Plaintiffs v Defendant

2 For the purposes of the present application, the plaintiffs' and the defendant's positions and evidence are outlined. The outline is not, however, to be taken as indicating any concluded view in relation to the party positions and evidence.

3 I turn first to the plaintiffs' position and outline.

4 On or about 9 November 2009, the plaintiffs agreed with the defendant that in exchange for the transfer of 70 shares in Prostud to the defendant, he would pay the plaintiff the sum of RMB 10,000,000 before 30 November 2009 and a further sum to be calculated in accordance with the terms of the agreement, by 30 March 2010. This was the first agreement.

5 On or about 9 December 2009, it was agreed that the plaintiffs would sign the share transfer agreement and that the defendant would hold the documentation but would not register his shareholding with the Australian Securities and Investments Commission until having paid the plaintiffs the amount of AUD 2,800,000 in four instalments. This was the second agreement.

6 On or about 9 November 2009, Elena Ma and Cheng Li executed the transfer documentation whereby 30 and 20 shares, respectively, were transferred to the defendant. Several days after, Cheng Zhen Eugenia Xu executed the transfer documentation of 20 shares in Prostud to the defendant.

7 By 15 April 2010, various payments had been made to the plaintiffs in 6 instalments. It is alleged that on or about 30 April 2010, the defendant registered a share transfer in his name so that he became a registered shareholder of 70 ordinary shares in Prostud Pty Ltd. As at 25 May 2010, an outstanding amount of AUD 695,300 was owed to the plaintiff by the defendant. This is the alleged breach of the agreement.

8 The plaintiffs are claiming the amount outstanding under the agreement between the parties as damages for breach or as a claim in debt, in the alternative. They are also seeking a declaration that they are entitled to be registered as the owners of all 100 shares in Prostud and an injunction requiring the defendant to transfer ownership of the 70 Prostud shares to them, which they would hold until full payment of the outstanding amount has been made. This form of relief presupposes the ultimate performance of the agreement.

9 I turn now to the defendant's position and evidence.

10 In the amended defence and counterclaim, the defendant denies the terms and conditions of the first agreement as alleged by the plaintiffs, except that there was an agreement in relation to the defendant purchasing shares in Prostud from the plaintiffs. The defendant also admits that a further agreement was entered into on or about 9 December 2009 but contends that it was a supplementary agreement to the first agreement. It is denied that this agreement replaces the first agreement.

11 The defendant's position is that both the agreements were partly in writing and partly implied and that insofar as they were implied, they were implied by operation of law and from the need to give business efficacy to the arrangement.

12 The defendant also contends that there was a term in both the first and further agreement that if the defendant failed to pay the purchase price in accordance with the instalment due dates, the first and further agreements would be of no effect and that the first plaintiff would return all monies received from or on behalf of the defendant to the defendant.

13 The defendant also claims to have made a further payment in addition to the $82,000.00 that the plaintiffs claim was paid to them in the first instalment and that this payment was made by transferring RMB 500,000.00.

14 The defendant further claims that not all instalments were paid when they were due as set out in the first and further agreement. It is also denied that the defendant owes the plaintiffs an outstanding amount of AUD 695,300.00 and that he is in breach of the second agreement.

15 The defendant also denies the plaintiffs' allegations of misleading and deceptive conduct and makes a counterclaim on similar terms and for total sum that was paid by him to the plaintiffs, $1,104,700.00. It is claimed that the plaintiffs have refused, failed and neglected to return this sum to the defendant, resulting in loss and damage in the sum of $1,104,700.00.

16 The defendant also alleges that issues arose with respect to his assistance in the financing, purchase and sale of Mr Tim Ma's property in Glen Waverly.

17 On 15 June 2010, a freezing order was granted by this court which, summarising its effect in general terms, ordered that the defendant must not remove from Australia or in any way dispose of, deal with or diminish the value of any of his assets which are in Australia up to the unencumbered value of AUD 1,695,300. This order was to have effect up to and until 21 June 2010 upon which a further hearing was to take place.

18 On 21 June 2010, the freezing order dated 15 June 2010 was varied to add a clause which prohibited the defendant from disposing of, dealing with or diminishing the assets of Prostud Pty Ltd except in the ordinary course of business of that company. The freezing order was also continued until further order.

19 On 9 July 2010, the freezing order was further varied to negate enquiries or investigation into customer transactions from bank accounts in the name of Prostud Pty Ltd unless these transactions were in excess of AUD 10,000. The freezing order otherwise continued to have full effect until further order.

20 The plaintiffs seek the continuation of the freezing orders which I made on 15 June 2010, as varied by me on 21 June 2010 and as varied by Pagone J on 9 July 2010 ("the Freezing Orders").

21 The plaintiffs must establish that they have a good arguable case against the defendant, that there is a danger that the prospective judgment will be wholly or partly unsatisfied because the assets controlled by the defendant will be dissipated or removed from the jurisdiction or the defendant will abscond from the jurisdiction. The plaintiffs must also show that the balance of convenience favours the continuation of the Freezing Orders.

22 The requirement for a good arguable case has been construed by the court to mean that it must be 'sufficiently plain that there is a serious question to be tried and that the plaintiff has a realistic prospect of success.'[1] This has been interpreted as requiring the plaintiff's case to be more than barely capable of serious argument but does not require a case which has better than a fifty per cent chance of success.[2]

23 The dispute between the parties raises three main issues:

1. Whether it was a term of the agreement for the defendant to hold the share transfer documentation and not register it with ASIC until the shares had been paid for in full.

2. Whether the second agreement supplanted the first agreement or whether the later agreement was merely supplementary to the earlier agreement.

3. The defendant's counterclaim which alleges that the plaintiffs made misleading and deceptive representations about Prostud that he relied on in entering the agreements.

24 It has been conceded by the defendant that there is a good arguable case for present purposes.

Protection of Assets and Interests - Balance of Probabilities

25 In applying for the continuation of the Freezing Orders, it is not necessary for the plaintiffs to prove on the balance of probabilities that the defendant will remove assets controlled by him, dissipate those assets or abscond from the jurisdiction. They need only establish that there is a real risk or a sufficient likelihood of removal or dissipation of those assets.[3]

26 This issue is addressed in the affidavit of Ms Elena Xiaohong Ma dated 3 June 2010 who deposes that the defendant, his family and business interests are principally based in China and that he does not spend a lot of time in Australia. Additionally, the defendant's only Australian company is a shell company. These issues are not addressed by the defendant's affidavit which does not contain information about where the defendant or his family reside or have resided recently or his business interests in Australia aside from reference to two investment properties in Australia.

27 The affidavit of Ms Elena Xiaohong Ma further alleges that the defendant told her that he would 'run away' if litigation between them was to be resolved in her favour. This was deposed in the affidavits of Ms Elena Ma and Mr Tim Ma but was denied by the defendant in his affidavit.

28 Ms Ma also deposed that her sister, Li Silkin owns a property which secures a loan to Prostud.

29 The second affidavit of Ms Elena Ma dated 21 June 2010 further deposes to her concerns about the defendant's use of Prostud's assets and makes specific reference to the withdrawal of AUD 70,000.00 from the company's bank account on the day that the ex-parte freezing order was made. The impact of Ms Ma's evidence in this respect is that this is an unusual transaction which would not have been one in the ordinary course of Prostud's business.

30 The affidavit of Ms Elena Ma dated 15 July 2010 further deposes that she has recently become aware that the defendant has notified Prostud's main Chinese supplier that all future dealings will be with his company, Autex International Group Pty Ltd, rather than Prostud. This is causing concern for the plaintiffs as evidence that the defendant was attempting to divert Prostud's business into his company. Ms Ma's affidavit also deposes a new director has since been appointed to Prostud.

31 The affidavit of Mr Timothy Ji Ma dated 15 July 2010 deposes that he is concerned about low stock levels in the Prostud warehouse and the resulting impact on Prostud's business as stock orders that he has placed have been cancelled by the defendant. The affidavit also deposes that Mr Ma, in his capacity as a director of Prostud, has been denied access to Prostud's profit and loss statements and alleges that the defendant had instructed the company bookkeeper to restrict this access.

32 It was submitted by the plaintiffs that this evidence suggest that there is a need for the protection of the plaintiffs' property and interest in Prostud.

33 At the hearing on 16 July 2010, the plaintiffs also applied for the variation of the Freezing Orders to include two more assets which the defendant has interests in - a property at South Wharf and a Mercedes Benz motor vehicle.

34 The granting of a freezing order requires that the balance of convenience favours such a grant.[4]

35 At the hearing on 16 July 2010, counsel for the defendant submitted that the plaintiff has to demonstrate that there is a real risk that because of removal or disposal of assets, any judgment will be a nullity. Counsel for the defendant further submitted that there have been no suggestions that the defendant is removing or disposing of his assets outside the jurisdiction of the court but, rather, is intending to acquire another asset and has signed the contract and paid an AUD 600,000.00 plus deposit on a property in the Eastern Suburbs of Melbourne. The defendant is borrowing AUD 4.9 million against an AUD 6.3 million property and will have over AUD 2 million worth of equity in that property alone.

36 In lieu of the Freezing Orders, the defendant offered to give an undertaking to the court that, subject to any further court order or subject to the consent of the plaintiffs' first obtained, the defendant and his wife will not sell or further encumber two properties situated at 10-12 Barbara Avenue, Glen Waverley and Townhouse 16, 20 Convention Centre Place, South Wharf. The defendant and his wife will also not sell or further encumber the shares in Prostud held by either of them, except in the ordinary course of business of that company, and the Mercedes Benz motor vehicle, registration number VLO 999. Subject to the settlement of the purchase and draw down of the finance previously arranged and subject to further court order or with the consent of the plaintiffs first obtained, the defendant and his wife will not sell or further encumber their interest in the property situated at 34 Dawson Avenue in the Eastern Suburbs of Melbourne (the precise address being kept confidential prior to settlement or further order).

37 The undertaking relevantly addresses the issues of risk that the defendant may dispose of his assets in similar terms that as the Freezing Orders. Additionally, the undertaking, as set out, also binds the defendant's wife, Weiwei Li. The freezing order does not have this effect.

38 This is an undertaking which has been given to the Court and as such, is binding on the defendant and his wife and enforceable by the Court on the application of the plaintiffs. A copy of the undertaking as given to the Court is confirmed in the Schedule to these reasons for judgment (and is referred to as "the Undertaking").

39 Consequently, the plaintiffs are at least as well protected as they would have been by the continuation of the Freezing Orders so the balance of convenience does not favour the continuation of the Freezing Orders, particularly as there may be adverse commercial consequences for the defendant if the Freezing Orders remain in force, a position which is not justified given the scope and adequacy of the undertaking.

40 For these reasons, the Freezing Orders will be dissolved and the Undertaking given on behalf of the defendant and his wife, Ms Weiwei Li, accepted by the Court.

41 Consequently, I order the Freezing Orders be dissolved and cease to have effect as and from 4 August 2010 and that the Undertaking binds the defendant and his wife as and from the time the Freezing Orders cease to have effect. I further order the defendant to provide full details of the address of the property referred to in paragraph 4 of the Undertaking within three business days of the settlement of the purchase of that property being effected. I will hear submissions as to whether that address ought to be provided to the plaintiffs or solely to the court.

42 I will hear the parties in relation to the question of costs before making any orders in this respect.

The Defendant Wenbin Luo and his wife Weiwei Li by their counsel undertake as follows:

1. Subject to any further court order or consent of the Plaintiff's first obtained, the Defendant and his wife will not sell or further encumber the properties situated at and known as:

1. Subject to the settlement of the purchase and draw down of the finance previously arranged and subject to a further court order or with the consent of the Plaintiff first obtained, the Defendant and his wife will not sell or further encumber the property situated and known as:

Townhouse 16, 20 Convention Centre Place, South Wharf 3006

1. Subject to further court order or consent of the Plaintiffs' first obtained, the Defendant and his wife will not sell or further encumber:
   • (a) the shares in Prostud Pty Ltd held by either of them; and
   • (b) the Mercedes Benz motor vehicle registration number VLO 999
2. Subject to the settlement of the purchase and draw down of the finance previously arranged and subject to a further court order or with the consent of the Plaintiff's first obtained, the Defendant and his wife will not sell or further encumber their interest in the property situated at and known as:

34 Dawson Avenue, in the Eastern Suburb, Vic

for the total purchase price of $6,300,000.

1. Subject to any further court order, the Defendant and his wife will not dispose of, deal with or diminish the assets of Prostud Pty Ltd except in the ordinary course of business of that company.

[1] VUT v Wilson [2003] VSC 299, at [23].

[2] See Nieva Maritime Corporation v Trave Schiffahrtsgesellschaft Gublt ("The Niedersachsen") [1984] All ER 398 at 404 per Mustill J; Westpac Banking Corporation v McArthur [2007] NSW SC 1347 at [22].

[3] Bunnings Pty Ltd v McMillim [2005] VSC 131 at [7]; Victoria University of Technology v Wilson and Ors [2003] VSC 299 at [36].

[4] Zhen v Mo [2008] VSC 300.