Wang & Anor v Cai & Ors

Ms Fang's and the Defendants' Property Interests

1. Ms Fang owned 12 parcels of real property in New South Wales at the commencement of the proceedings. She has transferred three of those properties since these proceedings commenced, triggering Ms Wang to bring this application. Ms Fang owned 11 of these properties in her own name and the other, a townhouse in which Ms Fang lives in Canada Bay, was owned by her sister-in-law, Ms Song Mao Zhang. Title to this townhouse was recently transferred to Ms Fang's son, in what Ms Wang says is a commercial transaction but which Ms Fang has sought to explain. The other two transactions will be explained below.
2. Ms Fang has interests in several companies, including Ozjian, which has no direct holding in real estate. But Ozjian holds indirect interests in two property joint ventures, the Penrith project and the Burwood project, the subject of these and related proceedings. Ms Wang alleges she was misled into participating in these two joint venture projects.
3. Ozjian is a minority unitholder in and a creditor of the Brighten Future Property Trust ("BFPT"). Adventure Capital Group Pty Ltd ("ACG"), the ninth defendant and the trustee of the BFPT, is the entity through which the Penrith project was conducted. Both Ms Wang and Ms Fang invested in the Penrith project through ACG. Ms Fang or Ozjian also funded the contribution of another company, High 618 Pty Ltd to the Penrith project. Ms Wang claims that Ms Fang did not disclose her interest in the Penrith project to Ms Wang.
4. Ms Wang also invested in a joint venture project in Burwood. Ozjian has a minority unit holding in and is a creditor of the Burwood 168 Unit Trust, of which VIP Sale Pty Ltd is the trustee. This was the vehicle through which the plaintiffs invested in the Burwood project, the subject of proceedings in this Court (Proceedings no. 2020/233849). Ozjian is also a minority shareholder in VIP Sale Pty Ltd.

Contentions in the Proceedings

1. Ms Wang says Ms Fang misled her in several ways including orally and through a Chinese language feasibility statement to enter the Penrith project. Ms Wang says that Ms Fang agreed to borrow $1.75 million from her to fund the Penrith project.
2. First, she says that Ms Fang overstated the actual purchase price of the land acquired for the Penrith project concealing thereby that Ms Wang was contributing over 80% of the true purchase price, rather than approximately 60% which he believed she was contributing. Ms Wang says that the effect of this misrepresentation was to enable a co-venturer in the Penrith project in which Ms Fang was secretly interested, High 618 Pty Ltd, to acquire more cheaply an interest in the Penrith project.
3. Second, Ms Wang says that Ms Fang represented that there was an expired development consent for a residential apartment complex on the Penrith project site, which could easily be renewed. Ms Wang says there was no such consent and that associated representations about the expected timeframe for the Penrith project were misleading.
4. Ms Wang also says she was misled to invest in another joint venture with Ms Fang's interests in Burwood, the Burwood project. Ms Wang's claims in relation to the Burwood project are made in other proceedings in this Court (Proceedings no. 2022/233849, the Burwood project proceedings). Ms Wang brings various claims in the Burwood project proceedings, one of which is relevant.
5. Ms Wang claims Ms Fang misled her into investing in the Burwood project. Like the Penrith project, Ms Wang alleges that that she was the only investor who contributed her agreed proportionate share in the Burwood project. She says that the defendants including Ms Fang's interests, who were the promoters of the Burwood project venture and its legal vehicles, did not contribute the dollar amounts that their agreed percentage interest in the Burwood project indicated they were to contribute and they concealed their underpayments from Ms Wang.
6. Ms Wang is about to commence other proceedings. She says that Ms Fang owes her $1,000,000 to repay a loan in respect of another property development project, an obligation that Ms Fang has acknowledged in writing, together with an obligation to pay interest at 10% p.a., presently accrued to $191,666.59 in accordance with the acknowledgment.
7. Ms Wang requested Ms Fang to repay this debt. Ms Wang says that Ms Fang's solicitor replied with a disingenuous request for particulars of the obligation that she had acknowledged in writing.
8. The detail of these contested claims is otherwise not material for present purposes. All that can be said is that the claims are supported by evidence and will be defended with evidence. The Court is not able to assess the likely outcome of the proceedings.

The Applicable Legal Principles

1. The applicable legal principles may be shortly stated. The Court has power in its inherent jurisdiction to grant freezing orders. And it may grant freezing orders under Uniform Civil Procedure Rules ("UCPR"), r 25.11(1), which provides for the making of such orders "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". The danger that a judgment will be wholly or partly unsatisfied may be because the assets of the prospective judgment debtor are disposed of or dealt with or diminished in value: UCPR r 14(4)(b).
2. The relevant principles are well-established and stated in applicable authorities the most prominent of which are: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 (Patterson); National Australia Bank Ltd v Bond Brewing Holdings Ltd [1990] HCA 10; (1990) 169 CLR 271 at 277 per Mason CJ, Brennan & Deane JJ; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 394 [26]; Samimi v Seyedabadi [2013] NSWCA 279; Severstal Export GmbH v Bhushan Steel Ltd (2013) 84 NSWLR 141. It is not necessary to restate the principles established in these authorities, which are applied here.
3. Patterson indicates that the Court may consider evidence of misconduct in the underlying transactions alleged in the proceedings to infer a danger of dissipation of assets. But in this case Ms Wang's affidavit substantiating the misconduct she relies upon was only served on the day of the interlocutory hearing, and Ms Fang did not have an opportunity to reply to it. So, the Court was only able to act on the basis that there were contested allegations of misconduct against Ms Fang, a situation that did not indicate on its own either way whether freezing order should be made.

The Contest on The Freezing Order

1. Ms Wang's Case. Ms Wang contends that Ms Fang's transfer of the three properties warrants the Court granting a freezing order over all Ms Fang's assets. The three properties in question were: (1) the Canada Bay property in which Ms Fang lives, already described, which was sold in October 2021; (2) a property in Burwood, which Ms Wang discovered in March 2022 had been disposed of in July 2021; and (3) a property in Strathfield which was sold in May 2022.
2. Ms Wang says that the circumstances of each of these sales and the way Ms Fang and her lawyers have responded to inquiries about them, lead to an inference that there is a danger that a prospective judgment against these two defendants will go unsatisfied.
3. Ms Wang complains that Ms Fang did not notify her in advance of her disposal of any of these three properties and has not responded informatively to Ms Wang's enquiries since their disposal. Ms Wang enquired on 3 March 2022 about the disposal of the Burwood property in July 2021 and received no immediate answer or explanation about its disposal.
4. In October 2021 Ms Fang's continued residence, the townhouse at Canada Bay owned by Ms Zhang was sold. Ms Wang points out that it was sold for the same price for which it had been purchased six and a half years earlier in March 2014 and without the intervention of a real estate agent.
5. Ms Wang undertook a search of the name of the purchaser, Bei Le Shen, who was recorded, somewhat strangely she thought, as living at the same Canada Bay address as Ms Fang. Ms Wang also points out that Bei Le Shen is a shareholder in a company that was incorporated a few days after the transfer to Bei Le Shen, which has as its registered office, the address of Ms Fang's accountant. And another friend of Ms Fang is also a shareholder in this new company. Yet another shareholder in this same company, is said to be the purchaser of the Strathfield property. Ms Wang submits that this evidence points to Ms Fang's conduct demonstrating a pattern of deliberate dissipation of her assets to related parties through dealings that are not at arm's length and have no apparent commercial purpose.
6. Ms Fang sold the Strathfield property in May 2022, according to Ms Wang's initial submission without the intervention of a real estate agent in circumstances that also suggest the transaction was not at arm's length and followed by Ms Fang choosing a course of secretiveness that is suggestive of a danger of dissipation.
7. Ms Wang's solicitors enquired on 23 June 2022, when they discovered the sales of the Burwood and Stratford properties. Ms Fang responded with the request for a time extension of one week which was agreed and appropriate undertakings to the Court were given. The enquiry was initially met with a request for extension of the time demanded for explanation.
8. But Ms Wang says that on the eve of the expiry of the undertaking, Ms Fang's solicitors received what her counsel, Mr Muddle SC describes an "insouciant" response. On 1 July 2022 Ms Wang pressed again her request for an explanation of these transactions and reassurance of no danger of dissipation. But the further enquiry was dismissed. Ms Wang submits that the rebuff to her enquiries justifies the Court in inferring a danger of dissipation of assets.
9. Ms Fang's Case. By the time the matter came on for hearing Ms Fang had very recently filed additional evidence on which she relied to explain the transactions. The additional evidence informed Ms Fang's submissions which gave a more detailed perspective on these transactions.
10. The Burwood Property. Ms Fang sold the Burwood property in August 2021 for $845,000. She had purchased it in July 2009 for $460,000 with the assistance of a first registered mortgage in favour of Bank of China (Australia) Ltd. The purchasers were Mr and Mrs Choi, who are unrelated to Ms Fang. The sale took place after a public auction through a licensed real estate agent and the conveyancing was undertaken through solicitors.
11. Ms Fang can establish that she received net proceeds of sale from the Burwood property of $141,203.36, after discharge of her mortgage debt and the payment of other property and conveyancing costs. On 25 August 2021, as the Burwood property conveyance settled, Ms Fang says that she loaned $220,000 to her son, Mr Bei Le Shen to assist him with the purchase of the Canada Bay property from Ms Fang's sister-in-law. Ms Fang says that she loaned this money to assist her son to get a foothold in the property market.
12. Ms Fang says that none of this was clandestine, nor can it be demonstrated to be other than at arm's length.
13. The Canada Bay Property. The Canada Bay property was sold in October 2021. Ms Fang says that she never owned it either legally or beneficially. In July 2015, Ms Songmao Zhang, who is Ms Fang's sister-in-law, purchased the Canada Bay property for $1.25m and became its registered proprietor. Ms Fang says that she loaned Ms Zhang, who ordinarily resides in China, $250,000 to assist her to acquire Canada Bay property.
14. Ms Fang says that in September 2021 her son, Bei Le Shen expressed an interest in acquiring the Canada Bay property from Ms Zhang. To assist him to make that acquisition Ms Fang loaned him $220,000. The Canada Bay property was sold between family members for the same price at which it had been acquired in July 2015, namely $1.25m, and it completed in October 2021.
15. Ms Fang continues to live in the Canada Bay property with her son, Bei Le Shen. She says that she pays him monthly rent.
16. Ms Fang was repaid the $250,000 she had loaned to Ms Zhang together with accrued interest, totalling $293,772.30.21. Her evidence accounts for her application of those funds as follows. 1. She retained $100,000, transferring it to her offset account with the NAB; 2. She repaid a motor vehicle loan of $43,669.26; 3. She retained a further $50,000 to meet expenses, including this litigation and related proceedings; the invoiced costs of these various proceedings being $336,419.39 up to the time of the application; and 4. She applied the remaining $100,000 to repay in part a debt she claims that she owed to Ms Li Hua Chi, the balance of the debt being paid from the proceeds of sale of the Strathfield property, discussed below.
17. Ms Fang's case is that none of these payments diminished her net asset position and they do not evidence dissipation of assets. In summary she says that she used the proceeds she received to repay debts of $143,669.26 and retained the balance of $150,000.
18. Moreover, Ms Fang denies having any beneficial interest in the Canada Bay property. She says that the property was merely sold between two members of her family, from her sister-in-law to her son.
19. The Strathfield Property. Ms Fang sold the Strathfield property in May 2022 for $786,000 to Ting Chen, a person who Ms Fang says is unrelated to her. Ms Fang had purchased the Strathfield property in October 2008 for $445,000.25, partially funding the acquisition with funds advanced by the NAB and secured by first registered mortgage. A licensed real estate agent and a solicitor were used for this sale.
20. Ms Fang received $235,882.06.31 from the sale of the Strathfield property, after discharge of the registered mortgage and payment of all property and conveyancing expenses. On settlement Ms Fang applied those proceeds, along with other monies, to repay $270,000 she claims that she owed to Ms Li Hua Chi. Ms Fang paid a total sum of $370,000 to Ms Chi, the other $100,000 having been paid from the proceeds of sale of the Canada Bay property.
21. The application of the proceeds of sale of the Canada Bay property and the Strathfield property to Ms Chi were established. But the nature and authenticity of Ms Fang's obligation to Ms Chi was contested and led to more detailed submissions from Ms Fang.
22. Ms Fang's $270,000 Debt to Ms Chi. Ms Fang says that in 2012 she offered to assist Ms Chi, a resident of the People's Republic of China, in purchasing an investment property in Australia. Their dealings evolved through several phases. Both Ms Chi and Ms Fang each affirm on affidavit that the various transactions recorded here took place.
23. In June 2012, acting on behalf of Ms Chi, Ms Fang contracted to purchase two off-the-plan apartments in Ashfield, which are sufficiently described for the purposes of these reasons as A07 and A08, for $600,000 each. The contracts required a 5% deposit, making a total of $60,000, which Ms Chi advanced to Ms Fang.
24. In September 2014, the two contracts to acquire apartments A07 and A08 were rescinded, and the properties were re-sold for $680,000 and $730,000 respectively, resulting in profits of $80,000 and $130,000 for each unit, a total of $210,000. Ms Fang says that these transactions required her as at September 2014 to account to Ms Chi for a total of $270,000, being the $60,000 Ms Chi initially advanced to her together with the profit earned of $210,000.
25. But Ms Fang did not repay Ms Chi in September 2014. Ms Chi left the funds with Ms Fang until September 2020, when she became aware that Ms Fang had been sued in the Penrith and Burwood proceedings. This appeared to spur Ms Chi into recovering her money from Ms Fang. At about that time Ms Fang promised to repay Ms Chi the $270,000, together with interest for Ms Fang's enjoyment of the money since 2014. Ms Fang effected this repayment by applying $100,000 from the Canada Bay property sale proceeds and $270,000 from the Strathfield property sale proceeds.
26. Ms Fang adduced evidence of a document written in Chinese characters and executed by Ms Fang and Ms Chi which recorded and acknowledged the repayment of the $370,000.40. A NAATI translated version of the document records Ms Fang and Ms Chi agreeing that Ms Fang "returned a total of $370,000 in principal and interest to [Ms Chi]". But some features of this document do not exactly match the arrangements Ms Fang and Ms Chi claim to have made with each other.
27. Ms Fang submits that there is nothing improbable or uncommercial about this evidence or chain of events. Ms Fang used money from Ms Chi to generate a profit. There is nothing surprising about requiring the repayment of the originally loaned money and generated profit, or interest for time for which Ms Fang retained and had the use of that money.

Consideration

1. Ms Wang faces challenges in making a case of risk or danger of dissipation of assets on this evidence. These three property transactions and the dealings with Ms Chi have some unusual characteristics and Ms Fang was quite slow to explain them. And the final evidence of the transactions over two of the properties in question does not show a compelling case to extend the freezing order.
2. Ms Fang has retained most of her property portfolio, 9 out of 11 properties. The two properties in her name sold, the Burwood property and the Strathfield property were sold to third parties with no clearly demonstrable relationship with Ms Fang, at a substantial profit, using real estate agents and solicitors. The available documentary evidence supports these fundamental elements of these transactions, which are not compatible with viewing them in themselves as sham transactions or non-arm's-length transactions.
3. The application of the proceeds of sale presents a mixed picture. As Ms Fang points out the total proceeds received from the three properties is approximately $670,000. From those proceeds: (a) $150,000 was retained; (b) $43,669.26 was paid to discharge a motor vehicle loan; (c) $220,000 was loaned to Ms Fang's son, Bei Le Shen to assist him purchasing the Canada Bay Unit; and (d) the balance of about $257,000 (together with other funds of Ms Fang was applied to repay a debt apparently owed to Ms Chi. Of these (a) and (b) support the commerciality of the transactions. And (c) and (d), require further analysis.
4. The sale of the third property, the Canada Bay property, was an intra-family transaction and prompts closer consideration. Ms Fang disclaims any interest in the Canada Bay property, but some features of the transaction indicate Ms Fang's son, Bei Le Shen, and her sister-in-law, Ms Zhang, were not dealing at arm's length. Why for example Ms Zhang would sell the Canada Bay property in 2021 for the same price, $1.25 million, that she purchased it in 2015, six years earlier, has not been satisfactorily explained in a rising property market. The puzzling uncommercial face of this transaction is worsened by looking at it from Ms Zhang's perspective: she not only failed to take a profit over six years when one was probably available, but she paid Ms Fang $43,772.30 in interest on the $250,000 loaned to her for the privilege.
5. Ms Fang was the fulcrum through which that transaction took place, no doubt connecting her sister-in-law and her son as vendors and purchaser and therefore probably setting the timing of the transaction, at the least to ensure that she could continue to live in the property after the transaction. The uncommercial aspects of this transaction are a basis to infer Ms Fang had before October 2021 and has now some indirect interest in or control over the Canada Bay property.
6. This inference is strengthened when Ms Fang's current relationship with the registered proprietor is analysed. Yes, she says that she has taken a monthly lease from her son, but she is his mortgagee and as a tenant is the likely source of revenue to repay the mortgage. Moreover, she is living in the property with him, and he is hardly likely to treat her as an ordinary tenant. Thus, post October 2021 Ms Fang has settled into yet another un-commercial relationship with the Canada Bay property.
7. But the Court's doubts about the arm's-length nature of this transaction do not ground a quick and simple inference that Ms Fang poses a risk of dissipation of assets. Ms Fang's interest in the Canada Bay property before the October 2021 sale was uncertain. It can probably be said on the available evidence that she had some degree of control over the disposition of the Canada Bay property before then. Whatever her interest was in the Canada Bay property, it long predated its October 2021 sale. Moreover, it is difficult to infer that the sale of the Canada Bay property reduced Ms Fang's uncertain interest in it, such that it can be inferred she poses a risk of dissipating assets. Her continuing interest or control, whatever it be, may be much the same now as it was before October 2021 but just with a different registered proprietor.
8. What does this infer about danger of dissipation? Two circumstances point towards the possibility of such a danger with this defendant. First, the Court does not accept on the available evidence that Ms Fang has no interest in the Canada Bay property. But the Court infers she is prepared to deny having an interest in a property over which she probably has some indirect control. She has not been cross examined on this issue but that is the nature of urgent interlocutory proceedings in the duty list. The Court must nevertheless do the best it can in the circumstances on the available affidavit evidence, which does not include evidence from either Ms Zhang or Bei Le Shen.
9. Second, the October 2021 transaction shows that Ms Fang was prepared to engage in a transaction, in which she moves from one relationship of ill-defined control over property held in the name of another to a second such ill-defined control relationship. Ms Fang's willingness to maintain such ambiguous relationships about a property which is presumably of some importance to her, is a characteristic that must be interpreted.
10. Ms Fang points to the many investment properties that she has not sold and points to her application of the proceeds of sale (or mortgage repayment in the case of the Canada Bay property) of these three properties to meet her legitimate obligations. But the Canada Bay property is different. It is a property in which she lives and is likely to attract much greater focus for her security. And it is the property about which she has engaged in these ambiguous transactions. The circumstances rather indicate that when an asset is important to her Ms Fang can enable ambiguous transactions over that asset. But it is not uncommon for people to engage in transactions with family members that are not fully commercial in respect of properties in which they live or conduct businesses. The transactions in relation to the Canada Bay property fall into this pattern of behaviour. But they do not necessarily indicate a broader propensity to dissipate assets, especially where the evidence of sales of the two other properties in this case point the other way and so many properties remain unsold. And Ms Fang's delay in explaining these transactions can be accounted for by the detailing of the final explanation.
11. The last issue contested is the debt to Ms Chi. Some features of the document in Chinese characters executed between Ms Chi and Ms Fang, entitled "Investment Return Clarification" are an imperfect reflection of the transactions, which they describe in their affidavits as having taken place between them. The total return of the $370,000 is not consistent with the calculation of principal and profit of $330,000 declared earlier in the document. And the document was only executed in May 2022 and has a degree of vagueness that does not give great confidence in it as a record of an arm's length transaction. But Ms Fang and Ms Chi have nevertheless gone on oath with a version of their dealings which is the foundation of Ms Fang's case given earlier in these reasons, evidence that cannot be ignored. So, the challenge to Ms Fang's claim she was repaying a debt to Ms Chi does not weigh significantly in favour of extending the freezing orders.
12. In the alternative, Ms Wang sought orders that Ms Fang give notice of her sale of any of the remaining properties. Some resistance to this order on behalf of Ms Fang was in part founded upon a contention that the Court does not have jurisdiction to make such an order.
13. But the Court has long made orders of this kind. They have the attraction of being a very "light touch" form of order that defers the real contest about dealing with the defendant's assets until the actual time when their disposition is needed and any issue of competition between the needs of the claimant and the respondent to the order come to a head. If any authority be needed, it is clear from the example of at least two recent cases, Parbery & Ors v QNI Metals Pty Ltd & Ors [2018] QSC 107 at [302] and [304] and Viterra BV v Shandong Ruyi Technology Group Co Ltd [2022] FCA 215 at [24] and [104], that judges in many jurisdictions have accepted that such orders can be made and have been ready to do so particularly because of the light burden that orders structured in that manner place upon a defendant in the short term.
14. But if there is no basis to make freezing orders, there is no basis to make orders requiring Ms Wang to give notice of impending transactions with respect to the other properties she owns. These alternative orders will also be declined on the weight of other discretionary grounds. And Ms Fang faces significant legal fees in these proceedings, and she may have to sell some of these properties to meet them.
15. Although she has been unsuccessful on this occasion, this application was very finely balanced. Should any other evidence emerge that points to a risk of dissipation of assets, then Ms Wang may well be justified in bringing another application of this kind.
16. That leaves consideration of the appropriate costs order. The Court has not fully heard the parties on the issue of costs and is reluctant to have the parties expend further resources on that issue. The Court indicates that it is inclined to make the costs of this application each party's costs in the proceedings. And if neither party wishes to contend for different order that is the order which the Court will make in 14 days.
17. The reason for this approach is that much of the evidence on Ms Fang's side explaining these transactions only came in at the last moment before the hearing when there was very little opportunity for Ms Wang to limit her commitment to a contest on this motion. The lateness of this material had necessitated Ms Wang asking for alternative disclosure orders under UCPR, r 25.12. An opportunity will be given to any party to seek a different costs order, but that opportunity will be afforded at that party's risk as to costs.

Conclusions and Orders

1. Ms Wang has been unsuccessful in seeking the extension of freezing orders. To preserve any rights that Ms Wang seeks to seek leave to appeal should she choose to do so, the existing freezing orders will only be dissolved seven days from today.
2. For these reasons the Court makes the following orders: 1. The freezing orders made by Kunc J on 27 June 2022 and extended by Slattery J on 7 July 2022 are continued for seven days until and including 11 August 2022; 2. Costs are reserved but if neither party seeks a different cost order within seven days of today, then the Court will make orders in chambers to the effect that the plaintiffs' and the second and fourth defendant's respective costs of this application will be each party's costs in the proceedings; 3. Grant liberty to apply.

Amendments 04 August 2022 - coversheet appearances corrected. 04 August 2022 - Order (1) "11 July" to "11 August" 17 August 2022 - coversheet: legal representatives 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: 17 August 2022