Protelight Pharmaceuticals (Australia) Pty Ltd v Wen

COLLIER J 1 Before the Court is an Urgent Application Before Start of a Proceeding (Urgent Application) for a freezing order, brought ex parte. In that Urgent Application, Protelight Pharmaceuticals (Australia) Pty Ltd (Protelight Australia or the Applicant) seeks orders in the following terms: 1. The assets of Da WEN be subject to a freezing order pursuant to rule 7.32 of the Federal Court Rules 2011 (Cth) (Rules) in accordance with the terms set out below. 2. The Prospective Applicant, Protelight Pharmaceuticals (Australia) Pty Ltd (Applicant), fulfils its undertakings to the Court in accordance with the terms set out in Schedule A below. 3. Pursuant to rule 10.24 of the Rules, leave is granted for service of the Urgent Application Before Start of a Proceeding filed 15 May 2024 (Urgent Application) and supporting documents, as well as any prospective Application by the Applicant for breach of director's duties under the Corporations Act 2001 (Cth) and the common law (Prospective Application) and supporting documents (Documents) by the following means: (a) By WeChat to WeChat ID: Michael902274 (b) By iMessage to iMessage number: +61 411 193 378 4. The Documents shall be deemed to be served on the Prospective Respondents, Da WEN and Li Wen MA (Respondents), 7 days after service in accordance with order 3. 5. The Commonwealth Bank of Australia, within 7 days, produce and provide to the Applicant all documents and information in its possession, custody, or control relating to: (a) The accounts of Da WEN and Li Wen MA, including but not limited to account statements, transaction records, and identification documents. (b) All transactions conducted by or on behalf of Da WEN and Li Wen MA from 1 September 2023 to 3 June 2024, including but not limited to wire transfers, deposits, withdrawals, and internal transfers. (c) Any correspondence, communications, or records related to the opening, maintenance, and operation of the accounts associated with Da WEN and Li Wen MA. 6. Costs of and incidental to the Urgent Application be reserved pending the outcome of the Prospective Application. 7. Each party has liberty to apply to the Court with one day's written notice. 2 It is my understanding that Protelight Australia anticipates the filing of a prospective application in which it seeks damages against Da Wen (Mr Wen) for breach of director's duties under the Corporations Act 2001 (Cth) and the common law (Prospective Application). 3 I understand that the Applicant appeared before Justice Meagher on 20 May 2024 seeking a freezing order, however the Applicant's affidavit evidence at that time did not comply with s 45(2) of the Federal Court of Australia Act 1976 (Cth). I understand that the Applicant has since rectified this deficiency. 4 In Court this morning Counsel for Protelight Australia gave the usual undertakings on behalf of his client concerning damages arising from any orders made. 5 Protelight Australia relies particularly on a detailed affidavit of Peng Zhou (Mr Zhou) dated 28 May 2024 (First Zhou affidavit). In that affidavit Mr Zhou materially deposed: Jiangsu Protelight Pharmaceutical & Biotechnology Co Ltd (Jiangsu Protelight) is the ultimate holding company of Protelight Australia. Jiangsu Protelight sought to conduct clinical trials of innovative drugs in Australia and sought to register a company in Australia for that purpose. It engaged Mazars (Qld) Pty Ltd (Mazars) to assist it. Mr Zhou met Mr Wen at this point. Mr Wen was a partner of Mazars. • The company that was registered on or about 5 July 2021 was Protelight Australia. Mr Wen was appointed as a resident Australian director of Protelight Australia. On 12 August 2021, Mr Wen opened a Business Transaction Account (BSB: 064-000, Account Number: 1602 7147) (Account) for Protelight Australia at the Commonwealth Bank of Australia. Mr Wen was the only authorized operator of the Account. Jiangsu Protelight's standard procedure for making payments from Protelight Australia involved transferring funds from China to the Account. Subsequently Mr Zhou would notify Mr Wen of the payment details and instructions by email. Mr Wen consistently executed payments in accordance with the instructions provided in the emails. On 8 October 2023 one of Jiangsu Protelight's cashier, Ms Cen Qian, discovered that she could not log into Protelight Australia's Account and notified Mr Zhou. Mr Zhou contacted Mr Wen to inquire about the reason. Mr Wen told Zhou that he thought the account was hacked and it would take a few weeks to be reinstated. On 18 October 2023 Mr Zhou was told by another partner of Mazars, Mr Jamie Towers (Mr Towers) that Mr Wen's employment with Mazars had been terminated on 16 October 2023. Mr Towers sent Mr Zhou the Account's statement for the third quarter of 2023. Mr Zhou noticed that funds amounting to $300,000.00 had been transferred to a third party account under the name Liwen MA between 29 September 2023 and 30 September 2023. Mr Zhou had not instructed Mr Wen to execute those transactions. On 19 October 2023 Mr Towers told Mr Zhou that Mazars had lodged a police report that day regarding alleged theft of funds by Mr Wen. On 23 October 2023, Mr Wen told Mr Zhou during a WeChat call that the bank account login detail was still the same but the password had changed. Mr Wen provided Mr Zhou with the new password. Ms Qian logged in to the account and found that there were five unauthorized transfers between 29 September 2023 to 3 October 2023 to Liwen MA totalling $463,019.12. On 3 October 2023, the Account's balance was reduced to zero. On 3 November 2023 Jiangsu Protelight engaged Mr John Lee (Mr Lee) to replace Mr Wen as the new local director for Protelight Australia. Mr Lee attended the Commonwealth Bank of Australia on 5 November 2023. It was noted that certain information regarding Mr Wen and Liwen Ma was still accessible. Mr Zhou attended a meeting on 13 December 2023 with Detective Senior Constable Nicholas Berrett, Towers, Ms Sophie Chen and Mazar's representative John Kotzur (Mr Kotzur). The Detective Senior Constable stated that Mr Wen was offshore and there were 2 victims of misappropriation of money by Mr Wen. Mr Kotzur stated that Mr Wen most likely stole funds because Mr Wen owed gambling debts. On 13 December 2023 Mr Kotzur sent a WeChat message to Mr Zhou telling him that Mr Wen had called to the effect that he was selling a property in Shanghai. Mr Wen then rang Mr Zhou and promised to repay Protelight Australia the money Mr Wen had taken, following the sale of the Shanghai property. Around March 2024 Mr Wen told Mr Zhou that the Shanghai property had sold, and that Mr Wen was trying to transfer the money to Australia. On 22 March 2024 Mr Wen transferred AUD5,000.00 to Protelight Australia's Bank of China account. Mr Wen informed Mr Zhou that there were limitations on foreign transfers of funds. Following 7 April 2024 Mr Wen stopped answering Mr Zhou's WeChat and phone calls. On 23 November 2023 Mr Zhou's solicitor, Ms Carissa Law from AHL Lawyers, informed Mr Zhou that a search of national property ownership in Australia revealed that Mr Wen owned a property in Australia situated at 57/2-26 Wattle Crescent, Pyrmont, NSW 2009 (Title Reference 57/SP49302) (the Property). As at 25 March 2024 the Property was valued by property.com.au at $1,105,000.00, although it is encumbered by a mortgage of an unknown amount. On 22 April 2024 Ms Law prepared and sent a letter of demand to Mr Wen by way of WeChat message and iMessage demanding that he repay the funds amounting to $458,019.12 by 6 May 2024. Mr Zhou understood that there had been no response from Mr Wen. On 3 May 2024 Ms Law received a police update to the effect that Mr Wen is currently residing overseas. 6 Mr Zhou believed that, in the event that freezing orders were not made, a judgment of the Federal Court against Mr Wen could be wholly or partly unsatisfied because: Mr Wen had absconded from Australia and now resided in China; Mr Zhou was informed that Wen's actions were likely the result of gambling debts; The Property was Mr Wen's sole remaining asset in Australia; The Property was listed for sale in 2021 and 2022 and withdrawn from sale on both occasions. 7 Ms Law also affirmed an affidavit dated 29 May 2024 in support of Mr Zhou's affidavit. 8 On 29 May 2024 Mr Zhou affirmed a further affidavit (Second Zhou affidavit) in which he stated, materially, that: His solicitor in China had discovered Mr Wen's household registration address in Shanghai (Wen's Shanghai address). On 16 May 2024 Mr Zhou and his solicitor in China, Mr Yin Wu, went to Wen's Shanghai address but could not find it. Mr Zhou and his solicitor went to the Household Registration Residential District Office in Shanghai located nearby, and was informed by the security officer in charge that: • the property Mr Zhou was looking for was a private villa, • a person with the surname "Wen" had owned the house several years before but had sold it, • the house had previously been occupied by people with the surnames "Wen" and "Ma"; • Li Wen Ma was the uncle of Mr Wen. 9 Also on 29 May 2024 Mr Zhou affirmed a third affidavit (Third Zhou affidavit) in which Mr Zhou repeated evidence from the Second Zhou affidavit but added, in summary, that: Wen's Shanghai address was the only address that could be searched and obtained by legal means because of privacy laws in China. On 16 May 2024 Mr Zhou attended the Shanghai Jing'an District Public Security Bureau with his solicitor to file a report against Mr Wen, however the Bureau was unable to handle the case, could not provide information about Mr Wen's residential address, and suggested that Mr Zhou commence litigation against Mr Wen in the Jing'an District People's Court. Later on 16 May 2024 Mr Zhou attended the Jing'an District People's Court and was informed that foreign related cases were complex and required formal law suit documents to be prepared before a judge can decide whether to accept the case or not. Mr Zhou did not have knowledge of where Mr Wen currently resided and had exhausted all means in his ability to locate Mr Wen.

CONSIDERATION 12 Rule 7.32 of the Federal Court Rules provides: Freezing order (1) The Court may make an order (a freezing order), with or without notice to a respondent, 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. (2) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets. Note: Without notice is defined in the Dictionary. 13 Further, rule 7.35 provides: Order against judgment debtor or prospective judgment debtor or third party (1) This rule applies if: (a) judgment has been given in favour of an applicant by: (i) the Court; or (ii) for a judgment to which subrule (2) applies - another court; or (b) an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in: (i) the Court; or (ii) for a cause of action to which subrule (3) applies - another court. (2) This subrule applies to a judgment if there is a sufficient prospect that the judgment will be registered in or enforced by the Court. (3) This subrule applies to a cause of action if: (a) there is a sufficient prospect that the other court will give judgment in favour of the applicant; and (b) there is a sufficient prospect that the judgment will be registered in or enforced by the Court. (4) The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur: (a) the judgment debtor, prospective judgment debtor or another person absconds; (b) the assets of the judgment debtor, prospective judgment debtor or another person are: (i) removed from Australia or from a place inside or outside Australia; or (ii) disposed of, dealt with or diminished in value. (5) The Court may make a freezing order or an ancillary order or both against a person other than a judgment debtor or prospective judgment debtor (a third party) if the Court is satisfied, having regard to all the circumstances, that: (a) there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because: (i) the third party holds or is using, or has exercised or is exercising, a power of disposition over assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (ii) the third party is in possession of, or in a position of control or influence concerning, assets (including claims and expectancies) of the judgment debtor or prospective judgment debtor; or (b) a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment. (6) Nothing in this rule affects the power of the Court to make a freezing order or ancillary order if the Court considers it is in the interests of justice to do so. 14 The onus is on the applicant for a freezing order to satisfy the Court that the order should be made, and to satisfy the Court as to the amount which is to be the subject of the order : Zhen v Mo [2008] VSC 300 at [22]-[30], PJM v AML [2018] QSC 187 at [53], Pickett v Amin [2023] VSC 715 at [45]. 15 The application of Protelight Australia currently before me is ex parte. It follows, to adopt the observation of Edelman in Insolvency Guardian Melbourne Pty Ltd v Carlei [2016] FCA 72 at [2], that any assessment of whether the "applicant has a good arguable case on a prospective cause of action" for the purposes of r 7.35 is necessarily a provisional and highly tentative assessment. 16 I also note the following observation of the High Court in Cardile v Led Builders Pty Ltd [1999] 198 CLR 380, HCA 18: 51. We agree with the tenor of what was said with particular respect to Mareva relief before judgment by the Court of Appeal of New South Wales (Mason P, Sheller JA, Sheppard AJA) in Frigo v Culhaci: "[A Mareva order] is a drastic remedy which should not be granted lightly. ... A [Mareva order] is an interlocutory order which, if granted, imposes a severe restriction upon a defendant's right to deal with his or her assets. It is granted at the suit of a plaintiff whose status as a creditor is in dispute and who need not be a secured creditor. Its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to 'provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant's insolvency'. ... Many authorities attest to the care with which courts are required to scrutinise applications for [Mareva orders]. The leading decision in this State is Patterson v BTR Engineering (Aust) Ltd." (footnotes omitted) 17 I am satisfied on the evidence before me that Protelight Australia should be granted the freezing order in the terms it has sought, with liberty to apply to the Court with one day's written notice. I have formed this view for the following reasons. 18 First, it is necessary to consider whether Protelight Australia has established a good arguable case on the prospective cause of action it has against Mr Wen. As Edelman J observed in Insolvency Guardian: 18. …The phrase 'a good arguable case' has a long history. Its provenance may have been in the judgment of Mustill J, as his Lordship was then, in Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398, 404. The phrase has been treated as the equivalent of the general law requirement explained by Gaudron, McHugh, Gummow and Callinan JJ in Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 at [68] that the applicant must establish that it has a reasonably arguable case on legal and factual matters (see also BGC Contracting Pty Ltd v Western Australian Construction Hire Pty Ltd [2010] WASC 25 [5] (Le Miere J); Perdaman Chemicals & Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2011] WASC 188 [144] (Beech J)). Further, it is not sufficient merely to assert a claim in an affidavit or pleading in order to establish a good arguable case. 19 In written and oral submissions, Protelight Australia stated that the prospective causes of action upon which it relied were actions for breach of director's duties. In particular, Protelight Australia has submitted that the primary cause in the prospective application is damages for breach of director's duties pursuant to sections 181 and 182 of the Corporations Act, for which Mr Wen would be liable to pay compensation pursuant to section 1317H. 20 I understand that Protelight Australia would seek compensation against Mr Wen referable to his breach of director's duties in equity. 21 I further note that the draft orders sought by Protelight Australia nominate Li Wen Ma as a second prospective respondent. It is unclear what relief, if any, Protelight Australia would seek against Li Wen Ma. However, it is appropriate that the orders apply to Li Wen Ma, in circumstances where it appears that funds were improperly transferred from the funds of Protelight Australia to a Commonwealth Bank account in the name of Li Wen Ma, such that Li Wen Ma is potentially a party to any misappropriation of monies. 22 I have set out in detailed summary the evidence of Mr Zhou and Ms Law. That evidence indicates that there has been misappropriation of funds of Protelight Australia by Mr Wen during the period that Mr Wen served as sole director and company secretary of Protelight Australia. The evidence further indicates that the misappropriation of funds by Mr Wen was intentional by him. Based on that evidence I am satisfied that Protelight Australia has a good arguable case, within the meaning of that phrase in r 7.35, against Mr Wen in the amount of $550,000.00. 23 Second, applications concerning breach of provisions of the Corporations Act are within the jurisdiction of the Federal Court of Australia. I am satisfied that there is sufficient prospect that a judgment obtained as a consequence of a good arguable case as described would have sufficient prospects of being enforced by this Court. 24 Third, I am satisfied at this interlocutory level that there is a danger that any prospective judgment against Mr Wen will be wholly or partly unsatisfied unless the freezing orders sought are made. There is no positive evidence before the Court that Mr Wen would seek to frustrate any judgment against him, however I note that the absence of such evidence does not in itself mean that a freezing order is not available: National Australia Bank Ltd v Bond Brewing Holdings Ltd [1990] HCA 10; (1990) 169 CLR 271 at [6]. On the other hand I note the evidence that: Mr Wen appears to have misappropriated monies of Protelight Australia, and has made only a token effort to reimburse the company; Mr Wen left Australia at around the time of the apparent misappropriation and now resides in China. A reasonable inference can be drawn that Mr Wen has absconded; Mr Wen allegedly has a gambling issue, which may further erode any monies in his hands; Mr Wen is no longer communicating with Mr Zhou or other officers of Protelight Australia; The only remaining asset of Mr Wen identified in Australia appears to be the Property; and Protelight Australia and related parties have given evidence of the difficulty they have experienced in locating either Mr Wen or property of Mr Wen in China, or in obtaining assistance in China. 25 In the circumstances I am satisfied that there is a real danger that Mr Wen will deal with his assets in Australia, and in particular the Property, in a manner which would leave Protelight Australia unable to satisfy any judgment against Mr Wen. 26 Fourth, the terms of the order sought by Protelight refer to assets of Mr Wen as including: The Property or, if it has been sold, the net proceeds of the sale; Any money in accounts in the name of Li Wen Ma at the Commonwealth Bank. 27 The evidence before me is that Mr Wen is the registered proprietor of the Property, although subject to a mortgage. It also appears that Mr Wen may have control over, or at least access to, accounts in the name of Li Wen Ma in Australia. It is appropriate that the freezing order as sought should also freeze those assets pending further assessment by the Court. 28 It is further appropriate that the Commonwealth Bank be directed to produce to Protelight Australia all documents and information in its possession, custody or control relating to the accounts of Mr Wen and Li Wen Ma, as well as transactions involving those accounts from 1 September 2023 to 3 June 2024, and relevant correspondence and other communications or records. 29 Fifth, the terms of the order appropriately carves out such matters as: Mr Wen's ordinary living expenses; Mr Wen's reasonable legal expenses; Mr Wen dealing with or disposing of assets in the ordinary course of his business, or otherwise; and Mr Wen dealing with or disposing of any assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made. 30 Sixth, to the extent that the Court is required to consider the balance of convenience to the parties of the freezing order sought, it appears that that order would not affect the daily usage of the Property such as to prejudice Mr Wen. On the other hand, the consequences to Protelight Australia of a refusal by the Court to grant a freezing order could be very significant. 31 It is unclear to what extent an order freezing the bank account of Li Wen Ma would inconvenience him. 32 In the circumstances, the balance of convenience appears to favour the granting of the freezing order sought. 33 The draft orders anticipate that freezing orders be served on Mr Wen and Li Wen Ma by 4.00pm tomorrow. They also provide that Protelight Australia file and serve the Prospective Application on Mr Wen and Li Wen Ma by 13 June 2024. The Return Date is 14 June 2024, at which point Mr Wen and Li Wen Ma will have an opportunity to respond to the interlocutory orders made. 34 I further note that the draft orders propose there be liberty to apply with one day's notice, which provides a level of protection to Mr Wen and Li Wen Ma. 35 Seventh, I note the apparent difficulties Protelight Australia has experienced, through Mr Zhou, in communicating with Mr Wen, and in effecting service on Mr Wen in China. It is appropriate in the circumstances to permit substituted service on Mr Wen and Li Wen Ma pursuant to rr 10.24 and 10.49 of the Federal Court Rules by: (1) WeChat ID: Michael902274. I note the evidence that Mr Wen used this account to communicate with Zhou until 7 April 2024. (2) iMessage number: +61 411 193 378. There is evidence that Mr Wen had this mobile phone number at least until the end of April 2024. 36 It is concerning that there is no address for service of Li Wen Ma, however - pending further evidence - I am satisfied for the purposes of this interlocutory application that any effective service on Mr Wen would be appropriate at this stage for Li Wen Ma. 37 Finally, it is appropriate to order that costs be reserved pending the outcome of the Prospective Application. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Collier.

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