Liu v Lin

The Plaintiffs Make Investments

1. The plaintiffs invested in similar circumstances, related to Ms Liu's professional practice in a cosmetic clinic in Chatswood, the ACL Cosmetic Clinic. Each plaintiff met Ms Liu at her clinic. Ms Wang was employed at the clinic until 20 July 2022 as a cosmetic medical assistant and saleswoman. Ms Liu and Ms Chen were originally customers of the clinic before mixing socially with Ms Lin outside the clinic environment. Ms Liu, Ms Wang, and Ms Chen allege that in early 2021 Ms Lin introduced them to Haihui and encouraged them to invest in the scheme.
2. The plaintiffs' case is that Ms Lin made further representations to each plaintiff about her own association with Haihua and how the investment scheme worked. Those representations, according to the plaintiffs, were to the following effect: 1. Ms Lin worked for Haihui; 2. Haihui had a team of global professional traders who had developed strategies that used insurance cover to guarantee profit from an investment without the investor taking any risk of loss of the investment principal; 3. Ms Lin had herself already made considerable profit using the Haihui platform, and had invested a million dollars of her own money; 4. the plaintiffs could cash out of their investment with HaiHui at any time; and 5. estimated returns from an investment with HaiHui would be at least 50% per year, and as high as 80% per year if profit was reinvested.
3. Many of these statements would appear inherently improbable to a sophisticated investor but are the kind of representations that could have considerable persuasive force with unsophisticated investors. The personal background and investment history of each of the plaintiffs shows little or no sign of prior investment acumen. They are likely to be presented at trial as unsophisticated investors.
4. The plaintiffs say that Ms Lin told each of them that to begin investing they should deposit an initial sum of US$15,000. The steps they say she encouraged them to take for the initial sum were the following. The deposit was to be transferred either in Chinese Yuan or in Australian currency into Ms Lin's personal bank account. Ms Lin then instructed the plaintiffs to activate an online account with Haihui, providing them with a URL link which directed them to the Haihui website. Once the online account was activated, Ms Lin said that she would then transfer funds of an equivalent US dollar value to the deposit the plaintiffs had made into Ms Lin's account from her own Haihui account to their newly activated Haihui account. Ms Lin explained these funds would then be traded in the plaintiffs HaiHui accounts by Haihui's global team. The plaintiffs say that Ms Lin told them that HaiHui's trading with their funds would only occur when there was "a very high probability to make profits".

The Transfers

1. Between 11 March 2021 and 23 November 2021 following the system that Ms Lin had outlined, each plaintiff made transfers predominantly to Ms Lin's personal bank accounts, or to other accounts which Ms Lin nominated and instructed the plaintiffs to remit the funds they wished to invest in the HaiHui platform. This process generally began with each plaintiff informing Ms Lin of a wish to invest more into Haihui. The plaintiffs say that Ms Lin commonly encouraged them to make these further investments, making statements to them such as, "do you want to top up? There are promotions going on" and "you should invest more with Haihui. You are missing out sister".
2. The plaintiffs say that typically they would then ask Ms Lin how much in Chinese Yuan was required, allowing Ms Lin to calculate the exchange rate from Chinese Yuan (CNY) to US Dollars. The plaintiffs say that Ms Lin was quick to remind them on each occasion that when they were initiating a transfer that they should leave the transfer reference blank as "messages are not allowed". As a replacement for a reference code or title, the plaintiffs say that Ms Lin requested they capture a screenshot of their transaction receipt and send the image of it to her within the WeChat message system. The plaintiffs say that they were told that the sending of this message to Ms Lin with the screenshot was to prompt Ms Lin to conduct the transfer from her Haihui account to each plaintiff's Haihui account. The plaintiffs say that when they went into their online HaiHui accounts shortly afterwards that they saw that the funds they had transferred to Ms Lin appeared credited to their digital Haihui account.
3. Each of the plaintiffs transferred different amounts at Ms Lin's direction during the period March to November 2021. Ms Liu says that she made thirteen transfers at Ms Lin's direction, and she says that as a result she understood that Ms Lin was holding or controlling US$134,000 and A$80,000 of her money. Ms Wang says that she made twenty-two transfers at Ms Lin's direction, and she says that she understood that Ms Lin was holding or controlling CNY226,780 in funds on her behalf. Ms Chen says she made three transfers, and that she understood as a result Ms Lin withholding or controlling US122,896.5 of her money.

The Plaintiffs Attempt to Withdraw Their Investments

1. The plaintiffs say their picture of HaiHui began to change from about December 2021. Ms Liu says that commencing at about that time she applied to Haihui on several occasions to withdraw some or all of her investment. On each occasion after submitting a withdrawal request, Ms Liu says that she received an email from Haihui informing her that her request had "passed the verification" and that it had been "submitted to a third-party payment provider for processing". The nature of "the verification" required was never explained to Ms Liu, nor was the "third-party payment provider" ever identified in these vague email responses.
2. Ms Wang and Ms Chen appear not to have contacted HaiHui at about this time. But they and Ms Liu all regularly contacted Ms Lin to seek her help in withdrawing their investments from HaiHui. None of these efforts either directly with HaiHui or indirectly through Ms Lin, resulted in any of the plaintiffs having their investments returned by either Haihui or Ms Lin.
3. Ms Liu says that she further investigated what had happened to her investment by pursuing contact with Haihui by email. But she says that her emails were responded to by HaiHui apparently, through automated systems with vague and unspecific answers. One example of this will suffice.
4. On 5 December 2021 Ms Liu says that she applied to HaiHui to withdraw US$105,000. She received an automated email reply on 6 December 2021 confirming the withdrawal had been approved. This reply stated under the subject heading "the withdrawal application has been successful" the following: "Hello, It is hereby notified that the withdrawal (order number XXX) you applied for at 08:04 on 05 December 2021 has passed the verification and has been submitted to a third party payment provider for processing. Please wait patiently for the funds to arrive. If you have any questions, please email to enquiry@drcfracture.com. Thanks. The DRCFX Client Support Team."
5. Ms Liu says that she did not receive any money from HaiHui and so she sent a follow-up email on 6 January 2022 to the following effect: Hello! My withdrawal application on 5 December 2021 has been successful and the money was also withdrawn from my account. But I have not received the money yet. How long will it take for the fund to arrive? What is the current status? I'm looking forward to your early reply! Thank you. Ms Liu"
6. Ms Liu waited but no money was received and on 11 January 2022 she received the following further message from enquiry@drcfx.com: "Hello! With this notification we have received your email. In response to your application/question, the third-party reply that it is currently being processed, and your withdrawal is still being processed. Please wait patiently for the account to arrive. Thank you for your enquiry, if you have any questions please send us a an email to enquiry@thertf.com using the registered email address."
7. Ms Liu says that she followed up several times thereafter and the increasingly frustrated tone of her emails of enquiry show that she was becoming exasperated by the lack of timely remission of funds or an informative response from HaiHui.
8. Ms Liu says that she consulted Ms Lin about this situation and was reassured between January and March 2022. She says that Ms Lin then said to her words to the effect, "The company is still processing withdrawals made in November 2021. Yours will be processed soon." If accepted, this statement shows Ms Lin speaking as though she has some knowledge of HaiHui's processing systems. It also allays Ms Liu's fears and conveys no alarm or concern on the part of Ms Lin that she has any worries about the integrity of HaiHui.
9. Yet again in April 2022 when the monies had still not arrived, Ms Liu went to Ms Lin. Ms Liu confided her worries about her investment with Ms Lin. Ms Liu was comforted by Ms Lin's assurance to her to the following effect: "There is a technical issue. You shall receive money in three months." Once again Ms Lin is purporting to speak with some authority about technical issues in the operations of HaiHui and is implying that she has some understanding of how long it will take to resolve those technical issues.
10. To even a moderately sophisticated investor, the kind of unspecific responses that Ms Liu was receiving purportedly from HaiHui were plainly unbusinesslike. They are not untypical of the vague and cloudy language that persons operating fraudulent schemes will use to project a condescending sense of calm on irritated investors.
11. Despite the issues raised by her investment in HaiHui, Ms Liu says that she continued to consult Ms Lin at her cosmetic clinic until about August 2022. She says that each time she saw Ms Lin she would ask a question to the effect, "when will I get my money that I have withdrawn?" And she says that Ms Lin would reply to her with assurance and counselling the need for patience, "you just need to wait."
12. By mid-April 2022 Ms Liu had ceased to receive any emails from HaiHui responding to her enquiries. In May 2022 Ms Liu says that she and Ms Lin exchanged text messages, which she reproduces in her affidavit. There is a strong inference of authenticity of these messages. In one of these messages on 8 May 2022 Ms Liu asks why no person replies to the emails sent to HaiHui's customer service section. Ms Liu's text continues and Ms Lin's response are as follows: Ms Liu: "It's been over five months since I withdrew the fund, and there is still no news. Are you able to make contact with the company?" Ms Lin: "Don't worry Ms Dehong. I'll make an appointment with Rachel, who has been working in the financial instituted in Hong Kong for many years. So she knows very well about all the financial investments platforms, and is able to explain the things clearly about the company."
13. These conversations appear to indicate that "Rachel" appears not to be from within HaiHui but to be a general financial advisor to whom who Ms Lin is turning for additional assistance. Ms Lin claims that she, Ms Liu and Rachel met at a restaurant in Chatswood on Wednesday 18 May 2022, but that she could not remember the details of the conversational exchanges.
14. Ms Liu has still not received her money back in July 2022. So she messaged Ms Lin again and the following further exchange took place between them: Ms Liu: "Amy, it's been more than eight months since I withdrew the fund. And there is no replied to my email. Any news on your side? No one can make contact with the company?" Ms Lin: "No news for the time being. I'll ask Rachel how to apply for returning the fund back to the account."
15. Returning the funds back to the HaiHui account was of little use to Ms Liu and clearly not the objective she was trying to achieve by going to Ms Lin. Once again there is no sense of apparent concern on Ms Lin's part in response to Ms Liu's enquiries.

Risk of Dissipation of Assets

1. Ms Lin put on affidavit evidence in response to the application for a freezing order. She is married with three children living in East Killara on the North Shore of Sydney. She an apparently astute businesswoman who owns and manages her cosmetic clinic in Chatswood with a number of employees. Although born in China, Ms Lin became an Australian citizen in 2004. Ms Lin says that taking Australian citizenship means that she forfeited her Chinese citizenship. But she continues to visit China annually or biannually on a visitor visa.
2. Ms Lin says that she has a limited capacity to move assets outside of Australia. She says that her Chinese bank account remains active, although she apparently cannot access it except through AliPay and WeChat, and has not transferred any money from her Australian bank accounts to her Chinese bank account, or any other family members, with the exception of her father on his birthday and on Chinese New Year, in at least two years.
3. Ms Lin and her husband bought a property in East Killara in 2017 for $7.38 million and have resided there since. The property in East Killara has approximately $1.4 million owing on the mortgage. She says that she and her husband do not own any property in China.
4. Ms Lin says the allegations made against her are untrue. She asserts she never said that she worked for HaiHui. She says that her only involvement with HaiHui was as a member referring friends and family to the Haihui investment scheme and that she acted as a conduit to pass on information that she herself honestly and reasonably believed to be true.
5. The plaintiffs allege Ms Lin made representations to them that she had invested approximately $1 million dollars with Haihui. Ms Lin's evidence does not cover how much she has invested in HaiHui. Ms Lin says that she submitted two withdrawal requests, one in December 2021 and another in January 2022. Like the plaintiffs, Ms Lin says that has not received back any of her HaiHui investments. Although she says little more about her disquiet on that subject than the oblique statement, "we also discovered the situation you are now facing when it was easy to withdraw money before". It might be expected that if Ms Lin was a co-victim of HaiHui with the plaintiff's that she might have shared that with them openly as part of their conversations.

The Applicable Legal Principles

1. The applicable legal principles may be shortly stated. The Court has power in its inherent jurisdiction to grant freezing orders. And it may grant freezing orders under Uniform Civil Procedure Rules ("UCPR"), r 25.11(1), which provides for the making of such orders "for the purpose of preventing the frustration or inhibition of the court's process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partly unsatisfied". The danger that a judgment will be wholly or partly unsatisfied may be because the assets of the prospective judgment debtor are disposed of or dealt with or diminished in value: UCPR r 14(4)(b).
2. The relevant principles are well-established and stated in applicable authorities the most prominent of which for the issues in this matter are: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 (Patterson); National Australia Bank Ltd v Bond Brewing Holdings Ltd [1990] HCA 10; (1990) 169 CLR 271 at 277 per Mason CJ, Brennan & Deane JJ; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 394 [26]; Samimi v Seyedabadi [2013] NSWCA 279; Severstal Export GmbH v Bhushan Steel Ltd (2013) 84 NSWLR 141. Patterson is authority for the proposition that the Court may consider evidence of misconduct in the underlying transactions alleged in the proceedings to infer a danger of dissipation of assets.

Consideration

1. Mr Prichard SC submits that a freezing order should not be continued because there is no solid evidence or a more than usual danger of assets being dissipated here. He emphasises that Ms Lin has strong Australian connections. She is solely an Australian citizen, her husband and children live in Australia and she has a business in Sydney. She has neither the means or motive to abscond.
2. But the history of Ms Lin's dealings with Ms Liu about her lost investment lend support to the inference that Ms Lin did work for, or was in association with, Haihui. Ms Lin does not really act the part of someone who had also been duped by HaiHui. She is silent about her own enquiries with Haihui. Even with her substantial asset base, $1 million dollars is a large sum of money to be left unrecoverable, if that is what she invested. If she invested less but has lost her investment, it would still be expected that she would share with Ms Liu her experience of seeking its recovery.
3. The precise relationship between Ms Lin and Haihui is obscure. But if the plaintiff's evidence is accepted the relationship is close enough to ground an inference that Ms Lin has working inside knowledge of Haihui's affairs and had reason to believe when she was dealing with the plaintiffs that it was unlikely that HaiHui would be able to repay monies invested in it.
4. Even if the plaintiffs do not establish at trial an agency or other close relationship between Ms Lin and Haihui, they put their case another way. They argue in the alternative that Ms Lin's invitation to the plaintiffs to receive their money in her account and to transfer her own Haihui balance for their benefit is taking advantage of the plaintiffs by receiving their good currency into her own accounts and offloading to them the benefit of her own dubious Haihui investments.
5. It can reasonably be inferred on the available evidence that whatever Haihui was, it was a bad investment. The plaintiffs could not get their money back. Haihui's emails resemble those emanating from typical fraudulent schemes. The plaintiffs can argue at trial that there was not a very long period between Ms Lin swapping her bad Haihui investments for the plaintiffs funds and the freezing up of repayments by Haihui soon afterwards. There are arguable grounds for the plaintiffs to advance at trial to infer that Ms Lin may have been aware at the time of the payment of the plaintiffs' funds into her account that she could take the plaintiffs money and give away to the plaintiffs what she probably already knew were already bad investments. The arguments that have taken place about the lack of information in the form of the various transfers may not be as important as inferences about what Ms Lin was likely to know of Haihui's past investment status when she received the plaintiffs' money in exchange for Haihui investments.
6. Whichever of these cases is advanced trial they represent sufficient evidence to show within Patterson principles that the defendant is a person who may dissipate assets to defeat a judgment. It can be accepted she is not a flight risk and has strong connections to Australia but there is enough here to impose a freezing order on her. But there is no other countervailing balance of convenience consideration by way of an immediate proposed dealing with the East Killara property.

Conclusions and Orders

1. The defendant also moved on a motion dated 31 March 2023 to strike out the plaintiff's Amended Statement of Claim. In discussion during argument the Court indicated there was perhaps a degree of over complexity in aspects of the Amended Statement of Claim that might be able to be simplified to present the plaintiff's case more clearly. The plaintiffs took the position that they would like to take the opportunity to replead.
2. The matter was left on 11 May on the basis that leave was given until 2 June to replead. It was expected by that stage that the Court would have delivered judgment on this freezing order issue. But the freezing order judgment has taken longer than expected, so the Court will extend time to the plaintiffs to 31 July 2023 for the serving of a Further Amended Statement of Claim. The idea of merely serving and not filing the Further Amended Statement of Claim is that the defendant will have an opportunity to review it and decide whether any further objection to it will be pursued.
3. Issues of costs can be resolved once the result of both motions clear. The proceedings will be adjourned to 28 August 2023 further mention or at such other date as is convenient to counsel.
4. The form the freezing order will at least until 28 August 2023 be in the same form as the plaintiff's 21 September 2022 motion. When the matter is next before the Court it may be appropriate to change the form of orders to something more approaching a standard freezing order, as the plaintiffs do not claim an equitable interest in the Killara property. The plaintiff should lodge a written undertaking to damages with my associate by close of business on Monday, 3 July 2023.
5. For these reasons the Court makes the following orders and directions: 1. Upon the plaintiffs by their counsel giving the usual undertaking as to damages the defendant and the defendant by her servants and agents is restrained until further order from encumbering or otherwise dealing with the property known as [address not published], East Killara. 2. Extend time with the plaintiffs to serve on the defendant and provide to the Court a Further Amended Statement of Claim to 31 July 2023. 3. The proceedings are adjourned for further directions to Monday, 28 August 2023. 4. Costs are reserved. 5. Grant liberty to apply.

Amendments 03 July 2023 - Representation 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: 03 July 2023