FEDERAL COURT OF AUSTRALIA

Luo v Zhai (No 2) [2014] FCA 1367

THE COURT ORDERS THAT:

1.    The applicant’s statement of claim filed 20 November 2014 be struck out.

2.    The application filed 5 December 2014 be otherwise dismissed.

3.    The applicant pay the costs of today of the proposed third respondent and the proposed fourth respondent.

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

REASONS FOR JUDGMENT

1    By an interlocutory application filed 5 December 2014, the applicant, Mr Luo, seeks the following orders:

(1)    That the Applicant have leave to file an Amended Statement of Claim.

(2)    An order that this application be made returnable ………………….

(3)    The interlocutory application for Freezing Orders be heard instanter.

(4)    That the Applicant’s Statement of Claim filed 20 November be struck out.

(5)    That the Applicant have leave to join Yuan Han, Xiaohua Zou and Dongsheng Li to this proceeding.

(6)    Upon the Applicant giving to the Court the undertakings referred to in Schedule A in the form of the Freezing Orders attached, I make the following orders against each of the third and fourth respondents in the form of that order.

(7)    Upon the Applicant giving to the Court the undertakings referred to in Schedule A in the form of the Freezing Orders attached, I make the following (interim) orders against the fifth respondent in the form of that order.

(8)    Grant leave for short service of the originating process and interlocutory process on the third and fourth respondents.

(9)    Grant leave to serve the fifth respondent in the United Kingdom pursuant to Rule 10.43 and 10.44.

(10)    Such further or other orders as the Court sees fit.

2    The amended statement of claim referred to in the first order is not identified, but during the course of argument it became clear that it was in the form of a draft amended statement of claim which was annexed to an affidavit of Mr Peng and prepared on 4 December 2014. The proposed amended statement of claim arises in circumstances which are, to say the very least, at the cutting edge of procedure. I heard this trial on 14 and 15 October 2014, and all written submissions were received in respect of the evidence which had been taken by 26 November 2014.

3    At the time the case was heard there were two respondents, a Ms Zhai and her company Jantom Furniture Pty Ltd. The case was of a relatively straightforward kind. Mr Luo alleged that he had paid Ms Zhai around $800,000 for her business but that she had failed to provide to him the shares in that business or to return the $800,000 which he had paid her. It is that issue upon which I am reserved. That is to say, whether Ms Zhai can keep both the shares and the $800,000 or whether she is obliged to repay Mr Luo the money. After the proceeding was reserved, Mr Luo’s solicitor Mr Peng became aware that Ms Zhai appeared to be attempting to remove certain of her assets from the jurisdiction, and in particular to transfer them to three identified individuals, Yuan Han, Xiaohua Zou, and a resident of the United Kingdom, Mr Dongsheng Li.

4    Over three days before me, those representing Mr Luo sought to persuade me to make freezing orders against those individuals and also against Ms Zhai. For reasons I gave on 27 November 2014 in Luo v Zhai (No 1) [2014] FCA 1296, I refused the application for freezing orders against the three individuals I have mentioned, although I was persuaded to make them against Ms Zhai and her company. The principal reason I declined to make the freezing orders against the nominated individuals was because there were procedural obstacles to making orders of that kind which arose from the form in which the application was made.

5    I do not need to repeat those matters. It is that background which explains the application which has now been made and which, I think it may be fairly said, is a response to some of the procedural criticisms which were made on the last occasion. I do not think that, as it is framed, I could ever accede to the application which is presently made. The first and fifth orders travel, in effect, together and seek to amend the statement of claim by adding the three individuals to whom it is alleged Ms Zhai’s assets have been transferred.

6    In principle there is nothing wrong with the concept informing Mr Luo’s application, namely that he should in some way be permitted to recover from those to whom Ms Zhai has allegedly transferred her funds to avoid judgment. As was explained to me in argument, there are various ways of putting this, perhaps the most straightforward of which is as an allegation that the transfers to these individuals are fraudulent conveyances within the meaning of section 37A of the Conveyancing Act 1919 (NSW). It is one thing, however, to conceive of the existence of such a cause of action but another altogether to put it in the form which procedurally makes sense. I cannot accede to the first order that the applicant have leave to file an amended statement of claim, in effect joining these three individuals, without those three individuals being heard on that application.

7    In order for that to take place it would be necessary for there to be filed an interlocutory application seeking leave to amend not only, as is suggested in the document which is before me, the proposed amended statement of claim but also, and more importantly, an amended originating process joining these individuals to the proceedings. Although counsel for Mr Luo sought to persuade me that the originating process was part of the statement of claim and hence there was no problem with order 1, I confess this is not a view of the rules to which I feel able to accede.

8    I therefore cannot make orders 1 and 5 because the parties who are affected by them have not been heard. I am not willing to make order 3 that the application for freezing orders be heard instanter, effectively because, as things presently stand, there is nothing different before me this morning to that which was before me on 27 November 2014.

9    The fourth order requires some explanation. On the previous occasions, during a time at which the applicants were groping towards some form of procedural regularity, there came into being a statement of claim on the Court file in addition to the statement of claim which already existed and which provided the vehicle on which the matter had been tried. There was therefore the procedural oddity that there were on the Court file two pleadings. Order 4 of the interlocutory application seeks an order that that second pleading be struck out. It is true that it travels, in a cognate sense, with the application to amend the pleading and add the three nominated individuals. But nevertheless the point, even if those applications are unsuccessful, remains sound that the pleading is a procedural irregularity. I will strike it out as is sought.

10    That leaves orders 6 and 7, which I would not be inclined to make because circumstances have not in any material way altered since the last occasion. Orders 8 and 9 are heading in the right direction, if I may say with respect, but unfortunately the documents to which they refer do not sufficiently procedurally add up for it to be worthwhile for me to make orders of that kind.

11    One gets to the situation, therefore, that although I am satisfied that there is an arguable case against the nominated respondents, and although I do think that had an application which was procedurally regular been made to me at some stage in early November I probably would have acceded to it, I do not find myself able to accede to what is now suggested. It is procedurally misconceived. It is always regrettable to see an application which has merit and which ought to succeed being defeated due to a negative encounter with the Court’s rules and procedures. However, there was nothing complicated about the application with which the applicant was confronted, and there is a limit to what I can do to overcome the applicant’s failure to grasp elementary procedural concepts. The application is dismissed, other than in respect of proposed order 4.

Associate:

Dated:    6 January 2015