HAMILL J: The plaintiff seeks a freezing order against the first and second defendants in accordance with r 25.11 of the Uniform Civil Procedure Rules 2005 (NSW)("UCPR"). The order is sought without notice to the defendants. In support of the application the plaintiff reads two affidavits, one of Jeffrey Tang and one of Wing Shan Wu. Each of the deponents is a shareholder in the plaintiff company, H Biotechnology Pty Ltd. The first defendant is (or was) also a shareholder of the plaintiff company.
To put it bluntly, Mr Tang and Ms Wing assert that the first defendant committed a fraud on the company and its shareholders over a period from around late January until early April of this year. It may be that that fraud or deceit is ongoing.
The factual circumstances of the allegation are set out in a little detail in the affidavits. For the purpose of this urgent application they can be summarised as follows.
The company was incorporated in late January of 2020. There were four shareholders including the two deponents and the first defendant as well as another man, Charlie Cai. The idea or concept was for the company to wholesale what is described in the affidavit of Mr Tang as "personal well-being and hygiene products". Relevantly, and given the current state of the world one might think serendipitously, one of the products was to be hand sanitiser.
The first defendant and Mr Tang entered negotiations with an Australian company called Sinicare with a view to obtaining sanitiser manufactured by that company in Australia. One of the markets to which the plaintiff company hoped to sell the products was China. For reasons of no present relevance, it is alleged in the affidavits that the shareholders did not want to obtain the sanitiser from manufacturers in China.
Mr Tang's affidavit sets out the details of six invoices purportedly from Sinicare relating to orders made by the plaintiff for tens of thousands of units of oral alcohol spray and hand sanitisers. On the plaintiff's case these invoices were provided by the first defendant to Mr Tang and purported to be from Sinicare. Based on representations made by the first defendant and the details provided by him, a number of payments were made by direct deposit into a bank account or bank accounts that Mr Tang and the other shareholders believed were the accounts of Sinicare. These were thought to be payments or part payments for orders for the hand sanitisers and alcohol spray.
H Biotechnology Pty Ltd v Shao; H Biotechnology Pty Ltd v Chen [2020] NSWSC 585 | Case summary | Zoe
It is the plaintiff's case that the money was not received by Sinicare, but by the first defendant, who had falsified the relevant invoices and provided details of bank accounts operated by him. A bank account into which money was deposited was a joint account owned by the first defendant and his wife who is the second defendant. It is alleged that the first defendant admitted paying some of the money towards his and his wife's mortgage and personal debts. It is the plaintiff's case that a little less than $150,000 was obtained by deceit perpetrated by the first defendant and received by the first and second defendants.
The plaintiff also alleges that the first defendant attempted to, or did, source similar products (that is, hand sanitisers and the like) from a supplier in China. This was contrary to the business plan and potentially caused significant marketing issues. The type of product, in terms of unit size and packaging etc, that the first defendant sourced was inconsistent with the products that the company was marketing. This necessitated relabelling and repackaging of the product at significant cost.
There is some suggestion in the affidavits that the first defendant was in cohorts with a shady sounding figure who called himself Fat Charlie (not Charlie Cai). Fat Charlie contacted Mr Tang and told him the first defendant was supplying him with hand sanitiser presumably sourced from China. It is alleged that Fat Charlie effectively warned off the plaintiff from entering competition for certain government markets. The details of this are a little sketchy at this stage.
The plaintiff contends that as a result of the conduct alleged it lost the opportunity to sell many tens of thousands of units of the product to a number of potential purchasers. These are set out in the affidavits. The affidavits also set out a number of expenses incurred by the plaintiff on the understanding that it would obtain the products in accordance with the orders it believed had been placed with Sinicare.
Mr Tang states his belief that the loss to the company - including the loss of potential profits, the expenses incurred and the 140,000 odd dollars thought to be paid to Sinicare but in fact paid to the first defendant - in total comes to a sum in excess of one million dollars.
That is a very rough outline of the case the plaintiff seeks to bring against the defendants.
On the plaintiff's case the first defendant was the active participant who engaged in what was described in argument this morning as a "common law deceit". The second defendant was the beneficiary of the plaintiff's funds and, according to the affidavit of Ms Wing, the second defendant made admissions concerning her knowledge of the first defendant's conduct.
The affidavit of Mr Tang exhibited a substantial body of potentially supporting documentation.
The affidavits also provide details of the assets that the plaintiff believes are owned or controlled by the defendants (some of which are in China), the connection of the defendant to China and some difficulties the plaintiff's shareholders have had in making contact with the first defendant over the last weeks.
The plaintiff says it will be in a position to commence proceedings by Statement of Claim within two weeks. While the question of the quantum of any potential damages is at the moment somewhat uncertain, based on the material before the Court I am satisfied that the plaintiff has a "good arguable case" on liability.
Based on the dishonesty alleged in the materials, the difficulties encountered in contacting the first defendant more recently and the nature of the assets thought to be owned or controlled by the defendants, I am satisfied there is a danger that a prospective judgment may remain unsatisfied because the defendants may abscond or dispose of relevant assets.
To secure the making of a freezing order the defendant has made the usual undertakings. There are no strong discretionary considerations of which I was made aware that militate against the making of a freezing order. The plaintiff is in a position to move forward promptly with the litigation and the matter can be returnable, with the defendant put on notice, next week. The form of the order is in accordance with the draft provided in the Supreme Court Practice Note Gen 14.
For those reasons I indicated in the course of argument that I was satisfied that a freezing order should be made.
I raised the question as to whether the ancillary orders under r 25.12 of the UCPR and contained in draft orders 8 and 9 should be made at this stage. In particular, I questioned whether such orders, which involve compelling the defendants to disclose their asset base, was appropriate to be made ex parte when an application for the same could be made next week when the case will next be before the Court and when the defendants would be on notice and in a position to resist the making of such orders.
True it is that order 9 in the proposed order, which mirrors the draft orders in the Practice Note, provide for the defendants to raise an objection based on self-incrimination. Nevertheless Ms Cohen very properly and fairly indicated that she could not mount an argument that it was necessary or appropriate to press an order that the defendants be compelled to make such disclosure at this stage and in their absence. Presumably by next week the defendants will be in a position to contest the making of such orders if they chose to do so and can be heard.
For those reasons in the exercise of discretion I do not propose to make orders 8 and 9 in the draft orders which are, as I say, orders compelling the defendants to make disclosure as to their assets and a number of details set out. However, for the reasons given, I will make the orders otherwise proposed and I will read onto the record the terms of the interlocutory orders and I will simply refer to annexure A, being the details of the freezing orders with orders 8 and 9 deleted.
So the orders I make today are these:
1. Upon the solicitor for the plaintiff undertaking to pay any filing fees referable to this summons the plaintiff be granted leave to file in Court:
1. The summons filed in Court on 13 May 2020;
2. The affidavit of Jia (known as Jeffrey) Tang sworn on 11 May 2020; and
3. The affidavit of Wing Shan Wu (known as Wing) sworn on 11 May 2020.
1. That the summons returned instanter.
2. The service of the initiating documents be effected in the first instance by:
1. An e-mail sent to [EMAIL REDACTED] on or before 4pm today, that is 13 May 2020.
2. By leaving a copy of the initiating documents at [ADDRESS REDACTED] on or before 4pm today that is 13 May 2020.
1. Pursuant to rr 25.11 and 26 of the Uniform Civil Procedure Rules 2005 (NSW) an order against the first and second defendants in the form of the freezing order annexed to the summons and marked "A".
2. Direct the matter to be listed before the Duty Judge at 10am on Wednesday, 20 May 2020.
3. The plaintiff is to file and serve its statement of claim on or before 27 May 2020.
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Decision last updated: 19 May 2020