Du v Feng

Supreme Court of NSW|2020-07-03|Before: Lonergan J

The Supreme Court refused to grant a freezing order over a family home because the plaintiff failed to prove that the defendants were likely to sell or hide their assets to avoid paying a debt. Although the plaintiff had a valid claim for $1.53 million in loans, the evidence showed that previous property sales were forced by banks and receivers, not by the defendants trying to avoid creditors. The defendants were struggling financially due to drought, bushfires and COVID-19, but were still paying their mortgage and said they did not want to sell their home. The Court said freezing orders are serious measures that should not be used lightly, and the proper approach was for the plaintiff to pursue his claim to a final judgment rather than seeking to freeze assets now.

Principles

I have approached the application in light of binding authority that the Court's power to grant a freezing order is based on its power to prevent the frustration of its process and to ensure that its judgments are not without value (see Newcastle City Council v Caverstock Group Pty Ltd (2008) 163 LGERA 83; [2008] NSWCA 249, at [43] per Spigelman CJ (Bell JA and Handley AJA agreeing). A freezing order is nevertheless "a drastic remedy which should not be granted lightly ... Its purpose is to preserve the status quo, not to change it in favour of the [applicant]" (see Frigo v Culhaci [1998] NSWCA 88 (at p 6) per Mason P, Sheller JA, Sheppard AJA) as approved in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18, at [51] per Gaudron, McHugh, Gummow and Callinan JJ.)
As discussed by McColl J in Samimi v Seyedabadi [2013] NSWCA 279, an applicant for a freezing order must demonstrate a good arguable case on a justiciable cause of action (see r 25.14 UCPR and Tomasetti v Brailey [2012] NSWCA 6 (at [14] -[15]).
That does not require a preliminary appraisal of the plaintiffs case to be conducted on this application, but the plaintiff must show that the claim is capable of serious argument, even if not necessarily one which the judge believes to have a better than 50 percent chance of success (see Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG 'The Nidersachsen' [1983] 1 WLR 1412; [1984] 1 All ER 398 (at 404) ("Ninemia Maritime") per Mustill J).

(i) Plaintiff's Affidavits

The plaintiff relied upon affidavits of Mr Pan, solicitor, affirmed 11 June 2020 and Mr Du affirmed 26 June 2020.
The affidavit of Mr Pan establishes that the defendants have provided admissions to the fact of the loans having been made in the sums claimed by the plaintiff. In a table exhibited to the affidavits, the defendants assert that they have debts, including the debt to Mr Du, that total in excess of $15 million.
The defendants' assets are listed with an estimated value at $5.4 million. The house at Blakehurst is estimated by the defendants to be worth $1.7 million. Reference is also made to Irrigation Way, West Murrami, valued at $2 million and a Canadian hay press estimated to be worth $1.7 million. Ms Feng explained that this was purchased for $1.7 million but is currently on a property and owned by a company, Riverina Hay, that is now in receivership.
Mr Pan asserted that the defendants sold a property at Currabubula in October 2019 for $8,000,000. This assertion is now accepted to be incorrect. The property was sold by appointed receivers, and not by the defendants themselves.
Other documents exhibited to Mr Pan's affidavit include that in April 2020 Ms Feng sent a message by Wechat to Mr Du attaching a table of calculations for interest payments stating: "The next month 31 May, payment will be started to reduce the loan amount and related interest. Thanks Freda".
On 3 April 2020 a Loan Repayment Deed was executed by Mr Du and the defendants. Amongst other things, that Deed accepts in its Recitals that the plaintiff has "showed kindness, generosity and trust to help and have lent a total amount of $1.530 million (the "loan") to UWE, Jimmy Liu or Freda Feng jointly and severally upon friendly requests including borrowing from bank at a rate of over 7% to then providing lending, and accepting receipt record for significant amounts through Wechat amongst others" (sic).
The Deed provides in [6.2] that: "UWE, Mr Liu and Freda Fend jointly and severally and unconditionally and irrevocably in agree warrant and guarantee that the loan together with the 7% annual interest rate must be strictly repaid back to Alan Du within 60 months, with equal monthly instalment repayment amounts (ie. $30,296.00) to be strictly made to Alan Du (through online funds transfer to the bank account with Account Name being Alan Du) (bank details provided) prior to or by the first day of each month commencing on 1 June 2020 inclusive with time being of the essence. Any failure by (the defendants) jointly and severally to repay any amount to Alan Du on time shall make any and all remaining debt plus interest immediately payable by (the defendants)".
The Deed is typed and executed. It was prepared by Mr Pan. The commencement date for repayments was altered by hand from 1 April 2020 to 1 June 2020. The amendments have been signed and initialled by the defendants.
An email of 13 June 2020 from Ms Feng to Mr Pan refers to the "current predicament" of the defendants and that their "position has been now insolvent (sic)". There is reference to "since 2018 a drought, bushfires and now the ongoing global COVID-19 outbreak" which is described as "a series of disasters" which "made it impossible for us to operate and trade continually". There is also reference to: "As at the matter of the fact, we must state that we are definitely paying off our debts. But we need time. We are also very grateful to Alan's couple for their help and support" (sic).
A land titles search indicates that the Blakehurst property bears a mortgage to the Commonwealth Bank (CBA) as well as caveats filed by Wu International Investments Pty Ltd, Aupass Pty Ltd, Xuejun He, Shao Wei Chen, and Moneytech Finance Pty Ltd.
Company searches appended show that the Currabubula Property Pty Ltd and United World Enterprises P/L are both under external administration and have been since at least 2019 and earlier.
In answer to a question from the Court during the hearing on 3 July 2020, Ms Feng stated that the mortgage secured on the home at Blakehurst has a remaining debt of $280,000 or $290,000 and that currently the defendants were making monthly repayments on that mortgage as well as on a personal loan with CBA.
According to the list of assets and debts provided by the defendants to the plaintiff's solicitor, the debts stated to be associated with each of the companies or individuals who have registered a caveat against the title of the Blakehurst home are: (i) Wu international: $2.6 million excluding interest, (ii) Auspass: $1 million excluding interest, (iii) Xuejen He: $1 million excluding interest, (iv) Shao Wei Chen: $1.3 million excluding interest and (v) Moneytech: $250,000 described as a "working capital loan".
Mr Du's affidavit deposes to the particular advances of money he says that he made between March 2014 and October 2017 and the conversations he says that he had with Ms Feng or Mr Liu regarding each loan. He says that each time he said in Mandarin words to the effect: "Each of your couple and company must all have to be fully responsible to me for the repayment of the full loan amount plus interest and that whenever I demand repayment you have to repay the loan plus interest to me". He asserted that "they" agreed each time.
There is nothing in the affidavit of Mr Du as to when interest payments had to be made, or the period for which each cash loan was to operate, other than a document signed 29 September 2015 stating "interest is payable once every 3 months" and setting out the various rates applicable to particular loans at that time.
Annexed to the affidavit are handwritten notes in Chinese characters. Mr Du stated that these notes record each loan. Each note has been translated into English by an accredited translator and relevantly certified. The loans are unsecured and it has not been suggested otherwise.
Mr Du stated that after 29 March 2018 when an interest payment of $100,000 was made, the defendants have made only two other payments; on 8 June 2018 in the sum of $8,173.97 and on 31 March 2020, in the sum of $5,000.
Mr Du stated that on 25 December 2017, in person, he requested repayment of the full amount advanced, and confirmed this by text message. He claims that he has demanded repayment of the loans with outstanding interest on "a number of occasions" since. He says that each time, Ms Feng and Mr Liu expressed their sincere gratitude and deep apologies for their repeated delays, and asked for more time to pay.
The first request for repayment by Mr Du according to the evidence was the request made on 25 December 2017.
Mr Du deposed to a concern that there is a "real and significant risk" of the defendants disposing of other properties and assets and not repaying the loan. The concern seems to have been triggered by the mistaken perception that the defendants themselves sold the farm at Currabubula in 2019, and kept the profits rather than the true position, which was it seems a mortgage sale.

(ii) Defendants' Evidence

Ms Feng's affidavit was sworn 30 June 2020. She refers to the third defendant company as having traded for 26 years, exporting Australian produce to China including beef, wine, hay and other agricultural commodities.
She stated that due to drought, their agricultural properties were sold in 2017 to pay debts. A winery owned in Pokolbin was sold to pay debts. A plan to sell the processing facility at Murrami was made, but a creditor KB Trading appointed a receiver in 2019 and the property is now being sold by the receiver.
A plan to sell the cattle station at Currabubula was not able to be completed because the CBA repossessed the property and sold it in 2019 for $8 million, including the water licence and equipment. Ms Feng asserted that the property was valued in 2018 at about $11 million.
Ms Feng stated that the Coronavirus interfered with trading between Australia and China and so since the beginning of 2020, the defendants have been unable to source produce within Australia and import it, and so the business income has almost entirely ceased.
Ms Feng stated at [16] of her affidavit: "We acknowledge that we received various sums of money from Alan Du in the total sum of $1.530 million" but "Alan Du said that there was no deadline to repay and treat the loans as an investment in UWE".
Ms Feng also asserted that: "We all considered the sums as loans which were convertible into shares in UWE".
Ms Feng confirmed that Mr Du learned that Currabubula had been sold and "became alarmed" and so in January 2020 she and Mr Liu drove to see Mr Du in Cooma and had a conversation explaining their financial position, and that the CBA had sold the cattle station at a low price and had shut all the trading facilities so there was no surplus funds.
Ms Feng stated that Mr Du proposed a payment plan "for when you start earning money again".
Ms Feng stated that on 1 April 2020, Mr Du sent a document and "insisted" that the defendants sign the Loan Repayment Deed "under threat of bankrupting us and our business".
Ms Feng stated that "under duress, and feeling guilty as we consider Alan a good friend, we signed the loan repayment deed he gave us. However, we did not understand its contents and we did not obtain legal advice. It does not reflect what we agreed with him".
Ms Feng deposed to an intention to repay Mr Du "when export trade reopens or to convert his loan advances into shares in UWE as we originally agreed".
Ms Feng stated: "We admit we borrowed the money from Alan but assert that, by agreement with him, the loans could also be treated as an investment. We were not obliged to repay the loans if they could be converted into shares in UWE".
Ms Feng also stated that "we have no intention of selling our home in Blakehurst and so are willing to accept a freezing order over it and we have no interest in the property at Murrami as a receiver has taken control of it."
Ms Feng was not cross-examined nor challenged on any of her assertions. No affidavit in response was provided by Mr Du contesting these assertions. However, Mr Norrie submitted that Mr Du disputes that there was ever an agreement that the loans would be converted into shares.

(iii) Submissions

Mr Norrie submitted that Ms Feng had made multiple admissions on behalf of the defendants that the money was owed and that I should take into account that in 2017 the defendants sold a farm, but did not repay any proceeds of that sale to Mr Du.
It was also submitted that Ms Feng "agreed" to the freezing order and so I should make that order given that she both acknowledges the debt and does not oppose the first order sought in the notice of motion, restraining the defendants from selling the Blakehurst property.

(iii) Is there a justiciable cause of action?

I am satisfied that the plaintiff has established that he has an arguable case on a justiciable cause of action on and from the request for repayment in December 2017, which seems to be the first request for payment. However, that is not sufficient to justify making either of the orders sought.

Is there a danger of disposal of assets?

A freezing order is not intended to provide a plaintiff or judgment debtor with security for its judgment in advance of execution (see Finn v Carelli [2007] NSWSC 261, at [4]. A claim that there is a risk that the assets will be dissipated is not enough.
An applicant must establish by evidence that there is a danger that by reason of the defendant's assets being disposed of within the jurisdiction, or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied (see Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, at [321]-[322] per Gleeson CJ).
The evidence did not establish that there is a risk that any judgment given in favour of the plaintiff will be wholly or partly unsatisfied because there is a danger that the defendants will dispose of their assets or diminish their value.
The problem is that there are competing creditors, both secured and unsecured, who have already, and may continue to, take steps to exercise whatever rights of recovery they have. This may well mean that any judgment for the plaintiff in these proceedings will be unsatisfied.
There is no evidence that the defendants have, since the request for repayment on 25 December 2017, deliberately disposed of assets.
I accept Ms Feng's evidence that the defendants do not intend to sell their home. The defendants' bank records from CBA suggests that payments for the mortgage secured on the home are continuing to be made.

What does the balance of convenience dictate?

The balance of convenience must also be considered.
That requires that the order sought be made only until further order, with the matter coming into the list again shortly for the purpose of the defendants being heard as to its continuation. The defendants have been heard, although without the benefit of legal advice. Ms Feng does not agree to the "freezing order" being made as she wants to continue to try and trade out of debt. Quite apart from that, there is no evidence as to what assets other than the family home exist that would be "frozen" by such an order.
Counsel for the plaintiff submitted that the balance of convenience favours making the order. I do not agree. The proper course for the plaintiff to take is to prepare the matter for hearing and/or make whatever application to progress the matter as appropriate to secure judgment.

Costs

Costs follow the event. The plaintiff's application fails so the plaintiff has to bear its own costs. The defendants did not retain lawyers, however applying r 42.1 of the UCPR, costs following the event, the proper order is that the plaintiff pay the defendants' costs.

Orders

Accordingly I order that: 1. The notice of motion filed on 11 June 2020 is dismissed. 2. The plaintiff is to pay the defendants' costs.

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 July 2020

Outcomedefendant

Disposition:

The notice of motion filed on 11 June 2020 was dismissed. The plaintiff was ordered to pay the defendants' costs.

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