Gym & Tonic Healthclubs Pty Ltd v Cai Xia Xu

The parties

1. The first plaintiff (G & T) was a lessor of four shops in Danks Street Waterloo (properties).
2. Mr Jacob Henley (Mr Henley) was then the sole director of G & T.
3. Mr Henley had, prior to 2016, worked as a personal trainer and through various entities opened a number of fitness gyms.
4. Mr Henley had a degree of diversification in his business interests and additionally operated a number of cafes. Relevantly, he also owned and operated a construction company, Henley's Property and Construction Pty Ltd, the second plaintiff in the proceedings (HPCG).
5. Jie Huang (Mr Huang) is Ms Xu's son.
6. The second defendant (Hello Maple) is a company which Mr Henley had contended was liable as at 29 November 2015 to pay HPCG a sum of approximately $252,000 in respect of work done and materials provided by HPCG for Hello Maple at its request (the Hello Maple liability).
7. On 31 March 2015, Hello Maple had been registered as a company with Mr Huang being one of the directors and shareholders from that time: CB 180-181.

Ownership and lease of properties

1. In early November 2012, a company named 9 Dank Street Pty Ltd owned the properties.
2. On or around 2 November 2012, G & T entered a lease of the properties for a period of 10 years.
3. G & T's interest as lessee/tenant was noted on the title to the properties in the registered lease.
4. On or about 4 November 2013, Ms Xu became registered proprietor of the properties.
5. Ms Xu instructed and authorised Mr Huang to act on her behalf to deal with all matters in relation to the properties: CB 171[15].
6. Further by 29 November 2015, G & T was in arrears of rent payments under the lease by a sum of approximately $208,000 (the arrears).
7. The plaintiffs in the proceedings contended that, on 29 November 2015, the parties agreed that the Hello Maple liability would be partially set-off against the arrears and any further amount of rent which G & T became obliged to pay pursuant to the lease.
8. They asserted that there was an accord and satisfaction in relation to G & T's obligation to pay the arrears and that in December 2015 and January 2016, G & T paid rent under the lease which Ms Xu accepted.
9. On 29 January 2016, Ms Xu gave G & T a notice of termination purportedly based upon non-payment of rent for effectively the prior 13 months.
10. Mr Huang took steps to lock G & T out of the premises.
11. That action, it seems, prompted the commencement of proceedings by G & T.

The application

1. On the hearing of the application, Mr Li proceeded on a notice of motion filed on 4 November 2022.
2. Paragraph 1 of the notice of motion seeks an order granting leave to the plaintiff nunc pro tunc to maintain proceedings against the defendants: CB 165.
3. When I asked about that relief, Mr Li frankly indicated that it was both misguided and unnecessary. He indicated that the only relief sought was order 2 in the notice of motion being an order for release of the funds said to have been paid by the first plaintiff and second plaintiff to Ms Xu: T 3; CB 165.
4. For the reasons noted below, although the notice of motion is framed in terms of the funds having been paid by both plaintiffs, there is - on the evidence I have recounted - no sensible suggestion that the funds were paid into Court other than by G & T.

Evidence

1. Mr Li on the application formally read four affidavits being as follows: 1. an affidavit of Ms Xu affirmed 25 October 2022 (under Tab 12); 2. a second affidavit of Ms Xu affirmed on 25 October 2022 (Tab 10); 3. an affidavit of Lu Liu affirmed on 7 December 2022 - Ms Liu being a solicitor in the employ of the solicitors for Ms Xu (Tab 13) and an exhibit (LL-1) to that affidavit (Tab 14); and 4. a further affidavit of Ms Liu affirmed 8 December 2022 and an exhibit (LL-2) to that affidavit.
2. On 2 February 2016, Mr Henley swore an affidavit in support of the relief claimed in the summons dated 3 February 2016.
3. The affidavit was provided as part of the materials in the Court Book in the proceedings. The affidavit was not read as such.
4. However, Mr Li took me to a number of parts of the affidavit and accordingly I have had regard to it for the purposes of understanding how the claim for a set-off was asserted in the proceedings and to determine whether there is any proper basis of opposition to Ms Xu's claim.
5. I note that within the Court Book there is an affidavit of an accredited NATTI interpreter, Mengyuan Ren, affirmed 25 October 2022 which deposes to the fact that she sight translated Ms Xu's affidavit of that date to her in Mandarin: CB 442.
6. Although the affidavit was not formally read on the application, I have had regard to it in the circumstances noted below.

Commencement of proceedings

1. On 3 February 2016, G & T, by summons naming Ms Xu as defendant, sought urgent relief restraining Ms Xu from terminating the lease and various related relief including relief against forfeiture.
2. Upon G & T giving the usual undertaking as to damages, Darke J: 1. restrained Ms Xu from taking any steps to terminate the lease, interfere with G & T's exclusive possession and quiet enjoyment of the properties and from entering into any lease with third parties in relation to the properties; and 2. stood the proceedings over to 5 February 2016.
3. On 5 February 2016, Ms Xu had been served the summons and was represented.
4. On 5 February 2016, upon G & T giving the usual undertaking as to damages, Darke J ordered that: 1. G & T pay by 9 February 2016: 1. the funds into Court to abide the decision in the proceedings or until further order; and 2. $104,354.50 (i.e. precisely the same sum but as calculated below) to Ms Xu on account; 1. G & T pay, on account, rent of approximately $21,138 on the first day of each calendar month, until further order.
5. The matter was directed to continue by way of pleadings and a timetable specified with the matter to stand over to 1 April 2016.
6. The context in which the orders dated 5 February 2016 were made was on the basis that Mr Henley admitted that G & T owed Ms Xu $208,709.01 in rental arrears but claimed to be entitled to a set-off of $62,276.12 against Ms Xu.
7. The difference between those amounts was undisputed being $146,432.89. After payment of $104,354.50 to Ms Xu less the disputed amount ($62,272.12) the undisputed balance was $42,078.39.

Joinder of parties

1. On 1 April 2016, the matter was further mentioned before Darke J. There was clearly discussion about joinder of parties.
2. A direction was made that any application seeking to join HPCG and Hello Maple be filed and served and be returnable later in April 2016.
3. Directions were made in the event that the parties consented to joinder for the defendants to file and serve a defence and any cross-claim.
4. On 22 April 2016, a statement of claim was filed, it being verified by Mr Henley before his solicitor Atanaan Ilango: CB 14.
5. On 28 April 2016, orders were made joining HPCG and Hello Maple to the proceedings as the second plaintiff and second defendant respectively.
6. Their joinder appears to have been to address the contention of G & T that those parties were relevantly affected by G & T's set-off claim.

Issues and contentions - directions for defence and any cross-claim

1. On 3 June 2016, Darke J ordered that the defendants file and serve their defence and any cross-claim by 16 June 2016.
2. On 22 June 2016, Ms Xu and Hello Maple, the defendants, filed a defence. The defence at least in part admitted that G & T was in arrears of rental payments but did not admit the precise quantum. Ms Xu for her part verified the defence as first defendant and her son Mr Huang, as a director of Hello Maple, verified the defence on its behalf: CB 23-24.
3. Ms Xu, in her affidavit affirmed 25 October 2022, states that she, in or around April 2016, went through the statement of claim (filed on 22 April 2016) and the affidavit of Mr Henley sworn 2 February 2016 with the help of her son's translation and explanation: CB 173[27].
4. On 17 June 2016, Mr Neggo appeared for the plaintiffs and Mr Mennilli, solicitor, for the defendants. Darke J made orders for the defendants to file and serve their defence on or before 20 June 2016 and other directions for evidence, including for the defendants' evidence to be served on or before 29 July 2016. His Honour listed the matter for further directions on 5 August 2016: CB 140.

Directions for service of evidence and non-compliance

1. On 5 August 2016, the matter was mentioned before Darke J. Mr Ilango, solicitor, appeared for the plaintiffs. The matter was mentioned by consent and further directions were made for each of the plaintiffs and defendants to serve evidence. The short minutes of order were signed on behalf of each of the plaintiffs and the defendants by respective employed solicitors. The matter was stood over to 23 September 2016.
2. On 23 September 2016, the matter was further mentioned before Darke J. Further directions were made for each of the plaintiffs and defendants serve evidence with consent orders being signed by Mr Ilango for the plaintiffs and Mr Mennilli for the defendants. The matter was listed further directions on 11 November 2016.
3. On 11 November 2016, the matter was mentioned again. There was yet a further extension of time for each of the parties to serve evidence.
4. The proposed consent orders were signed by Mr Douglas-Baker for the plaintiffs and Mr Mennilli for the defendants. The matter was stood over to 3 February 2017.
5. On 23 December 2016, Mr Henley, in separate proceedings he had commenced against Mr Huang and nine other defendants (including G & T and of a number of other corporate entities apparently in the fitness business), obtained freezing type orders against the defendants: CB 304.
6. On 3 February 2017, Mr Ilango appeared for the plaintiffs, Mr B May appeared for Ms Xu and Mr Huang (as director) appeared for Hello Maple. The matter was stood over for directions on 17 February 2017.
7. On 6 February 2017, G & T was wound up in insolvency by Barrett AJ, on the application of a substituted creditor (GoGetta Equipment Funding Pty Ltd): CB 257.
8. Shumit Banerjee and Ian James Purchas were appointed as joint and several liquidators of G & T: CB 257.
9. On 17 February 2017, there was no appearance by or on behalf of any of the parties and the matter was stood over to 17 March 2017.
10. One might reasonably think that the winding up of G & T, at least in part, explained its non-appearance on 17 February 2017.

Dismissal of proceedings

1. On 17 March 2017, there was no appearance by or on behalf of any of the parties and Darke J, noting that there was no appearance by the parties, ordered that the proceedings be dismissed.

Construction of an order

1. The ordinary rules of construction (including the principle of objectivity) that apply to the construction of contracts are applied in the interpretation of a Court order: JKB Holdings Pty Ltd v de la Vega [2013] NSWSC 501 at [87] per Lindsay J.
2. The fact that an inter partes contract/agreement was intended to be, and was in fact, given expression in orders of the Court must be taken into account: JKB Holdings Pty Ltd v de la Vega at [82] citing Morgan v 45 Flers Avenue Pty Ltd (1987) 11 NSWLR 573 at 579D-E per Kirby P (Hope and Priestley JJA agreeing).
3. Where the terms of the Court's order are sufficiently clear to govern the parties' rights, the Court does not resort to extrinsic evidence of their intention: at [85] citing Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24 at 352 per Mason J (Stephen and Wilson JJ agreeing); Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1 at [3]-[5] per Gummow, Heydon and Bell JJ.
4. To the extent that a Court order is made pursuant to a contract, that contract may, in turn, impliedly incorporate the power under the rules to vary the order, as the justice of the particular case may require: Morgan v 45 Flers Avenue Pty Ltd at 579D-E per Kirby P (Hope and Priestley JJA agreeing).

Release of funds

1. Payment into Court may be permitted pursuant to particular legislation, rules of Court or the Court's inherent powers: In the matter of Elegant Swan Pty Ltd (in liquidation) (controllers appointed) [2022] NSWSC 1451 at [62]; JKB Holdings Pty Ltd v De La Vega at [11]-[12].
2. Essentially whether or not a party has a "security interest" in funds in Court will depend upon the character of the payments into Court and the purposes for which the payments were made: JKB Holdings Pty Ltd v De La Vega at [112]; Equuscorp Pty Ltd v Wilmoth, Field Warne (a firm) [2006] VSCA 123 at [22] per Nettle JA (Neave JA agreeing); see also Dura (Australia) Constructions Pty Ltd (in liq) (recs and mgrs apptd) v Hue Boutique Living Pty Ltd (formerly SC Land Richmond Pty Ltd) (2014) 49 VR 86; [2014] VSCA 326 at [75] per Santamaria JA (Maxwell P and Whelan JA agreeing).
3. The Court has a general discretion to determine the release of funds paid into Court, subject to any specifically agreed or conditioned limitation on the purpose of payment: Grand View Ausbuild Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60 at [80] per Bell P (as his Honour then was) (Sackville AJA agreeing); Thompson v Golden Destiny Investments Pty Ltd (No 2) [2015] NSWSC 1929 at [151] per Sackar J.
4. Generally speaking, in relation to an application for release for payment out of funds that have been paid into Court, the Court considers a number of matters including: 1. the identity of the person who is primarily entitled to any funds paid into Court and the basis of the entitlement; 2. whether there are any potential claimants to the funds and their identity, and that those persons have been notified; and 3. the claimant's priority over other claimants to the funds: see e.g. Kathleen Lanphier v Westpac Banking Corporation [2015] NSWSC 292 at [6] per Slattery J.
5. Although those matters were referred to by Slattery J in the context of a payment out application in respect of funds paid in by a mortgagee, I consider that they provide, by analogy, a sensible guide of relevant considerations to the application made by Ms Xu.

Events post dismissal of the proceedings

1. On 19 April 2017, HPCG was wound up in insolvency in the Federal Court of Australia pursuant to an order of District Registrar Wall on the application of a workers compensation insurer and Barry Anthony Taylor and Todd Andrew Gammel were appointed as liquidators: CB 317.
2. In around June 2017, Mr Huang told his mother that he was declared bankrupt and that he had insufficient money to continue with the matter, because he was not able to afford expensive litigation costs. When she asked him about helping her release the monies held in Court he said "Mom, I am declared bankrupt. Don't worry, Mom. I will try my best": CB 175-176[42].
3. On 31 May 2017, Mr Purchas filed a notice with ASIC disclaiming onerous property being a form of rental agreement entered into by G & T in respect of what appears to have been security camera equipment installed at G & T's premises at Potts Point: CB 272.
4. On 6 November 2017, Mr Henley completed and signed a report as to affairs in relation to HPCG: CB 337, 344.
5. On 26 August 2018, Hello Maple was deregistered as a company: CB 180.
6. On 6 March 2019, Mr Banerjee cause to be lodged with ASIC an administration return for the period from 6 February 2018 to 5 February 2019: CB 248.
7. That return relevantly disclosed that to that point there had been gross realisations of $2,742 under the heading of details of assets and that there were liabilities including secured debts totalling $1,462,090 and unsecured debts of approximately $609,256: CB 249.
8. It is evident from the 2018-2019 return that the liquidators of G & T did not disclose any interest in the funds in Court as being a realistic, let alone even potential, source of realisation of asset for G & T because the return attributes a nil value to any future realisations: CB 249.
9. On 19 April 2019, Ms Xu travelled to live in the United States to take care of her twin grandsons. She returned to Australia on 20 July 2022: CB 176.
10. On 15 August 2019, Mr Banerjee and Mr Purchas retired as liquidators of G & T and filed a form with ASIC of ceasing to be liquidators of G & T: CB 254-255.
11. On 20 August 2019, Mr Banerjee filed a form with ASIC seeking to deregister G & T on the basis that the company's affairs had been fully wound up and that there was no property, or that the property available was not sufficient to pay the costs of obtaining an order of the Court dissolving the company: CB 262.
12. Further, in the request for deregistration of G & T lodged by Mr Banerjee on 20 August 2019, whilst the amount owed to secured creditors increased slightly to approximately $1,524,261, the amount of gross realisation is stated as being the same ($2,742). There is no suggestion in the report that there is any claim made in respect of the funds paid into Court.
13. Since 27 October 2019, G & T has been deregistered.

Submissions

1. Mr Li submitted that the Court should exercise the discretion to release the funds directly to Ms Xu.
2. Mr Li submitted that Ms Xu was entitled to the funds and should not be required to take any steps to reinstate G & T and commence proceedings to obtain judgment against it for rental arrears: Submissions at [24].
3. Mr Li submitted that the interests of justice weigh against Ms Xu being required to take any such steps on the basis that they are unlikely to have much, if any, utility (for the benefit of the class of unsecured creditors of G & T) and that there were five factors relevant to the Court's exercise of its discretion.
4. In summary, the five factors were as follows: 1. the funds were intended as security for rental arrears owing by G & T to Ms Xu; 2. G & T appears to have abandoned the funds or that it could reasonably be expected that the funds have been disclaimed as onerous property; 3. the utility in requiring Ms Xu to reinstate G & T and obtain a judgment against it would not outweigh the possible prejudice to its unsecured creditors; 4. it could not be reasonably expected that the liquidators of G & T would bring a positive claim over the funds; and 5. Ms Xu has a genuine explanation for the delay in making the claim.

Service of application on potentially interested parties

The liquidators of G & T

1. On 4 November 2022, the notice of motion and affidavit of Ms Xu affirmed on 25 October 2022 (47 paragraphs) was served on Mr Banerjee: CB 345-346.
2. On 14 November 2022, Mr Banerjee sent an email to Ms Xu's solicitor referring to a discussion, at least in part, touching upon what was said to be reregistration of the company (which reference is not entirely apt or clear), noting that he anticipated incurring costs of approximately $10,000 to meet statutory obligations and did not oppose the orders sought but requested upfront payment from Ms Xu of $7,500 to meet his costs of administering the anticipated liquidation: CB 345.
3. The evidence discloses further correspondence between Ms Xu's solicitors and Mr Banerjee on 20 and 21 November 2022: CB 451-463.
4. On 23 November 2022, Ms Xu's solicitors served Mr Purchas with the notice of motion and supporting affidavits: CB 464ff.
5. Further correspondence ensued between Mr Purchas, Ms Xu's solicitor and Mr Khai Tan of SV Partners Accountants and Advisors on Mr Purchas's behalf: CB 564-577.
6. On 6 December 2022, Mr Tan advised Ms Xu's solicitors that Mr Purchas was unfunded in his capacity as former liquidator of the company and was unable to form a position on Ms Xu's motion. The email indicated that he neither consented nor opposed the motion and wished to be excused from attending: CB 577.
7. On 7 December 2022, the solicitors for Ms Xu corresponded further with Mr Banerjee regarding the matter: Exhibit LL-2 at 1.
8. On 8 December 2022, Mr Banerjee responded by email consenting to the funds being paid directly to Ms Xu out of the funds held in Court without requiring the reinstatement of the company and indicating that he did not wish to be heard on the motion: Exhibit LL-2 at 6.

The liquidators of HPCG

1. On 4 November 2022, Mr Taylor was also served with the motion and supporting affidavits: CB 579-580.
2. On 15 November 2022, Mr Taylor sent an email to Ms Xu's solicitors enquiring whether Ms Xu was prepared to make a contribution towards his reasonable cost of being reappointed as liquidator of HPCG indicating an estimate of reasonable costs being in the order of $2,500 plus GST.
3. On 22 November 2022, Ms Xu's solicitors sent an email to Mr Taylor reciting certain of the details and, relevantly, noting that the funds paid into Court were not paid by HPCG, that it was not a lessee of the lease which rent was thought to be secured by the payment into Court and that it was only joined in the proceedings in April 2016.
4. The email noted that there appeared to be no useful purpose in reinstating HPCG as Ms Xu's claim for rental arrears (to the extent that they are secured by the funds paid into Court) was not and is not against HPCG, and that HPCG does not lay (or more precisely has not laid) claim to any part of the funds: CB 684.
5. Later in the afternoon on 22 November 2022, Ms Xu's solicitors sent an email to Mr Taylor proposing his consent to correspondence in a draft set out in the email being sent to the Court: CB 686.
6. On 23 November 2022, Mr Taylor approved of the draft form of correspondence (which relevantly sought that the listing for 25 November 2022 be vacated and re-listed in December 2022 to enable Ms Xu to adduce a solicitor's affidavit addressing the various liquidator's positions): CB 688-689.
7. On 7 December 2022, Ms Xu's solicitors sent a similar email to Mr Taylor as that sent to Mr Banerjee: Exhibit LL-2 at 10.
8. On 8 December 2022, Mr Taylor responded. He noted that as the former liquidator of the company, which was deregistered on completion of the winding up, he would have no authority or standing in relation to its affairs, and that Ms Xu's solicitors were at liberty to inform the Court that he did not wish to be heard in relation to the application: Exhibit LL-2 at 14.

Construction of the payment in order

1. The orders for payment in of the funds made on 5 February 2016 were based on G & T giving the usual undertaking as to damages.
2. The order is as set out above and required that G & T pay by 9 February 2016 two separate amounts. The second amount, $104,354.50, was paid to Ms Xu "on account".
3. The amount that is the subject of the fund was paid into Court to "abide the decision in the proceedings or until further order".
4. The context of that order was that: 1. at that stage the only parties to the proceedings were G & T and Ms Xu; 2. G & T was seeking relief against forfeiture; 3. the payment was seemingly a payment to cover arrears of rent; 4. Darke J had made a further order addressing payment of amounts for future rent of the properties; and 5. the only basis on which G & T would make good any entitlement to alternate receipt of the funds in the proceedings is if it made out its case that it had an appropriate set-off against arrears of rent.
5. The order, as a matter of proper construction, expected that there would be a decision in the proceedings, whether by the Court or perhaps by consent of the parties, regarding the outcome of the parties' claims.
6. The qualification to the order of the fund remaining in Court "until further order" no doubt envisaged that there might be a need for the Court to address who was appropriately entitled to the funds in circumstances in which there was no contested hearing and no decision by the Court on the plaintiffs' claims.
7. Ms Xu's application essentially invokes the Court's reservation of power to "further order" as appears in that qualification.

G & T's claim to a set-off

1. In order for the plaintiffs to have any claim to the funds, the liquidators would have to establish a positive set-off which would in turn require the liquidators to establish (1) that Hello Maple was indebted to HPCG and (2) that there was an agreement that HPCG's claim against Hello Maple would be set-off against G & T's rental arrears to Ms Xu.
2. As to evidence of the basis for a set-off, Mr Li referred to paragraphs 83-84 of Mr Henley's affidavit, which are as follows (at CB 40): 83. Since then, as set out above, payments have been made to the defendant (either by Gym and Tonic or by me on its behalf) totalling $62,276.12. In the same rental period (that is, January to February 2016), the rent due under the Waterloo lease would be $42,276.12 (being two months multiplied by the monthly rent of $21,138.06.) 84. I therefore calculate that, if I am wrong in this case and Gym and Tonic is not entitled to an offset in relation to outstanding rent, the defendant's position would be that Gym and Tonic owes the defendant around $208,709.01 (being $228,709.01 plus $42,276.12 minus $62,276.12). I say that would be the defendant's position, because I have not yet received the reconciliation from Gym and Tonic's accountant as to how much rent was paid prior to 3 December 2015.
3. Mr Li sought to tender, as an admission, paragraph 84.
4. To understand these paragraphs some context is required.
5. Mr Henley, in the affidavit, relevantly recounts a version of his relationship with Mr Huang dating back to about November 2013: CB 28.
6. According to Mr Henley's version of events, the following matters occurred. 1. In May 2015, he had a discussion with Mr Huang in the context in which rent on the properties was outstanding. He notes that he had other dealings with Mr Huang. He asserts that Mr Huang told him "we can come to an arrangement with the Waterloo rent": CB 33[39]. 2. On 6 July 2015, he received an email from Mr Huang regarding overdue rent for the properties: CB 34[46], CB 115. 3. On 11 August 2015, Mr Henley's assistant forwarded to Mr Huang a bill of quantities for what is described as the "Hello Kitty Project", being in respect of a fit-out for a diner (which commenced in or around September 2015): CB 34[42]. 4. At the end of September 2015, fit-out works for that project were undertaken by employed tradesmen and subcontractors of HPCG: CB 34[43]. 5. In November 2015, Mr Huang had said to Mr Henley at or about the time: "address the invoices to my company Hello Maple Pty Ltd": CB 34[44]. 6. On 23 November 2015, two invoices were sent from HPCG to Hello Maple respectively for $40,000 (plus GST) and $380,000 (plus GST): CB 34[44]. (In fact the invoices were for $44,000 and $380,000 each inclusive of GST: CB 110-111). 7. Mr Huang, or [unidentified] entities associated with him, made various payments (including to some of the tradesmen directly) which left a balance of approximately $252,158 owing by Mr Huang to HPCG: CB 34[45]. 8. Between January and November 2015, G & T did not make all of the rental payments due under the lease of the properties: CB 34[47]. 9. By November 2015, Mr Henley's business and financial relationship with Mr Huang and the relationship between "our respective corporate entities" deteriorated and was "extremely complicated": CB 35 [49]. 10. On 29 November 2015, Mr Henley had an email exchange with Mr Huang. The email in part stated: "Payment for HK works, if you do not plan on paying us please let me know so I can make other arrangements and raise money to pay the subbies, you have seen a few emails and I am not going to let a new business have a bad reputation for not paying people. I would like to sit down with you and your father and work out a proper plan to pay you guys back. Moving forward I will be paying the rent at Waterloo each month and contributing whatever I can towards paying you and your dad back": CB 116. 1. Mr Huang response to that email was in part: "Regarding the build cost, I did say I'll help make payments to keep everything afloat, but you might have got the entire situation wrong. The Henley group owes me money which was promised pay out twice now. Because of that falling through, I have no money to get the build done, in which I turned to you to help build. The money I owe you from the build will be reduced from the total amount you owe me. I'm happy to have this down on paper for you": CB 116. 1. After receiving that email, Mr Henley proceeded on the basis that there would be a reconciliation of all amounts owed by Mr Huang (and entities associated with him) to Mr Henley, and by Mr Henley (and entities associated with him) to Mr Huang: CB 35[51].
7. Critically, Mr Henley states that he assumed that the above-mentioned reconciliation would include any rent otherwise owing by G & T in relation to the properties: CB 35[51].
8. Specifically, Mr Henley, without any proper basis for delineating between any of the numerous entities associated with himself and Mr Huang, stated as follows: "Although I now appreciate that the lessor is the defendant, Jie had previously told me that he owned the Waterloo Property but had bought it in his mother's name, and all my dealings in relation to the Waterloo Property, including demands for rent, had been through Jie. I therefore understood Jie's reference to "the total amount you owe me" to include any money owing pursuant to the Waterloo lease": CB 35[51].
9. Mr Henley's version of events continues as follows. 1. On 3 December 2015, he received an email from Mr Huang providing new bank account details for the rental payments [for the properties] and enclosing a letter entitled "Notice of Overdue Rent": CB 35[52], 117,118. 2. He realised that the amount of rent said to be outstanding in relation to the lease of the properties were similar to the amount of $252,158 that he asserts had not been paid. Nonetheless, he decided that G & T should make some further payments of rent to Ms Xu to ensure that the amount of rent being claimed by her did not exceed the amount being paid in relation to the Hello Kitty fit-out: CB 36[53]-[54]. 3. Sometime in December 2015, after receiving the 3 December 2015 email, Mr Huang's father contacted him and told him that he (i.e. Mr Huang's father) was the owner of the properties and that the rent needed to be paid each month on the first day of each month and that in the new year he would come and sit down with Mr Henley and "work out something in relation to the other money you owe me". Mr Henley says he responded that he would make sure that the rent would be paid on time: CB 36[55]. 4. Between 3 January 2016 and 1 February 2016, various payments with an identifier "Rent Waterloo" were made to one of Mr Huang's accounts and one of Ms Xu's accounts: CB 36[56]-[59].
10. Mr Henley's affidavit goes on to set out details regarding a lockout occurring on 9 January 2016 (CB 37[61]-[68]) and events associated with an attempted lockout on 22 January 2016: CB 37-38[69]-[75].
11. In particular, Mr Henley refers to Mr Huang telling him that he (Mr Huang) was "locking up the gym. It's my right and I'm going to do it" and asserting, inter alia, "you owe me money and I want my money": CB 38[71],[74].
12. I will return to the claim of set-off later in these reasons.

Notification to other interested parties of Ms Xu's claim

1. I have addressed above the evidence regarding service of the application on other potentially interested parties.
2. As noted above, I am satisfied that all other interested parties have been appropriately served.

Procedural steps for Ms Xu to access her entitlement to the funds

1. Mr Li outlined the various steps that might need to be taken if the Court declined the relief sought by way of application in the proceedings.
2. The steps included: Ms Xu filing a summons to reinstate G & T, applying for leave to commence and maintain the proceedings, seeking an order for reinstatement and extension of the limitation period (and various other steps).
3. I pause to note that there are related proceedings in which Ms Xu has filed a summons seeking such orders.
4. As I understand it, Mr Li intimates that if the application in these proceedings is acceded to, the other proceedings will be unnecessary.
5. Mr Li submitted that part of Ms Xu's claim to the funds (approximately $42,078) was undisputed, and that costs associated with the liquidator apparently unfunded with total cash of $2,742 being able to run a claim to recover a sum of approximately $62,276 for the benefit of unsecured creditors was remote and disproportionately costly for the liquidator: Submissions [27].
6. The Court must seek to give effect to an overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings when it exercises any power given to it by the Civil Procedure Act 2005 (NSW) (CPA) and any rules of Court: s 56(1)-(2) CPA.
7. For the purpose of furthering the overriding purpose, Court proceedings are to be managed having regard to specified objects being the just determination and timely disposal of the proceedings, the efficient disposal of the business of the Court and the efficient use of available judicial and administrative resources: s 57 CPA.
8. Further, the CPA and any rules of Court are to be so construed and applied, and the practice and procedure of the Court is to be so regulated, as best to further the overriding purpose and ensure the attainment of the objects: s 56(2) and 57(2) CPA.
9. The Court in deciding whether to make any order for the management of the proceedings, including an order considering the regulation of parties to the proceedings, must seek to act in accordance with the dictates of justice: s 58(1)(a) CPA.
10. For the purposes of determining what the dictates of justice are in a particular case, the Court must have regard to the provisions in ss 56 and 57 CPA and may have regard to the matters set out in s 58(2)(b) CPA to the extent which the Court considers them relevant.
11. The provisions of s 58(2)(b) CPA are as follows: (2) For the purpose of determining what are the dictates of justice in a particular case, the court - … (b) may have regard to the following matters to the extent to which it considers them relevant - (i) the degree of difficulty or complexity to which the issues in the proceedings give rise, (ii) the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities, (iii) the degree to which any lack of expedition in approaching the proceedings has arisen from circumstances beyond the control of the respective parties, (iv) the degree to which the respective parties have fulfilled their duties under section 56 (3), (v) the use that any party has made, or could have made, of any opportunity that has been available to the party in the course of the proceedings, whether under rules of court, the practice of the court or any direction of a procedural nature given in the proceedings, (vi) the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction, (vii) such other matters as the court considers relevant in the circumstances of the case.
12. I consider that this case is an example of the very sort of situation where the procedures of the Court should be moulded to permit the question of entitlement to the funds to be simply and inexpensively determined, by means of this application, in circumstances where: 1. the only other parties conceivably interested in the funds have been notified and for reasons outlined above there is no realistic prospect that they will take any of the technically formalistic steps that Mr Li refers to in order to pursue any such claim; and 2. it is unlikely that such steps, if taken, will have any practical utility.

Entitlement to the funds

1. There is no suggestion that HPCG paid the funds into Court or had any particular claim to the funds. That payment into Court occurred well prior to HPCG's joinder.
2. I have recounted in some considerable detail the material in Mr Henley's affidavit which was seemingly the only evidence ever filed in the proceedings to support G & T's claim for a set-off.
3. Precisely how it can properly be said that G & T was entitled to a set-off against Ms Xu in respect of the properties is not clear.
4. The detail asserted in Mr Henley's affidavit discloses that: 1. Mr Henley on a number of occasions admitted that outstanding rent was due to Ms Xu in respect of the properties; 2. from at least April 2015, Mr Huang was asserting that rent was in arrears and gave notices regarding termination of the lease and arrears of rent in respect of the properties; and 3. in May 2015, Mr Huang asserted "we can come to an arrangement with the Waterloo rent".
5. I leave aside the fact that Mr Henley's affidavit evidence is untested and any questions regarding the reliability and veracity of the evidence, and focus on what he asserts in his affidavit.
6. Mr Huang had dealings in his own right and in respect of various entities he was associated with Mr Henley.
7. In November 2015, Mr Henley, following receipt of an email, proceeded on the basis of an assumption that a comment made by Mr Huang in an email dated 29 November 2015 that "the money I owe you from the build will be reduced from the total amount you owe me" would somehow support a set-off against Ms Xu.
8. What is absent from Mr Henley's affidavit is any clear basis for identifying that the asserted statement by Huang that "The money I owe you from the build will be reduced from the total amount you owe me" was objectively to be construed as authorising a set-off in respect of monies G & T owed to Ms Xu.
9. The evidence in the affidavit, taken at its highest, cannot in my opinion justify any proper basis for a set-off in circumstances where Mr Henley: 1. refers to having a business and financial relationship with Mr Huang which was extremely complicated; 2. assumed but did not agree that there some generalised reconciliation between entities associated with Mr Huang and entities associated with Mr Henley (without naming all of them); 3. specifically, did not refer to any statement from Mr Huang that there would be a set-off with Ms Xu as distinct from a set of with "me", that is Mr Huang; 4. received conflicting contact from Mr Huang's father asserting that he (Mr Huang's father) owned the premises; and 5. being confronted by Mr Huang on 22 January 2016 at an attempted lockout of the premises, failed to assert on that occasion that the lockout was impermissible because he had any binding arrangement to set-off rent with Mr Huang, let alone with Ms Xu.
10. None of the above shows there was an agreement that HPCG's supposed claim under invoices against Hello Maple would be set-off against G & T's rental arrears to Ms Xu.
11. Despite the proceedings having been commenced in early February 2016, and numerous opportunities for G & T to file further evidence in respect of the claim, it seems that apart from the affidavit of Mr Henley dated 2 February 2016, no further evidence was sought to be adduced by G & T pursuant to any of the directions made by Darke J to make good the assertion of a set-off.
12. The claim of set-off in the affidavit depended upon various assertions made by Mr Henley in discussions with Mr Huang and emails and certainly did not come close to demonstrating that there was any logically reasoned basis in law for a set-off against the claim of Ms Xu.
13. Further, in Mr Henley's report as to affairs of HPCG dated 6 November 2017, in the part which makes provision for listing of assets, there is not a single asset specified by Mr Henley as being an asset of HPCG.
14. All categories of potential assets are described as being "unknown" with a notation at the end of the section stating "I'm not in possession of the company books + records": CB 339.
15. One would have thought that if HPCG had any claim to entitlement to monies under the above-mentioned invoices, that would have been specified.
16. On 8 July 2021, ASIC issued a media release in relation to Mr Henley. It: 1. indicated that he had been disqualified from managing companies consequent upon him being the director of nine companies that went into liquidation between February and May 2017 (including G & T and HPCG); 2. noted that the nine companies collectively owed approximately $13.791M to creditors; 3. noted that in making its decision to disqualify Mr Henley ASIC had found in relation to two companies, including G & T, that he had failed to exercise his powers and discharge his duties as a director with care and diligence, good faith and in the best interests of the companies and had failed to assist the liquidators by not delivering the companies' books and records: CB 149.
17. Further, Mr Li submitted that, in light of the material relating to Mr Henley and apparent lack of cooperation the liquidators received from him regarding the company's affairs, it was unlikely that any such claim would be able to be established.
18. I am unpersuaded that there is any reasoned entitlement of G & T, from the only evidence that was ever filed in the proceedings, and ever likely to be filed, to a set-off.
19. A curious aspect of the matter is that Mr Huang held shares in G & T at some point, seemingly prior to Mr Henley's involvement: CB 45-48. Further, there is documentation suggesting that Mr Huang was a director of G & T, at least at some point of time closely connected to the dates when the proceedings were dismissed, or the company was wound up in insolvency: CB 308.
20. However, I do not consider that that curiosity ought to distract me from finding that Ms Xu ought be entitled to the funds in circumstances where there is no established basis for a set-off by G & T, and no realistic prospect that any person on behalf of G & T will be entitled to such a set-off.

Is Ms Xu's delay in making the claim an obstacle?

1. In circumstances in which there were not insubstantial monies (in excess of $100,000) to which Ms Xu claims to be entitled that had been paid into Court, it is far from obvious to me why Ms Xu would not have made some enquiry in a period, which now extends to at least 5.5 years, of her son or her solicitors or the Court as to what was happening regarding the funds paid into Court.
2. Mr Li recognised that as part of making the application to the Court it was appropriate to provide the Court with an explanation regarding Ms Xu's delay in making the application.
3. Ms Xu states that she has very limited English language capacity and so relied upon and authorised her son to act on her behalf to deal with all matters relating to the properties: CB 175.
4. That suggests that Ms Xu, unassisted, has limited language capacity to easily engage in litigation.
5. The affidavit of an accredited NATTI interpreter (Mengyuan Ren affirmed 25 October 2022), although not formally read on the application, was seemingly part of the material which was formally served on the liquidators.
6. In those circumstances, I consider it appropriate to have regard to it.
7. The affidavit deposes to the fact that Ms Ren sight translated to Ms Xu her affidavit of that date to her in Mandarin: CB 442.
8. In relation to the orders made in June 2016 granting Ms Xu leave to file a cross-claim, Ms Xu states: "I assume this was done because my son considered it necessary to file a cross-claim to assert my entitlement to rental arrears from G&T" and "I had trusted that my son would faithfully prosecute my entitlement to rental arrears from G&T": CB 173[24]-[25].
9. At first blush, in circumstances where both the defence and cross-claim were directed to be filed on the same day and Ms Xu verified her defence but did not file or verify any cross-claim on her part, it is not clear to me why she did not then file a cross-claim or why she assumed that this is something that her son would have done.
10. However, first, it is not obvious to me that the legal representatives assisting Ms Xu in 2016 and 2017 were fluent in Mandarin.
11. Secondly, Ms Xu does, in her evidence, intimate that there was some arrangement with her son for him to carry out work in relation to the proceedings.
12. At least in one respect that is hardly surprising given that as noted above, Ms Xu, after acquiring the properties, had asked her son to manage them, albeit that the extent of the management authority conferred is unclear.
13. Ms Xu is apologetic for the delay in seeking to release the money: CB 176.
14. Ms Xu states that she was not informed by her son that the proceedings were ordered to be dismissed in or around March 2017 until she came to prepare affidavit for this application: CB 173[26].
15. Ms Xu states that in the course of preparing the affidavit she asked her son why he did not tell her at the time that he did not continue the proceedings and get the money back.
16. She cannot recall his precise answer because he referred to names and persons, she said she was unfamiliar with, but she indicates that he told her that he was very busy and involved in other Court proceedings and did not have time to deal with it: CB 174.
17. She states that she was disappointed and upset that he would hide such important matters from her and that had he told her about his difficulties at the time she would have taken steps, as she has done now, to instruct a Mandarin speaking solicitor. She says that she would not have allowed the proceedings to be dismissed without having her entitlement to payment of the rental arrears determined: CB 174-175.
18. Ms Xu further states that she has been asking her son to help release the monies held in Court since 2017 and that he responded with words to the following effect: "not yet, Mum. Leave it with me and I will handle it": CB 175[40].
19. Ms Xu, in her evidence, refers to a myriad of disputes between Mr Huang and Mr Henley and his corporate entities, and frankly states that she does not know how or whether they have been resolved.
20. She states that it appeared to her that both Mr Huang and Mr Henley had creditors chasing after them or both were chasing debts or might in dispute, and in the circumstances the arrangements that she thought she had with Mr Huang to assist her in the proceedings appear to have been forgotten by him or, in any event, were relegated to secondary importance by him: CB 146.
21. Ms Xu further states that although she considered instructing her own solicitor to attempt to deal with the matter such plans were interrupted by restrictions due to COVID-19: CB 176.
22. Overall, whilst the delay is regrettable, Ms Xu is the party prejudiced by the delay in the sense that she is the one who has not had the benefit of the funds.
23. In the circumstances, I do not consider that the delay per se should preclude the Court from making an order for release of the funds to Ms Xu where it would appear that she is otherwise entitled to them and where there is no clear basis for set-off against the funds provided as security for arrears of rent due to her.

Conclusion

1. I cannot see that there is any proper basis in law for the asserted set-off as described in the 2016 affidavit of Mr Henley.
2. Further, I am satisfied that it is appropriate that the Court release the funds to Ms Xu in circumstances in which: 1. it is evident that the monies were paid into Court by G & T and not by HPCG; 2. numerous directions were made by Darke J giving G & T an opportunity to adduce evidence to make good the claim of set-off; and 3. the liquidators had acted after the liquidation on a basis consistent with there being no (identifiable) realisable set-off available to the company in respect of the funds.
3. The orders of the Court are: 1. The funds of $104,354.50 paid into Court by G & T, the first plaintiff together with any accrued interest, be released to the first defendant Ms Xu.

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: 19 December 2022