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

1. To the extent necessary, leave be granted to the plaintiffs to apply to extend the orders made by Goodman J on 23 December 2024.
2. Upon the plaintiffs by their counsel giving the usual undertaking as to damages, Chu Li, the fifth respondent, and Silver Altum Pty Ltd, the sixth respondent, are restrained from: (a) selling, disposing of, further encumbering, otherwise dealing with, or diminishing the value of; or (b) carrying out or performing, or causing or permitting to be carried out or performed, any building, demolition, or other construction works to the property at and known as 33A Kings Road, Vaucluse, New South Wales (Folio Identifier 1/230111) until further order.
3. Liberty be granted to apply on two days' notice in writing setting out the relief sought. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JACKMAN J: 1 On 23 December 2024, Goodman J, as duty judge, made orders as follows: (1) Upon the plaintiffs, by their counsel, giving the usual undertaking as to damages, Chu Li, the fifth respondent, and Silver Altum Pty Ltd, the sixth respondent are restrained from: (a) selling, disposing of, further encumbering, otherwise dealing with, or diminishing the value of; or (b) carrying out or performing, or causing or permitting to be carried out or performed, any building, demolition, or other construction works to, the property at and known as 33A Kings Road, Vaucluse, New South Wales (Folio Identifier 1/230111) until 5:00pm on 11 February 2025. (2) The interlocutory process filed on 29 August 2024 be adjourned to 9:00am on 11 February 2025. (3) Costs be reserved. See Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (No 8) [2024] FCA 1520. Those orders represented a wider restraint than that imposed by me on 27 September 2024 and continued on 4 December 2024 (Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (No 7) [2024] FCA 1417), in order to deal with construction work proposed to be carried out at the property without the property being mortgaged. 2 The plaintiffs seek an extension of order 1 made by Goodman J until further order. The fifth and sixth respondents, being Ms Li and Silver Altum Pty Ltd, agree to order 1 being extended but only until 21 February 2025. 3 The third defendant in the proceedings and the seventh respondent on the interlocutory application, Mr Darmali, has now presented a debtor's petition which was accepted by the Official Receiver on 30 January 2025. Mr Morgan Chubb of Greengate Advisory has been appointed as Mr Darmali's trustee in bankruptcy. Mr Chubb's firm has indicated that it has no objection to the extension of the freezing orders sought by the plaintiffs. 4 One purpose of the freezing orders made both by me and by Goodman J was to preserve the property in its present state so that a trustee appointed to Mr Darmali's bankrupt estate could seek to unwind the transfer of the property to the fifth and sixth respondents, including pursuant to s 121 of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"). The fifth and sixth respondents say that an extension of order 1 should be limited by a reasonable time for Mr Chubb (as Mr Darmali's trustee in bankruptcy) to decide whether to pursue such proceedings and that 21 February 2025, being 10 days away, is a reasonable time. 5 I disagree. An appeal is fixed to be heard from 24 to 26 March 2025. It is not known at this stage whether the trustee in bankruptcy will continue to pursue the appeal which was filed by Mr Darmali. Given the proximity of the appeal, it is reasonable for the trustee in bankruptcy to have further time to decide whether to pursue that appeal and, if it is to be pursued, to await the outcome of the appeal before deciding whether to commence the foreshadowed proceedings. I accept that in the meantime the fifth and sixth respondents will incur interest costs of about $17,500 per month and they face increased costs of construction after the present quotes expire. However, those amounts are readily quantifiable and are covered by the plaintiffs' undertaking as to damages, the adequacy of which is not in dispute. In my view, it is therefore appropriate to grant the extension sought by the plaintiffs, that is, until further order. 6 There is a question also concerning s 58(3) of the Bankruptcy Act. The plaintiffs have not found any direct authority on the question of whether an application for freezing orders against a third party is a proceeding: ...in respect of a provable debt - within the meaning of s 58(3). The plaintiffs accept that the language of the provision suggests that possibility, in that the words "in respect of" in s 58(3) have been held to have a wide meaning: Re McMaster; Ex parte McMaster (1991) 33 FCR 70 at 72 (Hill J), quoted with apparent approval in Melnik v Melnik [2005] FCAFC 160; (2005) 144 FCR 141 at [35] (Spender, Hill and Finn JJ). 7 It is not necessary to resolve that issue. Where a court is given power to grant leave to perform a particular act, or pursue a particular course of action, and the question of whether the need for such leave has arisen involves difficult and complicated questions of law and fact, it is permissible, in an appropriate case, to proceed on the basis that such leave is necessary rather than involve the parties in a futile exercise of determining, possibly after a series of appeals, whether the need for such leave has arisen: Allanson v Midland Credit Ltd (1977) 16 ALR 43 at 49 (Bowen CJ, Riley and Deane JJ), a case concerning s 58(3) of the Bankruptcy Act. The plaintiffs submit, and I accept, that the present situation falls into that category of case. 8 Making that assumption, but without deciding the point, leave should be granted to the extent necessary. The purpose of the requirement in s 58(3) was described in Hudson v Sigalla [2015] FCAFC 140; (2015) 235 FCR 122 at [25] by Allsop CJ, Jagot and Katzmann JJ as: ...to assist in the orderly administration of the insolvent estate by protecting a bankrupt, and the property of the erstwhile debtor (as now vested in the trustee), against the enforcement of remedies. This is done by enabling the court to supervise the handling of claims through the procedure of proof of debt… by ensuring that the assets of the estate are not expended on costs in a multiplicity of litigation, and by ensuring that no one creditor gets an advantage over the others… 9 The plaintiffs submit, and I accept, that a continuation of the freezing orders would promote that purpose. The freezing orders, self-evidently, cannot be sought via the proof of debt process. They are not sought against the bankrupt. They do not seek any final remedy but only to maintain the status quo by preserving the value of real property that arguably will become part of the bankrupt estate for the benefit of creditors. In these circumstances, in my view, leave under s 58(3) should be granted to the extent necessary. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.