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[2014] FCA 1296
Federal Court of Australia
2014-11-27
Perram J
Original judgment source is linked above.
(a) If you are ordered to do something, you must do it by yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions. (b) If you are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way. FREEZING OF ASSETS 6. (a) You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia ('Australian assets') up to the unencumbered value of AUD$1,000,000.00 ('the Relevant Amount'). (b) If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount. (c) If the unencumbered value of your Australian assets is less than the Relevant Amount, and you have assets outside Australia ('ex-Australian assets'): (i) You must not dispose of, deal with or diminish the value of any of your Australian assets and ex-Australian assets up to the unencumbered value of your Australian and ex-Australian assets of the Relevant Amount; and (ii) You may dispose of, deal with or diminish the value of any of your ex-Australian assets, so long as the unencumbered value of your Australian assets and ex-Australian assets still exceeds the Relevant Amount. 7. For the purposes of this order, (1) your assets include: (a) all your assets, whether or not they are in your name and whether they are solely or co-owned; (b) any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions). (2) the value of your assets is the value of the interest you have individually in your assets. PROVISION OF INFORMATION 8. Subject to paragraph 9, you must: (a) to the best of your ability inform the applicant in writing of all your assets worldwide, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets; (b) within three (3) days after being served with this order, swear and serve on the applicant an affidavit setting out the above information. (c) within three (3) days after being served with this order, swear and serve on the applicant an affidavit setting out all assets that have been dissipated since 14 August 2013. 9. (a) This paragraph (9) applies if you are not a corporation and you wish to object to complying with paragraph 8 on the grounds that some or all of the information required to be disclosed may tend to prove that you: (i) have committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) are liable to a civil penalty. (b) This paragraph (9) also applies if you are a corporation and all of the persons who are able to comply with paragraph 8 on your behalf and with whom you have been able to communicate, wish to object that to object to you complying with paragraph 8 on the grounds that some or all of the information required to be disclosed may tend to prove that they respectively: (i) have committed an offence against or arising under an Australian law or a law of a foreign country; or (ii) are liable to a civil penalty. (c) You must: (i)disclose so much of the information required to be disclosed to which no objection is taken; and (ii) prepare an affidavit containing so much of the information required to be disclosed to which objection is taken, and deliver it to the Court in a sealed envelope; and (iii) file and serve on each other party a separate affidavit setting out the basis of the objection. at or before the further hearing on the return date (or within such further time as the Court may allow), notify the applicant in writing that you or all the persons referred to in (b) wish to take such objection and identify the extent of the objection; EXCEPTIONS TO THIS ORDER 10. This order does not prohibit you from: (a) paying up to $2,200.00 a week for your ordinary living expenses; (b) paying up to $10,000.00 for your reasonable legal expenses; (c) dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; and (d) in relation to matters not falling within (a), (b) or (c), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation. 11. You and the applicant may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case the applicant or you must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the applicant and you, and the Court may order that the exceptions are varied accordingly. 12. (a) This order will cease to have effect if you: (i) pay the sum of AUD$1,000,000 into Court; or (ii) pay that sum into a joint bank account in the name of your solicitor and the solicitor for the applicant as agreed in writing between them; or (iii) provide security in that sum by a method agreed in writing with the applicant to be held subject to the order of the Court. (b) Any such payment and any such security will not provide the applicant with any priority over your other creditors in the event of your insolvency. (c) If this order ceases to have effect pursuant (a), you must as soon as practicable file with the Court and serve on the applicant notice of that fact. COSTS 13. The costs of this application are reserved. PERSONS OTHER THAN THE APPLICANT AND RESPONDENT 14. Set off by banks This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave you before it was notified of this order. 15. Bank withdrawals by the respondent No bank need inquire as to the application or proposed application of any money withdrawn by you if the withdrawal appears to be permitted by this order. 16. Persons outside Australia (a) Except as provided in subparagraph (b) below, the terms of this order do not affect or concern anyone outside Australia. (b) The terms of this order will affect the following persons outside Australia: (i) you and your directors, officers, employees and agents (except banks and financial institutions); (ii) any person (including a bank or financial institution) who: (A ) is subject to the jurisdiction of this Court; and (B ) has been given written notice of this order, or has actual knowledge of the substance of the order and of its requirements; and (C ) is able to prevent or impede acts or omissions outside Australia which constitute or assist in a disobedience of the terms of this order; and (iii) any other person (including a bank of financial institution), only to the extent that this order is declared enforceable by or is enforced by a court in a country or state that has jurisdiction over that person or over any of that person's assets. 17. Assets located outside Australia Nothing in this order shall, in respect of assets located outside Australia, prevent any third party from complying or acting in conformity with what it reasonably believes to be its bona fide and properly incurred legal obligations, whether contractual or pursuant to a court order or otherwise, under the law of the country or state in which those assets are situated or under the proper law of any contract between a third party and you, provided that in the case of any future order of a court of that country or state made on your or the third party's application, reasonable written notice of the making of the application is given to the applicant. SCHEDULE A UNDERTAKINGS GIVEN TO THE COURT BY THE APPLICANT
IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1035 of 2013
JUDGE: PERRAM J DATE: 27 NOVEMBER 2014 PLACE: SYDNEY
REASONS FOR JUDGMENT 1 This is an application for freezing orders. I heard evidence in this case on 14 and 15 October 2014 during the course of the trial. The parties completed the filing of their final written submissions yesterday, that is, 26 November 2014, so that the matter is now reserved for judgment. 2 Following the completion of the evidence, but before the delivery of all of the written submissions, the applicant, Mr Luo, became concerned that the first respondent, Ms Zhai, was dissipating her assets to avoid the effects of any judgment which might be delivered against her. 3 After some delay - a topic to which I shall return - he filed the present application seeking freezing orders. Notwithstanding the somewhat heterodox way in which this application was pursued, I am persuaded that freezing orders should at least be made against Ms Zhai and her company, Jantom Furniture Pty Ltd, although they should not be made against the third parties who have been nominated. 4 The application arises in the context of a trial which has already been completed. The trial concerned Mr Luo's contention that Ms Zhai should repay to him a sum in excess of $800,000. He alleged that he had paid this sum to her for shares in her furniture importing business, but that she had neither given him the shares nor offered to return the money which he had paid her. 5 As at the commencement of the trial, it was not in dispute that Ms Zhai had the shares and the money, and that Mr Luo had neither. The case was put in several different ways, including on the basis of a common law money count arising from the total failure of consideration. 6 In response to that allegation, Ms Zhai submitted that she did at least hand to Mr Luo the financial accounts for the business, which she was obliged to do under the share sale agreement. That was significant, because it suggested that while she might not have handed over the shares in return for the purchase price, she had at least done something which the agreement required, thus it was said that the failure of consideration could not be said to be total. 7 I had, during the course of the trial, the benefit of seeing both Ms Zhai and Mr Luo in the witness box. The solicitor for Mr Luo is Mr Peng. He has been involved in the dispute with Ms Zhai for some time now. His dealings with Ms Zhai have made him suspicious of her. Consequently, he has taken to monitoring her property holdings by performing periodic title searches. 8 On 22 October this year, he became aware that Ms Zhai had disposed of a property owned by her at Chatswood on 24 July 2014, to a company called Chubbyelf Proprietary Limited, of which she was neither a member nor an officeholder. On the same day, he also became aware that a property which she had owned at Woollahra had been transferred to a Mr Manfield on 9 May 2014. Both of these transfers occurred some months before the trial had started, but Mr Peng only became aware of this when he did his periodic title searches on 22 October 2014. 9 I accept that Mr Peng's practice of only checking the title position on a periodic basis was a reasonable one. Mr Norrie of counsel, who initially appeared for Ms Zhai on this part of the application, criticised Mr Peng for not checking the situation more often, but I hardly think it lies in the mouth of Ms Zhai to suggest that Mr Peng should have been checking up upon her more often to see if she was dissipating her assets. 10 Following the discovery by Mr Peng about the apparent dissipation of Ms Zhai's assets, Mr Peng and his counsel Mr King gave advice to Mr Luo and took instructions. The result of this process was an application to the Court which was made on 10 November 2014 for freezing orders. That application had been foreshadowed on the afternoon of the preceding Thursday. 11 The application was not made on a very urgent basis, and Mr Luo's representatives were content for it to come before me some time later on 19 November 2014. By the time it came before me, the fact of the dissipation had been known for nearly a month. No attempt was made to serve the nominated third parties with the application, nor was any application made for short service of the papers against them. 12 The hearing which was conducted on 19 November 2014 was not without its oddities. An affidavit was produced by Ms Zhai which sought to explain the context of the property transfers which had been unearthed by Mr Peng. As to the Chatswood property, she said that she had entered into a contract to sell it on 24 February this year for $2.78 million, and that this had settled on 24 July 2014. 13 The proceeds of sale were disbursed to minor creditors, with $700,000 being given to her solicitors and $209,202.27 being given to her directly. Her solicitors then issued two cheques from the $700,000. One was made out to Yuan Han and Xiaohua Zou, and was in the amount of $650,000. The other was made out to Sutao Zhai, as trustee for the Zhai family trust and was in the amount of $50,000. 14 So far as the Woollahra property was concerned, she had exchanged contracts upon it on 28 March 2014 with the sale price of $1.74 million. That sale was completed on or around 9 May 2014. After the payment of sundry creditors, the secure creditor was paid $1,125,192. The sum of $200,000 was then paid to Yuan Han and Xiaohua Zou, and $231,209.74 was paid to Ms Zhai as the trustee of her family trust, as had been in the case of the Chatswood property. As a consequence of these transactions, the evidence suggests the disbursal of $209,202.27 to Ms Zhai herself, $281,209.74 to Ms Zhai's family trust, and $850,000 to Yuan Han and Xiaohua Zou. 15 There was no evidence before me about the nature of Ms Zhai's family trust. All I know is that she is its trustee. On the other hand, I do know that on 11 October 2014, the Zhai Family Trust electronically transferred $500,000 to a Barclays bank account held at Bristol in the United Kingdom in the name of Dongsheng Li. 16 Between Yuan Han and Xiaohua Zou, and Mr Dongsheng Li, the evidence satisfies me that Ms Zhai has parted with the sum of $1.35 million from her assets. Her answer to this, set forth in an affidavit which was read before me on the first return of the application on 19 November 2014, was that these transactions were to be understood not as nefarious dispositions of her property in advance of a judgment, but instead, as the repayment of pre-existing loans. 17 As to the position of Yuan Han and Xiaohua Zou, it seems that these two persons were a married couple. Ms Zhai says that she borrowed $650,000 from Mr Yuan on various dates - 6 May 2013, 15 July 2013, 20 August 2013, 3 September 2013, and 17 September 2013. She produced in support of this contention a deed of loan dated 11 July 2013, which, however, predates all but one of those dates. It does not record a loan for $650,000, contrary to her contention. It records instead a loan of $350,000 for a term of one month at a rate of 4% per month, that is to say, 48% per annum. She says that the two payments of $650,000 (from the Chatswood proceeds) and $200,000 (from the Woollahra proceeds) were repayments of this loan. 18 This does not add up, and there is no evidence about the advances before me, but making the assumption in favour of Ms Zhai that the loan monies were fully drawn on 6 May 2013, the loan balance could not conceivably have been $850,000 a year later, even at the comparatively usurious rate of 4% per month. 19 Combined with the distinctly ad hoc appearance of the deed of loan, which I should note the applicant wishes to have forensically examined, and the total absence of evidence of bank records for the loan drawdowns, or any evidence about the nature of Yuan Han or Xiaohua Zou, I think there is more than a good chance that what is involved here is not a loan at all, but an attempt on Ms Zhai's part to remove her assets away from the potential of Mr Luo's judgment, and to do so in a disguised fashion. 20 In the case of Mr Dongsheng Li, the situation is worse. Ms Zhai said that she borrowed 3 million Renminbi on 15 May 2000. A handwritten document, which may be in Cantonese or Mandarin, dated 15 May 2000, was produced together with what was said to be a translation of it. Assuming this is a real document, it records a loan for the amount alleged, but one which is repayable in three years at an interest rate of 10%. 21 Since the loan document is dated 15 May 2000, this suggests a repayment date earlier this century. I do not accept that the amount transferred to Mr Dongsheng Li in October 2014 is plausibly likely to be a repayment of a loan which was repayable over 11 years ago. I draw the conclusion, at least for interlocutory purposes, that there is a respectable case that in truth this transaction is an attempt by Ms Zhai to disburse her assets ahead of judgment. 22 Mr Luo applied for freezing orders against Ms Zhai, and I return to her position at the end of these reasons. He also applied for freezing orders against Yuan Han, Xiaohua Zou, and Mr Dongsheng Li. There were procedural complexities with the position of these individuals, which those representing Mr Luo appeared unwilling to understand, or at least to confront. 23 When the matter was first called on, it was said that I should make the orders against them, even though they were not parties, because of Federal Court Rule 7.34, which provides that the Court may make a freezing order or an ancillary order against a person, even if the person is not a party in a proceeding in which substantive relief is sought against the respondent. 24 I raised with counsel the need for his client to have an arguable right to recover the monies which had been disbursed to these individuals before I would countenance freezing their assets. No such case was pleaded in the current state of the proceedings, which is hardly surprising, since these third parties are not respondents to it. 25 No application was made when the matter was first before me for short service of an application to join these persons to the proceedings, and thereafter for interlocutory relief against them. I do not think that FCR 7.34 can be used to surmount these problems. Whilst it no doubt allows freezing orders to be made against third parties who have not been joined, it is to my mind largely directed to the situation of entities such as banks, who are holding funds and who can be expected to deal with frozen assets in a neutral fashion. FCR 7.34 cannot be used to run a substantive case against a third party without them being joined or given procedural fairness. Nevertheless, in effect, that is what was sought here. 26 Concerned about the deep procedural irregularity of that procedure, I required Mr Luo to file some form of case or pleading, setting out the basis upon which he might have a right to recover from the nominated third parties the monies which have been disbursed to them, and setting out what the legal basis for that might be. 27 I did that because it seemed to me that applying orthodox principles on which interlocutory injunctive relief is given requires a party in the position of Mr Luo to identify why it has a prima facie case against the nominated respondent, which in turn requires the identification of the legal principles upon which the claim is based. 28 Having suggested to those who represented Mr Luo that they needed to articulate what their case against the third parties might be, eventually a statement of claim was filed. That statement of claim now nominated the three individuals in question as additional respondents. There was then a separate statement of claim on the Court file to the statement of claim which had been filed by Mr Luo against Ms Zhai. 29 The Court file is now in the strange position of having two sets of pleadings on it, including one set of pleadings in respect of a case which has not yet been served. No application was made for leave to serve the persons in question, and no application was made to add them as respondents, although, as events transpire, they seem to have become them, albeit, Mr Luo did not seek short service. 30 I think - it is very hard to be sure - I am, in effect, presently being asked for ex parte orders against those third parties. But why, absent extreme urgency, would a court ever grant ex parte orders against third parties who have not been given an opportunity to be heard on why the orders should or should not be made? 31 Ordinarily, except in those cases where the urgency is most extreme, and there is not the time for a party to be heard, the proper course is to ask the Court to make orders providing for the short service, and early return of the application, so that all parties can be heard on the issue. 32 The kinds of cases which involve ex parte freezing orders being made are those where the risk of dissipation is literally imminent, within hours or minutes. In this case, the hearing of the application has extended over a week, it was filed over two weeks ago, and the events giving rise to it occurred last month. 33 Mr Luo's initial invocation of FCR 7.34 has led his representatives, so it seems to me, into a procedural wonderland, where it is thought that one can get orders against third parties without them being heard, without asking for short service, and where a great deal of time has been spent thrashing around in what is otherwise a relatively straightforward application. 34 I did my best to help Mr Luo's advisors, but in the end I am bound to consider the position of these third parties. I cannot see that I can make ex parte orders of the present kind without some real urgency, and the one thing this application shows is the absence of that kind of urgency. 35 After the application was first flagged on the afternoon of Thursday 6 November 2014 and filed on Monday 10 November 2014, it then came before me for hearing on 19 November 2014, at which time the role of Mr Dongsheng Li, Yuan Han and Xiaohua Zou was first revealed. At that hearing I indicated that I would not proceed under FCR 7.34 and the matter was then stood over to 21 November 2014 for Mr Luo put up security for his undertaking as to damages, it then being thought he had no assets in the jurisdiction. Meanwhile, the pleading was prepared but not served. On 21 November 2014, Mr Luo's representatives were in no position to proceed, and the matter was stood over to today. 36 I cannot think of a basis which would withstand even mild appellate scrutiny on which I could make orders against these third parties without first hearing from them. I decline the application in relation to Mr Dongsheng Li for a further reason. The evidence shows he is out of the jurisdiction. When I enquired how I could deal in the present context with the fact that he was out of the jurisdiction, I was told that Mr Luo's advisors could not assist me. 37 I am not satisfied that I can make orders against Mr Dongsheng Li if he is out of the jurisdiction, even if I were otherwise minded to do so. The situation attending the making of ex parte freezing orders against a person out of the jurisdiction with respect to an action arising under a New South Wales statute in a Federal Court is, to say the very least, not straightforward. Certainly, nothing has been put to me by Mr Luo's advisors explaining how I could possibly make such an order. 38 I am not therefore satisfied, as a matter of procedure, that I should make orders against these three third parties, and there is insufficient urgency to justify making the orders on an ex parte basis, rather than on the normal basis where all the parties are served and are heard. 39 There is, I think, an element of procedural farce about this outcome. The parties have been before the Court three times on the present application, something I have never witnessed before in a set of freezing orders. However, whilst I am not altogether certain that those assisting Mr Luo are completely familiar with the procedural aspects of the present application, and whilst I have a corresponding sympathy on my part for the position of Mr Luo, who otherwise seems to have quite a good case for the sort of relief he is seeking, this does not permit me to ignore ordinary principles like short service, which everyone knows or should know. 40 In relation to Ms Zhai and her company, however, I will make the order sought. I am satisfied that Mr Luo has a good arguable case on the facts and the law against Ms Zhai, having heard the entire trial. His contention that she cannot keep both the shares and the money has an air of robust practicality about it. I am also satisfied that there is a danger - a significant danger - that Ms Zhai will leave wholly or partly unsatisfied any judgment against her because her assets have been removed from Australia. 41 In particular I am satisfied that a very significant component of her assets have been transferred to Mr Dongsheng Li in Bristol, or, alternatively, that she is diminishing their value by sending at least a large portion of the money to Yuan Han or Xiaohua Zou. I am satisfied, further, that the balance of convenience in the case of Ms Zhai favours the granting of orders. If Ms Zhai is left unrestrained, I believe Mr Luo will be left with a hollow victory. 42 It was suggested on 19 November 2014 that Mr Luo had no assets within the jurisdiction, and therefore he should be required to put up security for his undertaking as to damages. I am satisfied, however, that he has sufficient assets in Australia to make his undertaking as to damages valuable. In particular, that includes a property at Keysborough, which has equity in it of about $1.7 million. I do not require Mr Luo to put up security for his undertaking, and I am content to accept it in the ordinary form. 43 On the proffering of the usual undertaking as to damages, I will therefore make the order sought against Ms Zhai and Jantom Furniture Pty Ltd. I otherwise reject the application. I note that the application against the third parties which I have just rejected has not failed, except perhaps in the case of Mr Dongsheng Li, for want of merit. It has failed essentially for procedural reasons, for which Mr Luo himself does not seem to me to be to blame. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.
Luo
Zhai