Chu v Lin, in the matter of Gold Stone Capital Pty Ltd

1. Order 4 made on 27 September 2024 continue until further order.
2. The costs of and incidental to the hearing today be reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JACKMAN J: 1 On 27 September 2024, I made a freezing order restraining the fifth and sixth respondents, Ms Li and Silver Altum Pty Ltd, from dealing with the property at 33A Kings Road, Vaucluse, New South Wales (the Vaucluse property): Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (No 6) [2024] FCA 1160. That order was continued on 7 November 2024 with the consent of the fifth and sixth respondents until today. The applicants seek an order that the freezing order continue until further order. The fifth and sixth respondents seek orders to the effect that order 4 made on 27 September 2024 be continued subject to the following variation: The fifth and sixth respondents may deal with their title to the property solely for the purpose of granting security (including a registrable mortgage) to Hero Max Holdings Pty Ltd (or such other lender as may be approved in writing by the plaintiff or the Court) for the receipt of new loan(s) for the development of the property substantially in accordance with the current development consent grant in relation to the property provided that: (a) the loan monies are used only for that development; and (b) at least two days prior notice is given to the plaintiff in writing of each drawdown on the loan and with any progress claim or other documentary support for the proposed payment(s) subject to the drawdown as may reasonably be required by the plaintiff; and (c) the fifth and sixth respondents keep all proper accounts of the development of the property and make them available to the plaintiffs for inspection on reasonable notice at reasonable intervals. 2 The fifth and sixth respondents accept that the applicants have shown a prima facie case against them, at least at the suit of a prospective trustee in bankruptcy of Mr Darmali. The applicants submit that I should approach the matter on the basis that they have a strong prima facie case described in oral submissions by Mr Scruby SC as "an open and shut case", even putting aside the controversy between the parties as to the proper valuation of the land at the time of the sale of the Vaucluse property by Mr Darmali to Ms Li. Mr Scruby bases that submission on s 121 of the Bankruptcy Act 1966 (Cth), drawing attention to the deeming provision in s 121(2) as to the transferor's main purpose in making the transfer, and also drawing attention to the defence in subs (4) which requires in para (c) that the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was or was about to become insolvent. Mr Scruby submits that that element would be very difficult for Ms Li to satisfy given the evidence in her solicitor's affidavit of 2 December 2024 at paras 11 and 36. I have not regarded it as necessary for the disposition of this application to form a view as to the relative strength of the prima facie case which has been foreshadowed on the part of a prospective trustee in bankruptcy of Mr Darmali. 3 I have been informed that an appeal from my main judgment in these proceedings is to be heard on 24 to 26 March 2025. Accordingly, maintaining the injunction in its present form will have the effect that the proposed demolition and development of the foreclosed property will be delayed by a period of up to four months. Mr Scruby submits that there is no evidence of any building contract being in place and the draft of a building contract has not progressed since the draft which was brought into existence on about 24 April 2024, as to which Ms Li last sought legal advice in late June 2024. Mr Scruby submits that the work cannot begin yet because there is no construction certificate. In any event, there is no evidence as to when a builder can begin work and Mr Scruby points out that we are about to move into the summer holiday period in which traditionally little building work is done. 4 The evidence shows that it will take about 16 months to demolish and rebuild the Vaucluse property. Mr Scruby draws attention to the fact that there is no feasibility study in evidence and there is thus no basis on which one can be assured that spending money on the Vaucluse property in the way which is proposed by the fifth and sixth respondents will in fact add value to the property so as to yield net proceeds to the owner of the property. Mr Scruby also says that very little is known about the proposed financier, Hero Max Holdings Limited (Hero Max) except that it is a company which is incorporated in the British Virgin Islands and which may or may not have advanced money for the original purchase by Ms Li from Mr Darmali of the Vaucluse property. 5 Mr Burchett, who appears for the fifth and sixth respondents, submits that the balance of convenience favours an injunction which is sufficiently flexible as to permit the redevelopment of the Vaucluse property to proceed, which will stop further dilapidation and preserve the equity in it for all parties to the extent that they are ultimately found to be entitled to the benefit of it. It is common ground between the parties that the Vaucluse property is in a dilapidated condition and is presently uninhabitable. Mr Burchett submits that the demolition and redevelopment of the property is at least very likely to add value to the property. 6 In terms of prejudice, Mr Burchett draws attention to the evidence that the fifth and sixth respondents are currently paying $17,500 per month in interest to Hero Max pursuant to the loan which he submits was made for the original purchase of the property from Mr Darmali. Further, Mr Burchett submits that maintaining the injunction in its current form will make it difficult for negotiations to proceed in relation to the joint venture agreement and perhaps also the building contract. 7 As to the proposition that the demolition and redevelopment of the Vaucluse property as currently proposed by the fifth and sixth respondents will add value to the property, the evidence is not sufficient for me to form any such conclusion. While I can appreciate in general terms that demolishing and redeveloping a dilapidated and uninhabitable dwelling in an expensive and fashionable suburb of Sydney may well add value to the property, that depends on the amount of money which is proposed to be spent and the nature and style of the proposed improvements. The evidence simply does not enable me to form any conclusion either way as to whether the fifth and sixth respondents' current proposal is economically feasible. As to the amount of $17,500 in interest per month, that is certainly a detriment to the fifth and sixth respondents, but it is one which can be readily quantified and met by the applicants undertaking as to damages. 8 As to the submission concerning difficulties in advancing the project, whether by way of finalising a joint venture agreement or by way of finalising a building contract, that appears to me on the current evidence to be speculative. While Mr Burchett submitted that Hero Max is the favoured prospective joint venturer and a delay in negotiations may well lead to the proposed Joint Venture Agreement falling through, I cannot see any reason why Hero Max should be regarded as the only realistic prospective joint venturer. I also do not see any real reason why negotiations cannot proceed for a Joint Venture Agreement and for a building contract with the present injunction in place. 9 The evidence shows that the applicants have sufficient real property assets in Australia to support their undertaking as to damages. 10 In all the circumstances, in my view, the injunction which I granted on 27 September 2024 should continue in its present form. I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.