Consideration
16 In the recent decision Vasiliades Gordon J set out useful principles concerning the operation of r 7.35 of the Federal Court Rules and matters the Court can relevantly take into account in determining whether freezing orders are warranted, both against a party to litigation and third parties. In particular her Honour observed as follows:
35 There are three limbs in relation to imposing a freezing order on a prospective judgment debtor in the circumstances of the present case. First, the Court must be satisfied that the applicant has a good or reasonably arguable case on both the law and the facts: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [68] and Rule 7.35(1) of the FCR. Second, there must be a danger that a prospective judgment will be wholly or partly unsatisfied because the assets of the prospective judgment debtor or another person are removed from Australia or from a place inside or outside Australia or the assets are disposed of, dealt with or diminished in value: Rule 7.35(4) of the FCR. Finally, the balance of convenience must favour the granting of the orders: BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd [2010] WASC 25 at [22] and the cases there cited.
36 Other relevant principles may be summarised as follows:
(1) The freezing order is not intended to operate as a form of security in advance: Cardile at [51]; Goumas v McIntosh [2002] NSWSC 713 at [23];
(2) A freezing order may be granted even though there is no evidence of the respondent's positive intention to frustrate a judgment: Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014 at [10];
(3) However, there must be facts from which the Court can infer a real risk or danger that the respondent will dispose of or otherwise deal with his assets in a way that the applicant will not be able to satisfy any judgment obtained against the respondent: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319; Third Chandris Shipping Corporation v Unimarine S.A. [1979] QB 645; Hua Wang Bank Berhad at [8];
(4) Depending on the circumstances, the interests of justice may support the grant of a freezing order to prevent the dissipation of assets pending the hearing of an action, even though the risk of dissipation is less probable than not: Patterson at 325; Hua Wang Bank Berhad at [9]; and
(5) The Court may take into account the prior conduct of a respondent, the value of the prospective judgment and the assets or income available to the respondent to satisfy that judgment. Although the Court must be cautious before making freezing orders, it must be borne in mind that their very purpose is "to ensure that assets are not alienated so as to avoid or frustrate the [C]ourt process": Deputy Commissioner of Taxation v Gashi (2010) 27 VR 127 at [33] citing Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd [2009] VSC 418 at [34].
37 Where a freezing order or an ancillary order is sought against a third party, the second limb described at [35] above is different: Rule 7.35(5) of the FCR. The Court must be satisfied, having regard to all the circumstances, that:
(1) there is a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied because:
(a) 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
(b) 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
(2) a process in the Court is or may ultimately be available to the applicant as a result of a judgment or prospective judgment of the Court, under which process the third party may be obliged to disgorge assets or contribute toward satisfying the judgment or prospective judgment.
17 In this case, having regard to the three limbs of r 7.35 to which her Honour referred in Vasiliades, I am satisfied that freezing orders ought be made against Mr Huang, JHC Mum and DZY. I have reached this view for the following reasons.
18 First, I do not accept the submission that there is no justification for making orders against JHC Mum and DZY. On the evidence before the Court these companies are clearly associated with, and most likely under the control of, Mr Huang. Indeed Mr Huang appears to be a controlling shareholder and director of JHC Mum, whereas his wife is the sole shareholder of DZY. To the extent that Mr Huang has caused property to be transferred to these companies it is clear that these properties remain under his, or his wife's, control. Further, while the evidence suggesting that the properties were transferred to JHC Mum and DZY at an undervalue is, in my view, thin, as pointed out by Mr Stunden this evidence was that of Mr Huang in respect of his own properties. I am prepared to accept this evidence, at this stage, as supportive of the orders sought against JHC Mum and DZY by Vantage.
19 Second, while Mr Huang may be in the business of property development, and while there is evidence before the Court to support a finding that properties sold by him had been on the market for some time, I consider it cause for concern that, as pointed out by Mr Stunden for Vantage, Mr Huang has not acquired properties to replace those he has sold. I consider that the apparent diminution of Mr Huang's real estate portfolio in Queensland is suggestive of a process of dissipation of assets, which could have the effect of frustrating any successful judgment of Vantage against him.
20 Third, no submission was put to me on behalf of Mr Huang that the conversation with Mr O'Brien, as deposed by Mr O'Brien, actually did not take place. There is an outstanding issue as to whether the conversation was without prejudice (transcript p 7 ll 14-29), however the fact of the conversation does not appear to be in dispute. At this interim stage I am prepared to accept the evidence of Mr O'Brien that Mr Huang made the comments deposed by Mr O'Brien in paragraph 4 of his affidavit. With respect, I do not accept the submissions on behalf of Mr Huang that the comments should be attributed a neutral complexion. I consider it reasonable to draw an inference not only that the comments of Mr Huang were made to Mr O'Brien, but that those comments indicated a strategy of Mr Huang to ensure that any success of Vantage in this litigation would be hollow.
21 Fourth, while I note Mr Beacham's submission concerning the passage of four weeks from the conversation between Mr Huang and Mr O'Brien and yesterday's hearing, I do not think it precludes Vantage from claiming urgency in respect of this application. It does not appear to be in dispute that the sale of Mr Huang's property at 23 Karabil Street, Kingston is expected to settle on 1 May 2015, which is a little over a week away. Further, I note that a considerable amount of material has been assembled by the legal representatives for Vantage in support of this application, which has clearly taken some time and resources.
22 Fifth, I note Mr Beacham's submission concerning the value of the undertakings as to damage offered by Vantage. There is no evidence before the Court to indicate what, if any, damage Mr Huang could suffer from the imposition of freezing orders. There is evidence however as to the apparent value of the undertakings. In this context I consider that Mr Beacham's submission that the quality of the undertakings is part of the assessment of balance of convenience has merit. On the material before me, there appears to be a risk that the applicant, if successful at trial, may nonetheless have a hollow victory. Even if the timing of his alienation of assets is completely coincidental, there is evidence that Mr Huang has transferred away extensive assets since these proceedings were commenced. On balance I consider that the value of the undertakings offered by Vantage are reasonable, measured against the risk of receiving a judgment which it cannot enforce and the fact that the trial is now less than two months away.
23 Sixth, I accept Mr Beacham's submission that any restraint on Mr Huang so far as concerns his share of assets, be specifically limited to his share of assets. In my view it is appropriate to make orders which reflect this position.
24 Seventh, the specific amounts submitted by Vantage as being reasonable as "carve outs", that is moneys available to Mr Huang by way of ordinary living expenses (up to $1,000 per week) and reasonable legal expenses (up to a maximum amount of $200,000 except by leave of the Court) appear to me to be somewhat arbitrary. I note, however, that the draft freezing order proposed by Vantage does not specifically prevent Mr Huang dealing with or disposing of his assets in the ordinary course of his business, or discharging obligations bona fide and properly incurred in respect of the four properties in which Mr Huang retains an interest subject to notice to Vantage. I also note that the draft order proposed by Vantage contemplates that the amounts specified in the "carve outs" be varied. Certainly Mr Huang did not submit that the specific amounts for living expenses and legal expenses were inadequate. With some hesitation I am prepared to make the freezing orders including the specific amounts "carved out", to which I have referred. I will do so however, on the basis that there be specific liberty to apply.
25 Finally, while Vantage seeks costs in the interlocutory application filed 22 April 2015, the terms of the freezing orders contemplate that costs be reserved. In my view, at this stage, it is a better course to order that costs be reserved.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier.