Horton Asset Pty Ltd v HMSY Group Pty Ltd

Supreme Court of NSW|2024-12-16|Before: Elkaim AJ, Button J, Weinstein J, Rothman J

JUDGMENT

The plaintiff commenced these proceedings with the filing of a statement of claim on 31 March 2024. The pleading seeks repayment of a loan made by the plaintiff to the defendant of $1,100,000 plus interest.
According to the statement of claim the loan was made in July 2016 and was to be repaid by 8 July 2018 together with interest at the rate of 10% per annum. The loan has not been repaid nor has any interest payment been made.
By a notice of motion filed on 17 October 2024, the plaintiff now seeks default judgment. This motion is supported by an affidavit of Mr George Chen dated 17 October 2024. Mr Chen is one of the two directors of the plaintiff company.
The defendant also has a notice of motion, filed on 5 November 2024. The purpose of the defendant's motion is to vacate a freezing order made, by consent, by Button J on 28 June 2024. The order made by Button J was a refinement of previous orders; made by Weinstein J on 31 May 2024 and then Rothman J on 3 June 2024.
The defendant's motion is supported by affidavits of Mr Ali Hamam dated 7 June 2024 and 22 November 2024 respectively. Mr Hamam is the sole director of the defendant company. The plaintiff relies on affidavits from Mr Chen dated 31 May 2024 and Ms Xiangye Chen, also dated 31 May 2024. Ms Chen is the plaintiff's solicitor.
The orders made by Weinstein J were made on an ex-parte application by the plaintiff. The orders made by Rothman J were made by consent.
I will deal with each motion in turn.

The freezing order

The orders made by Button J were as follows: "TERMS OF ORDER MADE BY THE COURT BY CONSENT 1 The Court NOTES that the total amount of the net proceeds of the sale of the land comprised in Lot XXX of Deposited Plan XXXXXX, known as 7 XXXXXX Street, Padstow NSW 2211 ("7 XXXXXXX Property"), the land comprised in Lot XXX of Deposited Plan XXXXXXX, known as 7a XXXXXXX Street, Padstow NSW 2211 ("7a XXXXXXX Property") and the land comprised in Lot XX of Deposited Plan XXXXX, known as 9 XXXXXX Street, Padstow NSW 2211 ("9 XXXXXX Property"), being $942,483.27, is held in the trust account of the Defendant's solicitor pursuant to Order 1 made by Chen Jon 31 May 2024, as varied by Order 2 made by Rothman J on 3 June 2024 (Earlier Order). 2 2. The Earlier Order is further varied to: a. require the amount of $500,000 to be paid into the trust account of the Plaintiffs solicitor by the Defendant's solicitor within 3 days after the date of this order for the purpose of the Plaintiffs solicitor, as solicitor for Lilygao Ply Ltd, disbursing those funds to Lilygao Pty Ltd in satisfaction of the judgment obtained by Lilygao Pty Ltd against the Defendant in proceedings No.2021/00178130 in this Court. b. order that the balance of the net proceeds, being $442,483.27, continue to be held in the trust account of the Defendant's solicitor pending the determination of the proceedings or further order of the court. 3. The Plaintiffs Notice of Motion filed on 31 May 2024 otherwise be dismissed. 4. The costs of the Plaintiffs Notice of Motion filed on 31 May 2024 be reserved.".
The effect of the freezing order is that an amount of $442,483.27 resides in the defendant's solicitors' trust account "pending the determination of the proceedings or further order of the court."
The plaintiff opposes the discharge of the freezing order. This is no doubt to ensure that the funds mentioned above are not improperly dissipated by the defendant. The plaintiff submitted that there was a "universe" of possibilities for the dissipation of the funds.
The plaintiff submitted that upon the default judgment being entered there was an inescapable conclusion that the defendant would be insolvent. This was evident, submitted the plaintiff, from the statement of assets provided by Mr Hamam in his affidavit of 7 June 2024 at [4]. The defendant however pointed out that Mr Hamam only became a director of the defendant on 20 February 2024, and when preparing the list of assets he had not yet received all of the defendants records. His statement of assets is headed "Summary of known Assets known to me to date."
While there may be good reason for the plaintiff to be suspicious of the defendant's solvency the evidence before me could not be said to be conclusive.
Both the plaintiff's opposition and the defendant's motion both ignore the terms of the orders made by Button J and to which they both consented. The orders state in the clearest of terms that the freezing order will cease upon the determination of the proceedings or further order of the court.
There is no formal application by the plaintiff to extend the freezing order. I accept that an implicit oral application was made in the hearing before me and that the plaintiff did ask for a stay of any orders to later in the week so that it could it consider whether it should make a formal application. In my view the time is well passed. The plaintiff was aware of the terms of the orders and should have made an application for their extension by way of a notice of motion. I will return to the request for a stay below.
The plaintiff, in an apparent justification for not having made a formal application, at one stage submitted that the defendant had never taken the point that the terms of the order would bring the freezing order to an end. The submission was contrary to the defendant's written submissions which clearly state: "(a) Upon determination of the Plaintiff's Notice of Motion (for default judgment), these proceedings would have been determined and order 2(b) made on 28 June 2024 by Justice R Button operates to discharge the orders as the proceedings have now been determined;"
I also asked the plaintiff why there had been consent to the orders made by Button J which explicitly bring the freezing orders to an end at the conclusion of the proceedings. I was told that this was an "oversight" on the part of the plaintiff. While I do not doubt counsel's statement to this effect it is to be remembered that not only were the orders made by Button J made by consent but so too were the orders made by Rothman J.
There was no evidence from the plaintiff to substantiate any error or lack of understanding on its part.
The plaintiff referred me to the decision of Henry J in National Australia Bank Ltd v Human Group Pty Ltd (No 2) [2020] NSWSC 1900 at [104] and [107]. I have no difficulty with the principles stated therein but the case concerned a specific application to vary freezing orders and was made during the course of proceedings, not on completion of proceedings.
Both parties made submissions as the requirements for a freezing order. I think they are beside the point. The point is that there is an order in place that dictates its own course. Neither party has made an application for variation of the order. The defendant's application to vacate the order is not necessary. The freezing order will cease upon the "determination of the proceedings".
Accordingly, the defendant's notice of motion will be dismissed.
As to the stay requested by the plaintiff, I am not prepared to make any such order. Nevertheless, I am mindful of the plaintiff's apprehension about the funds, in particular, against the background of the defendant not opposing the default judgment which is for a sum far exceeding the frozen funds. I think the solution is for me to request the defendant to give an undertaking not to deal with the funds prior to 4pm on 17 December 2024. This will give the plaintiff the opportunity to commence any new proceeding, such as seeking an injunction, prior to tomorrow's deadline.
The costs in the various freezing order applications were reserved. The plaintiff accepted that these orders should not be made in its favour on an indemnity basis but rather on an ordinary basis. The defendant submitted that the costs of the freezing orders should be borne by each party respectively.
The ultimate lack of resistance by the defendant to the entry of the default judgment indicates an acceptance of its obligations under the loan. It is not surprising that the plaintiff took action to secure the assets of the defendant pending the outcome of the proceedings. I think the plaintiff should be entitled to the costs associated with the freezing orders including the defendant's motion filed on 5 November 2024.

Orders

I make the following orders: 1. Note the defendants undertaking not to deal with the funds referred to in order 1(b) of the orders made by Button J on 28 June 2024 prior to 4pm on 17 December 2024. 2. Default judgment for the plaintiff is entered in the sum of $2,016,642.47. 3. The defendant is to pay the plaintiff's costs of the proceedings on an indemnity basis, other than those costs relating to the making and extension of the freezing orders, which costs are to be paid by the defendant on an ordinary basis. 4. The defendant's notice of motion filed on 5 November 2024 is dismissed with costs.

Amendments 17 December 2024 - Amendment to para 31 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: 17 December 2024

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