Self Care Corporation Pty Ltd v Green Forest International Pty Ltd

YILIN TRADING PTY LTD ACN 626 244 479 (and others named in the Schedule)

1. The application in a case filed by the ninth and fourteenth respondents on 26 May 2021 is dismissed.
2. Subject to order 3, the ninth and fourteenth respondents pay the applicants' costs of the application in a case.
3. Within 14 days after the day on which these orders are pronounced the parties have liberty to apply to vary or discharge order 2.

1. The ninth and fourteenth respondents (respondents) apply for an order to vary freezing orders made on 12 February 2020 (Orders).[1] The Orders have been made in a proceeding the applicants have brought against a number of respondents in which they allege infringement of certain intellectual property rights.
2. Before I consider the variation the respondents seek, and the grounds on which they seek it, it will be necessary to set out the relevant terms of the Orders.

1. The principal order is order 6, which relevantly provides:

(a) You must not remove from Australia or in any way dispose of, deal with or diminish the value of:

(i) the amounts standing to the credit of the Accounts; or

(ii) any of your other assets in Australia 'Australian Assets' up to the unencumbered value of:

a. for Yipping Yang [the ninth respondent] . . . A$5,102,750 . .

. . .

(b) If the unencumbered value of the Accounts and your Australian assets is less than the Relevant Amount, and you have assets outside Australia ('ex-Australia assets'):

(i) You must not dispose of, deal with or diminish the value of any of the Accounts, your other Australian assets and ex-Australian assets up to the unencumbered value 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 the Accounts, your other Australian assets and ex-Australian assets still exceeds the Relevant Amount.

1. Order 7(a) defines "assets" in broad terms; but it also specifically includes funds held in "the Accounts", and four properties, one of which is at Platypus Crescent Rochedale, Queensland (Property). "Accounts", in turn, is defined in order 4(a) in general terms, but it identifies four amounts that had been transferred from accounts the respondents' son held with National Australia Bank (NAB).
2. Also relevant is order 10, which appears under the heading "Exceptions to this order":

This order does not prohibit you from:

(a) paying for your ordinary reasonable living expenses up to a weekly amount of $500 or such other amount to be determined by the Court on your application to it;

(b) paying your reasonable legal expenses;

(c) dealing with or disposing of any of your assets in the ordinary and proper course of your legitimate 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.

1. The respondents seek orders permitting the respondents to sell the Property and to place the proceeds of sale in a trust account for the purpose of paying the respondents' reasonable legal expenses.
2. The respondents first gave notice to the applicants of their desire to vary the Orders by letter dated 19 March 2021 from the respondents' lawyers, Matthews Folbigg, to the applicants' lawyers. The letter contained statements that included the following:
   1. The legal costs in this matter to date have primarily been paid following the presentation of our invoices to the clients by arrangement with the National Australia Bank and as provided for by the Orders of the Court made on 12 February 2020 and Attachment 1 to those orders at clause 10(b).
   2. The liquid funds that have been available are almost exhausted.
   3. We seek your clients' consent to the following orders or any reasonable variation of them you might propose . . .
3. The letter represented that up to around 19 March 2021, being the date of the letter, Matthews Folbigg had been issuing invoices to the respondents for legal services that firm has been providing to the respondents; and that those fees had been "primarily" paid by a particular method, namely, by the respondents presenting Matthews Folbigg's invoices to NAB, and NAB paying money out of accounts the respondents held with NAB.
4. The respondents rely on the affidavit made by their lawyer, Mr Brown, who deposed as follows:[2]

(a) Since the making of the Orders, Mr Brown issued tax invoices to the respondents for work conducted in the proceeding. Mr Brown says he is "informed by" the respondents "and verily believe that the liability of these tax invoices has primarily been met by withdrawals from bank accounts that were made the subject of" order 4(a) of the Orders.

(b) As at the day he made his affidavit (17 May 2021), Mr Brown's firm, Matthews Folbigg, had issued invoices totalling $116,086.82 that remain unpaid, and that Matthews Folbigg has undertaken further work having a value of $85,098.

(c) The ninth respondent informs Mr Brown, and he verily believes, that the Property is unencumbered, and is solely in the name of the ninth respondent as registered proprietor.

1. In their written submissions the respondents submit that "where the liquid funds previously available have been exhausted, in order to have the benefit of the exception, the property in this case has to be sold".[3] The "exception" referred to in this submission is a reference to order 10(b) of the Orders.
2. The applicants, in their written submissions, submit that the respondents bear the onus of showing they do not have other assets beyond those covered by the order to which the person who is subject to the order could resort to cover his or her reasonable legal expenses.[4] The applicants rely on the following passage from the judgment of Drummond J in Clout (Trustee) v Anscor Pty Ltd:[5]

But at least where, as here, a Mareva restraint is imposed only on part of the assets of a respondent in an action, the respondent who seeks a relaxation of the restraint has an evidentiary onus, if not a full persuasive onus to show that it has no other assets beyond those covered by the injunction to which it can resort to meet the expenses in question. In A v C (No 2) [1981] 2 All ER 126, Robert Goff J held that on an application to vary a Mareva injunction that had been granted over part only of a respondent's assets to permit the payment of legal costs of the action out of the assets the subject of the restraint, that it was not enough for the respondent to merely state that it owed money to someone but had instead, to show that it did not have any other assets available out of which the expenses could be paid. Rogers J took the same approach in Australian Iron & Steel Pty Ltd v Buck [1982] 2 NSWLR 889 at 890. See also Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552 at 568 to 569.

1. The applicants also relied on the judgment of Black J in Courtenay House Capital Trading Group Pty Limited (in liquidation) where on an application for the continuation of freezing orders his Honour varied the orders to exclude the payment of living and legal expenses.[6]
2. In their written submissions in reply, the respondents submitted that Courtenay was not relevant because in Courtenay the asset that was the subject of restraint was alleged to be a trust asset.
3. In oral address counsel for the respondents submitted that the respondents' application to vary the Orders was limited to utilising a portion of the existing non-liquid assets that are the subject of the Orders; and the respondents rely on the exception provided by order 10(b) of the Orders. Counsel also referred to the judgment of Brereton J in Paris King Investments Pty Ltd v Rayhill, and in particular to the following passage:[7]

Some more particular rules have sprung up in relation to the variation of Mareva orders. Some cases suggest that where a defendant applies to vary a Mareva order to permit legitimate expenditure such as legal costs, at least where the order binds part only of the defendant's assets, the defendant bears some onus of showing that there are no other assets to which resort might be had to pay the legal costs, and that the proposed expenditure is reasonable [A v C (No 2) [1981] 2 All ER 126 (Goff J); Clout (Trustee) v Anskor Pty Ltd [2001] FCA 174, [19]-[20] (Drummond J); Goumas v McIntosh [2002] NSWSC 713, [22] (Barrett J)]. Other cases suggest that, at least where the order relates to the whole of the defendant's property, the order should be imposed in terms which exempt reasonable living and legal expenses, or be modified to do so at the first opportunity [Clark Equipment Credit of Australia Ltd v Conto Factors Pty Ltd (1988) 1 NSWLR 552, 569; Frigo v Culhaci (NSWCA, 17 July 1998)]. In the context of an application to vary a Mareva order to release funds, demonstration that circumstances have sufficiently changed to warrant reconsideration of the matter will normally involve showing that there is a new need for expenditure which cannot be satisfied other than by resort to the frozen assets. While that onus does not necessarily require the applicant to account for all its expenditure from its other assets and resources, how it has spent its other resources may be relevant to the exercise of discretion, and if resources that could have been used for the purpose proposed have been expended wantonly, that may well weigh against permitting access to the asset that has been the subject of the preservation order [Harrison Partners Construction Pty Ltd v Jevena Pty Ltd [2006] NSWSC 317, [11]-[14]].

1. Counsel for the respondents submitted that this passage suggests the law is unclear about whether a person who is subject to a freezing order who applies for its variation to permit payment of expenses bears a burden to prove the person has no other assets he or she can utilise to meet the expenses. When I asked counsel what submission he made about that, counsel submitted: "the order is the order". By this I take counsel for the respondents to have submitted that, on the proper construction of order 10(b), it is open to the respondents to use any part of their assets, including the Property, that fall within the scope of the Orders to meet their reasonable legal expenses, whether or not any part of the assets covered by the Orders are liquid, and whether or not the unencumbered value of the assets the respondents hold exceed the Relevant Amount.

1. I begin with the ground on which the respondents relied when they applied for a variation of the Orders to permit them to sell the Property for the purpose of using the proceeds of sale to pay their reasonable legal expenses. The ground is stated in the letter dated 19 March 2021 that Mathews Folbigg sent to the lawyers for the applicant; and it is repeated in Mr Brown's affidavit, and in the respondents' counsel's outline of submissions.
2. The ground is based on two factual premises. The first is that the respondents had been paying their legal expenses "primarily" from the (NAB) accounts that are the subject of Order 4. The second premise is that "the liquid funds that have been available are almost exhausted". Mr Brown repeated the effect of these factual premises in his affidavit by deposing to a belief that the liability to pay the invoices Matthews Folbigg had issued to the respondents had "primarily been met by withdrawals from bank accounts that were made the subject of" order 4(a) of the Orders.
3. The respondents have not adduced evidence to support these factual premises. On the contrary, documents in the power and possession of the respondents, which the applicants obtained by a notice to produce, and which the applicants themselves tendered into evidence, show that the two premises on which the respondents relied for applying to vary the Orders are incorrect. The evidence shows that, with the possible exception of two relatively small payments, Matthews Folbigg's fees were paid with funds that were not sourced from any NAB accounts. The evidence may be summarised as follows:

1. For these reasons alone, the respondents' application to vary the Orders must fail. The respondents have failed to establish the grounds on which they themselves relied when they applied for the variation of the Orders.

1. I have noted that by counsel for the respondents submitting that "the orders are the orders" I have taken counsel to have meant that, on the proper construction of order 10(b) of the Orders, it is open to the respondents to use any part of their assets, including the Property, that falls within the scope of the Orders to meet their reasonable legal expenses, whether or not any part of the assets covered by the Orders are liquid, and whether or not the unencumbered value of the assets the respondents hold exceeds the Relevant Amount. I would not, however, accept such a construction.
2. Order 10(b) operates as an exception to the prohibition contained in order 6(a) of the Orders. The respondents, in their counsel's written submissions, themselves refer to order 10(b) as an exception. That means that order 10(b) is capable of being engaged only when the respondents would otherwise be prohibited by order 6(a) from making the payments provided for by order 10(b). That, in turn, would occur only if the respondents have assets with an unencumbered value equal to or less than the Relevant Amount or, if the value of the unencumbered assets exceeds the Relevant Amount, the excess would be insufficient to enable the respondents to pay their reasonable legal expenses. If, on the other hand, the respondents have assets with an unencumbered value above the Relevant Amount that would be sufficient to meet reasonable legal expenses, order 6(a) of the Orders would not prohibit the respondents from using that part of their assets to meet their legal expenses. There would, therefore, be no need for the respondents in those circumstances to rely on order 10(b) of the Orders because order 6(a) would not prohibit the respondents from using assets that are available to them to pay their reasonable legal expenses.
3. The respondents' conduct, to some extent, has been consistent with this construction of order 10(b) of the Orders. The evidence shows that a substantial portion of the funds the respondents have used to pay their legal expenses have been sourced from assets that do not appear to be the subject of the Orders; and although the respondents do not submit, and they have not accepted, they bear any onus of proving they have no liquid assets available to them to pay for their reasonable legal expenses, they have assumed some burden of showing that they do not hold liquid assets with which to pay their reasonable legal expenses. They have done so by asserting that they have been paying the reasonable legal expenses out of the bank accounts that are the subject of the Orders, and claiming that source of funds is now exhausted. As I have already found, however, the evidence does not support these assertions.

Ninth respondent's affidavit of 20 February 2020

1. The respondents also rely on the affidavit made by the ninth respondent on 20 February 2020. They particularly rely on the ninth respondent's deposing that the only assets she holds are those she identifies in her affidavit. That evidence must be viewed in the light of the amounts the evidence reveals were paid on account of Matthews Folbigg's fees. The respondents have given no evidence to identify the source of these payments. In the absence of any evidence about the source of these payments, it is not possible to assess what weight, if any, can be given to the matters to which the ninth respondent has deposed in her affidavit of 20 February 2020.

1. I propose to order that the application in a case filed on 26 May 2021 be dismissed. My dismissing the application is not intended to prevent the respondents from making a further application to vary the Orders, provided such application is supported by cogent evidence that the respondents have assets with an unencumbered value equal to or less than the Relevant Amount or, if the value of their unencumbered assets exceeds the Relevant Amount, the excess would be insufficient to enable the respondents to pay their reasonable legal expenses.
2. There is no reason why costs should not follow the event, and I will so order. I will, however, grant the parties liberty to apply within fourteen days to vary or discharge the order for costs I propose to make.

I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis.

Associate:

Dated: 21 July 2021

[1] The Orders are attachment 1 to the orders made on 12 February 2020

[2] Affidavit J Brown made on 17 May 2021

[3] Outline of Submissions of the Ninth and Fourteenth Respondent for Variation of Freezing Orders, [4]

[4] Applicants' Outline of Submissions in response to Yiping Yang and Yulin Wang's Application in a Case dated 17 May 2021, [9]

[5] Clout (Trustee) v Anscor Pty Ltd [2001] FCA 174, at [20]

[6] Courtenay House Capital Trading Group Pty Limited (in liquidation) [2018] NSWSC 1918

[7] Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578, at [15]