Ke Qin Ren v Hong Jiang; Yi Cheng Jiang v Wan Ze Property Development

Court of Appeal (NSW)|2014-11-04|Before: Barrett JA, Gleeson JA, Leeming JA

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Hammond Suddard Solicitors v Agrichem International Holdings Ltd [2001] EWCA 2065 Magnate Projects Pty Ltd v Youma Constructions (No 2) Pty Ltd [2005] NSWCA 331 O'Brien v Bank of Western Australia Ltd [2013] NSWCA 71; 16 BPR 31,705 Ren v Jiang (No 3) [2014] NSWCA 204 Ren v Jiang (No 4) [2014] NSWCA 315 Spencer v Commonwealth [2010] HCA 28; 241 CLR 118 Wan Ze Property Development (Aust) Pty Ltd [2013] NSWSC 1977 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] UKHL 12; [1996] AC 669 Xu v Wan Ze Property Development (Aust) Pty Ltd (in liq) [2014] FCA 461 Yi Cheng Jiang v Wan Ze Property Developments (Aust) Pty Ltd (in liq) [2014] NSWCA 350 Category: Principal judgment Parties: 2012/240805: Ke Qin Ren (1st Applicant) Pei Xu (2nd Applicant) Gloconnect Pty Ltd (4th Applicant) Hong Jiang (1st Respondent) Yongan Xie (2nd Respondent) Wan Ze Property Development (Aust) Pty Ltd (in liq) (3rd Respondent)

2014/211574: Yi Cheng Jiang (Applicant) (formerly, 3rd Applicant in 2012/240805) Wan Ze Property Development (Aust) Pty Ltd (in liq) (1st Respondent) Hong Jiang (2nd Respondent) Yongan Xie (3rd Respondent) Representation: Counsel: 2012/240805: Mr JE Sexton SC / Mr JC Lee (Applicants) Mr DA Smallbone (1st and 2nd Respondents) Mr DC Eardley (3rd Respondent)

2014/211574: Mr JC Giles / Mr E Yin (Applicant) Mr DC Eardley (1st Respondent) Mr DA Smallbone (2nd and 3rd Respondents) Solicitors: 2012/240805: Ren Zhou Lawyers (Applicants) AHL Legal (1st and 2nd Respondents) Downeys Lawyers (3rd Respondent)

2014/211574: Gadens (Applicant) Downeys Lawyers (1st Respondent) AHL Legal (2nd and 3rd Respondents) File Number(s): 2012/240805; 2014/211574 Decision under appeal Citation: [2012] NSWSC 722; [2012] NSWSC 821 Before: Black J File Number(s): 2011/51745

Judgment 1THE COURT: Stripped of the complexity resulting from their procedural history, the essential question arising in these two proceedings is whether the primary judge erred in entering summary judgment against defendants who (together with their former solicitor) had shown an egregious disregard of the Court's pre-trial directions and obligations under s 56(3) and (4) of the Civil Procedure Act 2005 (NSW). 2Notwithstanding the defendants' defaults, this is a clear case of error. His Honour failed to apply the correct test, and made no reference to evidence before him which on any view precluded the availability of summary judgment. It should be said immediately that his Honour was not directed to the correct test, or to the salient evidence; if his Honour had received appropriate assistance, summary judgment would not have been ordered. 3There is no substance in the respondents' motion that leave should be refused for discretionary reasons, said to amount to an abuse of process, arising out of subsequent events. That motion should be dismissed. There must instead be grants of leave to appeal, the appeals allowed, the summary judgment set aside, and the matter remitted to the Equity Division.

Factual and procedural background 4Ms Hong Jiang and Mr Yongan Xie are husband and wife, and the active respondents to the applications for leave. They were two of the directors of Wan Ze Property Development (Aust) Pty Ltd (Wan Ze). Ms Hong Jiang is also a 50% shareholder, was born in China, and according to her affidavits does not speak English. 5The primary judge ordered that Wan Ze be wound up, a course to which the respondents consented, and from which no party seeks leave to appeal. At all material times, Mr Ke Qin Ren and Ms Pei Xu, who are also husband and wife, have been directors of Wan Ze. From 2008 until 20 December 2010, Mr Yi Cheng Jiang was a director of Wan Ze. Wan Ze's other 50% shareholder is Gloconnect Pty Ltd, which is associated with Mr Ren, Ms Xu and Mr Yi Cheng Jiang. All four were defendants at first instance, and have applied for leave to appeal. There was no dispute that there was a deadlock at the level of a general meeting, and, after the resignation of Mr Yi Cheng Jiang, at board level, within Wan Ze. 6Wan Ze was incorporated in June 2008 to develop property at Baulkham Hills in Sydney. The translation of a board resolution dated 15 August 2008 stated that each of Ms Hong Jiang and Mr Ren would lend $1.5 million to Wan Ze. It is common ground that that occurred. Wan Ze purchased the land, borrowed money secured on a registered mortgage over the land, entered into a Home Building Contract with a builder (with which Mr Ren was associated) at a contract price of $4,400,000, and proceeded to develop the land. The board resolution recorded that Ms Hong Jiang and Mr Ren would be repaid the funds lent, plus interest. It was expected that the total profit would be $1,000,000. Ms Hong Jiang agreed that she was entitled to a fixed $400,000 profit; "The rest of the profit and cost saving as profit belongs to Keqin Ren". 7The board resolution allocated responsibilities between the parties. Mr Ren was to "be in charge of the general project plan and the implementation of the land development"; Ms Hong Jiang was to be in charge of "internal company management; arrangement of signing all legal documents; financial management; marketing research and sales strategy"; Ms Xu was "in charge of daily accounting works including company accounts management; daily expenses recording; financial recept maintenance" and Mr Yi Cheng Jiang "is to assist [Mr Ren's] work to ensure the project runs well including the land purchase consultation; owner's settlement arrangement etc". 8Ms Hong Jiang claimed that as time passed meetings of the directors became fewer. She said that she did not receive a copy of the building contract until she requested it, in December 2010, in connection with her migration application (at least initially, Ms Hong Jiang was resident on a subclass 163 visa which required her to run a business in Australia which employed local residents and which had a minimum annual turnover). She said that she was unaware of a series of withdrawals from Wan Ze's bank account between December 2010 and February 2011. 9It was common ground that the 20 townhouses were built. Sixteen of those were sold to third parties no later than December 2010. The bank was repaid in full. Units 16 and 20 were transferred to Mr Yi Cheng Jiang and Ms Xu respectively in January and February 2011, and were the subject of claims for proprietary relief made at first instance, which was ordered by the primary judge. 10The proceedings, as ultimately formulated when the primary judge gave summary judgment, concerned the transfers of units 16 and 20, and the withdrawals of money from Wan Ze's bank account between December 2010 and February 2011. It is necessary to say something about the procedural history of those proceedings. 11Ms Hong Jiang commenced proceedings on 16 February 2011. The original defendants were Mr Ren and Ms Xu. In April 2011, Mr Yi Cheng Jiang was joined as the third defendant. At that time, Ms Hong Jiang sought, inter alia, by her further amended originating process and amended points of claim (a) access to Wan Ze's records, (b) a declaration that the affairs of the company were being conducted oppressively, (c) an order that Wan Ze be wound up, and (d) an account. Mr Ren, Ms Xu and Mr Yi Cheng Jiang were represented by Mr Terry Leung of Link Lawyers, who filed points of defence. 12Pursuant to leave granted on 30 May 2011, the plaintiffs' claim was thoroughly reworked. Gloconnect was joined as the fourth defendant. (At a time not completely clear on the materials, Mr Yongan Xie was joined as the third plaintiff; Wan Ze was at all times the second plaintiff.) However, two things are relevant for present purposes. For the first time, it was pleaded that particular payments, totalling in excess of $2,500,000, had been made from Wan Ze's account without authority. For the first time, it was claimed that units 16 and 20 were held on trust for Wan Ze. 13There ensued, for almost a year, what Ms Hong Jiang and Mr Yongan Xie said, repeatedly and without demur from their opponents, was an egregious series of non-compliances with the Court's directions for the filing of defences, the giving of discovery and the filing of evidence. It is not necessary for present purposes to be more specific. It is sufficient to observe that when the proceedings came before the primary judge, the points of defence remained those which had been filed in response to the April 2011 pleading. The points of defence did not respond to the allegations of unauthorised withdrawals, nor to the proprietary claims made in respect of units 16 and 20. No evidence had been filed or served on behalf of the defendants. 14A hearing took place on 24 May 2012. Mr Leung appeared for the defendants (he no longer appears for any of them). Mr Leung had provided two pages of submissions, which did not oppose orders for winding up, and said in substance that the other claims ought be left to be investigated by the liquidator. He was invited to make further submissions, and was told that the Court might make orders which went beyond those which were not opposed. He made no submissions in writing or orally as to the facts, or to the test to be applied by the Court. 15The essential nature of the application before the primary judge was twofold: (a) an application by two directors, one of whom held 50% of the shares in Wan Ze, for leave to bring derivative proceedings on behalf of Wan Ze pursuant to s 237 of the Corporations Act 2001 (Cth) and (b) an application for summary judgment. 16By reserved decision delivered on 29 June 2012, with orders made on 19 July 2012, the primary judge gave summary judgment (a) granting leave to Ms Hong Jiang to bring proceedings on behalf of Wan Ze, (b) ordering that units 16 and 20 were held on constructive trust for the company, (c) ordering that Mr Ren and Ms Xu jointly and severally pay Wan Ze $2,364,995.70, and (d) ordering that Mr Yi Cheng Jiang be jointly and severally liable with Mr Ren and Ms Xu to pay Wan Ze $10,000. Pre-judgment interest on the money claims, and costs on an indemnity basis, were also ordered against Mr Ren, Ms Xu and Mr Yi Cheng Jiang. 17Although Mr Leung appeared for all defendants at first instance, new solicitors have now been retained, as a result of which there are separate applications by Mr Ren, Ms Xu and Gloconnect on the one hand, and Mr Yi Cheng Jiang on the other: see Ren v Jiang (No 3) [2014] NSWCA 204. Procedural directions were made - over the opposition of Ms Hong Jiang and Mr Yongan Xie - so as to ensure that both applications were heard and determined by the Court at the same time: see Yi Cheng Jiang v Wan Ze Property Developments (Aust) Pty Ltd (in liq) [2014] NSWCA 350. 18The company being wound up, the applicants require leave to proceed pursuant to s 471B of the Corporations Act 2001 (Cth). Those applications are also before the Court. Although represented by counsel, the liquidator played no active part in the hearing. He did not oppose the granting of leave to appeal, or leave to proceed pursuant to s 471B. 19No challenge is made by any party to the grant of leave to bring derivative proceedings. Rather, all applicants maintain that the primary judge erred in entering summary judgment against them. There is a subsidiary challenge, to his Honour's dispensing with the requirement in r 13.1(b) of the Uniform Civil Procedure Rules 2005 (NSW) for evidence of belief that there was no defence to the claims. 20Nor was any challenge made to the order winding up Wan Ze, and properly so; the company was and remains deadlocked. 21At the same time, also before the Court, is the respondents' notice of motion filed 26 April 2013 that the proceedings brought by Mr Ren, Ms Xu and Gloconnect be stayed as an abuse of process. The respondents who made that application requested that it be determined by this Court constituted by three judges. That has occurred. Most of the subject matter of that application is directed to events subsequent to the summary judgment. A large amount of material was served in support of that application, although ultimately only a small fraction was sought to be tendered. By way of incomplete outline, there was an application to reopen the judgment, which was said to have been procured by fraud. That application was unsuccessful, leave to appeal from the refusal was sought, but that application was discontinued some months ago. Secondly, notwithstanding the service of a notice of intention to appeal from the summary judgment, the liquidator issued bankruptcy notices to Mr Ren and Ms Xu, who sought to have them set aside. Ms Hong Jiang and Mr Yongan Xie were permitted to intervene in those proceedings, which occupied some 12 days in the Federal Court: Xu v Wan Ze Property Development (Aust) Pty Ltd (in liq) [2014] FCA 461. Much of the hearing time was occupied by cross-examination of Mr Ren, Ms Xu and Mr Yi Cheng Jiang. The bankruptcy notices were not set aside. Thirdly, there have also been a series of interlocutory decisions in this Court. The litigation history may be found in In the matter of Wan Ze Property Development (Aust) Pty Ltd [2013] NSWSC 1977 at [1]-[26] and Ren v Jiang (No 4) [2014] NSWCA 315 at [2]-[9]. Fourthly, it is said that there has been non-disclosure by Mr Ren and Ms Xu of their assets in documents filed in the Federal Court, and dissipation by them and companies associated with them of assets, contrary to undertakings to the Court. Fifthly, it is said that the applicants have few if any substantial assets remaining in Australia, but that it may be inferred there are assets located overseas. 22Those considerations are said collectively to found the submission that it is an abuse of process for Mr Ren, Ms Xu and Gloconnect to seek leave to appeal from the summary judgment against them unless they provide substantial security for that judgment within Australia.

The case against the applicants at first instance 23Ms Hong Jiang and Mr Yongan Xie alleged, by their further amended points of claim (leave to rely on which was granted at the hearing of their application for summary judgment) money claims and proprietary claims in respect of units 16 and 20. 24The pleading contained a list of withdrawals said to have been made from Wan Ze's bank account between 17 December 2010 and 18 February 2011, totalling some $2,774,995.80. However, it was common ground that there was double-counting in respect of two withdrawals of $300,000 on 31 December 2010, and that the last withdrawal of $114,000 on 18 February 2011 was in fact a credit. Of the 15 withdrawals remaining, 6 were in excess of $100,000 while 9 were in smaller amounts ranging from $2,200 to $26,400. Under the heading "Unauthorised Payments", paragraph 35 of the pleading alleged: "In the period from 17 December 2010 to 18 February 2011, the First, Second and/or Third Defendants have individually or jointly effected, caused to be effected or otherwise approved the following withdrawals of the Company's funds from Account 2." 25It was then alleged that Ms Hong Jiang was not aware of those payments and did not authorise them, that the company did not authorise those payments, that they were not for a proper purpose, and that: "The First, Second and/or Third Defendants have individually or jointly caused the withdrawals of the Company's funds referred to in paragraph 35 above without the authority of the Company." 26Ms Hong Jiang's affidavit of 16 March 2012 addressed these withdrawals only in general terms. It repeated the erroneous double counting and confusion about the $114,000 credit on 17 February 2011 as had appeared in the points of claim. Ms Hong Jiang had affirmed that she discovered that "the First, Second and/or Third Defendants had caused to be made the following withdrawals ... ", as to which there had been enquiries made by her solicitors. The response to those enquiries, which was in evidence before the primary judge, asserted that the first withdrawal was a "cash withdrawal", that some six payments pertained to various building and landscaping works, others were the repayment of directors' loans and interest, some others were cash and others were, at the time the response was prepared, still to be advised. 27Proprietary claims were made against Ms Xu and Mr Yi Cheng Jiang in materially identical terms in relation to units 20 and 16 respectively. Under the heading "Sale of Unit 16", it was alleged: "24. In or about January 2011, Unit 16 was transferred by the Company to the Third Defendant for a stated purchase price of $485,000. 25. The transfer of Unit 16 to the Third Defendant was made for no consideration. Alternatively, the Third Defendant has breached the sale of land agreement by failing to pay the purchase price of $485,000 causing the Company to suffer damages to that extent. 26. As a result, the Third Defendant holds Unit 16 on trust for the Company." 28The allegation against Ms Xu in respect of unit 20 was in identical terms, save that the stated purchase price was $520,000 and the transfer was alleged to have taken place in or about February 2011. 29The primary judge ordered that Ms Xu and Mr Yi Cheng Jiang held each of those units on constructive trust for Wan Ze.

(a) The unauthorised payments 30His Honour found Mr Ren and Ms Xu jointly and severally liable to repay all the payments listed (allowing for the $114,000 and the double counting); the sum was $2,364,995.70. On the basis that Mr Yi Cheng Jiang ceased being a director on 20 December 2010, his Honour found that he was, jointly and severally with Mr Ren and Ms Xu, liable to repay only the first payment in the amount of $10,000. (The plaintiffs seemingly proceeded on the basis that notwithstanding that Mr Yi Cheng Jiang was the highest paid employee, he owed no fiduciary obligations after he ceased to be a director.) 31It is best to reproduce the whole of the dispositive reasoning in relation to the money claims. At [38]-[39], the primary judge found: "[38] The uncontested evidence establishes that the withdrawals were made, and that they were made without the Company's authority in that HJ had not consented to those withdrawals, either formally or informally; there is no evidence that they had been otherwise approved by any proper corporate process within the Company; and the Defendants have not led evidence that the withdrawals either had such corporate approval or were for a proper purpose. I therefore consider that a breach of ss 181-182 of the Corporations Act and the corresponding fiduciary duties by KQR and PX has been established and that I should make such declarations in respect of KQR and PX. Claim for breach of directors duties and breach of fiduciary duty against WCJ [39] The Plaintiffs also seek a declaration of contravention of ss 181-182 of the Corporations Act and breach of fiduciary duty in respect of WCJ who ceased to be a director of the Company on 20 December 2010. Only one relevant withdrawal was made in the period in which he was a director, the amount of $10,000 paid to an unknown payee. I consider that I should make that declaration in respect of YCJ for the same reason as the declarations in respect of KQR and PX, although it only has operation over a shorter period and in respect of a single withdrawal." 32With respect to the primary judge, that reasoning discloses the following errors. First, although there was uncontested evidence that Ms Hong Jiang had not consented to and was not aware of those withdrawals, it does not follow that it was established that they were made without Wan Ze's authority. She was but one of five, later four, directors. Further, the Constitution contemplated that there might be a managing director, and that the quorum for a directors meeting was two directors. The evidence did not address the limits of the authority conferred upon Mr Ren, Ms Xu or Mr Yi Cheng Jiang. 33Secondly, there is an apparent reversal of onus in the first sentence. What was necessary was for the plaintiffs to establish, to the requisite standard, that the withdrawals were unauthorised. It is not to the point that there was no evidence that they had been approved by "any proper corporate process". In any event, it was necessary for the plaintiffs to demonstrate that their case was so overpowering that they should obtain judgment on a summary basis, without going to trial. 34Thirdly, in respect of at least some of the payments, there was uncontested evidence that they were prima facie for a proper purpose: the statement on instructions by the defendants' solicitors that the payments pertained to "works in kitchen" or to flooring, air conditioning or landscaping. 35Fourthly, there is an overriding difficulty in relation to all of the withdrawals given the generality in which the allegation was made and sought to be established. No particular defendant was alleged to have withdrawn, or approved the withdrawal of any particular amount; rather, it was said that "the First, Second and/or Third Defendants have individually or jointly effected, caused to be effected or otherwise approved the withdrawals". The testimonial evidence of Ms Hong Jiang was to the same effect. That difficulty is particularly acute in relation to the $10,000 withdrawal the subject of the reasoning in [39]. There was no evidence capable of sustaining even a finding on the ordinary civil standard that Mr Yi Cheng Jiang (as opposed to Mr Ren or Ms Xu) had withdrawn, or approved the withdrawing, of that amount.

(b) The proprietary claims 36In evidence before the primary judge was a contract for the sale of land from Wan Ze to Mr Yi Cheng Jiang dated 21 December 2009, apparently signed by Mr Ren and Ms Xu, to which the company seal had been affixed. The copy in evidence is not obviously stamped. However, a transfer, also apparently signed by Mr Ren and Ms Xu and tendered before the primary judge, was up-stamped in the amount of $10. It may be inferred that stamp duty was paid because Mr Yi Cheng Jiang became in January 2011 the registered proprietor of Lot 16 in the strata plan (the lot which corresponds to unit 16). Moreover, a deposit of $485,000 was made into Wan Ze's bank account on 7 January 2011. On the evidence before the primary judge, that deposit not only corresponded with the price on the contract for sale to Mr Yi Cheng Jiang, but also, could not correspond to the purchase price of any other of the units (for it was shown that 16 units had been sold to third parties beforehand, 2 were sold to Ms Hong Jiang and Mr Yongan Xie, and the remaining unit was unit 20, dealt with below). 37It is unfortunate that the primary judge was at no time taken to the $485,000 deposit (it is not suggested that that was other than inadvertent). 38Also in evidence was a contract for sale of land dated 25 May 2010 from Wan Ze to Ms Xu, which had been stamped in the amount of $9,445, and a transfer dated 15 February 2011, apparently signed by Mr Ren and Ms Xu on behalf of Wan Ze in accordance with s 127 of the Corporations Act 2001 (Cth). The contract price was $520,000 and Ms Xu pointed to deposits of $415,605 and $114,000 to Wan Ze's bank account on 15 and 18 February 2011. Again, the primary judge was not taken to those two deposits, except insofar as counsel for Ms Hong Jiang and Mr Yongan Xie corrected the error in relation to the $114,000 credit. 39It may be accepted that property taken by a thief, or given by a thief to a third party who received it as a volunteer, is held on trust for the victim: Black v S Freedman & Co (1910) 12 CLR 105. It is a large step to reach the same conclusion absent theft or (common law) fraud or breach of fiduciary duty. 40The allegations which were held by the primary judge to sustain the findings of constructive trust have been reproduced above. Those allegations may potentially be read so as to support three formulations of liability. The first is that the transfers were, in truth, shams, which was put to the primary judge by counsel then appearing for the plaintiffs. However, Mr Smallbone, properly, conceded that an allegation of sham needed to be clearly and squarely put. That is absent from the pleading. 41The second is (in the alternative) a claim for breach of contract. But on any view, at least as a matter of orthodox law, that can merely give rise to a personal claim. No submission was made to the contrary, and the primary judge did not proceed on that basis. 42The third is that the paragraphs may be read as a claim of total failure of consideration. But it is, to say the least, far from clear that property acquired in such circumstances is held on constructive trust. For example, the reasoning to that effect in Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105 was not accepted in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] UKHL 12; [1996] AC 669 at 714-715. 43The circumstances in which a constructive trust may be ordered are, it may fairly be said, presently one of the more controversial areas of the law. Two ways in which this may be seen are the reformulation of liability in FHR European Ventures LLP & Ors v Cedar Capital Partners LLC [2014] UKSC 45; [2014] 4 All ER 79, and the controversy of the role of the "remedial constructive trust" in Australian law which was the subject of papers by Lord Neuberger and the Honourable J D Heydon QC presented at the Banking and Financial Services Law Association conference on 10 August 2014 in Queenstown. It is not necessary to take the matters raised above any further because the Court heard no argument on the point and because this appeal may, and therefore should, be resolved on the facts. 44In essence (although the following does not fully do justice to the primary judge's reasoning) his Honour adopted none of the possible formulations in the pleading, but took a course outside the pleading. The pleading did not make an allegation of an unauthorised self-dealing amounting to a breach of fiduciary duty in respect of units 16 and 20; in this respect, the contrast with the allegations based on unauthorised withdrawals is marked. (Mr Smallbone's written submission that "The plaintiff's primary case [was] that there was an unauthorised taking of this property" goes further than was alleged in the pleading.) On that basis, his Honour found that the transfers were a breach of fiduciary duty: "In my view, the transfer of the relevant units in breach of fiduciary duty to [Ms Xu and Mr Yi Cheng Jiang] who received them for no consideration fall[s] within these principles" (at [54]). 45In truth, it was not established on the evidence before the primary judge to anything like the standard necessary to sustain a summary judgment that the transfer of unit 16 to Mr Yi Cheng Jiang was made for no consideration, or that he had failed to pay the purchase price of $485,000. As noted above, in evidence before the primary judge was a deposit, on or about the day that contract for sale of land settled, in the amount of $485,000. The contract was on its face executed on behalf of Wan Ze by two of its directors. The fact that it was stamped supports the conclusion that it was a real, not a sham, transaction. The primary judge did not refer to this, because his Honour was not taken to it. 46Mr Smallbone emphasised (a) the length of time between date of contract and transfer (13 months) and (b) the absence of evidence of any deposit, but there remains, to say the least, an arguable case that the sale was real and for value. Mr Smallbone also advanced an elaborate series of arguments as to the source of the $485,000, as to which it suffices to say that they do not establish the requisite threshold for summary judgment. 47In relation to unit 20, the position is not quite so clear, but essentially the same. There is a stamped contract, purportedly executed on behalf of Wan Ze by two of its directors. There was no evidence before his Honour demonstrating to the requisite standard that the two deposits on 15 and 18 February 2011 which totalled (but only approximately) the purchase price of that unit did not constitute the purchase price of that unit. 48In both cases, it was wrong to proceed on a basis outside the pleaded case, and in any event, it was not established to the requisite standard that sales of those units at prices of $485,000 and $520,000 were unauthorised.

The approach to applications for summary judgment 49The test to be applied before entering summary judgment has been variously stated, and little is to be gained by reiterating those formulations; cf General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129. There is no controversy that the power must be exercised with "great care" and "exceptional caution": Spencer v Commonwealth [2010] HCA 28; 241 CLR 118 at [24] and [55] (noting that this was said of the lesser standard made applicable by s 31A of the Federal Court of Australia Act 1976 (Cth)). In Spencer, Hayne, Crennan, Kiefel and Bell JJ referred to the (unamended) test as "requiring formation of a certain and concluded determination that a proceeding would necessarily fail": at [53]. Repeatedly, it has been said that the court must be so certain of the outcome that to permit the proceeding to go forward would amount to an abuse of process: Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 90; Spencer at [54]; O'Brien v Bank of Western Australia Ltd [2013] NSWCA 71; 16 BPR 31,705 at [3] and [67]. 50The primary judge did not expressly invoke any of those formulations. His Honour stated that it was "necessary for the Court to reach a high level of satisfaction that the order should be made, and the power to order summary judgment should be sparingly employed": at [29]. That is undoubtedly necessary, but falls short of what is sufficient, before a litigant is denied of the ordinary right to a contested hearing. 51The matters referred to above mean that had the correct test been applied, the primary judge would not have been "so certain" of the plaintiffs' success that allowing the proceeding to go forward would have been an abuse of process, or that the defendants would "necessarily fail". 52It is plain that the primary judge was influenced by the egregious non-compliance with the Court's orders, leading to wastage of time and costs to the other party. But the plaintiffs did not seek default judgment (although during the hearing "default judgment" was mentioned), but summary judgment. As was indicated in Ekes v Commonwealth Bank of Australia [2014] NSWCA 336 at [170], notwithstanding the defendant's "extraordinary dilatory conduct" and "flagrant disregard for the court's directions", the order for summary judgment was nonetheless set aside by the Court (Bathurst CJ, Beazley P and Emmett JA agreeing). 53In part, the primary judge relied on the absence of a pleading (for example, that the indefeasibility conferred by s 42 of the Real Property Act 1900 (NSW) had not been invoked in the defence which had been filed). For that view, his Honour said that quite apart from the fact he had struck out the defence, "no defence relying on s 42 ... was raised" and "I therefore need not address this issue": at [55]. That approach disclosed further error, in two distinct ways. 54First, as noted above, there was an entirely unsatisfactory history of non-compliance with the Court's orders. The consequence was that the most recent defence filed (an amended points of defence filed dated 12 May 2011) responded to an early incarnation of the points of claim, in which proprietary relief was not sought. There was no occasion for invoking indefeasibility, and thus nothing could be inferred from the fact that it had not been pleaded. 55Secondly, contrary to Mr Smallbone's submissions on behalf of Ms Hong Jiang and Mr Yongan Xie, but as Mr Sexton SC submitted for Mr Ren and Ms Xu, it is well-established that the high threshold for summary judgment is not addressed merely by reference to the pleadings (whether or not they have been struck out). For example, in O'Brien, Macfarlan JA said, with the concurrence of Beazley P, that "[o]n a summary judgment application, the real issue is whether there is an underlying cause of action or defence, not simply whether one is pleaded": at [3]. The third member of the Court, Ward JA, wrote to the same effect at [68].

The submissions of Ms Hong Jiang and Mr Yongan Xie in response 56Although some submissions were directed to the matters referred to above, the gravamen of Ms Hong Jiang's and Mr Yongan Xie's submissions were directed to other matters which were said to warrant the refusal of leave. 57One such matter was the submission that the applicants were estopped from challenging the finding that there was a debt due to the company, by reason of the Federal Court of Australia decision Xu v Wan Ze Property Development (Aust) Pty Ltd (in liq) [2014] FCA 461. That submission must be rejected. First, on no view could an estoppel flowing from that decision bind Mr Yi Cheng Jiang, who was not a party to it. Secondly, the question before the Federal Court was whether that Court should exercise its jurisdiction on an application to set aside a bankruptcy notice to go behind the judgment debt. That is a very different issue from determining whether, to a standard sufficient to support summary judgment, the debt was owed. Thirdly, Robertson J expressly had regard to the fact that there was an undetermined application for leave to appeal pending in this Court as one of his reasons for not going behind the judgment: see at [127]. The fact that his Honour did so reflected an appreciation that the issue before him was quite different from that arising on this application for leave to appeal. Fourthly, his Honour observed at [131] that the questions sought to be agitated before him were "more apt to be dealt with after the exhaustion of those remedies and where the Court is dealing with an application to make a sequestration order against the estate of the debtor". That confirms that the issues before his Honour were different from those before this Court. 58Ms Hong Jiang and Mr Yongan Xie also submitted that leave should be refused, or alternatively, the appeals dismissed, on what was described in argument as their "notice of contention" points. The first of these was the claim that the sale of properties by Wan Ze to Ms Xu and Mr Yi Cheng Jiang was not authorised, which has been addressed above. 59The second notice of contention point was that it was said, repeatedly, that none of the applicants had served evidence or a proposed defence, or given discovery to cure their default, so as to entitle them to be "let back in" to the proceedings. This was said at the commencement of oral submissions to be a "remarkable feature" of the applications for leave. This submission betrays confusion of thought. Showing a viable defence is an ordinary incident of an application to set aside a default judgment: Magnate Projects Pty Ltd v Youma Constructions (No 2) Pty Ltd [2005] NSWCA 331 at [48]-[51]; Dai v Zhu [2013] NSWCA 412 at [89]-[93]. However, Ms Hong Jiang and Mr Yongan Xie must be taken to have made a forensic decision to seek summary judgment (undoubtedly they would have been entitled to default judgment given the history of the litigation in 2011 and 2012). If, as is demonstrated above, the summary judgment is for a large amount and discloses appellable error, it will ordinarily be appropriate for there to be a grant of leave to appeal. 60The third notice of contention point was that, as against Ms Xu, it was said that substantial payments were caused by her to be withdrawn from Wan Ze's account immediately after the deposits were made. That is no answer, at least on a summary judgment standard. It is not remotely surprising for a property developer to use the proceeds of sale to discharge indebtedness to lenders or contractors, which is essentially what Ms Xu said she was doing in cross-examination in the Federal Court. It would be surprising if that did not occur. 61It may be that at a final hearing, Ms Hong Jiang and Mr Yongan Xie can advance a case that although there were payments made to Wan Ze consistent with the stated purchase prices of units 16 and 20, those payments themselves were the product of unauthorised withdrawals, intended to disguise the reality that Wan Ze was not receiving full value. Indeed, Mr Smallbone's submissions suggest that Ms Hong Jiang and Mr Yongan Xie now regard this as their primary case. That case may or may not succeed. However, it only demonstrates why the summary judgment, obtained on a very different basis, cannot be permitted to determine the rights of the parties. 62Repeatedly, Mr Smallbone made reference to r 51.53 of the UCPR, which requires the Court to conclude that there was some substantial wrong or miscarriage before ordering a new trial. Contrary to his submission, that rule has no application here. None of the four cases on which reliance was placed was on point. There has not been a trial. 63Ms Hong Jiang and Mr Yongan Xie also submitted that the bringing of the application for leave to appeal by Mr Ren and Ms Xu and Gloconnect (but not by Mr Yi Cheng Jiang) was itself an abuse of process. To that end, Mr Smallbone relied on a series of matters post-dating the judgment, which have been summarised above. An enormous quantity of material (exceeding 3000 pages) was prepared in support of this. Ultimately, only a handful of documents were tendered in support. 64Two submissions were advanced in oral address on this issue. First, it was said that it was necessary, in order to prevent there being an abuse, for Mr Ren and Ms Xu to provide security for the judgment, in circumstances where it could be inferred that there were limited assets in Australia, and substantial assets outside of Australia. Reliance was placed upon Hammond Suddard Solicitors v Agrichem International Holdings Ltd [2001] EWCA 2065, a decision dealing with r 52.9 of the Civil Procedure Rules 1998 (UK), which authorises the imposition of conditions on the bringing of an appeal where there is a "compelling reason for doing so". There is no equivalent rule applicable to this litigation, nor was the Court taken to any local authority in support, and it is a large thing to deny a judgment debtor the right to challenge a large judgment debt such as the present, obtained on a summary basis which on its face discloses error. 65Secondly, it was said that there had been a breach of an undertaking given to the Federal Court not to dissipate assets. Breach was not established, when regard is had to the exception for paying legal expenses, which must have been very large in the period following the judgment of the primary judge, and indeed were prominent in the complaints advanced on behalf of Ms Hong Jiang and Mr Yongan Xie (see further below). 66It is not necessary to traverse every aspect of the matters relied on in the written submissions. Only if this Court were satisfied, to a high standard commensurate with the seriousness of the allegation, that there were an abuse of process, would the application for leave be stayed. The material does not come close to establishing that the challenge to a large judgment, which on its face discloses material error sufficient to warrant the grant of leave, is itself an abuse of process. It is not necessary to determine the question of power raised by Mr Ren and Ms Xu in response, namely, that this Court had no power to impose a term upon the grant of leave as sought by Ms Hong Jiang and Mr Yongan Xie. 67Nor is it necessary to determine the separate challenge which was made to the primary judge's decision to dispense with the ordinary requirement that there be sworn evidence that the amount was owing.

Orders 68All parties, sensibly, accepted that this Court could and ought to determine the appeals if it concluded that leave should be granted. In each proceeding there should be a grant of leave and, in the case of Mr Yi Cheng Jiang, there should be an extension of time. The non-opposition of the liquidator to the grant of leave under s 471B of the Corporations Act 2001 (Cth), coupled with the size of the judgment in favour of Wan Ze and the apparent errors on which it is based mean that it is appropriate to grant leave to proceed in each proceeding. The reasons above confirm that each appeal must be allowed, and the impugned orders set aside. 69The judgment was obtained by Ms Hong Jiang and Mr Yongan Xie by means of a derivative proceeding in the name of Wan Ze. Prima facie, it would seem that any steps against the defendants should be taken by the liquidator, as opposed to Ms Hong Jiang and Mr Yongan Xie. However, that will be a matter for determination, if there be any dispute about it, when the matter is remitted to the Equity Division. The orders proposed below will also leave to that Court the question of costs of the proceedings at first instance. 70It may be thought that this outcome is an unattractive one, and one that is unfair to Ms Hong Jiang and Mr Yongan Xie, who will lose the benefit of a judgment in their favour obtained more than two years ago, on the basis of which considerable costs have been expended. In particular, Mr Smallbone said (and it may be accepted) that his clients had incurred some $690,000 costs to date. His submissions, which regularly deployed strident and colourful language, referred to an "orgy of costs". 71Undoubtedly some of those costs and delay were the consequence of ill-founded steps taken by Mr Ren, Ms Xu and Mr Yi Cheng Jiang. However, the position, so far as may be seen on the materials available to this Court, is far from one-sided. The liquidator of Wan Ze chose to serve bankruptcy notices, and to defend challenges to set them aside, in the knowledge that Mr Ren and Ms Xu sought leave to appeal from the judgment which founded those notices. Ms Hong Jiang and Mr Yongan Xie chose to intervene in a twelve-day trial in the Federal Court to assist the liquidator, and to cross-examine, extensively, their fellow directors. The principal contributor to the delayed determination of the application for leave was that proceeding in the Federal Court, and Ms Hong Jiang's and Mr Yongan Xie's claim that the application was itself an abuse of process. Many thousands of dollars must have been spent assembling and photocopying thousands of pages which were not even sought to be tendered in support of that application. In this Court, Ms Hong Jiang and Mr Yongan Xie have pursued several interlocutory applications which have been dismissed with costs, including in one instance with indemnity costs. 72In short, it would appear that the delay and costs incurred by Ms Hong Jiang and Mr Yongan Xie have been in no small measure attributable to the choices made by them and on their behalf, both at the time they obtained summary judgment and subsequently. 73The substantive formal orders of the Court are: In 2012/240805:

Grant leave to appeal.
Grant leave to proceed against the 3rd respondent Wan Ze Property Development (Aust) Pty Ltd (in liq).
Appeal allowed.
Set aside orders 3, 5, 10, 11 and (insofar as they apply to the 1st and 2nd applicants, Mr Ke Qin Ren and Ms Pei Xu) orders 7-9, 14 and 17 made on 19 July 2012.
Dismiss the notice of motion filed by Ms Hong Jiang and Mr Yongan Xie on 26 April 2013.
Ms Hong Jiang and Mr Yongan Xie to pay the costs of the 1st, 2nd and 4th applicants of the appeal (including the applications for leave and the notice of motion filed on 26 April 2013).
Remit the proceedings to the Equity Division for determination in accordance with law. In 2014/211574:
Extend the time within which to apply for leave to appeal.
Grant leave to appeal.
Grant leave to proceed against the 3rd respondent Wan Ze Property Development (Aust) Pty Ltd (in liq).
Appeal allowed.
Set aside orders 4, 6, 12, 13 and (insofar as they apply to the applicant Mr Yi Cheng Jiang) orders 7, 9, 14 and 17 made on 19 July 2012.
Ms Hong Jiang and Mr Yongan Xie to pay the applicant's costs of the appeal (including the applications for leave).
Remit the proceedings to the Equity Division for determination in accordance with law. 74To be clear, these orders do not displace the earlier orders as to costs which have been made in proceedings 2012/240805 and 2014/211574. No order is made in respect of the liquidator's costs, with the intention that those costs be borne by the company in liquidation.

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: 13 November 2014

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