The plaintiffs, as vendors, entered into a contract for the sale of the property at 311-317 Sussex Street, Sydney to the first defendant as purchaser. The second defendant guaranteed the obligations of the first defendant under the contract.
The contract was entered into on 14 March 2013. The purchase price was $17 million. The contract provided for a 10% deposit, with 5% payable on exchange and the remaining 5% payable on the earlier of the completion date of the contract (14 March 2014) or the actual date of completion. $850,000 was in fact paid towards the deposit upon exchange.
The plaintiffs allege that, following various agreements to extend the time for completion (including an agreement involving a release of the deposit funds and an increase in the price to $17,250,000), the first defendant failed to comply with a Notice to Complete. On 10 June 2014 the plaintiffs terminated the contract.
By a Statement of Claim filed on 15 October 2014, the plaintiffs seek a declaration that they validly terminated the contract, and further seek damages. Notwithstanding that the plaintiffs were able to complete a re-sale of the property in October 2014 at a price of $18 million, the plaintiffs estimate their damages at about $2.34 million. That amount includes the balance of the deposit, interest of about $566,000 and various holding costs and expenses including a real estate agent's commission of $792,000.
The defendants, by an Amended Defence filed on 12 March 2015, deny that the balance of the deposit is truly a deposit rather than a component of the purchase price, and alternatively say that if such an amount is payable it is void as a penalty. The defendants generally take issue with the plaintiffs' claim for damages, including as to the rate of interest and the amount of the agent's commission, which is claimed to be payable to a company related to the plaintiffs.
The defendants have also filed a cross-claim by which they seek an order under s 55(2A) of the Conveyancing Act 1919 (NSW) that if the sum claimed to be due as a deposit is payable, the amount should be repaid.
By an Amended Notice of Motion filed on 12 June 2015, the plaintiffs seek various freezing orders, including orders restraining a non-party, CLGC Investment Holdings Pty Ltd ("CLGC Investment"), from dealing with a property at 319 Sussex Street, Sydney or dealing with the net proceeds of any sale of such property.
The property, which is adjacent to the property the subject of these proceedings, was purchased by the first defendant by a contract entered into on 29 July 2013. The purchase price was $4 million. A deposit of $200,000 was paid. The contract was completed on 13 August 2014. On 3 September 2014, the property was transferred to CLGC Investment for a consideration of $1.
The plaintiffs contend that the first defendant retains a beneficial interest in the property, and that it is its only substantial asset.
The property is to be auctioned on 30 June 2015.
CLGC Investment contends that the property was purchased by the first defendant in its capacity as trustee of the 319 Sussex Street Unit Trust, and that the property became an asset of the trust. CLGC Investment further contends that the transfer of the property occurred consequent upon its appointment as trustee of the trust.
At the hearing of the motion the plaintiffs relied upon the affidavits of Matthew Abrahamian (4 June 2015 and 19 June 2015), the affidavit of Reece Shelby (4 June 2015), the affidavit of Dorian Kratsas (15 May 2015), and the affidavit of Junfang Wu (17 June 2015). Junfang Wu is a bookkeeper employed by CLGC Pty Ltd. CLGC Investment also relied upon that affidavit.
The plaintiffs, in support of the contention that the first defendant has a beneficial interest in the property, emphasised the following matters:
1. the contract dated 29 July 2013, whereby the first defendant agreed to purchase the property, does not indicate that it was doing so as a trustee of the trust;
2. there is no evidence that the first defendant informed the Commonwealth Bank of Australia of the existence of any trust when it was dealing with the bank in 2014 to obtain finance (of $2.1 million) to complete the purchase;
3. there is no evidence that the property was at any time accepted by the trustee of the trust (whether the first defendant or CLGC Investment) as an addition to the trust fund; and
4. the payment of stamp duty in connection with the transfer of the property from the first defendant to CLGC Investment, including the payment of full ad valorem duty on a new mortgage given by CLGC Investment to the Commonwealth Bank, suggested that the transaction was not merely one whereby property was transferred from a retiring trustee to a new trustee.
CLGC Investment, in support of the contention that the first defendant purchased and acquired the property in its capacity as trustee of the trust, emphasised the following matters:
1. the first defendant entered into the contract to purchase the property on 29 July 2013, the day after the establishment of the trust by deed dated 28 July 2013;
2. the sole shareholder of the first defendant, Ms Guan Xiuyan, held 10% of the units of the trust, with the other 90% held by CLGC Pty Limited;
3. the first defendant's purchase was completed on 13 August 2014 by way of a loan to the first defendant from the Commonwealth Bank of Australia of $2.1 million and payment of an amount of $1,978,513.85 by CLGC Australia Pty Limited, a company which shared a common director (Ms Weiping Lu) with CLGC Pty Limited; and
4. shortly following completion, steps were taken to incorporate CLGC Investment, stamp the trust deed, appoint CLGC Investment as trustee of the trust, transfer the property from the first defendant to CLGC Investment, arrange for the Commonwealth Bank of Australia loan to the first defendant to be replaced with a loan to CLGC Investment, and undertake an accounting with the first defendant in relation to interest it had paid and rent it had received whilst it was the owner of the property.
The freezing order is claimed against CLGC Investment pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 25.14(5) which provides:
"The court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a third party) if the court is satisfied, having regard to all the circumstances, that:
(a) there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because:
(i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor, or
(ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor, or
(b) a process in the court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment."
Uniform Civil Procedure Rules r 25.14(6) further provides that nothing in the rule affects the power of the court to make a freezing order if the court considers it is in the interests of justice to do so.
Mr D D Knoll of Counsel, who appeared for the plaintiffs, submitted that there was at least a serious question that the first defendant retained a beneficial interest in the property. Mr Knoll submitted that in circumstances where the first defendant did not appear to have any other assets of significance, the property or at least any proceeds of its sale should not be permitted to be dealt with in a way which might cause a prospective judgment to go unsatisfied. Mr Knoll further submitted that if the first defendant retained a beneficial interest in the property, CLGC Investment had a power of disposition over assets of the first defendant or was in a position to control or influence assets of the first defendant, so that the requirements of UCPR r 25.14(5)(a) were satisfied. Finally, Mr Knoll submitted that when the steps were taken to transfer the property to CLGC Investment, the first defendant was aware of the potential for the plaintiffs to bring a claim against it for damages.
Mr J Clark of Counsel, who appeared for CLGC Investment, emphasised the well-established principle that freezing orders are drastic remedies which should not be granted lightly, particularly against a non-party. Reference was made to the leading case of Cardile v LED Builders Pty Limited [1999] HCA 18; (1999) 198 CLR 380. Mr Clark further submitted that the plaintiffs had failed to establish that CLGC Investment fell within the requirements of UCPR r 25.14(5)(a). He submitted that the plaintiffs had not established that the first defendant had beneficial ownership of the property.
In that regard, Mr Clark submitted that the first defendant and the CLGC companies at all times acted towards each other in a manner consistent with the trust arrangements embodied in the trust deed dated 28 July 2013. That, so it was submitted, was exemplified by the substantial contribution of funds made by CLGC Australia Pty Limited upon completion of the purchase.
Mr Clark further submitted that there was no evidence that the first defendant expected to face a liability to the plaintiffs and, if it had such an expectation after the plaintiffs terminated their contract, there is every reason to think that the first defendant would have disclosed the existence of the trust to the Commonwealth Bank. Mr Clark was not, however, able to explain why the first defendant apparently failed throughout to disclose to the Commonwealth Bank the existence of the trust.
I have concluded that, on the evidence before the Court, a serious question does exist as to whether the first defendant has a beneficial interest in the property at 319 Sussex Street. The first defendant entered into the contract to purchase the property the day after the trust was established with it as the trustee. An inference could be drawn from those circumstances that the first defendant was purchasing as trustee. However, such an inference might not be drawn if the evidence showed that both in its dealings with the vendors of the property, and in its dealings with the Commonwealth Bank in relation to the obtaining of finance, the first defendant made no mention of purchasing the property as trustee. Still less might the inference be drawn if there was no evidence of steps taken by the first defendant to acquire the property as trustee. That is the position as the evidence currently stands. Accordingly, there is in my view a serious question about whether the first defendant purchased the property as trustee of the trust.
There is evidence that when completion of the purchase occurred in August 2014, almost half of the purchase price was provided by CLGC Australia Pty Ltd. Prima facie, any beneficial interest of the first defendant would be diminished accordingly. Of course, by that time, the first defendant had failed to complete its purchase of 311-317 Sussex Street and was facing at least a potential damages claim from the plaintiffs. That was also the position when steps were taken to incorporate CLGC Investment and have the property transferred to it.
The plaintiffs' claims for damages against the first defendant appear to have at least reasonable prospects of success. No suggestion was made to the contrary. It seems that the first defendant does not (apart from its possible interest in 319 Sussex Street) have any substantial assets. In all the circumstances, there is a danger that a prospective judgment will be wholly or partly unsatisfied because CLGC Investment, as registered proprietor of the property, has the power to dispose of assets of the first defendant, or is in a position of control or influence concerning assets of the first defendant. The power under Uniform Civil Procedure Rules r 25.14(5) to make a freezing order against CLGC Investment is thus enlivened.
As I understand it, 319 Sussex Street is to be submitted for sale at a public auction on 30 June 2015. The plaintiffs do not seek to restrain any such sale (as it would presumably result in an arms-length transaction for market value). They do, however, seek to restrain the possible dissipation of the net proceeds of any such sale, and thereby maintain the status quo.
In my view, an order should be made to restrain CLGC Investment for a period from dealing with the net proceeds of any sale of 319 Sussex Street (after the discharge of the mortgage to the Commonwealth Bank and payment of the costs of sale). The order should be expressed to be until further order of the Court. The plaintiffs will be required to give the usual undertaking as to damages.
I direct the plaintiffs to bring in a proposed form of order as well as procedural directions appropriate for the future conduct of the matter. The matter should be promptly prepared for hearing, particularly if a freezing order is to remain in place. The matter will be listed at 9:30am on 29 June 2015 for the making of orders. If there is consent to the orders in the meantime, I will make them in Chambers.
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Decision last updated: 26 June 2015