International Finance Trust Company Ltd v New South Wales Crime Commission

Solicitor for the Respondents on the Interlocutory Process filed 17 February 2023 / Plaintiffs: ERA Legal

ORDERS NSD 882 of 2022 IN THE MATTER OF 30 DENHAM PTY LTD (IN LIQUIDATION) (ACN 634 787 705) BETWEEN: STEVEN NAIDENOV IN HIS CAPACITY AS LIQUIDATOR OF 30 DENHAM PTY LTD (IN LIQUIDATION) (ACN 634 787 705) First Plaintiff

IAN NICCOL IN HIS CAPACITY AS LIQUIDATOR OF 30 DENHAM PTY LTD (IN LIQUIDATION) (ACN 634 787 705) Second Plaintiff

30 DENHAM PTY LTD (IN LIQUIDATION) (ACN 634 787 705) Third Plaintiff

AND: DC RD DC PTY LTD (ACN 634 893 459) First Defendant

DAVID JOHN DAWSON Second Defendant

DONG (TONY) ZHANG (and others named in the Schedule) Third Defendant

IN THE INTERLOCUTORY PROCESS FILED ON 17 FEBRUARY 2023 BETWEEN: BELROSE COB PTY LTD (ACN 640 327 153) First Applicant

LINK INVESTMENTS LIMITED Second Applicant

AND: STEVEN NAIDENOV IN HIS CAPACITY AS LIQUIDATOR OF 30 DENHAM PTY LTD (IN LIQUIDATION) (ACN 634 787 705) First Respondent

IAN NICCOL IN HIS CAPACITY AS LIQUIDATOR OF 30 DENHAM PTY LTD (IN LIQUIDATION) (ACN 634 787 705) Second Respondent

30 DENHAM PTY LTD (IN LIQUIDATION) (ACN 634 787 705) Third Respondent

order made by: STEWART J DATE OF ORDER: 17 FEBRUARY 2023

1. Prayer 3 of the relief sought by the interlocutory process filed on 17 February 2023 (17 February IP) be dismissed, the costs of which be costs in the cause of the interlocutory process filed on 14 February 2023 (14 February IP).
2. The final relief sought by the 17 February IP in respect of the 14 February IP be listed for hearing before the docket judge, Jackman J, on 2 and 3 March 2023. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 On 14 February 2023, I granted orders on an urgent ex parte basis under s 1323(3) of the Corporations Act 2001 (Cth) that have the effect of freezing the assets of all 10 respondents to the interlocutory process that was before me on that day. 2 On 17 February 2023, two of those respondents, namely Belrose COB Pty Ltd (the ninth) and Linked Investments Ltd (the tenth), sought discharge of the orders against them, also on an urgent basis. Discharge was sought on two grounds. First, it was said that there were material non-disclosures on the ex parte application. Secondly, it was said that the discretion to make the orders should be re-exercised, in particular in consideration of the fact that no damages undertaking was offered or could be required. 3 At the conclusion of the hearing I dismissed the application to discharge the orders and ordered that the costs be costs in the cause. These are my reasons for having so ordered.

Background 4 The plaintiffs are the liquidators of 30 Denham Pty Ltd and that company in liquidation. They commenced a proceeding on 19 October 2022 in which they sought approval to enter into a funding agreement. They were granted that approval on that day by Cheeseman J. 5 The plaintiffs subsequently sought, and were granted, asset preservation orders under s 1323(3) of the Act against the first to fifth defendants to the proceeding, and the issue of examination summonses and production orders under ss 596A, 596B and 597 of the Act. The third defendant is Mr Zhang. I mention him because he features in what follows. 6 The first and fifth defendants subsequently challenged the continuation of the orders against them. Ultimately an agreement was reached between the plaintiffs and those defendants leading to the discharge of the orders against them by Farrell J on 25 November 2022, but the orders continued against the second to fourth defendants. 7 In the meanwhile, the plaintiffs' investigation of the relevant circumstances said to justify the asset preservation orders continued. That led to the plaintiffs seeking asset preservation orders against further parties, being two corporations in which Mr Zhang appeared to own the shares. Those orders were made by Bromwich J on 16 January 2023. 8 The various defendants filed interlocutory applications seeking to have the preservation orders against them discharged, principally on the basis that there was no "investigation" within the meaning of s 1323(1)(a) of the Act such as to enliven the court's powers to make the orders. Markovic J made case management orders on 31 January 2023 programming those interlocutory proceedings to a hearing in March 2023 and directed that the matter as a whole be docketed. 9 In the meanwhile, the plaintiffs have continued their investigation into the circumstances giving rise to the asset preservation orders and have obtained further information. It is on the basis of that further information that they sought, and were granted, asset preservation orders against a further ten respondents on 14 February 2023.

Alleged non-disclosures 10 Dealing first with the alleged non-disclosures, it is uncontroversial that on an ex parte application the plaintiff has a duty of candour to bring to the attention of the court "all the material facts which [the absent] party would presumably have brought forward in his defence to that application": Thomas A Edison Ltd v Bullock [1912] HCA 72; 15 CLR 679 at 682; International Finance Trust Company Ltd v New South Wales Crime Commission [2009] HCA 49; 240 CLR 319 at [131]. Just what is material in this context has been put in different ways in the authorities, but I do not consider that there is anything of substance in the differences. 11 I adopt what was said in Savcor Pty Ltd v Cathodic Protection International APS [2005] VSCA 213; 12 VR 639 at [35] by Gillard AJA (with whom Ormiston and Buchanan JJA agreed), namely that what is a material factor is a matter which is relevant to the court's determination - it would have to be a matter of substance in the decision-making process. I take that to mean that the matter must be material in the sense of being capable of having affected the court's decision, and not that it would have affected the decision. 12 There are two matters that it is said were known to the plaintiffs which they failed to disclose and which were material in the sense identified. The plaintiffs do not dispute that they knew of those matters, but in respect of the first they say that it is irrelevant (or immaterial) and in respect of the second they say that they did disclose it to a sufficient degree.

The first alleged non-disclosure 13 The first matter is that Mr Zhang and his ex-wife, Ms Wang, were divorced by an order of the Federal Circuit and Family Court of Australia on 30 August 2021 (with effect from 5 October 2021), and the existence of a Deed of Financial Agreement dated in or about 2021 and Binding Child Support Agreement dated 10 November 2021 between them. The agreements both state by way of background that Mr Zhang and Ms Wayne were separated on 7 December 2018 and received an order of divorce on 30 August 2021. It is said that those matters are relevant to a portion of the affidavit of Mr Niccol, sworn on 13 February 2023, on which the plaintiffs relied in seeking the ex parte orders. 14 Relevantly, the affidavit of Mr Niccol has a heading "Mr Zhang and Xuenan Wang alleged separation". Beneath that heading there are some paragraphs (63-66) which refer to Mr Zhang and Ms Wang having stated in various bank documents in May 2019 and March 2021 that they were married. It is also identified that in the last of those documents, dated 19 March 2021, it was stated that the ownership of a property at "3 Minna Close" was owned by Mr Zhang as to 100% and valued at $40 million. 15 Also beneath the heading, but immediately preceding those paragraphs, there is reference to an email on 1 February 2023 from Mr Zhang's solicitor to the plaintiffs' solicitors asking for consent to a variation of the asset preservation order previously made against Mr Zhang so that he could "comply with his obligations under the Financial Agreement between him and his ex-wife to sign documents to enable three jointly held properties to be transferred into his ex-wife's name only." It is to be noted that the 3 Minna Close property is not mentioned in the Financial Agreement which otherwise identifies the distribution of assets between Mr Zhang and Ms Wang on their divorce. 16 None of those paragraphs of the affidavit, aside from the reference to the 3 Minna Close property, was referred to in submissions to the Court in support of the ex parte relief. Indeed, those paragraphs are irrelevant to the relief save for the reference to the 3 Minna Close property. That is relevant as follows. 17 The next section of the affidavit has the heading "Belrose COB, 3 Minna Close and by Mr Zhang" (sic). The paragraphs beneath that heading (67-73) and the exhibits referred to in those paragraphs establish the following: (1) The property at 3 Minna Close, Belrose, NSW, is registered as being owned by Belrose COB as at 3 February 2023. (2) The property has on it an office block of considerable proportions (ie, potentially justifying the $40 million valuation). (3) Belrose COB was registered on 16 April 2020 with a then and continuing principal place of business being the same as that stated by Mr Zhang and Ms Wang in the bank documents referred to in the previous sections of the affidavit. (4) Mr Zhang is and has always been the sole director and secretary of Belrose COB. (5) Of the 100 ordinary shares issued in Belrose COB, all of them were previously recorded as owned "beneficially" by Mr Zhang but by a change of shareholding document received by ASIC on 27 January 2023, they were all transferred to Belrose COB itself, although not recorded as being held beneficially by it. The change of shareholding document is itself dated 27 January 2023 but it seeks to change the member's name in the register with effect from 1 October 2021. (6) There is an undated declaration of trust document recording that Mr Zhang held the shares in Belrose COB on trust for the beneficial owner, a family trust established by him named DDQ Family Trust. 18 The point that was made in submissions in support of the ex parte asset preservation orders against Belrose COB was that notwithstanding the asset preservation order on 25 November 2022 against Mr Zhang: on 27 January 2023, Mr Zhang's shareholding (being the only shareholding) in Belrose was transferred to Belrose. Earlier, Mr Zhang had completed loan applications indicating that Belrose, which was the owner of a property at 3 Minna Close Belrose, had a value of $40 million and was wholly owned by himself. The references there to "Belrose" are references to Belrose COB. 19 The same point was made in oral submissions. That is to say, asset preservation orders were sought against Belrose COB restraining it from dealing in its shares in various respects because, it was submitted, it appeared prima facie at least that Mr Zhang had transferred the shares that were recorded to have been owned by him to Belrose COB in breach of asset preservation orders restraining him from making such a transfer. The point was also made that it was not explained how Belrose COB could be recorded as owning the shares in itself. 20 There was nothing in what the Court was taken to at the ex parte stage, or that was submitted, that had anything to do with Mr Zhang and Ms Wang being or not being married, or being or not being separated. 21 The argument advanced in support of there being a nondisclosure was that Mr Niccol's affidavit appeared to doubt the implication in the statement by Mr Zhang's solicitor on 1 February 2023 that Mr Zhang and Ms Wang were no longer married, which arises from the reference to her being Mr Zhang's ex-wife. The doubt was said to arise from the heading, which referred to their "alleged separation", and by referring to bank forms in May 2020 and March 2021 in which they said they were married. That was notwithstanding that the plaintiffs had the documents in its possession showing that they were divorced by a divorce order on 30 August 2021 with effect from 1 October 2021. 22 In my view, the respondents sought to make too much of the point, and in particular the paragraphs in question. As I have said, in seeking the ex parte orders against Belrose COB no reliance was placed on the status of the relationship between Mr Zhang and Ms Wang, and no reference was made to the "alleged separation" wording in the heading or the paragraph referring to Ms Wang as an "ex-wife". It appears that that may have been a reference to the recordal in the Financial Agreement and the Child Support Agreement to them having been separated since December 2018 rather than casting doubt on their divorce. In any event, none of that had, nor could it have had, any relevant bearing on the point at hand which was that Mr Zhang had apparently transferred shares in a company that owned property said to be valued at $40 million contrary to a restraint operating against him. Ms Wang simply did not come into that picture, and if she did it could only have been as also having an interest in those shares which could not have changed the underlying point. 23 In the circumstances, I am satisfied that the non-disclosure by the plaintiffs at the ex parte stage of the documents referred to by the respondents which go to the status of Mr Zhang and Ms Wang's relationship was immaterial; it could not have had any bearing on or relevance to the decision at hand.

The second alleged non-disclosure 24 The respondents submit that at the ex parte stage the plaintiffs failed to adequately present to the Court the argument against the plaintiffs' reliance on s 1323(1)(a) of the Act in seeking asset preservation orders. Under that provision, where "an investigation is being carried out under the ASIC Act or this Act" in relation to an act or omission by a person that may constitute a contravention of the Act, and the court considers it necessary or desirable to do so for the purpose of protecting the interests of a person to whom the first-mentioned person is or may become liable to pay money, the court has various powers then set out which are loosely referred to as including powers to make asset preservation orders. Actually, the power to make asset preservation orders is implied from the express power in para (h) to appoint a receiver to the person's property, and asset preservation order being less intrusive than the appointment of a receiver: In the matter of Courtenay House Capital Trading Group Pty Ltd (in liquidation) [2018] NSWSC 1918; 133 ACSR 451 at [12] per Black J. The argument against the plaintiffs' reliance on s 1323(1)(a) is that there is no "investigation" being carried out because the plaintiffs' "investigation" into the relevant affairs through the examination summonses and related powers does not constitute an "investigation" under that provision. 25 The respondents rely in particular on written submissions filed on 22 November 2022 on behalf of the first and fifth defendants, and written submissions filed on 10 February 2023 on behalf of the fourth defendant, which set out a detailed argument as to why the power under s 1323(1)(a) is not available on the basis of liquidators' examinations. The respondents submit that the full detail of that argument was required to have been put to the Court at the interlocutory stage in order for the plaintiffs to have fulfilled their duty of candour. 26 There are two principal considerations that count against the respondents' contentions in this regard. 27 First, the plaintiffs drew quite detailed attention to the argument against the relevant power being available. They did that in written submissions in which they said, amongst other things, that the first and fifth defendants had challenged the continuation of the asset preservation orders on the assertion that the Court did not have the power to make orders because there was no "investigation" under the relevant provision. It was said that ultimately agreement was reached between those defendants and the plaintiffs which resulted in the orders against them being discharged, which carried with it the implication that there may be some real substance to the defendants' contention. It was said that the remaining defendants/respondents had also indicated that they wished to advance the same argument. 28 In oral submissions on the ex parte hearing, counsel for the plaintiffs explained that there is a live argument as to whether there is an "investigation" and conceded that there is apparently no authority dealing specifically with it. Counsel explained that it was put against the plaintiffs that the reference to "investigation" is a reference to ASIC investigations only and that the liquidators' investigation does not qualify. He submitted that there was "a respectable argument" against that. 29 Secondly, the matter was dealt with on 14 February 2023 on the basis of s 1323(3) and not s 1323(1). Subsection (3) provides that where an application is made to the court for an order under sub-s (1), the court may, "if in the opinion of the Court it is desirable to do so, before considering the application", grant an interim order, being an order of the kind applied for that is expressed to have effect pending the determination of the application. Not only is it recorded in the orders made on that day that they were made pursuant to sub-s (3) (and not sub-s (1)), but during the hearing I recorded that it seemed to me that there is at least a reasonable argument that there is an "investigation", but that I did not need to decide that for the purpose of exercising the power under sub-s (3). I recorded that I was satisfied to the requisite level as required by sub-s (3), and I was entirely alive to the reality that the question of whether the power existed under sub-s (1) for the continuation of the orders in due course would be decided at the hearing that had been listed for a date in March. 30 In the circumstances, I am satisfied that the fact that there was a serious argument to be made against there being an "investigation" so as to enliven the power under sub-s (1) was brought to the Court's attention. That was sufficient, ie, without presenting the full detail of that argument, because it was not necessary to determine that question. That is particularly because under sub-s (3) what was required was that there was an application for an order under sub-s (1), and the power under sub-s (3) could be exercised "before considering the application". That carries with it the implication that the Court was not required to decide on a final basis a contested point of law on which respectable arguments could be made both ways. 31 On that basis, there is no possibility that had the full details of the point as set out in the written submissions of counsel for the first and fifth defendants, and the fourth defendant, been put to the Court it could have made any difference to the decision that was made.

Reconsideration 32 On this point, the respondents submit that I should reconsider the discretion that was exercised in making the ex parte orders taking into consideration the fact that they were not accompanied by any undertaking as to damages. In that regard, as mentioned, s 1323(4) provides that "the Court must not require the applicant or any other person, as a condition of granting an interim order under subsection (3), to give an undertaking as to damages". There are authorities that recognise that that may be a relevant consideration in the exercise of the discretion: Ramsay v Featherstone Resources Ltd [2013] NSWSC 1923 at [21] per Black J and the further authorities cited there. 33 I reconsidered the exercise of the discretion taking that matter into account. The difficulty for the respondents in this regard is that there is no evidence that they are likely to suffer any damages on account of the orders. As mentioned, in respect of Belrose COB the orders prevent any dealing in the shares of that company. There is no suggestion that between now and the return day in a few weeks' time any such dealing is planned or anticipated, or what losses might be suffered if any such dealing was delayed. In respect of Link Investments, the orders are far more extensive. They include the company not diminishing the unencumbered value of its property below the sum of $19,739,599.93. However, there is no evidence of how significant that sum might be to Link Investments or, more particularly, what the nature of its business is and whether the orders might cause any loss. 34 In the circumstances, on reconsidering the exercise of the discretion I resolved not to discharge the orders.

Conclusion 35 For those reasons, I dismissed the interlocutory process insofar as it sought to discharge the interim asset preservation orders against Belrose COB and Link Investments. 36 The plaintiffs submitted that they should have the costs of the application because they had been successful. I ordered that the costs be costs in the cause because, as I explained ex tempore, asset preservation orders are exceptional and draconian. Parties affected by such orders having been obtained ex parte should not feel constrained to bring matters before the court in seeking to have those orders reconsidered by the threat of an adverse costs order, unless such an application was brought unreasonably. In my assessment, although I found against the respondents in their application, they were not unreasonable in bringing it forward, especially in circumstances where they did not have the benefit of the transcript of the ex parte hearing. Having not had an opportunity to be heard at the ex parte stage, they were quite justified in seeking a reconsideration of the orders notwithstanding that they were ultimately unsuccessful in that endeavour. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.

SCHEDULE OF PARTIES NSD 882 of 2022 Defendants Fourth Defendant: DERRICK MARTIN DE SOUZA Fifth Defendant: STANLEY XUE Parties to the Interlocutory Process filed on 14 February 2023 First Applicant: STEVEN NAIDENOV IN HIS CAPACITY AS LIQUIDATOR OF 30 DENHAM PTY LTD (IN LIQUIDATION) (ACN 634 787 705) Second Applicant: IAN NICCOL IN HIS CAPACITY AS LIQUIDATOR OF 30 DENHAM PTY LTD (IN LIQUIDATION) (ACN 634 787 705) Third Applicant: 30 DENHAM PTY LTD (IN LIQUIDATION) (ACN 634 787 705) First Respondent: DONG (TONY) ZHANG Second Respondent: DERRICK MARTIN DE SOUZA Third Respondent: ZHENGJUN CAI ALSO KNOWN AS BOB CAI Fourth Respondent: CHARM TEAM DEVELOPMENT LIMITED Fifth Respondent: CENTRAL ADVISORY GROUP ASIA LIMITED Sixth Respondent: CENTRAL ADVISORY CAPITAL PTY LTD (ACN 621 169 015) Seventh Respondent: DSZ ACCOUNTANTS PTY LTD (ACN 161 148 545) Eighth Respondent: LIAN LI Ninth Respondent: BELROSE COB PTY LTD (ACN 640 327 153) Tenth Respondent: LINK INVESTMENTS LIMITED