FEDERAL COURT OF AUSTRALIA

Xu v Wan Ze Property Development (Aust) Pty Ltd (in Liquidation) [2014] FCA 610

THE COURT ORDERS THAT:

1.    The applicant and the applicant in NSD1341/2012, and each of them, pay the respondents’ costs of the proceedings to set aside the Bankruptcy Notice BN 5139 on an indemnity basis in respect of the issues of fraud and bad faith and on a party-party basis in respect of the other issues.

2.    Until further order, the applicant be restrained from removing from Australia or in any way disposing of, dealing with or diminishing the value of any of her assets in Australia (‘Australian assets’) up to the unencumbered value of AUD$2,374,995.70 (‘the Relevant Amount’).

3.    For the purposes of these orders, Ms Xu’s assets include:

(a)    all of her assets, whether or not they are in her name and whether they are solely or co-owned;

(b)    all assets over which she has the power, directly or indirectly, to dispose of or deal with as if they were her own; and

(c)    the following assets in particular:

(i)    the properties known as 9 Nash Place, North Ryde, NSW (5/DP238562) and 11/64 Talavera Road, Macquarie Park, NSW (11/SP71334);

(ii)    the assets of her business known as Gloconnect Pty Ltd (A.C.N. 106 027 730) or, if any or all of the assets have been sold, the net proceeds of the sale; and

(iii)    any money in any account in the name of Pei Xu at any Australian bank, credit union, building society or other approved deposit taking institution.

4.    These orders do not prohibit Ms Xu from:

(a)    paying her ordinary living expenses;

(b)    paying her reasonable legal expenses;

(c)    dealing with or disposing of any of her assets in the ordinary and proper course of her business, including paying business expenses bona fide and properly incurred.

5.    These orders may be entered forthwith.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The applicant and the applicant in NSD1339/2012, and each of them, pay the respondents’ costs of the proceedings to set aside the Bankruptcy Notice BN 5138 on an indemnity basis in respect of the issues of fraud and bad faith and on a party-party basis in respect of the other issues.

2.    Until further order, the applicant be restrained from removing from Australia or in any way disposing of, dealing with or diminishing the value of any of his assets in Australia (‘Australian assets’) up to the unencumbered value of AUD$2,374,995.70 (‘the Relevant Amount’).

3.    For the purposes of these orders, Mr Ren’s assets include:

(a)    all of his assets, whether or not they are in his name and whether they are solely or co-owned;

(b)    all assets over which he has the power, directly or indirectly, to dispose of or deal with as if they were his own; and

(c)    the following assets in particular:

(i)    the property known as 9 Nash Place, North Ryde, NSW (5/DP238562);

(ii)    the assets of his businesses and companies in which he has an interest known as Gloconnect Pty Ltd (A.C.N. 106 027 730), Modern Corporation Pty Ltd (A.C.N. 146 292 015) and Western Property Development Pty Ltd (A.C.N. 134 988 640) or, if any or all of the assets have been sold, the net proceeds of the sale; and

(iii)    any money in any account in the name of Ke Qin Ren at any Australian bank, credit union, building society or other approved deposit taking institution.

4.    These orders do not prohibit Mr Ren from:

(a)    paying his ordinary living expenses;

(b)    paying his reasonable legal expenses;

(c)    dealing with or disposing of any of his assets in the ordinary and proper course of his business, including paying business expenses bona fide and properly incurred.

5.    These orders may be entered forthwith.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    In these matters I made orders on 12 May 2014 which, in substance, dismissed the application by each of the applicants to set aside the bankruptcy notices, BN 5138 and BN 5139, issued on 20 August 2012: see Xu v Wan Ze Property Development (Aust) Pty Ltd (in Liquidation) [2014] FCA 461.

2    On that date I directed that the parties bring in short minutes in relation to any orders consequential on that dismissal, and dealing with costs. In light of a foreshadowed application on behalf of the second and third respondents I directed that any application on their part in relation to a costs order against the former solicitor of the applicants be filed and served by 26 May 2014. I also extended time for compliance with the bankruptcy notices until 4.30 pm today, 6 June 2014.

Costs

3    The matter in dispute is whether or not costs should be awarded in favour of the respondents against the applicants on an indemnity basis or on a party-party basis, the applicants accepting that costs should follow the event and that they should pay the respondents’ costs on a party-party basis.

4    Although the applicants failed and, in particular, failed in relation to the claim that the bankruptcy notices should be set aside for fraud on the Supreme Court of New South Wales and bad faith in relation to the application brought in that Court, the factual basis of the claim of fraud was wider and fraud on the Supreme Court was not the only basis on which the applicants sought to invoke the Court’s jurisdiction to go behind the judgment of that Court on which the bankruptcy notices were founded.

5    I therefore do not accept the submission that the applications to set aside the bankruptcy notices were in the circumstances “a frivolous and thoroughly unjustified proceeding” in their entirety. I also do not accept the submission that the applicants, properly advised, should have known that they had no chance of success in relation to the entirety of their applications so as to found a presumption that the proceedings were commenced or continued for an ulterior motive or because of a wilful disregard of the known facts or the clearly established law: see generally Dal Pont, Law of Costs (3rd ed, 2013) at paragraph 16.51, referring to Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401. In my opinion it is not one of those cases where it is appropriate to order costs on an indemnity basis in relation to the entirety of the proceedings in this Court.

6    I do, however, agree, in light of the history of the litigation in the Supreme Court of New South Wales in relation to the allegations of fraud and bad faith, culminating in the judgment of that Court on 13 March 2013, In the matter of Wan Ze Property Development (Aust) Pty Limited (in liquidation) [2013] NSWSC 189, and the insubstantial evidentiary basis on which the claims of fraud and bad faith were put on the applications to set aside the bankruptcy notices, that the respondents should have their costs of those claims paid by the applicants on an indemnity basis. I take into account in this respect the correspondence between the solicitors annexed to the affidavit of Irene Szikla affirmed 5 June 2014. I also note the practical difficulties which may be inherent in such an order, pointed to by counsel for the respondents.

7    Otherwise, in my opinion the appropriate order is that the applicants, and each of them, pay the costs of the respondents on a party-party basis, as agreed or assessed.

8    I do not accept the submission by counsel for the applicants that the making of costs orders against the applicants should be postponed until the outcome of any application for costs orders against the applicants’ former legal representatives is known.

9    I now turn to that question. The first respondent seeks orders that leave be granted to issue subpoenas to the applicants’ former solicitors and barrister with respect to legal advice provided to the applicants and that leave be granted to the first respondent to make an application for costs orders, presumably against those persons, within a month of the determination of the appeal proceedings in the New South Wales Court of Appeal. Similarly, the second and third respondents state that they intend to file an application for a personal costs order against the former solicitors for the applicants and that that may lead to an application for a personal costs order against the applicants’ then counsel.

10    I say no more about either of those applications other than to note that they are not presently before me and the appropriate course is to await the filing of any such applications, supported by appropriate affidavits, including, in relation to the second and third respondents, a short explanation for why it was not possible to comply with order 6 made by me on 12 May 2014. Any question of subpoenas, in my view, should await the filing of any such application. Before leaving that topic I note that, as it seems to me at present, nothing out of the ordinary appears in relation to the position of the legal representatives, in that it seems their clients sought advice, they gave advice to their clients and the clients apparently acted on that advice.

11    For these reasons, in my view it is not appropriate to grant the leave sought by the respondents in relation to the issue of subpoenas. The first step, if the respondents be so advised, is to file and serve appropriate applications.

Undertakings

12    Next to be dealt with is the question of undertakings given by the applicants to the Court on 5 December 2012, renewed on 14 May 2013 and extended up to the giving of judgment, which means the making of orders on the applications, which will be done later today. Counsel for the applicants told me he did not have instructions to continue those undertakings and, in the circumstances, it is appropriate to make orders, out of an abundance of caution, in the same terms as those undertakings so that there is no gap or potential gap which would allow the applicants to deal with their assets in light of the foreshadowed applications for the issue of sequestration orders on the part of the first respondent.

Liberty to apply

13    The final issue is that the applicants in their written submissions also sought an order that they have liberty to apply on three days’ notice in relation to an application to extend compliance with each of the two bankruptcy notices. In my opinion, this is not an appropriate order to make in the present circumstances. The applications to set aside the bankruptcy notices have been determined and there is no evidence before me to support the appropriateness of an order that the applicants have liberty to apply to extend time for compliance with the bankruptcy notices.

14    Counsel for the applicants told me that no application had been made for an extension, although one was intended in the future. In my view, the applicants have had sufficient notice to bring any such application and, more importantly for today’s purposes, to file any evidence on which they would seek to rely to support such an extension. I do not propose to make an order as sought by the applicants, with the result that time for compliance with each bankruptcy notice expires in accordance with order 7 made on 12 May 2014 at 4.30 pm today, 6 June 2014.

Conclusion

15    I will direct that these orders, when made, may be entered forthwith.

Associate:

Dated:    11 June 2014