DC Rd DC Pty Ltd v Zhang

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Delivered ex tempore, revised from transcript

1. By interlocutory application filed on 31 January 2025, the applicants seek a review pursuant to s 35A(5) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) of the reasons for decision (Reasons) and Orders of a Registrar of the Court dated 10 January 2025 (Orders).
2. By the Orders, the Registrar:

(a) set aside a subpoena to the Commonwealth Bank of Australia filed on 11 October 2024 in whole (Commonwealth Bank Subpoena);

(b) set aside paragraph 1(a) of a subpoena to Westpac Banking Corporation filed on 11 October 2024 (Westpac Subpoena); and

(c) limited the date range of paragraphs 1(b) and 1(c) of the Westpac Subpoena to the period 1 July 2019 to 31 December 2021, rather than 1 July 2019 to 31 December 2021.

1. The applicants seek that the Orders referred to in (a) and (b) above be set aside and that in lieu thereof, orders be made for production of the documents sought in the Commonwealth Bank Subpoena and in paragraph 1(a) of the Westpac Subpoena (together, the Subpoenas), limited to the date range of 1 July 2019 to 31 December 2021. The applicants also seek review of the Costs Orders made by the Registrar.
2. The background allegations and evidence in relation to this proceeding are set out in my reasons in DC Rd DC Pty Limited v Zhang [2023] FCA 342, [6]-[23] and in DC Rd DC Pty Limited v Zhang (No 2) [2024] FCA 157, [4]-[7]. The parties have referred to those earlier judgments in their written submissions and I have drawn on those reasons in addition to the evidence given in the affidavits read at today's hearing. In short, the proceedings concern the alleged misappropriation of approximately $33 million from the applicants by the respondents. That misappropriation allegedly occurred through a property transaction in which DC Rd DC Pty Limited, the first applicant, purchased the property located at 30 Denham Court Road, Denham Court NSW 2565 (Property) from 30 Denham Pty Limited (in liq) (30 Denham) for $45 million, plus GST, under a contract for sale dated 25 July 2019. I should emphasise that to the extent that I make findings on this application, they are no more than preliminary findings based on the evidence before me at this stage.
3. The central allegations are as follows. Unbeknown to the applicants, the actual vendor of the Property was Khengs Pty Limited, which entered into a contract on the same day to sell the Property to 30 Denham for $14 million, plus GST. 30 Denham received over $33 million in proceeds by reason of the back-to-back transaction of the property (Allegedly Misappropriated Funds). Following settlement of the back-to-back transaction, the Allegedly Misappropriated Funds were paid to entities controlled by Mr Zhang, the first respondent, and Mr Cai, the second respondent. Mr Zhang had allegedly undertaken various property developments with the applicants, recommended the property to them for purchase, and acted as their agent on the acquisition of the property. Mr Cai was allegedly the applicants' accountant, practising through a company called Central Accounting and Taxation Advisory (CATA), the tenth respondent.
4. The applicants claim that Mr Zhang and Mr Cai breached the fiduciary duties owed to them and engaged in misleading or deceptive conduct by reason of their involvement in the back-to-back transaction. The applicants claim a constructive trust over the Allegedly Misappropriated Funds and an entitlement to trace the Allegedly Misappropriated Funds.
5. In attempting to trace the Allegedly Misappropriated Funds, the applicants have issued a large number of subpoenas. As at 15 November 2024, they had issued 57 subpoenas, 30 of those to banks. The applicants also obtained Orders requiring Mr Zhang to travel to Hong Kong to obtain bank statements from the Bank of China for an account held by Link Investments Limited (Link), the fifth respondent (Link BOC account). The subpoenas were another step in that tracing exercise.
6. Some of the Allegedly Misappropriated Funds appear to have been moved offshore to the Link BOC account where they were held before being repaid into Australia. Link was incorporated on 10 September 2019, with Mr Zhang as its sole director, just after the settlement of the back-to-back transaction, and the Link BOC account appears to have been opened at around the same time. The sole shareholder of Link is Langkawi Investments Limited, a company incorporated in the British Virgin Islands, of which Mr Zhang is the sole director. At the time of its incorporation, Central Advisory Group Asia Limited (CAGA), the seventh respondent, and a company controlled by Mr Cai, was Link's company secretary.
7. Shortly after its incorporation, Link received almost $20 million of the Allegedly Misappropriated Funds into the Link BOC account. Link later received transfers of $3.3 million and $3.7 million into the Link BOC account. Some of the funds in the Link BOC account were apparently used to acquire a property in Belrose, and other funds in the Link BOC account were apparently used to acquire a property in Smithfield. Other funds in the Link BOC account appear to have been transferred to NRC 200 Pty Limited (NRC 200) and SDJK Pty Limited (SDJK), companies controlled by Mr Neil Cooke and Mr Stuart Cox respectively.
8. NRC 200 and SDJK also received Allegedly Misappropriated Funds through a chain of transfers involving companies controlled by Mr Cai. Amounts totalling $6,732,961 (allegedly from the Allegedly Misappropriated Funds) were paid into an ANZ account held by the fourth respondent, Charm Team Development Limited (CTD), a company controlled by Mr Cai, by the end of 2019. Later, in December 2020, CTD transferred $6 million to CAGA, apparently from the Allegedly Misappropriated Funds. On 4 June 2021, CAGA transferred $1,817,182.25 to each of NRC 200 and SDJK, apparently from the Allegedly Misappropriated Funds. NRC 200 and SDJK had been incorporated around the time of the back-to-back transaction, apparently by Mr Cai. Their registered office was the office of CATA at suite 105, Level 1, 50 Clarence Street, Sydney NSW 2000. As I have said, CATA is the tenth respondent and the entity through which Mr Cai operates his accounting practice.
9. The Commonwealth Bank Subpoena seeks:

Bank statements for CBA account with BSB 062-000; Account number: 1998-1087 for the period 1 January 2019 to 31 December 2021.

1. This account is a bank account in the name of Mr Cooke (the CBA account). Apart from controlling NRC 200, the evidence before me on information and belief is that Mr Cooke is a real estate agent at Savills, who, along with another Savills agent, Mr Cox, acted as agent for the applicants on multiple property purchases made by them between March 2019 and mid-2023, and this included introducing various properties to the applicants through the first respondent, Mr Zhang.
2. The Link BOC account statement showed that the account received a deposit of $3,699,989.91 on 4 January 2021. The transaction description includes the words:

Neil Edward Cooke 2 Ellery Pde Seaforth NSW Australia 2092

1. That was the home address of Mr Cooke (at least in August 2019) according to an ASIC search of CC100 Pty Limited (CC100), of which he was a director. An amount of $3,838,288.94 was then transferred out of the Link BOC account on 13 January 2021, before the same amount was deposited back into the account on 29 January 2021.
2. Those funds remained in the Link BOC account until about 12 August 2021, when the balance of the account in the amount of $3,838,309.22 was withdrawn. It appears those funds were received by Link Investments (Australia) Pty Limited, another company controlled by Mr Zhang, on 12 August 2021, of which $3 million was then transferred to Harvest Land Group Pty Limited, of which Mr Zhang was also a director, and then used towards the purchase of a property at 40 Pavesi Street, Smithfield NSW 2161.
3. Relevantly, it now appears that on 26 February 2021, $1,400,000 was paid from the CBA account to an ANZ account held by CTD, with a transaction description which included the words:

1. The fact this payment came from the CBA account is confirmed by a bank trace which the applicants have obtained. As noted above, CTD is a company controlled by Mr Cai which received at least $6,732,961 of the Allegedly Misappropriated Funds.
2. Thus, Mr Cooke appears to have paid about $3.7 million to Link on 4 January 2021 and $1.4 million to CTD on 26 February 2021, the latter from the CBA account. In my view, at this stage, there is a plausible basis to think that those amounts, totalling $5.1 million, were part of an elaborate exercise in transferring some of the Allegedly Misappropriated Funds, even though the source of those funds, by way of payment into Mr Cooke's CBA account, has not as yet been identified. It is also, of course, plausible that those funds were sourced from a separate transaction or transactions from those impugned in the current proceedings, but that possibility does not undermine the legitimate forensic purpose of the Commonwealth Bank Subpoena.
3. Paragraph 1(a) of the Westpac Subpoena seeks:

Bank statements for WBC Account with BSB: 032-197; Account number: 482096, for the period 1 January 2019 to 31 December 2021.

1. This Westpac account is held by CC100. CC100 was incorporated on 23 August 2019, just after the exchange of contracts for the back-to-back transaction referred to above and prior to settlement of that transaction. Mr Cooke and Mr Cox were directors of CC100 from its incorporation until 31 August 2019, just over a week later. CC100's registered office from 23 August 2019 to 6 July 2020 was the office of CATA at suite 105, Level 1, 50 Clarence Street, Sydney NSW 2000. CC100 was later wound up by Ian Niccol, the same liquidator appointed to effect the winding up of 30 Denham. The two shareholders of CC100 were NRC 200 and SDJK.
2. On 25 June 2020, an ANZ bank account held by CATA received a deposit of $370,539.04 with a description that included:

These funds were transferred out of the CATA account the following day.

1. The Link BOC account statements show that approximately two weeks later, on 7 July 2020, the Link BOC account received a deposit of $3,307,994.39 with a description which included:

Remit In ... CC100 Pty Ltd 2 Ellery Pde Seaforth NSW 2092.

As indicated above, that was Mr Cooke's residential address.

1. On 25 September 2020, Link transferred $1,729,000 and $1,579,000 from the Link BOC account to SDJK and NRC 200 respectively, being a total of $3,308,000. That amount matches almost exactly the payment on 7 July 2020 from CC100. Westpac bank statements produced for SDJK and NRC 200 show that there were no funds in either account prior to these payments, but that the funds were subsequently used for various purposes including jewellery purchases and building work. Later, on 4 June 2021, CAGA transferred $1,817,182.25 to each of SDJK and NRC 200, which the applicants contend can be traced directly to the Allegedly Misappropriated Funds. Again, the Westpac bank statements for SDJK and NRC 200 show that these funds were used for similar purposes, including jewellery purchases, building work and a relatively large cash withdrawal of $495,000.
2. Again, there is a plausible basis at this stage to think that the movements of money from the Westpac account were part of an elaborate exercise in transferring some of the Allegedly Misappropriated Funds, even though the source of those funds has not as yet been identified. As before, there is also a plausible basis for thinking that the funds were sourced from a separate transaction or transactions from those impugned in these proceedings, but that possibility again does not undermine the legitimate forensic purpose of the Subpoenas.
3. It is not in dispute that a review of a Registrar's decision under s 35A(6) of the FCA Act involves a hearing de novo, that the review does not hinge or focus upon error in the decision of the Registrar, but rather the matter is considered afresh on the evidence and the law at the time of the review, and the onus remains on the party which bore it under the initial interlocutory application: Bechara v Bates [2021] FCAFC 34; [2021] 286 FCR 166, [17]-[27] (Allsop CJ, Markovic and Colvin JJ).
4. The principles relating the setting aside of subpoenas were recently set out by the Full Court in Seven Network (Operations) Limited v Fairfax Media Publications Pty Limited [2023] FCAFC 185; [2023] 418 ALR 284,[38] (Seven Network), in analysing the fundamental principle that the party issuing a subpoena must demonstrate that the subpoena has a legitimate forensic purpose and the principle that it may be set aside if it is cast in terms which require the production of documents which do not have apparent relevance to the issues in the case:

That principle is consistent with the reasoning of the NSW Court of Appeal in Secretary of the Department of Planning, Industry and Environment v Blacktown City Council, which provides authority for the following propositions:

(a) the language of "tests" should be eschewed; whether a subpoena should be set aside depends on whether it involves an abuse of process, and it will be an abuse of process if it is not issued for a legitimate forensic purpose: Bell P at [60]-[61], with whom McCallum JA agreed at [98];

(b) it is not necessary to show that the documents subpoenaed will or will be likely to assist the case of the party that has issued the subpoena: Bell P at [57]-[58], Brereton JA at [86] and [96], McCallum JA at [98] and [100];

(c) it is sufficient to show that the subpoena can plausibly be seen to relate to an issue or issues in the proceedings or to cast light on such an issue, and the subpoena is not in other respects too vague or oppressive: Bell P at [57], McCallum JA at [98] and [100];

(d) put differently, it is sufficient to show that there is a reasonable basis for supposing that the material called for would likely add, in the end, in some way or another, to the relevant evidence in the case: Brereton JA at [89], with whom McCallum JA agreed at [100]; and

(e) it is sufficient to show that the documents sought are apparently relevant in the sense that it can be seen that the documents sought to be produced by way of subpoena will materially assist on an identified issue or that there is a reasonable basis beyond speculation that it is likely that the documents subpoenaed will so assist: Bell P at [65], with whom McCallum JA agreed at [98].

1. In Starbelle Energy Pty Limited (ATF Cronulla Coal Unit Trust) v New Emerald Energy Pty Limited [2024] FCA 354, I applied those principles to a subpoena issued to National Australia Bank which was said to have been issued to determine whether the directors of a company had authorised a payment of $1.9 million from its bank account. I stated at [13]:

I regard this as more than merely a fishing expedition on the part of Starbelle. There is, at present, some material which may, in due course, justify a reasonable inference that the directors did authorise the payment, but I can see a real forensic benefit in obtaining documents that might throw clearer light on that question. Accordingly, I regard the subpoena addressed to NAB as having been properly issued. As I say, the subpoena has been answered, and I will, in due course, make orders granting access to the documents subject to any claim for privilege.

1. The Registrar's dispositive reasons for setting aside the Commonwealth Bank Subpoena and paragraph 1(a) of the Westpac Subpoena were as follows:
   1. Presently, there is no evidence to demonstrate that the Cooke and CC100 accounts received any moneys that relate to misappropriated funds or that the holders of those accounts are parties to the asserted issues on the pleading.
   2. The Applicants' assertions of the relevance of the Cooke and CC100 accounts in the wider misappropriation of funds is in my view mere speculation. I consider that there is no reasonable basis beyond speculation that it is likely that the documents subpoenaed will assist on an identified issue.
2. That reasoning reflected the submissions advanced by the second, third, sixth and tenth to thirteenth respondents (Cai and Li parties) and the first, fifth, and ninth respondents (Zhang parties) at the hearing before the Registrar. As the applicants do not need to show error in the Registrar's decision, I will proceed immediately to address why the Subpoenas have a legitimate forensic purpose.
3. The applicants submit, and I accept, that it is not necessary for them to show positive proof that the Allegedly Misappropriated Funds were received by a particular bank account in order for there to be a legitimate forensic purpose in a subpoena seeking statements for that bank account. The requirement is only that there is a "reasonable basis beyond speculation" to think that the documents sought will assist on an identified issue. The standard suggested by the respondents, and applied by the Registrar, was that the applicants had to adduce evidence to demonstrate that the relevant accounts received moneys that related to the misappropriated funds. That amounts to requiring the applicants to prove as a fact that the accounts had received Allegedly Misappropriated Funds in order to justify the Subpoenas, when that is one of the facts sought to be proved by the issue of the Subpoenas.
4. In accordance with the authorities, all the applicants need to show is that there is a reasonable basis beyond speculation to think that the accounts in issue received funds sourced from or otherwise connected with the Allegedly Misappropriated Funds. In many cases, the applicants have been able to establish bank traces to show that funds were transferred from a bank account which had received Allegedly Misappropriated Funds to another bank account. But, as the applicants submit, that level of certainty is not required. That is particularly so given the role that reasonable inference may play in connecting the links in a tracing exercise, especially one arising from alleged fraud: Toksoz v Westpac Banking Corporation [2012] NSWCA 199; [2012] 289 ALR 577, [8]-[9] (Allsop ACJ, with whom Hoeben JA and Sackville AJA agreed).
5. In the present case, the numerous connections between Mr Cooke, CC100, the Zhang parties and the Cai and Li parties outlined above indicate that there is a reasonable basis beyond speculation to think that the two bank accounts initially received funds sourced from, or otherwise connected with, the Allegedly Misappropriated Funds. The applicants need only show that the documents sought can plausibly be seen to relate to an issue or issues in the proceedings or that the documents cast light on such an issue. The relevant issue is who the recipients (whether at an intermediate stage or as a final destination) of the Allegedly Misappropriated Funds are.
6. In relation to the CBA account held by Mr Cooke, the evidence at this stage indicates that the Allegedly Misappropriated Funds were derived from a property transaction and Mr Cooke was a real estate agent retained by the applicants and Mr Zhang. Funds were transferred from the CBA account into the Link BOC account, the purpose of which appears to have been to receive Allegedly Misappropriated Funds and then facilitate their transfer back onshore to Australia. Mr Cooke appears to have indirectly received Allegedly Misappropriated Funds via CAGA and CTD, companies associated with Mr Cai, through his company NRC 200, which had been incorporated by Mr Cai around the time of the back-to-back transaction. Mr Cooke also received funds from the Link BOC account through NRC 200.
7. In relation to the Westpac account held by CC100, CC100 was a company of which Mr Cooke had previously been a director, and in which he remained an ultimate shareholder at the time it transferred $370,539.04 to CATA on 25 June 2020. It appears from the registered office details of CC100 that it was also incorporated for Mr Cooke and Mr Cox by Mr Cai around the time of the back-to-back transaction. The evidence again indicates that substantial funds of more than $3 million were received from CC100 into the Link BOC account, noting again that an apparent purpose of the Link BOC account was to receive Allegedly Misappropriated Funds offshore in Hong Kong and then transfer them back into Australia. Moreover, companies associated with Mr Cooke and Mr Cox (NRC 200 and SDJK) received Allegedly Misappropriated Funds, as well as funds from the Link BOC account.
8. These matters provide a reasonable basis beyond speculation to think that the bank accounts of Mr Cooke and CC100, with which the Subpoenas are concerned, received Allegedly Misappropriated Funds.
9. As a separate matter, the applicants submit, and I accept, that the documents sought by the Subpoenas can plausibly be seen to cast light on the dishonest and fraudulent design which the applicants allege against the respondents, or alternatively Mr Cai's knowing involvement in Mr Zhang's dishonest and fraudulent design. Given the links between Mr Cooke, CC100 and entities controlled by Mr Zhang and Mr Cai, on the evidence currently before me, there is a reasonable basis beyond speculation to think that the transactions involving Mr Cooke and CC100, identified above, may have been part of that alleged dishonest and fraudulent design. The movement of funds that may be revealed by the bank statements sought by the Subpoenas can plausibly be seen to cast light on the nature and extent of that allegedly dishonest and fraudulent design, irrespective of whether Mr Cooke, or Mr Cox, or entities associated with them, are parties to the proceedings.
10. As to costs, the applicants have been wholly successful in relation to their interlocutory application before me and are entitled to an order for costs against the respondents which opposed it. The applicants ought to have succeeded before the Registrar, except in relation to the relatively minor question of timing, as to whether the Subpoena documents should include the date range 1 January 2019 to 30 June 2019. In my view, that matter was too insignificant to affect materially the substance of the outcome. Accordingly, in my view, it is appropriate to set aside the Costs Orders made by the Registrar.

I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.