Cowley as Trustee of the Bankrupt Estate of Lau v Lau, in the matter of Lau

1. Order 3 of the orders made on 15 July 2020, as varied by order 2 of the orders made on 1 September 2020, be further varied by deleting the words following "entrusted to the trustees".
2. The interim application filed by Wai Yee Terri Tsang on 8 March 2023 be dismissed.
3. The applicant's costs of the interim application filed on 29 November 2022 be costs in the bankrupt estate.
4. Wai Yee Terri Tsang pay the applicant's costs of her interim application filed on 8 March 2023. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

STEWART J: 1 On 5 September 2017, Mr Yu Lau was declared bankrupt by the High Court of Hong Kong, Special Administrative Region of the People's Republic of China. On the 4 October 2017, the applicants, Patrick Cowley and Tiffany Wong Wing Sze, both of KPMG Advisory (Hong Kong) Ltd, were jointly and severally appointed as the trustees in bankruptcy for the estate of Mr Lau by a creditors' resolution at a general meeting of creditors. 2 On 15 July 2020, Gleeson J made orders pursuant to the Cross-Border Insolvency Act 2008 (Cth) on the application of the trustees in their capacity as the trustees of the bankrupt estate of Mr Lau recognising the Hong Kong bankruptcy proceeding as a foreign main proceeding. Order 3 of those orders provided as follows: Pursuant to section 6 of the Act and article 21(1)(e) of the Model Law, the administration, realisation and distribution of all the respondent's assets located in Australia be entrusted to the trustees. 3 On 1 September 2020, Gleeson J varied that order by adding the following proviso at the end: provided that the order is stayed until further order insofar as it permits distribution of the respondent's assets located in Australia or the proceeds of sale of any of those assets. 4 At [4] of her Honour's reasons, which are published as Cowley as Trustee of the Bankrupt Estate of Lau v Lau, in the matter of Lau [2020] FCA 1164, Gleeson J stated: The intent of this order is to ensure that Mr Lau's assets in Australia will not be distributed until the applicant has satisfied the Court that the interests of creditors in Australia will be adequately protected, as required by Art 21(2). 5 By interim application filed on 29 November 2022, the trustees seek among other things an order that order 3 of the orders made on 15 July 2020 as varied on 1 September 2020 be varied by deleting the proviso that had been added on 1 September 2020. 6 By section 6 of the Act and subject to the Act, the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law has the force of law in Australia. Article 21(2) the Model Law provides as follows: Upon recognition of a foreign proceeding, whether main or non-main, the court may, at the request of the foreign representative, entrust the distribution of all or part of the debtor's assets located in this State to the foreign representative or another person designated by the court, provided that the court is satisfied that the interests of creditors in this State are adequately protected. 7 From that provision, it is apparent that the central concern of this Court in acting in support of the foreign bankruptcy is to ensure that the interests of creditors in Australia are adequately protected. 8 The only assets of Mr Lau in Australia that the trustees have identified is a residential property on the Gold Coast in Queensland and two bank accounts. On the trustees' submission, the only creditor in Australia that they have identified is Westpac. Westpac was a secured creditor in that it had a mortgage against the property to secure a loan to Mr Lau for its purchase. 9 On 25 June 2022, the property was sold at auction by the trustees for $1.75 million and an unconditional contract of sale was concluded on that day. On 24 August 2022, the sale of the property settled. Upon completion, Mr Lau's loan to Westpac was paid out of the proceeds of sale of the property. The net proceeds of sale, being about $750,000, are now held in a bank account in the trustees' name in Hong Kong and have not been distributed. 10 Westpac having now been paid in full as a secured creditor, and save for the issues I will come to shortly with regard to Ms Wai Yee Terri Tsang, I am satisfied that the interests of creditors in Australia are adequately protected. The way is therefore clear for the proviso to be removed and for the trustees to be permitted to distribute the assets recovered in Australia to Mr Lau's overseas creditors in the foreign main proceeding. 11 Ms Tsang and Mr Lau were married in Hong Kong in 1997. The Queensland property to which I have already referred was purchased and registered in the name of Mr Lau in approximately August 2013. After Mr Lau's bankruptcy and the recognition of that bankruptcy and the trustees in this Court in August 2021, Ms Tsang filed a caveat against the property alleging an equitable charge for moneys owing by an agreement between Ms Tsang and Mr Lau dated 16 November 2012. That caveat was subsequently allowed to lapse without evidence of the agreement ever being brought forward. 12 In March 2022, Australian solicitors acting for Ms Tsang wrote to the trustees, advising that family law proceedings would shorty be commenced by Ms Tsang in the Federal Circuit and Family Court of Australia. On 11 April 2022, an application was filed on behalf of Ms Tsang, in which Mr Lau and the trustees were cited as respondents. On an interim basis, an injunction was sought restraining the respondents from dealing with the property. The final orders that were sought included that the assets and liabilities of the relationship between Ms Tsang and Mr Lau be identified and valued, that the property be sold and that the net proceeds of sale be apportioned as to 80 per cent to Ms Tsang and 20 per cent to the respondents. 13 Given that the trustees were cited in that proceeding, it would appear that those representing Ms Tsang were aware of the current proceeding. In any event, on 2 June 2022, I ordered that the trustees give notice of the current proceeding to Ms Tsang's lawyers. 14 On 25 August 2022, at a case management hearing in the current proceeding, Ms Tsang's solicitor, Mr Yuen, appeared for Ms Tsang, and a discussion ensued as to how Ms Tsang's claimed interest in the property was to be dealt with, also considering that the sale of the property had settled the previous day. 15 Thereafter, Ms Tsang withdrew her application in the Family Court, apparently accepting that that Court had no jurisdiction in family law proceedings between Ms Tsang and Mr Lau as neither was resident in Australia. Ms Tsang's solicitors advised at that time that she intended to commence proceedings in the Supreme Court of Queensland. 16 On 29 November 2022, the current interim application to remove the proviso preventing distribution of the proceeds was filed by the trustees. In the case management of that application, on 7 December 2022, I ordered that Ms Tsang file any evidence on the application, which is to say opposing the removal of the proviso, by 30 November 2022. 17 On 31 January 2023, I extended time for Ms Tsang to file evidence to 3 February 2023 and ordered that she not be entitled to rely on evidence filed after that date without leave of the Court. No such evidence was filed. 18 On 8 March 2023, which is to say yesterday, Ms Tsang filed an interim application seeking leave to file a cross-claim and for an interim injunction restraining the trustees from distributing the proceeds of the sale of the Queensland property. The cross-claim sought to be filed, as supported by Ms Tsang's affidavit, alleges that, by reason of an oral agreement between Mr Lau and Ms Tsang in March 2013 and her contributions in reducing Mr Lau's mortgage liability thereafter, the property was held on trust for Ms Tsang. It is said that, consequently, the proceeds now held by the trustees are trust monies that are not to be distributed amongst Mr Lau's creditors but must be paid to Ms Tsang. 19 So, I have before me this morning two, in effect, competing applications. The one is by the trustees to remove the proviso allowing them to distribute the proceeds, and the other is by Ms Tsang seeking an injunction preventing them from distributing the proceeds pending the resolution of the cross-claim which she seeks leave to file. Mr Turnbull, who appears before me for Ms Tsang, properly accepted that in the event that I conclude that no injunction should issue against the trustees and that the proviso should be removed, there is no point in the relief in respect of the cross-claim. 20 The central point to consider is whether the proviso should be removed or whether, either by non-removal of the proviso or the granting of the injunction, the trustees should for the present be prevented from distributing the proceeds of sale. That takes me back to the question I identified earlier, which is whether there are creditors in Australia within the meaning of Art 21(2) of the Model Law whose interests are required to be protected by this Court. 21 It is common ground that Ms Tsang is resident in Hong Kong. There is no basis on which, on the evidence before me, she can be considered "a creditor in [Australia]" within the meaning of Art 21(2). There is also no evidence adduced before me as to the law in Hong Kong and how her claim in respect of the proceeds of the sale might be treated in the bankruptcy proceeding in Hong Kong. There is certainly no evidence to suggest that her position would be prejudiced in Hong Kong relative to Australia, or that she could not make her trust claim in the Hong Kong proceeding in any less advantageous way than is available to her in Australia. 22 Mr Turnbull submits that the proper law governing the claim which Ms Tsang articulates with respect to the proceeds of the sale is the law of Australia or, perhaps more specifically, the law of Queensland. On that basis, he submits that the appropriate forum for that claim to be determined is an Australian court. 23 Leaving aside whether appropriateness of forum is the relevant inquiry, I am not satisfied that the submission is correct. That is, in particular, for the following reasons. 24 First, as I have said, there is nothing before me to suggest that the claim will not be properly and adequately dealt with within the bankruptcy in Hong Kong. It is not apparent on any evidence before me what difference there may be between the law in Hong Kong and the law in Australia on the question of the trust. Also, the trust is said to arise out of an agreement between two residents of Hong Kong, albeit in a conversation which is said to have taken place between them in Queensland and in respect of a Queensland property. Mr Turnbull places some significance on the property being in Queensland, but since the property has been sold and there is now a fund which happens to be maintained in a bank account in Hong Kong, that consideration fades from significance. 25 Secondly, the concern of this Court must be with regard to protecting the interests of any creditor in Australia. On the evidence, Ms Tsang is not a creditor in Australia. 26 Thirdly, once satisfied that the interests of creditors in Australian are not prejudiced, this Court should act in support of the foreign main proceeding that it has recognised, which means that claims such as that of Ms Tsang should in the first instance be dealt with in the foreign main proceeding. 27 In those circumstances, there is no relevant prejudice suffered by Ms Tsang if the injunction is not granted, and the balance of convenience does not favour the granting of an injunction. It also cannot be said that Ms Tsang's claim is a strong one given the several different accounts of what her interest in the property really is - the caveat, the Family Court contentions and now the trust. 28 For those reasons, the trustees' application should be allowed and Ms Tsang's application should be dismissed. 29 Mr Turnbull rightly accepted that, in those circumstances, Ms Tsang should pay the trustees' costs of her application. The trustees do not seek the costs of their application from Ms Tsang but rather from the bankrupt estate. 30 I make the following orders: (1) Order 3 of the orders made on 15 July 2020, as varied by order 2 of the orders made on 1 September 2020, be further varied by deleting the words following "entrusted to the trustees". (2) The interim application filed by Wai Yee Terri Tsang on 8 March 2023 be dismissed. (3) The applicant's costs of the interim application filed on 29 November 2022 be costs in the bankrupt estate. (4) Wai Yee Terri Tsang pay the applicant's costs of her interim application filed on 8 March 2023. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.