FEDERAL COURT OF AUSTRALIA

Luo v Zhai (No 3) [2015] FCA 5

THE COURT ORDERS THAT:

1.    Leave be granted to the applicant to seek in the United Kingdom a freezing order against the first respondent, Mr Dongsheng Li and Ms Susie Li to the extent that leave is necessary.

2.    Costs be reserved.

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

REASONS FOR JUDGMENT

1    This matter arises from applications for freezing orders by the applicant, Mr Luo, against the first respondent, Ms Zhai, which were pursued by him after the trial was completed and judgment was reserved. Mr Luo took this course because he had become concerned that Ms Zhai was attempting to divest herself of assets so as to render nugatory any judgment he might obtain. On 27 November 2014 I granted Mr Luo a freezing order against Ms Zhai and her company, Jantom Furniture Pty Ltd, restraining both from removing assets from Australia: Luo v Zhai (No 1) [2014] FCA 1296. At that time, the evidence satisfied me that Ms Zhai was attempting to divest herself of assets. Part of the evidence consisted of a transfer of $500,000 from the Zhai Family Trust to an account with Barclays Bank in Bristol in the United Kingdom held in the name of Mr Dongsheng Li. This transfer had occurred on 11 October 2014, some months before the freezing orders were sought. Consequently, it was not caught by the freezing order made by me on 27 November 2014.

2    I was nevertheless of the view which I recorded at [20]-[21] in Luo v Zhai (No 1) that there was a respectable case that the transfer to Mr Li was an attempt by Ms Zhai to divest herself of assets in advance of an impending judgment. Mr Luo had sought to have me grant orders against Mr Dongsheng Li to restrain him from dissipating the contents of the bank account in Bristol. This was a rather pointless exercise from a practical perspective because, leaving to one side the procedural difficulties involved in making such an order, its enforcement would be practically impossible or at least very difficult. If Mr Dongsheng Li ignored the Federal Court’s order (assuming for the sake of argument that he could be served with those orders) there would be precious little this Court could do other than arrest him were he ever to come to Australia. This circumstance rather suggested that what Mr Luo needed in relation to Mr Dongsheng Li was not orders from this Court but instead orders from an English Court which could be easily enforced there.

3    That course was not initially taken. Instead, Mr Luo attempted to have me make orders freezing assets out of the jurisdiction in the name of a person resident out of the jurisdiction who was not a party to the proceeding before this Court. The procedural difficulties with this approach were many. Mr Luo’s second attempt to surmount these difficulties was rejected by me in Luo v Zhai (No 2) [2014] FCA 1367 on 11 December 2014.

4    During the actual hearing on 11 December 2014 my associate coincidentally received an email from Detective Sergeant Hares of Avon and Somerset Police advising that a person called Susie Li had attempted to operate Mr Li’s account by withdrawing large amounts of money and had been arrested on suspicion of money laundering on 9 December 2014. DS Hares sought any information which this Court had about the matter. I proceeded to dismiss Mr Luo’s application despite this colourful material because of the procedural difficulties which it faced.

5    Mr Luo’s solicitors have been busy since 11 December 2014. They have concluded that their best course is to seek injunctive relief in the United Kingdom against Mr Dongsheng Li and Ms Susie Li. A solicitor, Mr Humphreys, has been retained in the United Kingdom and he has explained fulsomely the process for obtaining an injunction in the United Kingdom both as a matter of substance and procedure as well as expressing some puzzlement as to the procedural state of affairs in this Court, a sense of puzzlement which, with respect, I share.

6    When I granted Mr Luo the freezing orders he sought against Ms Zhai on 27 November 2014 I did so on an undertaking (No 7) proffered by him that:

‘The applicant will not, without leave of the Court, seek to enforce this order in any country outside Australia or seek in any country outside Australia an order of a similar nature or an order conferring a charge or other security against the respondents or the respondents’ assets.’

7    The evidence before me suggests that Barclays Bank will be at liberty to deal with the money in the account after 15 January 2015 (it being temporarily frozen by the bank or the police – the evidence is not entirely clear). Any injunction in the United Kingdom will need to be secured prior to that time. However, the applicant arguably cannot begin proceedings in the United Kingdom against Mr Dongsheng Li and Ms Susie Li because of undertaking No 7. It was therefore for that reason that Mr Luo has again applied to me – this time urgently – for a grant of leave to permit such a proceeding to be commenced in the United Kingdom.

8    When the matter was called on for hearing this morning Ms Zhai was very ably represented by Mr D’Souza of counsel. Mr D’Souza submitted that I should adjourn Mr Luo’s application to 22 January 2015 or alternatively that I should disqualify myself from hearing it. The point of both applications was essentially the same and was that on granting the initial freezing order against Ms Zhai on 27 November 2014 I had expressed the view that Mr Luo had a ‘good arguable’ case for the relief he sought at trial and that I had formed a negative view about Ms Zhai’s credit. I am not sure I would accept that the second matter is correct but I am content to assume its correctness for present purposes. It followed, so it was submitted, that a reasonable bystander might not think that I would bring a fair mind to bear on the question of whether leave should be granted. A related argument is to be advanced to me on 22 January 2015 by Ms Zhai when it will be said that I am disqualified from delivering the trial judgment upon which I am presently reserved for similar reasons. The existence of that listing provides the explanation for the proposed adjournment.

9    I do not think, in relation to Mr Luo’s present application for leave, that there is a reasonable apprehension of bias. Ms Zhai’s case before me on 27 November 2014 was that the money in the account in Bristol was not hers but Mr Dongsheng Li’s to whom she had repaid the money as a loan. If that case is ultimately accepted then it will follow that Ms Zhai has no interest in whether Mr Luo gets his freezing orders or not. On this view of affairs, it will be entirely Mr Dongsheng Li’s problem. I do not accept therefore that a reasonable bystander would think there to be a reasonable apprehension of bias in my determining whether I should permit Mr Luo to pursue Mr Li in the United Kingdom. For that reason, I did not recuse myself from the present application and did not adjourn it to 22 January 2015.

10    In what circumstances should an applicant such as Mr Luo be released from an undertaking not to commence Mareva style proceedings in another jurisdiction? The order I made against Ms Zhai was not international in operation but simply prevented her from removing assets from the jurisdiction. By the time the order was made on 27 November 2014 she had already transferred the $500,000 to Mr Dongsheng Li in Bristol on 11 October 2014. This is not a case, therefore, where a worldwide freezing order has been made against a respondent and it is sought to give that order effect in a particular jurisdiction by the seeking of local freezing orders. Rather this is a case where the English Courts will be asked to assist the exercise of this Court’s jurisdiction over the subject matter of the trial by ensuring that Ms Zhai does not dissipate her assets to frustrate any adverse judgment. Mr Humphreys has given evidence that the English Courts have such a jurisdiction. Consequently, the grant of leave to Mr Luo is likely to have utility.

11    If Mr Luo had been able to cut through the procedural undergrowth on either of the last two occasions I would, as indicated in both sets of reasons, have been willing to grant injunctive relief. Mr Luo’s problems related not to the merit of his application but the manner of its presentation. The fresh material put before me on this occasion includes contradictory evidence on what is going on with the bank account with Barclays Bank. There is evidence that Ms Li told Barclays Bank that the reason she wished to operate the account was because the money was the subject of a court order in Australia and so had to be transferred as quickly as possible. On the other hand, when arrested she told the police that the money paid into the account was a repaid loan to Mr Dongsheng Li. Without resolving this inconsistency it hardly allays any concerns one might have that the money was being dissipated to frustrate this Court’s processes. If it were a question for me I would unquestionably grant an injunction.

12    As it is, the question for me is whether I should grant leave to pursue such an application in the United Kingdom. Mr Wilmoth of counsel, who is new to this case, usefully submitted that guidance on the exercise of the discretion with which I am charged could be had from the Court of Appeal’s decision in Dadourian Group International Inc v Simms [2006] 1 WLR 2499. That case was concerned with a similar, although not identical, situation. There a worldwide freezing order had been made in the United Kingdom, an undertaking proffered in very similar terms to the one given in this case (i.e. not to commence ancillary foreign proceedings) and an application made to be released from that undertaking in order to commence such ancillary proceedings. In this case, of course, there is no worldwide freezing order in place. However, I consider that the principles outlined by the Court of Appeal have just as much application in a case such as the present. The Court set down eight guideline principles which I have modified slightly to fit the present procedural context.

(1)    The grant of leave should be just and convenient for the purpose of protecting the trial court’s jurisdiction and it should not be oppressive to any of the parties in the trial court proceedings or any third party. Here I consider this satisfied. The orders to be sought are just and convenient to that end. The oppression referred to here is, in the main, the proliferation of multiple proceedings in several jurisdictions. Given Ms Zhai’s posture that she does not own the money in question I see no prejudice to her at least whilst she maintains that position. No doubt there will be some burden for Mr Dongsheng Li and Ms Susie Li but this burden seems to me proportionate to the interests of Mr Luo in not seeing his judgment frustrated.

(2)    All relevant circumstances need to be considered. The underlying issue is whether Mr Luo has an arguable case against Ms Zhai. As I observed on the first application, I am in the perhaps unique position of having already heard the trial so that I am able to assess that issue with some clarity. I remain of the view that Mr Luo has a good arguable case to obtain the return of the $800,000 he paid Ms Zhai for the shares she has not delivered to him. I do not think the factual circumstances surrounding the transfer of the funds diminishes in any way the sense that Ms Zhai is seeking to evade the consequences of Mr Luo’s proceedings.

(3)    The interests of the applicant are to be balanced against those of the other parties. The granting of leave will of course expose Mr Dongsheng Li and Ms Susie Li to proceedings in the United Kingdom. On the other hand, unless leave is granted then, if what Ms Li appears to have told Barclays Bank is to be believed, it is unlikely that Mr Luo will have anything to execute against. Here I believe the scales favour Mr Luo.

(4)    The foreign relief to be obtained should not be superior to the local order. By this all that is meant is that an in personam remedy should not be exchanged for an in rem one. I do not think this risk exists in the present case. The remedy proposed is also only in personam.

(5)    The evidence should contain all the relevant material including information about the procedures and so on of the foreign court. Mr Humphreys has addressed these matters in detail and I am satisfied that a relevant process exists to obtain the suggested orders. I am also satisfied as to the identity of the proposed defendants.

(6)    There should be a real prospect that the assets to be enjoined should exist in the relevant jurisdiction. There is no question of that in this case.

(7)    There must be evidence of dissipation. As I have said, this evidence clearly exists.

(8)    Normally the respondent or third party should be given notice of the application. The timing of the present application makes this difficult. If I were now to require Mr Luo to notify Mr Dongsheng Li and Ms Susie Li of this application it is highly doubtful that this would leave enough time for an injunction to be sought in the United Kingdom prior to 15 January 2015. This exposes both to the prejudice that they will lose, in a practical sense, any right to appeal the decision to grant leave. However, the matters which might be put to the Court on that issue can just as readily be put to the English Court. Although this is not ideal, I consider the prejudice to Mr Dongsheng Li and Ms Susie Li to be outweighed by the prejudice to Mr Luo if I do not grant the leave today.

13    These principles suggest that I should grant leave. Mr D’Souza submitted that the applicant had delayed in bringing the application for leave. It is not quite clear to me what Ms Zhai’s interests are in opposing an application which, on her case, does not affect her but I will pass over that point in the interests of brevity.

14    It seems to me that if Mr Luo’s representatives had got their procedural house in order they would most likely have applied for an urgent freezing order from me in early November 2014 and would have sought an injunction in the United Kingdom not very long thereafter. There has therefore been delay. Delay is a sufficient reason in itself to refuse an application for an interlocutory injunction even without the demonstration of prejudice to any other party. Further, there is in fact the prejudice to Mr Dongsheng Li and Ms Susie Li mentioned above, that is, an inability to appeal this decision because of that delay. However, for the reasons I have given I regard that prejudice as minor given their ability to make parallel submissions in the English proceedings.

15    The matters which have become known since the English police became involved put a different aspect on the present application. What appears to be happening is perhaps unusually clear and, for myself, I would not refuse an injunction in the present circumstances on the basis of the delay which has occurred. It follows that I do not see that as a reason for not granting leave.

16    There will be a grant of leave.

Associate:

Dated:    9 January 2015