Tyche Asset Management Pty Ltd v Flyland Development Group Pty Ltd

Supreme Court of NSW|2021-09-24|Before: Henry J

Judgment

On 16 September 2021, the plaintiffs obtained ex parte freezing orders restraining the first and second defendants from dealing with or diminishing their assets in Australia up to an unencumbered value of $234,134.20 (Freezing Orders) until 20 September 2021. That amount represents the value of the funds the plaintiffs allege has been misappropriated by the second defendant in breach of his employment contract and fiduciary duties.
On 20 September 2021, the Freezing Orders were extended by consent and without admissions until 5 pm on 24 September 2021. Orders were made for the first and second defendants to serve affidavits detailing their assets and, if they were going to oppose the continuation of the Freezing Orders, to file any affidavits on which they relied and for the parties to serve submissions in that event. Those orders were complied with.
On 24 September 2021, the matter came before me as the Equity Duty Judge for the inter partes hearing of the plaintiffs' application to continue the Freezing Orders and for ancillary disclosure orders. On that occasion, the plaintiffs were granted leave to file an Amended Summons that joined the third defendant.
In addition to seeking the continuation of the Freezing Orders against the first and second defendants, the plaintiffs applied to extend the operation of the Freezing Orders to the third defendant. The defendants opposed the plaintiffs' application. They contended that the Freezing Orders should be discharged due to the plaintiffs' failure to disclose material matters at the ex parte hearing and that, in any event, the relief should be refused on other grounds.

Background

The following matters are taken from the affidavit evidence read and other material relied on at the hearing. I make no findings as to any disputed issues of fact that will need to be determined at a final hearing.
The first plaintiff, Tyche Asset Management Pty Ltd (Tyche), is a licensed financial services provider. The second plaintiff, Auzenith Holdings, is a licensed real estate agent and trades as PHD Realty (PHD Realty). Ms Ren is the General Manager of Tyche and PHD Realty.
The second defendant, Mr Fan, was an employee of Tyche. The first defendant, Flyland Development Group Pty Ltd (Flyland), is a company related to the third defendant, Ms Ke Yang. Ms Yang is Mr Fan's wife.
Mr Fan commenced his employment with Tyche on or about 30 September 2020, initially as its Chief Investment Officer (CIO). According to the employment agreement he signed, Mr Fan was employed on a full-time basis and his roles and duties included property management, project management and investment solutions and real estate duties and targets.
According to Ms Ren's evidence, Mr Fan's main task was to identify potential real estate purchasers and refer them to sales agents with whom Tyche and PHD Realty had referral agreements and it was understood that Mr Fan would perform similar duties and act as an employee for PHD Realty when needed.
In or about January 2021, Ms Ren had a conversation with Mr Fan in relation to securing an agreement with Knight Frank to refer purchasers for units which were being sold by Knight Frank on behalf of the developer of the Crown Towers located at Barangaroo, Sydney (Crown Towers). Her evidence is that she asked Mr Fan to make enquiries and secure a referral agreement with Knight Frank for the Crown Towers units, and he agreed to try and do so.
On 27 January 2021, Mr Fan signed a referral agreement addressed to him as CIO of Tyche pursuant to which Knight Frank offered to pay a fee for successful buyer referrals by "licensed agents" in relation to the apartments for sale at the Crown Towers (Referral Agreement). The Referral Agreement set out the terms and the referral fees payable for buyer referrals.
Ms Ren gives evidence that, in or about February 2021, Mr Fan informed Ms Ren that he had found a prospective purchaser for apartments 56.02, 57.02 and 73.02 at the Crown Towers and that he expected the commission would be between $150,000 to $200,000. In about March 2021, Mr Fan informed Ms Ren that contracts had been exchanged for those apartments but they would need to wait for settlement and for Crown to make payments to Knight Frank before they received the referral fees. He told her that he did not know how long this would take.
On 19 April 2021, Mr Fan signed a new contract of employment with Tyche pursuant to which he was given the title of Chief Executive Officer, an increased fixed salary and a share of net profits. Mr Fan's terms of employment and duties otherwise remained substantially the same. Ms Ren's evidence is that the new employment agreement was entered into following a discussion with Mr Fan during which he asked for an increased salary and executive title as he "got the Crown's sales deal" and thought he could bring in more money to the company.
In May 2021, Ms Ren instructed the Chief Financial Officer of Tyche, Mr Tony Gao, to follow up on the status of the sales of apartments 56.02, 57.02 and 73.02 which Mr Fan had said had sold for more than $60 million. On 31 May 2021, Mr Gao sent to Mr Fan an invoice for the referral fee for unit 56.02 in the amount of $204,545.45 (excluding GST) which he asked Mr Fan to forward to Knight Frank for payment.
According to Ms Ren, she had several follow up conversations with Mr Fan during which she asked him whether the units had settled but received no satisfactory answer. Ms Ren then instructed Mr Gao to contact Knight Frank directly to see what was going on.
On 24 June 2021, Mr Gao sent an email to Ms Sophia Choo at Knight Frank, copied to Mr Fan, attaching an invoice from Tyche for a referral fee for unit 56.02. By email dated 28 June 2021, Mr Gao sent to Ms Choo, copied to Mr Fan, invoices from Tyche for referral fees for units 57.02 and 73.02 and requested payment as soon as possible.
On 30 June 2021, Mr Gao told Ms Ren that Ms Choo had informed him that payments had already been made in relation to the referral fees but the plaintiffs' records indicated that they had not received any transfers from Knight Frank. Ms Ren asked Mr Gao to request copies of the remittance advices from Knight Frank, which Mr Gao did in an email sent to Ms Choo later that day.
Later on 30 June 2021, Ms Ren became concerned about what Mr Fan may have done and caused a search of Mr Fan's work emails to be undertaken by the IT team. That search identified the following: 1. an email sent on 5 May 2021 from a representative of Knight Frank to Mr Fan at his Tyche email address setting out referral fees payable to Flyland for units 56.02, 57.02 and 73.02; 2. an email sent on 5 May 2021 from Mr Fan's Tyche email address to Knight Frank attaching a tax invoice from Flyland for $232,921.70 in referral fees for units 56.02, 56.07 and 73.02, with a direction to Knight Frank to pay that amount into a bank account ending 5867 (5867 Account); 3. an email dated 28 June 2021 sent by Knight Frank to Mr Fan's work email and his hotmail email address that attached a remittance advice addressed to Flyland referring to the payment of $184,796.70 in relation to "56.02 and 57.02"; and 4. two emails sent by Ms Choo to Mr Fan on 30 June 2021 in relation to Mr Gao's emails (referred to at [18]) in which Ms Choo asked Mr Fan whether he had spoken to Mr Gao yet, and that she was "staying out of it".
Ms Ren's evidence is that the 5867 Account does not relate to the plaintiffs. Mr Fan's affidavit of assets confirms that the 5867 Account is a savings account with the National Australia Bank that is jointly owned by Mr Fan and Ms Yang.
Ms Ren also gives evidence in the following terms: I can also confirm that the [sic] neither the First, nor the Second Plaintiff received any of the monies due and payable to it from Knight Frank. Pausing here, this evidence is relied on by the defendants in support of its submission that the plaintiffs failed to disclose Tyche's receipt of money from Knight Frank in August 2021, which I refer to below.
On 1 July 2021, Ms Ren and Mr Fan had a meeting. According to Ms Ren, she confronted Mr Fan at the meeting about the emails and the fake invoices that had been issued in Flyland's name. She says that Mr Fan said he was "sorry" and didn't "know what to say" and she told him that he needed to "fix" the issue or she would report him to the police. According to Ms Ren, Mr Fan responded by saying that he would "pay it all back" by repaying the $43,750 commission he had received for unit 73.02, with the remaining money to be deducted from other commissions which were yet to come.
Mr Fan denies the conversation in the terms deposed to by Ms Ren. Mr Fan's evidence is that he told Ms Ren the following: the invoices related to his own business and agreement with Knight Frank and "Crown Developments"; he would share some money with her; he would pay $30,000 and the remaining commission from unit 73.02 when it settled; and he had been paid $78,000 "so far" in wages from Tyche.
Between 2 and 5 July 2021, Mr Fan transferred $30,000 to Tyche.
On 7 July 2021, Mr Fan sent a text message to Ms Choo stating that he had sorted everything out with the company and that the "last bit of 73.02 settlement" would be paid to the "office". Ms Choo responded by advising that settlement was due on 8 July and requested confirmation to refer to "this Tyche invoice" for payment. Also on 7 July 2021, Mr Fan sent an email to Ms Choo, copied to Mr Gao, noting that he understood that unit 73.02 had not yet settled and requesting the invoice to be put through once it had settled. Mr Fan's email ends by stating "we have confirmed that everything have been sorted out internally. This is the last invoice that we need to sort out after the settlement happening".
On 8 July 2021, Mr Fan signed a document addressed to Tyche entitled "Acknowledgement of Debt" in relation to the amount of $150,000. The document states that the sum was advanced to Mr Fan by way of an interest-free loan, was to be repaid from the commission earned during Mr Fan's employment or on demand if Mr Fan was terminated, and could be deducted from Mr Fan's wages, salary, fee, bonus and commission. According to Ms Ren's evidence, the $150,000 was based on what she understood to be the amount that Mr Fan "had stolen" at that time. At the hearing, this was said to approximate the value of the referral fees included in the remittance advice for units 56.02 and 57.02 ($184,796.70), less the $30,000 already received from Mr Fan.
Mr Fan's evidence is that he signed the Acknowledgement of Debt document based on a discussion with Ms Ren during which she acknowledged that he had paid $30,000, stated "just get us the money", and told him they would pay him wages of $200,000.
Ms Ren says that, between 8 and 31 July 2021, she was expecting settlements of units for which Mr Fan had found buyers and Tyche was entitled to commission. Her evidence is that Mr Fan did not respond to attempts to contact him and that, on 2 August 2021, he hung up on her when she informed him over the phone that Tyche would terminate his employment.
On 2 August 2021, Mr Fan's employment with Tyche was terminated. The letter of termination refers to "invoices and payment of commission from Knight Frank to [Tyche]" and asserts that Mr Fan's conduct was "wilful or deliberate behaviour … inconsistent with the continuation of [his] contact of employment". A document identifying what Mr Fan owed Tyche as at 31 July 2021 was attached to the letter of termination. It referred to an amount of $163,750 and noted that Mr Fan's July salary was suspended due to performance being "not met".
Following the termination of Mr Fan's employment, Ms Ren caused further searches to be undertaken of Mr Fan's work emails. Those searches identified that: 1. a further apartment in the Crown Towers (unit 69.03) had apparently been sold to a buyer identified by Mr Fan on behalf of Tyche; 2. Knight Frank had sent an email to Mr Fan attaching a remittance notice to Flyland on 2 July 2021 which referred to a payment of $29,012.50 in relation to unit 69.03 to "your bank account"; 3. an invoice dated 3 August 2021 had been issued to Vantage 229 Pty Ltd (Vantage) which directed Vantage to pay a referral fee of $50,325 to the 5867 Account for a unit in North Sydney (unit 505), a unit in respect of which PHD Realty is named in a Sales Inspection Report, Open Selling Agency Agreement and front page of the Contract for Sale as the Selling and Vendor's Agent. The search also revealed that Mr Fan sent an email from his PHD Realty email address using the title of "Managing Director" to Vantage's agent on 28 July 2021 confirming that PHD Realty agreed to the selling agent for unit 505 being changed to Flyland. Payment of the referral fee for unit 505 was made on 4 August 2021 to the 5867 Account; 4. emails had been exchanged between Mr Fan and Knight Frank in relation to enquiries made about 14 other apartments at the Crown Towers, which Ms Ren says Tyche was not aware of; and 5. emails had been exchanged between Mr Fan and a Mr Lu of Vassa Group and a letter was sent from Knight Frank to Vassa Group in relation to a referral for unit 57.02 at the Crown Towers. These communications suggest that Mr Fan was doing business with Vassa Group in relation to unit 57.02 and that Vassa Group had concerns about Mr Fan's work for them.
Ms Ren's evidence is that, prior to the searches of Mr Fan's work emails, she did not know that unit 69.03 had been sold, that Knight Frank had sent Mr Fan a remittance notice regarding payment of a referral fee for that unit, or that Mr Fan had issued invoices in the name of Flyland in relation to units 56.02, 57.02 and 73.02. She also says that she was not aware that Mr Fan had directed that payments totalling $213,809.20 be paid by Knight Frank to "Flyland" into the 5867 Account in relation to units 56.02, 57.02 and 69.03 and a payment of $50,325 be paid by Vantage to "Flyland' also into the 5867 Account in relation to unit 505. According to Ms Ren, Mr Fan was not authorised by PHD Realty to transfer the selling agent of unit 505 to Flyland or use the title of "Managing Director" in relation to PHD Realty.
On 20 August 2021, the amount of $43,750 was paid by Knight Frank to Tyche. The evidence in relation to this payment was exhibited to Mr Fan's 22 September affidavit and was not disclosed by the plaintiffs at the ex parte hearing before Ward CJ in Eq.
According to Mr Fan's evidence, he is currently unemployed, the net value of his assets is estimated to be $91,036.57 comprising, in the main, the value of two motor vehicles (one of which is subject to a loan) and, as at 22 September 2021, there was only $100 in the 5867 Account.
The proceedings were commenced by summons filed on an ex parte basis on 16 September 2021. By their Amended Summons filed on 24 September 2021, the plaintiffs seek the following final relief: judgment in the sum of $234,134.20 and the transfer of any assets into which that sum can be traced; a declaration that the defendants held and continue to hold the sum of $234,134.20 and any assets into which that sum can be traced for and on behalf of the plaintiffs; a declaration that Mr Fan is in breach of his employment agreement with the Tyche; an account of profits; an order for an account against Flyland and Mr Fan; equitable compensation; and damages.

Applicable legal principles

The relevant legal principles were not in dispute.
As applicants for ex parte freezing orders, the plaintiffs had an obligation to make full and frank disclosure to the Court of all facts that are material to the determination of their entitlement to the orders, which includes disclosure of possible defences and facts adverse to and known to them. Utmost good faith is required and it is no excuse for an applicant to say that they were not aware of the importance of those facts: Papas v Grave [2013] NSWCA 308 at [71] (Emmett JA, Basten JA and Sackville AJA agreeing); Thomas A Edison v Bullock (1912) 15 CLR 679 at 682; [1912] HCA 72.
The non-disclosure must be material in the sense that it is information that is relevant to the Court's determination and a matter of substance in the decision-making process. It is sufficient if it could be expected that the opposing party would have wanted to bring the information to the Court's attention and the Court would have wanted to consider it before making the order: Savcor Pty Ltd v Cathodic Protection International APS (2005) 12 VR 639; [2005] VSCA 213 (Savcor) at [35] (Gillard AJA, Ormiston and Buchanan JJA agreeing); Principal Financial Group Pty Ltd v Vella [2011] NSWSC 327 at [17].
A failure to bring forward all the material facts which the absent party would presumably have brought forward in their defence to the application will ordinarily warrant discharge of the ex parte order made and lead to it being set aside: Aristocrat Technologies Australia Pty Ltd v Allam (2016) 327 ALR 595; [2016] HCA 3 at [15]; Mineralogy Pty Ltd v Western Australia [2020] QSC 344 (Mineralogy) at [86]-[89].
However, non-disclosure or error in presenting material facts to the Court on an ex parte application does not necessarily lead to automatic discharge of the orders. The Court retains a discretion to nevertheless continue the order or make a new order on the same or different terms. The Court may treat the non-disclosure as leading to discharge and then require the party to make a further application for freezing orders or similar relief at the hearing or at a later time: see, for example, Hayden v Teplitzky (1997) 74 FCR 7; Cenric Group Pty Ltd v Bundanoon Sandstone Pty Ltd (No 2) [2018] NSWSC 1878; Nutek Constructions Pty Ltd v Slotwinski [2017] NSWSC 1795 at [23].
The exercise of the discretion whether to set aside or continue the ex parte orders takes into account all of the circumstances, including the importance and materiality of the statements and the non-disclosure, the merits of the case, the practical effect of setting aside the orders, and whether the applicant acted culpably in the sense that the non-disclosure was deliberate: Gold Ribbon (Accountants) Pty Ltd (in liq) v Sheers [2003] 1 Qd R 683; [2002] QSC 400 at [51]-[54]; Savcor at [33]-[35]; Nexdius Pty Ltd v Exposure Scientific LLC [2017] NSWSC 1608 at [83]-[93].
In order to satisfy the Court that the Freezing Orders should be continued and apply to the third defendant, the plaintiffs bore the onus of demonstrating that: 1. they have a good arguable case for final relief, in the sense that the case is more than barely capable of serious argument, although not necessarily one which the Court considers has a chance of success above fifty percent; 2. there was a danger that the defendants' assets might be disposed of, dealt with or diminished in value such that any judgment or prospective judgment of the Court would be wholly or partly unsatisfied; and 3. the balance of convenience and discretionary considerations favour the orders being made. See Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 25.11; Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321-2 (Gleeson CJ), 326 (Meagher JA); Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18 at [53]; Samimi v Seyedabadi [2013] NSWCA 279 at [68]-[69], [72]-[75]; Axis Medical & Rehabilitation Pty Ltd as trustee for Axis Trust trading as Astir Australia v Tuantab [2020] NSWSC 486 (Axis Medical) at [10]-[11].

Should the Freezing Orders be discharged for non-disclosure?

The defendants raised two matters which they contended were material, had not been disclosed at the ex parte hearing and warranted discharge of the Freezing Orders.
The first was the operation of s 9 of the Property and Stock Agents Act 2002 (NSW) (PSA Act). The second was the fact that Tyche had received the payment of $43,750 from Knight Frank on 20 August 2021 in relation to unit 73.02.
Section 9 of the PSA Act provides: 9 Corporations require corporation licence (1) A corporation must not act as or carry on the business of (or advertise, notify or state that the corporation acts as or carries on the business of or is willing to act as or carry on the business of) an agent unless the corporation holds a corporation licence. Maximum penalty - 200 penalty units. (2) A corporation is not entitled to bring any proceeding in any court to recover any commission, fee, gain or reward for any service performed by the corporation as an agent unless the corporation was the holder of a corporation licence at the time of performing the service.
The PSA Act defines "agent" to include a person who, for reward, exercises real estate agent functions in the course of carrying on a business: PSA Act, s 3. Pursuant to s 3A(1), real estate functions include real estate sale or leasing functions which s 3A(2) provides include: (c) acting as agent for inducing or attempting to induce or negotiating with a view to inducing any person to enter into, or to make or accept an offer to enter into, a real estate transaction or a contract for a real estate transaction, or (d) acting as agent for the introduction, or arranging for the introduction, of a prospective purchaser, lessee or licensee of land to another licensed agent or to the owner, or the agent of the owner, of land, …
The defendants argued that, by these proceedings, Tyche is seeking to recover from the defendants the commission or fees for services performed as an agent within the meaning of s 3 of the PSA Act which it says it was entitled to by introducing purchasers to Knight Frank pursuant to the Referral Agreement. They submitted that, as Tyche was not a licenced real estate agent, s 9 of the PSA Act prevents Tyche having any legal entitlement to those fees and operates as a bar to recovery by the plaintiffs insofar as their claims rely on the Referral Agreement. Thus, it was said that the PSA Act raises a material defence which should have been disclosed by the plaintiffs at the ex parte hearing.
The defendants also submitted that the plaintiffs failed to draw to the Court's attention to the fact that the Referral Agreement was conditioned upon Tyche being a licensed real estate agent. This, in addition to the operation of the PSA Act, was said to result in Tyche having no contractual entitlement to commission arising from the introduction of Crown Towers purchasers to Knight Frank.
There was no dispute that the plaintiffs had not raised the PSA Act as a prospective defence at the ex parte hearing or drawn the Court's attention to the terms of the Referral Agreement that stated that fees would be payable for successful buyer referrals by "licensed agents". However, the plaintiffs took issue with the contention that this involved a failure on their part to raise a material defence contrary to their obligations of full and frank disclosure.
The plaintiffs characterised the defendants' reliance on the application of the PSA Act to this case as "misconceived" as the plaintiffs' claim in these proceedings was not one to which s 9 of the PSA Act applied. They contended that the claim was one to recover monies that had been misappropriated or fraudulently diverted by Mr Fan for his own benefit. The plaintiffs also described the defendants' submission as "bold", arguing that such a defence would, in essence, enable a "thief" to take money and say that the person from whom it was taken could not recover it because that person was unlicensed.
The plaintiffs also submitted by reference to Pavey & Matthews Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5 that even if s 9 of the PSA Act applied, their entitlement to the claimed monies was not extinguished by the operation of s 9(2) as it remained open to them to plead an ultimate claim for restitution based on unjust enrichment under a quantum meruit.
They contended that the ambit and extent of what arguments should be put before the Court against their case in order to comply with their duty of disclosure must be informed by the concept of reasonableness. In this case, the plaintiffs submitted that, for the reasons referred to above, there had been no relevant failure to disclose a material matter as it was not reasonable to raise s 9 of the PSA Act as a defence in the circumstances.
In my view, there was force to the plaintiffs' submissions.
To my mind, s 9(2) of the PSA Act is directed at barring an unlicensed corporation from seeking to recover a fee or commission from the party for whom the agency services was provided. Further, by its terms, it does not prevent a party who received such services from making a voluntary payment for those services, although s 9(1) raises an issue about the legality of the unlicensed agent's conduct in performing the service and accepting payment.
Thus, and as was accepted by the plaintiffs, s 9(2) would operate as a bar to Tyche seeking to recover referral fees from Knight Frank pursuant to the Referral Agreement. As the section deprives the unlicensed corporation of recovery of "any commission, free, gain or reward for any service performed … as an agent", it seemed to me that it may also operate as a defence to a claim brought by Tyche against Knight Frank based on restitution and quantum meruit principles: Investmentsource Corp Pty Ltd v Knox Street Apartments Pty Ltd (2002) 56 NSWLR 27; [2002] NSWSC 710 at [78].
In this case, the claims advanced against the defendants do not seek to recover a fee or commission from Knight Frank. Rather, the plaintiffs seek to recover property, in the nature of funds that have seemingly been paid on a voluntary basis to Mr Fan, based on allegations that Mr Fan diverted those funds in breach of his employment contract or fiduciary duties owed to Tyche. Relevantly, Mr Fan's employment contract included terms that obliged him to devote the whole of his time and energy to his position at Tyche, to declare any conflicts of interest, and to not claim or accept any fee, commission or benefit from any person other than Tyche in payment for services concerned with duties performed for Tyche: cll 15 and 19. The nature of the claims that are made also reflect the relief sought, which is by way of a constructive trust and a tracing remedy, equitable compensation or damages for breach of an employment contract. Those claims are seemingly independent of and do not seek recover fees pursuant to the Referral Agreement. In that context, it seemed to me that s 9(2) may not operate as a defence or bar to Tyche's claims as contended by the defendants.
That is not to say that I formed a concluded view on this issue. At an interlocutory hearing without the benefit of detailed submissions and authorities on the proper construction of s 9(2) and the application of principles relating to illegality, it was not possible or appropriate to do so. Whether s 9 of the PSA Act operates to deny Tyche the relief it claims is a matter that will be determined at a final hearing on the merits, assuming it is ultimately raised as a defence.
The relevant question on this application was whether the plaintiffs had failed to identify a crucial argument against the application for ex parte relief and a "likely" legal defence by not raising s 9 of the PSA Act before the Court: Mineralogy at [82(e)]-[82(f)]. Having regard to the above, and while finely balanced, I was not persuaded that the operation of the PSA Act should be characterised as a likely defence or a material matter that the Court would have wanted to consider before making the Freezing Orders such that the plaintiffs had failed in their duty to disclose a material legal defence.
As to the second matter, the defendants contended that there had been non-disclosure as Ms Ren's evidence (referred to at [22]) represented that Tyche has never received any monies from Knight Frank in connection with the Referral Agreement when, in fact, it had. The defendants relied on the payment of $43,750 to Tyche by Knight Frank on 20 August 2021 in relation to unit 73.02 which had not been disclosed at the ex parte hearing. As was put by the defendants, this error and omission was material as Ms Ren's evidence created the impression that no funds had been received by Tyche and that Mr Fan had simply "picked up stumps and ran away".
The plaintiffs submitted that Ms Ren's affidavit evidence was not inconsistent with the defendants' position that Mr Fan procured Knight Frank to pay $43,750 to Tyche, arguing that it was poorly drafted and unclear as to what units the non-payments related to. They also submitted that any failure to disclose was not material as the plaintiffs elected not to make a claim for amounts referrable to unit 73.02 and intentionally limited the scope of their ex parte application to funds for which there was clear evidence of payment and receipt by or on behalf of Mr Fan, as made clear at the ex parte hearing.
I was not persuaded by the plaintiffs' submission. In my view, Ms Ren's evidence suggested that no payment had been received from Knight Frank in respect of unit 73.02. Even if Ms Ren's evidence was open to misinterpretation due to poor drafting, the difficulty was that the impression created by her evidence was compounded by the oral submissions made by the plaintiffs' counsel at the ex parte hearing where he asserted that "we're also in the dark about … unit 73.02 … We have not been able to get any information [in] relation to that" (T10.5-8, 16 September 2021). This submission was plainly wrong as, by that time, Tyche had received the payment made by Knight Frank on 20 August 2021.
The defendants did not contend, and I do not find, there was any bad faith on the part of the plaintiffs' instructing solicitors or counsel in respect of this submission (or the PSA Act issue). Presumably, counsel and his instructing lawyers acted on instructions and made submissions based on what they may have understood to be the effect of Ms Ren's evidence. The information provided to the Court on the ex parte application was, however, shown to be incorrect. That said, as the claims for ex parte relief did not include any funds paid to Mr Fan that were referrable to unit 73.02, it was not apparent that disclosure of the payment from Knight Frank would have been of significance to the exercise of the Court's discretion in determining whether to grant that ex parte relief.
The defendants submitted that the failures to disclose should lead to an immediate discharge of the Freezing Orders and the plaintiffs being required to make a fresh application on a later occasion. On balance, I decided not to automatically discharge the orders but to consider, in all the circumstances and in the exercise of my discretion, whether the plaintiffs had demonstrated a case for the Freezing Orders by reference to the principles referred to [41]-[42] and the findings in relation to non-disclosure. In my view, that was the more appropriate approach given the Freezing Orders were due to expire at 5 pm that day and the hearing before me had been set down to deal with the plaintiffs' application for their extension and any opposition to that application.

Should the Freezing Orders be extended?

The plaintiffs contended that the evidence demonstrated a prima facie case that Mr Fan had improperly redirected monies in the form of referral fees that were due to Tyche and diverted them to himself by having them paid into the 5867 Account. It was submitted that this gave rise to a good arguable case that Mr Fan had breached his employment contract and fiduciary duties owed to the plaintiffs and that the plaintiffs would be entitled to equitable relief and damages from him in relation to the amount claimed or other potential equitable claims for restitutionary relief.
As to the claim against Ms Yang, the plaintiffs submitted that, as the evidence demonstrates that monies were paid into her account, the plaintiffs were entitled to a tracing remedy in respect of those funds and declaratory relief against her.
At the hearing, the defendants accepted, correctly in my view, that the evidence established a serious question to be tried as to Tyche's claim against Mr Fan based on his employment contract and fiduciary duties.
Although the evidence adduced by Mr Fan identified a contest between the parties as to the capacity in which Mr Fan was dealing with Knight Frank, the circumstances of Knight Frank's payments, and Tyche's right to claim those funds, I was satisfied that the plaintiffs' evidence, as outlined in the background section above, demonstrated a good arguable case of the nature contended by the plaintiffs. In particular, in my view, the emails, invoices and other documents referred to at [20] and [31], together with the terms of Mr Fan's employment contact, his roles at Tyche and his apparent work on behalf or PHD Realty, gave rise to a prima facie case that Mr Fan had directed payments away from Tyche to himself in breach of his employment contract and fiduciary duties. This suggests the plaintiffs may have remedies available to them by way of a constructive trust over those funds, an account of profits or other final relief of the nature sought in the Amended Summons.
Based on Ms Ren's unchallenged evidence that Mr Fan did work for PHD Realty and the emails referred to at [31(c)], which were unexplained by Mr Fan, I was also satisfied that the plaintiffs had demonstrated that PHD Realty had a prima facie or good arguable case against him in relation to the payment of the referral fee for unit 505.
The defendants' primary submission against the continued operation of the Freezing Orders relied on discretionary considerations which they said weighed in their favour. They pointed to the plaintiffs' delay in making the application for Freezing Orders on an ex parte basis, being one and a half months after Mr Fan's employment was terminated, and the failure to plead the claims by way of a statement of claim, which they contended was without regard to r 6.3 of the UCPR. In support of this submission, the defendants referred to the observations of Williams J in Axis Medical, where her Honour stated: [14] … Ordinarily, the failure by a plaintiff to present the good arguable case relied on in the form of a verified pleading is likely to cast serious doubt on whether the plaintiff in fact has a good arguable case. … [22] Another very important factor for the court to consider will be whether or not the plaintiff has, by the time of the inter partes hearing, formulated its claims in contract and/or any other claims in a verified Statement of Claim. In circumstances where the plaintiff is invoking the Court's process to seek the drastic remedy of a freezing order on an urgent basis, it is incumbent on the plaintiff to act with urgency to comply with the Court's process requiring claims to be properly pleaded. A defendant resisting an application for a freezing order without having the benefit of a properly pleaded claim against it is placed in a very difficult position.
They also argued that Tyche has unlawfully withheld Mr Fan's salary for July 2021 and, in those circumstances, ought not be permitted to freeze Mr Fan's assets, relying on the maxim that they who seeks equity must do equity.
In response, the plaintiffs contended that the delay had been explained by Ms Ren's evidence, the lack of a statement of claim at this stage of the proceedings would not warrant refusing to continue the orders, and there would be a contest at the final hearing about whether Tyche had improperly withheld salary from Mr Fan.
In my view, there was some merit to the defendants' submission regarding delay. Ms Ren's evidence that the investigation of Mr Fan's conduct and associated IT searches were prolonged due to the current COVID-19 lockdown and technical issues was of a very general nature and should have better explained the delay in this case. That said, I was not persuaded that this delay was, by itself or in combination with the other matters, a sufficient basis to warrant the dissolution or non-continuance of the Freezing Orders against Mr Fan.
While I endorse the observations of Williams J in Axis Medical, I did not consider that the lack of pleadings at this stage in this case was of the significance contended for by the defendants. Rule 6.3 of the UCPR does not require that an application for freezing orders be commenced by a statement of claim. While it may be preferable for the plaintiffs to have filed a statement of claim to make clear the bases on which their claims are sought, applications for ex parte freezing orders are often commenced by way of summons and supporting affidavit.
Further, and relevant to the issue raised regarding pleadings, it was apparent from their submissions that the defendants were aware of the primary causes of action being advanced in support of the plaintiffs' claims for final relief, namely that Mr Fan had breached his employment contract and fiduciary duties. Those causes of action were, as I have outlined above, supported by the plaintiffs' evidence. The plaintiffs also accepted that the case should proceed by way of pleadings.
As to the contention regarding Mr Fan's salary, as noted above, there will be a contest as to whether or not Tyche had a legal basis to withhold any salary for July. That matter may be raised by way of defence and any cross-claim in due course and did not, in my view, warrant refusing the plaintiffs' application.
I was also satisfied that the plaintiffs had demonstrated that there was a sufficient risk of the dissipation of assets by Mr Fan to warrant the continuation of the Freezing Orders against him. No submissions were advanced to the contrary. In my view, the evidence adduced by the plaintiffs at the ex parte hearing and on this application clearly called into question the probity of Mr Fan's conduct in issuing invoices in the name of Flyland and directing payments to be made to the 5867 Account: Samimi v Seyedabadi [2013] NSWCA 279 at [73], citing Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG 'The Niedersachsen' [1983] 1 WLR 1412; [1984] 1 All ER 398 at 406.
In my view, the balance of convenience also favoured continuing the Freezing Orders, particularly as the evidence indicated that the funds paid into the 5867 Account had already been removed. The plaintiffs had given the usual undertaking as to damages and the Freezing Orders contained the usual carve-outs for business expenses and dealings, including exceptions for $200 per day for ordinary living expenses and $11,000 for reasonable legal fees. No issue was taken by the defendants in relation to those exceptions or about balance of convenience factors more generally.
In summary, and particularly having regard to the strength of the evidence, the merits of the case and the nature of the asserted non-disclosures, I was satisfied that the plaintiffs had demonstrated a case for making the Freezing Orders and concluded that it was appropriate to exercise my discretion to continue them against Mr Fan until further order.
As to Flyland, the evidence did not identify that any of the funds had been paid to that company. There was also evidence that Flyland has no assets or bank accounts. It followed, in my view, that the plaintiffs had not demonstrated a basis for continuing the Freezing Orders against Flyland and I concluded that they should be discharged as against it.
I was also not persuaded that the Freezing Orders should be extended so as to operate against Ms Yang. Although there was evidence that demonstrated funds had been paid into the 5867 Account, there was no evidence, nor any submission made, to the effect that Ms Yang had knowledge (actual or constructive) of the circumstances in which the funds were paid, which knowledge might support a Barnes v Addy knowing receipt type claim against her. Nor did the plaintiffs advance a case based on the principles accepted by the High Court in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18. The absence of a pleading was significant on this aspect of the plaintiffs' application as there was a lack of clarity as to the basis on which their claims for final relief were made against Ms Yang. Accordingly, I refused the plaintiffs' application for freezing and disclosure orders to be made against Ms Yang.

Orders and costs

At the hearing, Mr Fan accepted that it was appropriate for the Court to make the ancillary disclosure orders against him if the Freezing Orders were continued. The parties also agreed to a timetable for pleadings and further evidence and that costs should be reserved.
For these reasons, I made the following orders and directions: 1. Upon the Plaintiff, by its counsel, undertaking to pay the requisite filing fees, grant leave to the Plaintiff to file in Court an Amended Summons dated 23 September 2021 and that it be returnable instanter. 2. Upon the Plaintiff, by its legal representative, giving the usual undertaking as to damages, the operation of the freezing orders made against the Second Defendant on 16 September 2021 as set out in Annexure A to the short minutes of order filed with the Court on 20 September 2021 (Freezing Orders) be extended until further order of the Court. 3. The Freezing Orders against the First Defendant be discharged. 4. The Second Defendant file and serve an affidavit by 8 October 2021 setting out, to the best of his knowledge, information and belief: 1. all matters and details concerning what became of the sum of $184,796.70, transferred on or about 28 June 2021, including what use, if any, made of the said sum by anyone; 2. all matters and details concerning what became of the sum of $29,012.50, transferred on or about 2 July 2021, including what use, if any, made of the said sum by anyone; 3. all matters and details concerning what became of the sum of $50,325.00, transferred on or about 4 August 2021, including what use, if any, made of the said sum by anyone; 4. all matters and details concerning any referral by the Second Defendant of any potential purchaser of real property to Knight Frank Australia Pty Ltd (or its related entity) specifically in relation to following units in the Crown Towers development: 1. 73.03; 2. 56.03; 3. 54.04; 4. 68.03; 5. 69.03; 6. 62.03; 7. 76.01; 8. 76.02; 9. 77.01; 10. 81.01; 11. 60.02; 12. 63.03; 13. 59.01; 14. 64.01; and 15. 73.02. 1. all matters and details concerning any referral by the Second Defendant of any potential purchaser of real property, to any other person or entity, where the said referral was made during the Second Defendant's employment with the First Plaintiff; 2. the details of all bank accounts held by the Second Defendant; 3. the Details of all real Property held by the Second Defendant; 4. a list of all assets and liabilities of the Second Defendant; 5. all other relevant financial information pertaining to the Second Defendant. 1. An order that the Second Defendant provide by 8 October 2021 a copy of all bank statements for the period of 30 September 2020 to 17 September 2021, in relation to: 1. the following bank account: BSB 082171, Account Number ending in 5867; and 2. any other bank account that it holds. 1. The Plaintiff to file and serve a Statement of Claim by 22 October 2021. 2. The Defendants to file and serve a Defence by 12 November 2021. 3. Stand over the proceedings before the Equity Registry for directions at 9.30 am on 18 November 2021. 4. Costs reserved. 5. Orders entered forthwith.

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: 11 October 2021

See Uniform Civil Procedure Rules 2005(NSW)

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