Zhong v Shield Resources Pty Ltd

Supreme Court of NSW|2022-03-14|Before: Adam P, Male Fashions P, Adams J

Judgment

HER HONOUR: This matter involves a notice of motion seeking a further payment of funds out of Court to the second defendant.
The plaintiff, Mr Zhong, is a businessman who resides in the People's Republic of China. The first defendant is Shield Resources Pty Ltd, a company dealing in the sale of timber. Feng Ye is a director of that company. The second defendant is Ms Ying (Emma) Guan, who on the plaintiff's case guaranteed the loan. The third defendant, Mr Ye is the second defendant's husband. Whether Ms Ying is a guarantor is in dispute as is nearly every fact relevant to the finalisation of these proceedings.
The parties could not agree on the contents of a joint court book. The plaintiff relied on 2 volumes of his court book ("Ex A(1)-(2)"). The second defendant relied on her Court Book ("Ex 1") and documents tendered in response to a notice to produce issued by the plaintiff and third defendants ("Ex 2").
By notice of motion filed 15 December 2021, the second defendant seeks the following order: 1. An order that the monies paid into Court by the Second Defendant on about 6 January 2021, less those released on 31 May 2021 in these proceedings, the amount of $350,000 or an amount that the Court thinks fit, be released to the Second Defendant pursuant to rule 55.11(1) of the Uniform Civil Procedure Rules 2005 (NSW).
Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") 55.11 reads: 55.11 Proceedings for directions as to payment out of court (1) Funds that have been paid into court may only be paid out of court pursuant to the directions of the Supreme Court.
There is some urgency with delivering this judgment as these proceedings have been listed for hearing on 3 May 2022 for 3 days.

The second defendant's offer

The second defendant has made an open offer and, in the alternative, undertakes to the Court on the same terms as the agreement and her undertaking previously in the Court of Appeal, in respect of the $100,000 ultimately released to her pursuant to the orders of N. Adams J.
The effect of the undertaking is that, if the plaintiff ultimately succeeds in establishing that the Waterhouse Ave property was the subject of an equitable charge to secure monies owing by the first defendant to the plaintiff, prior to its sale, the proceeds from which were paid into Court, then she agrees to grant the plaintiff a charge over her current property at Gibran Place ("current property") by way of further security for such monies, to the extent they would have been secured by the monies paid into Court, but for the payment out of the amount now sought to be released.
Both parties stated that there is an obvious risk of injustice if money is released in which someone has a proprietary interest. The plaintiff submitted that here it needs to be remembered that there is only an alleged proprietary interest in the funds paid into Court.
At the hearing, Counsel for the second defendant noted that in P/L Birketu v Westpac Banking Corporation (No 2) [2018] NSWSC 494 ("Birketu (No 2)") there was no offer of a charge over other security property and that's what the second defendant offers. Even if the plaintiff is right that he had a charge over the Waterhouse property, the second defendant will replace it with a charge over the second defendant's current property (T41.13-28).
The 'upshot' of that offer is that the plaintiff is no worse off, if it is successful in establishing a charge over the Waterhouse Ave property. To the extent funds are released from Court, they are replaced with security over the current property.

The plaintiff's position in relation to offer

By way of written submissions, the plaintiff proffered that the second defendant offers her undertaking to charge her residential property in the plaintiff's favour for any amount released, although she claims to be unable herself to raise any loan against it (without adducing evidence of any attempt having been made).
The plaintiff has been given the first-ranking security (in a relatively small part) promised to him by the second defendant, converted to cash, retained on condition, that it is paid out to him in accordance with the determination of the Court of the claims between the parties, free of any competing claims by anyone else.
The alternative proposed would throw him back upon the risks of recovery from a forced sale of an at least once prior mortgaged asset on the assertions of net value of a proven untrustworthy party, who herself claims she cannot realise any such amount from it.
The compromise brokered by the Court of Appeal for the $100,000 released of an equitable charge over the residence given now or only if the plaintiff succeeded, as vaguely offered for the further amount sought, becomes more risky with every dollar subject of it. The plaintiff has no means to know how many other prior equitable charges she has already created or may yet create, what claims such charges the second defendant, her family or others may make in relation to her title to the property or what truly is or will on enforcement be its value. The plaintiff and the Court do not know to what extent the second defendant may increase her liability on the first-ranking, registered mortgage of the residence, by incurring penalty interest, procuring further advances or increasing the costs of realisation of that security, which would of course be under the control and subject to the interests of the first mortgagee. The financial position she claims for herself is already of insolvency and the intervention of a bankruptcy trustee would further complicate and delay recovery.
The amended statement of claim (at [18G]) to recover the alternative security for the $100,000 released by way of undertaking given in the Court of Appeal, the second defendant in her further amended defence (at [11G(b)]) has repudiated it. In the second defendant's 15 December 2021 affidavit at (6) she asserts that she had been released the $100,000 without disclosing, that she had subsequently been required to undertake to grant the charge over her residence. The second defendant cannot be trusted to adhere to any undertaking now proffered and the plaintiff has no obligation to accept such an undertaking in place of the remnants of the secure source of recovery promised to him, which on the authorities cited amounts to his own property.
As this offer was not accepted the second defendant now offers an undertaking on similar terms as set out in the orders of the Court of Appeal dated 16 June 2021.

The law

The parties agreed that in order for this Court to release any further payments from the funds paid into Court, the second defendant has to demonstrate a change in circumstances and it is so, where the balance of convenience lies. In Birketu (No 2), Garling J stated at [52] to [61]: "[52] One of the findings made with respect to the Leura bank account is that the funds in there were mixed funds. The vast majority of those funds were not Mr Clarke's. [53] Thus there was a mixing of funds which Mr Clarke held on trust for Birketu, because he had misappropriated them. In Black and Black v Freedman & Co [1910] HCA 58; (1910) 12 CLR 105 , O'Connor J said: "But I think the law applicable is that… Where money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character. If he pays it over to another person, then it may be followed into that other person's hands." [54] It is then a matter of applying the ordinary equitable principles to the Leura bank account to determine whether the fact that Mr Clarke was entitled to some funds, in circumstances where it is a mixed account, means that he has a claim to the funds the subject of the Freezing Orders. [55] In Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230 , Allsop P (with whom Campbell JA and Handley AJA) agreed, said, in relation to mixed fund accounts this at [114]: "On examining withdrawals, it is to be assumed that withdrawals that are dissipated are taken first from the trustee's own funds … The obligation of a fiduciary even a defaulting one (here a thief as constructive trustee dealing with stolen funds) is to preserve, not dissipate, the property of others wrongly obtained." [56] In so saying, Allsop P cited with approval the decision: In Re Oatway; Hertslet v Oatway [1903] 2 Ch 356 , and in particular a part of the judgment of Joyce J at 361 where his Honour said: "In other words, when the private money of the trustee and that which he held in a fiduciary capacity have been mixed in the same banking account, from which various payments have from time to time been made, then, in order to determine to whom any remaining balance or any investment that may have been paid for out of the account ought to be deemed to belong, the trustee must be debited with all the sums that have been withdrawn and applied to his own use so as to be no longer recoverable … The order of priority in which the various withdrawals and investments may have been respectably made is wholly immaterial." [57] Following upon those principles, and regardless of the order in which the deposits and withdrawals were made, it is abundantly clear that Mr Clarke's $83,000 was well and truly dissipated on his gambling losses, and all remaining funds in either the Leura bank account or the Sportsbet account belong to Birketu. [58] It is appropriate to note that, save for advancing an argument in respect of the $83,000, Mr Clarke did not argue that he had a proprietary claim, or any claim of right to any of the money, the subject of the Freezing Orders. He somewhat faintly suggested that he may be entitled to the sum of $83,000 from those amounts but, ultimately, as I have demonstrated above, he cannot be so entitled. Any such claim must fail. [59] Notwithstanding the clear and uncontradicted factual position with respect to the Leura bank account, Mr Clarke continued to advance an argument that Order 12 should remain in place and that he should be entitled to withdraw monies for his legal fees and living expenses. [60] In light of Birketu's proprietary claim to the money in the accounts subject to the Freezing Order, there is an "obvious risk of injustice" to Birketu if the Clarke Motion is successful. If Birketu ultimately succeeds in obtaining final relief, its funds will have been used to finance Mr Clarke's unsuccessful defence, compounding the loss suffered as a consequence of the alleged fraud. [61] Accordingly, a "careful and anxious judgment" is required, whereby the Court must assess whether any injustice to Birketu will be outweighed by any potential injustice to Mr Clarke if he is precluded from accessing funds, and is therefore perhaps denied the opportunity to advance an arguable defence: Sundt Wrigley Co Ltd v Wrigley (Court of Appeal (UK), 23rd June 1993, unrep), Bingham MR, cited in Halifax v Chandler [2001] EWCA Civ 1750 at [17]."
Counsel for the plaintiff in the Court of Appeal referred to National Australia Bank Limited v Human Group Pty Ltd (No 2) [2020] NSWSC 1900 ("Human Group (No 2)") at [104]-[112] where Henry J explained the juridical and practical distinction between a freezing order where an applicant who asserts a proprietary interest in assets possessed by another: "Legal principles [104] To engage the Court's discretion to vary the Freezing Orders, NAB must establish that there has been a material change of circumstances since the original application for the orders was heard or the discovery of new material that was not reasonably available at the time they were made: Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46; Short v Crawley (No 42) [2009] NSWSC 1110 at [75]. [105] As NAB seeks to vary the Freezing Orders so as to prevent Ms Rosamond and Human Group from having recourse to ACN's assets for the purposes of paying their living, legal and business expenses, it must also establish that it has an prima facie or arguable case for a proprietary claim to ACN's assets generally and, in particular, the approximately $3.8 million of assets in the name of ACN held by Shaw and FIIG: Independent Trustee Services Ltd v GP Noble Trustees Ltd [2009] EWHC 161 (Ch) at [6]; In the matter of Courtenay House Capital Trading Group Pty Ltd (In Liq) [2018] NSWSC 1918 (Courtenay House) at [14]-[18], [48]. [106] The Courts recognise juridical and practical distinctions between a freezing order where an applicant claims no proprietary interest and a claim made by an applicant who asserts a proprietary interest in assets possessed by another. [107] In circumstances where no proprietary claim is made, the object of a freezing order is to restrain an owner from dissipating their own property to preserve the integrity of the Courts' processes. Such an order operates in personam and not as an attachment on the property itself or as security for an anticipatory judgment. On the other hand, the object of a proprietary claim is to secure the property to which the plaintiff has at least a prima facie case of a proprietary interest and ensure that it is available to the plaintiff in the event it proves its claim to that property: Cardile v LED Builders Pty Limited (1999) 198 CLR 380; [1999] HCA 18 at 394-401; His Eminence Metropolitan Petar v The Macedonian Orthodox Community Church St Petka Inc [2006] NSWCA 277 (Petar) at [59] to [62]; Frigo v Culhaci [1998] NSWCA 88 at 16; Peter Biscoe, Freezing and Search Orders: Mareva and Anton Piller Orders (2nd ed, 2008, LexisNexis Butterworths) at [1.18]. [108] This distinction is also of practical importance and particularly relevant to NAB's application for a variation to the Freezing Orders. [109] When freezing orders are made in relation to non-proprietary claims, the usual position is that defendants generally have an entitlement to use their assets for legitimate purposes, such as to pay their ordinary living and business expenses and their reasonable legal expenses in defending the claims made against them: Goumas v McIntosh [2002] NSWSC 713 at [27]. [110] In contrast, there is no reason, in general, why defendants should be permitted to use property or money belonging to another in order to pay their legal costs or other expenses. There is an obvious risk of injustice if assets the subject of the proprietary claim are used to finance the defendants' litigation as the money is not the defendants at all but represents money which is held on trust for the plaintiff. The Courts will be attentive to the protection of trust property and a defendant may not be allowed to access money to which they have no legal or moral right to enable them to spend it on their own living expenses or on private representation of their choice: Commonwealth of Australia v Jansenberger (Supreme Court (Vic), Southwell J, 3 October 1985, unrep) at 8; Petar at [85]; Birketu Pty Ltd v Westpac Banking Corporation (No 2) [2018] NSWSC 494 (Birketu) at [60], [63]; Polly Peck International Plc v Nadir (No 2) [1992] 4 All ER 769 at 784; Sundt Wrigley & Co Ltd v Wrigley (Court of Appeal (UK), 23 June 1993, unrep). [111] In cases concerning proprietary claims, a "careful and anxious judgment" is required whereby the Court must assess whether any injustice to a plaintiff, such as NAB, would be outweighed by the potential injustice to the defendants, here Ms Rosamond and Human Group, if they were precluded from accessing funds and therefore perhaps denied the opportunity to advance an arguable defence: Birketu at [61] - [62]; Courtenay House at [49]; Cong v Shen [2020] NSWSC 945 at [163]. [112] The weighing of the interests of justice may involve a consideration of whether a defendant has shown that it is necessary for them to have access to funds over which a proprietary claim is made in order to defend the proceedings and other relevant discretionary factors that may be relevant, such as delay: Birketu at [64]-[68]."
The material change in circumstances identified by the second defendant is that due to the effluxion of time since she received $100,000 funds from Court in June 2021, she needs funds to support the family household, pay her son's school fees, mortgage repayments and solicitors fees to ensure legal representation at trial.

Relevant events since the decision of N. Adams J

On about 5 August 2021, the matter was set down for hearing on 3 May 2022 for 3 days.
Almost 3 months later, the plaintiff filed an amended statement of claim (ASC) and joined Mr Ye as the third defendant to the proceedings.
In this application before me, the second defendant relied on two affidavits dated 15 December 2021 and 22 February 2022 in updating her current financial position. The third defendant relied upon his affidavit dated 22 February 2022.

The second defendant's current financial position

On 12 November 2021, the second defendant caused a valuation to be done of the current property. The property was valued at $4.25M, having increased by $650,000 from its prior valuation on 19 January 2021 of $3.6M. As at 22 February 2022 the mortgage balance is $2.144M. That means that she has $2.106M equity in that property.
On 4 December 2021, the second defendant had about $74,447 in her savings account. She estimated her monthly expenses as being around $14,500.
By 22 February 2022, the second defendant's savings had reduced to about $45,519.00 across six bank accounts. She has provided details of those accounts and printed bank statements to support her evidence. She affirmed in her affidavit of 22 February 2022, her liquid asset position has decreased by $31,062.73 and her monthly mortgage repayments had increased from about $5,717.72 to $10,282.00 as the interest only period on her mortgage ended. Thus, the mortgage now includes repayments of both Principal and interest.
Her credit card debit has increased by $780.03 to a total of $4752.29. School and legal fees as well as child care expenses have increased by $600 to $3350 per month.
She has paid down liabilities from the figures deposed in her December affidavit including the Mercedez Benz loan which she continues to make repayments $1,842.21 on the 28th of each month (now at a balance of $92,039.40) and a line of credit liability owing to Creditline, with a balance of $2318.63 as of 30 January 2021.
As at 22 February 2022, the second defendant now estimates her monthly expenses to be about $21,891.85, by reason of increased mortgage payments and school fees:. She estimates her bank balance would reduce to nil by early April 2022.
So far as her employment status is concerned, she deposes that she is currently a stay at home mother. Most of her time is spent on household duties and in particular, caring for her son and family. She does not have any income at this time. On or around late 2019, she ceased trading in wholesale and exportation to spend more time caring for her child and family. Given her deteriorating financial position, she is considering options to re-open her business or develop an alternative business venture. However, she does not have sufficient capital cashflow to start a fresh business. Since ceasing to trade in wholesale and exportation, she has relied on the savings in her bank account to fund the day-to-day expenses for herself and her family.
Due to the Court orders made on 18 December 2020, she is unable to use her home as a means to refinance and pay for her day to day expenses and the expenses associated with starting a new business. If the monies held on security were released she would have sufficient capital and cash-flow to invest in a new business venture.

The third defendant's current financial position

The third defendant, the second defendant's husband, in his affidavit dated 22 February 2022 deposes that he is the director of the following entities: 1. Shield Construction Material Group Pty Ltd ACN 127 340 756; 2. Shield Formply Australia Pty Ltd ACN 608 029 929; 3. Shield Resources Pty Ltd ACN 606 459 885; 4. Shield lntermodal Pty Ltd ACN 149 734 814; 5. Shield Hardwood Pty Ltd ACN 600 290 364; 6. OZ Plantation and Hewer Pty Ltd ACN 610 169 830; 7. Shield Holdings South Australia Pty Ltd ACN 652 072 663; and 8. Thomas Gem Stone Pty Ltd ACN 165 580 334. (collectively, the "Shield Companies").
As the Shield Companies have experienced a downturn in business over the course of the past two years, the third defendant has not taken drawings or a wage for his involvement with those companies since 31 May 2021. This is corroborated by a letter from his accountant (Ex 2, 93). He does do not know, at this time, when he will be paid a wage or be able to take a drawing from any of the Shield Companies. He does not have employment in addition to his involvement in the Shield Companies.
The only personal asset of value he owns is a 2017 Mercedes Benz, model GLS 3500 that is unencumbered.
He has a single personal bank account with Westpac, with an account number ending in XXX. As of 18 February 2022, the bank account ending XXX has a positive balance of $2,150.03.
He does not have any further personal assets to support himself or his family.
He has a Mastercard credit card. As of 18 February 2022, he has a debt of $14,154.65. He has attached copies of his bank account savings account this credit card accounts showing their current balance. The third defendant's calculates his personal net cash position to be negative $12,004.62. He considers himself to be in debt.
He says that he does not regularly contribute to the marital home expenses. In most circumstances, his wife, Emma, pays the debts of the day-to-day expenses related to the marital home, including paying for groceries and other incidental expenses. It appears that he does buy some food for the family, there are payments for the butcher and takeaway meals shown in his credit card printout.
Given his net cash position, he says that he does not consider that he has sufficient personal funds to support Emma and his family financially.

Solicitor's fees

Both the second and third defendants have been informed by their solicitor and believe that the future legal fees from now until the conclusion of this hearing is likely to be in the range of $50.000 - $75,000. They have also been informed by their solicitors and believe that there are outstanding legal fees in this matter of approximately $60,000. They have been informed by their solicitors and believe that the solicitors require payment of $160,000 in respect of future fees to be held in their trust account, in relation to these proceedings by approximately 31 March 2022.
Williams Michael Elliot, the second defendant's solicitor in his affidavit affirmed 14 March 2022 gives evidence that corresponds with the second and third defendants. At [27]-[29] he says: "I have access to the accounting system of our client files. On 14 March 2022, I accessed the records for the client for this proceeding. My investigations determined that between the three defendants, the total outstanding fees are currently $121,723.71 outstanding, to which each defendant is apportioned 1/3rd liability. … Emma and Thomas, I have requested that Emma and Thomas pay $60,000 before the end of March 2022, although their liability is closer to circa $80,000. I have also requested the total of $160,000 be placed in my firm's trust account for the purpose of completing the defendant's evidence and steps involved with an incidental to preparation for an attendance at a 3-day trial inclusive of Counsel's fees. Emma is liable for $53,333 of those monies to be paid into trust. Combined with Thomas, the two of them will need to pay our firm's trust account $106,666 before the end of March 2022."
The solicitors for the defendants require payment of $160,000 into their trust by the second and third defendants by 31 March 2022, in respect of past and expected future fees, in order to properly defend the claims against them at trial. The second defendant's apportionment of the their legal fees is 1/3 x $80,000 + $53,333.00.

The plaintiff's case

It is accepted, for the purposes of this application, that the plaintiff has a prime facie case in respect of its claim for $1.15M. However, the claim for $2M is without any merit at all. The Court would not order repayment of more than was ever advanced.
In these circumstances, it is submitted that the plaintiff, on any view, ought not be able to restrain the assets of the second defendant beyond any amount for which she could actually be liable.
The plaintiff also claims that second defendant charged her former property at Waterhouse Ave, St Ives, as security for Shield's repayment to the plaintiff.
Finally, since the matter was last before N. Adams J, the second defendant's husband, Mr Feng (Thomas) Ye has been joined to the proceedings as the third defendant. Allegations of misleading or deceptive conduct are made against the third defendant.

Balance of convenience

In balancing the interests of the parties, the second defendant submits that the starting point is that the current state of affairs has resulted in the plaintiff effectively having restrained far more of the second defendant's assets than he can realistically expect to achieve against her in the proceedings.
The plaintiff does not have any proper basis to seek the return of more than he says he actually advanced ($1.15M). Yet, he has engineered a situation where he has presently restrained more than even the claim for $2M, which on any view is not maintainable.
The plaintiff presently has some $2.750M of the second defendant's assets restrained (more than $2.1M in equity in her current property and more than $650,000 in court). For a claim that is realistically for $1.15M, plus arguably interest and costs, that is manifestly unjust.
On any view, the plaintiff should not properly be allowed to have restrained more than his claim for $1.15M is worth. In any event, even if the $350,000 now sought is released, the plaintiff is still left with some $2.4M of the second defendant's assets restrained.
The unfairness of the present situation, and even the situation if the orders sought by second defendant now are made, is only exacerbated by the fact that the plaintiff resides overseas (see the prior decision at [2]). The plaintiff's undertaking as to damages is worthless, and to date he has been ordered to pay only $50,000 as security for the defendants' costs of these proceedings (see the prior decision at [50]).
If the orders sought by the second defendant are not made, the plaintiff will be allowed to continue to starve the second defendant and her husband of funds. Accordingly, they would be deprived of natural justice in being allowed a proper opportunity to defend the significant claims against them.
By contrast, as things presently stand, if the plaintiff is unsuccessful in his claim, he can simply walk away from any obligation to properly compensate the defendants for their costs of these proceedings, beyond the $50,000 he has paid as security for their costs.
The undertaking offered by the second defendant outweigh the balance of convenience even more heavily in favour of the relief the second defendant seeks. It means that the plaintiff is no worse off, in terms of security, than he would have been if the Waterhouse Ave property was charged.
The second defendant ought not have to explain the ways in which she wishes to use her money, beyond any amount that the plaintiff should properly have been allowed to restrain. In any event, the purposes for which she requires the funds are entirely proper.
Most importantly, she requires the funds to ensure that she and her husband are able to pay lawyers to properly represent them in defending the serious claims made against them in these proceedings. The claims against the third defendant have only served to enlarge the dispute.
As the second defendant's savings are rapidly diminishing, she also wishes to use the funds to pay her expenses, including her increased mortgage and school fee payments.
Finally, the second defendant wishes to start a business venture that would see her earn income, as her financial position is increasingly dire, and she needs the use of the funds sought urgently.
The second defendant should not be deprived of the use of her funds, particularly where she proposes to use them for entirely proper purposes.

The plaintiff's submissions

The plaintiff submitted that the notice of motion filed 15 December 2021 is the second defendant's third attempt to obtain the release of monies representing the net proceeds of sale of the property charged by her with repayment of the first defendant's debt to the Plaintiff.
Once again, the second defendant has not sought written consent of the plaintiff and does not seek to vary the freezing order, which applies to her residential property, to permit the raising or securing of any funds allegedly required. Despite claiming to have equity in that property exceeding 50% of its value, she asserts without evidence of any attempt, that she cannot raise a loan against it.

Evidence

Despite the criticisms of her reliance on "assertions", unsupported by documents or primary facts, in her evidence on the hearing before N. Adams J, particularly at [48] of the prior decision, the same fault is to be found in the second defendant's evidence presented on this motion. Such evidence can only be admitted as evidence of those assertions, rather than their truth.
There was no basis for the suggestion of N.Adams J (at [61] of the prior decision), that from that money "some form of carve out was always envisaged" by Wright J or Black J.
Furthermore, in the prior decision at [56], N. Adams J found, that "such arrangements can be varied if new facts come into existence which may render enforcement unjust", after consideration of the principle in Adam P Brown Male Fashions P/L v Philip Morris Inc (1981) 148 CLR 170; HCA 39.
The second defendant has not identified any material change of circumstances or evidence not reasonably able to have been adduced before Wright J, Black J, N. Adams J or the Registrar (on each of the notices of motion determined or dismissed), upon which she now relies. The only change from the hearing before N. Adams J apparent on the evidence is her assertion of an increase in value of her residential property, subject of the freezing order. If the property has increased in value, she has no need for payment out of Court because she ought to be able to raise funds genuinely required on the security of that property.

Release of monies subject of an asset-preservation Order

The second defendant seeks to have the Court once again fall into and compound the error made on hearing of her previous motion of treating the money representing the proceeds of sale of the plaintiff's security and subject of his claim in rem and the asset preservation order as 'her money'; no differently from her property, subject of the freezing order.
The plaintiff submitted that despite those and further criticisms of her evidence on the last hearing by N. Adams J at [28], [33], [38], [42], [48] and [57]-[60], including the admitted "number of omissions" from her affidavit of disclosure ordered by Wright J at [34]-[37], once again, the second defendant has failed to make full and frank disclosure of: her own, her family or her co-defendants' available income or assets, upon which she may be able to draw to meet any alleged need of funds, or her alleged liabilities and anticipated need of funds, or the alleged urgency of her application (filed almost 4 months ago without seeking an early return date) and why it cannot wait the further mere 2 months until the final hearing date (other than the need to pay legal fees for that hearing, only alleged in her 22 February affidavit).
Both the second and third Defendants have failed to disclose their interest in the 'Ye Family Trust' or through the trust: its major shareholding in the first defendant, and hence in the numerous companies, in which it holds shares, 3 real property titles in Queensland, in the Valuer-General's estimate of land value alone, worth almost $1M, only disclosed at cost in its financial statements, its obvious ability to secure a bank loan in excess of the land cost and its total bank loans of just $479,011 disclosed in its Balance Sheet, their interest in its "loans from shareholders" and onward "loans to related companies", both in the order of $9m, and the benefit received by them from recovery of about $600,000 from those companies and subsequent reduction of their loans between 1 July 2019 and 30 June 2020 or what they did with that money, and what further recoveries have been made by the trust from the related companies or what income has been received from its land holdings/developments since the 2020 financial statements.
The third defendant claims in his affidavit of 22 February 2022 at [6] not to have taken 'drawings or a wage' from the 'Shield Companies' listed at (5) of his affidavit since 31 May 2021; this date being convenient, because it is the month after the last Profit & Loss Statement of Shield Resources P/L produced on notice and by order of 28 May 2021 and tendered at the hearing before N. Adams J. He claims to now have no "personal assets", other than a motor vehicle and $2,150 in the bank, and to be in debt on a credit card. He asserts, apparently not as a recent change of habit, that he does 'not regularly contribute to the marital home expenses'. Presumably the latter assertion is intended to justify the second defendant claiming money from the plaintiff to support him, their son and his private school. The plaintiff submits that on the available evidence, these assertions cannot be accepted.
The first defendant's profit and loss statement for July 2020 to April 2021 records $119,002.08 paid in 'legal and professional fees', whereas its financials for the year ended June 2020 records none, consistent with the first defendant paying the legal fees incurred in common defence by the defendants of these proceedings commenced in March 2020.
The money released by N. Adams J was expressly to pay the second defendant's own anticipated "personal expenses and legal fees" and she was released the full amount sought for those purposes. No explanation has been offered as to why the amount then sought has proven inadequate nor indeed as to what became of it.
Notably N. Adams J refused to release the amount sought to be paid to the First Defendant, described as "her husband's business" (prior decision at [66]), but it would appear she again seeks the release of monies for the benefit of it and her husband, the third defendant.
In support of the claim for legal fees in the present motion, the second defendant fails to say whether she or any other defendant has asked the solicitors or they have refused to accept an alternative security for their costs by way of a charge over the residential property. The second defendant also fails to say how much of these costs the first defendant is in a position to pay, admitting by her complaint, that it can pay in reduction of the third defendant's drawings.
The first defendant's solicitor, filed the motion with the support only of the second defendant's December affidavit, which suggested she needed the release of funds to meet no more, than a total of $50-60,000 in legal fees [at (25)-(26) & (36), in addition to her mortgage and car loan repayments and son's school fees. The hearing date had been set long before that affidavit. No explanation is given by Mr Finch in his or the defendants' February affidavit for his additional, late demand in the 22 February 2022 affidavits of security for at least another $160,000 in fees. Nor is there any attempt to prove the reasonableness of this demand, as required by Garling J in Birketu (No 2). In comparison, the costs estimate by the plaintiff's solicitor for the hearing in her affidavit are substantially less.
No explanation is given of why his fees could not be secured by equitable charge over the defendants' residence, such as he submits the plaintiff ought accept in place of his interest in the funds in court. No suggestion is made of any request for consent by the plaintiff to such a charge or second mortgage or other dealing with the residential property having been made (as provided for in the freezing order).
It appears clear, that at least $160,000 of the total of $220,000 now sought to be released to pay Mr Finch is not for the benefit of the second defendant, but for the benefit of the first and third defendants. She has no obligation to pay their legal fees and the plaintiff similarly has no obligation to forgo or diminish the value of his security to pay them.

Living Expenses

As noted above, there is no predisposition of the Court to exclude living expenses from an asset-preservation order, let alone to release money paid into Court for that purpose. In any event, without a full and frank disclosure of the assets available to meet such expenses, the Court cannot assess the degree of actual need. No evidence has been adduced to support the bare assertions made, other than: Mercedes Benz payments of $1,842.21 per month, purchased August 2020 for $121,535.76 and the monthly mortgage payments of $10,282. The second defendant has $43,107 in just one of her many bank accounts and is thus well able to meet those expenses up to and after the final hearing date in May 2022. No explanation or intervening bank statement to support one is given for the reduction from $74,447.
Of course, the mortgage payments on the residence of her family and the monthly shopping and other family expense payments are made for the benefit at least also of the third defendant and their son, so that the allegation, that she must pay them all from her own funds (and those of the plaintiff in Court) is disingenuous. When it suits her, she refers inconsistently to "our marital asset pool" (as per her 22 February 2022 affidavit [28]), from which of course she is able to draw, but which she has declined to disclose.

The second defendant's submissions in reply

In submissions in reply, I asked the second defendant's Counsel to explain the properties in Queensland, the trusts and the money, not just in Shield Resources but other companies held by the second defendant (T36.43-45). Counsel for the second defendant stated that on his instructions funds are lent from Shield Resources to the first defendant to fund Shield Resources business, but Shield Resources is not a party to this application for the payment out of funds held by the Court.
The second and third defendant's are both beneficiaries under that trust. One assumes other parties are beneficiaries. While Counsel for the plaintiff referred to $119,000 being paid by Shield Resources, these fees appear to be related to Shield Resource in other Common law proceedings in this division of the Court. Counsel for the second defendant submitted (at T37.15-21): "In respect of Shield the company that my learned friend now says is part of a group that is extremely wealthy, he said these words, behind tab 14, transcript page 16, before Adams J: "This company, on this document, is plainly insolvent". So whilst he has been willing to say there's assets available in this Shield Group to call upon for these legal fees, at the time was saying that the company is insolvent, it had no money, when it suited his case at that time."
At this point, Counsel for the plaintiff interposed and submitted that there is a liability shown on their documents of $8M corresponding to the amount of their assets; but when you look at the financial statements we now have from the notice to produce, the $8M is owed to the trust and therefore to the defendants. (T37.31-35)
Counsel for the second defendant took me to evidence that in 2020 where the Brilliance Group paid about $59,000 in wages. These wages were paid to other employees as well as the second defendant. The second defendant then stopped working for Brilliance Group. The Toyota Rav 4 is owned by the Brilliance Group not the defendant. It is subject to a hire purchase type arrangement. So it can be considered both an asset and a liability. The third defendant's Mercedes was bought in 2017 and is unencumbered. (T38.20-33)
Counsel for the second defendant further explained that the second defendant's Mercedes was purchased in August 2020 at the time when she owned two properties and prior to these issues emerging. For the financial year ending 30 June 2020 the second defendant's total income was $27,500 after she stopped working for the Brillance Group. For the financial year ending 30 June 2021, the third defendant's income was $137,500. A letter from the third defendant's accountant (Ex A(1), 93) states that he has not received any distribution or loan repayment since 1 July 2021. Counsel for the second defendant stated that the third defendant does not know when he will be able to receive any distribution or loan repayment. (T40.43-47)

Resolution

The material charges in the second defendant's circumstances are: firstly the current property has increased significantly in value; the second defendant's need to pay living expenses, care repayments including her mortgage and school fees that have increased; her savings have depleted and will soon be exhausted; she has expected the previous $100,000 paid out of Court; she now requires funds to pay lawyers to allow her and her husband to defend these proceedings; and finally the costs involved in defending the expanding case, as an additional defendant has been joined.
Counsel for the plaintiff made lengthy submissions, both in writing and orally, critical as to the second and third defendant's disclosure of their assets and liabilities. This criticism may have been well founded in the past. At the outset of the hearing before me, a large number of documents were produced by the second defendant in answer to a notice to produce issued by the plaintiff. The documents produced go a long way to substantiate the second defendant's evidence as to her financial position that is contained her two recent affidavits. I accept her evidence. Despite the lack of corroborating evidence before N. Adams J, her financial documents recently produced in answer to the Notice to Produce appear to be correct and her estimate of the money she required for monthly household schooling mortgage repayments, car repayments before N. Adams J has been fairly accurate.
In applying what Henry J stated in Human Group (No 2) to the situation here, His Honour stated at [111]-[112] that in cases concerning proprietary claims, a "careful and anxious judgment" is required whereby the Court must assess whether any injustice to a plaintiff would be outweighed by the potential injustice to the second defendant if she were precluded from accessing funds and therefore perhaps denied the opportunity to advance an arguable defence.
The plaintiff has a proprietary interest in the moneys paid into court. An undertaking is given by the second defendant that if she is entitled to an equitable charge over the Waterhouse Ave property to secure money she owes the plaintiff, she agrees to grant the plaintiff a charge over her current property. If the charge over the Waterhouse Ave property is found to exist, then the plaintiff has an equitable interest in second defendant's current property.
I am required to weigh of the interests of justice that involves a consideration of whether the second defendant has shown that it is necessary for her to have access to funds over which a proprietary claim is made in order to defend the proceedings and other relevant discretionary factors that may be relevant, such as delay: see Birketu at [64]-[68]. The balance of funds paid into Court as security for costs has been reduced to $653,200.62. While I appreciate that the valuation in her current property has some limitations, it appears that she has $2.106M equity (or thereabouts) in her current property where she and her family reside. As set out earlier, the second defendant offers an undertaking on the same basis as the Court of Appeal Order (1) dated 16 June 2021. It is my view that if the second defendant are precluded from accessing funds she will be denied the opportunity to advance an arguable defence at the upcoming trial.
I accept the second defendant's evidence that her former savings have decreased to $45,519.00. Her current estimated monthly expenditure is $21,891.85. If I granted a further sum to be paid, on the evidence, from 22 February 2022 to 22 May 2022 (to just after the hearing (3 months)) the second defendant will require $21,891.85 x 3. That equates to the sum of $65,675.55. If she exceeds that amount, I have taken into account that the second defendant will be left with some of the $45,000 currently in her savings account. The second defendant and her solicitors evidence that as at 14 March 2022 the second defendant is required to pay 1/3 x $80,000 ($26,666.00) + $53,333. That equates to $80,000 (rounded up) into trust by the end of March 2022 in order for her legal representatives to properly defend her at trial.
The second defendant would require the sum of $65,400.00 (living expenses etc) + $80,000.00 for past and future legal fees. This total is the sum of $145,400.00.
I decline to release to release any funds for the second defendant to reopen her business or develop an alternate business venture before the trial. It would be unfair to the second defendant not to be able to pay her household expenses, her son's school fees and the legal fees to secure her legal representatives defending her at the upcoming trial. There is still $2.106M equity in the property that is subject to a freezing order so the plaintiff will be able to satisfy the judgment of $1.5M. It is certainly not so clear whether the plaintiff's claim for the full $2M will be successful.
As the third defendant has now been joined as a defendant, he provided evidence as to his current his current financial position that is largely supported by corroborating financial documents. He regards himself as being in debt.
As to whether or not the second defendant should be permitted to have a payment of $145,400.00 out of Court, I have to balance the potential injustice to the plaintiff in releasing the funds to the second defendant against the injustice to the second defendant should the funds not be released.
After much anxious and careful consideration, it is my view that the balance of convenience favours the second defendant. This is because I am satisfied that it is unfair to the second defendant not to have some funds released to pay her living expenses, mortgage repayments, car repayments and son's school fees. But more importantly, solicitors have notified the second defendant (and third defendant) that legal fees of $160,000 are required to be paid by 31 March 2022 and if funds are not forthcoming she will be severely prejudiced by not having legal representation at the upcoming trial . I acknowledge that this date will not be met but the funds should be available shortly after. If she is not provided with funds she will not have legal representation at the trial. This is unjust. Although the funds fall within a propriety claim, there will be a reduced balance of $507,800.62 funds remaining in Court as Security for Costs. The plaintiff will be protected by the second defendant's undertaking concerning an equitable charge over her current property. Upon the second defendant's undertaking as set out in the Court of Appeal order dated 16 June 2021, I will make an order that $145,400 be paid out of Court to the second defendant.

Result

This result is that upon the continuation of the second defendant's undertaking as set out in the Court of Appeal order dated 16 June 2021, I will make an order that $145,400 be paid out of Court to the second defendant.

Costs

Costs are discretionary. In my view that the appropriate order for costs is costs in the cause as between the plaintiff and the second defendant.

The proposed Court orders:

My proposed orders are: 1. The second defendant continues her undertaking to the Court that if it be determined in proceedings no 2020/95833 that the plaintiff was entitled to an equitable charge over the property known as the Waterhouse Ave property, St Ives to secure monies owing by her to the plaintiff, she irrevocably agrees to grant to the applicant a charge over the Gibran Place property, St Ives (the second defendants current property) by way of further security for such monies as may be owed by the second defendant to the plaintiff to the extent that such monies would have been secured by the monies paid into Court by the second defendant on 3 January 2021 but for the additional payment of a further sum of $145,400.00 pursuant to these orders. 2. Costs are discretionary. In my view that appropriate order for costs is costs in the cause as between the plaintiff and the second defendant.
The parties are to advise me by return email if they are in agreement with the wording of the undertaking in proposed order (1). If the parties are in agreement I will make orders (1) and (2) and make an additional order that "The orders are to be 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: 05 April 2022

At a glance

Court

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Before

Source

Judgment (21 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (17)

Cited By (1)