company - Interlink Group (Australia) Pty Ltd - not a party to the proceedings) that until further order: Each of the defendants will comply with the freezing order which is Annexure A to these orders save for paragraph 8 (concerning an affidavit of disclosure). Relevantly, Annexure A to the orders included paragraph 6(a) in the following terms: Without first giving the plaintiff 7 days' written notice, you must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia ('Australian assets') up to the unencumbered value of: in the case of the first and second defendants, $7,036,085; in the case of the third defendant, $6,875,546.39; in the case of the fourth defendant, $11,682,801.85; and in the case of the fifth defendant, $3,155,033.18 ('the Relevant Amount').
3. The plaintiff complains that paragraph 6(a) was breached when the Flinders Street properties owned by WWMP became encumbered by the CBA mortgage without the requisite notice of the transaction having been first given to the plaintiff.
4. On 28 April 2022, the Court noted a further undertaking to the Court given on behalf of each of the defendants that until further order: Each of the defendants will refrain from causing or permitting any monies advanced to any one or more of the defendants or Interlink Group (Australia) Pty Ltd on or after 11 April 2022 to be transferred or otherwise dealt with other than by payment into court without giving the plaintiff three business days' notice in writing.
5. The plaintiff complains that this undertaking was breached by Mr Xiao and Ms Chen when they dealt with certain monies in accounts held by them, otherwise than by payment into Court, and without the requisite notice of the dealings having been given to the plaintiff.
6. On 8 June 2022, the Court made an order that the defendants and each of them "provide the information and affidavit in accordance with paragraphs 4(a) and 4(b) of the attached Penal Order". The Penal Notice attached to the order included the following: 4. You must: (a) at or before 5pm on 9 June 2022 (or within such further time as the Court may allow) to the best of your ability inform the applicant in writing of: i. all your assets in Australia, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets; … vi the net financial position of each of the corporate defendants and of ILC, in particular the details of the net financial position of WWMP, prior to and after the provision and discharge of the mortgages described in subparagraphs (a) to (c) below: (a) mortgage in favour of the CBA with dealing reference AS181896, which was registered over the Flinders Street Properties (the Flinders Street Mortgage); (b) mortgage in favour of the CBA with dealing reference AP104430 previously registered over the property at 50 Edward Street, Wagga Wagga NSW 2650 bearing folio reference 12/1178547 (Edward Street Property), which was discharged; and (c) the mortgage in favour of OUF Commercial Property Pty Ltd with dealing reference AS190672, which was registered over the Edward Street Property on or about 7 June 2022. … xi details of the receipt and dealing with the proceeds of any loan or advance secured by the mortgages of the Edward Street Properties and Edward Street Property. (b) within 2 working days after being served with this order, swear and serve on the applicant an affidavit setting out the above information.
7. The defendants' solicitors sent a letter to the plaintiff's solicitors on 9 June 2022 that referred to the orders made on 8 June 2022 and stated that the information contained in the letter was provided in response to paragraph 4(a) of the Penal Notice. In response to paragraph 4(b) of the Penal Notice, an affidavit of Mr Xiao, affirmed on 10 June 2022 ("the Xiao affidavit"), was served upon the plaintiff. The plaintiff complains that there were omissions from the information so provided, such that the order made by the Court on 8 June 2022 was breached. In particular, it is contended that there was a failure to provide information that was required in order to satisfy sub-paragraphs 4(a)i, 4(a)vi and 4(a)xi of the Penal Order.
8. Finally, the plaintiff complains that Mr Xiao breached the undertaking he gave that was recorded in paragraph 54 of his affidavit in the following terms: Further, I undertake to the Court that by 30 September 2022, I will cause the release of Lots 30 and 31 (the Flinders Street Properties) from security of IWC's CBA Mortgage.
9. The evidence discloses that the CBA mortgage has remained on the titles to the Flinders Street properties since 30 September 2022.

Relevant Principles

1. There was no dispute about the applicable principles as summarised in the plaintiff's written submissions. The distinction between contempt that is civil in nature and contempt that is criminal in nature has been described as unsatisfactory (see, for example, Australian Meat Industry Employees' Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98 at 107; Witham v Holloway (1995) 183 CLR 525 at 531; Hearne v Street (2008) 235 CLR 125; [2008] HCA 36 at [32]), but nonetheless remains. In the present case, the alleged contempts, which are said to consist of wilful breaches of court orders or undertakings given to the court, or conduct in connection with such breaches, may be regarded as civil in nature rather than criminal. The terms of the Amended Statement of Charge do not state that any of the conduct was contumacious or defiant (see Pang v Bydand Holdings Pty Ltd [2011] NSWCA 69 at [73]-[74] and [172]). However, it seems that even in the case of civil contempt, the contempt must be proven beyond reasonable doubt (see Witham v Holloway (supra) at 534).
2. The relevant principles were recently summarised by Black J in Huang v Liao [2022] NSWSC 347 at [29]-[43]. I respectfully adopt that summary. At [31]-[32], his Honour stated: The elements which need to be established in an application seeking to establish a civil contempt arising from non-compliance with a court order were summarised by Gillard J in National Australia Bank Ltd v Juric [2001] VSC 375 at [37], in a passage followed in Advan Investments Pty Ltd v Dean Gleeson Motor Sales Ltd [2003] VSC 201 at [31], Wyszenko v Wyszenko [2012] NSWSC 732, Re MyCorp Pty Ltd above and in Humane Society International Inc v Kyodo Senpaku Kaisha Ltd (2015) 238 FCR 209; (2015) 333 ALR 713; [2015] FCA 1275 ("Humane Society") at [9], as requiring, relevantly, that an order was made by a court; the terms of the order were clear, unambiguous and capable of compliance; the alleged contemnor had knowledge of the terms of the order; and the alleged contemnor breached the terms of the order. Proof of a specific intent to disobey the Court's order is not necessary to prove civil contempt: Australasian Meat Employees Union v Mudginberri Station Pty Ltd above at 110-114, where the Court held that a deliberate commission or omission which is in breach of an injunctive order or undertaking will constitute wilful disobedience unless it is casual, accidental or unintentional. The alleged contemnor may establish by way of exculpation that his or her default was of that character: Universal Music Australia Pty Ltd v Sharman Networks Ltd (2006) 150 FCR 110 at [15]-[18]; Anderson v Hassett [2007] NSWSC 1310 at [4]. In Markisic v Commonwealth of Australia (2007) 69 NSWLR 737; [2007] NSWCA 92, Campbell JA, giving the decision of the Court of Appeal, similarly observed (at [64])) that "proof that a contempt has been committed by breaching a court order involves proving enough to conclude that the action or inaction said to constitute the breach was deliberate, and not casual, accidental or unintentional."
3. In support of the contention that parties, in addition to a party who itself breaches an order or undertaking, may also be in contempt in relation to the breach, the plaintiff referred to Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56 at [121] where the High Court stated: …Intervention against persons who, though not personally bound by a court order, procure those who are bound by it to contravene it, or otherwise thwart it, rests on a different basis: those persons are not liable as accessories who aided and abetted the persons bound by the order, but are directly liable for independent contempts committed by themselves in obstructing the course of justice…
4. The High Court cited, in supported of that proposition, Seaward v Paterson [1897] 1 Ch 545 at 555, per Lindley LJ; Z Ltd v A-Z and AA-LL [1982] QB 558 at 578-579, per Eveleigh LJ; ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 255, per Lockhart J; at 266, per Gummow J; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 395 [30], per Gaudron, McHugh, Gummow and Callinan JJ.
5. The plaintiff also referred to Attorney-General for Tuvalu v Philatelic Distribution Corporation Ltd [1990] 1 WLR 926 at 936 where Woolf LJ stated (for the Court of Appeal): In our view where a company is ordered not to do certain acts or gives an undertaking to like effect and a director of that company is aware of the order or undertaking he is under a duty to take reasonable steps to ensure that the order or undertaking is obeyed, and if he wilfully fails to take those steps and the order or undertaking is breached he can be punished for contempt. We use the work "wilful" to distinguish the situation where the director can reasonably believe some other director or officer is taking those steps. (See also Mahaffy v Mahaffy (2018) 97 NSWLR 119; [2018] NSWCA 42 at [121]-[124], [251] and [291].)

The alleged breaches and contempts

1. The contempt charges may be placed within four categories, being: 1. charges that relate to the transaction in which the Flinders Street properties were mortgaged to the CBA without giving the requisite notice to the plaintiff. It is contended that WWMP thereby breached paragraph 6(a) of the Freezing Order Undertaking. It is further contended that the conduct of each of Mr Xiao, Ms Chen and IWC in relation to the transaction was in breach of the Freezing Order Undertaking; 2. charges that relate to the disbursement of certain monies held in a Westpac account (732-XXXXX-7567), and certain monies held in a CBA account (062-XXX-XXXX 0057). It is contended that those disbursements constituted breaches by both Mr Xiao and Ms Chen of the undertakings given by them to the Court on 28 April 2022 in respect of dealing with certain monies; 3. charges that relate to the information given by the defendants in purported compliance with the orders made on 8 June 2022. It is contended that each of Mr Xiao, Ms Chen, IWC and WWMP breached those orders by failing to provide information required to be given by the orders; and 4. the charge that relates to the undertaking recorded in paragraph 54 of the Xiao affidavit. It is contended that Mr Xiao breached that undertaking by failing to cause the release of the Flinders Street properties from the CBA mortgage by 30 September 2022.
2. It is convenient to consider each of the above categories in turn.

The CBA mortgage transaction concerning the Flinders Street properties

1. As to the first category of charges, it is clear that the Freezing Order Undertaking was given to the Court by each of the defendants on 28 April 2022. That is noted in the orders made by the Court on that day. The evidence of Ms Walkom establishes that the orders were served by email upon the defendants' solicitors, and that those solicitors confirmed that they had instructions to accept service. In these circumstances, each of the defendants can be taken to be aware of the terms of the orders (which, it may be noted, embody the terms of the undertakings given by each of the defendants to the Court through their senior counsel).
2. Each of the defendants undertook to comply with the freezing order that was annexed to the orders made on 28 April 2022 (other than paragraph 8 thereof). The plaintiff contends that paragraph 6(a) of the Freezing Order Undertaking was breached. The terms of paragraph 6(a) are set out above at [13].
3. The allegation of breach rests upon the transaction in which the Flinders Street properties were mortgaged to the CBA. It is clear that those properties, which had previously been unencumbered, became subject to the mortgage in favour of CBA on about 1 June 2020. The mortgage (AS181896) was recorded on the titles to the properties on that day. I am satisfied, on the evidence of Ms Walkom, that no prior notice of the grant of the mortgage was given by any of the defendants to the plaintiff.
4. The Flinders Street properties were owned by WWMP. As already mentioned, the properties were the only substantial asset of the company. The evidence, including a valuation of Egan Valuers (dated 8 April 2021), a statement contained in a Commercial Discharge form signed by Mr Xiao and Ms Chen on 27 May 2022, and a table annexed to the Xiao affidavit, indicates that the properties had a value of about $2.1 million. It follows, in my view, that the grant of the mortgage to the CBA was a dealing with the assets of WWMP "up to the unencumbered value of $3,155,033.18" within the meaning of paragraph 6(a) of the Freezing Order Undertaking. The grant of the mortgage may also be considered to effect a diminution in the value of WWMP's assets "up to the unencumbered value of $3,155,033.18". The mortgage was given in support of a loan to IWC which had a facility limit of $5,517,500. On either basis, the grant of the mortgage would not comply with paragraph 6(a) unless the plaintiff was first given 7 days written notice of it. As no such notice was given, the grant of the mortgage was contrary to paragraph 6(a) of the Freezing Order Undertaking.
5. I should add that it could not be said that paragraph 10 of the Freezing Order Undertaking operated so as to nonetheless permit WWMP to grant the mortgage to the CBA. The evidence concerning the need for the West Wyalong Marketplace Unit Trust Deed to be amended, to empower WWMP to enter into the associated guarantee, demonstrates that the dealing with the Flinders Street properties was not in the ordinary course of its business.
6. I do not think there is any doubt that this was a breach on the part of WWMP. Paragraph 6(a), read as a whole, requires a defendant proposing to dispose of, deal with, or diminish the value of, its assets in Australia (up to the specified unencumbered value) to first give 7 days written notice to the plaintiff. WWMP failed in that regard, and is in my opinion guilty of contempt of court as a result.
7. However, it is my opinion that paragraph 6(a) did not require any other defendant to first give such notice to the plaintiff. That is so, it seems to me, even if that defendant is aware of a proposed transaction that involves a relevant disposition of, dealing with, or diminution in the value of, the assets of another defendant. Accordingly, I do not think that a failure by a defendant other than WWMP to give notice to the plaintiff of the transaction would cause that defendant to breach paragraph 6(a). To the extent that the charges set forth in the Amended Statement of Charge suggest the contrary, I consider them to be misguided (see, for example, charges 1(c) and (d), 3(a) and (b) and 5(a) and (b)).
8. Moreover, the terms of paragraph 6(a) at least fail to make it reasonably clear that a defendant in that position would be obliged to give notice to the plaintiff. As paragraph 6(a) is "really not clear" in that regard, I think it would be unjust to punish such a defendant for failing to give notice to the plaintiff even if, contrary to my opinion, paragraph 6(a) on its true construction imposed such an obligation (see Pang v Bydand Holdings Pty Ltd (supra) at [55]-[56]).
9. The above conclusions do not dispose of the contempts alleged against Mr Xiao, Ms Chen and IWC in relation to this transaction. The emphasis of the case put by the plaintiff in submissions was that each of them should be held liable for contempt on the basis that, by their conduct, they procured WWMP's breach of paragraph 6(a) of the Freezing Order Undertaking. In relation to Mr Xiao, the plaintiff pointed to his role, as a director of both WWMP and IWC, in causing or procuring the transaction to proceed. IWC was centrally involved in the transaction insofar as it was the borrower under the loan that was to be secured by the mortgage over the Flinders Street properties. Both Mr Xiao and Ms Chen, as directors of IWC, facilitated the transaction by executing documents on its behalf. They both executed the Commercial Discharge form on 27 May 2022, and they both executed the CBA Letter of Offer dated 31 May 2022. I would add that Mr Xiao and Ms Chen, as unitholders in the West Wyalong Marketplace Unit Trust, also executed the deed that effected the amendment of the Trust Deed referred to above.
10. In my opinion, Mr Xiao is guilty of contempt of court, based on the principle stated in Attorney-General for Tuvalu v Philatelic Distribution Corporation Ltd (supra) and accepted by the Court of Appeal in Mahaffy v Mahaffy (supra). Mr Xiao was a director (indeed the sole director) of WWMP. That company, by the Freezing Order Undertaking, had undertaken not to do certain acts (including the acts referred to in paragraph 6(a)). Mr Xiao, as a party to the Freezing Order Undertaking, was plainly aware of the undertaking. He was therefore under a duty to take reasonable steps to ensure that the undertaking was obeyed by WWMP. Mr Xiao wilfully failed to take those steps. Instead, he actively took steps to cause the company to enter into the transaction without having first given the requisite notice to the plaintiff. The company thereby breached paragraph 6(a). That breach constituted a contempt of court on the part of WWMP, and in my view Mr Xiao should also be held to be in contempt in respect of that breach.
11. The principle stated in Attorney-General for Tuvalu v Philatelic Distribution Corporation Ltd (supra) does not apply to either Ms Chen or IWC in relation to that breach. In their cases, the relevant principles are those referred to in Zhu v Treasurer of the State of New South Wales (supra) at [121] (see, above, at [23]-[24]). Whilst both Ms Chen and IWC were parties to the Freezing Order Undertaking, and thus bound to comply with the freezing order, the transaction in which the Flinders Street properties were mortgaged to the CBA without the requisite notice having first been given to the plaintiff did not cause them to be in breach. They were under no obligation to give notice to the plaintiff. However, Ms Chen or IWC could be independently liable for contempt of court if they engaged in conduct in relation to the transaction which interfered with or obstructed the course of justice. Such liability is regarded as direct rather than accessorial, although the relevant conduct might be able to be described as being in the nature of conduct aiding and abetting the contempt of court by another. As stated by Lockhart J in ICI Australia Operations Pty Ltd v Trade Practices Commission (supra) at 255, persons who knowingly counsel, procure or induce breaches of injunctions are themselves directly responsible for those breaches and are answerable for contempt.
12. It may be accepted that both Ms Chen and IWC actively promoted and facilitated the transaction in which the Flinders Street properties were mortgaged to the CBA. As I have said, IWC was centrally involved. Ms Chen, as a director of IWC, executed the Commercial Discharge form and the CBA Letter of Offer. She also signed the deed to effect the amendment to the Trust Deed. I am prepared to accept that each of Ms Chen and IWC played an important role in the transaction and can be regarded as having procured it.
13. However, it must not be overlooked that paragraph 6(a) of the Freezing Order Undertaking does not prohibit particular dealings per se. Rather, paragraph 6(a) prohibits certain dealings taking place unless the requisite notice has first been given to the plaintiff. Here, the grant by WWMP of the mortgage over its Flinders Street properties was a dealing that was prohibited only if WWMP failed to first give the plaintiff 7 days written notice of it. The failure of WWMP to give the notice is critical to the breach of paragraph 6(a).
14. I have not found any evidence that sheds light on the state of knowledge held at relevant times by Ms Chen or IWC about the giving of notice to the plaintiff. It seems that at some point Mr Xiao must have formed an intention for WWMP to proceed without having given the notice, but it is not clear when that occurred, or whether any such intention was communicated to Ms Chen. Also, even if Mr Xiao's knowledge is imputed to IWC, it is not clear when such knowledge was so acquired, and it is not clear what if any relevant steps were taken in the transaction by IWC after the acquisition of the knowledge.
15. In these circumstances, I am not satisfied that either Ms Chen or IWC should be regarded as having knowingly counselled, procured or induced WWMP's breach of paragraph 6(a). I do not think that the evidence of their participation in the transaction is sufficient to reach such a conclusion where the existence of the breach critically depends upon WWMP's decision to proceed to grant the mortgage despite it having failed to first give the requisite notice to the plaintiff. Accordingly, I am not satisfied beyond reasonable doubt that the conduct of either Ms Chen or IWC in respect of the transaction is conduct that falls within the principles referred to in Zhu v Treasurer of the State of New South Wales (supra) as conduct that interferes with or obstructs the course of justice so as to give rise to liability for contempt.
16. In summary, I am satisfied beyond reasonable doubt that WWMP is guilty of contempt of court by granting the mortgage over the Flinders Street properties to the CBA in breach of paragraph 6(a) of the Freezing Order Undertaking. This finding is encompassed within Charge 7 of the Amended Statement of Charge. Charge 7 also refers to the execution by WWMP of a guarantee in favour of the CBA. The guarantee does not seem to be in evidence. In any event, it seems to me that the execution of a guarantee would not itself give rise to a further breach of paragraph 6(a). Unlike the grant of the mortgage, which created an encumbrance over the Flinders Street properties, executing a guarantee would not ordinarily amount to a dealing with, or diminution of the value of, the assets of WWMP. I am also satisfied beyond reasonable doubt that Mr Xiao is guilty of contempt of court in respect of WWMP's breach, based on the principle stated in Attorney-General for Tuvalu v Philatelic Distribution Corporation Ltd (supra). This finding is encapsulated within Charge 1 of the Amended Statement of Charge, in particular paragraph (a) thereof. All of the charges for contempt made against Ms Chen and IWC in relation to the CBA mortgage over the Flinders Street properties have not been made out.

The disbursement of monies from bank accounts

1. The transaction in which the Flinders Street properties were mortgaged to the CBA also involved the discharge of a mortgage the CBA held over a property in Edward Street, Wagga Wagga. This property is owned by a subsidiary company of IWC known as ILC Commercial Pty Ltd ("ILC"). ILC is not a party to the proceedings.
2. Following the discharge of the CBA mortgage over the Edward Street property, the property was mortgaged to OUF Commercial Pty Ltd ("OUF") to support a loan from OUF to CX & DN Holdings Pty Ltd (the trustee of the Xiao and Chen Family Trust). It appears from the evidence (including the Xiao affidavit) that this loan was drawn down on about 3 June 2022 in an amount of $3 million.
3. Of that amount, the sum of $2,195,506.97 was paid into a CBA account held by CX & DN Holdings Pty Ltd. A statement in respect of that account reveals that on 6 June 2022, $2,100,030 was withdrawn from the account. Other documents in evidence, including a CBA International Money Transfer form (signed by Ms Chen on 6 June 2022) establish that the $2,100,030 (minus a $30 fee) was transferred to a Westpac account (732-XXXXX-7567). This Westpac account is described as an offset account and is in the names of Mr Xiao and Ms Chen. A statement in respect of that account shows that between 9 June 2022 and 9 September 2022 a series of withdrawals were made from the account totalling $529,219.
4. A further $80,000 was transferred from the CBA account of CX & DN Holdings Pty Ltd on 8 June 2022. Documentary evidence establishes that the $80,000 was transferred to another CBA account (062-XXX-XXXX 0057) held in the names of Mr Xiao and Ms Chen. A statement in respect of that account shows that following the transfer of the $80,000 the account balance stood at $80,277.90, and that on 8 June 2022 an amount of $75,000 was transferred out of the account, leaving a balance of $5,277.90.
5. One of the undertakings given to the Court on 28 April 2022 by each of the defendants was in the following terms: Each of the defendants will refrain from causing or permitting any monies advanced to any one or more of the defendants or Interlink Group (Australia) Pty Ltd on or after 11 April 2022 to be transferred or otherwise dealt with other than by payment into court without giving the plaintiff three business days' notice in writing.
6. A question arises as to whether the payments of $2,100,000 (on 6 June 2022) and $80,000 (on 8 June 2022) made by CX & DN Holdings Pty Ltd to the CBA and Westpac accounts held in the names of Mr Xiao and Ms Chen constitute "monies advanced to any one or more of the defendants...on or after 11 April 2022" within the meaning of the undertaking.
7. In my opinion, both of the payments fall within that meaning. An "advance" of money ordinarily means the furnishing of money for some specified purpose; it is not necessary that the furnishing be by way of loan (see Burnes v Trade Credits Limited [1981] 1 NSWLR 93 at 95 (Privy Council); see also London Financial Association v Kelk (1884) 26 Ch D 107 at 136-7). I do not think that the context in which the term "monies advanced" appears in the undertaking calls for any departure from that ordinary meaning. It can be safely inferred that the payments were each made for a particular purpose or particular purposes, even though such purposes are unable to be precisely identified on the evidence. The advances were in each case made to both Mr Xiao and Ms Chen on or after 11 April 2022.
8. In accordance with the undertakings they gave to the Court on 28 April 2022, they were each bound to refrain from causing or permitting any of the monies so advanced to be transferred or otherwise dealt with other than by payment into court without giving the plaintiff 3 business days' notice in writing. It is clear that at least a portion of the monies received into the Westpac account, and a portion of the monies received into the CBA account, were subsequently transferred out of the relevant account. It is also clear from the evidence of Ms Walkom that none of the money transferred was paid into Court, and that no notice of the transfers was given to the plaintiff. In circumstances where the Westpac account, and the CBA account, were at the relevant times held in the names of both Mr Xiao and Ms Chen, I conclude that each of them either caused or permitted the various transfers to occur in breach of the undertakings they gave to the Court. Again, the orders made by the Court on 28 April 2022 were served upon the defendants, and each of them can be taken to be aware of the terms of the orders which embody the terms of the undertakings they gave to the Court.
9. In my view, the various transfers out of the accounts, without giving the requisite notice to the plaintiff, were plainly breaches of the undertakings given to the Court by Mr Xiao and Ms Chen, and they are guilty of contempt of court as a result. I am satisfied beyond reasonable doubt that both Mr Xiao and Ms Chen are guilty of contempt of court by causing or permitting the various transfers out of the accounts to occur in breach of their undertakings to the Court. These findings are encompassed within Charges 2B and 4A of the Amended Statement of Charge.

Failures to provide information

1. The orders made by the Court on 8 June 2022 required each of the defendants to provide certain information in accordance with paragraphs 4(a) and 4(b) of an attached Penal Order. The relevant parts of those paragraphs are set out above at [17]. The evidence of Ms Walkom establishes that the orders were served by email upon the defendants' solicitors together with the associated Notice of Motion dated 8 June 2022 and affidavit in support. On 9 June 2022, the defendants' solicitors sent a letter to the plaintiff's solicitors in response to paragraph 4(a) of the Penal Order, and the Xiao affidavit (affirmed on 10 June 2022) was subsequently served by the defendants' solicitors upon the plaintiff's solicitors. The Xiao affidavit, by its terms, was evidently intended to contain the information required to be provided in accordance with paragraph 4(b) of the Penal Order. There can be no doubt in these circumstances that the defendants had knowledge of the terms of the orders made on 8 June 2022.
2. I note that the terms of paragraph 4(a) speak of the provision of certain information "to the best of your ability", but paragraph 4(b) is not so qualified.
3. The plaintiff contends that there were a number of failures by each of the defendants to provide information that was required by the orders. The alleged failures concern: 1. assets in the form of monies held in bank accounts in the names of Mr Xiao and Ms Chen; 2. a mortgage granted by Mr Xiao and Ms Chen over The Rocks property in favour of OUF; 3. a General Security Deed given by Mr Xiao and Ms Chen which provided for a charge over all their assets; 4. the "before and after" financial position of the corporate defendants, in particular WWMP, in respect of the mortgage transactions in June 2022 concerning the Flinders Street properties and the Edward Street property; and 5. details of the receipt and dealing with the proceeds of any loan secured by the mortgages of the Flinders Street properties and the Edward Street property.
4. I have considered the 9 June 2022 letter from the defendants' solicitors, and the Xiao affidavit. Having done so, I am satisfied that the information so provided does not include any reference to: 1. monies held in bank accounts by Mr Xiao and Ms Chen, including the money then held in the Westpac account (732-XXXXX-7567) and the CBA account (062-XXX-XXXX 0057); 2. the mortgage in favour of OUF over The Rocks property that was recorded on the title on 7 June 2022; 3. a General Security Deed entered into by, inter alia, Mr Xiao and Ms Chen, whereby they granted to OUF a charge over all of their assets. An unexecuted copy of such a deed was produced by the defendants to the plaintiff in accordance with orders of the Court made on 23 August 2022. I am comfortably satisfied that the deed was in fact entered into by Mr Xiao and Ms Chen on about 3 June 2022. On about that date, the loan from OUF to CX & DN Holdings Pty Ltd was drawn down in amount of $3 million, and Personal Property Securities Register searches in respect of both Mr Xiao and Ms Chen disclose that a security interest in favour of OUF was registered on 3 June 2022. The terms of the General Security Deed provide for the grant by each Grantor (which includes Mr Xiao and Ms Chen) of a security interest that included a security interest under the Personal Property Securities Act 2009 (Cth); 4. a comparison of the financial positions of the corporate defendants and ILC, in particular of WWMP, before and after the mortgage transactions in June 2022. Indeed, the Xiao affidavit incorrectly states that the Flinders Street properties, owned by WWMP and valued at $2.1 million, were not security for any loan, and thus had a net value of $2.1 million. In fact, those properties were at that time (and have since remained) subject to the CBA mortgage which was given in support of a loan to IWC which had a facility limit of $5,517,500; and 5. any details of the receipt and dealing with the proceeds of the OUF loan beyond what is contained in paragraph 50 of the Xiao affidavit. Details are there given of the various recipients of the $3 million drawn on that loan, including CX & DN Holdings Pty Ltd which, as already noted, received the sum of $2,195,506.97 (see at [46] above). It is not disclosed that CX & DN Holdings Pty Ltd made payments to Mr Xiao and Ms Chen out of those proceeds on 6 June 2022 ($2,100,000) and 8 June 2022 ($80,000).
5. In my opinion, each of the omissions referred to in (a) to (d) above are clearly breaches of the orders made by the Court on 8 June 2022, and in particular paragraph 4(a)i, vi and xi of the Penal Order attached to such orders. The orders were directed to each of the defendants, so each of Mr Xiao, Ms Chen, IWC and WWMP are in breach, although I note that the charges in respect of IWC and WWMP are confined to breaches of paragraph 4(a)vi. I will therefore proceed on the basis that the only breaches by IWC and WWMP are of paragraph 4(a)vi of the Penal Order.
6. I am not satisfied, however, that the omissions referred to in (e) above are breaches of the orders. The relevant part of the order is paragraph 4(a)xi which refers to loans or advances "secured by the mortgages of the Flinders Street properties and the Edward Street Property". The language appears to be directed to loans or advances that are secured by mortgages over both properties. That is not the case with the OUF loan. The OUF loan was secured by a mortgage over the Edward Street property, but not by any mortgage over the Flinders Street properties. The loan does not seem to me to fall within the ambit of paragraph 4(a)xi. Even if that is not correct, and the order on its true construction extended to the OUF loan, I think this would be another instance whether the order is "really not clear", such that it would be unjust to punish a defendant for failing to provide information about the receipt and dealing with the proceeds of that loan (see Pang v Bydand Holdings Pty Ltd (supra) at [55]-[56]).
7. The breaches of the orders by the omissions referred to in (a) to (d) above are clear. Mr Xiao and Ms Chen are each guilty of contempt of court as a result. So, too, are IWC and WWMP, although their breaches are treated as confined to breaches by reason of the omissions referred to in (d) above. I am satisfied beyond reasonable doubt that each of them is guilty of contempt of court by their omission to provide such information as required by the orders of the Court. These findings are encompassed within Charges 2 (Mr Xiao), 4 (Ms Chen), 6 (IWC) and 8 (WWMP).

The undertaking to release the Flinders Street properties from the CBA mortgage

1. The undertaking is contained in paragraph 54 of the Xiao affidavit in the following terms: Further, I undertake to the Court that by 30 September 2022, I will cause the release of Lots 30 and 31 (the Flinders Street Properties) from security of IWC's CBA Mortgage.
2. There is no doubt that Mr Xiao failed to comply with the undertaking. In my view, it is clear that the undertaking refers to the mortgage of the Flinders Street properties that was given by WWMP to the CBA on about 1 June 2022. Despite the imprecise description "IWC's CBA Mortgage", when paragraph 54 of the affidavit is read in its context (including paragraph 49 of the affidavit, which refers to the recent inclusion of the Flinders Street Property "in IWC's existing mortgage with CBA"), there can be no real doubt that it is a reference to the CBA mortgage granted on about 1 June 2022. The evidence shows that the mortgage has remained on the titles to the Flinders Street properties since 30 September 2022. Mr Xiao must of course be taken to be aware of the terms of the undertaking contained in his affidavit. In my opinion Mr Xiao is guilty of contempt of court as a result of his failure to comply with the undertaking. I am satisfied beyond reasonable doubt that Mr Xiao is so guilty. This finding is encompassed within Charge 2A.

Conclusion

1. The Court will make orders to the effect that each of Mr Xiao, Ms Chen, IWC and WWMP are guilty of contempt of court in the respects described in these reasons.
2. The Court will accordingly order that: 1. in respect of Charge 7 of the Amended Statement of Charge, the fifth defendant (West Wyalong Marketplace Pty Ltd) is guilty of contempt of court by granting mortgage AS181896 in respect of the land the subject of Folio References 30/SP93076 and 31/SP93076 (the Flinders Street properties) without giving notice to the plaintiff in breach of its undertaking to the Court given on 28 April 2022 to comply with the terms of a freezing order and in particular paragraph 6(a) thereof; 2. in respect of Charge 1(a) of the Amended Statement of Charge, the first defendant (Mr Xiao), as a director of West Wyalong Marketplace Pty Ltd, is guilty of contempt of court by failing to take reasonable steps to ensure that West Wyalong Marketplace Pty Ltd did not so breach its undertaking to the Court, and in actively taking steps to cause West Wyalong Marketplace Pty Ltd to grant the said mortgage AS181896 without it having given notice to the plaintiff; 3. in respect of Charge 2B of the Amended Statement of Charge, the first defendant (Mr Xiao) is guilty of contempt of court by causing or permitting transfers of money out of Westpac Banking Corporation account 732-XXXXX-7567 and Commonwealth Bank of Australia account 062-XXX-XXXX 0057 otherwise than by payment into court and without giving notice to the plaintiff, in breach of his undertaking to the court given on 28 April 2022 concerning the transferring or dealing with certain monies; 4. in respect of Charge 4A of the Amended Statement of Charge, the second defendant (Ms Chen) is guilty of contempt of court by causing or permitting transfers of money out of the Westpac Banking Corporation account 732-XXXXX-7567 and Commonwealth Bank of Australia account 062-XXX-XXXX 0057 otherwise than by payment into court and without giving notice to the plaintiff, in breach of her undertaking to the court given on 28 April 2022 concerning the transferring or dealing with certain monies; 5. in respect of Charge 2 of the Amended Statement of Charge, the first defendant (Mr Xiao) is guilty of contempt of court by failing to provide information as required by orders of the Court made on 8 June 2022 and in particular paragraph 4(a)i, vi and xi of the Penal Order attached to such orders; 6. in respect of Charge 4 of the Amended Statement of Charge, the second defendant (Ms Chen) is guilty of contempt of court by failing to provide information as required by orders of the Court made on 8 June 2022 and in particular paragraph 4(a)i, vi and xi of the Penal Order attached to such orders; 7. in respect of Charge 6 of the Amended Statement of Charge, the fourth defendant (Interlink Wagga Central Pty Ltd) is guilty of contempt of court by failing to provide information as required by orders of the Court made on 8 June 2022 and in particular paragraph 4(a)vi of the Penal Order attached to such orders; 8. in respect of Charge 8 of the Amended Statement of Charge, the fifth defendant (West Wyalong Marketplace Pty Ltd) is guilty of contempt of court by failing to provide information as required by orders of the Court made on 8 June 2022 and in particular paragraph 4(a)vi of the Penal Order attached to such orders; and 9. in respect of Charge 2A of the Amended Statement of Charge the first defendant (Mr Xiao) is guilty of contempt of Court by failing to cause the Flinders Street properties to be released by 30 September 2022 from the security of mortgage AS181896, and thereby failing to comply with the undertaking he gave to the Court in the terms of paragraph 54 of his affidavit affirmed on 10 June 2022.
3. It will be necessary for the Court to proceed to conduct a separate hearing on penalty in respect of the contempts of Court that have been established. It would be appropriate for the question of costs of the application to also be dealt with at such hearing. The matter will be re-listed in the near future for the purpose of making directions in respect of the further hearing.

Amendments 08 February 2023 - Typographical and formatting errors on Coversheet (Catchwords) - Amended DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 February 2023